hospital, in accordance with the standards used to
determine such adjustments under the medicare pro-
gram.
(3) PAYMENTS
FOR
CAPITAL.—Payments to
hospitals for capital and capital-related costs shall
be determined in the same manner as payments for
capital and capital-related costs are made under sec-
tion 1886(g) of the Social Security Act, adjusted to
take into account the portion of such costs for which
the hospital receives payment from health benefit
plans (other than the medicare and medicaid pro-
grams).
(f) MAXIMUM PAYMENT RATES FOR EXEMPT HOS-
PITALS.—
(1) 
HOSPITAL-SPECIFIC, 
PER
ADMISSION
AMOUNT.—In the case of an exempt hospital (as de-
fined in paragraph (2)), the maximum payment rate
for inpatient hospital services provided by the hos-
pital shall be determined on a per admission basis,
based on the allowable operating receipts of the hos-
pital (determined in the same manner as such re-
ceipts are determined for other hospitals under sub-
section (b)).
(2) EXEMPT
HOSPITAL.—The term ‘‘exempt
hospital’’ means—
(A) a psychiatric hospital (as defined in
section 1861(f) of the Social Security Act), in-
cluding a psychiatric unit of a hospital which is
a distinct part of the hospital (as defined by the
Secretary);
(B) a rehabilitation hospital (as defined by
the Secretary), including a rehabilitation unit of
a hospital which is a distinct part of the hos-
pital (as defined by the Secretary);
(C) a hospital whose inpatients are pre-
dominantly individuals under 18 years of age;
(D) a hospital which has an average inpa-
tient length of stay (as determined by the Sec-
retary) of greater than 25 days; or
(E) a hospital that the Secretary has clas-
sified, at any time on or before December 31,
1992, for purposes of applying exceptions and
adjustments to payment amounts under section
1886(d) of such Act, as a hospital involved ex-
tensively in treatment for or research on cancer.
SEC. 152. BASIS FOR MAXIMUM PAYMENT RATE FOR CLASS
OF PHYSICIANS’ SERVICES AND OTHER PRO-
FESSIONAL MEDICAL SERVICES.
(a) USE OF RELATIVE VALUE FEE SCHEDULE.—
(1) IN GENERAL.—Subject to subsection (b),
the maximum payment rates established under this
subtitle for a service within the class of services con-
sisting of physicians’ services and other professional
medical services during a year shall be equal to the
product of—
(A) the relative value for the service ap-
plied under section 1848(b) of the Social Secu-
rity Act;
(B) an applicable conversion factor (deter-
mined by the Secretary in an amount consistent
with the requirements of section 142(b)); and
(C) the geographic adjustment factor ap-
plied under section 1848(b) of the Social Secu-
rity Act.
(b) NEW PROCEDURE CODES AND RELATIVE VALUE
UNITS.—In applying subsection (a) in the case of services
for which relative value units have not been established
under section 1848 of the Social Security Act, the Sec-
retary shall establish relative value units in the same man-
ner as if payment for such services were made under the
medicare program.
(c) PUBLICATION
OF
DEFINITIONS, RELATIVE
VALUE UNITS, AND PAYMENT POLICIES.—The Secretary
shall provide for publication of such definitions, relative
value units (established under subsection (b)), and pay-
ment policies as may be necessary for payors to apply the
maximum payment rates established under this section.
SEC. 153. BASIS FOR OTHER MAXIMUM PAYMENT RATES
FOR SERVICES USING CERTAIN MEDICARE
PAYMENT METHODOLOGIES.
The maximum payment rates established under this
subtitle for services for any of the following classes of serv-
ices shall be determined using the applicable payment
methodologies under the medicare program as follows:
(1) In the case of facility services described in
section 1832(a)(2)(F) of the Social Security Act fur-
nished in connection with a surgical procedure speci-
fied pursuant to section 1833(i)(1)(A) of such Act
and furnished to an individual in an ambulatory sur-
gical center described in such section, the methodol-
ogy described in section 1833(i)(2) of such Act.
(2) For the class of diagnostic testing services
described in section 102(a)(2)(C)—
(A) in the case of clinical laboratory serv-
ices, the methodology described in sections
1833(a)(2)(D) and 1833(h) of such Act, and
(B) in the case of other diagnostic services,
the applicable methodology under part B of title
XVIII of such Act.
(3) In the case of an item of durable medical
equipment (described in section 1834(a)(13) of such
Act), 
the 
methodology 
described 
in 
section
1834(a)(1) of such Act.
(4) In the case of prosthetic devices and
orthotics and prosthetics, the methodology described
in section 1834(h)(1)(A) of such Act.
(5) In the case of psychologists and clinical so-
cial workers, the methodologies described in section
1833(a)(1)(L) and 1833(a)(1)(F), respectively.
(6) For prescription drugs, the methodology de-
scribed in section 1834(e) of such Act.
(7) For renal dialysis services, home dialysis
supplies and equipment (as defined in section
1881(b)(8) of such Act), and self-care home dialysis
support services (as defined in section 1881(b)(9) of
such Act), the methodology described in section
1881(b) of such Act.
(8) For any other service within a class of serv-
ices for which the amount of payment made under
part B of the medicare program is determined on
the basis of reasonable or prevailing charge, the
methodology used for payment for such service
under such part.
SEC. 154. OTHER SERVICES.
In the case of services within a class of services for
which a methodology for establishing maximum payment
rates is not otherwise provided pursuant to the preceding
provisions of this subtitle, the Secretary shall establish an
appropriate methodology for establishing such rates, tak-
ing into account the payment methodology or methodolo-
gies in use under the medicare program or other health
benefit plans.
SEC. 
155. 
DEVELOPMENT 
OF 
PROSPECTIVELY-DETER-
MINED PAYMENT METHODOLOGIES.
(a) DEVELOPMENT
OF
PROSPECTIVE
PAYMENT
METHODOLOGIES FOR ALL CLASSES OF SERVICES.—
(1) PROPOSAL.—The Secretary shall develop
proposals to establish a methodology for each class
of services (or services within such a class) for which
payment rates are not specified in sections 151
through 153 and are not determined on a prospec-
tive basis pursuant to this subtitle under which pay-
ment rates for such services shall be determined on
a prospectively-determined basis.
(2) REPORT.—Not later than 3 years after the
date of the enactment of this Act, the Secretary
shall submit the proposals developed under para-
graph (1) to the Committee on Ways and Means and
the Committee on Energy and Commerce of the
House of Representatives, the Committee on Fi-
nance of the Senate.
(b) ADJUSTMENT TO PROSPECTIVE METHODOLOGY
FOR CHILDREN’S HOSPITALS.—If any methodology is im-
plemented to determine the amount of payments for the
operating costs of inpatient hospital services under the
medicare program on the basis of prospectively-determined
rates for hospitals whose inpatients are predominantly in-
dividuals under 18 years of age, the Secretary shall assure
that payments under such methodology shall—
(1) be made on a hospital-specific basis;
(2) be based on the resource requirements of
the population receiving services from such hospitals;
and
(3) be determined by using pediatric-specific in-
patient data.
PART 3—MEDICARE PAYMENT ADJUSTMENTS
SEC. 161. CONFORMING MEDICARE PAYMENT RATES TO
MEDICARE HEALTH EXPENDITURE ALLOCA-
TIONS.
(a) IN GENERAL.—Notwithstanding any other provi-
sion of law (including the amendments made by title IV
of this Act), but subject to section 140(a)(2), the Sec-
retary shall adjust the payment rate or allowance (or, in
the absence of such a rate, payment amount) otherwise
applied under the medicare program (and any maximum
charge limits or payment limits imposed under such pro-
gram) for any health care service in a class of services
by the percentage payment adjustment specified by the
Secretary under subsection (b) for the class for the year
involved.
(b) PERCENTAGE
PAYMENT
ADJUSTMENT
COM-
PUTED.—Subject to section 125(b)(2)(A), at the same
time as the Secretary establishes maximum payment rates
under part 1, the Secretary shall compute and publish,
for each class of services for each year, such percentage
payment adjustment as the Secretary determines to be
necessary to assure that—
(1) aggregate medicare expenditures for such
class of services for the year subject to such adjust-
ment, does not exceed
(2) the allocation (under section 103(a)(2)(A))
of aggregate medicare expenditures attributable to
such class for the year less the product of such allo-
cation and the proportion of such allocation that the
Secretary estimates is attributable to services ex-
empt under section 140 from the establishment or
application of maximum payment rates under part
1.
(c) PUBLICATIONS.—In publishing payment rates
under the medicare program, the Secretary shall take into
account any percentage payment adjustment applied
under this section.
SEC. 162. ADJUSTMENTS TO MEDICARE PAYMENTS FOR
GRADUATE MEDICAL EDUCATION.
(a) DETERMINATION
OF FULL-TIME-EQUIVALENT
RESIDENTS DURING INITIAL RESIDENCY PERIOD.—
(1) EMPHASIS ON PRIMARY CARE.—Paragraph
(4)(C)(ii) of section 1886(h) of the Social Security
Act (42 U.S.C. 1395ww(h)) is amended by striking
‘‘is 1.00,’’ and inserting the following: ‘‘is—
‘‘(I) 1.1, in the case of a resident
who is a primary care resident (as de-
fined in paragraph (5)(H)),
‘‘(II) 1.0, in the case of a resi-
dent who is not a primary care resi-
dent and who specializes in internal
medicine or pediatrics,
‘‘(III) .9, in the case of a resi-
dent who is not described in subclause
(I) or (II) and who is in the initial 3
years of the residency period, or
‘‘(IV) .8, in the case of a resident
not described in subclause (I), (II), or
(III),’’.
(2) PRIMARY CARE RESIDENT DEFINED.—Para-
graph (5) of such section is amended—
(A) by redesignating subparagraph (H) as
subparagraph (I), and
(B) by inserting after subparagraph (G)
the following new subparagraph:
‘‘(H) PRIMARY
CARE
RESIDENT.—The
term ‘primary care resident’ means (in accord-
ance with criteria established by the Secretary)
a resident being trained in a distinct program
of family practice medicine, general practice,
general internal medicine, or general pediat-
rics.’’.
(b) EFFECTIVE DATE.—The amendments made by
subsection (a) shall apply to cost reporting periods begin-
ning on or after October 1, 1993.
TITLE II—MANAGED CARE AND
MANAGED COMPETITION
Subtitle A—Managed Care
SEC. 201. AUTHORIZATION FOR MANAGED CARE SYSTEMS
TO PAY LESS THAN MAXIMUM PAYMENT
RATES.
Nothing in this Act shall be construed as preventing
managed care systems from negotiating with providers
payment rates that are less than the maximum payment
rates established under title I.
SEC. 202. STAFF AND GROUP MODEL HEALTH MAINTE-
NANCE ORGANIZATIONS EXEMPT FROM MAX-
IMUM PAYMENT RATES.
Pursuant to section 140(b), the maximum payment
rates established under part 1 of subtitle C of title I shall
not apply to charges or payments for services furnished
to individuals who are enrolled in a staff or group model
health maintenance organization (as defined in section
2(b)(2)) with respect to health care services covered under
the subscriber agreement.
SEC. 203. REPEAL OF SUNSET OF DUAL CHOICE REQUIRE-
MENT.
Effective upon the enactment of this Act, section 7(b)
of the Health Maintenance Organization Amendments of
1988 (Public Law 100–517) is repealed and the provisions