Medicare Psychiatric Hospital Prospective Payment System Act of 1998

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Medicare Psychiatric Hospital 
Prospective Payment System Act of 1998''.

SEC. 2. MEDICARE PROSPECTIVE PAYMENT SYSTEM FOR PSYCHIATRIC FACILITIES.

    (a) Establishment of Prospective Payment System.--Section 1886 of 
the Social Security Act (42 U.S.C. 1395ww) is amended by adding at the 
end the following:
    ``(l) Prospective Payment System for Inpatient Psychiatric 
Services.--
            ``(1) Amount of payment.--
                    ``(A) During transition period.--Notwithstanding 
                section 1814(b), but subject to the provisions of 
                section 1813, the amount of payment with respect to the 
                operating and capital-related costs of inpatient 
                hospital services of a psychiatric facility (as defined 
                in paragraph (7)(C)) for each day of services furnished 
                in a cost reporting period beginning on or after 
                October 1, 2000, and before October 1, 2003, is equal 
                to the sum of--
                            ``(i) the TEFRA percentage (as defined in 
                        paragraph (7)(D)) of the facility-specific per 
                        diem rate (determined under paragraph (2)); and
                            ``(ii) the PPS percentage (as defined in 
                        paragraph (7)(B)) of the applicable Federal per 
                        diem rate (determined under paragraph (3)).
                    ``(B) Under fully implemented system.--
                Notwithstanding section 1814(b), but subject to the 
                provisions of section 1813, the amount of payment with 
                respect to the operating and capital-related costs of 
                inpatient hospital services of a psychiatric facility 
                for each day of services furnished in a cost reporting 
                period beginning on or after October 1, 2003, is equal 
                to the applicable Federal per diem rate determined 
                under paragraph (3) for the facility for the fiscal 
                year in which the day of services occurs.
                    ``(C) New facilities.--In the case of a psychiatric 
                facility that does not have a base fiscal year (as 
                defined in paragraph (7)(A)), payment for the operating 
                and capital-related costs of inpatient hospital 
                services shall be made under this subsection using the 
                applicable Federal per diem rate.
            ``(2) Determination of facility-specific per diem rates.--
                    ``(A) Base year.--The Secretary shall determine, on 
                a per diem basis, the allowable operating and capital-
                related costs of inpatient hospital services for each 
                psychiatric facility for its cost reporting period (if 
                any) beginning in the base fiscal year (as defined in 
                paragraph (7)(A)), such costs determined as if 
                subsection (b)(8) did not apply.
                    ``(B) Updating.--The Secretary shall update the 
                amount determined under subparagraph (A) for each cost 
                reporting period after the cost reporting period 
                beginning in the base fiscal year and before October 1, 
                2003, by a factor equal to the market basket percentage 
                increase.
            ``(3) Determination of the federal per diem rate.--
                    ``(A) Base year.--The Secretary shall determine, on 
                a per diem basis, the allowable operating and capital-
                related costs of inpatient hospital services for each 
                psychiatric facility for its cost reporting period (if 
                any) beginning in the base fiscal year (as defined in 
                paragraph (7)(A)), such costs determined as if 
                subsection (b)(8) did not apply.
                    ``(B) Updating to first fiscal year.--The Secretary 
                shall update the amount determined under subparagraph 
                (A) for each cost reporting period up to the first cost 
                reporting period to which this subsection applies by a 
                factor equal to the market basket percentage increase.
                    ``(C) Computation of standardized per diem rate.--
                The Secretary shall standardize the amount determined 
                under subparagraph (B) for each facility by--
                            ``(i) adjusting for variations among 
                        facilities by area in the average facility wage 
                        level per diem; and
                            ``(ii) adjusting for variations in case mix 
                        per diem among facilities (based on the patient 
                        classification system established by the 
                        Secretary under paragraph (4)).
                    ``(D) Computation of weighted average per diem 
                rates.--
                            ``(i) Separate rates for urban and rural 
                        areas.--Based on the standardized amounts 
                        determined under subparagraph (C) for each 
                        facility, the Secretary shall compute a 
                        separate weighted average per diem rate--
                                    ``(I) for all psychiatric 
                                facilities located in an urban area (as 
                                defined in subsection (d)(2)(D)); and
                                    ``(II) for all psychiatric 
                                facilities located in a rural area (as 
                                defined in subsection (d)(2)(D)).
                            ``(ii) For hospitals and units.--Subject to 
                        paragraph (7)(C), in the areas referred to in 
                        clause (i) the Secretary may compute a separate 
                        weighted average per diem rate for--
                                    ``(I) psychiatric hospitals; and
                                    ``(II) psychiatric units described 
                                in the matter following clause (v) of 
                                subsection (d)(1)(B).
                        If the Secretary establishes separate average 
                        weighted per diem rates under this clause, the 
                        Secretary shall also establish separate average 
                        per diem rates for facilities in such 
                        categories that are owned and operated by an 
                        agency or instrumentality of Federal, State, or 
                        local government and for facilities other than 
                        such facilities.
                            ``(iii) Weighted average.--In computing the 
                        weighted averages under clauses (i) and (ii), 
                        the standardized per diem amount for each 
                        facility shall be weighted for each facility by 
                        the number of days of inpatient hospital 
                        services furnished during its cost reporting 
                        period beginning in the base fiscal year.
                    ``(E) Updating.--The weighted average per diem 
                rates determined under subparagraph (D) shall be 
                updated for each fiscal year after the first fiscal 
                year to which this subsection applies by a factor equal 
                to the market basket percentage increase.
                    ``(F) Determination of federal per diem rate.--
                            ``(i) In general.--The Secretary shall 
                        compute for each psychiatric facility for each 
                        fiscal year (beginning with fiscal year 2001) a 
                        Federal per diem rate equal to the applicable 
                        weighted average per diem rate determined under 
                        subparagraph (E), adjusted for--
                                    ``(I) variations among facilities 
                                by area in the average facility wage 
                                level per diem;
                                    ``(II) variations in case mix per 
                                diem among facilities (based on the 
                                patient classification system 
                                established by the Secretary under 
                                paragraph (4)); and
                                    ``(III) variations among facilities 
                                in the proportion of low-income 
                                patients served by the facility.
                            ``(ii) Other adjustments.--In computing the 
                        Federal per diem rates under this subparagraph, 
                        the Secretary may adjust for outlier cases, the 
                        indirect costs of medical education, and such 
                        other factors as the Secretary determines to be 
                        appropriate.
                            ``(iii) Budget neutrality.--The adjustments 
                        specified in clauses (i)(I), (i)(III), and (ii) 
                        shall be implemented in a manner that does not 
                        result in aggregate payments under this 
                        subsection that are greater or less than those 
                        aggregate payments that otherwise would have 
                        been made if such adjustments did not apply.
            ``(4) Establishment of patient classification system.--
                    ``(A) In general.--The Secretary shall establish--
                            ``(i) classes of patients of psychiatric 
                        facilities (in this paragraph referred to as 
                        `case mix groups'), based on such factors as 
                        the Secretary determines to be appropriate; and
                            ``(ii) a method of classifying specific 
                        patients in psychiatric facilities within these 
                        groups.
                    ``(B) Weighting factors.--For each case mix group, 
                the Secretary shall assign an appropriate weighting 
                factor that reflects the relative facility resources 
                used with respect to patients classified within that 
                group compared to patients classified within other such 
                groups.
            ``(5) Data collection; utilization monitoring.--
                    ``(A) Data collection.--The Secretary may require 
                psychiatric facilities to submit such data as is 
                necessary to implement the system established under 
                this subsection.
                    ``(B) Utilization monitoring.--The Secretary shall 
                monitor changes in the utilization of inpatient 
                hospital services furnished by psychiatric facilities 
                under the system established under this subsection and 
                report to the appropriate committees of Congress on 
                such changes, together with recommendations for 
                legislation (if any) that is needed to address 
                unwarranted changes in such utilization.
            ``(6) Special adjustments.--Notwithstanding the preceding 
        provisions of this subsection, the Secretary shall reduce 
        aggregate payment amounts that would otherwise be payable under 
        this subsection for inpatient hospital services furnished by a 
        psychiatric facility during cost reporting periods beginning in 
        fiscal years 2001 and 2002 by such uniform percentage as is 
        necessary to assure that payments under this subsection for 
        such cost reporting periods are reduced by an amount that is 
        equal to the sum of--
                    ``(A) the aggregate increase in payments under this 
                title during fiscal years 1998, 1999, and 2000, that is 
                attributable to the operation of subsection (b)(8); and
                    ``(B) the aggregate increase in payments under this 
                title during fiscal years 2001 and 2002 that is 
                attributable to the application of the market basket 
                percentage increase under paragraphs (2)(B) and (3)(E) 
                of this subsection in lieu of the provisions of 
                subclauses (VI) and (VII) of subsection (b)(3)(B)(ii).
        Reductions under this paragraph shall not affect computation of 
        the amounts payable under this subsection for cost reporting 
        periods beginning in fiscal years after fiscal year 2002.
            ``(7) Definitions.--For purposes of this subsection:
                    ``(A) The term `base fiscal year' means, with 
                respect to a hospital, the most recent fiscal year 
                ending before the date of the enactment of this 
                subsection for which audited cost report data are 
                available.
                    ``(B) The term `PPS percentage' means--
                            ``(i) with respect to cost reporting 
                        periods beginning on or after October 1, 2000, 
                        and before October 1, 2001, 25 percent;
                            ``(ii) with respect to cost reporting 
                        periods beginning on or after October 1, 2001, 
                        and before October 1, 2002, 50 percent; and
                            ``(iii) with respect to cost reporting 
                        periods beginning on or after October 1, 2002, 
                        and before October 1, 2003, 75 percent.
                    ``(C) The term `psychiatric facility' means--
                            ``(i) a psychiatric hospital; and
                            ``(ii) a psychiatric unit described in the 
                        matter following clause (v) of subsection 
                        (d)(1)(B).
                    ``(D) The term `TEFRA percentage' means--
                            ``(i) with respect to cost reporting 
                        periods beginning on or after October 1, 2000, 
                        and before October 1, 2001, 75 percent;
                            ``(ii) with respect to cost reporting 
                        periods beginning on or after October 1, 2001, 
                        and before October 1, 2002, 50 percent; and
                            ``(iii) with respect to cost reporting 
                        periods beginning on or after October 1, 2002, 
                        and before October 1, 2003, 25 percent.''.
    (b) Limit on Reductions Under Balanced Budget Act.--Section 1886(b) 
of the Social Security Act (42 U.S.C. 1395ww(b)) is amended by adding 
at the end the following:
    ``(8)(A) Notwithstanding the amendments made by sections 4411, 
4414, 4415, and 4416 of the Balanced Budget Act of 1997, in the case of 
a psychiatric facility (as defined in subparagraph (B)(ii)), the amount 
of payment for the operating costs of inpatient hospital services for 
cost reporting periods beginning on or after October 1, 1997, and 
before October 1, 2000, shall not be less than the applicable 
percentage (as defined in subparagraph (B)(i)) of the amount that would 
have been paid for such costs if such amendments did not apply.
    ``(B) For purposes of this paragraph:
            ``(i) The term `applicable percentage' means--
                    ``(I) 95 percent for cost reporting periods 
                beginning on or after October 1, 1997, and before 
                October 1, 1998;
                    ``(II) 92.5 percent for cost reporting periods 
                beginning on or after October 1, 1998, and before 
                October 1, 1999; and
                    ``(III) 90 percent for cost reporting periods 
                beginning on or after October 1, 1999, and before 
                October 1, 2000.
            ``(ii) The term `psychiatric facility' means--
                    ``(I) a psychiatric hospital; and
                    ``(II) a psychiatric unit described in the matter 
                following clause (v) of subsection (d)(1)(B).''.
    (c) Effective Date.--The amendments made by subsections (a) and (b) 
shall apply as if included in the enactment of the Balanced Budget Act 
of 1997.

Summary: Medicare Psychiatric Hospital Prospective Payment System Act of 1998 - Amends title XVIII (Medicare) of the Social Security Act to: (1) provide for a prospective payment system for inpatient psychiatric facility hospital services; and (2) exempt such services from certain reductions under the Balanced Budget Act of 1997 and, instead, limit payment to not less than a certain applicable percentage of the amount that would have been paid if such reductions did not apply.