‘‘(i) IN GENERAL.—There are hereby
appropriated to the Account from the
Trust Fund such sums as the Secretary
and the Attorney General certify are nec-
essary to carry out the purposes described
in subparagraph (C), to be available with-
out further appropriation, in an amount
not to exceed—
‘‘(I) 
for 
fiscal 
year 
1997,
$104,000,000, and
‘‘(II) for each of the fiscal years
1998 through 2003, the limit for the
preceding fiscal year, increased by 15
percent; and
‘‘(III) for each fiscal year after
fiscal year 2003, the limit for fiscal
year 2003.
‘‘(ii) MEDICARE
AND
MEDICAID
AC-
TIVITIES.—For each fiscal year, of the
amount appropriated in clause (i), the fol-
lowing amounts shall be available only for
the purposes of the activities of the Office
of the Inspector General of the Depart-
ment of Health and Human Services with
respect to the medicare and medicaid pro-
grams—
‘‘(I) for fiscal year 1997, not less
than $60,000,000 and not more than
$70,000,000;
‘‘(II) for fiscal year 1998, not
less than $80,000,000 and not more
than $90,000,000;
‘‘(III) for fiscal year 1999, not
less than $90,000,000 and not more
than $100,000,000;
‘‘(IV) for fiscal year 2000, not
less than $110,000,000 and not more
than $120,000,000;
‘‘(V) for fiscal year 2001, not
less than $120,000,000 and not more
than $130,000,000;
‘‘(VI) for fiscal year 2002, not
less than $140,000,000 and not more
than $150,000,000; and
‘‘(VII) for each fiscal year after
fiscal year 2002, not less than
$150,000,000 and not more than
$160,000,000.
‘‘(B) FEDERAL
BUREAU
OF
INVESTIGA-
TION.—There are hereby appropriated from the
general fund of the United States Treasury and
hereby appropriated to the Account for transfer
to the Federal Bureau of Investigation to carry
out the purposes described in subparagraph
(C), to be available without further appropria-
tion—
‘‘(i) for fiscal year 1997, $47,000,000;
‘‘(ii) 
for 
fiscal 
year 
1998,
$56,000,000;
‘‘(iii) 
for 
fiscal 
year 
1999,
$66,000,000;
‘‘(iv) 
for 
fiscal 
year 
2000,
$76,000,000;
‘‘(v) 
for 
fiscal 
year 
2001,
$88,000,000;
‘‘(vi) 
for 
fiscal 
year 
2002,
$101,000,000; and
‘‘(vii) for each fiscal year after fiscal
year 2002, $114,000,000.
‘‘(C) USE OF FUNDS.—The purposes de-
scribed in this subparagraph are to cover the
costs (including equipment, salaries and bene-
fits, and travel and training) of the administra-
tion and operation of the health care fraud and
abuse control program established under section
1128C(a), including the costs of—
‘‘(i) prosecuting health care matters
(through criminal, civil, and administrative
proceedings);
‘‘(ii) investigations;
‘‘(iii) financial and performance audits
of health care programs and operations;
‘‘(iv) inspections and other evalua-
tions; and
‘‘(v) provider and consumer education
regarding compliance with the provisions of
title XI.
‘‘(4) APPROPRIATED
AMOUNTS
TO
ACCOUNT
FOR MEDICARE INTEGRITY PROGRAM.—
‘‘(A) IN GENERAL.—There are hereby ap-
propriated to the Account from the Trust Fund
for each fiscal year such amounts as are nec-
essary to carry out the Medicare Integrity Pro-
gram under section 1893, subject to subpara-
graph (B) and to be available without further
appropriation.
‘‘(B) AMOUNTS SPECIFIED.—The amount
appropriated under subparagraph (A) for a fis-
cal year is as follows:
‘‘(i) For fiscal year 1997, such
amount 
shall 
be 
not 
less 
than
$430,000,000 
and 
not 
more 
than
$440,000,000.
‘‘(ii) For fiscal year 1998, such
amount 
shall 
be 
not 
less 
than
$490,000,000 
and 
not 
more 
than
$500,000,000.
‘‘(iii) For fiscal year 1999, such
amount 
shall 
be 
not 
less 
than
$550,000,000 
and 
not 
more 
than
$560,000,000.
‘‘(iv) For fiscal year 2000, such
amount 
shall 
be 
not 
less 
than
$620,000,000 
and 
not 
more 
than
$630,000,000.
‘‘(v) For fiscal year 2001, such
amount 
shall 
be 
not 
less 
than
$670,000,000 
and 
not 
more 
than
$680,000,000.
‘‘(vi) For fiscal year 2002, such
amount 
shall 
be 
not 
less 
than
$690,000,000 
and 
not 
more 
than
$700,000,000.
‘‘(vii) For each fiscal year after fiscal
year 2002, such amount shall be not less
than $710,000,000 and not more than
$720,000,000.
‘‘(5) ANNUAL REPORT.—The Secretary and the
Attorney General shall submit jointly an annual re-
port to Congress on the amount of revenue which is
generated and disbursed, and the justification for
such disbursements, by the Account in each fiscal
year.’’.
SEC. 202. MEDICARE INTEGRITY PROGRAM.
(a) ESTABLISHMENT OF MEDICARE INTEGRITY PRO-
GRAM.—Title XVIII is amended by adding at the end the
following new section:
‘‘MEDICARE INTEGRITY PROGRAM
‘‘SEC. 1893. (a) ESTABLISHMENT OF PROGRAM.—
There is hereby established the Medicare Integrity Pro-
gram (in this section referred to as the ‘Program’) under
which the Secretary shall promote the integrity of the
medicare program by entering into contracts in accord-
ance with this section with eligible private entities to carry
out the activities described in subsection (b).
‘‘(b) ACTIVITIES DESCRIBED.—The activities de-
scribed in this subsection are as follows:
‘‘(1) Review of activities of providers of services
or other individuals and entities furnishing items
and services for which payment may be made under
this title (including skilled nursing facilities and
home health agencies), including medical and utiliza-
tion review and fraud review (employing similar
standards, processes, and technologies used by pri-
vate health plans, including equipment and software
technologies which surpass the capability of the
equipment and technologies used in the review of
claims under this title as of the date of the enact-
ment of this section).
‘‘(2) Audit of cost reports.
‘‘(3) Determinations as to whether payment
should not be, or should not have been, made under
this title by reason of section 1862(b), and recovery
of payments that should not have been made.
‘‘(4) Education of providers of services, bene-
ficiaries, and other persons with respect to payment
integrity and benefit quality assurance issues.
‘‘(5) Developing (and periodically updating) a
list of items of durable medical equipment in accord-
ance with section 1834(a)(15) which are subject to
prior authorization under such section.
‘‘(c) ELIGIBILITY OF ENTITIES.—An entity is eligible
to enter into a contract under the Program to carry out
any of the activities described in subsection (b) if—
‘‘(1) the entity has demonstrated capability to
carry out such activities;
‘‘(2) in carrying out such activities, the entity
agrees to cooperate with the Inspector General of
the Department of Health and Human Services, the
Attorney General of the United States, and other
law enforcement agencies, as appropriate, in the in-
vestigation and deterrence of fraud and abuse in re-
lation to this title and in other cases arising out of
such activities;
‘‘(3) the entity demonstrates to the Secretary
that the entity’s financial holdings, interests, or rela-
tionships will not interfere with its ability to perform
the functions to be required by the contract in an ef-
fective and impartial manner; and
‘‘(4) the entity meets such other requirements
as the Secretary may impose.
In the case of the activity described in subsection (b)(5),
an entity shall be deemed to be eligible to enter into a
contract under the Program to carry out the activity if
the entity is a carrier with a contract in effect under sec-
tion 1842.
‘‘(d) PROCESS FOR ENTERING INTO CONTRACTS.—
The Secretary shall enter into contracts under the Pro-
gram in accordance with such procedures as the Secretary
shall by regulation establish, except that such procedures
shall include the following:
‘‘(1) The Secretary shall determine the appro-
priate number of separate contracts which are nec-
essary to carry out the Program and the appropriate
times at which the Secretary shall enter into such
contracts.
‘‘(2)(A) Except as provided in subparagraph
(B), the provisions of section 1153(e)(1) shall apply
to contracts and contracting authority under this
section.
‘‘(B) Competitive procedures must be used
when entering into new contracts under this section,
or at any other time considered appropriate by the
Secretary, except that the Secretary may contract
with entities that are carrying out the activities de-
scribed in this section pursuant to agreements under
section 1816 or contracts under section 1842 in ef-
fect on the date of the enactment of this section.
‘‘(3) A contract under this section may be re-
newed without regard to any provision of law requir-
ing competition if the contractor has met or ex-
ceeded the performance requirements established in
the current contract.
‘‘(e) LIMITATION ON CONTRACTOR LIABILITY.—The
Secretary shall by regulation provide for the limitation of
a contractor’s liability for actions taken to carry out a con-
tract under the Program, and such regulation shall, to the
extent the Secretary finds appropriate, employ the same
or comparable standards and other substantive and proce-
dural provisions as are contained in section 1157.’’.
(b) ELIMINATION OF FI AND CARRIER RESPONSIBIL-
ITY FOR CARRYING OUT ACTIVITIES SUBJECT TO PRO-
GRAM.—
(1) 
RESPONSIBILITIES
OF
FISCAL
INTERMEDIARIES
UNDER
PART
A.—Section 1816
(42 U.S.C. 1395h) is amended by adding at the end
the following new subsection:
‘‘(l) No agency or organization may carry out (or re-
ceive payment for carrying out) any activity pursuant to
an agreement under this section to the extent that the ac-
tivity is carried out pursuant to a contract under the Med-
icare Integrity Program under section 1893.’’.
(2) RESPONSIBILITIES
OF
CARRIERS
UNDER
PART B.—Section 1842(c) (42 U.S.C. 1395u(c)) is
amended by adding at the end the following new
paragraph:
‘‘(6) No carrier may carry out (or receive payment
for carrying out) any activity pursuant to a contract under
this subsection to the extent that the activity is carried
out pursuant to a contract under the Medicare Integrity
Program under section 1893. The previous sentence shall
not apply with respect to the activity described in section
1893(b)(5) (relating to prior authorization of certain
items of durable medical equipment under section
1834(a)(15)).’’.
SEC. 203. BENEFICIARY INCENTIVE PROGRAMS.
(a) CLARIFICATION OF REQUIREMENT TO PROVIDE
EXPLANATION OF MEDICARE BENEFITS.—The Secretary
of Health and Human Services (in this section referred
to as the ‘‘Secretary’’) shall provide an explanation of ben-
efits under the medicare program under title XVIII of the
Social Security Act with respect to each item or service
for which payment may be made under the program which
is furnished to an individual, without regard to whether
or not a deductible or coinsurance may be imposed against
the individual with respect to the item or service.
(b) PROGRAM TO COLLECT INFORMATION ON FRAUD
AND ABUSE.—
(1) ESTABLISHMENT OF PROGRAM.—Not later
than 3 months after the date of the enactment of
this Act, the Secretary shall establish a program
under which the Secretary shall encourage individ-
uals to report to the Secretary information on indi-
viduals and entities who are engaging or who have
engaged in acts or omissions which constitute
grounds for the imposition of a sanction under sec-
tion 1128, section 1128A, or section 1128B of the
Social Security Act, or who have otherwise engaged
in fraud and abuse against the medicare program
for which there is a sanction provided under law.
The program shall discourage provision of, and not
consider, information which is frivolous or otherwise
not relevant or material to the imposition of such a
sanction.
(2) PAYMENT OF PORTION OF AMOUNTS COL-
LECTED.—If an individual reports information to
the Secretary under the program established under
paragraph (1) which serves as the basis for the col-
lection by the Secretary or the Attorney General of
any amount of at least $100 (other than any
amount paid as a penalty under section 1128B of
the Social Security Act), the Secretary may pay a
portion of the amount collected to the individual
(under procedures similar to those applicable under
section 7623 of the Internal Revenue Code of 1986
to payments to individuals providing information on
violations of such Code).
(c) PROGRAM TO COLLECT INFORMATION ON PRO-
GRAM EFFICIENCY.—
(1) ESTABLISHMENT OF PROGRAM.—Not later
than 3 months after the date of the enactment of
this Act, the Secretary shall establish a program
under which the Secretary shall encourage individ-
uals to submit to the Secretary suggestions on meth-
ods to improve the efficiency of the medicare pro-
gram.
(2) PAYMENT OF PORTION OF PROGRAM SAV-
INGS.—If an individual submits a suggestion to the
Secretary under the program established under
paragraph (1) which is adopted by the Secretary and
which results in savings to the program, the Sec-
retary may make a payment to the individual of
such amount as the Secretary considers appropriate.
SEC. 204. APPLICATION OF CERTAIN HEALTH ANTI-FRAUD
AND ABUSE SANCTIONS TO FRAUD AND
ABUSE AGAINST FEDERAL HEALTH CARE
PROGRAMS.
(a) IN
GENERAL.—Section 1128B (42 U.S.C.
1320a–7b) is amended as follows:
(1) In the heading, by striking ‘‘MEDICARE OR
STATE
HEALTH
CARE
PROGRAMS’’ and inserting
‘‘FEDERAL HEALTH CARE PROGRAMS’’.
(2) In subsection (a)(1), by striking ‘‘a program
under title XVIII or a State health care program (as
defined in section 1128(h))’’ and inserting ‘‘a Fed-
eral health care program’’.
(3) In subsection (a)(5), by striking ‘‘a program
under title XVIII or a State health care program’’
and inserting ‘‘a Federal health care program’’.
(4) In the second sentence of subsection (a)—
(A) by striking ‘‘a State plan approved
under title XIX’’ and inserting ‘‘a Federal
health care program’’, and
(B) by striking ‘‘the State may at its op-
tion (notwithstanding any other provision of
that title or of such plan)’’ and inserting ‘‘the
administrator of such program may at its op-
tion (notwithstanding any other provision of
such program)’’.
(5) In subsection (b), by striking ‘‘title XVIII
or a State health care program’’ each place it ap-
pears and inserting ‘‘a Federal health care pro-
gram’’.
(6) In subsection (c), by inserting ‘‘(as defined
in section 1128(h))’’ after ‘‘a State health care pro-
gram’’.
(7) By adding at the end the following new sub-
section:
‘‘(f) For purposes of this section, the term ‘Federal
health care program’ means—
‘‘(1) any plan or program that provides health
benefits, whether directly, through insurance, or oth-
erwise, which is funded directly, in whole or in part,
by the United States Government (other than the
health insurance program under chapter 89 of title
5, United States Code); or
‘‘(2) any State health care program, as defined
in section 1128(h).’’.
(b) EFFECTIVE DATE.—The amendments made by
this section shall take effect on January 1, 1997.
SEC. 205. GUIDANCE REGARDING APPLICATION OF HEALTH
CARE FRAUD AND ABUSE SANCTIONS.
Title XI (42 U.S.C. 1301 et seq.), as amended by
section 201, is amended by inserting after section 1128C
the following new section:
‘‘GUIDANCE REGARDING APPLICATION OF HEALTH CARE
FRAUD AND ABUSE SANCTIONS
‘‘SEC. 1128D. (a) SOLICITATION AND PUBLICATION
OF MODIFICATIONS TO EXISTING SAFE HARBORS AND
NEW SAFE HARBORS.—
‘‘(1) IN GENERAL.—
‘‘(A) SOLICITATION
OF
PROPOSALS
FOR
SAFE
HARBORS.—Not later than January 1,
1997, and not less than annually thereafter, the
Secretary shall publish a notice in the Federal
Register soliciting proposals, which will be ac-
cepted during a 60-day period, for—
‘‘(i) modifications to existing safe har-
bors issued pursuant to section 14(a) of
the Medicare and Medicaid Patient and
Program Protection Act of 1987 (42
U.S.C. 1320a–7b note);
‘‘(ii) additional safe harbors specifying
payment practices that shall not be treated
as a criminal offense under section
1128B(b) and shall not serve as the basis
for an exclusion under section 1128(b)(7);
‘‘(iii) advisory opinions to be issued
pursuant to subsection (b); and
‘‘(iv) special fraud alerts to be issued
pursuant to subsection (c).
‘‘(B) PUBLICATION
OF
PROPOSED
MODI-
FICATIONS AND PROPOSED ADDITIONAL SAFE
HARBORS.—After considering the proposals de-
scribed in clauses (i) and (ii) of subparagraph
(A), the Secretary, in consultation with the At-
torney General, shall publish in the Federal
Register proposed modifications to existing safe
harbors and proposed additional safe harbors, if
appropriate, with a 60-day comment period.
After considering any public comments received
during this period, the Secretary shall issue
final rules modifying the existing safe harbors
and establishing new safe harbors, as appro-
priate.
‘‘(C) REPORT.—The Inspector General of
the Department of Health and Human Services
(in this section referred to as the ‘Inspector
General’) shall, in an annual report to Congress
or as part of the year-end semiannual report re-
quired by section 5 of the Inspector General
Act of 1978 (5 U.S.C. App.), describe the pro-
posals received under clauses (i) and (ii) of sub-
paragraph (A) and explain which proposals
were included in the publication described in
subparagraph (B), which proposals were not in-
cluded in that publication, and the reasons for
the rejection of the proposals that were not in-
cluded.
‘‘(2) CRITERIA
FOR
MODIFYING
AND
ESTAB-
LISHING SAFE HARBORS.—In modifying and estab-
lishing safe harbors under paragraph (1)(B), the
Secretary may consider the extent to which provid-
ing a safe harbor for the specified payment practice
may result in any of the following:
‘‘(A) An increase or decrease in access to
health care services.
‘‘(B) An increase or decrease in the quality
of health care services.
‘‘(C) An increase or decrease in patient
freedom of choice among health care providers.
‘‘(D) An increase or decrease in competi-
tion among health care providers.
‘‘(E) An increase or decrease in the ability
of health care facilities to provide services in
medically underserved areas or to medically un-
derserved populations.
‘‘(A) What constitutes prohibited remu-
neration 
within 
the 
meaning 
of 
section
1128B(b).
‘‘(B) Whether an arrangement or proposed
arrangement satisfies the criteria set forth in
section 1128B(b)(3) for activities which do not
result in prohibited remuneration.
‘‘(C) Whether an arrangement or proposed
arrangement satisfies the criteria which the
Secretary has established, or shall establish by
regulation for activities which do not result in
prohibited remuneration.
‘‘(D) What constitutes an inducement to
reduce or limit services to individuals entitled to
benefits under title XVIII or title XIX or title
XXI within the meaning of section 1128B(b).
‘‘(E) Whether any activity or proposed ac-
tivity constitutes grounds for the imposition of
a sanction under section 1128, 1128A, or
1128B.
‘‘(3) MATTERS
NOT
SUBJECT
TO
ADVISORY
OPINIONS.—Such advisory opinions shall not address
the following matters:
‘‘(A) Whether the fair market value shall
be, or was paid or received for any goods, serv-
ices or property.
‘‘(B) Whether an individual is a bona fide
employee within the requirements of section
3121(d)(2) of the Internal Revenue Code of
1986.
‘‘(4) EFFECT OF ADVISORY OPINIONS.—
‘‘(A) BINDING
AS
TO
SECRETARY
AND
PARTIES INVOLVED.—Each advisory opinion is-
sued by the Secretary shall be binding as to the
Secretary and the party or parties requesting
the opinion.
‘‘(B) FAILURE
TO
SEEK
OPINION.—The
failure of a party to seek an advisory opinion
may not be introduced into evidence to prove
that the party intended to violate the provisions
of sections 1128, 1128A, or 1128B.
‘‘(5) REGULATIONS.—
‘‘(A) IN
GENERAL.—Not later than 180
days after the date of the enactment of this sec-
tion, the Secretary shall issue regulations to
carry out this section. Such regulations shall
provide for—
‘‘(i) the procedure to be followed by a
party applying for an advisory opinion;
‘‘(ii) the procedure to be followed by
the Secretary in responding to a request
for an advisory opinion;
‘‘(iii) the interval in which the Sec-
retary shall respond;
‘‘(iv) the reasonable fee to be charged
to the party requesting an advisory opin-
ion; and
‘‘(v) the manner in which advisory
opinions will be made available to the pub-
lic.
‘‘(B) SPECIFIC
CONTENTS.—Under the
regulations promulgated pursuant to subpara-
graph (A)—
‘‘(i) the Secretary shall be required to
respond to a party requesting an advisory
opinion by not later than 30 days after the
request is received; and
‘‘(ii) the fee charged to the party re-
questing an advisory opinion shall be equal
to the costs incurred by the Secretary in
responding to the request.
‘‘(c) SPECIAL FRAUD ALERTS.—
‘‘(1) IN GENERAL.—
‘‘(A) 
REQUEST
FOR
SPECIAL
FRAUD
ALERTS.—Any person may present, at any
time, a request to the Inspector General for a
notice which informs the public of practices
which the Inspector General considers to be
suspect or of particular concern under the med-
icare program or a State health care program,
as defined in section 1128(h) (in this subsection
referred to as a ‘special fraud alert’).
‘‘(B) ISSUANCE AND PUBLICATION OF SPE-
CIAL FRAUD ALERTS.—Upon receipt of a re-
quest described in subparagraph (A), the In-
spector General shall investigate the subject
matter of the request to determine whether a
special fraud alert should be issued. If appro-
priate, the Inspector General shall issue a spe-
cial fraud alert in response to the request. All
special fraud alerts issued pursuant to this sub-
paragraph shall be published in the Federal
Register.
‘‘(2) CRITERIA FOR SPECIAL FRAUD ALERTS.—
In determining whether to issue a special fraud alert
upon a request described in paragraph (1), the In-
spector General may consider—
‘‘(A) whether and to what extent the prac-
tices that would be identified in the special
fraud alert may result in any of the con-
sequences described in subsection (a)(2); and
‘‘(B) the volume and frequency of the con-
duct that would be identified in the special
fraud alert.’’.
Subtitle B—Revisions to Current
Sanctions for Fraud and Abuse
SEC. 211. MANDATORY EXCLUSION FROM PARTICIPATION
IN MEDICARE AND STATE HEALTH CARE PRO-
GRAMS.
(a) INDIVIDUAL CONVICTED OF FELONY RELATING
TO HEALTH CARE FRAUD.—
(1) IN GENERAL.—Section 1128(a) (42 U.S.C.
1320a–7(a)) is amended by adding at the end the
following new paragraph:
‘‘(3) 
FELONY
CONVICTION
RELATING
TO
HEALTH
CARE
FRAUD.—Any individual or entity
that has been convicted after the date of the enact-
ment of the Health Coverage Availability and Af-
fordability Act of 1996, under Federal or State law,
in connection with the delivery of a health care item
or service or with respect to any act or omission in
a health care program (other than those specifically
described in paragraph (1)) operated by or financed
in whole or in part by any Federal, State, or local
government agency, of a criminal offense consisting
of a felony relating to fraud, theft, embezzlement,
breach of fiduciary responsibility, or other financial
misconduct.’’.
(2) CONFORMING AMENDMENT.—Paragraph (1)
of section 1128(b) (42 U.S.C. 1320a–7(b)) is
amended to read as follows:
‘‘(1) CONVICTION RELATING TO FRAUD.—Any
individual or entity that has been convicted after the
date of the enactment of the Health Coverage Avail-
ability and Affordability Act of 1996, under Federal
or State law—
‘‘(A) of a criminal offense consisting of a
misdemeanor relating to fraud, theft, embezzle-
ment, breach of fiduciary responsibility, or
other financial misconduct—
‘‘(i) in connection with the delivery of
a health care item or service, or
‘‘(ii) with respect to any act or omis-
sion in a health care program (other than
those specifically described in subsection
(a)(1)) operated by or financed in whole or
in part by any Federal, State, or local gov-
ernment agency; or
‘‘(B) of a criminal offense relating to
fraud, theft, embezzlement, breach of fiduciary
responsibility, or other financial misconduct
with respect to any act or omission in a pro-
gram (other than a health care program) oper-
ated by or financed in whole or in part by any
Federal, State, or local government agency.’’.
(b) INDIVIDUAL CONVICTED OF FELONY RELATING
TO CONTROLLED SUBSTANCE.—
(1) IN GENERAL.—Section 1128(a) (42 U.S.C.
1320a–7(a)), as amended by subsection (a), is
amended by adding at the end the following new
paragraph:
‘‘(4) FELONY CONVICTION RELATING TO CON-
TROLLED
SUBSTANCE.—Any individual or entity
that has been convicted after the date of the enact-
ment of the Health Coverage Availability and Af-
fordability Act of 1996, under Federal or State law,
of a criminal offense consisting of a felony relating
to the unlawful manufacture, distribution, prescrip-
tion, or dispensing of a controlled substance.’’.
(2) 
CONFORMING
AMENDMENT.—Section
1128(b)(3) (42 U.S.C. 1320a–7(b)(3)) is amended—
(A) in the heading, by striking ‘‘CONVIC-
TION’’ and inserting ‘‘MISDEMEANOR CONVIC-
TION’’; and
(B) by striking ‘‘criminal offense’’ and in-
serting ‘‘criminal offense consisting of a mis-
demeanor’’.
SEC. 212. ESTABLISHMENT OF MINIMUM PERIOD OF EX-
CLUSION FOR CERTAIN INDIVIDUALS AND
ENTITIES SUBJECT TO PERMISSIVE EXCLU-
SION FROM MEDICARE AND STATE HEALTH
CARE PROGRAMS.
Section 1128(c)(3) (42 U.S.C. 1320a–7(c)(3)) is
amended by adding at the end the following new subpara-
graphs:
‘‘(D) In the case of an exclusion of an individual or
entity under paragraph (1), (2), or (3) of subsection (b),
the period of the exclusion shall be 3 years, unless the
Secretary determines in accordance with published regula-
tions that a shorter period is appropriate because of miti-
gating circumstances or that a longer period is appro-
priate because of aggravating circumstances.
‘‘(E) In the case of an exclusion of an individual or
entity under subsection (b)(4) or (b)(5), the period of the
exclusion shall not be less than the period during which
the individual’s or entity’s license to provide health care
is revoked, suspended, or surrendered, or the individual
or the entity is excluded or suspended from a Federal or
State health care program.
‘‘(F) In the case of an exclusion of an individual or
entity under subsection (b)(6)(B), the period of the exclu-
sion shall be not less than 1 year.’’.
SEC. 213. PERMISSIVE EXCLUSION OF INDIVIDUALS WITH
OWNERSHIP 
OR 
CONTROL 
INTEREST 
IN
SANCTIONED ENTITIES.
Section 1128(b) (42 U.S.C. 1320a–7(b)) is amended
by adding at the end the following new paragraph:
‘‘(15) INDIVIDUALS
CONTROLLING
A
SANC-
TIONED ENTITY.—(A) Any individual—
‘‘(i) who has a direct or indirect ownership
or control interest in a sanctioned entity and
who knows or should know (as defined in sec-
tion 1128A(i)(6)) of the action constituting the
basis for the conviction or exclusion described
in subparagraph (B); or
‘‘(ii) who is an officer or managing em-
ployee (as defined in section 1126(b)) of such
an entity.
‘‘(B) For purposes of subparagraph (A), the
term ‘sanctioned entity’ means an entity—
‘‘(i) that has been convicted of any offense
described in subsection (a) or in paragraph (1),
(2), or (3) of this subsection; or
‘‘(ii) that has been excluded from partici-
pation under a program under title XVIII or
under a State health care program.’’.
SEC. 214. SANCTIONS AGAINST PRACTITIONERS AND PER-
SONS FOR FAILURE TO COMPLY WITH STATU-
TORY OBLIGATIONS.
(a) MINIMUM PERIOD OF EXCLUSION FOR PRACTI-
TIONERS AND PERSONS FAILING TO MEET STATUTORY
OBLIGATIONS.—
(1) IN GENERAL.—The second sentence of sec-
tion 1156(b)(1) (42 U.S.C. 1320c–5(b)(1)) is
amended by striking ‘‘may prescribe)’’ and inserting
‘‘may prescribe, except that such period may not be
less than 1 year)’’.
(2) 
CONFORMING
AMENDMENT.—Section
1156(b)(2) (42 U.S.C. 1320c–5(b)(2)) is amended
by striking ‘‘shall remain’’ and inserting ‘‘shall (sub-
ject to the minimum period specified in the second
sentence of paragraph (1)) remain’’.
(b) REPEAL OF ‘‘UNWILLING OR UNABLE’’ CONDI-
TION FOR IMPOSITION OF SANCTION.—Section 1156(b)(1)
(42 U.S.C. 1320c–5(b)(1)) is amended—
(1) in the second sentence, by striking ‘‘and de-
termines’’ and all that follows through ‘‘such obliga-
tions,’’; and
(2) by striking the third sentence.
SEC. 215. INTERMEDIATE SANCTIONS FOR MEDICARE
HEALTH MAINTENANCE ORGANIZATIONS.
(a) APPLICATION OF INTERMEDIATE SANCTIONS FOR
ANY PROGRAM VIOLATIONS.—
(1) IN
GENERAL.—Section 1876(i)(1) (42
U.S.C. 1395mm(i)(1)) is amended by striking ‘‘the
Secretary may terminate’’ and all that follows and
inserting ‘‘in accordance with procedures established
under paragraph (9), the Secretary may at any time
terminate any such contract or may impose the in-
termediate sanctions described in paragraph (6)(B)
or (6)(C) (whichever is applicable) on the eligible or-
ganization if the Secretary determines that the orga-
nization—
‘‘(A) has failed substantially to carry out
the contract;
‘‘(B) is carrying out the contract in a man-
ner substantially inconsistent with the efficient
and effective administration of this section; or
‘‘(C) no longer substantially meets the ap-
plicable conditions of subsections (b), (c), (e),
and (f).’’.
(2) OTHER
INTERMEDIATE
SANCTIONS
FOR
MISCELLANEOUS
PROGRAM
VIOLATIONS.—Section
1876(i)(6) (42 U.S.C. 1395mm(i)(6)) is amended by
adding at the end the following new subparagraph:
‘‘(C) In the case of an eligible organization for which
the Secretary makes a determination under paragraph (1)
the basis of which is not described in subparagraph (A),
the Secretary may apply the following intermediate sanc-
tions:
‘‘(i) Civil money penalties of not more than
$25,000 for each determination under paragraph (1)
if the deficiency that is the basis of the determina-
tion has directly adversely affected (or has the sub-
stantial likelihood of adversely affecting) an individ-
ual covered under the organization’s contract.
‘‘(ii) Civil money penalties of not more than
$10,000 for each week beginning after the initiation
of procedures by the Secretary under paragraph (9)
during which the deficiency that is the basis of a de-
termination under paragraph (1) exists.
‘‘(iii) Suspension of enrollment of individuals
under this section after the date the Secretary noti-
fies the organization of a determination under para-
graph (1) and until the Secretary is satisfied that
the deficiency that is the basis for the determination
has been corrected and is not likely to recur.’’.
(3) PROCEDURES FOR IMPOSING SANCTIONS.—
Section 1876(i) (42 U.S.C. 1395mm(i)) is amended
by adding at the end the following new paragraph:
‘‘(9) The Secretary may terminate a contract with an
eligible organization under this section or may impose the
intermediate sanctions described in paragraph (6) on the
organization in accordance with formal investigation and
compliance procedures established by the Secretary under
which—
‘‘(A) the Secretary first provides the organiza-
tion with the reasonable opportunity to develop and
implement a corrective action plan to correct the de-
ficiencies that were the basis of the Secretary’s de-
termination under paragraph (1) and the organiza-
tion fails to develop or implement such a plan;
‘‘(B) in deciding whether to impose sanctions,
the Secretary considers aggravating factors such as
whether an organization has a history of deficiencies
or has not taken action to correct deficiencies the
Secretary has brought to the organization’s atten-
tion;
‘‘(C) there are no unreasonable or unnecessary
delays between the finding of a deficiency and the
imposition of sanctions; and
‘‘(D) the Secretary provides the organization
with reasonable notice and opportunity for hearing
(including the right to appeal an initial decision) be-
fore imposing any sanction or terminating the con-
tract.’’.
(4) 
CONFORMING
AMENDMENTS.—Section
1876(i)(6)(B) (42 U.S.C. 1395mm(i)(6)(B)) is
amended by striking the second sentence.
(b) AGREEMENTS WITH PEER REVIEW ORGANIZA-
TIONS.—Section 
1876(i)(7)(A) 
(42 
U.S.C.
1395mm(i)(7)(A)) is amended by striking ‘‘an agreement’’
and inserting ‘‘a written agreement’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply with respect to contract years be-
ginning on or after January 1, 1996.
SEC. 216. ADDITIONAL EXCEPTION TO ANTI-KICKBACK PEN-
ALTIES FOR DISCOUNTING AND MANAGED
CARE ARRANGEMENTS.
(a) IN GENERAL.—Section 1128B(b)(3) (42 U.S.C.
1320a–7b(b)(3)) is amended—
(1) by striking ‘‘and’’ at the end of subpara-
graph (D);
(2) by striking the period at the end of sub-
paragraph (E) and inserting ‘‘; and’’; and
(3) by adding at the end the following new sub-
paragraph:
‘‘(F) any remuneration between an organization
and an individual or entity providing items or serv-
ices, or a combination thereof, pursuant to a written
agreement between the organization and the individ-
ual or entity if the organization is an eligible organi-
zation under section 1876 or if the written agree-
ment places the individual or entity at substantial fi-
nancial risk for the cost or utilization of the items
or services, or a combination thereof, which the indi-
vidual or entity is obligated to provide, whether
through a withhold, capitation, incentive pool, per
diem payment, or any other similar risk arrange-
ment which places the individual or entity at sub-
stantial financial risk.’’.
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply to written agreements entered into
on or after January 1, 1997.
SEC. 217. CRIMINAL PENALTY FOR FRAUDULENT DISPOSI-
TION OF ASSETS IN ORDER TO OBTAIN MED-
ICAID BENEFITS.
Section 1128B(a) (42 U.S.C. 1320a–7b(a)) is
amended—
(1) by striking ‘‘or’’ at the end of paragraph
(4);
(2) by adding ‘‘or’’ at the end of paragraph (5);
and
(3) by inserting after paragraph (5) the follow-
ing new paragraph:
‘‘(6) knowingly and willfully disposes of assets
(including by any transfer in trust) in order for an
individual to become eligible for medical assistance
under a State plan under title XIX, if disposing of
the assets results in the imposition of a period of in-
eligibility 
for 
such 
assistance 
under 
section
1917(c),’’.
SEC. 218. EFFECTIVE DATE.
Except as otherwise provided, the amendments made
by this subtitle shall take effect January 1, 1997.
Subtitle C—Data Collection
SEC. 221. ESTABLISHMENT OF THE HEALTH CARE FRAUD
AND ABUSE DATA COLLECTION PROGRAM.
(a) IN GENERAL.—Title XI (42 U.S.C. 1301 et seq.),
as amended by sections 211 and 215, is amended by in-
serting after section 1128D the following new section:
‘‘HEALTH CARE FRAUD AND ABUSE DATA COLLECTION
PROGRAM
‘‘SEC. 1128E. (a) GENERAL PURPOSE.—Not later
than January 1, 1997, the Secretary shall establish a na-
tional health care fraud and abuse data collection program
for the reporting of final adverse actions (not including
settlements in which no findings of liability have been
made) against health care providers, suppliers, or practi-
tioners as required by subsection (b), with access as set
forth in subsection (c).
‘‘(b) REPORTING OF INFORMATION.—
‘‘(1) IN GENERAL.—Each Government agency
and health plan shall report any final adverse action
(not including settlements in which no findings of li-
ability have been made) taken against a health care
provider, supplier, or practitioner.
‘‘(2) INFORMATION TO BE REPORTED.—The in-
formation to be reported under paragraph (1) in-
cludes:
‘‘(A) The name and TIN (as defined in
section 7701(a)(41) of the Internal Revenue
Code of 1986) of any health care provider, sup-
plier, or practitioner who is the subject of a
final adverse action.
‘‘(B) The name (if known) of any health
care entity with which a health care provider,
supplier, or practitioner is affiliated or associ-
ated.
‘‘(C) The nature of the final adverse action
and whether such action is on appeal.
‘‘(D) A description of the acts or omissions
and injuries upon which the final adverse action
was based, and such other information as the
Secretary determines by regulation is required
for appropriate interpretation of information re-
ported under this section.
‘‘(3) CONFIDENTIALITY.—In determining what
information is required, the Secretary shall include
procedures to assure that the privacy of individuals
receiving health care services is appropriately pro-
tected.
‘‘(4) TIMING AND FORM OF REPORTING.—The
information required to be reported under this sub-
section shall be reported regularly (but not less often
than monthly) and in such form and manner as the
Secretary prescribes. Such information shall first be
required to be reported on a date specified by the
Secretary.
‘‘(5) TO WHOM REPORTED.—The information
required to be reported under this subsection shall
be reported to the Secretary.
‘‘(c) DISCLOSURE AND CORRECTION OF INFORMA-
TION.—
‘‘(1) DISCLOSURE.—With respect to the infor-
mation about final adverse actions (not including
settlements in which no findings of liability have
been made) reported to the Secretary under this sec-
tion respecting a health care provider, supplier, or
practitioner, the Secretary shall, by regulation, pro-
vide for—
‘‘(A) disclosure of the information, upon
request, to the health care provider, supplier, or
licensed practitioner, and
‘‘(B) procedures in the case of disputed ac-
curacy of the information.
‘‘(2) CORRECTIONS.—Each Government agency
and health plan shall report corrections of informa-
tion already reported about any final adverse action
taken against a health care provider, supplier, or
practitioner, in such form and manner that the Sec-
retary prescribes by regulation.
‘‘(d) ACCESS TO REPORTED INFORMATION.—
‘‘(1) AVAILABILITY.—The information in this
database shall be available to Federal and State gov-
ernment agencies and health plans pursuant to pro-
cedures that the Secretary shall provide by regula-
tion.
‘‘(2) FEES FOR DISCLOSURE.—The Secretary
may establish or approve reasonable fees for the dis-
closure of information in this database (other than
with respect to requests by Federal agencies). The
amount of such a fee shall be sufficient to recover
the full costs of operating the database. Such fees
shall be available to the Secretary or, in the Sec-
retary’s discretion to the agency designated under
this section to cover such costs.
‘‘(e) PROTECTION FROM LIABILITY FOR REPORT-
ING.—No person or entity, including the agency des-
ignated by the Secretary in subsection (b)(5) shall be held
liable in any civil action with respect to any report made
as required by this section, without knowledge of the fal-
sity of the information contained in the report.
‘‘(f) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section:
‘‘(1) FINAL ADVERSE ACTION.—
‘‘(A) IN GENERAL.—The term ‘final ad-
verse action’ includes:
‘‘(i) Civil judgments against a health
care provider, supplier, or practitioner in
Federal or State court related to the deliv-
ery of a health care item or service.
‘‘(ii) Federal or State criminal convic-
tions related to the delivery of a health
care item or service.
‘‘(iii) Actions by Federal or State
agencies responsible for the licensing and
certification of health care providers, sup-
pliers, and licensed health care practition-
ers, including—
‘‘(I) formal or official actions,
such as revocation or suspension of a
license (and the length of any such
suspension), reprimand, censure or
probation,
‘‘(II) any other loss of license or
the right to apply for, or renew, a li-
cense of the provider, supplier, or
practitioner, whether by operation of
law, voluntary surrender, non-renew-
ability, or otherwise, or
‘‘(III) any other negative action
or finding by such Federal or State
agency that is publicly available infor-
mation.
‘‘(iv) Exclusion from participation in
Federal or State health care programs.
‘‘(v) Any other adjudicated actions or
decisions that the Secretary shall establish
by regulation.
‘‘(B) EXCEPTION.—The term does not in-
clude any action with respect to a malpractice
claim.
‘‘(2) 
PRACTITIONER.—The 
terms 
‘licensed
health care practitioner’, ‘licensed practitioner’, and
‘practitioner’ mean, with respect to a State, an indi-
vidual who is licensed or otherwise authorized by the
State to provide health care services (or any individ-
ual who, without authority holds himself or herself
out to be so licensed or authorized).
‘‘(3) GOVERNMENT AGENCY.—The term ‘Gov-
ernment agency’ shall include:
‘‘(A) The Department of Justice.
‘‘(B) The Department of Health and
Human Services.
‘‘(C) Any other Federal agency that either
administers or provides payment for the deliv-
ery of health care services, including, but not
limited to the Department of Defense and the
Veterans’ Administration.
‘‘(D) State law enforcement agencies.
‘‘(E) State medicaid fraud control units.
‘‘(F) Federal or State agencies responsible
for the licensing and certification of health care
providers and licensed health care practitioners.
‘‘(4) HEALTH PLAN.—The term ‘health plan’
has the meaning given such term by section
1128C(c).
‘‘(5) DETERMINATION
OF
CONVICTION.—For
purposes of paragraph (1), the existence of a convic-
tion shall be determined under paragraph (4) of sec-
tion 1128(i).’’.
(b) IMPROVED PREVENTION IN ISSUANCE OF MEDI-
CARE PROVIDER NUMBERS.—Section 1842(r) (42 U.S.C.
1395u(r)) is amended by adding at the end the following
new sentence: ‘‘Under such system, the Secretary may im-
pose appropriate fees on such physicians to cover the costs
of investigation and recertification activities with respect
to the issuance of the identifiers.’’.
Subtitle D—Civil Monetary
Penalties
SEC. 231. SOCIAL SECURITY ACT CIVIL MONETARY PEN-
ALTIES.
(a) GENERAL CIVIL MONETARY PENALTIES.—Sec-
tion 1128A (42 U.S.C. 1320a–7a) is amended as follows:
(1) In the third sentence of subsection (a), by
striking ‘‘programs under title XVIII’’ and inserting
‘‘Federal health care programs (as defined in section
1128B(f)(1))’’.
(2) In subsection (f)—
(A) by redesignating paragraph (3) as
paragraph (4); and
(B) by inserting after paragraph (2) the
following new paragraph:
‘‘(3) With respect to amounts recovered arising
out of a claim under a Federal health care program
(as defined in section 1128B(f)), the portion of such
amounts as is determined to have been paid by the
program shall be repaid to the program, and the
portion of such amounts attributable to the amounts
recovered under this section by reason of the amend-
ments made by the Health Coverage Availability and
Affordability Act of 1996 (as estimated by the Sec-
retary) shall be deposited into the Federal Hospital
Insurance 
Trust 
Fund 
pursuant 
to 
section
1817(k)(2)(C).’’.
(3) In subsection (i)—
(A) in paragraph (2), by striking ‘‘title V,
XVIII, XIX, or XX of this Act’’ and inserting
‘‘a Federal health care program (as defined in
section 1128B(f))’’,
(B) in paragraph (4), by striking ‘‘a health
insurance or medical services program under
title XVIII or XIX of this Act’’ and inserting
‘‘a Federal health care program (as so de-
fined)’’, and
(C) in paragraph (5), by striking ‘‘title V,
XVIII, XIX, or XX’’ and inserting ‘‘a Federal
health care program (as so defined)’’.
(4) By adding at the end the following new sub-
section:
‘‘(m)(1) For purposes of this section, with respect to
a Federal health care program not contained in this Act,
references to the Secretary in this section shall be deemed
to be references to the Secretary or Administrator of the
department or agency with jurisdiction over such program
and references to the Inspector General of the Department
of Health and Human Services in this section shall be
deemed to be references to the Inspector General of the
applicable department or agency.
‘‘(2)(A) The Secretary and Administrator of the de-
partments and agencies referred to in paragraph (1) may
include in any action pursuant to this section, claims with-
in the jurisdiction of other Federal departments or agen-
cies as long as the following conditions are satisfied:
‘‘(i) The case involves primarily claims submit-
ted to the Federal health care programs of the de-
partment or agency initiating the action.
‘‘(ii) The Secretary or Administrator of the de-
partment or agency initiating the action gives notice
and an opportunity to participate in the investiga-
tion to the Inspector General of the department or
agency with primary jurisdiction over the Federal
health care programs to which the claims were sub-
mitted.
‘‘(B) If the conditions specified in subparagraph (A)
are fulfilled, the Inspector General of the department or
agency initiating the action is authorized to exercise all
powers granted under the Inspector General Act of 1978
with respect to the claims submitted to the other depart-
ments or agencies to the same manner and extent as pro-
vided in that Act with respect to claims submitted to such
departments or agencies.’’.
(b) EXCLUDED INDIVIDUAL RETAINING OWNERSHIP
OR CONTROL INTEREST IN PARTICIPATING ENTITY.—
Section 1128A(a) (42 U.S.C. 1320a–7a(a)) is amended—
(1) by striking ‘‘or’’ at the end of paragraph
(1)(D);
(2) by striking ‘‘, or’’ at the end of paragraph
(2) and inserting a semicolon;
(3) by striking the semicolon at the end of
paragraph (3) and inserting ‘‘; or’’; and
(4) by inserting after paragraph (3) the follow-
ing new paragraph:
‘‘(4) in the case of a person who is not an orga-
nization, agency, or other entity, is excluded from
participating in a program under title XVIII or a
State health care program in accordance with this
subsection or under section 1128 and who, at the
time of a violation of this subsection—
‘‘(i) retains a direct or indirect ownership
or control interest in an entity that is partici-
pating in a program under title XVIII or a
State health care program, and who knows or
should know of the action constituting the basis
for the exclusion; or
‘‘(ii) is an officer or managing employee
(as defined in section 1126(b)) of such an en-
tity;’’.
(c) MODIFICATIONS
OF AMOUNTS
OF PENALTIES
AND
ASSESSMENTS.—Section 1128A(a) (42 U.S.C.
1320a–7a(a)), as amended by subsection (b), is amended
in the matter following paragraph (4)—
(1) 
by 
striking 
‘‘$2,000’’ 
and 
inserting
‘‘$10,000’’;
(2) by inserting ‘‘; in cases under paragraph
(4), $10,000 for each day the prohibited relationship
occurs’’ after ‘‘false or misleading information was
given’’; and
(3) by striking ‘‘twice the amount’’ and insert-
ing ‘‘3 times the amount’’.
(d) CLAIM FOR ITEM OR SERVICE BASED ON INCOR-
RECT CODING
OR MEDICALLY UNNECESSARY SERV-
ICES.—Section 1128A(a)(1) (42 U.S.C. 1320a–7a(a)(1))
is amended—
(1) in subparagraph (A) by striking ‘‘claimed,’’
and inserting ‘‘claimed, including any person who
engages in a pattern or practice of presenting or
causing to be presented a claim for an item or serv-
ice that is based on a code that the person knows
or should know will result in a greater payment to
the person than the code the person knows or should
know is applicable to the item or service actually
provided,’’;
(2) in subparagraph (C), by striking ‘‘or’’ at
the end;
(3) in subparagraph (D), by striking ‘‘; or’’ and
inserting ‘‘, or’’; and
(4) by inserting after subparagraph (D) the fol-
lowing new subparagraph:
‘‘(E) is for a medical or other item or serv-
ice that a person knows or should know is not
medically necessary; or’’.
(e) SANCTIONS AGAINST PRACTITIONERS AND PER-
SONS FOR FAILURE TO COMPLY WITH STATUTORY OBLI-
GATIONS.—Section 1156(b)(3) (42 U.S.C. 1320c–5(b)(3))
is amended by striking ‘‘the actual or estimated cost’’ and
inserting ‘‘up to $10,000 for each instance’’.
(f) PROCEDURAL PROVISIONS.—Section 1876(i)(6)
(42 U.S.C. 1395mm(i)(6)), as amended by section
215(a)(2), is amended by adding at the end the following
new subparagraph:
‘‘(D) The provisions of section 1128A (other than
subsections (a) and (b)) shall apply to a civil money pen-
alty under subparagraph (B)(i) or (C)(i) in the same man-
ner as such provisions apply to a civil money penalty or
proceeding under section 1128A(a).’’.
(g) PROHIBITION AGAINST OFFERING INDUCEMENTS
TO
INDIVIDUALS
ENROLLED
UNDER
PROGRAMS
OR
PLANS.—
(1) 
OFFER
OF
REMUNERATION.—Section
1128A(a) (42 U.S.C. 1320a–7a(a)) is amended—
(A) by striking ‘‘or’’ at the end of para-
graph (1)(D);
(B) by striking ‘‘, or’’ at the end of para-
graph (2) and inserting a semicolon;
(C) by striking the semicolon at the end of
paragraph (3) and inserting ‘‘; or’’; and
(D) by inserting after paragraph (3) the
following new paragraph:
‘‘(4) offers to or transfers remuneration to any
individual eligible for benefits under title XVIII of
this Act, or under a State health care program (as
defined in section 1128(h)) that such person knows
or should know is likely to influence such individual
to order or receive from a particular provider, practi-
tioner, or supplier any item or service for which pay-
ment may be made, in whole or in part, under title
XVIII, or a State health care program (as so de-
fined);’’.
(2) 
REMUNERATION
DEFINED.—Section
1128A(i) (42 U.S.C. 1320a–7a(i)) is amended by
adding the following new paragraph:
‘‘(6) The term ‘remuneration’ includes the waiv-
er of coinsurance and deductible amounts (or any
part thereof), and transfers of items or services for
free or for other than fair market value. The term
‘remuneration’ does not include—
‘‘(A) the waiver of coinsurance and deduct-
ible amounts by a person, if—
‘‘(i) the waiver is not offered as part
of any advertisement or solicitation;
‘‘(ii) the person does not routinely
waive coinsurance or deductible amounts;
and
‘‘(iii) the person—
‘‘(I) waives the coinsurance and
deductible amounts after determining
in good faith that the individual is in
financial need;
‘‘(II) fails to collect coinsurance
or deductible amounts after making
reasonable collection efforts; or
‘‘(III) provides for any permis-
sible waiver as specified in section
100
1128B(b)(3) or in regulations issued
by the Secretary;
‘‘(B) differentials in coinsurance and de-
ductible amounts as part of a benefit plan de-
sign as long as the differentials have been dis-
closed in writing to all beneficiaries, third party
payers, and providers, to whom claims are pre-
sented and as long as the differentials meet the
standards as defined in regulations promulgated
by the Secretary not later than 180 days after
the date of the enactment of the Health Cov-
erage Availability and Affordability Act of
1996; or
‘‘(C) incentives given to individuals to pro-
mote the delivery of preventive care as deter-
mined by the Secretary in regulations so pro-
mulgated.’’.
(h) EFFECTIVE DATE.—The amendments made by
this section shall take effect January 1, 1997.
SEC. 232. CLARIFICATION OF LEVEL OF INTENT REQUIRED
FOR IMPOSITION OF SANCTIONS.
(a) CLARIFICATION OF LEVEL OF KNOWLEDGE RE-
QUIRED
FOR IMPOSITION
OF CIVIL MONETARY PEN-
ALTIES.—
101
(1) 
IN
GENERAL.—Section 
1128A(a) 
(42
U.S.C. 1320a–7a(a)) is amended—
(A) in paragraphs (1) and (2), by inserting
‘‘knowingly’’ before ‘‘presents’’ each place it ap-
pears; and
(B) in paragraph (3), by striking ‘‘gives’’
and inserting ‘‘knowingly gives or causes to be
given’’.
(2) 
DEFINITION
OF
STANDARD.—Section
1128A(i) (42 U.S.C. 1320a–7a(i)) is amended by
adding at the end the following new paragraph:
‘‘(6) The term ‘should know’ means that a per-
son, with respect to information—
‘‘(A) acts in deliberate ignorance of the
truth or falsity of the information; or
‘‘(B) acts in reckless disregard of the truth
or falsity of the information,
and no proof of specific intent to defraud is re-
quired.’’.
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply to acts or omissions occurring on
or after January 1, 1997.
102
SEC. 233. PENALTY FOR FALSE CERTIFICATION FOR HOME
HEALTH SERVICES.
(a) IN GENERAL.—Section 1128A(b) (42 U.S.C.
1320a–7a(b)) is amended by adding at the end the follow-
ing new paragraph:
‘‘(3)(A) Any physician who executes a document de-
scribed in subparagraph (B) with respect to an individual
knowing that all of the requirements referred to in such
subparagraph are not met with respect to the individual
shall be subject to a civil monetary penalty of not more
than the greater of—
‘‘(i) $5,000, or
‘‘(ii) three times the amount of the payments
under title XVIII for home health services which are
made pursuant to such certification.
‘‘(B) A document described in this subparagraph is
any document that certifies, for purposes of title XVIII,
that an individual meets the requirements of section
1814(a)(2)(C) or 1835(a)(2)(A) in the case of home
health services furnished to the individual.’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to certifications made on or
after the date of the enactment of this Act.
103
Subtitle E—Revisions to Criminal
Law
SEC. 241. DEFINITION OF FEDERAL HEALTH CARE OF-
FENSE.
(a) IN GENERAL.—Chapter 1 of title 18, United
States Code, is amended by adding at the end the
following:
‘‘§ 24. Definition of Federal health care offense
‘‘(a) As used in this title, the term ‘Federal health
care offense’ means a violation of, or a criminal conspiracy
to violate—
‘‘(1) section 669, 1035, or 1347 of this title; or
‘‘(2) section 287, 371, 664, 666, 1001, 1027,
1341, 1343, or 1954 of this title, if the violation or
conspiracy relates to a health care benefit program.
‘‘(b) As used in this title, the term ‘health care bene-
fit program’ has the meaning given such term in section
1347(b) of this title.’’.
(b) CLERICAL AMENDMENT.—The table of sections
at the beginning of chapter 2 of title 18, United States
Code, is amended by inserting after the item relating to
section 23 the following new item:
‘‘24. Definition relating to Federal health care offense defined.’’.
SEC. 242. HEALTH CARE FRAUD.
(a) OFFENSE.—
104
(1) IN
GENERAL.—Chapter 63 of title 18,
United States Code, is amended by adding at the
end the following:
‘‘§ 1347. Health care fraud
‘‘(a) Whoever knowingly executes, or attempts to exe-
cute, a scheme or artifice—
‘‘(1) to defraud any health care benefit pro-
gram; or
‘‘(2) to obtain, by means of false or fraudulent
pretenses, representations, or promises, any of the
money or property owned by, or under the custody
or control of, any health care benefit program,
in connection with the delivery of or payment for health
care benefits, items, or services, shall be fined under this
title or imprisoned not more than 10 years, or both. If
the violation results in serious bodily injury (as defined
in section 1365 of this title), such person shall be fined
under this title or imprisoned not more than 20 years, or
both; and if the violation results in death, such person
shall be fined under this title, or imprisoned for any term
of years or for life, or both.
‘‘(b) As used in this section, the term ‘health care
benefit program’ means any public or private plan or con-
tract, affecting commerce, under which any medical bene-
fit, item, or service is provided to any individual, and in-
105
cludes any individual or entity who is providing a medical
benefit, item, or service for which payment may be made
under the plan or contract.’’.
(2) CLERICAL AMENDMENT.—The table of sec-
tions at the beginning of chapter 63 of title 18,
United States Code, is amended by adding at the
end the following:
‘‘1347. Health care fraud.’’.
(b) CRIMINAL FINES DEPOSITED IN FEDERAL HOS-
PITAL INSURANCE TRUST FUND.—The Secretary of the
Treasury shall deposit into the Federal Hospital Insurance
Trust Fund pursuant to section 1817(k)(2)(C) of the So-
cial Security Act (42 U.S.C. 1395i) an amount equal to
the criminal fines imposed under section 1347 of title 18,
United States Code (relating to health care fraud).
SEC. 243. THEFT OR EMBEZZLEMENT.
(a) IN GENERAL.—Chapter 31 of title 18, United
States Code, is amended by adding at the end the follow-
ing:
‘‘§ 669. Theft or embezzlement in connection with
health care
‘‘(a) Whoever embezzles, steals, or otherwise without
authority willfully and unlawfully converts to the use of
any person other than the rightful owner, or intentionally
misapplies any of the moneys, funds, securities, premiums,
credits, property, or other assets of a health care benefit
106
program, shall be fined under this title or imprisoned not
more than 10 years, or both; but if the value of such prop-
erty does not exceed the sum of $100 the defendant shall
be fined under this title or imprisoned not more than one
year, or both.
‘‘(b) As used in this section, the term ‘health care
benefit program’ has the meaning given such term in sec-
tion 1347(b) of this title.’’.
(b) CLERICAL AMENDMENT.—The table of sections
at the beginning of chapter 31 of title 18, United States
Code, is amended by adding at the end the following:
‘‘669. Theft or embezzlement in connection with health care.’’.
SEC. 244. FALSE STATEMENTS.
(a) IN GENERAL.—Chapter 47 of title 18, United
States Code, is amended by adding at the end the follow-
ing:
‘‘§ 1035. False statements relating to health care mat-
ters
‘‘(a) Whoever, in any matter involving a health care
benefit program, knowingly—
‘‘(1) falsifies, conceals, or covers up by any
trick, scheme, or device a material fact; or
‘‘(2) makes any false, fictitious, or fraudulent
statements or representations, or makes or uses any
false writing or document knowing the same to con-
107
tain any false, fictitious, or fraudulent statement or
entry,
in connection with the delivery of or payment for health
care benefits, items, or services, shall be fined under this
title or imprisoned not more than 5 years, or both.
‘‘(b) As used in this section, the term ‘health care
benefit program’ has the meaning given such term in sec-
tion 1347(b) of this title.’’.
(b) CLERICAL AMENDMENT.—The table of sections
at the beginning of chapter 47 of title 18, United States
Code, is amended by adding at the end the following new
item:
‘‘1035. False statements relating to health care matters.’’.
SEC. 245. OBSTRUCTION OF CRIMINAL INVESTIGATIONS OF
HEALTH CARE OFFENSES.
(a) IN GENERAL.—Chapter 73 of title 18, United
States Code, is amended by adding at the end the follow-
ing:
‘‘§ 1518. Obstruction of criminal investigations of
health care offenses
‘‘(a) Whoever willfully prevents, obstructs, misleads,
delays or attempts to prevent, obstruct, mislead, or delay
the communication of information or records relating to
a violation of a Federal health care offense to a criminal
investigator shall be fined under this title or imprisoned
not more than 5 years, or both.
108
‘‘(b) As used in this section the term ‘criminal inves-
tigator’ means any individual duly authorized by a depart-
ment, agency, or armed force of the United States to con-
duct or engage in investigations for prosecutions for viola-
tions of health care offenses.’’.
(b) CLERICAL AMENDMENT.—The table of sections
at the beginning of chapter 73 of title 18, United States
Code, is amended by adding at the end the following new
item:
‘‘1518. Obstruction of criminal investigations of health care offenses.’’.
SEC. 246. LAUNDERING OF MONETARY INSTRUMENTS.
Section 1956(c)(7) of title 18, United States Code,
is amended by adding at the end the following:
‘‘(F) Any act or activity constituting an of-
fense involving a Federal health care offense.’’.
SEC. 247. INJUNCTIVE RELIEF RELATING TO HEALTH CARE
OFFENSES.
(a) IN GENERAL.—Section 1345(a)(1) of title 18,
United States Code, is amended—
(1) by striking ‘‘or’’ at the end of subparagraph
(A);
(2) by inserting ‘‘or’’ at the end of subpara-
graph (B); and
(3) by adding at the end the following:
‘‘(C) committing or about to commit a
Federal health care offense.’’.
109
(b) FREEZING OF ASSETS.—Section 1345(a)(2) of
title 18, United States Code, is amended by inserting ‘‘or
a Federal health care offense’’.
SEC. 248. AUTHORIZED INVESTIGATIVE DEMAND PROCE-
DURES.
(a) IN GENERAL.—Chapter 233 of title 18, United
States Code, is amended by adding after section 3485 the
following:
‘‘§ 3486. Authorized investigative demand procedures
‘‘(a) AUTHORIZATION.—In any investigation relating
to any act or activity involving a Federal health care of-
fense, the Attorney General or the Attorney General’s des-
ignee may issue in writing and cause to be served a sub-
poena requiring the production of any records (including
any books, papers, documents, electronic media, or other
objects or tangible things), which may be relevant to an
authorized law enforcement inquiry, that a person or legal
entity may possess or have care, custody, or control. A
subpoena shall describe the objects required to be pro-
duced and prescribe a return date within a reasonable pe-
riod of time within which the objects can be assembled
and made available.
‘‘(b) SERVICE.—A subpoena issued under this section
may be served by any person designated in the subpoena
to serve it. Service upon a natural person may be made
110
by personal delivery of the subpoena to him. Service may
be made upon a domestic or foreign corporation or upon
a partnership or other unincorporated association which
is subject to suit under a common name, by delivering the
subpoena to an officer, to a managing or general agent,
or to any other agent authorized by appointment or by
law to receive service of process. The affidavit of the per-
son serving the subpoena entered on a true copy thereof
by the person serving it shall be proof of service.
‘‘(c) ENFORCEMENT.—In the case of contumacy by
or refusal to obey a subpoena issued to any person, the
Attorney General may invoke the aid of any court of the
United States within the jurisdiction of which the inves-
tigation is carried on or of which the subpoenaed person
is an inhabitant, or in which he carries on business or may
be found, to compel compliance with the subpoena. The
court may issue an order requiring the subpoenaed person
to appear before the Attorney General to produce records,
if so ordered, or to give testimony touching the matter
under investigation. Any failure to obey the order of the
court may be punished by the court as a contempt thereof.
All process in any such case may be served in any judicial
district in which such person may be found.
‘‘(d) IMMUNITY FROM CIVIL LIABILITY.—Notwith-
standing any Federal, State, or local law, any person, in-
111
cluding officers, agents, and employees, receiving a sum-
mons under this section, who complies in good faith with
the summons and thus produces the materials sought,
shall not be liable in any court of any State or the United
States to any customer or other person for such produc-
tion or for nondisclosure of that production to the cus-
tomer.
‘‘(e) LIMITATION ON USE.—(1) Health information
about an individual that is disclosed under this section
may not be used in, or disclosed to any person for use
in, any administrative, civil, or criminal action or inves-
tigation directed against the individual who is the subject
of the information unless the action or investigation arises
out of and is directly related to receipt of health care or
payment for health care or action involving a fraudulent
claim related to health; or if authorized by an appropriate
order of a court of competent jurisdiction, granted after
application showing good cause therefor.
‘‘(2) In assessing good cause, the court shall weigh
the public interest and the need for disclosure against the
injury to the patient, to the physician-patient relationship,
and to the treatment services.
‘‘(3) Upon the granting of such order, the court, in
determining the extent to which any disclosure of all or
112
any part of any record is necessary, shall impose appro-
priate safeguards against unauthorized disclosure.’’.
(b) CLERICAL AMENDMENT.—The table of sections
at the beginning of chapter 223 of title 18, United States
Code, is amended by inserting after the item relating to
section 3485 the following new item:
‘‘3486. Authorized investigative demand procedures.’’.
(c) 
CONFORMING
AMENDMENT.—Section
1510(b)(3)(B) of title 18, United States Code, is amended
by inserting ‘‘or a Department of Justice subpoena (issued
under section 3486 of title 18),’’ after ‘‘subpoena’’.
SEC. 249. FORFEITURES FOR FEDERAL HEALTH CARE OF-
FENSES.
(a) IN GENERAL.—Section 982(a) of title 18, United
States Code, is amended by adding after paragraph (5)
the following new paragraph:
‘‘(6) The court, in imposing sentence on a person con-
victed of a Federal health care offense, shall order the per-
son to forfeit property, real or personal, that constitutes
or is derived, directly or indirectly, from gross proceeds
traceable to the commission of the offense.’’.
(b) 
CONFORMING
AMENDMENT.—Section
982(b)(1)(A) of title 18, United States Code, is amended
by inserting ‘‘or (a)(6)’’ after ‘‘(a)(1)’’.
(c) PROPERTY FORFEITED DEPOSITED IN FEDERAL
HOSPITAL INSURANCE TRUST FUND.—
113
(1) IN GENERAL.—After the payment of the
costs of asset forfeiture has been made, and notwith-
standing any other provision of law, the Secretary of
the Treasury shall deposit into the Federal Hospital
Insurance 
Trust 
Fund 
pursuant 
to 
section
1817(k)(2)(C) of the Social Security Act, as added
by section 301(b), an amount equal to the net
amount realized from the forfeiture of property by
reason of a Federal health care offense pursuant to
section 982(a)(6) of title 18, United States Code.
(2) COSTS OF ASSET FORFEITURE.—For pur-
poses of paragraph (1), the term ‘‘payment of the
costs of asset forfeiture’’ means—
(A) the payment, at the discretion of the
Attorney General, of any expenses necessary to
seize, detain, inventory, safeguard, maintain,
advertise, sell, or dispose of property under sei-
zure, detention, or forfeited, or of any other
necessary expenses incident to the seizure, de-
tention, forfeiture, or disposal of such property,
including payment for—
(i) contract services,
(ii) the employment of outside con-
tractors to operate and manage properties
or provide other specialized services nec-
114
essary to dispose of such properties in an
effort to maximize the return from such
properties; and
(iii) reimbursement of any Federal,
State, or local agency for any expenditures
made to perform the functions described in
this subparagraph;
(B) at the discretion of the Attorney Gen-
eral, the payment of awards for information or
assistance leading to a civil or criminal forfeit-
ure involving any Federal agency participating
in the Health Care Fraud and Abuse Control
Account;
(C) the compromise and payment of valid
liens and mortgages against property that has
been forfeited, subject to the discretion of the
Attorney General to determine the validity of
any such lien or mortgage and the amount of
payment to be made, and the employment of at-
torneys and other personnel skilled in State real
estate law as necessary;
(D) payment authorized in connection with
remission or mitigation procedures relating to
property forfeited; and
115
(E) the payment of State and local prop-
erty taxes on forfeited real property that ac-
crued between the date of the violation giving
rise to the forfeiture and the date of the forfeit-
ure order.
Subtitle F—Administrative
Simplification
SEC. 251. PURPOSE.
It is the purpose of this subtitle to improve the medi-
care program under title XVIII of the Social Security Act,
the medicaid program under title XIX of such Act, and
the efficiency and effectiveness of the health care system,
by encouraging the development of a health information
system through the establishment of standards and re-
quirements for the electronic transmission of certain
health information.
SEC. 252. ADMINISTRATIVE SIMPLIFICATION.
(a) IN GENERAL.—Title XI (42 U.S.C. 1301 et seq.)
is amended by adding at the end the following:
‘‘PART C—ADMINISTRATIVE SIMPLIFICATION
‘‘SEC. 1171. DEFINITIONS.
‘‘For purposes of this part:
‘‘(1) CLEARINGHOUSE.—The term ‘clearing-
house’ means a public or private entity that—
116
‘‘(A) processes or facilitates the processing
of nonstandard data elements of health infor-
mation into standard data elements; or
‘‘(B) provides the means by which persons
may meet the requirements of this part.
‘‘(2) CODE SET.—The term ‘code set’ means
any set of codes used for encoding data elements,
such as tables of terms, medical concepts, medical
diagnostic codes, or medical procedure codes.
‘‘(3) COORDINATION OF BENEFITS.—The term
‘coordination of benefits’ means determining and co-
ordinating the financial obligations of health plans
when health care benefits are payable under 2 or
more health plans.
‘‘(4) HEALTH
CARE
PROVIDER.—The term
‘health care provider’ includes a provider of services
(as defined in section 1861(u)), a provider of medi-
cal or other health services (as defined in section
1861(s)), and any other person furnishing health
care services or supplies.
‘‘(5) HEALTH INFORMATION.—The term ‘health
information’ means any information, whether oral or
recorded in any form or medium that—
‘‘(A) is created or received by a health care
provider, health plan, public health authority,
117
employer, life insurer, school or university, or
clearinghouse; and
‘‘(B) relates to the past, present, or future
physical or mental health or condition of an in-
dividual, the provision of health care to an indi-
vidual, or the past, present, or future payment
for the provision of health care to an individual.
‘‘(6) HEALTH PLAN.—The term ‘health plan’
means a plan which provides, or pays the cost of,
health benefits. Such term includes the following, or
any combination thereof:
‘‘(A) Part A or part B of the medicare
program under title XVIII.
‘‘(B) The medicaid program under title
XIX.
‘‘(C) A medicare supplemental policy (as
defined in section 1882(g)(1)).
‘‘(D) Coverage issued as a supplement to
liability insurance.
‘‘(E) General liability insurance.
‘‘(F) Worker’s compensation or similar in-
surance.
‘‘(G) Automobile or automobile medical-
payment insurance.
118
‘‘(H) A long-term care policy, including a
nursing home fixed indemnity policy (unless the
Secretary determines that such a policy does
not provide sufficiently comprehensive coverage
of a benefit so that the policy should be treated
as a health plan).
‘‘(I) A hospital or fixed indemnity income-
protection policy.
‘‘(J) An employee welfare benefit plan, as
defined in section 3(1) of the Employee Retire-
ment Income Security Act of 1974 (29 U.S.C.
1002(1)), but only to the extent the plan is es-
tablished or maintained for the purpose of pro-
viding health benefits and has 50 or more par-
ticipants (as defined in section 3(7) of such
Act).
‘‘(K) An employee welfare benefit plan or
any other arrangement which is established or
maintained for the purpose of offering or pro-
viding health benefits to the employees of 2 or
more employers.
‘‘(L) The health care program for active
military personnel under title 10, United States
Code.
119
‘‘(M) The veterans health care program
under chapter 17 of title 38, United States
Code.
‘‘(N) The Civilian Health and Medical Pro-
gram of the Uniformed Services (CHAMPUS),
as defined in section 1073(4) of title 10, United
States Code.
‘‘(O) The Indian health service program
under the Indian Health Care Improvement Act
(25 U.S.C. 1601 et seq.).
‘‘(P) The Federal Employees Health Bene-
fit Plan under chapter 89 of title 5, United
States Code.
‘‘(Q) Such other plan or arrangement as
the Secretary determines is a health plan.
‘‘(7) INDIVIDUALLY IDENTIFIABLE HEALTH IN-
FORMATION.—The term ‘individually identifiable
health information’ means any information, includ-
ing demographic information collected from an indi-
vidual, that—
‘‘(A) is created or received by a health care
provider, health plan, employer, or clearing-
house; and
‘‘(B) relates to the past, present, or future
physical or mental health or condition of an in-
120
dividual, the provision of health care to an indi-
vidual, or the past, present, or future payment
for the provision of health care to an individual,
and—
‘‘(i) identifies an individual; or
‘‘(ii) with respect to which there is a
reasonable basis to believe that the infor-
mation can be used to identify an individ-
ual.
‘‘(8) STANDARD.—The term ‘standard’, when
used with reference to a data element of health in-
formation or a transaction referred to in section
1173(a)(1), means any such data element or trans-
action that meets each of the standards and imple-
mentation specifications adopted or established by
the Secretary with respect to the data element or
transaction under sections 1172 and 1173.
‘‘(9) STANDARD SETTING ORGANIZATION.—The
term ‘standard setting organization’ means a stand-
ard setting organization accredited by the American
National Standards Institute, including the National
Council for Prescription Drug Programs, that devel-
ops standards for information transactions, data ele-
ments, or any other standard that is necessary to,
or will facilitate, the implementation of this part.
121
‘‘SEC. 1172. GENERAL REQUIREMENTS FOR ADOPTION OF
STANDARDS.
‘‘(a) APPLICABILITY.—Any standard or modification
of a standard adopted under this part shall apply to the
following persons:
‘‘(1) A health plan.
‘‘(2) A clearinghouse.
‘‘(3) A health care provider who transmits any
health information in electronic form in connection
with a transaction referred to in section 1173(a)(1).
‘‘(b) REDUCTION OF COSTS.—Any standard or modi-
fication of a standard adopted under this part shall be
consistent with the objective of reducing the administra-
tive costs of providing and paying for health care.
‘‘(c) ROLE
OF
STANDARD
SETTING
ORGANIZA-
TIONS.—
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), any standard or modification of a stand-
ard adopted under this part shall be developed or
modified by a standard setting organization.
‘‘(2) SPECIAL RULE.—The Secretary may adopt
a standard or modification of a standard that is dif-
ferent from any standard developed or modified by
a standard setting organization, if—
‘‘(A) the different standard or modification
will substantially reduce administrative costs to
122
health care providers and health plans com-
pared to the alternatives; and
‘‘(B) the standard or modification is pro-
mulgated in accordance with the rulemaking
procedures of subchapter III of chapter 5 of
title 5, United States Code.
‘‘(d) IMPLEMENTATION SPECIFICATIONS.—The Sec-
retary shall establish specifications for implementing each
of the standards and modifications adopted under this
part.
‘‘(e) PROTECTION OF TRADE SECRETS.—Except as
otherwise required by law, a standard or modification of
a standard adopted under this part shall not require dis-
closure of trade secrets or confidential commercial infor-
mation by a person required to comply with this part.
‘‘(f) ASSISTANCE TO THE SECRETARY.—In complying
with the requirements of this part, the Secretary shall rely
on the recommendations of the Health Information Advi-
sory Committee established under section 1179 and shall
consult with appropriate Federal and State agencies and
private organizations. The Secretary shall publish in the
Federal Register the recommendations of the Health In-
formation Advisory Committee regarding the adoption of
a standard or modification of a standard under this part.
123
‘‘SEC. 1173. STANDARDS FOR INFORMATION TRANSACTIONS
AND DATA ELEMENTS.
‘‘(a) STANDARDS TO ENABLE ELECTRONIC EX-
CHANGE.—
‘‘(1) IN GENERAL.—The Secretary shall adopt
standards for transactions, and data elements for
such transactions, to enable health information to be
exchanged electronically, that are—
‘‘(A) appropriate for the financial and ad-
ministrative transactions described in para-
graph (2); and
‘‘(B) related to other financial and admin-
istrative transactions determined appropriate by
the Secretary consistent with the goals of im-
proving the operation of the health care system
and reducing administrative costs.
‘‘(2) TRANSACTIONS.—The transactions re-
ferred to in paragraph (1)(A) are the following:
‘‘(A) Claims (including coordination of
benefits) or equivalent encounter information.
‘‘(B) Claims attachments.
‘‘(C) Enrollment and disenrollment.
‘‘(D) Eligibility.
‘‘(E) Health care payment and remittance
advice.
‘‘(F) Premium payments.
124
‘‘(G) First report of injury.
‘‘(H) Claims status.
‘‘(I) Referral certification and authoriza-
tion.
‘‘(3) ACCOMMODATION
OF
SPECIFIC
PROVID-
ERS.—The standards adopted by the Secretary
under paragraph (1) shall accommodate the needs of
different types of health care providers.
‘‘(b) UNIQUE HEALTH IDENTIFIERS.—
‘‘(1) IN GENERAL.—The Secretary shall adopt
standards providing for a standard unique health
identifier for each individual, employer, health plan,
and health care provider for use in the health care
system. In carrying out the preceding sentence for
each health plan and health care provider, the Sec-
retary shall take into account multiple uses for iden-
tifiers and multiple locations and specialty classifica-
tions for health care providers.
‘‘(2) USE
OF
IDENTIFIERS.—The standards
adopted under paragraphs (1) shall specify the pur-
poses for which a unique health identifier may be
used.
‘‘(c) CODE SETS.—
‘‘(1) IN GENERAL.—The Secretary shall adopt
standards that—
125
‘‘(A) select code sets for appropriate data
elements for the transactions referred to in sub-
section (a)(1) from among the code sets that
have been developed by private and public enti-
ties; or
‘‘(B) establish code sets for such data ele-
ments if no code sets for the data elements
have been developed.
‘‘(2) DISTRIBUTION.—The Secretary shall es-
tablish efficient and low-cost procedures for distribu-
tion (including electronic distribution) of code sets
and modifications made to such code sets under sec-
tion 1174(b).
‘‘(d) SECURITY STANDARDS FOR HEALTH INFORMA-
TION.—
‘‘(1) SECURITY
STANDARDS.—The Secretary
shall adopt security standards that—
‘‘(A) take into account—
‘‘(i) the technical capabilities of record
systems used to maintain health informa-
tion;
‘‘(ii) the costs of security measures;
‘‘(iii) the need for training persons
who have access to health information;
126
‘‘(iv) the value of audit trails in com-
puterized record systems; and
‘‘(v) the needs and capabilities of
small health care providers and rural
health care providers (as such providers
are defined by the Secretary); and
‘‘(B) ensure that a clearinghouse, if it is
part of a larger organization, has policies and
security procedures which isolate the activities
of the clearinghouse with respect to processing
information in a manner that prevents unau-
thorized access to such information by such
larger organization.
‘‘(2) SAFEGUARDS.—Each person described in
section 1172(a) who maintains or transmits health
information shall maintain reasonable and appro-
priate administrative, technical, and physical safe-
guards—
‘‘(A) to ensure the integrity and confiden-
tiality of the information;
‘‘(B) to protect against any reasonably an-
ticipated—
‘‘(i) threats or hazards to the security
or integrity of the information; and
127
‘‘(ii) unauthorized uses or disclosures
of the information; and
‘‘(C) otherwise to ensure compliance with
this part by the officers and employees of such
person.
‘‘(e) PRIVACY STANDARDS FOR HEALTH INFORMA-
TION.—The Secretary shall adopt standards with respect
to the privacy of individually identifiable health informa-
tion. Such standards shall include standards concerning
at least the following:
‘‘(1) The rights of an individual who is a sub-
ject of such information.
‘‘(2) The procedures to be established for the
exercise of such rights.
‘‘(3) The uses and disclosures of such informa-
tion that are authorized or required.
‘‘(f) ELECTRONIC SIGNATURE.—
‘‘(1) IN GENERAL.—The Secretary, in coordina-
tion with the Secretary of Commerce, shall adopt
standards specifying procedures for the electronic
transmission and authentication of signatures, com-
pliance with which shall be deemed to satisfy Fed-
eral and State statutory requirements for written
signatures with respect to the transactions referred
to in subsection (a)(1).
128
‘‘(2) PAYMENTS
FOR
SERVICES
AND
PRE-
MIUMS.—Nothing in this part shall be construed to
prohibit payment for health care services or health
plan premiums by debit, credit, payment card or
numbers, or other electronic means.
‘‘(g) COORDINATION OF BENEFITS.—The Secretary
shall adopt standards—
‘‘(1) for determining the financial liability of
health plans when health care benefits are payable
under two or more health plans; and
‘‘(2) for transferring among health plans appro-
priate standard data elements needed for the coordi-
nation of benefits, the sequential processing of
claims, and other data elements for individuals who
have more than one health plan.
‘‘SEC. 1174. TIMETABLES FOR ADOPTION OF STANDARDS.
‘‘(a) INITIAL
STANDARDS.—The Secretary shall
carry out section 1173 not later than 18 months after the
date of the enactment of this part, except that standards
relating to claims attachments shall be adopted not later
than 30 months after such date.
‘‘(b) ADDITIONS AND MODIFICATIONS TO STAND-
ARDS.—
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), the Secretary shall review the standards
129
adopted under section 1173, and shall adopt addi-
tional or modified standards, as determined appro-
priate, but not more frequently than once every 6
months. Any addition or modification to a standard
shall be completed in a manner which minimizes the
disruption and cost of compliance.
‘‘(2) SPECIAL RULES.—
‘‘(A) FIRST
12-MONTH
PERIOD.—Except
with respect to additions and modifications to
code sets under subparagraph (B), the Sec-
retary may not adopt any modification to a
standard adopted under this part during the
12-month period beginning on the date the
standard is initially adopted, unless the Sec-
retary determines that the modification is nec-
essary in order to permit compliance with the
standard.
‘‘(B) ADDITIONS AND MODIFICATIONS TO
CODE SETS.—
‘‘(i) IN
GENERAL.—The Secretary
shall ensure that procedures exist for the
routine maintenance, testing, enhancement,
and expansion of code sets.
‘‘(ii) ADDITIONAL RULES.—If a code
set is modified under this subsection, the
130
modified code set shall include instructions
on how data elements of health informa-
tion that were encoded prior to the modi-
fication may be converted or translated so
as to preserve the informational value of
the data elements that existed before the
modification. Any modification to a code
set under this subsection shall be imple-
mented in a manner that minimizes the
disruption and cost of complying with such
modification.
‘‘SEC. 1175. REQUIREMENTS.
‘‘(a) CONDUCT OF TRANSACTIONS BY PLANS.—
‘‘(1) IN GENERAL.—If a person desires to con-
duct a transaction referred to in section 1173(a)(1)
with a health plan as a standard transaction—
‘‘(A) the health plan may not refuse to
conduct such transaction as a standard trans-
action;
‘‘(B) the health plan may not delay such
transaction, or otherwise adversely affect, or at-
tempt to adversely affect, the person or the
transaction on the ground that the transaction
is a standard transaction; and
131
‘‘(C) the information transmitted and re-
ceived in connection with the transaction shall
be in the form of standard data elements of
health information.
‘‘(2) SATISFACTION
OF
REQUIREMENTS.—A
health plan may satisfy the requirements under
paragraph (1) by—
‘‘(A) directly transmitting and receiving
standard data elements of health information;
or
‘‘(B) submitting nonstandard data ele-
ments to a clearinghouse for processing into
standard data elements and transmission by the
clearinghouse, and receiving standard data ele-
ments through the clearinghouse.
‘‘(3) TIMETABLE
FOR
COMPLIANCE.—Para-
graph (1) shall not be construed to require a health
plan to comply with any standard, implementation
specification, or modification to a standard or speci-
fication adopted or established by the Secretary
under sections 1172 and 1173 at any time prior to
the date on which the plan is required to comply
with the standard or specification under subsection
(b).
‘‘(b) COMPLIANCE WITH STANDARDS.—
132
‘‘(1) INITIAL COMPLIANCE.—
‘‘(A) IN
GENERAL.—Not later than 24
months after the date on which an initial stand-
ard or implementation specification is adopted
or established under sections 1172 and 1173,
each person to whom the standard or imple-
mentation specification applies shall comply
with the standard or specification.
‘‘(B) SPECIAL RULE FOR SMALL HEALTH
PLANS.—In the case of a small health plan,
paragraph (1) shall be applied by substituting
‘‘36 months’’ for ‘‘24 months’’. For purposes of
this subsection, the Secretary shall determine
the plans that qualify as small health plans.
‘‘(2) COMPLIANCE
WITH
MODIFIED
STAND-
ARDS.—If the Secretary adopts a modification to a
standard or implementation specification under this
part, each person to whom the standard or imple-
mentation specification applies shall comply with the
modified standard or implementation specification at
such time as the Secretary determines appropriate,
taking into account the time needed to comply due
to the nature and extent of the modification. The
time determined appropriate under the preceding
sentence may not be earlier than the last day of the
133
180-day period beginning on the date such modifica-
tion is adopted. The Secretary may extend the time
for compliance for small health plans, if the Sec-
retary determines that such extension is appropriate.
‘‘SEC. 1176. GENERAL PENALTY FOR FAILURE TO COMPLY
WITH REQUIREMENTS AND STANDARDS.
‘‘(a) GENERAL PENALTY.—
‘‘(1) IN GENERAL.—Except as provided in sub-
section (b), the Secretary shall impose on any person
who violates a provision of this part a penalty of not
more than $100 for each such violation, except that
the total amount imposed on the person for all viola-
tions of an identical requirement or prohibition dur-
ing a calendar year may not exceed $25,000.
‘‘(2) PROCEDURES.—The provisions of section
1128A (other than subsections (a) and (b) and the
second sentence of subsection (f)) shall apply to the
imposition of a civil money penalty under this sub-
section in the same manner as such provisions apply
to the imposition of a penalty under such section
1128A.
‘‘(b) LIMITATIONS.—
‘‘(1) OFFENSES OTHERWISE PUNISHABLE.—A
penalty may not be imposed under subsection (a)
134
with respect to an act if the act constitutes an of-
fense punishable under section 1177.
‘‘(2) NONCOMPLIANCE
NOT
DISCOVERED.—A
penalty may not be imposed under subsection (a)
with respect to a provision of this part if it is estab-
lished to the satisfaction of the Secretary that the
person liable for the penalty did not know, and by
exercising reasonable diligence would not have
known, that such person violated the provision.
‘‘(3) FAILURES DUE TO REASONABLE CAUSE.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), a penalty may not be im-
posed under subsection (a) if—
‘‘(i) the failure to comply was due to
reasonable cause and not to willful neglect;
and
‘‘(ii) the failure to comply is corrected
during the 30-day period beginning on the
1st date the person liable for the penalty
knew, or by exercising reasonable diligence
would have known, that the failure to com-
ply occurred.
‘‘(B) EXTENSION OF PERIOD.—
‘‘(i) NO
PENALTY.—The period re-
ferred to in subparagraph (A)(ii) may be
135
extended as determined appropriate by the
Secretary based on the nature and extent
of the failure to comply.
‘‘(ii) ASSISTANCE.—If the Secretary
determines that a person failed to comply
because the person was unable to comply,
the Secretary may provide technical assist-
ance to the person during the period de-
scribed in subparagraph (A)(ii). Such as-
sistance shall be provided in any manner
determined appropriate by the Secretary.
‘‘(4) REDUCTION.—In the case of a failure to
comply which is due to reasonable cause and not to
willful neglect, any penalty under subsection (a) that
is not entirely waived under paragraph (3) may be
waived to the extent that the payment of such pen-
alty would be excessive relative to the compliance
failure involved.
‘‘SEC. 1177. WRONGFUL DISCLOSURE OF INDIVIDUALLY
IDENTIFIABLE HEALTH INFORMATION.
‘‘(a) OFFENSE.—A person who knowingly—
‘‘(1) uses or causes to be used a unique health
identifier in violation of a provision of this part;
136
‘‘(2) obtains individually identifiable health in-
formation relating to an individual in violation of a
provision of this part; or
‘‘(3) discloses individually identifiable health in-
formation to another person in violation of a provi-
sion of this part,
shall be punished as provided in subsection (b).
‘‘(b) PENALTIES.—A person described in subsection
(a) shall—
‘‘(1) be fined not more than $50,000, impris-
oned not more than 1 year, or both;
‘‘(2) if the offense is committed under false pre-
tenses, be fined not more than $100,000, imprisoned
not more than 5 years, or both; and
‘‘(3) if the offense is committed with intent to
sell, transfer, or use individually identifiable health
information for commercial advantage, personal
gain, or malicious harm, fined not more than
$250,000, imprisoned not more than 10 years, or
both.
‘‘SEC. 1178. EFFECT ON STATE LAW.
‘‘(a) GENERAL EFFECT.—
‘‘(1) GENERAL RULE.—Except as provided in
paragraph (2), a provision or requirement under this
part, or a standard or implementation specification
138
for the reporting of disease or injury, child abuse, birth,
or death, public health surveillance, or public health inves-
tigation or intervention.
‘‘SEC. 1179. HEALTH INFORMATION ADVISORY COMMITTEE.
‘‘(a) ESTABLISHMENT.—There is established a com-
mittee to be known as the Health Information Advisory
Committee (in this section referred to as the ‘committee’).
‘‘(b) DUTIES.—The committee shall—
‘‘(1) provide assistance to the Secretary in com-
plying with the requirements imposed on the Sec-
retary under this part;
‘‘(2) study the issues related to the adoption of
uniform data standards for patient medical record
information and the electronic exchange of such in-
formation;
‘‘(3) report to the Secretary not later than 4
years after the date of the enactment of this part
recommendations and legislative proposals for such
standards and electronic exchange; and
‘‘(4) generally be responsible for advising the
Secretary and the Congress on the status of the im-
plementation of this part.
‘‘(c) MEMBERSHIP.—
‘‘(1) IN GENERAL.—The committee shall con-
sist of 15 members of whom—
139
‘‘(A) 3 shall be appointed by the President;
‘‘(B) 6 shall be appointed by the Speaker
of the House of Representatives after consulta-
tion with the minority leader of the House of
Representatives; and
‘‘(C) 6 shall be appointed by the President
pro tempore of the Senate after consultation
with the minority leader of the Senate.
The appointments of the members shall be made not
later than 60 days after the date of the enactment
of this part. The President shall designate 1 member
as the Chair.
‘‘(2) EXPERTISE.—The membership of the com-
mittee shall consist of individuals who are of recog-
nized standing and distinction in the areas of infor-
mation systems, information networking and inte-
gration, consumer health, health care financial man-
agement, or privacy, and who possess the dem-
onstrated capacity to discharge the duties imposed
on the committee.
‘‘(3) TERMS.—Each member of the committee
shall be appointed for a term of 5 years, except that
the members first appointed shall serve staggered
terms such that the terms of not more than 3 mem-
bers expire at one time.
140
‘‘(4) INITIAL
MEETING.—Not later than 30
days after the date on which a majority of the mem-
bers have been appointed, the committee shall hold
its first meeting.
‘‘(d) REPORTS.—Not later than 1 year after the date
of the enactment of this part, and annually thereafter, the
committee shall submit to the Congress, and make public,
a report regarding—
‘‘(1) the extent to which persons required to
comply with this part are cooperating in implement-
ing the standards adopted under this part;
‘‘(2) the extent to which such entities are meet-
ing the privacy and security standards adopted
under this part and the types of penalties assessed
for noncompliance with such standards;
‘‘(3) whether the Federal and State Govern-
ments are receiving information of sufficient quality
to meet their responsibilities under this part;
‘‘(4) any problems that exist with respect to im-
plementation of this part; and
‘‘(5) the extent to which timetables under this
part are being met.’’.
(b) CONFORMING AMENDMENTS.—
141
(1) REQUIREMENT
FOR
MEDICARE
PROVID-
ERS.—Section 1866(a)(1) (42 U.S.C. 1395cc(a)(1))
is amended—
(A) by striking ‘‘and’’ at the end of sub-
paragraph (P);
(B) by striking the period at the end of
subparagraph (Q) and inserting ‘‘; and’’; and
(C) by inserting immediately after sub-
paragraph (Q) the following new subparagraph:
‘‘(R) to contract only with a clearinghouse
(as defined in section 1171) that meets each
standard 
and 
implementation 
specification
adopted or established under sections 1172 and
1173 on or after the date on which the clear-
inghouse is required to comply with the stand-
ard or specification.’’.
(2) CLERICAL AMENDMENTS.—
(A) Title XI (42 U.S.C. 1301 et seq.) is
amended by striking the title heading and in-
serting the following:
‘‘TITLE XI—GENERAL PROVISIONS, PEER RE-
VIEW, AND ADMINISTRATIVE SIMPLIFICA-
TION’’.
(B) Parts A and B of title XI (42 U.S.C.
1301 et seq.) are amended by striking ‘‘this
142
title’’ each place such term appears and insert-
ing ‘‘parts A and B of this title’’.
TITLE III—TAX-RELATED
HEALTH PROVISIONS
Subtitle A—Medical Savings
Accounts
SEC. 301. MEDICAL SAVINGS ACCOUNTS.
(a) IN GENERAL.—Part VII of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to
additional itemized deductions for individuals) is amended
by redesignating section 220 as section 221 and by insert-
ing after section 219 the following new section:
‘‘SEC. 220. MEDICAL SAVINGS ACCOUNTS.
‘‘(a) DEDUCTION ALLOWED.—In the case of an indi-
vidual who is an eligible individual for any month during
the taxable year, there shall be allowed as a deduction for
the taxable year an amount equal to the aggregate amount
paid in cash during such taxable year by such individual
to a medical savings account of such individual.
‘‘(b) LIMITATIONS.—
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this subsection, the amount allowable as a
deduction under subsection (a) to an individual for
the taxable year shall not exceed—
143
‘‘(A) except as provided in subparagraph
(B), the lesser of—
‘‘(i) $2,000, or
‘‘(ii) the annual deductible limit for
any individual covered under the high de-
ductible health plan, or
‘‘(B) in the case of a high deductible
health plan covering the taxpayer and any other
eligible individual who is the spouse or any de-
pendent (as defined in section 152) of the tax-
payer, the lesser of—
‘‘(i) $4,000, or
‘‘(ii) the annual limit under the plan
on the aggregate amount of deductibles re-
quired to be paid by all individuals.
The preceding sentence shall not apply if the spouse
of such individual is covered under any other high
deductible health plan.
‘‘(2) SPECIAL
RULE
FOR
MARRIED
INDIVID-
UALS.—
‘‘(A) IN GENERAL.—This subsection shall
be applied separately for each married individ-
ual.
‘‘(B) SPECIAL RULE.—If individuals who
are married to each other are covered under the
144
same high deductible health plan, then the
amounts applicable under paragraph (1)(B)
shall be divided equally between them unless
they agree on a different division.
‘‘(3) COORDINATION WITH EXCLUSION FOR EM-
PLOYER CONTRIBUTIONS.—No deduction shall be al-
lowed under this section for any amount paid for
any taxable year to a medical savings account of an
individual if—
‘‘(A) any amount is paid to any medical
savings account of such individual which is ex-
cludable from gross income under section
106(b) for such year, or
‘‘(B) in a case described in paragraph (2),
any amount is paid to any medical savings ac-
count of either spouse which is so excludable for
such year.
‘‘(4) PRORATION OF LIMITATION.—
‘‘(A) IN GENERAL.—The limitation under
paragraph (1) shall be the sum of the monthly
limitations for months during the taxable year
that the individual is an eligible individual if—
‘‘(i) such individual is not an eligible
individual for all months of the taxable
year,
145
‘‘(ii) the deductible under the high de-
ductible health plan covering such individ-
ual is not the same throughout such tax-
able year, or
‘‘(iii) such limitation is determined
under paragraph (1)(B) for some but not
all months during such taxable year.
‘‘(B) MONTHLY LIMITATION.—The month-
ly limitation for any month shall be an amount
equal to 1⁄12 of the limitation which would (but
for this paragraph and paragraph (3)) be deter-
mined under paragraph (1) if the facts and cir-
cumstances as of the first day of such month
that such individual is covered under a high de-
ductible health plan were true for the entire
taxable year.
‘‘(5) DENIAL
OF
DEDUCTION
TO
DEPEND-
ENTS.—No deduction shall be allowed under this
section to any individual with respect to whom a de-
duction under section 151 is allowable to another
taxpayer for a taxable year beginning in the cal-
endar year in which such individual’s taxable year
begins.
‘‘(c) DEFINITIONS.—For purposes of this section—
‘‘(1) ELIGIBLE INDIVIDUAL.—
146
‘‘(A) IN GENERAL.—The term ‘eligible in-
dividual’ means, with respect to any month, any
individual—
‘‘(i) who is covered under a high de-
ductible health plan as of the 1st day of
such month, and
‘‘(ii) who is not, while covered under
a high deductible health plan, covered
under any health plan—
‘‘(I) which is not a high deduct-
ible health plan, and
‘‘(II) which provides coverage for
any benefit which is covered under the
high deductible health plan.
‘‘(B) 
CERTAIN
COVERAGE
DIS-
REGARDED.—Subparagraph (A)(ii) shall be ap-
plied without regard to—
‘‘(i) coverage for any benefit provided
by permitted insurance, and
‘‘(ii) coverage (whether through insur-
ance or otherwise) for accidents, disability,
dental care, vision care, or long-term care.
‘‘(2) HIGH DEDUCTIBLE HEALTH PLAN.—The
term ‘high deductible health plan’ means a health
plan which—
147
‘‘(A) has an annual deductible limit for
each individual covered by the plan which is not
less than $1,500, and
‘‘(B) has an annual limit on the aggregate
amount of deductibles required to be paid with
respect to all individuals covered by the plan
which is not less than $3,000.
Such term does not include a health plan if substan-
tially all of its coverage is coverage described in
paragraph (1)(B). A plan shall not fail to be treated
as a high deductible health plan by reason of failing
to have a deductible for preventive care if the ab-
sence of a deductible for such care is required by
State law.
‘‘(3) PERMITTED INSURANCE.—The term ‘per-
mitted insurance’ means—
‘‘(A) Medicare supplemental insurance,
‘‘(B) insurance if substantially all of the
coverage provided under such insurance relates
to—
‘‘(i) liabilities incurred under workers’
compensation laws,
‘‘(ii) tort liabilities,
‘‘(iii) liabilities relating to ownership
or use of property, or
148
‘‘(iv) such other similar liabilities as
the Secretary may specify by regulations,
‘‘(C) insurance for a specified disease or
illness, and
‘‘(D) insurance paying a fixed amount per
day (or other period) of hospitalization.
‘‘(d) MEDICAL SAVINGS ACCOUNT.—For purposes of
this section—
‘‘(1) MEDICAL SAVINGS ACCOUNT.—The term
‘medical savings account’ means a trust created or
organized in the United States exclusively for the
purpose of paying the qualified medical expenses of
the account holder, but only if the written governing
instrument creating the trust meets the following re-
quirements:
‘‘(A) Except in the case of a rollover con-
tribution described in subsection (f)(5), no con-
tribution will be accepted—
‘‘(i) unless it is in cash, or
‘‘(ii) to the extent such contribution,
when added to previous contributions to
the trust for the calendar year, exceeds
$4,000.
‘‘(B) The trustee is a bank (as defined in
section 408(n)), an insurance company (as de-
149
fined in section 816), or another person who
demonstrates to the satisfaction of the Sec-
retary that the manner in which such person
will administer the trust will be consistent with
the requirements of this section.
‘‘(C) No part of the trust assets will be in-
vested in life insurance contracts.
‘‘(D) The assets of the trust will not be
commingled with other property except in a
common trust fund or common investment
fund.
‘‘(E) The interest of an individual in the
balance in his account is nonforfeitable.
‘‘(2) QUALIFIED MEDICAL EXPENSES.—
‘‘(A) IN
GENERAL.—The term ‘qualified
medical expenses’ means, with respect to an ac-
count holder, amounts paid by such holder for
medical care (as defined in section 213(d)) for
such individual, the spouse of such individual,
and any dependent (as defined in section 152)
of such individual, but only to the extent such
amounts are not compensated for by insurance
or otherwise.
‘‘(B) HEALTH
INSURANCE
MAY
NOT
BE
PURCHASED FROM ACCOUNT.—
150
‘‘(i) IN GENERAL.—Subparagraph (A)
shall not apply to any payment for insur-
ance.
‘‘(ii) EXCEPTIONS.—Clause (i) shall
not apply to any expense for coverage
under—
‘‘(I) a health plan during any pe-
riod of continuation coverage required
under any Federal law, or
‘‘(II) a health plan during a pe-
riod in which the individual is receiv-
ing 
unemployment 
compensation
under any Federal or State law.
‘‘(3) ACCOUNT
HOLDER.—The term ‘account
holder’ means the individual on whose behalf the
medical savings account was established.
‘‘(4) CERTAIN RULES TO APPLY.—Rules similar
to the following rules shall apply for purposes of this
section:
‘‘(A) Section 219(d)(2) (relating to no de-
duction for rollovers).
‘‘(B) Section 219(f)(3) (relating to time
when contributions deemed made).
151
‘‘(C) Except as provided in section 106(b),
section 219(f)(5) (relating to employer pay-
ments).
‘‘(D) Section 408(g) (relating to commu-
nity property laws).
‘‘(E) Section 408(h) (relating to custodial
accounts).
‘‘(e) TAX TREATMENT OF ACCOUNTS.—
‘‘(1) IN GENERAL.—A medical savings account
is exempt from taxation under this subtitle unless
such account has ceased to be a medical savings ac-
count by reason of paragraph (2) or (3). Notwith-
standing the preceding sentence, any such account is
subject to the taxes imposed by section 511 (relating
to imposition of tax on unrelated business income of
charitable, etc. organizations).
‘‘(2) ACCOUNT TERMINATIONS.—Rules similar
to the rules of paragraphs (2) and (4) of section
408(e) shall apply to medical savings accounts, and
any amount treated as distributed under such rules
shall be treated as not used to pay qualified medical
expenses.
‘‘(f) TAX TREATMENT OF DISTRIBUTIONS.—
‘‘(1) AMOUNTS USED FOR QUALIFIED MEDICAL
EXPENSES.—
152
‘‘(A) IN GENERAL.—Any amount paid or
distributed out of a medical savings account
which is used exclusively to pay qualified medi-
cal expenses of any account holder (or any
spouse or dependent of the holder) shall not be
includible in gross income.
‘‘(B) TREATMENT AFTER DEATH OF AC-
COUNT HOLDER.—
‘‘(i) 
TREATMENT
IF
HOLDER
IS
SPOUSE.—If, after the death of the ac-
count holder, the account holder’s interest
is payable to (or for the benefit of) the
holder’s spouse, the medical savings ac-
count shall be treated as if the spouse were
the account holder.
‘‘(ii) TREATMENT
IF
DESIGNATED
HOLDER IS NOT SPOUSE.—In the case of
an account holder’s interest in a medical
savings account which is payable to (or for
the benefit of) any person other than such
holder’s spouse upon the death of such
holder—
‘‘(I) such account shall cease to
be a medical savings account as of the
date of death, and
153
‘‘(II) an amount equal to the fair
market value of the assets in such ac-
count on such date shall be includible
if such person is not the estate of
such holder, in such person’s gross in-
come for the taxable year which in-
cludes such date, or if such person is
the estate of such holder, in such
holder’s gross income for the last tax-
able year of such holder.
‘‘(2) INCLUSION OF AMOUNTS NOT USED FOR
QUALIFIED MEDICAL EXPENSES.—
‘‘(A) IN GENERAL.—Any amount paid or
distributed out of a medical savings account
which is not used exclusively to pay the quali-
fied medical expenses of the account holder or
of the spouse or dependents of such holder shall
be included in the gross income of such holder.
‘‘(B) SPECIAL
RULES.—For purposes of
subparagraph (A)—
‘‘(i) all medical savings accounts of
the account holder shall be treated as 1 ac-
count,
154
‘‘(ii) all payments and distributions
during any taxable year shall be treated as
1 distribution, and
‘‘(iii) any distribution of property
shall be taken into account at its fair mar-
ket value on the date of the distribution.
‘‘(3) EXCESS CONTRIBUTIONS RETURNED BE-
FORE DUE DATE OF RETURN.—Paragraph (2) shall
not apply to the distribution of any contribution paid
during a taxable year to a medical savings account
to the extent that such contribution exceeds the
amount under subsection (d)(1)(A)(ii) if—
‘‘(A) such distribution is received by the
individual on or before the last day prescribed
by law (including extensions of time) for filing
such individual’s return for such taxable year,
and
‘‘(B) such distribution is accompanied by
the amount of net income attributable to such
excess contribution.
Any net income described in subparagraph (B) shall
be included in the gross income of the individual for
the taxable year in which it is received.
‘‘(4) PENALTY FOR DISTRIBUTIONS NOT USED
FOR QUALIFIED MEDICAL EXPENSES.—
155
‘‘(A) IN GENERAL.—The tax imposed by
this chapter on the account holder for any tax-
able year in which there is a payment or dis-
tribution from a medical savings account of
such holder which is includible in gross income
under paragraph (2) shall be increased by 10
percent of the amount which is so includible.
‘‘(B) EXCEPTION
FOR
DISABILITY
OR
DEATH.—Subparagraph (A) shall not apply if
the payment or distribution is made after the
account holder becomes disabled within the
meaning of section 72(m)(7) or dies.
‘‘(C) 
EXCEPTION
FOR
DISTRIBUTIONS
AFTER AGE 591⁄2.—Subparagraph (A) shall not
apply to any payment or distribution after the
date on which the account holder attains age
591⁄2.
‘‘(5) ROLLOVER CONTRIBUTION.—An amount is
described in this paragraph as a rollover contribu-
tion if it meets the requirements of subparagraphs
(A) and (B).
‘‘(A) IN
GENERAL.—Paragraph (2) shall
not apply to any amount paid or distributed
from a medical savings account to the account
holder to the extent the amount received is paid
156
into a medical savings account for the benefit
of such holder not later than the 60th day after
the day on which the holder receives the pay-
ment or distribution.
‘‘(B) LIMITATION.—This paragraph shall
not apply to any amount described in subpara-
graph (A) received by an individual from a
medical savings account if, at any time during
the 1-year period ending on the day of such re-
ceipt, such individual received any other amount
described in subparagraph (A) from a medical
savings account which was not includible in the
individual’s gross income because of the appli-
cation of this paragraph.
‘‘(6) COORDINATION WITH MEDICAL EXPENSE
DEDUCTION.—For purposes of determining the
amount of the deduction under section 213, any pay-
ment or distribution out of a medical savings ac-
count for qualified medical expenses shall not be
treated as an expense paid for medical care.
‘‘(7) TRANSFER OF ACCOUNT INCIDENT TO DI-
VORCE.—The transfer of an individual’s interest in
a medical savings account to an individual’s spouse
or former spouse under a divorce or separation in-
strument described in subparagraph (A) of section
157
71(b)(2) shall not be considered a taxable transfer
made by such individual notwithstanding any other
provision of this subtitle, and such interest shall,
after such transfer, be treated as a medical savings
account with respect to which the spouse is the ac-
count holder.
‘‘(g) COST-OF-LIVING ADJUSTMENT.—
‘‘(1) IN GENERAL.—In the case of any taxable
year beginning in a calendar year after 1997, each
dollar amount in subsection (b)(1), (c)(2), or
(d)(1)(A) shall be increased by an amount equal
to—
‘‘(A) such dollar amount, multiplied by
‘‘(B) the medical care cost adjustment for
such calendar year.
If any increase under the preceding sentence is not
a multiple of $50, such increase shall be rounded to
the nearest multiple of $50.
‘‘(2) MEDICAL CARE COST ADJUSTMENT.—For
purposes of paragraph (1), the medical care cost ad-
justment for any calendar year is the percentage (if
any) by which—
‘‘(A) the medical care component of the
Consumer Price Index (as defined in section
158
1(f)(5)) for August of the preceding calendar
year, exceeds
‘‘(B) such component for August of 1996.
‘‘(h) REPORTS.—The Secretary may require the
trustee of a medical savings account to make such reports
regarding such account to the Secretary and to the ac-
count holder with respect to contributions, distributions,
and such other matters as the Secretary determines appro-
priate. The reports required by this subsection shall be
filed at such time and in such manner and furnished to
such individuals at such time and in such manner as may
be required by those regulations.’’
(b) DEDUCTION ALLOWED WHETHER OR NOT INDI-
VIDUAL ITEMIZES OTHER DEDUCTIONS.—Subsection (a)
of section 62 of such Code is amended by inserting after
paragraph (15) the following new paragraph:
‘‘(16) MEDICAL SAVINGS ACCOUNTS.—The de-
duction allowed by section 220.’’
(c) EXCLUSIONS FOR EMPLOYER CONTRIBUTIONS TO
MEDICAL SAVINGS ACCOUNTS.—
(1) EXCLUSION FROM INCOME TAX.—The text
of section 106 of such Code (relating to contribu-
tions by employer to accident and health plans) is
amended to read as follows:
159
‘‘(a) GENERAL RULE.—Gross income of an employee
does not include employer-provided coverage under an ac-
cident or health plan.
‘‘(b) CONTRIBUTIONS
TO MEDICAL SAVINGS AC-
COUNTS.—
‘‘(1) IN GENERAL.—In the case of an employee
who is an eligible individual, gross income does not
include amounts contributed by such employee’s em-
ployer to any medical savings account of such em-
ployee.
‘‘(2) COORDINATION WITH DEDUCTION LIMITA-
TION.—The amount excluded from the gross income
of an employee under this subsection for any taxable
year shall not exceed the limitation under section
220(b)(1) (determined without regard to this sub-
section) which is applicable to such employee for
such taxable year.
‘‘(3) NO CONSTRUCTIVE RECEIPT.—No amount
shall be included in the gross income of any em-
ployee solely because the employee may choose be-
tween the contributions referred to in paragraph (1)
and employer contributions to another health plan of
the employer.
‘‘(4) SPECIAL RULE FOR DEDUCTION OF EM-
PLOYER CONTRIBUTIONS.—Any employer contribu-
160
tion to a medical savings account, if otherwise allow-
able as a deduction under this chapter, shall be al-
lowed only for the taxable year in which paid.
‘‘(5) DEFINITIONS.—For purposes of this sub-
section, the terms ‘eligible individual’ and ‘medical
savings account’ have the respective meanings given
to such terms by section 220.’’
(2) EXCLUSION FROM EMPLOYMENT TAXES.—
(A) SOCIAL SECURITY TAXES.—
(i) Subsection (a) of section 3121 of
such Code is amended by striking ‘‘or’’ at
the end of paragraph (20), by striking the
period at the end of paragraph (21) and
inserting ‘‘; or’’, and by inserting after
paragraph (21) the following new para-
graph:
‘‘(22) any payment made to or for the benefit
of an employee 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(b).’’
(ii) Subsection (a) of section 209 of
the Social Security Act is amended by
striking ‘‘or’’ at the end of paragraph (17),
by striking the period at the end of para-
161
graph (18) and inserting ‘‘; or’’, and by in-
serting after paragraph (18) the following
new paragraph:
‘‘(19) any payment made to or for the benefit
of an employee 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(b) of the Internal Revenue Code of 1986.’’
(B) RAILROAD
RETIREMENT
TAX.—Sub-
section (e) of section 3231 of such Code is
amended by adding at the end the following
new paragraph:
‘‘(10) MEDICAL SAVINGS ACCOUNT CONTRIBU-
TIONS.—The term ‘compensation’ shall not include
any payment made to or for the benefit of an em-
ployee if at the time of such payment it is reason-
able to believe that the employee will be able to ex-
clude such payment from income under section
106(b).’’
(C) UNEMPLOYMENT TAX.—Subsection (b)
of section 3306 of such Code is amended by
striking ‘‘or’’ at the end of paragraph (15), by
striking the period at the end of paragraph (16)
and inserting ‘‘; or’’, and by inserting after
paragraph (16) the following new paragraph:
162
‘‘(17) any payment made to or for the benefit
of an employee 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(b).’’
(D) WITHHOLDING
TAX.—Subsection (a)
of section 3401 of such Code is amended by
striking ‘‘or’’ at the end of paragraph (19), by
striking the period at the end of paragraph (20)
and inserting ‘‘; or’’, and by inserting after
paragraph (20) the following new paragraph:
‘‘(21) any payment made to or for the benefit
of an employee 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(b).’’
(d) MEDICAL SAVINGS ACCOUNT CONTRIBUTIONS
NOT AVAILABLE UNDER CAFETERIA PLANS.—Subsection
(f) of section 125 of such Code is amended by inserting
‘‘106(b),’’ before ‘‘117’’.
(e) EXCLUSION
OF MEDICAL SAVINGS ACCOUNTS
FROM ESTATE TAX.—Part IV of subchapter A of chapter
11 of such Code is amended by adding at the end the fol-
lowing new section:
163
‘‘SEC. 2057. MEDICAL SAVINGS ACCOUNTS.
‘‘For purposes of the tax imposed by section 2001,
the value of the taxable estate shall be determined by de-
ducting from the value of the gross estate an amount
equal to the value of any medical savings account (as de-
fined in section 220(d)) included in the gross estate.’’
(f) TAX ON EXCESS CONTRIBUTIONS.—Section 4973
of such Code (relating to tax on excess contributions to
individual retirement accounts, certain section 403(b) con-
tracts, and certain individual retirement annuities) is
amended—
(1) by inserting ‘‘MEDICAL
SAVINGS
AC-
COUNTS,’’ after ‘‘ACCOUNTS,’’ in the heading of
such section,
(2) by striking ‘‘or’’ at the end of paragraph
(1) of subsection (a),
(3) by redesignating paragraph (2) of sub-
section (a) as paragraph (3) and by inserting after
paragraph (1) the following:
‘‘(2) a medical savings account (within the
meaning of section 220(d)), or’’, and
(4) by adding at the end the following new sub-
section:
‘‘(d) EXCESS CONTRIBUTIONS TO MEDICAL SAVINGS
ACCOUNTS.—For purposes of this section, in the case of
a medical savings account (within the meaning of section
164
220(d)), the term ‘excess contributions’ means the sum
of—
‘‘(1) the amount by which the amount contrib-
uted for the taxable year to the account exceeds the
amount which may be contributed to the account
under section 220(d)(1)(B)(ii) for such taxable year,
and
‘‘(2) the amount determined under this sub-
section for the preceding taxable year, reduced by
the sum of distributions out of the account included
in gross income under section 220(f) (2) or (3) and
the excess (if any) of the maximum amount allow-
able as a deduction under section 220 for the tax-
able year over the amount contributed.
For purposes of this subsection, any contribution which
is distributed out of the medical savings account in a dis-
tribution to which section 220(f)(3) applies shall be treat-
ed as an amount not contributed.’’
(g) TAX ON PROHIBITED TRANSACTIONS.—
(1) Section 4975 of such Code (relating to tax
on prohibited transactions) is amended by adding at
the end of subsection (c) the following new para-
graph:
‘‘(4) SPECIAL RULE FOR MEDICAL SAVINGS AC-
COUNTS.—An individual for whose benefit a medical
165
savings account (within the meaning of section
220(d)) is established shall be exempt from the tax
imposed by this section with respect to any trans-
action concerning such account (which would other-
wise be taxable under this section) if, with respect
to such transaction, the account ceases to be a medi-
cal savings account by reason of the application of
section 220(e)(2) to such account.’’
(2) Paragraph (1) of section 4975(e) of such
Code is amended to read as follows:
‘‘(1) PLAN.—For purposes of this section, the
term ‘plan’ means—
‘‘(A) a trust described in section 401(a)
which forms a part of a plan, or a plan de-
scribed in section 403(a), which trust or plan is
exempt from tax under section 501(a),
‘‘(B) an individual retirement account de-
scribed in section 408(a),
‘‘(C) an individual retirement annuity de-
scribed in section 408(b),
‘‘(D) a medical savings account described
in section 220(d), or
‘‘(E) a trust, plan, account, or annuity
which, at any time, has been determined by the
166
Secretary to be described in any preceding sub-
paragraph of this paragraph.’’
(h) FAILURE TO PROVIDE REPORTS ON MEDICAL
SAVINGS ACCOUNTS.—
(1) Subsection (a) of section 6693 of such Code
(relating to failure to provide reports on individual
retirement accounts or annuities) is amended to read
as follows:
‘‘(a) REPORTS.—
‘‘(1) IN GENERAL.—If a person required to file
a report under a provision referred to in paragraph
(2) fails to file such report at the time and in the
manner required by such provision, such person
shall pay a penalty of $50 for each failure unless it
is shown that such failure is due to reasonable
cause.
‘‘(2) PROVISIONS.—The provisions referred to
in this paragraph are—
‘‘(A) subsections (i) and (l) of section 408
(relating to individual retirement plans), and
‘‘(B) section 220(h) (relating to medical
savings accounts).’’
(i) EXCEPTION FROM CAPITALIZATION OF POLICY
ACQUISITION EXPENSES.—Subparagraph (B) of section
848(e)(1) of such Code (defining specified insurance con-
167
tract) is amended by striking ‘‘and’’ at the end of clause
(ii), by striking the period at the end of clause (iii) and
inserting ‘‘, and’’, and by adding at the end the following
new clause:
‘‘(iv) any contract which is a medical
savings account (as defined in section
220(d)).’’.
(j) CLERICAL AMENDMENT.—The table of sections
for part VII of subchapter B of chapter 1 of such Code
is amended by striking the last item and inserting the fol-
lowing:
‘‘Sec. 220. Medical savings accounts.
‘‘Sec. 221. Cross reference.’’
(k) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1996.
Subtitle B—Increase in Deduction
for Health Insurance Costs of
Self-Employed Individuals
SEC. 311. INCREASE IN DEDUCTION FOR HEALTH INSUR-
ANCE COSTS OF SELF-EMPLOYED INDIVID-
UALS.
(a) IN GENERAL.—Paragraph (1) of section 162(l)
of the Internal Revenue Code of 1986 is amended to read
as follows:
‘‘(1) ALLOWANCE OF DEDUCTION.—
168
‘‘(A) IN GENERAL.—In the case of an indi-
vidual who is an employee within the meaning
of section 401(c)(1), there shall be allowed as
a deduction under this section an amount equal
to the applicable percentage of the amount paid
during the taxable year for insurance which
constitutes medical care for the taxpayer, his
spouse, and dependents.
‘‘(B) 
APPLICABLE
PERCENTAGE.—For
purposes of subparagraph (A), the applicable
percentage shall be determined under the fol-
lowing table:
‘‘For taxable years beginning
The applicable
in calendar year—
percentage is—
1998 or 1999 ....................................................................
35 percent
2000 or 2001 ....................................................................
40 percent
2002 or thereafter .............................................................
50 percent.’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 1997.
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