231
Title VII, Subtitle B
1128(b)(6)(C) of the Social Security Act (42 U.S.C.
1320a-7(b)(6)(C)) is amended—
(1) in clause (i), by striking ‘‘a health mainte-
nance organization (as defined in section 1903(m))’’
and inserting ‘‘an eligible managed care provider, as
defined in section 1933(a)(1),’’; and
(2) in clause (ii), by inserting ‘‘section 1115 or’’
after ‘‘approved under’’.
(b) STATE PLAN REQUIREMENTS.—Section 1902 of
such Act (42 U.S.C. 1396a) is amended—
(1) in subsection (a)(30)(C), by striking ‘‘sec-
tion 
1903(m)’’ 
and 
inserting 
‘‘section
1932(a)(1)(B)’’; and
(2) in subsection (a)(57), by striking ‘‘hospice
program, or health maintenance organization (as de-
fined in section 1903(m)(1)(A))’’ and inserting ‘‘or
hospice program’’;
(3) in subsection (e)(2)(A), by striking ‘‘or with
an entity described in paragraph (2)(B)(iii), (2)(E),
(2)(G), or
(6) of section 1903(m) under a contract de-
scribed in section 1903(m)(2)(A);
(4) in subsection (p)(2)—
(A) by striking ‘‘a health maintenance or-
ganization (as defined in section 1903(m))’’ and
232
Title VII, Subtitle B
inserting ‘‘an eligible managed care provider, as
defined in section 1933(a)(1),’’;
(B) by striking ‘‘an organization’’ and in-
serting ‘‘a provider’’; and
(C) by striking ‘‘any organization’’ and in-
serting ‘‘any provider’’; and
(5) in subsection (w)(1), by striking ‘‘sections
1903(m)(1)(A) and’’ and inserting ‘‘section’’.
(c) 
PAYMENT
TO
STATES.—Section
1903(w)(7)(A)(viii) 
of 
such 
Act 
(42 
U.S.C.
1396b(w)(7)(A)(viii)) is amended to read as follows:
‘‘(viii) Services of an eligible managed
care provider with a contract under section
1932(a)(1)(B).’’.
(d) USE
OF
ENROLLMENT
FEES
AND
OTHER
CHARGES.—Section 1916 of such Act (42 U.S.C. 1396o)
is amended in subsections (a)(2)(D) and (b)(2)(D) by
striking ‘‘a health maintenance organization (as defined
in section 1903(m))’’ and inserting ‘‘an eligible managed
care provider, as defined in section 1933(a)(1),’’ each
place it appears.
(e) EXTENSION OF ELIGIBILITY FOR MEDICAL AS-
SISTANCE.—Section 1925(b)(4)(D)(iv) of such Act (42
U.S.C. 1396r-6(b)(4)(D)(iv)) is amended to read as fol-
lows:
233
Title VII, Subtitle B
‘‘(iv) ENROLLMENT
WITH
ELIGIBLE
MANAGED CARE PROVIDER.—Enrollment of
the caretaker relative and dependent chil-
dren with an eligible managed care pro-
vider, as defined in section 1933(a)(1), less
than 50 percent of the membership (en-
rolled on a prepaid basis) of which consists
of individuals who are eligible to receive
benefits under this title (other than be-
cause of the option offered under this
clause). The option of enrollment under
this clause is in addition to, and not in lieu
of, any enrollment option that the State
might offer under subparagraph (A)(i)
with respect to receiving services through
an eligible managed care provider in ac-
cordance with sections 1932, 1933, and
1934.’’.
(f) ASSURING ADEQUATE PAYMENT LEVELS FOR OB-
STETRICAL AND PEDIATRIC SERVICES.—Section 1926(a)
of such Act (42 U.S.C. 1396r-7(a)) is amended in para-
graphs (1) and (2) by striking ‘‘health maintenance orga-
nizations under section 1903(m)’’ and inserting ‘‘eligible
managed care providers under contracts entered into
under section 1932(a)(1)(B)’’ each place it appears.
234
Title VII, Subtitle B
(g) PAYMENT FOR COVERED OUTPATIENT DRUGS.—
Section 1927(j)(1) of such Act (42 U.S.C. 1396r-8(j)(1))
is amended by striking ‘‘***Health Maintenance Organi-
zations, including those organizations that contract under
section 1903(m),’’ and inserting ‘‘health maintenance or-
ganizations and medicaid managed care plans, as defined
in section 1933(a)(2),’’.
(h) DEMONSTRATION PROJECTS TO STUDY EFFECT
OF ALLOWING STATES TO EXTEND MEDICAID COVERAGE
FOR CERTAIN FAMILIES.—Section 4745(a)(5)(A) of the
Omnibus Budget Reconciliation Act of 1990 (42 U.S.C.
1396a note) is amended by striking ‘‘(except section
1903(m)’’ and inserting ‘‘(except sections 1932, 1933, and
1934)’’.
SEC. 7110. EFFECTIVE DATE; STATUS OF WAIVERS.
(a) EFFECTIVE DATE.—Except as provided in sub-
section (b), the amendments made by this subtitle shall
apply to medical assistance furnished—
(1) during quarters beginning on or after Octo-
ber 1, 1996; or
(2) in the case of assistance furnished under a
contract described in section 7102(b), during quar-
ters beginning after the earlier of—
(A) the date of the expiration of the contract;
or
235
Title VII, Subtitle B
(B) the expiration of the 1-year period
which begins on the date of the enactment of
this Act.
(b) APPLICATION TO WAIVERS.—
(1) EXISTING WAIVERS.—If any waiver granted
to a State under section 1115 or 1915 of the Social
Security Act (42 U.S.C. 1315, 1396n) or otherwise
which relates to the provision of medical assistance
under a State plan under title XIX of the such Act
(42 U.S.C. 1396 et seq.), is in effect or approved by
the Secretary of Health and Human Services as of
the applicable effective date described in subsection
(a), the amendments made by this subtitle shall not
apply with respect to the State before the expiration
(determined without regard to any extensions) of the
waiver to the extent such amendments are inconsist-
ent with the terms of the waiver.
(2) SECRETARIAL
EVALUATION
AND
REPORT
FOR EXISTING WAIVERS AND EXTENSIONS.—
(A) PRIOR TO APPROVAL.—On and after
the applicable effective date described in sub-
section (a), the Secretary, prior to extending
any waiver granted under section 1115 or 1915
of the Social Security Act (42 U.S.C. 1315,
1396n) or otherwise which relates to the provi-
236
Title VII, Subtitle B
sion of medical assistance under a State plan
under title XIX of the such Act (42 U.S.C.
1396 et seq.), shall—
(i) conduct an evaluation of—
(I) the waivers existing under
such sections or other provision of law
as of the date of the enactment of this
Act; and
(II) any applications pending, as
of the date of the enactment of this
Act, for extensions of waivers under
such sections or other provision of
law; and
(ii) submit a report to the Congress
recommending whether the extension of a
waiver under such sections or provision of
law should be conditioned on the State
submitting the request for an extension
complying with the provisions of sections
1932, 1933, and 1934 of the Social Secu-
rity Act (as added by this subtitle).
(B) DEEMED APPROVAL.—If the Congress
has not enacted legislation based on a report
submitted under subparagraph (A)(ii) within
120 days after the date such report is submit-
237
Title VII, Subtitle C
ted to the Congress, the recommendations con-
tained in such report shall be deemed to be ap-
proved by the Congress.
Subtitle C—Additional Reforms of
Medicaid Acute Care Program
SEC. 7201. PERMITTING INCREASED FLEXIBILITY IN MEDIC-
AID COST-SHARING.
(a) IN GENERAL.—Subsections (a)(3) and (b)(3) of
section 1916 of the Social Security Act (42 U.S.C. 1396o)
are amended by striking everything that follows ‘‘other
care and services’’ and inserting the following: ‘‘will be es-
tablished pursuant to a public schedule of charges and will
be adjusted to reflect the income, resources, and family
size of the individual provided the item or service.’’.
(b) EFFECTIVE DATE.—The amendments made by
subsection (a) shall apply to items and services furnished
on or after the first day of the first calendar quarter be-
ginning after the date of the enactment of this Act.
SEC. 7202. LIMITS ON REQUIRED COVERAGE OF ADDI-
TIONAL 
TREATMENT 
SERVICES 
UNDER
EPSDT.
(a) REGULATIONS.—The Secretary of Health and
Human Services shall define, by regulation promulgated
after consultation with States and organizations rep-
resenting health care providers, those treatment services
238
Title VII, Subtitle C
(in addition to those otherwise covered under a State plan
under title XIX of the Social Security Act) that must be
covered under section 1905(r)(5) of such Act.
(b) CONSTRUCTION.—Nothing in subsection (a) shall
be construed as limiting the scope of such treatment serv-
ices a State may cover under such section.
SEC. 7203. DELAY IN APPLICATION OF NEW REQUIRE-
MENTS.
(a) DELAY IN IMPLEMENTATION.—
(1) IN GENERAL.—Notwithstanding any other
provision of law, no change in law—
(A) which has the effect of imposing a re-
quirement on a State under a State plan under
title XIX of the Social Security Act, and
(B) with respect to the Secretary of Health
and Human Services is required to issue regula-
tions to carry out such requirement,
shall take effect until the date the Secretary promul-
gates such regulation as a final regulation.
(2) STATE OPTION.—Except as otherwise pro-
vided by the Secretary, a State may elect to have a
change in a law described in paragraph (1) apply
with respect to the State during the period (or por-
tion thereof) in which the change would have taken
effect but for paragraph (1).
239
Title VII, Subtitle C
(b) PROHIBITION OF CHANGES IN FINAL REGULA-
TIONS DURING A FISCAL YEAR.—
(1) IN GENERAL.—Except as provided in para-
graph (2), any change in a regulation of the Sec-
retary of Health and Human Services relating to the
medicaid program under title XIX of the Social Se-
curity Act shall not become effective until the begin-
ning of the fiscal year following the fiscal year in
which the change was promulgated.
(2) STATE OPTION.—Except as otherwise pro-
vided by the Secretary, a State may elect to have a
change in a regulation described in paragraph (1)
apply with respect to the State during the period (or
portion thereof) in which the change would have
taken effect but for paragraph (1).
(c) SENSE OF CONGRESS REGARDING FEDERAL PAY-
MENT FOR NEW MEDICAID MANDATES.—It is the sense
of Congress that if a State is required by future legislation
to provide for additional services, eligible individuals, or
otherwise incur additional costs under its medicaid pro-
gram under title XIX of the Social Security Act, the Fed-
eral Government shall provide for full payment of any such
additional costs for at least the first two years in which
such requirement applies.
240
Title VII, Subtitle C
SEC. 7204. DEADLINE ON ACTION ON WAIVERS.
(a) IN GENERAL.—In considering applications for
medicaid waivers—
(1) the application shall be deemed granted un-
less the Secretary of Health and Human Services,
within ninety days after the date of the submission
of the application of the Secretary, either denies the
application in writing or informs the applicant in
writing with respect to any additional information
which is needed in order to make a final determina-
tion with respect to the application, and
(2) after the date the Secretary receives such
additional information, the application shall be
deemed granted unless the Secretary within ninety
days of such date, denies such application.
(b) MEDICAID WAIVERS.—In this section, the term
‘‘medicaid waiver’’ means the request of a State for a
waiver of a provision of title XIX of the Social Security
Act (or of another provision of law that applies to State
plans under such title), and includes such a waiver under
the authority of section 1115 or section 1915 of the Social
Security Act or under section 222 of the Social Security
Amendments of 1972 and section 402(a) of the Social Se-
curity Amendments of 1967.
241
Title VII, Subtitle D
Subtitle D—National Commission
on Medicaid Restructuring
SEC. 7301. ESTABLISHMENT OF COMMISSION.
(a) IN GENERAL.—There is hereby established the
National Commission on Medicaid Restructuring (in this
subtitle referred to as the ‘‘Commission’’).
(b) COMPOSITION.—The Commission shall be com-
posed as follows:
(1) 2 FEDERAL
OFFICIALS.—The President
shall appoint 2 Federal officials, one of whom the
President shall designate as chairperson of the Com-
mission.
(2) 4 
MEMBERS
OF
CONGRESS.—(A) The
Speaker of the House of Representatives shall ap-
point one Member of the House as a member.
(B) The minority leader of the House of Rep-
resentatives shall appoint one Member of the House
as a member.
(C) The majority leader of the Senate shall ap-
point one Member of the Senate as a member.
(D) The minority leader of the Senate shall ap-
point one Member of the Senate as a member.
(3) 6 
STATE
GOVERNMENT
REPRESENTA-
TIVES.—(A) The majority leaders of the House of
Representatives and the Senate shall jointly appoint
242
Title VII, Subtitle D
3 individuals who are governors, State legislators, or
State medicaid officials.
(B) The minority leaders of the House of Rep-
resentatives and the Senate shall jointly appoint 3
individuals who are governors, State legislators, or
State medicaid officials.
(4) 6 EXPERTS.—(A) The majority leaders of
the House of Representatives and the Senate shall
jointly appoint 4 individuals who are not officials of
the Federal or State governments and who have ex-
pertise in a health-related field, such as medicine,
public health, or delivery and financing of health
care services.
(B) The President shall appoint 2 individuals
who are not officials of the Federal or State govern-
ments and who have expertise in a health-related
field, such as medicine, public health, or delivery and
financing of health care services.
(c) INITIAL APPOINTMENT.—Members of the Com-
mission shall first be appointed by not later than February
1, 1996.
(d) COMPENSATION AND EXPENSES.—
(1) COMPENSATION.—Each member of the
Commission shall serve without compensation.
243
Title VII, Subtitle D
(2) TRAVEL EXPENSES.—Members of the Com-
mission shall be allowed travel expenses, including
per diem in lieu of subsistence, at rates authorized
for employees of agencies under subchapter I of
chapter 57 of title 5, United States Code, while
away from their homes or regular places of business
in the performance of services for the Commission.
SEC. 7302. DUTIES OF COMMISSION.
(a) STUDY OF MEDICAID PROGRAM.—
(1) IN GENERAL.—The Commission shall study
and make recommendations to the Congress, the
President, and the Secretary regarding the need for
changes (in addition to the changes effected under
this title) in the laws and regulations regarding the
medicaid program under title XIX of the Social Se-
curity Act.
(2) SPECIFIC
CONCERNS.—The Commission
shall specifically address each of the following:
(A) Changes needed to ensure adequate ac-
cess to health care for low-income individuals.
(B) Promotion of quality care.
(C) Deterrence of fraud and abuse.
(D) Providing States with additional flexi-
bility in implementing their medicaid plans.
244
Title VII, Subtitle D
(E) Methods of containing Federal and
State costs.
(b) REPORTS.—
(1) FIRST
REPORT.—The Commission shall
issue a first report to Congress by not later than
December 31, 1996.
(2) SUBSEQUENT REPORTS.—The Commission
shall issue subsequent reports to Congress by not
later than December 31, 1997, and December 31,
1998.
SEC. 7303. ADMINISTRATION.
(a) APPOINTMENT OF STAFF.—
(1) EXECUTIVE
DIRECTOR.—The Commission
shall have an Executive Director who shall be ap-
pointed by the Chairperson with the approval of the
Commission. The Executive Director shall be paid at
a rate not to exceed the rate of basic pay payable
for level III of the Executive Schedule.
(2) STAFF.—With the approval of the Commis-
sion, the Executive Director may appoint and deter-
mine the compensation of such staff as may be nec-
essary to carry out the duties of the Commission.
Such appointments and compensation may be made
without regard to the provisions of title 5, United
States Code, that govern appointments in the com-
245
Title VII, Subtitle D
petitive services, and the provisions of chapter 51
and subchapter III of chapter 53 of such title that
relate to classifications and the General Schedule
pay rates.
(3) CONSULTANTS.—The Commission may pro-
cure such temporary and intermittent services of
consultants under section 3109(b) of title 5, United
States Code, as the Commission determines to be
necessary to carry out the duties of the Commission.
(b) PROVISION OF ADMINISTRATIVE SUPPORT SERV-
ICES BY HHS.—Upon the request of the Commission, the
Secretary of Health and Human Services shall provide to
the Commission on a reimbursable basis such administra-
tive support services as the Commission may request.
SEC. 7304. AUTHORIZATION OF APPROPRIATIONS.
There are authorized to be appropriated to carry out
this subtitle $3,000,000 for fiscal year 1996, $4,000,000
for each of fiscal years 1997 and 1998, and $2,000,000
for fiscal year 1999.
SEC. 7305. TERMINATION.
The Commission shall terminate on December 31,
1998.
246
Title VII, Subtitle E
Subtitle E—Restrictions on
Disproportionate Share Payments
SEC. 7401. REFORMING DISPROPORTIONATE SHARE PAY-
MENTS UNDER STATE MEDICAID PROGRAMS.
(a) TARGETING PAYMENTS.—Section 1923 of the So-
cial Security Act (42 U.S.C.1396r–3) is amended—
(1) in subsection (a)(1)—
(A) by redesignating subparagraphs (A)
and (B) as clauses (i) and (ii),
(B) by striking ‘‘(1)’’ and inserting
‘‘(1)(A)’’,
(C) in clause (i) (as so redesignated) by
striking ‘‘(b)(1)’’ and inserting ‘‘(b)(1)(A)’’,
and
(D) by adding at the end the following:
‘‘(B) A State plan under this title shall not be consid-
ered to meet the requirement of section 1902(a)(13)(A)
(insofar as it requires payments to hospitals to take into
account the situation of hospitals that serve a dispropor-
tionate number of low-income patients with special needs),
as of July 1, 1996, unless the State has submitted to the
Secretary, by not later than such date, an amendment to
such plan that utilizes the definition of such hospitals
specified in subsection (b)(1)(B) in lieu of the definition
established by the State under subparagraph (a)(i).’’;
247
Title VII, Subtitle E
(2) in subsection (a)(2)(A)—
(A) by inserting ‘‘(i)’’ after ‘‘(2)(A)’’,
(B) by striking ‘‘paragraph (1)’’ and in-
serting ‘‘paragraph (1)(A)(i)’’, and
(C) by adding at the end the following:
‘‘(ii) In order to be considered to have met such re-
quirement of section 1902(a)(13)(A) as of July 1, 1996,
the State must submit to the Secretary by not later than
April 1, 1996, the State plan amendment described in
paragraph (1)(B), consistent with subsection (c), effective
for inpatient hospital services furnished on or after July
1, 1996.’’;
(3) in subsection (b)—
(A) in the heading, by striking ‘‘HOS-
PITALS DEEMED DISPROPORTIONATE SHARE’’
and inserting ‘‘DISPROPORTIONATE
SHARE
HOSPITALS’’,
(B) in paragraph (1)—
(i) by redesignating subparagraphs
(A) and (B) as clauses (i) and (ii),
(ii) by striking ‘‘(1) For purposes of
subsection (a)(1)’’ and inserting ‘‘(1)(A)
For purposes of subsection (a)(1)(A)’’, and
(iii) by adding at the end the follow-
ing:
248
Title VII, Subtitle E
‘‘(B) For purposes of subsection (a)(1)(B), a hospital
that meets the requirements of subsection (d) is a dis-
proportionate share hospital only if—
‘‘(i) in the case of a hospital that is not de-
scribed in subsection (d)(2)(A)(i), the hospital’s low-
income utilization rate (as defined in paragraph (3))
exceeds 25 percent; or
‘‘(ii) in the case of a hospital that is described
in subsection (d)(2)(A)(i)—
‘‘(I) the hospital meets the requirement of
clause (i), or
‘‘(II) the hospital’s medicaid inpatient uti-
lization rate (as defined in paragraph (2)) ex-
ceeds 20 percent.’’;
(C) in paragraph (2) by striking ‘‘(1)(A)’’
and inserting ‘‘(1)’’,
(D) in paragraph (3) by striking ‘‘(1)(B)’’
and inserting ‘‘(1)’’, and
(E) by striking paragraph (4);
(4) in subsection (c)—
(A) in paragraph (2), by striking ‘‘sub-
paragraph (A) or (B) of subsection (b)(1)’’ and
inserting ‘‘clause (i) or (ii) of subsection
(b)(1)(A)’’,
(B) by striking paragraph (3), and
249
Title VII, Subtitle E
(C) in the matter following paragraph
(3)—
(i) by striking ‘‘(1)(B)’’ each place it
appears and inserting ‘‘(1)(A)(ii)’’, and
(ii) by striking ‘‘(2)(A)’’ each place it
appears and inserting ‘‘(2)(A)(i)’’ ; and
(5) in subsection (e)—
(A) in paragraph (1)(C), by striking
‘‘meets the requirement of subsection (d)(3)’’
and inserting ‘‘makes payments under this sec-
tion only to hospitals described in subsection
(b)(1)(B)’’, and
(B) in paragraph (2)—
(i) by inserting ‘‘and’’ at the end of
subparagraph (B), and
(ii) by striking subparagraph (C).
(b) DIRECT PAYMENT BY STATE.—Section 1923(a)
of such Act (42 U.S.C. 1396r–4(a)), as amended by sub-
section (a), is further amended—
(1) in paragraph (1), by adding at the end the
following
‘‘(C) A State plan under this title shall not be consid-
ered to meet the requirement of section 1902(a)(13)(A)
(insofar as it requires payments to hospitals to take into
account the situation of hospitals that serve a dispropor-
250
Title VII, Subtitle E
tionate number of low-income patients with special needs),
as of July 1, 1996, unless the State provides that any pay-
ments made under this section with respect to individuals
who are—
‘‘(i) entitled to benefits under the State plan,
and
‘‘(ii) enrolled with a health maintenance organi-
zation or other managed care plan,
are, at the option of the hospital, made directly to such
hospital by the State.’’; and
(2) in paragraph (2)(A)(ii), by striking ‘‘amend-
ment described in paragraph (1)(B)’’ and inserting
‘‘amendments described in subparagraphs (B) and
(C) of paragraph (1)’’.
(c) ADJUSTMENT TO NATIONAL DSH LIMIT; STATE
ALLOCATIONS.—
(1) IN GENERAL.—Section 1923(f) (42 U.S.C.
1396r–4(f)) is amended—
(A) in paragraph (1)(B), by striking ‘‘for
a fiscal year’’ and all that follows and inserting
the following: ‘‘for—
‘‘(i) each of fiscal years 1997 and
1998, is $6.5 billion,
‘‘(ii) each of fiscal years 1999 and
2000, is $5.5 billion,
251
Title VII, Subtitle E
‘‘(iii) each succeeding fiscal year is
$5.0 billion.’’;
(B) by striking subparagraphs (D) and (E)
of paragraph (1); and
(C) by amending paragraph (2) to read as
follows:
‘‘(2) DETERMINATION OF STATE DSH ALLOT-
MENTS.—
‘‘(A) IN GENERAL.—The State DSH allot-
ment for a fiscal year is equal to the State’s
share (as determined under subparagraph (B))
of the national DSH limit for the fiscal year es-
tablished under paragraph (1)(B).
‘‘(B) STATE SHARE.—For purposes of sub-
paragraph (A), the ‘State share’ is equal to the
ratio of—
‘‘(i) the total number low-income pa-
tient days (as defined in subparagraph
(C)) for all hospitals described in sub-
section (b)(1)(B) in the State for the fiscal
year, to
‘‘(ii) the total number of such low-in-
come patient days for all such hospitals for
all States for the fiscal year.
252
Title VII, Subtitle E
The Secretary shall determine the State share
based on the Secretary’s best estimate of pa-
tient days and hospitals.
‘‘(C) LOW-INCOME PATIENT DAY.—
‘‘(i) IN
GENERAL.—For purposes of
this paragraph, the term ‘low-income pa-
tient day’ means, for a hospital, a patient
day (as defined in clause (ii)) attributable
to an individual who either is eligible for
medical assistance under the State plan or
has no health insurance (or other source of
third party coverage) for services furnished
by the hospital.
‘‘(ii) PATIENT
DAYS
DEFINED.—For
purposes of this subparagraph, the term
‘patient day’ includes each day in which—
‘‘(I) an individual (including a
new-born) is an inpatient in the hos-
pital, whether or not the individual is
in a specialized ward and whether or
not the individual remains in the hos-
pital for lack of suitable placement
elsewhere, and
253
Title VII, Subtitle F
‘‘(II) an individual makes one or
more outpatient visits to the hos-
pital.’’.
(2) EFFECTIVE DATE.—The amendments made
by paragraph (1) shall apply to fiscal years begin-
ning with fiscal year 1997.
(d) EFFECTIVE DATE.—Except as provided in sub-
section (c)(2), the amendments made by this section shall
apply to payments to States under section 1903(a) of the
Social Security Act for payments to hospitals made under
State plans after—
(1) July 1, 1996, or
(2) in the case of a State with a State legisla-
ture that is not scheduled to have a regular legisla-
tive session in 1996, July 1, 1997.
Subtitle F—Fraud Reduction
SEC. 7501. MONITORING PAYMENTS FOR DUAL ELIGIBLES.
The Administrator of the Health Care Financing Ad-
ministration shall develop mechanisms to better monitor
and prevent inappropriate payments under the medicaid
program in the case of individuals who are dually eligible
for benefits under such program and under the medicare
program.
254
Title VIII
SEC. 7502. IMPROVED IDENTIFICATION SYSTEMS.
The Administrator of the Health Care Financing Ad-
ministration shall develop improved mechanisms, such as
picture identification documents and smart documents, to
provide methods of improved identification and tracking
of beneficiaries and providers that perpetrate fraud
against the medicaid program.
TITLE VIII—MEDICARE
SEC. 8000. SHORT TITLE; REFERENCES IN TITLE.
(a) SHORT TITLE OF TITLE.—This title may be cited
as the ‘‘Medicare Preservation Act of 1995’’.
(b) AMENDMENTS TO SOCIAL SECURITY ACT.—Ex-
cept as otherwise specifically provided, whenever in this
title an amendment is expressed in terms of an amend-
ment to or repeal of a section or other provision, the ref-
erence 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 Omnibus Budget Reconciliation Act of 1987 (Public
Law 100–203), the Omnibus Budget Reconciliation Act
of 1989 (Public Law 101–239), the Omnibus Budget Rec-
onciliation Act of 1990 (Public Law 101–508), and the
255
Title VIII, Subtitle A
Omnibus Budget Reconciliation Act of 1993 (Public Law
103–66), respectively.
Subtitle A—Medicare Choice
Program
PART 1—INCREASING CHOICE UNDER THE
MEDICARE PROGRAM
SEC. 8001. 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
MEDICARE
CHOICE
PRODUCT.—Through a Medicare Choice prod-
uct (as defined in paragraph (2)), which may
be—
‘‘(i) a product offered by a provider-
sponsored organization,
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Title VIII, Subtitle A
‘‘(ii) a product offered by an organiza-
tion that is a union, Taft-Hartley plan, or
association, or
‘‘(iii) a product providing for benefits
on a fee-for-service or other basis.
Such a product may be a high deductible/
medisave product (and a contribution into a
Medicare 
Choice 
medical 
savings 
account
(MSA)) under the demonstration project pro-
vided under section 1859.
‘‘(2) MEDICARE CHOICE PRODUCT DEFINED.—
For purposes of this section and part C, the term
‘Medicare Choice product’ means health benefits cov-
erage offered under a policy, contract, or plan by a
Medicare Choice organization (as defined in section
1851(a)) pursuant to and in accordance with a con-
tract under section 1858.
‘‘(3) TERMINOLOGY RELATING TO OPTIONS.—
For purposes of this section and part C—
‘‘(A) NON-MEDICARE-CHOICE OPTION.—An
individual who has made the election described
in paragraph (1)(A) is considered to have elect-
ed the ‘Non-Medicare Choice option’.
‘‘(B) MEDICARE CHOICE OPTION.—An in-
dividual who has made the election described in
257
Title VIII, Subtitle A
paragraph (1)(B) to obtain coverage through a
Medicare Choice product is considered to have
elected the ‘Medicare Choice option’ for that
product.
‘‘(b) SPECIAL RULES.—
‘‘(1) RESIDENCE
REQUIREMENT.—Except as
the Secretary may otherwise provide, an individual is
eligible to elect a Medicare Choice product offered by
a Medicare Choice organization only if the organiza-
tion in relation to the product serves the geographic
area in which the individual resides.
‘‘(2) AFFILIATION
REQUIREMENTS
FOR
CER-
TAIN PRODUCTS.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (B), an individual is eligible to elect a
Medicare Choice product offered by a limited
enrollment Medicare Choice organization (as de-
fined 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 Medicare Choice
organization that is a union sponsor or
Taft-Hartley sponsor (as defined in section
1852(c)(4)), the individual elected under
258
Title VIII, Subtitle A
this section a Medicare Choice product of-
fered by the sponsor during the first en-
rollment period in which the individual was
eligible to make such election with respect
to such sponsor.
‘‘(B) 
NO
REELECTION
AFTER
DISENROLLMENT
FOR
CERTAIN
PRODUCTS.—
An individual is not eligible to elect a Medicare
Choice product offered by a Medicare Choice
organization that is a union sponsor or Taft-
Hartley sponsor if the individual previously had
elected a Medicare Choice product offered by
the organization and had subsequently discon-
tinued to elect such a product offered by the or-
ganization.
‘‘(c) PROCESS FOR EXERCISING CHOICE.—
‘‘(1) IN GENERAL.—The Secretary shall estab-
lish a process through which elections described in
subsection (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 speci-
fied under subsection (e) and shall become effective
as provided in subsection (f).
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Title VIII, Subtitle A
‘‘(2) EXPEDITED IMPLEMENTATION.—The Sec-
retary shall establish the process of electing coverage
under this section during the transition period (as
defined in subsection (e)(1)(B)) in such an expedited
manner as will permit such an election for Medicare
Choice products in an area as soon as such products
become available in that area.
‘‘(3) 
COORDINATION
THROUGH
MEDICARE
CHOICE ORGANIZATIONS.—
‘‘(A) ENROLLMENT.—Such process shall
permit an individual who wishes to elect a Med-
icare Choice product offered by a Medicare
Choice 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
Medicare Choice product offered by a Medicare
Choice organization and who wishes to termi-
nate such election, to terminate such election
through the filing of an appropriate election
form with the organization.
‘‘(4) DEFAULT.—
‘‘(A) INITIAL ELECTION.—
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Title VIII, Subtitle A
‘‘(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-Medicare Choice option.
‘‘(ii) SEAMLESS
CONTINUATION
OF
COVERAGE.—The Secretary shall establish
procedures under which individuals who
are enrolled with a Medicare Choice orga-
nization at the time of the initial election
period and who fail to elect to receive cov-
erage other than through the organization
are deemed to have elected an appropriate
Medicare Choice product offered by the or-
ganization.
‘‘(B) CONTINUING PERIODS.—An individ-
ual who has made (or deemed to have made) an
election under this section is considered to have
continued to make such election until such time
as—
‘‘(i) the individual changes the elec-
tion under this section, or
‘‘(ii) a Medicare Choice product is dis-
continued, if the individual had elected
261
Title VIII, Subtitle A
such product at the time of the discontinu-
ation.
‘‘(5) AGREEMENTS WITH COMMISSIONER OF SO-
CIAL SECURITY TO PROMOTE EFFICIENT ADMINIS-
TRATION.—In order to promote the efficient admin-
istration of this section and the Medicare Choice
program under part C, the Secretary may enter into
an agreement with the Commissioner of Social Secu-
rity under which the Commissioner performs admin-
istrative responsibilities relating to enrollment and
disenrollment in Medicare Choice 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
medicare on the basis of age) as to permit individ-
262
Title VIII, Subtitle A
uals to elect the Medicare Choice option during the
initial election period described in subsection (e)(1).
‘‘(2) USE
OF
NONFEDERAL
ENTITIES.—The
Secretary shall, to the maximum extent feasible,
enter 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
Medicare Choice products are offered:
‘‘(A) INFORMATION BOOKLET.—
‘‘(i) IN
GENERAL.—The Secretary
shall publish an information booklet and
disseminate the booklet to all individuals
eligible to elect the Medicare Choice 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 var-
ious Medicare Choice products in the
areas involved;
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Title VIII, Subtitle A
‘‘(II) the quality of such prod-
ucts, including consumer satisfaction
information; and
‘‘(III) rights and responsibilities
of medicare beneficiaries under such
products.
‘‘(iii) 
PERIODIC
UPDATING.—The
booklet shall be updated on a regular basis
(not less often than once every 12 months)
to reflect changes in the availability of
Medicare Choice products and the benefits
and premiums for such products.
‘‘(B) TOLL-FREE NUMBER.—The Secretary
shall maintain a toll-free number for inquiries
regarding Medicare Choice options and the op-
eration of part C.
‘‘(C) GENERAL
INFORMATION
IN
MEDI-
CARE HANDBOOK.—The Secretary shall include
information about the Medicare Choice option
provided under this section in the annual notice
of medicare benefits under section 1804.
‘‘(e) COVERAGE ELECTION PERIODS.—
‘‘(1) INITIAL
CHOICE
UPON
ELIGIBILITY
TO
MAKE ELECTION.—
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Title VIII, Subtitle A
‘‘(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 de-
fined 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 enrolled under part B. Such period shall
be specified in a manner so that, in the case of
an individual who elects a Medicare Choice
product during the period, coverage under the
product becomes effective as of the first date on
which the individual 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 Medicare Choice product is
first made available to individuals in the area
and ending with the month preceding the begin-
ning of the first annual, coordinated election
period under paragraph (3).
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Title VIII, Subtitle A
‘‘(2) DURING TRANSITION PERIOD.—Subject to
paragraph (6)—
‘‘(A) CONTINUOUS
OPEN
ENROLLMENT
INTO
A
MEDICARE
CHOICE
OPTION.—During
the transition period, an individual who is eligi-
ble to make an election under this section and
who has elected the non-Medicare Choice option
may change such election to a Medicare Choice
option at any time.
‘‘(B) OPEN DISENROLLMENT BEFORE END
OF TRANSITION PERIOD.—During the transition
period, an individual who has elected a Medi-
care Choice option for a Medicare Choice prod-
uct may change such election to another Medi-
care Choice product or to the non-Medicare
Choice option.
‘‘(3) ANNUAL, COORDINATED
ELECTION
PE-
RIOD.—
‘‘(A) IN GENERAL.—Subject to paragraph
(5), each individual who is eligible to make an
election under this section may change such
election during annual, coordinated election pe-
riods.
‘‘(B) ANNUAL, COORDINATED
ELECTION
PERIOD.—For purposes of this section, the
266
Title VIII, Subtitle A
term ‘annual, coordinated election period’
means, with respect to a calendar year (begin-
ning with 1998), the month of October before
such year.
‘‘(C) MEDICARE
CHOICE
HEALTH
FAIR
DURING OCTOBER, 1996.—In the month of Octo-
ber, 1996, the Secretary shall provide for a na-
tionally coordinated educational and publicity
campaign to inform individuals, who are eligible
to elect Medicare Choice products, about such
products and the election process provided
under this section (including the annual, coordi-
nated election periods that occur in subsequent
years).
‘‘(4) SPECIAL
90-DAY
DISENROLLMENT
OP-
TION.—
‘‘(A) IN GENERAL.—In the case of the first
time an individual elects a Medicare Choice op-
tion 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-
ual’s coverage under the Medicare Choice prod-
uct under such option becomes effective.
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Title VIII, Subtitle A
‘‘(B) EFFECT
OF
DISCONTINUATION
OF
ELECTION.—An individual who discontinues an
election under this paragraph shall be deemed
at the time of such discontinuation to have
elected the Non-Medicare Choice option.
‘‘(5) SPECIAL ELECTION PERIODS.—An individ-
ual may discontinue an election of a Medicare
Choice product offered by a Medicare Choice organi-
zation other than during an annual, coordinated
election period and make a new election under this
section if—
‘‘(A) the organization’s or product’s certifi-
cation under part C has been terminated or the
organization has terminated or otherwise dis-
continued providing the product;
‘‘(B) in the case of an individual who has
elected a Medicare Choice product offered by a
Medicare Choice organization, the individual is
no longer eligible to elect the product because
of a change in the individual’s place of resi-
dence or other change in circumstances (speci-
fied by the Secretary, but not including termi-
nation of membership in a qualified association
in the case of a product offered by a qualified
association or termination of the individual’s
268
Title VIII, Subtitle A
enrollment 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
product substantially violated a material
provision 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
behalf) materially misrepresented the prod-
uct’s provisions in marketing the product
to the individual; or
‘‘(D) the individual meets such other con-
ditions as the Secretary may provide.
‘‘(f) EFFECTIVENESS OF ELECTIONS.—
‘‘(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 individ-
ual becomes entitled to benefits under part A and
enrolled under part B, except as the Secretary may
269
Title VIII, Subtitle A
provide (consistent with section 1838) in order to
prevent retroactive coverage.
‘‘(2) 
DURING
TRANSITION; 
90-DAY
DISENROLLMENT OPTION.—An election of coverage
made under subsection (e)(2) and an election to dis-
continue a Medicare Choice 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 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 Sec-
retary provides in a manner consistent (to the extent
practicable) with protecting continuity of health ben-
efit coverage.
‘‘(g) EFFECT OF ELECTION OF MEDICARE CHOICE
OPTION.—Subject to the provisions of section 1855(f),
payments under a contract with a Medicare Choice organi-
zation under section 1858(a) with respect to an individual
electing a Medicare Choice product offered by the organi-
270
Title VIII, Subtitle A
zation shall be instead of the amounts which (in the ab-
sence of the contract) would otherwise be payable under
parts A and B for items and services furnished to the indi-
vidual.
‘‘(h) DEMONSTRATION PROJECTS.—The Secretary
shall conduct demonstration projects to test alternative
approaches to coordinated open enrollments in different
markets, including different annual enrollment periods
and models of rolling open enrollment periods. The Sec-
retary may waive previous provisions of this section in
order to carry out such projects.’’.
SEC. 8002. MEDICARE CHOICE PROGRAM.
(a) IN GENERAL.—Title XVIII is amended by redes-
ignating part C as part D and by inserting after part B
the following new part:
‘‘PART C—PROVISIONS RELATING TO MEDICARE
CHOICE
‘‘REQUIREMENTS FOR MEDICARE CHOICE ORGANIZATIONS
‘‘SEC. 1851. (a) MEDICARE CHOICE ORGANIZATION
DEFINED.—In this part, subject to the succeeding provi-
sions of this section, the term ‘Medicare Choice organiza-
tion’ 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.
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Title VIII, Subtitle A
‘‘(b) ORGANIZED
AND LICENSED UNDER STATE
LAW.—
‘‘(1) IN GENERAL.—A Medicare Choice organi-
zation shall be organized and licensed under State
law to offer health insurance or health benefits cov-
erage in each State in which it offers a Medicare
Choice product.
‘‘(2) EXCEPTION FOR UNION AND TAFT-HART-
LEY SPONSORS.—Paragraph (1) shall not apply to
an Medicare Choice organization that is a union
sponsor or Taft-Hartley sponsor (as defined in sec-
tion 1852(c)(4)).
‘‘(3) EXCEPTION
FOR
PROVIDER-SPONSORED
ORGANIZATIONS.—Subject to paragraph (5), para-
graph (1) shall not apply to a Medicare Choice orga-
nization that is a provider-sponsored organization
(as defined in section 1854(a)).
‘‘(4) EXCEPTION
FOR
QUALIFIED
ASSOCIA-
TIONS.—Paragraph (1) shall not apply to a Medi-
care Choice organization that is a qualified associa-
tion (as defined in section 1852(c)(4)(B)).
‘‘(5) LIMITATION.—Effective on and after Jan-
uary 1, 2000, paragraph (1) shall only apply (and
paragraph (3) shall no longer apply) to a Medicare
Choice organization in a State if the standards for
272
Title VIII, Subtitle A
licensure of the organization under the law of the
State are identical to the standards established
under section 1856(b).
‘‘(c) PREPAID PAYMENT.—A Medicare Choice orga-
nization shall be compensated (except for deductibles, co-
insurance, and copayments) for the provision of health
care services 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 with-
out regard to the frequency, extent, or kind of health care
service actually provided to a member.
‘‘(d) ASSUMPTION OF FULL FINANCIAL RISK.—The
Medicare Choice 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 required to be provided under section 1852(a)(1), ex-
cept that the organization—
‘‘(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
exceeds $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 organi-
zation because medical necessity required their pro-
273
Title VIII, Subtitle A
vision before they could be secured through the orga-
nization,
‘‘(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 institu-
tions, or any combination of such individuals or in-
stitutions to assume all or part of the financial risk
on a prospective basis for the provision of basic
health services by the physicians or other health pro-
fessionals or through the institutions.
In the case of a Medicare Choice organization that is a
union sponsor or Taft-Hartley sponsor (as defined in sec-
tion 1852(c)(4)) or a qualified association (as defined in
section 1852(c)(4)(B)), this subsection shall not apply
with respect to Medicare Choice products offered by such
organization and issued by an organization to which sub-
section (b)(1) applies or by a provider-sponsored organiza-
tion (as defined in section 1854(a)).
‘‘(e) PROVISION AGAINST RISK OF INSOLVENCY.—
‘‘(1) IN GENERAL.—Each Medicare Choice or-
ganization shall meet standards under section 1856
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Title VIII, Subtitle A
relating to the financial solvency and capital ade-
quacy of the organization. Such standards shall take
into account the nature and type of Medicare Choice
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 AS-
SOCIATIONS.—An entity that is a qualified associa-
tion is deemed to meet the requirement of paragraph
(1) with respect to Medicare Choice products offered
by such association and issued by an organization to
which subsection (b)(1) applies or by a provider-
sponsored organization.
‘‘(f) ORGANIZATIONS TREATED AS MEDICAREPLUS
ORGANIZATIONS DURING TRANSITION.—Any of the fol-
lowing organizations shall be considered to qualify as a
MedicarePlus organization for contract years beginning
before January 1, 1997:
‘‘(1) 
HEALTH
MAINTENANCE
ORGANIZA-
TIONS.—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 Public Health Service Act), an orga-
nization recognized under State law as a health
275
Title VIII, Subtitle A
maintenance organization, or a similar organization
regulated under State law for solvency in the same
manner and to the same extent as such a health
maintenance organization.
‘‘(2) LICENSED
INSURERS.—An organization
that is organized under the laws of any State and—
‘‘(A) is licensed by a State agency as an
insurer for the offering of health benefit cov-
erage, 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 orga-
nization that is an eligible organization (as defined
in section 1876(b)) and that has a risk-sharing con-
tract in effect under section 1876 as of the date of
the enactment of this section.
‘‘REQUIREMENTS RELATING TO BENEFITS, PROVISION OF
SERVICES, ENROLLMENT, AND PREMIUMS
‘‘SEC. 1852. (a) BENEFITS COVERED.—
‘‘(1) IN
GENERAL.—Each Medicare Choice
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
276
Title VIII, Subtitle A
the standards for coverage of such items and serv-
ices applicable under this title.
‘‘(2) ORGANIZATION AS SECONDARY PAYER.—
Notwithstanding any other provision of law, a Medi-
care Choice 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
Medicare Choice product offered by a Medicare
Choice organization satisfies paragraph (1) with re-
spect to benefits for items and services if the follow-
ing requirements are met:
‘‘(A) FEE FOR SERVICE PROVIDERS.—In
the case of benefits furnished through a pro-
277
Title VIII, Subtitle A
vider that does not have a contract with the or-
ganization, 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 liabil-
ity for payment for such items and services
does not exceed (after taking into account any
deductible, which does not exceed any deduct-
ible under parts A and B) the lesser of the fol-
lowing:
‘‘(i) NON-MEDICARE
CHOICE
LIABIL-
ITY.—The amount of the liability that the
individual would have had (based on the
provider being a participating provider) if
the individual had elected the non-Medi-
care Choice option.
‘‘(ii) MEDICARE
COINSURANCE
AP-
PLIED
TO
PRODUCT
PAYMENT
RATES.—
The applicable coinsurance or copayment
rate (that would have applied under the
non-Medicare Choice option) of the pay-
ment rate provided under the contract.
278
Title VIII, Subtitle A
‘‘(b) ANTIDISCRIMINATION.—A Medicare Choice or-
ganization 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
history, or lack of evidence of insurability, of an individual.
‘‘(c) GUARANTEED ISSUE AND RENEWAL.—
‘‘(1) IN GENERAL.—Except as provided in this
subsection, a Medicare Choice organization shall
provide that at any time during which elections are
accepted under section 1805 with respect to a Medi-
care Choice product offered by the organization, the
organization will accept without restrictions individ-
uals who are eligible to make such election.
‘‘(2) PRIORITY.—If the Secretary determines
that a Medicare Choice organization, in relation to
a Medicare Choice 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 indi-
viduals of the product under such section but only
if priority in election is provided—
‘‘(A) first to such individuals as have elect-
ed the product at the time of the determination,
and
279
Title VIII, Subtitle A
‘‘(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 subsection (b).
‘‘(3) LIMITATION ON TERMINATION OF ELEC-
TION.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (B), a Medicare Choice organization may
not for any reason terminate the election of any
individual under section 1805 for a Medicare
Choice product it offers.
‘‘(B) BASIS FOR TERMINATION OF ELEC-
TION.—A Medicare Choice organization may
terminate an individual’s election under section
1805 with respect to a Medicare Choice 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 pre-
miums),
‘‘(ii) the individual has engaged in
disruptive behavior (as specified in such
standards), or
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Title VIII, Subtitle A
‘‘(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-Medicare
Choice 
option 
(as 
defined 
in 
section
1805(a)(3)(A)).
‘‘(C) ORGANIZATION
OBLIGATION
WITH
RESPECT TO ELECTION FORMS.—Pursuant to a
contract under section 1858, each Medicare
Choice organization receiving an election form
under section 1805(c)(2) shall transmit to the
Secretary (at such time and in such manner as
the Secretary may specify) a copy of such form
or such other information respecting the elec-
tion as the Secretary may specify.
‘‘(4) SPECIAL
RULES
FOR
LIMITED
ENROLL-
MENT MEDICARE CHOICE ORGANIZATIONS.—
‘‘(A) TAFT-HARTLEY SPONSORS.—
‘‘(i) IN
GENERAL.—Subject to sub-
paragraph (D), a Medicare Choice organi-
zation that is a Taft-Hartley sponsor (as
defined in clause (ii)) shall limit eligibility
of enrollees under this part for Medicare
Choice products it offers to individuals who
are entitled to obtain benefits through such
281
Title VIII, Subtitle A
products under the terms of an applicable
collective 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 asso-
ciation, 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 sub-
paragraph (D), a Medicare Choice organi-
zation that is a qualified association (as
defined in clause (iii)) shall limit eligibility
of individuals under this part for products
it offers to individuals who are members of
the association (or who are spouses of such
individuals).
‘‘(ii) LIMITATION
ON
TERMINATION
OF COVERAGE.—Such a qualifying associa-
tion offering a Medicare Choice product to
an individual may not terminate coverage
282
Title VIII, Subtitle A
of the individual on the basis that the indi-
vidual is no longer a member of the asso-
ciation except pursuant to a change of
election during an open election period oc-
curring on or after the date of the termi-
nation of membership.
‘‘(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 pur-
poses other than the sale of any
health insurance and does not restrict
membership based on the health sta-
tus, claims experience, receipt of
health care, medical history, or lack of
evidence of insurability, of an individ-
ual,
‘‘(II) does not exist solely or
principally for the purpose of selling
insurance, and
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Title VIII, Subtitle A
‘‘(III) has at least 1,000 individ-
ual members or 200 employer mem-
bers.
Such term includes a subsidiary or cor-
poration that is wholly owned by one or
more qualified organizations.
‘‘(C) UNIONS.—
‘‘(i) IN
GENERAL.—Subject to sub-
paragraph (D), a union sponsor (as de-
fined in clause (ii)) shall limit eligibility of
enrollees under this part for Medicare
Choice products it offers to individuals who
are members of the sponsor and affiliated
with the sponsor through an employment
relationship with any employer or are the
spouses of such members.
‘‘(ii) UNION SPONSOR.—In this part
and section 1805, the term ‘union sponsor’
means an employee organization in relation
to a group health plan that is established
or maintained by the organization other
than pursuant to a collective bargaining
agreement.
‘‘(D) LIMITATION.—Rules of eligibility to
carry out the previous subparagraphs of this
284
Title VIII, Subtitle A
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.
‘‘(E) LIMITED
ENROLLMENT
MEDICARE
CHOICE ORGANIZATION.—In this part and sec-
tion 1805, the term ‘limited enrollment Medi-
care Choice organization’ means a Medicare
Choice organization that is a union sponsor, a
Taft-Hartley sponsor, or a qualified association.
‘‘(F) 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 sub-
title B of title I of the Employee Retirement In-
come Security Act of 1974.
‘‘(d) SUBMISSION AND CHARGING OF PREMIUMS.—
‘‘(1) IN GENERAL.—Each Medicare Choice or-
ganization shall file with the Secretary each year, in
a form and manner and at a time specified by the
Secretary—
‘‘(A) the amount of the monthly premiums
for coverage under each Medicare Choice prod-
uct it offers under this part in each payment
285
Title VIII, Subtitle A
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 Medi-
care Choice organization for a Medicare Choice
product 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 es-
tablished under paragraph (3) and submitted
under paragraph (1), exceeds
‘‘(B) 1⁄12 of the annual Medicare Choice
capitation rate specified in section 1855(b)(2)
for the area and period involved.
‘‘(3) 
UNIFORM
PREMIUM.—The 
premiums
charged by a Medicare Choice organization under
this part may not vary among individuals who reside
in the same payment area.
‘‘(4) TERMS
AND
CONDITIONS
OF
IMPOSING
PREMIUMS.—Each Medicare Choice organization
shall permit the payment of monthly premiums on a
286
Title VIII, Subtitle A
monthly basis and may terminate election of individ-
uals for a Medicare Choice 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 Medicare Choice 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 counting any amount attributable to
balance billing) to individuals who are enrolled under
this part with the organization exceed the actuarial
value of the coinsurance and deductibles that would
be applicable on the average to individuals enrolled
under this part with the organization (or, if the Sec-
retary finds that adequate data are not available to
determine that actuarial value, the actuarial value
of the coinsurance and deductibles applicable on the
average to individuals in the area, in the State, or
in the United States, eligible to enroll under this
part with the organization, or other appropriate
data) and entitled to benefits under part A and en-
rolled under part B if they were not members of a
Medicare Choice organization.
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Title VIII, Subtitle A
‘‘(e) REQUIREMENT
FOR ADDITIONAL BENEFITS,
PART B PREMIUM DISCOUNT REBATES, OR BOTH.—
‘‘(1) REQUIREMENT.—
‘‘(A) IN GENERAL.—Each Medicare Choice
organization (in relation to a Medicare Choice
product it offers) shall provide that if there is
an excess amount (as defined in subparagraph
(B)) for the product for a contract year, subject
to the succeeding provisions of this subsection,
the organization shall provide to individuals
such additional 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 an total value
which is at least equal to the adjusted excess
amount (as defined in subparagraph (C)).
‘‘(B) EXCESS AMOUNT.—For purposes of
this paragraph, the ‘excess amount’, for an or-
ganization for a product, is the amount (if any)
by which—
‘‘(i) the average of the capitation pay-
ments made to the organization under this
part for the product at the beginning of
contract year, exceeds
288
Title VIII, Subtitle A
‘‘(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 adjusted community rate described in
paragraph (5) (as reduced for the actuarial
value of the coinsurance and deductibles
under parts A and B).
‘‘(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 organiza-
tion for the year under paragraph (3).
‘‘(D) UNIFORM APPLICATION.—This para-
graph shall be applied uniformly for all enroll-
ees for a product in a service area.
‘‘(E) CONSTRUCTION.—Nothing in this
subsection shall be construed as preventing a
Medicare Choice organization from providing
health care benefits that are in addition to the
benefits otherwise required to be provided under
this paragraph and from imposing a premium
for such additional benefits.
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Title VIII, Subtitle A
‘‘(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
taking into account section 1839(b) (relating to pen-
alty for late enrollment) or 1839(h) (relating to af-
fluence testing)), for the individual for the month.
Except as provided in the previous sentence, a Medi-
care Choice organization is not authorized to provide
for cash or other monetary rebates as an inducement
for enrollment or otherwise.
‘‘(3) 
STABILIZATION
FUND.—A 
Medicare
Choice organization may provide that a part of the
value of an excess actuarial amount described in
paragraph (1) be withheld and reserved in the Fed-
eral Hospital Insurance Trust Fund and in the Fed-
eral Supplementary Medical Insurance Trust Fund
(in such proportions as the Secretary determines to
be appropriate) by the Secretary for subsequent an-
nual contract periods, to the extent required to sta-
bilize and prevent undue fluctuations in the addi-
tional benefits and rebates offered in those subse-
quent periods by the organization in accordance with
such paragraph. Any of such value of amount re-
290
Title VIII, Subtitle A
served which is not provided as additional benefits
described in paragraph (1)(A) to individuals electing
the Medicare Choice product 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 ex-
perience (including no enrollment experience in the
case of a provider-sponsored organization) to deter-
mine 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 aver-
age based on the enrollment experience of other con-
tracts 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
services means, at the election of a Medicare
Choice organization, either—
‘‘(i) the rate of payment for that serv-
ice or services which the Secretary annu-
ally determines would apply to an individ-
ual electing a Medicare Choice product
291
Title VIII, Subtitle A
under this part if the rate of payment were
determined under a ‘community rating sys-
tem’ (as defined in section 1302(8) of the
Public Health Service Act, other than sub-
paragraph (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
services,
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
organization (or, if the Secretary finds that
adequate data are not available to adjust for
those differences, the differences between the
utilization characteristics of individuals select-
ing other Medicare Choice coverage, or individ-
uals in the area, in the State, or in the United
States, eligible to elect Medicare Choice cov-
erage under this part and the utilization char-
acteristics of the rest of the population in the
292
Title VIII, Subtitle A
area, in the State, or in the United States, re-
spectively).
‘‘(B) SPECIAL RULE FOR PROVIDER-SPON-
SORED ORGANIZATIONS.—In the case of a Med-
icare Choice organization that is a provider-
sponsored organization, the adjusted community
rate under subparagraph (A) for a Medicare
Choice product may be computed (in a manner
specified by the Secretary) using data in the
general commercial marketplace or (during a
transition period) based on the costs incurred
by the organization in providing such a product.
‘‘(f) RULES
REGARDING
PHYSICIAN
PARTICIPA-
TION.—
‘‘(1) PROCEDURES.—Each Medicare Choice or-
ganization shall establish reasonable procedures re-
lating to the participation (under an agreement be-
tween a physician and the organization) of physi-
cians under Medicare Choice products offered by the
organization under this part. Such procedures shall
include—
‘‘(A) providing notice of the rules regard-
ing participation,
293
Title VIII, Subtitle A
‘‘(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
Medicare Choice organization shall consult with phy-
sicians who have entered into participation agree-
ments with the organization regarding the organiza-
tion’s medical policy, quality, and medical manage-
ment procedures.
‘‘(3) LIMITATIONS
ON
PHYSICIAN
INCENTIVE
PLANS.—
‘‘(A) IN GENERAL.—Each Medicare Choice
organization 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
physician or physician group as an induce-
ment to reduce or limit medically necessary
services provided with respect to a specific
individual enrolled with the organization.
294
Title VIII, Subtitle A
‘‘(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
standards developed by the Secretary
that take into account the number of
physicians placed at such substantial
financial risk in the group or under
the plan and the number of individ-
uals enrolled with the organization
who receive services from the physi-
cian 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
access of such individuals to services
provided by the organization and sat-
isfaction with the quality of such serv-
ices.
295
Title VIII, Subtitle A
‘‘(iii) The organization provides the
Secretary with descriptive information re-
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 Medicare Choice organiza-
tion and a physician or physician group that
may directly or indirectly have the effect of re-
ducing or limiting services provided with respect
to individuals enrolled with the organization
under this part.
‘‘(4) EXCEPTION FOR CERTAIN FEE-FOR-SERV-
ICE PLANS.—The previous provisions of this sub-
section shall not apply in the case of a Medicare
Choice organization in relation to a Medicare Choice
product if the organization does not have agree-
ments between physicians and the organization for
the provision of benefits under the product.
‘‘(g) PROVISION
OF
INFORMATION.—A Medicare
Choice organization shall provide the Secretary with such
information on the organization and each Medicare Choice
296
Title VIII, Subtitle A
product it offers as may be required for the preparation
of 
the 
information 
booklet 
described 
in 
section
1805(d)(3)(A).
‘‘(h) COORDINATED ACUTE AND LONG-TERM CARE
BENEFITS UNDER
A MEDICARE CHOICE PRODUCT.—
Nothing in this part shall be construed as preventing a
State from coordinating benefits under its medicaid pro-
gram under title XIX with those provided under a Medi-
care Choice 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.
‘‘PATIENT PROTECTION STANDARDS
‘‘SEC. 1853. (a) DISCLOSURE TO ENROLLEES.—A
Medicare Choice organization shall disclose in clear, accu-
rate, and standardized form, information regarding all of
the following for each Medicare Choice product it offers:
‘‘(1) Benefits under the Medicare Choice prod-
uct offered, including exclusions from coverage.
‘‘(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.
297
Title VIII, Subtitle A
‘‘(5) The financial obligations of the enrollee,
including premiums, deductibles, co-payments, and
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 Medicare Choice organi-
zation offering a Medicare Choice product may re-
strict the providers from whom the benefits under
the product are provided so long as—
298
Title VIII, Subtitle A
‘‘(A) the organization makes such benefits
available and accessible to each individual elect-
ing the product within the product service area
with reasonable promptness and in a manner
which assures continuity in the provision of
benefits;
‘‘(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 (5)) without
regard to prior authorization or the emergency
299
Title VIII, Subtitle A
care provider’s contractual relationship with the
organization.
‘‘(2) MINIMUM PAYMENT LEVELS WHERE PRO-
VIDING POINT-OF-SERVICE COVERAGE.—If a Medi-
care Choice 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 serv-
ices not provided through such a network, the pay-
ment 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 with-
out 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
OUT-OF-NETWORK SERVICES.—
‘‘(A) PARTICIPATING PROVIDERS.—In the
case of physicians’ services or renal dialysis
services described in subparagraph (C) which
300
Title VIII, Subtitle A
are furnished by a participating physician or
provider of services or renal dialysis facility to
an individual enrolled with a Medicare Choice
organization under this section, the applicable
participation agreement is deemed to provide
that the physician or provider of services or
renal dialysis facility will accept as payment in
full from the organization the amount that
would be payable to the physician or provider of
services or renal dialysis facility under part B
and from the individual under such part, if the
individual were not enrolled with such an orga-
nization under this part.
‘‘(B) NONPARTICIPATING PROVIDERS.—In
the case of physicians’ 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 Medicare Choice
organization under this section) shall apply in
the same manner as such limitations apply to
services furnished to individuals not enrolled
with such an organization.
301
Title VIII, Subtitle A
‘‘(C) SERVICES
DESCRIBED.—The physi-
cians’ services or renal dialysis services de-
scribed in this subparagraph are physicians’
services or renal dialysis services which are fur-
nished to an enrollee of a Medicare Choice or-
ganization under this part by a physician, pro-
vider of services, or renal dialysis facility who is
not under a contract with the organization.
‘‘(4) PROTECTION FOR NEEDED SERVICES.—A
Medicare Choice organization that provides covered
services through a network of providers shall provide
coverage of services provided by a provider that is
not part of the network if the service cannot be pro-
vided by a provider that is part of the network and
the organization authorized the service directly or
through referral by the primary care physician who
is designated by the organization for the individual
involved.
‘‘(5) EMERGENCY
SERVICES.—In this sub-
section, the term ‘emergency services’ means—
‘‘(A) health care items and services fur-
nished in the emergency department of a hos-
pital, and
‘‘(B) ancillary services routinely available
to such department,
302
Title VIII, Subtitle A
to the extent they are required to evaluate and treat
an emergency medical condition (as defined in para-
graph (6)) until the condition is stabilized.
‘‘(6) EMERGENCY
MEDICAL
CONDITION.—In
paragraph (5), the term ‘emergency medical condi-
tion’ means a medical condition, the onset of which
is sudden, that manifests itself by symptoms of suf-
ficient severity, including severe pain, that a prudent
layperson, who possesses an average knowledge of
health and medicine, could reasonably expect the ab-
sence of immediate medical attention to result in—
‘‘(A) placing the person’s health in serious
jeopardy,
‘‘(B) serious impairment to bodily func-
tions, or
‘‘(C) serious dysfunction of any bodily
organ or part.
‘‘(7) PROTECTION
AGAINST
BALANCE
BILL-
ING.—The limitations on billing that apply to a pro-
vider (including a physician) under parts A and B
in the case of an individual electing the non-Medi-
care Choice option shall apply to an individual who
elects the Medicare Choice option in the case of any
provider that (under the Medicare Choice option)
may bill the enrollee directly for services.
303
Title VIII, Subtitle A
‘‘(c) CONFIDENTIALITY
AND ACCURACY
OF EN-
ROLLEE RECORDS.—Each Medicare Choice 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 Medicare Choice or-
ganization must have arrangements, established in
accordance with regulations of the Secretary, for an
ongoing 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
current standards of medical practice;
‘‘(C) provide review by physicians and
other health care professionals of the process
followed in the provision of such health care
services;
304
Title VIII, Subtitle A
‘‘(D) monitors and evaluates high volume
and high risk services and the care of acute and
chronic conditions;
‘‘(E) evaluates the continuity and coordi-
nation 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;
‘‘(I) makes available information on quality
and outcomes measures to facilitate beneficiary
comparison and choice of health coverage op-
tions (in such form and on such quality and
outcomes measures as the Secretary determines
to be appropriate);
‘‘(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 orga-
305
Title VIII, Subtitle A
nization meets professionally recognized stand-
ards of health care (including providing ade-
quate access of enrollees to services).
‘‘(3) EXCEPTION FOR CERTAIN FEE-FOR-SERV-
ICE PLANS.—Paragraph (1) and subsection (c)(2)
shall not apply in the case of a Medicare Choice or-
ganization in relation to a Medicare Choice product
to the extent the organization provides for coverage
of benefits without restrictions relating to utilization
and without regard to whether the provider has a
contract or other arrangement with the plan for the
provision of such benefits.
‘‘(4) TREATMENT
OF
ACCREDITATION.—The
Secretary shall provide that a Medicare Choice orga-
nization is deemed to meet the requirements of para-
graphs (1) and (2) of this subsection and subsection
(c) if the organization 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
stringent than the standards established under sec-
tion 1856 to carry out this subsection and sub-
section (c).
‘‘(e) COVERAGE DETERMINATIONS.—
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Title VIII, Subtitle A
‘‘(1) DECISIONS ON NONEMERGENCY CARE.—A
Medicare Choice organization shall make determina-
tions regarding authorization requests for non-
emergency 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
receipt of medical information, but not later
than 60 days after the date of the decision.
‘‘(B) PHYSICIAN
DECISION
ON
CERTAIN
APPEALS.—Appeal decisions relating to a deter-
mination to deny coverage based on a lack of
medical necessity shall be made only by a physi-
cian.
‘‘(C) EMERGENCY
CASES.—Appeals from
such a determination involving a life-threaten-
ing or emergency situation shall be decided on
an expedited basis.
‘‘(f) GRIEVANCES AND APPEALS.—
‘‘(1) GRIEVANCE MECHANISM.—Each Medicare
Choice organization must provide meaningful proce-
dures for hearing and resolving grievances between
the organization (including any entity or individual
307
Title VIII, Subtitle A
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 enrollee 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 pro-
vided in section 205(b), and in any such hearing the
Secretary shall make the organization a party. If the
amount in controversy is $1,000 or more, the indi-
vidual or organization shall, upon notifying the other
party, be entitled to judicial review of the Sec-
retary’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 ap-
plying sections 205(b) and 205(g) as provided in
this subparagraph, and in applying section 205(l)
thereto, any reference therein to the Commissioner
of Social Security or the Social Security Administra-
tion shall be considered a reference to the Secretary
or the Department of Health and Human Services,
respectively.
308
Title VIII, Subtitle A
‘‘(3) COORDINATION
WITH
SECRETARY
OF
LABOR.—The Secretary shall consult with the Sec-
retary of Labor so as to ensure that the require-
ments of this subsection, as they apply in the case
of grievances referred to in paragraph (1) to which
section 503 of the Employee Retirement Income Se-
curity Act of 1974 applies, are applied in a manner
consistent with the requirements of such section
503.
‘‘(g) INFORMATION
ON ADVANCE DIRECTIVES.—
Each Medicare Choice organization shall meet the require-
ment of section 1866(f) (relating to maintaining written
policies and procedures respecting advance directives).
‘‘(h) APPROVAL OF MARKETING MATERIALS.—
‘‘(1) SUBMISSION.—Each Medicare Choice or-
ganization may not distribute marketing materials
unless—
‘‘(A) at least 45 days before the date of
distribution the organization has submitted the
material 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
309
Title VIII, Subtitle A
such guidelines the Secretary shall disapprove such
material if the material is materially inaccurate or
misleading or otherwise makes a material misrepre-
sentation.
‘‘(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 Medicare Choice product in
an area, the Secretary is deemed not to have dis-
approved such distribution in all other areas covered
by the product and organization.
‘‘(4) PROHIBITION
OF
CERTAIN
MARKETING
PRACTICES.—Each Medicare Choice organization
shall conform to fair marketing standards in relation
to Medicare Choice products offered under this part,
included 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.
‘‘(i) ADDITIONAL STANDARDIZED INFORMATION ON
QUALITY, OUTCOMES, AND OTHER FACTORS.—
310
Title VIII, Subtitle A
‘‘(1) IN GENERAL.—In addition to any other in-
formation required to be provided under this part,
each Medicare Choice organization shall provide the
Secretary (at a time, not less frequently than annu-
ally, and in an electronic, standardized form and
manner specified by the Secretary) such information
as the Secretary determines to be necessary, consist-
ent with this part, to evaluate the performance of
the organization in providing benefits to enrollees.
‘‘(2) INFORMATION TO BE INCLUDED.—Subject
to paragraph (3), information to be provided under
this subsection shall include at least the following:
‘‘(A) Information on the characteristics of
enrollees that may affect their need for or use
of health services and the determination of risk-
adjusted payments under section 1855.
‘‘(B) Information on the types of treat-
ments and outcomes of treatments with respect
to the clinical health, functional status, and
well-being of enrollees.
‘‘(C) Information on health care expendi-
tures and the volume and prices of procedures.
‘‘(D) Information on the flexibility per-
mitted by plans to enrollees in their selection of
providers.
311
Title VIII, Subtitle A
‘‘(3) SPECIAL
TREATMENT.—The Secretary
may waive the provision of such information under
paragraph (2), or require such other information, as
the Secretary finds appropriate in the case of a
newly established Medicare Choice organization for
which such information is not available.
‘‘(j) DEMONSTRATION PROJECTS.—The Secretary
shall provide for demonstration projects to determine the
effectiveness, cost, and impact of alternative methods of
providing comparative information about the performance
of Medicare Choice organizations and products and the
performance of medicare supplemental policies in relation
to such products. Such projects shall include information
about health care outcomes resulting from coverage under
different products and policies.
‘‘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
proportion (as defined by the Secretary under such
standards) of the health care items and services
312
Title VIII, Subtitle A
under the contract under this part directly through
the provider 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 a substantial proportion of services in order
to assure financial stability and the practical
difficulties 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,
313
Title VIII, Subtitle A
‘‘(C) both providers are part of a con-
trolled group of corporations under section
1563 of the Internal Revenue Code of 1986, or
‘‘(D) both providers are part of an affili-
ated service group under section 414 of such
Code.
‘‘(4) CONTROL.—For purposes of paragraph
(3), control is presumed to exist if one party, di-
rectly or indirectly, owns, controls, or holds the
power to vote, or proxies for, not less than 51 per-
cent of the voting rights or governance rights of an-
other.
‘‘(b) 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
314
Title VIII, Subtitle A
from complying with the applicable require-
ments of this part,
insofar as such the law applies to individuals en-
rolled with the organization under this part.
‘‘(2) 
EXCEPTION
FOR
IDENTICAL
STAND-
ARDS.—Paragraph (1) shall not apply with respect
to any State law to the extent that such law provides
the application of standards that are identical to the
standards established for provider-sponsored organi-
zations under this part.
‘‘(3) CONSTRUCTION.—Nothing in this sub-
section shall be construed as affecting the operation
of section 514 of the Employee Retirement Income
Security Act of 1974.
‘‘PAYMENTS TO MEDICARE CHOICE ORGANIZATIONS
‘‘SEC. 1855. (a) PAYMENTS.—
‘‘(1) IN
GENERAL.—Under a contract under
section 1858 the Secretary shall pay to each Medi-
care Choice 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
Medicare Choice capitation rate (as provided under
subsection (b)) with respect to that individual for
that area.
‘‘(2) ANNUAL ANNOUNCEMENT.—The Secretary
shall annually determine, and shall announce (in a
315
Title VIII, Subtitle A
manner intended to provide notice to interested par-
ties) not later than September 7 before the calendar
year concerned—
‘‘(A) the annual Medicare Choice capita-
tion 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
Secretary shall provide for notice to Medicare Choice
organizations of proposed changes to be made in the
methodology or benefit coverage assumptions from
the methodology and assumptions used in the pre-
vious announcement and shall provide such organi-
zations 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 Medicare
316
Title VIII, Subtitle A
Choice organizations can compute monthly adjusted
Medicare Choice capitation rates for classes of indi-
viduals located in each payment area which is in
whole or in part within the service area of such an
organization.
‘‘(b) MONTHLY ADJUSTED MEDICARE CHOICE CAPI-
TATION RATE.—
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, the ‘monthly adjusted Medicare Choice capita-
tion rate’ under this subsection, for a month in a
year for an individual in a payment area (specified
under paragraph (3)) and in a class (established
under paragraph (4)), is 1⁄12 of the annual Medicare
Choice capitation rate specified in paragraph (2) for
that area for the year, adjusted to reflect the actuar-
ial value of benefits under this title with respect to
individuals in such class compared to the national
average for individuals in all classes.
‘‘(2) ANNUAL
MEDICARE
CHOICE
CAPITATION
RATES.—
‘‘(A) IN GENERAL.—For purposes of this
section, the annual Medicare Choice capitation
rate for a payment area for a year is equal to
the annual Medicare Choice capitation rate for
the area for the previous year (or, in the case
317
Title VIII, Subtitle A
of 1996, the average annual per capita rate of
payment 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 deter-
mined under subsection (c)).
‘‘(B) SPECIAL RULES FOR 1996.—
‘‘(i) FLOOR AT 85 PERCENT OF NA-
TIONAL
AVERAGE.—In no case shall the
annual Medicare Choice capitation rate for
a payment area for 1996 be less than 85
percent of the national average of such
rates for such year for all payment areas
(weighted to reflect the number of medi-
care beneficiaries in each such area).
‘‘(ii) REMOVAL
OF
MEDICAL
EDU-
CATION
AND
DISPROPORTIONATE
SHARE
HOSPITAL PAYMENTS FROM CALCULATION
OF
ADJUSTED
AVERAGE
PER
CAPITA
COST.—In determining the annual Medi-
care Choice capitation rate for 1996, the
average annual per capita rate of payment
described in section 1876(a)(1)(C) for
1995 shall be determined as though the
Secretary had excluded from such rate any
amounts which the Secretary estimated
318
Title VIII, Subtitle A
would have been payable under this title
during the year for—
‘‘(I) payment adjustments under
section 1886(d)(5)(F) for hospitals
serving a disproportionate share of
low-income patients; and
‘‘(II) the indirect costs of medical
education 
under 
section
1886(d)(5)(B) or for direct graduate
medical education costs under section
1886(h).
‘‘(3) PAYMENT AREA DEFINED.—
‘‘(A) IN
GENERAL.—In this section, the
term ‘payment area’ means—
‘‘(i) a metropolitan statistical area, or
‘‘(ii) all areas of a State outside of such an
area.
‘‘(B) SPECIAL
RULE
FOR
ESRD
BENE-
FICIARIES.—Such term means, in the case of
the population group described in paragraph
(5)(C), each State.
‘‘(4) CLASSES.—
‘‘(A) IN GENERAL.—For purposes of this
section, the Secretary shall define appropriate
classes of enrollees, consistent with paragraph
319
Title VIII, Subtitle A
(5), based on age, gender, welfare status, insti-
tutionalization, and such other factors as the
Secretary determines to be appropriate, so as to
ensure actuarial equivalence. The Secretary
may add to, modify, or substitute for such
classes, if such changes will improve the deter-
mination of actuarial equivalence.
‘‘(B) RESEARCH.—The Secretary shall
conduct such research as may be necessary to
provide for greater accuracy in the adjustment
of capitation rates under this subsection. Such
research 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 Janu-
ary 1, 1997.
‘‘(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).
320
Title VIII, Subtitle A
‘‘(B) 
DISABLED.—Disabled 
individuals
who are under 65 years of age and not de-
scribed in subparagraph (C).
‘‘(C) INDIVIDUALS
WITH
END
STAGE
RENAL
DISEASE.—Individuals who are deter-
mined 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) BELOW AVERAGE SERVICE UTILI-
ZATION COHORT.—For areas assigned to
the below average service utilization cohort,
9.6 percent.
‘‘(ii) ABOVE AVERAGE SERVICE UTILI-
ZATION COHORT.—For areas assigned to
the above average service utilization co-
hort, 4.8 percent.
‘‘(iii) HIGHEST SERVICE UTILIZATION
COHORT.—For areas assigned to the high-
est service utilization cohort, 2.1 percent.
321
Title VIII, Subtitle A
‘‘(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
necessary to assure that the total capitation
payments 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
Secretary shall compute a per capita growth
rate for each year after 1996, for each payment
area as assigned to a service utilization cohort
under subsection (d), consistent with the follow-
ing rules:
‘‘(i) BELOW AVERAGE SERVICE UTILI-
ZATION COHORT SET AT 143 PERCENT OF
NATIONAL AVERAGE PER CAPITA GROWTH
RATE.—The per capita growth rate for
areas assigned to the below average service
utilization cohort for the year shall be 160
322
Title VIII, Subtitle A
percent of the national average per capita
growth rate for the year (as specified
under paragraph (3)).
‘‘(ii) ABOVE AVERAGE SERVICE UTILI-
ZATION COHORT SET AT 80 PERCENT OF
NATIONAL AVERAGE PER CAPITA GROWTH
RATE.—The per capita growth rate for
areas assigned to the above average service
utilization cohort for the year shall be 80
percent of the national average per capita
growth rate for the year.
‘‘(iii) HIGHEST SERVICE UTILIZATION
COHORT SET AT 40 PERCENT OF NATIONAL
AVERAGE
PER
CAPITA
GROWTH
RATE.—
The per capita growth rate for areas as-
signed to the highest service utilization co-
hort for the year shall be 35 percent of the
national average per capita growth rate for
the year.
‘‘(B) AVERAGE PER CAPITA GROWTH RATE
AT
NATIONAL
AVERAGE
TO
ASSURE
BUDGET
NEUTRALITY.—The Secretary shall compute per
capita growth rates for a year under subpara-
graph (A) in a manner so that the weighted av-
erage per capita growth rate for all areas for
323
Title VIII, Subtitle A
the year (weighted to reflect the number of
medicare beneficiaries 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 6.0 percent,
‘‘(B) 1997 is 6.0 percent,
‘‘(C) 1998 is 6.0 percent,
‘‘(D) 1999 is 5.5 percent,
‘‘(E) 2000 is 5.5 percent,
‘‘(F) 2001 is 5.5 percent,
‘‘(G) 2002 is 5.5 percent, and
‘‘(H) each subsequent year is 5.5 percent.
‘‘(d) ASSIGNMENT OF PAYMENT AREAS TO SERVICE
UTILIZATION COHORTS.—
‘‘(1) IN GENERAL.—For purposes of determin-
ing per capita growth rates under subsection (c) for
areas for a year, the Secretary shall assign each pay-
ment area to a service utilization cohort (based on
the service utilization index value for that area de-
termined under paragraph (2)) as follows:
‘‘(A) BELOW AVERAGE SERVICE UTILIZA-
TION COHORT.—Areas with a service utilization
324
Title VIII, Subtitle A
index value of less than 1.00 shall be assigned
to the below average service utilization cohort.
‘‘(B) ABOVE AVERAGE SERVICE UTILIZA-
TION COHORT.—Areas with a service utilization
index value of at least 1.00 but less than 1.20
shall be assigned to the above average service
utilization cohort.
‘‘(C) 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 cap-
ita growth rate for a payment area for each year
(beginning with 1996), the Secretary shall determine
for such area and year a service utilization index
value, which is equal to—
‘‘(A) the annual Medicare Choice capita-
tion 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
325
Title VIII, Subtitle A
‘‘(B) the input-price-adjusted annual na-
tional Medicare Choice capitation rate (as de-
termined under paragraph (3)) for that area for
the year in which the determination is made.
‘‘(3) DETERMINATION
OF
INPUT-PRICE-AD-
JUSTED RATES.—
‘‘(A) IN GENERAL.—For purposes of para-
graph (2), the ‘input-price-adjusted annual na-
tional Medicare Choice capitation rate’ for a
payment area for a year is equal to the sum,
for all the types of medicare services (as classi-
fied by the Secretary), of the product (for each
such type) of—
‘‘(i) the national standardized Medi-
care Choice 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
compared to the national average input
price of such services.
326
Title VIII, Subtitle A
In applying clause (iii), the Secretary shall, sub-
ject to subparagraph (C), apply those indices
under this title that are used in applying (or
updating) national payment rates for specific
areas and localities.
‘‘(B) NATIONAL STANDARDIZED MEDICARE
CHOICE CAPITATION RATE.—In this paragraph,
the ‘national standardized Medicare Choice
capitation rate’ for a year is equal to—
‘‘(i) the sum (for all payment areas)
of the product of (I) the annual Medicare
Choice capitation rate for that year for the
area under subsection (b)(2), and (II) the
average number of medicare beneficiaries
residing in that area in the year; divided
by
‘‘(ii) the total average number of med-
icare 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;
327
Title VIII, Subtitle A
‘‘(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 av-
erage annual per capita rate of pay-
ment 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
‘‘(II) for part B services, 100
percent 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)
328
Title VIII, Subtitle A
used to adjust payment rates for phy-
sicians’ services furnished in the pay-
ment 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 com-
puted based only on the beneficiary popu-
lation described in subsection (b)(5)(A).
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 section 1859(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 Medicare Choice or-
ganization under this part.
‘‘(2) ADJUSTMENT
TO
REFLECT
NUMBER
OF
ENROLLEES.—
‘‘(A) IN GENERAL.—The amount of pay-
ment under this subsection may be retroactively
adjusted to take into account any difference be-
329
Title VIII, Subtitle A
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
EN-
ROLLEES.—
‘‘(i) IN GENERAL.—Subject to clause
(ii), the Secretary may make retroactive
adjustments under subparagraph (A) to
take into account individuals enrolled dur-
ing the period beginning on the date on
which the individual enrolls with a Medi-
care Choice organization under a product
operated, sponsored, or contributed to by
the individual’s employer or former em-
ployer (or the employer or former employer
of the individual’s spouse) and ending on
the date on which the individual is enrolled
in the organization under this part, except
that for purposes of making such retro-
active adjustments under this subpara-
graph, such period may not exceed 90
days.
330
Title VIII, Subtitle A
‘‘(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) PAYMENTS FROM TRUST FUND.—The payment
to a Medicare Choice organization under this section for
individuals enrolled under this part with the organization,
and payments to a Medicare Choice MSA under subsection
(f)(1)(B), shall be made from the Federal Hospital Insur-
ance Trust Fund and the Federal Supplementary Medical
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.
‘‘(g) 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 effec-
tive date of the individual’s—
‘‘(1) election under this part of a Medicare
Choice product offered by a Medicare Choice organi-
zation—
331
Title VIII, Subtitle A
‘‘(A) payment for such services until the
date of the individual’s discharge shall be made
under this title through the Medicare Choice
product or Non-Medicare Choice option (as the
case may be) elected before the election with
such organization,
‘‘(B) the elected organization shall not be
financially responsible for payment for such
services until the date after the date of the indi-
vidual’s discharge, and
‘‘(C) the organization shall nonetheless be
paid the full amount otherwise payable to the
organization under this part; or
‘‘(2) termination of election with respect to a
Medicare Choice 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 Medicare Choice organiza-
tion, and
‘‘(C) the terminated organization shall not
receive any payment with respect to the individ-
332
Title VIII, Subtitle A
ual under this part during the period the indi-
vidual is not enrolled.
‘‘ESTABLISHMENT OF STANDARDS FOR MEDICARE
CHOICE ORGANIZATIONS AND PRODUCTS
‘‘SEC. 1856. (a) INTERIM STANDARDS.—
‘‘(1) IN GENERAL.—The Secretary shall issue
regulations regarding standards for Medicare Choice
organizations and products within 180 days after
the date of the enactment of this section. Such regu-
lations shall be issued on an interim basis, but shall
become effective upon publication and shall be effec-
tive through the end of 1999.
‘‘(2) SOLICITATION OF VIEWS.—In developing
standards under this subsection relating to solvency
of Medicare Choice organizations, the Secretary shall
solicit the views of the American Academy of Actu-
aries.
‘‘(3) EFFECT ON STATE REGULATIONS.—Regu-
lations under this subsection shall not preempt State
regulations for Medicare Choice organizations for
products not offered under this part.
‘‘(b) PERMANENT STANDARDS.—
‘‘(1) IN GENERAL.—The Secretary shall develop
permanent standards under this subsection.
‘‘(2) CONSULTATION.—In developing standards
under this subsection, the Secretary shall consult
333
Title VIII, Subtitle A
with the National Association of Insurance Commis-
sioners, associations representing the various types
of Medicare Choice organizations, and medicare
beneficiaries.
‘‘(3) EFFECTIVENESS.—The standards under
this subsection shall take effect for periods begin-
ning on or after January 1, 2000.
‘‘(c) SOLVENCY.—In establishing interim and perma-
nent standards under this section relating to solvency of
organizations, the Secretary shall recognize the multiple
means of demonstrating solvency, including—
‘‘(1) reinsurance purchased through a recog-
nized commerce company or through a capitive com-
pany owned directly or indirectly by 3 or more pro-
vider-sponsored organizations,
‘‘(2) unrestricted surplus,
‘‘(3) guarantees, and
‘‘(4) letters of credit.
In such standards, the Secretary may treat as admitted
assets the assets used by a provider-sponsored organiza-
tion in delivering covered services.
‘‘(d) APPLICATION OF NEW STANDARDS TO ENTI-
TIES WITH A CONTRACT.—In the case of a Medicare
Choice organization with a contract in effect under this
part at the time standards applicable to the organization
334
Title VIII, Subtitle A
under this section are changed, the organization may elect
not to have such changes apply to the organization until
the end of the current contract year (or, if there is less
than 6 months remaining in the contract year, until 1 year
after the end of the current contract year).
‘‘(e) RELATION TO STATE LAWS.—The standards es-
tablished under this section shall supersede any State law.
The standard or regulation with respect to Medicare
Choice products which are offered by Medicare Choice or-
ganizations and are issued by organizations to which sec-
tion 1851(b)(1) applies, to the extent such law or regula-
tion is inconsistent with such standards.
‘‘MEDICARE CHOICE CERTIFICATION
‘‘SEC. 1857. (a) IN GENERAL.—
‘‘(1) ESTABLISHMENT.—The Secretary shall es-
tablish a process for the certification of organiza-
tions and products offered by organizations as meet-
ing the applicable standards for Medicare Choice or-
ganizations and Medicare Choice products estab-
lished under section 1856.
‘‘(2) 
INVOLVEMENT
OF
SECRETARY
OF
LABOR.—Such process shall be established and oper-
ated in cooperation with the Secretary of Labor with
respect to union sponsors and Taft-Hartley spon-
sors.
335
Title VIII, Subtitle A
‘‘(3) USE OF PRIVATE ACCREDITATION PROC-
ESSES.—
‘‘(A) IN
GENERAL.—The process under
this subsection shall, to the maximum extent
practicable, provide that Medicare Choice orga-
nizations and products that are licensed or cer-
tified through a qualified private accreditation
process that the Secretary finds applies stand-
ards that are no less stringent than the require-
ments of this part are deemed to meet the cor-
responding requirements of this part for such
an organization 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.
‘‘(b) NOTICE TO ENROLLEES IN CASE OF DECERTI-
FICATION.—If a Medicare Choice organization or product
is decertified under this section, the organization shall no-
tify each enrollee with the organization and product under
this part of such decertification.
336
Title VIII, Subtitle A
‘‘(c) QUALIFIED ASSOCIATIONS.—In the case of Med-
icare Choice products offered by a Medicare Choice orga-
nization that is a qualified association (as defined in sec-
tion 1854(c)(4)(C)) and issued by an organization to
which section 1851(b)(1) applies or by a provider-spon-
sored organization (as defined in section 1854(a)), nothing
in this section shall be construed as limiting the authority
of States to regulate such products.
‘‘CONTRACTS WITH MEDICARE CHOICE ORGANIZATIONS
‘‘SEC. 1858. (a) IN GENERAL.—The Secretary shall
not permit the election under section 1805 of a Medicare
Choice product offered by a Medicare Choice organization
under this part, and no payment shall be made under sec-
tion 1856 to an organization, unless the Secretary has en-
tered 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
Medicare Choice product. Such contract shall provide that
the organization agrees to comply with the applicable re-
quirements and standards of this part and the terms and
conditions of payment as provided for in this part.
‘‘(b) ENROLLMENT REQUIREMENTS.—
‘‘(1)(A) 
MINIMUM
ENROLLMENT
REQUIRE-
MENT.—Subject to subparagraphs (B) and (C), the
Secretary may not enter into a contract under this
section with a Medicare Choice organization (other
337
Title VIII, Subtitle A
than a union sponsor or Taft-Hartley sponsor) un-
less the organization has at least 5,000 individuals
(or 1,500 individuals in the case of an organization
that is a provider-sponsored organization) who are
receiving health benefits through the organization,
except that the standards under section 1856 may
permit the organization to have a lesser number of
beneficiaries (but not less than 500 in the case of
an organization that is a provider-sponsored organi-
zation) if the organization primarily serves individ-
uals residing outside of urbanized areas.
‘‘(B) ALLOWING
TRANSITION.—The Secretary
may waive the requirement of subparagraph (A)
during the first 3 contract years with respect to an
organization.
‘‘(C) TREATMENT OF AREAS WITH LOW MAN-
AGED
CARE
PENETRATION.—The Secretary may
waive the requirement of subparagraph (A) in the
case of organizations operating in areas in which
there is a low proportion of medicare beneficiaries
who have made the Medicare Choice election.
‘‘(2) REQUIREMENT
FOR
ENROLLMENT
OF
NON-MEDICARE BENEFICIARIES.—
‘‘(A) IN GENERAL.—Each Medicare Choice
organization with which the Secretary enters
646
Title IX, Subtitle A
‘‘(b) REGULATIONS.—The Secretary of the Treasury
shall issue regulations, approved by the Secretary of
Health and Human Services, that provide—
‘‘(1) that a State may only submit under sub-
section (a) requests for collection of overpayments
with respect to individuals—
‘‘(A) who are no longer receiving tem-
porary employment assistance under the State
plan approved under this part,
‘‘(B) with respect to whom the State has
already taken appropriate action under State
law against the income or resources of the indi-
viduals or families involved; and
‘‘(C) to whom the State agency has given
notice of its intent to request withholding by
the Secretary of the Treasury from the income
tax refunds of such individuals;
‘‘(2) that the Secretary of the Treasury will
give a timely and appropriate notice to any other
person filing a joint return with the individual whose
refund is subject to withholding under subsection
(a); and
‘‘(3) the procedures that the State and the Sec-
retary of the Treasury will follow in carrying out
this section which, to the maximum extent feasible
681
Title IX, Subtitle B
under section 2006 and, as the Secretary deems ap-
propriate, with other reporting requirements placed
on States as a condition of receipt of other Federal
funds which support child care.
‘‘(4) REPORTS BY THE SECRETARY.—
‘‘(A) REPORTS TO THE CONGRESS OF SUM-
MARY OF STATE REPORTS.—The Secretary shall
annually summarize the information reported to
the Secretary pursuant to paragraph (2) and
provide such summary to the Congress.
‘‘(B) REPORTS TO THE STATES ON EFFEC-
TIVE PRACTICES.—The Secretary shall annually
provide the States with a report on particularly
effective practices and programs supported by
funds paid to the State under this section,
which ensure the health and safety of children
in care, promote quality child care, and provide
training to all types of providers.
‘‘(g) ADMINISTRATION AND ENFORCEMENT.—
‘‘(1) ADMINISTRATION.—The Secretary shall—
‘‘(A) coordinate all activities of the Depart-
ment of Health and Human Services relating to
child care, and, to the maximum extent prac-
ticable, coordinate such activities with similar
activities of other Federal entities;
707
Title IX, Subtitle C
would, at the time of placement in the job involved,
be eligible for assistance under an approved State
plan 
if 
the 
State 
did 
not 
have 
a 
work
supplementation program in effect.
‘‘(3) For purposes of this subsection, a supple-
mented job is—
‘‘(A) a job provided to an eligible individ-
ual by the State or local agency administering
the State plan under part A; or
‘‘(B) a job provided to an eligible individ-
ual by any other employer for which all or part
of the wages are paid by the State or local
agency.
A State may provide or subsidize under the program
any job which the State determines to be appro-
priate.
‘‘(d) COST LIMITATION.—The amount of the Federal
payment to a State under section 413 for expenditures in-
curred in making payments to individuals and employers
under a work supplementation program under this sub-
section shall not exceed an amount equal to the amount
which would otherwise be payable under such section if
the family of each individual employed in the program es-
tablished in the State under this section had received the
maximum amount of assistance providable under the State
741
Title IX, Subtitle D
participation in the financing); and then (C)
any remainder shall be paid to the family.’’; and
(3) by inserting after subsection (a) (as so re-
designated) the following new subsection:
‘‘(b) ALTERNATIVE DISTRIBUTION IN CASE OF FAM-
ILY RECEIVING TEA.—In the case of a State electing the
option under this subsection, amounts collected as de-
scribed in subsection (a) shall be distributed as follows:
‘‘(1) an amount equal to the amount that will
be disregarded pursuant to section 402(d)(2)(C)
shall be taken from each of—
‘‘(A) the amounts received in a month
which represent payments for that month; and
‘‘(B) the amounts received in a month
which represent payments for a prior month
which were made by the absent parent in that
prior month;
and shall be paid to the family without affecting its
eligibility for assistance or decreasing any amount
otherwise payable as assistance to such family dur-
ing such month;
‘‘(2) second, from any remainder, amounts
equal to the balance of support owed for the current
month shall be paid to the family;
742
Title IX, Subtitle D
‘‘(3) third, from any remainder, amounts equal
to arrearages of such support obligations assigned,
pursuant to part A, to the State making the collec-
tion shall be retained and used by such State to pay
any such arrearages (with appropriate reimburse-
ment of the Federal Government to the extent of its
participation in the financing);
‘‘(4) fourth, from any remainder, amounts
equal to arrearages of such support obligations as-
signed, pursuant to part A, to any other State or
States shall be paid to such other State or States
and used to pay any such arrearages (with appro-
priate reimbursement of the Federal Government to
the extent of its participation in the financing); and
‘‘(5) fifth, any remainder shall be paid to the
family.’’.
(c) DISTRIBUTION TO A FAMILY NOT RECEIVING
TEA.—Section 457(c) (42 U.S.C. 657(c)) is amended to
read as follows:
‘‘(c) DISTRIBUTIONS IN CASE OF FAMILY NOT RE-
CEIVING TEA.—Amounts collected by a State agency
under this part during any month as support of a child
who is not receiving assistance under part A (or of a par-
ent or caretaker relative of such a child) shall (subject to