362
subparagraph (B)) for purposes of deter-
mining—
‘‘(i) the payment amount under sub-
paragraph (D); and 
‘‘(ii) the additional benefits required 
and MedicareAdvantage monthly basic ben-
eficiary premiums. 
‘‘(D) 
DETERMINATION
OF
PAYMENT 
AMOUNT.—
‘‘(i) IN GENERAL.—Subject to clause 
(ii), the Secretary shall determine the pay-
ment amount to a preferred provider orga-
nization for a preferred provider organiza-
tion plan as follows: 
‘‘(I) BIDS THAT EQUAL OR EX-
CEED THE BENCHMARK.—In the case 
of a plan bid that equals or exceeds 
the preferred provider regional bench-
mark amount, the amount of each 
monthly payment to the organization 
with respect to each individual en-
rolled in a plan shall be the preferred 
provider regional benchmark amount. 
‘‘(II) BIDS BELOW THE BENCH-
MARK.—In the case of a plan bid that
363
is less than the preferred provider re-
gional 
benchmark 
amount, 
the 
amount of each monthly payment to 
the organization with respect to each 
individual enrolled in a plan shall be 
the preferred provider regional bench-
mark amount reduced by the amount 
of any premium reduction elected by 
the 
plan 
under 
section 
1854(d)(1)(A)(i). 
‘‘(ii) APPLICATION
OF
ADJUSTMENT 
METHODOLOGIES.—The Secretary shall ad-
just the amounts determined under sub-
paragraph (A) using the factors described 
in paragraph (3)(A)(ii). 
‘‘(E) FACTORS USED IN ADJUSTING BIDS 
AND BENCHMARKS FOR PREFERRED PROVIDER 
ORGANIZATIONS
AND
IN
DETERMINING
EN-
ROLLEE PREMIUMS.—Subject to subparagraph 
(F), in addition to the factors used to adjust 
payments 
to 
plans 
described 
in 
section 
1853(d)(6), the Secretary shall use the adjust-
ment for geographic variation within the region 
established under paragraph (1)(D).
364
‘‘(F) ADJUSTMENT
FOR
NATIONAL
COV-
ERAGE
DETERMINATIONS
AND
LEGISLATIVE 
CHANGES IN BENEFITS.—The Secretary shall 
provide for adjustments for national coverage 
determinations and legislative changes in bene-
fits applicable with respect to preferred provider 
organizations in the same manner as the Sec-
retary provides for adjustments under section 
1853(d)(7). 
‘‘(5) PAYMENTS FROM TRUST FUND.—The pay-
ment to a preferred provider organization under this 
section shall be made from the Federal Hospital In-
surance Trust Fund and the Federal Supplementary 
Medical Insurance Trust Fund in a manner similar 
to the manner described in section 1853(g). 
‘‘(6) SPECIAL RULE FOR CERTAIN INPATIENT 
HOSPITAL STAYS.—Rules similar to the rules appli-
cable under section 1853(h) shall apply with respect 
to preferred provider organizations. 
‘‘(7) SPECIAL
RULE
FOR
HOSPICE
CARE.—
Rules similar to the rules applicable under section 
1853(i) shall apply with respect to preferred pro-
vider organizations. 
‘‘(d) SUBMISSION OF BIDS BY PPOS; PREMIUMS.—
365
‘‘(1) SUBMISSION OF BIDS BY PREFERRED PRO-
VIDER ORGANIZATIONS.—
‘‘(A) IN GENERAL.—For the requirements 
on submissions by MedicareAdvantage preferred
provider 
organization 
plans, 
see 
section 
1854(a)(1). 
‘‘(B) UNIFORM
PREMIUMS.—Each bid 
amount submitted under subparagraph (A) for 
a preferred provider organization plan in a pre-
ferred provider region may not vary among 
MedicareAdvantage eligible individuals residing 
in such preferred provider region. 
‘‘(C) APPLICATION OF FEHBP STANDARD; 
PROHIBITION
ON
PRICE
GOUGING.—Each bid 
amount submitted under subparagraph (A) for 
a preferred provider organization plan must 
reasonably and equitably reflect the cost of ben-
efits provided under that plan. 
‘‘(D) REVIEW.—The Secretary shall review 
the adjusted community rates (as defined in 
section 1854(g)(3)), the amounts of the 
MedicareAdvantage monthly basic premium and 
the MedicareAdvantage monthly beneficiary 
premium for enhanced medical benefits filed 
under this paragraph and shall approve or dis-
366
approve such rates and amounts so submitted. 
The Secretary shall review the actuarial as-
sumptions and data used by the preferred pro-
vider organization with respect to such rates 
and amounts so submitted to determine the ap-
propriateness of such assumptions and data. 
‘‘(E) AUTHORITY
TO
LIMIT
NUMBER
OF 
PLANS
IN
A
REGION.—If there are bids for 
more than 3 preferred provider organization 
plans in a preferred provider region, the Sec-
retary shall accept only the 3 lowest-cost cred-
ible bids for that region that meet or exceed the 
quality and minimum standards applicable 
under this section. 
‘‘(2) MONTHLY
PREMIUMS
CHARGED.—The 
amount of the monthly premium charged to an indi-
vidual enrolled in a preferred provider organization 
plan offered by a preferred provider organization 
shall be equal to the sum of the following: 
‘‘(A) The MedicareAdvantage monthly 
basic beneficiary premium, as defined in section 
1854(b)(2)(A) (if any). 
‘‘(B) The MedicareAdvantage monthly ben-
eficiary premium for enhanced medical benefits, 
as defined in section 1854(b)(2)(C) (if any).
367
‘‘(C) The MedicareAdvantage monthly obli-
gation for qualified prescription drug coverage, 
as defined in section 1854(b)(2)(B) (if any). 
‘‘(3) DETERMINATION
OF
PREMIUM
REDUC-
TIONS, REDUCED COST-SHARING, ADDITIONAL BENE-
FITS, AND BENEFICIARY PREMIUMS.—The rules for 
determining premium reductions, reduced cost-shar-
ing, additional benefits, and beneficiary premiums 
under section 1854(d) shall apply with respect to 
preferred provider organizations. 
‘‘(4) 
PROHIBITION
OF
SEGMENTING
PRE-
FERRED PROVIDER REGIONS.—The Secretary may 
not permit a preferred provider organization to elect 
to apply the provisions of this section uniformly to 
separate segments of a preferred provider region 
(rather than uniformly to an entire preferred pro-
vider region). 
‘‘(e) PORTION OF TOTAL PAYMENTS TO AN ORGANI-
ZATION SUBJECT TO RISK FOR 2 YEARS.—
‘‘(1) NOTIFICATION OF SPENDING UNDER THE 
PLAN.—
‘‘(A) IN GENERAL.—For 2007 and 2008, 
the preferred provider organization offering a 
preferred provider organization plan shall notify 
the Secretary of the total amount of costs that
368
the organization incurred in providing benefits 
covered under parts A and B of the original 
medicare fee-for-service program for all enroll-
ees under the plan in the previous year. 
‘‘(B) 
CERTAIN
EXPENSES
NOT
IN-
CLUDED.—The total amount of costs specified 
in subparagraph (A) may not include—
‘‘(i) subject to subparagraph (C), ad-
ministrative expenses incurred in providing 
the benefits described in such subpara-
graph; or 
‘‘(ii) amounts expended on providing 
enhanced medical benefits under section 
1852(a)(3)(D). 
‘‘(C) ESTABLISHMENT OF ALLOWABLE AD-
MINISTRATIVE EXPENSES.—For purposes of ap-
plying subparagraph (B)(i), the administrative 
expenses incurred in providing benefits de-
scribed in subparagraph (A) under a preferred 
provider organization plan may not exceed an 
amount determined appropriate by the Adminis-
trator. 
‘‘(2) ADJUSTMENT OF PAYMENT.—
‘‘(A) NO ADJUSTMENT IF COSTS WITHIN 
RISK CORRIDOR.—If the total amount of costs
369
specified in paragraph (1)(A) for the plan for 
the year are not more than the first threshold 
upper limit of the risk corridor (specified in 
paragraph (3)(A)(iii)) and are not less than the 
first threshold lower limit of the risk corridor 
(specified in paragraph (3)(A)(i)) for the plan 
for the year, then no additional payments shall 
be made by the Secretary and no reduced pay-
ments shall be made to the preferred provider 
organization offering the plan. 
‘‘(B) INCREASE
IN
PAYMENT
IF
COSTS 
ABOVE UPPER LIMIT OF RISK CORRIDOR.—
‘‘(i) 
IN
GENERAL.—If 
the 
total 
amount of costs specified in paragraph 
(1)(A) for the plan for the year are more 
than the first threshold upper limit of the 
risk corridor for the plan for the year, then 
the Secretary shall increase the total of the 
monthly payments made to the preferred 
provider organization offering the plan for 
the year under subsection (c)(1)(A) by an 
amount equal to the sum of—
‘‘(I) 50 percent of the amount of 
such total costs which are more than 
such first threshold upper limit of the
370
risk corridor and not more than the 
second threshold upper limit of the 
risk corridor for the plan for the year 
(as 
specified 
under 
paragraph 
(3)(A)(iv)); and
‘‘(II) 90 percent of the amount of 
such total costs which are more than 
such second threshold upper limit of 
the risk corridor. 
‘‘(C) REDUCTION IN PAYMENT IF COSTS 
BELOW LOWER LIMIT OF RISK CORRIDOR.—If 
the total amount of costs specified in paragraph 
(1)(A) for the plan for the year are less than 
the first threshold lower limit of the risk cor-
ridor for the plan for the year, then the Sec-
retary shall reduce the total of the monthly pay-
ments made to the preferred provider organiza-
tion offering the plan for the year under sub-
section (c)(1)(A) by an amount (or otherwise 
recover from the plan an amount) equal to—
‘‘(i) 50 percent of the amount of such 
total costs which are less than such first 
threshold lower limit of the risk corridor 
and not less than the second threshold 
lower limit of the risk corridor for the plan
371
for the year (as specified under paragraph 
(3)(A)(ii)); and 
‘‘(ii) 90 percent of the amount of such 
total costs which are less than such second 
threshold lower limit of the risk corridor. 
‘‘(3) ESTABLISHMENT OF RISK CORRIDORS.—
‘‘(A) IN GENERAL.—For 2006 and 2007, 
the Secretary shall establish a risk corridor for 
each preferred provider organization plan. The 
risk corridor for a plan for a year shall be equal 
to a range as follows: 
‘‘(i) 
FIRST
THRESHOLD
LOWER 
LIMIT.—The first threshold lower limit of 
such corridor shall be equal to—
‘‘(I) the target amount described 
in subparagraph (B) for the plan; 
minus 
‘‘(II) an amount equal to 5 per-
cent of such target amount. 
‘‘(ii) SECOND
THRESHOLD
LOWER 
LIMIT.—The second threshold lower limit 
of such corridor shall be equal to—
‘‘(I) the target amount described 
in subparagraph (B) for the plan; 
minus
372
‘‘(II) an amount equal to 10 per-
cent of such target amount. 
‘‘(iii) 
FIRST
THRESHOLD
UPPER 
LIMIT.—The first threshold upper limit of 
such corridor shall be equal to the sum 
of—
‘‘(I) such target amount; and 
‘‘(II) the amount described in 
clause (i)(II).
‘‘(iv) SECOND
THRESHOLD
UPPER 
LIMIT.—The second threshold upper limit 
of such corridor shall be equal to the sum 
of—
‘‘(I) such target amount; and 
‘‘(II) the amount described in 
clause (ii)(II). 
‘‘(B) TARGET AMOUNT DESCRIBED.—The 
target amount described in this paragraph is, 
with respect to a preferred provider organiza-
tion plan offered by a preferred provider organi-
zation in a year, an amount equal to the sum 
of—
‘‘(i) the total monthly payments made 
to the organization for enrollees in the
373
plan 
for 
the 
year 
under 
subsection 
(c)(1)(A); and 
‘‘(ii) the total MedicareAdvantage 
basic beneficiary premiums collected for 
such enrollees for the year under sub-
section (d)(2)(A). 
‘‘(4) PLANS AT RISK FOR ENTIRE AMOUNT OF 
ENHANCED MEDICAL BENEFITS.—A preferred pro-
vider organization that offers a preferred provider 
organization plan that provides enhanced medical 
benefits under section 1852(a)(3)(D) shall be at full 
financial risk for the provision of such benefits. 
‘‘(5) 
NO
EFFECT
ON
ELIGIBLE
BENE-
FICIARIES.—No change in payments made by reason 
of this subsection shall affect the amount of the 
MedicareAdvantage basic beneficiary premium that a 
beneficiary is otherwise required to pay under the 
plan for the year under subsection (d)(2)(A). 
‘‘(6) DISCLOSURE OF INFORMATION.—The pro-
visions of section 1860D–16(b)(7), including sub-
paragraph (B) of such section, shall apply to a pre-
ferred provider organization and a preferred pro-
vider organization plan in the same manner as such 
provisions apply to an eligible entity and a Medicare 
Prescription Drug plan under part D.
374
‘‘(f) ORGANIZATIONAL
AND FINANCIAL REQUIRE-
MENTS FOR PREFERRED PROVIDER ORGANIZATIONS.—A 
preferred provider organization shall be organized and li-
censed under State law as a risk-bearing entity eligible 
to offer health insurance or health benefits coverage in 
each State within the preferred provider region in which 
it offers a preferred provider organization plan. 
‘‘(g) INAPPLICABILITY
OF
PROVIDER-SPONSORED 
ORGANIZATION SOLVENCY STANDARDS.—The require-
ments of section 1856 shall not apply with respect to pre-
ferred provider organizations. 
‘‘(h) CONTRACTS WITH PREFERRED PROVIDER OR-
GANIZATIONS.—The provisions of section 1857 shall apply 
to a preferred provider organization plan offered by a pre-
ferred provider organization under this section.’’. 
(c) PREFERRED
PROVIDER
TERMINOLOGY
DE-
FINED.—Section 1859(a) is amended by adding at the end 
the following new paragraph: 
‘‘(3) PREFERRED
PROVIDER
ORGANIZATION; 
PREFERRED PROVIDER ORGANIZATION PLAN; PRE-
FERRED PROVIDER REGION.—The terms ‘preferred 
provider organization’, ‘preferred provider organiza-
tion plan’, and ‘preferred provider region’ have the 
meaning given such terms in section 1858(a)(2).’’.
375
Subtitle C—Other Managed Care 
Reforms 
SEC. 221. EXTENSION OF REASONABLE COST CONTRACTS. 
(a) FIVE-YEAR EXTENSION.—Section 1876(h)(5)(C) 
(42 U.S.C. 1395mm(h)(5)(C)) is amended by striking 
‘‘2004’’ and inserting ‘‘2009’’. 
(b) APPLICATION OF CERTAIN MEDICARE+CHOICE 
REQUIREMENTS TO COST CONTRACTS EXTENDED OR RE-
NEWED
AFTER
2003.—Section 1876(h) (42 U.S.C. 
1395mm(h)(5)), as amended by subsection (a), is amend-
ed—
(1) by redesignating paragraph (5) as para-
graph (6); and 
(2) by inserting after paragraph (4) the fol-
lowing new paragraph:
‘‘(5) Any reasonable cost reimbursement contract 
with an eligible organization under this subsection that is 
extended or renewed on or after the date of enactment 
of the Prescription Drug and Medicare Improvements Act 
of 2003 for plan years beginning on or after January 1, 
2004, shall provide that the following provisions of the 
Medicare+Choice program under part C (and, on and 
after 
January 
1, 
2006, 
the 
provisions 
of 
the 
MedicareAdvantage program under such part) shall apply 
to such organization and such contract in a substantially
376
similar 
manner 
as 
such 
provisions 
apply 
to 
Medicare+Choice organizations and Medicare+Choice 
plans 
(or, 
on 
and 
after 
January 
1, 
2006, 
MedicareAdvantage organizations and MedicareAdvantage 
plans, respectively) under such part: 
‘‘(A) Paragraph (1) of section 1852(e) (relating 
to the requirement of having an ongoing quality as-
surance program) and paragraph (2)(B) of such sec-
tion (relating to the required elements for such a 
program).
‘‘(B) Section 1852(j)(4) (relating to limitations 
on physician incentive plans). 
‘‘(C) Section 1854(c) (relating to the require-
ment of uniform premiums among individuals en-
rolled in the plan). 
‘‘(D) Section 1854(g), or, on and after January 
1, 2006, section 1854(h) (relating to restrictions on 
imposition of premium taxes with respect to pay-
ments to organizations). 
‘‘(E) Section 1856(b) (regarding compliance 
with the standards established by regulation pursu-
ant to such section, including the provisions of para-
graph (3) of such section relating to relation to 
State laws).
377
‘‘(F) Section 1852(a)(3)(A) (regarding the au-
thority of organizations to include supplemental 
health care benefits and, on and after January 1, 
2006, enhanced medical benefits under the plan sub-
ject to the approval of the Secretary). 
‘‘(G) The provisions of part C relating to 
timelines for benefit filings, contract renewal, and 
beneficiary notification. 
‘‘(H) Section 1854(e), or, on and after January 
1, 2006, section 1854(f) (relating to proposed cost-
sharing under the contract being subject to review 
by the Secretary).’’. 
(c) PERMITTING
DEDICATED
GROUP
PRACTICE 
HEALTH MAINTENANCE ORGANIZATIONS TO PARTICIPATE 
IN THE MEDICARE COST CONTRACT PROGRAM.—Section 
1876(h)(6) of the Social Security Act (42 U.S.C. 
1395mm(h)(6)), as redesignated and amended by sub-
sections (a) and (b), is amended—
(1) in subparagraph (A), by striking ‘‘After the 
date of the enactment’’ and inserting ‘‘Except as 
provided in subparagraph (C), after the date of the 
enactment’’; 
(2) in subparagraph (B), by striking ‘‘subpara-
graph (C)’’ and inserting ‘‘subparagraph (D)’’;
378
(3) by redesignating subparagraph (C) as sub-
paragraph (D); and 
(4) by inserting after subparagraph (B), the 
following new subparagraph: 
‘‘(C) Subject to paragraph (5) and subparagraph 
(D), the Secretary shall approve an application to enter 
into a reasonable cost contract under this section if—
‘‘(i) the application is submitted to the Sec-
retary by a health maintenance organization (as de-
fined in section 1301(a) of the Public Health Service 
Act) that, as of January 1, 2004, and except as pro-
vided in section 1301(b)(3)(B) of such Act, provides 
at least 85 percent of the services of a physician 
which are provided as basic health services through 
a medical group (or groups), as defined in section 
1302(4) of such Act; and 
‘‘(ii) the Secretary determines that the organi-
zation meets the requirements applicable to such or-
ganizations and contracts under this section.’’. 
SEC. 222. 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
379
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–28(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-
380
paragraph (A) for individuals with severe 
or disabling chronic conditions.’’. 
(c) RESTRICTION ON ENROLLMENT PERMITTED.—
Section 1859 (42 U.S.C. 1395w–28) 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, 2008, the plan may restrict the en-
rollment of individuals under the plan to individuals who 
are within 1 or more classes of special needs bene-
ficiaries.’’. 
(d) REPORT TO CONGRESS.—Not later than Decem-
ber 31, 2006, the Secretary shall submit to Congress a 
report 
that 
assesses 
the 
impact 
of 
specialized 
Medicare+Choice plans for special needs beneficiaries 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.—
381
(1) IN GENERAL.—The amendments made by 
subsections (a), (b), and (c) shall take effect on the 
date of enactment of this Act. 
(2) DEADLINE
FOR
ISSUANCE
OF
REQUIRE-
MENTS FOR SPECIAL NEEDS BENEFICIARIES; TRAN-
SITION.—No later than 1 year after the date of en-
actment of this Act, the Secretary shall issue final 
regulations to establish requirements for special 
needs beneficiaries under section 1859(b)(4)(B)(iii) 
of the Social Security Act, as added by subsection 
(b). 
SEC. 223. PAYMENT BY PACE PROVIDERS FOR MEDICARE 
AND MEDICAID SERVICES FURNISHED BY 
NONCONTRACT PROVIDERS. 
(a) MEDICARE SERVICES.—
(1) MEDICARE SERVICES FURNISHED BY PRO-
VIDERS OF SERVICES.—Section 1866(a)(1)(O) (42 
U.S.C. 1395cc(a)(1)(O)) is amended—
(A) by striking ‘‘part C or’’ and inserting 
‘‘part C, with a PACE provider under section 
1894 or 1934, or’’; 
(B) by striking ‘‘(i)’’; 
(C) by striking ‘‘and (ii)’’; and 
(D) by striking ‘‘members of the organiza-
tion’’ and inserting ‘‘members of the organiza-
382
tion or PACE program eligible individuals en-
rolled with the PACE provider,’’.
(2) MEDICARE SERVICES FURNISHED BY PHYSI-
CIANS AND OTHER ENTITIES.—Section 1894(b) (42 
U.S.C. 1395eee(b)) is amended by adding at the end 
the following new paragraphs: 
‘‘(3) TREATMENT OF MEDICARE SERVICES FUR-
NISHED BY NONCONTRACT PHYSICIANS AND OTHER 
ENTITIES.—
‘‘(A) APPLICATION OF MEDICARE+CHOICE 
REQUIREMENT
WITH
RESPECT
TO
MEDICARE 
SERVICES FURNISHED BY NONCONTRACT PHY-
SICIANS
AND
OTHER
ENTITIES.—Section 
1852(k)(1) (relating to limitations on balance 
billing against Medicare+Choice organizations 
for noncontract physicians and other entities 
with respect to services covered under this title) 
shall apply to PACE providers, PACE program 
eligible individuals enrolled with such PACE 
providers, and physicians and other entities 
that do not have a contract establishing pay-
ment amounts for services furnished to such an 
individual in the same manner as such section 
applies to Medicare+Choice organizations, indi-
viduals enrolled with such organizations, and
383
physicians and other entities referred to in such 
section. 
‘‘(B) REFERENCE TO RELATED PROVISION 
FOR NONCONTRACT PROVIDERS OF SERVICES.—
For the provision relating to limitations on bal-
ance billing against PACE providers for serv-
ices covered under this title furnished by non-
contract providers of services, see section 
1866(a)(1)(O). 
‘‘(4) REFERENCE TO RELATED PROVISION FOR 
SERVICES
COVERED
UNDER
TITLE
XIX
BUT
NOT 
UNDER THIS TITLE.—For provisions relating to limi-
tations on payments to providers participating under 
the State plan under title XIX that do not have a 
contract with a PACE provider establishing payment 
amounts for services covered under such plan (but 
not under this title) when such services are fur-
nished to enrollees of that PACE provider, see sec-
tion 1902(a)(66).’’. 
(b) MEDICAID SERVICES.—
(1) REQUIREMENT UNDER STATE PLAN.—Sec-
tion 1902(a) (42 U.S.C. 1396a(a)) is amended—
(A) in paragraph (64), by striking ‘‘and’’ 
at the end;
384
(B) in paragraph (65), by striking the pe-
riod at the end and inserting ‘‘; and’’; and 
(C) by inserting after paragraph (65) the 
following new paragraph: 
‘‘(66) provide, with respect to services cov-
ered under the State plan (but not under title 
XVIII) that are furnished to a PACE program 
eligible individual enrolled with a PACE pro-
vider by a provider participating under the 
State plan that does not have a contract with 
the PACE provider that establishes payment 
amounts for such services, that such partici-
pating provider may not require the PACE pro-
vider to pay the participating provider an 
amount greater than the amount that would 
otherwise be payable for the service to the par-
ticipating provider under the State plan for the 
State where the PACE provider is located (in 
accordance with regulations issued by the Sec-
retary).’’. 
(2) REFERENCE IN MEDICAID STATUTE.—Sec-
tion 1934(b) (42 U.S.C. 1396u–4(b)) is amended by 
adding at the end the following new paragraphs:
385
‘‘(3) TREATMENT OF MEDICARE SERVICES FUR-
NISHED BY NONCONTRACT PHYSICIANS AND OTHER 
ENTITIES.—
‘‘(A) APPLICATION OF MEDICARE+CHOICE 
REQUIREMENT
WITH
RESPECT
TO
MEDICARE 
SERVICES FURNISHED BY NONCONTRACT PHY-
SICIANS
AND
OTHER
ENTITIES.—Section 
1852(k)(1) (relating to limitations on balance 
billing against Medicare+Choice organizations 
for noncontract physicians and other entities 
with respect to services covered under title 
XVIII) shall apply to PACE providers, PACE 
program eligible individuals enrolled with such 
PACE providers, and physicians and other enti-
ties that do not have a contract establishing 
payment amounts for services furnished to such 
an individual in the same manner as such sec-
tion applies to Medicare+Choice organizations, 
individuals enrolled with such organizations, 
and physicians and other entities referred to in 
such section. 
‘‘(B) REFERENCE TO RELATED PROVISION 
FOR NONCONTRACT PROVIDERS OF SERVICES.—
For the provision relating to limitations on bal-
ance billing against PACE providers for serv-
386
ices covered under title XVIII furnished by non-
contract providers of services, see section 
1866(a)(1)(O). 
‘‘(4) REFERENCE TO RELATED PROVISION FOR 
SERVICES COVERED UNDER THIS TITLE BUT NOT 
UNDER TITLE XVIII.—For provisions relating to lim-
itations on payments to providers participating 
under the State plan under this title that do not 
have a contract with a PACE provider establishing 
payment amounts for services covered under such 
plan (but not under title XVIII) when such services 
are furnished to enrollees of that PACE provider, 
see section 1902(a)(66).’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to services furnished on or after 
January 1, 2004.
SEC. 224. INSTITUTE OF MEDICINE EVALUATION AND RE-
PORT 
ON 
HEALTH 
CARE 
PERFORMANCE 
MEASURES. 
(a) EVALUATION.—
(1) IN GENERAL.—Not later than the date that 
is 2 months after the date of enactment of this Act, 
the Secretary of Health and Human Services shall 
enter into an arrangement under which the Institute 
of Medicine of the National Academy of Sciences (in
387
this section referred to as the ‘‘Institute’’) shall con-
duct an evaluation of leading health care perform-
ance measures and options to implement policies 
that align performance with payment under the 
medicare program under title XVIII of the Social 
Security Act (42 U.S.C. 1395 et seq.). 
(2) SPECIFIC MATTERS EVALUATED.—In con-
ducting the evaluation under paragraph (1), the In-
stitute shall—
(A) catalogue, review, and evaluate the va-
lidity of leading health care performance meas-
ures; 
(B) catalogue and evaluate the success and 
utility of alternative performance incentive pro-
grams in public or private sector settings; and 
(C) identify and prioritize options to imple-
ment policies that align performance with pay-
ment under the medicare program that indi-
cate— 
(i) the performance measurement set 
to be used and how that measurement set 
will be updated; 
(ii) the payment policy that will re-
ward performance; and
388
(iii) the key implementation issues 
(such as data and information technology 
requirements) that must be addressed. 
(3) SCOPE
OF
HEALTH
CARE
PERFORMANCE 
MEASURES.—The health care performance measures 
described in paragraph (2)(A) shall encompass a va-
riety of perspectives, including physicians, hospitals, 
health plans, purchasers, and consumers. 
(4) CONSULTATION WITH MEDPAC.—In evalu-
ating the matters described in paragraph (2)(C), the 
Institute shall consult with the Medicare Payment 
Advisory Commission established under section 1805 
of the Social Security Act (42 U.S.C. 1395b–6). 
(b) REPORT.—Not later than the date that is 18 
months after the date of enactment of this Act, the Insti-
tute shall submit to the Secretary of Health and Human 
Services, the Committees on Ways and Means and Energy 
and Commerce of the House of Representatives, and the 
Committee on Finance of the Senate a report on the eval-
uation conducted under subsection (a)(1) describing the 
findings of such evaluation and recommendations for an 
overall strategy and approach for aligning payment with 
performance in the original medicare fee-for-service pro-
gram under parts A and B of title XVIII of the Social 
Security Act, the Medicare+Choice program under part
389
C of such title, and any other programs under such title 
XVIII. 
(c) AUTHORIZATION
OF APPROPRIATIONS.—There 
are authorized to be appropriated $1,000,000 for purposes 
of conducting the evaluation and preparing the report re-
quired by this section.
SEC. 225. EXPANDING THE WORK OF MEDICARE QUALITY 
IMPROVEMENT ORGANIZATIONS TO INCLUDE 
PARTS C AND D. 
(a) APPLICATION
TO MEDICARE MANAGED CARE 
AND
PRESCRIPTION
DRUG
COVERAGE.—Section 
1154(a)(1) (42 U.S.C. 1320c–3(a)(1)) is amended by in-
serting 
‘‘, 
Medicare+Choice 
organizations 
and 
MedicareAdvantage organizations under part C, and pre-
scription drug card sponsors and eligible entities under 
part D’’ after ‘‘under section 1876’’. 
(b) PRESCRIPTION DRUG THERAPY QUALITY IM-
PROVEMENT.—Section 1154(a) (42 U.S.C. 1320c–3(a)) is 
amended by adding at the end the following new para-
graph: 
‘‘(17) The organization shall execute its respon-
sibilities under subparagraphs (A) and (B) of para-
graph (1) by offering to providers, practitioners, pre-
scription drug card sponsors and eligible entities 
under 
part 
D, 
and 
Medicare+Choice 
and
390
MedicareAdvantage plans under part C quality im-
provement assistance pertaining to prescription drug 
therapy. For purposes of this part and title XVIII, 
the functions described in this paragraph shall be 
treated as a review function.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply on and after January 1, 2004.
TITLE III—CENTER FOR 
MEDICARE CHOICES 
SEC. 301. ESTABLISHMENT OF THE CENTER FOR MEDICARE 
CHOICES. 
(a) IN GENERAL.—Title XVIII (42 U.S.C. 1395 et 
seq.), as amended by section 111, is amended by inserting 
after 1806 the following new section: 
‘‘ESTABLISHMENT OF THE CENTER FOR MEDICARE 
CHOICES 
‘‘SEC. 1808. (a) ESTABLISHMENT.—By not later 
than March 1, 2004, the Secretary shall establish within 
the Department of Health and Human Services the Center 
for Medicare Choices, which shall be separate from the 
Centers for Medicare and Medicaid Services. 
‘‘(b) 
ADMINISTRATOR
AND
DEPUTY
ADMINIS-
TRATOR.—
‘‘(1) ADMINISTRATOR.—
‘‘(A) IN GENERAL.—The Center for Medi-
care Choices shall be headed by an Adminis-
391
trator (in this section referred to as the ‘Ad-
ministrator’) who shall be appointed by the 
President, by and with the advice and consent 
of the Senate. The Administrator shall report 
directly to the Secretary. 
‘‘(B) COMPENSATION.—The Administrator 
shall be paid at the rate of basic pay payable 
for level III of the Executive Schedule under 
section 5314 of title 5, United States Code.
‘‘(C) TERM
OF
OFFICE.—The Adminis-
trator shall be appointed for a term of 5 years. 
In any case in which a successor does not take 
office at the end of an Administrator’s term of 
office, that Administrator may continue in of-
fice until the entry upon office of such a suc-
cessor. An Administrator appointed to a term of 
office after the commencement of such term 
may serve under such appointment only for the 
remainder of such term. 
‘‘(D) GENERAL AUTHORITY.—The Admin-
istrator shall be responsible for the exercise of 
all powers and the discharge of all duties of the 
Center for Medicare Choices, and shall have au-
thority and control over all personnel and ac-
tivities thereof.
392
‘‘(E) RULEMAKING AUTHORITY.—The Ad-
ministrator may prescribe such rules and regu-
lations as the Administrator determines nec-
essary or appropriate to carry out the functions 
of the Center for Medicare Choices. The regula-
tions prescribed by the Administrator shall be 
subject to the rulemaking procedures estab-
lished under section 553 of title 5, United 
States Code. 
‘‘(F) AUTHORITY TO ESTABLISH ORGANI-
ZATIONAL UNITS.—The Administrator may es-
tablish, alter, consolidate, or discontinue such 
organizational units or components within the 
Center for Medicare Choices as the Adminis-
trator considers necessary or appropriate, ex-
cept that this subparagraph shall not apply 
with respect to any unit, component, or provi-
sion provided for by this section.
‘‘(G) AUTHORITY TO DELEGATE.—The Ad-
ministrator may assign duties, and delegate, or 
authorize successive redelegations of, authority 
to act and to render decisions, to such officers 
and employees of the Center for Medicare 
Choices as the Administrator may find nec-
essary. Within the limitations of such delega-
393
tions, redelegations, or assignments, all official 
acts and decisions of such officers and employ-
ees shall have the same force and effect as 
though performed or rendered by the Adminis-
trator. 
‘‘(2) DEPUTY ADMINISTRATOR.—
‘‘(A) IN GENERAL.—There shall be a Dep-
uty Administrator of the Center for Medicare 
Choices who shall be appointed by the Adminis-
trator. 
‘‘(B) COMPENSATION.—The Deputy Ad-
ministrator shall be paid at the rate of basic 
pay payable for level IV of the Executive Sched-
ule under section 5315 of title 5, United States 
Code. 
‘‘(C) TERM OF OFFICE.—The Deputy Ad-
ministrator shall be appointed for a term of 5 
years. In any case in which a successor does not 
take office at the end of a Deputy Administra-
tor’s term of office, such Deputy Administrator 
may continue in office until the entry upon of-
fice of such a successor. A Deputy Adminis-
trator appointed to a term of office after the 
commencement of such term may serve under
394
such appointment only for the remainder of 
such term. 
‘‘(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 the Acting Administrator of the 
Center for Medicare Choices 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 Adminis-
trator. 
‘‘(3) SECRETARIAL COORDINATION OF PROGRAM 
ADMINISTRATION.—The Secretary shall ensure ap-
propriate coordination between the Administrator 
and the Administrator of the Centers for Medicare 
and Medicaid Services in carrying out the programs 
under this title. 
‘‘(c) DUTIES; ADMINISTRATIVE PROVISIONS.—
‘‘(1) DUTIES.—
‘‘(A) GENERAL
DUTIES.—The Adminis-
trator shall carry out parts C and D, includ-
ing—
395
‘‘(i) negotiating, entering into, and en-
forcing, contracts with plans for the offer-
ing of MedicareAdvantage plans under 
part C, including the offering of qualified 
prescription drug coverage under such 
plans; and 
‘‘(ii) negotiating, entering into, and 
enforcing, contracts with eligible entities 
for the offering of Medicare Prescription 
Drug plans under part D. 
‘‘(B) OTHER DUTIES.—The Administrator 
shall carry out any duty provided for under 
part C or D, including duties relating to—
‘‘(i) reasonable cost contracts with eli-
gible organizations under section 1876(h); 
and 
‘‘(ii) demonstration projects carried 
out in part or in whole under such parts, 
including the demonstration project carried 
out through a MedicareAdvantage (for-
merly Medicare+Choice) project that dem-
onstrates the application of capitation pay-
ment rates for frail elderly medicare bene-
ficiaries through the use of an interdiscipli-
nary team and through the provision of
396
primary care services to such beneficiaries 
by means of such a team at the nursing fa-
cility involved. 
‘‘(C) NONINTERFERENCE.—In order to 
promote competition under parts C and D, the 
Administrator, in carrying out the duties re-
quired under this section, may not, to the ex-
tent possible, interfere in any way with negotia-
tions 
between 
eligible 
entities, 
MedicareAdvantage 
organizations, 
hospitals, 
physicians, other entities or individuals fur-
nishing items and services under this title (in-
cluding contractors for such items and serv-
ices), and drug manufacturers, wholesalers, or 
other suppliers of covered drugs. 
‘‘(D) ANNUAL REPORTS.—Not later than 
March 31 of each year, the Administrator shall 
submit to Congress and the President a report 
on the administration of the voluntary prescrip-
tion drug delivery program under this part dur-
ing the previous fiscal year. 
‘‘(2) MANAGEMENT STAFF.—
‘‘(A) IN
GENERAL.—The Administrator, 
with the approval of the Secretary, may employ, 
such management staff as determined appro-
397
priate. Any such manager shall be required to 
have demonstrated, by their education and ex-
perience (either in the public or private sector), 
superior expertise in the following areas:
‘‘(i) The review, negotiation, and ad-
ministration of health care contracts. 
‘‘(ii) The design of health care benefit 
plans. 
‘‘(iii) Actuarial sciences. 
‘‘(iv) Compliance with health plan 
contracts. 
‘‘(v) Consumer education and decision 
making. 
‘‘(B) COMPENSATION.—
‘‘(i) IN GENERAL.—Subject to clause 
(ii), the Administrator shall establish the 
rate of pay for an individual employed 
under subparagraph (A). 
‘‘(ii) MAXIMUM
RATE.—In no case 
may the rate of compensation determined 
under clause (i) exceed the highest rate of 
basic pay for the Senior Executive Service 
under section 5382(b) of title 5, United 
States Code.
398
‘‘(3) REDELEGATION OF CERTAIN FUNCTIONS 
OF THE CENTERS FOR MEDICARE AND MEDICAID 
SERVICES.—
‘‘(A) IN
GENERAL.—The Secretary, the 
Administrator of the Center for Medicare 
Choices, and the Administrator of the Centers 
for Medicare and Medicaid Services shall estab-
lish an appropriate transition of responsibility 
in order to redelegate the administration of part 
C from the Secretary and the Administrator of 
the Centers for Medicare and Medicaid Services 
to the Administrator of the Center for Medicare 
Choices as is appropriate to carry out the pur-
poses of this section. 
‘‘(B) TRANSFER OF DATA AND INFORMA-
TION.—The Secretary shall ensure that the Ad-
ministrator of the Centers for Medicare and 
Medicaid Services transfers to the Adminis-
trator such information and data in the posses-
sion of the Administrator of the Centers for 
Medicare and Medicaid Services as the Admin-
istrator requires to carry out the duties de-
scribed in paragraph (1). 
‘‘(C) CONSTRUCTION.—Insofar as a re-
sponsibility of the Secretary or the Adminis-
399
trator of the Centers for Medicare and Medicaid 
Services is redelegated to the Administrator 
under this section, any reference to the Sec-
retary or the Administrator of the Centers for 
Medicare and Medicaid Services in this title or 
title XI with respect to such responsibility is 
deemed to be a reference to the Administrator. 
‘‘(d) OFFICE OF BENEFICIARY ASSISTANCE.—
‘‘(1) ESTABLISHMENT.—The Secretary shall es-
tablish within the Center for Medicare Choices an 
Office of Beneficiary Assistance to carry out func-
tions relating to medicare beneficiaries under this 
title, including making determinations of eligibility 
of individuals for benefits under this title, providing 
for enrollment of medicare beneficiaries under this 
title, and the functions described in paragraph (2). 
The Office shall be a separate operating division 
within the Center for Medicare Choices. 
‘‘(2) DISSEMINATION
OF
INFORMATION
ON 
BENEFITS AND APPEALS RIGHTS.—
‘‘(A) DISSEMINATION OF BENEFITS INFOR-
MATION.—The Office of Beneficiary Assistance 
shall disseminate to medicare beneficiaries, by 
mail, by posting on the Internet site of the Cen-
ter for Medicare Choices, and through the toll-
400
free telephone number provided for under sec-
tion 1804(b), information with respect to the 
following: 
‘‘(i) Benefits, and limitations on pay-
ment (including cost-sharing, stop-loss pro-
visions, and formulary restrictions) under 
parts C and D. 
‘‘(ii) Benefits, and limitations on pay-
ment under parts A, and B, including in-
formation on medicare supplemental poli-
cies under section 1882. 
‘‘(iii) Other areas determined to be 
appropriate by the Administrator. 
Such information shall be presented in a man-
ner so that medicare beneficiaries may compare 
benefits under parts A, B, and D, and medicare 
supplemental 
policies 
with 
benefits 
under 
MedicareAdvantage plans under part C.
‘‘(B) DISSEMINATION OF APPEALS RIGHTS 
INFORMATION.—The Office of Beneficiary As-
sistance shall disseminate to medicare bene-
ficiaries in the manner provided under subpara-
graph (A) a description of procedural rights (in-
cluding grievance and appeals procedures) of 
beneficiaries under the original medicare fee-
401
for-service program under parts A and B, the 
MedicareAdvantage program under part C, and 
the voluntary prescription drug delivery pro-
gram under part D. 
‘‘(3) MEDICARE OMBUDSMAN.—
‘‘(A) IN GENERAL.—Within the Office of 
Beneficiary Assistance, there shall be a Medi-
care Ombudsman, appointed by the Secretary 
from among individuals with expertise and ex-
perience in the fields of health care and advo-
cacy, to carry out the duties described in sub-
paragraph (B). 
‘‘(B) DUTIES.—The Medicare Ombudsman 
shall—
‘‘(i) receive complaints, grievances, 
and requests for information submitted by 
a medicare beneficiary, with respect to any 
aspect of the medicare program; 
‘‘(ii) provide assistance with respect to 
complaints, grievances, and requests re-
ferred to in clause (i), including—
‘‘(I) assistance in collecting rel-
evant information for such bene-
ficiaries, to seek an appeal of a deci-
sion or determination made by a fiscal
402
intermediary, carrier, Medicare-Ad-
van-tage organization, an eligible enti-
ty under part D, or the Secretary; and 
‘‘(II) assistance to such bene-
ficiaries with any problems arising 
from 
disenrollment 
from 
a 
MedicareAdvantage plan under part C 
or a prescription drug plan under part 
D; and 
‘‘(iii) submit annual reports to Con-
gress, the Secretary, and the Medicare 
Competitive Policy Advisory Board describ-
ing the activities of the Office, and includ-
ing such recommendations for improve-
ment in the administration of this title as 
the Ombudsman determines appropriate. 
‘‘(C) COORDINATION
WITH
STATE
OM-
BUDSMAN PROGRAMS AND CONSUMER ORGANI-
ZATIONS.—The Medicare Ombudsman shall, to 
the extent appropriate, coordinate with State 
medical Ombudsman programs, and with State- 
and community-based consumer organizations, 
to—
‘‘(i) provide information about the 
medicare program; and
403
‘‘(ii) conduct outreach to educate 
medicare beneficiaries with respect to man-
ners in which problems under the medicare 
program may be resolved or avoided. 
‘‘(e) MEDICARE COMPETITIVE POLICY ADVISORY 
BOARD.—
‘‘(1) ESTABLISHMENT.—There is established 
within the Center for Medicare Choices the Medicare 
Competitive Policy Advisory Board (in this section 
referred to as the ‘Board’). The Board shall advise, 
consult with, and make recommendations to the Ad-
ministrator with respect to the administration of 
parts C and D, including the review of payment poli-
cies under such parts. 
‘‘(2) REPORTS.—
‘‘(A) IN GENERAL.—With respect to mat-
ters of the administration of parts C and D, the 
Board shall submit to Congress and to the Ad-
ministrator such reports as the Board deter-
mines appropriate. Each such report may con-
tain such recommendations as the Board deter-
mines appropriate for legislative or administra-
tive changes to improve the administration of 
such parts, including the stability and solvency 
of the programs under such parts and the top-
404
ics described in subparagraph (B). Each such 
report shall be published in the Federal Reg-
ister.
‘‘(B) TOPICS
DESCRIBED.—Reports re-
quired under subparagraph (A) may include the 
following topics: 
‘‘(i) FOSTERING COMPETITION.—Rec-
ommendations or proposals to increase 
competition under parts C and D for serv-
ices furnished to medicare beneficiaries. 
‘‘(ii) 
EDUCATION
AND
ENROLL-
MENT.—Recommendations for the im-
provement of efforts to provide medicare 
beneficiaries information and education on 
the program under this title, and specifi-
cally parts C and D, and the program for 
enrollment under the title. 
‘‘(iii) 
QUALITY.—Recommendations 
on ways to improve the quality of benefits 
provided under plans under parts C and D. 
‘‘(iv) DISEASE
MANAGEMENT
PRO-
GRAMS.—Recommendations on the incor-
poration of disease management programs 
under parts C and D.
405
‘‘(v) RURAL
ACCESS.—Recommenda-
tions to improve competition and access to 
plans under parts C and D in rural areas. 
‘‘(C) MAINTAINING
INDEPENDENCE
OF 
BOARD.—The Board shall directly submit to 
Congress reports required under subparagraph 
(A). No officer or agency of the United States 
may require the Board to submit to any officer 
or agency of the United States for approval, 
comments, or review, prior to the submission to 
Congress of such reports. 
‘‘(3) DUTY OF ADMINISTRATOR.—With respect 
to any report submitted by the Board under para-
graph (2)(A), not later than 90 days after the report 
is submitted, the Administrator shall submit to Con-
gress and the President an analysis of recommenda-
tions made by the Board in such report. Each such 
analysis shall be published in the Federal Register. 
‘‘(4) MEMBERSHIP.—
‘‘(A) APPOINTMENT.—Subject to the suc-
ceeding provisions of this paragraph, the Board 
shall consist of 7 members to be appointed as 
follows: 
‘‘(i) Three members shall be ap-
pointed by the President.
406
‘‘(ii) Two members shall be appointed 
by the Speaker of the House of Represent-
atives, with the advice of the chairman and 
the ranking minority member of the Com-
mittees on Ways and Means and on En-
ergy and Commerce of the House of Rep-
resentatives. 
‘‘(iii) Two members shall be appointed 
by the President pro tempore of the Senate 
with the advice of the chairman and the 
ranking minority member of the Com-
mittee on Finance of the Senate. 
‘‘(B) 
QUALIFICATIONS.—The 
members 
shall be chosen on the basis of their integrity, 
impartiality, and good judgment, and shall be 
individuals who are, by reason of their edu-
cation and experience in health care benefits 
management, exceptionally qualified to perform 
the duties of members of the Board. 
‘‘(C) PROHIBITION ON INCLUSION OF FED-
ERAL EMPLOYEES.—No officer or employee of 
the United States may serve as a member of 
the Board. 
‘‘(5) COMPENSATION.—Members of the Board 
shall receive, for each day (including travel time)
407
they are engaged in the performance of the functions 
of the Board, compensation at rates not to exceed 
the daily equivalent to the annual rate in effect for 
level IV of the Executive Schedule under section 
5315 of title 5, United States Code. 
‘‘(6) TERMS OF OFFICE.—
‘‘(A) IN GENERAL.—The term of office of 
members of the Board shall be 3 years. 
‘‘(B) TERMS OF INITIAL APPOINTEES.—As 
designated by the President at the time of ap-
pointment, of the members first appointed—
‘‘(i) one shall be appointed for a term 
of 1 year; 
‘‘(ii) three shall be appointed for 
terms of 2 years; and 
‘‘(iii) three shall be appointed for 
terms of 3 years. 
‘‘(C) REAPPOINTMENTS.—Any person ap-
pointed as a member of the Board may not 
serve for more than 8 years. 
‘‘(D) VACANCY.—Any member appointed 
to fill a vacancy occurring before the expiration 
of the term for which the member’s predecessor 
was appointed shall be appointed only for the 
remainder of that term. A member may serve
408
after the expiration of that member’s term until 
a successor has taken office. A vacancy in the 
Board shall be filled in the manner in which 
the original appointment was made. 
‘‘(7) CHAIR.—The Chair of the Board shall be 
elected by the members. The term of office of the 
Chair shall be 3 years. 
‘‘(8) MEETINGS.—The Board shall meet at the 
call of the Chair, but in no event less than 3 times 
during each fiscal year. 
‘‘(9) DIRECTOR AND STAFF.—
‘‘(A) APPOINTMENT
OF
DIRECTOR.—The 
Board shall have a Director who shall be ap-
pointed by the Chair. 
‘‘(B) IN GENERAL.—With the approval of 
the Board, the Director may appoint such addi-
tional personnel as the Director considers ap-
propriate. 
‘‘(C) ASSISTANCE
FROM
THE
ADMINIS-
TRATOR.—The Administrator shall make avail-
able to the Board such information and other 
assistance as it may require to carry out its 
functions. 
‘‘(10) CONTRACT AUTHORITY.—The Board may 
contract with and compensate government and pri-
409
vate agencies or persons to carry out its duties 
under this subsection, without regard to section 
3709 of the Revised Statutes (41 U.S.C. 5). 
‘‘(f) FUNDING.—There is authorized to be appro-
priated, in appropriate part from the Federal Hospital In-
surance Trust Fund and from the Federal Supplementary 
Medical Insurance Trust Fund (including the Prescription 
Drug Account), such sums as are necessary to carry out 
this section.’’. 
(b) USE OF CENTRAL, TOLL-FREE NUMBER (1–800–
MEDICARE).—Section 1804(b) (42 U.S.C. 1395b–2(b)) 
is amended by adding at the end the following: ‘‘By not 
later than 1 year after the date of the enactment of the 
Prescription Drug and Medicare Improvement Act of 
2003, the Secretary shall provide, through the toll-free 
number 1–800–MEDICARE, for a means by which indi-
viduals seeking information about, or assistance with, such 
programs who phone such toll-free number are transferred 
(without charge) to appropriate entities for the provision 
of such information or assistance. Such toll-free number 
shall be the toll-free number listed for general information 
and assistance in the annual notice under subsection (a) 
instead of the listing of numbers of individual contrac-
tors.’’.
410
SEC. 302. MISCELLANEOUS ADMINISTRATIVE PROVISIONS. 
(a) ADMINISTRATOR
AS
MEMBER
AND
CO-SEC-
RETARY OF THE BOARD OF TRUSTEES OF THE MEDICARE 
TRUST FUNDS.—The fifth sentence of sections 1817(b) 
and 1841(b) (42 U.S.C. 1395i(b), 1395t(b)) are each 
amended by striking ‘‘shall serve as the Secretary’’ and 
inserting ‘‘and the Administrator of the Center for Medi-
care Choices shall serve as the Co-Secretaries’’. 
(b) INCREASE IN GRADE TO EXECUTIVE LEVEL III 
FOR THE ADMINISTRATOR OF THE CENTERS FOR MEDI-
CARE and MEDICAID SERVICES.—
(1) IN
GENERAL.—Section 5314 of title 5, 
United States Code, is amended by adding at the 
end the following: 
‘‘Administrator of the Centers for Medicare and 
Medicaid Services.’’.
(2) CONFORMING AMENDMENT.—Section 5315 
of such title is amended by striking ‘‘Administrator 
of the Health Care Financing Administration.’’. 
(3) EFFECTIVE DATE.—The amendments made 
by this subsection take effect on March 1, 2004.
411
TITLE IV—MEDICARE FEE-FOR-
SERVICE IMPROVEMENTS 
Subtitle A—Provisions Relating to 
Part A 
SEC. 401. EQUALIZING URBAN AND RURAL STANDARDIZED 
PAYMENT AMOUNTS UNDER THE MEDICARE 
INPATIENT 
HOSPITAL 
PROSPECTIVE 
PAY-
MENT SYSTEM. 
(a) IN GENERAL.—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 2004, the operating standardized amount for 
hospitals located other than in a large urban area 
shall be increased by 1⁄2 of the difference between 
the operating standardized amount determined 
under subclause (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.
412
‘‘(III) For discharges occurring in a fiscal year 
beginning with fiscal year 2005, the Secretary shall 
compute an operating standardized amount for hos-
pitals located in any area within the United States 
and within each region equal to the operating 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 
2006, applicable for all hospitals in the previous fis-
cal year) increased by the applicable percentage in-
crease under subsection (b)(3)(B)(i) for the fiscal 
year involved.’’. 
(b) CONFORMING AMENDMENTS.—
(1) COMPUTING DRG-SPECIFIC RATES.—Section 
1886(d)(3)(D) (42 U.S.C. 1395ww(d)(3)(D)) is 
amended—
(A) in the heading, by striking ‘‘IN DIF-
FERENT AREAS’’; 
(B) in the matter preceding clause (i), by 
striking ‘‘each of which is’’; 
(C) in clause (i)—
(i) in the matter preceding subclause 
(I), by inserting ‘‘for fiscal years before fis-
cal year 2005,’’ before ‘‘for hospitals’’; and
413
(ii) in subclause (II), by striking 
‘‘and’’ after the semicolon at the end;
(D) in clause (ii)—
(i) in the matter preceding subclause 
(I), by inserting ‘‘for fiscal years before fis-
cal year 2005,’’ before ‘‘for hospitals’’; and 
(ii) in subclause (II), by striking the 
period at the end and inserting ‘‘; and’’; 
and 
(E) by adding at the end the following new 
clause: 
‘‘(iii) for a fiscal year beginning after fiscal 
year 2004, for hospitals located in all areas, to 
the product of—
‘‘(I) the applicable operating stand-
ardized amount (computed under subpara-
graph (A)), reduced under subparagraph 
(B), and adjusted or reduced under sub-
paragraph (C) for the fiscal year; and 
‘‘(II) the weighting factor (determined 
under paragraph (4)(B)) for that diag-
nosis-related group.’’. 
(2) TECHNICAL CONFORMING SUNSET.—Section 
1886(d)(3) (42 U.S.C. 1395ww(d)(3)) is amended—
414
(A) in the matter preceding subparagraph 
(A), by inserting ‘‘, for fiscal years before fiscal 
year 1997,’’ before ‘‘a regional adjusted DRG 
prospective payment rate’’; and
(B) in subparagraph (D), in the matter 
preceding clause (i), by inserting ‘‘, for fiscal 
years before fiscal year 1997,’’ before ‘‘a re-
gional DRG prospective payment rate for each 
region,’’. 
SEC. 402. ADJUSTMENT TO THE MEDICARE INPATIENT HOS-
PITAL PPS WAGE INDEX TO REVISE THE 
LABOR-RELATED SHARE OF SUCH INDEX. 
(a) IN GENERAL.—Section 1886(d)(3)(E) (42 U.S.C. 
1395ww(d)(3)(E)) is amended—
(1) by striking ‘‘WAGE
LEVELS.—The Sec-
retary’’ and inserting ‘‘WAGE LEVELS.—
‘‘(i) IN GENERAL.—Except as provided in 
clause (ii), the Secretary’’; and 
(2) by adding at the end the following new 
clause: 
‘‘(ii) ALTERNATIVE
PROPORTION
TO
BE 
ADJUSTED BEGINNING IN FISCAL YEAR 2004.—
‘‘(I) IN
GENERAL.—Except as pro-
vided in subclause (II), for discharges oc-
curring on or after October 1, 2003, the
415
Secretary shall substitute ‘62 percent’ for 
the proportion described in the first sen-
tence of clause (i). 
‘‘(II) HOLD HARMLESS FOR CERTAIN 
HOSPITALS.—If the application of sub-
clause (I) would result in lower payments 
to a hospital than would otherwise be 
made, then this subparagraph shall be ap-
plied as if this clause had not been en-
acted.’’. 
(b) 
WAIVING
BUDGET
NEUTRALITY.—Section 
1886(d)(3)(E) (42 U.S.C. 1395ww(d)(3)(E)), as amended 
by subsection (a), is amended by adding at the end of 
clause (i) the following new sentence: ‘‘The Secretary shall 
apply the previous sentence for any period as if the 
amendments made by section 402(a) of the Prescription 
Drug and Medicare Improvement Act of 2003 had not 
been enacted.’’. 
SEC. 403. MEDICARE INPATIENT HOSPITAL PAYMENT AD-
JUSTMENT FOR LOW-VOLUME HOSPITALS. 
Section 1886(d) (42 U.S.C. 1395ww(d)) is amended 
by adding at the end the following new paragraph: 
‘‘(12) PAYMENT
ADJUSTMENT
FOR
LOW-VOL-
UME HOSPITALS.—
‘‘(A) PAYMENT ADJUSTMENT.—
416
‘‘(i) IN
GENERAL.—Notwithstanding 
any other provision of this section, for each 
cost reporting period (beginning with the 
cost reporting period that begins in fiscal 
year 2004), the Secretary shall provide for 
an additional payment amount to each low-
volume hospital (as defined in clause (iii)) 
for discharges occurring during that cost 
reporting period which is equal to the ap-
plicable percentage increase (determined 
under clause (ii)) in the amount paid to 
such hospital under this section for such 
discharges. 
‘‘(ii) APPLICABLE
PERCENTAGE
IN-
CREASE.—The Secretary shall determine a 
percentage increase applicable under this 
paragraph that ensures that—
‘‘(I) no percentage increase in 
payments under this paragraph ex-
ceeds 25 percent of the amount of 
payment that would (but for this 
paragraph) otherwise be made to a 
low-volume hospital under this section 
for each discharge;
417
‘‘(II) low-volume hospitals that 
have the lowest number of discharges 
during a cost reporting period receive 
the highest percentage increases in 
payments due to the application of 
this paragraph; and
‘‘(III) the percentage increase in 
payments to any low-volume hospital 
due to the application of this para-
graph is reduced as the number of 
discharges per cost reporting period 
increases. 
‘‘(iii) LOW-VOLUME
HOSPITAL
DE-
FINED.—For purposes of this paragraph, 
the term ‘low-volume hospital’ means, for a 
cost reporting period, a subsection (d) hos-
pital (as defined in paragraph (1)(B)) 
other than a critical access hospital (as de-
fined in section 1861(mm)(1)) that— 
‘‘(I) the Secretary determines 
had an average of less than 2,000 dis-
charges (determined with respect to 
all patients and not just individuals 
receiving benefits under this title) 
during the 3 most recent cost report-
418
ing periods for which data are avail-
able that precede the cost reporting 
period to which this paragraph ap-
plies; and 
‘‘(II) is located at least 15 miles 
from a like hospital (or is deemed by 
the Secretary to be so located by rea-
son of such factors as the Secretary 
determines appropriate, including the 
time required for an individual to 
travel to the nearest alternative source 
of appropriate inpatient care (after 
taking into account the location of 
such alternative source of inpatient 
care and any weather or travel condi-
tions that may affect such travel 
time). 
‘‘(B) 
PROHIBITING
CERTAIN
REDUC-
TIONS.—Notwithstanding subsection (e), the 
Secretary 
shall 
not 
reduce 
the 
payment 
amounts under this section to offset the in-
crease in payments resulting from the applica-
tion of subparagraph (A).’’.
419
SEC. 
404. 
FAIRNESS 
IN 
THE 
MEDICARE 
DISPROPOR-
TIONATE SHARE HOSPITAL (DSH) ADJUST-
MENT FOR RURAL HOSPITALS. 
(a) EQUALIZING DSH PAYMENT AMOUNTS.—
(1) IN
GENERAL.—Section 1886(d)(5)(F)(vii) 
(42 U.S.C. 1395ww(d)(5)(F)(vii)) is amended by in-
serting ‘‘, and, after October 1, 2003, for any other 
hospital described in clause (iv),’’ after ‘‘clause 
(iv)(I)’’ in the matter preceding subclause (I). 
(2) 
CONFORMING
AMENDMENTS.—Section 
1886(d)(5)(F) (42 U.S.C. 1395ww(d)(5)(F)) is 
amended—
(A) in clause (iv)—
(i) in subclause (II)—
(I) by inserting ‘‘and before Oc-
tober 1, 2003,’’ after ‘‘April 1, 
2001,’’; and 
(II) by inserting ‘‘or, for dis-
charges occurring on or after October 
1, 2003, is equal to the percent deter-
mined in accordance with the applica-
ble formula described in clause (vii)’’ 
after ‘‘clause (xiii)’’; 
(ii) in subclause (III)—
420
(I) by inserting ‘‘and before Oc-
tober 1, 2003,’’ after ‘‘April 1, 
2001,’’; and 
(II) by inserting ‘‘or, for dis-
charges occurring on or after October 
1, 2003, is equal to the percent deter-
mined in accordance with the applica-
ble formula described in clause (vii)’’ 
after ‘‘clause (xii)’’; 
(iii) in subclause (IV)—
(I) by inserting ‘‘and before Oc-
tober 1, 2003,’’ after ‘‘April 1, 
2001,’’; and 
(II) by inserting ‘‘or, for dis-
charges occurring on or after October 
1, 2003, is equal to the percent deter-
mined in accordance with the applica-
ble formula described in clause (vii)’’ 
after ‘‘clause (x) or (xi)’’; 
(iv) in subclause (V)—
(I) by inserting ‘‘and before Oc-
tober 1, 2003,’’ after ‘‘April 1, 
2001,’’; and 
(II) by inserting ‘‘or, for dis-
charges occurring on or after October
421
1, 2003, is equal to the percent deter-
mined in accordance with the applica-
ble formula described in clause (vii)’’ 
after ‘‘clause (xi)’’; and 
(v) in subclause (VI)— 
(I) by inserting ‘‘and before Oc-
tober 1, 2003,’’ after ‘‘April 1, 
2001,’’; and 
(II) by inserting ‘‘or, for dis-
charges occurring on or after October 
1, 2003, is equal to the percent deter-
mined in accordance with the applica-
ble formula described in clause (vii)’’ 
after ‘‘clause (x)’’; 
(B) in clause (viii), by striking ‘‘The for-
mula’’ and inserting ‘‘For discharges occurring 
before October 1, 2003, the formula’’; and 
(C) in each of clauses (x), (xi), (xii), and 
(xiii), by striking ‘‘For purposes’’ and inserting 
‘‘With respect to discharges occurring before 
October 1, 2004, for purposes’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to discharges occurring on or after 
October 1, 2003.
422
SEC. 405. CRITICAL ACCESS HOSPITAL (CAH) IMPROVE-
MENTS. 
(a) PERMITTING CAHS TO ALLOCATE SWING BEDS 
AND ACUTE CARE INPATIENT BEDS SUBJECT
TO
A 
TOTAL LIMIT OF 25 BEDS.—
(1) IN
GENERAL.—Section 1820(c)(2)(B)(iii) 
(42 U.S.C. 1395i–4(c)(2)(B)(iii)) is amended to 
read as follows: 
‘‘(iii) provides not more than a total 
of 25 extended care service beds (pursuant 
to an agreement under subsection (f)) and 
acute care inpatient beds (meeting such 
standards as the Secretary may establish) 
for providing inpatient care for a period 
that does not exceed, as determined on an 
annual, average basis, 96 hours per pa-
tient;’’. 
(2) 
CONFORMING
AMENDMENT.—Section 
1820(f) (42 U.S.C. 1395i–4(f)) is amended by strik-
ing ‘‘and the number of beds used at any time for 
acute care inpatient services does not exceed 15 
beds’’. 
(3) EFFECTIVE DATE.—The amendments made 
by this subsection shall with respect to designations 
made on or after October 1, 2003.
423
(b) ELIMINATION
OF
THE ISOLATION TEST
FOR 
COST-BASED CAH AMBULANCE SERVICES.—
(1) ELIMINATION.—
(A) IN GENERAL.—Section 1834(l)(8) (42 
U.S.C. 1395m(l)(8)), as added by section 
205(a) of BIPA (114 Stat. 2763A–482), is 
amended by striking the comma at the end of 
subparagraph (B) and all that follows and in-
serting a period. 
(B) EFFECTIVE
DATE.—The amendment 
made by subparagraph (A) shall apply to serv-
ices furnished on or after January 1, 2004. 
(2) TECHNICAL CORRECTION.—Section 1834(l) 
(42 U.S.C. 1395m(l)) is amended by redesignating 
paragraph (8), as added by section 221(a) of BIPA 
(114 Stat. 2763A–486), as paragraph (9). 
(c) COVERAGE OF COSTS FOR CERTAIN EMERGENCY 
ROOM ON-CALL PROVIDERS.—
(1) IN
GENERAL.—Section 1834(g)(5) (42 
U.S.C. 1395m(g)(5)) is amended—
(A) in the heading—
(i) by inserting ‘‘CERTAIN’’ before 
‘‘EMERGENCY’’; and 
(ii) by striking ‘‘PHYSICIANS’’ and in-
serting ‘‘PROVIDERS’’;
424
(B) by striking ‘‘emergency room physi-
cians who are on-call (as defined by the Sec-
retary)’’ and inserting ‘‘physicians, physician 
assistants, nurse practitioners, and clinical 
nurse specialists who are on-call (as defined by 
the Secretary) to provide emergency services’’; 
and 
(C) by striking ‘‘physicians’ services’’ and 
inserting ‘‘services covered under this title’’. 
(2) EFFECTIVE DATE.—The amendments made 
by paragraph (1) shall apply to costs incurred for 
services provided on or after January 1, 2004. 
(d) AUTHORIZATION
OF PERIODIC INTERIM PAY-
MENT (PIP).—
(1) IN
GENERAL.—Section 1815(e)(2) (42 
U.S.C. 1395g(e)(2)) is amended—
(A) in subparagraph (C), by striking 
‘‘and’’ after the semicolon at the end; 
(B) in subparagraph (D), by adding ‘‘and’’ 
after the semicolon at the end; and 
(C) by inserting after subparagraph (D) 
the following new subparagraph: 
‘‘(E) inpatient critical access hospital services;’’. 
(2) EFFECTIVE DATE.—The amendments made 
by paragraph (1) shall apply to payments for inpa-
425
tient critical access facility services furnished on or 
after January 1, 2004. 
(e) EXCLUSION OF NEW CAHS FROM PPS HOS-
PITAL
WAGE
INDEX
CALCULATION.—Section 
1886(d)(3)(E)(i) (42 U.S.C. 1395ww(d)(3)(E)(i)), as 
amended by section 402, is amended by inserting after the 
first sentence the following new sentence: ‘‘In calculating 
the hospital wage levels under the preceding sentence ap-
plicable with respect to cost reporting periods beginning 
on or after January 1, 2003, the Secretary shall exclude 
the wage levels of any facility that became a critical access 
hospital prior to the cost reporting period for which such 
hospital wage levels are calculated.’’.
(f) PROVISIONS
RELATED
TO
CERTAIN
RURAL 
GRANTS.—
(1) SMALL
RURAL
HOSPITAL
IMPROVEMENT 
PROGRAM.—Section 1820(g) (42 U.S.C. 1395i–4(g)) 
is amended—
(A) by redesignating paragraph (3)(F) as 
paragraph (5) and redesignating and indenting 
appropriately; and 
(B) by inserting after paragraph (3) the 
following new paragraph: 
‘‘(4) SMALL
RURAL
HOSPITAL
IMPROVEMENT 
PROGRAM.—
426
‘‘(A) GRANTS
TO
HOSPITALS.—The Sec-
retary may award grants to hospitals that have 
submitted applications in accordance with sub-
paragraph (B) to assist eligible small rural hos-
pitals (as defined in paragraph (3)(B)) in meet-
ing the costs of reducing medical errors, in-
creasing patient safety, protecting patient pri-
vacy, and improving hospital quality and per-
formance. 
‘‘(B) APPLICATION.—A hospital seeking a 
grant under this paragraph shall submit an ap-
plication to the Secretary on or before such 
date and in such form and manner as the Sec-
retary specifies. 
‘‘(C) AMOUNT OF GRANT.—A grant to a 
hospital under this paragraph may not exceed 
$50,000. 
‘‘(D) USE OF FUNDS.—A hospital receiv-
ing a grant under this paragraph may use the 
funds for the purchase of computer software 
and hardware, the education and training of 
hospital staff, and obtaining technical assist-
ance.’’.
444
(b) NO EFFECT ON COPAYMENT AMOUNT.—The Sec-
retary shall compute the copayment amount for applicable 
covered OPD services under section 1833(t)(8)(A) of the 
Social Security Act (42 U.S.C. 1395l(t)(8)(A)) as if this 
section had not been enacted. 
(c) NO EFFECT ON INCREASE UNDER HOLD HARM-
LESS
OR OUTLIER PROVISIONS.—The Secretary shall 
apply the temporary hold harmless provision under clause 
(i) and (iii) of paragraph (7)(D) of section 1833(t) of the 
Social Security Act (42 U.S.C. 1395l(t)) and the outlier 
provision under paragraph (5) of such section as if this 
section had not been enacted. 
(d) WAIVING BUDGET NEUTRALITY AND NO REVI-
SION OR ADJUSTMENTS.—The Secretary shall not make 
any revision or adjustment under subparagraph (A), (B), 
or (C) of section 1833(t)(9) of the Social Security Act (42 
U.S.C. 1395l(t)(9)) because of the application of sub-
section (a)(1). 
(e) NO EFFECT ON PAYMENTS AFTER INCREASE PE-
RIOD ENDS.—The Secretary shall not take into account 
any payment increase provided under subsection (a)(1) in 
determining payments for covered OPD services (as de-
fined in paragraph (1)(B) of section 1833(t) of the Social 
Security Act (42 U.S.C. 1395l(t))) under such section that 
are furnished after January 1, 2008.