I 
108TH CONGRESS 
1ST SESSION H. R. 1743
To allow applications for the preferred provider organization (PPO) 
demonstration project under the Medicare+Choice program. 
IN THE HOUSE OF REPRESENTATIVES 
APRIL 10, 2003
Mr. LEACH (for himself and Mr. LATHAM) introduced the following bill; which 
was referred to the Committee on Ways and Means, and in addition to 
the Committee on Energy and Commerce, for a period to be subsequently 
determined by the Speaker, in each case for consideration of such provi-
sions as fall within the jurisdiction of the committee concerned 
A BILL 
To allow applications for the preferred provider organization 
(PPO) 
demonstration 
project 
under 
the 
Medicare+Choice program.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE. 
This Act may be cited as the ‘‘Iowa Medicare PPO 
Demonstration Act of 2003’’. 
SEC. 2. FINDINGS AND PURPOSE. 
(a) FINDINGS.—Congress finds the following:
(1) When the reimbursement system under the 
Medicare program, which evolved into the Prospec-
tive Payment System, was created in 1965, Iowa 
had pioneered in cost containment techniques and 
therefore received lower initial reimbursement rates. 
As inflation adjustments occurred over the years, the 
differential between reimbursement rates in the var-
ious states widened even though many medical costs 
are themselves similar. 
(2) Despite the fact that Iowa ranks first 
among all states in percent of citizens over 85, and 
fourth in citizens over 65, Medicare beneficiaries in 
Iowa access the health care system less frequently 
and experience shorter hospitalizations than resi-
dents of many other States. 
(3) The inflation in general health care costs 
for which Iowa has been relatively undercom-
pensated coupled with the unique problems of serv-
ing a disproportionately aging population in a decen-
tralized rural setting has created a crisis for Iowa’s 
health care providers and the Medicare beneficiaries 
they serve. 
(4) The inequity inherent in the Medicare reim-
bursement differential is symbolized by the fact that 
Medicare reimbursements per beneficiary for Iowa is
$3414, the lowest in the nation, while the figure for 
Louisiana, the highest, is $8033, or about two and 
one half times as great. 
(5) The average cost of living in the two states 
taken as a percent of that in the entire United 
States, by contrast, is almost the same, 92.5 for 
Iowa and 97.4 for Louisiana. 
(6) If the inequity in Medicare reimbursements 
did not exist, the modest cost of living differential 
which exists between Iowa and states such as Lou-
isiana would be even closer than indicated by the 
statistics described in paragraph (5) because health 
care spending represents approximately 12 percent 
of the Gross Domestic Product (GDP), and when an 
entitlement program of Federal government, such as 
the Medicare program, provides disproportionately 
more resources to individuals in one State over an-
other State, generalized economic, and specific 
health care cost, differentials occur. 
(7) Because of low Medicare rates, Iowa coun-
ties, particularly but not exclusively the smaller 
ones, are experiencing shortages of doctors and 
other health care providers, which in the near future 
could cause a significant access to health care crisis 
for many Iowa citizens.
(8) All citizens pay into Social Security under 
a uniform set of national standards. 
(9) Simple fairness and equity in the delivery of 
government services dictate that the differences in 
Medicare reimbursement received by each of the sev-
eral States should not fall far below the differences 
in the cost of living therein. 
(10) Low payment rates and a shortage of pro-
viders discourage Medicare+Choice organizations 
from offering plans in rural areas, and this unavail-
ability of a Medicare+Choice option in such areas is 
unfair to Medicare residents who would like to take 
advantage of the additional services and other bene-
fits offered through Medicare+Choice plans. 
(11) In order to encourage the establishment of 
Medicare+Choice plans in rural States, the Medi-
care program needs to provide incentives to States, 
insurers, and other entities interested in sponsoring 
Medicare+Choice plans in such States. Given Iowa’s 
low Medicare reimbursement rate, it is unlikely that 
any new health care delivery model can attract suffi-
cient providers unless current Medicare fee-for-serv-
ice payment rates for those providers are exceeded. 
(12) Preferred provider organizations are 
uniquely positioned to provide improved care man-
agement and clinical outcomes in part due to the 
wide-ranging involvement of health care profes-
sionals at each stage of a patient-oriented care proc-
ess.
(13) State governments should be encouraged 
to support and, where appropriate, oversee the es-
tablishment of organizations which make available 
health care services to individuals residing in under-
served areas in the State. 
(b) PURPOSE.—In order to insure that Iowa’s health 
care facilities and providers have access to the most inno-
vative reimbursement options available under the Medi-
care program, the Secretary of Health and Human Serv-
ices may approve a demonstration project to test ways in 
which cooperative efforts among insurers, institutional 
providers of services, and health care professionals may 
provide better access to health care services for Medicare 
beneficiaries. The demonstration project would be de-
signed to improve access to health care services through 
the Medicare+Choice program.
SEC. 3. CONSIDERATION OF APPLICATIONS FOR THE PRE-
FERRED 
PROVIDER 
ORGANIZATION 
(PPO) 
DEMONSTRATION 
PROJECT 
UNDER 
THE 
MEDICARE+CHOICE PROGRAM. 
(a) IN GENERAL.—The Secretary of Health and 
Human Services shall allow the receipt and approval of 
applications described in subsection (b) for a demonstra-
tion project conducted under section 402 of the Social Se-
curity Amendments of 1967 for participation of preferred 
provider 
organizations 
(PPOs) 
under 
the 
Medicare+Choice program under part C of title XVIII of 
the Social Security Act, with the understanding that the 
demonstration program could cause Medicare reimburse-
ment in Iowa to rise to a level more in line with the aver-
age national Medicare reimbursement rate. 
(b) APPLICATION DESCRIBED.—
(1) IN GENERAL.—An application described in 
this subsection is an application by an appropriate 
insurer domiciled and licensed to sell health insur-
ance or health benefits coverage in the State of Iowa 
(which for purposes of this project shall include the 
Illinois, as well as the Iowa, parts of the ‘‘Quad Cit-
ies’’) to offer a Medicare+Choice plan in that State 
that meets the requirements described in paragraph 
(2).
(2) ANNUAL
PLAN
REQUIREMENTS.—The re-
quirements of a plan for each contract year for 
which an application is granted under paragraph (1) 
are as follows: 
(A) All licensed physicians, hospitals, and 
practitioners 
(as 
defined 
in 
section 
1842(b)(18)(C) of the Social Security Act) in 
the State are eligible to be preferred providers 
under the insurer’s network to ensure that the 
health care needs of the Medicare beneficiaries 
to be served by the network are met. 
(B) Appropriate adjustments are made to 
the payment rates to hospitals for indirect med-
ical education costs and for being a dispropor-
tionate share hospital in manner similar to 
which such payment adjustments are made 
under subparagraphs (B) and (F), respectively, 
of section 1886(d)(5) of the Social Security 
Act. 
(C) As a preferred provider, a provider of 
services, physician, and health care practitioner 
shall be reimbursed for services furnished to 
Medicare beneficiaries at a rate no less than 
110 percent of the payment rate that would
otherwise apply for the service under part A or 
B, as the case may be. 
(D) The Secretary provides partial under-
writing of the financial risk under the plan. 
(E) The insurer should provide for health 
care benefits in addition to those required 
under parts A and B of such title (such as cov-
erage of the costs of some or all outpatient pre-
scription drugs, hearing aids, or eye glasses or 
reduced cost-sharing), after taking into account 
costs of administration. 
(3) ADDITIONAL
PAYMENT
FOR
START
UP 
COSTS.—In addition to payments made to the in-
surer under paragraph (2), the Secretary may pro-
vide for a payment during the initial phase of the 
project to reflect additional costs associated with the 
establishment of preferred provider organizations 
under the plan. 
(c) PERIOD OF DEMONSTRATION PROJECT.—A dem-
onstration project carried out under this section shall op-
erate for a period of 5 years. 
(d) ADVISORY BOARD.—
(1) ESTABLISHMENT.—As a part of the dem-
onstration project conducted under this section, the 
insurer shall provide for an advisory board to review
payment rate changes by the insurer for services 
furnished by providers under the demonstration 
project before such rates or changes take effect. 
(2) COMPOSITION.—The Board shall be com-
posed of 7 members with expertise in the field of 
health care as follows: 
(A) The Attorney General of Iowa. 
(B) 2 members appointed by the insurer 
upon the recommendation of the Governor of 
Iowa. 
(C) 2 members appointed by the insurer 
upon the recommendation of the Iowa Hospital 
Association. 
(D) 2 members appointed by the insurer 
upon the recommendation of the Iowa Medical 
Society. 
(3) TERMS
OF
APPOINTMENT.—The term of 
any appointment under paragraph (2) shall be 5 
years. 
(4) MEETINGS.—The advisory board shall meet 
at the call of its chairman or a majority of its mem-
bers. 
(5) VACANCIES.—A vacancy on the advisory 
board shall be filled in the same manner in which 
the original appointment was made not later than 30
days after the advisory board is given notice of the 
vacancy and shall not affect the power of the re-
maining members to execute the duties of the advi-
sory board . 
(6) COMPENSATION.—Members of the advisory 
board shall receive no additional pay, allowances, or 
benefits by reason of their service.
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