I 
107TH CONGRESS 
2D SESSION 
H. R. 5451
To amend title XVIII of the Social Security Act to modernize and reform 
payments and the regulatory structure of the Medicare Program to 
assure access to health care for senior citizens, and for other purposes. 
IN THE HOUSE OF REPRESENTATIVES 
SEPTEMBER 24, 2002
Mr. WELDON of Florida introduced the following bill; which was referred to 
the Committee on Ways and Means, and in addition to the Committee 
on Energy and Commerce, for a period to be subsequently determined by 
the Speaker, in each case for consideration of such provisions as fall with-
in the jurisdiction of the committee concerned 
A BILL 
To amend title XVIII of the Social Security Act to modernize 
and reform payments and the regulatory structure of 
the Medicare Program to assure access to health care 
for senior citizens, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. SHORT TITLE; AMENDMENTS TO SOCIAL SECU-
RITY ACT; REFERENCES TO BIPA AND SEC-
RETARY; TABLE OF CONTENTS. 
(a) SHORT TITLE.—This Act may be cited as the 
‘‘Seniors’ Access to Health Care Act of 2002’’.
(b) AMENDMENTS TO SOCIAL SECURITY ACT.—Ex-
cept as otherwise specifically provided, whenever in this 
Act an amendment is expressed in terms of an amendment 
to or repeal of a section or other provision, the reference 
shall be considered to be made to that section or other 
provision of the Social Security Act. 
(c) TABLE OF CONTENTS.—The table of contents of 
this Act is as follows:
Sec. 1. Short title; amendments to Social Security Act; table of contents. 
TITLE I—REFERENCES IN ACT 
Sec. 101. References in Act. 
TITLE II—MEDICARE+CHOICE REVITALIZATION AND 
MEDICARE+CHOICE COMPETITION PROGRAM 
Subtitle A—Medicare+Choice Revitalization 
Sec. 201. Medicare+Choice improvements. 
Sec. 202. Making permanent change in Medicare+Choice reporting deadlines 
and annual, coordinated election period. 
Sec. 203. Avoiding duplicative State regulation. 
Sec. 204. Specialized Medicare+Choice plans for special needs beneficiaries. 
Sec. 205. Medicare MSAs. 
Sec. 206. Extension of reasonable cost and SHMO contracts. 
Subtitle B—Medicare+Choice Competition Program 
Sec. 211. Medicare+Choice competition program. 
Sec. 212. Demonstration program for competitive-demonstration areas. 
Sec. 213. Conforming amendments. 
TITLE III—RURAL HEALTH CARE IMPROVEMENTS 
Sec. 301. Reference to full market basket increase for sole community hos-
pitals. 
Sec. 302. Enhanced disproportionate share hospital (DSH) treatment for rural 
hospitals and urban hospitals with fewer than 100 beds. 
Sec. 303. 2-year phased-in increase in the standardized amount in rural and 
small urban areas to achieve a single, uniform standardized 
amount. 
Sec. 304. More frequent update in weights used in hospital market basket. 
Sec. 305. Improvements to critical access hospital program. 
Sec. 306. Extension of temporary increase for home health services furnished 
in a rural area.
Sec. 307. Reference to 10 percent increase in payment for hospice care fur-
nished in a frontier area and rural hospice demonstration 
project. 
Sec. 308. Reference to priority for hospitals located in rural or small urban 
areas in redistribution of unused graduate medical education 
residencies. 
Sec. 309. GAO study of geographic differences in payments for physicians’ 
services. 
Sec. 310. Providing safe harbor for certain collaborative efforts that benefit 
medically underserved populations. 
Sec. 311. Relief for certain non-teaching hospitals.
TITLE IV—PROVISIONS RELATING TO PART A 
Subtitle A—Inpatient Hospital Services 
Sec. 401. Revision of acute care hospital payment updates. 
Sec. 402. 2-year increase in level of adjustment for indirect costs of medical 
education (IME). 
Sec. 403. Recognition of new medical technologies under inpatient hospital 
PPS. 
Sec. 404. Phase-in of Federal rate for hospitals in Puerto Rico. 
Sec. 405. Reference to provision relating to enhanced disproportionate share 
hospital (DSH) payments for rural hospitals and urban hos-
pitals with fewer than 100 beds. 
Sec. 406. Reference to provision relating to 2-year phased-in increase in the 
standardized amount in rural and small urban areas to achieve 
a single, uniform standardized amount. 
Sec. 407. Reference to provision for more frequent updates in the weights used 
in hospital market basket. 
Sec. 408. Reference to provision making improvements to critical access hos-
pital program. 
Sec. 409. GAO study on improving the hospital wage index. 
Subtitle B—Skilled Nursing Facility Services 
Sec. 411. Payment for covered skilled nursing facility services. 
Subtitle C—Hospice 
Sec. 421. Coverage of hospice consultation services. 
Sec. 422. 10 percent increase in payment for hospice care furnished in a fron-
tier area. 
Sec. 423. Rural hospice demonstration project. 
Subtitle D—Other Provisions 
Sec. 431. Demonstration project for use of recovery audit contractors for part 
A services. 
TITLE V—PROVISIONS RELATING TO PART B 
Subtitle A—Physicians’ Services 
Sec. 501. Revision of updates for physicians’ services. 
Sec. 502. Studies on access to physicians’ services. 
Sec. 503. MedPAC report on payment for physicians’ services.
Sec. 504. 1-year extension of treatment of certain physician pathology services 
under medicare. 
Sec. 505. Physician fee schedule wage index revision. 
Subtitle B—Other Services 
Sec. 511. Payment for ambulance services. 
Sec. 512. 2-year extension of moratorium on therapy caps; provisions relating 
to reports. 
Sec. 513. Coverage of an initial preventive physical examination. 
Sec. 514. Renal dialysis services. 
Sec. 515. Improved payment for certain mammography services. 
Sec. 516. Waiver of part B late enrollment penalty for certain military retirees; 
special enrollment period. 
Sec. 517. Coverage of cholesterol and blood lipid screening. 
TITLE VI—PROVISIONS RELATING TO PARTS A AND B 
Subtitle A—Home Health Services 
Sec. 601. Elimination of 15 percent reduction in payment rates under the pro-
spective payment system. 
Sec. 602. Update in home health services. 
Sec. 603. OASIS Task Force; suspension of certain OASIS data collection re-
quirements pending Task Force submittal of report. 
Sec. 604. MedPAC study on medicare margins of home health agencies. 
Sec. 605. Clarification of treatment of occasional absences in determining 
whether an individual is confined to the home. 
Subtitle B—Direct Graduate Medical Education 
Sec. 611. Extension of update limitation on high cost programs. 
Sec. 612. Redistribution of unused resident positions. 
Subtitle C—Other Provisions 
Sec. 621. Modifications to Medicare Payment Advisory Commission (MedPAC). 
Sec. 622. Demonstration project for disease management for certain medicare 
beneficiaries with diabetes. 
Sec. 623. Demonstration project for medical adult day care services. 
Sec. 624. Publication on final written guidance concerning prohibitions against 
discrimination by national origin with respect to health care 
services. 
TITLE VII—MEDICARE BENEFITS ADMINISTRATION 
Sec. 701. Establishment of Medicare Benefits Administration. 
TITLE VIII—REGULATORY REDUCTION AND CONTRACTING 
REFORM 
Subtitle A—Regulatory Reform 
Sec. 801. Construction; definition of supplier. 
Sec. 802. Issuance of regulations. 
Sec. 803. Compliance with changes in regulations and policies. 
Sec. 804. Reports and studies relating to regulatory reform.
Subtitle B—Contracting Reform 
Sec. 811. Increased flexibility in medicare administration. 
Sec. 812. Requirements for information security for medicare administrative 
contractors. 
Subtitle C—Education and Outreach 
Sec. 821. Provider education and technical assistance. 
Sec. 822. Small provider technical assistance demonstration program. 
Sec. 823. Medicare provider ombudsman; medicare beneficiary ombudsman. 
Sec. 824. Beneficiary outreach demonstration program. 
Subtitle D—Appeals and Recovery 
Sec. 831. Transfer of responsibility for medicare appeals. 
Sec. 832. Process for expedited access to review. 
Sec. 833. Revisions to medicare appeals process. 
Sec. 834. Prepayment review. 
Sec. 835. Recovery of overpayments. 
Sec. 836. Provider enrollment process; right of appeal. 
Sec. 837. Process for correction of minor errors and omissions on claims with-
out pursuing appeals process. 
Sec. 838. Prior determination process for certain items and services; advance 
beneficiary notices. 
Subtitle E—Miscellaneous Provisions 
Sec. 841. Policy development regarding evaluation and management (E & M) 
documentation guidelines. 
Sec. 842. Improvement in oversight of technology and coverage.
Sec. 843. Treatment of hospitals for certain services under medicare secondary 
payor (MSP) provisions. 
Sec. 844. EMTALA improvements. 
Sec. 845. Emergency Medical Treatment and Labor Act (EMTALA) Technical 
Advisory Group. 
Sec. 846. Authorizing use of arrangements with other hospice programs to pro-
vide core hospice services in certain circumstances. 
Sec. 847. Application of OSHA bloodborne pathogens standard to certain hos-
pitals. 
Sec. 848. BIPA-related technical amendments and corrections. 
Sec. 849. Conforming authority to waive a program exclusion. 
Sec. 850. Treatment of certain dental claims. 
Sec. 851. Annual publication of list of national coverage determinations. 
TITLE IX—MEDICAID PROVISIONS 
Sec. 901. National Bipartisan Commission on the Future of Medicaid. 
Sec. 902. Disproportionate share hospital (DSH) payments.
TITLE I—REFERENCES IN ACT 
SEC. 101. REFERENCES IN ACT. 
In this Act:
(1) BIPA.—The term ‘‘BIPA’’ means the 
Medicare, Medicaid, and SCHIP Benefits Improve-
ment and Protection Act of 2000, as enacted into 
law by section 1(a)(6) of Public Law 106–554. 
(2) SECRETARY.—The term ‘‘Secretary’’ means 
the Secretary of Health and Human Services. 
TITLE 
II—MEDICARE+CHOICE 
REVITALIZATION 
AND 
MEDICARE+CHOICE 
COM-
PETITION PROGRAM 
Subtitle A—Medicare+Choice 
Revitalization 
SEC. 201. MEDICARE+CHOICE IMPROVEMENTS. 
(a) EQUALIZING PAYMENTS BETWEEN FEE-FOR-
SERVICE AND MEDICARE+CHOICE.—
(1) IN
GENERAL.—Section 1853(c)(1) (42 
U.S.C. 1395w–23(c)(1)) is amended by adding at 
the end the following: 
‘‘(D) BASED
ON
100
PERCENT
OF
FEE-
FOR-SERVICE COSTS.—
‘‘(i) IN
GENERAL.—For 2003 and 
2004, the adjusted average per capita cost 
for the year involved, determined under 
section 
1876(a)(4) 
for 
the 
Medicare+Choice payment area for serv-
ices covered under parts A and B for indi-
viduals entitled to benefits under part A 
and enrolled under part B who are not en-
rolled in a Medicare+Choice plan under 
this part for the year, but adjusted to ex-
clude costs attributable to payments under 
section 1886(h). 
‘‘(ii) INCLUSION OF COSTS OF VA AND 
DOD
MILITARY
FACILITY
SERVICES
TO 
MEDICARE-ELIGIBLE
BENEFICIARIES.—In 
determining the adjusted average per cap-
ita cost under clause (i) for a year, such 
cost shall be adjusted to include the Sec-
retary’s estimate, on a per capita basis, of 
the amount of additional payments that 
would have been made in the area involved 
under this title if individuals entitled to 
benefits under this title had not received 
services from facilities of the Department 
of Veterans Affairs or the Department of 
Defense.’’. 
(2) CONFORMING AMENDMENT.—Such section 
is further amended, in the matter before subpara-
graph (A), by striking ‘‘or (C)’’ and inserting ‘‘(C), 
or (D)’’.
(b) REVISION OF BLEND.—
(1) REVISION OF NATIONAL AVERAGE USED IN 
CALCULATION
OF
BLEND.—Section 
1853(c)(4)(B)(i)(II) 
(42 
U.S.C. 
1395w–
23(c)(4)(B)(i)(II)) is amended by inserting ‘‘who 
(with respect to determinations for 2003 and for 
2004) are enrolled in a Medicare+Choice plan’’ 
after ‘‘the average number of medicare bene-
ficiaries’’. 
(2) CHANGE IN BUDGET NEUTRALITY.—Section 
1853(c) (42 U.S.C. 1395w–23(c)) is amended—
(A) in paragraph (1)(A), by inserting ‘‘(for 
a year before 2003)’’ after ‘‘multiplied’’; and 
(B) in paragraph (5), by inserting ‘‘(before 
2003)’’ after ‘‘for each year’’. 
(c) REVISION IN MINIMUM PERCENTAGE INCREASE 
FOR 2003 AND 2004.—Section 1853(c)(1)(C) (42 U.S.C. 
1395w–23(c)(1)(C)) is amended by striking clause (iv) 
and inserting the following: 
‘‘(iv) For 2002, 102 percent of the 
annual Medicare+Choice capitation rate 
under this paragraph for the area for 
2001. 
‘‘(v) For 2003 and 2004, 103 percent 
of the annual Medicare+Choice capitation
rate under this paragraph for the area for 
the previous year. 
‘‘(vi) For 2005 and each succeeding 
year, 
102 
percent 
of 
the 
annual 
Medicare+Choice capitation rate under 
this paragraph for the area for the pre-
vious year.’’. 
(d) INCLUSION OF COSTS OF DOD AND VA MILI-
TARY FACILITY SERVICES TO MEDICARE-ELIGIBLE BENE-
FICIARIES IN CALCULATION OF MEDICARE+CHOICE PAY-
MENT RATES.—Section 1853(c)(3) (42 U.S.C. 1395w–
23(c)(3)) is amended—
(1) in subparagraph (A), by striking ‘‘subpara-
graph (B)’’ and inserting ‘‘subparagraphs (B) and 
(E)’’, and 
(2) by adding at the end the following new sub-
paragraph: 
‘‘(E) INCLUSION OF COSTS OF DOD AND 
VA MILITARY FACILITY SERVICES TO MEDICARE-
ELIGIBLE BENEFICIARIES.—In determining the 
area-specific Medicare+Choice capitation rate 
under subparagraph (A) for a year (beginning 
with 2003), the annual per capita rate of pay-
ment for 1997 determined under section 
1876(a)(1)(C) shall be adjusted to include in
the rate the Secretary’s estimate, on a per cap-
ita basis, of the amount of additional payments 
that would have been made in the area involved 
under this title if individuals entitled to benefits 
under this title had not received services from 
facilities of the Department of Defense or the 
Department of Veterans Affairs.’’. 
(e) 
ANNOUNCEMENT
OF
REVISED 
MEDICARE+CHOICE PAYMENT RATES.—Within 4 weeks 
after the date of the enactment of this Act, the Secretary 
shall determine, and shall announce (in a manner intended 
to provide notice to interested parties) Medicare+Choice 
capitation rates under section 1853 of the Social Security 
Act (42 U.S.C. 1395w–23) for 2003, revised in accordance 
with the provisions of this section. 
(f) MEDPAC STUDY OF AAPCC.—
(1) STUDY.—The Medicare Payment Advisory 
Commission shall conduct a study that assesses the 
method used for determining the adjusted average 
per capita cost (AAPCC) under section 1876(a)(4) 
of 
the 
Social 
Security 
Act 
(42 
U.S.C. 
1395mm(a)(4)). Such study shall examine—
(A) the bases for variation in such costs 
between different areas, including differences in 
input prices, utilization, and practice patterns;
(B) the appropriate geographic area for 
payment under the Medicare+Choice program 
under part C of title XVIII of such Act; and 
(C) the accuracy of risk adjustment meth-
ods in reflecting differences in costs of pro-
viding care to different groups of beneficiaries 
served under such program. 
(2) REPORT.—Not later than 9 months after 
the date of the enactment of this Act, the Commis-
sion shall submit to Congress a report on the study 
conducted under paragraph (1). Such report shall 
include recommendations regarding changes in the 
methods for computing the adjusted average per 
capita cost among different areas. 
(g) REPORT ON IMPACT OF INCREASED FINANCIAL 
ASSISTANCE TO MEDICARE+CHOICE PLANS.—Not later 
than July 1, 2003, the Secretary of Health and Human 
Services shall submit to Congress a report that describes 
the impact of additional financing provided under this Act 
and other Acts (including the Medicare, Medicaid, and 
SCHIP Balanced Budget Refinement Act of 1999 and 
BIPA) on the availability of Medicare+Choice plans in 
different areas and its impact on lowering premiums and 
increasing benefits under such plans.
SEC. 
202. 
MAKING 
PERMANENT 
CHANGE 
IN 
MEDICARE+CHOICE REPORTING DEADLINES 
AND ANNUAL, COORDINATED ELECTION PE-
RIOD. 
(a) CHANGE
IN REPORTING DEADLINE.—Section 
1854(a)(1) (42 U.S.C. 1395w–24(a)(1)), as amended by 
section 532(b)(1) of the Public Health Security and Bio-
terrorism Preparedness and Response Act of 2002, is 
amended by striking ‘‘2002, 2003, and 2004 (or July 1 
of each other year)’’ and inserting ‘‘2002 and each subse-
quent year (or July 1 of each year before 2002)’’. 
(b) DELAY IN ANNUAL, COORDINATED ELECTION 
PERIOD.—Section 1851(e)(3)(B) (42 U.S.C. 1395w–
21(e)(3)(B)), as amended by section 532(c)(1)(A) of the 
Public Health Security and Bioterrorism Preparedness 
and Response Act of 2002, is amended by striking ‘‘and 
after 2005, the month of November before such year and 
with respect to 2003, 2004, and 2005’’ and inserting ‘‘, 
the month of November before such year and with respect 
to 2003 and any subsequent year’’. 
(c) 
ANNUAL
ANNOUNCEMENT
OF
PAYMENT 
RATES.—Section 
1853(b)(1) 
(42 
U.S.C. 
1395w–
23(b)(1)), as amended by section 532(d)(1) of the Public 
Health Security and Bioterrorism Preparedness and Re-
sponse Act of 2002, is amended by striking ‘‘and after 
2005 not later than March 1 before the calendar year con-
cerned and for 2004 and 2005’’ and inserting ‘‘not later 
than March 1 before the calendar year concerned and for 
2004 and each subsequent year’’. 
(d) REQUIRING PROVISION OF AVAILABLE INFORMA-
TION COMPARING PLAN OPTIONS.—The first sentence of 
section 
1851(d)(2)(A)(ii) 
(42 
U.S.C. 
1395w–
21(d)(2)(A)(ii)) is amended by inserting before the period 
the following: ‘‘to the extent such information is available 
at the time of preparation of materials for the mailing’’. 
SEC. 203. AVOIDING DUPLICATIVE STATE REGULATION. 
(a) IN GENERAL.—Section 1856(b)(3) (42 U.S.C. 
1395w–26(b)(3)) is amended to read as follows: 
‘‘(3) RELATION TO STATE LAWS.—The stand-
ards established under this subsection shall super-
sede any State law or regulation (other than State 
licensing laws or State laws relating to plan sol-
vency) with respect to Medicare+Choice plans which 
are offered by Medicare+Choice organizations under 
this part.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall take effect on the date of the enact-
ment of this Act.
SEC. 204. SPECIALIZED MEDICARE+CHOICE PLANS FOR 
SPECIAL NEEDS BENEFICIARIES. 
(a) TREATMENT AS COORDINATED CARE PLAN.—
Section 1851(a)(2)(A) (42 U.S.C. 1395w–21(a)(2)(A)) is 
amended by adding at the end the following new sentence: 
‘‘Specialized Medicare+Choice plans for special needs 
beneficiaries (as defined in section 1859(b)(4)) may be 
any type of coordinated care plan.’’. 
(b) SPECIALIZED MEDICARE+CHOICE PLAN
FOR 
SPECIAL
NEEDS
BENEFICIARIES
DEFINED.—Section 
1859(b) (42 U.S.C. 1395w–29(b)) is amended by adding 
at the end the following new paragraph: 
‘‘(4) SPECIALIZED
MEDICARE+CHOICE
PLANS 
FOR SPECIAL NEEDS BENEFICIARIES.—
‘‘(A) IN GENERAL.—The term ‘specialized 
Medicare+Choice plan for special needs bene-
ficiaries’ means a Medicare+Choice plan that 
exclusively serves special needs beneficiaries (as 
defined in subparagraph (B)). 
‘‘(B) SPECIAL NEEDS BENEFICIARY.—The 
term ‘special needs beneficiary’ means a 
Medicare+Choice eligible individual who—
‘‘(i) is institutionalized (as defined by 
the Secretary); 
‘‘(ii) is entitled to medical assistance 
under a State plan under title XIX; or
‘‘(iii) meets such requirements as the 
Secretary may determine would benefit 
from enrollment in such a specialized 
Medicare+Choice plan described in sub-
paragraph (A) for individuals with severe 
or disabling chronic conditions.’’. 
(c) RESTRICTION ON ENROLLMENT PERMITTED.—
Section 1859 (42 U.S.C. 1395w–29) is amended by add-
ing at the end the following new subsection: 
‘‘(f) RESTRICTION ON ENROLLMENT FOR SPECIAL-
IZED MEDICARE+CHOICE PLANS FOR SPECIAL NEEDS 
BENEFICIARIES.—In 
the 
case 
of 
a 
specialized 
Medicare+Choice plan (as defined in subsection (b)(4)), 
notwithstanding any other provision of this part and in 
accordance with regulations of the Secretary and for peri-
ods before January 1, 2007, the plan may restrict the en-
rollment of individuals under the plan to individuals who 
are within one or more classes of special needs bene-
ficiaries.’’. 
(d) REPORT TO CONGRESS.—Not later than Decem-
ber 31, 2005, the Medicare Benefits Administrator shall 
submit to Congress a report that assesses the impact of 
specialized Medicare+Choice plans for special needs bene-
ficiaries on the cost and quality of services provided to 
enrollees. Such report shall include an assessment of the
costs and savings to the medicare program as a result of 
amendments made by subsections (a), (b), and (c). 
(e) EFFECTIVE DATES.—
(1) IN GENERAL.—The amendments made by 
subsections (a), (b), and (c) shall take effect upon 
the date of the enactment of this Act. 
(2) DEADLINE
FOR
ISSUANCE
OF
REQUIRE-
MENTS FOR SPECIAL NEEDS BENEFICIARIES; TRAN-
SITION.—No later than 6 months after the date of 
the enactment of this Act, the Secretary of Health 
and Human Services shall issue final regulations to 
establish requirements for special needs beneficiaries 
under section 1859(b)(4)(B)(iii) of the Social Secu-
rity Act, as added by subsection (b). 
SEC. 205. MEDICARE MSAS. 
(a) EXEMPTION FROM REPORTING ENROLLEE EN-
COUNTER DATA.—
(1) IN
GENERAL.—Section 1852(e)(1) (42 
U.S.C. 1395w–22(e)(1)) is amended by inserting 
‘‘(other than MSA plans)’’ after ‘‘Medicare+Choice 
plans’’. 
(2) CONFORMING AMENDMENTS.—Section 1852 
(42 U.S.C. 1395w–22) is amended—
(A) in subsection (c)(1)(I), by inserting be-
fore the period at the end the following: ‘‘if re-
quired under such section’’; and 
(B) in subparagraphs (A) and (B) of sub-
section (e)(2), by striking ‘‘, a non-network 
MSA 
plan,’’ 
and 
‘‘, 
NON-NETWORK
MSA 
PLANS,’’ each place it appears. 
(b) MAKING PROGRAM PERMANENT
AND ELIMI-
NATING CAP.—Section 1851(b)(4) (42 U.S.C. 1395w–
21(b)(4)) is amended—
(1) in the heading, by striking ‘‘ON A DEM-
ONSTRATION BASIS’’; 
(2) by striking the first sentence of subpara-
graph (A); and 
(3) by striking the second sentence of subpara-
graph (C). 
(c) APPLYING LIMITATIONS
ON BALANCE BILL-
ING.—Section 1852(k)(1) (42 U.S.C. 1395w–22(k)(1)) is 
amended by inserting ‘‘or with an organization offering 
a MSA plan’’ after ‘‘section 1851(a)(2)(A)’’. 
(d) 
ADDITIONAL
AMENDMENT.—Section 
1851(e)(5)(A) (42 U.S.C. 1395w–21(e)(5)(A)) is amend-
ed—
(1) by adding ‘‘or’’ at the end of clause (i);
(2) by striking ‘‘, or’’ at the end of clause (ii) 
and inserting a semicolon; and 
(3) by striking clause (iii). 
SEC. 206. EXTENSION OF REASONABLE COST AND SHMO 
CONTRACTS. 
(a) REASONABLE COST CONTRACTS.—
(1) IN GENERAL.—Section 1876(h)(5)(C) (42 
U.S.C. 1395mm(h)(5)(C)) is amended—
(A) by inserting ‘‘(i)’’ after ‘‘(C)’’; 
(B) by inserting before the period the fol-
lowing: ‘‘, except (subject to clause (ii)) in the 
case of a contract for an area which is not cov-
ered in the service area of 1 or more coordi-
nated care Medicare+Choice plans under part 
C’’; and 
(C) by adding at the end the following new 
clause: 
‘‘(ii) In the case in which—
‘‘(I) a reasonable cost reimbursement contract 
includes an area in its service area as of a date that 
is after December 31, 2003; 
‘‘(II) such area is no longer included in such 
service area after such date by reason of the oper-
ation of clause (i) because of the inclusion of such
area within the service area of a Medicare+Choice 
plan; and 
‘‘(III) all Medicare+Choice plans subsequently 
terminate coverage in such area; 
such reasonable cost reimbursement contract may be ex-
tended and renewed to cover such area (so long as it is 
not included in the service area of any Medicare+Choice 
plan).’’. 
(2) STUDY.—The Medicare Benefits Adminis-
trator shall conduct a study of an appropriate tran-
sition for plans offered under reasonable cost con-
tracts under section 1876 of the Social Security Act 
on and after January 1, 2005. Such a transition 
may take into account whether there are one or 
more coordinated care Medicare+Choice plans being 
offered in the areas involved. Not later than Feb-
ruary 1, 2004, the Administrator shall submit to 
Congress a report on such study and shall include 
recommendations regarding any changes in the 
amendment made by paragraph (1) as the Adminis-
trator determines to be appropriate. 
(b) EXTENSION OF SOCIAL HEALTH MAINTENANCE 
ORGANIZATION (SHMO) DEMONSTRATION PROJECT.—
(1) IN GENERAL.—Section 4018(b)(1) of the 
Omnibus Budget Reconciliation Act of 1987 is
amended by striking ‘‘the date that is 30 months 
after the date that the Secretary submits to Con-
gress the report described in section 4014(c) of the 
Balanced Budget Act of 1997’’ and inserting ‘‘De-
cember 31, 2004’’. 
(2) SHMOS
OFFERING
MEDICARE+CHOICE 
PLANS.—Nothing in such section 4018 shall be con-
strued as preventing a social health maintenance or-
ganization from offering a Medicare+Choice plan 
under part C of title XVIII of the Social Security 
Act.
Subtitle B—Medicare+Choice 
Competition Program
SEC. 211. MEDICARE+CHOICE COMPETITION PROGRAM. 
(a) SUBMISSION OF BID AMOUNTS.—Section 1854 
(42 U.S.C. 1395w–24) is amended—
(1) in the heading by inserting ‘‘AND
BID 
AMOUNTS’’ after ‘‘PREMIUMS’’; 
(2) in subsection (a)(1)(A)—
(A) by striking ‘‘(A)’’ and inserting ‘‘(A)(i) 
if the following year is before 2005,’’; and 
(B) by inserting before the semicolon at 
the end the following: ‘‘or (ii) if the following 
year is 2005 or later, the information described 
in paragraph (6)(A)’’; and
(3) by adding at the end of subsection (a) the 
following: 
‘‘(6) 
SUBMISSION
OF
BID
AMOUNTS
BY 
MEDICARE+CHOICE ORGANIZATIONS.—
‘‘(A) INFORMATION TO BE SUBMITTED.—
The information described in this subparagraph 
is as follows: 
‘‘(i) 
The 
monthly 
aggregate 
bid 
amount for provision of all items and serv-
ices under this part and the actuarial basis 
for determining such amount. 
‘‘(ii) The proportions of such bid 
amount that are attributable to—
‘‘(I) the provision of statutory 
benefits (such portion referred to in 
this part as the ‘unadjusted monthly 
bid amount’); and 
‘‘(II) the provision of non-statu-
tory benefits; 
and the actuarial basis for determining 
such proportions. 
‘‘(iii) Such additional information as 
the Administrator may require to verify 
the actuarial bases described in clauses (i) 
and (ii).
‘‘(B) STATUTORY
BENEFITS
DEFINED.—
For purposes of this part, the term ‘statutory 
benefits’ means benefits under parts A and B. 
‘‘(C) ACCEPTANCE AND NEGOTIATION OF 
BID AMOUNTS.—The Administrator has the au-
thority to negotiate regarding monthly bid 
amounts submitted under subparagraph (A) 
(and the proportion described in subparagraph 
(A)(ii)). The Administrator may reject such a 
bid amount or proportion if the Administrator 
determines that such amount or proportion is 
not supported by the actuarial bases provided 
under subparagraph (A).’’. 
(b) PROVIDING
FOR BENEFICIARY SAVINGS
FOR 
CERTAIN PLANS.—
(1) IN GENERAL.—Section 1854(b) (42 U.S.C. 
1395w–24(b)) is amended—
(A) by adding at the end of paragraph (1) 
the following new subparagraph: 
‘‘(C) BENEFICIARY REBATE RULE.—
‘‘(i) 
REQUIREMENT.—The 
Medicare+Choice plan shall provide to the 
enrollee a monthly rebate equal to 75 per-
cent of the average per capita savings (if
any) described in paragraph (3) applicable 
to the plan and year involved. 
‘‘(iii) FORM
OF
REBATE.—A rebate 
required under this subparagraph shall be 
provided—
‘‘(I) through the crediting of the 
amount of the rebate towards the 
Medicare+Choice 
monthly 
supple-
mentary beneficiary premium; 
‘‘(II) through a direct monthly 
payment (through electronic funds 
transfer or otherwise); or 
‘‘(III) through other means ap-
proved by the Medicare Benefits Ad-
ministrator, 
or any combination thereof.’’; and 
(B) by adding at the end the following new 
paragraph: 
‘‘(3) COMPUTATION OF AVERAGE PER CAPITA 
MONTHLY
SAVINGS.—For purposes of paragraph 
(1)(C)(i), the average per capita monthly savings re-
ferred to in such paragraph for a Medicare+Choice 
plan and year is computed as follows: 
‘‘(A) DETERMINATION OF STATE-WIDE AV-
ERAGE RISK ADJUSTMENT.—
‘‘(i) IN
GENERAL.—The Medicare 
Benefits Administrator shall determine, at 
the same time rates are promulgated under 
section 1853(b)(1) (beginning with 2005), 
for each State the average of the risk ad-
justment factors to be applied to enrollees 
under section 1853(a)(1)(A) in that State. 
In the case of a State in which a 
Medicare+Choice plan was offered in the 
previous year, the Administrator may com-
pute such average based upon risk adjust-
ment factors applied in that State in a pre-
vious year. 
‘‘(ii) TREATMENT OF NEW STATES.—
In the case of a State in which no 
Medicare+Choice plan was offered in the 
previous year, the Administrator shall esti-
mate such average. In making such esti-
mate, the Administrator may use average 
risk adjustment factors applied to com-
parable States or applied on a national 
basis. 
‘‘(B) DETERMINATION OF RISK ADJUSTED 
BENCHMARK
AND
RISK-ADJUSTED
BID.—For
each Medicare+Choice plan offered in a State, 
the Administrator shall—
‘‘(i) adjust the fee-for-service area-
specific benchmark amount by the applica-
ble average risk adjustment factor com-
puted under subparagraph (A); and 
‘‘(ii) adjust the unadjusted monthly 
bid amount by such applicable average risk 
adjustment factor. 
‘‘(C) DETERMINATION
OF
AVERAGE
PER 
CAPITA MONTHLY SAVINGS.—The average per 
capita monthly savings described in this sub-
paragraph is equal to the amount (if any) by 
which—
‘‘(i) 
the 
risk-adjusted 
benchmark 
amount computed under subparagraph 
(B)(i), exceeds 
‘‘(ii) the risk-adjusted bid computed 
under subparagraph (B)(ii). 
‘‘(D) AUTHORITY TO DETERMINE RISK AD-
JUSTMENT FOR AREAS OTHER THAN STATES.—
The Administrator may provide for the deter-
mination and application of risk adjustment 
factors under this paragraph on the basis of 
areas other than States.’’.
(2) COMPUTATION OF FEE-FOR-SERVICE AREA-
SPECIFIC
BENCHMARK.—Section 1853 (42 U.S.C. 
1395w–23) is amended by adding at the end the fol-
lowing new subsection: 
‘‘(j) COMPUTATION OF FEE-FOR-SERVICE AREA-SPE-
CIFIC BENCHMARK AMOUNT.—For purposes of this part, 
the term ‘fee-for-service area-specific benchmark amount’ 
means, with respect to a Medicare+Choice payment area 
for a month in a year, an amount equal to the greater 
of the following (but in no case less than 1⁄12 of the rate 
computed under subsection (c)(1), without regard to sub-
paragraph (A), for the year): 
‘‘(1) BASED
ON
100
PERCENT
OF
FEE-FOR-
SERVICE COSTS IN THE AREA.—An amount equal to 
1⁄12 of 100 percent (for 2005 through 2007, or 95 
percent for 2008 and years thereafter) of the ad-
justed average per capita cost for the year involved, 
determined under section 1876(a)(4) for the 
Medicare+Choice payment area, for the area and 
the year involved, for services covered under parts A 
and B for individuals entitled to benefits under part 
A and enrolled under part B who are not enrolled 
in a Medicare+Choice plan under this part for the 
year, and adjusted to exclude from such cost the 
amount the Medicare Benefits Administrator esti-
mates is payable for costs described in subclauses (I) 
and (II) of subsection (c)(3)(C)(i) for the year in-
volved and also adjusted in the manner described in 
subsection (c)(1)(D)(ii) (relating to inclusion of 
costs of VA and DOD military facility services to 
medicare-eligible beneficiaries). 
‘‘(2) MINIMUM MONTHLY AMOUNT.—The min-
imum amount specified in this paragraph is the 
amount specified in subsection (c)(1)(B)(iv) for the 
year involved.’’. 
(c) PAYMENT OF PLANS BASED ON BID AMOUNTS.—
(1) IN GENERAL.—Section 1853(a)(1)(A) (42 
U.S.C. 1395w–23) is amended by striking ‘‘in an 
amount’’ and all that follows and inserting the fol-
lowing: ‘‘in an amount determined as follows: 
‘‘(i) PAYMENT
BEFORE
2005.—For 
years before 2005, the payment amount 
shall be equal to 
1⁄12
of the annual 
Medicare+Choice capitation rate (as cal-
culated under subsection (c)) with respect 
to that individual for that area, reduced by 
the amount of any reduction elected under 
section 1854(f )(1)(E) and adjusted under 
clause (iii).
‘‘(ii) PAYMENT FOR STATUTORY BEN-
EFITS BEGINNING WITH 2005.—For years 
beginning with 2005—
‘‘(I) PLANS
WITH
BIDS
BELOW 
BENCHMARK.—In the case of a plan 
for which there are average per capita 
monthly savings described in section 
1854(b)(3)(C), the payment under 
this 
subsection 
is 
equal 
to 
the 
unadjusted monthly bid amount, ad-
justed under clause (iii), plus the 
amount of the monthly rebate com-
puted under section 1854(b)(1)(C)(i) 
for that plan and year. 
‘‘(II) PLANS WITH BIDS AT OR 
ABOVE BENCHMARK.—In the case of a 
plan for which there are no average 
per capita monthly savings described 
in section 1854(b)(3)(C), the payment 
amount under this subsection is equal 
to the fee-for-service area-specific 
benchmark amount, adjusted under 
clause (iii). 
‘‘(iii) DEMOGRAPHIC
ADJUSTMENT, 
INCLUDING
ADJUSTMENT
FOR
HEALTH
STATUS.—The Administrator shall adjust 
the payment amount under clause (i), the 
unadjusted monthly bid amount under 
clause (ii)(I), and the fee-for-service area-
specific benchmark amount under clause 
(ii)(II) for such risk factors as age, dis-
ability status, gender, institutional status, 
and such other factors as the Adminis-
trator determines to be appropriate, in-
cluding adjustment for health status under 
paragraph (3), so as to ensure actuarial 
equivalence. The Administrator may add 
to, modify, or substitute for such adjust-
ment factors if such changes will improve 
the determination of actuarial equiva-
lence.’’. 
(d) CONFORMING AMENDMENTS.—
(1) PROTECTION AGAINST BENEFICIARY SELEC-
TION.—Section 1852(b)(1)(A) (42 U.S.C. 1395w–
22(b)(1)(A)) is amended by adding at the end the 
following: ‘‘The Administrator shall not approve a 
plan of an organization if the Administrator deter-
mines that the benefits are designed to substantially 
discourage enrollment by certain Medicare+Choice 
eligible individuals with the organization.’’.
(2) CONFORMING
AMENDMENT
TO
PREMIUM 
TERMINOLOGY.—Subparagraphs (A) and (B) of sec-
tion 1854(b)(2) (42 U.S.C. 1395w–24(b)(2)) are 
amended to read as follows: 
‘‘(A) MEDICARE+CHOICE MONTHLY BASIC 
BENEFICIARY
PREMIUM.—The 
term 
‘Medicare+Choice monthly basic beneficiary 
premium’ 
means, 
with 
respect 
to 
a 
Medicare+Choice plan—
‘‘(i) 
described 
in 
section 
1853(a)(1)(A)(ii)(I) (relating to plans pro-
viding rebates), zero; or 
‘‘(ii) 
described 
in 
section 
1853(a)(1)(A)(ii)(II), the amount (if any) 
by which the unadjusted monthly bid 
amount exceeds the fee-for-service area-
specific benchmark amount. 
‘‘(B) MEDICARE+CHOICE MONTHLY SUP-
PLEMENTAL
BENEFICIARY
PREMIUM.—The 
term ‘Medicare+Choice monthly supplemental 
beneficiary premium’ means, with respect to a 
Medicare+Choice plan, the portion of the ag-
gregate monthly bid amount submitted under 
clause (i) of subsection (a)(6)(A) for the year
that is attributable under such section to the 
provision of nonstatutory benefits.’’. 
(3) 
REQUIREMENT
FOR
UNIFORM
BID 
AMOUNTS.—Section 1854(c) (42 U.S.C. 1395w–
24(c)) is amended to read as follows: 
‘‘(c) 
UNIFORM
BID
AMOUNTS.—The 
Medicare+Choice monthly bid amount submitted under 
subsection (a)(6) of a Medicare+Choice organization 
under this part may not vary among individuals enrolled 
in the plan.’’. 
(4) PERMITTING BENEFICIARY REBATES.—
(A) Section 1851(h)(4)(A) (42 U.S.C. 
1395w–21(h)(4)(A)) is amended by inserting 
‘‘except 
as 
provided 
under 
section 
1854(b)(1)(C)’’ after ‘‘or otherwise’’. 
(B) Section 1854(d) (42 U.S.C. 1395w–
24(d)) is amended by inserting ‘‘, except as pro-
vided under subsection (b)(1)(C),’’ after ‘‘and 
may not provide’’. 
(e) EFFECTIVE DATE.—The amendments made by 
this section shall apply to payments and premiums for 
months beginning with January 2005.
SEC. 212. DEMONSTRATION PROGRAM FOR COMPETITIVE-
DEMONSTRATION AREAS. 
(a) IDENTIFICATION OF COMPETITIVE-DEMONSTRA-
TION AREAS FOR DEMONSTRATION PROGRAM; COMPUTA-
TION
OF
CHOICE
BENCHMARKS.—Section 1853, as 
amended by section 211(b)(2), is amended by adding at 
the end the following new subsection: 
‘‘(k) ESTABLISHMENT
OF
COMPETITIVE
DEM-
ONSTRATION PROGRAM.—
‘‘(1) 
DESIGNATION
OF
COMPETITIVE-DEM-
ONSTRATION AREAS AS PART OF PROGRAM.—
‘‘(A) IN GENERAL.—For purposes of this 
part, the Administrator shall establish a dem-
onstration program under which the Adminis-
trator designates Medicare+Choice areas as 
competitive-demonstration areas consistent with 
the following limitations: 
‘‘(i) LIMITATION
ON
NUMBER
OF 
AREAS THAT MAY BE DESIGNATED.—The 
Administrator may not designate more 
than 4 areas as competitive-demonstration 
areas. 
‘‘(ii) LIMITATION ON PERIOD OF DES-
IGNATION
OF
ANY
AREA.—The Adminis-
trator may not designate any area as a
competitive-demonstration area for a pe-
riod of more than 2 years. 
The Administrator has the discretion to decide 
whether or not to designate as a competitive-
demonstration area an area that qualifies for 
such designation. 
‘‘(B) 
QUALIFICATIONS
FOR
DESIGNA-
TION.—For 
purposes 
of 
this 
title, 
a 
Medicare+Choice area (which is a metropolitan 
statistical area or other area with a substantial 
number of Medicare+Choice enrollees) may not 
be designated as a ‘competitive-demonstration 
area’ for a 2-year period beginning with a year 
unless the Administrator determines, by such 
date before the beginning of the year as the Ad-
ministrator determines appropriate, that—
‘‘(i) there will be offered during the 
open enrollment period under this part be-
fore the beginning of the year at least 2 
Medicare+Choice plans (in addition to the 
fee-for-service program under parts A and 
B), 
each 
offered 
by 
a 
different 
Medicare+Choice organization; and 
‘‘(ii) during March of the previous 
year at least 50 percent of the number of
Medicare+Choice eligible individuals who 
reside in the area were enrolled in a 
Medicare+Choice plan. 
‘‘(2) CHOICE BENCHMARK AMOUNT.—For pur-
poses of this part, the term ‘choice benchmark 
amount’ means, with respect to a Medicare+Choice 
payment area for a month in a year, the sum of the 
2 components described in paragraph (3) for the 
area and year. The Administrator shall compute 
such benchmark amount for each competitive-dem-
onstration area before the beginning of each annual, 
coordinated 
election 
period 
under 
section 
1851(e)(3)(B) for each year (beginning with 2005) 
in which it is designated as such an area. 
‘‘(3) TWO
COMPONENTS.—For purposes of 
paragraph (2), the two components described in this 
paragraph for an area and a year are the following: 
‘‘(A) 
FEE-FOR-SERVICE
COMPONENT 
WEIGHTED
BY
NATIONAL
FEE-FOR-SERVICE 
MARKET SHARE.—The product of the following: 
‘‘(i) 
NATIONAL
FEE-FOR-SERVICE 
MARKET
SHARE.—The national fee-for-
service market share percentage (deter-
mined under paragraph (5)) for the year.
‘‘(ii) 
FEE-FOR-SERVICE
AREA-SPE-
CIFIC
BID.—The fee-for-service area-spe-
cific bid (as defined in paragraph (6)) for 
the area and year. 
‘‘(B) M+C COMPONENT WEIGHTED BY NA-
TIONAL MEDICARE+CHOICE MARKET SHARE.—
The product of the following:
‘‘(i) NATIONAL
MEDICARE+CHOICE 
MARKET
SHARE.—1 minus the national 
fee-for-service market share percentage for 
the year. 
‘‘(ii) WEIGHTED
AVERAGE
OF
PLAN 
BIDS IN AREA.—The weighted average of 
the plan bids for the area and year (as de-
termined under paragraph (4)(A)). 
‘‘(4) DETERMINATION OF WEIGHTED AVERAGE 
BIDS FOR AN AREA.—
‘‘(A) IN GENERAL.—For purposes of para-
graph (3)(B)(ii), the weighted average of plan 
bids for an area and a year is the sum of the 
following products for Medicare+Choice plans 
described in subparagraph (C) in the area and 
year: 
‘‘(i) PROPORTION
OF
EACH
PLAN’S 
ENROLLEES IN THE AREA.—The number
of individuals described in subparagraph 
(B), divided by the total number of such 
individuals for all Medicare+Choice plans 
described in subparagraph (C) for that 
area and year. 
‘‘(ii) MONTHLY
BID
AMOUNT.—The 
unadjusted monthly bid amount. 
‘‘(B) COUNTING
OF
INDIVIDUALS.—The 
Administrator 
shall 
count, 
for 
each 
Medicare+Choice plan described in subpara-
graph (C) for an area and year, the number of 
individuals who reside in the area and who were 
enrolled under such plan under this part during 
March of the previous year. 
‘‘(C) EXCLUSION OF PLANS NOT OFFERED 
IN PREVIOUS YEAR.—For an area and year, the 
Medicare+Choice plans described in this sub-
paragraph are plans that are offered in the area 
and year and were offered in the area in March 
of the previous year. 
‘‘(5) COMPUTATION
OF
NATIONAL
FEE-FOR-
SERVICE
MARKET
SHARE
PERCENTAGE.—The Ad-
ministrator shall determine, for a year, the propor-
tion (in this subsection referred to as the ‘national 
fee-for-service 
market 
share 
percentage’) 
of
Medicare+Choice eligible individuals who during 
March of the previous year were not enrolled in a 
Medicare+Choice plan. 
‘‘(6) FEE-FOR-SERVICE AREA-SPECIFIC BID.—
For purposes of this part, the term ‘fee-for-service 
area-specific bid’ means, for an area and year, the 
amount described in section 1853(j)(1) for the area 
and year, except that any reference to a percent of 
less than 100 percent shall be deemed a reference to 
100 percent.’’. 
(b) APPLICATION OF CHOICE BENCHMARK IN COM-
PETITIVE-DEMONSTRATION AREAS.—
(1) IN GENERAL.—Section 1854 is amended—
(A) in subsection (b)(1)(C)(i), as added by 
section 211(b)(1)(A), by striking ‘‘(i) REQUIRE-
MENT.—The’’ and inserting ‘‘(i) REQUIREMENT 
FOR
NON-COMPETITIVE-DEMONSTRATION 
AREAS.—In the case of a Medicare+Choice 
payment area that is not a competitive-dem-
onstration 
area 
designated 
under 
section 
1853(k)(1), the’’; 
(B) in subsection (b)(1)(C), as so added, 
by inserting after clause (i) the following new 
clause:
‘‘(ii) REQUIREMENT
FOR
COMPETI-
TIVE-DEMONSTRATION
AREAS.—In 
the 
case of a Medicare+Choice payment area 
that is designated as a competitive-dem-
onstration area under section 1853(k)(1), 
if there are average per capita monthly 
savings described in paragraph (4) for a 
Medicare+Choice plan and year, the 
Medicare+Choice plan shall provide to the 
enrollee a monthly rebate equal to 75 per-
cent of such savings.’’; 
(C) by adding at the end of subsection (b), 
as amended by section 211(b)(1), the following 
new paragraph: 
‘‘(4) COMPUTATION OF AVERAGE PER CAPITA 
MONTHLY SAVINGS FOR COMPETITIVE-DEMONSTRA-
TION AREAS.—For purposes of paragraph (1)(C)(ii), 
the average per capita monthly savings referred to 
in such paragraph for a Medicare+Choice plan and 
year shall be computed in the same manner as the 
average per capita monthly savings is computed 
under paragraph (3) except that the reference to the 
fee-for-service area-specific benchmark amount in 
paragraph (3)(B)(i) (or to the benchmark amount as 
adjusted under paragraph (3)(C)(i)) is deemed to be
a reference to the choice benchmark amount (or 
such amount as adjusted in the manner described in 
paragraph (3)(B)(i)).’’; and 
(D) in subsection (d), as amended by sec-
tion 211(d)(4), by inserting ‘‘and subsection 
(b)(1)(D)’’ after ‘‘subsection (b)(1)(C)’’. 
(2) CONFORMING AMENDMENTS.—
(A) 
PAYMENT
OF
PLANS.—Section 
1853(a)(1)(A)(ii), 
as 
amended 
by 
section 
211(c)(1), is amended—
(i) in subclause (I), by inserting ‘‘(or, 
in the case of a competitive-demonstration 
area, the choice benchmark amount)’’ after 
‘‘unadjusted monthly bid amount’’; and 
(ii) in subclauses (I) and (II), by in-
serting ‘‘(or, in the case of a competitive-
demonstration area, described in section 
1854(b)(4))’’ 
after 
‘‘section 
1854(b)(3)(C)’’. 
(B) DEFINITION OF MONTHLY BASIC PRE-
MIUM.—Section 1854(b)(2)(A)(ii), as amended 
by section 211(d)(2), is amended by inserting 
‘‘(or, in the case of a competitive-demonstration 
area, the choice benchmark amount)’’ after 
‘‘benchmark amount’’.
(c) PREMIUM
ADJUSTMENT.—Section 1839 (42 
U.S.C. 1395r) is amended by adding at the end the fol-
lowing new subsection: 
‘‘(h)(1) In the case of an individual who resides in 
a competitive-demonstration area designated under section 
1851(k)(1) and who is not enrolled in a Medicare+Choice 
plan under part C, the monthly premium otherwise applied 
under this part (determined without regard to subsections 
(b) and (f) or any adjustment under this subsection) shall 
be adjusted as follows: If the fee-for-service area-specific 
bid 
(as 
defined 
in 
section 
1853(k)(6)) 
for 
the 
Medicare+Choice area in which the individual resides for 
a month—
‘‘(A) does not exceed the choice benchmark (as 
determined under section 1853(k)(2)) for such area, 
the amount of the premium for the individual for the 
month shall be reduced by an amount equal to 75 
percent of the amount by which such benchmark ex-
ceeds such fee-for-service bid; or 
‘‘(B) exceeds such choice benchmark, the 
amount of the premium for the individual for the 
month shall be adjusted to ensure that—
‘‘(i) the sum of the amount of the adjusted 
premium and the choice benchmark for the 
area, is equal to
‘‘(ii) the sum of the unadjusted premium 
plus amount of the fee-for-service area-specific 
bid for the area. 
‘‘(2) Nothing in this subsection shall be construed as 
preventing a reduction under paragraph (1)(A) in the pre-
mium otherwise applicable under this part to zero or from 
requiring the provision of a rebate to the extent such pre-
mium would otherwise be required to be less than zero. 
‘‘(3) The adjustment in the premium under this sub-
section shall be effected in such manner as the Medicare 
Benefits Administrator determines appropriate. 
‘‘(4) In order to carry out this subsection (insofar as 
it is effected through the manner of collection of premiums 
under 1840(a)), the Medicare Benefits Administrator shall 
transmit to the Commissioner of Social Security—
‘‘(A) at the beginning of each year, the name, 
social security account number, and the amount of 
the adjustment (if any) under this subsection for 
each individual enrolled under this part for each 
month during the year; and 
‘‘(B) periodically throughout the year, informa-
tion to update the information previously trans-
mitted under this paragraph for the year.’’. 
(d) CONFORMING AMENDMENT.—Section 1844(c) 
(42 U.S.C. 1395w(c)) is amended by inserting ‘‘and with-
out regard to any premium adjustment effected under sec-
tion 1839(h)’’ before the period at the end. 
(e) REPORT ON DEMONSTRATION PROGRAM.—Not 
later than 6 months after the date on which the designa-
tion of the 4th competitive-demonstration area under sec-
tion 1851(k)(1) of the Social Security Act ends, the Medi-
care Payment Advisory Commission shall submit to Con-
gress a report on the impact of the demonstration pro-
gram under the amendments made by this section, includ-
ing such impact on premiums of medicare beneficiaries, 
savings to the medicare program, and on adverse selection. 
(f) EFFECTIVE DATE.—The amendments made by 
this section shall apply to payments and premiums for pe-
riods beginning on or after January 1, 2005. 
SEC. 213. CONFORMING AMENDMENTS. 
(a) CONFORMING
AMENDMENTS
RELATING
TO 
BIDS.—
(1) Section 1854 (42 U.S.C. 1395w–24) is 
amended—
(A) in the heading of subsection (a), by in-
serting ‘‘AND
BID
AMOUNTS’’ after ‘‘PRE-
MIUMS’’; and 
(B) in subsection (a)(5)(A), by inserting 
‘‘paragraphs (2), (3), and (4) of’’ after ‘‘filed 
under’’.
(b) ADDITIONAL CONFORMING AMENDMENTS.—
(1) ANNUAL DETERMINATION AND ANNOUNCE-
MENT OF CERTAIN FACTORS.—Section 1853(b) (42 
U.S.C. 1395w–23(b)) is amended—
(A) in paragraph (1), by striking ‘‘the re-
spective calendar year’’ and all that follows and 
inserting the following: ‘‘the calendar year con-
cerned with respect to each Medicare+Choice 
payment area, the following: 
‘‘(A) PRE-COMPETITION
INFORMATION.—
For years before 2005, the following: 
‘‘(i) MEDICARE+CHOICE
CAPITATION 
RATES.—The 
annual 
Medicare+Choice 
capitation rate for each Medicare+Choice 
payment area for the year. 
‘‘(ii) ADJUSTMENT
FACTORS.—The 
risk and other factors to be used in adjust-
ing such rates under subsection (a)(1)(A) 
for payments for months in that year. 
‘‘(B) COMPETITION
INFORMATION.—For 
years beginning with 2005, the following: 
‘‘(i) BENCHMARKS.—The fee-for-serv-
ice area-specific benchmark under section 
1853(j) and, if applicable, the choice 
benchmark under section 1853(k)(2), for
the year involved and, if applicable, the na-
tional fee-for-service market share percent-
age. 
‘‘(ii) ADJUSTMENT
FACTORS.—The 
adjustment factors applied under section 
1853(a)(1)(A)(iii) (relating to demographic 
adjustment), section 1853(a)(1)(B) (relat-
ing to adjustment for end-stage renal dis-
ease), and section 1853(a)(3) (relating to 
health status adjustment). 
‘‘(iii) PROJECTED
FEE-FOR-SERVICE 
BID.—In the case of a competitive area, 
the projected fee-for-service area-specific 
bid 
(as 
determined 
under 
subsection 
(k)(6)) for the area. 
‘‘(iv) INDIVIDUALS.—The number of 
individuals 
counted 
under 
subsection 
(k)(4)(B) 
and 
enrolled 
in 
each 
Medicare+Choice plan in the area.’’; and 
(B) in paragraph (3), by striking ‘‘in suffi-
cient detail’’ and all that follows up to the pe-
riod at the end. 
(2) REPEAL OF PROVISIONS RELATING TO AD-
JUSTED COMMUNITY RATE (ACR).—
(A) IN GENERAL.—Subsections (e) and (f) 
of section 1854 (42 U.S.C. 1395w–24) are re-
pealed.
(B) CONFORMING
AMENDMENT.—Section 
1839(a)(2) (42 U.S.C. 1395r(a)(2)) is amended 
by striking ‘‘, and to reflect’’ and all that fol-
lows and inserting a period.
(3) PROSPECTIVE
IMPLEMENTATION
OF
NA-
TIONAL
COVERAGE
DETERMINATIONS.—Section 
1852(a)(5) (42 U.S.C. 1395w–22(a)(5)) is amended 
to read as follows: 
‘‘(5) PROSPECTIVE
IMPLEMENTATION
OF
NA-
TIONAL
COVERAGE
DETERMINATIONS.—The Sec-
retary shall only implement a national coverage de-
termination that will result in a significant change 
in the costs to a Medicare+Choice organization in a 
prospective manner that applies to announcements 
made under section 1853(b) after the date of the 
implementation of the determination.’’. 
(4) PERMITTING GEOGRAPHIC ADJUSTMENT TO 
CONSOLIDATE
MULTIPLE
MEDICARE+CHOICE
PAY-
MENT AREAS IN A STATE INTO A SINGLE STATEWIDE 
MEDICARE+CHOICE
PAYMENT
AREA.—Section 
1853(d)(3) (42 U.S.C. 1395w–23(e)(3)) is amend-
ed—
(A) by amending clause (i) of subpara-
graph (A) to read as follows: 
‘‘(i) 
to 
a 
single 
statewide 
Medicare+Choice payment area,’’; and 
(B) by amending subparagraph (B) to read 
as follows: 
‘‘(B) 
BUDGET
NEUTRALITY
ADJUST-
MENT.—In the case of a State requesting an 
adjustment under this paragraph, the Medicare 
Benefits Administrator shall initially (and an-
nually thereafter) adjust the payment rates oth-
erwise established under this section for 
Medicare+Choice payment areas in the State in 
a manner so that the aggregate of the pay-
ments under this section in the State shall not 
exceed the aggregate payments that would have 
been 
made 
under 
this 
section 
for 
Medicare+Choice payment areas in the State in 
the absence of the adjustment under this para-
graph.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to payments and premiums for pe-
riods beginning on or after January 1, 2005.
TITLE III—RURAL HEALTH CARE 
IMPROVEMENTS 
SEC. 301. REFERENCE TO FULL MARKET BASKET INCREASE 
FOR SOLE COMMUNITY HOSPITALS. 
For provision eliminating any reduction from full 
market basket in the update for inpatient hospital services 
for sole community hospitals, see section 401. 
SEC. 302. ENHANCED DISPROPORTIONATE SHARE HOS-
PITAL (DSH) TREATMENT FOR RURAL HOS-
PITALS AND URBAN HOSPITALS WITH FEWER 
THAN 100 BEDS. 
(a) BLENDING OF PAYMENT AMOUNTS.—
(1) IN GENERAL.—Section 1886(d)(5)(F) (42 
U.S.C. 1395ww(d)(5)(F)) is amended by adding at 
the end the following new clause: 
‘‘(xiv)(I) In the case of discharges in a fiscal year 
beginning on or after October 1, 2002, subject to sub-
clause (II), there shall be substituted for the dispropor-
tionate share adjustment percentage otherwise determined 
under clause (iv) (other than subclause (I)) or under 
clause (viii), (x), (xi), (xii), or (xiii), the old blend propor-
tion (specified under subclause (III)) of the dispropor-
tionate share adjustment percentage otherwise determined 
under the respective clause and 100 percent minus such 
old blend proportion of the disproportionate share adjust-
ment percentage determined under clause (vii) (relating 
to large, urban hospitals). 
‘‘(II) Under subclause (I), the disproportionate share 
adjustment percentage shall not exceed 10 percent for a 
hospital that is not classified as a rural referral center 
under subparagraph (C). 
‘‘(III) For purposes of subclause (I), the old blend 
proportion for fiscal year 2003 is 80 percent, for each sub-
sequent year (through 2006) is the old blend proportion 
under this subclause for the previous year minus 20 per-
centage points, and for each year beginning with 2007 is 
0 percent.’’. 
(2) 
CONFORMING
AMENDMENTS.—Section 
1886(d)(5)(F) (42 U.S.C. 1395ww(d)(5)(F)) is 
amended—
(A) in each of subclauses (II), (III), (IV), 
(V), and (VI) of clause (iv), by inserting ‘‘sub-
ject to clause (xiv) and’’ before ‘‘for discharges 
occurring’’; 
(B) in clause (viii), by striking ‘‘The for-
mula’’ and inserting ‘‘Subject to clause (xiv), 
the formula’’; and 
(C) in each of clauses (x), (xi), (xii), and 
(xiii), by striking ‘‘For purposes’’ and inserting 
‘‘Subject to clause (xiv), for purposes’’.
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply with respect to discharges occur-
ring on or after October 1, 2002.
SEC. 303. 2-YEAR PHASED-IN INCREASE IN THE STANDARD-
IZED AMOUNT IN RURAL AND SMALL URBAN 
AREAS TO ACHIEVE A SINGLE, UNIFORM 
STANDARDIZED AMOUNT. 
Section 
1886(d)(3)(A)(iv) 
(42 
U.S.C. 
1395ww(d)(3)(A)(iv)) is amended—
(1) by striking ‘‘(iv) For discharges’’ and in-
serting ‘‘(iv)(I) Subject to the succeeding provisions 
of this clause, for discharges’’; and 
(2) by adding at the end the following new sub-
clauses: 
‘‘(II) For discharges occurring during fiscal 
year 2003, the average standardized amount for hos-
pitals located other than in a large urban area shall 
be increased by 1⁄2 of the difference between the av-
erage standardized amount determined under sub-
clause (I) for hospitals located in large urban areas 
for such fiscal year and such amount determined 
(without regard to this subclause) for other hospitals 
for such fiscal year. 
‘‘(III) For discharges occurring in a fiscal year 
beginning with fiscal year 2004, the Secretary shall
compute an average standardized amount for hos-
pitals located in any area within the United States 
and within each region equal to the average stand-
ardized amount computed for the previous fiscal 
year under this subparagraph for hospitals located 
in a large urban area (or, beginning with fiscal year 
2005, for hospitals located in any area) increased 
by the applicable percentage increase under sub-
section (b)(3)(B)(i).’’. 
SEC. 304. MORE FREQUENT UPDATE IN WEIGHTS USED IN 
HOSPITAL MARKET BASKET. 
(a) MORE FREQUENT UPDATES IN WEIGHTS.—After 
revising the weights used in the hospital market basket 
under section 1886(b)(3)(B)(iii) of the Social Security Act 
(42 U.S.C. 1395ww(b)(3)(B)(iii)) to reflect the most cur-
rent data available, the Secretary shall establish a fre-
quency for revising such weights in such market basket 
to reflect the most current data available more frequently 
than once every 5 years. 
(b) REPORT.—Not later than October 1, 2003, the 
Secretary shall submit a report to Congress on the fre-
quency established under subsection (a), including an ex-
planation of the reasons for, and options considered, in 
determining such frequency.
SEC. 305. IMPROVEMENTS TO CRITICAL ACCESS HOSPITAL 
PROGRAM. 
(a) REINSTATEMENT OF PERIODIC INTERIM PAY-
MENT
(PIP).—Section 
1815(e)(2) 
(42 
U.S.C. 
1395g(e)(2)) is amended—
(1) by striking ‘‘and’’ at the end of subpara-
graph (C); 
(2) by adding ‘‘and’’ at the end of subpara-
graph (D); and 
(3) by inserting after subparagraph (D) the fol-
lowing new subparagraph: 
‘‘(E) inpatient critical access hospital services;’’. 
(b) CONDITION FOR APPLICATION OF SPECIAL PHY-
SICIAN PAYMENT ADJUSTMENT.—Section 1834(g)(2) (42 
U.S.C. 1395m(g)(2)) is amended by adding after and 
below subparagraph (B) the following: 
‘‘The Secretary may not require, as a condition for 
applying subparagraph (B) with respect to a critical 
access hospital, that each physician providing profes-
sional services in the hospital must assign billing 
rights with respect to such services, except that such 
subparagraph shall not apply to those physicians 
who have not assigned such billing rights.’’. 
(c) FLEXIBILITY
IN BED LIMITATION
FOR HOS-
PITALS.—Section 1820 (42 U.S.C. 1395i–4) is amended—
(1) in subsection (c)(2)(B)(iii), by inserting 
‘‘subject to paragraph (3)’’ after ‘‘(iii) provides’’; 
(2) by adding at the end of subsection (c) the 
following new paragraph: 
‘‘(3) INCREASE IN MAXIMUM NUMBER OF BEDS 
FOR HOSPITALS WITH STRONG SEASONAL CENSUS 
FLUCTUATIONS.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (C), in the case of a hospital that dem-
onstrates that it meets the standards estab-
lished under subparagraph (B) and has not 
made the election described in subsection 
(f)(2)(A), the bed limitations otherwise applica-
ble under paragraph (2)(B)(iii) and subsection 
(f) shall be increased by 5 beds. 
‘‘(B) STANDARDS.—The Secretary shall 
specify standards for determining whether a 
critical access hospital has sufficiently strong 
seasonal variations in patient admissions to jus-
tify the increase in bed limitation provided 
under subparagraph (A).’’; and 
(3) in subsection (f)—
(A) by inserting ‘‘(1)’’ after ‘‘(f)’’; and 
(B) by adding at the end the following new 
paragraph:
‘‘(2)(A) A hospital may elect to treat the reference 
in paragraph (1) to ‘15 beds’ as a reference to ‘25 beds’, 
but only if no more than 10 beds in the hospital are at 
any time used for non-acute care services. A hospital that 
makes such an election is not eligible for the increase pro-
vided under subsection (c)(3)(A). 
‘‘(B) The limitations in numbers of beds under the 
first sentence of paragraph (1) are subject to adjustment 
under subsection (c)(3).’’. 
(d) 5-YEAR EXTENSION
OF
THE AUTHORIZATION 
FOR APPROPRIATIONS FOR GRANT PROGRAM.—Section 
1820(j) (42 U.S.C. 1395i–4(j)) is amended by striking 
‘‘through 2002’’ and inserting ‘‘through 2007’’.
(e) PROHIBITION OF RETROACTIVE RECOUPMENT.—
The Secretary shall not recoup (or otherwise seek to re-
cover) overpayments made for outpatient critical access 
hospital services under part B of title XVIII of the Social 
Security Act, for services furnished in cost reporting peri-
ods that began before October 1, 2002, insofar as such 
overpayments are attributable to payment being based on 
80 percent of reasonable costs (instead of 100 percent of 
reasonable costs minus 20 percent of charges). 
(f) EFFECTIVE DATES.—
(1) REINSTATEMENT
OF
PIP.—The amend-
ments made by subsection (a) shall apply to pay-
ments made on or after January 1, 2003. 
(2) PHYSICIAN PAYMENT ADJUSTMENT CONDI-
TION.—The amendment made by subsection (b) 
shall be effective as if included in the enactment of 
section 403(d) of the Medicare, Medicaid, and 
SCHIP Balanced Budget Refinement Act of 1999 
(113 Stat. 1501A–371). 
(3) FLEXIBILITY
IN
BED
LIMITATION.—The 
amendments made by subsection (c) shall apply to 
designations made on or after January 1, 2003, but 
shall not apply to critical access hospitals that were 
designated as of such date. 
SEC. 306. EXTENSION OF TEMPORARY INCREASE FOR 
HOME HEALTH SERVICES FURNISHED IN A 
RURAL AREA. 
(a) IN GENERAL.—Section 508(a) BIPA (114 Stat. 
2763A–533) is amended—
(1) by striking ‘‘24-MONTH INCREASE BEGIN-
NING APRIL 1, 2001’’ and inserting ‘‘IN GENERAL’’; 
and
(2) by striking ‘‘April 1, 2003’’ and inserting 
‘‘January 1, 2005’’.
(b) CONFORMING AMENDMENT.—Section 547(c)(2) 
of BIPA (114 Stat. 2763A–553) is amended by striking 
‘‘the period beginning on April 1, 2001, and ending on 
September 30, 2002,’’ and inserting ‘‘a period under such 
section’’. 
SEC. 307. REFERENCE TO 10 PERCENT INCREASE IN PAY-
MENT FOR HOSPICE CARE FURNISHED IN A 
FRONTIER AREA AND RURAL HOSPICE DEM-
ONSTRATION PROJECT. 
For—
(1) provision of 10 percent increase in payment 
for hospice care furnished in a frontier area, see sec-
tion 422; and 
(2) provision of a rural hospice demonstration 
project, see section 423. 
SEC. 308. REFERENCE TO PRIORITY FOR HOSPITALS LO-
CATED IN RURAL OR SMALL URBAN AREAS IN 
REDISTRIBUTION 
OF 
UNUSED 
GRADUATE 
MEDICAL EDUCATION RESIDENCIES. 
For provision providing priority for hospitals located 
in rural or small urban areas in redistribution of unused 
graduate medical education residencies, see section 612.
SEC. 309. GAO STUDY OF GEOGRAPHIC DIFFERENCES IN 
PAYMENTS FOR PHYSICIANS’ SERVICES. 
(a) STUDY.—The Comptroller General of the United 
States shall conduct a study of differences in payment 
amounts under the physician fee schedule under section 
1848 of the Social Security Act (42 U.S.C. 1395w–4) for 
physicians’ services in different geographic areas. Such 
study shall include—
(1) an assessment of the validity of the geo-
graphic adjustment factors used for each component 
of the fee schedule; 
(2) an evaluation of the measures used for such 
adjustment, including the frequency of revisions; and 
(3) an evaluation of the methods used to deter-
mine professional liability insurance costs used in 
computing the malpractice component, including a 
review of increases in professional liability insurance 
premiums and variation in such increases by State 
and physician specialty and methods used to update 
the geographic cost of practice index and relative 
weights for the malpractice component. 
(b) REPORT.—Not later than 1 year after the date 
of the enactment of this Act, the Comptroller General shall 
submit to Congress a report on the study conducted under 
subsection (a). The report shall include recommendations 
regarding the use of more current data in computing geo-
graphic cost of practice indices as well as the use of data 
directly representative of physicians’ costs (rather than 
proxy measures of such costs).
SEC. 310. PROVIDING SAFE HARBOR FOR CERTAIN COL-
LABORATIVE EFFORTS THAT BENEFIT MEDI-
CALLY UNDERSERVED POPULATIONS. 
(a) IN GENERAL.—Section 1128B(b)(3) (42 U.S.C. 
1320a–7(b)(3)) is amended—
(1) in subparagraph (E), by striking ‘‘and’’ 
after the semicolon at the end; 
(2) in subparagraph (F), by striking the period 
at the end and inserting ‘‘; and’’; and 
(3) by adding at the end the following new sub-
paragraph: 
‘‘(G) any remuneration between a public or 
nonprofit private health center entity described 
under clause (i) or (ii) of section 1905(l)(2)(B) 
and any individual or entity providing goods, 
items, services, donations or loans, or a com-
bination thereof, to such health center entity 
pursuant to a contract, lease, grant, loan, or 
other agreement, if such agreement contributes 
to the ability of the health center entity to 
maintain or increase the availability, or enhance 
the quality, of services provided to a medically
underserved population served by the health 
center entity.’’. 
(b) RULEMAKING
FOR EXCEPTION
FOR HEALTH 
CENTER ENTITY ARRANGEMENTS.—
(1) ESTABLISHMENT.—
(A) 
IN
GENERAL.—The 
Secretary 
of 
Health and Human Services (in this subsection 
referred to as the ‘‘Secretary’’) shall establish, 
on an expedited basis, standards relating to the 
exception described in section 1128B(b)(3)(H) 
of the Social Security Act, as added by sub-
section (a), for health center entity arrange-
ments to the antikickback penalties. 
(B) FACTORS
TO
CONSIDER.—The Sec-
retary shall consider the following factors, 
among others, in establishing standards relating 
to the exception for health center entity ar-
rangements under subparagraph (A): 
(i) Whether the arrangement between 
the health center entity and the other 
party results in savings of Federal grant 
funds or increased revenues to the health 
center entity. 
(ii) Whether the arrangement between 
the health center entity and the other
135
‘‘(D) DUTIES.—The Deputy Administrator 
shall perform such duties and exercise such 
powers as the Administrator shall from time to 
time assign or delegate. The Deputy Adminis-
trator shall be Acting Administrator of the Ad-
ministration during the absence or disability of 
the Administrator and, unless the President 
designates another officer of the Government as 
Acting Administrator, in the event of a vacancy 
in the office of the Administrator. 
‘‘(3) CHIEF ACTUARY.—
‘‘(A) IN GENERAL.—There is established in 
the Administration the position of Chief Actu-
ary. The Chief Actuary shall be appointed by, 
and in direct line of authority to, the Adminis-
trator of such Administration. The Chief Actu-
ary shall be appointed from among individuals 
who have demonstrated, by their education and 
experience, superior expertise in the actuarial 
sciences. The Chief Actuary may be removed 
only for cause. 
‘‘(B) COMPENSATION.—The Chief Actuary 
shall be compensated at the highest rate of 
basic pay for the Senior Executive Service