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amount equal to such excess. The Secretary
shall reduce payments under this subparagraph
at such times and in such manner during a fis-
cal year as the Secretary finds necessary to
meet the requirement of this subparagraph.
‘‘(B) COST REPORTING PERIOD LIMIT.—
The cost reporting period limit determined
under this subparagraph is an amount equal to
the product of—
‘‘(i) the per stay limit applicable to
the facility under subsection (d) for the pe-
riod; and
‘‘(ii) the number of stays beginning
during the period for which payment was
made to the facility for such services.
‘‘(C) PROSPECTIVE
REDUCTION
IN
PAY-
MENTS.—In addition to the process for reduc-
ing payments described in subparagraph (A),
the Secretary may reduce payments made to a
facility under this section during a cost report-
ing period if the Secretary determines (on the
basis of such estimated information as the Sec-
retary considers appropriate) that payments to
the facility under this section for the period will
substantially exceed the cost reporting period
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limit for the period determined under this para-
graph.
‘‘(2) INCENTIVE PAYMENTS.—
‘‘(A) IN GENERAL.—If a skilled nursing fa-
cility has received aggregate payments under
subsection (b) for covered non-routine services
during a cost reporting period beginning during
a fiscal year in an amount that is less than the
amount determined under paragraph (1)(B),
the Secretary shall pay the skilled nursing facil-
ity in the following fiscal year an incentive pay-
ment equal to 50 percent of the difference be-
tween such amounts, except that the incentive
payment may not exceed 5 percent of the aggre-
gate payments made to the facility under sub-
section (b) for the previous fiscal year (without
regard to subparagraph (B)).
‘‘(B) 
INSTALLMENT
INCENTIVE
PAY-
MENTS.—The Secretary may make installment
payments during a fiscal year to a skilled nurs-
ing facility based on the estimated incentive
payment that the facility would be eligible to re-
ceive with respect to such fiscal year.
‘‘(d) DETERMINATION
OF
FACILITY
PER
STAY
LIMIT.—
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‘‘(1) LIMIT FOR FISCAL YEAR 1997.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), the Secretary shall establish
separate per stay limits for hospital-based and
freestanding skilled nursing facilities for the 12-
month cost reporting period beginning during
fiscal year 1997 that are equal to the sum of—
‘‘(i) 50 percent of the facility-specific
stay amount for the facility (as determined
under subsection (e)) for the last 12-month
cost reporting period ending on or before
September 30, 1994, increased (in a
compounded manner) by the SNF market
basket percentage increase for fiscal years
1995 through 1997; and
‘‘(ii) 50 percent of the average of all
facility-specific stay amounts for all hos-
pital-based facilities or all freestanding fa-
cilities (whichever is applicable) during the
cost reporting period described in clause
(i), increased (in a compounded manner)
by the SNF market basket percentage in-
crease for fiscal years 1995 through 1997.
‘‘(B) FACILITIES NOT HAVING 1994 COST
REPORTING PERIOD.—In the case of a skilled
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nursing facility for which payments were not
made under this title for covered non-routine
services for the last 12-month cost reporting pe-
riod ending on or before September 30, 1994,
the per stay limit for the 12-month cost report-
ing period beginning during fiscal year 1997
shall be twice the amount determined under
subparagraph (A)(ii).
‘‘(2) LIMIT FOR SUBSEQUENT FISCAL YEARS.—
The per stay limit for a skilled nursing facility for
a 12-month cost reporting period beginning during
a fiscal year after fiscal year 1997 is equal to the
per stay limit established under this subsection for
the 12-month cost reporting period beginning during
the previous fiscal year, increased by the SNF mar-
ket basket percentage increase for such subsequent
fiscal year minus 2 percentage points.
‘‘(3) REBASING OF AMOUNTS.—
‘‘(A) IN
GENERAL.—The Secretary shall
provide for an update to the facility-specific
amounts used to determine the per stay limits
under this subsection for cost reporting periods
beginning on or after October 1, 1999, and
every 2 years thereafter.
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‘‘(B) TREATMENT
OF
FACILITIES
NOT
HAVING REBASED COST REPORTING PERIODS.—
Paragraph (1)(B) shall apply with respect to a
skilled nursing facility for which payments were
not made under this title for covered non-rou-
tine services for the 12-month cost reporting
period used by the Secretary to update facility-
specific amounts under subparagraph (A) in the
same manner as such paragraph applies with
respect to a facility for which payments were
not made under this title for covered non-rou-
tine services for the last 12-month cost report-
ing period ending on or before September 30,
1994.
‘‘(e) DETERMINATION OF FACILITY-SPECIFIC STAY
AMOUNTS.—The ‘facility-specific stay amount’ for a
skilled nursing facility for a cost reporting period is the
sum of—
‘‘(1) the average amount of payments made to
the facility under part A during the period which are
attributable to covered non-routine services fur-
nished during a stay; and
‘‘(2) the Secretary’s best estimate of the aver-
age amount of payments made under part B during
the period for covered non-routine services furnished
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to all residents of the facility to whom the facility
provided extended care services for which payment
was made under part A during the period (without
regard to whether or not the services were furnished
by the facility, by others under arrangement with
them made by the facility, under any other contract-
ing or consulting arrangement, or otherwise), as es-
timated by the Secretary.
‘‘(f) INTENSIVE NURSING OR THERAPY NEEDS.—
‘‘(1) IN GENERAL.—In applying subsection (b)
to covered non-routine services furnished during a
stay beginning during a cost reporting period begin-
ning during a fiscal year to a resident of a skilled
nursing facility who requires intensive nursing or
therapy services, the per stay limit determined for
the fiscal year under the methodology for such resi-
dent shall be the per stay limit developed under
paragraph (2) instead of the per stay limit deter-
mined under subsection (d)(1)(A).
‘‘(2) PER
STAY
LIMIT
FOR
INTENSIVE
NEED
RESIDENTS.—Not later than June 30, 1996, the
Secretary, after consultation with the Medicare Pay-
ment Review Commission and skilled nursing facility
experts, shall develop and publish a methodology for
determining on an annual basis a per stay limit for
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residents of a skilled nursing facility who require in-
tensive nursing or therapy services.
‘‘(3) BUDGET
NEUTRALITY.—The Secretary
shall adjust payments under subsection (b) in a
manner that ensures that total payments for covered
non-routine services under this section are not great-
er or less than total payments for such services
would have been but for the application of para-
graph (1).
‘‘(g) SPECIAL TREATMENT
FOR MEDICARE LOW
VOLUME SKILLED NURSING FACILITIES.—This section
shall not apply with respect to a skilled nursing facility
for which payment is made for routine service costs during
a cost reporting period on the basis of prospective pay-
ments under section 1888(d).
‘‘(h) EXCEPTIONS AND ADJUSTMENTS TO LIMITS.—
‘‘(1) IN GENERAL.—The Secretary may make
exceptions and adjustments to the cost reporting
limits applicable to a skilled nursing facility under
subsection (c)(1)(B) for a cost reporting period, ex-
cept that the total amount of any additional pay-
ments made under this section for covered non-rou-
tine services during the cost reporting period as a
result of such exceptions and adjustments may not
exceed 5 percent of the aggregate payments made to
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all skilled nursing facilities for covered non-routine
services during the cost reporting period (determined
without regard to this paragraph).
‘‘(2) BUDGET
NEUTRALITY.—The Secretary
shall adjust payments under subsection (b) in a
manner that ensures that total payments for covered
non-routine services under this section are not great-
er or less than total payments for such services
would have been but for the application of para-
graph (1).
‘‘(i) SPECIAL RULE FOR X-RAY SERVICES.—Before
furnishing a covered non-routine service consisting of an
X-ray service for which payment may be made under part
A or part B to a resident, a skilled nursing facility shall
consider whether furnishing the service through a provider
of portable X-ray service services would be appropriate,
taking into account the cost effectiveness of the service
and the convenience to the resident.’’.
(b) CONFORMING AMENDMENT.—Section 1814(b)
(42 U.S.C. 1395f(b)) is amended in the matter preceding
paragraph (1) by striking ‘‘1813 and 1886’’ and inserting
‘‘1813, 1886, 1888, and 1888A’’.
SEC. 15523. PAYMENTS FOR ROUTINE SERVICE COSTS.
(a) MAINTAINING SAVINGS RESULTING FROM TEM-
PORARY FREEZE ON PAYMENT INCREASES.—
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(1) BASING UPDATES TO PER DIEM COST LIM-
ITS ON LIMITS FOR FISCAL YEAR 1993.—
(A) IN
GENERAL.—The last sentence of
section 1888(a) (42 U.S.C. 1395yy(a)) is
amended by inserting before the period at the
end the following: ‘‘(except that such updates
may not take into account any changes in the
routine service costs of skilled nursing facilities
occurring during cost reporting periods which
began during fiscal year 1994 or fiscal year
1995)’’.
(B) NO
EXCEPTIONS
PERMITTED
BASED
ON AMENDMENT.—The Secretary of Health and
Human Services shall not consider the amend-
ment made by subparagraph (A) in making any
adjustments pursuant to section 1888(c) of the
Social Security Act.
(2) PAYMENTS DETERMINED ON PROSPECTIVE
BASIS.—Any change made by the Secretary of
Health and Human Services in the amount of any
prospective payment paid to a skilled nursing facility
under section 1888(d) of the Social Security Act for
cost reporting periods beginning on or after October
1, 1995, may not take into account any changes in
the costs of services occurring during cost reporting
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periods which began during fiscal year 1994 or fiscal
year 1995.
(b) ESTABLISHMENT OF SCHEDULE FOR MAKING
ADJUSTMENTS TO LIMITS.—Section 1888(c) (42 U.S.C.
1395yy(c)) is amended by striking the period at the end
of the second sentence and inserting ‘‘, and may only make
adjustments under this subsection with respect to a facil-
ity which applies for an adjustment during an annual ap-
plication period established by the Secretary.’’.
(c) LIMITATION ON AGGREGATE INCREASE IN PAY-
MENTS RESULTING FROM ADJUSTMENTS TO LIMITS.—
Section 1888(c) (42 U.S.C. 1395yy(c)) is amended—
(1) by striking ‘‘(c) The Secretary’’ and insert-
ing ‘‘(c)(1) Subject to paragraph (2), the Sec-
retary’’; and
(2) by adding at the end the following new
paragraph:
‘‘(2) The Secretary may not make any adjustments
under this subsection in the limits set forth in subsection
(a) for a cost reporting period beginning during a fiscal
year to the extent that the total amount of the additional
payments made under this title as a result of such adjust-
ments is greater than an amount equal to—
‘‘(A) for cost reporting periods beginning dur-
ing fiscal year 1997, the total amount of the addi-
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tional payments made under this title as a result of
adjustments under this subsection for cost reporting
periods beginning during fiscal year 1996 increased
by the SNF market basket percentage increase (as
defined in section 1888A(e)(3)) for fiscal year 1997;
and
‘‘(B) for cost reporting periods beginning dur-
ing a subsequent fiscal year, the amount determined
under this paragraph for the previous fiscal year in-
creased by the SNF market basket percentage in-
crease for such subsequent fiscal year.’’.
(d) IMPOSITION OF LIMITS FOR ALL COST REPORT-
ING PERIODS.—Section 1888(a) (42 U.S.C. 1395yy(a)) is
amended in the matter preceding paragraph (1) by insert-
ing after ‘‘extended care services’’ the following: ‘‘(for any
cost reporting period for which payment is made under
this title to the skilled nursing facility for such services)’’.
SEC. 15524. REDUCTIONS IN PAYMENT FOR CAPITAL-RE-
LATED COSTS.
Section 1861(v)(1) (42 U.S.C. 1395x(v)(1)), as
amended by section 15506, is amended by adding at the
end the following new subparagraph:
‘‘(U) Such regulations shall provide that, in deter-
mining the amount of the payments that may be made
under this title with respect to all the capital-related costs
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of skilled nursing facilities, the Secretary shall reduce the
amounts of such payments otherwise established under
this title by 15 percent for payments attributable to por-
tions of cost reporting periods occurring during fiscal
years 1996 through 2002.’’.
SEC. 15525. TREATMENT OF ITEMS AND SERVICES PAID
FOR UNDER PART B.
(a) REQUIRING PAYMENT
FOR ALL ITEMS
AND
SERVICES TO BE MADE TO FACILITY.—
(1) IN GENERAL.—The first sentence of section
1842(b)(6) (42 U.S.C. 1395u(b)(6)) is amended—
(A) by striking ‘‘and (D)’’ and inserting
‘‘(D)’’; and
(B) by striking the period at the end and
inserting the following: ‘‘, and (E) in the case
of an item or service (other than physicians’
services and other than a portable X-ray or
portable electrocardiogram treated as a physi-
cian’s 
service 
for 
purposes 
of 
section
1848(j)(3)) furnished to an individual who (at
the time the item or service is furnished) is a
resident of a skilled nursing facility, payment
shall be made to the facility (without regard to
whether or not the item or service was fur-
nished by the facility, by others under arrange-
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ment with them made by the facility, or other-
wise).’’.
(2) EXCLUSION FOR ITEMS AND SERVICES NOT
BILLED BY FACILITY.—Section 1862(a) (42 U.S.C.
1395y(a)) is amended—
(A) by striking ‘‘or’’ at the end of para-
graph (14);
(B) by striking the period at the end of
paragraph (15) and inserting ‘‘; or’’; and
(C) by inserting after paragraph (15) the
following new paragraph:
‘‘(16) where such expenses are for covered non-
routine services (as defined in section 1888A(a)(1))
(other than a portable X-ray or portable electro-
cardiogram treated as a physician’s service for pur-
poses of section 1848(j)(3)) furnished to an individ-
ual who is a resident of a skilled nursing facility and
for which the claim for payment under this title is
not submitted by the facility.’’.
(3) 
CONFORMING
AMENDMENT.—Section
1832(a)(1) (42 U.S.C. 1395k(a)(1)) is amended by
striking ‘‘(2);’’ and inserting ‘‘(2) and section
1842(b)(6)(E);’’.
(b) REDUCTION IN PAYMENTS FOR ITEMS AND SERV-
ICES FURNISHED BY OR UNDER ARRANGEMENTS WITH