Union Calendar No. 145
104TH CONGRESS
1ST SESSION
H. R. 2425
[Report No. 104–276, Parts I and II]
A BILL
To amend title XVIII of the Social Security Act to
preserve and reform the medicare program.
OCTOBER 16, 1995
Reported from the Committee on Ways and Means with
an amendment
Reported from the Committee on Commerce with an
amendment
Referral to the Committees on the Judiciary and Rules
extended for a period ending not later than October
16, 1995
The Committees on the Judiciary and Rules discharged;
committed to the Committee of the Whole House on
the State of the Union and ordered printed
IB
Union Calendar No. 145
104TH CONGRESS
1ST SESSION
H. R. 2425
[Report No. 104–276, Parts I and II]
To amend title XVIII of the Social Security Act to preserve and reform
the medicare program.
IN THE HOUSE OF REPRESENTATIVES
SEPTEMBER 29, 1995
Mr. ARCHER (for himself, Mr. BLILEY, Mr. BILIRAKIS, Mr. THOMAS, Mr.
HYDE, Mr. GREENWOOD, Mr. HASTERT, Mrs. JOHNSON of Connecticut,
and Mr. MCCRERY) introduced the following bill; which was referred to
the Committee on Ways and Means, and in addition to the Committees
on Commerce, the Judiciary, and Rules, for a period to be subsequently
determined by the Speaker, in each case for consideration of such provi-
sions as fall within the jurisdiction of the committee concerned
OCTOBER 16, 1995
Reported from the Committtee on Ways and Means with an amendment
[Strike out all after the enacting clause and insert the part printed in italic]
OCTOBER 16, 1995
Reported from the Committtee on Commerce with an amendment
[Strike out all after the enacting clause and insert the part printed in boldface roman]
OCTOBER 16, 1995
Referral to the Committees on the Judiciary and Rules extended for a period
ending not later than October 16, 1995
OCTOBER 16, 1995
The Committees on the Judiciary and Rules discharged; committed to the
Committee of the Whole House on the State of the Union and ordered printed
[For text of introduced bill, see copy of bill as introduced on September 29, 1995]
A BILL
To amend title XVIII of the Social Security Act to preserve
and reform the medicare program.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. PURPOSE.
The purpose of this Act is to reform the medicare pro-
gram, in order to preserve and protect the financial stabil-
ity of the program.
TITLE XV—MEDICARE
SEC. 15000. SHORT TITLE OF TITLE; AMENDMENTS AND
REFERENCES TO OBRA; TABLE OF CONTENTS
OF TITLE.
(a) SHORT TITLE.—This title may be cited as the
‘‘Medicare Preservation Act of 1995’’.
(b) AMENDMENTS TO SOCIAL SECURITY ACT.—Except
as otherwise specifically provided, whenever in this title an
amendment is expressed in terms of an amendment to or
repeal of a section or other provision, the reference shall
be considered to be made to that section or other provision
of the Social Security Act.
(c) REFERENCES TO OBRA.—In this title, the terms
‘‘OBRA–1986’’, ‘‘OBRA–1987’’, ‘‘OBRA–1989’’, ‘‘OBRA–
1990’’, and ‘‘OBRA–1993’’ refer to the Omnibus Budget
Reconciliation Act of 1986 (Public Law 99–509), the Omni-
bus Budget Reconciliation Act of 1987 (Public Law 100–
203), the Omnibus Budget Reconciliation Act of 1989 (Pub-
lic Law 101–239), the Omnibus Budget Reconciliation Act
of 1990 (Public Law 101–508), and the Omnibus Budget
Reconciliation Act of 1993 (Public Law 103–66), respec-
tively.
(d) TABLE OF CONTENTS OF TITLE.—The table of con-
tents of this title is as follows:
Sec. 15000. Short title of title; amendments and references to OBRA; table of con-
tents of title.
Subtitle A—MedicarePlus Program
PART 1—INCREASING CHOICE UNDER THE MEDICARE PROGRAM
Sec. 15001. Increasing choice under medicare.
Sec. 15002. MedicarePlus program.
‘‘PART C—PROVISIONS RELATING TO MEDICAREPLUS
‘‘Sec. 1851. Requirements for MedicarePlus organizations; high deductible/
medisave products.
‘‘Sec. 1852. Requirements relating to benefits, provision of services, enroll-
ment, and premiums.
‘‘Sec. 1853. Patient protection standards.
‘‘Sec. 1854. Provider-sponsored organizations.
‘‘Sec. 1855. Payments to MedicarePlus organizations.
‘‘Sec. 1856. Establishment of standards for MedicarePlus organizations and
products.
‘‘Sec. 1857. MedicarePlus certification.
‘‘Sec. 1858. Contracts with MedicarePlus organizations.’’
Sec. 15003. Duplication and coordination of medicare-related products.
Sec. 15004. Transitional rules for current medicare HMO program.
PART 2—SPECIAL RULES FOR MEDICAREPLUS MEDICAL SAVINGS ACCOUNTS
Sec. 15011. MedicarePlus MSA’s.
Sec. 15012. Certain rebates excluded from gross income.
PART 3—SPECIAL ANTITRUST RULE FOR PROVIDER SERVICE NETWORKS
Sec. 15021. Application of antitrust rule of reason to provider service networks.
PART 4—COMMISSIONS
Sec. 15031. Medicare Payment Review Commission.
Sec. 15032. Commission on the Effect of the Baby Boom Generation on the Medi-
care Program.
Sec. 15033. Change in appointment of Administrator of HCFA.
PART 5—TREATMENT OF HOSPITALS WHICH PARTICIPATE IN PROVIDER-
SPONSORED ORGANIZATIONS
Sec. 15041. Treatment of hospitals which participate in provider-sponsored orga-
nizations.
Subtitle B—Preventing Fraud and Abuse
Sec. 15101. Increasing awareness of fraud and abuse.
Sec. 15102. Beneficiary incentive programs.
Sec. 15103. Intermediate sanctions for medicare health maintenance organiza-
tions.
Sec. 15104. Voluntary disclosure program.
Sec. 15105. Revisions to current sanctions.
Sec. 15106. Direct spending for anti-fraud activities under medicare.
Sec. 15107. Permitting carriers to carry out prior authorization for certain items
of durable medical equipment.
Sec. 15108. Establishment of Health Care Anti-Fraud Task Force.
Sec. 15109. Study of adequacy of private quality assurance programs.
Sec. 15110. Penalty for false certification for home health services.
Subtitle C—Regulatory Relief
PART 1—PHYSICIAN OWNERSHIP REFERRAL REFORM
Sec. 15201. Repeal of prohibitions based on compensation arrangements.
Sec. 15202. Revision of designated health services subject to prohibition.
Sec. 15203. Delay in implementation until promulgation of regulations.
Sec. 15204. Exceptions to prohibition.
Sec. 15205. Repeal of reporting requirements.
Sec. 15206. Preemption of State law.
Sec. 15207. Effective date.
PART 2—OTHER MEDICARE REGULATORY RELIEF
Sec. 15211. Repeal of Medicare and Medicaid Coverage Data Bank.
Sec. 15212. Clarification of level of intent required for imposition of sanctions.
Sec. 15213. Additional exception to anti-kickback penalties for managed care ar-
rangements.
Sec. 15214. Solicitation and publication of modifications to existing safe harbors
and new safe harbors.
Sec. 15215. Issuance of advisory opinions under title XI.
Sec. 15216. Prior notice of changes in billing and claims processing requirements
for physicians’ services.
PART 3—PROMOTING PHYSICIAN SELF-POLICING
Sec. 15221. Exemption from antitrust laws for certain activities of medical self-
regulatory entities.
Subtitle D—Medical Liability Reform
PART 1—GENERAL PROVISIONS
Sec. 15301. Federal reform of health care liability actions.
Sec. 15302. Definitions.
Sec. 15303. Effective date.
PART 2—UNIFORM STANDARDS FOR HEALTH CARE LIABILITY ACTIONS
Sec. 15311. Statute of limitations.
Sec. 15312. Calculation and payment of damages.
Sec. 15313. Alternative dispute resolution.
Subtitle E—Teaching Hospitals and Graduate Medical
Education
PART 1—TEACHING HOSPITAL AND GRADUATE MEDICAL EDUCATION TRUST
FUND
Sec. 15401. Establishment of Fund; payments to teaching hospitals.
‘‘TITLE XXII—TEACHING HOSPITAL AND GRADUATE MEDICAL
EDUCATION TRUST FUND
‘‘PART A—ESTABLISHMENT OF FUND
‘‘Sec. 2201. Establishment of Fund.
‘‘PART B—PAYMENTS TO TEACHING HOSPITALS
‘‘Subpart 1—Requirement of Payments
‘‘Sec. 2211. Formula payments to teaching hospitals.
‘‘Subpart 2—Amount Relating to Indirect Costs of Graduate Medical
Education
‘‘Sec. 2221. Determination of amount relating to indirect costs.
‘‘Sec. 2222. Indirect costs; special rules regarding determination of hospital-
specific percentage.
‘‘Sec. 2223. Indirect costs; alternative payments regarding teaching hospitals
in certain States.
‘‘Subpart 3—Amount Relating to Direct Costs of Graduate Medical Education
‘‘Sec. 2231. Determination of amount relating to direct costs.
‘‘Sec. 2232. Direct costs; special rules regarding determination of hospital-
specific percentage.
‘‘Sec. 2233. Direct costs; authority for payments to consortia of providers.
‘‘Sec. 2234. Direct costs; alternative payments regarding teaching hospitals
in certain States.
‘‘Subpart 4—General Provisions
‘‘Sec. 2241. Adjustments in payment amounts.’’
PART 2—AMENDMENTS TO MEDICARE PROGRAM
Sec. 15411. Transfers to Teaching Hospital and Graduate Medical Education
Trust Fund.
Sec. 15412. Modification in payment policies regarding graduate medical edu-
cation.
PART 3—REFORM OF FEDERAL POLICIES REGARDING TEACHING HOSPITALS
AND GRADUATE MEDICAL EDUCATION
Sec. 15421. Establishment of advisory panel for recommending policies.
‘‘PART C—OTHER MATTERS
‘‘Sec. 2251. Advisory Panel on Reform in Financing of Teaching Hospitals
and Graduate Medical Education.’’
Subtitle F—Provisions Relating to Medicare Part A
PART 1—HOSPITALS
Subpart A—General Provisions Relating to Hospitals
Sec. 15501. Reductions in inflation updates for PPS hospitals.
Sec. 15502. Reductions in disproportionate share payment adjustments.
Sec. 15503. Payments for capital-related costs for inpatient hospital services.
Sec. 15504. Reduction in adjustment for indirect medical education.
Sec. 15505. Treatment of PPS-exempt hospitals.
Sec. 15506. Reduction in payments to hospitals for enrollees’ bad debts.
Sec. 15507. Permanent extension of hemophilia pass-through.
Sec. 15508. Conforming amendment to certification of Christian Science provid-
ers.
Subpart B—Provisions Relating to Rural Hospitals
Sec. 15511. Sole community hospitals.
Sec. 15512. Clarification of treatment of EAC and RPC hospitals.
Sec. 15513. Establishment of rural emergency access care hospitals.
Sec. 15514. Classification of rural referral centers.
Sec. 15515. Floor on area wage index.
PART 2—PAYMENTS TO SKILLED NURSING FACILITIES
Sec. 15521. Payments for routine service costs.
Sec. 15522. Incentives for cost effective management of covered non-routine serv-
ices.
Sec. 15523. Payments for routine service costs.
Sec. 15524. Reductions in payment for capital-related costs.
Sec. 15525. Treatment of items and services paid for under part B.
Sec. 15526. Certification of facilities meeting revised nursing home reform stand-
ards.
Sec. 15527. Medical review process.
Sec. 15528. Report by Medicare Payment Review Commission.
Sec. 15529. Effective date.
Subtitle G—Provisions Relating to Medicare Part B
PART 1—PAYMENT REFORMS
Sec. 15601. Payments for physicians’ services.
Sec. 15602. Elimination of formula-driven overpayments for certain outpatient
hospital services.
Sec. 15603. Reduction in updates to payment amounts for durable medical equip-
ment.
Sec. 15604. Reduction in updates to payment amounts for clinical diagnostic lab-
oratory tests.
Sec. 15605. Extension of reductions in payments for costs of hospital outpatient
services.
Sec. 15606. Freeze in payments for ambulatory surgical center services.
Sec. 15607. Rural emergency access care hospitals.
PART 2—PART B PREMIUM
Sec. 15611. Extension of part B premium.
Sec. 15612. Income-related reduction in medicare subsidy.
PART 3—ADMINISTRATIVE SIMPLIFICATION FOR LABORATORY SERVICES
Sec. 15621. Administrative simplification for laboratory services.
PART 4—COVERAGE OF CERTAIN ANTI-NAUSEA DRUGS
Sec. 15631. Coverage of oral anti-nausea drugs under chemotherapeutic regimen.
Sec. 15632. Effective date.
PART 5—COVERAGE OF CERTAIN SERVICES ORDERED OR REFERRED BY
CHIROPRACTORS
Sec. 15641. Coverage of Certain Services Ordered or Referred by Chiropractors.
Subtitle H—Provisions Relating to Medicare Parts A and B
PART 1—PAYMENT FOR HOME HEALTH SERVICES
Sec. 15701. Payment for home health services.
Sec. 15702. Maintaining savings resulting from temporary freeze on payment in-
creases for home health services.
Sec. 15703. Extension of waiver of presumption of lack of knowledge of exclusion
from coverage for home health agencies.
Sec. 15704. Study of coverage of services of Christian Science providers.
PART 2—MEDICARE SECONDARY PAYER IMPROVEMENTS
Sec. 15711. Extension and expansion of existing requirements.
Sec. 15712. Improvements in recovery of payments.
Sec. 15713. Prohibiting retroactive application of policy regarding ESRD bene-
ficiaries enrolled in primary plans.
PART 3—FAILSAFE
Sec. 15721. Failsafe budget mechanism.
PART 4—ADMINISTRATIVE SIMPLIFICATION
Sec. 15731. Standards for medicare information transactions and data elements.
PART 5—OTHER PROVISIONS RELATING TO PARTS A AND B
Sec. 15741. Clarification of medicare coverage of items and services associated
with certain medical devices approved for investigational use.
Sec. 15742. Additional exclusion from coverage.
Subtitle A, Part 1
Subtitle I—Clinical Laboratories
Sec. 15801. Exemption of physician office laboratories.
Subtitle J—Lock-Box Provisions for Medicare Part B Savings
from Growth Reductions
Sec. 15901. Establishment of Medicare Growth Reduction Trust Fund for Part B
savings.
Subtitle A—MedicarePlus Program
PART 1—INCREASING CHOICE UNDER THE
MEDICARE PROGRAM
SEC. 15001. INCREASING CHOICE UNDER MEDICARE.
(a) IN GENERAL.—Title XVIII is amended by insert-
ing after section 1804 the following new section:
‘‘PROVIDING FOR CHOICE OF COVERAGE
‘‘SEC. 1805. (a) CHOICE OF COVERAGE.—
‘‘(1) IN GENERAL.—Subject to the provisions of
this section, every individual who is entitled to bene-
fits under part A and enrolled under part B shall
elect to receive benefits under this title through one of
the following:
‘‘(A) 
THROUGH
FEE-FOR-SERVICE
SYS-
TEM.—Through the provisions of parts A and B.
‘‘(B) THROUGH
A MEDICAREPLUS
PROD-
UCT.—Through a MedicarePlus product (as de-
fined in paragraph (2)), which may be—
‘‘(i) a high deductible/medisave product
(and a contribution into a MedicarePlus
medical savings account (MSA)),
Subtitle A, Part 1
‘‘(ii) a product offered by a provider-
sponsored organization,
‘‘(iii) a product offered by an organi-
zation that is a Taft-Hartley plan or asso-
ciation, or
‘‘(iv) a product providing for benefits
on a fee-for-service or other basis.
‘‘(2) MEDICAREPLUS
PRODUCT
DEFINED.—For
purposes of this section and part C, the term
‘MedicarePlus product’ means health benefits coverage
offered under a policy, contract, or plan by a
MedicarePlus organization (as defined in section
1851(a)) pursuant to and in accordance with a con-
tract under section 1857.
‘‘(3) TERMINOLOGY RELATING TO OPTIONS.—For
purposes of this section and part C—
‘‘(A) NON-MEDICARE-PLUS OPTION.—An in-
dividual who has made the election described in
paragraph (1)(A) is considered to have elected
the ‘Non-MedicarePlus option’.
‘‘(B) MEDICAREPLUS OPTION.—An individ-
ual who has made the election described in para-
graph (1)(B) to obtain coverage through a
MedicarePlus product is considered to have elect-
ed the ‘MedicarePlus option’ for that product.
Subtitle A, Part 1
‘‘(b) SPECIAL RULES.—
‘‘(1) RESIDENCE REQUIREMENT.—Except as the
Secretary may otherwise provide, an individual is el-
igible to elect a MedicarePlus product offered by a
MedicarePlus organization only if the organization in
relation to the product serves the geographic area in
which the individual resides.
‘‘(2) AFFILIATION REQUIREMENTS FOR CERTAIN
PRODUCTS.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (B), an individual is eligible to elect a
MedicarePlus product offered by a limited enroll-
ment MedicarePlus organization (as defined in
section 1852(c)(4)(D)) only if—
‘‘(i) the individual is eligible under
section 1852(c)(4) to make such election,
and
‘‘(ii) in the case of a MedicarePlus or-
ganization that is a Taft-Hartley sponsor
(as defined in section 1852(c)(4)), the indi-
vidual 
elected 
under 
this 
section 
a
MedicarePlus product offered by the sponsor
during the first enrollment period in which
the individual was eligible to make such
election with respect to such sponsor.
Subtitle A, Part 1
‘‘(B) 
NO
REELECTION
AFTER
DISENROLLMENT FOR CERTAIN PRODUCTS.—An
individual is not eligible to elect a MedicarePlus
product offered by a MedicarePlus organization
that is a Taft-Hartley sponsor if the individual
previously had elected a MedicarePlus product
offered by the organization and had subsequently
discontinued to elect such a product offered by
the organization.
‘‘(3) 
SPECIAL
RULE
FOR
CERTAIN
ANNU-
ITANTS.—An individual is not eligible to elect a high
deductible/medisave product if the individual is enti-
tled to benefits under chapter 89 of title 5, United
States Code, as an annuitant or spouse of an annu-
itant.
‘‘(c) PROCESS FOR EXERCISING CHOICE.—
‘‘(1) IN GENERAL.—The Secretary shall establish
a process through which elections described in sub-
section (a) are made and changed, including the form
and manner in which such elections are made and
changed. Such elections shall be made or changed only
during coverage election periods specified under sub-
section (e) and shall become effective as provided in
subsection (f).
Subtitle A, Part 1
‘‘(2) EXPEDITED
IMPLEMENTATION.—The Sec-
retary shall establish the process of electing coverage
under this section during the transition period (as de-
fined in subsection (e)(1)(B)) in such an expedited
manner as will permit such an election for
MedicarePlus products in an area as soon as such
products become available in that area.
‘‘(3) COORDINATION THROUGH MEDICARE-PLUS
ORGANIZATIONS.—
‘‘(A) ENROLLMENT.—Such process shall
permit an individual who wishes to elect a
MedicarePlus product offered by a MedicarePlus
organization to make such election through the
filing of an appropriate election form with the
organization.
‘‘(B) DISENROLLMENT.—Such process shall
permit an individual, who has elected a
MedicarePlus product offered by a MedicarePlus
organization and who wishes to terminate such
election, to terminate such election through the
filing of an appropriate election form with the
organization.
‘‘(4) DEFAULT.—
‘‘(A) INITIAL ELECTION.—
Subtitle A, Part 1
‘‘(i) IN
GENERAL.—Subject to clause
(ii), an individual who fails to make an
election during an initial election period
under subsection (e)(1) is deemed to have
chosen the Non-MedicarePlus option.
‘‘(ii) SEAMLESS
CONTINUATION
OF
COVERAGE.—The Secretary shall establish
procedures under which individuals who are
enrolled with a MedicarePlus organization
at the time of the initial election period and
who fail to elect to receive coverage other
than through the organization are deemed
to have elected an appropriate MedicarePlus
product offered by the organization.
‘‘(B) CONTINUING PERIODS.—An individual
who has made (or deemed to have made) an elec-
tion under this section is considered to have con-
tinued to make such election until such time
as—
‘‘(i) the individual changes the election
under this section, or
‘‘(ii) a MedicarePlus product is discon-
tinued, if the individual had elected such
product at the time of the discontinuation.
Subtitle A, Part 1
‘‘(5) AGREEMENTS WITH COMMISSIONER OF SO-
CIAL SECURITY TO PROMOTE EFFICIENT ADMINISTRA-
TION.—In order to promote the efficient administra-
tion of this section and the MedicarePlus program
under part C, the Secretary may enter into an agree-
ment with the Commissioner of Social Security under
which the Commissioner performs administrative re-
sponsibilities relating to enrollment and disenrollment
in MedicarePlus products under this section.
‘‘(d) PROVISION OF BENEFICIARY INFORMATION TO
PROMOTE INFORMED CHOICE.—
‘‘(1) IN GENERAL.—The Secretary shall provide
for activities under this subsection to disseminate
broadly information to medicare beneficiaries (and
prospective medicare beneficiaries) on the coverage
options provided under this section in order to pro-
mote an active, informed selection among such op-
tions. Such information shall be made available on
such a timely basis (such as 6 months before the date
an individual would first attain eligibility for medi-
care on the basis of age) as to permit individuals to
elect the MedicarePlus option during the initial elec-
tion period described in subsection (e)(1).
‘‘(2) USE OF NONFEDERAL ENTITIES.—The Sec-
retary shall, to the maximum extent feasible, enter
Subtitle A, Part 1
into contracts with appropriate non-Federal entities
to carry out activities under this subsection.
‘‘(3) SPECIFIC ACTIVITIES.—In carrying out this
subsection, the Secretary shall provide for at least the
following 
activities 
in 
all 
areas 
in 
which
MedicarePlus products are offered:
‘‘(A) INFORMATION BOOKLET.—
‘‘(i) IN GENERAL.—The Secretary shall
publish an information booklet and dissemi-
nate the booklet to all individuals eligible to
elect the MedicarePlus option under this
section during coverage election periods.
‘‘(ii) INFORMATION
INCLUDED.—The
booklet shall include information presented
in plain English and in a standardized for-
mat regarding—
‘‘(I) the benefits (including cost-
sharing) and premiums for the various
MedicarePlus products in the areas in-
volved;
‘‘(II) the quality of such products,
including consumer satisfaction infor-
mation; and
Subtitle A, Part 1
‘‘(III) rights and responsibilities
of medicare beneficiaries under such
products.
‘‘(iii) PERIODIC UPDATING.—The book-
let shall be updated on a regular basis (not
less often than once every 12 months) to re-
flect 
changes 
in 
the 
availability 
of
MedicarePlus products and the benefits and
premiums for such products.
‘‘(B) TOLL-FREE NUMBER.—The Secretary
shall maintain a toll-free number for inquiries
regarding MedicarePlus options and the oper-
ation of part C.
‘‘(C) GENERAL INFORMATION IN MEDICARE
HANDBOOK.—The Secretary shall include infor-
mation about the MedicarePlus option provided
under this section in the annual notice of medi-
care benefits under section 1804.
‘‘(e) COVERAGE ELECTION PERIODS.—
‘‘(1) INITIAL CHOICE UPON ELIGIBILITY TO MAKE
ELECTION.—
‘‘(A) IN GENERAL.—In the case of an indi-
vidual who first becomes entitled to benefits
under part A and enrolled under part B after
the beginning of the transition period (as defined
Subtitle A, Part 1
in subparagraph (B)), the individual shall make
the election under this section during a period
(of a duration and beginning at a time specified
by the Secretary) at the first time the individual
both is entitled to benefits under part A and en-
rolled under part B. Such period shall be speci-
fied in a manner so that, in the case of an indi-
vidual who elects a MedicarePlus product during
the period, coverage under the product becomes
effective as of the first date on which the individ-
ual may receive such coverage.
‘‘(B) TRANSITION
PERIOD
DEFINED.—In
this subsection, the term ‘transition period’
means, with respect to an individual in an area,
the period beginning on the first day of the first
month in which a MedicarePlus product is first
made available to individuals in the area and
ending with the month preceding the beginning
of the first annual, coordinated election period
under paragraph (3).
‘‘(2) DURING TRANSITION PERIOD.—Subject to
paragraph (6)—
‘‘(A) CONTINUOUS OPEN ENROLLMENT INTO
A MEDICARE-PLUS OPTION.—During the transi-
tion period, an individual who is eligible to
Subtitle A, Part 1
make an election under this section and who has
elected the non-MedicarePlus option may change
such election to a MedicarePlus option at any
time.
‘‘(B) OPEN DISENROLLMENT BEFORE END
OF TRANSITION PERIOD.—
‘‘(i) IN GENERAL.—During the transi-
tion period, an individual who has elected
a MedicarePlus option for a MedicarePlus
product may change such election to an-
other MedicarePlus product or to the non-
MedicarePlus option.
‘‘(ii) 
SPECIAL
RULE.—During 
the
transition period, an individual who has
elected a high deductible/medisave product
may 
not 
change 
such 
election 
to 
a
MedicarePlus product that is not a high de-
ductible/medisave product unless the indi-
vidual has had such election in effect for 12
months.
‘‘(3) ANNUAL, 
COORDINATED
ELECTION
PE-
RIOD.—
‘‘(A) IN GENERAL.—Subject to paragraph
(5), each individual who is eligible to make an
Subtitle A, Part 1
election under this section may change such elec-
tion during annual, coordinated election periods.
‘‘(B) ANNUAL, COORDINATED ELECTION PE-
RIOD.—For purposes of this section, the term
‘annual, coordinated election period’ means, with
respect to a calendar year (beginning with
1998), the month of October before such year.
‘‘(C) MEDICAREPLUS HEALTH FAIR DURING
OCTOBER, 1996.—In the month of October, 1996,
the Secretary shall provide for a nationally co-
ordinated educational and publicity campaign to
inform individuals, who are eligible to elect
MedicarePlus products, about such products and
the election process provided under this section
(including the annual, coordinated election peri-
ods that occur in subsequent years).
‘‘(4) SPECIAL 90-DAY DISENROLLMENT OPTION.—
‘‘(A) IN GENERAL.—In the case of the first
time an individual elects a MedicarePlus option
(other than a high deductible/medisave product)
under this section, the individual may dis-
continue such election through the filing of an
appropriate notice during the 90-day period be-
ginning on the first day on which the individ-
Subtitle A, Part 1
tion or termination of the individual’s enroll-
ment on the basis described in clause (i) or (ii)
section 1852(c)(3)(B));
‘‘(C) the individual demonstrates (in ac-
cordance with guidelines established by the Sec-
retary) that—
‘‘(i) the organization offering the prod-
uct substantially violated a material provi-
sion of the organization’s contract under
part C in relation to the individual and the
product; or
‘‘(ii) the organization (or an agent or
other entity acting on the organization’s be-
half) materially misrepresented the prod-
uct’s provisions in marketing the product to
the individual; or
‘‘(D) the individual meets such other condi-
tions as the Secretary may provide.
‘‘(6) SPECIAL
RULE
FOR
HIGH
DEDUCTIBLE/
MEDISAVE PRODUCTS.—Notwithstanding the previous
provisions of this subsection, an individual may elect
a high deductible/medisave product only during an
annual, coordinated election period described in para-
graph (3)(B) or during the month of October, 1996.
‘‘(f) EFFECTIVENESS OF ELECTIONS.—
Subtitle A, Part 1
‘‘(1) DURING INITIAL COVERAGE ELECTION PE-
RIOD.—An election of coverage made during the ini-
tial 
coverage 
election 
period 
under 
subsection
(e)(1)(A) shall take effect upon the date the individual
becomes entitled to benefits under part A and enrolled
under part B, except as the Secretary may provide
(consistent with section 1838) in order to prevent ret-
roactive coverage.
‘‘(2) 
DURING
TRANSITION; 
90-DAY
DISENROLLMENT
OPTION.—An election of coverage
made under subsection (e)(2) and an election to dis-
continue a MedicarePlus option under subsection
(e)(4) at any time shall take effect with the first cal-
endar month following the date on which the election
is made.
‘‘(3) ANNUAL, COORDINATED ELECTION PERIOD
AND MEDISAVE ELECTION.—An election of coverage
made during an annual, coordinated election period
(as defined in subsection (e)(3)(B)) in a year or for
a high deductible/medisave product shall take effect as
of the first day of the following year.
‘‘(4) OTHER PERIODS.—An election of coverage
made during any other period under subsection (e)(5)
shall take effect in such manner as the Secretary pro-
vides in a manner consistent (to the extent prac-
Subtitle A, Part 1
ticable) with protecting continuity of health benefit
coverage.
‘‘(g) EFFECT OF ELECTION OF MEDICAREPLUS OP-
TION.—Subject to the provisions of section 1855(f), pay-
ments under a contract with a MedicarePlus organization
under section 1857(a) with respect to an individual electing
a MedicarePlus product offered by the organization shall
be instead of the amounts which (in the absence of the con-
tract) would otherwise be payable under parts A and B for
items and services furnished to the individual.
‘‘(h) ADMINISTRATION.—
‘‘(1) IN GENERAL.—This part and sections 1805
and 1876 shall be administered through an operating
division (A) that is established or identified by the
Secretary in the Department of Health and Human
Services, (B) that is separate from the Health Care
Financing Administration, and (C) the primary
function of which is the administration of this part
and such sections. The director of such division shall
be of equal pay and rank to that of the individual re-
sponsible for overall administration of parts A and B.
‘‘(2) TRANSFER
AUTHORITY.—The Secretary
shall transfer such personnel, administrative support
systems, assets, records, funds, and other resources in
the Health Care Financing Administration to the op-
Subtitle A, Part 1
erating division referred to in paragraph (1) as are
used in the administration of section 1876 and as
may be required to implement the provisions referred
to in such paragraph promptly and efficiently.’’.
SEC. 15002. MEDICAREPLUS PROGRAM.
(a) IN GENERAL.—Title XVIII is amended by redesig-
nating part C as part D and by inserting after part B
the following new part:
‘‘PART C—PROVISIONS RELATING TO MEDICAREPLUS
‘‘REQUIREMENTS FOR MEDICAREPLUS ORGANIZATIONS;
HIGH DEDUCTIBLE/MEDISAVE PRODUCTS
‘‘SEC. 1851. (a) MEDICAREPLUS ORGANIZATION DE-
FINED.—In this part, subject to the succeeding provisions
of this section, the term ‘MedicarePlus organization’ means
a public or private entity that is certified under section
1857 as meeting the requirements and standards of this
part for such an organization.
‘‘(b) ORGANIZED
AND
LICENSED
UNDER
STATE
LAW.—
‘‘(1) IN GENERAL.—A MedicarePlus organization
shall be organized and licensed under State law to
offer health insurance or health benefits coverage in
each State in which it offers a MedicarePlus product.
‘‘(2) EXCEPTION
FOR
TAFT-HARTLEY
SPON-
SORS.—Paragraph (1) shall not apply to an
Subtitle A, Part 1
MedicarePlus organization that is a Taft-Hartley
sponsor (as defined in section 1852(c)(4)).
‘‘(3) EXCEPTION FOR PROVIDER-SPONSORED OR-
GANIZATIONS.—Paragraph (1) shall not apply to a
MedicarePlus organization that is a provider-spon-
sored organization (as defined in section 1854(a)) ex-
cept to the extent provided under section 1857(c).
‘‘(4) 
EXCEPTION
FOR
QUALIFIED
ASSOCIA-
TIONS.—Paragraph (1) shall not apply to a
MedicarePlus organization that is a qualified associa-
tion (as defined in section 1852(c)(4)(B)).
‘‘(c) PREPAID PAYMENT.—A MedicarePlus organiza-
tion shall be compensated (except for deductibles, coinsur-
ance, and copayments) for the provision of health care serv-
ices to enrolled members by a payment which is paid on
a periodic basis without regard to the date the health care
services are provided and which is fixed without regard to
the frequency, extent, or kind of health care service actually
provided to a member.
‘‘(d) ASSUMPTION OF FULL FINANCIAL RISK.—The
MedicarePlus organization shall assume full financial risk
on a prospective basis for the provision of the health care
services (other than hospice care) for which benefits are re-
quired to be provided under section 1852(a)(1), except that
the organization—
Subtitle A, Part 1
‘‘(1) may obtain insurance or make other ar-
rangements for the cost of providing to any enrolled
member such services the aggregate value of which ex-
ceeds $5,000 in any year,
‘‘(2) may obtain insurance or make other ar-
rangements for the cost of such services provided to its
enrolled members other than through the organization
because medical necessity required their provision be-
fore they could be secured through the organization,
‘‘(3) may obtain insurance or make other ar-
rangements for not more than 90 percent of the
amount by which its costs for any of its fiscal years
exceed 115 percent of its income for such fiscal year,
and
‘‘(4) may make arrangements with physicians or
other health professionals, health care institutions, or
any combination of such individuals or institutions
to assume all or part of the financial risk on a pro-
spective basis for the provision of basic health services
by the physicians or other health professionals or
through the institutions.
In the case of a MedicarePlus organization that is a Taft-
Hartley sponsor (as defined in section 1852(c)(4)(A)) or a
qualified association (as defined in section 1852(c)(4)(B)),
this subsection shall not apply with respect to MedicarePlus
Subtitle A, Part 1
products offered by such organization and issued by an or-
ganization to which subsection (b)(1) applies or by a pro-
vider-sponsored organization (as defined in section
1854(a)).
‘‘(e) PROVISION AGAINST RISK OF INSOLVENCY.—
‘‘(1) IN GENERAL.—Each MedicarePlus organi-
zation shall meet standards under section 1856 relat-
ing to the financial solvency and capital adequacy of
the organization. Such standards shall take into ac-
count the nature and type of MedicarePlus products
offered by the organization.
‘‘(2) TREATMENT
OF
TAFT-HARTLEY
SPON-
SORS.—An entity that is a Taft-Hartley sponsor is
deemed to meet the requirement of paragraph (1).
‘‘(3) TREATMENT OF CERTAIN QUALIFIED ASSO-
CIATIONS.—An entity that is a qualified association
is deemed to meet the requirement of paragraph (1)
with respect to MedicarePlus products offered by such
association and issued by an organization to which
subsection (b)(1) applies or by a provider-sponsored
organization.
‘‘(f) HIGH DEDUCTIBLE/MEDISAVE PRODUCT DE-
FINED.—
Subtitle A, Part 1
‘‘(1) IN GENERAL.—In this part, the term ‘high
deductible/medisave product’ means a MedicarePlus
product that—
‘‘(A) provides reimbursement for at least the
items 
and 
services 
described 
in 
section
1852(a)(1) in a year but only after the enrollee
incurs countable expenses (as specified under the
product) equal to the amount of a deductible (de-
scribed in paragraph (2));
‘‘(B) counts as such expenses (for purposes
of such deductible) at least all amounts that
would have been payable under parts A and B
or by the enrollee if the enrollee had elected to re-
ceive benefits through the provisions of such
parts; and
‘‘(C) provides, after such deductible is met
for a year and for all subsequent expenses for
benefits referred to in subparagraph (A) in the
year, for a level of reimbursement that is not less
than—
‘‘(i) 100 percent of such expenses, or
‘‘(ii) 100 percent of the amounts that
would have been paid (without regard to
any deductibles or coinsurance) under parts
A and B with respect to such expenses,
Subtitle A, Part 1
whichever is less. Such term does not include the
MedicarePlus MSA itself or any contribution
into such account.
‘‘(2) DEDUCTIBLE.—The amount of deductible
under a high deductible/medisave product—
‘‘(A) for contract year 1997 shall be not
more than $10,000; and
‘‘(B) for a subsequent contract year shall be
not more than the maximum amount of such de-
ductible for the previous contract year under this
paragraph increased by the national average per
capita growth rate under section 1855(c)(3) for
the year.
If the amount of the deductible under subparagraph
(B) is not a multiple of $50, the amount shall be
rounded to the nearest multiple of $50.
‘‘(g) ORGANIZATIONS TREATED
AS MEDICAREPLUS
ORGANIZATIONS DURING TRANSITION.—Any of the follow-
ing organizations shall be considered to qualify as a
MedicarePlus organization for contract years beginning be-
fore January 1, 1998:
‘‘(1) HEALTH MAINTENANCE ORGANIZATIONS.—
An organization that is organized under the laws of
any State and that is a qualified health maintenance
organization (as defined in section 1310(d) of the
Subtitle A, Part 1
Public Health Service Act), an organization recog-
nized under State law as a health maintenance orga-
nization, or a similar organization regulated under
State law for solvency in the same manner and to the
same extent as such a health maintenance organiza-
tion.
‘‘(2) LICENSED
INSURERS.—An organization
that is organized under the laws of any State and—
‘‘(A) is licensed by a State agency as an in-
surer for the offering of health benefit coverage,
or
‘‘(B) is licensed by a State agency as a
service benefit plan,
but only for individuals residing in an area in which
the organization is licensed to offer health insurance
coverage.
‘‘(3) CURRENT RISK-CONTRACTORS.—An organi-
zation that is an eligible organization (as defined in
section 1876(b)) and that has a risk-sharing contract
in effect under section 1876 as of the date of the en-
actment of this section.
‘‘REQUIREMENTS RELATING TO BENEFITS, PROVISION OF
SERVICES, ENROLLMENT, AND PREMIUMS
‘‘SEC. 1852. (a) BENEFITS COVERED.—
‘‘(1) IN GENERAL.—Except as provided in sec-
tion 1851(f)(1) with respect to high deductible/
Subtitle A, Part 1
medisave products, each MedicarePlus product offered
under this part shall provide benefits for at least the
items and services for which benefits are available
under parts A and B consistent with the standards
for coverage of such items and services applicable
under this title.
‘‘(2) ORGANIZATION
AS
SECONDARY
PAYER.—
Notwithstanding any other provision of law, a
MedicarePlus organization may (in the case of the
provision of items and services to an individual
under this part under circumstances in which pay-
ment under this title is made secondary pursuant to
section 1862(b)(2)) charge or authorize the provider of
such services to charge, in accordance with the charges
allowed under such law or policy—
‘‘(A) the insurance carrier, employer, or
other entity which under such law, plan, or pol-
icy is to pay for the provision of such services,
or
‘‘(B) such individual to the extent that the
individual has been paid under such law, plan,
or policy for such services.
‘‘(3) 
SATISFACTION
OF
REQUIREMENT.—A
MedicarePlus product (other than a high deductible/
medisave product) offered by a MedicarePlus organi-
Subtitle A, Part 1
zation satisfies paragraph (1) with respect to benefits
for items and services if the following requirements
are met:
‘‘(A) FEE FOR SERVICE PROVIDERS.—In the
case of benefits furnished through a provider that
does not have a contract with the organization,
the product provides for at least the dollar
amount of payment for such items and services
as would otherwise be provided under parts A
and B.
‘‘(B) PARTICIPATING
PROVIDERS.—In the
case of benefits furnished through a provider that
has such a contract, the individual’s liability for
payment for such items and services does not ex-
ceed (after taking into account any deductible,
which does not exceed any deductible under parts
A and B) the lesser of the following:
‘‘(i) NON-MEDICAREPLUS LIABILITY.—
The amount of the liability that the indi-
vidual would have had (based on the pro-
vider being a participating provider) if the
individual had elected the non-MedicarePlus
option.
‘‘(ii) MEDICARE
COINSURANCE
AP-
PLIED TO PRODUCT PAYMENT RATES.—The
Subtitle A, Part 1
applicable coinsurance or copayment rate
(that would have applied under the non-
MedicarePlus option) of the payment rate
provided under the contract.
‘‘(b) ANTIDISCRIMINATION.—A MedicarePlus organi-
zation may not deny, limit, or condition the coverage or
provision of benefits under this part based on the health
status, claims experience, receipt of health care, medical his-
tory, or lack of evidence of insurability, of an individual.
‘‘(c) GUARANTEED ISSUE AND RENEWAL.—
‘‘(1) IN GENERAL.—Except as provided in this
subsection, a MedicarePlus organization shall provide
that at any time during which elections are accepted
under section 1805 with respect to a MedicarePlus
product offered by the organization, the organization
will accept without restrictions individuals who are
eligible to make such election.
‘‘(2) PRIORITY.—If the Secretary determines that
a MedicarePlus organization, in relation to a
MedicarePlus product it offers, has a capacity limit
and the number of eligible individuals who elect the
product under section 1805 exceeds the capacity limit,
the organization may limit the election of individuals
of the product under such section but only if priority
in election is provided—
Subtitle A, Part 1
‘‘(A) first to such individuals as have elect-
ed the product at the time of the determination,
and
‘‘(B) then to other such individuals in such
a manner that does not discriminate among the
individuals (who seek to elect the product) on a
basis described in paragraph (1).
‘‘(3) LIMITATION
ON
TERMINATION
OF
ELEC-
TION.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (B), a MedicarePlus organization may not
for any reason terminate the election of any in-
dividual under section 1805 for a MedicarePlus
product it offers.
‘‘(B) BASIS
FOR
TERMINATION
OF
ELEC-
TION.—A MedicarePlus organization may termi-
nate an individual’s election under section 1805
with respect to a MedicarePlus product it offers
if—
‘‘(i) any premiums required with re-
spect to such product are not paid on a
timely basis (consistent with standards
under section 1856 that provide for a grace
period for late payment of premiums),
Subtitle A, Part 1
‘‘(ii) the individual has engaged in
disruptive behavior (as specified in such
standards), or
‘‘(iii) the product is terminated with
respect to all individuals under this part.
Any individual whose election is so terminated is
deemed to have elected the Non-MedicarePlus op-
tion (as defined in section 1805(a)(3)(A)).
‘‘(C) ORGANIZATION OBLIGATION WITH RE-
SPECT
TO
ELECTION
FORMS.—Pursuant to a
contract under section 1858, each MedicarePlus
organization receiving an election form under
section 1805(c)(2) shall transmit to the Secretary
(at such time and in such manner as the Sec-
retary may specify) a copy of such form or such
other information respecting the election as the
Secretary may specify.
‘‘(4) SPECIAL RULES FOR LIMITED ENROLLMENT
MEDICAREPLUS ORGANIZATIONS.—
‘‘(A) TAFT-HARTLEY SPONSORS.—
‘‘(i) IN GENERAL.—Subject to subpara-
graph (C), a MedicarePlus organization
that is a Taft-Hartley sponsor (as defined
in clause (ii)) shall limit eligibility of en-
rollees under this part for MedicarePlus
Subtitle A, Part 1
products it offers to individuals who are en-
titled to obtain benefits through such prod-
ucts under the terms of an applicable collec-
tive bargaining agreement.
‘‘(ii) 
TAFT-HARTLEY
SPONSOR.—In
this part and section 1805, the term ‘Taft-
Hartley sponsor’ means, in relation to a
group health plan that is established or
maintained by two or more employers or
jointly by one or more employers and one or
more employee organizations, the associa-
tion, committee, joint board of trustees, or
other similar group of representatives of
parties who establish or maintain the plan.
‘‘(B) QUALIFIED ASSOCIATIONS.—
‘‘(i) IN GENERAL.—Subject to subpara-
graph (C), a MedicarePlus organization
that is a qualified association (as defined in
clause (iii)) shall limit eligibility of indi-
viduals under this part for products it offers
to individuals who are members of the asso-
ciation (or who are spouses of such individ-
uals).
‘‘(ii) LIMITATION ON TERMINATION OF
COVERAGE.—Such a qualifying association
Subtitle A, Part 1
offering a MedicarePlus product to an indi-
vidual may not terminate coverage of the
individual on the basis that the individual
is no longer a member of the association ex-
cept pursuant to a change of election during
an open election period occurring on or
after the date of the termination of member-
ship.
‘‘(iii) QUALIFIED
ASSOCIATION.—In
this part and section 1805, the term ‘quali-
fied association’ means an association, reli-
gious fraternal organization, or other orga-
nization (which may be a trade, industry,
or professional association, a chamber of
commerce, or a public entity association)
that the Secretary finds—
‘‘(I) has been formed for purposes
other than the sale of any health insur-
ance and does not restrict membership
based on the health status, claims expe-
rience, receipt of health care, medical
history, or lack of evidence of insur-
ability, of an individual,
Subtitle A, Part 1
‘‘(II) does not exist solely or prin-
cipally for the purpose of selling insur-
ance, and
‘‘(III) has at least 1,000 individ-
ual members or 200 employer members.
Such term includes a subsidiary or corpora-
tion that is wholly owned by one or more
qualified organizations.
‘‘(C) LIMITATION.—Rules of eligibility to
carry out the previous subparagraphs of this
paragraph shall not have the effect of denying
eligibility to individuals on the basis of health
status, claims experience, receipt of health care,
medical history, or lack of evidence of insurabil-
ity.
‘‘(D) LIMITED ENROLLMENT MEDICAREPLUS
ORGANIZATION.—In this part and section 1805,
the term ‘limited enrollment MedicarePlus orga-
nization’ means a MedicarePlus organization
that is a Taft-Hartley sponsor or a qualified as-
sociation.
‘‘(E) EMPLOYER, ETC.—In this paragraph,
the terms ‘employer’, ‘employee organization’,
and ‘group health plan’ have the meanings given
such terms for purposes of part 6 of subtitle B
Subtitle A, Part 1
of title I of the Employee Retirement Income Se-
curity Act of 1974.
‘‘(d) SUBMISSION AND CHARGING OF PREMIUMS.—
‘‘(1) IN GENERAL.—Each MedicarePlus organi-
zation shall file with the Secretary each year, in a
form and manner and at a time specified by the Sec-
retary—
‘‘(A) the amount of the monthly premiums
for coverage under each MedicarePlus product it
offers under this part in each payment area (as
determined for purposes of section 1855) in
which the product is being offered; and
‘‘(B) the enrollment capacity in relation to
the product in each such area.
‘‘(2) AMOUNTS
OF
PREMIUMS
CHARGED.—The
amount of the monthly premium charged by a
MedicarePlus organization for a MedicarePlus prod-
uct offered in a payment area to an individual under
this part shall be equal to the amount (if any) by
which—
‘‘(A) the amount of the monthly premium
for the product for the period involved, as estab-
lished under paragraph (3) and submitted under
paragraph (1), exceeds
Subtitle A, Part 1
‘‘(B)(i) 1⁄12 of the annual MedicarePlus
capitation rate specified in section 1855(b)(2)
for the area and period involved, or (ii) in the
case of a high deductible/medisave product, the
monthly adjusted MedicarePlus capitation rate
specified in section 1855(b)(1) for the individual
and period involved.
‘‘(3) UNIFORM PREMIUM.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), the premiums charged by a
MedicarePlus organization under this part may
not vary among individuals who reside in the
same payment area.
‘‘(B) EXCEPTION FOR HIGH DEDUCTIBLE/
MEDISAVE PRODUCTS.—A MedicarePlus organi-
zation shall establish premiums for any high de-
ductible/medisave product it offers in a payment
area based on each of the risk adjustment cat-
egories established for purposes of determining
the amount of the payment to MedicarePlus or-
ganizations under section 1855(b)(1) and using
the identical demographic and other adjustments
among such categories as are used for such pur-
poses.
Subtitle A, Part 1
‘‘(4) TERMS AND CONDITIONS OF IMPOSING PRE-
MIUMS.—Each MedicarePlus organization shall per-
mit the payment of monthly premiums on a monthly
basis and may terminate election of individuals for a
MedicarePlus product for failure to make premium
payments 
only 
in 
accordance 
with 
subsection
(c)(3)(B).
‘‘(5) RELATION OF PREMIUMS AND COST-SHAR-
ING TO BENEFITS.—In no case may the portion of a
MedicarePlus organization’s premium rate and the
actuarial value of its deductibles, coinsurance, and
copayments charged (to the extent attributable to the
minimum benefits described in subsection (a)(1) and
not count any amount attributable to balance billing)
to individuals who are enrolled under this part with
the organization exceed the actuarial value of the co-
insurance and deductibles that would be applicable on
the average to individuals enrolled under this part
with the organization (or, if the Secretary finds that
adequate data are not available to determine that ac-
tuarial value, the actuarial value of the coinsurance
and deductibles applicable on the average to individ-
uals in the area, in the State, or in the United States,
eligible to enroll under this part with the organiza-
tion, or other appropriate data) and entitled to bene-
Subtitle A, Part 1
fits under part A and enrolled under part B if they
were not members of a MedicarePlus organization.
‘‘(e) REQUIREMENT FOR ADDITIONAL BENEFITS, PART
B PREMIUM DISCOUNT REBATES, OR BOTH.—
‘‘(1) REQUIREMENT.—
‘‘(A) IN GENERAL.—Each MedicarePlus or-
ganization (in relation to a MedicarePlus prod-
uct it offers) shall provide that if there is an ex-
cess amount (as defined in subparagraph (B))
for the product for a contract year, subject to the
succeeding provisions of this subsection, the orga-
nization shall provide to individuals such addi-
tional benefits (as the organization may specify),
a monetary rebate (paid on a monthly basis) of
the part B monthly premium, or a combination
thereof, in a total value which is at least equal
to the adjusted excess amount (as defined in sub-
paragraph (C)).
‘‘(B) EXCESS
AMOUNT.—For purposes of
this paragraph, the ‘excess amount’, for an orga-
nization for a product, is the amount (if any) by
which—
‘‘(i) the average of the capitation pay-
ments made to the organization under this
Subtitle A, Part 1
part for the product at the beginning of con-
tract year, exceeds
‘‘(ii) the actuarial value of the mini-
mum benefits described in subsection (a)(1)
under the product for individuals under
this part, as determined based upon an ad-
justed community rate described in para-
graph (5).
‘‘(C) ADJUSTED
EXCESS
AMOUNT.—For
purposes of this paragraph, the ‘adjusted excess
amount’, for an organization for a product, is
the excess amount reduced to reflect any amount
withheld and reserved for the organization for
the year under paragraph (3).
‘‘(D) NO APPLICATION TO HIGH DEDUCT-
IBLE/MEDISAVE
PRODUCT.—Subparagraph (A)
shall not apply to a high deductible/medisave
product.
‘‘(E) UNIFORM
APPLICATION.—This para-
graph shall be applied uniformly for all enrollees
for a product in a service area.
‘‘(F) CONSTRUCTION.—Nothing in this sub-
section shall be construed as preventing a
MedicarePlus organization from providing health
care benefits that are in addition to the benefits
Subtitle A, Part 1
otherwise required to be provided under this
paragraph and from imposing a premium for
such additional benefits.
‘‘(2) LIMITATION ON AMOUNT OF PART B PRE-
MIUM
DISCOUNT
REBATE.—In no case shall the
amount of a part B premium discount rebate under
paragraph (1)(A) exceed, with respect to a month, the
amount of premiums imposed under part B (not tak-
ing into account section 1839(b) (relating to penalty
for late enrollment) or 1839(h) (relating to affluence
testing)), for the individual for the month. Except as
provided in the previous sentence, a MedicarePlus or-
ganization is not authorized to provide for cash or
other monetary rebates as an inducement for enroll-
ment or otherwise.
‘‘(3) STABILIZATION FUND.—A MedicarePlus or-
ganization may provide that a part of the value of an
excess actuarial amount described in paragraph (1)
be withheld and reserved in the Federal Hospital In-
surance Trust Fund and in the Federal Supple-
mentary Medical Insurance Trust Fund (in such pro-
portions as the Secretary determines to be appro-
priate) by the Secretary for subsequent annual con-
tract periods, to the extent required to stabilize and
prevent undue fluctuations in the additional benefits
Subtitle A, Part 1
and rebates offered in those subsequent periods by the
organization in accordance with such paragraph. Any
of such value of amount reserved which is not pro-
vided as additional benefits described in paragraph
(1)(A) to individuals electing the MedicarePlus prod-
uct in accordance with such paragraph prior to the
end of such periods, shall revert for the use of such
trust funds.
‘‘(4) DETERMINATION BASED ON INSUFFICIENT
DATA.—For purposes of this subsection, if the Sec-
retary finds that there is insufficient enrollment expe-
rience (including no enrollment experience in the case
of a provider-sponsored organization) to determine an
average of the capitation payments to be made under
this part at the beginning of a contract period, the
Secretary may determine such an average based on
the enrollment experience of other contracts entered
into under this part.
‘‘(5) ADJUSTED COMMUNITY RATE.—
‘‘(A) IN
GENERAL.—For purposes of this
subsection, subject to subparagraph (B), the term
‘adjusted community rate’ for a service or serv-
ices means, at the election of a MedicarePlus or-
ganization, either—
Subtitle A, Part 1
‘‘(i) the rate of payment for that serv-
ice or services which the Secretary annually
determines would apply to an individual
electing a MedicarePlus product under this
part if the rate of payment were determined
under a ‘community rating system’ (as de-
fined in section 1302(8) of the Public
Health Service Act, other than subpara-
graph (C)), or
‘‘(ii) such portion of the weighted ag-
gregate premium, which the Secretary an-
nually estimates would apply to such an in-
dividual, as the Secretary annually esti-
mates is attributable to that service or serv-
ices,
but adjusted for differences between the utiliza-
tion characteristics of the individuals electing
coverage under this part and the utilization
characteristics of the other enrollees with the or-
ganization (or, if the Secretary finds that ade-
quate data are not available to adjust for those
differences, the differences between the utilization
characteristics of individuals selecting other
MedicarePlus coverage, or individuals in the
area, in the State, or in the United States, eligi-
Subtitle A, Part 1
ble to elect MedicarePlus coverage under this
part and the utilization characteristics of the
rest of the population in the area, in the State,
or in the United States, respectively).
‘‘(B) SPECIAL RULE FOR PROVIDER-SPON-
SORED
ORGANIZATIONS.—In the case of a
MedicarePlus organization that is a provider-
sponsored organization, the adjusted community
rate under subparagraph (A) for a MedicarePlus
product may be computed (in a manner specified
by the Secretary) using data in the general com-
mercial marketplace or (during a transition pe-
riod) based on the costs incurred by the organi-
zation in providing such a product.
‘‘(f) RULES REGARDING PHYSICIAN PARTICIPATION.—
‘‘(1) PROCEDURES.—Each MedicarePlus organi-
zation shall establish reasonable procedures relating to
the participation (under an agreement between a
physician and the organization) of physicians under
MedicarePlus products offered by the organization
under this part. Such procedures shall include—
‘‘(A) providing notice of the rules regarding
participation,
Subtitle A, Part 1
‘‘(B) providing written notice of participa-
tion decisions that are adverse to physicians,
and
‘‘(C) providing a process within the organi-
zation for appealing adverse decisions, including
the presentation of information and views of the
physician regarding such decision.
‘‘(2) CONSULTATION IN MEDICAL POLICIES.—A
MedicarePlus organization shall consult with physi-
cians who have entered into participation agreements
with the organization regarding the organization’s
medical policy, quality, and medical management
procedures.
‘‘(3) LIMITATIONS
ON
PHYSICIAN
INCENTIVE
PLANS.—
‘‘(A) IN GENERAL.—Each MedicarePlus or-
ganization may not operate any physician in-
centive plan (as defined in subparagraph (B))
unless the following requirements are met:
‘‘(i) No specific payment is made di-
rectly or indirectly under the plan to a phy-
sician or physician group as an inducement
to reduce or limit medically necessary serv-
ices provided with respect to a specific indi-
vidual enrolled with the organization.
Subtitle A, Part 1
‘‘(ii) If the plan places a physician or
physician group at substantial financial
risk (as determined by the Secretary) for
services not provided by the physician or
physician group, the organization—
‘‘(I) provides stop-loss protection
for the physician or group that is ade-
quate and appropriate, based on stand-
ards developed by the Secretary that
take into account the number of physi-
cians placed at such substantial finan-
cial risk in the group or under the
plan and the number of individuals
enrolled with the organization who re-
ceive services from the physician or the
physician group, and
‘‘(II) conducts periodic surveys of
both individuals enrolled and individ-
uals previously enrolled with the orga-
nization to determine the degree of ac-
cess of such individuals to services pro-
vided by the organization and satisfac-
tion with the quality of such services.
‘‘(iii) The organization provides the
Secretary with descriptive information re-
Subtitle A, Part 1
garding the plan, sufficient to permit the
Secretary to determine whether the plan is
in compliance with the requirements of this
subparagraph.
‘‘(B) PHYSICIAN
INCENTIVE
PLAN
DE-
FINED.—In this paragraph, the term ‘physician
incentive plan’ means any compensation ar-
rangement between a MedicarePlus organization
and a physician or physician group that may
directly or indirectly have the effect of reducing
or limiting services provided with respect to in-
dividuals enrolled with the organization under
this part.
‘‘(4) EXCEPTION FOR CERTAIN FEE-FOR-SERVICE
PLANS.—The previous provisions of this subsection
shall not apply in the case of a MedicarePlus organi-
zation in relation to a MedicarePlus product if the
organization does not have agreements between physi-
cians and the organization for the provision of bene-
fits under the product.
‘‘(g) PROVISION OF INFORMATION.—A MedicarePlus
organization shall provide the Secretary with such informa-
tion on the organization and each MedicarePlus product it
offers as may be required for the preparation of the infor-
mation booklet described in section 1805(d)(3)(A).
Subtitle A, Part 1
‘‘(h) COORDINATED ACUTE
AND LONG-TERM CARE
BENEFITS UNDER A MEDICAREPLUS PRODUCT.—Nothing
in this part shall be construed as preventing a State from
coordinating benefits under its MediGrant program under
title XXI with those provided under a MedicarePlus product
in a manner that assures continuity of a full-range of acute
care and long-term care services to poor elderly or disabled
individuals eligible for benefits under this title and under
such program.
‘‘(i) TRANSITIONAL FILE AND USE FOR CERTAIN RE-
QUIREMENTS.—
‘‘(1) 
IN
GENERAL.—In 
the 
case 
of 
a
MedicarePlus product proposed to be offered before the
end of the transition period (as defined in
section1805(e)(1)(B)), by a MedicarePlus organiza-
tion described in section 1851(g)(3) or by a
MedicarePlus organization with a contract in effect
under section 1858, if the organization submits com-
plete information to the Secretary regarding the prod-
uct demonstrating that the product meets the require-
ments and standards under subsections (a), (d), and
(e) (relating to benefits and premiums), the product
shall be deemed as meeting such requirements and
standards under such subsections unless the Secretary
Subtitle A, Part 1
disapproves the product within 60 days after the date
of submission of the complete information.
‘‘(2) CONSTRUCTION.—Nothing in paragraph (1)
shall be construed as waiving the requirement of a
contract under section 1858 or waiving requirements
and standards not referred to in paragraph (1).
‘‘PATIENT PROTECTION STANDARDS
‘‘SEC. 1853. (a) DISCLOSURE
TO ENROLLEES.—A
MedicarePlus organization shall disclose in clear, accurate,
and standardized form, information regarding all of the fol-
lowing for each MedicarePlus product it offers:
‘‘(1) Benefits under the MedicarePlus product of-
fered, including exclusions from coverage and, if it is
a high deductible/medisave product, a comparison of
benefits under such a product with benefits under
other MedicarePlus products.
‘‘(2) Rules regarding prior authorization or
other review requirements that could result in
nonpayment.
‘‘(3) Potential liability for cost-sharing for out-
of-network services.
‘‘(4) The number, mix, and distribution of par-
ticipating providers.
‘‘(5) The financial obligations of the enrollee, in-
cluding premiums, deductibles, co-payments, and
Subtitle A, Part 1
maximum limits on out-of-pocket losses for items and
services (both in and out of network).
‘‘(6) Statistics on enrollee satisfaction with the
product 
and 
organization, 
including 
rates 
of
reenrollment.
‘‘(7) Enrollee rights and responsibilities, includ-
ing the grievance process provided under subsection
(f).
‘‘(8) A statement that the use of the 911 emer-
gency telephone number is appropriate in emergency
situations and an explanation of what constitutes an
emergency situation.
‘‘(9) A description of the organization’s quality
assurance program under subsection (d).
Such information shall be disclosed to each enrollee under
this part at the time of enrollment and at least annually
thereafter.
‘‘(b) ACCESS TO SERVICES.—
‘‘(1) IN GENERAL.—A MedicarePlus organization
offering a MedicarePlus product may restrict the pro-
viders from whom the benefits under the product are
provided so long as—
‘‘(A) the organization makes such benefits
available and accessible to each individual elect-
ing the product within the product service area
Subtitle A, Part 1
with reasonable promptness and in a manner
which assures continuity in the provision of ben-
efits;
‘‘(B) when medically necessary the organi-
zation makes such benefits available and acces-
sible 24 hours a day and 7 days a week;
‘‘(C) the product provides for reimburse-
ment with respect to services which are covered
under subparagraphs (A) and (B) and which are
provided to such an individual other than
through the organization, if—
‘‘(i) the services were medically nec-
essary and immediately required because of
an unforeseen illness, injury, or condition,
and
‘‘(ii) it was not reasonable given the
circumstances to obtain the services through
the organization; and
‘‘(D) coverage is provided for emergency
services (as defined in paragraph (4)) without
regard to prior authorization or the emergency
care provider’s contractual relationship with the
organization.
‘‘(2) MINIMUM PAYMENT LEVELS WHERE PROVID-
ING
POINT-OF-SERVICE
COVERAGE.—If 
a
Subtitle A, Part 1
MedicarePlus product provides benefits for items and
services (not described in paragraph (1)(C)) through
a network of providers and also permits payment to
be made under the product for such items and services
not provided through such a network, the payment
level under the product with respect to such items and
services furnished outside the network shall be at least
70 percent (or, if the effective cost-sharing rate is 50
percent, at least 35 percent) of the lesser of—
‘‘(A) the payment basis (determined without
regard to deductibles and cost-sharing) that
would have applied for such items and services
under parts A and B, or
‘‘(B) the amount charged by the entity fur-
nishing such items and services.
‘‘(3) PROTECTION OF ENROLLEES FOR CERTAIN
EMERGENCY SERVICES.—
‘‘(A) PARTICIPATING
PROVIDERS.—In the
case of emergency services described in subpara-
graph (C) which are furnished by a participat-
ing physician or provider of services to an indi-
vidual enrolled with a MedicarePlus organiza-
tion under this section, the applicable participa-
tion agreement is deemed to provide that the
physician or provider of services will accept as
Subtitle A, Part 1
payment in full from the organization the
amount that would be payable to the physician
or provider of services under part B and from
the individual under such part, if the individual
were not enrolled with such an organization
under this part.
‘‘(B) NONPARTICIPATING
PROVIDERS.—In
the case of emergency services described in sub-
paragraph (C) which are furnished by a
nonparticipating physician, the limitations on
actual charges for such services otherwise appli-
cable under part B (to services furnished by in-
dividuals not enrolled with a MedicarePlus orga-
nization under this section) shall apply in the
same manner as such limitations apply to serv-
ices furnished to individuals not enrolled with
such an organization.
‘‘(C) EMERGENCY SERVICES DESCRIBED.—
The emergency services described in this sub-
paragraph are emergency services which which
are furnished to an enrollee of a MedicarePlus
organization under this part by a physician or
provider of services that is not under a contract
with the organization.
Subtitle A, Part 1
‘‘(4) DEFINITION OF EMERGENCY SERVICES.—In
this subsection, the term ‘emergency services’ means,
with respect to an individual enrolled with an orga-
nization, covered inpatient and outpatient services
that—
‘‘(A) are furnished by an appropriate
source other than the organization,
‘‘(B) are needed immediately because of an
injury or sudden illness, and
‘‘(C) are needed because the time required to
reach the organization’s providers or suppliers
would have meant risk of serious damage to the
patient’s health.
‘‘(c) CONFIDENTIALITY AND ACCURACY OF ENROLLEE
RECORDS.—Each MedicarePlus organization shall establish
procedures—
‘‘(1) to safeguard the privacy of individually
identifiable enrollee information, and
‘‘(2) to maintain accurate and timely medical
records for enrollees.
‘‘(d) QUALITY ASSURANCE PROGRAM.—
‘‘(1) IN GENERAL.—Each MedicarePlus organi-
zation must have arrangements, established in accord-
ance with regulations of the Secretary, for an ongoing
Subtitle A, Part 1
quality assurance program for health care services it
provides to such individuals.
‘‘(2) ELEMENTS OF PROGRAM.—The quality as-
surance program shall—
‘‘(A) stress health outcomes;
‘‘(B) provide for the establishment of writ-
ten protocols for utilization review, based on cur-
rent standards of medical practice;
‘‘(C) provide review by physicians and
other health care professionals of the process fol-
lowed in the provision of such health care serv-
ices;
‘‘(D) monitors and evaluates high volume
and high risk services and the care of acute and
chronic conditions;
‘‘(E) evaluates the continuity and coordina-
tion of care that enrollees receive;
‘‘(F) has mechanisms to detect both under-
utilization and overutilization of services;
‘‘(G) after identifying areas for improve-
ment, establishes or alters practice parameters;
‘‘(H) takes action to improve quality and
assesses the effectiveness of such action through
systematic follow-up;
Subtitle A, Part 1
‘‘(I) makes available information on quality
and outcomes measures to facilitate beneficiary
comparison and choice of health coverage options
(in such form and on such quality and outcomes
measures as the Secretary determines to be ap-
propriate);
‘‘(J) is evaluated on an ongoing basis as to
its effectiveness; and
‘‘(K) provide for external accreditation or
review, by a utilization and quality control peer
review organization under part B of title XI or
other qualified independent review organization,
of the quality of services furnished by the organi-
zation meets professionally recognized standards
of health care (including providing adequate ac-
cess of enrollees to services).
‘‘(3) EXCEPTION FOR CERTAIN FEE-FOR-SERVICE
PLANS.—Paragraph (1) and subsection (c)(2) shall
not apply in the case of a MedicarePlus organization
in relation to a MedicarePlus product to the extent
the organization provides for coverage of benefits
without restrictions relating to utilization and with-
out regard to whether the provider has a contract or
other arrangement with the plan for the provision of
such benefits.
Subtitle A, Part 1
‘‘(4) TREATMENT OF ACCREDITATION.—The Sec-
retary shall provide that a MedicarePlus organization
is deemed to meet the requirements of paragraphs (1)
and (2) of this subsection and subsection (c) if the or-
ganization 
is 
accredited 
(and 
periodically
reaccredited) by a private organization under a proc-
ess that the Secretary has determined assures that the
organization meets standards that are no less strin-
gent than the standards established under section
1856 to carry out this subsection and subsection (c).
‘‘(e) COVERAGE DETERMINATIONS.—
‘‘(1) DECISIONS ON NONEMERGENCY CARE.—A
MedicarePlus organization shall make determinations
regarding authorization requests for nonemergency
care on a timely basis, depending on the urgency of
the situation.
‘‘(2) APPEALS.—
‘‘(A) IN GENERAL.—Appeals from a deter-
mination of an organization denying coverage
shall be decided within 30 days of the date of re-
ceipt of medical information, but not later than
60 days after the date of the decision.
‘‘(B) PHYSICIAN DECISION ON CERTAIN AP-
PEALS.—Appeal decisions relating to a deter-
mination to deny coverage based on a lack of
Subtitle A, Part 1
medical necessity shall be made only by a physi-
cian.
‘‘(C) EMERGENCY
CASES.—Appeals from
such a determination involving a life-threatening
or emergency situation shall be decided on an ex-
pedited basis.
‘‘(f) GRIEVANCES AND APPEALS.—
‘‘(1) 
GRIEVANCE
MECHANISM.—Each
MedicarePlus organization must provide meaningful
procedures for hearing and resolving grievances be-
tween the organization (including any entity or indi-
vidual through which the organization provides health
care services) and enrollees under this part.
‘‘(2) APPEALS.—An enrollee with an organiza-
tion under this part who is dissatisfied by reason of
the enrollee’s failure to receive any health service to
which the enrollee believes the enrollee is entitled and
at no greater charge than the enrollee believes the en-
rollee is required to pay is entitled, if the amount in
controversy is $100 or more, to a hearing before the
Secretary to the same extent as is provided in section
205(b), and in any such hearing the Secretary shall
make the organization a party. If the amount in con-
troversy is $1,000 or more, the individual or organi-
zation shall, upon notifying the other party, be enti-
Subtitle A, Part 1
tled to judicial review of the Secretary’s final decision
as provided in section 205(g), and both the individual
and the organization shall be entitled to be parties to
that judicial review. In applying sections 205(b) and
205(g) as provided in this subparagraph, and in ap-
plying section 205(l) thereto, any reference therein to
the Commissioner of Social Security or the Social Se-
curity Administration shall be considered a reference
to the Secretary or the Department of Health and
Human Services, respectively.
‘‘(3) 
COORDINATION
WITH
SECRETARY
OF
LABOR.—The Secretary shall consult with the Sec-
retary of Labor so as to ensure that the requirements
of this subsection, as they apply in the case of griev-
ances referred to in paragraph (1) to which section
503 of the Employee Retirement Income Security Act
of 1974 applies, are applied in a manner consistent
with the requirements of such section 503.
‘‘(g) INFORMATION ON ADVANCE DIRECTIVES.—Each
MedicarePlus organization shall meet the requirement of
section 1866(f) (relating to maintaining written policies
and procedures respecting advance directives).
‘‘(h) APPROVAL OF MARKETING MATERIALS.—
Subtitle A, Part 1
‘‘(1) SUBMISSION.—Each MedicarePlus organi-
zation may not distribute marketing materials un-
less—
‘‘(A) at least 45 days before the date of dis-
tribution the organization has submitted the ma-
terial to the Secretary for review, and
‘‘(B) the Secretary has not disapproved the
distribution of such material.
‘‘(2) REVIEW.—The standards established under
section 1856 shall include guidelines for the review of
all such material submitted and under such guide-
lines the Secretary shall disapprove such material if
the material is materially inaccurate or misleading
or otherwise makes a material misrepresentation.
‘‘(3) DEEMED APPROVAL (1-STOP SHOPPING).—
In the case of material that is submitted under para-
graph (1)(A) to the Secretary or a regional office of
the Department of Health and Human Services and
the Secretary or the office has not disapproved the
distribution of marketing materials under paragraph
(1)(B) with respect to a MedicarePlus product in an
area, the Secretary is deemed not to have disapproved
such distribution in all other areas covered by the
product and organization.
Subtitle A, Part 1
‘‘(4) PROHIBITION
OF
CERTAIN
MARKETING
PRACTICES.—Each MedicarePlus organization shall
conform to fair marketing standards in relation to
MedicarePlus products offered under this part, in-
cluded in the standards established under section
1856. Such standards shall include a prohibition
against an organization (or agent of such an organi-
zation) completing any portion of any election form
under section 1805 on behalf of any individual.
‘‘PROVIDER-SPONSORED ORGANIZATIONS
‘‘SEC. 1854. (a) PROVIDER-SPONSORED ORGANIZA-
TION DEFINED.—
‘‘(1) IN GENERAL.—In this part, the term ‘pro-
vider-sponsored organization’ means a public or pri-
vate entity that (in accordance with standards estab-
lished under subsection (b)) is a provider, or group of
affiliated providers, that provides a substantial pro-
portion (as defined by the Secretary under such
standards) of the health care items and services under
the contract under this part directly through the pro-
vider or affiliated group of providers.
‘‘(2) SUBSTANTIAL
PROPORTION.—In defining
what is a ‘substantial proportion’ for purposes of
paragraph (1), the Secretary—
‘‘(A) shall take into account the need for
such an organization to assume responsibility for
Subtitle A, Part 1
a substantial proportion of services in order to
assure financial stability and the practical dif-
ficulties in such an organization integrating a
very wide range of service providers; and
‘‘(B) may vary such proportion based upon
relevant differences among organizations, such as
their location in an urban or rural area.
‘‘(3) AFFILIATION.—For purposes of this sub-
section, a provider is ‘affiliated’ with another pro-
vider if, through contract, ownership, or otherwise—
‘‘(A) one provider, directly or indirectly,
controls, is controlled by, or is under common
control with the other,
‘‘(B) each provider is a participant in a
lawful combination under which each provider
shares, directly or indirectly, substantial finan-
cial risk in connection with their operations,
‘‘(C) both providers are part of a controlled
group of corporations under section 1563 of the
Internal Revenue Code of 1986, or
‘‘(D) both providers are part of an affiliated
service group under section 414 of such Code.
‘‘(4) CONTROL.—For purposes of paragraph (3),
control is presumed to exist if one party, directly or
indirectly, owns, controls, or holds the power to vote,
Subtitle A, Part 1
or proxies for, not less than 51 percent of the voting
rights or governance rights of another.
‘‘(b) PROCESS FOR ESTABLISHING STANDARDS FOR
PROVIDER-SPONSORED ORGANIZATIONS.—For process of
establishing of standards for provider-sponsored organiza-
tions, see section 1856(c).
‘‘(c) PROCESS FOR STATE CERTIFICATION OF PRO-
VIDER-SPONSORED ORGANIZATIONS.—For process of State
certification of provider-sponsored organizations, see section
1857(c).
‘‘(d) PREEMPTION OF STATE INSURANCE LICENSING
REQUIREMENTS.—
‘‘(1) IN GENERAL.—This section supersedes any
State law which—
‘‘(A) requires that a provider-sponsored or-
ganization meet requirements for insurers of
health services or health maintenance organiza-
tions doing business in the State with respect to
initial capitalization and establishment of finan-
cial reserves against insolvency, or
‘‘(B) imposes requirements that would have
the effect of prohibiting the organization from
complying with the applicable requirements of
this part,
Subtitle A, Part 1
insofar as such the law applies to individuals enrolled
with the organization under this part.
‘‘(2) EXCEPTION.—Paragraph (1) shall not
apply with respect to any State law to the extent that
such law provides standards or requirements, or pro-
vides for enforcement thereof, so as to meet the re-
quirements of section 1857(c)(2) with respect to ap-
proval by the Secretary of State certification require-
ments thereunder.
‘‘(3) CONSTRUCTION.—Nothing in this subsection
shall be construed as affecting the operation of section
514 of the Employee Retirement Income Security Act
of 1974.
‘‘PAYMENTS TO MEDICAREPLUS ORGANIZATIONS
‘‘SEC. 1855. (a) PAYMENTS.—
‘‘(1) IN GENERAL.—Under a contract under sec-
tion 
1858 
the 
Secretary 
shall 
pay 
to 
each
MedicarePlus organization, with respect to coverage of
an individual under this part in a payment area for
a month, an amount equal to the monthly adjusted
MedicarePlus capitation rate (as provided under sub-
section (b)) with respect to that individual for that
area.
‘‘(2) ANNUAL
ANNOUNCEMENT.—The Secretary
shall annually determine, and shall announce (in a
manner intended to provide notice to interested par-
Subtitle A, Part 1
ties) not later than September 7 before the calendar
year concerned—
‘‘(A) the annual MedicarePlus capitation
rate for each payment area for the year, and
‘‘(B) the factors to be used in adjusting such
rates under subsection (b) for payments for
months in that year.
‘‘(3) ADVANCE
NOTICE
OF
METHODOLOGICAL
CHANGES.—At least 45 days before making the an-
nouncement under paragraph (2) for a year, the Sec-
retary shall provide for notice to MedicarePlus orga-
nizations of proposed changes to be made in the meth-
odology or benefit coverage assumptions from the
methodology and assumptions used in the previous
announcement and shall provide such organizations
an opportunity to comment on such proposed changes.
‘‘(4) EXPLANATION OF ASSUMPTIONS.—In each
announcement made under paragraph (2) for a year,
the Secretary shall include an explanation of the as-
sumptions (including any benefit coverage assump-
tions) and changes in methodology used in the an-
nouncement in sufficient detail so that MedicarePlus
organizations 
can 
compute 
monthly 
adjusted
MedicarePlus capitation rates for classes of individ-
uals located in each payment area which is in whole
Subtitle A, Part 1
or in part within the service area of such an organi-
zation.
‘‘(b) MONTHLY ADJUSTED MEDICAREPLUS CAPITA-
TION RATE.—
‘‘(1) IN GENERAL.—For purposes of this section,
the ‘monthly adjusted MedicarePlus capitation rate’
under this subsection, for a month in a year for an
individual in a payment area (specified under para-
graph (3)) and in a class (established under para-
graph (4)), is 1⁄12 of the annual MedicarePlus capita-
tion rate specified in paragraph (2) for that area for
the year, adjusted to reflect the actuarial value of ben-
efits under this title with respect to individuals in
such class compared to the national average for indi-
viduals in all classes.
‘‘(2) 
ANNUAL
MEDICAREPLUS
CAPITATION
RATES.—For purposes of this section, the annual
MedicarePlus capitation rate for a payment area for
a year is equal to the annual MedicarePlus capitation
rate for the area for the previous year (or, in the case
of 1996, the average annual per capita rate of pay-
ment described in section 1876(a)(1)(C) for the area
for 1995) increased by the per capita growth rate for
that area and year (as determined under subsection
(c)).
Subtitle A, Part 1
‘‘(3) PAYMENT AREA DEFINED.—In this section,
the term ‘payment area’ means a county (or equiva-
lent area specified by the Secretary), except that in
the case of the population group described in para-
graph (5)(C), the payment area shall be each State.
‘‘(4) CLASSES.—
‘‘(A) IN
GENERAL.—For purposes of this
section, the Secretary shall define appropriate
classes of enrollees, consistent with paragraph
(5), based on age, gender, welfare status, institu-
tionalization, and such other factors as the Sec-
retary determines to be appropriate, so as to en-
sure actuarial equivalence. The Secretary may
add to, modify, or substitute for such classes, if
such changes will improve the determination of
actuarial equivalence.
‘‘(B) RESEARCH.—The Secretary shall con-
duct such research as may be necessary to pro-
vide for greater accuracy in the adjustment of
capitation rates under this subsection. Such re-
search may include research into the addition or
modification of classes under subparagraph (A).
The Secretary shall submit to Congress a report
on such research by not later than January 1,
1997.
Subtitle A, Part 1
‘‘(5) DIVISION OF MEDICARE POPULATION.—In
carrying out paragraph (4) and this section, the Sec-
retary shall recognize the following separate popu-
lation groups:
‘‘(A) AGED.—Individuals 65 years of age or
older who are not described in subparagraph (C).
‘‘(B) DISABLED.—Disabled individuals who
are under 65 years of age and not described in
subparagraph (C).
‘‘(C) INDIVIDUALS WITH END STAGE RENAL
DISEASE.—Individuals who are determined to
have end stage renal disease.
‘‘(c) PER CAPITA GROWTH RATES.—
‘‘(1) FOR 1996.—
‘‘(A) IN
GENERAL.—For purposes of this
section and subject to subparagraph (B), the per
capita growth rates for 1996, for a payment area
assigned to a service utilization cohort under
subsection (d), shall be the following:
‘‘(i) LOWEST SERVICE UTILIZATION CO-
HORT.—For areas assigned to the lowest
service utilization cohort, 9.7 percent.
‘‘(ii) LOWER SERVICE UTILIZATION CO-
HORT.—For areas assigned to the lower
service utilization cohort, 8.0 percent.
Subtitle A, Part 1
‘‘(iii) MEDIAN
SERVICE
UTILIZATION
COHORT.—For areas assigned to the median
service utilization cohort, 5.3 percent.
‘‘(iv) HIGHER
SERVICE
UTILIZATION
COHORT.—For areas assigned to the higher
service utilization cohort, 4.7 percent.
‘‘(v) HIGHEST
SERVICE
UTILIZATION
COHORT.—For areas assigned to the highest
service utilization cohort, 4.0 percent.
‘‘(B) BUDGET NEUTRAL ADJUSTMENT.—The
Secretary shall adjust the per capita growth
rates specified in subparagraph (A) for all the
areas by such uniform factor as may be nec-
essary to assure that the total capitation pay-
ments under this section during 1996 are the
same as the amount such payments would have
been if the per capita growth rate for all such
areas for 1996 were equal to the national average
per capita growth rate, specified in paragraph
(3) for 1996.
‘‘(2) FOR SUBSEQUENT YEARS.—
‘‘(A) IN
GENERAL.—For purposes of this
section and subject to subparagraph (B), the Sec-
retary shall compute a per capita growth rate
for each year after 1996, for each payment area
Subtitle A, Part 1
as assigned to a service utilization cohort under
subsection (d), consistent with the following
rules:
‘‘(i) MEDIAN SERVICE UTILIZATION CO-
HORT SET AT NATIONAL AVERAGE PER CAP-
ITA GROWTH RATE.—The per capita growth
rate for areas assigned to the median service
utilization cohort for the year shall be the
national average per capita growth rate for
the year (as specified under paragraph (3)).
‘‘(ii) HIGHEST
SERVICE
UTILIZATION
COHORT SET AT 75 PERCENT OF NATIONAL
AVERAGE PER CAPITA GROWTH RATE.—The
per capita growth rate for areas assigned to
the highest service utilization cohort for the
year shall be 75 percent of the national av-
erage per capita growth rate for the year.
‘‘(iii) LOWEST
SERVICE
UTILIZATION
COHORT
SET
AT 187.5 PERCENT
OF
NA-
TIONAL
AVERAGE
PER
CAPITA
GROWTH
RATE.—The per capita growth rate for
areas assigned to the lowest service utiliza-
tion cohort for the year shall be 187.5 per-
cent of the national average per capita
growth rate for the year.
Subtitle A, Part 1
‘‘(iv) LOWER SERVICE UTILIZATION CO-
HORT SET AT 150 PERCENT OF NATIONAL
AVERAGE PER CAPITA GROWTH RATE.—
‘‘(I) IN
GENERAL.—Subject to
subclause (II), the per capita growth
rate for areas assigned to the lower
service utilization cohort for the year
shall be 150 percent of the national av-
erage per capita growth rate for the
year.
‘‘(II) ADJUSTMENT.—If the Sec-
retary has established under clause (v)
the per capita growth rate for areas as-
signed to the higher service utilization
cohort for the year at 75 percent of the
national average per capita growth
rate, the Secretary may provide for a
reduced per capita growth rate under
subclause (I) to the extent necessary to
comply with subparagraph (B).
‘‘(v) HIGHER
SERVICE
UTILIZATION
COHORT.—The per capita growth rate for
areas assigned to the higher service utiliza-
tion cohort for the year shall be such percent
(not less than 75 percent) of the national
Subtitle A, Part 1
average per capita growth rate, as the Sec-
retary may determine consistent with sub-
paragraph (B).
‘‘(B) AVERAGE PER CAPITA GROWTH RATE
AT NATIONAL AVERAGE TO ASSURE BUDGET NEU-
TRALITY.—The Secretary shall compute per cap-
ita growth rates for a year under subparagraph
(A) in a manner so that the weighted average
per capita growth rate for all areas for the year
(weighted to reflect the number of medicare bene-
ficiaries in each area) is equal to the national
average per capita growth rate under paragraph
(3) for the year.
‘‘(3) NATIONAL AVERAGE PER CAPITA GROWTH
RATES.—In this subsection, the ‘national average per
capita growth rate’ for—
‘‘(A) 1996 is 5.3 percent,
‘‘(B) 1997 is 3.8 percent,
‘‘(C) 1998 is 4.6 percent,
‘‘(D) 1999 is 4.3 percent,
‘‘(E) 2000 is 3.8 percent,
‘‘(F) 2001 is 5.5 percent,
‘‘(G) 2002 is 5.6 percent, and
‘‘(H) each subsequent year is 5.0 percent.
Subtitle A, Part 1
‘‘(d) ASSIGNMENT OF PAYMENT AREAS TO SERVICE
UTILIZATION COHORTS.—
‘‘(1) IN GENERAL.—For purposes of determining
per capita growth rates under subsection (c) for areas
for a year, the Secretary shall assign each payment
area to a service utilization cohort (based on the serv-
ice utilization index value for that area determined
under paragraph (2)) as follows:
‘‘(A) LOWEST
SERVICE
UTILIZATION
CO-
HORT.—Areas with a service utilization index
value of less than .80 shall be assigned to the
lowest service utilization cohort.
‘‘(B) LOWER
SERVICE
UTILIZATION
CO-
HORT.—Areas with a service utilization index
value of at least .80 but less than .90 shall be as-
signed to the lower service utilization cohort.
‘‘(C) MEDIAN
SERVICE
UTILIZATION
CO-
HORT.—Areas with a service utilization index
value of at least .90 but less than 1.10 shall be
assigned to the median service utilization cohort.
‘‘(D) HIGHER
SERVICE
UTILIZATION
CO-
HORT.—Areas with a service utilization index
value of at least 1.10 but less than 1.20 shall be
assigned to the higher service utilization cohort.
Subtitle A, Part 1
‘‘(E) HIGHEST
SERVICE
UTILIZATION
CO-
HORT.—Areas with a service utilization index
value of at least 1.20 shall be assigned to the
highest service utilization cohort.
‘‘(2) DETERMINATION OF SERVICE UTILIZATION
INDEX VALUES.—In order to determine the per capita
growth rate for a payment area for each year (begin-
ning with 1996), the Secretary shall determine for
such area and year a service utilization index value,
which is equal to—
‘‘(A) the annual MedicarePlus capitation
rate under this section for the area for the year
in which the determination is made (or, in the
case of 1996, the average annual per capita rate
of payment (described in section 1876(a)(1)(C))
for the area for 1995); divided by
‘‘(B) the input-price-adjusted annual na-
tional MedicarePlus capitation rate (as deter-
mined under paragraph (3)) for that area for the
year in which the determination is made.
‘‘(3) DETERMINATION OF INPUT-PRICE-ADJUSTED
RATES.—
‘‘(A) IN GENERAL.—For purposes of para-
graph (2), the ‘input-price-adjusted annual na-
tional MedicarePlus capitation rate’ for a pay-
Subtitle A, Part 1
ment area for a year is equal to the sum, for all
the types of medicare services (as classified by
the Secretary), of the product (for each such
type) of—
‘‘(i) 
the 
national 
standardized
MedicarePlus capitation rate (determined
under subparagraph (B)) for the year,
‘‘(ii) the proportion of such rate for the
year which is attributable to such type of
services, and
‘‘(iii) an index that reflects (for that
year and that type of services) the relative
input price of such services in the area com-
pared to the national average input price of
such services.
In applying clause (iii), the Secretary shall, sub-
ject to subparagraph (C), apply those indices
under this title that are used in applying (or up-
dating) national payment rates for specific areas
and localities.
‘‘(B) 
NATIONAL
STANDARDIZED
MEDICAREPLUS
CAPITATION
RATE.—In 
this
paragraph, 
the 
‘national 
standardized
MedicarePlus capitation rate’ for a year is equal
to—
Subtitle A, Part 1
‘‘(i) the sum (for all payment areas) of
the product of (I) the annual MedicarePlus
capitation rate for that year for the area
under subsection (b)(2), and (II) the aver-
age number of medicare beneficiaries resid-
ing in that area in the year; divided by
‘‘(ii) the total average number of medi-
care beneficiaries residing in all the pay-
ment areas for that year.
‘‘(C) SPECIAL RULES FOR 1996.—In apply-
ing this paragraph for 1996—
‘‘(i) medicare services shall be divided
into 2 types of services: part A services and
part B services;
‘‘(ii) the proportions described in sub-
paragraph (A)(ii) for such types of services
shall be—
‘‘(I) for part A services, the ratio
(expressed as a percentage) of the aver-
age annual per capita rate of payment
for the area for part A for 1995 to the
total average annual per capita rate of
payment for the area for parts A and
B for 1995, and
Subtitle A, Part 1
‘‘(II) for part B services, 100 per-
cent minus the ratio described in
subclause (I);
‘‘(iii) for the part A services, 70 per-
cent of payments attributable to such serv-
ices shall be adjusted by the index used
under section 1886(d)(3)(E) to adjust pay-
ment rates for relative hospital wage levels
for hospitals located in the payment area
involved;
‘‘(iv) for part B services—
‘‘(I) 66 percent of payments at-
tributable to such services shall be ad-
justed by the index of the geographic
area factors under section 1848(e) used
to adjust payment rates for physicians’
services furnished in the payment area,
and
‘‘(II) of the remaining 34 percent
of the amount of such payments, 70
percent shall be adjusted by the index
described in clause (iii);
‘‘(v) the index values shall be computed
based only on the beneficiary population de-
scribed in subsection (b)(5)(A).
Subtitle A, Part 1
The Secretary may continue to apply the rules
described in this subparagraph (or similar rules)
for 1997.
‘‘(e) PAYMENT PROCESS.—
‘‘(1) IN GENERAL.—Subject to subsection (f), the
Secretary shall make monthly payments under this
section in advance and in accordance with the rate
determined under subsection (a) to the plan for each
individual enrolled with a MedicarePlus organization
under this part.
‘‘(2) ADJUSTMENT TO REFLECT NUMBER OF EN-
ROLLEES.—
‘‘(A) IN
GENERAL.—The amount of pay-
ment under this subsection may be retroactively
adjusted to take into account any difference be-
tween the actual number of individuals enrolled
with an organization under this part and the
number of such individuals estimated to be so
enrolled in determining the amount of the ad-
vance payment.
‘‘(B) SPECIAL RULE FOR CERTAIN ENROLL-
EES.—
‘‘(i) IN
GENERAL.—Subject to clause
(ii), the Secretary may make retroactive ad-
justments under subparagraph (A) to take
Subtitle A, Part 1
into account individuals enrolled during the
period beginning on the date on which the
individual enrolls with a MedicarePlus or-
ganization under a product operated, spon-
sored, or contributed to by the individual’s
employer or former employer (or the em-
ployer or former employer of the individ-
ual’s spouse) and ending on the date on
which the individual is enrolled in the orga-
nization under this part, except that for
purposes of making such retroactive adjust-
ments under this subparagraph, such period
may not exceed 90 days.
‘‘(ii) EXCEPTION.—No adjustment may
be made under clause (i) with respect to
any individual who does not certify that the
organization provided the individual with
the disclosure statement described in section
1853(a) at the time the individual enrolled
with the organization.
‘‘(f) SPECIAL RULES
FOR INDIVIDUALS ELECTING
HIGH DEDUCTIBLE/MEDISAVE PRODUCT.—
‘‘(1) IN GENERAL.—In the case of an individual
who has elected a high deductible/medisave product,
Subtitle A, Part 1
notwithstanding the preceding provisions of this sec-
tion—
‘‘(A) the amount of the payment to the
MedicarePlus organization offering the high de-
ductible/medisave product shall not exceed the
premium for the product, and
‘‘(B) subject to paragraph (2), the difference
between the amount of payment that would oth-
erwise be made and the amount of payment to
such organization shall be made directly into a
MedicarePlus MSA established (and, if applica-
ble, designated) by the individual under para-
graph (2).
‘‘(2) ESTABLISHMENT
AND
DESIGNATION
OF
MEDICAREPLUS MEDICAL SAVINGS ACCOUNT AS RE-
QUIREMENT FOR PAYMENT OF CONTRIBUTION.—In the
case of an individual who has elected coverage under
a high deductible/medisave product, no payment shall
be made under paragraph (1)(B) on behalf of an in-
dividual for a month unless the individual—
‘‘(A) has established before the beginning of
the month (or by such other deadline as the Sec-
retary may specify) a MedicarePlus MSA (as de-
fined in section 137(b) of the Internal Revenue
Code of 1986), and
Subtitle A, Part 1
‘‘(B) if the individual has established more
than one MedicarePlus MSA, has designated one
of 
such 
accounts 
as 
the 
individual’s
MedicarePlus MSA for purposes of this part.
Under rules under this section, such an individual
may change the designation of such account under
subparagraph (B) for purposes of this part.
‘‘(3) LUMP SUM DEPOSIT OF MEDICAL SAVINGS
ACCOUNT CONTRIBUTION.—In the case of an individ-
ual electing a high deductible/medisave product effec-
tive beginning with a month in a year, the amount
of the contribution to the MedicarePlus MSA on be-
half of the individual for that month and all succes-
sive months in the year shall be deposited during that
first month. In the case of a termination of such an
election as of a month before the end of a year, the
Secretary shall provide for a procedure for the recov-
ery of deposits attributable to the remaining months
in the year.
‘‘(g) PAYMENTS FROM TRUST FUND.—The payment to
a MedicarePlus organization under this section for individ-
uals enrolled under this part with the organization, and
payments to a MedicarePlus MSA under subsection
(f)(1)(B), shall be made from the Federal Hospital Insur-
ance Trust Fund and the Federal Supplementary Medical
Subtitle A, Part 1
Insurance Trust Fund in such proportion as the Secretary
determines reflects the relative weight that benefits under
part A and under part B represents of the actuarial value
of the total benefits under this title.
‘‘(h) SPECIAL RULE FOR CERTAIN INPATIENT HOS-
PITAL STAYS.—In the case of an individual who is receiv-
ing inpatient hospital services from a subsection (d) hos-
pital (as defined in section 1886(d)(1)(B)) as of the effective
date of the individual’s—
‘‘(1) election under this part of a MedicarePlus
product offered by a MedicarePlus organization—
‘‘(A) payment for such services until the
date of the individual’s discharge shall be made
under this title through the MedicarePlus prod-
uct or Non-MedicarePlus option (as the case may
be) elected before the election with such organiza-
tion,
‘‘(B) the elected organization shall not be fi-
nancially responsible for payment for such serv-
ices until the date after the date of the individ-
ual’s discharge, and
‘‘(C) the organization shall nonetheless be
paid the full amount otherwise payable to the or-
ganization under this part; or
Subtitle A, Part 1
‘‘(2) termination of election with respect to a
MedicarePlus organization under this part—
‘‘(A) the organization shall be financially
responsible for payment for such services after
such date and until the date of the individual’s
discharge,
‘‘(B) payment for such services during the
stay shall not be made under section 1886(d) or
by any succeeding MedicarePlus organization,
and
‘‘(C) the terminated organization shall not
receive any payment with respect to the individ-
ual under this part during the period the indi-
vidual is not enrolled.
‘‘ESTABLISHMENT OF STANDARDS FOR MEDICARE-PLUS
ORGANIZATIONS AND PRODUCTS
‘‘SEC. 1856. (a) STANDARDS APPLICABLE TO STATE-
REGULATED ORGANIZATIONS AND PRODUCTS.—
‘‘(1) RECOMMENDATIONS
OF
NAIC.—The Sec-
retary shall request the National Association of Insur-
ance Commissioners to develop and submit to the Sec-
retary, not later than 12 months after the date of the
enactment of the Medicare Preservation Act of 1995,
proposed standards consistent with the requirements
of this part for MedicarePlus organizations (other
than Taft-Hartley sponsors and provider-sponsored
Subtitle A, Part 1
organizations) and MedicarePlus products offered by
such organizations, except that such proposed stand-
ards may relate to MedicarePlus organizations that
are qualified associations only with respect to
MedicarePlus products offered by them and only if
such products are issued by organizations to which
section 1851(b)(1) applies.
‘‘(2) REVIEW.—If the Association submits such
standards on a timely basis, the Secretary shall re-
view such standards to determine if the standards
meet the requirements of the part. The Secretary shall
complete the review of the standards not later than 90
days after the date of their submission. The Secretary
shall promulgate such proposed standards to apply to
organizations and products described in paragraph
(1) except to the extent that the Secretary modifies
such proposed standards because they do not meet
such requirements.
‘‘(3) FAILURE TO SUBMIT.—If the Association
does not submit such standards on a timely basis, the
Secretary shall promulgate such standards by not
later than the date the Secretary would otherwise
have been required to promulgate standards under
paragraph (2).
Subtitle A, Part 1
‘‘(4) USE OF INTERIM RULES.—For the period in
which this part is in effect and standards are being
developed and established under the preceding provi-
sions of this subsection, the Secretary shall provide by
not later than June 1, 1996, for the application of
such interim standards (without regard to any re-
quirements for notice and public comment) as may be
appropriate to provide for the expedited implementa-
tion of this part. Such interim standards shall not
apply after the date standards are established under
the preceding provisions of this subsection.
‘‘(b) TAFT-HARTLEY SPONSORS, QUALIFIED ASSOCIA-
TIONS, AND PRODUCTS.—
‘‘(1) IN GENERAL.—The Secretary shall develop
and promulgate by regulation standards consistent
with the requirements of this part for Taft-Hartley
sponsors, for 
qualified 
associations, 
and 
for
MedicarePlus products offered by such organizations
(other than MedicarePlus products offered by quali-
fied associations that are issued by organizations to
which section 1851(b)(1) applies).
‘‘(2) CONSULTATION
WITH
LABOR.—The Sec-
retary shall consult with the Secretary of Labor with
respect to such standards for such sponsors and prod-
ucts.
Subtitle A, Part 1
‘‘(3) TIMING.—Standards under this subsection
shall be promulgated at or about the time standards
are promulgated under subsection (a).
‘‘(c) ESTABLISHMENT OF STANDARDS FOR PROVIDER-
SPONSORED ORGANIZATIONS.—
‘‘(1) IN GENERAL.—The Secretary shall establish,
on an expedited basis and using a negotiated rule-
making process under subchapter 3 of chapter 5 of
title 5, United States Code, standards that entities
must meet to qualify as provider-sponsored organiza-
tions under this part.
‘‘(2) PUBLICATION OF NOTICE.—In carrying out
the rulemaking process under this subsection, the Sec-
retary, after consultation with the National Associa-
tion of Insurance Commissioners, the American Acad-
emy of Actuaries, organizations representative of
medicare beneficiaries, and other interested parties,
shall publish the notice provided for under section
564(a) of title 5, United States Code, by not later
than 45 days after the date of the enactment of Medi-
care Preservation Act of 1995.
‘‘(3) TARGET
DATE
FOR
PUBLICATION
OF
RULE.—As part of the notice under paragraph (2),
and for purposes of this subsection, the ‘target date
Subtitle A, Part 1
for publication’ (referred to in section 564(a)(5) of
such title) shall be September 1, 1996.
‘‘(4) ABBREVIATED PERIOD FOR SUBMISSION OF
COMMENTS.—In applying section 564(c) of such title
under this subsection, ‘15 days’ shall be substituted
for ‘30 days’.
‘‘(5) APPOINTMENT
OF
NEGOTIATED
RULE-
MAKING
COMMITTEE
AND
FACILITATOR.—The Sec-
retary shall provide for—
‘‘(A) the appointment of a negotiated rule-
making committee under section 565(a) of such
title by not later than 30 days after the end of
the comment period provided for under section
564(c) of such title (as shortened under para-
graph (4)), and
‘‘(B) the nomination of a facilitator under
section 566(c) of such title by not later than 10
days after the date of appointment of the com-
mittee.
‘‘(6) PRELIMINARY
COMMITTEE
REPORT.—The
negotiated rulemaking committee appointed under
paragraph (5) shall report to the Secretary, by not
later than June 1, 1996, regarding the committee’s
progress on achieving a concensus with regard to the
rulemaking proceeding and whether such consensus is
Subtitle A, Part 1
likely to occur before one month before the target date
for publication of the rule. If the committee reports
that the committee has failed to make significant
progress towards such consensus or is unlikely to
reach such consensus by the target date, the Secretary
may terminate such process and provide for the publi-
cation of a rule under this subsection through such
other methods as the Secretary may provide.
‘‘(7) FINAL COMMITTEE REPORT.—If the commit-
tee is not terminated under paragraph (6), the rule-
making committee shall submit a report containing a
proposed rule by not later than one month before the
target publication date.
‘‘(8) INTERIM, FINAL
EFFECT.—The Secretary
shall publish a rule under this subsection in the Fed-
eral Register by not later than the target publication
date. Such rule shall be effective and final imme-
diately on an interim basis, but is subject to change
and revision after public notice and opportunity for
a period (of not less than 60 days) for public com-
ment. In connection with such rule, the Secretary
shall specify the process for the timely review and ap-
proval of applications of entities to be certified as
provider-sponsored organizations pursuant to such
rules and consistent with this subsection.
Subtitle A, Part 1
‘‘(9) PUBLICATION OF RULE AFTER PUBLIC COM-
MENT.—The Secretary shall provide for consideration
of such comments and republication of such rule by
not later than 1 year after the target publication
date.
‘‘(10) PROCESS FOR APPROVAL OF APPLICATIONS
FOR CERTIFICATION.—
‘‘(A) IN GENERAL.—The Secretary shall es-
tablish a process for the receipt and approval of
applications of entities for certification as pro-
vider-sponsored organizations under this part.
Under such process, the Secretary shall act upon
a complete application submitted within 60 days
after the date it is received.
‘‘(B) CIRCULATION OF PROPOSED APPLICA-
TION FORM.—By March 1, 1996, the Secretary,
after consultation with the negotiated rule-
making committee, shall circulate a proposed ap-
plication form that could be used by entities con-
sidering becoming certified as a provider-spon-
sored organization under this part.
‘‘(d) COORDINATION AMONG FINAL STANDARDS.—In
establishing standards (other than on an interim basis)
under the previous provisions of this section, the Secretary
shall seek to provide for consistency (as appropriate) across
Subtitle A, Part 1
the different types of MedicarePlus organizations, in order
to promote equitable treatment of different types of organi-
zations and consistent protection for individuals who elect
products offered by the different types of MedicarePlus orga-
nizations.
‘‘(e) USE
OF CURRENT STANDARDS
FOR INTERIM
STANDARDS.—To the extent practicable and consistent with
the requirements of this part, standards established on an
interim basis to carry out requirements of this part may
be based on currently applicable standards, such as the
rules established under section 1876 (as in effect as of the
date of the enactment of this section) to carry out analogous
provisions of such section or standards established or devel-
oped for application in the private health insurance market.
‘‘(f) APPLICATION OF NEW STANDARDS TO ENTITIES
WITH A CONTRACT.—In the case of a MedicarePlus organi-
zation with a contract in effect under this part at the time
standards applicable to the organization under this section
are changed, the organization may elect not to have such
changes apply to the organization until the end of the cur-
rent contract year (or, if there is less than 6 months remain-
ing in the contract year, until 1 year after the end of the
current contract year).
‘‘(g) RELATION TO STATE LAWS.—The standards es-
tablished under this section shall supersede any State law
Subtitle A, Part 1
or regulation with respect to MedicarePlus products which
are offered by MedicarePlus organizations and are issued
by organizations to which section 1851(b)(1) applies, to the
extent such law or regulation is inconsistent with such
standards.
‘‘MEDICARE-PLUS CERTIFICATION
‘‘SEC. 1857. (a) STATE CERTIFICATION PROCESS FOR
STATE-REGULATED ORGANIZATIONS.—
‘‘(1) APPROVAL OF STATE PROCESS.—The Sec-
retary shall approve a MedicarePlus certification and
enforcement program established by a State for ap-
plying the standards established under section 1856 to
MedicarePlus organizations (other than Taft-Hartley
sponsors and provider-sponsored organizations) and
MedicarePlus products offered by such organizations
if the Secretary determines that the program effec-
tively provides for the application and enforcement of
such standards in the State with respect to such orga-
nizations and products. Such program shall provide
for certification of compliance of MedicarePlus orga-
nizations and products with the applicable require-
ments of this part not less often than once every 3
years.
‘‘(2) EFFECT OF CERTIFICATION UNDER STATE
PROCESS.—A 
MedicarePlus 
organization 
and
MedicarePlus product offered by such an organization
Subtitle A, Part 1
that is certified under such program is considered to
have been certified under this subsection with respect
to the offering of the product to individuals residing
in the State.
‘‘(3) USER FEES.—The State may impose user
fees on organizations seeking certification under this
subsection in such amounts as the State deems suffi-
cient to finance the costs of such certification. Nothing
in this paragraph shall be construed as restricting a
State’s authority to impose premium taxes, other
taxes, or other levies.
‘‘(4) REVIEW.—The Secretary periodically shall
review State programs approved under paragraph (1)
to determine if they continue to provide for certifi-
cation and enforcement described in such paragraph.
If the Secretary finds that a State program no longer
so provides, before making a final determination, the
Secretary shall provide the State an opportunity to
adopt such a plan of correction as would permit the
State program to meet the requirements of paragraph
(1). If the Secretary makes a final determination that
the State program, after such an opportunity, fails to
meet such requirements, the provisions of subsection
(b) shall apply to MedicarePlus organizations and
products in the State.
Subtitle A, Part 1
‘‘(5) EFFECT OF NO STATE PROGRAM.—Begin-
ning on the date standards are established under sec-
tion 1856, in the case of organizations and products
in States in which a certification program has not
been approved and in operation under paragraph (1),
the Secretary shall establish a process for the certifi-
cation of MedicarePlus organizations (other than
Taft-Hartley sponsors and provider-sponsored organi-
zations) and products of such organizations as meet-
ing such standards.
‘‘(6) PUBLICATION OF LIST OF APPROVED STATE
PROGRAMS.—The Secretary shall publish (and peri-
odically update) a list of those State programs which
are approved for purposes of this subsection.
‘‘(b) FEDERAL CERTIFICATION PROCESS FOR TAFT-
HARTLEY SPONSORS AND PROVIDER-SPONSORED ORGANI-
ZATIONS.—
‘‘(1) ESTABLISHMENT.—The Secretary shall es-
tablish a process for the certification of Taft-Hartley
sponsors and provider-sponsored organizations and
MedicarePlus products offered by such sponsors and
organizations as meeting the applicable standards es-
tablished under section 1856.
‘‘(2) INVOLVEMENT OF SECRETARY OF LABOR.—
Such process shall be established and operated in co-
Subtitle A, Part 1
operation with the Secretary of Labor with respect to
Taft-Hartley sponsors.
‘‘(3) USE OF STATE LICENSING AND PRIVATE AC-
CREDITATION PROCESSES.—
‘‘(A) IN GENERAL.—The process under this
subsection shall, to the maximum extent prac-
ticable, provide that MedicarePlus organizations
and products that are licensed or certified
through a qualified private accreditation process
that the Secretary finds applies standards that
are no less stringent than the requirements of
this part are deemed to meet the corresponding
requirements of this part for such an organiza-
tion or product.
‘‘(B) PERIODIC
ACCREDITATION.—The use
of an accreditation under subparagraph (A)
shall be valid only for such period as the Sec-
retary specifies.
‘‘(4) USER FEES.—The Secretary may impose
user fees on entities seeking certification under this
subsection in such amounts as the Secretary deems
sufficient to finance the costs of such certification.
‘‘(c) CERTIFICATION OF PROVIDER-SPONSORED ORGA-
NIZATIONS BY STATES.—
Subtitle A, Part 1
‘‘(1) IN GENERAL.—The Secretary shall establish
a process under which a State may propose to provide
for certification of entities as meeting the require-
ments of this part to be provider-sponsored organiza-
tions.
‘‘(2) CONDITIONS
FOR
APPROVAL.—The Sec-
retary may not approve a State program for certifi-
cation under paragraph (1) unless the Secretary de-
termines that the certification program applies stand-
ards and requirements that are identical to the stand-
ards and requirements of this part and the applicable
provisions for enforcement of such standards and re-
quirements do not result in a lower level or quality
of enforcement than that which is otherwise applicable
under this title.
‘‘(d) NOTICE TO ENROLLEES IN CASE OF DECERTI-
FICATION.—If a MedicarePlus organization or product is
decertified under this section, the organization shall notify
each enrollee with the organization and product under this
part of such decertification.
‘‘(e) QUALIFIED
ASSOCIATIONS.—In the case of
MedicarePlus products offered by a MedicarePlus organiza-
tion that is a qualified association (as defined in section
1854(c)(4)(C)) and issued by an organization to which sec-
tion 1851(b)(1) applies or by a provider-sponsored organi-
Subtitle A, Part 1
zation (as defined in section 1854(a)), nothing in this sec-
tion shall be construed as limiting the authority of States
to regulate such products.
‘‘CONTRACTS WITH MEDICAREPLUS ORGANIZATIONS
‘‘SEC. 1858. (a) IN GENERAL.—The Secretary shall
not permit the election under section 1805 of a
MedicarePlus product offered by a MedicarePlus organiza-
tion under this part, and no payment shall be made under
section 1856 to an organization, unless the Secretary has
entered into a contract under this section with an organiza-
tion with respect to the offering of such product. Such a
contract with an organization may cover more than one
MedicarePlus product. Such contract shall provide that the
organization agrees to comply with the applicable require-
ments and standards of this part and the terms and condi-
tions of payment as provided for in this part.
‘‘(b) MINIMUM ENROLLMENT REQUIREMENTS.—
‘‘(1) IN GENERAL.—Subject to paragraphs (1)
and (2), the Secretary may not enter into a contract
under this section with a MedicarePlus organization
(other than a Taft-Hartley sponsor) unless the organi-
zation has at least 5,000 individuals (or 1,500 indi-
viduals in the case of an organization that is a pro-
vider-sponsored organization) who are receiving
health benefits through the organization, except that
the standards under section 1856 may permit the or-
100
Subtitle A, Part 1
ganization to have a lesser number of beneficiaries
(but not less than 500 in the case of an organization
that is a provider-sponsored organization) if the orga-
nization primarily serves individuals residing outside
of urbanized areas.
‘‘(2) 
EXCEPTION
FOR
HIGH
DEDUCTIBLE/
MEDISAVE PRODUCT.—Paragraph (1) shall not apply
with respect to a contract that relates only to a high
deductible/medisave product.
‘‘(3) ALLOWING
TRANSITION.—The Secretary
may waive the requirement of paragraph (1) during
the first 3 contract years with respect to an organiza-
tion.
‘‘(c) CONTRACT PERIOD AND EFFECTIVENESS.—
‘‘(1) PERIOD.—Each contract under this section
shall be for a term of at least one year, as determined
by the Secretary, and may be made automatically re-
newable from term to term in the absence of notice by
either party of intention to terminate at the end of
the current term.
‘‘(2) TERMINATION AUTHORITY.—In accordance
with procedures established under subsection (h), the
Secretary may at any time terminate any such con-
tract or may impose the intermediate sanctions de-
scribed in an applicable paragraph of subsection (g)
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Subtitle A, Part 1
on the MedicarePlus organization if the Secretary de-
termines that the organization—
‘‘(A) has failed substantially to carry out
the contract;
‘‘(B) is carrying out the contract in a man-
ner inconsistent with the efficient and effective
administration of this part;
‘‘(C) is operating in a manner that is not
in the best interests of the individuals covered
under the contract; or
‘‘(D) no longer substantially meets the ap-
plicable conditions of this part.
‘‘(3) EFFECTIVE DATE OF CONTRACTS.—The ef-
fective date of any contract executed pursuant to this
section shall be specified in the contract, except that
in no case shall a contract under this section which
provides for coverage under a high deductible/
medisave account be effective before January 1997
with respect to such coverage.
‘‘(4) PREVIOUS TERMINATIONS.—The Secretary
may not enter into a contract with a MedicarePlus
organization if a previous contract with that organi-
zation under this section was terminated at the re-
quest of the organization within the preceding five-
102
Subtitle A, Part 1
year period, except in circumstances which warrant
special consideration, as determined by the Secretary.
‘‘(5) NO CONTRACTING AUTHORITY.—The author-
ity vested in the Secretary by this part may be per-
formed without regard to such provisions of law or
regulations relating to the making, performance,
amendment, or modification of contracts of the Unit-
ed States as the Secretary may determine to be incon-
sistent with the furtherance of the purpose of this
title.
‘‘(d) PROTECTIONS AGAINST FRAUD AND BENEFICIARY
PROTECTIONS.—
‘‘(1) INSPECTION
AND
AUDIT.—Each contract
under this section shall provide that the Secretary, or
any person or organization designated by the Sec-
retary—
‘‘(A) shall have the right to inspect or other-
wise evaluate (i) the quality, appropriateness,
and timeliness of services performed under the
contract and (ii) the facilities of the organization
when there is reasonable evidence of some need
for such inspection, and
‘‘(B) shall have the right to audit and in-
spect any books and records of the MedicarePlus
organization that pertain (i) to the ability of the
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Subtitle A, Part 1
organization to bear the risk of potential finan-
cial losses, or (ii) to services performed or deter-
minations of amounts payable under the con-
tract.
‘‘(2) ENROLLEE
NOTICE
AT
TIME
OF
TERMI-
NATION.—Each contract under this section shall re-
quire the organization to provide (and pay for) writ-
ten notice in advance of the contract’s termination, as
well as a description of alternatives for obtaining ben-
efits under this title, to each individual enrolled with
the organization under this part.
‘‘(3) DISCLOSURE.—
‘‘(A) IN GENERAL.—Each MedicarePlus or-
ganization shall, in accordance with regulations
of the Secretary, report to the Secretary finan-
cial information which shall include the follow-
ing:
‘‘(i) Such information as the Secretary
may require demonstrating that the organi-
zation has a fiscally sound operation.
‘‘(ii) A copy of the report, if any, filed
with the Health Care Financing Adminis-
tration containing the information required
to be reported under section 1124 by disclos-
ing entities.
104
Subtitle A, Part 1
‘‘(iii) A description of transactions, as
specified by the Secretary, between the orga-
nization and a party in interest. Such
transactions shall include—
‘‘(I) any sale or exchange, or leas-
ing of any property between the orga-
nization and a party in interest;
‘‘(II) any furnishing for consider-
ation of goods, services (including
management services), or facilities be-
tween the organization and a party in
interest, but not including salaries
paid to employees for services provided
in the normal course of their employ-
ment and health services provided to
members by hospitals and other pro-
viders and by staff, medical group (or
groups), individual practice associa-
tion (or associations), or any combina-
tion thereof; and
‘‘(III) any lending of money or
other extension of credit between an or-
ganization and a party in interest.
The Secretary may require that information re-
ported respecting an organization which controls,
105
Subtitle A, Part 1
is controlled by, or is under common control
with, another entity be in the form of a consoli-
dated financial statement for the organization
and such entity.
‘‘(B) PARTY IN INTEREST DEFINED.—For
the purposes of this paragraph, the term ‘party
in interest’ means—
‘‘(i) any director, officer, partner, or
employee responsible for management or ad-
ministration of a MedicarePlus organiza-
tion, any person who is directly or indi-
rectly the beneficial owner of more than 5
percent of the equity of the organization,
any person who is the beneficial owner of a
mortgage, deed of trust, note, or other inter-
est secured by, and valuing more than 5
percent of the organization, and, in the case
of a MedicarePlus organization organized
as a nonprofit corporation, an incorporator
or member of such corporation under appli-
cable State corporation law;
‘‘(ii) any entity in which a person de-
scribed in clause (i)—
‘‘(I) is an officer or director;
106
Subtitle A, Part 1
‘‘(II) is a partner (if such entity
is organized as a partnership);
‘‘(III) has directly or indirectly a
beneficial interest of more than 5 per-
cent of the equity; or
‘‘(IV) has a mortgage, deed of
trust, note, or other interest valuing
more than 5 percent of the assets of
such entity;
‘‘(iii) any person directly or indirectly
controlling, controlled by, or under common
control with an organization; and
‘‘(iv) any spouse, child, or parent of an
individual described in clause (i).
‘‘(C) 
ACCESS
TO
INFORMATION.—Each
MedicarePlus organization shall make the infor-
mation reported pursuant to subparagraph (A)
available to its enrollees upon reasonable request.
‘‘(4) LOAN INFORMATION.—The contract shall re-
quire the organization to notify the Secretary of loans
and other special financial arrangements which are
made between the organization and subcontractors,
affiliates, and related parties.
‘‘(e) ADDITIONAL CONTRACT TERMS.—The contract
shall contain such other terms and conditions not inconsist-
107
Subtitle A, Part 1
ent with this part (including requiring the organization to
provide the Secretary with such information) as the Sec-
retary may find necessary and appropriate.
‘‘(f) INTERMEDIATE SANCTIONS.—
‘‘(1) IN GENERAL.—If the Secretary determines
that a MedicarePlus organization with a contract
under this section—
‘‘(A) fails substantially to provide medically
necessary items and services that are required
(under law or under the contract) to be provided
to an individual covered under the contract, if
the failure has adversely affected (or has substan-
tial likelihood of adversely affecting) the individ-
ual;
‘‘(B) imposes premiums on individuals en-
rolled under this part in excess of the premiums
permitted;
‘‘(C) acts to expel or to refuse to re-enroll an
individual in violation of the provisions of this
part;
‘‘(D) engages in any practice that would
reasonably be expected to have the effect of deny-
ing or discouraging enrollment (except as per-
mitted by this part) by eligible individuals with
the organization whose medical condition or his-
108
Subtitle A, Part 1
tory indicates a need for substantial future medi-
cal services;
‘‘(E) misrepresents or falsifies information
that is furnished—
‘‘(i) to the Secretary under this part,
or
‘‘(ii) to an individual or to any other
entity under this part;
‘‘(F) fails to comply with the requirements
of section 1852(f)(3); or
‘‘(G) employs or contracts with any indi-
vidual or entity that is excluded from participa-
tion under this title under section 1128 or 1128A
for the provision of health care, utilization re-
view, medical social work, or administrative
services or employs or contracts with any entity
for the provision (directly or indirectly) through
such an excluded individual or entity of such
services;
the Secretary may provide, in addition to any other
remedies authorized by law, for any of the remedies
described in paragraph (2).
‘‘(2) REMEDIES.—The remedies described in this
paragraph are—
109
Subtitle A, Part 1
‘‘(A) civil money penalties of not more than
$25,000 for each determination under paragraph
(1) or, with respect to a determination under
subparagraph (D) or (E)(i) of such paragraph,
of not more than $100,000 for each such deter-
mination, plus, with respect to a determination
under paragraph (1)(B), double the excess
amount charged in violation of such paragraph
(and the excess amount charged shall be deducted
from the penalty and returned to the individual
concerned), and plus, with respect to a deter-
mination under paragraph (1)(D), $15,000 for
each individual not enrolled as a result of the
practice involved,
‘‘(B) suspension of enrollment of individ-
uals under this part after the date the Secretary
notifies the organization of a determination
under paragraph (1) and until the Secretary is
satisfied that the basis for such determination
has been corrected and is not likely to recur, or
‘‘(C) suspension of payment to the organiza-
tion under this part for individuals enrolled
after the date the Secretary notifies the organiza-
tion of a determination under paragraph (1)
and until the Secretary is satisfied that the basis
110
Subtitle A, Part 1
for such determination has been corrected and is
not likely to recur.
‘‘(3) OTHER INTERMEDIATE SANCTIONS.—In the
case of a MedicarePlus organization for which the
Secretary makes a determination under subsection
(c)(2) the basis of which is not described in para-
graph (1), the Secretary may apply the following in-
termediate sanctions:
‘‘(A) civil money penalties of not more than
$25,000 for each determination under subsection
(c)(2) if the deficiency that is the basis of the de-
termination has directly adversely affected (or
has the substantial likelihood of adversely affect-
ing) an individual covered under the organiza-
tion’s contract;
‘‘(B) civil money penalties of not more than
$10,000 for each week beginning after the initi-
ation of procedures by the Secretary under sub-
section (h) during which the deficiency that is
the basis of a determination under subsection
(c)(2) exists; and
‘‘(C) suspension of enrollment of individuals
under this part after the date the Secretary noti-
fies the organization of a determination under
subsection (c)(2) and until the Secretary is satis-
111
Subtitle A, Part 1
fied that the deficiency that is the basis for the
determination has been corrected and is not like-
ly to recur.
‘‘(4) PROCEDURES FOR IMPOSING SANCTIONS.—
The provisions of section 1128A (other than sub-
sections (a) and (b)) shall apply to a civil money
penalty under paragraph (1) or (2) in the same man-
ner as they apply to a civil money penalty or pro-
ceeding under section 1128A(a).
‘‘(g) PROCEDURES FOR IMPOSING SANCTIONS.—The
Secretary may terminate a contract with a MedicarePlus
organization under this section or may impose the inter-
mediate sanctions described in subsection (f) on the organi-
zation in accordance with formal investigation and compli-
ance procedures established by the Secretary under which—
‘‘(1) the Secretary provides the organization with
the opportunity to develop and implement a correc-
tive action plan to correct the deficiencies that were
the basis of the Secretary’s determination under sub-
section (c)(2);
‘‘(2) the Secretary shall impose more severe sanc-
tions on organizations that have a history of defi-
ciencies or that have not taken steps to correct defi-
ciencies the Secretary has brought to their attention;
112
Subtitle A, Part 1
‘‘(3) there are no unreasonable or unnecessary
delays between the finding of a deficiency and the im-
position of sanctions; and
‘‘(4) the Secretary provides the organization with
reasonable notice and opportunity for hearing (in-
cluding the right to appeal an initial decision) before
imposing any sanction or terminating the contract.’’.
(b) CONFORMING REFERENCES TO PREVIOUS PART
C.—Any reference in law (in effect before the date of the
enactment of this Act) to part C of title XVIII of the Social
Security Act is deemed a reference to part D of such title
(as in effect after such date).
(c) USE OF INTERIM, FINAL REGULATIONS.—In order
to carry out the amendment made by subsection (a) in a
timely manner, the Secretary of Health and Human Serv-
ices may promulgate regulations that take effect on an in-
terim basis, after notice and pending opportunity for public
comment.
(d) ADVANCE
DIRECTIVES.—Section 1866(f) (42
U.S.C. 1395cc(f)) is amended—
(1) in paragraph (1)—
(A) 
by 
inserting 
‘‘1853(g),’’ 
after
‘‘1833(s),’’, and
(B) by inserting ‘‘, MedicarePlus organiza-
tion,’’ after ‘‘provider of services’’, and