[Congressional Bills 105th Congress]
[From the U.S. Government Printing Office]
[H.R. 2015 Enrolled Bill (ENR)]


      Note this is a hand enrollment pursuant to Public Law 105-32.     


        H.R.2015

                       One Hundred Fifth Congress

                                 of the

                        United States of America


                          AT THE FIRST SESSION

          Begun and held at the City of Washington on Tuesday,
 the seventh day of January, one thousand nine hundred and ninety-seven


                                 An Act


 
To provide for reconciliation pursuant to subsections (b)(1) and (c) of 
 section 105 of the concurrent resolution on the budget for fiscal year 
                                  1998.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Balanced Budget Act of 1997''.

SEC. 2. TABLE OF TITLES.

    This Act is organized into titles as follows:
Title I--Food Stamp Provisions
Title II--Housing and Related Provisions
Title III--Communications and Spectrum Allocation Provisions
Title IV--Medicare, Medicaid, and Children's Health Provisions
Title V--Welfare and Related Provisions
Title VI--Education and Related Provisions
Title VII--Civil Service Retirement and Related Provisions
Title VIII--Veterans and Related Provisions
Title IX--Asset Sales, User Fees, and Miscellaneous Provisions
Title X--Budget Enforcement and Process Provisions
Title XI--District of Columbia Revitalization

                     TITLE I--FOOD STAMP PROVISIONS

SEC. 1001. EXEMPTION.

    Section 6(o) of the Food Stamp Act of 1977 (7 U.S.C. 2015(o)) is 
amended--
        (1) in paragraph (2)(D), by striking ``or (5)'' and inserting 
    ``(5), or (6)'';
        (2) by redesignating paragraph (6) as paragraph (7); and
        (3) by inserting after paragraph (5) the following:
        ``(6) 15-percent exemption.--
            ``(A) Definitions.--In this paragraph:
                ``(i) Caseload.--The term `caseload' means the average 
            monthly number of individuals receiving food stamps during 
            the 12-month period ending the preceding June 30.
                ``(ii) Covered individual.--The term `covered 
            individual' means a food stamp recipient, or an individual 
            denied eligibility for food stamp benefits solely due to 
            paragraph (2), who--

                    ``(I) is not eligible for an exception under 
                paragraph (3);
                    ``(II) does not reside in an area covered by a 
                waiver granted under paragraph (4);
                    ``(III) is not complying with subparagraph (A), 
                (B), or (C) of paragraph (2);
                    ``(IV) is not receiving food stamp benefits during 
                the 3 months of eligibility provided under paragraph 
                (2); and
                    ``(V) is not receiving food stamp benefits under 
                paragraph (5).

            ``(B) General rule.--Subject to subparagraphs (C) through 
        (G), a State agency may provide an exemption from the 
        requirements of paragraph (2) for covered individuals.
            ``(C) Fiscal year 1998.--Subject to subparagraphs (E) and 
        (G), for fiscal year 1998, a State agency may provide a number 
        of exemptions such that the average monthly number of the 
        exemptions in effect during the fiscal year does not exceed 15 
        percent of the number of covered individuals in the State in 
        fiscal year 1998, as estimated by the Secretary, based on the 
        survey conducted to carry out section 16(c) for fiscal year 
        1996 and such other factors as the Secretary considers 
        appropriate due to the timing and limitations of the survey.
            ``(D) Subsequent fiscal years.--Subject to subparagraphs 
        (E) through (G), for fiscal year 1999 and each subsequent 
        fiscal year, a State agency may provide a number of exemptions 
        such that the average monthly number of the exemptions in 
        effect during the fiscal year does not exceed 15 percent of the 
        number of covered individuals in the State, as estimated by the 
        Secretary under subparagraph (C), adjusted by the Secretary to 
        reflect changes in the State's caseload and the Secretary's 
        estimate of changes in the proportion of food stamp recipients 
        covered by waivers granted under paragraph (4).
            ``(E) Caseload adjustments.--The Secretary shall adjust the 
        number of individuals estimated for a State under subparagraph 
        (C) or (D) during a fiscal year if the number of food stamp 
        recipients in the State varies from the State's caseload by 
        more than 10 percent, as determined by the Secretary.
            ``(F) Exemption adjustments.--During fiscal year 1999 and 
        each subsequent fiscal year, the Secretary shall increase or 
        decrease the number of individuals who may be granted an 
        exemption by a State agency under this paragraph to the extent 
        that the average monthly number of exemptions in effect in the 
        State for the preceding fiscal year under this paragraph is 
        lesser or greater than the average monthly number of exemptions 
        estimated for the State agency for such preceding fiscal year 
        under this paragraph.
            ``(G) Reporting requirement.--A State agency shall submit 
        such reports to the Secretary as the Secretary determines are 
        necessary to ensure compliance with this paragraph.''.

SEC. 1002. ADDITIONAL FUNDING FOR EMPLOYMENT AND TRAINING.

    (a) In General.--Section 16(h) of the Food Stamp Act of 1977 (7 
U.S.C. 2025(h)) is amended by striking paragraph (1) and inserting the 
following:
        ``(1) In general.--
            ``(A) Amounts.--To carry out employment and training 
        programs, the Secretary shall reserve for allocation to State 
        agencies, to remain available until expended, from funds made 
        available for each fiscal year under section 18(a)(1) the 
        amount of--
                ``(i) for fiscal year 1996, $75,000,000;
                ``(ii) for fiscal year 1997, $79,000,000;
                ``(iii) for fiscal year 1998--

                    ``(I) $81,000,000; and
                    ``(II) an additional amount of $131,000,000;

                ``(iv) for fiscal year 1999--

                    ``(I) $84,000,000; and
                    ``(II) an additional amount of $131,000,000;

                ``(v) for fiscal year 2000--

                    ``(I) $86,000,000; and
                    ``(II) an additional amount of $131,000,000;

                ``(vi) for fiscal year 2001--

                    ``(I) $88,000,000; and
                    ``(II) an additional amount of $131,000,000; and

                ``(vii) for fiscal year 2002--

                    ``(I) $90,000,000; and
                    ``(II) an additional amount of $75,000,000.

            ``(B) Allocation.--
                ``(i) Allocation formula.--The Secretary shall allocate 
            the amounts reserved under subparagraph (A) among the State 
            agencies using a reasonable formula, as determined and 
            adjusted by the Secretary each fiscal year, to reflect--

                    ``(I) changes in each State's caseload (as defined 
                in section 6(o)(6)(A));
                    ``(II) for fiscal year 1998, the portion of food 
                stamp recipients who reside in each State who are not 
                eligible for an exception under section 6(o)(3); and
                    ``(III) for each of fiscal years 1999 through 2002, 
                the portion of food stamp recipients who reside in each 
                State who are not eligible for an exception under 
                section 6(o)(3) and who--

                        ``(aa) do not reside in an area subject to a 
                    waiver granted by the Secretary under section 
                    6(o)(4); or
                        ``(bb) do reside in an area subject to a waiver 
                    granted by the Secretary under section 6(o)(4), if 
                    the State agency provides employment and training 
                    services in the area to food stamp recipients who 
                    are not eligible for an exception under section 
                    6(o)(3).
                ``(ii) Estimated factors.--The Secretary shall estimate 
            the portion of food stamp recipients who reside in each 
            State who are not eligible for an exception under section 
            6(o)(3) based on the survey conducted to carry out 
            subsection (c) for fiscal year 1996 and such other factors 
            as the Secretary considers appropriate due to the timing 
            and limitations of the survey.
                ``(iii) Reporting requirement.--A State agency shall 
            submit such reports to the Secretary as the Secretary 
            determines are necessary to ensure compliance with this 
            paragraph.
            ``(C) Reallocation.--If a State agency will not expend all 
        of the funds allocated to the State agency for a fiscal year 
        under subparagraph (B), the Secretary shall reallocate the 
        unexpended funds to other States (during the fiscal year or the 
        subsequent fiscal year) as the Secretary considers appropriate 
        and equitable.
            ``(D) Minimum allocation.--Notwithstanding subparagraph 
        (B), the Secretary shall ensure that each State agency 
        operating an employment and training program shall receive not 
        less than $50,000 for each fiscal year.
            ``(E) Use of funds.--Of the amount of funds a State agency 
        receives under subparagraphs (A) through (D) for a fiscal year, 
        not less than 80 percent of the funds shall be used by the 
        State agency during the fiscal year to serve food stamp 
        recipients who--
                ``(i) are not eligible for an exception under section 
            6(o)(3); and
                ``(ii) are placed in and comply with a program 
            described in subparagraph (B) or (C) of section 6(o)(2).
            ``(F) Maintenance of effort.--To receive an allocation of 
        an additional amount made available under subclause (II) of 
        each of clauses (iii) through (vii) of subparagraph (A), a 
        State agency shall maintain the expenditures of the State 
        agency for employment and training programs and workfare 
        programs for any fiscal year under paragraph (2), and 
        administrative expenses described in section 20(g)(1), at a 
        level that is not less than the level of the expenditures by 
        the State agency to carry out the programs and such expenses 
        for fiscal year 1996.
            ``(G) Component costs.--The Secretary shall monitor State 
        agencies' expenditure of funds for employment and training 
        programs provided under this paragraph, including the costs of 
        individual components of State agencies' programs. The 
        Secretary may determine the reimbursable costs of employment 
        and training components, and, if the Secretary makes such a 
        determination, the Secretary shall determine that the amounts 
        spent or planned to be spent on the components reflect the 
        reasonable cost of efficiently and economically providing 
        components appropriate to recipient employment and training 
        needs, taking into account, as the Secretary deems appropriate, 
        prior expenditures on the components, the variability of costs 
        among State agencies' components, the characteristics of the 
        recipients to be served, and such other factors as the 
        Secretary considers necessary.''.
    (b) Report to Congress.--Not later than 30 months after the date of 
enactment of this Act, the Secretary of Agriculture shall submit to the 
Committee on Agriculture of the House of Representatives and the 
Committee on Agriculture, Nutrition, and Forestry of the Senate a 
report regarding whether the amounts made available under section 
16(h)(1)(A) of the Food Stamp Act of 1977 (as a result of the amendment 
made by subsection (a)) have been used by State agencies to increase 
the number of work slots for recipients subject to section 6(o) of the 
Food Stamp Act of 1977 (7 U.S.C. 2015(o)) in employment and training 
programs and workfare in the most efficient and effective manner 
practicable.

SEC. 1003. DENIAL OF FOOD STAMPS FOR PRISONERS.

    (a) State Plans.--
        (1) In General.--Section 11(e) of the Food Stamp Act of 1977 (7 
    U.S.C. 2020(e)) is amended by striking paragraph (20) and inserting 
    the following:
        ``(20) that the State agency shall establish a system and take 
    action on a periodic basis--
            ``(A) to verify and otherwise ensure that an individual 
        does not receive coupons in more than 1 jurisdiction within the 
        State; and
            ``(B) to verify and otherwise ensure that an individual who 
        is placed under detention in a Federal, State, or local penal, 
        correctional, or other detention facility for more than 30 days 
        shall not be eligible to participate in the food stamp program 
        as a member of any household, except that--
                ``(i) the Secretary may determine that extraordinary 
            circumstances make it impracticable for the State agency to 
            obtain information necessary to discontinue inclusion of 
            the individual; and
                ``(ii) a State agency that obtains information 
            collected under section 1611(e)(1)(I)(i)(I) of the Social 
            Security Act (42 U.S.C. 1382(e)(1)(I)(i)(I)) pursuant to 
            section 1611(e)(1)(I)(ii)(II) of that Act (42 U.S.C. 
            1382(e)(1)(I)(ii)(II)), or under another program determined 
            by the Secretary to be comparable to the program carried 
            out under that section, shall be considered in compliance 
            with this subparagraph.''.
        (2) Limits on disclosure and use of information.--Section 
    11(e)(8)(E) of the Food Stamp Act of 1977 (7 U.S.C. 2020(e)(8)(E)) 
    is amended by striking ``paragraph (16)'' and inserting ``paragraph 
    (16) or (20)(B)''.
        (3) Effective Date.--
            (A) In general.--Except as provided in subparagraph (B), 
        the amendments made by this subsection shall take effect on the 
        date that is 1 year after the date of enactment of this Act.
            (B) Extension.--The Secretary of Agriculture may grant a 
        State an extension of time to comply with the amendments made 
        by this subsection, not to exceed beyond the date that is 2 
        years after the date of enactment of this Act, if the chief 
        executive officer of the State submits a request for the 
        extension to the Secretary--
                (i) stating the reasons why the State is not able to 
            comply with the amendments made by this subsection by the 
            date that is 1 year after the date of enactment of this 
            Act;
                (ii) providing evidence that the State is making a good 
            faith effort to comply with the amendments made by this 
            subsection as soon as practicable; and
                (iii) detailing a plan to bring the State into 
            compliance with the amendments made by this subsection as 
            soon as practicable but not later than the date of the 
            requested extension.
    (b) Information Sharing.--Section 11 of the Food Stamp Act of 1977 
(7 U.S.C. 2020) is amended by adding at the end the following:
    ``(q) Denial of Food Stamps for Prisoners.--The Secretary shall 
assist States, to the maximum extent practicable, in implementing a 
system to conduct computer matches or other systems to prevent 
prisoners described in section 11(e)(20)(B) from participating in the 
food stamp program as a member of any household.''.

SEC. 1004. NUTRITION EDUCATION.

    Section 11(f) of the Food Stamp Act of 1977 (7 U.S.C. 2020(f)) is 
amended--
        (1) by striking ``(f) To encourage'' and inserting the 
    following:
    ``(f) Nutrition Education.--
        ``(1) In general.--To encourage''; and
        (2) by adding at the end the following:
        ``(2) Grants.--
            ``(A) In general.--The Secretary shall make available not 
        more than $600,000 for each of fiscal years 1998 through 2001 
        to pay the Federal share of grants made to eligible private 
        nonprofit organizations and State agencies to carry out 
        subparagraph (B).
            ``(B) Eligibility.--A private nonprofit organization or 
        State agency shall be eligible to receive a grant under 
        subparagraph (A) if the organization or agency agrees--
                ``(i) to use the funds to direct a collaborative effort 
            to coordinate and integrate nutrition education into 
            health, nutrition, social service, and food distribution 
            programs for food stamp participants and other low-income 
            households; and
                ``(ii) to design the collaborative effort to reach 
            large numbers of food stamp participants and other low-
            income households through a network of organizations, 
            including schools, child care centers, farmers' markets, 
            health clinics, and outpatient education services.
            ``(C) Preference.--In deciding between 2 or more private 
        nonprofit organizations or State agencies that are eligible to 
        receive a grant under subparagraph (B), the Secretary shall 
        give a preference to an organization or agency that conducted a 
        collaborative effort described in subparagraph (B) and received 
        funding for the collaborative effort from the Secretary before 
        the date of enactment of this paragraph.
            ``(D) Federal share.--
                ``(i) In general.--Subject to subparagraph (E), the 
            Federal share of a grant under this paragraph shall be 50 
            percent.
                ``(ii) No in-kind contributions.--The non-Federal share 
            of a grant under this paragraph shall be in cash.
                ``(iii) Private funds.--The non-Federal share of a 
            grant under this paragraph may include amounts from private 
            nongovernmental sources.
            ``(E) Limit on individual grant.--The Federal share of a 
        grant under subparagraph (A) may not exceed $200,000 for a 
        fiscal year.''.

SEC. 1005. REGULATIONS; EFFECTIVE DATE.

    (a) Regulations.--Not later than 1 year after the date of enactment 
of this Act, the Secretary of Agriculture shall promulgate such 
regulations as are necessary to implement the amendments made by this 
title.
    (b) Effective Date.--The amendments made by sections 1001 and 1002 
take effect on October 1, 1997, without regard to whether regulations 
have been promulgated to implement the amendments made by such 
sections.

                TITLE II--HOUSING AND RELATED PROVISIONS

SEC. 2001. TABLE OF CONTENTS.

    The table of contents for this title is as follows:

                TITLE II--HOUSING AND RELATED PROVISIONS

Sec. 2001. Table of contents.
Sec. 2002. Extension of foreclosure avoidance and borrower assistance 
          provisions for FHA single family housing mortgage insurance 
          program.
Sec. 2003. Adjustment of maximum monthly rents for certain dwelling 
          units in new construction and substantial or moderate 
          rehabilitation projects assisted under section 8 rental 
          assistance program.
Sec. 2004. Adjustment of maximum monthly rents for non-turnover dwelling 
          units assisted under section 8 rental assistance program.

SEC. 2002. EXTENSION OF FORECLOSURE AVOIDANCE AND BORROWER ASSISTANCE 
              PROVISIONS FOR FHA SINGLE FAMILY HOUSING MORTGAGE 
              INSURANCE PROGRAM.

    Section 407 of The Balanced Budget Downpayment Act, I (12 U.S.C. 
1710 note) is amended--
        (1) in subsection (c)--
            (A) by striking ``only''; and
            (B) by inserting ``, on, or after'' after ``before''; and
        (2) by striking subsection (e).

SEC. 2003. ADJUSTMENT OF MAXIMUM MONTHLY RENTS FOR CERTAIN DWELLING 
              UNITS IN NEW CONSTRUCTION AND SUBSTANTIAL OR MODERATE 
              REHABILITATION PROJECTS ASSISTED UNDER SECTION 8 RENTAL 
              ASSISTANCE PROGRAM.

    The third sentence of section 8(c)(2)(A) of the United States 
Housing Act of 1937 (42 U.S.C. 1437f(c)(2)(A)) is amended by inserting 
before the period at the end the following: ``, and during fiscal year 
1999 and thereafter''.

SEC. 2004. ADJUSTMENT OF MAXIMUM MONTHLY RENTS FOR NON-TURNOVER 
              DWELLING UNITS ASSISTED UNDER SECTION 8 RENTAL ASSISTANCE 
              PROGRAM.

    The last sentence of section 8(c)(2)(A) of the United States 
Housing Act of 1937 (42 U.S.C. 1437f(c)(2)(A)) is amended by inserting 
before the period at the end the following: ``, and during fiscal year 
1999 and thereafter''.

      TITLE III--COMMUNICATIONS AND SPECTRUM ALLOCATION PROVISIONS

SEC. 3001. DEFINITIONS.

    (a) Common Terminology.--Except as otherwise provided in this 
title, the terms used in this title have the meanings provided in 
section 3 of the Communications Act of 1934 (47 U.S.C. 153), as amended 
by this section.
    (b) Additional Definitions.--Section 3 of the Communications Act of 
1934 (47 U.S.C. 153) is amended--
        (1) by redesignating paragraphs (49) through (51) as paragraphs 
    (50) through (52), respectively; and
        (2) by inserting after paragraph (48) the following new 
    paragraph:
        ``(49) Television service.--
            ``(A) Analog television service.--The term `analog 
        television service' means television service provided pursuant 
        to the transmission standards prescribed by the Commission in 
        section 73.682(a) of its regulations (47 C.F.R. 73.682(a)).
            ``(B) Digital television service.--The term `digital 
        television service' means television service provided pursuant 
        to the transmission standards prescribed by the Commission in 
        section 73.682(d) of its regulations (47 C.F.R. 73.682(d)).''.

SEC. 3002. SPECTRUM AUCTIONS.

    (a) Extension and Expansion of Auction Authority.--
        (1) In general.--Section 309(j) of the Communications Act of 
    1934 (47 U.S.C. 309(j)) is amended--
            (A) by striking paragraphs (1) and (2) and inserting in 
        lieu thereof the following:
        ``(1) General authority.--If, consistent with the obligations 
    described in paragraph (6)(E), mutually exclusive applications are 
    accepted for any initial license or construction permit, then, 
    except as provided in paragraph (2), the Commission shall grant the 
    license or permit to a qualified applicant through a system of 
    competitive bidding that meets the requirements of this subsection.
        ``(2) Exemptions.--The competitive bidding authority granted by 
    this subsection shall not apply to licenses or construction permits 
    issued by the Commission--
            ``(A) for public safety radio services, including private 
        internal radio services used by State and local governments and 
        non-government entities and including emergency road services 
        provided by not-for-profit organizations, that--
                ``(i) are used to protect the safety of life, health, 
            or property; and
                ``(ii) are not made commercially available to the 
            public;
            ``(B) for initial licenses or construction permits for 
        digital television service given to existing terrestrial 
        broadcast licensees to replace their analog television service 
        licenses; or
            ``(C) for stations described in section 397(6) of this 
        Act.'';
            (B) in paragraph (3)--
                (i) by inserting after the second sentence the 
            following new sentence: ``The Commission shall, directly or 
            by contract, provide for the design and conduct (for 
            purposes of testing) of competitive bidding using a 
            contingent combinatorial bidding system that permits 
            prospective bidders to bid on combinations or groups of 
            licenses in a single bid and to enter multiple alternative 
            bids within a single bidding round.'';
                (ii) by striking ``and'' at the end of subparagraph 
            (C);
                (iii) by striking the period at the end of subparagraph 
            (D) and inserting ``; and''; and
                (iv) by adding at the end the following new 
            subparagraph:
            ``(E) ensure that, in the scheduling of any competitive 
        bidding under this subsection, an adequate period is allowed--
                ``(i) before issuance of bidding rules, to permit 
            notice and comment on proposed auction procedures; and
                ``(ii) after issuance of bidding rules, to ensure that 
            interested parties have a sufficient time to develop 
            business plans, assess market conditions, and evaluate the 
            availability of equipment for the relevant services.'';
            (C) in paragraph (4)--
                (i) by striking ``and'' at the end of subparagraph (D);
                (ii) by striking the period at the end of subparagraph 
            (E) and inserting ``; and''; and
                (iii) by adding at the end the following new 
            subparagraph:
            ``(F) prescribe methods by which a reasonable reserve price 
        will be required, or a minimum bid will be established, to 
        obtain any license or permit being assigned pursuant to the 
        competitive bidding, unless the Commission determines that such 
        a reserve price or minimum bid is not in the public 
        interest.'';
            (D) in paragraph (8)(B)--
                (i) by striking the third sentence; and
                (ii) by adding at the end the following new sentence: 
            ``No sums may be retained under this subparagraph during 
            any fiscal year beginning after September 30, 1998, if the 
            annual report of the Commission under section 4(k) for the 
            second preceding fiscal year fails to include in the 
            itemized statement required by paragraph (3) of such 
            section a statement of each expenditure made for purposes 
            of conducting competitive bidding under this subsection 
            during such second preceding fiscal year.'';
            (E) in paragraph (11), by striking ``1998'' and inserting 
        ``2007''; and
            (F) in paragraph (13)(F), by striking ``September 30, 
        1998'' and inserting ``the date of enactment of the Balanced 
        Budget Act of 1997''.
        (2) Termination of Lottery Authority.--Section 309(i) of the 
    Communications Act of 1934 (47 U.S.C. 309(i)) is amended--
            (A) by striking paragraph (1) and inserting the following:
        ``(1) General authority.--Except as provided in paragraph (5), 
    if there is more than one application for any initial license or 
    construction permit, then the Commission shall have the authority 
    to grant such license or permit to a qualified applicant through 
    the use of a system of random selection.''; and
            (B) by adding at the end the following new paragraph:
        ``(5) Termination of authority.--(A) Except as provided in 
    subparagraph (B), the Commission shall not issue any license or 
    permit using a system of random selection under this subsection 
    after July 1, 1997.
        ``(B) Subparagraph (A) of this paragraph shall not apply with 
    respect to licenses or permits for stations described in section 
    397(6) of this Act.''.
        (3) Resolution of pending comparative licensing cases.--Section 
    309 of the Communications Act of 1934 (47 U.S.C. 309) is further 
    amended by adding at the end the following new subsection:
    ``(l) Applicability of Competitive Bidding to Pending Comparative 
Licensing Cases.--With respect to competing applications for initial 
licenses or construction permits for commercial radio or television 
stations that were filed with the Commission before July 1, 1997, the 
Commission shall--
        ``(1) have the authority to conduct a competitive bidding 
    proceeding pursuant to subsection (j) to assign such license or 
    permit;
        ``(2) treat the persons filing such applications as the only 
    persons eligible to be qualified bidders for purposes of such 
    proceeding; and
        ``(3) waive any provisions of its regulations necessary to 
    permit such persons to enter an agreement to procure the removal of 
    a conflict between their applications during the 180-day period 
    beginning on the date of enactment of the Balanced Budget Act of 
    1997.''.
        (4) Conforming amendment.--Section 6002 of the Omnibus Budget 
    Reconciliation Act of 1993 is amended by striking subsection (e).
        (5) Effective Date.--Except as otherwise provided therein, the 
    amendments made by this subsection are effective on July 1, 1997.
    (b) Accelerated Availability for Auction of 1,710-1,755 Megahertz 
from Initial Reallocation Report.--The band of frequencies located at 
1,710-1,755 megahertz identified in the initial reallocation report 
under section 113(a) of the National Telecommunications and Information 
Administration Act (47 U.S.C. 923(a)) shall, notwithstanding the 
timetable recommended under section 113(e) of such Act and section 
115(b)(1) of such Act, be available in accordance with this subsection 
for assignment for commercial use. The Commission shall assign licenses 
for such use by competitive bidding commenced after January 1, 2001, 
pursuant to section 309(j) of the Communications Act of 1934 (47 U.S.C. 
309(j)).
    (c) Commission Obligation To Make Additional Spectrum Available by 
Auction.--
        (1) In general.--The Commission shall complete all actions 
    necessary to permit the assignment by September 30, 2002, by 
    competitive bidding pursuant to section 309(j) of the 
    Communications Act of 1934 (47 U.S.C. 309(j)), of licenses for the 
    use of bands of frequencies that--
            (A) in the aggregate span not less than 55 megahertz;
            (B) are located below 3 gigahertz;
            (C) have not, as of the date of enactment of this Act--
                (i) been designated by Commission regulation for 
            assignment pursuant to such section;
                (ii) been identified by the Secretary of Commerce 
            pursuant to section 113 of the National Telecommunications 
            and Information Administration Organization Act (47 U.S.C. 
            923);
                (iii) been allocated for Federal Government use 
            pursuant to section 305 of the Communications Act of 1934 
            (47 U.S.C. 305);
                (iv) been designated for reallocation under section 337 
            of the Communications Act of 1934 (as added by this Act); 
            or
                (v) been allocated or authorized for unlicensed use 
            pursuant to part 15 of the Commission's regulations (47 
            C.F.R. Part 15), if the operation of services licensed 
            pursuant to competitive bidding would interfere with 
            operation of end-user products permitted under such 
            regulations;
            (D) include frequencies at 2,110-2,150 megahertz; and
            (E) include 15 megahertz from within the bands of 
        frequencies at 1,990-2,110 megahertz.
        (2) Criteria for Reassignment.--In making available bands of 
    frequencies for competitive bidding pursuant to paragraph (1), the 
    Commission shall--
            (A) seek to promote the most efficient use of the 
        electromagnetic spectrum;
            (B) consider the cost of relocating existing uses to other 
        bands of frequencies or other means of communication;
            (C) consider the needs of existing public safety radio 
        services (as such services are described in section 
        309(j)(2)(A) of the Communications Act of 1934, as amended by 
        this Act);
            (D) comply with the requirements of international 
        agreements concerning spectrum allocations; and
            (E) coordinate with the Secretary of Commerce when there is 
        any impact on Federal Government spectrum use.
        (3) Use of bands at 2,110-2,150 megahertz.--The Commission 
    shall reallocate spectrum located at 2,110-2,150 megahertz for 
    assignment by competitive bidding unless the Commission determines 
    that auction of other spectrum (A) better serves the public 
    interest, convenience, and necessity, and (B) can reasonably be 
    expected to produce greater receipts. If the Commission makes such 
    a determination, then the Commission shall, within 2 years after 
    the date of enactment of this Act, identify an alternative 40 
    megahertz, and report to the Congress an identification of such 
    alternative 40 megahertz for assignment by competitive bidding.
        (4) Use of 15 megahertz from bands at 1,990-2,110 megahertz.--
    The Commission shall reallocate 15 megahertz from spectrum located 
    at 1,990-2,110 megahertz for assignment by competitive bidding 
    unless the President determines such spectrum cannot be reallocated 
    due to the need to protect incumbent Federal systems from 
    interference, and that allocation of other spectrum (A) better 
    serves the public interest, convenience, and necessity, and (B) can 
    reasonably be expected to produce comparable receipts. If the 
    President makes such a determination, then the President shall, 
    within 2 years after the date of enactment of this Act, identify 
    alternative bands of frequencies totalling 15 megahertz, and report 
    to the Congress an identification of such alternative bands for 
    assignment by competitive bidding.
        (5) Notification to the Secretary of Commerce.--The Commission 
    shall attempt to accommodate incumbent licensees displaced under 
    this section by relocating them to other frequencies available for 
    allocation by the Commission. The Commission shall notify the 
    Secretary of Commerce whenever the Commission is not able to 
    provide for the effective relocation of an incumbent licensee to a 
    band of frequencies available to the Commission for assignment. The 
    notification shall include--
            (A) specific information on the incumbent licensee;
            (B) the bands the Commission considered for relocation of 
        the licensee;
            (C) the reasons the licensee cannot be accommodated in such 
        bands; and
            (D) the bands of frequencies identified by the Commission 
        that are--
                (i) suitable for the relocation of such licensee; and
                (ii) allocated for Federal Government use, but that 
            could be reallocated pursuant to part B of the National 
            Telecommunications and Information Administration 
            Organization Act (as amended by this Act).
    (d) Identification and Reallocation of Frequencies.--
        (1) In general.--Section 113 of the National Telecommunications 
    and Information Administration Organization Act (47 U.S.C. 923) is 
    amended by adding at the end thereof the following:
    ``(f) Additional Reallocation Report.--If the Secretary receives a 
notice from the Commission pursuant to section 3002(c)(5) of the 
Balanced Budget Act of 1997, the Secretary shall prepare and submit to 
the President, the Commission, and the Congress a report recommending 
for reallocation for use other than by Federal Government stations 
under section 305 of the 1934 Act (47 U.S.C. 305), bands of frequencies 
that are suitable for the licensees identified in the Commission's 
notice. The Commission shall, not later than one year after receipt of 
such report, prepare, submit to the President and the Congress, and 
implement, a plan for the immediate allocation and assignment of such 
frequencies under the 1934 Act to incumbent licensees described in the 
Commission's notice.
    ``(g) Relocation of Federal Government Stations.--
        ``(1) In general.--In order to expedite the commercial use of 
    the electromagnetic spectrum and notwithstanding section 3302(b) of 
    title 31, United States Code, any Federal entity which operates a 
    Federal Government station may accept from any person payment of 
    the expenses of relocating the Federal entity's operations from one 
    or more frequencies to another frequency or frequencies, including 
    the costs of any modification, replacement, or reissuance of 
    equipment, facilities, operating manuals, or regulations incurred 
    by that entity. Such payments may be in advance of relocation and 
    may be in cash or in kind. Any such payment in cash shall be 
    deposited in the account of such Federal entity in the Treasury of 
    the United States or in a separate account authorized by law. Funds 
    deposited according to this paragraph shall be available, without 
    appropriation or fiscal year limitation, only for such expenses of 
    the Federal entity for which such funds were deposited under this 
    paragraph.
        ``(2) Process for relocation.--Any person seeking to relocate a 
    Federal Government station that has been assigned a frequency 
    within a band that has been allocated for mixed Federal and non-
    Federal use, or that has been scheduled for reallocation to non-
    Federal use, may submit a petition for such relocation to NTIA. The 
    NTIA shall limit or terminate the Federal Government station's 
    operating license within 6 months after receiving the petition if 
    the following requirements are met:
            ``(A) the person seeking relocation of the Federal 
        Government station has guaranteed to pay all relocation costs 
        incurred by the Federal entity, including all engineering, 
        equipment, site acquisition and construction, and regulatory 
        fee costs;
            ``(B) all activities necessary for implementing the 
        relocation have been completed, including construction of 
        replacement facilities (if necessary and appropriate) and 
        identifying and obtaining new frequencies for use by the 
        relocated Federal Government station (where such station is not 
        relocating to spectrum reserved exclusively for Federal use);
            ``(C) any necessary replacement facilities, equipment 
        modifications, or other changes have been implemented and 
        tested to ensure that the Federal Government station is able to 
        successfully accomplish its purposes; and
            ``(D) NTIA has determined that the proposed use of the 
        spectrum frequency band to which the Federal entity will 
        relocate its operations is--
                ``(i) consistent with obligations undertaken by the 
            United States in international agreements and with United 
            States national security and public safety interests; and
                ``(ii) suitable for the technical characteristics of 
            the band and consistent with other uses of the band.
        In exercising its authority under clause (i) of this 
        subparagraph, NTIA shall consult with the Secretary of Defense, 
        the Secretary of State, or other appropriate officers of the 
        Federal Government.
        ``(3) Right to reclaim.--If within one year after the 
    relocation the Federal entity demonstrates to the Commission that 
    the new facilities or spectrum are not comparable to the facilities 
    or spectrum from which the Federal Government station was 
    relocated, the person who filed the petition under paragraph (2) 
    for such relocation shall take reasonable steps to remedy any 
    defects or pay the Federal entity for the expenses incurred in 
    returning the Federal Government station to the spectrum from which 
    such station was relocated.
    ``(h) Federal Action To Expedite Spectrum Transfer.--Any Federal 
Government station which operates on electromagnetic spectrum that has 
been identified in any reallocation report under this section shall, to 
the maximum extent practicable through the use of the authority granted 
under subsection (g) and any other applicable provision of law, take 
action to relocate its spectrum use to other frequencies that are 
reserved for Federal use or to consolidate its spectrum use with other 
Federal Government stations in a manner that maximizes the spectrum 
available for non-Federal use.
    ``(i) Definition.--For purposes of this section, the term `Federal 
entity' means any department, agency, or other instrumentality of the 
Federal Government that utilizes a Government station license obtained 
under section 305 of the 1934 Act (47 U.S.C. 305).''.
        (2) Section 114(a) of such Act (47 U.S.C. 924(a)) is amended--
            (A) in paragraph (1), by striking ``(a) or (d)(1)'' and 
        inserting ``(a), (d)(1), or (f)''; and
            (B) in paragraph (2), by striking ``either'' and inserting 
        ``any''.
    (e) Identification and Reallocation of Auctionable Frequencies.--
        (1) Second report required.--Section 113(a) of the National 
    Telecommunications and Information Administration Organization Act 
    (47 U.S.C. 923(a)) is amended by inserting ``and within 6 months 
    after the date of enactment of the Balanced Budget Act of 1997'' 
    after ``Act of 1993''.
        (2) In general.--Section 113(b) of such Act (47 U.S.C. 923(b)) 
    is amended--
            (A) by striking the caption of paragraph (1) and inserting 
        ``Initial reallocation report.--'';
            (B) by inserting ``in the initial report required by 
        subsection (a)'' after ``recommend for reallocation'' in 
        paragraph (1);
            (C) by inserting ``or (3)'' after ``paragraph (1)'' each 
        place it appears in paragraph (2); and
            (D) by adding at the end thereof the following:
        ``(3) Second reallocation report.--In accordance with the 
    provisions of this section, the Secretary shall recommend for 
    reallocation in the second report required by subsection (a), for 
    use other than by Federal Government stations under section 305 of 
    the 1934 Act (47 U.S.C. 305), a band or bands of frequencies that--
            ``(A) in the aggregate span not less than 20 megahertz;
            ``(B) are located below 3 gigahertz; and
            ``(C) meet the criteria specified in paragraphs (1) through 
        (5) of subsection (a).''.
        (3) Conforming amendment.--Section 113(d) of such Act (47 
    U.S.C. 923(d)) is amended by striking ``final report'' and 
    inserting ``initial report''.
        (4) Allocation and assignment.--Section 115 of such Act (47 
    U.S.C. 925) is amended--
            (A) by striking ``the report required by section 113(a)'' 
        in subsection (b) and inserting ``the initial reallocation 
        report required by section 113(a)''; and
            (B) by adding at the end thereof the following:
    ``(c) Allocation and Assignment of Frequencies Identified in the 
Second Reallocation Report.--
        ``(1) Plan and implementation.--With respect to the frequencies 
    made available for reallocation pursuant to section 113(b)(3), the 
    Commission shall, not later than one year after receipt of the 
    second reallocation report required by section 113(a), prepare, 
    submit to the President and the Congress, and implement, a plan for 
    the immediate allocation and assignment under the 1934 Act of all 
    such frequencies in accordance with section 309(j) of such Act.
        ``(2) Contents.--The plan prepared by the Commission under 
    paragraph (1) shall consist of a schedule of allocation and 
    assignment of those frequencies in accordance with section 309(j) 
    of the 1934 Act in time for the assignment of those licenses or 
    permits by September 30, 2002.''.

SEC. 3003. AUCTION OF RECAPTURED BROADCAST TELEVISION SPECTRUM.

    Section 309(j) of the Communications Act of 1934 (47 U.S.C. 309(j)) 
is amended by adding at the end the following new paragraph:
        ``(14) Auction of recaptured broadcast television spectrum.--
            ``(A) Limitations on terms of terrestrial television 
        broadcast licenses.--A television broadcast license that 
        authorizes analog television service may not be renewed to 
        authorize such service for a period that extends beyond 
        December 31, 2006.
            ``(B) Extension.--The Commission shall extend the date 
        described in subparagraph (A) for any station that requests 
        such extension in any television market if the Commission finds 
        that--
                ``(i) one or more of the stations in such market that 
            are licensed to or affiliated with one of the four largest 
            national television networks are not broadcasting a digital 
            television service signal, and the Commission finds that 
            each such station has exercised due diligence and satisfies 
            the conditions for an extension of the Commission's 
            applicable construction deadlines for digital television 
            service in that market;
                ``(ii) digital-to-analog converter technology is not 
            generally available in such market; or
                ``(iii) in any market in which an extension is not 
            available under clause (i) or (ii), 15 percent or more of 
            the television households in such market--

                    ``(I) do not subscribe to a multichannel video 
                programming distributor (as defined in section 602) 
                that carries one of the digital television service 
                programming channels of each of the television stations 
                broadcasting such a channel in such market; and
                    ``(II) do not have either--

                        ``(a) at least one television receiver capable 
                    of receiving the digital television service signals 
                    of the television stations licensed in such market; 
                    or
                        ``(b) at least one television receiver of 
                    analog television service signals equipped with 
                    digital-to-analog converter technology capable of 
                    receiving the digital television service signals of 
                    the television stations licensed in such market.
            ``(C) Spectrum reversion and resale.--
                ``(i) The Commission shall--

                    ``(I) ensure that, as licenses for analog 
                television service expire pursuant to subparagraph (A) 
                or (B), each licensee shall cease using electromagnetic 
                spectrum assigned to such service according to the 
                Commission's direction; and
                    ``(II) reclaim and organize the electromagnetic 
                spectrum in a manner consistent with the objectives 
                described in paragraph (3) of this subsection.

                ``(ii) Licensees for new services occupying spectrum 
            reclaimed pursuant to clause (i) shall be assigned in 
            accordance with this subsection. The Commission shall 
            complete the assignment of such licenses, and report to the 
            Congress the total revenues from such competitive bidding, 
            by September 30, 2002.
            ``(D) Certain limitations on qualified bidders 
        prohibited.--In prescribing any regulations relating to the 
        qualification of bidders for spectrum reclaimed pursuant to 
        subparagraph (C)(i), the Commission, for any license that may 
        be used for any digital television service where the grade A 
        contour of the station is projected to encompass the entirety 
        of a city with a population in excess of 400,000 (as determined 
        using the 1990 decennial census), shall not--
                ``(i) preclude any party from being a qualified bidder 
            for such spectrum on the basis of--

                    ``(I) the Commission's duopoly rule (47 C.F.R. 
                73.3555(b)); or
                    ``(II) the Commission's newspaper cross-ownership 
                rule (47 C.F.R. 73.3555(d)); or

                ``(ii) apply either such rule to preclude such a party 
            that is a winning bidder in a competitive bidding for such 
            spectrum from using such spectrum for digital television 
            service.''.

SEC. 3004. ALLOCATION AND ASSIGNMENT OF NEW PUBLIC SAFETY SERVICES 
              LICENSES AND COMMERCIAL LICENSES.

    Title III of the Communications Act of 1934 is amended by inserting 
after section 336 (47 U.S.C. 336) the following new section:

``SEC. 337. ALLOCATION AND ASSIGNMENT OF NEW PUBLIC SAFETY SERVICES 
              LICENSES AND COMMERCIAL LICENSES.

    ``(a) In General.--Not later than January 1, 1998, the Commission 
shall allocate the electromagnetic spectrum between 746 megahertz and 
806 megahertz, inclusive, as follows:
        ``(1) 24 megahertz of that spectrum for public safety services 
    according to the terms and conditions established by the 
    Commission, in consultation with the Secretary of Commerce and the 
    Attorney General; and
        ``(2) 36 megahertz of that spectrum for commercial use to be 
    assigned by competitive bidding pursuant to section 309(j).
    ``(b) Assignment.--The Commission shall--
        ``(1) commence assignment of the licenses for public safety 
    services created pursuant to subsection (a) no later than September 
    30, 1998; and
        ``(2) commence competitive bidding for the commercial licenses 
    created pursuant to subsection (a) after January 1, 2001.
    ``(c) Licensing of Unused Frequencies for Public Safety Services.--
        ``(1) Use of unused channels for public safety services.--Upon 
    application by an entity seeking to provide public safety services, 
    the Commission shall waive any requirement of this Act or its 
    regulations implementing this Act (other than its regulations 
    regarding harmful interference) to the extent necessary to permit 
    the use of unassigned frequencies for the provision of public 
    safety services by such entity. An application shall be granted 
    under this subsection if the Commission finds that--
            ``(A) no other spectrum allocated to public safety services 
        is immediately available to satisfy the requested public safety 
        service use;
            ``(B) the requested use is technically feasible without 
        causing harmful interference to other spectrum users entitled 
        to protection from such interference under the Commission's 
        regulations;
            ``(C) the use of the unassigned frequency for the provision 
        of public safety services is consistent with other allocations 
        for the provision of such services in the geographic area for 
        which the application is made;
            ``(D) the unassigned frequency was allocated for its 
        present use not less than 2 years prior to the date on which 
        the application is granted; and
            ``(E) granting such application is consistent with the 
        public interest.
        ``(2) Applicability.--Paragraph (1) shall apply to any 
    application to provide public safety services that is pending or 
    filed on or after the date of enactment of the Balanced Budget Act 
    of 1997.
    ``(d) Conditions on Licenses.--In establishing service rules with 
respect to licenses granted pursuant to this section, the Commission--
        ``(1) shall establish interference limits at the boundaries of 
    the spectrum block and service area;
        ``(2) shall establish any additional technical restrictions 
    necessary to protect full-service analog television service and 
    digital television service during a transition to digital 
    television service;
        ``(3) may permit public safety services licensees and 
    commercial licensees--
            ``(A) to aggregate multiple licenses to create larger 
        spectrum blocks and service areas; and
            ``(B) to disaggregate or partition licenses to create 
        smaller spectrum blocks or service areas; and
        ``(4) shall establish rules insuring that public safety 
    services licensees using spectrum reallocated pursuant to 
    subsection (a)(1) shall not be subject to harmful interference from 
    television broadcast licensees.
    ``(e) Removal and Relocation of Incumbent Broadcast Licensees.--
        ``(1) Channels 60 to 69.--Any person who holds a television 
    broadcast license to operate between 746 and 806 megahertz may not 
    operate at that frequency after the date on which the digital 
    television service transition period terminates, as determined by 
    the Commission.
        ``(2) Incumbent qualifying low-power stations.--After making 
    any allocation or assignment under this section, the Commission 
    shall seek to assure, consistent with the Commission's plan for 
    allotments for digital television service, that each qualifying 
    low-power television station is assigned a frequency below 746 
    megahertz to permit the continued operation of such station.
    ``(f) Definitions.--For purposes of this section:
        ``(1) Public safety services.--The term `public safety 
    services' means services--
            ``(A) the sole or principal purpose of which is to protect 
        the safety of life, health, or property;
            ``(B) that are provided--
                ``(i) by State or local government entities; or
                ``(ii) by nongovernmental organizations that are 
            authorized by a governmental entity whose primary mission 
            is the provision of such services; and
            ``(C) that are not made commercially available to the 
        public by the provider.
        ``(2) Qualifying low-power television stations.--A station is a 
    qualifying low-power television station if, during the 90 days 
    preceding the date of enactment of the Balanced Budget Act of 
    1997--
            ``(A) such station broadcast a minimum of 18 hours per day;
            ``(B) such station broadcast an average of at least 3 hours 
        per week of programming that was produced within the market 
        area served by such station; and
            ``(C) such station was in compliance with the requirements 
        applicable to low-power television stations.''.

SEC. 3005. FLEXIBLE USE OF ELECTROMAGNETIC SPECTRUM.

    Section 303 of the Communications Act of 1934 (47 U.S.C. 303) is 
amended by adding at the end thereof the following:
    ``(y) Have authority to allocate electromagnetic spectrum so as to 
provide flexibility of use, if--
        ``(1) such use is consistent with international agreements to 
    which the United States is a party; and
        ``(2) the Commission finds, after notice and an opportunity for 
    public comment, that--
            ``(A) such an allocation would be in the public interest;
            ``(B) such use would not deter investment in communications 
        services and systems, or technology development; and
            ``(C) such use would not result in harmful interference 
        among users.''.

SEC. 3006. UNIVERSAL SERVICE FUND PAYMENT SCHEDULE.

    (a) Appropriations to the Universal Service Fund.--
        (1) Appropriation.--There is hereby appropriated to the 
    Commission $3,000,000,000 in fiscal year 2001, which shall be 
    disbursed on October 1, 2000, to the Administrator of the Federal 
    universal service support programs established pursuant to section 
    254 of the Communications Act of 1934 (47 U.S.C. 254), and which 
    may be expended by the Administrator in support of such programs as 
    provided pursuant to the rules implementing that section.
        (2) Return to treasury.--The Administrator shall transfer 
    $3,000,000,000 from the funds collected for such support programs 
    to the General Fund of the Treasury on October 1, 2001.
    (b) Fee Adjustments.--The Commission shall direct the Administrator 
to adjust payments by telecommunications carriers and other providers 
of interstate telecommunications so that the $3,000,000,000 of the 
total payments by such carriers or providers to the Administrator for 
fiscal year 2001 shall be deferred until October 1, 2001.
    (c) Preservation of Authority.--Nothing in this section shall 
affect the Administrator's authority to determine the amounts that 
should be expended for universal service support programs pursuant to 
section 254 of the Communications Act of 1934 and the rules 
implementing that section.
    (d) Definition.--For purposes of this section, the term 
``Administrator'' means the Administrator designated by the Federal 
Communications Commission to administer Federal universal service 
support programs pursuant to section 254 of the Communications Act of 
1934.

SEC. 3007. DEADLINE FOR COLLECTION

    The Commission shall conduct the competitive bidding required under 
this title or the amendments made by this title in a manner that 
ensures that all proceeds of such bidding are deposited in accordance 
with section 309(j)(8) of the Communications Act of 1934 not later than 
September 30, 2002.

SEC. 3008. ADMINISTRATIVE PROCEDURES FOR SPECTRUM AUCTIONS.

    Notwithstanding section 309(b) of the Communications Act of 1934 
(47 U.S.C. 309(b)), no application for an instrument of authorization 
for frequencies assigned under this title (or amendments made by this 
title) shall be granted by the Commission earlier than 7 days following 
issuance of public notice by the Commission of the acceptance for 
filing of such application or of any substantial amendment thereto. 
Notwithstanding section 309(d)(1) of such Act (47 U.S.C. 309(d)(1)), 
the Commission may specify a period (no less than 5 days following 
issuance of such public notice) for the filing of petitions to deny any 
application for an instrument of authorization for such frequencies.

     TITLE IV--MEDICARE, MEDICAID, AND CHILDREN'S HEALTH PROVISIONS

SEC. 4000. AMENDMENTS TO SOCIAL SECURITY ACT AND REFERENCES TO OBRA; 
              TABLE OF CONTENTS OF TITLE.

    (a) 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.
    (b) 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.
    (c) Table of Contents of Title.--The table of contents of this 
title is as follows:

Sec. 4000. Amendments to Social Security Act and references to OBRA; 
          table of contents of title.

                   Subtitle A--Medicare+Choice Program

                   Chapter 1--Medicare+Choice Program


                   SUBCHAPTER A--MEDICARE+CHOICE PROGRAM

Sec. 4001. Establishment of Medicare+Choice program.

                    ``Part C--Medicare+Choice Program

    ``Sec. 1851. Eligibility, election, and enrollment.
    ``Sec. 1852. Benefits and beneficiary protections.
    ``Sec. 1853. Payments to Medicare+Choice organizations.
    ``Sec. 1854. Premiums.
    ``Sec. 1855. Organizational and financial requirements for 
              Medicare+Choice organizations; provider-sponsored 
              organizations.
    ``Sec. 1856. Establishment of standards.
    ``Sec. 1857. Contracts with Medicare+Choice organizations.
    ``Sec. 1859. Definitions; miscellaneous provisions.
Sec. 4002. Transitional rules for current medicare HMO program.
Sec. 4003. Conforming changes in medigap program.


     SUBCHAPTER B--SPECIAL RULES FOR MEDICARE+CHOICE MEDICAL SAVINGS 
                                ACCOUNTS

Sec. 4006. Medicare+Choice MSA.

                        Chapter 2--Demonstrations


     SUBCHAPTER A--MEDICARE+CHOICE COMPETITIVE PRICING DEMONSTRATION 
                                 PROJECT

Sec. 4011. Medicare prepaid competitive pricing demonstration project.
Sec. 4012. Administration through the Office of Competition; advisory 
          committee.
Sec. 4013. Project design based on FEHBP competitive bidding model.


           SUBCHAPTER B--SOCIAL HEALTH MAINTENANCE ORGANIZATIONS

Sec. 4014. Social health maintenance organizations (SHMOs).


   SUBCHAPTER C--MEDICARE SUBVENTION DEMONSTRATION PROJECT FOR MILITARY 
                                RETIREES

Sec. 4015. Medicare subvention demonstration project for military 
          retirees.


                       SUBCHAPTER D--OTHER PROJECTS

Sec. 4016. Medicare coordinated care demonstration project.
Sec. 4017. Orderly transition of municipal health service demonstration 
          projects.
Sec. 4018. Medicare enrollment demonstration project.
Sec. 4019. Extension of certain medicare community nursing organization 
          demonstration projects.

                         Chapter 3--Commissions

Sec. 4021. National Bipartisan Commission on the Future of Medicare.
Sec. 4022. Medicare Payment Advisory Commission.

                     Chapter 4--Medigap Protections

Sec. 4031. Medigap protections.
Sec. 4032. Addition of high deductible medigap policies.

    Chapter 5--Tax Treatment of Hospitals Participating in Provider-
                         Sponsored Organizations

Sec. 4041. Tax treatment of hospitals which participate in provider-
          sponsored organizations.

                   Subtitle B--Prevention Initiatives

Sec. 4101. Screening mammography.
Sec. 4102. Screening pap smear and pelvic exams.
Sec. 4103. Prostate cancer screening tests.
Sec. 4104. Coverage of colorectal screening.
Sec. 4105. Diabetes self-management benefits.
Sec. 4106. Standardization of medicare coverage of bone mass 
          measurements.
Sec. 4107. Vaccines outreach expansion.
Sec. 4108. Study on preventive and enhanced benefits.

                      Subtitle C--Rural Initiatives

Sec. 4201. Medicare rural hospital flexibility program.
Sec. 4202. Prohibiting denial of request by rural referral centers for 
          reclassification on basis of comparability of wages.
Sec. 4203. Hospital geographic reclassification permitted for purposes 
          of disproportionate share payment adjustments.
Sec. 4204. Medicare-dependent, small rural hospital payment extension.
Sec. 4205. Rural health clinic services.
Sec. 4206. Medicare reimbursement for telehealth services.
Sec. 4207. Informatics, telemedicine, and education demonstration 
          project.

    Subtitle D--Anti-Fraud and Abuse Provisions and Improvements in 
                      Protecting Program Integrity

          Chapter 1--Revisions To Sanctions for Fraud and Abuse

Sec. 4301. Permanent exclusion for those convicted of 3 health care 
          related crimes.
Sec. 4302. Authority to refuse to enter into medicare agreements with 
          individuals or entities convicted of felonies.
Sec. 4303. Exclusion of entity controlled by family member of a 
          sanctioned individual.
Sec. 4304. Imposition of civil money penalties.

         Chapter 2--Improvements In Protecting Program Integrity

Sec. 4311. Improving information to medicare beneficiaries.
Sec. 4312. Disclosure of information and surety bonds.
Sec. 4313. Provision of certain identification numbers.
Sec. 4314. Advisory opinions regarding certain physician self-referral 
          provisions.
Sec. 4315. Replacement of reasonable charge methodology by fee 
          schedules.
Sec. 4316. Application of inherent reasonableness to all part B services 
          other than physicians' services.
Sec. 4317. Requirement to furnish diagnostic information.
Sec. 4318. Report by GAO on operation of fraud and abuse control 
          program.
Sec. 4319. Competitive bidding demonstration projects.
Sec. 4320. Prohibiting unnecessary and wasteful medicare payments for 
          certain items.
Sec. 4321. Nondiscrimination in post-hospital referral to home health 
          agencies and other entities.

             Chapter 3--Clarifications And Technical Changes

Sec. 4331. Other fraud and abuse related provisions.

             Subtitle E--Provisions Relating to Part A Only

                   Chapter 1--Payment of PPS Hospitals

Sec. 4401. PPS hospital payment update.
Sec. 4402. Maintaining savings from temporary reduction in capital 
          payments for PPS hospitals.
Sec. 4403. Disproportionate share.
Sec. 4404. Medicare capital asset sales price equal to book value.
Sec. 4405. Elimination of IME and DSH payments attributable to outlier 
          payments.
Sec. 4406. Increase base payment rate to Puerto Rico hospitals.
Sec. 4407. Certain hospital discharges to post acute care.
Sec. 4408. Reclassification of certain counties as large urban areas 
          under medicare program.
Sec. 4409. Geographic reclassification for certain disproportionately 
          large hospitals.
Sec. 4410. Floor on area wage index.

               Chapter 2--Payment of PPS-Exempt Hospitals


                 SUBCHAPTER A--GENERAL PAYMENT PROVISIONS

Sec. 4411. Payment update.
Sec. 4412. Reductions to capital payments for certain PPS-exempt 
          hospitals and units.
Sec. 4413. Rebasing.
Sec. 4414. Cap on TEFRA limits.
Sec. 4415. Bonus and relief payments.
Sec. 4416. Change in payment and target amount for new providers.
Sec. 4417. Treatment of certain long-term care hospitals.
Sec. 4418. Treatment of certain cancer hospitals.
Sec. 4419. Elimination of exemptions for certain hospitals.


     SUBCHAPTER B--PROSPECTIVE PAYMENT SYSTEM FOR PPS-EXEMPT HOSPITALS

Sec. 4421. Prospective payment for inpatient rehabilitation hospital 
          services.
Sec. 4422. Development of proposal on payments for long-term care 
          hospitals.

            Chapter 3--Payment for Skilled Nursing Facilities

Sec. 4431. Extension of cost limits.
Sec. 4432. Prospective payment for skilled nursing facility services.

            Chapter 4--Provisions Related to Hospice Services

Sec. 4441. Payments for hospice services.
Sec. 4442. Payment for home hospice care based on location where care is 
          furnished.
Sec. 4443. Hospice care benefits periods.
Sec. 4444. Other items and services included in hospice care.
Sec. 4445. Contracting with independent physicians or physician groups 
          for hospice care services permitted.
Sec. 4446. Waiver of certain staffing requirements for hospice care 
          programs in nonurbanized areas.
Sec. 4447. Limitation on liability of beneficiaries for certain hospice 
          coverage denials.
Sec. 4448. Extending the period for physician certification of an 
          individual's terminal illness.
Sec. 4449. Effective date.

                   Chapter 5--Other Payment Provisions

Sec. 4451. Reductions in payments for enrollee bad debt.
Sec. 4452. Permanent extension of hemophilia pass-through payment.
Sec. 4453. Reduction in part A medicare premium for certain public 
          retirees.
Sec. 4454. Coverage of services in religious nonmedical health care 
          institutions under the medicare and medicaid programs.

             Subtitle F--Provisions Relating to Part B Only

               Chapter 1--Services of Health Professionals


                    SUBCHAPTER A--PHYSICIANS' SERVICES

Sec. 4501. Establishment of single conversion factor for 1998.
Sec. 4502. Establishing update to conversion factor to match spending 
          under sustainable growth rate.
Sec. 4503. Replacement of volume performance standard with sustainable 
          growth rate.
Sec. 4504. Payment rules for anesthesia services.
Sec. 4505. Implementation of resource-based methodologies.
Sec. 4506. Dissemination of information on high per discharge relative 
          values for in-hospital physicians' services.
Sec. 4507. Use of private contracts by medicare beneficiaries.


               SUBCHAPTER B--OTHER HEALTH CARE PROFESSIONALS

Sec. 4511. Increased medicare reimbursement for nurse practitioners and 
          clinical nurse specialists.
Sec. 4512. Increased medicare reimbursement for physician assistants.
Sec. 4513. No x-ray required for chiropractic services.

     Chapter 2--Payment For Hospital Outpatient Department Services

Sec. 4521. Elimination of formula-driven overpayments (FDO) for certain 
          outpatient hospital services.
Sec. 4522. Extension of reductions in payments for costs of hospital 
          outpatient services.
Sec. 4523. Prospective payment system for hospital outpatient department 
          services.

                      Chapter 3--Ambulance Services

Sec. 4531. Payments for ambulance services.
Sec. 4532. Demonstration of coverage of ambulance services under 
          medicare through contracts with units of local government.

  Chapter 4--Prospective Payment for Outpatient Rehabilitation Services

Sec. 4541. Prospective payment for outpatient rehabilitation services.

                   Chapter 5--Other Payment Provisions

Sec. 4551. Payments for durable medical equipment.
Sec. 4552. Oxygen and oxygen equipment.
Sec. 4553. Reduction in updates to payment amounts for clinical 
          diagnostic laboratory tests; study on laboratory tests.
Sec. 4554. Improvements in administration of laboratory tests benefit.
Sec. 4555. Updates for ambulatory surgical services.
Sec. 4556. Reimbursement for drugs and biologicals.
Sec. 4557. Coverage of oral anti-nausea drugs under chemotherapeutic 
          regimen.
Sec. 4558. Renal dialysis-related services.
Sec. 4559. Temporary coverage restoration for portable electrocardiogram 
          transportation.

            Chapter 6--Part B Premium and Related Provisions


           SUBCHAPTER A--DETERMINATION OF PART B PREMIUM AMOUNT

Sec. 4571. Part B premium.


         SUBCHAPTER B--OTHER PROVISIONS RELATED TO PART B PREMIUM

Sec. 4581. Protections under the medicare program for disabled workers 
          who lose benefits under a group health plan.
Sec. 4582. Governmental entities eligible to elect to pay part B 
          premiums for eligible individuals.

            Subtitle G--Provisions Relating to Parts A and B

              Chapter 1--Home Health Services and Benefits


              SUBCHAPTER A--PAYMENTS FOR HOME HEALTH SERVICES

Sec. 4601. Recapturing savings resulting from temporary freeze on 
          payment increases for home health services.
Sec. 4602. Interim payments for home health services.
Sec. 4603. Prospective payment for home health services.
Sec. 4604. Payment based on location where home health service is 
          furnished.


                    SUBCHAPTER B--HOME HEALTH BENEFITS

Sec. 4611. Modification of part A home health benefit for individuals 
          enrolled under part B.
Sec. 4612. Clarification of part-time or intermittent nursing care.
Sec. 4613. Study on definition of homebound.
Sec. 4614. Normative standards for home health claims denials.
Sec. 4615. No home health benefits based solely on drawing blood.
Sec. 4616. Reports to Congress regarding home health cost containment.

                  Chapter 2--Graduate Medical Education


                 SUBCHAPTER A--INDIRECT MEDICAL EDUCATION

Sec. 4621. Indirect graduate medical education payments.
Sec. 4622. Payment to hospitals of indirect medical education costs for 
          Medicare+Choice enrollees.


              SUBCHAPTER B--DIRECT GRADUATE MEDICAL EDUCATION

Sec. 4623. Limitation on number of residents and rolling average FTE 
          count.
Sec. 4624. Payments to hospitals for direct costs of graduate medical 
          education of Medicare+Choice enrollees.
Sec. 4625. Permitting payment to nonhospital providers.
Sec. 4626. Incentive payments under plans for voluntary reduction in 
          number of residents.
Sec. 4627. Medicare special reimbursement rule for primary care combined 
          residency programs.
Sec. 4628. Demonstration project on use of consortia.
Sec. 4629. Recommendations on long-term policies regarding teaching 
          hospitals and graduate medical education.
Sec. 4630. Study of hospital overhead and supervisory physician 
          components of direct medical education costs.

       Chapter 3--Provisions Relating to Medicare Secondary Payer

Sec. 4631. Permanent extension and revision of certain secondary payer 
          provisions.
Sec. 4632. Clarification of time and filing limitations.
Sec. 4633. Permitting recovery against third party administrators.

                       Chapter 4--Other Provisions

Sec. 4641. Placement of advance directive in medical record.
Sec. 4642. Increased certification period for certain organ procurement 
          organizations.
Sec. 4643. Office of the Chief Actuary in the Health Care Financing 
          Administration.
Sec. 4644. Conforming amendments to comply with congressional review of 
          agency rulemaking.

                          Subtitle H--Medicaid

                         Chapter 1--Managed Care

Sec. 4701. State option of using managed care; change in terminology.
Sec. 4702. Primary care case management services as State option without 
          need for waiver.
Sec. 4703. Elimination of 75:25 restriction on risk contracts.
Sec. 4704. Increased beneficiary protections.
Sec. 4705. Quality assurance standards.
Sec. 4706. Solvency standards.
Sec. 4707. Protections against fraud and abuse.
Sec. 4708. Improved administration.
Sec. 4709. 6-month guaranteed eligibility for all individuals enrolled 
          in managed care.
Sec. 4710. Effective dates.

             Chapter 2--Flexibility In Payment of Providers

Sec. 4711. Flexibility in payment methods for hospital, nursing 
          facility, ICF/MR, and home health services.
Sec. 4712. Payment for center and clinic services.
Sec. 4713. Elimination of obstetrical and pediatric payment rate 
          requirements.
Sec. 4714. Medicaid payment rates for certain medicare cost-sharing.
Sec. 4715. Treatment of veterans' pensions under medicaid.

                  Chapter 3--Federal Payments to States

Sec. 4721. Reforming disproportionate share payments under State 
          medicaid programs.
Sec. 4722. Treatment of State taxes imposed on certain hospitals.
Sec. 4723. Additional funding for State emergency health services 
          furnished to undocumented aliens.
Sec. 4724. Elimination of waste, fraud, and abuse.
Sec. 4725. Increased FMAPs.
Sec. 4726. Increase in payment limitation for territories.

                         Chapter 4--Eligibility

Sec. 4731. State option of continuous eligibility for 12 months; 
          clarification of State option to cover children.
Sec. 4732. Payment of part B premiums.
Sec. 4733. State option to permit workers with disabilities to buy into 
          medicaid.
Sec. 4734. Penalty for fraudulent eligibility.
Sec. 4735. Treatment of certain settlement payments.

                           Chapter 5--Benefits

Sec. 4741. Elimination of requirement to pay for private insurance.
Sec. 4742. Physician qualification requirements.
Sec. 4743. Elimination of requirement of prior institutionalization with 
          respect to habilitation services furnished under a waiver for 
          home or community-based services.
Sec. 4744. Study and report on EPSDT benefit.

               Chapter 6--Administration and Miscellaneous

Sec. 4751. Elimination of duplicative inspection of care requirements 
          for ICFS/MR and mental hospitals.
Sec. 4752. Alternative sanctions for noncompliant ICFS/MR.
Sec. 4753. Modification of MMIS requirements.
Sec. 4754. Facilitating imposition of State alternative remedies on 
          noncompliant nursing facilities.
Sec. 4755. Removal of name from nurse aide registry.
Sec. 4756. Medically accepted indication.
Sec. 4757. Continuation of State-wide section 1115 medicaid waivers.
Sec. 4758. Extension of moratorium.
Sec. 4759. Extension of effective date for State law amendment.

    Subtitle I--Programs of All-Inclusive Care for the Elderly (PACE)

Sec. 4801. Coverage of PACE under the medicare program.
Sec. 4802. Establishment of PACE program as medicaid State option.
Sec. 4803. Effective date; transition.
Sec. 4804. Study and reports.

          Subtitle J--State Children's Health Insurance Program

          Chapter 1--State Children's Health Insurance Program

Sec. 4901. Establishment of program.

         ``TITLE XXI--STATE CHILDREN'S HEALTH INSURANCE PROGRAM

    ``Sec. 2101. Purpose; State child health plans.
    ``Sec. 2102. General contents of State child health plan; 
              eligibility; outreach.
    ``Sec. 2103. Coverage requirements for children's health insurance.
    ``Sec. 2104. Allotments.
    ``Sec. 2105. Payments to States.
    ``Sec. 2106. Process for submission, approval, and amendment of 
              State child health plans.
    ``Sec. 2107. Strategic objectives and performance goals; plan 
              administration.
    ``Sec. 2108. Annual reports; evaluations.
    ``Sec. 2109. Miscellaneous provisions.
    ``Sec. 2110. Definitions.

         Chapter 2--Expanded Coverage of Children Under Medicaid

Sec. 4911. Optional use of State child health assistance funds for 
          enhanced medicaid match for expanded medicaid eligibility.
Sec. 4912. Medicaid presumptive eligibility for low-income children.
Sec. 4913. Continuation of medicaid eligibility for disabled children 
          who lose SSI benefits.

                   Chapter 3--Diabetes Grant Programs

Sec. 4921. Special diabetes programs for children with Type I diabetes.
Sec. 4922. Special diabetes programs for Indians.
Sec. 4923. Report on diabetes grant programs.

                  Subtitle A--Medicare+Choice Program

                   CHAPTER 1--MEDICARE+CHOICE PROGRAM

                 Subchapter A--Medicare+Choice Program

SEC. 4001. ESTABLISHMENT OF MEDICARE+CHOICE PROGRAM.

    Title XVIII is amended by redesignating part C as part D and by 
inserting after part B the following new part:

                   ``Part C--Medicare+Choice Program


                 ``eligibility, election, and enrollment

    ``Sec. 1851. (a) Choice of Medicare Benefits Through 
Medicare+Choice Plans.--
        ``(1) In general.--Subject to the provisions of this section, 
    each Medicare+Choice eligible individual (as defined in paragraph 
    (3)) is entitled to elect to receive benefits under this title--
            ``(A) through the original medicare fee-for-service program 
        under parts A and B, or
            ``(B) through enrollment in a Medicare+Choice plan under 
        this part.
        ``(2) Types of medicare+choice plans that may be available.--A 
    Medicare+Choice plan may be any of the following types of plans of 
    health insurance:
            ``(A) Coordinated care plans.--Coordinated care plans which 
        provide health care services, including but not limited to 
        health maintenance organization plans (with or without point of 
        service options), plans offered by provider-sponsored 
        organizations (as defined in section 1855(d)), and preferred 
        provider organization plans.
            ``(B) Combination of msa plan and contributions to 
        medicare+choice msa.--An MSA plan, as defined in section 
        1859(b)(3), and a contribution into a Medicare+Choice medical 
        savings account (MSA).
            ``(C) Private fee-for-service plans.--A Medicare+Choice 
        private fee-for-service plan, as defined in section 1859(b)(2).
        ``(3) Medicare+choice eligible individual.--
            ``(A) In general.--In this title, subject to subparagraph 
        (B), the term `Medicare+Choice eligible individual' means an 
        individual who is entitled to benefits under part A and 
        enrolled under part B.
            ``(B) Special rule for end-stage renal disease.--Such term 
        shall not include an individual medically determined to have 
        end-stage renal disease, except that an individual who develops 
        end-stage renal disease while enrolled in a Medicare+Choice 
        plan may continue to be enrolled in that plan.
    ``(b) Special Rules.--
        ``(1) Residence requirement.--
            ``(A) In general.--Except as the Secretary may otherwise 
        provide, an individual is eligible to elect a Medicare+Choice 
        plan offered by a Medicare+Choice organization only if the plan 
        serves the geographic area in which the individual resides.
            ``(B) Continuation of enrollment permitted.--Pursuant to 
        rules specified by the Secretary, the Secretary shall provide 
        that a plan may offer to all individuals residing in a 
        geographic area the option to continue enrollment in the plan, 
        notwithstanding that the individual no longer resides in the 
        service area of the plan, so long as the plan provides that 
        individuals exercising this option have, as part of the basic 
        benefits described in section 1852(a)(1)(A), reasonable access 
        within that geographic area to the full range of basic 
        benefits, subject to reasonable cost sharing liability in 
        obtaining such benefits.
        ``(2) Special rule for certain individuals covered under fehbp 
    or eligible for veterans or military health benefits, veterans.--
            ``(A) FEHBP.--An individual who is enrolled in a health 
        benefit plan under chapter 89 of title 5, United States Code, 
        is not eligible to enroll in an MSA plan until such time as the 
        Director of the Office of Management and Budget certifies to 
        the Secretary that the Office of Personnel Management has 
        adopted policies which will ensure that the enrollment of such 
        individuals in such plans will not result in increased 
        expenditures for the Federal Government for health benefit 
        plans under such chapter.
            ``(B) VA and dod.--The Secretary may apply rules similar to 
        the rules described in subparagraph (A) in the case of 
        individuals who are eligible for health care benefits under 
        chapter 55 of title 10, United States Code, or under chapter 17 
        of title 38 of such Code.
        ``(3) Limitation on eligibility of qualified medicare 
    beneficiaries and other medicaid beneficiaries to enroll in an msa 
    plan.--An individual who is a qualified medicare beneficiary (as 
    defined in section 1905(p)(1)), a qualified disabled and working 
    individual (described in section 1905(s)), an individual described 
    in section 1902(a)(10)(E)(iii), or otherwise entitled to medicare 
    cost-sharing under a State plan under title XIX is not eligible to 
    enroll in an MSA plan.
        ``(4) Coverage under msa plans on a demonstration basis.--
            ``(A) In general.--An individual is not eligible to enroll 
        in an MSA plan under this part--
                ``(i) on or after January 1, 2003, unless the 
            enrollment is the continuation of such an enrollment in 
            effect as of such date; or
                ``(ii) as of any date if the number of such individuals 
            so enrolled as of such date has reached 390,000.
        Under rules established by the Secretary, an individual is not 
        eligible to enroll (or continue enrollment) in an MSA plan for 
        a year unless the individual provides assurances satisfactory 
        to the Secretary that the individual will reside in the United 
        States for at least 183 days during the year.
            ``(B) Evaluation.--The Secretary shall regularly evaluate 
        the impact of permitting enrollment in MSA plans under this 
        part on selection (including adverse selection), use of 
        preventive care, access to care, and the financial status of 
        the Trust Funds under this title.
            ``(C) Reports.--The Secretary shall submit to Congress 
        periodic reports on the numbers of individuals enrolled in such 
        plans and on the evaluation being conducted under subparagraph 
        (B). The Secretary shall submit such a report, by not later 
        than March 1, 2002, on whether the time limitation under 
        subparagraph (A)(i) should be extended or removed and whether 
        to change the numerical limitation under subparagraph (A)(ii).
    ``(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) Coordination through medicare+choice organizations.--
            ``(A) Enrollment.--Such process shall permit an individual 
        who wishes to elect a Medicare+Choice plan offered by a 
        Medicare+Choice 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 Medicare+Choice plan offered by a 
        Medicare+Choice organization and who wishes to terminate such 
        election, to terminate such election through the filing of an 
        appropriate election form with the organization.
        ``(3) 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 original medicare fee-for-service program 
            option.
                ``(ii) Seamless continuation of coverage.--The 
            Secretary may establish procedures under which an 
            individual who is enrolled in a health plan (other than 
            Medicare+Choice plan) offered by a Medicare+Choice 
            organization at the time of the initial election period and 
            who fails to elect to receive coverage other than through 
            the organization is deemed to have elected the 
            Medicare+Choice plan offered by the organization (or, if 
            the organization offers more than one such plan, such plan 
            or plans as the Secretary identifies under such 
            procedures).
            ``(B) Continuing periods.--An individual who has made (or 
        is 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) the Medicare+Choice plan with respect to which 
            such election is in effect is discontinued or, subject to 
            subsection (b)(1)(B), no longer serves the area in which 
            the individual resides.
    ``(d) Providing Information To Promote Informed Choice.--
        ``(1) In general.--The Secretary shall provide for activities 
    under this subsection to broadly disseminate 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.
        ``(2) Provision of notice.--
            ``(A) Open season notification.--At least 15 days before 
        the beginning of each annual, coordinated election period (as 
        defined in subsection (e)(3)(B)), the Secretary shall mail to 
        each Medicare+Choice eligible individual residing in an area 
        the following:
                ``(i) General information.--The general information 
            described in paragraph (3).
                ``(ii) List of plans and comparison of plan options.--A 
            list identifying the Medicare+Choice plans that are (or 
            will be) available to residents of the area and information 
            described in paragraph (4) concerning such plans. Such 
            information shall be presented in a comparative form.
                ``(iii) Additional information.--Any other information 
            that the Secretary determines will assist the individual in 
            making the election under this section.
        The mailing of such information shall be coordinated, to the 
        extent practicable, with the mailing of any annual notice under 
        section 1804.
            ``(B) Notification to newly eligible medicare+choice 
        eligible individuals.--To the extent practicable, the Secretary 
        shall, not later than 30 days before the beginning of the 
        initial Medicare+Choice enrollment period for an individual 
        described in subsection (e)(1), mail to the individual the 
        information described in subparagraph (A).
            ``(C) Form.--The information disseminated under this 
        paragraph shall be written and formatted using language that is 
        easily understandable by medicare beneficiaries.
            ``(D) Periodic updating.--The information described in 
        subparagraph (A) shall be updated on at least an annual basis 
        to reflect changes in the availability of Medicare+Choice plans 
        and the benefits and Medicare+Choice monthly basic and 
        supplemental beneficiary premiums for such plans.
        ``(3) General information.--General information under this 
    paragraph, with respect to coverage under this part during a year, 
    shall include the following:
            ``(A) Benefits under original medicare fee-for-service 
        program option.--A general description of the benefits covered 
        under the original medicare fee-for-service program under parts 
        A and B, including--
                ``(i) covered items and services,
                ``(ii) beneficiary cost sharing, such as deductibles, 
            coinsurance, and copayment amounts, and
                ``(iii) any beneficiary liability for balance billing.
            ``(B) Election procedures.--Information and instructions on 
        how to exercise election options under this section.
            ``(C) Rights.--A general description of procedural rights 
        (including grievance and appeals procedures) of beneficiaries 
        under the original medicare fee-for-service program and the 
        Medicare+Choice program and the right to be protected against 
        discrimination based on health status-related factors under 
        section 1852(b).
            ``(D) Information on medigap and medicare select.--A 
        general description of the benefits, enrollment rights, and 
        other requirements applicable to medicare supplemental policies 
        under section 1882 and provisions relating to medicare select 
        policies described in section 1882(t).
            ``(E) Potential for contract termination.--The fact that a 
        Medicare+Choice organization may terminate its contract, refuse 
        to renew its contract, or reduce the service area included in 
        its contract, under this part, and the effect of such a 
        termination, nonrenewal, or service area reduction may have on 
        individuals enrolled with the Medicare+Choice plan under this 
        part.
        ``(4) Information comparing plan options.--Information under 
    this paragraph, with respect to a Medicare+Choice plan for a year, 
    shall include the following:
            ``(A) Benefits.--The benefits covered under the plan, 
        including the following:
                ``(i) Covered items and services beyond those provided 
            under the original medicare fee-for-service program.
                ``(ii) Any beneficiary cost sharing.
                ``(iii) Any maximum limitations on out-of-pocket 
            expenses.
                ``(iv) In the case of an MSA plan, differences in cost 
            sharing, premiums, and balance billing under such a plan 
            compared to under other Medicare+Choice plans.
                ``(v) In the case of a Medicare+Choice private fee-for-
            service plan, differences in cost sharing, premiums, and 
            balance billing under such a plan compared to under other 
            Medicare+Choice plans.
                ``(vi) The extent to which an enrollee may obtain 
            benefits through out-of-network health care providers.
                ``(vii) The extent to which an enrollee may select 
            among in-network providers and the types of providers 
            participating in the plan's network.
                ``(viii) The organization's coverage of emergency and 
            urgently needed care.
            ``(B) Premiums.--The Medicare+Choice monthly basic 
        beneficiary premium and Medicare+Choice monthly supplemental 
        beneficiary premium, if any, for the plan or, in the case of an 
        MSA plan, the Medicare+Choice monthly MSA premium.
            ``(C) Service area.--The service area of the plan.
            ``(D) Quality and performance.--To the extent available, 
        plan quality and performance indicators for the benefits under 
        the plan (and how they compare to such indicators under the 
        original medicare fee-for-service program under parts A and B 
        in the area involved), including--
                ``(i) disenrollment rates for medicare enrollees 
            electing to receive benefits through the plan for the 
            previous 2 years (excluding disenrollment due to death or 
            moving outside the plan's service area),
                ``(ii) information on medicare enrollee satisfaction,
                ``(iii) information on health outcomes, and
                ``(iv) the recent record regarding compliance of the 
            plan with requirements of this part (as determined by the 
            Secretary).
            ``(E) Supplemental benefits.--Whether the organization 
        offering the plan includes mandatory supplemental benefits in 
        its base benefit package or offers optional supplemental 
        benefits and the terms and conditions (including premiums) for 
        such coverage.
        ``(5) Maintaining a toll-free number and internet site.--The 
    Secretary shall maintain a toll-free number for inquiries regarding 
    Medicare+Choice options and the operation of this part in all areas 
    in which Medicare+Choice plans are offered and an Internet site 
    through which individuals may electronically obtain information on 
    such options and Medicare+Choice plans.
        ``(6) Use of non-federal entities.--The Secretary may enter 
    into contracts with non-Federal entities to carry out activities 
    under this subsection.
        ``(7) Provision of information.--A Medicare+Choice organization 
    shall provide the Secretary with such information on the 
    organization and each Medicare+Choice plan it offers as may be 
    required for the preparation of the information referred to in 
    paragraph (2)(A).
    ``(e) Coverage Election Periods.--
        ``(1) Initial choice upon eligibility to make election if 
    medicare+choice plans available to individual.--If, at the time an 
    individual first becomes entitled to benefits under part A and 
    enrolled under part B, there is one or more Medicare+Choice plans 
    offered in the area in which the individual resides, the individual 
    shall make the election under this section during a period 
    specified by the Secretary such that if the individual elects a 
    Medicare+Choice plan during the period, coverage under the plan 
    becomes effective as of the first date on which the individual may 
    receive such coverage.
        ``(2) Open enrollment and disenrollment opportunities.--Subject 
    to paragraph (5)--
            ``(A) Continuous open enrollment and disenrollment through 
        2001.--At any time during 1998, 1999, 2000, and 2001, a 
        Medicare+Choice eligible individual may change the election 
        under subsection (a)(1).
            ``(B) Continuous open enrollment and disenrollment for 
        first 6 months during 2002.--
                ``(i) In general.--Subject to clause (ii), at any time 
            during the first 6 months of 2002, or, if the individual 
            first becomes a Medicare+Choice eligible individual during 
            2002, during the first 6 months during 2002 in which the 
            individual is a Medicare+Choice eligible individual, a 
            Medicare+Choice eligible individual may change the election 
            under subsection (a)(1).
                ``(ii) Limitation of one change.--An individual may 
            exercise the right under clause (i) only once. The 
            limitation under this clause shall not apply to changes in 
            elections effected during an annual, coordinated election 
            period under paragraph (3) or during a special enrollment 
            period under the first sentence of paragraph (4).
            ``(C) Continuous open enrollment and disenrollment for 
        first 3 months in subsequent years.--
                ``(i) In general.--Subject to clause (ii), at any time 
            during the first 3 months of a year after 2002, or, if the 
            individual first becomes a Medicare+Choice eligible 
            individual during a year after 2002, during the first 3 
            months of such year in which the individual is a 
            Medicare+Choice eligible individual, a Medicare+Choice 
            eligible individual may change the election under 
            subsection (a)(1).
                ``(ii) Limitation of one change during open enrollment 
            period each year.--An individual may exercise the right 
            under clause (i) only once during the applicable 3-month 
            period described in such clause in each year. The 
            limitation under this clause shall not apply to changes in 
            elections effected during an annual, coordinated election 
            period under paragraph (3) or during a special enrollment 
            period under paragraph (4).
        ``(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 an annual, coordinated 
        election period.
            ``(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 2000), 
        the month of November before such year.
            ``(C) Medicare+choice health information fairs.--In the 
        month of November of each year (beginning with 1999), in 
        conjunction with the annual coordinated election period defined 
        in subparagraph (B), the Secretary shall provide for a 
        nationally coordinated educational and publicity campaign to 
        inform Medicare+Choice eligible individuals about 
        Medicare+Choice plans and the election process provided under 
        this section.
            ``(D) Special information campaign in 1998.--During 
        November 1998 the Secretary shall provide for an educational 
        and publicity campaign to inform Medicare+Choice eligible 
        individuals about the availability of Medicare+Choice plans, 
        and eligible organizations with risk-sharing contracts under 
        section 1876, offered in different areas and the election 
        process provided under this section.
        ``(4) Special election periods.--Effective as of January 1, 
    2002, an individual may discontinue an election of a 
    Medicare+Choice plan offered by a Medicare+Choice organization 
    other than during an annual, coordinated election period and make a 
    new election under this section if--
            ``(A) the organization's or plan's certification under this 
        part has been terminated or the organization has terminated or 
        otherwise discontinued providing the plan in the area in which 
        the individual resides;
            ``(B) the individual is no longer eligible to elect the 
        plan 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 the individual's enrollment on 
        the basis described in clause (i) or (ii) of subsection 
        (g)(3)(B));
            ``(C) the individual demonstrates (in accordance with 
        guidelines established by the Secretary) that--
                ``(i) the organization offering the plan substantially 
            violated a material provision of the organization's 
            contract under this part in relation to the individual 
            (including the failure to provide an enrollee on a timely 
            basis medically necessary care for which benefits are 
            available under the plan or the failure to provide such 
            covered care in accordance with applicable quality 
            standards); or
                ``(ii) the organization (or an agent or other entity 
            acting on the organization's behalf) materially 
            misrepresented the plan's provisions in marketing the plan 
            to the individual; or
            ``(D) the individual meets such other exceptional 
        conditions as the Secretary may provide.
    Effective as of January 1, 2002, an individual who, upon first 
    becoming eligible for benefits under part A at age 65, enrolls in a 
    Medicare+Choice plan under this part, the individual may 
    discontinue the election of such plan, and elect coverage under the 
    original fee-for-service plan, at any time during the 12-month 
    period beginning on the effective date of such enrollment.
        ``(5) Special rules for msa plans.--Notwithstanding the 
    preceding provisions of this subsection, an individual--
            ``(A) may elect an MSA plan only during--
                ``(i) an initial open enrollment period described in 
            paragraph (1),
                ``(ii) an annual, coordinated election period described 
            in paragraph (3)(B), or
                ``(iii) the month of November 1998;
            ``(B) subject to subparagraph (C), may not discontinue an 
        election of an MSA plan except during the periods described in 
        clause (ii) or (iii) of subparagraph (A) and under the first 
        sentence of paragraph (4); and
            ``(C) who elects an MSA plan during an annual, coordinated 
        election period, and who never previously had elected such a 
        plan, may revoke such election, in a manner determined by the 
        Secretary, by not later than December 15 following the date of 
        the election.
        ``(6) Open enrollment periods.--Subject to paragraph (5), a 
    Medicare+Choice organization--
            ``(A) shall accept elections or changes to elections during 
        the initial enrollment periods described in paragraph (1), 
        during the month of November 1998 and each subsequent year (as 
        provided in paragraph (3)), and during special election periods 
        described in the first sentence of paragraph (4); and
            ``(B) may accept other changes to elections at such other 
        times as the organization provides.
    ``(f) Effectiveness of Elections and Changes 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 continuous open enrollment periods.--An election 
    or change of coverage made under subsection (e)(2) shall take 
    effect with the first day of the first calendar month following the 
    date on which the election is made.
        ``(3) Annual, coordinated election period.--An election or 
    change of coverage made during an annual, coordinated election 
    period (as defined in subsection (e)(3)(B)) in a year shall take 
    effect as of the first day of the following year.
        ``(4) Other periods.--An election or change of coverage made 
    during any other period under subsection (e)(4) 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) Guaranteed Issue and Renewal.--
        ``(1) In general.--Except as provided in this subsection, a 
    Medicare+Choice organization shall provide that at any time during 
    which elections are accepted under this section with respect to a 
    Medicare+Choice plan 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 
    Medicare+Choice organization, in relation to a Medicare+Choice plan 
    it offers, has a capacity limit and the number of Medicare+Choice 
    eligible individuals who elect the plan under this section exceeds 
    the capacity limit, the organization may limit the election of 
    individuals of the plan under this section but only if priority in 
    election is provided--
            ``(A) first to such individuals as have elected the plan at 
        the time of the determination, and
            ``(B) then to other such individuals in such a manner that 
        does not discriminate, on a basis described in section 1852(b), 
        among the individuals (who seek to elect the plan).
    The preceding sentence shall not apply if it would result in the 
    enrollment of enrollees substantially nonrepresentative, as 
    determined in accordance with regulations of the Secretary, of the 
    medicare population in the service area of the plan.
        ``(3) Limitation on termination of election.--
            ``(A) In general.--Subject to subparagraph (B), a 
        Medicare+Choice organization may not for any reason terminate 
        the election of any individual under this section for a 
        Medicare+Choice plan it offers.
            ``(B) Basis for termination of election.--A Medicare+Choice 
        organization may terminate an individual's election under this 
        section with respect to a Medicare+Choice plan it offers if--
                ``(i) any Medicare+Choice monthly basic and 
            supplemental beneficiary premiums required with respect to 
            such plan are not paid on a timely basis (consistent with 
            standards under section 1856 that provide for a grace 
            period for late payment of such premiums),
                ``(ii) the individual has engaged in disruptive 
            behavior (as specified in such standards), or
                ``(iii) the plan is terminated with respect to all 
            individuals under this part in the area in which the 
            individual resides.
            ``(C) Consequence of termination.--
                ``(i) Terminations for cause.--Any individual whose 
            election is terminated under clause (i) or (ii) of 
            subparagraph (B) is deemed to have elected the original 
            medicare fee-for-service program option described in 
            subsection (a)(1)(A).
                ``(ii) Termination based on plan termination or service 
            area reduction.--Any individual whose election is 
            terminated under subparagraph (B)(iii) shall have a special 
            election period under subsection (e)(4)(A) in which to 
            change coverage to coverage under another Medicare+Choice 
            plan. Such an individual who fails to make an election 
            during such period is deemed to have chosen to change 
            coverage to the original medicare fee-for-service program 
            option described in subsection (a)(1)(A).
            ``(D) Organization obligation with respect to election 
        forms.--Pursuant to a contract under section 1857, each 
        Medicare+Choice organization receiving an election form under 
        subsection (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.
    ``(h) Approval of Marketing Material and Application Forms.--
        ``(1) Submission.--No marketing material or application form 
    may be distributed by a Medicare+Choice organization to (or for the 
    use of) Medicare+Choice eligible individuals unless--
            ``(A) at least 45 days before the date of distribution the 
        organization has submitted the material or form to the 
        Secretary for review, and
            ``(B) the Secretary has not disapproved the distribution of 
        such material or form.
        ``(2) Review.--The standards established under section 1856 
    shall include guidelines for the review of any material or form 
    submitted and under such guidelines the Secretary shall disapprove 
    (or later require the correction of) such material or form if the 
    material or form is materially inaccurate or misleading or 
    otherwise makes a material misrepresentation.
        ``(3) Deemed approval (1-stop shopping).--In the case of 
    material or form 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 material or form under paragraph 
    (1)(B) with respect to a Medicare+Choice plan in an area, the 
    Secretary is deemed not to have disapproved such distribution in 
    all other areas covered by the plan and organization except with 
    regard to that portion of such material or form that is specific 
    only to an area involved.
        ``(4) Prohibition of certain marketing practices.--Each 
    Medicare+Choice organization shall conform to fair marketing 
    standards, in relation to Medicare+Choice plans offered under this 
    part, included in the standards established under section 1856. 
    Such standards--
            ``(A) shall not permit a Medicare+Choice organization to 
        provide for cash or other monetary rebates as an inducement for 
        enrollment or otherwise, and
            ``(B) may include a prohibition against a Medicare+Choice 
        organization (or agent of such an organization) completing any 
        portion of any election form used to carry out elections under 
        this section on behalf of any individual.
    ``(i) Effect of Election of Medicare+Choice Plan Option.--
        ``(1) Payments to organizations.--Subject to sections 
    1852(a)(5), 1853(g), 1853(h), 1886(d)(11), and 1886(h)(3)(D), 
    payments under a contract with a Medicare+Choice organization under 
    section 1853(a) with respect to an individual electing a 
    Medicare+Choice plan 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.
        ``(2) Only organization entitled to payment.--Subject to 
    sections 1853(e), 1853(g), 1853(h), 1857(f)(2), and 1886(d)(11), 
    and 1886(h)(3)(D), only the Medicare+Choice organization shall be 
    entitled to receive payments from the Secretary under this title 
    for services furnished to the individual.


                  ``benefits and beneficiary protections

    ``Sec. 1852. (a) Basic Benefits.--
        ``(1) In general.--Except as provided in section 1859(b)(3) for 
    MSA plans, each Medicare+Choice plan shall provide to members 
    enrolled under this part, through providers and other persons that 
    meet the applicable requirements of this title and part A of title 
    XI--
            ``(A) those items and services (other than hospice care) 
        for which benefits are available under parts A and B to 
        individuals residing in the area served by the plan, and
            ``(B) additional benefits required under section 
        1854(f)(1)(A).
        ``(2) Satisfaction of requirement.--
            ``(A) In general.--A Medicare+Choice plan (other than an 
        MSA plan) offered by a Medicare+Choice organization satisfies 
        paragraph (1)(A), with respect to benefits for items and 
        services furnished other than through a provider or other 
        person that has a contract with the organization offering the 
        plan, if the plan provides payment in an amount so that--
                ``(i) the sum of such payment amount and any cost 
            sharing provided for under the plan, is equal to at least
                ``(ii) the total dollar amount of payment for such 
            items and services as would otherwise be authorized under 
            parts A and B (including any balance billing permitted 
            under such parts).
            ``(B) Reference to related provisions.--For provision 
        relating to--
                ``(i) limitations on balance billing against 
            Medicare+Choice organizations for non-contract providers, 
            see sections 1852(k) and 1866(a)(1)(O), and
                ``(ii) limiting actuarial value of enrollee liability 
            for covered benefits, see section 1854(e).
        ``(3) Supplemental benefits.--
            ``(A) Benefits included subject to secretary's approval.--
        Each Medicare+Choice organization may provide to individuals 
        enrolled under this part, other than under an MSA plan, 
        (without affording those individuals an option to decline the 
        coverage) supplemental health care benefits that the Secretary 
        may approve. The Secretary shall approve any such supplemental 
        benefits unless the Secretary determines that including such 
        supplemental benefits would substantially discourage enrollment 
        by Medicare+Choice eligible individuals with the organization.
            ``(B) At enrollees' option.--
                ``(i) In general.--Subject to clause (ii), a 
            Medicare+Choice organization may provide to individuals 
            enrolled under this part supplemental health care benefits 
            that the individuals may elect, at their option, to have 
            covered.
                ``(ii) Special rule for msa plans.--A Medicare+Choice 
            organization may not provide, under an MSA plan, 
            supplemental health care benefits that cover the deductible 
            described in section 1859(b)(2)(B). In applying the 
            previous sentence, health benefits described in section 
            1882(u)(2)(B) shall not be treated as covering such 
            deductible.
            ``(C) Application to Medicare+Choice private fee-for-
        service plans.--Nothing in this paragraph shall be construed as 
        preventing a Medicare+Choice private fee-for-service plan from 
        offering supplemental benefits that include payment for some or 
        all of the balance billing amounts permitted consistent with 
        section 1852(k) and coverage of additional services that the 
        plan finds to be medically necessary.
        ``(4) Organization as secondary payer.--Notwithstanding any 
    other provision of law, a Medicare+Choice organization may (in the 
    case of the provision of items and services to an individual under 
    a Medicare+Choice plan 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 a law, plan, or policy described in 
    such section--
            ``(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.
        ``(5) National coverage determinations.--If there is a national 
    coverage determination made in the period beginning on the date of 
    an announcement under section 1853(b) and ending on the date of the 
    next announcement under such section and the Secretary projects 
    that the determination will result in a significant change in the 
    costs to a Medicare+Choice organization of providing the benefits 
    that are the subject of such national coverage determination and 
    that such change in costs was not incorporated in the determination 
    of the annual Medicare+Choice capitation rate under section 1853 
    included in the announcement made at the beginning of such period, 
    then, unless otherwise required by law--
            ``(A) such determination shall not apply to contracts under 
        this part until the first contract year that begins after the 
        end of such period, and
            ``(B) if such coverage determination provides for coverage 
        of additional benefits or coverage under additional 
        circumstances, section 1851(i)(1) shall not apply to payment 
        for such additional benefits or benefits provided under such 
        additional circumstances until the first contract year that 
        begins after the end of such period.
    ``(b) Antidiscrimination.--
        ``(1) Beneficiaries.--
            ``(A) In general.--A Medicare+Choice organization may not 
        deny, limit, or condition the coverage or provision of benefits 
        under this part, for individuals permitted to be enrolled with 
        the organization under this part, based on any health status-
        related factor described in section 2702(a)(1) of the Public 
        Health Service Act.
            ``(B) Construction.--Subparagraph (A) shall not be 
        construed as requiring a Medicare+Choice organization to enroll 
        individuals who are determined to have end-stage renal disease, 
        except as provided under section 1851(a)(3)(B).
        ``(2) Providers.--A Medicare+Choice organization shall not 
    discriminate with respect to participation, reimbursement, or 
    indemnification as to any provider who is acting within the scope 
    of the provider's license or certification under applicable State 
    law, solely on the basis of such license or certification. This 
    paragraph shall not be construed to prohibit a plan from including 
    providers only to the extent necessary to meet the needs of the 
    plan's enrollees or from establishing any measure designed to 
    maintain quality and control costs consistent with the 
    responsibilities of the plan.
    ``(c) Disclosure Requirements.--
        ``(1) Detailed description of plan provisions.--A 
    Medicare+Choice organization shall disclose, in clear, accurate, 
    and standardized form to each enrollee with a Medicare+Choice plan 
    offered by the organization under this part at the time of 
    enrollment and at least annually thereafter, the following 
    information regarding such plan:
            ``(A) Service area.--The plan's service area.
            ``(B) Benefits.--Benefits offered under the plan, including 
        information described in section 1851(d)(3)(A) and exclusions 
        from coverage and, if it is an MSA plan, a comparison of 
        benefits under such a plan with benefits under other 
        Medicare+Choice plans.
            ``(C) Access.--The number, mix, and distribution of plan 
        providers, out-of-network coverage (if any) provided by the 
        plan, and any point-of-service option (including the 
        supplemental premium for such option).
            ``(D) Out-of-area coverage.--Out-of-area coverage provided 
        by the plan.
            ``(E) Emergency coverage.--Coverage of emergency services, 
        including--
                ``(i) the appropriate use of emergency services, 
            including use of the 911 telephone system or its local 
            equivalent in emergency situations and an explanation of 
            what constitutes an emergency situation;
                ``(ii) the process and procedures of the plan for 
            obtaining emergency services; and
                ``(iii) the locations of (I) emergency departments, and 
            (II) other settings, in which plan physicians and hospitals 
            provide emergency services and post-stabilization care.
            ``(F) Supplemental benefits.--Supplemental benefits 
        available from the organization offering the plan, including--
                ``(i) whether the supplemental benefits are optional,
                ``(ii) the supplemental benefits covered, and
                ``(iii) the Medicare+Choice monthly supplemental 
            beneficiary premium for the supplemental benefits.
            ``(G) Prior authorization rules.--Rules regarding prior 
        authorization or other review requirements that could result in 
        nonpayment.
            ``(H) Plan grievance and appeals procedures.--All plan 
        appeal or grievance rights and procedures.
            ``(I) Quality assurance program.--A description of the 
        organization's quality assurance program under subsection (e).
        ``(2) Disclosure upon request.--Upon request of a 
    Medicare+Choice eligible individual, a Medicare+Choice organization 
    must provide the following information to such individual:
            ``(A) The general coverage information and general 
        comparative plan information made available under clauses (i) 
        and (ii) of section 1851(d)(2)(A).
            ``(B) Information on procedures used by the organization to 
        control utilization of services and expenditures.
            ``(C) Information on the number of grievances, 
        redeterminations, and appeals and on the disposition in the 
        aggregate of such matters.
            ``(D) An overall summary description as to the method of 
        compensation of participating physicians.
    ``(d) Access to Services.--
        ``(1) In general.--A Medicare+Choice organization offering a 
    Medicare+Choice plan may select the providers from whom the 
    benefits under the plan are provided so long as--
            ``(A) the organization makes such benefits available and 
        accessible to each individual electing the plan within the plan 
        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 plan 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 not emergency services (as 
            defined in paragraph (3)), but (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,
                ``(ii) the services were renal dialysis services and 
            were provided other than through the organization because 
            the individual was temporarily out of the plan's service 
            area, or
                ``(iii) the services are maintenance care or post-
            stabilization care covered under the guidelines established 
            under paragraph (2);
            ``(D) the organization provides access to appropriate 
        providers, including credentialed specialists, for medically 
        necessary treatment and services; and
            ``(E) coverage is provided for emergency services (as 
        defined in paragraph (3)) without regard to prior authorization 
        or the emergency care provider's contractual relationship with 
        the organization.
        ``(2) Guidelines respecting coordination of post-stabilization 
    care.--A Medicare+Choice plan shall comply with such guidelines as 
    the Secretary may prescribe relating to promoting efficient and 
    timely coordination of appropriate maintenance and post-
    stabilization care of an enrollee after the enrollee has been 
    determined to be stable under section 1867.
        ``(3) Definition of emergency services.--In this subsection--
            ``(A) In general.--The term `emergency services' means, 
        with respect to an individual enrolled with an organization, 
        covered inpatient and outpatient services that--
                ``(i) are furnished by a provider that is qualified to 
            furnish such services under this title, and
                ``(ii) are needed to evaluate or stabilize an emergency 
            medical condition (as defined in subparagraph (B)).
            ``(B) Emergency medical condition based on prudent 
        layperson.--The term `emergency medical condition' means a 
        medical condition manifesting itself by acute symptoms of 
        sufficient severity (including severe pain) such that a prudent 
        layperson, who possesses an average knowledge of health and 
        medicine, could reasonably expect the absence of immediate 
        medical attention to result in--
                ``(i) placing the health of the individual (or, with 
            respect to a pregnant woman, the health of the woman or her 
            unborn child) in serious jeopardy,
                ``(ii) serious impairment to bodily functions, or
                ``(iii) serious dysfunction of any bodily organ or 
            part.
            ``(4) Assuring access to services in medicare+choice 
        private fee-for-service plans.--In addition to any other 
        requirements under this part, in the case of a Medicare+Choice 
        private fee-for-service plan, the organization offering the 
        plan must demonstrate to the Secretary that the organization 
        has sufficient number and range of health care professionals 
        and providers willing to provide services under the terms of 
        the plan. The Secretary shall find that an organization has met 
        such requirement with respect to any category of health care 
        professional or provider if, with respect to that category of 
        provider--
                ``(A) the plan has established payment rates for 
            covered services furnished by that category of provider 
            that are not less than the payment rates provided for under 
            part A, part B, or both, for such services, or
                ``(B) the plan has contracts or agreements with a 
            sufficient number and range of providers within such 
            category to provide covered services under the terms of the 
            plan,
        or a combination of both. The previous sentence shall not be 
        construed as restricting the persons from whom enrollees under 
        such a plan may obtain covered benefits.
    ``(e) Quality Assurance Program.--
        ``(1) In general.--Each Medicare+Choice organization must have 
    arrangements, consistent with any regulation, for an ongoing 
    quality assurance program for health care services it provides to 
    individuals enrolled with Medicare+Choice plans of the 
    organization.
        ``(2) Elements of program.--
            ``(A) In general.--The quality assurance program of an 
        organization with respect to a Medicare+Choice plan (other than 
        a Medicare+Choice private fee-for-service plan or a non-network 
        MSA plan) it offers shall--
                ``(i) stress health outcomes and provide for the 
            collection, analysis, and reporting of data (in accordance 
            with a quality measurement system that the Secretary 
            recognizes) that will permit measurement of outcomes and 
            other indices of the quality of Medicare+Choice plans and 
            organizations;
                ``(ii) monitor and evaluate high volume and high risk 
            services and the care of acute and chronic conditions;
                ``(iii) evaluate the continuity and coordination of 
            care that enrollees receive;
                ``(iv) be evaluated on an ongoing basis as to its 
            effectiveness;
                ``(v) include measures of consumer satisfaction;
                ``(vi) provide the Secretary with such access to 
            information collected as may be appropriate to monitor and 
            ensure the quality of care provided under this part;
                ``(vii) provide review by physicians and other health 
            care professionals of the process followed in the provision 
            of such health care services;
                ``(viii) provide for the establishment of written 
            protocols for utilization review, based on current 
            standards of medical practice;
                ``(ix) have mechanisms to detect both underutilization 
            and overutilization of services;
                ``(x) after identifying areas for improvement, 
            establish or alter practice parameters;
                ``(xi) take action to improve quality and assesses the 
            effectiveness of such action through systematic followup; 
            and
                ``(xii) make 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).
            ``(B) Elements of program for organizations offering 
        medicare+choice private fee-for-service plans and non-network 
        msa plans.--The quality assurance program of an organization 
        with respect to a Medicare+Choice private fee-for-service plan 
        or a non-network MSA plan it offers shall--
                ``(i) meet the requirements of clauses (i) through (vi) 
            of subparagraph (A);
                ``(ii) insofar as it provides for the establishment of 
            written protocols for utilization review, base such 
            protocols on current standards of medical practice; and
                ``(iii) have mechanisms to evaluate utilization of 
            services and inform providers and enrollees of the results 
            of such evaluation.
            ``(C) Definition of non-network msa plan.--In this 
        subsection, the term `non-network MSA plan' means an MSA plan 
        offered by a Medicare+Choice organization that does not provide 
        benefits required to be provided by this part, in whole or in 
        part, through a defined set of providers under contract, or 
        under another arrangement, with the organization.
        ``(3) External review.--
            ``(A) In general.--Each Medicare+Choice organization shall, 
        for each Medicare+Choice plan it operates, have an agreement 
        with an independent quality review and improvement organization 
        approved by the Secretary to perform functions of the type 
        described in sections 1154(a)(4)(B) and 1154(a)(14) with 
        respect to services furnished by Medicare+Choice plans for 
        which payment is made under this title. The previous sentence 
        shall not apply to a Medicare+Choice private fee-for-service 
        plan or a non-network MSA plan that does not employ utilization 
        review.
            ``(B) Nonduplication of accreditation.--Except in the case 
        of the review of quality complaints, and consistent with 
        subparagraph (C), the Secretary shall ensure that the external 
        review activities conducted under subparagraph (A) are not 
        duplicative of review activities conducted as part of the 
        accreditation process.
            ``(C) Waiver authority.--The Secretary may waive the 
        requirement described in subparagraph (A) in the case of an 
        organization if the Secretary determines that the organization 
        has consistently maintained an excellent record of quality 
        assurance and compliance with other requirements under this 
        part.
        ``(4) Treatment of accreditation.--The Secretary shall provide 
    that a Medicare+Choice organization is deemed to meet requirements 
    of paragraphs (1) and (2) of this subsection and subsection (h) 
    (relating to confidentiality and accuracy of enrollee records) if 
    the organization is accredited (and periodically reaccredited) by a 
    private organization under a process that the Secretary has 
    determined assures that the organization, as a condition of 
    accreditation, applies and enforces standards with respect to the 
    requirements involved that are no less stringent than the standards 
    established under section 1856 to carry out the respective 
    requirements.
    ``(f) Grievance Mechanism.--Each Medicare+Choice 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 
with Medicare+Choice plans of the organization under this part.
    ``(g) Coverage Determinations, Reconsiderations, and Appeals.--
        ``(1) Determinations by organization.--
            ``(A) In general.--A Medicare+Choice organization shall 
        have a procedure for making determinations regarding whether an 
        individual enrolled with the plan of the organization under 
        this part is entitled to receive a health service under this 
        section and the amount (if any) that the individual is required 
        to pay with respect to such service. Subject to paragraph (3), 
        such procedures shall provide for such determination to be made 
        on a timely basis.
            ``(B) Explanation of determination.--Such a determination 
        that denies coverage, in whole in part, shall be in writing and 
        shall include a statement in understandable language of the 
        reasons for the denial and a description of the reconsideration 
        and appeals processes.
        ``(2) Reconsiderations.--
            ``(A) In general.--The organization shall provide for 
        reconsideration of a determination described in paragraph 
        (1)(B) upon request by the enrollee involved. The 
        reconsideration shall be within a time period specified by the 
        Secretary, but shall be made, subject to paragraph (3), not 
        later than 60 days after the date of the receipt of the request 
        for reconsideration.
            ``(B) Physician decision on certain reconsiderations.--A 
        reconsideration relating to a determination to deny coverage 
        based on a lack of medical necessity shall be made only by a 
        physician with appropriate expertise in the field of medicine 
        which necessitates treatment who is other than a physician 
        involved in the initial determination.
        ``(3) Expedited determinations and reconsiderations.--
            ``(A) Receipt of requests.--
                ``(i) Enrollee requests.--An enrollee in a 
            Medicare+Choice plan may request, either in writing or 
            orally, an expedited determination under paragraph (1) or 
            an expedited reconsideration under paragraph (2) by the 
            Medicare+Choice organization.
                ``(ii) Physician requests.--A physician, regardless 
            whether the physician is affiliated with the organization 
            or not, may request, either in writing or orally, such an 
            expedited determination or reconsideration.
            ``(B) Organization procedures.--
                ``(i) In general.--The Medicare+Choice organization 
            shall maintain procedures for expediting organization 
            determinations and reconsiderations when, upon request of 
            an enrollee, the organization determines that the 
            application of the normal time frame for making a 
            determination (or a reconsideration involving a 
            determination) could seriously jeopardize the life or 
            health of the enrollee or the enrollee's ability to regain 
            maximum function.
                ``(ii) Expedition required for physician requests.--In 
            the case of a request for an expedited determination or 
            reconsideration made under subparagraph (A)(ii), the 
            organization shall expedite the determination or 
            reconsideration if the request indicates that the 
            application of the normal time frame for making a 
            determination (or a reconsideration involving a 
            determination) could seriously jeopardize the life or 
            health of the enrollee or the enrollee's ability to regain 
            maximum function
                ``(iii) Timely response.--In cases described in clauses 
            (i) and (ii), the organization shall notify the enrollee 
            (and the physician involved, as appropriate) of the 
            determination or reconsideration under time limitations 
            established by the Secretary, but not later than 72 hours 
            of the time of receipt of the request for the determination 
            or reconsideration (or receipt of the information necessary 
            to make the determination or reconsideration), or such 
            longer period as the Secretary may permit in specified 
            cases.
        ``(4) Independent review of certain coverage denials.--The 
    Secretary shall contract with an independent, outside entity to 
    review and resolve in a timely manner reconsiderations that affirm 
    denial of coverage, in whole or in part.
        ``(5) Appeals.--An enrollee with a Medicare+Choice plan of a 
    Medicare+Choice 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 subsections (b) and (g) of 
    section 205 as provided in this paragraph, 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.
    ``(h) Confidentiality and Accuracy of Enrollee Records.--Insofar as 
a Medicare+Choice organization maintains medical records or other 
health information regarding enrollees under this part, the 
Medicare+Choice organization shall establish procedures--
        ``(1) to safeguard the privacy of any individually identifiable 
    enrollee information;
        ``(2) to maintain such records and information in a manner that 
    is accurate and timely, and
        ``(3) to assure timely access of enrollees to such records and 
    information.
    ``(i) Information on Advance Directives.--Each Medicare+Choice 
organization shall meet the requirement of section 1866(f) (relating to 
maintaining written policies and procedures respecting advance 
directives).
    ``(j) Rules Regarding Provider Participation.--
        ``(1) Procedures.--Insofar as a Medicare+Choice organization 
    offers benefits under a Medicare+Choice plan through agreements 
    with physicians, the organization shall establish reasonable 
    procedures relating to the participation (under an agreement 
    between a physician and the organization) of physicians under such 
    a plan. 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 such adverse decisions, including the presentation of 
        information and views of the physician regarding such decision.
        ``(2) Consultation in medical policies.--A Medicare+Choice 
    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) Prohibiting interference with provider advice to 
    enrollees.--
            ``(A) In general.--Subject to subparagraphs (B) and (C), a 
        Medicare+Choice organization (in relation to an individual 
        enrolled under a Medicare+Choice plan offered by the 
        organization under this part) shall not prohibit or otherwise 
        restrict a covered health care professional (as defined in 
        subparagraph (D)) from advising such an individual who is a 
        patient of the professional about the health status of the 
        individual or medical care or treatment for the individual's 
        condition or disease, regardless of whether benefits for such 
        care or treatment are provided under the plan, if the 
        professional is acting within the lawful scope of practice.
            ``(B) Conscience protection.--Subparagraph (A) shall not be 
        construed as requiring a Medicare+Choice plan to provide, 
        reimburse for, or provide coverage of a counseling or referral 
        service if the Medicare+Choice organization offering the plan--
                ``(i) objects to the provision of such service on moral 
            or religious grounds; and
                ``(ii) in the manner and through the written 
            instrumentalities such Medicare+Choice organization deems 
            appropriate, makes available information on its policies 
            regarding such service to prospective enrollees before or 
            during enrollment and to enrollees within 90 days after the 
            date that the organization or plan adopts a change in 
            policy regarding such a counseling or referral service.
            ``(C) Construction.--Nothing in subparagraph (B) shall be 
        construed to affect disclosure requirements under State law or 
        under the Employee Retirement Income Security Act of 1974.
            ``(D) Health care professional defined.--For purposes of 
        this paragraph, the term `health care professional' means a 
        physician (as defined in section 1861(r)) or other health care 
        professional if coverage for the professional's services is 
        provided under the Medicare+Choice plan for the services of the 
        professional. Such term includes a podiatrist, optometrist, 
        chiropractor, psychologist, dentist, physician assistant, 
        physical or occupational therapist and therapy assistant, 
        speech-language pathologist, audiologist, registered or 
        licensed practical nurse (including nurse practitioner, 
        clinical nurse specialist, certified registered nurse 
        anesthetist, and certified nurse-midwife), licensed certified 
        social worker, registered respiratory therapist, and certified 
        respiratory therapy technician.
        ``(4) Limitations on physician incentive plans.--
            ``(A) In general.--No Medicare+Choice organization may 
        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 
                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 Medicare+Choice 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.
        ``(5) Limitation on provider indemnification.--A 
    Medicare+Choice organization may not provide (directly or 
    indirectly) for a health care professional, provider of services, 
    or other entity providing health care services (or group of such 
    professionals, providers, or entities) to indemnify the 
    organization against any liability resulting from a civil action 
    brought for any damage caused to an enrollee with a Medicare+Choice 
    plan of the organization under this part by the organization's 
    denial of medically necessary care.
        ``(6) Special rules for medicare+choice private fee-for-service 
    plans.--For purposes of applying this part (including subsection 
    (k)(1)) and section 1866(a)(1)(O), a hospital (or other provider of 
    services), a physician or other health care professional, or other 
    entity furnishing health care services is treated as having an 
    agreement or contract in effect with a Medicare+Choice organization 
    (with respect to an individual enrolled in a Medicare+Choice 
    private fee-for-service plan it offers), if--
            ``(A) the provider, professional, or other entity furnishes 
        services that are covered under the plan to such an enrollee; 
        and
            ``(B) before providing such services, the provider, 
        professional, or other entity --
                ``(i) has been informed of the individual's enrollment 
            under the plan, and
                ``(ii) either--

                    ``(I) has been informed of the terms and conditions 
                of payment for such services under the plan, or
                    ``(II) is given a reasonable opportunity to obtain 
                information concerning such terms and conditions,

            in a manner reasonably designed to effect informed 
            agreement by a provider.
    The previous sentence shall only apply in the absence of an 
    explicit agreement between such a provider, professional, or other 
    entity and the Medicare+Choice organization.
    ``(k) Treatment of Services Furnished by Certain Providers.--
        ``(1) In general.--Except as provided in paragraph (2), a 
    physician or other entity (other than a provider of services) that 
    does not have a contract establishing payment amounts for services 
    furnished to an individual enrolled under this part with a 
    Medicare+Choice organization described in section 1851(a)(2)(A) 
    shall accept as payment in full for covered services under this 
    title that are furnished to such an individual the amounts that the 
    physician or other entity could collect if the individual were not 
    so enrolled. Any penalty or other provision of law that applies to 
    such a payment with respect to an individual entitled to benefits 
    under this title (but not enrolled with a Medicare+Choice 
    organization under this part) also applies with respect to an 
    individual so enrolled.
        ``(2) Application to medicare+choice private fee-for-service 
    plans.--
            ``(A) Balance billing limits under medicare+choice private 
        fee-for-service plans in case of contract providers.--
                ``(i) In general.--In the case of an individual 
            enrolled in a Medicare+Choice private fee-for-service plan 
            under this part, a physician, provider of services, or 
            other entity that has a contract (including through the 
            operation of subsection (j)(6)) establishing a payment rate 
            for services furnished to the enrollee shall accept as 
            payment in full for covered services under this title that 
            are furnished to such an individual an amount not to exceed 
            (including any deductibles, coinsurance, copayments, or 
            balance billing otherwise permitted under the plan) an 
            amount equal to 115 percent of such payment rate.
                ``(ii) Procedures to enforce limits.--The 
            Medicare+Choice organization that offers such a plan shall 
            establish procedures, similar to the procedures described 
            in section 1848(g)(1)(A), in order to carry out the 
            previous sentence.
                ``(iii) Assuring enforcement.--If the Medicare+Choice 
            organization fails to establish and enforce procedures 
            required under clause (ii), the organization is subject to 
            intermediate sanctions under section 1857(g).
            ``(B) Enrollee liability for noncontract providers.--For 
        provision--
                ``(i) establishing minimum payment rate in the case of 
            noncontract providers under a Medicare+Choice private fee-
            for-service plan, see section 1852(a)(2); or
                ``(ii) limiting enrollee liability in the case of 
            covered services furnished by such providers, see paragraph 
            (1) and section 1866(a)(1)(O).
            ``(C) Information on beneficiary liability.--
                ``(i) In general.--Each Medicare+Choice organization 
            that offers a Medicare+Choice private fee-for-service plan 
            shall provide that enrollees under the plan who are 
            furnished services for which payment is sought under the 
            plan are provided an appropriate explanation of benefits 
            (consistent with that provided under parts A and B and, if 
            applicable, under medicare supplemental policies) that 
            includes a clear statement of the amount of the enrollee's 
            liability (including any liability for balance billing 
            consistent with this subsection) with respect to payments 
            for such services.
                ``(ii) Advance notice before receipt of inpatient 
            hospital services and certain other services.--In addition, 
            such organization shall, in its terms and conditions of 
            payments to hospitals for inpatient hospital services and 
            for other services identified by the Secretary for which 
            the amount of the balancing billing under subparagraph (A) 
            could be substantial, require the hospital to provide to 
            the enrollee, before furnishing such services and if the 
            hospital imposes balance billing under subparagraph (A)--

                    ``(I) notice of the fact that balance billing is 
                permitted under such subparagraph for such services, 
                and
                    ``(II) a good faith estimate of the likely amount 
                of such balance billing (if any), with respect to such 
                services, based upon the presenting condition of the 
                enrollee.


               ``payments to medicare+choice organizations

    ``Sec. 1853. (a) Payments to Organizations.--
        ``(1) Monthly payments.--
            ``(A) In general.--Under a contract under section 1857 and 
        subject to subsections (e) and (f) and section 1859(e)(4), the 
        Secretary shall make monthly payments under this section in 
        advance to each Medicare+Choice organization, with respect to 
        coverage of an individual under this part in a Medicare+Choice 
        payment area for a month, in an amount equal to \1/12\ of the 
        annual Medicare+Choice capitation rate (as calculated under 
        subsection (c)) with respect to that individual for that area, 
        adjusted for such risk factors as age, disability status, 
        gender, institutional status, 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 factors, if such changes will improve the 
        determination of actuarial equivalence.
            ``(B) Special rule for end-stage renal disease.--The 
        Secretary shall establish separate rates of payment to a 
        Medicare+Choice organization with respect to classes of 
        individuals determined to have end-stage renal disease and 
        enrolled in a Medicare+Choice plan of the organization. Such 
        rates of payment shall be actuarially equivalent to rates paid 
        to other enrollees in the Medicare+Choice payment area (or such 
        other area as specified by the Secretary). In accordance with 
        regulations, the Secretary shall provide for the application of 
        the seventh sentence of section 1881(b)(7) to payments under 
        this section covering the provision of renal dialysis treatment 
        in the same manner as such sentence applies to composite rate 
        payments described in such sentence.
        ``(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 Medicare+Choice organization 
            under a plan 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 1852(c) at 
            the time the individual enrolled with the organization.
        ``(3) Establishment of risk adjustment factors.--
            ``(A) Report.--The Secretary shall develop, and submit to 
        Congress by not later than March 1, 1999, a report on the 
        method of risk adjustment of payment rates under this section, 
        to be implemented under subparagraph (C), that accounts for 
        variations in per capita costs based on health status. Such 
        report shall include an evaluation of such method by an 
        outside, independent actuary of the actuarial soundness of the 
        proposal.
            ``(B) Data collection.--In order to carry out this 
        paragraph, the Secretary shall require Medicare+Choice 
        organizations (and eligible organizations with risk-sharing 
        contracts under section 1876) to submit data regarding 
        inpatient hospital services for periods beginning on or after 
        July 1, 1997, and data regarding other services and other 
        information as the Secretary deems necessary for periods 
        beginning on or after July 1, 1998. The Secretary may not 
        require an organization to submit such data before January 1, 
        1998.
            ``(C) Initial implementation.--The Secretary shall first 
        provide for implementation of a risk adjustment methodology 
        that accounts for variations in per capita costs based on 
        health status and other demographic factors for payments by no 
        later than January 1, 2000.
            ``(D) Uniform application to all types of plans.--Subject 
        to section 1859(e)(4), the methodology shall be applied 
        uniformly without regard to the type of plan.
    ``(b) Annual Announcement of Payment Rates.--
        ``(1) Annual announcement.--The Secretary shall annually 
    determine, and shall announce (in a manner intended to provide 
    notice to interested parties) not later than March 1 before the 
    calendar year concerned--
            ``(A) the annual Medicare+Choice capitation rate for each 
        Medicare+Choice payment area for the year, and
            ``(B) the risk and other factors to be used in adjusting 
        such rates under subsection (a)(1)(A) for payments for months 
        in that year.
        ``(2) Advance notice of methodological changes.--At least 45 
    days before making the announcement under paragraph (1) for a year, 
    the Secretary shall provide for notice to Medicare+Choice 
    organizations of proposed changes to be made in the methodology 
    from the methodology and assumptions used in the previous 
    announcement and shall provide such organizations an opportunity to 
    comment on such proposed changes.
        ``(3) Explanation of assumptions.--In each announcement made 
    under paragraph (1), the Secretary shall include an explanation of 
    the assumptions and changes in methodology used in the announcement 
    in sufficient detail so that Medicare+Choice organizations can 
    compute monthly adjusted Medicare+Choice capitation rates for 
    individuals in each Medicare+Choice payment area which is in whole 
    or in part within the service area of such an organization.
    ``(c) Calculation of Annual Medicare+Choice Capitation Rates.--
        ``(1) In general.--For purposes of this part, subject to 
    paragraphs (6)(C) and (7), each annual Medicare+Choice capitation 
    rate, for a Medicare+Choice payment area for a contract year 
    consisting of a calendar year, is equal to the largest of the 
    amounts specified in the following subparagraph (A), (B), or (C):
            ``(A) Blended capitation rate.--The sum of--
                ``(i) the area-specific percentage (as specified under 
            paragraph (2) for the year) of the annual area-specific 
            Medicare+Choice capitation rate for the Medicare+Choice 
            payment area, as determined under paragraph (3) for the 
            year, and
                ``(ii) the national percentage (as specified under 
            paragraph (2) for the year) of the input-price-adjusted 
            annual national Medicare+Choice capitation rate, as 
            determined under paragraph (4) for the year,
        multiplied by the budget neutrality adjustment factor 
        determined under paragraph (5).
            ``(B) Minimum amount.--12 multiplied by the following 
        amount:
                ``(i) For 1998, $367 (but not to exceed, in the case of 
            an area outside the 50 States and the District of Columbia, 
            150 percent of the annual per capita rate of payment for 
            1997 determined under section 1876(a)(1)(C) for the area).
                ``(ii) For a succeeding year, the minimum amount 
            specified in this clause (or clause (i)) for the preceding 
            year increased by the national per capita Medicare+Choice 
            growth percentage, described in paragraph (6)(A) for that 
            succeeding year.
            ``(C) Minimum percentage increase.--
                ``(i) For 1998, 102 percent of the annual per capita 
            rate of payment for 1997 determined under section 
            1876(a)(1)(C) for the Medicare+Choice payment area.
                ``(ii) For a subsequent year, 102 percent of the annual 
            Medicare+Choice capitation rate under this paragraph for 
            the area for the previous year.
        ``(2) Area-specific and national percentages.--For purposes of 
    paragraph (1)(A)--
            ``(A) for 1998, the `area-specific percentage' is 90 
        percent and the `national percentage' is 10 percent,
            ``(B) for 1999, the `area-specific percentage' is 82 
        percent and the `national percentage' is 18 percent,
            ``(C) for 2000, the `area-specific percentage' is 74 
        percent and the `national percentage' is 26 percent,
            ``(D) for 2001, the `area-specific percentage' is 66 
        percent and the `national percentage' is 34 percent,
            ``(E) for 2002, the `area-specific percentage' is 58 
        percent and the `national percentage' is 42 percent, and
            ``(F) for a year after 2002, the `area-specific percentage' 
        is 50 percent and the `national percentage' is 50 percent.
        ``(3) Annual area-specific medicare+choice capitation rate.--
            ``(A) In general.--For purposes of paragraph (1)(A), 
        subject to subparagraph (B), the annual area-specific 
        Medicare+Choice capitation rate for a Medicare+Choice payment 
        area--
                ``(i) for 1998 is, subject to subparagraph (D), the 
            annual per capita rate of payment for 1997 determined under 
            section 1876(a)(1)(C) for the area, increased by the 
            national per capita Medicare+Choice growth percentage for 
            1998 (described in paragraph (6)(A)); or
                ``(ii) for a subsequent year is the annual area-
            specific Medicare+Choice capitation rate for the previous 
            year determined under this paragraph for the area, 
            increased by the national per capita Medicare+Choice growth 
            percentage for such subsequent year.
            ``(B) Removal of medical education from calculation of 
        adjusted average per capita cost.--
                ``(i) In general.--In determining the area-specific 
            Medicare+Choice capitation rate under subparagraph (A) for 
            a year (beginning with 1998), the annual per capita rate of 
            payment for 1997 determined under section 1876(a)(1)(C) 
            shall be adjusted to exclude from the rate the applicable 
            percent (specified in clause (ii)) of the payment 
            adjustments described in subparagraph (C).
                ``(ii) Applicable percent.--For purposes of clause (i), 
            the applicable percent for--

                    ``(I) 1998 is 20 percent,
                    ``(II) 1999 is 40 percent,
                    ``(III) 2000 is 60 percent,
                    ``(IV) 2001 is 80 percent, and
                    ``(V) a succeeding year is 100 percent.

            ``(C) Payment adjustment.--
                ``(i) In general.--Subject to clause (ii), the payment 
            adjustments described in this subparagraph are payment 
            adjustments which the Secretary estimates were payable 
            during 1997--

                    ``(I) for the indirect costs of medical education 
                under section 1886(d)(5)(B), and
                    ``(II) for direct graduate medical education costs 
                under section 1886(h).

                ``(ii) Treatment of payments covered under state 
            hospital reimbursement system.--To the extent that the 
            Secretary estimates that an annual per capita rate of 
            payment for 1997 described in clause (i) reflects payments 
            to hospitals reimbursed under section 1814(b)(3), the 
            Secretary shall estimate a payment adjustment that is 
            comparable to the payment adjustment that would have been 
            made under clause (i) if the hospitals had not been 
            reimbursed under such section.
            ``(D) Treatment of areas with highly variable payment 
        rates.--In the case of a Medicare+Choice payment area for which 
        the annual per capita rate of payment determined under section 
        1876(a)(1)(C) for 1997 varies by more than 20 percent from such 
        rate for 1996, for purposes of this subsection the Secretary 
        may substitute for such rate for 1997 a rate that is more 
        representative of the costs of the enrollees in the area.
        ``(4) Input-price-adjusted annual national medicare+choice 
    capitation rate.--
            ``(A) In general.--For purposes of paragraph (1)(A), the 
        input-price-adjusted annual national Medicare+Choice capitation 
        rate for a Medicare+Choice 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 
        service) of--
                ``(i) the national standardized annual Medicare+Choice 
            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 may, 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 annual medicare+choice 
        capitation rate.--In subparagraph (A)(i), the `national 
        standardized annual Medicare+Choice capitation rate' for a year 
        is equal to--
                ``(i) the sum (for all Medicare+Choice payment areas) 
            of the product of--

                    ``(I) the annual area-specific Medicare+Choice 
                capitation rate for that year for the area under 
                paragraph (3), and
                    ``(II) the average number of medicare beneficiaries 
                residing in that area in the year, multiplied by the 
                average of the risk factor weights used to adjust 
                payments under subsection (a)(1)(A) for such 
                beneficiaries in such area; divided by

                ``(ii) the sum of the products described in clause 
            (i)(II) for all areas for that year.
            ``(C) Special rules for 1998.--In applying this paragraph 
        for 1998--
                ``(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)--

                    ``(I) for part A services shall be the ratio 
                (expressed as a percentage) of the national average 
                annual per capita rate of payment for part A for 1997 
                to the total national average annual per capita rate of 
                payment for parts A and B for 1997, and
                    ``(II) for part B services shall be 100 percent 
                minus the ratio described in subclause (I);

                ``(iii) for 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, 40 percent shall be adjusted by the 
                index described in clause (iii); and

                ``(v) the index values shall be computed based only on 
            the beneficiary population who are 65 years of age or older 
            and who are not determined to have end stage renal disease.
        The Secretary may continue to apply the rules described in this 
        subparagraph (or similar rules) for 1999.
        ``(5) Payment adjustment budget neutrality factor.--For 
    purposes of paragraph (1)(A), for each year, the Secretary shall 
    determine a budget neutrality adjustment factor so that the 
    aggregate of the payments under this part shall equal the aggregate 
    payments that would have been made under this part if payment were 
    based entirely on area-specific capitation rates.
        ``(6) National per capita medicare+choice growth percentage 
    defined.--
            ``(A) In general.--In this part, the `national per capita 
        Medicare+Choice growth percentage' for a year is the percentage 
        determined by the Secretary, by March 1st before the beginning 
        of the year involved, to reflect the Secretary's estimate of 
        the projected per capita rate of growth in expenditures under 
        this title for an individual entitled to benefits under part A 
        and enrolled under part B, reduced by the number of percentage 
        points specified in subparagraph (B) for the year. Separate 
        determinations may be made for aged enrollees, disabled 
        enrollees, and enrollees with end-stage renal disease.
            ``(B) Adjustment.--The number of percentage points 
        specified in this subparagraph is--
                ``(i) for 1998, 0.8 percentage points,
                ``(ii) for 1999, 0.5 percentage points,
                ``(iii) for 2000, 0.5 percentage points,
                ``(iv) for 2001, 0.5 percentage points,
                ``(v) for 2002, 0.5 percentage points, and
                ``(vi) for a year after 2002, 0 percentage points.
            ``(C) Adjustment for over or under projection of national 
        per capita medicare+choice growth percentage.--Beginning with 
        rates calculated for 1999, before computing rates for a year as 
        described in paragraph (1), the Secretary shall adjust all 
        area-specific and national Medicare+Choice capitation rates 
        (and beginning in 2000, the minimum amount) for the previous 
        year for the differences between the projections of the 
        national per capita Medicare+Choice growth percentage for that 
        year and previous years and the current estimate of such 
        percentage for such years.
        ``(7) Adjustment for national coverage determinations.--If the 
    Secretary makes a determination with respect to coverage under this 
    title that the Secretary projects will result in a significant 
    increase in the costs to Medicare+Choice of providing benefits 
    under contracts under this part (for periods after any period 
    described in section 1852(a)(5)), the Secretary shall adjust 
    appropriately the payments to such organizations under this part.
    ``(d) Medicare+Choice Payment Area Defined.--
        ``(1) In general.--In this part, except as provided in 
    paragraph (3), the term `Medicare+Choice payment area' means a 
    county, or equivalent area specified by the Secretary.
        ``(2) Rule for esrd beneficiaries.--In the case of individuals 
    who are determined to have end stage renal disease, the 
    Medicare+Choice payment area shall be a State or such other payment 
    area as the Secretary specifies.
        ``(3) Geographic adjustment.--
            ``(A) In general.--Upon written request of the chief 
        executive officer of a State for a contract year (beginning 
        after 1998) made by not later than February 1 of the previous 
        year, the Secretary shall make a geographic adjustment to a 
        Medicare+Choice payment area in the State otherwise determined 
        under paragraph (1)--
                ``(i) to a single statewide Medicare+Choice payment 
            area,
                ``(ii) to the metropolitan based system described in 
            subparagraph (C), or
                ``(iii) to consolidating into a single Medicare+Choice 
            payment area noncontiguous counties (or equivalent areas 
            described in paragraph (1)) within a State.
        Such adjustment shall be effective for payments for months 
        beginning with January of the year following the year in which 
        the request is received.
            ``(B) Budget neutrality adjustment.--In the case of a State 
        requesting an adjustment under this paragraph, the Secretary 
        shall initially (and annually thereafter) adjust the payment 
        rates otherwise established under this section for 
        Medicare+Choice payment areas in the State in a manner so that 
        the aggregate of the payments under this section in the State 
        shall not exceed the aggregate payments that would have been 
        made under this section for Medicare+Choice payment areas in 
        the State in the absence of the adjustment under this 
        paragraph.
            ``(C) Metropolitan based system.--The metropolitan based 
        system described in this subparagraph is one in which--
                ``(i) all the portions of each metropolitan statistical 
            area in the State or in the case of a consolidated 
            metropolitan statistical area, all of the portions of each 
            primary metropolitan statistical area within the 
            consolidated area within the State, are treated as a single 
            Medicare+Choice payment area, and
                ``(ii) all areas in the State that do not fall within a 
            metropolitan statistical area are treated as a single 
            Medicare+Choice payment area.
            ``(D) Areas.--In subparagraph (C), the terms `metropolitan 
        statistical area', `consolidated metropolitan statistical 
        area', and `primary metropolitan statistical area' mean any 
        area designated as such by the Secretary of Commerce.
    ``(e) Special Rules for Individuals Electing MSA Plans.--
        ``(1) In general.--If the amount of the Medicare+Choice monthly 
    MSA premium (as defined in section 1854(b)(2)(C)) for an MSA plan 
    for a year is less than \1/12\ of the annual Medicare+Choice 
    capitation rate applied under this section for the area and year 
    involved, the Secretary shall deposit an amount equal to 100 
    percent of such difference in a Medicare+Choice MSA established 
    (and, if applicable, designated) by the individual under paragraph 
    (2).
        ``(2) Establishment and designation of medicare+choice medical 
    savings account as requirement for payment of contribution.--In the 
    case of an individual who has elected coverage under an MSA plan, 
    no payment shall be made under paragraph (1) 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 
        Medicare+Choice MSA (as defined in section 138(b)(2) of the 
        Internal Revenue Code of 1986), and
            ``(B) if the individual has established more than one such 
        Medicare+Choice MSA, has designated one of such accounts as the 
        individual's Medicare+Choice 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 an MSA plan 
    effective beginning with a month in a year, the amount of the 
    contribution to the Medicare+Choice 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.
    ``(f) Payments From Trust Fund.--The payment to a Medicare+Choice 
organization under this section for individuals enrolled under this 
part with the organization and payments to a Medicare+Choice MSA under 
subsection (e)(1) 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. Monthly 
payments otherwise payable under this section for October 2000 shall be 
paid on the first business day of such month. Monthly payments 
otherwise payable under this section for October 2001 shall be paid on 
the last business day of September 2001. Monthly payments otherwise 
payable under this section for October 2006 shall be paid on the first 
business day of October 2006.
    ``(g) 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 Medicare+Choice plan 
    offered by a Medicare+Choice organization--
            ``(A) payment for such services until the date of the 
        individual's discharge shall be made under this title through 
        the Medicare+Choice plan or the original medicare fee-for-
        service program option described in section 1851(a)(1)(A) (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 Medicare+Choice 
    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 
        Medicare+Choice 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.
    ``(h) Special Rule for Hospice Care.--
        ``(1) Information.--A contract under this part shall require 
    the Medicare+Choice organization to inform each individual enrolled 
    under this part with a Medicare+Choice plan offered by the 
    organization about the availability of hospice care if--
            ``(A) a hospice program participating under this title is 
        located within the organization's service area; or
            ``(B) it is common practice to refer patients to hospice 
        programs outside such service area.
        ``(2) Payment.--If an individual who is enrolled with a 
    Medicare+Choice organization under this part makes an election 
    under section 1812(d)(1) to receive hospice care from a particular 
    hospice program--
            ``(A) payment for the hospice care furnished to the 
        individual shall be made to the hospice program elected by the 
        individual by the Secretary;
            ``(B) payment for other services for which the individual 
        is eligible notwithstanding the individual's election of 
        hospice care under section 1812(d)(1), including services not 
        related to the individual's terminal illness, shall be made by 
        the Secretary to the Medicare+Choice organization or the 
        provider or supplier of the service instead of payments 
        calculated under subsection (a); and
            ``(C) the Secretary shall continue to make monthly payments 
        to the Medicare+Choice organization in an amount equal to the 
        value of the additional benefits required under section 
        1854(f)(1)(A).


                                ``premiums

    ``Sec. 1854. (a) Submission of Proposed Premiums and Related 
Information.--
        (1) In general.--Not later than May 1 of each year, each 
    Medicare+Choice organization shall submit to the Secretary, in a 
    form and manner specified by the Secretary and for each 
    Medicare+Choice plan for the service area in which it intends to be 
    offered in the following year--
            ``(A) the information described in paragraph (2), (3), or 
        (4) for the type of plan involved; and
            ``(B) the enrollment capacity (if any) in relation to the 
        plan and area.
        ``(2) Information required for coordinated care plans.--For a 
    Medicare+Choice plan described in section 1851(a)(2)(A), the 
    information described in this paragraph is as follows:
            ``(A) Basic (and additional) benefits.--For benefits 
        described in 1852(a)(1)(A)--
                ``(i) the adjusted community rate (as defined in 
            subsection (f)(3));
                ``(ii) the Medicare+Choice monthly basic beneficiary 
            premium (as defined in subsection (b)(2)(A));
                ``(iii) a description of deductibles, coinsurance, and 
            copayments applicable under the plan and the actuarial 
            value of such deductibles, coinsurance, and copayments, 
            described in subsection (e)(1)(A); and
                ``(iv) if required under subsection (f)(1), a 
            description of the additional benefits to be provided 
            pursuant to such subsection and the value determined for 
            such proposed benefits under such subsection.
            ``(B) Supplemental benefits.--For benefits described in 
        1852(a)(3)--
                ``(i) the adjusted community rate (as defined in 
            subsection (f)(3));
                ``(ii) the Medicare+Choice monthly supplemental 
            beneficiary premium (as defined in subsection (b)(2)(B)); 
            and
                ``(iii) a description of deductibles, coinsurance, and 
            copayments applicable under the plan and the actuarial 
            value of such deductibles, coinsurance, and copayments, 
            described in subsection (e)(2).
        ``(3) Requirements for msa plans.--For an MSA plan described, 
    the information described in this paragraph is as follows:
            ``(A) Basic (and additional) benefits.--For benefits 
        described in 1852(a)(1)(A), the amount of the Medicare+Choice 
        monthly MSA premium.
            ``(B) Supplemental benefits.--For benefits described in 
        1852(a)(3), the amount of the Medicare+Choice monthly 
        supplementary beneficiary premium.
        ``(4) Requirements for private fee-for-service plans.--For a 
    Medicare+Choice plan described in section 1851(a)(2)(C) for 
    benefits described in 1852(a)(1)(A), the information described in 
    this paragraph is as follows:
            ``(A) Basic (and additional) benefits.--For benefits 
        described in 1852(a)(1)(A)--
                ``(i) the adjusted community rate (as defined in 
            subsection (f)(3));
                ``(ii) the amount of the Medicare+Choice monthly basic 
            beneficiary premium;
                ``(iii) a description of the deductibles, coinsurance, 
            and copayments applicable under the plan, and the actuarial 
            value of such deductibles, coinsurance, and copayments, as 
            described in subsection (e)(4)(A); and
                ``(iv) if required under subsection (f)(1), a 
            description of the additional benefits to be provided 
            pursuant to such subsection and the value determined for 
            such proposed benefits under such subsection.
            ``(B) Supplemental benefits.--For benefits described in 
        1852(a)(3), the amount of the Medicare+Choice monthly 
        supplemental beneficiary premium (as defined in subsection 
        (b)(2)(B)).
        ``(5) Review.--
            ``(A) In general.--Subject to subparagraph (B), the 
        Secretary shall review the adjusted community rates, the 
        amounts of the basic and supplemental premiums, and values 
        filed under this subsection and shall approve or disapprove 
        such rates, amounts, and value so submitted.
            ``(B) Exception.--The Secretary shall not review, approve, 
        or disapprove the amounts submitted under paragraph (3) or 
        subparagraphs (A)(ii) and (B) of paragraph (4).
    ``(b) Monthly Premium Charged.--
        ``(1) In general.--
            ``(A) Rule for other than msa plans.--The monthly amount of 
        the premium charged to an individual enrolled in a 
        Medicare+Choice plan (other than an MSA plan) offered by a 
        Medicare+Choice organization shall be equal to the sum of the 
        Medicare+Choice monthly basic beneficiary premium and the 
        Medicare+Choice monthly supplementary beneficiary premium (if 
        any).
            ``(B) MSA plans.--The monthly amount of the premium charged 
        to an individual enrolled in an MSA plan offered by a 
        Medicare+Choice organization shall be equal to the 
        Medicare+Choice monthly supplemental beneficiary premium (if 
        any).
        ``(2) Premium terminology defined.--For purposes of this part:
            ``(A) The Medicare+Choice monthly basic beneficiary 
        premium.--The term `Medicare+Choice monthly basic beneficiary 
        premium' means, with respect to a Medicare+Choice plan, the 
        amount authorized to be charged under subsection (e)(1) for the 
        plan, or, in the case of a Medicare+Choice private fee-for-
        service plan, the amount filed under subsection (a)(4)(A)(ii).
            ``(B) Medicare+Choice monthly supplemental beneficiary 
        premium.--The term `Medicare+Choice monthly supplemental 
        beneficiary premium' means, with respect to a Medicare+Choice 
        plan, the amount authorized to be charged under subsection 
        (e)(2) for the plan or, in the case of a MSA plan or 
        Medicare+Choice private fee-for-service plan, the amount filed 
        under paragraph (3)(B) or (4)(B) of subsection (a).
            ``(C) Medicare+Choice monthly MSA premium.--The term 
        `Medicare+Choice monthly MSA premium' means, with respect to a 
        Medicare+Choice plan, the amount of such premium filed under 
        subsection (a)(3)(A) for the plan.
    ``(c) Uniform Premium.--The Medicare+Choice monthly basic and 
supplemental beneficiary premium, the Medicare+Choice monthly MSA 
premium charged under subsection (b) of a Medicare+Choice organization 
under this part may not vary among individuals enrolled in the plan.
    ``(d) Terms and Conditions of Imposing Premiums.--Each 
Medicare+Choice organization shall permit the payment of 
Medicare+Choice monthly basic and supplemental beneficiary premiums on 
a monthly basis, may terminate election of individuals for a 
Medicare+Choice plan for failure to make premium payments only in 
accordance with section 1851(g)(3)(B)(i), and may not provide for cash 
or other monetary rebates as an inducement for enrollment or otherwise.
    ``(e) Limitation on Enrollee Liability.--
        ``(1) For basic and additional benefits.--In no event may--
            ``(A) the Medicare+Choice monthly basic beneficiary premium 
        (multiplied by 12) and the actuarial value of the deductibles, 
        coinsurance, and copayments applicable on average to 
        individuals enrolled under this part with a Medicare+Choice 
        plan described in section 1851(a)(2)(A) of an organization with 
        respect to required benefits described in section 1852(a)(1)(A) 
        and additional benefits (if any) required under subsection 
        (f)(1)(A) for a year, exceed
            ``(B) the actuarial value of the deductibles, coinsurance, 
        and copayments that would be applicable on average to 
        individuals entitled to benefits under part A and enrolled 
        under part B if they were not members of a Medicare+Choice 
        organization for the year.
        ``(2) For supplemental benefits.--If the Medicare+Choice 
    organization provides to its members enrolled under this part in a 
    Medicare+Choice plan described in section 1851(a)(2)(A) with 
    respect to supplemental benefits described in section 1852(a)(3), 
    the sum of the Medicare+Choice monthly supplemental beneficiary 
    premium (multiplied by 12) charged and the actuarial value of its 
    deductibles, coinsurance, and copayments charged with respect to 
    such benefits may not exceed the adjusted community rate for such 
    benefits (as defined in subsection (f)(3)).
        ``(3) Determination on other basis.--If the Secretary 
    determines that adequate data are not available to determine the 
    actuarial value under paragraph (1)(A) or (2), the Secretary may 
    determine such amount with respect to all individuals in same 
    geographic area, the State, or in the United States, eligible to 
    enroll in the Medicare+Choice plan involved under this part or on 
    the basis of other appropriate data.
        ``(4) Special rule for private fee-for-service plans.--With 
    respect to a Medicare+Choice private fee-for-service plan (other 
    than a plan that is an MSA plan), in no event may--
            ``(A) the actuarial value of the deductibles, coinsurance, 
        and copayments applicable on average to individuals enrolled 
        under this part with such a plan of an organization with 
        respect to required benefits described in section 1852(a)(1), 
        exceed
            ``(B) the actuarial value of the deductibles, coinsurance, 
        and copayments that would be applicable on average to 
        individuals entitled to benefits under part A and enrolled 
        under part B if they were not members of a Medicare+Choice 
        organization for the year.
    ``(f) Requirement for Additional Benefits.--
        ``(1) Requirement.--
            ``(A) In general.--Each Medicare+Choice organization (in 
        relation to a Medicare+Choice plan, other than an MSA plan, it 
        offers) shall provide that if there is an excess amount (as 
        defined in subparagraph (B)) for the plan 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) in a value which the 
        Secretary determines 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 plan, is the amount 
        (if any) by which--
                ``(i) the average of the capitation payments made to 
            the organization under section 1853 for the plan at the 
            beginning of contract year, exceeds
                ``(ii) the actuarial value of the required benefits 
            described in section 1852(a)(1)(A) under the plan for 
            individuals under this part, as determined based upon an 
            adjusted community rate described in paragraph (3) (as 
            reduced for the actuarial value of the coinsurance, 
            copayments, and deductibles under parts A and B).
            ``(C) Adjusted excess amount.--For purposes of this 
        paragraph, the `adjusted excess amount', for an organization 
        for a plan, is the excess amount reduced to reflect any amount 
        withheld and reserved for the organization for the year under 
        paragraph (2).
            ``(D) Uniform application.--This paragraph shall be applied 
        uniformly for all enrollees for a plan.
            ``(E) Construction.--Nothing in this subsection shall be 
        construed as preventing a Medicare+Choice organization from 
        providing supplemental benefits (described in section 
        1852(a)(3)) that are in addition to the health care benefits 
        otherwise required to be provided under this paragraph and from 
        imposing a premium for such supplemental benefits.
        ``(2) Stabilization fund.--A Medicare+Choice organization may 
    provide that a part of the value of an excess 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 offered in 
    those subsequent periods by the organization in accordance with 
    such paragraph. Any of such value of the amount reserved which is 
    not provided as additional benefits described in paragraph (1)(A) 
    to individuals electing the Medicare+Choice plan of the 
    organization in accordance with such paragraph prior to the end of 
    such periods, shall revert for the use of such trust funds.
        ``(3) Adjusted community rate.--For purposes of this 
    subsection, subject to paragraph (4), the term `adjusted community 
    rate' for a service or services means, at the election of a 
    Medicare+Choice organization, either--
            ``(A) the rate of payment for that service or services 
        which the Secretary annually determines would apply to an 
        individual electing a Medicare+Choice plan 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
            ``(B) 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 plan (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 Medicare+Choice coverage, or Medicare+Choice eligible 
    individuals in the area, in the State, or in the United States, 
    eligible to elect Medicare+Choice 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).
        ``(4) Determination based on insufficient data.--For purposes 
    of this subsection, if the Secretary finds that there is 
    insufficient enrollment experience to determine an average of the 
    capitation payments to be made under this part at the beginning of 
    a contract period or to determine (in the case of a newly operated 
    provider-sponsored organization or other new organization) the 
    adjusted community rate for the organization, the Secretary may 
    determine such an average based on the enrollment experience of 
    other contracts entered into under this part and may determine such 
    a rate using data in the general commercial marketplace.
    ``(g) Prohibition of State Imposition of Premium Taxes.--No State 
may impose a premium tax or similar tax with respect to payments to 
Medicare+Choice organizations under section 1853.


     ``organizational and financial requirements for medicare+choice 
            organizations; provider-sponsored organizations

    ``Sec. 1855. (a) Organized and Licensed Under State Law.--
        ``(1) In general.--Subject to paragraphs (2) and (3), a 
    Medicare+Choice organization shall be organized and licensed under 
    State law as a risk-bearing entity eligible to offer health 
    insurance or health benefits coverage in each State in which it 
    offers a Medicare+Choice plan.
        ``(2) Special exception for provider-sponsored organizations.--
            ``(A) In general.--In the case of a provider-sponsored 
        organization that seeks to offer a Medicare+Choice plan in a 
        State, the Secretary shall waive the requirement of paragraph 
        (1) that the organization be licensed in that State if--
                ``(i) the organization files an application for such 
            waiver with the Secretary by not later than November 1, 
            2002, and
                ``(ii) the Secretary determines, based on the 
            application and other evidence presented to the Secretary, 
            that any of the grounds for approval of the application 
            described in subparagraph (B), (C), or (D) has been met.
            ``(B) Failure to act on licensure application on a timely 
        basis.--The ground for approval of such a waiver application 
        described in this subparagraph is that the State has failed to 
        complete action on a licensing application of the organization 
        within 90 days of the date of the State's receipt of a 
        substantially complete application. No period before the date 
        of the enactment of this section shall be included in 
        determining such 90-day period.
            ``(C) Denial of application based on discriminatory 
        treatment.--The ground for approval of such a waiver 
        application described in this subparagraph is that the State 
        has denied such a licensing application and--
                ``(i) the standards or review process imposed by the 
            State as a condition of approval of the license imposes any 
            material requirements, procedures, or standards (other than 
            solvency requirements) to such organizations that are not 
            generally applicable to other entities engaged in a 
            substantially similar business, or
                ``(ii) the State requires the organization, as a 
            condition of licensure, to offer any product or plan other 
            than a Medicare+Choice plan.
            ``(D) Denial of application based on application of 
        solvency requirements.--With respect to waiver applications 
        filed on or after the date of publication of solvency standards 
        under section 1856(a), the ground for approval of such a waiver 
        application described in this subparagraph is that the State 
        has denied such a licensing application based (in whole or in 
        part) on the organization's failure to meet applicable solvency 
        requirements and--
                ``(i) such requirements are not the same as the 
            solvency standards established under section 1856(a); or
                ``(ii) the State has imposed as a condition of approval 
            of the license documentation or information requirements 
            relating to solvency or other material requirements, 
            procedures, or standards relating to solvency that are 
            different from the requirements, procedures, and standards 
            applied by the Secretary under subsection (d)(2).
        For purposes of this paragraph, the term `solvency 
        requirements' means requirements relating to solvency and other 
        matters covered under the standards established under section 
        1856(a).
            ``(E) Treatment of waiver.--In the case of a waiver granted 
        under this paragraph for a provider-sponsored organization with 
        respect to a State--
                ``(i) Limitation to state.--The waiver shall be 
            effective only with respect to that State and does not 
            apply to any other State.
                ``(ii) Limitation to 36-month period.--The waiver shall 
            be effective only for a 36-month period and may not be 
            renewed.
                ``(iii) Conditioned on compliance with consumer 
            protection and quality standards.--The continuation of the 
            waiver is conditioned upon the organization's compliance 
            with the requirements described in subparagraph (G).
                ``(iv) Preemption of state law.--Any provisions of law 
            of that State which relate to the licensing of the 
            organization and which prohibit the organization from 
            providing coverage pursuant to a contract under this part 
            shall be superseded.
            ``(F) Prompt action on application.--The Secretary shall 
        grant or deny such a waiver application within 60 days after 
        the date the Secretary determines that a substantially complete 
        waiver application has been filed. Nothing in this section 
        shall be construed as preventing an organization which has had 
        such a waiver application denied from submitting a subsequent 
        waiver application.
            ``(G) Application and enforcement of state consumer 
        protection and quality standards.--
                ``(i) In general.--A waiver granted under this 
            paragraph to an organization with respect to licensing 
            under State law is conditioned upon the organization's 
            compliance with all consumer protection and quality 
            standards insofar as such standards--

                    ``(I) would apply in the State to the organization 
                if it were licensed under State law;
                    ``(II) are generally applicable to other 
                Medicare+Choice organizations and plans in the State; 
                and
                    ``(III) are consistent with the standards 
                established under this part.

            Such standards shall not include any standard preempted 
            under section 1856(b)(3)(B).
                ``(ii) Incorporation into contract.--In the case of 
            such a waiver granted to an organization with respect to a 
            State, the Secretary shall incorporate the requirement that 
            the organization (and Medicare+Choice plans it offers) 
            comply with standards under clause (i) as part of the 
            contract between the Secretary and the organization under 
            section 1857.
                ``(iii) Enforcement.--In the case of such a waiver 
            granted to an organization with respect to a State, the 
            Secretary may enter into an agreement with the State under 
            which the State agrees to provide for monitoring and 
            enforcement activities with respect to compliance of such 
            an organization and its Medicare+Choice plans with such 
            standards. Such monitoring and enforcement shall be 
            conducted by the State in the same manner as the State 
            enforces such standards with respect to other 
            Medicare+Choice organizations and plans, without 
            discrimination based on the type of organization to which 
            the standards apply. Such an agreement shall specify or 
            establish mechanisms by which compliance activities are 
            undertaken, while not lengthening the time required to 
            review and process applications for waivers under this 
            paragraph.
            ``(H) Report.--By not later than December 31, 2001, the 
        Secretary shall submit to the Committee on Ways and Means and 
        the Committee on Commerce of the House of Representatives and 
        the Committee on Finance of the Senate a report regarding 
        whether the waiver process under this paragraph should be 
        continued after December 31, 2002. In making such 
        recommendation, the Secretary shall consider, among other 
        factors, the impact of such process on beneficiaries and on the 
        long-term solvency of the program under this title.
        ``(3) Licensure does not substitute for or constitute 
    certification.--The fact that an organization is licensed in 
    accordance with paragraph (1) does not deem the organization to 
    meet other requirements imposed under this part.
    ``(b) Assumption of Full Financial Risk.--The Medicare+Choice 
organization shall assume full financial risk on a prospective basis 
for the provision of the health care services 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 such aggregate level as the 
    Secretary specifies from time to time,
        ``(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 
    care 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.
    ``(c) Certification of Provision Against Risk of Insolvency for 
Unlicensed PSOs.--
        ``(1) In general.--Each Medicare+Choice organization that is a 
    provider-sponsored organization, that is not licensed by a State 
    under subsection (a), and for which a waiver application has been 
    approved under subsection (a)(2), shall meet standards established 
    under section 1856(a) relating to the financial solvency and 
    capital adequacy of the organization.
        ``(2) Certification process for solvency standards for psos.--
    The Secretary shall establish a process for the receipt and 
    approval of applications of a provider-sponsored organization 
    described in paragraph (1) for certification (and periodic 
    recertification) of the organization as meeting such solvency 
    standards. Under such process, the Secretary shall act upon such a 
    certification application not later than 60 days after the date the 
    application has been received.
    ``(d) Provider-Sponsored Organization Defined.--
        ``(1) In general.--In this part, the term `provider-sponsored 
    organization' means a public or private entity--
            ``(A) that is established or organized, and operated, by a 
        health care provider, or group of affiliated health care 
        providers,
            ``(B) that provides a substantial proportion (as defined by 
        the Secretary in accordance with paragraph (2)) of the health 
        care items and services under the contract under this part 
        directly through the provider or affiliated group of providers, 
        and
            ``(C) with respect to which the affiliated providers share, 
        directly or indirectly, substantial financial risk with respect 
        to the provision of such items and services and have at least a 
        majority financial interest in the entity.
        ``(2) Substantial proportion.--In defining what is a 
    `substantial proportion' for purposes of paragraph (1)(B), the 
    Secretary--
            ``(A) shall take into account the need for such an 
        organization to assume responsibility for providing--
                ``(i) significantly more than the majority of the items 
            and services under the contract under this section through 
            its own affiliated providers; and
                ``(ii) most of the remainder of the items and services 
            under the contract through providers with which the 
            organization has an agreement to provide such items and 
            services,
        in order to assure financial stability and to address the 
        practical considerations involved in integrating the delivery 
        of a wide range of service providers;
            ``(B) shall take into account the need for such an 
        organization to provide a limited proportion of the items and 
        services under the contract through providers that are neither 
        affiliated with nor have an agreement with the organization; 
        and
            ``(C) may allow for variation in the definition of 
        substantial proportion among such organizations based on 
        relevant differences among the 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) both providers are part of a controlled group of 
        corporations under section 1563 of the Internal Revenue Code of 
        1986,
            ``(C) each provider is a participant in a lawful 
        combination under which each provider shares substantial 
        financial risk in connection with the organization's 
        operations, 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.
        ``(5) Health care provider defined.--In this subsection, the 
    term `health care provider' means--
            ``(A) any individual who is engaged in the delivery of 
        health care services in a State and who 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, and
            ``(B) any entity that is engaged in the delivery of health 
        care services in a State and that, if it 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, is so 
        licensed.
        ``(6) Regulations.--The Secretary shall issue regulations to 
    carry out this subsection.


                       ``establishment of standards

    ``Sec. 1856. (a) Establishment of Solvency Standards for Provider-
Sponsored Organizations.--
        ``(1) Establishment.--
            ``(A) In general.--The Secretary shall establish, on an 
        expedited basis and using a negotiated rulemaking process under 
        subchapter III of chapter 5 of title 5, United States Code, 
        standards described in section 1855(c)(1) (relating to the 
        financial solvency and capital adequacy of the organization) 
        that entities must meet to qualify as provider-sponsored 
        organizations under this part.
            ``(B) Factors to consider for solvency standards.--In 
        establishing solvency standards under subparagraph (A) for 
        provider-sponsored organizations, the Secretary shall consult 
        with interested parties and shall take into account--
                ``(i) the delivery system assets of such an 
            organization and ability of such an organization to provide 
            services directly to enrollees through affiliated 
            providers,
                ``(ii) alternative means of protecting against 
            insolvency, including reinsurance, unrestricted surplus, 
            letters of credit, guarantees, organizational insurance 
            coverage, partnerships with other licensed entities, and 
            valuation attributable to the ability of such an 
            organization to meet its service obligations through direct 
            delivery of care, and
                ``(iii) any standards developed by the National 
            Association of Insurance Commissioners specifically for 
            risk-based health care delivery organizations.
            ``(C) Enrollee protection against insolvency.--Such 
        standards shall include provisions to prevent enrollees from 
        being held liable to any person or entity for the 
        Medicare+Choice organization's debts in the event of the 
        organization's insolvency.
        ``(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 this section.
        ``(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 April 1, 1998.
        ``(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 January 1, 1998, regarding the 
    committee's progress on achieving a consensus with regard to the 
    rulemaking proceeding and whether such consensus is likely to occur 
    before 1 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 1 
    month before the target date of publication.
        ``(8) Interim, final effect.--The Secretary shall publish a 
    rule under this subsection in the Federal Register by not later 
    than the target date of publication. 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 date of 
    publication.
    ``(b) Establishment of Other Standards.--
        ``(1) In general.--The Secretary shall establish by regulation 
    other standards (not described in subsection (a)) for 
    Medicare+Choice organizations and plans consistent with, and to 
    carry out, this part. The Secretary shall publish such regulations 
    by June 1, 1998. In order to carry out this requirement in a timely 
    manner, the Secretary may promulgate regulations that take effect 
    on an interim basis, after notice and pending opportunity for 
    public comment.
        ``(2) Use of current standards.--Consistent with the 
    requirements of this part, standards established under this 
    subsection shall be based on standards established under section 
    1876 to carry out analogous provisions of such section.
        ``(3) Relation to state laws.--
            ``(A) In general.--The standards established under this 
        subsection shall supersede any State law or regulation 
        (including standards described in subparagraph (B)) with 
        respect to Medicare+Choice plans which are offered by 
        Medicare+Choice organizations under this part to the extent 
        such law or regulation is inconsistent with such standards.
            ``(B) Standards specifically superseded.--State standards 
        relating to the following are superseded under this paragraph:
                ``(i) Benefit requirements.
                ``(ii) Requirements relating to inclusion or treatment 
            of providers.
                ``(iii) Coverage determinations (including related 
            appeals and grievance processes).


              ``contracts with medicare+choice organizations

    ``Sec. 1857. (a) In General.--The Secretary shall not permit the 
election under section 1851 of a Medicare+Choice plan offered by a 
Medicare+Choice organization under this part, and no payment shall be 
made under section 1853 to an organization, unless the Secretary has 
entered into a contract under this section with the organization with 
respect to the offering of such plan. Such a contract with an 
organization may cover more than 1 Medicare+Choice plan. 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 paragraph (2), the Secretary may 
    not enter into a contract under this section with a Medicare+Choice 
    organization unless the organization has--
            ``(A) 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, or
            ``(B) at least 1,500 individuals (or 500 individuals in the 
        case of an organization that is a provider-sponsored 
        organization) who are receiving health benefits through the 
        organization if the organization primarily serves individuals 
        residing outside of urbanized areas.
        ``(2) Application to msa plans.--In applying paragraph (1) in 
    the case of a Medicare+Choice organization that is offering an MSA 
    plan, paragraph (1) shall be applied by substituting covered lives 
    for individuals.
        ``(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 1 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 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; 
        or
            ``(C) 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 an MSA plan be effective 
    before January 1999 with respect to such coverage.
        ``(4) Previous terminations.--The Secretary may not enter into 
    a contract with a Medicare+Choice organization if a previous 
    contract with that organization under this section was terminated 
    at the request of the organization within the preceding 5-year 
    period, except in circumstances which warrant special 
    consideration, as determined by the Secretary.
        ``(5) 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) Periodic auditing.--The Secretary shall provide for the 
    annual auditing of the financial records (including data relating 
    to medicare utilization, costs, and computation of the adjusted 
    community rate) of at least one-third of the Medicare+Choice 
    organizations offering Medicare+Choice plans under this part. The 
    Comptroller General shall monitor auditing activities conducted 
    under this subsection.
        ``(2) 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 Medicare+Choice 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.
        ``(3) 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.
        ``(4) Disclosure.--
            ``(A) In general.--Each Medicare+Choice 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 
            Medicare+Choice 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 Medicare+Choice 
            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 Medicare+Choice 
        organization shall make the information reported pursuant to 
        subparagraph (A) available to its enrollees upon reasonable 
        request.
        ``(5) 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.--
        ``(1) In general.--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.
        ``(2) Cost-sharing in enrollment-related costs.--
            ``(A) In general.--A Medicare+Choice organization shall pay 
        the fee established by the Secretary under subparagraph (B).
            ``(B) Authorization.--The Secretary is authorized to charge 
        a fee to each Medicare+Choice organization with a contract 
        under this part that is equal to the organization's pro rata 
        share (as determined by the Secretary) of the aggregate amount 
        of fees which the Secretary is directed to collect in a fiscal 
        year. Any amounts collected are authorized to be appropriated 
        only for the purpose of carrying out section 1851 (relating to 
        enrollment and dissemination of information) and section 4360 
        of the Omnibus Budget Reconciliation Act of 1990 (relating to 
        the health insurance counseling and assistance program).
            ``(C) Contingency.--For any fiscal year, the fees 
        authorized under subparagraph (B) are contingent upon enactment 
        in an appropriations act of a provision specifying the 
        aggregate amount of fees the Secretary is directed to collect 
        in a fiscal year. Fees collected during any fiscal year under 
        this paragraph shall be deposited and credited as offsetting 
        collections.
            ``(D) Limitation.--In any fiscal year the fees collected by 
        the Secretary under subparagraph (B) shall not exceed the 
        lesser of--
                ``(i) the estimated costs to be incurred by the 
            Secretary in the fiscal year in carrying out the activities 
            described in section 1851 and section 4360 of the Omnibus 
            Budget Reconciliation Act of 1990; or
                ``(ii)(I) $200,000,000 in fiscal year 1998;
                ``(II) $150,000,000 in fiscal year 1999; and
                ``(III) $100,000,000 in fiscal year 2000 and each 
            subsequent fiscal year.
    ``(f) Prompt Payment by Medicare+Choice Organization.--
        ``(1) Requirement.--A contract under this part shall require a 
    Medicare+Choice organization to provide prompt payment (consistent 
    with the provisions of sections 1816(c)(2) and 1842(c)(2)) of 
    claims submitted for services and supplies furnished to enrollees 
    pursuant to the contract, if the services or supplies are not 
    furnished under a contract between the organization and the 
    provider or supplier (or in the case of a Medicare+Choice private 
    fee-for-service plan, if a claim is submitted to such organization 
    by an enrollee).
        ``(2) Secretary's option to bypass noncomplying organization.--
    In the case of a Medicare+Choice eligible organization which the 
    Secretary determines, after notice and opportunity for a hearing, 
    has failed to make payments of amounts in compliance with paragraph 
    (1), the Secretary may provide for direct payment of the amounts 
    owed to providers and suppliers (or, in the case of a 
    Medicare+Choice private fee-for-service plan, amounts owed to the 
    enrollees) for covered services and supplies furnished to 
    individuals enrolled under this part under the contract. If the 
    Secretary provides for the direct payments, the Secretary shall 
    provide for an appropriate reduction in the amount of payments 
    otherwise made to the organization under this part to reflect the 
    amount of the Secretary's payments (and the Secretary's costs in 
    making the payments).
    ``(g) Intermediate Sanctions.--
        ``(1) In general.--If the Secretary determines that a 
    Medicare+Choice 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 amount of the Medicare+Choice monthly 
        basic and supplemental beneficiary premiums permitted under 
        section 1854;
            ``(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 applicable requirements of 
        section 1852(j)(3) or 1852(k)(2)(A)(ii); 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 
    Medicare+Choice 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 civil money penalty 
        procedures by the Secretary during which the deficiency that is 
        the basis of a determination under subsection (c)(2) exists.
            ``(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) Civil money penalties.--The provisions of section 1128A 
    (other than subsections (a) and (b)) shall apply to a civil money 
    penalty under paragraph (2) or (3) in the same manner as they apply 
    to a civil money penalty or proceeding under section 1128A(a).
    ``(h) Procedures for Termination.--
        ``(1) In general.--The Secretary may terminate a contract with 
    a Medicare+Choice organization under this section in accordance 
    with formal investigation and compliance procedures established by 
    the Secretary under which--
            ``(A) the Secretary provides the organization with the 
        reasonable 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); and
            ``(B) the Secretary provides the organization with 
        reasonable notice and opportunity for hearing (including the 
        right to appeal an initial decision) before terminating the 
        contract.
        ``(2) Exception for imminent and serious risk to health.--
    Paragraph (1) shall not apply if the Secretary determines that a 
    delay in termination, resulting from compliance with the procedures 
    specified in such paragraph prior to termination, would pose an 
    imminent and serious risk to the health of individuals enrolled 
    under this part with the organization.


                 ``definitions; miscellaneous provisions

    ``Sec. 1859. (a) Definitions Relating to Medicare+Choice 
Organizations.--In this part--
        ``(1) Medicare+choice organization.--The term `Medicare+Choice 
    organization' means a public or private entity that is certified 
    under section 1856 as meeting the requirements and standards of 
    this part for such an organization.
        ``(2) Provider-sponsored organization.--The term `provider-
    sponsored organization' is defined in section 1855(d)(1).
    ``(b) Definitions Relating to Medicare+Choice Plans.--
        ``(1) Medicare+choice plan.--The term `Medicare+Choice plan' 
    means health benefits coverage offered under a policy, contract, or 
    plan by a Medicare+Choice organization pursuant to and in 
    accordance with a contract under section 1857.
        ``(2) Medicare+Choice private fee-for-service plan.--The term 
    `Medicare+Choice private fee-for-service plan' means a 
    Medicare+Choice plan that--
            ``(A) reimburses hospitals, physicians, and other providers 
        at a rate determined by the plan on a fee-for-service basis 
        without placing the provider at financial risk;
            ``(B) does not vary such rates for such a provider based on 
        utilization relating to such provider; and
            ``(C) does not restrict the selection of providers among 
        those who are lawfully authorized to provide the covered 
        services and agree to accept the terms and conditions of 
        payment established by the plan.
        ``(3) MSA plan.--
            ``(A) In general.--The term `MSA plan' means a 
        Medicare+Choice plan that--
                ``(i) 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 plan) equal to the amount of an annual deductible 
            (described in subparagraph (B));
                ``(ii) counts as such expenses (for purposes of such 
            deductible) at least all amounts that would have been 
            payable under parts A and B, and that would have been 
            payable by the enrollee as deductibles, coinsurance, or 
            copayments, if the enrollee had elected to receive benefits 
            through the provisions of such parts; and
                ``(iii) provides, after such deductible is met for a 
            year and for all subsequent expenses for items and services 
            referred to in clause (i) 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.
            ``(B) Deductible.--The amount of annual deductible under an 
        MSA plan--
                ``(i) for contract year 1999 shall be not more than 
            $6,000; and
                ``(ii) for a subsequent contract year shall be not more 
            than the maximum amount of such deductible for the previous 
            contract year under this subparagraph increased by the 
            national per capita Medicare+Choice growth percentage under 
            section 1853(c)(6) for the year.
        If the amount of the deductible under clause (ii) is not a 
        multiple of $50, the amount shall be rounded to the nearest 
        multiple of $50.
    ``(c) Other References to Other Terms.--
        ``(1) Medicare+choice eligible individual.--The term 
    `Medicare+Choice eligible individual' is defined in section 
    1851(a)(3).
        ``(2) Medicare+choice payment area.--The term `Medicare+Choice 
    payment area' is defined in section 1853(d).
        ``(3) National per capita medicare+choice growth percentage.--
    The `national per capita Medicare+Choice growth percentage' is 
    defined in section 1853(c)(6).
        ``(4) Medicare+choice monthly basic beneficiary premium; 
    medicare+choice monthly supplemental beneficiary premium.--The 
    terms `Medicare+Choice monthly basic beneficiary premium' and 
    `Medicare+Choice monthly supplemental beneficiary premium' are 
    defined in section 1854(a)(2).
    ``(d) Coordinated Acute and Long-Term Care Benefits Under a 
Medicare+Choice Plan.--Nothing in this part shall be construed as 
preventing a State from coordinating benefits under a medicaid plan 
under title XIX with those provided under a Medicare+Choice plan 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 plan.
    ``(e) Restriction on Enrollment for Certain Medicare+Choice 
Plans.--
        ``(1) In general.--In the case of a Medicare+Choice religious 
    fraternal benefit society plan described in paragraph (2), 
    notwithstanding any other provision of this part to the contrary 
    and in accordance with regulations of the Secretary, the society 
    offering the plan may restrict the enrollment of individuals under 
    this part to individuals who are members of the church, convention, 
    or group described in paragraph (3)(B) with which the society is 
    affiliated.
        ``(2) Medicare+choice religious fraternal benefit society plan 
    described.--For purposes of this subsection, a Medicare+Choice 
    religious fraternal benefit society plan described in this 
    paragraph is a Medicare+Choice plan described in section 
    1851(a)(2)(A) that--
            ``(A) is offered by a religious fraternal benefit society 
        described in paragraph (3) only to members of the church, 
        convention, or group described in paragraph (3)(B); and
            ``(B) permits all such members to enroll under the plan 
        without regard to health status-related factors.
    Nothing in this subsection shall be construed as waiving any plan 
    requirements relating to financial solvency.
        ``(3) Religious fraternal benefit society defined.--For 
    purposes of paragraph (2)(A), a `religious fraternal benefit 
    society' described in this section is an organization that--
            ``(A) is described in section 501(c)(8) of the Internal 
        Revenue Code of 1986 and is exempt from taxation under section 
        501(a) of such Act;
            ``(B) is affiliated with, carries out the tenets of, and 
        shares a religious bond with, a church or convention or 
        association of churches or an affiliated group of churches;
            ``(C) offers, in addition to a Medicare+Choice religious 
        fraternal benefit society plan, health coverage to individuals 
        not entitled to benefits under this title who are members of 
        such church, convention, or group; and
            ``(D) does not impose any limitation on membership in the 
        society based on any health status-related factor.
        ``(4) Payment adjustment.--Under regulations of the Secretary, 
    in the case of individuals enrolled under this part under a 
    Medicare+Choice religious fraternal benefit society plan described 
    in paragraph (2), the Secretary shall provide for such adjustment 
    to the payment amounts otherwise established under section 1854 as 
    may be appropriate to assure an appropriate payment level, taking 
    into account the actuarial characteristics and experience of such 
    individuals.''.

SEC. 4002. TRANSITIONAL RULES FOR CURRENT MEDICARE HMO PROGRAM.

    (a) Authorizing Transitional Waiver of 50:50 Rule.--Section 1876(f) 
(42 U.S.C. 1395mm(f)) is amended--
        (1) in paragraph (1)--
            (A) by striking ``Each'' and inserting ``For contract 
        periods beginning before January 1, 1999, each''; and
            (B) by striking ``or under a State plan approved under 
        title XIX'';
        (2) in paragraph (2), by striking ``The Secretary'' and 
    inserting ``Subject to paragraph (4), the Secretary'', and
        (3) by adding at the end the following:
    ``(4) Effective for contract periods beginning after December 31, 
1996, the Secretary may waive or modify the requirement imposed by 
paragraph (1) to the extent the Secretary finds that it is in the 
public interest.''.
    (b) Transition.--
        (1) Risk-sharing contracts.--Section 1876 (42 U.S.C. 1395mm) is 
    amended by adding at the end the following new subsections:
    ``(k)(1) Except as provided in paragraph (2)--
        ``(A) on or after the date standards for Medicare+Choice 
    organizations and plans are first established under section 
    1856(b)(1), the Secretary shall not enter into any risk-sharing 
    contract under this section with an eligible organization; and
        ``(B) for any contract year beginning on or after January 1, 
    1999, the Secretary shall not renew any such contract.
    ``(2) An individual who is enrolled in part B only and is enrolled 
in an eligible organization with a risk-sharing contract under this 
section on December 31, 1998, may continue enrollment in such 
organization in accordance with regulations described in section 
1856(b)(1).
    ``(3) Notwithstanding subsection (a), the Secretary shall provide 
that payment amounts under risk-sharing contracts under this section 
for months in a year (beginning with January 1998) shall be computed--
        ``(A) with respect to individuals entitled to benefits under 
    both parts A and B, by substituting payment rates under section 
    1853(a) for the payment rates otherwise established under section 
    1876(a), and
        ``(B) with respect to individuals only entitled to benefits 
    under part B, by substituting an appropriate proportion of such 
    rates (reflecting the relative proportion of payments under this 
    title attributable to such part) for the payment rates otherwise 
    established under subsection (a).
    ``(4) The following requirements shall apply to eligible 
organizations with risk-sharing contracts under this section in the 
same manner as they apply to Medicare+Choice organizations under part 
C:
        ``(A) Data collection requirements under section 1853(a)(3)(B).
        ``(B) Restrictions on imposition of premium taxes under section 
    1854(g) in relating to payments to such organizations under this 
    section.
        ``(C) The requirement to accept enrollment of new enrollees 
    during November 1998 under section 1851(e)(6).
        ``(D) Payments under section 1857(e)(2).''.
        (2) Reasonable cost contracts.--
            (A) Phase out of contracts.--Section 1876(h) (42 U.S.C. 
        1395mm(h)) is amended by adding at the end the following:
    ``(5)(A) After the date of the enactment of this paragraph, the 
Secretary may not enter into a reasonable cost reimbursement contract 
under this subsection (if the contract is not in effect as of such 
date), except for a contract with an eligible organization which, 
immediately previous to entering into such contract, had an agreement 
in effect under section 1833(a)(1)(A).
    ``(B) The Secretary may not extend or renew a reasonable cost 
reimbursement contract under this subsection for any period beyond 
December 31, 2002.''.
            (B) Report on impact.--By not later than January 1, 2001, 
        the Secretary of Health and Human Services shall submit to 
        Congress a report that analyzes the potential impact of 
        termination of reasonable cost reimbursement contracts, 
        pursuant to the amendment made by subparagraph (A), on medicare 
        beneficiaries enrolled under such contracts and on the medicare 
        program. The report shall include such recommendations 
        regarding any extension or transition with respect to such 
        contracts as the Secretary deems appropriate.
    (c) Enrollment Transition Rule.--An individual who is enrolled on 
December 31, 1998, with an eligible organization under section 1876 of 
the Social Security Act (42 U.S.C. 1395mm) shall be considered to be 
enrolled with that organization on January 1, 1999, under part C of 
title XVIII of such Act if that organization has a contract under that 
part for providing services on January 1, 1999 (unless the individual 
has disenrolled effective on that date).
    (d) Advance Directives.--Section 1866(f) (42 U.S.C. 1395cc(f)) is 
amended--
        (1) in paragraph (1)--
            (A) by inserting ``1855(i),'' after ``1833(s),'', and
            (B) by inserting ``, Medicare+Choice organization,'' after 
        ``provider of services''; and
        (2) in paragraph (2)(E), by inserting ``or a Medicare+Choice 
    organization'' after ``section 1833(a)(1)(A)''.
    (e) Extension of Provider Requirement.--Section 1866(a)(1)(O) (42 
U.S.C. 1395cc(a)(1)(O)) is amended--
        (1) by striking ``in the case of hospitals and skilled nursing 
    facilities,'';
        (2) by striking ``inpatient hospital and extended care'';
        (3) by inserting ``with a Medicare+Choice organization under 
    part C or'' after ``any individual enrolled'';
        (4) by striking ``(in the case of hospitals) or limits (in the 
    case of skilled nursing facilities)''; and
        (5) by inserting ``(less any payments under sections 
    1886(d)(11) and 1886(h)(3)(D))'' after ``under this title''.
    (f) Additional Conforming Changes.--
        (1) 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).
        (2) Secretarial submission of legislative proposal.--Not later 
    than 6 months after the date of the enactment of this Act, the 
    Secretary of Health and Human Services shall submit to the 
    appropriate committees of Congress a legislative proposal providing 
    for such technical and conforming amendments in the law as are 
    required by the provisions of this chapter.
    (g) Immediate Effective Date for Certain Requirements for 
Demonstrations.--Section 1857(e)(2) of the Social Security Act 
(requiring contribution to certain costs related to the enrollment 
process comparative materials) applies to demonstrations with respect 
to which enrollment is effected or coordinated under section 1851 of 
such Act.
    (h) Transition Rule for PSO Enrollment.--In applying subsection 
(g)(1) of section 1876 of the Social Security Act (42 U.S.C. 1395mm) to 
a risk-sharing contract entered into with an eligible organization that 
is a provider-sponsored organization (as defined in section 1855(d)(1) 
of such Act, as inserted by section 5001) for a contract year beginning 
on or after January 1, 1998, there shall be substituted for the minimum 
number of enrollees provided under such section the minimum number of 
enrollees permitted under section 1857(b)(1) of such Act (as so 
inserted).
    (i) Publication of New Capitation Rates.--Not later than 4 weeks 
after the date of the enactment of this Act, the Secretary of Health 
and Human Services shall announce the annual Medicare+Choice capitation 
rates for 1998 under section 1853(b) of the Social Security Act.
    (j) Elimination of Health Care Prepayment Plan Option for Entities 
Eligible to Participate As Managed Care Organization.--
        (1) Elimination of option.--
            (A) In general.--Section 1833(a)(1)(A) (42 U.S.C. 
        1395l(a)(1)(A)) is amended by inserting ``(and either is 
        sponsored by a union or employer, or does not provide, or 
        arrange for the provision of, any inpatient hospital 
        services)'' after ``prepayment basis''.
            (B) Effective date.--The amendment made by subparagraph (A) 
        applies to new contracts entered into after the date of 
        enactment of this Act and, with respect to contracts in effect 
        as of such date, shall apply to payment for services furnished 
        after December 31, 1998.
        (2) Medigap conforming amendment.--Effective January 1, 1999, 
    section 1882(g)(1) (42 U.S.C. 1395ss(g)(1)) is amended by striking 
    ``, during the period beginning on the date specified in subsection 
    (p)(1)(C) and ending on December 31, 1995,''.

SEC. 4003. CONFORMING CHANGES IN MEDIGAP PROGRAM.

    (a) Conforming Amendments to Medicare+Choice Changes.--
        (1) In general.--Section 1882(d)(3)(A)(i) (42 U.S.C. 
    1395ss(d)(3)(A)(i)) is amended--
            (A) in the matter before subclause (I), by inserting 
        ``(including an individual electing a Medicare+Choice plan 
        under section 1851)'' after ``of this title''; and
            (B) in subclause (II)--
                (i) by inserting ``in the case of an individual not 
            electing a Medicare+Choice plan'' after ``(II)'', and
                (ii) by inserting before the comma at the end the 
            following: ``or in the case of an individual electing a 
            Medicare+Choice plan, a medicare supplemental policy with 
            knowledge that the policy duplicates health benefits to 
            which the individual is otherwise entitled under the 
            Medicare+Choice plan or under another medicare supplemental 
            policy''.
        (2) Conforming amendments.--Section 1882(d)(3)(B)(i)(I) (42 
    U.S.C. 1395ss(d)(3)(B)(i)(I)) is amended by inserting ``(including 
    any Medicare+Choice plan)'' after ``health insurance policies''.
        (3) Medicare+choice plans not treated as medicare supplementary 
    policies.--Section 1882(g)(1) (42 U.S.C. 1395ss(g)(1)) is amended 
    by inserting ``or a Medicare+Choice plan or'' after ``does not 
    include''.
    (b) Additional Rules Relating to Individuals Enrolled in MSA Plans 
and Private Fee-for-Service Plans.--Section 1882 (42 U.S.C. 1395ss) is 
further amended by adding at the end the following new subsection:
    ``(u)(1) It is unlawful for a person to sell or issue a policy 
described in paragraph (2) to an individual with knowledge that the 
individual has in effect under section 1851 an election of an MSA plan 
or a Medicare+Choice private fee-for-service plan.
    ``(2)(A) A policy described in this subparagraph is a health 
insurance policy (other than a policy described in subparagraph (B)) 
that provides for coverage of expenses that are otherwise required to 
be counted toward meeting the annual deductible amount provided under 
the MSA plan.
    ``(B) A policy described in this subparagraph is any of the 
following:
        ``(i) A policy that provides coverage (whether through 
    insurance or otherwise) for accidents, disability, dental care, 
    vision care, or long-term care.
        ``(ii) A policy of insurance to which substantially all of the 
    coverage relates to--
            ``(I) liabilities incurred under workers' compensation 
        laws,
            ``(II) tort liabilities,
            ``(III) liabilities relating to ownership or use of 
        property, or
            ``(IV) such other similar liabilities as the Secretary may 
        specify by regulations.
        ``(iii) A policy of insurance that provides coverage for a 
    specified disease or illness.
        ``(iv) A policy of insurance that pays a fixed amount per day 
    (or other period) of hospitalization.''.

    Subchapter B--Special Rules for Medicare+Choice Medical Savings 
                                Accounts

SEC. 4006. MEDICARE+CHOICE MSA.

    (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 138 as 
section 139 and by inserting after section 137 the following new 
section:

``SEC. 138. MEDICARE+CHOICE MSA.

    ``(a) Exclusion.--Gross income shall not include any payment to the 
Medicare+Choice MSA of an individual by the Secretary of Health and 
Human Services under part C of title XVIII of the Social Security Act.
    ``(b) Medicare+Choice MSA.--For purposes of this section, the term 
`Medicare+Choice MSA' means a medical savings account (as defined in 
section 220(d))--
        ``(1) which is designated as a Medicare+Choice MSA,
        ``(2) with respect to which no contribution may be made other 
    than--
            ``(A) a contribution made by the Secretary of Health and 
        Human Services pursuant to part C of title XVIII of the Social 
        Security Act, or
            ``(B) a trustee-to-trustee transfer described in subsection 
        (c)(4),
        ``(3) the governing instrument of which provides that trustee-
    to-trustee transfers described in subsection (c)(4) may be made to 
    and from such account, and
        ``(4) which is established in connection with an MSA plan 
    described in section 1859(b)(3) of the Social Security Act.
    ``(c) Special Rules for Distributions.--
        ``(1) Distributions for qualified medical expenses.--In 
    applying section 220 to a Medicare+Choice MSA--
            ``(A) qualified medical expenses shall not include amounts 
        paid for medical care for any individual other than the account 
        holder, and
            ``(B) section 220(d)(2)(C) shall not apply.
        ``(2) Penalty for distributions from medicare+choice msa 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 
        Medicare+Choice 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 such 
                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 Medicare+Choice MSA plan covering 
                the account holder as of January 1 of the calendar year 
                in which the taxable year begins.

        Section 220(f)(4) shall not apply to any payment or 
        distribution from a Medicare+Choice MSA.
            ``(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 Medicare+Choice MSAs 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.--Section 220(f)(2) 
    and paragraph (2) of this subsection shall not apply to any payment 
    or distribution from a Medicare+Choice 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.--Section 220(f)(2) and 
    paragraph (2) of this subsection shall not apply to any trustee-to-
    trustee transfer from a Medicare+Choice MSA of an account holder to 
    another Medicare+Choice MSA of such account holder.
    ``(d) Special Rules for Treatment of Account After Death of Account 
Holder.--In applying section 220(f)(8)(A) to an account which was a 
Medicare+Choice MSA of a decedent, the rules of section 220(f) shall 
apply in lieu of the rules of subsection (c) of this section with 
respect to the spouse as the account holder of such Medicare+Choice 
MSA.
    ``(e) Reports.--In the case of a Medicare+Choice MSA, the report 
under section 220(h)--
        ``(1) shall include the fair market value of the assets in such 
    Medicare+Choice MSA as of the close of each calendar year, and
        ``(2) shall be furnished to the account holder--
            ``(A) not later than January 31 of the calendar year 
        following the calendar year to which such reports relate, and
            ``(B) in such manner as the Secretary prescribes in such 
        regulations.
    ``(f) Coordination With Limitation on Number of Taxpayers Having 
Medical Savings Accounts.--Subsection (i) of section 220 shall not 
apply to an individual with respect to a Medicare+Choice MSA, and 
Medicare+Choice MSA's shall not be taken into account in determining 
whether the numerical limitations under section 220(j) are exceeded.''.
    (b) Technical Amendments.--
        (1) The last sentence of section 4973(d) of such Code is 
    amended by inserting ``or section 138(c)(3)'' after ``section 
    220(f)(3)''.
        (2) Subsection (b) of section 220 of such Code is amended by 
    adding at the end the following new paragraph:
        ``(7) Medicare eligible individuals.--The limitation under this 
    subsection for any month with respect to an individual shall be 
    zero for the first month such individual is entitled to benefits 
    under title XVIII of the Social Security Act and for each month 
    thereafter.''.
        (3) 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. 138. Medicare+Choice MSA.
``Sec. 139. Cross references to other Acts.''.

    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1998.

                       CHAPTER 2--DEMONSTRATIONS

Subchapter A--Medicare+Choice Competitive Pricing Demonstration Project

SEC. 4011. MEDICARE PREPAID COMPETITIVE PRICING DEMONSTRATION PROJECT.

    (a) Establishment of Project.--The Secretary of Health and Human 
Services (in this subchapter referred to as the ``Secretary'') shall 
establish a demonstration project (in this subchapter referred to as 
the ``project'') under which payments to Medicare+Choice organizations 
in medicare payment areas in which the project is being conducted are 
determined in accordance with a competitive pricing methodology 
established under this subchapter.
    (b) Designation of 7 Medicare Payment Areas Covered by Project.--
        (1) In general.--The Secretary shall designate, in accordance 
    with the recommendations of the Competitive Pricing Advisory 
    Committee under paragraphs (2) and (3), medicare payment areas as 
    areas in which the project under this subchapter will be conducted. 
    In this section, the term ``Competitive Pricing Advisory 
    Committee'' means the Competitive Pricing Advisory Committee 
    established under section 4012(a).
        (2) Initial designation of 4 areas.--
            (A) In general.--The Competitive Pricing Advisory Committee 
        shall recommend to the Secretary, consistent with subparagraph 
        (B), the designation of 4 specific areas as medicare payment 
        areas to be included in the project. Such recommendations shall 
        be made in a manner so as to ensure that payments under the 
        project in 2 such areas will begin on January 1, 1999, and in 2 
        such areas will begin on January 1, 2000.
            (B) Location of designation.--Of the 4 areas recommended 
        under subparagraph (A), 3 shall be in urban areas and 1 shall 
        be in a rural area.
        (3) Designation of additional 3 areas.--Not later than December 
    31, 2001, the Competitive Pricing Advisory Committee may recommend 
    to the Secretary the designation of up to 3 additional, specific 
    medicare payment areas to be included in the project.
    (c) Project Implementation.--
        (1) In general.--Subject to paragraph (2), the Secretary shall 
    for each medicare payment area designated under subsection (b)--
            (A) in accordance with the recommendations of the 
        Competitive Pricing Advisory Committee--
                (i) establish the benefit design among plans offered in 
            such area, and
                (ii) structure the method for selecting plans offered 
            in such area; and
            (B) in consultation with such Committee--
                (i) establish methods for setting the price to be paid 
            to plans, including, if the Secretaries determines 
            appropriate, the rewarding and penalizing of 
            Medicare+Choice plans in the area on the basis of the 
            attainment of, or failure to attain, applicable quality 
            standards, and
                (ii) provide for the collection of plan information 
            (including information concerning quality and access to 
            care), the dissemination of information, and the methods of 
            evaluating the results of the project.
        (2) Consultation.--The Secretary shall take into account the 
    recommendations of the area advisory committee established in 
    section 4012(b), in implementing a project design for any area, 
    except that no modifications may be made in the project design 
    without consultation with the Competitive Pricing Advisory 
    Committee. In no case may the Secretary change the designation of 
    an area based on recommendations of any area advisory committee.
    (d) Monitoring and Report.--
        (1) Monitoring impact.--Taking into consideration the 
    recommendations of the Competitive Pricing Advisory Committee and 
    the area advisory committees, the Secretary shall closely monitor 
    and measure the impact of the project in the different areas on the 
    price and quality of, and access to, medicare covered services, 
    choice of health plans, changes in enrollment, and other relevant 
    factors.
        (2) Report.--Not later than December 31, 2002, the Secretary 
    shall submit to Congress a report on the progress under the project 
    under this subchapter, including a comparison of the matters 
    monitored under paragraph (1) among the different designated areas. 
    The report may include any legislative recommendations for 
    extending the project to the entire medicare population.
    (e) Waiver Authority.--The Secretary of Health and Human Services 
may waive such requirements of title XVIII of the Social Security Act 
(as amended by this Act) as may be necessary for the purposes of 
carrying out the project.
    (f) Relationship to Other Authority.--Except pursuant to this 
subchapter, the Secretary of Health and Human Services may not conduct 
or continue any medicare demonstration project relating to payment of 
health maintenance organizations, Medicare+Choice organizations, or 
similar prepaid managed care entities on the basis of a competitive 
bidding process or pricing system described in subsection (a).
    (g) No Additional Costs to Medicare Program.--The aggregate 
payments to Medicare+Choice organizations under the project for any 
designated area for a fiscal year may not exceed the aggregate payments 
to such organizations that would have been made under title XVIII of 
the Social Security Act (42 U.S.C. 1395 et seq.), as amended by section 
4001, if the project had not been conducted.
    (h) Definitions.--Any term used in this subchapter which is also 
used in part C of title XVIII of the Social Security Act, as amended by 
section 4001, shall have the same meaning as when used in such part.

SEC. 4012. ADVISORY COMMITTEES.

    (a) Competitive Pricing Advisory Committee.--
        (1) In general.--Before implementing the project under this 
    subchapter, the Secretary shall appoint the Competitive Pricing 
    Advisory Committee, including independent actuaries, individuals 
    with expertise in competitive health plan pricing, and an employee 
    of the Office of Personnel Management with expertise in the 
    administration of the Federal Employees Health Benefit Program, to 
    make recommendations to the Secretary concerning the designation of 
    areas for inclusion in the project and appropriate research design 
    for implementing the project.
        (2) Initial recommendations.--The Competitive Pricing Advisory 
    Committee initially shall submit recommendations regarding the area 
    selection, benefit design among plans offered, structuring choice 
    among health plans offered, methods for setting the price to be 
    paid to plans, collection of plan information (including 
    information concerning quality and access to care), information 
    dissemination, and methods of evaluating the results of the 
    project.
        (3) Quality recommendation.--The Competitive Pricing Advisory 
    Committee shall study and make recommendations regarding the 
    feasibility of providing financial incentives and penalties to 
    plans operating under the project that meet, or fail to meet, 
    applicable quality standards.
        (4) Advice during implementation.--Upon implementation of the 
    project, the Competitive Pricing Advisory Committee shall continue 
    to advise the Secretary on the application of the design in 
    different areas and changes in the project based on experience with 
    its operations.
        (5) Sunset.--The Competitive Pricing Advisory Committee shall 
    terminate on December 31, 2004.
    (b) Appointment of Area Advisory Committee.--Upon the designation 
of an area for inclusion in the project, the Secretary shall appoint an 
area advisory committee, composed of representatives of health plans, 
providers, and medicare beneficiaries in the area, to advise the 
Secretary concerning how the project will be implemented in the area. 
Such advice may include advice concerning the marketing and pricing of 
plans in the area and other salient factors. The duration of such a 
committee for an area shall be for the duration of the operation of the 
project in the area.
    (c) Special application.--Notwithstanding section 9(c) of the 
Federal Advisory Committee Act (5 U.S.C. App.), the Competitive Pricing 
Advisory Commission and any area advisory committee (described in 
subsection (b)) may meet as soon as the members of the commission or 
committee, respectively, are appointed.

         Subchapter B--Social Health Maintenance Organizations

SEC. 4014. SOCIAL HEALTH MAINTENANCE ORGANIZATIONS (SHMOS).

    (a) Extension of Demonstration Project Authorities.--Section 
4018(b) of the Omnibus Budget Reconciliation Act of 1987 is amended--
        (1) in paragraph (1), by striking ``1997'' and inserting 
    ``2000'', and
        (2) in paragraph (4), by striking ``1998'' and inserting 
    ``2001''.
    (b) Expansion of Cap.--Section 13567(c) of the Omnibus Budget 
Reconciliation Act of 1993 is amended by striking ``12,000'' and 
inserting ``36,000''.
    (c) Report on Integration and Transition.--
        (1) In general.--The Secretary of Health and Human Services 
    shall submit to Congress, by not later than January 1, 1999, a plan 
    for the integration of health plans offered by social health 
    maintenance organizations (including SHMO I and SHMO II sites 
    developed under section 2355 of the Deficit Reduction Act of 1984 
    and under the amendment made by section 4207(b)(3)(B)(i) of OBRA-
    1990, respectively) and similar plans as an option under the 
    Medicare+Choice program under part C of title XVIII of the Social 
    Security Act.
        (2) Provision for transition.--Such plan shall include a 
    transition for social health maintenance organizations operating 
    under demonstration project authority under such section.
        (3) Payment policy.--The report shall also include 
    recommendations on appropriate payment levels for plans offered by 
    such organizations, including an analysis of the application of 
    risk adjustment factors appropriate to the population served by 
    such organizations.

 Subchapter C--Medicare Subvention Demonstration Project for Military 
                                Retirees

SEC. 4015. MEDICARE SUBVENTION DEMONSTRATION PROJECT FOR MILITARY 
              RETIREES.

    (a) In General.--Title XVIII (42 U.S.C. 1395 et seq.) (as amended 
by sections 4603 and 4801) is amended by adding at the end the 
following:


    ``MEDICARE SUBVENTION DEMONSTRATION PROJECT FOR MILITARY RETIREES

    ``Sec. 1896. (a) Definitions.--In this section:
        ``(1) Administering secretaries.--The term `administering 
    Secretaries' means the Secretary and the Secretary of Defense 
    acting jointly.
        ``(2) Demonstration project; project.--The terms `demonstration 
    project' and `project' mean the demonstration project carried out 
    under this section.
        ``(3) Designated provider.--The term `designated provider' has 
    the meaning given that term in section 721(5) of the National 
    Defense Authorization Act For Fiscal Year 1997 (Public Law 104-201; 
    110 Stat. 2593; 10 U.S.C. 1073 note).
        ``(4) Medicare-eligible military retiree or dependent.--The 
    term `medicare-eligible military retiree or dependent' means an 
    individual described in section 1074(b) or 1076(b) of title 10, 
    United States Code, who--
            ``(A) would be eligible for health benefits under section 
        1086 of such title by reason of subsection (c)(1) of such 
        section 1086 but for the operation of subsection (d) of such 
        section 1086;
            ``(B)(i) is entitled to benefits under part A of this 
        title; and
            ``(ii) if the individual was entitled to such benefits 
        before July 1, 1997, received health care items or services 
        from a health care facility of the uniformed services before 
        that date, but after becoming entitled to benefits under part A 
        of this title;
            ``(C) is enrolled for benefits under part B of this title; 
        and
            ``(D) has attained age 65.
        ``(5) Medicare health care services.--The term `medicare health 
    care services' means items or services covered under part A or B of 
    this title.
        ``(6) Military treatment facility.--The term `military 
    treatment facility' means a facility referred to in section 1074(a) 
    of title 10, United States Code.
        ``(7) TRICARE.--The term `TRICARE' has the same meaning as the 
    term `TRICARE program' under section 711 of the National Defense 
    Authorization Act for Fiscal Year 1996 (10 U.S.C. 1073 note).
        ``(8) Trust funds.--The term `trust funds' means the Federal 
    Hospital Insurance Trust Fund established in section 1817 and the 
    Federal Supplementary Medical Insurance Trust Fund established in 
    section 1841.
    ``(b) Demonstration Project.--
        ``(1) In general.--
            ``(A) Establishment.--The administering Secretaries are 
        authorized to establish a demonstration project (under an 
        agreement entered into by the administering Secretaries) under 
        which the Secretary shall reimburse the Secretary of Defense, 
        from the trust funds, for medicare health care services 
        furnished to certain medicare-eligible military retirees or 
        dependents in a military treatment facility or by a designated 
        provider.
            ``(B) Agreement.--The agreement entered into under 
        subparagraph (A) shall include at a minimum--
                ``(i) a description of the benefits to be provided to 
            the participants of the demonstration project established 
            under this section;
                ``(ii) a description of the eligibility rules for 
            participation in the demonstration project, including any 
            cost sharing requirements;
                ``(iii) a description of how the demonstration project 
            will satisfy the requirements under this title;
                ``(iv) a description of the sites selected under 
            paragraph (2);
                ``(v) a description of how reimbursement requirements 
            under subsection (i) and maintenance of effort requirements 
            under subsection (j) will be implemented in the 
            demonstration project;
                ``(vi) a statement that the Secretary shall have access 
            to all data of the Department of Defense that the Secretary 
            determines is necessary to conduct independent estimates 
            and audits of the maintenance of effort requirement, the 
            annual reconciliation, and related matters required under 
            the demonstration project;
                ``(vii) a description of any requirement that the 
            Secretary waives pursuant to subsection (d); and
                ``(viii) a certification, provided after review by the 
            administering Secretaries, that any entity that is 
            receiving payments by reason of the demonstration project 
            has sufficient--

                    ``(I) resources and expertise to provide, 
                consistent with payments under subsection (i), the full 
                range of benefits required to be provided to 
                beneficiaries under the project; and
                    ``(II) information and billing systems in place to 
                ensure the accurate and timely submission of claims for 
                benefits and to ensure that providers of services, 
                physicians, and other health care professionals are 
                reimbursed by the entity in a timely and accurate 
                manner.

        ``(2) Number of sites.--The project established under this 
    section shall be conducted in no more than 6 sites, designated 
    jointly by the administering Secretaries after review of all 
    TRICARE regions.
        ``(3) Restriction.--No new military treatment facilities will 
    be built or expanded with funds from the demonstration project.
        ``(4) Duration.--The administering Secretaries shall conduct 
    the demonstration project during the 3-year period beginning on 
    January 1, 1998.
        ``(5) Report.--At least 60 days prior to the commencement of 
    the demonstration project, the administering Secretaries shall 
    submit a copy of the agreement entered into under paragraph (1) to 
    the committees of jurisdiction under this title.
    ``(c) Crediting of Payments.--A payment received by the Secretary 
of Defense under the demonstration project shall be credited to the 
applicable Department of Defense medical appropriation (and within that 
appropriation). Any such payment received during a fiscal year for 
services provided during a prior fiscal year may be obligated by the 
Secretary of Defense during the fiscal year during which the payment is 
received.
    ``(d) Waiver of Certain Medicare Requirements.--
        ``(1) Authority.--
            ``(A) In general.--Except as provided under subparagraph 
        (B), the demonstration project shall meet all requirements of 
        Medicare+Choice plans under part C of this title and 
        regulations pertaining thereto, and other requirements for 
        receiving medicare payments, except that the prohibition of 
        payments to Federal providers of services under sections 
        1814(c) and 1835(d), and paragraphs (2) and (3) of section 
        1862(a) shall not apply.
            ``(B) Waiver.--Except as provided in paragraph (2), the 
        Secretary is authorized to waive any requirement described 
        under subparagraph (A), or approve equivalent or alternative 
        ways of meeting such a requirement, but only if such waiver or 
        approval--
                ``(i) reflects the unique status of the Department of 
            Defense as an agency of the Federal Government; and
                ``(ii) is necessary to carry out the demonstration 
            project.
        ``(2) Beneficiary protections and other matters.--The 
    demonstration project shall comply with the requirements of part C 
    of this title that relate to beneficiary protections and other 
    matters, including such requirements relating to the following 
    areas:
            ``(A) Enrollment and disenrollment.
            ``(B) Nondiscrimination.
            ``(C) Information provided to beneficiaries.
            ``(D) Cost-sharing limitations.
            ``(E) Appeal and grievance procedures.
            ``(F) Provider participation.
            ``(G) Access to services.
            ``(H) Quality assurance and external review.
            ``(I) Advance directives.
            ``(J) Other areas of beneficiary protections that the 
        Secretary determines are applicable to such project.
    ``(e) Inspector General.--Nothing in the agreement entered into 
under subsection (b) shall limit the Inspector General of the 
Department of Health and Human Services from investigating any matters 
regarding the expenditure of funds under this title for the 
demonstration project, including compliance with the provisions of this 
title and all other relevant laws.
    ``(f) Voluntary Participation.--Participation of medicare-eligible 
military retirees or dependents in the demonstration project shall be 
voluntary.
    ``(g) TRICARE Health Care Plans.--
        ``(1) Modification of tricare contracts.--In carrying out the 
    demonstration project, the Secretary of Defense is authorized to 
    amend existing TRICARE contracts (including contracts with 
    designated providers) in order to provide the medicare health care 
    services to the medicare-eligible military retirees and dependents 
    enrolled in the demonstration project consistent with part C of 
    this title.
        ``(2) Health care benefits.--The administering Secretaries 
    shall prescribe the minimum health care benefits to be provided 
    under such a plan to medicare-eligible military retirees or 
    dependents enrolled in the plan. Those benefits shall include at 
    least all medicare health care services covered under this title.
    ``(h) Additional Plans.--Notwithstanding any provisions of title 
10, United States Code, the administering Secretaries may agree to 
include in the demonstration project any of the Medicare+Choice plans 
described in section 1851(a)(2)(A), and such agreement may include an 
agreement between the Secretary of Defense and the Medicare+Choice 
organization offering such plan to provide medicare health care 
services to medicare-eligible military retirees or dependents and for 
such Secretary to receive payments from such organization for the 
provision of such services.
    ``(i) Payments Based on Regular Medicare Payment Rates.--
        ``(1) In general.--Subject to the succeeding provisions of this 
    subsection, the Secretary shall reimburse the Secretary of Defense 
    for services provided under the demonstration project at a rate 
    equal to 95 percent of the amount paid to a Medicare+Choice 
    organization under part C of this title with respect to such an 
    enrollee. In cases in which a payment amount may not otherwise be 
    readily computed, the Secretary shall establish rules for computing 
    equivalent or comparable payment amounts.
        ``(2) Exclusion of certain amounts.--In computing the amount of 
    payment under paragraph (1), the following shall be excluded:
            ``(A) Special payments.--Any amount attributable to an 
        adjustment under subparagraphs (B) and (F) of section 
        1886(d)(5) and subsection (h) of such section.
            ``(B) Percentage of capital payments.--An amount determined 
        by the administering Secretaries for amounts attributable to 
        payments for capital-related costs under subsection (g) of such 
        section.
        ``(3) Periodic payments from medicare trust funds.--Payments 
    under this subsection shall be made--
            ``(A) on a periodic basis consistent with the periodicity 
        of payments under this title; and
            ``(B) in appropriate part, as determined by the Secretary, 
        from the trust funds.
        ``(4) Cap on amount.--The aggregate amount to be reimbursed 
    under this subsection pursuant to the agreement entered into 
    between the administering Secretaries under subsection (b) shall 
    not exceed a total of--
            ``(A) $50,000,000 for calendar year 1998;
            ``(B) $60,000,000 for calendar year 1999; and
            ``(C) $65,000,000 for calendar year 2000.
    ``(j) Maintenance of Effort.--
        ``(1) Monitoring effect of demonstration program on costs to 
    medicare program.--
            ``(A) In general.--The administering Secretaries, in 
        consultation with the Comptroller General, shall closely 
        monitor the expenditures made under the medicare program for 
        medicare-eligible military retirees or dependents during the 
        period of the demonstration project compared to the 
        expenditures that would have been made for such medicare-
        eligible military retirees or dependents during that period if 
        the demonstration project had not been conducted. The agreement 
        entered into by the administering Secretaries under subsection 
        (b) shall require any participating military treatment facility 
        to maintain the level of effort for space available care to 
        medicare-eligible military retirees or dependents.
            ``(B) Annual report by the comptroller general.--Not later 
        than December 31 of each year during which the demonstration 
        project is conducted, the Comptroller General shall submit to 
        the administering Secretaries and the appropriate committees of 
        Congress a report on the extent, if any, to which the costs of 
        the Secretary under the medicare program under this title 
        increased during the preceding fiscal year as a result of the 
        demonstration project.
        ``(2) Required response in case of increase in costs.--
            ``(A) In general.--If the administering Secretaries find, 
        based on paragraph (1), that the expenditures under the 
        medicare program under this title increased (or are expected to 
        increase) during a fiscal year because of the demonstration 
        project, the administering Secretaries shall take such steps as 
        may be needed--
                ``(i) to recoup for the medicare program the amount of 
            such increase in expenditures; and
                ``(ii) to prevent any such increase in the future.
            ``(B) Steps.--Such steps--
                ``(i) under subparagraph (A)(i) shall include payment 
            of the amount of such increased expenditures by the 
            Secretary of Defense from the current medical care 
            appropriation of the Department of Defense to the trust 
            funds; and
                ``(ii) under subparagraph (A)(ii) shall include 
            suspending or terminating the demonstration project (in 
            whole or in part) or lowering the amount of payment under 
            subsection (i)(1).
    ``(k) Evaluation and Reports.--
        ``(1) Independent evaluation.--The Comptroller General of the 
    United States shall conduct an evaluation of the demonstration 
    project, and shall submit annual reports on the demonstration 
    project to the administering Secretaries and to the committees of 
    jurisdiction in the Congress. The first report shall be submitted 
    not later than 12 months after the date on which the demonstration 
    project begins operation, and the final report not later than 3\1/
    2\ years after that date. The evaluation and reports shall include 
    an assessment, based on the agreement entered into under subsection 
    (b), of the following:
            ``(A) Any savings or costs to the medicare program under 
        this title resulting from the demonstration project.
            ``(B) The cost to the Department of Defense of providing 
        care to medicare-eligible military retirees and dependents 
        under the demonstration project.
            ``(C) A description of the effects of the demonstration 
        project on military treatment facility readiness and training 
        and the probable effects of the project on overall Department 
        of Defense medical readiness and training.
            ``(D) Any impact of the demonstration project on access to 
        care for active duty military personnel and their dependents.
            ``(E) An analysis of how the demonstration project affects 
        the overall accessibility of the uniformed services treatment 
        system and the amount of space available for point-of-service 
        care, and a description of the unintended effects (if any) upon 
        the normal treatment priority system.
            ``(F) Compliance by the Department of Defense with the 
        requirements under this title.
            ``(G) The number of medicare-eligible military retirees and 
        dependents opting to participate in the demonstration project 
        instead of receiving health benefits through another health 
        insurance plan (including benefits under this title).
            ``(H) A list of the health insurance plans and programs 
        that were the primary payers for medicare-eligible military 
        retirees and dependents during the year prior to their 
        participation in the demonstration project and the distribution 
        of their previous enrollment in such plans and programs.
            ``(I) Any impact of the demonstration project on private 
        health care providers and beneficiaries under this title that 
        are not enrolled in the demonstration project.
            ``(J) An assessment of the access to care and quality of 
        care for medicare-eligible military retirees and dependents 
        under the demonstration project.
            ``(K) An analysis of whether, and in what manner, easier 
        access to the uniformed services treatment system affects the 
        number of medicare-eligible military retirees and dependents 
        receiving medicare health care services.
            ``(L) Any impact of the demonstration project on the access 
        to care for medicare-eligible military retirees and dependents 
        who did not enroll in the demonstration project and for other 
        individuals entitled to benefits under this title.
            ``(M) A description of the difficulties (if any) 
        experienced by the Department of Defense in managing the 
        demonstration project and TRICARE contracts.
            ``(N) Any additional elements specified in the agreement 
        entered into under subsection (b).
            ``(O) Any additional elements that the Comptroller General 
        of the United States determines is appropriate to assess 
        regarding the demonstration project.
        ``(2) Report on extension and expansion of demonstration 
    project.--Not later than 6 months after the date of the submission 
    of the final report by the Comptroller General of the United States 
    under paragraph (1), the administering Secretaries shall submit to 
    Congress a report containing their recommendation as to--
            ``(A) whether there is a cost to the health care program 
        under this title in conducting the demonstration project, and 
        whether the demonstration project could be expanded without 
        there being a cost to such health care program or to the 
        Federal Government;
            ``(B) whether to extend the demonstration project or make 
        the project permanent; and
            ``(C) whether the terms and conditions of the project 
        should be continued (or modified) if the project is extended or 
        expanded.''.
    (b) Implementation Plan for Veterans Subvention.--Not later than 12 
months after the start of the demonstration project, the Secretary of 
Health and Human Services and the Secretary of Veterans Affairs shall 
jointly submit to Congress a detailed implementation plan for a 
subvention demonstration project (that follows the model of the 
demonstration project conducted under section 1896 of the Social 
Security Act (as added by subsection (a)) to begin in 1999 for veterans 
(as defined in section 101 of title 38, United States Code) that are 
eligible for benefits under title XVIII of the Social Security Act.

                      Subchapter D--Other Projects

SEC. 4016. MEDICARE COORDINATED CARE DEMONSTRATION PROJECT.

    (a) Demonstration Projects.--
        (1) In general.--The Secretary of Health and Human Services (in 
    this section referred to as the ``Secretary'') shall conduct 
    demonstration projects for the purpose of evaluating methods, such 
    as case management and other models of coordinated care, that--
            (A) improve the quality of items and services provided to 
        target individuals; and
            (B) reduce expenditures under the medicare program under 
        title XVIII of the Social Security Act (42 U.S.C. 1395 et seq.) 
        for items and services provided to target individuals.
        (2) Target individual defined.--In this section, the term 
    ``target individual'' means an individual that has a chronic 
    illness, as defined and identified by the Secretary, and is 
    enrolled under the fee-for-service program under parts A and B of 
    title XVIII of the Social Security Act (42 U.S.C. 1395c et seq.; 
    1395j et seq.).
    (b) Program Design.--
        (1) Initial design.--The Secretary shall evaluate best 
    practices in the private sector of methods of coordinated care for 
    a period of 1 year and design the demonstration project based on 
    such evaluation.
        (2) Number and project areas.--Not later than 2 years after the 
    date of enactment of this Act, the Secretary shall implement at 
    least 9 demonstration projects, including--
            (A) 5 projects in urban areas;
            (B) 3 projects in rural areas; and
            (C) 1 project within the District of Columbia which is 
        operated by a nonprofit academic medical center that maintains 
        a National Cancer Institute certified comprehensive cancer 
        center.
        (3) Expansion of projects; implementation of demonstration 
    project results.--
            (A) Expansion of projects.--If the initial report under 
        subsection (c) contains an evaluation that demonstration 
        projects--
                (i) reduce expenditures under the medicare program; or
                (ii) do not increase expenditures under the medicare 
            program and increase the quality of health care services 
            provided to target individuals and satisfaction of 
            beneficiaries and health care providers;
        the Secretary shall continue the existing demonstration 
        projects and may expand the number of demonstration projects.
            (B) Implementation of demonstration project results.--If a 
        report under subsection (c) contains an evaluation as described 
        in subparagraph (A), the Secretary may issue regulations to 
        implement, on a permanent basis, the components of the 
        demonstration project that are beneficial to the medicare 
        program.
    (c) Report to Congress.--
        (1) In general.--Not later than 2 years after the Secretary 
    implements the initial demonstration projects under this section, 
    and biannually thereafter, the Secretary shall submit to Congress a 
    report regarding the demonstration projects conducted under this 
    section.
        (2) Contents of report.--The report in paragraph (1) shall 
    include the following:
            (A) A description of the demonstration projects conducted 
        under this section.
            (B) An evaluation of--
                (i) the cost-effectiveness of the demonstration 
            projects;
                (ii) the quality of the health care services provided 
            to target individuals under the demonstration projects; and
                (iii) beneficiary and health care provider satisfaction 
            under the demonstration project.
            (C) Any other information regarding the demonstration 
        projects conducted under this section that the Secretary 
        determines to be appropriate.
    (d) Waiver Authority.--The Secretary shall waive compliance with 
the requirements of title XVIII of the Social Security Act (42 U.S.C. 
1395 et seq.) to such extent and for such period as the Secretary 
determines is necessary to conduct demonstration projects.
    (e) Funding.--
        (1) Demonstration projects.--
            (A) In general.--
                (i) State projects.--Except as provided in clause (ii), 
            the Secretary shall provide for the transfer from the 
            Federal Hospital Insurance Trust Fund and the Federal 
            Supplementary Insurance Trust Fund under title XVIII of the 
            Social Security Act (42 U.S.C. 1395i, 1395t), in such 
            proportions as the Secretary determines to be appropriate, 
            of such funds as are necessary for the costs of carrying 
            out the demonstration projects under this section.
                (ii) Cancer hospital.--In the case of the project 
            described in subsection (b)(2)(C), amounts shall be 
            available only as provided in any Federal law making 
            appropriations for the District of Columbia.
            (B) Limitation.--In conducting the demonstration project 
        under this section, the Secretary shall ensure that the 
        aggregate payments made by the Secretary do not exceed the 
        amount which the Secretary would have paid if the demonstration 
        projects under this section were not implemented.
        (2) Evaluation and report.--There are authorized to be 
    appropriated such sums as are necessary for the purpose of 
    developing and submitting the report to Congress under subsection 
    (c).

SEC. 4017. ORDERLY TRANSITION OF MUNICIPAL HEALTH SERVICE DEMONSTRATION 
              PROJECTS.

    Section 9215 of the Consolidated Omnibus Budget Reconciliation Act 
of 1985, as amended by section 6135 of OBRA-1989 and section 13557 of 
OBRA-1993, is further amended--
        (1) by inserting ``(a)'' before ``The Secretary'', and
        (2) by adding at the end the following: ``Subject to subsection 
    (c), the Secretary may further extend such demonstration projects 
    through December 31, 2000, but only with respect to individuals who 
    received at least one service during the period beginning on 
    January 1, 1996, and ending on the date of the enactment of the 
    Balanced Budget Act of 1997.
    ``(b) The Secretary shall work with each such demonstration project 
to develop a plan, to be submitted to the Committee on Ways and Means 
and the Committee on Commerce of the House of Representatives and the 
Committee on Finance of the Senate by March 31, 1998, for the orderly 
transition of demonstration projects and the project participants to a 
non-demonstration project health care delivery system, such as through 
integration with a private or public health plan, including a medicaid 
managed care or Medicare+Choice plan.
    ``(c) A demonstration project under subsection (a) which does not 
develop and submit a transition plan under subsection (b) by March 31, 
1998, or, if later, 6 months after the date of the enactment of the 
Balanced Budget Act of 1997, shall be discontinued as of December 31, 
1998. The Secretary shall provide appropriate technical assistance to 
assist in the transition so that disruption of medical services to 
project participants may be minimized.''.

SEC. 4018. MEDICARE ENROLLMENT DEMONSTRATION PROJECT.

    (a) Demonstration Project.--
        (1) Establishment.--The Secretary shall implement a 
    demonstration project (in this section referred to as the 
    ``project'') for the purpose of evaluating the use of a third-party 
    contractor to conduct the Medicare+Choice plan enrollment and 
    disenrollment functions, as described in part C of title XVIII of 
    the Social Security Act (as added by section 4001 of this Act), in 
    an area.
        (2) Consultation.--Before implementing the project under this 
    section, the Secretary shall consult with affected parties on--
            (A) the design of the project;
            (B) the selection criteria for the third-party contractor; 
        and
            (C) the establishment of performance standards, as 
        described in paragraph (3).
        (3) Performance standards.--
            (A) In general.--The Secretary shall establish performance 
        standards for the accuracy and timeliness of the 
        Medicare+Choice plan enrollment and disenrollment functions 
        performed by the third-party contractor.
            (B) Noncompliance.--In the event that the third-party 
        contractor is not in substantial compliance with the 
        performance standards established under subparagraph (A), such 
        enrollment and disenrollment functions shall be performed by 
        the Medicare+Choice plan until the Secretary appoints a new 
        third-party contractor.
    (b) Report to Congress.--The Secretary shall periodically report to 
Congress on the progress of the project conducted pursuant to this 
section.
    (c) Waiver Authority.--The Secretary shall waive compliance with 
the requirements of part C of title XVIII of the Social Security Act 
(as amended by section 4001 of this Act) to such extent and for such 
period as the Secretary determines is necessary to conduct the project.
    (d) Duration.--A demonstration project under this section shall be 
conducted for a 3-year period.
    (e) Separate From Other Demonstration Projects.--A project 
implemented by the Secretary under this section shall not be conducted 
in conjunction with any other demonstration project.

SEC. 4019. EXTENSION OF CERTAIN MEDICARE COMMUNITY NURSING ORGANIZATION 
              DEMONSTRATION PROJECTS.

    Notwithstanding any other provision of law, demonstration projects 
conducted under section 4079 of the Omnibus Budget Reconciliation Act 
of 1987 may be conducted for an additional period of 2 years, and the 
deadline for any report required relating to the results of such 
projects shall be not later than 6 months before the end of such 
additional period.

                         CHAPTER 3--COMMISSIONS

SEC. 4021. NATIONAL BIPARTISAN COMMISSION ON THE FUTURE OF MEDICARE.

    (a) Establishment.--There is established a commission to be known 
as the National Bipartisan Commission on the Future of Medicare (in 
this section referred to as the ``Commission'').
    (b) Duties of the Commission.--The Commission shall--
        (1) review and analyze the long-term financial condition of the 
    medicare program under title XVIII of the Social Security Act (42 
    U.S.C. 1395 et seq.);
        (2) identify problems that threaten the financial integrity of 
    the Federal Hospital Insurance Trust Fund and the Federal 
    Supplementary Medical Insurance Trust Fund established under that 
    title (42 U.S.C. 1395i, 1395t), including--
            (A) 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) the extent to which current medicare update indexes do 
        not accurately reflect inflation;
        (3) analyze potential solutions to the problems identified 
    under paragraph (2) that will ensure both the financial integrity 
    of the medicare program and the provision of appropriate benefits 
    under such program, including methods used by other nations to 
    respond to comparable demographic patterns in eligibility for 
    health care benefits for elderly and disabled individuals and 
    trends in employment-related health care for retirees;
        (4) make recommendations to restore the solvency of the Federal 
    Hospital Insurance Trust Fund and the financial integrity of the 
    Federal Supplementary Medical Insurance Trust Fund;
        (5) make recommendations for establishing the appropriate 
    financial structure of the medicare program as a whole;
        (6) make recommendations for establishing the appropriate 
    balance of benefits covered and beneficiary contributions to the 
    medicare program;
        (7) make recommendations for the time periods during which the 
    recommendations described in paragraphs (4), (5), and (6) should be 
    implemented;
        (8) make recommendations regarding the financing of graduate 
    medical education (GME), including consideration of alternative 
    broad-based sources of funding for such education and funding for 
    institutions not currently eligible for such GME support that 
    conduct approved graduate medical residency programs, such as 
    children's hospitals;
        (9) make recommendations on modifying age-based eligibility to 
    correspond to changes in age-based eligibility under the OASDI 
    program and on the feasibility of allowing individuals between the 
    age of 62 and the medicare eligibility age to buy into the medicare 
    program;
        (10) make recommendations on the impact of chronic disease and 
    disability trends on future costs and quality of services under the 
    current benefit, financing, and delivery system structure of the 
    medicare program;
        (11) make recommendations regarding a comprehensive approach to 
    preserve the program; and
        (12) review and analyze such other matters as the Commission 
    deems appropriate.
    (c) Membership.--
        (1) Number and appointment.--The Commission shall be composed 
    of 17 members, of whom--
            (A) four shall be appointed by the President;
            (B) six shall be appointed by the Majority Leader of the 
        Senate, in consultation with the Minority Leader of the Senate, 
        of whom not more than 4 shall be of the same political party;
            (C) six shall be appointed by the Speaker of the House of 
        Representatives, in consultation with the Minority Leader of 
        the House of Representatives, of whom not more than 4 shall be 
        of the same political party; and
            (D) one, who shall serve as Chairman of the Commission, 
        appointed jointly by the President, Majority Leader of the 
        Senate, and the Speaker of the House of Representatives.
        (2) Deadline for appointment.--Members of the Commission shall 
    be appointed by not later than December 1, 1997.
        (3) Terms of appointment.--The term of any appointment under 
    paragraph (1) to the Commission shall be for the life of the 
    Commission.
        (4) Meetings.--The Commission shall meet at the call of its 
    Chairman or a majority of its members.
        (5) Quorum.--A quorum shall consist of 8 members of the 
    Commission, except that 4 members may conduct a hearing under 
    subsection (e).
        (6) Vacancies.--A vacancy on the Commission shall be filled in 
    the same manner in which the original appointment was made not 
    later than 30 days after the Commission is given notice of the 
    vacancy and shall not affect the power of the remaining members to 
    execute the duties of the Commission.
        (7) Compensation.--Members of the Commission shall receive no 
    additional pay, allowances, or benefits by reason of their service 
    on the Commission.
        (8) Expenses.--Each member of the Commission shall receive 
    travel expenses and per diem in lieu of subsistence in accordance 
    with sections 5702 and 5703 of title 5, United States Code.
    (d) Staff and Support Services.--
        (1) Executive director.--
            (A) Appointment.--The Chairman shall appoint an executive 
        director of the Commission.
            (B) Compensation.--The executive director shall be paid the 
        rate of basic pay for level V of the Executive Schedule.
        (2) Staff.--With the approval of the Commission, the executive 
    director may appoint such personnel as the executive director 
    considers appropriate.
        (3) Applicability of civil service laws.--The staff of the 
    Commission shall be appointed without regard to the provisions of 
    title 5, United States Code, governing appointments in the 
    competitive service, and shall be paid without regard to the 
    provisions of chapter 51 and subchapter III of chapter 53 of such 
    title (relating to classification and General Schedule pay rates).
        (4) Experts and consultants.--With the approval of the 
    Commission, the executive director may procure temporary and 
    intermittent services under section 3109(b) of title 5, United 
    States Code.
        (5) Physical facilities.--The Administrator of the General 
    Services Administration shall locate suitable office space for the 
    operation of the Commission. The facilities shall serve as the 
    headquarters of the Commission and shall include all necessary 
    equipment and incidentals required for the proper functioning of 
    the Commission.
    (e) Powers of Commission.--
        (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 and office of 
    the chief actuary of hcfa.--
            (A) The Director of the Congressional Budget Office or the 
        Chief Actuary of the Health Care Financing Administration, or 
        both, shall provide to the Commission, upon the request of 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) 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 March 1, 1999, the Commission shall 
submit a report to the President and Congress which shall contain a 
detailed statement of only those recommendations, findings, and 
conclusions of the Commission that receive the approval of at least 11 
members of the Commission.
    (g) Termination.--The Commission shall terminate 30 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. 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 under title 
XVIII of the Social Security Act (42 U.S.C. 1395i, 1395t).

SEC. 4022. MEDICARE PAYMENT ADVISORY COMMISSION.

    (a) In General.--Title XVIII is amended by inserting after section 
1804 the following new section:


                  ``medicare payment advisory commission

    ``Sec. 1805. (a) Establishment.--There is hereby established the 
Medicare Payment Advisory Commission (in this section referred to as 
the `Commission').
    ``(b) Duties.--
        ``(1) Review of payment policies and annual reports.--The 
    Commission shall--
            ``(A) review payment policies under this title, including 
        the topics described in paragraph (2);
            ``(B) make recommendations to Congress concerning such 
        payment policies;
            ``(C) by not later than March 1 of each year (beginning 
        with 1998), submit a report to Congress containing the results 
        of such reviews and its recommendations concerning such 
        policies; and
            ``(D) by not later than June 1 of each year (beginning with 
        1998), 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.
        ``(2) Specific topics to be reviewed.--
            ``(A) Medicare+choice program.--Specifically, the 
        Commission shall review, with respect to the Medicare+Choice 
        program under part C, the following:
                ``(i) 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.
                ``(ii) The mechanisms used to adjust payments for risk 
            and the need to adjust such mechanisms to take into account 
            health status of beneficiaries.
                ``(iii) The implications of risk selection both among 
            Medicare+Choice organizations and between the 
            Medicare+Choice option and the original medicare fee-for-
            service option.
                ``(iv) The development and implementation of mechanisms 
            to assure the quality of care for those enrolled with 
            Medicare+Choice organizations.
                ``(v) The impact of the Medicare+Choice program on 
            access to care for medicare beneficiaries.
                ``(vi) Other major issues in implementation and further 
            development of the Medicare+Choice program.
            ``(B) Original medicare fee-for-service system.--
        Specifically, the Commission shall review payment policies 
        under parts A and B, including--
                ``(i) the factors affecting expenditures for services 
            in different sectors, including the process for updating 
            hospital, skilled nursing facility, physician, and other 
            fees,
                ``(ii) payment methodologies, and
                ``(iii) their relationship to access and quality of 
            care for medicare beneficiaries.
            ``(C) Interaction of medicare 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 other than under this title 
        and assess the implications of changes in health care delivery 
        in the United States and in the general market for health care 
        services on the medicare program.
        ``(3) Comments on certain secretarial reports.--If the 
    Secretary submits to Congress (or a committee of Congress) a report 
    that is required by law and that relates to payment policies under 
    this title, the Secretary shall transmit a copy of the report to 
    the Commission. The Commission shall review the report and, not 
    later than 6 months after the date of submittal of the Secretary's 
    report to Congress, shall submit to the appropriate committees of 
    Congress written comments on such report. Such comments may include 
    such recommendations as the Commission deems appropriate.
        ``(4) Agenda and additional reviews.--The Commission shall 
    consult periodically with the chairmen and ranking minority members 
    of the appropriate committees of Congress regarding the 
    Commission's agenda and progress towards achieving the agenda. The 
    Commission may conduct additional reviews, and submit additional 
    reports to the appropriate committees of Congress, from time to 
    time on such topics relating to the program under this title as may 
    be requested by such chairmen and members and as the Commission 
    deems appropriate.
        ``(5) Availability of reports.--The Commission shall transmit 
    to the Secretary a copy of each report submitted under this 
    subsection and shall make such reports available to the public.
        ``(6) Appropriate committees of congress.--For purposes of this 
    section, the term `appropriate committees of Congress' means the 
    Committees on Ways and Means and Commerce of the House of 
    Representatives and the Committee on Finance of the Senate.
    ``(c) Membership.--
        ``(1) Number and appointment.--The Commission shall be composed 
    of 15 members appointed by the Comptroller General.
        ``(2) Qualifications.--
            ``(A) In general.--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, 
        allopathic and osteopathic physicians, and other providers of 
        health services, and other related fields, who provide a mix of 
        different professionals, broad geographic representation, and a 
        balance between urban and rural representatives.
            ``(B) Inclusion.--The membership of the Commission shall 
        include (but not be limited to) physicians and other health 
        professionals, employers, third-party payers, 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.
            ``(C) Majority nonproviders.--Individuals who are directly 
        involved in the provision, or management of the delivery, of 
        items and services covered under this title shall not 
        constitute a majority of the membership of the Commission.
            ``(D) Ethical disclosure.--The Comptroller General shall 
        establish a system for public disclosure by members of the 
        Commission of financial and other potential conflicts of 
        interest relating to such members.
        ``(3) 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.
        ``(4) 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 the 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.
        ``(5) 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, except that in the case of vacancy of the 
    Chairmanship or Vice Chairmanship, the Comptroller General may 
    designate another member for the remainder of that member's term.
        ``(6) 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--
            ``(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 
    nonproprietary data of the Commission, immediately upon request.
        ``(4) Periodic audit.--The Commission shall be subject to 
    periodic audit by the Comptroller General.
    ``(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. Sixty 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 Advisory 
        Commission''.
        (2) PPRC.--
            (A) In general.--Title XVIII is amended by striking section 
        1845 (42 U.S.C. 1395w-1).
            (B) Elimination of certain reports.--Section 1848 (42 
        U.S.C. 1395w-4) is amended--
                (i) by striking subparagraph (F) of subsection (d)(2),
                (ii) by striking subparagraph (B) of subsection (f)(1), 
            and
                (iii) in subsection (f)(3), by striking ``Physician 
            Payment Review Commission,''.
            (C) Conforming amendments.--Section 1848 (42 U.S.C. 1395w-
        4) is amended by striking ``Physician Payment Review 
        Commission'' and inserting ``Medicare Payment Advisory 
        Commission'' each place it appears in subsections 
        (c)(2)(B)(iii), (g)(6)(C), and (g)(7)(C).
    (c) Effective Date; Transition.--
        (1) In general.--The Comptroller General shall first provide 
    for appointment of members to the Medicare Payment Advisory 
    Commission (in this subsection referred to as ``MedPAC'') by not 
    later than September 30, 1997.
        (2) Transition.--As quickly as possible after the date a 
    majority of members of MedPAC are first appointed, the Comptroller 
    General, in consultation with 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''), shall provide for the termination of the ProPAC and 
    the PPRC. As of the date of termination of the respective 
    Commissions, the amendments made by paragraphs (1) and (2), 
    respectively, of subsection (b) become effective. The Comptroller 
    General, to the extent feasible, shall provide for the transfer to 
    the MedPAC of assets and staff of the ProPAC and the PPRC, without 
    any loss of benefits or seniority by virtue of such transfers. Fund 
    balances available to the ProPAC or the PPRC for any period shall 
    be available to the MedPAC for such period for like purposes.
        (3) Continuing responsibility for reports.--The MedPAC 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 MedPAC) by the ProPAC and the PPRC, 
    and, for this purpose, any reference in law to either such 
    Commission is deemed, after the appointment of the MedPAC, to refer 
    to the MedPAC.

                     CHAPTER 4--MEDIGAP PROTECTIONS

SEC. 4031. MEDIGAP PROTECTIONS.

    (a) Guaranteeing Issue Without Preexisting Conditions for 
Continuously Covered Individuals.--Section 1882(s) (42 U.S.C. 
1395ss(s)) is amended--
        (1) in paragraph (3), by striking ``paragraphs (1) and (2)'' 
    and inserting ``this subsection'',
        (2) by redesignating paragraph (3) as paragraph (4), and
        (3) by inserting after paragraph (2) the following new 
    paragraph:
    ``(3)(A) The issuer of a medicare supplemental policy--
        ``(i) may not deny or condition the issuance or effectiveness 
    of a medicare supplemental policy described in subparagraph (C) 
    that is offered and is available for issuance to new enrollees by 
    such issuer;
        ``(ii) may not discriminate in the pricing of such policy, 
    because of health status, claims experience, receipt of health 
    care, or medical condition; and
        ``(iii) may not impose an exclusion of benefits based on a pre-
    existing condition under such policy,
in the case of an individual described in subparagraph (B) who seeks to 
enroll under the policy not later than 63 days after the date of the 
termination of enrollment described in such subparagraph and who 
submits evidence of the date of termination or disenrollment along with 
the application for such medicare supplemental policy.
    ``(B) An individual described in this subparagraph is an individual 
described in any of the following clauses:
        ``(i) The individual is enrolled under an employee welfare 
    benefit plan that provides health benefits that supplement the 
    benefits under this title and the plan terminates or ceases to 
    provide all such supplemental health benefits to the individual.
        ``(ii) The individual is enrolled with a Medicare+Choice 
    organization under a Medicare+Choice plan under part C, and there 
    are circumstances permitting discontinuance of the individual's 
    election of the plan under the first sentence of section 
    1851(e)(4).
        ``(iii) The individual is enrolled with an eligible 
    organization under a contract under section 1876, a similar 
    organization operating under demonstration project authority, 
    effective for periods before April 1, 1999, with an organization 
    under an agreement under section 1833(a)(1)(A), or with an 
    organization under a policy described in subsection (t), and such 
    enrollment ceases under the same circumstances that would permit 
    discontinuance of an individual's election of coverage under the 
    first sentence of section 1851(e)(4) and, in the case of a policy 
    described in subsection (t), there is no provision under applicable 
    State law for the continuation or conversion of coverage under such 
    policy.
        ``(iv) The individual is enrolled under a medicare supplemental 
    policy under this section and such enrollment ceases because--
            ``(I) of the bankruptcy or insolvency of the issuer or 
        because of other involuntary termination of coverage or 
        enrollment under such policy and there is no provision under 
        applicable State law for the continuation or conversion of such 
        coverage;
            ``(II) the issuer of the policy substantially violated a 
        material provision of the policy; or
            ``(III) the issuer (or an agent or other entity acting on 
        the issuer's behalf) materially misrepresented the policy's 
        provisions in marketing the policy to the individual.
        ``(v) The individual--
            ``(I) was enrolled under a medicare supplemental policy 
        under this section,
            ``(II) subsequently terminates such enrollment and enrolls, 
        for the first time, with any Medicare+Choice organization under 
        a Medicare+Choice plan under part C, any eligible organization 
        under a contract under section 1876, any similar organization 
        operating under demonstration project authority, or any policy 
        described in subsection (t), and
            ``(III) the subsequent enrollment under subclause (II) is 
        terminated by the enrollee during any period within the first 
        12 months of such enrollment (during which the enrollee is 
        permitted to terminate such subsequent enrollment under section 
        1851(e)).
        ``(vi) The individual, upon first becoming eligible for 
    benefits under part A at age 65, enrolls in a Medicare+Choice plan 
    under part C, and disenrolls from such plan by not later than 12 
    months after the effective date of such enrollment.
    ``(C)(i) Subject to clauses (ii) and (iii), a medicare supplemental 
policy described in this subparagraph is a medicare supplemental policy 
which has a benefit package classified as `A', `B', `C', or `F' under 
the standards established under subsection (p)(2).
    ``(ii) Only for purposes of an individual described in subparagraph 
(B)(v), a medicare supplemental policy described in this subparagraph 
is the same medicare supplemental policy referred to in such 
subparagraph in which the individual was most recently previously 
enrolled, if available from the same issuer, or, if not so available, a 
policy described in clause (i).
    ``(iii) Only for purposes of an individual described in 
subparagraph (B)(vi), a medicare supplemental policy described in this 
subparagraph shall include any medicare supplemental policy.
    ``(iv) For purposes of applying this paragraph in the case of a 
State that provides for offering of benefit packages other than under 
the classification referred to in clause (i), the references to benefit 
packages in such clause are deemed references to comparable benefit 
packages offered in such State.
    ``(D) At the time of an event described in subparagraph (B) because 
of which an individual ceases enrollment or loses coverage or benefits 
under a contract or agreement, policy, or plan, the organization that 
offers the contract or agreement, the insurer offering the policy, or 
the administrator of the plan, respectively, shall notify the 
individual of the rights of the individual under this paragraph, and 
obligations of issuers of medicare supplemental policies, under 
subparagraph (A).''.
    (b) Limitation on Imposition of Preexisting Condition Exclusion 
During Initial Open Enrollment Period.--Section 1882(s)(2) (42 U.S.C. 
1395ss(s)(2)) is amended--
        (1) in subparagraph (B), by striking ``subparagraph (C)'' and 
    inserting ``subparagraphs (C) and (D)'', and
        (2) by adding at the end the following new subparagraph:
    ``(D) In the case of a policy issued during the 6-month period 
described in subparagraph (A) to an individual who is 65 years of age 
or older as of the date of issuance and who as of the date of the 
application for enrollment has a continuous period of creditable 
coverage (as defined in 2701(c) of the Public Health Service Act) of--
        ``(i) at least 6 months, the policy may not exclude benefits 
    based on a pre-existing condition; or
        ``(ii) less than 6 months, if the policy excludes benefits 
    based on a preexisting condition, the policy shall reduce the 
    period of any preexisting condition exclusion by the aggregate of 
    the periods of creditable coverage (if any, as so defined) 
    applicable to the individual as of the enrollment date.
The Secretary shall specify the manner of the reduction under clause 
(ii), based upon the rules used by the Secretary in carrying out 
section 2701(a)(3) of such Act.''.
    (c) Conforming Amendment.--Section 1882(d)(3)(A)(vi)(III) (42 
U.S.C. 1395ss(d)(2)(A)(vi)(III)) is amended by inserting ``, a policy 
described in clause (v),'' after ``Medicare supplemental policy''.
    (d) Effective Dates.--
        (1) Guaranteed issue.--The amendment made by subsection (a) 
    shall take effect on July 1, 1998.
        (2) Limit on preexisting condition exclusions.--The amendment 
    made by subsection (b) shall apply to policies issued on or after 
    July 1, 1998.
        (3) Conforming amendment.--The amendment made by subsection (c) 
    shall be effective as if included in the enactment of the Health 
    Insurance Portability and Accountability Act of 1996.
    (e) Transition Provisions.--
        (1) In general.--If the Secretary of Health and Human Services 
    identifies a State as requiring a change to its statutes or 
    regulations to conform its regulatory program to the changes made 
    by this section, the State regulatory program shall not be 
    considered to be out of compliance with the requirements of section 
    1882 of the Social Security Act due solely to failure to make such 
    change until the date specified in paragraph (4).
        (2) NAIC standards.--If, within 9 months after the date of the 
    enactment of this Act, the National Association of Insurance 
    Commissioners (in this subsection referred to as the ``NAIC'') 
    modifies its NAIC Model Regulation relating to section 1882 of the 
    Social Security Act (referred to in such section as the 1991 NAIC 
    Model Regulation, as modified pursuant to section 171(m)(2) of the 
    Social Security Act Amendments of 1994 (Public Law 103-432) and as 
    modified pursuant to section 1882(d)(3)(A)(vi)(IV) of the Social 
    Security Act, as added by section 271(a) of the Health Insurance 
    Portability and Accountability Act of 1996 (Public Law 104-191) to 
    conform to the amendments made by this section, such revised 
    regulation incorporating the modifications shall be considered to 
    be the applicable NAIC model regulation (including the revised NAIC 
    model regulation and the 1991 NAIC Model Regulation) for the 
    purposes of such section.
        (3) Secretary standards.--If the NAIC does not make the 
    modifications described in paragraph (2) within the period 
    specified in such paragraph, the Secretary of Health and Human 
    Services shall make the modifications described in such paragraph 
    and such revised regulation incorporating the modifications shall 
    be considered to be the appropriate Regulation for the purposes of 
    such section.
        (4) Date specified.--
            (A) In general.--Subject to subparagraph (B), the date 
        specified in this paragraph for a State is the earlier of--
                (i) the date the State changes its statutes or 
            regulations to conform its regulatory program to the 
            changes made by this section, or
                (ii) 1 year after the date the NAIC or the Secretary 
            first makes the modifications under paragraph (2) or (3), 
            respectively.
            (B) Additional legislative action required.--In the case of 
        a State which the Secretary identifies as--
                (i) requiring State legislation (other than legislation 
            appropriating funds) to conform its regulatory program to 
            the changes made in this section, but
                (ii) having a legislature which is not scheduled to 
            meet in 1999 in a legislative session in which such 
            legislation may be considered,
        the date specified in this paragraph is the first day of the 
        first calendar quarter beginning after the close of the first 
        legislative session of the State legislature that begins on or 
        after July 1, 1999. For purposes of the previous sentence, in 
        the case of a State that has a 2-year legislative session, each 
        year of such session shall be deemed to be a separate regular 
        session of the State legislature.
    (f) Conforming Benefits to Changes in Terminology for Hospital 
Outpatient Department Cost Sharing.--For purposes of apply section 1882 
of the Social Security Act (42 U.S.C. 1395ss) and regulations referred 
to in subsection (e), copayment amounts provided under section 
1833(t)(5) of such Act with respect to hospital outpatient department 
services shall be treated under medicare supplemental policies in the 
same manner as coinsurance with respect to such services.

SEC. 4032. ADDITION OF HIGH DEDUCTIBLE MEDIGAP POLICIES.

    (a) In General.--Section 1882(p) (42 U.S.C. 1395ss(p)) is amended--
        (1) in paragraph (2)(C), by inserting ``plus the 2 plans 
    described in paragraph (11)(A)'' after ``exceed 10''; and
        (2) by adding at the end the following:
    ``(11)(A) For purposes of paragraph (2), the benefit packages 
described in this subparagraph are as follows:
        ``(i) The benefit package classified as `F' under the standards 
    established by such paragraph, except that it has a high deductible 
    feature.
        ``(ii) The benefit package classified as `J' under the 
    standards established by such paragraph, except that it has a high 
    deductible feature.
    ``(B) For purposes of subparagraph (A), a high deductible feature 
is one which--
        ``(i) requires the beneficiary of the policy to pay annual out-
    of-pocket expenses (other than premiums) in the amount specified in 
    subparagraph (C) before the policy begins payment of benefits, and
        ``(ii) covers 100 percent of covered out-of-pocket expenses 
    once such deductible has been satisfied in a year.
    ``(C) The amount specified in this subparagraph--
        ``(i) for 1998 and 1999 is $1,500, and
        ``(ii) for a subsequent year, is the amount specified in this 
    subparagraph for the previous year increased by the percentage 
    increase in the Consumer Price Index for all urban consumers (all 
    items; U.S. city average) for the 12-month period ending with 
    August of the preceding year.
If any amount determined under clause (ii) is not a multiple of $10, it 
shall be rounded to the nearest multiple of $10.''.
    (b) Effective Date.--
        (1) In general.--The amendments made by subsection (a) shall 
    take effect the date of the enactment of this Act.
        (2) Transition.--The provisions of section 4031(e) shall apply 
    with respect to this section in the same manner as they apply to 
    section 4031.

    CHAPTER 5--TAX TREATMENT OF HOSPITALS PARTICIPATING IN PROVIDER-
                        SPONSORED ORGANIZATIONS

SEC. 4041. TAX 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 (o) as subsection (p) and by 
inserting after subsection (n) the following new subsection:
    ``(o) 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 1853(e) 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--Prevention Initiatives

SEC. 4101. SCREENING MAMMOGRAPHY.

    (a) Providing Annual Screening Mammography for Women Over Age 39.--
Section 1834(c)(2)(A) (42 U.S.C. 1395m(c)(2)(A)) is amended--
        (1) in clause (iii), to read as follows:
                ``(iii) In the case of a woman over 39 years of age, 
            payment may not be made under this part for screening 
            mammography performed within 11 months following the month 
            in which a previous screening mammography was performed.''; 
            and
        (2) by striking clauses (iv) and (v).
    (b) Waiver of Deductible.--The first sentence of section 1833(b) 
(42 U.S.C. 1395l(b)) is amended--
        (1) by striking ``and'' before ``(4)'', and
        (2) by inserting before the period at the end the following: 
    ``, and (5) such deductible shall not apply with respect to 
    screening mammography (as described in section 1861(jj))''.
    (c) Conforming Amendment.--Section 1834(c)(1)(C) (42 U.S.C. 
1395m(c)(1)(C)) is amended by striking ``, subject to the deductible 
established under section 1833(b),''.
    (d) Effective Date.--The amendments made by this section shall 
apply to items and services furnished on or after January 1, 1998.

SEC. 4102. SCREENING PAP SMEAR AND PELVIC EXAMS.

    (a) Coverage of Pelvic Exam; Increasing Frequency of Coverage of 
Pap Smear.--Section 1861(nn) (42 U.S.C. 1395x(nn)) is amended--
        (1) in the heading, by striking ``Smear'' and inserting 
    ``Smear; Screening Pelvic Exam'';
        (2) by inserting ``or vaginal'' after ``cervical'' each place 
    it appears;
        (3) by striking ``(nn)'' and inserting ``(nn)(1)'';
        (4) by striking ``3 years'' and all that follows and inserting 
    ``3 years, or during the preceding year in the case of a woman 
    described in paragraph (3).''; and
        (5) by adding at the end the following new paragraphs:
    ``(2) The term `screening pelvic exam' means a pelvic examination 
provided to a woman if the woman involved has not had such an 
examination during the preceding 3 years, or during the preceding year 
in the case of a woman described in paragraph (3), and includes a 
clinical breast examination.
    ``(3) A woman described in this paragraph is a woman who--
        ``(A) is of childbearing age and has had a test described in 
    this subsection during any of the preceding 3 years that indicated 
    the presence of cervical or vaginal cancer or other abnormality; or
        ``(B) is at high risk of developing cervical or vaginal cancer 
    (as determined pursuant to factors identified by the Secretary).''.
    (b) Waiver of Deductible.--The first sentence of section 1833(b) 
(42 U.S.C. 1395l(b)), as amended by section 4101(b), is amended--
        (1) by striking ``and'' before ``(5)'', and
        (2) by inserting before the period at the end the following: 
    ``, and (6) such deductible shall not apply with respect to 
    screening pap smear and screening pelvic exam (as described in 
    section 1861(nn))''.
    (c) Conforming Amendments.--Sections 1861(s)(14) and 1862(a)(1)(F) 
(42 U.S.C. 1395x(s)(14), 1395y(a)(1)(F)) are each amended by inserting 
``and screening pelvic exam'' after ``screening pap smear''.
    (d) Payment Under Physician Fee Schedule.--Section 1848(j)(3) (42 
U.S.C. 1395w-4(j)(3)) is amended by striking ``and (4)'' and inserting 
``(4) and (14) (with respect to services described in section 
1861(nn)(2))''.
    (e) Effective Date.--The amendments made by this section shall 
apply to items and services furnished on or after January 1, 1998.

SEC. 4103. PROSTATE CANCER SCREENING TESTS.

    (a) Coverage.--Section 1861 (42 U.S.C. 1395x) is amended--
        (1) in subsection (s)(2)--
            (A) by striking ``and'' at the end of subparagraphs (N) and 
        (O), and
            (B) by inserting after subparagraph (O) the following new 
        subparagraph:
        ``(P) prostate cancer screening tests (as defined in subsection 
    (oo)); and''; and
        (2) by adding at the end the following new subsection:

                   ``Prostate Cancer Screening Tests

    ``(oo)(1) The term `prostate cancer screening test' means a test 
that consists of any (or all) of the procedures described in paragraph 
(2) provided for the purpose of early detection of prostate cancer to a 
man over 50 years of age who has not had such a test during the 
preceding year.
    ``(2) The procedures described in this paragraph are as follows:
        ``(A) A digital rectal examination.
        ``(B) A prostate-specific antigen blood test.
        ``(C) For years beginning after 2002, such other procedures as 
    the Secretary finds appropriate for the purpose of early detection 
    of prostate cancer, taking into account changes in technology and 
    standards of medical practice, availability, effectiveness, costs, 
    and such other factors as the Secretary considers appropriate.''.
    (b) Payment for Prostate-specific Antigen Blood Test Under Clinical 
Diagnostic Laboratory Test Fee Schedules.--Section 1833(h)(1)(A) (42 
U.S.C. 1395l(h)(1)(A)) is amended by inserting after ``laboratory 
tests'' the following: ``(including prostate cancer screening tests 
under section 1861(oo) consisting of prostate-specific antigen blood 
tests)''.
    (c) Conforming Amendment.--Section 1862(a) (42 U.S.C. 1395y(a)) is 
amended--
        (1) in paragraph (1)--
            (A) in subparagraph (E), by striking ``and'' at the end,
            (B) in subparagraph (F), by striking the semicolon at the 
        end and inserting ``, and'', and
            (C) by adding at the end the following new subparagraph:
        ``(G) in the case of prostate cancer screening tests (as 
    defined in section 1861(oo)), which are performed more frequently 
    than is covered under such section;''; and
        (2) in paragraph (7), by striking ``paragraph (1)(B) or under 
    paragraph (1)(F)'' and inserting ``subparagraphs (B), (F), or (G) 
    of paragraph (1)''.
    (d) Payment Under Physician Fee Schedule.--Section 1848(j)(3) (42 
U.S.C. 1395w-4(j)(3)), as amended by section 4102, is amended by 
inserting ``, (2)(P) (with respect to services described in 
subparagraphs (A) and (C) of section 1861(oo)(2),'' after ``(2)(G)''
    (e) Effective Date.--The amendments made by this section shall 
apply to items and services furnished on or after January 1, 2000.

SEC. 4104. COVERAGE OF COLORECTAL SCREENING.

    (a) Coverage.--
        (1) In general.--Section 1861 (42 U.S.C. 1395x), as amended by 
    section 4103(a), is amended--
            (A) in subsection (s)(2)--
                (i) by striking ``and'' at the end of subparagraph (P);
                (ii) by adding ``and'' at the end of subparagraph (Q); 
            and
                (iii) by adding at the end the following new 
            subparagraph:
        ``(R) colorectal cancer screening tests (as defined in 
    subsection (pp)); and''; and
            (B) by adding at the end the following new subsection:

                  ``Colorectal Cancer Screening Tests

    ``(pp)(1) The term `colorectal cancer screening test' means any of 
the following procedures furnished to an individual for the purpose of 
early detection of colorectal cancer:
        ``(A) Screening fecal-occult blood test.
        ``(B) Screening flexible sigmoidoscopy.
        ``(C) In the case of an individual at high risk for colorectal 
    cancer, screening colonoscopy.
        ``(D) Such other tests or procedures, and modifications to 
    tests and procedures under this subsection, with such frequency and 
    payment limits, as the Secretary determines appropriate, in 
    consultation with appropriate organizations.
    ``(2) In paragraph (1)(C), an `individual at high risk for 
colorectal cancer' is an individual who, because of family history, 
prior experience of cancer or precursor neoplastic polyps, a history of 
chronic digestive disease condition (including inflammatory bowel 
disease, Crohn's Disease, or ulcerative colitis), the presence of any 
appropriate recognized gene markers for colorectal cancer, or other 
predisposing factors, faces a high risk for colorectal cancer.''.
        (2) Deadline for publication of determination on coverage of 
    screening barium enema.--Not later than the earlier of the date 
    that is January 1, 1998, or 90 days after the date of the enactment 
    of this Act, the Secretary of Health and Human Services shall 
    publish notice in the Federal Register with respect to the 
    determination under paragraph (1)(D) of section 1861(pp) of the 
    Social Security Act (42 U.S.C. 1395x(pp)), as added by paragraph 
    (1), on the coverage of a screening barium enema as a colorectal 
    cancer screening test under such section.
    (b) Frequency Limits and Payment.--
        (1) In general.--Section 1834 (42 U.S.C. 1395m) is amended by 
    inserting after subsection (c) the following new subsection:
    ``(d) Frequency Limits and Payment for Colorectal Cancer Screening 
Tests.--
        ``(1) Screening fecal-occult blood tests.--
            ``(A) Payment amount.--The payment amount for colorectal 
        cancer screening tests consisting of screening fecal-occult 
        blood tests is equal to the payment amount established for 
        diagnostic fecal-occult blood tests under section 1833(h).
            ``(B) Frequency limit.--No payment may be made under this 
        part for a colorectal cancer screening test consisting of a 
        screening fecal-occult blood test--
                ``(i) if the individual is under 50 years of age; or
                ``(ii) if the test is performed within the 11 months 
            after a previous screening fecal-occult blood test.
        ``(2) Screening flexible sigmoidoscopies.--
            ``(A) Fee schedule.--With respect to colorectal cancer 
        screening tests consisting of screening flexible 
        sigmoidoscopies, payment under section 1848 shall be consistent 
        with payment under such section for similar or related 
        services.
            ``(B) Payment limit.--In the case of screening flexible 
        sigmoidoscopy services, payment under this part shall not 
        exceed such amount as the Secretary specifies, based upon the 
        rates recognized for diagnostic flexible sigmoidoscopy 
        services.
            ``(C) Facility payment limit.--
                ``(i) In general.--Notwithstanding subsections 
            (i)(2)(A) and (t) of section 1833, in the case of screening 
            flexible sigmoidoscopy services furnished on or after 
            January 1, 1999, that--

                    ``(I) in accordance with regulations, may be 
                performed in an ambulatory surgical center and for 
                which the Secretary permits ambulatory surgical center 
                payments under this part, and
                    ``(II) are performed in an ambulatory surgical 
                center or hospital outpatient department,

            payment under this part shall be based on the lesser of the 
            amount under the fee schedule that would apply to such 
            services if they were performed in a hospital outpatient 
            department in an area or the amount under the fee schedule 
            that would apply to such services if they were performed in 
            an ambulatory surgical center in the same area.
                ``(ii) Limitation on deductible and coinsurance.--
            Notwithstanding any other provision of this title, in the 
            case of a beneficiary who receives the services described 
            in clause (i)--

                    ``(I) in computing the amount of any applicable 
                deductible or copayment, the computation of such 
                deductible or coinsurance shall be based upon the fee 
                schedule under which payment is made for the services, 
                and
                    ``(II) the amount of such coinsurance is equal to 
                25 percent of the payment amount under the fee schedule 
                described in subclause (I).

            ``(D) Special rule for detected lesions.--If during the 
        course of such screening flexible sigmoidoscopy, a lesion or 
        growth is detected which results in a biopsy or removal of the 
        lesion or growth, payment under this part shall not be made for 
        the screening flexible sigmoidoscopy but shall be made for the 
        procedure classified as a flexible sigmoidoscopy with such 
        biopsy or removal.
            ``(E) Frequency limit.--No payment may be made under this 
        part for a colorectal cancer screening test consisting of a 
        screening flexible sigmoidoscopy--
                ``(i) if the individual is under 50 years of age; or
                ``(ii) if the procedure is performed within the 47 
            months after a previous screening flexible sigmoidoscopy.
        ``(3) Screening colonoscopy for individuals at high risk for 
    colorectal cancer.--
            ``(A) Fee schedule.--With respect to colorectal cancer 
        screening test consisting of a screening colonoscopy for 
        individuals at high risk for colorectal cancer (as defined in 
        section 1861(pp)(2)), payment under section 1848 shall be 
        consistent with payment amounts under such section for similar 
        or related services.
            ``(B) Payment limit.--In the case of screening colonoscopy 
        services, payment under this part shall not exceed such amount 
        as the Secretary specifies, based upon the rates recognized for 
        diagnostic colonoscopy services.
            ``(C) Facility payment limit.--
                ``(i) In general.--Notwithstanding subsections 
            (i)(2)(A) and (t) of section 1833, in the case of screening 
            colonoscopy services furnished on or after January 1, 1999, 
            that are performed in an ambulatory surgical center or a 
            hospital outpatient department, payment under this part 
            shall be based on the lesser of the amount under the fee 
            schedule that would apply to such services if they were 
            performed in a hospital outpatient department in an area or 
            the amount under the fee schedule that would apply to such 
            services if they were performed in an ambulatory surgical 
            center in the same area.
                ``(ii) Limitation on deductible and coinsurance.--
            Notwithstanding any other provision of this title, in the 
            case of a beneficiary who receives the services described 
            in clause (i)--

                    ``(I) in computing the amount of any applicable 
                deductible or coinsurance, the computation of such 
                deductible or coinsurance shall be based upon the fee 
                schedule under which payment is made for the services, 
                and
                    ``(II) the amount of such coinsurance is equal to 
                25 percent of the payment amount under the fee schedule 
                described in subclause (I).

            ``(D) Special rule for detected lesions.--If during the 
        course of such screening colonoscopy, a lesion or growth is 
        detected which results in a biopsy or removal of the lesion or 
        growth, payment under this part shall not be made for the 
        screening colonoscopy but shall be made for the procedure 
        classified as a colonoscopy with such biopsy or removal.
            ``(E) Frequency limit.--No payment may be made under this 
        part for a colorectal cancer screening test consisting of a 
        screening colonoscopy for individuals at high risk for 
        colorectal cancer if the procedure is performed within the 23 
        months after a previous screening colonoscopy.''.
    (c) Conforming Amendments.--(1) Paragraphs (1)(D) and (2)(D) of 
section 1833(a) (42 U.S.C. 1395l(a)) are each amended by inserting ``or 
section 1834(d)(1)'' after ``subsection (h)(1)''.
    (2) Section 1833(h)(1)(A) (42 U.S.C. 1395l(h)(1)(A)) is amended by 
striking ``The Secretary'' and inserting ``Subject to section 
1834(d)(1), the Secretary''.
    (3) Section 1862(a) (42 U.S.C. 1395y(a)), as amended by section 
4103(c), is amended--
        (A) in paragraph (1)--
            (i) in subparagraph (F), by striking ``and'' at the end,
            (ii) in subparagraph (G), by striking the semicolon at the 
        end and inserting ``, and'', and
            (iii) by adding at the end the following new subparagraph:
        ``(H) in the case of colorectal cancer screening tests, which 
    are performed more frequently than is covered under section 
    1834(d);''; and
        (B) in paragraph (7), by striking ``or (G)'' and inserting 
    ``(G), or (H)''.
    (d) Payment Under Physician Fee Schedule.--Section 1848(j)(3) (42 
U.S.C. 1395w-4(j)(3)), as amended by sections 4102 and 4103, is amended 
by inserting ``(2)(R) (with respect to services described in 
subparagraphs (B) , (C), and (D) of section 1861(pp)(1)),'' before 
``(3)''.
    (e) Effective Date.--The amendments made by this section shall 
apply to items and services furnished on or after January 1, 1998.

SEC. 4105. DIABETES SELF-MANAGEMENT BENEFITS.

    (a) Coverage of Diabetes Outpatient Self-management Training 
Services.--
        (1) In general.--Section 1861 (42 U.S.C. 1395x), as amended by 
    sections 4103(a) and 4104(a), is amended--
            (A) in subsection (s)(2)--
                (i) by striking ``and'' at the end of subparagraph (Q);
                (ii) by adding ``and'' at the end of subparagraph (R); 
            and
                (iii) by adding at the end the following new 
            subparagraph:
        ``(S) diabetes outpatient self-management training services (as 
    defined in subsection (qq)); and''; and
            (B) by adding at the end the following new subsection:

        ``Diabetes Outpatient Self-Management Training Services

    ``(qq)(1) The term `diabetes outpatient self-management training 
services' means educational and training services furnished (at such 
times as the Secretary determines appropriate) to an individual with 
diabetes by a certified provider (as described in paragraph (2)(A)) in 
an outpatient setting by an individual or entity who meets the quality 
standards described in paragraph (2)(B), but only if the physician who 
is managing the individual's diabetic condition certifies that such 
services are needed under a comprehensive plan of care related to the 
individual's diabetic condition to ensure therapy compliance or to 
provide the individual with necessary skills and knowledge (including 
skills related to the self-administration of injectable drugs) to 
participate in the management of the individual's condition.
    ``(2) In paragraph (1)--
        ``(A) a `certified provider' is a physician, or other 
    individual or entity designated by the Secretary, that, in addition 
    to providing diabetes outpatient self-management training services, 
    provides other items or services for which payment may be made 
    under this title; and
        ``(B) a physician, or such other individual or entity, meets 
    the quality standards described in this paragraph if the physician, 
    or individual or entity, meets quality standards established by the 
    Secretary, except that the physician or other individual or entity 
    shall be deemed to have met such standards if the physician or 
    other individual or entity meets applicable standards originally 
    established by the National Diabetes Advisory Board and 
    subsequently revised by organizations who participated in the 
    establishment of standards by such Board, or is recognized by an 
    organization that represents individuals (including individuals 
    under this title) with diabetes as meeting standards for furnishing 
    the services.''.
        (2) Payment Under Physician Fee Schedule.--Section 1848(j)(3) 
    (42 U.S.C. 1395w-4(j)(3)) as amended in sections 4102, 4103, and 
    4104, is amended by inserting ``(2)(S),'' before ``(3),''.
        (3) Consultation with organizations in establishing payment 
    amounts for services provided by physicians.--In establishing 
    payment amounts under section 1848 of the Social Security Act for 
    physicians' services consisting of diabetes outpatient self-
    management training services, the Secretary of Health and Human 
    Services shall consult with appropriate organizations, including 
    such organizations representing individuals or medicare 
    beneficiaries with diabetes.
    (b) Blood-testing Strips for Individuals With Diabetes.--
        (1) Including strips and monitors as durable medical 
    equipment.--The first sentence of section 1861(n) (42 U.S.C. 
    1395x(n)) is amended by inserting before the semicolon the 
    following: ``, and includes blood-testing strips and blood glucose 
    monitors for individuals with diabetes without regard to whether 
    the individual has Type I or Type II diabetes or to the 
    individual's use of insulin (as determined under standards 
    established by the Secretary in consultation with the appropriate 
    organizations)''.
        (2) 10 percent reduction in payments for testing strips.--
    Section 1834(a)(2)(B)(iv) (42 U.S.C. 1395m(a)(2)(B)(iv)) is amended 
    by adding before the period the following: ``(reduced by 10 
    percent, in the case of a blood glucose testing strip furnished 
    after 1997 for an individual with diabetes)''.
    (c) Establishment of Outcome Measures for Beneficiaries With 
Diabetes.--
        (1) In general.--The Secretary of Health and Human Services, in 
    consultation with appropriate organizations, shall establish 
    outcome measures, including glysolated hemoglobin (past 90-day 
    average blood sugar levels), for purposes of evaluating the 
    improvement of the health status of medicare beneficiaries with 
    diabetes mellitus.
        (2) Recommendations for modifications to screening benefits.--
    Taking into account information on the health status of medicare 
    beneficiaries with diabetes mellitus as measured under the outcome 
    measures established under paragraph (1), the Secretary shall from 
    time to time submit recommendations to Congress regarding 
    modifications to the coverage of services for such beneficiaries 
    under the medicare program.
    (d) Effective Date.--
        (1) In general.--Except as provided in paragraph (2), the 
    amendments made by this section shall apply to items and services 
    furnished on or after July 1, 1998.
        (2) Testing strips.--The amendment made by subsection (b)(2) 
    shall apply with respect to blood glucose testing strips furnished 
    on or after January 1, 1998.

SEC. 4106. STANDARDIZATION OF MEDICARE COVERAGE OF BONE MASS 
              MEASUREMENTS.

    (a) In General.--Section 1861 (42 U.S.C. 1395x), as amended by 
sections 4103(a), 4104(a), and 4105(a), is amended--
        (1) in subsection (s)--
            (A) in paragraph (12)(C), by striking ``and'' at the end,
            (B) by striking the period at the end of paragraph (14) and 
        inserting ``; and'',
            (C) by redesignating paragraphs (15) and (16) as paragraphs 
        (16) and (17), respectively, and
            (D) by inserting after paragraph (14) the following new 
        paragraph:
        ``(15) bone mass measurement (as defined in subsection 
    (rr)).''; and
        (2) by inserting after subsection (qq) the following new 
    subsection:

                        ``Bone Mass Measurement

    ``(rr)(1) The term `bone mass measurement' means a radiologic or 
radioisotopic procedure or other procedure approved by the Food and 
Drug Administration performed on a qualified individual (as defined in 
paragraph (2)) for the purpose of identifying bone mass or detecting 
bone loss or determining bone quality, and includes a physician's 
interpretation of the results of the procedure.
    ``(2) For purposes of this subsection, the term `qualified 
individual' means an individual who is (in accordance with regulations 
prescribed by the Secretary)--
        ``(A) an estrogen-deficient woman at clinical risk for 
    osteoporosis;
        ``(B) an individual with vertebral abnormalities;
        ``(C) an individual receiving long-term glucocorticoid steroid 
    therapy;
        ``(D) an individual with primary hyperparathyroidism; or
        ``(E) an individual being monitored to assess the response to 
    or efficacy of an approved osteoporosis drug therapy.
    ``(3) The Secretary shall establish such standards regarding the 
frequency with which a qualified individual shall be eligible to be 
provided benefits for bone mass measurement under this title.''.
    (b) Payment under Physician Fee Schedule.--Section 1848(j)(3) (42 
U.S.C. 1395w-4(j)(3)), as amended by sections 4102, 4103, 4104 and 
4105, is amended--
        (1) by striking ``(4) and (14)'' and inserting ``(4), (14)'' 
    and
        (2) by inserting ``and (15)'' after ``1861(nn)(2))''.
    (c) Conforming Amendments.--Sections 1864(a), 1902(a)(9)(C), and 
1915(a)(1)(B)(ii)(I) (42 U.S.C. 1395aa(a), 1396a(a)(9)(C), and 
1396n(a)(1)(B)(ii)(I)) are amended by striking ``paragraphs (15) and 
(16)'' each place it appears and inserting ``paragraphs (16) and 
(17)''.
    (d) Effective Date.--The amendments made by this section shall 
apply to bone mass measurements performed on or after July 1, 1998.

SEC. 4107. VACCINES OUTREACH EXPANSION.

    (a) Extension of Influenza and Pneumococcal Vaccination Campaign.--
In order to increase utilization of pneumococcal and influenza vaccines 
in medicare beneficiaries, the Influenza and Pneumococcal Vaccination 
Campaign carried out by the Health Care Financing Administration in 
conjunction with the Centers for Disease Control and Prevention and the 
National Coalition for Adult Immunization, is extended until the end of 
fiscal year 2002.
    (b) Authorization of Appropriation.--There are hereby authorized to 
be appropriated for each of fiscal years 1998 through 2002, $8,000,000 
for the Campaign described in subsection (a). Of the amount so 
authorized to be appropriated in each fiscal year, 60 percent of the 
amount so appropriated shall be payable from the Federal Hospital 
Insurance Trust Fund, and 40 percent shall be payable from the Federal 
Supplementary Medical Insurance Trust Fund.

SEC. 4108. STUDY ON PREVENTIVE AND ENHANCED BENEFITS.

    (a) Study.--The Secretary of Health and Human Services shall 
request the National Academy of Sciences, and as appropriate in 
conjunction with the United States Preventive Services Task Force, to 
analyze the expansion or modification of preventive or other benefits 
provided to medicare beneficiaries under title XVIII of the Social 
Security Act. The analysis shall consider both the short term and long 
term benefits, and costs to the medicare program, of such expansion or 
modification.
    (b) Report.--
        (1) Initial report.--Not later than 2 years after the date of 
    the enactment of this Act, the Secretary shall submit a report on 
    the findings of the analysis conducted under subsection (a) to the 
    Committee on Ways and Means and the Committee on Commerce of the 
    House of Representatives and the Committee on Finance of the 
    Senate.
        (2) Contents.--Such report shall include specific findings with 
    respect to coverage of at least the following benefits:
            (A) Nutrition therapy services, including parenteral and 
        enteral nutrition and including the provision of such services 
        by a registered dietitian.
            (B) Skin cancer screening.
            (C) Medically necessary dental care.
            (D) Routine patient care costs for beneficiaries enrolled 
        in approved clinical trial programs.
            (E) Elimination of time limitation for coverage of 
        immunosuppressive drugs for transplant patients.
        (3) Funding.--From funds appropriated to the Department of 
    Health and Human Services for fiscal years 1998 and 1999, the 
    Secretary shall provide for such funding as the Secretary 
    determines necessary for the conduct of the study by the National 
    Academy of Sciences under this section.

                     Subtitle C--Rural Initiatives

SEC. 4201. MEDICARE RURAL HOSPITAL FLEXIBILITY PROGRAM.

    (a) Medicare Rural Hospital Flexibility Program.--Section 1820 (42 
U.S.C. 1395i-4) is amended to read as follows:


              ``medicare rural hospital flexibility program

    ``Sec. 1820. (a) Establishment.--Any State that submits an 
application in accordance with subsection (b) may establish a medicare 
rural hospital flexibility program described in subsection (c).
    ``(b) Application.--A State may establish a medicare rural hospital 
flexibility program described in subsection (c) if the State submits to 
the Secretary at such time and in such form as the Secretary may 
require an application containing--
        ``(1) assurances that the State--
            ``(A) has developed, or is in the process of developing, a 
        State rural health care plan that--
                ``(i) provides for the creation of 1 or more rural 
            health networks (as defined in subsection (d)) in the 
            State;
                ``(ii) promotes regionalization of rural health 
            services in the State; and
                ``(iii) improves access to hospital and other health 
            services for rural residents of the State; and
            ``(B) has developed the rural health care plan described in 
        subparagraph (A) in consultation with the hospital association 
        of the State, rural hospitals located in the State, and the 
        State Office of Rural Health (or, in the case of a State in the 
        process of developing such plan, that assures the Secretary 
        that the State will consult with its State hospital 
        association, rural hospitals located in the State, and the 
        State Office of Rural Health in developing such plan);
        ``(2) assurances that the State has designated (consistent with 
    the rural health care plan described in paragraph (1)(A)), or is in 
    the process of so designating, rural nonprofit or public hospitals 
    or facilities located in the State as critical access hospitals; 
    and
        ``(3) such other information and assurances as the Secretary 
    may require.
    ``(c) Medicare Rural Hospital Flexibility Program Described.--
        ``(1) In general.--A State that has submitted an application in 
    accordance with subsection (b), may establish a medicare rural 
    hospital flexibility program that provides that--
            ``(A) the State shall develop at least 1 rural health 
        network (as defined in subsection (d)) in the State; and
            ``(B) at least 1 facility in the State shall be designated 
        as a critical access hospital in accordance with paragraph (2).
        ``(2) State designation of facilities.--
            ``(A) In general.--A State may designate 1 or more 
        facilities as a critical access hospital in accordance with 
        subparagraph (B).
            ``(B) Criteria for designation as critical access 
        hospital.--A State may designate a facility as a critical 
        access hospital if the facility--
                ``(i) is a nonprofit or public hospital and is located 
            in a county (or equivalent unit of local government) in a 
            rural area (as defined in section 1886(d)(2)(D)) that--

                    ``(I) is located more than a 35-mile drive (or, in 
                the case of mountainous terrain or in areas with only 
                secondary roads available, a 15-mile drive) from a 
                hospital, or another facility described in this 
                subsection; or
                    ``(II) is certified by the State as being a 
                necessary provider of health care services to residents 
                in the area;

                ``(ii) makes available 24-hour emergency care services 
            that a State determines are necessary for ensuring access 
            to emergency care services in each area served by a 
            critical access hospital;
                ``(iii) provides not more than 15 (or, in the case of a 
            facility under an agreement described in subsection (f), 
            25) acute care inpatient beds (meeting such standards as 
            the Secretary may establish) for providing inpatient care 
            for a period not to exceed 96 hours (unless a longer period 
            is required because transfer to a hospital is precluded 
            because of inclement weather or other emergency 
            conditions), except that a peer review organization or 
            equivalent entity may, on request, waive the 96-hour 
            restriction on a case-by-case basis;
                ``(iv) 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 and 
                fully staffed, except insofar as the facility is 
                required to make available emergency care services as 
                determined under clause (ii) and must have nursing 
                services available on a 24-hour basis, but need not 
                otherwise staff the facility except when an inpatient 
                is present;
                    ``(II) the facility may provide any services 
                otherwise required to be provided by a full-time, on 
                site dietitian, pharmacist, laboratory technician, 
                medical technologist, and radiological technologist on 
                a part-time, off site basis under arrangements as 
                defined in section 1861(w)(1); and
                    ``(III) the inpatient care described in clause 
                (iii) may be provided by a physician assistant, nurse 
                practitioner, or clinical nurse specialist subject to 
                the oversight of a physician who need not be present in 
                the facility; and

                ``(v) meets the requirements of section 1861(aa)(2)(I).
    ``(d) Definition of Rural Health Network.--
        ``(1) In general.--In this section, the term `rural health 
    network' means, with respect to a State, an organization consisting 
    of--
            ``(A) at least 1 facility that the State has designated or 
        plans to designate as a critical access hospital; and
            ``(B) at least 1 hospital that furnishes acute care 
        services.
        ``(2) Agreements.--
            ``(A) In general.--Each critical access hospital that is a 
        member of a rural health network shall have an agreement with 
        respect to each item described in subparagraph (B) with at 
        least 1 hospital that is a member of the network.
            ``(B) Items described.--The items described in this 
        subparagraph are the following:
                ``(i) Patient referral and transfer.
                ``(ii) The development and use of communications 
            systems including (where feasible)--

                    ``(I) telemetry systems; and
                    ``(II) systems for electronic sharing of patient 
                data.

                ``(iii) The provision of emergency and non-emergency 
            transportation among the facility and the hospital.
            ``(C) Credentialing and quality assurance.--Each critical 
        access hospital that is a member of a rural health network 
        shall have an agreement with respect to credentialing and 
        quality assurance with at least--
                ``(i) 1 hospital that is a member of the network;
                ``(ii) 1 peer review organization or equivalent entity; 
            or
                ``(iii) 1 other appropriate and qualified entity 
            identified in the State rural health care plan.
    ``(e) Certification by the Secretary.--The Secretary shall certify 
a facility as a critical access hospital if the facility--
        ``(1) is located in a State that has established a medicare 
    rural hospital flexibility program in accordance with subsection 
    (c);
        ``(2) is designated as a critical access hospital by the State 
    in which it is located; and
        ``(3) meets such other criteria as the Secretary may require.
    ``(f) Permitting Maintenance of Swing Beds.--Nothing in this 
section shall be construed to prohibit a State from designating or the 
Secretary from certifying a facility as a critical access hospital 
solely because, at the time the facility applies to the State for 
designation as a critical access hospital, there is in effect an 
agreement between the facility and the Secretary under section 1883 
under which the facility's inpatient hospital facilities are used for 
the provision of extended care services, so long as the total number of 
beds that may be used at any time for the furnishing of either such 
services or acute care inpatient services does not exceed 25 beds and 
the number of beds used at any time for acute care inpatient services 
does not exceed 15 beds. For purposes of the previous sentence, any bed 
of a unit of the facility that is licensed as a distinct-part skilled 
nursing facility at the time the facility applies to the State for 
designation as a critical access hospital shall not be counted.
    ``(g) Grants.--
        ``(1) Medicare rural hospital flexibility program.--The 
    Secretary may award grants to States that have submitted 
    applications in accordance with subsection (b) for--
            ``(A) engaging in activities relating to planning and 
        implementing a rural health care plan;
            ``(B) engaging in activities relating to planning and 
        implementing rural health networks; and
            ``(C) designating facilities as critical access hospitals.
        ``(2) Rural emergency medical services.--
            ``(A) In general.--The Secretary may award grants to States 
        that have submitted applications in accordance with 
        subparagraph (B) for the establishment or expansion of a 
        program for the provision of rural emergency medical services.
            ``(B) Application.--An application is in accordance with 
        this subparagraph if the State submits to the Secretary at such 
        time and in such form as the Secretary may require an 
        application containing the assurances described in 
        subparagraphs (A)(ii), (A)(iii), and (B) of subsection (b)(1) 
        and paragraph (3) of that subsection.
    ``(h) Grandfathering of Certain Facilities.--
        ``(1) In general.--Any medical assistance facility operating in 
    Montana and any rural primary care hospital designated by the 
    Secretary under this section prior to the date of the enactment of 
    the Balanced Budget Act of 1997 shall be deemed to have been 
    certified by the Secretary under subsection (e) as a critical 
    access hospital if such facility or hospital is otherwise eligible 
    to be designated by the State as a critical access hospital under 
    subsection (c).
        ``(2) Continuation of medical assistance facility and rural 
    primary care hospital terms.--Notwithstanding any other provision 
    of this title, with respect to any medical assistance facility or 
    rural primary care hospital described in paragraph (1), any 
    reference in this title to a `critical access hospital' shall be 
    deemed to be a reference to a `medical assistance facility' or 
    `rural primary care hospital'.
    ``(i) Waiver of Conflicting Part A Provisions.--The Secretary is 
authorized to waive such provisions of this part and part D as are 
necessary to conduct the program established under this section.
    ``(j) Authorization of Appropriations.--There are authorized to be 
appropriated from the Federal Hospital Insurance Trust Fund for making 
grants to all States under subsection (g), $25,000,000 in each of the 
fiscal years 1998 through 2002.''.
    (b) Report on Alternative to 96-Hour Rule.--Not later than June 1, 
1998, the Secretary of Health and Human Services shall submit to 
Congress a report on the feasibility of, and administrative 
requirements necessary to establish an alternative for certain medical 
diagnoses (as determined by the Secretary) to the 96-hour limitation 
for inpatient care in critical access hospitals required by section 
1820(c)(2)(B)(iii) of the Social Security Act (42 U.S.C. 1395i-
4(c)(2)(B)(iii)), as added by subsection (a) of this section.
    (c) Conforming Amendments Relating to Rural Primary Care Hospitals 
and Critical Access Hospitals.--
        (1) In general.--Title XI of the Social Security Act (42 U.S.C. 
    1301 et seq.) and title XVIII of that Act (42 U.S.C. 1395 et seq.) 
    are each amended by striking ``rural primary care'' each place it 
    appears and inserting ``critical access''.
        (2) Definitions.--Section 1861(mm) of the Social Security Act 
    (42 U.S.C. 1395x(mm)) is amended to read as follows:


      ``critical access hospital; critical access hospital services

    ``(mm)(1) The term `critical access hospital' means a facility 
certified by the Secretary as a critical access hospital under section 
1820(e).
    ``(2) The term `inpatient critical access hospital services' means 
items and services, furnished to an inpatient of a critical access 
hospital by such facility, that would be inpatient hospital services if 
furnished to an inpatient of a hospital by a hospital.
    ``(3) The term `outpatient critical access hospital services' means 
medical and other health services furnished by a critical access 
hospital on an outpatient basis.''.
        (3) Part a payment.--Section 1814 of the Social Security Act 
    (42 U.S.C. 1395f) is amended--
            (A) in subsection (a)(8), by striking ``72'' and inserting 
        ``96''; and
            (B) by amending subsection (l) to read as follows:

       ``Payment for Inpatient Critical Access Hospital Services

    ``(l) The amount of payment under this part for inpatient critical 
access hospital services is the reasonable costs of the critical access 
hospital in providing such services.''.
        (4) Payment continued to designated eachs.--Section 
    1886(d)(5)(D) of the Social Security Act (42 U.S.C. 
    1395ww(d)(5)(D)) is amended--
            (A) in clause (iii)(III), by inserting ``as in effect on 
        September 30, 1997'' before the period at the end; and
            (B) in clause (v)--
                (i) by inserting ``as in effect on September 30, 1997'' 
            after ``1820(i)(1)''; and
                (ii) by striking ``1820(g)'' and inserting ``1820(d)''.
        (5) Part b payment.--Section 1834(g) of the Social Security Act 
    (42 U.S.C. 1395m(g)) is amended to read as follows:
    ``(g) Payment for Outpatient Critical Access Hospital Services.--
The amount of payment under this part for outpatient critical access 
hospital services is the reasonable costs of the critical access 
hospital in providing such services.''.
        (6) Transition for MAF.--
            (A) In general.--The Secretary of Health and Human Services 
        shall provide for an appropriate transition for a facility 
        that, as of the date of the enactment of this Act, operated as 
        a limited service rural hospital under a demonstration 
        described in section 4008(i)(1) of the Omnibus Budget 
        Reconciliation Act of 1990 (42 U.S.C. 1395b-1 note) from such 
        demonstration to the program established under subsection (a). 
        At the conclusion of the transition period described in 
        subparagraph (B), the Secretary shall end such demonstration.
            (B) Transition period described.--
                (i) Initial period.--Subject to clause (ii), the 
            transition period described in this subparagraph is the 
            period beginning on the date of the enactment of this Act 
            and ending on October 1, 1998.
                (ii) Extension.--If the Secretary determines that the 
            transition is not complete as of October 1, 1998, the 
            Secretary shall provide for an appropriate extension of the 
            transition period.
    (d) Effective Date.--The amendments made by this section shall 
apply to services furnished on or after October 1, 1997.

SEC. 4202. PROHIBITING DENIAL OF REQUEST BY RURAL REFERRAL CENTERS FOR 
              RECLASSIFICATION ON BASIS OF COMPARABILITY OF WAGES.

    (a) In General.--Section 1886(d)(10)(D) (42 U.S.C. 
1395ww(d)(10)(D)) is amended--
        (1) by redesignating clause (iii) as clause (iv); and
        (2) 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 has ever been 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.''.
    (b) Continuing Treatment of Previously Designated Centers.--
        (1) In general.--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 1991 shall 
    be classified as such a rural referral center for fiscal year 1998 
    and each subsequent fiscal year.
        (2) Budget neutrality.--The provisions of section 1886(d)(8)(D) 
    of the Social Security Act shall apply to reclassifications made 
    pursuant to paragraph (1) in the same manner as such provisions 
    apply to a reclassification under section 1886(d)(10) of such Act.

SEC. 4203. HOSPITAL GEOGRAPHIC RECLASSIFICATION PERMITTED FOR PURPOSES 
              OF DISPROPORTIONATE SHARE PAYMENT ADJUSTMENTS.

    (a) In General.--For the period described in subsection (c), the 
Medicare Geographic Classification Review Board shall consider the 
application under section 1886(d)(10)(C)(i) of the Social Security Act 
(42 U.S.C. 1395ww(d)(10)(C)(i)) of a hospital described in 
1886(d)(1)(B) of such Act (42 U.S.C. 1395ww(d)(1)(B)) to change the 
hospital's geographic classification for purposes of determining for a 
fiscal year eligibility for and amount of additional payment amounts 
under section 1886(d)(5)(F) of such Act (42 U.S.C. 1395ww(d)(5)(F)).
    (b) Applicable Guidelines.--The Medicare Geographic Classification 
Review Board shall apply the guidelines established for 
reclassification under subclause (I) of section 1886(d)(10)(C)(i) of 
such Act to reclassification by reason of subsection (a) until the 
Secretary of Health and Human Services promulgates separate guidelines 
for such reclassification.
    (c) Period Described.--The period described in this subsection is 
the period beginning on the date of the enactment of this Act and 
ending 30 months after such date.

SEC. 4204. MEDICARE-DEPENDENT, SMALL RURAL HOSPITAL PAYMENT EXTENSION.

    (a) Special Treatment Extended.--
        (1) Payment methodology.--Section 1886(d)(5)(G) (42 U.S.C. 
    1395ww(d)(5)(G)) is amended--
            (A) in clause (i), by striking ``October 1, 1994,'' and 
        inserting ``October 1, 1994, or beginning on or after October 
        1, 1997, and before October 1, 2001,''; and
            (B) in clause (ii)(II), by striking ``October 1, 1994,'' 
        and inserting ``October 1, 1994, or beginning on or after 
        October 1, 1997, and before October 1, 2001,''.
        (2) Extension of target amount.--Section 1886(b)(3)(D) (42 
    U.S.C. 1395ww(b)(3)(D)) is amended--
            (A) in the matter preceding clause (i), by striking 
        ``September 30, 1994,'' and inserting ``September 30, 1994, and 
        for cost reporting periods beginning on or after October 1, 
        1997, and before October 1, 2001,'';
            (B) in clause (ii), by striking ``and'' at the end;
            (C) in clause (iii), by striking the period at the end and 
        inserting ``, and''; and
            (D) by adding after clause (iii) the following new clause:
        ``(iv) with respect to discharges occurring during fiscal year 
    1998 through fiscal year 2000, the target amount for the preceding 
    year increased by the applicable percentage increase under 
    subparagraph (B)(iv).''.
        (3) Permitting hospitals to decline reclassification.--Section 
    13501(e)(2) of OBRA-93 (42 U.S.C. 1395ww note) is amended by 
    striking ``or fiscal year 1994'' and inserting ``, fiscal year 
    1994, fiscal year 1998, fiscal year 1999, or fiscal year 2000''.
    (b) Effective Date.--The amendments made by subsection (a) shall 
apply with respect to discharges occurring on or after October 1, 1997.

SEC. 4205. RURAL HEALTH CLINIC SERVICES.

    (a) Per-Visit Payment Limits for Provider-Based Clinics.--
        (1) Extension of limit.--
            (A) In general.--The matter in section 1833(f) (42 U.S.C. 
        1395l(f)) preceding paragraph (1) is amended by striking 
        ``independent rural health clinics'' and inserting ``rural 
        health clinics (other than such clinics in rural hospitals with 
        less than 50 beds)''.
            (B) Effective date.--The amendment made by subparagraph (A) 
        applies to services furnished on or after January 1, 1998.
        (2) Technical clarification.--Section 1833(f)(1) (42 U.S.C. 
    1395l(f)(1)) is amended by inserting ``per visit'' after ``$46''.
    (b) Assurance of Quality Services.--
        (1) In general.--Subparagraph (I) of the first sentence of 
    section 1861(aa)(2) (42 U.S.C. 1395x(aa)(2)) is amended to read as 
    follows:
            ``(I) has a quality assessment and performance improvement 
        program, and appropriate procedures for review of utilization 
        of clinic services, as the Secretary may specify,''.
        (2) Effective date.--The amendment made by paragraph (1) shall 
    take effect on January 1, 1998.
    (c) Waiver of Certain Staffing Requirements Limited to Clinics in 
Program.--
        (1) In general.--Section 1861(aa)(7)(B) (42 U.S.C. 
    1395x(aa)(7)(B)) is amended by inserting before the period ``, or 
    if the facility has not yet been determined to meet the 
    requirements (including subparagraph (J) of the first sentence of 
    paragraph (2)) of a rural health clinic''.
        (2) Effective date.--The amendment made by paragraph (1) 
    applies to waiver requests made on or after January 1, 1998.
    (d) Refinement of Shortage Area Requirements.--
        (1) Designation reviewed triennially.--Section 1861(aa)(2) (42 
    U.S.C. 1395x(aa)(2)) is amended in the second sentence, in the 
    matter in clause (i) preceding subclause (I)--
            (A) by striking ``and that is designated'' and inserting 
        ``and that, within the previous 3-year period, has been 
        designated''; and
            (B) by striking ``or that is designated'' and inserting 
        ``or designated''.
        (2) Area must have shortage of health care practitioners.--
    Section 1861(aa)(2) (42 U.S.C. 1395x(aa)(2)), as amended by 
    paragraph (1), is further amended in the second sentence, in the 
    matter in clause (i) preceding subclause (I)--
            (A) by striking the comma after ``personal health 
        services''; and
            (B) by inserting ``and in which there are insufficient 
        numbers of needed health care practitioners (as determined by 
        the Secretary),'' after ``Bureau of the Census)''.
        (3) Previously qualifying clinics grandfathered only to prevent 
    shortage.--
            (A) In General.--Section 1861(aa)(2) of the Social Security 
        Act (42 U.S.C. 1395x(aa)(2)) is amended in the third sentence 
        by inserting before the period ``if it is determined, in 
        accordance with criteria established by the Secretary in 
        regulations, to be essential to the delivery of primary care 
        services that would otherwise be unavailable in the geographic 
        area served by the clinic''.
            (B) Payment for certain physician assistant services.--
        Section 1842(b)(6)(C) (42 U.S.C. 1395u(b)(6)(C)) is amended to 
        read as follows: ``(C) in the case of services described in 
        clause (i) of section 1861(s)(2)(K), payment shall be made to 
        either (i) the employer of the physician assistant involved, or 
        (ii) with respect to a physician assistant who was the owner of 
        a rural health clinic (as described in section 1861(aa)(2)) for 
        a continuous period beginning prior to the date of the 
        enactment of the Balanced Budget Act of 1997 and ending on the 
        date that the Secretary determines such rural health clinic no 
        longer meets the requirements of section 1861(aa)(2), for such 
        services provided before January 1, 2003, payment may be made 
        directly to the physician assistant; and''.
        (4) Effective dates; implementing regulations.--
            (A) In general.--Except as otherwise provided, the 
        amendments made by the preceding paragraphs take effect on the 
        date of the enactment of this Act.
            (B) Current rural health clinics.--The amendments made by 
        the preceding paragraphs take effect, with respect to entities 
        that are rural health clinics under title XVIII of the Social 
        Security Act (42 U.S.C. 1395 et seq.) on the date of enactment 
        of this Act, on the date of the enactment of this Act.
            (C) Grandfathered clinics.--
                (i) In general.--The amendment made by paragraph (3)(A) 
            shall take effect on the effective date of regulations 
            issued by the Secretary under clause (ii).
                (ii) Regulations.--The Secretary shall issue final 
            regulations implementing paragraph (3)(A) that shall take 
            effect no later than January 1, 1999.

SEC. 4206. MEDICARE REIMBURSEMENT FOR TELEHEALTH SERVICES.

    (a) In General.--Not later than January 1, 1999, the Secretary of 
Health and Human Services shall make payments from the Federal 
Supplementary Medical Insurance Trust Fund under part B of title XVIII 
of the Social Security Act (42 U.S.C. 1395j et seq.) in accordance with 
the methodology described in subsection (b) for professional 
consultation via telecommunications systems with a physician (as 
defined in section 1861(r) of such Act (42 U.S.C. 1395x(r)) or a 
practitioner (described in section 1842(b)(18)(C) of such Act (42 
U.S.C. 1395u(b)(18)(C)) furnishing a service for which payment may be 
made under such part to a beneficiary under the medicare program 
residing in a county in a rural area (as defined in section 
1886(d)(2)(D) of such Act (42 U.S.C. 1395ww(d)(2)(D))) that is 
designated as a health professional shortage area under section 
332(a)(1)(A) of the Public Health Service Act (42 U.S.C. 
254e(a)(1)(A)), notwithstanding that the individual physician or 
practitioner providing the professional consultation is not at the same 
location as the physician or practitioner furnishing the service to 
that beneficiary.
    (b) Methodology for Determining Amount of Payments.--Taking into 
account the findings of the report required under section 192 of the 
Health Insurance Portability and Accountability Act of 1996 (Public Law 
104-191; 110 Stat. 1988), the findings of the report required under 
paragraph (c), and any other findings related to the clinical efficacy 
and cost-effectiveness of telehealth applications, the Secretary shall 
establish a methodology for determining the amount of payments made 
under subsection (a) within the following parameters:
        (1) The payment shall shared between the referring physician or 
    practitioner and the consulting physician or practitioner. The 
    amount of such payment shall not be greater than the current fee 
    schedule of the consulting physician or practitioner for the health 
    care services provided.
        (2) The payment shall not include any reimbursement for any 
    telephone line charges or any facility fees, and a beneficiary may 
    not be billed for any such charges or fees.
        (3) The payment shall be made subject to the coinsurance and 
    deductible requirements under subsections (a)(1) and (b) of section 
    1833 of the Social Security Act (42 U.S.C. 1395l).
        (4) The payment differential of section 1848(a)(3) of such Act 
    (42 U.S.C. 1395w-4(a)(3)) shall apply to services furnished by non-
    participating physicians. The provisions of section 1848(g) of such 
    Act (42 U.S.C. 1395w-4(g)) and section 1842(b)(18) of such Act (42 
    U.S.C. 1395u(b)(18)) shall apply. Payment for such service shall be 
    increased annually by the update factor for physicians' services 
    determined under section 1848(d) of such Act (42 U.S.C. 1395w-
    4(d)).
    (c) Supplemental Report.--Not later than January 1, 1999, the 
Secretary shall submit a report to Congress which shall contain a 
detailed analysis of--
        (1) how telemedicine and telehealth systems are expanding 
    access to health care services;
        (2) the clinical efficacy and cost-effectiveness of 
    telemedicine and telehealth applications;
        (3) the quality of telemedicine and telehealth services 
    delivered; and
        (4) the reasonable cost of telecommunications charges incurred 
    in practicing telemedicine and telehealth in rural, frontier, and 
    underserved areas.
    (d) Expansion of Telehealth Services for Certain Medicare 
Beneficiaries.--
        (1) In general.--Not later than January 1, 1999, the Secretary 
    shall submit a report to Congress that examines the possibility of 
    making payments from the Federal Supplementary Medical Insurance 
    Trust Fund under part B of title XVIII of the Social Security Act 
    (42 U.S.C. 1395j et seq.) for professional consultation via 
    telecommunications systems with such a physician or practitioner 
    furnishing a service for which payment may be made under such part 
    to a beneficiary described in paragraph (2), notwithstanding that 
    the individual physician or practitioner providing the professional 
    consultation is not at the same location as the physician or 
    practitioner furnishing the service to that beneficiary.
        (2) Beneficiary described.--A beneficiary described in this 
    paragraph is a beneficiary under the medicare program under title 
    XVIII of the Social Security Act (42 U.S.C. 1395 et seq.) who does 
    not reside in a rural area (as so defined) that is designated as a 
    health professional shortage area under section 332(a)(1)(A) of the 
    Public Health Service Act (42 U.S.C. 254e(a)(1)(A)), who is 
    homebound or nursing homebound, and for whom being transferred for 
    health care services imposes a serious hardship.
        (3) Report.--The report described in paragraph (1) shall 
    contain a detailed statement of the potential costs and savings to 
    the medicare program of making the payments described in that 
    paragraph using various reimbursement schemes.

SEC. 4207. INFORMATICS, TELEMEDICINE, AND EDUCATION DEMONSTRATION 
              PROJECT.

    (a) Purpose and Authorization.--
        (1) In general.--Not later than 9 months after the date of 
    enactment of this section, the Secretary of Health and Human 
    Services shall provide for a demonstration project described in 
    paragraph (2).
        (2) Description of project.--
            (A) In general.--The demonstration project described in 
        this paragraph is a single demonstration project to use 
        eligible health care provider telemedicine networks to apply 
        high-capacity computing and advanced networks to improve 
        primary care (and prevent health care complications) to 
        medicare beneficiaries with diabetes mellitus who are residents 
        of medically underserved rural areas or residents of medically 
        underserved inner-city areas.
            (B) Medically underserved defined.--As used in this 
        paragraph, the term ``medically underserved'' has the meaning 
        given such term in section 330(b)(3) of the Public Health 
        Service Act (42 U.S.C. 254b(b)(3)).
        (3) Waiver.--The Secretary shall waive such provisions of title 
    XVIII of the Social Security Act as may be necessary to provide for 
    payment for services under the project in accordance with 
    subsection (d).
        (4) Duration of project.--The project shall be conducted over a 
    4-year period.
    (b) Objectives of Project.--The objectives of the project include 
the following:
        (1) Improving patient access to and compliance with appropriate 
    care guidelines for individuals with diabetes mellitus through 
    direct telecommunications link with information networks in order 
    to improve patient quality-of-life and reduce overall health care 
    costs.
        (2) Developing a curriculum to train health professionals 
    (particularly primary care health professionals) in the use of 
    medical informatics and telecommunications.
        (3) Demonstrating the application of advanced technologies, 
    such as video-conferencing from a patient's home, remote monitoring 
    of a patient's medical condition, interventional informatics, and 
    applying individualized, automated care guidelines, to assist 
    primary care providers in assisting patients with diabetes in a 
    home setting.
        (4) Application of medical informatics to residents with 
    limited English language skills.
        (5) Developing standards in the application of telemedicine and 
    medical informatics.
        (6) Developing a model for the cost-effective delivery of 
    primary and related care both in a managed care environment and in 
    a fee-for-service environment.
    (c) Eligible Health Care Provider Telemedicine Network Defined.--
For purposes of this section, the term ``eligible health care provider 
telemedicine network'' means a consortium that includes at least one 
tertiary care hospital (but no more than 2 such hospitals), at least 
one medical school, no more than 4 facilities in rural or urban areas, 
and at least one regional telecommunications provider and that meets 
the following requirements:
        (1) The consortium is located in an area with a high 
    concentration of medical schools and tertiary care facilities in 
    the United States and has appropriate arrangements (within or 
    outside the consortium) with such schools and facilities, 
    universities, and telecommunications providers, in order to conduct 
    the project.
        (2) The consortium submits to the Secretary an application at 
    such time, in such manner, and containing such information as the 
    Secretary may require, including a description of the use to which 
    the consortium would apply any amounts received under the project 
    and the source and amount of non-Federal funds used in the project.
        (3) The consortium guarantees that it will be responsible for 
    payment for all costs of the project that are not paid under this 
    section and that the maximum amount of payment that may be made to 
    the consortium under this section shall not exceed the amount 
    specified in subsection (d)(3).
    (d) Coverage as Medicare Part B Services.--
        (1) In general.--Subject to the succeeding provisions of this 
    subsection, services related to the treatment or management of 
    (including prevention of complications from) diabetes for medicare 
    beneficiaries furnished under the project shall be considered to be 
    services covered under part B of title XVIII of the Social Security 
    Act.
        (2) Payments.--
            (A) In general.--Subject to paragraph (3), payment for such 
        services shall be made at a rate of 50 percent of the costs 
        that are reasonable and related to the provision of such 
        services. In computing such costs, the Secretary shall include 
        costs described in subparagraph (B), but may not include costs 
        described in subparagraph (C).
            (B) Costs that may be included.--The costs described in 
        this subparagraph are the permissible costs (as recognized by 
        the Secretary) for the following:
                (i) The acquisition of telemedicine equipment for use 
            in patients' homes (but only in the case of patients 
            located in medically underserved areas).
                (ii) Curriculum development and training of health 
            professionals in medical informatics and telemedicine.
                (iii) Payment of telecommunications costs (including 
            salaries and maintenance of equipment), including costs of 
            telecommunications between patients' homes and the eligible 
            network and between the network and other entities under 
            the arrangements described in subsection (c)(1).
                (iv) Payments to practitioners and providers under the 
            medicare programs.
            (C) Costs not included.--The costs described in this 
        subparagraph are costs for any of the following:
                (i) The purchase or installation of transmission 
            equipment (other than such equipment used by health 
            professionals to deliver medical informatics services under 
            the project).
                (ii) The establishment or operation of a 
            telecommunications common carrier network.
                (iii) Construction (except for minor renovations 
            related to the installation of reimbursable equipment) or 
            the acquisition or building of real property.
        (3) Limitation.--The total amount of the payments that may be 
    made under this section shall not exceed $30,000,000 for the period 
    of the project (described in subsection (a)(4)).
        (4) Limitation on cost-sharing.--The project may not impose 
    cost sharing on a medicare beneficiary for the receipt of services 
    under the project in excess of 20 percent of the costs that are 
    reasonable and related to the provision of such services.
    (e) Reports.--The Secretary shall submit to the Committee on Ways 
and Means and the Committee Commerce of the House of Representatives 
and the Committee on Finance of the Senate interim reports on the 
project and a final report on the project within 6 months after the 
conclusion of the project. The final report shall include an evaluation 
of the impact of the use of telemedicine and medical informatics on 
improving access of medicare beneficiaries to health care services, on 
reducing the costs of such services, and on improving the quality of 
life of such beneficiaries.
    (f) Definitions.--For purposes of this section:
        (1) Interventional informatics.--The term ``interventional 
    informatics'' means using information technology and virtual 
    reality technology to intervene in patient care.
        (2) Medical informatics.--The term ``medical informatics'' 
    means the storage, retrieval, and use of biomedical and related 
    information for problem solving and decision-making through 
    computing and communications technologies.
        (3) Project.--The term ``project'' means the demonstration 
    project under this section.

    Subtitle D--Anti-Fraud and Abuse Provisions and Improvements in 
                      Protecting Program Integrity

         CHAPTER 1--REVISIONS TO SANCTIONS FOR FRAUD AND ABUSE

SEC. 4301. PERMANENT EXCLUSION FOR THOSE CONVICTED OF 3 HEALTH CARE 
              RELATED CRIMES.

    Section 1128(c)(3) (42 U.S.C. 1320a-7(c)(3)) is amended--
        (1) in subparagraph (A), by inserting ``or in the case 
    described in subparagraph (G)'' after ``subsection (b)(12)'';
        (2) in subparagraphs (B) and (D), by striking ``In the case'' 
    and inserting ``Subject to subparagraph (G), in the case''; and
        (3) by adding at the end the following new subparagraph:
    ``(G) In the case of an exclusion of an individual under subsection 
(a) based on a conviction occurring on or after the date of the 
enactment of this subparagraph, if the individual has (before, on, or 
after such date) been convicted--
        ``(i) on one previous occasion of one or more offenses for 
    which an exclusion may be effected under such subsection, the 
    period of the exclusion shall be not less than 10 years, or
        ``(ii) on 2 or more previous occasions of one or more offenses 
    for which an exclusion may be effected under such subsection, the 
    period of the exclusion shall be permanent.''.

SEC. 4302. AUTHORITY TO REFUSE TO ENTER INTO MEDICARE AGREEMENTS WITH 
              INDIVIDUALS OR ENTITIES CONVICTED OF FELONIES.

    (a) Medicare Part A.--Section 1866(b)(2) (42 U.S.C. 1395cc(b)(2)) 
is amended--
        (1) in subparagraph (B), by striking ``or'' at the end;
        (2) in subparagraph (C), by striking the period at the end and 
    inserting ``, or''; and
        (3) by adding at the end the following new subparagraph:
            ``(D) has ascertained that the provider has been convicted 
        of a felony under Federal or State law for an offense which the 
        Secretary determines is detrimental to the best interests of 
        the program or program beneficiaries.''.
    (b) Medicare Part B.--Section 1842(h) (42 U.S.C. 1395u(h)) is 
amended by adding at the end the following new paragraph:
    ``(8) The Secretary may refuse to enter into an agreement with a 
physician or supplier under this subsection, or may terminate or refuse 
to renew such agreement, in the event that such physician or supplier 
has been convicted of a felony under Federal or State law for an 
offense which the Secretary determines is detrimental to the best 
interests of the program or program beneficiaries.''.
    (c) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act and apply to the entry 
and renewal of contracts on or after such date.

SEC. 4303. EXCLUSION OF ENTITY CONTROLLED BY FAMILY MEMBER OF A 
              SANCTIONED INDIVIDUAL.

    (a) In General.--Section 1128 (42 U.S.C. 1320a-7) is amended--
        (1) in subsection (b)(8)(A)--
            (A) in clause (i), by striking ``or'' at the end;
            (B) in clause (ii), by striking the dash at the end and 
        inserting ``; or''; and
            (C) by inserting after clause (ii) the following:
            ``(iii) who was described in clause (i) but is no longer so 
        described because of a transfer of ownership or control 
        interest, in anticipation of (or following) a conviction, 
        assessment, or exclusion described in subparagraph (B) against 
        the person, to an immediate family member (as defined in 
        subsection (j)(1)) or a member of the household of the person 
        (as defined in subsection (j)(2)) who continues to maintain an 
        interest described in such clause--''; and
        (2) by adding at the end the following new subsection:
    ``(j) Definition of Immediate Family Member and Member of 
Household.--For purposes of subsection (b)(8)(A)(iii):
        ``(1) The term `immediate family member' means, with respect to 
    a person--
            ``(A) the husband or wife of the person;
            ``(B) the natural or adoptive parent, child, or sibling of 
        the person;
            ``(C) the stepparent, stepchild, stepbrother, or stepsister 
        of the person;
            ``(D) the father-, mother-, daughter-, son-, brother-, or 
        sister-in-law of the person;
            ``(E) the grandparent or grandchild of the person; and
            ``(F) the spouse of a grandparent or grandchild of the 
        person.
        ``(2) The term `member of the household' means, with respect to 
    any person, any individual sharing a common abode as part of a 
    single family unit with the person, including domestic employees 
    and others who live together as a family unit, but not including a 
    roomer or boarder.''.
    (b) Effective Date.--The amendments made by this section shall take 
effect on the date that is 45 days after the date of the enactment of 
this Act.

SEC. 4304. IMPOSITION OF CIVIL MONEY PENALTIES.

    (a) Civil Money Penalties for Persons That Contract With Excluded 
Individuals.--Section 1128A(a) (42 U.S.C. 1320a-7a(a)) is amended--
        (1) in paragraph (4), by striking ``or'' at the end;
        (2) in paragraph (5), by adding ``or'' at the end; and
        (3) by inserting after paragraph (5) the following new 
    paragraph:
        ``(6) arranges or contracts (by employment or otherwise) with 
    an individual or entity that the person knows or should know is 
    excluded from participation in a Federal health care program (as 
    defined in section 1128B(f)), for the provision of items or 
    services for which payment may be made under such a program;''.
    (b) Civil Money Penalties for Kickbacks.--
        (1) Permitting secretary to impose civil money penalty.--
    Section 1128A(a) (42 U.S.C. 1320a-7a(a)), as amended by subsection 
    (a), is amended--
            (A) in paragraph (5), by striking ``or'' at the end;
            (B) in paragraph (6), by adding ``or'' at the end; and
            (C) by adding after paragraph (6) the following new 
        paragraph:
        ``(7) commits an act described in paragraph (1) or (2) of 
    section 1128B(b);''.
        (2) Description of civil money penalty applicable.--Section 
    1128A(a) (42 U.S.C. 1320a-7a(a)), as amended by paragraph (1), is 
    amended in the matter following paragraph (7)--
            (A) by striking ``occurs).'' and inserting ``occurs; or in 
        cases under paragraph (7), $50,000 for each such act).''; and
            (B) by inserting after ``of such claim'' the following: 
        ``(or, in cases under paragraph (7), damages of not more than 3 
        times the total amount of remuneration offered, paid, 
        solicited, or received, without regard to whether a portion of 
        such remuneration was offered, paid, solicited, or received for 
        a lawful purpose)''.
    (c) Effective Dates.--
        (1) Contracts with excluded persons.--The amendments made by 
    subsection (a) shall apply to arrangements and contracts entered 
    into after the date of the enactment of this Act.
        (2) Kickbacks.--The amendments made by subsection (b) shall 
    apply to acts committed after the date of the enactment of this 
    Act.

        CHAPTER 2--IMPROVEMENTS IN PROTECTING PROGRAM INTEGRITY

SEC. 4311. IMPROVING INFORMATION TO MEDICARE BENEFICIARIES.

    (a) Inclusion of Information Regarding Medicare Waste, Fraud, and 
Abuse in Annual Notice.--
        (1) In General.--Section 1804 (42 U.S.C. 1395b-2) is amended by 
    adding at the end the following new subsection:
    ``(c) The notice provided under subsection (a) shall include--
        ``(1) a statement which indicates that because errors do occur 
    and because medicare fraud, waste, and abuse is a significant 
    problem, beneficiaries should carefully check any explanation of 
    benefits or itemized statement furnished pursuant to section 1806 
    for accuracy and report any errors or questionable charges by 
    calling the toll-free phone number described in paragraph (4);
        ``(2) a statement of the beneficiary's right to request an 
    itemized statement for medicare items and services (as provided in 
    section 1806(b));
        ``(3) a description of the program to collect information on 
    medicare fraud and abuse established under section 203(b) of the 
    Health Insurance Portability and Accountability Act of 1996; and
        ``(4) a toll-free telephone number maintained by the Inspector 
    General in the Department of Health and Human Services for the 
    receipt of complaints and information about waste, fraud, and abuse 
    in the provision or billing of services under this title.''.
        (2) Effective date.--The amendment made by this subsection 
    shall apply to notices provided on or after January 1, 1998.
    (b) Clarification of Requirement To Provide Explanation of Medicare 
Benefits.--
        (1) In general.--Title XVIII is amended by inserting after 
    section 1805 (as added by section 4022) the following new section:


                    ``explanation of medicare benefits

    ``Sec. 1806. (a) In General.--The Secretary shall furnish to each 
individual for whom payment has been made under this title (or would be 
made without regard to any deductible) a statement which--
        ``(1) lists the item or service for which payment has been made 
    and the amount of such payment for each item or service; and
        ``(2) includes a notice of the individual's right to request an 
    itemized statement (as provided in subsection (b)).
    ``(b) Request for Itemized Statement for Medicare Items and 
Services.--
        ``(1) In general.--An individual may submit a written request 
    to any physician, provider, supplier, or any other person 
    (including an organization, agency, or other entity) for an 
    itemized statement for any item or service provided to such 
    individual by such person with respect to which payment has been 
    made under this title.
        ``(2) 30-day period to furnish statement.--
            ``(A) In general.--Not later than 30 days after the date on 
        which a request under paragraph (1) has been made, a person 
        described in such paragraph shall furnish an itemized statement 
        describing each item or service provided to the individual 
        requesting the itemized statement.
            ``(B) Penalty.--Whoever knowingly fails to furnish an 
        itemized statement in accordance with subparagraph (A) shall be 
        subject to a civil money penalty of not more than $100 for each 
        such failure. Such penalty shall be imposed and collected in 
        the same manner as civil money penalties under subsection (a) 
        of section 1128A are imposed and collected under that section.
        ``(3) Review of itemized statement.--
            ``(A) In general.--Not later than 90 days after the receipt 
        of an itemized statement furnished under paragraph (1), an 
        individual may submit a written request for a review of the 
        itemized statement to the Secretary.
            ``(B) Specific allegations.--A request for a review of the 
        itemized statement shall identify--
                ``(i) specific items or services that the individual 
            believes were not provided as claimed, or
                ``(ii) any other billing irregularity (including 
            duplicate billing).
        ``(4) Findings of secretary.--The Secretary shall, with respect 
    to each written request submitted under paragraph (3), determine 
    whether the itemized statement identifies specific items or 
    services that were not provided as claimed or any other billing 
    irregularity (including duplicate billing) that has resulted in 
    unnecessary payments under this title.
        ``(5) Recovery of amounts.--The Secretary shall take all 
    appropriate measures to recover amounts unnecessarily paid under 
    this title with respect to a statement described in paragraph 
    (4).''.
        (2) Conforming amendment.--Subsection (a) of section 203 of the 
    Health Insurance Portability and Accountability Act of 1996 is 
    repealed.
        (3) Effective dates.--
            (A) Statement by secretary.--Paragraph (1) of section 
        1806(a) of the Social Security Act, as added by paragraph (1), 
        and the repeal made by paragraph (2) shall take effect on the 
        date of the enactment of this Act.
            (B) Itemized statement.--Paragraph (2) of section 1806(a) 
        and section 1806(b) of the Social Security Act, as so added, 
        shall take effect not later than January 1, 1999.

SEC. 4312. DISCLOSURE OF INFORMATION AND SURETY BONDS.

    (a) Disclosure of Information and Surety Bond Requirement for 
Suppliers of Durable Medical Equipment.--Section 1834(a) (42 U.S.C. 
1395m(a)) is amended by inserting after paragraph (15) the following 
new paragraph:
        ``(16) Disclosure of information and surety bond.--The 
    Secretary shall not provide for the issuance (or renewal) of a 
    provider number for a supplier of durable medical equipment, for 
    purposes of payment under this part for durable medical equipment 
    furnished by the supplier, unless the supplier provides the 
    Secretary on a continuing basis--
            ``(A) with--
                ``(i) full and complete information as to the identity 
            of each person with an ownership or control interest (as 
            defined in section 1124(a)(3)) in the supplier or in any 
            subcontractor (as defined by the Secretary in regulations) 
            in which the supplier directly or indirectly has a 5 
            percent or more ownership interest; and
                ``(ii) to the extent determined to be feasible under 
            regulations of the Secretary, the name of any disclosing 
            entity (as defined in section 1124(a)(2)) with respect to 
            which a person with such an ownership or control interest 
            in the supplier is a person with such an ownership or 
            control interest in the disclosing entity; and
            ``(B) with a surety bond in a form specified by the 
        Secretary and in an amount that is not less than $50,000.
    The Secretary may waive the requirement of a bond under 
    subparagraph (B) in the case of a supplier that provides a 
    comparable surety bond under State law.''.
    (b) Surety Bond Requirement for Home Health Agencies.--
        (1) In general.--Section 1861(o) (42 U.S.C. 1395x(o)) is 
    amended--
            (A) in paragraph (6), by striking ``and'' at the end;
            (B) by redesignating paragraph (7) as paragraph (8);
            (C) by inserting after paragraph (6) the following new 
        paragraph:
        ``(7) provides the Secretary on a continuing basis with a 
    surety bond in a form specified by the Secretary and in an amount 
    that is not less than $50,000; and''; and
            (D) by adding at the end the following: ``The Secretary may 
        waive the requirement of a surety bond under paragraph (7) in 
        the case of an agency or organization that provides a 
        comparable surety bond under State law.''.
        (2) Conforming amendments.--Section 1861(v)(1)(H) (42 U.S.C. 
    1395x(v)(1)(H)) is amended--
            (A) in clause (i), by striking ``the financial security 
        requirement described in subsection (o)(7)'' and inserting 
        ``the surety bond requirement described in subsection (o)(7) 
        and the financial security requirement described in subsection 
        (o)(8)''; and
            (B) in clause (ii), by striking ``the financial security 
        requirement described in subsection (o)(7) applies'' and 
        inserting ``the surety bond requirement described in subsection 
        (o)(7) and the financial security requirement described in 
        subsection (o)(8) apply''.
        (3) Reference to current disclosure requirement.--For 
    additional provisions requiring home health agencies to disclose 
    information on ownership and control interests, see section 1124 of 
    the Social Security Act (42 U.S.C. 1320a-3).
    (c) Authorizing Application of Disclosure and Surety Bond 
Requirements to Other Health Care Providers.--Section 1834(a)(16) (42 
U.S.C. 1395m(a)(16)), as added by subsection (a), is amended by adding 
at the end the following: ``The Secretary, at the Secretary's 
discretion, may impose the requirements of the first sentence with 
respect to some or all providers of items or services under part A or 
some or all suppliers or other persons (other than physicians or other 
practitioners, as defined in section 1842(b)(18)(C)) who furnish items 
or services under this part.''.
    (d) Application to Comprehensive Outpatient Rehabilitation 
Facilities (CORFs).--Section 1861(cc)(2) (42 U.S.C. 1395x(cc)(2)) is 
amended--
        (1) in subparagraph (H), by striking ``and'' at the end;
        (2) by redesignating subparagraph (I) as subparagraph (J);
        (3) by inserting after subparagraph (H) the following new 
    subparagraph:
        ``(I) provides the Secretary on a continuing basis with a 
    surety bond in a form specified by the Secretary and in an amount 
    that is not less than $50,000; and''; and
        (4) by adding at the end the following flush sentence:
``The Secretary may waive the requirement of a surety bond under 
subparagraph (I) in the case of a facility that provides a comparable 
surety bond under State law.''.
    (e) Application to Rehabilitation Agencies.--Section 1861(p) (42 
U.S.C. 1395x(p)) is amended--
        (1) in paragraph (4)(A)(v), by inserting after ``as the 
    Secretary may find necessary,'' the following: ``and provides the 
    Secretary on a continuing basis with a surety bond in a form 
    specified by the Secretary and in an amount that is not less than 
    $50,000,'', and
        (2) by adding at the end the following: ``The Secretary may 
    waive the requirement of a surety bond under paragraph (4)(A)(v) in 
    the case of a clinic or agency that provides a comparable surety 
    bond under State law.''.
    (f) Effective Dates.--
        (1) Suppliers of durable medical equipment.--The amendment made 
    by subsection (a) shall apply to suppliers of durable medical 
    equipment with respect to such equipment furnished on or after 
    January 1, 1998.
        (2) Home health agencies.--The amendments made by subsection 
    (b) shall apply to home health agencies with respect to services 
    furnished on or after January 1, 1998. The Secretary of Health and 
    Human Services shall modify participation agreements under section 
    1866(a)(1) of the Social Security Act (42 U.S.C. 1395cc(a)(1)) with 
    respect to home health agencies to provide for implementation of 
    such amendments on a timely basis.
        (3) Other amendments.--The amendments made by subsections (c) 
    through (e) shall take effect on the date of the enactment of this 
    Act and may be applied with respect to items and services furnished 
    on or after January 1, 1998.

SEC. 4313. PROVISION OF CERTAIN IDENTIFICATION NUMBERS.

    (a) Requirements To Disclose Employer Identification Numbers (EINS) 
and Social Security Account Numbers (SSNs).--Section 1124(a)(1) (42 
U.S.C. 1320a-3(a)(1)) is amended by inserting before the period at the 
end the following: ``and supply the Secretary with the both the 
employer identification number (assigned pursuant to section 6109 of 
the Internal Revenue Code of 1986) and social security account number 
(assigned under section 205(c)(2)(B)) of the disclosing entity, each 
person with an ownership or control interest (as defined in subsection 
(a)(3)), and any subcontractor in which the entity directly or 
indirectly has a 5 percent or more ownership interest.
    (b) Other Medicare Providers.--Section 1124A (42 U.S.C. 1320a-3a) 
is amended--
        (1) in subsection (a)--
            (A) in paragraph (1), by striking ``and'' at the end;
            (B) in paragraph (2), by striking the period at the end and 
        inserting ``; and''; and
            (C) by adding at the end the following new paragraph:
        ``(3) including the employer identification number (assigned 
    pursuant to section 6109 of the Internal Revenue Code of 1986) and 
    social security account number (assigned under section 
    205(c)(2)(B)) of the disclosing part B provider and any person, 
    managing employee, or other entity identified or described under 
    paragraph (1) or (2).''; and
        (2) in subsection (c)(1), by inserting ``(or, for purposes of 
    subsection (a)(3), any entity receiving payment)'' after ``on an 
    assignment-related basis''.
    (c) Verification by Social Security Administration (SSA).--Section 
1124A (42 U.S.C. 1320a-3a), as amended by subsection (b), is amended--
        (1) by redesignating subsection (c) as subsection (d); and
        (2) by inserting after subsection (b) the following new 
    subsection:
    ``(c) Verification.--
        ``(1) Transmittal by hhs.--The Secretary shall transmit--
            ``(A) to the Commissioner of Social Security information 
        concerning each social security account number (assigned under 
        section 205(c)(2)(B)), and
            ``(B) to the Secretary of the Treasury information 
        concerning each employer identification number (assigned 
        pursuant to section 6109 of the Internal Revenue Code of 1986),
    supplied to the Secretary pursuant to subsection (a)(3) or section 
    1124(c) to the extent necessary for verification of such 
    information in accordance with paragraph (2).
        ``(2) Verification.--The Commissioner of Social Security and 
    the Secretary of the Treasury shall verify the accuracy of, or 
    correct, the information supplied by the Secretary to such official 
    pursuant to paragraph (1), and shall report such verifications or 
    corrections to the Secretary.
        ``(3) Fees for verification.--The Secretary shall reimburse the 
    Commissioner and Secretary of the Treasury, at a rate negotiated 
    between the Secretary and such official, for the costs incurred by 
    such official in performing the verification and correction 
    services described in this subsection.''.
    (d) Report.--Before the amendments made by this section may become 
effective, the Secretary of Health and Human Services shall submit to 
Congress a report on steps the Secretary has taken to assure the 
confidentiality of social security account numbers that will be 
provided to the Secretary under such amendments.
    (e) Effective Dates.--
        (1) Disclosure requirements.--The amendment made by subsection 
    (a) shall apply to the application of conditions of participation, 
    and entering into and renewal of contracts and agreements, 
    occurring more than 90 days after the date of submission of the 
    report under subsection (d).
        (2) Other providers.--The amendments made by subsection (b) 
    shall apply to payment for items and services furnished more than 
    90 days after the date of submission of such report.

SEC. 4314. ADVISORY OPINIONS REGARDING CERTAIN PHYSICIAN SELF-REFERRAL 
              PROVISIONS.

    Section 1877(g) (42 U.S.C. 1395nn(g)) is amended by adding at the 
end the following new paragraph:
        ``(6) Advisory opinions.--
            ``(A) In general.--The Secretary shall issue written 
        advisory opinions concerning whether a referral relating to 
        designated health services (other than clinical laboratory 
        services) is prohibited under this section. Each advisory 
        opinion issued by the Secretary shall be binding as to the 
        Secretary and the party or parties requesting the opinion.
            ``(B) Application of certain rules.--The Secretary shall, 
        to the extent practicable, apply the rules under subsections 
        (b)(3) and (b)(4) and take into account the regulations 
        promulgated under subsection (b)(5) of section 1128D in the 
        issuance of advisory opinions under this paragraph.
            ``(C) Regulations.--In order to implement this paragraph in 
        a timely manner, the Secretary may promulgate regulations that 
        take effect on an interim basis, after notice and pending 
        opportunity for public comment.
            ``(D) Applicability.--This paragraph shall apply to 
        requests for advisory opinions made after the date which is 90 
        days after the date of the enactment of this paragraph and 
        before the close of the period described in section 
        1128D(b)(6).''.

SEC. 4315. REPLACEMENT OF REASONABLE CHARGE METHODOLOGY BY FEE 
              SCHEDULES.

    (a) Application of Fee Schedule.--Section 1842 (42 U.S.C. 1395u) is 
amended by adding at the end the following new subsection:
    ``(s)(1) The Secretary may implement a statewide or other areawide 
fee schedule to be used for payment of any item or service described in 
paragraph (2) which is paid on a reasonable charge basis. Any fee 
schedule established under this paragraph for such item or service 
shall be updated each year by the percentage increase in the consumer 
price index for all urban consumers (United States city average) for 
the 12-month period ending with June of the preceding year, except that 
in no event shall a fee schedule for an item described in paragraph 
(2)(D) be updated before 2003.
    ``(2) The items and services described in this paragraph are as 
follows:
        ``(A) Medical supplies.
        ``(B) Home dialysis supplies and equipment (as defined in 
    section 1881(b)(8)).
        ``(C) Therapeutic shoes.
        ``(D) Parenteral and enteral nutrients, equipment, and 
    supplies.
        ``(E) Electromyogram devices
        ``(F) Salivation devices.
        ``(G) Blood products.
        ``(H) Transfusion medicine.''.
    (b) Conforming Amendment.--Section 1833(a)(1) (42 U.S.C. 
1395l(a)(1)) is amended--
            (A) by striking ``and (P)'' and inserting ``(P)''; and
            (B) by striking the semicolon at the end and inserting the 
        following: ``, and (Q) with respect to items or services for 
        which fee schedules are established pursuant to section 
        1842(s), the amounts paid shall be 80 percent of the lesser of 
        the actual charge or the fee schedule established in such 
        section;''.
    (c) Effective Dates.--The amendments made by this section to the 
extent such amendments substitute fee schedules for reasonable charges, 
shall apply to particular services as of the date specified by the 
Secretary of Health and Human Services.
    (d) Initial Budget Neutrality.--The Secretary, in developing a fee 
schedule for particular services (under the amendments made by this 
section), shall set amounts for the first year period to which the fee 
schedule applies at a level so that the total payments under title 
XVIII of the Social Security Act (42 U.S.C. 1395 et seq.) for those 
services for that year period shall be approximately equal to the 
estimated total payments if such fee schedule had not been implemented.

SEC. 4316. APPLICATION OF INHERENT REASONABLENESS TO ALL PART B 
              SERVICES OTHER THAN PHYSICIANS' SERVICES.

    (a) In General.--Paragraphs (8) and (9) of section 1842(b) (42 
U.S.C. 1395u(b)) are amended to read as follows:
    ``(8)(A)(i) The Secretary shall by regulation--
        ``(I) describe the factors to be used in determining the cases 
    (of particular items or services) in which the application of this 
    part (other than to physicians' services paid under section 1848) 
    results in the determination of an amount that, because of its 
    being grossly excessive or grossly deficient, is not inherently 
    reasonable, and
        ``(II) provide in those cases for the factors to be considered 
    in determining an amount that is realistic and equitable.
    ``(ii) Notwithstanding the determination made in clause (i), the 
Secretary may not apply factors that would increase or decrease the 
payment under this part during any year for any particular item or 
service by more than 15 percent from such payment during the preceding 
year except as provided in subparagraph (B).
    ``(B) The Secretary may make a determination under this 
subparagraph that would result in an increase or decrease under 
subparagraph (A) of more than 15 percent of the payment amount for a 
year, but only if--
        ``(i) the Secretary's determination takes into account the 
    factors described in subparagraph (C) and any additional factors 
    the Secretary determines appropriate,
        ``(ii) the Secretary's determination takes into account the 
    potential impacts described in subparagraph (D), and
        ``(iii) the Secretary complies with the procedural requirements 
    of paragraph (9).
    ``(C) The factors described in this subparagraph are as follows:
        ``(i) The programs established under this title and title XIX 
    are the sole or primary sources of payment for an item or service.
        ``(ii) The payment amount does not reflect changing technology, 
    increased facility with that technology, or reductions in 
    acquisition or production costs.
        ``(iii) The payment amount for an item or service under this 
    part is substantially higher or lower than the payment made for the 
    item or service by other purchasers.
    ``(D) The potential impacts of a determination under subparagraph 
(B) on quality, access, and beneficiary liability, including the likely 
effects on assignment rates and participation rates.
    ``(9)(A) The Secretary shall consult with representatives of 
suppliers or other individuals who furnish an item or service before 
making a determination under paragraph (8)(B) with regard to that item 
or service.
    ``(B) The Secretary shall publish notice of a proposed 
determination under paragraph (8)(B) in the Federal Register--
        ``(i) specifying the payment amount proposed to be established 
    with respect to an item or service,
        ``(ii) explaining the factors and data that the Secretary took 
    into account in determining the payment amount so specified, and
        ``(iii) explaining the potential impacts described in paragraph 
    (8)(D).
    ``(C) After publication of the notice required by subparagraph (B), 
the Secretary shall allow not less than 60 days for public comment on 
the proposed determination.
    ``(D)(i) Taking into consideration the comments made by the public, 
the Secretary shall publish in the Federal Register a final 
determination under paragraph (8)(B) with respect to the payment amount 
to be established with respect to the item or service.
    ``(ii) A final determination published pursuant to clause (i) shall 
explain the factors and data that the Secretary took into consideration 
in making the final determination.''.
    (b) Conforming Amendment.--Section 1834(a)(10)(B) (42 U.S.C. 
1395m(a)(10)(B)) is amended--
        (1) by striking ``For covered items furnished on or after 
    January 1, 1991, the'' and inserting ``The'';
        (2) by striking ``(other than subparagraph (D))''; and
        (3) by striking all that follows ``payments under this 
    subsection'' and inserting a period.
    (c) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 4317. REQUIREMENT TO FURNISH DIAGNOSTIC INFORMATION.

    (a) Inclusion of Non-Physician Practitioners in Requirement To 
Provide Diagnostic Codes for Physician Services.--Paragraphs (1) and 
(2) of section 1842(p) (42 U.S.C. 1395u(p)) are each amended by 
inserting ``or practitioner specified in subsection (b)(18)(C)'' after 
``by a physician''.
    (b) Requirement To Provide Diagnostic Information When Ordering 
Certain Items or Services Furnished by Another Entity.--Section 1842(p) 
(42 U.S.C. 1395u(p)), is amended by adding at the end the following new 
paragraph:
    ``(4) In the case of an item or service defined in paragraph (3), 
(6), (8), or (9) of subsection 1861(s) ordered by a physician or a 
practitioner specified in subsection (b)(18)(C), but furnished by 
another entity, if the Secretary (or fiscal agent of the Secretary) 
requires the entity furnishing the item or service to provide 
diagnostic or other medical information in order for payment to be made 
to the entity, the physician or practitioner shall provide that 
information to the entity at the time that the item or service is 
ordered by the physician or practitioner.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to items and services furnished on or after January 1, 1998.

SEC. 4318. REPORT BY GAO ON OPERATION OF FRAUD AND ABUSE CONTROL 
              PROGRAM.

    Section 1817(k)(6) (42 U.S.C. 1395i(k)(6)) is amended by inserting 
``June 1, 1998, and'' after ``Not later than''.

SEC. 4319. COMPETITIVE BIDDING DEMONSTRATION PROJECTS.

    (a) General Rule.--Part B of title XVIII (42 U.S.C. 1395j et seq.) 
is amended by inserting after section 1846 the following new section:

``SEC. 1847. DEMONSTRATION PROJECTS FOR COMPETITIVE ACQUISITION OF 
              ITEMS AND SERVICES.

    ``(a) Establishment of Demonstration Project Bidding Areas.--
        ``(1) In general.--The Secretary shall implement not more than 
    5 demonstration projects under which competitive acquisition areas 
    are established for contract award purposes for the furnishing 
    under this part of the items and services described in subsection 
    (d).
        ``(2) Project requirements.--Each demonstration project under 
    paragraph (1)--
            ``(A) shall include such group of items and services as the 
        Secretary may prescribe,
            ``(B) shall be conducted in not more than 3 competitive 
        acquisition areas, and
            ``(C) shall be operated over a 3-year period.
        ``(3) Criteria for establishment of competitive acquisition 
    areas.--Each competitive acquisition area established under a 
    demonstration project implemented under paragraph (1)--
            ``(A) shall be, or shall be within, a metropolitan 
        statistical area (as defined by the Secretary of Commerce), and
            ``(B) shall be chosen based on the availability and 
        accessibility of entities able to furnish items and services, 
        and the probable savings to be realized by the use of 
        competitive bidding in the furnishing of items and services in 
        such area.
    ``(b) Awarding of Contracts in Areas.--
        ``(1) In general.--The Secretary shall conduct a competition 
    among individuals and entities supplying items and services 
    described in subsection (c) for each competitive acquisition area 
    established under a demonstration project implemented under 
    subsection (a).
        ``(2) Conditions for awarding contract.--The Secretary may not 
    award a contract to any entity under the competition conducted 
    pursuant to paragraph (1) to furnish an item or service unless the 
    Secretary finds that the entity meets quality standards specified 
    by the Secretary that the total amounts to be paid under the 
    contract are expected to be less than the total amounts that would 
    otherwise be paid.
        ``(3) Contents of contract.--A contract entered into with an 
    entity under the competition conducted pursuant to paragraph (1) is 
    subject to terms and conditions that the Secretary may specify.
        ``(4) Limit on number of contractors.--The Secretary may limit 
    the number of contractors in a competitive acquisition area to the 
    number needed to meet projected demand for items and services 
    covered under the contracts.
    ``(c) Expansion of Projects.--
        ``(1) Evaluations.--The Secretary shall evaluate the impact of 
    the implementation of the demonstration projects on medicare 
    program payments, access, diversity of product selection, and 
    quality. The Secretary shall make annual reports to the Committees 
    on Ways and Means and Commerce of the House of Representatives and 
    the Committee on Finance of the Senate on the results of the 
    evaluation described in the preceding sentence and a final report 
    not later than 6 months after the termination date specified in 
    subsection (e).
        ``(2) Expansion.--If the Secretary determines from the 
    evaluations under paragraph (1) that there is clear evidence that 
    any demonstration project--
            ``(A) results in a decrease in Federal expenditures under 
        this title, and
            ``(B) does not reduce program access, diversity of product 
        selection, and quality under this title,
    the Secretary may expand the project to additional competitive 
    acquisition areas.
    ``(d) Services described.--The items and services to which this 
section applies are all items and services covered under this part 
(except for physicians' services as defined in section 1861(s)(1)) that 
the Secretary may specify. At least one demonstration project shall 
include oxygen and oxygen equipment.
    ``(e) Termination.--Notwithstanding any other provision of this 
section, all projects under this section shall terminate not later than 
December 31, 2002.''.
    (b) Items and Services To Be Furnished Only Through Competitive 
Acquisition.--Section 1862(a) (42 U.S.C. 1395y(a)) is amended--
        (1) by striking ``or'' at the end of paragraph (15),
        (2) by striking the period at the end of paragraph (16) and 
    inserting ``; or'', and
        (3) by inserting after paragraph (16) the following new 
    paragraph:
        ``(17) where the expenses are for an item or service furnished 
    in a competitive acquisition area (as established by the Secretary 
    under section 1847(a)) by an entity other than an entity with which 
    the Secretary has entered into a contract under section 1847(b) for 
    the furnishing of such an item or service in that area, unless the 
    Secretary finds that the expenses were incurred in a case of urgent 
    need, or in other circumstances specified by the Secretary.''.
    (c) Study by GAO.--The Comptroller of the United States shall study 
the effectiveness of the establishment of competitive acquisition areas 
under section 1847(a) of the Social Security Act, as added by this 
section.

SEC. 4320. PROHIBITING UNNECESSARY AND WASTEFUL MEDICARE PAYMENTS FOR 
              CERTAIN ITEMS.

    Section 1861(v) (42 U.S.C. 1395x(v)) is amended by adding at the 
end the following new paragraph:
        ``(8) Items unrelated to patient care.--Reasonable costs do not 
    include costs for the following--
            ``(i) entertainment, including tickets to sporting and 
        other entertainment events;
            ``(ii) gifts or donations;
            ``(iii) personal use of motor vehicles;
            ``(iv) costs for fines and penalties resulting from 
        violations of Federal, State, or local laws; and
            ``(v) education expenses for spouses or other dependents of 
        providers of services, their employees or contractors.''.

SEC. 4321. NONDISCRIMINATION IN POST-HOSPITAL REFERRAL TO HOME HEALTH 
              AGENCIES AND OTHER ENTITIES.

    (a) Notification of Availability of Home Health Agencies and Other 
Entities As Part of Discharge Planning Process.--Section 1861(ee)(2) 
(42 U.S.C. 1395x(ee)(2)) is amended--
        (1) in subparagraph (D), by inserting before the period the 
    following: ``, including the availability of home health services 
    through individuals and entities that participate in the program 
    under this title and that serve the area in which the patient 
    resides and that request to be listed by the hospital as 
    available''; and
        (2) by adding at the end the following new subparagraph:
        ``(H) Consistent with section 1802, the discharge plan shall--
            ``(i) not specify or otherwise limit the qualified provider 
        which may provide post-hospital home health services, and
            ``(ii) identify (in a form and manner specified by the 
        Secretary) any entity to whom the individual is referred in 
        which the hospital has a disclosable financial interest (as 
        specified by the Secretary consistent with section 
        1866(a)(1)(S)) or which has such an interest in the 
        hospital.''.
    (b) Maintenance and Disclosure of Information on Post-Hospital Home 
Health Agencies and Other Entities.--Section 1866(a)(1) (42 U.S.C. 
1395cc(a)(1)) is amended--
        (1) by striking ``and'' at the end of subparagraph (Q),
        (2) by striking the period at the end of subparagraph (R), and
        (3) by adding at the end the following new subparagraph:
        ``(S) in the case of a hospital that has a financial interest 
    (as specified by the Secretary in regulations) in an entity to 
    which individuals are referred as described in section 
    1861(ee)(2)(H)(ii), or in which such an entity has such a financial 
    interest, or in which another entity has such a financial interest 
    (directly or indirectly) with such hospital and such an entity, to 
    maintain and disclose to the Secretary (in a form and manner 
    specified by the Secretary) information on--
            ``(i) the nature of such financial interest,
            ``(ii) the number of individuals who were discharged from 
        the hospital and who were identified as requiring home health 
        services, and
            ``(iii) the percentage of such individuals who received 
        such services from such provider (or another such provider).''.
    (c) Disclosure of Information to the Public.--Title XI is amended 
by inserting after section 1145 the following new section:


    ``public disclosure of certain information on hospital financial 
                     interest and referral patterns

    ``Sec. 1146. The Secretary shall make available to the public, in a 
form and manner specified by the Secretary, information disclosed to 
the Secretary pursuant to section 1866(a)(1)(S).''.
    (d) Effective Dates.--
        (1) The amendments made by subsection (a) shall apply to 
    discharges occurring on or after the date which is 90 days after 
    the date of the enactment of this Act.
        (2) The Secretary of Health and Human Services shall issue 
    regulations by not later than the date which is 1 year after the 
    date of the enactment of this Act to carry out the amendments made 
    by subsections (b) and (c) and such amendments shall take effect as 
    of such date (on or after the issuance of such regulations) as the 
    Secretary specifies in such regulations.

            CHAPTER 3--CLARIFICATIONS AND TECHNICAL CHANGES

SEC. 4331. OTHER FRAUD AND ABUSE RELATED PROVISIONS.

    (a) Reference Correction.--(1) Section 1128D(b)(2)(D) (42 U.S.C. 
1320a-7d(b)(2)(D)), as added by section 205 of the Health Insurance 
Portability and Accountability Act of 1996, is amended by striking 
``1128B(b)'' and inserting ``1128A(b)''.
    (2) Section 1128E(g)(3)(C) (42 U.S.C. 1320a-7e(g)(3)(C)) is amended 
by striking ``Veterans' Administration'' and inserting ``Department of 
Veterans Affairs''.
    (b) Language in Definition of Conviction.--Section 1128E(g)(5) (42 
U.S.C. 1320a-7e(g)(5)), as inserted by section 221(a) of the Health 
Insurance Portability and Accountability Act of 1996, is amended by 
striking ``paragraph (4)'' and inserting ``paragraphs (1) through 
(4)''.
    (c) Implementation of Exclusions.--Section 1128 (42 U.S.C. 1320a-7) 
is amended--
        (1) in subsection (a), by striking ``any program under title 
    XVIII and shall direct that the following individuals and entities 
    be excluded from participation in any State health care program (as 
    defined in subsection (h))'' and inserting ``any Federal health 
    care program (as defined in section 1128B(f))''; and
        (2) in subsection (b), by striking ``any program under title 
    XVIII and may direct that the following individuals and entities be 
    excluded from participation in any State health care program'' and 
    inserting ``any Federal health care program (as defined in section 
    1128B(f))''.
    (d) Sanctions for Failure to Report.--Section 1128E(b) (42 U.S.C. 
1320a-7e(b)), as inserted by section 221(a) of the Health Insurance 
Portability and Accountability Act of 1996, is amended by adding at the 
end the following:
        ``(6) Sanctions for failure to report.--
            ``(A) Health plans.--Any health plan that fails to report 
        information on an adverse action required to be reported under 
        this subsection shall be subject to a civil money penalty of 
        not more than $25,000 for each such adverse action not 
        reported. Such penalty shall be imposed and collected in the 
        same manner as civil money penalties under subsection (a) of 
        section 1128A are imposed and collected under that section.
            ``(B) Governmental agencies.--The Secretary shall provide 
        for a publication of a public report that identifies those 
        Government agencies that have failed to report information on 
        adverse actions as required to be reported under this 
        subsection.''.
    (e) Clarification of Treatment of Certain Waivers and Payments of 
Premiums.--Section 1128A(i)(6) (42 U.S.C. 1320a-7a(i)(6)) is amended--
        (1) in subparagraph (A)(iii)--
            (A) in subclause (I), by adding ``or'' at the end;
            (B) in subclause (II), by striking ``or'' at the end; and
            (C) by striking subclause (III);
        (2) by redesignating subparagraphs (B) and (C) as subparagraphs 
    (C) and (D); and
        (3) by inserting after subparagraph (A) the following:
            ``(B) any permissible waiver as specified in section 
        1128B(b)(3) or in regulations issued by the Secretary;''.
    (f) Effective Dates.--
        (1) In general.--Except as provided in this subsection, the 
    amendments made by this section shall be effective as if included 
    in the enactment of the Health Insurance Portability and 
    Accountability Act of 1996.
        (2) Federal health program.--The amendments made by subsection 
    (c) shall take effect on the date of the enactment of this Act.
        (3) Sanction for failure to report.--The amendment made by 
    subsection (d) shall apply to failures occurring on or after the 
    date of the enactment of this Act.

             Subtitle E--Provisions Relating to Part A Only

                  CHAPTER 1--PAYMENT OF PPS HOSPITALS

SEC. 4401. PPS HOSPITAL PAYMENT UPDATE.

    (a) In General.--Section 1886(b)(3)(B)(i) (42 U.S.C. 
1395ww(b)(3)(B)(i)) is amended--
        (1) by striking ``and'' at the end of subclause (XII), and
        (2) by striking subclause (XIII) and inserting the following:
        ``(XIII) for fiscal year 1998, 0 percent,
        ``(XIV) for fiscal year 1999, the market basket percentage 
    increase minus 1.9 percentage points for hospitals in all areas,
        ``(XV) for fiscal year 2000, the market basket percentage 
    increase minus 1.8 percentage points for hospitals in all areas,
        ``(XVI) for each of fiscal years 2001 and 2002, the market 
    basket percentage increase minus 1.1 percentage point for hospitals 
    in all areas, and
        ``(XVII) for fiscal year 2003 and each subsequent fiscal year, 
    the market basket percentage increase for hospitals in all 
    areas.''.
    (b) Temporary Relief for Certain Non-Teaching, Non-DSH Hospitals.--
        (1) In general.--In the case of a hospital described in 
    paragraph (2) for its cost reporting period--
            (A) beginning in fiscal year 1998 the amount of payment 
        made to the hospital under section 1886(d) of the Social 
        Security Act for discharges occurring during such fiscal year 
        only shall be increased as though the applicable percentage 
        increase (otherwise applicable to discharges occurring during 
        fiscal year 1998 under section 1886(b)(3)(B)(i)(XIII) of the 
        Social Security Act (42 U.S.C. 1395ww(b)(3)(B)(i)(XIII))) had 
        been increased by 0.5 percentage points; and
            (B) beginning in fiscal year 1999 the amount of payment 
        made to the hospital under section 1886(d) of the Social 
        Security Act for discharges occurring during such fiscal year 
        only shall be increased as though the applicable percentage 
        increase (otherwise applicable to discharges occurring during 
        fiscal year 1999 under section 1886(b)(3)(B)(i)(XIII) of the 
        Social Security Act (42 U.S.C. 1395ww(b)(3)(B)(i)(XIII))) had 
        been increased by 0.3 percentage points.
    Subparagraph (A) shall not apply in computing the increase under 
    subparagraph (B) and neither subparagraph shall affect payment for 
    discharges for any hospital occurring during a fiscal year after 
    fiscal year 1999. Payment increases under this subsection for 
    discharges occurring during a fiscal year are subject to settlement 
    after the close of the fiscal year.
        (2) Hospitals covered.--A hospital described in this paragraph 
    for a cost reporting period is a hospital--
            (A) that is described in paragraph (3) for such period;
            (B) that is located in a State in which the amount of the 
        aggregate payments under section 1886(d) of such Act for 
        hospitals located in the State and described in paragraph (3) 
        for their cost reporting periods beginning during fiscal year 
        1995 is less than the aggregate allowable operating costs of 
        inpatient hospital services (as defined in section 1886(a)(4) 
        of such Act) for all such hospitals in such State with respect 
        to such cost reporting periods; and
            (C) with respect to which the payments under section 
        1886(d) of such Act (42 U.S.C. 1395ww(d)) for discharges 
        occurring in the cost reporting period involved, as estimated 
        by the Secretary, is less than the allowable operating costs of 
        inpatient hospital services (as defined in section 1886(a)(4) 
        of such Act (42 U.S.C. 1395ww(a)(4)) for such hospital for such 
        period, as estimated by the Secretary.
        (3) Non-teaching, non-DSH hospitals described.--A hospital 
    described in this paragraph for a cost reporting period is a 
    subsection (d) hospital (as defined in section 1886(d)(1)(B) of 
    such Act (42 U.S.C. 1395ww(d)(1)(B))) that--
            (A) is not receiving any additional payment amount 
        described in section 1886(d)(5)(F) of such Act (42 U.S.C. 
        1395ww(d)(5)(F)) for discharges occurring during the period;
            (B) is not receiving any additional payment under section 
        1886(d)(5)(B) of such Act (42 U.S.C. 1395ww(d)(5)(B)) or a 
        payment under section 1886(h) of such Act (42 U.S.C. 1395ww(h)) 
        for discharges occurring during the period; and
            (C) does not qualify for payment under section 
        1886(d)(5)(G) of such Act (42 U.S.C. 1395ww(d)(5)(G)) for the 
        period.

SEC. 4402. MAINTAINING SAVINGS FROM TEMPORARY REDUCTION IN CAPITAL 
              PAYMENTS FOR PPS HOSPITALS.

    Section 1886(g)(1)(A) (42 U.S.C. 1395ww(g)(1)(A)) is amended by 
adding at the end the following: ``In addition to the reduction 
described in the preceding sentence, for discharges occurring on or 
after October 1, 1997, the Secretary shall apply the budget neutrality 
adjustment factor used to determine the Federal capital payment rate in 
effect on September 30, 1995 (as described in section 412.352 of title 
42 of the Code of Federal Regulations), to (i) the unadjusted standard 
Federal capital payment rate (as described in section 412.308(c) of 
that title, as in effect on September 30, 1997), and (ii) the 
unadjusted hospital-specific rate (as described in section 
412.328(e)(1) of that title, as in effect on September 30, 1997), and, 
for discharges occurring on or after October 1, 1997, and before 
September 30, 2002, reduce the rates described in clauses (i) and (ii) 
by 2.1 percent.''.

SEC. 4403. DISPROPORTIONATE SHARE.

    (a) In General.--Section 1886(d)(5)(F) (42 U.S.C. 1395ww(d)(5)(F)) 
is amended--
        (1) in clause (i) by inserting ``and before October 1, 1997'' 
    after ``May 1, 1986'';
        (2) in clause (ii), by striking ``The amount'' and inserting 
    ``Subject to clause (ix), the amount''; and
        (3) by adding at the end the following new clause:
    ``(ix) In the case of discharges occurring--
        ``(I) during fiscal year 1998, the additional payment amount 
    otherwise determined under clause (ii) shall be reduced by 1 
    percent;
        ``(II) during fiscal year 1999, such additional payment amount 
    shall be reduced by 2 percent;
        ``(III) during fiscal year 2000, such additional payment amount 
    shall be reduced by 3 percent;
        ``(IV) during fiscal year 2001, such additional payment amount 
    shall be reduced by 4 percent;
        ``(V) during fiscal year 2002, such additional payment amount 
    shall be reduced by 5 percent; and
        ``(VI) during fiscal year 2003 and each subsequent fiscal year, 
    such additional payment amount shall be reduced by 0 percent.''.
    (b) Report on New Payment Formula.--
        (1) Report.--Not later than 1 year after the date of the 
    enactment of this Act, the Secretary of Health and Human Services 
    shall submit to the Committee on Ways and Means of the House of 
    Representatives and the Committee on Finance of the Senate a report 
    that contains a formula for determining additional payment amounts 
    to hospitals under section 1886(d)(5)(F) of the Social Security Act 
    (42 U.S.C. 1395ww(d)(5)(F)).
        (2) Factors in Determination of Formula.--In determining such 
    formula the Secretary shall--
            (A) establish a single threshold for costs incurred by 
        hospitals in serving low-income patients, and
            (B) consider the costs described in paragraph (3).
        (3) The costs described in this paragraph are as follows:
            (A) The costs incurred by the hospital during a period (as 
        determined by the Secretary) of furnishing hospital services to 
        individuals who are entitled to benefits under part A of title 
        XVIII of the Social Security Act and who receive supplemental 
        security income benefits under title XVI of such Act (excluding 
        any supplementation of those benefits by a State under section 
        1616 of such Act (42 U.S.C. 1382e)).
            (B) The costs incurred by the hospital during a period (as 
        so determined) of furnishing hospital services to individuals 
        who receive medical assistance under the State plan under title 
        XIX of such Act and are not entitled to benefits under part A 
        of title XVIII of such Act (including individuals enrolled in a 
        managed care organization (as defined in section 1903(m)(1)(A) 
        of such Act (42 U.S.C. 1396b(m)(1)(A)) or any other managed 
        care plan under such title and individuals who receive medical 
        assistance under such title pursuant to a waiver approved by 
        the Secretary under section 1115 of such Act (42 U.S.C. 1315)).
    (c) Data Collection.--In developing the formula described in 
subsection (b), the Secretary of Health and Human Services may require 
any subsection (d) hospital (as defined in section 1886(d)(1)(B) of the 
Social Security Act (42 U.S.C. 1395ww(d)(1)(B))) receiving additional 
payments by reason of section 1886(d)(5)(F) of such Act (42 U.S.C. 
1395ww(d)(5)(F)) to submit to the Secretary any information that the 
Secretary determines is necessary to develop such formula.

SEC. 4404. MEDICARE CAPITAL ASSET SALES PRICE EQUAL TO BOOK VALUE.

    (a) In General.--Section 1861(v)(1)(O) (42 U.S.C. 1395x(v)(1)(O)) 
is amended--
        (1) in clause (i)--
            (A) by striking ``and (if applicable) a return on equity 
        capital'';
            (B) by striking ``hospital or skilled nursing facility'' 
        and inserting ``provider of services'';
            (C) by striking ``clause (iv)'' and inserting ``clause 
        (iii)''; and
            (D) by striking ``the lesser of the allowable acquisition 
        cost'' and all that follows and inserting ``the historical cost 
        of the asset, as recognized under this title, less depreciation 
        allowed, to the owner of record as of the date of enactment of 
        the Balanced Budget Act of 1997 (or, in the case of an asset 
        not in existence as of that date, the first owner of record of 
        the asset after that date).'';
        (2) by striking clause (ii); and
        (3) by redesignating clauses (iii) and (iv) as clauses (ii) and 
    (iii), respectively.
    (b) Effective Date.--The amendments made by subsection (a) apply to 
changes of ownership that occur after the third month beginning after 
the date of enactment of this section.

SEC. 4405. ELIMINATION OF IME AND DSH PAYMENTS ATTRIBUTABLE TO OUTLIER 
              PAYMENTS.

    (a) Indirect Medical Education.--Section 1886(d)(5)(B)(i)(I) (42 
U.S.C. 1395ww(d)(5)(B)(i)(I)) is amended by inserting ``, for cases 
qualifying for additional payment under subparagraph (A)(i),'' before 
``the amount paid to the hospital under subparagraph (A)''.
    (b) Disproportionate Share Adjustments.--Section 
1886(d)(5)(F)(ii)(I) (42 U.S.C. 1395ww(d)(5)(F)(ii)(I)) is amended by 
inserting ``, for cases qualifying for additional payment under 
subparagraph (A)(i),'' before ``the amount paid to the hospital under 
subparagraph (A)''.
    (c) Cost Outlier Payments.--Section 1886(d)(5)(A)(ii) (42 U.S.C. 
1395ww(d)(5)(A)(ii)) is amended by striking ``exceed the applicable DRG 
prospective payment rate'' and inserting ``exceed the sum of the 
applicable DRG prospective payment rate plus any amounts payable under 
subparagraphs (B) and (F)''.
    (d) Effective Date.--The amendments made by this section apply to 
discharges occurring after September 30, 1997.

SEC. 4406. INCREASE BASE PAYMENT RATE TO PUERTO RICO HOSPITALS.

    Section 1886(d)(9)(A) (42 U.S.C. 1395ww(d)(9)(A)) is amended--
        (1) in the matter preceding clause (i), by striking ``in a 
    fiscal year beginning on or after October 1, 1987,'',
        (2) in clause (i), by striking ``75 percent'' and inserting, 
    ``for discharges beginning on or after October 1, 1997, 50 percent 
    (and for discharges between October 1, 1987, and September 30, 
    1997, 75 percent)'', and
        (3) in clause (ii), by striking ``25 percent'' and inserting, 
    ``for discharges beginning in a fiscal year beginning on or after 
    October 1, 1997, 50 percent (and for discharges between October 1, 
    1987 and September 30, 1997, 25 percent)''.

SEC. 4407. CERTAIN HOSPITAL DISCHARGES TO POST ACUTE CARE.

    Section 1886(d)(5) (42 U.S.C. 1395ww(d)(5)) is amended--
        (1) in subparagraph (I)(ii) by inserting ``not taking in 
    account the effect of subparagraph (J),'' after ``in a fiscal year, 
    ''; and
        (2) by adding at the end the following new subparagraph:
    ``(J)(i) The Secretary shall treat the term `transfer case' (as 
defined in subparagraph (I)(ii)) as including the case of a qualified 
discharge (as defined in clause (ii)), which is classified within a 
diagnosis-related group described in clause (iii), and which occurs on 
or after October 1, 1998. In the case of a qualified discharge for 
which a substantial portion of the costs of care are incurred in the 
early days of the inpatient stay (as defined by the Secretary), in no 
case may the payment amount otherwise provided under this subsection 
exceed an amount equal to the sum of--
        ``(I) 50 percent of the amount of payment under this subsection 
    for transfer cases (as established under subparagraph (I)(i)), and
        ``(II) 50 percent of the amount of payment which would have 
    been made under this subsection with respect to the qualified 
    discharge if no transfer were involved.
    ``(ii) For purposes of clause (i), subject to clause (iii), the 
term `qualified discharge' means a discharge classified with a 
diagnosis-related group (described in clause (iii)) of an individual 
from a subsection (d) hospital, if upon such discharge the individual--
        ``(I) is admitted as an inpatient to a hospital or hospital 
    unit that is not a subsection (d) hospital for the provision of 
    inpatient hospital services;
        ``(II) is admitted to a skilled nursing facility;
        ``(III) is provided home health services from a home health 
    agency, if such services relate to the condition or diagnosis for 
    which such individual received inpatient hospital services from the 
    subsection (d) hospital, and if such services are provided within 
    an appropriate period (as determined by the Secretary); or
        ``(IV) for discharges occurring on or after October 1, 2000, 
    the individual receives post discharge services described in clause 
    (iv)(I).
    ``(iii) Subject to clause (iv), a diagnosis-related group described 
in this clause is--
        ``(I) 1 of 10 diagnosis-related groups selected by the 
    Secretary based upon a high volume of discharges classified within 
    such groups and a disproportionate use of post discharge services 
    described in clause (ii); and
        ``(II) a diagnosis-related group specified by the Secretary 
    under clause (iv)(II).
    ``(iv) The Secretary shall include in the proposed rule published 
under subsection (e)(5)(A) for fiscal year 2001, a description of the 
effect of this subparagraph. The Secretary may include in the proposed 
rule (and in the final rule published under paragraph (6)) for fiscal 
year 2001 or a subsequent fiscal year, a description of--
        ``(I) post-discharge services not described in subclauses (I), 
    (II), and (III) of clause (ii), the receipt of which results in a 
    qualified discharge; and
        ``(II) diagnosis-related groups described in clause (iii)(I) in 
    addition to the 10 selected under such clause.''.

SEC. 4408. RECLASSIFICATION OF CERTAIN COUNTIES AS LARGE URBAN AREAS 
              UNDER MEDICARE PROGRAM.

    (a) In General.--For purposes of section 1886(d) of the Social 
Security Act (42 U.S.C. 1395ww(d)), the large urban area of Charlotte-
Gastonia-Rock Hill-North Carolina-South Carolina may be deemed to 
include Stanly County, North Carolina.
    (b) Effective Date.--This section shall apply with respect to 
discharges occurring on or after October 1, 1997.

SEC. 4409. GEOGRAPHIC RECLASSIFICATION FOR CERTAIN DISPROPORTIONATELY 
              LARGE HOSPITALS.

    (a) New Guidelines for Reclassification.--Notwithstanding the 
guidelines published under section 1886(d)(10)(D)(i)(I) of the Social 
Security Act (42 U.S.C. 1395ww(d)(10)(D)(i)(I)), the Secretary of 
Health and Human Services shall publish and use alternative guidelines 
under which a hospital described in subsection (b) qualifies for 
geographic reclassification under such section for a fiscal year 
beginning with fiscal year 1998.
    (b) Hospitals Covered.--A hospital described in this subsection is 
a hospital that demonstrates that--
        (1) the average hourly wage paid by the hospital is not less 
    than 108 percent of the average hourly wage paid by all other 
    hospitals located in the Metropolitan Statistical Area (or the New 
    England County Metropolitan Area) in which the hospital is located;
        (2) not less than 40 percent of the adjusted uninflated wages 
    paid by all hospitals located in such Area is attributable to wages 
    paid by the hospital; and
        (3) the hospital submitted an application requesting 
    reclassification for purposes of wage index under section 
    1886(d)(10)(C) of such Act (42 U.S.C. 1395ww(d)(10)(C)) in each of 
    fiscal years 1992 through 1997 and that such request was approved 
    for each of such fiscal years.

SEC. 4410. FLOOR ON AREA WAGE INDEX.

    (a) In General.--For purposes of section 1886(d)(3)(E) of the 
Social Security Act (42 U.S.C. 1395ww(d)(3)(E)) for discharges 
occurring on or after October 1, 1997, 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 (42 U.S.C. 
1395ww(d)(2)(D)) may not be less than the area wage index applicable 
under such section to hospitals located in rural areas in the State in 
which the hospital is located.
    (b) Implementation.--The Secretary of Health and Human Services 
shall adjust the area wage index 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 (42 U.S.C. 1395ww(d)) 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.
    (c) Exclusion of Certain Wages.--In the case of a hospital that is 
owned by a municipality and that was reclassified as an urban hospital 
under section 1886(d)(10) of the Social Security Act for fiscal year 
1996, in calculating the hospital's average hourly wage for purposes of 
geographic reclassification under such section for fiscal year 1998, 
the Secretary of Health and Human Services shall exclude the general 
service wages and hours of personnel associated with a skilled nursing 
facility that is owned by the hospital of the same municipality and 
that is physically separated from the hospital to the extent that such 
wages and hours of such personnel are not shared with the hospital and 
are separately documented. A hospital that applied for and was denied 
reclassification as an urban hospital for fiscal year 1998, but that 
would have received reclassification had the exclusion required by this 
section been applied to it, shall be reclassified as an urban hospital 
for fiscal year 1998.

               CHAPTER 2--PAYMENT OF PPS-EXEMPT HOSPITALS

                Subchapter A--General Payment Provisions

SEC. 4411. PAYMENT UPDATE.

    (a) In General.--Section 1886(b)(3)(B) (42 U.S.C. 1395ww(b)(3)(B)) 
is amended--
        (1) in clause (ii)--
            (A) by striking ``and'' at the end of subclause (V),
            (B) by redesignating subclause (VI) as subclause (VIII); 
        and
            (C) by inserting after subclause (V), the following 
        subclauses:
        ``(VI) for fiscal year 1998, is 0 percent;
        ``(VII) for fiscal years 1999 through 2002, is the applicable 
    update factor specified under clause (vi) for the fiscal year; 
    and''; and
        (2) by adding at the end the following new clause:
    ``(vi) For purposes of clause (ii)(VII) for a fiscal year, if a 
hospital's allowable operating costs of inpatient hospital services 
recognized under this title for the most recent cost reporting period 
for which information is available--
        ``(I) is equal to, or exceeds, 110 percent of the hospital's 
    target amount (as determined under subparagraph (A)) for such cost 
    reporting period, the applicable update factor specified under this 
    clause is the market basket percentage;
        ``(II) exceeds 100 percent, but is less than 110 percent, of 
    such target amount for the hospital, the applicable update factor 
    specified under this clause is 0 percent or, if greater, the market 
    basket percentage minus 0.25 percentage points for each percentage 
    point by which such allowable operating costs (expressed as a 
    percentage of such target amount) is less than 110 percent of such 
    target amount;
        ``(III) is equal to, or less than 100 percent, but exceeds \2/
    3\ of such target amount for the hospital, the applicable update 
    factor specified under this clause is 0 percent or, if greater, the 
    market basket percentage minus 2.5 percentage points; or
        ``(IV) does not exceed \2/3\ of such target amount for the 
    hospital, the applicable update factor specified under this clause 
    is 0 percent.''.
    (b) No Effect of Payment Reduction on Exceptions and Adjustments.--
Section 1886(b)(4)(A)(ii) (42 U.S.C. 1395ww(b)(4)(A)(ii)) is amended by 
adding at the end the following new sentence: ``In making such 
reductions, the Secretary shall treat the applicable update factor 
described in paragraph (3)(B)(vi) for a fiscal year as being equal to 
the market basket percentage for that year.''.

SEC. 4412. REDUCTIONS TO CAPITAL PAYMENTS FOR CERTAIN PPS-EXEMPT 
              HOSPITALS AND UNITS.

    Section 1886(g) (42 U.S.C. 1395ww(g)) is amended by adding at the 
end the following new paragraph:
    ``(4) In determining the amount of the payments that are 
attributable to portions of cost reporting periods occurring during 
fiscal years 1998 through 2002 and that may be made under this title 
with respect to capital-related costs of inpatient hospital services of 
a hospital which is described in clause (i), (ii), or (iv) of 
subsection (d)(1)(B) or a unit described in the matter after clause (v) 
of such subsection, the Secretary shall reduce the amounts of such 
payments otherwise determined under this title by 15 percent.''.

SEC. 4413. REBASING.

    (a) Option of Rebasing for Hospitals In Operation Before 1990.--
Section 1886(b)(3)(42 U.S.C. 1395ww(b)(3)) is amended--
        (1) in subparagraph (A) by striking ``subparagraphs (C), (D), 
    and (E)'' and inserting ``subparagraph (C) and succeeding 
    subparagraphs'', and
        (2) by adding at the end the following new subparagraph:
    ``(F)(i) In the case of a hospital (or unit described in the matter 
following clause (v) of subsection (d)(1)(B)) that received payment 
under this subsection for inpatient hospital services furnished during 
cost reporting periods beginning before October 1, 1990, that is within 
a class of hospital described in clause (iii), and that elects (in a 
form and manner determined by the Secretary) this subparagraph to apply 
to the hospital, the target amount for the hospital's 12-month cost 
reporting period beginning during fiscal year 1998 is equal to the 
average described in clause (ii).
    ``(ii) The average described in this clause for a hospital or unit 
shall be determined by the Secretary as follows:
        ``(I) The Secretary shall determine the allowable operating 
    costs for inpatient hospital services for the hospital or unit for 
    each of the 5 cost reporting periods for which the Secretary has 
    the most recent settled cost reports as of the date of the 
    enactment of this subparagraph.
        ``(II) The Secretary shall increase the amount determined under 
    subclause (I) for each cost reporting period by the applicable 
    percentage increase under subparagraph (B)(ii) for each subsequent 
    cost reporting period up to the cost reporting period described in 
    clause (i).
        ``(III) The Secretary shall identify among such 5 cost 
    reporting periods the cost reporting periods for which the amount 
    determined under subclause (II) is the highest, and the lowest.
        ``(IV) The Secretary shall compute the averages of the amounts 
    determined under subclause (II) for the 3 cost reporting periods 
    not identified under subclause (III).
    ``(iii) For purposes of this subparagraph, each of the following 
shall be treated as a separate class of hospital:
        ``(I) Hospitals described in clause (i) of subsection (d)(1)(B) 
    and psychiatric units described in the matter following clause (v) 
    of such subsection.
        ``(II) Hospitals described in clause (ii) of such subsection 
    and rehabilitation units described in the matter following clause 
    (v) of such subsection.
        ``(III) Hospitals described in clause (iii) of such subsection.
        ``(IV) Hospitals described in clause (iv) of such subsection.
        ``(V) Hospitals described in clause (v) of such subsection.''.
    (b) Certain Long-Term Care Hospitals.--Section 1886(b)(3) (42 
U.S.C. 1395ww(b)(3)), as amended by subsection (a), is amended by 
adding at the end the following new subparagraph:
    ``(G)(i) In the case of a qualified long-term care hospital (as 
defined in clause (ii)) that elects (in a form and manner determined by 
the Secretary) this subparagraph to apply to the hospital, the target 
amount for the hospital's 12-month cost reporting period beginning 
during fiscal year 1998 is equal to 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 1996, increased by the 
applicable percentage increase for the cost reporting period beginning 
during fiscal year 1997.
    ``(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 each of the 2 cost reporting 
periods for which the Secretary has the most recent settled cost 
reports as of the date of the enactment of this subparagraph for each 
of which--
        ``(I) the hospital's allowable operating costs of inpatient 
    hospital services recognized under this title exceeded 115 percent 
    of the hospital's target amount, and
        ``(II) the hospital would have a disproportionate patient 
    percentage of at least 70 percent (as determined by the Secretary 
    under subsection (d)(5)(F)(vi)) if the hospital were a subsection 
    (d) hospital.''.

SEC. 4414. CAP ON TEFRA LIMITS.

    Section 1886(b)(3) (42 U.S.C. 1395ww(b)(3)), as amended by section 
4413, is amended by adding at the end the following new subparagraph:
    ``(H)(i) In the case of a hospital or unit that is within a class 
of hospital described in clause (iv), the Secretary shall estimate the 
75th percentile of the target amounts for such hospitals within such 
class for cost reporting periods ending during fiscal year 1996.
    ``(ii) The Secretary shall update the amount determined under 
clause (i), for each cost reporting period after the cost reporting 
period described in such clause and up to the first cost reporting 
period beginning on or after October 1, 1997, by a factor equal to the 
market basket percentage increase.
    ``(iii) For cost reporting periods beginning during each of fiscal 
years 1999 through 2002, the Secretary shall update such amount by a 
factor equal to the market basket percentage increase.
    ``(iv) For purposes of this subparagraph, each of the following 
shall be treated as a separate class of hospital:
        ``(I) Hospitals described in clause (i) of subsection (d)(1)(B) 
    and psychiatric units described in the matter following clause (v) 
    of such subsection.
        ``(II) Hospitals described in clause (ii) of such subsection 
    and rehabilitation units described in the matter following clause 
    (v) of such subsection.
        ``(III) Hospitals described in clause (iv) of such 
    subsection.''.

SEC. 4415. BONUS AND RELIEF PAYMENTS.

    (a) Change in Bonus Payment.--Section 1886(b)(1) (42 U.S.C. 
1395ww(b)(1)) is amended in subparagraph (A) by striking all that 
follows ``plus--'' and inserting the following:
            ``(i) 15 percent of the amount by which the target amount 
        exceeds the amount of the operating costs, or
            ``(ii) 2 percent of the target amount,
    whichever is less;''.
    (b) Continuous Improvement Bonus Payments.--Section 1886(b) (42 
U.S.C. 1395ww(b)) is amended--
        (1) in paragraph (1), by inserting ``plus the amount, if any, 
    provided under paragraph (2)'' before ``except that in no case''; 
    and
        (2) by inserting after paragraph (1), the following new 
    paragraph:
    ``(2)(A) In addition to the payment computed under paragraph (1), 
in the case of an eligible hospital (described in subparagraph (B)) for 
a cost reporting period beginning on or after October 1, 1997, the 
amount of payment on a per discharge basis under paragraph (1) shall be 
increased by the lesser of--
        ``(i) 50 percent of the amount by which the operating costs are 
    less than the expected costs (as defined in subparagraph (D)) for 
    the period; or
        ``(ii) 1 percent of the target amount for the period.
    ``(B) For purposes of this paragraph, an `eligible hospital' means 
with respect to a cost reporting period, a hospital--
        ``(i) that has received payments under this subsection for at 
    least 3 full cost reporting periods before that cost reporting 
    period, and
        ``(ii) whose operating costs for the period are less than the 
    least of its target amount, its trended costs (as defined in 
    subparagraph (C)), or its expected costs (as defined in 
    subparagraph (D)) for the period.
    ``(C) For purposes of subparagraph (B)(ii), the term `trended 
costs' means for a hospital cost reporting period ending in a fiscal 
year--
        ``(i) in the case of a hospital for which its cost reporting 
    period ending in fiscal year 1996 was its third or subsequent full 
    cost reporting period for which it receives payments under this 
    subsection, the lesser of the operating costs or target amount for 
    that hospital for its cost reporting period ending in fiscal year 
    1996, or
        ``(ii) in the case of any other hospital, the operating costs 
    for that hospital for its third full cost reporting period for 
    which it receives payments under this subsection,
increased (in a compounded manner) for each succeeding fiscal year 
(through the fiscal year involved) by the market basket percentage 
increase for the fiscal year.
    ``(D) For purposes of this paragraph, the term `expected costs', 
with respect to the cost reporting period ending in a fiscal year, 
means the lesser of the operating costs of inpatient hospital services 
or target amount per discharge for the previous cost reporting period 
updated by the market basket percentage increase (as defined in 
paragraph (3)(B)(iii)) for the fiscal year.''.
    (c) Change in Relief Payments.--Section 1886(b)(1) (42 U.S.C. 
1395ww(b)(1)), as amended in subsections (a) and (b), is further 
amended--
        (1) by redesignating subparagraph (B) as subparagraph (C)
        (2) in subparagraph (C), as so redesignated--
            (A) by striking ``greater than the target amount'' and 
        inserting ``greater than 110 percent of the target amount'', 
        and
            (B) by striking ``exceed the target amount'' and inserting 
        ``exceed 110 percent of the target amount'', and
        (3) by inserting after subparagraph (A), the following new 
    subparagraph:
        ``(B) are greater than the target amount but do not exceed 110 
    percent of the target amount, the amount of the payment with 
    respect to those operating costs payable under part A on a per 
    discharge basis shall equal the target amount; or''.
    (d) Report.--Not later than October 1, 1999, the Secretary of 
Health and Human Services shall submit to the Committee on Ways and 
Means of the House of Representatives and the Committee on Finance of 
the Senate a report that describes the effect of the amendments to 
section 1886(b)(1) of the Social Security Act (42 U.S.C. 1395ww(b)(1)), 
made under this section, on psychiatric hospitals (as defined in 
section 1886(d)(1)(B)(i) of such Act (42 U.S.C. 1395ww(d)(1)(B)(i)) 
that have approved medical residency training programs under title 
XVIII of such Act (42 U.S.C. 1395 et seq.)).
    (e) Effective Date.--The amendments made by subsections (a) and (c) 
shall apply with respect to cost reporting periods beginning on or 
after October 1, 1997.

SEC. 4416. CHANGE IN PAYMENT AND TARGET AMOUNT FOR NEW PROVIDERS.

    Section 1886(b) (42 U.S.C. 1395ww(b)) is amended--
        (1) by adding at the end the following new paragraph:
    ``(7)(A) Notwithstanding paragraph (1), in the case of a hospital 
or unit that is within a class of hospital described in subparagraph 
(B) which first receives payments under this section on or after 
October 1, 1997--
        ``(i) for each of the first 2 cost reporting periods for which 
    the hospital has a settled cost report, the amount of the payment 
    with respect to operating costs described in paragraph (1) under 
    part A on a per discharge or per admission basis (as the case may 
    be) is equal to the lesser of--
            ``(I) the amount of operating costs for such respective 
        period, or
            ``(II) 110 percent of the national median of the target 
        amount for hospitals in the same class as the hospital for cost 
        reporting periods ending during fiscal year 1996, updated by 
        the hospital market basket increase percentage to the fiscal 
        year in which the hospital first received payments under this 
        section, as adjusted under subparagraph (C); and
        ``(ii) for purposes of computing the target amount for the 
    subsequent cost reporting period, the target amount for the 
    preceding cost reporting period is equal to the amount determined 
    under clause (i) for such preceding period.
    ``(B) For purposes of this paragraph, each of the following shall 
be treated as a separate class of hospital:
        ``(i) Hospitals described in clause (i) of subsection (d)(1)(B) 
    and psychiatric units described in the matter following clause (v) 
    of such subsection.
        ``(ii) Hospitals described in clause (ii) of such subsection 
    and rehabilitation units described in the matter following clause 
    (v) of such subsection.
        ``(iii) Hospitals described in clause (iv) of such subsection.
    ``(C) In applying subparagraph (A)(i)(II) in the case of a hospital 
or unit, the Secretary shall provide for an appropriate adjustment to 
the labor-related portion of the amount determined under such 
subparagraph to take into account differences between average wage-
related costs in the area of the hospital and the national average of 
such costs within the same class of hospital.''; and
        (2) in paragraph (3)(A), as amended in sections 4413 and 4414, 
    by inserting ``and in paragraph (7)(A)(ii),'' before ``for purposes 
    of''.

SEC. 4417. TREATMENT OF CERTAIN LONG-TERM CARE HOSPITALS.

    (a) In General.--(1) Section 1886(d)(1)(B) (42 U.S.C. 
1395ww(d)(1)(B)) is amended by adding at the end the following new 
sentence: ``A hospital that was classified by the Secretary on or 
before September 30, 1995, as a hospital described in clause (iv) shall 
continue to be so classified notwithstanding that it is located in the 
same building as, or on the same campus as, another hospital.''.
    (2) Effective date.--The amendment made by paragraph (1) shall 
apply to discharges occurring on or after October 1, 1995.
    (b) Certain Long-Term Care Hospitals That Treat Cancer Patients.--
(1) Section 1886(d)(1)(B)(iv) (42 U.S.C. 1395ww(d)(1)(B)(iv)) is 
amended--
        (A) by inserting ``(I)'' after ``(iv)''; and
        (B) by adding at the end the following:
        ``(II) a hospital that first received payment under this 
    subsection in 1986 which has an average inpatient length of stay 
    (as determined by the Secretary) of greater than 20 days and that 
    has 80 percent or more of its annual medicare inpatient discharges 
    with a principal diagnosis that reflects a finding of neoplastic 
    disease in the 12-month cost reporting period ending in fiscal year 
    1997, or''.
    (2) Effective date.--The amendment made by paragraph (1) shall 
apply to cost reporting periods beginning on or after the date of the 
enactment of this Act.

SEC. 4418. TREATMENT OF CERTAIN CANCER HOSPITALS.

    (a) In General.--Section 1886(d)(1) (42 U.S.C. 1395ww(d)(1)) is 
amended--
        (1) in subparagraph (B)(v)--
            (A) by inserting ``(I)'' after ``(v)'';
            (B) by striking the semicolon at the end and inserting ``, 
        or''; and
            (C) by adding at the end the following:
        ``(II) a hospital that was recognized as a comprehensive cancer 
    center or clinical cancer research center by the National Cancer 
    Institute of the National Institutes of Health as of April 20, 
    1983, that is located in a State which, as of December 19, 1989, 
    was not operating a demonstration project under section 1814(b), 
    that applied and was denied, on or before December 31, 1990, for 
    classification as a hospital involved extensively in treatment for 
    or research on cancer under this clause (as in effect on the day 
    before the date of the enactment of this subclause), that as of the 
    date of the enactment of this subclause, is licensed for less than 
    50 acute care beds, and that demonstrates for the 4-year period 
    ending on December 31, 1996, that at least 50 percent of its total 
    discharges have a principal finding of neoplastic disease, as 
    defined in subparagraph (E);'' and
        (2) by adding at the end the following:
    ``(E) For purposes of subparagraph (B)(v)(II) only, the term 
`principal finding of neoplastic disease' means the condition 
established after study to be chiefly responsible for occasioning the 
admission of a patient to a hospital, except that only discharges with 
ICD-9-CM principal diagnosis codes of 140 through 239, V58.0, V58.1, 
V66.1, V66.2, or 990 will be considered to reflect such a principal 
diagnosis.''.
    (b) Payment.--
        (1) Application to cost reporting periods.--Any classification 
    by reason of section 1886(d)(1)(B)(v)(II) of the Social Security 
    Act (42 U.S.C. 1395ww(d)(1)(B)(v)(II)) (as added by subsection (a)) 
    shall apply to all cost reporting periods beginning on or after 
    January 1, 1991.
        (2) Base year.--Notwithstanding the provisions of section 
    1886(b)(3)(E) of such Act (42 U.S.C. 1395ww(b)(3)(E)) or other 
    provisions to the contrary, the base cost reporting period for 
    purposes of determining the target amount for any hospital 
    classified by reason of section 1886(d)(1)(B)(v)(II) of such Act 
    shall be either--
            (A) the hospital's cost reporting period beginning during 
        fiscal year 1990, or
            (B) pursuant to an election under 1886(b)(3)(G) of such Act 
        (42 U.S.C. 1395ww(b)(3)(G)), as added in section 4413(b), the 
        period provided for under such section.
        (3) Deadline for payments.--Any payments owed to a hospital by 
    reason of this subsection shall be made expeditiously, but in no 
    event later than 1 year after the date of the enactment of this 
    Act.

SEC. 4419. ELIMINATION OF EXEMPTIONS FOR CERTAIN HOSPITALS.

    (a) Reduction of Exemptions.--
        (1) In general.--Section 1886(b)(4)(A)(i) (42 U.S.C. 
    1395ww(b)(4)(A)(i)) is amended in the first sentence by striking 
    ``The Secretary shall provide for an exemption from, or an 
    exception and adjustment to, '' and inserting ``The Secretary shall 
    provide for an exception and adjustment to (and in the case of a 
    hospital or unit described in subsection (d)(1)(B)(iii), may 
    provide an exemption from)''.
        (2) Effective date.--The amendment made by paragraph (1) shall 
    apply to hospitals or units that first qualify as a hospital or 
    unit described in section 1886(d)(1)(B) (42 U.S.C. 1395ww(d)(1)(B)) 
    for cost reporting periods beginning on or after October 1, 1997.
    (b) Report on Exceptions.--The Secretary of Health and Human 
Services shall publish annually in the Federal Register a report 
describing the total amount of payments made to hospitals by reason of 
section 1886(b)(4) of the Social Security Act (42 U.S.C. 1395ww(b)(4)), 
as amended by subsection (a), ending during the previous fiscal year.

   Subchapter B--Prospective Payment System for PPS-Exempt Hospitals

SEC. 4421. PROSPECTIVE PAYMENT FOR INPATIENT REHABILITATION HOSPITAL 
              SERVICES.

    (a) In General.--Section 1886 (42 U.S.C. 1395ww) is amended by 
adding at the end the following new subsection:
    ``(j) Prospective Payment for Inpatient Rehabilitation Services.--
        ``(1) Payment during transition period.--
            ``(A) In general.--Notwithstanding section 1814(b), but 
        subject to the provisions of section 1813, the amount of the 
        payment with respect to the operating and capital costs of 
        inpatient hospital services of a rehabilitation hospital or a 
        rehabilitation unit (in this subsection referred to as a 
        `rehabilitation facility'), in a cost reporting period 
        beginning on or after October 1, 2000, and before October 1, 
        2002, is equal to the sum of--
                ``(i) the TEFRA percentage (as defined in subparagraph 
            (C)) of the amount that would have been paid under part A 
            with respect to such costs if this subsection did not 
            apply, and
                ``(ii) the prospective payment percentage (as defined 
            in subparagraph (C)) of the product of (I) the per unit 
            payment rate established under this subsection for the 
            fiscal year in which the payment unit of service occurs, 
            and (II) the number of such payment units occurring in the 
            cost reporting period.
            ``(B) Fully implemented system.--Notwithstanding section 
        1814(b), but subject to the provisions of section 1813, the 
        amount of the payment with respect to the operating and capital 
        costs of inpatient hospital services of a rehabilitation 
        facility for a payment unit in a cost reporting period 
        beginning on or after October 1, 2002, is equal to the per unit 
        payment rate established under this subsection for the fiscal 
        year in which the payment unit of service occurs.
            ``(C) TEFRA and prospective payment percentages 
        specified.--For purposes of subparagraph (A), for a cost 
        reporting period beginning--
                ``(i) on or after October 1, 2000, and before October 
            1, 2001, the `TEFRA percentage' is 66\2/3\ percent and the 
            `prospective payment percentage' is 33\1/3\ percent; and
                ``(ii) on or after October 1, 2001, and before October 
            1, 2002, the `TEFRA percentage' is 33\1/3\ percent and the 
            `prospective payment percentage' is 66\2/3\ percent.
            ``(D) Payment unit.--For purposes of this subsection, the 
        term `payment unit' means a discharge, day of inpatient 
        hospital services, or other unit of payment defined by the 
        Secretary.
        ``(2) Patient case mix groups.--
            ``(A) Establishment.--The Secretary shall establish--
                ``(i) classes of patients of rehabilitation facilities 
            (each in this subsection referred to as a `case mix 
            group'), based on such factors as the Secretary deems 
            appropriate, which may include impairment, age, related 
            prior hospitalization, comorbidities, and functional 
            capability of the patient; and
                ``(ii) a method of classifying specific patients in 
            rehabilitation facilities within these groups.
            ``(B) Weighting factors.--For each case mix group the 
        Secretary shall assign an appropriate weighting which reflects 
        the relative facility resources used with respect to patients 
        classified within that group compared to patients classified 
        within other groups.
            ``(C) Adjustments for case mix.--
                ``(i) In general.--The Secretary shall from time to 
            time adjust the classifications and weighting factors 
            established under this paragraph as appropriate to reflect 
            changes in treatment patterns, technology, case mix, number 
            of payment units for which payment is made under this 
            title, and other factors which may affect the relative use 
            of resources. Such adjustments shall be made in a manner so 
            that changes in aggregate payments under the classification 
            system are a result of real changes and are not a result of 
            changes in coding that are unrelated to real changes in 
            case mix.
                ``(ii) Adjustment.--Insofar as the Secretary determines 
            that such adjustments for a previous fiscal year (or 
            estimates that such adjustments for a future fiscal year) 
            did (or are likely to) result in a change in aggregate 
            payments under the classification system during the fiscal 
            year that are a result of changes in the coding or 
            classification of patients that do not reflect real changes 
            in case mix, the Secretary shall adjust the per payment 
            unit payment rate for subsequent years so as to eliminate 
            the effect of such coding or classification changes.
            ``(D) Data collection.--The Secretary is authorized to 
        require rehabilitation facilities that provide inpatient 
        hospital services to submit such data as the Secretary deems 
        necessary to establish and administer the prospective payment 
        system under this subsection.
        ``(3) Payment rate.--
            ``(A) In general.--The Secretary shall determine a 
        prospective payment rate for each payment unit for which such 
        rehabilitation facility is entitled to receive payment under 
        this title. Subject to subparagraph (B), such rate for payment 
        units occurring during a fiscal year shall be based on the 
        average payment per payment unit under this title for inpatient 
        operating and capital costs of rehabilitation facilities using 
        the most recent data available (as estimated by the Secretary 
        as of the date of establishment of the system) adjusted--
                ``(i) by updating such per-payment-unit amount to the 
            fiscal year involved by the weighted average of the 
            applicable percentage increases provided under subsection 
            (b)(3)(B)(ii) (for cost reporting periods beginning during 
            the fiscal year) covering the period from the midpoint of 
            the period for such data through the midpoint of fiscal 
            year 2000 and by an increase factor (described in 
            subparagraph (C)) specified by the Secretary for subsequent 
            fiscal years up to the fiscal year involved;
                ``(ii) by reducing such rates by a factor equal to the 
            proportion of payments under this subsection (as estimated 
            by the Secretary) based on prospective payment amounts 
            which are additional payments described in paragraph (4) 
            (relating to outlier and related payments);
                ``(iii) for variations among rehabilitation facilities 
            by area under paragraph (6);
                ``(iv) by the weighting factors established under 
            paragraph (2)(B); and
                ``(v) by such other factors as the Secretary determines 
            are necessary to properly reflect variations in necessary 
            costs of treatment among rehabilitation facilities.
            ``(B) Budget neutral rates.--The Secretary shall establish 
        the prospective payment amounts under this subsection for 
        payment units during fiscal years 2001 and 2002 at levels such 
        that, in the Secretary's estimation, the amount of total 
        payments under this subsection for such fiscal years (including 
        any payment adjustments pursuant to paragraphs (4) and (6)) 
        shall be equal to 98 percent of the amount of payments that 
        would have been made under this title during the fiscal years 
        for operating and capital costs of rehabilitation facilities 
        had this subsection not been enacted. In establishing such 
        payment amounts, the Secretary shall consider the effects of 
        the prospective payment system established under this 
        subsection on the total number of payment units from 
        rehabilitation facilities and other factors described in 
        subparagraph (A).
            ``(C) Increase factor.--For purposes of this subsection for 
        payment units in each fiscal year (beginning with fiscal year 
        2001), the Secretary shall establish an increase factor. Such 
        factor shall be based on an appropriate percentage increase in 
        a market basket of goods and services comprising services for 
        which payment is made under this subsection, which may be the 
        market basket percentage increase described in subsection 
        (b)(3)(B)(iii).
        ``(4) Outlier and special payments.--
            ``(A) Outliers.--
                ``(i) In general.--The Secretary may provide for an 
            additional payment to a rehabilitation facility for 
            patients in a case mix group, based upon the patient being 
            classified as an outlier based on an unusual length of 
            stay, costs, or other factors specified by the Secretary.
                ``(ii) Payment based on marginal cost of care.--The 
            amount of such additional payment under clause (i) shall be 
            determined by the Secretary and shall approximate the 
            marginal cost of care beyond the cutoff point applicable 
            under clause (i).
                ``(iii) Total payments.--The total amount of the 
            additional payments made under this subparagraph for 
            payment units in a fiscal year may not exceed 5 percent of 
            the total payments projected or estimated to be made based 
            on prospective payment rates for payment units in that 
            year.
            ``(B) Adjustment.--The Secretary may provide for such 
        adjustments to the payment amounts under this subsection as the 
        Secretary deems appropriate to take into account the unique 
        circumstances of rehabilitation facilities located in Alaska 
        and Hawaii.
        ``(5) Publication.--The Secretary shall provide for publication 
    in the Federal Register, on or before August 1 before each fiscal 
    year (beginning with fiscal year 2001), of the classification and 
    weighting factors for case mix groups under paragraph (2) for such 
    fiscal year and a description of the methodology and data used in 
    computing the prospective payment rates under this subsection for 
    that fiscal year.
        ``(6) Area wage adjustment.--The Secretary shall adjust the 
    proportion (as estimated by the Secretary from time to time) of 
    rehabilitation facilities' costs which are attributable to wages 
    and wage-related costs, of the prospective payment rates computed 
    under paragraph (3) for area differences in wage levels by a factor 
    (established by the Secretary) reflecting the relative hospital 
    wage level in the geographic area of the rehabilitation facility 
    compared to the national average wage level for such facilities. 
    Not later than October 1, 2001 (and at least every 36 months 
    thereafter), the Secretary shall update the factor under the 
    preceding sentence on the basis of information available to the 
    Secretary (and updated as appropriate) of the wages and wage-
    related costs incurred in furnishing rehabilitation services. Any 
    adjustments or updates made under this paragraph for a fiscal year 
    shall be made in a manner that assures that the aggregated payments 
    under this subsection in the fiscal year are not greater or less 
    than those that would have been made in the year without such 
    adjustment.
        ``(7) Limitation on review.--There shall be no administrative 
    or judicial review under section 1869, 1878, or otherwise of the 
    establishment of--
            ``(A) case mix groups, of the methodology for the 
        classification of patients within such groups, and of the 
        appropriate weighting factors thereof under paragraph (2),
            ``(B) the prospective payment rates under paragraph (3),
            ``(C) outlier and special payments under paragraph (4), and
            ``(D) area wage adjustments under paragraph (6).''.
    (b) Conforming Amendments.--Section 1886(b) (42 U.S.C. 1395ww(b)) 
is amended--
        (1) in paragraph (1), by inserting ``and other than a 
    rehabilitation facility described in subsection (j)(1)'' after 
    ``subsection (d)(1)(B)'', and
        (2) in paragraph (3)(B)(i), by inserting ``and subsection (j)'' 
    after ``For purposes of subsection (d)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to cost reporting periods beginning on or after October 1, 2000, 
except that the Secretary of Health and Human Services may require the 
submission of data under section 1886(j)(2)(D) of the Social Security 
Act (as added by subsection (a)) on and after the date of the enactment 
of this section.

SEC. 4422. DEVELOPMENT OF PROPOSAL ON PAYMENTS FOR LONG-TERM CARE 
              HOSPITALS.

    (a) In General.--
        (1) Legislative proposal.--The Secretary of Health and Human 
    Services shall develop a legislative proposal for establishing a 
    case-mix adjusted prospective payment system for payment of long-
    term care hospitals described in section 1886(d)(1)(B)(iv) of the 
    Social Security Act (42 U.S.C. 1395ww(d)(1)(B)(iv)) under the 
    medicare program. Such system shall include an adequate patient 
    classification system that reflects the differences in patient 
    resource use and costs among such hospitals.
        (2) Collection of data and evaluation.--In developing the 
    legislative proposal described in paragraph (1), the Secretary--
            (A) may require such long-term care hospitals to submit 
        such information to the Secretary as the Secretary may require 
        to develop the proposal; and
            (B) shall consider several payment methodologies, including 
        the feasibility of expanding the current diagnosis-related 
        groups and prospective payment system established under section 
        1886(d) of the Social Security Act to apply to payments under 
        the medicare program to long-term care hospitals.
    (b) Report.--Not later than October 1, 1999, the Secretary shall 
submit to the appropriate committees of Congress a report that includes 
the legislative proposal developed under subsection (a)(1).

           CHAPTER 3--PAYMENT FOR SKILLED NURSING FACILITIES

SEC. 4431. EXTENSION OF COST LIMITS.

    The last sentence of section 1888(a) (42 U.S.C. 1395yy(a)) is 
amended by striking ``subsection'' the last place it appears and all 
that follows and inserting ``subsection, except that the limits 
effective for cost reporting periods beginning on or after October 1, 
1997, shall be based on the limits effective for cost reporting periods 
beginning on or after October 1, 1996.''.

SEC. 4432. PROSPECTIVE PAYMENT FOR SKILLED NURSING FACILITY SERVICES.

    (a) In General.--Section 1888 (42 U.S.C. 1395yy) is amended by 
adding at the end the following new subsection:
    ``(e) Prospective Payment.--
        ``(1) Payment provision.--Notwithstanding any other provision 
    of this title, subject to paragraph (7), the amount of the payment 
    for all costs (as defined in paragraph (2)(B)) of covered skilled 
    nursing facility services (as defined in paragraph (2)(A)) for each 
    day of such services furnished--
            ``(A) in a cost reporting period during the transition 
        period (as defined in paragraph (2)(E)), is equal to the sum 
        of--
                ``(i) the non-Federal percentage of the facility-
            specific per diem rate (computed under paragraph (3)), and
                ``(ii) the Federal percentage of the adjusted Federal 
            per diem rate (determined under paragraph (4)) applicable 
            to the facility; and
            ``(B) after the transition period is equal to the adjusted 
        Federal per diem rate applicable to the facility.
        ``(2) Definitions.--For purposes of this subsection:
            ``(A) Covered skilled nursing facility services.--
                ``(i) In general.--The term `covered skilled nursing 
            facility services'--

                    ``(I) means post-hospital extended care services as 
                defined in section 1861(i) for which benefits are 
                provided under part A; and
                    ``(II) includes all items and services (other than 
                services described in clause (ii)) for which payment 
                may be made under part B and which are furnished to an 
                individual who is a resident of a skilled nursing 
                facility during the period in which the individual is 
                provided covered post-hospital extended care services.

                ``(ii) Services excluded.--Services described in this 
            clause are physicians' services, services described by 
            clauses (i) through (iii) of section 1861(s)(2)(K), 
            certified nurse-midwife services, qualified psychologist 
            services, services of a certified registered nurse 
            anesthetist, items and services described in subparagraphs 
            (F) and (O) of section 1861(s)(2), and, only with respect 
            to services furnished during 1998, the transportation costs 
            of electrocardiogram equipment for electrocardiogram test 
            services (HCPCS Code R0076). Services described in this 
            clause do not include any physical, occupational, or 
            speech-language therapy services regardless of whether or 
            not the services are furnished by, or under the supervision 
            of, a physician or other health care professional.
            ``(B) All costs.--The term `all costs' means routine 
        service costs, ancillary costs, and capital-related costs of 
        covered skilled nursing facility services, but does not include 
        costs associated with approved educational activities.
            ``(C) Non-federal percentage; federal percentage.--For--
                ``(i) the first cost reporting period (as defined in 
            subparagraph (D)) of a facility, the `non-Federal 
            percentage' is 75 percent and the `Federal percentage' is 
            25 percent;
                ``(ii) the next cost reporting period of such facility, 
            the `non-Federal percentage' is 50 percent and the `Federal 
            percentage' is 50 percent; and
                ``(iii) the subsequent cost reporting period of such 
            facility, the `non-Federal percentage' is 25 percent and 
            the `Federal percentage' is 75 percent.
            ``(D) First cost reporting period.--The term `first cost 
        reporting period' means, with respect to a skilled nursing 
        facility, the first cost reporting period of the facility 
        beginning on or after July 1, 1998.
            ``(E) Transition period.--
                ``(i) In general.--The term `transition period' means, 
            with respect to a skilled nursing facility, the 3 cost 
            reporting periods of the facility beginning with the first 
            cost reporting period.
                ``(ii) Treatment of new skilled nursing facilities.--In 
            the case of a skilled nursing facility that first received 
            payment for services under this title on or after October 
            1, 1995, payment for such services shall be made under this 
            subsection as if all services were furnished after the 
            transition period.
        ``(3) Determination of facility specific per diem rates.--The 
    Secretary shall determine a facility-specific per diem rate for 
    each skilled nursing facility not described in paragraph (2)(E)(ii) 
    for a cost reporting period as follows:
            ``(A) Determining base payments.--The Secretary shall 
        determine, on a per diem basis, the total of--
                ``(i) the allowable costs of extended care services for 
            the facility for cost reporting periods beginning in fiscal 
            year 1995, including costs associated with facilities 
            described in subsection (d), with appropriate adjustments 
            (as determined by the Secretary) to non-settled cost 
            reports, and
                ``(ii) an estimate of the amounts that would be payable 
            under part B (disregarding any applicable deductibles, 
            coinsurance, and copayments) for covered skilled nursing 
            facility services described in paragraph (2)(A)(i)(II) 
            furnished during such period to an individual who is a 
            resident of the facility, regardless of whether or not the 
            payment was made to the facility or to another entity.
        In making appropriate adjustments under clause (i), the 
        Secretary shall take into account exceptions and shall take 
        into account exemptions but, with respect to exemptions, only 
        to the extent that routine costs do not exceed 150 percent of 
        the routine cost limits otherwise applicable but for the 
        exemption.
            ``(B) Update to first cost reporting period.--
                ``(i) In general.--Subject to clause (ii), the 
            Secretary shall update the amount determined under 
            subparagraph (A), for each cost reporting period after the 
            cost reporting period described in subparagraph (A)(i) and 
            up to the first cost reporting period by a factor equal to 
            the skilled nursing facility market basket percentage 
            increase minus 1 percentage point.
                ``(ii) Certain demonstration projects.--In the case of 
            a facility participating in the Nursing Home Case-Mix and 
            Quality Demonstration (RUGS-III), there shall be 
            substituted for the amount described in clause (i) the 
            RUGS-III rate received by the facility for 1997.
            ``(C) Updating to applicable cost reporting period.--The 
        Secretary shall update the amount determined under subparagraph 
        (B) for each cost reporting period beginning with the first 
        cost reporting period and up to and including the cost 
        reporting period involved by a factor equal to the facility-
        specific update factor.
            ``(D) Facility-specific update factor.--For purposes of 
        this paragraph, the `facility-specific update factor' for cost 
        reporting periods beginning during--
                ``(i) during each of fiscal years 1998 and 1999, is 
            equal to the skilled nursing facility market basket 
            percentage increase for such fiscal year minus 1 percentage 
            point, and
                ``(ii) during each subsequent fiscal year is equal to 
            the skilled nursing facility market basket percentage 
            increase for such fiscal year.
        ``(4) Federal per diem rate.--
            ``(A) Determination of historical per diem for 
        facilities.--For each skilled nursing facility that received 
        payments for post-hospital extended care services during a cost 
        reporting period beginning in fiscal year 1995 and that was 
        subject to (and not exempted from) the per diem limits referred 
        to in paragraph (1) or (2) of subsection (a) (and facilities 
        described in subsection (d)), the Secretary shall estimate, on 
        a per diem basis for such cost reporting period, the total of--
                ``(i) the allowable costs of extended care services 
            (excluding exceptions payments) for the facility for cost 
            reporting periods beginning in 1995 with appropriate 
            adjustments (as determined by the Secretary) to non-settled 
            cost reports, and
                ``(ii) an estimate of the amounts that would be payable 
            under part B (disregarding any applicable deductibles, 
            coinsurance, and copayments) for covered skilled nursing 
            facility services described in paragraph (2)(A)(i)(II) 
            furnished during such period to an individual who is a 
            resident of the facility, regardless of whether or not the 
            payment was made to the facility or to another entity.
            ``(B) Update to first fiscal year.--The Secretary shall 
        update the amount determined under subparagraph (A), for each 
        cost reporting period after the cost reporting period described 
        in subparagraph (A)(i) and up to the first cost reporting 
        period by a factor equal to the skilled nursing facility market 
        basket percentage increase reduced (on an annualized basis) by 
        1 percentage point.
            ``(C) Computation of standardized per diem rate.--The 
        Secretary shall standardize the amount updated under 
        subparagraph (B) for each facility by--
                ``(i) adjusting for variations among facilities by area 
            in the average facility wage level per diem, and
                ``(ii) adjusting for variations in case mix per diem 
            among facilities.
            ``(D) Computation of weighted average per diem rates.--
                ``(i) All facilities.--The Secretary shall compute a 
            weighted average per diem rate for all facilities by 
            computing an average of the standardized amounts computed 
            under subparagraph (C), weighted for each facility by the 
            number of days of extended care services furnished during 
            the cost reporting period referred to in subparagraph (A).
                ``(ii) Freestanding facilities.--The Secretary shall 
            compute a weighted average per diem rate for freestanding 
            facilities by computing an average of the standardized 
            amounts computed under subparagraph (C) only for such 
            facilities , weighted for each facility by the number of 
            days of extended care services furnished during the cost 
            reporting period referred to in subparagraph (A).
                ``(iii) Separate computation.--The Secretary may 
            compute and apply such averages separately for facilities 
            located in urban and rural areas (as defined in section 
            1886(d)(2)(D)).
            ``(E) Updating.--
                ``(i) Initial period.--For the initial period beginning 
            on July 1, 1998, and ending on September 30, 1999, the 
            Secretary shall compute for skilled nursing facilities an 
            unadjusted federal per diem rate equal to the average of 
            the weighted average per diem rates computed under clauses 
            (i) and (ii) of subparagraph (D), increased by skilled 
            nursing facility market basket percentage change for such 
            period minus 1 percentage point.
                ``(ii) Subsequent fiscal years.--The Secretary shall 
            compute an unadjusted federal per diem rate equal to the 
            federal per diem rate computed under this subparagraph--

                    ``(I) for fiscal year 2000, the rate computed for 
                the initial period described in clause (i), increased 
                by the skilled nursing facility market basket 
                percentage change for the initial period minus 1 
                percentage point;
                    ``(II) for each of fiscal years 2001 and 2002, the 
                rate computed for the previous fiscal year increased by 
                the skilled nursing facility market basket percentage 
                change for the fiscal year involved minus 1 percentage 
                point; and
                    ``(III) for each subsequent fiscal year, the rate 
                computed for the previous fiscal year increased by the 
                skilled nursing facility market basket percentage 
                change for the fiscal year involved.

            ``(F) Adjustment for case mix creep.--Insofar as the 
        Secretary determines that the adjustments under subparagraph 
        (G)(i) for a previous fiscal year (or estimates that such 
        adjustments for a future fiscal year) did (or are likely to) 
        result in a change in aggregate payments under this subsection 
        during the fiscal year that are a result of changes in the 
        coding or classification of residents that do not reflect real 
        changes in case mix, the Secretary may adjust unadjusted 
        Federal per diem rates for subsequent fiscal years so as to 
        eliminate the effect of such coding or classification changes.
            ``(G) Determination of federal rate.--The Secretary shall 
        compute for each skilled nursing facility for each fiscal year 
        (beginning with the initial period described in subparagraph 
        (E)(i)) an adjusted Federal per diem rate equal to the 
        unadjusted Federal per diem rate determined under subparagraph 
        (E), as adjusted under subparagraph (F), and as further 
        adjusted as follows:
                ``(i) Adjustment for case mix.--The Secretary shall 
            provide for an appropriate adjustment to account for case 
            mix. Such adjustment shall be based on a resident 
            classification system, established by the Secretary, that 
            accounts for the relative resource utilization of different 
            patient types. The case mix adjustment shall be based on 
            resident assessment data and other data that the Secretary 
            considers appropriate.
                ``(ii) Adjustment for geographic variations in labor 
            costs.--The Secretary shall adjust the portion of such per 
            diem rate attributable to wages and wage-related costs for 
            the area in which the facility is located compared to the 
            national average of such costs using an appropriate wage 
            index as determined by the Secretary. Such adjustment shall 
            be done in a manner that does not result in aggregate 
            payments under this subsection that are greater or less 
            than those that would otherwise be made if such adjustment 
            had not been made.
            ``(H) Publication of information on per diem rates.--The 
        Secretary shall provide for publication in the Federal 
        Register, before May 1, 1998 (with respect to fiscal period 
        described in subparagraph (E)(i)) and before the August 1 
        preceding each succeeding fiscal year (with respect to that 
        succeeding fiscal year), of--
                ``(i) the unadjusted Federal per diem rates to be 
            applied to days of covered skilled nursing facility 
            services furnished during the fiscal year,
                ``(ii) the case mix classification system to be applied 
            under subparagraph (G)(i) with respect to such services 
            during the fiscal year, and
                ``(iii) the factors to be applied in making the area 
            wage adjustment under subparagraph (G)(ii) with respect to 
            such services.
        ``(5) Skilled nursing facility market basket index and 
    percentage.--For purposes of this subsection:
            ``(A) Skilled nursing facility market basket index.--The 
        Secretary shall establish a skilled nursing facility market 
        basket index that reflects changes over time in the prices of 
        an appropriate mix of goods and services included in covered 
        skilled nursing facility services.
            ``(B) Skilled nursing facility market basket percentage.--
        The term `skilled nursing facility market basket percentage' 
        means, for a fiscal year or other annual period and as 
        calculated by the Secretary, the percentage change in the 
        skilled nursing facility market basket index (established under 
        subparagraph (A)) from the midpoint of the prior fiscal year 
        (or period) to the midpoint of the fiscal year (or other 
        period) involved.
        ``(6) Submission of resident assessment data.--A skilled 
    nursing facility, or a facility described in paragraph (7)(B), 
    shall provide the Secretary, in a manner and within the timeframes 
    prescribed by the Secretary, the resident assessment data necessary 
    to develop and implement the rates under this subsection. For 
    purposes of meeting such requirement, a skilled nursing facility, 
    or a facility described in paragraph (7), may submit the resident 
    assessment data required under section 1819(b)(3), using the 
    standard instrument designated by the State under section 
    1819(e)(5).
        ``(7) Transition for medicare swing bed hospitals.--
            ``(A) In general.--The Secretary shall determine an 
        appropriate manner in which to apply this subsection to the 
        facilities described in subparagraph (B), taking into account 
        the purposes of this subsection, and shall provide that at the 
        end of the transition period (as defined in paragraph (2)(E)) 
        such facilities shall be paid only under this subsection. 
        Payment shall not be made under this subsection to such 
        facilities for cost reporting periods beginning before such 
        date (not earlier than July 1, 1999) as the Secretary 
        specifies.
            ``(B) Facilities described.--The facilities described in 
        this subparagraph are facilities that have in effect an 
        agreement described in section 1883, for which payment is made 
        for the furnishing of extended care services on a reasonable 
        cost basis under section 1814(l) (as in effect on and after 
        such date).
        ``(8) Limitation on review.--There shall be no administrative 
    or judicial review under section 1869, 1878, or otherwise of--
            ``(A) the establishment of Federal per diem rates under 
        paragraph (4), including the computation of the standardized 
        per diem rates under paragraph (4)(C), adjustments and 
        corrections for case mix under paragraphs (4)(F) and (4)(G)(i), 
        and adjustments for variations in labor-related costs under 
        paragraph (4)(G)(ii);
            ``(B) the establishment of facility specific rates before 
        January 1, 1999, (except any determination of costs paid under 
        part A of this title); and
            ``(C) the establishment of transitional amounts under 
        paragraph (7).''.
    (b) Consolidated Billing.--
        (1) For snf services.--Section 1862(a) (42 U.S.C. 1395y(a)), as 
    amended by 4319(b), is amended--
            (A) by striking ``or'' at the end of paragraph (16),
            (B) by striking the period at the end of paragraph (17) and 
        inserting ``; or'', and
            (C) by inserting after paragraph (17) the following new 
        paragraph:
        ``(18) which are covered skilled nursing facility services 
    described in section 1888(e)(2)(A)(i) and which are furnished to an 
    individual who is a resident of a skilled nursing facility or of a 
    part of a facility that includes a skilled nursing facility (as 
    determined under regulations), by an entity other than the skilled 
    nursing facility, unless the services are furnished under 
    arrangements (as defined in section 1861(w)(1)) with the entity 
    made by the skilled nursing facility.''.
        (2) Requiring payment for all part b items and services to be 
    made to facility.--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 services described in section 1888(e)(2)(A)(ii)) furnished 
        to an individual who (at the time the item or service is 
        furnished) is a resident of a skilled nursing facility or of a 
        part of a facility that includes a skilled nursing facility (as 
        determined under regulations), 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, under any other contracting or 
        consulting arrangement, or otherwise).''.
        (3) Payment rules.--Section 1888(e) (42 U.S.C. 1395yy(e)), as 
    added by subsection (a), is amended by adding at the end the 
    following:
        ``(9) Payment for certain services.--In the case of an item or 
    service furnished to a resident of a skilled nursing facility or a 
    part of a facility that includes a skilled nursing facility (as 
    determined under regulations) for which payment would (but for this 
    paragraph) be made under part B in an amount determined in 
    accordance with section 1833(a)(2)(B), the amount of the payment 
    under such part shall be the amount provided under the fee schedule 
    for such item or service.
        ``(10) Required coding.--No payment may be made under part B 
    for items and services (other than services described in paragraph 
    (2)(A)(ii)) furnished to an individual who is a resident of a 
    skilled nursing facility or of a part of a facility that includes a 
    skilled nursing facility (as determined under regulations), unless 
    the claim for such payment includes a code (or codes) under a 
    uniform coding system specified by the Secretary that identifies 
    the items or services furnished.''.
        (4) Facility provider number required on claims submitted by 
    physicians.--Section 1842 (42 U.S.C. 1395u) is amended by adding at 
    the end the following new section:
    ``(t) Each request for payment, or bill submitted, for an item or 
service furnished by a physician to an individual who is a resident of 
a skilled nursing facility or of a part of a facility that includes a 
skilled nursing facility (as determined under regulations), for which 
payment may be made under this part shall include the facility's 
medicare provider number.''.
        (5) Conforming amendments.--
            (A) Section 1819(b)(3)(C)(i) (42 U.S.C. 1395i-
        3(b)(3)(C)(i)) is amended by striking ``Such'' and inserting 
        ``Subject to the timeframes prescribed by the Secretary under 
        section 1888(e)(6), such''.
            (B) 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);''.
            (C) Section 1833(a)(2)(B) (42 U.S.C. 1395l(a)(2)(B)) is 
        amended by inserting ``or section 1888(e)(9)'' after ``section 
        1886''.
            (D) Section 1861(h) (42 U.S.C 1395x(h)) is amended--
                (i) in the opening paragraph, by striking ``paragraphs 
            (3) and (6)'' and inserting ``paragraphs (3), (6), and 
            (7)'', and
                (ii) in paragraph (7), after ``skilled nursing 
            facilities'', by inserting ``, or by others under 
            arrangements with them made by the facility''.
            (E) Section 1861(v)(7)(D) (42 U.S.C. 1395x(v)(7)(D)) is 
        amended by inserting ``subsections (a) through (c) of'' before 
        ``section 1888.''.
            (F) Section 1866(a)(1)(H) (42 U.S.C. 1395cc(a)(1)(H)) is 
        amended--
                (i) by redesignating clauses (i) and (ii) as subclauses 
            (I) and (II) respectively,
                (ii) by inserting ``(i)'' after ``(H)'', and
                (iii) by adding after clause (i), as so redesignated, 
            the following new clause:
        ``(ii) in the case of skilled nursing facilities which provide 
    covered skilled nursing facility services--
            ``(I) that are furnished to an individual who is a resident 
        of the skilled nursing facility, and
            ``(II) for which the individual is entitled to have payment 
        made under this title,
    to have items and services (other than services described in 
    section 1888(e)(2)(A)(ii)) furnished by the skilled nursing 
    facility or otherwise under arrangements (as defined in section 
    1861(w)(1)) made by the skilled nursing facility,''.
            (G) Section 1883(a)(2)(B)(ii)(II) (42 U.S.C. 
        1395tt(a)(2)(B)(ii)(II)) is amended by inserting ``subsections 
        (a) through (d) of'' before ``section 1888''.
            (H) Section 1888(d)(1) (42 U.S.C. 1395yy(d)(1)) is amended 
        by striking ``Any skilled nursing facility'' and inserting 
        ``Subject to subsection (e), any skilled nursing facility''.
    (c) Medical Review Process.--In order to ensure that medicare 
beneficiaries are furnished appropriate services in skilled nursing 
facilities, 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 section on the quality of covered 
skilled nursing facility 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 
and physicians' services for which payment is made under title XVIII of 
the Social Security Act.
    (d) Effective Date.--The amendments made by this section are 
effective for cost reporting periods beginning on or after July 1, 
1998; except that the amendments made by subsection (b) shall apply to 
items and services furnished on or after July 1, 1998.

           CHAPTER 4--PROVISIONS RELATED TO HOSPICE SERVICES

SEC. 4441. PAYMENTS FOR HOSPICE SERVICES.

    (a) Payment Update.--Section 1814(i)(1)(C)(ii) (42 U.S.C. 
1395f(i)(1)(C)(ii)) is amended--
        (1) in subclause (V), by striking ``and'' at the end;
        (2) by redesignating subclause (VI) as subclause (VII); and
        (3) by inserting after subclause (V) the following new 
    subclause:
        ``(VI) for each of fiscal years 1998 through 2002, the market 
    basket percentage increase for the fiscal year involved minus 1.0 
    percentage points; and''.
    (b) Collection of Data.--Section 1814(i) (42 U.S.C. 1395f(i)) is 
amended by adding at the end the following new paragraph:
    ``(3) Hospice programs providing hospice care for which payment is 
made under this subsection shall submit to the Secretary such data with 
respect to the costs for providing such care for each fiscal year, 
beginning with fiscal year 1999, as the Secretary determines 
necessary.''.

SEC. 4442. PAYMENT FOR HOME HOSPICE CARE BASED ON LOCATION WHERE CARE 
              IS FURNISHED.

    (a) In General.--Section 1814(i)(2) (42 U.S.C. 1395f(i)(2)) is 
amended by adding at the end the following:
    ``(D) A hospice program shall submit claims for payment for hospice 
care furnished in an individual's home under this title only on the 
basis of the geographic location at which the service is furnished, as 
determined by the Secretary.''.
    (b) Effective Date.--The amendment made by subsection (a) applies 
to cost reporting periods beginning on or after October 1, 1997.

SEC. 4443. HOSPICE CARE BENEFITS PERIODS.

    (a) Restructuring of Benefit Period.--Section 1812 (42 U.S.C. 
1395d) is amended in subsections (a)(4) and (d)(1) by striking ``, a 
subsequent period of 30 days, and a subsequent extension period'' and 
inserting ``and an unlimited number of subsequent periods of 60 days 
each''.
    (b) Conforming Amendments.--(1) Section 1812 (42 U.S.C. 1395d) is 
amended in subsection (d)(2)(B) by striking ``90- or 30-day period or a 
subsequent extension period'' and inserting ``90-day period or a 
subsequent 60-day period''.
    (2) Section 1814(a)(7)(A) (42 U.S.C. 1395f(a)(7)(A)) is amended--
        (A) in clause (i), by inserting ``and'' at the end;
        (B) in clause (ii)--
            (i) by striking ``30-day'' and inserting ``60-day''; and
            (ii) by striking ``, and'' at the end and inserting a 
        period; and
        (C) by striking clause (iii).

SEC. 4444. OTHER ITEMS AND SERVICES INCLUDED IN HOSPICE CARE.

    (a) In General.--Section 1861(dd)(1) (42 U.S.C. 1395x(dd)(1)) is 
amended--
        (1) in subparagraph (G), by striking ``and'' at the end;
        (2) in subparagraph (H), by striking the period at the end and 
    inserting ``, and''; and
        (3) by inserting after subparagraph (H) the following:
        ``(I) any other item or service which is specified in the plan 
    and for which payment may otherwise be made under this title.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply with respect to items or services furnished on or after April 1, 
1998.

SEC. 4445. CONTRACTING WITH INDEPENDENT PHYSICIANS OR PHYSICIAN GROUPS 
              FOR HOSPICE CARE SERVICES PERMITTED.

    Section 1861(dd)(2) (42 U.S.C. 1395x(dd)(2)) is amended--
        (1) in subparagraph (A)(ii)(I), by striking ``(F),''; and
        (2) in subparagraph (B)(i), by inserting ``or, in the case of a 
    physician described in subclause (I), under contract with'' after 
    ``employed by''.

SEC. 4446. WAIVER OF CERTAIN STAFFING REQUIREMENTS FOR HOSPICE CARE 
              PROGRAMS IN NONURBANIZED AREAS.

    Section 1861(dd)(5) (42 U.S.C. 1395x(dd)(5)) is amended--
        (1) in subparagraph (B), by inserting ``or (C)'' after 
    ``subparagraph (A)'' each place it appears; and
        (2) by adding at the end the following:
    ``(C) The Secretary may waive the requirements of paragraph 
(2)(A)(i) and (2)(A)(ii) for an agency or organization with respect to 
the services described in paragraph (1)(B) and, with respect to dietary 
counseling, paragraph (1)(H), if such agency or organization--
        ``(i) is located in an area which is not an urbanized area (as 
    defined by the Bureau of Census), and
        ``(ii) demonstrates to the satisfaction of the Secretary that 
    the agency or organization has been unable, despite diligent 
    efforts, to recruit appropriate personnel.''.

SEC. 4447. LIMITATION ON LIABILITY OF BENEFICIARIES FOR CERTAIN HOSPICE 
              COVERAGE DENIALS.

    Section 1879(g) (42 U.S.C. 1395pp(g)) is amended--
        (1) by redesignating paragraphs (1) and (2) as subparagraphs 
    (A) and (B), respectively, and moving such subparagraphs 2 ems to 
    the right;
        (2) by striking ``is,'' and inserting ``is--'';
        (3) by making the remaining text of subsection (g), as amended, 
    that follows ``is--'' a new paragraph (1) and indenting such 
    paragraph 2 ems to the right;
        (4) by striking the period at the end and inserting ``; and''; 
    and
        (5) by adding at the end the following new paragraph:
        ``(2) with respect to the provision of hospice care to an 
    individual, a determination that the individual is not terminally 
    ill.''.

SEC. 4448. EXTENDING THE PERIOD FOR PHYSICIAN CERTIFICATION OF AN 
              INDIVIDUAL'S TERMINAL ILLNESS.

    Section 1814(a)(7)(A)(i) (42 U.S.C. 1395f(a)(7)(A)(i)) is amended 
in the matter following subclause (II) by striking ``, not later than 2 
days after hospice care is initiated (or, if each certify verbally not 
later than 2 days after hospice care is initiated, not later than 8 
days after such care is initiated)'' and inserting ``at the beginning 
of the period''.

SEC. 4449. EFFECTIVE DATE.

    Except as otherwise provided in this chapter, the amendments made 
by this chapter apply to benefits provided on or after the date of the 
enactment of this chapter, regardless of whether or not an individual 
has made an election under section 1812(d) of the Social Security Act 
(42 U.S.C. 1395d(d)) before such date.

                  CHAPTER 5--OTHER PAYMENT PROVISIONS

SEC. 4451. REDUCTIONS IN PAYMENTS FOR ENROLLEE BAD DEBT.

    Section 1861(v)(1) (42 U.S.C. 1395x(v)(1)) is amended by adding at 
the end the following new subparagraph:
    ``(T) In determining such reasonable costs for hospitals, no 
reduction in copayments under section 1833(t)(5)(B) shall be treated as 
a bad debt and 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--
        ``(i) for cost reporting periods beginning during fiscal year 
    1998, by 25 percent of such amount otherwise allowable,
        ``(ii) for cost reporting periods beginning during fiscal year 
    1999, by 40 percent of such amount otherwise allowable, and
        ``(iii) for cost reporting periods beginning during a 
    subsequent fiscal year, by 45 percent of such amount otherwise 
    allowable.''.

SEC. 4452. PERMANENT EXTENSION OF HEMOPHILIA PASS-THROUGH PAYMENT.

    Section 6011(d) of OBRA-1989 (as amended by section 13505 of OBRA-
1993) is amended by striking ``and shall expire September 30, 1994.'' 
and inserting ``and on or before September 30, 1994, and on or after 
October 1, 1997.''.

SEC. 4453. REDUCTION IN PART A MEDICARE PREMIUM FOR CERTAIN PUBLIC 
              RETIREES.

    (a) In General.--Section 1818(d) (42 U.S.C. 1395i-2(d)) is 
amended--
        (1) in paragraph (2), by striking ``paragraph (4)'' and 
    inserting ``paragraphs (4) and (5)''; and
        (2) by adding at the end the following new paragraph:
    ``(5)(A) The amount of the monthly premium shall be zero in the 
case of an individual who is a person described in subparagraph (B) for 
a month, if--
        ``(i) the individual's premium under this section for the month 
    is not (and will not be) paid for, in whole or in part, by a State 
    (under title XIX or otherwise), a political subdivision of a State, 
    or an agency or instrumentality of one or more States or political 
    subdivisions thereof; and
        ``(ii) in each of 84 months before such month, the individual 
    was enrolled in this part under this section and the payment of the 
    individual's premium under this section for the month was not paid 
    for, in whole or in part, by a State (under title XIX or 
    otherwise), a political subdivision of a State, or an agency or 
    instrumentality of one or more States or political subdivisions 
    thereof.
    ``(B) A person described in this subparagraph for a month is a 
person who establishes to the satisfaction of the Secretary that, as of 
the last day of the previous month--
        ``(i)(I) the person was receiving cash benefits under a 
    qualified State or local government retirement system (as defined 
    in subparagraph (C)) on the basis of the person's employment in one 
    or more positions covered under any such system, and (II) the 
    person would have at least 40 quarters of coverage under title II 
    if remuneration for medicare qualified government employment (as 
    defined in paragraph (1) of section 210(p), but determined without 
    regard to paragraph (3) of such section) paid to such person were 
    treated as wages paid to such person and credited for purposes of 
    determining quarters of coverage under section 213;
        ``(ii)(I) the person was married (and had been married for the 
    previous 1-year period) to an individual who is described in clause 
    (i), or (II) the person met the requirement of clause (i)(II) and 
    was married (and had been married for the previous 1-year period) 
    to an individual described in clause (i)(I);
        ``(iii) the person had been married to an individual for a 
    period of at least 1 year (at the time of such individual's death) 
    if (I) the individual was described in clause (i) at the time of 
    the individual's death, or (II) the person met the requirement of 
    clause (i)(II) and the individual was described in clause (i)(I) at 
    the time of the individual's death; or
        ``(iv) the person is divorced from an individual and had been 
    married to the individual for a period of at least 10 years (at the 
    time of the divorce) if (I) the individual was described in clause 
    (i) at the time of the divorce, or (II) the person met the 
    requirement of clause (i)(II) and the individual was described in 
    clause (i)(I) at the time of the divorce.
    ``(C) For purposes of subparagraph (B)(i)(I), the term `qualified 
State or local government retirement system' means a retirement system 
that--
        ``(i) is established or maintained by a State or political 
    subdivision thereof, or an agency or instrumentality of one or more 
    States or political subdivisions thereof;
        ``(ii) covers positions of some or all employees of such a 
    State, subdivision, agency, or instrumentality; and
        ``(iii) does not adjust cash retirement benefits based on 
    eligibility for a reduction in premium under this paragraph.''.
    (b) Effective Date.--The amendments made by subsection (a) shall 
apply to premiums for months beginning with January 1998, and months 
before such month may be taken into account for purposes of meeting the 
requirement of section 1818(d)(5)(B)(iii) of the Social Security Act, 
as added by subsection (a).

SEC. 4454. COVERAGE OF SERVICES IN RELIGIOUS NONMEDICAL HEALTH CARE 
              INSTITUTIONS UNDER THE MEDICARE AND MEDICAID PROGRAMS.

    (a) Medicare Coverage.--
        (1) In general.--Section 1861 (42 U.S.C. 1395x) (as amended by 
    sections 4103 and 4106) is amended--
            (A) in the sixth sentence of subsection (e)--
                (i) by striking ``includes'' and all that follows up to 
            ``but only'' and inserting ``includes a religious 
            nonmedical health care institution (as defined in 
            subsection (ss)(1)),'', and
                (ii) by inserting ``consistent with section 1821'' 
            before the period;
            (B) in subsection (y)--
                (i) by amending the heading to read as follows:

  ``Extended Care in Religious Nonmedical Health Care Institutions'',

                (ii) in paragraph (1), by striking ``includes'' and all 
            that follows up to ``but only'' and inserting ``includes a 
            religious nonmedical health care institution (as defined in 
            subsection (ss)(1)),'', and
                (iii) by inserting ``consistent with section 1821'' 
            before the period; and
            (C) by adding at the end the following:

             ``Religious Nonmedical Health Care Institution

    ``(ss)(1) The term `religious nonmedical health care institution' 
means an institution that--
            ``(A) is described in subsection (c)(3) of section 501 of 
        the Internal Revenue Code of 1986 and is exempt from taxes 
        under subsection (a) of such section;
            ``(B) is lawfully operated under all applicable Federal, 
        State, and local laws and regulations;
            ``(C) provides only nonmedical nursing items and services 
        exclusively to patients who choose to rely solely upon a 
        religious method of healing and for whom the acceptance of 
        medical health services would be inconsistent with their 
        religious beliefs;
            ``(D) provides such nonmedical items and services 
        exclusively through nonmedical nursing personnel who are 
        experienced in caring for the physical needs of such patients;
            ``(E) provides such nonmedical items and services to 
        inpatients on a 24-hour basis;
            ``(F) on the basis of its religious beliefs, does not 
        provide through its personnel or otherwise medical items and 
        services (including any medical screening, examination, 
        diagnosis, prognosis, treatment, or the administration of 
        drugs) for its patients;
            ``(G)(i) is not owed by, under common ownership with, or 
        has an ownership interest in, a provider of medical treatment 
        of services;
            ``(ii) is not affiliated with--
                ``(I) a provider of medical treatment or services, or
                ``(II) an individual who has an ownership interest in a 
            provider of medical treatment or services;
            ``(H) has in effect a utilization review plan which--
                ``(i) provides for the review of admissions to the 
            institution, of the duration of stays therein, of cases of 
            continuous extended duration, and of the items and services 
            furnished by the institution,
                ``(ii) requires that such reviews be made by an 
            appropriate committee of the institution that includes the 
            individuals responsible for overall administration and for 
            supervision of nursing personnel at the institution,
                ``(iii) provides that records be maintained of the 
            meetings, decisions, and actions of such committee, and
                ``(iv) meets such other requirements as the Secretary 
            finds necessary to establish an effective utilization 
            review plan;
            ``(I) provides the Secretary with such information as the 
        Secretary may require to implement section 1821, including 
        information relating to quality of care and coverage 
        determinations; and
            ``(J) meets such other requirements as the Secretary finds 
        necessary in the interest of the health and safety of 
        individuals who are furnished services in the institution.
    ``(2) To the extent that the Secretary finds that the accreditation 
of an institution by a State, regional, or national agency or 
association provides reasonable assurances that any or all of the 
requirements of paragraph (1) are met or exceeded, the Secretary may 
treat such institution as meeting the condition or conditions with 
respect to which the Secretary made such finding.
    ``(3)(A)(i) In administering this subsection and section 1821, the 
Secretary shall not require any patient of a religious nonmedical 
health care institution to undergo medical screening, examination, 
diagnosis, prognosis, or treatment or to accept any other medical 
health care service, if such patient (or legal representative of the 
patient) objects thereto on religious grounds.
    ``(ii) Clause (i) shall not be construed as preventing the 
Secretary from requiring under section 1821(a)(2) the provision of 
sufficient information regarding an individual's condition as a 
condition for receipt of benefits under part A for services provided in 
such an institution.
    ``(B)(i) In administering this subsection and section 1821, the 
Secretary shall not subject a religious nonmedical health care 
institution or its personnel to any medical supervision, regulation, or 
control, insofar as such supervision, regulation, or control would be 
contrary to the religious beliefs observed by the institution or such 
personnel.
    ``(ii) Clause (i) shall not be construed as preventing the 
Secretary from reviewing items and services billed by the institution 
to the extent the Secretary determines such review to be necessary to 
determine whether such items and services were not covered under part 
A, are excessive, or are fraudulent.
    ``(4)(A) For purposes of paragraph (1)(G)(i), an ownership interest 
of less than 5 percent shall not be taken into account.
    ``(B) For purposes of paragraph (1)(G)(ii), none of the following 
shall be considered to create an affiliation:
        ``(i) An individual serving as an uncompensated director, 
    trustee, officer, or other member of the governing body of a 
    religious nonmedical health care institution.
        ``(ii) An individual who is a director, trustee, officer, 
    employee, or staff member of a religious nonmedical health care 
    institution having a family relationship with an individual who is 
    affiliated with (or has an ownership interest in) a provider of 
    medical treatment or services.
        ``(iii) An individual or entity furnishing goods or services as 
    a vendor to both providers of medical treatment or services and 
    religious nonmedical health care institutions.''.
        (2) Conditions of coverage.--Part A of title XVIII is amended 
    by adding at the end the following new section:


      ``conditions for coverage of religious nonmedical health care 
                         institutional services

    ``Sec. 1821. (a) In General.--Subject to subsections (c) and (d), 
payment under this part may be made for inpatient hospital services or 
post-hospital extended care services furnished an individual in a 
religious nonmedical health care institution only if--
        ``(1) the individual has an election in effect for such 
    benefits under subsection (b); and
        ``(2) the individual has a condition such that the individual 
    would qualify for benefits under this part for inpatient hospital 
    services or extended care services, respectively, if the individual 
    were an inpatient or resident in a hospital or skilled nursing 
    facility that was not such an institution.
    ``(b) Election.--
        ``(1) In general.--An individual may make an election under 
    this subsection in a form and manner specified by the Secretary 
    consistent with this subsection. Unless otherwise provided, such an 
    election shall take effect immediately upon its execution. Such an 
    election, once made, shall continue in effect until revoked.
        ``(2) Form.--The election form under this subsection shall 
    include the following:
            ``(A) A written statement, signed by the individual (or 
        such individual's legal representative), that--
                ``(i) the individual is conscientiously opposed to 
            acceptance of nonexcepted medical treatment; and
                ``(ii) the individual's acceptance of nonexcepted 
            medical treatment would be inconsistent with the 
            individual's sincere religious beliefs.
            ``(B) A statement that the receipt of nonexcepted medical 
        services shall constitute a revocation of the election and may 
        limit further receipt of services described in subsection (a).
        ``(3) Revocation.--An election under this subsection by an 
    individual may be revoked by voluntarily notifying the Secretary in 
    writing of such revocation and shall be deemed to be revoked if the 
    individual receives nonexcepted medical treatment for which 
    reimbursement is made under this title.
        ``(4) Limitation on subsequent elections.--Once an individual's 
    election under this subsection has been made and revoked twice--
            ``(A) the next election may not become effective until the 
        date that is 1 year after the date of most recent previous 
        revocation, and
            ``(B) any succeeding election may not become effective 
        until the date that is 5 years after the date of the most 
        recent previous revocation.
        ``(5) Excepted medical treatment.--For purposes of this 
    subsection:
            ``(A) Excepted medical treatment.--The term `excepted 
        medical treatment' means medical care or treatment (including 
        medical and other health services)--
                ``(i) received involuntarily, or
                ``(ii) required under Federal or State law or law of a 
            political subdivision of a State.
            ``(B) Nonexcepted medical treatment.--The term `nonexcepted 
        medical treatment' means medical care or treatment (including 
        medical and other health services) other than excepted medical 
        treatment.
    ``(c) Monitoring and Safeguard Against Excessive Expenditures.--
        ``(1) Estimate of expenditures.--Before the beginning of each 
    fiscal year (beginning with fiscal year 2000), the Secretary shall 
    estimate the level of expenditures under this part for services 
    described in subsection (a) for that fiscal year.
        ``(2) Adjustment in payments.--
            ``(A) Proportional adjustment.--If the Secretary determines 
        that the level estimated under paragraph (1) for a fiscal year 
        will exceed the trigger level (as defined in subparagraph (C)) 
        for that fiscal year, the Secretary shall, subject to 
        subparagraph (B), provide for such a proportional reduction in 
        payment amounts under this part for services described in 
        subsection (a) for the fiscal year involved as will assure that 
        such level (taking into account any adjustment under 
        subparagraph (B)) does not exceed the trigger level for that 
        fiscal year.
            ``(B) Alternative adjustments.--The Secretary may, instead 
        of making some or all of the reduction described in 
        subparagraph (A), impose such other conditions or limitations 
        with respect to the coverage of covered services (including 
        limitations on new elections of coverage and new facilities) as 
        may be appropriate to reduce the level of expenditures 
        described in paragraph (1) to the trigger level.
            ``(C) Trigger level.--For purposes of this subsection--
                ``(i) In general.--Subject to adjustment under 
            paragraph (3)(B), the `trigger level' for a year is the 
            unadjusted trigger level described in clause (ii).
                ``(ii) Unadjusted trigger level.--The `unadjusted 
            trigger level' for--

                    ``(I) fiscal year 1998, is $20,000,000, or
                    ``(II) a succeeding fiscal year is the amount 
                specified under this clause for the previous fiscal 
                year increased by the percentage increase in the 
                consumer price index for all urban consumers (all 
                items; United States city average) for the 12-month 
                period ending with July preceding the beginning of the 
                fiscal year.

            ``(D) Prohibition of administrative and judicial review.--
        There shall be no administrative or judicial review under 
        section 1869, 1878, or otherwise of the estimation of 
        expenditures under subparagraph (A) or the application of 
        reduction amounts under subparagraph (B).
            ``(E) Effect on billing.--Notwithstanding any other 
        provision of this title, in the case of a reduction in payment 
        provided under this subsection for services of a religious 
        nonmedical health care institution provided to an individual, 
        the amount that the institution is otherwise permitted to 
        charge the individual for such services is increased by the 
        amount of such reduction.
        ``(3) Monitoring expenditure level.--
            ``(A) In general.--The Secretary shall monitor the 
        expenditure level described in paragraph (2)(A) for each fiscal 
        year (beginning with fiscal year 1999).
            ``(B) Adjustment in trigger level.--
                ``(i) In general.--If the Secretary determines that 
            such level for a fiscal year exceeded, or was less than, 
            the trigger level for that fiscal year, then, subject to 
            clause (ii), the trigger level for the succeeding fiscal 
            year shall be reduced, or increased, respectively, by the 
            amount of such excess or deficit.
                ``(ii) Limitation on carryforward.--In no case may the 
            increase effected under clause (i) for a fiscal year exceed 
            $50,000,000.
    ``(d) Sunset.--If the Secretary determines that the level of 
expenditures described in subsection (c)(1) for 3 consecutive fiscal 
years (with the first such year being not earlier than fiscal year 
2002) exceeds the trigger level for such expenditures for such years 
(as determined under subsection (c)(2)), benefits shall be paid under 
this part for services described in subsection (a) and furnished on or 
after the first January 1 that occurs after such 3 consecutive years 
only with respect to an individual who has an election in effect under 
subsection (b) as of such January 1 and only during the duration of 
such election.
    ``(e) Annual Report.--At the beginning of each fiscal year 
(beginning with fiscal year 1999), the Secretary shall submit to the 
Committee on Ways and Means of the House of Representatives and the 
Committee on Finance of the Senate an annual report on coverage and 
expenditures for services described in subsection (a) under this part 
and under State plans under title XIX. Such report shall include--
        ``(1) level of expenditures described in subsection (c)(1) for 
    the previous fiscal year and estimated for the fiscal year 
    involved;
        ``(2) trends in such level; and
        ``(3) facts and circumstances of any significant change in such 
    level from the level in previous fiscal years.''.
    (b) Medicaid.--
        (1) The third sentence of section 1902(a) (42 U.S.C. 1396a(a)) 
    is amended by striking all that follows ``shall not apply'' and 
    inserting ``to a religious nonmedical health care institution (as 
    defined in section 1861(ss)(1)).''.
        (2) Section 1908(e)(1) (42 U.S.C. 1396g-1(e)(1)) is amended by 
    striking all that follows ``does not include'' and inserting ``a 
    religious nonmedical health care institution (as defined in section 
    1861(ss)(1)).''.
    (c) Conforming Amendments.--
        (1) Section 1122(h) (42 U.S.C. 1320a-1(h)) is amended by 
    striking all that follows ``shall not apply to'' and inserting ``a 
    religious nonmedical health care institution (as defined in section 
    1861(ss)(1)).''.
        (2) Section 1162 (42 U.S.C. 1320c-11) is amended--
            (A) by amending the heading to read as follows:

 ``exemptions for religious nonmedical health care institutions''; and

            (B) by striking all that follows ``shall not apply with 
        respect to a'' and inserting ``religious nonmedical health care 
        institution (as defined in section 1861(ss)(1)).''.
    (d) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act and shall apply to 
items and services furnished on or after such date. By not later than 
July 1, 1998, the Secretary of Health and Human Services shall first 
issue regulations to carry out such amendments. Such regulations may be 
issued so they are effective on an interim basis pending notice and 
opportunity for public comment. For periods before the effective date 
of such regulations, such regulations shall recognize elections entered 
into in good faith in order to comply with the requirements of section 
1821(b) of the Social Security Act.

             Subtitle F--Provisions Relating to Part B Only

              CHAPTER 1--SERVICES OF HEALTH PROFESSIONALS

                   Subchapter A--Physicians' Services

SEC. 4501. ESTABLISHMENT OF SINGLE CONVERSION FACTOR FOR 1998.

    (a) In General.--Section 1848(d)(1) (42 U.S.C. 1395w-4(d)(1)) is 
amended--
        (1) by redesignating subparagraph (C) as subparagraph (D), and
        (2) by inserting after subparagraph (B) the following:
            ``(C) Special rules for 1998.--The single conversion factor 
        for 1998 under this subsection shall be the conversion factor 
        for primary care services for 1997, increased by the 
        Secretary's estimate of the weighted average of the three 
        separate updates that would otherwise occur were it not for the 
        enactment of chapter 1 of subtitle F of title IV of the 
        Balanced Budget Act of 1997.''.
    (b) Conforming Amendments.--Section 1848 (42 U.S.C. 1395w-4) is 
amended--
        (1) by striking ``(or factors)'' each place it appears in 
    subsection (d)(1)(A) and (d)(1)(D)(ii) (as redesignated by 
    subsection (a)(1)),
        (2) in subsection (d)(1)(A), by striking ``or updates'',
        (3) in subsection (d)(1)(D) (as redesignated by subsection 
    (a)(1)), by striking ``(or updates)'' each place it appears, and
        (4) in subsection (j)(1), by striking ``The term'' and 
    inserting ``For services furnished before January 1, 1998, the 
    term''.

SEC. 4502. ESTABLISHING UPDATE TO CONVERSION FACTOR TO MATCH SPENDING 
              UNDER SUSTAINABLE GROWTH RATE.

    (a) Update.--
        (1) In general.--Section 1848(d)(3) (42 U.S.C. 1395w-4(d)(3)) 
    is amended to read as follows:
        ``(3) Update.--
            ``(A) In general.--Unless otherwise provided by law, 
        subject to subparagraph (D) and the budget-neutrality factor 
        determined by the Secretary under subsection (c)(2)(B)(ii), the 
        update to the single conversion factor established in paragraph 
        (1)(C) for a year beginning with 1999 is equal to the product 
        of--
                ``(i) 1 plus the Secretary's estimate of the percentage 
            increase in the MEI (as defined in section 1842(i)(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.--For purposes of 
        subparagraph (A)(ii), the `update adjustment factor' for a year 
        is equal (as estimated by the Secretary) to--
                ``(i) the difference between (I) the sum of the allowed 
            expenditures for physicians' services (as determined under 
            subparagraph (C)) for the period beginning April 1, 1997, 
            and ending on March 31 of the year involved, and (II) the 
            amount of actual expenditures for physicians' services 
            furnished during the period beginning April 1, 1997, and 
            ending on March 31 of the preceding year; divided by
                ``(ii) the actual expenditures for physicians' services 
            for the 12-month period ending on March 31 of the preceding 
            year, increased by the sustainable growth rate under 
            subsection (f) for the fiscal year which begins during such 
            12-month period.
            ``(C) Determination of allowed expenditures.--For purposes 
        of this paragraph, the allowed expenditures for physicians' 
        services for the 12-month period ending with March 31 of--
                ``(i) 1997 is equal to the actual expenditures for 
            physicians' services furnished during such 12-month period, 
            as estimated by the Secretary; or
                ``(ii) a subsequent year is equal to the allowed 
            expenditures for physicians' services for the previous 
            year, increased by the sustainable growth rate under 
            subsection (f) for the fiscal year which begins during such 
            12-month period.
            ``(D) 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 100 times the following amount: 
            (1.03 + (MEI percentage/100)) -1; or
                ``(ii) less than 100 times the following amount: (0.93 
            + (MEI percentage/100)) -1,
        where `MEI percentage' means the Secretary's estimate of the 
        percentage increase in the MEI (as defined in section 
        1842(i)(3)) for the year involved.''.
        (2) Effective date.--The amendment made by this subsection 
    shall apply to the update for years beginning with 1999.
    (b) Elimination of Report.--Section 1848(d) (42 U.S.C. 1395w-4(d)) 
is amended by striking paragraph (2).

SEC. 4503. REPLACEMENT OF VOLUME PERFORMANCE STANDARD WITH SUSTAINABLE 
              GROWTH RATE.

    (a) In General.--Section 1848(f) (42 U.S.C. 1395w-4(f)) is amended 
by striking paragraphs (2) through (5) and inserting the following:
        ``(2) Specification of growth rate.--The sustainable growth 
    rate for all physicians' services for a fiscal year (beginning with 
    fiscal year 1998) shall be equal to the product of--
            ``(A) 1 plus the Secretary's estimate of the weighted 
        average percentage increase (divided by 100) in the fees for 
        all physicians' services in the fiscal year involved,
            ``(B) 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 Medicare+Choice plan 
        enrollees) from the previous fiscal year to the fiscal year 
        involved,
            ``(C) 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, and
            ``(D) 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 and regulations, 
        determined without taking into account estimated changes in 
        expenditures resulting from the update adjustment factor 
        determined under subsection (d)(3)(B),
    minus 1 and multiplied by 100.
        ``(3) Definitions.--In this subsection:
            ``(A) Services included in physicians' services.--The term 
        `physicians' services' includes other items and services (such 
        as clinical diagnostic laboratory tests and radiology 
        services), specified by the Secretary, that are commonly 
        performed or furnished by a physician or in a physician's 
        office, but does not include services furnished to a 
        Medicare+Choice plan enrollee.
            ``(B) Medicare+choice plan enrollee.--The term 
        `Medicare+Choice plan enrollee' means, with respect to a fiscal 
        year, an individual enrolled under this part who has elected to 
        receive benefits under this title for the fiscal year through a 
        Medicare+Choice plan offered under part C, and also includes an 
        individual who is receiving benefits under this part through 
        enrollment with an eligible organization with a risk-sharing 
        contract under section 1876.''.
    (b) Conforming Amendment.--So much of section 1848(f) (42 U.S.C. 
1395w-4(f)) as precedes paragraph (2) is amended to read as follows:
    ``(f) Sustainable Growth Rate.--
        ``(1) Publication.--The Secretary shall cause to have published 
    in the Federal Register the sustainable growth rate for each fiscal 
    year beginning with fiscal year 1998. Such publication shall occur 
    by not later than August 1 before each fiscal year, except that 
    such rate for fiscal year 1998 shall be published not later than 
    November 1, 1997.''.

SEC. 4504. PAYMENT RULES FOR ANESTHESIA SERVICES.

    (a) In General.--Section 1848(d)(1) (42 U.S.C. 1395w-4(d)(1)), as 
amended by section 4501(a), is amended--
        (1) in subparagraph (C), by striking ``The single'' and 
    inserting ``Except as provided in subparagraph (D), the single'';
        (2) by redesignating subparagraph (D) as subparagraph (E); and
        (3) by inserting after subparagraph (C) the following new 
    subparagraph:
            ``(D) Special rules for anesthesia services.--The separate 
        conversion factor for anesthesia services for a year shall be 
        equal to 46 percent of the single conversion factor established 
        for other physicians' services, except as adjusted for changes 
        in work, practice expense, or malpractice relative value 
        units.''.
    (b) Effective Date.--The amendments made by subsection (a) shall 
apply to services furnished on or after January 1, 1998.

SEC. 4505. IMPLEMENTATION OF RESOURCE-BASED METHODOLOGIES.

    (a) 1-Year Delay in Implementation.--Section 1848(c) (42 U.S.C. 
1395w-4(c)) is amended--
        (1) in paragraph (2)(C)(ii), in the matter before subclause (I) 
    and after subclause (II), by striking ``1998'' and inserting 
    ``1999'' each place it appears; and
        (2) in paragraph (3)(C)(ii), by striking ``1998'' and inserting 
    ``1999''.
    (b) Phased-in Implementation.--
        (1) In general.--Section 1848(c)(2)(C)(ii) (42 U.S.C. 1395w-
    4(c)(2)(C)(ii)) is further amended--
            (A) by striking the comma at the end of clause (ii) and 
        inserting a period and the following:
            ``For 1999, such number of units shall be determined based 
            75 percent on such product and based 25 percent on the 
            relative practice expense resources involved in furnishing 
            the service. For 2000, such number of units shall be 
            determined based 50 percent on such product and based 50 
            percent on such relative practice expense resources. For 
            2001, such number of units shall be determined based 25 
            percent on such product and based 75 percent on such 
            relative practice expense resources. For a subsequent year, 
            such number of units shall be determined based entirely on 
            such relative practice expense resources.''.
        (2) Conforming amendment.--Section 1848(c)(3)(C)(ii) (42 U.S.C. 
    1395w-4(c)(3)(C)(ii)), as amended by subsection (a)(2), is amended 
    by striking ``1999'' and inserting ``2002''.
    (c) Review by Comptroller General.--The Comptroller General of the 
United States shall review and evaluate the proposed rule on resource-
based methodology for practice expenses issued by the Secretary of 
Health and Human Services. The Comptroller General shall, within 6 
months of the date of the enactment of this Act, report to the 
Committees on Commerce and Ways and Means of the House of 
Representatives and the Committee on Finance of the Senate the results 
of its evaluation, including an analysis of--
        (1) the adequacy of the data used in preparing the rule,
        (2) categories of allowable costs,
        (3) methods for allocating direct and indirect expenses,
        (4) the potential impact of the rule on beneficiary access to 
    services, and
        (5) any other matters related to the appropriateness of 
    resource-based methodology for practice expenses.
The Comptroller General shall consult with representatives of 
physicians' organizations with respect to matters of both data and 
methodology.
    (d) Requirements for Developing New Resource-Based Practice Expense 
Relative Value Units.--
        (1) Development.--For purposes of section 1848(c)(2)(C)(ii) of 
    the Social Security Act, the Secretary of Health and Human Services 
    shall develop new resource-based relative value units. In 
    developing such units the Secretary shall--
            (A) utilize, to the maximum extent practicable, generally 
        accepted cost accounting principles which (i) recognize all 
        staff, equipment, supplies, and expenses, not just those which 
        can be tied to specific procedures, and (ii) use actual data on 
        equipment utilization and other key assumptions;
            (B) consult with organizations representing physicians 
        regarding methodology and data to be used; and
            (C) develop a refinement process to be used during each of 
        the 4 years of the transition period.
        (2) Report.--The Secretary shall transmit a report by March 1, 
    1998, on the development of resource-based relative value units 
    under paragraph (1) to the Committee on Ways and Means and the 
    Committee on Commerce of the House of Representatives and the 
    Committee on Finance of the Senate. The report shall include a 
    presentation of data to be used in developing the value units and 
    an explanation of the methodology.
        (3) Notice of proposed rulemaking.--The Secretary shall publish 
    a notice of proposed rulemaking with the new resource-based 
    relative value units on or before May 1, 1998, and shall allow for 
    a 90-day public comment period.
        (4) Items included.--The new proposed rule shall consider the 
    following:
            (A) Impact projections which compare new proposed payment 
        amounts on data on actual physician practice expenses.
            (B) Impact projections for hospital-based and other 
        specialties, geographic payment localities, and urban versus 
        rural localities.
    (e) Adjustments to Relative Value Units for 1998.--Section 
1848(c)(2) (42 U.S.C. 1395w-4(c)(2)) is amended by adding at the end 
the following new subparagraph:
            ``(G) Adjustments in relative value units for 1998.--
                ``(i) In general.--The Secretary shall--

                    ``(I) subject to clauses (iv) and (v), reduce the 
                practice expense relative value units applied to any 
                services described in clause (ii) furnished in 1998 to 
                a number equal to 110 percent of the number of work 
                relative value units, and
                    ``(II) increase the practice expense relative value 
                units for office visit procedure codes during 1998 by a 
                uniform percentage which the Secretary estimates will 
                result in an aggregate increase in payments for such 
                services equal to the aggregate decrease in payments by 
                reason of subclause (I).

                ``(ii) Services covered.--For purposes of clause (i), 
            the services described in this clause are physicians' 
            services that are not described in clause (iii) and for 
            which--

                    ``(I) there are work relative value units, and
                    ``(II) the number of practice expense relative 
                value units (determined for 1998) exceeds 110 percent 
                of the number of work relative value units (determined 
                for such year).

                ``(iii) Excluded services.--For purposes of clause 
            (ii), the services described in this clause are services 
            which the Secretary determines at least 75 percent of which 
            are provided under this title in an office setting.
                ``(iv) Limitation on aggregate reallocation.--If the 
            application of clause (i)(I) would result in an aggregate 
            amount of reductions under such clause in excess of 
            $390,000,000, such clause shall be applied by substituting 
            for 110 percent such greater percentage as the Secretary 
            estimates will result in the aggregate amount of such 
            reductions equaling $390,000,000.
                ``(v) No reduction for certain services.--Practice 
            expense relative value units for a procedure performed in 
            an office or in a setting out of an office shall not be 
            reduced under clause (i) if the in-office or out-of-office 
            practice expense relative value, respectively, for the 
            procedure would increase under the proposed rule on 
            resource-based practice expenses issued by the Secretary on 
            June 18, 1997 (62 Federal Register 33158 et seq.).''.
    (f) Application of Resource-Based Methodology to Malpractice 
Relative Value Units.--
        (1) In general.--Section 1848(c)(2)(C)(iii) (42 U.S.C. 1395w-
    4(c)(2)(C)(iii)) is amended--
            (A) in paragraph (2)(C)(iii)--
                (i) by inserting ``for the service for years before 
            2000'' before ``equal'', and
                (ii) by striking the period at the end and inserting a 
            comma and by adding at the end the following flush matter:
            ``and for years beginning with 2000 based on the 
            malpractice expense resources involved in furnishing the 
            service.''; and
            (B) in paragraph (3)(C)(iii), by striking ``The 
        malpractice'' and inserting ``For years before 1999, the 
        malpractice''.
        (2) Application of certain budget neutrality provisions.--In 
    implementing the amendment made by paragraph (1)(A)(ii), the 
    provisions of clauses (ii)(II) and (iii) of section 1848(c)(2)(B) 
    of the Social Security Act (42 U.S.C. 1395w-4(c)(2)(B)) shall apply 
    in the same manner as they apply to adjustments under clause 
    (ii)(I) of such section.

SEC. 4506. DISSEMINATION OF INFORMATION ON HIGH PER DISCHARGE RELATIVE 
              VALUES FOR IN-HOSPITAL PHYSICIANS' SERVICES.

    (a) Determination and Notice Concerning Hospital-Specific Per 
Discharge Relative Values.--
        (1) In general.--For 1999 and 2001 the Secretary of Health and 
    Human Services shall determine for each hospital--
            (A) the hospital-specific per discharge relative value 
        under subsection (b); and
            (B) whether the hospital-specific relative value is 
        projected to be excessive (as determined based on such value 
        represented as a percentage of the median of hospital-specific 
        per discharge relative values determined under subsection (b)).
        (2) Notice to subset of medical staffs; evaluation of 
    responses.--The Secretary shall notify the medical executive 
    committee of a subset of the hospitals identified under paragraph 
    (1)(B) as having an excessive hospital-specific relative value, of 
    the determinations made with respect to the medical staff under 
    paragraph (1). The Secretary shall evaluate the responses of the 
    hospitals so notified with the responses of other hospitals so 
    identified that were not so notified.
    (b) Determination of Hospital-Specific Per Discharge Relative 
Values.--
        (1) In general.--For purposes of this section, the hospital-
    specific per discharge relative value for the medical staff of a 
    hospital (other than a teaching hospital) for a year shall be equal 
    to the average per discharge relative value (as determined under 
    section 1848(c)(2) of the Social Security Act (42 U.S.C. 1395w-
    4(c)(2)) for physicians' services furnished to inpatients of the 
    hospital by the hospital's medical staff (excluding interns and 
    residents) during the second year preceding that calendar year, 
    adjusted for variations in case-mix among hospitals and 
    disproportionate share status and teaching status among hospitals 
    (as determined by the Secretary under paragraph (3)).
        (2) Special rule for teaching hospitals.--The hospital-specific 
    relative value projected for a teaching hospital in a year shall be 
    equal to the sum of--
            (A) the average per discharge relative value (as determined 
        under section 1848(c)(2) of such Act) for physicians' services 
        furnished to inpatients of the hospital by the hospital's 
        medical staff (excluding interns and residents) during the 
        second year preceding that calendar year, and
            (B) the equivalent per discharge relative value (as 
        determined under such section) for physicians' services 
        furnished to inpatients of the hospital by interns and 
        residents of the hospital during the second year preceding that 
        calendar year, adjusted for variations in case-mix among 
        hospitals, and in disproportionate share status and teaching 
        status among hospitals (as determined by the Secretary under 
        paragraph (3)).
    The Secretary shall determine the equivalent relative value unit 
    per discharge for interns and residents based on the best available 
    data and may make such adjustment in the aggregate.
        (3) Adjustment for teaching and disproportionate share 
    hospitals.--The Secretary shall adjust the allowable per discharge 
    relative values otherwise determined under this subsection to take 
    into account the needs of teaching hospitals and hospitals 
    receiving additional payments under subparagraphs (F) and (G) of 
    section 1886(d)(5) of the Social Security Act (42 U.S.C. 
    1395ww(d)(5)). The adjustment for teaching status or 
    disproportionate share shall not be less than zero.
    (c) Definitions.--For purposes of this section:
        (1) Hospital.--The term ``hospital'' means a subsection (d) 
    hospital as defined in section 1886(d) of the Social Security Act 
    (42 U.S.C. 1395ww(d)) .
        (2) Medical staff.--An individual furnishing a physician's 
    service is considered to be on the medical staff of a hospital--
            (A) if (in accordance with requirements for hospitals 
        established by the Joint Commission on Accreditation of Health 
        Organizations)--
                (i) the individual is subject to bylaws, rules, and 
            regulations established by the hospital to provide a 
            framework for the self-governance of medical staff 
            activities,
                (ii) subject to the bylaws, rules, and regulations, the 
            individual has clinical privileges granted by the 
            hospital's governing body, and
                (iii) under the clinical privileges, the individual may 
            provide physicians' services independently within the scope 
            of the individual's clinical privileges, or
            (B) if the physician provides at least one service to an 
        individual entitled to benefits under this title in that 
        hospital.
        (3) Physicians' services.--The term ``physicians' services'' 
    means the services described in section 1848(j)(3) of the Social 
    Security Act (42 U.S.C. 1395w-4(j)(3)).
        (4) Rural area; urban area.--The terms ``rural area'' and 
    ``urban area'' have the meaning given those terms under section 
    1886(d)(2)(D) of such Act (42 U.S.C. 1395ww(d)(2)(D)).
        (5) Secretary.--The term ``Secretary'' means the Secretary of 
    Health and Human Services.
        (6) Teaching hospital.--The term ``teaching hospital'' means a 
    hospital which has a teaching program approved as specified in 
    section 1861(b)(6) of the Social Security Act (42 U.S.C. 
    1395x(b)(6)).

SEC. 4507. USE OF PRIVATE CONTRACTS BY MEDICARE BENEFICIARIES.

    (a) Items or Services Provided Through Private Contracts.--
        (1) In general.--Section 1802 (42 U.S.C. 1395a) is amended by 
    adding at the end the following new subsection:
    ``(b) Use of Private Contracts by Medicare Beneficiaries.--
        ``(1) In general.--Subject to the provisions of this 
    subsection, nothing in this title shall prohibit a physician or 
    practitioner from entering into a private contract with a medicare 
    beneficiary for any item or service--
            ``(A) for which no claim for payment is to be submitted 
        under this title, and
            ``(B) for which the physician or practitioner receives--
                ``(i) no reimbursement under this title directly or on 
            a capitated basis, and
                ``(ii) receives no amount for such item or service from 
            an organization which receives reimbursement for such item 
            or service under this title directly or on a capitated 
            basis.
        ``(2) Beneficiary protections.--
            ``(A) In general.--Paragraph (1) shall not apply to any 
        contract unless--
                ``(i) the contract is in writing and is signed by the 
            medicare beneficiary before any item or service is provided 
            pursuant to the contract;
                ``(ii) the contract contains the items described in 
            subparagraph (B); and
                ``(iii) the contract is not entered into at a time when 
            the medicare beneficiary is facing an emergency or urgent 
            health care situation.
            ``(B) Items required to be included in contract.--Any 
        contract to provide items and services to which paragraph (1) 
        applies shall clearly indicate to the medicare beneficiary that 
        by signing such contract the beneficiary--
                ``(i) agrees not to submit a claim (or to request that 
            the physician or practitioner submit a claim) under this 
            title for such items or services even if such items or 
            services are otherwise covered by this title;
                ``(ii) agrees to be responsible, whether through 
            insurance or otherwise, for payment of such items or 
            services and understands that no reimbursement will be 
            provided under this title for such items or services;
                ``(iii) acknowledges that no limits under this title 
            (including the limits under section 1848(g)) apply to 
            amounts that may be charged for such items or services;
                ``(iv) acknowledges that Medigap plans under section 
            1882 do not, and other supplemental insurance plans may 
            elect not to, make payments for such items and services 
            because payment is not made under this title; and
                ``(v) acknowledges that the medicare beneficiary has 
            the right to have such items or services provided by other 
            physicians or practitioners for whom payment would be made 
            under this title.
        Such contract shall also clearly indicate whether the physician 
        or practitioner is excluded from participation under the 
        medicare program under section 1128.
        ``(3) Physician or practitioner requirements.--
            ``(A) In general.--Paragraph (1) shall not apply to any 
        contract entered into by a physician or practitioner unless an 
        affidavit described in subparagraph (B) is in effect during the 
        period any item or service is to be provided pursuant to the 
        contract.
            ``(B) Affidavit.--An affidavit is described in this 
        subparagraph if--
                ``(i) the affidavit identifies the physician or 
            practitioner and is in writing and is signed by the 
            physician or practitioner;
                ``(ii) the affidavit provides that the physician or 
            practitioner will not submit any claim under this title for 
            any item or service provided to any medicare beneficiary 
            (and will not receive any reimbursement or amount described 
            in paragraph (1)(B) for any such item or service) during 
            the 2-year period beginning on the date the affidavit is 
            signed; and
                ``(iii) a copy of the affidavit is filed with the 
            Secretary no later than 10 days after the first contract to 
            which such affidavit applies is entered into.
            ``(C) Enforcement.--If a physician or practitioner signing 
        an affidavit under subparagraph (B) knowingly and willfully 
        submits a claim under this title for any item or service 
        provided during the 2-year period described in subparagraph 
        (B)(ii) (or receives any reimbursement or amount described in 
        paragraph (1)(B) for any such item or service) with respect to 
        such affidavit--
                ``(i) this subsection shall not apply with respect to 
            any items and services provided by the physician or 
            practitioner pursuant to any contract on and after the date 
            of such submission and before the end of such period; and
                ``(ii) no payment shall be made under this title for 
            any item or service furnished by the physician or 
            practitioner during the period described in clause (i) (and 
            no reimbursement or payment of any amount described in 
            paragraph (1)(B) shall be made for any such item or 
            service).
        ``(4) Limitation on actual charge and claim submission 
    requirement not applicable.--Section 1848(g) shall not apply with 
    respect to any item or service provided to a medicare beneficiary 
    under a contract described in paragraph (1).
        ``(5) Definitions.--In this subsection:
            ``(A) Medicare beneficiary.--The term `medicare 
        beneficiary' means an individual who is entitled to benefits 
        under part A or enrolled under part B.
            ``(B) Physician.--The term `physician' has the meaning 
        given such term by section 1861(r)(1).
            ``(C) Practitioner.--The term `practitioner' has the 
        meaning given such term by section 1842(b)(18)(C).''
        (2) Conforming amendments.--
            (A) Section 1802 (42 U.S.C. 1395a) is amended by striking 
        ``Any'' and inserting ``(a) Basic Freedom of Choice.--Any''.
            (B) Section 1862(a) (42 U.S.C. 1395y(a)), as amended by 
        sections 4319(b) and 4432, is amended by striking ``or'' at the 
        end of paragraph (17), by striking the period at the end of 
        paragraph (18) and inserting ``; or'', and by adding after 
        paragraph (18) the following new paragraph:
        ``(19) which are for items or services which are furnished 
    pursuant to a private contract described in section 1802(b).''.
    (b) Report.--Not later than October 1, 2001, the Secretary of 
Health and Human Services shall submit a report to Congress on the 
effect on the program under this title of private contracts entered 
into under the amendment made by subsection (a). Such report shall 
include--
        (1) analyses regarding--
            (A) the fiscal impact of such contracts on total Federal 
        expenditures under title XVIII of the Social Security Act and 
        on out-of-pocket expenditures by medicare beneficiaries for 
        health services under such title; and
            (B) the quality of the health services provided under such 
        contracts; and
        (2) recommendations as to whether medicare beneficiaries should 
    continue to be able to enter private contracts under section 
    1802(b) of such Act (as added by subsection (a)) and if so, what 
    legislative changes, if any should be made to improve such 
    contracts.
    (c) Effective Date.--The amendment made by subsection (a) shall 
apply with respect to contracts entered into on and after January 1, 
1998.

             Subchapter B--Other Health Care Professionals

SEC. 4511. INCREASED MEDICARE REIMBURSEMENT FOR NURSE PRACTITIONERS AND 
              CLINICAL NURSE SPECIALISTS.

    (a) Removal of Restrictions on Settings.--
        (1) In general.--Clause (ii) of section 1861(s)(2)(K) (42 
    U.S.C. 1395x(s)(2)(K)) is amended to read as follows:
        ``(ii) services which would be physicians' services if 
    furnished by a physician (as defined in subsection (r)(1)) and 
    which are performed by a nurse practitioner or clinical nurse 
    specialist (as defined in subsection (aa)(5)) working in 
    collaboration (as defined in subsection (aa)(6)) with a physician 
    (as defined in subsection (r)(1)) which the nurse practitioner or 
    clinical nurse specialist is legally authorized to perform by the 
    State in which the services are performed, and such services and 
    supplies furnished as an incident to such services as would be 
    covered under subparagraph (A) if furnished incident to a 
    physician's professional service, but only if no facility or other 
    provider charges or is paid any amounts with respect to the 
    furnishing of such services;''.
        (2) Conforming amendments.--(A) Section 1861(s)(2)(K) (42 
    U.S.C. 1395x(s)(2)(K)) is further amended--
            (i) in clause (i), by inserting ``and such services and 
        supplies furnished as incident to such services as would be 
        covered under subparagraph (A) if furnished incident to a 
        physician's professional service; and'' after ``are 
        performed,''; and
            (ii) by striking clauses (iii) and (iv).
        (B) Section 1861(b)(4) (42 U.S.C. 1395x(b)(4)) is amended by 
    striking ``clauses (i) or (iii) of subsection (s)(2)(K)'' and 
    inserting ``subsection (s)(2)(K)''.
        (C) Section 1862(a)(14) (42 U.S.C. 1395y(a)(14)) is amended by 
    striking ``section 1861(s)(2)(K)(i) or 1861(s)(2)(K)(iii)'' and 
    inserting ``section 1861(s)(2)(K)''.
        (D) Section 1866(a)(1)(H) (42 U.S.C. 1395cc(a)(1)(H)) is 
    amended by striking ``section 1861(s)(2)(K)(i) or 
    1861(s)(2)(K)(iii)'' and inserting ``section 1861(s)(2)(K)''.
        (E) Section 1888(e)(2)(A)(ii) (42 U.S.C. 1395yy(e)(2)(A)(ii)), 
    as added by section 4432(a) (relating to prospective payment system 
    for rehabilitation hospitals), is amended by striking ``through 
    (iii)'' and inserting ``and (ii)''.
    (b) Increased Payment.--
        (1) Fee schedule amount.--Subparagraph (O) of section 
    1833(a)(1) (42 U.S.C. 1395l(a)(1)) is amended to read as follows: 
    ``(O) with respect to services described in section 
    1861(s)(2)(K)(ii) (relating to nurse practitioner or clinical nurse 
    specialist services), the amounts paid shall be equal to 80 percent 
    of (i) the lesser of the actual charge or 85 percent of the fee 
    schedule amount provided under section 1848, or (ii) in the case of 
    services as an assistant at surgery, the lesser of the actual 
    charge or 85 percent of the amount that would otherwise be 
    recognized if performed by a physician who is serving as an 
    assistant at surgery; and''.
        (2) Conforming amendments.--Section 1833(r) (42 U.S.C. 
    1395l(r)) is amended--
            (A) in paragraph (1), by striking ``section 
        1861(s)(2)(K)(iii) (relating to nurse practitioner or clinical 
        nurse specialist services provided in a rural area)'' and 
        inserting ``section 1861(s)(2)(K)(ii) (relating to nurse 
        practitioner or clinical nurse specialist services)'';
            (B) by striking paragraph (2);
            (C) in paragraph (3), by striking ``section 
        1861(s)(2)(K)(iii)'' and inserting ``section 
        1861(s)(2)(K)(ii)''; and
            (D) by redesignating paragraph (3) as paragraph (2).
    (c) Direct Payment for Nurse Practitioners and Clinical Nurse 
Specialists.--Section 1832(a)(2)(B)(iv) (42 U.S.C. 1395k(a)(2)(B)(iv)) 
is amended by striking ``provided in a rural area (as defined in 
section 1886(d)(2)(D))'' and inserting ``but only if no facility or 
other provider charges or is paid any amounts with respect to the 
furnishing of such services''.
    (d) Definition of Clinical Nurse Specialist Clarified.--Section 
1861(aa)(5) (42 U.S.C. 1395x(aa)(5)) is amended--
        (1) by inserting ``(A)'' after ``(5)'';
        (2) by striking ``The term `physician assistant''' and all that 
    follows through ``who performs'' and inserting ``The term 
    `physician assistant' and the term `nurse practitioner' mean, for 
    purposes of this title, a physician assistant or nurse practitioner 
    who performs''; and
        (3) by adding at the end the following new subparagraph:
    ``(B) The term `clinical nurse specialist' means, for purposes of 
this title, an individual who--
        ``(i) is a registered nurse and is licensed to practice nursing 
    in the State in which the clinical nurse specialist services are 
    performed; and
        ``(ii) holds a master's degree in a defined clinical area of 
    nursing from an accredited educational institution.''.
    (e) Effective Date.--The amendments made by this section shall 
apply with respect to services furnished and supplies provided on and 
after January 1, 1998.

SEC. 4512. INCREASED MEDICARE REIMBURSEMENT FOR PHYSICIAN ASSISTANTS.

    (a) Removal of Restriction on Settings.--Section 1861(s)(2)(K)(i) 
(42 U.S.C. 1395x(s)(2)(K)(i)), as amended by section 4511, is amended--
        (1) by striking ``(I) in a hospital'' and all that follows 
    through ``shortage area,'', and
        (2) by adding at the end the following: ``but only if no 
    facility or other provider charges or is paid any amounts with 
    respect to the furnishing of such services,''.
    (b) Increased Payment.--
        (1) Fee schedule amount.--Section 1833(a)(1)(O) (42 U.S.C. 
    1395l(a)(1)(O)), as amended by section 4511, is further amended--
            (A) by striking ``section 1861(s)(2)(K)(ii)'' and inserting 
        ``1861(s)(2)(K)'', and
            (B) by striking ``nurse practitioner or clinical nurse 
        specialist services'' and inserting ``services furnished by 
        physician assistants, nurse practitioners, or clinic nurse 
        specialists''.
        (2) Conforming amendment.--Paragraph (12) of section 1842(b) 
    (42 U.S.C. 1395u(b)) is repealed.
    (c) Removal of Restriction on Employment Relationship.--Section 
1842(b)(6) (42 U.S.C. 1395u(b)(6)), as amended by section 4205, is 
amended by adding at the end the following new sentence: ``For purposes 
of subparagraph (C) of the first sentence of this paragraph, an 
employment relationship may include any independent contractor 
arrangement, and employer status shall be determined in accordance with 
the law of the State in which the services described in such clause are 
performed.''.
    (d) Effective Date.--The amendments made by this section shall 
apply with respect to services furnished and supplies provided on and 
after January 1, 1998.

SEC. 4513. NO X-RAY REQUIRED FOR CHIROPRACTIC SERVICES.

    (a) In General.--Section 1861(r)(5) (42 U.S.C. 1395x(r)(5)) is 
amended by striking ``demonstrated by X-ray to exist''.
    (b) Effective Date.--The amendment made by subsection (a) applies 
to services furnished on or after January 1, 2000.
    (c) Utilization Guidelines.--The Secretary of Health and Human 
Services shall develop and implement utilization guidelines relating to 
the coverage of chiropractic services under part B of title XVIII of 
the Social Security Act in cases in which a subluxation has not been 
demonstrated by X-ray to exist.

     CHAPTER 2--PAYMENT FOR HOSPITAL OUTPATIENT DEPARTMENT SERVICES

SEC. 4521. ELIMINATION OF FORMULA-DRIVEN OVERPAYMENTS (FDO) FOR CERTAIN 
              OUTPATIENT HOSPITAL SERVICES.

    (a) Elimination of FDO for 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) Elimination of FDO for Radiology Services and Diagnostic 
Procedures.--Section 1833(n)(1)(B)(i) (42 U.S.C. 1395l(n)(1)(B)(i)) is 
amended--
        (1) by striking ``of 80 percent'', and
        (2) by inserting before the period at the end 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, 1997.

SEC. 4522. 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 1999 and during 
fiscal year 2000 before January 1, 2000''.
    (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 1999 and during 
fiscal year 2000 before January 1, 2000''.

SEC. 4523. PROSPECTIVE PAYMENT SYSTEM FOR HOSPITAL OUTPATIENT 
              DEPARTMENT SERVICES.

    (a) In General.--Section 1833 (42 U.S.C. 1395l) is amended by 
adding at the end the following:
    ``(t) Prospective Payment System for Hospital Outpatient Department 
Services.--
        ``(1) Amount of payment.--
            ``(A) In general.--With respect to covered OPD services (as 
        defined in subparagraph (B)) furnished during a year beginning 
        with 1999, the amount of payment under this part shall be 
        determined under a prospective payment system established by 
        the Secretary in accordance with this subsection.
            ``(B) Definition of covered opd services.--For purposes of 
        this subsection, the term `covered OPD services'--
                ``(i) means hospital outpatient services designated by 
            the Secretary;
                ``(ii) subject to clause (iii), includes inpatient 
            hospital services designated by the Secretary that are 
            covered under this part and furnished to a hospital 
            inpatient who (I) is entitled to benefits under part A but 
            has exhausted benefits for inpatient hospital services 
            during a spell of illness, or (II) is not so entitled; but
                ``(iii) does not include any therapy services described 
            in subsection (a)(8) or ambulance services, for which 
            payment is made under a fee schedule described in section 
            1834(k) or section 1834(l).
        ``(2) System requirements.--Under the payment system--
            ``(A) the Secretary shall develop a classification system 
        for covered OPD services;
            ``(B) the Secretary may establish groups of covered OPD 
        services, within the classification system described in 
        subparagraph (A), so that services classified within each group 
        are comparable clinically and with respect to the use of 
        resources;
            ``(C) the Secretary shall, using data on claims from 1996 
        and using data from the most recent available cost reports, 
        establish relative payment weights for covered OPD services 
        (and any groups of such services described in subparagraph (B)) 
        based on median hospital costs and shall determine projections 
        of the frequency of utilization of each such service (or group 
        of services) in 1999;
            ``(D) the Secretary shall determine a wage adjustment 
        factor to adjust the portion of payment and coinsurance 
        attributable to labor-related costs for relative differences in 
        labor and labor-related costs across geographic regions in a 
        budget neutral manner;
            ``(E) the Secretary shall establish other adjustments, in a 
        budget neutral manner, as determined to be necessary to ensure 
        equitable payments, such as outlier adjustments or adjustments 
        for certain classes of hospitals; and
            ``(F) the Secretary shall develop a method for controlling 
        unnecessary increases in the volume of covered OPD services.
        ``(3) Calculation of base amounts.--
            ``(A) Aggregate amounts that would be payable if 
        deductibles were disregarded.--The Secretary shall estimate the 
        sum of--
                ``(i) the total amounts that would be payable from the 
            Trust Fund under this part for covered OPD services in 
            1999, determined without regard to this subsection, as 
            though the deductible under section 1833(b) did not apply, 
            and
                ``(ii) the total amounts of copayments estimated to be 
            paid under this subsection by beneficiaries to hospitals 
            for covered OPD services in 1999, as though the deductible 
            under section 1833(b) did not apply.
            ``(B) Unadjusted copayment amount.--
                ``(i) In general.--For purposes of this subsection, 
            subject to clause (ii), the `unadjusted copayment amount' 
            applicable to a covered OPD service (or group of such 
            services) is 20 percent of the national median of the 
            charges for the service (or services within the group) 
            furnished during 1996, updated to 1999 using the 
            Secretary's estimate of charge growth during the period.
                ``(ii) Adjusted to be 20 percent when fully phased 
            in.--If the pre-deductible payment percentage for a covered 
            OPD service (or group of such services) furnished in a year 
            would be equal to or exceed 80 percent, then the unadjusted 
            copayment amount shall be 20 percent of amount determined 
            under subparagraph (D).
                ``(iii) Rules for new services.--The Secretary shall 
            establish rules for establishment of an unadjusted 
            copayment amount for a covered OPD service not furnished 
            during 1996, based upon its classification within a group 
            of such services.
            ``(C) Calculation of conversion factors.--
                ``(i) For 1999.--

                    ``(I) In general.--The Secretary shall establish a 
                1999 conversion factor for determining the medicare OPD 
                fee schedule amounts for each covered OPD service (or 
                group of such services) furnished in 1999. Such 
                conversion factor shall be established on the basis of 
                the weights and frequencies described in paragraph 
                (2)(C) and in such a manner that the sum for all 
                services and groups of the products (described in 
                subclause (II) for each such service or group) equals 
                the total projected amount described in subparagraph 
                (A).
                    ``(II) Product described.--The Secretary shall 
                determine for each service or group the product of the 
                medicare OPD fee schedule amounts (taking into account 
                appropriate adjustments described in paragraphs (2)(D) 
                and (2)(E)) and the estimated frequencies for such 
                service or group.

                ``(ii) Subsequent years.--Subject to paragraph (8)(B), 
            the Secretary shall establish a conversion factor for 
            covered OPD services furnished in subsequent years in an 
            amount equal to the conversion factor established under 
            this subparagraph and applicable to such services furnished 
            in the previous year increased by the OPD fee schedule 
            increase factor specified under clause (iii) for the year 
            involved.
                ``(iii) OPD fee schedule increase factor.--For purposes 
            of this subparagraph, the `OPD fee schedule increase 
            factor' for services furnished in a year is equal to the 
            market basket percentage increase applicable under section 
            1886(b)(3)(B)(iii) to hospital discharges occurring during 
            the fiscal year ending in such year, reduced by 1 
            percentage point for such factor for services furnished in 
            each of 2000, 2001, and 2002. In applying the previous 
            sentence for years beginning with 2000, the Secretary may 
            substitute for the market basket percentage increase an 
            annual percentage increase that is computed and applied 
            with respect to covered OPD services furnished in a year in 
            the same manner as the market basket percentage increase is 
            determined and applied to inpatient hospital services for 
            discharges occurring in a fiscal year.
            ``(D) Calculation of medicare opd fee schedule amounts.--
        The Secretary shall compute a medicare OPD fee schedule amount 
        for each covered OPD service (or group of such services) 
        furnished in a year, in an amount equal to the product of--
                ``(i) the conversion factor computed under subparagraph 
            (C) for the year, and
                ``(ii) the relative payment weight (determined under 
            paragraph (2)(C)) for the service or group.
            ``(E) Pre-deductible payment percentage.--The pre-
        deductible payment percentage for a covered OPD service (or 
        group of such services) furnished in a year is equal to the 
        ratio of--
                ``(i) the medicare OPD fee schedule amount established 
            under subparagraph (D) for the year, minus the unadjusted 
            copayment amount determined under subparagraph (B) for the 
            service or group, to
                ``(ii) the medicare OPD fee schedule amount determined 
            under subparagraph (D) for the year for such service or 
            group.
        ``(4) Medicare payment amount.--The amount of payment made from 
    the Trust Fund under this part for a covered OPD service (and such 
    services classified within a group) furnished in a year is 
    determined as follows:
            ``(A) Fee schedule adjustments.--The medicare OPD fee 
        schedule amount (computed under paragraph (3)(D)) for the 
        service or group and year is adjusted for relative differences 
        in the cost of labor and other factors determined by the 
        Secretary, as computed under paragraphs (2)(D) and (2)(E).
            ``(B) Subtract applicable deductible.--Reduce the adjusted 
        amount determined under subparagraph (A) by the amount of the 
        deductible under section 1833(b), to the extent applicable.
            ``(C) Apply payment proportion to remainder.--The amount of 
        payment is the amount so determined under subparagraph (B) 
        multiplied by the pre-deductible payment percentage (as 
        determined under paragraph (3)(E)) for the service or group and 
        year involved.
        ``(5) Copayment amount.--
            ``(A) In general.--Except as provided in subparagraph (B), 
        the copayment amount under this subsection is the amount by 
        which the amount described in paragraph (4)(B) exceeds the 
        amount of payment determined under paragraph (4)(C).
            ``(B) Election to offer reduced copayment amount.--The 
        Secretary shall establish a procedure under which a hospital, 
        before the beginning of a year (beginning with 1999), may elect 
        to reduce the copayment amount otherwise established under 
        subparagraph (A) for some or all covered OPD services to an 
        amount that is not less than 20 percent of the medicare OPD fee 
        schedule amount (computed under paragraph (3)(D)) for the 
        service involved. Under such procedures, such reduced copayment 
        amount may not be further reduced or increased during the year 
        involved and the hospital may disseminate information on the 
        reduction of copayment amount effected under this subparagraph.
            ``(C) No impact on deductibles.--Nothing in this paragraph 
        shall be construed as affecting a hospital's authority to waive 
        the charging of a deductible under section 1833(b).
        ``(6) Periodic review and adjustments components of prospective 
    payment system.--
            ``(A) Periodic review.--The Secretary may periodically 
        review and revise the groups, the relative payment weights, and 
        the wage and other adjustments described in paragraph (2) to 
        take into account changes in medical practice, changes in 
        technology, the addition of new services, new cost data, and 
        other relevant information and factors.
            ``(B) Budget neutrality adjustment.--If the Secretary makes 
        adjustments under subparagraph (A), then the adjustments for a 
        year may not cause the estimated amount of expenditures under 
        this part for the year to increase or decrease from the 
        estimated amount of expenditures under this part that would 
        have been made if the adjustments had not been made.
            ``(C) Update factor.--If the Secretary determines under 
        methodologies described in paragraph (2)(F) that the volume of 
        services paid for under this subsection increased beyond 
        amounts established through those methodologies, the Secretary 
        may appropriately adjust the update to the conversion factor 
        otherwise applicable in a subsequent year.
        ``(7) Special rule for ambulance services.--The Secretary shall 
    pay for hospital outpatient services that are ambulance services on 
    the basis described in the matter in subsection (a)(1) preceding 
    subparagraph (A), or, if applicable, the fee schedule established 
    under section 1834(l).
        ``(8) Special rules for certain hospitals.--In the case of 
    hospitals described in section 1886(d)(1)(B)(v)--
            ``(A) the system under this subsection shall not apply to 
        covered OPD services furnished before January 1, 2000; and
            ``(B) the Secretary may establish a separate conversion 
        factor for such services in a manner that specifically takes 
        into account the unique costs incurred by such hospitals by 
        virtue of their patient population and service intensity.
        ``(9) Limitation on review.--There shall be no administrative 
    or judicial review under section 1869, 1878, or otherwise of--
            ``(A) the development of the classification system under 
        paragraph (2), including the establishment of groups and 
        relative payment weights for covered OPD services, of wage 
        adjustment factors, other adjustments, and methods described in 
        paragraph (2)(F);
            ``(B) the calculation of base amounts under paragraph (3);
            ``(C) periodic adjustments made under paragraph (6); and
            ``(D) the establishment of a separate conversion factor 
        under paragraph (8)(B).''.
    (b) Coinsurance.--Section 1866(a)(2)(A)(ii) (42 U.S.C. 
1395cc(a)(2)(A)(ii)) is amended by adding at the end the following: 
``In the case of items and services for which payment is made under 
part B under the prospective payment system established under section 
1833(t), clause (ii) of the first sentence shall be applied by 
substituting for 20 percent of the reasonable charge, the applicable 
copayment amount established under section 1833(t)(5).''.
    (c) Treatment of Reduction in Copayment Amount.--Section 
1128A(i)(6) (42 U.S.C. 1320a-7a(i)(6)) is amended--
        (1) by striking ``or'' at the end of subparagraph (B),
        (2) by striking the period at the end of subparagraph (C) and 
    inserting ``; or'', and
        (3) by adding at the end the following new subparagraph:
            ``(D) a reduction in the copayment amount for covered OPD 
        services under section 1833(t)(5)(B).''.
    (d) Conforming Amendments.--
        (1) Approved asc procedures performed in hospital outpatient 
    departments.--
            (A)(i) Section 1833(i)(3)(A) (42 U.S.C. 1395l(i)(3)(A)) is 
        amended--
                (I) by inserting ``before January 1, 1999,'' after 
            ``furnished'', and
                (II) by striking ``in a cost reporting period''.
            (ii) The amendment made by clause (i) shall apply to 
        services furnished on or after January 1, 1999.
            (B) Section 1833(a)(4) (42 U.S.C. 1395l(a)(4)) is amended 
        by inserting ``or subsection (t)'' before the semicolon.
        (2) Radiology and other diagnostic procedures.--
            (A) Section 1833(n)(1)(A) (42 U.S.C. 1395l(n)(1)(A)) is 
        amended by inserting ``and before January 1, 1999,'' after 
        ``October 1, 1988,'' and after ``October 1, 1989,''.
            (B) Section 1833(a)(2)(E) (42 U.S.C. 1395l(a)(2)(E)) is 
        amended by inserting ``or, for services or procedures performed 
        on or after January 1, 1999, subsection (t)'' before the 
        semicolon.
        (3) Other hospital outpatient services.--Section 1833(a)(2)(B) 
    (42 U.S.C. 1395l(a)(2)(B)) is amended--
            (A) in clause (i), by inserting ``furnished before January 
        1, 1999,'' after ``(i)'',
            (B) in clause (ii), by inserting ``before January 1, 
        1999,'' after ``furnished'',
            (C) by redesignating clause (iii) as clause (iv), and
            (D) by inserting after clause (ii), the following new 
        clause:
                ``(iii) if such services are furnished on or after 
            January 1, 1999, the amount determined under subsection 
            (t), or''.

                     CHAPTER 3--AMBULANCE SERVICES

SEC. 4531. PAYMENTS FOR AMBULANCE SERVICES.

    (a) Interim Reductions.--
        (1) Payments determined on reasonable cost basis.--Section 
    1861(v)(1) (42 U.S.C. 1395x(v)(1)), as amended by section 4451, is 
    amended by adding at the end the following new subparagraph:
            ``(U) In determining the reasonable cost of ambulance 
        services (as described in subsection (s)(7)) provided during 
        fiscal year 1998, during fiscal year 1999, and during so much 
        of fiscal year 2000 as precedes January 1, 2000, the Secretary 
        shall not recognize the costs per trip in excess of costs 
        recognized as reasonable for ambulance services provided on a 
        per trip basis during the previous fiscal year (after 
        application of this subparagraph), increased by the percentage 
        increase in the consumer price index for all urban consumers 
        (U.S. city average) as estimated by the Secretary for the 12-
        month period ending with the midpoint of the fiscal year 
        involved reduced by 1.0 percentage point. For ambulance 
        services provided after June 30, 1998, the Secretary may 
        provide that claims for such services must include a code (or 
        codes) under a uniform coding system specified by the Secretary 
        that identifies the services furnished.''.
        (2) Payments determined on reasonable charge basis.--Section 
    1842(b) (42 U.S.C. 1395u(b)) is amended by adding at the end the 
    following new paragraph:
    ``(19) For purposes of section 1833(a)(1), the reasonable charge 
for ambulance services (as described in section 1861(s)(7)) provided 
during calendar year 1998 and calendar year 1999 may not exceed the 
reasonable charge for such services provided during the previous 
calendar year (after application of this paragraph), increased by the 
percentage increase in the consumer price index for all urban consumers 
(U.S. city average) as estimated by the Secretary for the 12-month 
period ending with the midpoint of the year involved reduced by 1.0 
percentage point.''.
    (b) Establishment of Prospective Fee Schedule.--
        (1) Payment in accordance with fee schedule.--Section 
    1833(a)(1) (42 U.S.C. 1395l(a)(1)), as amended by section 4315(b), 
    is amended--
            (A) by striking ``and (Q)'' and inserting ``(Q)''; and
            (B) by striking the semicolon at the end and inserting the 
        following: ``, and (R) with respect to ambulance service, the 
        amounts paid shall be 80 percent of the lesser of the actual 
        charge for the services or the amount determined by a fee 
        schedule established by the Secretary under section 1834(l);''.
        (2) Establishment of schedule.--Section 1834 (42 U.S.C. 1395m), 
    as amended by section 4541, is amended by adding at the end the 
    following new subsection:
    ``(l) Establishment of Fee Schedule for Ambulance Services.--
        ``(1) In general.--The Secretary shall establish a fee schedule 
    for payment for ambulance services whether provided directly by a 
    supplier or provider or under arrangement with a provider under 
    this part through a negotiated rulemaking process described in 
    title 5, United States Code, and in accordance with the 
    requirements of this subsection.
        ``(2) Considerations.--In establishing such fee schedule, the 
    Secretary shall--
            ``(A) establish mechanisms to control increases in 
        expenditures for ambulance services under this part;
            ``(B) establish definitions for ambulance services which 
        link payments to the type of services provided;
            ``(C) consider appropriate regional and operational 
        differences;
            ``(D) consider adjustments to payment rates to account for 
        inflation and other relevant factors; and
            ``(E) phase in the application of the payment rates under 
        the fee schedule in an efficient and fair manner.
        ``(3) Savings.--In establishing such fee schedule, the 
    Secretary shall--
            ``(A) ensure that the aggregate amount of payments made for 
        ambulance services under this part during 2000 does not exceed 
        the aggregate amount of payments which would have been made for 
        such services under this part during such year if the 
        amendments made by section 4531(a) of the Balanced Budget Act 
        of 1997 continued in effect, except that in making such 
        determination the Secretary shall assume an update in such 
        payments for 2002 equal to percentage increase in the consumer 
        price index for all urban consumers (U.S. city average) for the 
        12-month period ending with June of the previous year reduced 
        in the case of 2001 and 2002 by 1.0 percentage points; and
            ``(B) set the payment amounts provided under the fee 
        schedule for services furnished in 2001 and each subsequent 
        year at amounts equal to the payment amounts under the fee 
        schedule for services furnished during the previous year, 
        increased by the percentage increase in the consumer price 
        index for all urban consumers (U.S. city average) for the 12-
        month period ending with June of the previous year reduced in 
        the case of 2001 and 2002 by 1.0 percentage points.
        ``(4) Consultation.--In establishing the fee schedule for 
    ambulance services under this subsection, the Secretary shall 
    consult with various national organizations representing 
    individuals and entities who furnish and regulate ambulance 
    services and share with such organizations relevant data in 
    establishing such schedule.
        ``(5) Limitation on review.--There shall be no administrative 
    or judicial review under section 1869 or otherwise of the amounts 
    established under the fee schedule for ambulance services under 
    this subsection, including matters described in paragraph (2).
        ``(6) Restraint on billing.--The provisions of subparagraphs 
    (A) and (B) of section 1842(b)(18) shall apply to ambulance 
    services for which payment is made under this subsection in the 
    same manner as they apply to services provided by a practitioner 
    described in section 1842(b)(18)(C).
        ``(7) Coding system.--The Secretary may require the claim for 
    any services for which the amount of payment is determined under 
    this subsection to include a code (or codes) under a uniform coding 
    system specified by the Secretary that identifies the services 
    furnished.''.
        (3) Effective date.--The amendments made by this subsection 
    shall apply to services furnished on or after January 1, 2000.
    (c) Authorizing Payment for Paramedic Intercept Service Providers 
in Rural Communities.--In promulgating regulations to carry out section 
1861(s)(7) of the Social Security Act (42 U.S.C. 1395x(s)(7)) with 
respect to the coverage of ambulance service, the Secretary of Health 
and Human Services may include coverage of advanced life support 
services (in this subsection referred to as ``ALS intercept services'') 
provided by a paramedic intercept service provider in a rural area if 
the following conditions are met:
        (1) The ALS intercept services are provided under a contract 
    with one or more volunteer ambulance services and are medically 
    necessary based on the health condition of the individual being 
    transported.
        (2) The volunteer ambulance service involved--
            (A) is certified as qualified to provide ambulance service 
        for purposes of such section,
            (B) provides only basic life support services at the time 
        of the intercept, and
            (C) is prohibited by State law from billing for any 
        services.
        (3) The entity supplying the ALS intercept services--
            (A) is certified as qualified to provide such services 
        under the medicare program under title XVIII of the Social 
        Security Act, and
            (B) bills all recipients who receive ALS intercept services 
        from the entity, regardless of whether or not such recipients 
        are medicare beneficiaries.

SEC. 4532. DEMONSTRATION OF COVERAGE OF AMBULANCE SERVICES UNDER 
              MEDICARE THROUGH CONTRACTS WITH UNITS OF LOCAL 
              GOVERNMENT.

    (a) Demonstration Project Contracts with Local Governments.--The 
Secretary of Health and Human Services shall establish up to 3 
demonstration projects under which, at the request of a unit of local 
government, the Secretary enters into a contract with the unit of local 
government under which--
        (1) the unit of local government furnishes (or arranges for the 
    furnishing of) ambulance services for which payment may be made 
    under part B of title XVIII of the Social Security Act for 
    individuals residing in the unit of local government who are 
    enrolled under such part, except that the unit of local government 
    may not enter into the contract unless the contract covers at least 
    80 percent of the individuals residing in the unit of local 
    government who are enrolled under such part but not in a 
    Medicare+Choice plan;
        (2) any individual or entity furnishing ambulance services 
    under the contract meets the requirements otherwise applicable to 
    individuals and entities furnishing such services under such part; 
    and
        (3) for each month during which the contract is in effect, the 
    Secretary makes a capitated payment to the unit of local government 
    in accordance with subsection (b).
The projects may extend over a period of not to exceed 3 years each.
    (b) Amount of Payment.--
        (1) In general.--The amount of the monthly payment made for 
    months occurring during a calendar year to a unit of local 
    government under a demonstration project contract under subsection 
    (a) shall be equal to the product of--
            (A) the Secretary's estimate of the number of individuals 
        covered under the contract for the month; and
            (B) \1/12\ of the capitated payment rate for the year 
        established under paragraph (2).
        (2) Capitated payment rate defined.--In this subsection, the 
    ``capitated payment rate'' applicable to a contract under this 
    subsection for a calendar year is equal to 95 percent of--
            (A) for the first calendar year for which the contract is 
        in effect, the average annual per capita payment made under 
        part B of title XVIII of the Social Security Act with respect 
        to ambulance services furnished to such individuals during the 
        3 most recent calendar years for which data on the amount of 
        such payment is available; and
            (B) for a subsequent year, the amount provided under this 
        paragraph for the previous year increased by the percentage 
        increase in the consumer price index for all urban consumers 
        (U.S. city average) for the 12-month period ending with June of 
        the previous year.
    (c) Other Terms of Contract.--The Secretary and the unit of local 
government may include in a contract under this section such other 
terms as the parties consider appropriate, including--
        (1) covering individuals residing in additional units of local 
    government (under arrangements entered into between such units and 
    the unit of local government involved);
        (2) permitting the unit of local government to transport 
    individuals to non-hospital providers if such providers are able to 
    furnish quality services at a lower cost than hospital providers; 
    or
        (3) implementing such other innovations as the unit of local 
    government may propose to improve the quality of ambulance services 
    and control the costs of such services.
    (d) Contract Payments in Lieu of Other Benefits.--Payments under a 
contract to a unit of local government under this section shall be 
instead of the amounts which (in the absence of the contract) would 
otherwise be payable under part B of title XVIII of the Social Security 
Act for the services covered under the contract which are furnished to 
individuals who reside in the unit of local government.
    (e) Report on Effects of Capitated Contracts.--
        (1) Study.--The Secretary shall evaluate the demonstration 
    projects conducted under this section. Such evaluation shall 
    include an analysis of the quality and cost-effectiveness of 
    ambulance services furnished under the projects.
        (2) Report.--Not later than January 1, 2000, the Secretary 
    shall submit a report to Congress on the study conducted under 
    paragraph (1), and shall include in the report such recommendations 
    as the Secretary considers appropriate, including recommendations 
    regarding modifications to the methodology used to determine the 
    amount of payments made under such contracts and extending or 
    expanding such projects.

 CHAPTER 4--PROSPECTIVE PAYMENT FOR OUTPATIENT REHABILITATION SERVICES

SEC. 4541. PROSPECTIVE PAYMENT FOR OUTPATIENT REHABILITATION SERVICES.

    (a) Payment Based on Fee Schedule.--
        (1) Special payment rules.--Section 1833(a) (42 U.S.C. 
    1395l(a)) is amended--
            (A) in paragraph (2) in the matter before subparagraph (A), 
        by inserting ``(C),'' before ``(D)'';
            (B) in paragraph (3), by striking ``subparagraphs (D) and 
        (E) of section 1832(a)(2)'' and inserting ``section 
        1832(a)(2)(D)'';
            (C) in paragraph (6), by striking ``and'' at the end;
            (D) in paragraph (7), by striking the period at the end and 
        inserting a semicolon; and
            (E) by adding at the end the following new paragraphs:
        ``(8) in the case of--
            ``(A) outpatient physical therapy services (which includes 
        outpatient speech-language pathology services) and outpatient 
        occupational therapy services furnished--
                ``(i) by a rehabilitation agency, public health agency, 
            clinic, comprehensive outpatient rehabilitation facility, 
            or skilled nursing facility,
                ``(ii) by a home health agency to an individual who is 
            not homebound, or
                ``(iii) by another entity under an arrangement with an 
            entity described in clause (i) or (ii); and
            ``(B) outpatient physical therapy services (which includes 
        outpatient speech-language pathology services) and outpatient 
        occupational therapy services furnished--
                ``(i) by a hospital to an outpatient or to a hospital 
            inpatient who is entitled to benefits under part A but has 
            exhausted benefits for inpatient hospital services during a 
            spell of illness or is not so entitled to benefits under 
            part A, or
                ``(ii) by another entity under an arrangement with a 
            hospital described in clause (i),
    the amounts described in section 1834(k); and
        ``(9) in the case of services described in section 
    1832(a)(2)(E) that are not described in paragraph (8), the amounts 
    described in section 1834(k).''.
        (2) Payment rates.--Section 1834 (42 U.S.C. 1395m) is amended 
    by adding at the end the following new subsection:
    ``(k) Payment for Outpatient Therapy Services and Comprehensive 
Outpatient Rehabilitation Services.--
        ``(1) In general.--With respect to services described in 
    section 1833(a)(8) or 1833(a)(9) for which payment is determined 
    under this subsection, the payment basis shall be--
            ``(A) for services furnished during 1998, the amount 
        determined under paragraph (2); or
            ``(B) for services furnished during a subsequent year, 80 
        percent of the lesser of--
                ``(i) the actual charge for the services, or
                ``(ii) the applicable fee schedule amount (as defined 
            in paragraph (3)) for the services.
        ``(2) Payment in 1998 based upon adjusted reasonable costs.--
    The amount under this paragraph for services is the lesser of--
            ``(A) the charges imposed for the services, or
            ``(B) the adjusted reasonable costs (as defined in 
        paragraph (4)) for the services,
    less 20 percent of the amount of the charges imposed for such 
    services.
        ``(3) Applicable fee schedule amount.--In this subsection, the 
    term `applicable fee schedule amount' means, with respect to 
    services furnished in a year, the amount determined under the fee 
    schedule established under section 1848 for such services furnished 
    during the year or, if there is no such fee schedule established 
    for such services, the amount determined under the fee schedule 
    established for such comparable services as the Secretary 
    specifies.
        ``(4) Adjusted reasonable costs.--In paragraph (2), the term 
    `adjusted reasonable costs' means, with respect to any services, 
    reasonable costs determined for such services, reduced by 10 
    percent. The 10-percent reduction shall not apply to services 
    described in section 1833(a)(8)(B) (relating to services provided 
    by hospitals).
        ``(5) Uniform coding.--For claims for services submitted on or 
    after April 1, 1998, for which the amount of payment is determined 
    under this subsection, the claim shall include a code (or codes) 
    under a uniform coding system specified by the Secretary that 
    identifies the services furnished.
        ``(6) Restraint on billing.--The provisions of subparagraphs 
    (A) and (B) of section 1842(b)(18) shall apply to therapy services 
    for which payment is made under this subsection in the same manner 
    as they apply to services provided by a practitioner described in 
    section 1842(b)(18)(C).''.
        (3) Conforming change in billing.--Section 1866(a)(2)(A)(ii) 
    (42 U.S.C. 1395cc(a)(2)(A)(ii)) is amended by adding at the end the 
    following: ``In the case of services described in section 
    1833(a)(8) or section 1833(a)(9) for which payment is made under 
    part B under section 1834(k), clause (ii) of the first sentence 
    shall be applied by substituting for 20 percent of the reasonable 
    charge for such services 20 percent of the lesser of the actual 
    charge or the applicable fee schedule amount (as defined in such 
    section) for such services.''.
    (b) Application of Standards to Outpatient Occupational and 
Physical Therapy Services Provided As an Incident to a Physician's 
Professional Services.--Section 1862(a), as amended by sections 
4319(b), 4432(b), and 4507(a)(2)(B), (42 U.S.C. 1395y(a)) is amended--
        (1) by striking ``or'' at the end of paragraph (18);
        (2) by striking the period at the end of paragraph (19) and 
    inserting ``; or''; and
        (3) by inserting after paragraph (19) the following:
        ``(20) in the case of outpatient occupational therapy services 
    or outpatient physical therapy services furnished as an incident to 
    a physician's professional services (as described in section 
    1861(s)(2)(A)), that do not meet the standards and conditions 
    (other than any licensing requirement specified by the Secretary) 
    under the second sentence of section 1861(p) (or under such 
    sentence through the operation of section 1861(g)) as such 
    standards and conditions would apply to such therapy services if 
    furnished by a therapist.''.
    (c) Applying Financial Limitation to All Rehabilitation Services.--
Section 1833(g) (42 U.S.C. 1395l(g)) is amended--
        (1) in the first sentence, by striking ``services described in 
    the second sentence of section 1861(p)'' and inserting ``physical 
    therapy services of the type described in section 1861(p), but not 
    described in section 1833(a)(8)(B), and physical therapy services 
    of such type which are furnished by a physician or as incident to 
    physicians' services'', and
        (2) in the second sentence, by striking ``outpatient 
    occupational therapy services which are described in the second 
    sentence of section 1861(p) through the operation of section 
    1861(g)'' and inserting ``occupational therapy services (of the 
    type that are described in section 1861(p) (but not described in 
    section 1833(a)(8)(B)) through the operation of section 1861(g) and 
    of such type which are furnished by a physician or as incident to 
    physicians' services)''.
    (d) Indexing Limitation.--
        (1) In general.--Section 1833(g) (42 U.S.C. 1395l(g)), as 
    amended by subsection (c), is further amended--
            (A) by striking ``$900'' each place it appears and 
        inserting ``the amount specified in paragraph (2) for the 
        year'',
            (B) by inserting ``(1)'' after ``(g)'',
            (C) by designating the last sentence as a paragraph (3), 
        and
            (D) by inserting before paragraph (3), as so designated, 
        the following:
    ``(2) The amount specified in this paragraph--
        ``(A) for 1999, 2000, and 2001, is $1,500, and
        ``(B) for a subsequent year is the amount specified in this 
    paragraph for the preceding year increased by the percentage 
    increase in the MEI (as defined in section 1842(i)(3)) for such 
    subsequent year;
except that if an increase under subparagraph (B) for a year is not a 
multiple of $10, it shall be rounded to the nearest multiple of $10.''.
        (2) Report.--By not later than January 1, 2001, the Secretary 
    of Health and Human Services shall submit to Congress a report that 
    includes recommendations on the establishment of a revised coverage 
    policy of outpatient physical therapy services and outpatient 
    occupational therapy services under the Social Security Act based 
    on classification of individuals by diagnostic category and prior 
    use of services, in both inpatient and outpatient settings, in 
    place of the uniform dollar limitations specified in section 
    1833(g) of such Act, as amended by paragraph (1). The 
    recommendations shall include how such a system of durational 
    limits by diagnostic category might be implemented in a budget-
    neutral manner.
    (e) Effective Dates.--
        (1) The amendments made by subsections (a)(1), (a)(2), and (b) 
    apply to services furnished on or after January 1, 1998, including 
    portions of cost reporting periods occurring on or after such date, 
    except that section 1834(k) of the Social Security Act (as added by 
    subsection (a)(2)) shall not apply to services described in section 
    1833(a)(8)(B) of such Act (as added by subsection (a)(1)) that are 
    furnished during 1998.
        (2) The amendments made by subsections (a)(3) and (c) apply to 
    services furnished on or after January 1, 1999.
        (3) The amendments made by subsection (d)(1) apply to expenses 
    incurred on or after January 1, 1999.

                  CHAPTER 5--OTHER PAYMENT PROVISIONS

SEC. 4551. PAYMENTS FOR DURABLE MEDICAL EQUIPMENT.

    (a) Reduction in Payment Amounts for Items of Durable Medical 
Equipment.--
        (1) Freeze in update for covered items.--Section 1834(a)(14) 
    (42 U.S.C. 1395m(a)(14)) is amended--
            (A) in subparagraph (A), by striking ``and'' at the end;
            (B) in subparagraph (B)--
                (i) by striking ``a subsequent year'' and inserting 
            ``1993, 1994, 1995, 1996, and 1997'', and
                (ii) by striking the period at the end and inserting a 
            semicolon; and
            (C) by adding at the end the following new subparagraphs:
            ``(C) for each of the years 1998 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) in clause (iii), by striking ``, and'' at the end and 
        inserting a semicolon;
            (B) in clause (iv), by striking ``a subsequent year'' and 
        inserting ``1996 and 1997''; and
            (C) by adding at the end the following new clauses:
                ``(v) for each of the years 1998 through 2002, 1 
            percent, and
                ``(vi) for a subsequent year, the percentage increase 
            in the consumer price index for all urban consumers (United 
            States city average) for the 12-month period ending with 
            June of the previous year;''.
    (b) Payment Freeze for Parenteral and Enteral Nutrients, Supplies, 
and Equipment.--In determining the amount of payment under part B of 
title XVIII of the Social Security Act with respect to parenteral and 
enteral nutrients, supplies, and equipment during each of the years 
1998 through 2002, the charges determined to be reasonable with respect 
to such nutrients, supplies, and equipment may not exceed the charges 
determined to be reasonable with respect to such nutrients, supplies, 
and equipment during 1995.
    (c) Upgraded Durable Medical Equipment.--
        (1) In general.--Section 1834(a) (42 U.S.C. 1395m(a)), as 
    amended by section 4312(a), is amended by inserting after paragraph 
    (16) the following new paragraph:
        ``(17) Certain upgraded items.--
            ``(A) Individual's right to choose upgraded item.--
        Notwithstanding any other provision of this title, the 
        Secretary may issue regulations under which an individual may 
        purchase or rent from a supplier an item of upgraded durable 
        medical equipment for which payment would be made under this 
        subsection if the item were a standard item.
            ``(B) Payments to supplier.--In the case of the purchase or 
        rental of an upgraded item under subparagraph (A)--
                ``(i) the supplier shall receive payment under this 
            subsection with respect to such item as if such item were a 
            standard item; and
                ``(ii) the individual purchasing or renting the item 
            shall pay the supplier an amount equal to the difference 
            between the supplier's charge and the amount under clause 
            (i).
        In no event may the supplier's charge for an upgraded item 
        exceed the applicable fee schedule amount (if any) for such 
        item.
            ``(C) Consumer protection safeguards.--Any regulations 
        under subparagraph (A) shall provide for consumer protection 
        standards with respect to the furnishing of upgraded equipment 
        under subparagraph (A). Such regulations shall provide for--
                ``(i) determination of fair market prices with respect 
            to an upgraded item;
                ``(ii) full disclosure of the availability and price of 
            standard items and proof of receipt of such disclosure 
            information by the beneficiary before the furnishing of the 
            upgraded item;
                ``(iii) conditions of participation for suppliers in 
            the billing arrangement;
                ``(iv) sanctions of suppliers who are determined to 
            engage in coercive or abusive practices, including 
            exclusion; and
                ``(v) such other safeguards as the Secretary determines 
            are necessary.''.
        (2) Effective date.--The amendment made by paragraph (1) shall 
    apply to purchases or rentals after the effective date of any 
    regulations issued pursuant to such amendment.

SEC. 4552. OXYGEN AND OXYGEN EQUIPMENT.

    (a) In General.--Section 1834(a)(9)(B) (42 U.S.C. 1395m(a)(9)(B)) 
is amended--
        (1) in clause (iii), by striking ``and'' at the end;
        (2) in clause (iv)--
            (A) by striking ``each subsequent year'' and inserting 
        ``1995, 1996, and 1997'', 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) for 1998, 75 percent of the amount determined 
            under this subparagraph for 1997; and
                ``(vi) for 1999 and each subsequent year, 70 percent of 
            the amount determined under this subparagraph for 1997.''.
    (b) Establishment of Classes for Payment.--Section 1848(a)(9) (42 
U.S.C. 1395m(a)(9)) is amended by adding at the end the following new 
subparagraph:
            ``(D) Authority to create classes.--
                ``(i) In general.--Subject to clause (ii), the 
            Secretary may establish separate classes for any item of 
            oxygen and oxygen equipment and separate national limited 
            monthly payment rates for each of such classes.
                ``(ii) Budget neutrality.--The Secretary may take 
            actions under clause (i) only to the extent such actions do 
            not result in expenditures for any year to be more or less 
            than the expenditures which would have been made if such 
            actions had not been taken.''.
    (c) Standards.--The Secretary shall as soon as practicable 
establish service standards for persons seeking payment under part B of 
title XVIII of the Social Security Act for the providing of oxygen and 
oxygen equipment to beneficiaries within their homes.
    (d) Access to Home Oxygen Equipment.--
        (1) Study.--The Comptroller General of the United States shall 
    study issues relating to access to home oxygen equipment and shall, 
    within 18 months after the date of the enactment of this Act, 
    report to the Committees on Commerce and Ways and Means of the 
    House of Representatives and the Committee on Finance of the Senate 
    the results of the study, including recommendations (if any) for 
    legislation.
        (2) Peer review evaluation.--The Secretary of Health and Human 
    Services shall arrange for peer review organizations established 
    under section 1154 of the Social Security Act to evaluate access 
    to, and quality of, home oxygen equipment.
    (e) Effective Date.--
        (1) Oxygen.--The amendments made by subsection (a) shall apply 
    to items furnished on and after January 1, 1998.
        (2) Other provisions.--The amendments made by this section 
    other than subsection (a) shall take effect on the date of the 
    enactment of this Act.

SEC. 4553. REDUCTION IN UPDATES TO PAYMENT AMOUNTS FOR CLINICAL 
              DIAGNOSTIC LABORATORY TESTS; STUDY ON 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 inserting ``and 1998 through 
2002'' after ``1995''.
    (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, 1998,'' 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, 1997, is equal to 74 percent of 
    such median.''.
    (c) Study and Report on Clinical Laboratory Tests.--
        (1) In general.--The Secretary shall request the Institute of 
    Medicine of the National Academy of Sciences to conduct a study of 
    payments under part B of title XVIII of the Social Security Act for 
    clinical laboratory tests. The study shall include a review of the 
    adequacy of the current methodology and recommendations regarding 
    alternative payment systems. The study shall also analyze and 
    discuss the relationship between such payment systems and access to 
    high quality laboratory tests for medicare beneficiaries, including 
    availability and access to new testing methodologies.
        (2) Report to congress.--The Secretary shall, not later than 2 
    years after the date of enactment of this section, report to the 
    Committees on Ways and Means and Commerce of the House of 
    Representatives and the Committee on Finance of the Senate the 
    results of the study described in paragraph (1), including any 
    recommendations for legislation.

SEC. 4554. IMPROVEMENTS IN ADMINISTRATION OF LABORATORY TESTS BENEFIT.

    (a) Selection of Regional Carriers.--
        (1) In general.--The Secretary of Health and Human Services (in 
    this section referred to as the ``Secretary'') shall--
            (A) divide the United States into no more than 5 regions, 
        and
            (B) designate a single carrier for each such region,
    for the purpose of payment of claims under part B of title XVIII of 
    the Social Security Act with respect to clinical diagnostic 
    laboratory tests furnished on or after such date (not later than 
    July 1, 1999) as the Secretary specifies.
        (2) Designation.--In designating such carriers, the Secretary 
    shall consider, among other criteria--
            (A) a carrier's timeliness, quality, and experience in 
        claims processing, and
            (B) a carrier's capacity to conduct electronic data 
        interchange with laboratories and data matches with other 
        carriers.
        (3) Single data resource.--The Secretary shall select one of 
    the designated carriers to serve as a central statistical resource 
    for all claims information relating to such clinical diagnostic 
    laboratory tests handled by all the designated carriers under such 
    part.
        (4) Allocation of claims.--The allocation of claims for 
    clinical diagnostic laboratory tests to particular designated 
    carriers shall be based on whether a carrier serves the geographic 
    area where the laboratory specimen was collected or other method 
    specified by the Secretary.
        (5) Secretarial exclusion.--Paragraph (1) shall not apply with 
    respect to clinical diagnostic laboratory tests furnished by 
    physician office laboratories if the Secretary determines that such 
    offices would be unduly burdened by the application of billing 
    responsibilities with respect to more than one carrier.
    (b) Adoption of National Policies for Clinical Laboratory Tests 
Benefit.--
        (1) In general.--Not later than January 1, 1999, the Secretary 
    shall first adopt, consistent with paragraph (2), national coverage 
    and administrative policies for clinical diagnostic laboratory 
    tests under part B of title XVIII of the Social Security Act, using 
    a negotiated rulemaking process under subchapter III of chapter 5 
    of title 5, United States Code.
        (2) Considerations in design of national policies.--The 
    policies under paragraph (1) shall be designed to promote program 
    integrity and national uniformity and simplify administrative 
    requirements with respect to clinical diagnostic laboratory tests 
    payable under such part in connection with the following:
            (A) Beneficiary information required to be submitted with 
        each claim or order for laboratory tests.
            (B) The medical conditions for which a laboratory test is 
        reasonable and necessary (within the meaning of section 
        1862(a)(1)(A) of the Social Security Act).
            (C) The appropriate use of procedure codes in billing for a 
        laboratory test, including the unbundling of laboratory 
        services.
            (D) The medical documentation that is required by a 
        medicare contractor at the time a claim is submitted for a 
        laboratory test in accordance with section 1833(e) of the 
        Social Security Act.
            (E) Recordkeeping requirements in addition to any 
        information required to be submitted with a claim, including 
        physicians' obligations regarding such requirements.
            (F) Procedures for filing claims and for providing 
        remittances by electronic media.
            (G) Limitation on frequency of coverage for the same tests 
        performed on the same individual.
        (3) Changes in laboratory policies pending adoption of national 
    policy.--During the period that begins on the date of the enactment 
    of this Act and ends on the date the Secretary first implements 
    national policies pursuant to regulations promulgated under this 
    subsection, a carrier under such part may implement changes 
    relating to requirements for the submission of a claim for clinical 
    diagnostic laboratory tests.
        (4) Use of interim policies.--After the date the Secretary 
    first implements such national policies, the Secretary shall permit 
    any carrier to develop and implement interim policies of the type 
    described in paragraph (1), in accordance with guidelines 
    established by the Secretary, in cases in which a uniform national 
    policy has not been established under this subsection and there is 
    a demonstrated need for a policy to respond to aberrant utilization 
    or provision of unnecessary tests. Except as the Secretary 
    specifically permits, no policy shall be implemented under this 
    paragraph for a period of longer than 2 years.
        (5) Interim national policies.--After the date the Secretary 
    first designates regional carriers under subsection (a), the 
    Secretary shall establish a process under which designated carriers 
    can collectively develop and implement interim national policies of 
    the type described in paragraph (1). No such policy shall be 
    implemented under this paragraph for a period of longer than 2 
    years.
        (6) Biennial review process.--Not less often than once every 2 
    years, the Secretary shall solicit and review comments regarding 
    changes in the national policies established under this subsection. 
    As part of such biennial review process, the Secretary shall 
    specifically review and consider whether to incorporate or 
    supersede interim policies developed under paragraph (4) or (5). 
    Based upon such review, the Secretary may provide for appropriate 
    changes in the national policies previously adopted under this 
    subsection.
        (7) Requirement and notice.--The Secretary shall ensure that 
    any policies adopted under paragraph (3), (4), or (5) shall apply 
    to all laboratory claims payable under part B of title XVIII of the 
    Social Security Act, and shall provide for advance notice to 
    interested parties and a 45-day period in which such parties may 
    submit comments on the proposed change.
    (c) Inclusion of Laboratory Representative on Carrier Advisory 
Committees.--The Secretary shall direct that any advisory committee 
established by a carrier to advise such carrier with respect to 
coverage and administrative policies under part B of title XVIII of the 
Social Security Act shall include an individual to represent the 
independent clinical laboratories and such other laboratories as the 
Secretary deems appropriate. The Secretary shall consider 
recommendations from national and local organizations that represent 
independent clinical laboratories in such selection.

SEC. 4555. UPDATES FOR AMBULATORY SURGICAL SERVICES.

    Section 1833(i)(2)(C) (42 U.S.C. 1395l(i)(2)(C)) is amended by 
inserting at the end the following new sentence: ``In each of the 
fiscal years 1998 through 2002, the increase under this subparagraph 
shall be reduced (but not below zero) by 2.0 percentage points.''.

SEC. 4556. REIMBURSEMENT FOR DRUGS AND BIOLOGICALS.

    (a) In General.--Section 1842 (42 U.S.C. 1395u) is amended by 
inserting after subsection (n) the following new subsection:
    ``(o)(1) If a physician's, supplier's, or any other person's bill 
or request for payment for services includes a charge for a drug or 
biological for which payment may be made under this part and the drug 
or biological is not paid on a cost or prospective payment basis as 
otherwise provided in this part, the amount payable for the drug or 
biological is equal to 95 percent of the average wholesale price.
    ``(2) If payment for a drug or biological is made to a licensed 
pharmacy approved to dispense drugs or biologicals under this part, the 
Secretary may pay a dispensing fee (less the applicable deductible and 
coinsurance amounts) to the pharmacy.''.
    (b) Conforming Amendment.--Section 1833(a)(1) (42 U.S.C. 
1395l(a)(1)), as amended by sections 4315(b) and 4531(b)(1), is 
amended--
        (1) by striking ``and (R)'' and inserting ``(R)''; and
        (2) by striking the semicolon at the end and inserting the 
    following: ``, and (S) with respect to drugs and biologicals not 
    paid on a cost or prospective payment basis as otherwise provided 
    in this part (other than items and services described in 
    subparagraph (B)), the amounts paid shall be 80 percent of the 
    lesser of the actual charge or the payment amount established in 
    section 1842(o);''.
    (c) Study and report.--The Secretary of Health and Human Services 
shall study the effect on the average wholesale price of drugs and 
biologicals of the amendments made by subsection (a) and shall report 
to the Committees on Ways and Means and Commerce of the House of 
Representatives and the Committee on Finance of the Senate the result 
of such study not later than July 1, 1999.
    (d) Effective Date.--The amendments made by subsections (a) and (b) 
shall apply to drugs and biologicals furnished on or after January 1, 
1998.

SEC. 4557. COVERAGE OF ORAL ANTI-NAUSEA DRUGS UNDER CHEMOTHERAPEUTIC 
              REGIMEN.

    (a) In General.--Section 1861(s)(2) (42 U.S.C. 1395x(s)(2)), as 
amended by sections 4104 and 4105, is amended--
        (1) by striking ``and'' at the end of subparagraph (R); and
        (2) by inserting after subparagraph (S) the following new 
    subparagraph:
        ``(T) an oral drug (which is approved by the Federal Food and 
    Drug Administration) prescribed for use as an acute anti-emetic 
    used as part of an anticancer chemotherapeutic regimen if the drug 
    is administered by a physician (or as prescribed by a physician)--
            ``(i) for use immediately before, at, or within 48 hours 
        after the time of the administration of the anticancer 
        chemotherapeutic agent; and
            ``(ii) as a full replacement for the anti-emetic therapy 
        which would otherwise be administered intravenously.''.
    (b) Effective Date.--The amendments made by subsection (a) shall 
apply to items and services furnished on or after January 1, 1998.

SEC. 4558. RENAL DIALYSIS-RELATED SERVICES.

    (a) Auditing of Cost Reports.--Beginning with cost reports for 
1996, the Secretary shall audit cost reports of each renal dialysis 
provider at least once every 3 years.
    (b) Implementation of Quality Standards.--The Secretary of Health 
and Human Services shall develop, by not later than January 1, 1999, 
and implement, by not later than January 1, 2000, a method to measure 
and report quality of renal dialysis services provided under the 
medicare program under title XVIII of the Social Security Act.

SEC. 4559. TEMPORARY COVERAGE RESTORATION FOR PORTABLE 
              ELECTROCARDIOGRAM TRANSPORTATION.

    (a) In General.--Effective only for electrocardiogram tests 
furnished during 1998, the Secretary of Health and Human Services shall 
restore separate payment, under part B of title XVIII of the Social 
Security Act, for the transportation of electrocardiogram equipment 
(HCPCS code R0076) based upon payment methods in effect for such 
service as of December 31, 1996.
    (b) Determination.--By not later than July 1, 1998, the Secretary 
of Health and Human Services shall make a recommendation to the 
Committees on Commerce and Ways and Means of the House of 
Representatives and the Committee on Finance of the Senate as to 
whether coverage of portable electrocardiogram transportation should be 
provided under part B of title XVIII of the Social Security Act. In 
making such recommendation, the Secretary shall take into account the 
study of coverage of portable electrocardiogram transportation 
conducted by the Comptroller General of the United States and other 
relevant information, including information submitted by interested 
parties.

            CHAPTER 6--PART B PREMIUM AND RELATED PROVISIONS

          Subchapter A--Determination of Part B Premium Amount

SEC. 4571. PART B PREMIUM.

    (a) In General.--Section 1839(a)(3) (42 U.S.C. 1395r(a)(3)) is 
amended by striking the first 3 sentences and inserting the following: 
``The Secretary, during September of each year, shall determine and 
promulgate a monthly premium rate for the succeeding calendar year that 
is equal to 50 percent of the monthly actuarial rate for enrollees age 
65 and over, determined according to paragraph (1), for that succeeding 
calendar year.''.
    (b) Conforming and Technical Amendments.--
        (1) Section 1839.--Section 1839 (42 U.S.C. 1395r) is amended--
            (A) in subsection (a)(2), by striking ``(b) and (e)'' and 
        inserting ``(b), (c), and (f)'';
            (B) in the last sentence of subsection (a)(3)--
                (i) by inserting ``rate'' after ``premium'', and
                (ii) by striking ``and the derivation of the dollar 
            amounts specified in this paragraph'';
            (C) in the first sentence of subsection (b), by striking 
        ``or (e)'';
            (D) by striking subsection (e); and
            (E) by redesignating subsection (g) as subsection (e) and 
        inserting that subsection after subsection (d).
        (2) Section 1844.--Subparagraphs (A)(i) and (B)(i) of section 
    1844(a)(1) (42 U.S.C. 1395w(a)(1)) are each amended by striking 
    ``or 1839(e), as the case may be''.

        Subchapter B--Other Provisions Related to Part B Premium

SEC. 4581. PROTECTIONS UNDER THE MEDICARE PROGRAM FOR DISABLED WORKERS 
              WHO LOSE BENEFITS UNDER A GROUP HEALTH PLAN.

    (a) No Premium Penalty for Late Enrollment.--The first sentence of 
section 1839(b) (42 U.S.C. 1395r(b)) is amended by inserting ``and not 
pursuant to a special enrollment period under section 1837(i)(4)'' 
after ``section 1837)''.
    (b) Special Medicare Enrollment Period.--
        (1) In general.--Section 1837(i) (42 U.S.C. 1395p(i)) is 
    amended by adding at the end the following new paragraph:
    ``(4)(A) In the case of an individual who is entitled to benefits 
under part A pursuant to section 226(b) and--
        ``(i) who at the time the individual first satisfies paragraph 
    (1) of section 1836--
            ``(I) is enrolled in a group health plan described in 
        section 1862(b)(1)(A)(v) by reason of the individual's current 
        or former employment or by reason of the current or former 
        employment status of a member of the individual's family, and
            ``(II) has elected not to enroll (or to be deemed enrolled) 
        under this section during the individual's initial enrollment 
        period; and
        ``(ii) whose continuous enrollment under such group health plan 
    is involuntarily terminated at a time when the enrollment under the 
    plan is not by reason of the individual's current employment or by 
    reason of the current employment of a member of the individual's 
    family,
there shall be a special enrollment period described in subparagraph 
(B).
    ``(B) The special enrollment period referred to in subparagraph (A) 
is the 6-month period beginning on the first day of the month which 
includes the date of the enrollment termination described in 
subparagraph (A)(ii).''.
        (2) Coverage period.--Section 1838(e) (42 U.S.C. 1395q(e)) is 
    amended--
            (A) by inserting ``or 1837(i)(4)(B)'' after ``1837(i)(3)'' 
        the first place it appears, and
            (B) by inserting ``or specified in section 
        1837(i)(4)(A)(i)'' after ``1837(i)(3)'' the second place it 
        appears.
    (c) Effective Date.--The amendments made by this section shall 
apply to involuntary terminations of coverage under a group health plan 
occurring on or after the date of the enactment of this Act.

SEC. 4582. GOVERNMENTAL ENTITIES ELIGIBLE TO ELECT TO PAY PART B 
              PREMIUMS FOR ELIGIBLE INDIVIDUALS.

    Section 1839(e)(1) (as amended by section 4571(b)) is amended--
        (1) by inserting ``(or any appropriate State or local 
    governmental entity specified by the Secretary)'' after ``State'' 
    the first place it appears, and
        (2) by inserting ``(or such entity)'' after ``State'' the 
    second and third place it appears.

            Subtitle G--Provisions Relating to Parts A and B

              CHAPTER 1--HOME HEALTH SERVICES AND BENEFITS

            Subchapter A--Payments For Home Health Services

SEC. 4601. RECAPTURING 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) (42 U.S.C. 1395x(v)(1)(L)) is amended 
by adding at the end the following:
    ``(iv) In establishing limits under this subparagraph for cost 
reporting periods beginning after September 30, 1997, the Secretary 
shall not take into account any changes in the home health market 
basket, as determined by the Secretary, 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 (42 U.S.C. 
1395x(v)(1)(L)(ii)).

SEC. 4602. INTERIM PAYMENTS FOR HOME HEALTH SERVICES.

    (a) Reductions in Cost Limits.--Section 1861(v)(1)(L)(i) (42 U.S.C. 
1395x(v)(1)(L)(i)) is amended--
        (1) by moving the indentation of subclauses (I) through (III) 
    2-ems to the left;
        (2) in subclause (I), by inserting ``of the mean of the labor-
    related and nonlabor per visit costs for freestanding home health 
    agencies'' before the comma at the end;
        (3) in subclause (II), by striking ``, or'' and inserting ``of 
    such mean,'';
        (4) in subclause (III)--
            (A) by inserting ``and before October 1, 1997,'' after 
        ``July 1, 1987,'', and
            (B) by striking the comma at the end and inserting ``of 
        such mean, or''; and
        (5) by striking the matter following subclause (III) and 
    inserting the following:
        ``(IV) October 1, 1997, 105 percent of the median of the labor-
    related and nonlabor per visit costs for freestanding home health 
    agencies.''.
    (b) Delay in Updates.--Section 1861(v)(1)(L)(iii) (42 U.S.C. 
1395x(v)(1)(L)(iii)) is amended by inserting ``, or on or after July 1, 
1997, and before October 1, 1997'' after ``July 1, 1996''.
    (c) Additions to Cost Limits.--Section 1861(v)(1)(L) (42 U.S.C. 
1395x(v)(1)(L)) (as amended by section 4601(a)) is amended by adding at 
the end the following new clauses:
    ``(v) For services furnished by home health agencies for cost 
reporting periods beginning on or after October 1, 1997, the Secretary 
shall provide for an interim system of limits. Payment shall not exceed 
the costs determined under the preceding provisions of this 
subparagraph or, if lower, the product of--
        ``(I) an agency-specific per beneficiary annual limitation 
    calculated based 75 percent on 98 percent of the reasonable costs 
    (including nonroutine medical supplies) for the agency's 12-month 
    cost reporting period ending during fiscal year 1994, and based 25 
    percent on 98 percent of the standardized regional average of such 
    costs for the agency's census division, as applied to such agency, 
    for cost reporting periods ending during fiscal year 1994, such 
    costs updated by the home health market basket index; and
        ``(II) the agency's unduplicated census count of patients 
    (entitled to benefits under this title) for the cost reporting 
    period subject to the limitation.
    ``(vi) For services furnished by home health agencies for cost 
reporting periods beginning on or after October 1, 1997, the following 
rules apply:
        ``(I) For new providers and those providers without a 12-month 
    cost reporting period ending in fiscal year 1994, the per 
    beneficiary limitation shall be equal to the median of these limits 
    (or the Secretary's best estimates thereof) applied to other home 
    health agencies as determined by the Secretary. A home health 
    agency that has altered its corporate structure or name shall not 
    be considered a new provider for this purpose.
        ``(II) For beneficiaries who use services furnished by more 
    than one home health agency, the per beneficiary limitations shall 
    be prorated among the agencies.
    ``(vii)(I) Not later than January 1, 1998, the Secretary shall 
establish per visit limits applicable for fiscal year 1998, and not 
later than April 1, 1998, the Secretary shall establish per beneficiary 
limits under clause (v)(I) for fiscal year 1998.
    ``(II) Not later than August 1 of each year (beginning in 1998) the 
Secretary shall establish the limits applicable under this subparagraph 
for services furnished during the fiscal year beginning October 1 of 
the year.''.
    (d) Development of Case Mix System.--The Secretary of Health and 
Human Services shall expand research on a prospective payment system 
for home health agencies under the medicare program that ties 
prospective payments to a unit of service, including an intensive 
effort to develop a reliable case mix adjuster that explains a 
significant amount of the variances in costs.
    (e) Submission of Data for Case Mix System.--Effective for cost 
reporting periods beginning on or after October 1, 1997, the Secretary 
of Health and Human Services may require all home health agencies to 
submit additional information that the Secretary considers necessary 
for the development of a reliable case mix system.

SEC. 4603. PROSPECTIVE PAYMENT FOR HOME HEALTH SERVICES.

    (a) In General.--Title XVIII (42 U.S.C. 1395 et seq.) (as amended 
by section 4801) is amended by adding at the end the following:


              ``prospective payment for home health services

    ``Sec. 1895. (a) In General.--Notwithstanding section 1861(v), the 
Secretary shall provide, for cost reporting periods beginning on or 
after October 1, 1999, for payments for home health services in 
accordance with a prospective payment system established by the 
Secretary under this section.
    ``(b) System of Prospective Payment for Home Health Services.--
        ``(1) In general.--The Secretary shall establish under this 
    subsection a prospective payment system for payment for all costs 
    of home health services. Under the system under this subsection all 
    services covered and paid on a reasonable cost basis under the 
    medicare home health benefit as of the date of the enactment of the 
    this section, including medical supplies, shall be paid for on the 
    basis of a prospective payment amount determined under this 
    subsection and applicable to the services involved. In implementing 
    the system, the Secretary may provide for a transition (of not 
    longer than 4 years) during which a portion of such payment is 
    based on agency-specific costs, but only if such transition does 
    not result in aggregate payments under this title that exceed the 
    aggregate payments that would be made if such a transition did not 
    occur.
        ``(2) Unit of payment.--In defining a prospective payment 
    amount under the system under this subsection, the Secretary shall 
    consider an appropriate unit of service and the number, type, and 
    duration of visits provided within that unit, potential changes in 
    the mix of services provided within that unit and their cost, and a 
    general system design that provides for continued access to quality 
    services.
        ``(3) Payment basis.--
            ``(A) Initial basis.--
                ``(i) In general.--Under such system the Secretary 
            shall provide for computation of a standard prospective 
            payment amount (or amounts). Such amount (or amounts) shall 
            initially be based on the most current audited cost report 
            data available to the Secretary and shall be computed in a 
            manner so that the total amounts payable under the system 
            for fiscal year 2000 shall be equal to the total amount 
            that would have been made if the system had not been in 
            effect but if the reduction in limits described in clause 
            (ii) had been in effect. Such amount shall be standardized 
            in a manner that eliminates the effect of variations in 
            relative case mix and wage levels among different home 
            health agencies in a budget neutral manner consistent with 
            the case mix and wage level adjustments provided under 
            paragraph (4)(A). Under the system, the Secretary may 
            recognize regional differences or differences based upon 
            whether or not the services or agency are in an urbanized 
            area.
                ``(ii) Reduction.--The reduction described in this 
            clause is a reduction by 15 percent in the cost limits and 
            per beneficiary limits described in section 1861(v)(1)(L), 
            as those limits are in effect on September 30, 1999.
            ``(B) Annual update.--
                ``(i) In general.--The standard prospective payment 
            amount (or amounts) shall be adjusted for each fiscal year 
            (beginning with fiscal year 2001) in a prospective manner 
            specified by the Secretary by the home health market basket 
            percentage increase applicable to the fiscal year involved.
                ``(ii) 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 mix of goods and services 
            included in home health services in the same manner as the 
            market basket percentage increase under section 
            1886(b)(3)(B)(iii) is determined and applied to the mix of 
            goods and services comprising inpatient hospital services 
            for the fiscal year.
            ``(C) Adjustment for outliers.--The Secretary shall reduce 
        the standard prospective payment amount (or amounts) under this 
        paragraph applicable to home health services furnished during a 
        period by such proportion as will result in an aggregate 
        reduction in payments for the period equal to the aggregate 
        increase in payments resulting from the application of 
        paragraph (5) (relating to outliers).
        ``(4) Payment computation.--
            ``(A) In general.--The payment amount for a unit of home 
        health services shall be the applicable standard prospective 
        payment amount adjusted as follows:
                ``(i) Case mix adjustment.--The amount shall be 
            adjusted by an appropriate case mix adjustment factor 
            (established under subparagraph (B)).
                ``(ii) Area wage adjustment.--The portion of such 
            amount that the Secretary estimates to be attributable to 
            wages and wage-related costs shall be adjusted for 
            geographic differences in such costs by an area wage 
            adjustment factor (established under subparagraph (C)) for 
            the area in which the services are furnished or such other 
            area as the Secretary may specify.
            ``(B) Establishment of case mix adjustment factors.--The 
        Secretary shall establish appropriate case mix adjustment 
        factors for home health services in a manner that explains a 
        significant amount of the variation in cost among different 
        units of services.
            ``(C) Establishment of area wage adjustment factors.--The 
        Secretary shall establish area wage adjustment factors that 
        reflect the relative level of wages and wage-related costs 
        applicable to the furnishing of home health services in a 
        geographic area compared to the national average applicable 
        level. Such factors may be the factors used by the Secretary 
        for purposes of section 1886(d)(3)(E).
        ``(5) Outliers.--The Secretary may provide for an addition or 
    adjustment to the payment amount otherwise made in the case of 
    outliers because of unusual variations in the type or amount of 
    medically necessary care. The total amount of the additional 
    payments or payment adjustments made under this paragraph with 
    respect to a fiscal year may not exceed 5 percent of the total 
    payments projected or estimated to be made based on the prospective 
    payment system under this subsection in that year.
        ``(6) Proration of prospective payment amounts.--If a 
    beneficiary elects to transfer to, or receive services from, 
    another home health agency within the period covered by the 
    prospective payment amount, the payment shall be prorated between 
    the home health agencies involved.
    ``(c) Requirements for Payment Information.--With respect to home 
health services furnished on or after October 1, 1998, no claim for 
such a service may be paid under this title unless--
        ``(1) the claim has the unique identifier (provided under 
    section 1842(r)) for the physician who prescribed the services or 
    made the certification described in section 1814(a)(2) or 
    1835(a)(2)(A); and
        ``(2) in the case of a service visit described in paragraph 
    (1), (2), (3), or (4) of section 1861(m), the claim contains a code 
    (or codes) specified by the Secretary that identifies the length of 
    time of the service visit, as measured in 15 minute increments.
    ``(d) Limitation on Review.--There shall be no administrative or 
judicial review under section 1869, 1878, or otherwise of--
        ``(1) the establishment of a transition period under subsection 
    (b)(1);
        ``(2) the definition and application of payment units under 
    subsection (b)(2);
        ``(3) the computation of initial standard prospective payment 
    amounts under subsection (b)(3)(A) (including the reduction 
    described in clause (ii) of such subsection);
        ``(4) the establishment of the adjustment for outliers under 
    subsection (b)(3)(C);
        ``(5) the establishment of case mix and area wage adjustments 
    under subsection (b)(4); and
        ``(6) the establishment of any adjustments for outliers under 
    subsection (b)(5).''.
    (b) Elimination of Periodic Interim Payments for Home Health 
Agencies.--Section 1815(e)(2) (42 U.S.C. 1395g(e)(2)) is amended--
        (1) by inserting ``and'' at the end of subparagraph (C),
        (2) by striking subparagraph (D), and
        (3) by redesignating subparagraph (E) as subparagraph (D).
    (c) Conforming Amendments.--
        (1) Payments under part a.--Section 1814(b) (42 U.S.C. 
    1395f(b)) is amended in the matter preceding paragraph (1) by 
    striking ``and 1886'' and inserting ``1886, and 1895''.
        (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 (other than a 
        covered osteoporosis drug) (as defined in section 1861(kk)), 
        the amount determined under the prospective payment system 
        under section 1895;'';
                (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 
            4432(b)(2)) 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 
                home health services 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 when any other contracting or consulting 
                arrangement, or otherwise).''.

                (ii) Conforming amendment.--Section 1832(a)(1) (42 
            U.S.C. 1395k(a)(1)) (as amended by section 4432(b)(5)(B)) 
            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 sections 4319(b), 4432(b), 
        4507(a)(2)(B) and 4541(b)) is amended--
                (i) by striking ``or'' at the end of paragraph (19);
                (ii) by striking the period at the end of paragraph 
            (20) and inserting ``; or''; and
                (iii) by inserting after paragraph (20) the following:
        ``(21) 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.''.
    (d) Effective Date.--Except as otherwise provided, the amendments 
made by this section shall apply to cost reporting periods beginning on 
or after October 1, 1999.
    (e) Contingency.--If the Secretary of Health and Human Services for 
any reason does not establish and implement the prospective payment 
system for home health services described in section 1895(b) of the 
Social Security Act (as added by subsection (a)) for cost reporting 
periods described in subsection (d), for such cost reporting periods 
the Secretary shall provide for a reduction by 15 percent in the cost 
limits and per beneficiary limits described in section 1861(v)(1)(L) of 
such Act, as those limits would otherwise be in effect on September 30, 
1999.

SEC. 4604. PAYMENT BASED ON LOCATION WHERE HOME HEALTH SERVICE IS 
              FURNISHED.

    (a) Conditions of Participation.--Section 1891 (42 U.S.C. 1395bbb) 
is amended by adding at the end the following:
    ``(g) Payment on Basis of Location of Service.--A home health 
agency shall submit claims for payment for home health services under 
this title only on the basis of the geographic location at which the 
service is furnished, as determined by the Secretary.''.
    (b) Wage Adjustment.--Section 1861(v)(1)(L)(iii) (42 U.S.C. 
1395x(v)(1)(L)(iii)) is amended by striking ``agency is located'' and 
inserting ``service is furnished''.
    (c) Effective Date.--The amendments made by this section apply to 
cost reporting periods beginning on or after October 1, 1997.

                   Subchapter B--Home Health Benefits

SEC. 4611. MODIFICATION OF PART A HOME HEALTH BENEFIT FOR INDIVIDUALS 
              ENROLLED UNDER PART B.

    (a) In General.--Section 1812 (42 U.S.C. 1395d) is amended--
        (1) in subsection (a)(3), by striking ``home health services'' 
    and inserting ``for individuals not enrolled in part B, home health 
    services, and for individuals so enrolled, post-institutional home 
    health services furnished during a home health spell of illness for 
    up to 100 visits during such spell of illness''; and
        (2) in subsection (b), by adding after and below paragraph (3) 
    the following:
``Payment under this part for post-institutional home health services 
furnished an individual during a home health spell of illness may not 
be made for such services beginning after such services have been 
furnished for a total of 100 visits such spell.''.
    (b) Post-Institutional Home Health Services Defined.--Section 1861 
(42 U.S.C. 1395x), as amended by sections 4103(a), 4104(a), 4105(a), 
4106(a), and 4454, is amended by adding at the end the following:

``Post-Institutional Home Health Services; Home Health Spell of Illness

    ``(tt)(1) The term `post-institutional home health services' means 
home health services furnished to an individual--
        ``(A) after discharge from a hospital or rural primary care 
    hospital in which the individual was an inpatient for not less than 
    3 consecutive days before such discharge if such home health 
    services were initiated within 14 days after the date of such 
    discharge; or
        ``(B) after discharge from a skilled nursing facility in which 
    the individual was provided post-hospital extended care services if 
    such home health services were initiated within 14 days after the 
    date of such discharge.
    ``(2) The term `home health spell of illness' with respect to any 
individual means a period of consecutive days--
        ``(A) beginning with the first day (not included in a previous 
    home health spell of illness) (i) on which such individual is 
    furnished post-institutional home health services, and (ii) which 
    occurs in a month for which the individual is entitled to benefits 
    under part A, and
        ``(B) ending with the close of the first period of 60 
    consecutive days thereafter on each of which the individual is 
    neither an inpatient of a hospital or rural primary care hospital 
    nor an inpatient of a facility described in section 1819(a)(1) or 
    subsection (y)(1) nor provided home health services.''.
    (c) Maintaining Appeal Rights for Home Health Services.--Section 
1869(b)(2)(B) (42 U.S.C. 1395ff(b)(2)(B)) is amended by inserting ``(or 
$100 in the case of home health services)'' after ``$500''.
    (d) Maintaining Seamless Administration Through Fiscal 
Intermediaries.--Section 1842(b)(2) (42 U.S.C. 1395u(b)(2)) is amended 
by adding at the end the following:
    ``(E) With respect to the payment of claims for home health 
services under this part that, but for the amendments made by section 
4611 of the Balanced Budget Act of 1997, would be payable under part A 
instead of under this part, the Secretary shall continue administration 
of such claims through fiscal intermediaries under section 1816.''.
    (e) Transition.--
        (1) In general.--Notwithstanding any provision of title XVIII 
    of the Social Security Act, the Secretary of Health and Human 
    Services shall establish a transition for the aggregate amount of 
    expenditures that are transferred from part A, to part B, of title 
    XVIII of the Social Security Act, as a result of the amendments 
    made by this section, during each of the years during the period 
    beginning with 1998 and ending with 2002 according to this 
    subsection. Under the transition for each such year, the Secretary 
    shall effect such transfer, between the trust funds under such 
    parts, as will result in only the proportion (specified in 
    paragraph (2)) of such aggregate expenditures for the year being 
    transferred from such part A to such part B.
        (2) Proportion specified.--The proportion specified in this 
    paragraph for--
            (A) 1998 is \1/6\,
            (B) 1999 is \1/3\,
            (C) 2000 is \1/2\,
            (D) 2001 is \2/3\, and
            (E) 2002 is \5/6\.
        (3) Application in establishing monthly premiums for 1998 
    through 2003.--
            (A) In general.--For purposes only of computing the monthly 
        premium under section 1839 of the Social Security Act (42 
        U.S.C. 1395r), the monthly actuarial rate for enrollees age 65 
        and over shall be computed as though any reference in paragraph 
        (1) of this subsection to 2002 were a reference to 2003 and as 
        if the following proportions were substituted for the 
        proportions specified in paragraph (2):
                (i) For 1998, \1/7\.
                (ii) For 1999, \2/7\.
                (iii) For 2000, \3/7\.
                (iv) For 2001, \4/7\.
                (v) For 2002, \5/7\.
                (vi) For 2003, \6/7\.
            (B) No impact on government contribution.--Subparagraph (A) 
        does not apply in determining the amount of the Government 
        contribution under section 1844 of the Social Security Act (42 
        U.S.C. 1395w).
    (f) Effective Date.--The amendments made by this section apply to 
services furnished on or after January 1, 1998. For purpose of applying 
such amendments, any home health spell of illness that began, but not 
did not end, before such date shall be considered to have begun as of 
such date.

SEC. 4612. CLARIFICATION OF PART-TIME OR INTERMITTENT NURSING CARE.

    (a) In General.--Section 1861(m) (42 U.S.C. 1395x(m)) is amended by 
adding at the end the following: ``For purposes of paragraphs (1) and 
(4), the term `part-time or intermittent services' means skilled 
nursing and home health aide services furnished any number of days per 
week as long as they are furnished (combined) less than 8 hours each 
day and 28 or fewer hours each week (or, subject to review on a case-
by-case basis as to the need for care, less than 8 hours each day and 
35 or fewer hours per week). For purposes of sections 1814(a)(2)(C) and 
1835(a)(2)(A), `intermittent' means skilled nursing care that is either 
provided or needed on fewer than 7 days each week, or less than 8 hours 
of each day for periods of 21 days or less (with extensions in 
exceptional circumstances when the need for additional care is finite 
and predictable).''.
    (b) Effective Date.--The amendment made by subsection (a) applies 
to services furnished on or after October 1, 1997.

SEC. 4613. STUDY ON DEFINITION OF HOMEBOUND.

    (a) Study.--The Secretary of Health and Human Services shall 
conduct a study of the criteria that should be applied, and the method 
of applying such criteria, in the determination of whether an 
individual is homebound for purposes of qualifying for receipt of 
benefits for home health services under the medicare program. Such 
criteria shall include the extent and circumstances under which a 
person may be absent from the home but nonetheless qualify.
    (b) Report.--Not later than October 1, 1998, the Secretary shall 
submit a report to Congress on the study conducted under subsection 
(a). The report shall include specific recommendations on such criteria 
and methods.

SEC. 4614. NORMATIVE STANDARDS FOR HOME HEALTH CLAIMS DENIALS.

    (a) In General.--Section 1862(a)(1) (42 U.S.C. 1395y(a)(1)) (as 
amended by section 4104(c)) is amended--
        (1) by striking ``and'' at the end of subparagraph (G),
        (2) by striking the semicolon at the end of subparagraph (H) 
    and inserting ``, and'', and
        (3) by inserting after subparagraph (H) the following new 
    subparagraph:
        ``(I) the frequency and duration of home health services which 
    are in excess of normative guidelines that the Secretary shall 
    establish by regulation;''.
    (b) Notification.--The Secretary of Health and Human Services may 
establish a process for notifying a physician in cases in which the 
number of home health visits, furnished under title XVIII of the Social 
Security Act pursuant to a prescription or certification of the 
physician, significantly exceeds such threshold (or thresholds) as the 
Secretary specifies. The Secretary may adjust such threshold to reflect 
demonstrated differences in the need for home health services among 
different beneficiaries.
    (c) Effective Date.--The amendments made by this section apply to 
services furnished on or after October 1, 1997.

SEC. 4615. NO HOME HEALTH BENEFITS BASED SOLELY ON DRAWING BLOOD.

    (a) In General.--Sections 1814(a)(2)(C) and 1835(a)(2)(A) (42 
U.S.C. 1395f(a)(2)(C), 1395n(a)(2)(A)) are each amended by inserting 
``(other than solely venipuncture for the purpose of obtaining a blood 
sample)'' after ``skilled nursing care''.
    (b) Effective Date.--The amendments made by subsection (a) apply to 
home health services furnished after the 6-month period beginning after 
the date of enactment of this Act.

SEC. 4616. REPORTS TO CONGRESS REGARDING HOME HEALTH COST CONTAINMENT.

    (a) Estimate.--Not later than October 1, 1997, the Secretary of 
Health and Human Services shall submit to the Committees on Commerce 
and Ways and Means of the House of Representatives and the Committee on 
Finance of the Senate a report that includes an estimate of the outlays 
that will be made under parts A and B of title XVIII of the Social 
Security Act for the provision of home health services during each of 
fiscal years 1998 through 2002.
    (b) Annual Report.--Not later than the end of each of years 1999 
through 2002, the Secretary shall submit to such Committees a report 
that compares the actual outlays under such parts for such services 
during the fiscal year ending in the year, to the outlays estimated 
under subsection (a) for such fiscal year. If the Secretary finds that 
such actual outlays were greater than such estimated outlays for the 
fiscal year, the Secretary shall include in the report recommendations 
regarding beneficiary copayments for home health services provided 
under the medicare program or such other methods as will reduce the 
growth in outlays for home health services under the medicare program.

                 CHAPTER 2--GRADUATE MEDICAL EDUCATION

                Subchapter A--Indirect Medical Education

SEC. 4621. INDIRECT GRADUATE MEDICAL EDUCATION PAYMENTS.

    (a) Multiyear Transition Regarding Percentages.--
        (1) In general.--Section 1886(d)(5)(B)(ii) (42 U.S.C. 
    1395ww(d)(5)(B)(ii)) is amended to read as follows:
            ``(ii) For purposes of clause (i)(II), the indirect 
        teaching adjustment factor is equal to c <greek-e> (((1+r) to 
        the nth power) - 1), where `r' is the ratio of the hospital's 
        full-time equivalent interns and residents to beds and `n' 
        equals .405. For discharges occurring--
                ``(I) on or after October 1, 1988, and before October 
            1, 1997, `c' is equal to 1.89;
                ``(II) during fiscal year 1998, `c' is equal to 1.72;
                ``(III) during fiscal year 1999, `c' is equal to 1.6;
                ``(IV) during fiscal year 2000, `c' is equal to 1.47; 
            and
                ``(V) on or after October 1, 2000, `c' is equal to 
            1.35.''.
        (2) Conforming amendment relating to determination of 
    standardized amount.--Section 1886(d)(2)(C)(i) (42 U.S.C. 
    1395ww(d)(2)(C)(i)) is amended by adding at the end the following: 
    ``except that the Secretary shall not take into account any 
    reduction in the amount of additional payments under paragraph 
    (5)(B)(ii) resulting from the amendment made by section 4621(a)(1) 
    of the Balanced Budget Act of 1997,''.
    (b) Limitation on Number of Residents for Certain Fiscal Years.--
        (1) In general.--Section 1886(d)(5)(B) (42 U.S.C. 
    1395ww(d)(5)(B)) is amended by adding after clause (iv) the 
    following:
            ``(v) In determining the adjustment with respect to a 
        hospital for discharges occurring on or after October 1, 1997, 
        the total number of full-time equivalent interns and residents 
        in the fields of allopathic and osteopathic medicine in either 
        a hospital or nonhospital setting may not exceed the number of 
        such full-time equivalent interns and residents in the hospital 
        with respect to the hospital's most recent cost reporting 
        period ending on or before December 31, 1996.
            ``(vi) For purposes of clause (ii)--
                ``(I) `r' may not exceed the ratio of the number of 
            interns and residents, subject to the limit under clause 
            (v), with respect to the hospital for its most recent cost 
            reporting period to the hospital's available beds (as 
            defined by the Secretary) during that cost reporting 
            period, and
                ``(II) for the hospital's cost reporting periods 
            beginning on or after October 1, 1997, subject to the 
            limits described in clauses (iv) and (v), the total number 
            of full-time equivalent residents for payment purposes 
            shall equal the average of the actual full-time equivalent 
            resident count for the cost reporting period and the 
            preceding two cost reporting periods.
        In the case of the first cost reporting period beginning on or 
        after October 1, 1997, subclause (II) shall be applied by using 
        the average for such period and the preceding cost reporting 
        period.
        ``(vii) If any cost reporting period beginning on or after 
    October 1, 1997, is not equal to twelve months, the Secretary shall 
    make appropriate modifications to ensure that the average full-time 
    equivalent residency count pursuant to subclause (II) of clause 
    (vi) is based on the equivalent of full twelve-month cost reporting 
    periods.
        ``(viii) Rules similar to the rules of subsection (h)(4)(H) 
    shall apply for purposes of clauses (v) and (vi).''.
        (2) Payment for interns and residents providing off-site 
    services.--Section 1886(d)(5)(B)(iv) (42 U.S.C. 
    1395ww(d)(5)(B)(iv)) is amended to read as follows:
        ``(iv) Effective for discharges occurring on or after October 
    1, 1997, all the time spent by an intern or resident in patient 
    care activities under an approved medical residency training 
    program at an entity in a nonhospital setting shall be counted 
    towards the determination of full-time equivalency if the hospital 
    incurs all, or substantially all, of the costs for the training 
    program in that setting.''.

SEC. 4622. PAYMENT TO HOSPITALS OF INDIRECT MEDICAL EDUCATION COSTS FOR 
              MEDICARE+CHOICE ENROLLEES.

    Section 1886(d) (42 U.S.C. 1395ww(d)) is amended by adding at the 
end the following:
        ``(11) Additional payments for managed care enrollees.--
            ``(A) In general.--For portions of cost reporting periods 
        occurring on or after January 1, 1998, the Secretary shall 
        provide for an additional payment amount for each applicable 
        discharge of any subsection (d) hospital that has an approved 
        medical residency training program.
            ``(B) Applicable discharge.--For purposes of this 
        paragraph, the term `applicable discharge' means the discharge 
        of any individual who is enrolled under a risk-sharing contract 
        with an eligible organization under section 1876 and who is 
        entitled to benefits under part A or any individual who is 
        enrolled with a Medicare+Choice organization under part C.
            ``(C) Determination of amount.--The amount of the payment 
        under this paragraph with respect to any applicable discharge 
        shall be equal to the applicable percentage (as defined in 
        subsection (h)(3)(D)(ii)) of the estimated average per 
        discharge amount that would otherwise have been paid under 
        paragraph (5)(B) if the individuals had not been enrolled as 
        described in subparagraph (B).
            ``(D) Special rule for hospitals under reimbursement 
        system.--The Secretary shall establish rules for the 
        application of this paragraph to a hospital reimbursed under a 
        reimbursement system authorized under section 1814(b)(3) in the 
        same manner as it would apply to the hospital if it were not 
        reimbursed under such section.''.

            Subchapter B--Direct Graduate Medical Education

SEC. 4623. LIMITATION ON NUMBER OF RESIDENTS AND ROLLING AVERAGE FTE 
              COUNT.

    Section 1886(h)(4) (42 U.S.C. 1395ww(h)(4)) is amended by adding 
after subparagraph (E) the following:
            ``(F) Limitation on number of residents in allopathic and 
        osteopathic medicine.--Such rules shall provide that for 
        purposes of a cost reporting period beginning on or after 
        October 1, 1997, the total number of full-time equivalent 
        residents before application of weighting factors (as 
        determined under this paragraph) with respect to a hospital's 
        approved medical residency training program in the fields of 
        allopathic medicine and osteopathic medicine may not exceed the 
        number of such full-time equivalent residents for the 
        hospital's most recent cost reporting period ending on or 
        before December 31, 1996.
            ``(G) Counting interns and residents for fy 1998 and 
        subsequent years.--
                ``(i) In general.--For cost reporting periods beginning 
            during fiscal years beginning on or after October 1, 1997, 
            subject to the limit described in subparagraph (F), the 
            total number of full-time equivalent residents for 
            determining a hospital's graduate medical education payment 
            shall equal the average of the actual full-time equivalent 
            resident counts for the cost reporting period and the 
            preceding two cost reporting periods.
                ``(ii) Adjustment for short periods.--If any cost 
            reporting period beginning on or after October 1, 1997, is 
            not equal to twelve months, the Secretary shall make 
            appropriate modifications to ensure that the average full-
            time equivalent resident counts pursuant to clause (i) are 
            based on the equivalent of full twelve-month cost reporting 
            periods.
                ``(iii) Transition rule for 1998.--In the case of a 
            hospital's first cost reporting period beginning on or 
            after October 1, 1997, clause (i) shall be applied by using 
            the average for such period and the preceding cost 
            reporting period.
            ``(H) Special rules for application of subparagraphs (f) 
        and (g).--
                ``(i) New facilities.--The Secretary shall, consistent 
            with the principles of subparagraphs (F) and (G), prescribe 
            rules for the application of such subparagraphs in the case 
            of medical residency training programs established on or 
            after January 1, 1995. In promulgating such rules for 
            purposes of subparagraph (F), the Secretary shall give 
            special consideration to facilities that meet the needs of 
            underserved rural areas.
                ``(ii) Aggregation.--The Secretary may prescribe rules 
            which allow institutions which are members of the same 
            affiliated group (as defined by the Secretary) to elect to 
            apply the limitation of subparagraph (F) on an aggregate 
            basis.
                ``(iii) Data collection.--The Secretary may require any 
            entity that operates a medical residency training program 
            and to which subparagraphs (F) and (G) apply to submit to 
            the Secretary such additional information as the Secretary 
            considers necessary to carry out such subparagraphs.''.

SEC. 4624. PAYMENTS TO HOSPITALS FOR DIRECT COSTS OF GRADUATE MEDICAL 
              EDUCATION OF MEDICARE+CHOICE ENROLLEES.

    Section 1886(h)(3) (42 U.S.C. 1395ww(h)(3)) is amended by adding 
after subparagraph (C) the following:
            ``(D) Payment for managed care enrollees.--
                ``(i) In general.--For portions of cost reporting 
            periods occurring on or after January 1, 1998, the 
            Secretary shall provide for an additional payment amount 
            under this subsection for services furnished to individuals 
            who are enrolled under a risk-sharing contract with an 
            eligible organization under section 1876 and who are 
            entitled to part A or with a Medicare+Choice organization 
            under part C. The amount of such a payment shall equal the 
            applicable percentage of the product of--

                    ``(I) the aggregate approved amount (as defined in 
                subparagraph (B)) for that period; and
                    ``(II) the fraction of the total number of 
                inpatient-bed days (as established by the Secretary) 
                during the period which are attributable to such 
                enrolled individuals.

                ``(ii) Applicable percentage.--For purposes of clause 
            (i), the applicable percentage is--

                    ``(I) 20 percent in 1998,
                    ``(II) 40 percent in 1999,
                    ``(III) 60 percent in 2000, and
                    ``(IV) 80 percent in 2001, and
                    ``(V) 100 percent in 2002 and subsequent years.

                ``(iii) Special rule for hospitals under reimbursement 
            system.--The Secretary shall establish rules for the 
            application of this subparagraph to a hospital reimbursed 
            under a reimbursement system authorized under section 
            1814(b)(3) in the same manner as it would apply to the 
            hospital if it were not reimbursed under such section.''.

SEC. 4625. PERMITTING PAYMENT TO NONHOSPITAL PROVIDERS.

    (a) In General.--Section 1886 (42 U.S.C. 1395ww), as amended by 
section 4421(a), is amended by adding at the end the following:
    ``(k) Payment to Nonhospital Providers.--
        ``(1) In general.--For cost reporting periods beginning on or 
    after October 1, 1997, the Secretary may establish rules for 
    payment to qualified nonhospital providers for their direct costs 
    of medical education, if those costs are incurred in the operation 
    of an approved medical residency training program described in 
    subsection (h). Such rules shall specify the amounts, form, and 
    manner in which such payments will be made and the portion of such 
    payments that will be made from each of the trust funds under this 
    title.
        ``(2) Qualified nonhospital providers.--For purposes of this 
    subsection, the term `qualified nonhospital providers' means--
            ``(A) a Federally qualified health center, as defined in 
        section 1861(aa)(4);
            ``(B) a rural health clinic, as defined in section 
        1861(aa)(2);
            ``(C) Medicare+Choice organizations; and
            ``(D) such other providers (other than hospitals) as the 
        Secretary determines to be appropriate.''.
    (b) Prohibition on Double Payments.--Section 1886(h)(3)(B) (42 
U.S.C. 1395ww(h)(3)(B)) is amended by adding at the end the following:
    ``The Secretary shall reduce the aggregate approved amount to the 
    extent payment is made under subsection (k) for residents included 
    in the hospital's count of full-time equivalent residents.''.

SEC. 4626. INCENTIVE PAYMENTS UNDER PLANS FOR VOLUNTARY REDUCTION IN 
              NUMBER OF RESIDENTS.

    (a) In General.--Section 1886(h) (42 U.S.C. 1395ww(h)) is amended 
by adding at the end the following new paragraph:
        ``(6) Incentive payment under plans for voluntary reduction in 
    number of residents.--
            ``(A) In general.--In the case of a voluntary residency 
        reduction plan for which an application is approved under 
        subparagraph (B), subject to subparagraph (F), each hospital 
        which is part of the qualifying entity submitting the plan 
        shall be paid an applicable hold harmless percentage (as 
        specified in subparagraph (E)) of the sum of--
                ``(i) the amount (if any) by which--

                    ``(I) the amount of payment which would have been 
                made under this subsection if there had been a 5-
                percent reduction in the number of full-time equivalent 
                residents in the approved medical education training 
                programs of the hospital as of June 30, 1997, exceeds
                    ``(II) the amount of payment which is made under 
                this subsection, taking into account the reduction in 
                such number effected under the reduction plan; and

                ``(ii) the amount of the reduction in payment under 
            subsection (d)(5)(B) for the hospital that is attributable 
            to the reduction in number of residents effected under the 
            plan below 95 percent of the number of full-time equivalent 
            residents in such programs of the hospital as of June 30, 
            1997.
        The determination of the amounts under clauses (i) and (ii) for 
        any year shall be made on the basis of the provisions of this 
        title in effect on the application deadline date for the first 
        calendar year to which the reduction plan applies.
            ``(B) Approval of plan applications.--The Secretary may not 
        approve the application of an qualifying entity unless--
                ``(i) the application is submitted in a form and manner 
            specified by the Secretary and by not later than November 
            1, 1999,
                ``(ii) the application provides for the operation of a 
            plan for the reduction in the number of full-time 
            equivalent residents in the approved medical residency 
            training programs of the entity consistent with the 
            requirements of subparagraph (D);
                ``(iii) the entity elects in the application the period 
            of residency training years (not greater than 5) over which 
            the reduction will occur;
                ``(iv) the entity will not reduce the proportion of its 
            residents in primary care (to the total number of 
            residents) below such proportion as in effect as of the 
            applicable time described in subparagraph (D)(v); and
                ``(v) the Secretary determines that the application and 
            the entity and such plan meet such other requirements as 
            the Secretary specifies in regulations.
            ``(C) Qualifying entity.--For purposes of this paragraph, 
        any of the following may be a qualifying entity:
                ``(i) Individual hospitals operating one or more 
            approved medical residency training programs.
                ``(ii) Two or more hospitals that operate such programs 
            and apply for treatment under this paragraph as a single 
            qualifying entity.
                ``(iii) A qualifying consortium (as described in 
            section 4628 of the Balanced Budget Act of 1997).
            ``(D) Residency reduction requirements.--
                ``(i) Individual hospital applicants.--In the case of a 
            qualifying entity described in subparagraph (C)(i), the 
            number of full-time equivalent residents in all the 
            approved medical residency training programs operated by or 
            through the entity shall be reduced as follows:

                    ``(I) If the base number of residents exceeds 750 
                residents, by a number equal to at least 20 percent of 
                such base number.
                    ``(II) Subject to subclause (IV), if the base 
                number of residents exceeds 600 but is less than 750 
                residents, by 150 residents.
                    ``(III) Subject to subclause (IV), if the base 
                number of residents does not exceed 600 residents, by a 
                number equal to at least 25 percent of such base 
                number.
                    ``(IV) In the case of a qualifying entity which is 
                described in clause (v) and which elects treatment 
                under this subclause, by a number equal to at least 20 
                percent of the base number.

                ``(ii) Joint applicants.--In the case of a qualifying 
            entity described in subparagraph (C)(ii), the number of 
            full-time equivalent residents in the aggregate for all the 
            approved medical residency training programs operated by or 
            through the entity shall be reduced as follows:

                    ``(I) Subject to subclause (II), by a number equal 
                to at least 25 percent of the base number.
                    ``(II) In the case of such a qualifying entity 
                which is described in clause (v) and which elects 
                treatment under this subclause, by a number equal to at 
                least 20 percent of the base number.

                ``(iii) Consortia.--In the case of a qualifying entity 
            described in subparagraph (C)(iii), the number of full-time 
            equivalent residents in the aggregate for all the approved 
            medical residency training programs operated by or through 
            the entity shall be reduced by a number equal to at least 
            20 percent of the base number.
                ``(iv) Manner of reduction.--The reductions specified 
            under the preceding provisions of this subparagraph for a 
            qualifying entity shall be below the base number of 
            residents for that entity and shall be fully effective not 
            later than the 5th residency training year in which the 
            application under subparagraph (B) is effective.
                ``(v) Entities providing assurance of increase in 
            primary care residents.--An entity is described in this 
            clause if--

                    ``(I) the base number of residents for the entity 
                is less than 750 or the entity is described in 
                subparagraph (C)(ii); and
                    ``(II) the entity represents in its application 
                under subparagraph (B) that it will increase the number 
                of full-time equivalent residents in primary care by at 
                least 20 percent (from such number included in the base 
                number of residents) by not later than the 5th 
                residency training year in which the application under 
                subparagraph (B) is effective.

            If a qualifying entity fails to comply with the 
            representation described in subclause (II) by the end of 
            such 5th residency training year, the entity shall be 
            subject to repayment of all amounts paid under this 
            paragraph, in accordance with procedures established to 
            carry out subparagraph (F).
                ``(vi) Base number of residents defined.--For purposes 
            of this paragraph, the term `base number of residents' 
            means, with respect to a qualifying entity (or its 
            participating hospitals) operating approved medical 
            residency training programs, the number of full-time 
            equivalent residents in such programs (before application 
            of weighting factors) of the entity as of the most recent 
            residency training year ending before June 30, 1997, or, if 
            less, for any subsequent residency training year that ends 
            before the date the entity makes application under this 
            paragraph.
            ``(E) Applicable hold harmless percentage.--For purposes of 
        subparagraph (A), the `applicable hold harmless percentage' for 
        the--
                ``(i) first and second residency training years in 
            which the reduction plan is in effect, 100 percent,
                ``(ii) third such year, 75 percent,
                ``(iii) fourth such year, 50 percent, and
                ``(iv) fifth such year, 25 percent.
            ``(F) Penalty for noncompliance.--
                ``(i) In general.--No payment may be made under this 
            paragraph to a hospital for a residency training year if 
            the hospital has failed to reduce the number of full-time 
            equivalent residents (in the manner required under 
            subparagraph (D)) to the number agreed to by the Secretary 
            and the qualifying entity in approving the application 
            under this paragraph with respect to such year.
                ``(ii) Increase in number of residents in subsequent 
            years.--If payments are made under this paragraph to a 
            hospital, and if the hospital increases the number of full-
            time equivalent residents above the number of such 
            residents permitted under the reduction plan as of the 
            completion of the plan, then, as specified by the 
            Secretary, the entity is liable for repayment to the 
            Secretary of the total amounts paid under this paragraph to 
            the entity.
            ``(G) Treatment of rotating residents.--In applying this 
        paragraph, the Secretary shall establish rules regarding the 
        counting of residents who are assigned to institutions the 
        medical residency training programs in which are not covered 
        under approved applications under this paragraph.''.
    (b) Relation to Demonstration Projects and Authority.--
        (1) Section 1886(h)(6) of the Social Security Act, added by 
    subsection (a), other than subparagraph (F)(ii) thereof, shall not 
    apply to any residency training program with respect to which a 
    demonstration project described in paragraph (3) has been approved 
    by the Health Care Financing Administration as of May 27, 1997.
        (2) Effective May 27, 1997, the Secretary of Health and Human 
    Services is not authorized to approve any demonstration project 
    described in paragraph (3) for any residency training year 
    beginning before July 1, 2006.
        (3) A demonstration project described in this paragraph is a 
    project that primarily provides for additional payments under title 
    XVIII of the Social Security Act in connection with a reduction in 
    the number of residents in a medical residency training program.
    (c) 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 first promulgate regulations, that take 
effect on an interim basis, after notice and pending opportunity for 
public comment, by not later than 6 months after the date of the 
enactment of this Act.

SEC. 4627. MEDICARE SPECIAL REIMBURSEMENT RULE FOR PRIMARY CARE 
              COMBINED RESIDENCY PROGRAMS.

    (a) In General.--Section 1886(h)(5)(G) of the Social Security Act 
(42 U.S.C. 1395ww(h)(5)(G)) is amended--
        (1) in clause (i), by striking ``and (iii)'' and inserting ``, 
    (iii), and (iv)''; and
        (2) by adding at the end the following:
                ``(iv) Special rule for certain primary care combined 
            residency programs.--(I) In the case of a resident enrolled 
            in a combined medical residency training program in which 
            all of the individual programs (that are combined) are for 
            training a primary care resident (as defined in 
            subparagraph (H)), the period of board eligibility shall be 
            the minimum number of years of formal training required to 
            satisfy the requirements for initial board eligibility in 
            the longest of the individual programs plus one additional 
            year.
                ``(II) A resident enrolled in a combined medical 
            residency training program that includes an obstetrics and 
            gynecology program shall qualify for the period of board 
            eligibility under subclause (I) if the other programs such 
            resident combines with such obstetrics and gynecology 
            program are for training a primary care resident.''.
    (b) Effective Date.--The amendments made by subsection (a) apply to 
combined medical residency training programs in effect for residency 
years beginning on or after July 1, 1997.

SEC. 4628. DEMONSTRATION PROJECT ON USE OF CONSORTIA.

    (a) In General.--The Secretary of Health and Human Services (in 
this section referred to as the ``Secretary'') shall establish a 
demonstration project under which, instead of making payments to 
teaching hospitals pursuant to section 1886(h) of the Social Security 
Act, the Secretary shall make payments under this section to each 
consortium that meets the requirements of subsection (b) and that 
applies to be included under the project.
    (b) Qualifying Consortia.--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 a teaching hospital with one or 
    more approved medical residency training programs and one or more 
    of the following entities:
            (A) A school of allopathic medicine or osteopathic 
        medicine.
            (B) Another teaching hospital, which may be a children's 
        hospital.
            (C) A Federally qualified health center.
            (D) A medical group practice.
            (E) A managed care entity.
            (F) An entity furnishing outpatient services.
            (G) Such other entity 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 
    entities 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) Amount and Source of Payment.--The total of payments to a 
qualifying consortium for a fiscal year pursuant to subsection (a) 
shall not exceed the amount that would have been paid under section 
1886 (h) or (k) of the Social Security Act for the teaching hospital 
(or hospitals) in the consortium. Such payments shall be made in such 
proportion from each of the trust funds established under title XVIII 
of such Act as the Secretary specifies.

SEC. 4629. RECOMMENDATIONS ON LONG-TERM POLICIES REGARDING TEACHING 
              HOSPITALS AND GRADUATE MEDICAL EDUCATION.

    (a) In General.--The Medicare Payment Advisory Commission 
(established under section 1805 of the Social Security Act and in this 
section referred to as the ``Commission'') shall examine and develop 
recommendations on whether and to what extent medicare payment policies 
and other Federal policies regarding teaching hospitals and graduate 
medical education should be changed. Such recommendations shall include 
recommendations regarding each of the following:
        (1) Possible methodologies for making payments for graduate 
    medical education and the selection of entities to receive such 
    payments. Matters considered under this paragraph shall include--
            (A) issues regarding children's hospitals and approved 
        medical residency training programs in pediatrics, and
            (B) whether and to what extent payments are being made (or 
        should be made) for training in the nursing and other allied 
        health professions.
        (2) Federal policies regarding international medical graduates.
        (3) The dependence of schools of medicine on service-generated 
    income.
        (4) Whether and to what extent the needs of the United States 
    regarding the supply of physicians, in the aggregate and in 
    different specialties, will change during the 10-year period 
    beginning on October 1, 1997, and whether and to what extent any 
    such changes will have significant financial effects on teaching 
    hospitals.
        (5) Methods for promoting an appropriate number, mix, and 
    geographical distribution of health professionals.
    (b) Consultation.--In conducting the study under subsection (a), 
the Commission shall consult with the Council on Graduate Medical 
Education and individuals with expertise in the area of graduate 
medical education, including--
        (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, approved medical residency training programs, and teaching 
    hospitals that sponsor 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 representative 
    fields of non-physician health professionals;
        (5) individuals with substantial experience in the study of 
    issues regarding the composition of the health care workforce of 
    the United States; and
        (6) individuals with expertise in health care payment policies.
    (c) Report.--Not later than 2 years after the date of the enactment 
of this Act, the Commission shall submit to the Congress a report 
providing its recommendations under this section and the reasons and 
justifications for such recommendations.

SEC. 4630. STUDY OF HOSPITAL OVERHEAD AND SUPERVISORY PHYSICIAN 
              COMPONENTS OF DIRECT MEDICAL EDUCATION COSTS.

    (a) In General.--The Secretary of Health and Human Services shall 
conduct a study with respect to--
        (1) variations among hospitals in the hospital overhead and 
    supervisory physician components of their direct medical education 
    costs taken into account under section 1886(h) of the Social 
    Security Act, and
        (2) the reasons for such variations.
    (b) Report.--Not later than 1 year after the date of the enactment 
of this Act, the Secretary shall report the results of the study 
conducted under subsection (a) to the appropriate committees of 
Congress, including recommendations for legislation reducing variations 
described in subsection (a) that the Secretary finds inappropriate.

       CHAPTER 3--PROVISIONS RELATING TO MEDICARE SECONDARY PAYER

SEC. 4631. PERMANENT EXTENSION AND REVISION OF CERTAIN SECONDARY PAYER 
              PROVISIONS.

    (a) 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)''.
    (b) Individuals With End Stage Renal Disease.--Section 
1862(b)(1)(C) (42 U.S.C. 1395y(b)(1)(C)) is amended--
        (1) in the last sentence by striking ``October 1, 1998'' and 
    inserting ``the date of enactment of the Balanced Budget Act of 
    1997''; and
        (2) by adding at the end the following: ``Effective for items 
    and services furnished on or after the date of enactment of the 
    Balanced Budget Act of 1997, (with respect to periods beginning on 
    or after the date that is 18 months prior to such date), clauses 
    (i) and (ii) shall be applied by substituting `30-month' for `12-
    month' each place it appears.''.
    (c) IRS-SSA-HCFA Data Match.--
        (1) Social security act.--Section 1862(b)(5)(C) (42 U.S.C. 
    1395y(b)(5)(C)) is amended by striking clause (iii).
        (2) Internal revenue code.--Section 6103(l)(12) of the Internal 
    Revenue Code of 1986 is amended by striking subparagraph (F).

SEC. 4632. CLARIFICATION OF TIME AND FILING LIMITATIONS.

    (a) 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.''.
    (b) Effective Date.--The amendments made by this section apply to 
items and services furnished on or after the date of the enactment of 
this Act.

SEC. 4633. PERMITTING RECOVERY AGAINST THIRD PARTY ADMINISTRATORS.

    (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 
    and is not employed by or under contract with the employer or group 
    health plan at the time the action for recovery is initiated by the 
    United States or for whom it provides administrative services due 
    to the insolvency or bankruptcy of the employer or plan.''.
    (b) Clarification of Beneficiary Liability.--Section 1862(b)(1) (42 
U.S.C. 1395y(b)(1)) is amended by adding at the end the following new 
subparagraph:
            ``(F) Limitation on beneficiary liability.--An individual 
        who is entitled to benefits under this title and is furnished 
        an item or service for which such benefits are incorrectly paid 
        is not liable for repayment of such benefits under this 
        paragraph unless payment of such benefits was made to the 
        individual.''.
    (c) Effective Date.--The amendments made by this section apply to 
items and services furnished on or after the date of the enactment of 
this Act.

                      CHAPTER 4--OTHER PROVISIONS

SEC. 4641. PLACEMENT OF ADVANCE DIRECTIVE IN MEDICAL RECORD.

    (a) In General.--Section 1866(f)(1)(B) (42 U.S.C. 1395cc(f)(1)(B)) 
is amended by striking ``in the individual's medical record'' and 
inserting ``in a prominent part of the individual's current medical 
record''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to provider agreements entered into, renewed, or extended on or 
after such date (not later than 1 year after the date of the enactment 
of this Act) as the Secretary of Health and Human Services specifies.

SEC. 4642. INCREASED CERTIFICATION PERIOD FOR CERTAIN ORGAN PROCUREMENT 
              ORGANIZATIONS.

    Section 1138(b)(1)(A)(ii) (42 U.S.C. 1320b-8(b)(1)(A)(ii)) is 
amended by striking ``two years'' and inserting ``2 years (4 years if 
the Secretary determines appropriate for an organization on the basis 
of its past practices)''.

SEC. 4643. OFFICE OF THE CHIEF ACTUARY IN THE HEALTH CARE FINANCING 
              ADMINISTRATION.

    Section 1117 (42 U.S.C. 1317) is amended--
        (1) in the heading, by inserting ``and chief actuary'' after 
    ``the administrator'';
        (2) by inserting ``(a)'' before ``The Administrator''; and
        (3) by adding at the end the following:
    ``(b)(1) There is established in the Health Care Financing 
Administration the position of Chief Actuary. The Chief Actuary shall 
be appointed by, and in direct line of authority to, the Administrator 
of such Administration. The Chief Actuary shall be appointed from among 
individuals who have demonstrated, by their education and experience, 
superior expertise in the actuarial sciences. The Chief Actuary shall 
exercise such duties as are appropriate for the office of the Chief 
Actuary and in accordance with professional standards of actuarial 
independence. The Chief Actuary may be removed only for cause.
    ``(2) The Chief Actuary shall be compensated at the highest rate of 
basic pay for the Senior Executive Service under section 5382(b) of 
title 5, United States Code.''.

SEC. 4644. CONFORMING AMENDMENTS TO COMPLY WITH CONGRESSIONAL REVIEW OF 
              AGENCY RULEMAKING.

    (a) DRG Prospective Payment Rate Methodology.--
        (1) In general.--Section 1886(d)(6) (42 U.S.C. 1395ww(d)(6)) is 
    amended by striking ``September 1'' and inserting ``August 1''.
        (2) Transition rule for fiscal year 1998.--With respect to the 
    publication in the Federal Register of the DRG prospective payment 
    rate methodology under such section for fiscal year 1998, the term 
    ``60 days'' in section 801(a)(3)(A) and section 802(a) of title 5, 
    United States Code, is deemed to be a reference to ``30 days''.
    (b) Hospital Payment Updates.--
        (1) In general.--Section 1886(e) (42 U.S.C. 1395ww(e) is 
    amended--
            (A) in paragraph (5)(A) by striking ``May 1'' and inserting 
        ``April 1''; and
            (B) in paragraph (5)(B) by striking ``September 1'' and 
        inserting ``August 1''.
        (2) Transition rule for fiscal year 1998.--With respect to the 
    publication in the Federal Register of the appropriate change 
    factor for inpatient hospital services for discharges in fiscal 
    year 1998 under section 1886(e)(5)(B) (42 U.S.C. 1395ww(e)(5)(B)), 
    the term ``60 days'' in section 801(a)(3)(A) and section 802(a) of 
    title 5, United States Code, is deemed to be a reference to ``30 
    days''.
    (c) Applications for Geographic Reclassification.--
        (1) In general.--Section 1886(d)(10)(C) (42 U.S.C. 
    1395ww(d)(10)(C)) is amended in clause (ii), by striking ``the 
    first day of the preceding fiscal year.'' and inserting ``the first 
    day of the 13-month period ending on September 30 of the preceding 
    fiscal year.''
        (2) Special rule for applications received in fiscal year 
    1997.--In the case of an application for a change in geographic 
    classification under such section for fiscal year 1999, the 
    Secretary of Health and Human Services shall shorten the deadlines 
    under such section so as to permit completion of a final decision 
    by the Secretary by June 15, 1998.
    (d) Physician Fee Schedule.--Section 1848(b)(1) (42 U.S.C. 1395w-
4(b)(1)) is amended by striking ``Before January 1 of each year 
beginning with 1992'' and inserting ``Before November 1 of the 
preceding year, for each year beginning with 1998''.

                          Subtitle H--Medicaid

                        CHAPTER 1--MANAGED CARE

SEC. 4701. STATE OPTION OF USING MANAGED CARE; CHANGE IN TERMINOLOGY.

    (a) Use of Managed Care Generally.--Title XIX is amended by 
redesignating section 1932 as section 1933 and by inserting after 
section 1931 the following new section:


                  ``provisions relating to managed care

    ``Sec. 1932. (a) State Option To Use Managed Care.--
        ``(1) Use of medicaid managed care organizations and primary 
    care case managers.--
            ``(A) In general.--Subject to the succeeding provisions of 
        this section, and notwithstanding paragraph (1), (10)(B), or 
        (23)(A) of section 1902(a), a State--
                ``(i) may require an individual who is eligible for 
            medical assistance under the State plan under this title to 
            enroll with a managed care entity as a condition of 
            receiving such assistance (and, with respect to assistance 
            furnished by or under arrangements with such entity, to 
            receive such assistance through the entity), if--

                    ``(I) the entity and the contract with the State 
                meet the applicable requirements of this section and 
                section 1903(m) or section 1905(t), and
                    ``(II) the requirements described in the succeeding 
                paragraphs of this subsection are met; and

                ``(ii) may restrict the number of provider agreements 
            with managed care entities under the State plan if such 
            restriction does not substantially impair access to 
            services.
            ``(B) Definition of managed care entity.--In this section, 
        the term `managed care entity' means--
                ``(i) a medicaid managed care organization, as defined 
            in section 1903(m)(1)(A), that provides or arranges for 
            services for enrollees under a contract pursuant to section 
            1903(m); and
                ``(ii) a primary care case manager, as defined in 
            section 1905(t)(2).
        ``(2) Special rules.--
            ``(A) Exemption of certain children with special needs.--A 
        State may not require under paragraph (1) the enrollment in a 
        managed care entity of an individual under 19 years of age 
        who--
                ``(i) is eligible for supplemental security income 
            under title XVI;
                ``(ii) is described in section 501(a)(1)(D);
                ``(iii) is described in section 1902(e)(3);
                ``(iv) is receiving foster care or adoption assistance 
            under part E of title IV; or
                ``(v) is in foster care or otherwise in an out-of-home 
            placement.
            ``(B) Exemption of medicare beneficiaries.--A State may not 
        require under paragraph (1) the enrollment in a managed care 
        entity of an individual who is a qualified medicare beneficiary 
        (as defined in section 1905(p)(1)) or an individual otherwise 
        eligible for benefits under title XVIII.
            ``(C) Indian enrollment.--A State may not require under 
        paragraph (1) the enrollment in a managed care entity of an 
        individual who is an Indian (as defined in section 4(c) of the 
        Indian Health Care Improvement Act of 1976 (25 U.S.C. 1603(c)) 
        unless the entity is one of the following (and only if such 
        entity is participating under the plan):
                ``(i) The Indian Health Service.
                ``(ii) An Indian health program operated by an Indian 
            tribe or tribal organization pursuant to a contract, grant, 
            cooperative agreement, or compact with the Indian Health 
            Service pursuant to the Indian Self-Determination Act (25 
            U.S.C. 450 et seq.).
                ``(iii) An urban Indian health program operated by an 
            urban Indian organization pursuant to a grant or contract 
            with the Indian Health Service pursuant to title V of the 
            Indian Health Care Improvement Act (25 U.S.C. 1601 et 
            seq.).
        ``(3) Choice of coverage.--
            ``(A) In general.--A State must permit an individual to 
        choose a managed care entity from not less than two such 
        entities that meet the applicable requirements of this section, 
        and of section 1903(m) or section 1905(t).
            ``(B) State option.--At the option of the State, a State 
        shall be considered to meet the requirements of subparagraph 
        (A) in the case of an individual residing in a rural area, if 
        the State requires the individual to enroll with a managed care 
        entity if such entity--
                ``(i) permits the individual to receive such assistance 
            through not less than two physicians or case managers (to 
            the extent that at least two physicians or case managers 
            are available to provide such assistance in the area), and
                (ii) permits the individual to obtain such assistance 
            from any other provider in appropriate circumstances (as 
            established by the State under regulations of the 
            Secretary).
            ``(C) Treatment of certain county-operated health insuring 
        organizations.--A State shall be considered to meet the 
        requirement of subparagraph (A) if--
                ``(i) the managed care entity in which the individual 
            is enrolled is a health-insuring organization which--

                    ``(I) first became operational prior to January 1, 
                1986, or
                    ``(II) is described in section 9517(c)(3) of the 
                Omnibus Budget Reconciliation Act of 1985 (as added by 
                section 4734(2) of the Omnibus Budget Reconciliation 
                Act of 1990), and

                ``(ii) the individual is given a choice between at 
            least two providers within such entity.
        ``(4) Process for enrollment and termination and change of 
    enrollment.--As conditions under paragraph (1)(A)--
            ``(A) In general.--The State, enrollment broker (if any), 
        and managed care entity shall permit an individual eligible for 
        medical assistance under the State plan under this title who is 
        enrolled with the entity under this title to terminate (or 
        change) such enrollment--
                ``(i) for cause at any time (consistent with section 
            1903(m)(2)(A)(vi)), and
                ``(ii) without cause--

                    ``(I) during the 90-day period beginning on the 
                date the individual receives notice of such enrollment, 
                and
                    ``(II) at least every 12 months thereafter.

            ``(B) Notice of termination rights.--The State shall 
        provide for notice to each such individual of the opportunity 
        to terminate (or change) enrollment under such conditions. Such 
        notice shall be provided at least 60 days before each annual 
        enrollment opportunity described in subparagraph (A)(ii)(II).
            ``(C) Enrollment priorities.--In carrying out paragraph 
        (1)(A), the State shall establish a method for establishing 
        enrollment priorities in the case of a managed care entity that 
        does not have sufficient capacity to enroll all such 
        individuals seeking enrollment under which individuals already 
        enrolled with the entity are given priority in continuing 
        enrollment with the entity.
            ``(D) Default enrollment process.--In carrying out 
        paragraph (1)(A), the State shall establish a default 
        enrollment process--
                ``(i) under which any such individual who does not 
            enroll with a managed care entity during the enrollment 
            period specified by the State shall be enrolled by the 
            State with such an entity which has not been found to be 
            out of substantial compliance with the applicable 
            requirements of this section and of section 1903(m) or 
            section 1905(t); and
                ``(ii) that takes into consideration--

                    ``(I) maintaining existing provider-individual 
                relationships or relationships with providers that have 
                traditionally served beneficiaries under this title; 
                and
                    ``(II) if maintaining such provider relationships 
                is not possible, the equitable distribution of such 
                individuals among qualified managed care entities 
                available to enroll such individuals, consistent with 
                the enrollment capacities of the entities.

        ``(5) Provision of information.--
            ``(A) Information in easily understood form.--Each State, 
        enrollment broker, or managed care entity shall provide all 
        enrollment notices and informational and instructional 
        materials relating to such an entity under this title in a 
        manner and form which may be easily understood by enrollees and 
        potential enrollees of the entity who are eligible for medical 
        assistance under the State plan under this title.
            ``(B) Information to enrollees and potential enrollees.--
        Each managed care entity that is a medicaid managed care 
        organization shall, upon request, make available to enrollees 
        and potential enrollees in the organization's service area 
        information concerning the following:
                ``(i) Providers.--The identity, locations, 
            qualifications, and availability of health care providers 
            that participate with the organization.
                ``(ii) Enrollee rights and responsibilities.--The 
            rights and responsibilities of enrollees.
                ``(iii) Grievance and appeal procedures.--The 
            procedures available to an enrollee and a health care 
            provider to challenge or appeal the failure of the 
            organization to cover a service.
                ``(iv) Information on covered items and services.--All 
            items and services that are available to enrollees under 
            the contract between the State and the organization that 
            are covered either directly or through a method of referral 
            and prior authorization. Each managed care entity that is a 
            primary care case manager shall, upon request, make 
            available to enrollees and potential enrollees in the 
            organization's service area the information described in 
            clause (iii).
            ``(C) Comparative information.--A State that requires 
        individuals to enroll with managed care entities under 
        paragraph (1)(A) shall annually (and upon request) provide, 
        directly or through the managed care entity, to such 
        individuals a list identifying the managed care entities that 
        are (or will be) available and information (presented in a 
        comparative, chart-like form) relating to the following for 
        each such entity offered:
                ``(i) Benefits and cost-sharing.--The benefits covered 
            and cost-sharing imposed by the entity.
                ``(ii) Service area.--The service area of the entity.
                ``(iii) Quality and performance.--To the extent 
            available, quality and performance indicators for the 
            benefits under the entity.
            ``(D) Information on benefits not covered under managed 
        care arrangement.--A State, directly or through managed care 
        entities, shall, on or before an individual enrolls with such 
        an entity under this title, inform the enrollee in a written 
        and prominent manner of any benefits to which the enrollee may 
        be entitled to under this title but which are not made 
        available to the enrollee through the entity. Such information 
        shall include information on where and how such enrollees may 
        access benefits not made available to the enrollee through the 
        entity.''.
    (b) Change in Terminology.--
        (1) In general.--Section 1903(m)(1)(A) (42 U.S.C. 1396b(m)) is 
    amended--
            (A) by striking ``The term'' and all that follows through 
        ``and--'' and inserting ``The term `medicaid managed care 
        organization' means a health maintenance organization, an 
        eligible organization with a contract under section 1876 or a 
        Medicare+Choice organization with a contract under part C of 
        title XVIII, a provider sponsored organization, or any other 
        public or private organization, which meets the requirement of 
        section 1902(w) and--''; and
            (B) by adding after and below clause (ii) the following:
``An organization that is a qualified health maintenance organization 
(as defined in section 1310(d) of the Public Health Service Act) is 
deemed to meet the requirements of clauses (i) and (ii).''.
      (2) Conforming changes in terminology.--(A) Each of the following 
    provisions is amended by striking ``health maintenance 
    organization'' and inserting ``medicaid managed care 
    organization'':
            (i) Section 1902(a)(23) (42 U.S.C. 1396a(a)(23)).
            (ii) Section 1902(a)(57) (42 U.S.C. 1396a(a)(57)).
            (iii) Section 1902(p)(2) (42 U.S.C. 1396a(p)(2)).
            (iv) Section 1902(w)(2)(E) (42 U.S.C. 1396a(w)(2)(E)).
            (v) Section 1903(k) (42 U.S.C. 1396b(k)).
            (vi) In section 1903(m)(1)(B).
            (vii) In subparagraphs (A)(i) and (H)(i) of section 
        1903(m)(2) (42 U.S.C. 1396b(m)(2)).
            (viii) Section 1903(m)(4)(A) (42 U.S.C. 1396b(m)(4)(A)), 
        the first place it appears.
            (ix) Section 1925(b)(4)(D)(iv) (42 U.S.C. 1396r-
        6(b)(4)(D)(iv)).
            (x) Section 1927(j)(1) (42 U.S.C. 1396r-8(j)(1)) is amended 
        by striking ``***Health Maintenance Organizations, including 
        those organizations'' and inserting ``health maintenance 
        organizations, including medicaid managed care organizations''.
        (B) Section 1903(m)(2)(H) (42 U.S.C. 1396b(m)(2)(H)) is 
    amended, in the matter following clause (iii), by striking ``health 
    maintenance''.
        (C) Clause (viii) of section 1903(w)(7)(A) (42 U.S.C. 
    1396b(w)(7)(A)) is amended to read as follows:
                ``(viii) Services of a medicaid managed care 
            organization with a contract under section 1903(m).''.
        (D) Section 1925(b)(4)(D)(iv) (42 U.S.C. 1396r-6(b)(4)(D)(iv)) 
    is amended--
            (i) in the heading, by striking ``hmo'' and inserting 
        ``medicaid managed care organization''; and
            (ii) by inserting ``and the applicable requirements of 
        section 1932'' before the period at the end.
    (c) Compliance of Contract With New Requirements.--Section 
1903(m)(2)(A) (42 U.S.C. 1396b(m)(2)(A)) is amended--
        (1) by striking ``and'' at the end of clause (x),
        (2) by striking the period at the end of clause (xi) and 
    inserting ``; and''; and
        (3) by adding at the end the following:
        ``(xi) such contract, and the entity complies with the 
    applicable requirements of section 1932.''.
    (d) Conforming Amendments to Freedom-of-Choice and Termination of 
Enrollment Requirements.--
        (1) Section 1902(a)(23) (42 U.S.C. 1396a(a)(23)), as amended by 
    section 4724(d), is amended by striking ``and in section 1915'' and 
    inserting ``, in section 1915, and in section 1932(a)''.
        (2) Section 1903(m)(2) (42 U.S.C. 1396b(m)(2)) is amended--
            (A) in paragraph (A)(vi)--
                (i) by striking ``except as provided under subparagraph 
            (F),'',
                (ii) by striking ``without cause'' and all that follows 
            through ``for such termination'' and inserting ``in 
            accordance with section 1932(a)(4);'',
                (iii) by inserting ``in accordance with such section'' 
            after ``provides for notification''; and
            (B) by striking subparagraph (F).

SEC. 4702. PRIMARY CARE CASE MANAGEMENT SERVICES AS STATE OPTION 
              WITHOUT NEED FOR WAIVER.

    (a) In General.--Section 1905 (42 U.S.C. 1396d) is amended--
        (1) in subsection (a)--
            (A) by striking ``and'' at the end of paragraph (24);
            (B) by redesignating paragraph (25) as paragraph (26) and 
        by striking the period at the end of such paragraph and 
        inserting a comma; and
            (C) by inserting after paragraph (24) the following new 
        paragraph:
        ``(25) primary care case management services (as defined in 
    subsection (t)); and''; and
        (2) by adding at the end the following new subsection:
    ``(t)(1) The term `primary care case management services' means 
case-management related services (including locating, coordinating, and 
monitoring of health care services) provided by a primary care case 
manager under a primary care case management contract.
    ``(2) The term `primary care case manager' means any of the 
following that provides services of the type described in paragraph (1) 
under a contract referred to in such paragraph:
        ``(A) A physician, a physician group practice, or an entity 
    employing or having other arrangements with physicians to provide 
    such services.
        ``(B) At State option--
            ``(i) a nurse practitioner (as described in section 
        1905(a)(21));
            ``(ii) a certified nurse-midwife (as defined in section 
        1861(gg)); or
            ``(iii) a physician assistant (as defined in section 
        1861(aa)(5)).
    ``(3) The term `primary care case management contract' means a 
contract between a primary care case manager and a State under which 
the manager undertakes to locate, coordinate, and monitor covered 
primary care (and such other covered services as may be specified under 
the contract) to all individuals enrolled with the manager, and which--
        ``(A) provides for reasonable and adequate hours of operation, 
    including 24-hour availability of information, referral, and 
    treatment with respect to medical emergencies;
        ``(B) restricts enrollment to individuals residing sufficiently 
    near a service delivery site of the manager to be able to reach 
    that site within a reasonable time using available and affordable 
    modes of transportation;
        ``(C) provides for arrangements with, or referrals to, 
    sufficient numbers of physicians and other appropriate health care 
    professionals to ensure that services under the contract can be 
    furnished to enrollees promptly and without compromise to quality 
    of care;
        ``(D) prohibits discrimination on the basis of health status or 
    requirements for health care services in enrollment, disenrollment, 
    or reenrollment of individuals eligible for medical assistance 
    under this title;
        ``(E) provides for a right for an enrollee to terminate 
    enrollment in accordance with section 1932(a)(4); and
        ``(F) complies with the other applicable provisions of section 
    1932.
    ``(4) For purposes of this subsection, the term `primary care' 
includes all health care services customarily provided in accordance 
with State licensure and certification laws and regulations, and all 
laboratory services customarily provided by or through, a general 
practitioner, family medicine physician, internal medicine physician, 
obstetrician/gynecologist, or pediatrician.''.
    (b) Conforming Amendments.--
        (1) Application of reenrollment provisions to pccms.--Section 
    1903(m)(2)(H) (42 U.S.C. 1396b(m)(2)(H)) is amended--
            (A) in clause (i), by inserting before the comma the 
        following: ``or with a primary care case manager with a 
        contract described in section 1905(t)(3)''; and
            (B) by inserting before the period at the end the 
        following: ``or with the manager described in such clause if 
        the manager continues to have a contract described in section 
        1905(t)(3) with the State''.
        (2) Conforming cross-reference.--Section 1902(j) (42 U.S.C. 
    1396a(j)) is amended by striking ``paragraphs (1) through (25)'' 
    and inserting ``a numbered paragraph of''.

SEC. 4703. ELIMINATION OF 75:25 RESTRICTION ON RISK CONTRACTS.

    (a) In General.--Section 1903(m)(2)(A) (42 U.S.C. 1396b(m)(2)(A)) 
is amended by striking clause (ii).
    (b) Conforming Amendments.--
        (1) Section 1903(m)(2) (42 U.S.C. 1396b(m)(2)) is amended--
            (A) by striking subparagraphs (C), (D), and (E); and
            (B) in subparagraph (G), by striking ``clauses (i) and 
        (ii)'' and inserting ``clause (i)''.
        (2) Section 1925(b)(4)(D)(iv) (42 U.S.C. 1396r-6(b)(4)(D)(iv)) 
    is amended by striking ``less than 50 percent'' and all that 
    follows up to the period at the end.

SEC. 4704. INCREASED BENEFICIARY PROTECTIONS.

    (a) In General.--Section 1932, as added by section 4701(a), is 
amended by adding at the end the following:
    ``(b) Beneficiary Protections.--
        ``(1) Specification of benefits.--Each contract with a managed 
    care entity under section 1903(m) or under section 1905(t)(3) shall 
    specify the benefits the provision (or arrangement) for which the 
    entity is responsible.
        ``(2) Assuring coverage to emergency services.--
            ``(A) In general.--Each contract with a medicaid managed 
        care organization under section 1903(m) and each contract with 
        a primary care case manager under section 1905(t)(3) shall 
        require the organization or manager--
                ``(i) to provide coverage for emergency services (as 
            defined in subparagraph (B)) without regard to prior 
            authorization or the emergency care provider's contractual 
            relationship with the organization or manager, and
                ``(ii) to comply with guidelines established under 
            section 1852(d)(2) (respecting coordination of post-
            stabilization care) in the same manner as such guidelines 
            apply to Medicare+Choice plans offered under part C of 
            title XVIII.
        The requirement under clause (ii) shall first apply 30 days 
        after the date of promulgation of the guidelines referred to in 
        such clause.
            ``(B) Emergency services defined.--In subparagraph (A)(i), 
        the term `emergency services' means, with respect to an 
        individual enrolled with an organization, covered inpatient and 
        outpatient services that--
                ``(i) are furnished by a provider that is qualified to 
            furnish such services under this title, and
                ``(ii) are needed to evaluate or stabilize an emergency 
            medical condition (as defined in subparagraph (C)).
            ``(C) Emergency medical condition defined.--In subparagraph 
        (B)(ii), the term `emergency medical condition' means a medical 
        condition manifesting itself by acute symptoms of sufficient 
        severity (including severe pain) such that a prudent layperson, 
        who possesses an average knowledge of health and medicine, 
        could reasonably expect the absence of immediate medical 
        attention to result in--
                ``(i) placing the health of the individual (or, with 
            respect to a pregnant woman, the health of the woman or her 
            unborn child) in serious jeopardy,
                ``(ii) serious impairment to bodily functions, or
                ``(iii) serious dysfunction of any bodily organ or 
            part.
        ``(3) Protection of enrollee-provider communications.--
            ``(A) In general.--Subject to subparagraphs (B) and (C), 
        under a contract under section 1903(m) a medicaid managed care 
        organization (in relation to an individual enrolled under the 
        contract) shall not prohibit or otherwise restrict a covered 
        health care professional (as defined in subparagraph (D)) from 
        advising such an individual who is a patient of the 
        professional about the health status of the individual or 
        medical care or treatment for the individual's condition or 
        disease, regardless of whether benefits for such care or 
        treatment are provided under the contract, if the professional 
        is acting within the lawful scope of practice.
            ``(B) Construction.--Subparagraph (A) shall not be 
        construed as requiring a medicaid managed care organization to 
        provide, reimburse for, or provide coverage of, a counseling or 
        referral service if the organization--
                ``(i) objects to the provision of such service on moral 
            or religious grounds; and
                ``(ii) in the manner and through the written 
            instrumentalities such organization deems appropriate, 
            makes available information on its policies regarding such 
            service to prospective enrollees before or during 
            enrollment and to enrollees within 90 days after the date 
            that the organization adopts a change in policy regarding 
            such a counseling or referral service.
        Nothing in this subparagraph shall be construed to affect 
        disclosure requirements under State law or under the Employee 
        Retirement Income Security Act of 1974.
            ``(C) Health care professional defined.--For purposes of 
        this paragraph, the term `health care professional' means a 
        physician (as defined in section 1861(r)) or other health care 
        professional if coverage for the professional's services is 
        provided under the contract referred to in subparagraph (A) for 
        the services of the professional. Such term includes a 
        podiatrist, optometrist, chiropractor, psychologist, dentist, 
        physician assistant, physical or occupational therapist and 
        therapy assistant, speech-language pathologist, audiologist, 
        registered or licensed practical nurse (including nurse 
        practitioner, clinical nurse specialist, certified registered 
        nurse anesthetist, and certified nurse-midwife), licensed 
        certified social worker, registered respiratory therapist, and 
        certified respiratory therapy technician.
        ``(4) Grievance procedures.--Each medicaid managed care 
    organization shall establish an internal grievance procedure under 
    which an enrollee who is eligible for medical assistance under the 
    State plan under this title, or a provider on behalf of such an 
    enrollee, may challenge the denial of coverage of or payment for 
    such assistance.
        ``(5) Demonstration of adequate capacity and services.--Each 
    medicaid managed care organization shall provide the State and the 
    Secretary with adequate assurances (in a time and manner determined 
    by the Secretary) that the organization, with respect to a service 
    area, has the capacity to serve the expected enrollment in such 
    service area, including assurances that the organization--
            ``(A) offers an appropriate range of services and access to 
        preventive and primary care services for the population 
        expected to be enrolled in such service area, and
            ``(B) maintains a sufficient number, mix, and geographic 
        distribution of providers of services.
        ``(6) Protecting enrollees against liability for payment.--Each 
    medicaid managed care organization shall provide that an individual 
    eligible for medical assistance under the State plan under this 
    title who is enrolled with the organization may not be held 
    liable--
            ``(A) for the debts of the organization, in the event of 
        the organization's insolvency,
            ``(B) for services provided to the individual--
                ``(i) in the event of the organization failing to 
            receive payment from the State for such services; or
                ``(ii) in the event of a health care provider with a 
            contractual, referral, or other arrangement with the 
            organization failing to receive payment from the State or 
            the organization for such services, or
            ``(C) for payments to a provider that furnishes covered 
        services under a contractual, referral, or other arrangement 
        with the organization in excess of the amount that would be 
        owed by the individual if the organization had directly 
        provided the services.
        ``(7) Antidiscrimination.--A medicaid managed care organization 
    shall not discriminate with respect to participation, 
    reimbursement, or indemnification as to any provider who is acting 
    within the scope of the provider's license or certification under 
    applicable State law, solely on the basis of such license or 
    certification. This paragraph shall not be construed to prohibit an 
    organization from including providers only to the extent necessary 
    to meet the needs of the organization's enrollees or from 
    establishing any measure designed to maintain quality and control 
    costs consistent with the responsibilities of the organization.
        ``(8) Compliance with certain maternity and mental health 
    requirements.--Each medicaid managed care organization shall comply 
    with the requirements of subpart 2 of part A of title XXVII of the 
    Public Health Service Act insofar as such requirements apply and 
    are effective with respect to a health insurance issuer that offers 
    group health insurance coverage.''.
    (b) Protection of Enrollees Against Balance Billing Through 
Subcontractors.--Section 1128B(d)(1) (42 U.S.C. 1320a-7b(d)(1)) is 
amended by inserting ``(or, in the case of services provided to an 
individual enrolled with a medicaid managed care organization under 
title XIX under a contract under section 1903(m) or under a 
contractual, referral, or other arrangement under such contract, at a 
rate in excess of the rate permitted under such contract)'' before the 
comma at the end.

SEC. 4705. QUALITY ASSURANCE STANDARDS.

    (a) In General.--Section 1932 is further amended by adding at the 
end the following:
    ``(c) Quality Assurance Standards.--
        ``(1) Quality assessment and improvement strategy.--
            ``(A) In general.--If a State provides for contracts with 
        medicaid managed care organizations under section 1903(m), the 
        State shall develop and implement a quality assessment and 
        improvement strategy consistent with this paragraph. Such 
        strategy shall include the following:
                ``(i) Access standards.--Standards for access to care 
            so that covered services are available within reasonable 
            timeframes and in a manner that ensures continuity of care 
            and adequate primary care and specialized services 
            capacity.
                ``(ii) Other measures.--Examination of other aspects of 
            care and service directly related to the improvement of 
            quality of care (including grievance procedures and 
            marketing and information standards).
                ``(iii) Monitoring procedures.--Procedures for 
            monitoring and evaluating the quality and appropriateness 
            of care and services to enrollees that reflect the full 
            spectrum of populations enrolled under the contract and 
            that includes requirements for provision of quality 
            assurance data to the State using the data and information 
            set that the Secretary has specified for use under part C 
            of title XVIII or such alternative data as the Secretary 
            approves, in consultation with the State.
                ``(iv) Periodic review.--Regular, periodic examinations 
            of the scope and content of the strategy.
            ``(B) Standards.--The strategy developed under subparagraph 
        (A) shall be consistent with standards that the Secretary first 
        establishes within 1 year after the date of the enactment of 
        this section. Such standards shall not preempt any State 
        standards that are more stringent than such standards. 
        Guidelines relating to quality assurance that are applied under 
        section 1915(b)(1) shall apply under this subsection until the 
        effective date of standards for quality assurance established 
        under this subparagraph.
            ``(C) Monitoring.--The Secretary shall monitor the 
        development and implementation of strategies under subparagraph 
        (A).
            ``(D) Consultation.--The Secretary shall conduct activities 
        under subparagraphs (B) and (C) in consultation with the 
        States.
        ``(2) External independent review of managed care activities.--
            ``(A) Review of contracts.--
                ``(i) In general.--Each contract under section 1903(m) 
            with a medicaid managed care organization shall provide for 
            an annual (as appropriate) external independent review 
            conducted by a qualified independent entity of the quality 
            outcomes and timeliness of, and access to, the items and 
            services for which the organization is responsible under 
            the contract. The requirement for such a review shall not 
            apply until after the date that the Secretary establishes 
            the identification method described in clause (ii).
                ``(ii) Qualifications of reviewer.--The Secretary, in 
            consultation with the States, shall establish a method for 
            the identification of entities that are qualified to 
            conduct reviews under clause (i).
                ``(iii) Use of protocols.--The Secretary, in 
            coordination with the National Governors' Association, 
            shall contract with an independent quality review 
            organization (such as the National Committee for Quality 
            Assurance) to develop the protocols to be used in external 
            independent reviews conducted under this paragraph on and 
            after January 1, 1999.
                ``(iv) Availability of results.--The results of each 
            external independent review conducted under this 
            subparagraph shall be available to participating health 
            care providers, enrollees, and potential enrollees of the 
            organization, except that the results may not be made 
            available in a manner that discloses the identity of any 
            individual patient.
            ``(B) Nonduplication of accreditation.--A State may provide 
        that, in the case of a medicaid managed care organization that 
        is accredited by a private independent entity (such as those 
        described in section 1852(e)(4)) or that has an external review 
        conducted under section 1852(e)(3), the external review 
        activities conducted under subparagraph (A) with respect to the 
        organization shall not be duplicative of review activities 
        conducted as part of the accreditation process or the external 
        review conducted under such section.
            ``(C) Deemed compliance for medicare managed care 
        organizations.--At the option of a State, the requirements of 
        subparagraph (A) shall not apply with respect to a medicaid 
        managed care organization if the organization is an eligible 
        organization with a contract in effect under section 1876 or a 
        Medicare+Choice organization with a contract in effect under C 
        of title XVIII and the organization has had a contract in 
        effect under section 1903(m) at least during the previous 2-
        year period.
    (b) Increased FFP for External Quality Review Organizations.--
Section 1903(a)(3)(C) (42 U.S.C. 1396b(a)(3)(C)) is amended--
        (1) by inserting ``(i)'' after ``(C)'', and
        (2) by adding at the end the following new clause:
            ``(ii) 75 percent of the sums expended with respect to 
        costs incurred during such quarter (as found necessary by the 
        Secretary for the proper and efficient administration of the 
        State plan) as are attributable to the performance of 
        independent external reviews conducted under section 
        1932(c)(2); and''.
    (c) Studies and Reports.--
        (1) GAO study and report on quality assurance and accreditation 
    standards.--
            (A) Study.--The Comptroller General of the United States 
        shall conduct a study and analysis of the quality assurance 
        programs and accreditation standards applicable to managed care 
        entities operating in the private sector, or to such entities 
        that operate under contracts under the medicare program under 
        title XVIII of the Social Security Act (42 U.S.C. 1395 et 
        seq.). Such study shall determine--
                (i) if such programs and standards include 
            consideration of the accessibility and quality of the 
            health care items and services delivered under such 
            contracts to low-income individuals; and
                (ii) the appropriateness of applying such programs and 
            standards to medicaid managed care organizations under 
            section 1932(c) of such Act.
            (B) Report.--The Comptroller General shall submit a report 
        to the Committee on Commerce of the House of Representatives 
        and the Committee on Finance of the Senate on the study 
        conducted under subparagraph (A).
        (2) Study and report on services provided to individuals with 
    special health care needs.--
            (A) Study.--The Secretary of Health and Human Services, in 
        consultation with States, managed care organizations, the 
        National Academy of State Health Policy, representatives of 
        beneficiaries with special health care needs, experts in 
        specialized health care, and others, shall conduct a study 
        concerning safeguards (if any) that may be needed to ensure 
        that the health care needs of individuals with special health 
        care needs and chronic conditions who are enrolled with 
        medicaid managed care organizations are adequately met.
            (B) Report.--Not later than 2 years after the date of the 
        enactment of this Act, the Secretary shall submit to Committees 
        described in paragraph (1)(B) a report on such study.

SEC. 4706. SOLVENCY STANDARDS.

    Section 1903(m)(1) (42 U.S.C. 1396b(m)(1)) is amended--
        (1) in subparagraph (A)(ii), by inserting ``, meets the 
    requirements of subparagraph (C)(i) (if applicable),'' after 
    ``provision is satisfactory to the State'', and
        (2) by adding at the end the following:
    ``(C)(i) Subject to clause (ii), a provision meets the requirements 
of this subparagraph for an organization if the organization meets 
solvency standards established by the State for private health 
maintenance organizations or is licensed or certified by the State as a 
risk-bearing entity.
    ``(ii) Clause (i) shall not apply to an organization if--
        ``(I) the organization is not responsible for the provision 
    (directly or through arrangements with providers of services) of 
    inpatient hospital services and physicians' services;
        ``(II) the organization is a public entity;
        ``(III) the solvency of the organization is guaranteed by the 
    State; or
        ``(IV) the organization is (or is controlled by) one or more 
    Federally-qualified health centers and meets solvency standards 
    established by the State for such an organization.
For purposes of subclause (IV), the term `control' means the 
possession, whether direct or indirect, of the power to direct or cause 
the direction of the management and policies of the organization 
through membership, board representation, or an ownership interest 
equal to or greater than 50.1 percent.''.

SEC. 4707. PROTECTIONS AGAINST FRAUD AND ABUSE.

    (a) In General.--Section 1932 (42 U.S.C. 1396v) is further amended 
by adding at the end the following:
    ``(d) Protections Against Fraud and Abuse.--
        ``(1) Prohibiting affiliations with individuals debarred by 
    Federal agencies.--
            ``(A) In general.--A managed care entity may not 
        knowingly--
                ``(i) have a person described in subparagraph (C) as a 
            director, officer, partner, or person with beneficial 
            ownership of more than 5 percent of the entity's equity, or
                ``(ii) have an employment, consulting, or other 
            agreement with a person described in such subparagraph for 
            the provision of items and services that are significant 
            and material to the entity's obligations under its contract 
            with the State.
            ``(B) Effect of noncompliance.--If a State finds that a 
        managed care entity is not in compliance with clause (i) or 
        (ii) of subparagraph (A), the State--
                ``(i) shall notify the Secretary of such noncompliance;
                ``(ii) may continue an existing agreement with the 
            entity unless the Secretary (in consultation with the 
            Inspector General of the Department of Health and Human 
            Services) directs otherwise; and
                ``(iii) may not renew or otherwise extend the duration 
            of an existing agreement with the entity unless the 
            Secretary (in consultation with the Inspector General of 
            the Department of Health and Human Services) provides to 
            the State and to Congress a written statement describing 
            compelling reasons that exist for renewing or extending the 
            agreement.
            ``(C) Persons described.--A person is described in this 
        subparagraph if such person--
                ``(i) is debarred, suspended, or otherwise excluded 
            from participating in procurement activities under the 
            Federal Acquisition Regulation or from participating in 
            nonprocurement activities under regulations issued pursuant 
            to Executive Order No. 12549 or under guidelines 
            implementing such order; or
                ``(ii) is an affiliate (as defined in such Act) of a 
            person described in clause (i).
        ``(2) Restrictions on marketing.--
            ``(A) Distribution of materials.--
                ``(i) In general.--A managed care entity, with respect 
            to activities under this title, may not distribute directly 
            or through any agent or independent contractor marketing 
            materials within any State--

                    ``(I) without the prior approval of the State, and
                    ``(II) that contain false or materially misleading 
                information.

            The requirement of subclause (I) shall not apply with 
            respect to a State until such date as the Secretary 
            specifies in consultation with such State.
                ``(ii) Consultation in review of market materials.--In 
            the process of reviewing and approving such materials, the 
            State shall provide for consultation with a medical care 
            advisory committee.
            ``(B) Service market.--A managed care entity shall 
        distribute marketing materials to the entire service area of 
        such entity covered under the contract under section 1903(m) or 
        section 1903(t)(3).
            ``(C) Prohibition of tie-ins.--A managed care entity, or 
        any agency of such entity, may not seek to influence an 
        individual's enrollment with the entity in conjunction with the 
        sale of any other insurance.
            ``(D) Prohibiting marketing fraud.--Each managed care 
        entity shall comply with such procedures and conditions as the 
        Secretary prescribes in order to ensure that, before an 
        individual is enrolled with the entity, the individual is 
        provided accurate oral and written information sufficient to 
        make an informed decision whether or not to enroll.
            ``(E) Prohibition of `cold-call' marketing.--Each managed 
        care entity shall not, directly or indirectly, conduct door-to-
        door, telephonic, or other `cold-call' marketing of enrollment 
        under this title.
        ``(3) State conflict-of-interest safeguards in medicaid risk 
    contracting.--A medicaid managed care organization may not enter 
    into a contract with any State under section 1903(m) unless the 
    State has in effect conflict-of-interest safeguards with respect to 
    officers and employees of the State with responsibilities relating 
    to contracts with such organizations or to the default enrollment 
    process described in subsection (a)(4)(C)(ii) that are at least as 
    effective as the Federal safeguards provided under section 27 of 
    the Office of Federal Procurement Policy Act (41 U.S.C. 423), 
    against conflicts of interest that apply with respect to Federal 
    procurement officials with comparable responsibilities with respect 
    to such contracts.
        ``(4) Use of unique physician identifier for participating 
    physicians.--Each medicaid managed care organization shall require 
    each physician providing services to enrollees eligible for medical 
    assistance under the State plan under this title to have a unique 
    identifier in accordance with the system established under section 
    1173(b).
    ``(e) Sanctions for Noncompliance.--
        ``(1) Use of intermediate sanctions by the state to enforce 
    requirements.--
            ``(A) In general.--A State may not enter into or renew a 
        contract under section 1903(m) unless the State has established 
        intermediate sanctions, which may include any of the types 
        described in paragraph (2), other than the termination of a 
        contract with a medicaid managed care organization, which the 
        State may impose against a medicaid managed care organization 
        with such a contract, if the organization--
                ``(i) fails substantially to provide medically 
            necessary items and services that are required (under law 
            or under such organization's contract with the State) to be 
            provided to an enrollee covered under the contract;
                ``(ii) imposes premiums or charges on enrollees in 
            excess of the premiums or charges permitted under this 
            title;
                ``(iii) acts to discriminate among enrollees on the 
            basis of their health status or requirements for health 
            care services, including expulsion or refusal to reenroll 
            an individual, except as permitted by this title, or 
            engaging in any practice that would reasonably be expected 
            to have the effect of denying or discouraging enrollment 
            with the organization by eligible individuals whose medical 
            condition or history indicates a need for substantial 
            future medical services;
                ``(iv) misrepresents or falsifies information that is 
            furnished--

                    ``(I) to the Secretary or the State under this 
                title; or
                    ``(II) to an enrollee, potential enrollee, or a 
                health care provider under such title; or

                ``(v) fails to comply with the applicable requirements 
            of section 1903(m)(2)(A)(x).
        The State may also impose such intermediate sanction against a 
        managed care entity if the State determines that the entity 
        distributed directly or through any agent or independent 
        contractor marketing materials in violation of subsection 
        (d)(2)(A)(i)(II).
            ``(B) Rule of construction.--Clause (i) of subparagraph (A) 
        shall not apply to the provision of abortion services, except 
        that a State may impose a sanction on any medicaid managed care 
        organization that has a contract to provide abortion services 
        if the organization does not provide such services as provided 
        for under the contract.
        ``(2) Intermediate sanctions.--The sanctions described in this 
    paragraph are as follows:
            ``(A) Civil money penalties as follows:
                ``(i) Except as provided in clause (ii), (iii), or 
            (iv), not more than $25,000 for each determination under 
            paragraph (1)(A).
                ``(ii) With respect to a determination under clause 
            (iii) or (iv)(I) of paragraph (1)(A), not more than 
            $100,000 for each such determination.
                ``(iii) With respect to a determination under paragraph 
            (1)(A)(ii), double the excess amount charged in violation 
            of such subsection (and the excess amount charged shall be 
            deducted from the penalty and returned to the individual 
            concerned).
                ``(iv) Subject to clause (ii), with respect to a 
            determination under paragraph (1)(A)(iii), $15,000 for each 
            individual not enrolled as a result of a practice described 
            in such subsection.
            ``(B) The appointment of temporary management--
                ``(i) to oversee the operation of the medicaid managed 
            care organization upon a finding by the State that there is 
            continued egregious behavior by the organization or there 
            is a substantial risk to the health of enrollees; or
                ``(ii) to assure the health of the organization's 
            enrollees, if there is a need for temporary management 
            while--

                    ``(I) there is an orderly termination or 
                reorganization of the organization; or
                    ``(II) improvements are made to remedy the 
                violations found under paragraph (1),

            except that temporary management under this subparagraph 
            may not be terminated until the State has determined that 
            the medicaid managed care organization has the capability 
            to ensure that the violations shall not recur.
            ``(C) Permitting individuals enrolled with the managed care 
        entity to terminate enrollment without cause, and notifying 
        such individuals of such right to terminate enrollment.
            ``(D) Suspension or default of all enrollment of 
        individuals under this title after the date the Secretary or 
        the State notifies the entity of a determination of a violation 
        of any requirement of section 1903(m) or this section.
            ``(E) Suspension of payment to the entity under this title 
        for individuals enrolled after the date the Secretary or State 
        notifies the entity of such a determination and until the 
        Secretary or State is satisfied that the basis for such 
        determination has been corrected and is not likely to recur.
        ``(3) Treatment of chronic substandard entities.--In the case 
    of a medicaid managed care organization which has repeatedly failed 
    to meet the requirements of section 1903(m) and this section, the 
    State shall (regardless of what other sanctions are provided) 
    impose the sanctions described in subparagraphs (B) and (C) of 
    paragraph (2).
        ``(4) Authority to terminate contract.--
            ``(A) In general.--In the case of a managed care entity 
        which has failed to meet the requirements of this part or a 
        contract under section 1903(m) or 1905(t)(3), the State shall 
        have the authority to terminate such contract with the entity 
        and to enroll such entity's enrollees with other managed care 
        entities (or to permit such enrollees to receive medical 
        assistance under the State plan under this title other than 
        through a managed care entity).
            ``(B) Availability of hearing prior to termination of 
        contract.--A State may not terminate a contract with a managed 
        care entity under subparagraph (A) unless the entity is 
        provided with a hearing prior to the termination.
            ``(C) Notice and right to disenroll in cases of termination 
        hearing.--A State may--
                ``(i) notify individuals enrolled with a managed care 
            entity which is the subject of a hearing to terminate the 
            entity's contract with the State of the hearing, and
                ``(ii) in the case of such an entity, permit such 
            enrollees to disenroll immediately with the entity without 
            cause.
        ``(5) Other protections for managed care entities against 
    sanctions imposed by state.--Before imposing any sanction against a 
    managed care entity other than termination of the entity's 
    contract, the State shall provide the entity with notice and such 
    other due process protections as the State may provide, except that 
    a State may not provide a managed care entity with a pre-
    termination hearing before imposing the sanction described in 
    paragraph (2)(B).''.
    (b) Limitation on Availability of FFP for Use of Enrollment 
Brokers.--Section 1903(b) (42 U.S.C. 1396b(b)) is amended by adding at 
the end the following:
    ``(4) Amounts expended by a State for the use an enrollment broker 
in marketing medicaid managed care organizations and other managed care 
entities to eligible individuals under this title shall be considered, 
for purposes of subsection (a)(7), to be necessary for the proper and 
efficient administration of the State plan but only if the following 
conditions are met with respect to the broker:
        ``(A) The broker is independent of any such entity and of any 
    health care providers (whether or not any such provider 
    participates in the State plan under this title) that provide 
    coverage of services in the same State in which the broker is 
    conducting enrollment activities.
        ``(B) No person who is an owner, employee, consultant, or has a 
    contract with the broker either has any direct or indirect 
    financial interest with such an entity or health care provider or 
    has been excluded from participation in the program under this 
    title or title XVIII or debarred by any Federal agency, or subject 
    to a civil money penalty under this Act.''.
    (c) Application of Disclosure Requirements to Managed Care 
Entities.--Section 1124(a)(2)(A) (42 U.S.C. 1320a-3(a)(2)(A)) is 
amended by inserting ``a managed care entity, as defined in section 
1932(a)(1)(B),'' after ``renal disease facility,''.

SEC. 4708. IMPROVED ADMINISTRATION.

    (a) Change in Threshold Amount for Contracts Requiring Secretary's 
Prior Approval.--Section 1903(m)(2)(A)(iii) (42 U.S.C. 
1396b(m)(2)(A)(iii)) is amended by striking ``$100,000'' and inserting 
``$1,000,000 for 1998 and, for a subsequent year, the amount 
established under this clause for the previous year increased by the 
percentage increase in the consumer price index for all urban consumers 
over the previous year''.
    (b) Permitting Same Copayments in Health Maintenance Organizations 
as in Fee-for-Service.--Section 1916 (42 U.S.C. 1396o) is amended--
        (1) in subsection (a)(2)(D), by striking ``or services 
    furnished'' and all that follows through ``enrolled,''; and
        (2) in subsection (b)(2)(D), by striking ``or (at the option'' 
    and all that follows through ``enrolled,''.
    (c) Assuring Timeliness of Provider Payments.--Section 1932 is 
further amended by adding at the end the following:
    ``(f) Timeliness of Payment.--A contract under section 1903(m) with 
a medicaid managed care organization shall provide that the 
organization shall make payment to health care providers for items and 
services which are subject to the contract and that are furnished to 
individuals eligible for medical assistance under the State plan under 
this title who are enrolled with the organization on a timely basis 
consistent with the claims payment procedures described in section 
1902(a)(37)(A), unless the health care provider and the organization 
agree to an alternate payment schedule.''.
    (d) Clarification of Application of FFP Denial Rules to Payments 
Made Pursuant to Managed Care Entities.--Section 1903(i) (42 U.S.C. 
1396b(i)) is amended by adding at the end the following new sentence: 
``Paragraphs (1), (2), (16), (17), and (18) shall apply with respect to 
items or services furnished and amounts expended by or through a 
managed care entity (as defined in section 1932(a)(1)(B)) in the same 
manner as such paragraphs apply to items or services furnished and 
amounts expended directly by the State.''.

SEC. 4709. 6-MONTH GUARANTEED ELIGIBILITY FOR ALL INDIVIDUALS ENROLLED 
              IN MANAGED CARE.

    Section 1902(e)(2) (42 U.S.C. 1396a(e)(2)) is amended--
        (1) by striking ``who is enrolled'' and all that follows 
    through ``section 1903(m)(2)(A)'' and inserting ``who is enrolled 
    with a medicaid managed care organization (as defined in section 
    1903(m)(1)(A)), with a primary care case manager (as defined in 
    section 1905(t)),''; and
        (2) by inserting before the period ``or by or through the case 
    manager''.

SEC. 4710. EFFECTIVE DATES.

    (a) General Effective Date.--Except as otherwise provided in this 
chapter and section 4759, the amendments made by this chapter shall 
take effect on the date of the enactment of this Act and shall apply to 
contracts entered into or renewed on or after October 1, 1997.
    (b) Specific Effective Dates.--Subject to subsection (c) and 
section 4759--
        (1) PCCM option.--The amendments made by section 4702 shall 
    apply to primary care case management services furnished on or 
    after October 1, 1997.
        (2) 75:25 rule.--The amendments made by section 4703 apply to 
    contracts under section 1903(m) of the Social Security Act (42 
    U.S.C. 1396b(m)) on and after June 20, 1997.
        (3) Quality standards.--Section 1932(c)(1) of the Social 
    Security Act, as added by section 4705(a), shall take effect on 
    January 1, 1999.
        (4) Solvency standards.--
            (A) In general.--The amendments made by section 4706 shall 
        apply to contracts entered into or renewed on or after October 
        1, 1998.
            (B) Transition rule.--In the case of an organization that 
        as of the date of the enactment of this Act has entered into a 
        contract under section 1903(m) of the Social Security Act with 
        a State for the provision of medical assistance under title XIX 
        of such Act under which the organization assumes full financial 
        risk and is receiving capitation payments, the amendment made 
        by section 4706 shall not apply to such organization until 3 
        years after the date of the enactment of this Act.
        (5) Sanctions for noncompliance.--Section 1932(e) of the Social 
    Security Act, as added by section 4707(a), shall apply to contracts 
    entered into or renewed on or after April 1, 1998.
        (6) Limitation on ffp for enrollment brokers.--The amendment 
    made by section 4707(b) shall apply to amounts expended on or after 
    October 1, 1997.
        (7) 6-month guaranteed eligibility.--The amendments made by 
    section 4709 shall take effect on October 1, 1997.
    (c) Nonapplication to Waivers.--Nothing in this chapter (or the 
amendments made by this chapter) shall be construed as affecting the 
terms and conditions of any waiver, or the authority of the Secretary 
of Health and Human Services with respect to any such waiver, under 
section 1115 or 1915 of the Social Security Act (42 U.S.C. 1315, 
1396n).

             CHAPTER 2--FLEXIBILITY IN PAYMENT OF PROVIDERS

SEC. 4711. FLEXIBILITY IN PAYMENT METHODS FOR HOSPITAL, NURSING 
              FACILITY, ICF/MR, AND HOME HEALTH SERVICES.

    (a) Repeal of Boren Requirements.--Section 1902(a)(13) (42 U.S.C. 
1396a(a)(13)) is amended--
        (1) by striking all that precedes subparagraph (D) and 
    inserting the following:
        ``(13) provide--
            ``(A) for a public process for determination of rates of 
        payment under the plan for hospital services, nursing facility 
        services, and services of intermediate care facilities for the 
        mentally retarded under which--
                ``(i) proposed rates, the methodologies underlying the 
            establishment of such rates, and justifications for the 
            proposed rates are published,
                ``(ii) providers, beneficiaries and their 
            representatives, and other concerned State residents are 
            given a reasonable opportunity for review and comment on 
            the proposed rates, methodologies, and justifications,
                ``(iii) final rates, the methodologies underlying the 
            establishment of such rates, and justifications for such 
            final rates are published, and
                ``(iv) in the case of hospitals, such rates take into 
            account (in a manner consistent with section 1923) the 
            situation of hospitals which serve a disproportionate 
            number of low-income patients with special needs;'';
        (2) by redesignating subparagraphs (D) and (E) as subparagraphs 
    (B) and (C), respectively;
        (3) in subparagraph (B), as so redesignated, by adding ``and'' 
    at the end;
        (4) in subparagraph (C), as so redesignated, by striking 
    ``and'' at the end; and
        (5) by striking subparagraph (F).
    (b) Study and Report.--
        (1) Study.--The Secretary of Health and Human Services shall 
    study the effect on access to, and the quality of, services 
    provided to beneficiaries of the rate-setting methods used by 
    States pursuant to section 1902(a)(13)(A) of the Social Security 
    Act (42 U.S.C. 1396a(a)(13)(A)), as amended by subsection (a).
        (2) Report.--Not later than 4 years after the date of the 
    enactment of this Act, the Secretary of Health and Human Services 
    shall submit a report to the appropriate committees of Congress on 
    the conclusions of the study conducted under paragraph (1), 
    together with any recommendations for legislation as a result of 
    such conclusions.
    (c) Conforming Amendments.--
        (1) Section 1905(o)(3) (42 U.S.C. 1396d(o)(3)) is amended by 
    striking ``amount described in section 1902(a)(13)(D)'' and 
    inserting ``amount determined in section 1902(a)(13)(B)''.
        (2) Section 1923 (42 U.S.C. 1396r-4) is amended, in subsections 
    (a)(1) and (e)(1), by striking ``1902(a)(13)(A)'' each place it 
    appears and inserting ``1902(a)(13)(A)(iv)''.
    (d) Effective Date.--This section shall take effect on the date of 
the enactment of this Act and the amendments made by subsections (a) 
and (c) shall apply to payment for items and services furnished on or 
after October 1, 1997.

SEC. 4712. PAYMENT FOR CENTER AND CLINIC SERVICES.

    (a) Phase-Out of Payment Based on Reasonable Costs.--Section 
1902(a)(13)(C) (42 U.S.C. 1396a(a)(13)(C)), as redesignated by section 
4711(a)(2), is amended by inserting ``(or 95 percent for services 
furnished during fiscal year 2000, 90 percent for services furnished 
during fiscal year 2001, 85 percent for services furnished during 
fiscal year 2002, or 70 percent for services furnished during fiscal 
year 2003)'' after ``100 percent''.
    (b) Transitional Supplemental Payment for Services Furnished Under 
Certain Managed Care Contracts.--
        (1) In general.--Section 1902(a)(13)(C) (42 U.S.C. 
    1396a(a)(13)(C)), as so redesignated, is further amended--
            (A) by inserting ``(i)'' after ``(C)'', and
            (B) by inserting before the semicolon at the end the 
        following: ``and (ii) in carrying out clause (i) in the case of 
        services furnished by a Federally-qualified health center or a 
        rural health clinic pursuant to a contract between the center 
        and an organization under section 1903(m), for payment to the 
        center or clinic at least quarterly by the State of a 
        supplemental payment equal to the amount (if any) by which the 
        amount determined under clause (i) exceeds the amount of the 
        payments provided under such contract''.
        (2) Conforming amendment to managed care contract 
    requirement.--Clause (ix) of section 1903(m)(2)(A) (42 U.S.C. 
    1396b(m)(2)(A)) is amended to read as follows:
        ``(ix) such contract provides, in the case of an entity that 
    has entered into a contract for the provision of services with a 
    Federally-qualified health center or a rural health clinic, that 
    the entity shall provide payment that is not less than the level 
    and amount of payment which the entity would make for the services 
    if the services were furnished by a provider which is not a 
    Federally-qualified health center or a rural health clinic;''.
        (3) Effective date.--The amendments made by this subsection 
    shall apply to services furnished on or after October 1, 1997.
    (c) End of Transitional Payment Rules.--Effective for services 
furnished on or after October 1, 2003--
        (1) subparagraph (C) of section 1902(a)(13) (42 U.S.C. 
    1396a(a)(13)), as so redesignated, is repealed, and
        (2) clause (ix) of section 1903(m)(2)(A) (42 U.S.C. 
    1396b(m)(2)(A)) is repealed.
    (d) Flexibility in Coverage of Non-Freestanding Look-Alikes.--
        (1) In general.--Section 1905(l)(2)(B)(iii) (42 U.S.C. 
    1396d(l)(2)(B)(iii)) is amended by inserting ``including 
    requirements of the Secretary that an entity may not be owned, 
    controlled, or operated by another entity,'' after ``such a 
    grant,''.
        (2) Effective date.--The amendment made by paragraph (1) shall 
    apply to services furnished on or after the date of the enactment 
    of this Act.

SEC. 4713. ELIMINATION OF OBSTETRICAL AND PEDIATRIC PAYMENT RATE 
              REQUIREMENTS.

    (a) In General.--Section 1926 (42 U.S.C. 1396r-7) is repealed.
    (b) Effective Date.--The repeal made by subsection (a) shall apply 
to services furnished on or after October 1, 1997.

SEC. 4714. MEDICAID PAYMENT RATES FOR CERTAIN MEDICARE COST-SHARING.

    (a) Clarification Regarding State Liability for Medicare Cost-
Sharing.--
        (1) In general.--Section 1902(n) (42 U.S.C. 1396a(n)) is 
    amended--
            (A) by inserting ``(1)'' after ``(n)'', and
            (B) by adding at the end the following:
    ``(2) In carrying out paragraph (1), a State is not required to 
provide any payment for any expenses incurred relating to payment for 
deductibles, coinsurance, or copayments for medicare cost-sharing to 
the extent that payment under title XVIII for the service would exceed 
the payment amount that otherwise would be made under the State plan 
under this title for such service if provided to an eligible recipient 
other than a medicare beneficiary.
    ``(3) In the case in which a State's payment for medicare cost-
sharing for a qualified medicare beneficiary with respect to an item or 
service is reduced or eliminated through the application of paragraph 
(2)--
        ``(A) for purposes of applying any limitation under title XVIII 
    on the amount that the beneficiary may be billed or charged for the 
    service, the amount of payment made under title XVIII plus the 
    amount of payment (if any) under the State plan shall be considered 
    to be payment in full for the service;
        ``(B) the beneficiary shall not have any legal liability to 
    make payment to a provider or to an organization described in 
    section 1903(m)(1)(A) for the service; and
        ``(C) any lawful sanction that may be imposed upon a provider 
    or such an organization for excess charges under this title or 
    title XVIII shall apply to the imposition of any charge imposed 
    upon the individual in such case.
This paragraph shall not be construed as preventing payment of any 
medicare cost-sharing by a medicare supplemental policy or an employer 
retiree health plan on behalf of an individual.''.
        (2) Conforming clarification.--Section 1905(p)(3) (42 U.S.C. 
    1396d(p)(3)) is amended by inserting ``(subject to section 
    1902(n)(2))'' after ``means''.
    (b) Limitation on Medicare Providers.--
        (1) Provider agreements.--Section 1866(a)(1)(A) (42 U.S.C. 
    1395cc(a)(1)(A)) is amended--
            (A) by inserting ``(i)'' after ``(A)'', and
            (B) by inserting before the comma at the end the following: 
        ``, and (ii) not to impose any charge that is prohibited under 
        section 1902(n)(3)''.
        (2) Nonparticipating providers.--Section 1848(g)(3)(A) (42 
    U.S.C. 1395w-4(g)(3)(A)) is amended by inserting before the period 
    at the end the following: ``and the provisions of section 
    1902(n)(3)(A) apply to further limit permissible charges under this 
    section''.
    (c) Effective Date.--The amendments made by this section shall 
apply to payment for (and with respect to provider agreements with 
respect to) items and services furnished on or after the date of the 
enactment of this Act. The amendments made by subsection (a) shall also 
apply to payment by a State for items and services furnished before 
such date if such payment is the subject of a law suit that is based on 
the provisions of sections 1902(n) and 1905(p) of the Social Security 
Act and that is pending as of, or is initiated after, the date of the 
enactment of this Act.

SEC. 4715. TREATMENT OF VETERANS' PENSIONS UNDER MEDICAID.

    (a) Post-Eligibility Treatment.--Section 1902(r)(1) (42 U.S.C. 
1396a(r)(1)) is amended--
        (1) by inserting ``(A)'' after ``(r)(1)'',
        (2) by inserting ``, the treatment described in subparagraph 
    (B) shall apply,'' after ``under such a waiver'';
        (3) by striking ``and,'' and inserting ``, and''; and
        (4) by adding at the end the following:
    ``(B)(i) In the case of a veteran who does not have a spouse or a 
child, if the veteran--
        ``(I) receives, after the veteran has been determined to be 
    eligible for medical assistance under the State plan under this 
    title, a veteran's pension in excess of $90 per month, and
        ``(II) resides in a State veterans home with respect to which 
    the Secretary of Veterans Affairs makes per diem payments for 
    nursing home care pursuant to section 1741(a) of title 38, United 
    States Code,
any such pension payment, including any payment made due to the need 
for aid and attendance, or for unreimbursed medical expenses, that is 
in excess of $90 per month shall be counted as income only for the 
purpose of applying such excess payment to the State veterans home's 
cost of providing nursing home care to the veteran.
    ``(ii) The provisions of clause (i) shall apply with respect to a 
surviving spouse of a veteran who does not have a child in the same 
manner as they apply to a veteran described in such clause.''.
    (b) Effective Date.--The amendments made by this section shall 
apply on and after October 1, 1997.

                 CHAPTER 3--FEDERAL PAYMENTS TO STATES

SEC. 4721. REFORMING DISPROPORTIONATE SHARE PAYMENTS UNDER STATE 
              MEDICAID PROGRAMS.

    (a) Adjustment of State DSH Allotments.--
        (1) In general.--Section 1923(f) (42 U.S.C. 1396r-4(f)) is 
    amended to read as follows:
    ``(f) Limitation on Federal Financial Participation.--
        ``(1) In general.--Payment under section 1903(a) shall not be 
    made to a State with respect to any payment adjustment made under 
    this section for hospitals in a State for quarters in a fiscal year 
    in excess of the disproportionate share hospital (in this 
    subsection referred to as `DSH') allotment for the State for the 
    fiscal year, as specified in paragraphs (2) and (3).
        ``(2) State dsh allotments for fiscal years 1998 through 
    2002.--The DSH allotment for a State for each fiscal year during 
    the period beginning with fiscal year 1998 and ending with fiscal 
    year 2002 is determined in accordance with the following table:

  

----------------------------------------------------------------------------------------------------------------
                                                                     DSH Allotment (in millions of dollars)     
                       State or District                       -------------------------------------------------
                                                                  FY 98     FY 99     FY 00     FY 01     FY 02 
----------------------------------------------------------------------------------------------------------------
 Alabama                                                             293       269       248       246       246
                                                                                                                
 Alaska                                                               10        10        10         9         9
                                                                                                                
 Arizona                                                              81        81        81        81        81
                                                                                                                
 Arkansas                                                              2         2         2         2         2
                                                                                                                
 California                                                        1,085     1,068       986       931       877
                                                                                                                
 Colorado                                                             93        85        79        74        74
                                                                                                                
 Connecticut                                                         200       194       164       160       160
                                                                                                                
 Delaware                                                              4         4         4         4         4
                                                                                                                
 District of Columbia                                                 23        23        23        23        23
                                                                                                                
 Florida                                                             207       203       197       188       160
                                                                                                                
 Georgia                                                             253       248       241       228       215
                                                                                                                
 Hawaii                                                                0         0         0         0         0
                                                                                                                
 Idaho                                                                 1         1         1         1         1
                                                                                                                
 Illinois                                                            203       199       193       182       172
                                                                                                                
 Indiana                                                             201       197       191       181       171
                                                                                                                
 Iowa                                                                  8         8         8         8         8
                                                                                                                
 Kansas                                                               51        49        42        36        33
                                                                                                                
 Kentucky                                                            137       134       130       123       116
                                                                                                                
 Louisiana                                                           880       795       713       658       631
                                                                                                                
 Maine                                                               103        99        84        84        84
                                                                                                                
 Maryland                                                             72        70        68        64        61
                                                                                                                
 Massachusetts                                                       288       282       273       259       244
                                                                                                                
 Michigan                                                            249       244       237       224       212
                                                                                                                
 Minnesota                                                            16        16        16        16        16
                                                                                                                
 Mississippi                                                         143       141       136       129       122
                                                                                                                
 Missouri                                                            436       423       379       379       379
                                                                                                                
 Montana                                                             0.2       0.2       0.2       0.2       0.2
                                                                                                                
 Nebraska                                                              5         5         5         5         5
                                                                                                                
 Nevada                                                               37        37        37        37        37
                                                                                                                
 New Hampshire                                                       140       136       130       130       130
                                                                                                                
 New Jersey                                                          600       582       515       515       515
                                                                                                                
 New Mexico                                                            5         5         5         5         5
                                                                                                                
 New York                                                          1,512     1,482     1,436     1,361     1,285
                                                                                                                
 North Carolina                                                      278       272       264       250       236
                                                                                                                
 North Dakota                                                          1         1         1         1         1
                                                                                                                
 Ohio                                                                382       374       363       344       325
                                                                                                                
 Oklahoma                                                             16        16        16        16        16
                                                                                                                
 Oregon                                                               20        20        20        20        20
                                                                                                                
 Pennsylvania                                                        529       518       502       476       449
                                                                                                                
 Rhode Island                                                         62        60        58        55        52
                                                                                                                
 South Carolina                                                      313       303       262       262       262
                                                                                                                
 South Dakota                                                          1         1         1         1         1
                                                                                                                
 Tennessee                                                             0         0         0         0         0
                                                                                                                
 Texas                                                               979       950       806       765       765
                                                                                                                
 Utah                                                                  3         3         3         3         3
                                                                                                                
 Vermont                                                              18        18        18        18        18
                                                                                                                
 Virginia                                                             70        68        66        63        59
                                                                                                                
 Washington                                                          174       171       166       157       148
                                                                                                                
 West Virginia                                                        64        63        61        58        54
                                                                                                                
 Wisconsin                                                             7         7         7         7         7
                                                                                                                
 Wyoming                                                               0         0         0         0        0.
                                                                                                                
----------------------------------------------------------------------------------------------------------------

        ``(3) State dsh allotments for fiscal year 2003 and 
    thereafter.--
            ``(A) In general.--The DSH allotment for any State for 
        fiscal year 2003 and each succeeding fiscal year is equal to 
        the DSH allotment for the State for the preceding fiscal year 
        under paragraph (2) or this paragraph, increased, subject to 
        subparagraph (B), by the percentage change in the consumer 
        price index for all urban consumers (all items; U.S. city 
        average), for the previous fiscal year.
            ``(B) Limitation.--The DSH allotment for a State shall not 
        be increased under subparagraph (A) for a fiscal year to the 
        extent that such an increase would result in the DSH allotment 
        for the year exceeding the greater of--
                ``(i) the DSH allotment for the previous year, or
                ``(ii) 12 percent of the total amount of expenditures 
            under the State plan for medical assistance during the 
            fiscal year.
        ``(4) Definition of state.-- In this subsection, the term 
    `State' means the 50 States and the District of Columbia.''.
        (2) Effective date.--The amendment made by paragraph (1) shall 
    apply to payment adjustments attributable to DSH allotments for 
    fiscal years beginning with fiscal year 1998.
    (b) Limitation on Payments to Institutions For Mental Diseases.--
Section 1923 of the Social Security Act (42 U.S.C. 1396r-4) is amended 
by adding at the end the following:
    ``(h) Limitation on Certain State DSH Expenditures.--
        ``(1) In general.--Payment under section 1903(a) shall not be 
    made to a State with respect to any payment adjustments made under 
    this section for quarters in a fiscal year (beginning with fiscal 
    year 1998) to institutions for mental diseases or other mental 
    health facilities, to the extent the aggregate of such adjustments 
    in the fiscal year exceeds the lesser of the following:
            ``(A) 1995 imd dsh payment adjustments.--The total State 
        DSH expenditures that are attributable to fiscal year 1995 for 
        payments to institutions for mental diseases and other mental 
        health facilities (based on reporting data specified by the 
        State on HCFA Form 64 as mental health DSH, and as approved by 
        the Secretary).
            ``(B) Applicable percentage of 1995 total dsh payment 
        allotment.--The amount of such payment adjustments which are 
        equal to the applicable percentage of the Federal share of 
        payment adjustments made to hospitals in the State under 
        subsection (c) that are attributable to the 1995 DSH allotment 
        for the State for payments to institutions for mental diseases 
        and other mental health facilities (based on reporting data 
        specified by the State on HCFA Form 64 as mental health DSH, 
        and as approved by the Secretary).
        ``(2) Applicable percentage.--
            ``(A) In general.--For purposes of paragraph (1), the 
        applicable percentage with respect to--
                ``(i) each of fiscal years 1998, 1999, and 2000, is the 
            percentage determined under subparagraph (B); or
                ``(ii) a succeeding fiscal year is the lesser of the 
            percentage determined under subparagraph (B) or the 
            following percentage:

                    ``(I) For fiscal year 2001, 50 percent.
                    ``(II) For fiscal year 2002, 40 percent.
                    ``(III) For each succeeding fiscal year, 33 
                percent.

            ``(B) 1995 percentage.--The percentage determined under 
        this subparagraph is the ratio (determined as a percentage) 
        of--
                ``(i) the Federal share of payment adjustments made to 
            hospitals in the State under subsection (c) that are 
            attributable to the 1995 DSH allotment for the State (as 
            reported by the State not later than January 1, 1997, on 
            HCFA Form 64, and as approved by the Secretary) for 
            payments to institutions for mental diseases and other 
            mental health facilities, to
                ``(ii) the State 1995 DSH spending amount.
            ``(C) State 1995 dsh spending amount.--For purposes of 
        subparagraph (B)(ii), the `State 1995 DSH spending amount', 
        with respect to a State, is the Federal medical assistance 
        percentage (for fiscal year 1995) of the payment adjustments 
        made under subsection (c) under the State plan that are 
        attributable to the fiscal year 1995 DSH allotment for the 
        State (as reported by the State not later than January 1, 1997, 
        on HCFA Form 64, and as approved by the Secretary).''.
    (c) Description of Targeting Payments.--Section 1923(a)(2) (42 
U.S.C. 1396r-4(a)(2)) is amended by adding at the end the following:
        ``(D) A State plan under this title shall not be considered to 
    meet the requirements of section 1902(a)(13)(A)(iv) (insofar as it 
    requires payments to hospitals to take into account the situation 
    of hospitals that serve a disproportionate number of low-income 
    patients with special needs), as of October 1, 1998, unless the 
    State has submitted to the Secretary by such date a description of 
    the methodology used by the State to identify and to make payments 
    to disproportionate share hospitals, including children's 
    hospitals, on the basis of the proportion of low-income and 
    medicaid patients served by such hospitals. The State shall provide 
    an annual report to the Secretary describing the disproportionate 
    share payments to each such disproportionate share hospital.''.
    (d) Direct Payment by State for Managed Care Enrollees.--Section 
1923 (42 U.S.C. 1396r-4) is amended by adding at the end the following:
    ``(i) Requirement for Direct Payment.--
        ``(1) In general.--No payment may be made under section 
    1903(a)(1) with respect to a payment adjustment made under this 
    section, for services furnished by a hospital on or after October 
    1, 1997, with respect to individuals eligible for medical 
    assistance under the State plan who are enrolled with a managed 
    care entity (as defined in section 1932(a)(1)(B)) or under any 
    other managed care arrangement unless a payment, equal to the 
    amount of the payment adjustment--
            ``(A) is made directly to the hospital by the State; and
            ``(B) is not used to determine the amount of a prepaid 
        capitation payment under the State plan to the entity or 
        arrangement with respect to such individuals.
        ``(2) Exception for current arrangements.--Paragraph (1) shall 
    not apply to a payment adjustment provided pursuant to a payment 
    arrangement in effect on July 1, 1997.''.
    (e) Transition Rule.--Effective July 1, 1997, section 1923(g)(2)(A) 
of the Social Security Act (42 U.S.C. 1396r-4(g)(2)(A)) shall be 
applied to the State of California as though--
        (1) ``(or that begins on or after July 1, 1997, and before July 
    1, 1999)'' were inserted in such section after ``January 1, 
    1995,''; and
        (2) ``(or 175 percent in the case of a State fiscal year that 
    begins on or after July 1, 1997, and before July 1, 1999)'' were 
    inserted in such section after ``200 percent''.

SEC. 4722. TREATMENT OF STATE TAXES IMPOSED ON CERTAIN HOSPITALS.

    (a) Exception From Tax Does Not Disqualify as Broad-Based Tax.--
Section 1903(w)(3) (42 U.S.C. 1396b(w)(3)) is amended--
        (1) in subparagraph (B), by striking ``and (E)'' and inserting 
    ``(E), and (F)''; and
        (2) by adding at the end the following:
    ``(F) In no case shall a tax not qualify as a broad-based health 
care related tax under this paragraph because it does not apply to a 
hospital that is described in section 501(c)(3) of the Internal Revenue 
Code of 1986 and exempt from taxation under section 501(a) of such Code 
and that does not accept payment under the State plan under this title 
or under title XVIII.''.
    (b) Reduction in Federal Financial Participation in Case of 
Imposition of Tax.--Section 1903(b) (42 U.S.C. 1396b(b)), as amended by 
section 4707(b), is amended by adding at the end the following:
    ``(5) Notwithstanding the preceding provisions of this section, the 
amount determined under subsection (a)(1) for any State shall be 
decreased in a quarter by the amount of any health care related taxes 
(described in section 1902(w)(3)(A)) that are imposed on a hospital 
described in subsection (w)(3)(F) in that quarter.''.
    (c) Waiver of Certain Provider Tax Provisions.--Notwithstanding any 
other provision of law, taxes, fees, or assessments, as defined in 
section 1903(w)(3)(A) of the Social Security Act (42 U.S.C. 
1396b(w)(3)(A)), that were collected by the State of New York from a 
health care provider before June 1, 1997, and for which a waiver of the 
provisions of subparagraph (B) or (C) of section 1903(w)(3) of such Act 
has been applied for, or that would, but for this subsection require 
that such a waiver be applied for, in accordance with subparagraph (E) 
of such section, and, (if so applied for) upon which action by the 
Secretary of Health and Human Services (including any judicial review 
of any such proceeding) has not been completed as of July 23, 1997, are 
deemed to be permissible health care related taxes and in compliance 
with the requirements of subparagraphs (B) and (C) of section 
1903(w)(3) of such Act.
    (d) Effective Date.--The amendments made by subsection (a) shall 
apply to taxes imposed before, on, or after the date of the enactment 
of this Act and the amendment made by subsection (b) shall apply to 
taxes imposed on or after such date.

SEC. 4723. ADDITIONAL FUNDING FOR STATE EMERGENCY HEALTH SERVICES 
              FURNISHED TO UNDOCUMENTED ALIENS.

    (a) Total Amount Available for Allotment.--There are available for 
allotments under this section for each of the 4 consecutive fiscal 
years (beginning with fiscal year 1998) $25,000,000 for payments to 
certain States under this section.
    (b) State Allotment Amount.--
        (1) In general.--The Secretary of Health and Human Services 
    shall compute an allotment for each fiscal year beginning with 
    fiscal year 1998 and ending with fiscal year 2001 for each of the 
    12 States with the highest number of undocumented aliens. The 
    amount of such allotment for each such State for a fiscal year 
    shall bear the same ratio to the total amount available for 
    allotments under subsection (a) for the fiscal year as the ratio of 
    the number of undocumented aliens in the State in the fiscal year 
    bears to the total of such numbers for all such States for such 
    fiscal year. The amount of allotment to a State provided under this 
    paragraph for a fiscal year that is not paid out under subsection 
    (c) shall be available for payment during the subsequent fiscal 
    year.
        (2) Determination.--For purposes of paragraph (1), the number 
    of undocumented aliens in a State under this section shall be 
    determined based on estimates of the resident illegal alien 
    population residing in each State prepared by the Statistics 
    Division of the Immigration and Naturalization Service as of 
    October 1992 (or as of such later date if such date is at least 1 
    year before the beginning of the fiscal year involved).
    (c) Use of Funds.--From the allotments made under subsection (b), 
the Secretary shall pay to each State amounts the State demonstrates 
were paid by the State (or by a political subdivision of the State) for 
emergency health services furnished to undocumented aliens.
    (d) State Defined.--For purposes of this section, the term 
``State'' includes the District of Columbia.
    (e) State Entitlement.--This section constitutes budget authority 
in advance of appropriations Acts and represents the obligation of the 
Federal Government to provide for the payment to States of amounts 
provided under this section.

SEC. 4724. ELIMINATION OF WASTE, FRAUD, AND ABUSE.

    (a) Ban on Spending for Nonhealth Related Items.--Section 1903(i) 
(42 U.S.C. 1396b(i)) is amended--
        (1) in paragraphs (2) and (16), by striking the period at the 
    end and inserting ``; or'';
        (2) in paragraphs (10)(B), (11), and (13), by adding ``or'' at 
    the end; and
        (3) by inserting after paragraph (16), the following:
        ``(17) with respect to any amount expended for roads, bridges, 
    stadiums, or any other item or service not covered under a State 
    plan under this title.''.
    (b) Surety Bond Requirement for Home Health Agencies.--
        (1) In general.--Section 1903(i) (42 U.S.C. 1396b(i)), as 
    amended by subsection (a), is amended--
            (A) in paragraph (17), by striking the period at the end 
        and inserting ``; or''; and
            (B) by inserting after paragraph (17), the following:
        ``(18) with respect to any amount expended for home health care 
    services provided by an agency or organization unless the agency or 
    organization provides the State agency on a continuing basis a 
    surety bond in a form specified by the Secretary under paragraph 
    (7) of section 1861(o) and in an amount that is not less than 
    $50,000 or such comparable surety bond as the Secretary may permit 
    under the last sentence of such section.''.
        (2) Effective date.--The amendments made by paragraph (1) shall 
    apply to home health care services furnished on or after January 1, 
    1998.
    (c) Conflict of Interest Safeguards.--
        (1) In general.--Section 1902(a)(4)(C) (42 U.S.C. 
    1396a(a)(4)(C)) is amended--
            (A) by striking ``and (C)'' and inserting ``(C)'';
            (B) by striking ``local officer or employee'' and inserting 
        ``local officer, employee, or independent contractor'';
            (C) by striking ``such an officer or employee'' the first 2 
        places it appears and inserting ``such an officer, employee, or 
        contractor''; and
            (D) by inserting before the semicolon the following: ``, 
        and (D) that each State or local officer, employee, or 
        independent contractor who is responsible for selecting, 
        awarding, or otherwise obtaining items and services under the 
        State plan shall be subject to safeguards against conflicts of 
        interest that are at least as stringent as the safeguards that 
        apply under section 27 of the Office of Federal Procurement 
        Policy Act (41 U.S.C. 423) to persons described in subsection 
        (a)(2) of such section of that Act''.
        (2) Effective date.--The amendments made by paragraph (1) shall 
    take effect on January 1, 1998.
    (d) Authority To Refuse To Enter Into Medicaid Agreements With 
Individuals or Entities Convicted of Felonies.--Section 1902(a)(23) (42 
U.S.C. 1396(a)) is amended--
        (1) by striking ``except as provided in subsection (g) and in 
    section 1915 and except in the case of Puerto Rico, the Virgin 
    Islands, and Guam,''; and
        (2) by inserting before the semicolon at the end the following: 
    ``, except as provided in subsection (g) and in section 1915, 
    except that this paragraph shall not apply in the case of Puerto 
    Rico, the Virgin Islands, and Guam, and except that nothing in this 
    paragraph shall be construed as requiring a State to provide 
    medical assistance for such services furnished by a person or 
    entity convicted of a felony under Federal or State law for an 
    offense which the State agency determines is inconsistent with the 
    best interests of beneficiaries under the State plan''.
    (e) Monitoring Payments for Dual Eligibles.--The Administrator of 
the Health Care Financing Administration shall develop mechanisms to 
improve the monitoring of, and to prevent, inappropriate payments under 
the medicaid program under title XIX of the Social Security Act (42 
U.S.C. 1396 et seq.) in the case of individuals who are dually eligible 
for benefits under such program and under the medicare program under 
title XVIII of such Act (42 U.S.C. 1395 et seq.).
    (f) Beneficiary and Program Protection Against Waste, Fraud, and 
Abuse.--Section 1902(a) (42 U.S.C. 1396a(a)) is amended--
        (1) by striking ``and'' at the end of paragraph (62);
        (2) by striking the period at the end of paragraph (63) and 
    inserting ``; and''; and
        (3) by inserting after paragraph (63) the following:
        ``(64) provide, not later than 1 year after the date of the 
    enactment of this paragraph, a mechanism to receive reports from 
    beneficiaries and others and compile data concerning alleged 
    instances of waste, fraud, and abuse relating to the operation of 
    this title;''.
    (g) Disclosure of Information and Surety Bond Requirement for 
Suppliers of Durable Medical Equipment.--
        (1) Requirement.--Section 1902(a) (42 U.S.C. 1396a(a)), as 
    amended by subsection (f), is amended--
            (A) by striking ``and'' at the end of paragraph (63);
            (B) by striking the period at the end of paragraph (64) and 
        inserting ``; and''; and
            (C) by inserting after paragraph (64) the following:
        ``(65) provide that the State shall issue provider numbers for 
    all suppliers of medical assistance consisting of durable medical 
    equipment, as defined in section 1861(n), and the State shall not 
    issue or renew such a supplier number for any such supplier 
    unless--
            ``(A)(i) full and complete information as to the identity 
        of each person with an ownership or control interest (as 
        defined in section 1124(a)(3)) in the supplier or in any 
        subcontractor (as defined by the Secretary in regulations) in 
        which the supplier directly or indirectly has a 5 percent or 
        more ownership interest; and
            ``(ii) to the extent determined to be feasible under 
        regulations of the Secretary, the name of any disclosing entity 
        (as defined in section 1124(a)(2)) with respect to which a 
        person with such an ownership or control interest in the 
        supplier is a person with such an ownership or control interest 
        in the disclosing entity; and
            ``(B) a surety bond in a form specified by the Secretary 
        under section 1834(a)(16)(B) and in an amount that is not less 
        than $50,000 or such comparable surety bond as the Secretary 
        may permit under the second sentence of such section.''.
        (2) Effective date.--The amendments made by paragraph (1) shall 
    apply to suppliers of medical assistance consisting of durable 
    medical equipment furnished on or after January 1, 1998.

SEC. 4725. INCREASED FMAPS.

    (a) Alaska.--Notwithstanding the first sentence of section 1905(b) 
of the Social Security Act (42 U.S.C. 1396d(b)), the Federal medical 
assistance percentage determined under such sentence for Alaska shall 
be 59.8 percent but only with respect to--
        (1) items and services furnished under a State plan under title 
    XIX or under a State child health plan under title XXI of such Act 
    during fiscal years 1998, 1999, and 2000;
        (2) payments made on a capitation or other risk-basis under 
    such titles for coverage occurring during such period; and
        (3) payments under title XIX of such Act attributable to DSH 
    allotments for such State determined under section 1923(f) of such 
    Act (42 U.S.C. 1396r-4(f)) for such fiscal years.
    (b) District of Columbia.--
        (1) In general.--The first sentence of section 1905(b) (42 
    U.S.C. 1396d(b)) is amended--
            (A) by striking ``and (2)'' and inserting ``, (2)'', and
            (B) by inserting before the period at the end the 
        following: ``, and (3) for purposes of this title and title 
        XXI, the Federal medical assistance percentage for the District 
        of Columbia shall be 70 percent''.
        (2) Effective date.--The amendments made by paragraph (1) shall 
    apply to--
            (A) items and services furnished on or after October 1, 
        1997;
            (B) payments made on a capitation or other risk-basis for 
        coverage occurring on or after such date; and
            (C) payments attributable to DSH allotments for such States 
        determined under section 1923(f) of such Act (42 U.S.C. 1396r-
        4(f)) for fiscal years beginning with fiscal year 1998.

SEC. 4726. INCREASE IN PAYMENT LIMITATION FOR TERRITORIES.

    Section 1108 (42 U.S.C. 1308) is amended--
        (1) in subsection (f), by striking ``The'' and inserting 
    ``Subject to subsection (g), the''; and
        (2) by adding at the end the following:
    ``(g) Medicaid Payments to Territories for Fiscal Year 1998 and 
Thereafter.--
        ``(1) Fiscal year 1998.--With respect to fiscal year 1998, the 
    amounts otherwise determined for Puerto Rico, the Virgin Islands, 
    Guam, the Northern Mariana Islands, and American Samoa under 
    subsection (f) for such fiscal year shall be increased by the 
    following amounts:
            ``(A) For Puerto Rico, $30,000,000.
            ``(B) For the Virgin Islands, $750,000.
            ``(C) For Guam, $750,000.
            ``(D) For the Northern Mariana Islands, $500,000.
            ``(E) For American Samoa, $500,000.
        ``(2) Fiscal year 1999 and thereafter.--Notwithstanding 
    subsection (f), with respect to fiscal year 1999 and any fiscal 
    year thereafter, the total amount certified by the Secretary under 
    title XIX for payment to--
            ``(A) Puerto Rico shall not exceed the sum of the amount 
        provided in this subsection for the preceding fiscal year 
        increased by the percentage increase in the medical care 
        component of the Consumer Price Index for all urban consumers 
        (as published by the Bureau of Labor Statistics) for the 12-
        month period ending in March preceding the beginning of the 
        fiscal year, rounded to the nearest $100,000;
            ``(B) the Virgin Islands shall not exceed the sum of the 
        amount provided in this subsection for the preceding fiscal 
        year increased by the percentage increase referred to in 
        subparagraph (A), rounded to the nearest $10,000;
            ``(C) Guam shall not exceed the sum of the amount provided 
        in this subsection for the preceding fiscal year increased by 
        the percentage increase referred to in subparagraph (A), 
        rounded to the nearest $10,000;
            ``(D) the Northern Mariana Islands shall not exceed the sum 
        of the amount provided in this subsection for the preceding 
        fiscal year increased by the percentage increase referred to in 
        subparagraph (A), rounded to the nearest $10,000; and
            ``(E) American Samoa shall not exceed the sum of the amount 
        provided in this subsection for the preceding fiscal year 
        increased by the percentage increase referred to in 
        subparagraph (A), rounded to the nearest $10,000.''.

                         CHAPTER 4--ELIGIBILITY

SEC. 4731. STATE OPTION OF CONTINUOUS ELIGIBILITY FOR 12 MONTHS; 
              CLARIFICATION OF STATE OPTION TO COVER CHILDREN.

    (a) Continuous Eligibility Option.--Section 1902(e) (42 U.S.C. 
1396a(e)) is amended by adding at the end the following new paragraph:
    ``(12) At the option of the State, the plan may provide that an 
individual who is under an age specified by the State (not to exceed 19 
years of age) and who is determined to be eligible for benefits under a 
State plan approved under this title under subsection (a)(10)(A) shall 
remain eligible for those benefits until the earlier of--
        ``(A) the end of a period (not to exceed 12 months) following 
    the determination; or
        ``(B) the time that the individual exceeds that age.''.
    (b) Clarification of State Option To Cover All Children Under 19 
Years of Age.--Section 1902(l)(1)(D) (42 U.S.C. 1396a(l)(1)(D)) is 
amended by inserting ``(or, at the option of a State, after any earlier 
date)'' after ``children born after September 30, 1983''.
    (c) Effective Date.--The amendments made by this section shall 
apply to medical assistance for items and services furnished on or 
after October 1, 1997.

SEC. 4732. PAYMENT OF PART B PREMIUMS.

    (a) Eligibility.--Section 1902(a)(10)(E) (42 U.S.C. 
1396a(a)(10)(E)) is amended--
        (1) by striking ``and'' at the end of clause (ii); and
        (2) by inserting after clause (iii) the following:
            ``(iv) subject to sections 1933 and 1905(p)(4), for making 
        medical assistance available (but only for premiums payable 
        with respect to months during the period beginning with January 
        1998, and ending with December 2002)--
                ``(I) for medicare cost-sharing described in section 
            1905(p)(3)(A)(ii) for individuals who would be qualified 
            medicare beneficiaries described in section 1905(p)(1) but 
            for the fact that their income exceeds the income level 
            established by the State under section 1905(p)(2) and is at 
            least 120 percent, but less than 135 percent, of the 
            official poverty line (referred to in such section) for a 
            family of the size involved and who are not otherwise 
            eligible for medical assistance under the State plan, and
                ``(II) for the portion of medicare cost-sharing 
            described in section 1905(p)(3)(A)(ii) that is attributable 
            to the operation of the amendments made by (and subsection 
            (e)(3) of) section 4611 of the Balanced Budget Act of 1997 
            for individuals who would be described in subclause (I) if 
            `135 percent' and `175 percent' were substituted for `120 
            percent' and `135 percent' respectively; and''.
    (b) Conforming Amendment.--Section 1905(b) (42 U.S.C. 1396d(b)) is 
amended by striking ``The term'' and inserting ``Subject to section 
1933(d), the term''.
    (c) Terms and Conditions of Coverage.--Title XIX (42 U.S.C. 1395 et 
seq.), as amended by section 4701(a), is amended by redesignating 
section 1933 as section 1934 and by inserting after section 1932 the 
following new section:


   ``state coverage of medicare cost-sharing for additional low-income 
                         medicare beneficiaries

    ``Sec. 1933. (a) In General.--A State plan under this title shall 
provide, under section 1902(a)(10)(E)(iv) and subject to the succeeding 
provisions of this section and through a plan amendment, for medical 
assistance for payment of the cost of medicare cost-sharing described 
in such section on behalf of all individuals described in such section 
(in this section referred to as `qualifying individuals') who are 
selected to receive such assistance under subsection (b).
    ``(b) Selection of Qualifying Individuals.--A State shall select 
qualifying individuals, and provide such individuals with assistance, 
under this section consistent with the following:
        ``(1) All qualifying individuals may apply.--The State shall 
    permit all qualifying individuals to apply for assistance during a 
    calendar year.
        ``(2) Selection on first-come, first-served basis.--
            ``(A) In general.--For each calendar year (beginning with 
        1998), from (and to the extent of) the amount of the allocation 
        under subsection (c) for the State for the fiscal year ending 
        in such calendar year, the State shall select qualifying 
        individuals who apply for the assistance in the order in which 
        they apply.
            ``(B) Carryover.--For calendar years after 1998, the State 
        shall give preference to individuals who were provided such 
        assistance (or other assistance described in section 
        1902(a)(10)(E)) in the last month of the previous year and who 
        continue to be (or become) qualifying individuals.
        ``(3) Limit on number of individuals based on allocation.--The 
    State shall limit the number of qualifying individuals selected 
    with respect to assistance in a calendar year so that the aggregate 
    amount of such assistance provided to such individuals in such year 
    is estimated to be equal to (but not exceed) the State's allocation 
    under subsection (c) for the fiscal year ending in such calendar 
    year.
        ``(4) Receipt of assistance during duration of year.--If a 
    qualifying individual is selected to receive assistance under this 
    section for a month in year, the individual is entitled to receive 
    such assistance for the remainder of the year if the individual 
    continues to be a qualifying individual. The fact that an 
    individual is selected to receive assistance under this section at 
    any time during a year does not entitle the individual to continued 
    assistance for any succeeding year.
    ``(c) Allocation.--
        ``(1) Total allocation.--The total amount available for 
    allocation under this section for--
            ``(A) fiscal year 1998 is $200,000,000;
            ``(B) fiscal year 1999 is $250,000,000;
            ``(C) fiscal year 2000 is $300,000,000;
            ``(D) fiscal year 2001 is $350,000,000; and
            ``(E) fiscal year 2002 is $400,000,000.
        ``(2) Allocation to states.--The Secretary shall provide for 
    the allocation of the total amount described in paragraph (1) for a 
    fiscal year, among the States that executed a plan amendment in 
    accordance with subsection (a), based upon the Secretary's estimate 
    of the ratio of--
            ``(A) an amount equal to the sum of--
                ``(i) twice the total number of individuals described 
            in section 1902(a)(10)(E)(iv)(I) in the State, and
                ``(ii) the total number of individuals described in 
            section 1902(a)(10)(E)(iv)(II) in the State; to
            ``(B) the sum of the amounts computed under subparagraph 
        (A) for all eligible States.
    ``(d) Applicable FMAP.--With respect to assistance described in 
section 1902(a)(10)(E)(iv) furnished in a State for calendar quarters 
in a calendar year --
        ``(1) to the extent that such assistance does not exceed the 
    State's allocation under subsection (c) for the fiscal year ending 
    in the calendar year, the Federal medical assistance percentage 
    shall be equal to 100 percent; and
        ``(2) to the extent that such assistance exceeds such 
    allocation, the Federal medical assistance percentage is 0 percent.
    ``(e) Limitation on Entitlement.--Except as specifically provided 
under this section, nothing in this title shall be construed as 
establishing any entitlement of individuals described in section 
1902(a)(10)(E)(iv) to assistance described in such section.
    ``(f) Coverage of Costs Through Part B of the Medicare Program.--
For each fiscal year, the Secretary shall provide for the transfer from 
the Federal Supplementary Medical Insurance Trust Fund under section 
1841 to the appropriate account in the Treasury that provides for 
payments under section 1903(a) with respect to medical assistance 
provided under this section, of an amount equivalent to the total of 
the amount of payments made under such section that is attributable to 
this section and such transfer shall be treated as an expenditure from 
such Trust Fund for purposes of section 1839.''.

SEC. 4733. STATE OPTION TO PERMIT WORKERS WITH DISABILITIES TO BUY INTO 
              MEDICAID.

    Section 1902(a)(10)(A)(ii) (42 U.S.C. 1396a(a)(10)(A)(ii)) is 
amended--
        (1) in subclause (XI), by striking ``or'' at the end;
        (2) in subclause (XII), by adding ``or'' at the end; and
        (3) by adding at the end the following:

                    ``(XIII) who are in families whose income is less 
                than 250 percent of the income official poverty line 
                (as defined by the Office of Management and Budget, and 
                revised annually in accordance with section 673(2) of 
                the Omnibus Budget Reconciliation Act of 1981) 
                applicable to a family of the size involved, and who 
                but for earnings in excess of the limit established 
                under section 1905(q)(2)(B), would be considered to be 
                receiving supplemental security income (subject, 
                notwithstanding section 1916, to payment of premiums or 
                other cost-sharing charges (set on a sliding scale 
                based on income) that the State may determine);''.

SEC. 4734. PENALTY FOR FRAUDULENT ELIGIBILITY.

    Section 1128B(a) (42 U.S.C. 1320a-7b(a)), as amended by section 217 
of the Health Insurance Portability and Accountability Act of 1996 
(Public Law 104-191; 110 Stat. 2008), is amended--
        (1) by striking paragraph (6) and inserting the following:
        ``(6) for a fee knowingly and willfully counsels or assists an 
    individual to dispose of assets (including by any transfer in 
    trust) in order for the individual to become eligible for medical 
    assistance under a State plan under title XIX, if disposing of the 
    assets results in the imposition of a period of ineligibility for 
    such assistance under section 1917(c),''; and
        (2) in clause (ii) of the matter following such paragraph, by 
    striking ``failure, or conversion by any other person'' and 
    inserting ``failure, conversion, or provision of counsel or 
    assistance by any other person''.

SEC. 4735. TREATMENT OF CERTAIN SETTLEMENT PAYMENTS.

    (a) In General.--Notwithstanding any other provision of law, the 
payments described in subsection (b) shall not be considered income or 
resources in determining eligibility for, or the amount of benefits 
under, a State plan of medical assistance approved under title XIX of 
the Social Security Act.
    (b) Payments Described.--The payments described in this subsection 
are--
        (1) payments made from any fund established pursuant to a class 
    settlement in the case of Susan Walker v. Bayer Corporation, et 
    al., 96-C-5024 (N.D. Ill.); and
        (2) payments made pursuant to a release of all claims in a 
    case--
            (A) that is entered into in lieu of the class settlement 
        referred to in paragraph (1); and
            (B) that is signed by all affected parties in such case on 
        or before the later of--
                (i) December 31, 1997, or
                (ii) the date that is 270 days after the date on which 
            such release is first sent to the persons (or the legal 
            representative of such persons) to whom the payment is to 
            be made.

                          CHAPTER 5--BENEFITS

SEC. 4741. ELIMINATION OF REQUIREMENT TO PAY FOR PRIVATE INSURANCE.

    (a) Repeal of State Plan Provision.--Section 1902(a)(25) (42 U.S.C. 
1396a(a)(25)) is amended--
        (1) by striking subparagraph (G); and
        (2) by redesignating subparagraphs (H) and (I) as subparagraphs 
    (G) and (H), respectively.
    (b) Making Provision Optional.--Section 1906 (42 U.S.C. 1396e) is 
amended--
        (1) in subsection (a)--
            (A) by striking ``For purposes of section 1902(a)(25)(G) 
        and subject to subsection (d), each'' and inserting ``Each'';
            (B) in paragraph (1), by striking ``shall'' and inserting 
        ``may''; and
            (C) in paragraph (2), by striking ``shall'' and inserting 
        ``may''; and
        (2) by striking subsection (d).
    (c) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 4742. PHYSICIAN QUALIFICATION REQUIREMENTS.

    (a) In General.--Section 1903(i) (42 U.S.C. 1396b(i)) is amended by 
striking paragraph (12).
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to services furnished on or after the date of the enactment of 
this Act.

SEC. 4743. ELIMINATION OF REQUIREMENT OF PRIOR INSTITUTIONALIZATION 
              WITH RESPECT TO HABILITATION SERVICES FURNISHED UNDER A 
              WAIVER FOR HOME OR COMMUNITY-BASED SERVICES.

    (a) In General.--Section 1915(c)(5) (42 U.S.C. 1396n(c)(5)) is 
amended, in the matter preceding subparagraph (A), by striking ``, with 
respect to individuals who receive such services after discharge from a 
nursing facility or intermediate care facility for the mentally 
retarded''.
    (b) Effective Date.--The amendment made by subsection (a) apply to 
services furnished on or after October 1, 1997.

SEC. 4744. STUDY AND REPORT ON EPSDT BENEFIT.

    (a) Study.--
        (1) In general.--The Secretary of Health and Human Services, in 
    consultation with Governors, directors of State medicaid programs, 
    the American Academy of Actuaries, and representatives of 
    appropriate provider and beneficiary organizations, shall conduct a 
    study of the provision of early and periodic screening, diagnostic, 
    and treatment services under the medicaid program under title XIX 
    of the Social Security Act in accordance with the requirements of 
    section 1905(r) of such Act (42 U.S.C. 1396d(r)).
        (2) Required contents.--The study conducted under paragraph (1) 
    shall include examination of the actuarial value of the provision 
    of such services under the medicaid program and an examination of 
    the portions of such actuarial value that are attributable to 
    paragraph (5) of section 1905(r) of such Act and to the second 
    sentence of such section.
    (b) Report.--Not later than 12 months after the date of the 
enactment of this Act, the Secretary of Health and Human Services shall 
submit a report to Congress on the results of the study conducted under 
subsection (a).

              CHAPTER 6--ADMINISTRATION AND MISCELLANEOUS

SEC. 4751. ELIMINATION OF DUPLICATIVE INSPECTION OF CARE REQUIREMENTS 
              FOR ICFS/MR AND MENTAL HOSPITALS.

    (a) Mental Hospitals.--Section 1902(a)(26) (42 U.S.C. 1396a(a)(26)) 
is amended--
        (1) by striking ``provide--
            ``(A) with respect to each patient'' and inserting 
        ``provide, with respect to each patient''; and
        (2) by striking subparagraphs (B) and (C).
    (b) ICFS/MR.--Section 1902(a)(31) (42 U.S.C. 1396a(a)(31)) is 
amended--
        (1) by striking ``provide--
            ``(A) with respect to each patient'' and inserting 
        ``provide, with respect to each patient''; and
        (2) by striking subparagraphs (B) and (C).
    (c) Effective Date.--The amendments made by this section take 
effect on the date of the enactment of this Act.

SEC. 4752. ALTERNATIVE SANCTIONS FOR NONCOMPLIANT ICFS/MR.

    (a) In General.--Section 1902(i)(1)(B) (42 U.S.C. 1396a(i)(1)(B)) 
is amended by striking ``provide'' and inserting ``establish 
alternative remedies if the State demonstrates to the Secretary's 
satisfaction that the alternative remedies are effective in deterring 
noncompliance and correcting deficiencies, and may provide''.
    (b) Effective Date.--The amendment made by subsection (a) takes 
effect on the date of the enactment of this Act.

SEC. 4753. MODIFICATION OF MMIS REQUIREMENTS.

    (a) In General.--Section 1903(r) (42 U.S.C. 1396b(r)) is amended--
        (1) by striking all that precedes paragraph (5) and inserting 
    the following:
    ``(r)(1) In order to receive payments under subsection (a) for use 
of automated data systems in administration of the State plan under 
this title, a State must have in operation mechanized claims processing 
and information retrieval systems that meet the requirements of this 
subsection and that the Secretary has found--
        ``(A) are adequate to provide efficient, economical, and 
    effective administration of such State plan;
        ``(B) are compatible with the claims processing and information 
    retrieval systems used in the administration of title XVIII, and 
    for this purpose--
                ``(i) have a uniform identification coding system for 
            providers, other payees, and beneficiaries under this title 
            or title XVIII;
                ``(ii) provide liaison between States and carriers and 
            intermediaries with agreements under title XVIII to 
            facilitate timely exchange of appropriate data; and
                ``(iii) provide for exchange of data between the States 
            and the Secretary with respect to persons sanctioned under 
            this title or title XVIII;
        ``(C) are capable of providing accurate and timely data;
        ``(D) are complying with the applicable provisions of part C of 
    title XI;
        ``(E) are designed to receive provider claims in standard 
    formats to the extent specified by the Secretary; and
        ``(F) effective for claims filed on or after January 1, 1999, 
    provide for electronic transmission of claims data in the format 
    specified by the Secretary and consistent with the Medicaid 
    Statistical Information System (MSIS) (including detailed 
    individual enrollee encounter data and other information that the 
    Secretary may find necessary).'';
        (2) in paragraph (5)--
            (A) by striking subparagraph (B);
            (B) by striking all that precedes clause (i) and inserting 
        the following:
    ``(2) In order to meet the requirements of this paragraph, 
mechanized claims processing and information retrieval systems must 
meet the following requirements:'';
            (C) in clause (iii), by striking ``under paragraph (6)''; 
        and
            (D) by redesignating clauses (i) through (iii) as 
        paragraphs (A) through (C); and
        (3) by striking paragraphs (6), (7), and (8).
    (b) Conforming Amendments.--Section 1902(a)(25)(A)(ii) (42 U.S.C. 
1396a(a)(25)(A)(ii)) is amended by striking all that follows ``shall'' 
and inserting the following: ``be integrated with, and be monitored as 
a part of the Secretary's review of, the State's mechanized claims 
processing and information retrieval systems required under section 
1903(r);''.
    (c) Effective Date.--Except as otherwise specifically provided, the 
amendments made by this section shall take effect on January 1, 1998.

SEC. 4754. FACILITATING IMPOSITION OF STATE ALTERNATIVE REMEDIES ON 
              NONCOMPLIANT NURSING FACILITIES.

    (a) In General.--Section 1919(h)(3)(D) (42 U.S.C. 1396r(h)(3)(D)) 
is amended--
        (1) by inserting ``and'' at the end of clause (i);
        (2) by striking ``, and'' at the end of clause (ii) and 
    inserting a period; and
        (3) by striking clause (iii).
    (b) Effective Date.--The amendments made by subsection (a) take 
effect on the date of the enactment of this Act.

SEC. 4755. REMOVAL OF NAME FROM NURSE AIDE REGISTRY.

    (a) Medicare.--Section 1819(g)(1) (42 U.S.C. 1395i-3(g)(1)) is 
amended--
        (1) by redesignating subparagraph (D) as subparagraph (E), and
        (2) by inserting after subparagraph (C) the following:
            ``(D) Removal of name from nurse aide registry.--
                ``(i) In general.--In the case of a finding of neglect 
            under subparagraph (C), the State shall establish a 
            procedure to permit a nurse aide to petition the State to 
            have his or her name removed from the registry upon a 
            determination by the State that--

                    ``(I) the employment and personal history of the 
                nurse aide does not reflect a pattern of abusive 
                behavior or neglect; and
                    ``(II) the neglect involved in the original finding 
                was a singular occurrence.

                ``(ii) Timing of determination.--In no case shall a 
            determination on a petition submitted under clause (i) be 
            made prior to the expiration of the 1-year period beginning 
            on the date on which the name of the petitioner was added 
            to the registry under subparagraph (C).''.
    (b) Medicaid.--Section 1919(g)(1) (42 U.S.C. 1396r(g)(1)) is 
amended--
        (1) by redesignating subparagraph (D) as subparagraph (E), and
        (2) by inserting after subparagraph (C) the following:
            ``(D) Removal of name from nurse aide registry.--
                ``(i) In general.--In the case of a finding of neglect 
            under subparagraph (C), the State shall establish a 
            procedure to permit a nurse aide to petition the State to 
            have his or her name removed from the registry upon a 
            determination by the State that--

                    ``(I) the employment and personal history of the 
                nurse aide does not reflect a pattern of abusive 
                behavior or neglect; and
                    ``(II) the neglect involved in the original finding 
                was a singular occurrence.

                ``(ii) Timing of determination.--In no case shall a 
            determination on a petition submitted under clause (i) be 
            made prior to the expiration of the 1-year period beginning 
            on the date on which the name of the petitioner was added 
            to the registry under subparagraph (C).''.
    (c) Retroactive Review.--The procedures developed by a State under 
the amendments made by subsection (a) and (b) shall permit an 
individual to petition for a review of any finding made by a State 
under section 1819(g)(1)(C) or 1919(g)(1)(C) of the Social Security Act 
(42 U.S.C. 1395i-3(g)(1)(C) or 1396r(g)(1)(C)) after January 1, 1995.

SEC. 4756. MEDICALLY ACCEPTED INDICATION.

    Section 1927(g)(1)(B)(i) (42 U.S.C. 1396r-8(g)(1)(B)(i)) is 
amended--
        (1) by striking ``and'' at the end of subclause (II),
        (2) by redesignating subclause (III) as subclause (IV), and
        (3) by inserting after subclause (II) the following:

                    ``(III) the DRUGDEX Information System; and''.

SEC. 4757. CONTINUATION OF STATE-WIDE SECTION 1115 MEDICAID WAIVERS.

    (a) In General.--Section 1115 (42 U.S.C. 1315) is amended by adding 
at the end the following new subsection:
    ``(e)(1) The provisions of this subsection shall apply to the 
extension of any State-wide comprehensive demonstration project (in 
this subsection referred to as `waiver project') for which a waiver of 
compliance with requirements of title XIX is granted under subsection 
(a).
    ``(2) During the 6-month period ending 1 year before the date the 
waiver under subsection (a) with respect to a waiver project would 
otherwise expire, the chief executive officer of the State which is 
operating the project may submit to the Secretary a written request for 
an extension, of up to 3 years, of the project.
    ``(3) If the Secretary fails to respond to the request within 6 
months after the date it is submitted, the request is deemed to have 
been granted.
    ``(4) If such a request is granted, the deadline for submittal of a 
final report under the waiver project is deemed to have been extended 
until the date that is 1 year after the date the waiver project would 
otherwise have expired.
    ``(5) The Secretary shall release an evaluation of each such 
project not later than 1 year after the date of receipt of the final 
report.
    ``(6) Subject to paragraphs (4) and (7), the extension of a waiver 
project under this subsection shall be on the same terms and conditions 
(including applicable terms and conditions relating to quality and 
access of services, budget neutrality, data and reporting requirements, 
and special population protections) that applied to the project before 
its extension under this subsection.
    ``(7) If an original condition of approval of a waiver project was 
that Federal expenditures under the project not exceed the Federal 
expenditures that would otherwise have been made, the Secretary shall 
take such steps as may be necessary to ensure that, in the extension of 
the project under this subsection, such condition continues to be met. 
In applying the previous sentence, the Secretary shall take into 
account the Secretary's best estimate of rates of change in 
expenditures at the time of the extension.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to demonstration projects initially approved before, on, or after 
the date of the enactment of this Act.

SEC. 4758. EXTENSION OF MORATORIUM.

    Section 6408(a)(3) of the Omnibus Budget Reconciliation Act of 
1989, as amended by section 13642 of the Omnibus Budget Reconciliation 
Act of 1993, is amended by striking ``December 31, 1995'' and inserting 
``December 31, 2002''.

SEC. 4759. EXTENSION OF EFFECTIVE DATE FOR STATE LAW AMENDMENT.

    In the case of a State plan under title XIX of the Social Security 
Act which the Secretary of Health and Human Services determines 
requires State legislation in order for the plan to meet the additional 
requirements imposed by the amendments made by a provision of this 
subtitle, the State plan shall not be regarded as failing to comply 
with the requirements of such title solely on the basis of its failure 
to meet these additional requirements before the first day of the first 
calendar quarter beginning after the close of the first regular session 
of the State legislature that begins after the date of the enactment of 
this Act. For purposes of the previous sentence, in the case of a State 
that has a 2-year legislative session, each year of the session is 
considered to be a separate regular session of the State legislature.

   Subtitle I--Programs of All-Inclusive Care for the Elderly (PACE)

SEC. 4801. COVERAGE OF PACE UNDER THE MEDICARE PROGRAM.

    Title XVIII of the Social Security Act (42 U.S.C. 1395 et seq.) is 
amended by adding at the end the following new section:


     ``payments to, and coverage of benefits under, programs of all-
                 inclusive care for the elderly (pace)

    ``Sec. 1894. (a) Receipt of Benefits Through Enrollment in PACE 
Program; Definitions for PACE Program Related Terms.--
        ``(1) Benefits through enrollment in a pace program.--In 
    accordance with this section, in the case of an individual who is 
    entitled to benefits under part A or enrolled under part B and who 
    is a PACE program eligible individual (as defined in paragraph (5)) 
    with respect to a PACE program offered by a PACE provider under a 
    PACE program agreement--
            ``(A) the individual may enroll in the program under this 
        section; and
            ``(B) so long as the individual is so enrolled and in 
        accordance with regulations--
                ``(i) the individual shall receive benefits under this 
            title solely through such program; and
                ``(ii) the PACE provider is entitled to payment under 
            and in accordance with this section and such agreement for 
            provision of such benefits.
        ``(2) PACE program defined.--For purposes of this section, the 
    term `PACE program' means a program of all-inclusive care for the 
    elderly that meets the following requirements:
            ``(A) Operation.--The entity operating the program is a 
        PACE provider (as defined in paragraph (3)).
            ``(B) Comprehensive benefits.--The program provides 
        comprehensive health care services to PACE program eligible 
        individuals in accordance with the PACE program agreement and 
        regulations under this section.
            ``(C) Transition.--In the case of an individual who is 
        enrolled under the program under this section and whose 
        enrollment ceases for any reason (including that the individual 
        no longer qualifies as a PACE program eligible individual, the 
        termination of a PACE program agreement, or otherwise), the 
        program provides assistance to the individual in obtaining 
        necessary transitional care through appropriate referrals and 
        making the individual's medical records available to new 
        providers.
        ``(3) PACE provider defined.--
            ``(A) In general.--For purposes of this section, the term 
        `PACE provider' means an entity that--
                ``(i) subject to subparagraph (B), is (or is a distinct 
            part of) a public entity or a private, nonprofit entity 
            organized for charitable purposes under section 501(c)(3) 
            of the Internal Revenue Code of 1986; and
                ``(ii) has entered into a PACE program agreement with 
            respect to its operation of a PACE program.
            ``(B) Treatment of private, for-profit providers.--Clause 
        (i) of subparagraph (A) shall not apply--
                ``(i) to entities subject to a demonstration project 
            waiver under subsection (h); and
                ``(ii) after the date the report under section 4804(b) 
            of the Balanced Budget Act of 1997 is submitted, unless the 
            Secretary determines that any of the findings described in 
            subparagraph (A), (B), (C), or (D) of paragraph (2) of such 
            section are true.
        ``(4) PACE program agreement defined.--For purposes of this 
    section, the term `PACE program agreement' means, with respect to a 
    PACE provider, an agreement, consistent with this section, section 
    1934 (if applicable), and regulations promulgated to carry out such 
    sections, between the PACE provider and the Secretary, or an 
    agreement between the PACE provider and a State administering 
    agency for the operation of a PACE program by the provider under 
    such sections.
        ``(5) PACE program eligible individual defined.--For purposes 
    of this section, the term `PACE program eligible individual' means, 
    with respect to a PACE program, an individual who--
            ``(A) is 55 years of age or older;
            ``(B) subject to subsection (c)(4), is determined under 
        subsection (c) to require the level of care required under the 
        State medicaid plan for coverage of nursing facility services;
            ``(C) resides in the service area of the PACE program; and
            ``(D) meets such other eligibility conditions as may be 
        imposed under the PACE program agreement for the program under 
        subsection (e)(2)(A)(ii).
        ``(6) PACE protocol.--For purposes of this section, the term 
    `PACE protocol' means the Protocol for the Program of All-inclusive 
    Care for the Elderly (PACE), as published by On Lok, Inc., as of 
    April 14, 1995, or any successor protocol that may be agreed upon 
    between the Secretary and On Lok, Inc.
        ``(7) PACE demonstration waiver program defined.--For purposes 
    of this section, the term `PACE demonstration waiver program' means 
    a demonstration program under either of the following sections (as 
    in effect before the date of their repeal):
            ``(A) Section 603(c) of the Social Security Amendments of 
        1983 (Public Law 98-21), as extended by section 9220 of the 
        Consolidated Omnibus Budget Reconciliation Act of 1985 (Public 
        Law 99-272).
            ``(B) Section 9412(b) of the Omnibus Budget Reconciliation 
        Act of 1986 (Public Law 99-509).
        ``(8) State administering agency defined.--For purposes of this 
    section, the term `State administering agency' means, with respect 
    to the operation of a PACE program in a State, the agency of that 
    State (which may be the single agency responsible for 
    administration of the State plan under title XIX in the State) 
    responsible for administering PACE program agreements under this 
    section and section 1934 in the State.
        ``(9) Trial period defined.--
            ``(A) In general.--For purposes of this section, the term 
        `trial period' means, with respect to a PACE program operated 
        by a PACE provider under a PACE program agreement, the first 3 
        contract years under such agreement with respect to such 
        program.
            ``(B) Treatment of entities previously operating pace 
        demonstration waiver programs.--Each contract year (including a 
        year occurring before the effective date of this section) 
        during which an entity has operated a PACE demonstration waiver 
        program shall be counted under subparagraph (A) as a contract 
        year during which the entity operated a PACE program as a PACE 
        provider under a PACE program agreement.
        ``(10) Regulations.--For purposes of this section, the term 
    `regulations' refers to interim final or final regulations 
    promulgated under subsection (f) to carry out this section and 
    section 1934.
    ``(b) Scope of Benefits; Beneficiary Safeguards.--
        ``(1) In general.--Under a PACE program agreement, a PACE 
    provider shall--
            ``(A) provide to PACE program eligible individuals enrolled 
        with the provider, regardless of source of payment and directly 
        or under contracts with other entities, at a minimum--
                ``(i) all items and services covered under this title 
            (for individuals enrolled under this section) and all items 
            and services covered under title XIX, but without any 
            limitation or condition as to amount, duration, or scope 
            and without application of deductibles, copayments, 
            coinsurance, or other cost-sharing that would otherwise 
            apply under this title or such title, respectively; and
                ``(ii) all additional items and services specified in 
            regulations, based upon those required under the PACE 
            protocol;
            ``(B) provide such enrollees access to necessary covered 
        items and services 24 hours per day, every day of the year;
            ``(C) provide services to such enrollees through a 
        comprehensive, multidisciplinary health and social services 
        delivery system which integrates acute and long-term care 
        services pursuant to regulations; and
            ``(D) specify the covered items and services that will not 
        be provided directly by the entity, and to arrange for delivery 
        of those items and services through contracts meeting the 
        requirements of regulations.
        ``(2) Quality assurance; patient safeguards.--The PACE program 
    agreement shall require the PACE provider to have in effect at a 
    minimum--
            ``(A) a written plan of quality assurance and improvement, 
        and procedures implementing such plan, in accordance with 
        regulations; and
            ``(B) written safeguards of the rights of enrolled 
        participants (including a patient bill of rights and procedures 
        for grievances and appeals) in accordance with regulations and 
        with other requirements of this title and Federal and State law 
        that are designed for the protection of patients.
    ``(c) Eligibility Determinations.--
        ``(1) In general.--The determination of whether an individual 
    is a PACE program eligible individual--
            ``(A) shall be made under and in accordance with the PACE 
        program agreement; and
            ``(B) who is entitled to medical assistance under title 
        XIX, shall be made (or who is not so entitled, may be made) by 
        the State administering agency.
        ``(2) Condition.--An individual is not a PACE program eligible 
    individual (with respect to payment under this section) unless the 
    individual's health status has been determined by the Secretary or 
    the State administering agency, in accordance with regulations, to 
    be comparable to the health status of individuals who have 
    participated in the PACE demonstration waiver programs. Such 
    determination shall be based upon information on health status and 
    related indicators (such as medical diagnoses and measures of 
    activities of daily living, instrumental activities of daily 
    living, and cognitive impairment) that are part of a uniform 
    minimum data set collected by PACE providers on potential PACE 
    program eligible individuals.
        ``(3) Annual eligibility recertifications.--
            ``(A) In general.--Subject to subparagraph (B), the 
        determination described in subsection (a)(5)(B) for an 
        individual shall be reevaluated at least annually.
            ``(B) Exception.--The requirement of annual reevaluation 
        under subparagraph (A) may be waived during a period in 
        accordance with regulations in those cases where the State 
        administering agency determines that there is no reasonable 
        expectation of improvement or significant change in an 
        individual's condition during the period because of the 
        severity of chronic condition, or degree of impairment of 
        functional capacity of the individual involved.
        ``(4) Continuation of eligibility.--An individual who is a PACE 
    program eligible individual may be deemed to continue to be such an 
    individual notwithstanding a determination that the individual no 
    longer meets the requirement of subsection (a)(5)(B) if, in 
    accordance with regulations, in the absence of continued coverage 
    under a PACE program the individual reasonably would be expected to 
    meet such requirement within the succeeding 6-month period.
        ``(5) Enrollment; disenrollment.--
            ``(A) Voluntary disenrollment at any time.--The enrollment 
        and disenrollment of PACE program eligible individuals in a 
        PACE program shall be pursuant to regulations and the PACE 
        program agreement and shall permit enrollees to voluntarily 
        disenroll without cause at any time.
            ``(B) Limitations on disenrollment.--
                ``(i) In general.--Regulations promulgated by the 
            Secretary under this section and section 1934, and the PACE 
            program agreement, shall provide that the PACE program may 
            not disenroll a PACE program eligible individual except--

                    ``(I) for nonpayment of premiums (if applicable) on 
                a timely basis; or
                    ``(II) for engaging in disruptive or threatening 
                behavior, as defined in such regulations (developed in 
                close consultation with State administering agencies).

                ``(ii) No disenrollment for noncompliant behavior.--
            Except as allowed under regulations promulgated to carry 
            out clause (i)(II), a PACE program may not disenroll a PACE 
            program eligible individual on the ground that the 
            individual has engaged in noncompliant behavior if such 
            behavior is related to a mental or physical condition of 
            the individual. For purposes of the preceding sentence, the 
            term `noncompliant behavior' includes repeated 
            noncompliance with medical advice and repeated failure to 
            appear for appointments.
                ``(iii) Timely review of proposed nonvoluntary 
            disenrollment.--A proposed disenrollment, other than a 
            voluntary disenrollment, shall be subject to timely review 
            and final determination by the Secretary or by the State 
            administering agency (as applicable), prior to the proposed 
            disenrollment becoming effective.
    ``(d) Payments to PACE Providers on a Capitated Basis.--
        ``(1) In general.--In the case of a PACE provider with a PACE 
    program agreement under this section, except as provided in this 
    subsection or by regulations, the Secretary shall make prospective 
    monthly payments of a capitation amount for each PACE program 
    eligible individual enrolled under the agreement under this section 
    in the same manner and from the same sources as payments are made 
    to a Medicare+Choice organization under section 1853 (or, for 
    periods beginning before January 1, 1999, to an eligible 
    organization under a risk-sharing contract under section 1876). 
    Such payments shall be subject to adjustment in the manner 
    described in section 1853(a)(2) or section 1876(a)(1)(E), as the 
    case may be.
        ``(2) Capitation amount.--The capitation amount to be applied 
    under this subsection for a provider for a contract year shall be 
    an amount specified in the PACE program agreement for the year. 
    Such amount shall be based upon payment rates established for 
    purposes of payment under section 1853 (or, for periods before 
    January 1, 1999, for purposes of risk-sharing contracts under 
    section 1876) and shall be adjusted to take into account the 
    comparative frailty of PACE enrollees and such other factors as the 
    Secretary determines to be appropriate. Such amount under such an 
    agreement shall be computed in a manner so that the total payment 
    level for all PACE program eligible individuals enrolled under a 
    program is less than the projected payment under this title for a 
    comparable population not enrolled under a PACE program.
    ``(e) PACE Program Agreement.--
        ``(1) Requirement.--
            ``(A) In general.--The Secretary, in close cooperation with 
        the State administering agency, shall establish procedures for 
        entering into, extending, and terminating PACE program 
        agreements for the operation of PACE programs by entities that 
        meet the requirements for a PACE provider under this section, 
        section 1934, and regulations.
            ``(B) Numerical limitation.--
                ``(i) In general.--The Secretary shall not permit the 
            number of PACE providers with which agreements are in 
            effect under this section or under section 9412(b) of the 
            Omnibus Budget Reconciliation Act of 1986 to exceed--

                    ``(I) 40 as of the date of the enactment of this 
                section; or
                    ``(II) as of each succeeding anniversary of such 
                date, the numerical limitation under this subparagraph 
                for the preceding year plus 20.

            Subclause (II) shall apply without regard to the actual 
            number of agreements in effect as of a previous anniversary 
            date.
                ``(ii) Treatment of certain private, for-profit 
            providers.--The numerical limitation in clause (i) shall 
            not apply to a PACE provider that--

                    ``(I) is operating under a demonstration project 
                waiver under subsection (h); or
                    ``(II) was operating under such a waiver and 
                subsequently qualifies for PACE provider status 
                pursuant to subsection (a)(3)(B)(ii).

        ``(2) Service area and eligibility.--
            ``(A) In general.--A PACE program agreement for a PACE 
        program--
                ``(i) shall designate the service area of the program;
                ``(ii) may provide additional requirements for 
            individuals to qualify as PACE program eligible individuals 
            with respect to the program;
                ``(iii) shall be effective for a contract year, but may 
            be extended for additional contract years in the absence of 
            a notice by a party to terminate and is subject to 
            termination by the Secretary and the State administering 
            agency at any time for cause (as provided under the 
            agreement);
                ``(iv) shall require a PACE provider to meet all 
            applicable State and local laws and requirements; and
                ``(v) shall contain such additional terms and 
            conditions as the parties may agree to, so long as such 
            terms and conditions are consistent with this section and 
            regulations.
            ``(B) Service area overlap.--In designating a service area 
        under a PACE program agreement under subparagraph (A)(i), the 
        Secretary (in consultation with the State administering agency) 
        may exclude from designation an area that is already covered 
        under another PACE program agreement, in order to avoid 
        unnecessary duplication of services and avoid impairing the 
        financial and service viability of an existing program.
        ``(3) Data collection; development of outcome measures.--
            ``(A) Data collection.--
                ``(i) In general.--Under a PACE program agreement, the 
            PACE provider shall--

                    ``(I) collect data;
                    ``(II) maintain, and afford the Secretary and the 
                State administering agency access to, the records 
                relating to the program, including pertinent financial, 
                medical, and personnel records; and
                    ``(III) make available to the Secretary and the 
                State administering agency reports that the Secretary 
                finds (in consultation with State administering 
                agencies) necessary to monitor the operation, cost, and 
                effectiveness of the PACE program under this section 
                and section 1934 .

                ``(ii) Requirements during trial period.--During the 
            first 3 years of operation of a PACE program (either under 
            this section or under a PACE demonstration waiver program), 
            the PACE provider shall provide such additional data as the 
            Secretary specifies in regulations in order to perform the 
            oversight required under paragraph (4)(A).
            ``(B) Development of outcome measures.--Under a PACE 
        program agreement, the PACE provider, the Secretary, and the 
        State administering agency shall jointly cooperate in the 
        development and implementation of health status and quality of 
        life outcome measures with respect to PACE program eligible 
        individuals.
        ``(4) Oversight.--
            ``(A) Annual, close oversight during trial period.--During 
        the trial period (as defined in subsection (a)(9)) with respect 
        to a PACE program operated by a PACE provider, the Secretary 
        (in cooperation with the State administering agency) shall 
        conduct a comprehensive annual review of the operation of the 
        PACE program by the provider in order to assure compliance with 
        the requirements of this section and regulations. Such a review 
        shall include--
                ``(i) an on-site visit to the program site;
                ``(ii) comprehensive assessment of a provider's fiscal 
            soundness;
                ``(iii) comprehensive assessment of the provider's 
            capacity to provide all PACE services to all enrolled 
            participants;
                ``(iv) detailed analysis of the entity's substantial 
            compliance with all significant requirements of this 
            section and regulations; and
                ``(v) any other elements the Secretary or State 
            administering agency considers necessary or appropriate.
            ``(B) Continuing oversight.--After the trial period, the 
        Secretary (in cooperation with the State administering agency) 
        shall continue to conduct such review of the operation of PACE 
        providers and PACE programs as may be appropriate, taking into 
        account the performance level of a provider and compliance of a 
        provider with all significant requirements of this section and 
        regulations.
            ``(C) Disclosure.--The results of reviews under this 
        paragraph shall be reported promptly to the PACE provider, 
        along with any recommendations for changes to the provider's 
        program, and shall be made available to the public upon 
        request.
        ``(5) Termination of pace provider agreements.--
            ``(A) In general.--Under regulations--
                ``(i) the Secretary or a State administering agency may 
            terminate a PACE program agreement for cause; and
                ``(ii) a PACE provider may terminate an agreement after 
            appropriate notice to the Secretary, the State agency, and 
            enrollees.
            ``(B) Causes for termination.--In accordance with 
        regulations establishing procedures for termination of PACE 
        program agreements, the Secretary or a State administering 
        agency may terminate a PACE program agreement with a PACE 
        provider for, among other reasons, the fact that--
                ``(i) the Secretary or State administering agency 
            determines that--

                    ``(I) there are significant deficiencies in the 
                quality of care provided to enrolled participants; or
                    ``(II) the provider has failed to comply 
                substantially with conditions for a program or provider 
                under this section or section 1934; and

                ``(ii) the entity has failed to develop and 
            successfully initiate, within 30 days of the date of the 
            receipt of written notice of such a determination, a plan 
            to correct the deficiencies, or has failed to continue 
            implementation of such a plan.
            ``(C) Termination and transition procedures.--An entity 
        whose PACE provider agreement is terminated under this 
        paragraph shall implement the transition procedures required 
        under subsection (a)(2)(C).
        ``(6) Secretary's oversight; enforcement authority.--
            ``(A) In general.--Under regulations, if the Secretary 
        determines (after consultation with the State administering 
        agency) that a PACE provider is failing substantially to comply 
        with the requirements of this section and regulations, the 
        Secretary (and the State administering agency) may take any or 
        all of the following actions:
                ``(i) Condition the continuation of the PACE program 
            agreement upon timely execution of a corrective action 
            plan.
                ``(ii) Withhold some or all further payments under the 
            PACE program agreement under this section or section 1934 
            with respect to PACE program services furnished by such 
            provider until the deficiencies have been corrected.
                ``(iii) Terminate such agreement.
            ``(B) Application of intermediate sanctions.--Under 
        regulations, the Secretary may provide for the application 
        against a PACE provider of remedies described in section 
        1857(g)(2) (or, for periods before January 1, 1999, section 
        1876(i)(6)(B)) or 1903(m)(5)(B) in the case of violations by 
        the provider of the type described in section 1857(g)(1) (or 
        section 1876(i)(6)(A) for such periods) or 1903(m)(5)(A), 
        respectively (in relation to agreements, enrollees, and 
        requirements under this section or section 1934, respectively).
        ``(7) Procedures for termination or imposition of sanctions.--
    Under regulations, the provisions of section 1857(h) (or for 
    periods before January 1, 1999, section 1876(i)(9)) shall apply to 
    termination and sanctions respecting a PACE program agreement and 
    PACE provider under this subsection in the same manner as they 
    apply to a termination and sanctions with respect to a contract and 
    a Medicare+Choice organization under part C (or for such periods an 
    eligible organization under section 1876).
        ``(8) Timely consideration of applications for pace program 
    provider status.--In considering an application for PACE provider 
    program status, the application shall be deemed approved unless the 
    Secretary, within 90 days after the date of the submission of the 
    application to the Secretary, either denies such request in writing 
    or informs the applicant in writing with respect to any additional 
    information that is needed in order to make a final determination 
    with respect to the application. After the date the Secretary 
    receives such additional information, the application shall be 
    deemed approved unless the Secretary, within 90 days of such date, 
    denies such request.
    ``(f) Regulations.--
        ``(1) In general.--The Secretary shall issue interim final or 
    final regulations to carry out this section and section 1934.
        ``(2) Use of pace protocol.--
            ``(A) In general.--In issuing such regulations, the 
        Secretary shall, to the extent consistent with the provisions 
        of this section, incorporate the requirements applied to PACE 
        demonstration waiver programs under the PACE protocol.
            ``(B) Flexibility.--In order to provide for reasonable 
        flexibility in adapting the PACE service delivery model to the 
        needs of particular organizations (such as those in rural areas 
        or those that may determine it appropriate to use nonstaff 
        physicians according to State licensing law requirements) under 
        this section and section 1934, the Secretary (in close 
        consultation with State administering agencies) may modify or 
        waive provisions of the PACE protocol so long as any such 
        modification or waiver is not inconsistent with and would not 
        impair the essential elements, objectives, and requirements of 
        this section, but may not modify or waive any of the following 
        provisions:
                ``(i) The focus on frail elderly qualifying individuals 
            who require the level of care provided in a nursing 
            facility.
                ``(ii) The delivery of comprehensive, integrated acute 
            and long-term care services.
                ``(iii) The interdisciplinary team approach to care 
            management and service delivery.
                ``(iv) Capitated, integrated financing that allows the 
            provider to pool payments received from public and private 
            programs and individuals.
                ``(v) The assumption by the provider of full financial 
            risk.
        ``(3) Application of certain additional beneficiary and program 
    protections.--
            ``(A) In general.--In issuing such regulations and subject 
        to subparagraph (B), the Secretary may apply with respect to 
        PACE programs, providers, and agreements such requirements of 
        part C (or, for periods before January 1, 1999, section 1876) 
        and sections 1903(m) and 1932 relating to protection of 
        beneficiaries and program integrity as would apply to 
        Medicare+Choice organizations under part C (or for such periods 
        eligible organizations under risk-sharing contracts under 
        section 1876) and to medicaid managed care organizations under 
        prepaid capitation agreements under section 1903(m).
            ``(B) Considerations.--In issuing such regulations, the 
        Secretary shall--
                ``(i) take into account the differences between 
            populations served and benefits provided under this section 
            and under part C (or, for periods before January 1, 1999, 
            section 1876) and section 1903(m);
                ``(ii) not include any requirement that conflicts with 
            carrying out PACE programs under this section; and
                ``(iii) not include any requirement restricting the 
            proportion of enrollees who are eligible for benefits under 
            this title or title XIX.
        ``(4) Construction.--Nothing in this subsection shall be 
    construed as preventing the Secretary from including in regulations 
    provisions to ensure the health and safety of individuals enrolled 
    in a PACE program under this section that are in addition to those 
    otherwise provided under paragraphs (2) and (3).
    ``(g) Waivers of Requirements.--With respect to carrying out a PACE 
program under this section, the following requirements of this title 
(and regulations relating to such requirements) are waived and shall 
not apply:
        ``(1) Section 1812, insofar as it limits coverage of 
    institutional services.
        ``(2) Sections 1813, 1814, 1833, and 1886, insofar as such 
    sections relate to rules for payment for benefits.
        ``(3) Sections 1814(a)(2)(B), 1814(a)(2)(C), and 1835(a)(2)(A), 
    insofar as they limit coverage of extended care services or home 
    health services.
        ``(4) Section 1861(i), insofar as it imposes a 3-day prior 
    hospitalization requirement for coverage of extended care services.
        ``(5) Paragraphs (1) and (9) of section 1862(a), insofar as 
    they may prevent payment for PACE program services to individuals 
    enrolled under PACE programs.
    ``(h) Demonstration Project for For-Profit Entities.--
        ``(1) In general.--In order to demonstrate the operation of a 
    PACE program by a private, for-profit entity, the Secretary (in 
    close consultation with State administering agencies) shall grant 
    waivers from the requirement under subsection (a)(3) that a PACE 
    provider may not be a for-profit, private entity.
        ``(2) Similar terms and conditions.--
            ``(A) In general.--Except as provided under subparagraph 
        (B), and paragraph (1), the terms and conditions for operation 
        of a PACE program by a provider under this subsection shall be 
        the same as those for PACE providers that are nonprofit, 
        private organizations.
            ``(B) Numerical limitation.--The number of programs for 
        which waivers are granted under this subsection shall not 
        exceed 10. Programs with waivers granted under this subsection 
        shall not be counted against the numerical limitation specified 
        in subsection (e)(1)(B).
    ``(i) Miscellaneous Provisions.--Nothing in this section or section 
1934 shall be construed as preventing a PACE provider from entering 
into contracts with other governmental or nongovernmental payers for 
the care of PACE program eligible individuals who are not eligible for 
benefits under part A, or enrolled under part B, or eligible for 
medical assistance under title XIX.''.

SEC. 4802. ESTABLISHMENT OF PACE PROGRAM AS MEDICAID STATE OPTION.

    (a) In General.--Title XIX is amended--
        (1) in section 1905(a) (42 U.S.C. 1396d(a)), as amended by 
    section 4702(a)(1)--
            (A) by striking ``and'' at the end of paragraph (25);
            (B) by redesignating paragraph (26) as paragraph (27); and
            (C) by inserting after paragraph (25) the following new 
        paragraph:
        ``(26) services furnished under a PACE program under section 
    1934 to PACE program eligible individuals enrolled under the 
    program under such section; and'';
        (2) by redesignating section 1934, as redesignated by section 
    4732, as section 1935; and
        (3) by inserting after section 1933, as added by such section, 
    the following new section:


          ``program of all-inclusive care for the elderly (pace)

    ``Sec. 1934. (a) State Option.--
        ``(1) In general.--A State may elect to provide medical 
    assistance under this section with respect to PACE program services 
    to PACE program eligible individuals who are eligible for medical 
    assistance under the State plan and who are enrolled in a PACE 
    program under a PACE program agreement. Such individuals need not 
    be eligible for benefits under part A, or enrolled under part B, of 
    title XVIII to be eligible to enroll under this section. In the 
    case of an individual enrolled with a PACE program pursuant to such 
    an election--
            ``(A) the individual shall receive benefits under the plan 
        solely through such program, and
            ``(B) the PACE provider shall receive payment in accordance 
        with the PACE program agreement for provision of such benefits.
    A State may establish a numerical limit on the number of 
    individuals who may be enrolled in a PACE program under a PACE 
    program agreement.
        ``(2) PACE program defined.--For purposes of this section, the 
    term `PACE program' means a program of all-inclusive care for the 
    elderly that meets the following requirements:
            ``(A) Operation.--The entity operating the program is a 
        PACE provider (as defined in paragraph (3)).
            ``(B) Comprehensive benefits.--The program provides 
        comprehensive health care services to PACE program eligible 
        individuals in accordance with the PACE program agreement and 
        regulations under this section.
            ``(C) Transition.--In the case of an individual who is 
        enrolled under the program under this section and whose 
        enrollment ceases for any reason (including that the individual 
        no longer qualifies as a PACE program eligible individual, the 
        termination of a PACE program agreement, or otherwise), the 
        program provides assistance to the individual in obtaining 
        necessary transitional care through appropriate referrals and 
        making the individual's medical records available to new 
        providers.
        ``(3) PACE provider defined.--
            ``(A) In general.--For purposes of this section, the term 
        `PACE provider' means an entity that--
                ``(i) subject to subparagraph (B), is (or is a distinct 
            part of) a public entity or a private, nonprofit entity 
            organized for charitable purposes under section 501(c)(3) 
            of the Internal Revenue Code of 1986, and
                ``(ii) has entered into a PACE program agreement with 
            respect to its operation of a PACE program.
            ``(B) Treatment of private, for-profit providers.--Clause 
        (i) of subparagraph (A) shall not apply--
                ``(i) to entities subject to a demonstration project 
            waiver under subsection (h); and
                ``(ii) after the date the report under section 4804(b) 
            of the Balanced Budget Act of 1997 is submitted, unless the 
            Secretary determines that any of the findings described in 
            subparagraph (A), (B), (C), or (D) of paragraph (2) of such 
            section are true.
        ``(4) PACE program agreement defined.--For purposes of this 
    section, the term `PACE program agreement' means, with respect to a 
    PACE provider, an agreement, consistent with this section, section 
    1894 (if applicable), and regulations promulgated to carry out such 
    sections, among the PACE provider, the Secretary, and a State 
    administering agency for the operation of a PACE program by the 
    provider under such sections.
        ``(5) PACE program eligible individual defined.--For purposes 
    of this section, the term `PACE program eligible individual' means, 
    with respect to a PACE program, an individual who--
            ``(A) is 55 years of age or older;
            ``(B) subject to subsection (c)(4), is determined under 
        subsection (c) to require the level of care required under the 
        State medicaid plan for coverage of nursing facility services;
            ``(C) resides in the service area of the PACE program; and
            ``(D) meets such other eligibility conditions as may be 
        imposed under the PACE program agreement for the program under 
        subsection (e)(2)(A)(ii).
        ``(6) PACE protocol.--For purposes of this section, the term 
    `PACE protocol' means the Protocol for the Program of All-inclusive 
    Care for the Elderly (PACE), as published by On Lok, Inc., as of 
    April 14, 1995, or any successor protocol that may be agreed upon 
    between the Secretary and On Lok, Inc.
        ``(7) PACE demonstration waiver program defined.--For purposes 
    of this section, the term `PACE demonstration waiver program' means 
    a demonstration program under either of the following sections (as 
    in effect before the date of their repeal):
            ``(A) Section 603(c) of the Social Security Amendments of 
        1983 (Public Law 98-21), as extended by section 9220 of the 
        Consolidated Omnibus Budget Reconciliation Act of 1985 (Public 
        Law 99-272).
            ``(B) Section 9412(b) of the Omnibus Budget Reconciliation 
        Act of 1986 (Public Law 99-509).
        ``(8) State administering agency defined.--For purposes of this 
    section, the term `State administering agency' means, with respect 
    to the operation of a PACE program in a State, the agency of that 
    State (which may be the single agency responsible for 
    administration of the State plan under this title in the State) 
    responsible for administering PACE program agreements under this 
    section and section 1894 in the State.
        ``(9) Trial period defined.--
            ``(A) In general.--For purposes of this section, the term 
        `trial period' means, with respect to a PACE program operated 
        by a PACE provider under a PACE program agreement, the first 3 
        contract years under such agreement with respect to such 
        program.
            ``(B) Treatment of entities previously operating pace 
        demonstration waiver programs.--Each contract year (including a 
        year occurring before the effective date of this section) 
        during which an entity has operated a PACE demonstration waiver 
        program shall be counted under subparagraph (A) as a contract 
        year during which the entity operated a PACE program as a PACE 
        provider under a PACE program agreement.
        ``(10) Regulations.--For purposes of this section, the term 
    `regulations' refers to interim final or final regulations 
    promulgated under subsection (f) to carry out this section and 
    section 1894.
    ``(b) Scope of Benefits; Beneficiary Safeguards.--
        ``(1) In general.--Under a PACE program agreement, a PACE 
    provider shall--
            ``(A) provide to PACE program eligible individuals, 
        regardless of source of payment and directly or under contracts 
        with other entities, at a minimum--
                ``(i) all items and services covered under title XVIII 
            (for individuals enrolled under section 1894) and all items 
            and services covered under this title, but without any 
            limitation or condition as to amount, duration, or scope 
            and without application of deductibles, copayments, 
            coinsurance, or other cost-sharing that would otherwise 
            apply under such title or this title, respectively; and
                ``(ii) all additional items and services specified in 
            regulations, based upon those required under the PACE 
            protocol;
            ``(B) provide such enrollees access to necessary covered 
        items and services 24 hours per day, every day of the year;
            ``(C) provide services to such enrollees through a 
        comprehensive, multidisciplinary health and social services 
        delivery system which integrates acute and long-term care 
        services pursuant to regulations; and
            ``(D) specify the covered items and services that will not 
        be provided directly by the entity, and to arrange for delivery 
        of those items and services through contracts meeting the 
        requirements of regulations.
        ``(2) Quality assurance; patient safeguards.--The PACE program 
    agreement shall require the PACE provider to have in effect at a 
    minimum--
            ``(A) a written plan of quality assurance and improvement, 
        and procedures implementing such plan, in accordance with 
        regulations, and
            ``(B) written safeguards of the rights of enrolled 
        participants (including a patient bill of rights and procedures 
        for grievances and appeals) in accordance with regulations and 
        with other requirements of this title and Federal and State law 
        designed for the protection of patients.
    ``(c) Eligibility Determinations.--
        ``(1) In general.--The determination of--
            ``(A) whether an individual is a PACE program eligible 
        individual shall be made under and in accordance with the PACE 
        program agreement, and
            ``(B) who is entitled to medical assistance under this 
        title shall be made (or who is not so entitled, may be made) by 
        the State administering agency.
        ``(2) Condition.--An individual is not a PACE program eligible 
    individual (with respect to payment under this section) unless the 
    individual's health status has been determined by the Secretary or 
    the State administering agency, in accordance with regulations, to 
    be comparable to the health status of individuals who have 
    participated in the PACE demonstration waiver programs. Such 
    determination shall be based upon information on health status and 
    related indicators (such as medical diagnoses and measures of 
    activities of daily living, instrumental activities of daily 
    living, and cognitive impairment) that are part of a uniform 
    minimum data set collected by PACE providers on potential eligible 
    individuals.
        ``(3) Annual eligibility recertifications.--
            ``(A) In general.--Subject to subparagraph (B), the 
        determination described in subsection (a)(5)(B) for an 
        individual shall be reevaluated at least annually.
            ``(B) Exception.--The requirement of annual reevaluation 
        under subparagraph (A) may be waived during a period in 
        accordance with regulations in those cases in which the State 
        administering agency determines that there is no reasonable 
        expectation of improvement or significant change in an 
        individual's condition during the period because of the 
        severity of chronic condition, or degree of impairment of 
        functional capacity of the individual involved.
        ``(4) Continuation of eligibility.--An individual who is a PACE 
    program eligible individual may be deemed to continue to be such an 
    individual notwithstanding a determination that the individual no 
    longer meets the requirement of subsection (a)(5)(B) if, in 
    accordance with regulations, in the absence of continued coverage 
    under a PACE program the individual reasonably would be expected to 
    meet such requirement within the succeeding 6-month period.
        ``(5) Enrollment; disenrollment.--
            ``(A) Voluntary disenrollment at any time.--The enrollment 
        and disenrollment of PACE program eligible individuals in a 
        PACE program shall be pursuant to regulations and the PACE 
        program agreement and shall permit enrollees to voluntarily 
        disenroll without cause at any time.
            ``(B) Limitations on disenrollment.--
                ``(i) In general.--Regulations promulgated by the 
            Secretary under this section and section 1894, and the PACE 
            program agreement, shall provide that the PACE program may 
            not disenroll a PACE program eligible individual except--

                    ``(I) for nonpayment of premiums (if applicable) on 
                a timely basis; or
                    ``(II) for engaging in disruptive or threatening 
                behavior, as defined in such regulations (developed in 
                close consultation with State administering agencies).

                ``(ii) No disenrollment for noncompliant behavior.--
            Except as allowed under regulations promulgated to carry 
            out clause (i)(II), a PACE program may not disenroll a PACE 
            program eligible individual on the ground that the 
            individual has engaged in noncompliant behavior if such 
            behavior is related to a mental or physical condition of 
            the individual. For purposes of the preceding sentence, the 
            term `noncompliant behavior' includes repeated 
            noncompliance with medical advice and repeated failure to 
            appear for appointments.
                ``(iii) Timely review of proposed nonvoluntary 
            disenrollment.--A proposed disenrollment, other than a 
            voluntary disenrollment, shall be subject to timely review 
            and final determination by the Secretary or by the State 
            administering agency (as applicable), prior to the proposed 
            disenrollment becoming effective.
    ``(d) Payments to PACE Providers on a Capitated Basis.--
        ``(1) In general.--In the case of a PACE provider with a PACE 
    program agreement under this section, except as provided in this 
    subsection or by regulations, the State shall make prospective 
    monthly payments of a capitation amount for each PACE program 
    eligible individual enrolled under the agreement under this 
    section.
        ``(2) Capitation amount.--The capitation amount to be applied 
    under this subsection for a provider for a contract year shall be 
    an amount specified in the PACE program agreement for the year. 
    Such amount shall be an amount, specified under the PACE agreement, 
    which is less than the amount that would otherwise have been made 
    under the State plan if the individuals were not so enrolled and 
    shall be adjusted to take into account the comparative frailty of 
    PACE enrollees and such other factors as the Secretary determines 
    to be appropriate. The payment under this section shall be in 
    addition to any payment made under section 1894 for individuals who 
    are enrolled in a PACE program under such section.
    ``(e) PACE Program Agreement.--
        ``(1) Requirement.--
            ``(A) In general.--The Secretary, in close cooperation with 
        the State administering agency, shall establish procedures for 
        entering into, extending, and terminating PACE program 
        agreements for the operation of PACE programs by entities that 
        meet the requirements for a PACE provider under this section, 
        section 1894, and regulations.
            ``(B) Numerical limitation.--
                ``(i) In general.--The Secretary shall not permit the 
            number of PACE providers with which agreements are in 
            effect under this section or under section 9412(b) of the 
            Omnibus Budget Reconciliation Act of 1986 to exceed--

                    ``(I) 40 as of the date of the enactment of this 
                section, or
                    ``(II) as of each succeeding anniversary of such 
                date, the numerical limitation under this subparagraph 
                for the preceding year plus 20.

            Subclause (II) shall apply without regard to the actual 
            number of agreements in effect as of a previous anniversary 
            date.
                ``(ii) Treatment of certain private, for-profit 
            providers.--The numerical limitation in clause (i) shall 
            not apply to a PACE provider that--

                    ``(I) is operating under a demonstration project 
                waiver under subsection (h), or
                    ``(II) was operating under such a waiver and 
                subsequently qualifies for PACE provider status 
                pursuant to subsection (a)(3)(B)(ii).

        ``(2) Service area and eligibility.--
            ``(A) In general.--A PACE program agreement for a PACE 
        program--
                ``(i) shall designate the service area of the program;
                ``(ii) may provide additional requirements for 
            individuals to qualify as PACE program eligible individuals 
            with respect to the program;
                ``(iii) shall be effective for a contract year, but may 
            be extended for additional contract years in the absence of 
            a notice by a party to terminate, and is subject to 
            termination by the Secretary and the State administering 
            agency at any time for cause (as provided under the 
            agreement);
                ``(iv) shall require a PACE provider to meet all 
            applicable State and local laws and requirements; and
                ``(v) shall contain such additional terms and 
            conditions as the parties may agree to, so long as such 
            terms and conditions are consistent with this section and 
            regulations.
            ``(B) Service area overlap.--In designating a service area 
        under a PACE program agreement under subparagraph (A)(i), the 
        Secretary (in consultation with the State administering agency) 
        may exclude from designation an area that is already covered 
        under another PACE program agreement, in order to avoid 
        unnecessary duplication of services and avoid impairing the 
        financial and service viability of an existing program.
        ``(3) Data collection; development of outcome measures.--
            ``(A) Data collection.--
                ``(i) In general.--Under a PACE program agreement, the 
            PACE provider shall--

                    ``(I) collect data;
                    ``(II) maintain, and afford the Secretary and the 
                State administering agency access to, the records 
                relating to the program, including pertinent financial, 
                medical, and personnel records; and
                    ``(III) submit to the Secretary and the State 
                administering agency such reports as the Secretary 
                finds (in consultation with State administering 
                agencies) necessary to monitor the operation, cost, and 
                effectiveness of the PACE program.

                ``(ii) Requirements during trial period.--During the 
            first 3 years of operation of a PACE program (either under 
            this section or under a PACE demonstration waiver program), 
            the PACE provider shall provide such additional data as the 
            Secretary specifies in regulations in order to perform the 
            oversight required under paragraph (4)(A).
            ``(B) Development of outcome measures.--Under a PACE 
        program agreement, the PACE provider, the Secretary, and the 
        State administering agency shall jointly cooperate in the 
        development and implementation of health status and quality of 
        life outcome measures with respect to PACE program eligible 
        individuals.
        ``(4) Oversight.--
            ``(A) Annual, close oversight during trial period.--During 
        the trial period (as defined in subsection (a)(9)) with respect 
        to a PACE program operated by a PACE provider, the Secretary 
        (in cooperation with the State administering agency) shall 
        conduct a comprehensive annual review of the operation of the 
        PACE program by the provider in order to assure compliance with 
        the requirements of this section and regulations. Such a review 
        shall include--
                ``(i) an onsite visit to the program site;
                ``(ii) comprehensive assessment of a provider's fiscal 
            soundness;
                ``(iii) comprehensive assessment of the provider's 
            capacity to provide all PACE services to all enrolled 
            participants;
                ``(iv) detailed analysis of the entity's substantial 
            compliance with all significant requirements of this 
            section and regulations; and
                ``(v) any other elements the Secretary or the State 
            administering agency considers necessary or appropriate.
            ``(B) Continuing oversight.--After the trial period, the 
        Secretary (in cooperation with the State administering agency) 
        shall continue to conduct such review of the operation of PACE 
        providers and PACE programs as may be appropriate, taking into 
        account the performance level of a provider and compliance of a 
        provider with all significant requirements of this section and 
        regulations.
            ``(C) Disclosure.--The results of reviews under this 
        paragraph shall be reported promptly to the PACE provider, 
        along with any recommendations for changes to the provider's 
        program, and shall be made available to the public upon 
        request.
        ``(5) Termination of pace provider agreements.--
            ``(A) In general.--Under regulations--
                ``(i) the Secretary or a State administering agency may 
            terminate a PACE program agreement for cause, and
                ``(ii) a PACE provider may terminate such an agreement 
            after appropriate notice to the Secretary, the State 
            administering agency, and enrollees.
            ``(B) Causes for termination.--In accordance with 
        regulations establishing procedures for termination of PACE 
        program agreements, the Secretary or a State administering 
        agency may terminate a PACE program agreement with a PACE 
        provider for, among other reasons, the fact that--
                ``(i) the Secretary or State administering agency 
            determines that--

                    ``(I) there are significant deficiencies in the 
                quality of care provided to enrolled participants; or
                    ``(II) the provider has failed to comply 
                substantially with conditions for a program or provider 
                under this section or section 1894; and

                ``(ii) the entity has failed to develop and 
            successfully initiate, within 30 days of the date of the 
            receipt of written notice of such a determination, a plan 
            to correct the deficiencies, or has failed to continue 
            implementation of such a plan.
            ``(C) Termination and transition procedures.--An entity 
        whose PACE provider agreement is terminated under this 
        paragraph shall implement the transition procedures required 
        under subsection (a)(2)(C).
        ``(6) Secretary's oversight; enforcement authority.--
            ``(A) In general.--Under regulations, if the Secretary 
        determines (after consultation with the State administering 
        agency) that a PACE provider is failing substantially to comply 
        with the requirements of this section and regulations, the 
        Secretary (and the State administering agency) may take any or 
        all of the following actions:
                ``(i) Condition the continuation of the PACE program 
            agreement upon timely execution of a corrective action 
            plan.
                ``(ii) Withhold some or all further payments under the 
            PACE program agreement under this section or section 1894 
            with respect to PACE program services furnished by such 
            provider until the deficiencies have been corrected.
                ``(iii) Terminate such agreement.
            ``(B) Application of intermediate sanctions.--Under 
        regulations, the Secretary may provide for the application 
        against a PACE provider of remedies described in section 
        1857(g)(2) (or, for periods before January 1, 1999, section 
        1876(i)(6)(B)) or 1903(m)(5)(B) in the case of violations by 
        the provider of the type described in section 1857(g)(1) (or 
        1876(i)(6)(A) for such periods) or 1903(m)(5)(A), respectively 
        (in relation to agreements, enrollees, and requirements under 
        section 1894 or this section, respectively).
        ``(7) Procedures for termination or imposition of sanctions.--
    Under regulations, the provisions of section 1857(h) (or for 
    periods before January 1, 1999, section 1876(i)(9)) shall apply to 
    termination and sanctions respecting a PACE program agreement and 
    PACE provider under this subsection in the same manner as they 
    apply to a termination and sanctions with respect to a contract and 
    a Medicare+Choice organization under part C of title XVIII (or for 
    such periods an eligible organization under section 1876).
        ``(8) Timely consideration of applications for pace program 
    provider status.--In considering an application for PACE provider 
    program status, the application shall be deemed approved unless the 
    Secretary, within 90 days after the date of the submission of the 
    application to the Secretary, either denies such request in writing 
    or informs the applicant in writing with respect to any additional 
    information that is needed in order to make a final determination 
    with respect to the application. After the date the Secretary 
    receives such additional information, the application shall be 
    deemed approved unless the Secretary, within 90 days of such date, 
    denies such request.
    ``(f) Regulations.--
        ``(1) In general.--The Secretary shall issue interim final or 
    final regulations to carry out this section and section 1894.
        ``(2) Use of pace protocol.--
            ``(A) In general.--In issuing such regulations, the 
        Secretary shall, to the extent consistent with the provisions 
        of this section, incorporate the requirements applied to PACE 
        demonstration waiver programs under the PACE protocol.
            ``(B) Flexibility.--In order to provide for reasonable 
        flexibility in adapting the PACE service delivery model to the 
        needs of particular organizations (such as those in rural areas 
        or those that may determine it appropriate to use nonstaff 
        physicians according to State licensing law requirements) under 
        this section and section 1894, the Secretary (in close 
        consultation with State administering agencies) may modify or 
        waive provisions of the PACE protocol so long as any such 
        modification or waiver is not inconsistent with and would not 
        impair the essential elements, objectives, and requirements of 
        this section, but may not modify or waive any of the following 
        provisions:
                ``(i) The focus on frail elderly qualifying individuals 
            who require the level of care provided in a nursing 
            facility.
                ``(ii) The delivery of comprehensive, integrated acute 
            and long-term care services.
                ``(iii) The interdisciplinary team approach to care 
            management and service delivery.
                ``(iv) Capitated, integrated financing that allows the 
            provider to pool payments received from public and private 
            programs and individuals.
                ``(v) The assumption by the provider of full financial 
            risk.
        ``(3) Application of certain additional beneficiary and program 
    protections.--
            ``(A) In general.--In issuing such regulations and subject 
        to subparagraph (B), the Secretary may apply with respect to 
        PACE programs, providers, and agreements such requirements of 
        part C of title XVIII (or, for periods before January 1, 1999, 
        section 1876) and sections 1903(m) and 1932 relating to 
        protection of beneficiaries and program integrity as would 
        apply to Medicare+Choice organizations under such part C (or 
        for such periods eligible organizations under risk-sharing 
        contracts under section 1876) and to medicaid managed care 
        organizations under prepaid capitation agreements under section 
        1903(m).
            ``(B) Considerations.--In issuing such regulations, the 
        Secretary shall--
                ``(i) take into account the differences between 
            populations served and benefits provided under this section 
            and under part C of title XVIII (or, for periods before 
            January 1, 1999, section 1876) and section 1903(m);
                ``(ii) not include any requirement that conflicts with 
            carrying out PACE programs under this section; and
                ``(iii) not include any requirement restricting the 
            proportion of enrollees who are eligible for benefits under 
            this title or title XVIII.
        ``(4) Construction.--Nothing in this subsection shall be 
    construed as preventing the Secretary from including in regulations 
    provisions to ensure the health and safety of individuals enrolled 
    in a PACE program under this section that are in addition to those 
    otherwise provided under paragraphs (2) and (3).
    ``(g) Waivers of Requirements.--With respect to carrying out a PACE 
program under this section, the following requirements of this title 
(and regulations relating to such requirements) shall not apply:
        ``(1) Section 1902(a)(1), relating to any requirement that PACE 
    programs or PACE program services be provided in all areas of a 
    State.
        ``(2) Section 1902(a)(10), insofar as such section relates to 
    comparability of services among different population groups.
        ``(3) Sections 1902(a)(23) and 1915(b)(4), relating to freedom 
    of choice of providers under a PACE program.
        ``(4) Section 1903(m)(2)(A), insofar as it restricts a PACE 
    provider from receiving prepaid capitation payments.
        ``(5) Such other provisions of this title that, as added or 
    amended by the Balanced Budget Act of 1997, the Secretary 
    determines are inapplicable to carrying out a PACE program under 
    this section.
    ``(h) Demonstration Project for For-Profit Entities.--
        ``(1) In general.--In order to demonstrate the operation of a 
    PACE program by a private, for-profit entity, the Secretary (in 
    close consultation with State administering agencies) shall grant 
    waivers from the requirement under subsection (a)(3) that a PACE 
    provider may not be a for-profit, private entity.
        ``(2) Similar terms and conditions.--
            ``(A) In general.--Except as provided under subparagraph 
        (B), and paragraph (1), the terms and conditions for operation 
        of a PACE program by a provider under this subsection shall be 
        the same as those for PACE providers that are nonprofit, 
        private organizations.
            ``(B) Numerical limitation.--The number of programs for 
        which waivers are granted under this subsection shall not 
        exceed 10. Programs with waivers granted under this subsection 
        shall not be counted against the numerical limitation specified 
        in subsection (e)(1)(B).
    ``(i) Post-Eligibility Treatment of Income.--A State may provide 
for post-eligibility treatment of income for individuals enrolled in 
PACE programs under this section in the same manner as a State treats 
post-eligibility income for individuals receiving services under a 
waiver under section 1915(c).
    ``(j) Miscellaneous Provisions.--Nothing in this section or section 
1894 shall be construed as preventing a PACE provider from entering 
into contracts with other governmental or nongovernmental payers for 
the care of PACE program eligible individuals who are not eligible for 
benefits under part A, or enrolled under part B, of title XVIII or 
eligible for medical assistance under this title.''.
    (b) Conforming Amendments.--
        (1) Section 1924(a)(5) (42 U.S.C. 1396r-5(a)(5)) is amended--
            (A) in the heading, by striking ``from organizations 
        receiving certain waivers'' and inserting ``under pace 
        programs''; and
            (B) by striking ``from any organization'' and all that 
        follows and inserting ``under a PACE demonstration waiver 
        program (as defined in section 1934(a)(7)) or under a PACE 
        program under section 1934 or 1894.''.
        (2) Section 1903(f)(4)(C) (42 U.S.C. 1396b(f)(4)(C)) is amended 
    by inserting ``or who is a PACE program eligible individual 
    enrolled in a PACE program under section 1934,'' after ``section 
    1902(a)(10)(A),''.

SEC. 4803. EFFECTIVE DATE; TRANSITION.

    (a) Timely Issuance of Regulations; Effective Date.--The Secretary 
of Health and Human Services shall promulgate regulations to carry out 
this subtitle in a timely manner. Such regulations shall be designed so 
that entities may establish and operate PACE programs under sections 
1894 and 1934 of the Social Security Act (as added by sections 4801 and 
4802 of this subtitle) for periods beginning not later than 1 year 
after the date of the enactment of this Act.
    (b) Expansion and Transition for PACE Demonstration Project 
Waivers.--
        (1) Expansion in current number and extension of demonstration 
    projects.--Section 9412(b) of the Omnibus Budget Reconciliation Act 
    of 1986, as amended by section 4118(g) of the Omnibus Budget 
    Reconciliation Act of 1987, is amended--
            (A) in paragraph (1), by inserting before the period at the 
        end the following: ``, except that the Secretary shall grant 
        waivers of such requirements to up to the applicable numerical 
        limitation specified in sections 1894(e)(1)(B) and 
        1934(e)(1)(B) of the Social Security Act''; and
            (B) in paragraph (2)--
                (i) in subparagraph (A), by striking ``, including 
            permitting the organization to assume progressively (over 
            the initial 3-year period of the waiver) the full financial 
            risk''; and
                (ii) in subparagraph (C), by adding at the end the 
            following: ``In granting further extensions, an 
            organization shall not be required to provide for reporting 
            of information which is only required because of the 
            demonstration nature of the project.''.
        (2) Elimination of replication requirement.--Section 
    9412(b)(2)(B) of such Act, as so amended, shall not apply to 
    waivers granted under such section after the date of the enactment 
    of this Act.
        (3) Timely consideration of applications.--In considering an 
    application for waivers under such section before the effective 
    date of the repeals under subsection (d), subject to the numerical 
    limitation under the amendment made by paragraph (1), the 
    application shall be deemed approved unless the Secretary of Health 
    and Human Services, within 90 days after the date of its submission 
    to the Secretary, either denies such request in writing or informs 
    the applicant in writing with respect to any additional information 
    which is needed in order to make a final determination with respect 
    to the application. After the date the Secretary receives such 
    additional information, the application shall be deemed approved 
    unless the Secretary, within 90 days of such date, denies such 
    request.
    (c) Priority and Special Consideration in Application.--During the 
3-year period beginning on the date of the enactment of this Act:
        (1) Provider status.--The Secretary of Health and Human 
    Services shall give priority in processing applications of entities 
    to qualify as PACE programs under section 1894 or 1934 of the 
    Social Security Act--
            (A) first, to entities that are operating a PACE 
        demonstration waiver program (as defined in sections 1894(a)(7) 
        and 1934(a)(7) of such Act); and
            (B) then to entities that have applied to operate such a 
        program as of May 1, 1997.
        (2) New waivers.--The Secretary shall give priority, in the 
    awarding of additional waivers under section 9412(b) of the Omnibus 
    Budget Reconciliation Act of 1986--
            (A) to any entities that have applied for such waivers 
        under such section as of May 1, 1997; and
            (B) to any entity that, as of May 1, 1997, has formally 
        contracted with a State to provide services for which payment 
        is made on a capitated basis with an understanding that the 
        entity was seeking to become a PACE provider.
        (3) Special consideration.--The Secretary shall give special 
    consideration, in the processing of applications described in 
    paragraph (1) and the awarding of waivers described in paragraph 
    (2), to an entity which as of May 1, 1997, through formal 
    activities (such as entering into contracts for feasibility 
    studies) has indicated a specific intent to become a PACE provider.
    (d) Repeal of Current PACE Demonstration Project Waiver 
Authority.--
        (1) In general.--Subject to paragraph (2), the following 
    provisions of law are repealed:
            (A) Section 603(c) of the Social Security Amendments of 
        1983 (Public Law 98-21).
            (B) Section 9220 of the Consolidated Omnibus Budget 
        Reconciliation Act of 1985 (Public Law 99-272).
            (C) Section 9412(b) of the Omnibus Budget Reconciliation 
        Act of 1986 (Public Law 99-509).
        (2) Delay in application to current waivers.--
            (A) In general.--Subject to subparagraph (B), in the case 
        of waivers granted with respect to a PACE program before the 
        initial effective date of regulations described in subsection 
        (a), the repeals made by paragraph (1) shall not apply until 
        the end of a transition period (of up to 24 months) that begins 
        on the initial effective date of such regulations, and that 
        allows sufficient time for an orderly transition from 
        demonstration project authority to general authority provided 
        under the amendments made by this subtitle.
            (B) State option to seek extension of current period.--A 
        State may elect to maintain the PACE programs which (as of the 
        date of the enactment of this Act) were operating in the State 
        under the authority described in paragraph (1) until a date 
        (specified by the State) that is not later than 3 years after 
        the initial effective date of regulations described in 
        subsection (a). If a State makes such an election, the repeals 
        made by paragraph (1) shall not apply to the programs until the 
        date so specified, but only so long as such programs continue 
        to operate under the same terms and conditions as apply to such 
        programs as of the date of the enactment of this Act, and 
        subparagraph (A) shall not apply to such programs.

SEC. 4804. STUDY AND REPORTS.

    (a) Study.--
        (1) In general.--The Secretary of Health and Human Services (in 
    close consultation with State administering agencies, as defined in 
    sections 1894(a)(8) and 1934(a)(8) of the Social Security Act) 
    shall conduct a study of the quality and cost of providing PACE 
    program services under the medicare and medicaid programs under the 
    amendments made by this subtitle.
        (2) Study of private, for-profit providers.--Such study shall 
    specifically compare the costs, quality, and access to services by 
    entities that are private, for-profit entities operating under 
    demonstration projects waivers granted under sections 1894(h) and 
    1934(h) of the Social Security Act with the costs, quality, and 
    access to services of other PACE providers.
    (b) Report.--
        (1) In general.--Not later than 4 years after the date of the 
    enactment of this Act, the Secretary shall provide for a report to 
    Congress on the impact of such amendments on quality and cost of 
    services. The Secretary shall include in such report such 
    recommendations for changes in the operation of such amendments as 
    the Secretary deems appropriate.
        (2) Treatment of private, for-profit providers.--The report 
    shall include specific findings on whether any of the following 
    findings is true:
            (A) The number of covered lives enrolled with entities 
        operating under demonstration project waivers under sections 
        1894(h) and 1934(h) of the Social Security Act is fewer than 
        800 (or such lesser number as the Secretary may find 
        statistically sufficient to make determinations respecting 
        findings described in the succeeding subparagraphs).
            (B) The population enrolled with such entities is less 
        frail than the population enrolled with other PACE providers.
            (C) Access to or quality of care for individuals enrolled 
        with such entities is lower than such access or quality for 
        individuals enrolled with other PACE providers.
            (D) The application of such section has resulted in an 
        increase in expenditures under the medicare or medicaid 
        programs above the expenditures that would have been made if 
        such section did not apply.
    (c) Information Included in Annual Recommendations.--The Medicare 
Payment Advisory Commission shall include in its annual report under 
section 1805(b)(1)(B) of the Social Security Act recommendations on the 
methodology and level of payments made to PACE providers under sections 
1894(d) and 1934(d) of such Act and on the treatment of private, for-
profit entities as PACE providers.

         Subtitle J--State Children's Health Insurance Program

          CHAPTER 1--STATE CHILDREN'S HEALTH INSURANCE PROGRAM

SEC. 4901. ESTABLISHMENT OF PROGRAM.

    (a) Establishment.--The Social Security Act is amended by adding at 
the end the following new title:

         ``TITLE XXI--STATE CHILDREN'S HEALTH INSURANCE PROGRAM

``SEC. 2101. PURPOSE; STATE CHILD HEALTH PLANS.

    ``(a) Purpose.--The purpose of this title is to provide funds to 
States to enable them to initiate and expand the provision of child 
health assistance to uninsured, low-income children in an effective and 
efficient manner that is coordinated with other sources of health 
benefits coverage for children. Such assistance shall be provided 
primarily for obtaining health benefits coverage through--
        ``(1) obtaining coverage that meets the requirements of section 
    2103, or
        ``(2) providing benefits under the State's medicaid plan under 
    title XIX,
or a combination of both.
    ``(b) State Child Health Plan Required.--A State is not eligible 
for payment under section 2105 unless the State has submitted to the 
Secretary under section 2106 a plan that--
        ``(1) sets forth how the State intends to use the funds 
    provided under this title to provide child health assistance to 
    needy children consistent with the provisions of this title, and
        ``(2) has been approved under section 2106.
    ``(c) State Entitlement.--This title constitutes budget authority 
in advance of appropriations Acts and represents the obligation of the 
Federal Government to provide for the payment to States of amounts 
provided under section 2104.
    ``(d) Effective Date.--No State is eligible for payments under 
section 2105 for child health assistance for coverage provided for 
periods beginning before October 1, 1997.

``SEC. 2102. GENERAL CONTENTS OF STATE CHILD HEALTH PLAN; ELIGIBILITY; 
              OUTREACH.

    ``(a) General Background and Description.--A State child health 
plan shall include a description, consistent with the requirements of 
this title, of--
        ``(1) the extent to which, and manner in which, children in the 
    State, including targeted low-income children and other classes of 
    children classified by income and other relevant factors, currently 
    have creditable health coverage (as defined in section 2110(c)(2));
        ``(2) current State efforts to provide or obtain creditable 
    health coverage for uncovered children, including the steps the 
    State is taking to identify and enroll all uncovered children who 
    are eligible to participate in public health insurance programs and 
    health insurance programs that involve public-private partnerships;
        ``(3) how the plan is designed to be coordinated with such 
    efforts to increase coverage of children under creditable health 
    coverage;
        ``(4) the child health assistance provided under the plan for 
    targeted low-income children, including the proposed methods of 
    delivery, and utilization control systems;
        ``(5) eligibility standards consistent with subsection (b);
        ``(6) outreach activities consistent with subsection (c); and
        ``(7) methods (including monitoring) used--
            ``(A) to assure the quality and appropriateness of care, 
        particularly with respect to well-baby care, well-child care, 
        and immunizations provided under the plan, and
            ``(B) to assure access to covered services, including 
        emergency services.
    ``(b) General Description of Eligibility Standards and 
Methodology.--
        ``(1) Eligibility standards.--
            ``(A) In general.--The plan shall include a description of 
        the standards used to determine the eligibility of targeted 
        low-income children for child health assistance under the plan. 
        Such standards may include (to the extent consistent with this 
        title) those relating to the geographic areas to be served by 
        the plan, age, income and resources (including any standards 
        relating to spenddowns and disposition of resources), 
        residency, disability status (so long as any standard relating 
        to such status does not restrict eligibility), access to or 
        coverage under other health coverage, and duration of 
        eligibility. Such standards may not discriminate on the basis 
        of diagnosis.
            ``(B) Limitations on eligibility standards.--Such 
        eligibility standards--
                ``(i) shall, within any defined group of covered 
            targeted low-income children, not cover such children with 
            higher family income without covering children with a lower 
            family income, and
                ``(ii) may not deny eligibility based on a child having 
            a preexisting medical condition.
        ``(2) Methodology.--The plan shall include a description of 
    methods of establishing and continuing eligibility and enrollment.
        ``(3) Eligibility screening; coordination with other health 
    coverage programs.--The plan shall include a description of 
    procedures to be used to ensure--
            ``(A) through both intake and followup screening, that only 
        targeted low-income children are furnished child health 
        assistance under the State child health plan;
            ``(B) that children found through the screening to be 
        eligible for medical assistance under the State medicaid plan 
        under title XIX are enrolled for such assistance under such 
        plan;
            ``(C) that the insurance provided under the State child 
        health plan does not substitute for coverage under group health 
        plans;
            ``(D) the provision of child health assistance to targeted 
        low-income children in the State who are Indians (as defined in 
        section 4(c) of the Indian Health Care Improvement Act, 25 
        U.S.C. 1603(c)); and
            ``(E) coordination with other public and private programs 
        providing creditable coverage for low-income children.
        ``(4) Nonentitlement.--Nothing in this title shall be construed 
    as providing an individual with an entitlement to child health 
    assistance under a State child health plan.
    ``(c) Outreach and Coordination.--A State child health plan shall 
include a description of the procedures to be used by the State to 
accomplish the following:
        ``(1) Outreach.--Outreach to families of children likely to be 
    eligible for child health assistance under the plan or under other 
    public or private health coverage programs to inform these families 
    of the availability of, and to assist them in enrolling their 
    children in, such a program.
        ``(2) Coordination with other health insurance programs.--
    Coordination of the administration of the State program under this 
    title with other public and private health insurance programs.

``SEC. 2103. COVERAGE REQUIREMENTS FOR CHILDREN'S HEALTH INSURANCE.

    ``(a) Required Scope of Health Insurance Coverage.--The child 
health assistance provided to a targeted low-income child under the 
plan in the form described in paragraph (1) of section 2101(a) shall 
consist, consistent with subsection (c)(5), of any of the following:
        ``(1) Benchmark coverage.--Health benefits coverage that is 
    equivalent to the benefits coverage in a benchmark benefit package 
    described in subsection (b).
        ``(2) Benchmark-equivalent coverage.--Health benefits coverage 
    that meets the following requirements:
            ``(A) Inclusion of basic services.--The coverage includes 
        benefits for items and services within each of the categories 
        of basic services described in subsection (c)(1).
            ``(B) Aggregate actuarial value equivalent to benchmark 
        package.--The coverage has an aggregate actuarial value that is 
        at least actuarially equivalent to one of the benchmark benefit 
        packages.
            ``(C) Substantial actuarial value for additional services 
        included in benchmark package.--With respect to each of the 
        categories of additional services described in subsection 
        (c)(2) for which coverage is provided under the benchmark 
        benefit package used under subparagraph (B), the coverage has 
        an actuarial value that is equal to at least 75 percent of the 
        actuarial value of the coverage of that category of services in 
        such package.
        ``(3) Existing comprehensive state-based coverage.--Health 
    benefits coverage under an existing comprehensive State-based 
    program, described in subsection (d)(1).
        ``(4) Secretary-approved coverage.--Any other health benefits 
    coverage that the Secretary determines, upon application by a 
    State, provides appropriate coverage for the population of targeted 
    low-income children proposed to be provided such coverage.
    ``(b) Benchmark Benefit Packages.--The benchmark benefit packages 
are as follows:
        ``(1) FEHBP-equivalent children's health insurance coverage.--
    The standard Blue Cross/Blue Shield preferred provider option 
    service benefit plan, described in and offered under section 
    8903(1) of title 5, United States Code.
        ``(2) State employee coverage.--A health benefits coverage plan 
    that is offered and generally available to State employees in the 
    State involved.
        ``(3) Coverage offered through hmo.--The health insurance 
    coverage plan that--
            ``(A) is offered by a health maintenance organization (as 
        defined in section 2791(b)(3) of the Public Health Service 
        Act), and
            ``(B) has the largest insured commercial, non-medicaid 
        enrollment of covered lives of such coverage plans offered by 
        such a health maintenance organization in the State involved.
    ``(c) Categories of Services; Determination of Actuarial Value of 
Coverage.--
        ``(1) Categories of basic services.--For purposes of this 
    section, the categories of basic services described in this 
    paragraph are as follows:
            ``(A) Inpatient and outpatient hospital services.
            ``(B) Physicians' surgical and medical services.
            ``(C) Laboratory and x-ray services.
            ``(D) Well-baby and well-child care, including age-
        appropriate immunizations.
        ``(2) Categories of additional services.--For purposes of this 
    section, the categories of additional services described in this 
    paragraph are as follows:
            ``(A) Coverage of prescription drugs.
            ``(B) Mental health services.
            ``(C) Vision services.
            ``(D) Hearing services.
        ``(3) Treatment of other categories.--Nothing in this 
    subsection shall be construed as preventing a State child health 
    plan from providing coverage of benefits that are not within a 
    category of services described in paragraph (1) or (2).
        ``(4) Determination of actuarial value.--The actuarial value of 
    coverage of benchmark benefit packages, coverage offered under the 
    State child health plan, and coverage of any categories of 
    additional services under benchmark benefit packages and under 
    coverage offered by such a plan, shall be set forth in an actuarial 
    opinion in an actuarial report that has been prepared--
            ``(A) by an individual who is a member of the American 
        Academy of Actuaries;
            ``(B) using generally accepted actuarial principles and 
        methodologies;
            ``(C) using a standardized set of utilization and price 
        factors;
            ``(D) using a standardized population that is 
        representative of privately insured children of the age of 
        children who are expected to be covered under the State child 
        health plan;
            ``(E) applying the same principles and factors in comparing 
        the value of different coverage (or categories of services);
            ``(F) without taking into account any differences in 
        coverage based on the method of delivery or means of cost 
        control or utilization used; and
            ``(G) taking into account the ability of a State to reduce 
        benefits by taking into account the increase in actuarial value 
        of benefits coverage offered under the State child health plan 
        that results from the limitations on cost sharing under such 
        coverage.
    The actuary preparing the opinion shall select and specify in the 
    memorandum the standardized set and population to be used under 
    subparagraphs (C) and (D).
        ``(5) Construction on prohibited coverage.--Nothing in this 
    section shall be construed as requiring any health benefits 
    coverage offered under the plan to provide coverage for items or 
    services for which payment is prohibited under this title, 
    notwithstanding that any benchmark benefit package includes 
    coverage for such an item or service.
    ``(d) Description of Existing Comprehensive State-Based Coverage.--
        ``(1) In general.--A program described in this paragraph is a 
    child health coverage program that--
            ``(A) includes coverage of a range of benefits;
            ``(B) is administered or overseen by the State and receives 
        funds from the State;
            ``(C) is offered in New York, Florida, or Pennsylvania; and
            ``(D) was offered as of the date of the enactment of this 
        title.
        ``(2) Modifications.--A State may modify a program described in 
    paragraph (1) from time to time so long as it continues to meet the 
    requirement of subparagraph (A) and does not reduce the actuarial 
    value of the coverage under the program below the lower of--
            ``(A) the actuarial value of the coverage under the program 
        as of the date of the enactment of this title, or
            ``(B) the actuarial value described in subsection 
        (a)(2)(B),
    evaluated as of the time of the modification.
    ``(e) Cost-Sharing.--
        ``(1) Description; general conditions.--
            ``(A) Description.--A State child health plan shall include 
        a description, consistent with this subsection, of the amount 
        (if any) of premiums, deductibles, coinsurance, and other cost 
        sharing imposed. Any such charges shall be imposed pursuant to 
        a public schedule.
            ``(B) Protection for lower income children.--The State 
        child health plan may only vary premiums, deductibles, 
        coinsurance, and other cost sharing based on the family income 
        of targeted low-income children in a manner that does not favor 
        children from families with higher income over children from 
        families with lower income.
        ``(2) No cost sharing on benefits for preventive services.--The 
    State child health plan may not impose deductibles, coinsurance, or 
    other cost sharing with respect to benefits for services within the 
    category of services described in subsection (c)(1)(D).
        ``(3) Limitations on premiums and cost-sharing.--
            ``(A) Children in families with income below 150 percent of 
        poverty line.--In the case of a targeted low-income child whose 
        family income is at or below 150 percent of the poverty line, 
        the State child health plan may not impose--
                ``(i) an enrollment fee, premium, or similar charge 
            that exceeds the maximum monthly charge permitted 
            consistent with standards established to carry out section 
            1916(b)(1) (with respect to individuals described in such 
            section); and
                ``(ii) a deductible, cost sharing, or similar charge 
            that exceeds an amount that is nominal (as determined 
            consistent with regulations referred to in section 
            1916(a)(3), with such appropriate adjustment for inflation 
            or other reasons as the Secretary determines to be 
            reasonable).
            ``(B) Other children.--For children not described in 
        subparagraph (A), subject to paragraphs (1)(B) and (2), any 
        premiums, deductibles, cost sharing or similar charges imposed 
        under the State child health plan may be imposed on a sliding 
        scale related to income, except that the total annual aggregate 
        cost-sharing with respect to all targeted low-income children 
        in a family under this title may not exceed 5 percent of such 
        family's income for the year involved.
        ``(4) Relation to medicaid requirements.--Nothing in this 
    subsection shall be construed as affecting the rules relating to 
    the use of enrollment fees, premiums, deductions, cost sharing, and 
    similar charges in the case of targeted low-income children who are 
    provided child health assistance in the form of coverage under a 
    medicaid program under section 2101(a)(2).
    ``(f) Application of Certain Requirements.--
        ``(1) Restriction on application of preexisting condition 
    exclusions.--
            ``(A) In general.--Subject to subparagraph (B), the State 
        child health plan shall not permit the imposition of any 
        preexisting condition exclusion for covered benefits under the 
        plan.
            ``(B) Group health plans and group health insurance 
        coverage.--If the State child health plan provides for benefits 
        through payment for, or a contract with, a group health plan or 
        group health insurance coverage, the plan may permit the 
        imposition of a preexisting condition exclusion but only 
        insofar as it is permitted under the applicable provisions of 
        part 7 of subtitle B of title I of the Employee Retirement 
        Income Security Act of 1974 and title XXVII of the Public 
        Health Service Act.
        ``(2) Compliance with other requirements.--Coverage offered 
    under this section shall comply with the requirements of subpart 2 
    of part A of title XXVII of the Public Health Service Act insofar 
    as such requirements apply with respect to a health insurance 
    issuer that offers group health insurance coverage.

``SEC. 2104. ALLOTMENTS.

    ``(a) Appropriation; Total Allotment.--For the purpose of providing 
allotments to States under this section, there is appropriated, out of 
any money in the Treasury not otherwise appropriated--
        ``(1) for fiscal year 1998, $4,275,000,000;
        ``(2) for fiscal year 1999, $4,275,000,000;
        ``(3) for fiscal year 2000, $4,275,000,000;
        ``(4) for fiscal year 2001, $4,275,000,000;
        ``(5) for fiscal year 2002, $3,150,000,000;
        ``(6) for fiscal year 2003, $3,150,000,000;
        ``(7) for fiscal year 2004, $3,150,000,000;
        ``(8) for fiscal year 2005, $4,050,000,000;
        ``(9) for fiscal year 2006, $4,050,000,000; and
        ``(10) for fiscal year 2007, $5,000,000,000.
    ``(b) Allotments to 50 States and District of Columbia.--
        ``(1) In general.--Subject to paragraph (4) and subsection (d), 
    of the amount available for allotment under subsection (a) for a 
    fiscal year, reduced by the amount of allotments made under 
    subsection (c) for the fiscal year, the Secretary shall allot to 
    each State (other than a State described in such subsection) with a 
    State child health plan approved under this title the same 
    proportion as the ratio of--
            ``(A) the product of (i) the number of children described 
        in paragraph (2) for the State for the fiscal year and (ii) the 
        State cost factor for that State (established under paragraph 
        (3)); to
            ``(B) the sum of the products computed under subparagraph 
        (A).
        ``(2) Number of children.--
            ``(A) In general.--The number of children described in this 
        paragraph for a State for--
                ``(i) each of fiscal years 1998 through 2000 is equal 
            to the number of low-income children in the State with no 
            health insurance coverage for the fiscal year;
                ``(ii) fiscal year 2001 is equal to--

                    ``(I) 75 percent of the number of low-income 
                children in the State for the fiscal year with no 
                health insurance coverage, plus
                    ``(II) 25 percent of the number of low-income 
                children in the State for the fiscal year; and

                ``(iii) each succeeding fiscal year is equal to--

                    ``(I) 50 percent of the number of low-income 
                children in the State for the fiscal year with no 
                health insurance coverage, plus
                    ``(II) 50 percent of the number of low-income 
                children in the State for the fiscal year.

            ``(B) Determination of number of children.--For purposes of 
        subparagraph (A), a determination of the number of low-income 
        children (and of such children who have no health insurance 
        coverage) for a State for a fiscal year shall be made on the 
        basis of the arithmetic average of the number of such children, 
        as reported and defined in the 3 most recent March supplements 
        to the Current Population Survey of the Bureau of the Census 
        before the beginning of the fiscal year.
        ``(3) Adjustment for geographic variations in health costs.--
            ``(A) In general.--For purposes of paragraph (1)(A)(ii), 
        the `State cost factor' for a State for a fiscal year equal to 
        the sum of--
                ``(i) 0.15, and
                ``(ii) 0.85 multiplied by the ratio of--

                    ``(I) the annual average wages per employee for the 
                State for such year (as determined under subparagraph 
                (B)), to
                    ``(II) the annual average wages per employee for 
                the 50 States and the District of Columbia.

            ``(B) Annual average wages per employee.--For purposes of 
        subparagraph (A), the `annual average wages per employee' for a 
        State, or for all the States. for a fiscal year is equal to the 
        average of the annual wages per employee for the State or for 
        the 50 States and the District of Columbia for employees in the 
        health services industry (SIC code 8000), as reported by the 
        Bureau of Labor Statistics of the Department of Labor for each 
        of the most recent 3 years before the beginning of the fiscal 
        year involved.
        ``(4) Floor for states.--Subject to paragraph (5), in no case 
    shall the amount of the allotment under this subsection for one of 
    the 50 States or the District of Columbia for a year be less than 
    $2,000,000. To the extent that the application of the previous 
    sentence results in an increase in the allotment to a State above 
    the amount otherwise provided, the allotments for the other States 
    and the District of Columbia under this subsection shall be reduced 
    in a pro rata manner (but not below $2,000,000) so that the total 
    of such allotments in a fiscal year does not exceed the amount 
    otherwise provided for allotment under paragraph (1) for that 
    fiscal year.
    ``(c) Allotments to Territories.--
        ``(1) In general.--Of the amount available for allotment under 
    subsection (a) for a fiscal year, subject to subsection (d), the 
    Secretary shall allot 0.25 percent among each of the commonwealths 
    and territories described in paragraph (3) in the same proportion 
    as the percentage specified in paragraph (2) for such commonwealth 
    or territory bears to the sum of such percentages for all such 
    commonwealths or territories so described.
        ``(2) Percentage.--The percentage specified in this paragraph 
    for--
            ``(A) Puerto Rico is 91.6 percent,
            ``(B) Guam is 3.5 percent,
            ``(C) Virgin Islands is 2.6 percent,
            ``(D) American Samoa is 1.2 percent, and
            ``(E) the Northern Mariana Islands is 1.1 percent.
        ``(3) Commonwealths and territories.--A commonwealth or 
    territory described in this paragraph is any of the following if it 
    has a State child health plan approved under this title:
            ``(A) Puerto Rico.
            ``(B) Guam.
            ``(C) the Virgin Islands.
            ``(D) American Samoa.
            ``(E) the Northern Mariana Islands.
    ``(d) Certain Medicaid Expenditures Counted Against Individual 
State Allotments.--The amount of the allotment otherwise provided to a 
State under subsection (b) or (c) for a fiscal year shall be reduced by 
the sum of--
        ``(1) the amount (if any) of the payments made to that State 
    under section 1903(a) for calendar quarters during such fiscal year 
    that is attributable to the provision of medical assistance to a 
    child during a presumptive eligibility period under section 1920A, 
    and
        ``(2) the amount of payments under such section during such 
    period that is attributable to the provision of medical assistance 
    to a child for which payment is made under section 1903(a)(1) on 
    the basis of an enhanced FMAP under section 1905(b).
    ``(e) 3-Year Availability of Amounts Allotted.--Amounts allotted to 
a State pursuant to this section for a fiscal year shall remain 
available for expenditure by the State through the end of the second 
succeeding fiscal year; except that amounts reallotted to a State under 
subsection (f) shall be available for expenditure by the State through 
the end of the fiscal year in which they are reallotted.
    ``(f) Procedure for Redistribution of Unused Allotments.--The 
Secretary shall determine an appropriate procedure for redistribution 
of allotments from States that were provided allotments under this 
section for a fiscal year but that do not expend all of the amount of 
such allotments during the period in which such allotments are 
available for expenditure under subsection (e), to States that have 
fully expended the amount of their allotments under this section.

``SEC. 2105. PAYMENTS TO STATES.

    ``(a) In General.--Subject to the succeeding provisions of this 
section, the Secretary shall pay to each State with a plan approved 
under this title, from its allotment under section 2104 (taking into 
account any adjustment under section 2104(d)), an amount for each 
quarter equal to the enhanced FMAP of expenditures in the quarter--
        ``(1) for child health assistance under the plan for targeted 
    low-income children in the form of providing health benefits 
    coverage that meets the requirements of section 2103; and
        ``(2) only to the extent permitted consistent with subsection 
    (c)--
            ``(A) for payment for other child health assistance for 
        targeted low-income children;
            ``(B) for expenditures for health services initiatives 
        under the plan for improving the health of children (including 
        targeted low-income children and other low-income children);
            ``(C) for expenditures for outreach activities as provided 
        in section 2102(c)(1) under the plan; and
            ``(D) for other reasonable costs incurred by the State to 
        administer the plan.
    ``(b) Enhanced FMAP.--For purposes of subsection (a), the `enhanced 
FMAP', for a State for a fiscal year, is equal to the Federal medical 
assistance percentage (as defined in the first sentence of section 
1905(b)) for the State increased by a number of percentage points equal 
to 30 percent of the number of percentage points by which (1) such 
Federal medical assistance percentage for the State, is less than (2) 
100 percent; but in no case shall the enhanced FMAP for a State exceed 
85 percent.
    ``(c) Limitation on Certain Payments for Certain Expenditures.--
        ``(1) General limitations.--Funds provided to a State under 
    this title shall only be used to carry out the purposes of this 
    title (as described in section 2101), and any health insurance 
    coverage provided with such funds may include coverage of abortion 
    only if necessary to save the life of the mother or if the 
    pregnancy is the result of an act of rape or incest.
        ``(2) Limitation on expenditures not used for medicaid or 
    health insurance assistance.--
            ``(A) In general.--Except as provided in this paragraph, 
        payment shall not be made under subsection (a) for expenditures 
        for items described in subsection (a) (other than paragraph 
        (1)) for a quarter in a fiscal year to the extent the total of 
        such expenditures exceeds 10 percent of the sum of--
                ``(i) the total Federal payments made under subsection 
            (a) for such quarter in the fiscal year, and
                ``(ii) the total Federal payments made under section 
            1903(a)(1) based on an enhanced FMAP described in section 
            1905(u)(2) for such quarter.
            ``(B) Waiver authorized for cost-effective alternative.--
        The limitation under subparagraph (A) on expenditures for items 
        described in subsection (a)(2) shall not apply to the extent 
        that a State establishes to the satisfaction of the Secretary 
        that--
                ``(i) coverage provided to targeted low-income children 
            through such expenditures meets the requirements of section 
            2103;
                ``(ii) the cost of such coverage is not greater, on an 
            average per child basis, than the cost of coverage that 
            would otherwise be provided under section 2103; and
                ``(iii) such coverage is provided through the use of a 
            community-based health delivery system, such as through 
            contracts with health centers receiving funds under section 
            330 of the Public Health Service Act or with hospitals such 
            as those that receive disproportionate share payment 
            adjustments under section 1886(d)(5)(F) or 1923.
        ``(3) Waiver for purchase of family coverage.--Payment may be 
    made to a State under subsection (a)(1) for the purchase of family 
    coverage under a group health plan or health insurance coverage 
    that includes coverage of targeted low-income children only if the 
    State establishes to the satisfaction of the Secretary that--
            ``(A) purchase of such coverage is cost-effective relative 
        to the amounts that the State would have paid to obtain 
        comparable coverage only of the targeted low-income children 
        involved, and
            ``(B) such coverage shall not be provided if it would 
        otherwise substitute for health insurance coverage that would 
        be provided to such children but for the purchase of family 
        coverage.
        ``(4) Use of non-federal funds for state matching 
    requirement.--Amounts provided by the Federal Government, or 
    services assisted or subsidized to any significant extent by the 
    Federal Government, may not be included in determining the amount 
    of non-Federal contributions required under subsection (a).
        ``(5) Offset of receipts attributable to premiums and other 
    cost-sharing.--For purposes of subsection (a), the amount of the 
    expenditures under the plan shall be reduced by the amount of any 
    premiums and other cost-sharing received by the State.
        ``(6) Prevention of duplicative payments.--
            ``(A) Other health plans.--No payment shall be made to a 
        State under this section for expenditures for child health 
        assistance provided for a targeted low-income child under its 
        plan to the extent that a private insurer (as defined by the 
        Secretary by regulation and including a group health plan (as 
        defined in section 607(1) of the Employee Retirement Income 
        Security Act of 1974), a service benefit plan, and a health 
        maintenance organization) would have been obligated to provide 
        such assistance but for a provision of its insurance contract 
        which has the effect of limiting or excluding such obligation 
        because the individual is eligible for or is provided child 
        health assistance under the plan.
            ``(B) Other federal governmental programs.--Except as 
        otherwise provided by law, no payment shall be made to a State 
        under this section for expenditures for child health assistance 
        provided for a targeted low-income child under its plan to the 
        extent that payment has been made or can reasonably be expected 
        to be made promptly (as determined in accordance with 
        regulations) under any other federally operated or financed 
        health care insurance program, other than an insurance program 
        operated or financed by the Indian Health Service, as 
        identified by the Secretary. For purposes of this paragraph, 
        rules similar to the rules for overpayments under section 
        1903(d)(2) shall apply.
        ``(7) Limitation on payment for abortions.--
            ``(A) In general.--Payment shall not be made to a State 
        under this section for any amount expended under the State plan 
        to pay for any abortion or to assist in the purchase, in whole 
        or in part, of health benefit coverage that includes coverage 
        of abortion.
            ``(B) Exception.--Subparagraph (A) shall not apply to an 
        abortion only if necessary to save the life of the mother or if 
        the pregnancy is the result of an act of rape or incest.
            ``(C) Rule of construction.--Nothing in this section shall 
        be construed as affecting the expenditure by a State, locality, 
        or private person or entity of State, local, or private funds 
        (other than funds expended under the State plan) for any 
        abortion or for health benefits coverage that includes coverage 
        of abortion.
    ``(d) Maintenance of Effort.--
        ``(1) In medicaid eligibility standards.--No payment may be 
    made under subsection (a) with respect to child health assistance 
    provided under a State child health plan if the State adopts income 
    and resource standards and methodologies for purposes of 
    determining a child's eligibility for medical assistance under the 
    State plan under title XIX that are more restrictive than those 
    applied as of June 1, 1997.
        ``(2) In amounts of payment expended for certain state-funded 
    health insurance programs for children.--
            ``(A) In general.--The amount of the allotment for a State 
        in a fiscal year (beginning with fiscal year 1999) shall be 
        reduced by the amount by which--
                ``(i) the total of the State children's health 
            insurance expenditures in the preceding fiscal year, is 
            less than
                ``(ii) the total of such expenditures in fiscal year 
            1996.
            ``(B) State children's health insurance expenditures.--The 
        term `State children's health insurance expenditures' means the 
        following:
                ``(i) The State share of expenditures under this title.
                ``(ii) The State share of expenditures under title XIX 
            that are attributable to an enhanced FMAP under section 
            1905(u).
                ``(iii) State expenditures under health benefits 
            coverage under an existing comprehensive State-based 
            program, described section 2103(d).
    ``(e) Advance Payment; Retrospective Adjustment.--The Secretary may 
make payments under this section for each quarter on the basis of 
advance estimates of expenditures submitted by the State and such other 
investigation as the Secretary may find necessary, and may reduce or 
increase the payments as necessary to adjust for any overpayment or 
underpayment for prior quarters.

``SEC. 2106. PROCESS FOR SUBMISSION, APPROVAL, AND AMENDMENT OF STATE 
              CHILD HEALTH PLANS.

    ``(a) Initial Plan.--
        ``(1) In general.--As a condition of receiving payment under 
    section 2105, a State shall submit to the Secretary a State child 
    health plan that meets the applicable requirements of this title.
        ``(2) Approval.--Except as the Secretary may provide under 
    subsection (e), a State plan submitted under paragraph (1)--
            ``(A) shall be approved for purposes of this title, and
            ``(B) shall be effective beginning with a calendar quarter 
        that is specified in the plan, but in no case earlier than 
        October 1, 1997.
    ``(b) Plan Amendments.--
        ``(1) In general.--A State may amend, in whole or in part, its 
    State child health plan at any time through transmittal of a plan 
    amendment.
        ``(2) Approval.--Except as the Secretary may provide under 
    subsection (e), an amendment to a State plan submitted under 
    paragraph (1)--
            ``(A) shall be approved for purposes of this title, and
            ``(B) shall be effective as provided in paragraph (3).
        ``(3) Effective dates for amendments.--
            ``(A) In general.--Subject to the succeeding provisions of 
        this paragraph, an amendment to a State plan shall take effect 
        on one or more effective dates specified in the amendment.
            ``(B) Amendments relating to eligibility or benefits.--
                ``(i) Notice requirement.--Any plan amendment that 
            eliminates or restricts eligibility or benefits under the 
            plan may not take effect unless the State certifies that it 
            has provided prior public notice of the change, in a form 
            and manner provided under applicable State law.
                ``(ii) Timely transmittal.--Any plan amendment that 
            eliminates or restricts eligibility or benefits under the 
            plan shall not be effective for longer than a 60-day period 
            unless the amendment has been transmitted to the Secretary 
            before the end of such period.
            ``(C) Other amendments.--Any plan amendment that is not 
        described in subparagraph (B) and that becomes effective in a 
        State fiscal year may not remain in effect after the end of 
        such fiscal year (or, if later, the end of the 90-day period on 
        which it becomes effective) unless the amendment has been 
        transmitted to the Secretary.
    ``(c) Disapproval of Plans and Plan Amendments.--
        ``(1) Prompt review of plan submittals.--The Secretary shall 
    promptly review State plans and plan amendments submitted under 
    this section to determine if they substantially comply with the 
    requirements of this title.
        ``(2) 90-day approval deadlines.--A State plan or plan 
    amendment is considered approved unless the Secretary notifies the 
    State in writing, within 90 days after receipt of the plan or 
    amendment, that the plan or amendment is disapproved (and the 
    reasons for disapproval) or that specified additional information 
    is needed.
        ``(3) Correction.--In the case of a disapproval of a plan or 
    plan amendment, the Secretary shall provide a State with a 
    reasonable opportunity for correction before taking financial 
    sanctions against the State on the basis of such disapproval.
    ``(d) Program Operation.--
        ``(1) In general.--The State shall conduct the program in 
    accordance with the plan (and any amendments) approved under 
    subsection (c) and with the requirements of this title.
        ``(2) Violations.--The Secretary shall establish a process for 
    enforcing requirements under this title. Such process shall provide 
    for the withholding of funds in the case of substantial 
    noncompliance with such requirements. In the case of an enforcement 
    action against a State under this paragraph, the Secretary shall 
    provide a State with a reasonable opportunity for correction before 
    taking financial sanctions against the State on the basis of such 
    an action.
    ``(e) Continued Approval.--An approved State child health plan 
shall continue in effect unless and until the State amends the plan 
under subsection (b) or the Secretary finds, under subsection (d), 
substantial noncompliance of the plan with the requirements of this 
title.

``SEC. 2107. STRATEGIC OBJECTIVES AND PERFORMANCE GOALS; PLAN 
              ADMINISTRATION.

    ``(a) Strategic Objectives and Performance Goals.--
        ``(1) Description.--A State child health plan shall include a 
    description of--
            ``(A) the strategic objectives,
            ``(B) the performance goals, and
            ``(C) the performance measures,
    the State has established for providing child health assistance to 
    targeted low-income children under the plan and otherwise for 
    maximizing health benefits coverage for other low-income children 
    and children generally in the State.
        ``(2) Strategic objectives.--Such plan shall identify specific 
    strategic objectives relating to increasing the extent of 
    creditable health coverage among targeted low-income children and 
    other low-income children.
        ``(3) Performance goals.--Such plan shall specify one or more 
    performance goals for each such strategic objective so identified.
        ``(4) Performance measures.--Such plan shall describe how 
    performance under the plan will be--
            ``(A) measured through objective, independently verifiable 
        means, and
            ``(B) compared against performance goals, in order to 
        determine the State's performance under this title.
    ``(b) Records, Reports, Audits, and Evaluation.--
        ``(1) Data collection, records, and reports.--A State child 
    health plan shall include an assurance that the State will collect 
    the data, maintain the records, and furnish the reports to the 
    Secretary, at the times and in the standardized format the 
    Secretary may require in order to enable the Secretary to monitor 
    State program administration and compliance and to evaluate and 
    compare the effectiveness of State plans under this title.
        ``(2) State assessment and study.--A State child health plan 
    shall include a description of the State's plan for the annual 
    assessments and reports under section 2108(a) and the evaluation 
    required by section 2108(b).
        ``(3) Audits.--A State child health plan shall include an 
    assurance that the State will afford the Secretary access to any 
    records or information relating to the plan for the purposes of 
    review or audit.
    ``(c) Program Development Process.--A State child health plan shall 
include a description of the process used to involve the public in the 
design and implementation of the plan and the method for ensuring 
ongoing public involvement.
    ``(d) Program Budget.--A State child health plan shall include a 
description of the budget for the plan. The description shall be 
updated periodically as necessary and shall include details on the 
planned use of funds and the sources of the non-Federal share of plan 
expenditures, including any requirements for cost-sharing by 
beneficiaries.
    ``(e) Application of Certain General Provisions.--The following 
sections of this Act shall apply to States under this title in the same 
manner as they apply to a State under title XIX:
        ``(1) Title xix provisions.--
            ``(A) Section 1902(a)(4)(C) (relating to conflict of 
        interest standards).
            ``(B) Paragraphs (2), (16), and (17) of section 1903(i) 
        (relating to limitations on payment).
            ``(C) Section 1903(w) (relating to limitations on provider 
        taxes and donations).
        ``(2) Title xi provisions.--
            ``(A) Section 1115 (relating to waiver authority).
            ``(B) Section 1116 (relating to administrative and judicial 
        review), but only insofar as consistent with this title.
            ``(C) Section 1124 (relating to disclosure of ownership and 
        related information).
            ``(D) Section 1126 (relating to disclosure of information 
        about certain convicted individuals).
            ``(E) Section 1128A (relating to civil monetary penalties).
            ``(F) Section 1128B(d) (relating to criminal penalties for 
        certain additional charges).
            ``(G) Section 1132 (relating to periods within which claims 
        must be filed).

``SEC. 2108. ANNUAL REPORTS; EVALUATIONS.

    ``(a) Annual Report.--The State shall--
        ``(1) assess the operation of the State plan under this title 
    in each fiscal year, including the progress made in reducing the 
    number of uncovered low-income children; and
        ``(2) report to the Secretary, by January 1 following the end 
    of the fiscal year, on the result of the assessment.
    ``(b) State Evaluations.--
        ``(1) In general.--By March 31, 2000, each State that has a 
    State child health plan shall submit to the Secretary an evaluation 
    that includes each of the following:
            ``(A) An assessment of the effectiveness of the State plan 
        in increasing the number of children with creditable health 
        coverage.
            ``(B) A description and analysis of the effectiveness of 
        elements of the State plan, including--
                ``(i) the characteristics of the children and families 
            assisted under the State plan including age of the 
            children, family income, and the assisted child's access to 
            or coverage by other health insurance prior to the State 
            plan and after eligibility for the State plan ends,
                ``(ii) the quality of health coverage provided 
            including the types of benefits provided,
                ``(iii) the amount and level (including payment of part 
            or all of any premium) of assistance provided by the State,
                ``(iv) the service area of the State plan,
                ``(v) the time limits for coverage of a child under the 
            State plan,
                ``(vi) the State's choice of health benefits coverage 
            and other methods used for providing child health 
            assistance, and
                ``(vii) the sources of non-Federal funding used in the 
            State plan.
            ``(C) An assessment of the effectiveness of other public 
        and private programs in the State in increasing the 
        availability of affordable quality individual and family health 
        insurance for children.
            ``(D) A review and assessment of State activities to 
        coordinate the plan under this title with other public and 
        private programs providing health care and health care 
        financing, including medicaid and maternal and child health 
        services.
            ``(E) An analysis of changes and trends in the State that 
        affect the provision of accessible, affordable, quality health 
        insurance and health care to children.
            ``(F) A description of any plans the State has for 
        improving the availability of health insurance and health care 
        for children.
            ``(G) Recommendations for improving the program under this 
        title.
            ``(H) Any other matters the State and the Secretary 
        consider appropriate.
        ``(2) Report of the secretary.--The Secretary shall submit to 
    Congress and make available to the public by December 31, 2001, a 
    report based on the evaluations submitted by States under paragraph 
    (1), containing any conclusions and recommendations the Secretary 
    considers appropriate.

``SEC. 2109. MISCELLANEOUS PROVISIONS.

    ``(a) Relation to Other Laws.--
        ``(1) HIPAA.--Health benefits coverage provided under section 
    2101(a)(1) (and coverage provided under a waiver under section 
    2105(c)(2)(B)) shall be treated as creditable coverage for purposes 
    of part 7 of subtitle B of title II of the Employee Retirement 
    Income Security Act of 1974, title XXVII of the Public Health 
    Service Act, and subtitle K of the Internal Revenue Code of 1986.
        ``(2) ERISA.--Nothing in this title shall be construed as 
    affecting or modifying section 514 of the Employee Retirement 
    Income Security Act of 1974 (29 U.S.C. 1144) with respect to a 
    group health plan (as defined in section 2791(a)(1) of the Public 
    Health Service Act (42 U.S.C. 300gg-91(a)(1)).

``SEC. 2110. DEFINITIONS.

    ``(a) Child Health Assistance.--For purposes of this title, the 
term `child health assistance' means payment for part or all of the 
cost of health benefits coverage for targeted low-income children that 
includes any of the following (and includes, in the case described in 
section 2105(a)(2)(A), payment for part or all of the cost of providing 
any of the following), as specified under the State plan:
        ``(1) Inpatient hospital services.
        ``(2) Outpatient hospital services.
        ``(3) Physician services.
        ``(4) Surgical services.
        ``(5) Clinic services (including health center services) and 
    other ambulatory health care services.
        ``(6) Prescription drugs and biologicals and the administration 
    of such drugs and biologicals, only if such drugs and biologicals 
    are not furnished for the purpose of causing, or assisting in 
    causing, the death, suicide, euthanasia, or mercy killing of a 
    person.
        ``(7) Over-the-counter medications.
        ``(8) Laboratory and radiological services.
        ``(9) Prenatal care and prepregnancy family planning services 
    and supplies.
        ``(10) Inpatient mental health services, other than services 
    described in paragraph (18) but including services furnished in a 
    State-operated mental hospital and including residential or other 
    24-hour therapeutically planned structured services.
        ``(11) Outpatient mental health services, other than services 
    described in paragraph (19) but including services furnished in a 
    State-operated mental hospital and including community-based 
    services.
        ``(12) Durable medical equipment and other medically-related or 
    remedial devices (such as prosthetic devices, implants, eyeglasses, 
    hearing aids, dental devices, and adaptive devices).
        ``(13) Disposable medical supplies.
        ``(14) Home and community-based health care services and 
    related supportive services (such as home health nursing services, 
    home health aide services, personal care, assistance with 
    activities of daily living, chore services, day care services, 
    respite care services, training for family members, and minor 
    modifications to the home).
        ``(15) Nursing care services (such as nurse practitioner 
    services, nurse midwife services, advanced practice nurse services, 
    private duty nursing care, pediatric nurse services, and 
    respiratory care services) in a home, school, or other setting.
        ``(16) Abortion only if necessary to save the life of the 
    mother or if the pregnancy is the result of an act of rape or 
    incest.
        ``(17) Dental services.
        ``(18) Inpatient substance abuse treatment services and 
    residential substance abuse treatment services.
        ``(19) Outpatient substance abuse treatment services.
        ``(20) Case management services.
        ``(21) Care coordination services.
        ``(22) Physical therapy, occupational therapy, and services for 
    individuals with speech, hearing, and language disorders.
        ``(23) Hospice care.
        ``(24) Any other medical, diagnostic, screening, preventive, 
    restorative, remedial, therapeutic, or rehabilitative services 
    (whether in a facility, home, school, or other setting) if 
    recognized by State law and only if the service is--
            ``(A) prescribed by or furnished by a physician or other 
        licensed or registered practitioner within the scope of 
        practice as defined by State law,
            ``(B) performed under the general supervision or at the 
        direction of a physician, or
            ``(C) furnished by a health care facility that is operated 
        by a State or local government or is licensed under State law 
        and operating within the scope of the license.
        ``(25) Premiums for private health care insurance coverage.
        ``(26) Medical transportation.
        ``(27) Enabling services (such as transportation, translation, 
    and outreach services) only if designed to increase the 
    accessibility of primary and preventive health care services for 
    eligible low-income individuals.
        ``(28) Any other health care services or items specified by the 
    Secretary and not excluded under this section.
    ``(b) Targeted Low-Income Child Defined.--For purposes of this 
title--
        ``(1) In general.--Subject to paragraph (2), the term `targeted 
    low-income child' means a child--
            ``(A) who has been determined eligible by the State for 
        child health assistance under the State plan;
            ``(B)(i) who is a low-income child, or
            ``(ii) is a child whose family income (as determined under 
        the State child health plan) exceeds the medicaid applicable 
        income level (as defined in paragraph (4)), but does not exceed 
        50 percentage points above the medicaid applicable income 
        level; and
            ``(C) who is not found to be eligible for medical 
        assistance under title XIX or covered under a group health plan 
        or under health insurance coverage (as such terms are defined 
        in section 2791 of the Public Health Service Act).
        ``(2) Children excluded.--Such term does not include--
            ``(A) a child who is an inmate of a public institution or a 
        patient in an institution for mental diseases; or
            ``(B) a child who is a member of a family that is eligible 
        for health benefits coverage under a State health benefits plan 
        on the basis of a family member's employment with a public 
        agency in the State.
        ``(3) Special rule.--A child shall not be considered to be 
    described in paragraph (1)(C) notwithstanding that the child is 
    covered under a health insurance coverage program that has been in 
    operation since before July 1, 1997, and that is offered by a State 
    which receives no Federal funds for the program's operation.
        ``(4) Medicaid applicable income level.--The term `medicaid 
    applicable income level' means, with respect to a child, the 
    effective income level (expressed as a percent of the poverty line) 
    that has been specified under the State plan under title XIX 
    (including under a waiver authorized by the Secretary or under 
    section 1902(r)(2)), as of June 1, 1997, for the child to be 
    eligible for medical assistance under section 1902(l)(2) for the 
    age of such child.
    ``(c) Additional Definitions.--For purposes of this title:
        ``(1) Child.--The term `child' means an individual under 19 
    years of age.
        ``(2) Creditable health coverage.--The term `creditable health 
    coverage' has the meaning given the term `creditable coverage' 
    under section 2701(c) of the Public Health Service Act (42 U.S.C. 
    300gg(c)) and includes coverage that meets the requirements of 
    section 2103 provided to a targeted low-income child under this 
    title or under a waiver approved under section 2105(c)(2)(B) 
    (relating to a direct service waiver).
        ``(3) Group health plan; health insurance coverage; etc.--The 
    terms `group health plan', `group health insurance coverage', and 
    `health insurance coverage' have the meanings given such terms in 
    section 2191 of the Public Health Service Act.
        ``(4) Low-income.--The term `low-income child' means a child 
    whose family income is at or below 200 percent of the poverty line 
    for a family of the size involved.
        ``(5) Poverty line defined.--The term `poverty line' has the 
    meaning given such term in section 673(2) of the Community Services 
    Block Grant Act (42 U.S.C. 9902(2)), including any revision 
    required by such section.
        ``(6) Preexisting condition exclusion.--The term `preexisting 
    condition exclusion' has the meaning given such term in section 
    2701(b)(1)(A) of the Public Health Service Act (42 U.S.C. 
    300gg(b)(1)(A)).
        ``(7) State child health plan; plan.--Unless the context 
    otherwise requires, the terms `State child health plan' and `plan' 
    mean a State child health plan approved under section 2106.
        ``(8) Uncovered child.--The term `uncovered child' means a 
    child that does not have creditable health coverage.''.
    (b) Conforming Amendments.--
        (1) Definition of state.--Section 1101(a)(1) is amended--
            (A) by striking ``and XIX'' and inserting ``XIX, and XXI'', 
        and
            (B) by striking ``title XIX'' and inserting ``titles XIX 
        and XXI''.
        (2) Treatment as state health care program.--Section 1128(h) 
    (42 U.S.C. 1320a-7(h)) is amended by--
            (A) in paragraph (2), by striking ``or'' at the end;
            (B) in paragraph (3), by striking the period and inserting 
        ``, or''; and
            (C) by adding at the end the following:
        ``(4) a State child health plan approved under title XXI.''.

        CHAPTER 2--EXPANDED COVERAGE OF CHILDREN UNDER MEDICAID

SEC. 4911. OPTIONAL USE OF STATE CHILD HEALTH ASSISTANCE FUNDS FOR 
              ENHANCED MEDICAID MATCH FOR EXPANDED MEDICAID 
              ELIGIBILITY.

    (a) Increased FMAP for Medical Assistance for Expanded Coverage of 
Targeted Low-Income Children.--Section 1905 of the Social Security Act 
(42 U.S.C. 1396d), as amended by section 4702(a)(2), is amended--
        (1) in subsection (b), by adding at the end the following new 
    sentence: ``Notwithstanding the first sentence of this subsection, 
    in the case of a State plan that meets the condition described in 
    subsection (u)(1), with respect to expenditures described in 
    subsection (u)(2)(A) or subsection (u)(3) the Federal medical 
    assistance percentage is equal to the enhanced FMAP described in 
    section 2105(b).''; and
        (2) by adding at the end the following new subsection:
    ``(u)(1) The conditions described in this paragraph for a State 
plan are as follows:
        ``(A) The State is complying with the requirement of section 
    2105(d)(1).
        ``(B) The plan provides for such reporting of information about 
    expenditures and payments attributable to the operation of this 
    subsection as the Secretary deems necessary in order to carry out 
    paragraph (2) and section 2104(d).
    ``(2)(A) For purposes of subsection (b), the expenditures described 
in this subparagraph are expenditures for medical assistance for 
optional targeted low-income children described in subparagraph (C), 
but not in excess, for a State for a fiscal year, of the amount 
described in subparagraph (B) for the State and fiscal year.
    ``(B) The amount described in this subparagraph, for a State for a 
fiscal year, is the amount of the State's allotment under section 2104 
(not taking into account reductions under section 2104(d)(2)) for the 
fiscal year reduced by the amount of any payments made under section 
2105 to the State from such allotment for such fiscal year.
    ``(C) For purposes of this paragraph, the term `optional targeted 
low-income child' means a targeted low-income child as defined in 
section 2110(b)(1) who would not qualify for medical assistance under 
the State plan under this title based on such plan as in effect on 
April 15, 1997 (but taking into account the expansion of age of 
eligibility effected through the operation of section 1902(l)(2)(D)).
    ``(3) For purposes of subsection (b), the expenditures described in 
this subparagraph are expenditures for medical assistance for children 
who are born before October 1, 1983, and who would be described in 
section 1902(l)(1)(D) if they had been born on or after such date, and 
who are not eligible for such assistance under the State plan under 
this title based on such State plan as in effect as of April 15, 
1997.''.
    (b) Establishment of Optional Eligibility Category.--Section 
1902(a)(10)(A)(ii) (42 U.S.C. 1396a(a)(10)(A)(ii)), as amended by 
section 4733, is amended--
        (1) in subclause (XII), by striking ``or'' at the end;
        (2) in subclause (XIII), by adding ``or'' at the end; and
        (3) by adding at the end the following:

                    ``(XIV) who are optional targeted low-income 
                children described in section 1905(u)(2)(C);''.

    (c) Effective Date.--The amendments made by this section shall 
apply to medical assistance for items and services furnished on or 
after October 1, 1997.

SEC. 4912. MEDICAID PRESUMPTIVE ELIGIBILITY FOR LOW-INCOME CHILDREN.

    (a) In General.--Title XIX of the Social Security Act is amended by 
inserting after section 1920 the following new section:


                  ``presumptive eligibility for children

    ``Sec. 1920A. (a) A State plan approved under section 1902 may 
provide for making medical assistance with respect to health care items 
and services covered under the State plan available to a child during a 
presumptive eligibility period.
    ``(b) For purposes of this section:
        ``(1) The term `child' means an individual under 19 years of 
    age.
        ``(2) The term `presumptive eligibility period' means, with 
    respect to a child, the period that--
            ``(A) begins with the date on which a qualified entity 
        determines, on the basis of preliminary information, that the 
        family income of the child does not exceed the applicable 
        income level of eligibility under the State plan, and
            ``(B) ends with (and includes) the earlier of--
                ``(i) the day on which a determination is made with 
            respect to the eligibility of the child for medical 
            assistance under the State plan, or
                ``(ii) in the case of a child on whose behalf an 
            application is not filed by the last day of the month 
            following the month during which the entity makes the 
            determination referred to in subparagraph (A), such last 
            day.
        ``(3)(A) Subject to subparagraph (B), the term `qualified 
    entity' means any entity that--
            ``(i)(I) is eligible for payments under a State plan 
        approved under this title and provides items and services 
        described in subsection (a) or (II) is authorized to determine 
        eligibility of a child to participate in a Head Start program 
        under the Head Start Act (42 U.S.C. 9821 et seq.), eligibility 
        of a child to receive child care services for which financial 
        assistance is provided under the Child Care and Development 
        Block Grant Act of 1990 (42 U.S.C. 9858 et seq.), eligibility 
        of an infant or child to receive assistance under the special 
        supplemental nutrition program for women, infants, and children 
        (WIC) under section 17 of the Child Nutrition Act of 1966 (42 
        U.S.C. 1786); and
            ``(ii) is determined by the State agency to be capable of 
        making determinations of the type described in paragraph 
        (1)(A).
        ``(B) The Secretary may issue regulations further limiting 
    those entities that may become qualified entities in order to 
    prevent fraud and abuse and for other reasons.
        ``(C) Nothing in this section shall be construed as preventing 
    a State from limiting the classes of entities that may become 
    qualified entities, consistent with any limitations imposed under 
    subparagraph (B).
    ``(c)(1) The State agency shall provide qualified entities with--
        ``(A) such forms as are necessary for an application to be made 
    on behalf of a child for medical assistance under the State plan, 
    and
        ``(B) information on how to assist parents, guardians, and 
    other persons in completing and filing such forms.
    ``(2) A qualified entity that determines under subsection (b)(1)(A) 
that a child is presumptively eligible for medical assistance under a 
State plan shall--
        ``(A) notify the State agency of the determination within 5 
    working days after the date on which determination is made, and
        ``(B) inform the parent or custodian of the child at the time 
    the determination is made that an application for medical 
    assistance under the State plan is required to be made by not later 
    than the last day of the month following the month during which the 
    determination is made.
    ``(3) In the case of a child who is determined by a qualified 
entity to be presumptively eligible for medical assistance under a 
State plan, the parent, guardian, or other person shall make 
application on behalf of the child for medical assistance under such 
plan by not later than the last day of the month following the month 
during which the determination is made, which application may be the 
application used for the receipt of medical assistance by individuals 
described in section 1902(l)(1).
    ``(d) Notwithstanding any other provision of this title, medical 
assistance for items and services described in subsection (a) that--
        ``(1) are furnished to a child--
            ``(A) during a presumptive eligibility period,
            ``(B) by a entity that is eligible for payments under the 
        State plan; and
        ``(2) are included in the care and services covered by a State 
    plan;
shall be treated as medical assistance provided by such plan for 
purposes of section 1903.''.
    (b) Conforming Amendments.--
        (1) Section 1902(a)(47) (42 U.S.C. 1396a(a)(47)) is amended by 
    inserting before the semicolon at the end the following: ``and 
    provide for making medical assistance for items and services 
    described in subsection (a) of section 1920A available to children 
    during a presumptive eligibility period in accordance with such 
    section''.
        (2) Section 1903(u)(1)(D)(v) (42 U.S.C. 1396b(u)(1)(D)(v)) is 
    amended by inserting before the period at the end the following: 
    ``or for items and services described in subsection (a) of section 
    1920A provided to a child during a presumptive eligibility period 
    under such section''.
    (c) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 4913. CONTINUATION OF MEDICAID ELIGIBILITY FOR DISABLED CHILDREN 
              WHO LOSE SSI BENEFITS.

    (a) In General.--Section 1902(a)(10)(A)(i)(II) (42 U.S.C. 
1396a(a)(10)(A)(i)(II)) is amended by inserting ``(or were being paid 
as of the date of the enactment of section 211(a) of the Personal 
Responsibility and Work Opportunity Reconciliation Act of 1996 (P.L. 
104-193)) and would continue to be paid but for the enactment of that 
section'' after ``title XVI''.
    (b) Effective Date.--The amendment made by subsection (a) applies 
to medical assistance furnished on or after July 1, 1997.

                   CHAPTER 3--DIABETES GRANT PROGRAMS

SEC. 4921. SPECIAL DIABETES PROGRAMS FOR CHILDREN WITH TYPE I DIABETES.

    Subpart I of part D of title III of the Public Health Service Act 
(42 U.S.C. 254b et seq.) is amended by adding at the end the following 
section:

``SEC. 330B. SPECIAL DIABETES PROGRAMS FOR CHILDREN WITH TYPE I 
              DIABETES.

    ``(a) Type I Diabetes in Children.--The Secretary shall make grants 
for services for the prevention and treatment of type I diabetes in 
children, and for research in innovative approaches to such services. 
Such grants may be made to children's hospitals; grantees under section 
330 and other federally qualified health centers; State and local 
health departments; and other appropriate public or nonprofit private 
entities.
    ``(b) Funding.--Notwithstanding section 2104(a) of the Social 
Security Act, from the amounts appropriated in such section for each of 
fiscal years 1998 through 2002, $30,000,000 is hereby transferred and 
made available in such fiscal year for grants under this section.''.

SEC. 4922. SPECIAL DIABETES PROGRAMS FOR INDIANS.

    Subpart I of part D of title III of the Public Health Service Act 
(42 U.S.C. 254b et seq.), as amended by section 4921, is further 
amended by adding at the end the following section:

``SEC. 330C. SPECIAL DIABETES PROGRAMS FOR INDIANS.

    ``(a) In General.--The Sec