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‘‘(B) ADJUSTMENT.—The Secretary may
provide for such adjustments to the payment
amounts under this subsection as the Secretary
deems appropriate to take into account the
unique circumstances of rehabilitation facilities
located in Alaska and Hawaii.
‘‘(5) PUBLICATION.—The Secretary shall pro-
vide for publication in the Federal Register, on or
before September 1 before each fiscal year (begin-
ning with fiscal year 2001, of the classification and
weighting factors for case mix groups under para-
graph (2) for such fiscal year and a description of
the methodology and data used in computing the
prospective payment rates under this subsection for
that fiscal year.
‘‘(6) AREA WAGE ADJUSTMENT.—The Secretary
shall adjust the proportion, (as estimated by the
Secretary from time to time) of rehabilitation facili-
ties’ costs which are attributable to wages and wage-
related costs, of the prospective payment rates com-
puted under paragraph (3) for area differences in
wage levels by a factor (established by the Sec-
retary) reflecting the relative hospital wage level in
the geographic area of the rehabilitation facility
compared to the national average wage level for such
1082
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facilities. Not later than October 1, 2001 (and at
least every 36 months thereafter), the Secretary
shall update the factor under the preceding sentence
on the basis of a survey conducted by the Secretary
(and updated as appropriate) of the wages and
wage-related costs incurred in furnishing rehabilita-
tion services. Any adjustments or updates made
under this paragraph for a fiscal year shall be made
in a manner that assures that the aggregated pay-
ments under this subsection in the fiscal year are
not greater or less than those that would have been
made in the year without such adjustment.
‘‘(7) ADDITIONAL
ADJUSTMENTS.—The Sec-
retary may provide by regulation for—
‘‘(A) an additional payment to take into
account indirect costs of medical education and
the special circumstances of hospitals that serve
a significantly disproportionate number of low-
income patients in a manner similar to that
provided under subparagraphs (B) and (F), re-
spectively, of subsection (d)(5); and
‘‘(B) such other exceptions and adjust-
ments to payment amounts under this sub-
section in a manner similar to that provided
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under subsection (d)(5)(I) in relation to pay-
ments under subsection (d).
‘‘(8) LIMITATION ON REVIEW.—There shall be
no administrative or judicial review under section
1869, 1878, or otherwise of—
‘‘(A) the establishment of case mix groups,
of the methodology for the classification of pa-
tients within such groups, and of the appro-
priate weighting factors thereof under para-
graph (2),
‘‘(B) the establishment of the prospective
payment rates under paragraph (3),
‘‘(C) the establishment of outlier and spe-
cial payments under paragraph (4),
‘‘(D) the establishment of area wage ad-
justments under paragraph (6), and
‘‘(E) the establishment of additional ad-
justments under paragraph (7).’’.
(b) CONFORMING AMENDMENTS.—Section 1886(b)
of such Act (42 U.S.C. 1395ww(b)) is amended—
(1) in paragraph (1), by inserting ‘‘and other
than a rehabilitation facility described in subsection
(j)(1)’’ after ‘‘subsection (d)(1)(B)’’, and
1084
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(2) in paragraph (3)(B)(i), by inserting ‘‘and
subsection (j)’’ after ‘‘For purposes of subsection
(d)’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to cost reporting periods beginning
on or after October 1, 2000, except that the Secretary of
Health and Human Services may require the submission
of data under section 1886(j)(2)(D) of the Social Security
Act (as added by subsection (a)) on and after the date
of the enactment of this section.
CHAPTER 2—PAYMENT UNDER PART B
Subchapter A—Payment for Hospital
Outpatient Department Services
SEC. 10411. ELIMINATION OF FORMULA-DRIVEN OVERPAY-
MENTS (FDO) FOR CERTAIN OUTPATIENT
HOSPITAL SERVICES.
(a) ELIMINATION OF FDO FOR AMBULATORY SUR-
GICAL
CENTER
PROCEDURES.—Section
1833(i)(3)(B)(i)(II) (42 U.S.C. 1395l(i)(3)(B)(i)(II)) is
amended—
(1) by striking ‘‘of 80 percent’’; and
(2) by striking the period at the end and insert-
ing the following: ‘‘, less the amount a provider may
charge as described in clause (ii) of section
1866(a)(2)(A).’’.
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(b) ELIMINATION OF FDO FOR RADIOLOGY SERV-
ICES
AND
DIAGNOSTIC
PROCEDURES.—Section
1833(n)(1)(B)(i) (42 U.S.C. 1395l(n)(1)(B)(i)) is amend-
ed—
(1) by striking ‘‘of 80 percent’’, and
(2) by inserting before the period at the end the
following: ‘‘, less the amount a provider may charge
as described in clause (ii) of section 1866(a)(2)(A)’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to services furnished during por-
tions of cost reporting periods occurring on or after Octo-
ber 1, 1997.
SEC. 10412. EXTENSION OF REDUCTIONS IN PAYMENTS FOR
COSTS OF HOSPITAL OUTPATIENT SERVICES.
(a) REDUCTION IN PAYMENTS FOR CAPITAL-RELAT-
ED
COSTS.—Section 1861(v)(1)(S)(ii)(I) (42 U.S.C.
1395x(v)(1)(S)(ii)(I)) is amended by striking ‘‘through
1998’’ and inserting ‘‘through 1999 and during fiscal year
2000 before January 1, 2000’’.
(b) REDUCTION IN PAYMENTS FOR OTHER COSTS.—
Section 
1861(v)(1)(S)(ii)(II) 
(42 
U.S.C.
1395x(v)(1)(S)(ii)(II)) is amended by striking ‘‘through
1998’’ and inserting ‘‘through 1999 and during fiscal year
2000 before January 1, 2000’’.
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SEC. 10413. PROSPECTIVE PAYMENT SYSTEM FOR HOS-
PITAL OUTPATIENT DEPARTMENT SERVICES.
(a) IN GENERAL.—Section 1833 (42 U.S.C. 1395l)
is amended by adding at the end the following:
‘‘(t) PROSPECTIVE PAYMENT SYSTEM FOR HOSPITAL
OUTPATIENT DEPARTMENT SERVICES.—
‘‘(1) IN
GENERAL.—With respect to hospital
outpatient services designated by the Secretary (in
this section referred to as ‘covered OPD services’)
and furnished during a year beginning with 1999,
the amount of payment under this part shall be de-
termined under a prospective payment system estab-
lished by the Secretary in accordance with this sub-
section.
‘‘(2) SYSTEM REQUIREMENTS.—Under the pay-
ment system—
‘‘(A) the Secretary shall develop a classi-
fication system for covered OPD services;
‘‘(B) the Secretary may establish groups of
covered OPD services, within the classification
system described in subparagraph (A), so that
services classified within each group are com-
parable clinically and with respect to the use of
resources;
‘‘(C) the Secretary shall, using data on
claims from 1996 and using data from the most
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recent available cost reports, establish relative
payment weights for covered OPD services (and
any groups of such services described in sub-
paragraph (B)) based on median hospital costs
and shall determine projections of the frequency
of utilization of each such service (or group of
services) in 1999;
‘‘(D) the Secretary shall determine a wage
adjustment factor to adjust the portion of pay-
ment and coinsurance attributable to labor-re-
lated costs for relative differences in labor and
labor-related costs across geographic regions in
a budget neutral manner;
‘‘(E) the Secretary shall establish other ad-
justments, in a budget neutral manner, as de-
termined to be necessary to ensure equitable
payments, such as outlier adjustments, adjust-
ments to account for variations in coinsurance
payments for procedures with similar resource
costs, or adjustments for certain classes of hos-
pitals; and
‘‘(F) the Secretary shall develop a method
for controlling unnecessary increases in the vol-
ume of covered OPD services.
‘‘(3) CALCULATION OF BASE AMOUNTS.—
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‘‘(A) AGGREGATE AMOUNTS THAT WOULD
BE
PAYABLE
IF
DEDUCTIBLES
WERE
DIS-
REGARDED.—The Secretary shall estimate the
total amounts that would be payable from the
Trust Fund under this part for covered OPD
services in 1999, determined without regard to
this subsection, as though the deductible under
section 1833(b) did not apply, and as though
the 
coinsurance 
described 
in 
section
1866(a)(2)(A)(ii) (as in effect before the date
of the enactment of this subsection) continued
to apply.
‘‘(B) 
UNADJUSTED
COPAYMENT
AMOUNT.—
‘‘(i) IN
GENERAL.—For purposes of
this subsection, subject to clause (ii), the
‘unadjusted copayment amount’ applicable
to a covered OPD service (or group of such
services) is 20 percent of national median
of the charges for the service (or services
within the group) furnished during 1996,
updated to 1999 using the Secretary’s esti-
mate of charge growth during the period.
‘‘(ii) ADJUSTED TO BE 20 PERCENT
WHEN FULLY PHASED IN.—If the pre-de-
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[HVAC Reconciliation]
ductible payment percentage for a covered
OPD service (or group of such services)
furnished in a year would be equal to or
exceed 80 percent, then the unadjusted co-
payment amount shall be 25 percent of
amount determined under subparagraph
(D)(i).
‘‘(iii) RULES FOR NEW SERVICES.—
The Secretary shall establish rules for es-
tablishment of an unadjusted copayment
amount for a covered OPD service not fur-
nished during 1996, based upon its classi-
fication within a group of such services.
‘‘(C) CALCULATION OF CONVERSION FAC-
TORS.—
‘‘(i) FOR 1999.—
‘‘(I) IN
GENERAL.—The Sec-
retary shall establish a 1999 conver-
sion factor for determining the medi-
care pre-deductible OPD fee payment
amounts for each covered OPD serv-
ice (or group of such services) fur-
nished in 1999. Such conversion fac-
tor shall be established on the basis of
the weights and frequencies described
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in paragraph (2)(C) and in a manner
such that the sum for all services and
groups of the products (described in
subclause (II) for each such service or
group) equals the total projected
amount described in subparagraph
(A).
‘‘(II) 
PRODUCT
DESCRIBED.—The
product described in this subclause, for a
service or group, is the product of the med-
icare pre-deductible OPD fee payment
amounts (taking into account appropriate
adjustments 
described 
in 
paragraphs
(2)(D) and (2)(E)) and the frequencies for
such service or group.
‘‘(ii) SUBSEQUENT
YEARS.—Subject
to paragraph (8)(B), the Secretary shall
establish a conversion factor for covered
OPD services furnished in subsequent
years in an amount equal to the conversion
factor established under this subparagraph
and applicable to such services furnished in
the previous year increased by the OPD
payment increase factor specified under
clause (iii) for the year involved.
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‘‘(iii) OPD PAYMENT INCREASE FAC-
TOR.—For purposes of this subparagraph,
the ‘OPD payment increase factor’ for
services furnished in a year is equal to the
sum of—
‘‘(I) market basket percentage in-
crease 
(applicable 
under 
section
1886(b)(3)(B)(iii) to hospital dis-
charges occurring during the fiscal
year ending in such year, and
‘‘(II) in the case of a covered
OPD service (or group of such serv-
ices) furnished in a year in which the
pre-deductible 
payment 
percentage
would not exceed 80 percent, 3.5 per-
centage points, but in no case greater
than such number of percentage
points as will result in the pre-deduct-
ible payment percentage exceeding 80
percent.
In applying the previous sentence for years
beginning with 2000, the Secretary may
substitute for the market basket percent-
age increase under subclause (I) an annual
percentage increase that is computed and
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applied with respect to covered OPD serv-
ices furnished in a year in the same man-
ner as the market basket percentage in-
crease is determined and applied to inpa-
tient hospital services for discharges occur-
ring in a fiscal year.
‘‘(D) PRE-DEDUCTIBLE
PAYMENT
PER-
CENTAGE.—The pre-deductible payment per-
centage for a covered OPD service (or group of
such services) furnished in a year is equal to
the ratio of—
‘‘(i) the conversion factor established
under subparagraph (C) for the year, mul-
tiplied by the weighting factor established
under paragraph (2)(C) for the service (or
group), to
‘‘(ii) the sum of the amount deter-
mined under clause (i) and the unadjusted
copayment amount determined under sub-
paragraph (B) for such service or group.
‘‘(E) CALCULATION
OF
MEDICARE
OPD
FEE
SCHEDULE
AMOUNTS.—The 
Secretary
shall compute a medicare OPD fee schedule
amount for each covered OPD service (or group
1093
[HVAC Reconciliation]
of such services) furnished in a year, in an
amount equal to the product of—
‘‘(i) the conversion factor computed
under subparagraph (C) for the year, and
‘‘(ii) the relative payment weight (de-
termined under paragraph (2)(C)) for the
service or group.
‘‘(4) 
MEDICARE
PAYMENT
AMOUNT.—The
amount of payment made from the Trust Fund
under this part for a covered OPD service (and such
services classified within a group) furnished in a
year is determined as follows:
‘‘(A) FEE
SCHEDULE
AND
COPAYMENT
AMOUNT.—Add (i) the medicare OPD fee
schedule amount (computed under paragraph
(3)(E)) for the service or group and year, and
(ii) the unadjusted copayment amount (deter-
mined under paragraph (3)(B)) for the service
or group.
‘‘(B) SUBTRACT
APPLICABLE
DEDUCT-
IBLE.—Reduce the sum determined under sub-
paragraph (A) by the amount of the deductible
under section 1833(b), to the extent applicable.
‘‘(C) APPLY PAYMENT PROPORTION TO RE-
MAINDER.—Multiply the amount so determined
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[HVAC Reconciliation]
under subparagraph (B) by the pre-deductible
payment percentage (as determined under para-
graph (3)(D)) for the service or group and year
involved.
‘‘(D) 
LABOR-RELATED
ADJUSTMENT.—
The amount of payment is the product deter-
mined under subparagraph (C) with the labor-
related portion of such product adjusted for rel-
ative differences in the cost of labor and other
factors determined by the Secretary, as com-
puted under paragraph (2)(D).
‘‘(5) COPAYMENT AMOUNT.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), the copayment amount
under this subsection is determined as follows:
‘‘(i) 
UNADJUSTED
COPAYMENT.—
Compute the amount by which the amount
described in paragraph (4)(B) exceeds the
amount of payment determined under
paragraph (4)(C).
‘‘(ii) LABOR ADJUSTMENT.—The co-
payment amount is the difference deter-
mined under clause (i) with the labor-relat-
ed portion of such difference adjusted for
relative differences in the cost of labor and
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other factors determined by the Secretary,
as computed under paragraphs (2)(D).
The adjustment under this clause shall be
made in a manner that does not result in
any change in the aggregate copayments
made in any year if the adjustment had
not been made.
‘‘(B) ELECTION TO OFFER REDUCED CO-
PAYMENT AMOUNT.—The Secretary shall estab-
lish a procedure under which a hospital, before
the beginning of a year (beginning with 1999),
may elect to reduce the copayment amount oth-
erwise established under subparagraph (A) for
some or all covered OPD services to an amount
that is not less than 25 percent of the medicare
OPD fee schedule amount (computed under
paragraph (3)(E)) for the service involved, ad-
justed for relative differences in the cost of
labor and other factors determined by the Sec-
retary, as computed under subparagraphs (D)
and (E) of paragraph (2). Under such proce-
dures, such reduced copayment amount may
not be further reduced or increased during the
year involved and the hospital may disseminate
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information on the reduction of copayment
amount effected under this subparagraph.
‘‘(C) NO
IMPACT
ON
DEDUCTIBLES.—
Nothing in this paragraph shall be construed as
affecting a hospital’s authority to waive the
charging of a deductible under section 1833(b).
‘‘(6) PERIODIC
REVIEW
AND
ADJUSTMENTS
COMPONENTS OF PROSPECTIVE PAYMENT SYSTEM.—
‘‘(A) PERIODIC
REVIEW.—The Secretary
may periodically review and revise the groups,
the relative payment weights, and the wage and
other adjustments described in paragraph (2) to
take into account changes in medical practice,
changes in technology, the addition of new serv-
ices, new cost data, and other relevant informa-
tion and factors.
‘‘(B) 
BUDGET
NEUTRALITY
ADJUST-
MENT.—If the Secretary makes adjustments
under subparagraph (A), then the adjustments
for a year may not cause the estimated amount
of expenditures under this part for the year to
increase or decrease from the estimated amount
of expenditures under this part that would have
been made if the adjustments had not been
made.
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[HVAC Reconciliation]
‘‘(C) UPDATE FACTOR.—If the Secretary
determines under methodologies described in
subparagraph (2)(F) that the volume of services
paid for under this subsection increased beyond
amounts established through those methodolo-
gies, the Secretary may appropriately adjust the
update to the conversion factor otherwise appli-
cable in a subsequent year.
‘‘(7) SPECIAL
RULE
FOR
AMBULANCE
SERV-
ICES.—The Secretary shall pay for hospital out-
patient services that are ambulance services on the
basis described in the matter in subsection (a)(1)
preceding subparagraph (A).
‘‘(8) SPECIAL
RULES
FOR
CERTAIN
HOS-
PITALS.—In the case of hospitals described in sec-
tion 1886(d)(1)(B)(v)—
‘‘(A) the system under this subsection shall
not apply to covered OPD services furnished be-
fore January 1, 2000; and
‘‘(B) the Secretary may establish a sepa-
rate conversion factor for such services in a
manner that specifically takes into account the
unique costs incurred by such hospitals by vir-
tue of their patient population and service in-
tensity.
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‘‘(9) LIMITATION ON REVIEW.—There shall be
no administrative or judicial review under section
1869, 1878, or otherwise of—
‘‘(A) the development of the classification
system under paragraph (2), including the es-
tablishment of groups and relative payment
weights for covered OPD services, of wage ad-
justment factors, other adjustments, and meth-
ods described in paragraph (2)(F);
‘‘(B) the calculation of base amounts
under paragraph (3);
‘‘(C) periodic adjustments made under
paragraph (6); and
‘‘(D) the establishment of a separate con-
version factor under paragraph (8)(B).’’.
(b) COINSURANCE.—Section 1866(a)(2)(A)(ii) (42
U.S.C. 1395cc(a)(2)(A)(ii)) is amended by adding at the
end the following: ‘‘In the case of items and services for
which payment is made under part B under the prospec-
tive payment system established under section 1833(t),
clause (ii) of the first sentence shall be applied by sub-
stituting for 20 percent of the reasonable charge, the ap-
plicable copayment amount established under section
1833(t)(5).’’.
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(c) TREATMENT
OF REDUCTION
IN COPAYMENT
AMOUNT.—Section 1128A(i)(6) (42 U.S.C. 1320a–
7a(i)(6)) is amended—
(1) by striking ‘‘or’’ at the end of subparagraph
(B),
(2) by striking the period at the end of sub-
paragraph (C) and inserting ‘‘; or’’, and
(3) by adding at the end the following new sub-
paragraph:
‘‘(D) a reduction in the copayment amount
for 
covered 
OPD 
services 
under 
section
1833(t)(5)(B).’’.
(d) CONFORMING AMENDMENTS.—
(1) APPROVED ASC PROCEDURES PERFORMED
IN HOSPITAL OUTPATIENT DEPARTMENTS.—
(A)(i) Section 1833(i)(3)(A) (42 U.S.C.
13951(i)(3)(A)) is amended—
(I) by inserting ‘‘before January 1,
1999,’’ after ‘‘furnished’’, and
(II) by striking ‘‘in a cost reporting
period’’.
(ii) The amendment made by clause (i)
shall apply to services furnished on or after
January 1, 1999.
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(B) 
Section 
1833(a)(4) 
(42 
U.S.C.
13951(a)(4)) is amended by inserting ‘‘or sub-
section (t)’’ before the semicolon.
(2) RADIOLOGY AND OTHER DIAGNOSTIC PRO-
CEDURES.—
(A) Section 1833(n)(1)(A) (42 U.S.C.
1395l(n)(1)(A)) is amended by inserting ‘‘and
before January 1, 1999,’’ after ‘‘October 1,
1988,’’ and after ‘‘October 1, 1989,’’.
(B) Section 1833(a)(2)(E) (42 U.S.C.
1395l(a)(2)(E)) is amended by inserting ‘‘or,
for services or procedures performed on or after
January 1, 1999, (t)’’ before the semicolon.
(3) OTHER
HOSPITAL
OUTPATIENT
SERV-
ICES.—Section 
–1833(a)(2)(B) 
(42 
U.S.C.
1395l(a)(2)(B)) is amended—
(A) in clause (i), by inserting ‘‘furnished
before January 1, 1999,’’ after ‘‘(i)’’,
(B) in clause (ii), by inserting ‘‘before Jan-
uary 1, 1999,’’ after ‘‘furnished’’,
(C) by redesignating clause (iii) as clause
(iv),and
(D) by inserting after clause (ii), the fol-
lowing new clause:
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‘‘(iii) if such services are furnished on
or after January 1, 1999, the amount de-
termined under subsection (t), or’’.
Subchapter B—Rehabilitation Services
SEC. 10421. REHABILITATION AGENCIES AND SERVICES.
(a) PAYMENT BASED ON FEE SCHEDULE.—
(1) 
SPECIAL
PAYMENT
RULES.—Section
1833(a) (42 U.S.C. 1395l(a)) is amended—
(A) in paragraph (2) in the matter before
subparagraph (A), by inserting ‘‘(C),’’ before
‘‘(D)’’;
(B) in paragraph (6), by striking ‘‘and’’ at
the end;
(C) in paragraph (7), by striking the pe-
riod at the end and inserting ‘‘; and’’;
(D) by adding at the end the following new
paragraph:
‘‘(8) in the case of services described in section
1832(a)(2)(C) (that are not described in section
1832(a)(2)(B)), the amounts described in section
1834(k).’’.
(2) 
PAYMENT
RATES.—Section 
1834 
(42
U.S.C. 1395m) is amended by adding at the end the
following new subsection:
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‘‘(k) PAYMENT FOR OUTPATIENT THERAPY SERV-
ICES.—
‘‘(1) IN GENERAL.—With respect to outpatient
physical therapy services (which includes outpatient
speech-language pathology services) and outpatient
occupational therapy services for which payment is
determined under this subsection, the payment basis
shall be—
‘‘(A) for services furnished during 1998,
the amount determined under paragraph (2); or
‘‘(B) for services furnished during a subse-
quent year, 80 percent of the lesser of—
‘‘(i) the actual charge for the services,
or
‘‘(ii) 
the 
applicable 
fee 
schedule
amount (as defined in paragraph (3)) for
the services.
‘‘(2) PAYMENT IN 1998 BASED UPON ADJUSTED
REASONABLE COSTS.—The amount under this para-
graph for services is the lesser of—
‘‘(A) the charges imposed for the services,
or
‘‘(B) the adjusted reasonable costs (as de-
fined in paragraph (4)) for the services,
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less 20 percent of the amount of the charges im-
posed for such services.
‘‘(3) APPLICABLE FEE SCHEDULE AMOUNT.—
In this paragraph, the term ‘applicable fee schedule
amount’ means, with respect to services furnished in
a year, the fee schedule amount established under
section 1848 for such services furnished during the
year or, if there is no such fee schedule amount es-
tablished for such services, for such comparable
services as the Secretary specifies.
‘‘(4) ADJUSTED REASONABLE COSTS.—In para-
graph (2), the term ‘adjusted reasonable costs’
means reasonable costs determined reduced by—
‘‘(A) 5.8 percent of the reasonable costs
for operating costs, and
‘‘(B) 10 percent of the reasonable costs for
capital costs.
‘‘(5) UNIFORM CODING.—For claims for serv-
ices submitted on or after April 1, 1998, for which
the amount of payment is determined under this
subsection, the claim shall include a code (or codes)
under a uniform coding system specified by the Sec-
retary that identifies the services furnished.
‘‘(6) RESTRAINT ON BILLING.—The provisions
of 
subparagraphs 
(A) 
and 
(B) 
of 
section
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1842(b)(18) shall apply to therapy services for
which payment is made under this subsection in the
same manner as they apply to services provided by
a practitioner described in section 1842(b)(18)(C).’’.
(b) APPLICATION OF STANDARDS TO OUTPATIENT
OCCUPATIONAL AND PHYSICAL THERAPY SERVICES PRO-
VIDED AS AN INCIDENT TO A PHYSICIAN’S PROFESSIONAL
SERVICES.—Section 1862(a), as amended by section
10401(b), (42 U.S.C. 1395y(a)) is amended—
(1) by striking ‘‘or’’ at the end of paragraph
(16);
(2) by striking the period at the end of para-
graph (17) and inserting ‘‘; or’’; and
(3) by inserting after paragraph (17) the fol-
lowing:
‘‘(18) in the case of outpatient occupational
therapy services or outpatient physical therapy serv-
ices furnished as an incident to a physician’s profes-
sional 
services 
(as 
described 
in 
section
1861(s)(2)(A)), that do not meet the standards and
conditions under the second sentence of section
1861(g) or 1861(p) as such standards and condi-
tions would apply to such therapy services if fur-
nished by a therapist.’’.
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(c) APPLYING FINANCIAL LIMITATION TO ALL RE-
HABILITATION SERVICES.—Section 1833(g) (42 U.S.C.
1395l(g)) is amended—
(1) in the first sentence, by striking ‘‘services
described in the second sentence of section 1861(p)’’
and inserting ‘‘physical therapy services of the type
described in section 1861(p) (regardless of who fur-
nishes the services or whether the services may be
covered as physicians’ services so long as the serv-
ices are furnished other than in a hospital setting)’’,
and
(2) in the second sentence, by striking ‘‘out-
patient occupational therapy services which are de-
scribed in the second sentence of section 1861(p)
through the operation of section 1861(g)’’ and in-
serting ‘‘occupational therapy services (of the type
that are described in section 1861(p) through the
operation of section 1861(g)), regardless of who fur-
nishes the services or whether the services may be
covered as physicians’ services so long as the serv-
ices are furnished other than in a hospital setting’’.
(d) INDEXING LIMITATION.—Section 1833(g) (42
U.S.C. 1395l(g)), as amended by subsection (c), is further
amended—
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(1) by striking ‘‘$900’’ each place it appears
and inserting ‘‘the amount specified in paragraph
(2) for the year’’,
(2) by inserting ‘‘(1)’’ after ‘‘(g)’’,
(3) by designating the last sentence as a para-
graph (3), and
(4) by inserting before paragraph (3), as so
designated, the following:
‘‘(2) The amount specified in this paragraph—
‘‘(A) for 1999, and each preceding year, is
$900, and
‘‘(B) for a subsequent year is the amount speci-
fied in this paragraph for the preceding year in-
creased by the Secretary’s estimate of the projected
percentage growth in real gross domestic product
per capita from the fiscal year ending in the preced-
ing year to the fiscal year ending in such subsequent
year.’’.
(e) EFFECTIVE DATE.—The amendments made by
this section apply to services furnished on or after Janu-
ary 1, 1998; except that the amendments made by sub-
section (c) apply to services furnished on or after January
1, 1999.
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SEC. 10422. COMPREHENSIVE OUTPATIENT REHABILITA-
TION FACILITIES (CORF).
(a) PAYMENT BASED ON FEE SCHEDULE.—
(1) 
SPECIAL
PAYMENT
RULES.—Section
1833(a) (42 U.S.C. 1395l(a)), as amended by sec-
tion 10421(a), is amended—
(A) in paragraph (3), by striking ‘‘sub-
paragraphs (D) and (E) of section 1832(a)(2)’’
and inserting ‘‘section 1832(a)(2)(E)’’;
(B) in paragraph (7), by striking ‘‘and’’ at
the end;
(C) in paragraph (8), by striking the pe-
riod at the end and inserting ‘‘; and’’;
(D) by adding at the end the following new
paragraph:
‘‘(9) in the case of services described in section
1832(a)(2)(E), the amounts described in section
1834(k).’’.
(2) PAYMENT
RATES.—Section 1834(k) (42
U.S.C. 1395m(k)), as added by section 10421(a), is
amended—
(A) in the heading, by inserting ‘‘AND
COMPREHENSIVE
OUTPATIENT
REHABILITA-
TION FACILITY SERVICES’’ after ‘‘THERAPY
SERVICES’’; and
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(B) in paragraph (1), by inserting ‘‘and
with respect to comprehensive outpatient reha-
bilitation facility services’’ after ‘‘occupational
therapy services’’.
(b) EFFECTIVE DATE.—The amendments made by
subsection (a) shall apply to services furnished on or after
January 1, 1998, and to portions of cost reporting periods
occurring on or after such date.
Subchapter C—Ambulance Services
SEC. 10431. PAYMENTS FOR AMBULANCE SERVICES.
(a) INTERIM REDUCTIONS.—
(1) PAYMENTS DETERMINED ON REASONABLE
COST
BASIS.—Section 
1861(v)(1) 
(42 
U.S.C.
1395x(v)(1)) is amended by adding at the end the
following new subparagraph:
‘‘(U) In determining the reasonable cost of am-
bulance services (as described in subsection (s)(7))
provided during a fiscal year (beginning with fiscal
year 1998 and ending with fiscal year 2002), the
Secretary shall not recognize any costs in excess of
costs recognized as reasonable for ambulance serv-
ices provided during the previous fiscal year after
application of this subparagraph, increased by the
percentage increase in the consumer price index for
all urban consumers (U.S. city average) as estimated
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by the Secretary for the 12-month period ending
with the midpoint of the fiscal year involved reduced
(in the case of each of fiscal years 1998 and 1999)
by 1 percentage point.’’.
(2) PAYMENTS DETERMINED ON REASONABLE
CHARGE
BASIS.—Section 
1842(b) 
(42 
U.S.C.
1395u(b)) is amended by adding at the end the fol-
lowing new paragraph:
‘‘(19) For purposes of section 1833(a)(1), the reason-
able charge for ambulance services (as described in section
1861(s)(7)) provided during a fiscal year (beginning with
fiscal year 1998 and ending with fiscal year 2002) may
not exceed the reasonable charge for such services pro-
vided during the previous fiscal year after the application
of this paragraph, increased by the percentage increase
in the consumer price index for all urban consumers (U.S.
city average) as estimated by the Secretary for the 12-
month period ending with the midpoint of the year in-
volved reduced (in the case of each of fiscal years 1998
and 1999) by 1 percentage point.’’.
(b) ESTABLISHMENT OF PROSPECTIVE FEE SCHED-
ULE.—
(1) PAYMENT
IN
ACCORDANCE
WITH
FEE
SCHEDULE.—Section 
1833(a)(1) 
(42 
U.S.C.
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1395l(a)(1)), as amended by section 10619(b)(1), is
amended—
(A) by striking ‘‘and (P)’’ and inserting
‘‘(P)’’; and
(B) by striking the semicolon at the end
and inserting the following: ‘‘, and (Q) with re-
spect to ambulance service, the amounts paid
shall be 80 percent of the lesser of the actual
charge for the services or the amount deter-
mined by a fee schedule established by the Sec-
retary under section 1834(l);’’.
(2) ESTABLISHMENT
OF
SCHEDULE.—Section
1834 (42 U.S.C. 1395m), as amended by section
10421(a)(2), is amended by adding at the end the
following new subsection:
‘‘(l) ESTABLISHMENT OF FEE SCHEDULE FOR AM-
BULANCE SERVICES.—
‘‘(1) IN GENERAL.—The Secretary shall estab-
lish a fee schedule for payment for ambulance serv-
ices under this part through a negotiated rulemaking
process described in title 5, United States Code, and
in accordance with the requirements of this sub-
section.
‘‘(2) CONSIDERATIONS.—In establishing such
fee schedule the Secretary shall—
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‘‘(A) establish mechanisms to control in-
creases in expenditures for ambulance services
under this part;
‘‘(B) establish definitions for ambulance
services which link payments to the type of
services provided;
‘‘(C) consider appropriate regional and
operational differences;
‘‘(D) consider adjustments to payment
rates to account for inflation and other relevant
factors; and
‘‘(E) phase in the application of the pay-
ment rates under the fee schedule in an effi-
cient and fair manner.
‘‘(3) SAVINGS.—In establishing such fee sched-
ule the Secretary shall—
‘‘(A) ensure that the aggregate amount of
payments made for ambulance services under
this part during 2000 does not exceed the ag-
gregate amount of payments which would have
been made for such services under this part
during such year if the amendments made by
section 10431 of the Balanced Budget Act of
1997 had not been made; and
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‘‘(B) set the payment amounts provided
under the fee schedule for services furnished in
2001 and each subsequent year at amounts
equal to the payment amounts under the fee
schedule for service furnished during the pre-
vious year, increased by the percentage increase
in the consumer price index for all urban con-
sumers (U.S. city average) for the 12-month
period ending with June of the previous year.
‘‘(4) CONSULTATION.—In establishing the fee
schedule for ambulance services under this sub-
section, the Secretary shall consult with various na-
tional organizations representing individuals and en-
tities who furnish and regulate ambulance services
and share with such organizations relevant data in
establishing such schedule.
‘‘(5) LIMITATION ON REVIEW.—There shall be
no administrative or judicial review under section
1869 or otherwise of the amounts established under
the fee schedule for ambulance services under this
subsection, including matters described in paragraph
(2).
‘‘(6) RESTRAINT ON BILLING.—The provisions
of 
subparagraphs 
(A) 
and 
(B) 
of 
section
1842(b)(18) shall apply to ambulance services for
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which payment is made under this subsection in the
same manner as they apply to services provided by
a practitioner described in section 1842(b)(18)(C).’’.
(3) EFFECTIVE DATE.—The amendments made
by this section apply to ambulance services furnished
on or after January 1, 2000.
(c) AUTHORIZING PAYMENT FOR PARAMEDIC INTER-
CEPT SERVICE PROVIDERS IN RURAL COMMUNITIES.—In
promulgating regulations to carry out section 1861(s)(7)
of the Social Security Act (42 U.S.C. 1395x(s)(7)) with
respect to the coverage of ambulance service, the Secretary
of Health and Human Services may include coverage of
advanced life support services (in this subsection referred
to as ‘‘ALS intercept services’’) provided by a paramedic
intercept service provider in a rural area if the following
conditions are met:
(1) The ALS intercept services are provided
under a contract with one or more volunteer ambu-
lance services and are medically necessary based on
the health condition of the individual being trans-
ported.
(2) The volunteer ambulance service involved—
(A) is certified as qualified to provide am-
bulance service for purposes of such section,
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(B) provides only basic life support serv-
ices at the time of the intercept, and
(C) is prohibited by State law from billing
for any services.
(3) The entity supplying the ALS intercept
services—
(A) is certified as qualified to provide such
services under the medicare program under title
XVIII of the Social Security Act, and
(B) bills all recipients who receive ALS
intercept services from the entity, regardless of
whether or not such recipients are medicare
beneficiaries.
SEC. 10432. DEMONSTRATION OF COVERAGE OF AMBU-
LANCE 
SERVICES 
UNDER 
MEDICARE
THROUGH 
CONTRACTS 
WITH 
UNITS 
OF
LOCAL GOVERNMENT.
(a) DEMONSTRATION PROJECT CONTRACTS
WITH
LOCAL GOVERNMENTS.—The Secretary of Health and
Human Services shall establish up to 3 demonstration
projects under which, at the request of a county or parish,
the Secretary enters into a contract with the county or
parish under which—
(1) the county or parish furnishes (or arranges
for the furnishing) of ambulance services for which
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payment may be made under part B of title XVIII
of the Social Security Act for individuals residing in
the county or parish who are enrolled under such
part, except that the county or parish may not enter
into the contract unless the contract covers at least
80 percent of the individuals residing in the county
or parish who are enrolled under such part;
(2) any individual or entity furnishing ambu-
lance services under the contract meets the require-
ments otherwise applicable to individuals and enti-
ties furnishing such services under such part; and
(3) for each month during which the contract is
in effect, the Secretary makes a capitated payment
to the county or parish in accordance with sub-
section (b).
The projects may extend over a period of not to exceed
3 years each.
(b) AMOUNT OF PAYMENT.—
(1) IN GENERAL.—The amount of the monthly
payment made for months occurring during a cal-
endar year to a county or parish under a demonstra-
tion project contract under subsection (a) shall be
equal to the product of—
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(A) the Secretary’s estimate of the number
of individuals covered under the contract for the
month; and
(B) 1⁄12 of the capitated payment rate for
the year established under paragraph (2).
(2) CAPITATED PAYMENT RATE DEFINED.—In
this subsection, the ‘‘capitated payment rate’’ appli-
cable to a contract under this subsection for a cal-
endar year is equal to 95 percent of—
(A) for the first calendar year for which
the contract is in effect, the average annual per
capita payment made under part B of title
XVIII of the Social Security Act with respect to
ambulance services furnished to such individ-
uals during the 3 most recent calendar years
for which data on the amount of such payment
is available; and
(B) for a subsequent year, the amount pro-
vided under this paragraph for the previous
year increased by the percentage increase in the
consumer price index for all urban consumers
(U.S. city average) for the 12-month period
ending with June of the previous year.
(c) OTHER TERMS OF CONTRACT.—The Secretary
and the county or parish may include in a contract under
1117
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this section such other terms as the parties consider ap-
propriate, including—
(1) covering individuals residing in additional
counties or parishes (under arrangements entered
into between such counties or parishes and the coun-
ty or parish involved);
(2) permitting the county or parish to transport
individuals to non-hospital providers if such provid-
ers are able to furnish quality services at a lower
cost than hospital providers; or
(3) implementing such other innovations as the
county or parish may propose to improve the quality
of ambulance services and control the costs of such
services.
(d) CONTRACT PAYMENTS IN LIEU OF OTHER BENE-
FITS.—Payments under a contract to a county or parish
under this section shall be instead of the amounts which
(in the absence of the contract) would otherwise be pay-
able under part B of title XVIII of the Social Security
Act for the services covered under the contract which are
furnished to individuals who reside in the county or parish.
(e) REPORT
ON EFFECTS
OF CAPITATED CON-
TRACTS.—
(1) STUDY.—The Secretary shall evaluate the
demonstration projects conducted under this section.
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Such evaluation shall include an analysis of the
quality and cost-effectiveness of ambulance services
furnished under the projects.
(2) REPORT.—Not later than January 1, 2000,
the Secretary shall submit a report to Congress on
the study conducted under paragraph (1), and shall
include in the report such recommendations as the
Secretary considers appropriate, including rec-
ommendations regarding modifications to the meth-
odology used to determine the amount of payments
made under such contracts and extending or expand-
ing such projects.
CHAPTER 3—PAYMENT UNDER PARTS A
AND B
SEC. 10441. PROSPECTIVE PAYMENT FOR HOME HEALTH
SERVICES.
(a) IN GENERAL.—Title XVIII (42 U.S.C. 1395 et
seq.), as amended by section 10011, is amended by adding
at the end the following new section:
‘‘PROSPECTIVE PAYMENT FOR HOME HEALTH SERVICES
‘‘SEC. 1895. (a) IN GENERAL.—Notwithstanding sec-
tion 1861(v), the Secretary shall provide, for cost report-
ing periods beginning on or after October 1, 1999, for pay-
ments for home health services in accordance with a pro-
spective payment system established by the Secretary
under this section.
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‘‘(b) SYSTEM OF PROSPECTIVE PAYMENT FOR HOME
HEALTH SERVICES.—
‘‘(1) IN GENERAL.—The Secretary shall estab-
lish under this subsection a prospective payment sys-
tem for payment for all costs of home health serv-
ices. Under the system under this subsection all
services covered and paid on a reasonable cost basis
under the medicare home health benefit as of the
date of the enactment of the this section, including
medical supplies, shall be paid for on the basis of a
prospective payment amount determined under this
subsection and applicable to the services involved. In
implementing the system, the Secretary may provide
for a transition (of not longer than 4 years) during
which a portion of such payment is based on agency-
specific costs, but only if such transition does not re-
sult in aggregate payments under this title that ex-
ceed the aggregate payments that would be made if
such a transition did not occur.
‘‘(2) UNIT OF PAYMENT.—In defining a pro-
spective payment amount under the system under
this subsection, the Secretary shall consider an ap-
propriate unit of service and the number, type, and
duration of visits provided within that unit, potential
changes in the mix of services provided within that
1120
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unit and their cost, and a general system design that
provides for continued access to quality services.
‘‘(3) PAYMENT BASIS.—
‘‘(A) INITIAL BASIS.—
‘‘(i) IN GENERAL.—Under such sys-
tem the Secretary shall provide for com-
putation of a standard prospective pay-
ment amount (or amounts). Such amount
(or amounts) shall initially be based on the
most current audited cost report data
available to the Secretary and shall be
computed in a manner so that the total
amounts payable under the system for fis-
cal year 2000 shall be equal to the total
amount that would have been made if the
system had not been in effect but if the re-
duction in limits described in clause (ii)
had been in effect. Such amount shall be
standardized in a manner that eliminates
the effect of variations in relative case mix
and wage levels among different home
health agencies in a budget neutral manner
consistent with the case mix and wage level
adjustments provided under paragraph
(4)(A). Under the system, the Secretary
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may recognize regional differences or dif-
ferences based upon whether or not the
services or agency are in an urbanized
area.
‘‘(ii) REDUCTION.—The reduction de-
scribed in this clause is a reduction by 15
percent in the cost limits and per bene-
ficiary 
limits 
described 
in 
section
1861(v)(1)(L), as those limits are in effect
on September 30, 1999.
‘‘(B) ANNUAL UPDATE.—
‘‘(i) IN GENERAL.—The standard pro-
spective payment amount (or amounts)
shall be adjusted for each fiscal year (be-
ginning with fiscal year 2001) in a pro-
spective manner specified by the Secretary
by the home health market basket percent-
age increase applicable to the fiscal year
involved.
‘‘(ii) HOME HEALTH MARKET BASKET
PERCENTAGE INCREASE.—For purposes of
this subsection, the term ‘home health
market basket percentage increase’ means,
with respect to a fiscal year, a percentage
(estimated by the Secretary before the be-
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ginning of the fiscal year) determined and
applied with respect to the mix of goods
and services included in home health serv-
ices in the same manner as the market
basket percentage increase under section
1886(b)(3)(B)(iii) is determined and ap-
plied to the mix of goods and services com-
prising inpatient hospital services for the
fiscal year.
‘‘(C) ADJUSTMENT
FOR
OUTLIERS.—The
Secretary shall reduce the standard prospective
payment amount (or amounts) under this para-
graph applicable to home health services fur-
nished during a period by such proportion as
will result in an aggregate reduction in pay-
ments for the period equal to the aggregate in-
crease in payments resulting from the applica-
tion of paragraph (5) (relating to outliers).
‘‘(4) PAYMENT COMPUTATION.—
‘‘(A) IN GENERAL.—The payment amount
for a unit of home health services shall be the
applicable 
standard 
prospective 
payment
amount adjusted as follows:
‘‘(i) CASE
MIX
ADJUSTMENT.—The
amount shall be adjusted by an appro-
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priate case mix adjustment factor (estab-
lished under subparagraph (B)).
‘‘(ii) AREA WAGE ADJUSTMENT.—The
portion of such amount that the Secretary
estimates to be attributable to wages and
wage-related costs shall be adjusted for ge-
ographic differences in such costs by an
area wage adjustment factor (established
under subparagraph (C)) for the area in
which the services are furnished or such
other area as the Secretary may specify.
‘‘(B) ESTABLISHMENT OF CASE MIX AD-
JUSTMENT FACTORS.—The Secretary shall es-
tablish appropriate case mix adjustment factors
for home health services in a manner that ex-
plains a significant amount of the variation in
cost among different units of services.
‘‘(C) ESTABLISHMENT OF AREA WAGE AD-
JUSTMENT FACTORS.—The Secretary shall es-
tablish area wage adjustment factors that re-
flect the relative level of wages and wage-related
costs applicable to the furnishing of home
health services in a geographic area compared
to the national average applicable level. Such
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factors may be the factors used by the Sec-
retary for purposes of section 1886(d)(3)(E).
‘‘(5) OUTLIERS.—The Secretary may provide
for an addition or adjustment to the payment
amount otherwise made in the case of outliers be-
cause of unusual variations in the type or amount of
medically necessary care. The total amount of the
additional payments or payment adjustments made
under this paragraph with respect to a fiscal year
may not exceed 5 percent of the total payments pro-
jected or estimated to be made based on the prospec-
tive payment system under this subsection in that
year.
‘‘(6) PRORATION
OF
PROSPECTIVE
PAYMENT
AMOUNTS.—If a beneficiary elects to transfer to, or
receive services from, another home health agency
within the period covered by the prospective payment
amount, the payment shall be prorated between the
home health agencies involved.
‘‘(c) REQUIREMENTS
FOR
PAYMENT
INFORMA-
TION.—With respect to home health services furnished on
or after October 1, 1998, no claim for such a service may
be paid under this title unless—
‘‘(1) the claim has the unique identifier (pro-
vided under section 1842(r)) for the physician who
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prescribed the services or made the certification de-
scribed in section 1814(a)(2) or 1835(a)(2)(A); and
‘‘(2) in the case of a service visit described in
paragraph (1), (2), (3), or (4) of section 1861(m),
the claim has information (coded in an appropriate
manner) on the length of time of the service visit,
as measured in 15 minute increments.
‘‘(d) LIMITATION ON REVIEW.—There shall be no ad-
ministrative or judicial review under section 1869, 1878,
or otherwise of—
‘‘(1) the establishment of a transition period
under subsection (b)(1);
‘‘(2) the definition and application of payment
units under subsection (b)(2);
‘‘(3) the computation of initial standard pro-
spective 
payment 
amounts 
under 
subsection
(b)(3)(A) (including the reduction described in
clause (ii) of such subsection);
‘‘(4) the establishment of the adjustment for
outliers under subsection (b)(3)(C);
‘‘(5) the establishment of case mix and area
wage adjustments under subsection (b)(4);
‘‘(6) the establishment of any adjustments for
outliers under subsection (b)(5); and
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‘‘(7) the amounts or types of adjustments under
subsection (b)(7).’’.
(b) ELIMINATION OF PERIODIC INTERIM PAYMENTS
FOR HOME HEALTH AGENCIES.—Section 1815(e)(2) (42
U.S.C. 1395g(e)(2)) is amended—
(1) by inserting ‘‘and’’ at the end of subpara-
graph (C),
(2) by striking subparagraph (D), and
(3) by redesignating subparagraph (E) as sub-
paragraph (D).
(c) CONFORMING AMENDMENTS.—
(1) 
PAYMENTS
UNDER
PART
A.—Section
1814(b) (42 U.S.C. 1395f(b)) is amended in the
matter preceding paragraph (1) by striking ‘‘and
1886’’ and inserting ‘‘1886, and 1895’’.
(2) TREATMENT OF ITEMS AND SERVICES PAID
UNDER PART B.—
(A) PAYMENTS UNDER PART B.—Section
1833(a)(2) (42 U.S.C. 1395l(a)(2)) is amend-
ed—
(i) by amending subparagraph (A) to
read as follows:
‘‘(A) with respect to home health services
(other than a covered osteoporosis drug) (as de-
fined in section 1861(kk)), the amount deter-
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mined under the prospective payment system
under section 1895;’’;
(ii) by striking ‘‘and’’ at the end of
subparagraph (E);
(iii) by adding ‘‘and’’ at the end of
subparagraph (F); and
(iv) by adding at the end the following
new subparagraph:
‘‘(G) with respect to items and services de-
scribed in section 1861(s)(10)(A), the lesser
of—
‘‘(i) the reasonable cost of such serv-
ices, as determined under section 1861(v),
or
‘‘(ii) the customary charges with re-
spect to such services,
or, if such services are furnished by a public
provider of services, or by another provider
which demonstrates to the satisfaction of the
Secretary that a significant portion of its pa-
tients are low-income (and requests that pay-
ment be made under this provision), free of
charge or at nominal charges to the public, the
amount determined in accordance with section
1814(b)(2);’’.
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(B) REQUIRING PAYMENT FOR ALL ITEMS
AND SERVICES TO BE MADE TO AGENCY.—
(i) IN GENERAL.—The first sentence
of 
section 
1842(b)(6) 
(42 
U.S.C.
1395u(b)(6)), as amended by section
10401(b)(2), is amended—
(I) by striking ‘‘and (E)’’ and in-
serting ‘‘(E)’’; and
(II) by striking the period at the
end and inserting the following: ‘‘,
and (F) in the case of home health
services furnished to an individual
who (at the time the item or service is
furnished) is under a plan of care of
a home health agency, payment shall
be made to the agency (without re-
gard to whether or not the item or
service was furnished by the agency,
by others under arrangement with
them made by the agency, or when
any other contracting or consulting
arrangement, or otherwise).’’.
(ii) CONFORMING AMENDMENT.—Sec-
tion 1832(a)(1) (42 U.S.C. 1395k(a)(1)),
as amended by section 10401(b), is amend-
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ed by striking ‘‘and section 1842(b)(6)(E)’’
and inserting ‘‘, section 1842(b)(6)(E),
and section 1842(b)(6)(F)’’.
(C) EXCLUSIONS FROM COVERAGE.—Sec-
tion 1862(a) (42 U.S.C. 1395y(a)), as amended
by sections 10401(b) and 10421(b), is amend-
ed—
(i) by striking ‘‘or’’ at the end of
paragraph (17);
(ii) by striking the period at the end
of paragraph (18) and inserting ‘‘; or’’;
and
(iii) inserting after paragraph (18) the
following new paragraph:
‘‘(19) where such expenses are for home health
services furnished to an individual who is under a
plan of care of the home health agency if the claim
for payment for such services is not submitted by
the agency.’’.
(d) EFFECTIVE DATE.—Except as otherwise pro-
vided, the amendments made by this section shall apply
to cost reporting periods beginning on or after October
1, 1999.
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Subtitle F—Provisions Relating to
Part A
CHAPTER 1—PAYMENT OF PPS
HOSPITALS
SEC. 10501. PPS HOSPITAL PAYMENT UPDATE.
Section 
1886(b)(3)(B)(i) 
(42 
U.S.C.
1395ww(b)(3)(B)(i)) is amended—
(1) by striking ‘‘and’’ at the end of subclause
(XII), and
(2) by striking subclause (XIII) and inserting
the following:
‘‘(XIII) for fiscal year 1998, 0 percent,
‘‘(XIV) for each of the fiscal years 1999
through 2002, the market basket percentage in-
crease minus 1.0 percentage point for hospitals in all
areas, and
‘‘(XV) for fiscal year 2003 and each subsequent
fiscal year, the market basket percentage increase
for hospitals in all areas.’’.
SEC. 10502. CAPITAL PAYMENTS FOR PPS HOSPITALS.
(a) MAINTAINING SAVINGS FROM TEMPORARY RE-
DUCTION
IN
PPS 
CAPITAL
RATES.—Section
1886(g)(1)(A) (42 U.S.C. 1395ww(g)(1)(A)) is amended
by adding at the end the following: ‘‘In addition to the
reduction described in the preceding sentence, for dis-
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charges occurring on or after October 1, 1997, the Sec-
retary shall apply the budget neutrality adjustment factor
used to determine the Federal capital payment rate in ef-
fect on September 30, 1995 (as described in section
412.352 of title 42 of the Code of Federal Regulations),
to (i) the unadjusted standard Federal capital payment
rate (as described in section 412.308(c) of that title, as
in effect on September 30, 1997), and (ii) the unadjusted
hospital-specific 
rate 
(as 
described 
in 
section
412.328(e)(1) of that title, as in effect on September 30,
1997).’’.
(b) REVISION
OF EXCEPTIONS PROCESS UNDER
PROSPECTIVE
PAYMENT
SYSTEM
FOR
CERTAIN
PROJECTS.—
(1) IN
GENERAL.—Section 1886(g)(1) (42
U.S.C. 1395ww(g)(1)) is amended—
(A) by redesignating subparagraph (C) as
subparagraph (F), and
(B) by inserting after subparagraph (B)
the following subparagraphs:
‘‘(C) The exceptions under the system provided by
the Secretary under subparagraph (B)(iii) shall include
the provision of exception payments under the special ex-
ceptions process provided under section 412.348(g) of title
42, Code of Federal Regulations (as in effect on Septem-
1132
[HVAC Reconciliation]
ber 1, 1995), except that the Secretary shall revise such
process, effective for discharges occurring after September
30, 1997, as follows:
‘‘(i) A hospital with at least 100 beds which is
located in an urban area shall be eligible under such
process without regard to its disproportionate pa-
tient percentage under subsection (d)(5)(F) or
whether it qualifies for additional payment amounts
under such subsection.
‘‘(ii) The minimum payment level for qualifying
hospitals shall be 85 percent (or such lower percent-
age, but no lower than 75 percent, as the Secretary
may provide to comply with subparagraph (D)).
‘‘(iii) A hospital shall be considered to meet the
requirement that it complete the project involved no
later than the end of the hospital’s last cost report-
ing period beginning before October 1, 2001, if—
‘‘(I) the hospital has obtained a certificate
of need for the project approved by the State or
a local planning authority by September 1,
1995, and
‘‘(II) by September 1, 1995, the hospital
has expended on the project at least $750,000
or 10 percent of the estimated cost of the
project.
1133
[HVAC Reconciliation]
‘‘(iv) Offsetting amounts, as described in sec-
tion 412.348(g)(8)(ii) of title 42, Code of Federal
Regulations, shall apply except that subparagraph
(B) of such section shall be revised to require that
the additional payment that would otherwise be pay-
able for the cost reporting period shall be reduced by
the amount (if any) by which the hospital’s current
year medicare capital payments (excluding, if appli-
cable, 75 percent of the hospital’s capital-related dis-
proportionate share payments) exceeds its medicare
capital costs for such year.
‘‘(D) The Secretary may reduce the percent specified
under subparagraph (C)(ii) (but not below 75 percent)
and shall reduce the Federal capital rate for a fiscal year
by such percentage as the Secretary determines to be nec-
essary to ensure that the application of subparagraph (C)
does not result in an increase in the total amount that
would have been paid under this subsection in the fiscal
year if such subparagraph did not apply.
‘‘(E) The Secretary shall provide for publication in
the Federal Register each year (beginning with 1999) a
description of the distributional impact of the application
of subparagraph (C) on hospitals which receive, and do
not receive, an exception payment under such subpara-
graph.’’.
1134
[HVAC Reconciliation]
(2) 
CONFORMING
AMENDMENT.—Section
1886(g)(1)(B)(iii) (42 U.S.C. 1395ww(g)(1)(B)(iii))
is amended by striking ‘‘may provide’’ and inserting
‘‘shall provide (in accordance with subparagraph
(C))’’.
SEC. 10503. FREEZE IN DISPROPORTIONATE SHARE.
(a) NO UPDATE IN DISPROPORTIONATE SHARE FOR
FISCAL YEARS 1998 AND 1999.—Section 1886(d)(5)(F)
(42 U.S.C. 1395ww(d)(5)(F)) is amended in clause (ii) by
adding at the end the following new sentence: ‘‘For dis-
charges occurring on or after October 1, 1997, the sum
described in subclause (I) shall be determined as if the
applicable percentage increase described in subsection
(b)(3)(B)(i) for discharges for fiscal years 1998 and 1999
were zero percent.’’.
(b) DEVELOPMENT OF REVISED QUALIFYING CRI-
TERIA AND PAYMENT METHODOLOGY FOR HOSPITALS
THAT SERVE A DISPROPORTIONATE SHARE OF LOW-IN-
COME PATIENTS.—
(1) DEVELOPMENT
OF
PROPOSAL.—The Sec-
retary of Health and Human Services shall develop
a proposal to modify the current qualifying criteria
and payment methodology under which hospitals
that are paid under section 1886(d) of the Social Se-
curity Act (42 U.S.C. 1395ww(d)) receive an addi-
1135
[HVAC Reconciliation]
tional payment because they serve a disproportionate
share of low-income patients.
(2) REPORT.—Not later than April 1, 1999, the
Secretary shall transmit the proposal developed
under paragraph (1) to the Committee on Ways and
Means of the House of Representatives and the
Committee on Finance of the Senate.
SEC. 10504. MEDICARE CAPITAL ASSET SALES PRICE
EQUAL TO BOOK VALUE.
(a) IN GENERAL.—Section 1861(v)(1)(O) (42 U.S.C.
1395x(v)(1)(O)) is amended—
(1) in clause (i)—
(A) by striking ‘‘and (if applicable) a re-
turn on equity capital’’;
(B) by striking ‘‘hospital or skilled nursing
facility’’ and inserting ‘‘provider of services’’;
(C) by striking ‘‘clause (iv)’’ and inserting
‘‘clause (iii)’’; and
(D) by striking ‘‘the lesser of the allowable
acquisition cost’’ and all that follows and insert-
ing ‘‘the historical cost of the asset, as recog-
nized under this title, less depreciation allowed,
to the owner of record as of the date of enact-
ment of the Balanced Budget Act of 1997 (or,
in the case of an asset not in existence as of
1136
[HVAC Reconciliation]
that date, the first owner of record of the asset
after that date).’’;
(2) by striking clause (ii); and
(3) by redesignating clauses (iii) and (iv) as
clauses (ii) and (iii), respectively.
(b) EFFECTIVE DATE.—The amendments made by
subsection (a) apply to changes of ownership that occur
after the third month beginning after the date of enact-
ment of this section.
SEC. 10505. ELIMINATION OF IME AND DSH PAYMENTS AT-
TRIBUTABLE TO OUTLIER PAYMENTS.
(a) 
INDIRECT
MEDICAL
EDUCATION.—Section
1886(d)(5)(B)(i)(I) (42 U.S.C. 1395ww(d)(5)(B)(i)(I)) is
amended by inserting ‘‘, for cases qualifying for additional
payment under subparagraph (A)(i),’’ before ‘‘the amount
paid to the hospital under subparagraph (A)’’.
(b) DISPROPORTIONATE SHARE ADJUSTMENTS.—
Section 
1886(d)(5)(F)(ii)(I) 
(42 
U.S.C.
1395ww(d)(5)(F)(ii)(I)) is amended by inserting ‘‘, for
cases qualifying for additional payment under subpara-
graph (A)(i),’’ before ‘‘the amount paid to the hospital
under subparagraph (A)’’.
(c) 
COST
OUTLIER
PAYMENTS.—Section
1886(d)(5)(A)(ii) (42 U.S.C. 1395ww(d)(5)(A)(ii)) is
amended by striking ‘‘exceed the applicable DRG prospec-
1137
[HVAC Reconciliation]
tive payment rate’’ and inserting ‘‘exceed the sum of the
applicable DRG prospective payment rate plus any
amounts payable under paragraphs (d)(5)(B) and
(d)(5)(F)’’.
(d) EFFECTIVE DATE.—The amendments made by
this section apply to discharges occurring after September
30, 1997.
SEC. 10506. REDUCTION IN ADJUSTMENT FOR INDIRECT
MEDICAL EDUCATION.
(a) IN GENERAL.—Section 1886(d)(5)(B)(ii) (42
U.S.C. 1395ww(d)(5)(B)(ii)) is amended to read as fol-
lows:
‘‘(ii) For purposes of clause (i)(II), the indirect
teaching adjustment factor for discharges occur-
ring—
‘‘(I) on or after October 1, 1988 and be-
fore October 1, 1997, is equal to 1.89 ×
(((1+r) to the nth power) ¥1),
‘‘(II) during fiscal year 1998, is equal to
1.62 × (((1+r) to the nth power) ¥1), and
‘‘(III) during or after fiscal year 1999, is
equal to 1.35 × (((1+r) to the nth power) ¥1),
where ‘r’ is the ratio of the hospital’s full-time equiv-
alent interns and residents to beds and ‘n’ equals
0.405, subject to clause (vi).’’.
1138
[HVAC Reconciliation]
(b) CONFORMING AMENDMENT RELATING TO DE-
TERMINATION
OF STANDARDIZED
AMOUNTS.—Section
1886(d)(2)(C)(i) (42 U.S.C. 1395ww(d)(2)(C)(i)) is
amended by adding at the end the following: ‘‘except that
the Secretary shall not take into account any reductions
in the amount of additional payments under paragraph
(5)(B)(ii) resulting from the amendments made by section
10506(a) of the Balanced Budget Act of 1997,’’.
(c) LIMITATION ON NUMBER OF RESIDENTS FOR
CERTAIN FISCAL YEARS.—Section 1886(d)(5)(B) (42
U.S.C. 1395ww(d)(5)(B)), as amended by subsection (a),
is amended by adding at the end the following new clauses:
‘‘(v) In determining the adjustment with re-
spect to a hospital for discharges occurring on or
after October 1, 1997, the total number of interns
and residents in either a hospital or non-hospital set-
ting may not exceed the number of interns and resi-
dents in the hospital with respect to the hospital’s
cost reporting period beginning on or before Decem-
ber 31, 1996.
‘‘(vi) For purposes of clause (ii)—
‘‘(I) ‘r’ may not exceed the ratio of the
number of interns and residents as determined
under clause (v) with respect to the hospital for
its most recent cost reporting period, to the
1139
[HVAC Reconciliation]
hospital’s available beds (as defined by the Sec-
retary) during that cost reporting period,
‘‘(II) for the hospital’s first cost reporting
period beginning on or after October 1, 1997,
subject to the limits described in clauses (iv)
and (v), the total number of full-time equivalent
residents for payment purposes shall equal the
average of the actual full-time equivalent resi-
dent count for the hospital’s most recent cost
reporting period and the preceding cost report-
ing period, and
‘‘(III) for the cost reporting period begin-
ning on or after October 1, 1998, and each sub-
sequent cost reporting period, subject to the
limits described in clauses (iv) and (v), the total
number of full-time equivalent residents for
payment purposes shall equal the average of the
actual full-time equivalent resident count for
the cost reporting period and the preceding two
cost reporting periods.
‘‘(vii) If the hospital’s fiscal year 1998 or later
cost reporting period is not equal to twelve months,
the Secretary shall make appropriate modifications
to ensure that the average full-time equivalent resi-
dency count pursuant to subclauses (II) and (III) of
1140
[HVAC Reconciliation]
clause (vi) is based on the equivalent of full twelve
month cost reporting periods.
‘‘(viii) The Secretary may establish rules, con-
sistent with the policies in clauses (v) through (vii)
and in subsection (h)(6)(A)(ii), with respect to the
application of clauses (v) through (vii) in the case of
medical residency training programs established on
or after January 1, 1997.’’.
SEC. 10507. TREATMENT OF TRANSFER CASES.
(a) TRANSFERS TO PPS EXEMPT HOSPITALS AND
SKILLED NURSING FACILITIES.—Section 1886(d)(5)(I)
(42 U.S.C. 1395ww(d)(5)(I)) is amended by adding at the
end the following new clause:
‘‘(iii) In carrying out this subparagraph, the Sec-
retary shall treat the term ‘transfer case’ as including the
case of an individual who, upon discharge from a sub-
section (d) hospital—
‘‘(I) is admitted as an inpatient to a hospital or
hospital unit that is not a subsection (d) hospital for
the receipt of inpatient hospital services; or
‘‘(II) is admitted to a skilled nursing facility or
facility described in section 1861(y)(1) for the re-
ceipt of extended care services.’’.
(b) TRANSFERS FOR PURPOSES OF HOME HEALTH
SERVICES.—Section 
1886(d)(5)(I)(iii) 
(42 
U.S.C.
1141
[HVAC Reconciliation]
1395ww(d)(5)(I)(iii)), as amended by subsection (a), is
amended—
(1) in subclause (I), by striking ‘‘or’’;
(2) in subclause (II), by striking the period at
the end and inserting ‘‘; or’’ and
(2) by adding at the end the following new sub-
clause:
‘‘(III) receives home health services from a
home health agency, if such services relate to the
condition or diagnosis for which such individual re-
ceived inpatient hospital services from the subsection
(d) hospital, and if such services are provided within
an appropriate period as determined by the Sec-
retary in regulations promulgated not later than
September 1, 1998.’’.
(c) EFFECTIVE DATES.—
(1) The amendment made by subsection (a)
shall apply with respect to discharges occurring on
or after October 1, 1997.
(2) The amendment made by subsection (b)
shall apply with respect to discharges occurring on
or after October 1, 1998.
1142
[HVAC Reconciliation]
SEC. 10508. INCREASE BASE PAYMENT RATE TO PUERTO
RICO HOSPITALS.
Section 1886(d)(9)(A) (42 U.S.C. 1395ww(d)(9)(A))
is amended—
(1) in the matter preceding clause (i), by strik-
ing ‘‘in a fiscal year beginning on or after October
1, 1987,’’,
(2) in clause (i), by striking ‘‘75 percent’’ and
inserting, ‘‘for discharges beginning on or after Oc-
tober 1, 1997, 50 percent (and for discharges be-
tween October 1, 1987, and September 30, 1997, 75
percent)’’, and
(3) in clause (ii), by striking ‘‘25 percent’’ and
inserting, ‘‘for discharges beginning in a fiscal year
beginning on or after October 1, 1997, 50 percent
(and for discharges between October 1, 1987 and
September 30, 1997, 25 percent)’’.
CHAPTER 2—PAYMENT OF PPS EXEMPT
HOSPITALS
SEC. 10511. PAYMENT UPDATE.
(a) IN GENERAL.—Section 1886(b)(3)(B) (42 U.S.C.
1395ww(b)(3)(B)) is amended—
(1) in clause (ii)—
(A) by striking ‘‘and’’ at the end of sub-
clause (V),
1143
[HVAC Reconciliation]
(B) by redesignating subclause (VI) as
subclause (VIII); and
(C) by inserting after subclause (V), the
following subclauses:
‘‘(VI) for fiscal year 1998, is 0 percent;
‘‘(VII) for fiscal years 1999 through 2002, is
the applicable update factor specified under clause
(vi) for the fiscal year; and’’; and
(2) by adding at the end the following new
clause:
‘‘(vi) For purposes of clause (ii)(VII) for a fiscal year,
if a hospital’s allowable operating costs of inpatient hos-
pital services recognized under this title for the most re-
cent cost reporting period for which information is avail-
able—
‘‘(I) is equal to, or exceeds, 110 percent of the
hospital’s target amount (as determined under sub-
paragraph (A)) for such cost reporting period, the
applicable update factor specified under this clause
is the market basket percentage;
‘‘(II) exceeds 100 percent, but is less than 110
percent, of such target amount for the hospital, the
applicable update factor specified under this clause
is 0 percent or, if greater, the market basket per-
centage minus 0.25 percentage points for each per-
1144
[HVAC Reconciliation]
centage point by which such allowable operating
costs (expressed as a percentage of such target
amount) is less than 110 percent of such target
amount;
‘‘(III) is equal to, or less than 100 percent, but
exceeds 2⁄3 of such target amount for the hospital,
the applicable update factor specified under this
clause is 0 percent or, if greater, the market basket
percentage minus 2.5 percentage points; or
‘‘(IV) does not exceed 2⁄3 of such target amount
for the hospital, the applicable update factor speci-
fied under this clause is 0 percent.’’.
(b) NO EFFECT OF PAYMENT REDUCTION ON EX-
CEPTIONS
AND
ADJUSTMENTS.—Section
1886(b)(4)(A)(ii) (42 U.S.C. 1395ww(b)(4)(A)(ii)) is
amended by adding at the end the following new sentence:
‘‘In making such reductions, the Secretary shall treat the
applicable update factor described in paragraph (3)(B)(vi)
for a fiscal year as being equal to the market basket per-
centage for that year.’’.
SEC. 10512. REDUCTIONS TO CAPITAL PAYMENTS FOR CER-
TAIN PPS-EXEMPT HOSPITALS AND UNITS.
Section 1886(g) (42 U.S.C. 1395ww(g)) is amended
by adding at the end the following new paragraph:
1145
[HVAC Reconciliation]
‘‘(4) In determining the amount of the payments that
are attributable to portions of cost reporting periods oc-
curring during fiscal years 1998 through 2002 and that
may be made under this title with respect to capital-relat-
ed costs of inpatient hospital services of a hospital which
is described in clause (i), (ii), or (iv) of subsection
(d)(1)(B) or a unit described in the matter after clause
(v) of such subsection, the Secretary shall reduce the
amounts of such payments otherwise determined under
this title by 10 percent.’’.
SEC. 10513. CAP ON TEFRA LIMITS.
Section 1886(b)(3) (42 U.S.C. 1395ww(b)(3)) is
amended—
(1) in subparagraph (A) by striking ‘‘subpara-
graphs (C), (D), and (E)’’ and inserting ‘‘subpara-
graph (C) and succeeding subparagraphs’’, and
(2) by adding at the end the following:
‘‘(F)(i) In the case of a hospital or unit that is within
a class of hospital described in clause (ii), for cost report-
ing periods beginning on or after October 1, 1997, and
before October 1, 2002, such target amount may not be
greater than the 90th percentile of the target amounts for
such hospitals within such class for cost reporting periods
beginning during that fiscal year.
1146
[HVAC Reconciliation]
‘‘(ii) For purposes of this subparagraph, each of the
following shall be treated as a separate class of hospital:
‘‘(I) Hospitals described in clause (i) of sub-
section (d)(1)(B) and psychiatric units described in
the matter following clause (v) of such subsection.
‘‘(II) Hospitals described in clause (ii) of such
subsection and rehabilitation units described in the
matter following clause (v) of such subsection.
‘‘(III) Hospitals described in clause (iv) of such
subsection.’’.
SEC. 10514. CHANGE IN BONUS AND RELIEF PAYMENTS.
(a) 
CHANGE
IN
BONUS
PAYMENT.—Section
1886(b)(1)(A) (42 U.S.C. 1395ww(b)(1)(A)) is amended
by striking all that follows ‘‘plus—’’ and inserting the fol-
lowing:
‘‘(i) 10 percent of the amount by which the
target amount exceeds the amount of the oper-
ating costs, or
‘‘(ii) 1 percent of the operating costs,
whichever is less;’’.
(b) 
CHANGE
IN
RELIEF
PAYMENTS.—Section
1886(b)(1) (42 U.S.C. 1395ww(b)(1)) is amended—
(1) in subparagraph (B)—
1147
[HVAC Reconciliation]
(A) by striking ‘‘greater than the target
amount’’ and inserting ‘‘greater than 110 per-
cent of the target amount’’,
(B) 
by 
striking 
‘‘exceed 
the 
target
amount’’ and inserting ‘‘exceed 110 percent of
the target amount’’,
(C) by striking ‘‘10 percent’’ and inserting
‘‘20 percent’’, and
(D) by redesignating such subparagraph as
subparagraph (C); and
(2) by inserting after subparagraph (A) the fol-
lowing new subparagraph:
‘‘(B) are greater than the target amount but do
not exceed 110 percent of the target amount, the
amount of the payment with respect to those operat-
ing costs payable under part A on a per discharge
basis shall equal the target amount; or’’.
SEC. 10515. CHANGE IN PAYMENT AND TARGET AMOUNT
FOR NEW PROVIDERS.
Section 1886(b) (42 U.S.C. 1395ww(b)) is amend-
ed—
(1) by inserting after paragraph (1) the follow-
ing new paragraph:
‘‘(2)(A) Notwithstanding paragraph (1), in the case
of a hospital or unit that is within a class of hospital de-
1148
[HVAC Reconciliation]
scribed in subparagraph (B) which first receives payments
under this section on or after October 1, 1997—
‘‘(i) for each of the first 2 full or partial cost
reporting periods, the amount of the payment with
respect to operating costs described in paragraph (1)
under part A on a per discharge or per admission
basis (as the case may be) is equal to the lesser of—
‘‘(I) the amount of operating costs for such
respective period, or
‘‘(II) 150 percent of the national median
of the operating costs for hospitals in the same
class as the hospital for cost reporting periods
beginning during the same fiscal year, as ad-
justed under subparagraph (C); and
‘‘(ii) for purposes of computing the target
amount for the subsequent cost reporting period, the
target amount for the preceding cost reporting pe-
riod is equal to the amount determined under clause
(i) for such preceding period.
‘‘(B) For purposes of this paragraph, each of the fol-
lowing shall be treated as a separate class of hospital:
‘‘(i) Hospitals described in clause (i) of sub-
section (d)(1)(B) and psychiatric units described in
the matter following clause (v) of such subsection.
1149
[HVAC Reconciliation]
‘‘(ii) Hospitals described in clause (ii) of such
subsection and rehabilitation units described in the
matter following clause (v) of such subsection.
‘‘(iii) A class of hospitals described in sub-
section (d)(1)(B)(iv) that the Secretary shall estab-
lish based upon a measure of case mix that takes
into account acuity.
‘‘(iv) 
Hospitals 
described 
in 
subsection
(d)(1)(B)(iv) that are not within the class described
in clause (iii).
‘‘(C) In applying subparagraph (A)(i)(II) in the case
of a hospital or unit, the Secretary shall provide for an
appropriate adjustment to the labor-related portion of the
amount determined under such subparagraph to take into
account differences between average wage-related costs in
the area of the hospital and the national average of such
costs within the same class of hospital.’’; and
(2) in paragraph (3)(A), as amended in section
10513, by inserting ‘‘and in paragraph (2)(A)(ii),’’
before ‘‘for purposes of’’.
SEC. 10516. REBASING.
(a) OPTION OF REBASING FOR HOSPITALS IN OPER-
ATION BEFORE 1990.—Section 1886(b)(3)(42 U.S.C.
1395ww(b)(3)), as amended in section 10513, is amended
by adding at the end the following new subparagraph:
1150
[HVAC Reconciliation]
‘‘(G)(i) In the case of a hospital (or unit described
in the matter following clause (v) of subsection (d)(1)(B))
that received payment under this subsection for inpatient
hospital services furnished during cost reporting periods
before October 1, 1990, that is within a class of hospital
described in clause (iii), and that elects (in a form and
manner determined by the Secretary) this subparagraph
to apply to the hospital, the target amount for the hos-
pital’s 12-month cost reporting period beginning during
fiscal year 1998 is equal to the average described in clause
(ii).
‘‘(ii) The average described in this clause for a hos-
pital or unit shall be determined by the Secretary as fol-
lows:
‘‘(I) The Secretary shall determine the allow-
able operating costs for inpatient hospital services
for the hospital or unit for each of the 5 cost report-
ing periods for which the Secretary has the most re-
cent settled cost reports as of the date of the enact-
ment of this subparagraph.
‘‘(II) The Secretary shall increase the amount
determined under subclause (I) for each cost report-
ing period by the applicable percentage increase
under subparagraph (B)(ii) for each subsequent cost
1151
[HVAC Reconciliation]
reporting period up to the cost reporting period de-
scribed in clause (i).
‘‘(III) The Secretary shall identify among such
5 cost reporting periods the cost reporting periods
for which the amount determined under subclause
(II) is the highest, and the lowest.
‘‘(IV) The Secretary shall compute the averages
of the amounts determined under subclause (II) for
the 3 cost reporting periods not identified under
subclause (III).
‘‘(iii) For purposes of this subparagraph, each of the
following shall be treated as a separate class of hospital:
‘‘(I) Hospitals described in clause (i) of sub-
section (d)(1)(B) and psychiatric units described in
the matter following clause (v) of such subsection.
‘‘(II) Hospitals described in clause (ii) of such
subsection and rehabilitation units described in the
matter following clause (v) of such subsection.
‘‘(III) Hospitals described in clause (iii) of such
subsection.
‘‘(IV) Hospitals described in clause (iv) of such
subsection.
‘‘(V) Hospitals described in clause (v) of such
subsection.’’.
1152
[HVAC Reconciliation]
(b) CERTAIN LONG-TERM CARE HOSPITALS.—Sec-
tion 1886(b)(3) (42 U.S.C. 1395ww(b)(3)), as amended
by subsection (a), is amended by adding at the end the
following new subparagraph:
‘‘(H)(i) In the case of a qualified long-term care hos-
pital (as defined in clause (ii)) that elects (in a form and
manner determined by the Secretary) this subparagraph
to apply to the hospital, the target amount for the hos-
pital’s 12-month cost reporting period beginning during
fiscal year 1998 is equal to the allowable operating costs
of inpatient hospital services (as defined in subsection
(a)(4)) recognized under this title for the hospital for the
12-month cost reporting period beginning during fiscal
year 1996, increased by the applicable percentage increase
for the cost reporting period beginning during fiscal year
1997.
‘‘(ii) In clause (i), a ‘qualified long-term care hospital’
means, with respect to a cost reporting period, a hospital
described in clause (iv) of subsection (d)(1)(B) during
each of the 2 cost reporting periods for which the Sec-
retary has the most recent settled cost reports as of the
date of the enactment of this subparagraph for each of
which—
‘‘(I) the hospital’s allowable operating costs of
inpatient hospital services recognized under this title
1153
[HVAC Reconciliation]
exceeded 115 percent of the hospital’s target
amount, and
‘‘(II) the hospital would have a disproportionate
patient percentage of at least 70 percent (as deter-
mined 
by 
the 
Secretary 
under 
subsection
(d)(5)(F)(vi)) if the hospital were a subsection (d)
hospital.’’.
(c) CERTAIN
LONG-TERM
CARE
CANCER
HOS-
PITALS.—
(1) IN
GENERAL.—Section 1886(d)(1)(B)(iv)
(42 U.S.C. 1395ww(d)(1)(B)(iv)) is amended by
adding at the end the following: ‘‘a hospital that
first received payment under this subsection in 1986
which has an average inpatient length of stay (as de-
termined by the Secretary) of greater than 20 days
and that has 80 percent or more of its annual total
inpatient discharges with a principal diagnosis that
reflects a finding of neoplastic disease, or’’.
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall apply to cost reporting peri-
ods beginning on or after the date of the enactment
of this Act.
1154
[HVAC Reconciliation]
SEC. 10517. TREATMENT OF CERTAIN LONG-TERM CARE
HOSPITALS.
(a) IN GENERAL.—Section 1886(d)(1)(B) (42 U.S.C.
1395ww(d)(1)(B)) is amended by adding at the end the
following new sentence: ‘‘A hospital that was classified by
the Secretary on or before September 30, 1995, as a hos-
pital described in clause (iv) shall continue to be so classi-
fied notwithstanding that it is located in the same building
as, or on the same campus as, another hospital.’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to discharges occurring on or
after October 1, 1995.
SEC. 10518. ELIMINATION OF EXEMPTIONS; REPORT ON EX-
CEPTIONS AND ADJUSTMENTS.
(a) ELIMINATION OF EXEMPTIONS.—
(1) IN GENERAL.—Section 1886(b)(4)(A)(i) (42
U.S.C. 1395ww(b)(4)(A)(i)) is amended by striking
‘‘exemption from, or an exception and adjustment
to,’’ and inserting ‘‘an exception and adjustment to’’
each place it appears.
(2) EFFECTIVE DATE.—The amendments made
by paragraph (1) shall apply to hospitals or units
that first qualify as a hospital or unit described in
section 1886(d)(1)(B) (42 U.S.C. 1395ww(d)(1)(B))
on or after October 1, 1997.
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(b) REPORT.—The Secretary of Health and Human
Services shall publish annually in the Federal Register a
report describing the total amount of payments made to
hospitals by reason of section 1886(b)(4) of the Social Se-
curity Act (42 U.S.C. 1395ww(b)(4)), as amended by sub-
section (a), for cost reporting periods ending during the
previous fiscal year.
CHAPTER 3—PROVISIONS RELATED TO
HOSPICE SERVICES
SEC. 10521. PAYMENTS FOR HOSPICE SERVICES.
(a) PAYMENT UPDATE.—Section 1814(i)(1)(C)(ii)
(42 U.S.C. 1395f(i)(1)(C)(ii)) is amended—
(1) in subclause (V), by striking ‘‘and’’ at the
end;
(2) by redesignating subclause (VI) as sub-
clause (VII); and
(3) by inserting after subclause (V) the follow-
ing new subclause:
‘‘(VI) for each of fiscal years 1998 through
2002, the market basket percentage increase for the
fiscal year involved minus 1.0 percentage points;
and’’.
(b) REPORT.—Section 1814(i) (42 U.S.C. 1395f(i))
is amended by adding at the end the following new para-
graph:
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‘‘(3) The Secretary shall provide for the collection of
data, from hospice programs providing hospice care for
which payment is made under this subsection, with respect
to the costs for providing such care for each fiscal year
beginning with fiscal year 1999.’’.
SEC. 10522. PAYMENT FOR HOME HOSPICE CARE BASED ON
LOCATION WHERE CARE IS FURNISHED.
(a) IN GENERAL.—Section 1814(i)(2) (42 U.S.C.
1395f(i)(2)) is amended by adding at the end the follow-
ing:
‘‘(D) A hospice program shall submit claims for pay-
ment for hospice care furnished in an individual’s home
under this title only on the basis of the geographic location
at which the service is furnished, as determined by the
Secretary.’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) applies to cost reporting periods beginning
on or after October 1, 1997.
SEC. 10523. HOSPICE CARE BENEFITS PERIODS.
(a) RESTRUCTURING OF BENEFIT PERIOD.—Section
1812 (42 U.S.C. 1395d) is amended, in subsections (a)(4)
and (d)(1), by striking ‘‘, a subsequent period of 30 days,
and a subsequent extension period’’ and inserting ‘‘and
an unlimited number of subsequent periods of 60 days
each’’.
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(b) CONFORMING AMENDMENTS.—(1) Section 1812
(42 U.S.C. 1395d) is amended in subsection (d)(2)(B) by
striking ‘‘90- or 30-day period or a subsequent extension
period’’ and inserting ‘‘90-day period or a subsequent 60-
day period’’.
(2) 
Section 
1814(a)(7)(A) 
(42 
U.S.C.
1395f(a)(7)(A)) is amended—
(A) in clause (i), by inserting ‘‘and’’ at the end;
(B) in clause (ii)—
(i) by striking ‘‘30-day’’ and inserting ‘‘60-
day’’; and
(ii) by striking ‘‘, and’’ at the end and in-
serting a period; and
(C) by striking clause (iii).
SEC. 10524. OTHER ITEMS AND SERVICES INCLUDED IN
HOSPICE CARE.
Section 1861(dd)(1) (42 U.S.C. 1395x(dd)(1)) is
amended—
(1) in subparagraph (G), by striking ‘‘and’’ at
the end;
(2) in subparagraph (H), by striking the period
at the end and inserting ‘‘, and’’; and
(3) by inserting after subparagraph (H) the fol-
lowing:
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‘‘(I) any other item or service which is specified
in the plan and for which payment may otherwise be
made under this title.’’.
SEC. 10525. CONTRACTING WITH INDEPENDENT PHYSI-
CIANS OR PHYSICIAN GROUPS FOR HOSPICE
CARE SERVICES PERMITTED.
Section 1861(dd)(2) (42 U.S.C. 1395x(dd)(2)) is
amended—
(1) in subparagraph (A)(ii)(I), by striking
‘‘(F),’’; and
(2) in subparagraph (B)(i), by inserting ‘‘or, in
the case of a physician described in subclause (I),
under contract with’’ after ‘‘employed by’’.
SEC. 10526. WAIVER OF CERTAIN STAFFING REQUIRE-
MENTS FOR HOSPICE CARE PROGRAMS IN
NON-URBANIZED AREAS.
Section 1861(dd)(5) (42 U.S.C. 1395x(dd)(5)) is
amended—
(1) in subparagraph (B), by inserting ‘‘or (C)’’
after ‘‘subparagraph (A)’’ each place it appears; and
(2) by adding at the end the following:
‘‘(C) The Secretary may waive the requirements of
paragraph (2)(A)(i) and (2)(A)(ii) for an agency or orga-
nization with respect to the services described in para-
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graph (1)(B) and, with respect to dietary counseling,
paragraph (1)(H), if such agency or organization—
‘‘(i) is located in an area which is not an urban-
ized area (as defined by the Bureau of Census), and
‘‘(ii) demonstrates to the satisfaction of the
Secretary that the agency or organization has been
unable, despite diligent efforts, to recruit appro-
priate personnel.’’.
SEC. 10527. LIMITATION ON LIABILITY OF BENEFICIARIES
FOR CERTAIN HOSPICE COVERAGE DENIALS.
Section 1879(g) (42 U.S.C. 1395pp(g)) is amend-
ed—
(1) by redesignating paragraphs (1) and (2) as
subparagraphs (A) and (B), respectively, and mov-
ing such subparagraphs 2 ems to the right;
(2) by striking ‘‘is,’’ and inserting ‘‘is—’’;
(3) by making the remaining text of subsection
(g), as amended, that follows ‘‘is—’’ a new para-
graph (1) and indenting such paragraph 2 ems to
the right;
(4) by striking the period at the end and insert-
ing ‘‘; and’’; and
(5) by adding at the end the following new
paragraph:
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‘‘(2) with respect to the provision of hospice
care to an individual, a determination that the indi-
vidual is not terminally ill.’’.
SEC. 10528. EXTENDING THE PERIOD FOR PHYSICIAN CER-
TIFICATION OF AN INDIVIDUAL’S TERMINAL
ILLNESS.
Section 
1814(a)(7)(A)(i) 
(42 
U.S.C.
1395f(a)(7)(A)(i)) is amended, in the matter following
subclause (II), by striking ‘‘, not later than 2 days after
hospice care is initiated (or, if each certify verbally not
later than 2 days after hospice care is initiated, not later
than 8 days after such care is initiated)’’ and inserting
‘‘at the beginning of the period’’.
SEC. 10529. EFFECTIVE DATE.
Except as otherwise provided in this chapter, the
amendments made by this chapter apply to benefits pro-
vided on or after the date of the enactment of this chapter,
regardless of whether or not an individual has made an
election under section 1812(d) of the Social Security Act
(42 U.S.C. 1395d(d)) before such date.
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CHAPTER 4—MODIFICATION OF PART A
HOME HEALTH BENEFIT
SEC. 10531. MODIFICATION OF PART A HOME HEALTH BEN-
EFIT FOR INDIVIDUALS ENROLLED UNDER
PART B.
(a) IN GENERAL.—Section 1812 (42 U.S.C. 1395d)
is amended—
(1) in subsection (a)(3), by striking ‘‘home
health services’’ and inserting ‘‘for individuals not
enrolled in part B, home health services, and for in-
dividuals so enrolled, part A home health services
(as defined in subsection (g))’’;
(2) by redesignating subsection (g) as sub-
section (h); and
(3) by inserting after subsection (f) the follow-
ing new subsection:
‘‘(g)(1) For purposes of this section, the term ‘part
A home health services’ means—
‘‘(A) for services furnished during each year be-
ginning with 1998 and ending with 2002, home
health services subject to the transition reduction
applied under paragraph (2)(C) for services fur-
nished during the year, and
‘‘(B) for services furnished on or after January
1, 2003, post-institutional home health services for
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up to 100 visits during a home health spell of ill-
ness.
‘‘(2) For purposes of paragraph (1)(B), the Secretary
shall specify, before the beginning of each year beginning
with 1998 and ending with 2002, a transition reduction
in the home health services benefit under this part as fol-
lows:
‘‘(A) The Secretary first shall estimate the
amount of payments that would have been made
under this part for home health services furnished
during the year if—
‘‘(i) part A home health services were all
home health services, and
‘‘(ii) part A home health services were lim-
ited to services described in paragraph (1)(B).
‘‘(B)(i) The Secretary next shall compute a
transfer reduction amount equal to the appropriate
proportion (specified under clause (ii)) of the
amount by which the amount estimated under sub-
paragraph (A)(i) for the year exceeds the amount es-
timated under subparagraph (A)(ii) for the year.
‘‘(ii) For purposes of clause (i), the ‘appropriate
proportion’ is equal to—
‘‘(I) 1⁄6 for 1998,
‘‘(II) 2⁄6 for 1999,
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‘‘(III) 3⁄6 for 2000,
‘‘(IV) 4⁄6 for 2001, and
‘‘(V) 5⁄6 for 2002.
‘‘(C) The Secretary shall establish a transition
reduction by specifying such a visit limit (during a
home health spell of illness) or such a post-institu-
tional limitation on home health services furnished
under this part during the year as the Secretary es-
timates will result in a reduction in the amount of
payments that would otherwise be made under this
part for home health services furnished during the
year equal to the transfer amount computed under
subparagraph (B)(i) for the year.
‘‘(3) Payment under this part for home health serv-
ices furnished an individual enrolled under part B—
‘‘(A) during a year beginning with 1998
and ending with 2003, may not be made for
services that are not within the visit limit or
other limitation specified by the Secretary
under the transition reduction under paragraph
(3)(C) for services furnished during the year; or
‘‘(B) on or after January 1, 2004, may not
be made for home health services that are not
post-institutional home health services or for
post-institutional furnished to the individual
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after such services have been furnished to the
individual for a total of 100 visits during a
home health spell of illness.
‘‘(4) With respect to computing the monthly actuarial
rate for enrollees age 65 and over for purposes of applying
section 1839, such rate shall be computed as though any
reference in a previous provision of this subsection to 2002
or 2003 is a reference to the succeeding year and as
through the appropriate proportion described in para-
graph (3)(B)(ii) were equal to—
‘‘(A) 1⁄7 for 1998,
‘‘(B) 2⁄7 for 1999,
‘‘(C) 3⁄7 for 2000,
‘‘(D) 4⁄7 for 2001,
‘‘(E) 5⁄7 for 2002, and
‘‘(F) 6⁄7 for 2003.’’.
(b) POST-INSTITUTIONAL HOME HEALTH SERVICES
DEFINED.—Section 1861 (42 U.S.C. 1395x), as amended
by section 10105(a)(1)(B) is amended by adding at the
end the following:
‘‘Post-Institutional Home Health Services; Home Health
Spell of Illness
‘‘(rr)(1) The term ‘post-institutional home health
services’ means home health services furnished to an indi-
vidual—
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‘‘(A) after discharge from a hospital or rural
primary care hospital in which the individual was an
inpatient for not less than 3 consecutive days before
such discharge if such home health services were ini-
tiated within 14 days after the date of such dis-
charge; or
‘‘(B) after discharge from a skilled nursing fa-
cility in which the individual was provided post-hos-
pital extended care services if such home health serv-
ices were initiated within 14 days after the date of
such discharge.
‘‘(2) The term ‘home health spell of illness’ with re-
spect to any individual means a period of consecutive
days—
‘‘(A) beginning with the first day (not included
in a previous home health spell of illness) (i) on
which such individual is furnished post-institutional
home health services, and (B) which occurs in a
month for which the individual is entitled to benefits
under part A, and
‘‘(B) ending with the close of the first period of
60 consecutive days thereafter on each of which the
individual is neither an inpatient of a hospital or
rural primary care hospital nor an inpatient of a fa-
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cility described in section 1819(a)(1) or subsection
(y)(1) nor provided home health services.’’.
(c) MAINTAINING
APPEAL
RIGHTS
FOR
HOME
HEALTH SERVICES.—Section 1869(b)(2)(B) (42 U.S.C.
1395ff(b)(2)(B)) is amended by inserting ‘‘(or $100 in the
case of home health services)’’ after ‘‘$500’’.
(d) 
MAINTAINING
SEAMLESS
ADMINISTRATION
THROUGH FISCAL INTERMEDIARIES.—Section 1842(b)(2)
(42 U.S.C. 1395u(b)(2)) is amended by adding at the end
the following:
‘‘(E) With respect to the payment of claims for home
health services under this part that, but for the amend-
ments made by section 10531 of the Balanced Budget Act
of 1997, would be payable under part A instead of under
this part, the Secretary shall continue administration of
such claims through fiscal intermediaries under section
1816.’’.
(e) EFFECTIVE DATE.—The amendments made by
this section apply to services furnished on or after Janu-
ary 1, 1998. For purpose of applying such amendments,
any home health spell of illness that began, but not end,
before such date shall be considered to have begun as of
such date.
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CHAPTER 5—OTHER PAYMENT
PROVISIONS
SEC. 10541. REDUCTIONS IN PAYMENTS FOR ENROLLEE
BAD DEBT.
Section 1861(v)(1) (42 U.S.C. 1395x(v)(1)) is
amended by adding at the end the following new subpara-
graph:
‘‘(T) In determining such reasonable costs for hos-
pitals, the amount of bad debts otherwise treated as allow-
able costs which are attributable to the deductibles and
coinsurance amounts under this title shall be reduced—
‘‘(i) for cost reporting periods beginning during
fiscal year 1998, by 25 percent of such amount oth-
erwise allowable,
‘‘(ii) for cost reporting periods beginning during
fiscal year 1999, by 40 percent of such amount oth-
erwise allowable, and
‘‘(iii) for cost reporting periods beginning dur-
ing a subsequent fiscal year, by 50 percent of such
amount otherwise allowable.’’.
SEC. 10542. PERMANENT EXTENSION OF HEMOPHILIA PASS-
THROUGH.
Effective October 1, 1997, section 6011(d) of
OBRA–1989 (as amended by section 13505 of OBRA–
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1993) is amended by striking ‘‘and shall expire September
30, 1994’’.
SEC. 10543. REDUCTION IN PART A MEDICARE PREMIUM
FOR CERTAIN PUBLIC RETIREES.
(a) IN
GENERAL.—Section 1818(d) (42 U.S.C.
1395i–2(d)) is amended—
(1) in paragraph (2), by striking ‘‘paragraph
(4)’’ and inserting ‘‘paragraphs (4) and (5)’’; and
(2) by adding at the end the following new
paragraph:
‘‘(5)(A) The amount of the monthly premium shall
be zero in the case of an individual who is a person de-
scribed in subparagraph (B) for a month, if—
‘‘(i) the individual’s premium under this section
for the month is not (and will not be) paid for, in
whole or in part, by a State (under title XIX or oth-
erwise), a political subdivision of a State, or an
agency or instrumentality of one or more States or
political subdivisions thereof; and
‘‘(ii) in each of 60 months before such month,
the individual was enrolled in this part under this
section and the payment of the individual’s premium
under this section for the month was not paid for,
in whole or in part, by a State (under title XIX or
otherwise), a political subdivision of a State, or an
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agency or instrumentality of one or more States or
political subdivisions thereof.
‘‘(B) A person described in this subparagraph for an
month is a person who establishes to the satisfaction of
the Secretary that, as of the last day of the previous
month—
‘‘(i)(I) the person was receiving cash benefits
under a qualified State or local government retire-
ment system (as defined in subparagraph (C)) on
the basis of the person’s employment in one or more
positions covered under any such system, and (II)
the person would have at least 40 quarters of cov-
erage under title II if remuneration for medicare
qualified government employment (as defined in
paragraph (1) of section 210(p), but determined
without regard to paragraph (3) of such section)
paid to such person were treated as wages paid to
such person and credited for purposes of determin-
ing quarters of coverage under section 213;
‘‘(ii)(I) the person was married (and had been
married for the previous 1-year period) to an indi-
vidual who is described in clause (i), or (II) the per-
son met the requirement of clause (i)(II) and was
married (and had been married for the previous 1-
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[HVAC Reconciliation]
year period) to an individual described in clause
(i)(I);
‘‘(iii) the person had been married to an indi-
vidual for a period of at least 1 year (at the time
of such individual’s death) if (I) the individual was
described in clause (i) at the time of the individual’s
death, or (II) the person met the requirement of
clause (i)(II) and the individual was described in
clause (i)(I) at the time of the individual’s death; or
‘‘(iv) the person is divorced from an individual
and had been married to the individual for a period
of at least 10 years (at the time of the divorce) if
(I) the individual was described in clause (i) at the
time of the divorce, or (II) the person met the re-
quirement of clause (i)(II) and the individual was
described in clause (i)(I) at the time of the divorce.
‘‘(C) For purposes of subparagraph (B)(i)(I), the
term ‘qualified State or local government retirement sys-
tem’ means a retirement system that—
‘‘(i) is established or maintained by a State or
political subdivision thereof, or an agency or instru-
mentality of one or more States or political subdivi-
sions thereof;
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‘‘(ii) covers positions of some or all employees
of such a State, subdivision, agency, or instrumen-
tality; and
‘‘(iii) does not adjust cash retirement benefits
based on eligibility for a reduction in premium under
this paragraph.’’.
(b) EFFECTIVE DATE.—The amendments made by
subsection (a) shall apply to premiums for months begin-
ning with January 1998, and months before such month
may be taken into account for purposes of meeting the
requirement of section 1818(d)(5)(B)(iii) of the Social Se-
curity Act, as added by subsection (a).
Subtitle G—Provisions Relating to
Part B Only
CHAPTER 1—PHYSICIANS’ SERVICES
SEC. 10601. ESTABLISHMENT OF SINGLE CONVERSION FAC-
TOR FOR 1998.
(a) IN GENERAL.—Section 1848(d)(1) (42 U.S.C.
1395w–4(d)(1)) is amended—
(1) by redesignating subparagraph (C) as sub-
paragraph (D), and
(2) by inserting after subparagraph (B) the fol-
lowing:
‘‘(C) SPECIAL RULES FOR 1998.—The sin-
gle conversion factor for 1998 under this sub-
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section shall be the conversion factor for pri-
mary care services for 1997, increased by the
Secretary’s estimate of the weighted average of
the three separate updates that would otherwise
occur were it not for the enactment of chapter
1 of subtitle G of title X of the Balanced Budg-
et Act of 1997.’’.
(b) CONFORMING AMENDMENTS.—Section 1848 (42
U.S.C. 1395w–4) is amended—
(1) by striking ‘‘(or factors)’’ each place it ap-
pears in subsection (d)(1)(A) and (d)(1)(D)(ii) (as
redesignated by subsection (a)(1)),
(2) in subsection (d)(1)(A), by striking ‘‘or up-
dates’’,
(3) in subsection (d)(1)(D) (as redesignated by
subsection (a)(1)), by striking ‘‘(or updates)’’ each
place it appears, and
(4) in subsection (i)(1)(C), by striking ‘‘conver-
sion factors’’ and inserting ‘‘the conversion factor’’.
SEC. 10602. ESTABLISHING UPDATE TO CONVERSION FAC-
TOR TO MATCH SPENDING UNDER SUSTAIN-
ABLE GROWTH RATE.
(a) UPDATE.—
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(1) IN
GENERAL.—Section 1848(d)(3) (42
U.S.C. 1395w–4(d)(3)) is amended to read as fol-
lows:
‘‘(3) UPDATE.—
‘‘(A) IN GENERAL.—Unless otherwise pro-
vided by law, subject to subparagraph (D) and
the budget-neutrality factor determined by the
Secretary under subsection (c)(2)(B)(ii), the
update to the single conversion factor estab-
lished in paragraph (1)(C) for a year beginning
with 1999 is equal to the product of—
‘‘(i) 1 plus the Secretary’s estimate of
the percentage increase in the MEI (as de-
fined in section 1842(i)(3)) for the year
(divided by 100), and
‘‘(ii) 1 plus the Secretary’s estimate of
the update adjustment factor for the year
(divided by 100),
minus 1 and multiplied by 100.
‘‘(B) UPDATE ADJUSTMENT FACTOR.—For
purposes of subparagraph (A)(ii), the ‘update
adjustment factor’ for a year is equal to the
quotient (as estimated by the Secretary) of—
‘‘(i) the difference between (I) the
sum of the allowed expenditures for physi-
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cians’ services (as determined under sub-
paragraph (C)) during the period begin-
ning July 1, 1997, and ending on June 30
of the year involved, and (II) the sum of
the amount of actual expenditures for phy-
sicians’ services furnished during the pe-
riod beginning July 1, 1997, and ending
on June 30 of the preceding year; divided
by
‘‘(ii) the actual expenditures for physi-
cians’ services for the 12-month period
ending on June 30 of the preceding year,
increased by the sustainable growth rate
under subsection (f) for the fiscal year
which begins during such 12-month period.
‘‘(C) DETERMINATION
OF
ALLOWED
EX-
PENDITURES.—For purposes of this paragraph,
the allowed expenditures for physicians’ services
for the 12-month period ending with June 30
of—
‘‘(i) 1997 is equal to the actual ex-
penditures for physicians’ services fur-
nished during such 12-month period, as es-
timated by the Secretary; or
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‘‘(ii) a subsequent year is equal to the
allowed expenditures for physicians’ serv-
ices for the previous year, increased by the
sustainable growth rate under subsection
(f) for the fiscal year which begins during
such 12-month period.
‘‘(D) RESTRICTION
ON
VARIATION
FROM
MEDICARE ECONOMIC INDEX.—Notwithstanding
the amount of the update adjustment factor de-
termined under subparagraph (B) for a year,
the update in the conversion factor under this
paragraph for the year may not be—
‘‘(i) greater than 100 times the fol-
lowing amount: (1.03 + (MEI percentage/
100)) - 1; or
‘‘(ii) less than 100 times the following
amount: (0.93 + (MEI percentage/100))
-1,
where ‘MEI percentage’ means the Secretary’s
estimate of the percentage increase in the MEI
(as defined in section 1842(i)(3)) for the year
involved.’’.
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall apply to the update for years
beginning with 1999.
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(b) ELIMINATION OF REPORT.—Section 1848(d) (42
U.S.C. 1395w–4(d)) is amended by striking paragraph
(2).
SEC. 10603. REPLACEMENT OF VOLUME PERFORMANCE
STANDARD 
WITH 
SUSTAINABLE 
GROWTH
RATE.
(a) IN
GENERAL.—Section 1848(f) (42 U.S.C.
1395w–4(f)) is amended by striking paragraphs (2)
through (5) and inserting the following:
‘‘(2) SPECIFICATION OF GROWTH RATE.—The
sustainable growth rate for all physicians’ services
for a fiscal year (beginning with fiscal year 1998)
shall be equal to the product of—
‘‘(A) 1 plus the Secretary’s estimate of the
weighted average percentage increase (divided
by 100) in the fees for all physicians’ services
in the fiscal year involved,
‘‘(B) 1 plus the Secretary’s estimate of the
percentage change (divided by 100) in the aver-
age number of individuals enrolled under this
part (other than MedicarePlus plan enrollees)
from the previous fiscal year to the fiscal year
involved,
‘‘(C) 1 plus the Secretary’s estimate of the
projected percentage growth in real gross do-
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mestic product per capita (divided by 100) from
the previous fiscal year to the fiscal year in-
volved, and
‘‘(D) 1 plus the Secretary’s estimate of the
percentage change (divided by 100) in expendi-
tures for all physicians’ services in the fiscal
year (compared with the previous fiscal year)
which will result from changes in law and regu-
lations, determined without taking into account
estimated changes in expenditures due to
changes in the volume and intensity of physi-
cians’ services resulting from changes in the up-
date to the conversion factor under subsection
(d)(3),
minus 1 and multiplied by 100.
‘‘(3) DEFINITIONS.—In this subsection:
‘‘(A) SERVICES INCLUDED IN PHYSICIANS’
SERVICES.—The term ‘physicians’ services’ in-
cludes other items and services (such as clinical
diagnostic laboratory tests and radiology serv-
ices), specified by the Secretary, that are com-
monly performed or furnished by a physician or
in a physician’s office, but does not include
services furnished to a MedicarePlus plan en-
rollee.
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‘‘(B) MEDICAREPLUS PLAN ENROLLEE.—
The term ‘MedicarePlus plan enrollee’ means,
with respect to a fiscal year, an individual en-
rolled under this part who has elected to receive
benefits under this title for the fiscal year
through a MedicarePlus plan offered under part
C, and also includes an individual who is receiv-
ing benefits under this part through enrollment
with an eligible organization with a risk-sharing
contract under section 1876.’’.
(b) CONFORMING AMENDMENTS.—Section 1848(f)
(42 U.S.C. 1395w–4(f)) is amended—
(1) in the heading, by striking ‘‘VOLUME PER-
FORMANCE STANDARD RATES OF INCREASE’’ and
inserting ‘‘SUSTAINABLE GROWTH RATE’’; and
(2) in paragraph (1)—
(A) in the heading, by striking ‘‘VOLUME
PERFORMANCE
STANDARD
RATES
OF
IN-
CREASE’’ and inserting ‘‘SUSTAINABLE GROWTH
RATE’’,
(B) by striking subparagraphs (A) and
(B); and
(C) in paragraph (1)(C)—
(i) in the heading, by striking ‘‘PER-
FORMANCE
STANDARD
RATES
OF
IN-
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CREASE’’ and inserting ‘‘SUSTAINABLE
GROWTH RATE’’;
(ii) in the first sentence, by striking
‘‘with 1991), the performance standard
rates of increase’’ and all that follows
through the first period and inserting
‘‘with 1999), the sustainable growth rate
for the fiscal year beginning in that year.’’;
and
(iii) in the second sentence, by strik-
ing ‘‘January 1, 1990, the performance
standard rate of increase under subpara-
graph (D) for fiscal year 1990’’ and insert-
ing ‘‘January 1, 1999, the sustainable
growth rate for fiscal year 1999’’.
SEC. 10604. PAYMENT RULES FOR ANESTHESIA SERVICES.
(a) IN GENERAL.—Section 1848(d)(1) (42 U.S.C.
1395w–4(d)(1)), as amended by section 10601(a), is
amended—
(1) in subparagraph (C), striking ‘‘The single’’
and inserting ‘‘Except as provided in subparagraph
(D), the single’’;
(2) by redesignating subparagraph (D) as sub-
paragraph (E); and
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(3) by inserting after subparagraph (C) the fol-
lowing new subparagraph:
‘‘(D) SPECIAL
RULES
FOR
ANESTHESIA
SERVICES.—The separate conversion factor for
anesthesia services for a year shall be equal to
46 percent of the single conversion factor estab-
lished for other physicians’ services, except as
adjusted for changes in work, practice expense,
or malpractice relative value units. ’’.
(b) CLASSIFICATION OF ANESTHESIA SERVICES.—
The first sentence of section 1848(j)(1) (42 U.S.C.
1395w–4(j)(1)) is amended—
(1) by striking ‘‘and including anesthesia serv-
ices’’; and
(2) by inserting before the period the following:
‘‘(including anesthesia services)’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to services furnished on or after
January 1, 1998.
SEC. 10605. IMPLEMENTATION OF RESOURCE-BASED PHYSI-
CIAN PRACTICE EXPENSE.
(a) 1-YEAR DELAY IN IMPLEMENTATION.—Section
1848(c) (42 U.S.C. 1395w–4(c)) is amended—
(1) in paragraph (2)(C)(ii), in the matter before
subclause (I) and after subclause (II), by striking
1181
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‘‘1998’’ and inserting ‘‘1999’’ each place it appears;
and
(2) in paragraph (3)(C)(ii), by striking ‘‘1998’’
and inserting ‘‘1999’’.
(b) 
PHASED-IN
IMPLEMENTATION.—Section
1848(c)(2)(C)(ii) (42 U.S.C. 1395w–4(c)(2)(C)(ii)) is fur-
ther amended—
(1) in subparagraph (C)(ii), in the matter fol-
lowing subclause (II), by inserting ‘‘, to the extent
provided under subparagraph (G),’’ after ‘‘based’’,
and
(2) by adding at the end the following new sub-
paragraph:
‘‘(G) TRANSITIONAL RULE FOR RESOURCE-
BASED PRACTICE EXPENSE UNITS.—In applying
subparagraph (C)(ii) for 1999, 2000, 2001, and
any subsequent year, the number of units under
such subparagraph shall be based 75 percent,
50 percent, 25 percent, and 0 percent, respec-
tively, on the practice expense relative value
units in effect in 1998 (or the Secretary’s im-
putation of such units for new or revised codes)
and the remainder on the relative value expense
resources involved in furnishing the service.’’.
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SEC. 10606. DISSEMINATION OF INFORMATION ON HIGH
PER DISCHARGE RELATIVE VALUES FOR IN-
HOSPITAL PHYSICIANS’ SERVICES.
(a) DETERMINATION
AND
NOTICE
CONCERNING
HOSPITAL-SPECIFIC PER DISCHARGE RELATIVE VAL-
UES.—
(1) IN GENERAL.—For 1999 and 2001 the Sec-
retary of Health and Human Services shall deter-
mine for each hospital—
(A) the hospital-specific per discharge rel-
ative value under subsection (b); and
(B) whether the hospital-specific relative
value is projected to be excessive (as determined
based on such value represented as a percent-
age of the median of hospital-specific per dis-
charge relative values determined under sub-
section (b)).
(2) NOTICE
TO
MEDICAL
STAFFS
AND
CAR-
RIERS.—The Secretary shall notify the medical exec-
utive committee of each hospital identifies under
paragraph (1)(B) as having an excessive hospital-
specific relative value, of the determinations made
with respect to the medical staff under paragraph
(1).
(b) DETERMINATION
OF HOSPITAL-SPECIFIC PER
DISCHARGE RELATIVE VALUES.—
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(1) IN GENERAL.—For purposes of this section,
the hospital-specific per discharge relative value for
the medical staff of a hospital (other than a teaching
hospital) for a year, shall be equal to the average
per discharge relative value (as determined under
section 1848(c)(2) of the Social Security Act) for
physicians’ services furnished to inpatients of the
hospital by the hospital’s medical staff (excluding in-
terns and residents) during the second year preced-
ing that calendar year, adjusted for variations in
case-mix and disproportionate share status among
hospitals (as determined by the Secretary under
paragraph (3)).
(2) SPECIAL
RULE
FOR
TEACHING
HOS-
PITALS.—The hospital-specific relative value pro-
jected for a teaching hospital in a year shall be equal
to the sum of—
(A) the average per discharge relative
value (as determined under section 1848(c)(2)
of such Act) for physicians’ services furnished
to inpatients of the hospital by the hospital’s
medical staff (excluding interns and residents)
during the second year preceding that calendar
year, and
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(B) the equivalent per discharge relative
value (as determined under such section) for
physicians’ services furnished to inpatients of
the hospital by interns and residents of the hos-
pital during the second year preceding that cal-
endar year, adjusted for variations in case-mix,
disproportionate share status, and teaching sta-
tus among hospitals (as determined by the Sec-
retary under paragraph (3)).
The Secretary shall determine the equivalent relative
value unit per discharge for interns and residents
based on the best available data and may make such
adjustment in the aggregate.
(3) ADJUSTMENT
FOR
TEACHING
AND
DIS-
PROPORTIONATE SHARE HOSPITALS.—The Secretary
shall adjust the allowable per discharge relative val-
ues otherwise determined under this subsection to
take into account the needs of teaching hospitals
and hospitals receiving additional payments under
subparagraphs (F) and (G) of section 1886(d)(5) of
the Social Security Act. The adjustment for teaching
status or disproportionate share shall not be less
than zero.
(c) DEFINITIONS.—For purposes of this section:
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(1) HOSPITAL.—The term ‘‘hospital’’ means a
subsection (d) hospital as defined in section 1886(d)
of the Social Security Act (42 U.S.C. 1395ww(d)) .
(2) MEDICAL STAFF.—An individual furnishing
a physician’s service is considered to be on the medi-
cal staff of a hospital—
(A) if (in accordance with requirements for
hospitals established by the Joint Commission
on Accreditation of Health Organizations)—
(i) the individual is subject to bylaws,
rules, and regulations established by the
hospital to provide a framework for the
self-governance of medical staff activities,
(ii) subject to the bylaws, rules, and
regulations, the individual has clinical
privileges granted by the hospital’s govern-
ing body, and
(iii) under the clinical privileges, the
individual may provide physicians’’ services
independently within the scope of the indi-
vidual’s clinical privileges, or
(B) if the physician provides at least one
service to an individual entitled to benefits
under this title in that hospital.
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(3) PHYSICIANS’ SERVICES.—The term ‘‘physi-
cians’’ services’’ means the services described in sec-
tion 1848(j)(3) of the Social Security Act (42 U.S.C.
1395w–4(j)(3)).
(4) RURAL
AREA; URBAN
AREA.—The terms
‘‘rural area’’ and ‘‘urban area’’ have the meaning
given those terms under section 1886(d)(2)(D) of
such Act (42 U.S.C. 1395ww(d)(2)(D)).
(5) SECRETARY.—The term ‘‘Secretary’’ means
the Secretary of Health and Human Services .
(6) TEACHING HOSPITAL.—The term ‘‘teaching
hospital’’ means a hospital which has a teaching pro-
gram approved as specified in section 1861(b)(6) of
the Social Security Act (42 U.S.C. 1395x(b)(6)).
SEC. 10607. NO X-RAY REQUIRED FOR CHIROPRACTIC SERV-
ICES.
(a) IN GENERAL.—Section 1861(r)(5) (42 U.S.C.
1395x(r)(5)) is amended by striking ‘‘demonstrated by X-
ray to exist’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) applies to services furnished on or after
January 1, 1998.
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SEC. 10608. TEMPORARY COVERAGE RESTORATION FOR
PORTABLE 
ELECTROCARDIOGRAM 
TRANS-
PORTATION.
(a) IN GENERAL.—Effective for electrocardiogram
tests furnished during 1998, the Secretary of Health and
Human Services shall restore separate payment, under
part B of title XVIII of the Social Security Act, for the
transportation of electrocardiogram equipment (HCPCS
code R0076) based upon the status code and relative value
units established for such service as of December 31,
1996.
(b) DETERMINATION.—By not later than July 1,
1998, the Secretary of Health and Human Services shall
determine, taking into account the study of coverage of
portable electrocardiogram transportation conducted by
the Comptroller General and other relevant information,
including information submitted by interested parties,
whether coverage of portable electrocardiogram transpor-
tation should be provided under part B of title XVIII of
the Social Security Act.
CHAPTER 2—OTHER PAYMENT
PROVISIONS
SEC. 10611. PAYMENTS FOR DURABLE MEDICAL EQUIP-
MENT.
(a) REDUCTION IN PAYMENT AMOUNTS FOR ITEMS
OF DURABLE MEDICAL EQUIPMENT.—
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(1) 
FREEZE
IN
UPDATE
FOR
COVERED
ITEMS.—Section 
1834(a)(14) 
(42 
U.S.C.
1395m(a)(14)) is amended—
(A) by striking ‘‘and’’ at the end of sub-
paragraph (A);
(B) in subparagraph (B)—
(i) by striking ‘‘a subsequent year’’
and inserting ‘‘1993, 1994, 1995, 1996,
and 1997’’, and
(ii) by striking the period at the end
and inserting a semicolon; and
(C) by adding at the end the following:
‘‘(C) for each of the years 1998 through
2002, 0 percentage points; and
‘‘(D) for a subsequent year, the percentage
increase in the consumer price index for all
urban consumers (U.S. urban average) for the
12-month period ending with June of the pre-
vious year.’’.
(2) UPDATE FOR ORTHOTICS AND PROSTHET-
ICS.—Section 
1834(h)(4)(A) 
(42 
U.S.C.
1395m(h)(4)(A)) is amended—
(A) by striking ‘‘, and’’ at the end of
clause (iii) and inserting a semicolon;
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(B) in clause (iv), by striking ‘‘a subse-
quent year’’ and inserting ‘‘1996 and 1997’’,
and
(C) by adding at the end the following new
clauses:
‘‘(v) for each of the years 1998
through 2002, 1 percent, and
‘‘(vi) for a subsequent year, the per-
centage increase in the consumer price
index for all urban consumers (United
States city average) for the 12-month pe-
riod ending with June of the previous
year;’’.
(c) PAYMENT FREEZE FOR PARENTERAL AND EN-
TERAL NUTRIENTS, SUPPLIES, AND EQUIPMENT.—In de-
termining the amount of payment under part B of title
XVIII of the Social Security Act with respect to parenteral
and enteral nutrients, supplies, and equipment during
each of the years 1998 through 2002, the charges deter-
mined to be reasonable with respect to such nutrients,
supplies, and equipment may not exceed the charges deter-
mined to be reasonable with respect to such nutrients,
supplies, and equipment during 1995.
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is amended by inserting ‘‘and 1998 through 2002’’ after
‘‘1995’’.
(b) LOWERING CAP ON PAYMENT AMOUNTS.—Sec-
tion 1833(h)(4)(B) (42 U.S.C. 1395l(h)(4)(B)) is amend-
ed—
(1) in clause (vi), by striking ‘‘and’’ at the end;
(2) in clause (vii)—
(A) by inserting ‘‘and before January 1,
1998,’’ after ‘‘1995,’’, and
(B) by striking the period at the end and
inserting ‘‘, and’’; and
(3) by adding at the end the following new
clause:
‘‘(viii) after December 31, 1997, is equal to 72
percent of such median.’’.
SEC. 10614. SIMPLIFICATION IN ADMINISTRATION OF LAB-
ORATORY TESTS.
(a) SELECTION OF REGIONAL CARRIERS.—
(1) IN GENERAL.—The Secretary of Health and
Human Services (in this section referred to as the
‘‘Secretary’’) shall—
(A) divide the United States into no more
than 5 regions, and
(B) designate a single carrier for each such
region,
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[HVAC Reconciliation]
for the purpose of payment of claims under part B
of title XVIII of the Social Security Act with respect
to clinical diagnostic laboratory tests (other than for
independent physician offices) furnished on or after
such date (not later than January 1, 1999) as the
Secretary specifies.
(2) DESIGNATION.—In designating such car-
riers, the Secretary shall consider, among other cri-
teria—
(A) a carrier’s timeliness, quality, and ex-
perience in claims processing, and
(B) a carrier’s capacity to conduct elec-
tronic data interchange with laboratories and
data matches with other carriers.
(3) SINGLE DATA RESOURCE.—The Secretary
may select one of the designated carriers to serve as
a central statistical resource for all claims informa-
tion relating to such clinical diagnostic laboratory
tests handled by all the designated carriers under
such part.
(4) ALLOCATION OF CLAIMS.—The allocation of
claims for clinical diagnostic laboratory tests to par-
ticular designated carriers shall be based on whether
a carrier serves the geographic area where the lab-
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oratory specimen was collected or other method
specified by the Secretary.
(b) ADOPTION OF UNIFORM POLICIES FOR CLINICAL
LABORATORY TESTS.—
(1) IN GENERAL.—Not later than July 1, 1998,
the Secretary shall first adopt, consistent with para-
graph (2), uniform coverage, administration, and
payment policies for clinical diagnostic laboratory
tests under part B of title XVIII of the Social Secu-
rity Act, using a negotiated rulemaking process
under subchapter III of chapter 5 of title 5, United
States Code.
(2) CONSIDERATIONS IN DESIGN OF UNIFORM
POLICIES.—The policies under paragraph (1) shall
be designed to promote uniformity and program in-
tegrity and reduce administrative burdens with re-
spect to clinical diagnostic laboratory tests payable
under such part in connection with the following:
(A) Beneficiary information required to be
submitted with each claim or order for labora-
tory tests.
(B) Physicians’ obligations regarding docu-
mentation requirements and recordkeeping.
(C) Procedures for filing claims and for
providing remittances by electronic media.
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(D) The documentation of medical neces-
sity.
(E) Limitation on frequency of coverage
for the same tests performed on the same indi-
vidual.
(3) CHANGES
IN
CARRIER
REQUIREMENTS
PENDING ADOPTION OF UNIFORM POLICY.—During
the period that begins on the date of the enactment
of this Act and ends on the date the Secretary first
implements uniform policies pursuant to regulations
promulgated under this subsection, a carrier under
such part may implement changes relating to re-
quirements for the submission of a claim for clinical
diagnostic laboratory tests.
(4) USE
OF
INTERIM
REGIONAL
POLICIES.—
After the date the Secretary first implements such
uniform policies, the Secretary shall permit any car-
rier to develop and implement interim policies of the
type described in paragraph (1), in accordance with
guidelines established by the Secretary, in cases in
which a uniform national policy has not been estab-
lished under this subsection and there is a dem-
onstrated need for a policy to respond to aberrant
utilization or provision of unnecessary services. Ex-
cept as the Secretary specifically permits, no policy
1195
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shall be implemented under this paragraph for a pe-
riod of longer than 2 years.
(5) INTERIM
NATIONAL
POLICIES.—After the
date the Secretary first designates regional carriers
under subsection (a), the Secretary shall establish a
process under which designated carriers can collec-
tively develop and implement interim national stand-
ards of the type described in paragraph (1). No such
policy shall be implemented under this paragraph for
a period of longer than 2 years.
(6) BIENNIAL
REVIEW
PROCESS.—Not less
often than once every 2 years, the Secretary shall
solicit and review comments regarding changes in
the uniform policies established under this sub-
section. As part of such biennial review process, the
Secretary shall specifically review and consider
whether to incorporate or supersede interim, re-
gional, or national policies developed under para-
graph (4) or (5). Based upon such review, the Sec-
retary may provide for appropriate changes in the
uniform policies previously adopted under this sub-
section.
(7) NOTICE.— Before a carrier implements a
change or policy under paragraph (3), (4), or (5),
the carrier shall provide for advance notice to inter-
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ested parties and a 45-day period in which such par-
ties may submit comments on the proposed change.
(c) INCLUSION OF LABORATORY REPRESENTATIVE
ON CARRIER ADVISORY COMMITTEES.—The Secretary
shall direct that any advisory committee established by
such a carrier, to advise with respect to coverage, adminis-
tration or payment policies under part B of title XVIII
of the Social Security Act, shall include an individual to
represent the interest and views of independent clinical
laboratories and such other laboratories as the Secretary
deems appropriate. Such individual shall be selected by
such committee from among nominations submitted by na-
tional and local organizations that represent independent
clinical laboratories.
SEC. 10615. UPDATES FOR AMBULATORY SURGICAL SERV-
ICES.
Section 1833(i)(2)(C) (42 U.S.C. 1395l(i)(2)(C)) is
amended by striking all that follows ‘‘shall be increased’’
and inserting the following: ‘‘as follows:
‘‘(i) For fiscal years 1996 and 1997, by the
percentage increase in the consumer price index for
all urban consumers (U.S. city average) as estimated
by the Secretary for the 12-month period ending
with the midpoint of the year involved.
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‘‘(ii) For each of fiscal years 1998 through
2002 by such percentage increase minus 2.0 percent-
age points.
‘‘(iii) For each succeeding fiscal year by such
percentage increase.’’.
SEC. 
10616. 
REIMBURSEMENT 
FOR 
DRUGS 
AND
BIOLOGICALS.
(a) IN GENERAL.—Section 1842 (42 U.S.C. 1395u)
is amended by inserting after subsection (n) the following
new subsection:
‘‘(o) If a physician’s, supplier’s, or any other person’s
bill or request for payment for services includes a charge
for a drug or biological for which payment may be made
under this part and the drug or biological is not paid on
a cost or prospective payment basis as otherwise provided
in this part, the amount payable for the drug or biological
is equal to 95 percent of the average wholesale price.’’.
(b) EFFECTIVE DATE.—The amendments made by
subsection (a) apply to drugs and biologicals furnished on
or after January 1, 1998.
SEC. 10617. COVERAGE OF ORAL ANTI-NAUSEA DRUGS
UNDER CHEMOTHERAPEUTIC REGIMEN.
(a) IN GENERAL.—Section 1861(s)(2) (42 U.S.C.
1395x(s)(2)), as amended, is further amended—
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(1) by striking ‘‘and’’ at the end of subpara-
graph (R); and
(2) by inserting after subparagraph (S) the fol-
lowing new subparagraph:
‘‘(T) an oral drug (which is approved by the
Federal Food and Drug Administration) prescribed
for use as an acute anti-emetic used as part of an
anticancer chemotherapeutic regimen if the drug is
administered by a physician (or under the super-
vision of a physician)—
‘‘(i) for use immediately before, imme-
diately after, or at the time of the administra-
tion of the anticancer chemotherapeutic agent;
and
‘‘(ii) as a full replacement for the anti-
emetic therapy which would otherwise be ad-
ministered intravenously.’’.
(b) PAYMENT LEVELS.—Section 1834 (42 U.S.C.
1395m), as amended by sections 10421(a)(2) and
10431(b)(2), is amended by adding at the end the follow-
ing new subsection:
‘‘(m) SPECIAL RULES
FOR PAYMENT
FOR ORAL
ANTI-NAUSEA DRUGS.—
‘‘(1) LIMITATION
ON
PER
DOSE
PAYMENT
BASIS.—Subject to paragraph (2), the per dose pay-
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ment basis under this part for oral anti-nausea
drugs (as defined in paragraph (3)) administered
during a year shall not exceed 90 percent of the av-
erage per dose payment basis for the equivalent in-
travenous anti-emetics administered during the year,
as computed based on the payment basis applied
during 1996.
‘‘(2) AGGREGATE LIMIT.—The Secretary shall
make such adjustment in the coverage of, or pay-
ment basis for, oral anti-nausea drugs so that cov-
erage of such drugs under this part does not result
in any increase in aggregate payments per capita
under this part above the levels of such payments
per capita that would otherwise have been made if
there were no coverage for such drugs under this
part.
‘‘(3) ORAL
ANTI-NAUSEA
DRUGS
DEFINED.—
For purposes of this subsection, the term ‘oral anti-
nausea drugs’ means drugs for which coverage is
provided under this part pursuant to section
1861(s)(2)(P).’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to items and services furnished on
or after January 1, 1998.
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SEC. 10618. RURAL HEALTH CLINIC SERVICES.
(a) PER-VISIT PAYMENT LIMITS
FOR PROVIDER-
BASED CLINICS.—
(1) EXTENSION OF LIMIT.—
(A) IN GENERAL.—The matter in section
1833(f) (42 U.S.C. 1395l(f)) preceding para-
graph (1) is amended by striking ‘‘independent
rural health clinics’’ and inserting ‘‘rural health
clinics (other than such clinics in rural hospitals
with less than 50 beds)’’.
(B) EFFECTIVE
DATE.—The amendment
made by subparagraph (A) applies to services
furnished after 1997.
(2) 
TECHNICAL
CLARIFICATION.—Section
1833(f)(1) (42 U.S.C. 1395l(f)(1)) is amended by
inserting ‘‘per visit’’ after ‘‘$46’’.
(b) ASSURANCE OF QUALITY SERVICES.—
(1) IN
GENERAL.—Subparagraph (I) of the
first sentence of section 1861(aa)(2) (42 U.S.C.
1395x(aa)(2)) is amended to read as follows:
‘‘(I) has a quality assessment and performance
improvement program, and appropriate procedures
for review of utilization of clinic services, as the Sec-
retary may specify,’’.
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(2) EFFECTIVE
DATE.—The amendment
made by paragraph (1) shall take effect on Jan-
uary 1, 1998.
(c) WAIVER OF CERTAIN STAFFING REQUIREMENTS
LIMITED TO CLINICS IN PROGRAM.—
(1) IN GENERAL.—Section 1861(aa)(7)(B) (42
U.S.C. 1395x(aa)(7)(B)) is amended by inserting
before the period at the end the following: ‘‘, or if
the facility has not yet been determined to meet the
requirements (including subparagraph (J) of the
first sentence of paragraph (2)) of a rural health
clinic’’.
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) applies to waiver requests made
after 1997.
(d) REFINEMENT
OF SHORTAGE AREA REQUIRE-
MENTS.—
(1) DESIGNATION REVIEWED TRIENNIALLY.—
Section 1861(aa)(2) (42 U.S.C. 1395x(aa)(2)) is
amended in the second sentence, in the matter in
clause (i) preceding subclause (I)—
(A) by striking ‘‘and that is designated’’
and inserting ‘‘and that, within the previous
three-year period, has been designated’’; and
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(B) by striking ‘‘or that is designated’’ and
inserting ‘‘or designated’’.
(2) AREA MUST HAVE SHORTAGE OF HEALTH
CARE
PRACTITIONERS.—Section 1861(aa)(2) (42
U.S.C. 1395x(aa)(2)), as amended by paragraph (1),
is further amended in the second sentence, in the
matter in clause (i) preceding subclause (I)—
(A) by striking the comma after ‘‘personal
health services’’; and
(B) by inserting ‘‘and in which there are
insufficient numbers of needed health care prac-
titioners (as determined by the Secretary),’’
after ‘‘Bureau of the Census)’’.
(3) PREVIOUSLY QUALIFYING CLINICS GRAND-
FATHERED ONLY TO PREVENT SHORTAGE.—Section
1861(aa)(2) (42 U.S.C. 1395x(aa)(2)) is amended in
the third sentence by inserting before the period ‘‘if
it is determined, in accordance with criteria estab-
lished by the Secretary in regulations, to be essential
to the delivery of primary care services that would
otherwise be unavailable in the geographic area
served by the clinic’’.
(4) EFFECTIVE DATES; IMPLEMENTING REGU-
LATIONS.—
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(A) IN
GENERAL.—Except as otherwise
provided, the amendments made by the preced-
ing paragraphs take effect on January 1 of the
first calendar year beginning at least one month
after enactment of this Act.
(B) CURRENT RURAL HEALTH CLINICS.—
The amendments made by the preceding para-
graphs take effect, with respect to entities that
are rural health clinics under title XVIII of the
Social Security Act on the date of enactment of
this Act, on January 1 of the second calendar
year following the calendar year specified in
subparagraph (A).
(C) GRANDFATHERED CLINICS.—
(i) IN
GENERAL.—The amendment
made by paragraph (3) shall take effect on
the effective date of regulations issued by
the Secretary under clause (ii).
(ii) REGULATIONS.—The Secretary
shall issue final regulations implementing
paragraph (3) that shall take effect no
later than January 1 of the third calendar
year beginning at least one month after en-
actment of this Act.
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SEC. 10619. INCREASED MEDICARE REIMBURSEMENT FOR
NURSE 
PRACTITIONERS 
AND 
CLINICAL
NURSE SPECIALISTS.
(a) REMOVAL OF RESTRICTIONS ON SETTINGS.—
(1) IN
GENERAL.—Clause (ii) of section
1861(s)(2)(K) 
(42 
U.S.C. 
1395x(s)(2)(K)) 
is
amended to read as follows:
‘‘(ii) services which would be physicians’ serv-
ices if furnished by a physician (as defined in sub-
section (r)(1)) and which are performed by a nurse
practitioner or clinical nurse specialist (as defined in
subsection (aa)(5)) working in collaboration (as de-
fined in subsection (aa)(6)) with a physician (as de-
fined in subsection (r)(1)) which the nurse practi-
tioner or clinical nurse specialist is legally authorized
to perform by the State in which the services are
performed, and such services and supplies furnished
as an incident to such services as would be covered
under subparagraph (A) if furnished incident to a
physician’s professional service, but only if no facil-
ity or other provider charges or is paid any amounts
with respect to the furnishing of such services;’’.
(2) CONFORMING AMENDMENTS.—(A) Section
1861(s)(2)(K) 
of 
such 
Act 
(42 
U.S.C.
1395x(s)(2)(K)) is further amended—
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(i) in clause (i), by inserting ‘‘and such
services and supplies furnished as incident to
such services as would be covered under sub-
paragraph (A) if furnished incident to a physi-
cian’s professional service,’’ after ‘‘are per-
formed,’’; and
(ii) by striking clauses (iii) and (iv).
(B) 
Section 
1861(b)(4) 
(42 
U.S.C.
1395x(b)(4)) is amended by striking ‘‘clauses (i) or
(iii) of subsection (s)(2)(K)’’ and inserting ‘‘sub-
section (s)(2)(K)’’.
(C) 
Section 
1862(a)(14) 
(42 
U.S.C.
1395y(a)(14)) is amended by striking ‘‘section
1861(s)(2)(K)(i) or 1861(s)(2)(K)(iii)’’ and insert-
ing ‘‘section 1861(s)(2)(K)’’.
(D) 
Section 
1866(a)(1)(H) 
(42 
U.S.C.
1395cc(a)(1)(H)) is amended by striking ‘‘section
1861(s)(2)(K)(i) or 1861(s)(2)(K)(iii)’’ and insert-
ing ‘‘section 1861(s)(2)(K)’’.
(E) 
Section 
1888(e)(2)(A)(ii) 
(42 
U.S.C.
1395yy(e)(2)(A)(ii)), as added by section 10401(a),
is amended by striking ‘‘through (iii)’’ and inserting
‘‘and (ii)’’.
(b) INCREASED PAYMENT.—
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(1) FEE SCHEDULE AMOUNT.—Clause (O) of
section 1833(a)(1) (42 U.S.C. 1395l(a)(1)) is
amended to read as follows: ‘‘(O) with respect to
services described in section 1861(s)(2)(K)(ii) (relat-
ing to nurse practitioner or clinical nurse specialist
services), the amounts paid shall be equal to 80 per-
cent of (i) the lesser of the actual charge or 85 per-
cent of the fee schedule amount provided under sec-
tion 1848, or (ii) in the case of services as an assist-
ant at surgery, the lesser of the actual charge or 85
percent of the amount that would otherwise be rec-
ognized if performed by a physician who is serving
as an assistant at surgery; and’’.
(2) CONFORMING AMENDMENTS.—(A) Section
1833(r) (42 U.S.C. 1395l(r)) is amended—
(i) in paragraph (1), by striking ‘‘section
1861(s)(2)(K)(iii) (relating to nurse practi-
tioner or clinical nurse specialist services pro-
vided in a rural area)’’ and inserting ‘‘section
1861(s)(2)(K)(ii) (relating to nurse practitioner
or clinical nurse specialist services)’’;
(ii) by striking paragraph (2);
(iii) in paragraph (3), by striking ‘‘section
1861(s)(2)(K)(iii)’’ 
and 
inserting 
‘‘section
1861(s)(2)(K)(ii)’’; and
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(iv) by redesignating paragraph (3) as
paragraph (2).
(B) 
Section 
1842(b)(12)(A) 
(42 
U.S.C.
1395u(b)(12)(A)) is amended, in the matter preced-
ing clause (i), by striking ‘‘clauses (i), (ii), or (iv) of
section 1861(s)(2)(K) (relating to a physician assist-
ants and nurse practitioners)’’ and inserting ‘‘sec-
tion 1861(s)(2)(K)(i) (relating to physician assist-
ants),’’.
(c) DIRECT PAYMENT FOR NURSE PRACTITIONERS
AND CLINICAL NURSE SPECIALISTS.—
(1) IN
GENERAL.—Section 1832(a)(2)(B)(iv)
(42 U.S.C. 1395k(a)(2)(B)(iv)) is amended by strik-
ing ‘‘provided in a rural area (as defined in section
1886(d)(2)(D))’’ and inserting ‘‘but only if no facil-
ity or other provider charges or is paid any amounts
with respect to the furnishing of such services’’.
(2) 
CONFORMING
AMENDMENT.—Section
1842(b)(6)(C) 
(42 
U.S.C. 
1395u(b)(6)(C)) 
is
amended—
(A) by striking ‘‘clauses (i), (ii), or (iv)’’
and inserting ‘‘clause (i)’’; and
(B) by striking ‘‘or nurse practitioner’’.
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(d) DEFINITION OF CLINICAL NURSE SPECIALIST
CLARIFIED.— 
Section 
1861(aa)(5) 
(42 
U.S.C.
1395x(aa)(5)) is amended—
(1) by inserting ‘‘(A)’’ after ‘‘(5)’’;
(2) by striking ‘‘The term ‘physician assistant’
’’ and all that follows through ‘‘who performs’’ and
inserting ‘‘The term ‘physician assistant’ and the
term ‘nurse practitioner’ mean, for purposes of this
title, a physician assistant or nurse practitioner who
performs’’; and
(3) by adding at the end the following new sub-
paragraph:
‘‘(B) The term ‘clinical nurse specialist’ means, for
purposes of this title, an individual who—
‘‘(i) is a registered nurse and is licensed to
practice nursing in the State in which the clinical
nurse specialist services are performed; and
‘‘(ii) holds a master’s degree in a defined clini-
cal area of nursing from an accredited educational
institution.’’.
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply with respect to services furnished
and supplies provided on and after January 1, 1998.
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SEC. 10620. INCREASED MEDICARE REIMBURSEMENT FOR
PHYSICIAN ASSISTANTS.
(a) REMOVAL OF RESTRICTION ON SETTINGS.—Sec-
tion 1861(s)(2)(K)(i) (42 U.S.C. 1395x(s)(2)(K)(i)) is
amended—
(1) by striking ‘‘(I) in a hospital’’ and all that
follows through ‘‘shortage area,’’, and
(2) by adding at the end the following: ‘‘but
only if no facility or other provider charges or is
paid any amounts with respect to the furnishing of
such services,’’.
(b) INCREASED PAYMENT.—Paragraph (12) of sec-
tion 1842(b) (42 U.S.C. 1395u(b)), as amended by section
10619(b)(2)(B), is amended to read as follows:
‘‘(12) With respect to services described in section
1861(s)(2)(K)(i)—
‘‘(A) payment under this part may only be
made on an assignment-related basis; and
‘‘(B) the amounts paid under this part shall be
equal to 80 percent of (i) the lesser of the actual
charge or 85 percent of the fee schedule amount
provided under section 1848 for the same service
provided by a physician who is not a specialist; or
(ii) in the case of services as an assistant at surgery,
the lesser of the actual charge or 85 percent of the
amount that would otherwise be recognized if per-
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formed by a physician who is serving as an assistant
at surgery.’’.
(c) REMOVAL
OF RESTRICTION
ON EMPLOYMENT
RELATIONSHIP.—Section 
1842(b)(6) 
(42 
U.S.C.
1395u(b)(6)) is amended by adding at the end the follow-
ing new sentence: ‘‘For purposes of clause (C) of the first
sentence of this paragraph, an employment relationship
may include any independent contractor arrangement, and
employer status shall be determined in accordance with
the law of the State in which the services described in such
clause are performed.’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply with respect to services furnished
and supplies provided on and after January 1, 1998.
SEC. 10621. RENAL DIALYSIS-RELATED SERVICES.
(a) AUDITING OF COST REPORTS.—The Secretary
shall audit a sample of cost reports of renal dialysis pro-
viders for 1995 and for each third year thereafter.
(b) IMPLEMENTATION OF QUALITY STANDARDS.—
The Secretary of Health and Human Services shall de-
velop and implement, by not later than January 1, 1999,
a method to measure and report quality of renal dialysis
services provided under the medicare program under title
XVIII of the Social Security Act in order to reduce pay-
ments for inappropriate or low quality care.
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CHAPTER 3—PART B PREMIUM
SEC. 10631. PART B PREMIUM.
(a) IN GENERAL.—The first, second and third sen-
tences of section 1839(a)(3) (42 U.S.C. 1395r(a)(3)) are
amended to read as follows: ‘‘The Secretary, during Sep-
tember of each year, shall determine and promulgate a
monthly premium rate for the succeeding calendar year.
That monthly premium rate shall be equal to 50 percent
of the monthly actuarial rate for enrollees age 65 and over,
determined according to paragraph (1), for that succeed-
ing calendar year.’’.
(b) CONFORMING AND TECHNICAL AMENDMENTS.—
(1) SECTION 1839.—Section 1839 (42 U.S.C.
1395r) is amended—
(A) in subsection (a)(2), by striking ‘‘(b)
and (e)’’ and inserting ‘‘(b), (c), and (f)’’,
(B) in the last sentence of subsection
(a)(3)—
(i) by inserting ‘‘rate’’ after ‘‘pre-
mium’’, and
(ii) by striking ‘‘and the derivation of
the dollar amounts specified in this para-
graph’’,
(C) by striking subsection (e), and
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(D) by redesignating subsection (g) as sub-
section (e) and inserting that subsection after
subsection (d).
(2) SECTION 1844.—Subparagraphs (A)(i) and
(B)(i) 
of 
section 
1844(a)(1) 
(42 
U.S.C.
1395w(a)(1)) are each amended by striking ‘‘or
1839(e), as the case may be’’.
Subtitle H—Provisions Relating to
Parts A and B
CHAPTER 1—PROVISIONS RELATING TO
MEDICARE SECONDARY PAYER
SEC. 10701. PERMANENT EXTENSION AND REVISION OF
CERTAIN SECONDARY PAYER PROVISIONS.
(a) APPLICATION
TO DISABLED INDIVIDUALS
IN
LARGE GROUP HEALTH PLANS.—
(1) IN GENERAL.—Section 1862(b)(1)(B) (42
U.S.C. 1395y(b)(1)(B)) is amended—
(A) in clause (i), by striking ‘‘clause (iv)’’
and inserting ‘‘clause (iii)’’,
(B) by striking clause (iii), and
(C) by redesignating clause (iv) as clause
(iii).
(2) CONFORMING
AMENDMENTS.—Paragraphs
(1) through (3) of section 1837(i) (42 U.S.C.
1395p(i)) and the second sentence of section
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1839(b) (42 U.S.C. 1395r(b)) are each amended by
striking ‘‘1862(b)(1)(B)(iv)’’ each place it appears
and inserting ‘‘1862(b)(1)(B)(iii)’’.
(b) INDIVIDUALS WITH END STAGE RENAL DIS-
EASE.—
(1) IN GENERAL.—Section 1862(b)(1)(C) (42
U.S.C. 1395y(b)(1)(C)) is amended—
(A) in the first sentence, by striking ‘‘12-
month’’ each place it appears and inserting
‘‘30-month’’, and
(B) by striking the second sentence.
(2) EFFECTIVE DATE.—The amendments made
by paragraph (1) shall apply to items and services
furnished on or after the date of the enactment of
this Act and with respect to periods beginning on or
after the date that is 18 months prior to such date.
(c) IRS-SSA-HCFA DATA MATCH.—
(1) 
SOCIAL
SECURITY
ACT.—Section
1862(b)(5)(C) 
(42 
U.S.C. 
1395y(b)(5)(C)) 
is
amended by striking clause (iii).
(2) 
INTERNAL
REVENUE
CODE.—Section
6103(l)(12) of the Internal Revenue Code of 1986 is
amended by striking subparagraph (F).
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SEC. 10702. CLARIFICATION OF TIME AND FILING LIMITA-
TIONS.
(a) EXTENSION OF CLAIMS FILING PERIOD.—Sec-
tion 1862(b)(2)(B) (42 U.S.C. 1395y(b)(2)(B)) is amend-
ed by adding at the end the following new clause:
‘‘(v) CLAIMS-FILING
PERIOD.—Not-
withstanding any other time limits that
may exist for filing a claim under an em-
ployer group health plan, the United
States may seek to recover conditional pay-
ments in accordance with this subpara-
graph where the request for payment is
submitted to the entity required or respon-
sible under this subsection to pay with re-
spect to the item or service (or any portion
thereof) under a primary plan within the
3-year period beginning on the date on
which the item or service was furnished.’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) applies to items and services furnished after
1990. The previous sentence shall not be construed as per-
mitting any waiver of the 3-year-period requirement (im-
posed by such amendment) in the case of items and serv-
ices furnished more than 3 years before the date of the
enactment of this Act.
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SEC. 
10703. 
PERMITTING 
RECOVERY 
AGAINST 
THIRD
PARTY ADMINISTRATORS.
(a) PERMITTING RECOVERY AGAINST THIRD PARTY
ADMINISTRATORS
OF
PRIMARY
PLANS.—Section
1862(b)(2)(B)(ii) (42 U.S.C. 1395y(b)(2)(B)(ii)) is
amended—
(1) by striking ‘‘under this subsection to pay’’
and inserting ‘‘(directly, as a third-party adminis-
trator, or otherwise) to make payment’’, and
(2) by adding at the end the following: ‘‘The
United States may not recover from a third-party
administrator under this clause in cases where the
third-party administrator would not be able to re-
cover the amount at issue from the employer or
group health plan for whom it provides administra-
tive services due to the insolvency or bankruptcy of
the employer or plan.’’.
(b) CLARIFICATION OF BENEFICIARY LIABILITY.—
Section 1862(b)(1) (42 U.S.C. 1395y(b)(1)) is amended
by adding at the end the following new subparagraph:
‘‘(F) LIMITATION ON BENEFICIARY LIABIL-
ITY.—An individual who is entitled to benefits
under this title and is furnished an item or
service for which such benefits are incorrectly
paid is not liable for repayment of such benefits
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under this paragraph unless payment of such
benefits was made to the individual.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section apply to items and services furnished on or
after the date of the enactment of this Act.
CHAPTER 2—HOME HEALTH SERVICES
SEC. 10711. RECAPTURING SAVINGS RESULTING FROM
TEMPORARY 
FREEZE 
ON 
PAYMENT 
IN-
CREASES FOR HOME HEALTH SERVICES.
(a) BASING UPDATES TO PER VISIT COST LIMITS ON
LIMITS FOR FISCAL YEAR 1993.—Section 1861(v)(1)(L)
(42 U.S.C. 1395x(v)(1)(L)) is amended by adding at the
end the following:
‘‘(iv) In establishing limits under this subparagraph
for cost reporting periods beginning after September 30,
1997, the Secretary shall not take into account any
changes in the home health market basket, as determined
by the Secretary, with respect to cost reporting periods
which began on or after July 1, 1994, and before July
1, 1996.’’.
(b) NO EXCEPTIONS PERMITTED BASED ON AMEND-
MENT.—The Secretary of Health and Human Services
shall not consider the amendment made by subsection (a)
in making any exemptions and exceptions pursuant to sec-
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tion 1861(v)(1)(L)(ii) of the Social Security Act (42
U.S.C. 1395x(v)(1)(L)(ii)).
SEC. 10712. INTERIM PAYMENTS FOR HOME HEALTH SERV-
ICES.
(a) 
REDUCTIONS
IN
COST
LIMITS.—Section
1861(v)(1)(L)(i) (42 U.S.C. 1395x(v)(1)(L)(i)) is amend-
ed—
(1) by moving the indentation of subclauses (I)
through (III) 2-ems to the left;
(2) in subclause (I), by inserting ‘‘of the mean
of the labor-related and nonlabor per visit costs for
freestanding home health agencies’’ before the
comma at the end;
(3) in subclause (II), by striking ‘‘, or’’ and in-
serting ‘‘of such mean,’’;
(4) in subclause (III)—
(A) by inserting ‘‘and before October 1,
1997,’’ after ‘‘July 1, 1987,’’, and
(B) by striking the comma at the end and
inserting ‘‘of such mean, or’’; and
(5) by striking the matter following subclause
(III) and inserting the following:
‘‘(IV) October 1, 1997, 105 percent of the me-
dian of the labor-related and nonlabor per visit costs
for freestanding home health agencies.’’.
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(b) DELAY IN UPDATES.—Section 1861(v)(1)(L)(iii)
(42 U.S.C. 1395x(v)(1)(L)(iii)) is amended by inserting
‘‘, or on or after July 1, 1997, and before October 1,
1997’’ after ‘‘July 1, 1996’’.
(c) 
ADDITIONS
TO
COST
LIMITS.—Section
1861(v)(1)(L) (42 U.S.C. 1395x(v)(1)(L)), as amended by
section 10711(a), is amended by adding at the end the
following new clauses:
‘‘(v) For services furnished by home health agencies
for cost reporting periods beginning on or after October
1, 1997, the Secretary shall provide for an interim system
of limits. Payment shall not exceed the costs determined
under the preceding provisions of this subparagraph or,
if lower, the product of—
‘‘(I) an agency-specific per beneficiary annual
limitation calculated based 75 percent on the reason-
able costs (including nonroutine medical supplies)
for the agency’s 12-month cost reporting period end-
ing during 1994, and based 25 percent on the stand-
ardized regional average of such costs for the agen-
cy’s region, as applied to such agency, for cost re-
porting periods ending during 1994, such costs up-
dated by the home health market basket index; and
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‘‘(II) the agency’s unduplicated census count of
patients (entitled to benefits under this title) for the
cost reporting period subject to the limitation.
‘‘(vi) For services furnished by home health agencies
for cost reporting periods beginning on or after October
1, 1997, the following rules apply:
‘‘(I) For new providers and those providers
without a 12-month cost reporting period ending in
calendar year 1994, the per beneficiary limitation
shall be equal to the median of these limits (or the
Secretary’s best estimates thereof) applied to other
home health agencies as determined by the Sec-
retary. A home health agency that has altered its
corporate structure or name shall not be considered
a new provider for this purpose.
‘‘(II) For beneficiaries who use services fur-
nished by more than one home health agency, the
per beneficiary limitations shall be prorated among
the agencies.’’.
(d) DEVELOPMENT
OF CASE MIX SYSTEM.—The
Secretary of Health and Human Services shall expand re-
search on a prospective payment system for home health
agencies under the medicare program that ties prospective
payments to a unit of service, including an intensive effort
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to develop a reliable case mix adjuster that explains a sig-
nificant amount of the variances in costs.
(e) SUBMISSION OF DATA FOR CASE MIX SYSTEM.—
Effective for cost reporting periods beginning on or after
October 1, 1997, the Secretary of Health and Human
Services may require all home health agencies to submit
additional information that the Secretary considers nec-
essary for the development of a reliable case mix system.
SEC. 10713. CLARIFICATION OF PART-TIME OR INTERMIT-
TENT NURSING CARE.
(a) IN GENERAL.—Section 1861(m) (42 U.S.C.
1395x(m)) is amended by adding at the end the following:
‘‘For purposes of paragraphs (1) and (4), the term ‘part-
time or intermittent services’ means skilled nursing and
home health aide services furnished any number of days
per week as long as they are furnished (combined) less
than 8 hours each day and 28 or fewer hours each week
(or, subject to review on a case-by-case basis as to the
need for care, less than 8 hours each day and 35 or fewer
hours per week). For purposes of sections 1814(a)(2)(C)
and 1835(a)(2)(A), ‘intermittent’ means skilled nursing
care that is either provided or needed on fewer than 7
days each week, or less than 8 hours of each day for peri-
ods of 21 days or less (with extensions in exceptional cir-
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cumstances when the need for additional care is finite and
predictable).’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) applies to services furnished on or after Oc-
tober 1, 1997.
SEC. 10714. STUDY ON DEFINITION OF HOMEBOUND.
(a) STUDY.—The Secretary of Health and Human
Services shall conduct a study of the criteria that should
be applied, and the method of applying such criteria, in
the determination of whether an individual is homebound
for purposes of qualifying for receipt of benefits for home
health services under the medicare program. Such criteria
shall include the extent and circumstances under which
a person may be absent from the home but nonetheless
qualify.
(b) REPORT.—Not later than October 1, 1998, the
Secretary shall submit a report to the Congress on the
study conducted under subsection (a). The report shall in-
clude specific recommendations on such criteria and meth-
ods.
SEC. 10715. PAYMENT BASED ON LOCATION WHERE HOME
HEALTH SERVICE IS FURNISHED.
(a) CONDITIONS OF PARTICIPATION.—Section 1891
(42 U.S.C. 1395bbb) is amended by adding at the end
the following:
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‘‘(g) PAYMENT ON BASIS OF LOCATION OF SERV-
ICE.—A home health agency shall submit claims for pay-
ment for home health services under this title only on the
basis of the geographic location at which the service is fur-
nished, as determined by the Secretary.’’.
(b) WAGE ADJUSTMENT.—Section 1861(v)(1)(L)(iii)
(42 U.S.C. 1395x(v)(1)(L)(iii)) is amended by striking
‘‘agency is located’’ and inserting ‘‘service is furnished’’.
(c) EFFECTIVE DATE.—The amendments made by
this section apply to cost reporting periods beginning on
or after October 1, 1997.
SEC. 10716. NORMATIVE STANDARDS FOR HOME HEALTH
CLAIMS DENIALS,
(a) IN GENERAL.—Section 1862(a)(1) (42 U.S.C.
1395y(a)(1)), as amended by section 10616(c), is amend-
ed—
(1) by striking ‘‘and’’ at the end of subpara-
graph (G),
(2) by striking the semicolon at the end of sub-
paragraph (H) and inserting ‘‘, and’’, and
(3) by inserting after subparagraph (H) the fol-
lowing new subparagraph:
‘‘(I) the frequency and duration of home health
services which are in excess of normative guidelines
that the Secretary shall establish by regulation;’’.
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(b) NOTIFICATION.—The Secretary of Health and
Human Services may establish a process for notifying a
physician in cases in which the number of home health
service visits furnished under the medicare program pur-
suant to a prescription or certification of the physician sig-
nificantly exceeds such threshold (or thresholds) as the
Secretary specifies. The Secretary may adjust such thresh-
old to reflect demonstrated differences in the need for
home health services among different beneficiaries.
(c) EFFECTIVE DATE.—The amendments made by
this section apply to services furnished on or after October
1, 1997.
SEC. 10717. NO HOME HEALTH BENEFITS BASED SOLELY
ON DRAWING BLOOD.
(a) IN
GENERAL.—Sections 1814(a)(2)(C) and
1835(a)(2)(A) 
(42 
U.S.C. 
1395f(a)(2)(C),
1395n(a)(2)(A)) are each amended by inserting ‘‘(other
than solely venipuncture for the purpose of obtaining a
blood sample)’’ after ‘‘skilled nursing care’’.
(b) EFFECTIVE DATE.—The amendments made by
subsection (a) apply to home health services furnished
after the 6–month period beginning after the date of en-
actment of this Act.
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CHAPTER 3—BABY BOOM GENERATION
MEDICARE COMMISSION
SEC. 10721. BIPARTISAN COMMISSION ON THE EFFECT OF
THE BABY BOOM GENERATION ON THE MEDI-
CARE PROGRAM.
(a) ESTABLISHMENT.—There is established a com-
mission to be known as the Bipartisan Commission on the
Effect of the Baby Boom Generation on the Medicare Pro-
gram (in this section referred to as the ‘‘Commission’’).
(b) DUTIES.—
(1) IN GENERAL.—The Commission shall—
(A) examine the financial impact on the
medicare program of the significant increase in
the number of medicare eligible individuals
which will occur beginning approximately dur-
ing 2010 and lasting for approximately 25
years,
(B) make specific recommendations to the
Congress respecting a comprehensive approach
to preserve the medicare program for the period
during which such individuals are eligible for
medicare, and
(C) study the feasibility and desirability of
establishing—
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(i) an independent commission on
medicare to make recommendations annu-
ally on how best to match the structure of
the medicare program to available funding
for the program,
(ii) an expedited process for consider-
ation of such recommendations by Con-
gress, and
(iii) a default mechanism to enforce
Congressional spending targets for the pro-
gram if Congress fails to approve such rec-
ommendations.
(2) 
CONSIDERATIONS
IN
MAKING
REC-
OMMENDATIONS.—In making its recommendations,
the Commission shall consider the following:
(A) The amount and sources of Federal
funds to finance the medicare program, includ-
ing the potential use of innovative financing
methods.
(B) Methods used by other nations to re-
spond to comparable demographic patterns in
eligibility for health care benefits for elderly
and disabled individuals.
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(C) Modifying age-based eligibility to cor-
respond to changes in age-based eligibility
under the OASDI program.
(D) Trends in employment-related health
care for retirees, including the use of medical
savings accounts and similar financing devices.
(c) MEMBERSHIP.—
(1) APPOINTMENT.—The Commission shall be
composed of 15 voting members as follows:
(A) The Majority Leader of the Senate
shall appoint, after consultation with the minor-
ity leader of the Senate, 6 members, of whom
not more than 4 may be of the same political
party.
(B) The Speaker of the House of Rep-
resentatives shall appoint, after consultation
with the minority leader of the House of Rep-
resentatives, 6 members, of whom not more
than 4 may be of the same political party.
(C) The 3 ex officio members of the Board
of Trustees of the Federal Hospital Insurance
Trust Fund and of the Federal Supplementary
Medical Insurance Trust Fund who are Cabinet
level officials.
1227
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(2) CHAIRMAN AND VICE CHAIRMAN.—As the
first item of business at the Commission’s first
meeting (described in paragraph (5)(B)), the Com-
mission shall elect a Chairman and Vice Chairman
from among its members. The individuals elected as
Chairman and Vice Chairman may not be of the
same political party and may not have been ap-
pointed to the Commission by the same appointing
authority.
(3) VACANCIES.—Any vacancy in the member-
ship of the Commission shall be filled in the manner
in which the original appointment was made and
shall not affect the power of the remaining members
to execute the duties of the Commission.
(4) QUORUM.—A quorum shall consist of 8
members of the Commission, except that 4 members
may conduct a hearing under subsection (f).
(5) MEETINGS.—
(A) The Commission shall meet at the call
of its Chairman or a majority of its members.
(B) The Commission shall hold its first
meeting not later than February 1, 1998.
(6) COMPENSATION AND REIMBURSEMENT OF
EXPENSES.—Members of the Commission are not
entitled to receive compensation for service on the
1228
[HVAC Reconciliation]
Commission. Members may be reimbursed for travel,
subsistence, and other necessary expenses incurred
in carrying out the duties of the Commission.
(d) ADVISORY PANEL.—
(1) IN GENERAL.—The Chairman, in consulta-
tion with the Vice Chairman, may establish a panel
(in this section referred to as the ‘‘Advisory Panel’’)
consisting of health care experts, consumers, provid-
ers, and others to advise and assist the members of
the Commission in carrying out the duties described
in subsection (b). The panel shall have only those
powers that the Chairman, in consultation with the
Vice Chairman, determines are necessary and appro-
priate to assist the Commission in carrying out such
duties.
(2) COMPENSATION.—Members of the Advisory
Panel are not entitled to receive compensation for
service on the Advisory Panel. Subject to the ap-
proval of the chairman of the Commission, members
may be reimbursed for travel, subsistence, and other
necessary expenses incurred in carrying out the du-
ties of the Advisory Panel.
(e) STAFF AND CONSULTANTS.—
(1) STAFF.—The Commission may appoint and
determine the compensation of such staff as may be
1229
[HVAC Reconciliation]
necessary to carry out the duties of the Commission.
Such appointments and compensation may be made
without regard to the provisions of title 5, United
States Code, that govern appointments in the com-
petitive services, and the provisions of chapter 51
and subchapter III of chapter 53 of such title that
relate to classifications and the General Schedule
pay rates.
(2) CONSULTANTS.—The Commission may pro-
cure such temporary and intermittent services of
consultants under section 3109(b) of title 5, United
States Code, as the Commission determines to be
necessary to carry out the duties of the Commission.
(f) POWERS.—
(1) HEARINGS
AND
OTHER
ACTIVITIES.—For
the purpose of carrying out its duties, the Commis-
sion may hold such hearings and undertake such
other activities as the Commission determines to be
necessary to carry out its duties.
(2) STUDIES BY GAO.—Upon the request of the
Commission, the Comptroller General shall conduct
such studies or investigations as the Commission de-
termines to be necessary to carry out its duties.
(3) COST
ESTIMATES
BY
CONGRESSIONAL
BUDGET OFFICE.—
1230
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(A) Upon the request of the Commission,
the Director of the Congressional Budget Office
shall provide to the Commission such cost esti-
mates as the Commission determines to be nec-
essary to carry out its duties.
(B) The Commission shall reimburse the
Director of the Congressional Budget Office for
expenses relating to the employment in the of-
fice of the Director of such additional staff as
may be necessary for the Director to comply
with requests by the Commission under sub-
paragraph (A).
(4) DETAIL OF FEDERAL EMPLOYEES.—Upon
the request of the Commission, the head of any Fed-
eral agency is authorized to detail, without reim-
bursement, any of the personnel of such agency to
the Commission to assist the Commission in carry-
ing out its duties. Any such detail shall not interrupt
or otherwise affect the civil service status or privi-
leges of the Federal employee.
(5) TECHNICAL
ASSISTANCE.—Upon the re-
quest of the Commission, the head of a Federal
agency shall provide such technical assistance to the
Commission as the Commission determines to be
necessary to carry out its duties.
1231
[HVAC Reconciliation]
(6) USE OF MAILS.—The Commission may use
the United States mails in the same manner and
under the same conditions as Federal agencies and
shall, for purposes of the frank, be considered a
commission of Congress as described in section 3215
of title 39, United States Code.
(7) OBTAINING
INFORMATION.—The Commis-
sion may secure directly from any Federal agency
information necessary to enable it to carry out its
duties, if the information may be disclosed under
section 552 of title 5, United States Code. Upon re-
quest of the Chairman of the Commission, the head
of such agency shall furnish such information to the
Commission.
(8) ADMINISTRATIVE
SUPPORT
SERVICES.—
Upon the request of the Commission, the Adminis-
trator of General Services shall provide to the Com-
mission on a reimbursable basis such administrative
support services as the Commission may request.
(9) PRINTING.—For purposes of costs relating
to printing and binding, including the cost of per-
sonnel detailed from the Government Printing Of-
fice, the Commission shall be deemed to be a com-
mittee of the Congress.
1232
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(g) REPORT.—(1) Not later than May 1, 1999, the
Commission shall submit to Congress a report containing
its findings and recommendations regarding how to pro-
tect and preserve the medicare program in a financially
solvent manner until 2030 (or, if later, throughout the pe-
riod of projected solvency of the Federal Old-Age and Sur-
vivors Insurance Trust Fund). The report shall include de-
tailed recommendations for appropriate legislative initia-
tives respecting how to accomplish this objective.
(2) Not later than 12 months after the date of the
enactment of this Act, the Commission shall report to the
Congress on the matters specified in subsection (b)(1)(C).
If the Commission determines that it is feasible and desir-
able to establish the processes described in such sub-
section, the report under this paragraph shall include spe-
cific recommendations on changes in law (such as changes
in the Congressional Budget Act of 1974 and the Bal-
anced Budget and Emergency Deficit Control Act of
1985) as are needed to implement its recommendations.
(h) TERMINATION.—The Commission shall terminate
30 days after the date of submission of the report required
in subsection (g).
(i) AUTHORIZATION
OF APPROPRIATIONS.—There
are authorized to be appropriated $1,500,000 to carry out
this section. 60 percent of such appropriation shall be pay-
1233
[HVAC Reconciliation]
able from the Federal Hospital Insurance Trust Fund,
and 40 percent of such appropriation shall be payable
from the Federal Supplementary Medical Insurance Trust
Fund under title XVIII of the Social Security Act (42
U.S.C. 1395i, 1395t).
CHAPTER 4—PROVISIONS RELATING TO
DIRECT GRADUATE MEDICAL EDUCATION
SEC. 10731. LIMITATION ON PAYMENT BASED ON NUMBER
OF RESIDENTS AND IMPLEMENTATION OF
ROLLING AVERAGE FTE COUNT.
Section 1886(h)(4) (42 U.S.C. 1395ww(h)(4)) is
amended by adding after subparagraph (E) the following:
‘‘(F) LIMITATION
ON
NUMBER
OF
RESI-
DENTS
FOR
CERTAIN
FISCAL
YEARS.—Such
rules shall provide that for purposes of a cost
reporting period beginning on or after October
1, 1997, the total number of full-time equiva-
lent residents before application of weighting
factors (as determined under this paragraph)
with respect to a hospital’s approved medical
residency training program may not exceed the
number of full-time equivalent residents with
respect to the hospital’s most recent cost re-
porting period ending on or before December
31, 1996. The Secretary may establish rules,
1234
[HVAC Reconciliation]
consistent with the policies in the previous sen-
tence and paragraph (6), with respect to the
application of the previous sentence in the case
of medical residency training programs estab-
lished on or after January 1, 1997.
‘‘(G) COUNTING INTERNS AND RESIDENTS
FOR FY 1998 AND SUBSEQUENT YEARS.—
‘‘(i) FY 1998.—For the hospital’s first
cost reporting period beginning during fis-
cal year 1998, subject to the limit de-
scribed in subparagraph (F), the total
number of full-time equivalent residents,
for determining the hospital’s graduate
medical education payment, shall equal the
average of the full-time equivalent resident
counts for the cost reporting period and
the preceding cost reporting period.
‘‘(ii) SUBSEQUENT YEARS.—For each
subsequent cost reporting period, subject
to the limit described in subparagraph (F),
the total number of full-time equivalent
residents, for determining the hospital’s
graduate medical education payment, shall
equal the average of the actual full-time
equivalent resident counts for the cost re-
1235
[HVAC Reconciliation]
porting period and preceding two cost re-
porting periods.
‘‘(iii) ADJUSTMENT FOR SHORT PERI-
ODS.—If a hospital’s cost reporting period
beginning on or after October 1, 1997, is
not equal to twelve months, the Secretary
shall make appropriate modifications to en-
sure that the average full-time equivalent
resident counts pursuant to clause (ii) are
based on the equivalent of full 12-month
cost reporting periods.’’.
SEC. 10732. PHASED-IN LIMITATION ON HOSPITAL OVER-
HEAD AND SUPERVISORY PHYSICIAN COMPO-
NENT 
OF 
DIRECT 
MEDICAL 
EDUCATION
COSTS.
(a) IN GENERAL.—Section 1886(h)(3) (42 U.S.C.
1395ww(h)(3)) is amended—
(1) in subparagraph (B), by inserting ‘‘subject
to subparagraph (D),’’ after ‘‘subparagraph (A)’’,
and
(2) by adding at the end the following:
‘‘(D) PHASED-IN
LIMITATION
ON
HOS-
PITAL OVERHEAD AND SUPERVISORY PHYSICIAN
COMPONENT.—
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[HVAC Reconciliation]
‘‘(i) IN GENERAL.—In the case of a
hospital for which the overhead GME
amount (as defined in clause (ii)) for the
base period exceeds an amount equal to
the 75th percentile of the overhead GME
amounts in such period for all hospitals
(weighted to reflect the full-time equivalent
resident counts for all approved medical
residency training programs), subject to
clause (iv), the hospital’s approved FTE
resident amount (for periods beginning on
or after October 1, 1997) shall be reduced
from the amount otherwise applicable (as
previously reduced under this subpara-
graph) by an overhead reduction amount.
The overhead reduction amount is equal to
the lesser of—
‘‘(I) 20 percent of the reference
reduction amount (described in clause
(iii)) for the period, or
‘‘(II) 15 percent of the hospital’s
overhead GME amount for the period
(as otherwise determined before the
reduction provided under this sub-
paragraph for the period involved).
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[HVAC Reconciliation]
‘‘(ii) OVERHEAD GME AMOUNT.—For
purposes of this subparagraph, the term
‘overhead GME amount’ means, for a hos-
pital for a period, the product of—
‘‘(I) the percentage of the hos-
pital’s approved FTE resident amount
for the base period that is not attrib-
utable to resident salaries and fringe
benefits, and
‘‘(II) the hospital’s approved
FTE resident amount for the period
involved.
‘‘(iii) 
REFERENCE
REDUCTION
AMOUNT.—
‘‘(I) 
IN
GENERAL.—The 
ref-
erence reduction amount described in
this clause for a hospital for a cost re-
porting period is the base difference
(described in subclause (II)) updated,
in a compounded manner for each pe-
riod from the base period to the pe-
riod involved, by the update applied
for such period to the hospital’s ap-
proved FTE resident amount.