I
103D CONGRESS
2D SESSION
H. R. 3698
To provide Americans with secure, portable health insurance benefits and
greater choice of health insurance plans, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
NOVEMBER 22, 1993
Mr. STEARNS (for himself, Mr. ARMEY, Mr. HASTERT, Mr. BAKER of Califor-
nia, Mr. CUNNINGHAM, Mr. DELAY, Mr. GINGRICH, Mr. RAMSTAD, Mr.
GRAMS, Mr. HANCOCK, Mr. HYDE, Mr. TALENT, Mrs. VUCANOVICH, Mr.
HUTCHINSON, Mr. DORNAN, Mr. HUNTER, Mr. GEKAS, and Mr. DUN-
CAN) introduced the following bill; which was referred jointly to the Com-
mittees on Energy and Commerce, Ways and Means, Education and
Labor, the Judiciary, and Rules
MARCH 1, 1994
Additional sponsors: Mr. GOSS, Mr. CRAMER, Mr. CRANE, Mr. SMITH of
Michigan, and Mr. LINDER
A BILL
To provide Americans with secure, portable health insurance
benefits and greater choice of health insurance plans,
and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE AND TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Consumer Choice Health Security Act of 1993’’.
(b) TABLE OF CONTENTS.—The table of contents for
this Act is as follows:
Sec. 1. Short title and table of contents.
Sec. 2. Purposes.
TITLE I—TAX AND INSURANCE PROVISIONS
Subtitle A—Tax Treatment of Health Care Expenses
Sec. 101. Refundable health care expenses tax credit.
Sec. 102. Medical savings accounts.
Sec. 103. Other tax provisions.
Subtitle B—Insurance Provisions
PART I—FEDERALLY QUALIFIED HEALTH INSURANCE PLAN
Sec. 111. Federally qualified health insurance plan.
Sec. 112. Family security benefits package.
Sec. 113. Rating practices.
Sec. 114. Guaranteed issue.
Sec. 115. Guaranteed renewability.
PART II—CERTIFICATION OF FEDERALLY QUALIFIED HEALTH INSURANCE
PLANS
Sec. 117. Establishment of regulatory program for certification of plans.
Sec. 118. Standards for regulatory programs.
Subtitle C—Employer Provisions
Sec. 121. General provisions relating to employers.
Sec. 122. Conversion of non-self-insured plans.
Sec. 123. Provisions relating to existing self-insured plans.
Sec. 124. Continuation of employer-provided health coverage required until ef-
fective date of new coverage under this Act.
Sec. 125. Requirements with respect to cashing out employer-sponsored plans.
Sec. 126. Enforcement.
Subtitle D—State Plan Requirements
Sec. 131. State plan requirements.
Subtitle E—Federal Preemption
Sec. 141. Federal preemption of certain State laws.
TITLE II—MEDICARE AND MEDICAID REFORMS
Subtitle A—Medicare
Sec. 201. Study of medicare private health insurance program.
Sec. 202. Elimination of medicare hospital disproportionate share adjustment
payments.
Sec. 203. Reduction in adjustment for indirect medical education.
Sec. 204. Imposition of copayment for skilled nursing facility services.
Sec. 205. Shift payment updates to January for all payment rates under hos-
pital insurance program.
Sec. 206. Acceleration of transition to prospective rates for facility costs in hos-
pital outpatient departments.
Subtitle B—Medicaid
Sec. 211. Cap on Federal payments made for acute medical services under the
medicaid program.
Sec. 212. Waivers for the furnishing of acute medical services under the medic-
aid program.
Sec. 213. Termination of disproportionate share payments.
Sec. 214. Grants for health insurance coverage, acute medical services, preven-
tive care, and disease prevention.
TITLE III—HEALTH CARE LIABILITY REFORM
Sec. 301. Short title.
Sec. 302. Definitions.
Sec. 303. Health care malpractice.
Sec. 304. Health care product liability of manufacturer or seller.
Sec. 305. General provisions relating to health care liability.
Sec. 306. Punitive damages.
Sec. 307. Exceptions.
Sec. 308. Rules of construction.
TITLE IV—ADMINISTRATIVE COST SAVINGS
Subtitle A—Standardization of Claims Processing
Sec. 401. Adoption of data elements, uniform claims, and uniform electronic
transmission standards.
Sec. 402. Application of standards.
Sec. 403. Periodic review and revision of standards.
Sec. 404. Health insurance plan defined.
Subtitle B—Electronic Medical Data Standards
Sec. 411. Medical data standards for hospitals and other providers.
Sec. 412. Application of electronic data standards to certain hospitals.
Sec. 413. Electronic transmission to Federal agencies.
Sec. 414. Limitation on data requirements where standards in effect.
Sec. 415. Advisory commission.
Subtitle C—Development and Distribution of Comparative Value Information
Sec. 421. State comparative value information programs for health care pur-
chasing.
Sec. 422. Federal implementation.
Sec. 423. Comparative value information concerning Federal programs.
Subtitle D—Preemption of State Quill Pen Laws
Sec. 431. Preemption of State quill pen laws.
TITLE V—ANTI-FRAUD
Subtitle A—Criminal Prosecution of Health Care Fraud
Sec. 501. Penalties for health care fraud.
Sec. 502. Rewards for information leading to prosecution and conviction.
Subtitle B—Coordination of Health Care Anti-Fraud and Abuse Activities
Sec. 511. Application of Federal health anti-fraud and abuse sanctions to all
fraud and abuse against any health insurance plan.
TITLE VI—ANTITRUST PROVISIONS
Sec. 601. Exemption from antitrust laws for certain competitive and collabo-
rative activities.
Sec. 602. Safe harbors.
Sec. 603. Designation of additional safe harbors.
Sec. 604. Certificates of review.
Sec. 605. Notifications providing reduction in certain penalties under antitrust
law for health care cooperative ventures.
Sec. 606. Review and reports on safe harbors and certificates of review.
Sec. 607. Rules, regulations, and guidelines.
Sec. 608. Definitions.
TITLE VII—LONG-TERM CARE
Sec. 701. Exclusion from gross income for amounts withdrawn from individual
retirement plans or 401(k) plans for long-term care insurance.
Sec. 702. Certain exchanges of life insurance contracts for long-term care in-
surance contracts not taxable.
Sec. 703. Tax treatment of accelerated death benefits under life insurance con-
tracts.
Sec. 704. Effective date.
TITLE VIII—WELFARE RESTRICTIONS FOR ALIENS
Sec. 801. Ineligibility of aliens for public welfare assistance.
Sec. 802. State AFDC agencies required to provide information on illegal aliens
to the Immigration and Naturalization Service.
TITLE IX—INCREASE IN ASSISTANCE TO COMMUNITY AND
MIGRANT HEALTH CENTERS FROM RESIDUAL SAVINGS
Sec. 901. Grant program to promote primary health care services for under-
served populations.
SEC. 2. PURPOSES.
The purposes of this Act are to—
(1) provide Americans with secure, portable
health insurance benefits and greater choice of
health insurance plans,
(2) make the American health care system re-
sponsive to consumer needs and encourage the provi-
sion of quality medical care at reasonable prices
through enhanced competition,
(3) provide more equitable tax treatment of
health insurance and medical care expenses, and
(4) assist low-income and uninsured Americans
in purchasing health insurance and receiving pri-
mary medical care.
TITLE I—TAX AND INSURANCE
PROVISIONS
Subtitle A—Tax Treatment of
Health Care Expenses
SEC. 101. REFUNDABLE HEALTH CARE EXPENSES TAX
CREDIT.
(a) IN GENERAL.—Subpart C of part IV of sub-
chapter A of chapter 1 of the Internal Revenue Code of
1986 (relating to refundable personal credits) is amended
by inserting after section 34 the following new section:
‘‘SEC. 34A. HEALTH CARE EXPENSES.
‘‘(a) ALLOWANCE
OF CREDIT.—In the case of a
qualified individual, there shall be allowed as a credit
against the tax imposed by this subtitle for the taxable
year an amount equal to the applicable percentage of the
sum of—
‘‘(1) 25 percent of the sum of the qualified
health insurance premiums and the unreimbursed
expenses for medical care paid by such individual
during the taxable year which does not exceed 10
percent of the adjusted gross income of such individ-
ual for such year, plus
‘‘(2) 50 percent of the sum of such premiums
and such unreimbursed expenses so paid which ex-
ceeds 10 percent but does not exceed 20 percent of
such adjusted gross income, plus
‘‘(3) 75 percent of the sum of such premiums
and such unreimbursed expenses so paid which ex-
ceeds 20 percent of such adjusted gross income.
‘‘(b) QUALIFIED INDIVIDUALS.—For purposes of this
section—
‘‘(1) IN GENERAL.—The term ‘qualified individ-
ual’ means the taxpayer, the spouse of the taxpayer,
and each dependent of the taxpayer (as defined in
section 152) who is enrolled in a federally qualified
health insurance plan.
‘‘(2) FEDERALLY COVERED INDIVIDUALS.—The
term ‘qualified individual’ does not include any indi-
vidual whose medical care is covered under—
‘‘(A) title XVIII or XIX of the Social Se-
curity Act,
‘‘(B) chapter 55 of title 10, United States
Code,
‘‘(C) chapter 17 of title 38, United States
Code, or
‘‘(D) the Indian Health Care Improvement
Act.
‘‘(3) SPECIAL RULE IN THE CASE OF CHILD OF
DIVORCED PARENTS, ETC.—Any child to whom sec-
tion 152(e) applies shall be treated as a dependent
of both parents.
‘‘(4) MARRIAGE RULES.—The determination of
whether an individual is married at any time during
the taxable year shall be made in accordance with
the provisions of section 6013(d) (relating to deter-
mination of status as husband and wife).
‘‘(c) APPLICABLE PERCENTAGE.—For purposes of
subsection (a), the applicable percentage for any taxable
year is determined by the number of whole months in such
year in which the taxpayer is a qualified individual.
‘‘(d) QUALIFIED HEALTH INSURANCE PREMIUMS.—
For purposes of this section, the term ‘qualified health in-
surance premiums’ means premiums for—
‘‘(1) a federally qualified health insurance plan,
and
‘‘(2) any other benefits or plans supplementary
to such a federally qualified health insurance plan.
‘‘(e) FEDERALLY QUALIFIED HEALTH INSURANCE
PLAN.—For purposes of this section, the term ‘federally
qualified health insurance plan’ means a health insurance
plan which is described in section 111 of the Consumer
Choice Health Security Act of 1993.
‘‘(f) MEDICAL CARE.—For purposes of this section—
‘‘(1) IN
GENERAL.—The term ‘medical care’
means amounts paid—
‘‘(A) for the diagnosis, cure, mitigation,
treatment, or prevention of disease, or for the
purpose of affecting any structure or function
of the body, and
‘‘(B) for transportation primarily for and
essential to medical care referred to in subpara-
graph (A).
‘‘(2) AMOUNTS
PAID
FOR
CERTAIN
LODGING
AWAY FROM HOME TREATED AS PAID FOR MEDICAL
CARE.—Amounts paid for lodging (not lavish or ex-
travagant under the circumstances) while away from
home primarily for and essential to medical care re-
ferred to in paragraph (1)(A) shall be treated as
amounts paid for medical care if—
‘‘(A) the medical care referred to in para-
graph (1)(A) is provided by a physician in a li-
censed hospital (or in a medical care facility
which is related to, or the equivalent of, a li-
censed hospital), and
‘‘(B) there is no significant element of per-
sonal pleasure, recreation, or vacation in the
travel away from home.
The amount taken into account under the preceding
sentence shall not exceed $50 for each night for each
individual.
‘‘(3) COSMETIC SURGERY.—
‘‘(A) IN
GENERAL.—The term ‘medical
care’ does not include cosmetic surgery or other
similar procedures, unless the surgery or proce-
dure is necessary to ameliorate a deformity
arising from, or directly related to, a congenital
abnormality, a personal injury resulting from
an accident or trauma, or disfiguring disease.
‘‘(B) COSMETIC SURGERY DEFINED.—For
purposes of this paragraph, the term ‘cosmetic
surgery’ means any procedure which is directed
at improving the patient’s appearance and does
not meaningfully promote the proper function
of the body or prevent or treat illness or dis-
ease.
‘‘(4) PHYSICIAN.—The term ‘physician’ has the
meaning given to such term by section 1861(r) of
the Social Security Act (42 U.S.C. 1395x(r)).
‘‘(g) SPECIAL RULES.—For purposes of this sec-
tion—
‘‘(1) LIMITATION WITH RESPECT TO MEDICINE
AND DRUGS.—
‘‘(A) IN GENERAL.—An amount paid dur-
ing the taxable year for medicine or a drug
shall be taken into account under subsection (a)
only if such medicine or drug is a prescribed
drug or is insulin.
‘‘(B) PRESCRIBED DRUG.—The term ‘pre-
scribed drug’ means a drug or biological which
requires a prescription of a physician for its use
by an individual.
‘‘(2) SPECIAL RULE FOR DECEDENTS.—
‘‘(A) TREATMENT
OF
EXPENSES
PAID
AFTER DEATH.—Expenses for the medical care
of the taxpayer which are paid out of the tax-
payer’s estate during the 1-year period begin-
ning with the day after the date of the tax-
payer’s death shall be treated as paid by the
taxpayer at the time incurred.
‘‘(B) 
LIMITATION.—Subparagraph 
(A)
shall not apply if the amount paid is allowable
under section 2053 as a deduction in computing
the taxable estate of the decedent, but this sub-
paragraph shall not apply if (within the time
and in the manner and form prescribed by the
Secretary) there is filed—
‘‘(i) a statement that such amount
has not been allowed as a deduction under
section 2053, and
‘‘(ii) a waiver of the right to have
such amount allowed at any time as a de-
duction under section 2053.
‘‘(3) FORM OF INSURANCE CONTRACT.—In the
case of an insurance contract under which amounts
are payable for other than medical care—
‘‘(A) no amount shall be treated as paid
for insurance to which subsection (a) applies
unless the charge for such insurance is either
separately stated in the contract, or furnished
to the policyholder by the insurance company in
a separate statement,
‘‘(B) the amount taken into account as the
amount paid for such insurance shall not exceed
such charge, and
‘‘(C) no amount shall be treated as paid
for such insurance if the amount specified in
the contract (or furnished to the policyholder by
the insurance company in a separate statement)
as the charge for such insurance is unreason-
ably large in relation to the total charges under
the contract.
‘‘(4) EXCLUSION OF AMOUNTS ALLOWED FOR
CARE OF CERTAIN DEPENDENTS.—Any expense al-
lowed as a credit under section 21 shall not be treat-
ed as an expense paid for medical care.
‘‘(5) COORDINATION WITH ADVANCE PAYMENT
AND MINIMUM TAX.—Rules similar to the rules of
subsections (g) and (h) of section 32 shall apply to
any credit to which this section applies.
‘‘(6) SUBSIDIZED EXPENSES.—No expense shall
be taken into account under subsection (a), if—
‘‘(A) such expense is paid, reimbursed, or
subsidized (whether by being disregarded for
purposes of another program or otherwise) by
the Federal Government, a State or local gov-
ernment, or any agency or instrumentality
thereof, and
‘‘(B) the payment, reimbursement, or sub-
sidy of such expense is not includable in the
gross income of the recipient.
‘‘(7) COORDINATION
WITH
MEDICAL
SAVINGS
ACCOUNTS.—The amount otherwise taken into ac-
count under subsection (a) shall be reduced by the
amount (if any) of the distributions from any medi-
cal savings account of the taxpayer during the tax-
able year which is not includible in gross income by
reason of being used for qualified medical expenses
(as defined in section 25A(c)(2)).
‘‘(h) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary to carry out the pur-
poses of this section.’’.
(b) ADVANCE PAYMENT OF CREDIT.—Chapter 25 of
the Internal Revenue Code of 1986 (relating to general
provisions relating to employment taxes) is amended by
inserting after section 3507 the following new section:
‘‘SEC. 3507A. ADVANCE PAYMENT OF HEALTH EXPENSES
CREDIT.
‘‘(a) GENERAL RULE.—Except as otherwise provided
in this section, every employer making payment of wages
with respect to whom a health care expenses eligibility cer-
tificate is in effect shall, at the time of paying such wages,
make an additional payment equal to such employee’s
health care expenses advance amount.
‘‘(b) HEALTH CARE EXPENSES ELIGIBILITY CER-
TIFICATE.—For purposes of this title, a health care ex-
penses eligibility certificate is a statement furnished by an
employee to the employer which—
‘‘(1) certifies that the employee will be eligible
to receive the credit provided by section 34A for the
taxable year,
‘‘(2) certifies that the employee does not have
a health care expenses eligibility certificate in effect
for the calendar year with respect to the payment of
wages by another employer,
‘‘(3) states whether or not the employee’s
spouse has a health care expenses eligibility certifi-
cate in effect, and
‘‘(4) estimates the amount of premiums for a
federally qualified health insurance plan and unreim-
bursed expenses for medical care (as defined in sec-
tion 34A) for the calendar year.
For purposes of this section, a certificate shall be treated
as being in effect with respect to a spouse if such a certifi-
cate will be in effect on the first status determination date
following the date on which the employee furnishes the
statement in question.
‘‘(c) 
HEALTH
CARE
EXPENSES
ADVANCE
AMOUNT.—
‘‘(1) IN GENERAL.—For purposes of this title,
the term ‘health expenses advance amount’ means,
with respect to any payroll period, the amount deter-
mined—
‘‘(A) on the basis of the employee’s wages
from the employer for such period,
‘‘(B) on the basis of the employee’s esti-
mated premiums for a federally qualified health
insurance plan and unreimbursed expenses for
medical care included in the health care ex-
penses eligibility certificate, and
‘‘(C) in accordance with tables provided by
the Secretary.
‘‘(2) ADVANCE AMOUNT TABLES.—The tables
referred to in paragraph (1)(C) shall be similar in
form to the tables prescribed under section 3402
and, to the maximum extent feasible, shall be coordi-
nated with such tables and the tables prescribed
under section 3507(c).
‘‘(d) OTHER RULES.—For purposes of this section,
rules similar to the rules of subsections (d) and (e) of sec-
tion 3507 shall apply.
‘‘(e) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary to carry out the pur-
poses of this section.’’.
(c) CLERICAL AMENDMENTS.—
(1) The table of sections for subpart A of part
IV of subchapter A of chapter 1 of the Internal Rev-
enue Code of 1986 is amended by inserting after the
item relating to section 34 the following new item:
‘‘Sec. 34A. Health care expenses.’’.
(2) The table of sections for chapter 25 of such
Code is amended by adding after the item relating
to section 3507 the following new item:
‘‘Sec. 3507A. Advance payment of health care expenses credit.’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1996.
SEC. 102. MEDICAL SAVINGS ACCOUNTS.
(a) IN GENERAL.—Subpart A of part IV of sub-
chapter A of chapter 1 of the Internal Revenue Code of
1986 (relating to nonrefundable personal credits) is
amended by inserting after section 25 the following new
section:
‘‘SEC. 25A. MEDICAL SAVINGS ACCOUNTS.
‘‘(a) ALLOWANCE OF CREDIT.—In the case of an in-
dividual, there shall be allowed as a credit against the tax
imposed by this subtitle for the taxable year an amount
nized in the United States exclusively for the
purpose of paying the qualified medical ex-
penses of the individual for whose benefit the
trust is established, but only if the written gov-
erning instrument creating the trust meets the
following requirements:
‘‘(i) No contribution will be accepted
unless it is in cash and contributions will
not be accepted for any taxable year in ex-
cess of the amount determined under sub-
section (b)(1).
‘‘(ii) The trustee is a bank (as defined
in section 408(n)) or another person who
demonstrates to the satisfaction of the Sec-
retary that the manner in which such per-
son will administer the trust will be con-
sistent with the requirements of this sec-
tion.
‘‘(iii) No part of the trust assets will
be invested in life insurance contracts.
‘‘(iv) The assets of the trust will not
be commingled with other property except
in a common trust fund or common invest-
ment fund.
‘‘(v) The interest of an individual in
the balance in such individual’s account is
nonforfeitable.
‘‘(vi) Under regulations prescribed by
the Secretary, rules similar to the rules of
section 401(a)(9) shall apply to the dis-
tribution of the entire interest of bene-
ficiaries of such trust.
‘‘(B) TREATMENT
OF
COMPARABLE
AC-
COUNTS HELD BY INSURANCE COMPANIES.—An
account held by an insurance company in the
United States shall be treated as a medical sav-
ings account (and such company shall be treat-
ed as a bank) if—
‘‘(i) such account is part of a federally
qualified health insurance plan (as defined
in section 34A(e)),
‘‘(ii) such account is exclusively for
the purpose of paying the medical expenses
of the beneficiaries of such account who
are covered under such health insurance
plan, and
‘‘(iii) the written instrument govern-
ing the account meets the requirements of
clauses (i), (v), and (vi) of subparagraph
(A).
‘‘(2) QUALIFIED
MEDICAL
EXPENSES.—The
term ‘qualified medical expenses’ means amounts
paid by the individual for whose benefit the account
was established for premiums for a federally quali-
fied health insurance plan (as so defined) and the
unreimbursed expenses for medical care (as deter-
mined under section 34A) of such individual, the
spouse of such individual, and any dependent (as so
defined) of such individual.
‘‘(3) TIME
WHEN
CONTRIBUTIONS
DEEMED
MADE.—A contribution shall be deemed to be made
on the last day of the preceding taxable year if the
contribution is made on account of such taxable year
and is made not later than the time prescribed by
law for filing the return for such taxable year (not
including extensions thereof).
‘‘(d) TAX TREATMENT OF DISTRIBUTIONS.—
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this subsection, any amount paid or distrib-
uted out of a medical savings account shall be in-
cluded in the gross income of the individual for
whose benefit such account was established unless
such amount is used exclusively to pay the qualified
medical expenses of such individual.
‘‘(2) EXCESS CONTRIBUTIONS RETURNED BE-
FORE DUE DATE OF RETURN.—Paragraph (1) shall
not apply to the distribution of any contribution paid
during a taxable year to a medical savings account
to the extent that such contribution exceeds the
amount allowable under subsection (b) if—
‘‘(A) such distribution is received on or be-
fore the day prescribed by law (including exten-
sions of time) for filing such individual’s return
for such taxable year,
‘‘(B) no credit is allowed under subsection
(a) with respect to such excess contribution,
and
‘‘(C) such distribution is accompanied by
the amount of net income attributable to such
excess contribution.
Any net income described in subparagraph (C) shall
be included in the gross income of the individual for
the taxable year in which it is received.
‘‘(3) PENALTY FOR DISTRIBUTIONS NOT USED
FOR MEDICAL EXPENSES.—The tax imposed by this
chapter for any taxable year in which there is a pay-
ment or distribution from a medical savings account
which is not used to pay the medical expenses of the
individual for whose benefit the account was estab-
lished, shall be increased by 10 percent of the
amount of such payment or distribution which is in-
cludible in gross income under paragraph (1).
‘‘(4) ROLLOVERS.—Paragraph (1) shall not
apply to any amount paid or distributed out of a
medical savings account to the individual for whose
benefit the account is maintained, if the entire
amount received (including money and any other
property) is paid into another medical savings ac-
count for the benefit of such individual not later
than the 60th day after the day on which the indi-
vidual received the payment or distribution.
‘‘(e) TAX TREATMENT OF ACCOUNTS.—
‘‘(1) EXEMPTION FROM TAX.—Any medical sav-
ings account is exempt from taxation under this sub-
title unless such account has ceased to be a medical
savings account by reason of paragraph (2) or (3).
Notwithstanding the preceding sentence, any such
account shall be subject to the taxes imposed by sec-
tion 511 (relating to imposition of tax on unrelated
business income of charitable, etc. organizations).
‘‘(2) LOSS OF EXEMPTION OF ACCOUNT WHERE
INDIVIDUAL
ENGAGES
IN
PROHIBITED
TRANS-
ACTION.—
‘‘(A) IN GENERAL.—If, during any taxable
year of the individual for whose benefit the
medical savings account was established, such
individual engages in any transaction prohibited
by section 4975 with respect to the account, the
account ceases to be a medical savings account
as of the first day of that taxable year.
‘‘(B) ACCOUNT TREATED AS DISTRIBUTING
ALL ITS ASSETS.—In any case in which any ac-
count ceases to be a medical savings account by
reason of subparagraph (A) on the first day of
any taxable year, paragraph (1) of subsection
(d) applies as if there were a distribution on
such first day in an amount equal to the fair
market value (on such first day) of all assets in
the account (on such first day) and no portion
of such distribution were used to pay qualified
medical expenses.
‘‘(3) EFFECT OF PLEDGING ACCOUNT AS SECU-
RITY.—If, during any taxable year, the individual for
whose benefit a medical savings account was estab-
lished uses the account or any portion thereof as se-
curity for a loan, the portion so used is treated as
distributed to that individual and not used to pay
qualified medical expenses.
‘‘(f) CUSTODIAL ACCOUNTS.—For purposes of this
section, a custodial account shall be treated as a trust if—
‘‘(1) the assets of such account are held by a
bank (as defined in section 408(n)) or another per-
son who demonstrates to the satisfaction of the Sec-
retary that the manner in which he will administer
the account will be consistent with the requirements
of this section, and
‘‘(2) the custodial account would, except for the
fact that it is not a trust, constitute a medical sav-
ings account described in subsection (c).
For purposes of this title, in the case of a custodial ac-
count treated as a trust by reason of the preceding sen-
tence, the custodian of such account shall be treated as
the trustee thereof.
‘‘(g) INFLATION ADJUSTMENT.—
‘‘(1) IN GENERAL.—In the case of any taxable
year beginning in a calendar year after 1997, each
applicable dollar amount shall be increased by an
amount equal to—
‘‘(A) such dollar amount, multiplied by
‘‘(B) the cost-of-living adjustment for the
calendar year in which the taxable year begins.
‘‘(2) COST-OF-LIVING ADJUSTMENT.—For pur-
poses of paragraph (1), the cost-of-living adjustment
for any calendar year is the percentage (if any) by
which—
‘‘(A) the deemed average total wages (as
defined in section 209(k) of the Social Security
Act) for the preceding calendar year, exceeds
‘‘(B) the deemed average total wages (as
so defined) for calendar year 1996.
‘‘(3) APPLICABLE DOLLAR AMOUNT.—For pur-
poses of paragraph (1), the term ‘applicable dollar
amount’ means the $3,000 and $500 amounts in
subsection (b)(2).
‘‘(4) ROUNDING.—If any amount as adjusted
under paragraph (1) is not a multiple of $10, such
amount shall be rounded to the nearest multiple of
$10 (or, if such amount is a multiple of $5 and not
of $10, such amount shall be rounded to the next
highest multiple of $10).
‘‘(h) REPORTS.—The trustee of a medical savings ac-
count shall make such reports regarding such account to
the Secretary and to the individual for whose benefit the
account is maintained with respect to contributions, dis-
tributions, and such other matters as the Secretary may
require under regulations. The reports required by this
subsection shall be filed at such time and in such manner
and furnished to such individuals at such time and in such
manner as may be required by those regulations.’’.
(b) TAX ON EXCESS CONTRIBUTIONS.—Section 4973
of the Internal Revenue Code of 1986 (relating to tax on
excess contributions to individual retirement accounts, cer-
tain section 403(b) contracts, and certain individual re-
tirement annuities) is amended—
(1) by inserting ‘‘MEDICAL
SAVINGS
AC-
COUNTS,’’ after ‘‘ACCOUNTS,’’ in the heading of
such section,
(2) by redesignating paragraph (2) of sub-
section (a) as paragraph (3) and by inserting after
paragraph (1) the following:
‘‘(2) a medical savings account (within the
meaning of section 25A(c)(1)),’’,
(3) by striking ‘‘or’’ at the end of paragraph
(1) of subsection (a), and
(4) by adding at the end thereof the following
new subsection:
‘‘(d) EXCESS CONTRIBUTIONS TO MEDICAL SAVINGS
ACCOUNTS.—For purposes of this section, in the case of
a medical savings account (within the meaning of section
(2) The table of sections for chapter 43 of such
Code is amended by striking the item relating to sec-
tion 4973 and inserting the following:
‘‘Sec. 4973. Tax on excess contributions to individual retirement
accounts, medical savings accounts, certain 403(b)
contracts, and certain individual retirement annu-
ities.’’.
(3) The table of sections for subchapter B of
chapter 68 of such Code is amended by inserting ‘‘or
on medical savings accounts’’ after ‘‘annuities’’ in
the item relating to section 6693.
(g) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1996.
SEC. 103. OTHER TAX PROVISIONS.
(a) EXEMPTION AMOUNT DISALLOWED FOR UNIN-
SURED INDIVIDUALS.—
(1) IN
GENERAL.—Subsection (d) of section
151 of the Internal Revenue Code of 1986 (relating
to allowance of deductions for personal exemptions)
is amended by adding at the end thereof the follow-
ing new paragraph:
‘‘(5) EXEMPTION
AMOUNT
DISALLOWED
FOR
UNINSURED INDIVIDUALS.—The exemption amount
for any individual for such individual’s taxable year
shall be zero, unless the individual includes the pol-
icy number of the federally qualified health insur-
ance plan or an enrollment code regarding a State
program described in section 131(b) of the
Consumer Choice Health Security Act of 1993 for
such individual in the return claiming such exemp-
tion amount for such individual.’’.
(2) EMPLOYER ROLE.—Section 3402 of the In-
ternal Revenue Code of 1986 (relating to income tax
collected at source) is amended—
(A) by striking ‘‘section 151(d)(2)’’ in sub-
section (f)(1)(A) and inserting ‘‘paragraph (2)
or (5) of section 151(d)’’, and
(B) by adding at the end the following new
subsection:
‘‘(t) DETERMINATION
OF STANDARD DEDUCTION
STATUS.—For purposes of applying the tables in sub-
sections (a) and (c) to a payment of wages, the employer
shall treat the employee as having an exemption amount
of zero unless there is in effect with respect to such pay-
ment of wages a withholding exemption certificate fur-
nished to the employer by the employee by April 1, indicat-
ing the policy number of the federally qualified health in-
surance plan or an enrollment code regarding a State pro-
gram described in section 131(b) of the Consumer Choice
Health Security Act of 1993 for such individual.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1996.
(b) TERMINATION OF MEDICAL EXPENSE DEDUC-
TION.—Section 213 of the Internal Revenue Code of 1986
(relating to medical, dental, etc., expenses) is amended by
adding at the end thereof the following new subsection:
‘‘(g) TERMINATION.—No amount paid after Decem-
ber 31, 1996, shall be treated as an expense paid for medi-
cal care.’’.
(c) TERMINATION OF DEDUCTION FOR HEALTH IN-
SURANCE COSTS OF SELF-EMPLOYED INDIVIDUALS.—
(1) IN GENERAL.—Section 162(l) of the Inter-
nal Revenue Code of 1986 (relating to special rules
for health insurance costs of self-employed individ-
uals) is amended by striking paragraph (6).
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall apply to taxable years begin-
ning after December 31, 1996.
(d) TERMINATION OF EXCLUSION FOR EMPLOYER-
PROVIDED HEALTH INSURANCE.—Section 106 of the In-
ternal Revenue Code of 1986 (relating to contributions by
employer to accident and health plans) is amended by add-
ing at the end the following new sentence: ‘‘The preceding
sentence shall not apply to any amount paid after Decem-
ber 31, 1996.’’.
Subtitle B—Insurance Provisions
PART I—FEDERALLY QUALIFIED HEALTH
INSURANCE PLAN
SEC. 111. FEDERALLY QUALIFIED HEALTH INSURANCE
PLAN.
(a) IN GENERAL.—A federally qualified health insur-
ance plan is a health insurance plan offered, issued, or
renewed on or after January 1, 1997, which is certified
by the applicable regulatory authority as meeting, at a
minimum, the requirements of sections 112, 113, 114, and
115, and the regulatory program described in section 117.
(b) GENERAL DEFINITIONS.—As used in this Act—
(1) HEALTH
INSURANCE
PLAN.—The term
‘‘health insurance plan’’ means any hospital or medi-
cal service policy or certificate, hospital or medical
service plan contract, or health maintenance organi-
zation group contract and, in States which have dis-
tinct licensure requirements, a multiple employer
welfare arrangement, but does not include any of the
following offered by an insurer:
(A) Accident only, dental only, disability
only, or long-term care only insurance.
(B) Coverage issued as a supplement to li-
ability insurance.
(C) Workers’ compensation or similar in-
surance.
(D) Automobile medical-payment insur-
ance.
(2) APPLICABLE
REGULATORY
AUTHORITY.—
The term ‘applicable regulatory authority’ means—
(A) in the case of a State with a program
described in section 117, the State commis-
sioner or superintendent of insurance or other
State authority responsible for regulation of
health insurance; or
(B) if the State has not established such a
program or such program has been decertified
under section 117(b), the Secretary.
(3) SECRETARY.—The term ‘‘Secretary’’ means
the Secretary of Health and Human Services.
(4) STATE.—The term ‘‘State’’ means each of
the several States of the United States, the District
of Columbia, the Commonwealth of Puerto Rico, the
United States Virgin Islands, Guam, America
Samoa, and the Commonwealth of the Northern
Mariana Islands.
SEC. 112. FAMILY SECURITY BENEFITS PACKAGE.
(a) IN GENERAL.—The requirements of this section
are met, if the health insurance plan—
(1) provides coverage for all medically necessary
acute medical care described in subsection (b),
(2) does not exclude coverage for selected ill-
nesses or selected treatments if consistent with
medically accepted practices, and
(3) meets the patient cost sharing requirements
of subsection (c).
(b) ACUTE MEDICAL CARE.—Coverage for all medi-
cally necessary acute medical care is described in this sub-
section if such coverage includes—
(1) physician services,
(2) inpatient, outpatient, and emergency hos-
pital services and appropriate alternatives to hos-
pitalization, and
(3) inpatient and outpatient prescription drugs.
Nothing in this subsection may be construed to require
the inclusion of abortion services.
(c) COST SHARING REQUIREMENTS.—The require-
ments of this subsection are as follows:
(1) LIMITATION ON DEDUCTIBLES.—A health
insurance plan shall not provide a deductible amount
for benefits provided in any plan year that exceeds—
(A) with respect to benefits payable for
items and services furnished to a single individ-
ual enrolled under the plan, for a plan year be-
ginning in—
(i) a calendar year prior to 1998,
$1,000; or
(ii) for a subsequent calendar year,
the limitation specified in this subpara-
graph for the previous calendar year in-
creased by the percentage increase in the
consumer price index for all urban consum-
ers (United States city average, as pub-
lished by the Bureau of Labor Statistics)
for the 12-month period ending on Septem-
ber 30 of the preceding calendar year; and
(B) with respect to benefits payable for
items and services furnished to a family en-
rolled under the plan, for a plan year beginning
in—
(i) a calendar year prior to 1998,
$2,000 per family; or
(ii) for a subsequent calendar year,
the limitation specified in this subpara-
graph for the previous calendar year in-
creased by such percentage increase.
If the limitation computed under subparagraph
(A)(ii) or (B)(ii) is not a multiple of $10, it shall be
rounded to the next highest multiple of $10.
(2) LIMITATION
ON
COPAYMENTS
AND
COIN-
SURANCE.—
(A) IN
GENERAL.—A health insurance
plan may not require the payment of any
copayment or coinsurance for an item or service
for which coverage is required under this sec-
tion after an individual or a family covered
under the plan has incurred out-of-pocket ex-
penses under the plan that are equal to the out-
of-pocket limit for a plan year.
(B) 
LIMIT
ON
OUT-OF-POCKET
EX-
PENSES.—As used in this paragraph—
(i) OUT-OF-POCKET
EXPENSES
DE-
FINED.—The 
term 
‘‘out-of-pocket 
ex-
penses’’ means, with respect to an individ-
ual or a family in a plan year, amounts
payable under the plan as deductibles and
coinsurance with respect to items and serv-
ices provided under the plan and furnished
in the plan year on behalf of the individual
or the family covered under the plan.
(ii) 
OUT-OF-POCKET
LIMIT
DE-
FINED.—The term ‘‘out-of-pocket limit’’
means for a plan year beginning in—
(I) a calendar year prior to 1998,
$5,000; or
(II) for a subsequent calendar
year, the limit specified in this clause
for the previous calendar year in-
creased by the percentage increase in
the consumer price index for all urban
consumers (United States city aver-
age, as published by the Bureau of
Labor Statistics) for the 12-month pe-
riod ending on September 30 of the
preceding calendar year.
If the limit computed under subclause (II)
is not a multiple of $10, it shall be round-
ed to the next highest multiple of $10.
SEC. 113. RATING PRACTICES.
(a) IN GENERAL.—The requirements of this section
are met, if, except as provided in subsection (b), the health
insurance plan provides for—
(1) a variation in premium rates only on the
basis of age, sex, and geography, and
(2) a charge of the same premium rates to new
applicants and existing policyholders with the same
age, sex, and geographic characteristics.
(b) INCENTIVE DISCOUNTS.—A plan may discount
an individual’s premium rate as an incentive for partici-
pating in a program, approved by the applicable regulatory
authority to be offered in conjunction with the coverage,
which has as its objective, 1 or more of the following:
(1) To promote healthy behavior.
(2) To prevent or delay the onset of illness.
(3) To provide for screening or early detection
of illness.
SEC. 114. GUARANTEED ISSUE.
(a) IN GENERAL.—Except as provided in paragraph
(2), in the case of applications made on and after January
1, 1998, the following rules apply:
(1) IN
GENERAL.—The requirements of this
section are met, if, except as provided in paragraph
(2), the health insurance plan—
(A) provides guaranteed issue at standard
rates to all applicants, and
(B) does not exclude from coverage, or
limit coverage for, any preexisting medical con-
dition of any applicant who, on the date the ap-
plication is made, has been continuously insured
for a period of at least 1 year prior to the date
of the application under 1 or more of the fol-
lowing health insurance plans or programs:
(i) Another federally qualified health
insurance plan.
(ii) An employer-sponsored group
health insurance plan in effect before the
date of the enactment of this Act.
(iii) An individual health insurance
plan in effect before such date.
(iv) A program described in—
(I) title XVIII or XIX of the So-
cial Security Act,
(II) chapter 55 of title 10, Unit-
ed States Code,
(III) chapter 17 of title 38, Unit-
ed States Code,
(IV) chapter 89 of title 5, United
States Code, or
(V) the Indian Health Care Im-
provement Act.
(2) BREAK IN COVERAGE.—In the case of an
applicant who has not been continuously insured for
a period of 1 year prior to the date the application
is made, the health insurance plan may exclude from
coverage, or limit coverage for, any preexisting medi-
cal condition for a period no greater than the lesser
of—
(A) the number of months immediately
prior to the date of the application during
which the individual was not insured since the
illness or condition in question was first diag-
nosed, or
(B) 1 year.
(b) TRANSITION RULE.—In the case of applications
made in 1997, the requirements of this section are met,
if the health insurance plan—
(1) provides guaranteed issue at standard rates
to all applicants, and
(2) does not exclude from coverage, or limit
coverage for, any preexisting medical condition of
any applicant.
SEC. 115. GUARANTEED RENEWABILITY.
The requirements of this section are met, if the
health insurance plan provides the policyholder with a con-
tractual right to renew the coverage which stipulates that
the insurer cannot cancel or refuse to renew the coverage
except for cases of—
(1) nonpayment of premiums by the policy-
holder, or
(2) fraud or misrepresentation by the policy-
holder.
PART II—CERTIFICATION OF FEDERALLY
QUALIFIED HEALTH INSURANCE PLANS
SEC. 117. ESTABLISHMENT OF REGULATORY PROGRAM
FOR CERTIFICATION OF PLANS.
(a) IN GENERAL.—Each State shall establish no later
than January 1, 1997, a regulatory program which meets
the standards referred to in section 118.
(b) PERIODIC SECRETARIAL REVIEW OF STATE REG-
ULATORY PROGRAM.—The Secretary periodically shall re-
view each State regulatory program to determine if such
program continues to meet and enforce the standards re-
ferred to in section 118. If the Secretary initially deter-
mines that a State regulatory program no longer meets
and enforces such standards, the Secretary shall provide
the State an opportunity to adopt a plan of correction that
would bring such program into compliance with such
standards. If the Secretary makes a final determination
that the State regulatory program fails to meet and en-
force such standards after such an opportunity, the Sec-
retary shall decertify such program and assume respon-
sibility with respect to health insurance plans in the State.
SEC. 118. STANDARDS FOR REGULATORY PROGRAMS.
(a) IN GENERAL.—The Secretary, in consultation
with the National Association of Insurance Commissioners
(hereafter in this section referred to as ‘‘NAIC’’) shall de-
velop by not later than 1 year after the date of the enact-
ment of this Act, in the form of model Acts and model
regulations, State regulatory program standards which in-
clude—
(1) procedures for certifying that the require-
ments of part I of this subtitle have been met by a
health insurance plan applying for certification as a
federally qualified health insurance plan,
(2) the requirements described in subsections
(b), (c), and (d),
(3) requirements with respect to solvency stand-
ards and guaranty funds for carriers of federally
qualified health insurance plans, and
(4) reporting requirements under which carriers
report to the Internal Revenue Service regarding the
acquisition and termination by individuals of cov-
erage under federally qualified health insurance
plans.
(b) PASSBACK OF CLAIMS AND PREMIUMS.—The re-
quirements of this subsection are met, if, in the case of
an applicant who has been continuously insured, as de-
scribed in section 114(b)(1)(B), and is at the time of the
application receiving treatment for a preexisting medical
condition—
(1) the federally qualified health insurance plan
is allowed to pass back to the applicant’s previous
plan any claims relating to such condition, together
with a portion of the premium, and
(2) such previous plan is required to pay such
claims and premium incurred during the lesser of—
(A) the duration of the course of the treat-
ment or spell of illness, or
(B) 2 years from the date at which cov-
erage commenced under the federally qualified
health insurance plan.
(c) MARKETING PRACTICES.—The requirements of
this subsection are met, if the carrier offering the federally
qualified health insurance plan retains the right to select
agents with whom such plan contracts and to determine
the amount and form of compensation to such agents, ex-
cept that—
(1) if the carrier chooses to contract with an
agent, the carrier may not terminate or refuse to
renew the agency contract for any reason related to
the age, sex, health status, claims experience, occu-
pation, or geographic location of the insureds placed
by the agent with such plan, and
(2) the carrier may not, directly or indirectly,
enter into any contract, agreement, or arrangement
with an agent that provides for, or results in, any
consideration provided to such agent for the issu-
ance or renewal of such a plan to vary on account
of the age, sex, health status, claims experience, oc-
cupation, or geographic location of the insureds
placed by the agent with such plan.
(d) RISK ADJUSTMENT
OR REINSURANCE PRO-
GRAMS.—The requirements of this subsection are met, if
the carrier offering the federally qualified health insurance
plan participates in a State-administered risk adjustment
program (or, at the option of the State, a reinsurance pro-
gram) designed to compensate for the potential occurrence
of grossly disproportionate distributions of above-standard
or below-standard insured risks among federally qualified
health insurance plans.
(e) NONBINDING STANDARDS.—The Secretary, in
consultation with NAIC, shall also develop within the 1-
year period described in subsection (a), nonbinding stand-
ards for premium rating practices and guaranteed renew-
ability of coverage which, if the insurer so elects, is more
generous (additional benefits or lower cost sharing or
both) than the requirements under part I of this subtitle
for federally qualified health insurance plans.
Subtitle C—Employer Provisions
SEC. 121. GENERAL PROVISIONS RELATING TO EMPLOY-
ERS.
(a) PREMIUMS WITHHELD.—Each employer shall—
(1) withhold from each employee’s wages the
amount of the employee’s health insurance premium
and remit, directly or indirectly, such premium to
the insurance plan of the employee’s choice accord-
ing to an agreed upon schedule, and
(2) within the first 30 days of any calendar
year or the date of the hire of an employee, notify
each employee of the employee’s right to claim an
advance refundable tax credit for such premium
under section 34A of the Internal Revenue Code of
1986.
(b) EFFECTIVE DATE.—The requirements under
subsection (a) shall apply with respect to calendar year
1997 and thereafter.
SEC. 122. CONVERSION OF NON-SELF-INSURED PLANS.
In the case of an employer-sponsored health insur-
ance plan in force on the date of the enactment of this
Act, and which is not a self-insured plan, the insurer from
whom the plan was purchased (or, in the event such in-
surer refuses, any new subsidiary, corporation, insurer,
union, cooperative, or association willing to become the
new sponsor of the plan) shall—
(1) notify, not later than October 1, 1996, all
of the primary insured beneficiaries of the employer-
sponsored plan of their rights to convert their insur-
ance coverage to a federally qualified health insur-
ance plan (as defined in section 111) offered by the
insurer with benefits identical to, or actuarially
equivalent to, those of the employer-sponsored plan
and the rates of that coverage, and provide such
beneficiaries 60 additional days to decline or accept
the new coverage, and
(2) offer such coverage beginning January 1,
1997, at premium rates which vary only by age, sex,
and geography, except that the combined total of the
new rates charged separately to the various bene-
ficiaries may not exceed the total group rate paid by
the employer or employees or both under the em-
ployer-sponsored plan on the last day it is, or was,
in force.
SEC. 123. PROVISIONS RELATING TO EXISTING SELF-IN-
SURED PLANS.
(a) IN GENERAL.—In the case of an employer-spon-
sored health insurance plan in force on the date of the
enactment of this Act, and which is a self-insured plan,
the employer sponsoring the plan may, at anytime follow-
ing such date sell, transfer, or assign the plan to any exist-
ing or new, subsidiary, corporation, insurer, union, cooper-
ative or association, willing to become the new sponsor of
the plan, except that—
(1) such sale, transfer, or assignment may not
take effect unless first approved by a two-thirds ma-
jority vote of all the primary-insured beneficiaries of
the plan, and
(2) the terms or conditions and benefits or cov-
erage of the plan, and the eligibility criteria for par-
ticipation in the plan, may not be altered before
such date.
(b) PROVISIONS GOVERNING PLAN.—As of the date
of the enactment of this Act, the sponsor of the plan de-
scribed in subsection (a) becomes subject to all laws gov-
erning the operation of a corporation selling health insur-
ance in the applicable State or States and to the provisions
of section 122.
SEC. 
124. 
CONTINUATION 
OF 
EMPLOYER-PROVIDED
HEALTH COVERAGE REQUIRED UNTIL EF-
FECTIVE DATE OF NEW COVERAGE UNDER
THIS ACT.
(a) 
IN
GENERAL.—Clause 
(i) 
of 
section
4980B(f)(2)(B) of the Internal Revenue Code of 1986 (re-
SEC. 125. REQUIREMENTS WITH RESPECT TO CASHING OUT
EMPLOYER-SPONSORED PLANS.
(a) NON-FEDERAL EMPLOYERS.—
(1) IN GENERAL.—Each employer contributing
in whole or in part to an employer-sponsored health
insurance plan on December 1, 1996, shall, within
30 days after such date—
(A) notify each employee participating in
the plan of the amount spent by the employer
on the employee’s health insurance, as deter-
mined under paragraph (2),
(B) add such amount to the cash wages of
the employee commencing with pay periods be-
ginning on and after January 1, 1997, and
(C) hold each employee harmless for the
employer’s share of any payroll taxes due under
chapter 31 of the Internal Revenue Code of
1986 on such amount.
(2) AMOUNT OF INCLUSION.—The amount de-
scribed in paragraph (1)(A) shall equal the actuarial
value of the employer’s contribution for group health
issuance coverage apportioned to the plan’s bene-
ficiaries according to the new premiums for individ-
ual and family coverage determined by the insurer.
(3) PRIOR TERMINATION.—Any beneficiary of
an employer-sponsored health insurance plan who
voluntarily terminates coverage under such a plan
before December 1, 1996, forfeits the right to re-
ceive the value of the beneficiary’s coverage in cash.
(b) COMMISSION ON CASHING OUT FEHBP BENE-
FITS.—
(1) ESTABLISHMENT.—
(A) IN GENERAL.—There is established an
independent board to be known as the ‘‘Bene-
fits Cash Out Commission’’ (in this subtitle, re-
ferred to as the ‘‘Commission’’).
(B) DUTIES.—The Commission shall study
and propose a procedure under which individ-
uals may cash out health benefits under chapter
89 of title 5, United States Code, and pay
scales and retirement benefits would be ad-
justed accordingly. The Commission shall report
to Congress regarding such study and proposal
not later than 1 year after the date of the en-
actment of this Act.
(C) MEMBERSHIP.—
(i) IN
GENERAL.—The Commission
shall be composed of 13 members ap-
pointed by the President by and with the
advice and consent of the Senate.
(ii) CONSULTATION.—In selecting in-
dividuals for nominations for appointments
for the Commission, the President should
consult with—
(I) the Speaker of the House of
Representatives concerning the ap-
pointment of 3 members;
(II) the Majority Leader of the
Senate concerning the appointment of
3 members;
(III) the Minority Leader of the
House of Representatives concerning
the appointment of 3 members; and
(IV) the Minority Leader of the
Senate concerning the appointment of
3 members.
(iii) CHAIR.—The President shall des-
ignate 1 individual described in clause (ii)
who shall serve as Chair of the Commis-
sion.
(iv) COMPOSITION OF COMMISSION.—
The membership of the Commission shall
include individuals with national recogni-
tion for expertise in the valuation of health
insurance benefits and of Federal civilian
pay and retirement benefits.
(D) ADMINISTRATIVE PROVISIONS.—
(i) MEETINGS.—Each meeting of the
Commission shall be open to the public.
(ii) PAY AND TRAVEL EXPENSES.—
(I) IN GENERAL.—Each member,
other than the Chair, shall be paid at
a rate equal to the daily equivalent of
the minimum annual rate of basic pay
payable for level IV of the Executive
Schedule under section 5315 of title
5, United States Code, for each day
(including travel time) during which
the member is engaged in the actual
performance of duties vested in the
Commission.
(II) CHAIR.—The Chair shall be
paid for each day referred to in
subclause (I) at a rate equal to the
daily equivalent of the minimum an-
nual rate of basic pay payable for
level III of the Executive Schedule
under section 5314 of title 5, United
States Code.
(III) TRAVEL EXPENSES.—Mem-
bers shall receive travel expenses, in-
cluding per diem in lieu of subsist-
ence, in accordance with sections
5702 and 5703 of title 5, United
States Code.
(iii) STAFF.—
(I) IN
GENERAL.—Subject to
subclauses (II) and (III), the Chair,
with the approval of the Commission,
may appoint and fix the pay of addi-
tional personnel.
(II) PAY.—The Chair may make
such appointments without regard to
the provisions of title 5, United States
Code, governing appointments in the
competitive service, and any personnel
so appointed may be paid without re-
gard to the provisions of chapter 51
and subchapter III of chapter 53 of
such title, relating to classification
and General Schedule pay rates, ex-
cept that an individual so appointed
may not receive pay in excess of 120
percent of the annual rate of basic
pay payable for GS–15 of the General
Schedule.
(III) DETAILED
PERSONNEL.—
Upon request of the Chair, the head
of any Federal department or agency
may detail any of the personnel of
that department or agency to the
Commission to assist the Commission
in carrying out its duties under this
Act.
(iv) OTHER AUTHORITY.—
(I) CONTRACT
SERVICES.—The
Commission may procure by contract,
to the extent funds are available, the
temporary or intermittent services of
experts or consultants pursuant to
section 3109 of title 5, United States
Code.
(II) LEASES, ETC.—The Com-
mission may lease space and acquire
personal property to the extent funds
are available.
(2) CONSIDERATION.—
(A) IN GENERAL.—The proposal described
in paragraph (1)(B) shall be considered by the
Congress under the procedures for consider-
ation of an ‘‘approval resolution’’ as described
in subparagraph (D).
(B) EFFECTIVE
DATE
OF
IMPLEMENTA-
TION.—The provisions of the proposal shall be-
come effective on January 1, 1997.
(C) PERIOD FOR RESUBMISSION OF PRO-
POSAL IN CASE OF NONAPPROVAL.—If the pro-
posal of the Commission described in subpara-
graph (A) is not approved by Congress, the
Commission shall by not later than January 1,
1996, submit a new proposal to Congress.
(D) RULES
GOVERNING
CONGRESSIONAL
CONSIDERATION.—
(i) RULES OF HOUSE OF REPRESENT-
ATIVES AND SENATE.—This subparagraph
is enacted by the Congress—
(I) as an exercise of the rule-
making power of the House of Rep-
resentatives and the Senate, respec-
tively, and as such is deemed a part
of the rules of each House, respec-
tively, but applicable only with respect
to the procedure to be followed in that
House in the case of approval resolu-
tions described in clause (ii), and su-
persedes other rules only to the extent
that such rules are inconsistent there-
with; and
(II) with full recognition of the
constitutional right of either House to
change the rules (so far as relating to
the procedure of that House) at any
time, in the same manner and to the
same extent as in the case of any
other rule of that House.
(ii) TERMS
OF
THE
RESOLUTION.—
For purposes of subparagraph (A), the
term ‘‘approval resolution’’ means only a
joint resolution of the 2 Houses of the
Congress, providing in—
(I) the matter after the resolving
clause of which is as follows: ‘‘That
the 
Congress 
approves 
the 
rec-
ommendations of the Benefits Cash
Out Commission as submitted by the
Commission on lllllll’’, the
blank space being filled in with the
appropriate date; and
(II) the title of which is as fol-
lows: ‘‘Joint Resolution approving the
recommendation of the Benefits Cash
Out Commission’’.
(iii) 
INTRODUCTION
AND
REFER-
RAL.—On the day on which the rec-
ommendation of the Commission is trans-
mitted to the House of Representatives
and the Senate, an approval resolution
with respect to such recommendation shall
be introduced (by request) in the House of
Representatives by the Majority Leader of
the House, for himself or herself and the
Minority Leader of the House, or by Mem-
bers of the House designated by the Ma-
jority Leader and Minority Leader of the
House; and shall be introduced (by re-
quest) in the Senate by the Majority Lead-
er of the Senate, for himself or herself and
the Minority Leader of the Senate, or by
Members of the Senate designated by the
Majority Leader and Minority Leader of
the Senate. If either House is not in ses-
sion on the day on which such rec-
ommendation is transmitted, the approval
resolution with respect to such rec-
ommendation shall be introduced in the
House, as provided in the preceding sen-
tence, on the first day thereafter on which
the House is in session. The approval reso-
lution introduced in the House of Rep-
resentatives and the Senate shall be re-
ferred to the appropriate committees of
each House.
(iv) AMENDMENTS PROHIBITED.—No
amendment to an approval resolution shall
be in order in either the House of Rep-
resentatives or the Senate; and no motion
to suspend the application of this clause
shall be in order in either House, nor shall
it be in order in either House for the Pre-
siding Officer to entertain a request to sus-
pend the application of this clause by
unanimous consent.
(v) PERIOD
FOR
COMMITTEE
AND
FLOOR CONSIDERATION.—
(I) IN GENERAL.—Except as pro-
vided in subclause (II), if the commit-
tee or committees of either House to
which an approval resolution has been
referred have not reported it at the
close of the 30th day after its intro-
duction, such committee or commit-
tees shall be automatically discharged
from further consideration of the ap-
proval resolution and it shall be
placed on the appropriation calendar.
A vote on final passage of the ap-
proval resolution shall be taken in
each House on or before the close of
the 30th day after the approval reso-
lution is reported by the committees
or committee of that House to which
it was referred, or after such commit-
tee or committees have been dis-
charged from further consideration of
the approval resolution. If prior to the
passage by 1 House of an approval
resolution of that House, that House
receives the same approval resolution
from the other House then the proce-
dure in that House shall be the same
as if no approval resolution had been
received from the other House, but
the vote on final passage shall be on
the approval resolution of the other
House.
(II) COMPUTATION
OF
DAYS.—
For purposes of subclause (I), in com-
puting a number of days in either
House, there shall be excluded any
day on which the House is not in ses-
sion.
(vi) FLOOR CONSIDERATION IN THE
HOUSE OF REPRESENTATIVES.—
(I) MOTION
TO
PROCEED.—A
motion in the House of Representa-
tives to proceed to the consideration
of an approval resolution shall be
highly privileged and not debatable.
An amendment to the motion shall
not be in order, nor shall it be in
order to move to reconsider the vote
by which the motion is agreed to or
disagreed to.
(II) DEBATE.—Debate in the
House of Representatives on an ap-
proval resolution shall be limited to
not more than 20 hours, which shall
be divided equally between those fa-
voring and those opposing the bill or
resolution. A motion further to limit
debate shall not be debatable. It shall
not be in order to move to recommit
an approval resolution or to move to
reconsider the vote by which an ap-
proval resolution is agreed to or dis-
agreed to.
(III) MOTION
TO
POSTPONE.—
Motions to postpone, made in the
House of Representatives with respect
to the consideration of an approval
resolution, and motions to proceed to
the consideration of other business,
shall be decided without debate.
(IV) APPEALS.—All appeals from
the decisions of the Chair relating to
the application of the Rules of the
House of Representatives to the pro-
cedure relating to an approval resolu-
tion shall be decided without debate.
(V) GENERAL
RULES
APPLY.—
Except to the extent specifically pro-
vided in the preceding provisions of
this clause, consideration of an ap-
proval resolution shall be governed by
the Rules of the House of Representa-
tives applicable to other bills and reso-
lutions in similar circumstances.
(vii) FLOOR CONSIDERATION IN THE
SENATE.—
(I) MOTION
TO
PROCEED.—A
motion in the Senate to proceed to the
consideration of an approval resolu-
tion shall be privileged and not debat-
able. An amendment to the motion
shall not be in order, nor shall it be
in order to move to reconsider the
vote by which the motion is agreed to
or disagreed to.
(II) GENERAL DEBATE.—Debate
in the Senate on an approval resolu-
tion, and all debatable motions and
appeals in connection therewith, shall
be limited to not more than 20 hours.
The time shall be equally divided be-
tween, and controlled by, the Majority
Leader and the Minority Leader or
their designees.
(III) DEBATE OF MOTIONS AND
APPEALS.—Debate in the Senate on
any debatable motion or appeal in
connection with an approval resolution
shall be limited to not more than 1
hour, to be equally divided between,
and controlled by, the mover and the
manager of the approval resolution,
except that in the event the manager
of the approval resolution is in favor
of any such motion or appeal, the
time in opposition thereto, shall be
controlled by the Minority Leader or
his designee. Such leaders, or either of
them, may, from time under their
control on the passage of an approval
resolution, allot additional time to any
Senator during the consideration of
any debatable motion or appeal.
(IV) OTHER
MOTIONS.—A mo-
tion in the Senate to further limit de-
bate is not debatable. A motion to re-
commit an approval resolution is not
in order.
SEC. 126. ENFORCEMENT.
(a) IN GENERAL.—Chapter 47 of the Internal Reve-
nue Code of 1986 (relating to excise taxes on qualified
pension, etc. plans) is amended by inserting after section
5000 the following new sections:
‘‘SEC. 5000A. FAILURE OF EMPLOYERS WITH RESPECT TO
HEALTH INSURANCE.
‘‘(a) GENERAL RULE.—There is hereby imposed a
tax on the failure of any person to comply with the re-
quirements of sections 121 and 125(a) of the Consumer
Choice Health Security Act of 1993 with respect to any
employee of the person.
‘‘(b) AMOUNT OF TAX.—
‘‘(1) IN GENERAL.—The amount of the tax im-
posed by subsection (a) on any failure with respect
to an employee shall be $50 for each day in the non-
compliance period with respect to such failure.
‘‘(2) NONCOMPLIANCE PERIOD.—For purposes
of this section, the term ‘noncompliance period’
means, with respect to any failure, the period—
‘‘(A) beginning on the date such failure
first occurs, and
‘‘(B) ending on the date such failure is
corrected.
‘‘(3) CORRECTION.—A failure of a person to
comply with the requirements of section 121 or
125(a) of the Consumer Choice Health Security Act
of 1993 with respect to any employee of the person
shall be treated as corrected if—
‘‘(A) such failure is retroactively undone to
the extent possible, and
‘‘(B) the employee is placed in a financial
position which is as good as such employee
would have been in had such failure not oc-
curred.
‘‘(c) LIMITATIONS ON AMOUNT OF TAX.—
‘‘(1) TAX NOT TO APPLY WHERE FAILURE NOT
DISCOVERED
EXERCISING
REASONABLE
DILI-
GENCE.—No tax shall be imposed by subsection (a)
on any failure during any period for which it is es-
tablished to the satisfaction of the Secretary that
none of the persons referred to in subsection (d)
knew, or exercising reasonable diligence would have
known, that such failure existed.
‘‘(2) TAX NOT TO APPLY TO FAILURES COR-
RECTED WITHIN 30 DAYS.—No tax shall be imposed
by subsection (a) on any failure if—
‘‘(A) such failure was due to reasonable
cause and not to willful neglect, and
‘‘(B) such failure is corrected during the
30-day period beginning on the first date any of
the persons referred to in subsection (d) knew,
or exercising reasonable diligence would have
known, that such failure existed.
‘‘(3) WAIVER BY SECRETARY.—In the case of a
failure which is due to reasonable cause and not to
willful neglect, the Secretary may waive part or all
of the tax imposed by subsection (a) to the extent
that the payment of such tax would be excessive rel-
ative to the failure involved.
‘‘(d) LIABILITY FOR TAX.—
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this subsection, the following shall be liable
for the tax imposed by subsection (a) on a failure:
‘‘(A) In the case of a health insurance plan
other than a multiemployer plan, the employer.
‘‘(B) In the case of a multiemployer plan,
the plan.
‘‘(C) Each person who is responsible (other
than in a capacity as an employee) for admin-
istering or providing benefits under the health
insurance plan and whose act or failure to act
caused (in whole or in part) the failure.
‘‘(2) SPECIAL RULES FOR PERSONS DESCRIBED
IN PARAGRAPH (1)(C).—A person described in sub-
paragraph (C) (and not in subparagraphs (A) and
(B)) of paragraph (1) shall be liable for the tax im-
posed by subsection (a) on any failure only if such
person assumed (under a legally enforceable written
agreement) responsibility for the performance of the
act to which the failure relates.
‘‘SEC. 5000B. FAILURE OF CARRIERS WITH RESPECT TO
HEALTH INSURANCE.
‘‘(a) GENERAL RULE.—There is hereby imposed a
tax on the failure of any carrier offering any health insur-
ance plan to comply with the requirements of sections 122
and 123 of the Consumer Choice Health Security Act of
1993.
‘‘(b) AMOUNT OF TAX.—
‘‘(1) IN GENERAL.—The amount of tax imposed
by subsection (a) by reason of 1 or more failures
during a taxable year shall be equal to 50 percent
of the gross premiums received during such taxable
year with respect to all health insurance plans issued
by the carrier on whom such tax is imposed.
‘‘(2) GROSS PREMIUMS.—For purposes of para-
graph (1), gross premiums shall include any consid-
eration received with respect to any health insurance
contract.
‘‘(3) CONTROLLED GROUPS.—For purposes of
paragraph (1)—
‘‘(A) CONTROLLED
GROUP
OF
CORPORA-
TIONS.—All corporations which are members of
the same controlled group of corporations shall
be treated as 1 carrier. For purposes of the pre-
ceding sentence, the term ‘controlled group of
corporations’ has the meaning given to such
term by section 1563(a), except that—
‘‘(i) ‘more than 50 percent’ shall be
substituted for ‘at least 80 percent’ each
place it appears in section 1563(a)(1), and
‘‘(ii) the determination shall be made
without regard to subsections (a)(4) and
(e)(3)(C) of section 1563.
‘‘(B) PARTNERSHIPS, PROPRIETORSHIPS,
ETC., WHICH ARE UNDER COMMON CONTROL.—
Under regulations prescribed by the Secretary,
all trades or business (whether or not incor-
porated) which are under common control shall
be treated as 1 carrier. The regulations pre-
scribed under this subparagraph shall be based
on principles similar to the principles which
apply in the case of subparagraph (A).
‘‘(c) LIMITATION ON TAX.—
‘‘(1) TAX NOT TO APPLY WHERE FAILURE NOT
DISCOVERED
EXERCISING
REASONABLE
DILI-
GENCE.—No tax shall be imposed by subsection (a)
with respect to any failure for which it is established
to the satisfaction of the Secretary that the carrier
on whom the tax is imposed did not know, and exer-
cising reasonable diligence would not have known,
that such failure existed.
‘‘(2) TAX
NOT
TO
APPLY
WHERE
FAILURES
CORRECTED WITHIN 30 DAYS.—No tax shall be im-
posed by subsection (a) with respect to any failure
if—
‘‘(A) such failure was due to reasonable
cause and not to willful neglect, and
‘‘(B) such failure is corrected during the
30-day period beginning on the 1st date any of
the carriers on whom the tax is imposed knew,
or exercising reasonable diligence would have
known, that such failure existed.
‘‘(3) WAIVER BY SECRETARY.—In the case of a
failure which is due to reasonable cause and not to
willful neglect, the Secretary may waive part or all
of the tax imposed by subsection (a) to the extent
that the payment of such tax would be excessive rel-
ative to the failure involved.’’.
(b) CLERICAL AMENDMENTS.—The table of sections
for such chapter 47 is amended by adding at the end
thereof the following new items:
‘‘Sec. 5000A. Failure of employers with respect to health insur-
ance.
‘‘Sec. 5000B. Failure of carriers with respect to health insur-
ance.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall take effect on January 1, 1997.
Subtitle D—State Plan
Requirements
SEC. 131. STATE PLAN REQUIREMENTS.
(a) IN GENERAL.—As a condition of receiving Fed-
eral funds for health care programs after December 31,
1996, each State shall meet the requirements of the fol-
lowing subsections.
(b) HEALTH PLANS FOR UNINSURED.—The require-
ment of this subsection is met, if the State establishes a
program to provide health insurance coverage at least
equal to that of the federally qualified health insurance
plans (as defined in section 111) to any resident (other
than a federally covered individual (within the meaning
on section 34A(b)(2) of the Internal Revenue Code of
1986) who refuses to voluntarily purchase such insurance
coverage privately. Such coverage may be through—
(1) the State’s program under title XIX of the
Social Security Act,
(2) an existing or new State health care pro-
gram, including a State program established under
section 1933 of the Social Security Act,
(3) any private insurer the State contracts with
for this purpose, or
(4) any health insurance plan available to the
resident.
(c) ENROLLMENT IN PLAN.—The requirement of this
subsection is met, if—
(1) in the case of any uninsured individual de-
scribed in subsection (b) who is eligible for assist-
ance under a State program established under sec-
tion 1933 of the Social Security Act, such individual
is identified by the State and provided with assist-
ance through such a program, and
(2) in the case of any uninsured individual de-
scribed in subsection (b) who is not eligible for such
assistance, such individual is identified by the State
and automatically enrolled in the program described
in subsection (b), except that—
(A) the State may charge such individual
a premium for coverage under the program
which the State deems appropriate given the
cost of coverage and the individual’s ability to
pay, and
(B) such individual may, upon submitting
proof of having purchased a federally qualified
health insurance plan (as so defined), terminate
coverage under the State program without pen-
alty.
(d) MONITORING.—The requirement of this sub-
section is met, if the State designates or creates an office
of the State government to monitor the health insurance
coverage status of workers and their dependents residing
in the State for the purposes of determining eligibility for
State health care assistance programs.
Subtitle E—Federal Preemption
SEC. 141. FEDERAL PREEMPTION OF CERTAIN STATE LAWS.
All State laws in existence on January 1, 1997, in
the following areas are preempted:
(1) MANDATED INSURANCE BENEFIT LAWS.—
Laws requiring health insurance policies to cover
specific diseases, services, or providers.
(2) ANTI-MANAGED
CARE
LAWS.—Laws re-
stricting the ability of managed care plans to selec-
tively contract with providers of their choice.
(3) MANDATED
COST-SHARING
LAWS.—Laws
restricting the extent to which insurers may require
enrollee cost sharing as part of their plans, or re-
stricting the extent to which managed care plans
may impose different levels of cost sharing on en-
rollee claims for treatment by providers not partici-
pating in the plan.
TITLE II—MEDICARE AND
MEDICAID REFORMS
Subtitle A—Medicare
SEC. 201. STUDY OF MEDICARE PRIVATE HEALTH INSUR-
ANCE PROGRAM.
(a) STUDY.—The Secretary shall conduct a study of
the feasibility of permitting future medicare beneficiaries
to elect, upon attaining medicare eligibility, to retain pri-
vate health insurance coverage and receive, in lieu of the
medicare benefits such beneficiaries would otherwise be
entitled to, certificates for use in purchasing private health
insurance coverage. The study shall recommend—
(1) certificate amounts which—
(A) provide the maximum assistance pos-
sible to eligible individuals,
(B) are adjusted for different classes of
beneficiaries on the basis of age, sex, and geog-
raphy to reflect actuarial differences in the cost
of insurance, and
(C) will not further jeopardize the future
solvency of the medicare program, as projected
by the trustees of the medicare trust funds as
of the date of the report of the study,
(2) a mechanism for annually adjusting such
amounts, and
(3) legislative, regulatory, and administrative
reforms necessary or desirable for establishing such
a program.
(b) REPORT.—The Secretary shall submit a report
regarding the study described in subsection (a) to the Con-
gress no later than January 1, 1996.
SEC. 202. ELIMINATION OF MEDICARE HOSPITAL DIS-
PROPORTIONATE SHARE ADJUSTMENT PAY-
MENTS.
Section 1886(d)(5)(F)(i) of the Social Security Act
(42 U.S.C. 1395ww(d)(5)(F)(i)) is amended by inserting
‘‘and before September 30, 1994,’’ after ‘‘1986,’’.
SEC. 203. REDUCTION IN ADJUSTMENT FOR INDIRECT MED-
ICAL EDUCATION.
Section 1886(d)(5)(B)(ii) of the Social Security Act
(42 U.S.C. 1395ww(d)(5)(B)(ii)) is amended to read as
follows:
‘‘(ii) For purposes of clause (i)(II), the indirect
teaching adjustment factor is equal to c * (((1+r)
to the nth power) - 1), where ‘r’ is the ratio of the
hospital’s full-time equivalent interns and residents
to beds and ‘n’ equals .405. For discharges occur-
ring on or after—
‘‘(I) May 1, 1986, and before October 1,
1994, ‘c’ is equal to 1.89,
‘‘(II) October 1, 1994, and before October
1, 1995, ‘c’ is equal to 1.395, and
‘‘(III) October 1, 1995, ‘c’ is equal to
0.74.’’.
SEC. 204. IMPOSITION OF COPAYMENT FOR SKILLED NURS-
ING FACILITY SERVICES.
(a) IN GENERAL.—Paragraph (3) of section 1813(b)
of the Social Security Act (42 U.S.C. 1395e(b)) is amend-
ed to read as follows:
‘‘(3) The amount payable for post-hospital extended
care services furnished an individual during any spell of
illness shall be reduced by a copayment amount equal to
20 percent of the average of all per day costs for such
services furnished under this title (as determined by the
Secretary on a prospective basis for services furnished
during a calendar year).’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to post-hospital extended care
services furnished on or after October 1, 1994.
SEC. 205. SHIFT PAYMENT UPDATES TO JANUARY FOR ALL
PAYMENT RATES UNDER HOSPITAL INSUR-
ANCE PROGRAM.
(a) PPS HOSPITALS.—
(1) IN GENERAL.—Section 1886(b)(3)(B)(i) of
the 
Social 
Security 
Act 
(42 
U.S.C.
1395ww(b)(3)(B)(i)) is amended—
(A) in the matter preceding subclause (I),
by striking ‘‘fiscal year’’ and inserting ‘‘particu-
lar time period’’,
(B) in subclause (IX), by striking ‘‘fiscal
year 1994’’, and inserting ‘‘the 15-month pe-
riod beginning on October 1, 1993’’,
(C) in subclauses (X), (XI), and (XII), by
striking ‘‘fiscal year’’, and
(D) in subclause (XIII), by striking ‘‘fiscal
year 1998 and each subsequent fiscal year’’ and
inserting ‘‘1998 and each subsequent calendar
year’’.
(2) OTHER HOSPITALS.—
(A) 
IN
GENERAL.—Section
1886(b)(3)(B)(ii) of such Act (42 U.S.C.
1395ww(b)(3)(B)(ii)) is amended—
(A) in subclause (V)—
(i) by striking ‘‘fiscal years 1994
through 1997’’ and inserting ‘‘the 15-
month period beginning on October 1,
1993,’’, and
(ii) by striking ‘‘and’’ at the end, and
(B) by striking subclause (VI) and insert
the following:
‘‘(VI) 1995 through 1997, is the market basket
percentage increase minus the applicable reduction
(as defined in clause (vi)(II)), or in the case of a
hospital for a calendar year for which the hospital’s
update adjustment percentage (as defined in clause
(vi)(I)) is at least 10 percent, the market basket per-
centage increase, and
‘‘(VII) subsequent calendar years is the market
basket percentage increase.’’.
(B) CONFORMING
AMENDMENT.—Section
1886(b)(3)(B) 
of 
such 
Act 
(42 
U.S.C.
1395ww(b)(3)(B)) is amended by adding at the
end the following new clause:
‘‘(vi) For purposes of clause (ii)(VI)—
‘‘(I) a hospital’s ‘update adjustment percentage’
for a calendar year is the percentage by which the
hospital’s allowable operating cost of inpatient hos-
pital services recognized under this title for the cost
reporting period beginning in fiscal year 1990 ex-
ceeds the hospital’s target amount (as determined
under subparagraph (A)) for such cost reporting pe-
riod, increased for each calendar year (beginning
with 1995) by the sum of any of the hospital’s appli-
cable reductions under subclause (VI) for previous
years; and
‘‘(II) the ‘applicable reduction’ with respect to
a hospital for a calendar year is the lesser of 1 per-
centage point or the percentage point difference be-
tween 10 percent and the hospital’s update adjust-
ment percentage for the calendar year.’’.
(3) SOLE COMMUNITY AND MEDICARE-DEPEND-
ENT, SMALL RURAL HOSPITALS.—
(A) 
IN
GENERAL.—Section
1886(b)(3)(B)(iv) of such Act (42 U.S.C.
1395ww(b)(3)(B)(iv)) is amended—
(i) in subclause (II), by striking ‘‘fis-
cal year 1994’’ and inserting ‘‘the 15-
month period beginning on October 1,
1993’’,
(ii) in subclause (III), by striking ‘‘fis-
cal year’’, and
(iii) in subclause (IV), by striking
‘‘fiscal year 1996 and each subsequent fis-
cal year’’ and inserting ‘‘1996 and each
subsequent calendar year’’.
(B) TARGET AMOUNT ADJUSTMENT.—Sec-
tion 1886(b)(3)(C) of such Act (42 U.S.C.
1395ww(b)(3)(C)) is amended—
(i) in clause (iii), by inserting ‘‘or por-
tion of a cost reporting period occurring
before December 31, 1994,’’ before ‘‘the
target amount’’, and
(ii) in clause (iv), by striking ‘‘fiscal
year 1995 and each subsequent fiscal
year’’ and inserting ‘‘1995 and each subse-
quent year’’.
(C) EXTENSION
OF
REGIONAL
FLOOR.—
Section 1886(d)(1)(A)(iii)(II) of such Act (42
U.S.C. 1395ww(d)(1)(A)(iii)(II)) is amended—
(i) by striking ‘‘for discharges occur-
ring during a fiscal year ending on or be-
fore September 30, 1996’’ and inserting
‘‘for discharges occurring during the 15-
month period beginning on October 1,
1993, and during any calendar year ending
on or before December 31, 1996’’, and
(ii) by striking ‘‘such fiscal year’’ and
inserting ‘‘such 15-month period or such
calendar year, as the case may be’’.
(4) CONFORMING AMENDMENTS.—
(A) Section 1886(b)(3)(B)(iii) of such Act
(42 U.S.C. 1395ww(b)(3)(B)(iii)) is amended—
(i) by inserting ‘‘beginning in’’ after
‘‘cost reporting periods’’,
(ii) by striking ‘‘fiscal year’’ the first
place it appears and inserting ‘‘particular
time period’’,
(iii) by striking ‘‘or fiscal year’’ the
first and second place it appears, and
(iv) by striking ‘‘cost reporting period
or fiscal year’’ and inserting ‘‘period’’.
(B) Section 1886(d)(1)(A) of such Act (42
U.S.C. 1395ww(d)(1)(A)) is amended in the
matter preceding clause (i) by inserting ‘‘or cal-
endar’’ after ‘‘fiscal’’.
(C) Section 1886(d)(2)(D) of such Act (42
U.S.C. 1395ww(d)(2)(D)) is amended by insert-
ing ‘‘or calendar’’ after ‘‘fiscal’’ each place it
appears.
(D) Section 1886(d)(3) of such Act (42
U.S.C. 1395ww(d)(3)) is amended in the first
sentence by inserting ‘‘or calendar’’ after ‘‘fis-
cal’’ the first place it appears and by inserting
‘‘for each fiscal year through 1994’’ after ‘‘in
the United States, and’’.
(E) Section 1886(d)(3)(A)(ii) of such Act
(42 U.S.C. 1395ww(d)(3)(A)(ii)) is amended—
(i) by striking ‘‘1994,’’ and inserting
‘‘1993, and occurring in the 15-month pe-
riod beginning on October 1, 1993,’’, and
(ii) by striking ‘‘fiscal year’’ the sec-
ond and last place it appears and inserting
‘‘time period’’.
(F) Section 1886(d)(3)(A)(iii) of such Act
(42 U.S.C. 1395ww(d)(3)(A)(iii)) is amended
by striking ‘‘the fiscal year beginning on Octo-
ber 1, 1994’’ and inserting ‘‘1995’’.
(G) Section 1886(d)(3)(A)(iv) of such Act
(42 U.S.C. 1395ww(d)(3)(A)(iv)) is amended—
(i) by striking ‘‘fiscal year beginning
on or after October 1, 1995’’ and inserting
‘‘year beginning on or after January 1,
1996’’,
(ii) by striking ‘‘and within each re-
gion’’, and
(iii) by striking ‘‘fiscal’’ each place it
appears.
(H) Section 1886(d)(3)(D) of such Act (42
U.S.C. 1395ww(d)(3)(D)) is amended—
(i) by inserting ‘‘or calendar’’ after
‘‘fiscal’’ each place it appears, and
(ii) by inserting ‘‘for each fiscal year
through 1994’’ after ‘‘and shall establish’’.
(I) Section 1886(d)(3)(E) of such Act (42
U.S.C. 1395ww(d)(3)(E)) is amended—
(i) in the second sentence, by striking
‘‘at least every 12 months thereafter’’ and
inserting ‘‘beginning January 1, 1995, at
least every 12 months thereafter’’, and
(ii) in the last sentence, by inserting
‘‘or calendar’’ after ‘‘fiscal’’ the first and
last place it appears.
(J)(i) Section 1886(d)(4)(C)(iii) of such
Act (42 U.S.C. 1395ww(d)(4)(C)(iii)) is amend-
ed—
(I) by inserting ‘‘or calendar’’ after
‘‘fiscal’’ the first place it appears, and
(II) by deleting ‘‘fiscal’’ the last place
it appears.
(ii) The requirements of paragraphs (3)(E)
and (4)(C)(iii) of section 1886(d) of the Social
Security Act (42 U.S.C. 1395ww(d)(4)(C)(iii))
shall be applied on a 15-month basis for the pe-
riod beginning on October 1, 1993, and ending
on December 31, 1994.
(K)(i) Section 1886(d)(5)(A) of such Act
(42 U.S.C. 1395ww(d)(5)(A)) is amended—
(I) in clause (i), by striking ‘‘fiscal
years ending on or before September 30,
1997’’ and inserting ‘‘calendar years end-
ing on or before December 31, 1997’’,
(II) in clause (ii), by striking ‘‘fiscal
years beginning on or after October 1,
1994’’ and inserting ‘‘calendar years begin-
ning on or after January 1, 1995’’,
(III) in clause (iv), by inserting ‘‘or
calendar’’ after ‘‘fiscal’’,
(IV) in clause (v), by striking ‘‘fiscal
year’’ each place it appears, and
(V) in clause (vi), by striking ‘‘fiscal’’
and inserting ‘‘calendar’’.
(ii) 
The 
requirement 
of 
section
1886(d)(5)(A)(iv) of the Social Security Act
(42 U.S.C. 1395ww(d)(5)(A)(iv)) shall be ap-
plied on a 15-month basis for the period begin-
ning on October 1, 1993, and ending on De-
cember 31, 1994.
(L) Section 1886(d)(5)(E)(ii) of such Act
(42 U.S.C. 1395ww(d)(5)(E)(ii)) is amended by
inserting ‘‘or calendar’’ after ‘‘fiscal’’.
(M) Section 1886(d)(6) of such Act (42
U.S.C. 1395ww(d)(6)) is amended by inserting
‘‘or December 1 of each calendar year (begin-
ning with calendar year 1995)’’ after ‘‘1984)’’.
(N) Section 1886(d)(9)(A) of such Act (42
U.S.C. 1395ww(d)(9)(A)) is amended in the
matter preceding clause (i) by striking ‘‘fiscal
year’’ and inserting ‘‘particular time period’’.
(O) Section 1886(d)(9)(C)(i) of such Act
(42 U.S.C. 1395ww(d)(9)(C)(i)) is amended—
(i) by striking ‘‘fiscal year’’ the first
place it appears and inserting ‘‘time pe-
riod’’,
(ii) by striking ‘‘for fiscal year 1989’’,
and
(iii) by striking ‘‘fiscal years’’ and in-
serting ‘‘time periods’’.
(P) Section 1886(d)(10)(C) of such Act
(42 U.S.C. 1395ww(d)(10)(C)) is amended—
(i) in clause (i), by striking ‘‘fiscal
year’’ and inserting ‘‘particular time pe-
riod’’, and
(ii) in clause (ii), by inserting ‘‘or cal-
endar’’ after ‘‘fiscal’’ the first place it ap-
pears and striking ‘‘fiscal’’ the last place it
appears.
(Q) Section 1886(e)(2) of such Act (42
U.S.C. 1395ww(e)(2)) is amended—
(i) in subparagraph (A), by striking
‘‘fiscal years’’ and inserting ‘‘particular
time periods’’, and
(ii) in subparagraph (B), by striking
‘‘fiscal year’’ each place it appears and in-
serting ‘‘particular time period’’.
(R) Section 1886(e)(3) of such Act (42
U.S.C. 1395ww(e)(3)) is amended—
(i) in subparagraph (A)—
(I) by striking ‘‘before the begin-
ning of each fiscal year (beginning
with fiscal year 1986)’’, and
(II) by striking ‘‘that fiscal year’’
and inserting ‘‘the succeeding year’’,
and
(ii) in subparagraph (B)—
(I) by striking ‘‘before the begin-
ning of each fiscal year (beginning
with fiscal year 1989)’’, and
(II) by striking ‘‘that fiscal year’’
and inserting ‘‘the succeeding year’’.
(S) Section 1886(e)(4)(A) of such Act (42
U.S.C. 1395ww(e)(4)(A)) is amended in the
first sentence by striking ‘‘fiscal’’ the first and
last place it appears and by striking ‘‘(begin-
ning with fiscal year 1988)’’.
(T) Section 1886(e)(4)(B) of such Act (42
U.S.C. 1395ww(e)(4)(B)) is amended by strik-
ing ‘‘fiscal’’ the first place it appears and by
striking ‘‘(beginning with fiscal year 1992)’’.
(U) Section 1886(e)(5) of such Act (42
U.S.C. 1395ww(e)(5)) is amended—
(i) in subparagraph (A), by striking
‘‘the May 1 before each fiscal year (begin-
ning with fiscal year 1986) and inserting
‘‘May 1’’ and by striking ‘‘that fiscal year’’
and inserting ‘‘the succeeding year’’, and
(ii) in subparagraph (B), by striking
‘‘fiscal’’.
(V) The second and third sentences of sec-
tion 1886(e)(5) of such Act (42 U.S.C.
1395ww(e)(5)) are each amended by striking
‘‘fiscal’’ each place it appears.
(W) Section 1886(g)(1)(A) of such Act (42
U.S.C. 1395ww(g)(1)(A)) is amended—
(i) by striking ‘‘fiscal years 1992,
through 1995’’ and inserting ‘‘fiscal years
1992 and 1993, the 15-month period be-
ginning on October 1, 1993, and calendar
year 1995’’, and
(ii) by striking ‘‘such fiscal year’’ and
inserting ‘‘such period’’.
(5) 
CLERICAL
AMENDMENTS
CONCERNING
TRANSITIONAL
PAYMENTS
FOR
A
RECLASSIFIED
HOSPITAL.—
(A) Section 1886(d)(8)(A) of such Act (42
U.S.C. 1395ww(d)(8)(A)) is amended in the
matter preceding clause (i), by striking ‘‘cost
reporting periods’’ and inserting ‘‘years’’.
(B) Section 1886(d)(8)(A)(i) of such Act
(42 U.S.C. 1395ww(d)(8)(A)(i)) is amended—
(i) in the matter preceding subclause
(I), by striking ‘‘cost reporting period’’ and
inserting ‘‘year’’ and by striking ‘‘reporting
period’’ and inserting ‘‘year’’,
(ii) in subclause (I), by striking ‘‘re-
porting period’’ and inserting ‘‘year’’, and
(iii) in subclause (II), by striking ‘‘re-
porting period’’ and inserting ‘‘year’’.
(C) Section 1886(d)(8)(A)(ii) of such Act
(42 U.S.C. 1395ww(d)(8)(A)(ii)) is amended—
(i) in the matter preceding subclause
(I), by striking ‘‘cost reporting period’’ and
inserting ‘‘year’’ and by striking ‘‘reporting
period’’ and inserting ‘‘year’’,
(ii) in subclause (I), by striking ‘‘re-
porting period’’ and inserting ‘‘year’’, and
(iii) in subclause (II), by striking ‘‘re-
porting period’’ and inserting ‘‘year’’.
(b) HOME HEALTH AGENCIES.—Clause (iii) of sec-
tion 
1861(v)(1)(L) 
of 
such 
Act 
(42 
U.S.C.
1395x(v)(1)(L)) is amended by striking ‘‘July 1, 1991,
and annually thereafter (but not for cost reporting periods
beginning on and after July 1, 1994, and before July 1,
1996)’’ and inserting ‘‘July 1 of 1991, 1992, and 1993
(but not for cost reporting periods beginning on and after
July 1, 1994, and before January 1, 1997), and annually
thereafter’’.
(c) HOSPICE CARE.—
(1) IN
GENERAL.—Clause (ii) of section
1814(i)(1)(C) 
of 
such 
Act 
(42 
U.S.C.
1395f(i)(1)(C)) is amended—
(A) in subclause (II), by striking ‘‘fiscal
year 1994’’ and inserting ‘‘the 15-month period
beginning on October 1, 1993’’, and
(B) in subclauses (III), (IV), (V), and
(VI), by striking ‘‘fiscal year’’ each place it ap-
pears and inserting ‘‘calendar year’’.
(2) 
CONFORMING
AMENDMENT.—Section
1814(i)(2) of such Act (42 U.S.C. 1395f(i)(2)) is
amended by adding at the end the following new
subparagraph:
‘‘(D) For purposes of subparagraph (A), the term
‘accounting year’ means—
‘‘(i) fiscal years 1985 through 1993,
‘‘(ii) the 15-month period beginning on October
1, 1993, and
‘‘(iii) calendar years beginning on or after Jan-
uary 1, 1995.’’.
(d) SKILLED NURSING FACILITY SERVICES.—
(1) IN GENERAL.—The last sentence of section
1888(a) of such Act (42 U.S.C. 1395yy(b)) is
amended by striking ‘‘October 1, 1995’’ and insert-
ing ‘‘January 1, 1996’’.
(2) CONFORMING AMENDMENTS.—
(A) Section 1888(d)(4) of such Act (42
U.S.C. 1395yy(d)(4)) is amended by striking
‘‘fiscal’’ each place it appears.
(B) Subsections (a)(1) and (b) of section
13503 of the Omnibus Budget Reconciliation
Act of 1993 are amended by striking ‘‘fiscal
years 1994 and 1995’’ each place it appears
and inserting ‘‘the 15-month period beginning
on October 1, 1993, and calendar year 1995’’.
SEC. 206. ACCELERATION OF TRANSITION TO PROSPEC-
TIVE RATES FOR FACILITY COSTS IN HOS-
PITAL OUTPATIENT DEPARTMENTS.
(a) 
OUTPATIENT
SURGERY.—Section
1833(i)(3)(B)(ii) of the Social Security Act (42 U.S.C.
1395l(i)(3)(B)(ii)) is amended—
(1) in subclause (I)—
(A) by striking ‘‘and 42 percent’’ and in-
serting ‘‘42 percent’’, and
(B) by striking ‘‘1991’’ and inserting
‘‘1991, and beginning on or before September
30, 1994, 25 percent for portions of cost re-
porting periods beginning in fiscal year 1995,
and 0 percent for portions of cost reporting pe-
riods beginning on or after October 1, 1995’’,
and
(2) in subclause (II)—
(A) by striking ‘‘and 58 percent’’ and in-
serting ‘‘58 percent’’, and
(B) by striking ‘‘1991’’ and inserting
‘‘1991, and beginning on or before September
30, 1994, 75 percent for portions of cost re-
porting periods beginning in fiscal year 1995,
and 100 percent for portions of cost reporting
periods beginning on or after October 1, 1995’’.
(b) OUTPATIENT
RADIOLOGY
AND
DIAGNOSTIC
SERVICES.—Section 1833(n)(1)(B)(ii)(I) of the Social Se-
curity Act (42 U.S.C. 1395l(n)(1)(B)(ii)(I)) is amended
by striking ‘‘January 1, 1991.’’ and inserting ‘‘January
1, 1991, and beginning on or before September 30, 1994.
The term means 25 percent for portions of cost reporting
periods beginning in fiscal year 1995 and 0 percent for
portions of cost reporting periods beginning on or after
October 1, 1995.’’.
Subtitle B—Medicaid
SEC. 211. CAP ON FEDERAL PAYMENTS MADE FOR ACUTE
MEDICAL SERVICES UNDER THE MEDICAID
PROGRAM.
(a) IN GENERAL.—Title XIX of the Social Security
Act (42 U.S.C. 1396 et seq.) is amended by redesignating
section 1931 as section 1932 and by inserting after section
1930 the following new section:
‘‘CAP ON FEDERAL PAYMENT MADE FOR ACUTE MEDICAL
SERVICES FURNISHED UNDER THE MEDICAID PROGRAM
‘‘SEC. 1931. (a) ANNUAL FEDERAL CAP.—For pur-
poses of furnishing acute medical services to eligible indi-
viduals, the Secretary shall pay to a State for a fiscal year
under section 1903 an amount that does not exceed the
State’s total funding amount for such fiscal year deter-
mined under subsection (b).
‘‘(b) STATE TOTAL FUNDING AMOUNT.—
‘‘(1) IN
GENERAL.—A State’s total funding
amount for a fiscal year is an amount equal to the
lesser of—
‘‘(A) the sum of—
‘‘(i) the product of—
‘‘(I) 
the 
per-adult 
funding
amount for the State for such fiscal
year, and
‘‘(II) the total number of eligible
individuals who are at least 21 years
of age who will receive acute medical
services in the State during the fiscal
year; and
‘‘(ii) the product of—
‘‘(I) 
the 
per-child 
funding
amount for the State for such fiscal
year, and
‘‘(II) the total number of eligible
individuals who are under 21 years of
age who will receive acute medical
services in the State during the fiscal
year; or
‘‘(B) the maximum Federal amount for
such State (as determined under paragraph
(3)).
‘‘(2) PER-ADULT
AND
PER-CHILD
FUNDING
AMOUNTS.—The Secretary shall calculate for each
State a per-adult funding amount and a per-child
funding amount for each fiscal year as follows:
‘‘(A) IN GENERAL.—
‘‘(i) FISCAL
YEAR
1995.—For fiscal
year 1995—
‘‘(I) 
the 
per-adult 
funding
amount for a State shall be an
amount equal to the base per-adult
funding amount determined under
subparagraph (B) increased by 20
percent of such amount; and
‘‘(II) 
the 
per-child 
funding
amount for the State shall be an
amount equal to the base per-child
funding amount for the State deter-
mined under subparagraph (C) in-
creased by 20 percent of such amount.
‘‘(ii) SUBSEQUENT
FISCAL
YEARS.—
For fiscal year 1996 and subsequent fiscal
years, the per-adult funding amount for a
State and the per-child funding amount for
a State, respectively, shall be an amount
equal to the amount determined under this
subparagraph for the previous fiscal year
updated, through the midpoint of the pe-
riod, by the estimated percentage change
in the Consumer Price Index during the
12-month period ending at that midpoint,
with appropriate adjustments to reflect
previous 
underestimations 
or 
overesti-
mations under this clause in the projected
percentage change in the Consumer Price
Index, plus 1 percentage point.
‘‘(B) 
BASE
PER-ADULT
FUNDING
AMOUNT.—The base per-adult funding amount
for a State is an amount equal to—
‘‘(i) the total amount of Federal funds
paid to such State under section 1903(a)
for fiscal year 1993 for providing acute
medical services to eligible individuals who
were at least 21 years of age; divided by
‘‘(ii) the total number of eligible indi-
viduals who were at least 21 years of age
who received acute medical services in such
State during fiscal year 1993.
‘‘(C) 
BASE
PER-CHILD
FUNDING
AMOUNT.—The base per-child funding amount
for a State is an amount equal to—
‘‘(i) the total amount of Federal funds
paid to such State under section 1903(a)
for fiscal year 1993 for providing acute
medical services to eligible individuals who
were under 21 years of age; divided by
‘‘(ii) the total number of eligible indi-
viduals who were under 21 years of age
who received acute medical services in such
State during fiscal year 1993.
‘‘(3) MAXIMUM FEDERAL AMOUNT.—The Sec-
retary shall calculate for each State a maximum
Federal amount for each fiscal year as follows:
‘‘(A) IN GENERAL.—
‘‘(i) FISCAL
YEAR
1995.—For fiscal
year 1995, the maximum Federal amount
for a State shall be an amount equal to the
base maximum Federal amount determined
under subparagraph (C) increased by 20
percent of such amount.
‘‘(ii) SUBSEQUENT
FISCAL
YEARS.—
For fiscal year 1996 and subsequent fiscal
years, the maximum Federal amount for a
State shall be an amount equal to the
amount determined under this subpara-
graph for the previous fiscal year updated,
through the midpoint of the period, by the
estimated 
percentage 
change 
in 
the
Consumer Price Index during the 12-
month period ending at that midpoint,
with appropriate adjustments to reflect
previous 
underestimations 
or 
overesti-
mations under this clause in the projected
percentage change in the Consumer Price
Index, plus 2.5 percentage points.
‘‘(B) 
BASE
MAXIMUM
FEDERAL
AMOUNT.—
‘‘(i) IN
GENERAL.—The base maxi-
mum Federal amount for a State is an
amount equal to the State’s applicable per-
centage (as determined under clause (ii))
of the State’s total maximum amount (as
determined under clause (iii)).
‘‘(ii) STATE’S APPLICABLE PERCENT-
AGE.—A State’s applicable percentage de-
termined under this clause is a percentage
equal to the quotient of—
‘‘(I) the amount of Federal funds
paid to the State for the furnishing of
acute medical services to eligible indi-
viduals and the provision of adminis-
trative services to such individuals in
fiscal year 1993, divided by
‘‘(II) the amount of Federal
funds paid to all States for the fur-
nishing of acute medical services to el-
igible individuals and the provision of
administrative services to such indi-
viduals in fiscal year 1993.
‘‘(iii) 
STATE’S
TOTAL
MAXIMUM
AMOUNT.—A 
State’s 
total 
maximum
amount determined under this clause is an
amount equal to the applicable percentage
of the total amount of Federal funds paid
to all States for the furnishing of acute
medical services to eligible individuals and
the provision of administrative services to
such individuals in fiscal year 1993.
‘‘(c) MINIMUM EXPENDITURE BY STATES.—
‘‘(1) IN GENERAL.—For the purpose of furnish-
ing acute medical services to eligible individuals and
providing administrative services to such individuals
in a fiscal year, a State shall incur expenditures
which are at least equal to the product of—
‘‘(A) the State’s updated per capita
amount, and
‘‘(B) the total number of eligible individ-
ual’s receiving acute medical services in the
State during such fiscal year.
‘‘(2) UPDATED PER CAPITA AMOUNT.—For pur-
poses of paragraph (1)(A)—
‘‘(A) IN GENERAL.—The updated per cap-
ita amount for a State shall be—
‘‘(i) for fiscal year 1995, an amount
equal to the State’s base per capita
amount, and
‘‘(ii) for fiscal year 1996 and each
succeeding fiscal year, an amount equal to
the amount determined under this sub-
paragraph for the first preceding fiscal
year updated by the percentage change in
the consumer price index between such
first preceding fiscal year and the second
preceding fiscal year (as determined by the
Secretary of Commerce).
‘‘(B) BASE
PER
CAPITA
AMOUNT.—The
base per capita amount for a State shall be an
amount equal to the quotient of—
‘‘(i) the total amount of State expend-
itures in fiscal year 1993 for the furnish-
ing of acute medical services to eligible in-
dividuals and the provision of administra-
tive services to such individuals, divided by
‘‘(ii) the total number of eligible indi-
viduals receiving acute medical services
during fiscal year 1993.
‘‘(d) DEFINITIONS.—For purposes of this section—
‘‘(1) ACUTE
MEDICAL
SERVICES.—The term
‘acute medical services’ means all of the care and
services furnished to individuals eligible under a
State plan under this title except the following:
‘‘(A) Nursing facility services (as defined
in section 1905(f)).
100
‘‘(B) Intermediate care facility for the
mentally retarded services (as defined in section
1905(d)).
‘‘(C) Personal care services (as described
in section 1905(a)(24)).
‘‘(D) Private duty nursing services (as re-
ferred to in section 1905(a)(8)).
‘‘(E) Home or community-based services
furnished under a waiver granted under sub-
section (c), (d), or (e) of section 1915.
‘‘(F) Home and community care furnished
to functionally disabled elderly individuals
under section 1929.
‘‘(G) Community supported living arrange-
ments services under section 1930.
‘‘(H) Case-management services (as de-
scribed in section 1915(g)(2)).
‘‘(I) Home health care services (as referred
to in section 1905(a)(7)).
‘‘(J) Hospice care (as defined in section
1905(o)).
‘‘(2) ELIGIBLE INDIVIDUAL.—The term ‘eligible
individual’ means an individual who is eligible to re-
ceive medical assistance under the State plan under
this title.
101
‘‘(3) FEDERAL
FUNDS.—The term ‘Federal
funds’ means funds paid to a State under section
1903, excluding funds paid under such section with
respect to expenditures by such State in the form of
payment adjustments made by such State in order
to comply with the requirement under section
1902(a)(13)(A) (as in effect on the date of the en-
actment of this section) that payments to hospitals
to take into account the situation of hospitals which
serve a disproportionate number of low income pa-
tients with special needs.
‘‘(4) STATE EXPENDITURES.—The term ‘State
expenditures’ means expenditures by a State under
its plan under this title, excluding expenditures in
the form of payment adjustments made by such
State in order to comply with the requirement under
section 1902(a)(13)(A) (as in effect on the date of
the enactment of this section) that payments made
by the State to hospitals take into account the situa-
tion of hospitals which serve a disproportionate
number of low income patients with special needs.’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall be effective with respect to fiscal years
beginning after September 30, 1994.
102
SEC. 212. WAIVERS FOR THE FURNISHING OF ACUTE MEDI-
CAL SERVICES UNDER THE MEDICAID PRO-
GRAM.
(a) IN GENERAL.—Title XIX of the Social Security
Act (42 U.S.C. 1396 et seq.) is amended by redesignating
section 1932 as section 1933 and by inserting after section
1931 the following new section:
‘‘WAIVERS FOR THE FURNISHING OF ACUTE MEDICAL
SERVICES UNDER THE MEDICAID PROGRAM
‘‘SEC. 1932. (a) IN GENERAL.—The Secretary shall
establish a process under which a State with a State plan
approved under this title may apply for waivers of any
of the requirements under this title in order to establish
innovative and cost effective programs for furnishing acute
medical services (as defined in section 1931(d)(1)) to eligi-
ble individuals (as defined in section 1931(d)(2)).
‘‘(b) APPLICATION FOR WAIVERS.—
‘‘(1) IN GENERAL.—In order to receive a waiver
under subsection (a), a State shall submit an appli-
cation to the Secretary at such time and containing
such information as the Secretary determines appro-
priate.
‘‘(2) APPROVAL OF APPLICATION.—
‘‘(A) INITIAL
REVIEW.—Within 60 days
after an application is submitted by the State
under this subsection, the Secretary shall review
103
and approve such application or provide the
State with a list of the modifications that are
necessary for such application to be approved.
‘‘(B) ADDITIONAL
REVIEW.—Within 60
days after a State resubmits any application
under this subsection, the Secretary shall review
and approve such application or provide the
State with a summary of which items included
on the list provided to the State under subpara-
graph (A) remain unsatisfied. A State may re-
submit an application under this subparagraph
as many times as necessary to gain approval.
‘‘(c) DURATION OF WAIVERS.—Except as provided in
subsection (d), any waiver under this section shall be
granted for a period of 5 years, and renewed for subse-
quent 5-year periods, unless the Secretary determines that
the State has failed to furnish acute medical services in
accordance with the terms of the waiver and any provi-
sions of this title with respect to which the Secretary has
not granted a waiver.
‘‘(d) TERMINATION
OF WAIVERS.—The Secretary
may terminate a waiver granted under this section at any
time if the Secretary determines that the State has failed
to furnish acute medical services in accordance with the
104
terms of the waiver and any provisions of this title with
respect to which the Secretary has not granted a waiver.
‘‘(e) REPORTS.—
‘‘(1) IN GENERAL.—The State shall, through
an independent entity, evaluate the programs oper-
ated under a waiver granted under this section and
submit interim and final reports to the Secretary at
such times and containing such information as the
Secretary shall require.
‘‘(2) REPORT TO CONGRESS.—Not later than
60 days after the receipt of a final report by the
State regarding a waiver granted under this section,
the Secretary shall submit a report to Congress.’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall be effective with respect to fiscal years
beginning after September 30, 1994.
SEC. 213. TERMINATION OF DISPROPORTIONATE SHARE
PAYMENTS.
(a) IN GENERAL.—
(1) ELIMINATION
OF
STATE
PLAN
REQUIRE-
MENT.—Section 1902(a)(13) of the Social Security
Act (42 U.S.C. 1396a(a)(13)) is amended by strik-
ing ‘‘which, in the case of hospitals, take into ac-
count the situation of hospitals which serve a dis-
105
proportionate number of low income patients with
special needs and’’.
(2) CONFORMING AMENDMENTS.—(A) Section
1923 of such Act (42 U.S.C. 1396r–4) is repealed.
(B) Section 1902(a)(55) of such Act (42 U.S.C.
1396a(a)(55)) is amended by striking ‘‘facilities de-
fined as disproportionate share hospitals under sec-
tion 1923(a)(1)(A) and’’.
(C) Section 1902(s) of such Act (42 U.S.C.
1396a(s)) is amended by striking ‘‘, and to children
who have not attained the age of 6 years and who
receive such services in a disproportionate share hos-
pital described in section 1923(b)(1),’’.
(D) Section 1903(a)(1) of such Act (42 U.S.C.
1396b(a)(1)) is amended by striking ‘‘and sub-
section 1923(f)’’.
(E) Section 1903(d)(6) of such Act (42 U.S.C.
1396b(d)(6)) is amended—
(i) by striking ‘‘(6)(A)’’ and inserting
‘‘(6)’’,
(ii) by striking ‘‘(i)’’ and ‘‘(ii)’’ and insert-
ing ‘‘(A)’’ and ‘‘(B)’’, respectively, and
(iii) by striking subparagraph (B).
106
(b) EFFECTIVE DATE.—The amendments made by
this section shall be effective on and after October 1,
1996.
SEC. 214. GRANTS FOR HEALTH INSURANCE COVERAGE,
ACUTE 
MEDICAL 
SERVICES, 
PREVENTIVE
CARE, AND DISEASE PREVENTION.
(a) IN GENERAL.—Title XIX of the Social Security
Act (42 U.S.C. 1396 et seq.) is amended by redesignating
section 1933 as section 1934 and by inserting after section
1932 the following new section:
‘‘GRANTS
FOR
HEALTH
INSURANCE
COVERAGE, ACUTE
MEDICAL
SERVICES, PREVENTIVE
CARE, AND
DIS-
EASE PREVENTION
‘‘SEC. 1933. (a) IN GENERAL.—The Secretary shall
provide grants to States for the purpose of conducting
State programs under which individuals with incomes
below 150 percent of the income official poverty line are
provided health insurance coverage, acute medical serv-
ices, preventive care, and disease prevention services. A
State receiving a grant under this section shall conduct
a program described in this section in consultation with
the Secretary and in any manner determined appropriate
by the State which is in accordance with subsection (b).
‘‘(b) REQUIREMENTS ON PROGRAMS.—
107
‘‘(1) PRIORITY
OF
BENEFITS.—A State pro-
gram conducted under this section shall give priority
to individuals who—
‘‘(A) are ineligible for benefits under a
State plan under title XIX of the Social Secu-
rity Act,
‘‘(B) are eligible for the tax credit estab-
lished under section 34A of the Internal Reve-
nue Code of 1986, and
‘‘(C) has unreimbursed expenses for health
insurance coverage and medical care—
‘‘(i) exceeding 5 percent of the indi-
vidual’s adjusted gross income, and
‘‘(ii) not otherwise taken into account
in determining the credit under section
34A of the Internal Revenue Code of 1986
for such individual.
‘‘(2) SERVICES.—
‘‘(A) MANDATORY.—A State program con-
ducted under this section shall provide financial
assistance as determined by the State for pur-
chasing health insurance coverage and paying
medical bills to individuals described in para-
graph (1).
108
‘‘(B) OPTIONAL.—A State program con-
ducted under this section may provide—
‘‘(i) medical services directly to eligi-
ble individuals,
‘‘(ii) primary and preventive care serv-
ices to underserved populations,
‘‘(iii) funding for community and mi-
grant health centers,
‘‘(iv) delivery of outpatient primary
and preventive health services,
‘‘(v) improvements to the availability
and quality of emergency medical services
and trauma care,
‘‘(vi) transportation of victims of med-
ical emergencies, including air transpor-
tation for victims of medical emergencies
in rural areas, and
‘‘(vii) telecommunications systems be-
tween rural medical facilities and other
medical facilities which have expertise in
certain areas or equipment that can be uti-
lized by rural facilities through such sys-
tems.
‘‘(c) FEDERAL FUNDS AVAILABLE FOR GRANTS.—
109
‘‘(1) IN GENERAL.—The total amount of Fed-
eral funds available under this title for grants to
States under this section shall be—
‘‘(A) $14,200,000,000 for fiscal year 1997,
‘‘(B) $15,800,000,000 for fiscal year 1998,
‘‘(C) $17,400,000,000 for fiscal year 1999,
‘‘(D) $20,000,000,000 for fiscal year
2000, and
‘‘(E) for each fiscal year thereafter, the
amount for the preceding fiscal year increased
by 7.5 percent of such amount.
‘‘(2) 
FORMULA
FOR
DISTRIBUTION
OF
GRANTS.—
‘‘(A) IN
GENERAL.—The Secretary shall
pay to each State conducting a program under
this section for a fiscal year an amount equal
to the State’s percentage (as determined under
subparagraph (B)) of the total amount available
for grants under this section as provided in
paragraph (1).
‘‘(B) STATE PERCENTAGE.—
‘‘(i) IN GENERAL.—A State’s percent-
age determined under this subparagraph
for a fiscal year is a percentage equal to
the quotient of—
110
‘‘(I) the number of individuals in
the State’s needy population (as de-
fined in clause (ii)) for such fiscal
year, divided by
‘‘(II) the total number of individ-
uals in the needy populations of all
States for the fiscal year.
‘‘(ii) STATE
NEEDY
POPULATION.—
The term ‘‘State’s needy population’’
means, with respect to a fiscal year, the
number of individuals equal to the product
of—
‘‘(I) the average number of indi-
viduals in the State with incomes
below the income official poverty line
during the 3 preceding fiscal years (as
determined by the Secretary), and
(II) the State’s Federal percent-
age (as determined under clause (iii)).
‘‘(iii) 
STATE
FEDERAL
PERCENT-
AGE.—
‘‘(I) IN
GENERAL.—A State’s
Federal percentage for a fiscal year is
the greater of—
111
‘‘(aa) 1 minus the percent-
age determined under subclause
(II), or
‘‘(bb) 40 percent.
‘‘(II) 
PERCENTAGE
DETER-
MINED.—The percentage determined
under this subclause is the product
of—
‘‘(aa) .40, and
‘‘(bb) the product of the
amount 
determined 
under
subclause (III) multiplied by it-
self.
‘‘(III) AMOUNT DETERMINED.—
The amount determined under this
subclause is the quotient of—
‘‘(aa) the State’s share of
total taxable resources, divided
by
‘‘(bb) the State’s share of
need.
‘‘(d) STATE EXPENDITURES.—
‘‘(1) IN GENERAL.—For a fiscal year, a State
shall expend for purposes of conducting the State
112
program described in subsection (a) an amount at
least equal to—
‘‘(A) for fiscal year 1997, the base year
DSH payment for the State (as defined in
paragraph (2)) updated by the percentage
change in the consumer price index between fis-
cal year 1996 and fiscal year 1995 (as deter-
mined by the Secretary of Commerce), and
‘‘(B) for fiscal year 1998 and each suc-
ceeding fiscal year, an amount equal to the
amount determined under this clause for the
first preceding fiscal year updated by the per-
centage change in the consumer price index be-
tween such first preceding fiscal year and the
second preceding fiscal year (as determined by
the Secretary of Commerce).
‘‘(2) BASE YEAR DSH PAYMENT.—For purposes
of paragraph (1), the term ‘base year DSH pay-
ment’ means the amount of expenditures made by
the State in fiscal year 1996 in the form of payment
adjustments in order to comply with the requirement
under section 1902(a)(13)(A) (as in effect on the
date of the enactment of this section) that payments
made by the State to hospitals take into account the
113
situation of hospitals which serve a disproportionate
number of low income patients with special needs.
‘‘(e) OTHER DEFINITIONS.—
‘‘(1) INCOME
OFFICIAL
POVERTY
LINE.—For
purposes of this section, the term ‘income official
poverty line’ means the income official poverty line
(as defined by the Office of Management and Budg-
et, and revised annually in accordance with section
673(2) of the Omnibus Budget Reconciliation Act of
1981).
‘‘(2) STATE’S SHARE OF TOTAL TAXABLE RE-
SOURCES.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), the term ‘State share of
total taxable resources’ for a fiscal year means
an amount equal to the quotient of—
‘‘(i) the average of total taxable re-
sources for the State (as determined by the
Secretary of the Treasury based on data
available for the 3 most recent calendar
years), divided by
‘‘(ii) the average of the total taxable
resources for all States (as determined by
the Secretary of the Treasury based on
114
data available for the 3 most recent cal-
endar years).
‘‘(B) SPECIAL RULE FOR THE DISTRICT OF
COLUMBIA.—Notwithstanding 
subparagraph
(A), with respect to the District of Columbia,
the term ‘State share of total taxable resources’
for a fiscal year means an amount equal to the
quotient of—
‘‘(i) the average of the total personal
income in such District for the 3 preceding
calendar years (as determined by the Sec-
retary of Commerce), divided by
‘‘(ii) the average of the total personal
income for all States for the 3 preceding
calendar years (as determined by the Sec-
retary of Commerce).
‘‘(3) STATE’S
SHARE
OF
NEED.—The term
‘State’s share of need’ for a fiscal year means the
quotient of—
‘‘(A) the average number of individuals in
the State with incomes below the income official
poverty line for the 3 preceding fiscal years (as
determined by the Secretary), divided by
‘‘(B) the average number of individuals in
all States with incomes below the income offi-
115
cial poverty line for the 3 preceding fiscal years
(as determined by the Secretary).’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall be effective with respect to fiscal years
beginning after September 30, 1996.
TITLE III—HEALTH CARE
LIABILITY REFORM
SEC. 301. SHORT TITLE.
This title may be cited as the ‘‘Health Care Liability
Reform Act of 1993’’.
SEC. 302. DEFINITIONS.
For purposes of this title the term—
(1) ‘‘approved by the Food and Drug Adminis-
tration’’ means, with respect to a health care prod-
uct, that the health care product—
(A) was subject to premarket approval by
the Food and Drug Administration with respect
to the safety of the formulation or performance
of the aspect of such drug or device which
caused the claimant’s harm or the adequacy of
the packaging or labeling of such drug or de-
vice, and such drug or device was approved by
the Food and Drug Administration; or
(B) is generally recognized as safe and ef-
fective under conditions established by the Food
116
and Drug Administration and applicable regula-
tions, including packaging and labeling regula-
tions;
(2) ‘‘arbitration’’ means a dispute resolution
process in which the parties submit the dispute out-
side of a Federal or State civil justice system for
resolution by a person or panel of persons;
(3) ‘‘economic losses’’ means losses for hospital
and medical expenses, lost wages, lost employment,
and other pecuniary losses;
(4) ‘‘health care malpractice action’’ means a
civil action alleging a health care malpractice claim
against a health care provider or health care profes-
sional;
(5) ‘‘health care malpractice claim’’ means any
claim relating to the provision of (or the failure to
provide) health care services based on negligence or
gross negligence, breach of express or implied war-
ranty or contract, or failure to discharge a duty to
warn or instruct to obtain consent;
(6) ‘‘health care product’’ means a drug, as de-
fined under section 201(g)(1) of the Federal Food,
Drug, and Cosmetic Act (21 U.S.C. 321(g)(1)) or a
medical device, as defined under section 201(h) of
117
the Federal Food, Drug, and Cosmetic Act (21
U.S.C. 321(h)), or any combination thereof;
(7) ‘‘health care product liability action’’ means
a civil action alleging a health care product liability
claim against a manufacturer or seller of a health
care product or against a health care provider or
health care professional;
(8) ‘‘health care product liability claim’’ means
any claim relating to harm alleged to have been
caused by a health care product;
(9) ‘‘health care professional’’ means any indi-
vidual who provides health care services in a State
and who is required by State law or regulation to be
licensed or certified by the State to provide such
services in the State, including a physician, nurse,
chiropractor, nurse midwife, physical therapist, so-
cial worker, or physician assistant;
(10) ‘‘health care provider’’ means any organi-
zation or institution that is engaged in the delivery
of health care services in a State and that is re-
quired by State law or regulation to be licensed or
certified by the State to engage in the delivery of
such services in the State;
118
(11) ‘‘injury’’ means any injury, illness, disease,
or other harm that is the subject of a health care
malpractice claim; and
(12) ‘‘noneconomic losses’’ means losses for
physical and emotional pain, suffering, inconven-
ience, physical impairment, mental anguish, dis-
figurement, loss of enjoyment of life, and other
nonpecuniary losses.
SEC. 303. HEALTH CARE MALPRACTICE.
(a) APPLICATION.—The provisions of this section
shall apply to any health care malpractice action filed in
any Federal or State court and any health care mal-
practice claim resolved through arbitration.
(b) PAYMENTS.—No person may be required to pay
more than $100,000 in a single payment in damages for
expenses to be incurred in the future, but such person
shall be permitted to make such payments on a periodic
basis. The periods for such payments shall be determined
by the court, based on projections of when expenses are
likely to be incurred.
(c) DAMAGES.—(1) The total amount of damages re-
ceived by an individual shall be reduced, in accordance
with paragraph (2), by any other payment which has been
made or which will be made to such individual to com-
119
pensate such individual for an injury, including payments
under—
(A) Federal or State disability or sickness pro-
grams;
(B) Federal, State, or private health insurance
programs;
(C) private disability insurance programs;
(D) employer wage continuation programs; and
(E) any other source of payment intended to
compensate such individual for such injury.
(2) The amount by which an award of damages to
an individual for an injury shall be reduced under para-
graph (1) shall be—
(A) the total amount of any payments (other
than such award) which have been made or which
will be made to such individual to compensate such
individual for such injury; minus
(B) the amount paid by such individual (or by
the spouse, parent, or legal guardian of such individ-
ual) to secure the payments described under sub-
paragraph (A).
(d) STATUTE OF LIMITATIONS.—(1) Except as pro-
vided under paragraph (2), no health care malpractice
claim may be initiated after the expiration of the 2-year
period that begins on the date the alleged injury should
120
reasonably have been discovered, or the expiration of the
4-year period that begins on the date the alleged injury
occurred, whichever is later.
(2) In the case of an alleged injury suffered by a
minor who has not attained 6 years of age, no health care
malpractice claim may be initiated after the expiration of
the 2-year period that begins on the date the alleged injury
should reasonably have been discovered, or the date on
which the minor attains 10 years of age, whichever is
later.
(e) ATTORNEYS’ FEES.—With respect to any health
care malpractice action or any health care malpractice
claim, attorneys’ fees may not exceed
(1) 40 percent of the first $50,000 of any
award or settlement under such action or claim;
(2) 331⁄3 percent of the next $50,000 of any
award or settlement under such action or claim;
(3) 25 percent of the next $500,000 of any
award or settlement under such action or claim; and
(4) 15 percent of any additional amounts.
SEC. 304. HEALTH CARE PRODUCT LIABILITY OF MANUFAC-
TURER OR SELLER.
(a) NONAPPLICATION
OF
STRICT
LIABILITY.—A
manufacturer or seller of a health care product approved
121
by the Food and Drug Administration shall not be strictly
liable for any injury alleged to have resulted from—
(1) a defect in the design of the health care
product; or
(2) a failure to warn or instruct regarding a
risk posed by the health care product that was nei-
ther known nor reasonably knowable at the time the
health care product left the control of the manufac-
turer or seller.
(b) DUTY TO WARN.—(1) A manufacturer or seller
of a health care product that is to be prescribed by, or
used at the direction of, a health care professional shall
not be liable for harm allegedly caused by a failure to warn
or instruct the ultimate user or recipient of the product
about a risk if the manufacturer or seller provided ade-
quate warning or instruction to the user’s or recipient’s
health care professional.
(2) This subsection shall not apply to any health care
product to which the Food and Drug Administration spe-
cifically provides that a warning or instruction regarding
such product shall be given by the manufacturer or seller
directly to the ultimate user or recipient.
122
SEC. 305. GENERAL PROVISIONS RELATING TO HEALTH
CARE LIABILITY.
(a) LIMITATION ON NONECONOMIC DAMAGES.—(1)
Except as provided under paragraph (2), the total amount
of damages which may be awarded to an individual and
the family members of such individual for noneconomic
losses resulting from an injury which is the subject of a
health care malpractice claim or a health care product li-
ability claim may not exceed $250,000, regardless of the
number of defendants against whom the claim is brought,
the number of claims brought with respect to the injury,
or the number of actions brought with respect to the in-
jury.
(2)(A) In any jury trial, the jury shall not be in-
formed of the limitation established under paragraph (1).
If the jury awards an amount for noneconomic damages
that exceeds $250,000, the court shall reduce the award
to $250,000 unless the court finds that special cir-
cumstances (such as egregious injury) would make such
reduction unjust.
(B) In any case in which the court finds a reduction
under subparagraph (A) would be unjust, the court may—
(i) decline to reduce such award; or
(ii) reduce such award by a lesser amount than
provided for under subparagraph (A).
123
(b) SEVERAL LIABILITY FOR NONECONOMIC LOSS.—
(1) In any health care malpractice action or health care
product liability action the liability of each defendant for
noneconomic loss and for punitive damages shall be sev-
eral only and shall not be joint. Each defendant shall be
liable only for the amount of noneconomic loss and puni-
tive damages allocated to such defendant in direct propor-
tion to such defendant’s percentage of responsibility as de-
termined under paragraph (2). A separate judgment shall
be rendered against such defendant for that amount.
(2) For purposes of this subsection, the trier of fact
shall determine the proportion of responsibility of each
party for the claimant’s harm.
SEC. 306. PUNITIVE DAMAGES.
(a) IN GENERAL.—Punitive damages may, if other-
wise permitted by applicable law, be awarded against a
defendant in a health care malpractice action or a health
care product liability action only if the claimant estab-
lishes by clear and convincing evidence that the harm suf-
fered by the claimant was the result of conduct manifest-
ing conscious, flagrant indifference to the health of the
claimant or to the health of those persons who might be
harmed by the health care product.
(b) DETERMINATION OF AMOUNT.—The amount of
any punitive damages award shall be determined (subject
124
to appellate review as permitted by applicable law) by the
trial judge.
(c) LIMITATION CONCERNING CERTAIN HEALTH
CARE PRODUCTS.—Punitive damages shall not be award-
ed against a manufacturer or seller of a health care prod-
uct approved by the Food and Drug Administration where
that health care product caused the claimant’s harm.
SEC. 307. EXCEPTIONS.
The provisions of sections 304(a) and 306(c) shall
not apply in any case in which—
(1) the defendant, before or after premarket ap-
proval of a drug or device, withheld from or mis-
represented to the Food and Drug Administration or
any other agency or official of the Federal Govern-
ment required information that is material and rel-
evant to the performance of such drug or device and
is causally related to the harm which the claimant
allegedly suffered; or
(2) the defendant made an illegal payment to
an official of the Food and Drug Administration for
the purpose of either securing or maintaining ap-
proval of such drug or device.
SEC. 308. RULES OF CONSTRUCTION.
Nothing in this title shall be construed to—
125
(1) waive or affect any defense of sovereign im-
munity asserted by any State under any provision of
law;
(2) waive or affect any defense of sovereign im-
munity asserted by the United States;
(3) affect the applicability of any provision of
the Foreign Sovereign Immunities Act of 1976;
(4) preempt State choice-of-law rules with re-
spect to claims brought by a foreign nation or a citi-
zen of a foreign nation;
(5) affect the right of any court to transfer
venue or to apply the law of a foreign nation or to
dismiss a claim of a foreign nation or of a citizen
of a foreign nation on the grounds of inconvenient
forum;
(6) restrict or limit the preemptive effect of any
other Federal law; or
(7) create any cause of action under Federal
law.
126
TITLE IV—ADMINISTRATIVE
COST SAVINGS
Subtitle A—Standardization of
Claims Processing
SEC. 
401. 
ADOPTION 
OF 
DATA 
ELEMENTS, 
UNIFORM
CLAIMS, AND UNIFORM ELECTRONIC TRANS-
MISSION STANDARDS.
(a) IN GENERAL.—The Secretary shall adopt stand-
ards relating to each of the following:
(1) Data elements for use in paper and elec-
tronic claims processing under health insurance
plans, as well as for use in utilization review and
management of care (including data fields, formats,
and medical nomenclature, and including plan bene-
fit and insurance information).
(2) Uniform claims forms (including uniform
procedure and billing codes for uses with such forms
and including information on other health insurance
plans that may be liable for benefits).
(3) Uniform electronic transmission of the data
elements (for purposes of billing and utilization re-
view).
Standards under paragraph (3) relating to electronic
transmission of data elements for claims for services shall
supersede (to the extent specified in such standards) the
127
standards adopted under paragraph (2) relating to the
submission of paper claims for such services. Standards
under paragraph (3) shall include protections to assure
the confidentiality of patient-specific information and to
protect against the unauthorized use and disclosure of in-
formation.
(b) USE OF TASK FORCES.—In adopting standards
under this section—
(1) the Secretary shall take into account the
recommendations of current task forces, including at
least the Workgroup on Electronic Data Inter-
change, National Uniform Billing Committee, the
Uniform Claim Task Force, and the Computer-based
Patient Record Institute;
(2) the Secretary shall consult with the Na-
tional Association of Insurance Commissioners (and,
with respect to standards under subsection (a)(3),
the American National Standards Institute); and
(3) the Secretary shall, to the maximum extent
practicable, seek to make the standards consistent
with any uniform clinical data sets which have been
adopted and are widely recognized.
(c) DEADLINES
FOR PROMULGATION.—The Sec-
retary shall promulgate the standards under—
128
(1) subsection (a)(1) relating to claims process-
ing data, by not later than 12 months after the date
of the enactment of this Act;
(2) subsection (a)(2) (relating to uniform
claims forms) by not later than 12 months after the
date of the enactment of this Act; and
(3)(A) subsection (a)(3) relating to trans-
mission of information concerning hospital and phy-
sicians services, by not later than 24 months after
the date of the enactment of this Act, and
(B) subsection (a)(3) relating to transmission
of information on other services, by such later date
as the Secretary may determine it to be feasible.
(d) REPORT TO CONGRESS.—Not later than 3 years
after the date of the enactment of this Act, the Secretary
shall report to Congress recommendations regarding re-
structuring the medicare peer review quality assurance
program given the availability of hospital data in elec-
tronic form.
SEC. 402. APPLICATION OF STANDARDS.
(a) IN GENERAL.—If the Secretary determines, at
the end of the 2-year period beginning on the date that
standards are adopted under section 401 with respect to
classes of services, that a significant number of claims for
benefits for such services under health insurance plans are
129
not being submitted in accordance with such standards,
the Secretary may require, after notice in the Federal
Register of not less than 6 months, that all providers of
such services must submit claims to health insurance plans
in accordance with such standards. The Secretary may
waive the application of such a requirement in such cases
as the Secretary finds that the imposition of the require-
ment would not be economically practicable.
(b) SIGNIFICANT NUMBER.—The Secretary shall
make an affirmative determination described in subsection
(a) for a class of services only if the Secretary finds that
there would be a significant, measurable additional gain
in efficiencies in the health care system that would be ob-
tained by imposing the requirement described in such
paragraph with respect to such services.
(c) APPLICATION OF REQUIREMENT.—
(1) IN GENERAL.—If the Secretary imposes the
requirement under subsection (a)—
(A) in the case of a requirement that im-
poses the standards relating to electronic trans-
mission of claims for a class of services, each
health care provider that furnishes such services
for which benefits are payable under a health
insurance plan shall transmit electronically and
directly to the plan on behalf of the beneficiary
130
involved a claim for such services in accordance
with such standards;
(B) any health insurance plan may reject
any claim subject to the standards adopted
under section 401 but which is not submitted in
accordance with such standards;
(C) it is unlawful for a health insurance
plan (i) to reject any such claim on the basis
of the form in which it is submitted if it is sub-
mitted in accordance with such standards or (ii)
to require, for the purpose of utilization review
or as a condition of providing benefits under
the plan, a provider to transmit medical data
elements that are inconsistent with the stand-
ards established under section 401(a)(1); and
(D) the Secretary may impose a civil
money penalty on any provider that knowingly
and repeatedly submits claims in violation of
such standards or on any health insurance plan
(other than a health insurance plan described in
paragraph (2)) that knowingly and repeatedly
rejects claims in violation of subparagraph (B),
in an amount not to exceed $100 for each such
claim.
131
The provisions of section 1128A of the Social Secu-
rity Act (other than the first sentence of subsection
(a) and other than subsection (b)) shall apply to a
civil money penalty under subparagraph (D) in the
same manner as such provisions apply to a penalty
or proceeding under section 1128A(a) of such Act.
(2) PLANS SUBJECT TO EFFECTIVE STATE REG-
ULATION.—A plan described in this paragraph is a
health insurance plan—
(A) that is subject to regulation by a
State, and
(B) with respect to which the Secretary
finds that—
(i) the State provides for application
of the standards established under section
401, and
(ii) the State regulatory program pro-
vides for the appropriate and effective en-
forcement of such standards.
(d) TREATMENT OF REJECTIONS.—If a plan rejects
a claim pursuant to subsection (c)(1), the plan shall per-
mit the person submitting the claim a reasonable oppor-
tunity to resubmit the claim on a form or in an electronic
manner that meets the requirements for acceptance of the
claim under such subsection.
132
SEC. 403. PERIODIC REVIEW AND REVISION OF STAND-
ARDS.
(a) IN GENERAL.—The Secretary shall—
(1) provide for the ongoing receipt and review
of comments and suggestions for changes in the
standards adopted and promulgated under section
401;
(2) establish a schedule for the periodic review
of such standards; and
(3) based upon such comments, suggestions,
and review, revise such standards and promulgate
such revisions.
(b) APPLICATION OF REVISED STANDARDS.—If the
Secretary under subsection (a) revises the standards de-
scribed in 401, then, in the case of any claim for benefits
submitted under a health insurance plan more than the
minimum period (of not less than 6 months specified by
the Secretary) after the date the revision is promulgated
under subsection (a)(3), such standards shall apply under
section 402 instead of the standards previously promul-
gated.
SEC. 404. HEALTH INSURANCE PLAN DEFINED.
In this title, the term ‘‘health insurance plan’’ has
the meaning given such term in section 111(b) and in-
cludes—
133
(1) the medicare program (under title XVIII of
the Social Security Act) and medicare supplemental
health insurance, and
(2) a State medicaid plan (approved under title
XIX of such Act).
Subtitle B—Electronic Medical
Data Standards
SEC. 411. MEDICAL DATA STANDARDS FOR HOSPITALS AND
OTHER PROVIDERS.
(a) PROMULGATION
OF HOSPITAL DATA STAND-
ARDS.—
(1) IN GENERAL.—Between July 1, 1995, and
January 1, 1996, the Secretary shall promulgate
standards described in subsection (b) for hospitals
concerning electronic medical data.
(2) REVISION.—The Secretary may from time
to time revise the standards promulgated under this
subsection.
(b) CONTENTS OF DATA STANDARDS.—The stand-
ards promulgated under subsection (a) shall include at
least the following:
(1) A definition of a standard set of data ele-
ments for use by utilization and quality control peer
review organizations.
134
(2) A definition of the set of comprehensive
data elements, which set shall include for hospitals
the standard set of data elements defined under
paragraph (1).
(3) Standards for an electronic patient care in-
formation system with data obtained at the point of
care, including standards to protect against the un-
authorized use and disclosure of information.
(4) A specification of, and manner of presen-
tation of, the individual data elements of the sets
and system under this subsection.
(5) Standards concerning the transmission of
electronic medical data.
(6) Standards relating to confidentiality of pa-
tient-specific information.
The standards under this section shall be consistent with
standards for data elements established under section 401.
(c) OPTIONAL DATA STANDARDS FOR OTHER PRO-
VIDERS.—
(1) IN GENERAL.—The Secretary may promul-
gate standards described in paragraph (2) concern-
ing electronic medical data for providers that are not
hospitals. The Secretary may from time to time re-
vise the standards promulgated under this sub-
section.
135
(2) CONTENTS
OF
DATA
STANDARDS.—The
standards promulgated under paragraph (1) for non-
hospital providers may include standards comparable
to the standards described in paragraphs (2), (4),
and (5) of subsection (b) for hospitals.
(d) CONSULTATION.—In promulgating and revising
standards under this section, the Secretary shall—
(1) consult with the American National Stand-
ards Institute, hospitals, with the advisory commis-
sion established under section 415, and with other
affected providers, health insurance plans, and other
interested parties, and
(2) take into consideration, in developing stand-
ards under subsection (b)(1), the data set used by
the utilization and quality control peer review pro-
gram under part B of title XI of the Social Security
Act.
SEC. 412. APPLICATION OF ELECTRONIC DATA STANDARDS
TO CERTAIN HOSPITALS.
(a) MEDICARE REQUIREMENT
FOR SHARING
OF
HOSPITAL INFORMATION.—As of January 1, 1996, sub-
ject to paragraph (2), each hospital, as a requirement of
each participation agreement under section 1866 of the
Social Security Act, shall—
136
(1) maintain clinical data included in the set of
comprehensive 
data 
elements 
under 
section
411(b)(2) in electronic form on all inpatients,
(2) upon request of the Secretary or of a utili-
zation and quality control peer review organization
(with which the Secretary has entered into a con-
tract under part B of title XI of such Act), transmit
electronically the data set, and
(3) upon request of the Secretary, or of a fiscal
intermediary or carrier, transmit electronically any
data (with respect to a claim) from such data set,
in accordance with the standards promulgated under sec-
tion 411(a).
(b) WAIVER AUTHORITY.—Until January 1, 2000:
(1) The Secretary may waive the application of
the requirements of subsection (a) for a hospital
that is a small rural hospital, for such period as the
hospital demonstrates compliance with such require-
ments would constitute an undue financial hardship.
(2) The Secretary may waive the application of
the requirements of subsection (a) for a hospital
that is in the process of developing a system to pro-
vide the required data set and executes agreements
with its fiscal intermediary and its utilization and
quality control peer review organization that the hos-
137
pital will meet the requirements of subsection (a) by
a specified date (not later than January 1, 2000).
(3) The Secretary may waive the application of
the requirement of subsection (a)(1) for a hospital
that agrees to obtain from its records the data ele-
ments that are needed to meet the requirements of
paragraphs (2) and (3) of subsection (a) and agrees
to subject its data transfer process to a quality as-
surance program specified by the Secretary.
(c) APPLICATION TO HOSPITALS OF THE DEPART-
MENT OF VETERANS AFFAIRS.—
(1) IN GENERAL.—The Secretary of Veterans
Affairs shall provide that each hospital of the De-
partment of Veterans Affairs shall comply with the
requirements of subsection (a) in the same manner
as such requirements would apply to the hospital if
it were participating in the Medicare program.
(2) WAIVER.—The Secretary of Veterans Af-
fairs may waive the application of such requirements
to a hospital in the same manner as the Secretary
of Health and Human Services may waive under
subsection (b) the application of the requirements of
subsection (a).
138
SEC. 413. ELECTRONIC TRANSMISSION TO FEDERAL AGEN-
CIES.
(a) IN GENERAL.—Effective January 1, 2000, if a
provider is required under a Federal program to transmit
a data element that is subject to a presentation or trans-
mission standard (as defined in subsection (b)), the head
of the Federal agency responsible for such program (if not
otherwise authorized) is authorized to require the provider
to present and transmit the data element electronically in
accordance with such a standard.
(b) PRESENTATION
OR TRANSMISSION STANDARD
DEFINED.—In subsection (a), the term ‘‘presentation or
transmission standard’’ means a standard, promulgated
under subsection (b) or (c) of section 411, described in
paragraph (4) or (5) of section 411(b).
SEC. 414. LIMITATION ON DATA REQUIREMENTS WHERE
STANDARDS IN EFFECT.
(a) IN GENERAL.—If standards with respect to data
elements are promulgated under section 411 with respect
to a class of provider, a health insurance plan may not
require, for the purpose of utilization review or as a condi-
tion of providing benefits under the plan, that a provider
in the class—
(1) provide any data element not in the set of
comprehensive data elements specified under such
standards, or
139
(2) transmit or present any such data element
in a manner inconsistent with the applicable stand-
ards for such transmission or presentation.
(b) COMPLIANCE.—
(1) IN GENERAL.—The Secretary may impose a
civil money penalty on any health insurance plan
(other than a health insurance plan described in
paragraph (2)) that fails to comply with subsection
(a) in an amount not to exceed $100 for each such
failure. The provisions of section 1128A of the So-
cial Security Act (other than the first sentence of
subsection (a) and other than subsection (b)) shall
apply to a civil money penalty under this paragraph
in the same manner as such provisions apply to a
penalty or proceeding under section 1128A(a) of
such Act.
(2) PLANS SUBJECT TO EFFECTIVE STATE REG-
ULATION.—A plan described in this paragraph is a
health insurance plan that is subject to regulation by
a State, if the Secretary finds that—
(A) the State provides for application of
the requirement of subsection (a), and
(B) the State regulatory program provides
for the appropriate and effective enforcement of
such requirement with respect to such plans.
140
SEC. 415. ADVISORY COMMISSION.
(a) IN GENERAL.—The Secretary shall establish an
advisory commission including hospital executives, hospital
data base managers, physicians, health services research-
ers, and technical experts in collection and use of data
and operation of data systems. Such commission shall in-
clude, as ex officio members, a representative of the Direc-
tor of the National Institutes of Health, the Administrator
for Health Care Policy and Research, the Secretary of
Veterans Affairs, and the Director of the Centers for Dis-
ease Control.
(b) FUNCTIONS.—The advisory commission shall
monitor and advise the Secretary concerning—
(1) the standards established under this sub-
title, and
(2) operational concerns about the implementa-
tion of such standards under this subtitle.
(c) STAFF.—From the amounts appropriated under
subsection (d), the Secretary shall provide sufficient staff
to assist the advisory commission in its activities under
this section.
(d) AUTHORIZATION
OF APPROPRIATIONS.—There
are authorized to be appropriated $2,000,000 for each of
fiscal years 1995 through 2000 to carry out this section.
141
Subtitle C—Development and Dis-
tribution of Comparative Value
Information
SEC. 421. STATE COMPARATIVE VALUE INFORMATION PRO-
GRAMS FOR HEALTH CARE PURCHASING.
(a) PURPOSE.—In order to assure the availability of
comparative value information to purchasers of health
care in each State, the Secretary shall determine whether
each State is developing and implementing a health care
value information program that meets the criteria and
schedule set forth in subsection (b).
(b) CRITERIA
AND SCHEDULE
FOR STATE PRO-
GRAMS.—The criteria and schedule for a State health care
value information program in this subsection shall be spec-
ified by the Secretary as follows:
(1) The State begins promptly after enactment
of this Act to develop (directly or through contrac-
tual or other arrangements with 1 or more States,
coalitions of health insurance purchasers, other enti-
ties, or any combination of such arrangements) in-
formation systems regarding comparative health val-
ues.
(2) The information contained in such systems
covers at least the average prices of common health
care services (as defined in subsection (d)) and
142
health insurance plans, and, where available, meas-
ures of the variability of these prices within a State
or other market areas.
(3) The information described in paragraph (2)
is made available within the State beginning not
later than 1 year after the date of the enactment of
this Act, and is revised as frequently as reasonably
necessary, but at intervals of no greater than 1 year.
(4) Not later than 6 years after the date of the
enactment of this Act the State has developed infor-
mation systems that provide comparative costs, qual-
ity, and outcomes data with respect to health insur-
ance plans and hospitals and made the information
broadly available within the relevant market areas.
Nothing in this section shall preclude a State from provid-
ing additional information, such as information on prices
and benefits of different health insurance plans, available.
(c) GRANTS TO STATES FOR THE DEVELOPMENT OF
STATE PROGRAMS.—
(1) GRANT
AUTHORITY.—The Secretary may
make grants to each State to enable such State to
plan the development of its health care value infor-
mation program and, if necessary, to initiate the im-
plementation of such program. Each State seeking
such a grant shall submit an application therefor,
143
containing such information as the Secretary finds
necessary to assure that the State is likely to de-
velop and implement a program in accordance with
the criteria and schedule in subsection (b).
(2) OFFSET AUTHORITY.—If, at any time with-
in the 3-year period following the receipt by a State
of a grant under this subsection, the Secretary is re-
quired by section 422 to implement a health care in-
formation program in the State, the Secretary may
recover the amount of the grant under this sub-
section by offset against any other amount payable
to the State under the Social Security Act. The
amount of the offset shall be made available (from
the appropriation account with respect to which the
offset was taken) to the Secretary to carry out such
section.
(3) AUTHORIZATION
OF
APPROPRIATIONS.—
There are authorized to be appropriated such sums
as are necessary to make grants under this sub-
section, to remain available until expended.
(d) COMMON HEALTH CARE SERVICES DEFINED.—
In this section, the term ‘‘common health care services’’
includes such procedures as the Secretary may specify and
any additional health care services which a State may wish
to include in its comparative value information program.
144
(e) STATE DEFINED.—In this title, the term ‘‘State’’
includes the District of Columbia, Puerto Rico, the Virgin
Islands, Guam, and American Samoa.
SEC. 422. FEDERAL IMPLEMENTATION.
(a) IN GENERAL.—If the Secretary finds, at any
time, that a State has failed to develop or to continue to
implement a health care value information program in ac-
cordance with the criteria and schedule in section 421(b),
the Secretary shall take the actions necessary, directly or
through grants or contract, to implement a comparable
program in the State.
(b) FEES.—Fees may be charged by the Secretary
for the information materials provided pursuant to a pro-
gram under this section. Any amounts so collected shall
be deposited in the appropriation account from which the
Secretary’s costs of providing such materials were met,
and shall remain available for such purposes until ex-
pended.
SEC. 423. COMPARATIVE VALUE INFORMATION CONCERN-
ING FEDERAL PROGRAMS.
(a) DEVELOPMENT.—The head of each Federal agen-
cy with responsibility for the provision of health insurance
or of health care services to individuals shall promptly de-
velop health care value information relating to each pro-
gram that such head administers and covering the same
145
types of data that a State program meeting the criteria
of section 421(b) would provide.
(b) DISSEMINATION OF INFORMATION.—Such infor-
mation shall be made generally available to States and to
providers and consumers of health care services.
Subtitle D—Preemption of State
Quill Pen Laws
SEC. 431. PREEMPTION OF STATE QUILL PEN LAWS.
(a) IN GENERAL.—Effective January 1, 1996, no ef-
fect shall be given to any provision of State law that re-
quires medical or health insurance records (including bill-
ing information) to be maintained in written, rather than
electronic form.
(b) SECRETARIAL AUTHORITY.—The Secretary may
issue regulations to carry out subsection (a). Such regula-
tions may provide for such exceptions to subsection (a)
as the Secretary determines to be necessary to prevent
fraud and abuse, with respect to controlled substances,
and in such other cases as the Secretary deems appro-
priate.
146
TITLE V—ANTI-FRAUD
Subtitle A—Criminal Prosecution
of Health Care Fraud
SEC. 501. PENALTIES FOR HEALTH CARE FRAUD.
(a) IN GENERAL.—Chapter 63 of title 18, United
States Code, is amended by adding at the end the follow-
ing:
‘‘§ 1347. Health care fraud
‘‘(a) OFFENSE.—Whoever, being a health care pro-
vider, knowingly engages in any scheme or artifice to de-
fraud any person in connection with the provision of
health care shall be fined under this title or imprisoned
not more than 5 years, or both.
‘‘(b) DEFINITION.—In this section, the term ‘health
care provider’ means—
‘‘(1) a physician, nurse, dentist, therapist, phar-
macist, or other professional provider of health care;
and
‘‘(2) a hospital, health maintenance organiza-
tion, pharmacy, laboratory, clinic, or other health
care facility or a provider of medical services, medi-
cal devices, medical equipment, or other medical sup-
plies.
(b) CLERICAL AMENDMENT.—The table of sections
at the beginning of chapter 63 of title 18, United States
147
Code, is amended by adding at the end the following new
item:
‘‘1347. Health care fraud.’’.
SEC. 502. REWARDS FOR INFORMATION LEADING TO PROS-
ECUTION AND CONVICTION.
Section 3059 of title 18, United States Code, is
amended by adding at the end the following new sub-
section:
‘‘(c)(1) In special circumstances and in the Attorney
General’s sole discretion, the Attorney General may make
a payment of up to $10,000 to a person who furnishes
information unknown to the Government relating to a pos-
sible prosecution under section 1101.
‘‘(2) A person is not eligible for a payment under
paragraph (1) if—
‘‘(A) the person is a current or former officer
or employee of a Federal or State government agen-
cy or instrumentality who furnishes information dis-
covered or gathered in the course of government em-
ployment;
‘‘(B) the person knowingly participated in the
offense;
‘‘(C) the information furnished by the person
consists of allegations or transactions that have been
disclosed to the public—
148
‘‘(i) in a criminal, civil, or administrative
proceeding;
‘‘(ii) in a congressional, administrative or
General Accounting Office report, hearing,
audit, or investigation; or
‘‘(iii) by the news media, unless the person
is the original source of the information; or
‘‘(D) when, in the judgment of the Attorney
General, it appears that a person whose illegal ac-
tivities are being prosecuted or investigated could
benefit from the award.
‘‘(3) For the purposes of paragraph (2)(C)(iii), the
term ‘original source’ means a person who has direct and
independent knowledge of the information that is fur-
nished and has voluntarily provided the information to the
Government prior to disclosure by the news media.
‘‘(4) Neither the failure of the Attorney General to
authorize a payment under paragraph (1) nor the amount
authorized shall be subject to judicial review.’’.
149
Subtitle B—Coordination of Health
Care Anti-Fraud and Abuse Ac-
tivities
SEC. 511. APPLICATION OF FEDERAL HEALTH ANTI-FRAUD
AND ABUSE SANCTIONS TO ALL FRAUD AND
ABUSE AGAINST ANY HEALTH INSURANCE
PLAN.
(a) CIVIL MONETARY PENALTIES.—Section 1128A
of the Social Security Act (42 U.S.C. 1320a–7a) is amend-
ed as follows:
(1) In subsection (a)(1), in the matter before
subparagraph (A), by inserting ‘‘or of any health in-
surance plan,’’ after ‘‘subsection (i)(1)),’’.
(2) In subsection (b)(1)(A), by inserting ‘‘or
under a health insurance plan’’ after ‘‘title XIX’’.
(3) In subsection (f)—
(A) by redesignating paragraph (3) as
paragraph (4); and
(B) by inserting after paragraph (2) the
following new paragraph:
‘‘(3) With respect to amounts recovered arising
out of a claim under a health insurance plan, the
portion of such amounts as is determined to have
been paid by the plan shall be repaid to the plan.’’.
(4) In subsection (i)—
150
(A) in paragraph (2), by inserting ‘‘or
under a health insurance plan’’ before the pe-
riod at the end, and
(B) in paragraph (5), by inserting ‘‘or
under a health insurance plan’’ after ‘‘or XX’’.
(b) CRIMES.—
(1) SOCIAL SECURITY ACT.—Section 1128B of
such Act (42 U.S.C. 1320a–7b) is amended as fol-
lows:
(A) In the heading, by adding at the end
the following: ‘‘OR HEALTH INSURANCE PLANS’’.
(B) In subsection (a)(1)—
(i) by striking ‘‘title XVIII or’’ and
inserting ‘‘title XVIII,’’, and
(ii) by adding at the end the follow-
ing: ‘‘or a health insurance plan (as de-
fined in section 1128(i)),’’.
(C) In subsection (a)(5), by striking ‘‘title
XVIII or a State health care program’’ and in-
serting ‘‘title XVIII, a State health care pro-
gram, or a health insurance plan’’.
(D) In the second sentence of subsection
(a)—
151
(i) by inserting after ‘‘title XIX’’ the
following: ‘‘or a health insurance plan’’,
and
(ii) by inserting after ‘‘the State’’ the
following: ‘‘or the plan’’.
(E) In subsection (b)(1), by striking ‘‘title
XVIII or a State health care program’’ each
place it appears and inserting ‘‘title XVIII, a
State health care program, or a health insur-
ance plan’’.
(F) In subsection (b)(2), by striking ‘‘title
XVIII or a State health care program’’ each
place it appears and inserting ‘‘title XVIII, a
State health care program, or a health insur-
ance plan’’.
(G) In subsection (b)(3), by striking ‘‘title
XVIII or a State health care program’’ each
place it appears in subparagraphs (A) and (C)
and inserting ‘‘title XVIII, a State health care
program, or a health insurance plan’’.
(H) In subsection (d)(2)—
(i) by striking ‘‘title XIX,’’ and insert-
ing ‘‘title XIX or under a health insurance
plan,’’, and
152
(ii) by striking ‘‘State plan,’’ and in-
serting ‘‘State plan or the health insurance
plan,’’.
(2) TREBLE
DAMAGES
FOR
CRIMINAL
SANC-
TIONS.—Section 1128B of such Act (42 U.S.C.
1320a–7b) is amended by adding at the end the fol-
lowing new subsection:
‘‘(f) In addition to the fines that may be imposed
under subsection (a), (b), or (c), any individual found to
have violated the provisions of any of such subsections
may be subject to treble damages.’’.
(3) IDENTIFICATION OF COMMUNITY SERVICE
OPPORTUNITIES.—Section 1128B of such Act (42
U.S.C. 1320a–7b) is further amended by adding at
the end the following new subsection:
‘‘(g) The Secretary shall—
‘‘(1) in consultation with State and local health
care officials, identify opportunities for the satisfac-
tion of community service obligations that a court
may impose upon the conviction of an offense under
this section, and
‘‘(2) make information concerning such oppor-
tunities available to Federal and State law enforce-
ment officers and State and local health care offi-
cials.’’.
153
(c) HEALTH INSURANCE PLAN DEFINED.—Section
1128 of such Act (42 U.S.C. 1320a–7) is amended by re-
designating subsection (i) as subsection (j) and by insert-
ing after subsection (h) the following new subsection:
‘‘(i) HEALTH INSURANCE PLAN DEFINED.—For pur-
poses of sections 1128A and 1128B, the term ‘health in-
surance plan’ means a health insurance program other
than the medicare program, the medicaid program, or a
State health care program.’’.
(d) 
CONFORMING
AMENDMENT.—Section
1128(b)(8)(B)(ii) of such Act (42 U.S.C. 1320a–
7(b)(8)(B)(ii)) is amended by striking ‘‘1128A’’ and in-
serting ‘‘1128A (other than a penalty arising from a
health insurance plan, as defined in subsection (i))’’.
(e) EFFECTIVE DATE.—The amendments made by
this section shall take effect January 1, 1995.
TITLE VI—ANTITRUST
PROVISIONS
SEC. 601. EXEMPTION FROM ANTITRUST LAWS FOR CER-
TAIN COMPETITIVE AND COLLABORATIVE
ACTIVITIES.
(a) EXEMPTION DESCRIBED.—An activity relating to
the provision of health care services shall be exempt from
the antitrust laws if—
154
(1) the activity is within one of the categories
of safe harbors described in section 602;
(2) the activity is within an additional safe har-
bor designated by the Attorney General under sec-
tion 603; or
(3) the activity is specified in and in compliance
with the terms of a certificate of review issued by
the Attorney General under section 604 and the ac-
tivity occurs—
(A) while the certificate is in effect, or
(B) in the case of a certificate issued dur-
ing the 2-year period beginning on the date of
the enactment of this Act, at any time on or
after the first day of the 2-year period that
ends on the date the certificate takes effect.
(b) AWARD OF ATTORNEY’S FEES AND COSTS OF
SUIT.—
(1) IN GENERAL.—If any person brings an ac-
tion alleging a claim under the antitrust laws and
the activity on which the claim is based is found by
the court to be exempt from such laws under sub-
section (a), the court shall, at the conclusion of the
action—
155
(A) award to a substantially prevailing
claimant the cost of suit attributable to such
claim, including a reasonable attorney’s fee, or
(B) award to a substantially prevailing
party defending against such claim the cost of
such suit attributable to such claim, including
reasonable attorney’s fee, if the claim, or the
claimant’s conduct during litigation of the
claim, was frivolous, unreasonable, without
foundation, or in bad faith.
(2) OFFSET
IN
CASES
OF
BAD
FAITH.—The
court may reduce an award made pursuant to para-
graph (1) in whole or in part by an award in favor
of another party for any part of the cost of suit (in-
cluding a reasonable attorney’s fee) attributable to
conduct during the litigation by any prevailing party
that the court finds to be frivolous, unreasonable,
without foundation, or in bad faith.
SEC. 602. SAFE HARBORS.
The following activities are safe harbors for purposes
of section 601(a)(1):
(1) COMBINATIONS
WITH
MARKET
SHARE
BELOW
THRESHOLD.—Activities relating to health
care services of any combination of health care pro-
viders if the number of each type or specialty of pro-
156
vider in question does not exceed 20 percent of the
total number of such type or specialty of provider in
the relevant market area.
(2) ACTIVITIES OF MEDICAL SELF-REGULATORY
ENTITIES.—
(A) IN
GENERAL.—Subject to subpara-
graph (B), any activity of a medical self-regu-
latory entity relating to standard setting or
standard enforcement activities that are de-
signed to promote the quality of health care
provided to patients.
(B) EXCEPTION.—No activity of a medical
self-regulatory entity may be deemed to fall
under the safe harbor established under this
paragraph if the activity is conducted for pur-
poses of financial gain.
(3) PARTICIPATION IN SURVEYS.—The partici-
pation of a provider of health care services in a writ-
ten survey of the prices of services, reimbursement
levels, or the compensation and benefits of employ-
ees and personnel, but only if—
(A) the survey is conducted by a third
party, such as a purchaser of health care serv-
ices, governmental entity, institution of higher
education, or trade association;
157
(B) the information provided by partici-
pants in the survey is based on prices charged,
reimbursements received, or compensation and
benefits paid prior to the third month preceding
the month in which the information is provided;
and
(C) if the results of the survey are dissemi-
nated, the results are aggregated in a manner
that ensures that no recipient of the results
may identify the prices charged, reimbursement
received, or compensation and benefits paid by
any particular provider.
(4) JOINT VENTURES FOR HIGH TECHNOLOGY
AND COSTLY EQUIPMENT AND SERVICES.—Any ac-
tivity of a health care cooperative venture relating to
the purchase, operation, or marketing of high tech-
nology or other expensive medical equipment, or the
provision of high cost or complex services, but only
if the number of participants in the venture does not
exceed the lowest number needed to support the ven-
ture. Other providers may be included in the ven-
ture, but only if such other providers could not pur-
chase, operate, or market such equipment or provide
a competing service either alone or through the for-
mation of a competing venture.
158
(5) HOSPITAL MERGERS.—Activities relating to
a merger of 2 hospitals if, during the 3-year period
preceding the merger, one of the hospitals had an
average of 150 or fewer operational beds and an av-
erage daily inpatient census of less than 50 percent
of such beds.
(6) JOINT PURCHASING ARRANGEMENTS.—Any
joint purchasing arrangement among health care
providers if—
(A) the purchases under the arrangement
represent less than 35 percent of the total sales
of the product or service purchased in the rel-
evant market; and
(B) the cost of the products and services
purchased jointly accounts for less than 20 per-
cent of the total revenues from all products or
services sold by each participant in the joint
purchasing arrangement.
(7) NEGOTIATIONS.—Activities consisting of
good faith negotiations to carry out any activity—
(A) described in this section,
(B) within an additional safe harbor des-
ignated by the Attorney General under section
603,
159
(C) that is the subject of an application for
a certificate of review under section 604, or
(D) that is deemed a submission of a noti-
fication under section 605(a)(2)(B),
without regard to whether such an activity is carried
out.
SEC. 603. DESIGNATION OF ADDITIONAL SAFE HARBORS.
(a) IN GENERAL.—
(1) SOLICITATION OF PROPOSALS.—Not later
than 30 days after the date of the enactment of this
Act, the Attorney General shall publish a notice in
the Federal Register soliciting proposals for addi-
tional safe harbors.
(2) REVIEW AND REPORT ON PROPOSED SAFE
HARBORS.—Not later than 180 days after the date
of the enactment of this Act, the Attorney General
(in consultation with the Secretary of Health and
Human Services and the Chair of the Federal Trade
Commission) shall—
(A) review the proposed safe harbors sub-
mitted under paragraph (1); and
(B) submit a report to Congress describing
the proposals to be included in the publication
of additional safe harbors described in para-
160
graph (3) and the proposals that are not to be
so included, together with explanations therefor.
(3) PUBLICATION OF ADDITIONAL SAFE HAR-
BORS.—Not later than 180 days after the date of
the enactment of this Act, the Attorney General (in
consultation with the Secretary of Health and
Human Services and the Chair of the Federal Trade
Commission) shall publish in the Federal Register
proposed additional safe harbors for purposes of sec-
tion 601(a)(2) for providers of health care services.
Not later than 180 days after publishing such pro-
posed safe harbors in the Federal Register, the At-
torney General shall issue final rules establishing
such safe harbors.
(b) CRITERIA FOR SAFE HARBORS.—In establishing
safe harbors under subsection (a), the Attorney General
shall take into account the following:
(1) The extent to which a competitive or col-
laborative activity will accomplish any of the follow-
ing:
(A) An increase in access to health care
services.
(B) The enhancement of the quality of
health care services.
161
(C) The establishment of cost efficiencies
that will be passed on to consumers, including
economies of scale and reduced transaction and
administrative costs.
(D) An increase in the ability of health
care facilities to provide services in medically
underserved areas or to medically underserved
populations.
(E) An improvement in the utilization of
health care resources or the reduction in the in-
efficient duplication of the use of such re-
sources.
(2) Whether the designation of an activity as a
safe harbor under subsection (a) will result in the
following outcomes:
(A) Health plans and other health care in-
surers, consumers of health care services, and
health care providers will be better able to ne-
gotiate payment and service arrangements
which will reduce costs to consumers.
(B) Taking into consideration the charac-
teristics of the particular purchasers and pro-
viders involved, competition will not be unduly
restricted.
162
(C) Equally efficient and less restrictive al-
ternatives do not exist to meet the criteria de-
scribed in paragraph (1).
(D) The activity will not unreasonably
foreclose competition by denying competitors a
necessary element of competition.
SEC. 604. CERTIFICATES OF REVIEW.
(a) ESTABLISHMENT OF PROGRAM.—In consultation
with the Secretary and the Chair, the Attorney General
shall (not later than 180 days after the date of the enact-
ment of this Act) issue certificates of review in accordance
with this section for providers of health care services and
advise and assist any person with respect to applying for
such a certificate of review.
(b) PROCEDURES FOR APPLICATION FOR CERTIFI-
CATE.—
(1) FORM; CONTENT.—To apply for a certifi-
cate of review, a person shall submit to the Attorney
General a written application which—
(A) specifies the activities relating to the
provision of health care services which satisfy
the criteria described in section 603(b) and
which will be included in the certificate; and
(B) is in a form and contains any informa-
tion, including information pertaining to the
163
overall market in which the applicant operates,
required by rule or regulation promulgated
under section 607.
(2) PUBLICATION OF NOTICE IN FEDERAL REG-
ISTER.—Within 10 days after an application submit-
ted under paragraph (1) is received by the Attorney
General, the Attorney General shall publish in the
Federal Register a notice that announces that an
application for a certificate of review has been sub-
mitted, identifies each person submitting the appli-
cation, and describes the conduct for which the ap-
plication is submitted.
(3) ESTABLISHMENT OF PROCEDURES FOR IS-
SUANCE OF CERTIFICATE.—In consultation with the
Chair and the Secretary, the Attorney General shall
establish procedures to be used in applying for and
in determining whether to approve an application for
a certificate of review under this title. Under such
procedures the Attorney General shall approve an
application if the Attorney General determines that
the activities to be covered under the certificate will
satisfy the criteria described in section 603(b) for
additional safe harbors designated under such sec-
tion and that the benefits of the issuance of the cer-
164
tificate will outweigh any disadvantages that may re-
sult from reduced competition.
(4) TIMING FOR DECISION ON APPLICATION.—
(A) IN GENERAL.—Within 90 days after
the Attorney General receives an application for
a certificate of review, the Attorney General
shall determine whether the applicant’s health
care market activities are in accordance with
the procedures described in paragraph (3). If
the Attorney General, with the concurrence of
the Secretary, determines that such procedures
are met, the Attorney General shall issue to the
applicant a certificate of review. The certificate
of review shall specify—
(i) the health care market activities to
which the certificate applies,
(ii) the person to whom the certificate
of review is issued, and
(iii) any terms and conditions the At-
torney General or the Secretary deems nec-
essary to assure compliance with the appli-
cable procedures described in paragraph
(3).
(B) APPLICATIONS DEEMED APPROVED.—
If the Attorney General does not reject an ap-
165
plication before the expiration of the 90-period
beginning on the date the Attorney General re-
ceives the application, the Attorney General
shall be deemed to have approved the applica-
tion and to have issued a certificate of review
relating to the applicant’s health care market
activities covered under the application.
(5) EXPEDITED ACTION.—If the applicant indi-
cates a special need for prompt disposition, the At-
torney General and the Secretary may expedite ac-
tion on the application, except that no certificate of
review may be issued within 30 days of publication
of notice in the Federal Register under subsection
(b)(2).
(6) ACTIONS UPON DENIAL.—
(A) NOTIFICATION.—If the Attorney Gen-
eral denies in whole or in part an application
for a certificate, the Attorney General shall no-
tify the applicant of the Attorney General’s de-
termination and the reasons for it.
(B) REQUEST
FOR
RECONSIDERATION.—
An applicant may, within 30 days of receipt of
notification that the application has been denied
in whole or in part, request the Attorney Gen-
eral to reconsider the determination. The Attor-
166
ney General, with the concurrence of the Sec-
retary, shall notify the applicant of the deter-
mination upon reconsideration within 30 days
of receipt of the request.
(C) RETURN OF DOCUMENTS.—If the At-
torney General denies an application for the is-
suance of a certificate of review and thereafter
receives from the applicant a request for the re-
turn of documents submitted by the applicant
in connection with the application for the cer-
tificate, the Attorney General and the Secretary
shall return to the applicant, not later than 30
days after receipt of the request, the documents
and all copies of the documents available to the
Attorney General and the Secretary, except to
the extent that the information has been made
public under an exception to the rule against
public 
disclosure 
described 
in 
subsection
(g)(2)(B).
(7) FRAUDULENT
PROCUREMENT.—A certifi-
cate of review shall be void ab initio with respect to
any health care market activities for which the cer-
tificate was procured by fraud.
(c) AMENDMENT
AND REVOCATION
OF CERTIFI-
CATES.—
167
(1) NOTIFICATION
OF
CHANGES.—Any appli-
cant who receives a certificate of review—
(A) shall promptly report to the Attorney
General any change relevant to the matters
specified in the certificate; and
(B) may submit to the Attorney General
an application to amend the certificate to re-
flect the effect of the change on the conduct
specified in the certificate.
(2) AMENDMENT TO CERTIFICATE.—An appli-
cation for an amendment to a certificate of review
shall be treated as an application for the issuance of
a certificate. The effective date of an amendment
shall be the date on which the application for the
amendment is submitted to the Attorney General.
(3) REVOCATION.—
(A) GROUNDS FOR REVOCATION.—In ac-
cordance with this paragraph, the Attorney
General may revoke in whole or in part a cer-
tificate of review issued under this section. The
following shall be considered grounds for the
revocation of a certificate:
(i) After the expiration of the 2-year
period beginning on the date a person’s
certificate is issued, the activities of the
168
person have not substantially accomplished
the purposes for the issuance of the certifi-
cate.
(ii) The person has failed to comply
with any of the terms or conditions im-
posed under the certificate by the Attorney
General or the Secretary under subsection
(b)(4).
(iii) The activities covered under the
certificate no longer satisfy the criteria set
forth in section 603(b).
(B) REQUEST FOR COMPLIANCE INFORMA-
TION.—If the Attorney General or Secretary
has reason to believe that any of the grounds
for revocation of a certificate of review de-
scribed in subparagraph (A) may apply to a
person holding the certificate, the Attorney
General shall request such information from
such person as the Attorney General or the Sec-
retary deems necessary to resolve the matter of
compliance. Failure to comply with such request
shall be grounds for revocation of the certificate
under this paragraph.
(C) PROCEDURES
FOR
REVOCATION.—If
the Attorney General or the Secretary deter-
169
mines that any of the grounds for revocation of
a certificate of review described in subpara-
graph (A) apply to a person holding the certifi-
cate, or that such person has failed to comply
with a request made under subparagraph (B),
the Attorney General shall give written notice of
the determination to such person. The notice
shall include a statement of the circumstances
underlying, and the reasons in support of, the
determination. In the 60-day period beginning
30 days after the notice is given, the Attorney
General shall revoke the certificate or modify it
as the Attorney General or the Secretary deems
necessary to cause the certificate to apply only
to activities that meet the procedures for the is-
suance of certificates described in subsection
(b)(2).
(D) 
INVESTIGATION
AUTHORITY.—For
purposes of carrying out this paragraph, the
Attorney General may conduct investigations in
the same manner as the Attorney General con-
ducts investigations under section 3 of the Anti-
trust Civil Process Act, except that no civil in-
vestigative demand may be issued to a person
170
to whom a certificate of review is issued if such
person is the target of such investigation.
(d) REVIEW OF DETERMINATIONS.—
(1) AVAILABILITY OF REVIEW FOR CERTAIN AC-
TIONS.—If the Attorney General denies, in whole or
in part, an application for a certificate of review or
for an amendment to a certificate, or revokes or
modifies a certificate pursuant to paragraph (3), the
applicant or certificate holder (as the case may be)
may, within 30 days of the denial or revocation,
bring an action in any appropriate district court of
the United States to set aside the determination on
the ground that such determination is erroneous
based on the preponderance of the evidence.
(2) NO
OTHER
REVIEW
PERMITTED.—Except
as provided in paragraph (1), no action by the At-
torney General or the Secretary pursuant to this
title shall be subject to judicial review.
(3) EFFECT
OF
REJECTED
APPLICATION.—If
the Attorney General denies, in whole or in part, an
application for a certificate of review or for an
amendment to a certificate, or revokes or amends a
certificate, neither the negative determination nor
the statement of reasons therefore shall be admissi-
ble in evidence, in any administrative or judicial pro-
171
ceeding, concerning any claim under the antitrust
laws.
(e) PUBLICATION
OF DECISIONS.—The Attorney
General shall publish a notice in the Federal Register on
a timely basis of each decision made with respect to an
application for a certificate of review under this section
or the amendment or revocation of such a certificate, in
a manner that protects the confidentiality of any propri-
etary information relating to the application.
(f) ANNUAL REPORTS.—Every person to whom a cer-
tificate of review is issued shall submit to the Attorney
General an annual report, in such form and at such time
as the Attorney General may require, that contains any
necessary updates to the information required under sub-
section (b) and a description of the activities of the holder
under the certificate during the preceding year.
(g) RESTRICTIONS ON DISCLOSURE OF INFORMA-
TION.—
(1) WAIVER
OF
DISCLOSURE
REQUIREMENTS
UNDER
ADMINISTRATIVE
PROCEDURE
ACT.—Infor-
mation submitted by any person in connection with
the issuance, amendment, or revocation of a certifi-
cate of review shall be exempt from disclosure under
section 552 of title 5, United States Code.
172
(2) RESTRICTIONS
ON
DISCLOSURE
OF
COM-
MERCIAL OR FINANCIAL INFORMATION.—
(A) IN GENERAL.—Except as provided in
subparagraph (B), no officer or employee of the
United States shall disclose commercial or fi-
nancial information submitted in connection
with the issuance, amendment, or revocation of
a certificate of review if the information is priv-
ileged or confidential and if disclosure of the in-
formation would cause harm to the person who
submitted the information.
(B) 
EXCEPTIONS.—Subparagraph 
(A)
shall not apply with respect to information dis-
closed—
(i) upon a request made by the Con-
gress or any committee of the Congress,
(ii) in a judicial or administrative pro-
ceeding, subject to appropriate protective
orders,
(iii) with the consent of the person
who submitted the information,
(iv) in the course of making a deter-
mination with respect to the issuance,
amendment, or revocation of a certificate
of review, if the Attorney General deems
173
disclosure of the information to be nec-
essary in connection with making the de-
termination,
(v) in accordance with any require-
ment imposed by a statute of the United
States, or
(vi) in accordance with any rule or
regulation promulgated under subsection
(i) permitting the disclosure of the infor-
mation to an agency of the United States
or of a State on the condition that the
agency will disclose the information only
under 
the 
circumstances 
specified 
in
clauses (i) through (v).
(3) PROHIBITION AGAINST USE OF INFORMA-
TION TO SUPPORT OR ANSWER CLAIMS UNDER ANTI-
TRUST LAWS.—Any information disclosed in an ap-
plication for a certificate of review under this section
shall only be admissible into evidence in a judicial or
administrative proceeding for the sole purpose of es-
tablishing that a person is entitled to the protections
provided by such a certificate.
174
SEC. 605. NOTIFICATIONS PROVIDING REDUCTION IN CER-
TAIN PENALTIES UNDER ANTITRUST LAW
FOR 
HEALTH 
CARE 
COOPERATIVE 
VEN-
TURES.
(a) NOTIFICATIONS DESCRIBED.—
(1) SUBMISSION
OF
NOTIFICATION
BY
VEN-
TURE.—Any party to a health care cooperative ven-
ture, acting on such venture’s behalf, may, not later
than 90 days after entering into a written agreement
to form such venture or not later than 90 days after
the date of the enactment of this Act, whichever is
later, file with the Attorney General a written notifi-
cation disclosing—
(A) the identities of the parties to such
venture,
(B) the nature and objectives of such ven-
ture, and
(C) such additional information as the At-
torney General may require by regulation.
(2) ACTIVITIES DEEMED SUBMISSION OF NOTI-
FICATION.—The following health care cooperative
ventures shall be deemed to have filed a written noti-
fication with respect to the venture under paragraph
(1):
(A) SUBMISSION
OF
APPLICATION
FOR
CERTIFICATE OF REVIEW.—Any health care co-
175
operative venture for which an application for a
certificate of review is filed with the Attorney
General under section 603.
(B) CERTAIN VENTURES.—Any health care
cooperative venture meeting the following re-
quirements:
(i) The venture consists of a network
of non-institutional providers not greater
than—
(I) in the case of a nonexclusive
network in which the participating
members are permitted to create or
join other competing networks, 50
percent of the providers of health care
services in the relevant geographic
area and 50 percent of the members
of the provider specialty group in the
relevant market; or
(II) in the case of an exclusive
network in which the participating
members are not permitted to create
or join other competing networks, 35
percent of the providers of health care
services in the relevant geographic
area and 35 percent of the members
176
of the provider specialty group in the
relevant market.
(ii) Each member of the venture as-
sumes substantial financial risk for the op-
eration of the venture through risk-sharing
arrangements, including (but not limited
to)—
(I) the acceptance of capitation
contracts;
(II) the acceptance of contracts
with fee withholding mechanisms re-
lating to the ability to meet estab-
lished goals for utilization review and
management; and
(III) the holding by members of
significant ownership or equity inter-
ests in the venture, where the capital
contributed by the members is used to
fund the operational costs of the ven-
ture such as administration, market-
ing, and computer-operated medical
information, if the venture develops
and operates comprehensive programs
for utilization management and qual-
ity assurance that include controls
177
over the use of institutional, special-
ized, and ancillary medical services.
(3) SUBMISSION
OF
ADDITIONAL
INFORMA-
TION.—
(A) REQUEST OF ATTORNEY GENERAL.—
At any time after receiving a notification filed
under paragraph (1), the Attorney General may
require the submission of additional information
or documentary material relevant to the pro-
posed health care cooperative venture.
(B) PARTIES TO VENTURE.—Any party to
a health care cooperative venture may submit
such additional information on the venture’s be-
half as may be appropriate to ensure that the
venture will receive the protections provided
under subsection (b).
(C) REQUIRED SUBMISSION OF INFORMA-
TION
ON
CHANGES
TO
VENTURE.—A health
care cooperative venture for which a notification
is in effect under this section shall submit infor-
mation on any change in the membership of the
venture not later than 90 days after such
change occurs.
(4) PUBLICATION OF NOTIFICATION.—
178
(A) INFORMATION MADE PUBLICLY AVAIL-
ABLE.—Not later than 30 days after receiving
a notification with respect to a venture under
paragraph (1), the Attorney General shall pub-
lish in the Federal Register a notice with re-
spect to the venture that identifies the parties
to the venture and generally describes the pur-
pose and planned activity of the venture. Prior
to its publication, the contents of the notice
shall be made available to the parties to the
venture.
(B) RESTRICTION
ON
DISCLOSURE
OF
OTHER
INFORMATION.—All information and
documentary material submitted pursuant to
this section and all information obtained by the
Attorney General in the course of any investiga-
tion or case with respect to a potential violation
of the antitrust laws by the health care coopera-
tive venture (other than information and mate-
rial described in subparagraph (A)) shall be ex-
empt from disclosure under section 552 of title
5, United States Code, and shall not be made
publicly available by any agency of the United
States to which such section applies except in
179
a judicial proceeding in which such information
and material is subject to any protective order.
(5) WITHDRAWAL OF NOTIFICATION.—Any per-
son who files a notification pursuant to this section
may withdraw such notification before a publication
by the Attorney General pursuant to paragraph (4).
Any person who is deemed to have filed a notifica-
tion under paragraph (2)(A) shall be deemed to have
withdrawn the notification if the certificate of review
in question is revoked or withdrawn under section
604.
(6) NO
JUDICIAL
REVIEW
PERMITTED.—Any
action taken or not taken by the Attorney General
with respect to notifications filed pursuant to this
subsection shall not be subject to judicial review.
(b) PROTECTIONS FOR VENTURES SUBJECT TO NO-
TIFICATION.—
(1) IN GENERAL.—
(A) PROTECTIONS DESCRIBED.—The pro-
visions of paragraphs (2), (3), (4), and (5) shall
apply with respect to any action under the anti-
trust laws challenging conduct within the scope
of a notification which is in effect pursuant to
subsection (a)(1).
180
(B) TIMING OF PROTECTIONS.—The pro-
tections described in this subsection shall apply
to the venture that is the subject of a notifica-
tion under subsection (a)(1) as of the earlier
of—
(i) the date of the publication in the
Federal Register of the notice published
with respect to the notification; or
(ii) if such notice is not published dur-
ing the period required under subsection
(a)(4), the expiration of the 30-day period
that begins on the date the Attorney Gen-
eral receives any necessary information re-
quired to be submitted under subsection
(a)(1) or any additional information re-
quired by the Attorney General under sub-
section (a)(3)(A).
(2) APPLICABILITY
OF
RULE
OF
REASON
STANDARD.—In any action under the antitrust laws,
the conduct of any person which is within the scope
of a notification filed under subsection (a) shall not
be deemed illegal per se, but shall be judged on the
basis of its reasonableness, taking into account all
relevant factors affecting competition, including, but
181
not limited to, effects on competition in relevant
markets.
(3) LIMITATION
ON
RECOVERY
TO
ACTUAL
DAMAGES AND INTEREST.—Notwithstanding section
4 of the Clayton Act, any person who is entitled to
recovery under the antitrust laws for conduct that is
within the scope of a notification filed under sub-
section (a) shall recover the actual damages sus-
tained by such person and interest calculated at the
rate specified in section 1961 of title 28, United
States Code, for the period beginning on the earliest
date for which injury can be established and ending
on the date of judgment, unless the court finds that
the award of all or part of such interest is unjust
under the circumstances.
(4) AWARD OF ATTORNEY’S FEES AND COSTS
OF SUIT.—
(A) IN GENERAL.—In any action under the
antitrust laws brought against a health care co-
operative venture for conduct that is within the
scope of a notification filed under subsection
(a), the court shall, at the conclusion of the ac-
tion—
(i) award to a substantially prevailing
claimant the cost of suit attributable to
182
such claim, including a reasonable attor-
ney’s fee, or
(ii) award to a substantially prevailing
party defending against such claim the
cost of such suit attributable to such claim,
including reasonable attorney’s fee, if the
claim, or the claimant’s conduct during
litigation of the claim, was frivolous, un-
reasonable, without foundation, or in bad
faith.
(B) OFFSET IN CASES OF BAD FAITH.—
The court may reduce an award made pursuant
to subparagraph (A) in whole or in part by an
award in favor of another party for any part of
the cost of suit (including a reasonable attor-
ney’s fee) attributable to conduct during the
litigation by any prevailing party that the court
finds to be frivolous, unreasonable, without
foundation, or in bad faith.
(5) RESTRICTIONS
ON
ADMISSIBILITY
OF
IN-
FORMATION.—
(A) IN
GENERAL.—Any information dis-
closed in a notification submitted under sub-
section (a)(1) and the fact of the publication of
a notification by the Attorney General under
183
subsection (a)(4) shall only be admissible into
evidence in a judicial or administrative proceed-
ing for the sole purpose of establishing that a
party to a health care cooperative venture is en-
titled to the protections described in this sub-
section.
(B) ACTIONS OF ATTORNEY GENERAL.—
No action taken by the Attorney General pursu-
ant to this section shall be admissible into evi-
dence in any judicial or administrative proceed-
ing for the purpose of supporting or answering
any claim under the antitrust laws.
SEC. 606. REVIEW AND REPORTS ON SAFE HARBORS AND
CERTIFICATES OF REVIEW.
(a) IN GENERAL.—The Attorney General (in con-
sultation with the Secretary and the Chair) shall periodi-
cally review the safe harbors described in section 602, the
additional safe harbors designated under section 603, and
the certificates of review issued under section 604, and—
(1) with respect to the safe harbors described in
section 602, submit such recommendations to Con-
gress as the Attorney General considers appropriate
for modifications of such safe harbors;
(2) with respect to the additional safe harbors
under designated under section 603, issue proposed
184
revisions to such activities and publish the revisions
in the Federal Register; and
(3) with respect to the certificates of review,
submit a report to Congress on the issuance of such
certificates, and shall include in the report a descrip-
tion of the effect of such certificates on increasing
access to high quality health care services at reduced
costs.
(b) RECOMMENDATIONS
FOR LEGISLATION.—The
Attorney General shall include in the reports submitted
under subsection (a)(3) any recommendations of the At-
torney General for legislation to improve the program for
the issuance of certificates of review established under this
title.
SEC. 607. RULES, REGULATIONS, AND GUIDELINES.
(a) SAFE HARBORS, CERTIFICATES, AND NOTIFICA-
TIONS.—The Attorney General, with the concurrence of
the Secretary, shall promulgate such rules, regulations,
and guidelines as are necessary to carry out sections 602,
603, 604, and 605, including guidelines defining or relat-
ing to relevant geographic and product markets for health
care services and providers of health care services.
(b) GUIDANCE FOR PROVIDERS.—
(1) IN
GENERAL.—To promote greater cer-
tainty regarding the application of the antitrust laws
185
to activities in the health care market, the Attorney
General, in consultation with the Secretary and the
Chair, shall (not later than 1 year after the date of
the enactment of this Act), taking into account the
criteria used to designate additional safe harbors
under section 603 and grant certificates of review
under section 604, publish guidelines—
(A) to assist providers of health care serv-
ices in analyzing whether the activities of such
providers may be subject to a safe harbor under
sections 602 or 603; and
(B) describing specific types of activities
which would meet the requirements for a cer-
tificate of review under section 604, and sum-
marizing the factual and legal bases on which
the activities would meet the requirements.
(2) PERIODIC UPDATE.—The Attorney General
shall periodically update the guidelines published
under paragraph (1) as the Attorney General consid-
ers appropriate.
(3) WAIVER OF ADMINISTRATIVE PROCEDURE
ACT.—Section 553 of title 5, United States Code,
shall not apply to the issuance of guidelines under
paragraph (1).
186
SEC. 608. DEFINITIONS.
In this title, the following definitions shall apply:
(1) The term ‘‘antitrust laws’’—
(A) has the meaning given it in subsection
(a) of the first section of the Clayton Act (15
U.S.C. 12(a)), except that such term includes
section 5 of the Federal Trade Commission Act
(15 U.S.C. 45) to the extent such section ap-
plies to unfair methods of competition; and
(B) includes any State law similar to the
laws referred to in subparagraph (A).
(2) The term ‘‘Chair’’ means the Chair of the
Federal Trade Commission.
(3) The term ‘‘health insurance plan’’ has the
meaning given such term in section 111(b).
(4) The term ‘‘health care cooperative venture’’
means any activities, including attempts to enter
into or perform a contract or agreement, carried out
by 2 or more persons for the purpose of providing
health care services.
(5) The term ‘‘health care services’’ means any
services for which payment may be made under a
health insurance plan, including services related to
the delivery or administration of such services.
(6) The term ‘‘medical self-regulatory entity’’
means a medical society or association, a specialty
187
board, a recognized accrediting agency, or a hospital
medical staff, and includes the members, officers,
employees, consultants, and volunteers or commit-
tees of such an entity.
(7) The term ‘‘person’’ includes a State or unit
of local government.
(8) The term ‘‘provider of health care services’’
means any individual or entity that is engaged in the
delivery of health care services in a State and that
is required by State law or regulation to be licensed
or certified by the State to engage in the delivery of
such services in the State.
(9) The term ‘‘specialty group’’ means a medi-
cal specialty or subspecialty in which a provider of
health care services may be licensed to practice by
a State (as determined by the Secretary in consulta-
tion with the certification boards for such specialties
and subspecialties).
(10) The term ‘‘standard setting and enforce-
ment activities’’ means—
(A) accreditation of health care practition-
ers, health care providers, medical education in-
stitutions, or medical education programs,
(B) technology assessment and risk man-
agement activities,
188
(C) the development and implementation of
practice guidelines or practice parameters, or
(D) official peer review proceedings under-
taken by a hospital medical staff (or committee
thereof) or a medical society or association for
purposes of evaluating the professional conduct
or quality of health care provided by a medical
professional.
TITLE VII—LONG-TERM CARE
SEC. 701. EXCLUSION FROM GROSS INCOME FOR AMOUNTS
WITHDRAWN 
FROM 
INDIVIDUAL 
RETIRE-
MENT PLANS OR 401(k) PLANS FOR LONG-
TERM CARE INSURANCE.
(a) IN GENERAL.—Part III of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to
items specifically excluded from gross income) is amended
by redesignating section 137 as section 138 and by insert-
ing after section 136 the following new section:
‘‘SEC. 137. DISTRIBUTIONS FROM INDIVIDUAL RETIREMENT
ACCOUNTS AND SECTION 401(k) PLANS FOR
LONG-TERM CARE INSURANCE.
‘‘(a) GENERAL RULE.—The amount includible in the
gross income of an individual for the taxable year by rea-
son of qualified distributions during such taxable year
shall not exceed the excess of—
189
‘‘(1) the amount which would (but for this sec-
tion) be so includible by reason of such distributions,
over
‘‘(2) the aggregate premiums paid by such indi-
vidual during such taxable year for any long-term
care insurance contract for the benefit of such indi-
vidual or the spouse of such individual.
‘‘(b) QUALIFIED DISTRIBUTION.—For purposes of
this section, the term ‘qualified distribution’ means any
distribution to an individual from an individual retirement
account or a section 401(k) plan if such individual has
attained age 591⁄2 on or before the date of the distribution
(and, in the case of a distribution used to pay premiums
for the benefit of the spouse of such individual, such
spouse has attained age 591⁄2 on or before the date of the
distribution).
‘‘(c) DEFINITIONS AND SPECIAL RULES RELATING
TO LONG-TERM INSURANCE CONTRACTS.—
‘‘(1) 
LONG-TERM
CARE
INSURANCE
CON-
TRACT.—
‘‘(A) IN GENERAL.—For purposes of this
section, the term ‘long-term care insurance con-
tract’ means any insurance contract issued if—
‘‘(i) the only insurance protection pro-
vided under such contract is coverage of
190
qualified long-term care services and bene-
fits incidental to such coverage,
‘‘(ii) the maximum benefit under the
policy for expenses incurred for any day
does not exceed $200,
‘‘(iii) such contract does not cover ex-
penses incurred for services or items to the
extent that such expenses are reimbursable
under title XVIII of the Social Security
Act or would be so reimbursable but for
the application of a deductible or coinsur-
ance amount,
‘‘(iv) such contract is guaranteed re-
newable,
‘‘(v) such contract does not have any
cash surrender value, and
‘‘(vi) all refunds of premiums, and all
policyholder dividends or similar amounts,
under such contract are to be applied as a
reduction in future premiums or to in-
crease future benefits.
‘‘(B) SPECIAL RULES.—
‘‘(i) PER DIEM, ETC. PAYMENTS PER-
MITTED.—A contract shall not fail to be
treated as described in subparagraph
191
(A)(i) by reason of payments being made
on a per diem or other periodic basis with-
out regard to the expenses incurred during
the period to which the payments relate.
‘‘(ii) CONTRACT
MAY
COVER
MEDI-
CARE
REIMBURSABLE
EXPENSES
WHERE
MEDICARE
IS
SECONDARY
PAYOR.—Sub-
paragraph (A)(iii) shall not apply to ex-
penses which are reimbursable under title
XVIII of the Social Security Act only as a
secondary payor.
‘‘(iii) REFUNDS OF PREMIUMS.—Sub-
paragraph (A)(vi) shall not apply to any
refund of premiums on surrender or can-
cellation of the contract.
‘‘(2) QUALIFIED LONG-TERM CARE SERVICES.—
For purposes of this subsection—
‘‘(A) IN
GENERAL.—The term ‘qualified
long-term care services’ means necessary diag-
nostic, preventive, therapeutic, and rehabilita-
tive services, and maintenance or personal care
services, which—
‘‘(i) are required by a chronically ill
individual in a qualified facility, and
192
‘‘(ii) are provided pursuant to a plan
of care prescribed by a licensed health care
practitioner.
‘‘(B) CHRONICALLY ILL INDIVIDUAL.—
‘‘(i) IN GENERAL.—The term ‘chron-
ically ill individual’ means any individual
who has been certified by a licensed health
care practitioner as—
‘‘(I) being unable to perform
(without substantial assistance from
another individual) at least 2 activi-
ties of daily living (as defined in
clause (ii)) for a period of at least 90
days due to a loss of functional capac-
ity, or having a similar level of disabil-
ity (as determined by the Secretary in
consultation with the Secretary of
Health and Human Services), or
‘‘(II) having a similar level of
disability due to cognitive impairment.
‘‘(ii) ACTIVITIES OF DAILY LIVING.—
For purposes of clause (i), each of the fol-
lowing is an activity of daily living:
‘‘(I) MOBILITY.—The process of
walking or wheeling on a level surface
193
which may include the use of an
assistive device such as a cane, walk-
er, wheelchair, or brace.
‘‘(II) 
DRESSING.—The 
overall
complex behavior of getting clothes
from closets and drawers and then
getting dressed.
‘‘(III) TOILETING.—The act of
going to the toilet room for bowel and
bladder function, transferring on and
off the toilet, cleaning after elimi-
nation, and arranging clothes or the
ability to voluntarily control bowel and
bladder function, or in the event of in-
continence, the ability to maintain a
reasonable level of personal hygiene.
‘‘(IV) TRANSFER.—The process
of getting in and out of bed or in and
out of a chair or wheelchair.
‘‘(V) EATING.—The process of
getting food from a plate or its equiv-
alent into the mouth.
‘‘(C) QUALIFIED
FACILITY.—The term
‘qualified facility’ means—
194
‘‘(i) a nursing, rehabilitative, hospice,
or adult day care facility (including a hos-
pital, retirement home, nursing home,
skilled nursing facility, intermediate care
facility, or similar institution)—
‘‘(I) which is licensed under
State law, or
‘‘(II) which is a certified facility
for purposes of title XVIII or XIX of
the Social Security Act, or
‘‘(ii) an individual’s home if a licensed
health care practitioner certifies that with-
out home care the individual would have to
be cared for in a facility described in
clause (i).
‘‘(D) MAINTENANCE OR PERSONAL CARE
SERVICES.—The term ‘maintenance or personal
care services’ means any care the primary pur-
pose of which is to provide needed assistance
with any of the activities of daily living de-
scribed in subparagraph (B)(ii).
‘‘(E) LICENSED
HEALTH
CARE
PRACTI-
TIONER.—The term ‘licensed health care practi-
tioner’ means any physician (as defined in sec-
tion 1861(r) of the Social Security Act) and
195
any registered professional nurse, licensed social
worker, or other individual who meets such re-
quirements as may be prescribed by the Sec-
retary.
‘‘(3) INFLATION ADJUSTMENT OF $200 BENE-
FIT LIMIT.—
‘‘(A) IN GENERAL.—In the case of a cal-
endar year after 1995, the $200 amount con-
tained in paragraph (1)(A)(ii) shall be in-
creased for such calendar year by the medical
care cost adjustment for such calendar year. If
any increase determined under the preceding
sentence is not a multiple of $10, such increase
shall be rounded to the nearest multiple of $10.
‘‘(B) 
MEDICAL
CARE
COST
ADJUST-
MENT.—For purposes of subparagraph (A), the
medical care cost adjustment for any calendar
year is the percentage (if any) by which—
‘‘(i) the medical care component of
the Consumer Price Index (as defined in
section 1(f)(5)) for August of the preced-
ing calendar year, exceeds
‘‘(ii) such component for August of
1994.’’
196
‘‘(d) OTHER DEFINITIONS.—For purposes of this
section—
‘‘(1) INDIVIDUAL RETIREMENT ACCOUNT.—The
term ‘individual retirement account’ has the mean-
ing given such term by section 408(a).
‘‘(2) SECTION 401(k) PLAN.—The term ‘section
401(k) plan’ means any employer plan which meets
the requirements of section 401(a) and which in-
cludes a qualified cash or deferred arrangement (as
defined in section 401(k)).
‘‘(e) SPECIAL RULES FOR SECTION 401(k) PLANS.—
‘‘(1) WITHDRAWALS
CANNOT
EXCEED
ELEC-
TIVE CONTRIBUTIONS UNDER QUALIFIED CASH OR
DEFERRED ARRANGEMENT.—This section shall not
apply to any distribution from a section 401(k) plan
to the extent the aggregate amount of such distribu-
tions for the use described in subsection (a) exceeds
the aggregate employer contributions made pursuant
to the employee’s election under section 401(k)(2).
‘‘(2) WITHDRAWALS NOT TO CAUSE DISQUALI-
FICATION.—A plan shall not be treated as failing to
satisfy the requirements of section 401, and an ar-
rangement shall not be treated as failing to be a
qualified cash or deferred arrangement (as defined
in section 401(k)(2)), merely because under the plan
197
or arrangement distributions are permitted which
are excludable from gross income by reason of this
section.’’
(b) CONFORMING AMENDMENTS.—
(1) Section 401(k) of such Code is amended by
adding at the end the following new paragraph:
‘‘(11) CROSS REFERENCE.—
‘‘For provision permitting tax-free withdrawals
for payment of long-term care premiums, see section
137.’’
(2) Section 408(d) of such Code is amended by
adding at the end the following new paragraph:
‘‘(8) CROSS REFERENCE.—
‘‘For provision permitting tax-free withdrawals
from individual retirement accounts for payment of
long-term care premiums, see section 137.’’
(3) The table of sections for such part III is
amended by striking the last item and inserting the
following new items:
‘‘Sec. 137. Distributions from individual retirement accounts and
section 401(k) plans for long-term care insurance.
‘‘Sec. 138. Cross references to other Acts.’’
SEC. 702. CERTAIN EXCHANGES OF LIFE INSURANCE CON-
TRACTS FOR LONG-TERM CARE INSURANCE
CONTRACTS NOT TAXABLE.
Subsection (a) of section 1035 of the Internal Reve-
nue Code of 1986 (relating to certain exchanges of insur-
ance contracts) is amended by striking the period at the