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for the year had been 100 percent and the national
percentage had been 0 percent.
‘‘(6) NATIONAL AVERAGE PER CAPITA GROWTH
PERCENTAGE DEFINED.—In this part, the ‘‘national
average per capita growth percentage shall be the
percentage determined by the Secretary on an an-
nual basis (not later than August 1st before the cal-
endar year concerned) to reflect the Secretary’s esti-
mate of the projected per capita rate of growth in
private health insurance expenditures adjusted to re-
flect differences between the average benefit package
under private insurance and the Medicare benefit
package and differences in utilization and intensity
of services between the general insured population
and Medicare beneficiaries. In determining this per-
centage, the Secretary shall consider the traditional
fee-for-service growth rates to ensure there is not a
wide disparity between fee for service growth rates
and the national average per capita growth rate. Un-
less the Secretary otherwise determines, the national
average per capita growth percentage shall be 7 per-
cent.
‘‘(d) PAYMENT AREA DEFINED.—
‘‘(1) IN GENERAL.—In this part, except as pro-
vided in paragraph (3), the term ‘payment area’
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means a county, or equivalent area specified by the
Secretary.
‘‘(2) RULE FOR ESRD BENEFICIARIES.—In the
case of individuals who are determined to have end
stage renal disease, the payment area shall be each
State.
‘‘SEC. 1851G. SANCTIONS.
‘‘(a) VIOLATIONS SUBJECT TO CIVIL MONEY PEN-
ALTIES.—In addition to any other remedies authorized by
law, the Secretary may impose a civil money penalty in
accordance with subsection (c) on an eligible organization
with a contract under this part that has committed any
of the following violations:
‘‘(1) FAILURE
TO
PROVIDE
MEDICALLY
NEC-
ESSARY CARE.—The organization has failed substan-
tially to provide medically necessary items and serv-
ices that are required (under law or under the con-
tract) to be provided to an individual covered under
the contract, if the failure has adversely affected (or
has substantial likelihood of adversely affecting) the
individual.
‘‘(2) EXCESSIVE PREMIUMS.—The organization
has imposed premiums on individuals enrolled under
this part in excess of the premiums permitted.
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‘‘(3) DISCONTINUATION
OF
COVERAGE.—The
organization has expelled or refused to re-enroll an
individual in violation of the provisions of this part.
‘‘(4) DISCOURAGING ENROLLMENT.—The orga-
nization has engaged in any practice that would rea-
sonably be expected to have the effect of denying or
discouraging enrollment (except as permitted by this
part) by eligible individuals with the organization
whose medical condition or history indicates a need
for substantial future medical services.
‘‘(5) FALSE INFORMATION.—The organization
has misrepresented or falsified information fur-
nished—
‘‘(A) to the Secretary under this part, or
‘‘(B) to an individual or to any other entity
under this part.
‘‘(6) FAILURE TO COOPERATE WITH EXTERNAL
QUALITY REVIEW.—The organization fails to cooper-
ate in the performance of the review required under
section 1851E(e)(2).
‘‘(7) 
PHYSICIAN
INCENTIVE
PLAN
VIOLA-
TIONS.—The organization fails to comply with the
requirements of section 1851E(i).
‘‘(8) RELATIONSHIP WITH EXCLUDED INDIVID-
UAL OR ENTITY.—The organization.—
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‘‘(A) employs or contracts with any indi-
vidual or entity that is excluded from participa-
tion under this title under section 1128 or
1128A for the provision of health care, utiliza-
tion review, medical social work, or administra-
tive services; or
‘‘(B) employs or contracts with any entity
for the provision (directly or indirectly) through
such an excluded individual or entity of such
services.
‘‘(b) VIOLATIONS SUBJECT TO INTERMEDIATE SANC-
TIONS.—In addition to any other remedies authorized by
law, the Secretary may impose an intermediate sanction
in accordance with subsection (d) on an eligible organiza-
tion with a contract under this part that has committed
any of the following violations:
‘‘(1) VIOLATION
SUBJECT
TO
CIVIL
MONEY
PENALTY.—Any violation specified in subsection (a).
‘‘(2) GROUNDS
FOR
TERMINATION
OF
CON-
TRACT.—Any violation that would be grounds for
termination of the contract with the organization
pursuant to section 1851F(b)(2).
‘‘(3) FAILURE TO MAKE PROMPT PAYMENT.—
Failure to make prompt payment as required by sec-
tion 1851F(d).
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‘‘(4) DELAYED COVERAGE DETERMINATIONS.—
Failure to meet timeliness standards for coverage
determinations under section 1851E(d)(1).
‘‘(5) INSUFFICIENT
PRIVATE
ENROLLMENT.—
Failure to meet the minimum requirements of sec-
tion 1851E(g).
‘‘(c) CIVIL MONEY PENALTIES.—
‘‘(1) AMOUNT
OF
PENALTY.—The Secretary
may impose, on an eligible organization determined
to have committed a violation specified in subsection
(a), civil money penalties not to exceed the sum of
the following amounts, as applicable:
‘‘(A) for each such determination, not
more than—
‘‘(i) $100,000 in the case of a deter-
mination 
under 
subsection 
(a)(4) 
or
(a)(5)(i); or
‘‘(ii) $25,000, in the case of any other
such determination;
‘‘(B) with respect to a determination under
subsection (a)(2), double the excess amount
charged (and the excess amount charged shall
be deducted from the penalty and returned to
the individual concerned); and
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‘‘(C) with respect to a determination under
subsection (a)(4), $15,000 for each individual
not enrolled as a result of the practice involved.
‘‘(2) ADMINISTRATIVE PROCEDURE.—The pro-
visions of section 1128A (other than subsections (a)
and (b) shall apply to a civil money penalty under
this section in the same manner as they apply to a
civil money penalty or proceeding under section
1128A(a).
‘‘(d) INTERMEDIATE
SANCTIONS.—The Secretary
may impose, on an eligible organization determined to
have committed a violation specified in subsection (a) or
(b), either or both of the following sanctions.
‘‘(1) SUSPENSION OF ENROLLMENT.—Suspen-
sion of enrollment of individuals with the organiza-
tion under this part after the date the Secretary no-
tifies the organization of a determination under sub-
section (a) or (b) and until the Secretary is satisfied
that the basis for such determination has been cor-
rected and is not likely to recur.
‘‘(2) SUSPENSION OF PAYMENT.—Suspension of
payment to the organization under this part for indi-
viduals enrolled after the date the Secretary notifies
the organization of a determination under subsection
(a) or (b) and until the Secretary is satisfied that
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the basis for such determination has been corrected
and is not likely to recur.
‘‘SEC. 1851H. DEFINITIONS.
‘‘(a) ADJUSTED COMMUNITY RATE.—
‘‘(1) IN GENERAL.—For purposes of this part,
the term ‘adjusted community rate’ for a service or
services means, at the election of an eligible organi-
zation, either—
‘‘(A) the rate of payment for that service
or services which the Secretary annually deter-
mines would apply to a member enrolled under
this part with an eligible organization if the
rate of payment were determined under a com-
munity rating system’ (as defined in section
1302(8) of the Public Health Service Act, other
than subparagraph (C)), or
‘‘(B) such portion of the weighted aggre-
gate premium, which the Secretary annually es-
timates would apply to a member enrolled
under this part with the eligible organization,
as the Secretary annually estimates is attrib-
utable to that service or services, adjusted in
accordance with paragraph (2).
‘‘(2) ADJUSTMENT OF DIFFERENCES IN UTILI-
ZATION.—The rate determined in accordance with
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subparagraphs (A) and (B) of paragraph (1) shall
be adjusted for—
‘‘(A) the differences between the utilization
characteristics of the members enrolled with the
eligible organization under this part and utiliza-
tion characteristics of the other members of the
organization; or
‘‘(B) (if the Secretary finds that adequate
data are not available to calculate the adjust-
ment pursuant to subparagraph (A)) the dif-
ferences between—
‘‘(i) the utilization characteristics of
members in other eligible organizations, or
individuals in the area, in the State, or in
the United States, eligible to enroll under
this part with an eligible organization, and
‘‘(ii) the utilization characteristics of
the rest of the population in the area, in
the State, or in the United States, respec-
tively.
‘‘(b) ADJUSTED
AVERAGE
PER
CAPITA
COST
(AAPCC).—For purposes of this part, the term ‘AAPCC’
(adjusted average per capita cost) means the average per
capita amount that the Secretary estimates in advance (on
the basis of actual experience, or retrospective actuarial
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equivalent based upon an adequate sample and other in-
formation and data, in a geographic area served by an
eligible organization or in a similar area, with appropriate
adjustments to assure actuarial equivalence) would be pay-
able in any contract year for services covered under parts
A and B, or part B only, and types of expenses otherwise
reimbursable under parts A and B, or part B only (includ-
ing administrative costs incurred by organizations de-
scribed in sections 1816 and 1842), if the services were
to be furnished by other than an eligible organization or,
in the case of services covered only under section
1861(s)(2)(H), if the services were to be furnished by a
physician or as an incident to a physician’s service.’’.
(b) REPEAL OF SUPERSEDED PROVISION.—Section
1876 (42 U.S.C. 1395mm) is repealed, except to the ex-
tent provided in subsection (e).
(c) CONFORMING AMENDMENTS.—
(1) Section 1154(a)(4)(B) (42 U.S.C. 1320c–
3(a)(4)(B)) is amended—
(A) in the first sentence, by striking ‘‘risk-
sharing contract under section 1876’’ and in-
serting ‘‘contract under part C of title XVIII’’,
and
(B) in the second sentence, by striking ‘‘a
health maintenance organization or competitive
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medical plan under section 1876’’ and inserting
‘‘an eligible organization under part C of title
XVIII’’.
(2) 
The 
second 
sentence 
of 
section
1154(a)(4)(C) (42 U.S.C. 1320c–3(A)(4)(C)) is
amended by striking ‘‘section 1876’’ and inserting
‘‘part C of title XVIII’’.
(3) 
Section 
1866(a)(1)(O) 
(42 
U.S.C.
1395cc(a)(1)(O)) is amended by striking ‘‘risk-shar-
ing contract under section 1876’’ and inserting
‘‘contract under part C’’.
(4) The matter in the first sentence of section
1866(f)(1) (42 U.S.C. 1395cc(f)(1)) preceding sub-
paragraph (A) is amended by striking ‘‘1876(c)(8)’’
and inserting ‘‘1851E(f)’’.
(5) 
Section 
1866(f)(2)(E) 
(42 
U.S.C.
1395cc(f)(2)(E)) is amended by striking ‘‘1876(b)’’
and inserting ‘‘1851A(a)’’.
(6) Section 1882(f)(1) is amended—
(A) by striking ‘‘1876(b) and inserting
‘‘1851A’’; and
(B) by striking ‘‘section 1876’’ and insert-
ing ‘‘part C’’.
(d) EFFECTIVE DATE.—Except to the extent other-
wise provided, the amendments made by the preceding
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subsections apply to items and services furnished after
1996.
(e) TRANSITION
PROVISIONS
FOR
COST
CON-
TRACTS.—
(1) REPEAL
OF
AUTHORITY
FOR
COST
CON-
TRACTS DELAYED TO 2001.—The amendments made
by the preceding subsections (other than the amend-
ments specified in paragraph (2)) do not apply to
items and services furnished before 2001 under a
contract under section 1876(h) of the Social Secu-
rity Act (42 U.S.C. 1395mm(h)).
(2) PROVISIONS WHOSE EFFECT IS NOT DE-
LAYED.—The effective dates of the following provi-
sions of part C of the Social Security Act (as en-
acted by subsection (a)(2) of this section) shall not
be delayed by reason of paragraph (1):
(A) DEFINITION
OF
QUALIFIED
HMO.—
Section 1851A(b).
(B) 
ENROLLMENT
AND
DISENROLLMENT.—Section 1851B.
(C) 
BENEFICIARY
PROTECTIONS.—Sub-
sections (a) (explanation of patients’ rights and
restrictions), (c) (grievance mechanism), (d)
(coverage determinations and appeals), and (g)
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(private enrollment requirements) of section
1851E.
(3) OPTION RESTRICTED TO GRANDFATHERED
ORGANIZATIONS.—With respect to services provided
after 1995 but before 2001, the Secretary may enter
into contracts under subsection (h) of section 1876
of the Social Security Act (42 U.S.C. 1395mm) only
with entities with which the Secretary has entered
into contracts under that subsection for all or part
of 1995, or to which payments have been made dur-
ing 1995 under section 1833(a)(1)(A) of that Act
(42 U.S.C. 13951(a)(1)(A)).
(f) REGULATIONS.—
(1) CONTINUITY OF CURRENT REGULATIONS.—
Regulations in effect (or available in proposed form)
on December 31, 1996, that apply to section 1876
of the Social Security Act (42 U.S.C. 1395mm) shall
apply to part C of title XVIII of that Act (as en-
acted by subsection (a)(2) of this section), except to
the extent that the regulations are inconsistent with
the provisions of that part.
(2) INTERIM FINAL REGULATIONS.—The Sec-
retary may issue regulations before 1998 for part C
of title XVIII of the Social Security Act (as enacted
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by subsection (a)(2) of this section) on an interim
final basis.
(g) CONSIDERATION OF EXPERIENCE UNDER SEC-
TION 1876 IN SATISFACTION OF REQUIREMENTS OF PART
C.—Any requirement in part C of title XVIII of the Social
Security Act (as enacted by subsection (a)(2) of this sec-
tion) that (in a particular context) relates to matters that
occurred before 1997 shall be satisfied if the correspond-
ing requirement was satisfied under section 1876 (42
U.S.C. 1395mm) of that Act.
(h) ENROLLMENT TRANSITION RULE.—An individ-
ual who is enrolled on December 31, 1996, with an eligible
organization under section 1876 of the Social Security Act
(42 U.S.C. 1395mm) shall be considered to be enrolled
with that organization on January 1, 1997, under part
C of title XVIII of that Act (as added by subsection (a)(2)
of this section) if that organization has a contract under
that part for providing services on January 1, 1997 (un-
less the individual has disenrolled effective on that date).
(i) IMMEDIATE EFFECTIVE DATE FOR CERTAIN RE-
QUIREMENTS
FOR
DEMONSTRATIONS.—Section
1851B(b)(2) of the Social Security Act (as enacted by
subsection (a)(2) of this section) (requiring contribution
to certain costs related to the enrollment process compara-
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tive materials) applies to demonstrations occurring after
the date of enactment of this Act.
SEC. 11203. DEVELOPMENT OF STANDARDS FOR FISCAL
SOUNDNESS AND REQUIREMENTS AGAINST
RISK OF INSOLVENCY.
The Secretary of Health and Human Services, in con-
sultation with the National Association of Insurance Com-
missioners, organizations that provide or pay for health
care services, and consumer organizations, shall develop
(and publish as an interim final rule by July 1, 1996)
standards for fiscal soundness and requirements concern-
ing adequate provision against the risk of insolvency for
provider sponsored organizations that have entered into
contracts under part C of title XVIII of the Social Secu-
rity Act (as enacted by section 11202(a)(2) of this Act).
The Secretary may also publish, as an interim final rule
by that date, any additional requirements related to such
organizations.
SEC. 11204. APPLICABILITY OF MEDICARE RATES TO EN-
ROLLEES WHO USE AN OUT-OF-PLAN PRO-
VIDER OF SERVICES.
(a) 
Section 
1866(a)(1)(O) 
(42 
U.S.C.
1395cc(a)(1)(O)) is amended—
(1) by striking ‘‘in the case of hospitals and
skilled nursing facilities,’’;
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(2) by striking ‘‘inpatient hospital and extended
care services that are covered under this title and’’
and inserting ‘‘services that’’; and
(3) by striking ‘‘(in the case of hospitals) or
limits (in the case of skilled nursing facilities)’’.
(b) The amendment made by subsection (a) applies
to services furnished after 1996.
SEC. 11205. SUBSTITUTION OF QUALITY MEASUREMENT
SYSTEM FOR PRIVATE ENROLLMENT RE-
QUIREMENT.
(a) PROMULGATION
OF REGULATIONS.—The Sec-
retary of Health and Human Services, after consulting
with representatives from managed health care plans (in-
cluding representatives of provider service organizations),
consumer organizations, and other major purchasers of
managed care services—
(1) shall publish proposed regulations by July
1, 1997, requiring the collection, analysis, and re-
porting of data that will permit measurement of out-
comes and other indices of the quality of managed
care plans;
(2) shall publish final regulations after complet-
ing review of comments on the proposed regulations
published pursuant to paragraph (1).
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(b) REVISION
OF BENEFICIARY PROTECTION RE-
QUIREMENT.—As of the effective date of final regulations
published pursuant to subsection (a), section 1851E(g)
(as enacted by section 11202(a)(2) of this Act) is amended
to read as follows:
‘‘(g) QUALITY MEASUREMENT SYSTEM.—Each eligi-
ble organization with which the Secretary enters into a
contract under this part shall meet the requirements of
the quality measurement system established by the Sec-
retary in regulations.’’.
SEC. 11206. HMO COMPETITIVE PRICING AND RELATED
DEMONSTRATIONS.
(a) AMENDMENT EFFECTIVE ON DATE OF ENACT-
MENT.—Section 402(b) of the Social Security Amend-
ments of 1967 (42 U.S.C. 1395b–1(b)) is amended by in-
serting after the first sentence the following: ‘‘The Sec-
retary may also waive, in the case of such an experiment
or demonstration project, compliance with the require-
ments of sections 1876 and 1882 of that Act.
‘‘(2) REPORT TO CONGRESS ON COMPETITIVE
PRICING DEMONSTRATION.—Not later then January
1, 2002, the Secretary shall report to Congress on
specific recommendations for a new payment meth-
odology for eligible organizations with contracts
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under Part C to be based on the results of the com-
petitive pricing demonstrations.’’.
(b) AMENDMENT EFFECTIVE FOR 1997–2000.—
(1) The second sentence of section (402)(b) of
the Social Security Amendments of 1967 (42 U.S.C.
1395B–1(b)) (as added by subsection (a) of this sec-
tion) is amended by inserting ‘‘and part C of title
XVIII’’ after ‘‘1882’’.
(2) The amendment made by paragraph (1) ap-
plies to activities occurring after 1996.
(c) AMENDMENT EFFECTIVE AFTER 2000.—
(1) The second sentence of section 402(b) of
the Social Security Amendments of 1967 (42 U.S.C.
1395b–1(b)) (as added by subsection (a) and
amended by subsection (b) of this section) is further
amended by striking ‘‘sections 1876 and 1882’’ and
inserting ‘‘section 1882’’.
(2) The amendment made by paragraph (1) ap-
plies to activities occurring after 2000.
SEC. 11207. ELIMINATION OF HEALTH CARE PREPAYMENT
PLAN OPTION FOR ENTITIES ELIGIBLE TO
PARTICIPATE UNDER PART C.
(a) ELIMINATION OF OPTION.—
(1) IN GENERAL.—Section 1833(a)(1)(A) (42
U.S.C. 13951(a)(1)(A)) is amended by inserting
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after ‘‘prepayment basis’’ the following: ‘‘(and either
is sponsored by a union or employer, or does not
provide, or provide benefits for, any inpatient hos-
pital services)’’.
(2) EFFECTIVE DATE.—The amendment made
by subparagraph (A) applies to services furnished
after 1996.
(b) MEDIGAP AMENDMENT.—Section 1882(g) (42
U.S.C. 1395ss(g)) is amended by striking ‘‘, during the
period beginning on the date specified in subsection
(p)(1)(C) and ending on December 31, 1995,’’.
SEC. 11208. MEDIGAP REFORMS.
(a) UNIFORM ENROLLMENT PERIODS.—
(1) IN GENERAL.—Section 1882(s)(2)(A) (42
U.S.C. 1395ss(s)(2)(A)) is amended by striking ‘‘an
application is submitted’’ and all that follows and in-
serting the following: ‘‘an application is submitted—
‘‘(i) prior to or during the 6-month period be-
ginning with the first month as of the first day on
which the individual is 65 years of age or older and
is enrolled for benefits under part B;
‘‘(ii) during an annual 30-day period specified
by the Secretary; or
‘‘(iii) during a period specified by the Secretary
in 
the 
circumstances 
described 
in 
section
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(2) in paragraph (2)—
(A) by striking the matter that precedes
subparagraph (A) and inserting ‘‘A State agen-
cy that elects to provide home- and community-
based services as defined in this subsection
shall ensure that—’’;
(B) by adding ‘‘and’’ at the end of sub-
paragraph (B);
(C) by striking the semicolon at the end of
subparagraph (C) and inserting a period; and
(D) by striking subparagraphs (D) and
(E);
(3) in paragraph (3), to read as follows:
‘‘(3) A State plan may provide—
‘‘(i) that home- and community-based serv-
ices furnished under the plan shall not be sub-
ject to the provisions of section 1902(a)(1) (re-
lating to statewideness), section 1902(a)(10)(B)
(relating 
to 
comparability), 
or 
section
1902(a)(10)(C)(i)(III) (relating to income and
resource rules applicable in the community),
and
‘‘(ii) for purposes of post-eligibility treat-
ment of income, for disregard of a greater
amount for the maintenance needs of the indi-
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this section, in the case of a taxpayer to which para-
graph (1) of this subsection applies, section 593(e)
of such Code (as in effect on the day before the date
of the enactment of this Act) shall continue to apply
to such taxpayer as if such taxpayer were a domestic
building and loan association but the amount of the
reserves taken into account under subparagraphs
(B) and (C) of section 593(e)(1) (as so in effect)
shall be the balance taken into account by such tax-
payer under paragraph (2)(A)(ii) of this subsection.
(7) CERTAIN
ITEMS
INCLUDED
AS
SECTION
381(c) ITEMS.—The balance of the applicable excess
reserves, and the balance taken into account by a
taxpayer under paragraph (2)(A)(ii) of this sub-
section, shall be treated as items described in section
381(c) of such Code.
(8) CONVERSIONS TO CREDIT UNIONS.—In the
case of a taxpayer to which paragraph (1) applied
which becomes a credit union described in section
501(c)(14)(A)—
(A) any amount required to be included in
the gross income of the credit union by reason
of this subsection shall be treated as derived
from an unrelated trade or business (as defined
in section 513), and