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(4) by inserting after paragraph (3) the follow-
ing new paragraph:
‘‘(4) in the case of a person who is not an orga-
nization, agency, or other entity, is excluded from
participating in a program under title XVIII or a
State health care program in accordance with this
subsection or under section 1128 and who, at the time
of a violation of this subsection—
‘‘(i) retains a direct or indirect ownership
or control interest in an entity that is partici-
pating in a program under title XVIII or a
State health care program, and who knows or
should know of the action constituting the basis
for the exclusion; or
‘‘(ii) is an officer or managing employee (as
defined in section 1126(b)) of such an entity;’’.
(c) MODIFICATIONS OF AMOUNTS OF PENALTIES AND
ASSESSMENTS.—Section 1128A(a) (42 U.S.C. 1320a–
7a(a)), as amended by subsection (b), is amended in the
matter following paragraph (4)—
(1) 
by 
striking 
‘‘$2,000’’ 
and 
inserting
‘‘$10,000’’;
(2) by inserting ‘‘; in cases under paragraph (4),
$10,000 for each day the prohibited relationship oc-
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curs’’ after ‘‘false or misleading information was
given’’; and
(3) by striking ‘‘twice the amount’’ and inserting
‘‘3 times the amount’’.
(d) CLAIM FOR ITEM OR SERVICE BASED ON INCOR-
RECT CODING OR MEDICALLY UNNECESSARY SERVICES.—
Section 1128A(a)(1) (42 U.S.C. 1320a–7a(a)(1)) is amend-
ed—
(1) in subparagraph (A) by striking ‘‘claimed,’’
and inserting ‘‘claimed, including any person who
engages in a pattern or practice of presenting or
causing to be presented a claim for an item or service
that is based on a code that the person knows or
should know will result in a greater payment to the
person than the code the person knows or should know
is applicable to the item or service actually pro-
vided,’’;
(2) in subparagraph (C), by striking ‘‘or’’ at the
end;
(3) in subparagraph (D), by striking ‘‘; or’’ and
inserting ‘‘, or’’; and
(4) by inserting after subparagraph (D) the fol-
lowing new subparagraph:
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‘‘(E) is for a medical or other item or serv-
ice that a person knows or should know is not
medically necessary; or’’.
(e) SANCTIONS AGAINST PRACTITIONERS AND PER-
SONS FOR FAILURE TO COMPLY WITH STATUTORY OBLIGA-
TIONS.—Section 1156(b)(3) (42 U.S.C. 1320c–5(b)(3)) is
amended by striking ‘‘the actual or estimated cost’’ and in-
serting ‘‘up to $10,000 for each instance’’.
(f) PROCEDURAL PROVISIONS.—Section 1876(i)(6) (42
U.S.C. 1395mm(i)(6)), as amended by section 8115(a)(2),
is amended by adding at the end the following new subpara-
graph:
‘‘(D) The provisions of section 1128A (other than sub-
sections (a) and (b)) shall apply to a civil money penalty
under subparagraph (B)(i) or (C)(i) in the same manner
as such provisions apply to a civil money penalty or pro-
ceeding under section 1128A(a).’’.
(g) PROHIBITION AGAINST OFFERING INDUCEMENTS
TO
INDIVIDUALS
ENROLLED
UNDER
PROGRAMS
OR
PLANS.—
(1) 
OFFER
OF
REMUNERATION.—Section
1128A(a) (42 U.S.C. 1320a–7a(a)) is amended—
(A) by striking ‘‘or’’ at the end of para-
graph (1)(D);
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(B) by striking ‘‘, or’’ at the end of para-
graph (2) and inserting a semicolon;
(C) by striking the semicolon at the end of
paragraph (3) and inserting ‘‘; or’’; and
(D) by inserting after paragraph (3) the fol-
lowing new paragraph:
‘‘(4) offers to or transfers remuneration to any
individual eligible for benefits under title XVIII of
this Act, or under a State health care program (as de-
fined in section 1128(h)) that such person knows or
should know is likely to influence such individual to
order or receive from a particular provider, practi-
tioner, or supplier any item or service for which pay-
ment may be made, in whole or in part, under title
XVIII, or a State health care program (as so de-
fined);’’.
(2) REMUNERATION DEFINED.—Section 1128A(i)
(42 U.S.C. 1320a–7a(i)) is amended by adding the
following new paragraph:
‘‘(6) The term ‘remuneration’ includes the waiv-
er of coinsurance and deductible amounts (or any
part thereof), and transfers of items or services for
free or for other than fair market value. The term ‘re-
muneration’ does not include—
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‘‘(A) the waiver of coinsurance and deduct-
ible amounts by a person, if—
‘‘(i) the waiver is not offered as part of
any advertisement or solicitation;
‘‘(ii) the person does not routinely
waive coinsurance or deductible amounts;
and
‘‘(iii) the person—
‘‘(I) waives the coinsurance and
deductible amounts after determining
in good faith that the individual is in
financial need;
‘‘(II) fails to collect coinsurance
or deductible amounts after making
reasonable collection efforts; or
‘‘(III) provides for any permis-
sible waiver as specified in section
1128B(b)(3) or in regulations issued
by the Secretary;
‘‘(B) differentials in coinsurance and de-
ductible amounts as part of a benefit plan design
as long as the differentials have been disclosed in
writing to all beneficiaries, third party payers,
and providers, to whom claims are presented and
as long as the differentials meet the standards as
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defined in regulations promulgated by the Sec-
retary not later than 180 days after the date of
the enactment of the Medicare Preservation Act
of 1995; or
‘‘(C) incentives given to individuals to pro-
mote the delivery of preventive care as deter-
mined by the Secretary in regulations so pro-
mulgated.’’.
(h) EFFECTIVE DATE.—The amendments made by this
section shall take effect January 1, 1996.
SEC. 8132. CLARIFICATION OF LEVEL OF INTENT REQUIRED
FOR IMPOSITION OF SANCTIONS.
(a) CLARIFICATION OF LEVEL OF KNOWLEDGE RE-
QUIRED
FOR
IMPOSITION
OF
CIVIL
MONETARY
PEN-
ALTIES.—
(1) IN GENERAL.—Section 1128A(a) (42 U.S.C.
1320a–7a(a)) is amended—
(A) in paragraphs (1) and (2), by inserting
‘‘knowingly’’ before ‘‘presents’’ each place it ap-
pears; and
(B) in paragraph (3), by striking ‘‘gives’’
and inserting ‘‘knowingly gives or causes to be
given’’.
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(2) 
DEFINITION
OF
STANDARD.—Section
1128A(i) (42 U.S.C. 1320a–7a(i)) is amended by
adding at the end the following new paragraph:
‘‘(6) The term ‘should know’ means that a per-
son, with respect to information—
‘‘(A) acts in deliberate ignorance of the
truth or falsity of the information; or
‘‘(B) acts in reckless disregard of the truth
or falsity of the information,
and no proof of specific intent to defraud is re-
quired.’’.
(b) EFFECTIVE DATE.—The amendments made by this
section shall apply to acts or omissions occurring on or
after January 1, 1996.
SEC. 8133. PENALTY FOR FALSE CERTIFICATION FOR HOME
HEALTH SERVICES.
(a) IN
GENERAL.—Section 1128A(b) (42 U.S.C.
1320a–7a(b)) is amended by adding at the end the following
new paragraph:
‘‘(3)(A) Any physician who executes a document de-
scribed in subparagraph (B) with respect to an individual
knowing that all of the requirements referred to in such sub-
paragraph are not met with respect to the individual shall
be subject to a civil monetary penalty of not more than the
greater of—
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‘‘(i) $5,000, or
‘‘(ii) three times the amount of the payments
under title XVIII for home health services which are
made pursuant to such certification.
‘‘(B) A document described in this subparagraph is
any document that certifies, for purposes of title XVIII, that
an 
individual 
meets 
the 
requirements 
of 
section
1814(a)(2)(C) or 1835(a)(2)(A) in the case of home health
services furnished to the individual.’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to certifications made on or after
the date of the enactment of this Act.
CHAPTER 5—AMENDMENTS TO CRIMINAL
LAW
SEC. 8141. HEALTH CARE FRAUD.
(a) IN GENERAL.—
(1) FINES
AND
IMPRISONMENT
FOR
HEALTH
CARE FRAUD VIOLATIONS.—Chapter 63 of title 18,
United States Code, is amended by adding at the end
the following new section:
‘‘§ 1347. Health care fraud
‘‘(a) Whoever knowingly and willfully executes, or at-
tempts to execute, a scheme or artifice—
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‘‘(1) to defraud any Federal health care pro-
gram, in connection with the delivery of or payment
for health care benefits, items, or services; or
‘‘(2) to obtain, by means of false or fraudulent
pretenses, representations, or promises, any of the
money or property owned by, or under the custody or
control of, any Federal health care program in con-
nection with the delivery of or payment for health
care benefits, items, or services;
shall be fined under this title or imprisoned not more than
10 years, or both. If the violation results in serious bodily
injury (as defined in section 1365(g)(3) of this title), such
person may be imprisoned for any term of years.
‘‘(b) For purposes of this section, the term ‘Federal
health care program’ has the same meaning given such term
in section 1128B(f) of the Social Security Act.’’.
(2) CLERICAL AMENDMENT.—The table of sec-
tions at the beginning of chapter 63 of title 18, Unit-
ed States Code, is amended by adding at the end the
following:
‘‘1347. Health care fraud.’’.
(b) CRIMINAL FINES DEPOSITED IN FEDERAL HOS-
PITAL INSURANCE TRUST FUND.—The Secretary of the
Treasury shall deposit into the Federal Hospital Insurance
Trust Fund pursuant to section 1817(k)(2)(C) of the Social
Security Act, as added by section 8101(b), an amount equal
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to the criminal fines imposed under section 1347 of title
18, United States Code (relating to health care fraud).
SEC. 8142. FORFEITURES FOR FEDERAL HEALTH CARE OF-
FENSES.
(a) IN GENERAL.—Section 982(a) of title 18, United
States Code, is amended by adding after paragraph (5) the
following new paragraph:
‘‘(6)(A) The court, in imposing sentence on a person
convicted of a Federal health care offense, shall order the
person to forfeit property, real or personal, that constitutes
or is derived, directly or indirectly, from gross proceeds
traceable to the commission of the offense.
‘‘(B) For purposes of this paragraph, the term ‘Federal
health care offense’ means a violation of, or a criminal con-
spiracy to violate—
‘‘(i) section 1347 of this title;
‘‘(ii) section 1128B of the Social Security Act;
and
‘‘(iii) sections 287, 371, 664, 666, 669, 1001,
1027, 1341, 1343, 1920, or 1954 of this title if the
violation or conspiracy relates to health care fraud.’’.
(b) CONFORMING AMENDMENT.—Section 982(b)(1)(A)
of title 18, United States Code, is amended by inserting
‘‘or (a)(6)’’ after ‘‘(a)(1)’’.
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(c) PROPERTY FORFEITED DEPOSITED IN FEDERAL
HOSPITAL INSURANCE TRUST FUND.—
(1) IN GENERAL.—After the payment of the costs
of asset forfeiture has been made, and notwithstand-
ing any other provision of law, the Secretary of the
Treasury shall deposit into the Federal Hospital In-
surance 
Trust 
Fund 
pursuant 
to 
section
1817(k)(2)(C) of the Social Security Act, as added by
section 8101(b), an amount equal to the net amount
realized from the forfeiture of property by reason of
a Federal health care offense pursuant to section
982(a)(6) of title 18, United States Code.
(2) COSTS
OF
ASSET
FORFEITURE.—For pur-
poses of paragraph (1), the term ‘‘payment of the
costs of asset forfeiture’’ means—
(A) the payment, at the discretion of the At-
torney General, of any expenses necessary to
seize, detain, inventory, safeguard, maintain, ad-
vertise, sell, or dispose of property under seizure,
detention, or forfeited, or of any other necessary
expenses incident to the seizure, detention, for-
feiture, or disposal of such property, including
payment for—
(i) contract services,
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(ii) the employment of outside contrac-
tors to operate and manage properties or
provide other specialized services necessary
to dispose of such properties in an effort to
maximize the return from such properties;
and
(iii) reimbursement of any Federal,
State, or local agency for any expenditures
made to perform the functions described in
this subparagraph;
(B) at the discretion of the Attorney Gen-
eral, the payment of awards for information or
assistance leading to a civil or criminal forfeit-
ure involving any Federal agency participating
in the Health Care Fraud and Abuse Control Ac-
count;
(C) the compromise and payment of valid
liens and mortgages against property that has
been forfeited, subject to the discretion of the At-
torney General to determine the validity of any
such lien or mortgage and the amount of pay-
ment to be made, and the employment of attor-
neys and other personnel skilled in State real es-
tate law as necessary;
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(D) payment authorized in connection with
remission or mitigation procedures relating to
property forfeited; and
(E) the payment of State and local property
taxes on forfeited real property that accrued be-
tween the date of the violation giving rise to the
forfeiture and the date of the forfeiture order.
SEC. 8143. INJUNCTIVE RELIEF RELATING TO FEDERAL
HEALTH CARE OFFENSES.
(a) IN GENERAL.—Section 1345(a)(1) of title 18,
United States Code, is amended—
(1) by striking ‘‘or’’ at the end of subparagraph
(A);
(2) by inserting ‘‘or’’ at the end of subparagraph
(B); and
(3) by adding at the end the following new sub-
paragraph:
‘‘(C) committing or about to commit a Fed-
eral health care offense (as defined in section
982(a)(6)(B) of this title);’’.
(b) FREEZING OF ASSETS.—Section 1345(a)(2) of title
18, United States Code, is amended by inserting ‘‘or a Fed-
eral health care offense (as defined in section 982(a)(6)(B))’’
after ‘‘title)’’.
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SEC. 8144. FALSE STATEMENTS.
(a) IN GENERAL.—Chapter 47 of title 18, United
States Code, is amended by adding at the end the following
new section:
‘‘§ 1033. False statements relating to health care mat-
ters
‘‘(a) Whoever, in any matter involving a Federal
health care program, knowingly and willfully—
‘‘(1) falsifies, conceals, or covers up by any trick,
scheme, or device a material fact, or
‘‘(2) makes any materially false, fictitious, or
fraudulent statement or representation, or makes or
uses any materially false writing or document know-
ing the same to contain any materially false, ficti-
tious, or fraudulent statement or entry,
shall be fined under this title or imprisoned not more than
5 years, or both.
‘‘(b) For purposes of this section, the term ‘Federal
health care program’ has the same meaning given such term
in section 1128B(f) of the Social Security Act.’’.
(b) CLERICAL AMENDMENT.—The table of sections at
the beginning of chapter 47 of title 18, United States Code,
in amended by adding at the end the following:
‘‘1033. False statements relating to health care matters.’’.
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SEC. 8145. OBSTRUCTION OF CRIMINAL INVESTIGATIONS
OF FEDERAL HEALTH CARE OFFENSES.
(a) IN GENERAL.—Chapter 73 of title 18, United
States Code, is amended by adding at the end the following
new section:
‘‘§ 1518. Obstruction of criminal investigations of Fed-
eral health care offenses
‘‘(a) Whoever willfully prevents, obstructs, misleads,
delays or attempts to prevent, obstruct, mislead, or delay
the communication of information or records relating to a
Federal health care offense to a criminal investigator shall
be fined under this title or imprisoned not more than 5
years, or both.
‘‘(b) As used in this section the term ‘Federal health
care offense’ has the same meaning given such term in sec-
tion 982(a)(6)(B) of this title.
‘‘(c) As used in this section the term ‘criminal inves-
tigator’ means any individual duly authorized by a depart-
ment, agency, or armed force of the United States to con-
duct or engage in investigations for prosecutions for viola-
tions of health care offenses.’’.
(b) CLERICAL AMENDMENT.—The table of sections at
the beginning of chapter 73 of title 18, United States Code,
is amended by adding at the end the following:
‘‘1518. Obstruction of Criminal Investigations of Federal Health Care Offenses.’’.
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SEC. 8146. THEFT OR EMBEZZLEMENT.
(a) IN GENERAL.—Chapter 31 of title 18, United
States Code, is amended by adding at the end the following
new section:
‘‘§ 669. Theft or embezzlement in connection with
health care
‘‘(a) Whoever willfully embezzles, steals, or otherwise
willfully and unlawfully converts to the use of any person
other than the rightful owner, or intentionally misapplies
any of the moneys, funds, securities, premiums, credits,
property, or other assets of a Federal health care program,
shall be fined under this title or imprisoned not more than
10 years, or both.
‘‘(b) As used in this section the term ‘Federal health
care program’ has the same meaning given such term in
section 1128B(f) of the Social Security Act.’’.
(b) CLERICAL AMENDMENT.—The table of sections at
the beginning of chapter 31 of title 18, United States Code,
is amended by adding at the end the following:
‘‘669. Theft or Embezzlement in Connection with Health Care.’’.
SEC. 8147. LAUNDERING OF MONETARY INSTRUMENTS.
Section 1956(c)(7) of title 18, United States Code, is
amended by adding at the end the following new subpara-
graph:
‘‘(F) Any act or activity constituting an of-
fense involving a Federal health care offense as
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that term is defined in section 982(a)(6)(B) of
this title.’’.
SEC. 8148. AUTHORIZED INVESTIGATIVE DEMAND PROCE-
DURES.
(a) IN GENERAL.—Chapter 233 of title 18, United
States Code, is amended by adding after section 3485 the
following new section:
‘‘§ 3486. Authorized investigative demand procedures
‘‘(a)(1)(A) In any investigation relating to functions
set forth in paragraph (2), the Attorney General or designee
may issue in writing and cause to be served a subpoena
compelling production of any records (including any books,
papers, documents, electronic media, or other objects or tan-
gible things), which may be relevant to an authorized law
enforcement inquiry, that a person or legal entity may pos-
sess or have care, custody, or control.
‘‘(B) A custodian of records may be required to give
testimony concerning the production and authentication of
such records.
‘‘(C) The production of records may be required from
any place in any State or in any territory or other place
subject to the jurisdiction of the United States at any des-
ignated place; except that such production shall not be re-
quired more than 500 miles distant from the place where
the subpoena is served.
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‘‘(D) Witnesses summoned under this section shall be
paid the same fees and mileage that are paid witnesses in
the courts of the United States.
‘‘(E) A subpoena requiring the production of records
shall describe the objects required to be produced and pre-
scribe a return date within a reasonable period of time
within which the objects can be assembled and made avail-
able.
‘‘(2) Investigative demands utilizing an administra-
tive subpoena are authorized for any investigation with re-
spect to any act or activity constituting or involving health
care fraud, including a scheme or artifice—
‘‘(A) to defraud any Federal health care pro-
gram, in connection with the delivery of or payment
for health care benefits, items, or services; or
‘‘(B) to obtain, by means of false or fraudulent
pretenses, representations, or promises, any of the
money or property owned by, or under the custody or
control or, any Federal health care program in con-
nection with the delivery of or payment for health
care benefits, items, or services.
‘‘(b)(1) A subpoena issued under this section may be
served by any person designated in the subpoena to serve
it.
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‘‘(2) Service upon a natural person may be made by
personal delivery of the subpoena to such person.
‘‘(3) Service may be made upon a domestic or foreign
association which is subject to suit under a common name,
by delivering the subpoena to an officer, to a managing or
general agent, or to any other agent authorized by appoint-
ment or by law to receive service of process.
‘‘(4) The affidavit of the person serving the subpoena
entered on a true copy thereof by the person serving it shall
be proof of service.
‘‘(c)(1) In the case of contumacy by or refusal to obey
a subpoena issued to any person, the Attorney General may
invoke the aid of any court of the United States within the
jurisdiction of which the investigation is carried on or of
which the subpoenaed person is an inhabitant, or in which
such person carries on business or may be found, to compel
compliance with the subpoena.
‘‘(2) The court may issue an order requiring the sub-
poenaed person to appear before the Attorney General to
produce records, if so ordered, or to give testimony required
under subsection (a)(1)(B).
‘‘(3) Any failure to obey the order of the court may
be punished by the court as a contempt thereof.
‘‘(4) All process in any such case may be served in
any judicial district in which such person may be found.
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‘‘(d) Notwithstanding any Federal, State, or local law,
any person, including officers, agents, and employees, re-
ceiving a subpoena under this section, who complies in good
faith with the subpoena and thus produces the materials
sought, shall not be liable in any court of any State or the
United States to any customer or other person for such pro-
duction or for nondisclosure of that production to the cus-
tomer.
‘‘(e)(1) Health information about an individual that
is disclosed under this section may not be used in, or dis-
closed to any person for use in, any administrative, civil,
or criminal action or investigation directed against the in-
dividual who is the subject of the information unless the
action or investigation arises out of and is directly related
to receipt of health care or payment for health care or action
involving a fraudulent claim related to health; or if author-
ized by an appropriate order of a court of competent juris-
diction, granted after application showing good cause there-
fore.
‘‘(2) In assessing good cause, the court shall weigh the
public interest and the need for disclosure against the in-
jury to the patient, to the physician-patient relationship,
and to the treatment services.
‘‘(3) Upon the granting of such order, the court, in
determining the extent to which any disclosure of all or any
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part of any record is necessary, shall impose appropriate
safeguards against unauthorized disclosure.
‘‘(f) As used in this section the term ‘Federal health
care program’ has the same meaning given such term in
section 1128B(f) of the Social Security Act.’’.
(b) CLERICAL AMENDMENT.—The table of sections for
chapter 223 of title 18, United States Code, is amended by
inserting after the item relating to section 3405 the follow-
ing new item:
‘‘§ 3486. Authorized investigative demand procedures’’.
(c) 
CONFORMING
AMENDMENT.—Section
1510(b)(3)(B) of title 18, United States Code, is amended
by inserting ‘‘or a Department of Justice subpoena (issued
under section 3486),’’ after ‘‘subpoena’’.
CHAPTER 6—STATE HEALTH CARE FRAUD
CONTROL UNITS
SEC. 8151. STATE HEALTH CARE FRAUD CONTROL UNITS.
(a) EXTENSION OF CONCURRENT AUTHORITY TO IN-
VESTIGATE AND PROSECUTE FRAUD IN OTHER FEDERAL
PROGRAMS.—Paragraph (3) of section 2134(b), as added
by section 7001 of this Act, is amended—
(1) by inserting ‘‘(A)’’ after ‘‘in connection
with’’; and
(2) by striking ‘‘plan.’’ and inserting ‘‘plan; and
(B) upon the approval of the relevant Federal agency
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and the chief executive officer of the State or such offi-
cer’s designee, any aspect of the provision of health
care services and activities of providers of such serv-
ices under any Federal health care program (as de-
fined in section 1128B(f)(1)).’’.
(b) EXTENSION OF AUTHORITY TO INVESTIGATE AND
PROSECUTE PATIENT ABUSE IN NON-MEDIGRANT BOARD
AND CARE FACILITIES.—Paragraph (4) of section 2134(b),
as added by section 7001 of this Act, is amended to read
as follows:
‘‘(4)(A) The entity has—
‘‘(i) procedures for reviewing complaints of
abuse or neglect of patients in health care facili-
ties 
which 
receive 
payments 
under 
the
MediGrant plan funded under this title;
‘‘(ii) at the option of the entity, procedures
for reviewing complaints of abuse or neglect of
patients residing in board and care facilities;
and
‘‘(iii) where appropriate, procedures for act-
ing upon such complaints under the criminal
laws of the State or for referring such complaints
to other State agencies for action.
‘‘(B) For purposes of this paragraph, the term
‘board and care facility’ means a residential setting
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which receives payment from or on behalf of two or
more unrelated adults who reside in such facility, and
for whom one or both of the following is provided:
‘‘(i) Nursing care services provided by, or
under the supervision of, a registered nurse, li-
censed practical nurse, or licensed nursing as-
sistant.
‘‘(ii) Personal care services that assist resi-
dents with the activities of daily living, includ-
ing personal hygiene, dressing, bathing, eating,
toileting, ambulation, transfer, positioning, self-
medication, body care, travel to medical services,
essential shopping, meal preparation, laundry,
and housework.’’.
Subtitle C—Regulatory Relief
SEC. 8201. REPEAL OF PHYSICIAN OWNERSHIP REFERRAL
PROHIBITIONS BASED ON COMPENSATION
ARRANGEMENTS.
(a) IN GENERAL.—Section 1877(a)(2) (42 U.S.C.
1395nn(a)(2)) is amended by striking ‘‘is—’’ and all that
follows through ‘‘equity,’’ and inserting the following: ‘‘is
(except as provided in subsection (c)) an ownership or in-
vestment interest in the entity through equity,’’.
(b) CONFORMING AMENDMENTS.—Section 1877 (42
U.S.C. 1395nn) is amended as follows:
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(1) In subsection (b)—
(A) in the heading, by striking ‘‘TO BOTH
OWNERSHIP AND COMPENSATION ARRANGEMENT
PROHIBITIONS’’ and inserting ‘‘WHERE FINAN-
CIAL RELATIONSHIP EXISTS’’; and
(B) by redesignating paragraph (4) as
paragraph (7).
(2) In subsection (c)—
(A) by amending the heading to read as fol-
lows: ‘‘EXCEPTION FOR OWNERSHIP OR INVEST-
MENT INTEREST IN PUBLICLY TRADED SECURI-
TIES AND MUTUAL FUNDS’’; and
(B) in the matter preceding paragraph (1),
by striking ‘‘subsection (a)(2)(A)’’ and inserting
‘‘subsection (a)(2)’’.
(3) In subsection (d)—
(A) by striking the matter preceding para-
graph (1);
(B) in paragraph (3), by striking ‘‘para-
graph (1)’’ and inserting ‘‘paragraph (4)’’; and
(C) by redesignating paragraphs (1), (2),
and (3) as paragraphs (4), (5), and (6), and by
transferring and inserting such paragraphs after
paragraph (3) of subsection (b).
(4) By striking subsection (e).
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(5) In subsection (f)(2)—
(A) in the matter preceding paragraph (1),
by striking ‘‘ownership, investment, and com-
pensation’’ and inserting ‘‘ownership and invest-
ment’’;
(B) in paragraph (2), by striking ‘‘sub-
section (a)(2)(A)’’ and all that follows through
‘‘subsection (a)(2)(B)),’’ and inserting ‘‘sub-
section (a)(2),’’; and
(C) in paragraph (2), by striking ‘‘or who
have such a compensation relationship with the
entity’’.
(6) In subsection (h)—
(A) by striking paragraphs (1), (2), and
(3);
(B) in paragraph (4)(A), by striking
clauses (iv) and (vi);
(C) in paragraph (4)(B), by striking
‘‘RULES.—’’ and all that follows through ‘‘(ii)
FACULTY’’ and inserting ‘‘RULES FOR FACULTY’’;
and
(D) by adding at the end of paragraph (4)
the following new subparagraph:
‘‘(C) MEMBER OF A GROUP.—A physician
is a ‘member’ of a group if the physician is an
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owner or a bona fide employee, or both, of the
group.’’.
SEC. 8202. REVISION OF DESIGNATED HEALTH SERVICES
SUBJECT TO OWNERSHIP REFERRAL PROHI-
BITION.
(a) IN GENERAL.—Section 1877(h)(6) (42 U.S.C.
1395nn(h)(6)) is amended by striking subparagraphs (B)
through (K) and inserting the following:
‘‘(B) Parenteral and enteral nutrients,
equipment, and supplies.
‘‘(C) Radiology services, including magnetic
resonance imaging, computerized tomography,
and ultrasound services.
‘‘(D) Outpatient physical or occupational
therapy services.’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 1877(b)(2) (42 U.S.C. 1395nn(b)(2))
is amended in the matter preceding subparagraph (A)
by striking ‘‘services’’ and all that follows through
‘‘supplies)—’’ and inserting ‘‘services—’’.
(2) 
Section 
1877(h)(5)(C) 
(42 
U.S.C.
1395nn(h)(5)(C)) is amended—
(A) by striking ‘‘, a request by a radiologist
for diagnostic radiology services, and a request
by a radiation oncologist for radiation therapy,’’
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and inserting ‘‘and a request by a radiologist for
magnetic resonance imaging or for computerized
tomography’’, and
(B) by striking ‘‘radiologist, or radiation
oncologist’’ and inserting ‘‘or radiologist’’.
SEC. 8203. DELAY IN IMPLEMENTATION OF 1993 OWNERSHIP
REFERRAL CHANGES UNTIL PROMULGATION
OF REGULATIONS.
(a) IN GENERAL.—Section 13562(b) of OBRA–1993
(42 U.S.C. 1395nn note) is amended—
(1) in paragraph (1), by striking ‘‘paragraph
(2)’’ and inserting ‘‘paragraphs (2) and (3)’’; and
(2) by adding at the end the following new para-
graph:
‘‘(3) PROMULGATION
OF
REGULATIONS.—Not-
withstanding paragraphs (1) and (2), the amend-
ments made by this section shall not apply to any re-
ferrals made before the effective date of final regula-
tions promulgated by the Secretary of Health and
Human Services to carry out such amendments.’’.
(b) EFFECTIVE DATE.—The amendments made by sub-
section (a) shall take effect as if included in the enactment
of OBRA–1993.
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SEC. 8204. EXCEPTIONS TO OWNERSHIP REFERRAL PROHI-
BITIONS.
(a) REVISIONS TO EXCEPTION FOR IN-OFFICE ANCIL-
LARY SERVICES.—
(1) REPEAL
OF
SITE-OF-SERVICE
REQUIRE-
MENT.—Section 1877 (42 U.S.C. 1395nn) is amend-
ed—
(A) by amending subparagraph (A) of sub-
section (b)(2) to read as follows:
‘‘(A) that are furnished personally by the
referring physician, personally by a physician
who is a member of the same group practice as
the referring physician, or personally by individ-
uals who are under the general supervision of the
physician or of another physician in the group
practice, and’’, and
(B) by adding at the end of subsection (h)
the following new paragraph:
‘‘(7) GENERAL SUPERVISION.—An individual is
considered to be under the ‘general supervision’ of a
physician if the physician (or group practice of which
the physician is a member) is legally responsible for
the services performed by the individual and for en-
suring that the individual meets licensure and certifi-
cation requirements, if any, applicable under other
provisions of law, regardless of whether or not the
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physician is physically present when the individual
furnishes an item or service.’’.
(2) CLARIFICATION OF TREATMENT OF PHYSI-
CIAN
OWNERS
OF
GROUP
PRACTICE.—Section
1877(b)(2)(B) (42 U.S.C. 1395nn(b)(2)(B)) is amend-
ed by striking ‘‘physician or such group practice’’
and inserting ‘‘physician, such group practice, or the
physician owners of such group practice’’.
(3) 
CONFORMING
AMENDMENT.—Section
1877(b)(2) (42 U.S.C. 1395nn(b)(2)) is amended by
amending the heading to read as follows: ‘‘ANCILLARY
SERVICES
FURNISHED
PERSONALLY
OR
THROUGH
GROUP PRACTICE.—’’.
(b) CLARIFICATION
OF EXCEPTION
FOR SERVICES
FURNISHED IN A RURAL AREA.—Paragraph (5) of section
1877(b) (42 U.S.C. 1395nn(b)), as transferred by section
8201(b)(3)(C), is amended by striking ‘‘substantially all’’
and inserting ‘‘not less than 75 percent’’.
(c) REVISION OF EXCEPTION FOR CERTAIN MANAGED
CARE ARRANGEMENTS.—Section 1877(b)(3) (42 U.S.C.
1395nn(b)(3)) is amended—
(1) in the heading by inserting ‘‘MANAGED CARE
ARRANGEMENTS’’ after ‘‘PREPAID PLANS’’;
(2) in the matter preceding subparagraph (A),
by striking ‘‘organization—’’ and inserting ‘‘organi-
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zation, directly or through contractual arrangements
with other entities, to individuals enrolled with the
organization—’’;
(3) in subparagraph (A), by inserting ‘‘or part
C’’ after ‘‘section 1876’’;
(4) by striking ‘‘or’’ at the end of subparagraph
(C);
(5) by striking the period at the end of subpara-
graph (D) and inserting a comma; and
(6) by adding at the end the following new sub-
paragraphs:
‘‘(E) with a contract with a State to pro-
vide services under the State plan under title
XIX (in accordance with section 1903(m)) or a
State MediGrant plan under title XXI; or
‘‘(F) which is a MedicarePlus organization
under part C or which provides or arranges for
the provision of health care items or services
pursuant to a written agreement between the or-
ganization and an individual or entity if the
written agreement places the individual or entity
at substantial financial risk for the cost or utili-
zation of the items or services which the individ-
ual or entity is obligated to provide, whether
through a withhold, capitation, incentive pool,
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per diem payment, or any other similar risk ar-
rangement which places the individual or entity
at substantial financial risk.’’.
(d) NEW EXCEPTION FOR SHARED FACILITY SERV-
ICES.—
(1) IN GENERAL.—Section 1877(b) (42 U.S.C.
1395nn(b)), as amended by section 8201(b)(3)(C), is
amended—
(A) 
by 
redesignating 
paragraphs 
(4)
through (7) as paragraphs (5) through (8); and
(B) by inserting after paragraph (3) the fol-
lowing new paragraph:
‘‘(4) SHARED FACILITY SERVICES.—In the case
of a designated health service consisting of a shared
facility service of a shared facility—
‘‘(A) that is furnished—
‘‘(i) personally by the referring physi-
cian who is a shared facility physician or
personally by an individual directly em-
ployed or under the general supervision of
such a physician,
‘‘(ii) by a shared facility in a building
in which the referring physician furnishes
substantially all of the services of the physi-
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cian that are unrelated to the furnishing of
shared facility services, and
‘‘(iii) to a patient of a shared facility
physician; and
‘‘(B) that is billed by the referring physi-
cian or a group practice of which the physician
is a member.’’.
(2) DEFINITIONS.—Section 1877(h) (42 U.S.C.
1395nn(h)), as amended by section 8201(b)(6), is
amended by inserting before paragraph (4) the follow-
ing new paragraph:
‘‘(1) 
SHARED
FACILITY
RELATED
DEFINI-
TIONS.—
‘‘(A) 
SHARED
FACILITY
SERVICE.—The
term ‘shared facility service’ means, with respect
to a shared facility, a designated health service
furnished by the facility to patients of shared fa-
cility physicians.
‘‘(B) SHARED FACILITY.—The term ‘shared
facility’ means an entity that furnishes shared
facility services under a shared facility arrange-
ment.
‘‘(C) SHARED
FACILITY
PHYSICIAN.—The
term ‘shared facility physician’ means, with re-
spect to a shared facility, a physician (or a
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group practice of which the physician is a mem-
ber) who has a financial relationship under a
shared facility arrangement with the facility.
‘‘(D) SHARED
FACILITY
ARRANGEMENT.—
The term ‘shared facility arrangement’ means,
with respect to the provision of shared facility
services in a building, a financial arrange-
ment—
‘‘(i) which is only between physicians
who are providing services (unrelated to
shared facility services) in the same build-
ing,
‘‘(ii) in which the overhead expenses of
the facility are shared, in accordance with
methods previously determined by the phy-
sicians in the arrangement, among the phy-
sicians in the arrangement, and
‘‘(iii) which, in the case of a corpora-
tion, is wholly owned and controlled by
shared facility physicians.’’.
(e) NEW EXCEPTION FOR SERVICES FURNISHED IN
COMMUNITIES WITH NO ALTERNATIVE PROVIDERS.—Sec-
tion 1877(b) (42 U.S.C. 1395nn(b)), as amended by section
8201(b)(3)(C) and subsection (d)(1), is amended—
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(1) by redesignating paragraphs (5) through (8)
as paragraphs (6) through (9); and
(2) by inserting after paragraph (4) the follow-
ing new paragraph:
‘‘(5) NO ALTERNATIVE PROVIDERS IN AREA.—In
the case of a designated health service furnished in
any area with respect to which the Secretary deter-
mines that individuals residing in the area do not
have reasonable access to such a designated health
service for which subsection (a)(1) does not apply.’’.
(f) NEW EXCEPTION FOR SERVICES FURNISHED IN
AMBULATORY SURGICAL CENTERS.—Section 1877(b) (42
U.S.C. 1395nn(b)), as amended by section 8201(b)(3)(C),
subsection (d)(1), and subsection (e)(1), is amended—
(1) by redesignating paragraphs (6) through (9)
as paragraphs (7) through (10); and
(2) by inserting after paragraph (5) the follow-
ing new paragraph:
‘‘(6) SERVICES
FURNISHED
IN
AMBULATORY
SURGICAL
CENTERS.—In the case of a designated
health service furnished in an ambulatory surgical
center described in section 1832(a)(2)(F)(i).’’.
(g) NEW EXCEPTION FOR SERVICES FURNISHED IN
RENAL DIALYSIS FACILITIES.—Section 1877(b) (42 U.S.C.
1395nn(b)), as amended by section 8201(b)(3)(C), sub-
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section (d)(1), subsection (e)(1), and subsection (f), is
amended—
(1) by redesignating paragraphs (7) through (10)
as paragraphs (8) through (11); and
(2) by inserting after paragraph (6) the follow-
ing new paragraph:
‘‘(7) SERVICES FURNISHED IN RENAL DIALYSIS
FACILITIES.—In the case of a designated health serv-
ice furnished in a renal dialysis facility under section
1881.’’.
(h) NEW EXCEPTION FOR SERVICES FURNISHED IN A
HOSPICE.—Section 1877(b) (42 U.S.C. 1395nn(b)), as
amended by section 8201(b)(3)(C), subsection (d)(1), sub-
section (e)(1), subsection (f), and subsection (g), is amend-
ed—
(1) by redesignating paragraphs (8) through (11)
as paragraphs (9) through (12); and
(2) by inserting after paragraph (7) the follow-
ing new paragraph:
‘‘(8) SERVICES FURNISHED BY A HOSPICE PRO-
GRAM.—In the case of a designated health service fur-
nished 
by 
a 
hospice 
program 
under 
section
1861(dd)(2).’’.
(i) NEW EXCEPTION FOR SERVICES FURNISHED IN A
COMPREHENSIVE OUTPATIENT REHABILITATION FACIL-
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ITY.—Section 1877(b) (42 U.S.C. 1395nn(b)), as amended
by section 8201(b)(3)(C), subsection (d)(1), subsection
(e)(1), subsection (f), subsection (g), and subsection (h), is
amended—
(1) by redesignating paragraphs (9) through (12)
as paragraphs (10) through (13); and
(2) by inserting after paragraph (8) the follow-
ing new paragraph:
‘‘(9) SERVICES FURNISHED IN A COMPREHEN-
SIVE OUTPATIENT REHABILITATION FACILITY.—In the
case of a designated health service furnished in a com-
prehensive outpatient rehabilitation facility (as de-
fined in section 1861(cc)(2)).’’.
(j) 
DEFINITION
OF
REFERRAL.—Section
1877(h)(5)(A) (42 U.S.C. 1395nn(h)(5)(A)) is amended—
(1) by striking ‘‘an item or service’’ and insert-
ing ‘‘a designated health service’’, and
(2) by striking ‘‘the item or service’’ and insert-
ing ‘‘the designated health service’’.
SEC. 8205. EFFECTIVE DATE.
Except as provided in section 8203(b), the amendments
made by this subtitle shall apply to referrals made on or
after the date of the enactment of this Act, regardless of
whether or not regulations are promulgated to carry out
such amendments.
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Subtitle D—Modification in Pay-
ment Policies Regarding Grad-
uate Medical Education
SEC. 8301. INDIRECT MEDICAL EDUCATION PAYMENTS.
(a) MULTIYEAR TRANSITION REGARDING PERCENT-
AGES; 6.7 FOR 1996 TO 5.0 FOR 2001 AND AFTERWARDS.—
Section 
1886(D)(5)(B)(ii) 
(42 
U.S.C.
1395ww(d)(5)(B)(ii)) us amended to read as follows:
‘‘(ii) For purposes of clause (i)(II), the indirect
teaching adjustment factor is equal to c × (((1+r) to
the nth power)¥1), where ‘r’ is the ratio of the hos-
pital’s full-time equivalent interns and residents to
beds and ‘n’ equal .405. For discharges occurring on
or after—
‘‘(I) May 1, 1986, and before October 1,
1995, ‘c’ is equal to 1.89;
‘‘(II) October 1, 1995, and before October 1,
1996, ‘c’ is equal to 1.654;
‘‘(III) October 1, 1996, and before October
1, 1998, ‘c’ is equal to 1.481;
‘‘(IV) October 1, 1998, and before October 1,
1999, ‘c’ is equal to 1.383;
‘‘(V) October 1, 1999, and before October 1,
2000, ‘c’ is equal to 1.309; and
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‘‘(VI) October 1, 2000, ‘c’ is equal to
1.235.’’.
(b) 
NO
RESTANDARDIZATION
OF
PAYMENT
AMOUNTS
REQUIRED.—Section 
1886(d)(2)(C)(i) 
(42
U.S.C. 1395ww(d)(2)(C)(i)) is amended by striking ‘‘of
1985’’ and inserting ‘‘of 1985, but not taking into account
the amendments made by section 8301(a) of Medicate Pres-
ervation Act of 1995’’.
SEC. 8302. DIRECT GRADUATE MEDICAL EDUCATION.
(a) WEIGHTING FACTORS FOR RESIDENTS.—
(1) IN GENERAL.—Section 1886(h)(4)(C)(iv) (42
U.S.C. 1395ww(h)(4)(C)(iv)) is amended by striking
‘‘50’’ and inserting ‘‘0.25’’.
(2) EFFECTIVE DATE.—The amendment made by
paragraph (1) shall apply with respect to cost report-
ing periods beginning on or after October 1, 1997.
(b) LIMITATION ON AGGREGATE NUMBER OF FULL-
TIME RESIDENTS.—
Section 1886(h)(4) (42 U.S.C. 1395ww(h)(4)) is
amended by adding at the end the following new subpara-
graph:
‘‘(F) ADJUSTMENTS FOR CERTAIN FISCAL YEARS
IN PAYMENTS FOR PROGRAMS IN ALLOPATHIC AND OS-
TEOPATHIC MEDICINE.—
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‘‘(i) IN GENERAL.—With respect to a cost
reporting period, the Secretary shall in accord-
ance with clause (ii) adjust the payments for ap-
proved medical residency training programs in
the fields of allopathic medicine and osteopathic
medicine if, in the fiscal year in which such cost
reporting period begins, the number of full-time-
equivalent residents determined under this para-
graph with respect to all such programs exceeds
the number of full-time-equivalent residents de-
termined with respect to all such programs as of
August 1, 1995.
‘‘(ii) 
ADJUSTMENT
DESCRIBED.—Adjust-
ments under clause (i) shall be made with re-
spect to cost reporting periods such that the total
amount of payments under this subsection for
the fiscal year involved does not exceed the
amount that would have been paid under this
subsection for such year if the number of full-
time-equivalent 
residents 
determined 
under
clause (i) for the year had not exceeded the num-
ber of full-time-equivalent residents with respect
to all such programs as of August 1, 1995.
‘‘(iii) HOLD
HARMLESS.—The Secretary
may provide that approved medical residency
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training programs that reduced or did not ex-
pand the number of full-time-equivalent residents
determined under this paragraph for a cost re-
porting period shall not be subject to the adjust-
ment described in clause (i).
‘‘(iv) EFFECTIVE
DATE.—The adjustment
described in clause (i) shall apply with respect
to cost reporting periods beginning on or after
October 1, 1995, and on or before September 30,
2002.’’.
Subtitle E—Provisions Relating to
Part A
CHAPTER 1—GENERAL PROVISIONS
RELATING TO PART A
SEC. 8401. PPS HOSPITAL PAYMENT UPDATE.
Section 
1886(b)(3)(B)(i) 
(42 
U.S.C.
1395ww(b)(3)(B)(i)) is amended by striking subclauses
(XI), (XII), and (XIII) and inserting the following new
subclauses:
‘‘(XI) for fiscal year 1996 for hospitals in all
areas, the market basket percentage increase minus
2.5 percentage points,
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‘‘(XII) for fiscal years 1997 through 2002 for
hospitals in all areas, the market basket percentage
increase minus 2.0 percentage points, and
‘‘(XIII) for fiscal year 2003 and each subsequent
fiscal year for hospitals in all areas, the market bas-
ket percentage increase.’’.
SEC. 8402. PPS-EXEMPT HOSPITAL PAYMENTS.
(a) UPDATE.—
(1) IN GENERAL.—Section 1886(b)(3)(B)(ii) (42
U.S.C. 1395ww(b)(3)(B)(ii)) is amended—
(A) in subclause (V)—
(i) by striking ‘‘1997’’ and inserting
‘‘1995’’, and
(ii) by striking ‘‘and’’ at the end,
(B) by redesignating subclause (VI) as
subclause (VII); and
(C) by inserting after subclause (V), the fol-
lowing subclause:
‘‘(VI) except as provided in clause (vi), for fiscal
years 1996 through 2002, the market basket percent-
age increase minus the applicable reduction (as de-
fined in clause (vii)(II)); and’’.
(2) SPECIAL RULES FOR CERTAIN HOSPITALS.—
Section 1886(b)(3)(B) (42 U.S.C. 1395ww(b)(3)(B)))
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is amended by adding at the end the following new
clause:
‘‘(vi) For purposes of clause (ii)(VI), the ‘applicable
percentage increase’ for a hospital—
‘‘(I) for a fiscal year for which the hospital’s up-
date adjustment percentage (as defined in clause
(vii)(I)) is at least 10 percent, is the market basket
percentage increase, and
‘‘(II) for which 150 percent of the hospital’s al-
lowable operating costs of inpatient hospital services
recognized under this title for the most recent cost re-
porting period for which information is available is
less than the hospital’s target amount (as determined
under subparagraph (A)) for such cost reporting pe-
riod, is 0 percent.’’.
(3) DEFINITIONS.—Section 1886(b)(3)(B) (42
U.S.C. 1395ww(b)(3)(B)), as amended by paragraph
(2), is amended by adding at the end the following
new clause:
‘‘(vii) For purposes of clauses (ii)(VI) and (vi)—
‘‘(I) a hospital’s ‘update adjustment percentage’
for a fiscal year is the percentage by which the hos-
pital’s allowable operating costs of inpatient hospital
services recognized under this title for the most recent
cost reporting period for which information is avail-
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able exceeds the hospital’s target amount (as deter-
mined under subparagraph (A)) for such cost report-
ing period, and
‘‘(II) the ‘applicable reduction’ with respect to a
hospital for a fiscal year is 2.5 percentage points, re-
duced by 0.25 percentage point for each percentage
point (if any) the hospital’s update adjustment per-
centage for the fiscal year is less than 10 percentage
points.’’.
(3) EFFECT OF PAYMENT REDUCTION ON EXCEP-
TIONS AND ADJUSTMENTS.—Section 1886(b)(4)(A)(ii)
(42 U.S.C. 1395ww(b)(4)(A)(ii)) is amended by strik-
ing 
‘‘paragraph 
(3)(B)(ii)(V)’’ 
and 
inserting
‘‘subclause (V) or (VI) of paragraph (3)(B)(ii)’’.
(b) TARGET AMOUNTS
FOR REHABILITATION HOS-
PITALS
AND
LONG-TERM
CARE
HOSPITALS.—Section
1886(b)(3) (42 U.S.C. 1395ww(b)(3)) is amended—
(1) in subparagraph (A), in the matter preceding
clause (i), by striking ‘‘and (E)’’ and inserting ‘‘(E),
(F), and (G)’’; and
(2) by adding at the end the following new sub-
paragraphs:
‘‘(F) In the case of a rehabilitation hospital (or unit
thereof) (as described in clause (ii) of subsection (d)(1)(B)),
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for cost reporting periods beginning on or after October 1,
1995,—
‘‘(i) in the case of a hospital which first receives
payments under this section before October 1, 1995,
the target amount determined under subparagraph
(A) for such hospital or unit for a cost reporting pe-
riod beginning during a fiscal year shall not be less
than 50 percent of the national mean of the target
amounts determined under this paragraph for all
such hospitals for cost reporting periods beginning
during such fiscal year (determined without regard to
this subparagraph); and
‘‘(ii) in the case of a hospital which first receives
payments under this section on or after October 1,
1995, such target amount may not be greater than
130 percent of the national mean of the target
amounts for such hospitals (and units thereof) for cost
reporting periods beginning during fiscal year 1991.
‘‘(G) In the case of a hospital which has an average
inpatient length of stay of greater than 25 days (as de-
scribed in clause (iv) of subsection (d)(1)(B)), for cost re-
porting periods beginning on or after October 1, 1995—
‘‘(i) in the case of a hospital which first receives
payments under this section as a hospital that is not
a subsection (d) hospital or a subsection (d) Puerto
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Rico hospital before October 1, 1995, the target
amount determined under subparagraph (A) for such
hospital for a cost reporting period beginning during
a fiscal year shall not be less than 50 percent of the
national mean of the target amounts determined
under such subparagraph for all such hospitals for
cost reporting periods beginning during such fiscal
year (determined without regard to this subpara-
graph); and
‘‘(ii) in the case of any other hospital which first
receives payment under this section as a hospital de-
scribed in clause (i) on or after October 1, 1995, such
target amount may not be greater than 130 percent
(or, if the Secretary determines it is appropriate,
such alternative percentage based on case-mix and
DRG category) of such national mean of the target
amounts for such hospitals for cost reporting periods
beginning during fiscal year 1991.’’.
(c) REBASING FOR CERTAIN LONG-TERM CARE HOS-
PITALS.—
(1) IN GENERAL.—Section 1886(b)(3) (42 U.S.C.
1395ww(b)(3)), as amended by subsection (b), is
amended—
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(A) in subparagraph (A) in the matter pre-
ceding clause (i), by striking ‘‘and (G)’’ and in-
serting ‘‘(G), and (H)’’;
(B) in subparagraph (B)(ii), by striking
‘‘(A) and (E)’’ and inserting ‘‘(A), (E), and
(G)’’; and
(C) 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)), the term ‘target amount’
means—
‘‘(I) with respect to the first 12-month cost re-
porting period in which this subparagraph is applied
to the hospital, the allowable operating costs of inpa-
tient 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 1994; or
‘‘(II) with respect to a later cost reporting pe-
riod, the target amount for the preceding cost report-
ing period, increased by the applicable percentage in-
crease under subparagraph (B)(ii) for that later cost
reporting period.
‘‘(ii) In clause (i), a ‘qualified long-term care hospital’
means, with respect to a cost reporting period, a hospital
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described in clause (iv) of subsection (d)(1)(B) during fiscal
year 1995 for which the hospital’s allowable operating costs
of inpatient hospital services recognized under this title for
each of the two most recent previous 12-month cost report-
ing periods exceeded 115 percent of the hospital’s target
amount determined under this paragraph for such cost re-
porting periods, if the hospital has a disproportionate pa-
tient percentage during such cost reporting period (as deter-
mined by the Secretary under subsection (d)(5)(F)(vi) as
if the hospital were a subsection (d) hospital) of at least
70 percent.’’.
(2) EFFECTIVE DATE.—The amendment made by
paragraph (1) shall apply to discharges occurring
during cost reporting periods beginning on or after
October 1, 1995.
(d) TREATMENT OF CERTAIN LONG-TERM CARE HOS-
PITALS LOCATED WITHIN OTHER HOSPITALS.—
(1) IN
GENERAL.—Section 1886(d)(1)(B) (42
U.S.C. 1395ww(d)(1)(B)) is amended in the matter
following clause (v) by striking the period and insert-
ing the following: ‘‘, or a hospital classified by the
Secretary as a long-term care hospital on or before
September 30, 1995, and located in the same building
as, or on the same campus as, another hospital.’’.
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(2) EFFECTIVE DATE.—The amendment made by
paragraph (1) shall apply to discharges occurring on
or after October 1, 1995.
(e) CAPITAL
PAYMENTS
FOR
PPS-EXEMPT
HOS-
PITALS.—Section 1886(g) (42 U.S.C. 1395ww(g)) is amend-
ed by adding at the end the following new paragraph:
‘‘(4) In determining the amount of the payments that
may be made under this title with respect to all the capital-
related costs of inpatient hospital services furnished during
fiscal years 1996 through 2002 of a hospital which is not
a subsection (d) hospital or a subsection (d) Puerto Rico
hospital, the Secretary shall reduce the amounts of such
payments otherwise determined under this title by 10 per-
cent.’’.
SEC. 8403. REDUCTIONS IN DISPROPORTIONATE SHARE
PAYMENT ADJUSTMENTS.
(a) IN GENERAL.—Section 1886(d)(5)(F) (42 U.S.C.
1395ww(d)(5)(F)) is amended—
(1) in clause (ii), by striking ‘‘The amount’’ and
inserting ‘‘Subject to clause (ix), the amount’’; and
(2) by adding at the end the following new
clause:
‘‘(ix) In the case of discharges occurring on or after
October 1, 1995, the additional payment amount otherwise
determined under clause (ii) shall be reduced as follows:
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‘‘(I) For discharges occurring on or after October
1, 1995, and on or before September 30, 1996, by 5
percent.
‘‘(II) For discharges occurring on or after Octo-
ber 1, 1996, and on or before September 30, 1997, by
10 percent.
‘‘(III) For discharges occurring on or after Octo-
ber 1, 1997, and on or before September 30, 1998, by
17.5 percent.
‘‘(IV) For discharges occurring on or after Octo-
ber 1, 1998, and on or before September 30, 1999, by
25 percent.
‘‘(V) For discharges occurring on or after Octo-
ber 1, 1999, and on or before September 30, 2002, by
30 percent.’’.
(b) CONFORMING AMENDMENT RELATING TO DETER-
MINATION
OF
STANDARDIZED
AMOUNTS.—Section
1886(d)(2)(C)(iv) (42 U.S.C. 1395ww(d)(2)(C)(iv)) is
amended by striking the period at the end and inserting
the following: ‘‘, and the Secretary shall not take into ac-
count any reductions in the amount of such additional pay-
ments resulting from the amendments made by section
8403(a) of the Medicare Preservation Act of 1995.’’.
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(c) EFFECTIVE DATE.—The amendments made by sub-
sections (a) and (b) shall apply to discharges occurring on
or after October 1, 1995.
SEC. 8404. CAPITAL PAYMENTS FOR PPS HOSPITALS.
(a) REDUCTION IN PAYMENTS.—
(1) CONTINUATION OF CURRENT REDUCTIONS.—
Section 1886(g)(1)(A) (42 U.S.C. 1395ww(g)(1)(A))
is amended in the second sentence—
(A) by striking ‘‘through 1995’’ and insert-
ing ‘‘through 2002’’; and
(B) by inserting after ‘‘10 percent reduc-
tion’’ the following: ‘‘(or a 15 percent reduction
in the case of payments during fiscal years 1996
through 2002)’’.
(2) REDUCTION IN BASE PAYMENT RATES.—Sec-
tion 1886(g)(1)(A) (42 U.S.C. 1395ww(g)(1)(A)) is
amended by adding at the end the following new sen-
tence: ‘‘In addition to the reduction described in the
preceding sentence, for discharges occurring after Sep-
tember 30, 1995, the Secretary shall reduce by 7.47
percent the unadjusted standard Federal capital pay-
ment rate (as described in 42 CFR 412.308(c), as in
effect on the date of the enactment of the Medicare
Preservation Act of 1995) and shall reduce by 8.27
percent the unadjusted hospital-specific rate (as de-
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scribed in 42 CFR 412.328(e)(1), as in effect on such
date of enactment).’’.
(b) HOSPITAL-SPECIFIC ADJUSTMENT FOR CAPITAL-
RELATED TAX COSTS.—Section 1886(g)(1) (42 U.S.C.
1395ww(g)(1)) is amended—
(1) by redesignating subparagraph (C) as sub-
paragraph (D), and
(2) by inserting after subparagraph (B) the fol-
lowing subparagraph:
‘‘(C)(i) For discharges occurring after Sep-
tember 30, 1995, such system shall provide for
an adjustment in an amount equal to the
amount determined under clause (iv) for capital-
related tax costs for each hospital that is eligible
for such adjustment.
‘‘(ii) Subject to clause (iii), a hospital is el-
igible for an adjustment under this subpara-
graph, with respect to discharges occurring in a
fiscal year, if the hospital—
‘‘(I) is a hospital that may otherwise
receive payments under this subsection,
‘‘(II) is not a public hospital, and
‘‘(III) incurs capital-related tax costs
for the fiscal year.
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‘‘(iii)(I) In the case of a hospital that first
incurs capital-related tax costs in a fiscal year
after fiscal year 1992 because of a change from
nonproprietary to proprietary status or because
the hospital commenced operation after such fis-
cal year, the first fiscal year for which the hos-
pital shall be eligible for such adjustment is the
second full fiscal year following the fiscal year in
which the hospital first incurs such costs.
‘‘(II) In the case of a hospital that first in-
curs capital-related tax costs in a fiscal year
after fiscal year 1992 because of a change in
State or local tax laws, the first fiscal year for
which the hospital shall be eligible for such ad-
justment is the fourth full fiscal year following
the fiscal year in which the hospital first incurs
such costs.
‘‘(iv) The per discharge adjustment under
this clause shall be equal to the hospital-specific
capital-related tax costs per discharge of a hos-
pital for fiscal year 1992 (or, in the case of a
hospital that first incurs capital-related tax costs
for a fiscal year after fiscal year 1992, for the
first full fiscal year for which such costs are in-
curred), updated to the fiscal year to which the
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adjustment applies. Such per discharge adjust-
ment shall be added to the Federal capital rate,
after such rate has been adjusted as described in
42 CFR 412.312 (as in effect on the date of the
enactment of the Medicare Preservation Act of
1995), and before such rate is multiplied by the
applicable Federal rate percentage.
‘‘(v) For purposes of this subparagraph,
capital-related tax costs include—
‘‘(I) the costs of taxes on land and de-
preciable assets owned by a hospital and
used for patient care,
‘‘(II) payments in lieu of such taxes
(made by hospitals that are exempt from
taxation), and
‘‘(III) the costs of taxes paid by a hos-
pital as lessee of land, buildings, or fixed
equipment from a lessor that is unrelated to
the hospital under the terms of a lease that
requires the lessee to pay all expenses (in-
cluding mortgage, interest, and amortiza-
tion) and leaves the lessor with an amount
free of all claims (sometimes referred to as
a ‘net net net’ or ‘triple net’ lease).
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In determining the adjustment required under
clause (i), the Secretary shall not take into ac-
count any capital-related tax costs of a hospital
to the extent that such costs are based on tax
rates and assessments that exceed those for simi-
lar commercial properties.
‘‘(vi) The system shall provide that the Fed-
eral capital rate for any fiscal year after Sep-
tember 30, 1995, shall be reduced by a percent-
age sufficient to ensure that the adjustments re-
quired to be paid under clause (i) for a fiscal
year neither increase nor decrease the total
amount that would have been paid under this
system but for the payment of such adjustments
for such fiscal year.’’.
(d) REVISION OF EXCEPTIONS PROCESS UNDER PRO-
SPECTIVE PAYMENT SYSTEM FOR CERTAIN PROJECTS.—
(1) IN GENERAL.—Section 1886(g)(1) (42 U.S.C.
1395ww(g)(1)), as amended by subsection (c), is
amended—
(A) by redesignating subparagraph (D) as
subparagraph (E), and
(B) by inserting after subparagraph (C) the
following subparagraph:
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‘‘(D) The exceptions under the system provided by the
Secretary under subparagraph (B)(iii) shall include the
provision of exception payments under the special excep-
tions process provided under 42 CFR 412.348(g) (as in ef-
fect on September 1, 1995), except that the Secretary shall
revise such process 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 patient
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.
‘‘(iii) A hospital shall be considered to meet the
requirement that it completes the project involved no
later than the end of the hospital’s last cost reporting
period beginning after 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.
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‘‘(iv) Offsetting amounts, as described in 42 CFR
412.348(g)(8)(ii), shall apply except that subpara-
graph (B) of such section shall be revised to require
that the additional payment that would otherwise be
payable for the cost reporting period shall be reduced
by the amount (if any) by which the hospital’s cur-
rent year medicare capital payments (excluding, if
applicable, 75 percent of the hospital’s capital-related
disproportionate share payments) exceeds its medicare
capital costs for such year.’’.
(2) LIMIT
TO
ADDITIONAL
PAYMENTS.—The
amendment made by paragraph (1) shall not result
in aggregate additional payments under the special
exception process described in section 1886(b)(1)(D)
for fiscal years 1996 through 2000 in excess of an
amount equal to the sum of $50,000,000 per year
more than would have been paid in such fiscal years
if such amendment had not been enacted.
(3) 
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
(D)’’.
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SEC. 8405. REDUCTION IN PAYMENTS TO HOSPITALS FOR
ENROLLEES’ BAD DEBTS.
(a) IN GENERAL.—Section 1861(v)(1) (42 U.S.C.
1395x(v)(1)) is amended by adding at the end the following
new subparagraph:
‘‘(T)(i) 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 coin-
surance amounts under this title shall be reduced by—
‘‘(I) 75 percent for cost reporting periods begin-
ning during fiscal year 1996,
‘‘(II) 60 percent for cost reporting periods begin-
ning during fiscal year 1997, and
‘‘(III) 50 percent for subsequent cost reporting
periods.
‘‘(ii) Clause (i) shall not apply with respect to bad
debt of a hospital described in section 1886(d)(1)(B)(iv) if
the debt is attributable to uncollectable deductible and coin-
surance payments owed by individuals enrolled in a State
plan under title XIX or under the MediGrant program
under title XXI.’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to hospital cost reporting periods
beginning on or after October 1, 1995.
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SEC. 8406. INCREASE IN UPDATE FOR CERTAIN HOSPITALS
WITH A HIGH PROPORTION OF MEDICARE PA-
TIENTS.
Section 1886(b)(3) (42 U.S.C. 1395ww(b)(3)), as
amended by subsections (b) and (c)(1) of section 8402, is
amended by adding at the end the following new subpara-
graph:
‘‘(I)(i) For purposes of subsection (d), in the case of
a medicare-dependent hospital described in clause (ii), the
applicable percentage increase otherwise determined under
subparagraph (B)(i) shall be increased by—
‘‘(I) 0.5 percentage points for discharges occur-
ring during cost reporting periods beginning during
fiscal year 1996, and
‘‘(II) 0.3 percentage points for discharges occur-
ring during cost reporting periods beginning during
fiscal year 1997.
‘‘(ii) A hospital described in this clause with respect
to a cost reporting period is a subsection (d) hospital meet-
ing the following requirements:
‘‘(I) Not less than 60 percent of the hospital’s in-
patient days during the most recent cost reporting pe-
riod for which data is available were attributable to
inpatients entitled to benefits under part A.
‘‘(II) The hospital does not receive any addi-
tional payment amount under subsection (d)(5)(F)
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(relating to payments for hospitals serving a dis-
proportionate number of low-income patients) with
respect to discharges occurring during the fiscal year.
‘‘(III) The hospital does not receive any addi-
tional payment amount under subsection (d)(5)(B)
(relating to payment for the indirect costs of medical
education) or subsection (h) (relating to payment for
direct medical education costs).
‘‘(IV) In the case of a hospital located in a rural
area, the hospital has more than 100 beds.’’.
CHAPTER 2—PAYMENTS TO SKILLED
NURSING FACILITIES
Subchapter A—Prospective Payment System
SEC. 8410. PROSPECTIVE PAYMENT SYSTEM FOR SKILLED
NURSING FACILITIES.
Title XVIII (42 U.S.C. 1395 et seq.) is amended by
adding the following new section after section 1888:
‘‘PROSPECTIVE PAYMENT SYSTEM FOR SKILLED NURSING
FACILITIES
‘‘SEC. 1889. (a) ESTABLISHMENT OF SYSTEM.—Not-
withstanding any other provision of this title, the Secretary
shall establish a prospective payment system under which
fixed payments for episodes of care shall be made, instead
of payments determined under section 1861(v), section
1888, or section 1888A, to skilled nursing facilities for all
extended care services furnished during the benefit period
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established under section 1812(a)(2). Such payments shall
constitute payment for capital costs and all routine and
non-routine service costs covered under this title that are
furnished to individuals who are inpatients of skilled nurs-
ing facilities during such benefit period, except for physi-
cians’ services. The payment amounts shall vary depending
on case-mix, patient acuity, and such other factors as the
Secretary determines are appropriate. The prospective pay-
ment system shall apply for cost reporting periods (or por-
tions of cost reporting periods) beginning on or after Octo-
ber 1, 1997.
‘‘(b) 90 PERCENT OF LEVELS OTHERWISE IN EF-
FECT.—The Secretary shall establish the prospective pay-
ment amounts under subsection (a) at levels such that, in
the Secretary’s estimation, the amount of total payments
under this title shall not exceed 90 percent of the amount
of payments that would have been made under this title
for all routine and non-routine services and capital expend-
itures if this section had not been enacted.
‘‘(c) ADJUSTMENT IN RATES TO TAKE INTO ACCOUNT
BENEFICIARY COST-SHARING.—The Secretary shall reduce
the prospective payment rates established under this section
to take into account the beneficiary coinsurance amount re-
quired under section 1813(a)(3).’’.
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Subchapter B—Interim Payment System
SEC. 8411. PAYMENTS FOR ROUTINE SERVICE COSTS.
(a) CLARIFICATION OF DEFINITION OF ROUTINE SERV-
ICE COSTS.—Section 1888 (42 U.S.C. 1395yy) is amended
by adding at the end the following new subsection:
‘‘(e) For purposes of this section, the ‘routine service
costs’ of a skilled nursing facility are all costs which are
attributable to nursing services, room and board, adminis-
trative costs, other overhead costs, and all other ancillary
services (including supplies and equipment), excluding costs
attributable to covered non-routine services subject to pay-
ment amounts under section 1888A.’’.
(b) CONFORMING AMENDMENT.—Section 1888 (42
U.S.C. 1395yy) is amended in the heading by inserting
‘‘AND CERTAIN ANCILLARY’’ after ‘‘SERVICE’’.
SEC. 8412. COST-EFFECTIVE MANAGEMENT OF COVERED
NON-ROUTINE SERVICES.
(a) IN GENERAL.—Title XVIII (42 U.S.C. 1395 et
seq.) is amended by inserting after section 1888 the follow-
ing new section:
‘‘COST-EFFECTIVE MANAGEMENT OF COVERED NON-
ROUTINE SERVICES OF SKILLED NURSING FACILITIES
‘‘SEC. 1888A. (a) DEFINITIONS.—For purposes of this
section:
‘‘(1) COVERED
NON-ROUTINE
SERVICES.—The
term ‘covered non-routine services’ means post-hos-
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pital extended care services consisting of any of the
following:
‘‘(A) Physical or occupational therapy or
speech-language 
pathology 
services, 
or 
res-
piratory therapy, including
supplies and support services directly related to such
services and therapy.
‘‘(B) Prescription drugs.
‘‘(C) Complex medical equipment.
‘‘(D) Intravenous therapy and solutions (in-
cluding enteral and parenteral nutrients, sup-
plies, and equipment).
‘‘(E) Radiation therapy.
‘‘(F) Diagnostic services, including labora-
tory, radiology (including computerized tomog-
raphy services and imaging services), and pul-
monary services.
‘‘(2) SNF MARKET
BASKET
PERCENTAGE
IN-
CREASE.—The term ‘SNF market basket percentage
increase’ for a fiscal year means a percentage equal
to input price changes in routine service costs for the
year under section 1888(a).
‘‘(3) STAY.—The term ‘stay’ means, with respect
to an individual who is a resident of a skilled nurs-
ing facility, a period of continuous days during
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which the facility provides extended care services for
which payment may be made under this title for the
individual during the individual’s spell of illness.
‘‘(b) NEW PAYMENT METHOD FOR COVERED NON-
ROUTINE SERVICES BEGINNING IN FISCAL YEAR 1996.—
‘‘(1) IN GENERAL.—The payment method estab-
lished under this section shall apply with respect to
covered non-routine services furnished during cost re-
porting periods (or portions of cost reporting periods)
beginning on or after October 1, 1995.
‘‘(2) INTERIM PAYMENTS.—Subject to subsection
(c), a skilled nursing facility shall receive interim
payments under this title for covered non-routine
services furnished to an individual during cost report-
ing periods (or portions of cost reporting periods) de-
scribed in paragraph (1) in an amount equal to the
reasonable cost of providing such services in accord-
ance with section 1861(v). The Secretary may adjust
such payments if the Secretary determines (on the
basis of such estimated information as the Secretary
considers appropriate) that payments to the facility
under this paragraph for a cost reporting period
would substantially exceed the cost reporting period
amount determined under subsection (c)(2).
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‘‘(3) RESPONSIBILITY OF SKILLED NURSING FA-
CILITY TO MANAGE BILLINGS.—
‘‘(A) CLARIFICATION RELATING TO PART A
BILLING.—In the case of a covered non-routine
service furnished to an individual who (at the
time the service is furnished) is a resident of a
skilled nursing facility who is entitled to cov-
erage under section 1812(a)(2) for such service,
the skilled nursing facility shall submit a claim
for payment under this title for such service
under part A (without regard to whether or not
the item or service was furnished by the facility,
by others under arrangement with them made by
the facility, under any other contracting or con-
sulting arrangement, or otherwise).
‘‘(B) PART B BILLING.—In the case of a
covered non-routine service other than a portable
X-ray or portable electrocardiogram treated as a
physician’s service for purposes of section
1848(j)(3)) furnished to an individual who (at
the time the service is furnished) is a resident of
a skilled nursing facility who is not entitled to
coverage under section 1812(a)(2) for such serv-
ice but is entitled to coverage under part B for
such service, the skilled nursing facility shall
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submit a claim for payment under this title for
such service under part B (without regard to
whether or not the item or service was furnished
by the facility, by others under arrangement
with them made by the facility, under any other
contracting or consulting arrangement, or other-
wise). This subparagraph shall not apply to phy-
sician’s services furnished by a physician (as de-
fined in section 1861(r)(1)) to a resident of a
skilled nursing facility if such services are not
covered non-routine services (as defined in sec-
tion 1888A(a)(1)) or services for which routine
service costs (as defined in section 1888(e)) are
determined.
‘‘(C) MAINTAINING RECORDS ON SERVICES
FURNISHED TO RESIDENTS.—Each skilled nurs-
ing facility receiving payments for extended care
services under this title shall document on the fa-
cility’s cost report all covered non-routine serv-
ices furnished to all residents of the facility to
whom the facility provided extended care services
for which payment was made under part A or
B (including a portable X-ray or portable elec-
trocardiogram treated as a physician’s service
for purposes of section 1848(j)(3)) during a fiscal
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year (beginning with fiscal year 1996) (without
regard to whether or not the services were fur-
nished by the facility, by others under arrange-
ment with them made by the facility, under any
other contracting or consulting arrangement, or
otherwise).
‘‘(c) NO PAYMENT IN EXCESS OF PRODUCT OF PER
STAY AMOUNT AND NUMBER OF STAYS.—
‘‘(1) IN GENERAL.—If a skilled nursing facility
has received aggregate payments under subsection (b)
for covered non-routine services during a cost report-
ing period beginning during a fiscal year in excess of
an amount equal to the cost reporting period amount
determined under paragraph (2), the Secretary shall
reduce the payments made to the facility with respect
to such services for cost reporting periods beginning
during the following fiscal year in an amount equal
to such excess. The Secretary shall reduce payments
under this subparagraph at such times and in such
manner during a fiscal year as the Secretary finds
necessary to meet the requirement of this subpara-
graph.
‘‘(2) COST
REPORTING
PERIOD
AMOUNT.—The
cost reporting period amount determined under this
subparagraph is an amount equal to the product of—
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‘‘(A) the per stay amount applicable to the
facility under subsection (d) for the period; and
‘‘(B) the number of stays beginning during
the period for which payment was made to the
facility for such services.
‘‘(3) PROSPECTIVE REDUCTION IN PAYMENTS.—
In addition to the process for reducing payments de-
scribed in paragraph (1), the Secretary may reduce
payments made to a facility under this section during
a cost reporting period if the Secretary determines
(on the basis of such estimated information as the
Secretary considers appropriate) that payments to the
facility under this section for the period will substan-
tially exceed the cost reporting period amount for the
period determined under this paragraph.
‘‘(d) DETERMINATION
OF
FACILITY
PER
STAY
AMOUNT.—
‘‘(1) AMOUNT FOR FISCAL YEAR 1996.—
‘‘(A) IN GENERAL.—
‘‘(i) ESTABLISHMENT.—Except as pro-
vided in subparagraph (B) and clause (ii),
the Secretary shall establish a per stay
amount for each nursing facility for the 12-
month cost reporting period beginning dur-
ing fiscal year 1996 that is the facility-spe-
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cific stay amount for the facility (as deter-
mined under subsection (e)) for the last 12-
month cost reporting period ending on or
before December 31, 1994, increased (in a
compounded manner) by the SNF market
basket percentage increase (as defined in
subsection (a)(2)) for each fiscal year
through fiscal year 1996.
‘‘(ii) ADJUSTMENT
IF
IMPLEMENTA-
TION
DELAYED.—If the amount under
clause (i) is not established prior to the cost
reporting period described in clause (i), the
Secretary shall adjust such amount for
stays after such amount is established in
such a manner so as to recover any
amounts in excess of the amounts which
would have been paid for stays before such
date if the amount had been in effect for
such stays.
‘‘(B) FACILITIES NOT HAVING 1994 COST RE-
PORTING PERIOD.—In the case of a skilled nurs-
ing facility for which payments were not made
under this title for covered non-routine services
for the last 12-month cost reporting period end-
ing on or before December 31, 1994, the per stay
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amount for the 12-month cost reporting period
beginning during fiscal year 1996 shall be the
average of all per stay amounts determined
under subparagraph (A).
‘‘(2) AMOUNT FOR FISCAL YEAR 1997 AND SUBSE-
QUENT FISCAL YEARS.—The per stay amount for a
skilled nursing facility for a 12-month cost reporting
period beginning during a fiscal year after 1996 is
equal to the per stay amount established under this
subsection for the 12-month cost reporting period be-
ginning during the preceding fiscal year (without re-
gard to any adjustment under paragraph (1)(A)(ii)),
increased by the SNF market basket percentage in-
crease for such subsequent fiscal year minus 2.0 per-
centage points.
‘‘(e) DETERMINATION
OF FACILITY-SPECIFIC STAY
AMOUNTS.—The ‘facility-specific stay amount’ for a skilled
nursing facility for a cost reporting period is—
‘‘(1) the sum of—
‘‘(A) the amount of payments made to the
facility under part A during the period which
are attributable to covered non-routine services
furnished during a stay; and
‘‘(B) the Secretary’s best estimate of the
amount of payments made under part B during
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the period for covered non-routine services fur-
nished to all residents of the facility to whom the
facility provided extended care services for which
payment was made under part A during the pe-
riod (without regard to whether or not the serv-
ices were furnished by the facility, by others
under arrangement with them made by the facil-
ity under any other contracting or consulting ar-
rangement, or otherwise), as estimated by the
Secretary; divided by
‘‘(2) the average number of days per stay for all
residents of the skilled nursing facility receiving ex-
tended care services furnished during the benefit pe-
riod established under section 1812(a)(2).
‘‘(f) INTENSIVE NURSING OR THERAPY NEEDS.—
‘‘(1) IN GENERAL.—In applying subsection (b) to
covered non-routine services furnished during a stay
beginning during a cost reporting period to a resident
of a skilled nursing facility who requires intensive
nursing or therapy services, the per stay amount for
such resident shall be the per stay amount developed
under paragraph (2) instead of the per stay amount
determined under subsection (d)(1)(A).
‘‘(2) PER STAY AMOUNT FOR INTENSIVE NEED
RESIDENTS.—Upon the implementation of the pay-
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ment method established under this section, the Sec-
retary, after consultation with the Medicare Payment
Review Commission and skilled nursing facility ex-
perts, shall develop and publish a per stay amount for
residents of a skilled nursing facility who require in-
tensive nursing or therapy services..
‘‘(3) BUDGET NEUTRALITY.—The Secretary shall
adjust payments under subsection (b) in a manner
that ensures that total payments for covered non-rou-
tine services under this section are not greater or less
than total payments for such services would have been
but for the application of paragraph (1).
‘‘(g) EXCEPTIONS AND ADJUSTMENTS TO AMOUNTS.—
‘‘(1) IN GENERAL.—The Secretary may make ex-
ceptions and adjustments to the cost reporting period
amounts applicable to a skilled nursing facility under
subsection (c)(2) for a cost reporting period, except
that the total amount of any additional payments
made under this section for covered non-routine serv-
ices during the cost reporting period as a result of
such exceptions and adjustments may not exceed 5
percent of the aggregate payments made to all skilled
nursing facilities for covered non-routine services dur-
ing the cost reporting period (determined without re-
gard to this paragraph).
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‘‘(2) BUDGET NEUTRALITY.—The Secretary shall
adjust payments under subsection (b) in a manner
that ensures that total payments for covered non-rou-
tine services under this section are not greater or less
than total payments for such services would have been
but for the application of paragraph (1).
‘‘(h) SPECIAL TREATMENT FOR MEDICARE LOW VOL-
UME SKILLED NURSING FACILITIES.—The Secretary shall
determine an appropriate manner in which to apply this
section, taking into account the purposes of this section, to
non-routine costs of a skilled nursing facility for which pay-
ment is made for routine service costs during a cost report-
ing period on the basis of prospective payments under sec-
tion 1888(d).
‘‘(i) SPECIAL RULE FOR X-RAY SERVICES.—Before
furnishing a covered non-routine service consisting of an
X-ray service for which payment may be made under part
A or part B to a resident, a skilled nursing facility shall
consider whether furnishing the service through a provider
of portable X-ray service services would be appropriate, tak-
ing into account the cost effectiveness of the service and the
convenience to the resident.
‘‘(j) MAINTAINING SAVINGS FROM PAYMENT SYS-
TEM.—The prospective payment system established under
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section 1889 shall reflect the payment methodology estab-
lished under this section for covered non-routine services.’’.
(b) CONFORMING AMENDMENT.—Section 1814(b) (42
U.S.C. 1395f(b)) is amended in the matter preceding para-
graph (1) by striking ‘‘1813 and 1886’’ and inserting
‘‘1813, 1886, 1888, 1888A, and 1889’’.
SEC. 8413. PAYMENTS FOR ROUTINE SERVICE COSTS.
(a) MAINTAINING SAVINGS RESULTING FROM TEM-
PORARY FREEZE ON PAYMENT INCREASES.—
(1) BASING UPDATES TO PER DIEM COST LIMITS
ON LIMITS FOR FISCAL YEAR 1993.—
(A) IN GENERAL.—The last sentence of sec-
tion 1888(a) (42 U.S.C. 1395yy(a)) is amended
by adding at the end the following: ‘‘(except that
such updates may not take into account any
changes in the routine service costs of skilled
nursing facilities occurring during cost reporting
periods which began during fiscal year 1994 or
fiscal year 1995).’’.
(B) NO EXCEPTIONS PERMITTED BASED ON
AMENDMENT.—The Secretary of Health and
Human Services shall not consider the amend-
ment made by subparagraph (A) in making any
adjustments pursuant to section 1888(c) of the
Social Security Act.
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(2) PAYMENTS
TO
LOW
MEDICARE
VOLUME
SKILLED NURSING FACILITIES.—Any change made by
the Secretary of Health and Human Services in the
amount of any prospective payment paid to a skilled
nursing facility under section 1888(d) of the Social
Security Act for cost reporting periods beginning on
or after October 1, 1995, may not take into account
any changes in the costs of services occurring during
cost reporting periods which began during fiscal year
1994 or fiscal year 1995.
(b) BASING 1996 LIMITS ON NEW DEFINITION OF
ROUTINE COSTS.—The Secretary of Health and Human
Services shall take into account the new definition of rou-
tine service costs under section 1888(e) of the Social Secu-
rity Act, as added by section 8411, in determining the rou-
tine per diem cost limits under section 1888(a) for fiscal
year 1996 and each fiscal year thereafter.
(c) ESTABLISHMENT OF SCHEDULE FOR MAKING AD-
JUSTMENTS
TO
LIMITS.—Section 1888(c) (42 U.S.C.
1395yy(c)) is amended by striking the period at the end
of the second sentence and inserting ‘‘, and may only make
adjustments under this subsection with respect to a facility
which applies for an adjustment during an annual applica-
tion period established by the Secretary.’’.
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crease (as defined in section 1888A(a)(2)) for each fis-
cal year.’’.
(e) MAINTAINING SAVINGS FROM PAYMENT SYSTEM.—
The prospective payment system established under section
1889 of the Social Security Act, as added by section 8410,
shall reflect the routine per diem cost limits under section
1888(a) of such Act.
SEC. 8414. REDUCTIONS IN PAYMENT FOR CAPITAL-RELAT-
ED COSTS.
(a) IN GENERAL.—Section 1861(v)(1) (42 U.S.C.
1395x(v)(1)), as amended by section 8405(a), is amended
by adding at the end the following new subparagraph:
‘‘(U) Such regulations shall provide that, in determin-
ing the amount of the payments that may be made under
this title with respect to all the capital-related costs of
skilled nursing facilities, the Secretary shall reduce the
amounts of such payments otherwise established under this
title by 10 percent for payments attributable to portions
of cost reporting periods occurring beginning in fiscal years
1996 through 2002.’’.
(b) MAINTAINING SAVINGS RESULTING FROM 10 PER-
CENT CAPITAL REDUCTION.—The prospective payment sys-
tem established under section 1889 of the Social Security
Act, as added by section 8410 of this Act, shall reflect the
10 percent reduction in payments for capital-related costs
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of skilled nursing facilities as such reduction is in effect
under section 1861(v)(1)(U) of the Social Security Act, as
added by subsection (a).
SEC. 8415. TREATMENT OF ITEMS AND SERVICES PAID FOR
UNDER PART B.
(a) REQUIRING PAYMENT FOR ALL ITEMS AND SERV-
ICES TO BE MADE TO FACILITY.—
(1) IN GENERAL.—The first sentence of section
1842(b)(6) (42 U.S.C. 1395u(b)(6)) is amended—
(A) by striking ‘‘and (D)’’ and inserting
‘‘(D)’’; and
(B) by striking the period at the end and
inserting the following: ‘‘, and (E) in the case of
an item or service (other than a portable X-ray
or portable electrocardiogram treated as a physi-
cian’s service for purposes of section 1848(j)(3))
furnished to an individual who (at the time the
item or service is furnished) is a resident of a
skilled nursing facility, payment shall be made
to the facility (without regard to whether or not
the item or service was furnished by the facility,
by others under arrangement with them made by
the facility, under any other contracting or con-
sulting arrangement, or otherwise), except that
this subparagraph shall not preclude a physician
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(as defined in section 1861(r)(1)) from receiving
payment for physician’s services provided to a
resident of a skilled nursing facility if such serv-
ices are not covered non-routine services (as de-
fined in section 1888A(a)(1)) or services for
which routine service costs (as defined in section
1888(e)) are determined.’’.
(2) EXCLUSION FOR ITEMS AND SERVICES NOT
BILLED
BY
FACILITY.—Section 1862(a) (42 U.S.C.
1395y(a)) is amended—
(A) by striking ‘‘or’’ at the end of para-
graph (14);
(B) by striking the period at the end of
paragraph (15) and inserting ‘‘; or’’; and
(C) by inserting after paragraph (15) the
following new paragraph:
‘‘(16) where such expenses are for covered non-
routine services (as defined in section 1888A(a)(1))
(other than a portable X-ray or portable electrocardio-
gram treated as a physician’s service for purposes of
section 1848(j)(3)) furnished to an individual who is
a resident of a skilled nursing facility and for which
the claim for payment under this title is not submit-
ted by the facility.’’.
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(3) 
CONFORMING
AMENDMENT.—Section
1832(a)(1) (42 U.S.C. 1395k(a)(1)) is amended by
striking ‘‘(2);’’ and inserting ‘‘(2) and section
1842(b)(6)(E);’’.
(b) REDUCTION IN PAYMENTS FOR ITEMS AND SERV-
ICES FURNISHED BY OR UNDER ARRANGEMENTS WITH FA-
CILITIES.—Section 1861(v)(1) (42 U.S.C. 1395x(v)(1)), as
amended by section 8405(a) and section 8414(a), is amend-
ed by adding at the end the following new subparagraph:
‘‘(V) In the case of an item or service furnished by
a skilled nursing facility (or by others under arrangement
with them made by a skilled nursing facility or under any
other contracting or consulting arrangement or otherwise)
for which payment is made under part B in an amount
determined in accordance with section 1833(a)(2)(B), the
Secretary shall reduce the reasonable cost for such item or
service otherwise determined under clause (i)(I) of such sec-
tion by 5.8 percent for payments attributable to portions
of cost reporting periods occurring during fiscal years 1996
through 2002.’’.
SEC. 8416. MEDICAL REVIEW PROCESS.
In order to ensure that medicare beneficiaries are fur-
nished appropriate extended care services, the Secretary of
Health and Human Services shall establish and implement
a thorough medical review process to examine the effects of
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the amendments made by this subchapter on the quality of
extended care services furnished to medicare beneficiaries.
In developing such a medical review process, the Secretary
shall place a particular emphasis on the quality of non-
routine covered services for which payment is made under
section 1888A of the Social Security Act.
SEC. 8417. REPORT BY MEDICARE PAYMENT REVIEW COM-
MISSION.
Not later than October 1, 1997, the Medicare Payment
Review Commission shall submit to Congress a report on
the system under which payment is made under the medi-
care program for extended care services furnished by skilled
nursing facilities, and shall include in the report the follow-
ing:
(1) An analysis of the effect of the methodology
established under section 1888A of the Social Security
Act (as added by section 8412) on the payments for,
and the quality of, extended care services under the
medicare program.
(2) An analysis of the advisability of determin-
ing the amount of payment for covered non-routine
services of facilities (as described in such section) on
the basis of the amounts paid for such services when
furnished by suppliers under part B of the medicare
program.
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(3) An analysis of the desirability of maintain-
ing separate routine cost-limits for hospital-based and
freestanding facilities in the costs of extended care
services recognized as reasonable under the medicare
program.
(4) An analysis of the quality of services fur-
nished by skilled nursing facilities.
(5) An analysis of the adequacy of the process
and standards used to provide exceptions to the limits
described in paragraph (3).
(6) An analysis of the effect of the prospective
payment methodology established under section 1889
of the Social Security Act (as added by section 8410)
on the payments for, and the quality of, extended care
services under the medicare program, including an
evaluation of the baseline used in establishing a sys-
tem for payment for extended care services furnished
by skilled nursing facilities.
SEC. 8418. EFFECTIVE DATE.
Except as otherwise provided in this subchapter, the
amendments made by this subchapter shall apply to services
furnished during cost reporting periods (or portions of cost
reporting periods) beginning on or after October 1, 1995.
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CHAPTER 3—OTHER PROVISIONS
RELATING TO PART A
SEC. 8421. PAYMENTS FOR HOSPICE SERVICES.
Section 
1814(i)(1)(C)(ii) 
(42 
U.S.C.
1395f(i)(1)(C)(ii)) is amended by striking subclauses (IV),
(V), and (VI), and inserting the following subclauses:
‘‘(IV) for fiscal years 1996 through 2002, the
market basket percentage increase for the fiscal year
minus 2.0 percentage points; and
‘‘(V) for a subsequent fiscal year, the market bas-
ket percentage increase for the fiscal year.’’.
SEC. 8422. PERMANENT EXTENSION OF HEMOPHILIA PASS-
THROUGH.
Effective as if included in the enactment of OBRA–
1989, section 6011(d) of such Act (as amended by section
13505 of OBRA–1993) is amended by striking ‘‘and shall
expire September 30, 1994’’.
Subtitle F—Provisions Relating to
Part B
CHAPTER 1—PAYMENT REFORMS
SEC. 8501. PAYMENTS FOR PHYSICIANS’ SERVICES.
(a) ESTABLISHING UPDATE TO CONVERSION FACTOR
TO MATCH SPENDING UNDER SUSTAINABLE GROWTH
RATE.—
(1) UPDATE.—
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(A) IN GENERAL.—Section 1848(d)(3) (42
U.S.C. 1395w–4(d)(3)) is amended to read as
follows:
‘‘(3) UPDATE.—
‘‘(A) IN GENERAL.—Unless Congress other-
wise provides, subject to subparagraph (E), for
purposes of this section the update for a year
(beginning with 1997) is equal to the product
of—
‘‘(i) 1 plus the Secretary’s estimate of
the percentage increase in the medicare eco-
nomic index (described in the fourth sen-
tence of section 1842(b)(3)) for the year (di-
vided 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.—The
‘update adjustment factor’ for a year is equal to
the quotient of—
‘‘(i) the difference between (I) the sum
of the allowed expenditures for physicians’
services furnished during each of the years
1995 through the year involved and (II) the
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HR 2491 EAS
sum of the amount of actual expenditures
for physicians’ services furnished during
each of the years 1995 through the previous
year; divided by
‘‘(ii) the Secretary’s estimate of al-
lowed expenditures for physicians’ services
furnished during the year.
‘‘(C) DETERMINATION
OF
ALLOWED
EX-
PENDITURES.—For purposes of subparagraph
(B), allowed expenditures for physicians’ services
shall be determined as follows (as estimated by
the Secretary):
‘‘(i) In the case of allowed expenditures
for 1995, such expenditures shall be equal to
actual expenditures for services furnished
during the 12-month period ending with
June 30, 1995.
‘‘(ii) In the case of allowed expendi-
tures for 1996 and each subsequent year,
such expenditures shall be equal to allowed
expenditures for the previous year, in-
creased by the sustainable growth rate
under subsection (f) for the fiscal year
which begins during the year.
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‘‘(D) DETERMINATION OF ACTUAL EXPENDI-
TURES.—For purposes of subparagraph (B), the
amount of actual expenditures for physicians’
services furnished during a year shall be equal to
the amount of expenditures for such services dur-
ing the 12-month period ending with June of the
previous year.
‘‘(E) 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 para-
graph for the year may not be—
‘‘(i) greater than 103 percent of 1 plus
the Secretary’s estimate of the percentage
increase in the medicare economic index
(described in the fourth sentence of section
1842(b)(3)) for the year (divided by 100),
minus 1 and multiplied by 100; or
‘‘(ii) less than 93 percent of 1 plus the
Secretary’s estimate of the percentage in-
crease in the medicare economic index (de-
scribed in the fourth sentence of section
1842(b)(3)) for the year (divided by 100),
minus 1 and multiplied by 100.’’.
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(B) EFFECTIVE
DATE.—The amendments
made by subparagraph (A) shall apply to physi-
cians’ services furnished on or after January 1,
1997.
(2) CONFORMING
AMENDMENTS.—(A) Section
1848(d)(2)(A) (42 U.S.C. 1395w–4(d)(2)(A)) is
amended—
(i) in the matter preceding clause (i)—
(I) by striking ‘‘(or updates) in the
conversion factor (or factors)’’ and inserting
‘‘in the conversion factor’’;
(II) by striking ‘‘(beginning with
1991)’’ and inserting ‘‘(beginning with
1996)’’; and
(III) by striking the second sentence;
(ii) by amending clause (ii) to read as fol-
lows:
‘‘(ii) such factors as enter into the cal-
culation of the update adjustment factor as
described in paragraph (3)(B); and’’;
(iii) by amending clause (iii) to read as fol-
lows:
‘‘(iii) access to services.’’;
(iv) by striking clauses (iv), (v), and (vi);
and
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(v) by striking the last sentence.
(B) Section 1848(d)(2)(B) (42 U.S.C. 1395w–
4(d)(2)(B)) is amended—
(i) by striking ‘‘and’’ at the end of clause
(iii);
(ii) by striking the period at the end of
clause (iv) and inserting ‘‘; and’’; and
(iii) by adding at the end the following new
clause:
‘‘(v) changes in volume or intensity of
services.’’.
(C) Section 1848(d)(2) (42 U.S.C. 1395w4–
(d)(2)) is further amended—
(i) by striking subparagraphs (C), (D), and
(E);
(ii) by redesignating subparagraph (F) as
subparagraph (C); and
(iii) in subparagraph (C), as redesignated,
by striking ‘‘(or updates) in the conversion factor
(or factors)’’ and inserting ‘‘in the conversion
factor’’.
(b) REPLACEMENT OF VOLUME PERFORMANCE STAND-
ARD WITH SUSTAINABLE GROWTH RATE.—
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(1) 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.—
‘‘(A) FISCAL YEAR 1996.—The sustainable
growth rate for all physicians’ services for fiscal
year 1996 shall be equal to the product of—
‘‘(i) 1 plus the Secretary’s estimate of
the percentage change in the medicare eco-
nomic index for 1996 (described in the
fourth sentence of section 1842(b)(3)) (di-
vided by 100),
‘‘(ii) 1 plus the Secretary’s estimate of
the percentage change (divided by 100) in
the average number of individuals enrolled
under this part (other than private plan en-
rollees) from fiscal year 1995 to fiscal year
1996,
‘‘(iii) 1 plus the Secretary’s estimate of
the projected percentage growth in real gross
domestic product per capita (divided by
100) from fiscal year 1995 to fiscal year
1996, plus 2 percentage points, and
‘‘(iv) 1 plus the Secretary’s estimate of
the percentage change (divided by 100) in
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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 serv-
ices furnished to a private plan enrollee.
‘‘(B) PRIVATE PLAN ENROLLEE.—The term
‘private plan enrollee’ means, with respect to a
fiscal year, an individual enrolled under this
part who has elected to receive benefits under
this title for the fiscal year through a
MedicarePlus plan offered under part C or
through enrollment with an eligible organization
with a risk-sharing contract under section
1876.’’.
(2) CONFORMING AMENDMENTS.—Section 1848(f)
(42 U.S.C. 1395w–4(f)) is amended—
(A) in the heading, by striking ‘‘VOLUME
PERFORMANCE STANDARD RATES OF INCREASE’’
and inserting ‘‘SUSTAINABLE GROWTH RATE’’;
(B) in paragraph (1)—
(i) in the heading, by striking ‘‘VOL-
UME
PERFORMANCE
STANDARD
RATES
OF
INCREASE’’ and inserting ‘‘SUSTAINABLE
GROWTH RATE’’;
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(ii) in subparagraph (A), in the mat-
ter preceding clause (i), by striking ‘‘per-
formance standard rates of increase’’ and
inserting ‘‘sustainable growth rate’’; and
(iii) in subparagraph (A), by striking
‘‘HMO enrollees’’ each place such term ap-
pears and inserting ‘‘private plan enroll-
ees’’;
(C) in subparagraph (B), by striking ‘‘per-
formance standard rates of increase’’ and insert-
ing ‘‘sustainable growth rate’’; and
(D) in subparagraph (C)—
(i) in the heading, by striking ‘‘PER-
FORMANCE STANDARD RATES OF INCREASE’’
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
1997), the sustainable growth rate for the
fiscal year beginning in that year.’’; and
(iii) in the second sentence, by striking
‘‘January 1, 1990, the performance stand-
ard rate of increase under subparagraph
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(D) for fiscal year 1990’’ and inserting
‘‘January 1, 1997, the sustainable growth
rate for fiscal year 1997’’.
(c) ESTABLISHMENT OF SINGLE CONVERSION FACTOR
FOR 1996.—
(1) IN GENERAL.—Section 1848(d)(1) (42 U.S.C.
1395w–4(d)(1)) is amended—
(A) by redesignating subparagraph (C) as
subparagraph (D); and
(B) by inserting after subparagraph (B) the
following new subparagraph:
‘‘(C) SPECIAL RULE FOR 1996.—For 1996,
the conversion factor under this subsection shall
be $35.42 for all physicians’ services.’’.
(2) CONFORMING
AMENDMENTS.—Section 1848
(42 U.S.C. 1395w–4) is amended—
(A) by striking ‘‘(or factors)’’ each place it
appears 
in 
subsection 
(d)(1)(A) 
and
(d)(1)(D)(ii) (as redesignated by paragraph
(1)(a));
(B) in subsection (d)(1)(A), by striking ‘‘or
updates’’;
(C) in subsection (d)(1)(D)(ii) (as redesig-
nated by paragraph (1)(a)), by striking ‘‘(or up-
dates)’’; and
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(D) in subsection (i)(1)(C), by striking
‘‘conversion factors’’ and inserting ‘‘the conver-
sion factor’’.
SEC. 8502. ELIMINATION OF FORMULA-DRIVEN OVERPAY-
MENTS FOR CERTAIN OUTPATIENT HOSPITAL
SERVICES.
(a) AMBULATORY SURGICAL 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).’’.
(b) RADIOLOGY SERVICES AND DIAGNOSTIC PROCE-
DURES.—Section 
1833(n)(1)(B)(i)(II) 
(42 
U.S.C.
1395l(n)(1)(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).’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to services furnished during portions of
cost reporting periods occurring on or after October 1, 1995.
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SEC. 8503. EXTENSION OF REDUCTIONS IN PAYMENTS FOR
COSTS OF HOSPITAL OUTPATIENT SERVICES.
(a) REDUCTION IN PAYMENTS FOR CAPITAL-RELATED
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 2002’’.
(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 2002’’.
SEC. 8504. REDUCTION IN UPDATES TO PAYMENT AMOUNTS
FOR 
CLINICAL 
DIAGNOSTIC 
LABORATORY
TESTS.
(a) 
CHANGE
IN
UPDATE.—Section
1833(h)(2)(A)(ii)(IV) (42 U.S.C. 1395l(h)(2)(A)(ii)(IV)) is
amended by striking ‘‘1994 and 1995’’ and inserting ‘‘1994
through 2002’’.
(b) LOWERING CAP ON PAYMENT AMOUNTS.—Section
1833(h)(4)(B) (42 U.S.C. 1395l(h)(4)(B)) is amended—
(1) in clause (vi), by striking ‘‘and’’ at the end;
(2) in clause (vii)—
(A) by inserting ‘‘and before January 1,
1997,’’ after ‘‘1995,’’, and
(B) by striking the period at the end and
inserting ‘‘, and’’; and
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(3) by adding at the end the following new
clause:
‘‘(viii) after December 31, 1996, is equal to 65
percent of such median.’’.
SEC. 8505. PAYMENTS FOR DURABLE MEDICAL EQUIPMENT.
(a) REDUCTION IN PAYMENT AMOUNTS FOR ITEMS OF
DURABLE MEDICAL EQUIPMENT.—
(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, and 1995’’, 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 1996 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.’’.
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(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);
(B) by redesignating clause (iv) as clause
(v); and
(C) by inserting after clause (iii) the follow-
ing new clause:
‘‘(iv) for each of the years 1996
through 2002, 1 percent, and’’.
(b) OXYGEN AND OXYGEN EQUIPMENT.—
(1) IN
GENERAL.—Section 1834(a)(9)(C) (42
U.S.C. 1395m(a)(9)(C)) is amended—
(A) by striking ‘‘and’’ at the end of clause
(iii);
(B) in clause (iv)—
(i) by striking ‘‘a subsequent year’’
and inserting ‘‘1993, 1994, and 1995’’, and
(ii) by striking the period at the end
and inserting a semicolon; and
(C) by adding at the end the following new
clauses:
‘‘(v) in each of the years 1996 through
2002, is the national limited monthly pay-
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ment rate computed under subparagraph
(B) for the item for the year reduced by the
applicable percentage described in subpara-
graph (D) (but in no case may the amount
determined under this clause be less than 70
percent of such national limited payment
rate); and
‘‘(vi) in a subsequent year, is the na-
tional limited monthly payment rate com-
puted under subparagraph (B) for the item
for the year.’’.
(2) APPLICABLE PERCENTAGE DESCRIBED.—Sec-
tion 1834(a)(9) (42 1395m(a)(9)) is amended by add-
ing at the end the following new subparagraph:
‘‘(D) 
APPLICABLE
PERCENTAGE
DE-
SCRIBED.—In clause (v) of subparagraph (C),
the ‘applicable percentage’ with respect to a year
described in such clause is—
‘‘(i) for 1996, 20 percent,
‘‘(ii) for 1997, 212⁄3 percent,
‘‘(iii) for 1998, 231⁄3 percent,
‘‘(iv) for 1999, 25 percent,
‘‘(v) for 2000, 262⁄3 percent,
‘‘(vi) for 2001, 281⁄3 percent, and
‘‘(vii) for 2002, 30 percent.’’.
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(c) PAYMENT FREEZE FOR PARENTERAL AND EN-
TERAL NUTRIENTS, SUPPLIES, AND EQUIPMENT.—In deter-
mining 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 1996 through 2002, the charges determined to be
reasonable with respect to such nutrients, supplies, and
equipment may not exceed the charges determined to be rea-
sonable with respect to such nutrients, supplies, and equip-
ment during 1993.
SEC. 8506. UPDATES FOR AMBULATORY SURGICAL SERV-
ICES.
Section 1833(i)(2)(C) (42 U.S.C. 1395l(i)(2)(C)) is
amended—
(1) by striking ‘‘1996’’ and inserting ‘‘2003’’;
and
(2) by inserting before the first sentence the fol-
lowing new sentence: ‘‘Notwithstanding the second
sentence of subparagraph (A) or the second sentence
of subparagraph (B), the Secretary shall not update
amounts established under such subparagraphs for fis-
cal years 1996 through 2002.’’
SEC. 8507. PAYMENTS FOR AMBULANCE SERVICES.
Section 1861(v)(1) (42 U.S.C. 1395x(v)(1)), as amend-
ed by section 8405(a), section 8414(a), and section 8415(b),
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is amended by adding at the end the following new subpara-
graph:
‘‘(W) In determining the reasonable cost or
charge of ambulance services for fiscal years 1996
through 2002, the Secretary shall not recognize any
costs in excess of costs recognized as reasonable for fis-
cal year 1995.’’.
SEC. 8508. ENSURING PAYMENT FOR PHYSICIAN AND
NURSE FOR JOINTLY FURNISHED ANESTHE-
SIA SERVICES.
(a) PAYMENT
FOR
JOINTLY
FURNISHED
SINGLE
CASE.—
(1) 
PAYMENT
TO
PHYSICIAN.—Section
1848(a)(4) (42 U.S.C. 1395w–4(a)(4)) is amended by
adding at the end the following new subparagraph:
‘‘(C) PAYMENT
FOR
SINGLE
CASE.—Not-
withstanding section 1862(a)(1)(A), with respect
to physicians’ services consisting of the furnish-
ing of anesthesia services for a single case that
are furnished jointly with a certified registered
nurse anesthetist, if the carrier determines that
the use of both the physician and the nurse anes-
thetist to furnish the anesthesia service was not
medically necessary, the fee schedule amount for
the physicians’ services shall be equal to 50 per-
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cent (or 55 percent, in the case of services fur-
nished during 1996 or 1997) of the fee schedule
amount applicable under this section for anesthe-
sia services personally performed by the physi-
cian alone (without regard to this subpara-
graph). Nothing in this subparagraph may be
construed to affect the application of any provi-
sion of law regarding balance billing.’’.
(2) PAYMENT TO CRNA.—Section 1833(l)(4)(B)
(42 U.S.C. 1395l(l)(4)(B)) is amended by adding at
the end the following new clause:
‘‘(iv) Notwithstanding section 1862(a)(1)(A), in the
case of services of a certified registered nurse anesthetist
consisting of the furnishing of anesthesia services for a sin-
gle case that are furnished jointly with a physician, if the
carrier determines that the use of both the physician and
the nurse anesthetist to furnish the anesthesia service was
not medically necessary, the fee schedule amount for the
services furnished by the certified registered nurse anes-
thetist shall be equal to 50 percent (or 40 percent, in the
case of services furnished during 1996 or 1997) of the fee
schedule amount applicable under section 1848 for anesthe-
sia services personally performed by the physician alone
(without regard to this clause).’’.
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(b) EFFECTIVE DATE.—The amendments made by sub-
sections (a) shall apply to services furnished on or after
July 1, 1996.
CHAPTER 2—PART B PREMIUM
SEC. 8511. PROMOTING SOLVENCY OF PART A TRUST FUND
THROUGH PART B PREMIUM.
(a) IN GENERAL.—Section 1839(e)(1) (42 U.S.C.
1395r(e)(1)) is amended—
(1) in subparagraph (A), by striking ‘‘1999’’ and
inserting ‘‘2003’’, and
(2) by adding at the end the following new sub-
paragraph:
‘‘(C)(i) For each month beginning with January 1996
through December 2002, the amount of the monthly pre-
mium under this part shall be increased by an amount
equal to 13 percent of the monthly actuarial rate for enroll-
ees age 65 and over, as determined under subsection (a)(1)
and applicable to such month.
‘‘(ii) The Secretary shall transfer amounts received
pursuant to clause (i) to the Federal Hospital Insurance
Trust Fund.
‘‘(iii) In applying section 1844(a), amounts attrib-
utable to clause (i) shall not be counted in determining the
dollar amount of the premium per enrollee under para-
graph (1)(A) or (1)(B).’’.
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(b) EFFECTIVE DATE.—The amendments made by sub-
section (a) apply to premiums for months beginning with
January 1996.
SEC. 8512. INCOME-RELATED REDUCTION IN MEDICARE
SUBSIDY.
(a) IN GENERAL.—Section 1839 (42 U.S.C. 1395r) is
amended by adding at the end the following:
‘‘(h)(1) Notwithstanding the previous subsections of
this section, in the case of an individual whose modified
adjusted gross income for a taxable year ending with or
within a calendar year (as initially determined by the Sec-
retary in accordance with paragraph (3)) exceeds the
threshold amount described in paragraph (5)(B), the Sec-
retary shall increase the amount of the monthly premium
for months in the calendar year by an amount equal to
the difference between—
‘‘(A) 200 percent of the monthly actuarial rate
for enrollees age 65 and over as determined under
subsection (a)(1) for that calendar year; and
‘‘(B) the total of the monthly premiums paid by
the individual under this section (determined without
regard to subsection (b)) during such calendar year.
‘‘(2) In the case of an individual described in para-
graph (1) whose modified adjusted gross income exceeds the
threshold amount by less than $50,000, the amount of the
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increase in the monthly premium applicable under para-
graph (1) shall be an amount which bears the same ratio
to the amount of the increase described in paragraph (1)
(determined without regard to this paragraph) as such ex-
cess bears to $50,000. In the case of a joint return filed
under section 6013 of the Internal Revenue Code of 1986
by spouses both of whom are enrolled under this part, the
previous sentence shall be applied by substituting ‘$60,000’
for ‘$50,000’. The preceding provisions of this paragraph
shall not apply to any individual whose threshold amount
is zero.
‘‘(3) The Secretary shall make an initial determina-
tion of the amount of an individual’s modified adjusted
gross income for a taxable year ending with or within a
calendar year for purposes of this subsection as follows:
‘‘(A) Not later than September 1 of the year pre-
ceding the year, the Secretary shall provide notice to
each individual whom the Secretary finds (on the
basis of the individual’s actual modified adjusted
gross income for the most recent taxable year for
which such information is available or other informa-
tion provided to the Secretary by the Secretary of the
Treasury) will be subject to an increase under this
subsection that the individual will be subject to such
an increase, and shall include in such notice the Sec-
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retary’s estimate of the individual’s modified adjusted
gross income for the year.
‘‘(B) If, during the 30-day period beginning on
the date notice is provided to an individual under
subparagraph (A), the individual provides the Sec-
retary with information on the individual’s antici-
pated modified adjusted gross income for the year, the
amount initially determined by the Secretary under
this paragraph with respect to the individual shall be
based on the information provided by the individual.
‘‘(C) If an individual does not provide the Sec-
retary with information under subparagraph (B), the
amount initially determined by the Secretary under
this paragraph with respect to the individual shall be
the amount included in the notice provided to the in-
dividual under subparagraph (A).
‘‘(4)(A) If the Secretary determines (on the basis of
final information provided by the Secretary of the Treas-
ury) that the amount of an individual’s actual modified
adjusted gross income for a taxable year ending with or
within a calendar year is less than or greater than the
amount initially determined by the Secretary under para-
graph (3), the Secretary shall increase or decrease the
amount of the individual’s monthly premium under this
section (as the case may be) for months during the following
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calendar year by an amount equal to 1⁄12 of the difference
between—
‘‘(i) the total amount of all monthly premiums
paid by the individual under this section during the
previous calendar year; and
‘‘(ii) the total amount of all such premiums
which would have been paid by the individual during
the previous calendar year if the amount of the indi-
vidual’s modified adjusted gross income initially de-
termined under paragraph (3) were equal to the ac-
tual amount of the individual’s modified adjusted
gross income determined under this paragraph.
‘‘(B)(i) In the case of an individual for whom the
amount initially determined by the Secretary under para-
graph (3) is based on information provided by the individ-
ual under subparagraph (B) of such paragraph, if the Sec-
retary determines under subparagraph (A) that the amount
of the individual’s actual modified adjusted gross income
for a taxable year is greater than the amount initially de-
termined under paragraph (3), the Secretary shall increase
the amount otherwise determined for the year under sub-
paragraph (A) by interest in an amount equal to the sum
of the amounts determined under clause (ii) for each of the
months described in clause (ii).
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‘‘(ii) Interest shall be computed for any month in an
amount determined by applying the underpayment rate es-
tablished under section 6621 of the Internal Revenue Code
of 1986 (compounded daily) to any portion of the difference
between the amount initially determined under paragraph
(3) and the amount determined under subparagraph (A)
for the period beginning on the first day of the month begin-
ning after the individual provided information to the Sec-
retary under subparagraph (B) of paragraph (3) and end-
ing 30 days before the first month for which the individual’s
monthly premium is increased under this paragraph.
‘‘(iii) Interest shall not be imposed under this subpara-
graph if the amount of the individual’s modified adjusted
gross income provided by the individual under subpara-
graph (B) of paragraph (3) was not less than the individ-
ual’s modified adjusted gross income determined on the
basis of information shown on the return of tax imposed
by chapter 1 of the Internal Revenue Code of 1986 for the
taxable year involved.
‘‘(C) In the case of an individual who is not enrolled
under this part for any calendar year for which the individ-
ual’s monthly premium under this section for months dur-
ing the year would be increased pursuant to subparagraph
(A) if the individual were enrolled under this part for the
year, the Secretary may take such steps as the Secretary
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considers appropriate to recover from the individual the
total amount by which the individual’s monthly premium
for months during the year would have been increased
under subparagraph (A) if the individual were enrolled
under this part for the year.
‘‘(D) In the case of a deceased individual for whom
the amount of the monthly premium under this section for
months in a year would have been decreased pursuant to
subparagraph (A) if the individual were not deceased, the
Secretary shall make a payment to the individual’s surviv-
ing spouse (or, in the case of an individual who does not
have a surviving spouse, to the individual’s estate) in an
amount equal to the difference between—
‘‘(i) the total amount by which the individual’s
premium would have been decreased for all months
during the year pursuant to subparagraph (A); and
‘‘(ii) the amount (if any) by which the individ-
ual’s premium was decreased for months during the
year pursuant to subparagraph (A).
‘‘(5) In this subsection, the following definitions apply:
‘‘(A) The term ‘modified adjusted gross income’
means adjusted gross income (as defined in section 62
of the Internal Revenue Code of 1986)—
‘‘(i) determined without regard to sections
135, 911, 931, and 933 of such Code, and
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‘‘(ii) increased by the amount of interest re-
ceived or accrued by the taxpayer during the
taxable year which is exempt from tax under
such Code.
‘‘(B) The term ‘threshold amount’ means—
‘‘(i) except as otherwise provided in this
paragraph, $60,000,
‘‘(ii) $90,000, in the case of a joint return
(as defined in section 7701(a)(38) of such Code),
and
‘‘(iii) zero in the case of a taxpayer who—
‘‘(I) is married at the close of the tax-
able year but does not file a joint return (as
so defined) for such year, and
‘‘(II) does not live apart from his
spouse at all times during the taxable year.
‘‘(6)(A) The Secretary shall transfer amounts received
pursuant to this subsection to the Federal Hospital Insur-
ance Trust Fund.
‘‘(B) In applying section 1844(a), amounts attrib-
utable to clause (i) shall not be counted in determining the
dollar amount of the premium per enrollee under para-
graph (1)(A) or (1)(B).’’.
(b) CONFORMING AMENDMENTS.—(1) Section 1839 (42
U.S.C. 1395r) is amended—
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(A) in subsection (a)(2), by inserting ‘‘or section
1839A’’ after ‘‘subsections (b) and (e)’’;
(B) in subsection (a)(3) of section 1839(a), by
inserting ‘‘or section 1839A’’ after ‘‘subsection (e)’’;
(C) in subsection (b), inserting ‘‘(and as in-
creased under section 1839A)’’ after ‘‘subsection (a) or
(e)’’; and
(D) in subsection (f), by striking ‘‘if an individ-
ual’’ and inserting the following: ‘‘if an individual
(other than an individual subject to an increase in
the monthly premium under this section pursuant to
subsection (h))’’.
(2) Section 1840(c) (42 U.S.C. 1395r(c)) is amended
by inserting ‘‘or an individual determines that the estimate
of modified adjusted gross income used in determining
whether the individual is subject to an increase in the
monthly premium under section 1839 pursuant to sub-
section (h) of such section (or in determining the amount
of such increase) is too low and results in a portion of the
premium not being deducted,’’ before ‘‘he may’’.
(c) REPORTING REQUIREMENTS FOR SECRETARY OF
THE TREASURY.—
(1) IN GENERAL.—Subsection (l) of section 6103
of the Internal Revenue Code of 1986 (relating to con-
fidentiality and disclosure of returns and return in-
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formation) is amended by adding at the end the fol-
lowing new paragraph:
‘‘(15) DISCLOSURE OF RETURN INFORMATION TO
CARRY OUT INCOME-RELATED REDUCTION IN MEDI-
CARE PART B PREMIUM.—
‘‘(A) IN
GENERAL.—The Secretary may,
upon written request from the Secretary of
Health and Human Services, disclose to officers
and employees of the Health Care Financing Ad-
ministration return information with respect to
a taxpayer who is required to pay a monthly
premium under section 1839 of the Social Secu-
rity Act. Such return information shall be lim-
ited to—
‘‘(i) taxpayer identity information
with respect to such taxpayer,
‘‘(ii) the filing status of such taxpayer,
‘‘(iii) the adjusted gross income of such
taxpayer,
‘‘(iv) the amounts excluded from such
taxpayer’s gross income under sections 135
and 911,
‘‘(v) the interest received or accrued
during the taxable year which is exempt
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from the tax imposed by chapter 1 to the ex-
tent such information is available, and
‘‘(vi) the amounts excluded from such
taxpayer’s gross income by sections 931 and
933 to the extent such information is avail-
able.
‘‘(B) RESTRICTION ON USE OF DISCLOSED
INFORMATION.—Return 
information 
disclosed
under subparagraph (A) may be used by officers
and employees of the Health Care Financing Ad-
ministration only for the purposes of, and to the
extent necessary in, establishing the appropriate
monthly premium under section 1839 of the So-
cial Security Act.’’
(2) 
CONFORMING
AMENDMENT.—Paragraphs
(3)(A) and (4) of section 6103(p) of such Code are
each amended by striking ‘‘or (14)’’ each place it ap-
pears and inserting ‘‘(14), or (15)’’.
(d) EFFECTIVE DATE.—
(1) IN
GENERAL.—The amendments made by
subsections (a) and (b) shall apply to the monthly
premium under section 1839 of the Social Security
Act for months beginning with January 1997.
(2) INFORMATION FOR PRIOR YEARS.—The Sec-
retary of Health and Human Services may request
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information under section 6013(l)(15) of the Social
Security Act (as added by subsection (c)) for taxable
years beginning after December 31, 1993.
Subtitle G—Provisions Relating to
Parts A and B
CHAPTER 1—PAYMENTS FOR HOME
HEALTH SERVICES
SEC. 8601. PAYMENT FOR HOME HEALTH SERVICES.
(a) IN GENERAL.—Title XVIII (42 U.S.C. 1395x et
seq.), as amended by section 8102, is amended by adding
at the end the following new section:
‘‘PAYMENT FOR HOME HEALTH SERVICES
‘‘SEC. 1894. (a) IN GENERAL.—
‘‘(1) PER
VISIT
PAYMENTS.—Subject to sub-
section (c), the Secretary shall make per visit pay-
ments beginning with fiscal year 1997 to a home
health agency in accordance with this section for each
type of home health service described in paragraph
(2) furnished to an individual who at the time the
service is furnished is under a plan of care by the
home health agency under this title (without regard
to whether or not the item or service was furnished
by the agency or by others under arrangement with
them made by the agency, under any other contract-
ing or consulting arrangement, or otherwise).
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‘‘(2) TYPES OF SERVICES.—The types of home
health services described in this paragraph are the fol-
lowing:
‘‘(A) Part-time or intermittent nursing care
provided by or under the supervision of a reg-
istered professional nurse.
‘‘(B) Physical therapy.
‘‘(C) Occupational therapy.
‘‘(D) Speech-language pathology services.
‘‘(E) Medical social services under the direc-
tion of a physician.
‘‘(F) To the extent permitted in regulations,
part-time or intermittent services of a home
health aide who has successfully completed a
training program approved by the Secretary.
‘‘(b) ESTABLISHMENT OF PER VISIT RATE FOR EACH
TYPE OF SERVICES.—
‘‘(1) IN GENERAL.—The Secretary shall, subject
to paragraph (3), establish a per visit payment rate
for a home health agency in an area (which shall be
the same area used to determine the area wage index
applicable to hospitals under section 1886(d)(3)(E))
for each type of home health service described in sub-
section (a)(2). Such rate shall be equal to the national
per visit payment rate determined under paragraph
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(2) for each such type, except that the labor-related
portion of such rate shall be adjusted by the area
wage index applicable under section 1886(d)(3)(E)
for the area in which the agency is located (as deter-
mined without regard to any reclassification of the
area under section 1886(d)(8)(B) or a decision of the
Medicare Geographic Classification Review Board or
the Secretary under section 1886(d)(10) for cost re-
porting periods beginning after October 1, 1995).
‘‘(2) NATIONAL PER VISIT PAYMENT RATE.—The
national per visit payment rate for each type of serv-
ice described in subsection (a)(2)—
‘‘(A) for fiscal year 1997, is an amount
equal to the national average amount paid per
visit under this title to home health agencies for
such type of service during the most recent 12-
month cost reporting period ending on or before
June 30, 1994; and
‘‘(B) for each subsequent fiscal year, is an
amount equal to the national per visit payment
rate in effect for the preceding fiscal year, in-
creased by the home health market basket per-
centage increase for such subsequent fiscal year
minus 2.0 percentage points.
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‘‘(3) REBASING OF RATES.—The Secretary shall
adjust the national per visit payment rates under this
subsection for cost reporting periods beginning on or
after October 1, 1999, and every 5 years thereafter, to
reflect the most recent available data.
‘‘(4) HOME HEALTH MARKET BASKET PERCENT-
AGE INCREASE.—For purposes of this subsection, the
term ‘home health market basket percentage increase’
means, with respect to a fiscal year, a percentage (es-
timated by the Secretary before the beginning of the
fiscal year) determined and applied with respect to
the types of home health services described in sub-
section (a)(2) in the same manner as the market bas-
ket 
percentage 
increase 
under 
section
1886(b)(3)(B)(iii) is determined and applied to inpa-
tient hospital services for the fiscal year.
‘‘(c) PER EPISODE LIMIT.—
‘‘(1) AGGREGATE LIMIT.—
‘‘(A) IN GENERAL.—Except as provided in
paragraph (2), a home health agency may not
receive aggregate per visit payments under sub-
section (a) for a fiscal year in excess of an
amount equal to the sum of the following prod-
ucts determined for each case-mix category for
which the agency receives payments:
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‘‘(i) The number of episodes of each
such case-mix category during the fiscal
year; multiplied by
‘‘(ii) the per episode limit determined
for such case-mix category for such fiscal
year.
‘‘(B) ESTABLISHMENT
OF
PER
EPISODE
LIMITS.—
‘‘(i) IN
GENERAL.—The per episode
limit for a fiscal year for any case-mix cat-
egory for the area in which a home health
agency is located (which shall be the same
area used to determine the area wage index
applicable 
to 
hospitals 
under 
section
1886(d)(3)(E)) is equal to—
‘‘(I) the mean number of visits for
each type of home health service de-
scribed in subsection (a)(2) furnished
during an episode of such case-mix cat-
egory in such area during fiscal year
1994, adjusted by the case-mix adjust-
ment factor determined in clause (ii)
for the fiscal year involved; multiplied
by
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‘‘(II) the per visit payment rate
established under subsection (b) for
such type of home health service for the
fiscal year for which the determination
is being made.
‘‘(ii) 
CASE-MIX
ADJUSTMENT
FAC-
TOR.—For purposes of clause (i), the case-
mix adjustment factor for a year for—
‘‘(I) each of fiscal years 1997
through 2000 is the factor determined
by the Secretary to assure that aggre-
gate payments for home health services
under this section during the year will
not exceed the payment for such serv-
ices during the previous year as a re-
sult of changes in the number and type
of home health visits within case-mix
categories over the previous year; and
‘‘(II) each subsequent fiscal year,
is the factor determined by the Sec-
retary necessary to remove the effects of
case-mix increases due to reporting im-
provements instead of real changes in
patients’ resource usage.
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‘‘(iii) REBASING OF PER EPISODE LIM-
ITS.—Beginning with fiscal year 1999 and
every 5 years thereafter, the Secretary shall
revise the mean number of home health vis-
its determined under clause (i)(I) for each
type of home health service visit described
in subsection (a)(2) furnished during an
episode in a case-mix category to reflect the
most recently available data on the number
of visits.
‘‘(iv) DETERMINATION
OF
AREA.—In
the case of an area which the Secretary de-
termines has an insufficient number of
home health agencies to establish an appro-
priate per episode limit, the Secretary may
establish an area other than the area used
to determine the area wage under section
1886(d)(3)(E)) for purposes of establishing
an appropriate per episode limit.
‘‘(C) CASE-MIX CATEGORY.—For purposes of
this paragraph, the term ‘case-mix category’
means each of the 18 case-mix categories estab-
lished under the Home Health Agency Prospec-
tive Payment Demonstration Project conducted
by the Health Care Financing Administration.
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The Secretary may develop an alternate meth-
odology for determining case-mix categories.
‘‘(D) EPISODE.—
‘‘(i) IN
GENERAL.—For purposes of
this paragraph, the term ‘episode’ means the
continuous 120-day period that—
‘‘(I) begins on the date of an indi-
vidual’s first visit for a type of home
health service described in subsection
(a)(2) for a case-mix category, and
‘‘(II) is immediately preceded by
a 60-day period in which the individ-
ual did not receive visits for a type of
home health service described in sub-
section (a)(2).
‘‘(ii) TREATMENT OF EPISODES SPAN-
NING COST REPORTING PERIODS.—The Sec-
retary shall provide for such rules as the
Secretary considers appropriate regarding
the treatment of episodes under this para-
graph which begin during a cost reporting
period and end in a subsequent cost report-
ing period.
‘‘(E) EXEMPTIONS AND EXCEPTIONS.—The
Secretary may provide for exemptions and excep-
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tions to the limits established under this para-
graph for a fiscal year as the Secretary deems
appropriate, to the extent such exemptions and
exceptions do not result in greater payments
under this section than the exemptions and ex-
ceptions provided under section 1861(v)(1)(L)(ii)
in fiscal year 1994, increased by the home health
market basket percentage increase for the fiscal
year involved (as defined in subsection (b)(4)).
‘‘(2) RECONCILIATION OF AMOUNTS.—
‘‘(A) PAYMENTS IN EXCESS OF LIMITS.—
Subject to subparagraph (B), if a home health
agency has received aggregate per visit payments
under subsection (a) for a fiscal year in excess
of the amount determined under paragraph (1)
with respect to such home health agency for such
fiscal year, the Secretary shall reduce payments
under this section to the home health agency in
the following fiscal year in such manner as the
Secretary considers appropriate (including on
an installment basis) to recapture the amount of
such excess.
‘‘(B) EXCEPTION FOR HOME HEALTH SERV-
ICES FURNISHED OVER A PERIOD GREATER THAN
165 DAYS.—
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‘‘(i) IN
GENERAL.—For purposes of
subparagraph (A), the amount of aggregate
per visit payments determined under sub-
section (a) shall not include payments for
home health visits furnished to an individ-
ual on or after a continuous period of more
than 165 days after an individual begins
an episode described in subsection (c)(1)(D)
(if such period is not interrupted by the be-
ginning of a new episode).
‘‘(ii) 
REQUIREMENT
OF
CERTIFI-
CATION.—Clause (i) shall not apply if the
agency has not obtained a physician’s cer-
tification with respect to the individual re-
quiring such visits that includes a state-
ment that the individual requires such con-
tinued visits, the reason for the need for
such visits, and a description of such serv-
ices furnished during such visits.
‘‘(C) SHARE OF SAVINGS.—
‘‘(i) BONUS
PAYMENTS.—If a home
health agency has received aggregate per
visit payments under subsection (a) for a
fiscal year in an amount less than the
amount determined under paragraph (1)
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with respect to such home health agency for
such fiscal year, the Secretary shall pay
such home health agency a bonus payment
equal to 50 percent of the difference between
such amounts in the following fiscal year,
except that the bonus payment may not ex-
ceed 5 percent of the aggregate per visit
payments made to the agency for the year.
‘‘(ii) 
INSTALLMENT
BONUS
PAY-
MENTS.—The Secretary may make install-
ment payments during a fiscal year to a
home health agency based on the estimated
bonus payment that the agency would be el-
igible to receive with respect to such fiscal
year.
‘‘(d) MEDICAL
REVIEW
PROCESS.—The Secretary
shall implement a medical review process (with a particu-
lar emphasis on fiscal years 1997 and 1998) for the system
of payments described in this section that shall provide an
assessment of the pattern of care furnished to individuals
receiving home health services for which payments are made
under this section to ensure that such individuals receive
appropriate home health services. Such review process shall
focus on low-cost episodes (as defined by the Secretary
under section (e)(3)(C)) and cases described in subsection
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(c)(2)(B) and shall require recertification by intermediaries
at 60 and 165 days into an episode described in subsection
(c)(1)(D).
‘‘(e) ADJUSTMENT
OF PAYMENTS TO AVOID CIR-
CUMVENTION OF LIMITS.—
‘‘(1) IN GENERAL.—The Secretary shall provide
for appropriate adjustments to payments to home
health agencies under this section to ensure that agen-
cies do not circumvent the purpose of this section
by—
‘‘(A) discharging patients to another home
health agency or similar provider;
‘‘(B) altering corporate structure or name
to avoid being subject to this section or for the
purpose of increasing payments under this title;
or
‘‘(C) undertaking other actions considered
unnecessary for effective patient care and in-
tended to achieve maximum payments under this
title.
‘‘(2) TRACKING
OF
PATIENTS
THAT
SWITCH
HOME HEALTH AGENCIES DURING EPISODE.—
‘‘(A) DEVELOPMENT OF SYSTEM.—The Sec-
retary shall develop a system that tracks home
health patients that receive home health services
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described in subsection (a)(2) from more than 1
home health agency during an episode described
in subsection (c)(1)(D).
‘‘(B) ADJUSTMENT
OF
PAYMENTS.—The
Secretary shall adjust payments under this sec-
tion to each home health agency that furnishes
an individual with a type of home health service
described in subsection (a)(2) to ensure that ag-
gregate payments on behalf of such individual
during such episode do not exceed the amount
that would be paid under this section if the indi-
vidual received such services from a single home
health agency.
‘‘(3) LOW-COST CASES.—
‘‘(A) IN GENERAL.—The Secretary shall de-
velop and implement a system designed to adjust
payments to a home health agency for a fiscal
year to eliminate any increase in growth of the
percentage distribution of low-cost episodes for
which home health services are furnished by the
agency over such percentage distribution deter-
mined for the agency under subparagraph (B).
‘‘(B) DISTRIBUTION.—The Secretary shall
profile each home health agency to determine the
distribution of all episodes by length of stay for
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each agency during the agency’s first 12-month
cost reporting period beginning during fiscal
year 1994.
‘‘(C) LOW-COST EPISODE.—For purposes of
this paragraph, the Secretary shall define a low-
cost episode in a manner that provides that a
home health agency has an incentive to be cost
efficient in delivering home health services and
that the volume of such services does not increase
as a result of factors other than patient needs.
‘‘(f) SPECIAL RULE FOR CHRISTIAN SCIENCE PROVID-
ERS.—
‘‘(1) PAYMENT PERMITTED FOR SERVICES.—Not-
withstanding any other provision of this title, pay-
ment shall be made under this title for home health
services furnished by Christian Science providers who
meet applicable requirements of the First Church of
Christ, Scientist, Boston, Massachusetts, and are cer-
tified for purposes of this title under criteria estab-
lished by the Secretary, in accordance with a pay-
ment methodology established by the Secretary.
‘‘(2) EFFECTIVE
DATE.—Paragraph (1) shall
apply to services furnished during cost reporting peri-
ods which begin after the earlier of—
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‘‘(A) the date on which the Secretary estab-
lishes the payment methodology and the certifi-
cation criteria described in paragraph (1), or
‘‘(B) July 1, 1996.
‘‘(g) REPORT BY MEDICARE PAYMENT REVIEW COM-
MISSION.—During the first 3 years in which payments are
made under this section, the Medicare Payment Review
Commission shall annually submit a report to Congress on
the effectiveness of the payment methodology established
under this section that shall include recommendations re-
garding the following:
‘‘(1) Case-mix and volume increases.
‘‘(2) Quality monitoring of home health agency
practices.
‘‘(3) Whether a capitated payment for home care
patients receiving care during a continuous period ex-
ceeding 165 days is warranted.
‘‘(4) Whether public providers of service are ade-
quately reimbursed.
‘‘(5) On the adequacy of the exemptions and ex-
ceptions to the limits provided under subsection
(c)(1)(E).
‘‘(6) The appropriateness of the methods pro-
vided under this section to adjust the per episode lim-
its and annual payment updates to reflect changes in
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the mix of services, number of visits, and assignment
to case categories to reflect changing patterns of home
health care.
‘‘(7) The geographic areas used to determine the
per episode limits.’’.
(b) PAYMENT
FOR PROSTHETICS
AND ORTHOTICS
UNDER PART A.—Section 1814(k) (42 U.S.C. 1395f(k)) is
amended—
(1) by inserting ‘‘and prosthetics and orthotics’’
after ‘‘durable medical equipment’’; and
(2) by inserting ‘‘and 1834(h), respectively’’ after
‘‘1834(a)(1)’’.
(c) CONFORMING AMENDMENTS.—
(1) PAYMENTS UNDER PART A.—Section 1814(b)
(42 U.S.C. 1395f(b)), as amended by section 8412(b),
is amended in the matter preceding paragraph (1) by
striking ‘‘1888 and 1888A’’ and inserting ‘‘1888,
1888A, and 1894’’.
(2) TREATMENT OF ITEMS AND SERVICES PAID
UNDER PART B.—
(A) PAYMENTS
UNDER
PART
B.—Section
1833(a)(2) (42 U.S.C. 1395l(a)(2)) is amended—
(i) by amending subparagraph (A) to
read as follows:
‘‘(A) with respect to home health services—
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‘‘(i) that are a type of home health
service described in section 1894(a)(2), and
which are furnished to an individual who
(at the time the item or service is furnished)
is under a plan of care of a home health
agency, the amount determined under sec-
tion 1894;
‘‘(ii) that are not described in clause
(i) (other than a covered osteoporosis drug)
(as defined in section 1861(kk)), the lesser
of—
‘‘(I) the reasonable cost of such
services, as determined under section
1861(v), or
‘‘(II) the customary charges with
respect to such services;’’.
(ii) by striking ‘‘and’’ at the end of
subparagraph (E);
(iii) by adding ‘‘and’’ at the end of
subparagraph (F); and
(iv) by adding at the end the following
new subparagraph:
‘‘(G) with respect to items and services de-
scribed in section 1861(s)(10)(A), the lesser of—
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‘‘(i) the reasonable cost of such services,
as determined under section 1861(v), or
‘‘(ii) the customary charges with re-
spect to such services,
or, if such services are furnished by a public pro-
vider of services, or by another provider which
demonstrates to the satisfaction of the Secretary
that a significant portion of its patients are low-
income (and requests that payment be made
under this provision), free of charge or at nomi-
nal charges to the public, the amount determined
in accordance with section 1814(b)(2);’’.
(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 8415(a)(1), is
amended—
(I) by striking ‘‘and (E)’’ and in-
serting ‘‘(E)’’; and
(II) by striking the period at the
end and inserting the following: ‘‘, and
(F) in the case of types of home health
services described in section 1894(a)(2)
furnished to an individual who (at the
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time the item or service is furnished) is
under a plan of care of a home health
agency, payment shall be made to the
agency (without regard to whether or
not the item or service was furnished
by the agency, by others under ar-
rangement with them made by the
agency, or when any other contracting
or consulting arrangement, or other-
wise).’’.
(ii) CONFORMING
AMENDMENT.—Sec-
tion 1832(a)(1) (42 U.S.C. 1395k(a)(1)) is
amended by striking ‘‘(2);’’ and inserting
‘‘(2) and section 1842(b)(6)(F);’’.
(C) EXCLUSIONS FROM COVERAGE.—Section
1862(a) (42 U.S.C. 1395y(a)), as amended by
section 8415(a)(2), is amended—
(i) by striking ‘‘or’’ at the end of para-
graph (15);
(ii) by striking the period at the end of
paragraph (16) and inserting ‘‘or’’; and
(iii) by adding at the end the following
new paragraph:
‘‘(17) where such expenses are for home health
services furnished to an individual who is under a
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plan of care of the home health agency if the claim
for payment for such services is not submitted by the
agency.’’.
(3) SUNSET
OF
REASONABLE
COST
LIMITA-
TIONS.—Section 
1861(v)(1)(L) 
(42 
U.S.C.
1395x(v)(1)(L)) is amended by adding at the end the
following new clause:
‘‘(iv) This subparagraph shall apply only to services
furnished by home health agencies during cost reporting pe-
riods ending on or before September 30, 1996.’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to cost reporting periods beginning on
or after October 1, 1996.
SEC. 8602. MAINTAINING SAVINGS RESULTING FROM TEM-
PORARY FREEZE ON PAYMENT INCREASES
FOR HOME HEALTH SERVICES.
(a) BASING UPDATES TO PER VISIT COST LIMITS ON
LIMITS
FOR
FISCAL
YEAR
1993.—Section
1861(v)(1)(L)(iii) (42 U.S.C. 1395x(v)(1)(L)(iii)) is
amended by adding at the end the following sentence: ‘‘In
establishing limits under this subparagraph, the Secretary
may not take into account any changes in the costs of the
provision of services furnished by home health agencies with
respect to cost reporting periods which began on or after
July 1, 1994, and before July 1, 1996.’’.
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(b) NO EXCEPTIONS PERMITTED BASED ON AMEND-
MENT.—The Secretary of Health and Human Services shall
not consider the amendment made by subsection (a) in mak-
ing any exemptions and exceptions pursuant to section
1861(v)(1)(L)(ii) of the Social Security Act.
SEC. 8603. EXTENSION OF WAIVER OF PRESUMPTION OF
LACK OF KNOWLEDGE OF EXCLUSION FROM
COVERAGE FOR HOME HEALTH AGENCIES.
Section 9305(g)(3) of OBRA–1986, as amended by sec-
tion 426(d) of the Medicare Catastrophic Coverage Act of
1988 and section 4207(b)(3) of the OBRA–1990 (as renum-
bered by section 160(d)(4) of the Social Security Act
Amendments of 1994), is amended by striking ‘‘December
31, 1995’’ and inserting ‘‘September 30, 1996.’’.
SEC. 8604. EXTENSION OF PERIOD OF HOME HEALTH AGEN-
CY CERTIFICATION.
Section 1891(c)(2)(A) (42 U.S.C. 1395bbb(c)(2)(A)) is
amended—
(1) by striking ‘‘15 months’’ and inserting ‘‘36
months’’; and
(2) by striking the second sentence and inserting
the following: ‘‘The Secretary shall establish a fre-
quency for surveys of home health agencies within this
36-month interval commensurate with the need to as-
sure the delivery of quality home health services.’’.
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PART 2—MEDICARE SECONDARY PAYER
IMPROVEMENTS
SEC. 8611. EXTENSION AND EXPANSION OF EXISTING RE-
QUIREMENTS.
(a) DATA MATCH.—
(1) 
Section 
1862(b)(5)(C) 
(42 
U.S.C.
1395y(b)(5)(C)) is amended by striking clause (iii).
(2) Section 6103(l)(12) of the Internal Revenue
Code of 1986 is amended by striking subparagraph
(F).
(b) APPLICATION
TO
DISABLED
INDIVIDUALS
IN
LARGE GROUP HEALTH PLANS.—
(1) IN
GENERAL.—Section 1862(b)(1)(B) (42
U.S.C. 1395y(b)(1)(B)) is amended—
(A) in clause (i), by striking ‘‘clause (iv)’’
and inserting ‘‘clause (iii)’’,
(B) by striking clause (iii), and
(C) by redesignating clause (iv) as clause
(iii).
(2) 
CONFORMING
AMENDMENTS.—Paragraphs
(1) through (3) of section 1837(i) (42 U.S.C.
1395p(i)) and the second sentence of section 1839(b)
(42 U.S.C. 1395r(b)) are each amended by striking
‘‘1862(b)(1)(B)(iv)’’ each place it appears and insert-
ing ‘‘1862(b)(1)(B)(iii)’’.
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(c) INDIVIDUALS WITH END STAGE RENAL DIS-
EASE.—Section 1862(b)(1)(C) (42 U.S.C. 1395y(b)(1)(C))
is amended—
(1) in the last sentence by striking ‘‘October 1,
1998’’ and inserting ‘‘the date of the enactment of the
Medicare Preservation Act of 1995’’; and
(2) by adding at the end the following new sen-
tence: ‘‘Effective for items and services furnished on
or after the date of the enactment of the Medicare
Preservation Act of 1995, (with respect to periods be-
ginning on or after the date that is 18 months prior
to such date), clauses (i) and (ii) shall be applied by
substituting ‘30-month’ for ‘12-month’ each place it
appears.’’.
SEC. 8612. IMPROVEMENTS IN RECOVERY OF PAYMENTS.
(a) PERMITTING RECOVERY AGAINST THIRD PARTY
ADMINISTRATORS
OF
PRIMARY
PLANS.—Section
1862(b)(2)(B)(ii) (42 U.S.C. 1395y(b)(2)(B)(ii)) is amend-
ed—
(1) by striking ‘‘under this subsection to pay’’
and inserting ‘‘(directly, as a third-party adminis-
trator, or otherwise) to make payment’’, and
(2) by adding at the end the following: ‘‘The
United States may not recover from a third-party ad-
ministrator under this clause in cases where the
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third-party administrator would not be able to re-
cover the amount at issue from the employer or group
health plan for whom it provides administrative serv-
ices due to the insolvency or bankruptcy of the em-
ployer or plan.’’.
(b) EXTENSION OF CLAIMS FILING PERIOD.—Section
1862(b)(2)(B) (42 U.S.C. 1395y(b)(2)(B)) is amended by
adding at the end the following new clause:
‘‘(v) 
CLAIMS-FILING
PERIOD.—Not-
withstanding any other time limits that
may exist for filing a claim under an em-
ployer group health plan, the United States
may seek to recover conditional payments
in accordance with this subparagraph where
the request for payment is submitted to the
entity required or responsible under this
subsection to pay with respect to the item or
service (or any portion thereof) under a pri-
mary plan within the 3-year period begin-
ning on the date on which the item or serv-
ice was furnished.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to items and services furnished on or
after the date of the enactment of this Act.
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CHAPTER 3—OTHER ITEMS AND SERVICES
UNDER PARTS A AND B
SEC. 8621. MEDICARE COVERAGE OF CERTAIN ANTI-CANCER
DRUG TREATMENTS.
(a) COVERAGE
OF
CERTAIN
SELF-ADMINISTERED
ANTICANCER DRUGS.—Section 1861(s)(2)(Q) (42 U.S.C.
1395x(s)(2)(Q)) is amended—
(1) by striking ‘‘(Q)’’ and inserting ‘‘(Q)(i)’’;
and
(2) by striking the semicolon at the end and in-
serting ‘‘, and’’; and
(3) by adding at the end the following:
‘‘(ii) an oral drug (which is approved by the Federal
Food and Drug Administration) prescribed for use as an
anticancer nonsteroidal antiestrogen for the treatment of
breast cancer, but only if the manufacturer of such drug
has in effect a rebate agreement with the Secretary with
respect to such drug which has substantially similar terms
and conditions to the terms and conditions for such agree-
ments under section 1927 (as such section is in effect on
the date of the enactment of this clause);’’.
(b) UNIFORM COVERAGE OF ANTICANCER DRUGS IN
ALL
SETTINGS.—Section 
1861(t)(2)(A) 
(42 
U.S.C.
1395x(t)(2)(A)) is amended by inserting ‘‘(including a
nonsteroidal antiestrogen regimen)’’ after ‘‘regimen’’.
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(c) 
CONFORMING
AMENDMENT.—Section
1834(j)(5)(F)(iv) (42 U.S.C. 1395m(j)(5)(F)(iv)) is amend-
ed by striking ‘‘prescribed for use’’ and all that follows
through ‘‘1861(s)(2)(Q))’’ and inserting ‘‘described in sec-
tion 1861(s)(2)(Q)’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to drugs furnished on or after January
1, 1996.
SEC. 8622. ADMINISTRATIVE PROVISIONS.
(a) INDIAN HEALTH SERVICE FACILITIES.—Nothing
in this Act shall be construed to change the status under
title XVIII of the Social Security Act (42 U.S.C. 1395 et
seq.) of—
(1) a Federally qualified health center (as de-
fined in section 1861(aa)(4) of such Act) which is an
outpatient health program or facility operated by a
tribe or tribal organization under the Indian Self-De-
termination Act or by an urban Indian organization
receiving funds under title V of the Indian Health
Care Improvement Act; or
(2) hospitals or skilled nursing facilities of the
Indian Health Service, whether operated by such
Service or by an Indian tribe or tribal organization
(as those terms are defined in section 4 of the Indian
Health Care Improvement Act), that are eligible for
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payments under title XVIII of the Social Security
Act, in accordance with section 1880 of such Act (42
U.S.C. 1395qq).
(b) CONFORMING AMENDMENT TO CERTIFICATION OF
CHRISTIAN SCIENCE PROVIDERS.—
(1) HOSPITALS.—Section 1861(e) (42 U.S.C.
1395x(e)) is amended in the sixth sentence by striking
‘‘the First Church of Christ, Scientist, Boston, Massa-
chusetts,’’ and inserting ‘‘the Commission for Accredi-
tation of Christian Science Nursing Organizations/
Facilities, Inc.,’’.
(2) SKILLED
NURSING
FACILITIES.—Section
1861(y)(1) (42 U.S.C. 1395x(y)(1)) is amended by
striking ‘‘the First Church of Christ, Scientist, Bos-
ton, Massachusetts,’’ and inserting ‘‘the Commission
for Accreditation of Christian Science Nursing Orga-
nizations/Facilities, Inc.,’’.
(3) GENERAL PROVISIONS.—
(A) UNIFORM
REPORTING
SYSTEMS.—Sec-
tion 1122(h) (42 U.S.C. 1320a–1(h)) is amended
by striking ‘‘the First Church of Christ, Sci-
entist, Boston, Massachusetts’’ and inserting ‘‘the
Commission for Accreditation of Christian
Science Nursing Organizations/Facilities, Inc.’’.
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(B) PEER
REVIEW.—Section 1162 (42
U.S.C. 1320c–11) is amended by striking ‘‘the
First Church of Christ, Scientist, Boston, Massa-
chusetts’’ and inserting ‘‘the Commission for Ac-
creditation of Christian Science Nursing Organi-
zations/Facilities, Inc.’’.
(4) EFFECTIVE DATE.—The amendments made
by this subsection shall take effect on January 1,
1997.
CHAPTER 4—FAILSAFE
SEC. 8631. FAILSAFE BUDGET MECHANISM.
(a) IN GENERAL.—Title XVIII, as amended by sec-
tions 8102(a) and 8601(a), is amended by adding at the
end the following new section:
‘‘FAILSAFE BUDGET MECHANISM
‘‘SEC. 1895. (a) REQUIREMENT OF PAYMENT AD-
JUSTMENTS TO ACHIEVE MEDICARE BUDGET TARGETS.—
‘‘(1) IN GENERAL.—If the Secretary determines
under subsection (e)(3)(C) before a fiscal year (begin-
ning with fiscal year 1998) that—
‘‘(A) the fee-for-service expenditures (as de-
fined in subsection (f) for all sectors of medicare
services (as defined in subsection (b)) for the fis-
cal year, will exceed
‘‘(B) the sum of the allotments specified
under subsection (c)(2) for such fiscal year (tak-
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ing into account any adjustment in the allot-
ment under subsection (g) for that fiscal year)
for all sectors,
then, notwithstanding any other provisions of this
title, there shall be an adjustment (consistent with
subsection (d)) in applicable payment rates or pay-
ments for items and services included in each excess
spending sector in the fiscal year. In this section, the
term ‘aggregate excess spending’ means, for a fiscal
year, the amount by which the amount described in
subparagraph (A) (for the fiscal year) exceeds the
amount described in subparagraph (B) for such year.
‘‘(2) EXCESS SPENDING SECTOR.—In this sec-
tion, the term ‘excess spending sector’ means, for a
fiscal year, a sector of medicare services for which the
Secretary determines under subsection (e)(3)(C)—
‘‘(A) the fee-for-service expenditures (as de-
fined in subsection (f)) for all the fiscal year,
will exceed
‘‘(B) the allotment specified under sub-
section (c)(2) for such fiscal year (taking into ac-
count any adjustment in the allotment under
subsection (g) for that fiscal year).
In this section, the term ‘excess spending’ means, for
a fiscal year with respect to such a sector, the amount
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by which the amount described in subparagraph (A)
(for the fiscal year and sector) exceeds the amount de-
scribed in subparagraph (B) for such year and sector.
‘‘(b) SECTORS
OF
MEDICARE
SERVICES
DE-
SCRIBED.—
‘‘(1) IN GENERAL.—For purposes of this section,
items and services included under each of the follow-
ing subparagraphs shall be considered to be a sepa-
rate ‘sector’ of medicare services:
‘‘(A) Inpatient hospital services.
‘‘(B) Home health services.
‘‘(C) Extended care services (for inpatients
of skilled nursing facilities).
‘‘(D) Hospice care.
‘‘(E) Physicians’ services (including services
and supplies described in section 1861(s)(2)(A))
and services of other health care professionals
(including certified registered nurse anesthetists,
nurse practitioners, physician assistants, and
clinical psychologists) for which separate pay-
ment is made under this title.
‘‘(F) Outpatient hospital services and am-
bulatory facility services.
‘‘(G) Durable medical equipment and sup-
plies, including prosthetic devices and orthotics.
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‘‘(H) Diagnostic tests (including clinical
laboratory services and x-ray services).
‘‘(I) Other items and services.
‘‘(2) CLASSIFICATION
OF
ITEMS
AND
SERV-
ICES.—The Secretary shall classify each type of items
and services covered and paid for separately under
this title into one of the sectors specified in paragraph
(1). After publication of such classification under sub-
section (e)(1), the Secretary is not authorized to make
substantive changes in such classification.
‘‘(c) ALLOTMENT.—
‘‘(1) ALLOTMENTS FOR EACH SECTOR.—For pur-
poses of this section, subject to subsection (g)(1), the
allotment for a sector of medicare services for a fiscal
year is equal to the product of—
‘‘(A) the total allotment for the fiscal year
established under paragraph (2), and
‘‘(B) the allotment proportion (specified
under paragraph (3)) for the sector and fiscal
year involved.
‘‘(2) TOTAL ALLOTMENT.—
‘‘(A) IN
GENERAL.—For purposes of this
section, the total allotment for a fiscal year is
equal to—
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‘‘(i) the medicare benefit budget for the
fiscal year (as specified under subparagraph
(B)), reduced by
‘‘(ii) the amount of payments the Sec-
retary estimates will be made in the fiscal
year under the MedicarePlus program
under part C.
In making the estimate under clause (ii), the
Secretary shall take into account estimated en-
rollment and demographic profile of individuals
electing MedicarePlus products.
‘‘(B) MEDICARE
BENEFIT
BUDGET.—For
purposes of this subsection, subject to subpara-
graph (C), the ‘medicare benefit budget’—
‘‘(i) for fiscal year 1996 is $194.2 bil-
lion;
‘‘(i) for fiscal year 1997 is $206.3 bil-
lion;
‘‘(ii) for fiscal year 1998 is $217.8 bil-
lion;
‘‘(iii) for fiscal year 1999 is $229.2 bil-
lion;
‘‘(iv) for fiscal year 2000 is $247.2 bil-
lion;
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‘‘(v) for fiscal year 2001 is $266.4 bil-
lion;
‘‘(vi) for fiscal year 2002 is $289.0 bil-
lion; and
‘‘(vii) for a subsequent fiscal year is
equal to the medicare benefit budget under
this subparagraph for the preceding fiscal
year multiplied by the product of (I) 1.05,
and (II) 1 plus the annual percentage in-
crease in the average number of medicare
beneficiaries from the previous fiscal year to
the fiscal year involved.
‘‘(3) MEDICARE ALLOTMENT PROPORTIONS DE-
FINED.—
‘‘(A) IN
GENERAL.—For purposes of this
section and with respect to a sector of medicare
services for a fiscal year, the term ‘medicare al-
lotment proportion’ means the ratio of—
‘‘(i) the baseline-projected medicare ex-
penditures (as determined under subpara-
graph (B)) for the sector for the fiscal year,
to
‘‘(ii) the sum of such baseline expendi-
tures for all such sectors for the fiscal year.
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‘‘(B) BASELINE-PROJECTED MEDICARE EX-
PENDITURES.—In this paragraph, the ‘baseline,
projected medicare expenditures’ for a sector of
medicare services—
‘‘(i) for fiscal year 1996 is equal to fee-
for-service expenditures for such sector dur-
ing fiscal year 1995, increased by the base-
line annual growth rate for such sector of
medicare services for fiscal year 1996 (as
specified in table in subparagraph (C)); and
‘‘(ii) for a subsequent fiscal year is
equal to the baseline-projected medicare ex-
penditures under this subparagraph for the
sector for the previous fiscal year increased
by the baseline annual growth rate for such
sector for the fiscal year involved (as speci-
fied in such table).
‘‘(C) BASELINE ANNUAL GROWTH RATES.—
The following table specifies the baseline annual
growth rates for each of the sectors for different
fiscal years:
[In percent]
‘‘For the following sector—
Baseline annual growth rates for fiscal year—
1996
1997
1998
1999
2000
2001
2002
and
there-
after
(A) Inpatient hospital services ...........................................................
5.7
5.6
6.0
6.1
5.7
5.5
5.2
(B) Home health services ....................................................................
17.2
15.1
11.7
9.1
8.4
8.1
7.9
(C) Extended care services .................................................................
19.7
12.3
9.3
8.7
8.6
8.4
8.0
(D) Hospice care .................................................................................
32.0
24.0
18.0
15.0
12.0
10.0
9.0
(E) Physicians’ services ......................................................................
12.4
9.7
8.7
9.0
9.3
9.6
10.1
(F) Outpatient hospital services ........................................................
14.7
13.9
14.5
15.0
14.1
13.9
14.0
(G) Durable medical equipment and supplies ..................................
16.1
15.5
13.7
12.4
13.2
13.9
14.5
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[In percent]
‘‘For the following sector—
Baseline annual growth rates for fiscal year—
1996
1997
1998
1999
2000
2001
2002
and
there-
after
(H) Diagnostic tests ............................................................................
13.1
11.3
11.0
11.4
11.4
11.5
11.9
(I) Other items and services ...............................................................
11.2
10.2
10.9
12.0
11.6
11.6
11.8
‘‘(d) MANNER OF PAYMENT ADJUSTMENT.—
‘‘(1) PAYMENT REDUCTIONS.—
‘‘(A) IN GENERAL.—Subject to the succeed-
ing provisions of this subsection, the Secretary
shall apply a payment reduction for each excess
spending sector for a fiscal year in such a man-
ner as to—
‘‘(i) make a change in payment rates
(to the maximum extent practicable) at the
time payment rates are otherwise changed
or subject to change for that fiscal year; and
‘‘(ii) provide for the full appropriate
adjustment so that the fee-for-service ex-
penditures for the sector for the fiscal year
will be reduced by 1331⁄3 percent of the
amount of the sector reduction target for
that sector.
‘‘(B) SECTOR
REDUCTION
TARGET.—In
paragraph (1), the ‘sector reduction target’ for
an excess spending sector for a fiscal year is
equal to the product of—
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‘‘(i) the amount of the excess spending
for such sector and year (as defined in sub-
section (a)(2)); and
‘‘(ii) the ratio of—
‘‘(I) the aggregate excess spending
for the year (as defined in subsection
(a)(1)), to
‘‘(II) the sum of the amounts of
the excess spending for all excess spend-
ing sectors.
‘‘(2) TAKING INTO ACCOUNT VOLUME AND CASH
FLOW.—In providing for an adjustment in payments
under this subsection for a sector for a fiscal year, the
Secretary shall take into account (in a manner con-
sistent with actuarial projections)—
‘‘(A) the impact of such an adjustment on
the volume or type of services provided in such
sector (and other sectors), and
‘‘(B) the fact that an adjustment may apply
to items and services furnished in a fiscal year
(payment for which may occur in a subsequent
fiscal year),
in a manner that is consistent with assuring that
total fee-for-services expenditures for each sector for
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the fiscal year will not exceed the allotment under
subsection (c)(1) for such sector for such year.
‘‘(3) PROPORTIONALITY OF REDUCTIONS WITHIN
A SECTOR.—In making adjustments under this sub-
section in payment for items and services included
within a sector of medicare services for a fiscal year,
the Secretary shall provide for such an adjustment
that results (to the maximum extent feasible) in the
same percentage reductions in aggregate Federal pay-
ments under parts A and B for the different classes
of items and services included within the sector for
the fiscal year.
‘‘(4) APPLICATION TO PAYMENTS MADE BASED
ON PROSPECTIVE PAYMENT RATES DETERMINED ON A
FISCAL YEAR BASIS.—
‘‘(A) IN GENERAL.—In applying subsection
(a) with respect to items and services for which
payment is made under part A or B on the basis
of rates that are established on a prospective
basis for (and in advance of) a fiscal year, the
Secretary shall provide for the payment adjust-
ment under such subsection through an appro-
priate reduction in such rates established for
items and services furnished (or, in the case of
payment for operating costs of inpatient hospital
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services of subsection (d) hospitals and subsection
(d) Puerto Rico hospitals (as defined in para-
graphs (1)(B) and (9)(A) of section 1886(d)),
discharges occurring) during such year.
‘‘(B) DESCRIPTION
OF
APPLICATION
TO
SPECIFIC
SERVICES.—The payment adjustment
described in subparagraph (A) applies for a fis-
cal year to at least the following:
‘‘(i) UPDATE
FACTOR
FOR
PAYMENT
FOR OPERATING COSTS OF INPATIENT HOS-
PITAL
SERVICES
OF
PPS
HOSPITALS.—To
the computation of the applicable percent-
age 
increase 
specified 
in 
section
1886(d)(3)(B)(i) for discharges occurring in
the fiscal year.
‘‘(ii) HOME
HEALTH
SERVICES.—To
the extent payment amounts for home health
services are based on per visit payment
rates under section 1894, to the computa-
tion of the increase in the national per visit
payment rates established for the year
under section 1894(b)(2)(B).
‘‘(iii) HOSPICE CARE.—To the update
of payment rates for hospice care under sec-
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tion 1814(i) for services furnished during
the fiscal year.
‘‘(iv) UPDATE FACTOR FOR PAYMENT
OF OPERATING COSTS OF INPATIENT HOS-
PITAL
SERVICES
OF
PPS-EXEMPT
HOS-
PITALS.—To the computation of the target
amount under section 1886(b)(3) for dis-
charges occurring during the fiscal year.
‘‘(v) COVERED NON-ROUTINE SERVICES
OF SKILLED NURSING FACILITIES.—To the
computation of the facility per stay limits
for the year under section 1888A(d) for cov-
ered non-routine services of a skilled nurs-
ing facility (as described in such section).
‘‘(5) APPLICATION TO PAYMENTS MADE BASED
ON PROSPECTIVE PAYMENT RATES DETERMINED ON A
CALENDAR YEAR BASIS.—
‘‘(A) IN GENERAL.—In applying subsection
(a) for a fiscal year with respect to items and
services for which payment is made under part
A or B on the basis of rates that are established
on a prospective basis for (and in advance of) a
calendar year, the Secretary shall provide for the
payment adjustment under such subsection
through an appropriate reduction in such rates
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established for items and services furnished at
any time during such calendar year as follows:
‘‘(i) For fiscal year 1997, the reduction
shall be made for payment rates during cal-
endar year 1997 in a manner so as to
achieve the necessary payment reductions
for such fiscal year for items and services
furnished during the first 3 quarters of cal-
endar year 1997.
‘‘(ii) For a subsequent fiscal year, the
reduction shall be made for payment rates
during the calendar year in which the fiscal
year ends in a manner so as to achieve the
necessary payment reductions for such fiscal
year for items and services furnished during
the first 3 quarters of the calendar year, but
also taking into account the payment reduc-
tions made in the first quarter of the fiscal
year resulting from payment reductions
made under this paragraph for the previous
calendar year.
‘‘(iii) Payment rate reductions effected
under this subparagraph for a calendar
year and applicable to the last 3 quarters of
the fiscal year in which the calendar year
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ends shall continue to apply during the first
quarter of the succeeding fiscal year.
‘‘(B) APPLICATION
IN
SPECIFIC
CASES.—
The payment adjustment described in subpara-
graph (A) applies for a fiscal year to at least the
following:
‘‘(i) UPDATE IN CONVERSION FACTOR
FOR PHYSICIANS’ SERVICES.—To the com-
putation of the conversion factor under sub-
section (d) of section 1848 used in the fee
schedule established under subsection (b) of
such section for items and services furnished
during the calendar year in which the fiscal
year ends.
‘‘(ii) PAYMENT
RATES
FOR
OTHER
HEALTH
CARE
PROFESSIONALS.—To the
computation of payments for professional
services, furnished during the calendar year
in which the fiscal year ends, of certified
registered nurse anesthetists under section
1833(l), nurse midwives, physician assist-
ants, nurse practitioners and clinical nurse
specialists under section 1833(r), clinical
psychologists, clinical social workers, phys-
ical or occupational therapists, and any
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Register a final determination, for each, sector of
medicare services, concerning the matters de-
scribed in subparagraph (B) and an explanation
of the reasons for any differences between such
determination and the preliminary determina-
tion for such fiscal year published under sub-
paragraph (B).
‘‘(4) LIMITATION ON ADMINISTRATIVE OR JUDI-
CIAL REVIEW.—There shall be no administrative or
judicial review under section 1878 or otherwise of—
‘‘(A) the classification of items and services
among the sectors of medicare services under sub-
section (b),
‘‘(B) the determination of the amounts of
allotments for the different sectors of medicare
services under subsection (c),
‘‘(C) the determination of the amount (or
method of application) of any payment adjust-
ment under subsection (d), or
‘‘(D) any adjustment in an allotment ef-
fected under subsection (g).
‘‘(f) 
FEE-FOR-SERVICE
EXPENDITURES
DE-
FINED.—In this section, the term ‘‘fee-for-service expendi-
tures’, for items and services within a sector of medicare
services in a fiscal year, means amounts payable for such