870
Subtitle G, Part 4
PART 4—QUALITY STANDARDS FOR DURABLE
MEDICAL EQUIPMENT
SEC. 15631. RECOMMENDATIONS FOR QUALITY STANDARDS
FOR DURABLE MEDICARE EQUIPMENT.
(a) APPOINTMENT OF TASK FORCE BY SEC-
RETARY.—
(1) IN
GENERAL.—The Secretary of
Health and Human Services shall estab-
lish a broadly based task force to develop
recommendations for quality standards
for durable medical equipment under
part B of the medicare program.
(2) COMPOSITION.—The task force shall
include individuals selected by the Sec-
retary from representatives of suppliers
of items of durable medical equipment
under part B, consumers, and other users
of such equipment. In appointing mem-
bers, the Secretary shall assure represen-
tation from various geographic regions of
the United States.
(3) NO
COMPENSATION
FOR
SERVICE.—
Members of the task force shall not re-
ceive any compensation for service on
the task force.
871
Subtitle H, Part 1
(4) TERMINATION.—The task force shall
terminate 30 days after it submits the re-
port described in subsection (b).
(b) REPORT.—Not later than 1 year after
the date of the enactment of this Act, the task
force established under subsection (a) shall
submit to the Secretary its recommendations
for quality standards for durable medicare
equipment under part B of the medicare pro-
gram.
Subtitle H—Provisions Relating to
Medicare Parts A and B
PART 1—PAYMENTS FOR HOME HEALTH
SERVICES
SEC. 15701. PAYMENT FOR HOME HEALTH SERVICES.
(a) IN GENERAL.—Title XVIII (42 U.S.C.
1395 et seq.), as amended by section 15106, is
amended by adding at the end the following
new section:
‘‘PAYMENT FOR HOME HEALTH SERVICES
‘‘SEC. 1894. (a) IN GENERAL.—
‘‘(1) PER
VISIT
PAYMENTS.—Subject to
subsection (c), the Secretary shall make
per visit payments beginning with fiscal
year 1997 to a home health agency in ac-
cordance with this section for each type
872
Subtitle H, Part 1
of home health service described in para-
graph (2) furnished to an individual who
at the time the service is furnished is
under a plan of care by the home health
agency under this title (without regard to
whether or not the item or service was
furnished by the agency or by others
under arrangement with them made by
the agency, or otherwise).
‘‘(2) TYPES OF SERVICES.—The types of
home health services described in this
paragraph are the following:
‘‘(A) 
Part-time 
or 
intermittent
nursing care provided by or under
the supervision of a registered profes-
sional nurse.
‘‘(B) Physical therapy.
‘‘(C) Occupational therapy.
‘‘(D) Speech-language pathology
services.
‘‘(E) Medical social services under
the direction of a physician.
‘‘(F) To the extent permitted in
regulations, part-time or intermittent
services of a home health aide who
873
Subtitle H, Part 1
has successfully completed a training
program approved by the Secretary.
‘‘(b) ESTABLISHMENT OF PER VISIT RATE FOR
EACH TYPE OF SERVICES.—
‘‘(1) IN GENERAL.—The Secretary shall,
subject to paragraph (3), establish a per
visit payment rate for a home health
agency in an area for each type of home
health service described in subsection
(a)(2). Such rate shall be equal to the na-
tional per visit payment rate determined
under paragraph (2) for each such type,
except that the labor-related portion of
such rate shall be adjusted by the area
wage index applicable under section
1886(d)(3)(E) for the area in which the
agency is located (as determined without
regard to any reclassification of the area
under section 1886(d)(8)(B) or a decision
of the Medicare Geographic Classifica-
tion Review Board or the Secretary
under section 1886(d)(10) for cost report-
ing periods beginning after October 1,
1995).
874
Subtitle H, Part 1
‘‘(2) 
NATIONAL
PER
VISIT
PAYMENT
RATE.—The national per visit payment
rate for each type of service described in
subsection (a)(2)—
‘‘(A) for fiscal year 1997, is an
amount equal to the national average
amount paid per visit under this title
to home health agencies for such type
of service during the most recent 12-
month cost reporting period ending
on or before June 30, 1994, increased
(in a compounded manner) by the
home health market basket percent-
age increase for fiscal years 1995,
1996, and 1997; and
‘‘(B) for each subsequent fiscal
year, is an amount equal to the na-
tional per visit payment rate in effect
for the preceding fiscal year, in-
creased by the home health market
basket percentage increase for such
subsequent fiscal year minus 2 per-
centage points.
‘‘(3) REBASING
OF
RATES.—The Sec-
retary shall provide for an update to the
875
Subtitle H, Part 1
national per visit payment rates under
this subsection for cost reporting periods
beginning not later than the first day of
the fifth fiscal year which begins after
fiscal year 1997, and not later than every
5 years thereafter, to reflect the most re-
cent available data.
‘‘(4) HOME HEALTH MARKET BASKET PER-
CENTAGE INCREASE.—For purposes of this
subsection, the term ‘home health market
basket percentage increase’ means, with
respect to a fiscal year, a percentage (es-
timated by the Secretary before the be-
ginning of the fiscal year) determined
and applied with respect to the types of
home health services described in sub-
section (a)(2) in the same manner as the
market basket percentage increase under
section 1886(b)(3)(B)(iii) is determined
and applied to inpatient hospital services
for the fiscal year.
‘‘(c) PER EPISODE LIMIT.—
‘‘(1) AGGREGATE LIMIT.—
‘‘(A) IN GENERAL.—Except as pro-
vided in paragraph (2), a home health
876
Subtitle H, Part 1
agency may not receive aggregate per
visit payments under subsection (a)
for a fiscal year in excess of an
amount equal to the sum of the fol-
lowing products determined for each
case-mix category for which the agen-
cy receives payments:
‘‘(i) The number of episodes of
each case-mix category during the
fiscal year; multiplied by
‘‘(ii) the per episode limit de-
termined for such case-mix cat-
egory for such fiscal year.
‘‘(B) ESTABLISHMENT
OF
PER
EPI-
SODE LIMITS.—
‘‘(i) IN GENERAL.—The per epi-
sode limit for a fiscal year for any
case-mix category for the area in
which a home health agency is lo-
cated is equal to—
‘‘(I) the mean number of
visits for each type of home
health service described in
subsection 
(a)(2) 
furnished
during an episode of such
877
Subtitle H, Part 1
case-mix 
category 
in 
such
area during fiscal year 1994,
adjusted by the case-mix ad-
justment factor determined in
clause (ii) for the fiscal year
involved; multiplied by
‘‘(II) the per visit payment
rate established under sub-
section (b) for such type of
home health service for the
fiscal year for which the de-
termination is being made.
‘‘(ii) CASE MIX ADJUSTMENT FAC-
TOR.—For purposes of clause (i),
the case-mix adjustment factor
for a year is the factor deter-
mined by the Secretary to assure
that 
aggregate 
payments 
for
home health services under this
section during the year will not
exceed the payment for such serv-
ices during the previous year as a
result of changes in the number
and type of home health visits
878
Subtitle H, Part 1
within case-mix categories over
the previous year.
‘‘(iii) REBASING OF PER EPISODE
AMOUNTS.—Beginning with fiscal
year 1999 and every 2 years there-
after, the Secretary shall revise
the mean number of home health
visits determined under clause
(i)(I) for each type of home health
service visit described in sub-
section (a)(2) furnished during an
episode in a case-mix category to
reflect the most recently available
data on the number of visits.
‘‘(iv) DETERMINATION OF APPLI-
CABLE AREA.—For purposes of de-
termining 
per 
episode 
limits
under 
this 
subparagraph, 
the
area in which a home health
agency is considered to be located
shall be such area as the Sec-
retary finds appropriate for pur-
poses of this subparagraph.
‘‘(C) CASE-MIX CATEGORY.—For pur-
poses of this paragraph, the term
879
Subtitle H, Part 1
‘case-mix category’ means each of the
18 case-mix categories established
under the Phase II Home Health
Agency Prospective Payment Dem-
onstration Project conducted by the
Health Care Financing Administra-
tion. The Secretary may develop an
alternate methodology for determin-
ing case-mix categories.
‘‘(D) EPISODE.—
‘‘(i) IN GENERAL.—For purposes
of this paragraph, the term ‘epi-
sode’ means the continuous 120-
day period that—
‘‘(I) begins on the date of
an individual’s first visit for a
type of home health service
described in subsection (a)(2)
for a case-mix category, and
‘‘(II) is immediately pre-
ceded by a 60-day period in
which the individual did not
receive visits for a type of
home health service described
in subsection (a)(2).
880
Subtitle H, Part 1
‘‘(ii) TREATMENT
OF
EPISODES
SPANNING
COST
REPORTING
PERI-
ODS.—The Secretary shall provide
for such rules as the Secretary
considers appropriate regarding
the treatment of episodes under
this paragraph which begin dur-
ing a cost reporting period and
end in a subsequent cost report-
ing period.
‘‘(E) 
EXEMPTIONS
AND
EXCEP-
TIONS.—The Secretary may provide
for exemptions and exceptions to the
limits established under this para-
graph for a fiscal year as the Sec-
retary deems appropriate, to the ex-
tent such exemptions and exceptions
do not result in greater payments
under this section than the exemp-
tions and exceptions provided under
section 1861(v)(1)(L)(ii) in fiscal year
1994, increased by the home health
market basket percentage increase
for the fiscal year involved (as de-
fined in subsection (b)(4)).
881
Subtitle H, Part 1
‘‘(2) RECONCILIATION OF AMOUNTS.—
‘‘(A) 
OVERPAYMENTS
TO
HOME
HEALTH
AGENCIES.—Subject to sub-
paragraph (B), if a home health agen-
cy has received aggregate per visit
payments under subsection (a) for a
fiscal year in excess of the amount
determined under paragraph (1) with
respect to such home health agency
for such fiscal year, the Secretary
shall reduce payments under this sec-
tion to the home health agency in the
following fiscal year in such manner
as the Secretary considers appro-
priate (including on an installment
basis) to recapture the amount of
such excess.
‘‘(B) EXCEPTION FOR HOME HEALTH
SERVICES
FURNISHED
OVER
A
PERIOD
GREATER THAN 165 DAYS.—
‘‘(i) IN GENERAL.—For purposes
of subparagraph (A), the amount
of aggregate per visit payments
determined under subsection (a)
shall not include payments for
882
Subtitle H, Part 1
home health visits furnished to an
individual on or after a continu-
ous period of more than 165 days
after an individual begins an epi-
sode 
described 
in 
subsection
(c)(1)(D) (if such period is not in-
terrupted by the beginning of a
new episode).
‘‘(ii) REQUIREMENT OF CERTIFI-
CATION.—Clause (i) shall not apply
if the agency has not obtained a
physician’s certification with re-
spect to the individual requiring
such visits that includes a state-
ment that the individual requires
such continued visits, the reason
for the need for such visits, and a
description of such services fur-
nished during such visits.
‘‘(C) SHARE OF SAVINGS.—
‘‘(i) 
BONUS
PAYMENTS.—If 
a
home health agency has received
aggregate 
per 
visit 
payments
under subsection (a) for a fiscal
year in an amount less than the
883
Subtitle H, Part 1
amount determined under para-
graph (1) with respect to such
home health agency for such fis-
cal year, the Secretary shall pay
such home health agency a bonus
payment equal to 50 percent of
the 
difference 
between 
such
amounts in the following fiscal
year, except that the bonus pay-
ment may not exceed 5 percent of
the aggregate per visit payments
made to the agency for the year.
‘‘(ii) INSTALLMENT
BONUS
PAY-
MENTS.—The Secretary may make
installment payments during a
fiscal year to a home health agen-
cy based on the estimated bonus
payment that the agency would
be eligible to receive with respect
to such fiscal year.
‘‘(d) MEDICAL REVIEW PROCESS.—The Sec-
retary shall implement a medical review proc-
ess (with a particular emphasis on fiscal years
1997 and 1998) for the system of payments de-
scribed in this section that shall provide an
884
Subtitle H, Part 1
assessment of the pattern of care furnished to
individuals receiving home health services
for which payments are made under this sec-
tion to ensure that such individuals receive
appropriate home health services. Such re-
view process shall focus on low-cost cases de-
scribed in subsection (e)(3) and cases de-
scribed in subsection (c)(2)(B) and shall re-
quire recertification by intermediaries at 30,
60, 90, 120, and 165 days into an episode de-
scribed in subsection (c)(1)(D).
‘‘(e) ADJUSTMENT
OF PAYMENTS
TO AVOID
CIRCUMVENTION OF LIMITS.—
‘‘(1) IN GENERAL.—The Secretary shall
provide for appropriate adjustments to
payments to home health agencies under
this section to ensure that agencies do
not circumvent the purpose of this sec-
tion by—
‘‘(A) discharging patients to an-
other home health agency or similar
provider;
‘‘(B) altering corporate structure
or name to avoid being subject to this
885
Subtitle H, Part 1
section or for the purpose of increas-
ing payments under this title; or
‘‘(C) undertaking other actions
considered unnecessary for effective
patient care and intended to achieve
maximum payments under this title.
‘‘(2) 
TRACKING
OF
PATIENTS
THAT
SWITCH HOME HEALTH AGENCIES DURING EPI-
SODE.—
‘‘(A) DEVELOPMENT
OF
SYSTEM.—
The Secretary shall develop a system
that tracks home health patients that
receive home health services de-
scribed in subsection (a)(2) from more
than 1 home health agency during an
episode 
described 
in 
subsection
(c)(1)(D).
‘‘(B) ADJUSTMENT
OF
PAYMENTS.—
The Secretary shall adjust payments
under this section to each home
health agency that furnishes an indi-
vidual with a type of home health
service described in subsection (a)(2)
to ensure that aggregate payments on
behalf of such individual during such
886
Subtitle H, Part 1
episode do not exceed the amount
that would be paid under this section
if the individual received such serv-
ices from a single home health agen-
cy.
‘‘(3) LOW-COST
CASES.—The Secretary
shall develop a system designed to adjust
payments to a home health agency for a
fiscal year to eliminate any increase in
growth of the percentage of low-cost epi-
sodes for which home health services are
furnished by the agency over such per-
centage determined for the agency for
the 12-month cost reporting period end-
ing on June 30, 1994. The Secretary shall
define a low-cost episode in a manner
that provides that a home health agency
has an incentive to be cost efficient in de-
livering home health services and that
the volume of such services does not in-
crease as a result of factors other than
patient needs.
‘‘(f) REPORT BY MEDICARE PAYMENT REVIEW
COMMISSION.—During the first 3 years in
which payments are made under this section,
887
Subtitle H, Part 1
the Medicare Payment Review Commission
shall annually submit a report to Congress on
the effectiveness of the payment methodology
established under this section that shall in-
clude recommendations regarding the follow-
ing:
‘‘(1) Case-mix and volume increases.
‘‘(2) 
Quality 
monitoring 
of 
home
health agency practices.
‘‘(3) Whether a capitated payment for
home care patients receiving care during
a continuous period exceeding 165 days
is warranted.
‘‘(4) Whether public providers of serv-
ice are adequately reimbursed
‘‘(5) The adequacy of the exemptions
and exceptions to the limits provided
under subsection (c)(1)(E).
‘‘(6) The appropriateness of the meth-
ods provided under this section to adjust
the per episode limits and annual pay-
ment updates to reflect changes in the
mix of services, number of visits, and as-
signment to case categories to reflect
changing patterns of home health care.
888
Subtitle H, Part 1
‘‘(7) The geographic areas used to de-
termine the per episode limits.’’.
(b) 
PAYMENT
FOR
PROSTHETICS
AND
ORTHOTICS UNDER PART A.—Section 1814(k)
(42 U.S.C. 1395f(k)) is amended—
(1) by inserting ‘‘and prosthetics and
orthotics’’ after ‘‘durable medical equip-
ment’’; and
(2) by inserting ‘‘and 1834(h), respec-
tively’’ after ‘‘1834(a)(1)’’.
(c) CONFORMING AMENDMENTS.—
(1) PAYMENTS UNDER PART A.—Section
1814(b) (42 U.S.C. 1395f(b)), as amended
by section 15522(b), is amended in the
matter preceding paragraph (1) by strik-
ing ‘‘1888 and 1888A’’ and inserting ‘‘1888,
1888A, and 1894’’.
(2) TREATMENT OF ITEMS AND SERVICES
PAID UNDER PART B.—
(A) PAYMENTS UNDER PART B.—Sec-
tion 1833(a)(2) (42 U.S.C. 1395l(a)(2))
is amended—
(i) by amending subparagraph
(A) to read as follows:
889
Subtitle H, Part 1
‘‘(A) with respect to home health
services—
‘‘(i) that are a type of home
health service described in sec-
tion 1894(a)(2), and which are fur-
nished to an individual who (at
the time the item or service is fur-
nished) is under a plan of care of
a 
home 
health 
agency, 
the
amount determined under section
1894;
‘‘(ii) that are not described in
clause (i) (other than a covered
osteoporosis drug) (as defined in
section 1861(kk)), the lesser of—
‘‘(I) the reasonable cost of
such services, as determined
under section 1861(v), or
‘‘(II) 
the 
customary
charges with respect to such
services;’’.
(ii) by striking ‘‘and’’ at the
end of subparagraph (E);
(iii) by adding ‘‘and’’ at the
end of subparagraph (F); and
890
Subtitle H, Part 1
(iv) by adding at the end the
following new subparagraph:
‘‘(G) with respect to items and
services 
described 
in 
section
1861(s)(10)(A), the lesser of—
‘‘(i) the reasonable cost of
such 
services, 
as 
determined
under section 1861(v), or
‘‘(ii) the customary charges
with respect to such services,
or, if such services are furnished by a
public provider of services, or by an-
other provider which demonstrates to
the satisfaction of the Secretary that
a significant portion of its patients
are low-income (and requests that
payment be made under this provi-
sion), free of charge or at nominal
charges to the public, the amount de-
termined in accordance with section
1814(b)(2);’’.
(B) REQUIRING
PAYMENT
FOR
ALL
ITEMS
AND
SERVICES
TO
BE
MADE
TO
AGENCY.—
891
Subtitle H, Part 1
(i) IN GENERAL.—The first sen-
tence of section 1842(b)(6) (42
U.S.C. 1395u(b)(6)) is amended—
(I) by striking ‘‘and (D)’’
and inserting ‘‘(D)’’; and
(II) by striking the period
at the end and inserting the
following: ‘‘, and (E) in the
case of types of home health
services described in section
1894(a)(2) furnished to an in-
dividual who (at the time the
item or service is furnished)
is under a plan of care of a
home health agency, payment
shall be made to the agency
(without regard to whether or
not the item or service was
furnished by the agency, by
others 
under 
arrangement
with them made by the agen-
cy, or otherwise).’’.
(ii) CONFORMING AMENDMENT.—
Section 
1832(a)(1) 
(42 
U.S.C.
1395k(a)(1)) is amended by strik-
892
Subtitle H, Part 1
ing ‘‘(2);’’ and inserting ‘‘(2) and
section 1842(b)(6)(E);’’.
(C) EXCLUSIONS FROM COVERAGE.—
Section 1862(a) (42 U.S.C. 1395y(a)), as
amended by section 15525(a)(2), is
amended—
(i) by striking ‘‘or’’ at the end
of paragraph (15);
(ii) by striking the period at
the end of paragraph (16) and in-
serting ‘‘or’’; and
(iii) by adding at the end the
following new paragraph:
‘‘(17) where such expenses are for
home health services furnished to an in-
dividual who is under a plan of care of
the home health agency if the claim for
payment for such services is not submit-
ted by the agency.’’.
(3) SUNSET OF REASONABLE COST LIMI-
TATIONS.—Section 1861(v)(1)(L) (42 U.S.C.
1395x(v)(1)(L)) is amended by adding at
the end the following new clause:
‘‘(iv) This subparagraph shall apply only
to services furnished by home health agencies
893
Subtitle H, Part 1
during cost reporting periods ending on or
before September 30, 1996.’’.
(c) EFFECTIVE
DATE.—The amendments
made by subsections (a) and (b) shall apply to
cost reporting periods beginning on or after
October 1, 1996.
SEC. 15702. MAINTAINING SAVINGS RESULTING FROM TEM-
PORARY FREEZE ON PAYMENT INCREASES
FOR HOME HEALTH SERVICES.
(a) BASING UPDATES TO PER VISIT COST LIM-
ITS ON LIMITS FOR FISCAL YEAR 1993.—Section
1861(v)(1)(L)(iii) (42 U.S.C. 1395x(v)(1)(L)(iii))
is amended by adding at the end the following
sentence: ‘‘In establishing limits under this
subparagraph, the Secretary may not take
into account any changes in the costs of the
provision of services furnished by home
health agencies with respect to cost reporting
periods which began on or after July 1, 1994,
and before July 1, 1996.’’.
(b) NO EXCEPTIONS PERMITTED BASED ON
AMENDMENT.—The Secretary of Health and
Human Services 
shall 
not 
consider 
the
amendment made by subsection (a) in making
any exemptions and exceptions pursuant to
894
Subtitle H, Part 1
section 1861(v)(1)(L)(ii) of the Social Security
Act.
SEC. 15703. EXTENSION OF WAIVER OF PRESUMPTION OF
LACK OF KNOWLEDGE OF EXCLUSION FROM
COVERAGE FOR HOME HEALTH AGENCIES.
Section 
9305(g)(3) 
of 
OBRA–1986, 
as
amended by section 426(d) of the Medicare
Catastrophic Coverage Act of 1988 and sec-
tion 4207(b)(3) of OBRA–1990 (as renumbered
by section 160(d)(4) of the Social Security Act
Amendments of 1994), is amended by striking
‘‘December 31, 1995’’ and inserting ‘‘Septem-
ber 30, 1996’’.
SEC. 15704. STUDY OF COVERAGE OF SERVICES OF CHRIS-
TIAN SCIENCE PROVIDERS.
(a) STUDY.—The Secretary of Health and
Human Services shall conduct a study of the
feasibility and desirability of providing for
coverage under the medicare program of
home health services furnished by Christian
Science providers who meet applicable re-
quirements of the First Church of Christ, Sci-
entist, Boston, Massachusetts.
(b) REPORT.—Not later than July 1, 1996,
the Secretary shall submit a report to Con-
895
Subtitle H, Part 2
gress on the study conducted under sub-
section (a), and (to the extent the report in-
cludes recommendations for coverage under
the medicare program of home health serv-
ices furnished by Christian Science provid-
ers) shall include in the report recommenda-
tions regarding appropriate criteria for the
certification of such providers and an appro-
priate methodology for making payments
under the medicare program for such serv-
ices.
PART 2—MEDICARE SECONDARY PAYER
IMPROVEMENTS
SEC. 15711. EXTENSION AND EXPANSION OF EXISTING RE-
QUIREMENTS.
(a) DATA MATCH.—
(1) Section 1862(b)(5)(C) (42 U.S.C.
1395y(b)(5)(C)) is amended by striking
clause (iii).
(2) Section 6103(l)(12) of the Internal
Revenue Code of 1986 is amended by
striking subparagraph (F).
(b) APPLICATION TO DISABLED INDIVIDUALS
IN LARGE GROUP HEALTH PLANS.—
896
Subtitle H, Part 2
(1) IN GENERAL.—Section 1862(b)(1)(B)
(42 U.S.C. 1395y(b)(1)(B)) is amended—
(A) in clause (i), by striking
‘‘clause (iv)’’ and inserting ‘‘clause
(iii)’’,
(B) by striking clause (iii), and
(C) by redesignating clause (iv) as
clause (iii).
(2) CONFORMING
AMENDMENTS.—Para-
graphs (1) through (3) of section 1837(i)
(42 U.S.C. 1395p(i)) and the second sen-
tence 
of 
section 
1839(b) 
(42 
U.S.C.
1395r(b)) are each amended by striking
‘‘1862(b)(1)(B)(iv)’’ each place it appears
and inserting ‘‘1862(b)(1)(B)(iii)’’.
(c) EXPANSION OF PERIOD OF APPLICATION
TO INDIVIDUALS WITH END STAGE RENAL DIS-
EASE.—Section 
1862(b)(1)(C) 
(42 
U.S.C.
1395y(b)(1)(C)) is amended—
(1) in the first sentence, by striking
‘‘12-month’’ each place it appears and in-
serting ‘‘24-month’’, and
(2) by striking the second sentence.
897
Subtitle H, Part 2
SEC. 15712. IMPROVEMENTS IN RECOVERY OF PAYMENTS.
(a) PERMITTING RECOVERY AGAINST THIRD
PARTY ADMINISTRATORS OF PRIMARY PLANS.—
Section 
1862(b)(2)(B)(ii) 
(42 
U.S.C.
1395y(b)(2)(B)(ii)) is amended—
(1) by striking ‘‘under this subsection
to pay’’ and inserting ‘‘(directly, as a
third-party administrator, or otherwise)
to make payment’’, and
(2) by adding at the end the follow-
ing: ‘‘The United States may not recover
from a third-party administrator under
this clause in cases where the third-party
administrator would not be able to re-
cover the amount at issue from the em-
ployer or group health plan for whom it
provides administrative services due to
the insolvency or bankruptcy of the em-
ployer or plan.’’.
(b) EXTENSION OF CLAIMS FILING PERIOD.—
Section 1862(b)(2)(B) (42 U.S.C. 1395y(b)(2)(B))
is amended by adding at the end the following
new clause:
‘‘(vi) CLAIMS-FILING
PERIOD.—
Notwithstanding any other time
limits that may exist for filing a
898
Subtitle H, Part 2
claim under an employer group
health plan, the United States
may seek to recover conditional
payments in accordance with this
subparagraph where the request
for payment is submitted to the
entity required or responsible
under this subsection to pay with
respect to the item or service (or
any portion thereof) under a pri-
mary plan within the 3-year pe-
riod beginning on the date on
which the item or service was fur-
nished.’’.
(c) EFFECTIVE
DATE.—The amendments
made by this section shall apply to items and
services furnished on or after the date of the
enactment of this Act.
SEC. 15713. PROHIBITING RETROACTIVE APPLICATION OF
POLICY REGARDING ESRD BENEFICIARIES
ENROLLED IN PRIMARY PLANS.
For purposes of carrying out section
1862(b)(1)(C) of the Social Security Act, the
Secretary of Health and Human Services shall
apply the policy directive issued by the Ad-
899
Subtitle H, Part 3
ministrator of the Health Care Financing Ad-
ministration on April 24, 1995, only with re-
spect to items and services furnished on or
after such date.
PART 3—FAILSAFE
SEC. 15721. FAILSAFE BUDGET MECHANISM.
(a) IN GENERAL.—Title XVIII, as amended
by sections 15106(a) and 15701(a), is amended
by adding at the end the following new sec-
tion:
‘‘FAILSAFE BUDGET MECHANISM
‘‘SEC. 1895. (a) REQUIREMENT OF PAYMENT
ADJUSTMENTS
TO ACHIEVE MEDICARE BUDGET
TARGETS.—If the Secretary determines under
subsection (e)(3)(C) before a fiscal year (be-
ginning with fiscal year 1998) that—
‘‘(1) the fee-for-service expenditures
(as defined in subsection (f)) for a sector
of medicare services (as defined in sub-
section (b)) for the fiscal year, will exceed
‘‘(2) the allotment specified under
subsection (c)(2) for such fiscal year (tak-
ing into account any adjustment in the
allotment under subsection (h) for that
fiscal year),
900
Subtitle H, Part 3
then, notwithstanding any other provision of
this title, there shall be an adjustment (con-
sistent with subsection (d)) in applicable pay-
ment rates or payments for items and services
included in the sector in the fiscal year so
that such expenditures for the sector for the
year will be reduced by 1331⁄3 percent of the
amount of such excess.
‘‘(b) SECTORS OF MEDICARE SERVICES DE-
SCRIBED.—
‘‘(1) IN GENERAL.—For purposes of this
section, 
items 
and 
services 
included
under each of the following subpara-
graphs shall be considered to be a sepa-
rate ‘sector’ of medicare services:
‘‘(A) Inpatient hospital services.
‘‘(B) Home health services.
‘‘(C) Extended care services (for
inpatients of skilled nursing facili-
ties).
‘‘(D) Hospice care.
‘‘(E) Physicians’ services (includ-
ing services and supplies described in
section 1861(s)(2)(A)) and services of
other health care professionals (in-
901
Subtitle H, Part 3
cluding certified registered nurse an-
esthetists, nurse practitioners, physi-
cian assistants, and clinical psycholo-
gists) for which separate payment is
made under this title.
‘‘(F) Outpatient hospital services
and ambulatory facility services.
‘‘(G) Durable medical equipment
and supplies, including prosthetic de-
vices and orthotics.
‘‘(H) Diagnostic tests (including
clinical laboratory services and x-ray
services).
‘‘(I) Other items and services.
‘‘(2) CLASSIFICATION
OF
ITEMS
AND
SERVICES.—The Secretary shall classify
each type of items and services covered
and paid for separately under this title
into one of the sectors specified in para-
graph (1). After publication of such classi-
fication under subsection (e)(1), the Sec-
retary is not authorized to make sub-
stantive changes in such classification.
‘‘(c) ALLOTMENT.—
902
Subtitle H, Part 3
‘‘(1) ALLOTMENTS FOR EACH SECTOR.—
For purposes of this section, subject to
subsection (h)(1), the allotment for a sec-
tor of medicare services for a fiscal year
is equal to the product of—
‘‘(A) the total allotment for the fis-
cal year established under paragraph
(2), and
‘‘(B) 
the 
allotment 
proportion
(specified under paragraph (3)) for
the sector and fiscal year involved.
‘‘(2) TOTAL ALLOTMENT.—
‘‘(A) IN GENERAL.—For purposes of
this section, the total allotment for a
fiscal year is equal to—
‘‘(i) 
the 
medicare 
benefit
budget for the fiscal year (as
specified 
under 
subparagraph
(B)), reduced by
‘‘(ii) the amount of payments
the Secretary estimates will be
made in the fiscal year under the
MedicarePlus program under part
C.
903
Subtitle H, Part 3
In making the estimate under clause
(ii), the Secretary shall take into ac-
count estimated enrollment and de-
mographic 
profile 
of 
individuals
electing MedicarePlus products.
‘‘(B) MEDICARE BENEFIT BUDGET.—
For purposes of this subsection, sub-
ject to subparagraph (C), the ‘medi-
care benefit budget’—
‘‘(i) for fiscal year 1997 is
$203.1 billion;
‘‘(ii) for fiscal year 1998 is
$214.3 billion;
‘‘(iii) for fiscal year 1999 is
$227.2 billion;
‘‘(iv) for fiscal year 2000 is
$241.0 billion;
‘‘(v) for fiscal year 2001 is
$259.1 billion;
‘‘(vi) for fiscal year 2002 is
$280.0 billion; and
‘‘(vii) for a subsequent fiscal
year is equal to the medicare ben-
efit budget under this subpara-
graph for the preceding fiscal
904
Subtitle H, Part 3
year increased by the product of
(I) 1.05, and (II) 1 plus the annual
percentage increase in the aver-
age number of medicare bene-
ficiaries from the previous fiscal
year to the fiscal year involved.
‘‘(3) MEDICARE ALLOTMENT PROPORTION
DEFINED.—
‘‘(A) IN GENERAL.—For purposes of
this section and with respect to a sec-
tor of medicare services for a fiscal
year, the term ‘medicare allotment
proportion’ means the ratio of—
‘‘(i) 
the 
baseline-projected
medicare expenditures (as deter-
mined under subparagraph (B))
for the sector for the fiscal year,
to
‘‘(ii) the sum of such baseline
expenditures for all such sectors
for the fiscal year.
‘‘(B) 
BASELINE-PROJECTED
MEDI-
CARE
EXPENDITURES.—In 
this 
para-
graph, the ‘baseline, projected medi-
905
Subtitle H, Part 3
care expenditures’ for a sector of
medicare services—
‘‘(i) for fiscal year 1996 is
equal to fee-for-service expendi-
tures for such sector during fiscal
year 1995, increased by the base-
line annual growth rate for such
sector of medicare services for fis-
cal year 1996 (as specified in table
in subparagraph (C)); and
‘‘(ii) for a subsequent fiscal
year is equal to the baseline-pro-
jected 
medicare 
expenditures
under this subparagraph for the
sector for the previous fiscal year
increased by the baseline annual
growth rate for such sector for
the fiscal year involved (as speci-
fied in such table).
‘‘(C) 
BASELINE
ANNUAL
GROWTH
RATES.—The following table specifies
the baseline annual growth rates for
each of the sectors for different fiscal
years:
906
Subtitle H, Part 3
‘‘For the following
sector—
Baseline annual growth rates for fiscal year—
1996
1997
1998
1999
2000
2001
2002
and
there-
after
(A) Inpatient hos-
pital services .........
5.7%
5.6%
6.0%
6.1%
5.7%
5.5%
5.2%
(B) Home health
services ...................
17.2%
15.1%
11.7%
9.1%
8.4%
8.1%
7.9%
(C) Extended care
services ...................
19.7%
12.3%
9.3%
8.7%
8.6%
8.4%
8.0%
(D) Hospice care ...
32.0%
24.0%
18.0%
15.0%
12.0%
10.0%
9.0%
(E) Physicians’
services ...................
12.4%
9.7%
8.7%
9.0%
9.3%
9.6%
10.1%
(F) Outpatient
hospital services ...
14.7%
13.9%
14.5%
15.0%
14.1%
13.9%
14.0%
(G) Durable medi-
cal equipment and
supplies ...................
16.1%
15.5%
13.7%
12.4%
13.2%
13.9%
14.5%
(H) Diagnostic
tests .........................
13.1%
11.3%
11.0%
11.4%
11.4%
11.5%
11.9%
(I) Other items
and services ...........
11.2%
10.2%
10.9%
12.0%
11.6%
11.6%
11.8%
‘‘(d) MANNER OF PAYMENT ADJUSTMENT.—
‘‘(1) IN GENERAL.—Subject to the suc-
ceeding provisions of this subsection, the
Secretary shall apply a payment reduc-
tion for a sector for a fiscal year in such
a manner as to—
‘‘(A) make a change in payment
rates (to the maximum extent prac-
ticable) at the time payment rates are
otherwise 
changed 
or 
subject 
to
change for that fiscal year; and
‘‘(B) provide for the full appro-
priate adjustment so that the fee-for-
service expenditures for the sector
for the fiscal year will approximate
907
Subtitle H, Part 3
(and not exceed) the allotment for the
sector for the fiscal year.
‘‘(2) TAKING INTO ACCOUNT VOLUME AND
CASH FLOW.—In providing for an adjust-
ment in payments under this subsection
for a sector for a fiscal year, the Sec-
retary shall take into account (in a man-
ner consistent with actuarial projec-
tions)—
‘‘(A) the impact of such an adjust-
ment on the volume or type of serv-
ices provided in such sector (and
other sectors), and
‘‘(B) the fact that an adjustment
may apply to items and services fur-
nished in a fiscal year (payment for
which may occur in a subsequent fis-
cal year),
in a manner that is consistent with assur-
ing that total fee-for-services expendi-
tures for each sector for the fiscal year
will not exceed the allotment under sub-
section (c)(1) for such sector for such
year.
908
Subtitle H, Part 3
‘‘(3) PROPORTIONALITY
OF
REDUCTIONS
WITHIN A SECTOR.—In making adjustments
under this subsection in payment for
items and services included within a sec-
tor of medicare services for a fiscal year,
the Secretary shall provide for such an
adjustment that results (to the maximum
extent feasible) in the same percentage
reductions in aggregate Federal pay-
ments under parts A and B for the dif-
ferent classes of items and services in-
cluded within the sector for the fiscal
year.
‘‘(4) APPLICATION
TO
PAYMENTS
MADE
BASED ON PROSPECTIVE PAYMENT RATES DE-
TERMINED ON A FISCAL YEAR BASIS.—
‘‘(A) IN GENERAL.—In applying sub-
section (a) with respect to items and
services for which payment is made
under part A or B on the basis of
rates that are established on a pro-
spective basis for (and in advance of)
a fiscal year, the Secretary shall pro-
vide for the payment adjustment
under such subsection through an ap-
909
Subtitle H, Part 3
propriate reduction in such rates es-
tablished for items and services fur-
nished (or, in the case of payment for
operating costs of inpatient hospital
services of subsection (d) hospitals
and subsection (d) Puerto Rico hos-
pitals (as defined in paragraphs (1)(B)
and (9)(A) of section 1886(d)), dis-
charges occurring) during such year.
‘‘(B) DESCRIPTION
OF
APPLICATION
TO
SPECIFIC
SERVICES.—The payment
adjustment 
described 
in 
subpara-
graph (A) applies for a fiscal year to
at least the following:
‘‘(i) UPDATE
FACTOR
FOR
PAY-
MENT FOR OPERATING COSTS OF IN-
PATIENT HOSPITAL SERVICES OF PPS
HOSPITALS.—To the computation
of the applicable percentage in-
crease 
specified 
in 
section
1886(d)(3)(B)(i) for discharges oc-
curring in the fiscal year.
‘‘(ii) HOME HEALTH SERVICES.—
To the extent payment amounts
for 
home 
health 
services 
are
910
Subtitle H, Part 3
based on per visit payment rates
under section 1894, to the com-
putation of the increase in the na-
tional per visit payment rates es-
tablished for the year under sec-
tion 1894(b)(2)(B).
‘‘(iii) HOSPICE
CARE.—To the
update of payment rates for hos-
pice care under section 1814(i) for
services furnished during the fis-
cal year.
‘‘(iv) UPDATE FACTOR FOR PAY-
MENT OF OPERATING COSTS OF INPA-
TIENT
HOSPITAL
SERVICES
OF
PPS-
EXEMPT
HOSPITALS.—To the com-
putation of the target amount
under section 1886(b)(3) for dis-
charges occurring during the fis-
cal year.
‘‘(v) 
COVERED
NON-ROUTINE
SERVICES
OF
SKILLED
NURSING
FA-
CILITIES.—To the computation of
the facility per stay limits for the
year under section 1888A(d) for
covered non-routine services of a
911
Subtitle H, Part 3
skilled nursing facility (as de-
scribed in such section).
‘‘(5) APPLICATION
TO
PAYMENTS
MADE
BASED ON PROSPECTIVE PAYMENT RATES DE-
TERMINED ON A CALENDAR YEAR BASIS.—
‘‘(A) IN GENERAL.—In applying sub-
section (a) for a fiscal year with re-
spect to items and services for which
payment is made under part A or B
on the basis of rates that are estab-
lished on a prospective basis for (and
in advance of) a calendar year, the
Secretary shall provide for the pay-
ment adjustment under such sub-
section through an appropriate re-
duction in such rates established for
items and services furnished at any
time during such calendar year as fol-
lows:
‘‘(i) For fiscal year 1997, the
reduction shall be made for pay-
ment rates during calendar year
1997 in a manner so as to achieve
the necessary payment reductions
for such fiscal year for items and
912
Subtitle H, Part 3
services 
furnished 
during 
the
first 3 quarters of calendar year
1997.
‘‘(ii) For a subsequent fiscal
year, the reduction shall be made
for payment rates during the cal-
endar year in which the fiscal
year ends in a manner so as to
achieve the necessary payment
reductions for such fiscal year for
items and services furnished dur-
ing the first 3 quarters of the cal-
endar year, but also taking into
account the payment reductions
made in the first quarter of the
fiscal year resulting from pay-
ment reductions made under this
paragraph for the previous cal-
endar year.
‘‘(iii) Payment rate reductions
effected under this subparagraph
for a calendar year and applica-
ble to the last 3 quarters of the
fiscal year in which the calendar
year ends shall continue to apply
913
Subtitle H, Part 3
during the first quarter of the
succeeding fiscal year.
‘‘(B) 
APPLICATION
IN
SPECIFIC
CASES.—The payment adjustment de-
scribed in subparagraph (A) applies
for a fiscal year to at least the follow-
ing:
‘‘(i) 
UPDATE
IN
CONVERSION
FACTOR
FOR
PHYSICIANS’ 
SERV-
ICES.—To the computation of the
conversion 
factor 
under 
sub-
section (d) of section 1848 used in
the 
fee 
schedule 
established
under subsection (b) of such sec-
tion, for items and services fur-
nished during the calendar year
in which the fiscal year ends.
‘‘(ii) PAYMENT RATES FOR OTHER
HEALTH
CARE
PROFESSIONALS.—To
the computation of payments for
professional services of certified
registered 
nurse 
anesthetists
under section 1833(l), nurse mid-
wives, physician assistants, nurse
practitioners and clinical nurse
914
Subtitle H, Part 3
specialists under section 1833(r),
clinical psychologists, clinical so-
cial workers, physical or occupa-
tional therapists, and any other
health professionals for which
payment 
rates 
are 
based 
(in
whole or in part) on payments for
physicians’ services, for services
furnished during the calendar
year in which the fiscal year
ends.
‘‘(iii) UPDATE IN LAB FEE SCHED-
ULE.—To the computation of the
fee schedule amount under sec-
tion 1833(h)(2) for clinical diag-
nostic laboratory services fur-
nished during the calendar year
in which the fiscal year ends.
‘‘(iv) UPDATE
IN
REASONABLE
CHARGES
FOR
VACCINES.—To the
computation of the reasonable
charge for vaccines described in
section 1861(s)(10) for vaccines
furnished during the calendar
915
Subtitle H, Part 3
year in which the fiscal year
ends.
‘‘(v) DURABLE
MEDICAL
EQUIP-
MENT-RELATED ITEMS.—To the com-
putation of the payment basis
under section 1834(a)(1)(B) for
covered items described in sec-
tion 1834(a)(13), for items fur-
nished during the calendar year
in which the fiscal year ends.
‘‘(vi) RADIOLOGIST
SERVICES.—
To the computation of conversion
factors for radiologist services
under section 1834(b), for services
furnished during the calendar
year in which the fiscal year
ends.
‘‘(vii) 
SCREENING
MAMMOG-
RAPHY.—To the computation of
payment rates for screening mam-
mography 
under 
section
1834(c)(1)(C)(ii), 
for 
screening
mammography performed during
the calendar year in which the
fiscal year ends.
916
Subtitle H, Part 3
‘‘(viii) 
PROSTHETICS
AND
ORTHOTICS.—To the computation
of the amount to be recognized
under section 1834(h) for payment
for 
prosthetic 
devices 
and
orthotics 
and 
prosthetics, 
for
items furnished during the cal-
endar year in which the fiscal
year ends.
‘‘(ix) SURGICAL DRESSINGS.—To
the computation of the payment
amount referred to in section
1834(i)(1)(B) 
for 
surgical
dressings, 
for 
items 
furnished
during the calendar year in which
the fiscal year ends.
‘‘(x) PARENTERAL AND ENTERAL
NUTRITION.—To the computation
of reasonable charge screens for
payment for parenteral and en-
teral 
nutrition 
under 
section
1834(h), for nutrients furnished
during the calendar year in which
the fiscal year ends.
917
Subtitle H, Part 3
‘‘(xi) AMBULANCE SERVICES.—To
the computation of limits on rea-
sonable charges for ambulance
services, for services furnished
during the calendar year in which
the fiscal year ends.
‘‘(6) APPLICATION
TO
PAYMENTS
MADE
BASED ON COSTS DURING A COST REPORTING
PERIOD.—
‘‘(A) IN GENERAL.—In applying sub-
section (a) for a fiscal year with re-
spect to items and services for which
payment is made under part A or B
on the basis of costs incurred for
items and services in a cost reporting
period, the Secretary shall provide
for the payment adjustment under
such subsection for a fiscal year
through an appropriate proportional
reduction in the payment for costs for
such items and services incurred at
any time during each cost reporting
period any part of which occurs dur-
ing the fiscal year involved, but only
(for each such cost reporting period)
918
Subtitle H, Part 3
in the same proportion as the frac-
tion of the cost reporting period that
occurs during the fiscal year in-
volved.
‘‘(B) 
APPLICATION
IN
SPECIFIC
CASES.—The payment adjustment de-
scribed in subparagraph (A) applies
for a fiscal year to at least the follow-
ing:
‘‘(i) CAPITAL-RELATED COSTS OF
HOSPITAL
SERVICES.—To the com-
putation of payment amounts for
inpatient and outpatient hospital
services under sections 1886(g)
and 1861(v) for portions of cost
reporting periods occurring dur-
ing the fiscal year.
‘‘(ii) OPERATING COSTS FOR PPS-
EXEMPT
HOSPITALS.—To the com-
putation 
of 
payment 
amounts
under section 1886(b) for operat-
ing costs of inpatient hospital
services of PPS-exempt hospitals
for portions of cost reporting pe-
919
Subtitle H, Part 3
riods occurring during the fiscal
year.
‘‘(iii) DIRECT
GRADUATE
MEDI-
CAL EDUCATION.—To the computa-
tion of payment amounts under
section 
1886(h) 
for 
reasonable
costs of direct graduate medical
education costs for portions of
cost reporting periods occurring
during the fiscal year.
‘‘(iv) INPATIENT RURAL PRIMARY
CARE
HOSPITAL
SERVICES.—To the
computation of payment amounts
under section 1814(j) for inpatient
rural primary care hospital serv-
ices for portions of cost reporting
periods occurring during the fis-
cal year.
‘‘(v) EXTENDED
CARE
SERVICES
OF A SKILLED NURSING FACILITY.—
To the computation of payment
amounts under section 1861(v) for
post-hospital extended care serv-
ices of a skilled nursing facility
(other than covered non-routine
920
Subtitle H, Part 3
services subject to section 1888A)
for portions of cost reporting pe-
riods occurring during the fiscal
year.
‘‘(vi) REASONABLE
COST
CON-
TRACTS.—To the computation of
payment amounts under section
1833(a)(1)(A) for organizations for
portions of cost reporting periods
occurring during the fiscal year.
‘‘(vii) 
HOME
HEALTH
SERV-
ICES.—Subject 
to 
paragraph
(4)(B)(ii), for payment amounts
for home health services, for por-
tions of cost reporting periods oc-
curring during such fiscal year.
‘‘(7) OTHER.—In applying subsection
(a) for a fiscal year with respect to items
and services for which payment is made
under part A or B on a basis not de-
scribed in a previous paragraph of this
subsection, the Secretary shall provide
for the payment adjustment under such
subsection through an appropriate pro-
portional reduction in the payments (or
921
Subtitle H, Part 3
payment bases for items and services fur-
nished) during the fiscal year.
‘‘(8) ADJUSTMENT OF PAYMENT LIMITS.—
The Secretary shall provide for such pro-
portional adjustment in any limits on
payment established under part A or B
for payment for items and services within
a sector as may be appropriate based on
(and in order to properly carry out) the
adjustment on the amount of payment
under this subsection in the sector.
‘‘(9) REFERENCES TO PAYMENT RATES.—
Except as the Secretary may provide, any
reference in this title (other than this
section) to a payment rate is deemed a
reference to such a rate as adjusted
under this subsection.
‘‘(e) PUBLICATION OF DETERMINATIONS; JU-
DICIAL REVIEW.—
‘‘(1) ONE-TIME PUBLICATION OF SECTORS
AND GENERAL PAYMENT ADJUSTMENT METH-
ODOLOGY.—Not later than October 1, 1996,
the Secretary shall publish in the Federal
Register the classification of medicare
items and services into the sectors of
922
Subtitle H, Part 3
medicare services under subsection (b)
and the general methodology to be used
in applying payment adjustments to the
different classes of items and services
within the sectors.
‘‘(2) INCLUSION
OF
INFORMATION
IN
PRESIDENT’S BUDGET.—
‘‘(A) IN GENERAL.—With respect to
fiscal years beginning with fiscal year
1999, the President shall include in
the budget submitted under section
1105 of title 31, United States Code,
information on—
‘‘(i) the fee-for-service expend-
itures, within each sector, for the
second previous fiscal year, and
how such expenditures compare
to the adjusted sector allotment
for that sector for that fiscal year;
and
‘‘(ii) 
actual 
annual 
growth
rates for fee-for-service expendi-
tures in the different sectors in
the second previous fiscal year.
923
Subtitle H, Part 3
‘‘(B) RECOMMENDATIONS REGARDING
GROWTH FACTORS.—The President may
include in such budget for a fiscal
year (beginning with fiscal year 1998)
recommendations regarding percent-
ages that should be applied (for one
or more fiscal years beginning with
that fiscal year) instead of the base-
line annual growth rates under sub-
section (c)(3)(C). Such recommenda-
tions shall take into account medi-
cally appropriate practice patterns.
‘‘(3) DETERMINATIONS CONCERNING PAY-
MENT ADJUSTMENTS.—
‘‘(A) RECOMMENDATIONS OF COMMIS-
SION.—By not later than March 1 of
each year (beginning with 1997), the
Medicare Payment Review Commis-
sion shall submit to the Secretary and
the Congress a report that analyzes
the previous operation (if any) of this
section 
and 
that 
includes 
rec-
ommendations concerning the man-
ner in which this section should be
applied for the following fiscal year.
924
Subtitle H, Part 3
‘‘(B) PRELIMINARY
NOTICE
BY
SEC-
RETARY.—Not later than May 15 pre-
ceding the beginning of each fiscal
year 
(beginning 
with 
fiscal 
year
1998), the Secretary shall publish in
the Federal Register a notice contain-
ing the Secretary’s preliminary deter-
mination, for each sector of medicare
services, concerning the following:
‘‘(i) The projected allotment
under subsection (c) for such sec-
tor for the fiscal year.
‘‘(ii) Whether there will be a
payment adjustment for items
and services included in such sec-
tor for the fiscal year under sub-
section (a).
‘‘(iii) If there will be such an
adjustment, the size of such ad-
justment and the methodology to
be used in making such a pay-
ment adjustment for classes of
items and services included in
such sector.
925
Subtitle H, Part 3
‘‘(iv) Beginning with fiscal
year 1999, the fee-for-service ex-
penditures for such sector for the
second preceding fiscal year.
Such notice shall include an expla-
nation of the basis for such deter-
mination. Determinations under this
subparagraph and subparagraph (C)
shall be based on the best data avail-
able at the time of such determina-
tions.
‘‘(C) FINAL
DETERMINATION.—Not
later than September 1 preceding the
beginning of each fiscal year (begin-
ning with fiscal year 1998), the Sec-
retary shall publish in the Federal
Register a final determination, for
each sector of medicare services, con-
cerning the matters described in sub-
paragraph (B) and an explanation of
the reasons for any differences be-
tween such determination and the
preliminary determination for such
fiscal year published under subpara-
graph (B).
926
Subtitle H, Part 3
‘‘(4) LIMITATION ON ADMINISTRATIVE OR
JUDICIAL REVIEW.—There shall be no ad-
ministrative or judicial review under sec-
tion 1878 or otherwise of—
‘‘(A) the classification of items
and services among the sectors of
medicare services under subsection
(b),
‘‘(B) the determination of the
amounts of allotments for the dif-
ferent sectors of medicare services
under subsection (c),
‘‘(C) the determination of the
amount (or method of application) of
any payment adjustment under sub-
section (d), or
‘‘(D) any adjustment in an allot-
ment effected under subsection (h).
‘‘(f) FEE-FOR-SERVICE
EXPENDITURES
DE-
FINED.—In this section, the term ‘fee-for-serv-
ice expenditures’, for items and services with-
in a sector of medicare services in a fiscal
year, means amounts payable for such items
and services which are furnished during the
fiscal year, and—
927
Subtitle H, Part 3
‘‘(1) includes types of expenses other-
wise reimbursable under parts A and B
(including administrative costs incurred
by organizations described in sections
1816 and 1842) with respect to such items
and services, and
‘‘(2) does not include amounts paid
under part C.
‘‘(g) EXPEDITED PROCESS FOR ADJUSTMENT
OF SECTOR GROWTH RATES.—
‘‘(1) OPTIONAL
INCLUSION
OF
LEGISLA-
TIVE
PROPOSAL.—The President may in-
clude in recommendations under sub-
section (e)(2)(B) submitted with respect
to a fiscal year a specific legislative pro-
posal that provides only for the substi-
tution of percentages specified in the
proposal for one or more of the baseline
annual growth rates (specified in the
table in subsection (c)(3)(C) or in a pre-
vious legislative proposal under this sub-
section) for that fiscal year or any subse-
quent fiscal year.
‘‘(2) CONGRESSIONAL CONSIDERATION.—
928
Subtitle H, Part 3
‘‘(A) IN
GENERAL.—The percent-
ages contained in a legislative pro-
posal submitted under paragraph (1)
shall apply under this section if a
joint resolution (described in sub-
paragraph (B)) approving such pro-
posal is enacted, in accordance with
the provisions of subparagraph (C),
before the end of the 60-day period
beginning on the date on which such
proposal was submitted. For purposes
of applying the preceding sentence
and subparagraphs (B) and (C), the
days on which either House of Con-
gress is not in session because of an
adjournment of more than three days
to a day certain shall be excluded in
the computation of a period.
‘‘(B) JOINT
RESOLUTION
OF
AP-
PROVAL.—A joint resolution described
in this subparagraph means only a
joint resolution which is introduced
within the 10-day period beginning
on the date on which the President
929
Subtitle H, Part 3
submits a proposal under paragraph
(1) and—
‘‘(i) which does not have a
preamble;
‘‘(ii) the matter after the re-
solving clause of which is as fol-
lows: ‘That Congress approves the
proposal of the President provid-
ing for substitution of percent-
ages for certain baseline annual
growth rates under section 1895
of the Social Security Act, as sub-
mitted 
by 
the 
President 
on
lllllll.’, the blank space
being filled in with the appro-
priate date; and
‘‘(iii) the title of which is as
follows: ‘Joint resolution approv-
ing Presidential proposal to sub-
stitute certain specified percent-
ages for baseline annual growth
rates under section 1895 of the
Social Security Act, as submitted
by 
the 
President 
on
lllllll.’, the blank space
930
Subtitle H, Part 3
being filled in with the appro-
priate date.
‘‘(C) PROCEDURES
FOR
CONSIDER-
ATION OF RESOLUTION OF APPROVAL.—
Subject to subparagraph (D), the pro-
visions of section 2908 (other than
subsection (a)) of the Defense Base
Closure and Realignment Act of 1990
shall apply to the consideration of a
joint resolution described in subpara-
graph (B) in the same manner as such
provisions apply to a joint resolution
described in section 2908(a) of such
Act.
‘‘(D) 
SPECIAL
RULES.—For 
pur-
poses of applying subparagraph (C)
with respect to such provisions—
‘‘(i) any reference to the Com-
mittee on Armed Services of the
House of Representatives shall be
deemed a reference to an appro-
priate Committee of the House of
Representatives (specified by the
Speaker of the House of Rep-
resentatives at the time of sub-
931
Subtitle H, Part 3
mission of a legislative proposal
under paragraph (1)) and any ref-
erence 
to 
the 
Committee 
on
Armed Services of the Senate
shall be deemed a reference to
the Committee on Finance of the
Senate; and
‘‘(ii) any reference to the date
on which the President transmits
a report shall be deemed a ref-
erence to the date on which the
President submits the legislative
proposal under paragraph (1).
‘‘(h) LOOK-BACK
ADJUSTMENT
IN
ALLOT-
MENTS TO REFLECT ACTUAL EXPENDITURES.—
‘‘(1) IN GENERAL.—If the Secretary de-
termines under subsection (e)(3)(B) with
respect to a particular fiscal year (begin-
ning with fiscal year 1999) that the fee-
for-service expenditures for a sector of
medicare services for the second preced-
ing fiscal year—
‘‘(A) exceeded the adjusted allot-
ment for such sector for such year (as
defined in paragraph (2)), then the al-
932
Subtitle H, Part 3
lotment for the sector for the particu-
lar fiscal year shall be reduced by
1331⁄3 percent of the amount of such
excess, or
‘‘(B) was less than the adjusted al-
lotment for such sector for such year,
then the allotment for the sector for
the particular fiscal year shall be in-
creased by the amount of such deficit.
‘‘(2) ADJUSTED
ALLOTMENT.—The ad-
justed allotment under this paragraph for
a sector for a fiscal year is—
‘‘(A) the amount that would be
computed as the allotment under sub-
section (c) for the sector for the fiscal
year if the actual amount of payments
made in the fiscal year under the
MedicarePlus program under part C
in the fiscal year were substituted for
the amount described in subsection
(c)(2)(A)(ii) for that fiscal year,
‘‘(B) adjusted to take into account
the amount of any adjustment under
paragraph (1) for that fiscal year
933
Subtitle H, Part 3
(based on expenditures in the second
previous fiscal year).
‘‘(i) PROSPECTIVE APPLICATION OF CERTAIN
NATIONAL COVERAGE DETERMINATIONS.—In the
case of a national coverage determination
that the Secretary projects will result in sig-
nificant additional expenditures under this
title (taking into account any substitution for
existing procedures or technologies), such de-
termination shall not become effective before
the beginning of the fiscal year that begins
after the date of such determination and shall
apply to contracts under part C entered into
(or renewed) after the date of such determina-
tion.’’.
(b) REPORT OF TRUSTEES ON GROWTH RATE
IN PART A EXPENDITURES.—Section 1817 (42
U.S.C. 1395i) is amended by adding at the end
the following new subsection:
‘‘(k) Each annual report provided in sub-
section (b)(2) shall include information re-
garding the annual rate of growth in program
expenditures that would be required to main-
tain the financial solvency of the Trust Fund
and the extent to which the provisions of sec-
934
Subtitle H, Part 4
tion 1895 restrain the rate of growth of ex-
penditures under this part in order to achieve
such solvency.’’.
PART 4—ADMINISTRATIVE SIMPLIFICATION
SEC. 15731. STANDARDS FOR MEDICARE INFORMATION
TRANSACTIONS AND DATA ELEMENTS.
Title XVIII, as amended by section 15031,
is amended by inserting after section 1806 the
following new section:
‘‘STANDARDS FOR MEDICARE INFORMATION
TRANSACTIONS AND DATA ELEMENTS
‘‘SEC. 1807. (a) ADOPTION
OF STANDARDS
FOR DATA ELEMENTS.—
‘‘(1) IN
GENERAL.—Pursuant to sub-
section (b), the Secretary shall adopt
standards for information transactions
and data elements of medicare informa-
tion and modifications to the standards
under this section that are—
‘‘(A) consistent with the objective
of reducing the administrative costs
of providing and paying for health
care; and
‘‘(B) developed or modified by a
standard setting organization (as de-
fined in subsection (h)(8)).
935
Subtitle H, Part 4
‘‘(2) SPECIAL
RULE
RELATING
TO
DATA
ELEMENTS.—The Secretary may adopt or
modify a standard relating to data ele-
ments that is different from the standard
developed by a standard setting organiza-
tion, if—
‘‘(A) the different standard or
modification will substantially reduce
administrative costs to health care
providers and health plans compared
to the alternative; and
‘‘(B) the standard or modification
is promulgated in accordance with
the rulemaking procedures of sub-
chapter III of chapter 5 of title 5,
United States Code.
‘‘(3) SECURITY STANDARDS FOR HEALTH
INFORMATION NETWORK.—
‘‘(A) IN
GENERAL.—Each person,
who maintains or transmits medicare
information or data elements of medi-
care information and is subject to
this section, shall maintain reason-
able and appropriate administrative,
technical, and physical safeguards—
936
Subtitle H, Part 4
‘‘(i) to ensure the integrity
and confidentiality of the infor-
mation;
‘‘(ii) to protect against any
reasonably anticipated—
‘‘(I) threats or hazards to
the security or integrity of the
information; and
‘‘(II) unauthorized uses or
disclosures of the informa-
tion; and
‘‘(iii) to otherwise ensure com-
pliance with this section by the
officers and employees of such
person.
‘‘(B) 
SECURITY
STANDARDS.—The
Secretary 
shall 
establish 
security
standards and modifications to such
standards with respect to medicare
information network services, health
plans, and health care providers
that—
‘‘(i) take into account—
‘‘(I) the technical capabili-
ties of record systems used to
937
Subtitle H, Part 4
maintain medicare informa-
tion;
‘‘(II) the costs of security
measures;
‘‘(III) the need for training
persons who have access to
medicare information; and
‘‘(IV) the value of audit
trails in computerized record
systems; and
‘‘(ii) ensure that a medicare
information network service, if it
is part of a larger organization,
has policies and security proce-
dures which isolate the activities
of such service with respect to
processing information in a man-
ner that prevents unauthorized
access to such information by
such larger organization.
The security standards established by
the Secretary shall be based on the
standards developed or modified by
standard 
setting 
organizations. 
If
such standards do not exist, the Sec-
938
Subtitle H, Part 4
retary shall rely on the recommenda-
tions of the Medicare Information Ad-
visory Committee (established under
subsection (g)) and shall consult with
appropriate government agencies and
private organizations in accordance
with paragraph (5).
‘‘(4) IMPLEMENTATION SPECIFICATIONS.—
The Secretary shall establish specifica-
tions for implementing each of the stand-
ards and the modifications to the stand-
ards adopted pursuant to paragraph (1)
or (3).
‘‘(5) ASSISTANCE TO THE SECRETARY.—In
complying with the requirements of this
section, the Secretary shall rely on rec-
ommendations of the Medicare Informa-
tion 
Advisory 
Committee 
established
under subsection (g) and shall consult
with appropriate Federal and State agen-
cies and private organizations. The Sec-
retary shall publish in the Federal Reg-
ister the recommendations of the Medi-
care Information Advisory Committee re-
939
Subtitle H, Part 4
garding the adoption of a standard under
this section.
‘‘(b) STANDARDS FOR INFORMATION TRANS-
ACTIONS AND DATA ELEMENTS.—
‘‘(1) IN GENERAL.—The Secretary shall
adopt standards for transactions and
data elements to make medicare informa-
tion uniformly available to be exchanged
electronically, that is—
‘‘(A) appropriate for the following
financial and administrative trans-
actions: claims (including coordina-
tion of benefits) or equivalent en-
counter information, enrollment and
disenrollment, 
eligibility, 
premium
payments, and referral certification
and authorization; and
‘‘(B) related to other financial and
administrative 
transactions 
deter-
mined appropriate by the Secretary
consistent with the goals of improv-
ing the operation of the health care
system and reducing administrative
costs.
‘‘(2) UNIQUE HEALTH IDENTIFIERS.—
940
Subtitle H, Part 4
‘‘(A) ADOPTION OF STANDARDS.—The
Secretary shall adopt standards pro-
viding for a standard unique health
identifier for each individual, em-
ployer, health plan, and health care
provider for use in the medicare in-
formation 
system. 
In 
developing
unique health identifiers for each
health plan and health care provider,
the Secretary shall take into account
multiple uses for identifiers and mul-
tiple locations and specialty classi-
fications for health care providers.
‘‘(B) PENALTY
FOR
IMPROPER
DIS-
CLOSURE.—A person who knowingly
uses or causes to be used a unique
health identifier under subparagraph
(A) for a purpose that is not author-
ized by the Secretary shall—
‘‘(i) be fined not more than
$50,000, 
imprisoned 
not 
more
than 1 year, or both; or
‘‘(ii) if the offense is commit-
ted under false pretenses, be
fined not more than $100,000, im-
941
Subtitle H, Part 4
prisoned not more than 5 years,
or both.
‘‘(3) CODE SETS.—
‘‘(A) IN
GENERAL.—The Secretary,
in consultation with the Medicare In-
formation Advisory Committee, ex-
perts from the private sector, and
Federal and State agencies, shall—
‘‘(i) select code sets for appro-
priate data elements from among
the code sets that have been de-
veloped by private and public en-
tities; or
‘‘(ii) establish code sets for
such data elements if no code sets
for the data elements have been
developed.
‘‘(B) DISTRIBUTION.—The Secretary
shall establish efficient and low-cost
procedures for distribution (includ-
ing electronic distribution) of code
sets and modifications made to such
code sets under subsection (c)(2).
‘‘(4) ELECTRONIC SIGNATURE.—
942
Subtitle H, Part 4
‘‘(A) IN
GENERAL.—The Secretary,
after consultation with the Medicare
Information 
Advisory 
Committee,
shall promulgate regulations specify-
ing procedures for the electronic
transmission and authentication of
signatures, compliance with which
will be deemed to satisfy Federal and
State statutory requirements for writ-
ten signatures with respect to infor-
mation transactions required by this
section and written signatures on en-
rollment and disenrollment forms.
‘‘(B) PAYMENTS FOR SERVICES AND
PREMIUMS.—Nothing in this section
shall be construed to prohibit the
payment of health care services or
health plan premiums by debit, cred-
it, payment card or numbers, or other
electronic means.
‘‘(5) TRANSFER
OF
INFORMATION
BE-
TWEEN
HEALTH
PLANS.—The 
Secretary
shall develop rules and procedures—
‘‘(A) for determining the financial
liability of health plans when health