350
Subtitle G, Part 5
PART 5—COVERAGE OF CERTAIN SERVICES
ORDERED OR REFERRED BY CHIROPRACTORS
SEC. 15641. COVERAGE OF CERTAIN SERVICES ORDERED OR
REFERRED BY CHIROPRACTORS.
(a) CLARIFYING THAT CHIROPRACTORS MAY ORDER,
AND REFER PATIENTS TO OTHER PRACTITIONERS FOR, X-
RAYS.—Section 1861(r)(5) (42 U.S.C. 1395x(r)(5)) is
amended by striking the period at the end and inserting
the following: ‘‘, and for the ordering or referral of diag-
nostic X-ray tests under subsection (s)(3) which are not fur-
nished by the chiropractor and for which payment may oth-
erwise be made under this title.’’.
(b) BUDGET NEUTRALITY ADJUSTMENT.—Notwith-
standing any other provision of law, for each year (begin-
ning with 1996), the Secretary shall reduce the amount of
payments under section 1833 of the Social Security Act
with respect to services furnished by chiropractors by such
uniform percentage as the Secretary determines to be re-
quired to assure that the amendment made by subsection
(a) does not result in expenditures under title XVIII of such
Act in the year that exceed the amount of such expenditures
that would have been made in such year if such amendment
had not been made.
(c) EFFECTIVE DATE.—The amendments made by sub-
section (a) shall apply to items and services furnished on
or after January 1, 1996.
351
Subtitle H, Part 1
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 sub-
section (c), the Secretary shall make per visit pay-
ments beginning with fiscal year 1997 to a home
health agency in accordance with this section for each
type of home health service described in paragraph
(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 fol-
lowing:
352
Subtitle H, Part 1
‘‘(A) Part-time or intermittent nursing care
provided by or under the supervision of a reg-
istered professional nurse.
‘‘(B) Physical therapy.
‘‘(C) Occupational therapy.
‘‘(D) Speech-language pathology services.
‘‘(E) Medical social services under the direc-
tion of a physician.
‘‘(F) To the extent permitted in regulations,
part-time or intermittent services of a home
health aide who 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 national per visit pay-
ment 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 applica-
ble 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
353
Subtitle H, Part 1
1886(d)(8)(B) or a decision of the Medicare Geo-
graphic Classification Review Board or the Secretary
under section 1886(d)(10) for cost reporting periods
beginning after October 1, 1995).
‘‘(2) NATIONAL PER VISIT PAYMENT RATE.—The
national per visit payment rate for each type of serv-
ice 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 per-
centage increase for fiscal years 1995, 1996, and
1997; and
‘‘(B) for each subsequent fiscal year, is an
amount equal to the national per visit payment
rate in effect for the preceding fiscal year, in-
creased by the home health market basket per-
centage increase for such subsequent fiscal year
minus 2 percentage points.
‘‘(3) REBASING OF RATES.—The Secretary shall
provide for an update to the national per visit pay-
ment rates under this subsection for cost reporting pe-
354
Subtitle H, Part 1
riods 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 recent available data.
‘‘(4) HOME HEALTH MARKET BASKET PERCENT-
AGE 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 beginning 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 inpa-
tient hospital services for the fiscal year.
‘‘(c) PER EPISODE LIMIT.—
‘‘(1) AGGREGATE LIMIT.—
‘‘(A) IN GENERAL.—Except as provided in
paragraph (2), a home health agency may not
receive aggregate per visit payments under sub-
section (a) for a fiscal year in excess of an
amount equal to the sum of the following prod-
ucts determined for each case-mix category for
which the agency receives payments:
355
Subtitle H, Part 1
‘‘(i) The number of episodes of each
case-mix category during the fiscal year;
multiplied by
‘‘(ii) the per episode limit determined
for such case-mix category for such fiscal
year.
‘‘(B) ESTABLISHMENT
OF
PER
EPISODE
LIMITS.—
‘‘(i) IN
GENERAL.—The per episode
limit for a fiscal year for any case-mix cat-
egory for the area in which a home health
agency is located is equal to—
‘‘(I) the mean number of visits for
each type of home health service de-
scribed in subsection (a)(2) furnished
during an episode of such case-mix cat-
egory in such area during fiscal year
1994, adjusted by the case-mix adjust-
ment factor determined in clause (ii)
for the fiscal year involved; multiplied
by
‘‘(II) the per visit payment rate
established under subsection (b) for
such type of home health service for the
357
Subtitle H, Part 1
episode limits under this subparagraph, the
area in which a home health agency is con-
sidered to be located shall be such area as
the Secretary finds appropriate for purposes
of this subparagraph.
‘‘(C) CASE-MIX CATEGORY.—For purposes of
this paragraph, the term ‘case-mix category’
means each of the 18 case-mix categories estab-
lished under the Phase II Home Health Agency
Prospective Payment Demonstration Project con-
ducted by the Health Care Financing Adminis-
tration. The Secretary may develop an alternate
methodology for determining case-mix categories.
‘‘(D) EPISODE.—
‘‘(i) IN
GENERAL.—For purposes of
this paragraph, the term ‘episode’ means the
continuous 120-day period that—
‘‘(I) begins on the date of an indi-
vidual’s first visit for a type of home
health service described in subsection
(a)(2) for a case-mix category, and
‘‘(II) is immediately preceded by
a 60-day period in which the individ-
ual did not receive visits for a type of
358
Subtitle H, Part 1
home health service described in sub-
section (a)(2).
‘‘(ii) TREATMENT OF EPISODES SPAN-
NING COST REPORTING PERIODS.—The Sec-
retary shall provide for such rules as the
Secretary considers appropriate regarding
the treatment of episodes under this para-
graph which begin during a cost reporting
period and end in a subsequent cost report-
ing period.
‘‘(E) EXEMPTIONS AND EXCEPTIONS.—The
Secretary may provide for exemptions and excep-
tions to the limits established under this para-
graph for a fiscal year as the Secretary deems
appropriate, to the extent such exemptions and
exceptions do not result in greater payments
under this section than the exemptions and ex-
ceptions 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 defined in subsection (b)(4)).
‘‘(2) RECONCILIATION OF AMOUNTS.—
‘‘(A) OVERPAYMENTS
TO
HOME
HEALTH
AGENCIES.—Subject to subparagraph (B), if a
home health agency has received aggregate per
359
Subtitle H, Part 1
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 section to the home
health agency in the following fiscal year in such
manner as the Secretary considers appropriate
(including on an installment basis) to recapture
the amount of such excess.
‘‘(B) EXCEPTION FOR HOME HEALTH SERV-
ICES 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 sub-
section (a) shall not include payments for
home health visits furnished to an individ-
ual on or after a continuous period of more
than 165 days after an individual begins
an episode described in subsection (c)(1)(D)
(if such period is not interrupted by the be-
ginning of a new episode).
‘‘(ii) 
REQUIREMENT
OF
CERTIFI-
CATION.—Clause (i) shall not apply if the
agency has not obtained a physician’s cer-
360
Subtitle H, Part 1
tification with respect to the individual re-
quiring such visits that includes a state-
ment that the individual requires such con-
tinued visits, the reason for the need for
such visits, and a description of such serv-
ices furnished 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
amount determined under paragraph (1)
with respect to such home health agency for
such fiscal 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 payment may not ex-
ceed 5 percent of the aggregate per visit
payments made to the agency for the year.
‘‘(ii) 
INSTALLMENT
BONUS
PAY-
MENTS.—The Secretary may make install-
ment payments during a fiscal year to a
home health agency based on the estimated
bonus payment that the agency would be el-
361
Subtitle H, Part 1
igible to receive with respect to such fiscal
year.
‘‘(d) MEDICAL
REVIEW
PROCESS.—The Secretary
shall implement a medical review process (with a particu-
lar emphasis on fiscal years 1997 and 1998) for the system
of payments described in this section that shall provide an
assessment of the pattern of care furnished to individuals
receiving home health services for which payments are made
under this section to ensure that such individuals receive
appropriate home health services. Such review process shall
focus on low-cost cases described in subsection (e)(3) and
cases described in subsection (c)(2)(B) and shall require
recertification by intermediaries at 30, 60, 90, 120, and 165
days into an episode described in subsection (c)(1)(D).
‘‘(e) ADJUSTMENT
OF PAYMENTS
TO AVOID CIR-
CUMVENTION OF LIMITS.—
‘‘(1) IN GENERAL.—The Secretary shall provide
for appropriate adjustments to payments to home
health agencies under this section to ensure that agen-
cies do not circumvent the purpose of this section
by—
‘‘(A) discharging patients to another home
health agency or similar provider;
‘‘(B) altering corporate structure or name
to avoid being subject to this section or for the
362
Subtitle H, Part 1
purpose of increasing payments under this title;
or
‘‘(C) undertaking other actions considered
unnecessary for effective patient care and in-
tended to achieve maximum payments under this
title.
‘‘(2) TRACKING
OF
PATIENTS
THAT
SWITCH
HOME HEALTH AGENCIES DURING EPISODE.—
‘‘(A) DEVELOPMENT OF SYSTEM.—The Sec-
retary shall develop a system that tracks home
health patients that receive home health services
described 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 sec-
tion to each home health agency that furnishes
an individual with a type of home health service
described in subsection (a)(2) to ensure that ag-
gregate payments on behalf of such individual
during such episode do not exceed the amount
that would be paid under this section if the indi-
vidual received such services from a single home
health agency.
363
Subtitle H, Part 1
‘‘(3) LOW-COST CASES.—The Secretary shall de-
velop a system designed to adjust payments to a home
health agency for a fiscal year to eliminate any in-
crease in growth of the percentage of low-cost episodes
for which home health services are furnished by the
agency over such percentage determined for the agen-
cy for the 12-month cost reporting period ending 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 deliver-
ing home health services and that the volume of such
services does not increase as a result of factors other
than patient needs.
‘‘(f) REPORT BY MEDICARE PAYMENT REVIEW COM-
MISSION.—During the first 3 years in which payments are
made under this section, 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 include recommendations re-
garding the following:
‘‘(1) Case-mix and volume increases.
‘‘(2) Quality monitoring of home health agency
practices.
364
Subtitle H, Part 1
‘‘(3) Whether a capitated payment for home care
patients receiving care during a continuous period ex-
ceeding 165 days is warranted.
‘‘(4) Whether public providers of service are ade-
quately reimbursed.
‘‘(5) The adequacy of the exemptions and excep-
tions to the limits provided under subsection
(c)(1)(E).
‘‘(6) The appropriateness of the methods pro-
vided under this section to adjust the per episode lim-
its and annual payment updates to reflect changes in
the mix of services, number of visits, and assignment
to case categories to reflect changing patterns of home
health care.
‘‘(7) The geographic areas used to determine 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 equipment’’; and
(2) by inserting ‘‘and 1834(h), respectively’’ after
‘‘1834(a)(1)’’.
(c) CONFORMING AMENDMENTS.—
365
Subtitle H, Part 1
(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
striking ‘‘1888 and 1888A’’ and inserting ‘‘1888,
1888A, and 1894’’.
(2) TREATMENT OF ITEMS AND SERVICES PAID
UNDER PART B.—
(A) PAYMENTS
UNDER
PART
B.—Section
1833(a)(2) (42 U.S.C. 1395l(a)(2)) is amended—
(i) by amending subparagraph (A) to
read as follows:
‘‘(A) with respect to home health services—
‘‘(i) that are a type of home health
service described in section 1894(a)(2), and
which are furnished to an individual who
(at the time the item or service is furnished)
is under a plan of care of a home health
agency, the amount determined under sec-
tion 1894; or
‘‘(ii) that are not described in clause
(i) (other than a covered osteoporosis drug)
(as defined in section 1861(kk)), the lesser
of—
366
Subtitle H, Part 1
‘‘(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
(iv) by adding at the end the following
new subparagraph:
‘‘(G) with respect to items and services de-
scribed 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 re-
spect to such services,
or, if such services are furnished by a public pro-
vider of services, or by another 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 provision), free of charge or at nomi-
nal charges to the public, the amount determined
in accordance with section 1814(b)(2);’’.
367
Subtitle H, Part 1
(B) REQUIRING PAYMENT FOR ALL ITEMS
AND SERVICES TO BE MADE TO AGENCY.—
(i) IN GENERAL.—The first sentence of
section 1842(b)(6) (42 U.S.C. 1395u(b)(6)),
as amended by section 15525(a)(1), is
amended—
(I) by striking ‘‘and (E)’’ and in-
serting ‘‘(E)’’; and
(II) by striking the period at the
end and inserting the following: ‘‘, and
(F) in the case of types of home health
services described in section 1894(a)(2)
furnished to an individual 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 ar-
rangement with them made by the
agency, or otherwise).’’.
(ii) CONFORMING
AMENDMENT.—Sec-
tion 1832(a)(1) (42 U.S.C. 1395k(a)(1)), as
amended by section 15525(a)(3), is amend-
ed by striking ‘‘section 1842(b)(6)(E);’’ and
368
Subtitle H, Part 1
inserting ‘‘subparagraphs (E) and (F) of
section 1842(b)(6);’’.
(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 para-
graph (15);
(ii) by striking the period at the end of
paragraph (16) and inserting ‘‘; or’’; and
(iii) by adding at the end the following
new paragraph:
‘‘(17) where such expenses are for home health
services furnished to an individual who is under a
plan of care of the home health agency if the claim
for payment for such services is not submitted by the
agency.’’.
(3) SUNSET
OF
REASONABLE
COST
LIMITA-
TIONS.—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 during cost reporting pe-
riods ending on or before September 30, 1996.’’.
369
Subtitle H, Part 1
(d) EFFECTIVE DATE.—The amendments made by this
section 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 LIMITS 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 AMEND-
MENT.—The Secretary of Health and Human Services shall
not consider the amendment made by subsection (a) in mak-
ing any exemptions and exceptions pursuant to 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 sec-
tion 426(d) of the Medicare Catastrophic Coverage Act of
370
Subtitle H, Part 1
1988 and section 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 ‘‘September 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 desir-
ability of providing for coverage under the medicare pro-
gram of home health services furnished by Christian Science
providers who meet applicable requirements of the First
Church of Christ, Scientist, Boston, Massachusetts.
(b) REPORT.—Not later than July 1, 1996, the Sec-
retary shall submit a report to Congress on the study con-
ducted under subsection (a), and (to the extent the report
includes recommendations for coverage under the medicare
program of home health services furnished by Christian
Science providers) shall include in the report recommenda-
tions regarding appropriate criteria for the certification of
such providers and an appropriate methodology for making
payments under the medicare program for such services.
371
Subtitle H, Part 2
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.—
(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.—Paragraphs
(1) through (3) of section 1837(i) (42 U.S.C.
1395p(i)) and the second sentence 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 insert-
ing ‘‘1862(b)(1)(B)(iii)’’.
372
Subtitle H, Part 2
(c) EXPANSION OF PERIOD OF APPLICATION TO INDI-
VIDUALS WITH END STAGE RENAL DISEASE.—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 inserting ‘‘24-month’’, and
(2) by striking the second sentence.
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 amend-
ed—
(1) by striking ‘‘under this subsection to pay’’
and inserting ‘‘(directly, as a third-party adminis-
trator, or otherwise) to make payment’’, and
(2) by adding at the end the following: ‘‘The
United States may not recover from a third-party ad-
ministrator under this clause in cases where the
third-party administrator would not be able to re-
cover the amount at issue from the employer or group
health plan for whom it provides administrative serv-
ices 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:
373
Subtitle H, Part 2
‘‘(v) 
CLAIMS-FILING
PERIOD.—Not-
withstanding any other time limits that
may exist for filing a claim under an em-
ployer 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 period begin-
ning on the date on which the item or serv-
ice was furnished.’’.
(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 Administrator of the Health Care Financing Adminis-
tration on April 24, 1995, only with respect to items and
services furnished on or after such date.
374
Subtitle H, Part 3
PART 3—FAILSAFE
SEC. 15721. FAILSAFE BUDGET MECHANISM.
(a) IN GENERAL.—Title XVIII, as amended by sec-
tions 15106(a) and 15701(a), is amended by adding at the
end the following new section:
‘‘FAILSAFE BUDGET MECHANISM
‘‘SEC. 1895. (a) REQUIREMENT OF PAYMENT ADJUST-
MENTS TO ACHIEVE MEDICARE BUDGET TARGETS.—If the
Secretary determines under subsection (e)(3)(C) before a fis-
cal year (beginning 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 subsection (b)) for the fiscal year, will
exceed
‘‘(2) the allotment specified under subsection
(c)(2) for such fiscal year (taking into account any
adjustment in the allotment under subsection (h) for
that fiscal year),
then, notwithstanding any other provision of this title, there
shall be an adjustment (consistent with subsection (d)) in
applicable payment rates or payments for items and serv-
ices 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 DESCRIBED.—
375
Subtitle H, Part 3
‘‘(1) IN GENERAL.—For purposes of this section,
items and services included under each of the follow-
ing subparagraphs 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 facilities).
‘‘(D) Hospice care.
‘‘(E) Physicians’ services (including services
and supplies described in section 1861(s)(2)(A))
and services of other health care professionals
(including certified registered nurse anesthetists,
nurse practitioners, physician assistants, and
clinical psychologists) for which separate pay-
ment is made under this title.
‘‘(F) Outpatient hospital services and am-
bulatory facility services.
‘‘(G) Durable medical equipment and sup-
plies, including prosthetic devices and orthotics.
‘‘(H) Diagnostic tests (including clinical
laboratory services and x-ray services).
‘‘(I) Other items and services.
‘‘(2) CLASSIFICATION
OF
ITEMS
AND
SERV-
ICES.—The Secretary shall classify each type of items
376
Subtitle H, Part 3
and services covered and paid for separately under
this title into one of the sectors specified in paragraph
(1). After publication of such classification under sub-
section (e)(1), the Secretary is not authorized to make
substantive changes in such classification.
‘‘(c) ALLOTMENT.—
‘‘(1) ALLOTMENTS FOR EACH SECTOR.—For pur-
poses of this section, subject to subsection (h)(1), the
allotment for a sector of medicare services for a fiscal
year is equal to the product of—
‘‘(A) the total allotment for the fiscal 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 Sec-
retary estimates will be made in the fiscal
377
Subtitle H, Part 3
year under the MedicarePlus program
under part C.
In making the estimate under clause (ii), the
Secretary shall take into account estimated en-
rollment and demographic profile of individuals
electing MedicarePlus products.
‘‘(B) MEDICARE
BENEFIT
BUDGET.—For
purposes of this subsection, subject to subpara-
graph (C), the ‘medicare benefit budget’—
‘‘(i) for fiscal year 1997 is $203.1 bil-
lion;
‘‘(ii) for fiscal year 1998 is $214.3 bil-
lion;
‘‘(iii) for fiscal year 1999 is $227.2 bil-
lion;
‘‘(iv) for fiscal year 2000 is $241.0 bil-
lion;
‘‘(v) for fiscal year 2001 is $259.1 bil-
lion;
‘‘(vi) for fiscal year 2002 is $280.0 bil-
lion; and
‘‘(vii) for a subsequent fiscal year is
equal to the medicare benefit budget under
this subparagraph for the preceding fiscal
year increased by the product of (I) 1.05,
378
Subtitle H, Part 3
and (II) 1 plus the annual percentage in-
crease in the average number of medicare
beneficiaries from the previous fiscal year to
the fiscal year involved.
‘‘(3) MEDICARE
ALLOTMENT
PROPORTION
DE-
FINED.—
‘‘(A) IN
GENERAL.—For purposes of this
section and with respect to a sector of medicare
services for a fiscal year, the term ‘medicare al-
lotment proportion’ means the ratio of—
‘‘(i) the baseline-projected medicare ex-
penditures (as determined under subpara-
graph (B)) for the sector for the fiscal year,
to
‘‘(ii) the sum of such baseline expendi-
tures for all such sectors for the fiscal year.
‘‘(B) BASELINE-PROJECTED MEDICARE EX-
PENDITURES.—In this paragraph, the ‘baseline,
projected medicare expenditures’ for a sector of
medicare services—
‘‘(i) for fiscal year 1996 is equal to fee-
for-service expenditures for such sector dur-
ing fiscal year 1995, increased by the base-
line annual growth rate for such sector of
379
Subtitle H, Part 3
medicare services for fiscal year 1996 (as
specified in table in subparagraph (C)); and
‘‘(ii) for a subsequent fiscal year is
equal to the baseline-projected medicare ex-
penditures 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:
‘‘For the following sector—
Baseline annual growth rates for fiscal year—
1996
1997
1998
1999
2000
2001
2002
and
there-
after
(A) Inpatient hospital 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 medical 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 succeeding
provisions of this subsection, the Secretary shall
apply a payment reduction for a sector for a fiscal
year in such a manner as to—
380
Subtitle H, Part 3
‘‘(A) make a change in payment rates (to
the maximum extent practicable) at the time
payment rates are otherwise changed or subject
to change for that fiscal year; and
‘‘(B) provide for the full appropriate adjust-
ment so that the fee-for-service expenditures for
the sector for the fiscal year will approximate
(and not exceed) the allotment for the sector for
the fiscal year.
‘‘(2) TAKING INTO ACCOUNT VOLUME AND CASH
FLOW.—In providing for an adjustment in payments
under this subsection for a sector for a fiscal year, the
Secretary shall take into account (in a manner con-
sistent with actuarial projections)—
‘‘(A) the impact of such an adjustment on
the volume or type of services provided in such
sector (and other sectors), and
‘‘(B) the fact that an adjustment may apply
to items and services furnished in a fiscal year
(payment for which may occur in a subsequent
fiscal year),
in a manner that is consistent with assuring that
total fee-for-services expenditures for each sector for
the fiscal year will not exceed the allotment under
subsection (c)(1) for such sector for such year.
381
Subtitle H, Part 3
‘‘(3) PROPORTIONALITY OF REDUCTIONS WITHIN
A SECTOR.—In making adjustments under this sub-
section in payment for items and services included
within a sector 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 different classes
of items and services included within the sector for
the fiscal year.
‘‘(4) APPLICATION TO PAYMENTS MADE BASED
ON PROSPECTIVE PAYMENT RATES DETERMINED ON A
FISCAL YEAR BASIS.—
‘‘(A) IN GENERAL.—In applying subsection
(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 prospective
basis for (and in advance of) a fiscal year, the
Secretary shall provide for the payment adjust-
ment under such subsection through an appro-
priate reduction in such rates established for
items and services furnished (or, in the case of
payment for operating costs of inpatient hospital
services of subsection (d) hospitals and subsection
(d) Puerto Rico hospitals (as defined in para-
382
Subtitle H, Part 3
graphs (1)(B) and (9)(A) of section 1886(d)),
discharges occurring) during such year.
‘‘(B) DESCRIPTION
OF
APPLICATION
TO
SPECIFIC
SERVICES.—The payment adjustment
described in subparagraph (A) applies for a fis-
cal year to at least the following:
‘‘(i) UPDATE
FACTOR
FOR
PAYMENT
FOR OPERATING COSTS OF INPATIENT HOS-
PITAL
SERVICES
OF
PPS
HOSPITALS.—To
the computation of the applicable percent-
age 
increase 
specified 
in 
section
1886(d)(3)(B)(i) for discharges occurring in
the fiscal year.
‘‘(ii) HOME
HEALTH
SERVICES.—To
the extent payment amounts for home health
services are based on per visit payment
rates under section 1894, to the computa-
tion of the increase in the national per visit
payment rates established for the year
under section 1894(b)(2)(B).
‘‘(iii) HOSPICE CARE.—To the update
of payment rates for hospice care under sec-
tion 1814(i) for services furnished during
the fiscal year.
383
Subtitle H, Part 3
‘‘(iv) UPDATE FACTOR FOR PAYMENT
OF OPERATING COSTS OF INPATIENT HOS-
PITAL
SERVICES
OF
PPS-EXEMPT
HOS-
PITALS.—To the computation of the target
amount under section 1886(b)(3) for dis-
charges occurring during the fiscal year.
‘‘(v) COVERED NON-ROUTINE SERVICES
OF SKILLED NURSING FACILITIES.—To the
computation of the facility per stay limits
for the year under section 1888A(d) for cov-
ered non-routine services of a skilled nurs-
ing facility (as described in such section).
‘‘(5) APPLICATION TO PAYMENTS MADE BASED
ON PROSPECTIVE PAYMENT RATES DETERMINED ON A
CALENDAR YEAR BASIS.—
‘‘(A) IN GENERAL.—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 the basis of rates that are established
on a prospective basis for (and in advance of) a
calendar year, the Secretary shall provide for the
payment adjustment under such subsection
through an appropriate reduction in such rates
established for items and services furnished at
any time during such calendar year as follows:
384
Subtitle H, Part 3
‘‘(i) For fiscal year 1997, the reduction
shall be made for payment rates during cal-
endar year 1997 in a manner so as to
achieve the necessary payment reductions
for such fiscal year for items and services
furnished during the first 3 quarters of cal-
endar year 1997.
‘‘(ii) For a subsequent fiscal year, the
reduction shall be made for payment rates
during the calendar 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 during
the first 3 quarters of the calendar year, but
also taking into account the payment reduc-
tions made in the first quarter of the fiscal
year resulting from payment reductions
made under this paragraph for the previous
calendar year.
‘‘(iii) Payment rate reductions effected
under this subparagraph for a calendar
year and applicable to the last 3 quarters of
the fiscal year in which the calendar year
ends shall continue to apply during the first
quarter of the succeeding fiscal year.
385
Subtitle H, Part 3
‘‘(B) APPLICATION
IN
SPECIFIC
CASES.—
The payment adjustment described in subpara-
graph (A) applies for a fiscal year to at least the
following:
‘‘(i) UPDATE IN CONVERSION FACTOR
FOR PHYSICIANS’ SERVICES.—To the com-
putation of the conversion factor under sub-
section (d) of section 1848 used in the fee
schedule established under subsection (b) of
such section, 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 anes-
thetists under section 1833(l), nurse mid-
wives, physician assistants, nurse practi-
tioners and clinical nurse specialists under
section 1833(r), clinical psychologists, clini-
cal social workers, physical or occupational
therapists, and any other health profes-
sionals for which payment rates are based
(in whole or in part) on payments for phy-
sicians’ services, for services furnished dur-
386
Subtitle H, Part 3
ing the calendar year in which the fiscal
year ends.
‘‘(iii) UPDATE
IN
LAB
FEE
SCHED-
ULE.—To the computation of the fee sched-
ule amount under section 1833(h)(2) for
clinical diagnostic laboratory services fur-
nished during the calendar year in which
the fiscal year ends.
‘‘(iv) 
UPDATE
IN
REASONABLE
CHARGES FOR VACCINES.—To the computa-
tion of the reasonable charge for vaccines
described in section 1861(s)(10) for vaccines
furnished during the calendar year in
which the fiscal year ends.
‘‘(v) DURABLE
MEDICAL
EQUIPMENT-
RELATED
ITEMS.—To the computation of
the 
payment 
basis 
under 
section
1834(a)(1)(B) for covered items described in
section 1834(a)(13), for items furnished
during the calendar year in which the fiscal
year ends.
‘‘(vi) RADIOLOGIST SERVICES.—To the
computation of conversion factors for radi-
ologist services under section 1834(b), for
387
Subtitle H, Part 3
services furnished during the calendar year
in which the fiscal year ends.
‘‘(vii) SCREENING MAMMOGRAPHY.—To
the computation of payment rates for
screening 
mammography 
under 
section
1834(c)(1)(C)(ii), for screening mammog-
raphy performed during the calendar year
in which the fiscal year ends.
‘‘(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 fur-
nished during the calendar year in which
the fiscal year ends.
‘‘(ix) SURGICAL
DRESSINGS.—To the
computation of the payment amount re-
ferred to in section 1834(i)(1)(B) for sur-
gical dressings, for items furnished during
the calendar year in which the fiscal year
ends.
‘‘(x) PARENTERAL AND ENTERAL NU-
TRITION.—To the computation of reasonable
charge screens for payment for parenteral
and enteral nutrition under section 1834(h),
388
Subtitle H, Part 3
for nutrients furnished during the calendar
year in which the fiscal year ends.
‘‘(xi) AMBULANCE SERVICES.—To the
computation of limits on reasonable charges
for ambulance services, for services fur-
nished 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 subsection
(a) for a fiscal year with respect 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 Sec-
retary shall provide for the payment adjustment
under such subsection for a fiscal year through
a appropriate proportional reduction in the pay-
ment for costs for such items and services in-
curred at any time during each cost reporting
period any part of which occurs during the fiscal
year involved, but only (for each such cost re-
porting period) in the same proportion as the
fraction of the cost reporting period that occurs
during the fiscal year involved.
389
Subtitle H, Part 3
‘‘(B) APPLICATION
IN
SPECIFIC
CASES.—
The payment adjustment described in subpara-
graph (A) applies for a fiscal year to at least the
following:
‘‘(i) CAPITAL-RELATED COSTS OF HOS-
PITAL
SERVICES.—To the computation of
payment amounts for inpatient and out-
patient hospital services under sections
1886(g) and 1861(v) for portions of cost re-
porting periods occurring during the fiscal
year.
‘‘(ii) OPERATING COSTS FOR PPS-EX-
EMPT HOSPITALS.—To the computation of
payment amounts under section 1886(b) for
operating costs of inpatient hospital services
of PPS-exempt hospitals for portions of cost
reporting periods occurring during the fis-
cal year.
‘‘(iii) DIRECT
GRADUATE
MEDICAL
EDUCATION.—To the computation of pay-
ment 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.
390
Subtitle H, Part 3
‘‘(iv) INPATIENT RURAL PRIMARY CARE
HOSPITAL SERVICES.—To the computation
of payment amounts under section 1814(j)
for inpatient rural primary care hospital
services for portions of cost reporting peri-
ods occurring during the fiscal year.
‘‘(v) EXTENDED CARE SERVICES OF A
SKILLED NURSING FACILITY.—To the com-
putation of payment amounts under section
1861(v) for post-hospital extended care serv-
ices of a skilled nursing facility (other than
covered non-routine services subject to sec-
tion 1888A) for portions of cost reporting
periods occurring during the fiscal year.
‘‘(vi) 
REASONABLE
COST
CON-
TRACTS.—To the computation of payment
amounts under section 1833(a)(1)(A) for or-
ganizations for portions of cost reporting
periods occurring during the fiscal year.
‘‘(vii) HOME
HEALTH
SERVICES.—
Subject to paragraph (4)(B)(ii), for pay-
ment amounts for home health services, for
portions of cost reporting periods occurring
during such fiscal year.
391
Subtitle H, Part 3
‘‘(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 described in a previous paragraph of this sub-
section, the Secretary shall provide for the payment
adjustment under such subsection through a appro-
priate proportional reduction in the payments (or
payment bases for items and services furnished) dur-
ing the fiscal year.
‘‘(8) ADJUSTMENT
OF
PAYMENT
LIMITS.—The
Secretary shall provide for such proportional adjust-
ment in any limits on payment established under
part A or B for payment for items and services with-
in 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 sec-
tor.
‘‘(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; JUDICIAL
REVIEW.—
392
Subtitle H, Part 3
‘‘(1) ONE-TIME PUBLICATION OF SECTORS AND
GENERAL
PAYMENT
ADJUSTMENT
METHODOLOGY.—
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 medi-
care services under subsection (b) and the general
methodology to be used in applying payment adjust-
ments to the different classes of items and services
within the sectors.
‘‘(2) INCLUSION
OF
INFORMATION
IN
PRESI-
DENT’S BUDGET.—
‘‘(A) IN GENERAL.—With respect to fiscal
years beginning with fiscal year 1999, the Presi-
dent shall include in the budget submitted under
section 1105 of title 31, United States Code, in-
formation on—
‘‘(i) the fee-for-service expenditures,
within each sector, for the second previous
fiscal year, and how such expenditures com-
pare to the adjusted sector allotment for
that sector for that fiscal year; and
‘‘(ii) actual annual growth rates for
fee-for-service expenditures in the different
sectors in the second previous fiscal year.
393
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
percentages that should be applied (for one or
more fiscal years beginning with that fiscal
year) instead of the baseline annual growth rates
under subsection (c)(3)(C). Such recommenda-
tions shall take into account medically appro-
priate practice patterns.
‘‘(3) DETERMINATIONS
CONCERNING
PAYMENT
ADJUSTMENTS.—
‘‘(A) 
RECOMMENDATIONS
OF
COMMIS-
SION.—By not later than March 1 of each year
(beginning with 1997), the Medicare Payment
Review Commission shall submit to the Sec-
retary and the Congress a report that analyzes
the previous operation (if any) of this section
and that includes recommendations concerning
the manner in which this section should be ap-
plied for the following fiscal year.
‘‘(B) 
PRELIMINARY
NOTICE
BY
SEC-
RETARY.—Not later than May 15 preceding the
beginning of each fiscal year (beginning with fis-
cal year 1998), the Secretary shall publish in the
394
Subtitle H, Part 3
Federal Register a notice containing the Sec-
retary’s preliminary determination, for each sec-
tor of medicare services, concerning the follow-
ing:
‘‘(i) The projected allotment under sub-
section (c) for such sector for the fiscal year.
‘‘(ii) Whether there will be a payment
adjustment for items and services included
in such sector for the fiscal year under sub-
section (a).
‘‘(iii) If there will be such an adjust-
ment, the size of such adjustment and the
methodology to be used in making such a
payment adjustment for classes of items and
services included in such sector.
‘‘(iv) Beginning with fiscal year 1999,
the fee-for-service expenditures for such sec-
tor for the second preceding fiscal year.
Such notice shall include an explanation of the
basis for such determination. Determinations
under this subparagraph and subparagraph (C)
shall be based on the best data available at the
time of such determinations.
‘‘(C) FINAL
DETERMINATION.—Not later
than September 1 preceding the beginning of
395
Subtitle H, Part 3
each fiscal year (beginning with fiscal year
1998), the Secretary shall publish in the Federal
Register a final determination, for each sector of
medicare services, concerning the matters de-
scribed in subparagraph (B) and an explanation
of the reasons for any differences between such
determination and the preliminary determina-
tion for such fiscal year published under sub-
paragraph (B).
‘‘(4) LIMITATION ON ADMINISTRATIVE OR JUDI-
CIAL REVIEW.—There shall be no administrative or
judicial review under section 1878 or otherwise of—
‘‘(A) the classification of items and services
among the sectors of medicare services under sub-
section (b),
‘‘(B) the determination of the amounts of
allotments for the different sectors of medicare
services under subsection (c),
‘‘(C) the determination of the amount (or
method of application) of any payment adjust-
ment under subsection (d), or
‘‘(D) any adjustment in an allotment ef-
fected under subsection (h).
‘‘(f) FEE-FOR-SERVICE EXPENDITURES DEFINED.—In
this section, the term ‘fee-for-service expenditures’, for items
396
Subtitle H, Part 3
and services within 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—
‘‘(1) includes types of expenses otherwise reim-
bursable under parts A and B (including administra-
tive costs incurred by organizations described in sec-
tions 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 SEC-
TOR GROWTH RATES.—
‘‘(1) OPTIONAL INCLUSION OF LEGISLATIVE PRO-
POSAL.—The President may include in recommenda-
tions under subsection (e)(2)(B) submitted with re-
spect to a fiscal year a specific legislative proposal
that provides only for the substitution of percentages
specified in the proposal for one or more of the base-
line annual growth rates (specified in the table in
subsection (c)(3)(C) or in a previous legislative pro-
posal under this subsection) for that fiscal year or
any subsequent fiscal year.
‘‘(2) CONGRESSIONAL CONSIDERATION.—
‘‘(A) IN
GENERAL.—The percentages con-
tained in a legislative proposal submitted under
397
Subtitle H, Part 3
paragraph (1) shall apply under this section if
a joint resolution (described in subparagraph
(B)) approving such proposal is enacted, in ac-
cordance with the provisions of subparagraph
(C), before the end of the 60-day period begin-
ning on the date on which such proposal was
submitted. For purposes of applying the preced-
ing sentence and subparagraphs (B) and (C), the
days on which either House of Congress 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 APPROVAL.—A
joint resolution described in this subparagraph
means only a joint resolution which is intro-
duced within the 10-day period beginning on the
date on which the President submits a proposal
under paragraph (1) and—
‘‘(i) which does not have a preamble;
‘‘(ii) the matter after the resolving
clause of which is as follows: ‘That Congress
approves the proposal of the President pro-
viding for substitution of percentages for
certain baseline annual growth rates under
section 1895 of the Social Security Act, as
398
Subtitle H, Part 3
submitted 
by 
the 
President 
on
lllllll.’, the blank space being
filled in with the appropriate date; and
‘‘(iii) the title of which is as follows:
‘Joint resolution approving Presidential
proposal to substitute certain specified per-
centages for baseline annual growth rates
under section 1895 of the Social Security
Act, as submitted by the President on
lllllll.’, the blank space being
filled in with the appropriate date.
‘‘(C) PROCEDURES FOR CONSIDERATION OF
RESOLUTION OF APPROVAL.—Subject to subpara-
graph (D), the provisions 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
subparagraph (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 purposes of ap-
plying subparagraph (C) with respect to such
provisions—
‘‘(i) any reference to the Committee on
Armed Services of the House of Representa-
399
Subtitle H, Part 3
tives shall be deemed a reference to an ap-
propriate Committee of the House of Rep-
resentatives (specified by the Speaker of the
House of Representatives at the time of sub-
mission of a legislative proposal under
paragraph (1)) and any reference 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 reference to the date on which
the President submits the legislative pro-
posal under paragraph (1).
‘‘(h) LOOK-BACK ADJUSTMENT IN ALLOTMENTS TO
REFLECT ACTUAL EXPENDITURES.—
‘‘(1) IN GENERAL.—If the Secretary determines
under subsection (e)(3)(B) with respect to a particu-
lar fiscal year (beginning with fiscal year 1999) that
the fee-for-service expenditures for a sector of medicare
services for the second preceding fiscal year—
‘‘(A) exceeded the adjusted allotment for
such sector for such year (as defined in para-
graph (2)), then the allotment for the sector for
400
Subtitle H, Part 3
the particular fiscal year shall be reduced by
1331⁄3 percent of the amount of such excess, or
‘‘(B) was less than the adjusted allotment
for such sector for such year, then the allotment
for the sector for the particular fiscal year shall
be increased by the amount of such deficit.
‘‘(2) ADJUSTED ALLOTMENT.—The adjusted al-
lotment under this paragraph for a sector for a fiscal
year is—
‘‘(A) the amount that would be computed as
the allotment under subsection (c) for the sector
for the fiscal year if the actual amount of pay-
ments 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 (based on expenditures in the
second previous fiscal year).
‘‘(i) PROSPECTIVE APPLICATION
OF CERTAIN NA-
TIONAL COVERAGE DETERMINATIONS.—In the case of a na-
tional coverage determination that the Secretary projects
will result in significant additional expenditures under this
title (taking into account any substitution for existing pro-
401
Subtitle H, Part 4
cedures or technologies), such determination shall not be-
come 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 determination.’’.
(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 subsection (b)(2)
shall include information regarding the annual rate of
growth in program expenditures that would be required to
maintain the financial solvency of the Trust Fund and the
extent to which the provisions of section 1895 restrain the
rate of growth of expenditures 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 subsection (b),
the Secretary shall adopt standards for information
402
Subtitle H, Part 4
transactions and data elements of medicare informa-
tion and modifications to the standards under this
section that are—
‘‘(A) consistent with the objective of reduc-
ing the administrative costs of providing and
paying for health care; and
‘‘(B) developed or modified by a standard
setting organization (as defined in subsection
(h)(8)).
‘‘(2) SPECIAL
RULE
RELATING
TO
DATA
ELE-
MENTS.—The Secretary may adopt or modify a
standard relating to data elements that is different
from the standard developed by a standard setting or-
ganization, 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 pro-
mulgated in accordance with the rulemaking
procedures of subchapter III of chapter 5 of title
5, United States Code.
‘‘(3) SECURITY STANDARDS FOR HEALTH INFOR-
MATION NETWORK.—
403
Subtitle H, Part 4
‘‘(A) IN
GENERAL.—Each person, who
maintains or transmits medicare information or
data elements of medicare information and is
subject to this section, shall maintain reasonable
and appropriate administrative, technical, and
physical safeguards—
‘‘(i) to ensure the integrity and con-
fidentiality of the information;
‘‘(ii) to protect against any reasonably
anticipated—
‘‘(I) threats or hazards to the se-
curity or integrity of the information;
and
‘‘(II) unauthorized uses or disclo-
sures of the information; and
‘‘(iii) to otherwise ensure compliance
with this section by the officers and employ-
ees of such person.
‘‘(B) 
SECURITY
STANDARDS.—The 
Sec-
retary 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—
404
Subtitle H, Part 4
‘‘(I) the technical capabilities of
record systems used to maintain medi-
care information;
‘‘(II) the costs of security meas-
ures;
‘‘(III) the need for training per-
sons who have access to medicare infor-
mation; and
‘‘(IV) the value of audit trails in
computerized record systems; and
‘‘(ii) ensure that a medicare informa-
tion network service, if it is part of a larger
organization, has policies and security pro-
cedures which isolate the activities of such
service with respect to processing informa-
tion in a manner that prevents unauthor-
ized access to such information by such
larger organization.
The security standards established by the Sec-
retary shall be based on the standards developed
or modified by standard setting organizations. If
such standards do not exist, the Secretary shall
rely on the recommendations of the Medicare In-
formation 
Advisory 
Committee 
(established
under subsection (g)) and shall consult with ap-
405
Subtitle H, Part 4
propriate government agencies and private orga-
nizations in accordance with paragraph (5).
‘‘(4) IMPLEMENTATION
SPECIFICATIONS.—The
Secretary shall establish specifications for implement-
ing each of the standards and the modifications to the
standards adopted pursuant to paragraph (1) or (3).
‘‘(5) ASSISTANCE TO THE SECRETARY.—In com-
plying with the requirements of this section, the Sec-
retary shall rely on recommendations of the Medicare
Information Advisory Committee established under
subsection (g) and shall consult with appropriate
Federal and State agencies and private organizations.
The Secretary shall publish in the Federal Register
the recommendations of the Medicare Information Ad-
visory Committee regarding the adoption of a stand-
ard under this section.
‘‘(b) STANDARDS FOR INFORMATION TRANSACTIONS
AND DATA ELEMENTS.—
‘‘(1) IN GENERAL.—The Secretary shall adopt
standards for transactions and data elements to make
medicare information uniformly available to be ex-
changed electronically, that is—
‘‘(A) appropriate for the following financial
and administrative transactions: claims (includ-
ing coordination of benefits) or equivalent en-
406
Subtitle H, Part 4
counter 
information, 
enrollment 
and
disenrollment, eligibility, premium payments,
and referral certification and authorization; and
‘‘(B) related to other financial and admin-
istrative transactions determined appropriate by
the Secretary consistent with the goals of im-
proving the operation of the health care system
and reducing administrative costs.
‘‘(2) UNIQUE HEALTH IDENTIFIERS.—
‘‘(A) ADOPTION OF STANDARDS.—The Sec-
retary shall adopt standards providing for a
standard unique health identifier for each indi-
vidual, employer, health plan, and health care
provider for use in the medicare information sys-
tem. In developing unique health identifiers for
each health plan and health care provider, the
Secretary shall take into account multiple uses
for identifiers and multiple locations and spe-
cialty classifications for health care providers.
‘‘(B) PENALTY
FOR
IMPROPER
DISCLO-
SURE.—A person who knowingly uses or causes
to be used a unique health identifier under sub-
paragraph (A) for a purpose that is not author-
ized by the Secretary shall—
407
Subtitle H, Part 4
‘‘(i) be fined not more than $50,000,
imprisoned not more than 1 year, or both;
or
‘‘(ii) if the offense is committed under
false pretenses, be fined not more than
$100,000, imprisoned not more than 5
years, or both.
‘‘(3) CODE SETS.—
‘‘(A) IN GENERAL.—The Secretary, in con-
sultation with the Medicare Information Advi-
sory Committee, experts from the private sector,
and Federal and State agencies, shall—
‘‘(i) select code sets for appropriate
data elements from among the code sets that
have been developed by private and public
entities; or
‘‘(ii) establish code sets for such data
elements if no code sets for the data ele-
ments have been developed.
‘‘(B) DISTRIBUTION.—The Secretary shall
establish efficient and low-cost procedures for
distribution (including electronic distribution) of
code sets and modifications made to such code
sets under subsection (c)(2).
‘‘(4) ELECTRONIC SIGNATURE.—
408
Subtitle H, Part 4
‘‘(A) IN
GENERAL.—The Secretary, after
consultation with the Medicare Information Ad-
visory Committee, shall promulgate regulations
specifying procedures for the electronic trans-
mission and authentication of signatures, com-
pliance with which will be deemed to satisfy
Federal and State statutory requirements for
written signatures with respect to information
transactions required by this section and written
signatures on enrollment and disenrollment
forms.
‘‘(B) PAYMENTS FOR SERVICES AND PRE-
MIUMS.—Nothing in this section shall be con-
strued 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
BETWEEN
HEALTH PLANS.—The Secretary shall develop rules
and procedures—
‘‘(A) for determining the financial liability
of health plans when health care benefits are
payable under two or more health plans; and
‘‘(B) for transferring among health plans
appropriate standard data elements needed for
409
Subtitle H, Part 4
the coordination of benefits, the sequential proc-
essing of claims, and other data elements for in-
dividuals who have more than one health plan.
‘‘(6) COORDINATION
OF
BENEFITS.—If, at the
end of the 5-year period beginning on the date of the
enactment of this section, the Secretary determines
that additional transaction standards for coordinat-
ing benefits are necessary to reduce administrative
costs or duplicative (or inappropriate) payment of
claims, the Secretary shall establish further trans-
action standards for the coordination of benefits be-
tween health plans.
‘‘(7) PROTECTION OF TRADE SECRETS.—Except
as otherwise required by law, the standards adopted
under this section shall not require disclosure of trade
secrets or confidential commercial information by an
entity operating a medicare information network.
‘‘(c) TIMETABLES FOR ADOPTION OF STANDARDS.—
‘‘(1) INITIAL
STANDARDS.—Not later than 18
months after the date of the enactment of this section,
the Secretary shall adopt standards relating to the in-
formation transactions, data elements of medicare in-
formation and security described in subsections (a)
and (b).
410
Subtitle H, Part 4
‘‘(2) ADDITIONS AND MODIFICATIONS TO STAND-
ARDS.—
‘‘(A) IN GENERAL.—The Secretary shall re-
view the standards adopted under this section
and shall adopt additional or modified stand-
ards, that have been developed or modified by a
standard setting organization, as determined ap-
propriate, but not more frequently than once
every 12 months. Any addition or modification
to such standards shall be completed in a man-
ner which minimizes the disruption and cost of
compliance.
‘‘(B) ADDITIONS
AND
MODIFICATIONS
TO
CODE SETS.—
‘‘(i) IN GENERAL.—The Secretary shall
ensure that procedures exist for the routine
maintenance, testing, enhancement, and ex-
pansion of code sets.
‘‘(ii) ADDITIONAL
RULES.—If a code
set is modified under this paragraph, the
modified code set shall include instructions
on how data elements of medicare informa-
tion that were encoded prior to the modi-
fication may be converted or translated so
as to preserve the informational value of the
411
Subtitle H, Part 4
data elements that existed before the modi-
fication. Any modification to a code set
under this paragraph shall be implemented
in a manner that minimizes the disruption
and cost of complying with such modifica-
tion.
‘‘(d) REQUIREMENTS FOR HEALTH PLANS.—
‘‘(1) IN GENERAL.—If a person desires to con-
duct any of the information transactions described in
subsection (b)(1) with a health plan as a standard
transaction, the health plan shall conduct such stand-
ard transaction in a timely manner and the informa-
tion transmitted or received in connection with such
transaction shall be in the form of standard data ele-
ments of medicare information.
‘‘(2) 
SATISFACTION
OF
REQUIREMENTS.—A
health plan may satisfy the requirement imposed on
such plan under paragraph (1) by directly transmit-
ting standard data elements of medicare information
or submitting nonstandard data elements to a medi-
care information network service for processing into
standard data elements and transmission.
‘‘(3) TIMETABLES FOR COMPLIANCE WITH RE-
QUIREMENTS.—Not later than 24 months after the
date on which standards are adopted under sub-
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Subtitle H, Part 4
sections (a) and (b) with respect to any type of infor-
mation transaction or data element of medicare infor-
mation or with respect to security, a health plan shall
comply with the requirements of this section with re-
spect to such transaction or data element.
‘‘(4) 
COMPLIANCE
WITH
MODIFIED
STAND-
ARDS.—If the Secretary adopts a modified standard
under subsection (a) or (b), a health plan shall be re-
quired to comply with the modified standard at such
time as the Secretary determines appropriate taking
into account the time needed to comply due to the na-
ture and extent of the modification. However, the time
determined appropriate under the preceding sentence
shall be not earlier than the last day of the 180-day
period beginning on the date such modified standard
is adopted. The Secretary may extend the time for
compliance for small health plans, if the Secretary de-
termines such extension is appropriate.
‘‘(e) GENERAL PENALTY FOR FAILURE TO COMPLY
WITH REQUIREMENTS AND STANDARDS.—
‘‘(1) GENERAL PENALTY.—
‘‘(A) IN GENERAL.—Except as provided in
paragraph (2), the Secretary shall impose on
any person that violates a requirement or stand-
ard—
413
Subtitle H, Part 4
‘‘(i) with respect to medicare informa-
tion transactions, data elements of medicare
information, or security imposed under sub-
section (a) or (b); or
‘‘(ii) with respect to health plans im-
posed under subsection (d);
a penalty of not more than $100 for each such
violation of a specific standard or requirement,
but the total amount imposed for all such viola-
tions of a specific standard or requirement dur-
ing the calendar year shall not exceed $25,000.
‘‘(B) PROCEDURES.—The provisions of sec-
tion 1128A (other than subsections (a) and (b)
and the second sentence of subsection (f)) shall
apply to the imposition of a civil money penalty
under this paragraph in the same manner as
such provisions apply to the imposition of a pen-
alty under such section 1128A.
‘‘(C) DENIAL OF PAYMENT.—Except as pro-
vided in paragraph (2), the Secretary may deny
payment under this title for an item or service
furnished by a person if the person fails to com-
ply with an applicable requirement or standard
for medicare information relating to that item or
service.
414
Subtitle H, Part 4
‘‘(2) LIMITATIONS.—
‘‘(A) NONCOMPLIANCE NOT DISCOVERED.—
A penalty may not be imposed under paragraph
(1) if it is established to the satisfaction of the
Secretary that the person liable for the penalty
did not know, and by exercising reasonable dili-
gence would not have known, that such person
failed to comply with the requirement or stand-
ard described in paragraph (1).
‘‘(B) FAILURES
DUE
TO
REASONABLE
CAUSE.—
‘‘(i) IN GENERAL.—Except as provided
in clause (ii), a penalty may not be im-
posed under paragraph (1) if—
‘‘(I) the failure to comply was due
to reasonable cause and not to willful
neglect; and
‘‘(II) the failure to comply is cor-
rected during the 30-day period begin-
ning on the first date the person liable
for the penalty knew, or by exercising
reasonable diligence would have known,
that the failure to comply occurred.
‘‘(ii) EXTENSION OF PERIOD.—
415
Subtitle H, Part 4
‘‘(I) NO PENALTY.—The period re-
ferred to in clause (i)(II) may be ex-
tended as determined appropriate by
the Secretary based on the nature and
extent of the failure to comply.
‘‘(II) ASSISTANCE.—If the Sec-
retary determines that a health plan
failed to comply because such plan was
unable to comply, the Secretary may
provide technical assistance to such
plan during the period described in
clause (i)(II). Such assistance shall be
provided in any manner determined
appropriate by the Secretary.
‘‘(C) REDUCTION.—In the case of a failure
to comply which is due to reasonable cause and
not to willful neglect, any penalty under para-
graph (1) that is not entirely waived under sub-
paragraph (B) may be waived to the extent that
the payment of such penalty would be excessive
relative to the compliance failure involved.
‘‘(f) EFFECT ON STATE LAW.—
‘‘(1) GENERAL EFFECT.—
‘‘(A) GENERAL RULE.—Except as provided
in subparagraph (B), a provision, requirement,
416
Subtitle H, Part 4
or standard under this section shall supersede
any contrary provision of State law, including a
provision of State law that requires medical or
health plan records (including billing informa-
tion) to be maintained or transmitted in written
rather than electronic form.
‘‘(B) EXCEPTIONS.—A provision, require-
ment, or standard under this section shall not
supersede a contrary provision of State law if
the Secretary determines that the provision of
State law should be continued for any reason,
including for reasons relating to prevention of
fraud and abuse or regulation of controlled sub-
stances.
‘‘(2) PUBLIC HEALTH REPORTING.—Nothing in
this section shall be construed to invalidate or limit
the authority, power, or procedures established under
any law providing for the reporting of disease or in-
jury, child abuse, birth, or death, public health sur-
veillance, or public health investigation or interven-
tion.
‘‘(g) MEDICARE INFORMATION ADVISORY COMMIT-
TEE.—
‘‘(1) ESTABLISHMENT.—There is established a
committee to be known as the Medicare Information
417
Subtitle H, Part 4
Advisory Committee (in this subsection referred to as
the ‘committee’).
‘‘(2) DUTIES.—The committee shall—
‘‘(A) advise the Secretary in the develop-
ment of standards under this section; and
‘‘(B) be generally responsible for advising
the Secretary and the Congress on the status and
the future of the medicare information network.
‘‘(3) MEMBERSHIP.—
‘‘(A) IN
GENERAL.—The committee shall
consist of 9 members of whom—
‘‘(i) 3 shall be appointed by the Presi-
dent;
‘‘(ii) 3 shall be appointed by the
Speaker of the House of Representatives
after consultation with the minority leader
of the House of Representatives; and
‘‘(iii) 3 shall be appointed by the
President pro tempore of the Senate after
consultation with the minority leader of the
Senate.
The appointments of the members shall be made
not later than 60 days after the date of the en-
actment of this section. The President shall des-
ignate 1 member as the Chair.
418
Subtitle H, Part 4
‘‘(B) EXPERTISE.—The membership of the
committee shall consist of individuals who are of
recognized standing and distinction in the areas
of information systems, information networking
and integration, consumer health, or health care
financial management, and who possess the dem-
onstrated capacity to discharge the duties im-
posed on the committee.
‘‘(C) TERMS.—Each member of the commit-
tee shall be appointed for a term of 5 years, ex-
cept that the members first appointed shall serve
staggered terms such that the terms of not more
than 3 members expire at one time.
‘‘(D) INITIAL MEETING.—Not later than 30
days after the date on which a majority of the
members have been appointed, the committee
shall hold its first meeting.
‘‘(4) REPORTS.—Not later than 1 year after the
date of the enactment of this section, and annually
thereafter, the committee shall submit to Congress and
the Secretary a report regarding—
‘‘(A) the extent to which entities using the
medicare information network are meeting the
standards adopted under this section and work-
419
Subtitle H, Part 4
ing together to form an integrated network that
meets the needs of its users;
‘‘(B) the extent to which such entities are
meeting the security standards established pursu-
ant to this section and the types of penalties as-
sessed for noncompliance with such standards;
‘‘(C) any problems that exist with respect to
implementation of the medicare information net-
work; and
‘‘(D) the extent to which timetables under
this section are being met.
Reports made under this subsection shall be made
available to health care providers, health plans, and
other entities that use the medicare information net-
work to exchange medicare information.
‘‘(h) DEFINITIONS.—For purposes of this section:
‘‘(1) CODE SET.—The term ‘code set’ means any
set of codes used for encoding data elements, such as
tables of terms, enrollment information, and encoun-
ter data.
‘‘(2) COORDINATION
OF
BENEFITS.—The term
‘coordination of benefits’ means determining and co-
ordinating the financial obligations of health plans
when health care benefits are payable under such a
420
Subtitle H, Part 4
plan and under this title (including under a
MedicarePlus product).
‘‘(3) MEDICARE INFORMATION.—The term ‘medi-
care information’ means any information that relates
to the enrollment of individuals under this title (in-
cluding 
information 
relating 
to 
elections 
of
MedicarePlus products under section 1805) and the
provision of health benefits (including benefits pro-
vided under such products) under this title.
‘‘(4) MEDICARE
INFORMATION
NETWORK.—The
term ‘medicare information network’ means the medi-
care information system that is formed through the
application of the requirements and standards estab-
lished under this section.
‘‘(5) MEDICARE INFORMATION NETWORK SERV-
ICE.—The term ‘medicare information network serv-
ice’ means a public or private entity that—
‘‘(A) processes or facilitates the processing
of nonstandard data elements of medicare infor-
mation into standard data elements;
‘‘(B) provides the means by which persons
may meet the requirements of this section; or
‘‘(C) provides specific information process-
ing services.
421
Subtitle H, Part 4
‘‘(6) HEALTH
PLAN.—The term ‘health plan’
means a plan which provides, or pays the cost of,
health benefits. Such term includes the following, or
any combination thereof:
‘‘(A) Part A or part B of this title, and in-
cludes a MedicarePlus product.
‘‘(B) The medicaid program under title XIX
and the MediGrant program under title XXI.
‘‘(C) A medicare supplemental policy (as
defined in section 1882(g)(1)).
‘‘(D) Worker’s compensation or similar in-
surance.
‘‘(E) Automobile or automobile medical-
payment insurance.
‘‘(F) A long-term care policy, other than a
fixed indemnity policy.
‘‘(G) The Federal Employees Health Benefit
Plan under chapter 89 of title 5, United States
Code.
‘‘(H) An employee welfare benefit plan, as
defined in section 3(1) of the Employee Retire-
ment Income Security Act of 1974 (29 U.S.C.
1002(1)), but only to the extent the plan is estab-
lished or maintained for the purpose of provid-
ing health benefits.
422
Subtitle H, Part 4
‘‘(7) INDIVIDUALLY IDENTIFIABLE MEDICARE IN-
FORMATION.—The term ‘individually identifiable
medicare information’ means medicare enrollment in-
formation, including demographic information col-
lected from an individual, that—
‘‘(A) is created or received by a health care
provider, health plan, employer, or medicare in-
formation network service, and
‘‘(B) identifies an individual.
‘‘(8) STANDARD
SETTING
ORGANIZATION.—The
term ‘standard setting organization’ means a stand-
ard setting organization accredited by the American
National Standards Institute.
‘‘(9) 
STANDARD
TRANSACTION.—The 
term
‘standard transaction’ means, when referring to an
information transaction or to data elements of medi-
care information, any transaction that meets the re-
quirements and implementation specifications adopt-
ed by the Secretary under subsections (a) and (b).’’.
423
Subtitle H, Part 5
PART 5—OTHER PROVISIONS RELATING TO
PARTS A AND B
SEC. 15741. CLARIFICATION OF MEDICARE COVERAGE OF
ITEMS AND SERVICES ASSOCIATED WITH CER-
TAIN MEDICAL DEVICES APPROVED FOR IN-
VESTIGATIONAL USE.
(a) COVERAGE.—Nothing in title XVIII of the Social
Security Act may be construed to prohibit coverage under
part A or part B of the medicare program of items and
services associated with the use of a medical device in the
furnishing of inpatient or outpatient hospital services (in-
cluding outpatient diagnostic imaging services) for which
payment may be made under the program solely on the
grounds that the device is not an approved device, if—
(1) the device is an investigational device; and
(2) the device is used instead of either an ap-
proved device or a covered procedure.
(b) CLARIFICATION OF PAYMENT AMOUNT.—Notwith-
standing any other provision of title XVIII of the Social
Security Act, the amount of payment made under the medi-
care program for any item or service associated with the
use of an investigational device in the furnishing of inpa-
tient or outpatient hospital services (including outpatient
diagnostic imaging services) for which payment may be
made under the program may not exceed the amount of the
payment which would have been made under the program
424
Subtitle H, Part 5
for the item or service if the item or service were associated
with the use of an approved device or a covered procedure.
(c) DEFINITIONS.—In this section—
(1) the term ‘‘approved device’’ means a medical
device (or devices) which has been approved for mar-
keting under pre-market approval under the Federal
Food, Drug, and Cosmetic Act or cleared for market-
ing under a 510(k) notice under such Act; and
(2) the term ‘‘investigational device’’ means—
(A) a medical device or devices (other than
a device described in paragraph (1)) approved
for investigational use under section 520(g) of
the Federal Food, Drug, and Cosmetic Act, or
(B) a product authorized for use under sec-
tion 505(i) of the Federal Food, Drug, and Cos-
metic Act which includes the use of a medical de-
vice (or devices) or an investigational combina-
tion product under section 503(g) of such Act
which includes a device (or devices) authorized
for use under section 505(i) of such Act.
SEC. 15742. ADDITIONAL EXCLUSION FROM COVERAGE.
(a) IN
GENERAL.—Section 1862(a) (42 U.S.C.
1395y(a)), as amended by section 15525(a)(2) and section
15701(c)(2)(C), is amended—
425
Subtitle I
(1) by striking ‘‘or’’ at the end of paragraph
(16),
(2) by striking the period at the end of para-
graph (17) and inserting ‘‘; or’’, and
(3) by inserting after paragraph (17) the follow-
ing new paragraph:
‘‘(18) where such expenses are for items or serv-
ices, or to assist in the purchase, in whole or in part,
of health benefit coverage that includes items or serv-
ices, for the purpose of causing, or assisting in caus-
ing, the death, suicide, euthanasia, or mercy killing
of a person.’’.
(b) EFFECTIVE DATE.—The amendments made by sub-
section (a) shall apply to payment for items and services
furnished on or after the date of the enactment of this Act.
Subtitle I—Clinical Laboratories
SEC. 15801. EXEMPTION OF PHYSICIAN OFFICE LABORA-
TORIES.
Section 353(d) of the Public Health Service Act (42
U.S.C. 263a(d)) is amended—
(1) by redesignating paragraphs (2), (3), and (4)
as paragraphs (3), (4), and (5) and by adding after
paragraph (1) the following:
‘‘(2) EXEMPTION OF PHYSICIAN OFFICE LABORA-
TORIES.—
426
Subtitle J
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), a clinical laboratory in a
physician’s office (including an office of a group
of physicians) which is directed by a physician
and in which examinations and procedures are
either performed by a physician or by individ-
uals supervised by a physician solely as an ad-
junct to other services provided by the physi-
cian’s office is exempt from this section.
‘‘(B) EXCEPTION.—A clinical laboratory de-
scribed in subparagraph (A) is not exempt from
this section when it performs a pap smear (Pa-
panicolaou Smear) analysis.
‘‘(C) DEFINITION.—For purposes of sub-
paragraph (A), the term ‘physician’ has the
same meaning as is prescribed for such term by
section 1861(r) of the Social Security Act (42
U.S.C. 1395x(r)).’’;
(2) in paragraph (3) (as so redesignated) by
striking ‘‘(3)’’ and inserting ‘‘(4)’’; and
(3) in paragraphs (4) and (5) (as so redesig-
nated) by striking ‘‘(2)’’ and inserting ‘‘(3)’’.
427
Subtitle J
Subtitle J—Lock-Box Provisions for
Medicare Part B Savings from
Growth Reductions
SEC. 15901. ESTABLISHMENT OF MEDICARE GROWTH RE-
DUCTION TRUST FUND FOR PART B SAVINGS.
Part B of title XVIII is amended by inserting after
section 1841 the following new section:
‘‘MEDICARE GROWTH REDUCTION TRUST FUND
‘‘SEC. 1841A. (a)(1) There is hereby created on the
books of the Treasury of the United States a trust fund to
be known as the ‘Federal Medicare Growth Reduction Trust
Fund’ (in this section referred to as the ‘Trust Fund’). The
Trust Fund shall consist of such gifts and bequests as may
be made as provided in section 201(i)(1) and amounts ap-
propriated under paragraph (2).
‘‘(2) There are hereby appropriated to the Trust Fund
amounts equivalent to 100 percent of the Secretary’s esti-
mate of the reductions in expenditures under this part that
are attributable to the Medicare Preservation Act of 1995.
The amounts appropriated by the preceding sentence shall
be transferred from time to time (not less frequently than
monthly) from the general fund in the Treasury to the Trust
Fund.
‘‘(3)(A) Subject to subparagraph (B), with respect to
monies transferred to the Trust Fund, no transfers, author-
428
Subtitle J
izations of appropriations, or appropriations are per-
mitted.
‘‘(B) Beginning with fiscal year 2003, the Secretary
may expend funds in the Trust Fund to carry out this title,
but only to the extent provided by Congress in advance
through a specific amendment to this section.
‘‘(b) The provisions of subsections (b) through (e) of
section 1841 shall apply to the Trust Fund in the same
manner as they apply to the Federal Supplementary Medi-
cal Insurance Trust Fund, except that the Board of Trustees
and Managing Trustee of the Trust Fund shall be composed
of the members of the Board of Trustees and the Managing
Trustee, respectively, of the Federal Supplementary Medical
Insurance Trust Fund.’’.
SECTION 1. PURPOSE.
The purpose of this Act is to reform the
medicare program, in order to preserve and
protect the financial stability of the program.
TITLE XV—MEDICARE
SEC. 15000. SHORT TITLE OF TITLE; AMENDMENTS AND
REFERENCES TO OBRA; TABLE OF CONTENTS
OF TITLE.
(a) SHORT TITLE.—This title may be cited
as the ‘‘Medicare Preservation Act of 1995’’.
429
Subtitle J
(b) 
AMENDMENTS
TO
SOCIAL
SECURITY
ACT.—Except as otherwise specifically pro-
vided, whenever in this title an amendment is
expressed in terms of an amendment to or re-
peal of a section or other provision, the ref-
erence shall be considered to be made to that
section or other provision of the Social Secu-
rity Act.
(c) REFERENCES TO OBRA.—In this title,
the 
terms 
‘‘OBRA–1986’’, 
‘‘OBRA–1987’’,
‘‘OBRA–1989’’, 
‘‘OBRA–1990’’, 
and 
‘‘OBRA–
1993’’ refer to the Omnibus Budget Reconcili-
ation Act of 1986 (Public Law 99–509), the Om-
nibus Budget Reconciliation Act of 1987 (Pub-
lic Law 100–203), the Omnibus Budget Rec-
onciliation Act of 1989 (Public Law 101–239),
the Omnibus Budget Reconciliation Act of
1990 (Public Law 101–508), and the Omnibus
Budget Reconciliation Act of 1993 (Public Law
103–66), respectively.
(d) TABLE
OF CONTENTS
OF TITLE.—The
table of contents of this title is as follows:
Sec. 15000. Short title of title; amendments and references to
OBRA; table of contents of title.
Subtitle A—MedicarePlus Program
PART 1—INCREASING CHOICE UNDER THE MEDICARE PROGRAM
Sec. 15001. Increasing choice under medicare.
430
Subtitle J
Sec. 15002. MedicarePlus program.
‘‘PART C—PROVISIONS RELATING TO MEDICAREPLUS
‘‘Sec. 1851. Requirements for MedicarePlus organizations;
high deductible/medisave products.
‘‘Sec. 1852. Requirements relating to benefits, provision of
services, enrollment, and premiums.
‘‘Sec. 1853. Patient protection standards.
‘‘Sec. 1854. Provider-sponsored organizations.
‘‘Sec. 1855. Payments to MedicarePlus organizations.
‘‘Sec. 1856. Establishment of standards for MedicarePlus
organizations and products.
‘‘Sec. 1857. MedicarePlus certification.
‘‘Sec. 1858. Contracts with MedicarePlus organizations.
Sec. 15003. Duplication and coordination of medicare-related
products.
Sec. 15004. Transitional rules for current medicare HMO pro-
gram.
PART 2—SPECIAL RULES FOR MEDICAREPLUS MEDICAL SAVINGS
ACCOUNTS
Sec. 15011. MedicarePlus MSA’s.
Sec. 15012. Certain rebates excluded from gross income.
PART 3—SPECIAL ANTITRUST RULE FOR PROVIDER SERVICE
NETWORKS
Sec. 15021. Application of antitrust rule of reason to provider
service networks.
PART 4—COMMISSIONS
Sec. 15031. Medicare Payment Review Commission.
Sec. 15032. Commission on the Effect of the Baby Boom Gen-
eration on the Medicare Program.
Sec. 15033. Change in appointment of Administrator of HCFA.
Subtitle B—Preventing Fraud and Abuse
Sec. 15101. Increasing awareness of fraud and abuse.
Sec. 15102. Beneficiary incentive programs.
Sec. 15103. Intermediate sanctions for medicare health mainte-
nance organizations.
Sec. 15104. Voluntary disclosure program.
Sec. 15105. Revisions to current sanctions.
Sec. 15106. Consolidated funding for anti-fraud and abuse ac-
tivities under Medicare Integrity Program.
Sec. 15107. Permitting carriers to carry out prior authoriza-
tion for certain items of durable medical equip-
ment.
Sec. 15108. Establishment of Health Care Anti-Fraud Task
Force.
Sec. 15109. National Health Care Anti-Fraud Task Force.
Sec. 15110. Study of adequacy of private quality assurance pro-
grams.
431
Subtitle J
Sec. 15111. Penalty for false certification for home health serv-
ices.
Sec. 15112. Ineligibility for part B benefits of individuals con-
victed of medicare fraud.
Sec. 15113. Pilot projects.
Subtitle C—Regulatory Relief
PART 1—PHYSICIAN OWNERSHIP REFERRAL REFORM
Sec. 15201. Repeal of prohibitions based on compensation ar-
rangements.
Sec. 15202. Revision of designated health services subject to
prohibition.
Sec. 15203. Delay in implementation until promulgation of reg-
ulations.
Sec. 15204. Exceptions to prohibition.
Sec. 15205. Repeal of reporting requirements.
Sec. 15206. Preemption of State law.
Sec. 15207. Effective date.
PART 2—OTHER MEDICARE REGULATORY RELIEF
Sec. 15211. Repeal of Medicare and Medicaid Coverage Data
Bank.
Sec. 15212. Clarification of level of intent required for imposi-
tion of sanctions.
Sec. 15213. Additional exception to anti-kickback penalties for
managed care arrangements.
Sec. 15214. Solicitation and publication of modifications to ex-
isting safe harbors and new safe harbors.
Sec. 15215. Issuance of advisory opinions under title XI.
Sec. 15216. Prior notice of changes in billing and claims proc-
essing requirements for physicians’ services.
PART 3—PROMOTING PHYSICIAN SELF-POLICING
Sec. 15221. Exemption from antitrust laws for certain activities
of medical self-regulatory entities.
Subtitle D—Medical Liability Reform
PART 1—GENERAL PROVISIONS
Sec. 15301. Federal reform of health care liability actions.
Sec. 15302. Definitions.
Sec. 15303. Effective date.
PART 2—UNIFORM STANDARDS FOR HEALTH CARE LIABILITY
ACTIONS
Sec. 15311. Statute of limitations.
Sec. 15312. Calculation and payment of damages.
Sec. 15313. Alternative dispute resolution.
Subtitle E—Teaching Hospitals and Graduate Medical
Education
432
Subtitle J
PART 1—TEACHING HOSPITAL AND GRADUATE MEDICAL
EDUCATION TRUST FUND
Sec. 15401. Establishment of Fund; payments to teaching hos-
pitals.
‘‘TITLE XXII—TEACHING HOSPITAL AND GRADUATE
MEDICAL EDUCATION TRUST FUND
‘‘PART A—ESTABLISHMENT OF FUND
‘‘Sec. 2201. Establishment of Fund.
‘‘PART B—PAYMENTS TO TEACHING HOSPITALS
‘‘Subpart 1—Requirement of Payments
‘‘Sec. 2211. Formula payments to teaching hospitals.
‘‘Subpart 2—Amount Relating to Indirect Costs of Graduate
Medical Education
‘‘Sec. 2221. Determination of amount relating to indirect
costs.
‘‘Sec. 2222. Indirect costs; special rules regarding deter-
mination of hospital-specific percentage.
‘‘Sec. 2223. Indirect costs; alternative payments regarding
teaching hospitals in certain States.
‘‘Subpart 3—Amount Relating to Direct Costs of Graduate
Medical Education
‘‘Sec. 2231. Determination of amount relating to direct
costs.
‘‘Sec. 2232. Direct costs; special rules regarding determina-
tion of hospital-specific percentage.
‘‘Sec. 2233. Direct costs; authority for payments to consor-
tia of providers.
‘‘Sec. 2234. Direct costs; alternative payments regarding
teaching hospitals in certain States.
‘‘Subpart 4—General Provisions
‘‘Sec. 2241. Adjustments in payment amounts.
PART 2—AMENDMENTS TO MEDICARE PROGRAM
Sec. 15411. Transfers to Teaching Hospital and Graduate Medi-
cal Education Trust Fund.
Sec. 15412. Modification in payment policies regarding grad-
uate medical education.
PART 3—REFORM OF FEDERAL POLICIES REGARDING TEACHING
HOSPITALS AND GRADUATE MEDICAL EDUCATION
Sec. 15421. Establishment of advisory panel for recommending
policies.
‘‘PART C—OTHER MATTERS
433
Subtitle J
‘‘Sec. 2251. Advisory Panel on Reform in Financing of
Teaching Hospitals and Graduate Medical
Education.
Subtitle F—Provisions Relating to Medicare Part A
PART 1—HOSPITALS
SUBPART A—GENERAL PROVISIONS RELATING TO HOSPITALS
Sec. 15501. Reductions in inflation updates for PPS hospitals.
Sec. 15502. Reductions in disproportionate share payment ad-
justments.
Sec. 15503. Payments for capital-related costs for inpatient
hospital services.
Sec. 15504. Reduction in adjustment for indirect medical edu-
cation.
Sec. 15505. Treatment of PPS-exempt hospitals.
Sec. 15506. Reduction in payments to hospitals for enrollees’
bad debts.
Sec. 15507. Permanent extension of hemophilia pass-through.
Sec. 15508. Conforming amendment to certification of Chris-
tian Science providers.
SUBPART B—PROVISIONS RELATING TO RURAL HOSPITALS
Sec. 15511. Sole community hospitals.
Sec. 15512. Clarification of treatment of EAC and RPC hos-
pitals.
Sec. 15513. Rural emergency access care hospitals.
Sec. 15514. Classification of rural referral centers.
Sec. 15515. Floor on area wage index.
PART 2—PAYMENTS TO SKILLED NURSING FACILITIES
Sec. 15521. Payments for routine service costs.
Sec. 15522. Incentives for cost effective management of cov-
ered non-routine services.
Sec. 15523. Payments for routine service costs.
Sec. 15524. Reductions in payment for capital-related costs.
Sec. 15525. Treatment of items and services paid for under
part B.
Sec. 15526. Certification of facilities meeting revised nursing
home reform standards.
Sec. 15527. Medical review process.
Sec. 15528. Report by Medicare Payment Review Commission.
Sec. 15529. Effective date.
Subtitle G—Provisions Relating to Medicare Part B
PART 1—PAYMENT REFORMS
Sec. 15601. Payments for physicians’ services.
Sec. 15602. Elimination of formula-driven overpayments for
certain outpatient hospital services.
Sec. 15603. Reduction in updates to payment amounts for du-
rable medical equipment.
439
Subtitle A, Part 1
UCTS.—An individual is not eligible to
elect a MedicarePlus product offered
by a MedicarePlus organization that
is a Taft-Hartley sponsor if the indi-
vidual 
previously 
had 
elected 
a
MedicarePlus product offered by the
organization and had subsequently
discontinued to elect such a product
offered by the organization.
‘‘(3) SPECIAL RULE FOR CERTAIN ANNU-
ITANTS.—An individual is not eligible to
elect a high deductible/medisave product
if the individual is entitled to benefits
under chapter 89 of title 5, United States
Code, as an annuitant or spouse of an an-
nuitant.
‘‘(c) PROCESS FOR EXERCISING CHOICE.—
‘‘(1) IN GENERAL.—The Secretary shall
establish a process through which elec-
tions described in subsection (a) are
made and changed, including the form
and manner in which such elections are
made and changed. Such elections shall
be made or changed only during coverage
election periods specified under sub-
497
Subtitle A, Part 1
RESULT
OF
REQUIRED
SCREENING
EVALUA-
TION.—
‘‘(A) 
ACCESS
TO
PROCESS.—A
MedicarePlus organization shall pro-
vide access 24 hours a day, 7 days a
week to such persons as may be au-
thorized to make any prior authoriza-
tions required by the organization for
coverage of items and services (other
than emergency services) that a treat-
ing physician or other emergency de-
partment personnel identify, pursu-
ant to a screening evaluation re-
quired under section 1867, as being
needed promptly by an individual en-
rolled with the organization under
this part.
‘‘(B) 
DEEMED
APPROVAL.—A
MedicarePlus organization is deemed
to have approved a request for such
promptly needed items and services if
the physician or other emergency de-
partment personnel involved—
‘‘(i) has made a reasonable ef-
fort to contact such a person for
832
Subtitle G, Part 1
or changes in expenditures result-
ing from changes in the update to
the conversion factor under sub-
section (d),
minus 1 and multiplied by 100.
‘‘(B) SUBSEQUENT
FISCAL
YEARS.—
The sustainable growth rate for all
physicians’ services for fiscal year
1997 and each subsequent fiscal year
shall be equal to the product of—
‘‘(i) 1 plus the Secretary’s esti-
mate of the percentage change in
the medicare economic index for
the 
fiscal 
year 
involved 
(de-
scribed in the fourth sentence of
section 1842(b)(3)) (divided by
100),
‘‘(ii) 1 plus the Secretary’s es-
timate of the percentage change
(divided by 100) in the average
number of individuals enrolled
under this part (other than pri-
vate plan enrollees) from the pre-
vious fiscal year to the fiscal year
involved,