(i) requiring State legislation (other
than legislation appropriating funds) to
conform its regulatory program to the
changes made in this section; but
(ii) having a legislature which is not
scheduled to meet in 2003 in a legislative
session in which such legislation may be
considered;
the date specified in this paragraph is the first
day of the first calendar quarter beginning after
the close of the first legislative session of the
State legislature that begins on or after Janu-
ary 1, 2003. For purposes of the previous sen-
tence, in the case of a State that has a 2-year
legislative session, each year of such session
shall be deemed to be a separate regular session
of the State legislature.
SEC. 104. TRANSITIONAL ASSISTANCE FOR LOW INCOME
BENEFICIARIES.
(a) QMB COVERAGE OF PREMIUMS AND COST-SHAR-
ING.—Section 1905(p)(3) (42 U.S.C. 1396d(p)(3)) is
amended—
(1) in subparagraph (A)—
(A) by striking ‘‘and’’ at the end of clause
(i),
(B) by adding ‘‘and’’ at the end of clause
(ii), and
(C) by adding at the end the following new
clause:
‘‘(iii) premiums under section 1859D(d).’’;
(2) in subparagraph (B), by inserting ‘‘and sec-
tion 1859D(c)(3)(B) and 1859D(c)(3)(C)(i)’’ after
‘‘1813’’; and
(3) in subparagraph (C), by striking ‘‘and sec-
tion 1833(b)’’ and inserting ‘‘, section 1833(b), and
section 1859D(c)(2)’’.
(b) 
EXPANDED
SLMB 
ELIGIBILITY.—Section
1902(a)(10)(E) 
(42 
U.S.C. 
1396a(a)(10)(E)) 
is
amended—
(1) by striking ‘‘and’’ at the end of clause (iii);
(2) by adding ‘‘and’’ at the end of clause (iv);
and
(3) by adding at the end the following new
clause:
‘‘(v)(I) for making medical assistance
available for medicare cost-sharing described in
section 1905(p)(3)(A)(iii) and medicare cost-
sharing described in section 1905(p)(3)(B) and
section 1905(p)(3)(C) but only insofar as it re-
lates to benefits provided under part D of title
XVIII, subject to section 1905(p)(4), for indi-
viduals (other than qualified medicare bene-
ficiaries) who are enrolled under part D of title
XVIII 
and 
are 
described 
in 
section
1905(p)(1)(B) or would be so described but for
the fact that their income exceeds 100 percent,
but is less than 150 percent, of the official pov-
erty line (referred to in such section) for a fam-
ily of the size involved;
‘‘(II) subject to section 1905(p)(4), for in-
dividuals (other than qualified medicare bene-
ficiaries and individuals described in subclause
(I)) who are enrolled under part D of title
XVIII and would be described in section
1905(p)(1)(B) but for the fact that their in-
come exceeds 150 percent, but is less than 175
percent, of the official poverty line (referred to
in such section) for a family of the size in-
volved, for making medical assistance available
for medicare cost-sharing described in section
1905(p)(3)(A)(iii) and medicare cost-sharing
described in section 1905(p)(3)(B) and section
1905(p)(3)(C) but only insofar as it relates to
benefits provided under part D of title XVIII,
and the assistance for medicare cost-sharing de-
scribed in section 1905(p)(3)(A)(iii) is reduced
(on a sliding scale based on income) from 100
percent to 0 percent as the income increases
from 150 percent to 175 percent of such pov-
erty line;’’.
(c) FEDERAL FINANCING.—The third sentence of
section 1905(b) (42 U.S.C. 1396d(b)) is amended by in-
serting before the period at the end the following: ‘‘and
with respect to amounts expended that are attributable to
section 1902(a)(10)(E)(v) (other than for individuals de-
scribed in section 1905(p)(1)(B))’’.
(d) TREATMENT OF TERRITORIES.—
(1) IN GENERAL.—Section 1905(p) (42 U.S.C.
1396d(p)) is amended—
(A) by redesignating paragraphs (5) and
(6) as paragraphs (6) and (7), respectively; and
(B) by inserting after paragraph (4) the
following new paragraph:
‘‘(5)(A) In the case of a State, other than the 50
States and the District of Columbia—
‘‘(i) the provisions of paragraph (3) insofar as
they relate to section 1859D and the provisions of
section 1902(a)(10)(E)(v) shall not apply to resi-
dents of such State; and
‘‘(ii) if the State establishes a plan described in
subparagraph (B) (for providing medical assistance
with respect to the provision of prescription medi-
cines to medicare beneficiaries), the amount other-
wise determined under section 1108(f) (as increased
under section 1108(g)) for the State shall be in-
creased by the amount specified in subparagraph
(C).
‘‘(B) The plan described in this subparagraph is a
plan that—
‘‘(i) provides medical assistance with respect to
the provision of covered outpatient medicines (as de-
fined in section 1859D(b)) to low-income medicare
beneficiaries; and
‘‘(ii) assures that additional amounts received
by the State that are attributable to the operation
of this paragraph are used only for such assistance.
‘‘(C)(i) The amount specified in this subparagraph
for a State for a year is equal to the product of—
‘‘(I) the aggregate amount specified in clause
(ii); and
‘‘(II) the amount specified in section 1108(g)(1)
for that State, divided by the sum of the amounts
specified in such section for all such States.
‘‘(ii) The aggregate amount specified in this clause
for—
‘‘(I) 2005, is equal to $25,000,000; or
‘‘(II) a subsequent year, is equal to the aggre-
gate amount specified in this clause for the previous
year increased by annual percentage increase speci-
fied in section 1859D(c)(8)(B) for the year involved.
‘‘(D) The Secretary shall submit to Congress a report
on the application of this paragraph and may include in
the report such recommendations as the Secretary deems
appropriate.’’.
(2) 
CONFORMING
AMENDMENT.—Section
1108(f) (42 U.S.C. 1308(f)) is amended by inserting
‘‘and section 1905(p)(5)(A)(ii)’’ after ‘‘Subject to
subsection (g)’’.
(e) 
APPLICATION
OF
COST-SHARING.—Section
1902(n)(2) (42 U.S.C. 1396a(n)(2)) is amended by add-
ing at the end the following: ‘‘The previous sentence shall
not apply to medicare cost-sharing relating to benefits
under part D of title XVIII.’’.
(f) EFFECTIVE DATE.—The amendments made by
this section apply to medical assistance for premiums and
cost-sharing incurred on or after January 1, 2005, with
regard to whether regulations to implement such amend-
ments are promulgated by such date.
SEC. 105. EXPANSION OF MEMBERSHIP AND DUTIES OF
MEDICARE PAYMENT ADVISORY COMMISSION
(MEDPAC).
(a) EXPANSION OF MEMBERSHIP.—
(1) IN GENERAL.—Section 1805(c) (42 U.S.C.
1395b–6(c)) is amended—
(A) in paragraph (1), by striking ‘‘17’’ and
inserting ‘‘19’’; and
(B) in paragraph (2)(B), by inserting ‘‘ex-
perts in the area of pharmacology and prescrip-
tion medicine benefit programs,’’ after ‘‘other
health professionals,’’.
(2) INITIAL
TERMS
OF
ADDITIONAL
MEM-
BERS.—
(A) IN GENERAL.—For purposes of stag-
gering the initial terms of members of the
Medicare Payment Advisory Commission under
section 1805(c)(3) of the Social Security Act
(42 U.S.C. 1395b–6(c)(3)), the initial terms of
the 2 additional members of the Commission
provided for by the amendment under para-
graph (1)(A) are as follows:
(i) One member shall be appointed for
1 year.
(ii) One member shall be appointed
for 2 years.
(B) COMMENCEMENT
OF
TERMS.—Such
terms shall begin on January 1, 2003.
(b) EXPANSION OF DUTIES.—Section 1805(b)(2) (42
U.S.C. 1395b–6(b)(2)) is amended by adding at the end
the following new subparagraph:
‘‘(D) PRESCRIPTION
MEDICINE
BENEFIT
PROGRAM.—Specifically, the Commission shall
review, with respect to the prescription medicine
benefit program under part D, the following:
‘‘(i) The methodologies used for the
management of costs and utilization of
prescription medicines.
‘‘(ii) The prices negotiated and paid,
including trends in such prices and appli-
cable discounts and comparisons with
prices under section 1859E(a)(2)(E).
‘‘(iii) The relationship of pharmacy
acquisition costs to the prices so negotiated
and paid.
‘‘(iv) The methodologies used to en-
sure access to covered outpatient prescrip-
tion medicines and to ensure quality in the
appropriate dispensing and utilization of
such medicines.
‘‘(v) The impact of the program on
promoting the development of break-
through medicines.’’.
Subtitle B—Affordable
Pharmaceuticals
PART I—GREATER ACCESS TO AFFORDABLE
PHARMACEUTICALS
SEC. 111. ACCELERATED GENERIC DRUG COMPETITION.
(a) IN GENERAL.—Section 505(j)(5) of the Federal
Food, Drug, and Cosmetic Act (21 U.S.C. 355(j)(5)) is
amended—
(1) in subparagraph (B)(iv), by striking sub-
clause (II) and inserting the following:
‘‘(II) the earlier of—
‘‘(aa) the date of a final decision of a
court in an action described in clause
(iii)(II) (from which no appeal can or has
been taken, other than a petition to the
Supreme Court for a writ of certiorari)
holding the patent that is the subject of
the certification to be invalid or not in-
fringed; or
‘‘(bb) the date of a settlement order
or consent decree in such an action signed
by a Federal judge that enters a final
judgment and includes a finding that the
patent that is the subject of the certifi-
cation is invalid or not infringed;’’;
(2) by redesignating subparagraphs (C) and
(D) as subparagraphs (E) and (F), respectively; and
(3) by inserting before subparagraph (E) (as so
redesignated) the following subparagraph:
‘‘(D)(i) The 180-day period described in subpara-
graph (B)(iv) shall be forfeited by the previous applicant
if—
‘‘(I) the previous applicant fails to market the
drug by the later of the date 60 days after the date
on which the approval of the application for the drug
is made effective under subparagraph (B)(iii) or, if
such approval has been made effective, and if an ac-
tion has been brought against the previous applicant
for infringement of a patent subject to a certifi-
cation under paragraph (2)(A)(vii)(IV), or an action
has been brought by the previous applicant for a de-
claratory judgment that such a patent is invalid or
not infringed, the date 60 days after the date of a
final decision in such action, if there is no other
such action pending by or against the previous appli-
cant; except, however, that either of such dates may
be extended due to extraordinary or unusual cir-
cumstances, as determined by the Secretary;
‘‘(II) the previous applicant withdraws the ap-
plication;
‘‘(III) the previous applicant amends the certifi-
cation from a certification under subclause (IV) of
paragraph (2)(A)(vii) to a certification under sub-
clause (III) of such paragraph, either voluntarily or
as a result of a settlement or defeat in patent litiga-
tion;
‘‘(IV) the previous applicant fails to obtain ten-
tative approval of the application within 30 months
after the date on which the application is filed, un-
less the failure is caused by—
‘‘(aa) a change in the requirements for
tentative approval of the application imposed
after the date on which the application was
filed; or
‘‘(bb) other extraordinary or unusual cir-
cumstances, as determined by the Secretary;
‘‘(V) in a case in which, after the date on which
the previous application was submitted under this
subsection, new patent information is submitted
under subsection (c)(2) for the listed drug for a pat-
ent for which certification or a method of use state-
ment is required under paragraph (2)(A), the pre-
vious applicant fails to submit no later than 60 days
from the date the applicant receives notice from the
Secretary under paragraph (7)(A)(iii) of the submis-
sion of the new patent information either a certifi-
cation described in paragraph (2)(A)(vii)(IV) or a
statement that the method of use patent does not
claim a use for which the applicant is seeking ap-
proval under this subsection in accordance with
paragraph (2)(A)(viii); except, however, that such
date may be extended due to extraordinary or un-
usual circumstances, as determined by the Secretary;
or
‘‘(VI) the previous applicant is determined by
the Secretary, after a fair and sufficient hearing and
in consultation with the Federal Trade Commission,
to have engaged in anticompetitive or collusive con-
duct, or any other conduct intended to unfairly mo-
nopolize the commercial manufacturing of the drug
of the application.
‘‘(ii) If under clause (i) the previous applicant re-
ferred to in subparagraph (B)(iv) forfeits the 180-day pe-
riod described in such subparagraph, such period shall be-
come available to the next applicant submitting an appli-
cation containing a certification under paragraph
(2)(A)(vii)(IV) if—
‘‘(I) no action described in subparagraph
(B)(iii)(II) was brought against or by the previous
applicant, or such an action was brought but did not
result in a final judgment that included a finding
that the patent involved is invalid; and
‘‘(II) an action described in subparagraph
(B)(iii)(II) is brought against or by the next appli-
cant, and such action results in a final judgment
that includes a finding that the patent involved is in-
valid.
‘‘(iii) The 180-day period described in subparagraph
(B)(iv) shall be available only to—
‘‘(I) the previous applicant submitting an appli-
cation for a drug under this subsection containing a
certification described in paragraph (2)(A)(vii)(IV)
with respect to any patent; or
‘‘(II) under clause (ii), the next applicant sub-
mitting an application for a drug under this sub-
section containing such a certification with respect
to any patent;
even if an application has been submitted for the drug
under this subsection containing such a certification with
respect to a different patent.
‘‘(iv) The 180-day period described in subparagraph
(B)(iv) for an application containing a certification de-
scribed in paragraph (2)(A)(vii)(IV) shall apply only if an
action is brought for infringement of a patent that is the
subject of the certification or the applicant brings an ac-
tion (not later than 60 days after the date on which the
notice provided under paragraph (2)(B)(ii) was received)
against the holder of the approved application for the list-
ed drug.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall be effective only with respect to an appli-
cation filed under section 505(j) of the Federal Food,
Drug, and Cosmetic Act (21 U.S.C. 355(j)) for a listed
drug 
for 
which 
no 
certification 
under 
section
505(j)(2)(A)(vii)(IV) of that Act was made before June
7, 2002.
SEC. 112. PATENT CERTIFICATION.
(a) ABBREVIATED NEW DRUG APPLICATIONS.—Sec-
tion 505(j)(5) of the Federal Food, Drug, and Cosmetic
Act (21 U.S.C. 355(j)(5)) is amended—
(1) in subparagraph (B), by striking clause (iii)
and inserting the following:
‘‘(iii)(I) If the applicant made a certification de-
scribed in paragraph (2)(A)(vii)(IV) and—
‘‘(aa) no action is brought for infringement
of a patent that is the subject of the certifi-
cation before the expiration of the 45-day pe-
riod beginning on the date on which the notice
provided under paragraph (2)(B)(ii) was re-
ceived; and
‘‘(bb) the applicant does not bring an ac-
tion for declaratory judgment authorized in
subclause (II) before the expiration of the 60-
day period beginning on the date on which the
notice provided under paragraph (2)(B)(ii) was
received;
the approval shall be made effective on the expira-
tion of 60 days after the date on which the notice
provided under paragraph (2)(B)(ii) was received,
provided none of the conditions for denial of ap-
proval in paragraph (4) apply.
‘‘(II) With respect to an applicant who made a
certification described in paragraph (2)(A)(vii)(IV),
if an action referred to in item (aa) of subclause (I)
is brought before the expiration of the period de-
scribed in such item, or if the applicant brings an
action for declaratory judgment of invalidity or non-
infringement of such patent (which action is hereby
authorized) before the expiration of the period de-
scribed in item (bb) of such subclause, the approval
shall, provided none of the conditions for denial of
approval in paragraph (4) apply, be made effective
in accordance with the following:
‘‘(aa) If the action is an action referred to
in subclause (I)(aa), and neither the holder of
the approved application nor the owner of the
patent seek a preliminary injunction prohibiting
the applicant from engaging in the commercial
manufacture or sale (or both) of the drug, the
approval shall be made effective on the expira-
tion of 60 days after the date on which the no-
tice provided under paragraph (2)(B)(ii) was
received.
‘‘(bb) If the action is an action referred to
in subclause (I)(aa), and such a preliminary in-
junction is sought and the court denies the mo-
tion, the approval shall be made effective on the
date on which the court denies the injunction.
‘‘(cc) If neither item (aa) nor (bb) applies,
and the holding of the court in the decision in
the action is that the patent is invalid or was
not infringed, the approval shall be made effec-
tive on the date of the decision of the court.
‘‘(dd) If neither item (aa) nor (bb) applies,
and the holding of the court in the decision in
the action is that the patent was infringed, the
approval shall be made effective on such date as
the court orders under section 271(e)(4)(A) of
title 35, United States Code.’’; and
(2) by inserting before subparagraph (D) (as
added by section 111(a)(3)) the following subpara-
graph:
‘‘(C) With respect to a civil action described in sub-
paragraph (B)(iii)(II):
‘‘(i) Each of the parties shall reasonably cooper-
ate in expediting the action.
‘‘(ii) If the notice under paragraph (2)(B)(ii)
contains an address for the receipt of expedited noti-
fication of such an action, the plaintiff shall, on the
date the complaint is filed in the court, simulta-
neously cause a notification of such action to be de-
livered to such address by the next business day.
‘‘(iii) An action for a declaratory judgment au-
thorized in such subparagraph may not be brought
by the applicant until the expiration of 45 days after
the date the notice provided under paragraph
(2)(B)(ii) was received, except that if information on
the patent involved has been published under sub-
section (c)(2) for at least one year after the date on
which the application under this subsection was filed
in relation to the listed drug involved, the applicant
may immediately bring such an action for declara-
tory judgment.
‘‘(iv) Any such action shall be brought in the
judicial district in which the defendant has its prin-
cipal place of business or a regular and established
place of business.’’.
(b) NEW DRUG APPLICATIONS.—Section 505(c)(3)
of the Federal Food, Drug, and Cosmetic Act (21 U.S.C.
355(c)(3)) is amended by striking subparagraph (C) and
inserting the following:
‘‘(C)(i)(I) If the applicant made a certification
described in subsection (b)(2)(A)(iv) and—
‘‘(aa) no action is brought for infringement
of a patent that is the subject of the certifi-
cation before the expiration of the 45-day pe-
riod beginning on the date on which the notice
provided under subsection (b)(3)(B) was re-
ceived; and
‘‘(bb) the applicant does not bring an ac-
tion for declaratory judgment authorized in
subclause (II) before the expiration of the 60-
day period beginning on the date on which the
notice provided under subsection (b)(3)(B) was
received;
the approval shall be made effective on the expira-
tion of 60 days after the date on which the notice
provided under subsection (b)(3)(B) was received,
provided that none of the conditions for refusal of
approval in subsection (d) apply.
‘‘(II) With respect to an applicant who made a
certification described in subsection (b)(2)(A)(iv), if
an action referred to in item (aa) of subclause (I)
is brought before the expiration of the period de-
scribed in such item, or if the applicant brings an
action for declaratory judgment of invalidity or non-
infringement of such patent (which action is hereby
authorized) before the expiration of the period de-
scribed in item (bb) of such subclause, the approval
shall, provided none of the conditions for refusal of
approval in subsection (d) apply, be made effective
in accordance with the following:
‘‘(aa) If the action is an action referred to
in subclause (I)(aa), and neither the holder of
the approved application nor the owner of the
patent seek a preliminary injunction prohibiting
the applicant from engaging in the commercial
manufacture or sale (or both) of the drug, the
approval shall be made effective on the expira-
tion of 60 days after the date on which the no-
tice provided under subsection (b)(3)(B) was re-
ceived.
‘‘(bb) If the action is an action referred to
in subclause (I)(aa), and such a preliminary in-
junction is sought and the court denies the mo-
tion, the approval shall be made effective on the
date on which the court denies the injunction.
‘‘(cc) If neither item (aa) nor (bb) applies,
and the holding of the court in the decision in
the action is that the patent is invalid or was
not infringed, the approval shall be made effec-
tive on the date of the decision of the court.
‘‘(dd) If neither item (aa) nor (bb) applies,
and the holding of the court in the decision in
the action is that the patent was infringed, the
approval shall be made effective on such date as
the court orders under section 271(e)(4)(A) of
title 35, United States Code.
‘‘(ii) With respect to a civil action described in
clause (i)(II):
‘‘(I) Each of the parties shall reasonably
cooperate in expediting the action.
100
‘‘(II) If the notice under subsection
(b)(3)(B) contains an address for the receipt of
expedited notification of such an action, the
plaintiff shall, on the date the complaint is filed
in the court, simultaneously cause a notification
of such action to be delivered to such address
by the next business day.
‘‘(III) An action for a declaratory judg-
ment authorized in such clause may not be
brought by the applicant until the expiration of
45 days after the date the notice provided
under subsection (b)(3)(B) was received, except
that if information on the patent involved has
been published under paragraph (2) for at least
one year after the date on which the application
was filed in relation to the drug involved, the
applicant may immediately bring such an action
for declaratory judgment.
‘‘(IV) Any such action shall be brought in
the judicial district in which the defendant has
its principal place of business or a regular and
established place of business.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall not apply to an application submitted
under section 505(b)(1) or 505(j) of the Federal Food,
101
Drug, and Cosmetic Act (21 U.S.C. 355) before June 7,
2002.
SEC. 113. ADDITIONAL USES.
Section 505(j) of the Federal Food, Drug, and Cos-
metic Act (21 U.S.C. 355(j)) is amended by adding at the
end the following paragraph:’’
‘‘(10)(A) A drug for which an application has been
submitted or approved under this subsection shall not be
considered ineligible for approval under this subsection or
misbranded under section 502 on the basis that the label-
ing of the drug omits a use or any other aspect of labeling
when the omitted use or other aspect is protected by pat-
ent or by exclusivity under clause (iii) or (iv) of paragraph
(5)(D).
‘‘(B) Notwithstanding clauses (iii) and (iv) of para-
graph (5)(D), the Secretary may require that the labeling
of a drug approved under this subsection that omits a use
or other aspect of labeling as described in subparagraph
(A) include—
‘‘(i) any statement that the Secretary considers
necessary for the safe use of the drug, such as ap-
propriate 
contraindications, 
warnings, 
or 
pre-
cautions; and
102
‘‘(ii) a statement that, because of marketing ex-
clusivity for a manufacturer, the drug is not labeled
for the use.’’.
PART II—NOTIFICATION OF AGREEMENTS AF-
FECTING THE SALE OR MARKETING OF GE-
NERIC DRUGS
SEC. 121. DEFINITIONS.
In this part:
(1) 
AGREEMENT.—The 
term 
‘‘agreement’’
means an agreement under section 1 of the Sherman
Act (15 U.S.C. 1) or section 5 of the Federal Trade
Commission Act (15 U.S.C. 45).
(2) ANTITRUST
LAWS.—The term ‘‘antitrust
laws’’ has the same meaning as in section 1 of the
Clayton Act (15 U.S.C. 12), except that such term
includes section 5 of the Federal Trade Commission
Act (15 U.S.C. 45) to the extent that such section
applies to unfair methods of competition.
(3) ANDA.—The term ‘‘ANDA’’ means an Ab-
breviated New Drug Application, as defined under
section 505(j) of the Federal Food, Drug and Cos-
metic Act.
(4) BRAND NAME DRUG COMPANY.—The term
‘‘brand name drug company’’ means a person en-
gaged in the manufacture or marketing of a drug
103
approved under section 505(b) of the Federal Food,
Drug and Cosmetic Act.
(5) COMMISSION.—The term ‘‘Commission’’
means the Federal Trade Commission.
(6) FDA.—The term ‘‘FDA’’ means the United
States Food and Drug Administration.
(7) GENERIC DRUG.—The term ‘‘generic drug’’
means a product that is the subject of an ANDA.
(8) GENERIC
DRUG
APPLICANT.—The term
‘‘generic drug applicant’’ means a person who has
filed or received approval for an ANDA under sec-
tion 505(j) of the Federal Food, Drug and Cosmetic
Act.
(9) SECRETARY.—The term ‘‘Secretary’’ means
the Secretary of Health and Human Services.
SEC. 122. NOTIFICATION OF AGREEMENTS AFFECTING THE
SALE OR MARKETING OF GENERIC DRUGS.
A brand name drug company and a generic drug ap-
plicant that enter into an agreement regarding the sale
or manufacture of a generic drug that the Secretary has
determined is the therapeutic equivalent of a brand name
drug that is manufactured or marketed by that brand
name drug company, or for which the generic drug appli-
cant seeks such a determination of therapeutic equiva-
lence, and which agreement could have the effect of lim-
104
iting the research, development, manufacture, marketing,
or selling of a generic drug that has been or could be ap-
proved for sale by the FDA pursuant to an ANDA, shall
file with the Commission and the Secretary the text of
the agreement, an explanation of the purpose and scope
of the agreement, and an explanation of whether the
agreement could delay, restrain, limit, or in any way inter-
fere with the production, manufacture, or sale of the ge-
neric version of the drug in question.
SEC. 123. FILING DEADLINES.
Any notice, agreement, or other material required to
be filed under section 122 shall be filed with the Commis-
sion and the Secretary not later than 10 business days
after the date the agreement is executed.
SEC. 124. ENFORCEMENT.
(a) CIVIL FINE.—Any person, or any officer, direc-
tor, or partner thereof, who fails to comply with any provi-
sion of this part shall be liable for a civil penalty of not
more than $20,000 for each day during which such person
is in violation of this part. Such penalty may be recovered
in a civil action brought by the United States, or brought
by the Commission in accordance with the procedures es-
tablished in section 16(a)(1) of the Federal Trade Com-
mission Act (15 U.S.C. 56(a)).
105
(b) COMPLIANCE AND EQUITABLE RELIEF.—If any
person, or any officer, director, partner, agent, or em-
ployee thereof, fails to comply with the notification re-
quirement under section 122 of this part, the United
States district court may order compliance, and may grant
such other equitable relief as the court in its discretion
determines necessary or appropriate, upon application of
the Commission or the Assistant Attorney General.
SEC. 125. RULEMAKING.
The Commission, in consultation with the Secretary,
and with the concurrence of the Assistant Attorney Gen-
eral and by rule in accordance with section 553 of title
5, United States Code, consistent with the purposes of this
part—
(1) may require that the notice described in sec-
tion 122 of this part be in such form and contain
such documentary material and information relevant
to the agreement as is necessary and appropriate to
enable the Commission and the Assistant Attorney
General to determine whether such agreement may
violate the antitrust laws;
(2) may define the terms used in this part;
(3) may exempt classes of persons or agree-
ments from the requirements of this part; and
106
(4) may prescribe such other rules as may be
necessary and appropriate to carry out the purposes
of this part.
SEC. 126. EFFECTIVE DATES.
This part shall take effect 90 days after the date of
enactment of this Act.
TITLE 
II—MEDICARE+CHOICE
REVITALIZATION 
AND
MEDICARE+CHOICE 
COM-
PETITION PROGRAM
SEC. 201. MEDICARE+CHOICE IMPROVEMENTS.
(a) EQUALIZING PAYMENTS BETWEEN FEE-FOR-
SERVICE AND MEDICARE+CHOICE.—
(1) IN
GENERAL.—Section 1853(c)(1) (42
U.S.C. 1395w–23(c)(1)) is amended by adding at
the end the following:
‘‘(D) BASED
ON
100
PERCENT
OF
FEE-
FOR-SERVICE COSTS.—
‘‘(i) IN
GENERAL.—For 2003 and
2004, the adjusted average per capita cost
for the year involved, determined under
section 
1876(a)(4) 
for 
the
Medicare+Choice payment area for serv-
ices covered under parts A and B for indi-
viduals entitled to benefits under part A
107
and enrolled under part B who are not en-
rolled in a Medicare+Choice plan under
this part for the year, but adjusted to ex-
clude costs attributable to payments under
section 1886(h).
‘‘(ii) INCLUSION OF COSTS OF VA AND
DOD
MILITARY
FACILITY
SERVICES
TO
MEDICARE-ELIGIBLE
BENEFICIARIES.—In
determining the adjusted average per cap-
ita cost under clause (i) for a year, such
cost shall be adjusted to include the Sec-
retary’s estimate, on a per capita basis, of
the amount of additional payments that
would have been made in the area involved
under this title if individuals entitled to
benefits under this title had not received
services from facilities of the Department
of Veterans Affairs or the Department of
Defense.’’.
(2) CONFORMING AMENDMENT.—Such section
is further amended, in the matter before subpara-
graph (A), by striking ‘‘or (C)’’ and inserting ‘‘(C),
or (D)’’.
(b) REVISION OF BLEND.—
108
(1) REVISION OF NATIONAL AVERAGE USED IN
CALCULATION
OF
BLEND.—Section
1853(c)(4)(B)(i)(II) 
(42 
U.S.C. 
1395w–
23(c)(4)(B)(i)(II)) is amended by inserting ‘‘who
(with respect to determinations for 2003 and for
2004) are enrolled in a Medicare+Choice plan’’
after ‘‘the average number of medicare bene-
ficiaries’’.
(2) CHANGE IN BUDGET NEUTRALITY.—Section
1853(c) (42 U.S.C. 1395w–23(c)) is amended—
(A) in paragraph (1)(A), by inserting ‘‘(for
a year before 2003)’’ after ‘‘multiplied’’; and
(B) in paragraph (5), by inserting ‘‘(before
2003)’’ after ‘‘for each year’’.
(c) REVISION IN MINIMUM PERCENTAGE INCREASE
FOR 2003 AND 2004.—Section 1853(c)(1)(C) (42 U.S.C.
1395w–23(c)(1)(C)) is amended by striking clause (iv)
and inserting the following:
‘‘(iv) For 2002, 102 percent of the
annual Medicare+Choice capitation rate
under this paragraph for the area for
2001.
‘‘(v) For 2003 and 2004, 103 percent
of the annual Medicare+Choice capitation
109
rate under this paragraph for the area for
the previous year.
‘‘(iv) For 2005 and each succeeding
year, 
102 
percent 
of 
the 
annual
Medicare+Choice capitation rate under
this paragraph for the area for the pre-
vious year.’’.
(d) INCLUSION OF COSTS OF DOD AND VA MILI-
TARY FACILITY SERVICES TO MEDICARE-ELIGIBLE BENE-
FICIARIES IN CALCULATION OF MEDICARE+CHOICE PAY-
MENT RATES.—Section 1853(c)(3) (42 U.S.C. 1395w–
23(c)(3)) is amended—
(1) in subparagraph (A), by striking ‘‘subpara-
graph (B)’’ and inserting ‘‘subparagraphs (B) and
(E)’’, and
(2) by adding at the end the following new sub-
paragraph:
‘‘(E) INCLUSION OF COSTS OF DOD AND
VA MILITARY FACILITY SERVICES TO MEDICARE-
ELIGIBLE BENEFICIARIES.—In determining the
area-specific Medicare+Choice capitation rate
under subparagraph (A) for a year (beginning
with 2003), the annual per capita rate of pay-
ment for 1997 determined under section
1876(a)(1)(C) shall be adjusted to include in
110
the rate the Secretary’s estimate, on a per cap-
ita basis, of the amount of additional payments
that would have been made in the area involved
under this title if individuals entitled to benefits
under this title had not received services from
facilities of the Department of Defense or the
Department of Veterans Affairs.’’.
(e) 
ANNOUNCEMENT
OF
REVISED
MEDICARE+CHOICE PAYMENT RATES.—Within 2 weeks
after the date of the enactment of this Act, the Secretary
shall determine, and shall announce (in a manner intended
to provide notice to interested parties) Medicare+Choice
capitation rates under section 1853 of the Social Security
Act (42 U.S.C. 1395w–23) for 2003, revised in accordance
with the provisions of this section.
(f) MEDPAC STUDY OF AAPCC.—
(1) STUDY.—The Medicare Payment Advisory
Commission shall conduct a study that assesses the
method used for determining the adjusted average
per capita cost (AAPCC) under section 1876(a)(4)
of 
the 
Social 
Security 
Act 
(42 
U.S.C.
1395mm(a)(4)). Such study shall examine—
(A) the bases for variation in such costs
between different areas, including differences in
input prices, utilization, and practice patterns;
111
(B) the appropriate geographic area for
payment under the Medicare+Choice program
under part C of title XVIII of such Act; and
(C) the accuracy of risk adjustment meth-
ods in reflecting differences in costs of pro-
viding care to different groups of beneficiaries
served under such program.
(2) REPORT.—Not later than 9 months after
the date of the enactment of this Act, the Commis-
sion shall submit to Congress a report on the study
conducted under paragraph (1). Such report shall
include recommendations regarding changes in the
methods for computing the adjusted average per
capita cost among different areas.
(g) APPLYING LIMITATIONS ON BALANCE BILLING
TO MEDICARE MSAS.—Section 1852(k)(1) (42 U.S.C.
1395w–22(k)(1)) is amended by inserting ‘‘or with an or-
ganization 
offering 
a 
MSA 
plan’’ 
after 
‘‘section
1851(a)(2)(A)’’.
(h) REPORT ON IMPACT OF INCREASED FINANCIAL
ASSISTANCE TO MEDICARE+CHOICE PLANS.—Not later
than July 1, 2003, the Secretary shall submit to Congress
a report that describes the impact of additional financing
provided under this Act and other Acts (including the
Medicare, Medicaid, and SCHIP Balanced Budget Refine-
112
ment Act of 1999 and BIPA) on the availability of
Medicare+Choice plans in different areas and its impact
on lowering premiums and increasing benefits under such
plans.
SEC. 
202. 
MAKING 
PERMANENT 
CHANGE 
IN
MEDICARE+CHOICE REPORTING DEADLINES
AND ANNUAL, COORDINATED ELECTION PE-
RIOD.
(a) CHANGE
IN REPORTING DEADLINE.—Section
1854(a)(1) (42 U.S.C. 1395w–24(a)(1)), as amended by
section 532(b)(1) of the Public Health Security and Bio-
terrorism Preparedness and Response Act of 2002, is
amended by striking ‘‘2002, 2003, and 2004 (or July 1
of each other year)’’ and inserting ‘‘2002 and each subse-
quent year (or July 1 of each year before 2002)’’.
(b) DELAY IN ANNUAL, COORDINATED ELECTION
PERIOD.—Section 1851(e)(3)(B) (42 U.S.C. 1395w–
21(e)(3)(B)), as amended by section 532(c)(1)(A) of the
Public Health Security and Bioterrorism Preparedness
and Response Act of 2002, is amended by striking ‘‘and
after 2005, the month of November before such year and
with respect to 2003, 2004, and 2005’’ and inserting ‘‘,
the month of November before such year and with respect
to 2003 and any subsequent year’’.
113
(c) 
ANNUAL
ANNOUNCEMENT
OF
PAYMENT
RATES.—Section 
1853(b)(1) 
(42 
U.S.C. 
1395w–
23(b)(1)), as amended by section 532(d)(1) of the Public
Health Security and Bioterrorism Preparedness and Re-
sponse Act of 2002, is amended by striking ‘‘and after
2005 not later than March 1 before the calendar year con-
cerned and for 2004 and 2005’’ and inserting ‘‘not later
than March 1 before the calendar year concerned and for
2004 and each subsequent year’’.
(d) REQUIRING PROVISION OF AVAILABLE INFORMA-
TION COMPARING PLAN OPTIONS.—The first sentence of
section 
1851(d)(2)(A)(ii) 
(42 
U.S.C. 
1395w–
21(d)(2)(A)(ii)) is amended by inserting before the period
the following: ‘‘to the extent such information is available
at the time of preparation of materials for the mailing’’.
SEC. 203. SPECIALIZED MEDICARE+CHOICE PLANS FOR
SPECIAL NEEDS BENEFICIARIES.
(a) TREATMENT AS COORDINATED CARE PLAN.—
Section 1851(a)(2)(A) (42 U.S.C. 1395w–21(a)(2)(A)) is
amended by adding at the end the following new sentence:
‘‘Specialized Medicare+Choice plans for special needs
beneficiaries (as defined in section 1859(b)(4)) may be
any type of coordinated care plan.’’.
(b) SPECIALIZED MEDICARE+CHOICE PLAN
FOR
SPECIAL
NEEDS
BENEFICIARIES
DEFINED.—Section
114
1859(b) (42 U.S.C. 1395w–29(b)) is amended by adding
at the end the following new paragraph:
‘‘(4) SPECIALIZED
MEDICARE+CHOICE
PLANS
FOR SPECIAL NEEDS BENEFICIARIES.—
‘‘(A) IN GENERAL.—The term ‘specialized
Medicare+Choice plan for special needs bene-
ficiaries’ means a Medicare+Choice plan that
exclusively serves special needs beneficiaries (as
defined in subparagraph (B)).
‘‘(B) SPECIAL NEEDS BENEFICIARY.—The
term ‘special needs beneficiary’ means a
Medicare+Choice eligible individual who—
‘‘(i) is institutionalized (as defined by
the Secretary);
‘‘(ii) is entitled to medical assistance
under a State plan under title XIX; or
‘‘(iii) meets such requirements as the
Secretary may determine would benefit
from enrollment in such a specialized
Medicare+Choice plan described in sub-
paragraph (A) for individuals with severe
or disabling chronic conditions.’’.
(c) RESTRICTION ON ENROLLMENT PERMITTED.—
Section 1859 (42 U.S.C. 1395w–29) is amended by add-
ing at the end the following new subsection:
115
‘‘(f) RESTRICTION ON ENROLLMENT FOR SPECIAL-
IZED MEDICARE+CHOICE PLANS FOR SPECIAL NEEDS
BENEFICIARIES.—In 
the 
case 
of 
a 
specialized
Medicare+Choice plan (as defined in subsection (b)(4)),
notwithstanding any other provision of this part and in
accordance with regulations of the Secretary and for peri-
ods before January 1, 2007, the plan may restrict the en-
rollment of individuals under the plan to individuals who
are within one or more classes of special needs bene-
ficiaries.’’.
(d) REPORT TO CONGRESS.—Not later than Decem-
ber 31, 2005, the 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.—
(1) IN GENERAL.—The amendments made by
subsections (a), (b), and (c) shall take effect upon
the date of the enactment of this Act.
(2) DEADLINE
FOR
ISSUANCE
OF
REQUIRE-
MENTS FOR SPECIAL NEEDS BENEFICIARIES; TRAN-
SITION.—No later than 6 months after the date of
116
the enactment of this Act, the Secretary of Health
and Human Services shall issue final regulations to
establish requirements for special needs beneficiaries
under section 1859(b)(4)(B)(iii) of the Social Secu-
rity Act, as added by subsection (b).
SEC. 204. EXTENSION OF REASONABLE COST AND SHMO
CONTRACTS.
(a) REASONABLE COST CONTRACTS.—
(1) IN GENERAL.—Section 1876(h)(5)(C) (42
U.S.C. 1395mm(h)(5)(C)) is amended—
(A) by inserting ‘‘(i)’’ after ‘‘(C)’’;
(B) by inserting before the period the fol-
lowing: ‘‘, except (subject to clause (ii)) in the
case of a contract for an area which is not cov-
ered in the service area of 1 or more coordi-
nated care Medicare+Choice plans under part
C’’; and
(C) by adding at the end the following new
clause:
‘‘(ii) In the case in which—
‘‘(I) a reasonable cost reimbursement contract
includes an area in its service area as of a date that
is after December 31, 2003;
‘‘(II) such area is no longer included in such
service area after such date by reason of the oper-
117
ation of clause (i) because of the inclusion of such
area within the service area of a Medicare+Choice
plan; and
‘‘(III) all Medicare+Choice plans subsequently
terminate coverage in such area;
such reasonable cost reimbursement contract may be ex-
tended and renewed to cover such area (so long as it is
not included in the service area of any Medicare+Choice
plan).’’.
(2) STUDY.—The Secretary shall conduct a
study of an appropriate transition for plans offered
under reasonable cost contracts under section 1876
of the Social Security Act on and after January 1,
2005. Such a transition may take into account
whether there are one or more coordinated care
Medicare+Choice plans being offered in the areas
involved. Not later than February 1, 2004, the Sec-
retary shall submit to Congress a report on such
study and shall include recommendations regarding
any changes in the amendment made by paragraph
(1) as the Secretary determines to be appropriate.
(b) EXTENSION OF SOCIAL HEALTH MAINTENANCE
ORGANIZATION (SHMO) DEMONSTRATION PROJECT.—
(1) IN GENERAL.—Section 4018(b)(1) of the
Omnibus Budget Reconciliation Act of 1987 is
118
amended by striking ‘‘the date that is 30 months
after the date that the Secretary submits to Con-
gress the report described in section 4014(c) of the
Balanced Budget Act of 1997’’ and inserting ‘‘De-
cember 31, 2004’’.
(2) SHMOS
OFFERING
MEDICARE+CHOICE
PLANS.—Nothing in such section 4018 shall be con-
strued as preventing a social health maintenance or-
ganization from offering a Medicare+Choice plan
under part C of title XVIII of the Social Security
Act.
SEC. 
205. 
CONTINUOUS 
OPEN 
ENROLLMENT 
AND
DISENROLLMENT.
(a) IN GENERAL.—Section 1851(e)(2) (42 U.S.C.
1395w–21(e)(2)) is amended to read as follows:
‘‘(2) CONTINUOUS
OPEN
ENROLLMENT
AND
DISENROLLMENT.—Subject to paragraph (5), a
Medicare+Choice eligible individual may change the
election under subsection (a)(1) at any time.’’.
(b) CONFORMING AMENDMENTS.—
(1) MEDICARE+CHOICE.—Section 1851(e) (42
U.S.C. 1395w–21(e)) is amended—
(A) in paragraph (4)—
(i) by striking ‘‘Effective as of Janu-
ary 1, 2002, an’’ and inserting ‘‘An’’;
119
(ii) by striking ‘‘other than during an
annual, coordinated election period’’;
(iii) by inserting ‘‘in a special election
period for such purpose’’ after ‘‘make a
new election under this section’’; and
(iv) by striking the second sentence;
and
(B) in paragraphs (5)(B) and (6)(A), by
striking ‘‘the first sentence of’’.
(2) PERMITTING
ENROLLMENT
IN
MEDIGAP
WHEN
M+C
PLANS
REDUCE
BENEFITS
OR
WHEN
PROVIDER LEAVES A M+C PLAN.—
(A) IN GENERAL.—Clause (ii) of section
1882(s)(3)(B) (42 U.S.C. 1395ss(s)(3)(B)) is
amended—
(i) by inserting ‘‘(I)’’ after ‘‘(ii)’’;
(ii) by striking ‘‘under the first sen-
tence of’’ each place it appears and insert-
ing ‘‘during a special election period pro-
vided for under’’;
(iii) by inserting ‘‘the circumstances
described in subclause (II) are present or’’
before ‘‘there are circumstances’’; and
(iv) by adding at the end the following
new subclause:
120
‘‘(II) The circumstances described in this sub-
clause are, with respect to an individual enrolled in
a Medicare+Choice plan, a reduction in benefits (in-
cluding an increase in cost-sharing) offered under
the Medicare+Choice plan from the previous year or
a provider of services or physician who serves the in-
dividual no longer participating in the plan (other
than because of good cause relating to quality of
care under the plan).’’.
(B) CONFORMING
AMENDMENT.—Clause
(iii) of such section is amended—
(i) by inserting ‘‘the circumstances de-
scribed in clause (ii)(II) are met or’’ after
‘‘policy described in subsection (t), and’’;
and
(ii) by striking ‘‘under the first sen-
tence of’’ and inserting ‘‘during a special
election period provided for under’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall take effect on January 1, 2003, and shall
apply to reductions in benefits and changes in provider
participation occurring on or after such date.
121
SEC. 206. LIMITATION ON MEDICARE+CHOICE COST-SHAR-
ING.
(a) IN
GENERAL.—Section 1852(a) (42 U.S.C.
1395w–22(a)) is amended by adding at the end the fol-
lowing new paragraph:
‘‘(6) LIMITATION ON COST-SHARING.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (B), in no case shall the cost-sharing
with respect to an item or service under a
Medicare+Choice plan exceed the cost-sharing
otherwise applicable under parts A and B to an
individual 
who 
is 
not 
enrolled 
in 
a
Medicare+Choice plan under this part.
‘‘(B) PERMITTING
FLAT
COPAYMENTS.—
Subparagraph (A) shall not be construed as
preventing the application of flat dollar copay-
ment amounts (in place of a percentage coin-
surance), such as a fixed copayment for a doc-
tor’s visit, so long as such amounts are reason-
able and appropriate and do not adversely af-
fect access to items and services (as determined
by the Secretary).’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply as of January 1, 2003.
122
SEC. 207. EXTENSION OF MUNICIPAL HEALTH SERVICE
DEMONSTRATION PROJECTS.
The last sentence of section 9215(a) of the Consoli-
dated Omnibus Budget Reconciliation Act of 1985 (42
U.S.C. 1395b–1 note), as previously amended, is amended
by striking ‘‘December 31, 2004, but only with respect
to’’ and all that follows and inserting ‘‘December 31,
2009, but only with respect to individuals who reside in
the city in which the project is operated and so long as
the total number of individuals participating in the project
does not exceed the number of such individuals partici-
pating as of January 1, 1996.’’.
TITLE III—RURAL HEALTH CARE
IMPROVEMENTS
SEC. 301. REFERENCE TO FULL MARKET BASKET INCREASE
FOR SOLE COMMUNITY HOSPITALS.
For provision eliminating any reduction from full
market basket in the update for inpatient hospital services
for sole community hospitals, see section 401.
SEC. 302. ENHANCED DISPROPORTIONATE SHARE HOS-
PITAL (DSH) TREATMENT FOR RURAL HOS-
PITALS AND URBAN HOSPITALS WITH FEWER
THAN 100 BEDS.
(a) BLENDING OF PAYMENT AMOUNTS.—
123
(1) IN GENERAL.—Section 1886(d)(5)(F) (42
U.S.C. 1395ww(d)(5)(F)) is amended by adding at
the end the following new clause:
‘‘(xiv)(I) In the case of discharges in a fiscal year
beginning on or after October 1, 2002, subject to sub-
clause (II), there shall be substituted for the dispropor-
tionate share adjustment percentage otherwise determined
under clause (iv) (other than subclause (I)) or under
clause (viii), (x), (xi), (xii), or (xiii), the old blend propor-
tion (specified under subclause (III)) of the dispropor-
tionate share adjustment percentage otherwise determined
under the respective clause and 100 percent minus such
old blend proportion of the disproportionate share adjust-
ment percentage determined under clause (vii) (relating
to large, urban hospitals).
‘‘(II) Under subclause (I), the disproportionate share
adjustment percentage shall not exceed 10 percent for a
hospital that is not classified as a rural referral center
under subparagraph (C).
‘‘(III) For purposes of subclause (I), the old blend
proportion for fiscal year 2003 is 662⁄3 percent, for fiscal
year 2004 is 331⁄3 percent subsequent year, and for each
fiscal year beginning with 2005 is 0 percent.’’.
124
(2) 
CONFORMING
AMENDMENTS.—Section
1886(d)(5)(F) (42 U.S.C. 1395ww(d)(5)(F)) is
amended—
(A) in each of subclauses (II), (III), (IV),
(V), and (VI) of clause (iv), by inserting ‘‘sub-
ject to clause (xiv) and’’ before ‘‘for discharges
occurring’’;
(B) in clause (viii), by striking ‘‘The for-
mula’’ and inserting ‘‘Subject to clause (xiv),
the formula’’; and
(C) in each of clauses (x), (xi), (xii), and
(xiii), by striking ‘‘For purposes’’ and inserting
‘‘Subject to clause (xiv), for purposes’’.
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply with respect to discharges occur-
ring on or after October 1, 2002.
SEC. 303. 2-YEAR PHASED-IN INCREASE IN THE STANDARD-
IZED AMOUNT IN RURAL AND SMALL URBAN
AREAS TO ACHIEVE A SINGLE, UNIFORM
STANDARDIZED AMOUNT.
Section 
1886(d)(3)(A)(iv) 
(42 
U.S.C.
1395ww(d)(3)(A)(iv)) is amended—
(1) by striking ‘‘(iv) For discharges’’ and in-
serting ‘‘(iv)(I) Subject to the succeeding provisions
of this clause, for discharges’’; and
125
(2) by adding at the end the following new sub-
clauses:
‘‘(II) For discharges occurring during fiscal
year 2003, the average standardized amount for hos-
pitals located other than in a large urban area shall
be increased by 1⁄2 of the difference between the av-
erage standardized amount determined under sub-
clause (I) for hospitals located in large urban areas
for such fiscal year and such amount determined
(without regard to this subclause) for other hospitals
for such fiscal year.
‘‘(III) For discharges occurring in a fiscal year
beginning with fiscal year 2004, the Secretary shall
compute an average standardized amount for hos-
pitals located in any area within the United States
and within each region equal to the average stand-
ardized amount computed for the previous fiscal
year under this subparagraph for hospitals located
in a large urban area (or, beginning with fiscal year
2005, for hospitals located in any area) increased by
the applicable percentage increase under subsection
(b)(3)(B)(i).’’.
126
SEC. 304. MORE FREQUENT UPDATE IN WEIGHTS USED IN
HOSPITAL MARKET BASKET.
(a) MORE FREQUENT UPDATES IN WEIGHTS.—After
revising the weights used in the hospital market basket
under section 1886(b)(3)(B)(iii) of the Social Security Act
(42 U.S.C. 1395ww(b)(3)(B)(iii)) to reflect the most cur-
rent data available, the Secretary shall establish a fre-
quency for revising such weights in such market basket
to reflect the most current data available more frequently
than once every 5 years.
(b) REPORT.—Not later than October 1, 2003, the
Secretary shall submit a report to Congress on the fre-
quency established under subsection (a), including an ex-
planation of the reasons for, and options considered, in
determining such frequency.
SEC. 305. IMPROVEMENTS TO CRITICAL ACCESS HOSPITAL
PROGRAM.
(a) REINSTATEMENT OF PERIODIC INTERIM PAY-
MENT
(PIP).—Section 
1815(e)(2) 
(42 
U.S.C.
1395g(e)(2)) is amended—
(1) by striking ‘‘and’’ at the end of subpara-
graph (C);
(2) by adding ‘‘and’’ at the end of subpara-
graph (D); and
(3) by inserting after subparagraph (D) the fol-
lowing new subparagraph:
127
‘‘(E) inpatient critical access hospital services;’’.
(b) CONDITION FOR APPLICATION OF SPECIAL PHY-
SICIAN PAYMENT ADJUSTMENT.—Section 1834(g)(2) (42
U.S.C. 1395m(g)(2)) is amended by adding after and
below subparagraph (B) the following:
‘‘The Secretary may not require, as a condition for
applying subparagraph (B) with respect to a critical
access hospital, that each physician providing profes-
sional services in the hospital must assign billing
rights with respect to such services, except that such
subparagraph shall not apply to those physicians
who have not assigned such billing rights.’’.
(c) FLEXIBILITY
IN BED LIMITATION
FOR HOS-
PITALS
WITH STRONG SEASONAL CENSUS FLUCTUA-
TIONS.—Section 1820 (42 U.S.C. 1395i–4) is amended—
(1) in subsection (c)(2)(B)(iii), by inserting
‘‘subject to paragraph (3)’’ after ‘‘(iii) provides’’;
(2) by adding at the end of subsection (c) the
following new paragraph:
‘‘(3) INCREASE IN MAXIMUM NUMBER OF BEDS
FOR HOSPITALS WITH STRONG SEASONAL CENSUS
FLUCTUATIONS.—
‘‘(A) IN GENERAL.—In the case of a hos-
pital that demonstrates that it meets the stand-
ards established under subparagraph (B), the
128
bed limitations otherwise applicable under para-
graph (2)(B)(iii) and subsection (f) shall be in-
creased by 5 beds.
‘‘(B) STANDARDS.—The Secretary shall
specify standards for determining whether a
critical access hospital has sufficiently strong
seasonal variations in patient admissions to jus-
tify the increase in bed limitation provided
under subparagraph (A).’’; and
(3) in subsection (f), by adding at the end the
following new sentence: ‘‘The limitations in numbers
of beds under the first sentence are subject to ad-
justment under subsection (c)(3).’’.
(d) 5-YEAR EXTENSION
OF
THE AUTHORIZATION
FOR APPROPRIATIONS FOR GRANT PROGRAM.—Section
1820(j) (42 U.S.C. 1395i–4(j)) is amended by striking
‘‘through 2002’’ and inserting ‘‘through 2007’’.
(e) PROHIBITION OF RETROACTIVE RECOUPMENT.—
The Secretary shall not recoup (or otherwise seek to re-
cover) overpayments made for outpatient critical access
hospital services under part B of title XVIII of the Social
Security Act, for services furnished in cost reporting peri-
ods that began before October 1, 2002, insofar as such
overpayments are attributable to payment being based on
129
80 percent of reasonable costs (instead of 100 percent of
reasonable costs minus 20 percent of charges).
(f) EFFECTIVE DATES.—
(1) REINSTATEMENT
OF
PIP.—The amend-
ments made by subsection (a) shall apply to pay-
ments made on or after January 1, 2003.
(2) PHYSICIAN PAYMENT ADJUSTMENT CONDI-
TION.—The amendment made by subsection (b)
shall be effective as if included in the enactment of
section 403(d) of the Medicare, Medicaid, and
SCHIP Balanced Budget Refinement Act of 1999
(113 Stat. 1501A–371).
(3) FLEXIBILITY
IN
BED
LIMITATION.—The
amendments made by subsection (c) shall apply to
designations made on or after January 1, 2003, but
shall not apply to critical access hospitals that were
designated as of such date.
SEC. 306. EXTENSION OF TEMPORARY INCREASE FOR
HOME HEALTH SERVICES FURNISHED IN A
RURAL AREA.
(a) IN GENERAL.—Section 508(a) of BIPA (114
Stat. 2763A–533) is amended—
(1) by striking ‘‘24-MONTH INCREASE BEGIN-
NING APRIL 1, 2001’’ and inserting ‘‘IN GENERAL’’;
and
130
(2) by striking ‘‘April 1, 2003’’ and inserting
‘‘January 1, 2005’’.
(b) CONFORMING AMENDMENT.—Section 547(c)(2)
of BIPA (114 Stat. 2763A–553) is amended by striking
‘‘the period beginning on April 1, 2001, and ending on
September 30, 2002,’’ and inserting ‘‘a period under such
section’’.
SEC. 307. REFERENCE TO 10 PERCENT INCREASE IN PAY-
MENT FOR HOSPICE CARE FURNISHED IN A
FRONTIER AREA AND RURAL HOSPICE DEM-
ONSTRATION PROJECT.
For—
(1) provision of 10 percent increase in payment
for hospice care furnished in a frontier area, see sec-
tion 422; and
(2) provision of a rural hospice demonstration
project, see section 423.
SEC. 308. REFERENCE TO PRIORITY FOR HOSPITALS LO-
CATED IN RURAL OR SMALL URBAN AREAS IN
REDISTRIBUTION 
OF 
UNUSED 
GRADUATE
MEDICAL EDUCATION RESIDENCIES.
For provision providing priority for hospitals located
in rural or small urban areas in redistribution of unused
graduate medical education residencies, see section 611.
131
SEC. 309. GAO STUDY OF GEOGRAPHIC DIFFERENCES IN
PAYMENTS FOR PHYSICIANS’ SERVICES.
(a) STUDY.—The Comptroller General of the United
States shall conduct a study of differences in payment
amounts under the physician fee schedule under section
1848 of the Social Security Act (42 U.S.C. 1395w–4) for
physicians’ services in different geographic areas. Such
study shall include—
(1) an assessment of the validity of the geo-
graphic adjustment factors used for each component
of the fee schedule;
(2) an evaluation of the measures used for such
adjustment, including the frequency of revisions; and
(3) an evaluation of the methods used to deter-
mine professional liability insurance costs used in
computing the malpractice component, including a
review of increases in professional liability insurance
premiums and variation in such increases by State
and physician specialty and methods used to update
the geographic cost of practice index and relative
weights for the malpractice component.
(b) REPORT.—Not later than 1 year after the date
of the enactment of this Act, the Comptroller General shall
submit to Congress a report on the study conducted under
subsection (a). The report shall include recommendations
regarding the use of more current data in computing geo-
132
graphic cost of practice indices as well as the use of data
directly representative of physicians’ costs (rather than
proxy measures of such costs).
SEC. 310. PROVIDING SAFE HARBOR FOR CERTAIN COL-
LABORATIVE EFFORTS THAT BENEFIT MEDI-
CALLY UNDERSERVED POPULATIONS.
(a) IN GENERAL.—Section 1128B(b)(3) (42 U.S.C.
1320a–7(b)(3)), as amended by section 101(b)(2), is
amended—
(1) in subparagraph (F), by striking ‘‘and’’
after the semicolon at the end;
(2) in subparagraph (G), by striking the period
at the end and inserting ‘‘; and’’; and
(3) by adding at the end the following new sub-
paragraph:
‘‘(H) any remuneration between a public
or nonprofit private health center entity de-
scribed under clause (i) or (ii) of section
1905(l)(2)(B) and any individual or entity pro-
viding goods, items, services, donations or
loans, or a combination thereof, to such health
center entity pursuant to a contract, lease,
grant, loan, or other agreement, if such agree-
ment contributes to the ability of the health
center entity to maintain or increase the avail-
133
ability, or enhance the quality, of services pro-
vided to a medically underserved population
served by the health center entity.’’.
(b) RULEMAKING
FOR EXCEPTION
FOR HEALTH
CENTER ENTITY ARRANGEMENTS.—
(1) ESTABLISHMENT.—
(A) 
IN
GENERAL.—The 
Secretary 
of
Health and Human Services (in this subsection
referred to as the ‘‘Secretary’’) shall establish,
on an expedited basis, standards relating to the
exception described in section 1128B(b)(3)(H)
of the Social Security Act, as added by sub-
section (a), for health center entity arrange-
ments to the antikickback penalties.
(B) FACTORS
TO
CONSIDER.—The Sec-
retary shall consider the following factors,
among others, in establishing standards relating
to the exception for health center entity ar-
rangements under subparagraph (A):
(i) Whether the arrangement between
the health center entity and the other
party results in savings of Federal grant
funds or increased revenues to the health
center entity.
134
(ii) Whether the arrangement between
the health center entity and the other
party restricts or limits a patient’s freedom
of choice.
(iii) Whether the arrangement be-
tween the health center entity and the
other party protects a health care profes-
sional’s independent medical judgment re-
garding medically appropriate treatment.
The Secretary may also include other standards
and criteria that are consistent with the intent
of Congress in enacting the exception estab-
lished under this section.
(2) INTERIM
FINAL
EFFECT.—No later than
180 days after the date of enactment of this Act, the
Secretary shall publish a rule in the Federal Reg-
ister consistent with the factors under paragraph
(1)(B). Such rule shall be effective and final imme-
diately on an interim basis, subject to such change
and revision, after public notice and opportunity (for
a period of not more than 60 days) for public com-
ment, as is consistent with this subsection.
135
SEC. 311. RELIEF FOR CERTAIN NON-TEACHING HOS-
PITALS.
(a) IN GENERAL.—In the case of a non-teaching hos-
pital that meets the condition of subsection (b), for its
cost reporting period beginning in each of fiscal years
2003, 2004, and 2005 the amount of payment made to
the hospital under section 1886(d) of the Social Security
Act for discharges occurring during such fiscal year only
shall be increased as though the applicable percentage in-
crease (otherwise applicable to discharges occurring dur-
ing such fiscal year under section 1886(b)(3)(B)(i) of the
Social Security Act (42 U.S.C. 1395ww(b)(3)(B)(i)) had
been increased by 5 percentage points. The previous sen-
tence shall be applied for each such fiscal year separately
without regard to its application in a previous fiscal year
and shall not affect payment for discharges for any hos-
pital occurring during a fiscal year after fiscal year 2005.
(b) CONDITION.—A non-teaching hospital meets the
condition of this paragraph if—
(1) it is located in a rural area and the amount
of the aggregate payments under subsection (d) of
such section for non-teaching hospitals located in
rural areas in the State for their cost reporting peri-
ods beginning during fiscal year 1999 is less than
the aggregate allowable operating costs of inpatient
hospital services (as defined in section 1886(a)(4) of
136
such Act) for all such hospitals in such areas in such
State with respect to such cost reporting periods; or
(2) it is located in an urban area and the
amount of the aggregate payments under subsection
(d) of such section for non-teaching hospitals located
in urban areas in the State for their cost reporting
periods beginning during fiscal year 1999 is less
than 103 percent of the aggregate allowable oper-
ating costs of inpatient hospital services (as defined
in section 1886(a)(4) of such Act) for all such hos-
pitals in such areas in such State with respect to
such cost reporting periods.
The amounts under paragraphs (1) and (2) shall be deter-
mined by the Secretary of Health and Human Services
based on data of the Medicare Payment Advisory Commis-
sion.
(c) DEFINITIONS.—For purposes of this section:
(1) 
NON-TEACHING
HOSPITAL.—The 
term
‘‘non-teaching hospital’’ means, for a cost reporting
period, a subsection (d) hospital (as defined in sec-
tion 1886(d)(1)(B) of the Social Security Act, 42
U.S.C. 1395ww(d)(1)(B))) that is not receiving any
additional payment under section 1886(d)(5)(B) of
such Act (42 U.S.C. 1395ww(d)(5)(B)) or a pay-
ment under section 1886(h) of such Act (42 U.S.C.
137
1395ww(h)) for discharges occurring during the pe-
riod.
(2) RURAL; URBAN.—The terms ‘‘rural’’ and
‘‘urban’’ have the meanings given such terms for
purposes of section 1886(d) of the Social Security
Act (42 U.S.C. 1395ww(d)).
TITLE IV—PROVISIONS
RELATING TO PART A
Subtitle A—Inpatient Hospital
Services
SEC. 401. REVISION OF ACUTE CARE HOSPITAL PAYMENT
UPDATES.
Subclause (XVIII) of section 1886(b)(3)(B)(i) (42
U.S.C. 1395ww(b)(3)(B)(i)) is amended to read as fol-
lows:
‘‘(XVIII) for fiscal year 2003, the market bas-
ket percentage increase for sole community hospitals
and such increase minus 0.25 percentage points for
other hospitals, and’’.
SEC. 402. FREEZE IN LEVEL OF ADJUSTMENT FOR INDI-
RECT COSTS OF MEDICAL EDUCATION (IME)
THROUGH FISCAL YEAR 2007.
Section 
1886(d)(5)(B)(ii) 
(42 
U.S.C.
1395ww(d)(5)(B)(ii)) is amended—
138
(1) in subclause (VI), by inserting ‘‘and each
succeeding fiscal year through fiscal year 2007’’
after ‘‘2002’’; and
(2) in subclause (VII), by striking ‘‘2002’’ and
inserting ‘‘2007’’.
SEC. 403. RECOGNITION OF NEW MEDICAL TECHNOLOGIES
UNDER INPATIENT HOSPITAL PPS.
(a) IMPROVING TIMELINESS
OF DATA COLLEC-
TION.—Section 
1886(d)(5)(K) 
(42 
U.S.C.
1395ww(d)(5)(K)) is amended by adding at the end the
following new clause:
‘‘(vii) Under the mechanism under this subpara-
graph, the Secretary shall provide for the addition of new
diagnosis and procedure codes in April 1 of each year, but
the addition of such codes shall not require the Secretary
to adjust the payment (or diagnosis-related group classi-
fication) under this subsection until the fiscal year that
begins after such date.’’.
(b) ELIGIBILITY STANDARD.—
(1) MINIMUM
PERIOD
FOR
RECOGNITION
OF
NEW
TECHNOLOGIES.—Section 
1886(d)(5)(K)(vi)
(42 U.S.C. 1395ww(d)(5)(K)(vi)) is amended—
(A) by inserting ‘‘(I)’’ after ‘‘(vi)’’; and
(B) by adding at the end the following new
subclause:
139
‘‘(II) Under such criteria, a service or technology
shall not be denied treatment as a new service or tech-
nology on the basis of the period of time in which the serv-
ice or technology has been in use if such period ends before
the end of the 2-to-3-year period that begins on the effec-
tive date of implementation of a code under ICD–9–CM
(or a successor coding methodology) that enables the iden-
tification of a significant sample of specific discharges in
which the service or technology has been used.’’.
(2) ADJUSTMENT
OF
THRESHOLD.—Section
1886(d)(5)(K)(ii)(I) 
(42 
U.S.C.
1395ww(d)(5)(K)(ii)(I)) is amended by inserting
‘‘(applying a threshold specified by the Secretary
that is the lesser of 50 percent of the national aver-
age standardized amount for operating costs of inpa-
tient hospital services for all hospitals and all diag-
nosis-related groups or one standard deviation for
the diagnosis-related group involved)’’ after ‘‘is inad-
equate’’.
(3) CRITERION
FOR
SUBSTANTIAL
IMPROVE-
MENT.—Section 
1886(d)(5)(K)(vi) 
(42 
U.S.C.
1395ww(d)(5)(K)(vi)), as amended by paragraph
(1), is further amended by adding at the end the fol-
lowing subclause:
140
‘‘(III) The Secretary shall by regulation provide for
further clarification of the criteria applied to determine
whether a new service or technology represents an advance
in medical technology that substantially improves the diag-
nosis or treatment of beneficiaries. Under such criteria,
in determining whether a new service or technology rep-
resents an advance in medical technology that substan-
tially improves the diagnosis or treatment of beneficiaries,
the Secretary shall deem a service or technology as meet-
ing such requirement if the service or technology is a drug
or biological that is designated under section 506 or 526
of the Federal Food, Drug, and Cosmetic Act, approved
under section 314.510 or 601.41 of title 21, Code of Fed-
eral Regulations, or designated for priority review when
the marketing application for such drug or biological was
filed or is a medical device for which an exemption has
been granted under section 520(m) of such Act, or for
which priority review has been provided under section
515(d)(5) of such Act.’’.
(4) PROCESS
FOR
PUBLIC
INPUT.—Section
1886(d)(5)(K) (42 U.S.C. 1395ww(d)(5)(K)), as
amended by paragraph (1), is amended—
(A) in clause (i), by adding at the end the
following: ‘‘Such mechanism shall be modified
to meet the requirements of clause (viii).’’; and
141
(B) by adding at the end the following new
clause:
‘‘(viii) The mechanism established pursuant to clause
(i) shall be adjusted to provide, before publication of a
proposed rule, for public input regarding whether a new
service or technology not described in the second sentence
of clause (vi)(III) represents an advance in medical tech-
nology that substantially improves the diagnosis or treat-
ment of beneficiaries as follows:
‘‘(I) The Secretary shall make public and peri-
odically update a list of all the services and tech-
nologies for which an application for additional pay-
ment under this subparagraph is pending.
‘‘(II) The Secretary shall accept comments, rec-
ommendations, and data from the public regarding
whether the service or technology represents a sub-
stantial improvement.
‘‘(III) The Secretary shall provide for a meeting
at which organizations representing hospitals, physi-
cians, medicare beneficiaries, manufacturers, and
any other interested party may present comments,
recommendations, and data to the clinical staff of
the Centers for Medicare & Medicaid Services before
publication of a notice of proposed rulemaking re-
142
garding whether service or technology represents a
substantial improvement.’’.
(c) PREFERENCE FOR USE OF DRG ADJUSTMENT.—
Section 1886(d)(5)(K) (42 U.S.C. 1395ww(d)(5)(K)) is
further amended by adding at the end the following new
clause:
‘‘(ix) Before establishing any add-on payment under
this subparagraph with respect to a new technology, the
Secretary shall seek to identify one or more diagnosis-re-
lated groups associated with such technology, based on
similar clinical or anatomical characteristics and the cost
of the technology. Within such groups the Secretary shall
assign an eligible new technology into a diagnosis-related
group where the average costs of care most closely approx-
imate the costs of care of using the new technology. In
such case, no add-on payment under this subparagraph
shall be made with respect to such new technology and
this clause shall not affect the application of paragraph
(4)(C)(iii).’’.
(d) IMPROVEMENT IN PAYMENT FOR NEW TECH-
NOLOGY.—Section 
1886(d)(5)(K)(ii)(III) 
(42 
U.S.C.
1395ww(d)(5)(K)(ii)(III)) is amended by inserting after
‘‘the estimated average cost of such service or technology’’
the following: ‘‘(based on the marginal rate applied to
costs under subparagraph (A))’’.
143
(e) EFFECTIVE DATE.—
(1) IN GENERAL.—The Secretary shall imple-
ment the amendments made by this section so that
they apply to classification for fiscal years beginning
with fiscal year 2004.
(2) RECONSIDERATIONS OF APPLICATIONS FOR
FISCAL YEAR 2003 THAT ARE DENIED.—In the case
of an application for a classification of a medical
service or technology as a new medical service or
technology under section 1886(d)(5)(K) of the Social
Security Act (42 U.S.C. 1395ww(d)(5)(K)) that was
filed for fiscal year 2003 and that is denied—
(A) the Secretary shall automatically re-
consider the application as an application for
fiscal year 2004 under the amendments made
by this section; and
(B) the maximum time period otherwise
permitted for such classification of the service
or technology shall be extended by 12 months.
SEC. 404. PHASE-IN OF FEDERAL RATE FOR HOSPITALS IN
PUERTO RICO.
Section 1886(d)(9) (42 U.S.C. 1395ww(d)(9)) is
amended—
(1) in subparagraph (A)—
144
(A) in clause (i), by striking ‘‘for dis-
charges beginning on or after October 1, 1997,
50 percent (and for discharges between October
1, 1987, and September 30, 1997, 75 percent)’’
and inserting ‘‘the applicable Puerto Rico per-
centage (specified in subparagraph (E))’’; and
(B) in clause (ii), by striking ‘‘for dis-
charges beginning in a fiscal year beginning on
or after October 1, 1997, 50 percent (and for
discharges between October 1, 1987, and Sep-
tember 30, 1997, 25 percent)’’ and inserting
‘‘the applicable Federal percentage (specified in
subparagraph (E))’’; and
(2) by adding at the end the following new sub-
paragraph:
‘‘(E) For purposes of subparagraph (A), for dis-
charges occurring—
‘‘(i) between October 1, 1987, and September
30, 1997, the applicable Puerto Rico percentage is
75 percent and the applicable Federal percentage is
25 percent;
‘‘(ii) on or after October 1, 1997, and before
October 1, 2003, the applicable Puerto Rico percent-
age is 50 percent and the applicable Federal per-
centage is 50 percent;
145
‘‘(iii) during fiscal year 2004, the applicable
Puerto Rico percentage is 45 percent and the appli-
cable Federal percentage is 55 percent;
‘‘(iv) during fiscal year 2005, the applicable
Puerto Rico percentage is 40 percent and the appli-
cable Federal percentage is 60 percent;
‘‘(v) during fiscal year 2006, the applicable
Puerto Rico percentage is 35 percent and the appli-
cable Federal percentage is 65 percent;
‘‘(vi) during fiscal year 2007, the applicable
Puerto Rico percentage is 30 percent and the appli-
cable Federal percentage is 70 percent; and
‘‘(vii) on or after October 1, 2007, the applica-
ble Puerto Rico percentage is 25 percent and the ap-
plicable Federal percentage is 75 percent.’’.
SEC. 405. REFERENCE TO PROVISION RELATING TO EN-
HANCED DISPROPORTIONATE SHARE HOS-
PITAL (DSH) PAYMENTS FOR RURAL HOS-
PITALS AND URBAN HOSPITALS WITH FEWER
THAN 100 BEDS.
For provision enhancing disproportionate share hos-
pital (DSH) treatment for rural hospitals and urban hos-
pitals with fewer than 100 beds, see section 302.
146
SEC. 406. REFERENCE TO PROVISION RELATING TO 2-YEAR
PHASED-IN INCREASE IN THE STANDARDIZED
AMOUNT 
IN 
RURAL 
AND 
SMALL 
URBAN
AREAS TO ACHIEVE A SINGLE, UNIFORM
STANDARDIZED AMOUNT.
For provision phasing in over a 2-year period an in-
crease in the standardized amount for rural and small
urban areas to achieve a single, uniform, standardized
amount, see section 303.
SEC. 407. REFERENCE TO PROVISION FOR MORE FRE-
QUENT UPDATES IN THE WEIGHTS USED IN
HOSPITAL MARKET BASKET.
For provision providing for more frequent updates in
the weights used in hospital market basket, see section
304.
SEC. 408. REFERENCE TO PROVISION MAKING IMPROVE-
MENTS TO CRITICAL ACCESS HOSPITAL PRO-
GRAM.
For provision providing making improvements to crit-
ical access hospital program, see section 305.
Subtitle B—Skilled Nursing
Facility Services
SEC. 411. PAYMENT FOR COVERED SKILLED NURSING FA-
CILITY SERVICES.
(a) 5-YEAR EXTENSION OF TEMPORARY INCREASE
IN NURSING COMPONENT OF PPS FEDERAL RATE.—Sec-
147
tion 312(a) of BIPA is amended by striking ‘‘, and before
October 1, 2002’’ and inserting ‘‘and before October 1,
2007’’.
(b) ADJUSTMENT
TO
RUGS
FOR
AIDS RESI-
DENTS.—
(1) IN GENERAL.—Paragraph (12) of section
1888(e) (42 U.S.C. 1395yy(e)) is amended to read
as follows:
‘‘(12) ADJUSTMENT
FOR
RESIDENTS
WITH
AIDS.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (B), in the case of a resident of a skilled
nursing facility who is afflicted with acquired
immune deficiency syndrome (AIDS), the per
diem amount of payment otherwise applicable
shall be increased by 128 percent to reflect in-
creased costs associated with such residents.
‘‘(B) SUNSET.—Subparagraph (A) shall
not apply on and after such date as the Sec-
retary certifies that there is an appropriate ad-
justment in the case mix under paragraph
(4)(G)(i) to compensate for the increased costs
associated with residents described in such sub-
paragraph.’’.
148
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall apply to services furnished on
or after October 1, 2003.
Subtitle C—Hospice
SEC. 421. COVERAGE OF HOSPICE CONSULTATION SERV-
ICES.
(a) COVERAGE OF HOSPICE CONSULTATION SERV-
ICES.—Section 
1812(a) 
(42 
U.S.C. 
1395d(a)) 
is
amended—
(1) by striking ‘‘and’’ at the end of paragraph
(3);
(2) by striking the period at the end of para-
graph (4) and inserting ‘‘; and’’; and
(3) by inserting after paragraph (4) the fol-
lowing new paragraph:
‘‘(5) for individuals who are terminally ill, have
not made an election under subsection (d)(1), and
have not previously received services under this
paragraph, services that are furnished by a physi-
cian who is the medical director or an employee of
a hospice program and that consist of—
‘‘(A) an evaluation of the individual’s need
for pain and symptom management;
‘‘(B) counseling the individual with respect
to end-of-life issues and care options; and
149
‘‘(C) advising the individual regarding ad-
vanced care planning.’’.
(b) PAYMENT.—Section 1814(i) (42 U.S.C. l395f(i))
is amended by adding at the end the following new para-
graph:
‘‘(4) The amount paid to a hospice program with re-
spect to the services under section 1812(a)(5) for which
payment may be made under this part shall be equal to
an amount equivalent to the amount established for an
office or other outpatient visit for evaluation and manage-
ment associated with presenting problems of moderate se-
verity under the fee schedule established under section
1848(b), other than the portion of such amount attrib-
utable to the practice expense component.’’.
(c) 
CONFORMING
AMENDMENT.—Section
1861(dd)(2)(A)(i) (42 U.S.C. 1395x(dd)(2)(A)(i)) is
amended by inserting before the comma at the end the
following: ‘‘and services described in section 1812(a)(5)’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to services provided by a hospice
program on or after January 1, 2004.
150
SEC. 422. 10 PERCENT INCREASE IN PAYMENT FOR HOS-
PICE CARE FURNISHED IN A FRONTIER AREA.
(a) IN GENERAL.—Section 1814(i)(1) (42 U.S.C.
1395f(i)(1)) is amended by adding at the end the following
new subparagraph:
‘‘(D) With respect to hospice care furnished in a fron-
tier area on or after January 1, 2003, and before January
1, 2008, the payment rates otherwise established for such
care shall be increased by 10 percent. For purposes of this
subparagraph, the term ‘frontier area’ means a county in
which the population density is less than 7 persons per
square mile.’’.
(b) REPORT ON COSTS.—Not later than January 1,
2007, the Comptroller General of the United States shall
submit to Congress a report on the costs of furnishing
hospice care in frontier areas. Such report shall include
recommendations regarding the appropriateness of extend-
ing, and modifying, the payment increase provided under
the amendment made by subsection (a).
SEC. 423. RURAL HOSPICE DEMONSTRATION PROJECT.
(a) IN GENERAL.—The Secretary shall conduct a
demonstration project for the delivery of hospice care to
medicare beneficiaries in rural areas. Under the project
medicare beneficiaries who are unable to receive hospice
care in the home for lack of an appropriate caregiver are
provided such care in a facility of 20 or fewer beds which
151
offers, within its walls, the full range of services provided
by hospice programs under section 1861(dd) of the Social
Security Act (42 U.S.C. 1395x(dd)).
(b) SCOPE OF PROJECT.—The Secretary shall con-
duct the project under this section with respect to no more
than 3 hospice programs over a period of not longer than
5 years each.
(c) COMPLIANCE
WITH CONDITIONS.—Under the
demonstration project—
(1) the hospice program shall comply with oth-
erwise applicable requirements, except that it shall
not be required to offer services outside of the home
or 
to 
meet 
the 
requirements 
of 
section
1861(dd)(2)(A)(iii) of the Social Security Act; and
(2) payments for hospice care shall be made at
the rates otherwise applicable to such care under
title XVIII of such Act.
The Secretary may require the program to comply with
such additional quality assurance standards for its provi-
sion of services in its facility as the Secretary deems ap-
propriate.
(d) REPORT.—Upon completion of the project, the
Secretary shall submit a report to Congress on the project
and shall include in the report recommendations regarding
152
extension of such project to hospice programs serving
rural areas.
Subtitle D—Other Provisions
SEC. 431. DEMONSTRATION PROJECT FOR USE OF RECOV-
ERY AUDIT CONTRACTORS.
(a) IN GENERAL.—The Secretary of Health and
Human Services shall conduct a demonstration project
under this section (in this section referred to as the
‘‘project’’) to demonstrate the use of recovery audit con-
tractors under the Medicare Integrity Program in identi-
fying and recouping overpayments under the medicare
program for services for which payment is made under
part A of title XVIII of the Social Security Act. Under
the project—
(1) payment may be made to such a contractor
on a contingent basis;
(2) a percentage of the amount recovered may
be retained by the Secretary and shall be available
to the program management account of the Centers
for Medicare & Medicaid Services; and
(3) the Secretary shall examine the efficacy of
such use with respect to duplicative payments, accu-
racy of coding, and other payment policies in which
inaccurate payments arise.
153
(b) SCOPE AND DURATION.—The project shall cover
at least 2 States and at least 3 contractors and shall last
for not longer than 3 years.
(c) WAIVER.—The Secretary of Health and Human
Services shall waive such provisions of title XVIII of the
Social Security Act as may be necessary to provide for
payment for services under the project in accordance with
subsection (a).
(d) QUALIFICATIONS OF CONTRACTORS.—
(1) IN
GENERAL.—The Secretary shall enter
into a recovery audit contract under this section
with an entity only if the entity has staff that has
knowledge of and experience with the payment rules
and regulations under the medicare program or the
entity has or will contract with another entity that
has such knowledgeable and experienced staff.
(2) INELIGIBILITY
OF
CERTAIN
CONTRAC-
TORS.—The Secretary may not enter into a recovery
audit contract under this section with an entity to
the extent that the entity is a fiscal intermediary
under section 1816 of the Social Security Act (42
U.S.C. 1395h), a carrier under section 1842 of such
Act (42 U.S.C. 1395u), or a Medicare Administra-
tive Contractor under section 1874A of such Act, or
any other entity that carries out the type of activi-
154
ties with respect to providers of services under part
A that would constitute a conflict of interest, as de-
termined by the Secretary.
(3) PREFERENCE
FOR
ENTITIES
WITH
DEM-
ONSTRATED
PROFICIENCY
WITH
PRIVATE
INSUR-
ERS.—In awarding contracts to recovery audit con-
tractors under this section, the Secretary shall give
preference to those entities that the Secretary deter-
mines have demonstrated proficiency in recovery au-
dits with private insurers or under the medicaid pro-
gram under title XIX of such Act.
(e) REPORT.—The Secretary of Health and Human
Services shall submit to Congress a report on the project
not later than 6 months after the date of its completion.
Such reports shall include information on the impact of
the project on savings to the medicare program and rec-
ommendations on the cost-effectiveness of extending or ex-
panding the project.
TITLE V—PROVISIONS
RELATING TO PART B
Subtitle A—Physicians’ Services
SEC. 501. REVISION OF UPDATES FOR PHYSICIANS’ SERV-
ICES.
(a) UPDATE FOR 2003 THROUGH 2006.—
155
(1) IN GENERAL.—Section 1848(d) (42 U.S.C.
1395w–4(d)) is amended by adding at the end the
following new paragraphs:
‘‘(5) UPDATE
FOR
2003.—The update to the
single conversion factor established in paragraph
(1)(C) for 2003 is 2 percent.
‘‘(6) SPECIAL RULES FOR UPDATE FOR 2004,
2005, AND 2006.—The following rules apply in deter-
mining the update adjustment factors under para-
graph (4)(B) for 2004, 2005, and 2006:
‘‘(A) USE OF 2002 DATA IN DETERMINING
ALLOWABLE COSTS.—
‘‘(i) The reference in clause (ii)(I) of
such paragraph to April 1, 1996, is
deemed to be a reference to January 1,
2002.
‘‘(ii) The allowed expenditures for
2002 is deemed to be equal to the actual
expenditures for physicians’ services fur-
nished during 2002, as estimated by the
Secretary.
‘‘(B) 1 PERCENTAGE POINT INCREASE IN
GDP UNDER SGR.—The annual average percent-
age growth in real gross domestic product per
capita under subsection (f)(2)(C) for each of
156
2003, 2004, 2005, and 2006 is deemed to be
increased by 1 percentage point.’’.
(2) 
CONFORMING
AMENDMENT.—Paragraph
(4)(B) of such section is amended, in the matter be-
fore clause (i), by inserting ‘‘and paragraph (6)’’
after ‘‘subparagraph (D)’’.
(3) NOT TREATED AS CHANGE IN LAW AND
REGULATION IN SUSTAINABLE GROWTH RATE DE-
TERMINATION.—The amendments made by this sub-
section shall not be treated as a change in law for
purposes of applying section 1848(f)(2)(D) of the
Social Security Act (42 U.S.C. 1395w–4(f)(2)(D)).
(b) USE OF 10-YEAR ROLLING AVERAGE IN COM-
PUTING GROSS DOMESTIC PRODUCT.—
(1) IN
GENERAL.—Section 1848(f)(2)(C) (42
U.S.C. 1395w–4(f)(2)(C)) is amended—
(A) by striking ‘‘projected’’ and inserting
‘‘annual average’’; and
(B) by striking ‘‘from the previous applica-
ble period to the applicable period involved’’
and inserting ‘‘during the 10-year period ending
with the applicable period involved’’.
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall apply to computations of the
191
(c) DUTIES.—
(1) REVIEW
AND
RECOMMENDATIONS.—The
OASIS Task Force shall review and make rec-
ommendations to the Secretary regarding changes in
OASIS to improve and simplify data collection for
purposes of—
(A) assessing the quality of home health
services; and
(B) providing consistency in classification
of patients into home health resource groups
(HHRGs) for payment under section 1895 of
the Social Security Act (42 U.S.C. 1395fff).
(2) SPECIFIC ITEMS.—In conducting the review
under paragraph (1), the OASIS Task Force shall
specifically examine—
(A) the 41 outcome measures currently in
use;
(B) the timing and frequency of data col-
lection; and
(C) the collection of information on
comorbidities and clinical indicators.
(3) REPORT.—The OASIS Task Force shall
submit a report to the Secretary containing its find-
ings and recommendations for changes in OASIS by