260 
iana Islands, and any other territory or 
possession of the United States. 
(d) PENALTIES FOR MISREPRESENTATION.—In the 
case of an individual who intentionally misrepresents 
modified adjusted gross income or the individual fails 
(without regard to intent) to disclose to the Commissioner 
a significant change in modified adjusted gross income 
under subsection (c) in a manner that results in the indi-
vidual becoming an affordable credit eligible individual 
when the individual is not or in the amount of the afford-
ability credit exceeding the correct amount— 
(1) the individual is liable for repayment of the 
amount of the improper affordability credit; and 
(2) in the case of such an intentional misrepre-
sentation or other egregious circumstances specified 
by the Commissioner, the Commissioner may impose 
an additional penalty. 
SEC. 346. SPECIAL RULES FOR APPLICATION TO TERRI-
TORIES. 
(a) ONE-TIME ELECTION FOR TREATMENT AND AP-
PLICATION OF FUNDING.— 
(1) IN GENERAL.—A territory may elect, in a 
form and manner specified by the Commissioner in 
consultation with the Secretary of Health and 
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Human Services and the Secretary of the Treasury 
and not later than October 1, 2012, either— 
(A) to be treated as a State for purposes 
of applying this title and title II; or 
(B) not to be so treated but instead, to 
have the dollar limitation otherwise applicable 
to the territory under subsections (f) and (g) of 
section 1108 of the Social Security Act (42 
U.S.C. 1308) for a fiscal year increased by a 
dollar amount equivalent to the cap amount de-
termined under subsection (c)(2) for the terri-
tory as applied by the Secretary for the fiscal 
year involved. 
(2) CONDITIONS FOR ACCEPTANCE.—The Com-
missioner has the nonreviewable authority to accept 
or reject an election described in paragraph (1)(A). 
Any such acceptance is— 
(A) contingent upon entering into an 
agreement described in subsection (b) between 
the Commissioner and the territory and sub-
section (c); and 
(B) subject to the approval of the Sec-
retary of Health and Human Services and the 
Secretary of the Treasury and subject to such 
other terms and conditions as the Commis-
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sioner, in consultation with such Secretaries, 
may specify. 
(3) DEFAULT
RULE.—A territory failing to 
make such an election (or having an election under 
paragraph (1)(A) not accepted under paragraph (2)) 
shall be treated as having made the election de-
scribed in paragraph (1)(B). 
(b) AGREEMENT FOR SUBSTITUTION OF PERCENT-
AGES FOR AFFORDABILITY CREDITS.— 
(1) NEGOTIATION.—In the case of a territory 
making an election under subsection (a)(1)(A) (in 
this section referred to as an ‘‘electing territory’’) , 
the Commissioner, in consultation with the Secre-
taries of Health and Human Services and the Treas-
ury, shall enter into negotiations with the govern-
ment of such territory so that, before Y1, there is 
an agreement reached between the parties on the 
percentages that shall be applied under paragraph 
(2) for that territory. The Commissioner shall not 
enter into such an agreement unless— 
(A) payments made under this subtitle 
with respect to residents of the territory are 
consistent with the cap established under sub-
section (c) for such territory and with sub-
section (d); and 
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(B) the requirements of paragraphs (3) 
and (4) are met. 
(2) APPLICATION
OF
SUBSTITUTE
PERCENT-
AGES AND DOLLAR AMOUNTS.—In the case of an 
electing territory, there shall be substituted in sec-
tion 342(a)(1)(B) and in the table in section 
341(d)(1) for 400 percent, 133 percent, and other 
percentages and dollar amounts specified in such 
table, such respective percentages and dollar 
amounts as are established under the agreement 
under paragraph (1) consistent with the following: 
(A) NO INCOME GAP BETWEEN MEDICAID 
AND
AFFORDABILITY
CREDITS.—The 
sub-
stituted percentages shall be specified in a man-
ner so as to prevent any gap in coverage for in-
dividuals between income level at which medical 
assistance is available through Medicaid and 
the income level at which affordability credits 
are available. 
(B) ADJUSTMENT
FOR
OUT-OF-POCKET 
RESPONSIBILITY
FOR
PREMIUMS
AND
COST- 
SHARING IN RELATION TO INCOME.—The sub-
stituted percentages of FPL for income tiers 
under such table shall be specified in a manner 
so that— 
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(i) affordable credit eligible individ-
uals residing in the territory bear the same 
out-of-pocket responsibility for premiums 
and cost-sharing in relation to average in-
come for residents in that territory, as 
(ii) the out-of-pocket responsibility for 
premiums and cost-sharing for affordable 
credit eligible individuals residing in the 50 
States or the District of Columbia in rela-
tion to average income for such residents. 
(3) SPECIAL RULES WITH RESPECT TO APPLI-
CATION OF TAX AND PENALTY PROVISIONS.—The 
electing territory shall enact one or more laws under 
which provisions similar to the following provisions 
apply with respect to such territory: 
(A) Section 59B of the Internal Revenue 
Code of 1986, except that any resident of the 
territory who is not an affordable credit eligible 
individual but who would be an affordable cred-
it eligible individual if such resident were a resi-
dent of one of the 50 States (and any quali-
fying child residing with such individual) may 
be treated as covered by acceptable coverage. 
(B) Section 4980H of the Internal Rev-
enue Code of 1986 and section 502(c)(11) of 
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the Employee Retirement Income Security Act 
of 1974. 
(C) Section 3121(c) of the Internal Rev-
enue Code of 1986. 
(4) IMPLEMENTATION OF INSURANCE REFORM 
AND CONSUMER PROTECTION REQUIREMENTS.—The 
electing territory shall enact and implement such 
laws and regulations as may be required to apply the 
requirements of title II with respect to health insur-
ance coverage offered in the territory. 
(c) CAP ON ADDITIONAL EXPENDITURES.— 
(1) IN GENERAL.—In entering into an agree-
ment with an electing territory under subsection (b), 
the Commissioner shall ensure that the aggregate 
expenditures under this subtitle with respect to resi-
dents of such territory during the period beginning 
with Y1 and ending with 2019 will not exceed the 
cap amount specified in paragraph (2) for such ter-
ritory. The Commissioner shall adjust from time to 
time the percentages applicable under such agree-
ment as needed in order to carry out the previous 
sentence. 
(2) CAP AMOUNT.— 
(A) IN GENERAL.—The cap amount speci-
fied in this paragraph— 
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(i) for Puerto Rico is $3,700,000,000 
increased by the amount (if any) elected 
under subparagraph (C); or 
(ii) for another territory is the portion 
of $300,000,000 negotiated for such terri-
tory under subparagraph (B). 
(B) NEGOTIATION
FOR
CERTAIN
TERRI-
TORIES.—The Commissioner in consultation 
with the Secretary of Health and Human Serv-
ices shall negotiate with the governments of the 
territories (other than Puerto Rico) to allocate 
the amount specified in subparagraph (A)(ii) 
among such territories. 
(C) OPTIONAL
SUPPLEMENTATION
FOR 
PUERTO RICO.— 
(i) IN
GENERAL.—Puerto Rico may 
elect, in a form and manner specified by 
the Secretary of Health and Human Serv-
ices in consultation with the Commissioner 
to increase the dollar amount specified in 
subparagraph 
(A)(i) 
by 
up 
to 
$1,000,000,000. 
(ii) OFFSET
IN
MEDICAID
CAP.—If 
Puerto Rico makes the election described 
in clause (i), the Secretary shall decrease 
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the dollar limitation otherwise applicable to 
Puerto Rico under subsections (f) and (g) 
of section 1108 of the Social Security Act 
(42 U.S.C. 1308) for a fiscal year by the 
additional aggregate payments the Sec-
retary estimates will be payable under this 
section for the fiscal year because of such 
election. 
(d) LIMITATION ON FUNDING.—In no case shall this 
section (including the agreement under subsection (b)) 
permit— 
(1) the obligation of funds for expenditures 
under this subtitle for periods beginning on or after 
January 1, 2020; or 
(2) any increase in the dollar limitation de-
scribed in subsection (a)(1)(B) for any portion of 
any fiscal year occurring on or after such date. 
SEC. 347. NO FEDERAL PAYMENT FOR UNDOCUMENTED 
ALIENS. 
Nothing in this subtitle shall allow Federal payments 
for affordability credits on behalf of individuals who are 
not lawfully present in the United States. 
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TITLE IV—SHARED 
RESPONSIBILITY 
Subtitle A—Individual 
Responsibility 
SEC. 401. INDIVIDUAL RESPONSIBILITY. 
For an individual’s responsibility to obtain acceptable 
coverage, see section 59B of the Internal Revenue Code 
of 1986 (as added by section 501 of this Act). 
Subtitle B—Employer 
Responsibility 
PART 1—HEALTH COVERAGE PARTICIPATION 
REQUIREMENTS 
SEC. 411. HEALTH COVERAGE PARTICIPATION REQUIRE-
MENTS. 
An employer meets the requirements of this section 
if such employer does all of the following: 
(1) OFFER OF COVERAGE.—The employer of-
fers each employee individual and family coverage 
under a qualified health benefits plan (or under a 
current employment-based health plan (within the 
meaning of section 202(b))) in accordance with sec-
tion 412. 
(2) CONTRIBUTION
TOWARDS
COVERAGE.—If 
an employee accepts such offer of coverage, the em-
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ployer makes timely contributions towards such cov-
erage in accordance with section 412. 
(3) CONTRIBUTION IN LIEU OF COVERAGE.— 
Beginning with Y2, if an employee declines such 
offer but otherwise obtains coverage in an Exchange- 
participating health benefits plan (other than by rea-
son of being covered by family coverage as a spouse 
or dependent of the primary insured), the employer 
shall make a timely contribution to the Health In-
surance Exchange with respect to each such em-
ployee in accordance with section 413. 
SEC. 412. EMPLOYER RESPONSIBILITY TO CONTRIBUTE TO-
WARD EMPLOYEE AND DEPENDENT COV-
ERAGE. 
(a) IN GENERAL.—An employer meets the require-
ments of this section with respect to an employee if the 
following requirements are met: 
(1) OFFERING OF COVERAGE.—The employer 
offers the coverage described in section 411(1). In 
the case of an Exchange-eligible employer, the em-
ployer may offer such coverage either through an 
Exchange-participating health benefits plan or other 
than through such a plan. 
(2) EMPLOYER
REQUIRED
CONTRIBUTION.— 
The employer timely pays to the issuer of such cov-
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erage an amount not less than the employer required 
contribution specified in subsection (b) for such cov-
erage. 
(3) PROVISION
OF
INFORMATION.—The em-
ployer provides the Health Choices Commissioner, 
the Secretary of Labor, the Secretary of Health and 
Human Services, and the Secretary of the Treasury, 
as applicable, with such information as the Commis-
sioner may require to ascertain compliance with the 
requirements of this section, including the following: 
(A) The name, date, and employer identi-
fication number of the employer. 
(B) A certification as to whether the em-
ployer offers to its full-time employees (and 
their dependents) the opportunity to enroll in a 
qualified health benefits plan or a current em-
ployment-based health plan (within the meaning 
of section 202(b)). 
(C) If the employer certifies that the em-
ployer did offer to its full-time employees (and 
their dependents) the opportunity to so enroll— 
(i) the months during the calendar 
year for which such coverage was available; 
and 
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(ii) the monthly premium for the low-
est cost option in each of the enrollment 
categories under each such plan offered to 
employees. 
(D) The name, address, and TIN of each 
full-time employee during the calendar year and 
the months (if any) during which such employee 
(and any dependents) were covered under any 
such plans. 
(4) AUTOENROLLMENT
OF
EMPLOYEES.—The 
employer provides for autoenrollment of the em-
ployee in accordance with subsection (c). 
This subsection shall supersede any law of a State which 
would prevent automatic payroll deduction of employee 
contributions to an employment-based health plan. 
(b) REDUCTION OF EMPLOYEE PREMIUMS THROUGH 
MINIMUM EMPLOYER CONTRIBUTION.— 
(1) FULL-TIME
EMPLOYEES.—The minimum 
employer contribution described in this subsection 
for coverage of a full-time employee (and, if any, the 
employee’s spouse and qualifying children (as de-
fined in section 152(c) of the Internal Revenue Code 
of 1986)) under a qualified health benefits plan (or 
current employment-based health plan) is equal to— 
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(A) in case of individual coverage, not less 
than 72.5 percent of the applicable premium 
(as defined in section 4980B(f)(4) of such 
Code, subject to paragraph (2)) of the lowest 
cost plan offered by the employer that is a 
qualified health benefits plan (or is such cur-
rent employment-based health plan); and 
(B) in the case of family coverage which 
includes coverage of such spouse and children, 
not less 65 percent of such applicable premium 
of such lowest cost plan. 
(2) APPLICABLE PREMIUM FOR EXCHANGE COV-
ERAGE.—In this subtitle, the amount of the applica-
ble premium of the lowest cost plan with respect to 
coverage of an employee under an Exchange-partici-
pating health benefits plan is the reference premium 
amount under section 343(c) for individual coverage 
(or, if elected, family coverage) for the premium rat-
ing area in which the individual or family resides. 
(3) MINIMUM
EMPLOYER
CONTRIBUTION
FOR 
EMPLOYEES
OTHER
THAN
FULL-TIME
EMPLOY-
EES.—In the case of coverage for an employee who 
is not a full-time employee, the amount of the min-
imum employer contribution under this subsection 
shall be a proportion (as determined in accordance 
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with rules of the Health Choices Commissioner, the 
Secretary of Labor, the Secretary of Health and 
Human Services, and the Secretary of the Treasury, 
as applicable) of the minimum employer contribution 
under this subsection with respect to a full-time em-
ployee that reflects the proportion of— 
(A) the average weekly hours of employ-
ment of the employee by the employer, to 
(B) the minimum weekly hours specified 
by the Commissioner for an employee to be a 
full-time employee. 
(4) SALARY REDUCTIONS NOT TREATED AS EM-
PLOYER CONTRIBUTIONS.—For purposes of this sec-
tion, any contribution on behalf of an employee with 
respect to which there is a corresponding reduction 
in the compensation of the employee shall not be 
treated as an amount paid by the employer. 
(c) AUTOMATIC ENROLLMENT FOR EMPLOYER SPON-
SORED HEALTH BENEFITS.— 
(1) IN GENERAL.—The requirement of this sub-
section with respect to an employer and an employee 
is that the employer automatically enroll such em-
ployee into the employment-based health benefits 
plan for individual coverage under the plan option 
with the lowest applicable employee premium. 
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(2) OPT-OUT.—In no case may an employer 
automatically enroll an employee in a plan under 
paragraph (1) if such employee makes an affirmative 
election to opt out of such plan or to elect coverage 
under an employment-based health benefits plan of-
fered by such employer. An employer shall provide 
an employee with a 30-day period to make such an 
affirmative election before the employer may auto-
matically enroll the employee in such a plan. 
(3) NOTICE REQUIREMENTS.— 
(A) IN
GENERAL.—Each employer de-
scribed in paragraph (1) who automatically en-
rolls an employee into a plan as described in 
such paragraph shall provide the employees, 
within a reasonable period before the beginning 
of each plan year (or, in the case of new em-
ployees, within a reasonable period before the 
end of the enrollment period for such a new em-
ployee), written notice of the employees’ rights 
and obligations relating to the automatic enroll-
ment requirement under such paragraph. Such 
notice must be comprehensive and understood 
by the average employee to whom the automatic 
enrollment requirement applies. 
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(B) INCLUSION
OF
SPECIFIC
INFORMA-
TION.—The written notice under subparagraph 
(A) must explain an employee’s right to opt out 
of being automatically enrolled in a plan and in 
the case that more than one level of benefits or 
employee premium level is offered by the em-
ployer involved, the notice must explain which 
level of benefits and employee premium level the 
employee will be automatically enrolled in the 
absence of an affirmative election by the em-
ployee. 
SEC. 413. EMPLOYER CONTRIBUTIONS IN LIEU OF COV-
ERAGE. 
(a) IN GENERAL.—A contribution is made in accord-
ance with this section with respect to an employee if such 
contribution is equal to an amount equal to 8 percent of 
the average wages paid by the employer during the period 
of enrollment (determined by taking into account all em-
ployees of the employer and in such manner as the Com-
missioner provides, including rules providing for the ap-
propriate aggregation of related employers) but not to ex-
ceed the minimum employer contribution described in sec-
tion 412(b)(1)(A). Any such contribution— 
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(1) shall be paid to the Health Choices Com-
missioner for deposit into the Health Insurance Ex-
change Trust Fund; and 
(2) shall not be applied against the premium of 
the employee under the Exchange-participating 
health benefits plan in which the employee is en-
rolled. 
(b) SPECIAL RULES FOR SMALL EMPLOYERS.— 
(1) IN GENERAL.—In the case of any employer 
who is a small employer for any calendar year, sub-
section (a) shall be applied by substituting the appli-
cable percentage determined in accordance with the 
following table for ‘‘8 percent’’: 
If the annual payroll of such employer for 
the preceding calendar year: 
The applicable 
percentage is: 
Does not exceed $500,000 .....................................
0 percent 
Exceeds $500,000, but does not exceed $585,000 
2 percent 
Exceeds $585,000, but does not exceed $670,000 
4 percent 
Exceeds $670,000, but does not exceed $750,000 
6 percent 
(2) SMALL EMPLOYER.—For purposes of this 
subsection, the term ‘‘small employer’’ means any 
employer for any calendar year if the annual payroll 
of such employer for the preceding calendar year 
does not exceed $750,000. 
(3) ANNUAL PAYROLL.—For purposes of this 
paragraph, the term ‘‘annual payroll’’ means, with 
respect to any employer for any calendar year, the 
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aggregate wages paid by the employer during such 
calendar year. 
(4) AGGREGATION RULES.—Related employers 
and predecessors shall be treated as a single em-
ployer for purposes of this subsection. 
SEC. 414. AUTHORITY RELATED TO IMPROPER STEERING. 
The Health Choices Commissioner (in coordination 
with the Secretary of Labor, the Secretary of Health and 
Human Services, and the Secretary of the Treasury) shall 
have authority to set standards for determining whether 
employers or insurers are undertaking any actions to af-
fect the risk pool within the Health Insurance Exchange 
by inducing individuals to decline coverage under a quali-
fied health benefits plan (or current employment-based 
health plan (within the meaning of section 202(b)) offered 
by the employer and instead to enroll in an Exchange-par-
ticipating health benefits plan. An employer violating such 
standards shall be treated as not meeting the require-
ments of this section. 
SEC. 415. IMPACT STUDY ON EMPLOYER RESPONSIBILITY 
REQUIREMENTS. 
(a) IN GENERAL.—The Secretary of Labor shall con-
duct a study to examine the effect of the exemptions under 
section 512(a) and coverage thresholds under this division 
(in this section referred to collectively as ″employer re-
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sponsibility requirements)on employment-based health 
plan sponsorship, generally and within specific industries, 
and the effect of such requirements and thresholds on em-
ployers, employment-based health plans, and employees in 
each industry. 
(b) ANNUAL REPORT.—The Secretary of Labor an-
nually shall submit to Congress a report on findings on 
how employer responsibility requirements have impacted 
and are likely to impact employers, plans, and employees 
during the previous year and projected trends. 
(c) LEGISLATIVE
RECOMMENDATIONS.—No later 
than January 1, 2012 and on an annual basis thereafter, 
the Secretary of Labor shall submit legislative rec-
ommendations to Congress to modify the employer respon-
sibility requirements if the Secretary determines that the 
requirements are detrimentally affecting or will detrimen-
tally affect employer plan sponsorship or otherwise cre-
ating inequities among employers, health plans, and em-
ployees. The Secretary may also submit such recommenda-
tions as the Secretary determines necessary to improve 
and strengthen employment-based health plan sponsor-
ship, employer responsibility, and related proposals that 
would enhance the delivery of health care benefits between 
employers and employees. 
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SEC. 416. STUDY ON EMPLOYER HARDSHIP EXEMPTION. 
(a) IN GENERAL.—The Secretary of Labor together 
with the Secretary of Treasury, the Secretary of Health 
and Human Services, and the Commissioner, shall conduct 
a study to examine the impact of the employer responsi-
bility requirements described in section 415(a) and make 
a recommendation to Congress about whether an employer 
hardship exemption would be appropriate. 
(b) ITEMS INCLUDED IN STUDY.—Within such study 
the Secretaries and Commissioner shall examine cases 
where such employer responsibility requirements may pose 
a particular hardship, and specifically look at employers 
by industry, profit margin, length of time in business, and 
size. In this examination, the economic conditions shall be 
considered, including the rate of increase in business costs, 
the availability of short-term credit lines, and abilities to 
restructure debt. In addition, the study shall examine the 
impact an employer hardship waiver could have on employ-
ees. 
(c) REPORT.—Not later than January 1, 2012, the 
Secretaries and Commissioner shall report to Congress on 
their findings and make a recommendation regarding the 
need or lack of need for a partial or complete employer 
hardship waiver. The Secretaries and Commissioner may 
also submit recommendations about the criteria Congress 
should include when developing eligibility requirements for 
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the employer hardship waiver and what safeguards are 
necessary to protect the employees of that employer. 
PART 2—SATISFACTION OF HEALTH COVERAGE 
PARTICIPATION REQUIREMENTS 
SEC. 421. SATISFACTION OF HEALTH COVERAGE PARTICI-
PATION REQUIREMENTS UNDER THE EM-
PLOYEE 
RETIREMENT 
INCOME 
SECURITY 
ACT OF 1974. 
(a) IN GENERAL.—Subtitle B of title I of the Em-
ployee Retirement Income Security Act of 1974 is amend-
ed by adding at the end the following new part: 
‘‘PART 8—NATIONAL HEALTH COVERAGE 
PARTICIPATION REQUIREMENTS 
‘‘SEC. 801. ELECTION OF EMPLOYER TO BE SUBJECT TO NA-
TIONAL HEALTH COVERAGE PARTICIPATION 
REQUIREMENTS. 
‘‘(a) IN GENERAL.—An employer may make an elec-
tion with the Secretary to be subject to the health coverage 
participation requirements. 
‘‘(b) TIME AND MANNER.—An election under sub-
section (a) may be made at such time and in such form 
and manner as the Secretary may prescribe. 
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‘‘SEC. 802. TREATMENT OF COVERAGE RESULTING FROM 
ELECTION. 
‘‘(a) IN GENERAL.—If an employer makes an election 
to the Secretary under section 801— 
‘‘(1) such election shall be treated as the estab-
lishment and maintenance of a group health plan (as 
defined in section 733(a)) for purposes of this title, 
subject to section 251 of the ; and 
‘‘(2) the health coverage participation require-
ments shall be deemed to be included as terms and 
conditions of such plan. 
‘‘(b) PERIODIC INVESTIGATIONS TO DISCOVER NON-
COMPLIANCE.—The Secretary shall regularly audit a rep-
resentative sampling of employers and group health plans 
and conduct investigations and other activities under sec-
tion 504 with respect to such sampling of plans so as to 
discover noncompliance with the health coverage participa-
tion requirements in connection with such plans. The Sec-
retary shall communicate findings of noncompliance made 
by the Secretary under this subsection to the Secretary 
of the Treasury and the Health Choices Commissioner. 
The Secretary shall take such timely enforcement action 
as appropriate to achieve compliance. 
‘‘(c) RECORDKEEPING.—To facilitate the audits de-
scribed in subsection (b), the Secretary shall promulgate 
recordkeeping requirements for employers to account for 
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both employees of the employer and individuals whom the 
employer has not treated as employees of the employer but 
with whom the employer, in the course of its trade or busi-
ness, has engaged for the performance of labor or services. 
The scope and content of such recordkeeping requirements 
shall be determined by the Secretary and shall be designed 
to ensure that employees who are not properly treated as 
such may be identified and properly treated. 
‘‘SEC. 803. HEALTH COVERAGE PARTICIPATION REQUIRE-
MENTS. 
‘‘For purposes of this part, the term ‘health coverage 
participation requirements’ means the requirements of 
part 1 of subtitle B of title IV of division A of (as in effect 
on the date of the enactment of such Act). 
‘‘SEC. 804. RULES FOR APPLYING REQUIREMENTS. 
‘‘(a) AFFILIATED GROUPS.—In the case of any em-
ployer which is part of a group of employers who are treat-
ed as a single employer under subsection (b), (c), (m), or 
(o) of section 414 of the Internal Revenue Code of 1986, 
the election under section 801 shall be made by such em-
ployer as the Secretary may provide. Any such election, 
once made, shall apply to all members of such group. 
‘‘(b) SEPARATE ELECTIONS.—Under regulations pre-
scribed by the Secretary, separate elections may be made 
under section 801 with respect to— 
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‘‘(1) separate lines of business, and 
‘‘(2) full-time employees and employees who are 
not full-time employees. 
‘‘SEC. 805. TERMINATION OF ELECTION IN CASES OF SUB-
STANTIAL NONCOMPLIANCE. 
‘‘The Secretary may terminate the election of any em-
ployer under section 801 if the Secretary (in coordination 
with the Health Choices Commissioner) determines that 
such employer is in substantial noncompliance with the 
health coverage participation requirements and shall refer 
any such determination to the Secretary of the Treasury 
as appropriate. 
‘‘SEC. 806. REGULATIONS. 
‘‘The Secretary may promulgate such regulations as 
may be necessary or appropriate to carry out the provi-
sions of this part, in accordance with section 424(a) of 
the . The Secretary may promulgate any interim final 
rules as the Secretary determines are appropriate to carry 
out this part.’’. 
(b) ENFORCEMENT OF HEALTH COVERAGE PARTICI-
PATION REQUIREMENTS.—Section 502 of such Act (29 
U.S.C. 1132) is amended— 
(1) in subsection (a)(6), by striking ‘‘para-
graph’’ and all that follows through ‘‘subsection (c)’’ 
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and inserting ‘‘paragraph (2), (4), (5), (6), (7), (8), 
(9), (10), or (11) of subsection (c)’’; and 
(2) in subsection (c), by redesignating the sec-
ond paragraph (10) as paragraph (12) and by in-
serting after the first paragraph (10) the following 
new paragraph: 
‘‘(11) HEALTH COVERAGE PARTICIPATION RE-
QUIREMENTS.— 
‘‘(A) CIVIL
PENALTIES.—In the case of 
any employer who fails (during any period with 
respect to which an election under section 
801(a) is in effect) to satisfy the health cov-
erage participation requirements with respect to 
any employee, the Secretary may assess a civil 
penalty against the employer of $100 for each 
day in the period beginning on the date such 
failure first occurs and ending on the date such 
failure is corrected. 
‘‘(B) HEALTH
COVERAGE
PARTICIPATION 
REQUIREMENTS.—For purposes of this para-
graph, the term ‘health coverage participation 
requirements’ has the meaning provided in sec-
tion 803. 
‘‘(C) LIMITATIONS ON AMOUNT OF PEN-
ALTY.— 
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‘‘(i) PENALTY NOT TO APPLY WHERE 
FAILURE
NOT
DISCOVERED
EXERCISING 
REASONABLE
DILIGENCE.—No 
penalty 
shall be assessed under subparagraph (A) 
with respect to any failure during any pe-
riod for which it is established to the satis-
faction of the Secretary that the employer 
did not know, or exercising reasonable dili-
gence would not have known, that such 
failure existed. 
‘‘(ii) PENALTY
NOT
TO
APPLY
TO 
FAILURES CORRECTED WITHIN 30 DAYS.— 
No penalty shall be assessed under sub-
paragraph (A) with respect to any failure 
if— 
‘‘(I) such failure was due to rea-
sonable cause and not to willful ne-
glect, and 
‘‘(II) such failure is corrected 
during the 30-day period beginning on 
the 1st date that the employer knew, 
or 
exercising 
reasonable 
diligence 
would have known, that such failure 
existed. 
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‘‘(iii) OVERALL LIMITATION FOR UN-
INTENTIONAL FAILURES.—In the case of 
failures which are due to reasonable cause 
and not to willful neglect, the penalty as-
sessed under subparagraph (A) for failures 
during any 1-year period shall not exceed 
the amount equal to the lesser of— 
‘‘(I) 10 percent of the aggregate 
amount paid or incurred by the em-
ployer (or predecessor employer) dur-
ing the preceding 1-year period for 
group health plans, or 
‘‘(II) $500,000. 
‘‘(D) ADVANCE NOTIFICATION OF FAILURE 
PRIOR TO ASSESSMENT.—Before a reasonable 
time prior to the assessment of any penalty 
under this paragraph with respect to any failure 
by an employer, the Secretary shall inform the 
employer in writing of such failure and shall 
provide the employer information regarding ef-
forts and procedures which may be undertaken 
by the employer to correct such failure. 
‘‘(E) COORDINATION WITH EXCISE TAX.— 
Under regulations prescribed in accordance 
with section 424 of the , the Secretary and the 
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Secretary of the Treasury shall coordinate the 
assessment of penalties under this section in 
connection with failures to satisfy health cov-
erage participation requirements with the impo-
sition of excise taxes on such failures under sec-
tion 4980H(b) of the Internal Revenue Code of 
1986 so as to avoid duplication of penalties 
with respect to such failures. 
‘‘(F) DEPOSIT OF PENALTY COLLECTED.— 
Any amount of penalty collected under this 
paragraph shall be deposited as miscellaneous 
receipts in the Treasury of the United States.’’. 
(c) CLERICAL AMENDMENTS.—The table of contents 
in section 1 of such Act is amended by inserting after the 
item relating to section 734 the following new items: 
‘‘PART 8—NATIONAL HEALTH COVERAGE PARTICIPATION REQUIREMENTS 
‘‘Sec. 801. Election of employer to be subject to national health coverage par-
ticipation requirements. 
‘‘Sec. 802. Treatment of coverage resulting from election. 
‘‘Sec. 803. Health coverage participation requirements. 
‘‘Sec. 804. Rules for applying requirements. 
‘‘Sec. 805. Termination of election in cases of substantial noncompliance. 
‘‘Sec. 806. Regulations.’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to periods beginning after Decem-
ber 31, 2012. 
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288 
SEC. 422. SATISFACTION OF HEALTH COVERAGE PARTICI-
PATION REQUIREMENTS UNDER THE INTER-
NAL REVENUE CODE OF 1986. 
(a) FAILURE TO ELECT, OR SUBSTANTIALLY COM-
PLY WITH, HEALTH COVERAGE PARTICIPATION RE-
QUIREMENTS.—For employment tax on employers who fail 
to elect, or substantially comply with, the health coverage 
participation requirements described in part 1, see section 
3111(c) of the Internal Revenue Code of 1986 (as added 
by section 512 of this Act). 
(b) OTHER FAILURES.—For excise tax on other fail-
ures of electing employers to comply with such require-
ments, see section 4980H of the Internal Revenue Code 
of 1986 (as added by section 511 of this Act). 
SEC. 423. SATISFACTION OF HEALTH COVERAGE PARTICI-
PATION REQUIREMENTS UNDER THE PUBLIC 
HEALTH SERVICE ACT. 
(a) IN GENERAL.—Part C of title XXVII of the Pub-
lic Health Service Act is amended by adding at the end 
the following new section: 
‘‘SEC. 2793. NATIONAL HEALTH COVERAGE PARTICIPATION 
REQUIREMENTS. 
‘‘(a) ELECTION OF EMPLOYER TO BE SUBJECT TO 
NATIONAL HEALTH COVERAGE PARTICIPATION REQUIRE-
MENTS.— 
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‘‘(1) IN GENERAL.—An employer may make an 
election with the Secretary to be subject to the 
health coverage participation requirements. 
‘‘(2) TIME AND MANNER.—An election under 
paragraph (1) may be made at such time and in 
such form and manner as the Secretary may pre-
scribe. 
‘‘(b) TREATMENT OF COVERAGE RESULTING FROM 
ELECTION.— 
‘‘(1) IN GENERAL.—If an employer makes an 
election to the Secretary under subsection (a)— 
‘‘(A) such election shall be treated as the 
establishment and maintenance of a group 
health plan for purposes of this title, subject to 
section 251 of the Affordable Health Care for 
America Act; and 
‘‘(B) the health coverage participation re-
quirements shall be deemed to be included as 
terms and conditions of such plan. 
‘‘(2) PERIODIC INVESTIGATIONS TO DETERMINE 
COMPLIANCE WITH HEALTH COVERAGE PARTICIPA-
TION
REQUIREMENTS.—The Secretary shall regu-
larly audit a representative sampling of employers 
and conduct investigations and other activities with 
respect to such sampling of employers so as to dis-
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290 
cover noncompliance with the health coverage par-
ticipation requirements in connection with such em-
ployers (during any period with respect to which an 
election under subsection (a) is in effect). The Sec-
retary shall communicate findings of noncompliance 
made by the Secretary under this subsection to the 
Secretary of the Treasury and the Health Choices 
Commissioner. The Secretary shall take such timely 
enforcement action as appropriate to achieve compli-
ance. 
‘‘(3) RECORDKEEPING.—To facilitate the audits 
described in subsection (b), the Secretary shall pro-
mulgate recordkeeping requirements for employers 
to account for both employees of the employer and 
individuals whom the employer has not treated as 
employees of the employer but with whom the em-
ployer, in the course of its trade or business, has en-
gaged for the performance of labor or services. The 
scope and content of such recordkeeping require-
ments shall be determined by the Secretary and 
shall be designed to ensure that employees who are 
not properly treated as such may be identified and 
properly treated. 
‘‘(c) HEALTH COVERAGE PARTICIPATION REQUIRE-
MENTS.—For purposes of this section, the term ‘health 
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coverage participation requirements’ means the require-
ments of part 1 of subtitle B of title IV of division A of 
the (as in effect on the date of the enactment of this sec-
tion). 
‘‘(d) SEPARATE ELECTIONS.—Under regulations pre-
scribed by the Secretary, separate elections may be made 
under subsection (a) with respect to full-time employees 
and employees who are not full-time employees. 
‘‘(e) TERMINATION OF ELECTION IN CASES OF SUB-
STANTIAL NONCOMPLIANCE.—The Secretary may termi-
nate the election of any employer under subsection (a) if 
the Secretary (in coordination with the Health Choices 
Commissioner) determines that such employer is in sub-
stantial noncompliance with the health coverage participa-
tion requirements and shall refer any such determination 
to the Secretary of the Treasury as appropriate. 
‘‘(f) ENFORCEMENT OF HEALTH COVERAGE PAR-
TICIPATION REQUIREMENTS.— 
‘‘(1) CIVIL PENALTIES.—In the case of any em-
ployer who fails (during any period with respect to 
which the election under subsection (a) is in effect) 
to satisfy the health coverage participation require-
ments with respect to any employee, the Secretary 
may assess a civil penalty against the employer of 
$100 for each day in the period beginning on the 
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date such failure first occurs and ending on the date 
such failure is corrected. 
‘‘(2) LIMITATIONS ON AMOUNT OF PENALTY.— 
‘‘(A) PENALTY
NOT
TO
APPLY
WHERE 
FAILURE
NOT
DISCOVERED
EXERCISING
REA-
SONABLE DILIGENCE.—No penalty shall be as-
sessed under paragraph (1) with respect to any 
failure during any period for which it is estab-
lished to the satisfaction of the Secretary that 
the employer did not know, or exercising rea-
sonable diligence would not have known, that 
such failure existed. 
‘‘(B) PENALTY NOT TO APPLY TO FAIL-
URES CORRECTED WITHIN 30 DAYS.—No pen-
alty shall be assessed under paragraph (1) with 
respect to any failure if— 
‘‘(i) such failure was due to reason-
able cause and not to willful neglect, and 
‘‘(ii) such failure is corrected during 
the 30-day period beginning on the 1st 
date that the employer knew, or exercising 
reasonable diligence would have known, 
that such failure existed. 
‘‘(C) OVERALL LIMITATION FOR UNINTEN-
TIONAL
FAILURES.—In the case of failures 
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which are due to reasonable cause and not to 
willful neglect, the penalty assessed under para-
graph (1) for failures during any 1-year period 
shall not exceed the amount equal to the lesser 
of— 
‘‘(i) 10 percent of the aggregate 
amount paid or incurred by the employer 
(or predecessor employer) during the pre-
ceding taxable year for group health plans, 
or 
‘‘(ii) $500,000. 
‘‘(3) ADVANCE
NOTIFICATION
OF
FAILURE 
PRIOR TO ASSESSMENT.—Before a reasonable time 
prior to the assessment of any penalty under para-
graph (1) with respect to any failure by an em-
ployer, the Secretary shall inform the employer in 
writing of such failure and shall provide the em-
ployer information regarding efforts and procedures 
which may be undertaken by the employer to correct 
such failure. 
‘‘(4) ACTIONS
TO
ENFORCE
ASSESSMENTS.— 
The Secretary may bring a civil action in any Dis-
trict Court of the United States to collect any civil 
penalty under this subsection. 
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‘‘(5) COORDINATION
WITH
EXCISE
TAX.— 
Under regulations prescribed in accordance with sec-
tion 424 of the , the Secretary and the Secretary of 
the Treasury shall coordinate the assessment of pen-
alties under paragraph (1) in connection with fail-
ures to satisfy health coverage participation require-
ments with the imposition of excise taxes on such 
failures under section 4980H(b) of the Internal Rev-
enue Code of 1986 so as to avoid duplication of pen-
alties with respect to such failures. 
‘‘(6) DEPOSIT OF PENALTY COLLECTED.—Any 
amount of penalty collected under this subsection 
shall be deposited as miscellaneous receipts in the 
Treasury of the United States. 
‘‘(g) REGULATIONS.—The Secretary may promulgate 
such regulations as may be necessary or appropriate to 
carry out the provisions of this section, in accordance with 
section 424(a) of the . The Secretary may promulgate any 
interim final rules as the Secretary determines are appro-
priate to carry out this section.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
subsection (a) shall apply to periods beginning after De-
cember 31, 2012. 
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295 
SEC. 424. ADDITIONAL RULES RELATING TO HEALTH COV-
ERAGE PARTICIPATION REQUIREMENTS. 
(a) ASSURING COORDINATION.—The officers con-
sisting of the Secretary of Labor, the Secretary of the 
Treasury, the Secretary of Health and Human Services, 
and the Health Choices Commissioner shall ensure, 
through the execution of an interagency memorandum of 
understanding among such officers, that— 
(1) regulations, rulings, and interpretations 
issued by such officers relating to the same matter 
over which two or more of such officers have respon-
sibility under subpart B of part 8 of subtitle B of 
title I of the Employee Retirement Income Security 
Act of 1974, section 4980H of the Internal Revenue 
Code of 1986, and section 2793 of the Public Health 
Service Act are administered so as to have the same 
effect at all times; and 
(2) coordination of policies relating to enforcing 
the same requirements through such officers in 
order to have a coordinated enforcement strategy 
that avoids duplication of enforcement efforts and 
assigns priorities in enforcement. 
(b) MULTIEMPLOYER PLANS.—In the case of a group 
health plan that is a multiemployer plan (as defined in 
section 3(37) of the Employee Retirement Income Secu-
rity Act of 1974), the regulations prescribed in accordance 
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with subsection (a) by the officers referred to in subsection 
(a) shall provide for the application of the health coverage 
participation requirements to the plan sponsor and con-
tributing employers of such plan. For purposes of this di-
vision, contributions made pursuant to a collective bar-
gaining agreement or other agreement to such a group 
health plan shall be treated as amounts paid by the em-
ployer. 
TITLE V—AMENDMENTS TO IN-
TERNAL REVENUE CODE OF 
1986 
Subtitle A—Provisions Relating to 
Health Care Reform 
PART 1—SHARED RESPONSIBILITY 
Subpart A—Individual Responsibility 
SEC. 501. TAX ON INDIVIDUALS WITHOUT ACCEPTABLE 
HEALTH CARE COVERAGE. 
(a) IN GENERAL.—Subchapter A of chapter 1 of the 
Internal Revenue Code of 1986 is amended by adding at 
the end the following new part: 
‘‘PART VIII—HEALTH CARE RELATED TAXES 
‘‘SUBPART A. TAX ON INDIVIDUALS WITHOUT ACCEPTABLE HEALTH CARE 
COVERAGE. 
‘‘Subpart A—Tax on Individuals Without Acceptable 
Health Care Coverage 
‘‘Sec. 59B. Tax on individuals without acceptable health care coverage. 
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‘‘SEC. 59B. TAX ON INDIVIDUALS WITHOUT ACCEPTABLE 
HEALTH CARE COVERAGE. 
‘‘(a) TAX IMPOSED.—In the case of any individual 
who does not meet the requirements of subsection (d) at 
any time during the taxable year, there is hereby imposed 
a tax equal to 2.5 percent of the excess of— 
‘‘(1) the taxpayer’s modified adjusted gross in-
come for the taxable year, over 
‘‘(2) the amount of gross income specified in 
section 6012(a)(1) with respect to the taxpayer. 
‘‘(b) LIMITATIONS.— 
‘‘(1) TAX LIMITED TO AVERAGE PREMIUM.— 
‘‘(A) IN
GENERAL.—The tax imposed 
under subsection (a) with respect to any tax-
payer for any taxable year shall not exceed the 
applicable national average premium for such 
taxable year. 
‘‘(B) APPLICABLE
NATIONAL
AVERAGE 
PREMIUM.— 
‘‘(i) IN
GENERAL.—For purposes of 
subparagraph (A), the ‘applicable national 
average premium’ means, with respect to 
any taxable year, the average premium (as 
determined by the Secretary, in coordina-
tion with the Health Choices Commis-
sioner) for self-only coverage under a basic 
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plan which is offered in a Health Insur-
ance Exchange for the calendar year in 
which such taxable year begins. 
‘‘(ii) FAILURE TO PROVIDE COVERAGE 
FOR MORE THAN ONE INDIVIDUAL.—In the 
case of any taxpayer who fails to meet the 
requirements of subsection (d) with respect 
to more than one individual during the tax-
able year, clause (i) shall be applied by 
substituting ‘family coverage’ for ‘self-only 
coverage’. 
‘‘(2) PRORATION FOR PART YEAR FAILURES.— 
The tax imposed under subsection (a) with respect 
to any taxpayer for any taxable year shall not exceed 
the amount which bears the same ratio to the 
amount of tax so imposed (determined without re-
gard to this paragraph and after application of para-
graph (1)) as— 
‘‘(A) the aggregate periods during such 
taxable year for which such individual failed to 
meet the requirements of subsection (d), bears 
to 
‘‘(B) the entire taxable year. 
‘‘(c) EXCEPTIONS.— 
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‘‘(1) DEPENDENTS.—Subsection (a) shall not 
apply to any individual for any taxable year if a de-
duction is allowable under section 151 with respect 
to such individual to another taxpayer for any tax-
able year beginning in the same calendar year as 
such taxable year. 
‘‘(2) NONRESIDENT
ALIENS.—Subsection (a) 
shall not apply to any individual who is a non-
resident alien. 
‘‘(3) INDIVIDUALS RESIDING OUTSIDE UNITED 
STATES.—Any qualified individual (as defined in 
section 911(d)) (and any qualifying child residing 
with such individual) shall be treated for purposes of 
this section as covered by acceptable coverage during 
the period described in subparagraph (A) or (B) of 
section 911(d)(1), whichever is applicable. 
‘‘(4) INDIVIDUALS
RESIDING
IN
POSSESSIONS 
OF THE UNITED STATES.—Any individual who is a 
bona fide resident of any possession of the United 
States (as determined under section 937(a)) for any 
taxable year (and any qualifying child residing with 
such individual) shall be treated for purposes of this 
section as covered by acceptable coverage during 
such taxable year. 
‘‘(5) RELIGIOUS CONSCIENCE EXEMPTION.— 
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‘‘(A) IN
GENERAL.—Subsection (a) shall 
not apply to any individual (and any qualifying 
child residing with such individual) for any pe-
riod if such individual has in effect an exemp-
tion which certifies that such individual is a 
member of a recognized religious sect or divi-
sion thereof described in section 1402(g)(1) and 
an adherent of established tenets or teachings 
of such sect or division as described in such sec-
tion. 
‘‘(B) EXEMPTION.—An application for the 
exemption described in subparagraph (A) shall 
be filed with the Secretary at such time and in 
such form and manner as the Secretary may 
prescribe. The Secretary may treat an applica-
tion for exemption under section 1402(g)(1) as 
an application for exemption under this section, 
or may otherwise coordinate applications under 
such sections, as the Secretary determines ap-
propriate. Any such exemption granted by the 
Secretary shall be effective for such period as 
the Secretary determines appropriate. 
‘‘(d) ACCEPTABLE COVERAGE REQUIREMENT.— 
‘‘(1) IN GENERAL.—The requirements of this 
subsection are met with respect to any individual for 
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any period if such individual (and each qualifying 
child of such individual) is covered by acceptable 
coverage at all times during such period. 
‘‘(2) ACCEPTABLE
COVERAGE.—For purposes 
of this section, the term ‘acceptable coverage’ means 
any of the following: 
‘‘(A) QUALIFIED HEALTH BENEFITS PLAN 
COVERAGE.—Coverage under a qualified health 
benefits plan (as defined in section 100(c) of 
the ). 
‘‘(B) GRANDFATHERED
HEALTH
INSUR-
ANCE
COVERAGE; COVERAGE
UNDER
GRAND-
FATHERED
EMPLOYMENT-BASED
HEALTH 
PLAN.—Coverage under a grandfathered health 
insurance coverage (as defined in subsection (a) 
of section 202 of the ) or under a current em-
ployment-based health plan (within the meaning 
of subsection (b) of such section). 
‘‘(C) MEDICARE.—Coverage under part A 
of title XVIII of the Social Security Act. 
‘‘(D) MEDICAID.—Coverage for medical as-
sistance under title XIX of the Social Security 
Act. 
‘‘(E) MEMBERS OF THE ARMED FORCES 
AND
DEPENDENTS
(INCLUDING
TRICARE).— 
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Coverage under chapter 55 of title 10, United 
States Code, including similar coverage fur-
nished under section 1781 of title 38 of such 
Code. 
‘‘(F) VA.—Coverage under the veteran’s 
health care program under chapter 17 of title 
38, United States Code. 
‘‘(G) MEMBERS
OF
INDIAN
TRIBES.— 
Health care services made available through the 
Indian Health Service, a tribal organization (as 
defined in section 4 of the Indian Health Care 
Improvement Act), or an urban Indian organi-
zation (as defined in such section) to members 
of an Indian tribe (as defined in such section). 
‘‘(H) 
OTHER
COVERAGE.—Such 
other 
health benefits coverage as the Secretary, in co-
ordination with the Health Choices Commis-
sioner, recognizes for purposes of this sub-
section. 
‘‘(e) OTHER DEFINITIONS AND SPECIAL RULES.— 
‘‘(1) QUALIFYING CHILD.—For purposes of this 
section, the term ‘qualifying child’ has the meaning 
given such term by section 152(c). With respect to 
any period during which health coverage for a child 
must be provided by an individual pursuant to a 
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child support order, such child shall be treated as a 
qualifying child of such individual (and not as a 
qualifying child of any other individual). 
‘‘(2) BASIC PLAN.—For purposes of this sec-
tion, the term ‘basic plan’ has the meaning given 
such term under section 100(c) of the . 
‘‘(3) HEALTH
INSURANCE
EXCHANGE.—For 
purposes of this section, the term ‘Health Insurance 
Exchange’ has the meaning given such term under 
section 100(c) of the , including any State-based 
health insurance exchange approved for operation 
under section 308 of such Act. 
‘‘(4) FAMILY COVERAGE.—For purposes of this 
section, the term ‘family coverage’ means any cov-
erage other than self-only coverage. 
‘‘(5) MODIFIED
ADJUSTED
GROSS
INCOME.— 
For purposes of this section, the term ‘modified ad-
justed gross income’ means adjusted gross income 
increased by— 
‘‘(A) any amount excluded from gross in-
come under section 911, and 
‘‘(B) any amount of interest received or 
accrued by the taxpayer during the taxable year 
which is exempt from tax. 
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‘‘(6) NOT TREATED AS TAX IMPOSED BY THIS 
CHAPTER
FOR
CERTAIN
PURPOSES.—The tax im-
posed under this section shall not be treated as tax 
imposed by this chapter for purposes of determining 
the amount of any credit under this chapter or for 
purposes of section 55. 
‘‘(f) REGULATIONS.—The Secretary shall prescribe 
such regulations or other guidance as may be necessary 
or appropriate to carry out the purposes of this section, 
including regulations or other guidance (developed in co-
ordination with the Health Choices Commissioner) which 
provide— 
‘‘(1) exemption from the tax imposed under 
subsection (a) in cases of de minimis lapses of ac-
ceptable coverage, and 
‘‘(2) a waiver of the application of subsection 
(a) in cases of hardship, including a process for ap-
plying for such a waiver.’’. 
(b) INFORMATION REPORTING.— 
(1) IN GENERAL.—Subpart B of part III of 
subchapter A of chapter 61 of such Code is amended 
by inserting after section 6050W the following new 
section: 
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305 
‘‘SEC. 6050X. RETURNS RELATING TO HEALTH INSURANCE 
COVERAGE. 
‘‘(a) REQUIREMENT OF REPORTING.—Every person 
who provides acceptable coverage (as defined in section 
59B(d)) to any individual during any calendar year shall, 
at such time as the Secretary may prescribe, make the 
return described in subsection (b) with respect to such in-
dividual. 
‘‘(b) FORM AND MANNER OF RETURNS.—A return 
is described in this subsection if such return— 
‘‘(1) is in such form as the Secretary may pre-
scribe, and 
‘‘(2) contains— 
‘‘(A) the name, address, and TIN of the 
primary insured and the name of each other in-
dividual obtaining coverage under the policy, 
‘‘(B) the period for which each such indi-
vidual was provided with the coverage referred 
to in subsection (a), and 
‘‘(C) such other information as the Sec-
retary may require. 
‘‘(c) STATEMENTS TO BE FURNISHED TO INDIVID-
UALS WITH RESPECT TO WHOM INFORMATION IS RE-
QUIRED.—Every person required to make a return under 
subsection (a) shall furnish to each primary insured whose 
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306 
name is required to be set forth in such return a written 
statement showing— 
‘‘(1) the name and address of the person re-
quired to make such return and the phone number 
of the information contact for such person, and 
‘‘(2) the information required to be shown on 
the return with respect to such individual. 
The written statement required under the preceding sen-
tence shall be furnished on or before January 31 of the 
year following the calendar year for which the return 
under subsection (a) is required to be made. 
‘‘(d) COVERAGE
PROVIDED
BY
GOVERNMENTAL 
UNITS.—In the case of coverage provided by any govern-
mental unit or any agency or instrumentality thereof, the 
officer or employee who enters into the agreement to pro-
vide such coverage (or the person appropriately designated 
for purposes of this section) shall make the returns and 
statements required by this section.’’. 
(2) PENALTY FOR FAILURE TO FILE.— 
(A) RETURN.—Subparagraph (B) of sec-
tion 6724(d)(1) of such Code is amended by 
striking ‘‘or’’ at the end of clause (xxii), by 
striking ‘‘and’’ at the end of clause (xxiii) and 
inserting ‘‘or’’, and by adding at the end the 
following new clause: 
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308 
(2) The table of sections for subpart B of part 
III of subchapter A of chapter 61 is amended by 
adding at the end the following new item: 
‘‘Sec. 6050X. Returns relating to health insurance coverage.’’. 
(e) SECTION 15 NOT TO APPLY.—The amendment 
made by subsection (a) shall not be treated as a change 
in a rate of tax for purposes of section 15 of the Internal 
Revenue Code of 1986. 
(f) EFFECTIVE DATE.— 
(1) IN GENERAL.—The amendments made by 
this section shall apply to taxable years beginning 
after December 31, 2012. 
(2) RETURNS.—The amendments made by sub-
section (b) shall apply to calendar years beginning 
after December 31, 2012. 
Subpart B—Employer Responsibility 
SEC. 511. ELECTION TO SATISFY HEALTH COVERAGE PAR-
TICIPATION REQUIREMENTS. 
(a) IN GENERAL.—Chapter 43 of the Internal Rev-
enue Code of 1986 is amended by adding at the end the 
following new section: 
‘‘SEC. 4980H. ELECTION WITH RESPECT TO HEALTH COV-
ERAGE PARTICIPATION REQUIREMENTS. 
‘‘(a) ELECTION OF EMPLOYER RESPONSIBILITY TO 
PROVIDE HEALTH COVERAGE.— 
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309 
‘‘(1) IN GENERAL.—Subsection (b) shall apply 
to any employer with respect to whom an election 
under paragraph (2) is in effect. 
‘‘(2) TIME AND MANNER.—An employer may 
make an election under this paragraph at such time 
and in such form and manner as the Secretary may 
prescribe. 
‘‘(3) AFFILIATED GROUPS.—In the case of any 
employer which is part of a group of employers who 
are treated as a single employer under subsection 
(b), (c), (m), or (o) of section 414, the election 
under paragraph (2) shall be made by such person 
as the Secretary may provide. Any such election, 
once made, shall apply to all members of such 
group. 
‘‘(4) SEPARATE
ELECTIONS.—Under regula-
tions prescribed by the Secretary, separate elections 
may be made under paragraph (2) with respect to— 
‘‘(A) separate lines of business, and 
‘‘(B) full-time employees and employees 
who are not full-time employees. 
‘‘(5) TERMINATION OF ELECTION IN CASES OF 
SUBSTANTIAL
NONCOMPLIANCE.—The 
Secretary 
may terminate the election of any employer under 
paragraph (2) if the Secretary (in coordination with 
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310 
the Health Choices Commissioner) determines that 
such employer is in substantial noncompliance with 
the health coverage participation requirements. 
‘‘(b) EXCISE TAX WITH RESPECT TO FAILURE TO 
MEET HEALTH COVERAGE PARTICIPATION REQUIRE-
MENTS.— 
‘‘(1) IN GENERAL.—In the case of any employer 
who fails (during any period with respect to which 
the election under subsection (a) is in effect) to sat-
isfy the health coverage participation requirements 
with respect to any employee to whom such election 
applies, there is hereby imposed on each such failure 
with respect to each such employee a tax of $100 for 
each day in the period beginning on the date such 
failure first occurs and ending on the date such fail-
ure is corrected. 
‘‘(2) LIMITATIONS ON AMOUNT OF TAX.— 
‘‘(A) TAX NOT TO APPLY WHERE FAILURE 
NOT
DISCOVERED
EXERCISING
REASONABLE 
DILIGENCE.—No tax shall be imposed by para-
graph (1) on any failure during any period for 
which it is established to the satisfaction of the 
Secretary that the employer neither knew, nor 
exercising reasonable diligence would have 
known, that such failure existed. 
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311 
‘‘(B) TAX
NOT
TO
APPLY
TO
FAILURES 
CORRECTED WITHIN 30 DAYS.—No tax shall be 
imposed by paragraph (1) on any failure if— 
‘‘(i) such failure was due to reason-
able cause and not to willful neglect, and 
‘‘(ii) such failure is corrected during 
the 30-day period beginning on the 1st 
date that the employer knew, or exercising 
reasonable diligence would have known, 
that such failure existed. 
‘‘(C) OVERALL LIMITATION FOR UNINTEN-
TIONAL
FAILURES.—In the case of failures 
which are due to reasonable cause and not to 
willful neglect, the tax imposed by subsection 
(a) for failures during the taxable year of the 
employer shall not exceed the amount equal to 
the lesser of— 
‘‘(i) 10 percent of the aggregate 
amount paid or incurred by the employer 
(or predecessor employer) during the pre-
ceding taxable year for employment-based 
health plans, or 
‘‘(ii) $500,000. 
‘‘(D) COORDINATION
WITH
OTHER
EN-
FORCEMENT
PROVISIONS.—The tax imposed 
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312 
under paragraph (1) with respect to any failure 
shall be reduced (but not below zero) by the 
amount of any civil penalty collected under sec-
tion 502(c)(11) of the Employee Retirement In-
come Security Act of 1974 or section 2793(g) 
of the Public Health Service Act with respect to 
such failure. 
‘‘(c) HEALTH COVERAGE PARTICIPATION REQUIRE-
MENTS.—For purposes of this section, the term ‘health 
coverage participation requirements’ means the require-
ments of part I of subtitle B of title IV of the (as in effect 
on the date of the enactment of this section).’’. 
(b) CLERICAL AMENDMENT.—The table of sections 
for chapter 43 of such Code is amended by adding at the 
end the following new item: 
‘‘Sec. 4980H. Election with respect to health coverage participation require-
ments.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to periods beginning after Decem-
ber 31, 2012. 
SEC. 
512. 
HEALTH 
CARE 
CONTRIBUTIONS 
OF 
NON-
ELECTING EMPLOYERS. 
(a) IN GENERAL.—Section 3111 of the Internal Rev-
enue Code of 1986 is amended by redesignating subsection 
(c) as subsection (d) and by inserting after subsection (b) 
the following new subsection: 
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313 
‘‘(c) EMPLOYERS
ELECTING
NOT
TO
PROVIDE 
HEALTH BENEFITS.— 
‘‘(1) IN GENERAL.—In addition to other taxes, 
there is hereby imposed on every nonelecting em-
ployer an excise tax, with respect to having individ-
uals in his employ, equal to 8 percent of the wages 
(as defined in section 3121(a)) paid by him with re-
spect to employment (as defined in section 3121(b)). 
‘‘(2) SPECIAL
RULES
FOR
SMALL
EMPLOY-
ERS.— 
‘‘(A) IN GENERAL.—In the case of any em-
ployer who is small employer for any calendar 
year, paragraph (1) shall be applied by sub-
stituting the applicable percentage determined 
in accordance with the following table for ‘8 
percent’: 
‘‘If the annual payroll of such employer for 
the preceding calendar year: 
The applicable 
percentage is: 
Does not exceed $500,000 .....................................
0 percent 
Exceeds $500,000, but does not exceed $585,000 
2 percent 
Exceeds $585,000, but does not exceed $670,000 
4 percent 
Exceeds $670,000, but does not exceed $750,000 
6 percent 
‘‘(B) SMALL EMPLOYER.—For purposes of 
this paragraph, the term ‘small employer’ 
means any employer for any calendar year if 
the annual payroll of such employer for the pre-
ceding calendar year does not exceed $750,000. 
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‘‘(C) ANNUAL PAYROLL.—For purposes of 
this paragraph, the term ‘annual payroll’ 
means, with respect to any employer for any 
calendar year, the aggregate wages (as defined 
in section 3121(a)) paid by him with respect to 
employment (as defined in section 3121(b)) 
during such calendar year. 
‘‘(3) NONELECTING EMPLOYER.—For purposes 
of paragraph (1), the term ‘nonelecting employer’ 
means any employer for any period with respect to 
which such employer does not have an election under 
section 4980H(a) in effect. 
‘‘(4) SPECIAL
RULE
FOR
SEPARATE
ELEC-
TIONS.—In the case of an employer who makes a 
separate election described in section 4980H(a)(4) 
for any period, paragraph (1) shall be applied for 
such period by taking into account only the wages 
paid to employees who are not subject to such elec-
tion. 
‘‘(5) AGGREGATION; PREDECESSORS.—For pur-
poses of this subsection— 
‘‘(A) all persons treated as a single em-
ployer under subsection (b), (c), (m), or (o) of 
section 414 shall be treated as 1 employer, and 
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315 
‘‘(B) any reference to any person shall be 
treated as including a reference to any prede-
cessor of such person.’’. 
(b) DEFINITIONS.—Section 3121 of such Code is 
amended by adding at the end the following new sub-
section: 
‘‘(aa) SPECIAL RULES
FOR TAX
ON EMPLOYERS 
ELECTING NOT TO PROVIDE HEALTH BENEFITS.—For 
purposes of section 3111(c)— 
‘‘(1) Paragraphs (1), (5), and (19) of sub-
section (b) shall not apply. 
‘‘(2) Paragraph (7) of subsection (b) shall apply 
by treating all services as not covered by the retire-
ment systems referred to in subparagraphs (C) and 
(F) thereof. 
‘‘(3) Subsection (e) shall not apply and the 
term ‘State’ shall include the District of Columbia.’’. 
(c) CONFORMING AMENDMENT.—Subsection (d) of 
section 3111 of such Code, as redesignated by this section, 
is amended by striking ‘‘this section’’ and inserting ‘‘sub-
sections (a) and (b)’’. 
(d) APPLICATION TO RAILROADS.— 
(1) IN GENERAL.—Section 3221 of such Code 
is amended by redesignating subsection (c) as sub-
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316 
section (d) and by inserting after subsection (b) the 
following new subsection: 
‘‘(c) EMPLOYERS
ELECTING
NOT
TO
PROVIDE 
HEALTH BENEFITS.— 
‘‘(1) IN GENERAL.—In addition to other taxes, 
there is hereby imposed on every nonelecting em-
ployer an excise tax, with respect to having individ-
uals in his employ, equal to 8 percent of the com-
pensation paid during any calendar year by such em-
ployer for services rendered to such employer. 
‘‘(2) EXCEPTION
FOR
SMALL
EMPLOYERS.— 
Rules similar to the rules of section 3111(c)(2) shall 
apply for purposes of this subsection. 
‘‘(3) NONELECTING EMPLOYER.—For purposes 
of paragraph (1), the term ‘nonelecting employer’ 
means any employer for any period with respect to 
which such employer does not have an election under 
section 4980H(a) in effect. 
‘‘(4) SPECIAL
RULE
FOR
SEPARATE
ELEC-
TIONS.—In the case of an employer who makes a 
separate election described in section 4980H(a)(4) 
for any period, subsection (a) shall be applied for 
such period by taking into account only the com-
pensation paid to employees who are not subject to 
such election.’’. 
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317 
(2) DEFINITIONS.—Subsection (e) of section 
3231 of such Code is amended by adding at the end 
the following new paragraph: 
‘‘(13) SPECIAL RULES FOR TAX ON EMPLOYERS 
ELECTING NOT TO PROVIDE HEALTH BENEFITS.— 
For purposes of section 3221(c)— 
‘‘(A) Paragraph (1) shall be applied with-
out regard to the third sentence thereof. 
‘‘(B) Paragraph (2) shall not apply.’’. 
(3) CONFORMING AMENDMENT.—Subsection (d) 
of section 3221 of such Code, as redesignated by 
this section, is amended by striking ‘‘subsections (a) 
and (b), see section 3231(e)(2)’’ and inserting ‘‘this 
section, see paragraphs (2) and (13)(B) of section 
3231(e)’’. 
(e) EFFECTIVE DATE.—The amendments made by 
this section shall apply to periods beginning after Decem-
ber 31, 2012. 
PART 2—CREDIT FOR SMALL BUSINESS 
EMPLOYEE HEALTH COVERAGE EXPENSES 
SEC. 
521. 
CREDIT 
FOR 
SMALL 
BUSINESS 
EMPLOYEE 
HEALTH COVERAGE EXPENSES. 
(a) IN GENERAL.—Subpart D of part IV of sub-
chapter A of chapter 1 of the Internal Revenue Code of 
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318 
1986 (relating to business-related credits) is amended by 
adding at the end the following new section: 
‘‘SEC. 45R. SMALL BUSINESS EMPLOYEE HEALTH COV-
ERAGE CREDIT. 
‘‘(a) IN GENERAL.—For purposes of section 38, in 
the case of a qualified small employer, the small business 
employee health coverage credit determined under this sec-
tion for the taxable year is an amount equal to the applica-
ble percentage of the qualified employee health coverage 
expenses of such employer for such taxable year. 
‘‘(b) APPLICABLE PERCENTAGE.— 
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, the applicable percentage is 50 percent. 
‘‘(2) PHASEOUT
BASED
ON
AVERAGE
COM-
PENSATION OF EMPLOYEES.—In the case of an em-
ployer whose average annual employee compensation 
for the taxable year exceeds $20,000, the percentage 
specified in paragraph (1) shall be reduced by a 
number of percentage points which bears the same 
ratio to 50 as such excess bears to $20,000. 
‘‘(c) LIMITATIONS.— 
‘‘(1) PHASEOUT BASED ON EMPLOYER SIZE.— 
In the case of an employer who employs more than 
10 qualified employees during the taxable year, the 
credit determined under subsection (a) shall be re-
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319 
duced by an amount which bears the same ratio to 
the amount of such credit (determined without re-
gard to this paragraph and after the application of 
the other provisions of this section) as— 
‘‘(A) the excess of— 
‘‘(i) the number of qualified employees 
employed by the employer during the tax-
able year, over 
‘‘(ii) 10, bears to 
‘‘(B) 15. 
‘‘(2) CREDIT NOT ALLOWED WITH RESPECT TO 
CERTAIN HIGHLY COMPENSATED EMPLOYEES.—No 
credit shall be determined under subsection (a) with 
respect to qualified employee health coverage ex-
penses paid or incurred with respect to any employee 
for any taxable year if the aggregate compensation 
paid by the employer to such employee during such 
taxable year exceeds $80,000. 
‘‘(3) CREDIT ALLOWED FOR ONLY 2 TAXABLE 
YEARS.—No credit shall be determined under sub-
section (a) with respect to any employer for any tax-
able year unless the employer elects to have this sec-
tion apply for such taxable year. An employer may 
elect the application of this section with respect to 
not more than 2 taxable years. 
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322 
‘‘(f) SPECIAL RULES.—For purposes of this sec-
tion— 
‘‘(1) SPECIAL RULE FOR PARTNERSHIPS AND 
SELF-EMPLOYED.—In the case of a partnership (or 
a trade or business carried on by an individual) 
which has one or more qualified employees (deter-
mined without regard to this paragraph) with re-
spect to whom the election under section 4980H(a) 
applies, each partner (or, in the case of a trade or 
business carried on by an individual, such indi-
vidual) shall be treated as an employee. 
‘‘(2) AGGREGATION RULE.—All persons treated 
as a single employer under subsection (b), (c), (m), 
or (o) of section 414 shall be treated as 1 employer. 
‘‘(3) PREDECESSORS.—Any reference in this 
section to an employer shall include a reference to 
any predecessor of such employer. 
‘‘(4) DENIAL OF DOUBLE BENEFIT.—Any de-
duction otherwise allowable with respect to amounts 
paid or incurred for health insurance coverage to 
which subsection (a) applies shall be reduced by the 
amount of the credit determined under this section. 
‘‘(5) INFLATION ADJUSTMENT.—In the case of 
any taxable year beginning after 2013, each of the 
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323 
dollar amounts in subsections (b)(2), (c)(2), and 
(e)(2) shall be increased by an amount equal to— 
‘‘(A) such dollar amount, multiplied by 
‘‘(B) the cost of living adjustment deter-
mined under section 1(f)(3) for the calendar 
year in which the taxable year begins deter-
mined by substituting ‘calendar year 2012’ for 
‘calendar year 1992’ in subparagraph (B) 
thereof. 
If any increase determined under this paragraph is 
not a multiple of $50, such increase shall be rounded 
to the next lowest multiple of $50.’’. 
(b) CREDIT TO BE PART OF GENERAL BUSINESS 
CREDIT.—Subsection (b) of section 38 of such Code (re-
lating to general business credit) is amended by striking 
‘‘plus’’ at the end of paragraph (34), by striking the period 
at the end of paragraph (35) and inserting ‘‘, plus’’ , and 
by adding at the end the following new paragraph: 
‘‘(36) in the case of a qualified small employer 
(as defined in section 45R(e)), the small business 
employee health coverage credit determined under 
section 45R(a).’’. 
(c) CLERICAL AMENDMENT.—The table of sections 
for subpart D of part IV of subchapter A of chapter 1 
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of such Code is amended by inserting after the item relat-
ing to section 45Q the following new item: 
‘‘Sec. 45R. Small business employee health coverage credit.’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2012. 
PART 3—LIMITATIONS ON HEALTH CARE 
RELATED EXPENDITURES 
SEC. 531. DISTRIBUTIONS FOR MEDICINE QUALIFIED ONLY 
IF FOR PRESCRIBED DRUG OR INSULIN. 
(a) HSAS.—Subparagraph (A) of section 223(d)(2) 
of the Internal Revenue Code of 1986 is amended by add-
ing at the end the following: ‘‘Such term shall include an 
amount paid for medicine or a drug only if such medicine 
or drug is a prescribed drug or is insulin.’’. 
(b) ARCHER MSAS.—Subparagraph (A) of section 
220(d)(2) of such Code is amended by adding at the end 
the following: ‘‘Such term shall include an amount paid 
for medicine or a drug only if such medicine or drug is 
a prescribed drug or is insulin.’’. 
(c) HEALTH FLEXIBLE SPENDING ARRANGEMENTS 
AND HEALTH REIMBURSEMENT ARRANGEMENTS.—Sec-
tion 106 of such Code is amended by adding at the end 
the following new subsection: 
‘‘(f) REIMBURSEMENTS FOR MEDICINE RESTRICTED 
TO PRESCRIBED DRUGS AND INSULIN.—For purposes of 
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this section and section 105, reimbursement for expenses 
incurred for a medicine or a drug shall be treated as a 
reimbursement for medical expenses only if such medicine 
or drug is a prescribed drug or is insulin.’’. 
(d) EFFECTIVE DATES.—The amendment made by 
this section shall apply to expenses incurred after Decem-
ber 31, 2010. 
SEC. 532. LIMITATION ON HEALTH FLEXIBLE SPENDING AR-
RANGEMENTS UNDER CAFETERIA PLANS. 
(a) IN GENERAL.—Section 125 of the Internal Rev-
enue Code of 1986 is amended— 
(1) by redesignating subsections (i) and (j) as 
subsections (j) and (k), respectively, and 
(2) by inserting after subsection (h) the fol-
lowing new subsection: 
‘‘(i) LIMITATION ON HEALTH FLEXIBLE SPENDING 
ARRANGEMENTS.— 
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, if a benefit is provided under a cafeteria plan 
through employer contributions to a health flexible 
spending arrangement, such benefit shall not be 
treated as a qualified benefit unless the cafeteria 
plan provides that an employee may not elect for 
any taxable year to have salary reduction contribu-
tions in excess of $2,500 made to such arrangement. 
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‘‘(2) INFLATION ADJUSTMENT.—In the case of 
any taxable year beginning after 2013, the dollar 
amount in paragraph (1) shall be increased by an 
amount equal to— 
‘‘(A) such dollar amount, multiplied by 
‘‘(B) the cost of living adjustment deter-
mined under section 1(f)(3) for the calendar 
year in which the taxable year begins deter-
mined by substituting ‘calendar year 2012’ for 
‘calendar year 1992’ in subparagraph (B) 
thereof. 
If any increase determined under this paragraph is 
not a multiple of $50, such increase shall be rounded 
to the next lowest multiple of $50.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2012. 
SEC. 533. INCREASE IN PENALTY FOR NONQUALIFIED DIS-
TRIBUTIONS FROM HEALTH SAVINGS AC-
COUNTS. 
(a) IN GENERAL.—Subparagraph (A) of section 
223(f)(4) of the Internal Revenue Code of 1986 is amend-
ed by striking ‘‘10 percent’’ and inserting ‘‘20 percent’’. 
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(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
December 31, 2010. 
SEC. 534. DENIAL OF DEDUCTION FOR FEDERAL SUBSIDIES 
FOR PRESCRIPTION DRUG PLANS WHICH 
HAVE BEEN EXCLUDED FROM GROSS IN-
COME. 
(a) IN GENERAL.—Section 139A of the Internal Rev-
enue Code of 1986 is amended by striking the second sen-
tence. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
December 31, 2010. 
PART 4—OTHER PROVISIONS TO CARRY OUT 
HEALTH INSURANCE REFORM 
SEC. 541. DISCLOSURES TO CARRY OUT HEALTH INSUR-
ANCE EXCHANGE SUBSIDIES. 
(a) IN GENERAL.—Subsection (l) of section 6103 of 
the Internal Revenue Code of 1986 is amended by adding 
at the end the following new paragraph: 
‘‘(21) DISCLOSURE OF RETURN INFORMATION 
TO CARRY OUT HEALTH INSURANCE EXCHANGE SUB-
SIDIES.— 
‘‘(A) IN GENERAL.—The Secretary, upon 
written request from the Health Choices Com-
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missioner or the head of a State-based health 
insurance exchange approved for operation 
under section 308 of the , shall disclose to offi-
cers and employees of the Health Choices Ad-
ministration or such State-based health insur-
ance exchange, as the case may be, return in-
formation of any taxpayer whose income is rel-
evant in determining any affordability credit de-
scribed in subtitle C of title III of the . Such 
return information shall be limited to— 
‘‘(i) taxpayer identity information 
with respect to such taxpayer, 
‘‘(ii) the filing status of such tax-
payer, 
‘‘(iii) the modified adjusted gross in-
come of such taxpayer (as defined in sec-
tion 59B(e)(5)), 
‘‘(iv) the number of dependents of the 
taxpayer, 
‘‘(v) such other information as is pre-
scribed by the Secretary by regulation as 
might indicate whether the taxpayer is eli-
gible for such affordability credits (and the 
amount thereof), and 
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‘‘(vi) the taxable year with respect to 
which the preceding information relates or, 
if applicable, the fact that such informa-
tion is not available. 
‘‘(B) RESTRICTION ON USE OF DISCLOSED 
INFORMATION.—Return information disclosed 
under subparagraph (A) may be used by offi-
cers and employees of the Health Choices Ad-
ministration or such State-based health insur-
ance exchange, as the case may be, only for the 
purposes of, and to the extent necessary in, es-
tablishing and verifying the appropriate amount 
of any affordability credit described in subtitle 
C of title III of the and providing for the repay-
ment of any such credit which was in excess of 
such appropriate amount.’’. 
(b) PROCEDURES AND RECORDKEEPING RELATED 
TO DISCLOSURES.—Paragraph (4) of section 6103(p) of 
such Code is amended— 
(1) by inserting ‘‘, or any entity described in 
subsection (l)(21),’’ after ‘‘or (20)’’ in the matter 
preceding subparagraph (A), 
(2) by inserting ‘‘or any entity described in sub-
section (l)(21),’’ after ‘‘or (o)(1)(A),’’ in subpara-
graph (F)(ii), and 
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(3) by inserting ‘‘or any entity described in sub-
section (l)(21),’’ after ‘‘or (20),’’ both places it ap-
pears in the matter after subparagraph (F). 
(c) UNAUTHORIZED DISCLOSURE OR INSPECTION.— 
Paragraph (2) of section 7213(a) of such Code is amended 
by striking ‘‘or (20)’’ and inserting ‘‘(20), or (21)’’. 
SEC. 
542. 
OFFERING 
OF 
EXCHANGE-PARTICIPATING 
HEALTH BENEFITS PLANS THROUGH CAFE-
TERIA PLANS. 
(a) IN GENERAL.—Subsection (f) of section 125 of 
the Internal Revenue Code of 1986 is amended by adding 
at the end the following new paragraph: 
‘‘(3) 
CERTAIN
EXCHANGE-PARTICIPATING 
HEALTH BENEFITS PLANS NOT QUALIFIED.— 
‘‘(A) IN
GENERAL.—The term ‘qualified 
benefit’ shall not include any exchange-partici-
pating health benefits plan (as defined in sec-
tion 101(c) of the ). 
‘‘(B) EXCEPTION
FOR
EXCHANGE-ELIGI-
BLE EMPLOYERS.—Subparagraph (A) shall not 
apply with respect to any employee if such em-
ployee’s employer is an exchange-eligible em-
ployer (as defined in section 302 of the ).’’. 
(b) CONFORMING AMENDMENTS.—Subsection (f) of 
section 125 of such Code is amended— 
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(1) by striking ‘‘For purposes of this section, 
the term’’ and inserting ‘‘For purposes of this sec-
tion— 
‘‘(1) IN GENERAL.—The term’’, and 
(2) by striking ‘‘Such term shall not include’’ 
and inserting the following: 
‘‘(2) LONG-TERM CARE INSURANCE NOT QUALI-
FIED.—The term ‘qualified benefit’ shall not in-
clude’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2012. 
SEC. 543. EXCLUSION FROM GROSS INCOME OF PAYMENTS 
MADE UNDER REINSURANCE PROGRAM FOR 
RETIREES. 
(a) IN GENERAL.—Section 139A of the Internal Rev-
enue Code of 1986 is amended— 
(1) by striking ‘‘Gross income’’ and inserting 
the following: 
‘‘(a) FEDERAL SUBSIDIES FOR PRESCRIPTION DRUG 
PLANS.—Gross income’’, and 
(2) by adding at the end the following new sub-
section: 
‘‘(b) FEDERAL REINSURANCE PROGRAM FOR RETIR-
EES.—A rule similar to the rule of subsection (a) shall 
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apply with respect to payments made under section 111 
of the Affordable Health Care for America Act.’’. 
(b) CONFORMING AMENDMENT.—The heading of sec-
tion 139A of such Code (and the item relating to such 
section in the table of sections for part III of subchapter 
B of chapter 1 of such Code) is amended by inserting 
‘‘AND RETIREE HEALTH PLANS’’ after ‘‘PRESCRIP-
TION DRUG PLANS’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years ending after the 
date of the enactment of this Act. 
SEC. 544. CLASS PROGRAM TREATED IN SAME MANNER AS 
LONG-TERM CARE INSURANCE. 
(a) IN GENERAL.—Subsection (f) of section 7702B 
of the Internal Revenue Code of 1986 is amended— 
(1) by striking ‘‘State long-term care plan’’ in 
paragraph (1)(A) and inserting ‘‘government long- 
term care plan’’, 
(2) by redesignating paragraph (2) as para-
graph (3), and 
(3) by inserting after paragraph (2) the fol-
lowing new paragraph: 
‘‘(2) GOVERNMENT LONG-TERM CARE PLAN.— 
For purposes of this subsection, the term ‘govern-
ment long-term care plan’ means— 
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‘‘(A) the CLASS program established 
under title XXXII of the Public Health Service 
Act, and 
‘‘(B) any State long-term care plan.’’. 
(b) CONFORMING AMENDMENTS.— 
(1) Paragraph (3) of section 7702B(f) of such 
Code, as redesignated by subsection (a), is amended 
by striking ‘‘paragraph (1)’’ and inserting ‘‘this sub-
section’’. 
(2) Subsection (f) of section 7702(B) of such 
Code is amended by striking ‘‘STATE-MAINTAINED’’ 
in the heading thereof and inserting ‘‘GOVERN-
MENT’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years ending after De-
cember 31, 2010. 
SEC. 545. EXCLUSION FROM GROSS INCOME FOR MEDICAL 
CARE PROVIDED FOR INDIANS. 
(a) IN GENERAL.—Part III of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to 
items specifically excluded from gross income) is amended 
by inserting after section 139C the following new section: 
‘‘SEC. 139D. MEDICAL CARE PROVIDED FOR INDIANS. 
‘‘(a) IN GENERAL.—Gross income does not include— 
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‘‘(1) health services or benefits provided or pur-
chased by the Indian Health Service, either directly 
or indirectly, through a grant to or a contract or 
compact with an Indian tribe or tribal organization 
or through programs of third parties funded by the 
Indian Health Service, 
‘‘(2) medical care provided by an Indian tribe 
or tribal organization to a member of an Indian 
tribe (including for this purpose, to the member’s 
spouse or dependents) through any one of the fol-
lowing: provided or purchased medical care services; 
accident or health insurance (or an arrangement 
having the effect of accident or health insurance); or 
amounts paid, directly or indirectly, to reimburse the 
member for expenses incurred for medical care, 
‘‘(3) the value of accident or health plan cov-
erage provided by an Indian tribe or tribal organiza-
tion for medical care to a member of an Indian tribe 
(including for this purpose, coverage that extends to 
such member’s spouse or dependents) under an acci-
dent or health plan (or through an arrangement hav-
ing the effect of accident or health insurance), and 
‘‘(4) any other medical care provided by an In-
dian tribe that supplements, replaces, or substitutes 
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for the programs and services provided by the Fed-
eral Government to Indian tribes or Indians. 
‘‘(b) DEFINITIONS.—For purposes of this section— 
‘‘(1) IN
GENERAL.—The terms ‘accident or 
health insurance’ and ‘accident or health plan’ have 
the same meaning as when used in sections 104 and 
106. 
‘‘(2) MEDICAL CARE.—The term ‘medical care’ 
has the meaning given such term in section 213. 
‘‘(3) DEPENDENT.—The term ‘dependent’ has 
the meaning given such term in section 152, deter-
mined without regard to subsections (b)(1), (b)(2), 
and (d)(1)(B). 
‘‘(4) INDIAN TRIBE.—The term ‘Indian tribe’ 
means any Indian tribe, band, nation, pueblo, or 
other organized group or community, including any 
Alaska Native village, or regional or village corpora-
tion, as defined in, or established pursuant to, the 
Alaska Native Claims Settlement Act (43 U.S.C. 
1601 et seq.), which is recognized as eligible for the 
special programs and services provided by the 
United States to Indians because of their status as 
Indians. 
‘‘(5) TRIBAL ORGANIZATION.—The term ‘tribal 
organization’ has the meaning given such term in 
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section 4(l) of the Indian Self-Determination and 
Education Assistance Act (25 U.S.C. 450b(l)).’’. 
(b) CLERICAL AMENDMENT.—The table of sections 
for such part III is amended by inserting after the item 
relating to section 139C the following new item: 
‘‘Sec. 139D. Medical care provided for Indians.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to health benefits and coverage 
provided after the date of enactment of this Act. 
(d) NO INFERENCE.—Nothing in the amendments 
made by this section shall be construed to create an infer-
ence with respect to the exclusion from gross income of— 
(1) benefits provided by Indian tribes that are 
not within the scope of this section, and 
(2) health benefits or coverage provided by In-
dian tribes prior to the effective date of this section. 
Subtitle B—Other Revenue 
Provisions 
PART 1—GENERAL PROVISIONS 
SEC. 551. SURCHARGE ON HIGH INCOME INDIVIDUALS. 
(a) IN GENERAL.—Part VIII of subchapter A of 
chapter 1 of the Internal Revenue Code of 1986, as added 
by this title, is amended by adding at the end the following 
new subpart: 
‘‘Subpart B—Surcharge on High Income Individuals 
‘‘Sec. 59C. Surcharge on high income individuals. 
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‘‘SEC. 59C. SURCHARGE ON HIGH INCOME INDIVIDUALS. 
‘‘(a) GENERAL RULE.—In the case of a taxpayer 
other than a corporation, there is hereby imposed (in addi-
tion to any other tax imposed by this subtitle) a tax equal 
to 5.4 percent of so much of the modified adjusted gross 
income of the taxpayer as exceeds $1,000,000. 
‘‘(b) TAXPAYERS NOT MAKING A JOINT RETURN.— 
In the case of any taxpayer other than a taxpayer making 
a joint return under section 6013 or a surviving spouse 
(as defined in section 2(a)), subsection (a) shall be applied 
by substituting ‘$500,000’ for ‘$1,000,000’. 
‘‘(c) MODIFIED ADJUSTED GROSS INCOME.—For 
purposes of this section, the term ‘modified adjusted gross 
income’ means adjusted gross income reduced by any de-
duction (not taken into account in determining adjusted 
gross income) allowed for investment interest (as defined 
in section 163(d)). In the case of an estate or trust, ad-
justed gross income shall be determined as provided in sec-
tion 67(e). 
‘‘(d) SPECIAL RULES.— 
‘‘(1) NONRESIDENT ALIEN.—In the case of a 
nonresident alien individual, only amounts taken 
into account in connection with the tax imposed 
under section 871(b) shall be taken into account 
under this section. 
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‘‘(2) 
CITIZENS
AND
RESIDENTS
LIVING 
ABROAD.—The dollar amount in effect under sub-
section (a) (after the application of subsection (b)) 
shall be decreased by the excess of— 
‘‘(A) the amounts excluded from the tax-
payer’s gross income under section 911, over 
‘‘(B) the amounts of any deductions or ex-
clusions disallowed under section 911(d)(6) 
with respect to the amounts described in sub-
paragraph (A). 
‘‘(3) CHARITABLE
TRUSTS.—Subsection (a) 
shall not apply to a trust all the unexpired interests 
in which are devoted to one or more of the purposes 
described in section 170(c)(2)(B). 
‘‘(4) NOT TREATED AS TAX IMPOSED BY THIS 
CHAPTER
FOR
CERTAIN
PURPOSES.—The tax im-
posed under this section shall not be treated as tax 
imposed by this chapter for purposes of determining 
the amount of any credit under this chapter or for 
purposes of section 55.’’. 
(b) CLERICAL AMENDMENT.—The table of subparts 
for part VIII of subchapter A of chapter 1 of such Code, 
as added by this title, is amended by inserting after the 
item relating to subpart A the following new item: 
‘‘SUBPART B. SURCHARGE ON HIGH INCOME INDIVIDUALS.’’. 
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(c) SECTION 15 NOT TO APPLY.—The amendment 
made by subsection (a) shall not be treated as a change 
in a rate of tax for purposes of section 15 of the Internal 
Revenue Code of 1986. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2010. 
SEC. 552. EXCISE TAX ON MEDICAL DEVICES. 
(a) IN GENERAL.—Chapter 31 of the Internal Rev-
enue Code of 1986 is amended by adding at the end the 
following new subchapter: 
‘‘Subchapter D—Medical Devices 
‘‘Sec. 4061. Medical devices. 
‘‘SEC. 4061. MEDICAL DEVICES. 
‘‘(a) IN GENERAL.—There is hereby imposed on the 
first taxable sale of any medical device a tax equal to 2.5 
percent of the price for which so sold. 
‘‘(b) FIRST TAXABLE SALE.—For purposes of this 
section— 
‘‘(1) IN
GENERAL.—The term ‘first taxable 
sale’ means the first sale, for a purpose other than 
for resale, after production, manufacture, or impor-
tation. 
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‘‘(2) EXCEPTION FOR SALES AT RETAIL ESTAB-
LISHMENTS.—Such term shall not include the sale 
of any medical device if— 
‘‘(A) such sale is made at a retail estab-
lishment on terms which are available to the 
general public, and 
‘‘(B) such medical device is of a type (and 
purchased in a quantity) which is purchased by 
the general public. 
‘‘(3) EXCEPTION
FOR
EXPORTS, ETC.—Rules 
similar to the rules of sections 4221 (other than 
paragraphs (3), (4), (5), and (6) of subsection (a) 
thereof) and 4222 shall apply for purposes of this 
section. To the extent provided by the Secretary, 
section 4222 may be extended to, and made applica-
ble with respect to, the exemption provided by para-
graph (2). 
‘‘(4) SALES TO PATIENTS NOT TREATED AS RE-
SALES.—If a medical device is sold for use in con-
nection with providing any health care service to an 
individual, such sale shall not be treated as being for 
the purpose of resale (even if such device is sold to 
such individual). 
‘‘(c) OTHER DEFINITIONS AND SPECIAL RULES.— 
For purposes of this section— 
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‘‘(1) MEDICAL DEVICE.—The term ‘medical de-
vice’ means any device (as defined in section 201(h) 
of the Federal Food, Drug, and Cosmetic Act) in-
tended for humans. 
‘‘(2) LEASE TREATED AS SALE.—Rules similar 
to the rules of section 4217 shall apply. 
‘‘(3) USE TREATED AS SALE.— 
‘‘(A) IN GENERAL.—If any person uses a 
medical device before the first taxable sale of 
such device, then such person shall be liable for 
tax under such subsection in the same manner 
as if such use were the first taxable sale of such 
device. 
‘‘(B) EXCEPTIONS.—The preceding sen-
tence shall not apply to— 
‘‘(i) use of a medical device as mate-
rial in the manufacture or production of, 
or as a component part of, another medical 
device to be manufactured or produced by 
such person, or 
‘‘(ii) use of a medical device after a 
sale described in subsection (b)(2). 
‘‘(4) DETERMINATION OF PRICE.— 
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‘‘(A) IN GENERAL.—Rules similar to the 
rules of subsections (a), (c), and (d) of section 
4216 shall apply for purposes of this section. 
‘‘(B) CONSTRUCTIVE SALE PRICE.—If— 
‘‘(i) a medical device is sold (otherwise 
than through an arm’s length transaction) 
at less than the fair market price, or 
‘‘(ii) a person is liable for tax for a 
use described in paragraph (3), 
the tax under this section shall be computed on 
the price for which such or similar devices are 
sold in the ordinary course of trade as deter-
mined by the Secretary. 
‘‘(5) RESALES
PURSUANT
TO
CERTAIN
CON-
TRACT ARRANGEMENTS.— 
‘‘(A) IN GENERAL.—In the case of a speci-
fied contract sale of a medical device, the seller 
referred to in subparagraph (B)(i) shall be enti-
tled to recover from the producer, manufac-
turer, or importer referred to in subparagraph 
(B)(ii) the amount of the tax paid by such sell-
er under this section with respect to such sale. 
‘‘(B) SPECIFIED
CONTRACT
SALE.—For 
purposes of this paragraph, the term ‘specified 
contract sale’ means, with respect to any med-
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343 
ical device, the first taxable sale of such device 
if— 
‘‘(i) the seller is not the producer, 
manufacturer, or importer of such device, 
‘‘(ii) the price at which such device is 
so sold is determined in accordance with a 
contract between the producer, manufac-
turer, or importer of such device and the 
person to whom such device is so sold. 
‘‘(C) SPECIAL RULES RELATED TO CRED-
ITS AND REFUNDS.—In the case of any credit 
or refund under section 6416 of the tax im-
posed under this section on a specified contract 
sale of a medical device— 
‘‘(i) such credit or refund shall be al-
lowed or made only if the seller has filed 
with the Secretary the written consent of 
the producer, manufacturer, or importer 
referred to in subparagraph (B)(ii) to the 
allowance of such credit or the making of 
such refund, and 
‘‘(ii) the amount of tax taken into ac-
count under subparagraph (A) shall be re-
duced by the amount of such credit or re-
fund.’’. 
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(b) CONFORMING AMENDMENTS.— 
(1) Paragraph (2) of section 6416(b) of such 
Code is amended— 
(A) by inserting ‘‘or 4061’’ after ‘‘under 
section 4051’’, and 
(B) by adding at the end the following: ‘‘In 
the case of the tax imposed by section 4061, 
subparagraphs (B), (C), (D), and (E) shall not 
apply.’’. 
(2) The table of subchapters for chapter 31 of 
such Code is amended by adding at the end the fol-
lowing new item: 
‘‘SUBCHAPTER D. MEDICAL DEVICES.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to sales (and leases and uses treat-
ed as sales) after December 31, 2012. 
SEC. 553. EXPANSION OF INFORMATION REPORTING RE-
QUIREMENTS. 
(a) IN GENERAL.—Section 6041 of the Internal Rev-
enue Code of 1986 is amended by adding at the end the 
following new subsections: 
‘‘(h) APPLICATION
TO CORPORATIONS.—Notwith-
standing any regulation prescribed by the Secretary before 
the date of the enactment of this subsection, for purposes 
of this section the term ‘person’ includes any corporation 
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that is not an organization exempt from tax under section 
501(a). 
‘‘(i) REGULATIONS.—The Secretary may prescribe 
such regulations and other guidance as may be appro-
priate or necessary to carry out the purposes of this sec-
tion, including rules to prevent duplicative reporting of 
transactions.’’. 
(b) PAYMENTS FOR PROPERTY AND OTHER GROSS 
PROCEEDS.—Subsection (a) of section 6041 of the Inter-
nal Revenue Code of 1986 is amended— 
(1) by inserting ‘‘amounts in consideration for 
property,’’ after ‘‘wages,’’, 
(2) by inserting ‘‘gross proceeds,’’ after ‘‘emolu-
ments, or other’’, and 
(3) by inserting ‘‘gross proceeds,’’ after ‘‘setting 
forth the amount of such’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to payments made after December 
31, 2011. 
SEC. 554. DELAY IN APPLICATION OF WORLDWIDE ALLOCA-
TION OF INTEREST. 
(a) IN GENERAL.—Paragraphs (5)(D) and (6) of sec-
tion 864(f) of the Internal Revenue Code of 1986 are each 
amended by striking ‘‘December 31, 2010’’ and inserting 
‘‘December 31, 2019’’. 
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(b) TRANSITION.—Subsection (f) of section 864 of 
such Code is amended by striking paragraph (7). 
PART 2—PREVENTION OF TAX AVOIDANCE 
SEC. 561. LIMITATION ON TREATY BENEFITS FOR CERTAIN 
DEDUCTIBLE PAYMENTS. 
(a) IN GENERAL.—Section 894 of the Internal Rev-
enue Code of 1986 (relating to income affected by treaty) 
is amended by adding at the end the following new sub-
section: 
‘‘(d) LIMITATION ON TREATY BENEFITS FOR CER-
TAIN DEDUCTIBLE PAYMENTS.— 
‘‘(1) IN GENERAL.—In the case of any deduct-
ible related-party payment, any withholding tax im-
posed under chapter 3 (and any tax imposed under 
subpart A or B of this part) with respect to such 
payment may not be reduced under any treaty of the 
United States unless any such withholding tax would 
be reduced under a treaty of the United States if 
such payment were made directly to the foreign par-
ent corporation. 
‘‘(2) 
DEDUCTIBLE
RELATED-PARTY
PAY-
MENT.—For purposes of this subsection, the term 
‘deductible related-party payment’ means any pay-
ment made, directly or indirectly, by any person to 
any other person if the payment is allowable as a de-
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duction under this chapter and both persons are 
members of the same foreign controlled group of en-
tities. 
‘‘(3) FOREIGN CONTROLLED GROUP OF ENTI-
TIES.—For purposes of this subsection— 
‘‘(A) IN
GENERAL.—The term ‘foreign 
controlled group of entities’ means a controlled 
group of entities the common parent of which 
is a foreign corporation. 
‘‘(B) CONTROLLED GROUP OF ENTITIES.— 
The term ‘controlled group of entities’ means a 
controlled group of corporations as defined in 
section 1563(a)(1), except that— 
‘‘(i) ‘more than 50 percent’ shall be 
substituted for ‘at least 80 percent’ each 
place it appears therein, and 
‘‘(ii) the determination shall be made 
without regard to subsections (a)(4) and 
(b)(2) of section 1563. 
A partnership or any other entity (other than a 
corporation) shall be treated as a member of a 
controlled group of entities if such entity is con-
trolled 
(within 
the 
meaning 
of 
section 
954(d)(3)) by members of such group (includ-
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ing any entity treated as a member of such 
group by reason of this sentence). 
‘‘(4) FOREIGN
PARENT
CORPORATION.—For 
purposes of this subsection, the term ‘foreign parent 
corporation’ means, with respect to any deductible 
related-party payment, the common parent of the 
foreign controlled group of entities referred to in 
paragraph (3)(A). 
‘‘(5) REGULATIONS.—The Secretary may pre-
scribe such regulations or other guidance as are nec-
essary or appropriate to carry out the purposes of 
this subsection, including regulations or other guid-
ance which provide for— 
‘‘(A) the treatment of two or more persons 
as members of a foreign controlled group of en-
tities if such persons would be the common par-
ent of such group if treated as one corporation, 
and 
‘‘(B) the treatment of any member of a 
foreign controlled group of entities as the com-
mon parent of such group if such treatment is 
appropriate taking into account the economic 
relationships among such entities.’’. 
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(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to payments made after the date 
of the enactment of this Act. 
SEC. 562. CODIFICATION OF ECONOMIC SUBSTANCE DOC-
TRINE; PENALTIES. 
(a) IN GENERAL.—Section 7701 of the Internal Rev-
enue Code of 1986 is amended by redesignating subsection 
(o) as subsection (p) and by inserting after subsection (n) 
the following new subsection: 
‘‘(o) CLARIFICATION
OF
ECONOMIC
SUBSTANCE 
DOCTRINE.— 
‘‘(1) APPLICATION OF DOCTRINE.—In the case 
of any transaction to which the economic substance 
doctrine is relevant, such transaction shall be treated 
as having economic substance only if— 
‘‘(A) the transaction changes in a mean-
ingful way (apart from Federal income tax ef-
fects) the taxpayer’s economic position, and 
‘‘(B) the taxpayer has a substantial pur-
pose (apart from Federal income tax effects) 
for entering into such transaction. 
‘‘(2) SPECIAL RULE WHERE TAXPAYER RELIES 
ON PROFIT POTENTIAL.— 
‘‘(A) IN
GENERAL.—The potential for 
profit of a transaction shall be taken into ac-
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count in determining whether the requirements 
of subparagraphs (A) and (B) of paragraph (1) 
are met with respect to the transaction only if 
the present value of the reasonably expected 
pre-tax profit from the transaction is substan-
tial in relation to the present value of the ex-
pected net tax benefits that would be allowed if 
the transaction were respected. 
‘‘(B) TREATMENT OF FEES AND FOREIGN 
TAXES.—Fees and other transaction expenses 
and foreign taxes shall be taken into account as 
expenses in determining pre-tax profit under 
subparagraph (A). 
‘‘(3) STATE AND LOCAL TAX BENEFITS.—For 
purposes of paragraph (1), any State or local income 
tax effect which is related to a Federal income tax 
effect shall be treated in the same manner as a Fed-
eral income tax effect. 
‘‘(4) FINANCIAL ACCOUNTING BENEFITS.—For 
purposes of paragraph (1)(B), achieving a financial 
accounting benefit shall not be taken into account as 
a purpose for entering into a transaction if the ori-
gin of such financial accounting benefit is a reduc-
tion of Federal income tax. 
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‘‘(5) DEFINITIONS AND SPECIAL RULES.—For 
purposes of this subsection— 
‘‘(A) ECONOMIC SUBSTANCE DOCTRINE.— 
The term ‘economic substance doctrine’ means 
the common law doctrine under which tax bene-
fits under subtitle A with respect to a trans-
action are not allowable if the transaction does 
not have economic substance or lacks a business 
purpose. 
‘‘(B) EXCEPTION FOR PERSONAL TRANS-
ACTIONS OF INDIVIDUALS.—In the case of an 
individual, paragraph (1) shall apply only to 
transactions entered into in connection with a 
trade or business or an activity engaged in for 
the production of income. 
‘‘(C) OTHER
COMMON
LAW
DOCTRINES 
NOT
AFFECTED.—Except as specifically pro-
vided in this subsection, the provisions of this 
subsection shall not be construed as altering or 
supplanting any other rule of law, and the re-
quirements of this subsection shall be construed 
as being in addition to any such other rule of 
law. 
‘‘(D) DETERMINATION OF APPLICATION OF 
DOCTRINE NOT AFFECTED.—The determination 
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352 
of whether the economic substance doctrine is 
relevant to a transaction (or series of trans-
actions) shall be made in the same manner as 
if this subsection had never been enacted. 
‘‘(6) REGULATIONS.—The Secretary shall pre-
scribe such regulations as may be necessary or ap-
propriate to carry out the purposes of this sub-
section.’’. 
(b) PENALTY FOR UNDERPAYMENTS ATTRIBUTABLE 
TO TRANSACTIONS LACKING ECONOMIC SUBSTANCE.— 
(1) IN
GENERAL.—Subsection (b) of section 
6662 of such Code is amended by inserting after 
paragraph (5) the following new paragraph: 
‘‘(6) Any disallowance of claimed tax benefits 
by reason of a transaction lacking economic sub-
stance (within the meaning of section 7701(o)) or 
failing to meet the requirements of any similar rule 
of law.’’. 
(2) INCREASED PENALTY FOR NONDISCLOSED 
TRANSACTIONS.—Section 6662 of such Code is 
amended by adding at the end the following new 
subsection: 
‘‘(i) INCREASE IN PENALTY IN CASE OF NONDIS-
CLOSED NONECONOMIC SUBSTANCE TRANSACTIONS.— 
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‘‘(1) IN GENERAL.—In the case of any portion 
of an underpayment which is attributable to one or 
more nondisclosed noneconomic substance trans-
actions, subsection (a) shall be applied with respect 
to such portion by substituting ‘40 percent’ for ‘20 
percent’. 
‘‘(2) 
NONDISCLOSED
NONECONOMIC
SUB-
STANCE TRANSACTIONS.—For purposes of this sub-
section, the term ‘nondisclosed noneconomic sub-
stance transaction’ means any portion of a trans-
action described in subsection (b)(6) with respect to 
which the relevant facts affecting the tax treatment 
are not adequately disclosed in the return nor in a 
statement attached to the return. 
‘‘(3) 
SPECIAL
RULE
FOR
AMENDED
RE-
TURNS.—Except as provided in regulations, in no 
event shall any amendment or supplement to a re-
turn of tax be taken into account for purposes of 
this subsection if the amendment or supplement is 
filed after the earlier of the date the taxpayer is first 
contacted by the Secretary regarding the examina-
tion of the return or such other date as is specified 
by the Secretary.’’. 
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354 
(3) CONFORMING AMENDMENT.—Subparagraph 
(B) of section 6662A(e)(2) of such Code is amend-
ed— 
(A) by striking ‘‘section 6662(h)’’ and in-
serting ‘‘subsections (h) or (i) of section 6662’’, 
and 
(B) 
by 
striking 
‘‘GROSS
VALUATION 
MISSTATEMENT PENALTY’’ in the heading and 
inserting 
‘‘CERTAIN
INCREASED
UNDER-
PAYMENT PENALTIES’’. 
(c) REASONABLE CAUSE EXCEPTION NOT APPLICA-
BLE TO NONECONOMIC SUBSTANCE TRANSACTIONS AND 
TAX SHELTERS.— 
(1) REASONABLE CAUSE EXCEPTION FOR UN-
DERPAYMENTS.—Subsection (c) of section 6664 of 
such Code is amended— 
(A) by redesignating paragraphs (2) and 
(3) as paragraphs (3) and (4), respectively, 
(B) by striking ‘‘paragraph (2)’’ in para-
graph (4)(A), as so redesignated, and inserting 
‘‘paragraph (3)’’, and 
(C) by inserting after paragraph (1) the 
following new paragraph: 
‘‘(2) EXCEPTION.—Paragraph (1) shall not 
apply to any portion of an underpayment which is 
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355 
attributable to one or more tax shelters (as defined 
in section 6662(d)(2)(C)) or transactions described 
in section 6662(b)(6).’’. 
(2) REASONABLE CAUSE EXCEPTION FOR RE-
PORTABLE
TRANSACTION
UNDERSTATEMENTS.— 
Subsection (d) of section 6664 of such Code is 
amended— 
(A) by redesignating paragraphs (2) and 
(3) as paragraphs (3) and (4), respectively, 
(B) by striking ‘‘paragraph (2)(C)’’ in 
paragraph (4), as so redesignated, and inserting 
‘‘paragraph (3)(C)’’, and 
(C) by inserting after paragraph (1) the 
following new paragraph: 
‘‘(2) EXCEPTION.—Paragraph (1) shall not 
apply to any portion of a reportable transaction un-
derstatement which is attributable to one or more 
tax shelters (as defined in section 6662(d)(2)(C)) or 
transactions described in section 6662(b)(6).’’. 
(d) APPLICATION
OF PENALTY
FOR ERRONEOUS 
CLAIM FOR REFUND OR CREDIT TO NONECONOMIC SUB-
STANCE TRANSACTIONS.—Section 6676 of such Code is 
amended by redesignating subsection (c) as subsection (d) 
and inserting after subsection (b) the following new sub-
section: 
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356 
‘‘(c) NONECONOMIC
SUBSTANCE
TRANSACTIONS 
TREATED AS LACKING REASONABLE BASIS.—For pur-
poses of this section, any excessive amount which is attrib-
utable to any transaction described in section 6662(b)(6) 
shall not be treated as having a reasonable basis.’’. 
(e) EFFECTIVE DATE.— 
(1) IN
GENERAL.—Except as otherwise pro-
vided in this subsection, the amendments made by 
this section shall apply to transactions entered into 
after the date of the enactment of this Act. 
(2) UNDERPAYMENTS.—The amendments made 
by subsections (b) and (c)(1) shall apply to under-
payments attributable to transactions entered into 
after the date of the enactment of this Act. 
(3) 
UNDERSTATEMENTS.—The 
amendments 
made by subsection (c)(2) shall apply to understate-
ments attributable to transactions entered into after 
the date of the enactment of this Act. 
(4) REFUNDS AND CREDITS.—The amendment 
made by subsection (d) shall apply to refunds and 
credits attributable to transactions entered into after 
the date of the enactment of this Act. 
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357 
SEC. 563. CERTAIN LARGE OR PUBLICLY TRADED PERSONS 
MADE SUBJECT TO A MORE LIKELY THAN 
NOT STANDARD FOR AVOIDING PENALTIES 
ON UNDERPAYMENTS. 
(a) IN GENERAL.—Subsection (c) of section 6664 of 
the Internal Revenue Code of 1986, as amended by section 
562, is amended— 
(1) by redesignating paragraphs (3) and (4) as 
paragraphs (4) and (5), respectively, 
(2) by striking ‘‘paragraph (3)’’ in paragraph 
(4)(A), as so redesignated, and inserting ‘‘paragraph 
(4)’’, and 
(3) by inserting after paragraph (2) the fol-
lowing new paragraph: 
‘‘(3) SPECIAL RULE FOR CERTAIN LARGE OR 
PUBLICLY TRADED PERSONS.— 
‘‘(A) IN
GENERAL.—In the case of any 
specified person, paragraph (1) shall apply to 
the portion of an underpayment which is attrib-
utable to any item only if such person has a 
reasonable belief that the tax treatment of such 
item by such person is more likely than not the 
proper tax treatment of such item. 
‘‘(B) SPECIFIED
PERSON.—For purposes 
of this paragraph, the term ‘specified person’ 
means— 
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358 
‘‘(i) any person required to file peri-
odic or other reports under section 13 of 
the Securities Exchange Act of 1934, and 
‘‘(ii) any corporation with gross re-
ceipts in excess of $100,000,000 for the 
taxable year involved. 
All persons treated as a single employer under 
section 52(a) shall be treated as one person for 
purposes of clause (ii).’’. 
(b) NONAPPLICATION OF SUBSTANTIAL AUTHORITY 
AND REASONABLE BASIS STANDARDS
FOR REDUCING 
UNDERSTATEMENTS.—Paragraph (2) of section 6662(d) 
of such Code is amended by adding at the end the fol-
lowing new subparagraph: 
‘‘(D) REDUCTION NOT TO APPLY TO CER-
TAIN LARGE OR PUBLICLY TRADED PERSONS.— 
Subparagraph (B) shall not apply to any speci-
fied 
person 
(as 
defined 
in 
section 
6664(c)(3)(B)).’’. 
(c) EFFECTIVE DATE.— 
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section 
shall apply to underpayments attributable to trans-
actions entered into after the date of the enactment 
of this Act. 
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359 
(2) NONAPPLICATION
OF
UNDERSTATEMENT 
REDUCTION.—The amendment made by subsection 
(b) shall apply to understatements attributable to 
transactions entered into after the date of the enact-
ment of this Act. 
PART 3—PARITY IN HEALTH BENEFITS 
SEC. 571. CERTAIN HEALTH RELATED BENEFITS APPLICA-
BLE TO SPOUSES AND DEPENDENTS EX-
TENDED TO ELIGIBLE BENEFICIARIES. 
(a) APPLICATION OF ACCIDENT AND HEALTH PLANS 
TO ELIGIBLE BENEFICIARIES.— 
(1) EXCLUSION
OF
CONTRIBUTIONS.—Section 
106 of the Internal Revenue Code of 1986 (relating 
to contributions by employer to accident and health 
plans), as amended by section 531, is amended by 
adding at the end the following new subsection: 
‘‘(g) COVERAGE PROVIDED FOR ELIGIBLE BENE-
FICIARIES OF EMPLOYEES.— 
‘‘(1) IN GENERAL.—Subsection (a) shall apply 
with respect to any eligible beneficiary of the em-
ployee. 
‘‘(2) ELIGIBLE BENEFICIARY.—For purposes of 
this subsection, the term ‘eligible beneficiary’ means 
any individual who is eligible to receive benefits or 
coverage under an accident or health plan.’’. 
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360 
(2) EXCLUSION OF AMOUNTS EXPENDED FOR 
MEDICAL
CARE.—The first sentence of section 
105(b) of such Code (relating to amounts expended 
for medical care) is amended— 
(A) by striking ‘‘and his dependents’’ and 
inserting ‘‘his dependents’’, and 
(B) by inserting before the period the fol-
lowing: ‘‘and any eligible beneficiary (within the 
meaning of section 106(g)) with respect to the 
taxpayer’’. 
(3) PAYROLL TAXES.— 
(A) Section 3121(a)(2) of such Code is 
amended— 
(i) by striking ‘‘or any of his depend-
ents’’ in the matter preceding subpara-
graph (A) and inserting ‘‘, any of his de-
pendents, or any eligible beneficiary (with-
in the meaning of section 106(g)) with re-
spect to the employee’’, 
(ii) by striking ‘‘or any of his depend-
ents,’’ in subparagraph (A) and inserting 
‘‘, any of his dependents, or any eligible 
beneficiary (within the meaning of section 
106(g)) with respect to the employee,’’, 
and 
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(iii) by striking ‘‘and their depend-
ents’’ both places it appears and inserting 
‘‘and such employees’ dependents and eligi-
ble beneficiaries (within the meaning of 
section 106(g))’’. 
(B) Section 3231(e)(1) of such Code is 
amended— 
(i) by striking ‘‘or any of his depend-
ents’’ and inserting ‘‘, any of his depend-
ents, or any eligible beneficiary (within the 
meaning of section 106(g)) with respect to 
the employee,’’, and 
(ii) by striking ‘‘and their depend-
ents’’ both places it appears and inserting 
‘‘and such employees’ dependents and eligi-
ble beneficiaries (within the meaning of 
section 106(g))’’. 
(C) Section 3306(b)(2) of such Code is 
amended— 
(i) by striking ‘‘or any of his depend-
ents’’ in the matter preceding subpara-
graph (A) and inserting ‘‘, any of his de-
pendents, or any eligible beneficiary (with-
in the meaning of section 106(g)) with re-
spect to the employee,’’, 
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(ii) by striking ‘‘or any of his depend-
ents’’ in subparagraph (A) and inserting ‘‘, 
any of his dependents, or any eligible bene-
ficiary (within the meaning of section 
106(g)) with respect to the employee’’, and 
(iii) by striking ‘‘and their depend-
ents’’ both places it appears and inserting 
‘‘and such employees’ dependents and eligi-
ble beneficiaries (within the meaning of 
section 106(g))’’. 
(D) Section 3401(a) of such Code is 
amended by striking ‘‘or’’ at the end of para-
graph (22), by striking the period at the end of 
paragraph (23) and inserting ‘‘; or’’, and by in-
serting after paragraph (23) the following new 
paragraph: 
‘‘(24) for any payment made to or for the ben-
efit of an employee or any eligible beneficiary (within 
the meaning of section 106(g)) if at the time of such 
payment it is reasonable to believe that the employee 
will be able to exclude such payment from income 
under section 106 or under section 105 by reference 
in section 105(b) to section 106(g).’’. 
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363 
(b) EXPANSION OF DEPENDENCY FOR PURPOSES OF 
DEDUCTION FOR HEALTH INSURANCE COSTS OF SELF- 
EMPLOYED INDIVIDUALS.— 
(1) IN
GENERAL.—Paragraph (1) of section 
162(l) of the Internal Revenue Code of 1986 (relat-
ing to special rules for health insurance costs of self- 
employed individuals) is amended to read as follows: 
‘‘(1) ALLOWANCE OF DEDUCTION.—In the case 
of a taxpayer who is an employee within the mean-
ing of section 401(c)(1), there shall be allowed as a 
deduction under this section an amount equal to the 
amount paid during the taxable year for insurance 
which constitutes medical care for— 
‘‘(A) the taxpayer, 
‘‘(B) the taxpayer’s spouse, 
‘‘(C) the taxpayer’s dependents, 
‘‘(D) any individual who— 
‘‘(i) satisfies the age requirements of 
section 152(c)(3)(A), 
‘‘(ii) bears a relationship to the tax-
payer described in section 152(d)(2)(H), 
and 
‘‘(iii) meets the requirements of sec-
tion 152(d)(1)(C), and 
‘‘(E) one individual who— 
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‘‘(i) does not satisfy the age require-
ments of section 152(c)(3)(A), 
‘‘(ii) bears a relationship to the tax-
payer described in section 152(d)(2)(H), 
‘‘(iii) meets the requirements of sec-
tion 152(d)(1)(D), and 
‘‘(iv) is not the spouse of the taxpayer 
and does not bear any relationship to the 
taxpayer described in subparagraphs (A) 
through (G) of section 152(d)(2).’’. 
(2) CONFORMING AMENDMENT.—Subparagraph 
(B) of section 162(l)(2) of such Code is amended by 
inserting ‘‘, any dependent, or individual described 
in subparagraph (D) or (E) of paragraph (1) with 
respect to’’ after ‘‘spouse’’. 
(c) EXTENSION
TO ELIGIBLE BENEFICIARIES
OF 
SICK AND ACCIDENT BENEFITS PROVIDED TO MEMBERS 
OF A VOLUNTARY EMPLOYEES’ BENEFICIARY ASSOCIA-
TION AND THEIR DEPENDENTS.—Section 501(c)(9) of 
the Internal Revenue Code of 1986 (relating to list of ex-
empt organizations) is amended by adding at the end the 
following new sentence: ‘‘For purposes of providing for the 
payment of sick and accident benefits to members of such 
an association and their dependents, the term ‘dependents’ 
shall include any individual who is an eligible beneficiary 
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(within the meaning of section 106(g)), as determined 
under the terms of a medical benefit, health insurance, 
or other program under which members and their depend-
ents are entitled to sick and accident benefits.’’. 
(d) FLEXIBLE
SPENDING
ARRANGEMENTS
AND 
HEALTH REIMBURSEMENT ARRANGEMENTS.—The Sec-
retary of Treasury shall issue guidance of general applica-
bility providing that medical expenses that otherwise qual-
ify— 
(1) for reimbursement from a flexible spending 
arrangement under regulations in effect on the date 
of the enactment of this Act may be reimbursed 
from an employee’s flexible spending arrangement, 
notwithstanding the fact that such expenses are at-
tributable to any individual who is not the employ-
ee’s spouse or dependent (within the meaning of sec-
tion 105(b) of the Internal Revenue Code of 1986) 
but is an eligible beneficiary (within the meaning of 
section 106(g) of such Code) under the flexible 
spending arrangement with respect to the employee, 
and 
(2) for reimbursement from a health reimburse-
ment arrangement under regulations in effect on the 
date of the enactment of this Act may be reimbursed 
from an employee’s health reimbursement arrange-
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ment, notwithstanding the fact that such expenses 
are attributable to an individual who is not a spouse 
or dependent (within the meaning of section 105(b) 
of such Code) but is an eligible beneficiary (within 
the meaning of section 106(g) of such Code) under 
the health reimbursement arrangement with respect 
to the employee. 
(e) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2009. 
DIVISION B—MEDICARE AND 
MEDICAID IMPROVEMENTS 
SEC. 1001. TABLE OF CONTENTS OF DIVISION. 
The table of contents of this division is as follows: 
Sec. 1001. Table of contents of division. 
TITLE I—IMPROVING HEALTH CARE VALUE 
Subtitle A—Provisions Related to Medicare Part A 
PART 1—MARKET BASKET UPDATES 
Sec. 1101. Skilled nursing facility payment update. 
Sec. 1102. Inpatient rehabilitation facility payment update. 
Sec. 1103. Incorporating productivity improvements into market basket updates 
that do not already incorporate such improvements. 
PART 2—OTHER MEDICARE PART A PROVISIONS 
Sec. 1111. Payments to skilled nursing facilities. 
Sec. 1112. Medicare DSH report and payment adjustments in response to cov-
erage expansion. 
Sec. 1113. Extension of hospice regulation moratorium. 
Sec. 1114. Permitting physician assistants to order post-hospital extended care 
services and to provide for recognition of attending physician 
assistants as attending physicians to serve hospice patients. 
Subtitle B—Provisions Related to Part B 
PART 1—PHYSICIANS’ SERVICES 
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Sec. 1121. Resource-based feedback program for physicians in Medicare. 
Sec. 1122. Misvalued codes under the physician fee schedule. 
Sec. 1123. Payments for efficient areas. 
Sec. 1124. Modifications to the Physician Quality Reporting Initiative (PQRI). 
Sec. 1125. Adjustment to Medicare payment localities. 
PART 2—MARKET BASKET UPDATES 
Sec. 1131. Incorporating productivity improvements into market basket updates 
that do not already incorporate such improvements. 
PART 3—OTHER PROVISIONS 
Sec. 1141. Rental and purchase of power-driven wheelchairs. 
Sec. 1141A. Election to take ownership, or to decline ownership, of a certain 
item of complex durable medical equipment after the 13-month 
capped rental period ends. 
Sec. 1142. Extension of payment rule for brachytherapy. 
Sec. 1143. Home infusion therapy report to Congress. 
Sec. 1144. Require ambulatory surgical centers (ASCs) to submit cost data and 
other data. 
Sec. 1145. Treatment of certain cancer hospitals. 
Sec. 1146. Payment for imaging services. 
Sec. 1147. Durable medical equipment program improvements. 
Sec. 1148. MedPAC study and report on bone mass measurement. 
Sec. 1149. Timely access to post-mastectomy items. 
Sec. 1149A. Payment for biosimilar biological products. 
Sec. 1149B. Study and report on DME competitive bidding process. 
Subtitle C—Provisions Related to Medicare Parts A and B 
Sec. 1151. Reducing potentially preventable hospital readmissions. 
Sec. 1152. Post acute care services payment reform plan and bundling pilot 
program. 
Sec. 1153. Home health payment update for 2010. 
Sec. 1154. Payment adjustments for home health care. 
Sec. 1155. Incorporating productivity improvements into market basket update 
for home health services. 
Sec. 1155A. MedPAC study on variation in home health margins. 
Sec. 1155B. Permitting home health agencies to assign the most appropriate 
skilled service to make the initial assessment visit under a 
Medicare home health plan of care for rehabilitation cases. 
Sec. 1156. Limitation on Medicare exceptions to the prohibition on certain phy-
sician referrals made to hospitals. 
Sec. 1157. Institute of Medicine study of geographic adjustment factors under 
Medicare. 
Sec. 1158. Revision of medicare payment systems to address geographic inequi-
ties. 
Sec. 1159. Institute of Medicine study of geographic variation in health care 
spending and promoting high-value health care. 
Sec. 1160. Implementation, and Congressional review, of proposal to revise 
Medicare payments to promote high value health care. 
Subtitle D—Medicare Advantage Reforms 
PART 1—PAYMENT AND ADMINISTRATION 
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Sec. 1161. Phase-in of payment based on fee-for-service costs; quality bonus 
payments. 
Sec. 1162. Authority for Secretarial coding intensity adjustment authority. 
Sec. 1163. Simplification of annual beneficiary election periods. 
Sec. 1164. Extension of reasonable cost contracts. 
Sec. 1165. Limitation of waiver authority for employer group plans. 
Sec. 1166. Improving risk adjustment for payments. 
Sec. 1167. Elimination of MA Regional Plan Stabilization Fund. 
Sec. 1168. Study regarding the effects of calculating Medicare Advantage pay-
ment rates on a regional average of Medicare fee for service 
rates. 
PART 2—BENEFICIARY PROTECTIONS AND ANTI-FRAUD 
Sec. 1171. Limitation on cost-sharing for individual health services. 
Sec. 1172. Continuous open enrollment for enrollees in plans with enrollment 
suspension. 
Sec. 1173. Information for beneficiaries on MA plan administrative costs. 
Sec. 1174. Strengthening audit authority. 
Sec. 1175. Authority to deny plan bids. 
Sec. 1175A. State authority to enforce standardized marketing requirements. 
PART 3—TREATMENT OF SPECIAL NEEDS PLANS 
Sec. 1176. Limitation on enrollment outside open enrollment period of individ-
uals into chronic care specialized MA plans for special needs 
individuals. 
Sec. 1177. Extension of authority of special needs plans to restrict enrollment; 
service area moratorium for certain SNPs. 
Sec. 1178. Extension of Medicare senior housing plans. 
Subtitle E—Improvements to Medicare Part D 
Sec. 1181. Elimination of coverage gap. 
Sec. 1182. Discounts for certain part D drugs in original coverage gap. 
Sec. 1183. Repeal of provision relating to submission of claims by pharmacies 
located in or contracting with long-term care facilities. 
Sec. 1184. Including costs incurred by AIDS drug assistance programs and In-
dian Health Service in providing prescription drugs toward the 
annual out-of-pocket threshold under part D. 
Sec. 1185. No mid-year formulary changes permitted. 
Sec. 1186. Negotiation of lower covered part D drug prices on behalf of Medi-
care beneficiaries. 
Sec. 1187. Accurate dispensing in long-term care facilities. 
Sec. 1188. Free generic fill. 
Sec. 1189. State certification prior to waiver of licensure requirements under 
Medicare prescription drug program. 
Subtitle F—Medicare Rural Access Protections 
Sec. 1191. Telehealth expansion and enhancements. 
Sec. 1192. Extension of outpatient hold harmless provision. 
Sec. 1193. Extension of section 508 hospital reclassifications. 
Sec. 1194. Extension of geographic floor for work. 
Sec. 1195. Extension of payment for technical component of certain physician 
pathology services. 
Sec. 1196. Extension of ambulance add-ons. 
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TITLE II—MEDICARE BENEFICIARY IMPROVEMENTS 
Subtitle A—Improving and Simplifying Financial Assistance for Low Income 
Medicare Beneficiaries 
Sec. 1201. Improving assets tests for Medicare Savings Program and low-in-
come subsidy program. 
Sec. 1202. Elimination of part D cost-sharing for certain non-institutionalized 
full-benefit dual eligible individuals. 
Sec. 1203. Eliminating barriers to enrollment. 
Sec. 1204. Enhanced oversight relating to reimbursements for retroactive low 
income subsidy enrollment. 
Sec. 1205. Intelligent assignment in enrollment. 
Sec. 1206. Special enrollment period and automatic enrollment process for cer-
tain subsidy eligible individuals. 
Sec. 1207. Application of MA premiums prior to rebate and quality bonus pay-
ments in calculation of low income subsidy benchmark. 
Subtitle B—Reducing Health Disparities 
Sec. 1221. Ensuring effective communication in Medicare. 
Sec. 1222. Demonstration to promote access for Medicare beneficiaries with 
limited English proficiency by providing reimbursement for cul-
turally and linguistically appropriate services. 
Sec. 1223. IOM report on impact of language access services. 
Sec. 1224. Definitions. 
Subtitle C—Miscellaneous Improvements 
Sec. 1231. Extension of therapy caps exceptions process. 
Sec. 1232. Extended months of coverage of immunosuppressive drugs for kid-
ney transplant patients and other renal dialysis provisions. 
Sec. 1233. Voluntary advance care planning consultation. 
Sec. 1234. Part B special enrollment period and waiver of limited enrollment 
penalty for TRICARE beneficiaries. 
Sec. 1235. Exception for use of more recent tax year in case of gains from sale 
of primary residence in computing part B income-related pre-
mium. 
Sec. 1236. Demonstration program on use of patient decisions aids. 
TITLE III—PROMOTING PRIMARY CARE, MENTAL HEALTH 
SERVICES, AND COORDINATED CARE 
Sec. 1301. Accountable Care Organization pilot program. 
Sec. 1302. Medical home pilot program. 
Sec. 1303. Payment incentive for selected primary care services. 
Sec. 1304. Increased reimbursement rate for certified nurse-midwives. 
Sec. 1305. Coverage and waiver of cost-sharing for preventive services. 
Sec. 1306. Waiver of deductible for colorectal cancer screening tests regardless 
of coding, subsequent diagnosis, or ancillary tissue removal. 
Sec. 1307. Excluding clinical social worker services from coverage under the 
medicare skilled nursing facility prospective payment system 
and consolidated payment. 
Sec. 1308. Coverage of marriage and family therapist services and mental 
health counselor services. 
Sec. 1309. Extension of physician fee schedule mental health add-on. 
Sec. 1310. Expanding access to vaccines. 
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Sec. 1311. Expansion of Medicare-Covered Preventive Services at Federally 
Qualified Health Centers. 
Sec. 1312. Independence at home demonstration program. 
Sec. 1313. Recognition of certified diabetes educators as certified providers for 
purposes of Medicare diabetes outpatient self-management 
training services. 
TITLE IV—QUALITY 
Subtitle A—Comparative Effectiveness Research 
Sec. 1401. Comparative effectiveness research. 
Subtitle B—Nursing Home Transparency 
PART 1—IMPROVING TRANSPARENCY OF INFORMATION ON SKILLED NURS-
ING FACILITIES, NURSING FACILITIES, AND OTHER LONG-TERM CARE FA-
CILITIES 
Sec. 1411. Required disclosure of ownership and additional disclosable parties 
information. 
Sec. 1412. Accountability requirements. 
Sec. 1413. Nursing home compare Medicare website. 
Sec. 1414. Reporting of expenditures. 
Sec. 1415. Standardized complaint form. 
Sec. 1416. Ensuring staffing accountability. 
Sec. 1417. Nationwide program for national and State background checks on 
direct patient access employees of long-term care facilities and 
providers. 
PART 2—TARGETING ENFORCEMENT 
Sec. 1421. Civil money penalties. 
Sec. 1422. National independent monitor pilot program. 
Sec. 1423. Notification of facility closure. 
PART 3—IMPROVING STAFF TRAINING 
Sec. 1431. Dementia and abuse prevention training. 
Sec. 1432. Study and report on training required for certified nurse aides and 
supervisory staff. 
Sec. 1433. Qualification of director of food services of a skilled nursing facility 
or nursing facility. 
Subtitle C—Quality Measurements 
Sec. 1441. Establishment of national priorities for quality improvement. 
Sec. 1442. Development of new quality measures; GAO evaluation of data col-
lection process for quality measurement. 
Sec. 1443. Multi-stakeholder pre-rulemaking input into selection of quality 
measures. 
Sec. 1444. Application of quality measures. 
Sec. 1445. Consensus-based entity funding. 
Subtitle D—Physician Payments Sunshine Provision 
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Sec. 1451. Reports on financial relationships between manufacturers and dis-
tributors of covered drugs, devices, biologicals, or medical sup-
plies under Medicare, Medicaid, or CHIP and physicians and 
other health care entities and between physicians and other 
health care entities. 
Subtitle E—Public Reporting on Health Care-Associated Infections 
Sec. 1461. Requirement for public reporting by hospitals and ambulatory sur-
gical centers on health care-associated infections. 
TITLE V—MEDICARE GRADUATE MEDICAL EDUCATION 
Sec. 1501. Distribution of unused residency positions. 
Sec. 1502. Increasing training in nonprovider settings. 
Sec. 1503. Rules for counting resident time for didactic and scholarly activities 
and other activities. 
Sec. 1504. Preservation of resident cap positions from closed hospitals. 
Sec. 1505. Improving accountability for approved medical residency training. 
TITLE VI—PROGRAM INTEGRITY 
Subtitle A—Increased Funding to Fight Waste, Fraud, and Abuse 
Sec. 1601. Increased funding and flexibility to fight fraud and abuse. 
Subtitle B—Enhanced Penalties for Fraud and Abuse 
Sec. 1611. Enhanced penalties for false statements on provider or supplier en-
rollment applications. 
Sec. 1612. Enhanced penalties for submission of false statements material to 
a false claim. 
Sec. 1613. Enhanced penalties for delaying inspections. 
Sec. 1614. Enhanced hospice program safeguards. 
Sec. 1615. Enhanced penalties for individuals excluded from program participa-
tion. 
Sec. 1616. Enhanced penalties for provision of false information by Medicare 
Advantage and part D plans. 
Sec. 1617. Enhanced penalties for Medicare Advantage and part D marketing 
violations. 
Sec. 1618. Enhanced penalties for obstruction of program audits. 
Sec. 1619. Exclusion of certain individuals and entities from participation in 
Medicare and State health care programs. 
Sec. 1620. OIG authority to exclude from Federal health care programs offi-
cers and owners of entities convicted of fraud. 
Sec. 1621. Self-referral disclosure protocol. 
Subtitle C—Enhanced Program and Provider Protections 
Sec. 1631. Enhanced CMS program protection authority. 
Sec. 1632. Enhanced Medicare, Medicaid, and CHIP program disclosure re-
quirements relating to previous affiliations. 
Sec. 1633. Required inclusion of payment modifier for certain evaluation and 
management services. 
Sec. 1634. Evaluations and reports required under Medicare Integrity Pro-
gram. 
Sec. 1635. Require providers and suppliers to adopt programs to reduce waste, 
fraud, and abuse. 
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Sec. 1636. Maximum period for submission of Medicare claims reduced to not 
more than 12 months. 
Sec. 1637. Physicians who order durable medical equipment or home health 
services required to be Medicare enrolled physicians or eligible 
professionals. 
Sec. 1638. Requirement for physicians to provide documentation on referrals to 
programs at high risk of waste and abuse. 
Sec. 1639. Face-to-face encounter with patient required before eligibility certifi-
cations for home health services or durable medical equipment. 
Sec. 1640. Extension of testimonial subpoena authority to program exclusion 
investigations. 
Sec. 1641. Required repayments of Medicare and Medicaid overpayments. 
Sec. 1642. Expanded application of hardship waivers for OIG exclusions to 
beneficiaries of any Federal health care program. 
Sec. 1643. Access to certain information on renal dialysis facilities. 
Sec. 1644. Billing agents, clearinghouses, or other alternate payees required to 
register under Medicare. 
Sec. 1645. Conforming civil monetary penalties to False Claims Act amend-
ments. 
Sec. 1646. Requiring provider and supplier payments under Medicare to be 
made through direct deposit or electronic funds transfer (EFT) 
at insured depository institutions. 
Sec. 1647. Inspector General for the Health Choices Administration. 
Subtitle D—Access to Information Needed to Prevent Fraud, Waste, and 
Abuse 
Sec. 1651. Access to Information Necessary to Identify Fraud, Waste, and 
Abuse. 
Sec. 1652. Elimination of duplication between the Healthcare Integrity and 
Protection Data Bank and the National Practitioner Data 
Bank. 
Sec. 1653. Compliance with HIPAA privacy and security standards. 
TITLE VII—MEDICAID AND CHIP 
Sec. 1. Table of contents øTemporary¿. 
Subtitle A—Medicaid and Health Reform 
Sec. 1701. Eligibility for individuals with income below 150 percent of the Fed-
eral poverty level. 
Sec. 1702.
Requirements and special rules for certain Medicaid eligible individ-
uals. 
Sec. 1703. CHIP and Medicaid maintenance of eligibility. 
Sec. 1704. Reduction in Medicaid DSH. 
Sec. 1705. Expanded outstationing. 
Subtitle B—Prevention 
Sec. 1711. Required coverage of preventive services. 
Sec. 1712. Tobacco cessation. 
Sec. 1713. Optional coverage of nurse home visitation services. 
Sec. 1714. State eligibility option for family planning services. 
Subtitle C—Access 
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Sec. 1721. Payments to primary care practitioners. 
Sec. 1722. Medical home pilot program. 
Sec. 1723. Translation or interpretation services. 
Sec. 1724. Optional coverage for freestanding birth center services. 
Sec. 1725. Inclusion of public health clinics under the vaccines for children pro-
gram. 
Sec. 1726. Requiring coverage of services of podiatrists. 
Sec. 1726A. Requiring coverage of services of optometrists. 
Sec. 1727. Therapeutic foster care. 
Sec. 1728. Assuring adequate payment levels for services. 
Sec. 1729. Preserving Medicaid coverage for youths upon release from public 
institutions. 
Sec. 1730. Quality measures for maternity and adult health services under 
Medicaid and CHIP. 
Sec. 1730A. Accountable care organization pilot program. 
Sec. 1730B. FQHC coverage. 
Subtitle D—Coverage 
Sec. 1731. Optional Medicaid coverage of low-income HIV-infected individuals. 
Sec. 1732. Extending transitional Medicaid Assistance (TMA). 
Sec. 1733. Requirement of 12-month continuous coverage under certain CHIP 
programs. 
Sec. 1734. Preventing the application under CHIP of coverage waiting periods 
for certain children. 
Sec. 1735. Adult day health care services. 
Sec. 1736. Medicaid coverage for citizens of Freely Associated States. 
Sec. 1737. Continuing requirement of Medicaid coverage of nonemergency 
transportation to medically necessary services. 
Sec. 1738. State option to disregard certain income in providing continued 
Medicaid coverage for certain individuals with extremely high 
prescription costs. 
Sec. 1739. Provisions relating to community living assistance services and sup-
ports (CLASS). 
Subtitle E—Financing 
Sec. 1741. Payments to pharmacists. 
Sec. 1742. Prescription drug rebates. 
Sec. 1743. Extension of prescription drug discounts to enrollees of Medicaid 
managed care organizations. 
Sec. 1744. Payments for graduate medical education. 
Sec. 1745. Nursing Facility Supplemental Payment Program. 
Sec. 1746. Report on Medicaid payments. 
Sec. 1747. Reviews of Medicaid. 
Sec. 1748. Extension of delay in managed care organization provider tax elimi-
nation. 
Sec. 1749. Extension of ARRA increase in FMAP. 
Subtitle F—Waste, Fraud, and Abuse 
Sec. 1751. Health care acquired conditions. 
Sec. 1752. Evaluations and reports required under Medicaid Integrity Program. 
Sec. 1753. Require providers and suppliers to adopt programs to reduce waste, 
fraud, and abuse. 
Sec. 1754. Overpayments. 
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Sec. 1755. Managed care organizations. 
Sec. 1756. Termination of provider participation under Medicaid and CHIP if 
terminated under Medicare or other State plan or child health 
plan. 
Sec. 1757. Medicaid and CHIP exclusion from participation relating to certain 
ownership, control, and management affiliations. 
Sec. 1758. Requirement to report expanded set of data elements under MMIS 
to detect fraud and abuse. 
Sec. 1759. Billing agents, clearinghouses, or other alternate payees required to 
register under Medicaid. 
Sec. 1760. Denial of payments for litigation-related misconduct. 
Sec. 1761. Mandatory State use of national correct coding initiative. 
Subtitle G—Payments to the Territories 
Sec. 1771. Payment to territories. 
Subtitle H—Miscellaneous 
Sec. 1781. Technical corrections. 
Sec. 1782. Extension of QI program. 
Sec. 1783. Assuring transparency of information. 
Sec. 1784. Medicaid and CHIP Payment and Access Commission. 
Sec. 1785. Outreach and enrollment of Medicaid and CHIP eligible individuals. 
Sec. 1786. Prohibitions on Federal Medicaid and CHIP payment for undocu-
mented aliens. 
Sec. 1787. Demonstration project for stabilization of emergency medical condi-
tions by institutions for mental diseases. 
Sec. 1788. Application of Medicaid Improvement Fund. 
Sec. 1789. Treatment of certain Medicaid brokers. 
Sec. 1790. Rule for changes requiring State legislation. 
TITLE VIII—REVENUE-RELATED PROVISIONS 
Sec. 1801. Disclosures to facilitate identification of individuals likely to be ineli-
gible for the low-income assistance under the Medicare pre-
scription drug program to assist Social Security Administra-
tion’s outreach to eligible individuals. 
Sec. 1802. Comparative Effectiveness Research Trust Fund; financing for 
Trust Fund. 
TITLE IX—MISCELLANEOUS PROVISIONS 
Sec. 1901. Repeal of trigger provision. 
Sec. 1902. Repeal of comparative cost adjustment (CCA) program. 
Sec. 1903. Extension of gainsharing demonstration. 
Sec. 1904. Grants to States for quality home visitation programs for families 
with young children and families expecting children. 
Sec. 1905. Improved coordination and protection for dual eligibles. 
Sec. 1906. Assessment of medicare cost-intensive diseases and conditions. 
Sec. 1907. Establishment of Center for Medicare and Medicaid Innovation 
within CMS. 
Sec. 1908. Application of emergency services laws. 
Sec. 1909. Disregard under the Supplemental Security Income program of com-
pensation for participation in clinical trials for rare diseases or 
conditions. 
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TITLE I—IMPROVING HEALTH 
CARE VALUE 
Subtitle A—Provisions Related to 
Medicare Part A 
PART 1—MARKET BASKET UPDATES 
SEC. 1101. SKILLED NURSING FACILITY PAYMENT UPDATE. 
(a) IN GENERAL.—Section 1888(e)(4)(E)(ii) of the 
Social Security Act (42 U.S.C. 1395yy(e)(4)(E)(ii)) is 
amended— 
(1) in subclause (III), by striking ‘‘and’’ at the 
end; 
(2) by redesignating subclause (IV) as sub-
clause (VI); and 
(3) by inserting after subclause (III) the fol-
lowing new subclauses: 
‘‘(IV) for each of fiscal years 
2004 through 2009, the rate com-
puted for the previous fiscal year in-
creased by the skilled nursing facility 
market basket percentage change for 
the fiscal year involved; 
‘‘(V) for fiscal year 2010, the 
rate computed for the previous fiscal 
year; and’’. 
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(b) 
DELAYED
EFFECTIVE
DATE.—Section 
1888(e)(4)(E)(ii)(V) of the Social Security Act, as in-
serted by subsection (a)(3), shall not apply to payment 
for days before January 1, 2010. 
SEC. 1102. INPATIENT REHABILITATION FACILITY PAY-
MENT UPDATE. 
(a) IN GENERAL.—Section 1886(j)(3)(C) of the So-
cial Security Act (42 U.S.C. 1395ww(j)(3)(C)) is amended 
by striking ‘‘and 2009’’ and inserting ‘‘through 2010’’. 
(b) DELAYED EFFECTIVE DATE.—The amendment 
made by subsection (a) shall not apply to payment units 
occurring before January 1, 2010. 
SEC. 
1103. 
INCORPORATING 
PRODUCTIVITY 
IMPROVE-
MENTS 
INTO 
MARKET 
BASKET 
UPDATES 
THAT DO NOT ALREADY INCORPORATE SUCH 
IMPROVEMENTS. 
(a) 
INPATIENT
ACUTE
HOSPITALS.—Section 
1886(b)(3)(B) of the Social Security Act (42 U.S.C. 
1395ww(b)(3)(B)) is amended— 
(1) in clause (iii)— 
(A) by striking ‘‘(iii) For purposes of this 
subparagraph,’’ and inserting ‘‘(iii)(I) For pur-
poses of this subparagraph, subject to the pro-
ductivity adjustment described in subclause 
(II),’’; and 
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(B) by adding at the end the following new 
subclause: 
‘‘(II) The productivity adjustment described in this 
subclause, with respect to an increase or change for a fis-
cal year or year or cost reporting period, or other annual 
period, is a productivity offset in the form of a reduction 
in such increase or change equal to the percentage change 
in the 10-year moving average of annual economy-wide 
private nonfarm business multi-factor productivity (as re-
cently published in final form before the promulgation or 
publication of such increase for the year or period in-
volved). Except as otherwise provided, any reference to the 
increase described in this clause shall be a reference to 
the percentage increase described in subclause (I) minus 
the percentage change under this subclause.’’; 
(2) in the first sentence of clause (viii)(I), by 
inserting ‘‘(but not below zero)’’ after ‘‘shall be re-
duced’’; and 
(3) in the first sentence of clause (ix)(I)— 
(A) by inserting ‘‘(determined without re-
gard to clause (iii)(II))’’ after ‘‘clause (i)’’ the 
second time it appears; and 
(B) by inserting ‘‘(but not below zero)’’ 
after ‘‘reduced’’. 
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(b) 
SKILLED
NURSING
FACILITIES.—Section 
1888(e)(5)(B) of such Act (42 U.S.C. 1395yy(e)(5)(B)) 
is amended by inserting ‘‘subject to the productivity ad-
justment described in section 1886(b)(3)(B)(iii)(II)’’ after 
‘‘as calculated by the Secretary’’. 
(c) 
LONG
TERM
CARE
HOSPITALS.—Section 
1886(m) of the Social Security Act (42 U.S.C. 
1395ww(m)) is amended by adding at the end the fol-
lowing new paragraph: 
‘‘(3) PRODUCTIVITY
ADJUSTMENT.—In imple-
menting the system described in paragraph (1) for 
discharges occurring on or after January 1, 2010, 
during the rate year ending in 2010 or any subse-
quent rate year for a hospital, to the extent that an 
annual percentage increase factor applies to a stand-
ard Federal rate for such discharges for the hos-
pital, such factor shall be subject to the productivity 
adjustment 
described 
in 
subsection 
(b)(3)(B)(iii)(II).’’. 
(d) INPATIENT REHABILITATION FACILITIES.—The 
second sentence of section 1886(j)(3)(C) of the Social Se-
curity Act (42 U.S.C. 1395ww(j)(3)(C)) is amended by in-
serting ‘‘(subject to the productivity adjustment described 
in subsection (b)(3)(B)(iii)(II))’’ after ‘‘appropriate per-
centage increase’’. 
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(e) PSYCHIATRIC HOSPITALS.—Section 1886 of the 
Social Security Act (42 U.S.C. 1395ww) is amended by 
adding at the end the following new subsection: 
‘‘(o) PROSPECTIVE
PAYMENT
FOR
PSYCHIATRIC 
HOSPITALS.— 
‘‘(1) REFERENCE TO ESTABLISHMENT AND IM-
PLEMENTATION OF SYSTEM.—For provisions related 
to the establishment and implementation of a pro-
spective payment system for payments under this 
title for inpatient hospital services furnished by psy-
chiatric hospitals (as described in clause (i) of sub-
section (d)(1)(B) and psychiatric units (as described 
in the matter following clause (v) of such sub-
section), see section 124 of the Medicare, Medicaid, 
and SCHIP Balanced Budget Refinement Act of 
1999. 
‘‘(2) PRODUCTIVITY
ADJUSTMENT.—In imple-
menting the system described in paragraph (1) for 
days occurring during the rate year ending in 2011 
or any subsequent rate year for a psychiatric hos-
pital or unit described in such paragraph, to the ex-
tent that an annual percentage increase factor ap-
plies to a base rate for such days for the hospital 
or unit, respectively, such factor shall be subject to 
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the productivity adjustment described in subsection 
(b)(3)(B)(iii)(II).’’. 
(f) HOSPICE CARE.—Subclause (VII) of section 
1814(i)(1)(C)(ii) of the Social Security Act (42 U.S.C. 
1395f(i)(1)(C)(ii)) is amended by inserting after ‘‘the 
market basket percentage increase’’ the following: ‘‘(which 
is subject to the productivity adjustment described in sec-
tion 1886(b)(3)(B)(iii)(II))’’. 
(g) EFFECTIVE DATES.— 
(1) IPPS.—The amendments made by sub-
section (a) shall apply to annual increases effected 
for fiscal years beginning with fiscal year 2010, but 
only with respect to discharges occurring on or after 
January 1, 2010. 
(2) SNF AND IRF.—The amendments made by 
subsections (b) and (d) shall apply to annual in-
creases effected for fiscal years beginning with fiscal 
year 2011. 
(3) HOSPICE CARE.—The amendment made by 
subsection (f) shall apply to annual increases ef-
fected for fiscal years beginning with fiscal year 
2010, but only with respect to days of care occurring 
on or after January 1, 2010. 
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PART 2—OTHER MEDICARE PART A PROVISIONS 
SEC. 1111. PAYMENTS TO SKILLED NURSING FACILITIES. 
(a) CHANGE IN RECALIBRATION FACTOR.— 
(1) ANALYSIS.—The Secretary of Health and 
Human Services shall conduct, using calendar year 
2006 claims data, an initial analysis comparing total 
payments under title XVIII of the Social Security 
Act for skilled nursing facility services under the 
RUG–53 and under the RUG–44 classification sys-
tems. 
(2) ADJUSTMENT
IN
RECALIBRATION
FAC-
TOR.—Based on the initial analysis under paragraph 
(1), the Secretary shall adjust the case mix indexes 
under section 1888(e)(4)(G)(i) of the Social Security 
Act (42 U.S.C. 1395yy(e)(4)(G)(i)) for fiscal year 
2010 by the appropriate recalibration factor as pro-
posed in the proposed rule for Medicare skilled nurs-
ing facilities issued by such Secretary on May 12, 
2009 (74 Federal Register 22214 et seq.). 
(b) CHANGE IN PAYMENT FOR NONTHERAPY ANCIL-
LARY (NTA) SERVICES AND THERAPY SERVICES.— 
(1) CHANGES
UNDER
CURRENT
SNF
CLASSI-
FICATION SYSTEM.— 
(A) IN
GENERAL.—Subject to subpara-
graph (B), the Secretary of Health and Human 
Services shall, under the system for payment of 
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skilled nursing facility services under section 
1888(e) of the Social Security Act (42 U.S.C. 
1395yy(e)), increase payment by 10 percent for 
non-therapy ancillary services (as specified by 
the Secretary in the notice issued on November 
27, 1998 (63 Federal Register 65561 et seq.)) 
and shall decrease payment for the therapy case 
mix component of such rates by 5.5 percent. 
(B) EFFECTIVE
DATE.—The changes in 
payment described in subparagraph (A) shall 
apply for days on or after January 1, 2010, 
and until the Secretary implements an alter-
native case mix classification system for pay-
ment of skilled nursing facility services under 
section 1888(e) of the Social Security Act (42 
U.S.C. 1395yy(e)). 
(C) IMPLEMENTATION.—Notwithstanding 
any other provision of law, the Secretary may 
implement by program instruction or otherwise 
the provisions of this paragraph. 
(2) CHANGES UNDER A FUTURE SNF CASE MIX 
CLASSIFICATION SYSTEM.— 
(A) ANALYSIS.— 
(i) IN
GENERAL.—The Secretary of 
Health and Human Services shall analyze 
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payments for non-therapy ancillary services 
under a future skilled nursing facility clas-
sification system to ensure the accuracy of 
payment for non-therapy ancillary services. 
Such analysis shall consider use of appro-
priate predictors which may include age, 
physical and mental status, ability to per-
form activities of daily living, prior nursing 
home stay, diagnoses, broad RUG cat-
egory, and a proxy for length of stay. 
(ii) 
APPLICATION.—Such 
analysis 
shall be conducted in a manner such that 
the future skilled nursing facility classifica-
tion system is implemented to apply to 
services furnished during a fiscal year be-
ginning with fiscal year 2011. 
(B) CONSULTATION.—In conducting the 
analysis under subparagraph (A), the Secretary 
shall consult with interested parties, including 
the Medicare Payment Advisory Commission 
and other interested stakeholders, to identify 
appropriate predictors of nontherapy ancillary 
costs. 
(C) RULEMAKING.—The Secretary shall 
include the result of the analysis under sub-
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paragraph (A) in the fiscal year 2011 rule-
making cycle for purposes of implementation 
beginning for such fiscal year. 
(D) IMPLEMENTATION.—Subject to sub-
paragraph (E) and consistent with subpara-
graph (A)(ii), the Secretary shall implement 
changes to payments for non-therapy ancillary 
services (which shall include a separate rate 
component for non-therapy ancillary services 
and may include use of a model that predicts 
payment amounts applicable for non-therapy 
ancillary services) under such future skilled 
nursing facility services classification system as 
the Secretary determines appropriate based on 
the analysis conducted pursuant to subpara-
graph (A). 
(E) BUDGET NEUTRALITY.—The Secretary 
shall implement changes described in subpara-
graph (D) in a manner such that the estimated 
expenditures under such future skilled nursing 
facility services classification system for a fiscal 
year beginning with fiscal year 2011 with such 
changes would be equal to the estimated ex-
penditures that would otherwise occur under 
title XVIII of the Social Security Act under 
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such future skilled nursing facility services clas-
sification system for such year without such 
changes. 
(c) OUTLIER POLICY FOR NTA AND THERAPY.—Sec-
tion 1888(e) of the Social Security Act (42 U.S.C. 
1395yy(e)) is amended by adding at the end the following 
new paragraph: 
‘‘(13) OUTLIERS FOR NTA AND THERAPY.— 
‘‘(A) 
IN
GENERAL.—With 
respect 
to 
outliers because of unusual variations in the 
type or amount of medically necessary care, be-
ginning with October 1, 2010, the Secretary— 
‘‘(i) shall provide for an addition or 
adjustment to the payment amount other-
wise made under this section with respect 
to non-therapy ancillary services in the 
case of such outliers; and 
‘‘(ii) may provide for such an addition 
or adjustment to the payment amount oth-
erwise made under this section with re-
spect to therapy services in the case of 
such outliers. 
‘‘(B) OUTLIERS
BASED
ON
AGGREGATE 
COSTS.—Outlier adjustments or additional pay-
ments described in subparagraph (A) shall be 
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based on aggregate costs during a stay in a 
skilled nursing facility and not on the number 
of days in such stay. 
‘‘(C) BUDGET
NEUTRALITY.—The Sec-
retary shall reduce estimated payments that 
would otherwise be made under the prospective 
payment system under this subsection with re-
spect to a fiscal year by 2 percent. The total 
amount of the additional payments or payment 
adjustments for outliers made under this para-
graph with respect to a fiscal year may not ex-
ceed 2 percent of the total payments projected 
or estimated to be made based on the prospec-
tive payment system under this subsection for 
the fiscal year.’’. 
(d) 
CONFORMING
AMENDMENTS.—Section 
1888(e)(8) of such Act (42 U.S.C. 1395yy(e)(8)) is 
amended— 
(1) in subparagraph (A)— 
(A) by striking ‘‘and’’ before ‘‘adjust-
ments’’; and 
(B) by inserting ‘‘, and adjustment under 
section 1111(b) of the Affordable Health Care 
for America Act’’ before the semicolon at the 
end; 
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(2) in subparagraph (B), by striking ‘‘and’’; 
(3) in subparagraph (C), by striking the period 
and inserting ‘‘; and’’; and 
(4) by adding at the end the following new sub-
paragraph: 
‘‘(D) the establishment of outliers under 
paragraph (13).’’. 
SEC. 1112. MEDICARE DSH REPORT AND PAYMENT ADJUST-
MENTS IN RESPONSE TO COVERAGE EXPAN-
SION. 
(a) DSH REPORT.— 
(1) IN GENERAL.—Not later than January 1, 
2016, the Secretary of Health and Human Services 
shall submit to Congress a report on Medicare DSH 
taking into account the impact of the health care re-
forms carried out under division A in reducing the 
number of uninsured individuals. The report shall 
include recommendations relating to the following: 
(A) The appropriate amount, targeting, 
and distribution of Medicare DSH to com-
pensate for higher Medicare costs associated 
with serving low-income beneficiaries (taking 
into account variations in the empirical jus-
tification for Medicare DSH attributable to hos-
pital characteristics, including bed size), con-
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sistent with the original intent of Medicare 
DSH. 
(B) The appropriate amount, targeting, 
and distribution of Medicare DSH to hospitals 
given their continued uncompensated care costs, 
to the extent such costs remain. 
(2) COORDINATION WITH MEDICAID DSH RE-
PORT.—The Secretary shall coordinate the report 
under this subsection with the report on Medicaid 
DSH under section 1704(a). 
(b) PAYMENT ADJUSTMENTS IN RESPONSE TO COV-
ERAGE EXPANSION.— 
(1) IN GENERAL.—If there is a significant de-
crease in the national rate of uninsurance as a result 
of this Act (as determined under paragraph (2)(A)), 
then the Secretary of Health and Human Services 
shall, beginning in fiscal year 2017, implement the 
following adjustments to Medicare DSH: 
(A) In lieu of the amount of Medicare 
DSH payment that would otherwise be made 
under section 1886(d)(5)(F) of the Social Secu-
rity Act, the amount of Medicare DSH payment 
shall be an amount based on the recommenda-
tions of the report under subsection (a)(1)(A) 
and shall take into account variations in the 
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empirical justification for Medicare DSH attrib-
utable to hospital characteristics, including bed 
size. 
(B) Subject to paragraph (3), make an ad-
ditional payment to a hospital by an amount 
that is estimated based on the amount of un-
compensated care provided by the hospital 
based on criteria for uncompensated care as de-
termined by the Secretary, which shall exclude 
bad debt. 
(2) SIGNIFICANT DECREASE IN NATIONAL RATE 
OF UNINSURANCE AS A RESULT OF THIS ACT.—For 
purposes of this subsection— 
(A) IN GENERAL.—There is a ‘‘significant 
decrease in the national rate of uninsurance as 
a result of this Act’’ if there is a decrease in 
the national rate of uninsurance (as defined in 
subparagraph (B)) from 2012 to 2014 that ex-
ceeds 8 percentage points. 
(B) NATIONAL
RATE
OF
UNINSURANCE 
DEFINED.—The 
term 
‘‘national 
rate 
of 
uninsurance’’ means, for a year, such rate for 
the under-65 population for the year as deter-
mined and published by the Bureau of the Cen-
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sus in its Current Population Survey in or 
about September of the succeeding year. 
(3) UNCOMPENSATED CARE INCREASE.— 
(A) COMPUTATION OF DSH SAVINGS.—For 
each fiscal year (beginning with fiscal year 
2017), the Secretary shall estimate the aggre-
gate reduction in the amount of Medicare DSH 
payment that would be expected to result from 
the adjustment under paragraph (1)(A). 
(B) 
STRUCTURE
OF
PAYMENT
IN-
CREASE.—The Secretary shall compute the ad-
ditional payment to a hospital as described in 
paragraph (1)(B) for a fiscal year in accordance 
with a formula established by the Secretary 
that provides that— 
(i) the estimated aggregate amount of 
such increase for the fiscal year does not 
exceed 50 percent of the aggregate reduc-
tion in Medicare DSH estimated by the 
Secretary for such fiscal year; and 
(ii) hospitals with higher levels of un-
compensated care receive a greater in-
crease. 
(c) MEDICARE DSH.—In this section, the term 
‘‘Medicare DSH’’ means adjustments in payments under 
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section 1886(d)(5)(F) of the Social Security Act (42 
U.S.C. 1395ww(d)(5)(F)) for inpatient hospital services 
furnished by disproportionate share hospitals. 
SEC. 1113. EXTENSION OF HOSPICE REGULATION MORATO-
RIUM. 
Section 4301(a) of division B of the American Recov-
ery and Reinvestment Act of 2009 (Public Law 111–5) 
is amended— 
(1) by striking ‘‘October 1, 2009’’ and inserting 
‘‘October 1, 2010’’; and 
(2) by striking ‘‘for fiscal year 2009’’ and in-
serting ‘‘for fiscal years 2009 and 2010’’. 
SEC. 1114. PERMITTING PHYSICIAN ASSISTANTS TO ORDER 
POST-HOSPITAL EXTENDED CARE SERVICES 
AND TO PROVIDE FOR RECOGNITION OF AT-
TENDING PHYSICIAN ASSISTANTS AS AT-
TENDING PHYSICIANS TO SERVE HOSPICE 
PATIENTS. 
(a) ORDERING POST-HOSPITAL EXTENDED CARE 
SERVICES.—Section 1814(a) of the Social Security Act 
(42 U.S.C. 1395f(a)) is amended— 
(1) in paragraph (2) in the matter preceding 
subparagraph (A), is amended by striking ‘‘nurse 
practitioner or clinical nurse specialist’’ and insert-
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ing ‘‘nurse practitioner, a clinical nurse specialist, or 
a physician assistant’’. 
(2) in the second sentence, by striking ‘‘or clin-
ical nurse specialist’’ and inserting ‘‘clinical nurse 
specialist, or physician assistant’’. 
(b) RECOGNITION OF ATTENDING PHYSICIAN AS-
SISTANTS AS ATTENDING PHYSICIANS TO SERVE HOSPICE 
PATIENTS.— 
(1) IN GENERAL.—Section 1861(dd)(3)(B) of 
such Act (42 U.S.C. 1395x(dd)(3)(B)) is amended— 
(A) by striking ‘‘or nurse’’ and inserting ‘‘, 
the nurse’’; and 
(B) by inserting ‘‘or the physician assist-
ant (as defined in such subsection),’’ after 
‘‘subsection (aa)(5)),’’. 
(2) 
CONFORMING
AMENDMENT.—Section 
1814(a)(7)(A)(i)(I) 
of 
such 
Act 
(42 
U.S.C. 
1395f(a)(7)(A)(i)(I)) is amended by inserting ‘‘or a 
physician assistant’’ after ‘‘a nurse practitioner’’. 
(3) CONSTRUCTION.—Nothing in the amend-
ments made by this subsection shall be construed as 
changing the requirements of section 1842(b)(6)(C) 
of 
the 
Social 
Security 
Act 
(42 
U.S.C. 
1395u(b)(6)(C)) with respect to payment for serv-
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ices of physician assistants under part B of title 
XVIII of such Act. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to items and services furnished on 
or after January 1, 2010. 
Subtitle B—Provisions Related to 
Part B 
PART 1—PHYSICIANS’ SERVICES 
SEC. 1121. RESOURCE-BASED FEEDBACK PROGRAM FOR 
PHYSICIANS IN MEDICARE. 
Section 1848(n) of the Social Security Act (42 U.S.C. 
1395w–4(n)) is amended by adding at the end the fol-
lowing new paragraph: 
‘‘(9) FEEDBACK IMPLEMENTATION PLAN.— 
‘‘(A) TIMELINE
FOR
FEEDBACK
PRO-
GRAM.— 
‘‘(i) EVALUATION.—During 2011 the 
Secretary shall conduct the evaluation 
specified in subparagraph (E)(i). 
‘‘(ii) 
EXPANSION.—The 
Secretary 
shall expand the Program under this sub-
section 
as 
specified 
in 
subparagraph 
(E)(ii). 
‘‘(B) ESTABLISHMENT OF NATURE OF RE-
PORTS.— 
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‘‘(i) IN
GENERAL.—The Secretary 
shall develop and specify the nature of the 
reports that will be disseminated under 
this subsection, based on results and find-
ings from the Program under this sub-
section as in existence before the date of 
the enactment of this paragraph. Such re-
ports may be based on a per capita basis, 
an episode basis that combines separate 
but clinically related physicians’ services 
and other items and services furnished or 
ordered by a physician into an episode of 
care, as appropriate, or both. 
‘‘(ii) 
TIMELINE
FOR
DEVELOP-
MENT.—The nature of the reports de-
scribed in clause (i) shall be developed by 
not later than January 1, 2012. 
‘‘(iii) 
PUBLIC
AVAILABILITY.—The 
Secretary shall make the details of the na-
ture of the reports developed under clause 
(i) available to the public. 
‘‘(C) ANALYSIS OF DATA.—The Secretary 
shall, for purposes of preparing reports under 
this subsection, establish methodologies as ap-
propriate such as to— 
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‘‘(i) attribute items and services, in 
whole or in part, to physicians; 
‘‘(ii) identify appropriate physicians 
for purposes of comparison under subpara-
graph (B)(i); and 
‘‘(iii) aggregate items and services at-
tributed to a physician under clause (i) 
into a composite measure per individual. 
‘‘(D) FEEDBACK
PROGRAM.—The Sec-
retary shall engage in efforts to disseminate re-
ports under this subsection. In disseminating 
such reports, the Secretary shall consider the 
following: 
‘‘(i) Direct meetings between con-
tracted physicians, facilitated by the Sec-
retary, to discuss the contents of reports 
under this subsection, including any rea-
sons for divergence from local or national 
averages. 
‘‘(ii) Contract with local, non-profit 
entities engaged in quality improvement ef-
forts at the community level. Such entities 
shall use the reports under this subsection, 
or such equivalent tool as specified by the 
Secretary. Any exchange of data under this 
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paragraph shall be protected by appro-
priate privacy safeguards. 
‘‘(iii) Mailings or other methods of 
communication that facilitate large-scale 
dissemination. 
‘‘(iv) Other methods specified by the 
Secretary. 
‘‘(E) EVALUATION AND EXPANSION.— 
‘‘(i) 
EVALUATION.—The 
Secretary 
shall evaluate the methods specified in sub-
paragraph (D) with regard to their efficacy 
in changing practice patterns to improve 
quality and decrease costs. 
‘‘(ii) EXPANSION.—Taking into ac-
count the cost of each method specified in 
subparagraph (D), the Secretary shall de-
velop a plan to disseminate reports under 
this subsection in a significant manner in 
the regions and cities of the country with 
the highest utilization of services under 
this title. To the extent practicable, reports 
under this subsection shall be disseminated 
to increasing numbers of physicians each 
year, such that during 2014 and subse-
quent years, reports are disseminated at 
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least to physicians with utilization rates 
among the highest 5 percent of the nation, 
subject the authority to focus under para-
graph (4). 
‘‘(F) ADMINISTRATION.— 
‘‘(i) Chapter 35 of title 44, United 
States Code shall not apply to this para-
graph. 
‘‘(ii) Notwithstanding any other provi-
sion of law, the Secretary may implement 
the provisions of this paragraph by pro-
gram instruction or otherwise.’’. 
SEC. 1122. MISVALUED CODES UNDER THE PHYSICIAN FEE 
SCHEDULE. 
(a) IN GENERAL.—Section 1848(c)(2) of the Social 
Security Act (42 U.S.C. 1395w-4(c)(2)) is amended by 
adding at the end the following new subparagraphs: 
‘‘(K) POTENTIALLY MISVALUED CODES.— 
‘‘(i) IN
GENERAL.—The Secretary 
shall— 
‘‘(I) periodically identify services 
as being potentially misvalued using 
criteria specified in clause (ii); and 
‘‘(II) review and make appro-
priate adjustments to the relative val-
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ues established under this paragraph 
for services identified as being poten-
tially misvalued under subclause (I). 
‘‘(ii) 
IDENTIFICATION
OF
POTEN-
TIALLY MISVALUED CODES.—For purposes 
of identifying potentially misvalued services 
pursuant to clause (i)(I), the Secretary 
shall examine (as the Secretary determines 
to be appropriate) codes (and families of 
codes as appropriate) for which there has 
been the fastest growth; codes (and fami-
lies of codes as appropriate) that have ex-
perienced substantial changes in practice 
expenses; codes for new technologies or 
services within an appropriate period (such 
as three years) after the relative values are 
initially established for such codes; mul-
tiple codes that are frequently billed in 
conjunction with furnishing a single serv-
ice; codes with low relative values, particu-
larly those that are often billed multiple 
times for a single treatment; codes which 
have not been subject to review since the 
implementation of the RBRVS (the so- 
called ‘Harvard-valued codes’); and such 
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other codes determined to be appropriate 
by the Secretary. 
‘‘(iii) REVIEW AND ADJUSTMENTS.— 
‘‘(I) The Secretary may use ex-
isting 
processes 
to 
receive 
rec-
ommendations on the review and ap-
propriate adjustment of potentially 
misvalued services described clause 
(i)(II). 
‘‘(II) The Secretary may conduct 
surveys, other data collection activi-
ties, studies, or other analyses as the 
Secretary determines to be appro-
priate to facilitate the review and ap-
propriate adjustment described in 
clause (i)(II). 
‘‘(III) The Secretary may use 
analytic contractors to identify and 
analyze 
services 
identified 
under 
clause (i)(I), conduct surveys or col-
lect data, and make recommendations 
on the review and appropriate adjust-
ment of services described in clause 
(i)(II). 
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‘‘(IV) The Secretary may coordi-
nate the review and appropriate ad-
justment described in clause (i)(II) 
with the periodic review described in 
subparagraph (B). 
‘‘(V) As part of the review and 
adjustment described in clause (i)(II), 
including with respect to codes with 
low relative values described in clause 
(ii), the Secretary may make appro-
priate 
coding 
revisions 
(including 
using existing processes for consider-
ation of coding changes) which may 
include consolidation of individual 
services into bundled codes for pay-
ment under the fee schedule under 
subsection (b). 
‘‘(VI) The provisions of subpara-
graph (B)(ii)(II) shall apply to adjust-
ments to relative value units made 
pursuant to this subparagraph in the 
same manner as such provisions apply 
to adjustments under subparagraph 
(B)(ii)(II). 
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‘‘(L) 
VALIDATING
RELATIVE
VALUE 
UNITS.— 
‘‘(i) IN
GENERAL.—The Secretary 
shall establish a process to validate relative 
value units under the fee schedule under 
subsection (b). 
‘‘(ii) COMPONENTS
AND
ELEMENTS 
OF
WORK.—The process described in 
clause (i) may include validation of work 
elements (such as time, mental effort and 
professional judgment, technical skill and 
physical effort, and stress due to risk) in-
volved with furnishing a service and may 
include validation of the pre, post, and 
intra-service components of work. 
‘‘(iii) SCOPE OF CODES.—The valida-
tion of work relative value units shall in-
clude a sampling of codes for services that 
is the same as the codes listed under sub-
paragraph (K)(ii) 
‘‘(iv) METHODS.—The Secretary may 
conduct the validation under this subpara-
graph using methods described in sub-
clauses (I) through (V) of subparagraph 
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(K)(iii) as the Secretary determines to be 
appropriate. 
‘‘(v) ADJUSTMENTS.—The Secretary 
shall make appropriate adjustments to the 
work relative value units under the fee 
schedule under subsection (b). The provi-
sions of subparagraph (B)(ii)(II) shall 
apply to adjustments to relative value units 
made pursuant to this subparagraph in the 
same manner as such provisions apply to 
adjustments 
under 
subparagraph 
(B)(ii)(II).’’. 
(b) IMPLEMENTATION.— 
(1) FUNDING.—For purposes of carrying out 
the provisions of subparagraphs (K) and (L) of 
1848(c)(2) of the Social Security Act, as added by 
subsection (a), in addition to funds otherwise avail-
able, out of any funds in the Treasury not otherwise 
appropriated, there are appropriated to the Sec-
retary of Health and Human Services for the Center 
for Medicare & Medicaid Services Program Manage-
ment Account $20,000,000 for fiscal year 2010 and 
each subsequent fiscal year. Amounts appropriated 
under this paragraph for a fiscal year shall be avail-
able until expended. 
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(2) ADMINISTRATION.— 
(A) Chapter 35 of title 44, United States 
Code and the provisions of the Federal Advisory 
Committee Act (5 U.S.C. App.) shall not apply 
to this section or the amendment made by this 
section. 
(B) Notwithstanding any other provision of 
law, the Secretary may implement subpara-
graphs (K) and (L) of 1848(c)(2) of the Social 
Security Act, as added by subsection (a), by 
program instruction or otherwise. 
(C) Section 4505(d) of the Balanced 
Budget Act of 1997 is repealed. 
(D) Except for provisions related to con-
fidentiality of information, the provisions of the 
Federal Acquisition Regulation shall not apply 
to this section or the amendment made by this 
section. 
(3) FOCUSING
CMS
RESOURCES
ON
POTEN-
TIALLY
OVERVALUED
CODES.—Section 1868(a) of 
the Social Security Act (42 1395ee(a)) is repealed. 
SEC. 1123. PAYMENTS FOR EFFICIENT AREAS. 
Section 1833 of the Social Security Act (42 U.S.C. 
1395l) is amended by adding at the end the following new 
subsection: 
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‘‘(x) 
INCENTIVE
PAYMENTS
FOR
EFFICIENT 
AREAS.— 
‘‘(1) IN GENERAL.—In the case of services fur-
nished under the physician fee schedule under sec-
tion 1848 on or after January 1, 2011, and before 
January 1, 2013, by a supplier that is paid under 
such fee schedule in an efficient area (as identified 
under paragraph (2)), in addition to the amount of 
payment that would otherwise be made for such 
services under this part, there also shall be paid (on 
a monthly or quarterly basis) an amount equal to 5 
percent of the payment amount for the services 
under this part. 
‘‘(2) IDENTIFICATION OF EFFICIENT AREAS.— 
‘‘(A) IN GENERAL.—Based upon available 
data, the Secretary shall identify those counties 
or equivalent areas in the United States in the 
lowest fifth percentile of utilization based on 
per capita spending under this part and part A 
for services provided in the most recent year for 
which data are available as of the date of the 
enactment of this subsection, as standardized to 
eliminate the effect of geographic adjustments 
in payment rates. 
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‘‘(B) 
IDENTIFICATION
OF
COUNTIES 
WHERE
SERVICE
IS
FURNISHED..—For pur-
poses of paying the additional amount specified 
in paragraph (1), if the Secretary uses the 5- 
digit postal ZIP Code where the service is fur-
nished, the dominant county of the postal ZIP 
Code (as determined by the United States Post-
al Service, or otherwise) shall be used to deter-
mine whether the postal ZIP Code is in a coun-
ty described in subparagraph (A). 
‘‘(C) LIMITATION
ON
REVIEW.—There 
shall be no administrative or judicial review 
under section 1869, 1878, or otherwise, respect-
ing— 
‘‘(i) the identification of a county or 
other area under subparagraph (A); or 
‘‘(ii) the assignment of a postal ZIP 
Code to a county or other area under sub-
paragraph (B). 
‘‘(D) PUBLICATION OF LIST OF COUNTIES; 
POSTING ON WEBSITE.—With respect to a year 
for which a county or area is identified under 
this paragraph, the Secretary shall identify 
such counties or areas as part of the proposed 
and final rule to implement the physician fee 
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schedule under section 1848 for the applicable 
year. The Secretary shall post the list of coun-
ties identified under this paragraph on the 
Internet website of the Centers for Medicare & 
Medicaid Services.’’. 
SEC. 1124. MODIFICATIONS TO THE PHYSICIAN QUALITY 
REPORTING INITIATIVE (PQRI). 
(a) FEEDBACK.—Section 1848(m)(5) of the Social 
Security Act (42 U.S.C. 1395w–4(m)(5)) is amended by 
adding at the end the following new subparagraph: 
‘‘(H) FEEDBACK.—The Secretary shall 
provide timely feedback to eligible professionals 
on the performance of the eligible professional 
with respect to satisfactorily submitting data on 
quality measures under this subsection.’’. 
(b) APPEALS.—Such section is further amended— 
(1) in subparagraph (E), by striking ‘‘There 
shall be’’ and inserting ‘‘Except as provided in sub-
paragraph (I), there shall be’’; and 
(2) by adding at the end the following new sub-
paragraph: 
‘‘(I) INFORMAL
APPEALS
PROCESS.—By 
not later than January 1, 2011, the Secretary 
shall establish and have in place an informal 
process for eligible professionals to seek a re-
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view of the determination that an eligible pro-
fessional did not satisfactorily submit data on 
quality measures under this subsection.’’. 
(c) INTEGRATION OF PHYSICIAN QUALITY REPORT-
ING AND EHR REPORTING.—Section 1848(m) of such 
Act is amended by adding at the end the following new 
paragraph: 
‘‘(7) INTEGRATION OF PHYSICIAN QUALITY RE-
PORTING
AND
EHR
REPORTING.—Not later than 
January 1, 2012, the Secretary shall develop a plan 
to integrate clinical reporting on quality measures 
under this subsection with reporting requirements 
under subsection (o) relating to the meaningful use 
of electronic health records. Such integration shall 
consist of the following: 
‘‘(A) The development of measures, the re-
porting of which would both demonstrate— 
‘‘(i) meaningful use of an electronic 
health record for purposes of subsection 
(o); and 
‘‘(ii) clinical quality of care furnished 
to an individual. 
‘‘(B) The collection of health data to iden-
tify deficiencies in the quality and coordination 
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of care for individuals eligible for benefits under 
this part. 
‘‘(C) Such other activities as specified by 
the Secretary.’’. 
(d) EXTENSION OF INCENTIVE PAYMENTS.—Section 
1848(m)(1) of such Act (42 U.S.C. 1395w–4(m)(1)) is 
amended— 
(1) in subparagraph (A), by striking ‘‘2010’’ 
and inserting ‘‘2012’’; and 
(2) in subparagraph (B)(ii), by striking ‘‘2009 
and 2010’’ and inserting ‘‘for each of the years 2009 
through 2012’’. 
SEC. 1125. ADJUSTMENT TO MEDICARE PAYMENT LOCAL-
ITIES. 
(a) IN GENERAL.—Section 1848(e) of the Social Se-
curity Act (42 U.S.C.1395w–4(e)) is amended by adding 
at the end the following new paragraph: 
‘‘(6) TRANSITION
TO
USE
OF
MSAS
AS
FEE 
SCHEDULE AREAS IN CALIFORNIA.— 
‘‘(A) IN GENERAL.— 
‘‘(i) REVISION.—Subject to clause (ii) 
and notwithstanding the previous provi-
sions of this subsection, for services fur-
nished on or after January 1, 2011, the 
Secretary shall revise the fee schedule 
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areas used for payment under this section 
applicable to the State of California using 
the Metropolitan Statistical Area (MSA) 
iterative Geographic Adjustment Factor 
methodology as follows: 
‘‘(I) The Secretary shall con-
figure the physician fee schedule areas 
using the Metropolitan Statistical 
Areas (each in this paragraph referred 
to as an ‘MSA’), as defined by the Di-
rector of the Office of Management 
and Budget and published in the Fed-
eral Register, using the most recent 
available decennial population data as 
of the date of the enactment of the 
Affordable Health Care for America 
Act, as the basis for the fee schedule 
areas. 
‘‘(II) For purposes of this clause, 
the Secretary shall treat all areas not 
included in an MSA as a single rest of 
the State MSA. 
‘‘(III) The Secretary shall list all 
MSAs within the State by Geographic 
Adjustment Factor described in para-
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graph (2) (in this paragraph referred 
to as a ‘GAF’) in descending order. 
‘‘(IV) In the first iteration, the 
Secretary shall compare the GAF of 
the highest cost MSA in the State to 
the weighted-average GAF of all the 
remaining MSAs in the State (includ-
ing the rest of State MSA described 
in subclause (II)). If the ratio of the 
GAF of the highest cost MSA to the 
weighted-average of the GAF of re-
maining lower cost MSAs is 1.05 or 
greater, the highest cost MSA shall be 
a separate fee schedule area. 
‘‘(V) In the next iteration, the 
Secretary shall compare the GAF of 
the MSA with the second-highest 
GAF to the weighted-average GAF of 
the all the remaining MSAs (excluding 
MSAs that become separate fee sched-
ule areas). If the ratio of the second- 
highest MSA’s GAF to the weighted- 
average of the remaining lower cost 
MSAs is 1.05 or greater, the second- 
highest MSA shall be a separate fee 
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schedule area. ‘‘(VI) The iterative 
process shall continue until the ratio 
of the GAF of the MSA with highest 
remaining GAF to the weighted-aver-
age of the remaining MSAs with lower 
GAFS is less than 1.05, and the re-
maining group of MSAs with lower 
GAFS shall be treated as a single fee 
schedule area. 
‘‘(VI) 
For 
purposes 
of 
the 
iterative process described in this 
clause, if two MSAs have identical 
GAFs, they shall be combined. 
‘‘(ii) TRANSITION.—For services fur-
nished on or after January 1, 2011, and 
before January 1, 2016, in the State of 
California, after calculating the work, prac-
tice expense, and malpractice geographic 
indices that would otherwise be determined 
under clauses (i), (ii), and (iii) of para-
graph (1)(A) for a fee schedule area deter-
mined under clause (i), if the index for a 
county within a fee schedule area is less 
than the index in effect for such county on 
December 31, 2010, the Secretary shall in-
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stead apply the index in effect for such 
county on such date. 
‘‘(B) SUBSEQUENT REVISIONS.—After the 
transition described in subparagraph (A)(ii), 
not less than every 3 years the Secretary shall 
review and update the fee schedule areas using 
the methodology described in subparagraph 
(A)(i) and any updated MSAs as defined by the 
Director of the Office of Management and 
Budget and published in the Federal Register. 
The Secretary shall review and make any 
changes pursuant to such reviews concurrent 
with the application of the periodic review of 
the adjustment factors required under para-
graph (1)(C) for California. 
‘‘(C) REFERENCES
TO
FEE
SCHEDULE 
AREAS.—Effective for services furnished on or 
after January 1, 2011, for the State of Cali-
fornia, any reference in this section to a fee 
schedule area shall be deemed a reference to an 
MSA in the State (including the single rest of 
state 
MSA 
described 
in 
subparagraph 
(A)(i)(II)).’’. 
(b) CONFORMING AMENDMENT TO DEFINITION OF 
FEE SCHEDULE AREA.—Section 1848(j)(2) of the Social 
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413 
Security Act (42 U.S.C. 1395w(j)(2)) is amended by strik-
ing ‘‘The term’’ and inserting ‘‘Except as provided in sub-
section (e)(6)(C), the term’’. 
PART 2—MARKET BASKET UPDATES 
SEC. 
1131. 
INCORPORATING 
PRODUCTIVITY 
IMPROVE-
MENTS 
INTO 
MARKET 
BASKET 
UPDATES 
THAT DO NOT ALREADY INCORPORATE SUCH 
IMPROVEMENTS. 
(a) OUTPATIENT HOSPITALS.— 
(1) IN GENERAL.—Section 1833(t)(3)(C)(iv) of 
the 
Social 
Security 
Act 
(42 
U.S.C. 
1395l(t)(3)(C)(iv)) is amended—— 
(A) in the first sentence— 
(i) by inserting ‘‘(which is subject to 
the productivity adjustment described in 
subclause (II) of such section)’’ after 
‘‘1886(b)(3)(B)(iii)’’; and 
(ii) by inserting ‘‘(but not below 0)’’ 
after ‘‘reduced’’; and 
(B) in the second sentence, by inserting 
‘‘and which is subject, beginning with 2010, to 
the productivity adjustment described in section 
1886(b)(3)(B)(iii)(II)’’. 
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(2) EFFECTIVE DATE.—The amendments made 
by this subsection shall apply to increase factors for 
services furnished in years beginning with 2010. 
(b) AMBULANCE SERVICES.—Section 1834(l)(3)(B) 
of such Act (42 U.S.C. 1395m(l)(3)(B))) is amended by 
inserting before the period at the end the following: ‘‘and, 
in the case of years beginning with 2010, subject to the 
productivity 
adjustment 
described 
in 
section 
1886(b)(3)(B)(iii)(II)’’. 
(c) AMBULATORY SURGICAL CENTER SERVICES.— 
Section 
1833(i)(2)(D) 
of 
such 
Act 
(42 
U.S.C. 
1395l(i)(2)(D)) is amended— 
(1) by redesignating clause (v) as clause (vi); 
and 
(2) by inserting after clause (iv) the following 
new clause: 
‘‘(v) In implementing the system described in clause 
(i), for services furnished during 2010 or any subsequent 
year, to the extent that an annual percentage change fac-
tor applies, such factor shall be subject to the productivity 
adjustment described in section 1886(b)(3)(B)(iii)(II).’’. 
(d) LABORATORY SERVICES.—Section 1833(h)(2)(A) 
of such Act (42 U.S.C. 1395l(h)(2)(A)) is amended— 
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(1) in clause (i), by striking ‘‘for each of the 
years 2009 through 2013’’ and inserting ‘‘for 
2009’’; and 
(2) clause (ii)— 
(A) by striking ‘‘and’’ at the end of sub-
clause (III); 
(B) by striking the period at the end of 
subclause (IV) and inserting ‘‘; and’’; and 
(C) by adding at the end the following new 
subclause: 
‘‘(V) the annual adjustment in the fee schedules 
determined under clause (i) for years beginning with 
2010 shall be subject to the productivity adjustment 
described in section 1886(b)(3)(B)(iii)(II).’’. 
(e) CERTAIN DURABLE MEDICAL EQUIPMENT.—Sec-
tion 1834(a)(14) of such Act (42 U.S.C. 1395m(a)(14)) 
is amended— 
(1) in subparagraph (K), by inserting before 
the semicolon at the end the following: ‘‘, subject to 
the productivity adjustment described in section 
1886(b)(3)(B)(iii)(II)’’; 
(2) in subparagraph (L)(i), by inserting after 
‘‘June 2013,’’ the following: ‘‘subject to the produc-
tivity 
adjustment 
described 
in 
section 
1886(b)(3)(B)(iii)(II),’’; 
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(3) in subparagraph (L)(ii), by inserting after 
‘‘June 2013’’ the following: ‘‘, subject to the produc-
tivity 
adjustment 
described 
in 
section 
1886(b)(3)(B)(iii)(II)’’; and 
(4) in subparagraph (M), by inserting before 
the period at the end the following: ‘‘, subject to the 
productivity 
adjustment 
described 
in 
section 
1886(b)(3)(B)(iii)(II)’’. 
PART 3—OTHER PROVISIONS 
SEC. 1141. RENTAL AND PURCHASE OF POWER-DRIVEN 
WHEELCHAIRS. 
(a) IN GENERAL.—Section 1834(a)(7)(A)(iii) of the 
Social Security Act (42 U.S.C. 1395m(a)(7)(A)(iii)) is 
amended— 
(1) in the heading, by inserting ‘‘CERTAIN COM-
PLEX REHABILITATIVE’’ after ‘‘OPTION FOR’’; and 
(2) by striking ‘‘power-driven wheelchair’’ and 
inserting ‘‘complex rehabilitative power-driven wheel-
chair recognized by the Secretary as classified within 
group 3 or higher’’. 
(b) EFFECTIVE DATE.—The amendments made by 
subsection (a) shall take effect on January 1, 2011, and 
shall apply to power-driven wheelchairs furnished on or 
after such date. Such amendments shall not apply to con-
tracts entered into under section 1847 of the Social Secu-
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rity Act (42 U.S.C. 1395w–3) pursuant to a bid submitted 
under such section before October 1, 2010, under sub-
section (a)(1)(B)(i)(I) of such section. 
SEC. 1141A. ELECTION TO TAKE OWNERSHIP, OR TO DE-
CLINE OWNERSHIP, OF A CERTAIN ITEM OF 
COMPLEX DURABLE MEDICAL EQUIPMENT 
AFTER THE 13-MONTH CAPPED RENTAL PE-
RIOD ENDS. 
(a) IN GENERAL.—Section 1834(a)(7)(A) of the So-
cial Security Act (42 U.S.C. 1395m(a)(7)(A)) is amend-
ed— 
(1) in clause (ii)— 
(A) by striking ‘‘RENTAL.—On’’ and in-
serting ‘‘RENTAL.— 
‘‘(I) IN
GENERAL.—Except as 
provided in subclause (II), on’’; and 
(B) by adding at the end the following new 
subclause: 
‘‘(II) OPTION TO ACCEPT OR RE-
JECT TRANSFER OF TITLE TO GROUP 
3 SUPPORT SURFACE.— 
‘‘(aa) IN GENERAL.—During 
the 10th continuous month dur-
ing which payment is made for 
the rental of a Group 3 Support 
VerDate Nov 24 2008 
12:56 Oct 30, 2009
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rmajette on DSK29S0YB1PROD with BILLS