GENCE.—No civil money penalty shall
be imposed under this paragraph on
any failure during any period for
which it is established to the satisfac-
tion of the Secretary that none of the
persons against whom the penalty
would be imposed knew, or exercising
reasonable 
diligence 
would 
have
known, that such failure existed.
(II) PENALTY NOT TO APPLY TO
FAILURES
CORRECTED
WITHIN
DAYS.—No civil money penalty shall
be imposed under this paragraph on
any failure if such failure was due to
reasonable cause and not to willful ne-
glect, and such failure is corrected
during the 30-day period beginning on
the first day any of the persons
against whom the penalty would be
imposed knew, or exercising reason-
able diligence would have known, that
such failure existed.
(D) ADMINISTRATIVE REVIEW.—
(i) OPPORTUNITY
FOR
HEARING.—
The person assessed shall be afforded an
opportunity for hearing by the Secretary
upon request made within 30 days after
the date of the issuance of a notice of as-
sessment. In such hearing the decision
shall be made on the record pursuant to
section 554 of title 5, United States Code.
If no hearing is requested, the assessment
shall constitute a final and unappealable
order.
(ii) 
HEARING
PROCEDURE.—If 
a
hearing is requested, the initial agency de-
cision shall be made by an administrative
law judge, and such decision shall become
the final order unless the Secretary modi-
fies or vacates the decision. Notice of in-
tent to modify or vacate the decision of the
administrative law judge shall be issued to
the parties within 30 days after the date of
the decision of the judge. A final order
which takes effect under this paragraph
shall be subject to review only as provided
under subparagraph (D).
(E) JUDICIAL REVIEW.—
(i) FILING OF ACTION FOR REVIEW.—
Any person against whom an order impos-
ing a civil money penalty has been entered
after an agency hearing under this para-
graph may obtain review by the United
States district court for any district in
which such person is located or the United
States District Court for the District of
Columbia by filing a notice of appeal in
such court within 30 days from the date of
such order, and simultaneously sending a
copy of such notice be registered mail to
the Secretary.
(ii) CERTIFICATION OF ADMINISTRA-
TIVE
RECORD.—The 
Secretary 
shall
promptly certify and file in such court the
record upon which the penalty was im-
posed.
(iii) STANDARD
FOR
REVIEW.—The
findings of the Secretary shall be set aside
only if found to be unsupported by sub-
stantial evidence as provided by section
706(2)(E) of title 5, United States Code.
(iv) APPEAL.—Any final decision,
order, or judgment of such district court
concerning such review shall be subject to
appeal as provided in chapter 83 of title 28
of such Code.
(F) FAILURE TO PAY ASSESSMENT; MAIN-
TENANCE OF ACTION.—
(i) FAILURE TO PAY ASSESSMENT.—If
any person fails to pay an assessment after
it has become a final and unappealable
order, or after the court has entered final
judgment in favor of the Secretary, the
Secretary shall refer the matter to the At-
torney General who shall recover the
amount assessed by action in the appro-
priate United States district court.
(ii) NONREVIEWABILITY.—In such ac-
tion the validity and appropriateness of the
final order imposing the penalty shall not
be subject to review.
(G) PAYMENT OF PENALTIES.—Except as
otherwise provided, penalties collected under
this paragraph shall be paid to the Secretary
(or other officer) imposing the penalty and shall
be available without appropriation and until ex-
pended for the purpose of enforcing the provi-
sions with respect to which the penalty was im-
posed.
(2) FEDERAL ENFORCEMENT ONLY IF NO EN-
FORCEMENT THROUGH STATE.—Paragraph (1) shall
not apply to enforcement of the requirements of sec-
tion 101, 102, or 103 with respect to any entity
which offers health insurance coverage and which is
an insurer or HMO regulated by a State if the Sec-
retary of Health and Human Services has deter-
mined that—
(A) such State has not provided for en-
forcement of State laws which govern the same
matters as are governed by such section and
which require compliance by such entity with at
least the same requirements as those provided
under such section, and
(B) such entity has failed to comply with
such requirements of such section as are appli-
cable to such entity.
(3) NONDUPLICATION
OF
SANCTIONS.—In no
case shall a civil money penalty be imposed under
this subsection for a violation of this subtitle for
which an excise tax has been imposed under section
4980B of the Internal Revenue Code of 1986 or for
which a civil money penalty has been imposed under
the authority provided under subsection (b).
(d) COORDINATION IN ADMINISTRATION.—The Sec-
retaries of the Treasury, Labor, and Health and Human
Services shall issue regulations that are nonduplicative to
carry out this subtitle. Such regulations shall be issued
in a manner that assures coordination and nonduplication
in their activities under this subtitle.
Subtitle B—Certain Requirements
for Insurers and HMOs in the
Group and Individual Markets
PART 1—AVAILABILITY OF GROUP HEALTH
INSURANCE COVERAGE
SEC. 131. GUARANTEED AVAILABILITY OF GENERAL COV-
ERAGE IN THE SMALL GROUP MARKET.
(a) ISSUANCE OF COVERAGE.—
(1) IN
GENERAL.—Subject to the succeeding
subsections of this section, each insurer or HMO
that offers health insurance coverage in the small
group market in a State—
(A) must accept every small employer in
the State that applies for such coverage; and
(B) must accept for enrollment under such
coverage every eligible individual (as defined in
paragraph (2)) who applies for enrollment dur-
ing the initial period in which the individual
first becomes eligible for coverage under the
erage in connection with such a plan, the insurer or
HMO may—
(A) limit the employers that may apply for
such coverage to those with eligible individuals
whose place of employment or residence is in
the service area for such plan or HMO;
(B) limit the individuals who may be en-
rolled under such coverage to those whose place
of residence or employment is within the service
area for such plan or HMO; and
(C) within the service area of such plan or
HMO, deny such coverage to such employers if
the insurer or HMO demonstrates that—
(i) it will not have the capacity to de-
liver services adequately to enrollees of any
additional groups because of its obligations
to existing group contract holders and en-
rollees, and
(ii) it is applying this paragraph uni-
formly to all employers without regard to
the claims experience of those employers
and their employees (and their bene-
ficiaries) or the health status of such em-
ployees and beneficiaries.
(2) 180-DAY
SUSPENSION
UPON
DENIAL
OF
COVERAGE.—An insurer or HMO, upon denying
health insurance coverage in any service area in ac-
cordance with paragraph (1)(C), may not offer cov-
erage in the small group market within such service
area for a period of 180 days after such coverage is
denied.
(c) SPECIAL RULE FOR FINANCIAL CAPACITY LIM-
ITS.—
(1) IN GENERAL.—An insurer or HMO may
deny health insurance coverage in the small group
market if the insurer or HMO demonstrates to the
applicable State authority that—
(A) it does not have the financial reserves
necessary to underwrite additional coverage,
and
(B) it is applying this paragraph uniformly
to all employers without regard to the claims
experience or duration of coverage of those em-
ployers and their employees (and their bene-
ficiaries) or the health status of such employees
and beneficiaries.
(2) 180-DAY
SUSPENSION
UPON
DENIAL
OF
COVERAGE.—An insurer or HMO upon denying
health insurance coverage in connection with group
health plans in any service area in accordance with
paragraph (1) may not offer coverage in connection
with group health plans in the small group market
within such service area for a period of 180 days
after such coverage is denied.
(d) EXCEPTION TO REQUIREMENT FOR ISSUANCE OF
COVERAGE BY REASON OF FAILURE BY PLAN TO MEET
CERTAIN MINIMUM PARTICIPATION
OR CONTRIBUTION
RULES.—
(1) IN
GENERAL.—Subsection (a) shall not
apply in the case of any group health plan with re-
spect to which—
(A) participation rules of an insurer or
HMO which are described in paragraph (2) are
not met, or
(B) contribution rules of an insurer or
HMO which are described in paragraph (3) are
not met.
(2) PARTICIPATION
RULES.—For purposes of
paragraph (1)(A), participation rules (if any) of an
insurer or HMO shall be treated as met with respect
to a group health plan only if such rules are uni-
formly applicable and in accordance with applicable
State law and the number or percentage of eligible
individuals who, under the plan, are participants or
beneficiaries equals or exceeds a level which is deter-
mined in accordance with such rules.
(3) CONTRIBUTION
RULES.—For purposes of
paragraph (1)(B), contribution rules (if any) of an
insurer or HMO shall be treated as met with respect
to a group health plan only if such rules are in ac-
cordance with applicable State law.
SEC. 132. GUARANTEED RENEWABILITY OF GROUP COV-
ERAGE.
(a) IN GENERAL.—Except as provided in this section,
if an insurer or health maintenance organization offers
health insurance coverage in the small or large group mar-
ket, the insurer or organization must renew or continue
in force such coverage at the option of the employer.
(b) GENERAL EXCEPTIONS.—An insurer or organiza-
tion may nonrenew or discontinue health insurance cov-
erage offered an employer based only on one or more of
the following:
(1) NONPAYMENT
OF
PREMIUMS.—The em-
ployer has failed to pay premiums or contributions
in accordance with the terms of the health insurance
coverage or the insurer or organization has not re-
ceived timely premium payments.
(2) FRAUD.—The employer has performed an
act or practice that constitutes fraud or made an in-
tentional misrepresentation of material fact under
the terms of the coverage.
(3) VIOLATION WITH PARTICIPATION OR CON-
TRIBUTION RULES.—The group purchaser has failed
to comply with a material plan provision relating to
participation or contribution rules contributions in
accordance with section 131(d).
(4) TERMINATION OF PLAN.—Subject to sub-
section (c), the insurer or organization is ceasing to
offer coverage in the small or large group market in
a State (or, in the case of a network plan or HMO,
in a geographic area).
(5) MOVEMENT OUTSIDE SERVICE AREA.—The
employer has changed the place of employment in
such manner that employees and dependents reside
and are employed outside the service area of the in-
surer or organization or outside the area for which
the insurer or organization is authorized to do busi-
ness.
(c) EXCEPTIONS FOR UNIFORM TERMINATION OF
COVERAGE.—
(1) PARTICULAR TYPE OF COVERAGE NOT OF-
FERED.—In any case in which a insurer or HMO
decides to discontinue offering a particular type of
health insurance coverage in the small or large
group market, coverage of such type may be discon-
tinued by the insurer or organization only if—
(A) the insurer or organization provides
notice to each employer provided coverage of
this type in such market (and participants and
beneficiaries covered under such coverage) of
such discontinuation at least 90 days prior to
the date of the discontinuation of such cov-
erage;
(B) the insurer or organization offers to
each employer in the small employer or large
employer market provided coverage of this type,
the option to purchase any other health insur-
ance coverage currently being offered by the in-
surer or organization for employers in such
market; and
(C) in exercising the option to discontinue
coverage of this type and in offering one or
more replacement coverage, the insurer or orga-
nization acts uniformly without regard to the
health status or insurability of participants or
beneficiaries covered or new participants or
beneficiaries who may become eligible for such
coverage.
(2) DISCONTINUANCE OF ALL COVERAGE.—
(A) IN
GENERAL.—Subject to subpara-
graph (C), in any case in which an insurer or
HMO elects to discontinue offering all health
insurance coverage in the small group market
or the large group market, or both markets, in
a State, health insurance coverage may be dis-
continued by the insurer or organization only
if—
(i) the insurer or organization pro-
vides notice to the applicable State author-
ity and to each employer (and participants
and beneficiaries covered under such cov-
erage) of such discontinuation at least 180
days prior to the date of the expiration of
such coverage, and
(ii) all health insurance issued or de-
livered for issuance in the State in such
market (or markets) are discontinued and
coverage under such health insurance cov-
erage in such market (or markets) is not
renewed.
(B) PROHIBITION ON MARKET REENTRY.—
In the case of a discontinuation under subpara-
graph (A) in one or both markets, the insurer
or organization may not provide for the issu-
ance of any health insurance coverage in the
market and State involved during the 5-year pe-
riod beginning on the date of the discontinu-
ation of the last health insurance coverage not
so renewed.
(d) EXCEPTION FOR UNIFORM MODIFICATION OF
COVERAGE.—At the time of coverage renewal, an insurer
or HMO may modify the coverage offered to a group
health plan in the group health market so long as such
modification is effective on a uniform basis among group
health plans with that type of coverage.
PART 2—AVAILABILITY OF INDIVIDUAL HEALTH
INSURANCE COVERAGE
SEC. 141. GUARANTEED AVAILABILITY OF INDIVIDUAL
HEALTH INSURANCE COVERAGE TO CERTAIN
INDIVIDUALS 
WITH 
PRIOR 
GROUP 
COV-
ERAGE.
(a) GOALS.—The goals of this section are—
(1) to guarantee that any qualifying individual
(as defined in subsection (b)(1)) is able to obtain
qualifying coverage (as defined in subsection (b)(2));
and
(2) to assure that qualifying individuals obtain-
ing such coverage receive credit for their prior cov-
erage toward the new coverage’s preexisting condi-
tion exclusion period (if any) in a manner consistent
with subsection (b)(3).
(b) QUALIFYING INDIVIDUAL AND HEALTH INSUR-
ANCE COVERAGE DEFINED.—In this section—
(1) 
QUALIFYING
INDIVIDUAL.—The 
term
‘‘qualifying individual’’ means an individual—
(A) who is in a qualified coverage period
(as defined in section 101(b)(3)(C)) that—
(i) includes coverage under one or
more group health plans, and
(ii) commenced 18 or more months
before the date on which the individual
seeks coverage under this section;
(B) who is not eligible for coverage under
a group health plan;
(C) with respect to whom the most recent
coverage within the coverage period described in
subparagraph (A)(i) was not terminated based
on a factor described in paragraph (1) or (2) of
section 132(b);
(D) if the individual had been offered the
option of continuation coverage under a
COBRA continuation provision or under a simi-
lar State program, elected such coverage; and
(E) who, if the individual elected such con-
tinuation coverage, has exhausted such continu-
ation coverage.
(2) QUALIFYING COVERAGE.—
(A) IN GENERAL.—The term ‘‘qualifying
coverage’’ means, with respect to an insurer or
HMO in relation to a qualifying individual, in-
dividual health insurance coverage for which the
actuarial value of the benefits is not less than—
(i) the weighted average actuarial
value of the benefits provided by all the in-
dividual health insurance coverage issued
by the insurer or HMO in the State during
the previous year (not including coverage
issued under this section), or
(ii) the weighted average of the actu-
arial value of the benefits provided by all
the individual health insurance coverage is-
sued by all insurers and HMOs in the
State during the previous year (not includ-
ing coverage issued under this section),
as elected by the plan or by the State under
subsection (c)(1).
(B) ASSUMPTIONS.—For purposes of sub-
paragraph (A), the actuarial value of benefits
provided under individual health insurance cov-
erage shall be calculated based on a standard-
ized population and a set of standardized utili-
zation and cost factors.
(3) CREDITING
FOR
PREVIOUS
COVERAGE.—
Crediting is consistent with this paragraph only if
any preexisting condition exclusion period is reduced
at least to the extent such a period would be reduced
if the coverage under this section were under a
group health plan to which section 101(a) applies. In
carrying out this subsection, provisions similar to
the provisions of section 101(c) shall apply.
(c) OPTIONAL STATE ESTABLISHMENT OF MECHA-
NISMS TO ACHIEVE GOALS OF GUARANTEEING AVAIL-
ABILITY OF COVERAGE.—
(1) IN
GENERAL.—Any State may establish
public or private mechanisms reasonably designed to
meet the goals specified in subsection (a). If a State
implements such a mechanism by the deadline speci-
fied in paragraph (4), the State may elect to have
such mechanisms apply instead of having subsection
(d) apply in the State. An election under this para-
graph shall be by notice to the Secretary of Health
and Human Services on a timely basis consistent
with the deadlines specified in paragraph (4). In es-
tablishing what is qualifying coverage under such a
mechanism under this subsection, a State may exer-
cise the election described in subsection (b)(2)(A)
with respect to each insurer or HMO in the State
(or on a collective basis after exercising such election
for each such insurer or HMO).
(2) TYPES
OF
MECHANISMS.—State mecha-
nisms under this subsection may include (but are
not limited to)—
(A) health insurance coverage pools or pro-
grams authorized or established by the State,
(B) mandatory group conversion policies,
(C) guaranteed issue of one or more plans
of individual health insurance coverage to quali-
fying individuals, or
(D) open enrollment by one or more insur-
ers or HMOs.
(3) SAFE HARBOR FOR BENEFITS UNDER CUR-
RENT RISK POOLS.—In the case of a State that has
a health insurance coverage pool or risk pool in ef-
fect on March 12, 1996, and that implements the
mechanism described in paragraph (2)(A), the bene-
fits under such mechanism (or benefits the actuarial
value of which is not less than the actuarial value
of such current benefits, using the assumptions de-
scribed in subsection (b)(2)(B)) are deemed, for pur-
poses of this section, to constitute qualified coverage.
(4) DEADLINE FOR STATE IMPLEMENTATION.—
(A) IN
GENERAL.—Subject to subpara-
graph (B), the deadline under this paragraph is
July 1, 1997.
(B) EXTENSION
TO
PERMIT
LEGISLA-
TION.—The deadline under this paragraph is
July 1, 1998, in the case of a State the legisla-
ture of which does not have a regular legislative
session at any time between January 1, 1997,
and June 30, 1997.
(C) CONSTRUCTION.—Nothing in this sec-
tion shall be construed as preventing a State
from—
(i) implementing guaranteed availabil-
ity mechanisms before the deadline,
(ii) continuing in effect mechanisms
that are in effect before the date of the en-
actment of this Act,
(iii) offering guaranteed availability of
coverage that is not qualifying coverage, or
(iv) offering guaranteed availability of
coverage to individuals who are not quali-
fying individuals.
(d) FALLBACK PROVISIONS.—
(1) NO STATE ELECTION.—If a State has not
provided notice to the Secretary of an election on a
timely basis under subsection (c), the Secretary shall
notify the State that paragraph (3) will be applied
in the State.
(2) 
PRELIMINARY
DETERMINATION
AFTER
STATE ELECTION.—If—
(A) a State has provided notice of an elec-
tion on a timely basis under subsection (c), and
(B) the Secretary finds, after consultation
with the chief executive officer of the State and
the insurance commissioner or chief insurance
regulatory official of the State, that such a
mechanism (for which notice was provided) is
not reasonably designed to meet the goals speci-
fied in subsection (a),
the Secretary shall notify the State of such prelimi-
nary determination, of the consequences under para-
graph (3) of a failure to implement such a mecha-
nism, and permit the State a reasonable opportunity
in which to modify the mechanism (or to adopt an-
other mechanism) that is reasonably designed to
meet the goals specified in subsection (a). If, after
providing such notice and opportunity, the Secretary
finds that the State has not implemented such a
mechanism, the Secretary shall notify the State that
paragraph (3) will be applied in the State.
(3) DESCRIPTION OF FALLBACK MECHANISM.—
As provided under paragraphs (1) and (2) and sub-
ject to paragraph (5), each insurer or HMO in the
State involved that issues individual health insurance
coverage—
(A) shall offer qualifying health insurance
coverage to each qualifying individual in the
State, and
(B) may not decline to issue such coverage
to such an individual based on health status
(except as permitted under paragraph (4)).
(4) APPLICATION OF NETWORK AND CAPACITY
LIMITS.—Under regulations, the provisions of sub-
sections (b) and (c) of section 131 shall apply to an
individual in the individual health insurance market
under this subsection in the same manner as they
apply under section 131 to an employer in the small
group market.
(5) TERMINATION OF FALLBACK MECHANISM.—
The provisions of this subsection shall cease to apply
to a State if the Secretary finds that a State has im-
plemented a mechanism that is reasonably designed
to meet the goals specified in subsection (a), and
until the Secretary finds that such mechanism is no
longer being implemented.
(e) CONSTRUCTION.—
(1) PREMIUMS.—Nothing in this section shall
be construed to affect the determination of an in-
surer or HMO as to the amount of the premium
payable under an individual health insurance cov-
erage under applicable state law.
(2) MARKET REQUIREMENTS.—
(A) IN GENERAL.—The provisions of sub-
section (a) shall not be construed to require
that an insurer or HMO offering health insur-
ance coverage only in connection with a group
health plan or an association offer individual
health insurance coverage.
(B) CONVERSION
POLICIES.—An insurer
or HMO offering health insurance coverage in
connection with a group health plan under sub-
title A shall not be deemed to be an insurer or
HMO offering an individual health insurance
coverage solely because such insurer or HMO
offers a conversion policy.
(3) DISREGARD OF ASSOCIATION COVERAGE.—
An insurer or HMO that offers health insurance cov-
erage only in connection with a group health plan or
in connection with individuals based on affiliation
with one or more associations is not considered, for
purposes of this subtitle, to be offering individual
health insurance coverage.
(4) MARKETING
OF
PLANS.—Nothing in this
section shall be construed to prevent a State from
requiring insurer or HMOs offering individual health
insurance coverage to actively market such coverage.
SEC. 142. GUARANTEED RENEWABILITY OF INDIVIDUAL
HEALTH INSURANCE COVERAGE.
(a) GUARANTEED RENEWABILITY.—Subject to the
succeeding provisions of this section, an insurer or HMO
that provides individual health insurance coverage to an
individual shall renew or continue such coverage at the
option of the individual.
(b) NONRENEWAL PERMITTED IN CERTAIN CASES.—
An insurer or HMO may nonrenew or discontinue individ-
ual health insurance coverage of an individual only based
on one or more of the following:
(1) NONPAYMENT.—The individual fails to pay
payment of premiums or contributions in accordance
with the terms of the coverage or the insurer or or-
ganization has not failed to receive timely premium
payments.
(2) FRAUD.—The individual has performed an
act or practice that constitutes fraud or made an in-
tentional misrepresentation of material fact under
the terms of the coverage.
(3) TERMINATION OF COVERAGE.—Subject to
subsection (c), the insurer or HMO is ceasing to
offer health insurance coverage in the individual
market in a State (or, in the case of a network plan
or HMO, in a geographic area).
(c) TERMINATION OF INDIVIDUAL COVERAGE.—The
provisions of section 132(c) shall apply to this section in
the same manner as they apply under section 132, except
that any reference to an employer or market is deemed
a reference to a covered individual or the individual mar-
ket, respectively.
(d) EXCEPTION FOR UNIFORM MODIFICATION OF
COVERAGE.—The provisions of section 132(d) shall apply
to individual health insurance coverage in the individual
market under this section in the same manner as it applies
to health insurance coverage offered in connection with a
group health plan in the group market under such section.
PART 3—ENFORCEMENT
SEC. 151. INCORPORATION OF PROVISIONS FOR STATE EN-
FORCEMENT WITH FEDERAL FALLBACK AU-
THORITY.
The provisions of paragraphs (1) and (2) of section
104(c) shall apply to enforcement of requirements in each
section in part 1 or part 2 with respect to insurers and
HMOs regulated by a State in the same manner as such
provisions apply to enforcement of requirements in section
101, 102, or 103 with respect to insurers and HMOs regu-
lated by a State.
Subtitle C—Definitions; General
Provisions
SEC. 191. DEFINITIONS; SCOPE OF COVERAGE.
(a) GROUP HEALTH PLAN.—
(1) DEFINITION.—Subject to the succeeding
provisions of this subsection and subsection (d)(1),
the term ‘‘group health plan’’ means an employee
welfare benefit plan to the extent that the plan pro-
vides medical care (as defined in subsection (b)( ))
to employees or their dependents (as defined under
the terms of the plan) directly or through insurance,
reimbursement, or otherwise, and includes a group
health 
plan 
(within 
the 
meaning 
of 
section
5000B(b)(1) of the Internal Revenue Code of 1986).
(2) LIMITATION OF REQUIREMENTS TO PLANS
WITH 2 OR MORE EMPLOYEE PARTICIPANTS.—The
requirements of subtitle A and part 1 of subtitle B
shall apply in the case of a group health plan for
any plan year, or for health insurance coverage of-
fered in connection with a group health plan for a
year, only if the group health plan has two or more
participants as current employees on the first day of
the plan year.
(3) EXCLUSION OF PLANS WITH LIMITED COV-
ERAGE.—An employee welfare benefit plan shall be
treated as a group health plan under this title only
with respect to medical care which is provided under
the plan and which does not consist of coverage ex-
cluded from the definition of health insurance cov-
erage under subsection (c)(4)(B).
(3) TREATMENT OF CHURCH PLANS.—
(A) EXCLUSION.—The requirements of
this title insofar as they apply to group health
plans shall not apply to church plans.
(B) OPTIONAL DISREGARD IN DETERMIN-
ING PERIOD OF COVERAGE.—For purposes of
applying section 101(b)(3)(B)(i), a group health
plan may elect to disregard periods of coverage
of an individual under a church plan that, pur-
suant to subparagraph (A), is not subject to the
requirements of this title.
(4) TREATMENT OF GOVERNMENTAL PLANS.—
(A) ELECTION TO BE EXCLUDED.—If the
plan sponsor of a governmental plan which is a
group health plan to which the provisions of
this subtitle otherwise apply makes an election
under this paragraph for any specified period
(in such form and manner as the Secretary of
Health and Human Services may by regulations
prescribe), then the requirements of this title
insofar as they apply to group health plans
shall not apply to such governmental plans for
such period.
(B) OPTIONAL DISREGARD IN DETERMIN-
ING
PERIOD
OF
COVERAGE
IF
ELECTION
MADE.—For purposes of applying section
101(b)(3)(B)(i), a group health plan may elect
to disregard periods of coverage of an individual
under a governmental plan that, under an elec-
tion under subparagraph (A), is not subject to
the requirements of this title.
(5) TREATMENT OF MEDICAID PLAN AS GROUP
HEALTH PLAN.—A State plan under title XIX of the
Social Security Act shall be treated as a group
health plan for purposes of applying section 101(c),
unless the State elects not to be so treated.
(b) INCORPORATION OF CERTAIN DEFINITIONS IN
EMPLOYEE RETIREMENT INCOME SECURITY ACT
OF
1974.—Except as provided in this section, the terms ‘‘bene-
ficiary’’, ‘‘church plan’’, ‘‘employee’’, ‘‘employee welfare
benefit plan’’, ‘‘employer’’, ‘‘governmental plan’’, ‘‘multi-
employer plan’’, ‘‘multiple employer welfare arrange-
ment’’, ‘‘participant’’, ‘‘plan sponsor’’, and ‘‘State’’ have
the meanings given such terms in section 3 of the Em-
ployee Retirement Income Security Act of 1974.
(c) OTHER DEFINITIONS.—For purposes of this title:
(1) APPLICABLE STATE AUTHORITY.—The term
‘‘applicable State authority’’ means, with respect to
an insurer or health maintenance organization in a
State, the State insurance commissioner or official
or officials designated by the State to enforce the re-
quirements of this title for the State involved with
respect to such insurer or organization.
(2) BONA FIDE ASSOCIATION.—The term ‘‘bona
fide association’’ means an association which—
(A) has been actively in existence for at
least 5 years,
(B) has been formed and maintained in
good faith for purposes other than obtaining in-
surance,
(C) does not condition membership in the
association on health status,
(D) makes health insurance coverage of-
fered through the association available to all
members regardless of health status,
(E) does not make health insurance cov-
erage offered through the association available
to any individual who is not a member (or de-
pendent of a member) of the association at the
time the coverage is initially issued,
(F) does not impose preexisting condition
exclusions except in a manner consistent with
the requirements of sections 101 and 102 as
they relate to group health plans, and
(G) provides for renewal and continuation
of health insurance coverage in a manner con-
sistent with the requirements of section 132 as
they relate to the renewal and continuation in
force of coverage in a group market.
(3) COBRA CONTINUATION
PROVISION.—The
term ‘‘COBRA continuation provision’’ means any of
the following:
(A) Section 4980B of the Internal Revenue
Code of 1986, other than subsection (f)(1) of
such section insofar as it relates to pediatric
vaccines.
(B) Part 6 of subtitle B of title I of the
Employee Retirement Income Security Act of
1974 (29 U.S.C. 1161 et seq.), other than sec-
tion 609.
(C) Title XXII of the Public Health Serv-
ice Act.
(4) HEALTH INSURANCE COVERAGE.—
(A) IN GENERAL.—Except as provided in
subparagraph (B), the term ‘‘health insurance
coverage’’ means benefits consisting of medical
care (provided directly, through insurance or re-
imbursement, or otherwise) under any hospital
or medical service policy or certificate, hospital
or medical service plan contract, or health
maintenance organization group contract of-
fered by an insurer or a health maintenance or-
ganization.
(B) EXCEPTION.—Such term does not in-
clude coverage under any separate policy, cer-
tificate, or contract only for one or more of any
of the following:
(i) Coverage for accident, credit-only,
vision, disability income, long-term care,
nursing home care, community-based care
dental, on-site medical clinics, or employee
assistance programs, or any combination
thereof.
(ii) Medicare supplemental health in-
surance (within the meaning of section
1882(g)(1) of the Social Security Act (42
U.S.C. 1395ss(g)(1))) and similar supple-
mental coverage provided under a group
health plan.
(iii) Coverage issued as a supplement
to liability insurance.
(iv) Liability insurance, including gen-
eral liability insurance and automobile li-
ability insurance.
(v) Workers’ compensation or similar
insurance.
(vi) Automobile medical-payment in-
surance.
(vii) Coverage consisting of benefit
payments made on a periodic basis for a
specified disease or illness or period of hos-
pitalization, without regard to the costs in-
curred or services rendered during the pe-
riod to which the payments relate.
(viii) Short-term limited duration in-
surance.
(ix) Such other coverage, comparable
to that described in previous clauses, as
may be specified in regulations prescribed
under this title.
(5) HEALTH
MAINTENANCE
ORGANIZATION;
HMO.—The terms ‘‘health maintenance organiza-
tion’’ and ‘‘HMO’’ mean—
(A) a Federally qualified health mainte-
nance organization (as defined in section
1301(a) of the Public Health Service Act (42
U.S.C. 300e(a))),
(B) an organization recognized under State
law as a health maintenance organization, or
(C) a similar organization regulated under
State law for solvency in the same manner and
to the same extent as such a health mainte-
nance organization,
if (other than for purposes of part 2 of subtitle B)
it is subject to State law which regulates insurance
(within the meaning of section 514(b)(2) of the Em-
ployee Retirement Income Security Act of 1974).
(6) HEALTH STATUS.—The term ‘‘health sta-
tus’’ includes, with respect to an individual, medical
condition, claims experience, receipt of health care,
medical history, evidence of insurability, or disabil-
ity.
(7) INDIVIDUAL
HEALTH
INSURANCE
COV-
ERAGE.—The term ‘‘individual health insurance cov-
erage’’ means health insurance coverage offered to
individuals if the coverage is not offered in connec-
tion with a group health plan (other than such a
plan that has fewer than two participants as current
employees on the first day of the plan year).
(8) INSURER.—The term ‘‘insurer’’ means an
insurance company, insurance service, or insurance
organization which is licensed to engage in the busi-
ness of insurance in a State and (except for pur-
poses of part 2 of subtitle B) which is regulated by
a State (within the meaning of section 514(b)(2)(A)
of the Employee Retirement Income Security Act of
1974).
(9) MEDICAL CARE.—The term ‘‘medical care’’
means—
(A) amounts paid for, or items or services
in the form of, the diagnosis, cure, mitigation,
treatment, or prevention of disease, or amounts
paid for, or items or services provided for, the
purpose of affecting any structure or function
of the body,
(B) amounts paid for, or services in the
form of, transportation primarily for and essen-
tial to medical care referred to in subparagraph
(A), and
(C) amounts paid for insurance covering
medical care referred to in subparagraphs (A)
and (B).
(10) NETWORK
PLAN.—The term ‘‘network
plan’’ means, with respect to health insurance cov-
erage, an arrangement of an insurer or a health
maintenance organization under which the financing
and delivery of medical care are provided, in whole
or in part, through a defined set of providers under
contract with the insurer or health maintenance or-
ganization.
(11) WAITING PERIOD.—The term ‘‘waiting pe-
riod’’ means, with respect to a group health plan
and an individual who is a potential participant or
beneficiary in the plan, the minimum period that
must pass with respect to the individual before the
individual is eligible to be covered for benefits under
the plan.
(d) TREATMENT OF PARTNERSHIPS.—
(1) TREATMENT AS A GROUP HEALTH PLAN.—
Any plan, fund, or program which would not be (but
for this paragraph) an employee welfare benefit plan
and which is established or maintained by a partner-
ship, to the extent that such plan, fund, or program
provides medical care to present or former partners
in the partnership or to their dependents (as defined
under the terms of the plan, fund, or program), di-
rectly or through insurance, reimbursement, or oth-
erwise, shall be treated (subject to paragraph (1)) as
an employee welfare benefit plan which is a group
health plan.
(2) TREATMENT OF PARTNERSHIP AND PART-
NERS AND EMPLOYER AND PARTICIPANTS.—In the
case of a group health plan—
(A) the term ‘‘employer’’ includes the part-
nership in relation to any partner; and
(B) the term ‘‘participant’’ includes—
(i) in connection with a group health
plan maintained by a partnership, an indi-
vidual who is a partner in relation to the
partnership, or
(ii) in connection with a group health
plan maintained by a self-employed individ-
ual (under which one or more employees
are participants), the self-employed individ-
ual,
if such individual is or may become eligible to
receive a benefit under the plan or such individ-
ual’s beneficiaries may be eligible to receive any
such benefit.
(e) DEFINITIONS
RELATING
TO
MARKETS
AND
SMALL EMPLOYERS.—As used in this title:
(1) INDIVIDUAL MARKET.—The term ‘‘individ-
ual market’’ means the market for health insurance
coverage offered to individuals and not to employers
or in connection with a group health plan and does
not include the market for such coverage issued only
by an insurer or HMO that makes such coverage
available only on the basis of affiliation with an as-
sociation or other group.
(2) LARGE GROUP MARKET.—The term ‘‘large
group market’’ means the market for health insur-
ance coverage offered to employers (other than small
employers) on behalf of their employees (and their
dependents) and does not include health insurance
coverage available solely in connection with a bona
fide association (as defined in subsection (c)(2)).
(3) SMALL EMPLOYER.—The term ‘‘small em-
ployer’’ means, in connection with a group health
plan with respect to a calendar year, an employer
who employs at least 2 but fewer than 51 employees
on a typical business day in the year. For purposes
of this paragraph, two or more trades or businesses,
whether or not incorporated, shall be deemed a sin-
gle employer if such trades or businesses are within
the same control group (within the meaning of sec-
tion 3(40)(B)(ii)).
(4) SMALL GROUP MARKET.—The term ‘‘small
group market’’ means the health insurance market
under which individuals obtain health insurance cov-
erage (directly or through any arrangement) on be-
half of themselves (and their dependents) on the
basis of employment or other relationship with re-
spect to a small employer and does not include
health insurance coverage available solely in connec-
tion with a bona fide association (as defined in sub-
section (c)(2)).
SEC. 192. STATE FLEXIBILITY TO PROVIDE GREATER PRO-
TECTION.
(a) STATE FLEXIBILITY TO PROVIDE GREATER PRO-
TECTION.—Subject to subsection (b), nothing in this title
shall be construed to preempt State laws that—
(1) require insurers or HMOs to impose a limi-
tation or exclusion of benefits relating to the treat-
ment of a preexisting condition for a period that is
shorter than the applicable period provided for under
this title; or
(2) allow individuals, participants, and bene-
ficiaries to be considered to be in a period of pre-
vious qualifying coverage if such individual, partici-
pant, or beneficiary experiences a lapse in coverage
that is greater than the 60-day periods provided for
under sections 101(b)(3)(A), 101(b)(3)(B)(ii), and
102(b)(2).
(b) NO OVERRIDE OF ERISA PREEMPTION.—Noth-
ing in this Act shall be construed to affect or modify the
provisions of section 514 of the Employee Retirement In-
come Security Act of 1974 (29 U.S.C. 1144).
SEC. 193. EFFECTIVE DATE.
(a) IN GENERAL.—Except as otherwise provided for
in this title, the provisions of this title shall apply with
respect to—
(1) group health plans, and health insurance
coverage offered in connection with group health
plans, for plan years beginning on or after January
1, 1998, and
(2) individual health insurance coverage issued,
renewed, in effect, or operated on or after July 1,
1998.
(b) CONSIDERATION OF PREVIOUS COVERAGE.—The
Secretaries of Health and Human Services, Treasury, and
Labor shall jointly establish rules regarding the treatment
(in determining qualified coverage periods under sections
102(b) and 141(b)) of coverage before the applicable effec-
tive date specified in subsection (a).
(c) TIMELY ISSUANCE OF REGULATIONS.—The Sec-
retaries of Health and Human Services, the Treasury, and
Labor shall issue such regulations on a timely basis as
may be required to carry out this title.
SEC. 194. RULE OF CONSTRUCTION.
Nothing in this title or any amendment made thereby
may be construed to require the coverage of any specific
procedure, treatment, or service as part of a group health
plan or health insurance coverage under this title or
through regulation.
TITLE II—PREVENTING HEALTH
CARE FRAUD AND ABUSE; AD-
MINISTRATIVE 
SIMPLIFICA-
TION
SEC. 200. REFERENCES IN TITLE.
Except as otherwise specifically provided, whenever in
this title 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 sec-
tion or other provision of the Social Security Act.
Subtitle A—Fraud and Abuse
Control Program
SEC. 201. FRAUD AND ABUSE CONTROL PROGRAM.
(a) ESTABLISHMENT OF PROGRAM.—Title XI (42
U.S.C. 1301 et seq.) is amended by inserting after section
1128B the following new section:
‘‘FRAUD AND ABUSE CONTROL PROGRAM
‘‘SEC. 1128C. (a) ESTABLISHMENT OF PROGRAM.—
‘‘(1) IN GENERAL.—Not later than January 1,
1997, the Secretary, acting through the Office of the
Inspector General of the Department of Health and
Human Services, and the Attorney General shall es-
tablish a program—
‘‘(A) to coordinate Federal, State, and
local law enforcement programs to control fraud
and abuse with respect to health plans,
‘‘(B) to conduct investigations, audits,
evaluations, and inspections relating to the de-
livery of and payment for health care in the
United States,
‘‘(C) to facilitate the enforcement of the
provisions of sections 1128, 1128A, and 1128B
and other statutes applicable to health care
fraud and abuse,
‘‘(D) to provide for the modification and
establishment of safe harbors and to issue advi-
sory opinions and special fraud alerts pursuant
to section 1128D, and
‘‘(E) to provide for the reporting and dis-
closure of certain final adverse actions against
health care providers, suppliers, or practitioners
pursuant to the data collection system estab-
lished under section 1128E.
‘‘(2) COORDINATION WITH HEALTH PLANS.—In
carrying out the program established under para-
graph (1), the Secretary and the Attorney General
shall consult with, and arrange for the sharing of
data with representatives of health plans.
‘‘(3) GUIDELINES.—
‘‘(A) IN GENERAL.—The Secretary and the
Attorney General shall issue guidelines to carry
out the program under paragraph (1). The pro-
visions of sections 553, 556, and 557 of title 5,
United States Code, shall not apply in the issu-
ance of such guidelines.
‘‘(B) INFORMATION GUIDELINES.—
‘‘(i) IN
GENERAL.—Such guidelines
shall include guidelines relating to the fur-
nishing of information by health plans,
providers, and others to enable the Sec-
retary and the Attorney General to carry
out the program (including coordination
with health plans under paragraph (2)).
‘‘(ii) CONFIDENTIALITY.—Such guide-
lines shall include procedures to assure
that such information is provided and uti-
lized in a manner that appropriately pro-
tects the confidentiality of the information
and the privacy of individuals receiving
health care services and items.
‘‘(iii) QUALIFIED IMMUNITY FOR PRO-
VIDING INFORMATION.—The provisions of
section 1157(a) (relating to limitation on
liability) shall apply to a person providing
information to the Secretary or the Attor-
ney General in conjunction with their per-
formance of duties under this section.
‘‘(4) ENSURING ACCESS TO DOCUMENTATION.—
The Inspector General of the Department of Health
and Human Services is authorized to exercise such
authority described in paragraphs (3) through (9) of
section 6 of the Inspector General Act of 1978 (5
U.S.C. App.) as necessary with respect to the activi-
ties under the fraud and abuse control program es-
tablished under this subsection.
‘‘(5) AUTHORITY
OF
INSPECTOR
GENERAL.—
Nothing in this Act shall be construed to diminish
the authority of any Inspector General, including
such authority as provided in the Inspector General
Act of 1978 (5 U.S.C. App.).
‘‘(b) ADDITIONAL USE OF FUNDS BY INSPECTOR
GENERAL.—
‘‘(1) 
REIMBURSEMENTS
FOR
INVESTIGA-
TIONS.—The Inspector General of the Department
of Health and Human Services is authorized to re-
ceive and retain for current use reimbursement for
the costs of conducting investigations and audits and
for monitoring compliance plans when such costs are
ordered by a court, voluntarily agreed to by the
payor, or otherwise.
‘‘(2) CREDITING.—Funds received by the In-
spector General under paragraph (1) as reimburse-
ment for costs of conducting investigations shall be
deposited to the credit of the appropriation from
which initially paid, or to appropriations for similar
purposes currently available at the time of deposit,
and shall remain available for obligation for 1 year
from the date of the deposit of such funds.
‘‘(c) HEALTH PLAN DEFINED.—For purposes of this
section, the term ‘health plan’ means a plan or program
that provides health benefits, whether directly, through in-
surance, or otherwise, and includes—
‘‘(1) a policy of health insurance;
‘‘(2) a contract of a service benefit organiza-
tion; and
‘‘(3) a membership agreement with a health
maintenance organization or other prepaid health
plan.’’.
(b) ESTABLISHMENT OF HEALTH CARE FRAUD AND
ABUSE CONTROL ACCOUNT IN FEDERAL HOSPITAL IN-
SURANCE TRUST FUND.—Section 1817 (42 U.S.C. 1395i)
is amended by adding at the end the following new sub-
section:
‘‘(k) HEALTH CARE FRAUD AND ABUSE CONTROL
ACCOUNT.—
‘‘(1) ESTABLISHMENT.—There is hereby estab-
lished in the Trust Fund an expenditure account to
be known as the ‘Health Care Fraud and Abuse
Control Account’ (in this subsection referred to as
the ‘Account’).
‘‘(2) APPROPRIATED
AMOUNTS
TO
TRUST
FUND.—
‘‘(A) IN GENERAL.—There are hereby ap-
propriated to the Trust Fund—
‘‘(i) such gifts and bequests as may be
made as provided in subparagraph (B);
‘‘(ii) such amounts as may be depos-
ited in the Trust Fund as provided in sec-
tions 242(b) and 249(c) of the Health Cov-
erage Availability and Affordability Act of
1996, and title XI; and
‘‘(iii) such amounts as are transferred
to the Trust Fund under subparagraph
(C).
‘‘(B) AUTHORIZATION TO ACCEPT GIFTS.—
The Trust Fund is authorized to accept on be-
half of the United States money gifts and be-
quests made unconditionally to the Trust Fund,
for the benefit of the Account or any activity fi-
nanced through the Account.
‘‘(C) TRANSFER OF AMOUNTS.—The Man-
aging Trustee shall transfer to the Trust Fund,
under rules similar to the rules in section 9601
of the Internal Revenue Code of 1986, an
amount equal to the sum of the following:
‘‘(i) Criminal fines recovered in cases
involving a Federal health care offense (as
defined in section 982(a)(6)(B) of title 18,
United States Code).
‘‘(ii) Civil monetary penalties and as-
sessments imposed in health care cases, in-
cluding amounts recovered under titles XI,
XVIII, and XXI, and chapter 38 of title
31, United States Code (except as other-
wise provided by law).
‘‘(iii) Amounts resulting from the for-
feiture of property by reason of a Federal
health care offense.
‘‘(iv) Penalties and damages obtained
and otherwise creditable to miscellaneous
receipts of the general fund of the Treas-
ury obtained under sections 3729 through
3733 of title 31, United States Code
(known as the False Claims Act), in cases
involving claims related to the provision of
health care items and services (other than
funds awarded to a relator, for restitution
or otherwise authorized by law).
‘‘(3) APPROPRIATED
AMOUNTS
TO
ACCOUNT
FOR FRAUD AND ABUSE CONTROL PROGRAM, ETC.—
‘‘(A) DEPARTMENTS
OF
HEALTH
AND
HUMAN SERVICES AND JUSTICE.—
‘‘(i) IN GENERAL.—There are hereby
appropriated to the Account from the
Trust Fund such sums as the Secretary
and the Attorney General certify are nec-
essary to carry out the purposes described
in subparagraph (C), to be available with-
out further appropriation, in an amount
not to exceed—
‘‘(I) 
for 
fiscal 
year 
1997,
$104,000,000, and
‘‘(II) for each of the fiscal years
1998 through 2003, the limit for the
preceding fiscal year, increased by 15
percent; and
‘‘(III) for each fiscal year after
fiscal year 2003, the limit for fiscal
year 2003.
‘‘(ii) MEDICARE
AND
MEDICAID
AC-
TIVITIES.—For each fiscal year, of the
amount appropriated in clause (i), the fol-
lowing amounts shall be available only for
the purposes of the activities of the Office
of the Inspector General of the Depart-
ment of Health and Human Services with
respect to the medicare and medicaid pro-
grams—
‘‘(I) for fiscal year 1997, not less
than $60,000,000 and not more than
$70,000,000;
‘‘(II) for fiscal year 1998, not
less than $80,000,000 and not more
than $90,000,000;
‘‘(III) for fiscal year 1999, not
less than $90,000,000 and not more
than $100,000,000;
‘‘(IV) for fiscal year 2000, not
less than $110,000,000 and not more
than $120,000,000;
‘‘(V) for fiscal year 2001, not
less than $120,000,000 and not more
than $130,000,000;
‘‘(VI) for fiscal year 2002, not
less than $140,000,000 and not more
than $150,000,000; and
‘‘(VII) for each fiscal year after
fiscal year 2002, not less than
$150,000,000 and not more than
$160,000,000.
‘‘(B) FEDERAL
BUREAU
OF
INVESTIGA-
TION.—There are hereby appropriated from the
general fund of the United States Treasury and
hereby appropriated to the Account for transfer
to the Federal Bureau of Investigation to carry
out the purposes described in subparagraph
(C), to be available without further appropria-
tion—
‘‘(i) for fiscal year 1997, $47,000,000;
‘‘(ii) 
for 
fiscal 
year 
1998,
$56,000,000;
‘‘(iii) 
for 
fiscal 
year 
1999,
$66,000,000;
‘‘(iv) 
for 
fiscal 
year 
2000,
$76,000,000;
‘‘(v) 
for 
fiscal 
year 
2001,
$88,000,000;
‘‘(vi) 
for 
fiscal 
year 
2002,
$101,000,000; and
‘‘(vii) for each fiscal year after fiscal
year 2002, $114,000,000.
‘‘(C) USE OF FUNDS.—The purposes de-
scribed in this subparagraph are to cover the
costs (including equipment, salaries and bene-
fits, and travel and training) of the administra-
tion and operation of the health care fraud and
abuse control program established under section
1128C(a), including the costs of—
‘‘(i) prosecuting health care matters
(through criminal, civil, and administrative
proceedings);
‘‘(ii) investigations;
‘‘(iii) financial and performance audits
of health care programs and operations;
‘‘(iv) inspections and other evalua-
tions; and
‘‘(v) provider and consumer education
regarding compliance with the provisions of
title XI.
‘‘(4) APPROPRIATED
AMOUNTS
TO
ACCOUNT
FOR MEDICARE INTEGRITY PROGRAM.—
‘‘(A) IN GENERAL.—There are hereby ap-
propriated to the Account from the Trust Fund
for each fiscal year such amounts as are nec-
essary to carry out the Medicare Integrity Pro-
gram under section 1893, subject to subpara-
graph (B) and to be available without further
appropriation.
‘‘(B) AMOUNTS SPECIFIED.—The amount
appropriated under subparagraph (A) for a fis-
cal year is as follows:
‘‘(i) For fiscal year 1997, such
amount 
shall 
be 
not 
less 
than
$430,000,000 
and 
not 
more 
than
$440,000,000.
‘‘(ii) For fiscal year 1998, such
amount 
shall 
be 
not 
less 
than
$490,000,000 
and 
not 
more 
than
$500,000,000.
‘‘(iii) For fiscal year 1999, such
amount 
shall 
be 
not 
less 
than
$550,000,000 
and 
not 
more 
than
$560,000,000.
‘‘(iv) For fiscal year 2000, such
amount 
shall 
be 
not 
less 
than
$620,000,000 
and 
not 
more 
than
$630,000,000.
‘‘(v) For fiscal year 2001, such
amount 
shall 
be 
not 
less 
than
$670,000,000 
and 
not 
more 
than
$680,000,000.
‘‘(vi) For fiscal year 2002, such
amount 
shall 
be 
not 
less 
than
$690,000,000 
and 
not 
more 
than
$700,000,000.
‘‘(vii) For each fiscal year after fiscal
year 2002, such amount shall be not less
than $710,000,000 and not more than
$720,000,000.
‘‘(5) ANNUAL REPORT.—The Secretary and the
Attorney General shall submit jointly an annual re-
port to Congress on the amount of revenue which is
generated and disbursed, and the justification for
such disbursements, by the Account in each fiscal
year.’’.
SEC. 202. MEDICARE INTEGRITY PROGRAM.
(a) ESTABLISHMENT OF MEDICARE INTEGRITY PRO-
GRAM.—Title XVIII is amended by adding at the end the
following new section:
‘‘MEDICARE INTEGRITY PROGRAM
‘‘SEC. 1893. (a) ESTABLISHMENT OF PROGRAM.—
There is hereby established the Medicare Integrity Pro-
gram (in this section referred to as the ‘Program’) under
which the Secretary shall promote the integrity of the
medicare program by entering into contracts in accord-
ance with this section with eligible private entities to carry
out the activities described in subsection (b).
‘‘(b) ACTIVITIES DESCRIBED.—The activities de-
scribed in this subsection are as follows:
‘‘(1) Review of activities of providers of services
or other individuals and entities furnishing items
and services for which payment may be made under
this title (including skilled nursing facilities and
home health agencies), including medical and utiliza-
tion review and fraud review (employing similar
standards, processes, and technologies used by pri-
vate health plans, including equipment and software
technologies which surpass the capability of the
equipment and technologies used in the review of
claims under this title as of the date of the enact-
ment of this section).
‘‘(2) Audit of cost reports.
‘‘(3) Determinations as to whether payment
should not be, or should not have been, made under
this title by reason of section 1862(b), and recovery
of payments that should not have been made.
‘‘(4) Education of providers of services, bene-
ficiaries, and other persons with respect to payment
integrity and benefit quality assurance issues.
‘‘(5) Developing (and periodically updating) a
list of items of durable medical equipment in accord-
ance with section 1834(a)(15) which are subject to
prior authorization under such section.
‘‘(c) ELIGIBILITY OF ENTITIES.—An entity is eligible
to enter into a contract under the Program to carry out
any of the activities described in subsection (b) if—
‘‘(1) the entity has demonstrated capability to
carry out such activities;
‘‘(2) in carrying out such activities, the entity
agrees to cooperate with the Inspector General of
the Department of Health and Human Services, the
Attorney General of the United States, and other
law enforcement agencies, as appropriate, in the in-
vestigation and deterrence of fraud and abuse in re-
lation to this title and in other cases arising out of
such activities;
‘‘(3) the entity demonstrates to the Secretary
that the entity’s financial holdings, interests, or rela-
tionships will not interfere with its ability to perform
the functions to be required by the contract in an ef-
fective and impartial manner; and
‘‘(4) the entity meets such other requirements
as the Secretary may impose.
In the case of the activity described in subsection (b)(5),
an entity shall be deemed to be eligible to enter into a
contract under the Program to carry out the activity if
the entity is a carrier with a contract in effect under sec-
tion 1842.
‘‘(d) PROCESS FOR ENTERING INTO CONTRACTS.—
The Secretary shall enter into contracts under the Pro-
gram in accordance with such procedures as the Secretary
shall by regulation establish, except that such procedures
shall include the following:
‘‘(1) The Secretary shall determine the appro-
priate number of separate contracts which are nec-
essary to carry out the Program and the appropriate
times at which the Secretary shall enter into such
contracts.
‘‘(2)(A) Except as provided in subparagraph
(B), the provisions of section 1153(e)(1) shall apply
to contracts and contracting authority under this
section.
‘‘(B) Competitive procedures must be used
when entering into new contracts under this section,
or at any other time considered appropriate by the
Secretary, except that the Secretary may contract
with entities that are carrying out the activities de-
scribed in this section pursuant to agreements under
section 1816 or contracts under section 1842 in ef-
fect on the date of the enactment of this section.
‘‘(3) A contract under this section may be re-
newed without regard to any provision of law requir-
ing competition if the contractor has met or ex-
ceeded the performance requirements established in
the current contract.
‘‘(e) LIMITATION ON CONTRACTOR LIABILITY.—The
Secretary shall by regulation provide for the limitation of
a contractor’s liability for actions taken to carry out a con-
tract under the Program, and such regulation shall, to the
extent the Secretary finds appropriate, employ the same
or comparable standards and other substantive and proce-
dural provisions as are contained in section 1157.’’.
(b) ELIMINATION OF FI AND CARRIER RESPONSIBIL-
ITY FOR CARRYING OUT ACTIVITIES SUBJECT TO PRO-
GRAM.—
(1) 
RESPONSIBILITIES
OF
FISCAL
INTERMEDIARIES
UNDER
PART
A.—Section 1816
(42 U.S.C. 1395h) is amended by adding at the end
the following new subsection:
‘‘(l) No agency or organization may carry out (or re-
ceive payment for carrying out) any activity pursuant to
an agreement under this section to the extent that the ac-
tivity is carried out pursuant to a contract under the Med-
icare Integrity Program under section 1893.’’.
(2) RESPONSIBILITIES
OF
CARRIERS
UNDER
PART B.—Section 1842(c) (42 U.S.C. 1395u(c)) is
amended by adding at the end the following new
paragraph:
‘‘(6) No carrier may carry out (or receive payment
for carrying out) any activity pursuant to a contract under
this subsection to the extent that the activity is carried
out pursuant to a contract under the Medicare Integrity
Program under section 1893. The previous sentence shall
not apply with respect to the activity described in section
1893(b)(5) (relating to prior authorization of certain
items of durable medical equipment under section
1834(a)(15)).’’.
SEC. 203. BENEFICIARY INCENTIVE PROGRAMS.
(a) CLARIFICATION OF REQUIREMENT TO PROVIDE
EXPLANATION OF MEDICARE BENEFITS.—The Secretary
(2) 
CONFORMING
AMENDMENT.—Section
1156(b)(2) (42 U.S.C. 1320c–5(b)(2)) is amended
by striking ‘‘shall remain’’ and inserting ‘‘shall (sub-
ject to the minimum period specified in the second
sentence of paragraph (1)) remain’’.
(b) REPEAL OF ‘‘UNWILLING OR UNABLE’’ CONDI-
TION FOR IMPOSITION OF SANCTION.—Section 1156(b)(1)
(42 U.S.C. 1320c–5(b)(1)) is amended—
(1) in the second sentence, by striking ‘‘and de-
termines’’ and all that follows through ‘‘such obliga-
tions,’’; and
(2) by striking the third sentence.
SEC. 215. INTERMEDIATE SANCTIONS FOR MEDICARE
HEALTH MAINTENANCE ORGANIZATIONS.
(a) APPLICATION OF INTERMEDIATE SANCTIONS FOR
ANY PROGRAM VIOLATIONS.—
(1) IN
GENERAL.—Section 1876(i)(1) (42
U.S.C. 1395mm(i)(1)) is amended by striking ‘‘the
Secretary may terminate’’ and all that follows and
inserting ‘‘in accordance with procedures established
under paragraph (9), the Secretary may at any time
terminate any such contract or may impose the in-
termediate sanctions described in paragraph (6)(B)
or (6)(C) (whichever is applicable) on the eligible or-