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   104th Congress 1st 
         Session        HOUSE OF REPRESENTATIVES    Rept. 104-276
                                                        Part 1
_______________________________________________________________________


 
                   MEDICARE PRESERVATION ACT OF 1995

                               ----------                              

                              R E P O R T

                                 of the


                      COMMITTEE ON WAYS AND MEANS
                        HOUSE OF REPRESENTATIVES

                                   on

                               H.R. 2425

                             together with

                            DISSENTING VIEWS

      [Including cost estimate of the Congressional Budget Office]




October 16, 1995.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed
   104th Congress 1st   HOUSE OF REPRESENTATIVES    Rept. 104-276
         Session
                                                        Part 1
_______________________________________________________________________



                   MEDICARE PRESERVATION ACT OF 1995

                               __________

                              R E P O R T

                                 of the


                      COMMITTEE ON WAYS AND MEANS
                        HOUSE OF REPRESENTATIVES

                                   on

                               H.R. 2425


                             together with


                            DISSENTING VIEWS

      [Including cost estimate of the Congressional Budget Office]




October 16, 1995.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed
MEDICARE PRESERVATION ACT OF 1995_Part 1 of 2


                            C O N T E N T S

                              ----------                              
                                                                   Page
  I. Introduction...................................................111
          A. Purpose and Summary.................................   111
          B. Background and Need for Legislation.................   112
          C. Legislative History.................................   115
 II. Explanation of Bill............................................117
     Subtitle A--MedicarePlus Program...............................117
           Part 1. Increasing Choice Under the Medicare Program..   117
              Sec. 15001. Increasing Choice Under Medicare.......   117
              Sec. 15002. Provisions Relating to MedicarePlus 
                  Requirements for MedicarePlus Organizations; 
                  High Deductible/Medisave Products (Part C of 
                  Medicare)......................................   123
              Sec. 15003. Duplication and Coordination of 
                  Medicare-Related Products......................   147
              Sec. 15004. Transitional Rules for Current Medicare 
                  HMO Program....................................   150
          Part 2. Special Rules for MedicarePlus Medical Savings 
              Accounts...........................................   151
              Sec. 15011. MedicarePlus MSAs......................   151
              Sec. 15012. Certain Rebates Excluded from Gross 
                  Income.........................................   154
          Part 3. Special Antitrust Rules for Provider Sponsored 
              Organizations......................................   154
              Sec. 15021.  Application of Antitrust Rule of 
                  Reason to Provider Service Networks............   154
          Part 4.  Commissions...................................   156
              Sec. 15031.  Medicare Payment Review Commission....   156
              Sec. 15032.  Commission on the Effect of the Baby 
                  Boom Generation on the Medicare Program........   158
              Sec. 15033.  Change in Appointment of Administrator 
                  of the Health Care Financing Administration....   159
           Part 5. Treatment of Hospitals Which Participate in 
              Provider-Sponsored Organizations...................   160
              Sec. 15041.  Treatment of Hospitals Which 
                  Participate in Provider-Sponsored 
                  Organizations..................................   160
      Subtitle B--Preventing Fraud and Abuse........................160
          Sec. 15101.  Increasing Awareness of Fraud and Abuse...   160
          Sec. 15102.  Beneficiary Incentive Programs............   161
          Sec. 15103.  Intermediate Sanctions for MedicarePlus 
              Plans..............................................   162
          Sec. 15104.  Voluntary Disclosure Program..............   164
          Sec. 15105.  Revisions To Current Sanctions............   165
          Sec. 15106.  Consolidated Funding for Anti-Fraud and 
              Abuse Activities Under Medicare Integrity Program..   166
          Sec. 15107.  Permitting Carriers to Carry Out Prior 
              Authorization for Certain Items of Durable Medical 
              Equipment (DME)....................................   169
          Sec. 15108.  Establishment of Health Care Anti-Fraud 
              Task Force.........................................   169
          Sec. 15109.  Study of Adequacy of Private Quality 
              Assurance Programs.................................   170
          Sec. 15110.  Penalty for False Certification for Home 
              Health Services....................................   170
     Subtitle C--Regulatory Relief..................................171
           Part 1. Physician Ownership and Referral Reform.......   171
              Sec. 15201.  Repeal of Prohibitions Based on 
                  Compensation Arrangements......................   171
              Sec. 15202.  Revision of Designated Health Services 
                  Subject to the Prohibition.....................   171
              Sec. 15203.  Delay in Implementation Until 
                  Promulgation of Regulations....................   172
              Sec. 15204.  Exception to Prohibitions.............   173
              Sec. 15205.  Repeal of Reporting Requirements......   175
              Sec. 15206.  Preemption of State Law...............   175
              Sec. 15207.  Effective Date........................   175
           Part 2.  Other Medicare Regulatory Relief.............   176
              Sec. 15211.  Repeal of Medicare and Medicaid 
                  Coverage Data Bank.............................   176
              Sec. 15212.  Clarification of Level of Intent 
                  Required for Imposition of Sanctions...........   177
              Sec. 15213.  Clarification of and Additions to 
                  Exceptions to Anti-Kickback Penalties..........   179
              Sec. 15214.  Solicitation and Publication of 
                  Modifications to Existing Safe Harbors and New 
                  Safe Harbors...................................   180
              Sec. 15215. Issuance of Advisory Opinions Under 
                  Title XI.......................................   181
              Sec. 15216.  Prior Notice of Changes in Billing and 
                  Claims Processing Requirements for Physicians' 
                  Services.......................................   181
           Part 3. Promoting Physician Self-Policing.............   182
              Sec. 15221.  Exemption From Antitrust Laws for 
                  Certain Activities of Medical Self-Regulatory 
                  Entities.......................................   182
       Subtitle D--Medical Liability Reform.........................183
           Part 1. General Provisions............................   183
              Sec. 15301.  Federal Reform of Health Care 
                  Liability Actions..............................   183
              Sec. 15302. Definitions............................   183
              Sec. 15303. Effective Date.........................   183
          Part 2. Uniform Standards for Health Care Liability 
              Actions............................................   184
              Sec. 15311. Statute of Limitations.................   184
              Sec. 15312. Calculation and Payment of Damages.....   184
              Sec. 15313. Alternative Dispute Resolution.........   185
     Subtitle E--Teaching Hospitals; Graduate Medical Education.....185
          Part 1. Teaching Hospital and Graduate Medical 
              Education Trust Fund...............................   185
              Sec. 15401. Establishment of Fund; Payments to 
                  Teaching Hospitals.............................   185
          Part 2. Amendments to Medicare Program.................   188
              Sec. 15411. Transfers to Teaching Hospital and 
                  Graduate Medical Education Fund................   188
              Sec. 15412. Modification in Payment Policies 
                  Regarding Graduate Medical Education...........   189
          Part 3. Reform of Federal Policies Regarding Teaching 
              Hospitals and Graduate Medical Education...........   191
              Sec. 15421. Establishment of Advisory Panel for 
                  Recommending Policies Regarding Teaching 
                  Hospitals and Graduate Medical Education.......   191
     Subtitle F--Provisions Relating to Medicare Part A.............192
          Part 1. Hospitals......................................   192
              Sec. 15501. Reductions in Inflation Updates for PPS 
                  Hospitals......................................   192
              Sec. 15502. Reductions in Disproportionate Share 
                  Payment Adjustments............................   193
              Sec. 15503. Payments for Capital-Related Costs for 
                  Inpatient Hospital Services....................   195
              Sec. 15504. Reduction in Adjustment for Indirect 
                  Medical Education..............................   196
              Sec. 15505. Treatment of PPS-Exempt Hospitals......   196
              Sec. 15506. Reduction in Payments to Hospitals for 
                  Enrollees' Bad Debts...........................   197
              Sec. 15507. Permanent Extension of Hemophilia Pass- 
                  Through........................................   198
              Sec. 15508. Conforming Amendment to Certification 
                  of Christian Science Providers.................   198
              Sec. 15511. Sole Community Hospitals...............   199
              Sec. 15512. Clarification of Treatment of Essential 
                  Access Community Hospital/Rural Primary Care 
                  Hospital (EACH/RPCH)...........................   199
              Sec. 15513. Rural Emergency Access Care Hospitals 
                  (REACHs).......................................   200
              Sec. 15514. Classification of Rural Referral 
                  Centers........................................   201
              Sec. 15515. Floor on Area Wage Index...............   202
          Part 2. Payments to Skilled Nursing Facilities (SNFs)..   202
              Sec. 15521. Payments for Routine Service Costs.....   202
              Sec. 15522. Incentives for Cost Effective 
                  Management of Covered Non-Routine Services.....   204
              Sec. 15523. Payments for Routine Service Costs.....   206
              Sec. 15524. Reductions in Payment for Capital-
                  Related Costs..................................   207
              Sec. 15525. Treatment of Items and Services Paid 
                  for under Part B...............................   207
              Sec. 15526. Certification of Facilities Meeting 
                  Revised Nursing Home Reform Standards..........   207
              Sec. 15527. Medical Review Process.................   209
              Sec. 15528. Report by Medicare Payment Review 
                  Commission.....................................   210
              Sec. 15529. Effective Date.........................   210
     Subtitle G--Provisions Relating to Medicare Part B.............210
          Part 1. Payment Reforms................................   210
              Sec. 15601. Payments for Physicians Services.......   210
              Sec. 15602. Elimination of Formula-Driven 
                  Overpayment for Certain Outpatient Hospital 
                  Services.......................................   213
              Sec. 15603. Reduction in Updates to Payment Amounts 
                  for Durable Medical Equipment (DME)............   213
              Sec. 15604. Reduction in Updates to Payment Amounts 
                  for Clinical Laboratory Services...............   214
              Sec. 15605. Extension of Reductions in Payments for 
                  Costs of Hospital Outpatient Services..........   215
              Sec. 15606. Freeze in Payments for Ambulatory 
                  Surgical Center Services.......................   215
              Sec. 15607. Rural Emergency Access Care Hospitals..   216
          Part 2. Part B Premium.................................   216
              Sec. 15611. Extension of Part B Premium............   216
              Sec. 15612. Income-Related Reduction in Medicare 
                  Subsidy........................................   217
          Part 3. Administration of Laboratory Services..........   218
              Sec. 15621. Administrative Simplification..........   218
          Part 4. Coverage of Anti-Nausea Drugs..................   219
              Sec. 15631. Coverage of Certain Anti-Nausea Drugs 
                  Under Chemotherapeutic Regimen.................   219
          Part 5. Coverage of Chiropractic Services..............   220
              Sec. 15641. Coverage of Chiropractic Services......   220
     Subtitle H--Provisions Relating to Medicare Parts A and B......220
          Part 1. Home Health Services...........................   220
              Sec. 15701. Payment for Home Health Services.......   220
              Sec. 15702. Maintaining Savings Resulting from 
                  Temporary Freeze on Payment Increase for Home 
                  Health Services................................   223
              Sec. 15703. Extension of Waiver of Presumption of 
                  Lack of Knowledge of Exclusion from Coverage 
                  for Home Health Agencies.......................   224
              Sec. 15704. Study of Coverage of Services of 
                  Christian Science Providers....................   225
          Part 2. Medicare Secondary Payer Improvements..........   225
              Sec. 15711. Extension and Expansion of Existing 
                  Requirements...................................   225
              Sec. 15712. Improvements in Recovery of Payments...   226
              Sec. 15713. Prohibiting Retroactive Application of 
                  Policy Regarding ESRD Beneficiaries Enrolled in 
                  Primary Plans..................................   227
          Part 3. Failsafe.......................................   227
              Sec. 15714. Failsafe Budget Mechanism..............   227
          Part 4. Administrative Simplification..................   231
              Sec. 15731. Standards for Medicare Information 
                  Transactions and Data Elements.................   231
          Part 5. Other Provision Relating to Parts A and B......   232
              Sec. 15741. Clarification of Medicare Coverage of 
                  Items and Services Associated with Certain 
                  Medical Devices Approved for Investigational 
                  Use............................................   232
              Sec. 15742. Additional Exclusion from Coverage.....   233
     Subtitle I--Clinical Laboratories..............................234
          Sec. 15801. Exemption of Physicians Office Laboratories   234
     Subtitle J--Lock-Box Provisions for Medicare Part B Savings From 
     Growth Reductions..............................................234
          Sec. 15901. Establishment of Medicare Growth Reduction 
              Trust Fund for Part B Savings......................   234
III. Votes of the Committee.........................................235
 IV. Budget Effects of the Bill.....................................247
          A. Committee Estimate of Budgetary Effects.............   247
          B. Statement Regarding New Budget Authority and Tax 
              Expenditures.......................................   250
          C. Cost Estimate Prepared by the Congressional Budget 
              Office.............................................   250
  V. Other Matters To Be Discussed Under the Rules of the House.....256
           A. Committee Oversight Findings and Recommendations...   256
          B. Summary of Findings and Recommendations of the 
              Committee on Government Reform and Oversight.......   256
          C. Inflationary Impact Statement.......................   256
 VI. Applicability of House Rule XXI5(C)............................256
VII. Applicability of Federal Advisory Committee Act................256
VIII.Changes in Existing Law Made by the Bill as Reported...........257

 IX. Dissenting Views...............................................463
104th Congress                                            Rept. 104-276
                        HOUSE OF REPRESENTATIVES

 1st Session                                                     Part 1
_______________________________________________________________________


                   MEDICARE PRESERVATION ACT OF 1995

_______________________________________________________________________


October 16, 1995.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______


    Mr. Archer, from the Committee on Ways and Means, submitted the 
                               following

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                        [To accompany H.R. 2425]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Ways and Means, to whom was referred the 
bill (H.R. 2425) to amend title XVIII of the Social Security 
Act to preserve and reform the medicare program, having 
considered the same, report favorably thereon with an amendment 
and recommend that the bill as amended do pass.

  The amendment is as follows:
  Strike out all after the enacting clause and insert in lieu thereof 
the following:

SECTION 1. PURPOSE.

  The purpose of this Act is to reform the medicare program, in order 
to preserve and protect the financial stability of the program.

                           TITLE XV--MEDICARE

SEC. 15000. SHORT TITLE OF TITLE; AMENDMENTS AND REFERENCES TO OBRA; 
                    TABLE OF CONTENTS OF TITLE.

  (a) Short Title.--This title may be cited as the ``Medicare 
Preservation Act of 1995''.
  (b) Amendments to Social Security Act.--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 section or other 
provision of the Social Security Act.
  (c) References to OBRA.--In this title, the terms ``OBRA-1986'', 
``OBRA-1987'', ``OBRA-1989'', ``OBRA-1990'', and ``OBRA-1993'' refer to 
the Omnibus Budget Reconciliation Act of 1986 (Public Law 99-509), the 
Omnibus Budget Reconciliation Act of 1987 (Public Law 100-203), the 
Omnibus Budget Reconciliation Act of 1989 (Public Law 101-239), the 
Omnibus Budget Reconciliation Act of 1990 (Public Law 101-508), and the 
Omnibus Budget Reconciliation Act of 1993 (Public Law 103-66), 
respectively.
  (d) Table of Contents of Title.--The table of contents of this title 
is as follows:

Sec. 15000. Short title of title; amendments and references to OBRA; 
table of contents of title.

                    Subtitle A--MedicarePlus Program

          Part 1--Increasing Choice Under the Medicare Program

Sec. 15001. Increasing choice under medicare.
Sec. 15002. MedicarePlus program.

             ``Part C--Provisions Relating to MedicarePlus

        ``Sec. 1851. Requirements for MedicarePlus organizations; high 
                        deductible/medisave products.
        ``Sec. 1852. Requirements relating to benefits, provision of 
                        services, enrollment, and premiums.
        ``Sec. 1853. Patient protection standards.
        ``Sec. 1854. Provider-sponsored organizations.
        ``Sec. 1855. Payments to MedicarePlus organizations.
        ``Sec. 1856. Establishment of standards for MedicarePlus 
                        organizations and products.
        ``Sec. 1857. MedicarePlus certification.
        ``Sec. 1858. Contracts with MedicarePlus organizations.
Sec. 15003. Duplication and coordination of medicare-related products.
Sec. 15004. Transitional rules for current medicare HMO program.

    Part 2--Special Rules for MedicarePlus Medical Savings Accounts

Sec. 15011. MedicarePlus MSA's.
Sec. 15012. Certain rebates excluded from gross income.

      Part 3--Special Antitrust Rule for Provider Service Networks

Sec. 15021. Application of antitrust rule of reason to provider service 
networks.

                          Part 4--Commissions

Sec. 15031. Medicare Payment Review Commission.
Sec. 15032. Commission on the Effect of the Baby Boom Generation on the 
Medicare Program.
Sec. 15033. Change in appointment of Administrator of HCFA.

Part 5--Treatment of Hospitals Which Participate in Provider-Sponsored 
                             Organizations

Sec. 15041. Treatment of hospitals which participate in provider-
sponsored organizations.

                 Subtitle B--Preventing Fraud and Abuse

Sec. 15101. Increasing awareness of fraud and abuse.
Sec. 15102. Beneficiary incentive programs.
Sec. 15103. Intermediate sanctions for medicare health maintenance 
organizations.
Sec. 15104. Voluntary disclosure program.
Sec. 15105. Revisions to current sanctions.
Sec. 15106. Direct spending for anti-fraud activities under medicare.
Sec. 15107. Permitting carriers to carry out prior authorization for 
certain items of durable medical equipment.
Sec. 15108. Establishment of Health Care Anti-Fraud Task Force.
Sec. 15109. Study of adequacy of private quality assurance programs.
Sec. 15110. Penalty for false certification for home health services.

                     Subtitle C--Regulatory Relief

              Part 1--Physician Ownership Referral Reform

Sec. 15201. Repeal of prohibitions based on compensation arrangements.
Sec. 15202. Revision of designated health services subject to 
prohibition.
Sec. 15203. Delay in implementation until promulgation of regulations.
Sec. 15204. Exceptions to prohibition.
Sec. 15205. Repeal of reporting requirements.
Sec. 15206. Preemption of State law.
Sec. 15207. Effective date.

                Part 2--Other Medicare Regulatory Relief

Sec. 15211. Repeal of Medicare and Medicaid Coverage Data Bank.
Sec. 15212. Clarification of level of intent required for imposition of 
sanctions.
Sec. 15213. Additional exception to anti-kickback penalties for managed 
care arrangements.
Sec. 15214. Solicitation and publication of modifications to existing 
safe harbors and new safe harbors.
Sec. 15215. Issuance of advisory opinions under title XI.
Sec. 15216. Prior notice of changes in billing and claims processing 
requirements for physicians' services.

               Part 3--Promoting Physician Self-Policing

Sec. 15221. Exemption from antitrust laws for certain activities of 
medical self-regulatory entities.

                  Subtitle D--Medical Liability Reform

                       Part 1--General Provisions

Sec. 15301. Federal reform of health care liability actions.
Sec. 15302. Definitions.
Sec. 15303. Effective date.

      Part 2--Uniform Standards for Health Care Liability Actions

Sec. 15311. Statute of limitations.
Sec. 15312. Calculation and payment of damages.
Sec. 15313. Alternative dispute resolution.

     Subtitle E--Teaching Hospitals and Graduate Medical Education

  Part 1--Teaching Hospital and Graduate Medical Education Trust Fund

Sec. 15401. Establishment of Fund; payments to teaching hospitals.

 ``TITLE XXII--TEACHING HOSPITAL AND GRADUATE MEDICAL EDUCATION TRUST 
                                  FUND

                    ``Part A--Establishment of Fund

        ``Sec. 2201. Establishment of Fund.

                ``Part B--Payments to Teaching Hospitals

                  ``Subpart 1--Requirement of Payments

        ``Sec. 2211. Formula payments to teaching hospitals.

  ``Subpart 2--Amount Relating to Indirect Costs of Graduate Medical 
                               Education

        ``Sec. 2221. Determination of amount relating to indirect 
                        costs.
        ``Sec. 2222. Indirect costs; special rules regarding 
                        determination of hospital-specific percentage.
        ``Sec. 2223. Indirect costs; alternative payments regarding 
                        teaching hospitals in certain States.

   ``Subpart 3--Amount Relating to Direct Costs of Graduate Medical 
                               Education

        ``Sec. 2231. Determination of amount relating to direct costs.
        ``Sec. 2232. Direct costs; special rules regarding 
                        determination of hospital-specific percentage.
        ``Sec. 2233. Direct costs; authority for payments to consortia 
                        of providers.
        ``Sec. 2234. Direct costs; alternative payments regarding 
                        teaching hospitals in certain States.

                    ``Subpart 4--General Provisions

        ``Sec. 2241. Adjustments in payment amounts.

                 Part 2--Amendments to Medicare Program

Sec. 15411. Transfers to Teaching Hospital and Graduate Medical 
Education Trust Fund.
Sec. 15412. Modification in payment policies regarding graduate medical 
education.

  Part 3--Reform of Federal Policies Regarding Teaching Hospitals and 
                       Graduate Medical Education

Sec. 15421. Establishment of advisory panel for recommending policies.

                        ``Part C--Other Matters

        ``Sec. 2251. Advisory Panel on Reform in Financing of Teaching 
                        Hospitals and Graduate Medical Education.

           Subtitle F--Provisions Relating to Medicare Part A

                           Part 1--Hospitals

            SUBPART A--GENERAL PROVISIONS RELATING TO HOSPITALS

Sec. 15501. Reductions in inflation updates for PPS hospitals.
Sec. 15502. Reductions in disproportionate share payment adjustments.
Sec. 15503. Payments for capital-related costs for inpatient hospital 
services.
Sec. 15504. Reduction in adjustment for indirect medical education.
Sec. 15505. Treatment of PPS-exempt hospitals.
Sec. 15506. Reduction in payments to hospitals for enrollees' bad 
debts.
Sec. 15507. Permanent extension of hemophilia pass-through.
Sec. 15508. Conforming amendment to certification of Christian Science 
providers.

             SUBPART B--PROVISIONS RELATING TO RURAL HOSPITALS

Sec. 15511. Sole community hospitals.
Sec. 15512. Clarification of treatment of EAC and RPC hospitals.
Sec. 15513. Establishment of rural emergency access care hospitals.
Sec. 15514. Classification of rural referral centers.
Sec. 15515. Floor on area wage index.

             Part 2--Payments to Skilled Nursing Facilities

Sec. 15521. Payments for routine service costs.
Sec. 15522. Incentives for cost effective management of covered non-
routine services.
Sec. 15523. Payments for routine service costs.
Sec. 15524. Reductions in payment for capital-related costs.
Sec. 15525. Treatment of items and services paid for under part B.
Sec. 15526. Certification of facilities meeting revised nursing home 
reform standards.
Sec. 15527. Medical review process.
Sec. 15528. Report by Medicare Payment Review Commission.
Sec. 15529. Effective date.

           Subtitle G--Provisions Relating to Medicare Part B

                        Part 1--Payment Reforms

Sec. 15601. Payments for physicians' services.
Sec. 15602. Elimination of formula-driven overpayments for certain 
outpatient hospital services.
Sec. 15603. Reduction in updates to payment amounts for durable medical 
equipment.
Sec. 15604. Reduction in updates to payment amounts for clinical 
diagnostic laboratory tests.
Sec. 15605. Extension of reductions in payments for costs of hospital 
outpatient services.
Sec. 15606. Freeze in payments for ambulatory surgical center services.
Sec. 15607. Rural emergency access care hospitals.

                         Part 2--Part B Premium

Sec. 15611. Extension of part B premium.
Sec. 15612. Income-related reduction in medicare subsidy.

     Part 3--Administrative Simplification for Laboratory Services

Sec. 15621. Administrative simplification for laboratory services.

             Part 4--Coverage of Certain Anti-Nausea Drugs

Sec. 15631. Coverage of oral anti-nausea drugs under chemotherapeutic 
regimen.
Sec. 15632. Effective date.

      Part 5--Coverage of Certain Services Ordered or Referred by 
                             Chiropractors

Sec. 15641. Coverage of Certain Services Ordered or Referred by 
Chiropractors.

       Subtitle H--Provisions Relating to Medicare Parts A and B

                Part 1--Payment for Home Health Services

Sec. 15701. Payment for home health services.
Sec. 15702. Maintaining savings resulting from temporary freeze on 
payment increases for home health services.
Sec. 15703. Extension of waiver of presumption of lack of knowledge of 
exclusion from coverage for home health agencies.
Sec. 15704. Study of coverage of services of Christian Science 
providers.

             Part 2--Medicare Secondary Payer Improvements

Sec. 15711. Extension and expansion of existing requirements.
Sec. 15712. Improvements in recovery of payments.
Sec. 15713. Prohibiting retroactive application of policy regarding 
ESRD beneficiaries enrolled in primary plans.

                            Part 3--Failsafe

Sec. 15721. Failsafe budget mechanism.

                 Part 4--Administrative Simplification

Sec. 15731. Standards for medicare information transactions and data 
elements.

           Part 5--Other Provisions Relating to Parts A and B

Sec. 15741. Clarification of medicare coverage of items and services 
associated with certain medical devices approved for investigational 
use.
Sec. 15742. Additional exclusion from coverage.

                   Subtitle I--Clinical Laboratories

Sec. 15801. Exemption of physician office laboratories.

Subtitle J--Lock-Box Provisions for Medicare Part B Savings from Growth 
                               Reductions

Sec. 15901. Establishment of Medicare Growth Reduction Trust Fund for 
Part B savings.

                    Subtitle A--MedicarePlus Program

          PART 1--INCREASING CHOICE UNDER THE MEDICARE PROGRAM

SEC. 15001. INCREASING CHOICE UNDER MEDICARE.

  (a) In General.--Title XVIII is amended by inserting after section 
1804 the following new section:
                   ``providing for choice of coverage
  ``Sec. 1805. (a) Choice of Coverage.--
          ``(1) In general.--Subject to the provisions of this section, 
        every individual who is entitled to benefits under part A and 
        enrolled under part B shall elect to receive benefits under 
        this title through one of the following:
                  ``(A) Through fee-for-service system.--Through the 
                provisions of parts A and B.
                  ``(B) Through a MedicarePlus product.--Through a 
                MedicarePlus product (as defined in paragraph (2)), 
                which may be--
                          ``(i) a high deductible/medisave product (and 
                        a contribution into a MedicarePlus medical 
                        savings account (MSA)),
                          ``(ii) a product offered by a provider-
                        sponsored organization,
                          ``(iii) a product offered by an organization 
                        that is a Taft-Hartley plan or association, or
                          ``(iv) a product providing for benefits on a 
                        fee-for-service or other basis.
          ``(2) MedicarePlus product defined.--For purposes this 
        section and part C, the term `MedicarePlus product' means 
        health benefits coverage offered under a policy, contract, or 
        plan by a MedicarePlus organization (as defined in section 
        1851(a)) pursuant to and in accordance with a contract under 
        section 1857.
          ``(3) Terminology relating to options.--For purposes of this 
        section and part C--
                  ``(A) Non-medicare-plus option.--An individual who 
                has made the election described in paragraph (1)(A) is 
                considered to have elected the `Non-MedicarePlus 
                option'.
                  ``(B) MedicarePlus option.--An individual who has 
                made the election described in paragraph (1)(B) to 
                obtain coverage through a MedicarePlus product is 
                considered to have elected the `MedicarePlus option' 
                for that product.
  ``(b) Special rules.--
          ``(1) Residence requirement.--Except as the Secretary may 
        otherwise provide, an individual is eligible to elect a 
        MedicarePlus product offered by a MedicarePlus organization 
        only if the organization in relation to the product serves the 
        geographic area in which the individual resides.
          ``(2) Affiliation requirements for certain products.--
                  ``(A) In general.--Subject to subparagraph (B), an 
                individual is eligible to elect a MedicarePlus product 
                offered by a limited enrollment MedicarePlus 
                organization (as defined in section 1852(c)(4)(D)) only 
                if--
                          ``(i) the individual is eligible under 
                        section 1852(c)(4) to make such election, and
                          ``(ii) in the case of a MedicarePlus 
                        organization that is a Taft-Hartley sponsor (as 
                        defined in section 1852(c)(4)), the individual 
                        elected under this section a MedicarePlus 
                        product offered by the sponsor during the first 
                        enrollment period in which the individual was 
                        eligible to make such election with respect to 
                        such sponsor.
                  ``(B) No reelection after disenrollment for certain 
                products.--An individual is not eligible to elect a 
                MedicarePlus product offered by a MedicarePlus 
                organization that is a Taft-Hartley sponsor if the 
                individual previously had elected a MedicarePlus 
                product offered by the organization and had 
                subsequently discontinued to elect such a product 
                offered by the organization.
          ``(3) Special rule for certain annuitants.--An individual is 
        not eligible to elect a high deductible/medisave product if the 
        individual is entitled to benefits under chapter 89 of title 5, 
        United States Code, as an annuitant or spouse of an annuitant.
  ``(c) Process for Exercising Choice.--
          ``(1) In general.--The Secretary shall establish a process 
        through which elections described in subsection (a) are made 
        and changed, including the form and manner in which such 
        elections are made and changed. Such elections shall be made or 
        changed only during coverage election periods specified under 
        subsection (e) and shall become effective as provided in 
        subsection (f).
          ``(2) Expedited implementation.--The Secretary shall 
        establish the process of electing coverage under this section 
        during the transition period (as defined in subsection 
        (e)(1)(B)) in such an expedited manner as will permit such an 
        election for MedicarePlus products in an area as soon as such 
        products become available in that area.
          ``(3) Coordination through medicare-plus organizations.--
                  ``(A) Enrollment.--Such process shall permit an 
                individual who wishes to elect a MedicarePlus product 
                offered by a MedicarePlus organization to make such 
                election through the filing of an appropriate election 
                form with the organization.
                  ``(B) Disenrollment.--Such process shall permit an 
                individual, who has elected a MedicarePlus product 
                offered by a MedicarePlus organization and who wishes 
                to terminate such election, to terminate such election 
                through the filing of an appropriate election form with 
                the organization.
          ``(4) Default.--
                  ``(A) Initial election.--
                          ``(i) In general.--Subject to clause (ii), an 
                        individual who fails to make an election during 
                        an initial election period under subsection 
                        (e)(1) is deemed to have chosen the Non-
                        MedicarePlus option.
                          ``(ii) Seamless continuation of coverage.--
                        The Secretary shall establish procedures under 
                        which individuals who are enrolled with a 
                        MedicarePlus organization at the time of the 
                        initial election period and who fail to elect 
                        to receive coverage other than through the 
                        organization are deemed to have elected an 
                        appropriate MedicarePlus product offered by the 
                        organization.
                  ``(B) Continuing periods.--An individual who has made 
                (or deemed to have made) an election under this section 
                is considered to have continued to make such election 
                until such time as--
                          ``(i) the individual changes the election 
                        under this section, or
                          ``(ii) a MedicarePlus product is 
                        discontinued, if the individual had elected 
                        such product at the time of the 
                        discontinuation.
          ``(5) Agreements with commissioner of social security to 
        promote efficient administration.--In order to promote the 
        efficient administration of this section and the MedicarePlus 
        program under part C, the Secretary may enter into an agreement 
        with the Commissioner of Social Security under which the 
        Commissioner performs administrative responsibilities relating 
        to enrollment and disenrollment in MedicarePlus products under 
        this section.
  ``(d) Provision of Beneficiary Information to Promote Informed 
Choice.--
          ``(1) In general.--The Secretary shall provide for activities 
        under this subsection to disseminate broadly information to 
        medicare beneficiaries (and prospective medicare beneficiaries) 
        on the coverage options provided under this section in order to 
        promote an active, informed selection among such options. Such 
        information shall be made available on such a timely basis 
        (such as 6 months before the date an individual would first 
        attain eligibility for medicare on the basis of age) as to 
        permit individuals to elect the MedicarePlus option during the 
        initial election period described in subsection (e)(1).
          ``(2) Use of nonfederal entities.--The Secretary shall, to 
        the maximum extent feasible, enter into contracts with 
        appropriate non-Federal entities to carry out activities under 
        this subsection.
          ``(3) Specific activities.--In carrying out this subsection, 
        the Secretary shall provide for at least the following 
        activities in all areas in which MedicarePlus products are 
        offered:
                  ``(A) Information booklet.--
                          ``(i) In general.--The Secretary shall 
                        publish an information booklet and disseminate 
                        the booklet to all individuals eligible to 
                        elect the MedicarePlus option under this 
                        section during coverage election periods.
                          ``(ii) Information included.--The booklet 
                        shall include information presented in plain 
                        English and in a standardized format 
                        regarding--
                                  ``(I) the benefits (including cost-
                                sharing) and premiums for the various 
                                MedicarePlus products in the areas 
                                involved;
                                  ``(II) the quality of such products, 
                                including consumer satisfaction 
                                information; and
                                  ``(III) rights and responsibilities 
                                of medicare beneficiaries under such 
                                products.
                          ``(iii) Periodic updating.--The booklet shall 
                        be updated on a regular basis (not less often 
                        than once every 12 months) to reflect changes 
                        in the availability of MedicarePlus products 
                        and the benefits and premiums for such 
                        products.
                  ``(B) Toll-free number.--The Secretary shall maintain 
                a toll-free number for inquiries regarding MedicarePlus 
                options and the operation of part C.
                  ``(C) General information in medicare handbook.--The 
                Secretary shall include information about the 
                MedicarePlus option provided under this section in the 
                annual notice of medicare benefits under section 1804.
  ``(e) Coverage Election Periods.--
          ``(1) Initial choice upon eligibility to make election.--
                  ``(A) In general.--In the case of an individual who 
                first becomes entitled to benefits under part A and 
                enrolled under part B after the beginning of the 
                transition period (as defined in subparagraph (B)), the 
                individual shall make the election under this section 
                during a period (of a duration and beginning at a time 
                specified by the Secretary) at the first time the 
                individual both is entitled to benefits under part A 
                and enrolled under part B. Such period shall be 
                specified in a manner so that, in the case of an 
                individual who elects a MedicarePlus product during the 
                period, coverage under the product becomes effective as 
                of the first date on which the individual may receive 
                such coverage.
                  ``(B) Transition period defined.--In this subsection, 
                the term `transition period' means, with respect to an 
                individual in an area, the period beginning on the 
                first day of the first month in which a MedicarePlus 
                product is first made available to individuals in the 
                area and ending with the month preceding the beginning 
                of the first annual, coordinated election period under 
                paragraph (3).
          ``(2) During transition period.--Subject to paragraph (6)--
                  ``(A) Continuous open enrollment into a medicare-plus 
                option.--During the transition period, an individual 
                who is eligible to make an election under this section 
                and who has elected the non-MedicarePlus option may 
                change such election to a MedicarePlus option at any 
                time.
                  ``(B) Open disenrollment before end of transition 
                period.--
                          ``(i) In general.--During the transition 
                        period, an individual who has elected a 
                        MedicarePlus option for a MedicarePlus product 
                        may change such election to another 
                        MedicarePlus product or to the non-MedicarePlus 
                        option.
                          ``(ii) Special rule.--During the transition 
                        period, an individual who has elected a high 
                        deductible/medisave product may not change such 
                        election to a MedicarePlus product that is not 
                        a high deductible/medisave product unless the 
                        individual has had such election in effect for 
                        12 months.
          ``(3) Annual, coordinated election period.--
                  ``(A) In general.--Subject to paragraph (5), each 
                individual who is eligible to make an election under 
                this section may change such election during annual, 
                coordinated election periods.
                  ``(B) Annual, coordinated election period.--For 
                purposes of this section, the term `annual, coordinated 
                election period' means, with respect to a calendar year 
                (beginning with 1998), the month of October before such 
                year.
                  ``(C) MedicarePlus health fair during october, 
                1996.--In the month of October, 1996, the Secretary 
                shall provide for a nationally coordinated educational 
                and publicity campaign to inform individuals, who are 
                eligible to elect MedicarePlus products, about such 
                products and the election process provided under this 
                section (including the annual, coordinated election 
                periods that occur in subsequent years).
          ``(4) Special 90-day disenrollment option.--
                  ``(A) In general.--In the case of the first time an 
                individual elects a MedicarePlus option (other than a 
                high deductible/medisave product) under this section, 
                the individual may discontinue such election through 
                the filing of an appropriate notice during the 90-day 
                period beginning on the first day on which the 
                individual's coverage under the MedicarePlus product 
                under such option becomes effective.
                  ``(B) Effect of discontinuation of election.--An 
                individual who discontinues an election under this 
                paragraph shall be deemed at the time of such 
                discontinuation to have elected the Non-MedicarePlus 
                option.
          ``(5) Special election periods.--An individual may 
        discontinue an election of a MedicarePlus product offered by a 
        MedicarePlus organization other than during an annual, 
        coordinated election period and make a new election under this 
        section if--
                  ``(A) the organization's or product's certification 
                under part C has been terminated or the organization 
                has terminated or otherwise discontinued providing the 
                product;
                  ``(B) in the case of an individual who has elected a 
                MedicarePlus product offered by a MedicarePlus 
                organization, the individual is no longer eligible to 
                elect the product because of a change in the 
                individual's place of residence or other change in 
                circumstances (specified by the Secretary, but not 
                including termination of membership in a qualified 
                association in the case of a product offered by a 
                qualified association or termination of the 
                individual's enrollment on the basis described in 
                clause (i) or (ii) section 1852(c)(3)(B));
                  ``(C) the individual demonstrates (in accordance with 
                guidelines established by the Secretary) that--
                          ``(i) the organization offering the product 
                        substantially violated a material provision of 
                        the organization's contract under part C in 
                        relation to the individual and the product; or
                          ``(ii) the organization (or an agent or other 
                        entity acting on the organization's behalf) 
                        materially misrepresented the product's 
                        provisions in marketing the product to the 
                        individual; or
                  ``(D) the individual meets such other conditions as 
                the Secretary may provide.
          ``(6) Special rule for high deductible/medisave products.--
        Notwithstanding the previous provisions of this subsection, an 
        individual may elect a high deductible/medisave product only 
        during an annual, coordinated election period described in 
        paragraph (3)(B) or during the month of October, 1996.
  ``(f) Effectiveness of Elections.--
          ``(1) During initial coverage election period.--An election 
        of coverage made during the initial coverage election period 
        under subsection (e)(1)(A) shall take effect upon the date the 
        individual becomes entitled to benefits under part A and 
        enrolled under part B, except as the Secretary may provide 
        (consistent with section 1838) in order to prevent retroactive 
        coverage.
          ``(2) During transition; 90-day disenrollment option.--An 
        election of coverage made under subsection (e)(2) and an 
        election to discontinue a MedicarePlus option under subsection 
        (e)(4) at any time shall take effect with the first calendar 
        month following the date on which the election is made.
          ``(3) Annual, coordinated election period and medisave 
        election.--An election of coverage made during an annual, 
        coordinated election period (as defined in subsection 
        (e)(3)(B)) in a year or for a high deductible/medisave product 
        shall take effect as of the first day of the following year.
          ``(4) Other periods.--An election of coverage made during any 
        other period under subsection (e)(5) shall take effect in such 
        manner as the Secretary provides in a manner consistent (to the 
        extent practicable) with protecting continuity of health 
        benefit coverage.
  ``(g) Effect of Election of MedicarePlus Option.--Subject to the 
provisions of section 1855(f), payments under a contract with a 
MedicarePlus organization under section 1857(a) with respect to an 
individual electing a MedicarePlus product offered by the organization 
shall be instead of the amounts which (in the absence of the contract) 
would otherwise be payable under parts A and B for items and services 
furnished to the individual.
  ``(h) Administration.--
          ``(1) In general.--This part and sections 1805 and 1876 shall 
        be administered through an operating division (A) that is 
        established or identified by the Secretary in the Department of 
        Health and Human Services, (B) that is separate from the Health 
        Care Financing Administration, and (C) the primary function of 
        which is the administration of this part and such sections. The 
        director of such division shall be of equal pay and rank to 
        that of the individual responsible for overall administration 
        of parts A and B.
          ``(2) Transfer authority.--The Secretary shall transfer such 
        personnel, administrative support systems, assets, records, 
        funds, and other resources in the Health Care Financing 
        Administration to the operating division referred to in 
        paragraph (1) as are used in the administration of section 1876 
        and as may be required to implement the provisions referred to 
        in such paragraph promptly and efficiently.''.

SEC. 15002. MEDICAREPLUS PROGRAM.

  (a) In General.--Title XVIII is amended by redesignating part C as 
part D and by inserting after part B the following new part:

             ``Part C--Provisions Relating to MedicarePlus

``requirements for medicareplus organizations; high deductible/medisave 
                                products
  ``Sec. 1851. (a) MedicarePlus Organization Defined.--In this part, 
subject to the succeeding provisions of this section, the term 
`MedicarePlus organization' means a public or private entity that is 
certified under section 1857 as meeting the requirements and standards 
of this part for such an organization.
  ``(b) Organized and Licensed Under State Law.--
          ``(1) In general.--A MedicarePlus organization shall be 
        organized and licensed under State law to offer health 
        insurance or health benefits coverage in each State in which it 
        offers a MedicarePlus product.
          ``(2) Exception for taft-hartley sponsors.--Paragraph (1) 
        shall not apply to an MedicarePlus organization that is a Taft-
        Hartley sponsor (as defined in section 1852(c)(4)).
          ``(3) Exception for provider-sponsored organizations.--
        Paragraph (1) shall not apply to a MedicarePlus organization 
        that is a provider-sponsored organization (as defined in 
        section 1854(a)) except to the extent provided under section 
        1857(c).
          ``(4) Exception for qualified associations.--Paragraph (1) 
        shall not apply to a MedicarePlus organization that is a 
        qualified association (as defined in section 1852(c)(4)(B)).
  ``(c) Prepaid Payment.--A MedicarePlus organization shall be 
compensated (except for deductibles, coinsurance, and copayments) for 
the provision of health care services to enrolled members by a payment 
which is paid on a periodic basis without regard to the date the health 
care services are provided and which is fixed without regard to the 
frequency, extent, or kind of health care service actually provided to 
a member.
  ``(d) Assumption of Full Financial Risk.--The MedicarePlus 
organization shall assume full financial risk on a prospective basis 
for the provision of the health care services (other than hospice care) 
for which benefits are required to be provided under section 
1852(a)(1), except that the organization--
          ``(1) may obtain insurance or make other arrangements for the 
        cost of providing to any enrolled member such services the 
        aggregate value of which exceeds $5,000 in any year,
          ``(2) may obtain insurance or make other arrangements for the 
        cost of such services provided to its enrolled members other 
        than through the organization because medical necessity 
        required their provision before they could be secured through 
        the organization,
          ``(3) may obtain insurance or make other arrangements for not 
        more than 90 percent of the amount by which its costs for any 
        of its fiscal years exceed 115 percent of its income for such 
        fiscal year, and
          ``(4) may make arrangements with physicians or other health 
        professionals, health care institutions, or any combination of 
        such individuals or institutions to assume all or part of the 
        financial risk on a prospective basis for the provision of 
        basic health services by the physicians or other health 
        professionals or through the institutions.
In the case of a MedicarePlus organization that is a Taft-Hartley 
sponsor (as defined in section 1852(c)(4)(A)) or a qualified 
association (as defined in section 1852(c)(4)(B)), this subsection 
shall not apply with respect to MedicarePlus products offered by such 
organization and issued by an organization to which subsection (b)(1) 
applies or by a provider-sponsored organization (as defined in section 
1854(a)).
  ``(e) Provision Against Risk of Insolvency.--
          ``(1) In general.--Each MedicarePlus organization shall meet 
        standards under section 1856 relating to the financial solvency 
        and capital adequacy of the organization. Such standards shall 
        take into account the nature and type of MedicarePlus products 
        offered by the organization.
          ``(2) Treatment of taft-hartley sponsors.--An entity that is 
        a Taft-Hartley sponsor is deemed to meet the requirement of 
        paragraph (1).
          ``(3) Treatment of certain qualified associations.--An entity 
        that is a qualified association is deemed to meet the 
        requirement of paragraph (1) with respect to MedicarePlus 
        products offered by such association and issued by an 
        organization to which subsection (b)(1) applies or by a 
        provider-sponsored organization.
  ``(f) High Deductible/Medisave Product Defined.--
          ``(1) In general.--In this part, the term `high deductible/
        medisave product' means a MedicarePlus product that--
                  ``(A) provides reimbursement for at least the items 
                and services described in section 1852(a)(1) in a year 
                but only after the enrollee incurs countable expenses 
                (as specified under the product) equal to the amount of 
                a deductible (described in paragraph (2));
                  ``(B) counts as such expenses (for purposes of such 
                deductible) at least all amounts that would have been 
                payable under parts A and B or by the enrollee if the 
                enrollee had elected to receive benefits through the 
                provisions of such parts; and
                  ``(C) provides, after such deductible is met for a 
                year and for all subsequent expenses for benefits 
                referred to in subparagraph (A) in the year, for a 
                level of reimbursement that is not less than--
                          ``(i) 100 percent of such expenses, or
                          ``(ii) 100 percent of the amounts that would 
                        have been paid (without regard to any 
                        deductibles or coinsurance) under parts A and B 
                        with respect to such expenses,
                whichever is less. Such term does not include the 
                MedicarePlus MSA itself or any contribution into such 
                account.
          ``(2) Deductible.--The amount of deductible under a high 
        deductible/medisave product--
                  ``(A) for contract year 1997 shall be not more than 
                $10,000; and
                  ``(B) for a subsequent contract year shall be not 
                more than the maximum amount of such deductible for the 
                previous contract year under this paragraph increased 
                by the national average per capita growth rate under 
                section 1855(c)(3) for the year.
        If the amount of the deductible under subparagraph (B) is not a 
        multiple of $50, the amount shall be rounded to the nearest 
        multiple of $50.
  ``(g) Organizations Treated as MedicarePlus Organizations During 
Transition.--Any of the following organizations shall be considered to 
qualify as a MedicarePlus organization for contract years beginning 
before January 1, 1998:
          ``(1) Health maintenance organizations.--An organization that 
        is organized under the laws of any State and that is a 
        qualified health maintenance organization (as defined in 
        section 1310(d) of the Public Health Service Act), an 
        organization recognized under State law as a health maintenance 
        organization, or a similar organization regulated under State 
        law for solvency in the same manner and to the same extent as 
        such a health maintenance organization.
          ``(2) Licensed insurers.--An organization that is organized 
        under the laws of any State and--
                  ``(A) is licensed by a State agency as an insurer for 
                the offering of health benefit coverage, or
                  ``(B) is licensed by a State agency as a service 
                benefit plan,
        but only for individuals residing in an area in which the 
        organization is licensed to offer health insurance coverage.
          ``(3) Current risk-contractors.--An organization that is an 
        eligible organization (as defined in section 1876(b)) and that 
        has a risk-sharing contract in effect under section 1876 as of 
        the date of the enactment of this section.
``requirements relating to benefits, provision of services, enrollment, 
                              and premiums
  ``Sec. 1852. (a) Benefits Covered.--
          ``(1) In general.--Except as provided in section 1851(f)(1) 
        with respect to high deductible/medisave products, each 
        MedicarePlus product offered under this part shall provide 
        benefits for at least the items and services for which benefits 
        are available under parts A and B consistent with the standards 
        for coverage of such items and services applicable under this 
        title.
          ``(2) Organization as secondary payer.--Notwithstanding any 
        other provision of law, a MedicarePlus organization may (in the 
        case of the provision of items and services to an individual 
        under this part under circumstances in which payment under this 
        title is made secondary pursuant to section 1862(b)(2)) charge 
        or authorize the provider of such services to charge, in 
        accordance with the charges allowed under such law or policy--
                  ``(A) the insurance carrier, employer, or other 
                entity which under such law, plan, or policy is to pay 
                for the provision of such services, or
                  ``(B) such individual to the extent that the 
                individual has been paid under such law, plan, or 
                policy for such services.
          ``(3) Satisfaction of requirement.--A MedicarePlus product 
        (other than a high deductible/medisave product) offered by a 
        MedicarePlus organization satisfies paragraph (1) with respect 
        to benefits for items and services if the following 
        requirements are met:
                  ``(A) Fee for service providers.--In the case of 
                benefits furnished through a provider that does not 
                have a contract with the organization, the product 
                provides for at least the dollar amount of payment for 
                such items and services as would otherwise be provided 
                under parts A and B.
                  ``(B) Participating providers.--In the case of 
                benefits furnished through a provider that has such a 
                contract, the individual's liability for payment for 
                such items and services does not exceed (after taking 
                into account any deductible, which does not exceed any 
                deductible under parts A and B) the lesser of the 
                following:
                          ``(i) Non-medicareplus liability.--The amount 
                        of the liability that the individual would have 
                        had (based on the provider being a 
                        participating provider) if the individual had 
                        elected the non-MedicarePlus option.
                          ``(ii) Medicare coinsurance applied to 
                        product payment rates.--The applicable 
                        coinsurance or copayment rate (that would have 
                        applied under the non-MedicarePlus option) of 
                        the payment rate provided under the contract.
  ``(b) Antidiscrimination.--A MedicarePlus organization may not deny, 
limit, or condition the coverage or provision of benefits under this 
part based on the health status, claims experience, receipt of health 
care, medical history, or lack of evidence of insurability, of an 
individual.
  ``(c) Guaranteed Issue and Renewal.--
          ``(1) In general.--Except as provided in this subsection, a 
        MedicarePlus organization shall provide that at any time during 
        which elections are accepted under section 1805 with respect to 
        a MedicarePlus product offered by the organization, the 
        organization will accept without restrictions individuals who 
        are eligible to make such election.
          ``(2) Priority.--If the Secretary determines that a 
        MedicarePlus organization, in relation to a MedicarePlus 
        product it offers, has a capacity limit and the number of 
        eligible individuals who elect the product under section 1805 
        exceeds the capacity limit, the organization may limit the 
        election of individuals of the product under such section but 
        only if priority in election is provided--
                  ``(A) first to such individuals as have elected the 
                product at the time of the determination, and
                  ``(B) then to other such individuals in such a manner 
                that does not discriminate among the individuals (who 
                seek to elect the product) on a basis described in 
                paragraph (1).
          ``(3) Limitation on termination of election.--
                  ``(A) In general.--Subject to subparagraph (B), a 
                MedicarePlus organization may not for any reason 
                terminate the election of any individual under section 
                1805 for a MedicarePlus product it offers.
                  ``(B) Basis for termination of election.--A 
                MedicarePlus organization may terminate an individual's 
                election under section 1805 with respect to a 
                MedicarePlus product it offers if--
                          ``(i) any premiums required with respect to 
                        such product are not paid on a timely basis 
                        (consistent with standards under section 1856 
                        that provide for a grace period for late 
                        payment of premiums),
                          ``(ii) the individual has engaged in 
                        disruptive behavior (as specified in such 
                        standards), or
                          ``(iii) the product is terminated with 
                        respect to all individuals under this part.
                Any individual whose election is so terminated is 
                deemed to have elected the Non-MedicarePlus option (as 
                defined in section 1805(a)(3)(A)).
                  ``(C) Organization obligation with respect to 
                election forms.--Pursuant to a contract under section 
                1858, each MedicarePlus organization receiving an 
                election form under section 1805(c)(2) shall transmit 
                to the Secretary (at such time and in such manner as 
                the Secretary may specify) a copy of such form or such 
                other information respecting the election as the 
                Secretary may specify.
          ``(4) Special rules for limited enrollment medicareplus 
        organizations.--
                  ``(A) Taft-hartley sponsors.--
                          ``(i) In general.--Subject to subparagraph 
                        (C), a MedicarePlus organization that is a 
                        Taft-Hartley sponsor (as defined in clause 
                        (ii)) shall limit eligibility of enrollees 
                        under this part for MedicarePlus products it 
                        offers to individuals who are entitled to 
                        obtain benefits through such products under the 
                        terms of an applicable collective bargaining 
                        agreement.
                          ``(ii) Taft-Hartley sponsor.--In this part 
                        and section 1805, the term `Taft-Hartley 
                        sponsor' means, in relation to a group health 
                        plan that is established or maintained by two 
                        or more employers or jointly by one or more 
                        employers and one or more employee 
                        organizations, the association, committee, 
                        joint board of trustees, or other similar group 
                        of representatives of parties who establish or 
                        maintain the plan.
                  ``(B) Qualified associations.--
                          ``(i) In general.--Subject to subparagraph 
                        (C), a MedicarePlus organization that is a 
                        qualified association (as defined in clause 
                        (iii)) shall limit eligibility of individuals 
                        under this part for products it offers to 
                        individuals who are members of the association 
                        (or who are spouses of such individuals).
                          ``(ii) Limitation on termination of 
                        coverage.--Such a qualifying association 
                        offering a MedicarePlus product to an 
                        individual may not terminate coverage of the 
                        individual on the basis that the individual is 
                        no longer a member of the association except 
                        pursuant to a change of election during an open 
                        election period occurring on or after the date 
                        of the termination of membership.
                          ``(iii) Qualified association.--In this part 
                        and section 1805, the term `qualified 
                        association' means an association, religious 
                        fraternal organization, or other organization 
                        (which may be a trade, industry, or 
                        professional association, a chamber of 
                        commerce, or a public entity association) that 
                        the Secretary finds--
                                  ``(I) has been formed for purposes 
                                other than the sale of any health 
                                insurance and does not restrict 
                                membership based on the health status, 
                                claims experience, receipt of health 
                                care, medical history, or lack of 
                                evidence of insurability, of an 
                                individual,
                                  ``(II) does not exist solely or 
                                principally for the purpose of selling 
                                insurance, and
                                  ``(III) has at least 1,000 individual 
                                members or 200 employer members.
                        Such term includes a subsidiary or corporation 
                        that is wholly owned by one or more qualified 
                        organizations.
                  ``(C) Limitation.--Rules of eligibility to carry out 
                the previous subparagraphs of this paragraph shall not 
                have the effect of denying eligibility to individuals 
                on the basis of health status, claims experience, 
                receipt of health care, medical history, or lack of 
                evidence of insurability.
                  ``(D) Limited enrollment medicareplus organization.--
                In this part and section 1805, the term `limited 
                enrollment MedicarePlus organization' means a 
                MedicarePlus organization that is a Taft-Hartley 
                sponsor or a qualified association.
                  ``(E) Employer, etc.--In this paragraph, the terms 
                `employer', `employee organization', and `group health 
                plan' have the meanings given such terms for purposes 
                of part 6 of subtitle B of title I of the Employee 
                Retirement Income Security Act of 1974.
  ``(d) Submission and Charging of Premiums.--
          ``(1) In general.--Each MedicarePlus organization shall file 
        with the Secretary each year, in a form and manner and at a 
        time specified by the Secretary--
                  ``(A) the amount of the monthly premiums for coverage 
                under each MedicarePlus product it offers under this 
                part in each payment area (as determined for purposes 
                of section 1855) in which the product is being offered; 
                and
                  ``(B) the enrollment capacity in relation to the 
                product in each such area.
          ``(2) Amounts of premiums charged.--The amount of the monthly 
        premium charged by a MedicarePlus organization for a 
        MedicarePlus product offered in a payment area to an individual 
        under this part shall be equal to the amount (if any) by 
        which--
                  ``(A) the amount of the monthly premium for the 
                product for the period involved, as established under 
                paragraph (3) and submitted under paragraph (1), 
                exceeds
                  ``(B)(i) \1/12\ of the annual MedicarePlus capitation 
                rate specified in section 1855(b)(2) for the area and 
                period involved, or (ii) in the case of a high 
                deductible/medisave product, the monthly adjusted 
                MedicarePlus capitation rate specified in section 
                1855(b)(1) for the individual and period involved.
          ``(3) Uniform premium.--
                  ``(A) In general.--Except as provided in subparagraph 
                (B), the premiums charged by a MedicarePlus 
                organization under this part may not vary among 
                individuals who reside in the same payment area.
                  ``(B) Exception for high deductible/medisave 
                products.--A MedicarePlus organization shall establish 
                premiums for any high deductible/medisave product it 
                offers in a payment area based on each of the risk 
                adjustment categories established for purposes of 
                determining the amount of the payment to MedicarePlus 
                organizations under section 1855(b)(1) and using the 
                identical demographic and other adjustments among such 
                categories as are used for such purposes.
          ``(4) Terms and conditions of imposing premiums.--Each 
        MedicarePlus organization shall permit the payment of monthly 
        premiums on a monthly basis and may terminate election of 
        individuals for a MedicarePlus product for failure to make 
        premium payments only in accordance with subsection (c)(3)(B).
          ``(5) Relation of premiums and cost-sharing to benefits.--In 
        no case may the portion of a MedicarePlus organization's 
        premium rate and the actuarial value of its deductibles, 
        coinsurance, and copayments charged (to the extent attributable 
        to the minimum benefits described in subsection (a)(1) and not 
        count any amount attributable to balance billing) to 
        individuals who are enrolled under this part with the 
        organization exceed the actuarial value of the coinsurance and 
        deductibles that would be applicable on the average to 
        individuals enrolled under this part with the organization (or, 
        if the Secretary finds that adequate data are not available to 
        determine that actuarial value, the actuarial value of the 
        coinsurance and deductibles applicable on the average to 
        individuals in the area, in the State, or in the United States, 
        eligible to enroll under this part with the organization, or 
        other appropriate data) and entitled to benefits under part A 
        and enrolled under part B if they were not members of a 
        MedicarePlus organization.
  ``(e) Requirement for Additional Benefits, Part B Premium Discount 
Rebates, or Both.--
          ``(1) Requirement.--
                  ``(A) In general.--Each MedicarePlus organization (in 
                relation to a MedicarePlus product it offers) shall 
                provide that if there is an excess amount (as defined 
                in subparagraph (B)) for the product for a contract 
                year, subject to the succeeding provisions of this 
                subsection, the organization shall provide to 
                individuals such additional benefits (as the 
                organization may specify), a monetary rebate (paid on a 
                monthly basis) of the part B monthly premium, or a 
                combination thereof, in an total value which is at 
                least equal to the adjusted excess amount (as defined 
                in subparagraph (C)).
                  ``(B) Excess amount.--For purposes of this paragraph, 
                the `excess amount', for an organization for a product, 
                is the amount (if any) by which--
                          ``(i) the average of the capitation payments 
                        made to the organization under this part for 
                        the product at the beginning of contract year, 
                        exceeds
                          ``(ii) the actuarial value of the minimum 
                        benefits described in subsection (a)(1) under 
                        the product for individuals under this part, as 
                        determined based upon an adjusted community 
                        rate described in paragraph (5).
                  ``(C) Adjusted excess amount.--For purposes of this 
                paragraph, the `adjusted excess amount', for an 
                organization for a product, is the excess amount 
                reduced to reflect any amount withheld and reserved for 
                the organization for the year under paragraph (3).
                  ``(D) No application to high deductible/medisave 
                product.--Subparagraph (A) shall not apply to a high 
                deductible/medisave product.
                  ``(E) Uniform application.--This paragraph shall be 
                applied uniformly for all enrollees for a product in a 
                service area.
                  ``(F) Construction.--Nothing in this subsection shall 
                be construed as preventing a MedicarePlus organization 
                from providing health care benefits that are in 
                addition to the benefits otherwise required to be 
                provided under this paragraph and from imposing a 
                premium for such additional benefits.
          ``(2) Limitation on amount of part b premium discount 
        rebate.--In no case shall the amount of a part B premium 
        discount rebate under paragraph (1)(A) exceed, with respect to 
        a month, the amount of premiums imposed under part B (not 
        taking into account section 1839(b) (relating to penalty for 
        late enrollment) or 1839(h) (relating to affluence testing)), 
        for the individual for the month. Except as provided in the 
        previous sentence, a MedicarePlus organization is not 
        authorized to provide for cash or other monetary rebates as an 
        inducement for enrollment or otherwise.
          ``(3) Stabilization fund.--A MedicarePlus organization may 
        provide that a part of the value of an excess actuarial amount 
        described in paragraph (1) be withheld and reserved in the 
        Federal Hospital Insurance Trust Fund and in the Federal 
        Supplementary Medical Insurance Trust Fund (in such proportions 
        as the Secretary determines to be appropriate) by the Secretary 
        for subsequent annual contract periods, to the extent required 
        to stabilize and prevent undue fluctuations in the additional 
        benefits and rebates offered in those subsequent periods by the 
        organization in accordance with such paragraph. Any of such 
        value of amount reserved which is not provided as additional 
        benefits described in paragraph (1)(A) to individuals electing 
        the MedicarePlus product in accordance with such paragraph 
        prior to the end of such periods, shall revert for the use of 
        such trust funds.
          ``(4) Determination based on insufficient data.--For purposes 
        of this subsection, if the Secretary finds that there is 
        insufficient enrollment experience (including no enrollment 
        experience in the case of a provider-sponsored organization) to 
        determine an average of the capitation payments to be made 
        under this part at the beginning of a contract period, the 
        Secretary may determine such an average based on the enrollment 
        experience of other contracts entered into under this part.
          ``(5) Adjusted community rate.--
                  ``(A) In general.--For purposes of this subsection, 
                subject to subparagraph (B), the term `adjusted 
                community rate' for a service or services means, at the 
                election of a MedicarePlus organization, either--
                          ``(i) the rate of payment for that service or 
                        services which the Secretary annually 
                        determines would apply to an individual 
                        electing a MedicarePlus product under this part 
                        if the rate of payment were determined under a 
                        `community rating system' (as defined in 
                        section 1302(8) of the Public Health Service 
                        Act, other than subparagraph (C)), or
                          ``(ii) such portion of the weighted aggregate 
                        premium, which the Secretary annually estimates 
                        would apply to such an individual, as the 
                        Secretary annually estimates is attributable to 
                        that service or services,
                but adjusted for differences between the utilization 
                characteristics of the individuals electing coverage 
                under this part and the utilization characteristics of 
                the other enrollees with the organization (or, if the 
                Secretary finds that adequate data are not available to 
                adjust for those differences, the differences between 
                the utilization characteristics of individuals 
                selecting other MedicarePlus coverage, or individuals 
                in the area, in the State, or in the United States, 
                eligible to elect MedicarePlus coverage under this part 
                and the utilization characteristics of the rest of the 
                population in the area, in the State, or in the United 
                States, respectively).
                  ``(B) Special rule for provider-sponsored 
                organizations.--In the case of a MedicarePlus 
                organization that is a provider-sponsored organization, 
                the adjusted community rate under subparagraph (A) for 
                a MedicarePlus product may be computed (in a manner 
                specified by the Secretary) using data in the general 
                commercial marketplace or (during a transition period) 
                based on the costs incurred by the organization in 
                providing such a product.
  ``(f) Rules Regarding Physician Participation.--
          ``(1) Procedures.--Each MedicarePlus organization shall 
        establish reasonable procedures relating to the participation 
        (under an agreement between a physician and the organization) 
        of physicians under MedicarePlus products offered by the 
        organization under this part. Such procedures shall include--
                  ``(A) providing notice of the rules regarding 
                participation,
                  ``(B) providing written notice of participation 
                decisions that are adverse to physicians, and
                  ``(C) providing a process within the organization for 
                appealing adverse decisions, including the presentation 
                of information and views of the physician regarding 
                such decision.
          ``(2) Consultation in medical policies.--A MedicarePlus 
        organization shall consult with physicians who have entered 
        into participation agreements with the organization regarding 
        the organization's medical policy, quality, and medical 
        management procedures.
          ``(3) Limitations on physician incentive plans.--
                  ``(A) In general.--Each MedicarePlus organization may 
                not operate any physician incentive plan (as defined in 
                subparagraph (B)) unless the following requirements are 
                met:
                          ``(i) No specific payment is made directly or 
                        indirectly under the plan to a physician or 
                        physician group as an inducement to reduce or 
                        limit medically necessary services provided 
                        with respect to a specific individual enrolled 
                        with the organization.
                          ``(ii) If the plan places a physician or 
                        physician group at substantial financial risk 
                        (as determined by the Secretary) for services 
                        not provided by the physician or physician 
                        group, the organization--
                                  ``(I) provides stop-loss protection 
                                for the physician or group that is 
                                adequate and appropriate, based on 
                                standards developed by the Secretary 
                                that take into account the number of 
                                physicians placed at such substantial 
                                financial risk in the group or under 
                                the plan and the number of individuals 
                                enrolled with the organization who 
                                receive services from the physician or 
                                the physician group, and
                                  ``(II) conducts periodic surveys of 
                                both individuals enrolled and 
                                individuals previously enrolled with 
                                the organization to determine the 
                                degree of access of such individuals to 
                                services provided by the organization 
                                and satisfaction with the quality of 
                                such services.
                          ``(iii) The organization provides the 
                        Secretary with descriptive information 
                        regarding the plan, sufficient to permit the 
                        Secretary to determine whether the plan is in 
                        compliance with the requirements of this 
                        subparagraph.
                  ``(B) Physician incentive plan defined.--In this 
                paragraph, the term `physician incentive plan' means 
                any compensation arrangement between a MedicarePlus 
                organization and a physician or physician group that 
                may directly or indirectly have the effect of reducing 
                or limiting services provided with respect to 
                individuals enrolled with the organization under this 
                part.
          ``(4) Exception for certain fee-for-service plans.--The 
        previous provisions of this subsection shall not apply in the 
        case of a MedicarePlus organization in relation to a 
        MedicarePlus product if the organization does not have 
        agreements between physicians and the organization for the 
        provision of benefits under the product.
  ``(g) Provision of Information.--A MedicarePlus organization shall 
provide the Secretary with such information on the organization and 
each MedicarePlus product it offers as may be required for the 
preparation of the information booklet described in section 
1805(d)(3)(A).
  ``(h) Coordinated Acute and Long-term Care Benefits under a 
MedicarePlus Product.--Nothing in this part shall be construed as 
preventing a State from coordinating benefits under its MediGrant 
program under title XXI with those provided under a MedicarePlus 
product in a manner that assures continuity of a full-range of acute 
care and long-term care services to poor elderly or disabled 
individuals eligible for benefits under this title and under such 
program.
  ``(i) Transitional File and Use for Certain Requirements.--
          ``(1) In general.--In the case of a MedicarePlus product 
        proposed to be offered before the end of the transition period 
        (as defined in section1805(e)(1)(B)), by a MedicarePlus 
        organization described in section 1851(g)(3) or by a 
        MedicarePlus organization with a contract in effect under 
        section 1858, if the organization submits complete information 
        to the Secretary regarding the product demonstrating that the 
        product meets the requirements and standards under subsections 
        (a), (d), and (e) (relating to benefits and premiums), the 
        product shall be deemed as meeting such requirements and 
        standards under such subsections unless the Secretary 
        disapproves the product within 60 days after the date of 
        submission of the complete information.
          ``(2) Construction.--Nothing in paragraph (1) shall be 
        construed as waiving the requirement of a contract under 
        section 1858 or waiving requirements and standards not referred 
        to in paragraph (1).
                     ``patient protection standards
  ``Sec. 1853. (a) Disclosure to Enrollees.--A MedicarePlus 
organization shall disclose in clear, accurate, and standardized form, 
information regarding all of the following for each MedicarePlus 
product it offers:
          ``(1) Benefits under the MedicarePlus product offered, 
        including exclusions from coverage and, if it is a high 
        deductible/medisave product, a comparison of benefits under 
        such a product with benefits under other MedicarePlus products.
          ``(2) Rules regarding prior authorization or other review 
        requirements that could result in nonpayment.
          ``(3) Potential liability for cost-sharing for out-of-network 
        services.
          ``(4) The number, mix, and distribution of participating 
        providers.
          ``(5) The financial obligations of the enrollee, including 
        premiums, deductibles, co-payments, and maximum limits on out-
        of-pocket losses for items and services (both in and out of 
        network).
          ``(6) Statistics on enrollee satisfaction with the product 
        and organization, including rates of reenrollment.
          ``(7) Enrollee rights and responsibilities, including the 
        grievance process provided under subsection (f).
          ``(8) A statement that the use of the 911 emergency telephone 
        number is appropriate in emergency situations and an 
        explanation of what constitutes an emergency situation.
          ``(9) A description of the organization's quality assurance 
        program under subsection (d).
Such information shall be disclosed to each enrollee under this part at 
the time of enrollment and at least annually thereafter.
  ``(b) Access to Services.--
          ``(1) In general.--A MedicarePlus organization offering a 
        MedicarePlus product may restrict the providers from whom the 
        benefits under the product are provided so long as--
                  ``(A) the organization makes such benefits available 
                and accessible to each individual electing the product 
                within the product service area with reasonable 
                promptness and in a manner which assures continuity in 
                the provision of benefits;
                  ``(B) when medically necessary the organization makes 
                such benefits available and accessible 24 hours a day 
                and 7 days a week;
                  ``(C) the product provides for reimbursement with 
                respect to services which are covered under 
                subparagraphs (A) and (B) and which are provided to 
                such an individual other than through the organization, 
                if--
                          ``(i) the services were medically necessary 
                        and immediately required because of an 
                        unforeseen illness, injury, or condition, and
                          ``(ii) it was not reasonable given the 
                        circumstances to obtain the services through 
                        the organization; and
                  ``(D) coverage is provided for emergency services (as 
                defined in paragraph (4)) without regard to prior 
                authorization or the emergency care provider's 
                contractual relationship with the organization.
          ``(2) Minimum payment levels where providing point-of-service 
        coverage.--If a MedicarePlus product provides benefits for 
        items and services (not described in paragraph (1)(C)) through 
        a network of providers and also permits payment to be made 
        under the product for such items and services not provided 
        through such a network, the payment level under the product 
        with respect to such items and services furnished outside the 
        network shall be at least 70 percent (or, if the effective 
        cost-sharing rate is 50 percent, at least 35 percent) of the 
        lesser of--
                  ``(A) the payment basis (determined without regard to 
                deductibles and cost-sharing) that would have applied 
                for such items and services under parts A and B, or
                  ``(B) the amount charged by the entity furnishing 
                such items and services.
          ``(3) Protection of enrollees for certain emergency 
        services.--
                  ``(A) Participating providers.--In the case of 
                emergency services described in subparagraph (C) which 
                are furnished by a participating physician or provider 
                of services to an individual enrolled with a 
                MedicarePlus organization under this section, the 
                applicable participation agreement is deemed to provide 
                that the physician or provider of services will accept 
                as payment in full from the organization the amount 
                that would be payable to the physician or provider of 
                services under part B and from the individual under 
                such part, if the individual were not enrolled with 
                such an organization under this part.
                  ``(B) Nonparticipating providers.--In the case of 
                emergency services described in subparagraph (C) which 
                are furnished by a nonparticipating physician, the 
                limitations on actual charges for such services 
                otherwise applicable under part B (to services 
                furnished by individuals not enrolled with a 
                MedicarePlus organization under this section) shall 
                apply in the same manner as such limitations apply to 
                services furnished to individuals not enrolled with 
                such an organization.
                  ``(C) Emergency services described.--The emergency 
                services described in this subparagraph are emergency 
                services which are furnished to an enrollee of a 
                MedicarePlus organization under this part by a 
                physician or provider of services that is not under a 
                contract with the organization.
          ``(4) Definition of emergency services.--In this subsection, 
        the term `emergency services' means, with respect to an 
        individual enrolled with an organization, covered inpatient and 
        outpatient services that--
                  ``(A) are furnished by an appropriate source other 
                than the organization,
                  ``(B) are needed immediately because of an injury or 
                sudden illness, and
                  ``(C) are needed because the time required to reach 
                the organization's providers or suppliers would have 
                meant risk of serious damage to the patient's health.
  ``(c) Confidentiality and Accuracy of Enrollee Records.--Each 
MedicarePlus organization shall establish procedures--
          ``(1) to safeguard the privacy of individually identifiable 
        enrollee information, and
          ``(2) to maintain accurate and timely medical records for 
        enrollees.
  ``(d) Quality Assurance Program.--
          ``(1) In general.--Each MedicarePlus organization must have 
        arrangements, established in accordance with regulations of the 
        Secretary, for an ongoing quality assurance program for health 
        care services it provides to such individuals.
          ``(2) Elements of program.--The quality assurance program 
        shall--
                  ``(A) stress health outcomes;
                  ``(B) provide for the establishment of written 
                protocols for utilization review, based on current 
                standards of medical practice;
                  ``(C) provide review by physicians and other health 
                care professionals of the process followed in the 
                provision of such health care services;
                  ``(D) monitors and evaluates high volume and high 
                risk services and the care of acute and chronic 
                conditions;
                  ``(E) evaluates the continuity and coordination of 
                care that enrollees receive;
                  ``(F) has mechanisms to detect both underutilization 
                and overutilization of services;
                  ``(G) after identifying areas for improvement, 
                establishes or alters practice parameters;
                  ``(H) takes action to improve quality and assesses 
                the effectiveness of such action through systematic 
                follow-up;
                  ``(I) makes available information on quality and 
                outcomes measures to facilitate beneficiary comparison 
                and choice of health coverage options (in such form and 
                on such quality and outcomes measures as the Secretary 
                determines to be appropriate);
                  ``(J) is evaluated on an ongoing basis as to its 
                effectiveness; and
                  ``(K) provide for external accreditation or review, 
                by a utilization and quality control peer review 
                organization under part B of title XI or other 
                qualified independent review organization, of the 
                quality of services furnished by the organization meets 
                professionally recognized standards of health care 
                (including providing adequate access of enrollees to 
                services).
          ``(3) Exception for certain fee-for-service plans.--Paragraph 
        (1) and subsection (c)(2) shall not apply in the case of a 
        MedicarePlus organization in relation to a MedicarePlus product 
        to the extent the organization provides for coverage of 
        benefits without restrictions relating to utilization and 
        without regard to whether the provider has a contract or other 
        arrangement with the plan for the provision of such benefits.
          ``(4) Treatment of accreditation.--The Secretary shall 
        provide that a MedicarePlus organization is deemed to meet the 
        requirements of paragraphs (1) and (2) of this subsection and 
        subsection (c) if the organization is accredited (and 
        periodically reaccredited) by a private organization under a 
        process that the Secretary has determined assures that the 
        organization meets standards that are no less stringent than 
        the standards established under section 1856 to carry out this 
        subsection and subsection (c).
  ``(e) Coverage Determinations.--
          ``(1) Decisions on nonemergency care.--A MedicarePlus 
        organization shall make determinations regarding authorization 
        requests for nonemergency care on a timely basis, depending on 
        the urgency of the situation.
          ``(2) Appeals.--
                  ``(A) In general.--Appeals from a determination of an 
                organization denying coverage shall be decided within 
                30 days of the date of receipt of medical information, 
                but not later than 60 days after the date of the 
                decision.
                  ``(B) Physician decision on certain appeals.--Appeal 
                decisions relating to a determination to deny coverage 
                based on a lack of medical necessity shall be made only 
                by a physician.
                  ``(C) Emergency cases.--Appeals from such a 
                determination involving a life-threatening or emergency 
                situation shall be decided on an expedited basis.
  ``(f) Grievances and Appeals.--
          ``(1) Grievance mechanism.--Each MedicarePlus organization 
        must provide meaningful procedures for hearing and resolving 
        grievances between the organization (including any entity or 
        individual through which the organization provides health care 
        services) and enrollees under this part.
          ``(2) Appeals.--An enrollee with an organization under this 
        part who is dissatisfied by reason of the enrollee's failure to 
        receive any health service to which the enrollee believes the 
        enrollee is entitled and at no greater charge than the enrollee 
        believes the enrollee is required to pay is entitled, if the 
        amount in controversy is $100 or more, to a hearing before the 
        Secretary to the same extent as is provided in section 205(b), 
        and in any such hearing the Secretary shall make the 
        organization a party. If the amount in controversy is $1,000 or 
        more, the individual or organization shall, upon notifying the 
        other party, be entitled to judicial review of the Secretary's 
        final decision as provided in section 205(g), and both the 
        individual and the organization shall be entitled to be parties 
        to that judicial review. In applying sections 205(b) and 205(g) 
        as provided in this subparagraph, and in applying section 
        205(l) thereto, any reference therein to the Commissioner of 
        Social Security or the Social Security Administration shall be 
        considered a reference to the Secretary or the Department of 
        Health and Human Services, respectively.
          ``(3) Coordination with secretary of labor.--The Secretary 
        shall consult with the Secretary of Labor so as to ensure that 
        the requirements of this subsection, as they apply in the case 
        of grievances referred to in paragraph (1) to which section 503 
        of the Employee Retirement Income Security Act of 1974 applies, 
        are applied in a manner consistent with the requirements of 
        such section 503.
  ``(g) Information on Advance Directives.--Each MedicarePlus 
organization shall meet the requirement of section 1866(f) (relating to 
maintaining written policies and procedures respecting advance 
directives).
  ``(h) Approval of Marketing Materials.--
          ``(1) Submission.--Each MedicarePlus organization may not 
        distribute marketing materials unless--
                  ``(A) at least 45 days before the date of 
                distribution the organization has submitted the 
                material to the Secretary for review, and
                  ``(B) the Secretary has not disapproved the 
                distribution of such material.
          ``(2) Review.--The standards established under section 1856 
        shall include guidelines for the review of all such material 
        submitted and under such guidelines the Secretary shall 
        disapprove such material if the material is materially 
        inaccurate or misleading or otherwise makes a material 
        misrepresentation.
          ``(3) Deemed approval (1-stop shopping).--In the case of 
        material that is submitted under paragraph (1)(A) to the 
        Secretary or a regional office of the Department of Health and 
        Human Services and the Secretary or the office has not 
        disapproved the distribution of marketing materials under 
        paragraph (1)(B) with respect to a MedicarePlus product in an 
        area, the Secretary is deemed not to have disapproved such 
        distribution in all other areas covered by the product and 
        organization.
          ``(4) Prohibition of certain marketing practices.--Each 
        MedicarePlus organization shall conform to fair marketing 
        standards in relation to MedicarePlus products offered under 
        this part, included in the standards established under section 
        1856. Such standards shall include a prohibition against an 
        organization (or agent of such an organization) completing any 
        portion of any election form under section 1805 on behalf of 
        any individual.
                   ``provider-sponsored organizations
  ``Sec. 1854. (a) Provider-Sponsored Organization Defined.--
          ``(1) In general.--In this part, the term `provider-sponsored 
        organization' means a public or private entity that (in 
        accordance with standards established under subsection (b)) is 
        a provider, or group of affiliated providers, that provides a 
        substantial proportion (as defined by the Secretary under such 
        standards) of the health care items and services under the 
        contract under this part directly through the provider or 
        affiliated group of providers.
          ``(2) Substantial proportion.--In defining what is a 
        `substantial proportion' for purposes of paragraph (1), the 
        Secretary--
                  ``(A) shall take into account the need for such an 
                organization to assume responsibility for a substantial 
                proportion of services in order to assure financial 
                stability and the practical difficulties in such an 
                organization integrating a very wide range of service 
                providers; and
                  ``(B) may vary such proportion based upon relevant 
                differences among organizations, such as their location 
                in an urban or rural area.
          ``(3) Affiliation.--For purposes of this subsection, a 
        provider is `affiliated' with another provider if, through 
        contract, ownership, or otherwise--
                  ``(A) one provider, directly or indirectly, controls, 
                is controlled by, or is under common control with the 
                other,
                  ``(B) each provider is a participant in a lawful 
                combination under which each provider shares, directly 
                or indirectly, substantial financial risk in connection 
                with their operations,
                  ``(C) both providers are part of a controlled group 
                of corporations under section 1563 of the Internal 
                Revenue Code of 1986, or
                  ``(D) both providers are part of an affiliated 
                service group under section 414 of such Code.
          ``(4) Control.--For purposes of paragraph (3), control is 
        presumed to exist if one party, directly or indirectly, owns, 
        controls, or holds the power to vote, or proxies for, not less 
        than 51 percent of the voting rights or governance rights of 
        another.
  ``(b) Process for Establishing Standards for Provider-Sponsored 
Organizations.--For process of establishing of standards for provider-
sponsored organizations, see section 1856(c).
  ``(c) Process for State Certification of Provider-Sponsored 
Organizations.--For process of State certification of provider-
sponsored organizations, see section 1857(c).
  ``(d) Preemption of State Insurance Licensing Requirements.--
          ``(1) In general.--This section supersedes any State law 
        which--
                  ``(A) requires that a provider-sponsored organization 
                meet requirements for insurers of health services or 
                health maintenance organizations doing business in the 
                State with respect to initial capitalization and 
                establishment of financial reserves against insolvency, 
                or
                  ``(B) imposes requirements that would have the effect 
                of prohibiting the organization from complying with the 
                applicable requirements of this part,
        insofar as such the law applies to individuals enrolled with 
        the organization under this part.
          ``(2) Exception.--Paragraph (1) shall not apply with respect 
        to any State law to the extent that such law provides standards 
        or requirements, or provides for enforcement thereof, so as to 
        meet the requirements of section 1857(c)(2) with respect to 
        approval by the Secretary of State certification requirements 
        thereunder.
          ``(3) Construction.--Nothing in this subsection shall be 
        construed as affecting the operation of section 514 of the 
        Employee Retirement Income Security Act of 1974.
                ``payments to medicareplus organizations
  ``Sec. 1855. (a) Payments.--
          ``(1) In general.--Under a contract under section 1858 the 
        Secretary shall pay to each MedicarePlus organization, with 
        respect to coverage of an individual under this part in a 
        payment area for a month, an amount equal to the monthly 
        adjusted MedicarePlus capitation rate (as provided under 
        subsection (b)) with respect to that individual for that area.
          ``(2) Annual announcement.--The Secretary shall annually 
        determine, and shall announce (in a manner intended to provide 
        notice to interested parties) not later than September 7 before 
        the calendar year concerned--
                  ``(A) the annual MedicarePlus capitation rate for 
                each payment area for the year, and
                  ``(B) the factors to be used in adjusting such rates 
                under subsection (b) for payments for months in that 
                year.
          ``(3) Advance notice of methodological changes.--At least 45 
        days before making the announcement under paragraph (2) for a 
        year, the Secretary shall provide for notice to MedicarePlus 
        organizations of proposed changes to be made in the methodology 
        or benefit coverage assumptions from the methodology and 
        assumptions used in the previous announcement and shall provide 
        such organizations an opportunity to comment on such proposed 
        changes.
          ``(4) Explanation of assumptions.--In each announcement made 
        under paragraph (2) for a year, the Secretary shall include an 
        explanation of the assumptions (including any benefit coverage 
        assumptions) and changes in methodology used in the 
        announcement in sufficient detail so that MedicarePlus 
        organizations can compute monthly adjusted MedicarePlus 
        capitation rates for classes of individuals located in each 
        payment area which is in whole or in part within the service 
        area of such an organization.
  ``(b) Monthly Adjusted MedicarePlus Capitation Rate.--
          ``(1) In general.--For purposes of this section, the `monthly 
        adjusted MedicarePlus capitation rate' under this subsection, 
        for a month in a year for an individual in a payment area 
        (specified under paragraph (3)) and in a class (established 
        under paragraph (4)), is \1/12\ of the annual MedicarePlus 
        capitation rate specified in paragraph (2) for that area for 
        the year, adjusted to reflect the actuarial value of benefits 
        under this title with respect to individuals in such class 
        compared to the national average for individuals in all 
        classes.
          ``(2) Annual medicareplus capitation rates.--For purposes of 
        this section, the annual MedicarePlus capitation rate for a 
        payment area for a year is equal to the annual MedicarePlus 
        capitation rate for the area for the previous year (or, in the 
        case of 1996, the average annual per capita rate of payment 
        described in section 1876(a)(1)(C) for the area for 1995) 
        increased by the per capita growth rate for that area and year 
        (as determined under subsection (c)).
          ``(3) Payment area defined.--In this section, the term 
        `payment area' means a county (or equivalent area specified by 
        the Secretary), except that in the case of the population group 
        described in paragraph (5)(C), the payment area shall be each 
        State.
          ``(4) Classes.--
                  ``(A) In general.--For purposes of this section, the 
                Secretary shall define appropriate classes of 
                enrollees, consistent with paragraph (5), based on age, 
                gender, welfare status, institutionalization, and such 
                other factors as the Secretary determines to be 
                appropriate, so as to ensure actuarial equivalence. The 
                Secretary may add to, modify, or substitute for such 
                classes, if such changes will improve the determination 
                of actuarial equivalence.
                  ``(B) Research.--The Secretary shall conduct such 
                research as may be necessary to provide for greater 
                accuracy in the adjustment of capitation rates under 
                this subsection. Such research may include research 
                into the addition or modification of classes under 
                subparagraph (A). The Secretary shall submit to 
                Congress a report on such research by not later than 
                January 1, 1997.
          ``(5) Division of medicare population.--In carrying out 
        paragraph (4) and this section, the Secretary shall recognize 
        the following separate population groups:
                  ``(A) Aged.--Individuals 65 years of age or older who 
                are not described in subparagraph (C).
                  ``(B) Disabled.--Disabled individuals who are under 
                65 years of age and not described in subparagraph (C).
                  ``(C) Individuals with end stage renal disease.--
                Individuals who are determined to have end stage renal 
                disease.
  ``(c) Per Capita Growth Rates.--
          ``(1) For 1996.--
                  ``(A) In general.--For purposes of this section and 
                subject to subparagraph (B), the per capita growth 
                rates for 1996, for a payment area assigned to a 
                service utilization cohort under subsection (d), shall 
                be the following:
                          ``(i) Lowest service utilization cohort.--For 
                        areas assigned to the lowest service 
                        utilization cohort, 9.7 percent.
                          ``(ii) Lower service utilization cohort.--For 
                        areas assigned to the lower service utilization 
                        cohort, 8.0 percent.
                          ``(iii) Median service utilization cohort.--
                        For areas assigned to the median service 
                        utilization cohort, 5.3 percent.
                          ``(iv) Higher service utilization cohort.--
                        For areas assigned to the higher service 
                        utilization cohort, 4.7 percent.
                          ``(v) Highest service utilization cohort.--
                        For areas assigned to the highest service 
                        utilization cohort, 4.0 percent.
                  ``(B) Budget neutral adjustment.--The Secretary shall 
                adjust the per capita growth rates specified in 
                subparagraph (A) for all the areas by such uniform 
                factor as may be necessary to assure that the total 
                capitation payments under this section during 1996 are 
                the same as the amount such payments would have been if 
                the per capita growth rate for all such areas for 1996 
                were equal to the national average per capita growth 
                rate, specified in paragraph (3) for 1996.
          ``(2) For subsequent years.--
                  ``(A) In general.--For purposes of this section and 
                subject to subparagraph (B), the Secretary shall 
                compute a per capita growth rate for each year after 
                1996, for each payment area as assigned to a service 
                utilization cohort under subsection (d), consistent 
                with the following rules:
                          ``(i) Median service utilization cohort set 
                        at national average per capita growth rate.--
                        The per capita growth rate for areas assigned 
                        to the median service utilization cohort for 
                        the year shall be the national average per 
                        capita growth rate for the year (as specified 
                        under paragraph (3)).
                          ``(ii) Highest service utilization cohort set 
                        at 75 percent of national average per capita 
                        growth rate.--The per capita growth rate for 
                        areas assigned to the highest service 
                        utilization cohort for the year shall be 75 
                        percent of the national average per capita 
                        growth rate for the year.
                          ``(iii) Lowest service utilization cohort set 
                        at 187.5 percent of national average per capita 
                        growth rate.--The per capita growth rate for 
                        areas assigned to the lowest service 
                        utilization cohort for the year shall be 187.5 
                        percent of the national average per capita 
                        growth rate for the year.
                          ``(iv) Lower service utilization cohort set 
                        at 150 percent of national average per capita 
                        growth rate.--
                                  ``(I) In general.--Subject to 
                                subclause (II), the per capita growth 
                                rate for areas assigned to the lower 
                                service utilization cohort for the year 
                                shall be 150 percent of the national 
                                average per capita growth rate for the 
                                year.
                                  ``(II) Adjustment.--If the Secretary 
                                has established under clause (v) the 
                                per capita growth rate for areas 
                                assigned to the higher service 
                                utilization cohort for the year at 75 
                                percent of the national average per 
                                capita growth rate, the Secretary may 
                                provide for a reduced per capita growth 
                                rate under subclause (I) to the extent 
                                necessary to comply with subparagraph 
                                (B).
                          ``(v) Higher service utilization cohort.--The 
                        per capita growth rate for areas assigned to 
                        the higher service utilization cohort for the 
                        year shall be such percent (not less than 75 
                        percent) of the national average per capita 
                        growth rate, as the Secretary may determine 
                        consistent with subparagraph (B).
                  ``(B) Average per capita growth rate at national 
                average to assure budget neutrality.--The Secretary 
                shall compute per capita growth rates for a year under 
                subparagraph (A) in a manner so that the weighted 
                average per capita growth rate for all areas for the 
                year (weighted to reflect the number of medicare 
                beneficiaries in each area) is equal to the national 
                average per capita growth rate under paragraph (3) for 
                the year.
          ``(3) National average per capita growth rates.--In this 
        subsection, the `national average per capita growth rate' for--
                  ``(A) 1996 is 5.3 percent,
                  ``(B) 1997 is 3.8 percent,
                  ``(C) 1998 is 4.6 percent,
                  ``(D) 1999 is 4.3 percent,
                  ``(E) 2000 is 3.8 percent,
                  ``(F) 2001 is 5.5 percent,
                  ``(G) 2002 is 5.6 percent, and
                  ``(H) each subsequent year is 5.0 percent.
  ``(d) Assignment of Payment Areas to Service Utilization Cohorts.--
          ``(1) In general.--For purposes of determining per capita 
        growth rates under subsection (c) for areas for a year, the 
        Secretary shall assign each payment area to a service 
        utilization cohort (based on the service utilization index 
        value for that area determined under paragraph (2)) as follows:
                  ``(A) Lowest service utilization cohort.--Areas with 
                a service utilization index value of less than .80 
                shall be assigned to the lowest service utilization 
                cohort.
                  ``(B) Lower service utilization cohort.--Areas with a 
                service utilization index value of at least .80 but 
                less than .90 shall be assigned to the lower service 
                utilization cohort.
                  ``(C) Median service utilization cohort.--Areas with 
                a service utilization index value of at least .90 but 
                less than 1.10 shall be assigned to the median service 
                utilization cohort.
                  ``(D) Higher service utilization cohort.--Areas with 
                a service utilization index value of at least 1.10 but 
                less than 1.20 shall be assigned to the higher service 
                utilization cohort.
                  ``(E) Highest service utilization cohort.--Areas with 
                a service utilization index value of at least 1.20 
                shall be assigned to the highest service utilization 
                cohort.
          ``(2) Determination of service utilization index values.--In 
        order to determine the per capita growth rate for a payment 
        area for each year (beginning with 1996), the Secretary shall 
        determine for such area and year a service utilization index 
        value, which is equal to--
                  ``(A) the annual MedicarePlus capitation rate under 
                this section for the area for the year in which the 
                determination is made (or, in the case of 1996, the 
                average annual per capita rate of payment (described in 
                section 1876(a)(1)(C)) for the area for 1995); divided 
                by
                  ``(B) the input-price-adjusted annual national 
                MedicarePlus capitation rate (as determined under 
                paragraph (3)) for that area for the year in which the 
                determination is made.
          ``(3) Determination of input-price-adjusted rates.--
                  ``(A) In general.--For purposes of paragraph (2), the 
                `input-price-adjusted annual national MedicarePlus 
                capitation rate' for a payment area for a year is equal 
                to the sum, for all the types of medicare services (as 
                classified by the Secretary), of the product (for each 
                such type) of--
                          ``(i) the national standardized MedicarePlus 
                        capitation rate (determined under subparagraph 
                        (B)) for the year,
                          ``(ii) the proportion of such rate for the 
                        year which is attributable to such type of 
                        services, and
                          ``(iii) an index that reflects (for that year 
                        and that type of services) the relative input 
                        price of such services in the area compared to 
                        the national average input price of such 
                        services.
                In applying clause (iii), the Secretary shall, subject 
                to subparagraph (C), apply those indices under this 
                title that are used in applying (or updating) national 
                payment rates for specific areas and localities.
                  ``(B) National standardized medicareplus capitation 
                rate.--In this paragraph, the `national standardized 
                MedicarePlus capitation rate' for a year is equal to--
                          ``(i) the sum (for all payment areas) of the 
                        product of (I) the annual MedicarePlus 
                        capitation rate for that year for the area 
                        under subsection (b)(2), and (II) the average 
                        number of medicare beneficiaries residing in 
                        that area in the year; divided by
                          ``(ii) the total average number of medicare 
                        beneficiaries residing in all the payment areas 
                        for that year.
                  ``(C) Special rules for 1996.--In applying this 
                paragraph for 1996--
                          ``(i) medicare services shall be divided into 
                        2 types of services: part A services and part B 
                        services;
                          ``(ii) the proportions described in 
                        subparagraph (A)(ii) for such types of services 
                        shall be--
                                  ``(I) for part A services, the ratio 
                                (expressed as a percentage) of the 
                                average annual per capita rate of 
                                payment for the area for part A for 
                                1995 to the total average annual per 
                                capita rate of payment for the area for 
                                parts A and B for 1995, and
                                  ``(II) for part B services, 100 
                                percent minus the ratio described in 
                                subclause (I);
                          ``(iii) for the part A services, 70 percent 
                        of payments attributable to such services shall 
                        be adjusted by the index used under section 
                        1886(d)(3)(E) to adjust payment rates for 
                        relative hospital wage levels for hospitals 
                        located in the payment area involved;
                          ``(iv) for part B services--
                                  ``(I) 66 percent of payments 
                                attributable to such services shall be 
                                adjusted by the index of the geographic 
                                area factors under section 1848(e) used 
                                to adjust payment rates for physicians' 
                                services furnished in the payment area, 
                                and
                                  ``(II) of the remaining 34 percent of 
                                the amount of such payments, 70 percent 
                                shall be adjusted by the index 
                                described in clause (iii);
                          ``(v) the index values shall be computed 
                        based only on the beneficiary population 
                        described in subsection (b)(5)(A).
                The Secretary may continue to apply the rules described 
                in this subparagraph (or similar rules) for 1997.
  ``(e) Payment Process.--
          ``(1) In general.--Subject to subsection (f), the Secretary 
        shall make monthly payments under this section in advance and 
        in accordance with the rate determined under subsection (a) to 
        the plan for each individual enrolled with a MedicarePlus 
        organization under this part.
          ``(2) Adjustment to reflect number of enrollees.--
                  ``(A) In general.--The amount of payment under this 
                subsection may be retroactively adjusted to take into 
                account any difference between the actual number of 
                individuals enrolled with an organization under this 
                part and the number of such individuals estimated to be 
                so enrolled in determining the amount of the advance 
                payment.
                  ``(B) Special rule for certain enrollees.--
                          ``(i) In general.--Subject to clause (ii), 
                        the Secretary may make retroactive adjustments 
                        under subparagraph (A) to take into account 
                        individuals enrolled during the period 
                        beginning on the date on which the individual 
                        enrolls with a MedicarePlus organization under 
                        a product operated, sponsored, or contributed 
                        to by the individual's employer or former 
                        employer (or the employer or former employer of 
                        the individual's spouse) and ending on the date 
                        on which the individual is enrolled in the 
                        organization under this part, except that for 
                        purposes of making such retroactive adjustments 
                        under this subparagraph, such period may not 
                        exceed 90 days.
                          ``(ii) Exception.--No adjustment may be made 
                        under clause (i) with respect to any individual 
                        who does not certify that the organization 
                        provided the individual with the disclosure 
                        statement described in section 1853(a) at the 
                        time the individual enrolled with the 
                        organization.
  ``(f) Special Rules for Individuals Electing High Deductible/Medisave 
Product.--
          ``(1) In general.--In the case of an individual who has 
        elected a high deductible/medisave product, notwithstanding the 
        preceding provisions of this section--
                  ``(A) the amount of the payment to the MedicarePlus 
                organization offering the high deductible/medisave 
                product shall not exceed the premium for the product, 
                and
                  ``(B) subject to paragraph (2), the difference 
                between the amount of payment that would otherwise be 
                made and the amount of payment to such organization 
                shall be made directly into a MedicarePlus MSA 
                established (and, if applicable, designated) by the 
                individual under paragraph (2).
          ``(2) Establishment and designation of medicareplus medical 
        savings account as requirement for payment of contribution.--In 
        the case of an individual who has elected coverage under a high 
        deductible/medisave product, no payment shall be made under 
        paragraph (1)(B) on behalf of an individual for a month unless 
        the individual--
                  ``(A) has established before the beginning of the 
                month (or by such other deadline as the Secretary may 
                specify) a MedicarePlus MSA (as defined in section 
                137(b) of the Internal Revenue Code of 1986), and
                  ``(B) if the individual has established more than one 
                MedicarePlus MSA, has designated one of such accounts 
                as the individual's MedicarePlus MSA for purposes of 
                this part.
        Under rules under this section, such an individual may change 
        the designation of such account under subparagraph (B) for 
        purposes of this part.
          ``(3) Lump sum deposit of medical savings account 
        contribution.--In the case of an individual electing a high 
        deductible/medisave product effective beginning with a month in 
        a year, the amount of the contribution to the MedicarePlus MSA 
        on behalf of the individual for that month and all successive 
        months in the year shall be deposited during that first month. 
        In the case of a termination of such an election as of a month 
        before the end of a year, the Secretary shall provide for a 
        procedure for the recovery of deposits attributable to the 
        remaining months in the year.
  ``(g) Payments From Trust Fund.--The payment to a MedicarePlus 
organization under this section for individuals enrolled under this 
part with the organization, and payments to a MedicarePlus MSA under 
subsection (f)(1)(B), shall be made from the Federal Hospital Insurance 
Trust Fund and the Federal Supplementary Medical Insurance Trust Fund 
in such proportion as the Secretary determines reflects the relative 
weight that benefits under part A and under part B represents of the 
actuarial value of the total benefits under this title.
  ``(h) Special Rule for Certain Inpatient Hospital Stays.--In the case 
of an individual who is receiving inpatient hospital services from a 
subsection (d) hospital (as defined in section 1886(d)(1)(B)) as of the 
effective date of the individual's--
          ``(1) election under this part of a MedicarePlus product 
        offered by a MedicarePlus organization--
                  ``(A) payment for such services until the date of the 
                individual's discharge shall be made under this title 
                through the MedicarePlus product or Non-MedicarePlus 
                option (as the case may be) elected before the election 
                with such organization,
                  ``(B) the elected organization shall not be 
                financially responsible for payment for such services 
                until the date after the date of the individual's 
                discharge, and
                  ``(C) the organization shall nonetheless be paid the 
                full amount otherwise payable to the organization under 
                this part; or
          ``(2) termination of election with respect to a MedicarePlus 
        organization under this part--
                  ``(A) the organization shall be financially 
                responsible for payment for such services after such 
                date and until the date of the individual's discharge,
                  ``(B) payment for such services during the stay shall 
                not be made under section 1886(d) or by any succeeding 
                MedicarePlus organization, and
                  ``(C) the terminated organization shall not receive 
                any payment with respect to the individual under this 
                part during the period the individual is not enrolled.
   ``establishment of standards for medicare-plus organizations and 
                                products
  ``Sec. 1856. (a) Standards Applicable to State-Regulated 
Organizations and Products.--
          ``(1) Recommendations of naic.--The Secretary shall request 
        the National Association of Insurance Commissioners to develop 
        and submit to the Secretary, not later than 12 months after the 
        date of the enactment of the Medicare Preservation Act of 1995, 
        proposed standards consistent with the requirements of this 
        part for MedicarePlus organizations (other than Taft-Hartley 
        sponsors and provider-sponsored organizations) and MedicarePlus 
        products offered by such organizations, except that such 
        proposed standards may relate to MedicarePlus organizations 
        that are qualified associations only with respect to 
        MedicarePlus products offered by them and only if such products 
        are issued by organizations to which section 1851(b)(1) 
        applies.
          ``(2) Review.--If the Association submits such standards on a 
        timely basis, the Secretary shall review such standards to 
        determine if the standards meet the requirements of the part. 
        The Secretary shall complete the review of the standards not 
        later than 90 days after the date of their submission. The 
        Secretary shall promulgate such proposed standards to apply to 
        organizations and products described in paragraph (1) except to 
        the extent that the Secretary modifies such proposed standards 
        because they do not meet such requirements.
          ``(3) Failure to submit.--If the Association does not submit 
        such standards on a timely basis, the Secretary shall 
        promulgate such standards by not later than the date the 
        Secretary would otherwise have been required to promulgate 
        standards under paragraph (2).
          ``(4) Use of interim rules.--For the period in which this 
        part is in effect and standards are being developed and 
        established under the preceding provisions of this subsection, 
        the Secretary shall provide by not later than June 1, 1996, for 
        the application of such interim standards (without regard to 
        any requirements for notice and public comment) as may be 
        appropriate to provide for the expedited implementation of this 
        part. Such interim standards shall not apply after the date 
        standards are established under the preceding provisions of 
        this subsection.
  ``(b) Taft-Hartley Sponsors, Qualified Associations, and Products.--
          ``(1) In general.--The Secretary shall develop and promulgate 
        by regulation standards consistent with the requirements of 
        this part for Taft-Hartley sponsors, for qualified 
        associations, and for MedicarePlus products offered by such 
        organizations (other than MedicarePlus products offered by 
        qualified associations that are issued by organizations to 
        which section 1851(b)(1) applies).
          ``(2) Consultation with labor.--The Secretary shall consult 
        with the Secretary of Labor with respect to such standards for 
        such sponsors and products.
          ``(3) Timing.--Standards under this subsection shall be 
        promulgated at or about the time standards are promulgated 
        under subsection (a).
  ``(c) Establishment of Standards for Provider-Sponsored 
Organizations.--
          ``(1) In general.--The Secretary shall establish, on an 
        expedited basis and using a negotiated rulemaking process under 
        subchapter 3 of chapter 5 of title 5, United States Code, 
        standards that entities must meet to qualify as provider-
        sponsored organizations under this part.
          ``(2) Publication of notice.--In carrying out the rulemaking 
        process under this subsection, the Secretary, after 
        consultation with the National Association of Insurance 
        Commissioners, the American Academy of Actuaries, organizations 
        representative of medicare beneficiaries, and other interested 
        parties, shall publish the notice provided for under section 
        564(a) of title 5, United States Code, by not later than 45 
        days after the date of the enactment of Medicare Preservation 
        Act of 1995.
          ``(3) Target date for publication of rule.--As part of the 
        notice under paragraph (2), and for purposes of this 
        subsection, the `target date for publication' (referred to in 
        section 564(a)(5) of such title) shall be September 1, 1996.
          ``(4) Abbreviated period for submission of comments.--In 
        applying section 564(c) of such title under this subsection, 
        `15 days' shall be substituted for `30 days'.
          ``(5) Appointment of negotiated rulemaking committee and 
        facilitator.--The Secretary shall provide for--
                  ``(A) the appointment of a negotiated rulemaking 
                committee under section 565(a) of such title by not 
                later than 30 days after the end of the comment period 
                provided for under section 564(c) of such title (as 
                shortened under paragraph (4)), and
                  ``(B) the nomination of a facilitator under section 
                566(c) of such title by not later than 10 days after 
                the date of appointment of the committee.
          ``(6) Preliminary committee report.--The negotiated 
        rulemaking committee appointed under paragraph (5) shall report 
        to the Secretary, by not later than June 1, 1996, regarding the 
        committee's progress on achieving a concensus with regard to 
        the rulemaking proceeding and whether such consensus is likely 
        to occur before one month before the target date for 
        publication of the rule. If the committee reports that the 
        committee has failed to make significant progress towards such 
        consensus or is unlikely to reach such consensus by the target 
        date, the Secretary may terminate such process and provide for 
        the publication of a rule under this subsection through such 
        other methods as the Secretary may provide.
          ``(7) Final committee report.--If the committee is not 
        terminated under paragraph (6), the rulemaking committee shall 
        submit a report containing a proposed rule by not later than 
        one month before the target publication date.
          ``(8) Interim, final effect.--The Secretary shall publish a 
        rule under this subsection in the Federal Register by not later 
        than the target publication date. Such rule shall be effective 
        and final immediately on an interim basis, but is subject to 
        change and revision after public notice and opportunity for a 
        period (of not less than 60 days) for public comment. In 
        connection with such rule, the Secretary shall specify the 
        process for the timely review and approval of applications of 
        entities to be certified as provider-sponsored organizations 
        pursuant to such rules and consistent with this subsection.
          ``(9) Publication of rule after public comment.--The 
        Secretary shall provide for consideration of such comments and 
        republication of such rule by not later than 1 year after the 
        target publication date.
          ``(10) Process for approval of applications for 
        certification.--
                  ``(A) In general.--The Secretary shall establish a 
                process for the receipt and approval of applications of 
                entities for certification as provider-sponsored 
                organizations under this part. Under such process, the 
                Secretary shall act upon a complete application 
                submitted within 60 days after the date it is received.
                  ``(B) Circulation of proposed application form.--By 
                March 1, 1996, the Secretary, after consultation with 
                the negotiated rulemaking committee, shall circulate a 
                proposed application form that could be used by 
                entities considering becoming certified as a provider-
                sponsored organization under this part.
  ``(d) Coordination Among Final Standards.--In establishing standards 
(other than on an interim basis) under the previous provisions of this 
section, the Secretary shall seek to provide for consistency (as 
appropriate) across the different types of MedicarePlus organizations, 
in order to promote equitable treatment of different types of 
organizations and consistent protection for individuals who elect 
products offered by the different types of MedicarePlus organizations.
  ``(e) Use of Current Standards for Interim Standards.--To the extent 
practicable and consistent with the requirements of this part, 
standards established on an interim basis to carry out requirements of 
this part may be based on currently applicable standards, such as the 
rules established under section 1876 (as in effect as of the date of 
the enactment of this section) to carry out analogous provisions of 
such section or standards established or developed for application in 
the private health insurance market.
  ``(f) Application of New Standards to Entities with a Contract.--In 
the case of a MedicarePlus organization with a contract in effect under 
this part at the time standards applicable to the organization under 
this section are changed, the organization may elect not to have such 
changes apply to the organization until the end of the current contract 
year (or, if there is less than 6 months remaining in the contract 
year, until 1 year after the end of the current contract year).
  ``(g) Relation to State Laws.--The standards established under this 
section shall supersede any State law or regulation with respect to 
MedicarePlus products which are offered by MedicarePlus organizations 
and are issued by organizations to which section 1851(b)(1) applies, to 
the extent such law or regulation is inconsistent with such standards.
                     ``medicare-plus certification
  ``Sec. 1857. (a) State Certification Process for State-Regulated 
Organizations.--
          ``(1) Approval of state process.--The Secretary shall approve 
        a MedicarePlus certification and enforcement program 
        established by a State for applying the standards established 
        under section 1856 to MedicarePlus organizations (other than 
        Taft-Hartley sponsors and provider-sponsored organizations) and 
        MedicarePlus products offered by such organizations if the 
        Secretary determines that the program effectively provides for 
        the application and enforcement of such standards in the State 
        with respect to such organizations and products. Such program 
        shall provide for certification of compliance of MedicarePlus 
        organizations and products with the applicable requirements of 
        this part not less often than once every 3 years.
          ``(2) Effect of certification under state process.--A 
        MedicarePlus organization and MedicarePlus product offered by 
        such an organization that is certified under such program is 
        considered to have been certified under this subsection with 
        respect to the offering of the product to individuals residing 
        in the State.
          ``(3) User fees.--The State may impose user fees on 
        organizations seeking certification under this subsection in 
        such amounts as the State deems sufficient to finance the costs 
        of such certification. Nothing in this paragraph shall be 
        construed as restricting a State's authority to impose premium 
        taxes, other taxes, or other levies.
          ``(4) Review.--The Secretary periodically shall review State 
        programs approved under paragraph (1) to determine if they 
        continue to provide for certification and enforcement described 
        in such paragraph. If the Secretary finds that a State program 
        no longer so provides, before making a final determination, the 
        Secretary shall provide the State an opportunity to adopt such 
        a plan of correction as would permit the State program to meet 
        the requirements of paragraph (1). If the Secretary makes a 
        final determination that the State program, after such an 
        opportunity, fails to meet such requirements, the provisions of 
        subsection (b) shall apply to MedicarePlus organizations and 
        products in the State.
          ``(5) Effect of no state program.--Beginning on the date 
        standards are established under section 1856, in the case of 
        organizations and products in States in which a certification 
        program has not been approved and in operation under paragraph 
        (1), the Secretary shall establish a process for the 
        certification of MedicarePlus organizations (other than Taft-
        Hartley sponsors and provider-sponsored organizations) and 
        products of such organizations as meeting such standards.
          ``(6) Publication of list of approved state programs.--The 
        Secretary shall publish (and periodically update) a list of 
        those State programs which are approved for purposes of this 
        subsection.
  ``(b) Federal Certification Process for Taft-Hartley Sponsors and 
Provider-Sponsored Organizations.--
          ``(1) Establishment.--The Secretary shall establish a process 
        for the certification of Taft-Hartley sponsors and provider-
        sponsored organizations and MedicarePlus products offered by 
        such sponsors and organizations as meeting the applicable 
        standards established under section 1856.
          ``(2) Involvement of secretary of labor.--Such process shall 
        be established and operated in cooperation with the Secretary 
        of Labor with respect to Taft-Hartley sponsors.
          ``(3) Use of state licensing and private accreditation 
        processes.--
                  ``(A) In general.--The process under this subsection 
                shall, to the maximum extent practicable, provide that 
                MedicarePlus organizations and products that are 
                licensed or certified through a qualified private 
                accreditation process that the Secretary finds applies 
                standards that are no less stringent than the 
                requirements of this part are deemed to meet the 
                corresponding requirements of this part for such an 
                organization or product.
                  ``(B) Periodic accreditation.--The use of an 
                accreditation under subparagraph (A) shall be valid 
                only for such period as the Secretary specifies.
          ``(4) User fees.--The Secretary may impose user fees on 
        entities seeking certification under this subsection in such 
        amounts as the Secretary deems sufficient to finance the costs 
        of such certification.
  ``(c) Certification of Provider-Sponsored Organizations by States.--
          ``(1) In general.--The Secretary shall establish a process 
        under which a State may propose to provide for certification of 
        entities as meeting the requirements of this part to be 
        provider-sponsored organizations.
          ``(2) Conditions for approval.--The Secretary may not approve 
        a State program for certification under paragraph (1) unless 
        the Secretary determines that the certification program applies 
        standards and requirements that are identical to the standards 
        and requirements of this part and the applicable provisions for 
        enforcement of such standards and requirements do not result in 
        a lower level or quality of enforcement than that which is 
        otherwise applicable under this title.
  ``(d) Notice to Enrollees in Case of Decertification.--If a 
MedicarePlus organization or product is decertified under this section, 
the organization shall notify each enrollee with the organization and 
product under this part of such decertification.
  ``(e) Qualified Associations.--In the case of MedicarePlus products 
offered by a MedicarePlus organization that is a qualified association 
(as defined in section 1854(c)(4)(C)) and issued by an organization to 
which section 1851(b)(1) applies or by a provider-sponsored 
organization (as defined in section 1854(a)), nothing in this section 
shall be construed as limiting the authority of States to regulate such 
products.
              ``contracts with medicareplus organizations
  ``Sec. 1858. (a) In General.--The Secretary shall not permit the 
election under section 1805 of a MedicarePlus product offered by a 
MedicarePlus organization under this part, and no payment shall be made 
under section 1856 to an organization, unless the Secretary has entered 
into a contract under this section with an organization with respect to 
the offering of such product. Such a contract with an organization may 
cover more than one MedicarePlus product. Such contract shall provide 
that the organization agrees to comply with the applicable requirements 
and standards of this part and the terms and conditions of payment as 
provided for in this part.
  ``(b) Minimum Enrollment Requirements.--
          ``(1) In general.--Subject to paragraphs (1) and (2), the 
        Secretary may not enter into a contract under this section with 
        a MedicarePlus organization (other than a Taft-Hartley sponsor) 
        unless the organization has at least 5,000 individuals (or 
        1,500 individuals in the case of an organization that is a 
        provider-sponsored organization) who are receiving health 
        benefits through the organization, except that the standards 
        under section 1856 may permit the organization to have a lesser 
        number of beneficiaries (but not less than 500 in the case of 
        an organization that is a provider-sponsored organization) if 
        the organization primarily serves individuals residing outside 
        of urbanized areas.
          ``(2) Exception for high deductible/medisave product.--
        Paragraph (1) shall not apply with respect to a contract that 
        relates only to a high deductible/medisave product.
          ``(3) Allowing transition.--The Secretary may waive the 
        requirement of paragraph (1) during the first 3 contract years 
        with respect to an organization.
  ``(c) Contract Period and Effectiveness.--
          ``(1) Period.--Each contract under this section shall be for 
        a term of at least one year, as determined by the Secretary, 
        and may be made automatically renewable from term to term in 
        the absence of notice by either party of intention to terminate 
        at the end of the current term.
          ``(2) Termination authority.--In accordance with procedures 
        established under subsection (h), the Secretary may at any time 
        terminate any such contract or may impose the intermediate 
        sanctions described in an applicable paragraph of subsection 
        (g) on the MedicarePlus organization if the Secretary 
        determines that the organization--
          ``(A) has failed substantially to carry out the contract;
          ``(B) is carrying out the contract in a manner inconsistent 
        with the efficient and effective administration of this part;
          ``(C) is operating in a manner that is not in the best 
        interests of the individuals covered under the contract; or
          ``(D) no longer substantially meets the applicable conditions 
        of this part.
          ``(3) Effective date of contracts.--The effective date of any 
        contract executed pursuant to this section shall be specified 
        in the contract, except that in no case shall a contract under 
        this section which provides for coverage under a high 
        deductible/medisave account be effective before January 1997 
        with respect to such coverage.
          ``(4) Previous terminations.--The Secretary may not enter 
        into a contract with a MedicarePlus organization if a previous 
        contract with that organization under this section was 
        terminated at the request of the organization within the 
        preceding five-year period, except in circumstances which 
        warrant special consideration, as determined by the Secretary.
          ``(5) No contracting authority.--The authority vested in the 
        Secretary by this part may be performed without regard to such 
        provisions of law or regulations relating to the making, 
        performance, amendment, or modification of contracts of the 
        United States as the Secretary may determine to be inconsistent 
        with the furtherance of the purpose of this title.
  ``(d) Protections Against Fraud and Beneficiary Protections.--
          ``(1) Inspection and audit.--Each contract under this section 
        shall provide that the Secretary, or any person or organization 
        designated by the Secretary--
                  ``(A) shall have the right to inspect or otherwise 
                evaluate (i) the quality, appropriateness, and 
                timeliness of services performed under the contract and 
                (ii) the facilities of the organization when there is 
                reasonable evidence of some need for such inspection, 
                and
                  ``(B) shall have the right to audit and inspect any 
                books and records of the MedicarePlus organization that 
                pertain (i) to the ability of the organization to bear 
                the risk of potential financial losses, or (ii) to 
                services performed or determinations of amounts payable 
                under the contract.
          ``(2) Enrollee notice at time of termination.--Each contract 
        under this section shall require the organization to provide 
        (and pay for) written notice in advance of the contract's 
        termination, as well as a description of alternatives for 
        obtaining benefits under this title, to each individual 
        enrolled with the organization under this part.
          ``(3) Disclosure.--
                  ``(A) In general.--Each MedicarePlus organization 
                shall, in accordance with regulations of the Secretary, 
                report to the Secretary financial information which 
                shall include the following:
                          ``(i) Such information as the Secretary may 
                        require demonstrating that the organization has 
                        a fiscally sound operation.
                          ``(ii) A copy of the report, if any, filed 
                        with the Health Care Financing Administration 
                        containing the information required to be 
                        reported under section 1124 by disclosing 
                        entities.
                          ``(iii) A description of transactions, as 
                        specified by the Secretary, between the 
                        organization and a party in interest. Such 
                        transactions shall include--
                                  ``(I) any sale or exchange, or 
                                leasing of any property between the 
                                organization and a party in interest;
                                  ``(II) any furnishing for 
                                consideration of goods, services 
                                (including management services), or 
                                facilities between the organization and 
                                a party in interest, but not including 
                                salaries paid to employees for services 
                                provided in the normal course of their 
                                employment and health services provided 
                                to members by hospitals and other 
                                providers and by staff, medical group 
                                (or groups), individual practice 
                                association (or associations), or any 
                                combination thereof; and
                                  ``(III) any lending of money or other 
                                extension of credit between an 
                                organization and a party in interest.
                The Secretary may require that information reported 
                respecting an organization which controls, is 
                controlled by, or is under common control with, another 
                entity be in the form of a consolidated financial 
                statement for the organization and such entity.
                  ``(B) Party in interest defined.--For the purposes of 
                this paragraph, the term `party in interest' means--
                          ``(i) any director, officer, partner, or 
                        employee responsible for management or 
                        administration of a MedicarePlus organization, 
                        any person who is directly or indirectly the 
                        beneficial owner of more than 5 percent of the 
                        equity of the organization, any person who is 
                        the beneficial owner of a mortgage, deed of 
                        trust, note, or other interest secured by, and 
                        valuing more than 5 percent of the 
                        organization, and, in the case of a 
                        MedicarePlus organization organized as a 
                        nonprofit corporation, an incorporator or 
                        member of such corporation under applicable 
                        State corporation law;
                          ``(ii) any entity in which a person described 
                        in clause (i)--
                                  ``(I) is an officer or director;
                                  ``(II) is a partner (if such entity 
                                is organized as a partnership);
                                  ``(III) has directly or indirectly a 
                                beneficial interest of more than 5 
                                percent of the equity; or
                                  ``(IV) has a mortgage, deed of trust, 
                                note, or other interest valuing more 
                                than 5 percent of the assets of such 
                                entity;
                          ``(iii) any person directly or indirectly 
                        controlling, controlled by, or under common 
                        control with an organization; and
                          ``(iv) any spouse, child, or parent of an 
                        individual described in clause (i).
                  ``(C) Access to information.--Each MedicarePlus 
                organization shall make the information reported 
                pursuant to subparagraph (A) available to its enrollees 
                upon reasonable request.
          ``(4) Loan information.--The contract shall require the 
        organization to notify the Secretary of loans and other special 
        financial arrangements which are made between the organization 
        and subcontractors, affiliates, and related parties.
  ``(e) Additional Contract Terms.--The contract shall contain such 
other terms and conditions not inconsistent with this part (including 
requiring the organization to provide the Secretary with such 
information) as the Secretary may find necessary and appropriate.
  ``(f) Intermediate Sanctions.--
          ``(1) In general.--If the Secretary determines that a 
        MedicarePlus organization with a contract under this section--
                  ``(A) fails substantially to provide medically 
                necessary items and services that are required (under 
                law or under the contract) to be provided to an 
                individual covered under the contract, if the failure 
                has adversely affected (or has substantial likelihood 
                of adversely affecting) the individual;
                  ``(B) imposes premiums on individuals enrolled under 
                this part in excess of the premiums permitted;
                  ``(C) acts to expel or to refuse to re-enroll an 
                individual in violation of the provisions of this part;
                  ``(D) engages in any practice that would reasonably 
                be expected to have the effect of denying or 
                discouraging enrollment (except as permitted by this 
                part) by eligible individuals with the organization 
                whose medical condition or history indicates a need for 
                substantial future medical services;
                  ``(E) misrepresents or falsifies information that is 
                furnished--
                          ``(i) to the Secretary under this part, or
                          ``(ii) to an individual or to any other 
                        entity under this part;
                  ``(F) fails to comply with the requirements of 
                section 1852(f)(3); or
                  ``(G) employs or contracts with any individual or 
                entity that is excluded from participation under this 
                title under section 1128 or 1128A for the provision of 
                health care, utilization review, medical social work, 
                or administrative services or employs or contracts with 
                any entity for the provision (directly or indirectly) 
                through such an excluded individual or entity of such 
                services;
        the Secretary may provide, in addition to any other remedies 
        authorized by law, for any of the remedies described in 
        paragraph (2).
          ``(2) Remedies.--The remedies described in this paragraph 
        are--
                  ``(A) civil money penalties of not more than $25,000 
                for each determination under paragraph (1) or, with 
                respect to a determination under subparagraph (D) or 
                (E)(i) of such paragraph, of not more than $100,000 for 
                each such determination, plus, with respect to a 
                determination under paragraph (1)(B), double the excess 
                amount charged in violation of such paragraph (and the 
                excess amount charged shall be deducted from the 
                penalty and returned to the individual concerned), and 
                plus, with respect to a determination under paragraph 
                (1)(D), $15,000 for each individual not enrolled as a 
                result of the practice involved,
                  ``(B) suspension of enrollment of individuals under 
                this part after the date the Secretary notifies the 
                organization of a determination under paragraph (1) and 
                until the Secretary is satisfied that the basis for 
                such determination has been corrected and is not likely 
                to recur, or
                  ``(C) suspension of payment to the organization under 
                this part for individuals enrolled after the date the 
                Secretary notifies the organization of a determination 
                under paragraph (1) and until the Secretary is 
                satisfied that the basis for such determination has 
                been corrected and is not likely to recur.
          ``(3) Other intermediate sanctions.--In the case of a 
        MedicarePlus organization for which the Secretary makes a 
        determination under subsection (c)(2) the basis of which is not 
        described in paragraph (1), the Secretary may apply the 
        following intermediate sanctions:
                  ``(A) civil money penalties of not more than $25,000 
                for each determination under subsection (c)(2) if the 
                deficiency that is the basis of the determination has 
                directly adversely affected (or has the substantial 
                likelihood of adversely affecting) an individual 
                covered under the organization's contract;
                  ``(B) civil money penalties of not more than $10,000 
                for each week beginning after the initiation of 
                procedures by the Secretary under subsection (h) during 
                which the deficiency that is the basis of a 
                determination under subsection (c)(2) exists; and
                  ``(C) suspension of enrollment of individuals under 
                this part after the date the Secretary notifies the 
                organization of a determination under subsection (c)(2) 
                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.
          ``(4) Procedures for imposing sanctions.--The provisions of 
        section 1128A (other than subsections (a) and (b)) shall apply 
        to a civil money penalty under paragraph (1) or (2) in the same 
        manner as they apply to a civil money penalty or proceeding 
        under section 1128A(a).
  ``(g) Procedures for Imposing Sanctions.--The Secretary may terminate 
a contract with a MedicarePlus organization under this section or may 
impose the intermediate sanctions described in subsection (f) on the 
organization in accordance with formal investigation and compliance 
procedures established by the Secretary under which--
          ``(1) the Secretary provides the organization with the 
        opportunity to develop and implement a corrective action plan 
        to correct the deficiencies that were the basis of the 
        Secretary's determination under subsection (c)(2);
          ``(2) the Secretary shall impose more severe sanctions on 
        organizations that have a history of deficiencies or that have 
        not taken steps to correct deficiencies the Secretary has 
        brought to their attention;
          ``(3) there are no unreasonable or unnecessary delays between 
        the finding of a deficiency and the imposition of sanctions; 
        and
          ``(4) the Secretary provides the organization with reasonable 
        notice and opportunity for hearing (including the right to 
        appeal an initial decision) before imposing any sanction or 
        terminating the contract.''.
  (b) Conforming References to Previous Part C.--Any reference in law 
(in effect before the date of the enactment of this Act) to part C of 
title XVIII of the Social Security Act is deemed a reference to part D 
of such title (as in effect after such date).
  (c) Use of Interim, Final Regulations.--In order to carry out the 
amendment made by subsection (a) in a timely manner, the Secretary of 
Health and Human Services may promulgate regulations that take effect 
on an interim basis, after notice and pending opportunity for public 
comment.
  (d) Advance Directives.--Section 1866(f) (42 U.S.C. 1395cc(f)) is 
amended--
          (1) in paragraph (1)--
                  (A) by inserting ``1853(g),'' after ``1833(s),'', and
                  (B) by inserting ``, MedicarePlus organization,'' 
                after ``provider of services'', and
          (2) by adding at the end the following new paragraph:
  ``(4) Nothing in this subsection shall be construed to require the 
provision of information regarding assisted suicide, euthanasia, or 
mercy killing.''.
  (e) Conforming Amendment.--Section 1866(a)(1)(O) (42 U.S.C. 
1395cc(a)(1)(O)) is amended by inserting before the semicolon at the 
end the following: ``and in the case of hospitals to accept as payment 
in full for inpatient hospital services that are emergency services (as 
defined in section 1853(b)(4)) that are covered under this title and 
are furnished to any individual enrolled under part C with a 
MedicarePlus organization which does not have a contract establishing 
payment amounts for services furnished to members of the organization 
the amounts that would be made as a payment in full under this title if 
the individuals were not so enrolled''.

SEC. 15003. DUPLICATION AND COORDINATION OF MEDICARE-RELATED PRODUCTS.

  (a) Treatment of Certain Health Insurance Policies as 
Nonduplicative.--
          (1) In general.--Effective as if included in the enactment of 
        section 4354 of the Omnibus Budget Reconciliation Act of 1990, 
        section 1882(d)(3)(A) (42 U.S.C. 1395ss(d)(3)(A)) is amended--
                  (A) by amending clause (i) to read as follows:
  ``(i) It is unlawful for a person to sell or issue to an individual 
entitled to benefits under part A or enrolled under part B of this 
title or electing a MedicarePlus product under section 1805--
          ``(I) a health insurance policy (other than a medicare 
        supplemental policy) with knowledge that the policy duplicates 
        health benefits to which the individual is otherwise entitled 
        under this title or title XIX,
          ``(II) in the case of an individual not electing a 
        MedicarePlus product, a medicare supplemental policy with 
        knowledge that the individual is entitled to benefits under 
        another medicare supplemental policy, or
          ``(III) in the case of an individual electing a MedicarePlus 
        product, a medicare supplemental policy with knowledge that the 
        policy duplicates health benefits to which the individual is 
        otherwise entitled under this title or under another medicare 
        supplemental policy.'';
                  (B) in clause (iii), by striking ``clause (i)'' and 
                inserting ``clause (i)(II)''; and
                  (C) by adding at the end the following new clauses:
  ``(iv) For purposes of this subparagraph a health insurance policy 
shall be considered to `duplicate' benefits under this title only when, 
under its terms, the policy provides specific reimbursement for 
identical items and services to the extent paid for under this title, 
and a health insurance policy providing for benefits which are payable 
to or on behalf of an individual without regard to other health benefit 
coverage of such individual is not considered to `duplicate' any health 
benefits under this title.
  ``(v) For purposes of this subparagraph, a health insurance policy 
(or a rider to an insurance contract which is not a health insurance 
policy), including a policy (such as a long-term care insurance 
contract described in section 7702B(b) of the Internal Revenue Code of 
1986, as added by the Contract with America Tax Relief Act of 1995 
(H.R. 1215)) providing benefits for long-term care, nursing home care, 
home health care, or community-based care, that coordinates against or 
excludes items and services available or paid for under this title and 
(for policies sold or issued after January 1, 1996) that discloses such 
coordination or exclusion in the policy's outline of coverage, is not 
considered to `duplicate' health benefits under this title. For 
purposes of this clause, the terms `coordinates' and `coordination' 
mean, with respect to a policy in relation to health benefits under 
this title, that the policy under its terms is secondary to, or 
excludes from payment, items and services to the extent available or 
paid for under this title.
  ``(vi) Notwithstanding any other provision of law, no criminal or 
civil penalty may be imposed at any time under this subparagraph and no 
legal action may be brought or continued at any time in any Federal or 
State court if the penalty or action is based on an act or omission 
that occurred after November 5, 1991, and before the date of the 
enactment of this clause, and relates to the sale, issuance, or renewal 
of any health insurance policy during such period, if such policy meets 
the requirements of clause (iv) or (v).
  ``(vii) A State may not impose, with respect to the sale or issuance 
of a policy (or rider) that meets the requirements of this title 
pursuant to clause (iv) or (v) to an individual entitled to benefits 
under part A or enrolled under part B or enrolled under a MedicarePlus 
product under part C, any requirement based on the premise that such a 
policy or rider duplicates health benefits to which the individual is 
otherwise entitled under this title.''.
          (2) Conforming amendments.--Section 1882(d)(3) (42 U.S.C. 
        1395ss(d)(3)) is amended--
                  (A) in subparagraph (B), by inserting ``(including 
                any MedicarePlus product)'' after ``health insurance 
                policies'';
                  (B) in subparagraph (C)--
                          (i) by striking ``with respect to (i)'' and 
                        inserting ``with respect to'', and
                          (ii) by striking ``, (ii) the sale'' and all 
                        that follows up to the period at the end; and
                  (C) by striking subparagraph (D).
          (3) Medicareplus products not treated as medicare 
        supplementary policies.--Section 1882(g) (42 U.S.C. 1395ss(g)) 
        is amended by inserting ``a MedicarePlus product or'' after 
        ``and does not include''
          (4) Report on duplication and coordination of health 
        insurance policies that are not medicare supplemental 
        policies.--Not later than 3 years after the date of the 
        enactment of this Act, the Secretary of Health and Human 
        Services shall prepare and submit to Congress a report on the 
        advisability and feasibility of restricting the sale to 
        medicare beneficiaries of health insurance policies that 
        duplicate (within the meaning of section 1882(d)(3)(A) of the 
        Social Security Act) other health insurance policies that such 
        a beneficiary may have. In preparing such report, the Secretary 
        shall seek the advice of the National Association of Insurance 
        Commissioners and shall take into account the standards 
        established under section 1807 of the Social Security Act for 
        the electronic coordination of benefits.
  (b) Additional Rules Relating to Individuals Enrolled in MedicarePlus 
Products.--Section 1882 (42 U.S.C. 1395ss) is further amended by adding 
at the end the following new subsection:
  ``(u)(1) Notwithstanding the previous provisions of this section, the 
following provisions shall not apply to a health insurance policy 
(other than a medicare supplemental policy) provided to an individual 
who has elected the MedicarePlus option under section 1805:
          ``(A) Subsections (o)(1), (o)(2), (p)(1)(A)(i), (p)(2), 
        (p)(3), (p)(8), and (p)(9) (insofar as they relate to 
        limitations on benefits or groups of benefits that may be 
        offered).
          ``(B) Subsection (r) (relating to loss-ratios).
  ``(2)(A) It is unlawful for a person to sell or issue a policy 
described in subparagraph (B) to an individual with knowledge that the 
individual has in effect under section 1805 an election of a high 
deductible/medisave product.
  ``(B) A policy described in this subparagraph is a health insurance 
policy that provides for coverage of expenses that are otherwise 
required to be counted toward meeting the annual deductible amount 
provided under the high deductible/medisave product.''.

SEC. 15004. TRANSITIONAL RULES FOR CURRENT MEDICARE HMO PROGRAM.

  (a) Transition from Current Contracts.--
          (1) Limitation on new contracts.--
                  (A) No new risk-sharing contracts after new standards 
                established.--The Secretary of Health and Human 
                Services (in this section referred to as the 
                ``Secretary'') shall not enter into any risk-sharing 
                contract under section 1876 of the Social Security Act 
                with an eligible organization for any contract year 
                beginning on or after the date standards for 
                MedicarePlus organizations and products are first 
                established under section 1856(a) of such Act with 
                respect to MedicarePlus organizations that are insurer 
                or health maintenance organizations unless such a 
                contract had been in effect under section 1876 of such 
                Act for the organization for the previous contract 
                year.
                  (B) No new cost reimbursement contracts.--The 
                Secretary shall not enter into any cost reimbursement 
                contract under section 1876 of the Social Security Act 
                beginning for any contract year beginning on or after 
                the date of the enactment of this Act.
          (2) Termination of current contracts.--
                  (A) Risk-sharing contracts.--Notwithstanding any 
                other provision of law, the Secretary shall not extend 
                or continue any risk-sharing contract with an eligible 
                organization under section 1876 of the Social Security 
                Act (for which a contract was entered into consistent 
                with paragraph (1)(A)) for any contract year beginning 
                on or after 1 year after the date standards described 
                in paragraph (1)(A) are established.
                  (B) Cost reimbursement contracts.--The Secretary 
                shall not extend or continue any reasonable cost 
                reimbursement contract with an eligible organization 
                under section 1876 of the Social Security Act for any 
                contract year beginning on or after January 1, 1998.
  (b) Conforming Payment Rates.--
          (1) Risk-sharing contracts.--Notwithstanding any other 
        provision of law, the Secretary shall provide that payment 
        amounts under risk-sharing contracts under section 1876(a) of 
        the Social Security Act for months in a year (beginning with 
        January 1996) shall be computed--
                  (A) with respect to individuals both entitled to 
                benefits under both parts A and B of title XVIII of 
                such Act, by substituting payment rates under section 
                1855(a) of such Act for the payment rates otherwise 
                established under section 1876(a) of such Act, and
                  (B) with respect to individuals only entitled to 
                benefits under part B of such title, by substituting an 
                appropriate proportion of such rates (reflecting the 
                relative proportion of payments under such title 
                attributable to such part) for the payment rates 
                otherwise established under section 1876(a) of such 
                Act.
        For purposes of carrying out this paragraph for payment for 
        months in 1996, the Secretary shall compute, announce, and 
        apply the payment rates under section 1855(a) of such Act 
        (notwithstanding any deadlines specified in such section) in as 
        timely a manner as possible and may (to the extent necessary) 
        provide for retroactive adjustment in payments made not in 
        accordance with such rates.
          (2) Cost contracts.--Notwithstanding any other provision of 
        law, the Secretary shall provide that payment amounts under 
        cost reimbursement contracts under section 1876(a) of the 
        Social Security Act shall take into account adjustments in 
        payment amounts made in parts A and B of title XVIII of such 
        Act pursuant to the amendments made by this title.
  (c) Elimination of 50:50 Rule.--
          (1) In general.--Section 1876 (42 U.S.C. 1395mm) is amended 
        by striking subsection (f).
          (2) Conforming amendments.--Section 1876 is further amended--
                  (A) in subsection (c)(3)(A)(i), by striking ``would 
                result in failure to meet the requirements of 
                subsection (f) or'', and
                  (B) in subsection (i)(1)(C), by striking ``(e), and 
                (f)'' and inserting ``and (e)''.
          (3) Effective date.--The amendments made by this section 
        shall apply to contract years beginning on or after January 1, 
        1996.

    PART 2--SPECIAL RULES FOR MEDICAREPLUS MEDICAL SAVINGS ACCOUNTS

SEC. 15011. MEDICAREPLUS MSA'S.

  (a) In General.--Part III of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 (relating to amounts specifically 
excluded from gross income) is amended by redesignating section 137 as 
section 138 and by inserting after section 136 the following new 
section:

``SEC. 137. MEDICAREPLUS MSA'S.

  ``(a) Exclusion.--Gross income shall not include any payment to the 
MedicarePlus MSA of an individual by the Secretary of Health and Human 
Services under section 1855(f)(1)(B) of the Social Security Act.
  ``(b) MedicarePlus MSA.--For purposes of this section--
          ``(1) Medicareplus msa.--The term `MedicarePlus MSA' 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 requirements:
                  ``(A) Except in the case of a trustee-to-trustee 
                transfer described in subsection (d)(4), no 
                contribution will be accepted unless it is made by the 
                Secretary of Health and Human Services under section 
                1855(f)(1)(B) of the Social Security Act.
                  ``(B) The trustee is a bank (as defined in section 
                408(n)), an insurance company (as defined in section 
                816), or another person who demonstrates to the 
                satisfaction of the Secretary 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 invested 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.
                  ``(F) Trustee-to-trustee transfers described in 
                subsection (d)(4) may be made to and from the trust.
          ``(2) Qualified medical expenses.--
                  ``(A) In general.--The term `qualified medical 
                expenses' means, with respect to an account holder, 
                amounts paid by such holder--
                          ``(i) for medical care (as defined in section 
                        213(d)) for the account holder, but only to the 
                        extent such amounts are not compensated for by 
                        insurance or otherwise, or
                          ``(ii) for long-term care insurance for the 
                        account holder.
                  ``(B) Health insurance may not be purchased from 
                account.--Subparagraph (A)(i) shall not apply to any 
                payment for insurance.
          ``(3) Account holder.--The term `account holder' means the 
        individual on whose behalf the MedicarePlus MSA is maintained.
          ``(4) Certain rules to apply.--Rules similar to the rules of 
        subsections (g) and (h) of section 408 shall apply for purposes 
        of this section.
  ``(c) Tax Treatment of Accounts.--
          ``(1) In general.--A MedicarePlus MSA is exempt from taxation 
        under this subtitle unless such MSA has ceased to be a 
        MedicarePlus MSA by reason of paragraph (2). Notwithstanding 
        the preceding sentence, any such MSA is subject to the taxes 
        imposed by section 511 (relating to imposition of tax on 
        unrelated business income of charitable, etc. organizations).
          ``(2) Account assets treated as distributed in the case of 
        prohibited transactions or account pledged as security for 
        loan.--Rules similar to the rules of paragraphs (2) and (4) of 
        section 408(e) shall apply to MedicarePlus MSA's, and any 
        amount treated as distributed under such rules shall be treated 
        as not used to pay qualified medical expenses.
  ``(d) Tax Treatment of Distributions.--
          ``(1) Inclusion of amounts not used for qualified medical 
        expenses.--No amount shall be included in the gross income of 
        the account holder by reason of a payment or distribution from 
        a MedicarePlus MSA which is used exclusively to pay the 
        qualified medical expenses of the account holder. Any amount 
        paid or distributed from a MedicarePlus MSA which is not so 
        used shall be included in the gross income of such holder.
          ``(2) Penalty for distributions not used for qualified 
        medical expenses if minimum balance not maintained.--
                  ``(A) In general.--The tax imposed by this chapter 
                for any taxable year in which there is a payment or 
                distribution from a MedicarePlus MSA which is not used 
                exclusively to pay the qualified medical expenses of 
                the account holder shall be increased by 50 percent of 
                the excess (if any) of--
                          ``(i) the amount of such payment or 
                        distribution, over
                          ``(ii) the excess (if any) of--
                                  ``(I) the fair market value of the 
                                assets in the MedicarePlus MSA as of 
                                the close of the calendar year 
                                preceding the calendar year in which 
                                the taxable year begins, over
                                  ``(II) an amount equal to 60 percent 
                                of the deductible under the high 
                                deductible/medisave product covering 
                                the account holder as of January 1 of 
                                the calendar year in which the taxable 
                                year begins.
                  ``(B) Exceptions.--Subparagraph (A) shall not apply 
                if the payment or distribution is made on or after the 
                date the account holder--
                          ``(i) becomes disabled within the meaning of 
                        section 72(m)(7), or
                          ``(ii) dies.
                  ``(C) Special rules.--For purposes of subparagraph 
                (A)--
                          ``(i) all MedicarePlus MSA's of the account 
                        holder shall be treated as 1 account,
                          ``(ii) all payments and distributions not 
                        used exclusively to pay the qualified medical 
                        expenses of the account holder during any 
                        taxable year shall be treated as 1 
                        distribution, and
                          ``(iii) any distribution of property shall be 
                        taken into account at its fair market value on 
                        the date of the distribution.
          ``(3) Withdrawal of erroneous contributions.--Paragraphs (1) 
        and (2) shall not apply to any payment or distribution from a 
        MedicarePlus MSA to the Secretary of Health and Human Services 
        of an erroneous contribution to such MSA and of the net income 
        attributable to such contribution.
          ``(4) Trustee-to-trustee transfers.--Paragraphs (1) and (2) 
        shall not apply to any trustee-to-trustee transfer from a 
        MedicarePlus MSA of an account holder to another MedicarePlus 
        MSA of such account holder.
          ``(5) Coordination with medical expense deduction.--For 
        purposes of section 213, any payment or distribution out of a 
        MedicarePlus MSA for qualified medical expenses shall not be 
        treated as an expense paid for medical care.
  ``(e) Treatment of Account After Death of Account Holder.--
          ``(1) Treatment if designated beneficiary is spouse.--
                  ``(A) In general.--In the case of an account holder's 
                interest in a MedicarePlus MSA which is payable to (or 
                for the benefit of) such holder's spouse upon the death 
                of such holder, such MedicarePlus MSA shall be treated 
                as a MedicarePlus MSA of such spouse as of the date of 
                such death.
                  ``(B) Special rules if spouse not medicare 
                eligible.--If, as of the date of such death, such 
                spouse is not entitled to benefits under title XVIII of 
                the Social Security Act, then after the date of such 
                death--
                          ``(i) the Secretary of Health and Human 
                        Services may not make any payments to such 
                        MedicarePlus MSA, other than payments 
                        attributable to periods before such date,
                          ``(ii) in applying subsection (b)(2) with 
                        respect to such MedicarePlus MSA, references to 
                        the account holder shall be treated as 
                        including references to any dependent (as 
                        defined in section 152) of such spouse and any 
                        subsequent spouse of such spouse, and
                          ``(iii) in lieu of applying subsection 
                        (d)(2), the rules of section 220(f)(2) shall 
                        apply.
          ``(2) Treatment if designated beneficiary is not spouse.--In 
        the case of an account holder's interest in a MedicarePlus MSA 
        which is payable to (or for the benefit of) any person other 
        than such holder's spouse upon the death of such holder--
                  ``(A) such account shall cease to be a MedicarePlus 
                MSA as of the date of death, and
                  ``(B) an amount equal to the fair market value of the 
                assets in such account on such date shall be 
                includible--
                          ``(i) if such person is not the estate of 
                        such holder, in such person's gross income for 
                        the taxable year which includes such date, or
                          ``(ii) if such person is the estate of such 
                        holder, in such holder's gross income for last 
                        taxable year of such holder.
  ``(f) Reports.--
          ``(1) In general.--The trustee of a MedicarePlus MSA shall 
        make such reports regarding such account to the Secretary and 
        to the account holder with respect to--
                  ``(A) the fair market value of the assets in such 
                MedicarePlus MSA as of the close of each calendar year, 
                and
                  ``(B) contributions, distributions, and other 
                matters,
        as the Secretary may require by regulations.
          ``(2) Time and manner of reports.--The reports required by 
        this subsection--
                  ``(A) shall be filed at such time and in such manner 
                as the Secretary prescribes in such regulations, and
                  ``(B) shall be furnished to the account holder--
                          ``(i) not later than January 31 of the 
                        calendar year following the calendar year to 
                        which such reports relate, and
                          ``(ii) in such manner as the Secretary 
                        prescribes in such regulations.''
  (b) Exclusion of MedicarePlus MSA's From Estate Tax.--Part IV of 
subchapter A of chapter 11 of such Code is amended by adding at the end 
the following new section:

``SEC. 2057. MEDICAREPLUS MSA'S.

  ``For purposes of the tax imposed by section 2001, the value of the 
taxable estate shall be determined by deducting from the value of the 
gross estate an amount equal to the value of any MedicarePlus MSA (as 
defined in section 137(b)) included in the gross estate.''
  (c) 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 paragraph:
          ``(4) Special rule for MedicarePlus MSA's.--An individual for 
        whose benefit a MedicarePlus MSA (within the meaning of section 
        137(b)) is established shall be exempt from the tax imposed by 
        this section with respect to any transaction concerning such 
        account (which would otherwise be taxable under this section) 
        if, with respect to such transaction, the account ceases to be 
        a MedicarePlus MSA by reason of the application of section 
        137(c)(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 described in section 
                403(a), which trust or plan is exempt from tax under 
                section 501(a),
                  ``(B) an individual retirement account described in 
                section 408(a),
                  ``(C) an individual retirement annuity described in 
                section 408(b),
                  ``(D) a medical savings account described in section 
                220(d),
                  ``(E) a MedicarePlus MSA described in section 137(b), 
                or
                  ``(F) a trust, plan, account, or annuity which, at 
                any time, has been determined by the Secretary to be 
                described in any preceding subparagraph of this 
                paragraph.''
  (d) Failure To Provide Reports on MedicarePlus MSA's.--
          (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),
                  ``(B) section 220(h) (relating to medical savings 
                accounts), and
                  ``(C) section 137(f) (relating to MedicarePlus 
                MSA's).''
          (2) The section heading for section 6693 of such Code is 
        amended to read as follows:

``SEC. 6693. FAILURE TO FILE REPORTS ON INDIVIDUAL RETIREMENT PLANS AND 
                    CERTAIN OTHER TAX-FAVORED ACCOUNTS; PENALTIES 
                    RELATING TO DESIGNATED NONDEDUCTIBLE 
                    CONTRIBUTIONS.''

  (e) Clerical Amendments.--
          (1) The table of sections for part III of subchapter B of 
        chapter 1 of such Code is amended by striking the last item and 
        inserting the following:

                              ``Sec. 137. MedicarePlus MSA's.
                              ``Sec. 138. Cross references to other 
                                        Acts.''

          (2) The table of sections for part 1 of subchapter B of 
        chapter 68 of such Code is amended by striking the item 
        relating to section 6693 and inserting the following new item:

                              ``Sec. 6693. Failure to file reports on 
                                        individual retirement plans and 
                                        certain other tax-favored 
                                        accounts; penalties relating to 
                                        designated nondeductible 
                                        contributions.''

          (3) The table of sections for part IV of subchapter A of 
        chapter 11 of such Code is amended by adding at the end the 
        following new item:

                              ``Sec. 2057. MedicarePlus MSA's.''

  (f) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 1996.

SEC. 15012. CERTAIN REBATES EXCLUDED FROM GROSS INCOME.

  (a) In General.--Section 105 of the Internal Revenue Code of 1986 
(relating to amounts received under accident and health plans) is 
amended by adding at the end the following new subsection:
  ``(j) Certain Rebates Under Social Security Act.--Gross income does 
not include any rebate received under section 1852(e)(1)(A) of the 
Social Security Act during the taxable year.''
  (b) Effective Date.--The amendment made by subsection (a) shall apply 
to amounts received after the date of the enactment of this Act.

      PART 3--SPECIAL ANTITRUST RULE FOR PROVIDER SERVICE NETWORKS

SEC. 15021. APPLICATION OF ANTITRUST RULE OF REASON TO PROVIDER SERVICE 
                    NETWORKS.

  (a) Rule of Reason Standard.--In any action under the antitrust laws, 
or under any State law similar to the antitrust laws--
          (1) the conduct of a provider service network in negotiating, 
        making, or performing a contract (including the establishment 
        and modification of a fee schedule and the development of a 
        panel of physicians), to the extent such contract is for the 
        purpose of providing health care services to individuals under 
        the terms of a MedicarePlus PSO product, and
          (2) the conduct of any member of such network for the purpose 
        of providing such health care services under such contract to 
        such extent,
shall not be deemed illegal per se. Such conduct shall be judged on the 
basis of its reasonableness, taking into account all relevant factors 
affecting competition, including the effects on competition in properly 
defined markets.
  (b) Definitions.--For purposes of subsection (a):
          (1) Antitrust laws.--The term ``antitrust laws'' has the 
        meaning given it in subsection (a) of the first section of the 
        Clayton Act (15 U.S.C. 12), except that such term includes 
        section 5 of the Federal Trade Commission Act (15 U.S.C. 45) to 
        the extent that such section 5 applies to unfair methods of 
        competition.
          (2) Health care provider.--The term ``health care provider'' 
        means any individual or entity that is engaged in the delivery 
        of health care services in a State and that is required by 
        State law or regulation to be licensed or certified by the 
        State to engage in the delivery of such services in the State.
          (3) Health care service.--The term ``health care service'' 
        means any service for which payment may be made under a 
        MedicarePlus PSO product including services related to the 
        delivery or administration of such service.
          (4) MedicarePlus program.--The term ``MedicarePlus program'' 
        means the program under part C of title XVIII of the Social 
        Security Act.
          (5) MedicarePlus PSO product.--The term ``MedicarePlus PSO 
        product'' means a MedicarePlus product offered by a provider-
        sponsored organization under part C of title XVIII of the 
        Social Security Act.
          (6) Provider service network.--The term ``provider service 
        network'' means an organization that--
                  (A) is organized by, operated by, and composed of 
                members who are health care providers and for purposes 
                that include providing health care services,
                  (B) is funded in part by capital contributions made 
                by the members of such organization,
                  (C) with respect to each contract made by such 
                organization for the purpose of providing a type of 
                health care service to individuals under the terms of a 
                MedicarePlus PSO product--
                          (i) requires all members of such organization 
                        who engage in providing such type of health 
                        care service to agree to provide health care 
                        services of such type under such contract,
                          (ii) receives the compensation paid for the 
                        health care services of such type provided 
                        under such contract by such members, and
                          (iii) provides for the distribution of such 
                        compensation,
                  (D) has established, consistent with the requirements 
                of the MedicarePlus program for provider-sponsored 
                organizations, a program to review, pursuant to written 
                guidelines, the quality, efficiency, and 
                appropriateness of treatment methods and setting of 
                services for all health care providers and all patients 
                participating in such product, along with internal 
                procedures to correct identified deficiencies relating 
                to such methods and such services,
                  (E) has established, consistent with the requirements 
                of the MedicarePlus program for provider-sponsored 
                organizations, a program to monitor and control 
                utilization of health care services provided under such 
                product, for the purpose of improving efficient, 
                appropriate care and eliminating the provision of 
                unnecessary health care services,
                  (F) has established a management program to 
                coordinate the delivery of health care services for all 
                health care providers and all patients participating in 
                such product, for the purpose of achieving efficiencies 
                and enhancing the quality of health care services 
                provided, and
                  (G) has established, consistent with the requirements 
                of the MedicarePlus program for provider-sponsored 
                organizations, a grievance and appeal process for such 
                organization designed to review and promptly resolve 
                beneficiary or patient grievances and complaints.
        Such term may include a provider-sponsored organization.
          (7) Provider-sponsored organization.--The term ``provider-
        sponsored organization'' means a MedicarePlus organization 
        under the MedicarePlus program that is a provider-sponsored 
        organization (as defined in section ____ of the Social Security 
        Act).
          (8) State.--The term ``State'' has the meaning given it in 
        section 4G(2) of the Clayton Act (15 U.S.C. 15g(2)).
  (c) Issuance of Guidelines.--Not later than 120 days after the date 
of the enactment of this Act, the Attorney General and the Federal 
Trade Commission shall issue jointly guidelines specifying the 
enforcement policies and analytical principles that will be applied by 
the Department of Justice and the Commission with respect to the 
operation of subsection (a).

                          PART 4--COMMISSIONS

SEC. 15031. MEDICARE PAYMENT REVIEW COMMISSION.

  (a) In General.--Title XVIII, as amended by section 15001(a), is 
amended by inserting after section 1805 the following new section:
                  ``medicare payment review commission
  ``Sec. 1806. (a) Establishment.--There is hereby established the 
Medicare Payment Review Commission (in this section referred to as the 
`Commission').
  ``(b) Duties.--
          ``(1) General duties and reports.--The Commission shall 
        review, and make recommendations to Congress concerning, 
        payment policies under this title. By not later than June 1 of 
        each year, the Commission shall submit a report to Congress 
        containing an examination of issues affecting the medicare 
        program, including the implications of changes in health care 
        delivery in the United States and in the market for health care 
        services on the medicare program. The Commission may submit to 
        Congress from time to time such other reports as the Commission 
        deems appropriate. The Secretary shall respond to 
        recommendations of the Commission in notices of rulemaking 
        proceedings under this title.
          ``(2) Specific duties relating to medicareplus program.--
        Specifically, the Commission shall review, with respect to the 
        MedicarePlus program under part C--
                  ``(A) the appropriateness of the methodology for 
                making payment to plans under such program, including 
                the making of differential payments and the 
                distribution of differential updates among different 
                payment areas,
                  ``(B) the appropriateness of the mechanisms used to 
                adjust payments for risk and the need to adjust such 
                mechanisms to take into account health status of 
                beneficiaries,
                  ``(C) the implications of risk selection both among 
                MedicarePlus organizations and between the MedicarePlus 
                option and the non-MedicarePlus option,
                  ``(D) in relation to payment under part C, the 
                development and implementation of mechanisms to assure 
                the quality of care for those enrolled with 
                MedicarePlus organizations,
                  ``(F) the impact of the MedicarePlus program on 
                access to care for medicare beneficiaries, and
                  ``(G) other major issues in implementation and 
                further development of the MedicarePlus program.
          ``(3) Specific duties relating to the failsafe budget 
        mechanism.--Specifically, the Commission shall review, with 
        respect to the failsafe budget mechanism described in section 
        1895--
                  ``(A) the appropriateness of the expenditure 
                projections by the Secretary under section 1895(c) for 
                each medicare sector;
                  ``(B) the appropriateness of the growth factors for 
                each sector and the ability to take into account 
                substitution across sectors;
                  ``(C) the appropriateness of the mechanisms for 
                implementing reductions in payment amounts for 
                different sectors, including any adjustments to reflect 
                changes in volume or intensity resulting for any 
                payment reductions;
                  ``(D) the impact of the mechanism on provider 
                participation in parts A and B and in the MedicarePlus 
                program; and
                  ``(E) the appropriateness of the medicare benefit 
                budget (under section 1895(c)(2)(C) of the Social 
                Security Act), particularly for fiscal years after 
                fiscal year 2002.
          ``(4) Specific duties relating to the fee-for-service 
        system.--Specifically, the Commission shall review payment 
        policies under parts A and B, including--
                  ``(A) the factors affecting expenditures for services 
                in different sectors, including the process for 
                updating hospital, physician, and other fees,
                  ``(B) payment methodologies; and
                  ``(C) the impact of payment policies on access and 
                quality of care for medicare beneficiaries.
          ``(5) Specific duties relating to interaction of payment 
        policies with health care delivery generally.--Specifically the 
        Commission shall review the effect of payment policies under 
        this title on the delivery of health care services under this 
        title and assess the implications of changes in the health 
        services market on the medicare program.
  ``(c) Membership.--
          ``(1) Number and appointment.--The Commission shall be 
        composed of 15 members appointed by Comptroller General.
          ``(2) Qualifications.--The membership of the Commission shall 
        include individuals with national recognition for their 
        expertise in health finance and economics, actuarial science, 
        health facility management, health plans and integrated 
        delivery systems, reimbursement of health facilities, 
        physicians, and other providers of services, and other related 
        fields, who provide a mix of different professionals, broad 
        geographic representation, and a balance between urban and 
        rural representatives, including physicians and other health 
        professionals, employers, third party payors, individuals 
        skilled in the conduct and interpretation of biomedical, health 
        services, and health economics research and expertise in 
        outcomes and effectiveness research and technology assessment. 
        Such membership shall also include representatives of consumers 
        and the elderly.
          ``(3) Considerations in initial appointment.--To the extent 
        possible, in first appointing members to the Commission shall 
        consider appointing individuals who (as of the date of the 
        enactment of this section) were serving on the Prospective 
        Payment Assessment Commission or the Physician Payment Review 
        Commission.
          ``(4) Terms.--
                  ``(A) In general.--The terms of members of the 
                Commission shall be for 3 years except that the 
                Comptroller General shall designate staggered terms for 
                the members first appointed.
                  ``(B) Vacancies.--Any member appointed to fill a 
                vacancy occurring before the expiration of the term for 
                which the member's predecessor was appointed shall be 
                appointed only for the remainder of that term. A member 
                may serve after the expiration of that member's term 
                until a successor has taken office. A vacancy in the 
                Commission shall be filled in the manner in which the 
                original appointment was made.
          ``(5) Compensation.--While serving on the business of the 
        Commission (including traveltime), a member of the Commission 
        shall be entitled to compensation at the per diem equivalent of 
        the rate provided for level IV of the Executive Schedule under 
        section 5315 of title 5, United States Code; and while so 
        serving away from home and member's regular place of business, 
        a member may be allowed travel expenses, as authorized by the 
        Chairman of the Commission. Physicians serving as personnel of 
        the Commission may be provided a physician comparability 
        allowance by the Commission in the same manner as Government 
        physicians may be provided such an allowance by an agency under 
        section 5948 of title 5, United States Code, and for such 
        purpose subsection (i) of such section shall apply to the 
        Commission in the same manner as it applies to the Tennessee 
        Valley Authority. For purposes of pay (other than pay of 
        members of the Commission) and employment benefits, rights, and 
        privileges, all personnel of the Commission shall be treated as 
        if they were employees of the United States Senate.
          ``(6) Chairman; vice chairman.--The Comptroller General shall 
        designate a member of the Commission, at the time of 
        appointment of the member, as Chairman and a member as Vice 
        Chairman for that term of appointment.
          ``(7) Meetings.--The Commission shall meet at the call of the 
        Chairman.
  ``(d) Director and Staff; Experts and Consultants.--Subject to such 
review as the Comptroller General deems necessary to assure the 
efficient administration of the Commission, the Commission may--
          ``(1) employ and fix the compensation of an Executive 
        Director (subject to the approval of the Comptroller General) 
        and such other personnel as may be necessary to carry out its 
        duties (without regard to the provisions of title 5, United 
        States Code, governing appointments in the competitive 
        service);
          ``(2) seek such assistance and support as may be required in 
        the performance of its duties from appropriate Federal 
        departments and agencies;
          ``(3) enter into contracts or make other arrangements, as may 
        be necessary for the conduct of the work of the Commission 
        (without regard to section 3709 of the Revised Statutes (41 
        U.S.C. 5));
          ``(4) make advance, progress, and other payments which relate 
        to the work of the Commission;
          ``(5) provide transportation and subsistence for persons 
        serving without compensation; and
          ``(6) prescribe such rules and regulations as it deems 
        necessary with respect to the internal organization and 
        operation of the Commission.
  ``(e) Powers.--
          ``(1) Obtaining official data.--The Commission may secure 
        directly from any department or agency of the United States 
        information necessary to enable it to carry out this section. 
        Upon request of the Chairman, the head of that department or 
        agency shall furnish that information to the Commission on an 
        agreed upon schedule.
          ``(2) Data collection.--In order to carry out its functions, 
        the Commission shall collect and assess information--
                  ``(A) utilize existing information, both published 
                and unpublished, where possible, collected and assessed 
                either by its own staff or under other arrangements 
                made in accordance with this section,
                  ``(B) carry out, or award grants or contracts for, 
                original research and experimentation, where existing 
                information is inadequate, and
                  ``(C) adopt procedures allowing any interested party 
                to submit information for the Commission's use in 
                making reports and recommendations.
          ``(3) Access of gao to information.--The Comptroller General 
        shall have unrestricted access to all deliberations, records, 
        and data of the Commission, immediately upon request.
          ``(4) Periodic audit.--The Commission shall be subject to 
        periodic audit by the General Accounting Office.
  ``(f) Authorization of Appropriations.--
          ``(1) Request for appropriations.--The Commission shall 
        submit requests for appropriations in the same manner as the 
        Comptroller General submits requests for appropriations, but 
        amounts appropriated for the Commission shall be separate from 
        amounts appropriated for the Comptroller General.
          ``(2) Authorization.--There are authorized to be appropriated 
        such sums as may be necessary to carry out the provisions of 
        this section. 60 percent of such appropriation shall be payable 
        from the Federal Hospital Insurance Trust Fund, and 40 percent 
        of such appropriation shall be payable from the Federal 
        Supplementary Medical Insurance Trust Fund.''.
  (b) Abolition of ProPAC and PPRC.--
          (1) PROPAC.--
                  (A) In general.--Section 1886(e) (42 U.S.C. 
                1395ww(e)) is amended--
                          (i) by striking paragraphs (2) and (6); and
                          (ii) in paragraph (3), by striking ``(A) The 
                        Commission'' and all that follows through 
                        ``(B)''.
                  (B) Conforming amendment.--Section 1862 (42 U.S.C. 
                1395y) is amended by striking ``Prospective Payment 
                Assessment Commission'' each place it appears in 
                subsection (a)(1)(D) and subsection (i) and inserting 
                ``Medicare Payment Review Commission''.
          (2) PPRC.--
                  (A) In general.--Title XVIII is amended by striking 
                section 1845 (42 U.S.C. 1395w-1).
                  (B) Conforming amendments.--
                          (i) Section 1834(b)(2) (42 U.S.C. 
                        1395m(b)(2)) is amended by striking ``Physician 
                        Payment Review Commission'' and inserting 
                        ``Medicare Payment Review Commission''.
                          (ii) Section 1842(b) (42 U.S.C. 1395u(b)) is 
                        amended by striking ``Physician Payment Review 
                        Commission'' each place it appears in 
                        paragraphs (9)(D) and (14)(C)(i) and inserting 
                        ``Medicare Payment Review Commission''.
                          (iii) Section 1848 (42 U.S.C. 1395w-4) is 
                        amended by striking ``Physician Payment Review 
                        Commission'' and inserting ``Medicare Payment 
                        Review Commission'' each place it appears in 
                        paragraphs (2)(A)(ii), (2)(B)(iii), and (5) of 
                        subsection (c), subsection (d)(2)(F), 
                        paragraphs (1)(B), (3), and (4)(A) of 
                        subsection (f), and paragraphs (6)(C) and 
                        (7)(C) of subsection (g).
  (c) Effective Date; Transition.--
          (1) In general.--The Comptroller General shall first provide 
        for appointment of members to the Medicare Payment Review 
        Commission (in this subsection referred to as ``MPRC'') by not 
        later than March 31, 1996.
          (2) Transition.--Effective on a date (not later than 30 days 
        after the date a majority of members of the MPRC have first 
        been appointed, the Prospective Payment Assessment Commission 
        (in this subsection referred to as ``ProPAC'') and the 
        Physician Payment Review Commission (in this subsection 
        referred to as ``PPRC''), and amendments made by subsection 
        (b), are terminated. The Comptroller General, to the maximum 
        extent feasible, shall provide for the transfer to the MPRC of 
        assets and staff of ProPAC and PPRC, without any loss of 
        benefits or seniority by virtue of such transfers. Fund 
        balances available to the ProPAC or PPRC for any period shall 
        be available to the MPRC for such period for like purposes.
          (3) Continuing responsibility for reports.--The MPRC shall be 
        responsible for the preparation and submission of reports 
        required by law to be submitted (and which have not been 
        submitted by the date of establishment of the MPRC) by the 
        ProPAC and PPRC, and, for this purpose, any reference in law to 
        either such Commission is deemed, after the appointment of the 
        MPRC, to refer to the MPRC.

SEC. 15032. COMMISSION ON THE EFFECT OF THE BABY BOOM GENERATION ON THE 
                    MEDICARE PROGRAM.

  (a) Establishment.--There is established a commission to be known as 
the Commission on the Effect of the Baby Boom Generation on the 
Medicare Program (in this section referred to as the ``Commission'').
  (b) Duties.--
          (1) In general.--The Commission shall--
                  (A) examine the financial impact on the medicare 
                program of the significant increase in the number of 
                medicare eligible individuals which will occur 
                beginning approximately during 2010 and lasting for 
                approximately 25 years, and
                  (B) make specific recommendations to the Congress 
                respecting a comprehensive approach to preserve the 
                medicare program for the period during which such 
                individuals are eligible for medicare.
          (2) Considerations in making recommendations.--In making its 
        recommendations, the Commission shall consider the following:
                  (A) The amount and sources of Federal funds to 
                finance the medicare program, including the potential 
                use of innovative financing methods.
                  (B) The most efficient and effective manner of 
                administering the program, including the 
                appropriateness of continuing the application of the 
                failsafe budget mechanism under section 1895 of the 
                Social Security Act for fiscal years after fiscal year 
                2002 and the appropriate long-term growth rates for 
                contributions electing coverage under MedicarePlus 
                under part C of title XVIII of such Act.
                  (C) Methods used by other nations to respond to 
                comparable demographic patterns in eligibility for 
                health care benefits for elderly and disabled 
                individuals.
                  (D) Modifying age-based eligibility to correspond to 
                changes in age-based eligibility under the OASDI 
                program.
                  (E) Trends in employment-related health care for 
                retirees, including the use of medical savings accounts 
                and similar financing devices.
  (c) Membership.--
          (1) Appointment.--The Commission shall be composed of 15 
        members appointed as follows:
                  (A) The President shall appoint 3 members.
                  (B) The Majority Leader of the Senate shall appoint, 
                after consultation with the minority leader of the 
                Senate, 6 members, of whom not more than 4 may be of 
                the same political party.
                  (C) The Speaker of the House of Representatives shall 
                appoint, after consultation with the minority leader of 
                the House of Representatives, 6 members, of whom not 
                more than 4 may be of the same political party.
          (2) Chairman and vice chairman.--The Commission shall elect a 
        Chairman and Vice Chairman from among its members.
          (3) Vacancies.--Any vacancy in the membership of the 
        Commission shall be filled in the manner in which the original 
        appointment was made and shall not affect the power of the 
        remaining members to execute the duties of the Commission.
          (4) Quorum.--A quorum shall consist of 8 members of the 
        Commission, except that 4 members may conduct a hearing under 
        subsection (e).
          (5) Meetings.--The Commission shall meet at the call of its 
        Chairman or a majority of its members.
          (6) Compensation and reimbursement of expenses.--Members of 
        the Commission are not entitled to receive compensation for 
        service on the Commission. Members may be reimbursed for 
        travel, subsistence, and other necessary expenses incurred in 
        carrying out the duties of the Commission.
  (d) Staff and Consultants.--
          (1) Staff.--The Commission may appoint and determine the 
        compensation of such staff as may be necessary to carry out the 
        duties of the Commission. Such appointments and compensation 
        may be made without regard to the provisions of title 5, United 
        States Code, that govern appointments in the competitive 
        services, and the provisions of chapter 51 and subchapter III 
        of chapter 53 of such title that relate to classifications and 
        the General Schedule pay rates.
          (2) Consultants.--The Commission may procure such temporary 
        and intermittent services of consultants under section 3109(b) 
        of title 5, United States Code, as the Commission determines to 
        be necessary to carry out the duties of the Commission.
  (e) Powers.--
          (1) Hearings and other activities.--For the purpose of 
        carrying out its duties, the Commission may hold such hearings 
        and undertake such other activities as the Commission 
        determines to be necessary to carry out its duties.
          (2) Studies by gao.--Upon the request of the Commission, the 
        Comptroller General shall conduct such studies or 
        investigations as the Commission determines to be necessary to 
        carry out its duties.
          (3) Cost estimates by congressional budget office.--
                  (A) Upon the request of the Commission, the Director 
                of the Congressional Budget Office shall provide to the 
                Commission such cost estimates as the Commission 
                determines to be necessary to carry out its duties.
                  (B) The Commission shall reimburse the Director of 
                the Congressional Budget Office for expenses relating 
                to the employment in the office of the Director of such 
                additional staff as may be necessary for the Director 
                to comply with requests by the Commission under 
                subparagraph (A).
          (4) Detail of federal employees.--Upon the request of the 
        Commission, the head of any Federal agency is authorized to 
        detail, without reimbursement, any of the personnel of such 
        agency to the Commission to assist the Commission in carrying 
        out its duties. Any such detail shall not interrupt or 
        otherwise affect the civil service status or privileges of the 
        Federal employee.
          (5) Technical assistance.--Upon the request of the 
        Commission, the head of a Federal agency shall provide such 
        technical assistance to the Commission as the Commission 
        determines to be necessary to carry out its duties.
          (6) Use of mails.--The Commission may use the United States 
        mails in the same manner and under the same conditions as 
        Federal agencies and shall, for purposes of the frank, be 
        considered a commission of Congress as described in section 
        3215 of title 39, United States Code.
          (7) Obtaining information.--The Commission may secure 
        directly from any Federal agency information necessary to 
        enable it to carry out its duties, if the information may be 
        disclosed under section 552 of title 5, United States Code. 
        Upon request of the Chairman of the Commission, the head of 
        such agency shall furnish such information to the Commission.
          (8) Administrative support services.--Upon the request of the 
        Commission, the Administrator of General Services shall provide 
        to the Commission on a reimbursable basis such administrative 
        support services as the Commission may request.
          (9) Acceptance of donations.--The Commission may accept, use, 
        and dispose of gifts or donations of services or property.
          (10) Printing.--For purposes of costs relating to printing 
        and binding, including the cost of personnel detailed from the 
        Government Printing Office, the Commission shall be deemed to 
        be a committee of the Congress.
  (f) Report.--Not later than May 1, 1997, the Commission shall submit 
to Congress a report containing its findings and recommendations 
regarding how to protect and preserve the medicare program in a 
financially solvent manner until 2030 (or, if later, throughout the 
period of projected solvency of the Federal Old-Age and Survivors 
Insurance Trust Fund). The report shall include detailed 
recommendations for appropriate legislative initiatives respecting how 
to accomplish this objective.
  (g) Termination.--The Commission shall terminate 60 days after the 
date of submission of the report required in subsection (f).
  (h) Authorization of Appropriations.--There are authorized to be 
appropriated $1,500,000 to carry out this section. Amounts appropriated 
to carry out this section shall remain available until expended.

SEC. 15033. CHANGE IN APPOINTMENT OF ADMINISTRATOR OF HCFA.

  (a) In General.--Section 1117 (42 U.S.C. 1317) is amended by striking 
``President by and with the advice and consent of the Senate'' and 
inserting ``Secretary of Health and Human Services''.
  (b) Effective Date.--The amendment made by subsection (a) shall take 
effect on the date of the enactment of this Act and shall apply to 
Administrators appointed on or after the date of the enactment of this 
Act.

PART 5--TREATMENT OF HOSPITALS WHICH PARTICIPATE IN PROVIDER-SPONSORED 
                             ORGANIZATIONS

SEC. 15041. TREATMENT OF HOSPITALS WHICH PARTICIPATE IN PROVIDER-
                    SPONSORED ORGANIZATIONS.

  (a) In General.--Section 501 of the Internal Revenue Code of 1986 
(relating to exemption from tax on corporations, certain trusts, etc.) 
is amended by redesignating subsection (n) as subsection (o) and by 
inserting after subsection (m) the following new subsection:
  ``(n) Treatment of Hospitals Participating in Provider-Sponsored 
Organizations.--An organization shall not fail to be treated as 
organized and operated exclusively for a charitable purpose for 
purposes of subsection (c)(3) solely because a hospital which is owned 
and operated by such organization participates in a provider-sponsored 
organization (as defined in section 1854(a)(1) of the Social Security 
Act), whether or not the provider-sponsored organization is exempt from 
tax. For purposes of subsection (c)(3), any person with a material 
financial interest in such a provider-sponsored organization shall be 
treated as a private shareholder or individual with respect to the 
hospital.''
  (b) Effective Date.--The amendment made by subsection (a) shall take 
effect on the date of the enactment of this Act.

                 Subtitle B--Preventing Fraud and Abuse

SEC. 15101. INCREASING AWARENESS OF FRAUD AND ABUSE.

  (a) Beneficiary Outreach Efforts.--The Secretary of Health and Human 
Services (acting through the Administrator of the Health Care Financing 
Administration and the Inspector General of the Department of Health 
and Human Services) shall make ongoing efforts (through public service 
announcements, publications, and other appropriate methods) to alert 
individuals entitled to benefits under the medicare program of the 
existence of fraud and abuse committed against the program and the 
costs to the program of such fraud and abuse, and of the existence of 
the toll-free telephone line operated by the Secretary to receive 
information on fraud and abuse committed against the program.
  (b) Clarification of Requirement To Provide Explanation of Medicare 
Benefits.--The Secretary shall provide an explanation of benefits under 
the medicare program 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.
  (c) Provider Outreach Efforts; Publication of Fraud Alerts.--
          (1) Special fraud alerts.--
                  (A) In general.--
                          (i) Request for special fraud alerts.--Any 
                        person may present, at any time, a request to 
                        the Secretary to issue and publish a special 
                        fraud alert.
                          (ii) Special fraud alert defined.--In this 
                        section, a ``special fraud alert'' is a notice 
                        which informs the public of practices which the 
                        Secretary considers to be suspect or of 
                        particular concern under the medicare program 
                        or a State health care program (as defined in 
                        section 1128(h) of the Social Security Act).
                  (B) Issuance and publication of special fraud 
                alerts.--
                          (i) Investigation.--Upon receipt of a request 
                        for a special fraud alert under subparagraph 
                        (A), the Secretary shall investigate the 
                        subject matter of the request to determine 
                        whether a special fraud alert should be issued. 
                        If appropriate, the Secretary (in consultation 
                        with the Attorney General) shall issue a 
                        special fraud alert in response to the request. 
                        All special fraud alerts issued pursuant to 
                        this subparagraph shall be published in the 
                        Federal Register.
                          (ii) Criteria for issuance.--In determining 
                        whether to issue a special fraud alert upon a 
                        request under subparagraph (A), the Secretary 
                        may consider--
                                  (I) whether and to what extent the 
                                practices that would be identified in 
                                the special fraud alert may result in 
                                any of the consequences described in 
                                15214(b); and
                                  (II) the extent and frequency of the 
                                conduct that would be identified in the 
                                special fraud alert.
          (2) Publication of all hcfa fraud alerts in federal 
        register.--Each notice issued by the Health Care Financing 
        Administration which informs the public of practices which the 
        Secretary considers to be suspect or of particular concern 
        under the medicare program or a State health care program (as 
        defined in section 1128(h) of the Social Security Act) shall be 
        published in the Federal Register, without regard to whether or 
        not the notice is issued by a regional office of the Health 
        Care Financing Administration.

SEC. 15102. BENEFICIARY INCENTIVE PROGRAMS.

  (a) 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 of Health 
        and Human Services (hereinafter in this subtitle referred to as 
        the ``Secretary'') shall establish a program under which the 
        Secretary shall encourage individuals to report to the 
        Secretary information on individuals and entities who are 
        engaging or who have engaged in acts or omissions which 
        constitute grounds for the imposition of a sanction under 
        section 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 collected.--If an 
        individual reports information to the Secretary under the 
        program established under paragraph (1) which serves as the 
        basis for the collection 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).
  (b) Program to Collect Information on Program 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 
        individuals to submit to the Secretary suggestions on methods 
        to improve the efficiency of the medicare program.
          (2) Payment of portion of program savings.--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 
        Secretary may make a payment to the individual of such amount 
        as the Secretary considers appropriate.

SEC. 15103. 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 the following: ``in accordance with 
        procedures established under paragraph (9), the Secretary may 
        at any time terminate any such contract or may impose the 
        intermediate sanctions described in paragraph (6)(B) or (6)(C) 
        (whichever is applicable) on the eligible organization if the 
        Secretary determines that the organization--
          ``(A) has failed substantially to carry out the contract;
          ``(B) is carrying out the contract in a manner inconsistent 
        with the efficient and effective administration of this 
        section;
          ``(C) is operating in a manner that is not in the best 
        interests of the individuals covered under the contract; or
          ``(D) no longer substantially meets the applicable conditions 
        of subsections (b), (c), and (e).''.
          (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 sanctions:
          ``(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 determination has directly adversely affected (or 
        has the substantial likelihood of adversely affecting) an 
        individual 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 determination under paragraph (1) exists; and
          ``(iii) suspension of enrollment of individuals under this 
        section after the date the Secretary notifies the organization 
        of a determination under paragraph (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 provides the organization with the 
        opportunity to develop and implement a corrective action plan 
        to correct the deficiencies that were the basis of the 
        Secretary's determination under paragraph (1);
          ``(B) the Secretary shall impose more severe sanctions on 
        organizations that have a history of deficiencies or that have 
        not taken steps to correct deficiencies the Secretary has 
        brought to their attention;
          ``(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) before imposing any sanction or 
        terminating the contract.''.
          (4) Conforming amendments.--(A) Section 1876(i)(6)(B) (42 
        U.S.C. 1395mm(i)(6)(B)) is amended by striking the second 
        sentence.
          (B) Section 1876(i)(6) (42 U.S.C. 1395mm(i)(6)) is further 
        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 penalty under subparagraph (A) or (B) 
in the same manner as they apply to a civil money penalty or proceeding 
under section 1128A(a).''.
  (b) Effective Date.--The amendments made by this section shall apply 
with respect to contract years beginning on or after January 1, 1996.

SEC. 15104. VOLUNTARY DISCLOSURE PROGRAM.

  Title XI (42 U.S.C. 1301 et seq.) is amended by inserting after 
section 1128B the following new section:
              ``voluntary disclosure of acts or omissions
  ``Sec. 1129. (a) Establishment of Voluntary Disclosure Program.--Not 
later than 3 months after the date of the enactment of this section, 
the Secretary shall establish a program to encourage individuals and 
entities to voluntarily disclose to the Secretary information on acts 
or omissions of the individual or entity which constitute grounds for 
the imposition of a sanction described in section 1128, 1128A, or 
1128B.
  ``(b) Effect of Voluntary Disclosure.--If an individual or entity 
voluntarily discloses information with respect to an act or omission to 
the Secretary under subsection (a), the following rules shall apply:
          ``(1) The Secretary may waive, reduce, or otherwise mitigate 
        any sanction which would otherwise be applicable to the 
        individual or entity under section 1128, 1128A, or 1128B as a 
        result of the act or omission involved.
          ``(2) No qui tam action may be brought pursuant to chapter 37 
        of title 31, United States Code, against the individual or 
        entity with respect to the act or omission involved.''.

SEC. 15105. REVISIONS TO CURRENT SANCTIONS.

  (a) Doubling the Amount of Civil Monetary Penalties.--The maximum 
amount of civil monetary penalties specified in section 1128A of the 
Social Security Act or under title XVIII of such Act (as in effect on 
the day before the date of the enactment of this Act) shall, effective 
for violations occurring after the date of the enactment of this Act, 
be double the amount otherwise provided as of such date.
  (b) Establishment of Minimum Period of Exclusion for Certain 
Individuals and Entities Subject to Permissive Exclusion.--Section 
1128(c)(3) (42 U.S.C. 1320a-7(c)(3)) is amended by adding at the end 
the following new subparagraphs:
  ``(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 regulations that a shorter period is appropriate 
because of mitigating circumstances or that a longer period is 
appropriate 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 exclusion shall be not less 
than 1 year.''.
  (c) Effective Date.--The amendments made by this section shall apply 
with respect to acts or omissions occurring on or after January 1, 
1996.

SEC. 15106. DIRECT SPENDING FOR ANTI-FRAUD ACTIVITIES UNDER MEDICARE.

  (a) Establishment of Medicare Integrity Program.--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 Program (hereafter 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 
accordance with this section with eligible private entities to carry 
out the activities described in subsection (b).
  ``(b) Activities Described.--The activities described 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 utilization review and fraud review (employing similar 
        standards, processes, and technologies used by private 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 
        enactment 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, beneficiaries, and 
        other persons with respect to payment integrity and benefit 
        quality assurance issues.
  ``(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 investigation and deterrence of fraud and abuse in relation 
        to this title and in other cases arising out of such 
        activities;
          ``(3) the entity's financial holdings, interests, or 
        relationships will not interfere with its ability to perform 
        the functions to be required by the contract in an effective 
        and impartial manner; and
          ``(4) the entity meets such other requirements as the 
        Secretary may impose.
  ``(d) Process for Entering Into Contracts.--The Secretary shall enter 
into contracts under the Program in accordance with such procedures as 
the Secretary may by regulation establish, except that such procedures 
shall include the following:
          ``(1) The Secretary shall determine the appropriate number of 
        separate contracts which are necessary to carry out the Program 
        and the appropriate times at which the Secretary shall enter 
        into such contracts.
          ``(2) The provisions of section 1153(e)(1) shall apply to 
        contracts and contracting authority under this section, except 
        that competitive procedures must be used when entering into new 
        contracts under this section, or at any other time considered 
        appropriate by the Secretary.
          ``(3) A contract under this section may be renewed without 
        regard to any provision of law requiring competition if the 
        contractor has met or exceeded 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 contract under the Program, and such 
regulation shall, to the extent the Secretary finds appropriate, employ 
the same or comparable standards and other substantive and procedural 
provisions as are contained in section 1157.
  ``(f) Transfer of Amounts to Medicare Anti-Fraud and Abuse Trust 
Fund.--For each fiscal year, the Secretary shall transfer from the 
Federal Hospital Insurance Trust Fund and the Federal Supplementary 
Medical Insurance Trust Fund to the Medicare Anti-Fraud and Abuse Trust 
Fund under subsection (g) such amounts as are necessary to carry out 
the activities described in subsection (b). Such transfer shall be in 
an allocation as reasonably reflects the proportion of such 
expenditures associated with part A and part B.
  ``(g) Medicare Anti-Fraud and Abuse Trust Fund.--
          ``(1) Establishment.--
                  ``(A) In general.--There is hereby established in the 
                Treasury of the United States the Anti-Fraud and Abuse 
                Trust Fund (hereafter in this subsection referred to as 
                the `Trust Fund'). The Trust Fund shall consist of such 
                gifts and bequests as may be made as provided in 
                subparagraph (B) and such amounts as may be deposited 
                in the Trust Fund as provided in subsection (f), 
                paragraph (3), and title XI.
                  ``(B) Authorization to accept gifts and bequests.--
                The Trust Fund is authorized to accept on behalf of the 
                United States money gifts and bequests made 
                unconditionally to the Trust Fund, for the benefit of 
                the Trust Fund or any activity financed through the 
                Trust Fund.
          ``(2) Investment.--
                  ``(A) In general.--The Secretary of the Treasury 
                shall invest such amounts of the Fund as such Secretary 
                determines are not required to meet current withdrawals 
                from the Fund in government account serial securities.
                  ``(B) Use of income.--Any interest derived from 
                investments under subparagraph (A) shall be credited to 
                the Fund.
          ``(3) Amounts deposited into trust fund.--In addition to 
        amounts transferred under subsection (f), there shall be 
        deposited in the Trust Fund--
                  ``(A) that portion of amounts recovered in relation 
                to section 1128A arising out of a claim under title 
                XVIII as remains after application of subsection (f)(2) 
                (relating to repayment of the Federal Hospital 
                Insurance Trust Fund or the Federal Supplementary 
                Medical Insurance Trust Fund) of that section, as may 
                be applicable,
                  ``(B) fines imposed under section 1128B arising out 
                of a claim under this title, and
                  ``(C) penalties and damages imposed (other than funds 
                awarded to a relator or for restitution) under sections 
                3729 through 3732 of title 31, United States Code 
                (pertaining to false claims) in cases involving claims 
                relating to programs under title XVIII, XIX, or XXI.
          ``(4) Direct appropriation of funds to carry out program.--
                  ``(A) In general.--There are appropriated from the 
                Trust Fund for each fiscal year such amounts as are 
                necessary to carry out the Medicare Integrity Program 
                under this section, subject to subparagraph (B).
                  ``(B) Amounts specified.--The amount appropriated 
                under subparagraph (A) for a fiscal year is as follows:
                          ``(i) For fiscal year 1996, such amount shall 
                        be not less than $430,000,000 and not more than 
                        $440,000,000.
                          ``(ii) For fiscal year 1997, such amount 
                        shall be not less than $490,000,000 and not 
                        more than $500,000,000.
                          ``(iii) For fiscal year 1998, such amount 
                        shall be not less than $550,000,000 and not 
                        more than $560,000,000.
                          ``(iv) For fiscal year 1999, such amount 
                        shall be not less than $620,000,000 and not 
                        more than $630,000,000.
                          ``(v) For fiscal year 2000, such amount shall 
                        be not less than $670,000,000 and not more than 
                        $680,000,000.
                          ``(vi) For fiscal year 2001, such amount 
                        shall be not less than $690,000,000 and not 
                        more than $700,000,000.
                          ``(vii) For 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 shall submit an annual 
        report to Congress on the amount of revenue which is generated 
        and disbursed by the Trust Fund in each fiscal year.''.
  (b) Elimination of FI and Carrier Responsibility for Carrying out 
Activities Subject to Program.--
          (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 receive payment for 
carrying out) any activity pursuant to an agreement under this section 
to the extent that the activity is carried out pursuant to a contract 
under the Medicare 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.''.
  (c) Conforming Amendment.--Section 1128A(f)(3) (42 U.S.C. 1320a-
7a(f)(3)) is amended by striking ``as miscellaneous receipts of the 
Treasury of the United States'' and inserting ``in the Anti-Fraud and 
Abuse Trust Fund established under section 1893(g)''.
  (d) Direct Spending for Medicare-Related Activities of Inspector 
General.--Section 1893, as added by subsection (a), is amended by 
adding at the end the following new subsection:
  ``(h) Direct Spending for Medicare-Related Activities of Inspector 
General.--
          ``(1) In general.--There are appropriated from the Federal 
        Hospital Insurance Trust Fund and the Federal Supplementary 
        Medical Insurance Trust Fund to the Inspector General of the 
        Department of Health and Human Services for each fiscal year 
        such amounts as are necessary to enable the Inspector General 
        to carry out activities relating to the medicare program (as 
        described in paragraph (2)), subject to paragraph (3).
          ``(2) Activities described.--The activities described in this 
        paragraph are as follows:
                  ``(A) Prosecuting medicare-related matters through 
                criminal, civil, and administrative proceedings.
                  ``(B) Conducting investigations relating to the 
                medicare program.
                  ``(C) Performing financial and performance audits of 
                programs and operations relating to the medicare 
                program.
                  ``(D) Performing inspections and other evaluations 
                relating to the medicare program.
                  ``(E) Conducting provider and consumer education 
                activities regarding the requirements of this title.
          ``(3) Amounts specified.--The amount appropriated under 
        paragraph (1) for a fiscal year is as follows:
                  ``(A) For fiscal year 1996, such amount shall be 
                $130,000,000.
                  ``(B) For fiscal year 1997, such amount shall be 
                $181,000,000.
                  ``(C) For fiscal year 1998, such amount shall be 
                $204,000,000.
                  ``(D) For each subsequent fiscal year, the amount 
                appropriated for the previous fiscal year, increased by 
                the percentage increase in aggregate expenditures under 
                this title for the fiscal year involved over the 
                previous fiscal year.
          ``(4) Allocation of payments among trust funds.--The 
        appropriations made under paragraph (1) shall be in an 
        allocation as reasonably reflects the proportion of such 
        expenditures associated with part A and part B.''.

SEC. 15107. PERMITTING CARRIERS TO CARRY OUT PRIOR AUTHORIZATION FOR 
                    CERTAIN ITEMS OF DURABLE MEDICAL EQUIPMENT.

  (a) In General.--Section 1834(a)(15) (42 U.S.C. 1395m(a)(15)), as 
amended by section 135(b) of the Social Security Act Amendments of 
1994, is amended by adding at the end the following new subparagraphs:
                  ``(D) Application by carriers.--A carrier may develop 
                (and periodically update) a list of items under 
                subparagraph (A) and a list of suppliers under 
                subparagraph (B) in the same manner as the Secretary 
                may develop (and periodically update) such lists.
                  ``(E) Waiver of publication requirement.--A carrier 
                may make an advance determination under subparagraph 
                (C) with respect to an item or supplier on a list 
                developed by the Secretary or the carrier without 
                regard to whether or not the Secretary has promulgated 
                a regulation with respect to the list, except that the 
                carrier may not make such an advance determination with 
                respect to an item or supplier on a list until the 
                expiration of the 30-day period beginning on the date 
                the Secretary or the carrier places the item or 
                supplier on the list.''.
  (b) Effective Date.--The amendment made by subsection (a) shall take 
effect as if included in the enactment of the Social Security Act 
Amendments of 1994.

SEC. 15108. ESTABLISHMENT OF HEALTH CARE ANTI-FRAUD TASK FORCE.

  (a) In General.--Not later than 120 days after the date of the 
enactment of this Act, the Attorney General shall establish (in 
consultation with the Advisory Group described in subsection (c)) 
within the Department of Justice a task force (similar to the Organized 
Crime Drug Enforcement Task Force) to be known as the ``Health Care 
Anti-Fraud Task Force'' (hereafter in this section referred to as the 
``Task Force'') to prosecute health care fraud offenses. Nothing in 
this section may be construed as affecting the powers of the Attorney 
General or any other individual.
  (b) Operations of Task Force.--The Attorney General shall establish 
and operate the Task Force in a manner such that--
          (1) at least one fully staffed operational segment of the 
        Task Force (including at least one Federal representative 
        engaged in Task Force activities on a full-time basis) shall 
        operate in each judicial district of the United States; and
          (2) the Task Force maintains separate accounting of its 
        finances, personnel, case load, and resolution of claims and 
        actions.
  (c) Advisory Group Described.--The Advisory Group described in this 
subsection is a group consisting of the following individuals (or their 
designees):
          (1) The Secretary of Health and Human Services.
          (2) The Secretary of the Treasury.
          (3) The Secretary of Veterans Affairs.
          (4) The Chair of the Board of Governors of the United States 
        Postal Service.

SEC. 15109. STUDY OF ADEQUACY OF PRIVATE QUALITY ASSURANCE PROGRAMS.

  (a) In General.--The Administrator of the Health Care Financing 
Administration (acting through the Director of the Office of Research 
and Development) shall enter into an agreement with a private entity to 
conduct a study during the 5-year period beginning on the date of the 
enactment of this Act of the adequacy of the quality assurance programs 
and consumer protections used by the MedicarePlus program under part C 
of title XVIII of the Social Security Act (as inserted by section 
15002(a)), and shall include in the study an analysis of the 
effectiveness of such programs in protecting plan enrollees against the 
risk of insufficient provision of benefits which may result from 
utilization controls.
  (b) Report.--Not later than 6 months after the conclusion of the 5-
year period described in subsection (a), the Administrator shall submit 
a report to Congress on the study conducted under subsection (a).

SEC. 15110. 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 following new paragraph:
  ``(3)(A) Any physician who executes a document described 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.

                     Subtitle C--Regulatory Relief

              PART 1--PHYSICIAN OWNERSHIP REFERRAL REFORM

SEC. 15201. REPEAL OF PROHIBITIONS BASED ON COMPENSATION ARRANGEMENTS.

  (a) In General.--Section 1877(a)(2) (42 U.S.C. 1395nn(a)(2)) is 
amended by striking ``is--'' and all that follows through ``equity,'' 
and inserting the following: ``is (except as provided in subsection 
(c)) an ownership or investment interest in the entity through 
equity,''.
  (b) Conforming Amendments.--Section 1877 (42 U.S.C. 1395nn) is 
amended as follows:
          (1) In subsection (b)--
                  (A) in the heading, by striking ``to Both Ownership 
                and Compensation Arrangement Prohibitions'' and 
                inserting ``Where Financial Relationship Exists''; and
                  (B) by redesignating paragraph (4) as paragraph (7).
          (2) In subsection (c)--
                  (A) by amending the heading to read as follows: 
                ``Exception for Ownership or Investment Interest in 
                Publicly Traded Securities and Mutual Funds''; and
                  (B) in the matter preceding paragraph (1), by 
                striking ``subsection (a)(2)(A)'' and inserting 
                ``subsection (a)(2)''.
          (3) In subsection (d)--
                  (A) by striking the matter preceding paragraph (1);
                  (B) in paragraph (3), by striking ``paragraph (1)'' 
                and inserting ``paragraph (4)''; and
                  (C) by redesignating paragraphs (1), (2), and (3) as 
                paragraphs (4), (5), and (6), and by transferring and 
                inserting such paragraphs after paragraph (3) of 
                subsection (b).
          (4) By striking subsection (e).
          (5) In subsection (f)(2)--
                  (A) in the matter preceding paragraph (1), by 
                striking ``ownership, investment, and compensation'' 
                and inserting ``ownership and investment'';
                  (B) in paragraph (2), by striking ``subsection 
                (a)(2)(A)'' and all that follows through ``subsection 
                (a)(2)(B)),'' and inserting ``subsection (a)(2),''; and
                  (C) in paragraph (2), by striking ``or who have such 
                a compensation relationship with the entity''.
          (6) In subsection (h)--
                  (A) by striking paragraphs (1), (2), and (3);
                  (B) in paragraph (4)(A), by striking clauses (iv) and 
                (vi);
                  (C) in paragraph (4)(B), by striking ``rules.--'' and 
                all that follows through ``(ii) Faculty'' and inserting 
                ``rules for faculty''; and
                  (D) by adding at the end of paragraph (4) the 
                following new subparagraph:
                  ``(C) Member of a group.--A physician is a `member' 
                of a group if the physician is an owner or a bona fide 
                employee, or both, of the group.''.

SEC. 15202. REVISION OF DESIGNATED HEALTH SERVICES SUBJECT TO 
                    PROHIBITION.

  (a) In General.--Section 1877(h)(6) (42 U.S.C. 1395nn(h)(6)) is 
amended by striking subparagraphs (B) through (K) and inserting the 
following:
                  ``(B) Parenteral and enteral nutrients, equipment, 
                and supplies.
                  ``(C) Magnetic resonance imaging and computerized 
                tomography services.
                  ``(D) Outpatient physical or occupational therapy 
                services.''.
  (b) Conforming Amendments.--
          (1) Section 1877(b)(2) (42 U.S.C. 1395nn(b)(2)) is amended in 
        the matter preceding subparagraph (A) by striking ``services'' 
        and all that follows through ``supplies)--'' and inserting 
        ``services--''.
          (2) Section 1877(h)(5)(C) (42 U.S.C. 1395nn(h)(5)(C)) is 
        amended--
                  (A) by striking ``, a request by a radiologist for 
                diagnostic radiology services, and a request by a 
                radiation oncologist for radiation therapy,'' and 
                inserting ``and a request by a radiologist for magnetic 
                resonance imaging or for computerized tomography'', and
                  (B) by striking ``radiologist, or radiation 
                oncologist'' and inserting ``or radiologist''.

SEC. 15203. DELAY IN IMPLEMENTATION UNTIL PROMULGATION OF REGULATIONS.

  (a) In General.--Section 13562(b) of OBRA-1993 (42 U.S.C. 1395nn 
note) is amended--
          (1) in paragraph (1), by striking ``paragraph (2)'' and 
        inserting ``paragraphs (2) and (3)''; and
          (2) by adding at the end the following new paragraph:
          ``(3) Promulgation of regulations.--Notwithstanding 
        paragraphs (1) and (2), the amendments made by this section 
        shall not apply to any referrals made before the effective date 
        of final regulations promulgated by the Secretary of Health and 
        Human Services to carry out such amendments.''.
  (b) Effective Date.--The amendments made by subsection (a) shall take 
effect as if included in the enactment of OBRA-1993.

SEC. 15204. EXCEPTIONS TO PROHIBITION.

  (a) Revisions to Exception for In-office Ancillary Services.--
          (1) Repeal of site-of-service requirement.--Section 1877 (42 
        U.S.C. 1395nn) is amended--
                  (A) by amending subparagraph (A) of subsection (b)(2) 
                to read as follows:
                  ``(A) that are furnished personally by the referring 
                physician, personally by a physician who is a member of 
                the same group practice as the referring physician, or 
                personally by individuals who are under the general 
                supervision of the physician or of another physician in 
                the group practice, and'', and
                  (B) by adding at the end of subsection (h) the 
                following new paragraph:
          ``(7) General supervision.--An individual is considered to be 
        under the `general supervision' of a physician if the physician 
        (or group practice of which the physician is a member) is 
        legally responsible for the services performed by the 
        individual and for ensuring that the individual meets licensure 
        and certification requirements, if any, applicable under other 
        provisions of law, regardless of whether or not the physician 
        is physically present when the individual furnishes an item or 
        service.''.
          (2) Clarification of treatment of physician owners of group 
        practice.--Section 1877(b)(2)(B) (42 U.S.C. 1395nn(b)(2)(B)) is 
        amended by striking ``physician or such group practice'' and 
        inserting ``physician, such group practice, or the physician 
        owners of such group practice''.
          (3) Conforming amendment.--Section 1877(b)(2) (42 U.S.C. 
        1395nn(b)(2)) is amended by amending the heading to read as 
        follows: ``Ancillary services furnished personally or through 
        group practice.--''.
  (b) Clarification of Exception for Services Furnished in a Rural 
Area.--Paragraph (5) of section 1877(b) (42 U.S.C. 1395nn(b)), as 
transferred by section 15201(b)(3)(C), is amended by striking 
``substantially all'' and inserting ``not less than 75 percent''.
  (c) Revision of Exception for Certain Managed Care Arrangements.--
Section 1877(b)(3) (42 U.S.C. 1395nn(b)(3)) is amended--
          (1) in the heading by inserting ``managed care arrangements'' 
        after ``Prepaid plans'';
          (2) in the matter preceding subparagraph (A), by striking 
        ``organization--'' and inserting ``organization, directly or 
        through contractual arrangements with other entities, to 
        individuals enrolled with the organization--'';
          (3) in subparagraph (A), by inserting ``or part C'' after 
        ``section 1876'';
          (4) by striking ``or'' at the end of subparagraph (C);
          (5) by striking the period at the end of subparagraph (D) and 
        inserting a comma; and
          (6) by adding at the end the following new subparagraphs:
                  ``(E) with a contract with a State to provide 
                services under the State plan under title XIX (in 
                accordance with section 1903(m)) or a State MediGrant 
                plan under title XXI; or
                  ``(F) which is a MedicarePlus organization under part 
                C or which provides or arranges for the provision of 
                health care items or services pursuant to a written 
                agreement between the organization and an individual or 
                entity if the written agreement places the individual 
                or entity at substantial financial risk for the cost or 
                utilization of the items or services which the 
                individual or entity is obligated to provide, whether 
                through a withhold, capitation, incentive pool, per 
                diem payment, or any other similar risk arrangement 
                which places the individual or entity at substantial 
                financial risk.''.
  (d) New Exception for Shared Facility Services.--
          (1) In general.--Section 1877(b) (42 U.S.C. 1395nn(b)), as 
        amended by section 15201(b)(3)(C), is amended--
                  (A) by redesignating paragraphs (4) through (7) as 
                paragraphs (5) through (8); and
                  (B) by inserting after paragraph (3) the following 
                new paragraph:
          ``(4) Shared facility services.--In the case of a designated 
        health service consisting of a shared facility service of a 
        shared facility--
                  ``(A) that is furnished--
                          ``(i) personally by the referring physician 
                        who is a shared facility physician or 
                        personally by an individual directly employed 
                        or under the general supervision of such a 
                        physician,
                          ``(ii) by a shared facility in a building in 
                        which the referring physician furnishes 
                        substantially all of the services of the 
                        physician that are unrelated to the furnishing 
                        of shared facility services, and
                          ``(iii) to a patient of a shared facility 
                        physician; and
                  ``(B) that is billed by the referring physician or a 
                group practice of which the physician is a member.''.
          (2) Definitions.--Section 1877(h) (42 U.S.C. 1395nn(h)), as 
        amended by section 15201(b)(6), is amended by inserting before 
        paragraph (4) the following new paragraph:
          ``(1) Shared facility related definitions.--
                  ``(A) Shared facility service.--The term `shared 
                facility service' means, with respect to a shared 
                facility, a designated health service furnished by the 
                facility to patients of shared facility physicians.
                  ``(B) Shared facility.--The term `shared facility' 
                means an entity that furnishes shared facility services 
                under a shared facility arrangement.
                  ``(C) Shared facility physician.--The term `shared 
                facility physician' means, with respect to a shared 
                facility, a physician (or a group practice of which the 
                physician is a member) who has a financial relationship 
                under a shared facility arrangement with the facility.
                  ``(D) Shared facility arrangement.--The term `shared 
                facility arrangement' means, with respect to the 
                provision of shared facility services in a building, a 
                financial arrangement--
                          ``(i) which is only between physicians who 
                        are providing services (unrelated to shared 
                        facility services) in the same building,
                          ``(ii) in which the overhead expenses of the 
                        facility are shared, in accordance with methods 
                        previously determined by the physicians in the 
                        arrangement, among the physicians in the 
                        arrangement, and
                          ``(iii) which, in the case of a corporation, 
                        is wholly owned and controlled by shared 
                        facility physicians.''.
  (e) New Exception for Services Furnished in Communities With No 
Alternative Providers.--Section 1877(b) (42 U.S.C. 1395nn(b)), as 
amended by section 15201(b)(3)(C) and subsection (d)(1), is amended--
          (1) by redesignating paragraphs (5) through (8) as paragraphs 
        (6) through (9); and
          (2) by inserting after paragraph (4) the following new 
        paragraph:
          ``(5) No alternative providers in area.--In the case of a 
        designated health service furnished in any area with respect to 
        which the Secretary determines that individuals residing in the 
        area do not have reasonable access to such a designated health 
        service for which subsection (a)(1) does not apply.''.
  (f) New Exception for Services Furnished in Ambulatory Surgical 
Centers.--Section 1877(b) (42 U.S.C. 1395nn(b)), as amended by section 
15201(b)(3)(C), subsection (d)(1), and subsection (e)(1), is amended--
          (1) by redesignating paragraphs (6) through (9) as paragraphs 
        (7) through (10); and
          (2) by inserting after paragraph (5) the following new 
        paragraph:
          ``(6) Services furnished in ambulatory surgical centers.--In 
        the case of a designated health service furnished in an 
        ambulatory surgical center described in section 
        1832(a)(2)(F)(i).''.
  (g) New Exception for Services Furnished in Renal Dialysis 
Facilities.--Section 1877(b) (42 U.S.C. 1395nn(b)), as amended by 
section 15201(b)(3)(C), subsection (d)(1), subsection (e)(1), and 
subsection (f), is amended--
          (1) by redesignating paragraphs (7) through (10) as 
        paragraphs (8) through (11); and
          (2) by inserting after paragraph (6) the following new 
        paragraph:
          ``(7) Services furnished in renal dialysis facilities.--In 
        the case of a designated health service furnished in a renal 
        dialysis facility under section 1881.''.
  (h) New Exception for Services Furnished in a Hospice.--Section 
1877(b) (42 U.S.C. 1395nn(b)), as amended by section 15201(b)(3)(C), 
subsection (d)(1), subsection (e)(1), subsection (f), and subsection 
(g), is amended--
          (1) by redesignating paragraphs (8) through (11) as 
        paragraphs (9) through (12); and
          (2) by inserting after paragraph (7) the following new 
        paragraph:
          ``(8) Services furnished by a hospice program.--In the case 
        of a designated health service furnished by a hospice program 
        under section 1861(dd)(2).''.
  (i) New Exception for Services Furnished in a Comprehensive 
Outpatient Rehabilitation Facility.--Section 1877(b) (42 U.S.C. 
1395nn(b)), as amended by section 15201(b)(3)(C), subsection (d)(1), 
subsection (e)(1), subsection (f), subsection (g), and subsection (h), 
is amended--
          (1) by redesignating paragraphs (9) through (12) as 
        paragraphs (10) through (13); and
          (2) by inserting after paragraph (8) the following new 
        paragraph:
          ``(9) Services furnished in a comprehensive outpatient 
        rehabilitation facility.--In the case of a designated health 
        service furnished in a comprehensive outpatient rehabilitation 
        facility (as defined in section 1861(cc)(2)).''.
  (i) Definition of Referral.--Section 1877(h)(5)(A) (42 U.S.C. 
1395nn(h)(5)(A)) is amended--
          (1) by striking ``an item or service'' and inserting ``a 
        designated health service'', and
          (2) by striking ``the item or service'' and inserting ``the 
        designated health service''.

SEC. 15205. REPEAL OF REPORTING REQUIREMENTS.

  Section 1877 (42 U.S.C. 1395nn) is amended--
          (1) by striking subsection (f); and
          (2) by striking subsection (g)(5).

SEC. 15206. PREEMPTION OF STATE LAW.

  Section 1877 (42 U.S.C. 1395nn) is amended by adding at the end the 
following new subsection:
  ``(i) Preemption of State Law.--This section preempts State law to 
the extent State law is inconsistent with this section.''.

SEC. 15207. EFFECTIVE DATE.

  Except as provided in section 15203(b), the amendments made by this 
part shall apply to referrals made on or after August 14, 1995, 
regardless of whether or not regulations are promulgated to carry out 
such amendments.

                PART 2--OTHER MEDICARE REGULATORY RELIEF

SEC. 15211. REPEAL OF MEDICARE AND MEDICAID COVERAGE DATA BANK.

  (a) In General.--Section 1144 (42 U.S.C. 1320b-14) is repealed.
  (b) Conforming Amendments.--
          (1) Medicare.--Section 1862(b)(5) (42 U.S.C. 1395y(b)(5)) is 
        amended--
                  (A) in subparagraph (B), by striking ``under--'' and 
                all that follows through the end and inserting 
                ``subparagraph (A) for purposes of carrying out this 
                subsection.'', and
                  (B) in subparagraph (C)(i), by striking 
                ``subparagraph (B)(i)'' and inserting ``subparagraph 
                (B)''.
          (2) Medicaid.--Section 1902(a)(25)(A)(i) (42 U.S.C. 
        1396a(a)(25)(A)(i)) is amended by striking ``including the use 
        of'' and all that follows through ``any additional measures''.
          (3) ERISA.--Section 101(f) of the Employee Retirement Income 
        Security Act of 1974 (29 U.S.C. 1021(f)) is repealed.
          (4) Data matches.--Section 552a(a)(8)(B) of title 5, United 
        States Code, is amended--
                  (A) by adding ``; or'' at the end of clause (v),
                  (B) by striking ``or'' at the end of clause (vi), and
                  (C) by striking clause (vii).

SEC. 15212. CLARIFICATION OF LEVEL OF INTENT REQUIRED FOR IMPOSITION OF 
                    SANCTIONS.

  (a) Clarification of Level of Knowledge Required for Imposition of 
Civil Monetary Penalties.--
          (1) In general.--Section 1128A(a) (42 U.S.C. 1320a-7a(a)) is 
        amended--
          (1) in paragraphs (1) and (2), by inserting ``knowingly'' 
        before ``presents'' each place it appears; and
          (2) 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 person, 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 required.''.
  (b) Clarification of Effect and Application of Safe Harbor 
Exceptions.--For purposes of section 1128B(b)(3) of the Social Security 
Act, the specification of any payment practice in regulations 
promulgated pursuant to section 14(a) of the Medicare and Medicaid 
Program and Patient Protection Act of 1987 is--
          (1) solely for the purpose of adding additional exceptions to 
        the types of conduct which are not subject to an anti-kickback 
        penalty under such section and not for the purpose of limiting 
        the scope of such exceptions; and
          (2) for the purpose of prescribing criteria for qualifying 
        for such an exception notwithstanding the intent of the party 
        involved.
  (c) Limiting Imposition of Anti-kickback Penalties to Actions With 
Significant Purpose to Induce Referrals.--Section 1128B(b)(2) (42 
U.S.C. 1320a-7b(b)(2)) is amended in the matter preceding subparagraph 
(A) by striking ``to induce'' and inserting ``for the significant 
purpose of inducing''.
  (d) Effective Date.--The amendments made by this section shall apply 
to acts or omissions occurring on or after January 1, 1996.

SEC. 15213. ADDITIONAL EXCEPTION TO ANTI-KICKBACK PENALTIES FOR 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 subparagraph (D);
          (2) by striking the period at the end of subparagraph (E) and 
        inserting ``; and''; and
          (3) by adding at the end the following new subparagraph:
          ``(F) any remuneration between an organization and an 
        individual or entity providing services pursuant to a written 
        agreement between the organization and the individual or entity 
        if the organization is a MedicarePlus organization under part C 
        of title XVIII or if the written agreement places the 
        individual or entity at substantial financial risk for the cost 
        or utilization of the items or services which the individual or 
        entity is obligated to provide, whether through a withhold, 
        capitation, incentive pool, per diem payment, or any other 
        similar risk arrangement which places the individual or entity 
        at substantial financial risk.''.
  (b) Effective Date.--The amendment made by subsection (a) shall apply 
to acts or omissions occurring on or after January 1, 1996.

SEC. 15214. SOLICITATION AND PUBLICATION OF MODIFICATIONS TO EXISTING 
                    SAFE HARBORS AND NEW SAFE HARBORS.

  (a) In General.--
          (1) Solicitations.--Not later than January 1, 1996, and not 
        less than annually thereafter, the Secretary of Health and 
        Human Services shall publish a notice in the Federal Register 
        soliciting proposals, which will be accepted during a 60-day 
        period, for--
                  (A) modifications to existing safe harbors issued 
                pursuant to section 14(a) of the Medicare and Medicaid 
                Patient and Program Protection Act of 1987;
                  (B) additional safe harbors specifying payment 
                practices that shall not be treated as a criminal 
                offense under section 1128B(b) of the Social Security 
                Act and shall not serve as the basis for an exclusion 
                under section 1128(b)(7) of such Act; and
                  (C) special fraud alerts to be issued pursuant to 
                section 15101(c).
          (2) Publication of proposed modifications and proposed 
        additional safe harbors.--Not later than 120 days after 
        receiving the proposals described in subparagraphs (A) and (B) 
        of paragraph (1), the Secretary, after considering such 
        proposals in consultation with the Attorney 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 appropriate.
          (3) Report.--The Inspector General shall, in an annual report 
        to Congress or as part of the year-end semiannual report 
        required by section 5 of the Inspector General Act of 1978, 
        describe the proposals received under subparagraphs (A) and (B) 
        of paragraph (1) and explain which proposals were included in 
        the publication described in paragraph (2), which proposals 
        were not included in that publication, and the reasons for the 
        rejection of the proposals that were not included.
  (b) Criteria for Modifying and Establishing Safe Harbors.--In 
modifying and establishing safe harbors under subsection (a)(2), the 
Secretary may consider the extent to which providing a safe harbor for 
the specified payment practice may result in any of the following:
          (1) An increase or decrease in access to health care 
        services.
          (2) An increase or decrease in the quality of health care 
        services.
          (3) An increase or decrease in patient freedom of choice 
        among health care providers.
          (4) An increase or decrease in competition among health care 
        providers.
          (5) An increase or decrease in the cost to health care 
        programs of the Federal Government.
          (6) An increase or decrease in the potential overutilization 
        of health care services.
          (8) Any other factors the Secretary deems appropriate in the 
        interest of preventing fraud and abuse in health care programs 
        of the Federal Government.

SEC. 15215. ISSUANCE OF ADVISORY OPINIONS UNDER TITLE XI.

  (a) In General.--Title XI (42 U.S.C. 1301 et seq.), as amended by 
section 15104(a), is amended by inserting after section 1129 the 
following new section:
                          ``advisory opinions
  ``Sec. 1130. (a) Issuance of Advisory Opinions.--The Secretary shall 
issue written advisory opinions as provided in this section.
  ``(b) Matters Subject to Advisory Opinions.--The Secretary shall 
issue advisory opinions as to the following matters:
          ``(1) What constitutes prohibited remuneration within the 
        meaning of section 1128B(b).
          ``(2) 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.
          ``(3) 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.
          ``(4) 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).
          ``(5) Whether any activity or proposed activity constitutes 
        grounds for the imposition of a sanction under section 1128, 
        1128A, or 1128B.
  ``(c) Matters Not Subject to Advisory Opinions.--Such advisory 
opinions shall not address the following matters:
          ``(1) Whether the fair market value shall be, or was paid or 
        received for any goods, services or property.
          ``(2) Whether an individual is a bona fide employee within 
        the requirements of section 3121(d)(2) of the Internal Revenue 
        Code of 1986.
  ``(d) Effect of Advisory Opinions.--
          ``(1) Binding as to secretary and parties involved.--Each 
        advisory opinion issued by the Secretary shall be binding as to 
        the Secretary and the party or parties requesting the opinion.
          ``(2) 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.
  ``(e) Regulations.--
          ``(1) In general.--Not later than 180 days after the date of 
        the enactment of this section, the Secretary shall issue 
        regulations to carry out this section. Such regulations shall 
        provide for--
                  ``(A) the procedure to be followed by a party 
                applying for an advisory opinion;
                  ``(B) the procedure to be followed by the Secretary 
                in responding to a request for an advisory opinion;
                  ``(C) the interval in which the Secretary shall 
                respond;
                  ``(D) the reasonable fee to be charged to the party 
                requesting an advisory opinion; and
                  ``(E) the manner in which advisory opinions will be 
                made available to the public.
          ``(2) Specific contents.--Under the regulations promulgated 
        pursuant to paragraph (1)--
                  ``(A) 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
                  ``(B) the fee charged to the party requesting an 
                advisory opinion shall be equal to the costs incurred 
                by the Secretary in responding to the request.''.
  (b) Effective Date.--The amendment made by subsection (a) shall apply 
to requests for advisory opinions made on or after January 1, 1996.

SEC. 15216. PRIOR NOTICE OF CHANGES IN BILLING AND CLAIMS PROCESSING 
                    REQUIREMENTS FOR PHYSICIANS' SERVICES.

  Except as may be specifically provided by Congress, the Secretary of 
Health and Human Services may not implement any change in the 
requirements imposed on the billing and processing of claims for 
payment for physicians' services under part B of the medicare program 
unless the Secretary notifies the individuals furnishing such services 
of the change not later than 120 days before the effective date of the 
change.

               PART 3--PROMOTING PHYSICIAN SELF-POLICING

SEC. 15221. EXEMPTION FROM ANTITRUST LAWS FOR CERTAIN ACTIVITIES OF 
                    MEDICAL SELF-REGULATORY ENTITIES.

  (a) Exemption Described.--An activity relating to the provision of 
health care services shall be exempt from the antitrust laws, and any 
State law similar to the antitrust laws, if the activity is within the 
safe harbor described in subsection (b).
  (b) Safe Harbor for Activities of Medical Self-Regulatory Entities.--
          (1) In General.--Subject to paragraph (2), any activity of a 
        medical self-regulatory entity relating to standard setting or 
        standard enforcement activities that are designed to promote 
        the quality of health care services provided to patients.
          (2) Exception.--No activity of a medical self-regulatory 
        entity may be deemed to fall under the safe harbor established 
        under paragraph (1) if the activity--
                  (A) is conducted for purposes of financial gain, or
                  (B) interferes with the provision of health care 
                services by any health care provider who is not a 
                member of the specific profession which is subject to 
                the authority of the medical self-regulatory entity.
  (c) Definitions.--For purposes of this section:
          (1) Antitrust Laws.--The term ``antitrust laws'' has the 
        meaning given it in subsection (a) of the first section of the 
        Clayton Act (15 U.S.C. 12(a)), except that such term includes 
        section 5 of the Federal Trade Commission Act (15 U.S.C. 45) to 
        the extent such section applies to unfair methods of 
        competition.
          (2) Health benefit plan.--The term ``health benefit plan'' 
        means--
                  (A) a hospital or medical expense incurred policy or 
                certificate,
                  (B) a hospital or medical service plan contract,
                  (C) a health maintenance subscriber contract,
                  (D) a multiple employer welfare arrangement or 
                employee benefit plan (as defined under the Employee 
                Retirement Income Security Act of 1974), or
                  (E) a MedicarePlus product (offered under part C of 
                title XVIII of the Social Security Act),
        that provides benefits with respect to health care services.
          (3) Health care service.--The term ``health care service'' 
        means any service for which payment may be made under a health 
        benefit plan including services related to the delivery or 
        administration of such service.
          (4) Medical self-regulatory entity.--The term ``medical self-
        regulatory entity'' means a medical society or association, a 
        specialty board, a recognized accrediting agency, or a hospital 
        medical staff, and includes the members, officers, employees, 
        consultants, and volunteers or committees of such an entity.
          (5) Health care provider.--The term ``health care provider'' 
        means any individual or entity that is engaged in the delivery 
        of health care services in a State and that is required by 
        State law or regulation to be licensed or certified by the 
        State to engage in the delivery of such services in the State.
          (6) Standard setting or standard enforcement activities.--The 
        term ``standard setting or standard enforcement activities'' 
        means--
                  (A) accreditation of health care practitioners, 
                health care providers, medical education institutions, 
                or medical education programs,
                  (B) technology assessment and risk management 
                activities,
                  (C) the development and implementation of practice 
                guidelines or practice parameters, or
                  (D) official peer review proceedings undertaken by a 
                hospital medical staff (or committee thereof) or a 
                medical society or association for purposes of 
                evaluating the professional conduct or quality of 
                health care provided by a medical professional.

                  Subtitle D--Medical Liability Reform

                       PART 1--GENERAL PROVISIONS

SEC. 15301. FEDERAL REFORM OF HEALTH CARE LIABILITY ACTIONS.

  (a) Applicability.--This subtitle shall apply with respect to any 
health care liability action brought in any State or Federal court, 
except that this subtitle shall not apply to an action for damages 
arising from a vaccine-related injury or death to the extent that title 
XXI of the Public Health Service Act applies to the action.
  (b) Preemption.--This subtitle shall preempt any State law to the 
extent such law is inconsistent with the limitations contained in this 
subtitle. This subtitle shall not preempt any State law that provides 
for defenses or places limitations on a person's liability in addition 
to those contained in this subtitle or otherwise imposes greater 
restrictions than those provided in this subtitle.
  (c) Effect on Sovereign Immunity and Choice of Law or Venue.--Nothing 
in subsection (b) shall be construed to--
          (1) waive or affect any defense of sovereign immunity 
        asserted by any State under any provision of law;
          (2) waive or affect any defense of sovereign immunity 
        asserted by the United States;
          (3) affect the applicability of any provision of the Foreign 
        Sovereign Immunities Act of 1976;
          (4) preempt State choice-of-law rules with respect to claims 
        brought by a foreign nation or a citizen of a foreign nation; 
        or
          (5) affect the right of any court to transfer venue or to 
        apply the law of a foreign nation or to dismiss a claim of a 
        foreign nation or of a citizen of a foreign nation on the 
        ground of inconvenient forum.
  (d) Amount in Controversy.--In an action to which this subtitle 
applies and which is brought under section 1332 of title 28, United 
States Code, the amount of noneconomic damages or punitive damages, and 
attorneys' fees or costs, shall not be included in determining whether 
the matter in controversy exceeds the sum or value of $50,000.
  (e) Federal Court Jurisdiction Not Established on Federal Question 
Grounds.--Nothing in this subtitle shall be construed to establish any 
jurisdiction in the district courts of the United States over health 
care liability actions on the basis of section 1331 or 1337 of title 
28, United States Code.

SEC. 15302. DEFINITIONS.

  As used in this subtitle:
          (1) Actual damages.--The term ``actual damages'' means 
        damages awarded to pay for economic loss.
          (2) Alternative dispute resolution system; adr.--The term 
        ``alternative dispute resolution system'' or ``ADR'' means a 
        system established under Federal or State law that provides for 
        the resolution of health care liability claims in a manner 
        other than through health care liability actions.
          (3) Claimant.--The term ``claimant'' means any person who 
        brings a health care liability action and any person on whose 
        behalf such an action is brought. If such action is brought 
        through or on behalf of an estate, the term includes the 
        claimant's decedent. If such action is brought through or on 
        behalf of a minor or incompetent, the term includes the 
        claimant's legal guardian.
          (4) Clear and convincing evidence.--The term ``clear and 
        convincing evidence'' is that measure or degree of proof that 
        will produce in the mind of the trier of fact a firm belief or 
        conviction as to the truth of the allegations sought to be 
        established, except that such measure or degree of proof is 
        more than that required under preponderance of the evidence but 
        less than that required for proof beyond a reasonable doubt.
          (5) Collateral source payments.--The term ``collateral source 
        payments'' means any amount paid or reasonably likely to be 
        paid in the future to or on behalf of a claimant, or any 
        service, product, or other benefit provided or reasonably 
        likely to be provided in the future to or on behalf of a 
        claimant, as a result of an injury or wrongful death, pursuant 
        to--
                  (A) any State or Federal health, sickness, income-
                disability, accident or workers' compensation Act;
                  (B) any health, sickness, income-disability, or 
                accident insurance that provides health benefits or 
                income-disability coverage;
                  (C) any contract or agreement of any group, 
                organization, partnership, or corporation to provide, 
                pay for, or reimburse the cost of medical, hospital, 
                dental, or income disability benefits; and
                  (D) any other publicly or privately funded program.
          (6) Economic loss.--The term ``economic loss'' means any 
        pecuniary loss resulting from harm (including the loss of 
        earnings, medical expense loss, replacement services loss, loss 
        due to death, and burial costs), to the extent recovery for 
        such loss is allowed under applicable State law.
          (7) Harm.--The term ``harm'' means any legally cognizable 
        wrong or injury for which punitive damages may be imposed.
          (8) Health care liability action.--The term ``health care 
        liability action'' means a civil action brought in a State or 
        Federal court against a health care provider, an entity which 
        is obligated to provide or pay for health benefits under any 
        health plan (including any person or entity acting under a 
        contract or arrangement to provide or administer any health 
        benefit), or the manufacturer, distributor, supplier, marketer, 
        promoter, or seller of a medical product, in which the claimant 
        alleges a claim (including third party claims, cross claims, 
        counter claims, or distribution claims) based upon the 
        provision of (or the failure to provide or pay for) health care 
        services or the use of a medical product, regardless of the 
        theory of liability on which the claim is based or the number 
        of plaintiffs, or defendants or causes of action.
          (9) Health care liability claim.--The term ``health care 
        liability claim'' means a claim in which the claimant alleges 
        that injury was caused by the provision of (or the failure to 
        provide) health care services.
          (10) Health care provider.--The term ``health care provider'' 
        means any individual, organization, or institution that is 
        engaged in the delivery of health care services in a State and 
        that is required by the laws or regulations of the State to be 
        licensed or certified by the State to engage in the delivery of 
        such services in the State.
          (11) Noneconomic damages.--The term ``noneconomic damages'' 
        means damages paid to an individual for pain and suffering, 
        inconvenience, emotional distress, mental anguish, loss of 
        consortium, injury to reputation, humiliation, and other 
        nonpecuniary losses.
          (12) Person.--The term ``person'' means any individual, 
        corporation, company, association, firm, partnership, society, 
        joint stock company, or any other entity, including any 
        governmental entity.
          (13) Punitive damages.--The term ``punitive damages'' means 
        damages awarded against any person not to compensate for actual 
        injury suffered, but to punish or deter such person or others 
        from engaging in similar behavior in the future.
          (14) State.--The term ``State'' means each of the several 
        States, the District of Columbia, the Commonwealth of Puerto 
        Rico, the Virgin Islands, Guam, American Samoa, the Northern 
        Mariana Islands, the Trust Territories of the Pacific Islands, 
        and any other territory or possession of the United States.

SEC. 15303. EFFECTIVE DATE.

  This subtitle will apply to any health care liability action brought 
in a Federal or State court and to any health care liability claim 
subject to an alternative dispute resolution system, that is initiated 
on or after the date of enactment of this subtitle, except that any 
health care liability claim or action arising from an injury occurring 
prior to the date of enactment of this subtitle shall be governed by 
the applicable statute of limitations provisions in effect at the time 
the injury occurred.

      PART 2--UNIFORM STANDARDS FOR HEALTH CARE LIABILITY ACTIONS

SEC. 15311. STATUTE OF LIMITATIONS.

  A health care liability action may not be brought after the 
expiration of the 2-year period that begins on the date on which the 
alleged injury that is the subject of the action was discovered or 
should reasonably have been discovered, but in no case after the 
expiration of the 5-year period that begins on the date the alleged 
injury occurred.

SEC. 15312. CALCULATION AND PAYMENT OF DAMAGES.

  (a) Treatment of Noneconomic Damages.--
          (1) Limitation on noneconomic damages.--The total amount of 
        noneconomic damages that may be awarded to a claimant for 
        losses resulting from the injury which is the subject of a 
        health care liability action may not exceed $250,000, 
        regardless of the number of parties against whom the action is 
        brought or the number of actions brought with respect to the 
        injury.
          (2) Joint and several liability.--In any health care 
        liability action brought in State or Federal court, a defendant 
        shall be liable only for the amount of noneconomic damages 
        attributable to such defendant in direct proportion to such 
        defendant's share of fault or responsibility for the claimant's 
        actual damages, as determined by the trier of fact. In all such 
        cases, the liability of a defendant for noneconomic damages 
        shall be several and not joint.
  (b) Treatment of Punitive Damages.--
          (1) General rule.--Punitive damages may, to the extent 
        permitted by applicable State law, be awarded in any health 
        care liability action for harm in any Federal or State court 
        against a defendant if the claimant establishes by clear and 
        convincing evidence that the harm suffered was result of 
        conduct--
                  (A) specifically intended to cause harm, or
                  (B) conduct manifesting a conscious, flagrant 
                indifference to the rights or safety of others.
          (2) Proportional awards.--The amount of punitive damages that 
        may be awarded in any health care liability action subject to 
        this subtitle shall not exceed 3 times the amount of damages 
        awarded to the claimant for economic loss, or $250,000, 
        whichever is greater. This section shall be applied by the 
        court and shall not be disclosed to the jury.
  (c) Applicability.--This section shall apply to any health care 
liability action brought in any Federal or State court on any theory 
where punitive damages are sought. This section does not create a cause 
of action for punitive damages. This section does not preempt or 
supersede any State or Federal law to the extent that such law would 
further limit the award of punitive damages.
  (d) Bifurcation.--At the request of any party, the trier of fact 
shall consider in a separate proceeding whether punitive damages are to 
be awarded and the amount of such award. If a separate proceeding is 
requested, evidence relevant only to the claim of punitive damages, as 
determined by applicable State law, shall be inadmissible in any 
proceeding to determine whether actual damages are to be awarded.
  (e) Drugs and Devices.--
          (1)(A) Punitive damages shall not be awarded against a 
        manufacturer or product seller of a drug (as defined in section 
        201(g)(1) of the Federal Food, Drug, and Cosmetic Act (21 
        U.S.C. 321(g)(1)) or medical device (as defined in section 
        201(h) of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 
        321(h)) which caused the claimant's harm where--
                  (i) such drug or device was subject to premarket 
                approval by the Food and Drug Administration with 
                respect to the safety of the formulation or performance 
                of the aspect of such drug or device which caused the 
                claimant's harm or the adequacy of the packaging or 
                labeling of such drug or device, and such drug was 
                approved by the Food and Drug Administration; or
                  (ii) the drug is generally recognized as safe and 
                effective pursuant to conditions established by the 
                Food and Drug Administration and applicable 
                regulations, including packaging and labeling 
                regulations.
          (B) Subparagraph (A) shall not apply in any case in which the 
        defendant, before or after premarket approval of a drug or 
        device--
                  (i) intentionally and wrongfully withheld from or 
                misrepresented to the Food and Drug Administration 
                information concerning such drug or device required to 
                be submitted under the Federal Food, Drug, and Cosmetic 
                Act (21 U.S.C. 301 et seq.) or section 351 of the 
                Public Health Service Act (42 U.S.C. 262) that is 
                material and relevant to the harm suffered by the 
                claimant, or
                  (ii) made an illegal payment to an official or 
                employee of the Food and Drug Administration for the 
                purpose of securing or maintaining approval of such 
                drug or device.
          (2) Packaging.--In a health care liability action for harm 
        which is alleged to relate to the adequacy of the packaging (or 
        labeling relating to such packaging) of a drug which is 
        required to have tamper-resistant packaging under regulations 
        of the Secretary of Health and Human Services (including 
        labeling regulations related to such packaging), the 
        manufacturer of the drug shall not be held liable for punitive 
        damages unless the drug is found by the court by clear and 
        convincing evidence to be substantially out of compliance with 
        such regulations.
  (f) Periodic Payments for Future Losses.--
          (1) General rule.--In any health care liability action in 
        which the damages awarded for future economic and noneconomic 
        loss exceeds $50,000, a person shall not be required to pay 
        such damages in a single, lump-sum payment, but shall be 
        permitted to make such payments periodically based on when the 
        damages are found likely to occur, as such payments are 
        determined by the court.
          (2) Finality of judgment.--The judgment of the court awarding 
        periodic payments under this subsection may not, in the absence 
        of fraud, be reopened at any time to contest, amend, or modify 
        the schedule or amount of the payments.
          (3) Lump-sum settlements.--This subsection shall not be 
        construed to preclude a settlement providing for a single, 
        lump-sum payment.
  (g) Treatment of Collateral Source Payments.--
          (1) Introduction into evidence.--In any health care liability 
        action, any defendant may introduce evidence of collateral 
        source payments. If any defendant elects to introduce such 
        evidence, the claimant may introduce evidence of any amount 
        paid or contributed or reasonably likely to be paid or 
        contributed in the future by or on behalf of the claimant to 
        secure the right to such collateral source payments.
          (2) No subrogation.--No provider of collateral source 
        payments shall recover any amount against the claimant or 
        receive any lien or credit against the claimant's recovery or 
        be equitably or legally subrogated the right of the claimant in 
        a health care liability action. This subsection shall apply to 
        an action that is settled as well as an action that is resolved 
        by a fact finder.

SEC. 15313. ALTERNATIVE DISPUTE RESOLUTION.

  Any ADR used to resolve a health care liability action or claim shall 
contain provisions relating to statute of limitations, non-economic 
damages, joint and several liability, punitive damages, collateral 
source rule, and periodic payments which are identical to the 
provisions relating to such matters in this subtitle.

     Subtitle E--Teaching Hospitals and Graduate Medical Education

  PART 1--TEACHING HOSPITAL AND GRADUATE MEDICAL EDUCATION TRUST FUND

SEC. 15401. ESTABLISHMENT OF FUND; PAYMENTS TO TEACHING HOSPITALS.

  The Social Security Act (42 U.S.C. 300 et seq.) is amended by adding 
after title XXI the following title:

 ``TITLE XXII--TEACHING HOSPITAL AND GRADUATE MEDICAL EDUCATION TRUST 
                                  FUND

                    ``Part A--Establishment of Fund

``SEC. 2201. ESTABLISHMENT OF FUND.

  ``(a) In General.--There is established in the Treasury of the United 
States a fund to be known as the Teaching Hospital and Graduate Medical 
Education Trust Fund (in this title referred to as the `Fund'), 
consisting of amounts appropriated to the Fund in subsection (d) and 
subsection (e)(3), amounts transferred to the Fund under section 
1886(j), and such gifts and bequests as may be deposited in the Fund 
pursuant to subsection (f). Amounts in the Fund are available until 
expended.
  ``(b) Expenditures From Fund.--Amounts in the Fund are available to 
the Secretary for making payments under section 2211.
  ``(c) Accounts in Fund.--There are established within the Fund the 
following accounts:
          ``(1) The Indirect-Costs Medical Education Account.
          ``(2) The Medicare Direct-Costs Medical Education Account.
          ``(3) The General Direct-Costs Medical Education Account.
  ``(d) General Transfers to Fund.--
          ``(1) In general.--For fiscal year 1997 and each subsequent 
        fiscal year, there are appropriated to the Fund (effective on 
        the applicable date under paragraph (2)), out of any money in 
        the Treasury not otherwise appropriated, the following amounts 
        (as applicable to the fiscal year involved):
                  ``(A) For fiscal year 1997, $400,000,000.
                  ``(B) For fiscal year 1998, $600,000,000.
                  ``(C) For fiscal year 1999, $2,000,000,000.
                  ``(D) For fiscal year 2000, $3,000,000,000.
                  ``(E) For fiscal year 2001, $4,000,000,000.
                  ``(F) For fiscal year 2002, $5,800,000,000.
                  ``(G) For fiscal year 2003 and each subsequent fiscal 
                year, the greater of the amount appropriated for the 
                preceding fiscal year or an amount equal to the product 
                of--
                          ``(i) the amount appropriated for the 
                        preceding fiscal year; and
                          ``(ii) 1 plus the percentage increase in the 
                        nominal gross domestic product for the one-year 
                        period ending upon July 1 of such preceding 
                        fiscal year.
          ``(2) Effective date for annual appropriation.--For purposes 
        of paragraph (1) (and for purposes of section 2221(a)(1), and 
        subsections (b)(1)(A) and (c)(1)(A) of section 2231)), the 
        applicable date for a fiscal year is the first day of the 
        fiscal year, exclusive of Saturdays, Sundays, and Federal 
        holidays.
          ``(3) Allocation among certain accounts.--Of the amount 
        appropriated in paragraph (1) for a fiscal year--
                  ``(A) there shall be allocated to the Indirect-Costs 
                Medical Education Account the percentage determined 
                under paragraph (4)(B); and
                  ``(B) there shall be allocated to the General Direct-
                Costs Medical Education Account the percentage 
                determined under paragraph (4)(C).
          ``(4) Determination of percentages.--The Secretary of Health 
        and Human Services, acting through the Administrator of the 
        Health Care Financing Administration, shall determine the 
        following:
                  ``(A) The total amount of payments that were made 
                under subsections (d)(5)(B) and (h) of section 1886 for 
                fiscal year 1994.
                  ``(B) The percentage of such total that was 
                constituted by payments under subsection (d)(5)(B) of 
                such section.
                  ``(C) The percentage of such total that was 
                constituted by payments under subsection (h) of such 
                section.
  ``(e) Investment.--
          ``(1) In general.--The Secretary of the Treasury shall invest 
        such amounts of the Fund as such Secretary determines are not 
        required to meet current withdrawals from the Fund. Such 
        investments may be made only in interest-bearing obligations of 
        the United States. For such purpose, such obligations may be 
        acquired on original issue at the issue price, or by purchase 
        of outstanding obligations at the market price.
          ``(2) Sale of obligations.--Any obligation acquired by the 
        Fund may be sold by the Secretary of the Treasury at the market 
        price.
          ``(3) Availability of income.--Any interest derived from 
        obligations acquired by the Fund, and proceeds from any sale or 
        redemption of such obligations, are hereby appropriated to the 
        Fund.
  ``(f) Acceptance of Gifts and Bequests.--The Fund may accept on 
behalf of the United States money gifts and bequests made 
unconditionally to the Fund for the benefit of the Fund or any activity 
financed through the Fund.

                ``Part B--Payments to Teaching Hospitals

                  ``Subpart 1--Requirement of Payments

``SEC. 2211. FORMULA PAYMENTS TO TEACHING HOSPITALS.

  ``(a) In General.--Subject to subsection (d), in the case of each 
teaching hospital that in accordance with subsection (b) submits to the 
Secretary a payment document for fiscal year 1997 or any subsequent 
fiscal year, the Secretary shall make payments for the year to the 
teaching hospital for the costs of operating approved medical residency 
training programs. Such payments shall be made from the Fund, and the 
total of the payments to the hospital for the fiscal year shall equal 
the sum of the following:
          ``(1) An amount determined under section 2221 (relating to 
        the indirect costs of graduate medical education).
          ``(2) An amount determined under section 2231 (relating to 
        the direct costs of graduate medical education).
  ``(b) Payment Document.--For purposes of subsection (a), a payment 
document is a document containing such information as may be necessary 
for the Secretary to make payments under such subsection to a teaching 
hospital for a fiscal year. The document is submitted in accordance 
with this subsection if the document is submitted not later than the 
date specified by the Secretary, and the document is in such form and 
is made in such manner as the Secretary may require. The Secretary may 
require that information under this subsection be submitted to the 
Secretary in periodic reports.
  ``(c) Administrator of Programs.--This part, and the subsequent parts 
of this title, shall be carried out by the Secretary acting through the 
Administrator of the Health Care Financing Administration.
  ``(d) Special Rules.--
          ``(1) Authority regarding payments to consortia of 
        providers.--In the case of payments under subsection (a) that 
        are determined under section 2231:
                  ``(A) The requirement under such subsection to make 
                the payments to teaching hospitals is subject to the 
                authority of the Secretary under section 2233(a) to 
                make payments to qualifying consortia.
                  ``(B) If the Secretary authorizes such a consortium 
                for purposes of section 2233(a), subsections (a) and 
                (b) of this section apply to the consortium to the same 
                extent and in the same manner as the subsections apply 
                to teaching hospitals.
          ``(2) Certain hospitals.--Paragraph (1) of subsection (a) is 
        subject to sections 2222 and 2223 of subpart 2. Paragraph (2) 
        of subsection (a) is subject to sections 2232 through 2234 of 
        subpart 3.
  ``(e) Approved Medical Residency Training Program.--For purposes of 
this title, the term `approved medical residency training program' has 
the meaning given such term in section 1886(h)(5)(A).

  ``Subpart 2--Amount Relating to Indirect Costs of Graduate Medical 
                               Education

``SEC. 2221. DETERMINATION OF AMOUNT RELATING TO INDIRECT COSTS.

  ``(a) In General.--For purposes of section 2211(a)(1), the amount 
determined under this section for a teaching hospital for a fiscal year 
is the product of--
          ``(1) the amount in the Indirect-Costs Medical Education 
        Account on the applicable date under section 2201(d) (once the 
        appropriation under such section is made); and
          ``(2) the percentage determined for the hospital under 
        subsection (b).
  ``(b) Hospital-Specific Percentage.--
          ``(1) In general.--For purposes of subsection (a)(2), the 
        percentage determined under this subsection for a teaching 
        hospital is the mean average of the respective percentages 
        determined under paragraph (3) for each fiscal year of the 
        applicable period (as defined in paragraph (2)), adjusted by 
        the Secretary (upward or downward, as the case may be) on a pro 
        rata basis to the extent necessary to ensure that the sum of 
        the percentages determined under this paragraph for all 
        teaching hospitals is equal to 100 percent. The preceding 
        sentence is subject to sections 2222 and 2223.
          ``(2) Applicable period regarding relevant data; fiscal years 
        1992 through 1994.--For purposes of this part, the term 
        `applicable period' means the period beginning on the first day 
        of fiscal year 1992 and continuing through the end of fiscal 
        year 1994.
          ``(3) Respective determinations for fiscal years of 
        applicable period.--For purposes of paragraph (1), the 
        percentage determined under this paragraph for a teaching 
        hospital for a fiscal year of the applicable period is the 
        percentage constituted by the ratio of--
                  ``(A) the total amount of payments received by the 
                hospital under section 1886(d)(5)(B) for discharges 
                occurring during the fiscal year involved; to
                  ``(B) the sum of the respective amounts determined 
                under subparagraph (A) for the fiscal year for all 
                teaching hospitals.
  ``(c) Availability of Data.--If a teaching hospital received the 
payments specified in subsection (b)(3)(A) during the applicable period 
but a complete set of the relevant data is not available to the 
Secretary for purposes of determining an amount under such subsection 
for the fiscal year involved, the Secretary shall for purposes of such 
subsection make an estimate on the basis of such data as are available 
to the Secretary for the applicable period.

``SEC. 2222. INDIRECT COSTS; SPECIAL RULES REGARDING DETERMINATION OF 
                    HOSPITAL-SPECIFIC PERCENTAGE.

  ``(a) Special Rule Regarding Fiscal Years 1995 and 1996.--
          ``(1) In general.--In the case of a teaching hospital whose 
        first payments under 1886(d)(5)(B) were for discharges 
        occurring in fiscal year 1995 or in fiscal year 1996 (referred 
        to in this subsection individually as a `first payment year'), 
        the percentage determined under paragraph (2) for the hospital 
        is deemed to be the percentage applicable under section 2221(b) 
        to the hospital, except that the percentage under paragraph (2) 
        shall be adjusted in accordance with section 2221(b)(1) to the 
        extent determined by the Secretary to be necessary with respect 
        to a sum that equals 100 percent.
          ``(2) Determination of percentage.--For purposes of paragraph 
        (1), the percentage determined under this paragraph for a 
        teaching hospital is the percentage constituted by the ratio of 
        the amount determined under subparagraph (A) to the amount 
        determined under subparagraph (B), as follows:
                  ``(A)(i) If the first payment year for the hospital 
                is fiscal year 1995, the amount determined under this 
                subparagraph is the total amount of payments received 
                by the hospital under section 1886(d)(5)(B) for 
                discharges occurring during fiscal year 1995.
                  ``(ii) If the first payment year for the hospital is 
                fiscal year 1996, the amount determined under this 
                subparagraph is an amount equal to an estimate by the 
                Secretary of the total amount of payments that would 
                have been paid to the hospital under section 
                1886(d)(5)(B) for discharges occurring during fiscal 
                year 1995 if such section, as in effect for fiscal year 
                1996, had applied to the hospital for discharges 
                occurring during fiscal year 1995.
                  ``(B)(i) If the first payment year for the hospital 
                is fiscal year 1995, the amount determined under this 
                subparagraph is the aggregate total of the payments 
                received by teaching hospitals under section 
                1886(d)(5)(B) for discharges occurring during fiscal 
                year 1995.
                  ``(ii) If the first payment year for the hospital is 
                fiscal year 1996--
                          ``(I) the Secretary shall make an estimate in 
                        accordance with subparagraph (A)(ii) for all 
                        teaching hospitals; and
                          ``(II) the amount determined under this 
                        subparagraph is the sum of the estimates made 
                        by the Secretary under subclause (I).
  ``(b) New Teaching Hospitals.--
          ``(1) In general.--In the case of a teaching hospital that 
        did not receive payments under section 1886(d)(5)(B) for any of 
        the fiscal years 1992 through 1996, the percentage determined 
        under paragraph (3) for the hospital is deemed to be the 
        percentage applicable under section 2221(b) to the hospital, 
        except that the percentage under paragraph (3) shall be 
        adjusted in accordance with section 2221(b)(1) to the extent 
        determined by the Secretary to be necessary with respect to a 
        sum that equals 100 percent. This subsection does not apply to 
        a teaching hospital described in the preceding sentence if the 
        hospital is in a State for which a demonstration project under 
        section 1814(b)(3) is in effect.
          ``(2) Designated fiscal year regarding data.--The 
        determination under paragraph (3) of a percentage for a 
        teaching hospital described in paragraph (1) shall be made for 
        the most recent fiscal year for which the Secretary has 
        sufficient data to make the determination (referred to in this 
        subsection as the `designated fiscal year').
          ``(3) Determination of percentage.--For purposes of paragraph 
        (1), the percentage determined under this paragraph for the 
        teaching hospital involved is the percentage constituted by the 
        ratio of the amount determined under subparagraph (A) to the 
        amount determined under subparagraph (B), as follows:
                  ``(A) The amount determined under this subparagraph 
                is an amount equal to an estimate by the Secretary of 
                the total amount of payments that would have been paid 
                to the hospital under section 1886(d)(5)(B) for the 
                designated fiscal year if such section, as in effect 
                for the first fiscal year for which payments pursuant 
                to this subsection are to be made to the hospital, had 
                applied to the hospital for the designated fiscal year.
                  ``(B) The Secretary shall make an estimate in 
                accordance with subparagraph (A) for all teaching 
                hospitals. The amount determined under this 
                subparagraph is the sum of the estimates made by the 
                Secretary under the preceding sentence.
  ``(c) Consolidations and Mergers.--In the case of two or more 
teaching hospitals that have each received payments pursuant to section 
2221 for one or more fiscal years and that undergo a consolidation or 
merger, the percentage applicable to the resulting teaching hospital 
for purposes of section 2221(b) is the sum of the respective 
percentages that would have applied pursuant to such section if the 
hospitals had not undergone the consolidation or merger.

``SEC. 2223. INDIRECT COSTS; ALTERNATIVE PAYMENTS REGARDING TEACHING 
                    HOSPITALS IN CERTAIN STATES.

  ``(a) In General.--In the case of a teaching hospital in a State for 
which a demonstration project under section 1814(b)(3) is in effect, 
this section applies in lieu of section 2221. For purposes of section 
2211(a)(1), the amount determined for a teaching hospital for a fiscal 
year is the product of--
          ``(1) the amount in the Indirect-Costs Medical Education 
        Account for the fiscal year pursuant to the allocation under 
        section 2201(d)(3)(A) for the year; and
          ``(2) the percentage determined under subsection (b) for the 
        hospital.
  ``(b) Determination of Percentage.--For purposes of subsection 
(a)(2):
          ``(1) The Secretary shall make an estimate of the total 
        amount of payments that would have been received under section 
        1886(d)(5)(B) by the hospital involved with respect to each of 
        the fiscal years of the applicable period if such section (as 
        in effect for such fiscal years) had applied to the hospital 
        for such years.
          ``(2) The percentage determined under this subsection for the 
        hospital for a fiscal year is a mean average percentage 
        determined for the hospital in accordance with the methodology 
        of section 2221(b)(1), except that the estimate made by the 
        Secretary under paragraph (1) of this subsection for a fiscal 
        year of the applicable period is deemed to be the amount that 
        applies for purposes of section 2221(b)(3)(A) for such year.
  ``(c) Rule Regarding Payments From Certain Amounts.--In the case of a 
teaching hospital in a State for which a demonstration project under 
section 1814(b)(3) is in effect, this section does not provide any 
payment to the hospital from amounts transferred to the Fund under 
section 1886(j).
  ``(d) Adjustment Regarding Payments to Other Hospitals.--In the case 
of a fiscal year for which payments pursuant to subsection (a) are made 
to one or more teaching hospitals, the following applies:
          ``(1) The Secretary shall determine a percentage equal to the 
        sum of the respective percentages determined for the hospitals 
        under subsection (b).
          ``(2) The Secretary shall determine an amount equal to the 
        product of--
                  ``(A) the percentage determined under paragraph (1); 
                and
                  ``(B) the amount in the Indirect-Costs Medical 
                Education Account for the fiscal year pursuant to the 
                transfer under section 1886(j)(1).
          ``(3) The Secretary shall, for each hospital (other than 
        hospitals described in subsection (a)), make payments to the 
        hospital whose sum is equal to the product of--
                  ``(A) the amount determined under paragraph (2); and
                  ``(B) the percentage that applies to the hospital for 
                purposes of section 2221(b), except that such 
                percentage shall be adjusted in accordance with the 
                methodology of section 2221(b)(1) to the extent 
                determined by the Secretary to be necessary with 
                respect to a sum that equals 100 percent.

   ``Subpart 3--Amount Relating to Direct Costs of Graduate Medical 
                               Education

``SEC. 2231. DETERMINATION OF AMOUNT RELATING TO DIRECT COSTS.

  ``(a) In General.--For purposes of section 2211(a)(2), the amount 
determined under this section for a teaching hospital for a fiscal year 
is the sum of--
          ``(1) the amount determined under subsection (b) (relating to 
        the General Direct-Costs Medical Education Account); and
          ``(2) the amount determined under subsection (c) (relating to 
        the Medicare Direct-Costs Medical Education Account).
  ``(b) Payment From General Account.--
          ``(1) In general.--For purposes of subsection (a)(1), the 
        amount determined under this subsection for a teaching hospital 
        for a fiscal year is the product of--
                  ``(A) the amount in the General Direct-Costs Medical 
                Education Account on the applicable date under section 
                2201(d) (once the appropriation under such section is 
                made); and
                  ``(B) the percentage determined for the hospital 
                under paragraph (2).
          ``(2) Hospital-specific percentage.--
                  ``(A) In general.--For purposes of paragraph (1)(B), 
                the percentage determined under this paragraph for a 
                teaching hospital is the mean average of the respective 
                percentages determined under subparagraph (B) for each 
                fiscal year of the applicable period (as defined in 
                section 2221(b)(2)), adjusted by the Secretary (upward 
                or downward, as the case may be) on a pro rata basis to 
                the extent necessary to ensure that the sum of the 
                percentages determined under this subparagraph for all 
                teaching hospitals is equal to 100 percent. The 
                preceding sentence is subject to sections 2232 through 
                2234.
                  ``(B) Respective determinations for fiscal years of 
                applicable period.--For purposes of subparagraph (A), 
                the percentage determined under this subparagraph for a 
                teaching hospital for a fiscal year of the applicable 
                period is the percentage constituted by the ratio of--
                          ``(i) the total amount of payments received 
                        by the hospital under section 1886(h) for cost 
                        reporting periods beginning during the fiscal 
                        year involved; to
                          ``(ii) the sum of the respective amounts 
                        determined under clause (i) for the fiscal year 
                        for all teaching hospitals.
  ``(3) Availability of data.--If a teaching hospital received the 
payments specified in paragraph (2)(B)(i) during the applicable period 
but a complete set of the relevant data is not available to the 
Secretary for purposes of determining an amount under such paragraph 
for the fiscal year involved, the Secretary shall for purposes of such 
paragraph make an estimate on the basis of such data as are available 
to the Secretary for the applicable period.
  ``(c) Payment From Medicare Account.--
          ``(1) In general.--For purposes of subsection (a)(2), the 
        amount determined under this subsection for a teaching hospital 
        for a fiscal year is the product of--
                  ``(A) the amount in the Medicare Direct-Costs Medical 
                Education Account on the applicable date under section 
                2201(d) (once the appropriation under such section is 
                made); and
                  ``(B) the percentage determined for the hospital 
                under paragraph (2).
          ``(2) Hospital-specific percentage.--For purposes of 
        paragraph (1)(B), the percentage determined under this 
        subsection for a teaching hospital for a fiscal year is the 
        percentage constituted by the ratio of--
                  ``(A) the estimate made by the Secretary for the 
                hospital for the fiscal year under section 
                1886(j)(2)(B); to
                  ``(B) the sum of the respective estimates referred to 
                in subparagraph (A) for all teaching hospitals.

``SEC. 2232. DIRECT COSTS; SPECIAL RULES REGARDING DETERMINATION OF 
                    HOSPITAL-SPECIFIC PERCENTAGE.

  ``(a) Special Rule Regarding Fiscal Years 1995 and 1996.--
          ``(1) In general.--In the case of a teaching hospital whose 
        first payments under 1886(h) were for cost reporting period 
        beginning in fiscal year 1995 or in fiscal year 1996 (referred 
        to in this subsection individually as a `first payment year'), 
        the percentage determined under paragraph (2) for the hospital 
        is deemed to be the percentage applicable under section 
        2231(b)(2) to the hospital, except that the percentage under 
        paragraph (2) shall be adjusted in accordance with section 
        2231(b)(2)(A) to the extent determined by the Secretary to be 
        necessary with respect to a sum that equals 100 percent.
          ``(2) Determination of percentage.--For purposes of paragraph 
        (1), the percentage determined under this paragraph for a 
        teaching hospital is the percentage constituted by the ratio of 
        the amount determined under subparagraph (A) to the amount 
        determined under subparagraph (B), as follows:
                  ``(A)(i) If the first payment year for the hospital 
                is fiscal year 1995, the amount determined under this 
                subparagraph is the total amount of payments received 
                by the hospital under section 1886(h) for cost 
                reporting periods beginning in fiscal year 1995.
                  ``(ii) If the first payment year for the hospital is 
                fiscal year 1996, the amount determined under this 
                subparagraph is an amount equal to an estimate by the 
                Secretary of the total amount of payments that would 
                have been paid to the hospital under section 1886(h) 
                for cost reporting periods beginning in fiscal year 
                1995 if such section, as in effect for fiscal year 
                1996, had applied to the hospital for fiscal year 1995.
                  ``(B)(i) If the first payment year for the hospital 
                is fiscal year 1995, the amount determined under this 
                subparagraph is the aggregate total of the payments 
                received by teaching hospitals under section 1886(h) 
                for cost reporting periods beginning in fiscal year 
                1995.
                  ``(ii) If the first payment year for the hospital is 
                fiscal year 1996--
                          ``(I) the Secretary shall make an estimate in 
                        accordance with subparagraph (A)(ii) for all 
                        teaching hospitals; and
                          ``(II) the amount determined under this 
                        subparagraph is the sum of the estimates made 
                        by the Secretary under subclause (I).
  ``(b) New Teaching Hospitals.--
          ``(1) In general.--In the case of a teaching hospital that 
        did not receive payments under section 1886(h) for any of the 
        fiscal years 1992 through 1996, the percentage determined under 
        paragraph (3) for the hospital is deemed to be the percentage 
        applicable under section 2231(b)(2) to the hospital, except 
        that the percentage under paragraph (3) shall be adjusted in 
        accordance with section 2231(b)(2)(A) to the extent determined 
        by the Secretary to be necessary with respect to a sum that 
        equals 100 percent. This subsection does not apply to a 
        teaching hospital described in the preceding sentence if the 
        hospital is in a State for which a demonstration project under 
        section 1814(b)(3) is in effect.
          ``(2) Designated fiscal year regarding data.--The 
        determination under paragraph (3) of a percentage for a 
        teaching hospital described in paragraph (1) shall be made for 
        the most recent fiscal year for which the Secretary has 
        sufficient data to make the determination (referred to in this 
        subsection as the `designated fiscal year').
          ``(3) Determination of percentage.--For purposes of paragraph 
        (1), the percentage determined under this paragraph for the 
        teaching hospital involved is the percentage constituted by the 
        ratio of the amount determined under subparagraph (A) to the 
        amount determined under subparagraph (B), as follows:
                  ``(A) The amount determined under this subparagraph 
                is an amount equal to an estimate by the Secretary of 
                the total amount of payments that would have been paid 
                to the hospital under section 1886(h) for the 
                designated fiscal year if such section, as in effect 
                for the first fiscal year for which payments pursuant 
                to this subsection are to be made to the hospital, had 
                applied to the hospital for cost reporting periods 
                beginning in the designated fiscal year.
                  ``(B) The Secretary shall make an estimate in 
                accordance with subparagraph (A) for all teaching 
                hospitals. The amount determined under this 
                subparagraph is the sum of the estimates made by the 
                Secretary under the preceding sentence.
  ``(c) Consolidations and Mergers.--In the case of two or more 
teaching hospitals that have each received payments pursuant to section 
2231 for one or more fiscal years and that undergo a consolidation or 
merger, the percentage applicable to the resulting teaching hospital 
for purposes of section 2231(b) is the sum of the respective 
percentages that would have applied pursuant to such section if the 
hospitals had not undergone the consolidation or merger.

``SEC. 2233. DIRECT COSTS; AUTHORITY FOR PAYMENTS TO CONSORTIA OF 
                    PROVIDERS.

  ``(a) In General.--In lieu of making payments to teaching hospitals 
pursuant to section 2231, the Secretary may make payments under this 
section to consortia that meet the requirements of subsection (b).
  ``(b) Qualifying Consortium.--For purposes of subsection (a), a 
consortium meets the requirements of this subsection if the consortium 
is in compliance with the following:
          ``(1) The consortium consists of an approved medical 
        residency training program, a teaching hospital, and one or 
        more of the following entities:
                  ``(A) Schools of medicine or osteopathic medicine.
                  ``(B) Other teaching hospitals (or the approved 
                medical residency training programs of the hospitals).
                  ``(C) Community health centers (under section 330 of 
                the Public Health Service Act), migrant health centers 
                (under section 329 of such Act), or facilities 
                described in section 340 of such Act.
                  ``(D) Medical group practices.
                  ``(E) Managed care entities.
                  ``(F) Entities furnishing outpatient services.
                  ``(G) Such other entities as the Secretary determines 
                to be appropriate.
          ``(2) The members of the consortium have agreed to 
        participate in the programs of graduate medical education that 
        are operated by the teaching hospitals in the consortium.
          ``(3) With respect to the receipt by the consortium of 
        payments made pursuant to this section, the members of the 
        consortium have agreed on a method for allocating the payments 
        among the members.
          ``(4) The consortium meets such additional requirements as 
        the Secretary may establish.
  ``(c) Payments From Accounts.--
          ``(1) In general.--Subject to subsection (d), the total of 
        payments to a qualifying consortium for a fiscal year pursuant 
        to subsection (a) shall be the sum of--
          ``(1) the aggregate amount determined for the teaching 
        hospitals of the consortium pursuant to paragraph (1) of 
        section 2231(a); and
          ``(2) an amount determined in accordance with the methodology 
        that applies pursuant to paragraph (2) of such section, except 
        that the estimate used for purposes of subsection (c)(2)(A) of 
        such section shall be the estimate made for the consortium 
        under section 1886(j)(2)(C)(ii).
  ``(d) Limitation on Aggregate Total of Payments to Consortia.--The 
aggregate total of the amounts paid under subsection (c)(2) to 
qualifying consortia for a fiscal year may not exceed the sum of--
          ``(1) the aggregate total of the amounts that would have been 
        paid under section 2231(c) for the fiscal year to the teaching 
        hospitals of the consortia if the hospitals had not been 
        participants in the consortia; and
          ``(2) an amount equal to 1 percent of the amount that applies 
        under paragraph (1)(A) of such section for the fiscal year 
        (relating to the Medicare Direct-Costs Medical Education 
        Account).
  ``(e) Definition.--For purposes of this title, the term `qualifying 
consortium' means a consortium that meets the requirements of 
subsection (b).

``SEC. 2234. DIRECT COSTS; ALTERNATIVE PAYMENTS REGARDING TEACHING 
                    HOSPITALS IN CERTAIN STATES.

  ``(a) In General.--In the case of a teaching hospital in a State for 
which a demonstration project under section 1814(b)(3) is in effect, 
this section applies in lieu of section 2231. For purposes of section 
2211(a)(2), the amount determined for a teaching hospital for a fiscal 
year is the product of--
          ``(1) the amount in the General Direct-Costs Medical 
        Education Account on the applicable date under section 2201(d) 
        (once the appropriation under such section is made); and
          ``(2) the percentage determined under subsection (b) for the 
        hospital.
  ``(b) Determination of Percentage.--For purposes of subsection 
(a)(2):
          ``(1) The Secretary shall make an estimate of the total 
        amount of payments that would have been received under section 
        1886(h) by the hospital involved with respect to each of the 
        fiscal years of the applicable period if such section (as in 
        effect for such fiscal years) had applied to the hospital for 
        such years.
          ``(2) The percentage determined under this subsection for the 
        hospital for a fiscal year is a mean average percentage 
        determined for the hospital in accordance with the methodology 
        of section 2231(b)(2)(A), except that the estimate made by the 
        Secretary under paragraph (1) of this subsection for a fiscal 
        year of the applicable period is deemed to be the amount that 
        applies for purposes of section 2231(b)(2)(B)(i) for such year.
  ``(c) Rule Regarding Payments From Certain Amounts.--In the case of a 
teaching hospital in a State for which a demonstration project under 
section 1814(b)(3) is in effect, this section does not provide any 
payment to the hospital from amounts transferred to the Fund under 
section 1886(j).

                    ``Subpart 4--General Provisions

``SEC. 2241. ADJUSTMENTS IN PAYMENT AMOUNTS.

  ``(a) Collection of Data on Accuracy of Estimates.--The Secretary 
shall collect data on whether the estimates made by the Secretary under 
section 1886(j) for a fiscal year were substantially accurate.
  ``(b) Adjustments.--If the Secretary determines under subsection (a) 
that an estimate for a fiscal year was not substantially accurate, the 
Secretary shall, for the first fiscal year beginning after the 
Secretary makes the determination--
          ``(1) make adjustments accordingly in transfers to the Fund 
        under section 1886(j); and
          ``(2) make adjustments accordingly in the amount of payments 
        to teaching hospitals pursuant to 2231(c) (or, as applicable, 
        to qualifying consortia pursuant to section 2233(c)(2)).''.

                 PART 2--AMENDMENTS TO MEDICARE PROGRAM

SEC. 15411. TRANSFERS TO TEACHING HOSPITAL AND GRADUATE MEDICAL 
                    EDUCATION TRUST FUND.

  Section 1886 (42 U.S.C. 1395ww) is amended--
          (1) in subsection (d)(5)(B), in the matter preceding clause 
        (i), by striking ``The Secretary shall provide'' and inserting 
        the following: ``For discharges occurring on or before 
        September 30, 1996, the Secretary shall provide'';
          (2) in subsection (h)--
                  (A) in paragraph (1), in the first sentence, by 
                striking ``the Secretary shall provide'' and inserting 
                ``the Secretary shall, subject to paragraph (6), 
                provide''; and
                  (B) by adding at the end the following paragraph:
          ``(6) Limitation.--
                  ``(A) In general.--The authority to make payments 
                under this subsection applies only with respect to cost 
                reporting periods ending on or before September 30, 
                1996, except as provided in subparagraph (B).
                  ``(B) Rule regarding portion of last cost reporting 
                period.--In the case of a cost reporting period that 
                extends beyond September 30, 1996, payments under this 
                subsection shall be made with respect to such portion 
                of the period as has lapsed as of such date.
                  ``(C) Rule of construction.--This paragraph may not 
                be construed as authorizing any payment under section 
                1861(v) with respect to graduate medical education.''; 
                and
          (3) by adding at the end the following subsection:
  ``(j) Transfers to Teaching Hospital and Graduate Medical Education 
Trust Fund.--
          ``(1) Indirect costs of medical education.--
                  ``(A) In general.--From the Federal Hospital 
                Insurance Trust Fund, the Secretary shall, for fiscal 
                year 1997 and each subsequent fiscal year, transfer to 
                the Indirect-Costs Medical Education Account (under 
                section 2201) an amount determined by the Secretary in 
                accordance with subparagraph (B).
                  ``(B) Determination of amounts.--The Secretary shall 
                make an estimate for the fiscal year involved of the 
                nationwide total of the amounts that would have been 
                paid under subsection (d)(5)(B) to hospitals during the 
                fiscal year if such payments had not been terminated 
                for discharges occurring after September 30, 1996. For 
                purposes of subparagraph (A), the amount determined 
                under this subparagraph for the fiscal year is the 
                estimate made by the Secretary under the preceding 
                sentence.
          ``(2) Direct costs of medical education.--
                  ``(A) In general.--From the Federal Hospital 
                Insurance Trust Fund and the Federal Supplementary 
                Medical Insurance Trust Fund, the Secretary shall, for 
                fiscal year 1997 and each subsequent fiscal year, 
                transfer to the Medicare Direct-Costs Medical Education 
                Account (under section 2201) the sum of--
                          ``(i) an amount determined by the Secretary 
                        in accordance with subparagraph (B); and
                          ``(ii) as applicable, an amount determined by 
                        the Secretary in accordance with subparagraph 
                        (C)(ii).
                  ``(B) Determination of amounts.--For each hospital 
                (other than a hospital that is a member of a qualifying 
                consortium referred to in subparagraph (C)), the 
                Secretary shall make an estimate for the fiscal year 
                involved of the amount that would have been paid under 
                subsection (h) to the hospital during the fiscal year 
                if such payments had not been terminated for cost 
                reporting periods ending on or before September 30, 
                1996. For purposes of subparagraph (A)(i), the amount 
                determined under this subparagraph for the fiscal year 
                is the sum of all estimates made by the Secretary under 
                the preceding sentence.
                  ``(C) Estimates regarding qualifying consortia.--If 
                the Secretary elects to authorize one or more 
                qualifying consortia for purposes of section 2233(a), 
                the Secretary shall carry out the following:
                          ``(i) The Secretary shall establish a 
                        methodology for making payments to qualifying 
                        consortia with respect to the reasonable direct 
                        costs of such consortia in carrying out 
                        programs of graduate medical education. The 
                        methodology shall be the methodology 
                        established in subsection (h), modified to the 
                        extent necessary to take into account the 
                        participation in such programs of entities 
                        other than hospitals.
                          ``(ii) For each qualifying consortium, the 
                        Secretary shall make an estimate for the fiscal 
                        year involved of the amount that would have 
                        been paid to the consortium during the fiscal 
                        year if, using the methodology under clause 
                        (i), payments had been made to the consortium 
                        for the fiscal year as reimbursements with 
                        respect to cost reporting periods. For purposes 
                        of subparagraph (A)(ii), the amount determined 
                        under this clause for the fiscal year is the 
                        sum of all estimates made by the Secretary 
                        under the preceding sentence.
                  ``(D) Allocation between funds.--In providing for a 
                transfer under subparagraph (A) for a fiscal year, the 
                Secretary shall provide for an allocation of the 
                amounts involved between part A and part B (and the 
                trust funds established under the respective parts) as 
                reasonably reflects the proportion of direct graduate 
                medical education costs of hospitals associated with 
                the provision of services under each respective part.
          ``(3) Applicability of certain amendments.--Amendments made 
        to subsection (d)(5)(B) and subsection (h) that are effective 
        on or after October 1, 1996, apply only for purposes of 
        estimates under paragraphs (1) and (2) and for purposes of 
        determining the amount of payments under 2211. Such amendments 
        do not require any adjustment to amounts paid under subsection 
        (d)(5)(B) or (h) with respect to fiscal year 1996 or any prior 
        fiscal year.
          ``(4) Relationship to certain demonstration projects.--In the 
        case of a State for which a demonstration project under section 
        1814(b)(3) is in effect, the Secretary, in making 
        determinations of the rates of increase under such section, 
        shall include all amounts transferred under this subsection. 
        Such amounts shall be so included to the same extent and in the 
        same manner as amounts determined under subsections (d)(5)(B) 
        and (h) were included in such determination under the 
        provisions of this title in effect on September 30, 1996.''.

SEC. 15412. MODIFICATION IN PAYMENT POLICIES REGARDING GRADUATE MEDICAL 
                    EDUCATION.

  (a) Indirect Costs of Medical Education; Applicable Percentage.--
          (1) Modification regarding 5.6 percent.--Section 
        1886(d)(5)(B)(ii) (42 U.S.C. 1395ww(d)(5)(B)(ii)) is amended--
                  (A) by striking ``on or after October 1, 1988,'' and 
                inserting ``on or after October 1, 1999,''; and
                  (B) by striking ``1.89'' and inserting ``1.38''.
          (2) Special rule regarding fiscal years 1996 through 1998; 
        modification regarding 6 percent.--Section 1886(d)(5)(B)(ii), 
        as amended by paragraph (1), is amended by adding at the end 
        the following: ``In the case of discharges occurring on or 
        after October 1, 1995, and before October 1, 1999, the 
        preceding sentence applies to the same extent and in the same 
        manner as the sentence applies to discharges occurring on or 
        after October 1, 1999, except that the term `1.38' is deemed to 
        be `1.48'.''.
          (3) Conforming amendment relating to determination of 
        standardized amounts.--Section 1886(d)(2)(C)(i) (42 U.S.C. 
        1395ww(d)(2)(C)(i)) is amended by striking ``1985'' and 
        inserting the following: ``1985, but (for discharges occurring 
        after September 30, 1995) not taking into account any 
        reductions in such costs resulting from the amendments made by 
        section 15412(a) of the Medicare Preservation Act of 1995''.
  (b) Direct Costs of Medical Education.--
          (1) Limitation on number of full-time-equivalent residents.--
        Section 1886(h)(4) (42 U.S.C. 1395ww(h)(4)) is amended by 
        adding at the end the following new subparagraph:
                  ``(F) Limitation on number of residents for certain 
                fiscal years.--Such rules shall provide that for 
                purposes of a cost reporting period beginning on or 
                after October 1, 1995, and on or before September 30, 
                2002, the number of full-time-equivalent residents 
                determined under this paragraph with respect to an 
                approved medical residency training program may not 
                exceed the number of full-time-equivalent residents 
                with respect to the program as of August 1, 1995 
                (except that this subparagraph does not apply to any 
                nonphysician teaching program that is approved for 
                purposes of section 1861(b)(6) and that, under 
                paragraph (5)(A), is an approved medical residency 
                training program).''.
          (2) Exclusion of residents after initial residency period.--
        Section 1886(h)(4)(C) (42 U.S.C. 1395ww(h)(4)(C)) is amended to 
        read as follows:
                  ``(C) Weighting factors for residents.--Effective for 
                cost reporting periods beginning on or after October 1, 
                1997, such rules shall provide that, in the calculation 
                of the number of full-time-equivalent residents in an 
                approved residency program, the weighting factor for a 
                resident who is in the initial residency period (as 
                defined in paragraph (5)(F)) is 1.0 and the weighting 
                factor for a resident who has completed such period is 
                0.0. (In the case of cost reporting periods beginning 
                before October 1, 1997, the weighting factors that 
                apply in such calculation are the weighting factors 
                that were applicable under this subparagraph on the day 
                before the date of the enactment of the Medicare 
                Preservation Act of 1995.)''.
          (3) Reductions in payments for alien residents.--Section 
        1886(h)(4) (42 U.S.C. 1395ww(h)(4)), as amended by paragraph 
        (1), is amended by adding at the end the following new 
        subparagraph:
                  ``(G) Special rules for alien residents.--In the case 
                of individuals who are not citizens or nationals of the 
                United States and who are not citizens of Canada, in 
                the calculation of the number of full-time-equivalent 
                residents in an approved medical residency program, the 
                following rules shall apply with respect to such 
                individuals who are residents in the program:
                          ``(i) For a cost reporting period beginning 
                        during fiscal year 1996, for each such 
                        individual the Secretary shall apply a 
                        weighting factor of .75.
                          ``(ii) For a cost reporting period beginning 
                        during fiscal year 1997, for each such 
                        individual the Secretary shall apply a 
                        weighting factor of .50.
                          ``(iii) For a cost reporting period beginning 
                        during fiscal year 1998, for each such 
                        individual the Secretary shall apply a 
                        weighting factor of .25.
                          ``(iv) For a cost reporting period beginning 
                        during fiscal year 1999 or any subsequent 
                        fiscal year, such individuals shall be excluded 
                        from the calculation of the number of full-
                        time-equivalent residents in an approved 
                        medical residency program under this 
                        paragraph.''.
          (4) Effective date.--Except as provided otherwise in this 
        subsection (or in the amendments made by this subsection), the 
        amendments made by this subsection apply to hospital cost 
        reporting periods beginning on or after October 1, 1995.

  PART 3--REFORM OF FEDERAL POLICIES REGARDING TEACHING HOSPITALS AND 
                       GRADUATE MEDICAL EDUCATION

SEC. 15421. ESTABLISHMENT OF ADVISORY PANEL FOR RECOMMENDING POLICIES.

  Title XXII of the Social Security Act, as added by section 15401, is 
amended by adding at the end the following part:

                        ``Part C--Other Matters

``SEC. 2251. ADVISORY PANEL ON REFORM IN FINANCING OF TEACHING 
                    HOSPITALS AND GRADUATE MEDICAL EDUCATION.

  ``(a) Establishment.--The Chair of the Medicare Payment Review 
Commission under section 1806 shall establish a temporary advisory 
panel to be known as the Advisory Panel on Financing for Teaching 
Hospitals and Graduate Medical Education (in this section referred to 
as the `Panel').
  ``(b) Duties.--The Panel shall develop recommendations on whether and 
to what extent Federal policies regarding teaching hospitals and 
graduate medical education should be reformed, including 
recommendations regarding the following:
          ``(1) The financing of graduate medical education, including 
        consideration of alternative broad-based sources of funding for 
        such education.
          ``(2) The financing of teaching hospitals, including 
        consideration of the difficulties encountered by such hospitals 
        as competition among health care entities increases. Matters 
        considered under this paragraph shall include consideration of 
        the effects on teaching hospitals of the method of financing 
        used for the MedicarePlus program under part C of title XVIII.
          ``(3) The methodology for making payments for graduate 
        medical education, and the selection of entities to receive the 
        payments. Matters considered under this paragraph shall include 
        the following:
                  ``(A) The methodology under part B for making 
                payments from the Fund, including the use of data from 
                the fiscal years 1992 through 1994, and including the 
                methodology that applies with respect to consolidations 
                and mergers of participants in the program under such 
                part and with respect to the inclusion of additional 
                participants in the program.
                  ``(B) Issues regarding children's hospitals, and 
                approved medical residency training programs in 
                pediatrics.
                  ``(C) Whether and to what extent payments are being 
                made (or should be made) for graduate training in the 
                various nonphysician health professions.
          ``(4) Federal policies regarding international medical 
        graduates.
          ``(5) The dependence of schools of medicine on service-
        generated income.
          ``(6) The effects of the amendments made by section 15412 of 
        the Medicare Preservation Act of 1995, including adverse 
        effects on teaching hospitals that result from modifications in 
        policies regarding international medical graduates.
          ``(7) Whether and to what extent the needs of the United 
        States regarding the supply of physicians will change during 
        the 10-year beginning on October 1, 1995, and whether and to 
        what extent any such changes will have significant financial 
        effects on teaching hospitals.
          ``(8) The appropriate number and mix of residents.
  ``(c) Composition.--Not later than three months after being 
designated as the initial chairman of the Medicare Payment Review 
Commission, the chairman of the Commission shall appoint to the Panel 
19 individuals who are not members of the Commission, who are not 
officers or employees of the United States, and who possess expertise 
on matters on which the Panel is to make recommendations under 
subsection (b). Such individuals shall include the following:
          ``(1) Deans from allopathic and osteopathic schools of 
        medicine.
          ``(2) Chief executive officers (or equivalent administrative 
        heads) from academic health centers, integrated health care 
        systems, and approved medical residency training programs.
          ``(3) Chairs of departments or divisions from allopathic and 
        osteopathic schools of medicine, schools of dentistry, and 
        approved medical residency training programs in oral surgery.
          ``(4) Individuals with leadership experience from each of the 
        fields of advanced practice nursing, physician assistants, and 
        podiatric medicine.
          ``(5) Individuals with substantial experience in the study of 
        issues regarding the composition of the health care workforce 
        of the United States.
          ``(6) Individuals with expertise on the financing of health 
        care.
          ``(7) Representatives from health insurance organizations and 
        health plan organizations.
  ``(d) Relationship of Panel to Medicare Payment Review Commission.--
From amounts appropriated under subsection (n), the Medicare Review 
Payment Commission shall provide for the Panel such staff and 
administrative support (including quarters for the Panel) as may be 
necessary for the Panel to carry out the duties under subsection (b).
  ``(e) Chair.--The Panel shall designate a member of the Panel to 
serve as the Chair of the Panel.
  ``(f) Meetings.--The Panel shall meet at the call of the Chair or a 
majority of the members, except that the first meeting of the Panel 
shall be held not later than three months after the date on which 
appointments under subsection (c) are completed.
  ``(g) Terms.--The term of a member of the Panel is the duration of 
the Panel.
  ``(h) Vacancies.--
          ``(1) In general.--A vacancy in the membership of the Panel 
        does not affect the power of the remaining members to carry out 
        the duties under subsection (b). A vacancy in the membership of 
        the Panel shall be filled in the manner in which the original 
        appointment was made.
          ``(2) Incomplete term.--If a member of the Panel does not 
        serve the full term applicable to the member, the individual 
        appointed to fill the resulting vacancy shall be appointed for 
        the remainder of the term of the predecessor of the individual.
  ``(i) Compensation; Reimbursement of Expenses.--
          ``(1) Compensation.--Members of the Panel shall receive 
        compensation for each day (including traveltime) engaged in 
        carrying out the duties of the Committee. Such compensation may 
        not be in an amount in excess of the daily equivalent of the 
        annual maximum rate of basic pay payable under the General 
        Schedule (under title 5, United States Code) for positions 
        above GS-15.
          ``(2) Reimbursement.--Members of the Panel may, in accordance 
        with chapter 57 of title 5, United States Code, be reimbursed 
        for travel, subsistence, and other necessary expenses incurred 
        in carrying out the duties of the Panel.
  ``(j) Consultants.--The Panel may procure such temporary and 
intermittent services of consultants under section 3109(b) of title 5, 
United States Code, as the Panel may determine to be useful in carrying 
out the duties under subsection (b). The Panel may not procure services 
under this subsection at any rate in excess of the daily equivalent of 
the maximum annual rate of basic pay payable under the General Schedule 
for positions above GS-15. Consultants under this subsection may, in 
accordance with chapter 57 of title 5, United States Code, be 
reimbursed for travel, subsistence, and other necessary expenses 
incurred for activities carried out on behalf of the Panel pursuant to 
subsection (b).
  ``(k) Powers.--
          ``(1) In general.--For the purpose of carrying out the duties 
        of the Panel under subsection (b), the Panel may hold such 
        hearings, sit and act at such times and places, take such 
        testimony, and receive such evidence as the Panel considers 
        appropriate.
          ``(2) Obtaining official information.--Upon the request of 
        the Panel, the heads of Federal agencies shall furnish directly 
        to the Panel information necessary for the Panel to carry out 
        the duties under subsection (b).
          ``(3) Use of mails.--The Panel may use the United States 
        mails in the same manner and under the same conditions as 
        Federal agencies.
  ``(l) Reports.--
          ``(1) First interim report.--Not later than one year after 
        the date of the enactment of the Medicare Preservation Act of 
        1995, the Panel shall submit to the Congress a report providing 
        the recommendations of the Panel regarding the matters 
        specified in paragraphs (1) through (4) of subsection (b).
          ``(2) Second interim report.--Not later than 2 years after 
        the date of enactment specified in paragraph (1), the Panel 
        shall submit to the Congress a report providing the 
        recommendations of the Panel regarding the matters specified in 
        paragraphs (5) and (6) of subsection (b).
          ``(3) Final report.--Not later than 3 years after the date of 
        enactment specified in paragraph (1), the Panel shall submit to 
        the Congress a final report providing the recommendations of 
        the Panel under subsection (b).
  ``(m) Duration.--The Panel terminates upon the expiration of the 180-
day period beginning on the date on which the final report under 
subsection (l)(3) is submitted to the Congress.
  ``(n) Authorization of Appropriations.--
          ``(1) In general.--Subject to paragraph (2), for the purpose 
        of carrying out this section, there are authorized to be 
        appropriated such sums as may be necessary for each of the 
        fiscal years 1996 through 2000.
          ``(2) Limitation.--The authorization of appropriations 
        established in paragraph (1) is effective only with respect to 
        appropriations made from allocations under section 302(b) of 
        the Congressional Budget Act of 1974--
                  ``(A) for the Subcommittee on Labor, Health and Human 
                Services, and Education, Committee on Appropriations of 
                the House of Representatives, in the case of any bill, 
                resolution, or amendment considered in the House; and
                  ``(B) for the Subcommittee on Labor, Health and Human 
                Services, and Education, Committee on Appropriations of 
                the Senate, in the case of any bill, resolution, or 
                amendment considered in the Senate.''.

         Subtitle  F--Provisions  Relating  to  Medicare Part A

                           PART 1--HOSPITALS

          Subpart A--General Provisions Relating to Hospitals

SEC. 15501. REDUCTIONS IN INFLATION UPDATES FOR PPS HOSPITALS.

  Section 1886(b)(3)(B)(i) (42 U.S.C. 1395ww(b)(3)(B)(i)) is amended by 
striking subclauses (XI), (XII), and (XIII) and inserting the 
following:
          ``(XI) for fiscal year 1996, the market basket percentage 
        increase minus 2.5 percentage points for hospitals in all 
        areas,
          ``(XII) for each of the fiscal years 1997 through 2002, the 
        market basket percentage increase minus 2.0 percentage points 
        for hospitals in all areas, and
          ``(XIII) for fiscal year 2003 and each subsequent fiscal 
        year, the market basket percentage increase for hospitals in 
        all areas.''.

SEC. 15502. REDUCTIONS IN DISPROPORTIONATE SHARE PAYMENT ADJUSTMENTS.

  (a) In General.--Section 1886(d)(5)(F) (42 U.S.C. 1395ww(d)(5)(F)) is 
amended--
          (1) in clause (ii), by striking ``The amount'' and inserting 
        ``Subject to clause (ix), the amount''; and
          (2) by adding at the end the following new clause:
  ``(ix) In the case of discharges occurring on or after October 1, 
1995, the additional payment amount otherwise determined under clause 
(ii) shall be reduced as follows:
          ``(I) For discharges occurring on or after October 1, 1995, 
        and on or before September 30, 1996, by 20 percent.
          ``(II) For discharges occurring on or after October 1, 1996, 
        and on or before September 30, 1997, by 25 percent.
          ``(III) For discharges occurring on or after October 1, 1997, 
        by 30 percent.''.
  (b) Conforming Amendment Relating to Determination of Standardized 
Amounts.--Section 1886(d)(2)(C)(iv) (42 U.S.C. 1395ww(d)(2)(C)(iv)) is 
amended by striking the period at the end and inserting the following: 
``, and the Secretary shall not take into account any reductions in the 
amount of such additional payments resulting from the amendments made 
by section 15502(a) of the Medicare Preservation Act of 1995.''.

SEC. 15503. PAYMENTS FOR CAPITAL-RELATED COSTS FOR INPATIENT HOSPITAL 
                    SERVICES.

  (a) Reduction in Payments for PPS Hospitals.--
          (1) Continuation of current reductions.--Section 
        1886(g)(1)(A) (42 U.S.C. 1395ww(g)(1)(A)) is amended in the 
        second sentence--
                  (A) by striking ``through 1995'' and inserting 
                ``through 2002''; and
                  (B) by inserting after ``10 percent reduction'' the 
                following: ``(or a 15 percent reduction in the case of 
                payments during fiscal years 1996 through 2002)''.
          (2) Reduction in base payment rates.--Section 1886(g)(1)(A) 
        (42 U.S.C. 1395ww(g)(1)(A)) is amended by adding at the end the 
        following new sentence: ``In addition to the reduction 
        described in the preceding sentence, for discharges occurring 
        after September 30, 1995, the Secretary shall reduce by 7.47 
        percent the unadjusted standard Federal capital payment rate 
        (as described in 42 CFR 412.308(c), as in effect on the date of 
        the enactment of the Medicare Preservation Act of 1995) and 
        shall reduce by 8.27 percent the unadjusted hospital-specific 
        rate (as described in 42 CFR 412.328(e)(1), as in effect on 
        such date of enactment).''.
  (b) Reduction in Payments for PPS-Exempt Hospitals.--Section 1886(g) 
(42 U.S.C. 1395ww(g)) is amended by adding at the end the following new 
paragraph:
  ``(4)(A) Except as provided in subparagraph (B), in determining the 
amount of the payments that may be made under this title with respect 
to all the capital-related costs of inpatient hospital services 
furnished during fiscal years 1996 through 2002 of a hospital which is 
not a subsection (d) hospital or a subsection (d) Puerto Rico hospital, 
the Secretary shall reduce the amounts of such payments otherwise 
determined under this title by 15 percent.
  ``(B) Subparagraph (A) shall not apply to payments with respect to 
the capital-related costs of any hospital that is a sole community 
hospital (as defined in subsection (d)(5)(D)(iii) or a rural primary 
care hospital (as defined in section 1861(mm)(1)).''.
  (c) Hospital-Specific Adjustment for Capital-Related Tax Costs.--
Section 1886(g)(1) (42 U.S.C. 1395ww(g)(1)) is amended--
          (1) by redesignating subparagraph (C) as subparagraph (D), 
        and
          (2) by inserting after subparagraph (B) the following:
  ``(C)(i) For discharges occurring after September 30, 1995, such 
system shall provide for an adjustment in an amount equal to the amount 
determined under clause (iv) for capital-related tax costs for each 
hospital that is eligible for such adjustment.
  ``(ii) Subject to clause (iii), a hospital is eligible for an 
adjustment under this subparagraph, with respect to discharges 
occurring in a fiscal year, if the hospital--
          ``(I) is a hospital that may otherwise receive payments under 
        this subsection,
          ``(II) is not a public hospital, and
          ``(III) incurs capital-related tax costs for the fiscal year.
  ``(iii)(I) In the case of a hospital that first incurs capital-
related tax costs in a fiscal year after fiscal year 1992 because of a 
change from nonproprietary to proprietary status or because the 
hospital commenced operation after such fiscal year, the first fiscal 
year for which the hospital shall be eligible for such adjustment is 
the second full fiscal year following the fiscal year in which the 
hospital first incurs such costs.
  ``(II) In the case of a hospital that first incurs capital-related 
tax costs in a fiscal year after fiscal year 1992 because of a change 
in State or local tax laws, the first fiscal year for which the 
hospital shall be eligible for such adjustment is the fourth full 
fiscal year following the fiscal year in which the hospital first 
incurs such costs.
  ``(iv) The per discharge adjustment under this clause shall be equal 
to the hospital-specific capital-related tax costs per discharge of a 
hospital for fiscal year 1992 (or, in the case of a hospital that first 
incurs capital-related tax costs for a fiscal year after fiscal year 
1992, for the first full fiscal year for which such costs are 
incurred), updated to the fiscal year to which the adjustment applies. 
Such per discharge adjustment shall be added to the Federal capital 
rate, after such rate has been adjusted as described in 42 CFR 412.312 
(as in effect on the date of the enactment of the Medicare Preservation 
Act of 1995), and before such rate is multiplied by the applicable 
Federal rate percentage.
  ``(v) For purposes of this subparagraph, capital-related tax costs 
include--
          ``(I) the costs of taxes on land and depreciable assets owned 
        by a hospital (or related organization) and used for patient 
        care,
          ``(II) payments in lieu of such taxes (made by hospitals that 
        are exempt from taxation), and
          ``(III) the costs of taxes paid by a hospital (or related 
        organization) as lessee of land, buildings, or fixed equipment 
        from a lessor that is unrelated to the hospital (or related 
        organization) under the terms of a lease that requires the 
        lessee to pay all expenses (including mortgage, interest, and 
        amortization) and leaves the lessor with an amount free of all 
        claims (sometimes referred to as a `net net net' or `triple 
        net' lease).
In determining the adjustment required under clause (i), the Secretary 
shall not take into account any capital-related tax costs of a hospital 
to the extent that such costs are based on tax rates and assessments 
that exceed those for similar commercial properties.
  ``(vi) The system shall provide that the Federal capital rate for any 
fiscal year after September 30, 1995, shall be reduced by a percentage 
sufficient to ensure that the adjustments required to be paid under 
clause (i) for a fiscal year neither increase nor decrease the total 
amount that would have been paid under this system but for the payment 
of such adjustments for such fiscal year.''.
  (d) Revision of Exceptions Process Under Prospective Payment System 
for Certain Projects.--
          (1) In general.--Section 1886(g)(1) (42 U.S.C. 1395ww(g)(1)), 
        as amended by subsection (c), is amended--
                  (A) by redesignating subparagraph (D) as subparagraph 
                (E), and
                  (B) by inserting after subparagraph (C) the 
                following:
  ``(D) The exceptions under the system provided by the Secretary under 
subparagraph (B)(iii) shall include the provision of exception payments 
under the special exceptions process provided under 42 CFR 412.348(g) 
(as in effect on September 1, 1995), except that the Secretary shall 
revise such process as follows:
          ``(i) A hospital with at least 100 beds which is located in 
        an urban area shall be eligible under such process without 
        regard to its disproportionate patient percentage under 
        subsection (d)(5)(F) or whether it qualifies for additional 
        payment amounts under such subsection.
          ``(ii) The minimum payment level for qualifying hospitals 
        shall be 85 percent.
          ``(iii) A hospital shall be considered to meet the 
        requirement that it completes the project involved no later 
        than the end of the hospital's last cost reporting period 
        beginning after October 1, 2001, if--
                  ``(I) the hospital has obtained a certificate of need 
                for the project approved by the State or a local 
                planning authority, and
                  ``(II) by September 1, 1995, the hospital has 
                expended on the project at least $750,000 or 10 percent 
                of the estimated cost of the project.
          ``(iv) The amount of the exception payment made shall not be 
        reduced by any offsetting amounts.''.
          (2) Conforming amendment.--Section 1886(g)(1)(B)(iii) (42 
        U.S.C. 1395ww(g)(1)(B)(iii)) is amended by striking ``may 
        provide'' and inserting ``shall provide (in accordance with 
        subparagraph (D))''.

SEC. 15504. REDUCTION IN ADJUSTMENT FOR INDIRECT MEDICAL EDUCATION.

  For provisions modifying medicare payment policies regarding graduate 
medical education, see part 2 of subtitle E.

SEC. 15505. TREATMENT OF PPS-EXEMPT HOSPITALS.

  (a) Updates.--Section 1886(b)(3)(B)(ii)(V) (42 U.S.C. 
1395ww(b)(3)(B)(ii)(V)) is amended by striking ``thorugh 1997'' and 
inserting ``through 2002''.
  (b) Rebasing for Certain Long-Term Care Hospitals.--
          (1) In general.--Section 1886(b)(3) (42 U.S.C. 1395ww(b)(3)) 
        is amended--
                  (A) in subparagraph (A), by striking ``and (E)'' and 
                inserting ``(E), and (F)'';
                  (B) in subparagraph (B)(ii), by striking ``(A) and 
                (E)'' and inserting ``(A), (E), and (F)''; and
                  (C) by adding at the end the following new 
                subparagraph:
  ``(F)(i) In the case of a qualified long-term care hospital (as 
defined in clause (ii)), the term `target amount' means--
          ``(I) with respect to the first 12-month cost reporting 
        period in which this subparagraph is applied to the hospital, 
        the allowable operating costs of inpatient hospital services 
        (as defined in subsection (a)(4)) recognized under this title 
        for the hospital for the 12-month cost reporting period 
        beginning during fiscal year 1991; or
          ``(II) with respect to a later cost reporting period, the 
        target amount for the preceding cost reporting period, increase 
        by the applicable percentage increase under subparagraph 
        (B)(ii) for that later cost reporting period.
  ``(ii) In clause (i), a `qualified long-term care hospital' means, 
with respect to a cost reporting period, a hospital described in clause 
(iv) of subsection (d)(1)(B) during fiscal year 1995 for which the 
hospital's allowable operating costs of inpatient hospital services 
recognized under this title for each of the two most recent previous 
12-month cost reporting periods exceeded the hospital's target amount 
determined under this paragraph for such cost reporting periods, if the 
hospital--
          ``(I) has a disproportionate patient percentage during such 
        cost reporting period (as determined by the Secretary under 
        subsection (d)(5)(F)(vi) as if the hospital were a subsection 
        (d) hospital) of at least 25 percent, or
          ``(II) is located in a State for which no payment is made 
        under the State plan under title XIX for days of inpatient 
        hospital services furnished to any individual in excess of the 
        limit on the number of days of such services furnished to the 
        individual for which payment may be made under this title.''.
          (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to discharges occurring during cost reporting 
        periods beginning on or after October 1, 1995.
  (c) Treatment of Certain Long-Term Care Hospitals Located Within 
Other Hospitals.--
          (1) In general.--Section 1886(d)(1)(B) (42 U.S.C. 
        1395ww(d)(1)(B)) is amended in the matter following clause (v) 
        by striking the period and inserting the following: ``, or a 
        hospital classified by the Secretary as a long-term care 
        hospital on or before September 30, 1995, and located in the 
        same building as, or on the same campus as, another 
        hospital.''.
          (2) Study by review commission.--Not later than 12 months 
        after the date a majority of the members of the Medicare 
        Payment Review Commission are first appointed, the Commission 
        shall submit a report to Congress containing recommendations 
        for appropriate revisions in the treatment of long-term care 
        hospitals located in the same building as or on the same campus 
        as another hospital for purposes of section 1886 of the Social 
        Security Act.
          (3) Effective date.--The amendment made by paragraph (1) 
        shall apply to discharges occurring on or after October 1, 
        1995.
  (d) Study of Prospective Payment System for Rehabilitation Hospitals 
and Units.--
          (1) In general.--After consultation with the Prospective 
        Payment Assessment Commission, providers of rehabilitation 
        services, and other appropriate parties, the Secretary of 
        Health and Human Services shall submit to Congress, by not 
        later than June 1, 1996, a report on the advisability and 
        feasibility of providing for payment based on a prospective 
        payment system for inpatient services of rehabilitation 
        hospitals and units under the medicare program.
          (2) Items included.--The report shall include the following:
                  (A) The available and preferred systems of 
                classifying rehabilitation patients relative to 
                duration and intensity of inpatient services, including 
                the use of functional-related groups (FRGs).
                  (B) The means of calculating medicare program 
                payments to reflect such patient requirements.
                  (C) Other appropriate adjustments which should be 
                made, such as for geographic variations in wages and 
                other costs and outliers.
                  (D) A timetable under which such a system might be 
                introduced.
                  (E) Whether such a system should be applied to other 
                types of providers of inpatient rehabilitation 
                services.

SEC. 15506. REDUCTION IN PAYMENTS TO HOSPITALS FOR ENROLLEES' BAD 
                    DEBTS.

  (a) In General.--Section 1861(v)(1) (42 U.S.C. 1395x(v)(1)) is 
amended by adding at the end the following new subparagraph:
  ``(T)(i) In determining such reasonable costs for hospitals, the 
amount of bad debts otherwise treated as allowable costs which are 
attributable to the deductibles and coinsurance amounts under this 
title shall be reduced by--
          ``(I) 75 percent for cost reporting periods beginning during 
        fiscal year 1996,
          ``(II) 60 percent for cost reporting periods beginning during 
        fiscal year 1997, and
          ``(III) 50 percent for subsequent cost reporting periods.
  ``(ii) Clause (i) shall not apply with respect to bad debt of a 
hospital described in section 1886(d)(1)(B)(iv) if the debt is 
attributable to uncollectable deductible and coinsurance payments owed 
by individuals enrolled in a State plan under title XIX or under the 
MediGrant program under title XXI.''.
  (b) Effective Date.--The amendment made by subsection (a) shall apply 
to hospital cost reporting periods beginning on or after October 1, 
1995.

SEC. 15507. PERMANENT EXTENSION OF HEMOPHILIA PASS-THROUGH.

  Effective as if included in the enactment of OBRA-1989, section 
6011(d) of such Act (as amended by section 13505 of OBRA-1993) is 
amended by striking ``and shall expire September 30, 1994''.

SEC. 15508. CONFORMING AMENDMENT TO CERTIFICATION OF CHRISTIAN SCIENCE 
                    PROVIDERS.

  (a) Hospitals.--Section 1861(e) (42 U.S.C. 1395x(e)) is amended in 
the sixth sentence by inserting after ``Massachusetts,'' the following: 
``or by the Commission for Accreditation of Christian Science Nursing 
Organizations/Facilities, Inc.,''.
  (b) Skilled Nursing Facilities.--Section 1861(y)(1) is amended by 
inserting after ``Massachusetts,'' the following: ``or by the 
Commission for Accreditation of Christian Science Nursing 
Organizations/Facilities, Inc.,''.

           Subpart B--Provisions Relating to Rural Hospitals

SEC. 15511. SOLE COMMUNITY HOSPITALS.

  (a) Update.--Section 1886(b)(3)(B)(iv) (42 U.S.C. 
1395ww(b)(3)(B)(iv)) is amended--
          (A) in subclause (III), by striking ``and'' at the end; and
          (B) by striking subclause (IV) and inserting the following:
          ``(IV) for each of the fiscal years 1996 through 2000, the 
        market basket percentage increase minus 1 percentage points, 
        and
          ``(V) for fiscal year 2001 and each subsequent fiscal year, 
        the applicable percentage increase under clause (i).''.
  (b) Study of Impact of Sole Community Hospital Designations.--
          (1) Study.--The Medicare Payment Review Commission shall 
        conduct a study of the impact of the designation of hospitals 
        as sole community hospitals under the medicare program on the 
        delivery of health care services to individuals in rural areas, 
        and shall include in the study an analysis of the 
        characteristics of the hospitals designated as such sole 
        community hospitals under the program.
          (2) Report.--Not later than 12 months after the date a 
        majority of the members of the Commission are first appointed, 
        the Commission shall submit to Congress a report on the study 
        conducted under paragraph (1).

SEC. 15512. CLARIFICATION OF TREATMENT OF EAC AND RPC HOSPITALS.

  Paragraphs (1)(A)(i) and (2)(A)(i) of section 1820(i) (42 U.S.C. 
1395i-4(i)) are each amended by striking the semicolon at the end and 
inserting the following: ``, or in a State which the Secretary finds 
would receive a grant under such subsection during a fiscal year if 
funds were appropriated for grants under such subsection for the fiscal 
year;''.

SEC. 15513. ESTABLISHMENT OF RURAL EMERGENCY ACCESS CARE HOSPITALS.

  (a) In General.--Section 1861 (42 U.S.C. 1395x) is amended by adding 
at the end the following new subsection:

  ``Rural Emergency Access Care Hospital; Rural Emergency Access Care 
                           Hospital Services

  ``(oo)(1) The term `rural emergency access care hospital' means, for 
a fiscal year, a facility with respect to which the Secretary finds the 
following:
          ``(A) The facility is located in a rural area (as defined in 
        section 1886(d)(2)(D)).
          ``(B) The facility was a hospital under this title at any 
        time during the 5-year period that ends on the date of the 
        enactment of this subsection.
          ``(C) The facility is in danger of closing due to low 
        inpatient utilization rates and operating losses, and the 
        closure of the facility would limit the access to emergency 
        services of individuals residing in the facility's service 
        area.
          ``(D) The facility has entered into (or plans to enter into) 
        an agreement with a hospital with a participation agreement in 
        effect under section 1866(a), and under such agreement the 
        hospital shall accept patients transferred to the hospital from 
        the facility and receive data from and transmit data to the 
        facility.
          ``(E) There is a practitioner who is qualified to provide 
        advanced cardiac life support services (as determined by the 
        State in which the facility is located) on-site at the facility 
        on a 24-hour basis.
          ``(F) A physician is available on-call to provide emergency 
        medical services on a 24-hour basis.
          ``(G) The facility meets such staffing requirements as would 
        apply under section 1861(e) to a hospital located in a rural 
        area, except that--
                  ``(i) the facility need not meet hospital standards 
                relating to the number of hours during a day, or days 
                during a week, in which the facility must be open, 
                except insofar as the facility is required to provide 
                emergency care on a 24-hour basis under subparagraphs 
                (E) and (F); and
                  ``(ii) the facility may provide any services 
                otherwise required to be provided by a full-time, on-
                site dietitian, pharmacist, laboratory technician, 
                medical technologist, or radiological technologist on a 
                part-time, off-site basis.
          ``(H) The facility meets the requirements applicable to 
        clinics and facilities under subparagraphs (C) through (J) of 
        paragraph (2) of section 1861(aa) and of clauses (ii) and (iv) 
        of the second sentence of such paragraph (or, in the case of 
        the requirements of subparagraph (E), (F), or (J) of such 
        paragraph, would meet the requirements if any reference in such 
        subparagraph to a `nurse practitioner' or to `nurse 
        practitioners' were deemed to be a reference to a `nurse 
        practitioner or nurse' or to `nurse practitioners or nurses'); 
        except that in determining whether a facility meets the 
        requirements of this subparagraph, subparagraphs (E) and (F) of 
        that paragraph shall be applied as if any reference to a 
        `physician' is a reference to a physician as defined in section 
        1861(r)(1).
  ``(2) The term `rural emergency access care hospital services' means 
the following services provided by a rural emergency access care 
hospital and furnished to an individual over a continuous period not to 
exceed 24 hours (except that such services may be furnished over a 
longer period in the case of an individual who is unable to leave the 
hospital because of inclement weather):
          ``(A) An appropriate medical screening examination (as 
        described in section 1867(a)).
          ``(B) Necessary stabilizing examination and treatment 
        services for an emergency medical condition and labor (as 
        described in section 1867(b)).''.
  (b) Requiring Rural Emergency Access Care Hospitals To Meet Hospital 
Anti-Dumping Requirements.--Section 1867(e)(5) (42 U.S.C. 1395dd(e)(5)) 
is amended by striking ``1861(mm)(1))'' and inserting ``1861(mm)(1)) 
and a rural emergency access care hospital (as defined in section 
1861(oo)(1))''.
  (c) Reference to Payment Provisions Under Part B.--For provisions 
relating to payment for rural emergency access care hospital services 
under part B, see section 15607.
  (d) Effective Date.--The amendments made by this section shall apply 
to fiscal years beginning on or after October 1, 1995.

SEC. 15514. CLASSIFICATION OF RURAL REFERRAL CENTERS.

  (a) Prohibiting Denial of Request for Reclassification on Basis of 
Comparability of Wages.--
          (1) In general.--Section 1886(d)(10)(D) (42 U.S.C. 
        1395ww(d)(10)(D)) is amended--
                  (A) by redesignating clause (iii) as clause (iv); and
                  (B) by inserting after clause (ii) the following new 
                clause:
  ``(iii) Under the guidelines published by the Secretary under clause 
(i), in the case of a hospital which is classified by the Secretary as 
a rural referral center under paragraph (5)(C), the Board may not 
reject the application of the hospital under this paragraph on the 
basis of any comparison between the average hourly wage of the hospital 
and the average hourly wage of hospitals in the area in which it is 
located.''.
          (2) Effective date.--Notwithstanding section 
        1886(d)(10)(C)(ii) of the Social Security Act, a hospital may 
        submit an application to the Medicare Geographic Classification 
        Review Board during the 30-day period beginning on the date of 
        the enactment of this Act requesting a change in its 
        classification for purposes of determining the area wage index 
        applicable to the hospital under section 1886(d)(3)(D) of such 
        Act for fiscal year 1997, if the hospital would be eligible for 
        such a change in its classification under the standards 
        described in section 1886(d)(10)(D) (as amended by paragraph 
        (1)) but for its failure to meet the deadline for applications 
        under section 1886(d)(10)(C)(ii).
  (b) Continuing Treatment of Previously Designated Centers.--Any 
hospital classified as a rural referral center by the Secretary of 
Health and Human Services under section 1886(d)(5)(C) of the Social 
Security Act for fiscal year 1994 shall be classified as such a rural 
referral center for fiscal year 1996 and each subsequent fiscal year.

SEC. 15515. FLOOR ON AREA WAGE INDEX.

  (a) In General.--For purposes of section 1886(d)(3)(E) of the Social 
Security Act for discharges occurring on or after October 1, 1995, the 
area wage index applicable under such section to any hospital which is 
not located in a rural area (as defined in section 1886(d)(2)(D) of 
such Act) may not be less than the average of the area wage indices 
applicable under such section to hospitals located in rural areas in 
the State in which the hospital is located.
  (b) Budget-Neutrality in Implementation.--The Secretary of Health and 
Human Services shall adjust the area wage indices referred to in 
subsection (a) for hospitals not described in such subsection in a 
manner which assures that the aggregate payments made under section 
1886(d) of the Social Security Act in a fiscal year for the operating 
costs of inpatient hospital services are not greater or less than those 
which would have been made in the year if this section did not apply.

             PART 2--PAYMENTS TO SKILLED NURSING FACILITIES

SEC. 15521. PAYMENTS FOR ROUTINE SERVICE COSTS.

  (a) Clarification of Definition of Routine Service Costs.--Section 
1888 (42 U.S.C. 1395yy) is amended by adding at the end the following 
new subsection:
  ``(e) For purposes of this section, the `routine service costs' of a 
skilled nursing facility are all costs which are attributable to 
nursing services, room and board, administrative costs, other overhead 
costs, and all other ancillary services (including supplies and 
equipment), excluding costs attributable to covered non-routine 
services subject to payment limits under section 1888A.''.
  (b) Conforming Amendment.--Section 1888 (42 U.S.C. 1395yy) is amended 
in the heading by inserting ``and certain ancillary'' after 
``service''.

SEC. 15522. INCENTIVES FOR COST EFFECTIVE MANAGEMENT OF COVERED NON-
                    ROUTINE SERVICES.

  (a) In General.--Title XVIII is amended by inserting after section 
1888 the following new section:
   ``incentives for cost-effective management of covered non-routine 
                 services of skilled nursing facilities
  ``Sec. 1888A. (a) Definitions.--For purposes of this section:
          ``(1) Covered non-routine services.--The term `covered non-
        routine services' means post-hospital extended care services 
        consisting of any of the following:
                  ``(A) Physical or occupational therapy or speech-
                language pathology services, or respiratory therapy, 
                including supplies and support services incident to 
                such services and therapy.
                  ``(B) Prescription drugs.
                  ``(C) Complex medical equipment.
                  ``(D) Intravenous therapy and solutions (including 
                enteral and parenteral nutrients, supplies, and 
                equipment).
                  ``(E) Radiation therapy.
                  ``(F) Diagnostic services, including laboratory, 
                radiology (including computerized tomography services 
                and imaging services), and pulmonary services.
          ``(2) SNF market basket percentage increase.--The term `SNF 
        market basket percentage increase' for a fiscal year means a 
        percentage equal to the percentage increase in routine service 
        cost limits for the year under section 1888(a).
          ``(3) Stay.--The term `stay' means, with respect to an 
        individual who is a resident of a skilled nursing facility, a 
        period of continuous days during which the facility provides 
        extended care services for which payment may be made under this 
        title with respect to the individual during the individual's 
        spell of illness.
  ``(b) New Payment Method for Covered Non-Routine Services.--
          ``(1) In general.--Subject to subsection (c), a skilled 
        nursing facility shall receive interim payments under this 
        title for covered non-routine services furnished to an 
        individual during a cost reporting period beginning during a 
        fiscal year (after fiscal year 1996) in an amount equal to the 
        reasonable cost of providing such services in accordance with 
        section 1861(v). The Secretary may adjust such payments if the 
        Secretary determines (on the basis of such estimated 
        information as the Secretary considers appropriate) that 
        payments to the facility under this paragraph for a cost 
        reporting period would substantially exceed the cost reporting 
        period limit determined under subsection (c)(1)(B).
          ``(2) Responsibility of skilled nursing facility to manage 
        billings.--
                  ``(A) Clarification relating to part a billing.--In 
                the case of a covered non-routine service furnished to 
                an individual who (at the time the service is 
                furnished) is a resident of a skilled nursing facility 
                who is entitled to coverage under section 1812(a)(2) 
                for such service, the skilled nursing facility shall 
                submit a claim for payment under this title for such 
                service under part A (without regard to whether or not 
                the item or service was furnished by the facility, by 
                others under arrangement with them made by the 
                facility, under any other contracting or consulting 
                arrangement, or otherwise).
                  ``(B) Part b billing.--In the case of a covered non-
                routine service (other than a portable X-ray or 
                portable electrocardiogram treated as a physician's 
                service for purposes of section 1848(j)(3)) furnished 
                to an individual who (at the time the service is 
                furnished) is a resident of a skilled nursing facility 
                who is not entitled to coverage under section 
                1812(a)(2) for such service but is entitled to coverage 
                under part B for such service, the skilled nursing 
                facility shall submit a claim for payment under this 
                title for such service under part B (without regard to 
                whether or not the item or service was furnished by the 
                facility, by others under arrangement with them made by 
                the facility, under any other contracting or consulting 
                arrangement, or otherwise).
                  ``(C) Maintaining records on services furnished to 
                residents.--Each skilled nursing facility receiving 
                payments for extended care services under this title 
                shall document on the facility's cost report all 
                covered non-routine services furnished to all residents 
                of the facility to whom the facility provided extended 
                care services for which payment was made under part A 
                during a fiscal year (beginning with fiscal year 1996) 
                (without regard to whether or not the services were 
                furnished by the facility, by others under arrangement 
                with them made by the facility, under any other 
                contracting or consulting arrangement, or otherwise).
  ``(c) Reconciliation of Amounts.--
          ``(1) Limit based on per stay limit and number of stays.--
                  ``(A) In general.--If a skilled nursing facility has 
                received aggregate payments under subsection (b) for 
                covered non-routine services during a cost reporting 
                period beginning during a fiscal year in excess of an 
                amount equal to the cost reporting period limit 
                determined under subparagraph (B), the Secretary shall 
                reduce the payments made to the facility with respect 
                to such services for cost reporting periods beginning 
                during the following fiscal year in an amount equal to 
                such excess. The Secretary shall reduce payments under 
                this subparagraph at such times and in such manner 
                during a fiscal year as the Secretary finds necessary 
                to meet the requirement of this subparagraph.
                  ``(B) Cost reporting period limit.--The cost 
                reporting period limit determined under this 
                subparagraph is an amount equal to the product of--
                          ``(i) the per stay limit applicable to the 
                        facility under subsection (d) for the period; 
                        and
                          ``(ii) the number of stays beginning during 
                        the period for which payment was made to the 
                        facility for such services.
                  ``(C) Prospective reduction in payments.--In addition 
                to the process for reducing payments described in 
                subparagraph (A), the Secretary may reduce payments 
                made to a facility under this section during a cost 
                reporting period if the Secretary determines (on the 
                basis of such estimated information as the Secretary 
                considers appropriate) that payments to the facility 
                under this section for the period will substantially 
                exceed the cost reporting period limit for the period 
                determined under this paragraph.
          ``(2) Incentive payments.--
                  ``(A) In general.--If a skilled nursing facility has 
                received aggregate payments under subsection (b) for 
                covered non-routine services during a cost reporting 
                period beginning during a fiscal year in an amount that 
                is less than the amount determined under paragraph 
                (1)(B), the Secretary shall pay the skilled nursing 
                facility in the following fiscal year an incentive 
                payment equal to 50 percent of the difference between 
                such amounts, except that the incentive payment may not 
                exceed 5 percent of the aggregate payments made to the 
                facility under subsection (b) for the previous fiscal 
                year (without regard to subparagraph (B)).
                  ``(B) Installment incentive payments.--The Secretary 
                may make installment payments during a fiscal year to a 
                skilled nursing facility based on the estimated 
                incentive payment that the facility would be eligible 
                to receive with respect to such fiscal year.
  ``(d) Determination of Facility Per Stay Limit.--
          ``(1) Limit for fiscal year 1997.--
                  ``(A) In general.--Except as provided in subparagraph 
                (B), the Secretary shall establish separate per stay 
                limits for hospital-based and freestanding skilled 
                nursing facilities for the 12-month cost reporting 
                period beginning during fiscal year 1997 that are equal 
                to the sum of--
                          ``(i) 50 percent of the facility-specific 
                        stay amount for the facility (as determined 
                        under subsection (e)) for the last 12-month 
                        cost reporting period ending on or before 
                        September 30, 1994, increased (in a compounded 
                        manner) by the SNF market basket percentage 
                        increase for fiscal years 1995 through 1997; 
                        and
                          ``(ii) 50 percent of the average of all 
                        facility-specific stay amounts for all 
                        hospital-based facilities or all freestanding 
                        facilities (whichever is applicable) during the 
                        cost reporting period described in clause (i), 
                        increased (in a compounded manner) by the SNF 
                        market basket percentage increase for fiscal 
                        years 1995 through 1997.
                  ``(B) Facilities not having 1994 cost reporting 
                period.--In the case of a skilled nursing facility for 
                which payments were not made under this title for 
                covered non-routine services for the last 12-month cost 
                reporting period ending on or before September 30, 
                1994, the per stay limit for the 12-month cost 
                reporting period beginning during fiscal year 1997 
                shall be twice the amount determined under subparagraph 
                (A)(ii).
          ``(2) Limit for subsequent fiscal years.--The per stay limit 
        for a skilled nursing facility for a 12-month cost reporting 
        period beginning during a fiscal year after fiscal year 1997 is 
        equal to the per stay limit established under this subsection 
        for the 12-month cost reporting period beginning during the 
        previous fiscal year, increased by the SNF market basket 
        percentage increase for such subsequent fiscal year minus 2 
        percentage points.
          ``(3) Rebasing of amounts.--
                  ``(A) In general.--The Secretary shall provide for an 
                update to the facility-specific amounts used to 
                determine the per stay limits under this subsection for 
                cost reporting periods beginning on or after October 1, 
                1999, and every 2 years thereafter.
                  ``(B) Treatment of facilities not having rebased cost 
                reporting periods.--Paragraph (1)(B) shall apply with 
                respect to a skilled nursing facility for which 
                payments were not made under this title for covered 
                non-routine services for the 12-month cost reporting 
                period used by the Secretary to update facility-
                specific amounts under subparagraph (A) in the same 
                manner as such paragraph applies with respect to a 
                facility for which payments were not made under this 
                title for covered non-routine services for the last 12-
                month cost reporting period ending on or before 
                September 30, 1994.
  ``(e) Determination of Facility-Specific Stay Amounts.--The 
`facility-specific stay amount' for a skilled nursing facility for a 
cost reporting period is the sum of--
          ``(1) the average amount of payments made to the facility 
        under part A during the period which are attributable to 
        covered non-routine services furnished during a stay; and
          ``(2) the Secretary's best estimate of the average amount of 
        payments made under part B during the period for covered non-
        routine services furnished to all residents of the facility to 
        whom the facility provided extended care services for which 
        payment was made under part A during the period (without regard 
        to whether or not the services were furnished by the facility, 
        by others under arrangement with them made by the facility, 
        under any other contracting or consulting arrangement, or 
        otherwise), as estimated by the Secretary.
  ``(f) Intensive Nursing or Therapy Needs.--
          ``(1) In general.--In applying subsection (b) to covered non-
        routine services furnished during a stay beginning during a 
        cost reporting period beginning during a fiscal year to a 
        resident of a skilled nursing facility who requires intensive 
        nursing or therapy services, the per stay limit determined for 
        the fiscal year under the methodology for such resident shall 
        be the per stay limit developed under paragraph (2) instead of 
        the per stay limit determined under subsection (d)(1)(A).
          ``(2) Per stay limit for intensive need residents.--Not later 
        than June 30, 1996, the Secretary, after consultation with the 
        Medicare Payment Review Commission and skilled nursing facility 
        experts, shall develop and publish a methodology for 
        determining on an annual basis a per stay limit for residents 
        of a skilled nursing facility who require intensive nursing or 
        therapy services.
          ``(3) Budget neutrality.--The Secretary shall adjust payments 
        under subsection (b) in a manner that ensures that total 
        payments for covered non-routine services under this section 
        are not greater or less than total payments for such services 
        would have been but for the application of paragraph (1).
  ``(g) Special Treatment for Medicare Low Volume Skilled Nursing 
Facilities.--This section shall not apply with respect to a skilled 
nursing facility for which payment is made for routine service costs 
during a cost reporting period on the basis of prospective payments 
under section 1888(d).
  ``(h) Exceptions and Adjustments to Limits.--
          ``(1) In general.--The Secretary may make exceptions and 
        adjustments to the cost reporting limits applicable to a 
        skilled nursing facility under subsection (c)(1)(B) for a cost 
        reporting period, except that the total amount of any 
        additional payments made under this section for covered non-
        routine services during the cost reporting period as a result 
        of such exceptions and adjustments may not exceed 5 percent of 
        the aggregate payments made to all skilled nursing facilities 
        for covered non-routine services during the cost reporting 
        period (determined without regard to this paragraph).
          ``(2) Budget neutrality.--The Secretary shall adjust payments 
        under subsection (b) in a manner that ensures that total 
        payments for covered non-routine services under this section 
        are not greater or less than total payments for such services 
        would have been but for the application of paragraph (1).
  ``(i) Special Rule for X-Ray Services.--Before furnishing a covered 
non-routine service consisting of an X-ray service for which payment 
may be made under part A or part B to a resident, a skilled nursing 
facility shall consider whether furnishing the service through a 
provider of portable X-ray services would be appropriate, taking into 
account the cost effectiveness of the service and the convenience to 
the resident.''.
  (b) Conforming Amendment.--Section 1814(b) (42 U.S.C. 1395f(b)) is 
amended in the matter preceding paragraph (1) by striking ``1813 and 
1886'' and inserting ``1813, 1886, 1888, and 1888A''.

SEC. 15523. PAYMENTS FOR ROUTINE SERVICE COSTS.

  (a) Maintaining Savings Resulting From Temporary Freeze on Payment 
Increases.--
          (1) Basing updates to per diem cost limits on limits for 
        fiscal year 1993.--
                  (A) In general.--The last sentence of section 1888(a) 
                (42 U.S.C. 1395yy(a)) is amended by inserting before 
                the period at the end the following: ``(except that 
                such updates may not take into account any changes in 
                the routine service costs of skilled nursing facilities 
                occurring during cost reporting periods which began 
                during fiscal year 1994 or fiscal year 1995)''.
                  (B) No exceptions permitted based on amendment.--The 
                Secretary of Health and Human Services shall not 
                consider the amendment made by subparagraph (A) in 
                making any adjustments pursuant to section 1888(c) of 
                the Social Security Act.
          (2) Payments determined on prospective basis.--Any change 
        made by the Secretary of Health and Human Services in the 
        amount of any prospective payment paid to a skilled nursing 
        facility under section 1888(d) of the Social Security Act for 
        cost reporting periods beginning on or after October 1, 1995, 
        may not take into account any changes in the costs of services 
        occurring during cost reporting periods which began during 
        fiscal year 1994 or fiscal year 1995.
  (b) Establishment of Schedule for Making Adjustments to Limits.--
Section 1888(c) (42 U.S.C. 1395yy(c)) is amended by striking the period 
at the end of the second sentence and inserting ``, and may only make 
adjustments under this subsection with respect to a facility which 
applies for an adjustment during an annual application period 
established by the Secretary.''.
  (c) Limitation on Aggregate Increase in Payments Resulting from 
Adjustments to Limits.--Section 1888(c) (42 U.S.C. 1395yy(c)) is 
amended--
          (1) by striking ``(c) The Secretary'' and inserting ``(c)(1) 
        Subject to paragraph (2), the Secretary''; and
          (2) by adding at the end the following new paragraph:
  ``(2) The Secretary may not make any adjustments under this 
subsection in the limits set forth in subsection (a) for a cost 
reporting period beginning during a fiscal year to the extent that the 
total amount of the additional payments made under this title as a 
result of such adjustments is greater than an amount equal to--
          ``(A) for cost reporting periods beginning during fiscal year 
        1997, the total amount of the additional payments made under 
        this title as a result of adjustments under this subsection for 
        cost reporting periods beginning during fiscal year 1996 
        increased by the SNF market basket percentage increase (as 
        defined in section 1888A(e)(3)) for fiscal year 1997; and
          ``(B) for cost reporting periods beginning during a 
        subsequent fiscal year, the amount determined under this 
        paragraph for the previous fiscal year increased by the SNF 
        market basket percentage increase for such subsequent fiscal 
        year.''.
  (d) Imposition of Limits For All Cost Reporting Periods.--Section 
1888(a) (42 U.S.C. 1395yy(a)) is amended in the matter preceding 
paragraph (1) by inserting after ``extended care services'' the 
following: ``(for any cost reporting period for which payment is made 
under this title to the skilled nursing facility for such services)''.

SEC. 15524. REDUCTIONS IN PAYMENT FOR CAPITAL-RELATED COSTS.

  Section 1861(v)(1) (42 U.S.C. 1395x(v)(1)), as amended by section 
15506, is amended by adding at the end the following new subparagraph:
  ``(U) Such regulations shall provide that, in determining the amount 
of the payments that may be made under this title with respect to all 
the capital-related costs of skilled nursing facilities, the Secretary 
shall reduce the amounts of such payments otherwise established under 
this title by 15 percent for payments attributable to portions of cost 
reporting periods occurring during fiscal years 1996 through 2002.''.

SEC. 15525. TREATMENT OF ITEMS AND SERVICES PAID FOR UNDER PART B.

  (a) Requiring Payment for All Items and Services to Be Made to 
Facility.--
          (1) In general.--The first sentence of section 1842(b)(6) (42 
        U.S.C. 1395u(b)(6)) is amended--
                  (A) by striking ``and (D)'' and inserting ``(D)''; 
                and
                  (B) by striking the period at the end and inserting 
                the following: ``, and (E) in the case of an item or 
                service (other than physicians' services and other than 
                a portable X-ray or portable electrocardiogram treated 
                as a physician's service for purposes of section 
                1848(j)(3)) furnished to an individual who (at the time 
                the item or service is furnished) is a resident of a 
                skilled nursing facility, payment shall be made to the 
                facility (without regard to whether or not the item or 
                service was furnished by the facility, by others under 
                arrangement with them made by the facility, or 
                otherwise).''.
          (2) Exclusion for items and services not billed by 
        facility.--Section 1862(a) (42 U.S.C. 1395y(a)) is amended--
                  (A) by striking ``or'' at the end of paragraph (14);
                  (B) by striking the period at the end of paragraph 
                (15) and inserting ``; or''; and
                  (C) by inserting after paragraph (15) the following 
                new paragraph:
          ``(16) where such expenses are for covered non-routine 
        services (as defined in section 1888A(a)(1)) (other than a 
        portable X-ray or portable electrocardiogram treated as a 
        physician's service for purposes of section 1848(j)(3)) 
        furnished to an individual who is a resident of a skilled 
        nursing facility and for which the claim for payment under this 
        title is not submitted by the facility.''.
          (3) Conforming amendment.--Section 1832(a)(1) (42 U.S.C. 
        1395k(a)(1)) is amended by striking ``(2);'' and inserting 
        ``(2) and section 1842(b)(6)(E);''.
  (b) Reduction in Payments for Items and Services Furnished by or 
Under Arrangements With Facilities.--Section 1861(v)(1) (42 U.S.C. 
1395x(v)(1)), as amended by sections 15506 and 15524, is amended by 
adding at the end the following new subparagraph:
  ``(V) In the case of an item or service furnished by a skilled 
nursing facility (or by others under arrangement with them made by a 
skilled nursing facility) for which payment is made under part B in an 
amount determined in accordance with section 1833(a)(2)(B), the 
Secretary shall reduce the reasonable cost for such item or service 
otherwise determined under clause (i)(I) of such section by 5.8 percent 
for payments attributable to portions of cost reporting periods 
occurring during fiscal years 1996 through 2002.''.

SEC. 15526. CERTIFICATION OF FACILITIES MEETING REVISED NURSING HOME 
                    REFORM STANDARDS.

  (a) In General.--Section 1819(a)(3) (42 U.S.C. 1395i-3(a)(3)) is 
amended to read as follows:
          ``(3)(A) is certified by the Secretary as meeting the 
        standards established under subsection (b), or (B) is a State-
        certified facility (as defined in subsection (d)).''.
  (b) Requirements Described.--Section 1819 (42 U.S.C. 1395i-3) is 
amended by striking subsections (b) through (i) and inserting the 
following:
  ``(b) Standards for and Certification of Facilities.--
          ``(1) Standards for facilities.--
                  ``(A) In general.--The Secretary shall provide for 
                the establishment and maintenance of standards 
                consistent with the contents described in subparagraph 
                (B) for skilled nursing facilities which furnish 
                services for which payment may be made under this 
                title.
                  ``(B) Contents of standards.--The standards 
                established for facilities under this paragraph shall 
                contain provisions relating to the following items:
                          ``(i) The treatment of resident medical 
                        records.
                          ``(ii) Policies, procedures, and bylaws for 
                        operation.
                          ``(iii) Quality assurance systems.
                          ``(iv) Resident assessment procedures, 
                        including care planning and outcome evaluation.
                          ``(v) The assurance of a safe and adequate 
                        physical plant for the facility.
                          ``(vi) Qualifications for staff sufficient to 
                        provide adequate care.
                          ``(vii) Utilization review.
                          ``(viii) The protection and enforcement of 
                        resident rights described in subparagraph (C).
                  ``(C) Resident rights described.--The resident rights 
                described in this subparagraph are the rights of 
                residents to the following:
                          ``(i) To exercise the individual's rights as 
                        a resident of the facility and as a citizen or 
                        resident of the United States.
                          ``(ii) To receive notice of rights and 
                        services.
                          ``(iii) To be protected against the misuse of 
                        resident funds.
                          ``(iv) To be provided privacy and 
                        confidentiality.
                          ``(v) To voice grievances.
                          ``(vi) To examine the results of inspections 
                        under the certification program.
                          ``(vii) To refuse to perform services for the 
                        facility.
                          ``(viii) To be provided privacy in 
                        communications and to receive mail.
                          ``(ix) To have the facility provide immediate 
                        access to any resident by any representative of 
                        the certification program, the resident's 
                        individual physician, the State long term care 
                        ombudsman, and any person the resident has 
                        designated as a visitor.
                          ``(x) To retain and use personal property.
                          ``(xi) To be free from abuse, including 
                        verbal, sexual, physical and mental abuse, 
                        corporal punishment, and involuntary seclusion.
                          ``(xii) To be provided with prior written 
                        notice of a pending transfer or discharge.
                  ``(D) Requiring notice and comment.--The standards 
                established for facilities under this paragraph may 
                only take effect after the Secretary has provided the 
                public with notice and an opportunity for comment.
          ``(2) Certification program.--
                  ``(A) In general.--The Secretary shall provide for 
                the establishment and operation of a program consistent 
                with the requirements of subparagraph (B) for the 
                certification of skilled nursing facilities which meet 
                the standards established under paragraph (1) and the 
                decertification of facilities which fail to meet such 
                standards.
                  ``(B) Requirements for program.--In addition to any 
                other requirements the Secretary may impose, in 
                establishing and operating the certification program 
                under subparagraph (A), the Secretary shall ensure the 
                following:
                          ``(i) The Secretary shall ensure public 
                        access (as defined by the Secretary) to the 
                        certification program's evaluations of 
                        participating facilities, including compliance 
                        records and enforcement actions and other 
                        reports by the Secretary regarding the 
                        ownership, compliance histories, and services 
                        provided by certified facilities.
                          ``(ii) Not less often than every 4 years, the 
                        Secretary shall audit its expenditures under 
                        the program, through an entity designated by 
                        the Secretary which is not affiliated with the 
                        program, as designated by the Secretary.
  ``(c) Intermediate Sanction Authority.--
          ``(1) Authority.--In addition to any other authority, where 
        the Secretary determines that a nursing facility which is 
        certified for participation under this title (whether certified 
        by the Secretary as meeting the standards established under 
        subsection (b) or a State-ceritified facility) no longer or 
        does not substantially meet the requirements for such a 
        facility under this title as specified under subsection (b) and 
        further determines that the facility's deficiencies--
                  ``(A) immediately jeopardize the health and safety of 
                its residents, the Secretary shall at least provide for 
                the termination of the facility's certification for 
                participation under this title, or
                  ``(B) do not immediately jeopardize the health and 
                safety of its residents, the Secretary may, in lieu of 
                providing for terminating the facility's certification 
                for participation under the plan, provide lesser 
                sanctions including one that provides that no payment 
                will be made under this title with respect to any 
                individual admitted to such facility after a date 
                specified by the Secretary.
          ``(2) Notice.--The Secretary shall not make such a decision 
        with respect to a facility until the facility has had a 
        reasonable opportunity, following the initial determination 
        that it no longer or does not substantially meet the 
        requirements for such a facility under this title, to correct 
        its deficiencies, and, following this period, has been given 
        reasonable notice and opportunity for a hearing.
          ``(3) Effectiveness.--The Secretary's decision to deny 
        payment may be made effective only after such notice to the 
        public and to the facility as may be provided for by the 
        Secretary, and its effectiveness shall terminate (A) when the 
        Secretary finds that the facility is in substantial compliance 
        (or is making good faith efforts to achieve substantial 
        compliance) with the requirements for such a facility under 
        this title, or (B) in the case described in paragraph (1)(B), 
        with the end of the eleventh month following the month such 
        decision is made effective, whichever occurs first. If a 
        facility to which clause (B) of the previous sentence applies 
        still fails to substantially meet the provisions of the 
        respective section on the date specified in such clause, the 
        Secretary shall terminate such facility's certification for 
        participation under this title effective with the first day of 
        the first month following the month specified in such clause.
  ``(d) State-Certified Facility Defined.--In subsection (a), a `State-
certified facility' means a facility licensed or certified as a skilled 
nursing facility by the State in which it is located, or a facility 
which otherwise meets the requirements applicable to providers of 
nursing facility services under the State plan under title XIX or the 
MediGrant program under title XXI.''.
  (c) Conforming Amendments.--(1) Section 1861(v)(1)(E) (42 U.S.C. 
1395x(v)(1)(E)) is amended by striking the second sentence.
  (2) Section 1864 (42 U.S.C. 1395aa) is amended by striking subsection 
(d).
  (3) Section 1866(f)(1) (42 U.S.C. 1395cc(f)(1)) is amended by 
striking ``1819(c)(2)(E),''.
  (4) Section 1883(f) (42 U.S.C. 1395tt(f)) is amended--
          (A) in the second sentence, by striking ``such a hospital'' 
        and inserting ``a hospital which enters into an agreement with 
        the Secretary under this section''; and
          (B) by striking the first sentence.
  (d) Effective Date.--The amendments made by this section shall apply 
with respect to cost reporting periods beginning on or after October 1, 
1995.

SEC. 15527. MEDICAL REVIEW PROCESS.

  In order to ensure that medicare beneficiaries are furnished 
appropriate extended care services, the Secretary of Health and Human 
Services shall establish and implement a thorough medical review 
process to examine the effects of the amendments made by this part on 
the quality of extended care services furnished to medicare 
beneficiaries. In developing such a medical review process, the 
Secretary shall place a particular emphasis on the quality of non-
routine covered services for which payment is made under section 1888A 
of the Social Security Act.

SEC. 15528. REPORT BY MEDICARE PAYMENT REVIEW COMMISSION.

  Not later than October 1, 1997, the Medicare Payment Review 
Commission shall submit to Congress a report on the system under which 
payment is made under the medicare program for extended care services 
furnished by skilled nursing facilities, and shall include in the 
report the following:
          (1) An analysis of the effect of the methodology established 
        under section 1888A of the Social Security Act (as added by 
        section 15522) on the payments for, and the quality of, 
        extended care services under the medicare program.
          (2) An analysis of the advisability of determining the amount 
        of payment for covered non-routine services of facilities (as 
        described in such section) on the basis of the amounts paid for 
        such services when furnished by suppliers under part B of the 
        medicare program.
          (3) An analysis of the desirability of maintaining separate 
        limits for hospital-based and freestanding facilities in the 
        costs of extended care services recognized as reasonable under 
        the medicare program.
          (4) An analysis of the quality of services furnished by 
        skilled nursing facilities.
          (5) An analysis of the adequacy of the process and standards 
        used to provide exceptions to the limits described in paragraph 
        (3).

SEC. 15529. EFFECTIVE DATE.

  Except as otherwise provided in this part, the amendments made by 
this part shall apply to services furnished during cost reporting 
periods (or portions of cost reporting periods) beginning on or after 
October 1, 1996.

           Subtitle G--Provisions Relating to Medicare Part B

                        PART 1--PAYMENT REFORMS

SEC. 15601. PAYMENTS FOR PHYSICIANS' SERVICES.

  (a) Replacement of Volume Performance Standard With Sustainable 
Growth Rate.--Section 1848(f) (42 U.S.C. 1395w-4(f)) is amended to read 
as follows:
  ``(f) Sustainable Growth Rate.--
          ``(1) Specification of growth rate.--
                  ``(A) Fiscal year 1996.--The sustainable growth rate 
                for all physicians' services for fiscal year 1996 shall 
                be equal to the product of--
                          ``(i) 1 plus the Secretary's estimate of the 
                        percentage change in the medicare economic 
                        index for 1996 (described in the fourth 
                        sentence of section 1842(b)(3)) (divided by 
                        100),
                          ``(ii) 1 plus the Secretary's estimate of the 
                        percentage change (divided by 100) in the 
                        average number of individuals enrolled under 
                        this part (other than private plan enrollees) 
                        from fiscal year 1995 to fiscal year 1996,
                          ``(iii) 1 plus the Secretary's estimate of 
                        the projected percentage growth in real gross 
                        domestic product per capita (divided by 100) 
                        from fiscal year 1995 to fiscal year 1996, plus 
                        2 percentage points, and
                          ``(iv) 1 plus the Secretary's estimate of the 
                        percentage change (divided by 100) in 
                        expenditures for all physicians' services in 
                        fiscal year 1996 (compared with fiscal year 
                        1995) which will result from changes in law, 
                        determined without taking into account 
                        estimated changes in expenditures due to 
                        changes in the volume and intensity of 
                        physicians' services or changes in expenditures 
                        resulting from changes in the update to the 
                        conversion factor under subsection (d),
                minus 1 and multiplied by 100.
                  ``(B) Subsequent fiscal years.--The sustainable 
                growth rate for all physicians' services for fiscal 
                year 1997 and each subsequent fiscal year shall be 
                equal to the product of--
                          ``(i) 1 plus the Secretary's estimate of the 
                        percentage change in the medicare economic 
                        index for the fiscal year involved (described 
                        in the fourth sentence of section 1842(b)(3)) 
                        (divided by 100),
                          ``(ii) 1 plus the Secretary's estimate of the 
                        percentage change (divided by 100) in the 
                        average number of individuals enrolled under 
                        this part (other than private plan enrollees) 
                        from the previous fiscal year to the fiscal 
                        year involved,
                          ``(iii) 1 plus the Secretary's estimate of 
                        the projected percentage growth in real gross 
                        domestic product per capita (divided by 100) 
                        from the previous fiscal year to the fiscal 
                        year involved, plus 2 percentage points, and
                          ``(iv) 1 plus the Secretary's estimate of the 
                        percentage change (divided by 100) in 
                        expenditures for all physicians' services in 
                        the fiscal year (compared with the previous 
                        fiscal year) which will result from changes in 
                        law (including changes made by the Secretary in 
                        response to section 1895), determined without 
                        taking into account estimated changes in 
                        expenditures due to changes in the volume and 
                        intensity of physicians' services or changes in 
                        expenditures resulting from changes in the 
                        update to the conversion factor under 
                        subsection (d)(3),
                minus 1 and multiplied by 100.
          ``(2) Exclusion of services furnished to private plan 
        enrollees.--In this subsection, the term `physicians' services' 
        with respect to a fiscal year does not include services 
        furnished to an individual enrolled under this part who has 
        elected to receive benefits under this title for the fiscal 
        year through a MedicarePlus product offered under part C or 
        through enrollment with an eligible organization with a risk-
        sharing contract under section 1876.''.
  (b) Establishing Update to Conversion Factor to Match Spending Under 
Sustainable Growth Rate.--
          (1) In general.--Section 1848(d) (42 U.S.C. 1395w-4(d)) is 
        amended--
                  (A) by striking paragraph (2);
                  (B) by amending paragraph (3) to read as follows:
          ``(3) Update.--
                  ``(A) In general.--Subject to subparagraph (E), for 
                purposes of this section the update for a year 
                (beginning with 1997) is equal to the product of--
                          ``(i) 1 plus the Secretary's estimate of the 
                        percentage increase in the medicare economic 
                        index (described in the fourth sentence of 
                        section 1842(b)(3)) for the year (divided by 
                        100), and
                          ``(ii) 1 plus the Secretary's estimate of the 
                        update adjustment factor for the year (divided 
                        by 100),
                minus 1 and multiplied by 100.
                  ``(B) Update adjustment factor.--The `update 
                adjustment factor' for a year is equal to the quotient 
                of--
                          ``(i) the difference between (I) the sum of 
                        the allowed expenditures for physicians' 
                        services furnished during each of the years 
                        1995 through the year involved and (II) the sum 
                        of the amount of actual expenditures for 
                        physicians' services furnished during each of 
                        the years 1995 through the previous year; 
                        divided by
                          ``(ii) the Secretary's estimate of allowed 
                        expenditures for physicians' services furnished 
                        during the year.
                  ``(C) Determination of allowed expenditures.--For 
                purposes of subparagraph (B), allowed expenditures for 
                physicians' services shall be determined as follows (as 
                estimated by the Secretary):
                          ``(i) In the case of allowed expenditures for 
                        1995, such expenditures shall be equal to 
                        actual expenditures for services furnished 
                        during the 12-month period ending with June of 
                        1995.
                          ``(ii) In the case of allowed expenditures 
                        for 1996 and each subsequent year, such 
                        expenditures shall be equal to allowed 
                        expenditures for the previous year, increased 
                        by the sustainable growth rate under subsection 
                        (f) for the fiscal year which begins during the 
                        year.
                  ``(D) Determination of actual expenditures.--For 
                purposes of subparagraph (B), the amount of actual 
                expenditures for physicians' services furnished during 
                a year shall be equal to the amount of expenditures for 
                such services during the 12-month period ending with 
                June of the previous year.
                  ``(E) Restriction on variation from medicare economic 
                index.--Notwithstanding the amount of the update 
                adjustment factor determined under subparagraph (B) for 
                a year, the update in the conversion factor under this 
                paragraph for the year may not be--
                          ``(i) greater than 103 percent of 1 plus the 
                        Secretary's estimate of the percentage increase 
                        in the medicare economic index (described in 
                        the fourth sentence of section 1842(b)(3)) for 
                        the year (divided by 100); or
                          ``(ii) except as required to carry out 
                        section 1895, less than 93 percent of 1 plus 
                        the Secretary's estimate of the percentage 
                        increase in the medicare economic index 
                        (described in the fourth sentence of section 
                        1842(b)(3)) for the year (divided by 100).''; 
                        and
                  (C) by adding at the end the following new paragraph:
          ``(4) Reporting requirements.--
                  ``(A) In general.--Not later than November 1 of each 
                year (beginning with 1996), the Secretary shall 
                transmit to the Congress a report that describes the 
                update in the conversion factor for physicians' 
                services (as defined in subsection (f)(3)(A)) in the 
                following year.
                  ``(B) Commission review.--The Medicare Payment Review 
                Commission shall review the report submitted under 
                subparagraph (A) for a year and shall submit to the 
                Congress, by not later than December 1 of the year, a 
                report containing its analysis of the conversion factor 
                for the following year.''.
          (2) Effective date.--The amendments made by this subsection 
        shall apply to physicians' services furnished on or after 
        January 1, 1997.
  (c) Establishment of Single Conversion Factor for 1996.--
          (1) In general.--Section 1848(d)(1) (42 U.S.C. 1395w-4(d)(1)) 
        is amended--
                  (A) by redesignating subparagraph (C) as subparagraph 
                (D); and
                  (B) by inserting after subparagraph (B) the following 
                new subparagraph:
                  ``(C) Special rule for 1996.--For 1996, the 
                conversion factor under this subsection shall be $34.60 
                for all physicians' services.''.
          (2) Conforming amendments.--Section 1848 (42 U.S.C. 1395w-4), 
        as amended by paragraph (1), is amended--
                  (A) by striking ``(or factors)'' each place it 
                appears in subsection (d)(1)(A) and (d)(1)(D)(ii);
                  (B) in subsection (d)(1)(A), by striking ``or 
                updates'';
                  (C) in subsection (d)(1)(D)(ii), by striking ``(or 
                updates)''; and
                  (D) in subsection (i)(1)(C), by striking ``conversion 
                factors'' and inserting ``the conversion factor''.

SEC. 15602. ELIMINATION OF FORMULA-DRIVEN OVERPAYMENTS FOR CERTAIN 
                    OUTPATIENT HOSPITAL SERVICES.

  (a) Ambulatory Surgical Center Procedures.--Section 
1833(i)(3)(B)(i)(II) (42 U.S.C. 1395l(i)(3)(B)(i)(II)) is amended--
          (1) by striking ``of 80 percent''; and
          (2) by striking the period at the end and inserting the 
        following: ``, less the amount a provider may charge as 
        described in clause (ii) of section 1866(a)(2)(A).''.
  (b) Radiology Services and Diagnostic Procedures.--Section 
1833(n)(1)(B)(i)(II) (42 U.S.C. 1395l(n)(1)(B)(i)(II)) is amended--
          (1) by striking ``of 80 percent''; and
          (2) by striking the period at the end and inserting the 
        following: ``, less the amount a provider may charge as 
        described in clause (ii) of section 1866(a)(2)(A).''.
  (c) Effective Date.--The amendments made by this section shall apply 
to services furnished during portions of cost reporting periods 
occurring on or after October 1, 1995.

SEC. 15603. REDUCTION IN UPDATES TO PAYMENT AMOUNTS FOR DURABLE MEDICAL 
                    EQUIPMENT.

  (a) In General.--
          (1) Freeze in update for covered items.--Section 1834(a)(14) 
        (42 U.S.C. 1395m(a)(14)) is amended--
                  (A) by striking ``and'' at the end of subparagraph 
                (A);
                  (B) in subparagraph (B)--
                          (i) by striking ``a subsequent year'' and 
                        inserting ``1993, 1994, and 1995'', and
                          (ii) by striking the period at the end and 
                        inserting a semicolon; and
                  (C) by adding at the end the following:
                  ``(C) for each of the years 1996 through 2002, 0 
                percentage points; and
                  ``(D) for a subsequent year, the percentage increase 
                in the consumer price index for all urban consumers 
                (U.S. urban average) for the 12-month period ending 
                with June of the previous year.''.
          (2) Update for orthotics and prosthetics.--Section 
        1834(h)(4)(A) (42 U.S.C. 1395m(h)(4)(A)) is amended--
                  (A) by striking ``and'' at the end of clause (iii);
                  (B) by redesignating clause (iv) as clause (v); and
                  (C) by inserting after clause (iii) the following new 
                clause:
                          ``(iv) for each of the years 1996 through 
                        2002, 1 percent, and''.
  (b) Oxygen and Oxygen Equipment.--Section 1834(a)(9)(C) (42 U.S.C. 
1395m(a)(9)(C)) is amended--
          (1) by striking ``and'' at the end of clause (iii);
          (2) in clause (iv)--
                  (A) by striking ``a subsequent year'' and inserting 
                ``1993, 1994, and 1995'', and
                  (B) by striking the period at the end and inserting a 
                semicolon; and
          (3) by adding at the end the following new clauses:
                          ``(v) in 1996, is 80 percent of the national 
                        limited monthly payment rate computed under 
                        subparagraph (B) for the item for the year; and
                          ``(vi) in a subsequent year, is the national 
                        limited monthly payment rate computed under 
                        subparagraph (B) for the item for the year.''.

SEC. 15604. REDUCTION IN UPDATES TO PAYMENT AMOUNTS FOR CLINICAL 
                    DIAGNOSTIC LABORATORY TESTS.

  (a) Change in Update.--Section 1833(h)(2)(A)(ii)(IV) (42 U.S.C. 
1395l(h)(2)(A)(ii)(IV)) is amended by striking ``1994 and 1995'' and 
inserting ``1994 through 2002''.
  (b) Lowering Cap on Payment Amounts.--Section 1833(h)(4)(B) (42 
U.S.C. 1395l(h)(4)(B)) is amended--
          (1) in clause (vi), by striking ``and'' at the end;
          (2) in clause (vii)--
                  (A) by inserting ``and before January 1, 1997,'' 
                after ``1995,'', and
                  (B) by striking the period at the end and inserting 
                ``, and''; and
          (3) by adding at the end the following new clause:
          ``(viii) after December 31, 1996, is equal to 65 percent of 
        such median.''.

SEC. 15605. EXTENSION OF REDUCTIONS IN PAYMENTS FOR COSTS OF HOSPITAL 
                    OUTPATIENT SERVICES.

  (a) Reduction in Payments for Capital-Related Costs.--Section 
1861(v)(1)(S)(ii)(I) (42 U.S.C. 1395x(v)(1)(S)(ii)(I)) is amended by 
striking ``through 1998'' and inserting ``through 2002''.
  (b) Reduction in Payments for Other Costs.--Section 
1861(v)(1)(S)(ii)(II) (42 U.S.C. 1395x(v)(1)(S)(ii)(II)) is amended by 
striking ``through 1998'' and inserting ``through 2002''.

SEC. 15606. FREEZE IN PAYMENTS FOR AMBULATORY SURGICAL CENTER SERVICES.

  The Secretary of Health and Human Services shall not provide for any 
inflation update in the payment amounts under subparagraphs (A) and (B) 
of section 1833(i)(2) of the Social Security Act for any of the fiscal 
years 1996 through 2002.

SEC. 15607. RURAL EMERGENCY ACCESS CARE HOSPITALS.

  (a) Coverage Under Part B.--Section 1832(a)(2) (42 U.S.C. 
1395k(a)(2)) is amended--
          (1) by striking ``and'' at the end of subparagraph (I);
          (2) by striking the period at the end of subparagraph (J) and 
        inserting ``; and''; and
          (3) by adding at the end the following new subparagraph:
                  ``(K) rural emergency access care hospital services 
                (as defined in section 1861(oo)(2)).''.
  (b) Payment Based on Payment for Outpatient Rural Primary Care 
Hospital Services.--
          (1) In general.--Section 1833(a)(6) (42 U.S.C. 1395l(a)(6)) 
        is amended by striking ``services,'' and inserting ``services 
        and rural emergency access care hospital services,''.
          (2) Payment methodology described.--Section 1834(g) (42 
        U.S.C. 1395m(g)) is amended--
                  (A) in the heading, by striking ``Services'' and 
                inserting ``Services and Rural Emergency Access Care 
                Hospital Services''; and
                  (B) by adding at the end the following new sentence: 
                ``The amount of payment for rural emergency access care 
                hospital services provided during a year shall be 
                determined using the applicable method provided under 
                this subsection for determining payment for outpatient 
                rural primary care hospital services during the 
                year.''.
  (c) Effective Date.--The amendments made by this section shall apply 
to services furnished on or after October 1, 1995.

                         PART 2--PART B PREMIUM

SEC. 15611. EXTENSION OF PART B PREMIUM.

  (a) In General.--Section 1839(e)(1) (42 U.S.C. 1395r(e)(1)) is 
amended--
          (1) in subparagraph (A)--
                  (A) by striking ``and prior to January 1999'', and
                  (B) by inserting ``(or, if higher, the percent 
                described in subparagraph (C))'' after ``50 percent''; 
                and
          (2) by adding at the end the following new subparagraph:
  ``(C) For purposes of subparagraph (A), the percent described in this 
subparagraph is the ratio (expressed as a percentage) of the monthly 
premium established under this section for months in 1995 to the 
monthly actuarial rate for enrollees age 65 and over applicable to such 
months (as specified in the most recent report of the Board of Trustees 
of the Federal Supplementary Medical Insurance Trust Fund published 
prior to the date of the enactment of the Medicare Preservation Act of 
1995).''.
  (b) Effective Date.--The amendments made by subsection (a) apply to 
premiums for months beginning with January 1996.

SEC. 15612. INCOME-RELATED REDUCTION IN MEDICARE SUBSIDY.

  (a) In General.--Section 1839 (42 U.S.C. 1395r) is amended by adding 
at the end the following:
  ``(h)(1) Notwithstanding the previous subsections of this section, in 
the case of an individual whose modified adjusted gross income for a 
taxable year ending with or within a calendar year (as initially 
determined by the Secretary in accordance with paragraph (3)) exceeds 
the threshold amount described in paragraph (4), the Secretary shall 
increase the amount of the monthly premium for months in the calendar 
year by an amount equal to the difference between--
          ``(A) 200 percent of the monthly actuarial rate for enrollees 
        age 65 and over as determined under subsection (a)(1) for that 
        calendar year; and
          ``(B) the total of the monthly premiums paid by the 
        individual under this section (determined without regard to 
        subsection (b)) during such calendar year.
  ``(2) In the case of an individual described in paragraph (1) whose 
modified adjusted gross exceeds the threshold amount by less than 
$25,000, the amount of the increase in the monthly premium applicable 
under paragraph (1) shall be an amount which bears the same ratio to 
the amount of the increase described in paragraph (1) (determined 
without regard to this paragraph) as such excess bears to $25,000. In 
the case of a joint return filed under section 6013 of the Internal 
Revenue Code of 1986 by spouses both of whom are enrolled under this 
part, the previous sentence shall be applied by substituting `$50,000' 
for `$25,000'. The preceding provisions of this paragraph shall not 
apply to any individual whose threshold amount is zero.
  ``(3) The Secretary shall make an initial determination of the amount 
of an individual's adjusted gross income for a taxable year ending with 
or within a calendar year for purposes of this subsection as follows:
          ``(A) Not later than October 1 of the year preceding the 
        year, the Secretary shall provide notice to each individual 
        whom the Secretary finds (on the basis of the individual's 
        actual adjusted gross income for the most recent taxable year 
        for which such information is available or other information 
        provided to the Secretary by the Secretary of the Treasury) 
        will be subject to an increase under this subsection that the 
        individual will be subject to such an increase, and shall 
        include in such notice the Secretary's estimate of the 
        individual's adjusted gross income for the year.
          ``(B) If, during the 30-day period beginning on the date 
        notice is provided to an individual under subparagraph (A), the 
        individual provides the Secretary with information on the 
        individual's anticipated adjusted gross income for the year, 
        the amount initially determined by the Secretary under this 
        paragraph with respect to the individual shall be based on the 
        information provided by the individual.
          ``(C) If an individual does not provide the Secretary with 
        information under subparagraph (B), the amount initially 
        determined by the Secretary under this paragraph with respect 
        to the individual shall be the amount included in the notice 
        provided to the individual under subparagraph (A).
  ``(4)(A) If the Secretary determines (on the basis of final 
information provided by the Secretary of the Treasury) that the amount 
of an individual's actual adjusted gross income for a taxable year 
ending with or within a calendar year is less than or greater than the 
amount initially determined by the Secretary under paragraph (3), the 
Secretary shall increase or decrease the amount of the individual's 
monthly premium under this section (as the case may be) for months 
during the following calendar year by an amount equal to \1/12\ of the 
difference between--
          ``(i) the total amount of all monthly premiums paid by the 
        individual under this section during the previous calendar 
        year; and
          ``(ii) the total amount of all such premiums which would have 
        been paid by the individual during the previous calendar year 
        if the amount of the individual's adjusted gross income 
        initially determined under paragraph (3) were equal to the 
        actual amount of the individual's adjusted gross income 
        determined under this paragraph.
  ``(B) In the case of an individual who is not enrolled under this 
part for any calendar year for which the individual's monthly premium 
under this section for months during the year would be increased 
pursuant to subparagraph (A) if the individual were enrolled under this 
part for the year, the Secretary may take such steps as the Secretary 
considers appropriate to recover from the individual the total amount 
by which the individual's monthly premium for months during the year 
would have been increased under subparagraph (A) if the individual were 
enrolled under this part for the year.
  ``(C) In the case of a deceased individual for whom the amount of the 
monthly premium under this section for months in a year would have been 
decreased pursuant to subparagraph (A) if the individual were not 
deceased, the Secretary shall make a payment to the individual's 
surviving spouse (or, in the case of an individual who does not have a 
surviving spouse, to the individual's estate) in an amount equal to the 
difference between--
          ``(i) the total amount by which the individual's premium 
        would have been decreased for all months during the year 
        pursuant to subparagraph (A); and
          ``(ii) the amount (if any) by which the individual's premium 
        was decreased for months during the year pursuant to 
        subparagraph (A).
  ``(5) In this subsection, the following definitions apply:
          ``(A) The term `modified adjusted gross income' means, with 
        respect to an individual for a taxable year, the individual's 
        adjusted gross income under the Internal Revenue Code of 1986--
                  ``(i) determined without regard to sections 135, 911, 
                931, and 933 of such Code, and
                  ``(ii) increased by the amount of interest received 
                or accrued by the individual during the taxable year 
                which is exempt from tax under such Code.
          ``(B) The term `threshold amount' means--
                  ``(i) except as otherwise provided in this paragraph, 
                $75,000,
                  ``(ii) $125,000, in the case of a joint return, and
                  ``(iii) zero in the case of a taxpayer who--
                          ``(I) is married at the close of the taxable 
                        year but does not file a joint return for such 
                        year, and
                          ``(II) does not live apart from his spouse at 
                        all times during the taxable year.''.
  (b) Conforming Amendment.--Section 1839(f) (42 U.S.C. 1395r(f)) is 
amended by striking ``if an individual'' and inserting the following: 
``if an individual (other than an individual subject to an increase in 
the monthly premium under this section pursuant to subsection (h))''.
  (c) Reporting Requirements for Secretary of the Treasury.--
Notwithstanding section 6103 of the Internal Revenue Code of 1986, the 
Secretary of the Treasury shall provide, at the request of the 
Secretary of Health and Human Services, such information (at such times 
and in such form as the Secretary of Health and Human Services may 
require) as is necessary for the Secretary of Health and Human Services 
to carry out section 1839(h) of the Social Security Act (as added by 
subsection (a)).
  (d) Effective Date.--The amendments made by subsections (a) and (b) 
shall apply to the monthly premium under section 1839 of the Social 
Security Act for months beginning with January 1997.

     PART 3--ADMINISTRATIVE SIMPLIFICATION FOR LABORATORY SERVICES

SEC. 15621. ADMINISTRATIVE SIMPLIFICATION FOR LABORATORY SERVICES.

  (a) In General.--Not later than 1 year after the date of the 
enactment of this Act, the Secretary of Health and Human Services (in 
accordance with the process described in subsection (b)) shall adopt 
uniform coverage, administration, and payment policies for clinical 
diagnostic laboratory tests under part B of the medicare program.
  (b) Process for Adoption of Policies.--The Secretary shall adopt 
uniform policies under subsection (a) in accordance with the following 
process:
          (1) The Secretary shall select from carriers with whom the 
        Secretary has a contract under part B during 1995 15 medical 
        directors, who will meet and develop recommendations for such 
        uniform policies. The medical directors selected shall 
        represent various geographic areas and have a varied range of 
        experience in relevant medical fields, including pathology and 
        clinical laboratory practice.
          (2) The medical directors selected under paragraph (1) shall 
        consult with independent experts in each major discipline of 
        clinical laboratory medicine, including clinical laboratory 
        personnel, bioanalysts, pathologists, and practicing 
        physicians. The medical directors shall also solicit comments 
        from other individuals and groups who wish to participate, 
        including consumers and other affected parties. This process 
        shall be conducted as a negotiated rulemaking under title 5, 
        United States Code.
          (3) Under the negotiated rulemaking, the recommendations for 
        uniform policies shall be designed to simplify and reduce 
        unnecessary administrative burdens in connection with the 
        following:
                  (A) Beneficiary information required to be submitted 
                with each claim.
                  (B) Physicians' obligations regarding documentation 
                requirements and recordkeeping.
                  (C) Procedures for filing claims and for providing 
                remittances by electronic media.
                  (D) The performance of post-payment review of test 
                claims.
                  (E) The prohibition of the documentation of medical 
                necessity except when determined to be appropriate 
                after identification of aberrant utilization pattern 
                through focused medical review.
                  (F) Beneficiary responsibility for payment.
          (4) During the pendency of the adoption by the Secretary of 
        the uniform policies, fiscal intermediaries and carriers under 
        the medicare program may not implement any new requirement 
        relating to the submission of a claim for clinical diagnostic 
        laboratory tests retroactive to January 1, 1995, and carriers 
        may not initiate any new coverage, administrative, or payment 
        policy unless the policy promotes the goal of administrative 
        simplification of requirements imposed on clinical laboratories 
        in accordance with the Secretary's promulgation of the 
        negotiated rulemaking.
          (5) Not later than 6 months after the date of the enactment 
        of this Act, the medical directors shall submit their 
        recommendations to the Secretary, and the Secretary shall 
        publish the recommendations and solicit public comment using 
        negotiated rulemaking in accordance with title 5, United States 
        Code. The Secretary shall publish final uniform policies for 
        coverage, administration, and payment of claims for clinical 
        diagnostic laboratory tests, effective after the expiration of 
        the 180-day period which begins on the date of publication.
          (6) After the publication of the final uniform policies, the 
        Secretary shall implement identical uniform documentation and 
        processing policies for all clinical diagnostic laboratory 
        tests paid under the medicare program through fiscal 
        intermediaries or carriers.
  (c) Optional Selection of Single Carrier.--Effective for claims 
submitted after the expiration of the 90-day period which begins on the 
date of the enactment of this Act, an independent laboratory may select 
a single carrier for the processing of all of its claims for payment 
under part B of the medicare program, without regard to the location 
where the laboratory or the patient or provider involved resides or 
conducts business. Such election of a single carrier shall be made by 
the clinical laboratory and an agreement made between the carrier and 
the laboratory shall be forwarded to the Secretary of Health and Human 
Services. Nothing in this subsection shall be construed to require a 
laboratory to select a single carrier under this subsection.

             PART 4--COVERAGE OF CERTAIN ANTI-NAUSEA DRUGS

SEC. 15631. COVERAGE OF ORAL ANTI-NAUSEA DRUGS UNDER CHEMOTHERAPEUTIC 
                    REGIMEN.

  Section 1861(s)(2) (42 U.S.C. 1395x(s)(2)) is amended--
          (1) by striking ``and'' at the end of subparagraphs (N) and 
        (O);
          (2) in subparagraph (Q), by adding ``and'' at the end; and
          (3) by adding at the end the following new subparagraph:
          ``(R) an oral drug (which is approved by the Federal Food and 
        Drug Administration) prescribed for use as an anti-emetic used 
        as part of an anticancer chemotherapeutic regimen, if the drug 
        is prescribed or dispensed--
                  ``(i) for use not later than 12 hours after the 
                administration of the anticancer chemotherapeutic 
                agent; and
                  ``(ii) as a substitute for any other anti-emetic 
                therapy which would otherwise be administered 
                intravenously.''.

SEC. 15632. EFFECTIVE DATE.

  The amendments made by this part shall apply to items and services 
furnished on or after January 1, 1996.

      PART 5--COVERAGE OF CERTAIN SERVICES ORDERED OR REFERRED BY 
                             CHIROPRACTORS

SEC. 15641. COVERAGE OF CERTAIN SERVICES ORDERED OR REFERRED BY 
                    CHIROPRACTORS.

  (a) Clarifying That Chiropractors May Order, and Refer Patients to 
Other Practitioners for, X-Rays.--Section 1861(r)(5) (42 U.S.C. 
1395x(r)(5)) is amended by striking the period at the end and inserting 
the following: ``, and for the ordering or referral of diagnostic X-ray 
tests under subsection (s)(3) which are not furnished by the 
chiropractor and for which payment may otherwise be made under this 
title.''.
  (b) Budget Neutrality Adjustment.--Notwithstanding any other 
provision of law, for each year (beginning with 1996), the Secretary 
shall reduce the amount of payments under section 1833 of the Social 
Security Act with respect to services furnished by chiropractors by 
such uniform percentage as the Secretary determines to be required to 
assure that the amendment made by subsection (a) does not result in 
expenditures under title XVIII of such Act in the year that exceed the 
amount of such expenditures that would have been made in such year if 
such amendment had not been made.
  (c) Effective Date.--The amendments made by subsection (a) shall 
apply to items and services furnished on or after January 1, 1996.

       Subtitle H--Provisions Relating to Medicare Parts A and B

               PART 1--PAYMENTS FOR HOME HEALTH SERVICES

SEC. 15701. PAYMENT FOR HOME HEALTH SERVICES.

  (a) In General.--Title XVIII (42 U.S.C. 1395 et seq.), as amended by 
section 15106, is amended by adding at the end the following new 
section:
                   ``payment for home health services
  ``Sec. 1894. (a) In General.--
          ``(1) Per visit payments.--Subject to subsection (c), the 
        Secretary shall make per visit payments beginning with fiscal 
        year 1997 to a home health agency in accordance with this 
        section for each type of home health service described in 
        paragraph (2) furnished to an individual who at the time the 
        service is furnished is under a plan of care by the home health 
        agency under this title (without regard to whether or not the 
        item or service was furnished by the agency or by others under 
        arrangement with them made by the agency, or otherwise).
          ``(2) Types of services.--The types of home health services 
        described in this paragraph are the following:
                  ``(A) Part-time or intermittent nursing care provided 
                by or under the supervision of a registered 
                professional nurse.
                  ``(B) Physical therapy.
                  ``(C) Occupational therapy.
                  ``(D) Speech-language pathology services.
                  ``(E) Medical social services under the direction of 
                a physician.
                  ``(F) To the extent permitted in regulations, part-
                time or intermittent services of a home health aide who 
                has successfully completed a training program approved 
                by the Secretary.
  ``(b) Establishment of Per Visit Rate for Each Type of Services.--
          ``(1) In general.--The Secretary shall, subject to paragraph 
        (3), establish a per visit payment rate for a home health 
        agency in an area for each type of home health service 
        described in subsection (a)(2). Such rate shall be equal to the 
        national per visit payment rate determined under paragraph (2) 
        for each such type, except that the labor-related portion of 
        such rate shall be adjusted by the area wage index applicable 
        under section 1886(d)(3)(E) for the area in which the agency is 
        located (as determined without regard to any reclassification 
        of the area under section 1886(d)(8)(B) or a decision of the 
        Medicare Geographic Classification Review Board or the 
        Secretary under section 1886(d)(10) for cost reporting periods 
        beginning after October 1, 1995).
          ``(2) National per visit payment rate.--The national per 
        visit payment rate for each type of service described in 
        subsection (a)(2)--
                  ``(A) for fiscal year 1997, is an amount equal to the 
                national average amount paid per visit under this title 
                to home health agencies for such type of service during 
                the most recent 12-month cost reporting period ending 
                on or before June 30, 1994, increased (in a compounded 
                manner) by the home health market basket percentage 
                increase for fiscal years 1995, 1996, and 1997; and
                  ``(B) for each subsequent fiscal year, is an amount 
                equal to the national per visit payment rate in effect 
                for the preceding fiscal year, increased by the home 
                health market basket percentage increase for such 
                subsequent fiscal year minus 2 percentage points.
          ``(3) Rebasing of rates.--The Secretary shall provide for an 
        update to the national per visit payment rates under this 
        subsection for cost reporting periods beginning not later than 
        the first day of the fifth fiscal year which begins after 
        fiscal year 1997, and not later than every 5 years thereafter, 
        to reflect the most recent available data.
          ``(4) Home health market basket percentage increase.--For 
        purposes of this subsection, the term `home health market 
        basket percentage increase' means, with respect to a fiscal 
        year, a percentage (estimated by the Secretary before the 
        beginning of the fiscal year) determined and applied with 
        respect to the types of home health services described in 
        subsection (a)(2) in the same manner as the market basket 
        percentage increase under section 1886(b)(3)(B)(iii) is 
        determined and applied to inpatient hospital services for the 
        fiscal year.
  ``(c) Per Episode Limit.--
          ``(1) Aggregate limit.--
                  ``(A) In general.--Except as provided in paragraph 
                (2), a home health agency may not receive aggregate per 
                visit payments under subsection (a) for a fiscal year 
                in excess of an amount equal to the sum of the 
                following products determined for each case-mix 
                category for which the agency receives payments:
                          ``(i) The number of episodes of each case-mix 
                        category during the fiscal year; multiplied by
                          ``(ii) the per episode limit determined for 
                        such case-mix category for such fiscal year.
                  ``(B) Establishment of per episode limits.--
                          ``(i) In general.--The per episode limit for 
                        a fiscal year for any case-mix category for the 
                        area in which a home health agency is located 
                        is equal to--
                                  ``(I) the mean number of visits for 
                                each type of home health service 
                                described in subsection (a)(2) 
                                furnished during an episode of such 
                                case-mix category in such area during 
                                fiscal year 1994, adjusted by the case-
                                mix adjustment factor determined in 
                                clause (ii) for the fiscal year 
                                involved; multiplied by
                                  ``(II) the per visit payment rate 
                                established under subsection (b) for 
                                such type of home health service for 
                                the fiscal year for which the 
                                determination is being made.
                          ``(ii) Case mix adjustment factor.--For 
                        purposes of clause (i), the case-mix adjustment 
                        factor for a year is the factor determined by 
                        the Secretary to assure that aggregate payments 
                        for home health services under this section 
                        during the year will not exceed the payment for 
                        such services during the previous year as a 
                        result of changes in the number and type of 
                        home health visits within case-mix categories 
                        over the previous year.
                          ``(iii) Rebasing of per episode amounts.--
                        Beginning with fiscal year 1999 and every 2 
                        years thereafter, the Secretary shall revise 
                        the mean number of home health visits 
                        determined under clause (i)(I) for each type of 
                        home health service visit described in 
                        subsection (a)(2) furnished during an episode 
                        in a case-mix category to reflect the most 
                        recently available data on the number of 
                        visits.
                          ``(iv) Determination of applicable area.--For 
                        purposes of determining per episode limits 
                        under this subparagraph, the area in which a 
                        home health agency is considered to be located 
                        shall be such area as the Secretary finds 
                        appropriate for purposes of this subparagraph.
                  ``(C) Case-mix category.--For purposes of this 
                paragraph, the term `case-mix category' means each of 
                the 18 case-mix categories established under the Phase 
                II Home Health Agency Prospective Payment Demonstration 
                Project conducted by the Health Care Financing 
                Administration. The Secretary may develop an alternate 
                methodology for determining case-mix categories.
                  ``(D) Episode.--
                          ``(i) In general.--For purposes of this 
                        paragraph, the term `episode' means the 
                        continuous 120-day period that--
                                  ``(I) begins on the date of an 
                                individual's first visit for a type of 
                                home health service described in 
                                subsection (a)(2) for a case-mix 
                                category, and
                                  ``(II) is immediately preceded by a 
                                60-day period in which the individual 
                                did not receive visits for a type of 
                                home health service described in 
                                subsection (a)(2).
                          ``(ii) Treatment of episodes spanning cost 
                        reporting periods.--The Secretary shall provide 
                        for such rules as the Secretary considers 
                        appropriate regarding the treatment of episodes 
                        under this paragraph which begin during a cost 
                        reporting period and end in a subsequent cost 
                        reporting period.
                  ``(E) Exemptions and exceptions.--The Secretary may 
                provide for exemptions and exceptions to the limits 
                established under this paragraph for a fiscal year as 
                the Secretary deems appropriate, to the extent such 
                exemptions and exceptions do not result in greater 
                payments under this section than the exemptions and 
                exceptions provided under section 1861(v)(1)(L)(ii) in 
                fiscal year 1994, increased by the home health market 
                basket percentage increase for the fiscal year involved 
                (as defined in subsection (b)(4)).
          ``(2) Reconciliation of amounts.--
                  ``(A) Overpayments to home health agencies.--Subject 
                to subparagraph (B), if a home health agency has 
                received aggregate per visit payments under subsection 
                (a) for a fiscal year in excess of the amount 
                determined under paragraph (1) with respect to such 
                home health agency for such fiscal year, the Secretary 
                shall reduce payments under this section to the home 
                health agency in the following fiscal year in such 
                manner as the Secretary considers appropriate 
                (including on an installment basis) to recapture the 
                amount of such excess.
                  ``(B) Exception for home health services furnished 
                over a period greater than 165 days.--
                          ``(i) In general.--For purposes of 
                        subparagraph (A), the amount of aggregate per 
                        visit payments determined under subsection (a) 
                        shall not include payments for home health 
                        visits furnished to an individual on or after a 
                        continuous period of more than 165 days after 
                        an individual begins an episode described in 
                        subsection (c)(1)(D) (if such period is not 
                        interrupted by the beginning of a new episode).
                          ``(ii) Requirement of certification.--Clause 
                        (i) shall not apply if the agency has not 
                        obtained a physician's certification with 
                        respect to the individual requiring such visits 
                        that includes a statement that the individual 
                        requires such continued visits, the reason for 
                        the need for such visits, and a description of 
                        such services furnished during such visits.
                  ``(C) Share of savings.--
                          ``(i) Bonus payments.--If a home health 
                        agency has received aggregate per visit 
                        payments under subsection (a) for a fiscal year 
                        in an amount less than the amount determined 
                        under paragraph (1) with respect to such home 
                        health agency for such fiscal year, the 
                        Secretary shall pay such home health agency a 
                        bonus payment equal to 50 percent of the 
                        difference between such amounts in the 
                        following fiscal year, except that the bonus 
                        payment may not exceed 5 percent of the 
                        aggregate per visit payments made to the agency 
                        for the year.
                          ``(ii) Installment bonus payments.--The 
                        Secretary may make installment payments during 
                        a fiscal year to a home health agency based on 
                        the estimated bonus payment that the agency 
                        would be eligible to receive with respect to 
                        such fiscal year.
  ``(d) Medical Review Process.--The Secretary shall implement a 
medical review process (with a particular emphasis on fiscal years 1997 
and 1998) for the system of payments described in this section that 
shall provide an assessment of the pattern of care furnished to 
individuals receiving home health services for which payments are made 
under this section to ensure that such individuals receive appropriate 
home health services. Such review process shall focus on low-cost cases 
described in subsection (e)(3) and cases described in subsection 
(c)(2)(B) and shall require recertification by intermediaries at 30, 
60, 90, 120, and 165 days into an episode described in subsection 
(c)(1)(D).
  ``(e) Adjustment of Payments to Avoid Circumvention of Limits.--
          ``(1) In general.--The Secretary shall provide for 
        appropriate adjustments to payments to home health agencies 
        under this section to ensure that agencies do not circumvent 
        the purpose of this section by--
                  ``(A) discharging patients to another home health 
                agency or similar provider;
                  ``(B) altering corporate structure or name to avoid 
                being subject to this section or for the purpose of 
                increasing payments under this title; or
                  ``(C) undertaking other actions considered 
                unnecessary for effective patient care and intended to 
                achieve maximum payments under this title.
          ``(2) Tracking of patients that switch home health agencies 
        during episode.--
                  ``(A) Development of system.--The Secretary shall 
                develop a system that tracks home health patients that 
                receive home health services described in subsection 
                (a)(2) from more than 1 home health agency during an 
                episode described in subsection (c)(1)(D).
                  ``(B) Adjustment of payments.--The Secretary shall 
                adjust payments under this section to each home health 
                agency that furnishes an individual with a type of home 
                health service described in subsection (a)(2) to ensure 
                that aggregate payments on behalf of such individual 
                during such episode do not exceed the amount that would 
                be paid under this section if the individual received 
                such services from a single home health agency.
          ``(3) Low-cost cases.--The Secretary shall develop a system 
        designed to adjust payments to a home health agency for a 
        fiscal year to eliminate any increase in growth of the 
        percentage of low-cost episodes for which home health services 
        are furnished by the agency over such percentage determined for 
        the agency for the 12-month cost reporting period ending on 
        June 30, 1994. The Secretary shall define a low-cost episode in 
        a manner that provides that a home health agency has an 
        incentive to be cost efficient in delivering home health 
        services and that the volume of such services does not increase 
        as a result of factors other than patient needs.
  ``(f) Report by Medicare Payment Review Commission.--During the first 
3 years in which payments are made under this section, the Medicare 
Payment Review Commission shall annually submit a report to Congress on 
the effectiveness of the payment methodology established under this 
section that shall include recommendations regarding the following:
          ``(1) Case-mix and volume increases.
          ``(2) Quality monitoring of home health agency practices.
          ``(3) Whether a capitated payment for home care patients 
        receiving care during a continuous period exceeding 165 days is 
        warranted.
          ``(4) Whether public providers of service are adequately 
        reimbursed.
          ``(5) The adequacy of the exemptions and exceptions to the 
        limits provided under subsection (c)(1)(E).
          ``(6) The appropriateness of the methods provided under this 
        section to adjust the per episode limits and annual payment 
        updates to reflect changes in the mix of services, number of 
        visits, and assignment to case categories to reflect changing 
        patterns of home health care.
          ``(7) The geographic areas used to determine the per episode 
        limits.''.
  (b) Payment for Prosthetics and Orthotics Under Part A.--Section 
1814(k) (42 U.S.C. 1395f(k)) is amended--
          (1) by inserting ``and prosthetics and orthotics'' after 
        ``durable medical equipment''; and
          (2) by inserting ``and 1834(h), respectively'' after 
        ``1834(a)(1)''.
  (c) Conforming Amendments.--
          (1) Payments under part a.--Section 1814(b) (42 U.S.C. 
        1395f(b)), as amended by section 15522(b), is amended in the 
        matter preceding paragraph (1) by striking ``1888 and 1888A'' 
        and inserting ``1888, 1888A, and 1894''.
          (2) Treatment of items and services paid under part b.--
                  (A) Payments under part b.--Section 1833(a)(2) (42 
                U.S.C. 1395l(a)(2)) is amended--
                          (i) by amending subparagraph (A) to read as 
                        follows:
                  ``(A) with respect to home health services--
                          ``(i) that are a type of home health service 
                        described in section 1894(a)(2), and which are 
                        furnished to an individual who (at the time the 
                        item or service is furnished) is under a plan 
                        of care of a home health agency, the amount 
                        determined under section 1894; or
                          ``(ii) that are not described in clause (i) 
                        (other than a covered osteoporosis drug) (as 
                        defined in section 1861(kk)), the lesser of--
                                  ``(I) the reasonable cost of such 
                                services, as determined under section 
                                1861(v), or
                                  ``(II) the customary charges with 
                                respect to such services;''.
                          (ii) by striking ``and'' at the end of 
                        subparagraph (E);
                          (iii) by adding ``and'' at the end of 
                        subparagraph (F); and
                          (iv) by adding at the end the following new 
                        subparagraph:
                  ``(G) with respect to items and services described in 
                section 1861(s)(10)(A), the lesser of--
                          ``(i) the reasonable cost of such services, 
                        as determined under section 1861(v), or
                          ``(ii) the customary charges with respect to 
                        such services,
                or, if such services are furnished by a public provider 
                of services, or by another provider which demonstrates 
                to the satisfaction of the Secretary that a significant 
                portion of its patients are low-income (and requests 
                that payment be made under this provision), free of 
                charge or at nominal charges to the public, the amount 
                determined in accordance with section 1814(b)(2);''.
                  (B) Requiring payment for all items and services to 
                be made to agency.--
                          (i) In general.--The first sentence of 
                        section 1842(b)(6) (42 U.S.C. 1395u(b)(6)), as 
                        amended by section 15525(a)(1), is amended--
                                  (I) by striking ``and (E)'' and 
                                inserting ``(E)''; and
                                  (II) by striking the period at the 
                                end and inserting the following: ``, 
                                and (F) in the case of types of home 
                                health services described in section 
                                1894(a)(2) furnished to an individual 
                                who (at the time the item or service is 
                                furnished) is under a plan of care of a 
                                home health agency, payment shall be 
                                made to the agency (without regard to 
                                whether or not the item or service was 
                                furnished by the agency, by others 
                                under arrangement with them made by the 
                                agency, or otherwise).''.
                          (ii) Conforming amendment.--Section 
                        1832(a)(1) (42 U.S.C. 1395k(a)(1)), as amended 
                        by section 15525(a)(3), is amended by striking 
                        ``section 1842(b)(6)(E);'' and inserting 
                        ``subparagraphs (E) and (F) of section 
                        1842(b)(6);''.
                  (C) Exclusions from coverage.--Section 1862(a) (42 
                U.S.C. 1395y(a)), as amended by section 15525(a)(2), is 
                amended--
                          (i) by striking ``or'' at the end of 
                        paragraph (15);
                          (ii) by striking the period at the end of 
                        paragraph (16) and inserting ``; or''; and
                          (iii) by adding at the end the following new 
                        paragraph:
          ``(17) where such expenses are for home health services 
        furnished to an individual who is under a plan of care of the 
        home health agency if the claim for payment for such services 
        is not submitted by the agency.''.
          (3) Sunset of reasonable cost limitations.--Section 
        1861(v)(1)(L) (42 U.S.C. 1395x(v)(1)(L)) is amended by adding 
        at the end the following new clause:
  ``(iv) This subparagraph shall apply only to services furnished by 
home health agencies during cost reporting periods ending on or before 
September 30, 1996.''.
  (d) Effective Date.--The amendments made by this section shall apply 
to cost reporting periods beginning on or after October 1, 1996.

SEC. 15702. MAINTAINING SAVINGS RESULTING FROM TEMPORARY FREEZE ON 
                    PAYMENT INCREASES FOR HOME HEALTH SERVICES.

  (a) Basing Updates to Per Visit Cost Limits on Limits for Fiscal Year 
1993.--Section 1861(v)(1)(L)(iii) (42 U.S.C. 1395x(v)(1)(L)(iii)) is 
amended by adding at the end the following sentence: ``In establishing 
limits under this subparagraph, the Secretary may not take into account 
any changes in the costs of the provision of services furnished by home 
health agencies with respect to cost reporting periods which began on 
or after July 1, 1994, and before July 1, 1996.''.
  (b) No Exceptions Permitted Based on Amendment.--The Secretary of 
Health and Human Services shall not consider the amendment made by 
subsection (a) in making any exemptions and exceptions pursuant to 
section 1861(v)(1)(L)(ii) of the Social Security Act.

SEC. 15703. EXTENSION OF WAIVER OF PRESUMPTION OF LACK OF KNOWLEDGE OF 
                    EXCLUSION FROM COVERAGE FOR HOME HEALTH AGENCIES.

  Section 9305(g)(3) of OBRA-1986, as amended by section 426(d) of the 
Medicare Catastrophic Coverage Act of 1988 and section 4207(b)(3) of 
OBRA-1990 (as renumbered by section 160(d)(4) of the Social Security 
Act Amendments of 1994), is amended by striking ``December 31, 1995'' 
and inserting ``September 30, 1996''.

SEC. 15704. STUDY OF COVERAGE OF SERVICES OF CHRISTIAN SCIENCE 
                    PROVIDERS.

  (a) Study.--The Secretary of Health and Human Services shall conduct 
a study of the feasibility and desirability of providing for coverage 
under the medicare program of home health services furnished by 
Christian Science providers who meet applicable requirements of the 
First Church of Christ, Scientist, Boston, Massachusetts.
  (b) Report.--Not later than July 1, 1996, the Secretary shall submit 
a report to Congress on the study conducted under subsection (a), and 
(to the extent the report includes recommendations for coverage under 
the medicare program of home health services furnished by Christian 
Science providers) shall include in the report recommendations 
regarding appropriate criteria for the certification of such providers 
and an appropriate methodology for making payments under the medicare 
program for such services.

             PART 2--MEDICARE SECONDARY PAYER IMPROVEMENTS

SEC. 15711. EXTENSION AND EXPANSION OF EXISTING REQUIREMENTS.

  (a) Data Match.--
          (1) Section 1862(b)(5)(C) (42 U.S.C. 1395y(b)(5)(C)) is 
        amended by striking clause (iii).
          (2) Section 6103(l)(12) of the Internal Revenue Code of 1986 
        is amended by striking subparagraph (F).
  (b) Application to Disabled Individuals in Large Group Health 
Plans.--
          (1) In general.--Section 1862(b)(1)(B) (42 U.S.C. 
        1395y(b)(1)(B)) is amended--
                  (A) in clause (i), by striking ``clause (iv)'' and 
                inserting ``clause (iii)'',
                  (B) by striking clause (iii), and
                  (C) by redesignating clause (iv) as clause (iii).
          (2) Conforming amendments.--Paragraphs (1) through (3) of 
        section 1837(i) (42 U.S.C. 1395p(i)) and the second sentence of 
        section 1839(b) (42 U.S.C. 1395r(b)) are each amended by 
        striking ``1862(b)(1)(B)(iv)'' each place it appears and 
        inserting ``1862(b)(1)(B)(iii)''.
  (c) Expansion of Period of Application to Individuals With End Stage 
Renal Disease.--Section 1862(b)(1)(C) (42 U.S.C. 1395y(b)(1)(C)) is 
amended--
          (1) in the first sentence, by striking ``12-month'' each 
        place it appears and inserting ``24-month'', and
          (2) by striking the second sentence.

SEC. 15712. IMPROVEMENTS IN RECOVERY OF PAYMENTS.

  (a) Permitting Recovery Against Third Party Administrators of Primary 
Plans.--Section 1862(b)(2)(B)(ii) (42 U.S.C. 1395y(b)(2)(B)(ii)) is 
amended--
          (1) by striking ``under this subsection to pay'' and 
        inserting ``(directly, as a third-party administrator, or 
        otherwise) to make payment'', and
          (2) by adding at the end the following: ``The United States 
        may not recover from a third-party administrator under this 
        clause in cases where the third-party administrator would not 
        be able to recover the amount at issue from the employer or 
        group health plan for whom it provides administrative services 
        due to the insolvency or bankruptcy of the employer or plan.''.
  (b) Extension of Claims Filing Period.--Section 1862(b)(2)(B) (42 
U.S.C. 1395y(b)(2)(B)) is amended by adding at the end the following 
new clause:
                          ``(v) Claims-filing period.--Notwithstanding 
                        any other time limits that may exist for filing 
                        a claim under an employer group health plan, 
                        the United States may seek to recover 
                        conditional payments in accordance with this 
                        subparagraph where the request for payment is 
                        submitted to the entity required or responsible 
                        under this subsection to pay with respect to 
                        the item or service (or any portion thereof) 
                        under a primary plan within the 3-year period 
                        beginning on the date on which the item or 
                        service was furnished.''.
  (c) Effective Date.--The amendments made by this section shall apply 
to items and services furnished on or after the date of the enactment 
of this Act.

SEC. 15713. PROHIBITING RETROACTIVE APPLICATION OF POLICY REGARDING 
                    ESRD BENEFICIARIES ENROLLED IN PRIMARY PLANS.

  For purposes of carrying out section 1862(b)(1)(C) of the Social 
Security Act, the Secretary of Health and Human Services shall apply 
the policy directive issued by the Administrator of the Health Care 
Financing Administration on April 24, 1995, only with respect to items 
and services furnished on or after such date.

                            PART 3--FAILSAFE

SEC. 15721. FAILSAFE BUDGET MECHANISM.

  (a) In General.--Title XVIII, as amended by sections 15106(a) and 
15701(a), is amended by adding at the end the following new section:
                      ``failsafe budget mechanism
  ``Sec. 1895. (a) Requirement of Payment Adjustments to Achieve 
Medicare Budget Targets.--If the Secretary determines under subsection 
(e)(3)(C) before a fiscal year (beginning with fiscal year 1998) that--
          ``(1) the fee-for-service expenditures (as defined in 
        subsection (f)) for a sector of medicare services (as defined 
        in subsection (b)) for the fiscal year, will exceed
          ``(2) the allotment specified under subsection (c)(2) for 
        such fiscal year (taking into account any adjustment in the 
        allotment under subsection (h) for that fiscal year),
then, notwithstanding any other provision of this title, there shall be 
an adjustment (consistent with subsection (d)) in applicable payment 
rates or payments for items and services included in the sector in the 
fiscal year so that such expenditures for the sector for the year will 
be reduced by 133\1/3\ percent of the amount of such excess.
  ``(b) Sectors of Medicare Services Described.--
          ``(1) In general.--For purposes of this section, items and 
        services included under each of the following subparagraphs 
        shall be considered to be a separate `sector' of medicare 
        services:
                  ``(A) Inpatient hospital services.
                  ``(B) Home health services.
                  ``(C) Extended care services (for inpatients of 
                skilled nursing facilities).
                  ``(D) Hospice care.
                  ``(E) Physicians' services (including services and 
                supplies described in section 1861(s)(2)(A)) and 
                services of other health care professionals (including 
                certified registered nurse anesthetists, nurse 
                practitioners, physician assistants, and clinical 
                psychologists) for which separate payment is made under 
                this title.
                  ``(F) Outpatient hospital services and ambulatory 
                facility services.
                  ``(G) Durable medical equipment and supplies, 
                including prosthetic devices and orthotics.
                  ``(H) Diagnostic tests (including clinical laboratory 
                services and x-ray services).
                  ``(I) Other items and services.
          ``(2) Classification of items and services.--The Secretary 
        shall classify each type of items and services covered and paid 
        for separately under this title into one of the sectors 
        specified in paragraph (1). After publication of such 
        classification under subsection (e)(1), the Secretary is not 
        authorized to make substantive changes in such classification.
  ``(c) Allotment.--
          ``(1) Allotments for each sector.--For purposes of this 
        section, subject to subsection (h)(1), the allotment for a 
        sector of medicare services for a fiscal year is equal to the 
        product of--
                  ``(A) the total allotment for the fiscal year 
                established under paragraph (2), and
                  ``(B) the allotment proportion (specified under 
                paragraph (3)) for the sector and fiscal year involved.
          ``(2) Total allotment.--
                  ``(A) In general.--For purposes of this section, the 
                total allotment for a fiscal year is equal to--
                          ``(i) the medicare benefit budget for the 
                        fiscal year (as specified under subparagraph 
                        (B)), reduced by
                          ``(ii) the amount of payments the Secretary 
                        estimates will be made in the fiscal year under 
                        the MedicarePlus program under part C.
                In making the estimate under clause (ii), the Secretary 
                shall take into account estimated enrollment and 
                demographic profile of individuals electing 
                MedicarePlus products.
                  ``(B) Medicare benefit budget.--For purposes of this 
                subsection, subject to subparagraph (C), the `medicare 
                benefit budget'--
                          ``(i) for fiscal year 1997 is $203.1 billion;
                          ``(ii) for fiscal year 1998 is $214.3 
                        billion;
                          ``(iii) for fiscal year 1999 is $227.2 
                        billion;
                          ``(iv) for fiscal year 2000 is $241.0 
                        billion;
                          ``(v) for fiscal year 2001 is $259.1 billion;
                          ``(vi) for fiscal year 2002 is $280.0 
                        billion; and
                          ``(vii) for a subsequent fiscal year is equal 
                        to the medicare benefit budget under this 
                        subparagraph for the preceding fiscal year 
                        increased by the sum of (I) 5 percentage 
                        points, and (II) product of (I) 1.05, and (II) 
                        1 plus the annual percentage increase in the 
                        average number of medicare beneficiaries from 
                        the previous fiscal year to the fiscal year 
                        involved.
          ``(3) Medicare allotment proportion defined.--
                  ``(A) In general.--For purposes of this section and 
                with respect to a sector of medicare services for a 
                fiscal year, the term `medicare allotment proportion' 
                means the ratio of--
                          ``(i) the baseline-projected medicare 
                        expenditures (as determined under subparagraph 
                        (B)) for the sector for the fiscal year, to
                          ``(ii) the sum of such baseline expenditures 
                        for all such sectors for the fiscal year.
                  ``(B) Baseline-projected medicare expenditures.--In 
                this paragraph, the `baseline, projected medicare 
                expenditures' for a sector of medicare services--
                          ``(i) for fiscal year 1996 is equal to fee-
                        for-service expenditures for such sector during 
                        fiscal year 1995, increased by the baseline 
                        annual growth rate for such sector of medicare 
                        services for fiscal year 1996 (as specified in 
                        table in subparagraph (C)); and
                          ``(ii) for a subsequent fiscal year is equal 
                        to the baseline-projected medicare expenditures 
                        under this subparagraph for the sector for the 
                        previous fiscal year increased by the baseline 
                        annual growth rate for such sector for the 
                        fiscal year involved (as specified in such 
                        table).
                  ``(C) Baseline annual growth rates.--The following 
                table specifies the baseline annual growth rates for 
                each of the sectors for different fiscal years:
      

----------------------------------------------------------------------------------------------------------------
                                                         Baseline annual growth rates for fiscal year--         
                                               -----------------------------------------------------------------
         ``For the following sector--                                                                  2002 and 
                                                  1996     1997     1998     1999     2000     2001   thereafter
----------------------------------------------------------------------------------------------------------------
(A) Inpatient hospital services...............     5.7%     5.6%     6.0%     6.1%     5.7%     5.5%       5.2% 
(B) Home health services......................    17.2%    15.1%    11.7%     9.1%     8.4%     8.1%       7.9% 
(C) Extended care services....................    19.7%    12.3%     9.3%     8.7%     8.6%     8.4%       8.0% 
(D) Hospice care..............................    32.0%    24.0%    18.0%    15.0%    12.0%    10.0%       9.0% 
(E) Physicians' services......................    12.4%     9.7%     8.7%     9.0%     9.3%     9.6%      10.1% 
(F) Outpatient hospital services..............    14.7%    13.9%    14.5%    15.0%    14.1%    13.9%      14.0% 
(G) Durable medical equipment and supplies....    16.1%    15.5%    13.7%    12.4%    13.2%    13.9%      14.5% 
(H) Diagnostic tests..........................    13.1%    11.3%    11.0%    11.4%    11.4%    11.5%      11.9% 
(I) Other items and services..................    11.2%    10.2%    10.9%    12.0%    11.6%    11.6%      11.8% 
----------------------------------------------------------------------------------------------------------------

  ``(d) Manner of Payment Adjustment.--
          ``(1) In general.--Subject to the succeeding provisions of 
        this subsection, the Secretary shall apply a payment reduction 
        for a sector for a fiscal year in such a manner as to--
                  ``(A) make a change in payment rates (to the maximum 
                extent practicable) at the time payment rates are 
                otherwise changed or subject to change for that fiscal 
                year; and
                  ``(B) provide for the full appropriate adjustment so 
                that the fee-for-service expenditures for the sector 
                for the fiscal year will approximate (and not exceed) 
                the allotment for the sector for the fiscal year.
          ``(2) Taking into account volume and cash flow.--In providing 
        for an adjustment in payments under this subsection for a 
        sector for a fiscal year, the Secretary shall take into account 
        (in a manner consistent with actuarial projections)--
                  ``(A) the impact of such an adjustment on the volume 
                or type of services provided in such sector (and other 
                sectors), and
                  ``(B) the fact that an adjustment may apply to items 
                and services furnished in a fiscal year (payment for 
                which may occur in a subsequent fiscal year),
        in a manner that is consistent with assuring that total fee-
        for-services expenditures for each sector for the fiscal year 
        will not exceed the allotment under subsection (c)(1) for such 
        sector for such year.
          ``(3) Proportionality of reductions within a sector.--In 
        making adjustments under this subsection in payment for items 
        and services included within a sector of medicare services for 
        a fiscal year, the Secretary shall provide for such an 
        adjustment that results (to the maximum extent feasible) in the 
        same percentage reductions in aggregate Federal payments under 
        parts A and B for the different classes of items and services 
        included within the sector for the fiscal year.
          ``(4) Application to payments made based on prospective 
        payment rates determined on a fiscal year basis.--
                  ``(A) In general.--In applying subsection (a) with 
                respect to items and services for which payment is made 
                under part A or B on the basis of rates that are 
                established on a prospective basis for (and in advance 
                of) a fiscal year, the Secretary shall provide for the 
                payment adjustment under such subsection through an 
                appropriate reduction in such rates established for 
                items and services furnished (or, in the case of 
                payment for operating costs of inpatient hospital 
                services of subsection (d) hospitals and subsection (d) 
                Puerto Rico hospitals (as defined in paragraphs (1)(B) 
                and (9)(A) of section 1886(d)), discharges occurring) 
                during such year.
                  ``(B) Description of application to specific 
                services.--The payment adjustment described in 
                subparagraph (A) applies for a fiscal year to at least 
                the following:
                          ``(i) Update factor for payment for operating 
                        costs of inpatient hospital services of pps 
                        hospitals.--To the computation of the 
                        applicable percentage increase specified in 
                        section 1886(d)(3)(B)(i) for discharges 
                        occurring in the fiscal year.
                          ``(ii) Home health services.--To the extent 
                        payment amounts for home health services are 
                        based on per visit payment rates under section 
                        1894, to the computation of the increase in the 
                        national per visit payment rates established 
                        for the year under section 1894(b)(2)(B).
                          ``(iii) Hospice care.--To the update of 
                        payment rates for hospice care under section 
                        1814(i) for services furnished during the 
                        fiscal year.
                          ``(iv) Update factor for payment of operating 
                        costs of inpatient hospital services of pps-
                        exempt hospitals.--To the computation of the 
                        target amount under section 1886(b)(3) for 
                        discharges occurring during the fiscal year.
                          ``(v) Covered non-routine services of skilled 
                        nursing facilities.--To the computation of the 
                        facility per stay limits for the year under 
                        section 1888A(d) for covered non-routine 
                        services of a skilled nursing facility (as 
                        described in such section).
          ``(5) Application to payments made based on prospective 
        payment rates determined on a calendar year basis.--
                  ``(A) In general.--In applying subsection (a) for a 
                fiscal year with respect to items and services for 
                which payment is made under part A or B on the basis of 
                rates that are established on a prospective basis for 
                (and in advance of) a calendar year, the Secretary 
                shall provide for the payment adjustment under such 
                subsection through an appropriate reduction in such 
                rates established for items and services furnished at 
                any time during such calendar year as follows:
                          ``(i) For fiscal year 1997, the reduction 
                        shall be made for payment rates during calendar 
                        year 1997 in a manner so as to achieve the 
                        necessary payment reductions for such fiscal 
                        year for items and services furnished during 
                        the first 3 quarters of calendar year 1997.
                          ``(ii) For a subsequent fiscal year, the 
                        reduction shall be made for payment rates 
                        during the calendar year in which the fiscal 
                        year ends in a manner so as to achieve the 
                        necessary payment reductions for such fiscal 
                        year for items and services furnished during 
                        the first 3 quarters of the calendar year, but 
                        also taking into account the payment reductions 
                        made in the first quarter of the fiscal year 
                        resulting from payment reductions made under 
                        this paragraph for the previous calendar year.
                          ``(iii) Payment rate reductions effected 
                        under this subparagraph for a calendar year and 
                        applicable to the last 3 quarters of the fiscal 
                        year in which the calendar year ends shall 
                        continue to apply during the first quarter of 
                        the succeeding fiscal year.
                  ``(B) Application in specific cases.--The payment 
                adjustment described in subparagraph (A) applies for a 
                fiscal year to at least the following:
                          ``(i) Update in conversion factor for 
                        physicians' services.--To the computation of 
                        the conversion factor under subsection (d) of 
                        section 1848 used in the fee schedule 
                        established under subsection (b) of such 
                        section, for items and services furnished 
                        during the calendar year in which the fiscal 
                        year ends.
                          ``(ii) Payment rates for other health care 
                        professionals.--To the computation of payments 
                        for professional services of certified 
                        registered nurse anesthetists under section 
                        1833(l), nurse midwives, physician assistants, 
                        nurse practitioners and clinical nurse 
                        specialists under section 1833(r), clinical 
                        psychologists, clinical social workers, 
                        physical or occupational therapists, and any 
                        other health professionals for which payment 
                        rates are based (in whole or in part) on 
                        payments for physicians' services, for services 
                        furnished during the calendar year in which the 
                        fiscal year ends.
                          ``(iii) Update in lab fee schedule.--To the 
                        computation of the fee schedule amount under 
                        section 1833(h)(2) for clinical diagnostic 
                        laboratory services furnished during the 
                        calendar year in which the fiscal year ends.
                          ``(iv) Update in reasonable charges for 
                        vaccines.--To the computation of the reasonable 
                        charge for vaccines described in section 
                        1861(s)(10) for vaccines furnished during the 
                        calendar year in which the fiscal year ends.
                          ``(v) Durable medical equipment-related 
                        items.--To the computation of the payment basis 
                        under section 1834(a)(1)(B) for covered items 
                        described in section 1834(a)(13), for items 
                        furnished during the calendar year in which the 
                        fiscal year ends.
                          ``(vi) Radiologist services.--To the 
                        computation of conversion factors for 
                        radiologist services under section 1834(b), for 
                        services furnished during the calendar year in 
                        which the fiscal year ends.
                          ``(vii) Screening mammography.--To the 
                        computation of payment rates for screening 
                        mammography under section 1834(c)(1)(C)(ii), 
                        for screening mammography performed during the 
                        calendar year in which the fiscal year ends.
                          ``(viii) Prosthetics and orthotics.--To the 
                        computation of the amount to be recognized 
                        under section 1834(h) for payment for 
                        prosthetic devices and orthotics and 
                        prosthetics, for items furnished during the 
                        calendar year in which the fiscal year ends.
                          ``(ix) Surgical dressings.--To the 
                        computation of the payment amount referred to 
                        in section 1834(i)(1)(B) for surgical 
                        dressings, for items furnished during the 
                        calendar year in which the fiscal year ends.
                          ``(x) Parenteral and enteral nutrition.--To 
                        the computation of reasonable charge screens 
                        for payment for parenteral and enteral 
                        nutrition under section 1834(h), for nutrients 
                        furnished during the calendar year in which the 
                        fiscal year ends.
                          ``(xi) Ambulance services.--To the 
                        computation of limits on reasonable charges for 
                        ambulance services, for services furnished 
                        during the calendar year in which the fiscal 
                        year ends.
          ``(6) Application to payments made based on costs during a 
        cost reporting period.--
                  ``(A) In general.--In applying subsection (a) for a 
                fiscal year with respect to items and services for 
                which payment is made under part A or B on the basis of 
                costs incurred for items and services in a cost 
                reporting period, the Secretary shall provide for the 
                payment adjustment under such subsection for a fiscal 
                year through an appropriate proportional reduction in 
                the payment for costs for such items and services 
                incurred at any time during each cost reporting period 
                any part of which occurs during the fiscal year 
                involved, but only (for each such cost reporting 
                period) in the same proportion as the fraction of the 
                cost reporting period that occurs during the fiscal 
                year involved.
                  ``(B) Application in specific cases.--The payment 
                adjustment described in subparagraph (A) applies for a 
                fiscal year to at least the following:
                          ``(i) Capital-related costs of hospital 
                        services.--To the computation of payment 
                        amounts for inpatient and outpatient hospital 
                        services under sections 1886(g) and 1861(v) for 
                        portions of cost reporting periods occurring 
                        during the fiscal year.
                          ``(ii) Operating costs for pps-exempt 
                        hospitals.--To the computation of payment 
                        amounts under section 1886(b) for operating 
                        costs of inpatient hospital services of PPS-
                        exempt hospitals for portions of cost reporting 
                        periods occurring during the fiscal year.
                          ``(iii) Direct graduate medical education.--
                        To the computation of payment amounts under 
                        section 1886(h) for reasonable costs of direct 
                        graduate medical education costs for portions 
                        of cost reporting periods occurring during the 
                        fiscal year.
                          ``(iv) Inpatient rural primary care hospital 
                        services.--To the computation of payment 
                        amounts under section 1814(j) for inpatient 
                        rural primary care hospital services for 
                        portions of cost reporting periods occurring 
                        during the fiscal year.
                          ``(v) Extended care services of a skilled 
                        nursing facility.--To the computation of 
                        payment amounts under section 1861(v) for post-
                        hospital extended care services of a skilled 
                        nursing facility (other than covered non-
                        routine services subject to section 1888A) for 
                        portions of cost reporting periods occurring 
                        during the fiscal year.
                          ``(vi) Reasonable cost contracts.--To the 
                        computation of payment amounts under section 
                        1833(a)(1)(A) for organizations for portions of 
                        cost reporting periods occurring during the 
                        fiscal year.
                          ``(vii) Home health services.--Subject to 
                        paragraph (4)(B)(ii), for payment amounts for 
                        home health services, for portions of cost 
                        reporting periods occurring during such fiscal 
                        year.
          ``(7) Other.--In applying subsection (a) for a fiscal year 
        with respect to items and services for which payment is made 
        under part A or B on a basis not described in a previous 
        paragraph of this subsection, the Secretary shall provide for 
        the payment adjustment under such subsection through an 
        appropriate proportional reduction in the payments (or payment 
        bases for items and services furnished) during the fiscal year.
          ``(8) Adjustment of payment limits.--The Secretary shall 
        provide for such proportional adjustment in any limits on 
        payment established under part A or B for payment for items and 
        services within a sector as may be appropriate based on (and in 
        order to properly carry out) the adjustment on the amount of 
        payment under this subsection in the sector.
          ``(9) References to payment rates.--Except as the Secretary 
        may provide, any reference in this title (other than this 
        section) to a payment rate is deemed a reference to such a rate 
        as adjusted under this subsection.
  ``(e) Publication of Determinations; Judicial Review.--
          ``(1) One-time publication of sectors and general payment 
        adjustment methodology.--Not later than October 1, 1996, the 
        Secretary shall publish in the Federal Register the 
        classification of medicare items and services into the sectors 
        of medicare services under subsection (b) and the general 
        methodology to be used in applying payment adjustments to the 
        different classes of items and services within the sectors.
          ``(2) Inclusion of information in president's budget.--
                  ``(A) In general.--With respect to fiscal years 
                beginning with fiscal year 1999, the President shall 
                include in the budget submitted under section 1105 of 
                title 31, United States Code, information on--
                          ``(i) the fee-for-service expenditures, 
                        within each sector, for the second previous 
                        fiscal year, and how such expenditures compare 
                        to the adjusted sector allotment for that 
                        sector for that fiscal year; and
                          ``(ii) actual annual growth rates for fee-
                        for-service expenditures in the different 
                        sectors in the second previous fiscal year.
                  ``(B) Recommendations regarding growth factors.--The 
                President may include in such budget for a fiscal year 
                (beginning with fiscal year 1998) recommendations 
                regarding percentages that should be applied (for one 
                or more fiscal years beginning with that fiscal year) 
                instead of the baseline annual growth rates under 
                subsection (c)(3)(C). Such recommendations shall take 
                into account medically appropriate practice patterns.
          ``(3) Determinations concerning payment adjustments.--
                  ``(A) Recommendations of commission.--By not later 
                than March 1 of each year (beginning with 1997), the 
                Medicare Payment Review Commission shall submit to the 
                Secretary and the Congress a report that analyzes the 
                previous operation (if any) of this section and that 
                includes recommendations concerning the manner in which 
                this section should be applied for the following fiscal 
                year.
                  ``(B) Preliminary notice by secretary.--Not later 
                than May 15 preceding the beginning of each fiscal year 
                (beginning with fiscal year 1998), the Secretary shall 
                publish in the Federal Register a notice containing the 
                Secretary's preliminary determination, for each sector 
                of medicare services, concerning the following:
                          ``(i) The projected allotment under 
                        subsection (c) for such sector for the fiscal 
                        year.
                          ``(ii) Whether there will be a payment 
                        adjustment for items and services included in 
                        such sector for the fiscal year under 
                        subsection (a).
                          ``(iii) If there will be such an adjustment, 
                        the size of such adjustment and the methodology 
                        to be used in making such a payment adjustment 
                        for classes of items and services included in 
                        such sector.
                          ``(iv) Beginning with fiscal year 1999, the 
                        fee-for-service expenditures for such sector 
                        for the second preceding fiscal year.
                Such notice shall include an explanation of the basis 
                for such determination. Determinations under this 
                subparagraph and subparagraph (C) shall be based on the 
                best data available at the time of such determinations.
                  ``(C) Final determination.--Not later than September 
                1 preceding the beginning of each fiscal year 
                (beginning with fiscal year 1998), the Secretary shall 
                publish in the Federal Register a final determination, 
                for each sector of medicare services, concerning the 
                matters described in subparagraph (B) and an 
                explanation of the reasons for any differences between 
                such determination and the preliminary determination 
                for such fiscal year published under subparagraph (B).
          ``(4) Limitation on administrative or judicial review.--There 
        shall be no administrative or judicial review under section 
        1878 or otherwise of--
                  ``(A) the classification of items and services among 
                the sectors of medicare services under subsection (b),
                  ``(B) the determination of the amounts of allotments 
                for the different sectors of medicare services under 
                subsection (c),
                  ``(C) the determination of the amount (or method of 
                application) of any payment adjustment under subsection 
                (d), or
                  ``(D) any adjustment in an allotment effected under 
                subsection (h).
  ``(f) Fee-for-Service Expenditures Defined.--In this section, the 
term `fee-for-service expenditures', for items and services within a 
sector of medicare services in a fiscal year, means amounts payable for 
such items and services which are furnished during the fiscal year, 
and--
          ``(1) includes types of expenses otherwise reimbursable under 
        parts A and B (including administrative costs incurred by 
        organizations described in sections 1816 and 1842) with respect 
        to such items and services, and
          ``(2) does not include amounts paid under part C.
  ``(g) Expedited Process for Adjustment of Sector Growth Rates.--
          ``(1) Optional inclusion of legislative proposal.--The 
        President may include in recommendations under subsection 
        (e)(2)(B) submitted with respect to a fiscal year a specific 
        legislative proposal that provides only for the substitution of 
        percentages specified in the proposal for one or more of the 
        baseline annual growth rates (specified in the table in 
        subsection (c)(3)(C) or in a previous legislative proposal 
        under this subsection) for that fiscal year or any subsequent 
        fiscal year.
          ``(2) Congressional consideration.--
                  ``(A) In general.--The percentages contained in a 
                legislative proposal submitted under paragraph (1) 
                shall apply under this section if a joint resolution 
                (described in subparagraph (B)) approving such proposal 
                is enacted, in accordance with the provisions of 
                subparagraph (C), before the end of the 60-day period 
                beginning on the date on which such proposal was 
                submitted. For purposes of applying the preceding 
                sentence and subparagraphs (B) and (C), the days on 
                which either House of Congress is not in session 
                because of an adjournment of more than three days to a 
                day certain shall be excluded in the computation of a 
                period.
                  ``(B) Joint resolution of approval.--A joint 
                resolution described in this subparagraph means only a 
                joint resolution which is introduced within the 10-day 
                period beginning on the date on which the President 
                submits a proposal under paragraph (1) and--
                          ``(i) which does not have a preamble;
                          ``(ii) the matter after the resolving clause 
                        of which is as follows: `That Congress approves 
                        the proposal of the President providing for 
                        substitution of percentages for certain 
                        baseline annual growth rates under section 1895 
                        of the Social Security Act, as submitted by the 
                        President on ______________.', the blank space 
                        being filled in with the appropriate date; and
                          ``(iii) the title of which is as follows: 
                        `Joint resolution approving Presidential 
                        proposal to substitute certain specified 
                        percentages for baseline annual growth rates 
                        under section 1895 of the Social Security Act, 
                        as submitted by the President on 
                        ______________.', the blank space being filled 
                        in with the appropriate date.
                  ``(C) Procedures for consideration of resolution of 
                approval.--Subject to subparagraph (D), the provisions 
                of section 2908 (other than subsection (a)) of the 
                Defense Base Closure and Realignment Act of 1990 shall 
                apply to the consideration of a joint resolution 
                described in subparagraph (B) in the same manner as 
                such provisions apply to a joint resolution described 
                in section 2908(a) of such Act.
                  ``(D) Special rules.--For purposes of applying 
                subparagraph (C) with respect to such provisions--
                          ``(i) any reference to the Committee on Armed 
                        Services of the House of Representatives shall 
                        be deemed a reference to an appropriate 
                        Committee of the House of Representatives 
                        (specified by the Speaker of the House of 
                        Representatives at the time of submission of a 
                        legislative proposal under paragraph (1)) and 
                        any reference to the Committee on Armed 
                        Services of the Senate shall be deemed a 
                        reference to the Committee on Finance of the 
                        Senate; and
                          ``(ii) any reference to the date on which the 
                        President transmits a report shall be deemed a 
                        reference to the date on which the President 
                        submits the legislative proposal under 
                        paragraph (1).
  ``(h) Look-Back Adjustment in Allotments to Reflect Actual 
Expenditures.--
          ``(1) In general.--If the Secretary determines under 
        subsection (e)(3)(B) with respect to a particular fiscal year 
        (beginning with fiscal year 1999) that the fee-for-service 
        expenditures for a sector of medicare services for the second 
        preceding fiscal year--
                  ``(A) exceeded the adjusted allotment for such sector 
                for such year (as defined in paragraph (2)), then the 
                allotment for the sector for the particular fiscal year 
                shall be reduced by 133\1/3\ percent of the amount of 
                such excess, or
                  ``(B) was less than the adjusted allotment for such 
                sector for such year, then the allotment for the sector 
                for the particular fiscal year shall be increased by 
                the amount of such deficit.
          ``(2) Adjusted allotment.--The adjusted allotment under this 
        paragraph for a sector for a fiscal year is--
                  ``(A) the amount that would be computed as the 
                allotment under subsection (c) for the sector for the 
                fiscal year if the actual amount of payments made in 
                the fiscal year under the MedicarePlus program under 
                part C in the fiscal year were substituted for the 
                amount described in subsection (c)(2)(A)(ii) for that 
                fiscal year,
                  ``(B) adjusted to take into account the amount of any 
                adjustment under paragraph (1) for that fiscal year 
                (based on expenditures in the second previous fiscal 
                year).
  ``(i) Prospective Application of Certain National Coverage 
Determinations.--In the case of a national coverage determination that 
the Secretary projects will result in significant additional 
expenditures under this title (taking into account any substitution for 
existing procedures or technologies), such determination shall not 
become effective before the beginning of the fiscal year that begins 
after the date of such determination and shall apply to contracts under 
part C entered into (or renewed) after the date of such 
determination.''.
  (b) Report of Trustees on Growth Rate in Part A Expenditures.--
Section 1817 (42 U.S.C. 1395i) is amended by adding at the end the 
following new subsection:
  ``(k) Each annual report provided in subsection (b)(2) shall include 
information regarding the annual rate of growth in program expenditures 
that would be required to maintain the financial solvency of the Trust 
Fund and the extent to which the provisions of section 1895 restrain 
the rate of growth of expenditures under this part in order to achieve 
such solvency.''.

                 PART 4--ADMINISTRATIVE SIMPLIFICATION

SEC. 15731. STANDARDS FOR MEDICARE INFORMATION TRANSACTIONS AND DATA 
                    ELEMENTS.

  Title XVIII, as amended by section 15031, is amended by inserting 
after section 1806 the following new section:
  ``standards for medicare information transactions and data elements
  ``Sec. 1807. (a) Adoption of Standards for Data Elements.--
          ``(1) In general.--Pursuant to subsection (b), the Secretary 
        shall adopt standards for information transactions and data 
        elements of medicare information and modifications to the 
        standards under this section that are--
                  ``(A) consistent with the objective of reducing the 
                administrative costs of providing and paying for health 
                care; and
                  ``(B) developed or modified by a standard setting 
                organization (as defined in subsection (h)(8)).
          ``(2) Special rule relating to data elements.--The Secretary 
        may adopt or modify a standard relating to data elements that 
        is different from the standard developed by a standard setting 
        organization, if--
                  ``(A) the different standard or modification will 
                substantially reduce administrative costs to health 
                care providers and health plans compared to the 
                alternative; and
                  ``(B) the standard or modification is promulgated in 
                accordance with the rulemaking procedures of subchapter 
                III of chapter 5 of title 5, United States Code.
          ``(3) Security standards for health information network.--
                  ``(A) In general.--Each person, who maintains or 
                transmits medicare information or data elements of 
                medicare information and is subject to this section, 
                shall maintain reasonable and appropriate 
                administrative, technical, and physical safeguards--
                          ``(i) to ensure the integrity and 
                        confidentiality of the information;
                          ``(ii) to protect against any reasonably 
                        anticipated--
                                  ``(I) threats or hazards to the 
                                security or integrity of the 
                                information; and
                                  ``(II) unauthorized uses or 
                                disclosures of the information; and
                          ``(iii) to otherwise ensure compliance with 
                        this section by the officers and employees of 
                        such person.
                  ``(B) Security standards.--The Secretary shall 
                establish security standards and modifications to such 
                standards with respect to medicare information network 
                services, health plans, and health care providers 
                that--
                          ``(i) take into account--
                                  ``(I) the technical capabilities of 
                                record systems used to maintain 
                                medicare information;
                                  ``(II) the costs of security 
                                measures;
                                  ``(III) the need for training persons 
                                who have access to medicare 
                                information; and
                                  ``(IV) the value of audit trails in 
                                computerized record systems; and
                          ``(ii) ensure that a medicare information 
                        network service, if it is part of a larger 
                        organization, has policies and security 
                        procedures which isolate the activities of such 
                        service with respect to processing information 
                        in a manner that prevents unauthorized access 
                        to such information by such larger 
                        organization.
                The security standards established by the Secretary 
                shall be based on the standards developed or modified 
                by standard setting organizations. If such standards do 
                not exist, the Secretary shall rely on the 
                recommendations of the Medicare Information Advisory 
                Committee (established under subsection (g)) and shall 
                consult with appropriate government agencies and 
                private organizations in accordance with paragraph (5).
          ``(4) Implementation specifications.--The Secretary shall 
        establish specifications for implementing each of the standards 
        and the modifications to the standards adopted pursuant to 
        paragraph (1) or (3).
          ``(5) Assistance to the secretary.--In complying with the 
        requirements of this section, the Secretary shall rely on 
        recommendations of the Medicare Information Advisory Committee 
        established under subsection (g) and shall consult with 
        appropriate Federal and State agencies and private 
        organizations. The Secretary shall publish in the Federal 
        Register the recommendations of the Medicare Information 
        Advisory Committee regarding the adoption of a standard under 
        this section.
  ``(b) Standards for Information Transactions and Data Elements.--
          ``(1) In general.--The Secretary shall adopt standards for 
        transactions and data elements to make medicare information 
        uniformly available to be exchanged electronically, that is--
                  ``(A) appropriate for the following financial and 
                administrative transactions: claims (including 
                coordination of benefits) or equivalent encounter 
                information, enrollment and disenrollment, eligibility, 
                premium payments, and referral certification and 
                authorization; and
                  ``(B) related to other financial and administrative 
                transactions determined appropriate by the Secretary 
                consistent with the goals of improving the operation of 
                the health care system and reducing administrative 
                costs.
          ``(2) Unique health identifiers.--
                  ``(A) Adoption of standards.--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 medicare 
                information system. In developing unique health 
                identifiers for each health plan and health care 
                provider, the Secretary shall take into account 
                multiple uses for identifiers and multiple locations 
                and specialty classifications for health care 
                providers.
                  ``(B) Penalty for improper disclosure.--A person who 
                knowingly uses or causes to be used a unique health 
                identifier under subparagraph (A) for a purpose that is 
                not authorized by the Secretary shall--
                          ``(i) be fined not more than $50,000, 
                        imprisoned not more than 1 year, or both; or
                          ``(ii) if the offense is committed under 
                        false pretenses, be fined not more than 
                        $100,000, imprisoned not more than 5 years, or 
                        both.
          ``(3) Code sets.--
                  ``(A) In general.--The Secretary, in consultation 
                with the Medicare Information Advisory Committee, 
                experts from the private sector, and Federal and State 
                agencies, shall--
                          ``(i) select code sets for appropriate data 
                        elements from among the code sets that have 
                        been developed by private and public entities; 
                        or
                          ``(ii) establish code sets for such data 
                        elements if no code sets for the data elements 
                        have been developed.
                  ``(B) Distribution.--The Secretary shall establish 
                efficient and low-cost procedures for distribution 
                (including electronic distribution) of code sets and 
                modifications made to such code sets under subsection 
                (c)(2).
          ``(4) Electronic signature.--
                  ``(A) In general.--The Secretary, after consultation 
                with the Medicare Information Advisory Committee, shall 
                promulgate regulations specifying procedures for the 
                electronic transmission and authentication of 
                signatures, compliance with which will be deemed to 
                satisfy Federal and State statutory requirements for 
                written signatures with respect to information 
                transactions required by this section and written 
                signatures on enrollment and disenrollment forms.
                  ``(B) Payments for services and premiums.--Nothing in 
                this section shall be construed to prohibit the payment 
                of health care services or health plan premiums by 
                debit, credit, payment card or numbers, or other 
                electronic means.
          ``(5) Transfer of information between health plans.--The 
        Secretary shall develop rules and procedures--
                  ``(A) for determining the financial liability of 
                health plans when health care benefits are payable 
                under two or more health plans; and
                  ``(B) for transferring among health plans appropriate 
                standard data elements needed for the coordination of 
                benefits, the sequential processing of claims, and 
                other data elements for individuals who have more than 
                one health plan.
          ``(6) Coordination of benefits.--If, at the end of the 5-year 
        period beginning on the date of the enactment of this section, 
        the Secretary determines that additional transaction standards 
        for coordinating benefits are necessary to reduce 
        administrative costs or duplicative (or inappropriate) payment 
        of claims, the Secretary shall establish further transaction 
        standards for the coordination of benefits between health 
        plans.
          ``(7) Protection of trade secrets.--Except as otherwise 
        required by law, the standards adopted under this section shall 
        not require disclosure of trade secrets or confidential 
        commercial information by an entity operating a medicare 
        information network.
  ``(c) Timetables for Adoption of Standards.--
          ``(1) Initial standards.--Not later than 18 months after the 
        date of the enactment of this section, the Secretary shall 
        adopt standards relating to the information transactions, data 
        elements of medicare information and security described in 
        subsections (a) and (b).
          ``(2) Additions and modifications to standards.--
                  ``(A) In general.--The Secretary shall review the 
                standards adopted under this section and shall adopt 
                additional or modified standards, that have been 
                developed or modified by a standard setting 
                organization, as determined appropriate, but not more 
                frequently than once every 12 months. Any addition or 
                modification to such standards shall be completed in a 
                manner which minimizes the disruption and cost of 
                compliance.
                  ``(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 paragraph, the modified 
                        code set shall include instructions on how data 
                        elements of medicare information that were 
                        encoded prior to the modification 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 paragraph 
                        shall be implemented in a manner that minimizes 
                        the disruption and cost of complying with such 
                        modification.
  ``(d) Requirements for Health Plans.--
          ``(1) In general.--If a person desires to conduct any of the 
        information transactions described in subsection (b)(1) with a 
        health plan as a standard transaction, the health plan shall 
        conduct such standard transaction in a timely manner and the 
        information transmitted or received in connection with such 
        transaction shall be in the form of standard data elements of 
        medicare information.
          ``(2) Satisfaction of requirements.--A health plan may 
        satisfy the requirement imposed on such plan under paragraph 
        (1) by directly transmitting standard data elements of medicare 
        information or submitting nonstandard data elements to a 
        medicare information network service for processing into 
        standard data elements and transmission.
          ``(3) Timetables for compliance with requirements.--Not later 
        than 24 months after the date on which standards are adopted 
        under subsections (a) and (b) with respect to any type of 
        information transaction or data element of medicare information 
        or with respect to security, a health plan shall comply with 
        the requirements of this section with respect to such 
        transaction or data element.
          ``(4) Compliance with modified standards.--If the Secretary 
        adopts a modified standard under subsection (a) or (b), a 
        health plan shall be required to comply with the modified 
        standard 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. However, the time determined 
        appropriate under the preceding sentence shall be not earlier 
        than the last day of the 180-day period beginning on the date 
        such modified standard is adopted. The Secretary may extend the 
        time for compliance for small health plans, if the Secretary 
        determines such extension is appropriate.
  ``(e) General Penalty for Failure To Comply With Requirements and 
Standards.--
          ``(1) General penalty.--
                  ``(A) In general.--Except as provided in paragraph 
                (2), the Secretary shall impose on any person that 
                violates a requirement or standard--
                          ``(i) with respect to medicare information 
                        transactions, data elements of medicare 
                        information, or security imposed under 
                        subsection (a) or (b); or
                          ``(ii) with respect to health plans imposed 
                        under subsection (d);
                a penalty of not more than $100 for each such violation 
                of a specific standard or requirement, but the total 
                amount imposed for all such violations of a specific 
                standard or requirement during the calendar year shall 
                not exceed $25,000.
                  ``(B) 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 
                paragraph in the same manner as such provisions apply 
                to the imposition of a penalty under such section 
                1128A.
                  ``(C) Denial of payment.--Except as provided in 
                paragraph (2), the Secretary may deny payment under 
                this title for an item or service furnished by a person 
                if the person fails to comply with an applicable 
                requirement or standard for medicare information 
                relating to that item or service.
          ``(2) Limitations.--
                  ``(A) Noncompliance not discovered.--A penalty may 
                not be imposed under paragraph (1) if it is established 
                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 failed to comply with the requirement or 
                standard described in paragraph (1).
                  ``(B) Failures due to reasonable cause.--
                          ``(i) In general.--Except as provided in 
                        clause (ii), a penalty may not be imposed under 
                        paragraph (1) 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 first date the person 
                                liable for the penalty knew, or by 
                                exercising reasonable diligence would 
                                have known, that the failure to comply 
                                occurred.
                          ``(ii) Extension of period.--
                                  ``(I) No penalty.--The period 
                                referred to in clause (i)(II) may be 
                                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 health plan failed to 
                                comply because such plan was unable to 
                                comply, the Secretary may provide 
                                technical assistance to such plan 
                                during the period described in clause 
                                (i)(II). Such assistance shall be 
                                provided in any manner determined 
                                appropriate by the Secretary.
                  ``(C) Reduction.--In the case of a failure to comply 
                which is due to reasonable cause and not to willful 
                neglect, any penalty under paragraph (1) that is not 
                entirely waived under subparagraph (B) may be waived to 
                the extent that the payment of such penalty would be 
                excessive relative to the compliance failure involved.
  ``(f) Effect on State Law.--
          ``(1) General effect.--
                  ``(A) General rule.--Except as provided in 
                subparagraph (B), a provision, requirement, or standard 
                under this section shall supersede any contrary 
                provision of State law, including a provision of State 
                law that requires medical or health plan records 
                (including billing information) to be maintained or 
                transmitted in written rather than electronic form.
                  ``(B) Exceptions.--A provision, requirement, or 
                standard under this section shall not supersede a 
                contrary provision of State law if the Secretary 
                determines that the provision of State law should be 
                continued for any reason, including for reasons 
                relating to prevention of fraud and abuse or regulation 
                of controlled substances.
          ``(2) Public health reporting.--Nothing in this section shall 
        be construed to invalidate or limit the authority, power, or 
        procedures established under any law providing for the 
        reporting of disease or injury, child abuse, birth, or death, 
        public health surveillance, or public health investigation or 
        intervention.
  ``(g) Medicare Information Advisory Committee.--
          ``(1) Establishment.--There is established a committee to be 
        known as the Medicare Information Advisory Committee (in this 
        subsection referred to as the `committee').
          ``(2) Duties.--The committee shall--
                  ``(A) advise the Secretary in the development of 
                standards under this section; and
                  ``(B) be generally responsible for advising the 
                Secretary and the Congress on the status and the future 
                of the medicare information network.
          ``(3) Membership.--
                  ``(A) In general.--The committee shall consist of 9 
                members of whom--
                          ``(i) 3 shall be appointed by the President;
                          ``(ii) 3 shall be appointed by the Speaker of 
                        the House of Representatives after consultation 
                        with the minority leader of the House of 
                        Representatives; and
                          ``(iii) 3 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 
                section. The President shall designate 1 member as the 
                Chair.
                  ``(B) Expertise.--The membership of the committee 
                shall consist of individuals who are of recognized 
                standing and distinction in the areas of information 
                systems, information networking and integration, 
                consumer health, or health care financial management, 
                and who possess the demonstrated capacity to discharge 
                the duties imposed on the committee.
                  ``(C) 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 members expire 
                at one time.
                  ``(D) Initial meeting.--Not later than 30 days after 
                the date on which a majority of the members have been 
                appointed, the committee shall hold its first meeting.
          ``(4) Reports.--Not later than 1 year after the date of the 
        enactment of this section, and annually thereafter, the 
        committee shall submit to Congress and the Secretary a report 
        regarding--
                  ``(A) the extent to which entities using the medicare 
                information network are meeting the standards adopted 
                under this section and working together to form an 
                integrated network that meets the needs of its users;
                  ``(B) the extent to which such entities are meeting 
                the security standards established pursuant to this 
                section and the types of penalties assessed for 
                noncompliance with such standards;
                  ``(C) any problems that exist with respect to 
                implementation of the medicare information network; and
                  ``(D) the extent to which timetables under this 
                section are being met.
        Reports made under this subsection shall be made available to 
        health care providers, health plans, and other entities that 
        use the medicare information network to exchange medicare 
        information.
  ``(h) Definitions.--For purposes of this section:
          ``(1) Code set.--The term `code set' means any set of codes 
        used for encoding data elements, such as tables of terms, 
        enrollment information, and encounter data.
          ``(2) Coordination of benefits.--The term `coordination of 
        benefits' means determining and coordinating the financial 
        obligations of health plans when health care benefits are 
        payable under such a plan and under this title (including under 
        a MedicarePlus product).
          ``(3) Medicare information.--The term `medicare information' 
        means any information that relates to the enrollment of 
        individuals under this title (including information relating to 
        elections of MedicarePlus products under section 1805) and the 
        provision of health benefits (including benefits provided under 
        such products) under this title.
          ``(4) Medicare information network.--The term `medicare 
        information network' means the medicare information system that 
        is formed through the application of the requirements and 
        standards established under this section.
          ``(5) Medicare information network service.--The term 
        `medicare information network service' means a public or 
        private entity that--
                  ``(A) processes or facilitates the processing of 
                nonstandard data elements of medicare information into 
                standard data elements;
                  ``(B) provides the means by which persons may meet 
                the requirements of this section; or
                  ``(C) provides specific information processing 
                services.
          ``(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 this title, and includes a 
                MedicarePlus product.
                  ``(B) The medicaid program under title XIX and the 
                MediGrant program under title XXI.
                  ``(C) A medicare supplemental policy (as defined in 
                section 1882(g)(1)).
                  ``(D) Worker's compensation or similar insurance.
                  ``(E) Automobile or automobile medical-payment 
                insurance.
                  ``(F) A long-term care policy, other than a fixed 
                indemnity policy.
                  ``(G) The Federal Employees Health Benefit Plan under 
                chapter 89 of title 5, United States Code.
                  ``(H) An employee welfare benefit plan, as defined in 
                section 3(1) of the Employee Retirement Income Security 
                Act of 1974 (29 U.S.C. 1002(1)), but only to the extent 
                the plan is established or maintained for the purpose 
                of providing health benefits.
          ``(7) Individually identifiable medicare information.--The 
        term `individually identifiable medicare information' means 
        medicare enrollment information, including demographic 
        information collected from an individual, that--
                  ``(A) is created or received by a health care 
                provider, health plan, employer, or medicare 
                information network service, and
                  ``(B) identifies an individual.
          ``(8) Standard setting organization.--The term `standard 
        setting organization' means a standard setting organization 
        accredited by the American National Standards Institute.
          ``(9) Standard transaction.--The term `standard transaction' 
        means, when referring to an information transaction or to data 
        elements of medicare information, any transaction that meets 
        the requirements and implementation specifications adopted by 
        the Secretary under subsections (a) and (b).''.

           PART 5--OTHER PROVISIONS RELATING TO PARTS A AND B

SEC. 15741. CLARIFICATION OF MEDICARE COVERAGE OF ITEMS AND SERVICES 
                    ASSOCIATED WITH CERTAIN MEDICAL DEVICES APPROVED 
                    FOR INVESTIGATIONAL USE.

  (a) Coverage.--Nothing in title XVIII of the Social Security Act may 
be construed to prohibit coverage under part A or part B of the 
medicare program of items and services associated with the use of a 
medical device in the furnishing of inpatient or outpatient hospital 
services (including outpatient diagnostic imaging services) for which 
payment may be made under the program solely on the grounds that the 
device is not an approved device, if--
          (1) the device is an investigational device; and
          (2) the device is used instead of either an approved device 
        or a covered procedure.
  (b) Clarification of Payment Amount.--Notwithstanding any other 
provision of title XVIII of the Social Security Act, the amount of 
payment made under the medicare program for any item or service 
associated with the use of an investigational device in the furnishing 
of inpatient or outpatient hospital services (including outpatient 
diagnostic imaging services) for which payment may be made under the 
program may not exceed the amount of the payment which would have been 
made under the program for the item or service if the item or service 
were associated with the use of an approved device or a covered 
procedure.
  (c) Definitions.--In this section--
          (1) the term ``approved device'' means a medical device (or 
        devices) which has been approved for marketing under pre-market 
        approval under the Federal Food, Drug, and Cosmetic Act or 
        cleared for marketing under a 510(k) notice under such Act; and
          (2) the term ``investigational device'' means--
                  (A) a medical device or devices (other than a device 
                described in paragraph (1)) approved for 
                investigational use under section 520(g) of the Federal 
                Food, Drug, and Cosmetic Act, or
                  (B) a product authorized for use under section 505(i) 
                of the Federal Food, Drug, and Cosmetic Act which 
                includes the use of a medical device (or devices) or an 
                investigational combination product under section 
                503(g) of such Act which includes a device (or devices) 
                authorized for use under section 505(i) of such Act.

SEC. 15742. ADDITIONAL EXCLUSION FROM COVERAGE.

  (a) In General.--Section 1862(a) (42 U.S.C. 1395y(a)), as amended by 
section 15525(a)(2) and section 15701(c)(2)(C), is amended--
          (1) by striking ``or'' at the end of paragraph (16),
          (2) by striking the period at the end of paragraph (17) and 
        inserting ``; or'', and
          (3) by inserting after paragraph (17) the following new 
        paragraph:
          ``(18) where such expenses are for items or services, or to 
        assist in the purchase, in whole or in part, of health benefit 
        coverage that includes items or services, for the purpose of 
        causing, or assisting in causing, the death, suicide, 
        euthanasia, or mercy killing of a person.''.
  (b) Effective Date.--The amendments made by subsection (a) shall 
apply to payment for items and services furnished on or after the date 
of the enactment of this Act.

                   Subtitle I--Clinical Laboratories

SEC. 15801. EXEMPTION OF PHYSICIAN OFFICE LABORATORIES.

  Section 353(d) of the Public Health Service Act (42 U.S.C. 263a(d)) 
is amended--
          (1) by redesignating paragraphs (2), (3), and (4) as 
        paragraphs (3), (4), and (5) and by adding after paragraph (1) 
        the following:
          ``(2) Exemption of physician office laboratories.--
                  ``(A) In general.--Except as provided in subparagraph 
                (B), a clinical laboratory in a physician's office 
                (including an office of a group of physicians) which is 
                directed by a physician and in which examinations and 
                procedures are either performed by a physician or by 
                individuals supervised by a physician solely as an 
                adjunct to other services provided by the physician's 
                office is exempt from this section.
                  ``(B) Exception.--A clinical laboratory described in 
                subparagraph (A) is not exempt from this section when 
                it performs a pap smear (Papanicolaou Smear) analysis.
                  ``(C) Definition.--For purposes of subparagraph (A), 
                the term `physician' has the same meaning as is 
                prescribed for such term by section 1861(r) of the 
                Social Security Act (42 U.S.C. 1395x(r)).'';
          (2) in paragraph (3) (as so redesignated) by striking ``(3)'' 
        and inserting ``(4)''; and
          (3) in paragraphs (4) and (5) (as so redesignated) by 
        striking ``(2)'' and inserting ``(3)''.

Subtitle J--Lock-Box Provisions for Medicare Part B Savings from Growth 
                               Reductions

SEC. 15901. ESTABLISHMENT OF MEDICARE GROWTH REDUCTION TRUST FUND FOR 
                    PART B SAVINGS.

  Part B of title XVIII is amended by inserting after section 1841 the 
following new section:
                 ``medicare growth reduction trust fund
  ``Sec. 1841A. (a)(1) There is hereby created on the books of the 
Treasury of the United States a trust fund to be known as the `Federal 
Medicare Growth Reduction Trust Fund' (in this section referred to as 
the `Trust Fund'). The Trust Fund shall consist of such gifts and 
bequests as may be made as provided in section 201(i)(1) and amounts 
appropriated under paragraph (2).
  ``(2) There are hereby appropriated to the Trust Fund amounts 
equivalent to 100 percent of the Secretary's estimate of the reductions 
in expenditures under this part that are attributable to the Medicare 
Preservation Act of 1995. The amounts appropriated by the preceding 
sentence shall be transferred from time to time (not less frequently 
than monthly) from the general fund in the Treasury to the Trust Fund.
  ``(3)(A) Subject to subparagraph (B), with respect to monies 
transferred to the Trust Fund, no transfers, authorizations of 
appropriations, or appropriations are permitted.
  ``(B) Beginning with fiscal year 2003, the Secretary may expend funds 
in the Trust Fund to carry out this title, but only to the extent 
provided by Congress in advance through a specific amendment to this 
section.
  ``(b) The provisions of subsections (b) through (e) of section 1841 
shall apply to the Trust Fund in the same manner as they apply to the 
Federal Supplementary Medical Insurance Trust Fund, except that the 
Board of Trustees and Managing Trustee of the Trust Fund shall be 
composed of the members of the Board of Trustees and the Managing 
Trustee, respectively, of the Federal Supplementary Medical Insurance 
Trust Fund.''.

                            I. INTRODUCTION

                         A. Purpose and Summary

     On April 3rd, the Board of Trustees for the Medicare 
Hospital Insurance and Supplementary Medical Insurance trust 
funds urged the Congress to begin a careful examination of the 
Medicare program because both trust funds were facing 
significant financial imbalance in both the short-term and the 
long-term.
     In response to the concerns raised by the Trustees and 
their recommendation for ``prompt, effective, and decisive 
action,'' the Committee on Ways and Means set as its mission to 
preserve, protect, and strengthen Medicare for the program's 
current beneficiaries as well as those generations of working 
Americans who are paying much of the cost of Medicare now and 
will become entitled to Medicare coverage in the future.
     The Committee set as its goals to bring the Hospital 
Insurance (HI) trust fund into balance up to the retirement of 
the baby boom generation, curb unsustainable growth in the 
Supplementary Medical Insurance (SMI) trust fund, develop new 
choices for Medicare beneficiaries that would enhance coverage 
and moderate cost growth, and finally to establish a commission 
to make recommendations to Congress to secure Medicare through 
the baby boom retirement years beginning after 2010.
     H.R. 2425 provides a comprehensive program to meet these 
goals. The bill meets its objectives and brings Medicare into 
financial balance and initiates new Medicare options 
(hereinafter called ``MedicarePlus'') which will improve 
beneficiary choices of health care coverage.
     H.R. 2425 was developed after months of public hearings 
before the Committee on Ways and Means and its Health 
Subcommittee, with testimony from scores of witnesses, 
including seniors, medical providers, actuaries, health 
economists, health plan professionals, and other experts in 
health care and Medicare policy.

                 B. Background and Need for Legislation

     According to the 1995 report of the Board of Trustees, the 
outlays of the HI trust fund will exceed income beginning in 
1996 and the trust fund is projected to run out of reserves in 
2002, using the intermediate set of assumptions.
     The long-range financial outlook is even more unfavorable. 
Over the 75-year projection period, the HI fund has an 
actuarial balance of -3.52%, using the intermediate set of 
assumptions. This actuarial balance indicates that without 
adequate spending reductions the HI payroll tax rate of 1.45 
percentage points (paid by both employers and employees) would 
have to be more than doubled immediately to keep the fund 
solvent for the entire projection period. To keep the HI fund 
in actuarial balance for 25 years would require an immediate 
44% increase in the payroll tax rate if spending is not slowed.
     In the report, the Board of Trustees urges Congress to 
act:

          The HI trust fund continues to fail the short range 
        test of financial adequacy and is projected to 
        experience increasing annual deficits in future years, 
        beginning in calendar year 1996. * * * Trustees urge 
        the Congress to take additional actions designed to 
        control the HI program costs and to address the 
        projected financial imbalance in both the short-range 
        and the long-range through specific program legislation 
        as part of broad-based health care reform. The Trustees 
        believe that prompt, effective, and decisive action is 
        necessary.

     The two public members of the Board commented further:

          The Medicare program is clearly unsustainable in its 
        present form. We had hoped for several years that 
        comprehensive health care reform would include 
        meaningful Medicare reforms. However, with the results 
        of the last Congress, it is now clear that Medicare 
        reform needs to be addressed urgently as a distinct 
        legislative initiative.

     Not only is the HI trust fund financially out of balance, 
but spending growth within the SMI trust fund is also a concern 
because the SMI rate of growth is unsustainable. SMI cost 
growth directly affects Medicare beneficiary Part B premiums as 
well as general revenues from which the largest share of SMI 
costs are financed.
     In 1995, premiums paid by enrollees will finance only 
about 31.5% of annual costs, according to the 1995 trustees' 
report. Over the next decade, the contribution from general 
revenues to the SMI trust fund will increase from $46 billion 
in 1995 to $151 billion in 2004, for an average annual growth 
rate of over 14%.
     As noted by the Board of Trustees in the 1995 report:

          Although the SMI program is currently actuarially 
        sound, the Trustees note with great concern the past 
        and projected rapid growth in the cost of the program. 
        In spite of evidence of somewhat slower growth rates in 
        the recent past, overall, the past growth rates have 
        been rapid, and the future growth rates are projected 
        to increase above those of the recent past. Growth 
        rates have been so rapid that outlays of the program 
        have increased 53 percent in the aggregate and 40 
        percent per enrollee in the last 5 years. For the same 
        time period, the program grew 19 percent faster than 
        the economy despite recent efforts to control the cost 
        of the program. As a result, the incurred disbursements 
        of the program are projected to increase from 0.93 
        percent of the Gross Domestic Product (GDP) in CY 1994 
        to 4.29 percent of GDP in 2069.

     Overall Medicare spending is also growing much faster than 
nearly all other major federal programs. Between 1995 and 2005, 
the Congressional Budget Office projects Medicare spending will 
grow at an average annual rate of 10.4%. That compares to a 
5.4% growth rate for the Social Security program and 3.6% for 
the rest of the federal budget, excluding net interest and 
Medicaid.
     Medicare insurance coverage remains largely as it was 
originally enacted in 1965: traditional fee-for-service 
indemnity insurance with beneficiary cost-sharing requirements 
to control utilization, and a small health maintenance 
organization program.
     However, private health insurance has evolved 
substantially since the enactment of the Medicare program. More 
and more privately insured Americans are enrolled in managed 
care plans, such as Health Maintenance Organizations (HMOs) and 
Preferred Provider Organizations (PPOs). According to the Group 
Health Association of America (GHAA), some 56 million Americans 
were enrolled in HMOs in 1994, up from 36 million in 1990, and 
65% of people with employer-based health insurance plans were 
enrolled in some form of managed care arrangement, according to 
KPMG Peat Marwick's Health Benefits in 1994 (October 1994).
     Moreover, managed care organizations have recently been 
successful in not only slowing the rate of growth of premiums, 
but in many instances recognizing actual reductions in 
premiums. In 1995, on average, HMOs are expected to reduce 
their per person premiums by 1.2%, according to GHAA. Private 
health plan costs average $1,900 per person this year compared 
with Medicare costs of $4,800 per enrollee.
     Some private employers have also begun to offer their 
employees medical savings accounts. Such accounts allow 
employees and their dependents to control their health care 
dollars, providing strong incentives for cost-conscious 
spending.
     Medicare beneficiaries can enroll in HMOs under the risk 
contracting program and other managed care arrangements, but, 
due to certain features of the program, managed care remains a 
relatively small part of Medicare, with only 8 percent of the 
beneficiaries enrolled in managed care plans as of December 
1994. Medicare beneficiaries are also not currently able to 
enroll in any kind of medical savings account, point-of-service 
or other kinds of insurance arrangements now available to the 
under-65 population.
     To address these pressing concerns and developments in the 
private health care market, the Committee has set as its 
mission to preserve, protect and strengthen the Medicare 
program. The Committee defines its mission as follows:
          to preserve Medicare to bring the program into 
        financial balance and keep it affordable for the 
        current and future generations;
          to protect Medicare to assure beneficiaries that the 
        program as they know it will continue to be available; 
        and
          to strengthen Medicare to provide beneficiaries with 
        private coverage options that empower them to choose 
        the health plan that best fits their needs.
    The Committee used the following criteria to guide its 
efforts to secure Medicare:
          Medicare beneficiary cost sharing proportions would 
        not be increased over the next seven years, with the 
        sole exception of the most affluent beneficiaries whose 
        subsidy by the general taxpayer will be reduced and 
        phased out at higher levels of income.
          Policies to bring Medicare into financial balance and 
        affordable would ensure that Medicare continues to 
        increase spending each year, but Medicare spending 
        growth would be made consistent with the objective to 
        assure solvency in Part A and to make Part B 
        affordable, rather than continuing at the unsustainable 
        and excessive rates experienced in the past.
          The Committee's improvements in Medicare policy would 
        be designed to create opportunities for beneficiaries 
        to choose more modern private coverage options, as well 
        as for health care providers to reduce waste, eliminate 
        abuse and increase efficiency.
    The Committee adhered to the following principles in 
meeting its objectives on ensuring the solvency of the Part A 
Trust Fund and managing the future rate of growth in the cost 
of Medicare:
          For FY 1996-2002, Medicare spending will grow per 
        beneficiary. In fact, under H.R. 2425, Medicare per 
        enrollee spending will increase from $4,800 in 1995 to 
        $6,700 by the year 2002.
          Spending for beneficiaries will grow, in aggregate, 
        at the same rate whether enrolled in MedicarePlus 
        organizations or in the current fee-for-service 
        alternative.
          Medicare spending policy will be managed to extend 
        significantly the solvency of the Part A Trust Fund, 
        and to moderate increases in both the beneficiary 
        contributions to, and the general taxpayers' subsidy 
        of, the Part B Trust Fund.
          A Commission on the Effect of the Baby-Boom 
        Generation on the Medicare Program will be established 
        to make recommendations to the Congress on the reforms 
        necessary to ensure the preservation of the program 
        through the retirement of the baby boom generation, 
        anticipating the demographic pressures this generation 
        will place on the program's financing.
    Under H.R. 2425, Medicare spending will increase annually:

----------------------------------------------------------------------------------------------------------------
                                                   1995    1996    1997    1998    1999    2000    2001    2002 
----------------------------------------------------------------------------------------------------------------
Per enrollee spending...........................   $4816   $5081   $5283   $5525   $5772   $6003   $6354   $6734
----------------------------------------------------------------------------------------------------------------

     Between 1995 and 1996, under this plan, Medicare Part A 
spending will increase by almost 6 percent. CBO projections 
also indicate that Medicare Part B spending will grow by 7.6 
percent. As a result of the reforms included in H.R. 2425, the 
Medicare program will be preserved from bankruptcy even as 
spending continues to grow.

                         C. Legislative History

Committee bill

     H.R. 2425 was introduced on September 29, 1995, by Mr. 
Archer, et al., and referred to the Committee on Ways and 
Means, and in addition, to the Committees on Commerce, the 
Judiciary, and Rules. The bill as introduced includes nine 
subtitles. Subtitle A defines the MedicarePlus program which 
will provide beneficiaries with more choices of health plan 
design. Subtitle B establishes new initiatives for preventing 
fraud and abuse under the Medicare program. Subtitle C provides 
regulatory relief which will reduce the inefficiencies in the 
program created by years of redundant bureaucratic controls. 
Subtitle D provides for reform of the medical malpractice 
system. Subtitle E reforms the graduate medical education 
program and provides for a new trust fund to ensure a 
continuing supply of high quality medical professionals. 
Subtitle F contains provisions to slow the rate of growth of 
the HI program and extend the solvency of the HI trust fund. 
Subtitle G provides reforms to slow the rate of growth in the 
SMI program and to reduce the federal subsidy for affluent 
seniors. Subtitle H provides for reform of the way in which the 
Medicare program pays for home health services and reduces the 
rate of growth of many services that have implications under 
both Part A and Part B of the Medicare program. Subtitle I 
reforms the oversight of the Clinical Laboratories. Subtitle J 
guarantees that the savings that result from slowing the rate 
of growth in the SMI portion of the program will be kept in the 
SMI trust fund.
     The Committee on Ways and Means began consideration of 
H.R. 2425 on October 9, 1995, continued consideration on 
October 10, 1995, completed consideration of H.R. 2425 on 
October 11, 1995, and ordered the bill to be favorably reported 
as amended by a roll call vote of 22 ayes and 14 nays.

Legislative hearings

     The Subcommittee on Health of the Committee on Ways and 
Means held 14 public hearings on reform of the Medicare 
program. The full Ways and Means Committee held an additional 
three hearings. The first subcommittee hearing took place on 
February 6, 1995 and focused on areas of extraordinary growth 
in certain Medicare costs. On February 7, 1995, the 
subcommittee reviewed issues involved in income relating the 
Part B premium. The subcommittee reviewed the existing Medicare 
managed-care programs, including Medicare Select, and issues 
related to expanding managed-care under Medicare. On February 
23, 1995 the subcommittee heard testimony regarding the 
Medicare proposals contained in the President's fiscal year 
1996 budget and the status of the Hospital Insurance Trust 
Fund.
     On March 21, 1995, the subcommittee held a hearing on the 
innovative quality measurement, assurance, and improvement 
systems that can be applied to the Medicare program, and the 
effectiveness of existing quality assurance programs for 
Medicare fee-for-service and HMO beneficiaries. On March 23, 
1995, the subcommittee conducted a hearing on graduate medical 
education which focused on alternative policy directions 
regarding the training of future health professionals, medical 
manpower needs of the evolving health care system, and the 
financing of teaching hospitals under Medicare. The 
subcommittee held an additional hearing on March 30, 1995 to 
review the formal recommendations of the Physician Payment 
Review Commission (PPRC) regarding physician payment under the 
Medicare program.
     On April 3, 1995, the subcommittee held a hearing on the 
Medicare end-stage renal disease (ESRD) program, examining 
trends in costs, beneficiaries, and the number and organization 
of providers under the ESRD program.
    On May 3, 1995 the subcommittee reviewed problems with 
compliance with the existing self-referral provision of the 
Social Security Act, focusing on the obstacles the law in its 
current form may present to physicians, hospitals, and health 
plans which are forming legitimate managed care plans. The 
subcommittee hearing schedule continued on May 16, 1995 with a 
review of the experience employer-based plans have had in 
controlling health care costs and improving the quality of 
care. The hearing focused on the issues and problems 
encountered as new approaches were implemented, the 
effectiveness of different approaches, and the lessons the 
Federal Government can learn from these private-sector 
experiences. On May 24, 1995, the subcommittee investigated the 
reasons for increasing beneficiary enrollment in Medicare risk 
contracting HMOs, and current and alternative HMO payment 
methodologies. On May 25, 1995, the subcommittee explored 
issues involved in enabling employers and associations to offer 
Medicare coverage to former employees and members respectively, 
and the potential role Medical Savings Accounts can play in the 
Medicare program.
    The subcommittee held a continuing hearing on July 19, 20, 
and 25, 1995, reviewing issues involved in saving Medicare. On 
July 27, 1995, the subcommittee held a joint hearing with the 
Subcommittee on Health and the Environment, Committee on 
Commerce. The hearing reviewed standards for health plans 
providing coverage under the Medicare program. The 
subcommittees heard testimony on the full range of standards 
currently applied in the health care system, both public and 
private, with an emphasis on the needs and unique requirements 
of the Medicare program. The testimony included information on 
how best to discharge this responsibility and the appropriate 
roles for private sector entities, the states, and the federal 
government.
    In addition, the full Ways and Means Committee held a 
hearing regarding the Medicare program on February 8, 1995 
which reviewed the Medicare provisions contained in the 
President's 1996 budget. The full Committee held a second 
hearing on May 2, 1995 which focused on the Trustees report on 
the Medicare Hospital Insurance Trust Fund. The full committee 
held an additional hearing on September 22, 1995 on the issues 
involved in saving Medicare, focusing specifically on the 
Medicare proposal which formed the basis for H.R. 2425.

                        II. EXPLANATION OF BILL

                    Subtitle A--MedicarePlus Program

          Part 1. Increasing Choice Under the Medicare Program

Sec. 15001. Increasing choice under medicare

            Present law
    Persons enrolling in Medicare have two basic coverage 
options. They may elect to obtain services through the 
traditional fee-for-service system under which program payments 
are made for each service rendered. Under section 1876 of the 
Social Security Act, they may also elect to enroll with a 
managed care organization which has entered into a payment 
agreement with Medicare. Three types of managed care 
organizations are authorized to contract with Medicare: an 
entity that has a risk contract with Medicare, an entity that 
has a cost contract with Medicare, or a health care prepayment 
plan (HCPP) that has a cost contract to provide Medicare Part B 
services. Risk-contracts are frequently referred to as TEFRA 
risk contracts and cost contracts are frequently referred to as 
TEFRA cost contracts. TEFRA refers to the 1982 legislation, the 
Tax Equity and Fiscal Responsibility Act of 1982, which 
established the rules governing these types of contracts.
    A beneficiary in an area served by a health maintenance 
organization (HMO) or competitive medical plan (CMP) with a 
Medicare risk contract may voluntarily choose to enroll in the 
organization. Medicare makes a single monthly capitation 
payment for each of its enrollees. In return, the entity agrees 
to provide or arrange for the full range of Medicare services 
through an organized system of affiliated physicians, hospitals 
and other providers. The beneficiary must obtain all covered 
services through the HMO or CMP, except in emergencies. The 
beneficiary may be charged the usual cost-sharing charges or 
pay the equivalent in the form of a monthly premium to the 
organization. Beneficiaries are expected to share in the 
projected savings through the provision of benefits in addition 
to that included in Medicare's benefit package.
    Beneficiaries may also enroll in organizations with TEFRA 
cost contracts. These entities must meet essentially the same 
conditions of participation as risk contractors; however they 
may have as few as 1,500 enrollees (rather than 5,000) to 
qualify. Under a cost contract, Medicare pays the actual cost 
the entity incurs in furnishing covered services (less the 
estimated value of beneficiary cost-sharing). Enrollees obtain 
supplemental benefits by paying a monthly premium. The entity 
must offer a basic package (which covers all or a portion of 
Medicare cost-sharing charges); any additional benefits must be 
priced separately. (Conversely, a risk-contractor may offer 
just one package.) Enrollees in TEFRA cost-contract entities 
may obtain services outside the entity's network; however, the 
entity has no obligation to cover the beneficiary's cost-
sharing in this case.
    A third type of managed care arrangement is the HCPP. An 
HCPP arrangement is similar to a TEFRA cost-contract except 
that it provides only Part B services. Further, there are no 
specific statutory conditions to qualify for a HCPP contract. 
Some HCPPs are private market HMOs, while others are union or 
employer plans. HCPPs have no minimum enrollment requirements, 
no requirement that the plan have non-Medicare enrollees, or a 
requirement for an open enrollment period. Unlike TEFRA cost 
contractors (but like risk contractors), HCPPs may offer a 
single supplemental package that includes both Part B cost-
sharing and other benefits; cost-sharing benefits need not be 
priced separately.
    Any Medicare beneficiary residing in the area served by an 
HMO/CMP may enroll, with two exceptions. The first exception 
applies to beneficiaries not enrolled in Part B. The second 
exception applies to persons qualifying for Medicare on the 
basis of end-stage renal disease (ESRD); however, persons 
already enrolled who later develop ESRD may remain enrolled in 
the entity.
    The HMO/CMP must have an annual open enrollment period of 
at least 30 days duration. During this period, it must accept 
beneficiaries in the order in which they apply up to the limits 
of its capacity, unless to do so would lead to violation of the 
50 percent Medicare-Medicaid maximum or to an enrolled 
population unrepresentative of the population in the area 
served by the HMO.
    TEFRA risk contractors are required to hold an additional 
open enrollment period if any other risk-based entity serving 
part of the same geographic area does not renew its Medicare 
contract, has its contract terminated, or has reduced its 
service area to exclude any portion of the service area 
previously served by both contractors. In such cases, the 
Secretary must establish a single coordinated open enrollment 
period for the remaining contractors. These remaining HMOs/CMPs 
must then accept its enrollees during an enrollment period of 
30 days.
    An enrollee may request termination of his or her 
enrollment at any time. An individual may file disenrollment 
requests directly with the HMO or at the local social security 
office. Disenrollment takes effect on the first day of the 
month following the month during which the request is filed. 
The HMO may not disenroll or refuse to re-enroll a beneficiary 
on the basis of health status or need for health services.
    The requirement for an open enrollment period does not 
apply to HCPPs. These entities may deny enrollment or terminate 
enrollment on medical or other grounds, if in doing so they use 
the same criteria for Medicare and non-Medicare enrollees. As a 
result, employer or union plans may restrict enrollment to 
covered retirees.
    The Secretary is authorized to prescribe procedures and 
conditions under which eligible organizations contracting with 
Medicare may inform beneficiaries about the organization. 
Brochures, applications forms, or other promotional or 
informational material may be distributed only after review and 
approval by the Secretary of HHS. HMOs may not disenroll or 
refuse to re-enroll a beneficiary because of health status or 
need for health care services. HMOs must provide enrollees, at 
the time of enrollment and annually thereafter, an explanation 
of rights to benefits, restrictions on services provided 
through nonaffiliated providers, out-of-area coverage, coverage 
of emergency and urgently needed services, and appeal rights. A 
terminating HMO must arrange for supplementary coverage for 
Medicare enrollees for the duration of any preexisting 
condition exclusion under their successor coverage for the 
lesser of 6 months or the duration of the exclusion period.
            Explanation of provision
    The principal change is the creation of the MedicarePlus 
program to permit a wider array of private insurance and other 
organizations to offer health care plans to Medicare 
beneficiaries. MedicarePlus plans could be offered by licensed 
insurers and health maintenance organizations, new entities 
known as provider-sponsored organizations or PSOs, and limited 
enrollment plans such as are offered by Taft-Hartley or 
association sponsors. The array of products can include fee-
for-service, HMO, point-of-service and high-deductible/medical 
savings account plans. As will be noted in later sections, 
MedicarePlus plans must at a minimum cover the traditional 
Parts A and B benefits, and may add supplemental benefits or 
reduce beneficiaries' premium and cost-sharing obligations 
otherwise applicable under the traditional program. As will 
also be discussed in later sections, MedicarePlus plans will be 
actively supervised by the federal government, with the 
assistance of state governments, and will be required to meet 
rigorous quality, patient protection, financial viability and 
other standards enforced through federal contracts.
    The processes under which beneficiaries would be apprised 
of and exercise their plan choices is designed to maximize the 
ease and efficiency with which beneficiaries can enroll into 
the plans of their choice. The reason for the transition period 
is to provide a reasonable timeframe for the Secretary to 
develop standards where needed, to minimize disruption to 
current HMO contractors, and to permit additional health care 
companies to design new MedicarePlus products, contract with 
the Secretary, and begin to market their products to 
beneficiaries.
    Great emphasis in the provisions is placed on the 
Secretary's development of clear, effective and timely 
informational materials to assist beneficiaries in making well-
informed choices. The MedicarePlus Health Fair scheduled for 
October, 1996 will be a major opportunity for the Secretary to 
``field-test'' a national awareness effort in preparation for 
the beginning of annual, open and coordinated enrollment 
periods to be held every subsequent October. These annual open 
enrollment periods will be crucial to promoting competition 
among plans for enrollment of beneficiaries because all plans 
will be competing during a specified period and beneficiaries 
will be able to compare the plans' benefits and costs against 
each other and relative to the traditional program.
    It is the Committee's intent that the MedicarePlus program 
be implemented through an office in the Department of Health 
and Human Services that is separate from the Health Care 
Financing Administration (HCFA), but led by a Director of equal 
pay and rank to that of the HCFA Administrator. This provision 
reflects the Committee's concern that the MedicarePlus program 
be developed and administered in a manner that will foster its 
advancement, rather than placing it in competition for 
resources and attention with an organization principally 
concerned with the ongoing management of the traditional fee-
for-service program.
    Successful implementation of MedicarePlus will require 1) 
innovative executive management, 2) an understanding of private 
insurance markets and skill in creating effective public-
private partnerships, 3) accelerated rulemaking processes, 4) 
strengthened contracting operations, and 5) careful attention 
to customer service, principally Medicare beneficiaries. The 
provisions grant the Secretary the authority to make the 
transfers of funds, personnel, systems and records necessary to 
retool and organize within the Department of Health and Human 
Services to support the MedicarePlus effort.
    The Social Security Act would be amended by establishing a 
MedicarePlus program. Every individual entitled to Medicare 
Part A and enrolled under Part B could elect to receive 
benefits through two options: (1) the existing fee-for-service 
system (``the non-MedicarePlus option'') or (2) through a 
MedicarePlus product (``the MedicarePlus option''). A 
MedicarePlus product could be a product offered by a provider-
sponsored organization; a high deductible policy which would be 
coupled with a Medisave account; or a product operating on a 
fee-for-service, or any other basis. It also could be offered 
by an organization that is a Taft-Hartley or association 
sponsor.
    Special Rules. In general, an individual would be eligible 
to elect a MedicarePlus product offered by a MedicarePlus 
organization only if the organization served the geographic 
area in which in the individual lived. To enroll in a product 
offered by a limited-enrollment MedicarePlus organization, an 
individual would have to be affiliated with it. In the case of 
a product offered by a Taft-Hartley sponsor, the individual 
would have to elect the MedicarePlus product offered by the 
sponsor during the first enrollment period in which the 
individual was eligible to make such an election. An individual 
would not be eligible to elect a product offered by a Taft-
Hartley sponsor if the individual previously had elected a 
MedicarePlus product offered by the organization and had 
subsequently discontinued to elect the product. An individual 
eligible for an annuity under the Federal Employee Health 
Benefit Program would not be eligible for a high-deductible/
medisave product.
    Process For Exercising Choice. The Secretary would be 
required to establish a process for electing non-MedicarePlus 
or MedicarePlus coverage in an expedited manner to permit 
election of MedicarePlus products in an area as soon as they 
became available. Elections would be made (or changed) only 
during specified coverage election periods. An individual who 
wished to elect a MedicarePlus product would do so by filing an 
appropriate election form with the organization. Disenrollment 
would be accomplished the same way. An individual failing to 
make an election during the initial election period would be 
deemed to have chosen the non-MedicarePlus option. An election 
would continue until the individual changed elections or the 
MedicarePlus product was discontinued. The Secretary could 
enter into an agreement with the Commissioner of Social 
Security under which the Commissioner would be responsible for 
the administration of enrollment and disenrollment in 
MedicarePlus products.
    Provision of Beneficiary Information to Promote Informed 
Choice. The Secretary would provide for activities to 
disseminate broadly information to current and prospective 
Medicare beneficiaries on the coverage options available in 
order to promote an active, informed selection among such 
options. The information would have to be provided so as to 
permit individuals to elect the MedicarePlus option during an 
initial election period. The Secretary would be required to 
contract with appropriate public and private entities to carry 
out such activities.
    The Secretary would be required to provide for at least the 
following in all areas in which MedicarePlus products were 
offered: (1) publish and disseminate an information booklet 
during coverage election periods, including information in 
standardized format and in plain English on benefits and 
premiums, quality (including consumer satisfaction); and 
beneficiary rights and responsibilities; (2) maintain a toll-
free number for inquiries regarding MedicarePlus options; and 
(3) include information in the Medicare Handbook on the 
MedicarePlus option. The information booklet would have to be 
updated regularly.
    Coverage Election Periods. For individuals newly eligible 
for Medicare after the transition period, elections would occur 
at the first time the individual both was entitled to benefits 
under Part A and enrolled under Part B. The transition period 
would be the period beginning when a MedicarePlus product first 
became available in an individual's area and ending with the 
close of the annual, coordinated election period occurring in 
October 1997.
    During the transition period, an individual who elected to 
enroll in the non-MedicarePlus option could change election to 
a MedicarePlus option at any time. An individual in a 
MedicarePlus product could change election to another 
MedicarePlus product or the non-MedicarePlus option.
    In October, 1996, the Secretary would be required to 
conduct a MedicarePlus Health Fair which would provide for a 
nationally coordinated educational and publicity program to 
inform MedicarePlus eligible persons about MedicarePlus 
products and the election process, including the upcoming 
annual, coordinated election periods that would begin in 1997.
    After the transition period, there would be an annual, 
coordinated election period during October of each year 
(beginning 1997) in which individuals could change elections. 
An individual who elected the MedicarePlus product option 
(other than the high-deductible/medisave option) for the first 
time could discontinue such election through the filing of an 
appropriate notice for up to 90 days from the enrollment's 
effective date. An individual who discontinued an election 
would be deemed to have elected the Non-MedicarePlus option.
    A person who had elected a high-deductible/medisave product 
could not change to a MedicarePlus option that was not a high-
deductible/medisave product unless the individual made such 
change during an annual, coordinated election period, or the 
individual had had such election in effect for 12 months. The 
high-deductible/medisave option would become first available, 
effective January 1, 1997. Elections for 1997 would occur 
during the October 1996 election period.
    Special election periods would be provided in which an 
individual could discontinue an election of a MedicarePlus 
product and make a new election if: (1) the organization's or 
product's certification was terminated or the organization 
terminated or otherwise discontinued providing the product; (2) 
the person who elected a MedicarePlus product was no longer 
eligible because of a change in residence or certain other 
changes in circumstances; (3) the individual demonstrated that 
the organization offering the product violated its contract 
with Medicare or misrepresented the product in its marketing; 
or (4) the individual met other conditions specified by the 
Secretary.
    Effectiveness of Elections. An election made during the 
initial election period would become effective when the 
individual became entitled to benefits, except as the Secretary 
might provide in order to prevent retroactive coverage through 
a MedicarePlus product. In general, after the transition, 
elections made during an annual election period would take 
effect as of the first day of the following year. Elections 
during other periods would take effect in the manner specified 
by the Secretary to protect continuity of coverage.
    Administration. These provisions would be administered 
through an office in the DHHS that was separate from the HCFA, 
and whose primary function would be administration of the 
MedicarePlus and Medicare managed care programs. The director 
of this Division would be of equal pay and rank to that of the 
HCFA Administrator.
            Reason for change
    The Medicare program, except for the addition of HMOs, 
modest changes in benefits, and episodic reforms in provider 
payment methods, has remained essentially unaltered in its 
fundamental design and operation since the program's inception 
in 1965. This contrasts starkly with the health benefit design, 
delivery, and cost containment innovations that have occurred 
in the private sector, especially in employer plans, including 
the Federal Employee's Health Benefit Plan. The creation of 
MedicarePlus permits the introduction of comparable innovations 
and opportunities for improvement into the Medicare program, 
while keeping the existing Medicare program available for those 
beneficiaries who prefer to remain in it. However, over time as 
MedicarePlus plans enter local communities, many beneficiaries 
should find that they can improve their overall benefits and 
reduce their out-of-pocket costs by enrolling in these 
privately designed and administered products.
            Effective date
    These provisions are effective upon enactment. The 
transition period effectively ends with the first annual open 
enrollment period of October 1997. The MedicarePlus Health Fair 
is to be conducted in October 1996. The high-deductible/
medisave option would first become effective on January 1, 
1997, although marketing and applications for enrollment will 
occur in 1996.

Sec. 15002. Provisions relating to MedicarePlus requirements for 
        MedicarePlus organizations; high-deductible/Medisave products 
        (Part C of Medicare)

            Present law
    Under section 1876 of the Social Security Act, Medicare 
specifies requirements to be met by an organization seeking to 
become a managed care contractor with Medicare. In general, 
these include the following: (1) the entity must be organized 
under the laws of the State and be a Federally qualified HMO or 
meet specified requirements (provide physician, inpatient, 
laboratory, and other services, and provide out-of-area 
coverage); (2) the organization is paid a predetermined amount 
without regard to the frequency, extent, or kind of services 
actually delivered to a member; (3) the entity provides 
physicians' services primarily through physicians who are 
either employees or partners of the organization or through 
contracts with individual physicians or physician groups; (4) 
the entity assumes full financial risk on a prospective basis 
for the provision of covered services, except that it may 
obtain stop loss coverage and other insurance for catastrophic 
and other specified costs; and (5) the entity has made adequate 
protection against the risk of insolvency.
    There is no provision under current law for high-
deductible/medisave products.
            Explanation of provision
    The Social Security Act would be amended to create a new 
Part C: Provisions Relating to MedicarePlus Organizations; 
High-Deductible/Medisave Products. Similar to current law, a 
MedicarePlus organization would be defined as a public or 
private entity certified (as described below) as meeting the 
requirements described in the following provisions.
    Overview. The provisions are designed to emphasize the 
central importance of new types of MedicarePlus organizations 
assuming full financial liability for the costs of providing 
MedicarePlus benefits to enrollees. The provisions further 
emphasize the related and equal importance of each organization 
meeting federal solvency standards, and where applicable, 
traditional state insurance licensing standards which address 
fundamental rules regarding solvency. Taft-Hartley plans are 
treated differently because they are already separately 
regulated under federal law and must meet stringent standards 
of fiduciary conduct.
    In general, the provisions specified in greater detail 
below provide that the Medicare program will make a premium 
payment to MedicarePlus organizations for each Medicare 
beneficiary that is enrolled in a plan. It is the Committee's 
intent that the Medicare program contribute the principal 
financing to enroll beneficiaries in approved, privately 
administered plans. Although these premium amounts will vary 
for actuarial reasons as specified in later sections, they will 
not vary by the type of plan in which a beneficiary chooses to 
enroll.
    This section of the bill contains provisions for a major 
new product that can be made available to Medicare 
beneficiaries known as the high deductible/medisave product (to 
be referred to simply as Medisave). Medisave pairs a high 
deductible insurance policy with a medical savings account. It 
is the Committee's intent to make available to beneficiaries a 
product designed to grant them greater control over how they 
spend at least a portion of the annual actuarial value of their 
Medicare benefit, while also encouraging the prudent use of 
more routine types of health services. The annual deductible 
may not initially exceed $10,000, but it is the Committee's 
expectation that most Medisave products will come onto the 
market with deductibles lower than that amount. It is the 
higher annual deductible that evidence suggests will encourage 
careful use of routine services, while amounts deposited in the 
medical savings account portion can either accrue as savings 
against the high deductible, or be used by beneficiaries for 
other health expenses not currently covered by Medicare, such 
as prescription drugs or long-term care insurance premiums.
    Organized and Licensed under State Law. In general, a 
MedicarePlus organization would have to be organized and 
licensed under State law to offer health insurance or health 
benefits coverage in each State in which it offered a 
MedicarePlus product. This would not apply to Taft-Hartley 
sponsors or provider-sponsored organizations.
    Prepaid Payment. A MedicarePlus organization would have to 
be compensated (except for deductibles, coinsurance, and 
copayments) by a fixed payment paid on a periodic basis and 
without regard to the frequency, extent, or kind of health care 
services actually provided to an enrollee.
     Assumption of Full Financial Risk. The organization would 
have to assume full financial risk on a prospective basis for 
the provision of health services (other than hospice care) 
except the organization could obtain insurance or make other 
arrangements for: stop-loss coverage for aggregate costs in 
excess of $5,000; services needing to be provided other than 
through the organization; and for no more than 90 percent of 
the amount by which its costs for any of its fiscal years 
exceeded 115 percent of its income for such year. It could also 
make arrangements with providers or health institutions to 
assume all or part of the risk on a prospective basis for the 
provision of basic services.
     Provision Against Risk of Insolvency. Each MedicarePlus 
organization would have to meet standards relating to financial 
solvency and capital adequacy, as specified below. Taft-Hartley 
plans would be deemed to meet this requirement.
    High Deductible/Medisave Products. The bill authorizes a 
Medisave option within MedicarePlus. A Medisave plan combines 
high deductible insurance with a medical savings account. High 
deductible insurance would provide reimbursement for Medicare 
benefits and others the plan may elect to provide only after 
the enrollee incurred annual expenses equal to a deductible of 
not greater than $10,000. These thresholds would be increased 
yearly (and rounded to the nearest $50) by the percentage 
increase in the national average per capita growth rate 
(described below). For purposes of the deductible, the 
insurance would have to at a minimum count all expenses that 
would have been payable by Medicare and the enrollee under 
Parts A and B. After the deductible was met, the insurance 
would have to reimburse all expenses that would have been paid 
without regard to deductibles or coinsurance under Parts A and 
B.
     Organizations Treated as MedicarePlus Organizations During 
Transition. Certain organizations would be considered qualified 
as MedicarePlus organizations for contract years beginning 
before January 1, 1998. These include:
          HMOs organized under State law that are qualified 
        under the Public Health Service Act; an organization 
        that is recognized under State law as an HMO; or a 
        similar organization regulated for solvency in the same 
        manner and extent as an HMO.
          Organizations that are organized under State laws and 
        are licensed by a State agency as a health insurer or 
        as a service benefit plan, but only for individuals 
        residing in an area in which the organization is 
        licensed to offer health insurance coverage; and
          Organizations with Medicare risk contracts as of the 
        date of enactment.
            Reason for change
    It is the Committee's view that the introduction of 
significant innovations from the private sector, coupled with 
the full transfer of risk for each enrollee to participating 
private sector plans, will effectively temper the growth in 
spending in the Medicare program while providing opportunities 
for beneficiaries to improve upon the traditional Medicare 
benefit package.
            Effective date
    These provisions are effective upon enactment, except as 
noted earlier, Medisave products are effective January 1, 1997.

Requirements relating to benefits, provision of services, enrollment, 
        and premiums

            Present law
    Section 1876 provides for requirements relating to 
benefits, payment to the plans by Medicare, and payments to the 
plans by beneficiaries. In addition, it specifies standards for 
patient protection, quality assurance, and general contractor 
requirements.
    A Medicare beneficiary enrolled in an HMO/CMP is entitled 
to receive all services and supplies covered under Medicare 
Parts A and B (or Part B only, if only enrolled in Part B). 
These services must be provided directly by the organization or 
under arrangements with the organization. Enrollees in risk-
based organizations are required to receive all services from 
the HMO/CMP except in emergencies.
    In general, HMOs/CMPs offer benefits in addition to those 
provided under Medicare's benefit package. In certain cases, 
the beneficiary has the option of selecting the additional 
benefits, while in other cases some or all of the supplementary 
benefits are mandatory.
    Some entities may require members to accept additional 
benefits (and pay extra for them in some cases). These required 
additional services may be approved by the Secretary if it is 
determined that the provision of such additional services will 
not discourage enrollment in the organization by other Medicare 
beneficiaries.
    The amount an HMO/CMP may charge for additional benefits is 
based on a comparison of the entity's adjusted community rate 
(ACR, essentially the estimated market price) for the Medicare 
package and the average of the Medicare per capita payment 
rate. A risk-based organization is required to offer 
``additional benefits'' at no additional charge if the 
organization achieves a savings from Medicare. This ``savings'' 
occurs if the ACR for the Medicare package is less than the 
average of the per capita Medicare payment rates. The 
difference between the two is the amount available to pay 
additional benefits to enrollees. These may include types of 
services not covered, such as outpatient prescription drugs, or 
waivers of coverage limits, such as Medicare's lifetime limit 
on inpatient hospital care. The organization might also waive 
some or all of the Medicare's cost-sharing requirements.
    The entity may elect to have a portion of its ``savings'' 
placed in a benefit stabilization fund. The purpose of this 
fund is to permit the entity to continue to offer the same set 
of benefits in future years even if the revenues available to 
finance those benefits diminish. Any amounts not provided as 
additional benefits or placed in a stabilization fund would be 
offset by a reduction in Medicare's payment rate.
    If the difference between the average Medicare payment rate 
and the adjusted ACR is insufficient to cover the cost of 
additional benefits, the HMO/CMP may charge a supplemental 
premium or impose additional cost-sharing charges. If, on the 
other hand, the HMO does not offer additional benefits equal in 
value to the difference between the ACR and the average 
Medicare payment, the Medicare payments are reduced until the 
average payment is equal to the sum of the ACR and the value of 
the additional benefits.
    For the basic Medicare covered services, premiums and the 
projected average amount of any other cost-sharing may not 
exceed what would have been paid by the average enrollee under 
Medicare rules if she or he had not joined the HMO. For 
supplementary services, premiums and projected average cost-
sharing may not exceed what the HMO would have charged for the 
same set of services in the private market.
    HMOs/CMPs contracting with Medicare can pay second to 
workers' compensation, automobile liability or other specified 
sources of insurance.
    Current law also provides for Medicare managed care 
contracts with Health care Prepayment Plans (HCPPs). A HCPP 
arrangement is similar to a TEFRA cost-contract except that it 
provides only Part B services. There are no specific statutory 
conditions to qualify for a HCPP contract.
    Collectively bargained health plans and those sponsored by 
private multiemployer health plans (most of which are Taft-
Hartley plans) are regulated under the Employee Retirement 
Income Security Act (ERISA). Under ERISA, the States are 
authorized to regulate multiple employer welfare arrangements 
(MEWAs) to the extent that such regulation does not conflict 
with ERISA. Association plans may or may not be regulated as 
MEWAs and are generally regulated by the States.
    Penalties apply for violations of limits on the use of 
``physician incentive plans,'' i.e., compensation arrangements 
between HMOs and physicians that might induce physicians to 
withhold services. An HMO may not make a specific payment to a 
physician as an inducement to reduce or limit services to a 
specific enrollee. In addition, if physicians or physician 
groups are placed at substantial financial risk for services 
other than their own, the HMO must provide adequate stop-loss 
protection to limit the physicians' potential liability and 
must periodically survey enrollee satisfaction.
    There are no provisions in current law for provider 
protections, or for the Department of Labor to play a role in 
establishing and enforcing Medicare contractor standards for 
employer-sponsored health plans. In addition, there is no 
provision in current law for high-deductible/medisave products.
            Explanation of provision
    Overview. With a few key exceptions to be noted, most of 
the provisions in this section derive from current law as 
applied to risk contractors. The following discussion 
highlights key new provisions.
    As noted earlier, MedicarePlus organizations must provide 
at a minimum all benefits currently available under Parts A and 
B. In recognition of the new types of products that can be 
offered, the Committee thought it important to introduce basic 
payment protections tailored to reflect different product 
designs. In the payment provisions, a beneficiary's liability 
is generally limited to what the liability would have been on 
average had the beneficiary chosen to remain in the traditional 
program. The exception to these rules applies to fee-for-
service plans, where balance billing is permitted.
    It is the Committee's intent that Christian Science nursing 
facility services that are currently covered under Part A of 
Medicare must also be made available by MedicarePlus plans to 
enrollees who choose to use such services.
    Special rules apply to limited enrollment plans in order to 
define what is intended by the term limited enrollment and to 
make clear that such plans can only enroll beneficiaries who 
have a connection to the sponsoring organization such as union 
or association membership.
    A broad non-discrimination rule has been adopted to prevent 
plans from discriminating against beneficiaries by reason of 
health status and other factors. This is coupled with 
guaranteed issue requirements and other rules in other sections 
that work in tandem to reflect the Committee's intent that 
beneficiaries have a true and open choice of plans and that 
MedicarePlus organizations not evade their obligation to fully 
assume risk for and provide all medically necessary health care 
services, even for costly cases.
    Insurance carriers offering high deductible coverage under 
Medisave plans must structure their premiums using the same 
demographic and other factors by which the Secretary adjusts 
the actuarial value of the MedicarePlus contribution paid on 
behalf of individual enrollees. This is necessary to maintain 
appropriate financial relationships between the MedicarePlus 
program's premium contribution and the residual amount paid 
into the beneficiary's medical savings account.
    MedicarePlus plans will be permitted to offer, as one form 
of additional benefits, rebates to beneficiaries not to exceed 
the level of the Medicare Part B premium. It is the Committee's 
view that although enrollment in Part B of Medicare is 
voluntary, the vast majority of seniors do enroll and face a 
premium expense for doing so. The Committee viewed this as an 
out-of-pocket expense to beneficiaries that plans should be 
able to reduce in a manner similar to the way in which they may 
reduce other out-of-pocket expenses associated with the 
Medicare program, such as deductibles and copayments. However, 
in order to safeguard against inappropriate uses of rebate 
authority, plans may not offer rebates in excess of the level 
of the basic Part B premium, nor may they use such rebates as 
inappropriate inducements to enrollment.
    The provisions establish basic procedures governing the 
relationship between MedicarePlus plans and providers 
participating in those plans. It is the Committee's belief that 
MedicarePlus plans must be able to freely organize provider 
networks and enter into various arrangements with different 
providers as needed to effectively and efficiently support 
their product. This also means that plans must be able to 
modify those arrangements under the same premise. However, it 
is the Committee's intent that MedicarePlus plans follow basic 
procedures so that providers are given information regarding 
the plans' participation requirements, and so that providers 
are apprised of and can respond to adverse decisions regarding 
their arrangements with MedicarePlus organizations.
    Benefits Covered. Each MedicarePlus product would be 
required to provide benefits for at least the items and 
services for which benefits are available under parts A and B 
consistent with the standards for coverage of such items and 
services. A MedicarePlus product would meet the general benefit 
requirements if in the case of benefits furnished through fee-
for-service providers, the product provided for at least the 
dollar amount of payment for such items and services as would 
otherwise have been provided under Medicare Parts A and B. In 
the case of benefits furnished through providers with a 
contract with the organization, the individual's liability for 
payment for services could not exceed (after taking into 
account any deductible which does not exceed any deductible 
under Parts A and B) the lesser of:
          (a) the amount of liability that the individual would 
        have had (based on the provider being a participating 
        provider) if the individual had elected the non-
        MedicarePlus option, or
          (b) the applicable coinsurance or copayment amounts 
        (that would have applied under the non-MedicarePlus 
        option) provided under the contract.
As under current law, the MedicarePlus organization could pay 
second in specified cases.
    Guaranteed Issue and Renewal. Generally, a MedicarePlus 
organization would be required to provide that at any time 
during which elections were accepted, it would have to accept 
without restrictions individuals eligible to make such an 
election. If the Secretary determined that the organization had 
a capacity limit and the number of individuals who elected the 
product exceeded that limit, the organization could limit the 
election of individuals, but only if priority was given first 
to those individuals who had already elected the product, and 
then to others in a manner which did not discriminate. A 
MedicarePlus organization could not terminate or refuse to 
accept an individual's election except in the event of 
nonpayment of premiums, disruptive behavior, or the product was 
terminated with respect to all eligible Medicare individuals. 
(Those terminated would be deemed to have elected the non-
MedicarePlus option).
    Special Rules for Limited Enrollment MedicarePlus 
Organizations. MedicarePlus sponsors would have to limit 
enrollment for MedicarePlus products to specific individuals. A 
Taft-Hartley sponsor would have to limit eligibility to 
individuals who were entitled to obtain benefits under the 
terms of an applicable collective bargaining agreement.
    A qualified association would be defined as an individual-
membership association, religious fraternal organization, or 
other organization (a trade, industry, or professional 
association, a chamber of commerce, or a public entity 
association) that the Secretary found (1) was formed for 
purposes other than the sale of health insurance and did not 
restrict membership based on the health status, claims 
experience, receipt of health care, medical history, or lack of 
insurability, of an individual; (2) did not exist solely or 
principally for the purposes of selling insurance; and had at 
least 1,000 individual members, or 200 company members. 
Association sponsors would have to limit eligibility to 
individuals who were members of the association (or their 
spouses). Associations could not terminate coverage of an 
individual because the individual was no longer an association 
member except pursuant to a change of election during an open 
election period occurring on or after the date of termination 
of membership.
    These eligibility rules could not have the effect of 
denying eligibility to individuals on the basis of health 
status, claims experience, receipt of health care, medical 
history, or lack of evidence of insurability.
    Submission and Charging of Premiums. Similar to current 
law, each MedicarePlus organization would be required annually 
to file the amount of the monthly premium for coverage under 
each of its products it would be offering in each payment area, 
and the enrollment capacity in relation to the product in each 
such area. The premium charged for a product offered in a 
payment area would equal \1/12\ of the amount (if any) by which 
the premium exceeded the MedicarePlus capitation rate (see 
below). Premiums could not vary among individuals who resided 
in the same payment area. An exception would apply to high-
deductible/Medisave products which would be experience-rated 
based on specified risk factors. (These factors are the same as 
those used for setting the MedicarePlus contribution level.) 
Each MedicarePlus organization would have to permit monthly 
payment of premiums. An organization could terminate election 
of individuals for a MedicarePlus product for failure to make 
premium payments but only under specified conditions. A 
MedicarePlus organization's premium rate and the actuarial 
value of its deductibles and coinsurance, attributable to the 
basic Parts A and B benefits and excluding permissable balance 
billing, could not exceed the actuarial value of the 
deductibles and coinsurance otherwise applicable under the 
Medicare program.
    Requirement for Additional Benefits, Part B Premium 
Discount Rebates, or Both. If the actuarial value of the 
benefits under the MedicarePlus product (as determined based 
upon the adjusted community rate (ACR)--see below) for 
individuals was less than the average of the capitation 
payments made to the organization for the product at the 
beginning of an annual contract period, the organization could 
provide additional benefits, a monetary rebate (paid on a 
monthly basis) of the Part B monthly premium, or a combination 
of both. The value of these benefits, rebates or combination 
thereof would have to be at least as much as the amount by 
which the capitation payment exceeded the ACR, and would have 
to be applied uniformly for all enrollees in a product area. 
The rebate could not exceed the amount of the Part B premium 
(not taking into account penalties for late enrollment or the 
amount incurred as a result of affluence testing). The 
organization could provide that a part of the excess be 
withheld for the organization's stabilization fund. A 
MedicarePlus organization could provide additional benefits 
(over and above those required to be added as a result of the 
excess payment), and could impose a premium for such additional 
benefits. Cash or other types of rebates to induce enrollment 
or otherwise would be prohibited.
    A MedicarePlus organization could provide that a part of 
the value of the excess actuarial amount be withheld and 
reserved in the HI and SMI trust funds (in such proportions as 
the Secretary determined to be appropriate) by the Secretary 
for subsequent annual contract periods, to the extent required 
to stabilize and prevent undue fluctuations in the additional 
benefits and rebates offered in those subsequent periods. 
Leftover amounts not provided as additional benefits would 
revert to the trust funds.
    Adjusted Community Rate (ACR). Similar to current law, the 
ACR would mean, at the election of the MedicarePlus 
organization, either the rate of payment services which the 
Secretary annually determined would apply to the individuals 
electing a MedicarePlus product if the payment were determined 
under a community rating system, or the portion of the weighted 
aggregate premium which the Secretary annually estimated would 
apply to the individual but adjusted for differences between 
the utilization of individuals under Medicare and the 
utilization of other enrollees (or through another specified 
manner). For PSOs, the ACR could be computed using data in the 
general commercial marketplace or (during the transition 
period) based on the costs incurred by the organization in 
providing such a product.
    Protections for Providers. Each MedicarePlus organization 
would be required to establish reasonable procedures relating 
to the participation of physicians by providing: (a) notice of 
rules of participation, (b) written notice of participation 
decisions that are adverse to providers, and (c) a process 
within the organization for appealing adverse decisions, 
including the presentation of information and views of the 
provider regarding such decision. The organization would be 
required to consult with physicians who have entered into 
participation agreements with the organization regarding the 
organization's medical policy, quality and credentialing 
criteria, and medical management procedures.
    Similar to current law, each MedicarePlus organization 
would be prohibited from operating any physician incentive plan 
(i.e., any compensation arrangement between a MedicarePlus 
organization and a physician or physician group that directly 
or indirectly has the effect of reducing or limiting services 
provided to enrollees) unless certain requirements were met: 
(1) no specific payment could be made directly or indirectly 
under the plan to a physician or physician group as an 
inducement to reduce or limit medically necessary services 
provided with respect to a specific enrollee; (2) if a plan 
placed a physician or physician group at substantial financial 
risk for services not provided by the physician or group, the 
organization provided adequate and appropriate stop-loss 
protection and conducted periodic surveys of both individuals 
enrolled and previously enrolled to determine their degree of 
access to services and satisfaction with the quality of those 
services; and (3) the organization provided to the Secretary 
descriptive information sufficient to determine the plan's 
compliance.
    Provision of Information. Each MedicarePlus organization 
would be required to provide the Secretary with the information 
needed to prepare the information booklet described above.
    Coordinated Acute and Long-Term Care Benefits under a 
MedicarePlus Product. States would be able to coordinate 
benefits under their MediGrant programs with those provided 
under a MedicarePlus product to assure continuity of a full 
range of acute and long-term care services to eligible poor 
elderly or disabled individuals.
            Reason for change
    It is the Committee's view that beneficiaries are 
interested in health insurance coverage options under Medicare 
which improve their coverage, and would welcome the opportunity 
to take advantage of additional choices made available under a 
carefully designed and administered MedicarePlus program. In 
addition, the Committee felt it was important to improve the 
conditions under which health care providers and MedicarePlus 
organizations relate to each other under MedicarePlus contracts 
in order to encourage providers to participate in 
organizations.
            Effective date
    These provisions are effective upon enactment.

Patient protection standards

            Present law
    Medicare HMOs/CMPs must provide enrollees, at the time of 
enrollment and annually thereafter, an explanation of rights to 
benefits, restrictions on services provided through 
nonaffiliated providers, out-of-area coverage, coverage of 
emergency and urgently needed services, and appeal rights.
    Medicare HMOs/CMPs must make all Medicare covered services 
and all other services contracted for available and accessible 
within its service area, with reasonable promptness and in a 
manner that assures continuity of care. Urgent care must be 
available and accessible 24 hours a day and 7 days a week. HMOs 
must also pay for services provided by nonaffiliated providers 
when services are medically necessary and immediately required 
because of an unforeseen illness, injury, or condition and it 
is not reasonable, given the circumstances, to obtain the 
services through the HMO.
    Medicare HMOs/CMPs must enroll individuals and provide 
covered services to enrollees who live within the geographic 
area served by the organization. Regulations provide that 
geographic area means the area found by HCFA to be that within 
which the HMO furnishes, or arranges for furnishing, the full 
range of services it offers to its Medicare enrollees.
    HMOs/CMPs are required to have arrangements for an ongoing 
quality assurance program that stresses health outcomes and 
provides review by physicians and other health care 
professionals of the process followed in the provision of 
health services. External review is conducted by a peer review 
organization (PRO), one of the groups that has contracted with 
the Secretary for review of the quality and appropriateness of 
hospital services. PRO reviews of HMOs/CMPs covers both 
inpatient and outpatient care. The Secretary also has the right 
to inspect or otherwise evaluate the quality, appropriateness, 
and timeliness of services provided and the facilities of the 
organization when there is reasonable evidence of some need for 
inspection.
    In up to 25 States, the Secretary is authorized to 
designate another external agency, known as a quality review 
organization or QRO to perform reviews. QROs must meet many of 
the same standards as PROs, but have not contracted with the 
Department of HHS for the review of services other than those 
provided by an HMO/CMP.
    HMOs/CMPs must have meaningful grievance procedures for the 
resolution of individual enrollee complaints, about such 
problems as failure to receive covered services or unpaid 
bills. In addition, an enrollee who believes that the HMO has 
improperly denied a service or imposed an excessive charge has 
the right to a hearing before the Secretary if the amount 
involved is greater than $100. If the amount is greater than 
$1,000, either the enrollee or the HMO may seek judicial 
review.
            Explanation of provision
    Overview. Many of the provisions in this section of the 
bill derive from current law. However, reflecting the new types 
of products that can be offered, the Committee thought it was 
especially important to emphasize clear, accurate and prominent 
disclosure of benefits and of any financial liabilities for 
beneficiaries associated with specific products. In addition, 
the provisions establish organizations' minimum 
responsibilities under point-of-service features, where 
beneficiaries are authorized to go out of plan for services, 
but may face higher cost sharing as a result. The additional 
provisions limiting provider payment levels and beneficiary 
liability for emergency services provided out of plan are a 
protection for organizations and for beneficiary enrollees, 
facing the need for services on an emergency basis. This is, 
however, a change from current law which imposes payment limits 
even for non-emergency services provided out of plan. It is the 
Committee's view that plans should assume responsibility for 
securing and setting payment levels for authorized services 
provided out of plan, including for example, renal dialysis 
services. Plans are not responsible for unauthorized, non-
emergency services that a beneficiary may obtain out of plan.
    The provisions on external quality review organizations 
expand current law because it was the Committee's view that all 
MedicarePlus plans should be able to meet the quality standards 
of approved, independent external review organizations and that 
more organizations should be eligible to function in that role 
without limitations on the numbers of organizations competing 
to perform these functions.
    With respect to marketing and enrollment, it is the 
Committee's intent to allow independent agents acting on behalf 
of MedicarePlus organizations to explain the plan's benefits 
and limitations and to accept enrollment forms from individuals 
electing the product. However, it is counter to the Committee's 
view that such agents be permitted to complete enrollment forms 
for individuals. At all permissable election periods, 
beneficiaries may enroll directly with the MedicarePlus 
organization of their choice.
    Disclosure to Enrollees. Each MedicarePlus organization 
would be required to disclose in clear, accurate, and 
standardized forms certain information including: (1) benefits, 
including coverage exclusions and, for a high-deductible/
medisave product, a comparison of its benefits with those under 
other MedicarePlus products; (2) rules relating to prior 
authorization or other review requirements that could result in 
nonpayment; (3) liability for cost-sharing for out-of-network 
services; (4) the number, mix, and distribution of providers; 
(5) financial obligations of the enrollee; (7) enrollee 
satisfaction data; (8) enrollee rights and responsibilities; 
and (8) a statement that use of the 911 number is appropriate 
in emergency situations.
    Access to Services. A MedicarePlus organization offering a 
MedicarePlus product could restrict the providers from whom 
benefits were to be provided so long as: (1) the organization 
made the benefits available to each individual electing the 
product within the service area with reasonable promptness and 
in a manner which assured continuity in the provision of 
benefits, (2) when medically necessary, the organization made 
benefits available and accessible 24 hours a day and 7 days a 
week, and (3) the product provided for reimbursement to other 
organizations if the services were medically necessary and 
immediately required because of an unforeseen illness, injury, 
or condition and it was not reasonable given the circumstances 
to obtain the services through the organization. Emergency 
services are given a specific definition in the bill.
    If the MedicarePlus product provided out-of-network 
coverage, the payment level for services furnished outside the 
network would have to be at least 70 percent (or, if the cost-
sharing was 50 percent, at least 35 percent) of the lesser of 
the payment basis (determined without regard to deductibles and 
cost-sharing) that would have applied under Medicare Parts A 
and B, or the amount charged by the entity furnishing such 
items and services.
    In the case of emergency services provided out of plan to 
an enrollee, participating providers would be required to 
accept as payment in full from the MedicarePlus organization 
the amount that would have been payable under Part B and from 
the individual, if the individual had not enrolled with the 
organization. In the case of nonparticipating physicians, the 
limitations on actual charges for such services otherwise 
applicable under Part B would apply.
    Confidentiality and Accuracy of Enrollee Records. Each 
MedicarePlus organization would have to establish procedures to 
safeguard the privacy of individually identifiable enrollee 
information, and maintain accurate and timely medical records.
    Quality Assurance. Each MedicarePlus organization would be 
required to arrange (in accordance with regulations of the 
Secretary) for an ongoing quality assurance program meeting 
certain requirements such as: (1) stressing health outcomes; 
(2) providing the establishment of written protocols for 
utilization review, (3) providing review by physicians and 
other health care professionals of the process followed in the 
provision of services; (4) monitoring and evaluating high 
volume and high risk services and the care of acute and chronic 
conditions; (5) evaluating the continuity and coordination of 
care; (6) establishing mechanisms to detect underutilization 
and overutilization; (6) making information available on 
quality and outcomes to facilitate beneficiary comparison and 
choice; (7) evaluating on an ongoing basis the plan's 
effectiveness, and (8) providing for external accreditation and 
review by a Medicare peer review organization or other 
qualified independent review organization that the quality of 
services meets professionally recognized standards of care.
    Coverage Determinations. Each MedicarePlus organization 
would have to make determinations regarding authorization 
requests for nonemergency care on a timely basis. Medical 
necessity decisions could only be made by a physician. Appeals 
of a determination would have to be decided within 30 days of 
receiving medical information and no later than 60 days after 
the date of the decision. Appeals relating to a life-
threatening or emergency situation would have to be decided on 
an expedited basis.
    Grievance and Appeals. Each MedicarePlus organization would 
have to provide for meaningful procedures for hearing and 
resolving grievances between the organization (and entities and 
individuals through which it provides services) and enrollees. 
An enrollee dissatisfied by reason of the enrollee's failure to 
receive health services would be entitled, if the amount in 
controversy was $100 or more, to a hearing before the 
Secretary. If the amount in controversy was $1,000 or more, the 
individual or organization, upon notifying the other party, 
would be entitled to judicial review.
    Information on Advance Directives. Each MedicarePlus 
organization would be required to maintain written policies and 
procedures respecting advance directives (as specified 
elsewhere in the Medicare statute).
    Approval of Marketing Materials. Each MedicarePlus 
organization could not distribute marketing material unless (1) 
at least 45 days before distribution, the organization 
submitted the material to the Secretary for review, and the 
Secretary did not disapprove the material. Standards 
established below would include guidelines for the review of 
such materials. Under these guidelines, the Secretary would be 
required to disapprove marketing material if it was materially 
inaccurate or misleading or otherwise made a material 
misrepresentation. To facilitate ``one stop shopping,'' 
materials submitted to the Secretary by an organization for a 
MedicarePlus product in an area that were not disapproved would 
be considered as approved for all other areas covered by the 
product and organization. Each organization would be required 
to conform to fair marketing standards included in the 
MedicarePlus standards. Such standards would include a 
prohibition against a plan (or agent of such a plan) completing 
any portion of any election form on behalf of any individual.
            Reason for change
    Medicare beneficiaries participating in MedicarePlus must 
have the information necessary to make informed decisions 
concerning enrollment in organization products. Beneficiaries 
should be assured that disclosure concerning products will 
enable them to clearly understand the opportunities and 
constraints of specific products offered by MedicarePlus 
organizations. Additionally, HMO and coordinated care type 
organization products must ensure that beneficiaries will have 
ready access to quality providers and any medically necessary 
emergency services.
            Effective date
    These provisions are effective upon enactment.

Provider-sponsored organizations (PSOs)

            Present law
    PSOs do not qualify as eligible organizations for Medicare 
managed care contracts.
            Explanation of Provision
    Overview. The Committee viewed the PSO concept as a means 
by which the Medicare program can enter directly into contracts 
with financially and clinically integrated provider-based 
organizations. However, it is the Committee's intent that in 
order to qualify as a MedicarePlus contractor, a PSO must be a 
substantial and sufficiently financially integrated network as 
to be able to assume full risk and provide the complete minimum 
Medicare benefit package, as must other MedicarePlus 
contractors. It is the Committee's expectation that PSOs will 
both enhance competition in larger markets and provide a viable 
managed care option in smaller and rural markets which have not 
been adequately served by other types of organized delivery 
systems or health insurance products.
    As defined in these provisions, PSOs will be direct 
contractors for MedicarePlus only contracts. In that context, 
the Committee thought it was important to provide for 
development of uniform federal MedicarePlus standards and in so 
doing, to preempt state regulation of PSOs except where states 
demonstrate that their regulatory model is identical to the 
federal model.
    Provider-Sponsored Organization (PSO) Defined. A PSO means 
a public or private entity that (in accordance with standards 
established under this bill) is a provider or group of 
affiliated providers that provides a substantial portion of 
health care under the contract directly through the provider or 
affiliated group of providers. In defining substantial 
proportion, the Secretary would be required to consider the 
need for such an organization to assume responsibility for a 
substantial portion of services in order to assure financial 
stability and other factors. Affiliation is specifically 
defined.
    Process for Establishing Standards and Process for State 
Certification of PSOs. These requirements are specified in 
other sections of the bill.
    Conditions for Preemption from State Insurance Licensing 
Requirements. In general, State laws that would prevent a PSO 
from complying with the applicable requirements of the bill 
would be preempted, including laws which would require a PSO to 
meet requirements for insurers or HMOs doing business in the 
state. This preemption would not apply to individuals who are 
participants or beneficiaries of an employee welfare benefit 
plan to which section 514(a) of ERISA applies and who receive 
services from a PSO. (Section 514(a) of ERISA preempts State 
laws from regulating employee welfare benefit plans, including 
health plans.) Federal preemption of PSO regulation would also 
not apply in those States with approved certification programs.
            Reason for change
    In today's employer health benefit market, many companies 
contract directly with hospitals and other providers in 
networks to provide services under employee welfare benefit 
plans. In many of these private market arrangements, the 
providers assume partial or full financial risk under the terms 
of their contracts for the cost of the health care services 
they provide. Because these are direct contracting arrangements 
that have primarily been developed under the umbrella of the 
federal preemption that employee welfare benefit plans enjoy 
under ERISA, these provider-based organizations to date are 
largely unregulated by states.
            Effective date
    These provisions are effective upon enactment.

Payments to MedicarePlus plans

            Present law
    Under a Medicare risk contract, an HMO agrees to provide or 
arrange the full scope of covered Medicare services in return 
for a single monthly capitation payment issued by Medicare for 
each enrolled beneficiary. One of the numbers used to determine 
this payment is the adjusted average per capita cost, or AAPCC. 
The other, the adjusted community rate or ACR, is discussed 
above.
    The AAPCC is Medicare's estimate of the average per capita 
amount it would spend for a given beneficiary (classified by 
certain demographic characteristics and county of residence) 
who was not enrolled in an HMO and who obtained services on the 
usual fee-for-service basis. Separate AAPCCs are established 
for enrollees on the basis of age, sex, whether they are in a 
nursing home or other institution, and whether they are also 
eligible for Medicaid, and the county of their residence. These 
AAPCC values are calculated in four basic steps:
          Medicare national average calendar year per capita 
        costs are projected for the future year under 
        consideration. These numbers are known as the U.S. per 
        capita costs (USPCCs) and are estimated average 
        incurred benefit costs per Medicare enrollee and 
        adjusted to include program administration costs. 
        USPCCs are developed separately for Parts A and B of 
        Medicare, and for costs incurred by the aged, disabled, 
        and those with ESRD in those two parts of the program.
          Geographic adjustment factors that reflect the 
        historical relationships between the county's and the 
        Nation's per capita costs are used to convert the 
        national average per capita costs to the county level.
          Expected Medicare per capita costs for the county are 
        adjusted to a fee-for-service basis by removing both 
        reimbursement and enrollment attributable to Medicare 
        beneficiaries in prepaid plans.
          The recalculated county per capita cost is converted 
        into rates that vary according to the demographic 
        variables enumerated above: age, sex, institutional 
        status, Medicaid status.
    For each Medicare beneficiary enrolled under a risk 
contract, Medicare will pay the HMO 95 percent of the rate 
corresponding to the demographic class to which the beneficiary 
is assigned.
            Explanation of provision
    The principal change outlined below is the new methodology 
for establishing contribution levels to plans across markets. 
This is done to correct serious flaws and inequities that have 
developed over time under the current law. It is the 
Committee's view that the system for setting contribution 
levels to MedicarePlus plans is a crucial and intrinsic part of 
the foundation on which the MedicarePlus program is to be built 
and requires serious attention.
    In general, a MedicarePlus organization under a contract 
with the Secretary would be paid, with respect to coverage of 
an individual in a payment area for a month, an amount equal to 
the monthly adjusted MedicarePlus capitation rate with respect 
to that individual for that area. Each year, the Secretary 
would be required to determine and announce no later than 
September 7 the annual MedicarePlus capitation rate for each 
payment area for the year, and the factors to be used in 
adjusting monthly payment rates. An explanation of the 
assumptions and changes in methodology would have to be 
included in sufficient detail so that organizations could 
compute monthly adjusted MedicarePlus capitation rates. The 
Secretary would be required to provide advance notice (at least 
45 days prior to the announcement) of the proposed changes in 
the methodology and assumptions used to develop the rates, and 
give organizations an opportunity to comment.
    Monthly Adjusted MedicarePlus Capitation rate. Each month, 
the MedicarePlus organization would be paid for an individual 
in a payment area, and in a class (as described below), 1/12 of 
that year's annual MedicarePlus capitation rate. This amount 
would be adjusted to reflect the relative actuarial value of 
Medicare benefits with respect to individuals in a class 
compared to the national average for individuals in all 
classes. A payment area is a county (or equivalent area 
specified by the Secretary) except for the end stage renal 
disease (ESRD) population, in which case the area is the State.
     For purposes of calculating rates, the Medicare population 
would be divided into three separate groups: the aged, the 
disabled, and those who have been determined to have ESRD. The 
Secretary would be required to define appropriate classes of 
enrollees, based on age, gender, welfare status, 
institutionalization, and such other factors as the Secretary 
determined to be appropriate so as to ensure actuarial 
equivalence. The Secretary could add, modify, or substitute for 
such classes to improve determination of actuarial equivalence. 
The Secretary would be required to conduct the research needed 
to provide for greater accuracy in the adjustment of capitation 
rates. This could include research into the addition or 
modification of classes. The Secretary would have to report to 
Congress on this research by January 1, 1997.
     Per Capita Growth Rates. In general, payment rates for 
each area would be calculated so as to improve contribution 
levels in rural and low service utilization markets. Payments 
to health plans from 1996 onward would be ``decoupled'' from 
local fee-for-service expenditures and paid instead on a 
budgeted system. Rates would be established so that over time, 
payments to areas with higher-than-average utilization of 
services would be increased more slowly than payments to areas 
with lower-than-average utilization. In addition, payments 
would be calculated so as to ensure that legitimate costs of 
doing business in different areas (based on certain input 
prices) would be recognized in the contribution levels.
     To establish the payment rates for 1996, areas would be 
classified according to their average per capita utilization of 
services (see below). Those areas experiencing the lowest 
utilization in services would be assigned a per capita growth 
rate of 9.7 percent, the next lower, 8.0 percent, the median, 
5.3 percent, the next higher, 4.7 percent, and those with the 
highest utilization, being assigned a per capita growth rate of 
4.0 percent. A further adjustment might be necessary to ensure 
that the total capitation payments made in 1996 are the same as 
would have otherwise been made if the per capita growth rate 
for all areas were equal to the national average per capita 
growth rate of 5.3 percent.
     To establish the payment rates for years after 1996, the 
Secretary would be required to compute a per capita growth rate 
for each year for each of the five service utilization cohorts. 
This computation of payments for each cohort is pegged to the 
national average per capita growth rate which is as follows:
          1996 = 5.3%
          1997 = 3.8%
          1998 = 4.6%
          1999 = 4.3%
          2000 = 3.8%
          2001 = 5.5%
          2002 = 5.6%
          Subsequent years = 5.0%
The median service utilization cohort would receive the 
national average per capita growth rate for the year. Those 
areas assigned to the lowest service utilization cohort would 
get 187.5 percent of the national average growth rate, and 
those in the highest would get 75 percent. The Secretary would 
calculate intermediate growth rates for the second and fourth 
cohorts at an amount that would assure budget neutrality 
relative to the national average per capita growth rates. 
Specifically, the growth rates for each cohort are as follows:
          lowest = 187.5% of the national average per capita 
        growth rate (NAGR)
          lower = 150% of the NAGR or lower if needed to meet 
        budget neutrality
          median = the average NAGR
          higher = gets a rate calculated to achieve budget 
        neutrality, but not less than 75% of the NAGR.
          highest = 75% of the NAGR.
    Assignment of Payment Areas to Service Utilization Cohorts. 
Each year the Secretary would assign each payment area to a 
utilization cohort based on a service utilization index value:
          lowest--less than .80
          lower--.80-.89
          median--.90-1.09
          higher--1.10-1.19
          highest--1.20 or more
The service utilization index value would be equal to the 
annual MedicarePlus capitation rate for each payment area 
divided by the input-price adjusted national capitation rate 
for that area for the year. (The utilization index for one year 
would be used to set cohorts for the update for the next year). 
The input-price adjusted capitation rate would be calculated by 
multiplying the weighted average capitation rate by an input 
price index (separate indices would be applied for different 
types of services). For 1996, the Secretary would apply an 
input price adjustment specified in the legislation; for 1997, 
the Secretary could continue to use the special rules for 1996. 
The Secretary would develop refined input price adjustments to 
be used in later years.
    Payment Process. The Secretary would be required to make 
monthly payments in advance to the plan for each individual 
enrolled with a MedicarePlus organization. The payment would be 
retroactively adjusted to take into account any differences 
between the actual number of individuals enrolled with an 
organization and the number of such individuals estimated to be 
so enrolled in determining the amount of the advance payment.
    Special Rules for Individuals Electing High-Deductible/
Medisave Products. In the case of an individual who elected a 
high-deductible/medisave product, the payment to the 
MedicarePlus organization could not exceed the premium for the 
high-deductible product and the difference between the amount 
that would have otherwise been paid. Anything in addition to 
that amount would be paid directly into the individual's 
medisave account on a monthly basis.
    Payments from Trust Fund. Payments to the MedicarePlus 
organizations would be made from the HI and SMI trust funds in 
such proportion as the Secretary determined reflected the 
relative weights that benefits under Parts A and B represented 
of Medicare's actuarial value.
            Reason for change
    The current system for calculating capitation payments for 
HMOs under the Medicare program has led to highly variable 
payment levels even in areas of close geographic proximity, and 
has generated volatile changes in payment levels in particular 
markets from year to year. In addition, contribution levels are 
suppressed in rural areas and are excessive in selected urban 
areas, relative to what is necessary to encourage or induce 
private plans to participate in these markets. The Committee 
examined the extent to which the real cost of providing health 
care services varies across markets and compared those costs to 
actual current law contribution levels. The Committee found 
that objectively measured input costs varied by only about 55%, 
while current law contribution levels varied by about 284%. The 
principal explanation for the difference in contribution levels 
across markets is in average, per beneficiary service use 
across markets.
    While a good portion of this variation in service use is 
explainable and justifiable, much is not and the Committee 
decided to take steps to narrow these differences insofar as 
they are reflected in MedicarePlus contribution levels. In so 
doing, over a several year transition period, contribution 
levels for each area would be calculated so as to improve 
contribution levels in low average service utilization markets 
and to moderate the growth in contribution levels in high 
average service utilization markets.
            Effective date
    These provisions are effective upon enactment and would be 
applied for contracting periods beginning on or after January 
1, 1996.

Establishment of MedicarePlus Standards

            Present law
    Under section 1876 of the Social Security Act, Medicare 
specifies requirements to be met by an organization seeking to 
become a managed care contractor with Medicare. There is no 
provision for NAIC to play a role in developing or establishing 
these requirements. There is no provision for PSOs.
            Explanation of provision
    Overview. The key provisions relate to obtaining the 
external assistance of the NAIC in developing longer-term 
standards for certain categories of MedicarePlus organizations, 
and the use of a special negotiated rulemaking process for 
developing standards for PSOs. With respect to the first, the 
Committee felt that the NAIC is uniquely qualified to provide 
assistance and advice on contracting standards for selected 
categories of MedicarePlus organizations due to the expertise 
of state officials in regulating the insurance markets and 
certain insuring organizations at the state level. Second, the 
process followed by the NAIC in developing standards fosters 
broad public input in areas which are highly specialized and 
require broad-based expertise. Therefore, the Committee felt 
that the Secretary could be greatly assisted by NAIC if the 
Association would agree to undertake this assistance. If the 
NAIC chose not to undertake this effort, the Secretary would 
proceed under usual rulemaking procedures.
    The Committee notes, however, that usual rulemaking 
procedures often are prolonged, and therefore has specified an 
accelerated rulemaking procedure under which to establish 
standards for PSOs. The Committee also felt that since PSOs are 
a new type of contractor, presenting unique regulatory standard 
questions in the areas of solvency and premium setting, the 
Secretary would benefit from the formation of a negotiated 
rulemaking committee that would bring affected parties and 
appropriate experts to the table rapidly to assist in 
developing satisfactory initial standards. Although the process 
for setting initial standards is accelerated, the Committee 
expects that refinements would be made over time as the 
Secretary gains experience in direct contracting with PSOs and 
final standards are developed.
    The Secretary would be required to request the NAIC to 
develop and submit within 12 months after enactment proposed 
standards consistent with the bill requirements for 
MedicarePlus organizations (other than Taft-Hartley plans and 
PSOs) and products. If the Association's submission was timely, 
the Secretary would review the proposed standards within 90 
days and promulgate them with modifications to the extent they 
did not meet the requirements. If the Association's submission 
was not timely, the Secretary would be required to promulgate 
proposed standards no later than otherwise required. Until such 
standards were established, the Secretary would provide interim 
standards as might be appropriate.
    The Secretary would also develop and promulgate 
MedicarePlus standards for limited enrollment organizations and 
products. With respect to Taft-Hartley sponsors, the Secretary 
would be required to consult with the Secretary of Labor and 
the standards would be promulgated about the same time as the 
general MedicarePlus standards. With respect to provider-
sponsored organizations, the Secretary would establish 
standards on an expedited basis using the negotiated rule-
making process under title 5 United States Code.
          The target publication date for the rule would be 
        September 1, 1996.
          Within 45 days after enactment, the Secretary, after 
        consulting with the NAIC, the American Academy of 
        Actuaries, organizations representing Medicare 
        beneficiaries, and other interested parties, would 
        publish the notice required by section 564(a) of title 
        5.
          The period for submitting comments would be shortened 
        to 15 days, and within 30 days thereafter the Secretary 
        would be required to provide for the appointment of a 
        negotiated rulemaking committee. The Secretary would be 
        required to provide for a facilitator no later than 10 
        days after the establishment of the committee.
          The negotiated rulemaking committee would be required 
        to report to the Secretary no later than June 1, 1996, 
        regarding its progress towards reaching consensus and 
        whether that was likely to occur before one month prior 
        to the target publication date. If the committee 
        reported it had failed to make significant progress 
        towards reaching consensus, or if it was unlikely to 
        reach consensus by the target date, the Secretary could 
        terminate the process and provide for the publication 
        of the rule through other methods. Otherwise, the 
        committee would be required to submit a report 
        containing the proposed rule no later than one month 
        before the target publication date.
          The Secretary would publish the rule in the Federal 
        Register by the target publication date. The rule would 
        be effective and final immediately on an interim basis, 
        but subject to revision after public notice and 
        opportunity for comment of not less than 60 days. The 
        Secretary would be required to provide for 
        consideration of such comments and republication of the 
        rule not later than one year after the target 
        publication date.
          With the initial publication of the final rule, the 
        Secretary would be required to specify a process for 
        timely review and approval of entities to be certified 
        as provider-sponsored organizations. Completed 
        applications would be acted upon within 60 days of 
        receipt.
          After consulting with the negotiated rulemaking 
        committee, the Secretary by March 1, 1996, would be 
        required to circulate a proposed application form.
    In establishing MedicarePlus standards other than on an 
interim basis, the Secretary would be required to try to be 
consistent where appropriate in order to promote the equitable 
treatment of different types of MedicarePlus organizations and 
the consistent protection for individuals who chose their 
products. Standards established on an interim basis could be 
based on currently applicable standards, such as those 
established for analogous provisions of section 1876 or the 
private health insurance market. At the time MedicarePlus 
standards change, an organization with a contract in effect 
could elect not to have the changes apply until the end of the 
contract year (or, if there is less than 6 months remaining in 
the contract year, until one year after its end). Standards 
under this section would supersede any State law or regulation 
with respect to MedicarePlus products to the extent it was 
inconsistent with the standards.
            Reason for change
    The Committee's view is that the and usual rulemaking 
procedures are somewhat cumbersome and unsuited to it's 
objectives in implementing the MedicarePlus program as 
efficiently and quickly as is feasible.
    Separately, it is the Committee's intent that standards 
promulgated for qualified associations recognize and 
distinguish the open contract and assessment features whereby 
the governing authority of certain religious fraternal benefit 
societies, such as the Mennonite Mutual Aid, protect their 
members from insolvency. The standards should also recognize 
the extent to which state insurance laws exempt religious 
fraternal benefit societies from the guaranty funds required 
for commercial health insurance companies.
            Effective date
    These provisions are effective upon enactment. The deadline 
for general interim standards is June 1, 1996. The deadline for 
initial PSO standards is September 1, 1996. The deadline for 
NAIC's recommendations, if any, is December 31, 1996.

Process for certification of MedicarePlus organizations and products

            Present law
    Eligibility to be a Medicare managed care contractor is 
determined by the DHHS. States do not play a role in certifying 
organizations as eligible to become Medicare managed care 
contractors.
            Explanation of provision
    State Certification Process. The Secretary would be 
required to approve a MedicarePlus certification and 
enforcement program established by a State for applying 
MedicarePlus standards to MedicarePlus organizations and 
products if the Secretary determined that the program 
effectively provided for the application and enforcement of the 
MedicarePlus standards. State certification would not apply to 
Taft-Hartley sponsors or, except as follows, provider-sponsored 
organizations. The Secretary would be required to establish a 
process under which States could propose to certify provider-
sponsored organizations, but State proposals would not be 
approved unless the Secretary determined that they were 
identical to the standards of this part and would not result in 
a lower level or quality of enforcement. State certification 
programs would have to provide for certification of compliance 
of MedicarePlus organizations and products not less often than 
once every three years. A State could impose user fees on 
organizations seeking certification to finance its cost. A 
MedicarePlus organization or product with State certification 
would be considered to be certified with respect to offerings 
of the product to individuals residing in the State.
    In the Committee's view, these arrangements for oversight 
of the MedicarePlus organizations and products have the 
advantage of maximizing the use of the traditional State role 
of insurance regulation and minimizing the necessity of 
expanding significantly the Federal bureaucracy to oversee 
MedicarePlus.
    The Secretary would be required to periodically review 
approved State certification programs to determine if they 
continued to provide for certification and enforcement. States 
found to be out of compliance would be allowed an opportunity 
to adopt a plan of correction. If the failure continued, the 
Federal certification process described below would be applied. 
The Secretary would be required to publish and periodically 
update a list of approved State programs.
    Federal Certification Processes. Beginning on the date 
MedicarePlus standards were established, for States for which 
certification programs were not approved and operating, the 
Secretary would be required to establish a process for 
certifying that such organizations and products met the 
standards.
    The Secretary would also be required to establish a process 
for certifying that sponsoring organizations and their 
respective MedicarePlus products met MedicarePlus standards. 
With respect to Taft-Hartley sponsors, the process would be 
established in consultation with the Secretary of Labor. To the 
maximum extent practicable, the Federal process would use 
private accreditation processes that the Secretary finds apply 
standards no less stringent than the requirements of this part. 
The use of private accreditation processes would be valid only 
for periods specified by the Secretary. The Secretary could 
impose user fees on organizations seeking certification to 
finance the cost.
    Notice to Enrollees in Case of Decertification. In the 
event that a MedicarePlus organization or product was 
decertified, the plan would have to notify each enrollee.
    Qualified Associations. The certification provisions of 
this section would not limit the authority of States to 
regulate products offered by MedicarePlus organizations that 
are qualified associations.
            Reason for change
    The Committee, as noted earlier, values the expertise of 
states in regulating insurance and believes it would be 
advantageous to the Secretary if states entered into agreements 
to manage some of the administrative oversight functions 
required under the MedicarePlus program. The Committee notes 
that with the exception of Taft-Hartley plans and, at least 
initially, PSOs, the states already license and oversee the 
solvency and market conduct of the other types of companies 
that will participate as MedicarePlus contractors.
            Effective date
    These provisions are effective upon enactment.

Contracts with MedicarePlus organizations

            Present law
    Contracts with HMOs are for 1 year, and may be made 
automatically renewable. However, the contract may be 
terminated by the Secretary at any time (after reasonable 
notice and opportunity for a hearing) in the event that the 
organization fails substantially to carry out the contract, or 
carries out the contract in a manner inconsistent with the 
efficient and effective administration of Medicare HMO law, or 
no longer meets the requirements specified for Medicare HMOs. 
The Secretary also has authority to impose certain lesser 
sanctions, including suspension of enrollment or payment and 
imposition of civil monetary penalties. These sanctions may be 
applied for denial of medically necessary services, 
overcharging, enrollment violations, misrepresentation, failure 
to pay promptly for services, or employment of providers barred 
from Medicare participation.
    To be eligible to be a risk contractor, HMOs/CMPs must have 
at least 5,000 members; if, however, they primarily serve 
members outside urbanized areas, they may have fewer enrollees 
(defined in regulation as at least 1,500). Organizations 
eligible for Medicare cost contracts may have fewer members 
than 5,000 (specified in regulation as at least 1,500).
    No more than 50 percent of the organization's enrollees may 
be Medicare or Medicaid beneficiaries. This rule may be waived, 
however, for an organization that serves a geographic area 
where Medicare and Medicaid beneficiaries make up more than 50 
percent of the population or (for 3 years) for an HMO that is 
owned and operated by a governmental entity.
    During its annual open enrollment period of at least 30 
days duration, HMOs must accept beneficiaries in the order in 
which they apply, up to the limits of its capacity, unless to 
do so would lead to violation of the 50 percent Medicare-
Medicaid maximum or to an enrolled population unrepresentative 
of the population in the area served by the HMO. If an HMO 
chooses to limit enrollment because of its capacity, regulation 
provides that it must notify HCFA at least 90 days before the 
beginning of its open enrollment period and, at that time, 
provide HCFA with its reasons for limiting enrollment.
    In areas where Medicare has risk contracts with more than 
one HMO and an HMO's contract is not renewed or is terminated, 
the other HMOs serving the area must have an open enrollment 
period of 30 days for persons enrolled under the terminated 
contract.
            Explanation of provision
    In General. In order to be paid by Medicare, the 
MedicarePlus organization would have to enter into a contract 
with the Secretary providing that the organization agreed to 
the specific terms and conditions of payment as provided under 
the bill. A contract could cover more than one MedicarePlus 
product. In addition, elections of a Medicare Plus product 
would not be permitted unless these conditions were met.
    Enrollment Requirements. The Secretary would be prohibited 
from entering a contract with a MedicarePlus organization other 
than a Taft-Hartley sponsor unless the organization had at 
least 5,000 individuals (or 1,500 individuals in the case of a 
PSO) who were receiving health benefits through the 
organization. An exception would apply if the MedicarePlus 
standards permitted the organization to have a lesser number of 
beneficiaries (but not less than 500 for a PSO) if the 
organization primarily served individuals residing outside of 
urbanized areas. The Secretary could waive this requirement 
during an organization's first 3 contract years. (The 
enrollment requirements would not apply to a high-deductible/
medisave product.)
    Contract Period and Effectiveness. The contract would be 
for at least one year, and could be made automatically 
renewable. The Secretary could terminate any contract or impose 
intermediate sanctions (as specified in the bill) on the 
organization if the Secretary found that the organization: (a) 
failed substantially to carry out the contract; (b) was 
carrying it out in a manner inconsistent with efficient and 
effective administration; or (c) was operating in a manner that 
was not in the best interests of the individuals covered under 
the contract; or (d) no longer substantially met MedicarePlus 
standards. The Secretary would not have to contract with an 
organization that had voluntarily terminated its contract with 
Medicare in the previous 5 years. Contracts for coverage under 
a high-deductible/medisave account could not take effect before 
January 1997.
    Protections Against Fraud and Beneficiary Protections. Each 
contract would provide that the Secretary or his or her 
designee would have the right to inspect or otherwise evaluate 
the quality, appropriateness and timeliness of services, and 
the organization's facilities if there was reasonable evidence 
of need for such inspection, and would have the right to audit 
and inspect the books and records. The contract would require 
the organization to provide and pay for written notice in 
advance of a termination, and a description of alternatives for 
obtaining benefits, to each enrollee. In addition, the contract 
would require the organization to comply with certain financial 
disclosure and liability requirements; to provide specified 
information; notify the Secretary of loans or other financial 
arrangements made between the organization, subcontractors and 
affiliates; and contain other provisions as the Secretary found 
appropriate. Each MedicarePlus organization would be required 
to make specified information available to enrollees.
    Intermediate Sanctions. The Secretary would be authorized 
to carry out specific remedies in the event that a contractor 
organization: (1) failed substantially to provide medically 
necessary items and services required to be provided, if the 
failure adversely affected (or had the substantial likelihood 
of adversely affecting) the individual; (2) imposed premiums on 
individuals that were in excess of the premiums permitted; (3) 
expelled or refused to re-enroll an individual; (4) engaged in 
any practice that would reasonably be expected to have the 
effect of denying or discouraging enrolling by eligible 
individuals with the organization whose medical condition or 
history indicates a need for substantial future medical 
services; (5) misrepresented or falsified information; (6) 
failed to comply with other specified requirements; or (7) 
employed or contracted with any individual or entity that was 
excluded from Medicare or Medicaid participation for the 
provision of health care, utilization review, medical social 
work, or administrative services, or employed or contracted 
with any entity for the provision through such an excluded 
individual or entity.
    The remedies would include civil money penalties of not 
more than $25,000 for each determination of a failure (as 
described above) or with respect to certain failures (such as 
denying enrollment to persons with a preexisting medical 
condition or misrepresenting information furnished to the 
Secretary), of not more than $100,000. In cases of the latter, 
the Secretary could also levy a $15,000 fine for each 
individual not enrolled. In the case of an organization 
determined to have charged excess premiums, the Secretary could 
also recover twice the excess amount (and return the excess 
amount to the affected individual). In addition, the Secretary 
could suspend enrollment of individuals and payment to the 
organization after notifying the organization of an adverse 
determination and until the Secretary was satisfied that the 
failure had been corrected or would not reoccur.
    If, under his or her authority to terminate contracts, the 
Secretary determined that an organization failure had occurred 
other than those described above, other intermediate sanctions 
could be imposed. These include: (1) civil money penalties up 
to $25,000 if the deficiency directly adversely affected (or 
had the likelihood of adversely affecting) an individual under 
the organization's contract; (2) penalties of not more $10,000 
for each week after the Secretary initiated procedures for 
imposing sanctions; and (3) suspension of enrollment until the 
deficiency had been corrected and the Secretary determined was 
unlikely to recur.
    Procedures for Imposing Sanctions. The Secretary could 
terminate a contract or impose the intermediate sanctions 
described above in accordance with formal investigation and 
compliance procedures established by the Secretary which follow 
certain specifications (e.g., the organization is given a 
chance to implement a corrective action plan).
    Use of Interim, Final Regulations. To carry out the 
MedicarePlus contracting responsibilities, the Secretary would 
be authorized to promulgate regulations that take effect on an 
interim basis, after notice and pending opportunity for public 
comment.
            Reason for change
    These provisions are derived mainly from current law, but 
the Committee wants to emphasize that no MedicarePlus product 
can be sold, nor payment be made to a MedicarePlus 
organization, until or unless the organization has entered into 
a contract with the Secretary.
            Effective date
    These provisions are effective upon enactment.

Sec. 15003. Duplication and coordination of Medicare-related products

            Present law
    Many Medicare beneficiaries purchase private health 
insurance to supplement their Medicare coverage. These 
individually purchased policies are commonly known as Medigap 
policies. OBRA 90, P.L. 101-508 provided for a standardization 
of Medigap policies. OBRA 90 also substantially modified the 
antiduplication provision contained in law. The intent of the 
OBRA 90 anti-duplication provision was to prohibit sales of 
duplicative Medigap policies. However, the statutory language 
applied, with very limited exceptions, to all ``health 
insurance policies'' sold to Medicare beneficiaries. Observers 
noted that this provision could thus apply to a broad range of 
policies including hospital indemnity plans, dread disease 
policies, and long-term care insurance policies.
    The Social Security Amendments of 1994 (P.L.103-432) 
included a number of technical modifications to the Medigap 
statute, including modifications to the anti-duplication 
provisions. Under the revised language, it is illegal to sell 
or issue the following policies to Medicare beneficiaries: (i) 
a health insurance policy with knowledge that it duplicates 
Medicare or Medicaid benefits to which a beneficiary is 
otherwise entitled; (ii) a Medigap policy, with knowledge that 
the beneficiary already has a Medigap policy, or (iii) a health 
insurance policy (other than Medigap) with knowledge that it 
duplicates private health benefits to which the beneficiary is 
already entitled. A number of exceptions to these prohibitions 
are established. The sale of a medigap policy is not in 
violation of the provisions relating to duplication of Medicaid 
coverage if: (i) the State Medicaid program pays the premiums 
for the policy; (ii) in the case of qualified Medicare 
beneficiaries (QMBs), the policy includes prescription drug 
coverage; or (iii) the only Medicaid assistance the individual 
is entitled to is payment of Medicare Part B premiums.
    The sale of a health insurance policy (other than a Medigap 
policy) that duplicates private coverage is not prohibited if 
the policy pays benefits directly to the individual without 
regard to other coverage. Further, the sale of a health 
insurance policy (other than a Medigap policy to an individual 
entitled to Medicaid) is not in violation of the prohibition 
relating to selling of a policy duplicating Medicare or 
Medicaid, if the benefits are paid without regard to the 
duplication in coverage. This exception is conditional on the 
prominent disclosure of the extent of the duplication, as part 
of or together with, the application statement.
    P.L.103-432 provided for the development by the NAIC of 
disclosure statements describing the extent of duplication for 
each of the types of private health insurance policies. 
Statements were to be developed, at a minimum, for policies 
paying fixed cash benefits directly to the beneficiary and 
policies limiting benefits to specific diseases. The NAIC 
identified 10 types of health insurance policies requiring 
disclosure statements and developed statements for them. These 
were approved by the Secretary and published in the Federal 
Register on June 12, 1995.
            Explanation of provision
    Duplication and Coordination of Medicare-Related Products. 
The provision would modify the anti-duplication provisions. It 
would be unlawful to sell to a Medicare beneficiary (including 
a person under MedicarePlus) a health insurance policy (other 
than a Medigap policy) with knowledge that it duplicated 
benefits under Medicare or Medicaid. It would be unlawful to 
sell, to persons not electing MedicarePlus, a Medigap policy 
with knowledge that the person is entitled to benefits under 
another Medigap policy. It would be unlawful to sell to a 
person electing MedicarePlus a Medigap policy duplicating 
benefits to which the individual is otherwise eligible under 
Medicare or another Medigap policy. A policy would be 
considered duplicative if the policy provided specific 
reimbursement for identical items and services to the extent 
paid for under Medicare. A policy would be considered to 
coordinate if it provided for payment of benefits without 
regard to other health benefits coverage of the individual. The 
provision would change the disclosure requirements contained in 
P.L.103-432 to require plans to disclose the extent to which 
they may coordinate benefits with Medicare as part of their 
outline of coverage.
    A health insurance policy (or a rider to an insurance 
contract which is not a health insurance policy) that 
coordinates against or excludes items and services covered 
under Medicare, and for policies sold after January 1, 1996, 
discloses such coordination or exclusion in the policy's 
outline of coverage would not be considered duplicative. For 
this purpose, health insurance policies would include policies 
providing benefits for long-term care, nursing home care, home 
health care, or community-based care.
    The provision would prohibit the imposition of criminal or 
civil penalties or the bringing or continuing of legal action 
relating to selling duplicative policies if the penalty or 
action was based on actions occurring after November 1, 1991 
and before enactment of OBRA of 1995 and if the policy was not 
duplicative under the revised language. The provision would 
also prohibit a State from imposing any requirement related to 
the sale or issuance of a policy (or rider) to a Medicare 
beneficiary based on the premise that the policy or rider was 
duplicative. The provision would require the Secretary to 
report within 3 years of enactment on the advisability of 
restricting the sale to Medicare beneficiaries of health 
insurance policies that duplicate other insurance policies the 
individual may have.
    The provision would specifically exclude MedicarePlus 
products from the definition of Medigap policies. It would also 
exempt health insurance products sold to persons electing 
MedicarePlus from requirements relating to sale of standardized 
benefits packages and minimum loss ratios.
    The provision would make it unlawful to sell or issue a 
health insurance policy covering expenses which would otherwise 
be counted toward meeting the annual deductible amount under a 
high deductible/medisave product.
            Reason for change
    The enactment of H.R. 5252, the Social Security Act 
Amendments of 1994 (P.L. 103-432) has created confusion in the 
insurance market regarding the sale of Medigap polices and 
other health insurance policies to individuals on Medicare. 
This has resulted because that law is ambiguous and imposes 
unreasonable requirements that are not necessarily helpful to 
the beneficiaries it is intended to protect.
    First, the statute does not define the term ``duplication'' 
and, as a result the NAIC has declared that all policies are 
duplicative of Medicare without findings of any factual 
duplication. Second, a factual determination cannot be reached 
except on a case by case basis after application of Medicare's 
coverage requirements, exclusions, and other limitations. The 
disclosure statements developed by the NAIC do not help 
beneficiaries by declaring all policies as duplicative.
    With respect to long-term care policies, the NAIC has 
recommended a disclosure statement which declares that long-
term care policies duplicate some Medicare benefits. 
Significant issues are raised with respect to long-term care 
policies that coordinate with Medicare. The Secretary's 
approval and publication of the NAICs disclosure statements in 
the Federal Register on June 12, 1995, has resulted in the 
adoption of a position which is adverse to long-term care 
policies that coordinate with Medicare. The Secretary has 
essentially taken the position that such policies are 
technically illegal as of October 31, 1994. However, the 
Secretary has not issued a written legal explanation or 
promulgated a rule stating its position. The Secretary's 
position on long-term care policies assumes that duplication 
exists and, therefore, policies must pay benefits regardless of 
other coverage.
    Concerns have been expressed to the Committee that the 
current lack of clarity regarding duplication is causing a 
significant chilling effect on the marketing of long-term care 
insurance.
    Coordination of benefits with Medicare of long-term care 
policies is consistent with current public policy. Both State 
and Congressional policy is supportive of long-term care 
policies being coordinated with Medicare. The Robert Wood 
Johnson state Medicaid and private long-term care policy 
partnership program requires coordination with Medicare. 
Importantly, current federal legislative proposals establishing 
standards for long-term care policies specify that long-term 
care policies must provide coordination with Medicare.
    Finally, the developed statements do not meet the intent of 
Congress which has been to allow coordination with long-term 
care policies and provide clear, understandable information to 
Medicare beneficiaries regarding the choice of health insurance 
coverage to meet their personal needs. During Senate 
consideration of H.R. 5252, Senator Dodd and Senator Moynihan 
engaged in a colloquy that clearly stated it was not the intent 
of H.R. 5252 to halt the sale of public private long-term care 
term insurance partnership programs involving policies that 
coordinate with Medicare. In December of 1994, in a letter to 
the NAIC, Senator Packwood and Congressman Archer stated that 
the objectives for duplication statements were for them to be, 
``straight forward, simple, and required only for policies 
where there is unquestionable duplication.''
            Effective date
    The provisions of this section are effective as if they 
were included in the enactment of section 4354 of the Omnibus 
Budget Reconciliation Act of 1990.

Sec. 15004. Transitional rules for current Medicare HMO program

            Present law
    There is no provision for transition rules under current 
law.
            Explanation of provision
    The Secretary would be prohibited from entering into any 
new risk sharing contract under section 1876 with an eligible 
organization for any contract year beginning on or after the 
date MedicarePlus standards are first established with respect 
to MedicarePlus organizations that are insurers or health 
maintenance organizations unless a contract with the 
organization had been in effect under section 1876 for the 
previous contract year. The Secretary could not extend or 
continue any risk-sharing contract for any contract year 
beginning on or after one year after the MedicarePlus standards 
are established.
    The Secretary would also be prohibited from entering into 
any cost reimbursement contract under section 1876 beginning in 
any contract year starting on or after the enactment of this 
legislation. The Secretary could not extend or continue any 
cost reimbursement contract for any contract year beginning on 
or after January 1, 1998.
    For individuals entitled to benefits under both part A and 
part B, payments for risk-sharing contracts for months 
beginning with January 1996 would be computed by substituting 
the payment rates specified in this bill in as timely a manner 
as possible. For individuals entitled to benefits only under 
part B, the substitution would be based upon the proportion of 
those rates that reflects the proportion of payments under 
title XVIII attributable to part B.
    Payments under cost reimbursement contracts under section 
1876(a) would take into account the adjustments to part A and 
part B payments made by this legislation.
    The 50:50 rule under section 1876(f) would not apply to 
contract years beginning on or after January 1, 1996.
            Reason for change
    It is the Committee's view that the 50:50 rule has become 
an unnecessary and outdated proxy for quality in health plans. 
The Committee believes that the various safeguards and 
provisions governing matters ranging from solvency, patient 
protections, quality assurance programs and other contracting 
standards provide the necessary substance that the 50:50 rule 
only attempted to provide indirectly.
            Effective date
    These provisions are effective upon enactment, except that 
the 50:50 rule would not apply to contract years beginning on 
or after January 1, 1996.

    Part 2. Special Rules for MedicarePlus Medical Savings Accounts

Sec. 15011. MedicarePlus MSAs

            Present law
    Under present law, the value of Medicare coverage and 
benefits is not includible in taxable income.
    Individuals who itemize deductions may deduct amounts paid 
during the taxable year (if not reimbursed by insurance or 
otherwise) for medical expenses of the taxpayer and the 
taxpayer's spouse and dependents, to the extent that the total 
of such expenses exceeds 7.5 percent of the taxpayer's adjusted 
gross income. Medical expenses for this purpose include amounts 
paid for medical insurance, including Medicare Part B premiums 
paid by the taxpayer.
    Under present law, there are no specific tax provisions for 
MedicarePlus medical savings accounts (``MedicarePlus MSAs'').
            Explanation of provision
    Under the proposal, individuals who are eligible for 
Medicare would be permitted to choose either the traditional 
Medicare program or a plan with a high deductible insurance 
policy and a MedicarePlus MSA. To the extent an individual 
chooses such a plan, the Secretary of Health and Human Services 
would make a specified contribution directly into a 
MedicarePlus MSA designated by such individual. Only 
contributions by the Secretary of Health and Human Services 
could be made to a MedicarePlus MSA and such contributions 
would not be included in the taxable income of the MedicarePlus 
MSA holder.1 Income earned on amounts held in a 
MedicarePlus MSA would not be currently includible in taxable 
income. Withdrawals from a MedicarePlus MSA would be excludable 
from taxable income if used for the qualified medical expenses 
of the MedicarePlus MSA holder.
    \1\ An individual would not have taxable income merely because the 
individual can choose among various Medicare Plus options and the 
traditional Medicare program.
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    Definition of MedicarePlus MSAs. In general, a MedicarePlus 
MSA would be a tax-exempt trust (or a custodial account) 
created exclusively for the purpose of paying the qualified 
medical expenses of the account holder that meets requirements 
similar to those applicable to individual retirement 
arrangements (``IRAs''). 2 The trustee of a MedicarePlus 
MSA could be a bank, insurance company, or other person that 
demonstrates to the satisfaction of the Secretary of the 
Treasury that the manner in which such person would administer 
the trust would be consistent with applicable requirements.
    \2\ For example, no MedicarePlus MSA assets could be invested in 
life insurance contracts. MedicarePlus MSA assets could not be 
commingled with other property except in a common trust fund or common 
investment fund, and an account holder's interest in a MedicarePlus MSA 
would be nonforfeitable. In addition, if an account holder engages in a 
prohibited transaction with respect to a MedicarePlus MSA or pledges 
assets in a MedicarePlus MSA, rules similar to those for IRAs would 
apply, and any amounts treated as distributed to the account holder 
under such rules would be treated as not used for qualified medical 
expenses.
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    A MedicarePlus MSA trustee would be required to make such 
reports as may be required by the Secretary of the Treasury. A 
$50 penalty would be imposed for each failure to file without 
reasonable cause.
    Taxation of distributions from a MedicarePlus MSA. 
Distributions from a MedicarePlus MSA that are used to pay the 
qualified medical expenses of the account holder would be 
excludable from taxable income regardless of whether the 
account holder is enrolled in a Medisave plan at the time of 
the distribution. 3 Qualified medical expenses generally 
would be defined as under the rules relating to the itemized 
deduction for medical expenses (sec. 213). However, for this 
purpose, qualified medical expenses would not include any 
insurance premiums other than premiums for long-term care 
insurance. 4 Distributions from a MedicarePlus MSA that 
are excludable from gross income under the proposal could not 
be taken into account for purposes of the itemized deduction 
for medical expenses.
    \3\ Under the proposal, medical expenses of the account holder's 
spouse or dependents would not be treated as qualified medical 
expenses.
    \4\ Under the Tax Fairness and Deficit Reduction Act of 1995, as 
passed by the House, long-term care expenses would be treated as 
medical expenses for purposes of section 213. Under present law, the 
treatment of such expenses is unclear.
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    Distributions for purposes other than qualified medical 
expenses would be includible in taxable income. An additional 
tax of 50 percent of the amount includible in taxable income 
would apply to the extent the total distributions for purposes 
other than qualified medical expenses in a taxable year exceed 
the amount by which the value of the MedicarePlus MSA as of 
December 31, of the preceding taxable year exceeds 60 percent 
of the deductible of the plan under which the individual is 
covered. The additional tax would not apply to distributions on 
account of the disability or death of the account holder.
    Direct trustee-to-trustee transfers could be made from one 
MedicarePlus MSA to another MedicarePlus MSA without income 
inclusion.
    The proposal includes a correction mechanism so that if 
contributions for a year are erroneously made by the Secretary 
of Health and Human Services, such erroneous contributions 
could be returned to the Secretary of Health and Human Services 
(along with any attributable earnings) from the MedicarePlus 
MSA without tax consequence to the account holder.
    Treatment of MedicarePlus MSA at death. The proposal 
includes rules that would apply on the death of the 
MedicarePlus MSA owner. If the beneficiary of the MedicarePlus 
MSA is the account holder's surviving spouse and the spouse is 
eligible for Medicare, the spouse could treat the inherited 
MedicarePlus MSA as his or her own MedicarePlus MSA. If the 
spouse is not eligible for Medicare, the spouse could continue 
the MedicarePlus MSA and make withdrawals from the MedicarePlus 
MSA under the rules applicable to a medical savings account for 
individuals not eligible for Medicare under the medical savings 
account provisions of the Revenue Reconciliation Act of 1995 as 
approved by the Committee. Thus, distributions from the account 
for the qualified medical expenses of the spouse or the 
spouse's dependents (or subsequent spouse) would not be 
includible in income. Distributions not for such medical 
expenses would be includible in income, and would be subject to 
a 10-percent excise tax unless the distribution is made after 
the surviving spouse attains age 59, dies, or becomes disabled. 
However, no new contributions could be made to the account and 
earnings would not be currently includible in income.
    If the beneficiary of an inherited MedicarePlus MSA is not 
the account holder's spouse, the MedicarePlus MSA would no 
longer be treated as a MedicarePlus MSA and the value of the 
MedicarePlus MSA on the account holder's date of death would be 
included in the taxable income of the beneficiary for the 
taxable year in which the death occurred. If the account holder 
fails to name a beneficiary, the value of the MedicarePlus MSA 
on the account holder's date of death would be included in the 
taxable income of the account holder's final income tax return. 
In all cases, the value of the MedicarePlus MSA would not be 
included in the account holder's gross estate for estate tax 
purposes.
            Reason for change
    The Committee believes the cornerstone to providing 
America's senior citizens with greater power over their health 
care is to bring private sector ideas and improvements into the 
Medicare system. MedicarePlus MSAs will provide seniors with 
choices other than the traditional Medicare program and give 
them control over their own health care expenses.
            Effective date
    The proposal would be effective with respect to taxable 
years beginning after December 31, 1996.

Sec. 15012. Certain rebates excluded from gross income

            Present law
    Tax Treatment of Rebates. Present law does not provide for 
cash payments to individuals under Medicare.
            Explanation of provision
    Tax Treatment of Rebates. Under the proposal, certain 
individuals would be entitled to cash rebates under the 
MedicarePlus program. These rebates would not be includible in 
income.
            Reason for change
    MedicarePlus is a cornerstone to providing seniors with 
greater control over their health care expenses. MedicarePlus 
gives seniors choices over their health care program, and 
rewards those who choose a lower cost health insurance option.
            Effective date
    The provision would apply to rebates received after the 
date of enactment.

  Part 3. Special Antitrust Rules for Provider Sponsored Organizations

    (This Part is under the jurisdiction of the Committee on 
the Judiciary.)

Sec. 15021. Application of antitrust rule of reason to provider service 
        Networks

            Present law
    Under Federal antitrust law, agreements among competitors 
that fix prices or allocate markets are per se (automatically) 
illegal. Some joint activities, however, if deemed to create an 
entity separate from and in addition to the competitors who 
create them (i.e., true joint ventures), are judged under the 
rule of reason. The Department of Justice and the Federal Trade 
Commission have issued Statements of Enforcement Policy 
Relating to Health Care and Antitrust, which indicate the 
limited circumstances under which they will consider 
``physician network joint ventures'' not violations of Federal 
antitrust law.
            Explanation of provision
    Rule of Reason Standard. This provision states that the 
conduct of a provider service network in negotiating, making, 
or performing a contract (including the establishment and 
modification of a fee schedule and the development of a panel 
of physicians), to the extent such contract is for the purpose 
of providing health care services to individuals under the 
terms of a MedicarePlus PSO product, would not be a per se 
violation of Federal or State antitrust laws. In addition, the 
conduct of any member of such a provider service network for 
the purpose of providing health care services under a 
MedicarePlus contract would not be deemed illegal per se under 
Federal or State antitrust laws. Such conduct shall be judged 
on the basis of its reasonableness, taking into account all 
relevant factors affecting competition in properly defined 
markets.
    Definitions. This section defines ``antitrust laws'' to 
include those set out in the first section of the Clayton Act, 
15 U.S.C. Sec. 12, as well as Sec. 5 of the Federal Trade 
Commission Act, 15 U.S.C. Sec. 45, to the extent that Sec. 5 
applies to unfair methods of competition. MedicarePlus is 
defined elsewhere under these provisions. ``Health care 
provider'' is defined as any individual or entity engaged in 
the delivery of health care services that must be licensed or 
certified by State law or regulation to deliver such services. 
``Health care service'' is defined as any service for which 
payment may be made under a MedicarePlus PSO product, including 
services related to the delivery or administration of such 
service. ``MedicarePlus PSO Product'' is defined as a 
MedicarePlus product offered by a provider-sponsored 
organization under Part C of title XVIII of the Social Security 
Act. ``Provider services network'' is defined as an 
organization that meets the following requirements: It is 
organized by, operated by, and composed of members who are 
health care providers and for purposes that include health care 
services. It is funded in part by capital contributions made by 
the members of such organization.
     With respect to each contract made by such organization 
for the purpose of providing a type of health care service to 
individuals under the terms of a MedicarePlus PSO product, the 
organization requires all members of the organization to agree 
to provide health care services of such type under such 
contract, receives the compensation paid for the provision of 
such health care services, and provides for the distribution of 
such compensation. It has established, consistent with the 
requirements of the MedicarePlus program for provider-sponsored 
organizations, programs based on written guidelines to review 
the quality, efficiency, and appropriateness of treatment 
methods and health care services. It coordinates the delivery 
of health care services by all health care providers to all 
patients participating in the health care plan so as to enhance 
the quality of health care services provided and, it has 
established a grievance and appeal process to review and 
promptly resolve patient or beneficiary grievances or 
complaints. ``State'' is defined as the States, the District of 
Columbia, the Commonwealth of Puerto Rico, and any other 
territory or possession of the United States.
    Issuance of Guidelines. This provision requires the 
Attorney General and the Federal Trade Commission, within 120 
days after enactment of this bill, to issue joint guidelines 
specifying the enforcement policies and analytical principles 
they will apply with respect to the operation of the rule of 
reason standard.
            Reason for change
    The provisions is under the jurisdiction of the House 
Judiciary Committee.
            Effective date
    The provision is effective upon enactment.

                          Part 4. Commissions

Sec. 15031. Medicare Payment Review Commission.

            Present law
    The Prospective Payment Assessment Commission (PROPAC) was 
established by Congress through the Social Security Act 
Amendments of 1983 (P.L. 98-21). The Commission is charged with 
reporting each year its recommendation of an update factor for 
PPS payment rates and for other changes in reimbursement 
policy. It is also required each year to submit a report to 
Congress which provides background information on trends in 
health care delivery and financing. The Physician Payment 
Review Commission (PPRC) was established by the Congress 
through the Consolidated Omnibus Budget Reconciliation Act of 
1985 (P.L. 99-272). It was charged with advising and making 
recommendations to the Congress on methods to reform payment to 
physicians under the Medicare program. In subsequent laws, 
Congress mandated additional responsibilities relating to the 
Medicare and Medicaid programs as well as the health care 
system more generally. Both Commissions are appointed by the 
Director of the Office of Technology Assessment and are funded 
through appropriations from the Medicare trust funds.
            Explanation of provision
    The provision would establish the Medicare Payment Review 
Commission (hereafter referred to as ``the Commission'') to 
review and make recommendations to Congress concerning payment 
policies under this title. The Commission would be required to 
submit a report to Congress by June 1 of each year containing 
an examination of issues affecting the Medicare program, 
including implications of changes in health care delivery and 
in the market for health care services on the Medicare program. 
The Commission would be authorized to submit from time to time 
other reports as it deemed appropriate. The Secretary would be 
required to respond to recommendations of the Commission in 
notices of rulemaking proceedings.
    The Commission would be charged with the following specific 
responsibilities, including reviewing: (1) the appropriateness 
of the methodology for making payments to the health plans; (2) 
the appropriateness of the risk adjustment mechanisms and the 
need to adjust such mechanisms to take into account health 
status; (3) implications of risk selection; (4) the development 
and implementation of quality assurance mechanisms with respect 
to MedicarePlus organizations; and (5) the impact of the 
MedicarePlus program on beneficiary access to care.
    The Commission would also be required to review specific 
aspects of the failsafe budget mechanism established under the 
bill, including: (1) the appropriateness of the expenditure 
projections by the Secretary and growth factors for each 
Medicare sector; (2) the appropriateness of the mechanism for 
implementing reductions in payment amounts for different 
sectors; (3) the impact of the failsafe mechanism on provider 
participation; and (4) the appropriateness of the Medicare 
benefit budget, especially for fiscal years after 2002.
    In addition, the Commission would be required to review 
payments policies under Medicare parts A and B (fee-for-
service), including: (1) factors affecting expenditures in 
different sectors; (2) payment methodologies; and (3) the 
impact of payment policies on access and quality of care. It 
would also look at the effect of Medicare payment policies on 
the delivery of Medicare services and assess the implications 
of changes in the health services market on Medicare.
    The Commission would be composed of 15 members appointed by 
the Comptroller General, with the first appointments being made 
by March 31, 1996. These members would have to meet specific 
qualifications, (such as national recognition for their 
expertise in health finance), including representatives of 
consumers and the elderly. Consideration in the initial 
appointment would be given to individuals who were already 
serving on the PPRC or the PROPAC. Commissioners would serve 
for 3-year terms. The bill provides for a mechanism for filling 
vacancies, compensating commissioners, appointing a chair and 
vice chair; convening meetings; and providing for staff, 
experts, and consultants. The Commission would be authorized to 
secure directly from any department or agency information to 
carry out these provisions. It would be required to collect and 
assess information (which would be available on an unrestricted 
basis to GAO). The Commission would be subject to periodic 
audit by GAO.
    The provision authorizes such sums as may be necessary to 
be appropriated from the Medicare trust funds (60 percent part 
A and 40 percent from part B). The Comptroller General would be 
required to provide for appointment of members to the 
Commission by March 31, 1996. The PROPAC and PPRC would be 
abolished within 30 days after a majority of the Medicare 
Payment Review Commission were appointed. To the extent 
possible, the Comptroller General would be required to provide 
for the transfer from the former to the new commission assets 
and staff without any loss of benefits or seniority by virtue 
of such transfers. The Commission would be responsible for the 
preparation and submission of reports required by law to be 
submitted (and which had not been submitted by the time it was 
established) by the former commissions.
            Reason for change
    Both the PROPAC, which is responsible for hospital and 
health facilities payment policy, and the PPRC, which is 
responsible for physician payment policy and other Part B 
issues, have assumed critically important roles in assisting 
Congress with oversight and policy making for the Medicare 
program. However, with fee-for-service payment policy becoming 
relatively mature after years of refinement, Congress will 
require guidance in the future primarily in the areas of 
MedicarePlus and the new failsafe budget mechanism. These two 
areas will require evaluation and oversight best suited for a 
single commission which can view the Medicare program in terms 
of an integrated totality between Parts A and B.
            Effective date
    The provision is effective upon enactment.

Sec. 15032. Commission on the effect of the baby boom generation on the 
        Medicare Program

            Present law
    No provision.
            Explanation of provision
    The provision would establish a commission to be known as 
the Commission on the Effect of the Baby Boom Generation on the 
Medicare Program, hereafter referred to as ``the Commission.'' 
It would be required to: (1) examine the financial impact on 
the Medicare program of the significant increase in the number 
of Medicare eligible individuals which will occur approximately 
during 2010 and lasting for approximately 25 years, and (2) 
make specific recommendations to Congress with respect to a 
comprehensive approach to preserve the Medicare program for the 
period during which such individuals are eligible for Medicare. 
In making its recommendations, the Commission would be required 
to consider: (1) the amount and sources of Federal funds to 
finance Medicare, including innovative financing methods; (2) 
the most efficient and effective manner of administering the 
program, including the appropriateness of continuing the 
failsafe mechanism after 2002; (3) methods used by other 
nations to respond to comparable demographics; (4) modifying 
age-based eligibility to correspond to that under the OASDI 
program; and (5) trends in employment-related health care for 
retirees, including the use of medical savings accounts and 
similar financing devices.
    The Commission would be composed of 15 members, 3 appointed 
by the President, 6 by the Majority Leader of the Senate in 
consultation with the Minority Leader, of whom no more than 4 
are of the same party; and 6 by the Speaker of the House, after 
consultation with the Minority Leader, of whom no more than 4 
are in the same party. The provision spells out the appointment 
of a chair and vice chair, appointment of staff and 
consultants, compensation, the procedure for filling vacancies, 
and requirements relating to meetings and quorums. Upon request 
of the Commission, the Comptroller General would be required to 
conduct such studies or investigations as the Commission 
determined were needed to carry out its duties. The Director of 
CBO would be required to provide the commission with cost 
estimates, for which CBO would be compensated. The Commission 
would be authorized to detail to it employees of Federal 
agencies, and to obtain technical assistance and information 
from Federal agencies.
    The Commission would be required to submit to Congress a 
report, no later than May 1, 1997, containing its findings and 
recommendations regarding how to protect and preserve the 
Medicare program in a financially solvent manner until 2030 
(or, if later, throughout a period of projected solvency of the 
Federal Old-Age and Survivors Insurance Trust Fund). The report 
would be required to include detailed recommendations for 
appropriate legislative initiatives respecting how to 
accomplish this objective. The Commission would terminate 60 
days after the date of submission of the mandated report. An 
amount of $1.5 million would be authorized to be appropriated.
            Reason for change
    H.R. 2425 brings Medicare into fiscal balance through the 
first decade of the next century, and provides more choices for 
Medicare beneficiaries through MedicarePlus. These changes 
strengthen the Medicare program and prepare it for its next 
great challenge, the retirement of the baby-boom generation. 
The significant demographic shift occurring with the retirement 
of that generation will require further Congressional action to 
preserve Medicare for the long-term.
            Effective date
    The provision is effective upon enactment.

Sec. 15033. Change in appointment of administrator of HCFA

            Present law
    The Administrator of HCFA is appointed by the President 
with the advise and consent of the Senate.
            Explanation of provision
    Under the bill, the Administrator of HCFA would be 
appointed by the Secretary of Health and Human Services. The 
amendment would become effective on the date of enactment and 
would apply to Administrators appointed on or after the date of 
enactment.
            Reason for change
    The Committee believes that with the emphasis on the 
MedicarePlus program, the person responsible for the 
MedicarePlus program should be of equal standing with the 
Administrator of HCFA. Additionally, the Committee believes 
that it would be inappropriate to add another Presidential 
appointee to the Department of Health and Human Services.
            Effective date
    The provision is effective upon enactment.

part 5. treatment of hospitals which participate in provider-sponsored 
                             organizations

Sec. 15041. Treatment of Hospitals Which Participate in Provider-
        Sponsored Organizations.

            Present law
    No provision.
            Explanation of provision
    The amendment would provide that an organization shall not 
fail to be treated as organized and operated exclusively for a 
charitable purpose for purposes of Internal Revenue Code (IRC) 
section 501(c)(3) solely because a hospital which is owned and 
operated by such organization participates in a PSO (as defined 
in section 1845(a)(1) of the Social Security Act), whether or 
not such PSO is exempt from tax. Thus participation by a 
hospital in a PSO would be deemed to be an activity in 
furtherance of a charitable purpose (assuming the hospital 
itself qualifies for tax-exempt status under the present-law 
community benefit standard).
    The amendment also would provide that any person with a 
material financial interest in such PSO shall be treated as a 
private shareholder or individual with respect to the hospital 
for purposes of applying the private inurement prohibition in 
IRC section 501(c)(3). Accordingly, the facts and circumstances 
of each PSO arrangement would be evaluated to determine whether 
the arrangement entails impermissible private inurement or more 
than incidental private benefit (e.g., where there is a 
disproportionate allocation of profits and losses to the non-
exempt partners, the tax-exempt partner makes loans to the 
joint venture that are commercially unreasonable, the tax-
exempt partner provides property or services to the joint 
venture at less than market value, or a non-exempt partner 
receives more than reasonable compensation for the sale of 
property or services to the joint venture).
    The amendment would not change present-law restrictions on 
lobbying and political activities. In addition, the 
restrictions of IRC section 501(m) on the provision of 
commercial-type insurance would continue to apply.
            Reason for change
    The Committee believes non-profit hospitals should be 
permitted to participate in joint venture arrangements or other 
arrangements that qualify as PSOs, provided that there is no 
private inurement of non-profit hospital assets.
            Effective date
    The provision would be effective upon enactment.

                 Subtitle B--Preventing Fraud and Abuse

Sec. 15101. Increasing Awareness of Fraud and Abuse

            Present law
    No provision.
            Explanation of provision
    This provision would require the Secretary to make ongoing 
efforts to alert individuals entitled to Medicare benefits of 
the existence of fraud and abuse committed against the program, 
of the costs of such fraud and abuse, and of a toll-free 
telephone line operated by the Secretary to receive information 
about such fraud and abuse.
    The Secretary would be required to provide an explanation 
of Medicare benefits with respect to each item or service for 
which payment may be made, without regard to whether a 
deductible or coinsurance may be imposed with respect to the 
item or service.
    Any person may, at any time, request the Secretary to 
publish a ``special fraud alert,'' which is defined as a notice 
that informs the public of practices the Secretary considers to 
be suspect or of particular concern under the Medicare program 
or a State health care program. Upon receipt of a request for a 
special fraud alert, the Secretary would be required to 
investigate to determine whether to issue a special fraud 
alert. If he determines issuance of a special fraud alert 
appropriate, he would be required, in consultation with the 
Attorney General, to publish a special fraud alert in the 
Federal Register. In determining whether to issue a special 
fraud alert, the Secretary could consider whether and to what 
extent the practices in question may result in the consequences 
described in section 15214(b) relating to the criteria used to 
modify and establish safe harbors, and the extent and frequency 
of the conduct in question. Each notice issued by the HCFA that 
informs the public of practices the Secretary considers to be 
suspect or of particular concern under the Medicare program or 
a State health care program would be required to be published 
in the Federal Register, without regard to whether it was 
issued by a regional office of HCFA.
            Reason for change
    Medicare beneficiaries are frequently in the best position 
to identify fraud and abuse committed against the Medicare 
program and commonly, fraud and abuse investigations result 
from beneficiaries reporting problems regarding claims. 
Nevertheless, beneficiaries are not always notified when 
Medicare pays for services on their behalf.
            Effective date
    The provision would be effective upon enactment.

Sec. 15102. Beneficiary incentive programs

            Present law
    No provision.
            Explanation of provision
    This provision would require the Secretary, within three 
months after enactment of this bill, to establish a program to 
encourage individuals to report to the Secretary information on 
individuals and entities who are engaging or who have engaged 
in acts or omissions that constitute grounds for sanctions 
under sections 1128, 1128A, or 1128B of the Social Security 
Act, or who have otherwise engaged in fraud and abuse against 
the Medicare program. If an individual reports information to 
the Secretary under this program that serves as a basis for the 
collection by the Secretary or the Attorney General of any 
amount of at least $100 (other amount collected to the 
individual, under procedures similar to those applicable under 
section 7623 of the Internal Revenue Code of 1986.
    The Secretary would be required, within three months after 
enactment of this bill, to establish a program to encourage 
individuals to submit to the Secretary suggestions on methods 
to improve the efficiency of the Medicare program. If the 
Secretary adopts such a suggestion and savings to the program 
result, the Secretary could make a payment to the individual of 
an amount the Secretary considers appropriate.
            Reason for change
    Medicare beneficiaries are typically in the best position 
to identify potentially fraudulent or abusive practices or 
excessive charging. Moreover, the Medicare beneficiaries and 
the medical providers and suppliers who serve them are often in 
the best position to identify opportunities to improve the 
efficiency of the Medicare program and reduce fraud and abuse.
            Effective date
    The provision would be effective upon enactment.

Sec. 15103. Intermediate sanctions for MedicarePlus plans

            Present law
    A contract between the Secretary and a Medicare HMO is 
generally for a one year term, with an option for automatic 
renewal. However, the Secretary may terminate any such contract 
at any time, after reasonable notice and an opportunity for a 
hearing, if the Medicare HMO has failed substantially to carry 
out the contract, or is carrying out the contract in a manner 
inconsistent with the efficient and effective administration of 
the requirements of section 1876 of the Social Security Act, or 
if the Medicare HMO no longer substantially meets the statutory 
requirements contained in Section 1876(b),(c),(e) and (f).
            Explanation of provision
    This provision would add one more ground for termination of 
a Medicare HMO contract by the Secretary, specifying that the 
Secretary may terminate such a contract if the organization is 
operating in a manner that is not in the best interests of the 
individuals covered under the contract. In addition, the 
Secretary would have the discretion to either terminate the 
contract or to impose certain intermediate sanctions on the 
eligible organization. The sanctions available to the Secretary 
under section 1876(I)(6)(B) include civil money penalties up to 
$25,000 for each determination of non-compliance, with an 
assessment of up to $100,000 if the basis for non-compliance 
was that the eligible organization engaged in a practice which 
denied or discouraged enrollment by eligible individuals with a 
need for substantial future medical services, or if the 
eligible organization falsified information given to the 
Secretary under this section; suspension by the Secretary of 
enrollment of individuals, until the Secretary is satisfied 
that the basis for the determination has been corrected and is 
not likely to recur; or suspension of payment to the 
organization for individuals enrolled after the date of a 
determination of non-compliance, until the Secretary is 
satisfied that the basis for the determination has been 
corrected and is not likely to recur.
    If the basis for the determination by the Secretary that an 
intermediate sanction should be imposed on an eligible 
organization is other than that the organization has failed 
substantially to carry out its contract with the Secretary, 
then the Secretary may apply intermediate sanctions as follows: 
civil money penalties of not more than $25,000 for each 
determination if the deficiency that is the basis of the 
determination has directly adversely affected (or has the 
substantial likelihood of adversely affecting) an individual 
covered under the organization's contract; civil money 
penalties of not more than $10,000 for each week of a 
continuing violation; and suspension of enrollment of 
individuals until the Secretary is satisfied that the 
deficiency has been corrected and is not likely to recur.
    Whenever the Secretary seeks to either terminate a Medicare 
HMO contract or impose intermediate sanctions on such an 
organization, the Secretary must do so pursuant to a formal 
investigation and under compliance procedures which provide the 
organization with an opportunity to develop and implement a 
corrective action plan to correct the deficiencies that were 
the basis of the Secretary's adverse determination. The 
Secretary would impose more severe sanctions on organizations 
that have a history of deficiencies or that have not corrected 
deficiencies brought to their attention. The Secretary's 
compliance procedures must also include reasonable notice and 
opportunity for a hearing (including the right to appeal an 
initial decision) before the Secretary imposes any sanction or 
terminates the contract of a Medicare HMO, and there must not 
be any unreasonable or unnecessary delay between the finding of 
a deficiency and the imposition of sanctions.
    Effective Date. The amendments made by this section would 
apply to contract years of eligible organizations beginning on 
or after January 1, 1996.
            Reason for change
    The Secretary currently lacks sufficient authority to 
effectively oversee the Medicare HMO provisions. This section 
provides the Secretary with the discretion she needs to 
terminate the contract with a Medicare Plus organization or 
apply intermediate sanctions if the organization is operating 
in a manner that is not in the best interests of the 
beneficiaries covered under the contract. Under current law, 
the Secretary may only impose intermediate sanctions against a 
Medicare risk-contract HMO for a specified list of contract 
violations.
            Effective date
    The provision would be effective upon enactment.

Sec. 15104. Voluntary disclosure program

            Present law
    Current law does not provide for a program permitting the 
Secretary to mitigate penalties for parties who voluntarily 
disclose acts or omissions under Section 1128, 1128A, or 1128B. 
Section 1128 directs the Secretary to impose mandatory 
exclusions from the Medicare program and State health care 
programs 5 for convictions of criminal offenses related to 
the delivery of an item or service under Medicare or State 
health care programs, as well as for convictions relating to 
patient abuse in connection with the delivery of a health care 
item or service. The Secretary has permissive exclusion 
authority for a number of criminal offenses relating to health 
care-related fraud, theft, embezzlement, financial misconduct, 
kickbacks, misuse of controlled substances, and activities 
relating to license revocations or suspensions, claims for 
excessive charges or unnecessary services, and the like. 
Section 1128A prescribes civil money penalties for a number of 
illegal activities relating to the submission of claims for 
reimbursement under the Medicare and Medicaid programs. 
Violations which are subject to civil money penalties include 
submitting claims for items or services not provided or which 
were false or fraudulent, providing services when not a 
properly licensed physician, and providing items or services by 
an excluded practitioner. Civil money penalties may also be 
imposed on a hospital which knowingly makes a payment to a 
physician, or a physician who knowingly accepts payment from a 
hospital, as inducement to limit or reduce care to a Medicare 
or Medicaid patient. Section 1128B sets forth criminal 
penalties under Medicare and State health care programs for 
offenses such as false statements in benefit applications or in 
determining rights under such benefits, concealing information 
relating to benefits, submitting claims from non-licensed 
physicians, and soliciting and receiving kickbacks for 
referrals or soliciting or receiving remuneration for admitting 
a Medicaid patient.
    \5\ ``State health care programs'' are defined as the Medicaid 
program and programs receiving funds under the Maternal and Child 
Health Service Block Grant, or the Social Services Block Grant. This 
definition applies to sections 1128, 1128A and 1128B.
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            Explanation of provision
    Under this section a new provision would be added to Title 
XI of the Social Security Act directing the Secretary of Health 
and Human Services to establish a program encouraging 
individuals and entities to voluntarily disclose to the 
Secretary information on acts or omissions which constitute 
grounds for the imposition of a sanction under Section 1128, 
1128A, or 1128B of the Social Security Act.
    Under this program the Secretary would have the authority 
to mitigate any applicable sanction which the Secretary might 
otherwise have imposed under Section 1128, 1128A or 1128B. The 
Secretary would not be required to reduce or mitigate 
applicable sanctions, but may do so, following a voluntary 
disclosure. This section would specify that no qui tam lawsuit 
could be brought under the False Claims Amendments Act of 1986, 
by private parties against the individual or entity with 
respect to a voluntarily disclosed act or omission under 
sections 1128, 1128A or 1128B.
            Reason for change
    A voluntary disclosure program has been used effectively by 
the Department of Defense, and development of a voluntary 
disclosure program for Medicare has been recommended and is 
supported by the Office of the Inspector General in the DHHS.
            Effective date
    The provision would be effective upon enactment.

Sec. 15105. Revisions to current sanctions

            Present law
    Civil money penalties may be imposed under section 1128A 
for false or fraudulent claims for reimbursement under the 
Medicare and Medicaid programs. In addition, twice the amount 
claimed may be assessed against the fraudulent party for false 
or fraudulent claims.
    Section 1128B provides that whoever knowingly and willfully 
makes a false statement or representation in connection with 
the furnishing of items or services for which payment is or may 
be made by Medicare shall, upon conviction of a program related 
felony, be fined not more than $25,000 or imprisoned for not 
more than five years, or both. Section 1128(b) authorizes the 
Secretary to impose permissive exclusions of individuals and 
entities from Medicare program, Medicaid program and programs 
receiving funds under the Maternal and Child Health Block 
Grant, or the Social Services Block Grant. Permissive 
exclusions are authorized for a number of offenses relating to 
fraud, kickbacks, obstruction of an investigation, and misuse 
of controlled substances, and activities relating to license 
revocations or suspensions, claims for excessive charges or 
unnecessary services, and the like. There are currently no 
minimum exclusion periods specified for most of the prohibited 
activities under this subsection. There is, however, a minimum 
period of exclusion of not less than five years for mandatory 
exclusions imposed by the Secretary under section 1128(a).
            Explanation of provision
    This section would provide that civil monetary penalties 
under Section 1128A be doubled for violations occurring after 
the date of enactment of this Act.
    This section would also establish a minimum period of 
exclusion of three years for permissive exclusions of 
individuals or entities convicted, under Federal or State law, 
of health care criminal offenses relating to fraud, theft, 
embezzlement, breach of fiduciary responsibility or other 
financial misconduct, as well as for convictions relating to 
obstruction of an investigation, or of a criminal offense 
involving misuse of controlled substances. The Secretary may 
determine that a shorter period than three years is appropriate 
in cases of mitigating circumstances, or that a longer period 
is appropriate because of aggravating circumstances.
    Permissive exclusions in cases relating to license 
revocations or suspensions for reasons bearing on an 
individual's or entity's professional competence or financial 
integrity, and permissive exclusions following the suspension, 
exclusion or sanction of an individual or entity from any 
Federal or State health care program for reasons bearing on 
professional competence or financial integrity, shall be not 
less than the period during which the individual's or entity's 
license to provide health care has been revoked or suspended, 
or the individual or entity has been excluded or suspended from 
a Federal or State health care program.
    In cases where the Secretary has permissive authority to 
exclude an individual or entity from Medicare or State health 
care programs due to submission of claims for excessive charges 
or for medically unnecessary services, the period of exclusion 
shall be not less than one year.
            Reason for change
    The Committee felt that greater deterrence was needed 
against fraud and abuse in the Medicare program.
            Effective date
    The amendments made by this section would apply to acts or 
omissions occurring on or after January 1, 1996.

Sec. 15106. Consolidated funding for anti-fraud and abuse activities 
        under Medicare integrity program

            Present law
    Currently Medicare's program integrity functions are 
subsumed under Medicare's general administrative budget. These 
functions are performed, along with general claims processing 
functions, by insurance companies under contract with the 
Health Care Financing Administration.
            Explanation of provision
    This provision establishes a Medicare Integrity Program 
under which the Secretary would promote the integrity of the 
Medicare program by entering into contracts with eligible 
private entities to carry out certain activities. These 
activities would include the following: (1) review of 
activities of providers of services or other individuals and 
entities furnishing items and services for which payment may be 
made under the Medicare program, including medical and 
utilization review and fraud review, (2) audit of cost reports, 
(3) determinations as to whether payment should not be, or 
should not have been, made by reason of the Medicare as 
secondary payor provisions, and recovery of payments that 
should not have been made, and (4) education of providers of 
services, beneficiaries, and other persons with respect to 
payment integrity and benefit quality assurance issues.
    Eligibility of Entities. There are four eligibility 
requirements for an entity to enter into a contract to carry 
out any of the activities described in subsection (b). They are 
the following: (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, and other law enforcement agencies, in the 
investigation and deterrence of Medicare fraud and abuse; (3) 
the entity's financial holdings, interests, or relationships 
will not interfere with its ability to perform the functions 
required by the contract in an effective and impartial manner; 
and (4) the entity meets such other requirements as the 
Secretary may impose.
    Process for Entering into Contracts. The Secretary is 
authorized to establish, by regulation, procedures for entering 
into contracts; such procedures would be required to include at 
least the following three components: (1) the Secretary would 
be required to determine the appropriate number of separate 
contracts necessary to carry out the Program and the 
appropriate times at which the Secretary shall enter into such 
contracts; (2) the provisions of section 1153(e)(1), regarding 
the authority of the Secretary to contract, would apply to 
contract and contracting authority under this section, except 
that competitive procedures would have to be used when entering 
into new contracts or at any other time the Secretary considers 
appropriate; and (3) a contract could be renewed without regard 
to any provision of law requiring competition if the contractor 
has met or exceeded the performance requirements established in 
the current contract.
    Limitation on Contractor Liability. The Secretary is 
required to provide, by regulation, for the limitation of a 
contractor's liability under the Program. The Secretary would 
employ, to the extent he finds appropriate, the same or 
comparable standards and other substantive and procedural 
provisions as are contained in section 1157.
    Transfer of Amounts to Medicare Anti-Fraud and Abuse Trust 
Fund. The Secretary is required to transfer, for each fiscal 
year, from the Federal Hospital Insurance Trust Fund and the 
Federal Supplementary Medical Insurance Trust Fund, to the 
Medicare Anti-Fraud and Abuse Trust Fund under subsection (g), 
amounts necessary to carry out the activities of subsection 
(b). The allocation shall reasonably reflect the proportion of 
expenditures from part A and part B.
    Medicare Anti-Fraud and Abuse Trust Fund. There is 
established in the Treasury of the United States the Anti-Fraud 
and Abuse Trust Fund, which would consist of gifts and bequests 
as may be made unconditionally to the Trust Fund and such 
amounts as may be deposited in the Trust Fund as provided in 
subsection (f), paragraph (3) of this subsection, and title XI.
    The Secretary of the Treasury would be required to invest 
such amounts of the Fund as he determines are not required to 
meet current withdrawals from the Fund in government account 
serial securities. Any interest derived from investments would 
be credited to the Fund.
    The following moneys would be required to be deposited in 
the Trust Fund: that portion of amounts recovered in relation 
to section 1128A arising out of Medicare claims as remains 
after application of subsection (f)(2) relating to repayment of 
the Federal Hospital Insurance Trust Fund and the Federal 
Supplementary Medical Insurance Trust Fund; fines imposed under 
section 1128B arising out of a claim under this title; and, 
penalties and damages (other than those funds awarded to a 
relator or for restitution under the False Claims Act) in cases 
involving claims relating to programs under Medicare or 
Medicaid.
    There would be appropriated from the Trust Fund for each 
fiscal year such amounts as are necessary to carry out the 
Medicare Integrity Program, subject to the appropriation amount 
limits specified in the section for fiscal years 1996 through 
2002.
    The Secretary would be required to submit an annual report 
to Congress on the amount of revenue generated and disbursed by 
the Trust in each fiscal year.
    Elimination of FI and Carrier Responsibility for Carrying 
Out Activities Subject to Program. This provision prohibits any 
agency, organization, or carrier, from carrying out (or 
receiving payment for carrying out) any activity pursuant to an 
agreement under this section to the extent that the activity is 
carried out pursuant to a contract under the Medical Integrity 
Program.
    Direct Spending for Medicare-Related Activities of the 
Inspector General. This provision appropriates from the Federal 
Hospital Insurance Trust Fund and the Federal Supplementary 
Medical Insurance Trust Fund such amounts as are necessary to 
carry out Medicare-related activities, subject to the 
appropriation amount limits specified in the section for fiscal 
years 1996 through 1998 and subsequent years. The Medicare-
related activities described in this section are: (1) 
prosecuting Medicare-related matters through criminal, civil, 
and administrative proceedings; (2) conducting investigations 
relating to the Medicare program; (3) performing financial and 
performance audits of programs and operations relating to the 
Medicare program; (4) performing inspections and other 
evaluations relating to the Medicare program; and (5) 
conducting provider and consumer education activities regarding 
Medicare fraud and abuse.
            Reason for change
    Currently, funding for health care fraud and abuse 
prevention, detection, and enforcement actions are considered 
discretionary spending, and thus subject to limits. Despite 
evidence of substantial net savings to the government by 
investing more in these activities, spending has not kept pace 
with the growth in program expenditures. As a result, today 
Medicare spends over 30 percent less per claim on fraud and 
abuse activities than it spent in 1989--despite strong evidence 
that fraud and abuse problems are on the rise. These provisions 
provide a mandatory funding stream to modernize Medicare's 
fraud and abuse detection and prevention capabilities and give 
Medicare greater flexibility to contract with companies having 
demonstrated expertise in the area of claims review and fraud 
and abuse detection and prevention. Similarly, the DHHS Office 
of Inspector General has had significant decreases in its 
budget for investigating Medicare-related fraud and abuse. 
Under current law its funding for these activities is likewise 
considered discretionary and subject to limits regardless of 
the potential net savings to Medicare.
            Effective date
    The provision would be effective upon enactment.

Sec. 15107. Permitting carriers to carry out prior authorization for 
        certain items of durable medical equipment (DME)

            Present law
    The Secretary is authorized to develop and periodically 
update a list of DME items that are subject to unnecessary 
utilization throughout a carrier's entire service area or a 
portion of such area. The Secretary may also develop and update 
a list of DME suppliers with a substantial number of denied 
claims or a pattern of over utilization resulting from the 
business practices of suppliers. Carriers are required to make 
advance coverage determinations for items on the lists 
developed by the Secretary.
            Explanation of provision
    Carriers would be authorized to develop the same lists of 
DME items and suppliers that the Secretary is authorized to 
develop. Carriers would also be authorized to make advance 
coverage determinations, regardless of whether or not the 
Secretary has promulgated a regulation for the list, except for 
items and suppliers on the lists that a carrier could not make 
advance determinations until the expiration of the 30-day 
period beginning on the date the Secretary or carrier places 
the item on the list.
            Reason for change
    Schemes to defraud the Medicare program in the area of 
durable medical equipment and supply items have been 
particularly problematic to Medicare over the past decade. 
Medicare contractors do not have sufficient flexibility to 
require prior authorization for individual medical supply or 
equipment items that are being billed to the program 
excessively, or for individual suppliers that are submitting 
unwarranted claims.
            Effective date
    The provision would be effective upon enactment.

Sec. 15108. Establishment of health care anti-fraud task force

    (This section is under the jurisdiction of the Committee on 
the Judiciary.)
            Present law
    No provision.
            Explanation of provision
    Within 120 days of enactment the Attorney General would be 
required to establish, within the Department of Justice, a 
nationwide ``Health Care Anti-Fraud Task Force'' to prosecute 
health care fraud offenses. This Task Force would be set up in 
consultation with the Secretary of Health and Human Services, 
the Secretary of the Treasury, the Secretary of Veterans' 
Affairs, and the Chair of the Board of Governors of the United 
States Postal Service. There would be at least one fully 
staffed operational segment of the Task Force in each judicial 
district of the United States, with at least one Federal 
representative from each entity engaged on a full-time basis in 
the activities of the Task Force. The Task Force would maintain 
separate accounting of its finances, personnel, case load, and 
resolution of claims and actions.
            Reason for change
    There is concern over a lack of coordination between the 
federal and state law enforcement efforts to combat health care 
fraud and abuse. The task force approach has been used 
successfully in other areas of law enforcement.
            Effective date
    The provision would be effective upon enactment.

Sec. 15109. Study of adequacy of private quality assurance programs

            Present law
    No provision.
            Explanation of provision
    The Administrator of HCFA, through the Office of Research, 
would be required to contract for a study of the adequacy of 
quality assurance programs and consumer protections used by 
plans enrolling Medicare beneficiaries under part C of title 
XVIII of the Social Security Act, including an analysis of the 
effectiveness of such programs in protecting plan enrollees 
against the risk of insufficient provision of benefits which 
may result from utilization controls. A report would be 
submitted to Congress on the study not later than 6 months 
after the conclusion of the 5-year period for the study.
            Reason for change
    With the growing participation of Medicare beneficiaries in 
HMOs and other types of coordinated care, additional vigilance 
is necessary concerning the potential for the under-provision 
of medically necessary services.
            Effective date
    The provision would be effective upon enactment.

Sec. 15110. Penalty for False Certification for Home Health Services

            Present law
    No provision.
            Explanation of provision
    This provision would add an additional civil monetary 
penalty of not more than three times the amount of the 
payments, or $5,000, whichever is greater, for a physician who 
certifies that an individual meets all of Medicare's 
requirements to receive home health care while knowing that the 
individual does not meet all such requirements.
            Reason for change
    Expert testimony has indicated that physicians sometimes do 
not adequately review statements certifying patients' 
eligibility for home health care.
            Effective date
    The provision would be effective upon enactment.

                     Subtitle C--Regulatory Relief

            part 1. physician ownership and referral reform

Sec. 15201. Repeal of prohibitions based on compensation arrangements

            Present law
    The law establishes a ban on certain financial arrangements 
between a referring physician and an entity. Specifically, if a 
physician (or immediate family member) has an ownership or 
investment interest in or a compensation arrangement with an 
entity, the physician is prohibited from making a referral to 
the entity for services for which Medicare would otherwise pay. 
Further, the entity may not bill for such services. For 
purposes of the ban, an ownership or investment interest may be 
through equity or debt or other means and includes an interest 
in an entity that holds an ownership or investment interest in 
any entity providing designated health services. A compensation 
arrangement is generally defined as any arrangement involving 
any remuneration between a physician (or immediate family 
member) and an entity.
    The law includes general exceptions to the ban. Some are 
general exceptions to both the ownership and compensation 
arrangement prohibitions, while others relate only to ownership 
or only to compensation arrangements.
            Explanation of provision
    The provision would repeal the prohibitions based on 
compensation arrangements.
            Reason for change
    Current law places Medicare in a position of micro-managing 
compensation arrangements whether or not there is any evidence 
or research that these arrangements are inappropriate or would 
result in fraudulent or abusive referral patterns. Current law 
also would require Medicare to review literally hundreds of 
thousands of contracts and other arrangements to determine 
whether or not particular physicians are paying the appropriate 
rent on office space, a lab is paying a lawful amount for a 
medical director's services, or a clinic is paying 
appropriately for physician salaries. The anti-kickback 
provisions in current law will still apply to any appropriate 
compensation arrangements.
            Effective date
    The provision would be effective upon enactment.

Sec. 15202. Revision of designated health services subject to the 
        prohibition

            Present law
    OBRA 89, which established the initial self-referral ban 
applied the ban to referrals for clinical laboratory services 
only. OBRA 93 (as modified by P.L. 103-432) extended the ban to 
additional ``designated health services'', effective January 1, 
1995. These designated health services are: (i) physical 
therapy services; (ii) occupational therapy services; (iii) 
radiology, including magnetic resonance imaging, computerized 
axial tomography scans, and ultrasound services; (iv) radiation 
therapy services and supplies; (v) durable medical equipment 
and supplies; (vi) parenteral and enteral nutrients, equipment 
and supplies; (vii) prosthetics, orthotics, and prosthetic 
devices; (viii) home health services and supplies; (ix) 
outpatient prescription drugs; and (x) inpatient and outpatient 
hospital services.
            Explanation of provision
    This provision revises the list of ``designated health 
services''. Under the provision, the referral ban would apply 
only to: (i) physical therapy services; (ii) occupational 
therapy services; (iii) magnetic resonance imaging and 
computerized axial tomography scans; and (iv) parenteral and 
enteral nutrients, equipment and supplies.
            Reason for change
    There are many services covered under current law for which 
there has been no demonstrable record of abuse related to 
physician ownership or there is lacking even a presumption that 
physician ownership and referral may lead to abusive practices. 
There are other areas where there is not even a significant 
potential problem or which may have the unattended consequence 
of producing the opposite effect--the under utilization of 
service. Included in this category are radiation therapy 
services, and prosthetic and orthotic devices.
            Effective date
    The provision would be effective upon enactment.

Sec. 15203. Delay in implementation until promulgation of regulations

            Present law
    The self-referral provisions included in OBRA 89 applied to 
Medicare referrals for clinical laboratory services made on or 
after January 1, 1992. OBRA 93 expanded the referral ban to a 
list of ``designated health services'' and extended the 
prohibition to Medicaid. OBRA 93 also included significant 
revisions to the OBRA 89 provisions. In general, the amendments 
made by OBRA 93 (as amended by P.L. 103-432) apply with respect 
to referrals made on or after January 1, 1995; however some 
provisions had a retroactive effective date of January 1, 1992.
    On August 14, 1995, DHHS issued final regulations 
implementing the OBRA 89 requirements. These regulations are 
effective September 13, 1995. DHHS noted that these regulations 
relate only to referrals for clinical laboratory services and 
address only those provisions that had an effective date, 
including a retroactive effective date, of January 1, 1992.
            Explanation of provision
    The proposal specifies that the amendments made by OBRA 93 
would not apply to any referrals made before the effective date 
of the final implementing regulations promulgated by the 
Secretary of Health and Human Services.
            Reason for change
    The OBRA 93 expansion of designated services and other 
self-referral legislative amendments created ambiguity over 
what constitutes an acceptable ownership or investment 
arrangement. Because of the ambiguous nature of these 
provisions, there is confusion over compliance issues which are 
particularly problematic for medical providers because of 
severe penalties for noncompliance.
            Effective date
    The provision would be effective upon enactment.

Sec. 15204. Exception to prohibitions

            Present law
    The law includes general exceptions to the self-referral 
ban. Some are general exceptions to both the ownership and 
compensation arrangement prohibitions, while others relate only 
to ownership or only to compensation arrangements.
    A general exception applies to in-office ancillary services 
which are defined as furnished by the physician making the 
referral, another physician in the same group practice, or 
personally by individuals directly supervised by the physician 
or another physician in the same group practice.
    The in-office ancillary services exception contains a site-
of-service requirement. To meet the exception, the services 
must be furnished in: (i) a building in which the referring 
physician or other member of the group practice provides 
services unrelated to the furnishing of designated health 
services; or (ii) in a building used for the centralized 
provision of the group's designated health services. OBRA 93 
specified that for clinical laboratory services only, the 
exception only applies if the services are provided in a 
centralized location.
    The law includes an exception, related only to the 
ownership and investment prohibition, for rural providers. To 
be eligible for an exception, the entity must be in a rural 
area. Further, the exception only applies if substantially all 
of the designated health services furnished by the entity are 
furnished to individuals residing in rural areas.
    The law includes a general exception for services provided 
by a prepaid health plan to enrollees. The definition of 
prepaid plans includes those either meeting Medicare 
requirements, operating as prepaid plans under a Medicare 
demonstration project, or meeting the requirements of a 
federally-qualified health maintenance organization.
            Explanation of provision
    The provision would modify the exception for in-office 
ancillary services. It would repeal the site-of-service 
requirement. It would also provide that non-physician personnel 
must be under the general supervision (rather than the direct 
supervision) of a physician. An individual would be under the 
general supervision of a physician (or a group practice of 
which the physician is a member) if the physician is legally 
responsible for the services performed by the individual and 
for ensuring the individual meets licensure requirements and 
certification standards regardless of whether or not the 
physician is physically present when the services are 
delivered.
    The provision would modify the provision relating to rural 
providers. To qualify for an exception, not less than 75 
percent of the designated health services must be furnished to 
individuals residing in rural areas.
    The provision would modify the definition of prepaid plans 
to refer to managed care plans. It would add an exception for 
entities which are MedicarePlus organization or other entities 
under the following conditions. The entity must provide or 
arrange for the provision of services pursuant to a written 
agreement between the organization and an individual or entity. 
The agreement must place the individual or entity at 
substantial financial risk for the cost or utilization of 
services which the individual or entity is obligated to 
provide. This obligation may be through withhold, capitation, 
incentive pool, per diem payment, or any other similar risk 
arrangement which places the individual or entity at 
substantial financial risk.
    The provision would add a new exception for shared facility 
services. The services must be furnished by the facility to 
patients of shared facility physicians; the physicians must 
have a financial relationship under a shared facility 
arrangement with the facility. A shared facility arrangement is 
one: (i) which is only between physicians who are providing 
services (unrelated to shared facility services) in the same 
building; (ii) in which the overhead expenses are shared among 
the physicians in accordance with previously determined 
methods; and (iii) which, in the case of a corporation, is 
wholly owned and controlled by shared facility physicians.
    The provision would add a new exception for services 
furnished in communities which the Secretary of Health and 
Human Services determines do not have access to alternative 
providers.
    The provision would add an exception for services furnished 
in ambulatory surgical centers, renal dialysis facilities, 
comprehensive rehabilitation facilities, and hospice programs.
            Reason for change
    Current law would prohibit a number of long standing 
arrangements, including arrangements for physicians to use non-
physician practitioners without being physically present in the 
office suite, or arrangements for physicians practicing in the 
same building to share clinical laboratory, x-ray and other 
designated services when treating their own patients, where 
there is no indication that fraudulent or abusive referral 
arrangements have been experienced. In addition, there is 
clearly no incentive in managed care arrangements for 
fraudulent or abusive referrals. The current law treatment of 
managed care entities places a potential chilling effect on 
arrangements designed to encourage efficient use of medical 
services.
            Effective date
    The provision would be effective upon enactment

Sec. 15205. Repeal of reporting requirements

             Present law
     The law establishes a reporting requirement for entities 
providing services under Medicare. Reports are to include 
information on the entity's ownership, investment and 
compensation arrangements.
            Explanation of provision
     The provision would delete the reporting requirements.
            Reason for change
     Current law places the undue administrative burden on 
providers and suppliers of providing separate reports to the 
Health Care Financing Administration for the self-referral 
provisions.
            Effective date
     The provision would be effective upon enactment.

Sec. 15206. Preemption of state law

            Present law
     No provision.
            Explanation of provision
     The provision would specify that the self-referral 
provisions preempt State law to the extent State law was 
inconsistent.
            Reason for change
     The current self-referral law was designed to deter 
fraudulent or abusive referral patterns. The reforms in this 
bill concentrate the self referral law on the areas where it is 
most appropriate. State and federal law, however, may be 
inconsistent regarding requirements limiting physician 
ownership of health services and other compensation 
arrangements.
            Effective date
     The provision would be effective upon enactment.

Sec. 15207. Effective date

            Present law
     No provision.
            Explanation of provision
     The provisions in this part apply to referrals made on or 
after August 14, 1995, regardless of whether or not regulations 
are promulgated to carry out such amendments.
            Reason for change
     Under current law there is ambiguity over the potential 
liability of persons who would be in violation of the Medicare 
self-referral regulations issued on August 14, 1995 if the 
provisions discussed in this part remain in place without 
publication of regulations.
            Effective date
     The provision would be effective upon enactment.

                Part 2. Other medicare regulatory relief

Sec. 15211. Repeal of Medicare and Medicaid coverage data bank

            Present law
     Under the Medicare secondary payer (MSP) program, the 
individual's employer-based group health insurance, liability 
insurance, or no-fault insurance may be the primary payer in 
certain cases. The OBRA 93 provided for the establishment of a 
Medicare and Medicaid Coverage Data Bank by the Secretary of 
Health and Human Services. OBRA 93 required employers having or 
contributing to a group health insurance plan to submit 
employee health insurance information to the Secretary, on an 
annual basis, for calendar years 1994-1997. The 1994 submission 
was due by February 1995. The information was intended to 
facilitate the identification of both Medicare secondary payer 
cases and those circumstances in which employer-based 
insurance, rather than Medicaid, should be the primary payer.
     A number of employers voiced strong opposition to the Data 
Bank requirements. One of the principal concerns was that 
employers would be required to report information which they 
did not routinely collect. In response to these concerns, the 
Conference agreement accompanying the FY 1995 Labor, DHHS, and 
Education appropriations bill (P.L. 103-333) contained specific 
language relating to the Data Bank. It directed that no DHHS 
funds should be used for the implementation of or planning for 
implementation of the Bank.
             Explanation of provision
     The provision would repeal the Data Bank requirement.
            Reason for change
     The General Accounting Office (GAO) has testified that the 
``enormous administrative burden the data bank would place on 
HCFA and the nation's employers . . . likely would do little or 
nothing to enhance current efforts to identify those 
beneficiaries who have other health insurance coverage.'' The 
basis for GAO's conclusion is discussed in detail in their 
report ``Medicare/Medicaid Data Bank Unlikely to Increase 
Collections From Other Insurers'' released on May 6, 1994.
     In addition, the administrative simplification provisions 
contained in this bill will provide the basis for prospectively 
identifying instances where an individual has other health 
insurance coverage which should be primary to Medicare 
coverage.
            Effective date
     This provision will be effective upon enactment.

Sec. 15212. Clarification of level of intent required for imposition of 
        sanctions

     Clarification of Level of Knowledge Required for 
Imposition of Civil Monetary Penalties.
            Present law
     Civil money penalties may be imposed for seeking 
reimbursement under the Medicare and Medicaid programs for 
items or services not provided or for services provided by 
someone who was not a licensed physician, whose license was 
obtained through misrepresentation, or who misrepresented his 
or her qualification as a specialist, or where the claim is 
otherwise fraudulent. Civil penalties may also be sought for 
presenting a claim for payments which are in violation of: 1) 
contracts limiting payment due to assignment of a patient, 2) 
agreements with state agencies limiting permitted charges, 3) 
agreement with participating physicians or suppliers, and 4) 
agreements with providers of service. Civil penalties may also 
be sought against persons who provide false or misleading 
information that could reasonably be expected to influence a 
decision to discharge a person from a hospital. A person is 
subject to these provisions if they presented a claim and he or 
she ``knows or should have known'' that the claim fell into one 
of the categories listed above. Further, the person presenting 
the claim may be assessed twice the amount fraudulently 
claimed.
             Explanation of provision
     This section adds a requirement that a person is subject 
to this provision when they ``knowingly'' present a claim that 
the person ``knows or should know'' fell into one of the above 
categories. Thus, an assessment under this provision would only 
be made where a person had actual knowledge that they had 
submitted a claim or had provided false or misleading 
information, and where they had actual knowledge of the 
fraudulent nature of the claim, act in deliberate ignorance, or 
acted in reckless disregard. The requirement that a person 
``knowingly'' presents a claim or ``knowingly'' makes a false 
or misleading statement which influences discharge would 
prevent charging persons who inadvertently perform these acts.
            Reason for change
     The current standard is inconsistent with the Civil False 
Claims Act which applies to all other federal programs. 
Additionally, concerns have been raised that the standard 
currently applied by the Health and Human Services Department 
Office of the Inspector General is less specific and can result 
in pursuit of allegations based on simple mistakes.
            Effective date
     The provision would be effective upon enactment.
    Clarification of Effect and Application of Safe Harbor 
Exceptions.
            Present law
     The Medicare and Medicaid anti-kickback provisions 
generally prohibit anyone from providing or offering to provide 
remuneration in cash or in kind in return for a patient 
referral whose treatment is paid for in whole or in part by 
Medicare or Medicaid. The provisions in section 1128B(b) of the 
Social Security Act also prohibit the solicitation or receipt 
of such remuneration and arranging or recommending a referral 
for remuneration. Violations are felonies and are subject to a 
fine of up to $25,000 or imprisonment for up to five years, or 
both. Certain business practices are exempted from the 
application of these provisions and the DHHS Office of 
Inspector General (OIG) is directed to issue safe harbor 
regulations for additional payment practices that would not be 
subject to criminal prosecution or provide a basis for 
exclusion from participation in Medicare and Medicaid. If an 
individual or entity engages in a business arrangement which is 
the subject of a safe harbor provision and complies with all of 
the applicable requirements of the provision that individual or 
entity will be assured that he or she will not be prosecuted.
            Explanation of provision
     This section provides that the specification of any 
payment practice by the Secretary under this provision are to 
be solely for the purpose of adding additional exceptions to 
the types of conduct, and are not for the purpose of limiting 
the scope of such exceptions. In addition, such a specification 
of an acceptable payment practice shall apply notwithstanding 
whether the party engaging in that practice actually does 
intend to induce Medicaid or Medicare referrals.
            Reason for change
     The safe harbor regulations have been rendered meaningless 
by the DHHS OIG decision to deny the protection of the 
regulations whenever the OIG believes that an arrangement that 
meets the regulatory requirements is nevertheless a ``sham''. 
Looking behind the safe-harbor, defeats its purpose, and 
renders a chilling effect on the very safe harbors which are 
meant to protect legitimate financial arrangements.
            Effective date
     The provision would be effective upon enactment.
    Limiting Imposition of Anti-Kickback Penalties to Actions 
With Significant Purpose to Induce Referrals.
            Present law
     The anti-kickback provisions in Section 1128B(b) prescribe 
criminal penalties for individuals or entities that knowingly 
and willfully offer or pay remuneration to induce business 
reimbursed under Medicare or State health care programs.
            Explanation of provision
     This section would amend Section 1128B(b)(2) to provide 
that a person was subject to the anti-kickback provisions only 
if the remuneration which is offered is done so ``for the 
significant purpose of inducing'' business which would be 
reimbursed under Medicare or State health care programs. This 
will narrow the application of the anti-kickback provisions to 
only those situations where inducement was a significant 
purpose of remuneration.
            Reason for change
     Although financial arrangements between a provider or 
supplier and an entity that is capable of referring business 
might be motivated by many factors, a desire to increase 
referrals or purchases can almost always be inferred. The fact 
that the motivations behind a financial arrangement are not 
entirely free of profit considerations should not be grounds to 
impose criminal penalties, as is currently possible under the 
``one-purpose'' rule. Under current law, virtually every 
provider or supplier that enters into a financial arrangement 
with an entity that has the potential to refer Medicare or 
Medicaid business is at risk of an anti-kickback investigation.
            Effective date
    The provision would be effective upon enactment.

Sec. 15213. Clarification of and additions to exceptions to anti-
        kickback penalties

            Present law
    The anti-kickback provisions in Section 1128B(b) contain 
several exceptions. These exceptions include discounts or other 
reductions in price obtained by a provider of services or other 
entity under Medicare or a State health care program if the 
reduction in price is properly disclosed and appropriately 
reflected in the costs claimed or charges made by the provider 
or entity under Medicare or a State health care program; any 
amount paid by an employer to an employee for employment in the 
provision of covered items or services; any amount paid by a 
vendor of goods or services to a person authorized to act as a 
purchasing agent for a group of individuals or entities under 
specified conditions; a waiver of any coinsurance under Part B 
of Medicare by a Federally qualified health care center with 
respect to an individual who qualifies for subsidized services 
under a provision of the Public Health Service Act; and any 
payment practice specified by the Secretary as a Safe Harbor 
exception.
            Explanation of provision
    The provision would add a new exception for remuneration 
between an organization and an individual or entity providing 
services pursuant to a written agreement between the 
organization and the entity. The organization must be either a 
MedicarePlus entity or its written agreement must place the 
individual at substantial financial risk for the cost or 
utilization of services which the individual or entity is 
obligated to provide. This obligation may be through withhold, 
capitation, incentive pool, per diem payment, or any other 
similar risk arrangement which places the individual or entity 
at substantial financial risk.
            Reason for change
    Absent an exemption, nearly all managed care arrangements 
(except those that comply with the current safe harbors for 
HMOs that contract with Medicare or Medicaid) could potentially 
be deemed unlawful. This is because an essential feature of 
managed care is the offer by providers of remuneration (in the 
form of discounting or risk sharing) in exchange for a stream 
of patients. Another common feature is the offer by managed 
care organizations to providers of incentives to encourage 
adherence to cost-saving measures and protocols. There is no 
assurance that either of these (as well as other arrangements 
inherent in managed care) are permissible under the anti-
kickback law.
            Effective date
    The provision would be effective upon enactment.

Sec. 15214. Solicitation and publication of modifications to existing 
        safe harbors and new safe harbors

            Present law
    The 1987 Medicare and Medicaid Patient and Program 
Protection Act specified various payment practices which, 
although potentially capable of inducing referrals of business 
under Medicare or State health care programs, will be protected 
from criminal prosecution or civil sanction under the anti-
kickback provisions of the law. The 1987 law also established 
authority for the Secretary to promulgate regulations 
specifying additional payment practices, known as ``safe 
harbors'', that will not be subject to sanctions under the 
fraud and abuse provisions.
            Explanation of provision
    The Secretary shall publish an annual notice in the Federal 
Register soliciting proposals for modifications to existing 
safe harbors, new safe harbors, interpretive rulings and 
special fraud alerts. After considering such proposals the 
Secretary, in consultation with the Attorney General, shall, 
after notice and comment, issue final rules modifying existing 
safe harbors and establishing new safe harbors, as appropriate. 
The Secretary, in considering these proposals, may consider the 
extent to which such a proposal would affect access to health 
care service, quality of health care services, patient freedom 
of choice among health care providers, competition among health 
care providers, cost of health care programs to Government, 
over-utilization of health care services, and any other factors 
appropriate to prevent fraud and abuse in health care programs 
of the Federal Government. The Inspector General shall annually 
issue a report on the proposals received by the Secretary, the 
proposal issued by the Secretary, and an explanation of the 
reason for rejection of any of the proposals received.
            Reason for change
    Greater public involvement in the processes for identifying 
changes or additions to safe harbors, interpretive rulings, and 
fraud alerts could stimulate more timely and responsive 
information for assisting providers and suppliers in 
understanding Medicare requirements.
            Effective date
    The provision would be effective upon enactment.

Sec. 15215. Issuance of advisory opinions under title XI

            Present law
    No provision.
            Explanation of provision
    The Secretary shall issue regulations to provide for a 
procedure by which a party may seek an advisory opinion. These 
opinions are binding, and may include: (1) what constitutes 
prohibited enumeration, (2) what arrangements are excluded from 
these prohibitions, (3) whether an arrangement satisfies the 
criteria established by the Secretary, (4) what constitutes an 
inducement to reduce or limit services, (5) whether an activity 
constitutes grounds for imposition of penalties. Such opinions 
shall not address whether the fair market value was received 
for goods and whether an individual is a bona fide employee for 
tax purposes. The Secretary shall respond to advisory opinions 
within 30 days after the request is made, and a fee equal to 
the costs incurred shall be charged. This section will be 
effective January 1, 1996.
            Reason for change
    Providers who want to comply with the fraud and abuse 
statutes should be able to receive guidance from the government 
regarding financial arrangements. Without this ability, a 
chilling effect is placed on legitimate arrangements, 
particularly when providers are attempting to structure new and 
innovative health care delivery systems to help bring health 
care costs under control.
            Effective date
    The provision would be effective upon enactment.

Sec. 15216. Prior notice of changes in billing and claims processing 
        requirements for physicians' services

            Present law
    Currently, changes in Medicare policy are effective 30 days 
after their dissemination by notices in carrier newsletters or 
bulletins. In addition to these newsletters and bulletins, many 
carriers offer educational programs to notify physicians and 
their staff of changes in Medicare regulations and 
requirements.
            Explanation of provision
    The provision would require the Secretary to give at least 
120 days notice before making changes in billing and processing 
requirements for physician's claims.
            Reason for change
    Concerns have been raised that this 30 day period does not 
allow enough time for physicians and their staffs to modify 
their systems in order to be in compliance.
            Effective date
    The provision is effective upon enactment.

               part 3. promoting physician self-policing

    (This Part is under the jurisdiction of the Committee on 
the Judiciary.)

Sec. 15221. Exemption from antitrust laws for certain activities of 
        medical self-regulatory entities

            Present law
    No provision.
            Explanation of provision
    This section would provide an exemption from Federal and 
State antitrust laws for health care service activities which 
are considered safe harbors under this section. A safe harbor 
is generally described as any activity of a medical self-
regulatory entity relating to standard setting or standard 
enforcement activities that are designed to promote the quality 
of health care services provided to patients. However, no 
activity of a medical self-regulatory entity may be deemed to 
be a safe harbor under this section if the activity is 
conducted for purposes of financial gain, or the activity 
interferes with the provision of health care services by any 
health care provider who is not a member of the specific 
profession which is subject to the authority of the medical 
self-regulatory entity.
    For purposes of this section the term ``antitrust laws'' 
has the meaning given it in subsection (a) of the first section 
of the Clayton Act, except that the term includes section 5 of 
the Federal Trade Commission Act to the extent that section 
applies to unfair methods of competition. A ``medical self-
regulating entity'' is defined as a medical society or 
association, a specialty board, a recognized accrediting 
agency, or a hospital medical staff, and includes the members, 
officers, employees, consultants, and volunteers or committees 
of such an entity. ``Standard setting or standard enforcement 
activities'' mean accreditation of health care practitioners, 
health care providers, medical education institutions, or 
medical education programs, as well as technology assessment 
and risk management activities, the development and 
implementation of practice guidelines or practice parameters, 
or official peer review proceedings undertaken by a hospital 
medical staff or a medical society for purposes of evaluating 
the professional conduct or quality of health care provided by 
a medical professional. This section also defines ``health care 
service'', ``health care provider'' and ``health benefit 
plan''.
            Reason for change
    Self-regulatory entities set standards in such areas as 
medical education, professional ethics, and specialty 
certification. These standard-setting activities have been 
challenged in recent years under the antitrust laws. The 
Congress attempted to address this problem with the Health Care 
Quality Improvement Act of 1986, which provided antitrust 
protection for peer review actions conducted in ``good faith''. 
While beneficial, this law shifted the debate in antitrust 
litigation to whether the participants acted in ``good faith''. 
The result is that the stream of antitrust suits has continued. 
The purpose of the medical self-regulatory entity exemption 
included in this proposal is to bar antitrust suits against 
medical self-regulatory entities that develop or enforce 
medical standards. This would include activities such as 
accreditation of health care providers and medical education 
programs and institutions, technology assessment and risk 
management, development and implementation of practice 
guidelines and parameters, and official peer review 
proceedings. The exemption would cover suits against individual 
members of the groups which undertake these activities as well 
as the organizational entity on whose behalf they act. This 
section is under the jurisdiction of the Judiciary Committee.
            Effective date
    The provision would be effective upon enactment.

                  Subtitle D--Medical Liability Reform

    (The provisions of this Subtitle are under the jurisdiction 
of the Committee on the Judiciary.)

                       part 1. general provisions

Sec. 15301. Federal reform of health care liability actions

            Present law
    There are no uniform Federal standards governing health 
care liability actions.
            Explanation of provision
    The provision would provide for Federal reform of health 
care liability actions. It would apply to any health care 
liability action brought in any State or Federal court. The 
provisions would not apply to any action for damages arising 
from a vaccine-related injury or death or to the extent that 
the provisions of the National Vaccine Injury Compensation 
Program apply. The provisions would preempt State law to the 
extent State law provisions were inconsistent with the new 
requirements. However, it would not preempt State law to the 
extent State law provisions were more stringent.

Sec. 15302. Definitions

            Present law
    No provision.
            Explanation of provision
    The provision would define the following terms for purposes 
of the Federal reforms: actual damages; alternative dispute 
resolution system; claimant; clear and convincing evidence; 
collateral source payments; economic loss; harm; health care 
liability action; health care liability claim; health care 
provider; noneconomic damages; person; punitive damages; and 
State.

Sec. 15303. Effective date

            Present law
    No provision.
            Explanation of provision
    The provision would specify that Federal reforms apply to 
any health care liability action brought in any State or 
Federal court that is initiated after the date of enactment. 
The provision would also apply to any health care liability 
claim subject to an alternative dispute resolution system. Any 
health care liability claim or action arising from an injury 
occurring prior to enactment would be governed by the statute 
of limitations in effect at the time the injury occurred.

      part 2. uniform standards for health care liability actions

Sec. 15311. Statute of limitations

            Present law
    To date reforms of the malpractice system have occurred 
primarily at the State level and have generally involved 
changes in the rules governing tort cases.
            Explanation of provision
    The provision would establish uniform standards for health 
care liability claims. It would establish a uniform statute of 
limitations. Actions could not be brought more than two years 
after the injury was discovered or reasonably should have been 
discovered. In no event could the action be brought more than 
five years after the date of the alleged injury.

Sec. 15312. Calculation and payment of damages

            Present law
    No provision.
            Explanation of provision
    The provision would limit noneconomic damages to $250,000 
in a particular case. The limit would apply regardless of the 
number of persons against whom the action was brought or the 
number of actions brought.
    The provision would specify that a defendant would only be 
liable for the amount of noneconomic damages attributable to 
that defendant's proportionate share of the fault or 
responsibility for that claimant's injury.
    The provision would permit the award of punitive damages 
(to the extent allowed under State law) only if the claimant 
established by clear and convincing evidence either that the 
harm was the result of conduct that specifically intended to 
cause harm or the conduct manifested a conscious flagrant 
indifference to the rights or safety of others. The amount of 
punitive damages awarded could not exceed $250,000 or three 
times the amount of economic damages, whichever was greater. 
The determination on punitive damages would be made by the 
court and not be disclosed to the jury The provision would not 
create a cause of action for punitive damages. Further, it 
would not preempt or supersede any State or Federal law to the 
extent that such law would further limit punitive damage 
awards.
    The provision would permit either party to request a 
separate proceeding (bifurcation) on the issue of whether 
punitive damages should be awarded and in what amount. If a 
separate proceeding was requested, evidence related only to the 
claim of punitive damages would be inadmissible in any 
proceeding to determine whether actual damages should be 
awarded.
    The provision would prohibit the award of punitive damages 
in a case where the drug or device was subject to premarket 
approval by the Food and Drug Administration (FDA), unless 
there was misrepresentation or fraud.
    The provision would permit the periodic (rather than lump 
sum) payment of future losses in excess of $50,000. The 
judgment of a court awarding periodic payments could not, in 
the absence of fraud, be reopened at any time to contest, 
amend, or modify the schedule or amount of payments. The 
provision would not preclude a lump sum settlement.
    The provision would permit a defendant to introduce 
evidence of collateral source payments. Such payments are those 
which have been paid or are reasonably likely to be paid by 
health or accident insurance, disability coverage, workers 
compensation, or other third party sources. If such evidence 
was introduced, the claimant could introduce evidence of any 
amount paid or reasonably likely to be paid to secure the right 
to such collateral source payments. No provider of collateral 
source payments would be permitted to recover any amount 
against the claimant or against the claimant's recovery.

Sec. 15313. Alternative dispute resolution

            Present law
    No comparable provision.
            Explanation of provision
    The provision would further require that any alternative 
dispute resolution system used to resolve health care liability 
actions or claims must include provisions identical to those 
specified in the bill.

       Subtitle E--Teaching Hospitals; Graduate Medical Education

  Part 1. Teaching Hospital and Graduate Medical Education Trust Fund

Sec. 15401. Establishment of fund; payments to teaching hospitals

            Present law
    Medicare recognizes the costs of graduate medical education 
in teaching hospitals and the higher costs of providing 
services in those institutions. Medicare reimburses the costs 
of graduate medical education under two mechanisms: direct 
graduate medical education (GME) payments and an indirect 
medical education (IME) adjustment. The IME is designed to 
reimburse hospitals for indirect costs due to a variety of 
factors, including the extra demands placed on the hospital 
staff as a result of the teaching activity, greater severity of 
patient illness, or additional tests and procedures that may be 
ordered by residents. The direct costs of approved GME programs 
include the salaries of residents and faculty, and other 
education costs for residents, nurses, and allied health 
professionals trained in provider-operated programs and are 
paid on the basis of a formula that reflects each hospital's 
per resident costs.
            Explanation of provision
    The proposal would add a new title XXII to the Social 
Security Act (SSA) creating a trust fund in the Treasury known 
as the Teaching Hospital and Graduate Medical Education Trust 
Fund, which would make annual payment distributions to teaching 
hospitals. The Fund would consist of three accounts: the 
Indirect-Costs Medical Education Account, the Medicare Direct-
Costs Medical Education Account, and the General Direct-Costs 
Medical Education Account.
    Beginning in FY1997 and each subsequent year thereafter, 
the bill would appropriate amounts from the Treasury and 
allocations would be made from Medicare 's Part A and Part B 
trust funds, and would be transferred into the Trust Fund for 
allocation to accounts within the Trust Fund. Appropriations 
from the Treasury would be: $400 million in FY1997; $600 
million in FY1998; $2.0 billion in FY1999; $3.0 billion in 
FY2000; $4.0 billion in FY2001; and $5.8 billion in FY2002. For 
FY2003 and each subsequent fiscal year, the appropriation 
amount would be the greater of the amount appropriated for the 
preceding fiscal year, or the product of the amount 
appropriated for the preceding fiscal year and an amount equal 
to 1 plus the percentage increase in the nominal gross domestic 
product for the one-year period ending upon July 1 of the 
preceding fiscal year. The appropriated amounts would be 
allocated to the accounts by the Secretary based on the total 
amount of payments made under Medicare for indirect medical 
education (IME) and direct graduate medical education (GME) 
payments for FY1994, and the percentage of the total amount of 
payments for IME and GME.
    The proposal would require that teaching hospitals submit a 
payment document for FY1997 and any subsequent fiscal year to 
the Secretary to receive a payment from the Fund equal to the 
sum of amounts related to IME and direct GME. The payment 
document would contain such information as necessary for the 
Secretary to make payments, and the Secretary would be 
permitted to require that the information be submitted by the 
teaching hospitals in periodic reports. The proposal would also 
authorize the Secretary to make payments to authorized 
consortia of providers.
    For a teaching hospital's indirect costs, the proposal 
would determine an amount for a fiscal year as the product of: 
(1) the amount in the Indirect-Costs Medical Education Account 
for the applicable date, and (2) the hospital-specific 
percentage determined for the hospital. Once determined, the 
hospital-specific percentage would remain in effect for all 
subsequent fiscal years. The hospital-specific percentage would 
be the mean average of the respective percentages for the 
applicable period, adjusted by the Secretary on a pro rata 
basis to ensure that the sum of the percentages for all 
teaching hospitals would be equal to 100 percent. Generally, 
the applicable period would be fiscal years 1992-1994. The 
percentage determined for a teaching hospital for a fiscal year 
of the applicable period would be constituted by the ratio of: 
(1) the total amount of IME payments received by the hospital 
for the fiscal year involved, to (2) the sum of the respective 
amounts of IME payments for all teaching hospitals.
    To determine the direct costs of graduate medical education 
for a teaching hospital for a fiscal year, the proposal would 
determine an amount equal to the sum of the amount determined 
under the General Direct-Cost Medical Education Account, and 
the amount determined under the Medicare Direct-Costs Medical 
Education Account. A teaching hospital's payment amount from 
the General Account would be equal to the product of: (1) the 
amount in the General Direct-Costs Medical Education Account, 
and (2) the hospital-specific percentage. A teaching hospital's 
hospital-specific percentage for each fiscal year of the 
applicable period (1992-1994), would be determined in the same 
manner as for IME payments, except using data on GME payments 
received by the hospitals.
    Payment from the Medicare Direct-Costs Medical Education 
Account for a teaching hospital for a fiscal year would be the 
product of (1) the amount in the Medicare Direct-Costs Medical 
Education Account, and (2) the hospital-specific percentage 
determined for the teaching hospital. Unlike the other 
accounts, the hospital-specific percentage for Medicare Direct-
Costs would be determined annually based on the Secretary's 
estimate of what the hospital would have received for the year 
if the Medicare rules for GME were applicable. The hospital-
specific percentage would be the ratio of: (1) the estimate 
made by the Secretary of the GME payment amount for a teaching 
hospital in a fiscal year under Medicare's GME if the payments 
had not been discontinued; to (2) the sum of the respective 
estimates of GME payments for all teaching hospitals. This 
subsection would not apply to a teaching hospital if the 
hospital is in a State for which a demonstration project under 
section 1814(b)(3), relating to a State hospital rate-setting 
system, is in effect.
    Special rules would be applied to teaching hospitals that 
consolidated or merged and to new teaching hospitals. In the 
case of two or more teaching hospitals consolidating or merging 
that had received IME and GME payments under Medicare, the 
applicable percentage would be the sum of the percentage that 
would have been determined if the consolidation or merger had 
not occurred. For new teaching hospitals that had not received 
IME and GME payments under Medicare, the Secretary would be 
required to estimate the appropriate hospital-specific 
percentage based on the amount of IME and GME payments the 
teaching hospital would have received under Medicare. Special 
rules would also be applied to teaching hospitals that first 
received IME or GME payments under Medicare in FY1995 and 
FY1996, with the hospital-specific percentages being estimated 
by the Secretary based on the most recent data available.
    The proposal would make payments to qualifying consortium 
for the costs of graduate medical education. Qualifying 
consortium would consist of a medical residency training 
program of a teaching hospital and one or more of the following 
entities: schools of medicine or osteopathic medicine; other 
teaching hospitals; community health centers; medical group 
practices; managed care entities; entities furnishing 
outpatient services; and other such entities the Secretary 
determines to be appropriate. Payments from the accounts in the 
Trust Fund for consortium would equal the sum of: (1) the 
aggregate amount determined for the teaching hospitals of the 
consortium under the proposal; and (2) an amount determined 
using the methodology provided under the Medicare Direct-Costs 
Medical Education Account for consortia payments. Aggregate 
total payments to qualifying consortia could not exceed the sum 
of the aggregate total amount that would have been paid to the 
teaching hospitals of the consortia, and an amount equal to 1 
percent of the amount in the Medicare Direct-Costs Medical 
Education Account.
    The Secretary would be required to collect data to 
determine whether the estimates of Medicare's payments for the 
costs of IME and GME in each fiscal year were substantially 
accurate, and make corrective adjustments in subsequent 
transfers to the Trust Fund and payments to teaching hospitals.
            Reason for change
    Teaching hospitals have to meet multiple missions including 
patient service (tertiary and specialty services and services 
for the low income persons who may be more expensive to treat 
due to special needs), medical training, and research. Changes 
occurring in health care delivery and financing both in 
Medicare and the private sector have raised serious questions 
concerning the ability of many major teaching hospitals to 
survive financially while meeting these multiple missions. In 
the communities where teaching hospitals are located and in the 
health care market more broadly, the survival of these 
institutions is in question because the institutions face 
competition from other hospitals or providers and health care 
systems that do not share the same multiple missions of 
teaching hospitals. There is a significant public interest in 
maintaining the many contributions that teaching hospitals make 
to the communities in which they are located and the nation as 
a whole. These institutions, however, have often not been 
operated efficiently in the past, and Medicare has in recent 
years carried a disproportionate share of the costs of these 
hospitals considering Medicare's share of overall patient 
service costs.
            Effective date
    The provision would be effective upon enactment.

                 Part 2. Amendments to Medicare Program

Sec. 15411. Transfers to teaching hospital and graduate medical 
        education fund

            Present law
    No provision.
            Explanation of the provision
    The proposal would amend Medicare law by adding a new 
subsection (j) at the end of section 1886 of the SSA, under 
which the Secretary would, beginning in FY1997 transfer amounts 
to the Teaching Hospital and Graduate Medical Education Trust 
Fund. Amounts transferred to the Indirect-Costs Medical 
Education Account would be from the Medicare Part A trust fund 
on the basis of an estimate of the nationwide total of the 
amount that would have been paid to hospitals under Medicare's 
IME payment. The Secretary would also be required to transfer 
from Medicare Part A and B Trust Funds into the Medicare 
Direct-Costs Medical Education Account the amount estimated to 
be spent for teaching hospitals and consortium under Medicare's 
direct GME payment.
            Reason for change
    The formation of the new trust fund for teaching hospitals 
and graduate medical education requires the transfer of funds 
from Medicare trust funds.
            Effective date
    The provision would be effective upon enactment.

Sec. 15412. Modification in payment policies regarding graduate medical 
        education

            Present law
    Medicare makes additional payments to teaching hospitals 
under PPS for the indirect costs attributable to approved 
medical education programs. These indirect costs may be due to 
a variety of factors, including the extra demands placed on the 
hospital staff as a result of the teaching activity or 
additional tests and procedures that may be ordered by 
residents. Congressional reports on the PPS authorizing 
legislation indicated that the indirect medical education 
payments are also to account for factors not necessarily 
related to medical education which may increase costs in 
teaching hospitals, such as more severely ill patients, 
increased use of diagnostic testing, and higher staff-to-
patient ratios.
    The additional payment to a hospital is based on a formula 
that provides an increase of approximately 7.7 percent in the 
Federal portion of the DRG payment, for each 0.1 percent 
increase in the hospital's intern and resident-to-bed ratio on 
a curvilinear basis (i.e., the increase in the payment is less 
than proportional to the increase in the ratio of interns and 
residents to beds).
    The direct costs of approved graduate medical education 
(GME) programs (such as the salaries of residents and faculty, 
and other education costs for residents, nurses, and allied 
health professionals trained in provider-operated programs) are 
excluded from PPS and are paid on the basis of a formula that 
reflects Medicare's share of each hospital's per resident 
costs. Medicare's payment to each hospital equals the 
hospital's costs per full-time-equivalent (FTE) resident, times 
the weighted average number of FTE residents, times the 
percentage of inpatient days attributable to Medicare Part A 
beneficiaries. Each hospital's per FTE resident amount is 
calculated using data from the hospital's cost reporting period 
that began in FY1984, increased by 1 percent for hospital cost 
reporting periods beginning July 1, 1995, and updated in 
subsequent cost reporting periods by the change in the CPI. 
OBRA 93 provided that the per resident amount would not be 
updated by the CPI for costs reporting periods during FY1994 
and FY1995, except for primary care residents in obstetrics and 
gynecology. The number of FTE residents is weighted at 100 
percent for residents in their initial residency period (i.e., 
the number of years of formal training necessary to satisfy 
specialty requirements for board eligibility). Residents in 
preventive care or geriatrics are allowed a period of up to 2 
additional years that is not counted as part of the initial 
residency training period. For residents not in their initial 
residency period, the weighing factor is 50 percent. On or 
after July 1, 1996, residents who are foreign medical graduates 
can only be counted as FTE residents if they have passed 
designated examinations.
            Explanation of the provision
    The proposal would reduce the IME payment amount under 
Medicare by changing the current formula multiplier to 1.48, 
resulting in a 6.0 percent aggregate payment adjustment for 
FY1996-FY1998. A further reduction in the multiplier would 
begin in FY1999 and for each subsequent fiscal year, for a 5.6 
percent aggregate payment adjustment, for every 10 percent 
increase in teaching intensity measured by the ratio of interns 
and residents per bed, and the number of discharges expected 
under PPS.
    The GME formula would be modified to limit the number of 
residents that could be counted by a teaching hospital. The 
total number of full-time-equivalent (FTE) residents in an 
approved residency program would be limited to the total number 
of residents at a hospital as of August 1, 1995, for cost 
reporting periods beginning on or after October 1, 1995, and on 
or before September 30, 2002. For hospital cost reporting 
periods beginning on or after October 1, 1997, the weighing 
factor for a resident in the initial residency period would be 
1.0 FTEs, and the weighing factor for a resident who had 
completed the initial residency period would be 0.0 FTEs. For 
cost reporting periods beginning during FY1996, the FTE amount 
paid for medical residents who are not citizens or nationals of 
the United States (or citizens of Canada) would be reduced and 
ultimately eliminated by lowering the FTE weight that a 
hospital would be allowed to count for GME payments to: 0.75 in 
FY1996; 0.50 in FY1997; 0.25 in FY1998; and for cost reporting 
periods beginning during FY1999 or any subsequent fiscal year, 
zero.
            Reason for change
    The PROPAC in its March 1, 1995 report recommended ``the 
indirect medical education adjustment should be reduced.'' 
PROPAC recommended immediate reductions in the Medicare IME 
adjustment, and said it should ultimately be reduced by 40% 
from current levels. However, PROPAC also recommended that 
``changes in the IME adjustment should be considered in the 
context of its interactions and its effects on PPS payments, as 
well as hospitals' overall financial status.''
    The number of graduates of U.S. medical schools filling 
residency positions in teaching hospitals has remained 
approximately constant, while the total number of residencies 
have grown in recent years. Since 1988 most of this growth in 
filled residencies is attributable to foreign medical school 
graduates filling hospital residency positions in this country. 
Over 60 percent of the growth in the number of residents can be 
attributed to increases in the number of foreign medical 
graduates. As a result, between 1988 and 1993, the number of 
foreign medical school graduates grew from 14 percent of the 
total number of residents to 23 percent. The number of 
residency positions is now nearly 40 percent greater than the 
number of slots filled by graduates from American medical 
schools. Expert testimony has questioned the need for the 
current number of residency positions, and raised concerns 
about the recent and rapid growth in residency slots primarily 
filled by graduates of foreign medical schools. Expert 
testimony has also raised concerns regarding Medicare funding 
of residency positions in excess of first board certification 
or five years of training.
            Effective date
    The effective date for these provisions, unless otherwise 
specified would apply to hospital cost reporting periods 
beginning on or after October 1, 1995.

  part 3. reform of federal policies regarding teaching hospitals and 
                       graduate medical education

Sec. 15421. Establishment of advisory panel for recommending policies 
        regarding teaching hospitals and graduate medical education

            Present law
    No provision.
            Explanation of the provision
    The bill would require the Chair of the Medicare Payment 
Review Commission to establish an advisory panel on reform in 
the financing of teaching hospitals and graduate medical 
education. The advisory panel would be required to study and 
make recommendations on reforming Federal policies regarding 
teaching hospitals and the financing of graduate medical 
education. The recommendations of the panel would include the 
following: (1) the financing of graduate medical education, 
including consideration of alternative broad-based sources of 
funding; (2) the financing of teaching hospitals, including 
consideration of the competitive difficulties such hospitals 
face; (3) the methodology for making payments and the selection 
of entities to receive the payments; (4) Federal policies 
regarding international medical graduates; (5) the dependence 
of schools of medicine on service generated income; (6) the 
effects of the amendments made by the Omnibus Budget 
Reconciliation Act of 1995; (7) the feasibility and 
desirability of reducing payments for graduate medical 
education for high-cost residency programs under Medicare; and 
(8) whether and to what extent the needs of the U.S. regarding 
the supply of physicians would change during the 10-year period 
beginning on October 1, 1995, and whether and to what extent 
any such changes would have significant financial effects on 
teaching hospitals.
    The Committee emphasizes that the panel should particularly 
address the effects of this legislation on hospitals that serve 
significant numbers of low income patients.
    The advisory panel would be composed of 19 members with 
expertise on matters related to graduate medical education. The 
advisory panel would be required to provide Congress with a 
first interim report (not later than one year after enactment), 
a second interim report (not later than 2 years after 
enactment), and final report (not later than 3 years after 
enactment). The advisory panel would terminate 180 days after 
the date on which the final report was submitted to Congress. 
The bill would authorize appropriations of such sums as may be 
necessary for each of the fiscal years 1996 through 2000.
            Reason for change
    The Committee recognizes that the measures undertaken to 
reform the methods used to reimburse teaching hospitals and 
graduate medical education are only initial steps. The Advisory 
Panel is necessary to assess the effect of this legislation and 
to develop recommendations for longer term solutions to 
financing of the missions of teaching hospitals and graduate 
medical education.
            Effective date
    The provision would be effective upon enactment.

           Subtitle F--Provisions Relating to Medicare Part A

                           part 1. hospitals

Sec. 15501. Reductions in inflation updates for PPS hospitals

            Present law
    Hospitals are paid on the basis of a prospectively fixed 
payment rate for costs associated with each discharge. Each 
hospital's basic payment rate is based on a national 
standardized payment amount, which is higher for hospitals in 
large urban areas than for other hospitals. Each standardized 
payment amount is adjusted by a wage index. Payment also 
depends on the relative cost of the case, based on the DRG to 
which the discharge is assigned. Additional payments are made 
for: extraordinary costs (outliers); indirect costs of medical 
education; and for hospitals serving a disproportionate share 
of low-income patients. Other exceptions and adjustments are 
made.
    PPS payment rates are annually updated using an ``update 
factor.'' The annual update factor applied to increase the 
Federal base payment amounts is determined, in part, by the 
projected increase in the hospital market basket index, which 
measures the costs of goods and services purchased by 
hospitals. Under the Omnibus Budget Reconciliation Act of 1993 
(OBRA 93), the PPS update factor for all PPS hospitals is equal 
to the percentage increase in the market basket minus 2 
percentage points.
            Explanation of provision
    The proposal sets the update factor for FY1996 the market 
basket index (MBI) minus 2.5 percentage points for all 
hospitals in all areas, for FY1997-FY2002 at MBI minus 2.0 
percentage points for all hospitals in all areas, and for 
FY2003 and each subsequent fiscal year equal to the MBI for all 
hospitals in all areas.
            Reason for change
    In the past two years, competition in the private sector, 
together with continuing payment constraints by the Medicare 
and Medicaid programs, have led to a large decline in hospital 
cost growth. In the past year, hospital costs per adjusted 
admission have increased almost 2 percentage points less than 
inflation. Because of previous actions by the Congress, the 
increase in payments under the Medicare prospective payment 
system in the last four years has been greater than the 
increase in hospital costs. Consequently, hospitals on average 
now have a positive margin on Medicare patients. Given these 
trends in cost growth, the updates stipulated in this provision 
should allow hospitals to continue earning positive margins, on 
average, for Medicare patients through 2002.
            Effective date
    The provision would be effective upon enactment.

Sec. 15502. Reductions in disproportionate share payment adjustments

            Present law
    Under PPS, an adjustment is made to the payment to 
hospitals that serve a disproportionate share of low-income 
patients. The DSH adjustment is intended to compensate 
hospitals that treat large proportions of low-income patients. 
The factors considered in determining whether a hospital 
qualifies for a DSH payment adjustment include the number of 
beds, the number of patient days, and the hospital's location. 
A hospital's disproportionate patient percentage is the sum of 
(1) the total number of inpatient days attributable to Federal 
Supplemental Security Income beneficiaries divided by the total 
number of Medicare patient days, and (2) the number of Medicaid 
patient days divided by total patient days, expressed as a 
percentage. A hospital is classified as a DSH under any of the 
following circumstances:
          (1) If its disproportionate patient percentage equals 
        or exceeds:
                  (a) 15 percent for an urban hospital with 100 
                or more beds, or a rural hospital with 500 or 
                more beds (the latter is set by regulation);
                  (b) 30 percent for a rural hospital with more 
                than 100 beds and fewer than 500 beds or is 
                classified as a sole community hospital;
                  (c) 40 percent for an urban hospital with 
                fewer than 100 beds; or
                  (d) 45 percent for a rural hospital with 100 
                or fewer beds, or
          (2) if it is located in an urban area, has 100 or 
        more beds, and can demonstrate that, during its cost 
        reporting period, more than 30 percent of its net 
        inpatient care revenues are derived from State and 
        local government payments for care furnished to 
        indigent payments. (This provision is intended to help 
        hospitals in States that fund care for low-income 
        patients through direct grants rather than expanded 
        Medicaid programs.)
    For a hospital qualifying on the basis of (1)(a) above, if 
its disproportionate patient percentage is greater than 20.2 
percent, the applicable PPS payment adjustment factor is 5.88 
percent plus .825 percent of the difference between 20.2 
percent and the hospital's disproportionate patient percentage. 
If the hospital's disproportionate patient percentage is less 
than 20.2 percent, the applicable payment adjustment factor is 
equal to: 2.5 percent plus 65 percent of the difference between 
15 percent and the hospital's disproportionate patient 
percentage. If the hospital qualifies as a DSH on the basis of 
(1)(b), the payment adjustment factor is determined as follows:
          (a) if the hospital is classified as a rural referral 
        center, the payment adjustment factor is 4 percent plus 
        60 percent of the difference between the hospital's 
        disproportionate patient percentage and 30 percent;
          (b) if the hospital is a SCH, the adjustment factor 
        is 10 percent;
          (c) if the hospital is classified as both a rural 
        referral center and a SCH, the adjustment factor is the 
        greater of 10 percent or 4 percent plus 60 percent of 
        the difference between the hospital's disproportionate 
        patient percentage and 30 percent; and
          (d) if the hospital is not classified as either a SCH 
        or a rural referral center, the payment adjustment 
        factor is 4 percent.
If the hospital qualifies on the basis of (1)(c), the 
adjustment factor is equal to 5 percent. If the hospital 
qualifies on the basis of (1)(d), the adjustment factor is 4 
percent. If the hospital qualifies on the basis of (2) above, 
the payment adjustment factor is 35 percent.
            Explanation of provision
    The proposal would reduce the DSH payment by 20 percent for 
discharges occurring on or after October 1, 1995, and on or 
before September 30, 1996; 25 percent for discharges occurring 
on or after October 1, 1996, and on or before September 30, 
1997; and 30 percent for discharges occurring on or after 
October 1, 1997.
            Reason for change
    Current levels of disproportionate share payment 
adjustments are based on a significant increase in these 
payments made in 1989 and 1990 legislation. The payment 
reductions included here bring payments to the same percentage 
of total prospective payment system payments that were in place 
in the early 1990s. It is expected that hospitals receiving 
disproportionate share payments will, on average, continue to 
receive prospective payment system margins that are well above 
overall hospital averages for those institutions that do not 
receive the adjustment, even with reduced payment levels.
            Effective date
    The provision would be effective upon enactment.

Sec. 15503. Payments for capital-related costs for inpatient hospital 
        services

            Present law
    In FY 1992, Medicare began phasing in prospectively-
determined per case rates for capital-related costs. During the 
10-year transition to a single capital rate, payments will 
reflect both hospital-specific costs and a single Federal 
capital payment rate. During the transition, hospitals are paid 
according to either a fully prospective method or a ``hold 
harmless'' method of payment.
    Capital payment rates are updated annually. For the first 5 
years of the transition to prospectively determined per-case 
rates, historical cost increases were used to increase the 
Federal and hospital-specific rates. Under a budget neutrality 
requirement, per case capital rates were adjusted in the first 
5 years of the transition so that total payments equalled 90 
percent of estimated Medicare-allowed capital costs. In fiscal 
year 1996, the budget neutrality requirement will be lifted. In 
addition, the cost-based updates will be replaced by an 
``update framework'' (developed by HCFA and proposed in the 
June 2, 1995 Federal Register), which will determine payment 
rate growth. This analytical framework is to take into account 
changes in the price of capital and appropriate changes in 
capital requirements resulting from development of new 
technologies and other factors.
    Capital costs for PPS exempt hospitals are reimbursed on a 
reasonable cost basis.
    Medicare's capital-related costs include local property 
taxes and property ``fees'' paid by nonprofit hospitals. The 
hospital-specific component of capital payments is based on a 
hospital's spending in a base year (generally 1990). Hospitals 
that have changed from nonprofit or public to proprietary may 
become subject to property taxes not included in their base. 
This may also occur as a result of changes in State or local 
law.
            Explanation of provision
    The proposal would reduce aggregate payments for PPS and 
PPS-exempt capital payments by 15 percent of the allowable 
amount for FY1996 through FY2002. The capital payment reduction 
would not apply to payments for sole community hospitals or 
rural primary care hospitals (defined in the bill).
    The proposal would provide an adjustment for the amount of 
capital-related tax costs for eligible hospitals for discharges 
occurring after September 30, 1995. Eligible hospitals would be 
facilities that may otherwise receive capital payments, are not 
public hospitals, and incur capital-related tax costs for the 
fiscal year.
    The proposal would also amend the exceptions process under 
PPS for certain capital projects as follows: (1) urban 
hospitals with 100 beds would be eligible without regard to its 
DSH patient percentage or whether it qualifies for capital 
additional payments amounts; (2) the minimum payment level for 
qualifying hospitals would be 85 percent; (3) hospitals would 
be considered to meet the requirement that it completed a 
project involved no later than the end of the hospital's last 
cost reporting period beginning after October 1, 2001, if (i) 
the hospital obtained a certificate of need for the project 
approved by the State or a local planning authority, and (ii) 
by September 1, 1995, the hospital had expended on the project 
at least $750,000 or 10 percent of the estimated cost of the 
project; and (4) the amount of the exception payment made would 
not be reduced by any offsetting amounts.
            Reason for change
    Payments for capital costs were over estimated in setting 
the capital payment rates in 1992. Under a budget neutrality 
requirement, per case capital rates were adjusted in the first 
5 years of the transition so that total payments equalled 90 
percent of estimated Medicare-allowed capital costs. The 90 
percent provision ends in 1996, so despite the overestimates, 
current law would go back to 100 percent payment of what would 
have been paid under cost-based reimbursement.
            Effective date
    The provision would be effective upon enactment.

Sec. 15504. Reduction in adjustment for indirect medical education

    See Subtitle E above.

Sec. 15505. Treatment of PPS-exempt hospitals

            Present law
    Under Medicare, five types of specialty hospitals 
(psychiatric, rehabilitation, long-term care, children's and 
cancer) and two types of distinct-part units in general 
hospitals (psychiatric and rehabilitation) are exempt from PPS. 
They are subject to the payment limitations and incentives 
established in the Tax Equity and Fiscal Responsibility Act of 
1982 (TEFRA). Each provider is paid on the basis of reasonable 
cost subject to a rate of increase ceiling on inpatient 
operating costs. The ceiling is based on a target amount per 
discharge. The target amount for a cost reporting period is 
equal to the hospital's allowable inpatient operating costs 
(excluding capital and medical education costs) per discharge 
in a base year increased by applicable update factors for 
subsequent years. This amount is then multiplied by Medicare 
discharges, to yield the ceiling or upper limit on operating 
costs.
    OBRA 93 provided that the applicable rate of increase 
percentage, or update, would be equal to the MBI minus 1.0 
percent for FY1994-1997.
            Explanation of the provision
    The proposal would extend the target amount updates through 
FY2002.
    The proposal would also provide for rebasing the target 
amount for certain long-term care hospitals for discharges 
occurring on or after October 1, 1995.
    The proposal would also apply to long-term care units of 
hospitals not treated as PPS hospitals for discharges occurring 
on or after September 30, 1995. The provision is intended to 
prevent the Secretary from applying the amendments to 42 CFR 
Section 412.23(c)(3) adopted by the Secretary on September 1, 
1995 to a hospital which was classified as a long term care 
hospital for the cost reporting period ending on or before 
September 30, 1995. Nothing contained in this provision shall 
affect the applicability of 42 U.S.C. Section 1886(d)(1)(B)(iv) 
which requires that long term care hospitals must maintain an 
average length of stay of greater than twenty-five days, to a 
hospital which was classified as a long term care hospital for 
cost reporting period ending on or before September 30, 1995. 
To determine how to best treat such distinct units of hospitals 
for purposes of Medicare's prospective payment system, the 
Committee asked the Medicare Payment Review Commission to make 
recommendations for any necessary revisions to current payment 
methods.
    The proposal would also require that the Secretary submit 
to Congress, by not later than June 1, 1996, a report on the 
advisability and feasibility of providing for payment based on 
a prospective payment system for inpatient services of 
rehabilitation hospitals and units under Medicare.
            Reason for change
    Under current law, concerns have been raised about the 
adequacy of Medicare payments for these hospitals, so the 
Committee required the Secretary and Medicare Payment Review 
Commission to review these methods and make recommendations.
            Effective date
    The provision would be effective upon enactment.

Sec. 15506. Reduction in payments to hospitals for Enrollees' bad debts

            Present law
    Certain hospital and other provider bad debts are 
reimbursed by Medicare on an allowable cost basis. To be 
qualified for reimbursement, the debt must be related to 
covered services and derived from deductible and coinsurance 
amounts left unpaid by Medicare beneficiaries. The provider 
must be able to establish that reasonable collection efforts 
were made and that sound business judgement established that 
there was no likelihood of recovery at any time in the future.
            Explanation of provision
    The proposal would reduce bad debt payments to providers by 
75 percent for cost reporting periods beginning during FY1996; 
60 percent for cost reporting periods beginning during FY1997; 
and 50 percent for subsequent cost reporting periods. The 
reductions in bad debt payments would not apply if the debt is 
attributable to uncollectible deductible and coinsurance 
payments owed by individuals enrolled in a State plan under 
Medicaid or under the new MediGrant program. To avoid any 
unintended consequences from this provision, the Committee 
intends that the Medicare Payment Review Commission will 
conduct a study of payments under the Medicare program for 
hospital bad debt. The study will analyze historic trends in 
such payments and identify hospitals that incur bad debt at 
significantly higher levels than other similar hospitals. Not 
later than one year after the date of the enactment of this 
Act, the Commission will submit to Congress a report that 
includes recommendations for methods to reduce payment under 
the Medicare program for hospital bad debt and to improve debt 
collection by hospitals. The manner in which reductions in 
reimbursement are implemented, beyond those specified in this 
Act for fiscal year 1996, will be based on recommendations of 
the Commission.
            Reason for change
    The payment of hospitals' Medicare-related bad debt is a 
legacy of hospital cost-based reimbursement. Under the current 
prospective payment system, bad debts should be considered a 
cost of doing business.
            Effective date
    The provision would be effective upon enactment.

Sec. 15507. Permanent extension of hemophilia pass-through

            Present law
    Medicare makes additional payments for the costs of 
administering blood clotting factor to Medicare beneficiaries 
with hemophilia admitted for hospital stays where the clotting 
factor was furnished between June 19,1990 and September 
30,1994.
            Explanation of provision
    The proposal would make the payment permanent.
            Reason for change
    Due to increases in the cost of clotting factor resulting 
from the increase in AIDs, in 1989, the Congress changed the 
way Medicare paid for inpatient costs of clotting factor by 
providing an add-on to the PPS payment rates. This change was 
initially limited to 18 months and then subsequently extended 
through fiscal year 1994. Information collected throughout this 
period justifies the separate payment for clotting factor.
            Effective date
    The provision would be effective upon enactment.

Sec. 15508. Conforming amendment to certification of Christian Science 
        providers

            Present law
    Certain services furnished in a Christian Science 
sanatorium are covered under Medicare Part A if the institution 
is operated or listed and certified by the First Church of 
Christ, Scientists, Boston, Mass. Such a sanatorium qualifies 
as both a hospital and as a skilled nursing facility.
            Explanation of provision
    The proposal would expand coverage of Christian Science 
sanatorium to include facilities (both hospitals and skilled 
nursing facilities) certified by the Commission for 
Accreditation of Christian Science Nursing Organizations/
Facilities, Inc.
            Reason for change
    Currently, the First Church of Christ, Scientists cannot 
use its new non-profit organization to certify its sanatoriums 
for Medicare coverage.
            Effective date
    The provision would be effective upon enactment.

Sec. 15511. Sole Community Hospitals

            Present law
    Sole Community Hospitals (SCHs) are facilities located in 
geographically isolated areas and are the sole provider of 
inpatient, acute cure hospital services in a geographic area 
based on distance, travel time, severe weather conditions, and/
or market share. SCHs are paid the greater of what would be 
payable under PPS or a target amount comparable to that for 
PPS-exempt hospitals. Target amounts for SCHs are updated by an 
``applicable percentage increase'' which is specified by 
statute and is generally pegged to the hospital market basket 
index. OBRA 93 provided separate SCH updates of MBI minus 2.2 
percent for FY1995 and MBI minus 2.0 percent for FY1996. For 
FY1997 and thereafter, the update for SCHs is the same as for 
all PPS hospitals.
            Explanation of provision
    The proposal would provide a target amount update of MBI 
minus 1 percentage point for fiscal years 1996-2000; and for 
FY2001 and each subsequent fiscal year, the applicable update 
would be applied.
    The bill would require the Medicare Payment Review 
Commission to conduct a study of the impact of the designation 
of hospitals as SCHs on the delivery of health care services to 
individuals in rural areas, and include an analysis of the 
characteristics of the hospitals so designated. The Commission 
would be required to submit the report to Congress within 12 
months after a majority of Commission members are first 
appointed.
            Reason for change
    Medicare's hospital payment policy has historically 
recognized payment problems related to the unique role of sole 
community hospitals and the Committee requested the Medicare 
Payment Review Commission to study the impact of the 
designation of hospitals as sole community providers on the 
delivery of health care to rural communities.
            Effective date
    The provision would be effective upon enactment.

Sec. 15512. Clarification of Treatment of Essential Access Community 
        Hospital/Rural Primary Care Hospital (EACH/RPCH)

            Present law
    Under the EACH demonstration program up to 7 States may be 
designated by the Secretary to receive grants to develop rural 
health networks consisting of essential access community 
hospitals (EACHs) and rural primary care hospitals (RPCHs). 
Individual hospitals may be designated as EACHs and RPCHs. In 
order to receive designation by a State as an RPCH, a facility 
must meet certain criteria, including a requirement that 
inpatient stays not exceed 72 hours.
            Explanation of provision
    The bill would allow EACHs to continue to receive payments 
under Medicare equal to their reasonable costs, and RPCHs to 
continue to receive Medicare payments for their services, even 
in fiscal years in which the program did not receive 
appropriations.
            Reason for change
    The funding for the EACH/RPCH demonstrations was included 
as part of the recision package. Recognizing the merits of the 
EACH and RPCH programs in providing services to their rural 
communities, the Committee provided authorization for continued 
Medicare reimbursement of the services they provide.
            Effective date
    The provision would be effective upon enactment.

Sec. 15513. Rural emergency access care hospitals (REACHs)

            Present law
    No provision.
            Explanation of provision
    The bill would provide for the establishment of a new 
category of hospitals under Medicare to provide for medical 
screening examinations and treatment for emergency medical 
conditions and active labor for rural facilities that are in 
danger of closing due to low inpatient utilization rates and 
operating losses and whose closing would reduce access to 
emergency services. Such facilities would have to meet specific 
requirements including those relating to appropriate medical 
staffing, referral arrangements, and diagnostic and laboratory 
services. Payment for outpatient services provided by rural 
emergency access care hospitals would be determined according 
to the same method used for rural primary care hospitals. 
Services provided to individuals in REACHs would be provided 
over a continuous period not to exceed 24 hours, except in 
cases where the individual is unable to leave because of 
inclement weather.
            Reason for change
    Rural communities in danger of losing their hospitals 
because they lack the population base to maintain sufficient 
use rates to operate profitably can also be in danger of losing 
their only source of accessible emergency health ca