I
104TH CONGRESS
2D SESSION
H. R. 3103
To amend the Internal Revenue Code of 1986 to improve portability and
continuity of health insurance coverage in the group and individual
markets, to combat waste, fraud, and abuse in health insurance and
health care delivery, to promote the use of medical savings accounts,
to improve access to long-term care services and coverage, to simplify
the administration of health insurance, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
MARCH 18, 1996
Mr. ARCHER (for himself and Mr. THOMAS) introduced the following bill;
which was referred to the Committee on Ways and Means, and in addi-
tion to the Committees on Economic and Educational Opportunities,
Commerce, and the Judiciary, for a period to be subsequently determined
by the Speaker, in each case for consideration of such provisions as fall
within the jurisdiction of the committee concerned
A BILL
To amend the Internal Revenue Code of 1986 to improve
portability and continuity of health insurance coverage
in the group and individual markets, to combat waste,
fraud, and abuse in health insurance and health care
delivery, to promote the use of medical savings accounts,
to improve access to long-term care services and cov-
erage, to simplify the administration of health insurance,
and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Health Coverage Availability and Affordability Act of
1996’’.
(b) TABLE OF CONTENTS.—The table of contents of
this Act is as follows:
Sec. 1. Short title; table of contents.
TITLE I—IMPROVED AVAILABILITY AND PORTABILITY OF
HEALTH INSURANCE COVERAGE
Subtitle A—Coverage Under Group Health Plans
Sec. 101. Portability of coverage for previously covered individuals.
Sec. 102. Limitation on preexisting condition exclusions; no application to cer-
tain newborns, adopted children, and pregnancy.
Sec. 103. Prohibiting exclusions based on health status and providing for en-
rollment periods.
Sec. 104. Enforcement.
Subtitle B—Definitions; General Provisions
Sec. 191. Definitions; scope of coverage.
Sec. 192. State flexibility to provide greater protection.
Sec. 193. Effective date.
Sec. 194. Rule of construction.
TITLE II—PREVENTING HEALTH CARE FRAUD AND ABUSE;
ADMINISTRATIVE SIMPLIFICATION
Sec. 200. References in title.
Subtitle A—Fraud and Abuse Control Program
Sec. 201. Fraud and abuse control program.
Sec. 202. Medicare integrity program.
Sec. 203. Beneficiary incentive programs.
Sec. 204. Application of certain health anti-fraud and abuse sanctions to fraud
and abuse against Federal health care programs.
Sec. 205. Guidance regarding application of health care fraud and abuse sanc-
tions.
Subtitle B—Revisions to Current Sanctions for Fraud and Abuse
Sec. 211. Mandatory exclusion from participation in medicare and State health
care programs.
Sec. 212. Establishment of minimum period of exclusion for certain individuals
and entities subject to permissive exclusion from medicare and
State health care programs.
Sec. 213. Permissive exclusion of individuals with ownership or control interest
in sanctioned entities.
Sec. 214. Sanctions against practitioners and persons for failure to comply with
statutory obligations.
Sec. 215. Intermediate sanctions for medicare health maintenance organiza-
tions.
Sec. 216. Additional exception to anti-kickback penalties for discounting and
managed care arrangements.
Sec. 217. Criminal penalty for fraudulent disposition of assets in order to ob-
tain medicaid benefits.
Sec. 218. Effective date.
Subtitle C—Data Collection
Sec. 221. Establishment of the health care fraud and abuse data collection pro-
gram.
Subtitle D—Civil Monetary Penalties
Sec. 231. Social security act civil monetary penalties.
Sec. 232. Clarification of level of intent required for imposition of sanctions.
Sec. 233. Penalty for false certification for home health services.
Subtitle E—Revisions to Criminal Law
Sec. 241. Definition of Federal health care offense.
Sec. 242. Health care fraud.
Sec. 243. Theft or embezzlement.
Sec. 244. False statements.
Sec. 245. Obstruction of criminal investigations of health care offenses.
Sec. 246. Laundering of monetary instruments.
Sec. 247. Injunctive relief relating to health care offenses.
Sec. 248. Authorized investigative demand procedures.
Sec. 249. Forfeitures for Federal health care offenses.
Subtitle F—Administrative Simplification
PART 1—GENERAL ADMINISTRATIVE SIMPLIFICATION
Sec. 251. Purpose.
Sec. 252. Administrative simplification.
‘‘PART C—ADMINISTRATIVE SIMPLIFICATION
‘‘Sec. 1171. Definitions.
‘‘Sec. 1172. General requirements for adoption of standards.
‘‘Sec. 1173. Standards for information transactions and data elements.
‘‘Sec. 1174. Timetables for adoption of standards.
‘‘Sec. 1175. Requirements.
‘‘Sec. 1176. General penalty for failure to comply with requirements and
standards.
‘‘Sec. 1177. Wrongful disclosure of individually identifiable health informa-
tion.
‘‘Sec. 1178. Effect on State law.
‘‘Sec. 1179. Health Information Advisory Committee.’’.
PART 2—ADMINISTRATIVE SIMPLIFICATION FOR LABORATORY SERVICES
Sec. 261. Administrative simplification for laboratory services.
TITLE III—TAX-RELATED HEALTH PROVISIONS
Sec. 300. Amendment of 1986 Code.
Subtitle A—Medical Savings Accounts
Sec. 301. Medical savings accounts.
Subtitle B—Increase in Deduction for Health Insurance Costs of Self-
Employed Individuals
Sec. 311. Increase in deduction for health insurance costs of self-employed indi-
viduals.
Subtitle C—Long-Term Care Services and Contracts
PART I—GENERAL PROVISIONS
Sec. 321. Treatment of long-term care insurance.
Sec. 322. Premiums for qualified long-term care insurance treated as payment
for medical care.
Sec. 323. Reporting requirements.
PART II—CONSUMER PROTECTION PROVISIONS
Sec. 325. Policy requirements.
Sec. 326. Requirements for issuers of long-term care insurance policies.
Sec. 327. Coordination with State requirements.
Sec. 328. Effective dates.
Subtitle D—Treatment of Accelerated Death Benefits
Sec. 331. Treatment of accelerated death benefits by recipient.
Sec. 332. Tax treatment of companies issuing qualified accelerated death bene-
fit riders.
Subtitle E—High-Risk Pools
Sec. 341. Exemption from income tax for State-sponsored organizations provid-
ing health coverage for high-risk individuals.
TITLE IV—REVENUE OFFSETS
Sec. 400. Amendment of 1986 Code.
Subtitle A—Repeal of Bad Debt Reserve Method for Thrift Savings
Associations
Sec. 401. Repeal of bad debt reserve method for thrift savings associations.
Subtitle B—Reform of the Earned Income Credit
Sec. 411. Earned income credit denied to individuals not authorized to be em-
ployed in the United States.
Sec. 412. Provisions to improve tax compliance.
TITLE I—IMPROVED AVAILABIL-
ITY 
AND 
PORTABILITY 
OF
HEALTH 
INSURANCE 
COV-
ERAGE
Subtitle A—Coverage Under Group
Health Plans
SEC. 101. PORTABILITY OF COVERAGE FOR PREVIOUSLY
COVERED INDIVIDUALS.
(a) CREDITING PERIODS OF PREVIOUS COVERAGE
TOWARD PREEXISTING CONDITION RESTRICTIONS.—Sub-
ject to the succeeding provisions of this section, a group
health plan, and an insurer or health maintenance organi-
zation offering health insurance coverage in connection
with a group health plan, shall provide that any preexist-
ing condition limitation period (as defined in subsection
(b)(2)) is reduced by the length of the aggregate period
of qualified prior coverage (if any, as defined in subsection
(b)(3)) applicable to the participant or beneficiary as of
the date of commencement of coverage under the plan.
(b) DEFINITIONS AND OTHER PROVISIONS RELAT-
ING TO PREEXISTING CONDITIONS.—
(1) PREEXISTING CONDITION.—
(A) IN GENERAL.—For purposes of this
subtitle, subject to subparagraph (B), the term
‘‘preexisting condition’’ means a condition, re-
gardless of the cause of the condition, for which
medical advice, diagnosis, care, or treatment
was recommended or received within the 6-
month period ending on the day before—
(i) the effective date of the coverage
of such participant or beneficiary, or
(ii) the earliest date upon which such
coverage could have been effective if there
were no waiting period applicable,
whichever is earlier.
(B) EXTENSION OF PERIOD IN THE CASE
OF LATE ENROLLMENT.—In the case of a par-
ticipant or beneficiary whose initial coverage
commences after the date the participant or
beneficiary first becomes eligible for coverage
under the group health plan, the reference in
subparagraph (A) to ‘‘6-month period’’ is
deemed a reference to ‘‘12-month period’’.
(2) PREEXISTING CONDITION LIMITATION PE-
RIOD.—For purposes of this subtitle, the term ‘‘pre-
existing condition limitation period’’ means, with re-
spect to coverage of an individual under a group
health plan or under health insurance coverage, the
period during which benefits with respect to treat-
ment of a condition of such individual are not pro-
vided based on the fact that the condition is a pre-
existing condition.
(3) AGGREGATE PERIOD OF QUALIFIED PRIOR
COVERAGE.—
(A) IN GENERAL.—For purposes of this
section, the term ‘‘aggregate period of qualified
prior coverage’’ means, with respect to com-
mencement of coverage of an individual under
a group health plan or health insurance cov-
erage offered in connection with a group health
plan, the aggregate of the qualified coverage pe-
riods (as defined in subparagraph (B)) of such
individual occurring before the date of such
commencement. Such period shall be treated as
zero if there is more than a 60-day break in
coverage under a group health plan (or health
insurance coverage offered in connection with
such a plan) between the date the most recent
qualified coverage period ends and the date of
such commencement.
(B) QUALIFIED COVERAGE PERIOD.—
(i) IN
GENERAL.—For purposes of
this paragraph, subject to subsection (c),
the term ‘‘qualified coverage period’’
means, with respect to an individual, any
period of coverage of the individual under
a group health plan, health insurance cov-
erage, or under title XVIII or XIX of the
Social Security Act.
(ii) DISREGARDING PERIODS BEFORE
BREAKS
IN
COVERAGE.—Such term does
not include any period occurring before
any 60-day break in coverage described in
subparagraph (A).
(C) WAITING PERIOD NOT TREATED AS A
BREAK
IN
COVERAGE.—For purposes of sub-
paragraphs (A) and (B), any period that is in
a waiting period for any coverage under a
group health plan (or for health insurance cov-
erage offered in connection with a group health
plan) shall not be considered to be a break in
coverage described in subparagraph (B)(ii).
(D) 
ESTABLISHMENT
OF
PERIOD.—A
qualified coverage period with respect to an in-
dividual shall be established through presen-
tation of certifications described in subsection
(c) or in such other manner as may be specified
in regulations to carry out this section.
(c) CERTIFICATIONS
OF COVERAGE; CONFORMING
COVERAGE.—
(1) IN GENERAL.—The plan administrator of a
group health plan, or the insurer or HMO offering
health insurance coverage in connection with a group
health plan, shall, on request made on behalf of an
individual covered (or previously covered within the
previous 18 months) under the plan or coverage,
provide for a certification of the period of coverage
of the individual under such plan or coverage and of
the waiting period (if any) imposed with respect to
the individual for any coverage under the plan.
(2) STANDARD METHOD.—Subject to paragraph
(3), a group health plan, or insurer or HMO offering
health insurance coverage in connection with a group
health plan, shall determine qualified coverage peri-
ods under subsection (b)(3)(B) by including all peri-
ods described in such subsection, without regard to
the specific benefits offered during such a period.
(3) ALTERNATIVE METHOD.—Such a plan, in-
surer, or HMO may elect to make such determina-
tion on a benefit-specific basis for all participants
and beneficiaries and not to include as a qualified
coverage period with respect to a specific benefit
coverage during a previous period unless such pre-
vious coverage for that benefit was included at the
end of the most recent period of coverage. In the
case of such an election—
(A) the plan, insurer, or HMO shall promi-
nently state in any disclosure statements con-
cerning the plan or coverage and to each en-
rollee at the time of enrollment under the plan
(or at the time the health insurance coverage is
offered for sale in the group health market)
that the plan or coverage has made such elec-
tion and shall include a description of the effect
of this election; and
(B) upon the request of the plan, insurer,
or HMO, the entity providing a certification
under paragraph (1)—
(i) shall promptly disclose to the re-
questing plan, insurer, or HMO the plan
statement (insofar as it relates to health
benefits under the plan) or other detailed
benefit information on the benefits avail-
able under the previous plan or coverage,
and
(ii) may charge for the reasonable
cost of providing such information.
SEC. 102. LIMITATION ON PREEXISTING CONDITION EXCLU-
SIONS; 
NO 
APPLICATION 
TO 
CERTAIN
NEWBORNS, ADOPTED CHILDREN, AND PREG-
NANCY.
(a) LIMITATION OF PERIOD.—
(1) IN
GENERAL.—Subject to the succeeding
provisions of this section, a group health plan, and
an insurer or HMO offering health insurance cov-
erage in connection with a group health plan, shall
provide that any preexisting condition limitation pe-
riod (as defined in section 101(b)(2)) does not ex-
ceed 12 months, counting from the effective date of
coverage.
(2) EXTENSION OF PERIOD IN THE CASE OF
LATE ENROLLMENT.—In the case of a participant or
beneficiary whose initial coverage commences after
the date the participant or beneficiary first becomes
eligible for coverage under the group health plan,
the reference in paragraph (1) to ‘‘12 months’’ is
deemed a reference to ‘‘18 months’’.
(b) EXCLUSION
NOT
APPLICABLE
TO
CERTAIN
NEWBORNS AND CERTAIN ADOPTIONS.—
(1) IN GENERAL.—Subject to paragraph (2), a
group health plan, and an insurer or HMO offering
health insurance coverage in connection with a group
health plan, may not provide any limitation on bene-
fits based on the existence of a preexisting condition
in the case of—
(A) an individual who within the 30-day
period beginning with the date of birth, or
(B) an adopted child or a child placed for
adoption beginning at the time of adoption or
placement if the individual, within the 30-day
period beginning on the date of adoption or
placement,
becomes covered under a group health plan or other-
wise becomes covered under health insurance cov-
erage (or covered for medical assistance under title
XIX of the Social Security Act).
(2) LOSS IF BREAK IN COVERAGE.—Paragraph
(1) shall no longer apply to an individual if the indi-
vidual does not have any coverage under a group
health plan, health insurance coverage, or under title
XVIII or XIX of the Social Security Act for a con-
tinuous period of 60 days, not counting in such pe-
riod any days that are in a waiting period for any
coverage under a group health plan.
(3) PLACED FOR ADOPTION DEFINED.—In this
subsection and section 103(d), the term ‘‘place-
ment’’, or being ‘‘placed’’, for adoption, in connec-
tion with any placement for adoption of a child with
any person, means the assumption and retention by
such person of a legal obligation for total or partial
support of such child in anticipation of adoption of
such child. The child’s placement with such person
terminates upon the termination of such legal obliga-
tion.
(c) EXCLUSION NOT APPLICABLE TO PREGNANCY.—
For purposes of this section, pregnancy shall not be treat-
ed as a preexisting condition.
(d) ELIGIBILITY
PERIOD
IMPOSED
BY
HEALTH
MAINTENANCE
ORGANIZATIONS
AS
ALTERNATIVE
TO
PREEXISTING CONDITION LIMITATION.—A health mainte-
nance organization which offers health insurance coverage
in connection with a group health plan and which does
not use the preexisting condition limitations allowed under
this section and section 101 with respect to any particular
coverage option may impose an eligibility period for such
coverage option, but only if such period does not exceed—
(1) 90 days, in the case of a participant or ben-
eficiary whose initial coverage commences at the
time such participant or beneficiary first becomes el-
igible for coverage under the plan, or
(2) 180 days, in the case of a participant or
beneficiary whose initial coverage commences after
the date on which such participant or beneficiary
first becomes eligible for coverage.
For purposes of this subsection, the term ‘‘eligibility pe-
riod’’ means a period which, under the terms of the health
insurance coverage offered by the health maintenance or-
ganization, must expire before the health insurance cov-
erage becomes effective. Any such eligibility period shall
be treated for purposes of this subtitle as a waiting period
under the plan and shall run concurrently with any other
applicable waiting period under the plan.
SEC. 103. PROHIBITING EXCLUSIONS BASED ON HEALTH
STATUS AND PROVIDING FOR ENROLLMENT
PERIODS.
(a) PROHIBITION OF EXCLUSION OF PARTICIPANTS
OR BENEFICIARIES BASED ON HEALTH STATUS.—
(1) IN GENERAL.—A group health plan, and an
insurer or HMO offering health insurance coverage
in connection with a group health plan, may not ex-
clude an employee or his or her beneficiary from
being (or continuing to be) a participant or bene-
ficiary under the terms of such plan or coverage
based on health status (as defined in section
191(c)(6)).
(2) CONSTRUCTION.—Nothing in this sub-
section shall be construed as preventing the estab-
lishment of preexisting condition limitations and re-
strictions to the extent consistent with the provisions
of this subtitle.
(b) ENROLLMENT OF ELIGIBLE INDIVIDUALS WHO
LOSE OTHER COVERAGE.—A group health plan shall per-
mit an uncovered employee who is otherwise eligible for
coverage under the terms of the plan (or an uncovered
dependent, as defined under the terms of the plan, of such
an employee, if family coverage is available) to enroll for
coverage under the plan under at least one benefit option
if each of the following conditions is met:
(1) The employee or dependent was covered
under a group health plan or had health insurance
coverage at the time coverage was previously offered
to the employee or individual.
(2) The employee stated in writing at such time
that coverage under a group health plan or health
insurance coverage was the reason for declining en-
rollment.
(3) The employee or dependent lost coverage
under a group health plan or health insurance cov-
erage (as a result of loss of eligibility for the cov-
erage, termination of employment, or reduction in
the number of hours of employment).
(4) The employee requests such enrollment
within 30 days after the date of termination of such
coverage.
(c) DEPENDENT BENEFICIARIES.—
(1) IN
GENERAL.—If a group health plan
makes family coverage available, the plan may not
require, as a condition of coverage of an individual
as a dependent (as defined under the terms of the
plan) of a participant in the plan, a waiting period
applicable to the coverage of a dependent who—
(A) is a newborn,
(B) is an adopted child or child placed for
adoption (within the meaning of section
102(b)(3)), at the time of adoption or place-
ment, or
(C) is a spouse, at the time of marriage,
if the participant has met any waiting period appli-
cable to that participant.
(2) TIMELY ENROLLMENT.—
(A) IN GENERAL.—Enrollment of a partici-
pant’s beneficiary described in paragraph (1)
shall be considered to be timely if a request for
enrollment is made within 30 days of the date
family coverage is first made available or, in the
case described in—
(i) paragraph (1)(A), within 30 days
of the date of the birth,
(ii) paragraph (1)(B), within 30 days
of the date of the adoption or placement
for adoption, or
(iii) paragraph (1)(C), within 30 days
of the date of the marriage with such a
beneficiary who is the spouse of the partic-
ipant,
if family coverage is available as of such date.
(B) COVERAGE.—If available coverage in-
cludes family coverage and enrollment is made
under such coverage on a timely basis under
subparagraph (A), the coverage shall become ef-
fective not later than the first day of the first
month beginning 15 days after the date the
completed request for enrollment is received.
SEC. 104. ENFORCEMENT.
(a) ENFORCEMENT THROUGH COBRA PROVISIONS
IN INTERNAL REVENUE CODE.—
(1) APPLICATION OF COBRA SANCTIONS.—Sub-
section (a) of section 4980B of the Internal Revenue
Code of 1986 is amended by striking ‘‘the require-
ments of’’ and all that follows and inserting ‘‘the re-
quirements of—
‘‘(1) subsection (f) with respect to any qualified
beneficiary, or
‘‘(2) subject to subsection (h)—
‘‘(A) section 101 or 102 of the Health
Coverage Availability and Affordability Act of
1996 with respect to any individual covered
under the group health plan, or
‘‘(B) section 103 of such Act with respect
to any individual.’’.
(2) 
NOTICE
REQUIREMENT.—Section
4980B(f)(6)(A) of such Code is amended by insert-
ing before the period the following: ‘‘and subtitle A
of title I of the Health Coverage Availability and Af-
fordability Act of 1996’’.
(3) SPECIAL RULES.—Section 4980B of such
Code is amended by adding at the end the following:
‘‘(h) SPECIAL RULES.—For purposes of applying this
section in the case of requirements described in subsection
(a)(2) relating to section 101, section 102, or section 103
of the Health Coverage Availability and Affordability Act
of 1996—
‘‘(1) IN GENERAL.—
‘‘(A) DEFINITION
OF
GROUP
HEALTH
PLAN.—The term ‘group health plan’ has the
meaning given such term in section 191(a) of
the Health Coverage Availability and Afford-
ability Act of 1996.
‘‘(B) 
QUALIFIED
BENEFICIARY.—Sub-
sections (b), (c), and (e) shall be applied by
substituting the term ‘individual’ for the term
‘qualified beneficiary’ each place it appears.
‘‘(C) NONCOMPLIANCE
PERIOD.—Clause
(ii) of subsection (b)(2)(B) and the second sen-
tence of subsection (b)(2) shall not apply.
‘‘(D) LIMITATION ON TAX.—Subparagraph
(B) of subsection (c)(3) shall not apply.
‘‘(E) LIABILITY FOR TAX.—Paragraph (2)
of subsection (e) shall not apply.
‘‘(2) DEFERRAL TO STATE REGULATION.—No
tax shall be imposed by this section on any failure
to meet the requirements of such section by any en-
tity which offers health insurance coverage and
which is an insurer or health maintenance organiza-
tion (as defined in section 191(c) of the Health Cov-
erage Availability and Affordability Act of 1996)
regulated by a State if the Secretary of Health and
Human Services has made the determination de-
scribed in section 104(c)(2) of such Act with respect
to such State, section, and entity.
‘‘(3) LIMITATION FOR INSURED PLANS.—In the
case of a group health plan of a small employer (as
defined in section 191 of the Health Coverage Avail-
ability and Affordability Act of 1996) that provides
health care benefits solely through a contract with
an insurer or health maintenance organization (as
defined in such section), no tax shall be imposed by
this section upon the employer on a failure to meet
such requirements if the failure is solely because of
the product offered by the insurer or organization
under such contract.
‘‘(4) LIMITATION ON IMPOSITION OF TAX.—In
no case shall a tax be imposed by this section for a
failure to meet such a requirement if—
‘‘(A) a civil money penalty has been im-
posed by the Secretary of Labor under part 5
of subtitle A of title I of the Employee Retire-
ment Income Security Act of 1974 with respect
to such failure, or
‘‘(B) a civil money penalty has been im-
posed by the Secretary of Health and Human
Services under section 104(c) of the Health
Coverage Availability and Affordability Act of
1996 with respect to such failure.’’.
(b) ENFORCEMENT THROUGH ERISA SANCTIONS
FOR CERTAIN GROUP HEALTH PLANS.—
(1) IN
GENERAL.—Subject to the succeeding
provisions of this subsection, sections 101 through
103 of this subtitle shall be deemed to be provisions
of title I of the Employee Retirement Income Secu-
rity Act of 1974 for purposes of applying such title.
(2) FEDERAL ENFORCEMENT ONLY IF NO EN-
FORCEMENT
THROUGH
STATE.—The Secretary of
Labor shall enforce each section referred to in para-
graph (1) with respect to any entity which is an in-
surer or health maintenance organization regulated
by a State only if the Secretary of Labor determines
that such State has not provided for enforcement of
State laws which govern the same matters as are
governed by such section and which require compli-
ance by such entity with at least the same require-
ments as those provided under such section.
(3) LIMITATIONS ON LIABILITY.—
(A) NO
APPLICATION
WHERE
FAILURE
NOT
DISCOVERED
EXERCISING
REASONABLE
DILIGENCE.—No liability shall be imposed
under this subsection on the basis of any failure
during any period for which it is established to
the satisfaction of the Secretary of Labor that
none of the persons against whom the liability
would be imposed knew, or exercising reason-
able diligence would have known, that such fail-
ure existed.
(B) NO
APPLICATION
WHERE
FAILURE
CORRECTED
WITHIN
DAYS.—No liability
shall be imposed under this subsection on the
basis of any failure if such failure was due to
reasonable cause and not to willful neglect, and
such failure is corrected during the 30-day pe-
riod beginning on the first day any of the per-
sons against whom the liability would be im-
posed knew, or exercising reasonable diligence
would have known, that such failure existed.
(4) AVOIDING DUPLICATION OF CERTAIN PEN-
ALTIES.—In no case shall a civil money penalty be
imposed under the authority provided under para-
graph (1) for a violation of this subtitle for which
an excise tax has been imposed under section 4980B
of the Internal Revenue Code of 1986 or a civil
money penalty imposed under subsection (c).
(c) ENFORCEMENT THROUGH CIVIL MONEY PEN-
ALTIES.—
(1) IMPOSITION.—
(A) IN GENERAL.—Subject to the succeed-
ing provisions of this subsection, any group
health plan, insurer, or organization that fails
to meet a requirement of this subtitle is subject
to a civil money penalty under this section.
(B) LIABILITY FOR PENALTY.—Rules simi-
lar to the rules described in section 4980B(e) of
the Internal Revenue Code of 1986 for liability
for a tax imposed under section 4980B(a) of
such Code shall apply to liability for a penalty
imposed under subparagraph (A).
(C) AMOUNT OF PENALTY.—
(i) 
IN
GENERAL.—The 
maximum
amount of penalty imposed under this
paragraph is $100 for each day for each
individual with respect to which such a
failure occurs.
(ii) 
CONSIDERATIONS
IN
IMPOSI-
TION.—In determining the amount of any
penalty to be assessed under this para-
graph, the Secretary of Health and Human
Services shall take into account the pre-
vious record of compliance of the person
being assessed with the applicable require-
ments of this subtitle, the gravity of the
violation, and the overall limitations for
unintentional failures provided under sec-
tion 4980B(c)(4) of the Internal Revenue
Code of 1986.
(iii) LIMITATIONS.—
(I) PENALTY
NOT
TO
APPLY
WHERE
FAILURE
NOT
DISCOVERED
EXERCISING
REASONABLE
DILI-
GENCE.—No civil money penalty shall
be imposed under this paragraph on
any failure during any period for
which it is established to the satisfac-
tion of the Secretary that none of the
persons against whom the penalty
would be imposed knew, or exercising
reasonable 
diligence 
would 
have
known, that such failure existed.
(II) PENALTY NOT TO APPLY TO
FAILURES
CORRECTED
WITHIN
DAYS.—No civil money penalty shall
be imposed under this paragraph on
any failure if such failure was due to
reasonable cause and not to willful ne-
glect, and such failure is corrected
during the 30-day period beginning on
the first day any of the persons
against whom the penalty would be
imposed knew, or exercising reason-
able diligence would have known, that
such failure existed.
(D) ADMINISTRATIVE REVIEW.—
(i) OPPORTUNITY
FOR
HEARING.—
The person assessed shall be afforded an
opportunity for hearing by the Secretary
upon request made within 30 days after
the date of the issuance of a notice of as-
sessment. In such hearing the decision
shall be made on the record pursuant to
section 554 of title 5, United States Code.
If no hearing is requested, the assessment
shall constitute a final and unappealable
order.
(ii) 
HEARING
PROCEDURE.—If 
a
hearing is requested, the initial agency de-
cision shall be made by an administrative
law judge, and such decision shall become
the final order unless the Secretary modi-
fies or vacates the decision. Notice of in-
tent to modify or vacate the decision of the
administrative law judge shall be issued to
the parties within 30 days after the date
of the decision of the judge. A final order
which takes effect under this paragraph
shall be subject to review only as provided
under subparagraph (D).
(E) JUDICIAL REVIEW.—
(i) FILING OF ACTION FOR REVIEW.—
Any person against whom an order impos-
ing a civil money penalty has been entered
after an agency hearing under this para-
graph may obtain review by the United
States district court for any district in
which such person is located or the United
States District Court for the District of
Columbia by filing a notice of appeal in
such court within 30 days from the date of
such order, and simultaneously sending a
copy of such notice be registered mail to
the Secretary.
(ii) CERTIFICATION OF ADMINISTRA-
TIVE
RECORD.—The 
Secretary 
shall
promptly certify and file in such court the
record upon which the penalty was im-
posed.
(iii) STANDARD
FOR
REVIEW.—The
findings of the Secretary shall be set aside
only if found to be unsupported by sub-
stantial evidence as provided by section
706(2)(E) of title 5, United States Code.
(iv) APPEAL.—Any final decision,
order, or judgment of such district court
concerning such review shall be subject to
appeal as provided in chapter 83 of title 28
of such Code.
(F) FAILURE TO PAY ASSESSMENT; MAIN-
TENANCE OF ACTION.—
(i) FAILURE TO PAY ASSESSMENT.—If
any person fails to pay an assessment after
it has become a final and unappealable
order, or after the court has entered final
judgment in favor of the Secretary, the
Secretary shall refer the matter to the At-
torney General who shall recover the
amount assessed by action in the appro-
priate United States district court.
(ii) NONREVIEWABILITY.—In such ac-
tion the validity and appropriateness of the
final order imposing the penalty shall not
be subject to review.
(G) PAYMENT OF PENALTIES.—Except as
otherwise provided, penalties collected under
this paragraph shall be paid to the Secretary
(or other officer) imposing the penalty and shall
be available without appropriation and until ex-
pended for the purpose of enforcing the provi-
sions with respect to which the penalty was im-
posed.
(2) FEDERAL ENFORCEMENT ONLY IF NO EN-
FORCEMENT THROUGH STATE.—Paragraph (1) shall
apply to enforcement of the requirements of section
101, 102, or 103 with respect to any entity which
offers health insurance coverage and which is an in-
surer or HMO regulated by a State only if the Sec-
retary of Health and Human Services has deter-
mined that such State has not provided for enforce-
ment of State laws which govern the same matters
as are governed by such section and which require
compliance by such entity with at least the same re-
quirements as those provided under such section.
(3) NONDUPLICATION
OF
SANCTIONS.—In no
case shall a civil money penalty be imposed under
this subsection for a violation of this subtitle for
which an excise tax has been imposed under section
4980B of the Internal Revenue Code of 1986 or for
which a civil money penalty has been imposed under
the authority provided under subsection (b).
(d) COORDINATION IN ADMINISTRATION.—The Sec-
retaries of the Treasury, Labor, and Health and Human
Services shall issue regulations that are nonduplicative to
carry out this subtitle. Such regulations shall be issued
in a manner that assures coordination and nonduplication
in their activities under this subtitle.
Subtitle B—Definitions; General
Provisions
SEC. 191. DEFINITIONS; SCOPE OF COVERAGE.
(a) GROUP HEALTH PLAN.—
(1) DEFINITION.—Subject to the succeeding
provisions of this subsection and subsection (d)(1),
the term ‘‘group health plan’’ means an employee
welfare benefit plan to the extent that the plan pro-
vides medical care (as defined in subsection (c)(9))
to employees or their dependents (as defined under
the terms of the plan) directly or through insurance,
reimbursement, or otherwise, and includes a group
health 
plan 
(within 
the 
meaning 
of 
section
5000(b)(1) of the Internal Revenue Code of 1986).
(2) LIMITATION OF REQUIREMENTS TO PLANS
WITH 2 OR MORE EMPLOYEE PARTICIPANTS.—The
requirements of subtitle Ashall apply in the case of
a group health plan for any plan year, or for health
insurance coverage offered in connection with a
group health plan for a year, only if the group
health plan has two or more participants as current
employees on the first day of the plan year.
(3) EXCLUSION OF PLANS WITH LIMITED COV-
ERAGE.—An employee welfare benefit plan shall be
treated as a group health plan under this title only
with respect to medical care which is provided under
the plan and which does not consist of coverage ex-
cluded from the definition of health insurance cov-
erage under subsection (c)(4)(B).
(4) TREATMENT OF CHURCH PLANS.—
(A) EXCLUSION.—The requirements of
this title insofar as they apply to group health
plans shall not apply to church plans.
(B) OPTIONAL DISREGARD IN DETERMIN-
ING PERIOD OF COVERAGE.—For purposes of
applying section 101(b)(3)(B)(i), a group health
plan may elect to disregard periods of coverage
of an individual under a church plan that, pur-
suant to subparagraph (A), is not subject to the
requirements of this title.
(5) TREATMENT OF GOVERNMENTAL PLANS.—
(A) ELECTION TO BE EXCLUDED.—If the
plan sponsor of a governmental plan which is a
group health plan to which the provisions of
this subtitle otherwise apply makes an election
under this paragraph for any specified period
(in such form and manner as the Secretary of
Health and Human Services may by regulations
prescribe), then the requirements of this title
insofar as they apply to group health plans
shall not apply to such governmental plans for
such period.
(B) OPTIONAL DISREGARD IN DETERMIN-
ING
PERIOD
OF
COVERAGE
IF
ELECTION
MADE.—For purposes of applying section
101(b)(3)(B)(i), a group health plan may elect
to disregard periods of coverage of an individual
under a governmental plan that, under an elec-
tion under subparagraph (A), is not subject to
the requirements of this title.
(7) TREATMENT OF MEDICAID PLAN AS GROUP
HEALTH PLAN.—A State plan under title XIX of the
Social Security Act shall be treated as a group
health plan for purposes of applying section 101(c),
unless the State elects not to be so treated.
(8) TREATMENT
OF
MEDICARE
AS
GROUP
HEALTH PLAN.—Title XVIII of the Social Security
Act shall be treated as a group health plan for pur-
poses of applying section 101(c).
(b) INCORPORATION OF CERTAIN DEFINITIONS IN
EMPLOYEE RETIREMENT INCOME SECURITY ACT
OF
1974.—Except as provided in this section, the terms ‘‘ben-
eficiary’’, ‘‘church plan’’, ‘‘employee’’, ‘‘employee welfare
benefit plan’’, ‘‘employer’’, ‘‘governmental plan’’, ‘‘multi-
employer plan’’, ‘‘multiple employer welfare arrange-
ment’’, ‘‘participant’’, ‘‘plan sponsor’’, and ‘‘State’’ have
the meanings given such terms in section 3 of the Em-
ployee Retirement Income Security Act of 1974.
(c) OTHER DEFINITIONS.—For purposes of this title:
(1) APPLICABLE STATE AUTHORITY.—The term
‘‘applicable State authority’’ means, with respect to
an insurer or health maintenance organization in a
State, the State insurance commissioner or official
or officials designated by the State to enforce the re-
quirements of this title for the State involved with
respect to such insurer or organization.
(2) BONA FIDE ASSOCIATION.—The term ‘‘bona
fide association’’ means an association which—
(A) has been actively in existence for at
least 5 years,
(B) has been formed and maintained in
good faith for purposes other than obtaining in-
surance,
(C) does not condition membership in the
association on health status,
(D) makes health insurance coverage of-
fered through the association available to all
members regardless of health status,
(E) does not make health insurance cov-
erage offered through the association available
to any individual who is not a member (or de-
pendent of a member) of the association at the
time the coverage is initially issued,
(F) does not impose preexisting condition
exclusions except in a manner consistent with
the requirements of sections 101 and 102 as
they relate to group health plans, and
(G) provides for renewal and continuation
of health insurance coverage in a manner con-
sistent with the requirements of section 132 as
they relate to the renewal and continuation in
force of coverage in a group market.
(3) COBRA CONTINUATION
PROVISION.—The
term ‘‘COBRA continuation provision’’ means any of
the following:
(A) Section 4980B of the Internal Revenue
Code of 1986, other than subsection (f)(1) of
such section insofar as it relates to pediatric
vaccines.
(B) Part 6 of subtitle B of title I of the
Employee Retirement Income Security Act of
1974 (29 U.S.C. 1161 et seq.), other than sec-
tion 609.
(C) Title XXII of the Public Health Serv-
ice Act.
(4) HEALTH INSURANCE COVERAGE.—
(A) IN GENERAL.—Except as provided in
subparagraph (B), the term ‘‘health insurance
coverage’’ means benefits consisting of medical
care (provided directly, through insurance or re-
imbursement, or otherwise) under any hospital
or medical service policy or certificate, hospital
or medical service plan contract, or health
maintenance organization group contract of-
fered by an insurer or a health maintenance or-
ganization.
(B) EXCEPTION.—Such term does not in-
clude coverage under any separate policy, cer-
tificate, or contract only for one or more of any
of the following:
(i) Coverage for accident, credit-only,
vision, disability income, long-term care,
nursing home care, community-based care
dental, on-site medical clinics, or employee
assistance programs, or any combination
thereof.
(ii) Medicare supplemental health in-
surance (within the meaning of section
1882(g)(1) of the Social Security Act (42
U.S.C. 1395ss(g)(1))) and similar supple-
mental coverage provided under a group
health plan.
(iii) Coverage issued as a supplement
to liability insurance.
(iv) Liability insurance, including gen-
eral liability insurance and automobile li-
ability insurance.
(v) Workers’ compensation or similar
insurance.
(vi) Automobile medical-payment in-
surance.
(vii) Coverage consisting of benefit
payments made on a periodic basis for a
specified disease or illness or period of hos-
pitalization, without regard to the costs in-
curred or services rendered during the pe-
riod to which the payments relate.
(viii) Short-term limited duration in-
surance.
(ix) Such other coverage, comparable
to that described in previous clauses, as
may be specified in regulations prescribed
under this title.
(5) HEALTH
MAINTENANCE
ORGANIZATION;
HMO.—The terms ‘‘health maintenance organiza-
tion’’ and ‘‘HMO’’ mean—
(A) a Federally qualified health mainte-
nance organization (as defined in section
1301(a) of the Public Health Service Act (42
U.S.C. 300e(a))),
(B) an organization recognized under State
law as a health maintenance organization, or
(C) a similar organization regulated under
State law for solvency in the same manner and
to the same extent as such a health mainte-
nance organization,
if it is subject to State law which regulates insur-
ance (within the meaning of section 514(b)(2) of the
Employee Retirement Income Security Act of 1974).
(6) HEALTH STATUS.—The term ‘‘health sta-
tus’’ includes, with respect to an individual, medical
condition, claims experience, receipt of health care,
medical history, evidence of insurability, or disabil-
ity.
(7) INDIVIDUAL
HEALTH
INSURANCE
COV-
ERAGE.—The term ‘‘individual health insurance cov-
erage’’ means health insurance coverage offered to
individuals if the coverage is not offered in connec-
tion with a group health plan (other than such a
plan that has fewer than two participants as current
employees on the first day of the plan year).
(8) INSURER.—The term ‘‘insurer’’ means an
insurance company, insurance service, or insurance
organization which is licensed to engage in the busi-
ness of insurance in a State and which is regulated
by a State (within the meaning of section
514(b)(2)(A) of the Employee Retirement Income
Security Act of 1974).
(9) MEDICAL CARE.—The term ‘‘medical care’’
means—
(A) amounts paid for, or items or services
in the form of, the diagnosis, cure, mitigation,
treatment, or prevention of disease, or amounts
paid for, or items or services provided for, the
purpose of affecting any structure or function
of the body,
(B) amounts paid for, or services in the
form of, transportation primarily for and essen-
tial to medical care referred to in subparagraph
(A), and
(C) amounts paid for insurance covering
medical care referred to in subparagraphs (A)
and (B).
(10) NETWORK
PLAN.—The term ‘‘network
plan’’ means, with respect to health insurance cov-
erage, an arrangement of an insurer or a health
maintenance organization under which the financing
and delivery of medical care are provided, in whole
or in part, through a defined set of providers under
contract with the insurer or health maintenance or-
ganization.
(11) WAITING PERIOD.—The term ‘‘waiting pe-
riod’’ means, with respect to a group health plan
and an individual who is a potential participant or
beneficiary in the plan, the minimum period that
must pass with respect to the individual before the
individual is eligible to be covered for benefits under
the plan.
(d) TREATMENT OF PARTNERSHIPS.—
(1) TREATMENT AS A GROUP HEALTH PLAN.—
Any plan, fund, or program which would not be (but
for this paragraph) an employee welfare benefit plan
and which is established or maintained by a partner-
ship, to the extent that such plan, fund, or program
provides medical care to present or former partners
in the partnership or to their dependents (as defined
under the terms of the plan, fund, or program), di-
rectly or through insurance, reimbursement, or oth-
erwise, shall be treated (subject to paragraph (1)) as
an employee welfare benefit plan which is a group
health plan.
(2) TREATMENT OF PARTNERSHIP AND PART-
NERS AND EMPLOYER AND PARTICIPANTS.—In the
case of a group health plan—
(A) the term ‘‘employer’’ includes the part-
nership in relation to any partner; and
(B) the term ‘‘participant’’ includes—
(i) in connection with a group health
plan maintained by a partnership, an indi-
vidual who is a partner in relation to the
partnership, or
(ii) in connection with a group health
plan maintained by a self-employed individ-
ual (under which one or more employees
are participants), the self-employed individ-
ual,
if such individual is or may become eligible to
receive a benefit under the plan or such individ-
ual’s beneficiaries may be eligible to receive any
such benefit.
(e) DEFINITIONS
RELATING
TO
MARKETS
AND
SMALL EMPLOYERS.—As used in this title:
(1) INDIVIDUAL MARKET.—The term ‘‘individ-
ual market’’ means the market for health insurance
coverage offered to individuals and not to employers
or in connection with a group health plan and does
not include the market for such coverage issued only
by an insurer or HMO that makes such coverage
available only on the basis of affiliation with a bona
fide association (as defined in subsection (c)(2)).
(2) LARGE GROUP MARKET.—The term ‘‘large
group market’’ means the market for health insur-
ance coverage offered to employers (other than small
employers) on behalf of their employees (and their
dependents) and does not include health insurance
coverage available solely in connection with a bona
fide association (as defined in subsection (c)(2)).
(3) SMALL EMPLOYER.—The term ‘‘small em-
ployer’’ means, in connection with a group health
plan with respect to a calendar year, an employer
who employs at least 2 but fewer than 51 employees
on a typical business day in the year. All persons
treated as a single employer under subsection (a) or
(b) of section 52 shall be treated as a single em-
ployer for purposes of this title.
(4) SMALL GROUP MARKET.—The term ‘‘small
group market’’ means the health insurance market
under which individuals obtain health insurance cov-
erage (directly or through any arrangement) on be-
half of themselves (and their dependents) on the
basis of employment or other relationship with re-
spect to a small employer and does not include
health insurance coverage available solely in connec-
tion with a bona fide association (as defined in sub-
section (c)(2)).
SEC. 192. STATE FLEXIBILITY TO PROVIDE GREATER PRO-
TECTION.
(a) STATE FLEXIBILITY TO PROVIDE GREATER PRO-
TECTION.—Subject to subsection (b), nothing in this title
shall be construed to preempt State laws that—
(1) require insurers or HMOs to impose a limi-
tation or exclusion of benefits relating to the treat-
ment of a preexisting condition for a period that is
shorter than the applicable period provided for under
this title; or
(2) allow individuals, participants, and bene-
ficiaries to be considered to be in a period of pre-
vious qualifying coverage if such individual, partici-
pant, or beneficiary experiences a lapse in coverage
that is greater than the 60-day periods provided for
under sections 101(b)(3)(A), 101(b)(3)(B)(ii), and
102(b)(2).
(b) NO OVERRIDE OF ERISA PREEMPTION.—Noth-
ing in this Act shall be construed to affect or modify the
provisions of section 514 of the Employee Retirement In-
come Security Act of 1974 (29 U.S.C. 1144).
SEC. 193. EFFECTIVE DATE.
(a) IN GENERAL.—Except as otherwise provided for
in this title, the provisions of this title shall apply with
respect to—
(1) group health plans, and health insurance
coverage offered in connection with group health
plans, for plan years beginning on or after January
1, 1998, and
(2) individual health insurance coverage issued,
renewed, in effect, or operated on or after July 1,
1998.
(b) CONSIDERATION OF PREVIOUS COVERAGE.—The
Secretaries of Health and Human Services, Treasury, and
Labor shall jointly establish rules regarding the treatment
(in determining qualified coverage periods under sections
102(b) and 141(b)) of coverage before the applicable effec-
tive date specified in subsection (a).
(c) TIMELY ISSUANCE OF REGULATIONS.—The Sec-
retaries of Health and Human Services, the Treasury, and
Labor shall issue such regulations on a timely basis as
may be required to carry out this title.
SEC. 194. RULE OF CONSTRUCTION.
Nothing in this title or any amendment made thereby
may be construed to require the coverage of any specific
procedure, treatment, or service as part of a group health
plan or health insurance coverage under this title or
through regulation.
TITLE II—PREVENTING HEALTH
CARE FRAUD AND ABUSE; AD-
MINISTRATIVE 
SIMPLIFICA-
TION
SEC. 200. REFERENCES IN TITLE.
Except as otherwise specifically provided, whenever in
this title an amendment is expressed in terms of an
amendment to or repeal of a section or other provision,
the reference shall be considered to be made to that sec-
tion or other provision of the Social Security Act.
Subtitle A—Fraud and Abuse
Control Program
SEC. 201. FRAUD AND ABUSE CONTROL PROGRAM.
(a) ESTABLISHMENT OF PROGRAM.—Title XI (42
U.S.C. 1301 et seq.) is amended by inserting after section
1128B the following new section:
‘‘FRAUD AND ABUSE CONTROL PROGRAM
‘‘SEC. 1128C. (a) ESTABLISHMENT OF PROGRAM.—
‘‘(1) IN GENERAL.—Not later than January 1,
1997, the Secretary, acting through the Office of the
Inspector General of the Department of Health and
Human Services, and the Attorney General shall es-
tablish a program—
‘‘(A) to coordinate Federal, State, and
local law enforcement programs to control fraud
and abuse with respect to health plans,
‘‘(B) to conduct investigations, audits,
evaluations, and inspections relating to the de-
livery of and payment for health care in the
United States,
‘‘(C) to facilitate the enforcement of the
provisions of sections 1128, 1128A, and 1128B
and other statutes applicable to health care
fraud and abuse,
‘‘(D) to provide for the modification and
establishment of safe harbors and to issue advi-
sory opinions and special fraud alerts pursuant
to section 1128D, and
‘‘(E) to provide for the reporting and dis-
closure of certain final adverse actions against
health care providers, suppliers, or practitioners
pursuant to the data collection system estab-
lished under section 1128E.
‘‘(2) COORDINATION WITH HEALTH PLANS.—In
carrying out the program established under para-
graph (1), the Secretary and the Attorney General
shall consult with, and arrange for the sharing of
data with representatives of health plans.
‘‘(3) GUIDELINES.—
‘‘(A) IN GENERAL.—The Secretary and the
Attorney General shall issue guidelines to carry
out the program under paragraph (1). The pro-
visions of sections 553, 556, and 557 of title 5,
United States Code, shall not apply in the issu-
ance of such guidelines.
‘‘(B) INFORMATION GUIDELINES.—
‘‘(i) IN
GENERAL.—Such guidelines
shall include guidelines relating to the fur-
nishing of information by health plans,
providers, and others to enable the Sec-
retary and the Attorney General to carry
out the program (including coordination
with health plans under paragraph (2)).
‘‘(ii) CONFIDENTIALITY.—Such guide-
lines shall include procedures to assure
that such information is provided and uti-
lized in a manner that appropriately pro-
tects the confidentiality of the information
and the privacy of individuals receiving
health care services and items.
‘‘(iii) QUALIFIED IMMUNITY FOR PRO-
VIDING INFORMATION.—The provisions of
section 1157(a) (relating to limitation on
liability) shall apply to a person providing
information to the Secretary or the Attor-
ney General in conjunction with their per-
formance of duties under this section.
‘‘(4) ENSURING ACCESS TO DOCUMENTATION.—
The Inspector General of the Department of Health
and Human Services is authorized to exercise such
authority described in paragraphs (3) through (9) of
section 6 of the Inspector General Act of 1978 (5
U.S.C. App.) as necessary with respect to the activi-
ties under the fraud and abuse control program es-
tablished under this subsection.
‘‘(5) AUTHORITY
OF
INSPECTOR
GENERAL.—
Nothing in this Act shall be construed to diminish
the authority of any Inspector General, including
such authority as provided in the Inspector General
Act of 1978 (5 U.S.C. App.).
‘‘(b) ADDITIONAL USE OF FUNDS BY INSPECTOR
GENERAL.—
‘‘(1) 
REIMBURSEMENTS
FOR
INVESTIGA-
TIONS.—The Inspector General of the Department
of Health and Human Services is authorized to re-
ceive and retain for current use reimbursement for
the costs of conducting investigations and audits and
for monitoring compliance plans when such costs are
ordered by a court, voluntarily agreed to by the
payor, or otherwise.
‘‘(2) CREDITING.—Funds received by the In-
spector General under paragraph (1) as reimburse-
ment for costs of conducting investigations shall be
deposited to the credit of the appropriation from
which initially paid, or to appropriations for similar
purposes currently available at the time of deposit,
and shall remain available for obligation for 1 year
from the date of the deposit of such funds.
‘‘(c) HEALTH PLAN DEFINED.—For purposes of this
section, the term ‘health plan’ means a plan or program
that provides health benefits, whether directly, through in-
surance, or otherwise, and includes—
‘‘(1) a policy of health insurance;
‘‘(2) a contract of a service benefit organiza-
tion; and
‘‘(3) a membership agreement with a health
maintenance organization or other prepaid health
plan.’’.
(b) ESTABLISHMENT OF HEALTH CARE FRAUD AND
ABUSE CONTROL ACCOUNT IN FEDERAL HOSPITAL IN-
SURANCE TRUST FUND.—Section 1817 (42 U.S.C. 1395i)
is amended by adding at the end the following new sub-
section:
‘‘(k) HEALTH CARE FRAUD AND ABUSE CONTROL
ACCOUNT.—
‘‘(1) ESTABLISHMENT.—There is hereby estab-
lished in the Trust Fund an expenditure account to
be known as the ‘Health Care Fraud and Abuse
Control Account’ (in this subsection referred to as
the ‘Account’).
‘‘(2) APPROPRIATED
AMOUNTS
TO
TRUST
FUND.—
‘‘(A) IN GENERAL.—There are hereby ap-
propriated to the Trust Fund—
‘‘(i) such gifts and bequests as may be
made as provided in subparagraph (B);
‘‘(ii) such amounts as may be depos-
ited in the Trust Fund as provided in sec-
tions 242(b) and 249(c) of the Health Cov-
erage Availability and Affordability Act of
1996, and title XI; and
‘‘(iii) such amounts as are transferred
to the Trust Fund under subparagraph
(C).
‘‘(B) AUTHORIZATION TO ACCEPT GIFTS.—
The Trust Fund is authorized to accept on be-
half of the United States money gifts and be-
quests made unconditionally to the Trust Fund,
for the benefit of the Account or any activity fi-
nanced through the Account.
‘‘(C) TRANSFER OF AMOUNTS.—The Man-
aging Trustee shall transfer to the Trust Fund,
under rules similar to the rules in section 9601
of the Internal Revenue Code of 1986, an
amount equal to the sum of the following:
‘‘(i) Criminal fines recovered in cases
involving a Federal health care offense (as
defined in section 982(a)(6)(B) of title 18,
United States Code).
‘‘(ii) Civil monetary penalties and as-
sessments imposed in health care cases, in-
cluding amounts recovered under titles XI,
XVIII, and XXI, and chapter 38 of title
31, United States Code (except as other-
wise provided by law).
‘‘(iii) Amounts resulting from the for-
feiture of property by reason of a Federal
health care offense.
‘‘(iv) Penalties and damages obtained
and otherwise creditable to miscellaneous
receipts of the general fund of the Treas-
ury obtained under sections 3729 through
3733 of title 31, United States Code
(known as the False Claims Act), in cases
involving claims related to the provision of
health care items and services (other than
funds awarded to a relator, for restitution
or otherwise authorized by law).
‘‘(3) APPROPRIATED
AMOUNTS
TO
ACCOUNT
FOR FRAUD AND ABUSE CONTROL PROGRAM, ETC.—
‘‘(A) DEPARTMENTS
OF
HEALTH
AND
HUMAN SERVICES AND JUSTICE.—
‘‘(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:
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-