1001
ciples which apply to professionals providing
services in such a facility.
‘‘(B) OTHER.—A nursing facility must
meet such other requirements relating to the
health and safety of residents or relating to the
physical facilities thereof as the Secretary may
find necessary.
‘‘(e) STATE REQUIREMENTS RELATING TO NURSING
FACILITY REQUIREMENTS.—A State with a State plan
under this title shall provide for the following:
‘‘(1) SPECIFICATION
AND
REVIEW
OF
NURSE
AIDE
TRAINING
AND
COMPETENCY
EVALUATION
PROGRAMS AND OF NURSE AIDE COMPETENCY EVAL-
UATION PROGRAMS.—The State must—
‘‘(A) specify those training and competency
evaluation programs, and those competency
evaluation programs, that the State approves
for purposes of subsection (b)(5) and that meet
the requirements established under subsection
(f)(2), and
‘‘(B) provide for the review and reapproval
of such programs, at a frequency and using a
methodology consistent with the requirements
established under subsection (f)(2)(A)(iii).
‘‘(2) NURSE AIDE REGISTRY.—
1002
‘‘(A) IN GENERAL.—The State shall estab-
lish and maintain a registry of all individuals
who have satisfactorily completed a nurse aide
training and competency evaluation program, or
a nurse aide competency evaluation program,
approved under paragraph (1) in the State, or
any 
individual 
described 
in 
subsection
(f)(2)(B)(ii) or in subparagraph (B), (C), or
(D) of section 6901(b)(4) of the Omnibus
Budget Reconciliation Act of 1989.
‘‘(B) INFORMATION
IN
REGISTRY.—The
registry under subparagraph (A) shall provide
(in accordance with regulations of the Sec-
retary) for the inclusion of specific documented
findings by a State under subsection (g)(1)(C)
of resident neglect or abuse or misappropriation
of resident property involving an individual list-
ed in the registry, as well as any brief state-
ment of the individual disputing the findings.
The State shall make available to the public in-
formation in the registry. In the case of inquir-
ies to the registry concerning an individual list-
ed in the registry, any information disclosed
concerning such a finding shall also include dis-
closure of any such statement in the registry re-
1003
lating to the finding or a clear and accurate
summary of such a statement.
‘‘(C) PROHIBITION AGAINST CHARGES.—A
State may not impose any charges on a nurse
aide relating to the registry established and
maintained under subparagraph (A).
‘‘(3) STATE APPEALS PROCESS FOR TRANSFERS
AND DISCHARGES.—The State must provide for a
fair mechanism, meeting the guidelines established
under subsection (f)(3), for hearing appeals on
transfers and discharges of residents of such facili-
ties.
‘‘(4) 
NURSING
FACILITY
ADMINISTRATOR
STANDARDS.—The State must implement and en-
force the nursing facility administrator standards
developed under subsection (f)(4) respecting the
qualification of administrators of nursing facilities.
Any such standards promulgated shall apply to ad-
ministrators of hospital-based facilities as well as ad-
ministrators of freestanding facilities.
‘‘(5) SPECIFICATION OF RESIDENT ASSESSMENT
INSTRUMENT.—The State shall specify the instru-
ment to be used by nursing facilities in the State in
complying with the requirement of subsection
(b)(3)(A)(iii). Such instrument shall be—
1004
(A) one of the instruments designated
under subsection (f)(6)(B), or
(B) an instrument which the Secretary has
approved as being consistent with the minimum
data set of core elements, common definitions,
and utilization guidelines specified by the Sec-
retary under subsection (f)(6)(A).
‘‘(6) NOTICE OF RIGHTS.—Each State shall de-
velop (and periodically update) a written notice of
the rights and obligations of residents of nursing fa-
cilities (and spouses of such residents) under this
title.
‘‘(7) 
STATE
REQUIREMENTS
FOR
PREADMISSION
SCREENING
AND
RESIDENT
RE-
VIEW.—
‘‘(A) PREADMISSION SCREENING.—
‘‘(i) IN
GENERAL.—The State must
have in effect a preadmission screening
program, for identifying mentally ill and
mentally retarded individuals (as defined
in subparagraph (B)) who are admitted to
nursing facilities and for determining
whether they require the level of services of
such a facility.
1005
‘‘(ii) STATE REQUIREMENT FOR RESI-
DENT REVIEW.—The State shall notify the
State mental health authority or the State
mental retardation or developmental dis-
ability authority, as appropriate, of the in-
dividuals so identified.
‘‘(B) DEFINITIONS.—In this paragraph:
‘‘(i) An individual is considered to be
‘mentally ill’ if the individual has a serious
mental illness (as defined by the Secretary
in consultation with the National Institute
of Mental Health) and does not have a pri-
mary diagnosis of dementia (including Alz-
heimer’s disease or a related disorder) or a
diagnosis (other than a primary diagnosis)
of dementia and a primary diagnosis that
is not a serious mental illness.
‘‘(ii) An individual is considered to be
‘mentally retarded’ if the individual is
mentally retarded or a person with a relat-
ed condition.
‘‘(f) RESPONSIBILITIES RELATING TO NURSING FA-
CILITY REQUIREMENTS.—
‘‘(1) GENERAL RESPONSIBILITY.—It is the duty
and responsibility of the Secretary to assure that re-
1006
quirements which govern the provision of care in
nursing facilities under State plans approved under
this title, and the enforcement of such requirements,
are adequate to protect the health, safety, welfare,
and rights of residents and to promote the effective
and efficient use of public moneys.
‘‘(2) REQUIREMENTS FOR NURSE AIDE TRAIN-
ING AND COMPETENCY EVALUATION PROGRAMS AND
FOR NURSE AIDE COMPETENCY EVALUATION PRO-
GRAMS.—
‘‘(A) IN GENERAL.—For purposes of sub-
sections (b)(5) and (e)(1)(A), the Secretary
shall establish—
‘‘(i) requirements for the approval of
nurse aide training and competency evalua-
tion programs, including requirements re-
lating to (I) the areas to be covered in
such a program (including at least basic
nursing skills, personal care skills, recogni-
tion of mental health and social service
needs, care of cognitively impaired resi-
dents, basic restorative services, and resi-
dents’ rights) and content of the curricu-
lum, (II) minimum hours of initial and on-
going training and retraining (including
1007
not less than 75 hours in the case of initial
training), (III) qualifications of instruc-
tors, and (IV) procedures for determina-
tion of competency;
‘‘(ii) requirements for the approval of
nurse aide competency evaluation pro-
grams, including requirement relating to
the areas to be covered in such a program,
including at least basic nursing skills, per-
sonal care skills, recognition of mental
health and social service needs, care of
cognitively impaired residents, basic restor-
ative services, and residents’ rights, and
procedures for determination of com-
petency;
‘‘(iii) requirements respecting the
minimum frequency and methodology to be
used by a State in reviewing such pro-
grams’ compliance with the requirements
for such programs; and
‘‘(iv) requirements, under both such
programs, that—
‘‘(I) provide procedures for deter-
mining competency that permit a
nurse aide, at the nurse aide’s option,
1008
to establish competency through pro-
cedures or methods other than the
passing of a written examination and
to have the competency evaluation
conducted at the nursing facility at
which the aide is (or will be) employed
(unless the facility is described in sub-
paragraph (B)(iii)(I)),
‘‘(II) prohibit the imposition on a
nurse aide who is employed by (or
who has received an offer of employ-
ment from) a facility on the date on
which the aide begins either such pro-
gram of any charges (including any
charges for textbooks and other re-
quired course materials and any
charges for the competency evalua-
tion) for either such program, and
‘‘(III) in the case of a nurse aide
not described in subclause (II) who is
employed by (or who has received an
offer of employment from) a facility
not later than 12 months after com-
pleting either such program, the State
shall provide for the reimbursement of
1009
costs incurred in completing such pro-
gram on a prorata basis during the
period in which the nurse aide is so
employed.
‘‘(B) APPROVAL OF CERTAIN PROGRAMS.—
Such requirements—
‘‘(i) may permit approval of programs
offered by or in facilities, as well as outside
facilities (including employee organiza-
tions);
‘‘(ii) shall permit a State to find that
an individual who has completed (before
July 1, 1989) a nurse aide training and
competency evaluation program shall be
deemed to have completed such a program
approved under subsection (b)(5) if the
State determines that, at the time the pro-
gram was offered, the program met the re-
quirements for approval under such para-
graph; and
‘‘(iii) shall prohibit approval of such a
program—
‘‘(I) offered by or in a nursing
facility which, within the previous 2
years—
1010
‘‘(a) has operated under a
waiver 
under 
subsection
(b)(4)(C)(ii) that was granted on
the basis of a demonstration that
the facility is unable to provide
the nursing care required under
subsection (b)(4)(C)(i) for a pe-
riod in excess of 48 hours during
a week;
‘‘(b) has been subject to an
extended (or partial extended)
survey 
under 
section
1819(g)(2)(B)(i) or subsection
(g)(2)(B)(i); or
‘‘(c) has been assessed a
civil money penalty described in
section 1819(h)(2)(B)(ii) or sub-
section (h)(2)(A)(ii) of not less
than $5,000, or has been subject
to a remedy described in sub-
section (h)(1)(B)(i), clauses (i),
(iii), 
or 
(iv) 
of 
subsection
(h)(2)(A), clauses (i) or (iii) of
section 1819(h)(2)(B), or section
1819(h)(4), or
1011
‘‘(II) offered by or in a nursing
facility unless the State makes the de-
termination, upon an individual’s com-
pletion of the program, that the indi-
vidual is competent to provide nursing
and nursing-related services in nurs-
ing facilities.
A State may not delegate (through sub-
contract or otherwise) its responsibility
under clause (iii)(II) to the nursing facil-
ity.
‘‘(3) FEDERAL
GUIDELINES
FOR
STATE
AP-
PEALS
PROCESS
FOR
TRANSFERS
AND
DIS-
CHARGES.—For 
purposes 
of 
subsections
(c)(2)(B)(iii) and (e)(3), the Secretary shall estab-
lish guidelines for minimum standards which State
appeals processes under subsection (e)(3) must meet
to provide a fair mechanism for hearing appeals on
transfers and discharges of residents from nursing
facilities.
‘‘(4) QUALIFICATION
OF
ADMINISTRATORS.—
For purposes of subsections (d)(1)(C) and (e)(4),
the Secretary shall develop standards to be applied
in assuring the qualifications of administrators of
nursing facilities. Any such standards must apply to
1012
administrators of hospital-based facilities as well as
administrators of freestanding facilities.
‘‘(5) CRITERIA
FOR
ADMINISTRATION.—The
Secretary shall establish criteria for assessing a
nursing facility’s compliance with the requirement of
subsection (d)(1) with respect to—
‘‘(A) its governing body and management,
‘‘(B) agreements with hospitals regarding
transfers of residents to and from the hospitals
and to and from other nursing facilities,
‘‘(C) disaster preparedness,
‘‘(D) direction of medical care by a physi-
cian,
‘‘(E) laboratory and radiological services,
‘‘(F) clinical records, and
‘‘(G) resident and advocate participation.
‘‘(6) SPECIFICATION OF RESIDENT ASSESSMENT
DATA
SET
AND
INSTRUMENTS.—The Secretary
shall—
‘‘(A) specify a minimum data set of core
elements and common definitions for use by
nursing facilities in conducting the assessments
required under subsection (b)(3), and establish
guidelines for utilization of the data set; and
1013
‘‘(B) designate one or more instruments
which are consistent with the specification made
under subparagraph (A) and which a State may
specify under subsection (e)(5)(A) for use by
nursing facilities in complying with the require-
ments of subsection (b)(3)(A)(iii).
‘‘(7) LIST OF ITEMS AND SERVICES FURNISHED
IN NURSING FACILITIES NOT CHARGEABLE TO THE
PERSONAL FUNDS OF A RESIDENT.—The Secretary
shall issue regulations that define those costs which
may be charged to the personal funds of residents
in nursing facilities who are individuals receiving
medical assistance with respect to nursing facility
services under this title and those costs which are to
be included in the payment amount under this title
for nursing facility services.
‘‘(8) CRITERIA FOR MONITORING STATE WAIV-
ERS.—The Secretary shall develop criteria and pro-
cedures for monitoring State performances in grant-
ing waivers pursuant to subsection (b)(4)(C)(ii).
‘‘(g) SURVEY AND CERTIFICATION PROCESS.—
‘‘(1) STATE AND FEDERAL RESPONSIBILITY.—
‘‘(A) IN GENERAL.—Under each State plan
under this title, the State shall be responsible
for certifying, in accordance with surveys con-
1014
ducted under paragraph (2), the compliance of
nursing facilities (other than facilities of the
State) with the requirements of subsections (b),
(c), and (d). The Secretary shall be responsible
for certifying, in accordance with surveys con-
ducted under paragraph (2), the compliance of
State nursing facilities with the requirements of
such subsections.
‘‘(B) 
EDUCATIONAL
PROGRAM.—Each
State shall conduct periodic educational pro-
grams for the staff and residents (and their
representatives) of nursing facilities in order to
present current regulations, procedures, and
policies under this section.
‘‘(C) INVESTIGATION OF ALLEGATIONS OF
RESIDENT
NEGLECT
AND
ABUSE
AND
MIS-
APPROPRIATION OF RESIDENT PROPERTY.—The
State shall provide, through the agency respon-
sible for surveys and certification of nursing fa-
cilities under this subsection, for a process for
the receipt and timely review and investigation
of allegations of neglect and abuse and mis-
appropriation of resident property by a nurse
aide of a resident in a nursing facility or by an-
other individual used by the facility in providing
1015
services to such a resident. The State shall,
after notice to the individual involved and a rea-
sonable opportunity for a hearing for the indi-
vidual to rebut allegations, make a finding as to
the accuracy of the allegations. If the State
finds that a nurse aide has neglected or abused
a resident or misappropriated resident property
in a facility, the State shall notify the nurse
aide and the registry of such finding. If the
State finds that any other individual used by
the facility has neglected or abused a resident
or misappropriated resident property in a facil-
ity, the State shall notify the appropriate licen-
sure authority. A State shall not make a find-
ing that an individual has neglected a resident
if the individual demonstrates that such neglect
was caused by factors beyond the control of the
individual.
‘‘(2) SURVEYS.—
‘‘(A) ANNUAL STANDARD SURVEY.—
‘‘(i) IN GENERAL.—Each nursing fa-
cility shall be subject to a standard survey,
to be conducted without any prior notice to
the facility. Any individual who notifies (or
causes to be notified) a nursing facility of
1016
the time or date on which such a survey is
scheduled to be conducted is subject to a
civil money penalty of not to exceed
$2,000. The provisions of section 1128A
(other than subsections (a) and (b)) shall
apply to a civil money penalty under the
previous sentence in the same manner as
such provisions apply to a penalty or pro-
ceeding under section 1128A(a). The Sec-
retary shall review each State’s procedures
for scheduling and conduct of standard
surveys to assure that the State has taken
all reasonable steps to avoid giving notice
of such a survey through the scheduling
procedures and the conduct of the surveys
themselves.
‘‘(ii) CONTENTS.—Each standard sur-
vey shall include, for a case-mix stratified
sample of residents—
‘‘(I) a survey of the quality of
care furnished, as measured by indica-
tors of medical, nursing, and rehabili-
tative care, dietary and nutrition serv-
ices, activities and social participation,
1017
and sanitation, infection control, and
the physical environment,
‘‘(II) written plans of care pro-
vided under subsection (b)(2) and an
audit of the residents’ assessments
under subsection (b)(3) to determine
the accuracy of such assessments and
the adequacy of such plans of care,
and
‘‘(III) a review of compliance
with residents’ rights under sub-
section (c).
‘‘(iii) FREQUENCY.—
‘‘(I) IN GENERAL.—Each nursing
facility shall be subject to a standard
survey not later than 15 months after
the date of the previous standard sur-
vey conducted under this subpara-
graph. The statewide average interval
between standard surveys of a nursing
facility shall not exceed 12 months.
‘‘(II) SPECIAL SURVEYS.—If not
otherwise conducted under subclause
(I), a standard survey (or an abbre-
viated standard survey) may be con-
1018
ducted within 2 months of any change
of ownership, administration, manage-
ment of a nursing facility, or director
of nursing in order to determine
whether the change has resulted in
any decline in the quality of care fur-
nished in the facility.
‘‘(B) EXTENDED SURVEYS.—
‘‘(i) IN GENERAL.—Each nursing fa-
cility which is found, under a standard sur-
vey, to have provided substandard quality
of care shall be subject to an extended sur-
vey. Any other facility may, at the Sec-
retary’s or State’s discretion, be subject to
such an extended survey (or a partial ex-
tended survey).
‘‘(ii) TIMING.—The extended survey
shall be conducted immediately after the
standard survey (or, if not practicable, not
later than 2 weeks after the date of com-
pletion of the standard survey).
‘‘(iii) CONTENTS.—In such an ex-
tended survey, the survey team shall review
and identify the policies and procedures
which produced such substandard quality
1019
of care and shall determine whether the fa-
cility has complied with all the require-
ments described in subsections (b), (c),
and (d). Such review shall include an ex-
pansion of the size of the sample of resi-
dents’ assessments reviewed and a review
of the staffing, of in-service training, and,
if appropriate, of contracts with consult-
ants.
‘‘(iv) 
CONSTRUCTION.—Nothing 
in
this paragraph shall be construed as re-
quiring an extended or partial extended
survey as a prerequisite to imposing a
sanction against a facility under subsection
(h) on the basis of findings in a standard
survey.
‘‘(C) SURVEY
PROTOCOL.—Standard and
extended surveys shall be conducted—
‘‘(i) based upon the protocol which the
Secretary has developed, tested, and vali-
dated, as of the date of the enactment of
this title, and
‘‘(ii) by individuals, of a survey team,
who meet such minimum qualifications as
the Secretary establishes.
1020
‘‘(D) CONSISTENCY
OF
SURVEYS.—Each
State shall implement programs to measure and
reduce inconsistency in the application of sur-
vey results among surveyors.
‘‘(E) SURVEY TEAMS.—
‘‘(i) IN
GENERAL.—Surveys under
this subsection shall be conducted by a
multidisciplinary team of professionals (in-
cluding a registered professional nurse).
‘‘(ii) PROHIBITION OF CONFLICTS OF
INTEREST.—A State may not use as a
member of a survey team under this sub-
section an individual who is serving (or has
served within the previous 2 years) as a
member of the staff of, or as a consultant
to, the facility surveyed respecting compli-
ance with the requirements of subsections
(b), (c), and (d), or who has a personal or
familial financial interest in the facility
being surveyed.
‘‘(iii) 
TRAINING.——The 
Secretary
shall provide for the comprehensive train-
ing of State and Federal surveyors in the
conduct of standard and extended surveys
under this subsection, including the audit-
1021
ing of resident assessments and plans of
care. No individual shall serve as a mem-
ber of a survey team unless the individual
has successfully completed a training and
testing program in survey and certification
techniques that has been approved by the
Secretary.
‘‘(3) VALIDATION SURVEYS.—
‘‘(A) IN
GENERAL.—The Secretary shall
conduct onsite surveys of a representative sam-
ple of nursing facilities in each State, within 2
months of the date of surveys conducted under
paragraph (2) by the State, in a sufficient num-
ber to allow inferences about the adequacies of
each State’s surveys conducted under para-
graph (2). In conducting such surveys, the Sec-
retary shall use the same survey protocols as
the State is required to use under paragraph
(2). If the State has determined that an indi-
vidual nursing facility meets the requirements
of subsections (b), (c), and (d), but the Sec-
retary determines that the facility does not
meet such requirements, the Secretary’s deter-
mination as to the facility’s noncompliance with
1022
such requirements is binding and supersedes
that of the State survey.
‘‘(B) SCOPE.—With respect to each State,
the Secretary shall conduct surveys under sub-
paragraph (A) each year with respect to at least
5 percent of the number of nursing facilities
surveyed by the State in the year, but in no
case less than 5 nursing facilities in the State.
‘‘(C) 
REDUCTION
IN
ADMINISTRATIVE
COSTS FOR SUBSTANDARD PERFORMANCE.—If
the Secretary finds, on the basis of such sur-
veys, that a State has failed to perform surveys
as required under paragraph (2) or that a
State’s survey and certification performance
otherwise is not adequate, the Secretary may
provide for the training of survey teams in the
State and shall provide for a reduction of the
payment otherwise made to the State under sec-
tion 1512(a)(3)(C) with respect to a quarter
equal to 33 percent multiplied by a fraction, the
denominator of which is equal to the total num-
ber of residents in nursing facilities surveyed by
the Secretary that quarter and the numerator
of which is equal to the total number of resi-
dents in nursing facilities which were found
1023
pursuant to such surveys to be not in compli-
ance with any of the requirements of sub-
sections (b), (c), and (d). A State that is dissat-
isfied with the Secretary’s findings under this
subparagraph may obtain reconsideration and
review of the findings under section 1116 in the
same manner as a State may seek reconsider-
ation and review under that section of the Sec-
retary’s 
determination 
under 
section
1116(a)(1).
‘‘(D) 
SPECIAL
SURVEYS
OF
COMPLI-
ANCE.—Where the Secretary has reason to
question the compliance of a nursing facility
with any of the requirements of subsections (b),
(c), and (d), the Secretary may conduct a sur-
vey of the facility and, on the basis of that sur-
vey, make independent and binding determina-
tions concerning the extent to which the nurs-
ing facility meets such requirements.
‘‘(4) INVESTIGATION OF COMPLAINTS AND MON-
ITORING
NURSING
FACILITY
COMPLIANCE.—Each
State shall maintain procedures and adequate staff
to—
‘‘(A) investigate complaints of violations of
requirements by nursing facilities, and
1024
‘‘(B) monitor, on-site, on a regular, as
needed basis, a nursing facility’s compliance
with the requirements of subsections (b), (c),
and (d), if—
‘‘(i) the facility has been found not to
be in compliance with such requirements
and is in the process of correcting defi-
ciencies to achieve such compliance;
‘‘(ii) the facility was previously found
not to be in compliance with such require-
ments, has corrected deficiencies to achieve
such compliance, and verification of contin-
ued compliance is indicated; or
‘‘(iii) the State has reason to question
the compliance of the facility with such re-
quirements.
A State may maintain and utilize a specialized team
(including an attorney, an auditor, and appropriate
health care professionals) for the purpose of identi-
fying, surveying, gathering and preserving evidence,
and carrying out appropriate enforcement actions
against substandard nursing facilities.
‘‘(5) DISCLOSURE OF RESULTS OF INSPECTIONS
AND ACTIVITIES.—
1025
‘‘(A) PUBLIC INFORMATION.—Each State,
and the Secretary, shall make available to the
public—
‘‘(i) information respecting all surveys
and certifications made respecting nursing
facilities, including statements of defi-
ciencies, within 14 calendar days after
such information is made available to those
facilities, and approved plans of correction,
‘‘(ii) copies of cost reports of such fa-
cilities filed under this title or under title
XVIII,
‘‘(iii) copies of statements of owner-
ship under section 1124, and
‘‘(iv) information disclosed under sec-
tion 1126.
‘‘(B) 
NOTICE
TO
OMBUDSMAN.—Each
State shall notify the State long-term care om-
budsman (established under title III or VII of
the Older Americans Act of 1965 in accordance
with section 712 of the Act) of the State’s find-
ings of noncompliance with any of the require-
ments of subsections (b), (c), and (d), or of any
adverse action taken against a nursing facility
under paragraphs (1), (2), or (3) of subsection
1026
(h), with respect to a nursing facility in the
State.
‘‘(C) NOTICE TO PHYSICIANS AND NURS-
ING
FACILITY
ADMINISTRATOR
LICENSING
BOARD.—If a State finds that a nursing facility
has provided substandard quality of care, the
State shall notify—
‘‘(i) the attending physician of each
resident with respect to which such finding
is made, and
‘‘(ii) any State board responsible for
the licensing of the nursing facility admin-
istrator of the facility.
‘‘(D) 
ACCESS
TO
FRAUD
CONTROL
UNITS.—Each State shall provide its State
fraud and abuse control unit (established under
section 1554) with access to all information of
the State agency responsible for surveys and
certifications under this subsection.
‘‘(h) ENFORCEMENT PROCESS.—
‘‘(1) IN GENERAL.—If a State finds, on the
basis of a standard, extended, or partial extended
survey under subsection (g)(2) or otherwise, that a
nursing facility no longer meets a requirement of
subsection (b), (c), or (d)—
1027
‘‘(A) the State shall require the facility to
correct the deficiency involved;
‘‘(B) if the State finds that the facility’s
deficiencies immediately jeopardize the health
or safety of its residents, the State shall take
immediate action to remove the jeopardy and
correct the deficiencies through the remedy
specified in paragraph (2)(A)(iii), or terminate
the facility’s participation under the State plan
and may provide, in addition, for one or more
of the other remedies described in paragraph
(2); and
‘‘(C) if the State finds that the facility’s
deficiencies do not immediately jeopardize the
health or safety of its residents, the State
may—
‘‘(i) terminate the facility’s participa-
tion under the State plan,
‘‘(ii) provide for one or more of the
remedies described in paragraph (2), or
‘‘(iii) do both.
Nothing in this paragraph shall be construed as re-
stricting the remedies available to a State to remedy
a nursing facility’s deficiencies. If a State finds that
a nursing facility meets the requirements of sub-
1028
sections (b), (c), and (d), but, as of a previous pe-
riod, did not meet such requirements, the State may
provide for a civil money penalty under paragraph
(2)(A)(ii) for the days in which it finds that the fa-
cility was not in compliance with such requirements.
‘‘(2) SPECIFIED REMEDIES.—
‘‘(A) LISTING.—Except as provided in sub-
paragraph (B), each State shall establish by law
(whether statute or regulation) at least the fol-
lowing remedies:
‘‘(i) Denial of payment under the
State plan with respect to any individual
admitted to the nursing facility involved
after such notice to the public and to the
facility as may be provided for by the
State.
‘‘(ii) A civil money penalty assessed
and collected, with interest, for each day in
which the facility is or was out of compli-
ance with a requirement of subsection (b),
(c), or (d). Funds collected by a State as
a result of imposition of such a penalty (or
as a result of the imposition by the State
of a civil money penalty for activities de-
scribed 
in 
subsections 
(b)(3)(B)(ii)(I),
1029
(b)(3)(B)(ii)(II), or (g)(2)(A)(i)) shall be
applied to the protection of the health or
property of residents of nursing facilities
that the State or the Secretary finds defi-
cient, including payment for the costs of
relocation of residents to other facilities,
maintenance of operation of a facility
pending correction of deficiencies or clo-
sure, and reimbursement of residents for
personal funds lost.
‘‘(iii) The appointment of temporary
management to oversee the operation of
the facility and to assure the health and
safety of the facility’s residents, where
there is a need for temporary management
while—
‘‘(I) there is an orderly closure of
the facility, or
‘‘(II) improvements are made in
order to bring the facility into compli-
ance with all the requirements of sub-
sections (b), (c), and (d).
The temporary management under this
clause shall not be terminated under sub-
clause (II) until the State has determined
1030
that the facility has the management capa-
bility to ensure continued compliance with
all the requirements of subsections (b), (c),
and (d).
‘‘(iv) The authority, in the case of an
emergency, to close the facility, to transfer
residents in that facility to other facilities,
or both.
The State also shall specify criteria, as to when
and how each of such remedies is to be applied,
the amounts of any fines, and the severity of
each of these remedies, to be used in the impo-
sition of such remedies. Such criteria shall be
designed so as to minimize the time between
the identification of violations and final imposi-
tion of the remedies and shall provide for the
imposition of incrementally more severe fines
for repeated or uncorrected deficiencies. In ad-
dition, the State may provide for other specified
remedies, such as directed plans of correction.
‘‘(B) GUIDANCE AND ALTERNATIVE REM-
EDIES.—(i) The Secretary shall provide through
regulations guidance to States in establishing
remedies under clauses (i) through (iv) of sub-
paragraph (A).
1031
‘‘(ii) A State may establish alternative
remedies (other than termination of participa-
tion) other than those described in clauses (i)
through (iv) of subparagraph (A), if the State
demonstrates to the Secretary’s satisfaction
that the alternative remedies are as effective in
deterring noncompliance and correcting defi-
ciencies as those described in such subpara-
graph.
‘‘(C) ASSURING PROMPT COMPLIANCE.—If
a nursing facility has not complied with any of
the requirements of subsections (b), (c), and
(d), within 3 months after the date the facility
is found to be out of compliance with such re-
quirements, the State shall impose the remedy
described in subparagraph (A)(i) for all individ-
uals who are admitted to the facility after such
date.
‘‘(D) REPEATED NONCOMPLIANCE.—In the
case of a nursing facility which, on 3 consecu-
tive standard surveys conducted under sub-
section (g)(2), has been found to have provided
substandard quality of care, the State shall (re-
gardless of what other remedies are provided)—
1032
‘‘(i) impose the remedy described in
subparagraph (A)(i), and
‘‘(ii) monitor the facility under sub-
section (g)(4)(B),
until the facility has demonstrated, to the satis-
faction of the State, that it is in compliance
with the requirements of subsections (b), (c),
and (d), and that it will remain in compliance
with such requirements.
‘‘(E) FUNDING.—The reasonable expendi-
tures of a State to provide for temporary man-
agement and other expenses associated with im-
plementing the remedies described in clauses
(iii) and (iv) of subparagraph (A) shall be con-
sidered, for purposes of section 1512(a)(3)(C),
to be necessary for the proper and efficient ad-
ministration of the State plan.
‘‘(F) INCENTIVES
FOR
HIGH
QUALITY
CARE.—In addition to the remedies specified in
this paragraph, a State may establish a pro-
gram to reward, through public recognition, in-
centive payments, or both, nursing facilities
that provide the highest quality care to resi-
dents who are entitled to medical assistance
under this title. For purposes of section
1033
1512(a)(3)(C), proper expenses incurred by a
State in carrying out such a program shall be
considered to be expenses necessary for the
proper and efficient administration of the State
plan.
‘‘(3) SECRETARIAL AUTHORITY.—
‘‘(A) FOR STATE NURSING FACILITIES.—
With respect to a State nursing facility, the
Secretary shall have the authority and duties of
a State under this subsection, including the au-
thority to impose remedies described in clauses
(i), (ii), and (iii) of paragraph (2)(A). Nothing
in this subparagraph shall be construed as re-
stricting the remedies available to the Secretary
to remedy a nursing facility’s deficiencies.
‘‘(B) OTHER NURSING FACILITIES.—With
respect to any other nursing facility in a State,
if the Secretary finds that a nursing facility no
longer meets a requirement of subsection (b),
(c), (d), or (e), and further finds that the facili-
ty’s deficiencies—
‘‘(i) immediately jeopardize the health
or safety of its residents, the Secretary
shall take immediate action to remove the
jeopardy 
and 
correct 
the 
deficiencies
1034
through the remedy specified in subpara-
graph (C)(iii), or terminate the facility’s
participation under the State plan and
may provide, in addition, for one or more
of the other remedies described in subpara-
graph (C); or
‘‘(ii) do not immediately jeopardize
the health or safety of its residents, the
Secretary may impose any of the remedies
described in subparagraph (C).
Nothing in this subparagraph shall be con-
strued as restricting the remedies available to
the Secretary to remedy a nursing facility’s de-
ficiencies. If the Secretary finds that a nursing
facility meets such requirements but, as of a
previous period, did not meet such require-
ments, the Secretary may provide for a civil
money penalty under subparagraph (C)(ii) for
the days on which he finds that the facility was
not in compliance with such requirements.
‘‘(C) SPECIFIED
REMEDIES.—The rem-
edies specified in this subparagraph are as fol-
lows:
‘‘(i) DENIAL OF PAYMENT.—Denial of
any further payments to the State in ac-
1035
cordance with section 1529(f) for medical
assistance furnished by the facility to all
individuals in the facility or to individuals
admitted to the facility after the effective
date of the finding.
‘‘(ii) AUTHORITY WITH RESPECT TO
CIVIL MONEY PENALTIES.—Imposition of a
civil money penalty against the facility in
an amount not to exceed $10,000 for each
day of noncompliance. The provisions of
section 1128A (other than subsections (a)
and (b)) shall apply to a civil money pen-
alty under the previous sentence in the
same manner as such provisions apply to a
penalty 
or 
proceeding 
under 
section
1128A(a).
‘‘(iii) APPOINTMENT
OF
TEMPORARY
MANAGEMENT.—Appointment 
of 
tem-
porary management to oversee the oper-
ation of the facility and to assure the
health and safety of the facility’s residents,
where there is a need for temporary man-
agement while—
‘‘(I) there is an orderly closure of
the facility, or
1036
‘‘(II) improvements are made in
order to bring the facility into compli-
ance with all the requirements of sub-
sections (b), (c), and (d).
The temporary management under this
clause shall not be terminated under sub-
clause (II) until the Secretary has deter-
mined that the facility has the manage-
ment capability to ensure continued com-
pliance with all the requirements of sub-
sections (b), (c), and (d).
The Secretary shall specify criteria, as to when
and how each of such remedies is to be applied,
the amounts of any fines, and the severity of
each of these remedies, to be used in the impo-
sition of such remedies. Such criteria shall be
designed so as to minimize the time between
the identification of violations and final imposi-
tion of the remedies and shall provide for the
imposition of incrementally more severe fines
for repeated or uncorrected deficiencies. In ad-
dition, the Secretary may provide for other
specified remedies, such as directed plans of
correction.
1038
‘‘(4) SPECIAL RULES REGARDING PAYMENTS TO
FACILITIES.—
‘‘(A) CONTINUATION OF PAYMENTS PEND-
ING
REMEDIATION.—The State or the Sec-
retary, as appropriate, may continue payments,
over a period of not longer than 6 months after
the effective date of the findings, under this
title with respect to a nursing facility not in
compliance with a requirement of subsection
(b), (c), or (d). The State may continue such
payments only if—
‘‘(i) the State survey agency finds
that it is more appropriate to take alter-
native action to assure compliance of the
facility with the requirements than to ter-
minate the certification of the facility,
‘‘(ii) the State has submitted a plan
and timetable for corrective action to the
Secretary for approval and the Secretary
approves the plan of corrective action, and
‘‘(iii) the State agrees to repay to the
Federal Government payments received
under this subparagraph if the corrective
action is not taken in accordance with the
approved plan and timetable.
1039
The Secretary shall establish guidelines for ap-
proval of corrective actions requested by States
under this subparagraph.
‘‘(B) EFFECTIVE PERIOD OF DENIAL OF
PAYMENT.—A finding to deny payment under
this subsection shall terminate when the State
or Secretary (as the case may be) finds that the
facility is in substantial compliance with all the
requirements of subsections (b), (c), and (d).
‘‘(5) IMMEDIATE TERMINATION OF PARTICIPA-
TION FOR FACILITY WHERE STATE OR SECRETARY
FINDS
NONCOMPLIANCE
AND
IMMEDIATE
JEOP-
ARDY.—If either the State or the Secretary finds
that a nursing facility has not met a requirement of
subsection (b), (c), or (d), and finds that the failure
immediately jeopardizes the health or safety of its
residents, the State or the Secretary, respectively
shall notify the other of such finding, and the State
or the Secretary, respectively, shall take immediate
action to remove the jeopardy and correct the defi-
ciencies through the remedy specified in paragraph
(2)(A)(iii) or (3)(C)(iii), or terminate the facility’s
participation under the State plan. If the facility’s
participation in the State plan is terminated by ei-
ther the State or the Secretary, the State shall pro-
1040
vide for the safe and orderly transfer of the resi-
dents eligible under the State plan consistent with
the requirements of subsection (c)(2).
‘‘(6) SPECIAL RULES WHERE STATE AND SEC-
RETARY
DO
NOT
AGREE
ON
FINDING
OF
NON-
COMPLIANCE.—
‘‘(A) STATE FINDING OF NONCOMPLIANCE
AND NO SECRETARIAL FINDING OF NONCOMPLI-
ANCE.—If the Secretary finds that a nursing
facility has met all the requirements of sub-
sections (b), (c), and (d), but a State finds that
the facility has not met such requirements and
the failure does not immediately jeopardize the
health or safety of its residents, the State’s
findings shall control and the remedies imposed
by the State shall be applied.
‘‘(B) SECRETARIAL
FINDING
OF
NON-
COMPLIANCE AND NO STATE FINDING OF NON-
COMPLIANCE.—If the Secretary finds that a
nursing facility has not met all the require-
ments of subsections (b), (c), and (d), and that
the failure does not immediately jeopardize the
health or safety of its residents, but the State
has not made such a finding, the Secretary—
1041
‘‘(i) may impose any remedies speci-
fied in paragraph (3)(C) with respect to
the facility, and
‘‘(ii) shall (pending any termination
by the Secretary) permit continuation of
payments in accordance with paragraph
(3)(D).
‘‘(7) SPECIAL RULES FOR TIMING OF TERMI-
NATION OF PARTICIPATION WHERE REMEDIES OVER-
LAP.—If both the Secretary and the State find that
a nursing facility has not met all the requirements
of subsections (b), (c), and (d), and neither finds
that the failure immediately jeopardizes the health
or safety of its residents—
‘‘(A)(i) if both find that the facility’s par-
ticipation under the State plan should be termi-
nated, the State’s timing of any termination
shall control so long as the termination date
does not occur later than 6 months after the
date of the finding to terminate;
‘‘(ii) if the Secretary, but not the State,
finds that the facility’s participation under the
State plan should be terminated, the Secretary
shall (pending any termination by the Sec-
1042
retary) permit continuation of payments in ac-
cordance with paragraph (3)(D); or
‘‘(iii) if the State, but not the Secretary,
finds that the facility’s participation under the
State plan should be terminated, the State’s de-
cision to terminate, and timing of such termi-
nation, shall control; and
‘‘(B)(i) if the Secretary or the State, but
not both, establishes one or more remedies
which are additional or alternative to the rem-
edy of terminating the facility’s participation
under the State plan, such additional or alter-
native remedies shall also be applied, or
‘‘(ii) if both the Secretary and the State
establish one or more remedies which are addi-
tional or alternative to the remedy of terminat-
ing the facility’s participation under the State
plan, only the additional or alternative remedies
of the Secretary shall apply.
‘‘(8) CONSTRUCTION.—The remedies provided
under this subsection are in addition to those other-
wise available under Federal or State law and shall
not be construed as limiting such other remedies, in-
cluding any remedy available to an individual at
common law. The remedies described in clauses (i),
1043
(iii), and (iv) of paragraph (2)(A) may be imposed
during the pendency of any hearing. The provisions
of this subsection shall apply to a nursing facility (or
portion thereof) notwithstanding that the facility (or
portion thereof) also is a skilled nursing facility for
purposes of title XVIII.
‘‘(9) SHARING
OF
INFORMATION.—Notwith-
standing any other provision of law, all information
concerning nursing facilities required by this section
to be filed with the Secretary or a State agency shall
be made available by such facilities to Federal or
State employees for purposes consistent with the ef-
fective administration of programs established under
this title and title XVIII, including investigations by
State fraud control units.
‘‘(i) CONSTRUCTION.—Where requirements or obliga-
tions under this section are identical to those provided
under section 1819 of this Act, the fulfillment of those
requirements or obligations under section 1819 shall be
considered to be the fulfillment of the corresponding re-
quirements or obligations under this section.
‘‘SEC. 1558. OTHER PROVISIONS PROMOTING PROGRAM IN-
TEGRITY.
‘‘(a) PUBLIC ACCESS TO SURVEY RESULTS.—Each
State plan shall provide that upon completion of a survey
1044
of any health care facility or organization by a State agen-
cy to carry out the plan, the agency shall make public in
readily available form and place the pertinent findings of
the survey relating to the compliance of the facility or or-
ganization with requirements of law.
‘‘(b) RECORD KEEPING.—Each State plan shall pro-
vide for agreements with persons or institutions providing
services under the plan under which the person or institu-
tion agrees—
‘‘(1) to keep such records, including ledgers,
books, and original evidence of costs, as are nec-
essary to fully disclose the extent of the services pro-
vided to individuals receiving assistance under the
plan, and
‘‘(2) to furnish the State agency with such in-
formation regarding any payments claimed by such
person or institution for providing services under the
plan, as the State agency may from time to time re-
quest.
‘‘(c) QUALITY ASSURANCE.—Each State plan shall
provide a program to assure the quality of services pro-
vided under the plan, including such services provided to
individuals with chronic mental or physical illness.
1045
‘‘PART E—GENERAL PROVISIONS
‘‘SEC. 1571. DEFINITIONS.
‘‘(a) MEDICAL ASSISTANCE.—For purposes of this
title, the term ‘medical assistance’ means payment of part
or all of the cost of any of the following, or assistance
in the purchase, in whole or in part, of health benefit cov-
erage that includes any of the following, for eligible low-
income individuals (as defined in subsection (b)) as speci-
fied under the State plan:
‘‘(1) Inpatient hospital services.
‘‘(2) Outpatient hospital services.
‘‘(3) Physician services.
‘‘(4) Surgical services.
‘‘(5) Clinic services and other ambulatory
health care services.
‘‘(6) Nursing facility services.
‘‘(7) Intermediate care facility services for the
mentally retarded.
‘‘(8) Prescription drugs and biologicals and the
administration of such drugs and biologicals, only if
such drugs and biologicals are not furnished for the
purpose of causing, or assisting in causing, the
death, suicide, euthanasia, or mercy killing of a per-
son.
‘‘(9) Over-the-counter medications.
1046
‘‘(10) Laboratory and radiological services.
‘‘(11) Prepregnancy family planning services
and supplies.
‘‘(12) Inpatient mental health services, includ-
ing services furnished in a State-operated mental
hospital and including residential or other 24-hour
therapeutically planned structured services.
‘‘(13) Outpatient mental health services, includ-
ing services furnished in a State-operated mental
hospital and including community-based services.
‘‘(14) Durable medical equipment and other
medically-related or remedial devices (such as pros-
thetic devices, implants, eyeglasses, hearing aids,
dental devices, and adaptive devices).
‘‘(15) Disposable medical supplies.
‘‘(16) Home and community-based health care
services and related supportive services (such as
home health nursing services, home health aide serv-
ices, personal care, assistance with activities of daily
living, chore services, day care services, respite care
services, training for family members, and minor
modifications to the home).
‘‘(17) Community supported living arrange-
ments, assisted living arrangements, and transitional
living arrangements in the community.
1047
‘‘(18) Nursing care services (such as nurse
practitioner services, nurse midwife services, ad-
vanced practice nurse services, private duty nursing
care, pediatric nurse services, and respiratory care
services) in a home, school, or other setting.
‘‘(19) Abortion only if necessary to save the life
of the mother or if the pregnancy is the result of an
act of rape or incest.
‘‘(20) Dental services.
‘‘(21) Inpatient substance abuse treatment
services and residential substance abuse treatment
services.
‘‘(22) Outpatient substance abuse treatment
services.
‘‘(23) Case management services.
‘‘(24) Care coordination services.
‘‘(25) Physical therapy, occupational therapy,
and services for individuals with speech, hearing,
and language disorders.
‘‘(26) Hospice care.
‘‘(27) Any other medical, diagnostic, screening,
preventive, restorative, remedial, therapeutic, or re-
habilitative services (whether in a facility, home,
school, or other setting) if recognized by State law
and only if the service is—
1048
‘‘(A) prescribed by or furnished by a physi-
cian or other licensed or registered practitioner
within the scope of practice as defined by State
law,
‘‘(B) performed under the general super-
vision or at the direction of a physician, or
‘‘(C) furnished by a health care facility
that is operated by a State or local government
or is licensed under State law and operating
within the scope of the license.
‘‘(28) Premiums for private health care insur-
ance coverage, including private long-term care in-
surance coverage.
‘‘(29) Medical transportation.
‘‘(30) Medicare cost-sharing (as defined in sub-
section (c)).
‘‘(31) Enabling services (such as transpor-
tation, translation, and outreach services) only if de-
signed to increase the accessibility of primary and
preventive health care services for eligible low-in-
come individuals.
‘‘(32) Any other health care services or items
specified by the Secretary and not excluded under
this section.
‘‘(b) ELIGIBLE LOW-INCOME INDIVIDUAL.—
1049
‘‘(1) STATE PLAN ELIGIBILITY STANDARDS.—
‘‘(A) IN GENERAL.—The term ‘eligible low-
income individual’ means an individual—
‘‘(i) who has been determined eligible
by the State for medical assistance under
the State plan and is not an inmate of a
public institution (except as a patient in a
State psychiatric hospital), and
‘‘(ii) whose family income (as deter-
mined under the plan) does not exceed a
percentage (specified in the State plan and
not to exceed 275 percent) of the poverty
line for a family of the size involved.
‘‘(B) CONTINUTATION OF KATIE BECKETT
ELIGIBILITY.—At the option of a State, sub-
paragraph (A)(ii) shall not apply in the case of
an individual who—
‘‘(i) is 18 years of age or younger and
qualifies as a disabled individual under sec-
tion 1614(a); and
‘‘(ii) with respect to whom there has
been a determination by the State that—
‘‘(I) the individual requires a
level of care provided in a hospital,
1050
nursing facility, or intermediate care
facility for the mentally retarded; and
‘‘(II) it is appropriate to provide
such care for the individual outside
such an institution.
‘‘(2) AMOUNT OF INCOME.—In determining the
amount of income under paragraph (1)(B), a State
may exclude costs incurred for medical care or other
types of remedial care recognized by the State.
‘‘(3) COMPUTATION OF INCOME FOR CERTAIN
CHILDREN.—In determining the amount of family
income under paragraph (1)(B) in the case of a
child described in section 1501(a)(1)(F), the State
shall only count the income of the child and not that
of the family in which the child is placed.
‘‘(c) MEDICARE COST-SHARING.—For purposes of
this title, the term ‘medicare cost-sharing’ means any of
the following:
‘‘(1)(A) Premiums under section 1839.
‘‘(B) Premiums under section 1818 or 1818A.
‘‘(2) Coinsurance under title XVIII (including
coinsurance described in section 1813).
‘‘(3) Deductibles established under title XVIII
(including those described in sections 1813 and
1833(b)).
1051
‘‘(4) The difference between the amount that is
paid under section 1833(a) and the amount that
would be paid under such section if any reference to
‘80 percent’ therein were deemed a reference to ‘100
percent’.
‘‘(5) Premiums for enrollment of an individual
with an eligible organization under section 1876.
‘‘(d) ADDITIONAL DEFINITIONS.—For purposes of
this title:
‘‘(1) CHILD.—The term ‘child’ means an indi-
vidual under 19 years of age.
‘‘(2) ELDERLY INDIVIDUAL.—The term ‘elderly
individual’ means an individual who has attained re-
tirement age, as defined under section 216(l)(1).
‘‘(3) POVERTY LINE DEFINED.—The term ‘pov-
erty line’ has the meaning given such term in section
673(2) of the Community Services Block Grant Act
(42 U.S.C. 9902(2)), including any revision required
by such section.
‘‘(4) PREGNANT WOMAN.—The term ‘pregnant
woman’ includes a woman during the 60-day period
beginning on the last day of the pregnancy.
‘‘(e) EPSDT SERVICES.—In this title, the term
‘EPSDT services’ means the following items and services:
‘‘(1) Screening services—
1052
‘‘(A) which are provided—
‘‘(i) at intervals which meet reason-
able standards of medical and dental prac-
tice, as determined by the State after con-
sultation with recognized medical and den-
tal organizations involved in child health
care and, with respect to immunizations
under section 1501(a)(2)(G) in accordance
with the schedule referred to in such sec-
tion for pediatric vaccines, and
‘‘(ii) at such other intervals, indicated
as medically necessary, to determine the
existence of certain physical or mental ill-
nesses or conditions; and
‘‘(B) which shall at a minimum include—
‘‘(i) a comprehensive health and devel-
opmental history (including assessment of
both physical and mental health develop-
ment),
‘‘(ii) a comprehensive unclothed phys-
ical exam,
‘‘(iii) appropriate immunizations (ac-
cording to the schedule referred to in sec-
tion 1501(a)(2)(G) for pediatric vaccines)
according to age and health history,
1053
‘‘(iv) laboratory tests (including lead
blood level assessment appropriate for age
and risk factors), and
‘‘(v) health education (including antic-
ipatory guidance).
‘‘(2) Vision services—
‘‘(A) which are provided—
‘‘(i) at intervals which meet reason-
able standards of medical practice, as de-
termined by the State after consultation
with recognized medical organizations in-
volved in child health care, and
‘‘(ii) at such other intervals, indicated
as medically necessary, to determine the
existence of a suspected illness or condi-
tion; and
‘‘(B) which shall at a minimum include di-
agnosis and treatment for defects in vision, in-
cluding eyeglasses.
‘‘(3) Dental services—
‘‘(A) which are provided—
‘‘(i) at intervals which meet reason-
able standards of dental practice, as deter-
mined by the State after consultation with
1054
recognized dental organizations involved in
child health care, and
‘‘(ii) at such other intervals, indicated
as medically necessary, to determine the
existence of a suspected illness or condi-
tion; and
‘‘(B) which shall at a minimum include re-
lief of pain and infections, restoration of teeth,
and maintenance of dental health.
‘‘(4) Hearing services—
‘‘(A) which are provided—
‘‘(i) at intervals which meet reason-
able standards of medical practice, as de-
termined by the State after consultation
with recognized medical organizations in-
volved in child health care, and
‘‘(ii) at such other intervals, indicated
as medically necessary, to determine the
existence of a suspected illness or condi-
tion; and
‘‘(B) which shall at a minimum include di-
agnosis and treatment for defects in hearing,
including hearing aids.
‘‘(f) CENTER AND CLINIC SERVICES.—In this title:
1055
‘‘(1) RURAL HEALTH CLINIC RELATED DEFINI-
TIONS.—The terms ‘rural health clinic services’ and
‘rural health clinic’ have the meanings given such
terms in section 1861(aa), except that (A) clause (ii)
of section 1861(aa)(2) shall not apply to such terms,
and (B) the physician arrangement required under
section 1861(aa)(2)(B) shall only apply with respect
to rural health clinic services and, with respect to
other ambulatory care services, the physician ar-
rangement required shall be only such as may be re-
quired under the State plan for those services.
‘‘(2) FEDERALLY-QUALIFIED HEALTH CENTER
RELATED DEFINITIONS.—
‘‘(A) SERVICES.—The term ‘Federally-
qualified health center services’ means services
of the type described in subparagraphs (A)
through (C) of section 1861(aa)(1) when fur-
nished to an individual as an patient of a Fed-
erally-qualified health center and, for this pur-
pose, any reference to a rural health clinic or a
physician described in section 1861(aa)(2)(B) is
deemed a reference to a Federally-qualified
health center or a physician at the center, re-
spectively.
1056
‘‘(B) CENTER.—The term ‘Federally-quali-
fied health center’ means a entity which—
‘‘(i) is receiving a grant under section
329, 330, 340, or 340A of the Public
Health Service Act,
‘‘(ii)(I) is receiving funding from such
a grant under a contract with the recipient
of such a grant, and
‘‘(II) meets the requirements to re-
ceive a grant under section 329, 330, 340,
or 340A of such Act,
‘‘(iii) based on the recommendation of
the Health Resources and Services Admin-
istration within the Public Health Service,
is determined by the Secretary to meet the
requirements for receiving such a grant, or
‘‘(iv) was treated by the Secretary, for
purposes of part B of title XVIII, as a
comprehensive Federally funded health
center as of January 1, 1990;
and includes an outpatient health program or
facility operated by a tribe or tribal organiza-
tion under the Indian Self-Determination Act
(Public Law 93-638) or by an urban Indian or-
ganization receiving funds under title V of the
1057
Indian Health Care Improvement Act for the
provision of primary health services. In apply-
ing clause (ii), the Secretary may waive any re-
quirement referred to in such clause for up to
2 years for good cause shown.
‘‘(g) MEDICALLY-RELATED SERVICES.—In this title,
the term ‘medically-related services’ means services rea-
sonably related to, or in direct support of, the State’s at-
tainment of one or more of the strategic objectives and
performance goals established under section 1521, but
does not include items and services included on the list
under subsection (a).
‘‘SEC. 1572. TREATMENT OF TERRITORIES.
‘‘Notwithstanding any other requirement of this title,
the Secretary may waive or modify any requirement of this
title with respect to the medical assistance program for
a State other than the 50 States and the District of Co-
lumbia, other than a waiver of—
‘‘(1) the applicable Federal medical assistance
percentage,
‘‘(2) the limitation on total payments in a fiscal
year to the amount of the allotment under section
1511(c), or
‘‘(3) the requirement that payment may be
made for medical assistance only with respect to
1058
amounts expended by the State for care and services
described in section 1571(a) and medically-related
services (as defined in section 1571(g)).
‘‘SEC. 1573. DESCRIPTION OF TREATMENT OF INDIAN
HEALTH SERVICE FACILITIES.
‘‘In the case of a State in which one or more facilities
of the Indian Health Service are located, the State plan
shall include a description of—
‘‘(1) what provision (if any) has been made for
payment for items and services furnished by such fa-
cilities, and
‘‘(2) the manner in which medical assistance for
low-income eligible individuals who are Indians will
be provided, as determined by the State in consulta-
tion with the appropriate Indian tribes and tribal or-
ganizations.
‘‘SEC. 1574. APPLICATION OF CERTAIN GENERAL PROVI-
SIONS.
‘‘The following sections in part A of title XI shall
apply to States under this title in the same manner as
they applied to a State under title XIX:
‘‘(1) Section 1101(a)(1) (relating to definition
of State).
1059
‘‘(2) Section 1116 (relating to administrative
and judicial review), but only insofar as consistent
with the provisions of part B.
‘‘(3) Section 1124 (relating to disclosure of
ownership and related information).
‘‘(4) Section 1126 (relating to disclosure of in-
formation about certain convicted individuals).
‘‘(5) Section 1128B(d) (relating to criminal
penalties for certain additional charges).
‘‘(6) Section 1132 (relating to periods within
which claims must be filed).
‘‘SEC. 1575. OPTIONAL MASTER DRUG REBATE AGREE-
MENTS.
‘‘(a) REQUIREMENT FOR MANUFACTURER TO ENTER
INTO AGREEMENT.—
‘‘(1) 
IN
GENERAL.—Pursuant 
to 
section
1513(f), in order for payment to be made to a State
under part B for medical assistance for covered out-
patient drugs of a manufacturer, the manufacturer
shall enter into and have in effect a master rebate
agreement described in subsection (b) with the Sec-
retary on behalf of States electing to participate in
the agreement.
‘‘(2) COVERAGE
OF
DRUGS
NOT
COVERED
UNDER REBATE AGREEMENTS.—Nothing in this sec-
1060
tion shall be construed to prohibit a State in its dis-
cretion from providing coverage under its State plan
of a covered outpatient drug for which no rebate
agreement is in effect under this section.
‘‘(3) EFFECT ON EXISTING AGREEMENTS.—If a
State has a rebate agreement in effect with a manu-
facturer on the date of the enactment of this section
which provides for a minimum aggregate rebate
equal to or greater than the minimum aggregate re-
bate which would otherwise be paid under the mas-
ter agreement under this section, at the option of
the State—
‘‘(A) such agreement shall be considered to
meet the requirements of the master rebate
agreement, and
‘‘(B) the State shall be considered to have
elected to participate in the master rebate
agreement.
‘‘(4) LIMITATION ON PRICES OF DRUGS PUR-
CHASED BY COVERED ENTITIES.—
‘‘(A) AGREEMENT
WITH
SECRETARY.—A
manufacturer meets the requirements of this
paragraph if the manufacturer has entered into
an agreement with the Secretary that meets the
requirements of section 340B of the Public
1061
Health Service Act with respect to covered out-
patient drugs purchased by a covered entity on
or after the first day of the first month that be-
gins after the date of the enactment of title VI
of the Veterans Health Care Act of 1992.
‘‘(B) COVERED ENTITY DEFINED.—In this
subsection, the term ‘covered entity’ means an
entity described in subsection (a)(4) of section
340B of the Public Health Service Act if the
entity furnishes the drugs to patients at a cost
no greater than acquisition cost plus such dis-
pensing fee as may be allowable as determined
by the Office of Drug Pricing in the Public
Health Service.
‘‘(C) ESTABLISHMENT
OF
ALTERNATIVE
MECHANISM
TO
ENSURE
AGAINST
DUPLICATE
DISCOUNTS
OR
REBATES.—If the Secretary
does not establish a mechanism under section
340B(a)(5)(A) of the Public Health Service Act
within 12 months of the date of the enactment
of such section, the following requirements shall
apply:
‘‘(i) Each covered entity shall inform
the single State agency under this title
when it is seeking reimbursement for medi-
1062
cal assistance with respect to a unit of any
covered outpatient drug which is subject to
an agreement under section 340B(a) of
such Act.
‘‘(ii) Each such single State agency
shall provide a means by which a covered
entity shall indicate on any drug reim-
bursement claims form (or format, where
electronic claims management is used) that
a unit of the drug that is the subject of the
form is subject to an agreement under sec-
tion 340B of such Act, and not submit to
any manufacturer a claim for a rebate pay-
ment under subsection (b) with respect to
such a drug.
‘‘(D) EFFECT
OF
SUBSEQUENT
AMEND-
MENTS.—In determining whether an agreement
under subparagraph (A) meets the require-
ments of section 340B of the Public Health
Service Act, the Secretary shall not take into
account any amendments to such section that
are enacted after the enactment of title VI of
the Veterans Health Care Act of 1992.
‘‘(E) DETERMINATION OF COMPLIANCE.—
A manufacturer is deemed to meet the require-
1063
ments of this paragraph if the manufacturer es-
tablishes to the satisfaction of the Secretary
that the manufacturer would comply (and has
offered to comply) with the provisions of section
340B of the Public Health Service Act (as in
effect immediately after the enactment title VI
of the Veterans Health Care Act of 1992, and
would have entered into an agreement under
such section (as such section was in effect at
such time), but for a legislative change in such
section after such enactment.
‘‘(b) TERMS OF REBATE AGREEMENT.—
‘‘(1) PERIODIC REBATES.—The master rebate
agreement under this section shall require the manu-
facturer to provide, to the State plan of each State
participating in the agreement, a rebate for a rebate
period in an amount specified in subsection (c) for
covered outpatient drugs of the manufacturer dis-
pensed after the effective date of the agreement, for
which payment was made under the plan for such
period. Such rebate shall be paid by the manufac-
turer not later than 30 days after the date of receipt
of the information described in paragraph (2) for
the period involved.
‘‘(2) STATE PROVISION OF INFORMATION.—
1064
‘‘(A) STATE RESPONSIBILITY.—Each State
participating in the master rebate agreement
shall report to each manufacturer not later
than 60 days after the end of each rebate pe-
riod and in a form consistent with a standard
reporting format established by the Secretary,
information on the total number of units of
each dosage form and strength and package
size of each covered outpatient drug, for which
payment was made under the State plan for the
period, and shall promptly transmit a copy of
such report to the Secretary.
‘‘(B) AUDITS.—A manufacturer may audit
the information provided (or required to be pro-
vided) under subparagraph (A). Adjustments to
rebates shall be made to the extent that infor-
mation indicates that utilization was greater or
less than the amount previously specified.
‘‘(3) MANUFACTURER PROVISION OF PRICE IN-
FORMATION.—
‘‘(A) IN
GENERAL.—Each manufacturer
which is subject to the master rebate agreement
under this section shall report to the Sec-
retary—
1065
‘‘(i) not later than 30 days after the
last day of each rebate period under the
agreement, on the average manufacturer
price (as defined in subsection (i)(1)) and,
for single source drugs and innovator mul-
tiple source drugs, the manufacturer’s best
price (as defined in subsection (c)(1)(C))
for each covered outpatient drug for the
rebate period under the agreement, and
‘‘(ii) not later than 30 days after the
date of entering into an agreement under
this section, on the average manufacturer
price (as defined in subsection (i)(1)) as of
October 1, 1990, for each of the manufac-
turer’s covered outpatient drugs.
‘‘(B) VERIFICATION SURVEYS OF AVERAGE
MANUFACTURER
PRICE.—The Secretary may
survey wholesalers and manufacturers that di-
rectly distribute their covered outpatient drugs,
when necessary, to verify manufacturer prices
reported under subparagraph (A). The Sec-
retary may impose a civil monetary penalty in
an amount not to exceed $10,000 on a whole-
saler, manufacturer, or direct seller, if the
wholesaler, manufacturer, or direct seller of a
1066
covered outpatient drug refuses a request for
information by the Secretary in connection with
a survey under this subparagraph. The provi-
sions of section 1128A (other than subsections
(a) (with respect to amounts of penalties or ad-
ditional assessments) and (b)) shall apply to a
civil money penalty under this subparagraph in
the same manner as such provisions apply to
a 
penalty 
or 
proceeding 
under 
section
1128A(a).
‘‘(C) PENALTIES.—
‘‘(i) FAILURE TO PROVIDE TIMELY IN-
FORMATION.—In the case of a manufac-
turer which is subject to the master rebate
agreement that fails to provide information
required under subparagraph (A) on a
timely basis, the amount of the penalty
shall be $10,000 for each day in which
such information has not been provided
and such amount shall be paid to the
Treasury. If such information is not re-
ported within 90 days of the deadline im-
posed, the agreement shall be suspended
for services furnished after the end of such
90-day period and until the date such in-
1067
formation is reported (but in no case shall
such suspension be for a period of less
than 30 days).
‘‘(ii) 
FALSE
INFORMATION.—Any
manufacturer which is subject to the mas-
ter rebate agreement, or a wholesaler or
direct seller, that knowingly provides false
information under subparagraph (A) or
(B) is subject to a civil money penalty in
an amount not to exceed $100,000 for
each item of false information. Any such
civil money penalty shall be in addition to
other penalties as may be prescribed by
law. The provisions of section 1128A
(other than subsections (a) and (b)) shall
apply to a civil money penalty under this
subparagraph in the same manner as such
provisions apply to a penalty or proceeding
under section 1128A(a).
‘‘(D) 
CONFIDENTIALITY
OF
INFORMA-
TION.—Notwithstanding any other provision of
law, information disclosed by manufacturers or
wholesalers under this paragraph or under an
agreement with the Secretary of Veterans Af-
fairs described in section 1513(f) is confidential
1068
and shall not be disclosed by the Secretary or
the Secretary of Veterans Affairs or a State
agency (or contractor therewith) in a form
which discloses the identity of a specific manu-
facturer or wholesaler or the prices charged for
drugs by such manufacturer or wholesaler, ex-
cept—
‘‘(i) as the Secretary determines to be
necessary to carry out this section,
‘‘(ii) to permit the Comptroller Gen-
eral to review the information provided,
and
‘‘(iii) to permit the Director of the
Congressional Budget Office to review the
information provided.
‘‘(4) LENGTH OF AGREEMENT.—
‘‘(A) IN
GENERAL.—The master rebate
agreement under this section shall be effective
for an initial period of not less than 1 year and
shall be automatically renewed for a period of
not less than 1 year unless terminated under
subparagraph (B).
‘‘(B) TERMINATION.—
‘‘(i) BY THE SECRETARY.—The Sec-
retary may provide for termination of the
1069
master rebate agreement with respect to a
manufacturer for violation of the require-
ments of the agreement or other good
cause shown. Such termination shall not be
effective earlier than 60 days after the
date of notice of such termination. The
Secretary shall provide, upon request, a
manufacturer with a hearing concerning
such a termination, but such hearing shall
not delay the effective date of the termi-
nation. Failure of a State to provide any
advance notice of such a termination as re-
quired by regulation shall not affect the
State’s right to terminate coverage of the
drugs affected by such termination as of
the effective date of such termination.
‘‘(ii) BY A MANUFACTURER.—A man-
ufacturer may terminate its participation
in the master rebate agreement under this
section for any reason. Any such termi-
nation shall not be effective until the cal-
endar quarter beginning at least 60 days
after the date the manufacturer provides
notice to the Secretary.
1070
‘‘(iii) EFFECTIVENESS
OF
TERMI-
NATION.—Any termination under this sub-
paragraph shall not affect rebates due
under the agreement before the effective
date of its termination.
‘‘(iv) NOTICE
TO
STATES.—In the
case of a termination under this subpara-
graph, the Secretary shall provide notice of
such termination to the States within not
less than 30 days before the effective date
of such termination.
‘‘(v) APPLICATION TO TERMINATIONS
OF OTHER AGREEMENTS.—The provisions
of this subparagraph shall apply to the ter-
minations of master agreements described
in section 8126(a) of title 38, United
States Code.
‘‘(C) DELAY
BEFORE
REENTRY.—In the
case of any rebate agreement with a manufac-
turer under this section which is terminated,
another such agreement with the manufacturer
(or a successor manufacturer) may not be en-
tered into until a period of 1 calendar quarter
has elapsed since the date of the termination,
1071
unless the Secretary finds good cause for an
earlier reinstatement of such an agreement.
‘‘(5) SETTLEMENT OF DISPUTES.—
‘‘(A) SECRETARY.—The Secretary shall
have the authority to resolve, settle, and com-
promise disputes regarding the amounts of re-
bates owed under this section and section 1927.
‘‘(B) STATE.—Each State, with respect to
covered outpatient drugs paid for under the
State’s State plan, shall have authority, inde-
pendent of the Secretary’s authority under sub-
paragraph (A), to resolve, settle, and com-
promise disputes regarding the amounts of re-
bates owed under this section. Any such action
shall be deemed to comply with the require-
ments of this title, and such covered outpatient
drugs shall be eligible for payment under the
State plan under this title.
‘‘(C) AMOUNT OF REBATE.—The Secretary
shall limit the amount of the rebate payable in
any case in which the Secretary determines
that, because of unusual circumstances or ques-
tionable data, the provisions of subsection (c)
result in a rebate amount that is inequitable or
1072
otherwise inconsistent with the purposes of this
section.
‘‘(c) DETERMINATION OF AMOUNT OF REBATE.—
‘‘(1) BASIC
REBATE
FOR
SINGLE
SOURCE
DRUGS
AND
INNOVATOR
MULTIPLE
SOURCE
DRUGS.—
‘‘(A) IN GENERAL.—Except as provided in
paragraph (2), the amount of the rebate speci-
fied in this subsection with respect to a State
participating in the master rebate agreement
for a rebate period (as defined in subsection
(i)(7)) with respect to each dosage form and
strength of a single source drug or an innovator
multiple source drug shall be equal to the prod-
uct of—
‘‘(i) the total number of units of each
dosage form and strength paid for under
the State plan in the rebate period (as re-
ported by the State); and
‘‘(ii) the greater of—
‘‘(I) the difference between the
average manufacturer price and the
best price (as defined in subparagraph
(C)) for the dosage form and strength
of the drug, or
1073
‘‘(II) the minimum rebate per-
centage (specified in subparagraph
(B)) of such average manufacturer
price,
for the rebate period.
‘‘(B) MINIMUM
REBATE
PERCENTAGE.—
For purposes of subparagraph (A)(ii)(II), the
‘minimum rebate percentage’ is 15 percent.
‘‘(C) BEST
PRICE
DEFINED.—For pur-
poses of this section—
‘‘(i) IN
GENERAL.—The term ‘best
price’ means, with respect to a single
source drug or innovator multiple source
drug of a manufacturer, the lowest price
available from the manufacturer during the
rebate period to any wholesaler, retailer,
provider, health maintenance organization,
nonprofit entity, or governmental entity
within the United States, excluding—
‘‘(I) any prices charged on or
after October 1, 1992, to the Indian
Health Service, the Department of
Veterans Affairs, a State home receiv-
ing funds under section 1741 of title
38, United States Code, the Depart-
1074
ment of Defense, the Public Health
Service, or a covered entity described
in section 340B(a)(4) of the Public
Health Service Act,
‘‘(II) any prices charged under
the Federal Supply Schedule of the
General Services Administration,
‘‘(III) any prices used under a
State pharmaceutical assistance pro-
gram, and
‘‘(IV) any depot prices and single
award contract prices, as defined by
the Secretary, of any agency of the
Federal Government.
‘‘(ii) SPECIAL RULES.—The term ‘best
price’—
‘‘(I) shall be inclusive of cash dis-
counts, free goods that are contingent
on any purchase requirement, volume
discounts, and rebates (other than re-
bates under this section),
‘‘(II) shall be determined without
regard to special packaging, labeling,
or identifiers on the dosage form or
product or package,
1075
‘‘(III) shall not take into account
prices that are merely nominal in
amount, and
‘‘(IV) shall exclude rebates paid
under this section or any other re-
bates paid to a State participating in
the master rebate agreement.
‘‘(2) ADDITIONAL REBATE FOR SINGLE SOURCE
AND INNOVATOR MULTIPLE SOURCE DRUGS.—
‘‘(A) IN GENERAL.—The amount of the re-
bate specified in this subsection with respect to
a State participating in the master rebate
agreement for a rebate period, with respect to
each dosage form and strength of a single
source drug or an innovator multiple source
drug, shall be increased by an amount equal to
the product of—
‘‘(i) the total number of units of such
dosage form and strength dispensed after
December 31, 1990, for which payment
was made under the State plan for the re-
bate period; and
‘‘(ii) the amount (if any) by which—
‘‘(I) the average manufacturer
price 
for 
the 
dosage 
form 
and
1076
strength of the drug for the period,
exceeds
‘‘(II) the average manufacturer
price for such dosage form and
strength for the calendar quarter be-
ginning July 1, 1990 (without regard
to whether or not the drug has been
sold or transferred to an entity, in-
cluding a division or subsidiary of the
manufacturer, after the first day of
such quarter), increased by the per-
centage by which the Consumer Price
Index for All Urban Consumers (Unit-
ed States city average) for the month
before the month in which the rebate
period begins exceeds such index for
September 1990.
‘‘(B) TREATMENT OF SUBSEQUENTLY AP-
PROVED DRUGS.—In the case of a covered out-
patient drug approved by the Food and Drug
Administration after October 1, 1990, clause
(ii)(II) of subparagraph (A) shall be applied by
substituting ‘the first full calendar quarter after
the day on which the drug was first marketed’
for ‘the calendar quarter beginning July 1,
1077
1990’ and ‘the month prior to the first month
of the first full calendar quarter after the day
on which the drug was first marketed’ for ‘Sep-
tember 1990’.
‘‘(3) REBATE FOR OTHER DRUGS.—
‘‘(A) IN GENERAL.—The amount of the re-
bate paid to a State participating in the master
rebate agreement for a rebate period with re-
spect to each dosage form and strength of cov-
ered outpatient drugs (other than single source
drugs and innovator multiple source drugs)
shall be equal to the product of—
‘‘(i) the applicable percentage (as de-
scribed in subparagraph (B)) of the aver-
age manufacturer price for the dosage
form and strength for the rebate period,
and
‘‘(ii) the total number of units of such
dosage form and strength dispensed after
December 31, 1990, for which payment
was made under the State plan for the re-
bate period.
‘‘(B) 
APPLICABLE
PERCENTAGE
DE-
FINED.—For purposes of subparagraph (A)(i),
the ‘applicable percentage’ is 11 percent.
1078
‘‘(4) LIMITATION ON AMOUNT OF REBATE TO
AMOUNTS PAID FOR CERTAIN DRUGS.—
‘‘(A) IN GENERAL.—Upon request of the
manufacturer of a covered outpatient drug, the
Secretary shall limit, in accordance with sub-
paragraph (B), the amount of the rebate under
this subsection with respect to a dosage form
and strength of such drug if the majority of the
estimated number of units of such dosage form
and strength that are subject to rebates under
this section were dispensed to inpatients of
nursing facilities.
‘‘(B) AMOUNT OF REBATE.—In the case of
a covered outpatient drug subject to subpara-
graph (A), the amount of the rebate specified in
this subsection for a rebate period, with respect
to each dosage form and strength of such drug,
shall not exceed the amount paid under the
State plan with respect to such dosage form
and strength of the drug in the rebate period
(without consideration of any dispensing fees
paid).
‘‘(5) SUPPLEMENTAL REBATES PROHIBITED.—
No rebates shall be required to be paid by manufac-
turers with respect to covered outpatient drugs fur-
1079
nished to individuals in any State that provides for
the collection of such rebates in excess of the rebate
amount payable under this section.
‘‘(d) LIMITATIONS
ON COVERAGE
OF DRUGS
BY
STATES PARTICIPATING IN MASTER AGREEMENT.—
‘‘(1) PERMISSIBLE
RESTRICTIONS.—A State
participating in the master rebate agreement under
this section may—
‘‘(A) subject to prior authorization under
its State plan any covered outpatient drug so
long as any such prior authorization program
complies with the requirements of paragraph
(5); and
‘‘(B) exclude or otherwise restrict coverage
under its plan of a covered outpatient drug if—
‘‘(i) the drug is contained in the list
referred to in paragraph (2);
‘‘(ii) the drug is subject to such re-
strictions pursuant to the master rebate
agreement or any agreement described in
subsection (a)(4); or
‘‘(iii) the State has excluded coverage
of the drug from its formulary established
in accordance with paragraph (4).
1080
‘‘(2) LIST
OF
DRUGS
SUBJECT
TO
RESTRIC-
TION.—The following drugs or classes of drugs, or
their medical uses, may be excluded from coverage
or otherwise restricted by a State participating in
the master rebate agreement:
‘‘(A) Agents when used for anorexia,
weight loss, or weight gain.
‘‘(B) Agents when used to promote fertil-
ity.
‘‘(C) Agents when used for cosmetic pur-
poses or hair growth.
‘‘(D) Agents when used for the sympto-
matic relief of cough and colds.
‘‘(E) Agents when used to promote smok-
ing cessation.
‘‘(F) Prescription vitamins and mineral
products, except prenatal vitamins and fluoride
preparations.
‘‘(G) Nonprescription drugs.
‘‘(H) Covered outpatient drugs which the
manufacturer seeks to require as a condition of
sale that associated tests or monitoring services
be purchased exclusively from the manufacturer
or its designee.
‘‘(I) Barbiturates.
1081
‘‘(J) Benzodiazepines.
‘‘(3) ADDITIONS TO DRUG LISTINGS.—The Sec-
retary shall, by regulation, periodically update the
list of drugs or classes of drugs described in para-
graph (2), or their medical uses, which the Secretary
has determined to be subject to clinical abuse or in-
appropriate use.
‘‘(4) REQUIREMENTS
FOR
FORMULARIES.—A
State participating in the master rebate agreement
may establish a formulary if the formulary meets the
following requirements:
‘‘(A) The formulary is developed by a com-
mittee consisting of physicians, pharmacists,
and other appropriate individuals appointed by
the Governor of the State.
‘‘(B) Except as provided in subparagraph
(C), the formulary includes the covered out-
patient drugs of any manufacturer which has
entered into and complies with the agreement
under subsection (a) (other than any drug ex-
cluded from coverage or otherwise restricted
under paragraph (2)).
‘‘(C) A covered outpatient drug may be ex-
cluded with respect to the treatment of a spe-
cific disease or condition for an identified popu-
1082
lation (if any) only if, based on the drug’s label-
ing (or, in the case of a drug the prescribed
use of which is not approved under the Federal
Food, Drug, and Cosmetic Act but is a medi-
cally accepted indication, based on information
from the appropriate compendia described in
subsection (i)(5)), the excluded drug does not
have a significant, clinically meaningful thera-
peutic advantage in terms of safety, effective-
ness, or clinical outcome of such treatment for
such population over other drugs included in
the formulary and there is a written expla-
nation (available to the public) of the basis for
the exclusion.
‘‘(D) The State plan permits coverage of a
drug excluded from the formulary (other than
any drug excluded from coverage or otherwise
restricted under paragraph (2)) pursuant to a
prior authorization program that is consistent
with paragraph (5).
‘‘(E) The formulary meets such other re-
quirements as the Secretary may impose in
order to achieve program savings consistent
with protecting the health of program bene-
ficiaries.
1083
A prior authorization program established by a State
under paragraph (5) is not a formulary subject to
the requirements of this paragraph.
‘‘(5) REQUIREMENTS OF PRIOR AUTHORIZATION
PROGRAMS.—The State plan of a State participating
in the master rebate agreement may require, as a
condition of coverage or payment for a covered out-
patient drug for which Federal financial participa-
tion is available in accordance with this section, the
approval of the drug before its dispensing for any
medically accepted indication (as defined in sub-
section (i)(5)) only if the system providing for such
approval—
‘‘(A) provides response by telephone or
other telecommunication device within 24 hours
of a request for prior authorization, and
‘‘(B) except with respect to the drugs on
the list referred to in paragraph (2), provides
for the dispensing of at least a 72-hour supply
of a covered outpatient prescription drug in an
emergency situation (as defined by the Sec-
retary).
‘‘(6) OTHER
PERMISSIBLE
RESTRICTIONS.—A
State participating in the master rebate agreement
may impose limitations, with respect to all such
1084
drugs in a therapeutic class, on the minimum or
maximum quantities per prescription or on the num-
ber of refills, if such limitations are necessary to dis-
courage waste, and may address instances of fraud
or abuse by individuals in any manner authorized
under this Act.
‘‘(e) DRUG USE REVIEW.—
‘‘(1) IN GENERAL.—A State participating in the
master rebate agreement may provide for a drug use
review program to educate physicians and phar-
macists to identify and reduce the frequency of pat-
terns of fraud, abuse, gross overuse, or inappropri-
ate or medically unnecessary care, among physicians,
pharmacists, and patients, or associated with specific
drugs or groups of drugs, as well as potential and
actual severe adverse reactions to drugs.
‘‘(2) APPLICATION OF STATE STANDARDS.—A
State with a drug use review program under this
subsection shall establish and operate the program
under such standards as it may establish.
‘‘(f) ELECTRONIC CLAIMS MANAGEMENT.—In ac-
cordance with chapter 35 of title 44, United States Code
(relating to coordination of Federal information policy),
the Secretary shall encourage each State to establish, as
its principal means of processing claims for covered out-
1085
patient drugs under its State plan, a point-of-sale elec-
tronic claims management system, for the purpose of per-
forming on-line, real time eligibility verifications, claims
data capture, adjudication of claims, and assisting phar-
macists (and other authorized persons) in applying for and
receiving payment.
‘‘(g) ANNUAL REPORT.—
‘‘(1) IN GENERAL.—Not later than May 1 of
each year, the Secretary shall transmit to the Com-
mittee on Finance of the Senate, and the Committee
on Commerce of the House of Representatives, a re-
port on the operation of this section in the preceding
fiscal year.
‘‘(2) DETAILS.—Each report shall include infor-
mation on—
‘‘(A) ingredient costs paid under this title
for single source drugs, multiple source drugs,
and nonprescription covered outpatient drugs,
‘‘(B) the total value of rebates received
and number of manufacturers providing such
rebates,
‘‘(C) the effect of inflation on the value of
rebates required under this section,
‘‘(D) trends in prices paid under this title
for covered outpatient drugs, and
1086
‘‘(E) Federal and State administrative
costs associated with compliance with the provi-
sions of this title.
‘‘(h) EXEMPTION FOR CAPITATED HEALTH CARE
ORGANIZATIONS, HOSPITALS, AND CERTAIN NURSING
FACILITIES.—
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), the requirements of the master rebate
agreement under this section shall not apply with re-
spect to covered outpatient drugs dispensed by or
through—
‘‘(A) a capitated health care organization
(as defined in section 1504(c)(1)),
‘‘(B) a hospital that dispenses covered out-
patient drugs using a drug formulary system
and bills the State no more than the hospital’s
purchasing costs for covered outpatient drugs,
or
‘‘(C) a nursing facility which receives pay-
ment under this title for health care services,
including prescription drugs, on a capitated
basis and which dispenses covered outpatient
drugs using a drug formulary system.
‘‘(2) CONSTRUCTION
IN
DETERMINING
BEST
PRICE.—Nothing in paragraph (1) shall be con-
1087
strued as excluding amounts paid by the entities de-
scribed in such paragraph for covered outpatient
drugs from the determination of the best price (as
defined in subsection (c)(1)(C)) for such drugs.
‘‘(i) DEFINITIONS.—In the section—
‘‘(1) AVERAGE
MANUFACTURER
PRICE.—The
term ‘average manufacturer price’ means, with re-
spect to a covered outpatient drug of a manufacturer
for a rebate period, the average price paid to the
manufacturer for the drug in the United States by
wholesalers for drugs distributed to the retail phar-
macy class of trade, after deducting customary
prompt pay discounts.
‘‘(2) COVERED OUTPATIENT DRUG.—Subject to
the exceptions in paragraph (3), the term ‘covered
outpatient drug’ means—
‘‘(A) of those drugs which are treated as
prescribed drugs for purposes of section
1571(a)(8), a drug which may be dispensed
only upon prescription (except as provided in
subparagraph (D)), and—
‘‘(i) which is approved as a prescrip-
tion drug under section 505 or 507 of the
Federal Food, Drug, and Cosmetic Act;
1088
‘‘(ii)(I) which was commercially used
or sold in the United States before the
date of the enactment of the Drug Amend-
ments of 1962 or which is identical, simi-
lar, or related (within the meaning of sec-
tion 310.6(b)(1) of title 21 of the Code of
Federal Regulations) to such a drug, and
(II) which has not been the subject of a
final determination by the Secretary that it
is a ‘new drug’ (within the meaning of sec-
tion 201(p) of the Federal Food, Drug,
and Cosmetic Act) or an action brought by
the Secretary under section 301, 302(a),
or 304(a) of such Act to enforce section
502(f) or 505(a) of such Act; or
‘‘(iii)(I) which is described in section
107(c)(3) of the Drug Amendments of
1962 and for which the Secretary has de-
termined there is a compelling justification
for its medical need, or is identical, simi-
lar, or related (within the meaning of sec-
tion 310.6(b)(1) of title 21 of the Code of
Federal Regulations) to such a drug, and
(II) for which the Secretary has not issued
a notice of an opportunity for a hearing
1089
under section 505(e) of the Federal Food,
Drug, and Cosmetic Act on a proposed
order of the Secretary to withdraw ap-
proval of an application for such drug
under such section because the Secretary
has determined that the drug is less than
effective for some or all conditions of use
prescribed, recommended, or suggested in
its labeling;
‘‘(B) a biological product, other than a
vaccine which—
‘‘(i) may only be dispensed upon pre-
scription,
‘‘(ii) is licensed under section 351 of
the Public Health Service Act, and
‘‘(iii) is produced at an establishment
licensed under such section to produce
such product;
‘‘(C) insulin certified under section 506 of
the Federal Food, Drug, and Cosmetic Act; and
‘‘(D) a drug which may be sold without a
prescription (commonly referred to as an ‘over-
the-counter drug’), if the drug is prescribed by
a physician (or other person authorized to pre-
scribe under State law).
1090
‘‘(3) LIMITING DEFINITION.—The term ‘covered
outpatient drug’ does not include any drug, biologi-
cal product, or insulin provided as part of, or as in-
cident to and in the same setting as, any of the fol-
lowing (and for which payment may be made under
a State plan as part of payment for the following
and not as direct reimbursement for the drug):
‘‘(A) Inpatient hospital services.
‘‘(B) Hospice services.
‘‘(C) Dental services, except that drugs for
which the State plan authorizes direct reim-
bursement to the dispensing dentist are covered
outpatient drugs.
‘‘(D) Physicians’ services.
‘‘(E) Outpatient hospital services.
‘‘(F) Nursing facility services and services
provided by an intermediate care facility for the
mentally retarded.
‘‘(G) Other laboratory and x-ray services.
‘‘(H) Renal dialysis services.
Such term also does not include any such drug or
product for which a National Drug Code number is
not required by the Food and Drug Administration
or a drug or biological product used for a medical
indication which is not a medically accepted indica-
1091
tion. Any drug, biological product, or insulin ex-
cluded from the definition of such term as a result
of this paragraph shall be treated as a covered out-
patient drug for purposes of determining the best
price (as defined in subsection (c)(1)(C)) for such
drug, biological product, or insulin.
‘‘(4) MANUFACTURER.—The term ‘manufac-
turer’ means, with respect to a covered outpatient
drug, the entity holding legal title to or possession
of the National Drug Code number for such drug.
‘‘(5) MEDICALLY ACCEPTED INDICATION.—The
term ‘medically accepted indication’ means any use
for a covered outpatient drug which is approved
under the Federal Food, Drug, and Cosmetic Act, or
the use of which is supported by one or more cita-
tions included or approved for inclusion in any of the
following compendia:
‘‘(A) American Hospital Formulary Service
Drug Information.
‘‘(B) United States Pharmacopeia-Drug
Information.
‘‘(C) American Medical Association Drug
Evaluations.
‘‘(D) The DRUGDEX Information Sys-
tem.
1092
‘‘(E) The peer-reviewed medical literature.
‘‘(6) MULTIPLE
SOURCE
DRUG; INNOVATOR
MULTIPLE
SOURCE
DRUG; NONINNOVATOR
MUL-
TIPLE SOURCE DRUG; SINGLE SOURCE DRUG.—
‘‘(A) DEFINED.—
‘‘(i) MULTIPLE SOURCE DRUG.—The
term ‘multiple source drug’ means, with
respect to a rebate period, a covered out-
patient drug (not including any drug de-
scribed in paragraph (2)(D)) for which
there are 2 or more drug products which—
‘‘(I) are rated as therapeutically
equivalent (under the Food and Drug
Administration’s most recent publica-
tion of ‘Approved Drug Products with
Therapeutic 
Equivalence 
Evalua-
tions’),
‘‘(II) except as provided in sub-
paragraph (B), are pharmaceutically
equivalent and bioequivalent, as de-
fined in subparagraph (C) and as de-
termined by the Food and Drug Ad-
ministration, and
‘‘(III) are sold or marketed in
the State during the period.
1093
‘‘(ii) INNOVATOR
MULTIPLE
SOURCE
DRUG.—The 
term 
‘innovator 
multiple
source drug’ means a multiple source drug
that was originally marketed under an
original new drug application or product li-
censing application approved by the Food
and Drug Administration.
‘‘(iii) 
NONINNOVATOR
MULTIPLE
SOURCE
DRUG.—The term ‘noninnovator
multiple source drug’ means a multiple
source drug that is not an innovator mul-
tiple source drug.
‘‘(iv) SINGLE
SOURCE
DRUG.—The
term ‘single source drug’ means a covered
outpatient drug (other than a drug de-
scribed in subparagraph (C) or (D) of
paragraph (2)) which is produced or dis-
tributed under an original new drug appli-
cation approved by the Food and Drug Ad-
ministration, including a drug product
marketed by any cross-licensed producers
or distributors operating under the new
drug application or product licensing appli-
cation.
1094
‘‘(B) 
EXCEPTION.—Subparagraph
(A)(i)(II) shall not apply if the Food and Drug
Administration changes by regulation the re-
quirement that, for purposes of the publication
described in subparagraph (A)(i)(I), in order
for drug products to be rated as therapeutically
equivalent, they must be pharmaceutically
equivalent and bioequivalent, as defined in sub-
paragraph (C).
‘‘(C) DEFINITIONS.—For purposes of this
paragraph—
‘‘(i) drug products are pharmaceuti-
cally equivalent if the products contain
identical amounts of the same active drug
ingredient in the same dosage form and
meet compendial or other applicable stand-
ards of strength, quality, purity, and iden-
tity,
‘‘(ii) drugs are bioequivalent if they do
not present a known or potential bio-
equivalence problem, or, if they do present
such a problem, they are shown to meet an
appropriate standard of bioequivalence,
and
1095
‘‘(iii) a drug product is considered to
be sold or marketed in a State if it appears
in a published national listing of average
wholesale prices selected by the Secretary,
if the listed product is generally available
to the public through retail pharmacies in
that State.
‘‘(7) REBATE PERIOD.—The term ‘rebate pe-
riod’ means, with respect to an agreement under
subsection (a), a calendar quarter or other period
specified by the Secretary with respect to the pay-
ment of rebates under such agreement.’’.
SEC. 2004. STATE ELECTION; TERMINATION OF CURRENT
PROGRAM; AND TRANSITION.
(a) TERMINATION OF CURRENT PROGRAM; LIMITA-
TION ON MEDICAID PAYMENTS IN FISCAL YEAR 1997.—
(1) REPEAL OF TITLE.—Title XIX of the Social
Security Act is repealed effective October 1, 1997,
except that the repeal of section 1928 of such Act
is effective on the date of the enactment of this Act
and the succeeding two sections of such title shall be
effective during fiscal year 1996 in the same manner
and to the same extent as such sections were effec-
tive during fiscal year 1995.
1096
(2) LIMITATION ON OBLIGATION AUTHORITY.—
Notwithstanding any other provision of such title—
(A) FISCAL YEAR 1997.—Subject to sub-
paragraph (B), the Secretary of Health and
Human Services (in this section referred to as
the ‘‘Secretary’’) may enter into obligations
under such title with any State (as defined for
purposes of such title) for expenses incurred
during fiscal year 1997, but not in excess of the
sum determined under clauses (i), (ii) and (iv)
of section 1511(a)(2)(A) of the Social Security
Act (as added by section 2) for that State for
fiscal year 1997.
(B) NONE AFTER EFFECTIVE DATE.—The
Secretary is not authorized to enter into any
obligation with any State under title XIX of
such Act for expenses incurred on or after the
earlier of—
(i) October 1, 1997, or
(ii) the first day of the first quarter
on which the State plan under title XV of
such Act (as added by section 2) is first ef-
fective.
(C) AGREEMENT.—A State’s submission of
claims for payment under section 1903 of such
1097
Act on or after October 1, 1996, is deemed to
constitute the State’s acceptance of the obliga-
tion limitation under subparagraph (A) (includ-
ing the formula for computing the amount of
such obligation limitation).
(D) EFFECT ON MEDICAL ASSISTANCE.—
Effective October 1, 1996—
(i) except as provided in this para-
graph, the Federal Government has no ob-
ligation to provide payment with respect to
items and services provided under title
XIX of the Social Security Act, and
(ii) such title and title XV of such Act
shall not be construed as providing for an
entitlement, under Federal law in relation
to the Federal Government, in an individ-
ual or person (including any provider) at
the time of provision or receipt of services.
(3) REQUIREMENT FOR TIMELY SUBMITTAL OF
CLAIMS.—No payment shall be made to a State
under title XIX of such Act with respect to an obli-
gation incurred before October 1, 1996, unless the
State has submitted to the Secretary, by not later
than April 1, 1997, a claim for Federal financial
participation for expenses paid by the State with re-
1098
spect to such obligations. Nothing in paragraph (2)
shall be construed as affecting the obligation of the
Federal Government to pay claims described in the
previous sentence.
(b) TRANSITION PROVISIONS.—
(1) Notwithstanding any other provision of law,
in the case where payment has been made under sec-
tion 1903(a) of the Social Security Act to a State
before March 1, 1996, and for which a disallowance
has not been taken as of such date (or, if so taken,
has not been completed, including judicial review, by
such date), the Secretary of Health and Human
Services shall discontinue the disallowance proceed-
ing and, if such disallowance has been taken as of
the date of the enactment of this Act, any payment
reductions effected shall be rescinded and the pay-
ments returned to the State.
(2) The repeal under subsection (a)(1) of sec-
tion 1928 of the Social Security Act shall not affect
the distribution of vaccines purchased and delivered
to the States before the date of the enactment of
this Act. No vaccine may be purchased after such
date by the Federal Government or any State under
any contract under section 1928(d) of the Social Se-
curity Act.
1099
(3) No judicial or administrative decision ren-
dered regarding requirements imposed under title
XIX of the Social Security Act with respect to a
State shall have any application to the State plan of
the State under title XV of such Act. A State may,
pursuant to the previous sentence, seek the abroga-
tion or modification of any such decision after the
date of termination of the State medicaid plan under
title XIX of such Act.
(4) No cause of action under title XIX of the
Social Security Act which seeks to require a State
to establish or maintain minimum payment rates
under such title or claim which seeks reimbursement
for any period before the date of the enactment of
this Act based on the alleged failure of the State to
comply with such title and which has not become
final as of such date shall be brought or continued.
(5) Section 6408(a)(3) of the Omnibus Budget
Reconciliation Act of 1989 (as amended by section
13642 of the Omnibus Budget Reconciliation Act of
1993) and section 2 of Public Law 102–276 (as
amended by section 13644 of the Omnibus Budget
Reconciliation Act of 1993) are each amended by
striking ‘‘December 31, 1995’’ and inserting ‘‘Octo-
ber 1, 1997’’.
1100
(c) ANTI-FRAUD PROVISIONS.—Section 1128(h)(1)
of the Social Security Act (42 U.S.C. 1320a–7(h)(1)) is
amended by inserting ‘‘or a State plan under title XV’’
after ‘‘title XIX’’.
(d) TECHNICAL AND CONFORMING AMENDMENTS.—
(1) SECRETARIAL SUBMISSION OF LEGISLATIVE
PROPOSAL.—Not later than 90 days after the date
of the enactment of this Act, the Secretary of
Health and Human Services, in consultation, as ap-
propriate, with heads of other Federal agencies and
the States (as defined in section 1101(a)(8) of the
Social Security Act for purposes of title XIX of such
Act), shall submit to the appropriate committees of
Congress a legislative proposal providing for such
technical and conforming amendments in the law as
are required by the provisions of, and amendments
made by, this title.
(2) TRANSITIONAL
RULE.—Any reference in
any provision of law to title XIX of the Social Secu-
rity Act or any provision thereof shall be deemed to
be a reference to such title or provision as in effect
on the day before the date of the enactment of this
Act.
SEC. 2005. INTEGRATION DEMONSTRATION PROJECT.
(a) DESCRIPTION OF PROJECTS.—
1101
(1) IN GENERAL.—The Secretary of Health and
Human Services (in this section referred to as the
‘‘Secretary’’) may waive such requirements of titles
XVIII and XV of the Social Security Act as may be
necessary for States to conduct demonstration
projects under this section. Such projects shall dem-
onstrate the manner in which States may use funds
from the programs under such titles to develop and
implement innovative programs for individuals dually
eligible for benefits under both titles, including such
individuals who are chronically ill. The Secretary
shall grant waivers in a manner that permits States
flexibility in contracting with medicare risk providers
and other providers for services, oversight of con-
tract administration and quality management, and
administration of a single enrollment process. Such
a waiver may restrict time period during which
project participants may disenroll without cause
from capitated health plans under the medicare pro-
gram.
(2) VOLUNTARY PARTICIPATION.—A State may
not require an individual eligible to receive items and
services under the medicare and title XV programs
to participate in a demonstration project under this
section.
1102
(b) BUDGET NEUTRALITY AND REINVESTMENT OF
SAVINGS.—
(1) BUDGET NEUTRALITY.—The Secretary shall
not approve a demonstration project under this sec-
tion for a State unless the State demonstrates that
the amount of the Federal expenditures under the
program will not exceed the amount of the Federal
expenditures that would have been made if the
project had not been approve.
(2) USE OF SAVINGS.—The Secretary shall per-
mit a State to retain any savings achieved under a
project and to use such savings for—
(A) expanding eligibility for low income
medicare beneficiaries who are risk of institu-
tionalization and who, if institionalized, are
likely to qualify for benefits under title XV of
the Social Security Act, and
(B) providing a scope of services under the
project that exceeds the scope of services nor-
mally covered under such title.
(c) LIMITATION ON NUMBER OF PROJECTS.—Not
more than 10 demonstration projects shall be conducted
under this section.
(d) DURATION.—
1103
(1) IN GENERAL.—Subject to paragraph (2), a
demonstration project conducted under this section
shall be conducted for an initial period of 5 years
and, upon the request of a State and a finding by
the Secretary that the project has been successful,
shall be extended indefinitely.
(2) TERMINATION.—The Secretary may, with
90 days’ notice, terminate any demonstration project
conducted under this section that is not in substan-
tial compliance with the terms of the application ap-
proved by the Secretary under this section.
(e) APPLICATIONS.—Each State, or a coalition of
States, desiring to conduct a demonstration project under
this section shall prepare and submit to the Secretary an
application at such time, in such manner, and containing
such information as the Secretary may require, including
an explanation of a plan for evaluating the project. The
Secretary shall approve or deny an application not later
than 90 days after the receipt of such application.
(f) PAYMENTS.—For each calendar quarter occurring
during a demonstration project conducted under this sec-
tion, the Secretary shall provide for payments to the State
in a manner consistent with subsection (b)(1).
(g) OVERSIGHT.—The Secretary shall establish qual-
ity standards for evaluating and monitoring the dem-
1104
onstration projects conducted under this section. Such
quality standards shall include reporting requirements
which contain the following:
(1) A description of the demonstration project.
(2) An analysis of beneficiary satisfaction under
such project.
(3) An analysis of the quality of the services de-
livered under the project.
(4) A description of the savings to the medicare
and title XV programs as a result of the demonstra-
tion project.
Æ