223
the health of the woman or her unborn
child) in serious jeopardy,
‘‘(ii) serious impairment to bodily
functions, or
‘‘(iii) serious dysfunction of any bodily
organ or part.
‘‘(4) DETERMINATION
OF
HOSPITAL
LENGTH
OF STAY.—
‘‘(A) IN GENERAL.—A MedicarePlus orga-
nization shall cover the length of an inpatient
hospital stay under this part as determined by
the attending physician (or other attending
health care provider to the extent permitted
under State law) in consultation with the pa-
tient to be medically appropriate.
‘‘(B) CONSTRUCTION.—Nothing in this
paragraph shall be construed—
‘‘(i) as requiring the provision of inpa-
tient coverage if the attending physician
(or other attending health care provider to
the extent permitted under State law) and
patient determine that a shorter period of
hospital stay is medically appropriate, or
‘‘(ii) as affecting the application of
deductibles and coinsurance.
224
‘‘(e) QUALITY ASSURANCE PROGRAM.—
‘‘(1) IN GENERAL.—Each MedicarePlus organi-
zation must have arrangements, consistent with any
regulation, for an ongoing quality assurance pro-
gram for health care services it provides to individ-
uals enrolled with MedicarePlus plans of the organi-
zation.
‘‘(2) ELEMENTS OF PROGRAM.—The quality as-
surance program shall—
‘‘(A) stress health outcomes and provide
for the collection, analysis, and reporting of
data (in accordance with a quality measurement
system that the Secretary recognizes) that will
permit measurement of outcomes and other in-
dices of the quality of MedicarePlus plans and
organizations;
‘‘(B) provide for the establishment of writ-
ten protocols for utilization review, based on
current standards of medical practice;
‘‘(C) provide review by physicians and
other health care professionals of the process
followed in the provision of such health care
services;
225
‘‘(D) monitor and evaluate high volume
and high risk services and the care of acute and
chronic conditions;
‘‘(E) evaluate the continuity and coordina-
tion of care that enrollees receive;
‘‘(F) have mechanisms to detect both un-
derutilization and overutilization of services;
‘‘(G) after identifying areas for improve-
ment, establish or alter practice parameters;
‘‘(H) take action to improve quality and
assesses the effectiveness of such action
through systematic followup;
‘‘(I) make available information on quality
and outcomes measures to facilitate beneficiary
comparison and choice of health coverage op-
tions (in such form and on such quality and
outcomes measures as the Secretary determines
to be appropriate);
‘‘(J) be evaluated on an ongoing basis as
to its effectiveness;
‘‘(K) include measures of consumer satis-
faction; and
‘‘(L) provide the Secretary with such ac-
cess to information collected as may be appro-
226
priate to monitor and ensure the quality of care
provided under this part.
‘‘(3) EXTERNAL REVIEW.—Each MedicarePlus
organization shall, for each MedicarePlus plan it op-
erates, have an agreement with an independent qual-
ity review and improvement organization approved
by the Secretary to perform functions of the type de-
scribed in sections 1154(a)(4)(B) and 1154(a)(14)
with respect to services furnished by MedicarePlus
plans for which payment is made under this title.
‘‘(4) TREATMENT
OF
ACCREDITATION.—The
Secretary shall provide that a MedicarePlus organi-
zation is deemed to meet requirements of para-
graphs (1) through (3) of this subsection and sub-
section (h) (relating to confidentiality and accuracy
of enrollee records) if the organization is accredited
(and periodically reaccredited) by a private organiza-
tion under a process that the Secretary has deter-
mined assures that the organization, as a condition
of accreditation, applies and enforces standards with
respect to the requirements involved that are no less
stringent than the standards established under sec-
tion 1856 to carry out the respective requirements.
‘‘(f) COVERAGE DETERMINATIONS.—
227
‘‘(1) DECISIONS ON NONEMERGENCY CARE.—A
MedicarePlus organization shall make determina-
tions regarding authorization requests for non-
emergency care on a timely basis, depending on the
urgency of the situation. The organization shall pro-
vide notice of any coverage denial, which notice shall
include a statement of the reasons for the denial and
a description of the grievance and appeals processes
available.
‘‘(2) RECONSIDERATIONS.—
‘‘(A) IN GENERAL.—Subject to subsection
(g)(4), a reconsideration of a determination of
an organization denying coverage shall be made
within 30 days of the date of receipt of medical
information, but not later than 60 days after
the date of the determination.
‘‘(B) PHYSICIAN
DECISION
ON
CERTAIN
RECONSIDERATIONS.—A reconsideration relat-
ing to a determination to deny coverage based
on a lack of medical necessity shall be made
only by a physician with appropriate expertise
in the field of medicine which necessitates treat-
ment who is other than a physician involved in
the initial determination.
‘‘(g) GRIEVANCES AND APPEALS.—
228
‘‘(1) 
GRIEVANCE
MECHANISM.—Each
MedicarePlus organization must provide meaningful
procedures for hearing and resolving grievances be-
tween the organization (including any entity or indi-
vidual through which the organization provides
health 
care 
services) 
and 
enrollees 
with
MedicarePlus plans of the organization under this
part.
‘‘(2) 
APPEALS.—An 
enrollee 
with 
a
MedicarePlus plan of a MedicarePlus organization
under this part who is dissatisfied by reason of the
enrollee’s failure to receive any health service to
which the enrollee believes the enrollee is entitled
and at no greater charge than the enrollee believes
the enrollee is required to pay is entitled, if the
amount in controversy is $100 or more, to a hearing
before the Secretary to the same extent as is pro-
vided in section 205(b), and in any such hearing the
Secretary shall make the organization a party. If the
amount in controversy is $1,000 or more, the indi-
vidual or organization shall, upon notifying the other
party, be entitled to judicial review of the Sec-
retary’s final decision as provided in section 205(g),
and both the individual and the organization shall be
entitled to be parties to that judicial review. In ap-
229
plying sections 205(b) and 205(g) as provided in
this paragraph, and in applying section 205(l) there-
to, any reference therein to the Commissioner of So-
cial Security or the Social Security Administration
shall be considered a reference to the Secretary or
the Department of Health and Human Services, re-
spectively.
‘‘(3) INDEPENDENT REVIEW OF COVERAGE DE-
NIALS.—The Secretary shall contract with an inde-
pendent, outside entity to review and resolve in a
timely manner reconsiderations that affirm denial of
coverage.
‘‘(4) EXPEDITED
DETERMINATIONS
AND
RE-
CONSIDERATIONS.—
‘‘(A) RECEIPT OF REQUESTS.—An enrollee
in a MedicarePlus plan may request, either in
writing or orally, an expedited determination or
reconsideration by the MedicarePlus organiza-
tion regarding a matter described in paragraph
(2). The organization shall also permit the ac-
ceptance of such requests by physicians.
‘‘(B) ORGANIZATION PROCEDURES.—
‘‘(i) IN GENERAL.—The MedicarePlus
organization shall maintain procedures for
expediting organization determinations and
230
reconsiderations when, upon request of an
enrollee, the organization determines that
the application of normal time frames for
making a determination (or a reconsider-
ation involving a determination) could seri-
ously jeopardize the life or health of the
enrollee or the enrollee’s ability to regain
maximum function.
‘‘(ii) TIMELY RESPONSE.—In an ur-
gent case described in clause (i), the orga-
nization shall notify the enrollee (and the
physician involved, as appropriate) of the
determination (or determination on the re-
consideration) as expeditiously as the en-
rollee’s health condition requires, but not
later than 72 hours (or 24 hours in the
case of a reconsideration) of the time of re-
ceipt of the request for the determination
or reconsideration (or receipt of the infor-
mation necessary to make the determina-
tion or reconsideration), or such longer pe-
riod as the Secretary may permit in speci-
fied cases.
‘‘(iii) 
SECRETARIAL
REPORT.—The
Secretary shall annually report publicly on
231
the number and disposition of denials and
appeals within each MedicarePlus organi-
zation, and those reviewed and resolved by
the independent entities under this sub-
section.
‘‘(h) CONFIDENTIALITY
AND ACCURACY
OF EN-
ROLLEE
RECORDS.—Each MedicarePlus organization
shall establish procedures—
‘‘(1) to safeguard the privacy of individually
identifiable enrollee information,
‘‘(2) to maintain accurate and timely medical
records and other health information for enrollees,
and
‘‘(3) to assure timely access of enrollees to their
medical information.
‘‘(i) INFORMATION ON ADVANCE DIRECTIVES.—Each
MedicarePlus organization shall meet the requirement of
section 1866(f) (relating to maintaining written policies
and procedures respecting advance directives).
‘‘(j) RULES
REGARDING
PHYSICIAN
PARTICIPA-
TION.—
‘‘(1) PROCEDURES.—Each MedicarePlus orga-
nization shall establish reasonable procedures relat-
ing to the participation (under an agreement be-
tween a physician and the organization) of physi-
232
cians under MedicarePlus plans offered by the orga-
nization under this part. Such procedures shall in-
clude—
‘‘(A) providing notice of the rules regard-
ing participation,
‘‘(B) providing written notice of participa-
tion decisions that are adverse to physicians,
and
‘‘(C) providing a process within the organi-
zation for appealing such adverse decisions, in-
cluding the presentation of information and
views of the physician regarding such decision.
‘‘(2) CONSULTATION IN MEDICAL POLICIES.—A
MedicarePlus organization shall consult with physi-
cians who have entered into participation agree-
ments with the organization regarding the organiza-
tion’s medical policy, quality, and medical manage-
ment procedures.
‘‘(3) PROHIBITING INTERFERENCE WITH PRO-
VIDER ADVICE TO ENROLLEES.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graphs (B) and (C), a MedicarePlus organiza-
tion (in relation to an individual enrolled under
a MedicarePlus plan offered by the organization
under this part) shall not prohibit or otherwise
233
restrict a covered health care professional (as
defined in subparagraph (D)) from advising
such an individual who is a patient of the pro-
fessional about the health status of the individ-
ual or medical care or treatment for the individ-
ual’s condition or disease, regardless of whether
benefits for such care or treatment are provided
under the plan, if the professional is acting
within the lawful scope of practice.
‘‘(B) 
CONSCIENCE
PROTECTION.—Sub-
paragraph (A) shall not be construed as requir-
ing a MedicarePlus plan to provide, reimburse
for, or provide coverage of a counseling or re-
ferral service if the MedicarePlus organization
offering the plan—
‘‘(i) objects to the provision of such
service on moral or religious grounds; and
‘‘(ii) in the manner and through the
written 
instrumentalities 
such
MedicarePlus organization deems appro-
priate, makes available information on its
policies regarding such service to prospec-
tive enrollees before or during enrollment
and to enrollees within 90 days after the
date that the organization or plan adopts
234
a change in policy regarding such a coun-
seling or referral service.
‘‘(C) CONSTRUCTION.—Nothing in sub-
paragraph (B) shall be construed to affect dis-
closure requirements under State law or under
the Employee Retirement Income Security Act
of 1974.
‘‘(D) HEALTH
CARE
PROFESSIONAL
DE-
FINED.—For purposes of this paragraph, the
term ‘health care professional’ means a physi-
cian (as defined in section 1861(r)) or other
health care professional if coverage for the pro-
fessional’s services is provided under the
MedicarePlus plan for the services of the pro-
fessional. Such term includes a podiatrist, op-
tometrist, chiropractor, psychologist, dentist,
physician assistant, physical or occupational
therapist and therapy assistant, speech-lan-
guage pathologist, audiologist, registered or li-
censed practical nurse (including nurse practi-
tioner, clinical nurse specialist, certified reg-
istered nurse anesthetist, and certified nurse-
midwife), licensed certified social worker, reg-
istered respiratory therapist, and certified res-
piratory therapy technician.
235
‘‘(4) LIMITATIONS ON HEALTH CARE PROVIDER
INCENTIVE PLANS.—
‘‘(A) IN GENERAL.—No MedicarePlus or-
ganization may operate any health care provider
incentive plan (as defined in subparagraph (B))
unless the following requirements are met:
‘‘(i) No specific payment is made di-
rectly or indirectly under the plan to a
health care provider or health care pro-
vider group as an inducement to reduce or
limit medically necessary services provided
with respect to a specific individual en-
rolled with the organization.
‘‘(ii) If the plan places a health care
provider or health care provider group at
substantial financial risk (as determined by
the Secretary) for services not provided by
the health care provider or health care pro-
vider group, the organization—
‘‘(I) provides stop-loss protection
for the health care provider or group
that is adequate and appropriate,
based on standards developed by the
Secretary that take into account the
number of health care providers
236
placed at such substantial financial
risk in the group or under the plan
and the number of individuals enrolled
with the organization who receive
services from the health care provider
or group, and
‘‘(II) conducts periodic surveys of
both individuals enrolled and individ-
uals previously enrolled with the orga-
nization to determine the degree of
access of such individuals to services
provided by the organization and sat-
isfaction with the quality of such serv-
ices.
‘‘(iii) The organization provides the
Secretary with descriptive information re-
garding the plan, sufficient to permit the
Secretary to determine whether the plan is
in compliance with the requirements of this
subparagraph.
‘‘(B) HEALTH CARE PROVIDER INCENTIVE
PLAN DEFINED.—In this paragraph, the term
‘health care provider incentive plan’ means any
compensation 
arrangement 
between 
a
MedicarePlus organization and a health care
237
provider or health care provider group that may
directly or indirectly have the effect of reducing
or limiting services provided with respect to in-
dividuals enrolled with the organization under
this part.
‘‘(C) 
HEALTH
CARE
PROVIDER
DE-
FINED.—For the purposes of this paragraph,
the term ‘health care provider’ has the meaning
given the term ‘health care professional’ in
paragraph (3)(D).
‘‘(5) LIMITATION ON PROVIDER INDEMNIFICA-
TION.—A MedicarePlus organization may not pro-
vide (directly or indirectly) for a provider (or group
of providers) to indemnify the organization against
any liability resulting from a civil action brought for
any 
damage 
caused 
to 
an 
enrollee 
with 
a
MedicarePlus plan of the organization under this
part by the organization’s denial of medically nec-
essary care.
‘‘(6) LIMITATION ON NON-COMPETE CLAUSE.—
A MedicarePlus organization may not (directly or in-
directly) seek to enforce any contractual provision
which prevents a provider whose contractual obliga-
tions to the organization for the provision of services
through the organization have ended from joining or
238
forming any competing MedicarePlus organization
that is a provider-sponsored organization in the
same area.
‘‘(k) TREATMENT OF SERVICES FURNISHED BY CER-
TAIN PROVIDERS.—A physician or other entity (other
than a provider of services) that does not have a contract
establishing payment amounts for services furnished to an
individual enrolled under this part with a MedicarePlus
organization shall accept as payment in full for covered
services under this title that are furnished to such an indi-
vidual the amounts that the physician or other entity could
collect if the individual were not so enrolled. Any penalty
or other provision of law that applies to such a payment
with respect to an individual entitled to benefits under this
title (but not enrolled with a MedicarePlus organization
under this part) also applies with respect to an individual
so enrolled.
‘‘(l) DISCLOSURE OF USE OF DSH AND TEACHING
HOSPITALS.—Each MedicarePlus organization shall pro-
vide the Secretary with information on—
‘‘(1) the extent to which the organization pro-
vides inpatient and outpatient hospital benefits
under this part—
‘‘(A) through the use of hospitals that are
eligible for additional payments under section
239
1886(d)(5)(F)(i) (relating to so-called DSH
hospitals), or
‘‘(B) through the use of teaching hospitals
that receive payments under section 1886(h);
and
‘‘(2) the extent to which differences between
payment rates to different hospitals reflect the dis-
proportionate share percentage of low-income pa-
tients and the presence of medical residency training
programs in those hospitals.
‘‘(m) OUT-OF-NETWORK ACCESS.—If an organiza-
tion offers to members enrolled under this section one plan
which provides for coverage of services covered under
parts A and B primarily through providers and other per-
sons who are members of a network of providers and other
persons who have entered into a contract with the organi-
zation to provide such services, nothing in this section
shall be construed as preventing the organization from of-
fering such members (at the time of enrollment) another
plan which provides for coverage of such items which are
not furnished through such network providers.
‘‘(n) NON-PREEMPTION OF STATE LAW.—A State
may establish or enforce requirements with respect to ben-
eficiary protections in this section, but only if such re-
240
quirements are more stringent than the requirements es-
tablished under this section.
‘‘(o) NONDISCRIMINATION IN SELECTION OF NET-
WORK HEALTH PROFESSIONALS.—
‘‘(1) IN GENERAL.—A MedicarePlus organiza-
tion offering a MedicarePlus plan offering network
coverage shall not discriminate in selecting the mem-
bers of its health professional network (or in estab-
lishing the terms and conditions for membership in
such network) on the basis of the race, national ori-
gin, gender, age, or disability (other than a disability
that impairs the ability of an individual to provide
health care services or that may threaten the health
of enrollees) of the health professional.
‘‘(2) APPROPRIATE
RANGE
OF
SERVICES.—A
MedicarePlus organization shall not deny any health
care professionals, based solely on the license or cer-
tification as applicable under State law, the ability
to participate in providing covered health care serv-
ices, or be reimbursed or indemnified by a network
plan for providing such services under this part.
‘‘(2) DEFINITIONS.—For purposes of this sub-
section:
‘‘(A) 
NETWORK.—The 
term 
‘network’
means, with respect to a MedicarePlus organi-
241
zation offering a MedicarePlus plan, the partici-
pating 
health 
professionals 
and 
providers
through whom the organization provides health
care items and services to enrollees.
‘‘(B) NETWORK
COVERAGE.—The term
‘network coverage’ means a MedicarePlus plan
offered by a MedicarePlus organization that
provides or arranges for the provision of health
care items and services to enrollees through
participating health professionals and providers.
‘‘(C) PARTICIPATING.—The term ‘partici-
pating’ means, with respect to a health profes-
sional or provider, a health professional or pro-
vider that provides health care items and serv-
ices to enrollees under network coverage under
an agreement with the MedicarePlus organiza-
tion offering the coverage.
‘‘(p) SPECIAL RULE FOR UNRESTRICTED FEE-FOR-
SERVICE MSA PLANS.—Subsections (j)(1) and (k) shall
not apply to a MedicarePlus organization with respect to
an MSA plan it offers if the plan does not limit the provid-
ers through whom benefits may be obtained under the
plan.
‘‘PAYMENTS TO MEDICAREPLUS ORGANIZATIONS
‘‘SEC. 1853. (a) PAYMENTS TO ORGANIZATIONS.—
‘‘(1) MONTHLY PAYMENTS.—
242
‘‘(A) IN
GENERAL.—Under a contract
under section 1857 and subject to subsections
(e) and (f), the Secretary shall make monthly
payments under this section in advance to each
MedicarePlus organization, with respect to cov-
erage of an individual under this part in a
MedicarePlus payment area for a month, in an
amount 
equal 
to 
1⁄12
of 
the 
annual
MedicarePlus capitation rate (as calculated
under subsection (c)) with respect to that indi-
vidual for that area, adjusted for such risk fac-
tors as age, disability status, gender, institu-
tional status, and such other factors as the Sec-
retary determines to be appropriate, so as to
ensure actuarial equivalence. The Secretary
may add to, modify, or substitute for such fac-
tors, if such changes will improve the deter-
mination of actuarial equivalence.
‘‘(B) SPECIAL
RULE
FOR
END-STAGE
RENAL DISEASE.—The Secretary shall establish
separate rates of payment to a MedicarePlus
organization with respect to classes of individ-
uals determined to have end-stage renal disease
and enrolled in a MedicarePlus plan of the or-
ganization. Such rates of payment shall be ac-
243
tuarially equivalent to rates paid to other en-
rollees in the MedicarePlus payment area (or
such other area as specified by the Secretary).
In accordance with regulations, the Secretary
shall provide for the application of the seventh
sentence of section 1881(b)(7) to payments
under this section covering the provision of
renal dialysis treatment in the same manner as
such sentence applies to composite rate pay-
ments described in such sentence.
‘‘(2) ADJUSTMENT
TO
REFLECT
NUMBER
OF
ENROLLEES.—
‘‘(A) IN GENERAL.—The amount of pay-
ment under this subsection may be retroactively
adjusted to take into account any difference be-
tween the actual number of individuals enrolled
with an organization under this part and the
number of such individuals estimated to be so
enrolled in determining the amount of the ad-
vance payment.
‘‘(B) SPECIAL
RULE
FOR
CERTAIN
EN-
ROLLEES.—
‘‘(i) IN GENERAL.—Subject to clause
(ii), the Secretary may make retroactive
adjustments under subparagraph (A) to
244
take into account individuals enrolled dur-
ing the period beginning on the date on
which 
the 
individual 
enrolls 
with 
a
MedicarePlus organization under a plan
operated, sponsored, or contributed to by
the individual’s employer or former em-
ployer (or the employer or former employer
of the individual’s spouse) and ending on
the date on which the individual is enrolled
in the organization under this part, except
that for purposes of making such retro-
active adjustments under this subpara-
graph, such period may not exceed 90
days.
‘‘(ii) 
EXCEPTION.—No 
adjustment
may be made under clause (i) with respect
to any individual who does not certify that
the organization provided the individual
with the information required to be dis-
closed under section 1852(c) at the time
the individual enrolled with the organiza-
tion.
‘‘(3) ESTABLISHMENT
OF
RISK
ADJUSTMENT
FACTORS.—
245
‘‘(A) REPORT.—The Secretary shall de-
velop, and submit to Congress by not later than
October 1, 1999, a report on a method of risk
adjustment of payment rates under this section
that accounts for variations in per capita costs
based on health status. Such report shall in-
clude an evaluation of such method by an out-
side, independent actuary of the actuarial
soundness of the proposal.
‘‘(B) DATA
COLLECTION.—In order to
carry out this paragraph, the Secretary shall re-
quire MedicarePlus organizations (and eligible
organizations with risk-sharing contracts under
section 1876) to submit, for periods beginning
on or after January 1, 1998, data regarding in-
patient hospital services and other services and
other information the Secretary deems nec-
essary.
‘‘(C) 
INITIAL
IMPLEMENTATION.—The
Secretary shall first provide for implementation
of a risk adjustment methodology that accounts
for variations in per capita costs based on
health status and other demographic factors for
payments by no later than January 1, 2000.
246
‘‘(b) 
ANNUAL
ANNOUNCEMENT
OF
PAYMENT
RATES.—
‘‘(1) ANNUAL ANNOUNCEMENT.—The Secretary
shall annually determine, and shall announce (in a
manner intended to provide notice to interested par-
ties) not later than August 1 before the calendar
year concerned—
‘‘(A) the annual MedicarePlus capitation
rate for each MedicarePlus payment area for
the year, and
‘‘(B) the risk and other factors to be used
in adjusting such rates under subsection
(a)(1)(A) for payments for months in that year.
‘‘(2) ADVANCE
NOTICE
OF
METHODOLOGICAL
CHANGES.—At least 45 days before making the an-
nouncement under paragraph (1) for a year, the
Secretary shall provide for notice to MedicarePlus
organizations of proposed changes to be made in the
methodology from the methodology and assumptions
used in the previous announcement and shall provide
such organizations an opportunity to comment on
such proposed changes.
‘‘(3) EXPLANATION OF ASSUMPTIONS.—In each
announcement made under paragraph (1), the Sec-
retary shall include an explanation of the assump-
247
tions and changes in methodology used in the an-
nouncement in sufficient detail so that MedicarePlus
organizations 
can 
compute 
monthly 
adjusted
MedicarePlus capitation rates for individuals in each
MedicarePlus payment area which is in whole or in
part within the service area of such an organization.
‘‘(c) CALCULATION
OF
ANNUAL
MEDICAREPLUS
CAPITATION RATES.—
‘‘(1) IN GENERAL.—For purposes of this part,
each annual MedicarePlus capitation rate, for a
MedicarePlus payment area for a contract year con-
sisting of a calendar year, is equal to the largest of
the amounts specified in the following subpara-
graphs (A), (B), or (C):
‘‘(A) BLENDED
CAPITATION
RATE.—The
sum of—
‘‘(i) area-specific percentage for the
year (as specified under paragraph (2) for
the year) of the annual area-specific
MedicarePlus capitation rate for the year
for the MedicarePlus payment area, as de-
termined under paragraph (3), and
‘‘(ii) national percentage (as specified
under paragraph (2) for the year) of the
input-price-adjusted 
annual 
national
248
MedicarePlus capitation rate for the year,
as determined under paragraph (4),
multiplied by the payment adjustment factors
described in subparagraphs (A) and (B) of
paragraph (5).
‘‘(B) MINIMUM
AMOUNT.—12 multiplied
by the following amount:
‘‘(i) For 1998, $350 (but not to ex-
ceed, in the case of an area outside the 50
States and the District of Columbia, 150
percent of the annual per capita rate of
payment for 1997 determined under sec-
tion 1876(a)(1)(C) for the area).
‘‘(ii) For a succeeding year, the mini-
mum amount specified in this clause (or
clause (i)) for the preceding year increased
by the national per capita MedicarePlus
growth percentage, specified under para-
graph (6) for that succeeding year.
‘‘(C) MINIMUM PERCENTAGE INCREASE.—
‘‘(i) For 1998, the annual per capita
rate of payment for 1997 determined
under 
section 
1876(a)(1)(C) 
for 
the
MedicarePlus payment area.
249
‘‘(ii) For 1999 and 2000, 101 percent
of the annual MedicarePlus capitation rate
under this paragraph for the area for the
previous year.
‘‘(iii) For a subsequent year, 102 per-
cent of the annual MedicarePlus capitation
rate under this paragraph for the area for
the previous year.
‘‘(2) AREA-SPECIFIC AND NATIONAL PERCENT-
AGES.—For purposes of paragraph (1)(A)—
‘‘(A) for 1998, the ‘area-specific percent-
age’ is 90 percent and the ‘national percentage’
is 10 percent,
‘‘(B) for 1999, the ‘area-specific percent-
age’ is 85 percent and the ‘national percentage’
is 15 percent,
‘‘(C) for 2000, the ‘area-specific percent-
age’ is 80 percent and the ‘national percentage’
is 20 percent,
‘‘(D) for 2001, the ‘area-specific percent-
age’ is 75 percent and the ‘national percentage’
is 25 percent, and
‘‘(E) for a year after 2001, the ‘area-spe-
cific percentage’ is 70 percent and the ‘national
percentage’ is 30 percent.
250
‘‘(3) ANNUAL
AREA-SPECIFIC
MEDICAREPLUS
CAPITATION RATE.—
‘‘(A) IN GENERAL.—For purposes of para-
graph (1)(A), subject to subparagraph (B), the
annual area-specific MedicarePlus capitation
rate for a MedicarePlus payment area—
‘‘(i) for 1998 is the annual per capita
rate of payment for 1997 determined
under section 1876(a)(1)(C) for the area,
increased by the national per capita
MedicarePlus growth percentage for 1998
(as defined in paragraph (6)); or
‘‘(ii) for a subsequent year is the an-
nual area-specific MedicarePlus capitation
rate for the previous year determined
under this paragraph for the area, in-
creased 
by 
the 
national 
per 
capita
MedicarePlus growth percentage for such
subsequent year.
‘‘(B) REMOVAL OF MEDICAL EDUCATION
AND DISPROPORTIONATE SHARE HOSPITAL PAY-
MENTS FROM CALCULATION OF ADJUSTED AV-
ERAGE PER CAPITA COST.—
‘‘(i) IN
GENERAL.—In determining
the area-specific MedicarePlus capitation
251
rate under subparagraph (A), for a year
(beginning with 1998), the annual per cap-
ita rate of payment for 1997 determined
under section 1876(a)(1)(C) shall be ad-
justed to exclude from the rate the applica-
ble percent (specified in clause (ii)) of the
payment adjustments described in subpara-
graph (C).
‘‘(ii) 
APPLICABLE
PERCENT.—For
purposes of clause (i), the applicable per-
cent for—
‘‘(I) 1998 is 20 percent,
‘‘(II) 1999 is 40 percent,
‘‘(III) 2000 is 60 percent,
‘‘(IV) 2001 is 80 percent, and
‘‘(V) a succeeding year is 100
percent.
‘‘(C) PAYMENT
ADJUSTMENT.—The pay-
ment adjustments described in this subpara-
graph are payment adjustments which the Sec-
retary estimates were payable during 1997—
‘‘(i) under section 1886(d)(5)(F) for
hospitals serving a disproportionate share
of low-income patients,
252
‘‘(ii) for the indirect costs of medical
education under section 1886(d)(5)(B),
and
‘‘(iii) for direct graduate medical edu-
cation costs under section 1886(h),
multiplied by a ratio (estimated by the Sec-
retary) of total payments under subsection (h)
and section 1858 in 1998 to payments under
such subsection and payments under such sec-
tion in such year for hospitals not reimbursed
under section 1814(b)(3).
‘‘(4) 
INPUT-PRICE-ADJUSTED
ANNUAL
NA-
TIONAL MEDICAREPLUS CAPITATION RATE.—
‘‘(A) IN GENERAL.—For purposes of para-
graph (1)(A), the input-price-adjusted annual
national MedicarePlus capitation rate for a
MedicarePlus payment area for a year is equal
to the sum, for all the types of medicare serv-
ices (as classified by the Secretary), of the
product (for each such type of service) of—
‘‘(i) the national standardized annual
MedicarePlus capitation rate (determined
under subparagraph (B)) for the year,
253
‘‘(ii) the proportion of such rate for
the year which is attributable to such type
of services, and
‘‘(iii) an index that reflects (for that
year and that type of services) the relative
input price of such services in the area
compared to the national average input
price of such services.
In applying clause (iii), the Secretary shall, sub-
ject to subparagraph (C), apply those indices
under this title that are used in applying (or
updating) national payment rates for specific
areas and localities.
‘‘(B) NATIONAL
STANDARDIZED
ANNUAL
MEDICAREPLUS
CAPITATION
RATE.—In sub-
paragraph (A)(i), the ‘national standardized an-
nual MedicarePlus capitation rate’ for a year is
equal to—
‘‘(i) the sum (for all MedicarePlus
payment areas) of the product of—
‘‘(I) 
the 
annual 
area-specific
MedicarePlus capitation rate for that
year for the area under paragraph
(3), and
254
‘‘(II) the average number of med-
icare beneficiaries residing in that
area in the year, multiplied by the av-
erage of the risk factor weights used
to adjust payments under subsection
(a)(1)(A) for such beneficiaries in
such area; divided by
‘‘(ii) the sum of the products de-
scribed in clause (i)(II) for all areas for
that year.
‘‘(C) SPECIAL RULES FOR 1998.—In apply-
ing this paragraph for 1998—
‘‘(i) medicare services shall be divided
into 2 types of services: part A services
and part B services;
‘‘(ii) the proportions described in sub-
paragraph (A)(ii)—
‘‘(I) for part A services shall be
the ratio (expressed as a percentage)
of the national average annual per
capita rate of payment for part A for
1997 to the total national average an-
nual per capita rate of payment for
parts A and B for 1997, and
255
‘‘(II) for part B services shall be
100 percent minus the ratio described
in subclause (I);
‘‘(iii) for part A services, 70 percent
of payments attributable to such services
shall be adjusted by the index used under
section 1886(d)(3)(E) to adjust payment
rates for relative hospital wage levels for
hospitals located in the payment area in-
volved;
‘‘(iv) for part B services—
‘‘(I) 66 percent of payments at-
tributable to such services shall be ad-
justed by the index of the geographic
area factors under section 1848(e)
used to adjust payment rates for phy-
sicians’ services furnished in the pay-
ment area, and
‘‘(II) of the remaining 34 percent
of the amount of such payments, 40
percent shall be adjusted by the index
described in clause (iii); and
‘‘(v) the index values shall be com-
puted based only on the beneficiary popu-
lation who are 65 years of age or older and
256
who are not determined to have end stage
renal disease.
The Secretary may continue to apply the rules
described in this subparagraph (or similar
rules) for 1999.
‘‘(5) PAYMENT
ADJUSTMENT
BUDGET
NEU-
TRALITY
FACTORS.—For purposes of paragraph
(1)(A)—
‘‘(A) BLENDED RATE PAYMENT ADJUST-
MENT FACTOR.—For each year, the Secretary
shall compute a blended rate payment adjust-
ment factor such that, not taking into account
subparagraphs (B) and (C) of paragraph (1)
and the application of the payment adjustment
factor described in subparagraph (B) but tak-
ing into account paragraph (7), the aggregate
of the payments that would be made under this
part is equal to the aggregate payments that
would have been made under this part (not tak-
ing into account such subparagraphs and such
other adjustment factor) if the area-specific
percentage under paragraph (1) for the year
had been 100 percent and the national percent-
age had been 0 percent.
257
‘‘(B) FLOOR-AND-MINIMUM-UPDATE
PAY-
MENT ADJUSTMENT FACTOR.—For each year,
the Secretary shall compute a floor-and-mini-
mum-update payment adjustment factor so
that, taking into account the application of the
blended rate payment adjustment factor under
subparagraph (A) and subparagraphs (B) and
(C) of paragraph (1) and the application of the
adjustment factor under this subparagraph, the
aggregate of the payments under this part shall
not exceed the aggregate payments that would
have been made under this part if subpara-
graphs (B) and (C) of paragraph (1) did not
apply and if the floor-and-minimum-update pay-
ment adjustment factor under this subpara-
graph was 1.
‘‘(6) NATIONAL
PER
CAPITA
MEDICAREPLUS
GROWTH PERCENTAGE DEFINED.—
‘‘(A) IN GENERAL.—In this part, the ‘na-
tional per capita MedicarePlus growth percent-
age’ for a year is the percentage determined by
the Secretary, by April 30th before the begin-
ning of the year involved, to reflect the Sec-
retary’s estimate of the projected per capita
rate of growth in expenditures under this title
258
for an individual entitled to benefits under part
A and enrolled under part B, reduced by the
number of percentage points specified in sub-
paragraph (B) for the year. Separate deter-
minations may be made for aged enrollees, dis-
abled enrollees, and enrollees with end-stage
renal disease. Such percentage shall include an
adjustment for over or under projection in the
growth percentage for previous years.
‘‘(B) ADJUSTMENT.—The number of per-
centage points specified in this subparagraph
is—
‘‘(i) for 1998, 0.5 percentage points,
‘‘(ii) for 1999, 0.5 percentage points,
‘‘(iii) for 2000, 0.5 percentage points,
‘‘(iv) for 2001, 0.5 percentage points,
‘‘(v) for 2002, 0.5 percentage points,
and
‘‘(vi) for a year after 2002, 0 percent-
age points.
‘‘(7) TREATMENT
OF
AREAS
WITH
HIGHLY
VARIABLE
PAYMENT
RATES.—In the case of a
MedicarePlus payment area for which the annual
per capita rate of payment determined under section
1876(a)(1)(C) for 1997 varies by more than 20 per-
259
cent from such rate for 1996, for purposes of this
subsection the Secretary may substitute for such
rate for 1997 a rate that is more representative of
the costs of the enrollees in the area.
‘‘(d) MEDICAREPLUS PAYMENT AREA DEFINED.—
‘‘(1) IN GENERAL.—In this part, except as pro-
vided in paragraph (3), the term ‘MedicarePlus pay-
ment area’ means a county, or equivalent area speci-
fied by the Secretary.
‘‘(2) RULE FOR ESRD BENEFICIARIES.—In the
case of individuals who are determined to have end
stage renal disease, the MedicarePlus payment area
shall be a State or such other payment area as the
Secretary specifies.
‘‘(3) GEOGRAPHIC ADJUSTMENT.—
‘‘(A) IN GENERAL.—Upon written request
of the chief executive officer of a State for a
contract year (beginning after 1998) made at
least 7 months before the beginning of the year,
the Secretary shall make a geographic adjust-
ment to a MedicarePlus payment area in the
State otherwise determined under paragraph
(1)—
‘‘(i) 
to 
a 
single 
statewide
MedicarePlus payment area,
260
‘‘(ii) to the metropolitan based system
described in subparagraph (C), or
‘‘(iii) to consolidating into a single
MedicarePlus payment area noncontiguous
counties (or equivalent areas described in
paragraph (1)) within a State.
Such adjustment shall be effective for payments
for months beginning with January of the year
following the year in which the request is re-
ceived.
‘‘(B) 
BUDGET
NEUTRALITY
ADJUST-
MENT.—In the case of a State requesting an
adjustment under this paragraph, the Secretary
shall adjust the payment rates otherwise estab-
lished under this section for MedicarePlus pay-
ment areas in the State in a manner so that the
aggregate of the payments under this section in
the State shall not exceed the aggregate pay-
ments that would have been made under this
section for MedicarePlus payment areas in the
State in the absence of the adjustment under
this paragraph.
‘‘(C) METROPOLITAN
BASED
SYSTEM.—
The metropolitan based system described in this
subparagraph is one in which—
261
‘‘(i) all the portions of each metropoli-
tan statistical area in the State or in the
case of a consolidated metropolitan statis-
tical area, all of the portions of each pri-
mary metropolitan statistical area within
the consolidated area within the State, are
treated as a single MedicarePlus payment
area, and
‘‘(ii) all areas in the State that do not
fall within a metropolitan statistical area
are treated as a single MedicarePlus pay-
ment area.
‘‘(D) AREAS.—In subparagraph (C), the
terms ‘metropolitan statistical area’, ‘consoli-
dated metropolitan statistical area’, and ‘pri-
mary metropolitan statistical area’ mean any
area designated as such by the Secretary of
Commerce.
‘‘(e) SPECIAL RULES FOR INDIVIDUALS ELECTING
MSA PLANS.—
‘‘(1) IN
GENERAL.—If the amount of the
monthly premium for an MSA plan for a
MedicarePlus payment area for a year is less than
1⁄12 of the annual MedicarePlus capitation rate ap-
plied under this section for the area and year in-
262
volved, the Secretary shall deposit an amount equal
to 100 percent of such difference in a MedicarePlus
MSA established (and, if applicable, designated) by
the individual under paragraph (2).
‘‘(2) ESTABLISHMENT
AND
DESIGNATION
OF
MEDICAREPLUS MEDICAL SAVINGS ACCOUNT AS RE-
QUIREMENT FOR PAYMENT OF CONTRIBUTION.—In
the case of an individual who has elected coverage
under an MSA plan, no payment shall be made
under paragraph (1) on behalf of an individual for
a month unless the individual—
‘‘(A) has established before the beginning
of the month (or by such other deadline as the
Secretary may specify) a MedicarePlus MSA
(as defined in section 138(b)(2) of the Internal
Revenue Code of 1986), and
‘‘(B) if the individual has established more
than one such MedicarePlus MSA, has des-
ignated one of such accounts as the individual’s
MedicarePlus MSA for purposes of this part.
Under rules under this section, such an individual
may change the designation of such account under
subparagraph (B) for purposes of this part.
‘‘(3) LUMP SUM DEPOSIT OF MEDICAL SAVINGS
ACCOUNT CONTRIBUTION.—In the case of an indi-
263
vidual electing an MSA plan effective beginning with
a month in a year, the amount of the contribution
to the MedicarePlus MSA on behalf of the individual
for that month and all successive months in the year
shall be deposited during that first month. In the
case of a termination of such an election as of a
month before the end of a year, the Secretary shall
provide for a procedure for the recovery of deposits
attributable to the remaining months in the year.
‘‘(f) PAYMENTS FROM TRUST FUND.—The payment
to a MedicarePlus organization under this section for indi-
viduals enrolled under this part with the organization and
payments to a MedicarePlus MSA under subsection (e)(1)
shall be made from the Federal Hospital Insurance Trust
Fund and the Federal Supplementary Medical Insurance
Trust Fund in such proportion as the Secretary deter-
mines reflects the relative weight that benefits under part
A and under part B represents of the actuarial value of
the total benefits under this title. Monthly payments oth-
erwise payable under this section for October 2001 shall
be paid on the last business day of September 2001.
‘‘(g) SPECIAL RULE FOR CERTAIN INPATIENT HOS-
PITAL STAYS.—In the case of an individual who is receiv-
ing inpatient hospital services from a subsection (d) hos-
264
pital (as defined in section 1886(d)(1)(B)) as of the effec-
tive date of the individual’s—
‘‘(1) election under this part of a MedicarePlus
plan offered by a MedicarePlus organization—
‘‘(A) payment for such services until the
date of the individual’s discharge shall be made
under this title through the MedicarePlus plan
or the medicare fee-for-service program option
described in section 1851(a)(1)(A) (as the case
may be) elected before the election with such
organization,
‘‘(B) the elected organization shall not be
financially responsible for payment for such
services until the date after the date of the indi-
vidual’s discharge, and
‘‘(C) the organization shall nonetheless be
paid the full amount otherwise payable to the
organization under this part; or
‘‘(2) termination of election with respect to a
MedicarePlus organization under this part—
‘‘(A) the organization shall be financially
responsible for payment for such services after
such date and until the date of the individual’s
discharge,
265
‘‘(B) payment for such services during the
stay shall not be made under section 1886(d) or
by any succeeding MedicarePlus organization,
and
‘‘(C) the terminated organization shall not
receive any payment with respect to the individ-
ual under this part during the period the indi-
vidual is not enrolled.
‘‘PREMIUMS
‘‘SEC. 1854. (a) SUBMISSION
AND CHARGING
OF
PREMIUMS.—
‘‘(1) IN GENERAL.—Subject to paragraph (3),
each MedicarePlus organization shall file with the
Secretary each year, in a form and manner and at
a time specified by the Secretary—
‘‘(A) the amount of the monthly premium
for coverage for services under section 1852(a)
under each MedicarePlus plan it offers under
this part in each MedicarePlus payment area
(as defined in section 1853(d)) in which the
plan is being offered; and
‘‘(B) the enrollment capacity in relation to
the plan in each such area.
‘‘(2) TERMINOLOGY.—In this part—
‘‘(A) the term ‘monthly premium’ means,
with respect to a MedicarePlus plan offered by
266
a MedicarePlus organization, the monthly pre-
mium filed under paragraph (1), not taking
into account the amount of any payment made
toward the premium under section 1853; and
‘‘(B) the term ‘net monthly premium’
means, with respect to such a plan and an indi-
vidual enrolled with the plan, the premium (as
defined in subparagraph (A)) for the plan re-
duced by the amount of payment made toward
such premium under section 1853.
‘‘(b) MONTHLY PREMIUM CHARGED.—The monthly
amount of the premium charged by a MedicarePlus orga-
nization 
for 
a 
MedicarePlus 
plan 
offered 
in 
a
MedicarePlus payment area to an individual under this
part shall be equal to the net monthly premium plus any
monthly premium charged in accordance with subsection
(e)(2) for supplemental benefits.
‘‘(c) UNIFORM PREMIUM.—The monthly premium
and monthly amount charged under subsection (b) of a
MedicarePlus organization under this part may not vary
among individuals who reside in the same MedicarePlus
payment area.
‘‘(d) TERMS AND CONDITIONS OF IMPOSING PRE-
MIUMS.—Each MedicarePlus organization shall permit the
payment of net monthly premiums on a monthly basis and
267
may terminate election of individuals for a MedicarePlus
plan for failure to make premium payments only in ac-
cordance with section 1851(g)(3)(B)(i). A MedicarePlus
organization is not authorized to provide for cash or other
monetary rebates as an inducement for enrollment or oth-
erwise.
‘‘(e) LIMITATION ON ENROLLEE COST-SHARING.—
‘‘(1) FOR BASIC AND ADDITIONAL BENEFITS.—
Except as provided in paragraph (2), in no event
may—
‘‘(A) the net monthly premium (multiplied
by 12) and the actuarial value of the
deductibles, coinsurance, and copayments appli-
cable on average to individuals enrolled under
this part with a MedicarePlus plan of an orga-
nization with respect to required benefits de-
scribed in section 1852(a)(1) and additional
benefits (if any) required under subsection
(f)(1) for a year, exceed
‘‘(B) the actuarial value of the deductibles,
coinsurance, and copayments that would be ap-
plicable on average to individuals entitled to
benefits under part A and enrolled under part
B if they were not members of a MedicarePlus
organization for the year.
268
‘‘(2) FOR
SUPPLEMENTAL
BENEFITS.—If the
MedicarePlus organization provides to its members
enrolled under this part supplemental benefits de-
scribed in section 1852(a)(3), the sum of the month-
ly premium rate (multiplied by 12) charged for such
supplemental benefits and the actuarial value of its
deductibles, coinsurance, and copayments charged
with respect to such benefits may not exceed the ad-
justed community rate for such benefits (as defined
in subsection (f)(4)).
‘‘(3) EXCEPTION FOR MSA PLANS.—Paragraphs
(1) and (2) do not apply to an MSA plan.
‘‘(4) DETERMINATION ON OTHER BASIS.—If the
Secretary determines that adequate data are not
available to determine the actuarial value under
paragraph (1)(A) or (2), the Secretary may deter-
mine such amount with respect to all individuals in
the MedicarePlus payment area, the State, or in the
United States, eligible to enroll in the MedicarePlus
plan involved under this part or on the basis of other
appropriate data.
‘‘(f) REQUIREMENT FOR ADDITIONAL BENEFITS.—
‘‘(1) REQUIREMENT.—
‘‘(A) IN
GENERAL.—Each MedicarePlus
organization (in relation to a MedicarePlus plan
269
it offers) shall provide that if there is an excess
amount (as defined in subparagraph (B)) for
the plan for a contract year, subject to the suc-
ceeding provisions of this subsection, the orga-
nization shall provide to individuals such addi-
tional benefits (as the organization may specify)
in a value which is at least equal to the ad-
justed excess amount (as defined in subpara-
graph (C)).
‘‘(B) EXCESS AMOUNT.—For purposes of
this paragraph, the ‘excess amount’, for an or-
ganization for a plan, is the amount (if any) by
which—
‘‘(i) the average of the capitation pay-
ments made to the organization under sec-
tion 1853 for the plan at the beginning of
contract year, exceeds
‘‘(ii) the actuarial value of the re-
quired 
benefits 
described 
in 
section
1852(a)(1) under the plan for individuals
under this part, as determined based upon
an adjusted community rate described in
paragraph (4) (as reduced for the actuarial
value of the coinsurance and deductibles
under parts A and B).
270
‘‘(C) ADJUSTED
EXCESS
AMOUNT.—For
purposes of this paragraph, the ‘adjusted excess
amount’, for an organization for a plan, is the
excess amount reduced to reflect any amount
withheld and reserved for the organization for
the year under paragraph (2).
‘‘(D) NO APPLICATION TO MSA PLANS.—
Subparagraph (A) shall not apply to an MSA
plan.
‘‘(E) UNIFORM APPLICATION.—This para-
graph shall be applied uniformly for all enroll-
ees for a plan in a MedicarePlus payment area.
‘‘(F) CONSTRUCTION.—Nothing in this
subsection shall be construed as preventing a
MedicarePlus 
organization 
from 
providing
health care benefits that are in addition to the
benefits otherwise required to be provided under
this paragraph and from imposing a premium
for such additional benefits.
‘‘(2) STABILIZATION
FUND.—A MedicarePlus
organization may provide that a part of the value of
an excess amount described in paragraph (1) be
withheld and reserved in the Federal Hospital Insur-
ance Trust Fund and in the Federal Supplementary
Medical Insurance Trust Fund (in such proportions
271
as the Secretary determines to be appropriate) by
the Secretary for subsequent annual contract peri-
ods, to the extent required to stabilize and prevent
undue fluctuations in the additional benefits offered
in those subsequent periods by the organization in
accordance with such paragraph. Any of such value
of the amount reserved which is not provided as ad-
ditional benefits described in paragraph (1)(A) to in-
dividuals electing the MedicarePlus plan of the orga-
nization in accordance with such paragraph prior to
the end of such periods, shall revert for the use of
such trust funds.
‘‘(3) DETERMINATION BASED ON INSUFFICIENT
DATA.—For purposes of this subsection, if the Sec-
retary finds that there is insufficient enrollment ex-
perience (including no enrollment experience in the
case of a provider-sponsored organization) to deter-
mine an average of the capitation payments to be
made under this part at the beginning of a contract
period, the Secretary may determine such an aver-
age based on the enrollment experience of other con-
tracts entered into under this part.
‘‘(4) ADJUSTED COMMUNITY RATE.—
‘‘(A) IN GENERAL.—For purposes of this
subsection, subject to subparagraph (B), the
272
term ‘adjusted community rate’ for a service or
services 
means, 
at 
the 
election 
of 
a
MedicarePlus organization, either—
‘‘(i) the rate of payment for that serv-
ice or services which the Secretary annu-
ally determines would apply to an individ-
ual electing a MedicarePlus plan under
this part if the rate of payment were deter-
mined under a ‘community rating system’
(as defined in section 1302(8) of the Pub-
lic Health Service Act, other than subpara-
graph (C)), or
‘‘(ii) such portion of the weighted ag-
gregate premium, which the Secretary an-
nually estimates would apply to such an in-
dividual, as the Secretary annually esti-
mates is attributable to that service or
services,
but adjusted for differences between the utiliza-
tion characteristics of the individuals electing
coverage under this part and the utilization
characteristics of the other enrollees with the
plan (or, if the Secretary finds that adequate
data are not available to adjust for those dif-
ferences, the differences between the utilization
273
characteristics of individuals selecting other
MedicarePlus coverage, or MedicarePlus eligible
individuals in the area, in the State, or in the
United States, eligible to elect MedicarePlus
coverage under this part and the utilization
characteristics of the rest of the population in
the area, in the State, or in the United States,
respectively).
‘‘(B) SPECIAL RULE FOR PROVIDER-SPON-
SORED
ORGANIZATIONS.—In the case of a
MedicarePlus organization that is a provider-
sponsored organization, the adjusted community
rate 
under 
subparagraph 
(A) 
for 
a
MedicarePlus plan of the organization may be
computed (in a manner specified by the Sec-
retary) using data in the general commercial
marketplace or (during a transition period)
based on the costs incurred by the organization
in providing such a plan.
‘‘(g) PERIODIC AUDITING.—The Secretary shall pro-
vide for the annual auditing of the financial records (in-
cluding data relating to medicare utilization, costs, and
computation of the adjusted community rate) of at least
one-third of the MedicarePlus organizations offering
MedicarePlus plans under this part. The Comptroller Gen-
274
eral shall monitoring auditing activities conducted under
this subsection.
‘‘(h) PROHIBITION OF STATE IMPOSITION OF PRE-
MIUM TAXES.—No State may impose a premium tax or
similar tax with respect to premiums on MedicarePlus
plans or the offering of such plans.
‘‘ORGANIZATIONAL AND FINANCIAL REQUIREMENTS FOR
MEDICAREPLUS
ORGANIZATIONS; 
PROVIDER-SPON-
SORED ORGANIZATIONS
‘‘SEC. 1855. (a) ORGANIZED AND LICENSED UNDER
STATE LAW.—
‘‘(1) IN GENERAL.—Subject to paragraphs (2)
and (3), a MedicarePlus organization shall be orga-
nized and licensed under State law as a risk-bearing
entity eligible to offer health insurance or health
benefits coverage in each State in which it offers a
MedicarePlus plan.
‘‘(2) SPECIAL EXCEPTION FOR PROVIDER-SPON-
SORED ORGANIZATIONS.—
‘‘(A) IN GENERAL.—In the case of a pro-
vider-sponsored organization that seeks to offer
a MedicarePlus plan in a State, the Secretary
shall waive the requirement of paragraph (1)
that the organization be licensed in that State
if—
275
‘‘(i) the organization files an applica-
tion for such waiver with the Secretary,
and
‘‘(ii) the Secretary determines, based
on the application and other evidence pre-
sented to the Secretary, that any of the
grounds for approval of the application de-
scribed in subparagraph (B), (C), or (D)
has been met.
‘‘(B) FAILURE TO ACT ON LICENSURE AP-
PLICATION ON A TIMELY BASIS.—A ground for
approval of such a waiver application is that the
State has failed to complete action on a licens-
ing application of the organization within 90
days of the date of the State’s receipt of the ap-
plication. No period before the date of the en-
actment of this section shall be included in de-
termining such 90-day period.
‘‘(C) DENIAL OF APPLICATION BASED ON
DISCRIMINATORY
TREATMENT.—A ground for
approval of such a waiver application is that the
State has denied such a licensing application
and—
‘‘(i) the State has imposed docu-
mentation or information requirements not
276
related to solvency requirements that are
not generally applicable to other entities
engaged in substantially similar business,
or
‘‘(ii) the standards or review process
imposed by the State as a condition of ap-
proval of the license imposes any material
requirements, procedures, or standards
(other than requirements and standards
relating to solvency) to such organizations
that are not generally applicable to other
entities engaged in substantially similar
business.
‘‘(D) DENIAL OF APPLICATION BASED ON
APPLICATION OF SOLVENCY REQUIREMENTS.—
A ground for approval of such a waiver applica-
tion is that the State has denied such a licens-
ing application based (in whole or in part) on
the organization’s failure to meet applicable sol-
vency requirements and—
‘‘(i) such requirements are not the
same as the solvency standards established
under section 1856(a); or
‘‘(ii) the State has imposed as a con-
dition of approval of the license any docu-
277
mentation or information requirements re-
lating to solvency or other material re-
quirements, procedures, or standards relat-
ing to solvency that are different from the
requirements, procedures, and standards
applied by the Secretary under subsection
(d)(2).
For purposes of this subparagraph, the term
‘solvency requirements’ means requirements re-
lating to solvency and other matters covered
under the standards established under section
1856(a).
‘‘(E) TREATMENT OF WAIVER.—Subject to
section 1852(m), in the case of a waiver grant-
ed under this paragraph for a provider-spon-
sored organization—
‘‘(i) the waiver shall be effective for a
36-month period, except it may be renewed
based on a subsequent application filed
during the last 6 months of such period,
‘‘(ii) the waiver is conditioned upon
the pendency of the licensure application
during the period the waiver is in effect,
and
278
‘‘(iii) any provisions of State law
which relate to the licensing of the organi-
zation and which prohibit the organization
from providing coverage pursuant to a con-
tract under this part shall be superseded.
Nothing in this subparagraph shall be con-
strued as limiting the number of times such a
waiver may be renewed. Nothing in clause (iii)
shall be construed as waiving any provision of
State law which relates to quality of care or
consumer protection (and does not relate to sol-
vency standards) and which is imposed on a
uniform basis and is generally applicable to
other entities engaged in substantially similar
business.
‘‘(F) PROMPT ACTION ON APPLICATION.—
The Secretary shall grant or deny such a waiver
application within 60 days after the date the
Secretary determines that a substantially com-
plete application has been filed. Nothing in this
section shall be construed as preventing an or-
ganization which has had such a waiver applica-
tion denied from submitting a subsequent waiv-
er application.
279
‘‘(3) EXCEPTION IF REQUIRED TO OFFER MORE
THAN MEDICAREPLUS PLANS.—Paragraph (1) shall
not apply to a MedicarePlus organization in a State
if the State requires the organization, as a condition
of licensure, to offer any product or plan other than
a MedicarePlus plan.
‘‘(4) LICENSURE DOES NOT SUBSTITUTE FOR
OR CONSTITUTE CERTIFICATION.—The fact that an
organization is licensed in accordance with para-
graph (1) does not deem the organization to meet
other requirements imposed under this part.
‘‘(b) PREPAID PAYMENT.—A MedicarePlus organiza-
tion shall be compensated (except for premiums,
deductibles, coinsurance, and copayments) for the provi-
sion of health care services to enrolled members under the
contract under this part by a payment which is paid on
a periodic basis without regard to the date the health care
services are provided and which is fixed without regard
to the frequency, extent, or kind of health care service ac-
tually provided to a member.
‘‘(c) ASSUMPTION OF FULL FINANCIAL RISK.—The
MedicarePlus organization shall assume full financial risk
on a prospective basis for the provision of the health care
services (except, at the election of the organization, hos-
280
pice care) for which benefits are required to be provided
under section 1852(a)(1), except that the organization—
‘‘(1) may obtain insurance or make other ar-
rangements for the cost of providing to any enrolled
member such services the aggregate value of which
exceeds $5,000 in any year,
‘‘(2) may obtain insurance or make other ar-
rangements for the cost of such services provided to
its enrolled members other than through the organi-
zation because medical necessity required their pro-
vision before they could be secured through the orga-
nization,
‘‘(3) may obtain insurance or make other ar-
rangements for not more than 90 percent of the
amount by which its costs for any of its fiscal years
exceed 115 percent of its income for such fiscal year,
and
‘‘(4) may make arrangements with physicians
or other health professionals, health care institu-
tions, or any combination of such individuals or in-
stitutions to assume all or part of the financial risk
on a prospective basis for the provision of basic
health services by the physicians or other health pro-
fessionals or through the institutions.
281
‘‘(d) CERTIFICATION OF PROVISION AGAINST RISK
OF INSOLVENCY FOR UNLICENSED PSOS.—
‘‘(1) IN GENERAL.—Each MedicarePlus organi-
zation that is a provider-sponsored organization,
that is not licensed by a State under subsection (a),
and for which a waiver application has been ap-
proved under subsection (a)(2), shall meet standards
established under section 1856(a) relating to the fi-
nancial solvency and capital adequacy of the organi-
zation.
‘‘(2) CERTIFICATION PROCESS FOR SOLVENCY
STANDARDS FOR PSOS.—The Secretary shall estab-
lish a process for the receipt and approval of appli-
cations of a provider-sponsored organization de-
scribed in paragraph (1) for certification (and peri-
odic recertification) of the organization as meeting
such solvency standards. Under such process, the
Secretary shall act upon such an application not
later than 60 days after the date the application has
been received.
‘‘(e) PROVIDER-SPONSORED
ORGANIZATION
DE-
FINED.—
‘‘(1) IN GENERAL.—In this part, the term ‘pro-
vider-sponsored organization’ means a public or pri-
vate entity—
282
‘‘(A) that is established or organized by a
health care provider, or group of affiliated
health care providers,
‘‘(B) that provides a substantial proportion
(as defined by the Secretary in accordance with
paragraph (2)) of the health care items and
services under the contract under this part di-
rectly through the provider or affiliated group
of providers, and
‘‘(C) with respect to which those affiliated
providers that share, directly or indirectly, sub-
stantial financial risk with respect to the provi-
sion of such items and services have at least a
majority financial interest in the entity.
‘‘(2) SUBSTANTIAL PROPORTION.—In defining
what is a ‘substantial proportion’ for purposes of
paragraph (1)(B), the Secretary—
‘‘(A) shall take into account (i) the need
for such an organization to assume responsibil-
ity for a substantial proportion of services in
order to assure financial stability and (ii) the
practical difficulties in such an organization in-
tegrating a very wide range of service providers;
and
283
‘‘(B) may vary such proportion based upon
relevant differences among organizations, such
as their location in an urban or rural area.
‘‘(3) AFFILIATION.—For purposes of this sub-
section, a provider is ‘affiliated’ with another pro-
vider if, through contract, ownership, or otherwise—
‘‘(A) one provider, directly or indirectly,
controls, is controlled by, or is under common
control with the other,
‘‘(B) both providers are part of a con-
trolled group of corporations under section
1563 of the Internal Revenue Code of 1986, or
‘‘(C) both providers are part of an affili-
ated service group under section 414 of such
Code.
‘‘(4) CONTROL.—For purposes of paragraph
(3), control is presumed to exist if one party, di-
rectly or indirectly, owns, controls, or holds the
power to vote, or proxies for, not less than 51 per-
cent of the voting rights or governance rights of an-
other.
‘‘(5) HEALTH CARE PROVIDER DEFINED.—In
this subsection, the term ‘health care provider’
means—
284
‘‘(A) any individual who is engaged in the
delivery of health care services in a State and
who is required by State law or regulation to be
licensed or certified by the State to engage in
the delivery of such services in the State, and
‘‘(B) any entity that is engaged in the de-
livery of health care services in a State and
that, if it is required by State law or regulation
to be licensed or certified by the State to en-
gage in the delivery of such services in the
State, is so licensed.
‘‘(6) REGULATIONS.—The Secretary shall issue
regulations to carry out this subsection.
‘‘ESTABLISHMENT OF STANDARDS
‘‘SEC. 1856. (a) ESTABLISHMENT
OF SOLVENCY
STANDARDS
FOR
PROVIDER-SPONSORED
ORGANIZA-
TIONS.—
‘‘(1) ESTABLISHMENT.—
‘‘(A) IN
GENERAL.—The Secretary shall
establish, on an expedited basis and using a ne-
gotiated rulemaking process under subchapter
III of chapter 5 of title 5, United States Code,
standards described in section 1855(d)(1) (re-
lating to the financial solvency and capital ade-
quacy of the organization) that entities must
285
meet to qualify as provider-sponsored organiza-
tions under this part.
‘‘(B) FACTORS
TO
CONSIDER
FOR
SOL-
VENCY
STANDARDS.—In establishing solvency
standards under subparagraph (A) for provider-
sponsored organizations, the Secretary shall
consult with interested parties and shall take
into account—
‘‘(i) the delivery system assets of such
an organization and ability of such an or-
ganization to provide services directly to
enrollees through affiliated providers, and
‘‘(ii) alternative means of protecting
against insolvency, including reinsurance,
unrestricted surplus, letters of credit, guar-
antees, organizational insurance coverage,
partnerships with other licensed entities,
and valuation attributable to the ability of
such an organization to meet its service
obligations through direct delivery of care.
‘‘(C) ENROLLEE PROTECTION AGAINST IN-
SOLVENCY.—Such standards shall include pro-
visions to prevent enrollees from being held lia-
ble to any person or entity for the MedicarePlus
286
organization’s debts in the event of the organi-
zation’s insolvency.
‘‘(2) PUBLICATION
OF
NOTICE.—In carrying
out the rulemaking process under this subsection,
the Secretary, after consultation with the National
Association of Insurance Commissioners, the Amer-
ican Academy of Actuaries, organizations represent-
ative of medicare beneficiaries, and other interested
parties, shall publish the notice provided for under
section 564(a) of title 5, United States Code, by not
later than 45 days after the date of the enactment
of this section.
‘‘(3) TARGET
DATE
FOR
PUBLICATION
OF
RULE.—As part of the notice under paragraph (2),
and for purposes of this subsection, the ‘target date
for publication’ (referred to in section 564(a)(5) of
such title) shall be April 1, 1998.
‘‘(4) ABBREVIATED
PERIOD
FOR
SUBMISSION
OF COMMENTS.—In applying section 564(c) of such
title under this subsection, ‘15 days’ shall be sub-
stituted for ‘30 days’.
‘‘(5) APPOINTMENT
OF
NEGOTIATED
RULE-
MAKING COMMITTEE AND FACILITATOR.—The Sec-
retary shall provide for—
287
‘‘(A) the appointment of a negotiated rule-
making committee under section 565(a) of such
title by not later than 30 days after the end of
the comment period provided for under section
564(c) of such title (as shortened under para-
graph (4)), and
‘‘(B) the nomination of a facilitator under
section 566(c) of such title by not later than 10
days after the date of appointment of the com-
mittee.
‘‘(6) PRELIMINARY COMMITTEE REPORT.—The
negotiated rulemaking committee appointed under
paragraph (5) shall report to the Secretary, by not
later than January 1, 1998, regarding the commit-
tee’s progress on achieving a consensus with regard
to the rulemaking proceeding and whether such con-
sensus is likely to occur before one month before the
target date for publication of the rule. If the com-
mittee reports that the committee has failed to make
significant progress towards such consensus or is
unlikely to reach such consensus by the target date,
the Secretary may terminate such process and pro-
vide for the publication of a rule under this sub-
section through such other methods as the Secretary
may provide.
288
‘‘(7) FINAL COMMITTEE REPORT.—If the com-
mittee is not terminated under paragraph (6), the
rulemaking committee shall submit a report contain-
ing a proposed rule by not later than one month be-
fore the target date of publication.
‘‘(8) INTERIM, FINAL EFFECT.—The Secretary
shall publish a rule under this subsection in the Fed-
eral Register by not later than the target date of
publication. Such rule shall be effective and final im-
mediately on an interim basis, but is subject to
change and revision after public notice and oppor-
tunity for a period (of not less than 60 days) for
public comment. In connection with such rule, the
Secretary shall specify the process for the timely re-
view and approval of applications of entities to be
certified as provider-sponsored organizations pursu-
ant to such rules and consistent with this subsection.
‘‘(9) PUBLICATION
OF
RULE
AFTER
PUBLIC
COMMENT.—The Secretary shall provide for consid-
eration of such comments and republication of such
rule by not later than 1 year after the target date
of publication.
‘‘(b) ESTABLISHMENT OF OTHER STANDARDS.—
‘‘(1) IN GENERAL.—The Secretary shall estab-
lish by regulation other standards (not described in
289
subsection (a)) for MedicarePlus organizations and
plans consistent with, and to carry out, this part.
‘‘(2) USE OF CURRENT STANDARDS.—Consist-
ent with the requirements of this part, standards es-
tablished under this subsection shall be based on
standards established under section 1876 to carry
out analogous provisions of such section. The Sec-
retary shall also consider State model and other
standards relating to consumer protection and assur-
ing quality of care.
‘‘(3) USE OF INTERIM STANDARDS.—For the
period in which this part is in effect and standards
are being developed and established under the pre-
ceding provisions of this subsection, the Secretary
shall provide by not later than June 1, 1998, for the
application of such interim standards (without re-
gard to any requirements for notice and public com-
ment) as may be appropriate to provide for the expe-
dited implementation of this part. Such interim
standards shall not apply after the date standards
are established under the preceding provisions of
this subsection.
‘‘(4) APPLICATION OF NEW STANDARDS TO EN-
TITIES
WITH
A
CONTRACT.—In the case of a
MedicarePlus organization with a contract in effect
290
under this part at the time standards applicable to
the organization under this section are changed, the
organization may elect not to have such changes
apply to the organization until the end of the cur-
rent contract year (or, if there is less than 6 months
remaining in the contract year, until 1 year after the
end of the current contract year).
‘‘(5) RELATION TO STATE LAWS.—Subject to
section 1852(m), the standards established under
this subsection shall supersede any State law or reg-
ulation with respect to MedicarePlus plans which are
offered by MedicarePlus organizations under this
part to the extent such law or regulation is incon-
sistent with such standards. The previous sentence
shall not be construed as superseding a State law or
regulation that is not related to solvency, that is ap-
plied on a uniform basis and is generally applicable
to other entities engaged in substantially similar
business, and that provides consumer protections in
addition to, or more stringent than, those provided
under the standards under this subsection.
‘‘CONTRACTS WITH MEDICAREPLUS ORGANIZATIONS
‘‘SEC. 1857. (a) IN GENERAL.—The Secretary shall
not permit the election under section 1851 of a
MedicarePlus plan offered by a MedicarePlus organization
under this part, and no payment shall be made under sec-
291
tion 1853 to an organization, unless the Secretary has en-
tered into a contract under this section with the organiza-
tion with respect to the offering of such plan. Such a con-
tract with an organization may cover more than one
MedicarePlus plan. Such contract shall provide that the
organization agrees to comply with the applicable require-
ments and standards of this part and the terms and condi-
tions of payment as provided for in this part.
‘‘(b) MINIMUM ENROLLMENT REQUIREMENTS.—
‘‘(1) IN GENERAL.—Subject to paragraphs (2)
and (3), the Secretary may not enter into a contract
under this section with a MedicarePlus organization
unless the organization has at least 5,000 individ-
uals (or 1,500 individuals in the case of an organiza-
tion that is a provider-sponsored organization) who
are receiving health benefits through the organiza-
tion, except that the standards under section 1856
may permit the organization to have a lesser number
of beneficiaries (but not less than 500 in the case
of an organization that is a provider-sponsored orga-
nization) if the organization primarily serves individ-
uals residing outside of urbanized areas.
‘‘(2) EXCEPTION FOR MSA PLAN.—Paragraph
(1) shall not apply with respect to a contract that
relates only to an MSA plan.
292
‘‘(3) ALLOWING
TRANSITION.—The Secretary
may waive the requirement of paragraph (1) during
the first 3 contract years with respect to an organi-
zation.
‘‘(c) CONTRACT PERIOD AND EFFECTIVENESS.—
‘‘(1) PERIOD.—Each contract under this sec-
tion shall be for a term of at least one year, as de-
termined by the Secretary, and may be made auto-
matically renewable from term to term in the ab-
sence of notice by either party of intention to termi-
nate at the end of the current term.
‘‘(2) TERMINATION
AUTHORITY.—In accord-
ance with procedures established under subsection
(h), the Secretary may at any time terminate any
such contract or may impose the intermediate sanc-
tions described in an applicable paragraph of sub-
section (g)(3) on the MedicarePlus organization if
the Secretary determines that the organization—
‘‘(A) has failed substantially to carry out
the contract;
‘‘(B) is carrying out the contract in a man-
ner inconsistent with the efficient and effective
administration of this part; or
‘‘(C) no longer substantially meets the ap-
plicable conditions of this part.
293
‘‘(3) EFFECTIVE
DATE
OF
CONTRACTS.—The
effective date of any contract executed pursuant to
this section shall be specified in the contract, except
that in no case shall a contract under this section
which provides for coverage under an MSA plan be
effective before January 1998 with respect to such
coverage.
‘‘(4) PREVIOUS TERMINATIONS.—The Secretary
may not enter into a contract with a MedicarePlus
organization if a previous contract with that organi-
zation under this section was terminated at the re-
quest of the organization within the preceding five-
year period, except in circumstances which warrant
special consideration, as determined by the Sec-
retary.
‘‘(5) CONTRACTING AUTHORITY.—The author-
ity vested in the Secretary by this part may be per-
formed without regard to such provisions of law or
regulations relating to the making, performance,
amendment, or modification of contracts of the
United States as the Secretary may determine to be
inconsistent with the furtherance of the purpose of
this title.
‘‘(d) PROTECTIONS AGAINST FRAUD
AND BENE-
FICIARY PROTECTIONS.—
294
‘‘(1) INSPECTION AND AUDIT.—Each contract
under this section shall provide that the Secretary,
or any person or organization designated by the Sec-
retary—
‘‘(A) shall have the right to inspect or oth-
erwise evaluate (i) the quality, appropriateness,
and timeliness of services performed under the
contract and (ii) the facilities of the organiza-
tion when there is reasonable evidence of some
need for such inspection, and
‘‘(B) shall have the right to audit and in-
spect 
any 
books 
and 
records 
of 
the
MedicarePlus organization that pertain (i) to
the ability of the organization to bear the risk
of potential financial losses, or (ii) to services
performed or determinations of amounts pay-
able under the contract.
‘‘(2) ENROLLEE NOTICE AT TIME OF TERMI-
NATION.—Each contract under this section shall re-
quire the organization to provide (and pay for) writ-
ten notice in advance of the contract’s termination,
as well as a description of alternatives for obtaining
benefits under this title, to each individual enrolled
with the organization under this part.
‘‘(3) DISCLOSURE.—
295
‘‘(A) IN
GENERAL.—Each MedicarePlus
organization shall, in accordance with regula-
tions of the Secretary, report to the Secretary
financial information which shall include the
following:
‘‘(i) Such information as the Sec-
retary may require demonstrating that the
organization has a fiscally sound operation.
‘‘(ii) A copy of the report, if any, filed
with the Health Care Financing Adminis-
tration containing the information required
to be reported under section 1124 by dis-
closing entities.
‘‘(iii) A description of transactions, as
specified by the Secretary, between the or-
ganization and a party in interest. Such
transactions shall include—
‘‘(I) any sale or exchange, or
leasing of any property between the
organization and a party in interest;
‘‘(II) any furnishing for consider-
ation of goods, services (including
management services), or facilities be-
tween the organization and a party in
interest, but not including salaries
296
paid to employees for services pro-
vided in the normal course of their
employment and health services pro-
vided to members by hospitals and
other providers and by staff, medical
group (or groups), individual practice
association (or associations), or any
combination thereof; and
‘‘(III) any lending of money or
other extension of credit between an
organization and a party in interest.
The Secretary may require that information re-
ported respecting an organization which con-
trols, is controlled by, or is under common con-
trol with, another entity be in the form of a
consolidated financial statement for the organi-
zation and such entity.
‘‘(B) PARTY IN INTEREST DEFINED.—For
the purposes of this paragraph, the term ‘party
in interest’ means—
‘‘(i) any director, officer, partner, or
employee responsible for management or
administration of a MedicarePlus organiza-
tion, any person who is directly or indi-
rectly the beneficial owner of more than 5
297
percent of the equity of the organization,
any person who is the beneficial owner of
a mortgage, deed of trust, note, or other
interest secured by, and valuing more than
5 percent of the organization, and, in the
case of a MedicarePlus organization orga-
nized as a nonprofit corporation, an incor-
porator or member of such corporation
under applicable State corporation law;
‘‘(ii) any entity in which a person de-
scribed in clause (i)—
‘‘(I) is an officer or director;
‘‘(II) is a partner (if such entity
is organized as a partnership);
‘‘(III) has directly or indirectly a
beneficial interest of more than 5 per-
cent of the equity; or
‘‘(IV) has a mortgage, deed of
trust, note, or other interest valuing
more than 5 percent of the assets of
such entity;
‘‘(iii) any person directly or indirectly
controlling, controlled by, or under com-
mon control with an organization; and
298
‘‘(iv) any spouse, child, or parent of
an individual described in clause (i).
‘‘(C) ACCESS
TO
INFORMATION.—Each
MedicarePlus organization shall make the infor-
mation reported pursuant to subparagraph (A)
available to its enrollees upon reasonable re-
quest.
‘‘(4) LOAN INFORMATION.—The contract shall
require the organization to notify the Secretary of
loans and other special financial arrangements which
are made between the organization and subcontrac-
tors, affiliates, and related parties.
‘‘(e) ADDITIONAL CONTRACT TERMS.—
‘‘(1) IN GENERAL.—The contract shall contain
such other terms and conditions not inconsistent
with this part (including requiring the organization
to provide the Secretary with such information) as
the Secretary may find necessary and appropriate.
‘‘(2) COST-SHARING IN ENROLLMENT-RELATED
COSTS.—The contract with a MedicarePlus organiza-
tion shall require the payment to the Secretary for
the organization’s pro rata share (as determined by
the Secretary) of the estimated costs to be incurred
by the Secretary in carrying out section 1851 (relat-
ing to enrollment and dissemination of information)
299
and section 4360 of the Omnibus Budget Reconcili-
ation Act of 1990 (relating to the health insurance
counseling and assistance program). Such payments
are appropriated to defray the costs described in the
preceding sentence, to remain available until ex-
pended.
‘‘(3) NOTICE TO ENROLLEES IN CASE OF DE-
CERTIFICATION.—If a contract with a MedicarePlus
organization is terminated under this section, the or-
ganization shall notify each enrollee with the organi-
zation under this part of such termination.
‘‘(f) PROMPT PAYMENT BY MEDICAREPLUS ORGANI-
ZATION.—
‘‘(1) REQUIREMENT.—A contract under this
part shall require a MedicarePlus organization to
provide prompt payment (consistent with the provi-
sions of sections 1816(c)(2) and 1842(c)(2)) of
claims submitted for services and supplies furnished
to individuals pursuant to the contract, if the serv-
ices or supplies are not furnished under a contract
between the organization and the provider or sup-
plier.
‘‘(2) SECRETARY’S
OPTION
TO
BYPASS
NON-
COMPLYING
ORGANIZATION.—In the case of a
MedicarePlus eligible organization which the Sec-
300
retary determines, after notice and opportunity for
a hearing, has failed to make payments of amounts
in compliance with paragraph (1), the Secretary may
provide for direct payment of the amounts owed to
providers and suppliers for covered services and sup-
plies furnished to individuals enrolled under this
part under the contract. If the Secretary provides
for the direct payments, the Secretary shall provide
for an appropriate reduction in the amount of pay-
ments otherwise made to the organization under this
part to reflect the amount of the Secretary’s pay-
ments (and the Secretary’s costs in making the pay-
ments).
‘‘(g) INTERMEDIATE SANCTIONS.—
‘‘(1) IN GENERAL.—If the Secretary determines
that a MedicarePlus organization with a contract
under this section—
‘‘(A) fails substantially to provide medi-
cally necessary items and services that are re-
quired (under law or under the contract) to be
provided to an individual covered under the con-
tract, if the failure has adversely affected (or
has substantial likelihood of adversely affecting)
the individual;
301
‘‘(B) imposes net monthly premiums on in-
dividuals enrolled under this part in excess of
the net monthly premiums permitted;
‘‘(C) acts to expel or to refuse to re-enroll
an individual in violation of the provisions of
this part;
‘‘(D) engages in any practice that would
reasonably be expected to have the effect of de-
nying or discouraging enrollment (except as
permitted by this part) by eligible individuals
with the organization whose medical condition
or history indicates a need for substantial fu-
ture medical services;
‘‘(E) misrepresents or falsifies information
that is furnished—
‘‘(i) to the Secretary under this part,
or
‘‘(ii) to an individual or to any other
entity under this part;
‘‘(F) fails to comply with the requirements
of section 1852(j)(3); or
‘‘(G) employs or contracts with any indi-
vidual or entity that is excluded from participa-
tion under this title under section 1128 or
1128A for the provision of health care, utiliza-
302
tion review, medical social work, or administra-
tive services or employs or contracts with any
entity for the provision (directly or indirectly)
through such an excluded individual or entity of
such services;
the Secretary may provide, in addition to any other
remedies authorized by law, for any of the remedies
described in paragraph (2).
‘‘(2) REMEDIES.—The remedies described in
this paragraph are—
‘‘(A) civil money penalties of not more
than $25,000 for each determination under
paragraph (1) or, with respect to a determina-
tion under subparagraph (D) or (E)(i) of such
paragraph, of not more than $100,000 for each
such determination, plus, with respect to a de-
termination under paragraph (1)(B), double the
excess amount charged in violation of such
paragraph (and the excess amount charged
shall be deducted from the penalty and returned
to the individual concerned), and plus, with re-
spect to a determination under paragraph
(1)(D), $15,000 for each individual not enrolled
as a result of the practice involved,
303
‘‘(B) suspension of enrollment of individ-
uals under this part after the date the Sec-
retary notifies the organization of a determina-
tion under paragraph (1) and until the Sec-
retary is satisfied that the basis for such deter-
mination has been corrected and is not likely to
recur, or
‘‘(C) suspension of payment to the organi-
zation under this part for individuals enrolled
after the date the Secretary notifies the organi-
zation of a determination under paragraph (1)
and until the Secretary is satisfied that the
basis for such determination has been corrected
and is not likely to recur.
‘‘(3) OTHER
INTERMEDIATE
SANCTIONS.—In
the case of a MedicarePlus organization for which
the Secretary makes a determination under sub-
section (c)(2) the basis of which is not described in
paragraph (1), the Secretary may apply the follow-
ing intermediate sanctions:
‘‘(A) Civil money penalties of not more
than $25,000 for each determination under
subsection (c)(2) if the deficiency that is the
basis of the determination has directly adversely
affected (or has the substantial likelihood of ad-
304
versely affecting) an individual covered under
the organization’s contract
‘‘(B) Civil money penalties of not more
than $10,000 for each week beginning after the
initiation of procedures by the Secretary under
subsection (g) during which the deficiency that
is the basis of a determination under subsection
(c)(2) exists.
‘‘(C) Suspension of enrollment of individ-
uals under this part after the date the Sec-
retary notifies the organization of a determina-
tion under subsection (c)(2) and until the Sec-
retary is satisfied that the deficiency that is the
basis for the determination has been corrected
and is not likely to recur.
‘‘(h) PROCEDURES FOR TERMINATION.—
‘‘(1) IN GENERAL.—The Secretary may termi-
nate a contract with a MedicarePlus organization
under this section in accordance with formal inves-
tigation and compliance procedures established by
the Secretary under which—
‘‘(A) the Secretary provides the organiza-
tion with the reasonable opportunity to develop
and implement a corrective action plan to cor-
rect the deficiencies that were the basis of the
305
Secretary’s determination under subsection
(c)(2);
‘‘(B) the Secretary shall impose more se-
vere sanctions on an organization that has a
history of deficiencies or that has not taken
steps to correct deficiencies the Secretary has
brought to the organization’s attention;
‘‘(C) there are no unreasonable or unneces-
sary delays between the finding of a deficiency
and the imposition of sanctions; and
‘‘(D) the Secretary provides the organiza-
tion with reasonable notice and opportunity for
hearing (including the right to appeal an initial
decision) before terminating the contract.
‘‘(2) CIVIL MONEY PENALTIES.—The provisions
of section 1128A (other than subsections (a) and
(b)) shall apply to a civil money penalty under sub-
section (f) or under paragraph (2) or (3) of sub-
section (g) in the same manner as they apply to a
civil money penalty or proceeding under section
1128A(a).
‘‘(3) EXCEPTION FOR IMMINENT AND SERIOUS
RISK TO HEALTH.—Paragraph (1) shall not apply if
the Secretary determines that a delay in termi-
nation, resulting from compliance with the proce-
306
dures specified in such paragraph prior to termi-
nation, would pose an imminent and serious risk to
the health of individuals enrolled under this part
with the organization.
‘‘DEFINITIONS; MISCELLANEOUS PROVISIONS
‘‘SEC. 1859. (a) DEFINITIONS
RELATING
TO
MEDICAREPLUS ORGANIZATIONS.—In this part—
‘‘(1) 
MEDICAREPLUS
ORGANIZATION.—The
term ‘MedicarePlus organization’ means a public or
private entity that is certified under section 1856 as
meeting the requirements and standards of this part
for such an organization.
‘‘(2) PROVIDER-SPONSORED
ORGANIZATION.—
The term ‘provider-sponsored organization’ is de-
fined in section 1855(e)(1).
‘‘(b) DEFINITIONS RELATING
TO MEDICAREPLUS
PLANS.—
‘‘(1) 
MEDICAREPLUS
PLAN.—The 
term
‘MedicarePlus plan’ means health benefits coverage
offered under a policy, contract, or plan by a
MedicarePlus organization pursuant to and in ac-
cordance with a contract under section 1857.
‘‘(2) MSA PLAN.—
‘‘(A) IN GENERAL.—The term ‘MSA plan’
means a MedicarePlus plan that—
307
‘‘(i) provides reimbursement for at
least the items and services described in
section 1852(a)(1) in a year but only after
the enrollee incurs countable expenses (as
specified under the plan) equal to the
amount of an annual deductible (described
in subparagraph (B));
‘‘(ii) counts as such expenses (for pur-
poses of such deductible) at least all
amounts that would have been payable
under parts A and B, and that would have
been payable by the enrollee as deductibles,
coinsurance, or copayments, if the enrollee
had elected to receive benefits through the
provisions of such parts; and
‘‘(iii) provides, after such deductible is
met for a year and for all subsequent ex-
penses for items and services referred to in
clause (i) in the year, for a level of reim-
bursement that is not less than—
‘‘(I) 100 percent of such ex-
penses, or
‘‘(II) 100 percent of the amounts
that would have been paid (without
regard to any deductibles or coinsur-
308
ance) under parts A and B with re-
spect to such expenses,
whichever is less.
‘‘(B) DEDUCTIBLE.—The amount of an-
nual deductible under an MSA plan—
‘‘(i) for contract year 1999 shall be
not more than $6,000; and
‘‘(ii) for a subsequent contract year
shall be not more than the maximum
amount of such deductible for the previous
contract year under this subparagraph in-
creased 
by 
the 
national 
per 
capita
MedicarePlus growth percentage under
section 1853(c)(6) for the year.
If the amount of the deductible under clause
(ii) is not a multiple of $50, the amount shall
be rounded to the nearest multiple of $50.
‘‘(c) OTHER REFERENCES TO OTHER TERMS.—
‘‘(1) MEDICAREPLUS ELIGIBLE INDIVIDUAL.—
The term ‘MedicarePlus eligible individual’ is de-
fined in section 1851(a)(3).
‘‘(2) MEDICAREPLUS
PAYMENT
AREA.—The
term ‘MedicarePlus payment area’ is defined in sec-
tion 1853(d).
309
‘‘(3) NATIONAL
PER
CAPITA
MEDICAREPLUS
GROWTH
PERCENTAGE.—The ‘national per capita
MedicarePlus growth percentage’ is defined in sec-
tion 1853(c)(6).
‘‘(4) MONTHLY PREMIUM; NET MONTHLY PRE-
MIUM.—The terms ‘monthly premium’ and ‘net
monthly premium’ are defined in section 1854(a)(2).
‘‘(d) COORDINATED ACUTE AND LONG-TERM CARE
BENEFITS UNDER A MEDICAREPLUS PLAN.—Nothing in
this part shall be construed as preventing a State from
coordinating benefits under a medicaid plan under title
XIX with those provided under a MedicarePlus plan in
a manner that assures continuity of a full-range of acute
care and long-term care services to poor elderly or disabled
individuals eligible for benefits under this title and under
such plan.
‘‘(e) RESTRICTION ON ENROLLMENT FOR CERTAIN
MEDICAREPLUS PLANS.—
‘‘(1) 
IN
GENERAL.—In 
the 
case 
of 
a
MedicarePlus religious fraternal benefit society plan
described in paragraph (2), notwithstanding any
other provision of this part to the contrary and in
accordance with regulations of the Secretary, the so-
ciety offering the plan may restrict the enrollment of
individuals under this part to individuals who are
310
members of the church, convention, or group de-
scribed in paragraph (3)(B) with which the society
is affiliated.
‘‘(2) MEDICAREPLUS
RELIGIOUS
FRATERNAL
BENEFIT SOCIETY PLAN DESCRIBED.—For purposes
of this subsection, a MedicarePlus religious fraternal
benefit society plan described in this paragraph is a
MedicarePlus 
plan 
described 
in 
section
1851(a)(2)(A) that—
‘‘(A) is offered by a religious fraternal ben-
efit society described in paragraph (3) only to
members of the church, convention, or group
described in paragraph (3)(B); and
‘‘(B) permits all such members to enroll
under the plan without regard to health status-
related factors.
Nothing in this subsection shall be construed as
waiving any plan requirements relating to financial
solvency. In developing solvency standards under
section 1856, the Secretary shall take into account
open contract and assessment features characteristic
of fraternal insurance certificates.
‘‘(3) RELIGIOUS FRATERNAL BENEFIT SOCIETY
DEFINED.—For purposes of paragraph (2)(A), a ‘re-
311
ligious fraternal benefit society’ described in this
section is an organization that—
‘‘(A) is exempt from Federal income tax-
ation under section 501(c)(8) of the Internal
Revenue Code of 1986;
‘‘(B) is affiliated with, carries out the te-
nets of, and shares a religious bond with, a
church or convention or association of churches
or an affiliated group of churches;
‘‘(C) offers, in addition to a MedicarePlus
religious fraternal benefit society plan, health
coverage to individuals not entitled to benefits
under this title who are members of such
church, convention, or group; and
‘‘(D) does not impose any limitation on
membership in the society based on any health
status-related factor.
‘‘(4) PAYMENT
ADJUSTMENT.—Under regula-
tions of the Secretary, in the case of individuals en-
rolled under this part under a MedicarePlus reli-
gious fraternal benefit society plan described in
paragraph (2), the Secretary shall provide for such
adjustment to the payment amounts otherwise estab-
lished under section 1854 as may be appropriate to
assure an appropriate payment level, taking into ac-
312
count the actuarial characteristics and experience of
such individuals.’’.
(b) REPORT ON COVERAGE OF BENEFICIARIES WITH
END-STAGE RENAL DISEASE.—The Secretary of Health
and Human Services shall provide for a study on the fea-
sibility and impact of removing the limitation under sec-
tion 1851(b)(3)(B) of the Social Security Act (as inserted
by subsection (a)) on eligibility of most individuals medi-
cally determined to have end-stage renal disease to enroll
in MedicarePlus plans. By not later than October 1, 1998,
the Secretary shall submit to Congress a report on such
study and shall include in the report such recommenda-
tions regarding removing or restricting the limitation as
may be appropriate.
(c) REPORT
ON MEDICAREPLUS TEACHING PRO-
GRAMS AND USE OF DSH AND TEACHING HOSPITALS.—
Based on the information provided to the Secretary of
Health and Human Services under section 1852(k) of the
Social Security Act and such information as the Secretary
may obtain, by not later than October 1, 1999, the Sec-
retary shall submit to Congress a report on graduate med-
ical education programs operated by MedicarePlus organi-
zations and the extent to which MedicarePlus organiza-
tions are providing for payments to hospitals described in
such section.
313
SEC. 4002. TRANSITIONAL RULES FOR CURRENT MEDICARE
HMO PROGRAM.
(a) AUTHORIZING TRANSITIONAL WAIVER OF 50:50
RULE.—Section 1876(f) (42 U.S.C. 1395mm(f)) is
amended—
(1) in paragraph (2), by striking ‘‘The Sec-
retary’’ and inserting ‘‘Subject to paragraph (4), the
Secretary’’, and
(2) by adding at the end the following new
paragraph:
‘‘(4) Effective for contract periods beginning after
December 31, 1996, the Secretary may waive or modify
the requirement imposed by paragraph (1) to the extent
the Secretary finds that it is in the public interest.’’.
(b) 
TRANSITION.—Section 
1876 
(42 
U.S.C.
1395mm) is amended by adding at the end the following
new subsection:
‘‘(k)(1) Except as provided in paragraph (3), the Sec-
retary shall not enter into, renew, or continue any risk-
sharing contract under this section with an eligible organi-
zation for any contract year beginning on or after—
‘‘(A) the date standards for MedicarePlus orga-
nizations and plans are first established under sec-
tion 1856 with respect to MedicarePlus organiza-
tions that are insurers or health maintenance orga-
nizations, or
314
‘‘(B) in the case of such an organization with
such a contract in effect as of the date such stand-
ards were first established, 1 year after such date.
‘‘(2) The Secretary shall not enter into, renew, or
continue any risk-sharing contract under this section with
an eligible organization for any contract year beginning
on or after January 1, 2000.
‘‘(3) An individual who is enrolled in part B only and
is enrolled in an eligible organization with a risk-sharing
contract under this section on December 31, 1998, may
continue enrollment in such organization in accordance
with regulations issued by not later then July 1, 1998.
‘‘(4) Notwithstanding subsection (a), the Secretary
shall provide that payment amounts under risk-sharing
contracts under this section for months in a year (begin-
ning with January 1998) shall be computed—
‘‘(A) with respect to individuals entitled to ben-
efits under both parts A and B, by substituting pay-
ment rates under section 1853(a) for the payment
rates 
otherwise 
established 
under 
subsection
1876(a), and
‘‘(B) with respect to individuals only entitled to
benefits under part B, by substituting an appro-
priate proportion of such rates (reflecting the rel-
ative proportion of payments under this title attrib-
315
utable to such part) for the payment rates otherwise
established under subsection (a).
For purposes of carrying out this paragraph for payments
for months in 1998, the Secretary shall compute, an-
nounce, and apply the payment rates under section
1853(a) (notwithstanding any deadlines specified in such
section) in as timely a manner as possible and may (to
the extent necessary) provide for retroactive adjustment
in payments made under this section not in accordance
with such rates.’’.
(c) ENROLLMENT TRANSITION RULE.—An individual
who is enrolled on December 31, 1998, with an eligible
organization under section 1876 of the Social Security Act
(42 U.S.C. 1395mm) shall be considered to be enrolled
with that organization on January 1, 1999, under part
C of title XVIII of such Act if that organization has a
contract under that part for providing services on January
1, 1999 (unless the individual has disenrolled effective on
that date).
(d) ADVANCE DIRECTIVES.—Section 1866(f) (42
U.S.C. 1395c(f)) is amended—
(1) in paragraph (1)—
(A) 
by 
inserting 
‘‘1855(i),’’ 
after
‘‘1833(s),’’, and
316
(B) by inserting ‘‘, MedicarePlus organiza-
tion,’’ after ‘‘provider of services’’; and
(2) in paragraph (2)(E), by inserting ‘‘or a
MedicarePlus 
organization’’ 
after 
‘‘section
1833(a)(1)(A)’’.
(e) EXTENSION OF PROVIDER REQUIREMENT.—Sec-
tion 1866(a)(1)(O) (42 U.S.C. 1395cc(a)(1)(O)) is
amended—
(1) by striking ‘‘in the case of hospitals and
skilled nursing facilities,’’;
(2) by striking ‘‘inpatient hospital and extended
care’’;
(3) by inserting ‘‘with a MedicarePlus organiza-
tion under part C or’’ after ‘‘any individual en-
rolled’’;
(4) by striking ‘‘(in the case of hospitals) or
limits (in the case of skilled nursing facilities)’’; and
(5) by inserting ‘‘(less any payments under sec-
tion 1858)’’ after ‘‘under this title’’.
(f) ADDITIONAL CONFORMING CHANGES.—
(1) CONFORMING
REFERENCES
TO
PREVIOUS
PART C.—Any reference in law (in effect before the
date of the enactment of this Act) to part C of title
XVIII of the Social Security Act is deemed a ref-
317
erence to part D of such title (as in effect after such
date).
(2) SECRETARIAL SUBMISSION OF LEGISLATIVE
PROPOSAL.—Not later than 90 days after the date
of the enactment of this Act, the Secretary of
Health and Human Services shall submit to the ap-
propriate committees of Congress a legislative pro-
posal providing for such technical and conforming
amendments in the law as are required by the provi-
sions of this chapter.
(g) IMMEDIATE EFFECTIVE DATE FOR CERTAIN RE-
QUIREMENTS
FOR
DEMONSTRATIONS.—Section
1857(e)(2) of the Social Security Act (requiring contribu-
tion to certain costs related to the enrollment process com-
parative materials) applies to demonstrations with respect
to which enrollment is effected or coordinated under sec-
tion 1851 of such Act.
(h) USE
OF INTERIM, FINAL REGULATIONS.—In
order to carry out the amendments made by this chapter
in a timely manner, the Secretary of Health and Human
Services may promulgate regulations that take effect on
an interim basis, after notice and pending opportunity for
public comment.
(i) TRANSITION RULE FOR PSO ENROLLMENT.—In
applying subsection (g)(1) of section 1876 of the Social
318
Security Act (42 U.S.C. 1395mm) to a risk-sharing con-
tract entered into with an eligible organization that is a
provider-sponsored organization (as defined in section
1855(e)(1) of such Act, as inserted by section 4001) for
a contract year beginning on or after January 1, 1998,
there shall be substituted for the minimum number of en-
rollees provided under such section the minimum number
of enrollees permitted under section 1857(b)(1) of such
Act (as so inserted).
SEC. 4003. CONFORMING CHANGES IN MEDIGAP PROGRAM.
(a) CONFORMING AMENDMENTS TO MEDICAREPLUS
CHANGES.—
(1) IN GENERAL.—Section 1882(d)(3)(A)(i) (42
U.S.C. 1395ss(d)(3)(A)(i)) is amended—
(A) in the matter before subclause (I), by
inserting ‘‘(including an individual electing a
MedicarePlus plan under section 1851)’’ after
‘‘of this title’’; and
(B) in subclause (II)—
(i) by inserting ‘‘in the case of an in-
dividual not electing a MedicarePlus plan’’
after ‘‘(II)’’, and
(ii) by inserting before the comma at
the end the following: ‘‘or in the case of an
individual electing a MedicarePlus plan, a
319
medicare supplemental policy with knowl-
edge that the policy duplicates health bene-
fits to which the individual is otherwise en-
titled under the MedicarePlus plan or
under another medicare supplemental pol-
icy’’.
(2) 
CONFORMING
AMENDMENTS.—Section
1882(d)(3)(B)(i)(I) 
(42 
U.S.C.
1395ss(d)(3)(B)(i)(I)) is amended by inserting ‘‘(in-
cluding any MedicarePlus plan)’’ after ‘‘health in-
surance policies’’.
(3) MEDICAREPLUS PLANS NOT TREATED AS
MEDICARE
SUPPLEMENTARY
POLICIES.—Section
1882(g)(1) (42 U.S.C. 1395ss(g)(1)) is amended by
inserting ‘‘or a MedicarePlus plan or’’ after ‘‘does
not include’’
(b) ADDITIONAL RULES RELATING TO INDIVIDUALS
ENROLLED IN MSA PLANS.—Section 1882 (42 U.S.C.
1395ss) is further amended by adding at the end the fol-
lowing new subsection:
‘‘(u)(1) It is unlawful for a person to sell or issue
a policy described in paragraph (2) to an individual with
knowledge that the individual has in effect under section
1851 an election of an MSA plan.
320
‘‘(2) A policy described in this subparagraph is a
health insurance policy that provides for coverage of ex-
penses that are otherwise required to be counted toward
meeting the annual deductible amount provided under the
MSA plan.’’.
Subchapter B—Special Rules for
MedicarePlus Medical Savings Accounts
SEC. 4006. MEDICAREPLUS MSA.
(a) IN GENERAL.—Part III of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to
amounts specifically excluded from gross income) is
amended by redesignating section 138 as section 139 and
by inserting after section 137 the following new section:
‘‘SEC. 138. MEDICAREPLUS MSA.
‘‘(a) EXCLUSION.—Gross income shall not include
any payment to the MedicarePlus MSA of an individual
by the Secretary of Health and Human Services under
part C of title XVIII of the Social Security Act.
‘‘(b) MEDICAREPLUS MSA.—For purposes of this
section, the term ‘MedicarePlus MSA’ means a medical
savings account (as defined in section 220(d))—
‘‘(1) which is designated as a MedicarePlus
MSA,
‘‘(2) with respect to which no contribution may
be made other than—
321
‘‘(A) a contribution made by the Secretary
of Health and Human Services pursuant to
part C of title XVIII of the Social Security Act,
or
‘‘(B) a trustee-to-trustee transfer described
in subsection (c)(4),
‘‘(3) the governing instrument of which pro-
vides that trustee-to-trustee transfers described in
subsection (c)(4) may be made to and from such ac-
count, and
‘‘(4) which is established in connection with an
MSA plan described in section 1859(b)(2) of the So-
cial Security Act.
‘‘(c) SPECIAL RULES FOR DISTRIBUTIONS.—
‘‘(1) DISTRIBUTIONS FOR QUALIFIED MEDICAL
EXPENSES.—In 
applying 
section 
220 
to 
a
MedicarePlus MSA—
‘‘(A) qualified medical expenses shall not
include amounts paid for medical care for any
individual other than the account holder, and
‘‘(B) section 220(d)(2)(C) shall not apply.
‘‘(2) PENALTY
FOR
DISTRIBUTIONS
FROM
MEDICAREPLUS
MSA
NOT
USED
FOR
QUALIFIED
MEDICAL
EXPENSES
IF
MINIMUM
BALANCE
NOT
MAINTAINED.—
322
‘‘(A) IN GENERAL.—The tax imposed by
this chapter for any taxable year in which there
is 
a 
payment 
or 
distribution 
from 
a
MedicarePlus MSA which is not used exclu-
sively to pay the qualified medical expenses of
the account holder shall be increased by 50 per-
cent of the excess (if any) of—
‘‘(i) the amount of such payment or
distribution, over
‘‘(ii) the excess (if any) of—
‘‘(I) the fair market value of the
assets in such MSA as of the close of
the calendar year preceding the cal-
endar year in which the taxable year
begins, over
‘‘(II) an amount equal to 60 per-
cent of the deductible under the
MedicarePlus MSA plan covering the
account holder as of January 1 of the
calendar year in which the taxable
year begins.
Section 220(f)(2) shall not apply to any pay-
ment or distribution from a MedicarePlus MSA.
323
‘‘(B) 
EXCEPTIONS.—Subparagraph 
(A)
shall not apply if the payment or distribution is
made on or after the date the account holder—
‘‘(i) becomes disabled within the
meaning of section 72(m)(7), or
‘‘(ii) dies.
‘‘(C) SPECIAL
RULES.—For purposes of
subparagraph (A)—
‘‘(i) all MedicarePlus MSAs of the ac-
count holder shall be treated as 1 account,
‘‘(ii) all payments and distributions
not used exclusively to pay the qualified
medical expenses of the account holder
during any taxable year shall be treated as
1 distribution, and
‘‘(iii) any distribution of property
shall be taken into account at its fair mar-
ket value on the date of the distribution.
‘‘(3) WITHDRAWAL OF ERRONEOUS CONTRIBU-
TIONS.—Section 220(f)(2) and paragraph (2) of this
subsection shall not apply to any payment or dis-
tribution from a MedicarePlus MSA to the Secretary
of Health and Human Services of an erroneous con-
tribution to such MSA and of the net income attrib-
utable to such contribution.
324
‘‘(4) TRUSTEE-TO-TRUSTEE TRANSFERS.—Sec-
tion 220(f)(2) and paragraph (2) of this subsection
shall not apply to any trustee-to-trustee transfer
from a MedicarePlus MSA of an account holder to
another MedicarePlus MSA of such account holder.
‘‘(d) SPECIAL RULES FOR TREATMENT OF ACCOUNT
AFTER DEATH OF ACCOUNT HOLDER.—In applying sec-
tion 220(f)(8)(A) to an account which was a MedicarePlus
MSA of a decedent, the rules of section 220(f) shall apply
in lieu of the rules of subsection (c) of this section with
respect to the spouse as the account holder of such
MedicarePlus MSA.
‘‘(e) REPORTS.—In the case of a MedicarePlus MSA,
the report under section 220(h)—
‘‘(1) shall include the fair market value of the
assets in such MedicarePlus MSA as of the close of
each calendar year, and
‘‘(2) shall be furnished to the account holder—
‘‘(A) not later than January 31 of the cal-
endar year following the calendar year to which
such reports relate, and
‘‘(B) in such manner as the Secretary pre-
scribes in such regulations.
‘‘(f) COORDINATION WITH LIMITATION ON NUMBER
OF TAXPAYERS HAVING MEDICAL SAVINGS ACCOUNTS.—
325
Subsection (i) of section 220 shall not apply to an individ-
ual 
with 
respect 
to 
a 
MedicarePlus 
MSA, 
and
MedicarePlus MSA’s shall not be taken into account in
determining whether the numerical limitations under sec-
tion 220(j) are exceeded.’’
(b) TECHNICAL AMENDMENTS.—
(1) The last sentence of section 4973(d) of such
Code is amended by inserting ‘‘or section 138(c)(3)’’
after ‘‘section 220(f)(3)’’.
(2) Subsection (b) of section 220 of such Code
is amended by adding at the end the following new
paragraph:
‘‘(7) MEDICARE ELIGIBLE INDIVIDUALS.—The
limitation under this subsection for any month with
respect to an individual shall be zero for the first
month such individual is entitled to benefits under
title XVIII of the Social Security Act and for each
month thereafter.’’
(3) The table of sections for part III of sub-
chapter B of chapter 1 of such Code is amended by
striking the last item and inserting the following:
‘‘Sec. 138. MedicarePlus MSA.
‘‘Sec. 139. Cross references to other Acts.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1998.
326
Subchapter C—GME, IME, and DSH
Payments for Managed Care Enrollees
SEC. 4008. GRADUATE MEDICAL EDUCATION AND INDIRECT
MEDICAL EDUCATION PAYMENTS FOR MAN-
AGED CARE ENROLLEES.
(a) PAYMENTS TO MANAGED CARE ORGANIZATIONS
OPERATING
GRADUATE
MEDICAL
EDUCATION
PRO-
GRAMS.—Section 1853 (as inserted by section 4001) is
amended by adding at the end the following:
‘‘(h) PAYMENTS FOR DIRECT COSTS OF GRADUATE
MEDICAL EDUCATION PROGRAMS.—
‘‘(1) ADDITIONAL PAYMENT TO BE MADE.—Ef-
fective January 1, 1998, each contract with a
MedicarePlus organization under this section (and
each risk-sharing contract with an eligible organiza-
tion under section 1876) shall provide for an addi-
tional payment for Medicare’s share of allowable di-
rect graduate medical education costs incurred by
such an organization for an approved medical resi-
dency program.
‘‘(2) ALLOWABLE COSTS.—If the organization
has an approved medical residency program that in-
curs all or substantially all of the costs of the pro-
gram, subject to section 1858(a)(3), the allowable
costs for such a program shall equal the national av-
327
erage per resident amount times the number of full-
time-equivalent residents in the program in non-hos-
pital settings.
‘‘(3) DEFINITIONS.—As used in this subsection:
‘‘(A) The terms ‘approved medical resi-
dency program’, ‘direct graduate medical edu-
cation costs’, and ‘full-time-equivalent residents’
have the same meanings as under section
1886(h).
‘‘(B) The term ‘Medicare’s share’ means,
with respect to a MedicarePlus or eligible orga-
nization, the ratio of the number of individuals
enrolled with the organization under this part
(or enrolled under a risk-sharing contract under
section 1876, respectively) to the total number
of individuals enrolled with the organization.
‘‘(C) The term ‘national average per resi-
dent amount’ means an amount estimated by
the Secretary to equal the weighted average
amount that would be paid per full-time-equiva-
lent resident under section 1886(h) for the cal-
endar year (determined separately for primary
care residency programs as defined under sec-
tion 1886(h) (including obstetrics and gyne-
328
cology residency programs) and for other resi-
dency programs).’’.
(b) PAYMENTS TO HOSPITALS FOR DIRECT AND IN-
DIRECT COSTS OF GRADUATE MEDICAL EDUCATION PRO-
GRAMS ATTRIBUTABLE
TO MANAGED CARE ENROLL-
EES.—Part C of title XVIII, as amended by section 4001,
is amended by inserting after section 1857 the following
new section:
‘‘PAYMENTS TO HOSPITALS FOR CERTAIN COSTS
ATTRIBUTABLE TO MANAGED CARE ENROLLEES
‘‘SEC. 1858. (a) COSTS
OF GRADUATE MEDICAL
EDUCATION.—
‘‘(1) IN GENERAL.—For portions of cost report-
ing periods occurring on or after January 1, 1998,
the Secretary shall provide for an additional pay-
ment amount for each subsection (d) hospital (as de-
fined in section 1886(d)(1)(B)), each PPS-exempt
hospital described in clause (i) through (v) of such
section, and for each hospital reimbursed under a re-
imbursement system authorized section 1814(b)(3)
that—
‘‘(A) furnishes services to individuals who
are enrolled under a risk-sharing contract with
an eligible organization under section 1876 and
who are entitled to part A and to individuals
329
who are enrolled with a MedicarePlus organiza-
tion under part C, and
‘‘(B) has an approved medical residency
training program.
‘‘(2) PAYMENT AMOUNT.—
‘‘(A) IN GENERAL.—Subject to paragraph
(3)(B), the amount of the payment under this
subsection shall be the sum of—
‘‘(i) the amount determined under
subparagraph (B), and
‘‘(ii) the amount determined under
subparagraph (C).
Clause (ii) shall not apply in the case of a hos-
pital that is not a PPS-exempt hospital de-
scribed in clause (i) through (v) of section
1886(d)(1)(B),
‘‘(B) DIRECT AMOUNT.—The amount de-
termined under this subparagraph for a period
is equal to the product of—
‘‘(i) the aggregate approved amount
(as defined in section 1886(h)(3)(B)) for
that period; and
‘‘(ii) the fraction of the total number
of inpatient-bed-days (as established by the
Secretary) during the period which are at-
330
tributable to individuals described in para-
graph (1).
‘‘(C) INDIRECT AMOUNT.—The amount de-
termined under this subparagraph is equal to
the product of—
‘‘(i) the amount of the indirect teach-
ing adjustment factor applicable to the
hospital under section 1886(d)(5)(B); and
‘‘(ii) the product of—
‘‘(I) the number of discharges at-
tributable to individuals described in
paragraph (1), and
‘‘(II) the estimated average per
discharge amount that would other-
wise have been paid under section
1886(d)(1)(A) if the individuals had
not been enrolled as described in such
paragraph.
‘‘(D) SPECIAL RULE.—The Secretary shall
establish rules for the application of subpara-
graph (B) and for the computation of the
amounts described in subparagraph (C)(i)) and
subparagraph (C)(ii)(I) to a hospital reim-
bursed under a reimbursement system author-
ized under section 1814(b)(3) in a manner simi-
331
lar to the manner of applying such subpara-
graph and computing such amounts as if the
hospital were not reimbursed under such sec-
tion.
‘‘(3) LIMITATION.—
‘‘(A) DETERMINATIONS.—At the beginning
of each year, the Secretary shall—
‘‘(i) estimate the sum of the amount
of the payments under this subsection and
the payments under section 1853(h), for
services or discharges occurring in the
year, and
‘‘(ii) determine the amount of the an-
nual payment limit under subparagraph
(C) for such year.
‘‘(B) 
IMPOSITION
OF
LIMIT.—If 
the
amount estimated under subparagraph (A)(i)
for a year exceeds the amount determined
under subparagraph (A)(ii) for the year, then
the Secretary shall adjust the amounts of the
payments described in subparagraph (A)(i) for
the year in a pro rata manner so that the total
of such payments in the year do not exceed the
annual payment limit determined under sub-
paragraph (A)(ii) for that year.
332
‘‘(C) ANNUAL PAYMENT LIMIT.—
‘‘(i) IN GENERAL.—The annual pay-
ment limit under this subparagraph for a
year is the sum, over all counties or
MedicarePlus payment areas, of the prod-
uct of—
‘‘(I) the annual GME per capita
payment rate (described in clause (ii))
for the county or area, and
‘‘(II) the Secretary’s projection
of average enrollment of individuals
described in paragraph (1) who are
residents of that county or area, ad-
justed to reflect the relative demo-
graphic or risk characteristics of such
enrollees.
‘‘(ii) GME 
PER
CAPITA
PAYMENT
RATE.—The GME per capita payment rate
described in this clause for a particular
county or MedicarePlus payment area for
a year is the GME proportion (as specified
in clause (iii)) of the annual MedicarePlus
capitation rate (as calculated under section
1853(c)) for the county or area and year
involved.
333
‘‘(iii) GME PROPORTION.—For pur-
poses of clause (ii), the GME proportion
for a county or area and a year is equal to
the phase-in percentage (specified in clause
(vi)) of the ratio of (I) the projected GME
payment amount for the county or area (as
determined under clause (v)), to (II) the
average per capita cost for the county or
area for the year (determined under clause
(vi)).
‘‘(iv) PHASE-IN
PERCENTAGE.—The
phase-in percentage specified in this clause
for—
‘‘(I) 1998 is 20 percent,
‘‘(II) 1999 is 40 percent,
‘‘(III) 2000 is 60 percent,
‘‘(IV) 2001 is 80 percent, or
‘‘(V) any subsequent year is 100
percent.
‘‘(v) 
PROJECTED
GME 
PAYMENT
AMOUNT.—he projected GME payment
amount for a county or area—
‘‘(I) for 1998, is the amount in-
cluded in the per capita rate of pay-
ment for 1997 determined under sec-
334
tion 1876(a)(1)(C) for the payment
adjustments 
described 
in 
section
1886(d)(5)(B) and section 1886(h)
for that county or area, adjusted by
the general GME update factor (as
defined in clause (vii)) for 1998, or
‘‘(II) for a subsequent year, is
the projected GME payment amount
for the county or area for the previous
year, adjusted by the general GME
update factor for such subsequent
year.
The Secretary shall determine the amount described in
subclause (I) for a county or other area that includes hos-
pitals reimbursed under section 1814(b)(3) as though
such hospitals had not been reimbursed under such sec-
tion.
‘‘(vi) AVERAGE PER CAPITA COST.—
The average per capita cost for the county
or area determined under this clause for—
‘‘(I) 1998 is the annual per cap-
ita rate of payment for 1997 deter-
mined under section 1876(a)(1)(C)
for the county or area, increased by
the national per capita MedicarePlus
335
growth percentage for 1998 (as de-
fined in section 1853(c)(6), but deter-
mined without regard to the adjust-
ment described in subparagraph (B)
of such section); or
‘‘(II) a subsequent year is the av-
erage per capita cost determined
under this clause for the previous year
increased by the national per capita
MedicarePlus growth percentage for
the year involved (as defined in sec-
tion 1853(c)(6), but determined with-
out regard to the adjustment de-
scribed in subparagraph (B) of such
section).
‘‘(vii) GENERAL
GME
UPDATE
FAC-
TOR.—For purposes of clause (v), the ‘gen-
eral GME update factor’ for a year is
equal to the Secretary’s estimate of the na-
tional average percentage change in aver-
age per capita payments under sections
1886(d)(5)(B) and 1886(h) from the pre-
vious year to the year involved. Such
amount takes into account changes in law
336
and regulation affecting payment amounts
under such sections.’’.
SEC. 4009. DISPROPORTIONATE SHARE HOSPITAL PAY-
MENTS FOR MANAGED CARE ENROLLEES.
Section 1858, as inserted by section 4008(b), is fur-
ther amended by adding at the end the following new sub-
section:
‘‘(b) DISPROPORTIONATE SHARE HOSPITAL PAY-
MENTS.—
‘‘(1) IN GENERAL.—For portions of cost report-
ing periods occurring on or after January 1, 1998,
the Secretary shall provide for an additional pay-
ment amount for each subsection (d) hospital (as de-
fined in section 1886(d)(1)(B)) and for each hospital
reimbursed a demonstration project reimbursement
system under section 1814(b)(3) that—
‘‘(A) furnishes services to individuals who are
enrolled under a risk-sharing contract with an
eligible organization under section 1876 and
who are entitled to part A and to individuals
who are enrolled with a MedicarePlus organiza-
tion under this part, and
‘‘(B) is (or, if it were not reimbursed
under section 1814(b)(3), would qualify as) a
337
disproportionate share hospital described in sec-
tion 1886(d)(5)(F)(i).
‘‘(2) AMOUNT OF PAYMENT.—Subject to para-
graph (3)(B), the amount of the payment under this
subsection shall be the product of—
‘‘(A) the amount of the disproportionate
share adjustment percentage applicable to the
hospital under section 1886(d)(5)(F); and
‘‘(B) the product described in subsection
(a)(2)(C)(ii).
The Secretary shall establish rules for the computa-
tion of the amount described in subparagraph (A)
for a hospital reimbursed under section 1814(b)(3).
‘‘(3) LIMIT.—
‘‘(A) DETERMINATION.—At the beginning
of each year, the Secretary shall—
‘‘(i) estimate the sum of the payments
under this subsection for services or dis-
charges occurring in the year, and
‘‘(ii) determine the amount of the an-
nual payment limit under subparagraph
(C)) for such year.
‘‘(B) 
IMPOSITION
OF
LIMIT.—If 
the
amount estimated under subparagraph (A)(i)
for a year exceeds the amount determined
338
under subparagraph (A)(ii) for the year, then
the Secretary shall adjust the amounts of the
payments under this subsection for the year in
a pro rata manner so that the total of such
payments in the year do not exceed the annual
payment limit determined under subparagraph
(A)(ii) for that year.
‘‘(C) ANNUAL PAYMENT LIMIT.—The an-
nual payment limit under this subparagraph for
a year shall be determined in the same manner
as the annual payment limit is determined
under clause (i) of subsection (a)(3)(C), except
that, for purposes of this clause, any reference
in clauses (i) through (vii) of such subsection—
‘‘(i) to a payment adjustment under
subsection (a) is deemed a reference to a
payment adjustment under this subsection,
or
‘‘(ii) to payments or payment adjust-
ments under section 1886(d)(5)(B) and
1886(h) is deemed a reference to payments
and payment adjustments under section
1886(d)(5)(F).’’.
339
CHAPTER 2—INTEGRATED LONG-TERM
CARE PROGRAMS
Subchapter A—Programs of All-inclusive
Care for the Elderly (PACE)
SEC. 4011. REFERENCE TO COVERAGE OF PACE UNDER THE
MEDICARE PROGRAM.
For provision amending title XVIII of the Social Se-
curity Act to provide for payments to, and coverage of ben-
efits under, Programs of All-inclusive Care for the Elderly
(PACE), see section 3431.
SEC. 4012. REFERENCE TO ESTABLISHMENT OF PACE PRO-
GRAM AS MEDICAID STATE OPTION.
For provision amending title XIX of the Social Secu-
rity Act to establish the PACE program as a medicaid
State option, see section 3432.
Subchapter B—Social Health Maintenance
Organizations
SEC. 4015. SOCIAL HEALTH MAINTENANCE ORGANIZATIONS
(SHMOS).
(a) EXTENSION OF DEMONSTRATION PROJECT AU-
THORITIES.—Section 4018(b) of the Omnibus Budget
Reconciliation Act of 1987 is amended—
(1) in paragraph (1), by striking ‘‘1997’’ and
inserting ‘‘2000’’, and
340
(2) in paragraph (4), by striking ‘‘1998’’ and
inserting ‘‘2001’’.
(b) EXPANSION OF CAP.—Section 13567(c) of the
Omnibus Budget Reconciliation Act of 1993 is amended
by striking ‘‘12,000’’ and inserting ‘‘36,000’’.
(b) REPORT ON INTEGRATION AND TRANSITION.—
(1) IN GENERAL.—The Secretary of Health and
Human Services shall submit to Congress, by not
later than January 1, 1999, a plan for the integra-
tion of health plans offered by social health mainte-
nance organizations (including SHMO I and SHMO
II sites developed under section 2355 of the Deficit
Reduction Act of 1984 and under the amendment
made by section 4207(b)(3)(B)(i) of OBRA–1990,
respectively) and similar plans as an option under
the MedicarePlus program under part C of title
XVIII of the Social Security Act.
(2) PROVISION
FOR
TRANSITION.—Such plan
shall include a transition for social health mainte-
nance organizations operating under demonstration
project authority under such section.
(3) PAYMENT POLICY.—The report shall also
include recommendations on appropriate payment
levels for plans offered by such organizations, includ-
ing an analysis of the application of risk adjustment
341
factors appropriate to the population served by such
organizations.
Subchapter C—Other Programs
SEC. 4018. ORDERLY TRANSITION OF MUNICIPAL HEALTH
SERVICE DEMONSTRATION PROJECTS.
Section 9215 of the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended by section 6135
of OBRA–1989 and section 13557 of OBRA–1993, is fur-
ther amended—
(1) by inserting ‘‘(a)’’ before ‘‘The Secretary’’,
and
(2) by adding at the end the following: ‘‘Subject
to subsection (c), the Secretary may further extend
such demonstration projects through December 31,
2000, but only with respect to individuals are en-
rolled with such projects before January 1, 1998.
‘‘(b) The Secretary shall work with each such dem-
onstration project to develop a plan, to be submitted to
the Committee on Ways and Means of the House of Rep-
resentatives and the Committee on Finance of the Senate
by March 31, 1998, for the orderly transition of dem-
onstration projects and the project enrollees to a non-dem-
onstration project health care delivery system, such as
through integration with private or public health plan, in-
cluding a medicaid managed care or MedicarePlus plan.
342
‘‘(c) A demonstration project under subsection (a)
which does not develop and submit a transition plan under
subsection (b) by March 31, 1998, or, if later, 6 months
after the date of the enactment of this Act, shall be discon-
tinued as of December 31, 1998. The Secretary shall pro-
vide appropriate technical assistance to assist in the tran-
sition so that disruption of medical services to project en-
rollees may be minimized.’’.
SEC. 4019. EXTENSION OF CERTAIN MEDICARE COMMUNITY
NURSING ORGANIZATION DEMONSTRATION
PROJECTS.
Notwithstanding any other provision of law, dem-
onstration projects conducted under section 4079 of the
Omnibus Budget Reconciliation Act of 1987 may be con-
ducted for an additional period of 2 years, and the dead-
line for any report required relating to the results of such
projects shall be not later than 6 months before the end
of such additional period.
CHAPTER 3—MEDICARE PAYMENT
ADVISORY COMMISSION
SEC. 4021. MEDICARE PAYMENT ADVISORY COMMISSION.
(a) IN GENERAL.—Title XVIII is amended by insert-
ing after section 1804 the following new section:
343
‘‘MEDICARE PAYMENT ADVISORY COMMISSION
‘‘SEC. 1805. (a) ESTABLISHMENT.—There is hereby
established the Medicare Payment Advisory Commission
(in this section referred to as the ‘Commission’).
‘‘(b) DUTIES.—
‘‘(1) REVIEW OF PAYMENT POLICIES AND AN-
NUAL REPORTS.—The Commission shall—
‘‘(A) review payment policies under this
title, including the topics described in para-
graph (2);
‘‘(B) make recommendations to Congress
concerning such payment policies; and
‘‘(C) by not later than March 1 of each
year (beginning with 1998), submit a report to
Congress containing the results of such reviews
and its recommendations concerning such poli-
cies and an examination of issues affecting the
medicare program.
‘‘(2) SPECIFIC TOPICS TO BE REVIEWED.—
‘‘(A) MEDICAREPLUS
PROGRAM.—Specifi-
cally, the Commission shall review, with respect
to the MedicarePlus program under part C, the
following:
‘‘(i) The methodology for making pay-
ment to plans under such program, includ-
344
ing the making of differential payments
and the distribution of differential updates
among different payment areas.
‘‘(ii) The mechanisms used to adjust
payments for risk and the need to adjust
such mechanisms to take into account
health status of beneficiaries.
‘‘(iii) The implications of risk selec-
tion both among MedicarePlus organiza-
tions and between the MedicarePlus option
and the medicare fee-for-service option.
‘‘(iv) The development and implemen-
tation of mechanisms to assure the quality
of 
care 
for 
those 
enrolled 
with
MedicarePlus organizations.
‘‘(v) The impact of the MedicarePlus
program on access to care for medicare
beneficiaries.
‘‘(vi) The appropriate role for the
medicare program in addressing the needs
of individuals with chronic illnesses.
‘‘(vii) Other major issues in imple-
mentation and further development of the
MedicarePlus program.
345
‘‘(B) FEE-FOR-SERVICE SYSTEM.—Specifi-
cally, the Commission shall review payment
policies under parts A and B, including—
‘‘(i) the factors affecting expenditures
for services in different sectors, including
the process for updating hospital, skilled
nursing facility, physician, and other fees,
‘‘(ii) payment methodologies, and
‘‘(iii) their relationship to access and
quality of care for medicare beneficiaries.
‘‘(C) INTERACTION
OF
MEDICARE
PAY-
MENT POLICIES WITH HEALTH CARE DELIVERY
GENERALLY.—Specifically, 
the 
Commission
shall review the effect of payment policies under
this title on the delivery of health care services
other than under this title and assess the impli-
cations of changes in health care delivery in the
United States and in the general market for
health care services on the medicare program.
‘‘(3) COMMENTS ON CERTAIN SECRETARIAL RE-
PORTS.—If the Secretary submits to Congress (or a
committee of Congress) a report that is required by
law and that relates to payment policies under this
title, the Secretary shall transmit a copy of the re-
port to the Commission. The Commission shall re-
346
view the report and, not later than 6 months after
the date of submittal of the Secretary’s report to
Congress, shall submit to the appropriate commit-
tees of Congress written comments on such report.
Such comments may include such recommendations
as the Commission deems appropriate.
‘‘(4) AGENDA AND ADDITIONAL REVIEWS.—The
Commission shall consult periodically with the chair-
men and ranking minority members of the appro-
priate committees of Congress regarding the Com-
mission’s agenda and progress towards achieving the
agenda. The Commission may conduct additional re-
views, and submit additional reports to the appro-
priate committees of Congress, from time to time on
such topics relating to the program under this title
as may be requested by such chairmen and members
and as the Commission deems appropriate.
‘‘(5) AVAILABILITY
OF
REPORTS.—The Com-
mission shall transmit to the Secretary a copy of
each report submitted under this subsection and
shall make such reports available to the public.
‘‘(6) APPROPRIATE
COMMITTEES.—For pur-
poses of this section, the term ‘appropriate commit-
tees of Congress’ means the Committees on Ways
and Means and Commerce of the House of Rep-
347
resentatives and the Committee on Finance of the
Senate.
‘‘(c) MEMBERSHIP.—
‘‘(1) NUMBER AND APPOINTMENT.—The Com-
mission shall be composed of 11 members appointed
by the Comptroller General.
‘‘(2) QUALIFICATIONS.—
‘‘(A) IN
GENERAL.—The membership of
the Commission shall include individuals with
national recognition for their expertise in health
finance and economics, actuarial science, health
facility management, health plans and inte-
grated delivery systems, reimbursement of
health facilities, allopathic and osteopathic phy-
sicians, and other providers of health services,
and other related fields, who provide a mix of
different professionals, broad geographic rep-
resentation, and a balance between urban and
rural representatives.
‘‘(B) INCLUSION.—The membership of the
Commission shall include (but not be limited to)
physicians and other health professionals, em-
ployers, third party payers, individuals skilled
in the conduct and interpretation of biomedical,
health services, and health economics research
348
and expertise in outcomes and effectiveness re-
search and technology assessment. Such mem-
bership shall also include representatives of con-
sumers and the elderly.
‘‘(C) MAJORITY NONPROVIDERS.—Individ-
uals who are directly involved in the provision,
or management of the delivery, of items and
services covered under this title shall not con-
stitute a majority of the membership of the
Commission.
‘‘(D) ETHICAL DISCLOSURE.—The Comp-
troller General shall establish a system for pub-
lic disclosure by members of the Commission of
financial and other potential conflicts of interest
relating to such members.
‘‘(3) TERMS.—
‘‘(A) IN GENERAL.—The terms of mem-
bers of the Commission shall be for 3 years ex-
cept that the Comptroller General shall des-
ignate staggered terms for the members first
appointed.
‘‘(B) VACANCIES.—Any member appointed
to fill a vacancy occurring before the expiration
of the term for which the member’s predecessor
was appointed shall be appointed only for the
349
remainder of that term. A member may serve
after the expiration of that member’s term until
a successor has taken office. A vacancy in the
Commission shall be filled in the manner in
which the original appointment was made.
‘‘(4) COMPENSATION.—While serving on the
business of the Commission (including traveltime), a
member of the Commission shall be entitled to com-
pensation at the per diem equivalent of the rate pro-
vided for level IV of the Executive Schedule under
section 5315 of title 5, United States Code; and
while so serving away from home and member’s reg-
ular place of business, a member may be allowed
travel expenses, as authorized by the Chairman of
the Commission. Physicians serving as personnel of
the Commission may be provided a physician com-
parability allowance by the Commission in the same
manner as Government physicians may be provided
such an allowance by an agency under section 5948
of title 5, United States Code, and for such purpose
subsection (i) of such section shall apply to the Com-
mission in the same manner as it applies to the Ten-
nessee Valley Authority. For purposes of pay (other
than pay of members of the Commission) and em-
ployment benefits, rights, and privileges, all person-
350
nel of the Commission shall be treated as if they
were employees of the United States Senate.
‘‘(5) CHAIRMAN; VICE CHAIRMAN.—The Comp-
troller General shall designate a member of the
Commission, at the time of appointment of the mem-
ber, as Chairman and a member as Vice Chairman
for that term of appointment.
‘‘(6) MEETINGS.—The Commission shall meet
at the call of the Chairman.
‘‘(d) DIRECTOR AND STAFF; EXPERTS AND CON-
SULTANTS.—Subject to such review as the Comptroller
General deems necessary to assure the efficient adminis-
tration of the Commission, the Commission may—
‘‘(1) employ and fix the compensation of an Ex-
ecutive Director (subject to the approval of the
Comptroller General) and such other personnel as
may be necessary to carry out its duties (without re-
gard to the provisions of title 5, United States Code,
governing appointments in the competitive service);
‘‘(2) seek such assistance and support as may
be required in the performance of its duties from ap-
propriate Federal departments and agencies;
‘‘(3) enter into contracts or make other ar-
rangements, as may be necessary for the conduct of
351
the work of the Commission (without regard to sec-
tion 3709 of the Revised Statutes (41 U.S.C. 5));
‘‘(4) make advance, progress, and other pay-
ments which relate to the work of the Commission;
‘‘(5) provide transportation and subsistence for
persons serving without compensation; and
‘‘(6) prescribe such rules and regulations as it
deems necessary with respect to the internal organi-
zation and operation of the Commission.
‘‘(e) POWERS.—
‘‘(1) OBTAINING
OFFICIAL
DATA.—The Com-
mission may secure directly from any department or
agency of the United States information necessary
to enable it to carry out this section. Upon request
of the Chairman, the head of that department or
agency shall furnish that information to the Com-
mission on an agreed upon schedule.
‘‘(2) DATA COLLECTION.—In order to carry out
its functions, the Commission shall—
‘‘(A) utilize existing information, both pub-
lished and unpublished, where possible, collected
and assessed either by its own staff or under
other arrangements made in accordance with
this section,
352
‘‘(B) carry out, or award grants or con-
tracts for, original research and experimen-
tation, where existing information is inad-
equate, and
‘‘(C) adopt procedures allowing any inter-
ested party to submit information for the Com-
mission’s use in making reports and rec-
ommendations.
‘‘(3) ACCESS OF GAO TO INFORMATION.—The
Comptroller General shall have unrestricted access
to all deliberations, records, and nonproprietary data
of the Commission, immediately upon request.
‘‘(4) PERIODIC AUDIT.—The Commission shall
be subject to periodic audit by the Comptroller Gen-
eral.
‘‘(f) AUTHORIZATION OF APPROPRIATIONS.—
‘‘(1) REQUEST
FOR
APPROPRIATIONS.—The
Commission shall submit requests for appropriations
in the same manner as the Comptroller General sub-
mits requests for appropriations, but amounts ap-
propriated for the Commission shall be separate
from amounts appropriated for the Comptroller Gen-
eral.
‘‘(2) AUTHORIZATION.—There are authorized to
be appropriated such sums as may be necessary to
353
carry out the provisions of this section. 60 percent
of such appropriation shall be payable from the Fed-
eral Hospital Insurance Trust Fund, and 40 percent
of such appropriation shall be payable from the Fed-
eral 
Supplementary 
Medical 
Insurance 
Trust
Fund.’’.
(b) ABOLITION OF PROPAC AND PPRC.—
(1) PROPAC.—
(A) IN
GENERAL.—Section 1886(e) (42
U.S.C. 1395ww(e)) is amended—
(i) by striking paragraphs (2) and (6);
and
(ii) in paragraph (3), by striking ‘‘(A)
The Commission’’ and all that follows
through ‘‘(B)’’.
(B) CONFORMING
AMENDMENT.—Section
1862 (42 U.S.C. 1395y) is amended by striking
‘‘Prospective Payment Assessment Commis-
sion’’ each place it appears in subsection
(a)(1)(D) and subsection (i) and inserting
‘‘Medicare Payment Advisory Commission’’.
(2) PPRC.—
(A) IN GENERAL.—Title XVIII is amended
by striking section 1845 (42 U.S.C. 1395w–1).
354
(B) 
ELIMINATION
OF
CERTAIN
RE-
PORTS.—Section 1848 (42 U.S.C. 1395w–4) is
amended by striking subparagraph (B) of sub-
section (f)(1).
(C) CONFORMING AMENDMENTS.—Section
1848 (42 U.S.C. 1395w–4) is amended by
striking ‘‘Physician Payment Review Commis-
sion’’ and inserting ‘‘Medicare Payment Advi-
sory Commission’’ each place it appears in sub-
sections (c)(2)(B)(iii), (g)(6)(C), and (g)(7)(C).
(c) EFFECTIVE DATE; TRANSITION.—
(1) IN
GENERAL.—The Comptroller General
shall first provide for appointment of members to
the Medicare Payment Advisory Commission (in this
subsection referred to as ‘‘MedPAC’’) by not later
than September 30, 1997.
(2) TRANSITION.—As quickly as possible after
the date a majority of members of MedPAC are first
appointed, the Comptroller General, in consultation
with the Prospective Payment Assessment Commis-
sion (in this subsection referred to as ‘‘ProPAC’’)
and the Physician Payment Review Commission (in
this subsection referred to as ‘‘PPRC’’), shall pro-
vide for the termination of the ProPAC and the
PPRC. As of the date of termination of the respec-
355
tive Commissions, the amendments made by para-
graphs (1) and (2), respectively, of subsection (b)
become effective. The Comptroller General, to the
extent feasible, shall provide for the transfer to the
MedPAC of assets and staff of the ProPAC and the
PPRC, without any loss of benefits or seniority by
virtue of such transfers. Fund balances available to
the ProPAC or the PPRC for any period shall be
available to the MedPAC for such period for like
purposes.
(3) CONTINUING
RESPONSIBILITY
FOR
RE-
PORTS.—The MedPAC shall be responsible for the
preparation and submission of reports required by
law to be submitted (and which have not been sub-
mitted by the date of establishment of the MedPAC)
by the ProPAC and the PPRC, and, for this pur-
pose, any reference in law to either such Commission
is deemed, after the appointment of the MedPAC, to
refer to the MedPAC.
CHAPTER 4—MEDIGAP PROTECTIONS
SEC. 4031. MEDIGAP PROTECTIONS.
(a) GUARANTEEING ISSUE WITHOUT PREEXISTING
CONDITIONS
FOR CONTINUOUSLY COVERED INDIVID-
UALS.—Section 1882(s) (42 U.S.C. 1395ss(s)) is amend-
ed—
356
(1) in paragraph (3), by striking ‘‘paragraphs
(1) and (2)’’ and inserting ‘‘this subsection’’,
(2) by redesignating paragraph (3) as para-
graph (4), and
(3) by inserting after paragraph (2) the follow-
ing new paragraph:
‘‘(3)(A) The issuer of a medicare supplemental pol-
icy—
‘‘(i) may not deny or condition the issuance or
effectiveness of a medicare supplemental policy de-
scribed in subparagraph (C) that is offered and is
available for issuance to new enrollees by such is-
suer;
‘‘(ii) may not discriminate in the pricing of
such policy, because of health status, claims experi-
ence, receipt of health care, or medical condition;
and
‘‘(iii) may not impose an exclusion of benefits
based on a pre-existing condition under such policy,
in the case of an individual described in subparagraph (B)
who seeks to enroll under the policy not later than 63 days
after the date of the termination of enrollment described
in such subparagraph and who submits evidence of the
date of termination or disenrollment along with the appli-
cation for such medicare supplemental policy.
357
‘‘(B) An individual described in this subparagraph is
an individual described in any of the following clauses:
‘‘(i) The individual is enrolled under an em-
ployee welfare benefit plan that provides health ben-
efits that supplement the benefits under this title
and the plan terminates or ceases to provide all such
supplemental health benefits to the individual.
‘‘(ii) 
The 
individual 
is 
enrolled 
with 
a
MedicarePlus organization under a MedicarePlus
plan under part C, and there are circumstances per-
mitting discontinuance of the individual’s election of
the plan under section 1851(e)(4).
‘‘(iii) The individual is enrolled with an eligible
organization under a contract under section 1876, a
similar organization operating under demonstration
project authority, with an organization under an
agreement under section 1833(a)(1)(A), or with an
organization under a policy described in subsection
(t), and such enrollment ceases under the same cir-
cumstances that would permit discontinuance of an
individual’s election of coverage under section
1851(e)(4) and, in the case of a policy described in
subsection (t), there is no provision under applicable
State law for the continuation of coverage under
such policy.
359
tion 
under 
an 
agreement 
under 
section
1833(a)(1)(A), or any policy described in sub-
section (t), and
‘‘(III) the subsequent enrollment under
subclause (II) is terminated by the enrollee dur-
ing the first 6 months (or 3 months for termi-
nations occurring on or after January 1, 2003)
of such enrollment.
‘‘(vi) The individual—
‘‘(I) was enrolled under a medicare supple-
mental policy under this section,
‘‘(II) subsequently terminates such enroll-
ment and enrolls, for the first time, during or
after the annual, coordinated election period
under section 1851(e)(3)(B) occurring during
2002, with an organization or policy described
in clause (v)(II), and
‘‘(III) the subsequent enrollment under
subclause (II) is terminated by the enrollee dur-
ing the next annual, coordinated election period
under such section.
‘‘(C)(i) Subject to clauses (ii) and (iii), a medicare
supplemental policy described in this subparagraph has a
benefit package classified as ‘A’, ‘B’, ‘C’, or ‘F’ under the
standards established under subsection (p)(2).
360
‘‘(ii) Only for purposes of an individual described in
subparagraph (B)(v), a medicare supplemental policy de-
scribed in this subparagraph also includes (if available
from the same issuer) the same medicare supplemental
policy referred to in such subparagraph in which the indi-
vidual was most recently previously enrolled.
‘‘(iii) For purposes of applying this paragraph in the
case of a State that provides for offering of benefit pack-
ages other than under the classification referred to in
clause (i), the references to benefit packages in such clause
are deemed references to comparable benefit packages of-
fered in such State.
‘‘(D) At the time of an event described in subpara-
graph (B) because of which an individual ceases enroll-
ment or loses coverage or benefits under a contract or
agreement, policy, or plan, the organization that offers the
contract or agreement, the insurer offering the policy, or
the administrator of the plan, respectively, shall notify the
individual of the rights of the individual, and obligations
of issuers of medicare supplemental policies, under sub-
paragraph (A).’’.
(b) LIMITATION ON IMPOSITION OF PREEXISTING
CONDITION EXCLUSION DURING INITIAL OPEN ENROLL-
MENT
PERIOD.—Section 
1882(s)(2) 
(42 
U.S.C.
1395ss(s)(2)) is amended—
361
(1) in subparagraph (B), by striking ‘‘subpara-
graph (C)’’ and inserting ‘‘subparagraphs (C) and
(D)’’, and
(2) by adding at the end the following new sub-
paragraph:
‘‘(D) In the case of a policy issued during the 6-
month period described in subparagraph (A) to an individ-
ual who is 65 years of age or older as of the date of issu-
ance and who as of the date of the application for enroll-
ment has a continuous period of creditable coverage (as
defined in 2701(c) of the Public Health Service Act) of—
‘‘(i) at least 6 months, the policy may not ex-
clude benefits based on a pre-existing condition; or
‘‘(ii) of less than 6 months, if the policy ex-
cludes benefits based on a preexisting condition, the
policy shall reduce the period of any preexisting con-
dition exclusion by the aggregate of the periods of
creditable coverage (if any, as so defined) applicable
to the individual as of the enrollment date.
The Secretary shall specify the manner of the reduction
under clause (ii), based upon the rules used by the Sec-
retary in carrying out section 2701(a)(3) of such Act.’’.
(c) EFFECTIVE DATES.—
362
(1) GUARANTEED
ISSUE.—The amendment
made by subsection (a) shall take effect on July 1,
1998.
(2) LIMIT ON PREEXISTING CONDITION EXCLU-
SIONS.—The amendment made by subsection (b)
shall apply to policies issued on or after July 1,
1998.
(d) TRANSITION PROVISIONS.—
(1) IN GENERAL.—If the Secretary of Health
and Human Services identifies a State as requiring
a change to its statutes or regulations to conform its
regulatory program to the changes made by this sec-
tion, the State regulatory program shall not be con-
sidered to be out of compliance with the require-
ments of section 1882 of the Social Security Act due
solely to failure to make such change until the date
specified in paragraph (4).
(2) NAIC STANDARDS.—If, within 9 months
after the date of the enactment of this Act, the Na-
tional Association of Insurance Commissioners (in
this subsection referred to as the ‘‘NAIC’’) modifies
its NAIC Model Regulation relating to section 1882
of the Social Security Act (referred to in such sec-
tion as the 1991 NAIC Model Regulation, as modi-
fied pursuant to section 171(m)(2) of the Social Se-
363
curity Act Amendments of 1994 (Public Law 103–
432) 
and 
as 
modified 
pursuant 
to 
section
1882(d)(3)(A)(vi)(IV) of the Social Security Act, as
added by section 271(a) of the Health Insurance
Portability and Accountability Act of 1996 (Public
Law 104–191) to conform to the amendments made
by this section, such revised regulation incorporating
the modifications shall be considered to be the appli-
cable NAIC model regulation (including the revised
NAIC model regulation and the 1991 NAIC Model
Regulation) for the purposes of such section.
(3) SECRETARY
STANDARDS.—If the NAIC
does not make the modifications described in para-
graph (2) within the period specified in such para-
graph, the Secretary of Health and Human Services
shall make the modifications described in such para-
graph and such revised regulation incorporating the
modifications shall be considered to be the appro-
priate Regulation for the purposes of such section.
(4) DATE SPECIFIED.—
(A) IN
GENERAL.—Subject to subpara-
graph (B), the date specified in this paragraph
for a State is the earlier of—
(i) the date the State changes its stat-
utes or regulations to conform its regu-
364
latory program to the changes made by
this section, or
(ii) 1 year after the date the NAIC or
the Secretary first makes the modifications
under paragraph (2) or (3), respectively.
(B) ADDITIONAL LEGISLATIVE ACTION RE-
QUIRED.—In the case of a State which the Sec-
retary identifies as—
(i) requiring State legislation (other
than legislation appropriating funds) to
conform its regulatory program to the
changes made in this section, but
(ii) having a legislature which is not
scheduled to meet in 1999 in a legislative
session in which such legislation may be
considered,
the date specified in this paragraph is the first
day of the first calendar quarter beginning after
the close of the first legislative session of the
State legislature that begins on or after July 1,
1999. For purposes of the previous sentence, in
the case of a State that has a 2-year legislative
session, each year of such session shall be
deemed to be a separate regular session of the
State legislature.
365
SEC. 4032. MEDICARE PREPAID COMPETITIVE PRICING
DEMONSTRATION PROJECT.
(a) ESTABLISHMENT OF PROJECT.—The Secretary
of Health and Human Services shall provide, beginning
not later than 1 year after the date of the enactment of
this Act, for implementation of a project (in this section
referred to as the ‘‘project’’) to demonstrate the applica-
tion of, and the consequences of applying, a market-ori-
ented pricing system for the provision of a full range of
medicare benefits in a geographic area.
(b) RESEARCH DESIGN ADVISORY COMMITTEE.—
(1) IN
GENERAL.—Before implementing the
project under this section, the Secretary shall ap-
point a national advisory committee, including inde-
pendent actuaries and individuals with expertise in
competitive health plan pricing, to make rec-
ommendations to the Secretary concerning the ap-
propriate research design for implementing the
project.
(2) INITIAL RECOMMENDATIONS.—The commit-
tee initially shall submit recommendations respecting
the method for area selection, benefit design among
plans offered, structuring choice among health plans
offered, methods for setting the price to be paid to
plans, collection of plan information (including infor-
mation concerning quality and access to care), infor-
366
mation dissemination, and methods of evaluating the
results of the project.
(3) ADVICE DURING IMPLEMENTATION.—Upon
implementation of the project, the committee shall
continue to advise the Secretary on the application
of the design in different areas and changes in the
project based on experience with its operations.
(c) AREA SELECTION.—
(1) IN GENERAL.—Taking into account the rec-
ommendations of the advisory committee submitted
under subsection (b), the Secretary shall designate
areas in which the project will operate.
(2) APPOINTMENT OF AREA ADVISORY COMMIT-
TEE.—Upon the designation of an area for inclusion
in the project, the Secretary shall appoint an area
advisory committee, composed of representatives of
health plans, providers, and medicare beneficiaries in
the area, to advise the Secretary concerning how the
project will actually be implemented in the area.
Such advice may include advice concerning the mar-
keting and pricing of plans in the area and other sa-
lient factors relating.
(d) MONITORING AND REPORT.—
(1) MONITORING IMPACT.—Taking into consid-
eration the recommendations of the general advisory
367
committee (appointed under subsection (b)), the Sec-
retary shall closely monitor the impact of projects in
areas on the price and quality of, and access to,
medicare covered services, choice of health plan,
changes in enrollment, and other relevant factors.
(2) REPORT.—The Secretary shall periodically
report to Congress on the progress under the project
under this section.
(e) WAIVER AUTHORITY.—The Secretary of Health
and Human Services may waive such requirements of sec-
tion 1876 (and such requirements of part C of title XVIII,
as amended by chapter 1), of the Social Security Act as
may be necessary for the purposes of carrying out the
project.
(f) RELATIONSHIP TO OTHER AUTHORITY.—Except
pursuant to this section the Secretary of Health and
Human Services may not conduct or continue any medi-
care demonstration project relating to payment of health
maintenance organizations, MedicarePlus organizations,
or similar prepaid managed care entities on the basis of
a competitive bidding process or pricing system described
in subsection (a) rather than on the bases described in
section 1853 or 1876 of the Social Security Act.
368
Subtitle B—Prevention Initiatives
SEC. 4101. SCREENING MAMMOGRAPHY.
(a) PROVIDING ANNUAL SCREENING MAMMOGRAPHY
FOR WOMEN OVER AGE 39.—Section 1834(c)(2)(A) (42
U.S.C. 1395m(c)(2)(A)) is amended—
(1) in clause (iii), to read as follows:
‘‘(iii) In the case of a woman over 39
years of age, payment may not be made
under this part for screening mammog-
raphy performed within 11 months follow-
ing the month in which a previous screen-
ing mammography was performed.’’; and
(2) by striking clauses (iv) and (v).
(b) WAIVER OF DEDUCTIBLE.—The first sentence of
section 1833(b) (42 U.S.C. 1395l(b)) is amended—
(1) by striking ‘‘and’’ before ‘‘(4)’’, and
(2) by inserting before the period at the end the
following: ‘‘, and (5) such deductible shall not apply
with respect to screening mammography (as de-
scribed in section 1861(jj))’’.
(c) 
CONFORMING
AMENDMENT.—Section
1834(c)(1)(C) of such Act (42 U.S.C. 1395m(c)(1)(C)) is
amended by striking ‘‘, subject to the deductible estab-
lished under section 1833(b),’’.
369
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to items and services furnished on
or after January 1, 1998.
SEC. 4102. SCREENING PAP SMEAR AND PELVIC EXAMS.
(a) COVERAGE OF PELVIC EXAM; INCREASING FRE-
QUENCY
OF
COVERAGE
OF
PAP
SMEAR.—Section
1861(nn) (42 U.S.C. 1395x(nn)) is amended—
(1) in the heading, by striking ‘‘Smear’’ and in-
serting ‘‘Smear; Screening Pelvic Exam’’;
(2) by inserting ‘‘or vaginal’’ after ‘‘cervical’’
each place it appears;
(3) by striking ‘‘(nn)’’ and inserting ‘‘(nn)(1)’’;
(4) by striking ‘‘3 years’’ and all that follows
and inserting ‘‘3 years, or during the preceding year
in the case of a woman described in paragraph (3).’’;
and
(5) by adding at the end the following new
paragraphs:
‘‘(2) The term ‘screening pelvic exam’ means an pel-
vic examination provided to a woman if the woman in-
volved has not had such an examination during the preced-
ing 3 years, or during the preceding year in the case of
a woman described in paragraph (3), and includes a clini-
cal breast examination.
370
‘‘(3) A woman described in this paragraph is a
woman who—
‘‘(A) is of childbearing age and has not had a
test described in this subsection during each of the
preceding 3 years that did not indicate the presence
of cervical or vaginal cancer; or
‘‘(B) is at high risk of developing cervical or
vaginal cancer (as determined pursuant to factors
identified by the Secretary).’’.
(b) WAIVER OF DEDUCTIBLE.—The first sentence of
section 1833(b) (42 U.S.C. 1395l(b)), as amended by sec-
tion 4101(b), is amended—
(1) by striking ‘‘and’’ before ‘‘(5)’’, and
(2) by inserting before the period at the end the
following: ‘‘, and (6) such deductible shall not apply
with respect to screening pap smear and screening
pelvic exam (as described in section 1861(nn))’’.
(c) 
CONFORMING
AMENDMENTS.—Sections
1861(s)(14) and 1862(a)(1)(F) (42 U.S.C. 1395x(s)(14),
1395y(a)(1)(F)) are each amended by inserting ‘‘and
screening pelvic exam’’ after ‘‘screening pap smear’’.
(d) PAYMENT UNDER PHYSICIAN FEE SCHEDULE.—
Section 1848(j)(3)(42 U.S.C. 1395w–4(j)(3)) is amended
by striking ‘‘and (4)’’ and inserting ‘‘, (4) and (14) (with
respect to services described in section 1861(nn)(2))’’.
371
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to items and services furnished on
or after January 1, 1998.
(f) REPORT ON RESCREENING PAP SMEARS.—Not
later than 6 months after the date of the enactment of
this Act, the Secretary of Health and Human Services
shall submit to Congress a report on the extent to which
the use of supplemental computer-assisted diagnostic tests
consisting of interactive automated computer-imaging of
an exfoliative cytology test, in conjunction with the pap
smears, improves the early detection of cervical or vaginal
cancer and the costs implications for coverage of such sup-
plemental tests under the medicare program.
SEC. 4103. PROSTATE CANCER SCREENING TESTS.
(a) COVERAGE.—Section 1861 (42 U.S.C. 1395x) is
amended—
(1) in subsection (s)(2)—
(A) by striking ‘‘and’’ at the end of sub-
paragraphs (N) and (O), and
(B) by inserting after subparagraph (O)
the following new subparagraph:
‘‘(P) prostate cancer screening tests (as defined
in subsection (oo)); and’’; and
(2) by adding at the end the following new sub-
section:
372
‘‘Prostate Cancer Screening Tests
‘‘(oo)(1) The term ‘prostate cancer screening test’
means a test that consists of any (or all) of the procedures
described in paragraph (2) provided for the purpose of
early detection of prostate cancer to a man over 50 years
of age who has not had such a test during the preceding
year.
‘‘(2) The procedures described in this paragraph are
as follows:
‘‘(A) A digital rectal examination.
‘‘(B) A prostate-specific antigen blood test.
‘‘(C) For years beginning after 2001, such
other procedures as the Secretary finds appropriate
for the purpose of early detection of prostate cancer,
taking into account changes in technology and
standards of medical practice, availability, effective-
ness, costs, and such other factors as the Secretary
considers appropriate.’’.
(b) PAYMENT
FOR PROSTATE-SPECIFIC ANTIGEN
BLOOD TEST UNDER CLINICAL DIAGNOSTIC LABORA-
TORY TEST FEE SCHEDULES.—Section 1833(h)(1)(A)
(42 U.S.C. 1395l(h)(1)(A)) is amended by inserting after
‘‘laboratory tests’’ the following: ‘‘(including prostate can-
cer screening tests under section 1861(oo) consisting of
prostate-specific antigen blood tests)’’.
373
(c) CONFORMING AMENDMENT.—Section 1862(a)
(42 U.S.C. 1395y(a)) is amended—
(1) in paragraph (1)—
(A) in subparagraph (E), by striking
‘‘and’’ at the end,
(B) in subparagraph (F), by striking the
semicolon at the end and inserting ‘‘, and’’, and
(C) by adding at the end the following new
subparagraph:
‘‘(G) in the case of prostate cancer screening
tests (as defined in section 1861(oo)), which are per-
formed more frequently than is covered under such
section;’’; and
(2) in paragraph (7), by striking ‘‘paragraph
(1)(B) or under paragraph (1)(F)’’ and inserting
‘‘subparagraphs (B), (F), or (G) of paragraph (1)’’.
(d) PAYMENT UNDER PHYSICIAN FEE SCHEDULE.—
Section 1848(j)(3)(42 U.S.C. 1395w–4(j)(3)), as amended
by section 4102, is amended by inserting ‘‘(2)(P) (with
respect to services described in subparagraphs (A) and (C)
of section 1861(oo),’’ after ‘‘(2)(G)’’
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to items and services furnished on
or after January 1, 1998.
374
SEC. 4104. COVERAGE OF COLORECTAL SCREENING.
(a) COVERAGE.—
(1) IN
GENERAL.—Section 1861 (42 U.S.C.
1395x), as amended by section 4103(a), is amend-
ed—
(A) in subsection (s)(2)—
(i) by striking ‘‘and’’ at the end of
subparagraph (P);
(ii) by adding ‘‘and’’ at the end of
subparagraph (Q); and
(iii) by adding at the end the follow-
ing new subparagraph:
‘‘(R) colorectal cancer screening tests (as de-
fined in subsection (pp)); and’’; and
(B) by adding at the end the following new
subsection:
‘‘Colorectal Cancer Screening Tests
‘‘(pp)(1) The term ‘colorectal cancer screening test’
means any of the following procedures furnished to an in-
dividual for the purpose of early detection of colorectal
cancer:
‘‘(A) Screening fecal-occult blood test.
‘‘(B) Screening flexible sigmoidoscopy.
‘‘(C) In the case of an individual at high risk
for colorectal cancer, screening colonoscopy.
375
‘‘(D) Screening barium enema, if found by the
Secretary to be an appropriate alternative to screen-
ing flexible sigmoidoscopy under subparagraph (B)
or screening colonoscopy under subparagraph (C).
‘‘(E) For years beginning after 2002, such
other procedures as the Secretary finds appropriate
for the purpose of early detection of colorectal can-
cer, taking into account changes in technology and
standards of medical practice, availability, effective-
ness, costs, and such other factors as the Secretary
considers appropriate.
‘‘(2) In paragraph (1)(C), an ‘individual at high risk
for colorectal cancer’ is an individual who, because of fam-
ily history, prior experience of cancer or precursor neo-
plastic polyps, a history of chronic digestive disease condi-
tion (including inflammatory bowel disease, Crohn’s Dis-
ease, or ulcerative colitis), the presence of any appropriate
recognized gene markers for colorectal cancer, or other
predisposing factors, faces a high risk for colorectal can-
cer.’’.
(2) DEADLINE FOR DECISION ON COVERAGE OF
SCREENING
BARIUM
ENEMA.—Not later than 2
years after the date of the enactment of this section,
the Secretary of Health and Human Services shall
issue and publish a determination on the treatment
376
of screening barium enema as a colorectal cancer
screening test under section 1861(pp) (as added by
subparagraph (B)) as an alternative procedure to a
screening 
flexible 
sigmoidoscopy 
or 
screening
colonoscopy.
(b) FREQUENCY AND PAYMENT LIMITS.—
(1) IN
GENERAL.—Section 1834 (42 U.S.C.
1395m) is amended by inserting after subsection (c)
the following new subsection:
‘‘(d) FREQUENCY
AND
PAYMENT
LIMITS
FOR
COLORECTAL CANCER SCREENING TESTS.—
‘‘(1) 
SCREENING
FECAL-OCCULT
BLOOD
TESTS.—
‘‘(A) PAYMENT LIMIT.—In establishing fee
schedules under section 1833(h) with respect to
colorectal cancer screening tests consisting of
screening fecal-occult blood tests, except as pro-
vided by the Secretary under paragraph (4)(A),
the payment amount established for tests per-
formed—
‘‘(i) in 1998 shall not exceed $5; and
‘‘(ii) in a subsequent year, shall not
exceed the limit on the payment amount
established under this subsection for such
tests for the preceding year, adjusted by
377
the applicable adjustment under section
1833(h) for tests performed in such year.
‘‘(B) FREQUENCY LIMIT.—Subject to revi-
sion by the Secretary under paragraph (4)(B),
no payment may be made under this part for
colorectal cancer screening test consisting of a
screening fecal-occult blood test—
‘‘(i) if the individual is under 50 years
of age; or
‘‘(ii) if the test is performed within
the 11 months after a previous screening
fecal-occult blood test.
‘‘(2) 
SCREENING
FLEXIBLE
SIGMOIDOSCOPIES.—
‘‘(A) FEE
SCHEDULE.—The Secretary
shall establish a payment amount under section
1848 with respect to colorectal cancer screening
tests 
consisting 
of 
screening 
flexible
sigmoidoscopies that is consistent with payment
amounts under such section for similar or relat-
ed services, except that such payment amount
shall be established without regard to sub-
section (a)(2)(A) of such section.
‘‘(B) PAYMENT
LIMIT.—In the case of
screening flexible sigmoidoscopy services—
378
‘‘(i) the payment amount may not ex-
ceed such amount as the Secretary speci-
fies, based upon the rates recognized under
this 
part 
for 
diagnostic 
flexible
sigmoidoscopy services; and
‘‘(ii) that, in accordance with regula-
tions, may be performed in an ambulatory
surgical center and for which the Secretary
permits ambulatory surgical center pay-
ments under this part and that are per-
formed in an ambulatory surgical center or
hospital outpatient department, the pay-
ment amount under this part may not ex-
ceed the lesser of (I) the payment rate that
would apply to such services if they were
performed in a hospital outpatient depart-
ment, or (II) the payment rate that would
apply to such services if they were per-
formed in an ambulatory surgical center.
‘‘(C) SPECIAL RULE FOR DETECTED LE-
SIONS.—If during the course of such screening
flexible sigmoidoscopy, a lesion or growth is de-
tected which results in a biopsy or removal of
the lesion or growth, payment under this part
shall not be made for the screening flexible
379
sigmoidoscopy but shall be made for the proce-
dure classified as a flexible sigmoidoscopy with
such biopsy or removal.
‘‘(D) FREQUENCY LIMIT.—Subject to revi-
sion by the Secretary under paragraph (4)(B),
no payment may be made under this part for
a colorectal cancer screening test consisting of
a screening flexible sigmoidoscopy—
‘‘(i) if the individual is under 50 years
of age; or
‘‘(ii) if the procedure is performed
within the 47 months after a previous
screening flexible sigmoidoscopy.
‘‘(3) SCREENING COLONOSCOPY FOR INDIVID-
UALS AT HIGH RISK FOR COLORECTAL CANCER.—
‘‘(A) FEE
SCHEDULE.—The Secretary
shall establish a payment amount under section
1848 with respect to colorectal cancer screening
test consisting of a screening colonoscopy for
individuals at high risk for colorectal cancer (as
defined in section 1861(pp)(2)) that is consist-
ent with payment amounts under such section
for similar or related services, except that such
payment amount shall be established without
regard to subsection (a)(2)(A) of such section.
380
‘‘(B) PAYMENT
LIMIT.—In the case of
screening colonoscopy services—
‘‘(i) the payment amount may not ex-
ceed such amount as the Secretary speci-
fies, based upon the rates recognized under
this part for diagnostic colonoscopy serv-
ices; and
‘‘(ii) that are performed in an ambula-
tory surgical center or hospital outpatient
department, the payment amount under
this part may not exceed the lesser of (I)
the payment rate that would apply to such
services if they were performed in a hos-
pital outpatient department, or (II) the
payment rate that would apply to such
services if they were performed in an am-
bulatory surgical center.
‘‘(C) SPECIAL RULE FOR DETECTED LE-
SIONS.—If during the course of such screening
colonoscopy, a lesion or growth is detected
which results in a biopsy or removal of the le-
sion or growth, payment under this part shall
not be made for the screening colonoscopy but
shall be made for the procedure classified as a
colonoscopy with such biopsy or removal.
381
‘‘(D) FREQUENCY LIMIT.—Subject to revi-
sion by the Secretary under paragraph (4)(B),
no payment may be made under this part for
a colorectal cancer screening test consisting of
a screening colonoscopy for individuals at high
risk for colorectal cancer if the procedure is
performed within the 23 months after a pre-
vious screening colonoscopy.
‘‘(4) REDUCTIONS IN PAYMENT LIMIT AND RE-
VISION OF FREQUENCY.—
‘‘(A) REDUCTIONS IN PAYMENT LIMIT FOR
SCREENING
FECAL-OCCULT
BLOOD
TESTS.—
The Secretary shall review from time to time
the appropriateness of the amount of the pay-
ment limit established for screening fecal-occult
blood tests under paragraph (1)(A). The Sec-
retary may, with respect to tests performed in
a year after 2000, reduce the amount of such
limit as it applies nationally or in any area to
the amount that the Secretary estimates is re-
quired to assure that such tests of an appro-
priate quality are readily and conveniently
available during the year.
‘‘(B) REVISION OF FREQUENCY.—
382
‘‘(i) REVIEW.—The Secretary shall re-
view periodically the appropriate frequency
for performing colorectal cancer screening
tests based on age and such other factors
as the Secretary believes to be pertinent.
‘‘(ii) REVISION OF FREQUENCY.—The
Secretary, taking into consideration the re-
view made under clause (i), may revise
from time to time the frequency with
which such tests may be paid for under
this subsection, but no such revision shall
apply to tests performed before January 1,
2001.
‘‘(5) LIMITING CHARGES OF NONPARTICIPATING
PHYSICIANS.—
‘‘(A) IN
GENERAL.—In the case of a
colorectal cancer screening test consisting of a
screening flexible sigmoidoscopy or a screening
colonoscopy provided to an individual at high
risk for colorectal cancer for which payment
may be made under this part, if a nonpartici-
pating physician provides the procedure to an
individual enrolled under this part, the physi-
cian may not charge the individual more than
383
the limiting charge (as defined in section
1848(g)(2)).
‘‘(B) ENFORCEMENT.—If a physician or
supplier knowing and willfully imposes a charge
in violation of subparagraph (A), the Secretary
may apply sanctions against such physician or
supplier 
in 
accordance 
with 
section
1842(j)(2).’’.
(2) SPECIAL
RULE
FOR
SCREENING
BARIUM
ENEMA.—If the Secretary of Health and Human
Services issues a determination under subsection
(a)(2) that screening barium enema should be cov-
ered as a colorectal cancer screening test under sec-
tion 1861(pp) (as added by subsection (a)(1)(B)),
the Secretary shall establish frequency limits (in-
cluding revisions of frequency limits) for such proce-
dure consistent with the frequency limits for other
colorectal cancer screening tests under section
1834(d) (as added by subsection (b)(1)), and shall
establish payment limits (including limits on charges
of nonparticipating physicians) for such procedure
consistent with the payment limits under part B of
title XVIII for diagnostic barium enema procedures.
(c) CONFORMING AMENDMENTS.—(1) Paragraphs
(1)(D) and (2)(D) of section 1833(a) (42 U.S.C. 1395l(a))
384
are each amended by inserting ‘‘or section 1834(d)(1)’’
after ‘‘subsection (h)(1)’’.
(2) 
Section 
1833(h)(1)(A) 
(42 
U.S.C.
1395l(h)(1)(A)) is amended by striking ‘‘The Secretary’’
and inserting ‘‘Subject to paragraphs (1) and (4)(A) of
section 1834(d), the Secretary’’.
(3) Clauses (i) and (ii) of section 1848(a)(2)(A) (42
U.S.C. 1395w–4(a)(2)(A)) are each amended by inserting
after ‘‘a service’’ the following: ‘‘(other than a colorectal
cancer screening test consisting of a screening colonoscopy
provided to an individual at high risk for colorectal cancer
or a screening flexible sigmoidoscopy)’’.
(4) Section 1862(a) (42 U.S.C. 1395y(a)), as amend-
ed by section 4103(c), is amended—
(A) in paragraph (1)—
(i) in subparagraph (F), by striking ‘‘and’’
at the end,
(ii) in subparagraph (G), by striking the
semicolon at the end and inserting ‘‘, and’’, and
(iii) by adding at the end the following new
subparagraph:
‘‘(H) in the case of colorectal cancer screening
tests, which are performed more frequently than is
covered under section 1834(d);’’; and
385
(B) in paragraph (7), by striking ‘‘or (G)’’ and
inserting ‘‘(G), or (H)’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to items and services furnished on
or after January 1, 1998.
SEC. 4105. DIABETES SCREENING TESTS.
(a) COVERAGE
OF DIABETES OUTPATIENT SELF-
MANAGEMENT TRAINING SERVICES.—
(1) IN
GENERAL.—Section 1861 (42 U.S.C.
1395x), as amended by sections 4103(a) and
4104(a), is amended—
(A) in subsection (s)(2)—
(i) by striking ‘‘and’’ at the end of
subparagraph (Q);
(ii) by adding ‘‘and’’ at the end of
subparagraph (R); and
(iii) by adding at the end the follow-
ing new subparagraph:
‘‘(S) diabetes outpatient self-management train-
ing services (as defined in subsection (qq)); and’’;
and
(B) by adding at the end the following new
subsection:
386
‘‘Diabetes Outpatient Self-Management Training Services
‘‘(qq)(1) The term ‘diabetes outpatient self-manage-
ment training services’ means educational and training
services furnished to an individual with diabetes by a cer-
tified provider (as described in paragraph (2)(A)) in an
outpatient setting by an individual or entity who meets
the quality standards described in paragraph (2)(B), but
only if the physician who is managing the individual’s dia-
betic condition certifies that such services are needed
under a comprehensive plan of care related to the individ-
ual’s diabetic condition to provide the individual with nec-
essary skills and knowledge (including skills related to the
self-administration of injectable drugs) to participate in
the management of the individual’s condition.
‘‘(2) In paragraph (1)—
‘‘(A) a ‘certified provider’ is a physician, or
other individual or entity designated by the Sec-
retary, that, in addition to providing diabetes out-
patient self-management training services, provides
other items or services for which payment may be
made under this title; and
‘‘(B) a physician, or such other individual or
entity, meets the quality standards described in this
paragraph if the physician, or individual or entity,
meets quality standards established by the Sec-
387
retary, except that the physician or other individual
or entity shall be deemed to have met such stand-
ards if the physician or other individual or entity
meets applicable standards originally established by
the National Diabetes Advisory Board and subse-
quently revised by organizations who participated in
the establishment of standards by such Board, or is
recognized by an organization that represents indi-
viduals (including individuals under this title) with
diabetes as meeting standards for furnishing the
services.’’.
(2) PAYMENT UNDER PHYSICIAN FEE SCHED-
ULE.—Section 1848(j)(3)(42 U.S.C. 1395w–4(j)(3))
as amended in sections 4102 and 4103, is amended
by inserting ‘‘(2)(S),’’ before ‘‘(3),’’.
(3) CONSULTATION
WITH
ORGANIZATIONS
IN
ESTABLISHING
PAYMENT
AMOUNTS
FOR
SERVICES
PROVIDED BY PHYSICIANS.—In establishing payment
amounts under section 1848 of the Social Security
Act for physicians’ services consisting of diabetes
outpatient self-management training services, the
Secretary of Health and Human Services shall con-
sult with appropriate organizations, including such
organizations representing individuals or medicare
beneficiaries with diabetes, in determining the rel-
388
ative 
value 
for 
such 
services 
under 
section
1848(c)(2) of such Act.
(b) BLOOD-TESTING STRIPS FOR INDIVIDUALS WITH
DIABETES.—
(1) INCLUDING STRIPS AND MONITORS AS DU-
RABLE MEDICAL EQUIPMENT.—The first sentence of
section 1861(n) (42 U.S.C. 1395x(n)) is amended by
inserting before the semicolon the following: ‘‘, and
includes blood-testing strips and blood glucose mon-
itors for individuals with diabetes without regard to
whether the individual has Type I or Type II diabe-
tes or to the individual’s use of insulin (as deter-
mined under standards established by the Secretary
in consultation with the appropriate organizations)’’.
(2) 10 PERCENT REDUCTION IN PAYMENTS FOR
TESTING
STRIPS.—Section 1834(a)(2)(B)(iv) (42
U.S.C. 1395m(a)(2)(B)(iv)) is amended by adding
before the period the following: ‘‘(reduced by 10 per-
cent, in the case of a blood glucose testing strip fur-
nished after 1997 for an individual with diabetes)’’.
(c) ESTABLISHMENT OF OUTCOME MEASURES FOR
BENEFICIARIES WITH DIABETES.—
(1) IN GENERAL.—The Secretary of Health and
Human Services, in consultation with appropriate
organizations, shall establish outcome measures, in-
389
cluding glysolated hemoglobin (past 90-day average
blood sugar levels), for purposes of evaluating the
improvement of the health status of medicare bene-
ficiaries with diabetes mellitus.
(2) RECOMMENDATIONS
FOR
MODIFICATIONS
TO SCREENING BENEFITS.—Taking into account in-
formation on the health status of medicare bene-
ficiaries with diabetes mellitus as measured under
the outcome measures established under subpara-
graph (A), the Secretary shall from time to time
submit recommendations to Congress regarding
modifications to the coverage of services for such
beneficiaries under the medicare program.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to items and services furnished on
or after January 1, 1998.
SEC. 4106. STANDARDIZATION OF MEDICARE COVERAGE OF
BONE MASS MEASUREMENTS.
(a) IN GENERAL.—Section 1861 (42 U.S.C. 1395x),
as amended by sections 4103(a), 4104(a), 4105(a), is
amended—
(1) in subsection (s)—
(A) in paragraph (12)(C), by striking
‘‘and’’ at the end,
390
(B) by striking the period at the end of
paragraph (14) and inserting ‘‘; and’’,
(C) by redesignating paragraphs (15) and
(16) as paragraphs (16) and (17), respectively,
and
(D) by inserting after paragraph (14) the
following new paragraph:
‘‘(15) bone mass measurement (as defined in
subsection (rr)).’’; and
(2) by inserting after subsection (qq) the follow-
ing new subsection:
‘‘Bone Mass Measurement
‘‘(rr)(1) The term ‘bone mass measurement’ means
a radiologic or radioisotopic procedure or other procedure
approved by the Food and Drug Administration performed
on a qualified individual (as defined in paragraph (2)) for
the purpose of identifying bone mass or detecting bone
loss or determining bone quality, and includes a physi-
cian’s interpretation of the results of the procedure.
‘‘(2) For purposes of this subsection, the term ‘quali-
fied individual’ means an individual who is (in accordance
with regulations prescribed by the Secretary)—
‘‘(A) an estrogen-deficient woman at clinical
risk for osteoporosis;
‘‘(B) an individual with vertebral abnormalities;
391
‘‘(C) 
an 
individual 
receiving 
long-term
glucocorticoid steroid therapy;
‘‘(D) 
an 
individual 
with 
primary
hyperparathyroidism; or
‘‘(E) an individual being monitored to assess
the response to or efficacy of an approved
osteoporosis drug therapy.
‘‘(3) The Secretary shall establish such standards re-
garding the frequency with which a qualified individual
shall be eligible to be provided benefits for bone mass
measurement under this title.’’.
(b) PAYMENT UNDER PHYSICIAN FEE SCHEDULE.—
Section 1848(j)(3) (42 U.S.C. 1395w–4(j)(3)), as amend-
ed by sections 4102, 4103, and 4105, is amended—
(1) by striking ‘‘(4) and (14)’’ and inserting
‘‘(4), (14)’’ and
(2) 
by 
inserting 
‘‘ 
and 
(15)’’ 
after
‘‘1861(nn)(2))’’.
(c) CONFORMING AMENDMENTS.—Sections 1864(a),
1902(a)(9)(C), and 1915(a)(1)(B)(ii)(I) (42 U.S.C.
1395aa(a), 1396a(a)(9)(C), and 1396n(a)(1)(B)(ii)(I))
are amended by striking ‘‘paragraphs (15) and (16)’’ each
place it appears and inserting ‘‘paragraphs (16) and
(17)’’.
392
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to bone mass measurements per-
formed on or after July 1, 1998.
SEC. 4107. VACCINES OUTREACH EXPANSION.
(a) EXTENSION OF INFLUENZA AND PNEUMOCOCCAL
VACCINATION CAMPAIGN.—In order to increase utilization
of pneumococcal and influenza vaccines in medicare bene-
ficiaries, the Influenza and Pneumococcal Vaccination
Campaign carried out by the Health Care Financing Ad-
ministration in conjunction with the Centers for Disease
Control and Prevention and the National Coalition for
Adult Immunization, is extended until the end of fiscal
year 2002.
(b) APPROPRIATION.—There are hereby appropriated
for each of fiscal years 1998 through 2002, $8,000,000
to the Campaign described in subsection (a). Of the
amount of such appropriation in each fiscal year, 60 per-
cent of such appropriation shall be payable from the Fed-
eral Hospital Insurance Trust Fund, and 40 percent shall
be payable from the Federal Supplementary Medical In-
surance Trust Fund under title XVIII of the Social Secu-
rity Act (42 U.S.C. 1395i, 1395t).
SEC. 4108. STUDY ON PREVENTIVE BENEFITS.
(a) STUDY.—The Secretary of Health and Human
Services shall request the National Academy of Sciences,
393
in conjunction with the United States Preventive Services
Task Force, to analyze the expansion or modification of
preventive benefits provided to medicare beneficiaries
under title XVIII of the Social Security Act. The analysis
shall consider both the short term and long term benefits,
and costs to the medicare program, of such expansion or
modification,
(b) REPORT.—
(1) INITIAL REPORT.—Not later than 2 years
after the date of the enactment of this Act, the Sec-
retary shall submit a report on the findings of the
analysis conducted under subsection (a) to the Com-
mittee on Ways and Means and the Committee on
Commerce of the House of Representatives and the
Committee on Finance of the Senate.
(2) CONTENTS.—Such report shall include spe-
cific findings with respect to coverage of the follow-
ing preventive benefits:
(A) Nutrition therapy, including parenteral
and enteral nutrition.
(B) Skin cancer screening.
(C) Medically necessary dental care.
(D) Routine patient care costs for bene-
ficiaries enrolled in approved clinical trial pro-
grams.
394
(E) Elimination of time limitation for cov-
erage of immunosuppressive drugs for trans-
plant patients.
(3) FUNDING.—From funds appropriated to the
Department of Health and Human Services for fis-
cal years 1998 and 1999, the Secretary shall provide
for such funding as may be necessary for the con-
duct of the analysis by the National Academy of
Sciences under this section.
Subtitle C—Rural Initiatives
SEC. 4206. INFORMATICS, TELEMEDICINE, AND EDUCATION
DEMONSTRATION PROJECT.
(a) PURPOSE AND AUTHORIZATION.—
(1) IN
GENERAL.—Not later than 9 months
after the date of enactment of this section, the Sec-
retary of Health and Human Services shall provide
for a demonstration project described in paragraph
(2).
(2) DESCRIPTION OF PROJECT.—
(A) IN
GENERAL.—The demonstration
project described in this paragraph is a single
demonstration project to use eligible health care
provider telemedicine networks to apply high-
capacity computing and advanced networks to
improve primary care (and prevent health care
395
complications) to medicare beneficiaries with di-
abetes mellitus who are residents of medically
underserved rural areas or residents of medi-
cally underserved inner-city areas.
(B) 
MEDICALLY
UNDERSERVED
DE-
FINED.—As used in this paragraph, the term
‘‘medically underserved’’ has the meaning given
such term in section 330(b)(3) of the Public
Health Service Act (42 U.S.C. 254b(b)(3)).
(3) WAIVER.—The Secretary shall waive such
provisions of title XVIII of the Social Security Act
as may be necessary to provide for payment for serv-
ices under the project in accordance with subsection
(d).
(4) DURATION OF PROJECT.—The project shall
be conducted over a 4-year period.
(b) OBJECTIVES OF PROJECT.—The objectives of the
project include the following:
(1) Improving patient access to and compliance
with appropriate care guidelines for individuals with
diabetes mellitus through direct telecommunications
link with information networks in order to improve
patient quality-of-life and reduce overall health care
costs.
396
(2) Developing a curriculum to train, and pro-
viding standards for credentialing and licensure of,
health professionals (particularly primary care
health 
professionals) 
in 
the 
use 
of 
medical
informatics and telecommunications.
(3) Demonstrating the application of advanced
technologies, such as video-conferencing from a pa-
tient’s home, remote monitoring of a patient’s medi-
cal condition, interventional informatics, and apply-
ing individualized, automated care guidelines, to as-
sist primary care providers in assisting patients with
diabetes in a home setting.
(4) Application of medical informatics to resi-
dents with limited English language skills.
(5) Developing standards in the application of
telemedicine and medical informatics.
(6) Developing a model for the cost-effective de-
livery of primary and related care both in a managed
care environment and in a fee-for-service environ-
ment.
(c) ELIGIBLE HEALTH CARE PROVIDER TELEMEDI-
CINE NETWORK DEFINED.—For purposes of this section,
the term ‘‘eligible health care provider telemedicine net-
work’’ means a consortium that includes at least one ter-
tiary care hospital (but no more than 2 such hospitals),
397
at least one medical school, no more than 4 facilities in
rural or urban areas, and at least one regional tele-
communications provider and that meets the following re-
quirements:
(1) The consortium is located in an area with
one of the highest concentrations of medical schools
and tertiary care facilities in the United States and
has appropriate arrangements (within or outside the
consortium) with such schools and facilities, univer-
sities, and telecommunications providers, in order to
conduct the project.
(2) The consortium submits to the Secretary an
application at such time, in such manner, and con-
taining such information as the Secretary may re-
quire, including a description of the use to which the
consortium would apply any amounts received under
the project and the source and amount of non-Fed-
eral funds used in the project.
(3) The consortium guarantees that it will be
responsible for payment for all costs of the project
that are not paid under this section and that the
maximum amount of payment that may be made to
the consortium under this section shall not exceed
the amount specified in subsection (d)(3).
(d) COVERAGE AS MEDICARE PART B SERVICES.—
398
(1) IN
GENERAL.—Subject to the succeeding
provisions of this subsection, services related to the
treatment or management of (including prevention
of complications from) diabetes for medicare bene-
ficiaries furnished under the project shall be consid-
ered to be services covered under part B of title
XVIII of the Social Security Act.
(2) PAYMENTS.—
(A) IN GENERAL.—Subject to paragraph
(3), payment for such services shall be made at
a rate of 50 percent of the costs that are rea-
sonable and related to the provision of such
services. In computing such costs, the Secretary
shall include costs described in subparagraph
(B), but may not include costs described in sub-
paragraph (C).
(B) COSTS THAT MAY BE INCLUDED.—The
costs described in this subparagraph are the
permissible costs (as recognized by the Sec-
retary) for the following:
(i) The acquisition of telemedicine
equipment for use in patients’ homes (but
only in the case of patients located in
medically underserved areas).
399
(ii) 
Curriculum 
development 
and
training of health professionals in medical
informatics and telemedicine.
(iii) Payment of telecommunications
costs (including salaries and maintenance
of equipment), including costs of tele-
communications between patients’ homes
and the eligible network and between the
network and other entities under the ar-
rangements described in subsection (c)(1).
(iv) Payments to practitioners and
providers under the medicare programs.
(C) COSTS NOT INCLUDED.—The costs de-
scribed in this subparagraph are costs for any
of the following:
(i) The purchase or installation of
transmission equipment (other than such
equipment used by health professionals to
deliver medical informatics services under
the project).
(ii) The establishment or operation of
a telecommunications common carrier net-
work.
(iii) Construction (except for minor
renovations related to the installation of
400
reimbursable equipment) or the acquisition
or building of real property.
(3) LIMITATION.—The total amount of the pay-
ments that may be made under this section shall not
exceed $30,000,000.
(4) 
LIMITATION
ON
COST-SHARING.—The
project may not impose cost sharing on a medicare
beneficiary for the receipt of services under the
project in excess of 20 percent of the recognized
costs of the project attributable to such services.
(e) REPORTS.—The Secretary shall submit to the
Committees on Ways and Means and Commerce of the
House of Representatives and the Committee on Finance
of the Senate interim reports on the project and a final
report on the project within 6 months after the conclusion
of the project. The final report shall include an evaluation
of the impact of the use of telemedicine and medical
informatics on improving access of medicare beneficiaries
to health care services, on reducing the costs of such serv-
ices, and on improving the quality of life of such bene-
ficiaries.
(f) DEFINITIONS.—For purposes of this section:
(1) INTERVENTIONAL INFORMATICS.—The term
‘‘interventional informatics’’ means using informa-
401
tion technology and virtual reality technology to in-
tervene in patient care.
(2) MEDICAL INFORMATICS.—The term ‘‘medi-
cal informatics’’ means the storage, retrieval, and
use of biomedical and related information for prob-
lem solving and decision-making through computing
and communications technologies.
(3) PROJECT.—The term ‘‘project’’ means the
demonstration project under this section.
Subtitle D—Anti-Fraud and Abuse
Provisions
SEC. 4301. PERMANENT EXCLUSION FOR THOSE CON-
VICTED 
OF 
HEALTH 
CARE 
RELATED
CRIMES.
Section 1128(c)(3) (42 U.S.C. 1320a–7(c)(3)) is
amended—
(1) in subparagraph (A), by inserting ‘‘or in the
case described in subparagraph (G)’’ after ‘‘sub-
section (b)(12)’’;
(2) in subparagraphs (B) and (D), by striking
‘‘In the case’’ and inserting ‘‘Subject to subpara-
graph (G), in the case’’; and
(3) by adding at the end the following new sub-
paragraph:
402
‘‘(G) In the case of an exclusion of an individual
under subsection (a) based on a conviction occurring on
or after the date of the enactment of this subparagraph,
if the individual has (before, on, or after such date and
before the date of the conviction for which the exclusion
is imposed) been convicted—
‘‘(i) on one previous occasion of one or more of-
fenses for which an exclusion may be effected under
such subsection, the period of the exclusion shall be
not less than 10 years, or
‘‘(ii) on 2 or more previous occasions of one or
more offenses for which an exclusion may be effected
under such subsection, the period of the exclusion
shall be permanent.’’.
SEC. 4302. AUTHORITY TO REFUSE TO ENTER INTO MEDI-
CARE AGREEMENTS WITH INDIVIDUALS OR
ENTITIES CONVICTED OF FELONIES.
(a) MEDICARE PART A.—Section 1866(b)(2) (42
U.S.C. 1395cc(b)(2)) is amended—
(1) by striking ‘‘or’’ at the end of subparagraph
(B);
(2) by striking the period at the end of sub-
paragraph (C) and inserting ‘‘, or’’; and
(3) by adding after subparagraph (C) the fol-
lowing new subparagraph:
403
‘‘(D) has ascertained that the provider has
been convicted of a felony under Federal or
State law for an offense which the Secretary de-
termines is inconsistent with the best interests
of program beneficiaries.’’.
(b) MEDICARE PART B.—Section 1842 (42 U.S.C.
1395u) is amended by adding after subsection (r) the fol-
lowing new subsection:
‘‘(s) The Secretary may refuse to enter into an agree-
ment with a physician or supplier under subsection (h)
or may terminate or refuse to renew such agreement, in
the event that such physician or supplier has been con-
victed of a felony under Federal or State law for an of-
fense which the Secretary determines is inconsistent with
the best interests of program beneficiaries.’’.
(c) MEDICAID.—Section 1902(a)(23) (42 U.S.C.
1396(a)) is amended—
(1) by relocating the matter that precedes ‘‘pro-
vide that, (A)’’ immediately before the semicolon;
(2) by inserting a semicolon after ‘‘1915’’;
(3) by striking the comma after ‘‘Guam’’ and
inserting a semicolon; and
(4) by inserting before the semicolon at the end
the following: ‘‘and except that this provision does
not require a State to provide medical assistance for
404
such services furnished by a person or entity con-
victed of a felony under Federal or State law for an
offense which the State agency determines is incon-
sistent with the best interests of beneficiaries under
the State plan’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall take effect on the date of the enactment
of this Act and apply to the entry and renewal of contracts
on or after such date.
SEC. 4303. INCLUSION OF TOLL-FREE NUMBER TO REPORT
MEDICARE WASTE, FRAUD, AND ABUSE IN EX-
PLANATION OF BENEFITS FORMS.
(a) IN GENERAL.—Section 1842(h)(7) (42 U.S.C.
1395u(h)(7)) is amended—
(1) by striking ‘‘and’’ at the end of subpara-
graph (D),
(2) by striking the period at the end of sub-
paragraph (E), and
(3) by adding at the end the following new sub-
paragraph:
‘‘(E) a toll-free telephone number maintained
by the Inspector General in the Department of
Health and Human Services for the receipt of com-
plaints and information about waste, fraud, and
405
abuse in the provision or billing of services under
this title.’’.
(b) EFFECTIVE DATE.—The amendments made by
subsection (a) shall apply to explanations of benefits pro-
vided on or after such date (not later than January 1,
1999) as the Secretary of Health and Human Services
shall provide.
SEC. 4304. LIABILITY OF MEDICARE CARRIERS AND FISCAL
INTERMEDIARIES FOR CLAIMS SUBMITTED
BY EXCLUDED PROVIDERS.
(a) REIMBURSEMENT
TO
THE
SECRETARY
FOR
AMOUNTS PAID TO EXCLUDED PROVIDERS.—
(1) 
REQUIREMENTS
FOR
FISCAL
INTERMEDIARIES.—
(A) IN
GENERAL.—Section 1816 (42
U.S.C. 1395h) is amended by adding at the end
the following new subsection:
‘‘(m) An agreement with an agency or organization
under this section shall require that such agency or orga-
nization reimburse the Secretary for any amounts paid by
the agency or organization for a service under this title
which is furnished, directed, or prescribed by an individual
or entity during any period for which the individual or
entity is excluded pursuant to section 1128, 1128A, or
1156, from participation in the program under this title,
406
if the amounts are paid after the Secretary notifies the
agency or organization of the exclusion.’’.
(B) 
CONFORMING
AMENDMENT.—Sub-
section (i) of such section is amended by adding
at the end the following new paragraph:
‘‘(4) Nothing in this subsection shall be construed to
prohibit reimbursement by an agency or organization
under subsection (m).’’.
(2) REQUIREMENTS
FOR
CARRIERS.—Section
1842(b)(3) (42 U.S.C. 1395u(b)(3)) is amended—
(A) by striking ‘‘and’’ at the end of sub-
paragraph (I); and
(B) by inserting after subparagraph (I) the
following new subparagraph:
‘‘(J) will reimburse the Secretary for any
amounts paid by the carrier for an item or service
under this part which is furnished, directed, or pre-
scribed by an individual or entity during any period
for which the individual or entity is excluded pursu-
ant to section 1128, 1128A, or 1156, from partici-
pation in the program under this title, if the
amounts are paid after the Secretary notifies the
carrier of the exclusion, and’’.
(3) 
MEDICAID
PROVISION.—Section
1902(a)(39) (42 U.S.C. 1396a(a)(39)) is amended
407
by inserting before the semicolon at the end the fol-
lowing: ‘‘, and provide further for reimbursement to
the Secretary of any payments made under the plan
or any item or service furnished, directed, or pre-
scribed by the excluded individual or entity during
such period, after the Secretary notifies the State of
such exclusion’’.
(b) CONFORMING REPEAL OF MANDATORY PAYMENT
RULE.—Paragraph (2) of section 1862(e) (42 U.S.C.
1395y(e)) is amended to read as follows:
‘‘(2) No individual or entity may bill (or collect any
amount from) any individual for any item or service for
which payment is denied under paragraph (1). No person
is liable for payment of any amounts billed for such an
item or service in violation of the previous sentence.’’.
(c) EFFECTIVE DATES.—The amendments made by
this section shall apply to contracts and agreements en-
tered into, renewed, or extended after the date of the en-
actment of this Act, but only with respect to claims sub-
mitted on or after the later of January 1, 1998, or the
date such entry, renewal, or extension becomes effective.
SEC. 4305. EXCLUSION OF ENTITY CONTROLLED BY FAMILY
MEMBER OF A SANCTIONED INDIVIDUAL.
(a) IN GENERAL.—Section 1128 (42 U.S.C. 1320a–
7) is amended—
408
(1) in subsection (b)(8)(A)—
(A) by striking ‘‘or’’ at the end of clause
(i), and
(B) by striking the dash at the end of
clause (ii) and inserting ‘‘; or’’, and
(C) by inserting after clause (ii) the follow-
ing:
‘‘(iii) who was described in clause (i) but
is no longer so described because of a transfer
of ownership or control interest, in anticipation
of (or following) a conviction, assessment, or ex-
clusion described in subparagraph (B) against
the person, to an immediate family member (as
defined in subsection (j)(1)) or a member of the
household of the person (as defined in sub-
section (j)(2)) who continues to maintain an in-
terest described in such clause—’’; and
(2) by adding after subsection (i) the following
new subsection:
‘‘(j) DEFINITION OF IMMEDIATE FAMILY MEMBER
AND MEMBER OF HOUSEHOLD.—For purposes of sub-
section (b)(8)(A)(iii):
‘‘(1) The term ‘immediate family member’
means, with respect to a person—
‘‘(A) the husband or wife of the person;
409
‘‘(B) the natural or adoptive parent, child,
or sibling of the person;
‘‘(C) the stepparent, stepchild, stepbrother,
or stepsister of the person;
‘‘(D) the father-, mother-, daughter-, son-
, brother-, or sister-in-law of the person;
‘‘(E) the grandparent or grandchild of the
person; and
‘‘(F) the spouse of a grandparent or
grandchild of the person.
‘‘(2) The term ‘member of the household’
means, with respect to an person, any individual
sharing a common abode as part of a single family
unit with the person, including domestic employees
and others who live together as a family unit, but
not including a roomer or boarder.’’.
(b) EFFECTIVE DATE.—The amendments made by
subsection (a) shall take effect on the date that is 45 days
after the date of the enactment of this Act.
SEC. 4306. IMPOSITION OF CIVIL MONEY PENALTIES.
(a) CIVIL MONEY PENALTIES FOR PERSONS THAT
CONTRACT
WITH
EXCLUDED
INDIVIDUALS.—Section
1128A(a) (42 U.S.C. 1320a–7a(a)) is amended—
(1) by striking ‘‘or’’ at the end of paragraph
(4);
410
(2) by adding ‘‘or’’ at the end of paragraph (5);
and
(3) by adding after paragraph (5) the following
new paragraph:
‘‘(6) arranges or contracts (by employment or
otherwise) with an individual or entity that the per-
son knows or should know is excluded from partici-
pation in a Federal health care program (as defined
in section 1128B(f)), for the provision of items or
services for which payment may be made under such
a program;’’.
(b) EFFECTIVE DATES.—The amendments made by
subsection (a) shall apply to arrangements and contracts
entered into after the date of the enactment of this Act.
SEC. 4307. DISCLOSURE OF INFORMATION AND SURETY
BONDS.
(a) DISCLOSURE
OF INFORMATION
AND SURETY
BOND REQUIREMENT FOR SUPPLIERS OF DURABLE MED-
ICAL
EQUIPMENT.—Section 
1834(a) 
(42 
U.S.C.
1395m(a)) is amended by inserting after paragraph (15)
the following new paragraph:
‘‘(16) CONDITIONS FOR ISSUANCE OF PROVIDER
NUMBER.—The Secretary shall not provide for the
issuance (or renewal) of a provider number for a
supplier of durable medical equipment, for purposes
411
of payment under this part for durable medical
equipment furnished by the supplier, unless the sup-
plier provides the Secretary on a continuing basis
with—
‘‘(A)(i) full and complete information as to
the identity of each person with an ownership
or control interest (as defined in section
1124(a)(3)) in the supplier or in any sub-
contractor (as defined by the Secretary in regu-
lations) in which the supplier directly or indi-
rectly has a 5 percent or more ownership inter-
est, and
‘‘(ii) to the extent determined to be feasible
under regulations of the Secretary, the name of
any disclosing entity (as defined in section
1124(a)(2)) with respect to which a person with
such an ownership or control interest in the
supplier is a person with such an ownership or
control interest in the disclosing entity; and
‘‘(B) a surety bond in a form specified by
the Secretary and in an amount that is not less
than $50,000.
The Secretary may waive the requirement of a bond
under subparagraph (B) in the case of a supplier
412
that provides a comparable surety bond under State
law.’’.
(b) SURETY
BOND
REQUIREMENT
FOR
HOME
HEALTH AGENCIES.—
(1) IN GENERAL.—Section 1861(o) (42 U.S.C.
1395x(o)) is amended—
(A) in paragraph (7), by inserting ‘‘and in-
cluding providing the Secretary on a continuing
basis with a surety bond in a form specified by
the Secretary and in an amount that is not less
than $50,000,’’ after ‘‘financial security of the
program’’, and
(B) by adding at the end the following:
‘‘The Secretary may waive the requirement of a
bond under paragraph (7) in the case of an
agency or organization that provides a com-
parable surety bond under State law.’’.
(2) 
CONFORMING
AMENDMENTS.—Section
1861(v)(1)(H) 
(42 
U.S.C. 
1395x(v)(1)(H)) 
is
amended—
(A) in clause (i), by striking ‘‘the financial
security requirement’’ and inserting ‘‘the finan-
cial security and surety bond requirements’’;
and
413
(B) in clause (ii), by striking ‘‘the financial
security requirement described in subsection
(o)(7) applies’’ and inserting ‘‘the financial se-
curity and surety bond requirements described
in subsection (o)(7) apply’’.
(3) REFERENCE TO CURRENT DISCLOSURE RE-
QUIREMENT.—For provision of current law requiring
home health agencies to disclose information on
ownership and control interests, see section 1124 of
the Social Security Act.
(c) AUTHORIZING APPLICATION OF DISCLOSURE AND
SURETY BOND REQUIREMENTS TO AMBULANCE SERV-
ICES AND CERTAIN CLINICS.—Section 1834(a)(16) (42
U.S.C. 1395m(a)(16)), as added by subsection (a), is
amended by adding at the end the following: ‘‘The Sec-
retary, in the Secretary’s discretion, may impose the re-
quirements of the previous sentence with respect to some
or all classes of suppliers of ambulance services described
in section 1861(s)(7) and clinics that furnish medical and
other health services (other than physicians’ services)
under this part.’’.
(d) APPLICATION TO COMPREHENSIVE OUTPATIENT
REHABILITATION
FACILITIES
(CORFS).—Section
1861(cc)(2) (42 U.S.C. 1395x(cc)(2)) is amended—