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SEC. 504. PREMIUM GRACE PERIOD. 
(a) IN GENERAL.—Section 2103(e)(3) (42 U.S.C. 
1397cc(e)(3)) is amended by adding at the end the fol-
lowing new subparagraph: 
‘‘(C) PREMIUM GRACE PERIOD.—The State 
child health plan— 
‘‘(i) shall afford individuals enrolled 
under the plan a grace period of at least 
30 days from the beginning of a new cov-
erage period to make premium payments 
before the individual’s coverage under the 
plan may be terminated; and 
‘‘(ii) shall provide to such an indi-
vidual, not later than 7 days after the first 
day of such grace period, notice— 
‘‘(I) that failure to make a pre-
mium payment within the grace pe-
riod will result in termination of cov-
erage under the State child health 
plan; and 
‘‘(II) of the individual’s right to 
challenge the proposed termination 
pursuant to the applicable Federal 
regulations. 
For purposes of clause (i), the term ‘new cov-
erage period’ means the month immediately fol-
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HR 2 PCS
lowing the last month for which the premium 
has been paid.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall apply to new coverage periods begin-
ning on or after the date of the enactment of this Act. 
SEC. 505. CLARIFICATION OF COVERAGE OF SERVICES 
PROVIDED 
THROUGH 
SCHOOL-BASED 
HEALTH CENTERS. 
Section 2103(c) (42 U.S.C. 1397cc(c)), as amended 
by section 501(a)(1)(B), is amended by adding at the end 
the following new paragraph: 
‘‘(8) AVAILABILITY OF COVERAGE FOR ITEMS 
AND
SERVICES
FURNISHED
THROUGH
SCHOOL- 
BASED
HEALTH
CENTERS.—Nothing in this title 
shall be construed as limiting a State’s ability to 
provide child health assistance for covered items and 
services that are furnished through school-based 
health centers.’’. 
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TITLE VI—PROGRAM INTEGRITY 
AND OTHER MISCELLANEOUS 
PROVISIONS 
Subtitle A—Program Integrity and 
Data Collection 
SEC. 601. PAYMENT ERROR RATE MEASUREMENT (‘‘PERM’’). 
(a) EXPENDITURES RELATED TO COMPLIANCE WITH 
REQUIREMENTS.— 
(1) ENHANCED
PAYMENTS.—Section 2105(c) 
(42 U.S.C. 1397ee(c)), as amended by section 
301(a), is amended by adding at the end the fol-
lowing new paragraph: 
‘‘(11) 
ENHANCED
PAYMENTS.—Notwith-
standing subsection (b), the enhanced FMAP with 
respect to payments under subsection (a) for ex-
penditures related to the administration of the pay-
ment error rate measurement (PERM) requirements 
applicable to the State child health plan in accord-
ance with the Improper Payments Information Act 
of 2002 and parts 431 and 457 of title 42, Code of 
Federal Regulations (or any related or successor 
guidance or regulations) shall in no event be less 
than 90 percent.’’. 
(2) EXCLUSION OF FROM CAP ON ADMINISTRA-
TIVE
EXPENDITURES.—Section 2105(c)(2)(C) (42 
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HR 2 PCS
U.S.C. 1397ee(c)(2)C)), as amended by section 
302(b)), is amended by adding at the end the fol-
lowing: 
‘‘(iv) PAYMENT
ERROR
RATE
MEAS-
UREMENT
(PERM)
EXPENDITURES.—Ex-
penditures related to the administration of 
the payment error rate measurement 
(PERM) requirements applicable to the 
State child health plan in accordance with 
the Improper Payments Information Act of 
2002 and parts 431 and 457 of title 42, 
Code of Federal Regulations (or any re-
lated or successor guidance or regula-
tions).’’. 
(b) FINAL RULE REQUIRED TO BE IN EFFECT FOR 
ALL STATES.—Notwithstanding parts 431 and 457 of 
title 42, Code of Federal Regulations (as in effect on the 
date of enactment of this Act), the Secretary shall not cal-
culate or publish any national or State-specific error rate 
based on the application of the payment error rate meas-
urement (in this section referred to as ‘‘PERM’’) require-
ments to CHIP until after the date that is 6 months after 
the date on which a new final rule (in this section referred 
to as the ‘‘new final rule’’) promulgated after the date of 
the enactment of this Act and implementing such require-
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ments in accordance with the requirements of subsection 
(c) is in effect for all States. Any calculation of a national 
error rate or a State specific error rate after such new 
final rule in effect for all States may only be inclusive of 
errors, as defined in such new final rule or in guidance 
issued within a reasonable time frame after the effective 
date for such new final rule that includes detailed guid-
ance for the specific methodology for error determinations. 
(c) REQUIREMENTS FOR NEW FINAL RULE.—For 
purposes of subsection (b), the requirements of this sub-
section are that the new final rule implementing the 
PERM requirements shall— 
(1) include— 
(A) clearly defined criteria for errors for 
both States and providers; 
(B) a clearly defined process for appealing 
error determinations by— 
(i) review contractors; or 
(ii) the agency and personnel de-
scribed in section 431.974(a)(2) of title 42, 
Code of Federal Regulations, as in effect 
on September 1, 2007, responsible for the 
development, 
direction, 
implementation, 
and evaluation of eligibility reviews and as-
sociated activities; and 
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HR 2 PCS
(C) clearly defined responsibilities and 
deadlines for States in implementing any cor-
rective action plans; and 
(2) provide that the payment error rate deter-
mined for a State shall not take into account pay-
ment errors resulting from the State’s verification of 
an applicant’s self-declaration or self-certification of 
eligibility for, and the correct amount of, medical as-
sistance or child health assistance, if the State proc-
ess for verifying an applicant’s self-declaration or 
self-certification satisfies the requirements for such 
process applicable under regulations promulgated by 
the Secretary or otherwise approved by the Sec-
retary. 
(d) OPTION FOR APPLICATION OF DATA FOR STATES 
IN FIRST APPLICATION CYCLE UNDER
THE INTERIM 
FINAL RULE.—After the new final rule implementing the 
PERM requirements in accordance with the requirements 
of subsection (c) is in effect for all States, a State for 
which the PERM requirements were first in effect under 
an interim final rule for fiscal year 2007 or under a final 
rule for fiscal year 2008 may elect to accept any payment 
error rate determined in whole or in part for the State 
on the basis of data for that fiscal year or may elect to 
not have any payment error rate determined on the basis 
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HR 2 PCS
of such data and, instead, shall be treated as if fiscal year 
2010 or fiscal year 2011 were the first fiscal year for 
which the PERM requirements apply to the State. 
(e) HARMONIZATION OF MEQC AND PERM.— 
(1) REDUCTION OF REDUNDANCIES.—The Sec-
retary shall review the Medicaid Eligibility Quality 
Control (in this subsection referred to as the 
‘‘MEQC’’) requirements with the PERM require-
ments and coordinate consistent implementation of 
both 
sets 
of 
requirements, 
while 
reducing 
redundancies. 
(2) STATE OPTION TO APPLY PERM DATA.—A 
State may elect, for purposes of determining the er-
roneous excess payments for medical assistance ratio 
applicable to the State for a fiscal year under section 
1903(u) of the Social Security Act (42 U.S.C. 
1396b(u)) to substitute data resulting from the ap-
plication of the PERM requirements to the State 
after the new final rule implementing such require-
ments is in effect for all States for data obtained 
from the application of the MEQC requirements to 
the State with respect to a fiscal year. 
(3) STATE OPTION TO APPLY MEQC DATA.—For 
purposes of satisfying the requirements of subpart Q 
of part 431 of title 42, Code of Federal Regulations, 
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HR 2 PCS
relating to Medicaid eligibility reviews, a State may 
elect to substitute data obtained through MEQC re-
views conducted in accordance with section 1903(u) 
of the Social Security Act (42 U.S.C. 1396b(u)) for 
data required for purposes of PERM requirements, 
but only if the State MEQC reviews are based on a 
broad, representative sample of Medicaid applicants 
or enrollees in the States. 
(f) IDENTIFICATION OF IMPROVED STATE-SPECIFIC 
SAMPLE SIZES.—The Secretary shall establish State-spe-
cific sample sizes for application of the PERM require-
ments with respect to State child health plans for fiscal 
years beginning with fiscal year 2009, on the basis of such 
information as the Secretary determines appropriate. In 
establishing such sample sizes, the Secretary shall, to the 
greatest extent practicable— 
(1) minimize the administrative cost burden on 
States under Medicaid and CHIP; and 
(2) maintain State flexibility to manage such 
programs. 
SEC. 602. IMPROVING DATA COLLECTION. 
(a) 
INCREASED
APPROPRIATION.—Section 
2109(b)(2) (42 U.S.C. 1397ii(b)(2)) is amended by strik-
ing ‘‘$10,000,000 for fiscal year 2000’’ and inserting 
‘‘$20,000,000 for fiscal year 2009’’. 
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HR 2 PCS
(b) USE OF ADDITIONAL FUNDS.—Section 2109(b) 
(42 U.S.C. 1397ii(b)), as amended by subsection (a), is 
amended— 
(1) by redesignating paragraph (2) as para-
graph (4); and 
(2) by inserting after paragraph (1), the fol-
lowing new paragraphs: 
‘‘(2) ADDITIONAL REQUIREMENTS.—In addition 
to making the adjustments required to produce the 
data described in paragraph (1), with respect to 
data collection occurring for fiscal years beginning 
with fiscal year 2009, in appropriate consultation 
with the Secretary of Health and Human Services, 
the Secretary of Commerce shall do the following: 
‘‘(A) Make appropriate adjustments to the 
Current Population Survey to develop more ac-
curate State-specific estimates of the number of 
children enrolled in health coverage under title 
XIX or this title. 
‘‘(B) Make appropriate adjustments to the 
Current Population Survey to improve the sur-
vey estimates used to determine the child popu-
lation 
growth 
factor 
under 
section 
2104(m)(5)(B) and any other data necessary 
for carrying out this title. 
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‘‘(C) Include health insurance survey infor-
mation in the American Community Survey re-
lated to children. 
‘‘(D) Assess whether American Community 
Survey estimates, once such survey data are 
first available, produce more reliable estimates 
than the Current Population Survey with re-
spect to the purposes described in subparagraph 
(B). 
‘‘(E) On the basis of the assessment re-
quired under subparagraph (D), recommend to 
the Secretary of Health and Human Services 
whether American Community Survey estimates 
should be used in lieu of, or in some combina-
tion with, Current Population Survey estimates 
for the purposes described in subparagraph (B). 
‘‘(F) Continue making the adjustments de-
scribed in the last sentence of paragraph (1) 
with respect to expansion of the sample size 
used in State sampling units, the number of 
sampling units in a State, and using an appro-
priate verification element. 
‘‘(3) AUTHORITY
FOR
THE
SECRETARY
OF 
HEALTH AND HUMAN SERVICES TO TRANSITION TO 
THE USE OF ALL, OR SOME COMBINATION OF, ACS 
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HR 2 PCS
ESTIMATES UPON RECOMMENDATION OF THE SEC-
RETARY OF COMMERCE.—If, on the basis of the as-
sessment required under paragraph (2)(D), the Sec-
retary of Commerce recommends to the Secretary of 
Health and Human Services that American Commu-
nity Survey estimates should be used in lieu of, or 
in some combination with, Current Population Sur-
vey estimates for the purposes described in para-
graph (2)(B), the Secretary of Health and Human 
Services, in consultation with the States, may pro-
vide for a period during which the Secretary may 
transition from carrying out such purposes through 
the use of Current Population Survey estimates to 
the use of American Community Survey estimates 
(in lieu of, or in combination with the Current Popu-
lation Survey estimates, as recommended), provided 
that any such transition is implemented in a manner 
that is designed to avoid adverse impacts upon 
States with approved State child health plans under 
this title.’’. 
SEC. 603. UPDATED FEDERAL EVALUATION OF CHIP. 
Section 2108(c) (42 U.S.C. 1397hh(c)) is amended 
by striking paragraph (5) and inserting the following: 
‘‘(5) SUBSEQUENT
EVALUATION
USING
UP-
DATED INFORMATION.— 
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‘‘(A) IN
GENERAL.—The Secretary, di-
rectly or through contracts or interagency 
agreements, shall conduct an independent sub-
sequent evaluation of 10 States with approved 
child health plans. 
‘‘(B) SELECTION
OF
STATES
AND
MAT-
TERS INCLUDED.—Paragraphs (2) and (3) shall 
apply to such subsequent evaluation in the 
same manner as such provisions apply to the 
evaluation conducted under paragraph (1). 
‘‘(C) SUBMISSION
TO
CONGRESS.—Not 
later than December 31, 2011, the Secretary 
shall submit to Congress the results of the eval-
uation conducted under this paragraph. 
‘‘(D) FUNDING.—Out of any money in the 
Treasury of the United States not otherwise ap-
propriated, there are appropriated $10,000,000 
for fiscal year 2010 for the purpose of con-
ducting the evaluation authorized under this 
paragraph. Amounts appropriated under this 
subparagraph shall remain available for expend-
iture through fiscal year 2012.’’. 
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HR 2 PCS
SEC. 604. ACCESS TO RECORDS FOR IG AND GAO AUDITS 
AND EVALUATIONS. 
Section 2108(d) (42 U.S.C. 1397hh(d)) is amended 
to read as follows: 
‘‘(d) ACCESS TO RECORDS FOR IG AND GAO AUDITS 
AND EVALUATIONS.—For the purpose of evaluating and 
auditing the program established under this title, or title 
XIX, the Secretary, the Office of Inspector General, and 
the Comptroller General shall have access to any books, 
accounts, records, correspondence, and other documents 
that are related to the expenditure of Federal funds under 
this title and that are in the possession, custody, or control 
of States receiving Federal funds under this title or polit-
ical subdivisions thereof, or any grantee or contractor of 
such States or political subdivisions.’’. 
SEC. 605. NO FEDERAL FUNDING FOR ILLEGAL ALIENS. 
Nothing in this Act allows Federal payment for indi-
viduals who are not lawfully residing in the United States. 
Titles XI, XIX, and XXI of the Social Security Act pro-
vide for the disallowance of Federal financial participation 
for erroneous expenditures under Medicaid and under 
CHIP, respectively. 
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Subtitle B—Miscellaneous Health 
Provisions 
SEC. 611. DEFICIT REDUCTION ACT TECHNICAL CORREC-
TIONS. 
(a) CLARIFICATION OF REQUIREMENT TO PROVIDE 
EPSDT SERVICES FOR ALL CHILDREN IN BENCHMARK 
BENEFIT
PACKAGES
UNDER
MEDICAID.—Section 
1937(a)(1) (42 U.S.C. 1396u–7(a)(1)), as inserted by sec-
tion 6044(a) of the Deficit Reduction Act of 2005 (Public 
Law 109–171, 120 Stat. 88), is amended— 
(1) in subparagraph (A)— 
(A) in the matter before clause (i)— 
(i) by striking ‘‘Notwithstanding any 
other provision of this title’’ and inserting 
‘‘Notwithstanding section 1902(a)(1) (re-
lating 
to 
statewideness), 
section 
1902(a)(10)(B) (relating to comparability) 
and any other provision of this title which 
would be directly contrary to the authority 
under this section and subject to sub-
section (E)’’; and 
(ii) by striking ‘‘enrollment in cov-
erage that provides’’ and inserting ‘‘cov-
erage that’’; 
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HR 2 PCS
(B) in clause (i), by inserting ‘‘provides’’ 
after ‘‘(i)’’; and 
(C) by striking clause (ii) and inserting the 
following: 
‘‘(ii) for any individual described in 
section 1905(a)(4)(B) who is eligible under 
the State plan in accordance with para-
graphs (10) and (17) of section 1902(a), 
consists of the items and services described 
in section 1905(a)(4)(B) (relating to early 
and periodic screening, diagnostic, and 
treatment 
services 
defined 
in 
section 
1905(r)) and provided in accordance with 
the requirements of section 1902(a)(43).’’; 
(2) in subparagraph (C)— 
(A) in the heading, by striking ‘‘WRAP- 
AROUND’’ and inserting ‘‘ADDITIONAL’’; and 
(B) by striking ‘‘wrap-around or’’; and 
(3) by adding at the end the following new sub-
paragraph: 
‘‘(E) RULE OF CONSTRUCTION.—Nothing 
in this paragraph shall be construed as— 
‘‘(i) requiring a State to offer all or 
any of the items and services required by 
subparagraph (A)(ii) through an issuer of 
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HR 2 PCS
benchmark coverage described in sub-
section (b)(1) or benchmark equivalent 
coverage described in subsection (b)(2); 
‘‘(ii) preventing a State from offering 
all or any of the items and services re-
quired by subparagraph (A)(ii) through an 
issuer of benchmark coverage described in 
subsection (b)(1) or benchmark equivalent 
coverage described in subsection (b)(2); or 
‘‘(iii) affecting a child’s entitlement to 
care and services described in subsections 
(a)(4)(B) and (r) of section 1905 and pro-
vided 
in 
accordance 
with 
section 
1902(a)(43) whether provided through 
benchmark coverage, benchmark equivalent 
coverage, or otherwise.’’. 
(b) CORRECTION OF REFERENCE TO CHILDREN IN 
FOSTER CARE RECEIVING CHILD WELFARE SERVICES.— 
Section 
1937(a)(2)(B)(viii) 
(42 
U.S.C. 
1396u– 
7(a)(2)(B)(viii)), as inserted by section 6044(a) of the 
Deficit Reduction Act of 2005, is amended by striking 
‘‘aid or assistance is made available under part B of title 
IV to children in foster care and individuals’’ and inserting 
‘‘child welfare services are made available under part B 
of title IV on the basis of being a child in foster care or’’. 
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(c) TRANSPARENCY.—Section 1937 (42 U.S.C. 
1396u–7), as inserted by section 6044(a) of the Deficit 
Reduction Act of 2005, is amended by adding at the end 
the following: 
‘‘(c) PUBLICATION
OF PROVISIONS AFFECTED.— 
With respect to a State plan amendment to provide bench-
mark benefits in accordance with subsections (a) and (b) 
that is approved by the Secretary, the Secretary shall pub-
lish on the Internet website of the Centers for Medicare 
& Medicaid Services, a list of the provisions of this title 
that the Secretary has determined do not apply in order 
to enable the State to carry out the plan amendment and 
the reason for each such determination on the date such 
approval is made, and shall publish such list in the Fed-
eral Register and not later than 30 days after such date 
of approval.’’. 
(d) EFFECTIVE DATE.—The amendments made by 
subsections (a), (b), and (c) of this section shall take effect 
as if included in the amendment made by section 6044(a) 
of the Deficit Reduction Act of 2005. 
SEC. 612. REFERENCES TO TITLE XXI. 
Section 704 of the Medicare, Medicaid, and SCHIP 
Balanced Budget Refinement Act of 1999, as enacted into 
law by division B of Public Law 106–113 (113 Stat. 
1501A–402) is repealed. 
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SEC. 613. PROHIBITING INITIATION OF NEW HEALTH OP-
PORTUNITY ACCOUNT DEMONSTRATION PRO-
GRAMS. 
After the date of the enactment of this Act, the Sec-
retary of Health and Human Services may not approve 
any new demonstration programs under section 1938 of 
the Social Security Act (42 U.S.C. 1396u–8). 
SEC. 614. ADJUSTMENT IN COMPUTATION OF MEDICAID 
FMAP TO DISREGARD AN EXTRAORDINARY 
EMPLOYER PENSION CONTRIBUTION. 
(a) IN GENERAL.—Only for purposes of computing 
the FMAP (as defined in subsection (e)) for a State for 
a fiscal year (beginning with fiscal year 2006) and apply-
ing the FMAP under title XIX of the Social Security Act, 
any significantly disproportionate employer pension or in-
surance fund contribution described in subsection (b) shall 
be disregarded in computing the per capita income of such 
State, but shall not be disregarded in computing the per 
capita income for the continental United States (and Alas-
ka) and Hawaii. 
(b) SIGNIFICANTLY DISPROPORTIONATE EMPLOYER 
PENSION AND INSURANCE FUND CONTRIBUTION.— 
(1) IN GENERAL.—For purposes of this section, 
a significantly disproportionate employer pension 
and insurance fund contribution described in this 
subsection with respect to a State is any identifiable 
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employer contribution towards pension or other em-
ployee insurance funds that is estimated to accrue to 
residents of such State for a calendar year (begin-
ning with calendar year 2003) if the increase in the 
amount so estimated exceeds 25 percent of the total 
increase in personal income in that State for the 
year involved. 
(2) DATA TO BE USED.—For estimating and 
adjustment a FMAP already calculated as of the 
date of the enactment of this Act for a State with 
a significantly disproportionate employer pension 
and insurance fund contribution, the Secretary shall 
use the personal income data set originally used in 
calculating such FMAP. 
(3) SPECIAL
ADJUSTMENT
FOR
NEGATIVE 
GROWTH.—If in any calendar year the total personal 
income growth in a State is negative, an employer 
pension and insurance fund contribution for the pur-
poses of calculating the State’s FMAP for a cal-
endar year shall not exceed 125 percent of the 
amount of such contribution for the previous cal-
endar year for the State. 
(c) HOLD HARMLESS.—No State shall have its 
FMAP for a fiscal year reduced as a result of the applica-
tion of this section. 
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(d) REPORT.—Not later than May 15, 2009, the Sec-
retary shall submit to the Congress a report on the prob-
lems presented by the current treatment of pension and 
insurance fund contributions in the use of Bureau of Eco-
nomic Affairs calculations for the FMAP and for Medicaid 
and on possible alternative methodologies to mitigate such 
problems. 
(e) FMAP DEFINED.—For purposes of this section, 
the term ‘‘FMAP’’ means the Federal medical assistance 
percentage, as defined in section 1905(b) of the Social Se-
curity Act (42 U.S.C. 1396(d)). 
SEC. 615. CLARIFICATION TREATMENT OF REGIONAL MED-
ICAL CENTER. 
(a) IN GENERAL.—Nothing in section 1903(w) of the 
Social Security Act (42 U.S.C. 1396b(w)) shall be con-
strued by the Secretary of Health and Human Services 
as prohibiting a State’s use of funds as the non-Federal 
share of expenditures under title XIX of such Act where 
such funds are transferred from or certified by a publicly- 
owned regional medical center located in another State 
and described in subsection (b), so long as the Secretary 
determines that such use of funds is proper and in the 
interest of the program under title XIX. 
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(b) CENTER DESCRIBED.—A center described in this 
subsection is a publicly-owned regional medical center 
that— 
(1) provides level 1 trauma and burn care serv-
ices; 
(2) provides level 3 neonatal care services; 
(3) is obligated to serve all patients, regardless 
of ability to pay; 
(4) is located within a Standard Metropolitan 
Statistical Area (SMSA) that includes at least 3 
States; 
(5) provides services as a tertiary care provider 
for patients residing within a 125-mile radius; and 
(6) meets the criteria for a disproportionate 
share hospital under section 1923 of such Act (42 
U.S.C. 1396r–4) in at least one State other than the 
State in which the center is located. 
SEC. 616. EXTENSION OF MEDICAID DSH ALLOTMENTS FOR 
TENNESSEE AND HAWAII. 
Section 1923(f)(6) (42 U.S.C. 1396r–4(f)(6)), as 
amended by section 202 of the Medicare Improvements 
for Patients and Providers Act of 2008 (Public Law 110– 
275) is amended— 
(1) in the paragraph heading, by striking ‘‘2009 
AND
THE
FIRST
CALENDAR
QUARTER
OF
FISCAL 
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YEAR 2010’’ and inserting ‘‘2011 AND THE FIRST CAL-
ENDAR QUARTER OF FISCAL YEAR 2012’’; 
(2) in subparagraph (A)— 
(A) in clause (i)— 
(i) in the second sentence— 
(I) by striking ‘‘and 2009’’ and 
inserting ‘‘, 2009, 2010, and 2011’’; 
and 
(II) by striking ‘‘such portion 
of’’; and 
(ii) in the third sentence, by striking 
‘‘2010 for the period ending on December 
31, 2009’’ and inserting ‘‘2012 for the pe-
riod ending on December 31, 2011’’; 
(B) in clause (ii), by striking ‘‘or for a pe-
riod in fiscal year 2010’’ and inserting ‘‘2010, 
2011, or for period in fiscal year 2012’’; and 
(C) in clause (iv)— 
(i) in the clause heading, by striking 
‘‘2009 AND THE FIRST CALENDAR QUARTER 
OF FISCAL YEAR 2010’’ and inserting ‘‘2011 
AND THE FIRST CALENDAR QUARTER OF 
FISCAL YEAR 2012’’; and 
(ii) in each of subclauses (I) and (II), 
by striking ‘‘ or for a period in fiscal year 
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(1) ESTABLISHMENT.—There is established a 
task force to conduct a nationwide campaign of edu-
cation and outreach for small business concerns re-
garding the availability of coverage for children 
through private insurance options, the Medicaid pro-
gram, and the State Children’s Health Insurance 
Program. 
(2) MEMBERSHIP.—The task force shall consist 
of the Administrator, the Secretary of Health and 
Human Services, the Secretary of Labor, and the 
Secretary of the Treasury. 
(3) RESPONSIBILITIES.—The campaign con-
ducted under this subsection shall include— 
(A) efforts to educate the owners of small 
business concerns about the value of health cov-
erage for children; 
(B) information regarding options available 
to the owners and employees of small business 
concerns to make insurance more affordable, in-
cluding Federal and State tax deductions and 
credits for health care-related expenses and 
health insurance expenses and Federal tax ex-
clusion for health insurance options available 
under employer-sponsored cafeteria plans under 
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section 125 of the Internal Revenue Code of 
1986; 
(C) efforts to educate the owners of small 
business concerns about assistance available 
through public programs; and 
(D) efforts to educate the owners and em-
ployees of small business concerns regarding 
the availability of the hotline operated as part 
of the Insure Kids Now program of the Depart-
ment of Health and Human Services. 
(4) IMPLEMENTATION.—In carrying out this 
subsection, the task force may— 
(A) use any business partner of the Ad-
ministration, including— 
(i) a small business development cen-
ter; 
(ii) a certified development company; 
(iii) a women’s business center; and 
(iv) the Service Corps of Retired Ex-
ecutives; 
(B) enter into— 
(i) a memorandum of understanding 
with a chamber of commerce; and 
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HR 2 PCS
(ii) a partnership with any appro-
priate small business concern or health ad-
vocacy group; and 
(C) designate outreach programs at re-
gional offices of the Department of Health and 
Human Services to work with district offices of 
the Administration. 
(5) WEBSITE.—The Administrator shall ensure 
that links to information on the eligibility and enroll-
ment requirements for the Medicaid program and 
State Children’s Health Insurance Program of each 
State are prominently displayed on the website of 
the Administration. 
(6) REPORT.— 
(A) IN GENERAL.—Not later than 2 years 
after the date of enactment of this Act, and 
every 2 years thereafter, the Administrator 
shall submit to the Committee on Small Busi-
ness and Entrepreneurship of the Senate and 
the Committee on Small Business of the House 
of Representatives a report on the status of the 
nationwide campaign conducted under para-
graph (1). 
(B) CONTENTS.—Each report submitted 
under subparagraph (A) shall include a status 
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update on all efforts made to educate owners 
and employees of small business concerns on 
options for providing health insurance for chil-
dren through public and private alternatives. 
SEC. 622. SENSE OF THE SENATE REGARDING ACCESS TO 
AFFORDABLE AND MEANINGFUL HEALTH IN-
SURANCE COVERAGE. 
(a) FINDINGS.—The Senate finds the following: 
(1) There are approximately 45 million Ameri-
cans currently without health insurance. 
(2) More than half of uninsured workers are 
employed by businesses with less than 25 employees 
or are self-employed. 
(3) Health insurance premiums continue to rise 
at more than twice the rate of inflation for all con-
sumer goods. 
(4) Individuals in the small group and indi-
vidual health insurance markets usually pay more 
for similar coverage than those in the large group 
market. 
(5) The rapid growth in health insurance costs 
over the last few years has forced many employers, 
particularly small employers, to increase deductibles 
and co-pays or to drop coverage completely. 
(b) SENSE OF THE SENATE.—The Senate— 
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HR 2 PCS
(1) recognizes the necessity to improve afford-
ability and access to health insurance for all Ameri-
cans; 
(2) acknowledges the value of building upon the 
existing private health insurance market; and 
(3) affirms its intent to enact legislation this 
year that, with appropriate protection for con-
sumers, improves access to affordable and meaning-
ful health insurance coverage for employees of small 
businesses and individuals by— 
(A) facilitating pooling mechanisms, in-
cluding pooling across State lines, and 
(B) providing assistance to small busi-
nesses and individuals, including financial as-
sistance and tax incentives, for the purchase of 
private insurance coverage. 
SEC. 623. LIMITATION ON MEDICARE EXCEPTION TO THE 
PROHIBITION ON CERTAIN PHYSICIAN RE-
FERRALS FOR HOSPITALS. 
(a) IN GENERAL.—Section 1877 (42 U.S.C. 1395nn) 
is amended— 
(1) in subsection (d)(2)— 
(A) in subparagraph (A), by striking 
‘‘and’’ at the end; 
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(B) in subparagraph (B), by striking the 
period at the end and inserting ‘‘; and’’; and 
(C) by adding at the end the following new 
subparagraph: 
‘‘(C) in the case where the entity is a hos-
pital, the hospital meets the requirements of 
paragraph (3)(D).’’; 
(2) in subsection (d)(3)— 
(A) in subparagraph (B), by striking 
‘‘and’’ at the end; 
(B) in subparagraph (C), by striking the 
period at the end and inserting ‘‘; and’’; and 
(C) by adding at the end the following new 
subparagraph: 
‘‘(D) the hospital meets the requirements 
described in subsection (i)(1).’’; and 
(3) by adding at the end the following new sub-
section: 
‘‘(i) REQUIREMENTS FOR HOSPITALS TO QUALIFY 
FOR RURAL PROVIDER AND HOSPITAL EXCEPTION TO 
OWNERSHIP OR INVESTMENT PROHIBITION.— 
‘‘(1) REQUIREMENTS
DESCRIBED.—For pur-
poses of subsection (d)(3)(D), the requirements de-
scribed in this paragraph for a hospital are as fol-
lows: 
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‘‘(A) PROVIDER
AGREEMENT.—The hos-
pital had— 
‘‘(i) physician ownership or invest-
ment on January 1, 2009; and 
‘‘(ii) a provider agreement under sec-
tion 1866 in effect on such date. 
‘‘(B) PROHIBITION ON PHYSICIAN OWNER-
SHIP OR INVESTMENT.—The percentage of the 
total value of the ownership or investment in-
terests held in the hospital, or in an entity 
whose assets include the hospital, by physician 
owners or investors in the aggregate does not 
exceed such percentage as of the date of enact-
ment of this subsection. 
‘‘(C) PROHIBITION ON EXPANSION OF FA-
CILITY CAPACITY.—Except as provided in para-
graph (3), the number of operating rooms, pro-
cedure rooms, and beds of the hospital at any 
time on or after the date of the enactment of 
this subsection are no greater than the number 
of operating rooms, procedure rooms, and beds 
as of such date. 
‘‘(D) PREVENTING CONFLICTS OF INTER-
EST.— 
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‘‘(i) The hospital submits to the Sec-
retary an annual report containing a de-
tailed description of— 
‘‘(I) the identity of each physi-
cian owner and physician investor and 
any other owners or investors of the 
hospital; and 
‘‘(II) the nature and extent of all 
ownership and investment interests in 
the hospital. 
‘‘(ii) The hospital has procedures in 
place to require that any referring physi-
cian owner or investor discloses to the pa-
tient being referred, by a time that permits 
the patient to make a meaningful decision 
regarding the receipt of care, as deter-
mined by the Secretary— 
‘‘(I) the ownership or investment 
interest, as applicable, of such refer-
ring physician in the hospital; and 
‘‘(II) if applicable, any such own-
ership or investment interest of the 
treating physician. 
‘‘(iii) The hospital does not condition 
any physician ownership or investment in-
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terests either directly or indirectly on the 
physician owner or investor making or in-
fluencing referrals to the hospital or other-
wise generating business for the hospital. 
‘‘(iv) The hospital discloses the fact 
that the hospital is partially owned by phy-
sicians— 
‘‘(I) on any public website for the 
hospital; and 
‘‘(II) in any public advertising 
for the hospital. 
‘‘(E) ENSURING
BONA
FIDE
OWNERSHIP 
AND INVESTMENT.— 
‘‘(i) Any ownership or investment in-
terests that the hospital offers to a physi-
cian owner or investor are not offered on 
more favorable terms than the terms of-
fered to a person who is not a physician 
owner or investor. 
‘‘(ii) The hospital (or any investors in 
the hospital) does not directly or indirectly 
provide loans or financing for any physi-
cian owner or investor in the hospital. 
‘‘(iii) The hospital (or any investors in 
the hospital) does not directly or indirectly 
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HR 2 PCS
guarantee a loan, make a payment toward 
a loan, or otherwise subsidize a loan, for 
any individual physician owner or investor 
or group of physician owners or investors 
that is related to acquiring any ownership 
or investment interest in the hospital. 
‘‘(iv) Ownership or investment returns 
are distributed to each owner or investor in 
the hospital in an amount that is directly 
proportional to the ownership or invest-
ment interest of such owner or investor in 
the hospital. 
‘‘(v) Physician owners and investors 
do not receive, directly or indirectly, any 
guaranteed receipt of or right to purchase 
other business interests related to the hos-
pital, including the purchase or lease of 
any property under the control of other 
owners or investors in the hospital or lo-
cated near the premises of the hospital. 
‘‘(vi) The hospital does not offer a 
physician owner or investor the oppor-
tunity to purchase or lease any property 
under the control of the hospital or any 
other owner or investor in the hospital on 
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more favorable terms than the terms of-
fered to an individual who is not a physi-
cian owner or investor. 
‘‘(F) PATIENT SAFETY.—The hospital has 
the capacity to— 
‘‘(i) provide assessment and initial 
treatment for patients; and 
‘‘(ii) refer and transfer patients to 
hospitals with the capability to treat the 
needs of the patient involved. 
‘‘(G) LIMITATION
ON
APPLICATION
TO 
CERTAIN
CONVERTED
FACILITIES.—The hos-
pital was not converted from an ambulatory 
surgical center to a hospital on or after the date 
of enactment of this subsection. 
‘‘(2) 
PUBLICATION
OF
INFORMATION
RE-
PORTED.—The Secretary shall publish, and update 
on an annual basis, the information submitted by 
hospitals under paragraph (1)(D)(i) on the public 
Internet website of the Centers for Medicare & Med-
icaid Services. 
‘‘(3) EXCEPTION TO PROHIBITION ON EXPAN-
SION OF FACILITY CAPACITY.— 
‘‘(A) PROCESS.— 
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‘‘(i) ESTABLISHMENT.—The Secretary 
shall establish and implement a process 
under which an applicable hospital (as de-
fined in subparagraph (E)) may apply for 
an exception from the requirement under 
paragraph (1)(C). 
‘‘(ii) OPPORTUNITY FOR COMMUNITY 
INPUT.—The process under clause (i) shall 
provide individuals and entities in the com-
munity in which the applicable hospital ap-
plying for an exception is located with the 
opportunity to provide input with respect 
to the application. 
‘‘(iii) 
TIMING
FOR
IMPLEMENTA-
TION.—The Secretary shall implement the 
process under clause (i) on July 1, 2010. 
‘‘(iv) REGULATIONS.—Not later than 
June 1, 2010, the Secretary shall promul-
gate regulations to carry out the process 
under clause (i). 
‘‘(B) FREQUENCY.—The process described 
in subparagraph (A) shall permit an applicable 
hospital to apply for an exception up to once 
every 2 years. 
‘‘(C) PERMITTED INCREASE.— 
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‘‘(i) IN GENERAL.—Subject to clause 
(ii) and subparagraph (D), an applicable 
hospital granted an exception under the 
process described in subparagraph (A) may 
increase the number of operating rooms, 
procedure rooms, and beds of the applica-
ble hospital above the baseline number of 
operating rooms, procedure rooms, and 
beds of the applicable hospital (or, if the 
applicable hospital has been granted a pre-
vious exception under this paragraph, 
above the number of operating rooms, pro-
cedure rooms, and beds of the hospital 
after the application of the most recent in-
crease under such an exception). 
‘‘(ii) 100 PERCENT INCREASE LIMITA-
TION.—The Secretary shall not permit an 
increase in the number of operating rooms, 
procedure rooms, and beds of an applicable 
hospital under clause (i) to the extent such 
increase would result in the number of op-
erating rooms, procedure rooms, and beds 
of the applicable hospital exceeding 200 
percent of the baseline number of oper-
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‘‘(F) PROCEDURE
ROOMS.—In this sub-
section, the term ‘procedure rooms’ includes 
rooms in which catheterizations, angiographies, 
angiograms, and endoscopies are performed, ex-
cept such term shall not include emergency 
rooms or departments (exclusive of rooms in 
which 
catheterizations, 
angiographies, 
angiograms, and endoscopies are performed). 
‘‘(G) 
PUBLICATION
OF
FINAL
DECI-
SIONS.—Not later than 60 days after receiving 
a complete application under this paragraph, 
the Secretary shall publish in the Federal Reg-
ister the final decision with respect to such ap-
plication. 
‘‘(H) LIMITATION
ON
REVIEW.—There 
shall be no administrative or judicial review 
under section 1869, section 1878, or otherwise 
of the process under this paragraph (including 
the establishment of such process). 
‘‘(4) COLLECTION OF OWNERSHIP AND INVEST-
MENT
INFORMATION.—For purposes of subpara-
graphs (A)(i) and (B) of paragraph (1), the Sec-
retary shall collect physician ownership and invest-
ment information for each hospital. 
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‘‘(5) PHYSICIAN
OWNER
OR
INVESTOR
DE-
FINED.—For purposes of this subsection, the term 
‘physician owner or investor’ means a physician (or 
an immediate family member of such physician) with 
a direct or an indirect ownership or investment in-
terest in the hospital. 
‘‘(6) PATIENT SAFETY REQUIREMENT.—In the 
case of a hospital to which the requirements of para-
graph (1) apply, insofar as the hospital described in 
this subsection admits a patient and does not have 
any physician available on the premises to provide 
services during all hours in which the hospital is 
providing services to such patient, before admitting 
the patient— 
‘‘(A) the hospital shall disclose such fact to 
a patient; and 
‘‘(B) following such disclosure, the hospital 
shall receive from the patient a signed acknowl-
edgment that the patient understands such fact. 
‘‘(7) CLARIFICATION.—Nothing in this sub-
section shall be construed as preventing the Sec-
retary from revoking a hospital’s provider agreement 
if not in compliance with regulations implementing 
section 1866.’’. 
(b) ENFORCEMENT.— 
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(1) ENSURING COMPLIANCE.—The Secretary of 
Health and Human Services shall establish policies 
and procedures to ensure compliance with the re-
quirements described in subsections (i)(1) and (i)(7) 
of section 1877 of the Social Security Act, as added 
by subsection (a)(3), beginning on the date such re-
quirements first apply. Such policies and procedures 
may include unannounced site reviews of hospitals. 
(2) AUDITS.—Beginning not later than July 1, 
2011, the Secretary of Health and Human Services 
shall conduct audits to determine if hospitals violate 
the requirements referred to in paragraph (1). 
TITLE VII—REVENUE 
PROVISIONS 
SEC. 701. INCREASE IN EXCISE TAX RATE ON TOBACCO 
PRODUCTS. 
(a) CIGARS.— 
(1) SMALL CIGARS.—Paragraph (1) of section 
5701(a) of the Internal Revenue Code of 1986 is 
amended to read as follows: 
‘‘(1) SMALL CIGARS.—On cigars, weighing not 
more than 3 pounds per thousand, the amount de-
termined in accordance with the following table: 
‘‘Cigars Removed During Calendar Year— 
Tax Rate 
Per Thou-
sand— 
2009 or 2010 ..................................................................................
$12.50
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‘‘Cigars Removed During Calendar Year— 
Tax Rate 
Per Thou-
sand— 
2011 or 2012 ..................................................................................
$25.00
2013 or 2014 ..................................................................................
$37.50
2015 or thereafter ..........................................................................
$50.00.’’. 
(2) LARGE CIGARS.—Paragraph (2) of section 
5701(a) of such Code is amended— 
(A) by striking ‘‘20.719 percent (18.063 
percent on cigars removed during 2000 or 
2001)’’ and inserting ‘‘52.4 percent’’, and 
(B) by striking ‘‘$48.75 per thousand 
($42.50 per thousand on cigars removed during 
2000 or 2001)’’ and inserting ‘‘40 cents per 
cigar’’. 
(b) CIGARETTES.—Section 5701(b) of such Code is 
amended— 
(1) by striking ‘‘$19.50 per thousand ($17 per 
thousand on cigarettes removed during 2000 or 
2001)’’ in paragraph (1) and inserting ‘‘$50.00 per 
thousand’’, and 
(2) by striking ‘‘$40.95 per thousand ($35.70 
per thousand on cigarettes removed during 2000 or 
2001)’’ in paragraph (2) and inserting ‘‘$105.00 per 
thousand’’. 
(c) CIGARETTE PAPERS.—Section 5701(c) of such 
Code is amended by striking ‘‘1.22 cents (1.06 cents on 
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cigarette papers removed during 2000 or 2001)’’ and in-
serting ‘‘3.13 cents’’. 
(d) CIGARETTE TUBES.—Section 5701(d) of such 
Code is amended by striking ‘‘2.44 cents (2.13 cents on 
cigarette tubes removed during 2000 or 2001)’’ and in-
serting ‘‘6.26 cents’’. 
(e) SMOKELESS TOBACCO.—Section 5701(e) of such 
Code is amended— 
(1) by striking ‘‘58.5 cents (51 cents on snuff 
removed during 2000 or 2001)’’ in paragraph (1) 
and inserting ‘‘$1.50’’, and 
(2) by striking ‘‘19.5 cents (17 cents on chew-
ing tobacco removed during 2000 or 2001)’’ in para-
graph (2) and inserting ‘‘50 cents’’. 
(f) PIPE TOBACCO.—Section 5701(f) of such Code is 
amended by striking ‘‘$1.0969 cents (95.67 cents on pipe 
tobacco removed during 2000 or 2001)’’ and inserting 
‘‘$2.8126’’. 
(g) ROLL-YOUR-OWN TOBACCO.—Section 5701(g) of 
such Code is amended by striking ‘‘$1.0969 cents (95.67 
cents on roll-your-own tobacco removed during 2000 or 
2001)’’ and inserting ‘‘$24.62’’. 
(h) FLOOR STOCKS TAXES.— 
(1) IMPOSITION OF TAX.—On tobacco products 
(other than cigars described in section 5701(a)(2) of 
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the Internal Revenue Code of 1986) and cigarette 
papers and tubes manufactured in or imported into 
the United States which are removed before any tax 
increase date and held on such date for sale by any 
person, there is hereby imposed a tax in an amount 
equal to the excess of— 
(A) the tax which would be imposed under 
section 5701 of such Code on the article if the 
article had been removed on such date, over 
(B) the prior tax (if any) imposed under 
section 5701 of such Code on such article. 
(2) CREDIT AGAINST TAX.—Each person shall 
be allowed as a credit against the taxes imposed by 
paragraph (1) an amount equal to $500. Such credit 
shall not exceed the amount of taxes imposed by 
paragraph (1) on such date, for which such person 
is liable. 
(3) LIABILITY FOR TAX AND METHOD OF PAY-
MENT.— 
(A) LIABILITY FOR TAX.—A person hold-
ing tobacco products, cigarette papers, or ciga-
rette tubes on any tax increase date, to which 
any tax imposed by paragraph (1) applies shall 
be liable for such tax. 
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(B) METHOD OF PAYMENT.—The tax im-
posed by paragraph (1) shall be paid in such 
manner as the Secretary shall prescribe by reg-
ulations. 
(C) TIME FOR PAYMENT.— 
(i) IN GENERAL.—The tax imposed by 
paragraph (1) shall be paid on or before 
August 1, 2009. 
(ii) SPECIAL
RULE
FOR
SMALL
CI-
GARS.—In the case of small cigars, the tax 
imposed by paragraph (1) on or after Jan-
uary 1, 2011, shall be paid on or before 
April 1 following any tax increase date. 
(4) ARTICLES
IN
FOREIGN
TRADE
ZONES.— 
Notwithstanding the Act of June 18, 1934 (com-
monly known as the Foreign Trade Zone Act, 48 
Stat. 998, 19 U.S.C. 81a et seq.) or any other provi-
sion of law, any article which is located in a foreign 
trade zone on any tax increase date shall be subject 
to the tax imposed by paragraph (1) if— 
(A) internal revenue taxes have been deter-
mined, or customs duties liquidated, with re-
spect to such article before such date pursuant 
to a request made under the 1st proviso of sec-
tion 3(a) of such Act, or 
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(B) such article is held on such date under 
the supervision of an officer of the United 
States Customs and Border Protection of the 
Department of Homeland Security pursuant to 
the 2d proviso of such section 3(a). 
(5) DEFINITIONS.—For purposes of this sub-
section— 
(A) IN GENERAL.—Any term used in this 
subsection which is also used in section 5702 of 
the Internal Revenue Code of 1986 shall have 
the same meaning as such term has in such 
section. 
(B) TAX INCREASE DATE.—The term ‘‘tax 
increase date’’ means April 1, 2009, January 1, 
2011, January 1, 2013, and January 1, 2015. 
(C) SECRETARY.—The term ‘‘Secretary’’ 
means the Secretary of the Treasury or the 
Secretary’s delegate. 
(6) CONTROLLED
GROUPS.—Rules similar to 
the rules of section 5061(e)(3) of such Code shall 
apply for purposes of this subsection. 
(7) OTHER LAWS APPLICABLE.—All provisions 
of law, including penalties, applicable with respect to 
the taxes imposed by section 5701 of such Code 
shall, insofar as applicable and not inconsistent with 
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the provisions of this subsection, apply to the floor 
stocks taxes imposed by paragraph (1), to the same 
extent as if such taxes were imposed by such section 
5701. The Secretary may treat any person who bore 
the ultimate burden of the tax imposed by para-
graph (1) as the person to whom a credit or refund 
under such provisions may be allowed or made. 
(i) EFFECTIVE DATE.—The amendments made by 
this section shall apply to articles removed (as defined in 
section 5702(j) of the Internal Revenue Code of 1986) 
after March 31, 2009. 
SEC. 702. ADMINISTRATIVE IMPROVEMENTS. 
(a) PERMIT, INVENTORIES, REPORTS, AND RECORDS 
REQUIREMENTS FOR MANUFACTURERS AND IMPORTERS 
OF PROCESSED TOBACCO.— 
(1) PERMIT.— 
(A) APPLICATION.—Section 5712 of the 
Internal Revenue Code of 1986 is amended by 
inserting ‘‘or processed tobacco’’ after ‘‘tobacco 
products’’. 
(B) ISSUANCE.—Section 5713(a) of such 
Code is amended by inserting ‘‘or processed to-
bacco’’ after ‘‘tobacco products’’. 
(2) INVENTORIES, REPORTS, AND PACKAGES.— 
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(A) INVENTORIES.—Section 5721 of such 
Code is amended by inserting ‘‘, processed to-
bacco,’’ after ‘‘tobacco products’’. 
(B) REPORTS.—Section 5722 of such Code 
is amended by inserting ‘‘, processed tobacco,’’ 
after ‘‘tobacco products’’. 
(C) PACKAGES, MARKS, LABELS, AND NO-
TICES.—Section 5723 of such Code is amended 
by inserting ‘‘, processed tobacco,’’ after ‘‘to-
bacco products’’ each place it appears. 
(3) RECORDS.—Section 5741 of such Code is 
amended by inserting ‘‘, processed tobacco,’’ after 
‘‘tobacco products’’. 
(4) 
MANUFACTURER
OF
PROCESSED
TO-
BACCO.—Section 5702 of such Code is amended by 
adding at the end the following new subsection: 
‘‘(p) MANUFACTURER OF PROCESSED TOBACCO.— 
‘‘(1) IN GENERAL.—The term ‘manufacturer of 
processed tobacco’ means any person who processes 
any tobacco other than tobacco products. 
‘‘(2) PROCESSED TOBACCO.—The processing of 
tobacco shall not include the farming or growing of 
tobacco or the handling of tobacco solely for sale, 
shipment, or delivery to a manufacturer of tobacco 
products or processed tobacco.’’. 
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(5) 
CONFORMING
AMENDMENT.—Sections 
5702(j), 5702(k), and 5704(h) of such Code is 
amended by inserting ‘‘, or any processed tobacco,’’ 
after ‘‘nontaxpaid tobacco products or cigarette pa-
pers or tubes’’. 
(6) EFFECTIVE DATE.—The amendments made 
by this subsection shall take effect on April 1, 2009. 
(b) BASIS FOR DENIAL, SUSPENSION, OR REVOCA-
TION OF PERMITS.— 
(1) DENIAL.—Paragraph (3) of section 5712 of 
such Code is amended to read as follows: 
‘‘(3) such person (including, in the case of a 
corporation, any officer, director, or principal stock-
holder and, in the case of a partnership, a part-
ner)— 
‘‘(A) is, by reason of his business experi-
ence, financial standing, or trade connections or 
by reason of previous or current legal pro-
ceedings involving a felony violation of any 
other provision of Federal criminal law relating 
to tobacco products, processed tobacco, ciga-
rette paper, or cigarette tubes, not likely to 
maintain operations in compliance with this 
chapter, 
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‘‘(B) has been convicted of a felony viola-
tion of any provision of Federal or State crimi-
nal law relating to tobacco products, processed 
tobacco, cigarette paper, or cigarette tubes, or 
‘‘(C) has failed to disclose any material in-
formation required or made any material false 
statement in the application therefor.’’. 
(2) SUSPENSION OR REVOCATION.—Subsection 
(b) of section 5713 of such Code is amended to read 
as follows: 
‘‘(b) SUSPENSION OR REVOCATION.— 
‘‘(1) SHOW CAUSE HEARING.—If the Secretary 
has reason to believe that any person holding a per-
mit— 
‘‘(A) has not in good faith complied with 
this chapter, or with any other provision of this 
title involving intent to defraud, 
‘‘(B) has violated the conditions of such 
permit, 
‘‘(C) has failed to disclose any material in-
formation required or made any material false 
statement in the application for such permit, 
‘‘(D) has failed to maintain his premises in 
such manner as to protect the revenue, 
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‘‘(E) is, by reason of previous or current 
legal proceedings involving a felony violation of 
any other provision of Federal criminal law re-
lating to tobacco products, processed tobacco, 
cigarette paper, or cigarette tubes, not likely to 
maintain operations in compliance with this 
chapter, or 
‘‘(F) has been convicted of a felony viola-
tion of any provision of Federal or State crimi-
nal law relating to tobacco products, processed 
tobacco, cigarette paper, or cigarette tubes, 
the Secretary shall issue an order, stating the facts 
charged, citing such person to show cause why his 
permit should not be suspended or revoked. 
‘‘(2) ACTION FOLLOWING HEARING.—If, after 
hearing, the Secretary finds that such person has 
not shown cause why his permit should not be sus-
pended or revoked, such permit shall be suspended 
for such period as the Secretary deems proper or 
shall be revoked.’’. 
(3) EFFECTIVE DATE.—The amendments made 
by this subsection shall take effect on the date of the 
enactment of this Act. 
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(c) APPLICATION
OF INTERNAL REVENUE CODE 
STATUTE OF LIMITATIONS FOR ALCOHOL AND TOBACCO 
EXCISE TAXES.— 
(1) IN GENERAL.—Section 514(a) of the Tariff 
Act of 1930 (19 U.S.C. 1514(a)) is amended by 
striking ‘‘and section 520 (relating to refunds)’’ and 
inserting ‘‘section 520 (relating to refunds), and sec-
tion 6501 of the Internal Revenue Code of 1986 
(but only with respect to taxes imposed under chap-
ters 51 and 52 of such Code)’’. 
(2) EFFECTIVE DATE.—The amendment made 
by this subsection shall apply to articles imported 
after the date of the enactment of this Act. 
(d) EXPANSION OF DEFINITION OF ROLL-YOUR-OWN 
TOBACCO.— 
(1) IN GENERAL.—Section 5702(o) of the In-
ternal Revenue Code of 1986 is amended by insert-
ing ‘‘or cigars, or for use as wrappers thereof’’ be-
fore the period at the end. 
(2) EFFECTIVE DATE.—The amendment made 
by this subsection shall apply to articles removed (as 
defined in section 5702(j) of the Internal Revenue 
Code of 1986) after March 31, 2009. 
(e) TIME
OF TAX
FOR UNLAWFULLY MANUFAC-
TURED TOBACCO PRODUCTS.— 
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(1) IN GENERAL.—Section 5703(b)(2) of such 
Code is amended by adding at the end the following 
new subparagraph: 
‘‘(F) SPECIAL
RULE
FOR
UNLAWFULLY 
MANUFACTURED TOBACCO PRODUCTS.—In the 
case of any tobacco products, cigarette paper, 
or cigarette tubes manufactured in the United 
States at any place other than the premises of 
a manufacturer of tobacco products, cigarette 
paper, or cigarette tubes that has filed the bond 
and obtained the permit required under this 
chapter, tax shall be due and payable imme-
diately upon manufacture.’’. 
(2) EFFECTIVE DATE.—The amendment made 
by this subsection shall take effect on the date of the 
enactment of this Act. 
(f) DISCLOSURE.— 
(1) IN
GENERAL.—Paragraph (1) of section 
6103(o) of such Code is amended by designating the 
text as subparagraph (A), moving such text 2 ems 
to the right, striking ‘‘Returns’’ and inserting ‘‘(A) 
IN GENERAL.—Returns’’, and by inserting after sub-
paragraph (A) (as so redesignated) the following 
new subparagraph: 
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‘‘(B) USE IN CERTAIN PROCEEDINGS.—Re-
turns and return information disclosed to a 
Federal agency under subparagraph (A) may be 
used in an action or proceeding (or in prepara-
tion for such action or proceeding) brought 
under section 625 of the American Jobs Cre-
ation Act of 2004 for the collection of any un-
paid assessment or penalty arising under such 
Act.’’. 
(2) 
CONFORMING
AMENDMENT.—Section 
6103(p)(4) of such Code is amended by striking 
‘‘(o)(1)’’ both places it appears and inserting 
‘‘(o)(1)(A)’’. 
(3) EFFECTIVE DATE.—The amendments made 
by this subsection shall apply on or after the date 
of the enactment of this Act. 
(g) TRANSITIONAL RULE.—Any person who— 
(1) on April 1 is engaged in business as a man-
ufacturer of processed tobacco or as an importer of 
processed tobacco, and 
(2) before the end of the 90-day period begin-
ning on such date, submits an application under 
subchapter B of chapter 52 of such Code to engage 
in such business, may, notwithstanding such sub-
chapter B, continue to engage in such business 
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pending final action on such application. Pending 
such final action, all provisions of such chapter 52 
shall apply to such applicant in the same manner 
and to the same extent as if such applicant were a 
holder of a permit under such chapter 52 to engage 
in such business. 
SEC. 703. TREASURY STUDY CONCERNING MAGNITUDE OF 
TOBACCO 
SMUGGLING 
IN 
THE 
UNITED 
STATES. 
Not later than one year after the date of the enact-
ment of this Act, the Secretary of the Treasury shall con-
duct a study concerning the magnitude of tobacco smug-
gling in the United States and submit to Congress rec-
ommendations for the most effective steps to reduce to-
bacco smuggling. Such study shall also include a review 
of the loss of Federal tax receipts due to illicit tobacco 
trade in the United States and the role of imported to-
bacco products in the illicit tobacco trade in the United 
States. 
SEC. 704. TIME FOR PAYMENT OF CORPORATE ESTIMATED 
TAXES. 
The percentage under subparagraph (C) of section 
401(1) of the Tax Increase Prevention and Reconciliation 
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Act of 2005 in effect on the date of the enactment of this 
Act is increased by 1 percentage point. 
Passed the House of Representatives January 14, 
2009. 
Attest: 
LORRAINE C. MILLER, 
Clerk. 
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