[House Report 105-217]
[From the U.S. Government Printing Office]




     105th Congress                                       Report 
      1st Session        HOUSE OF REPRESENTATIVES        105-217
                                                       
_______________________________________________________________________

                                    



 
                      BALANCED BUDGET ACT OF 1997

                               ----------                              

                           CONFERENCE REPORT

                              to accompany

                               H.R. 2015




  July 30, (legislative day of July 29), 1997.--Ordered to be printed




105th Congress                                                   Report 
1st Session             HOUSE OF REPRESENTATIVES                105-217 
                                                       
_______________________________________________________________________

                                    



                      BALANCED BUDGET ACT OF 1997

                               ----------                              

                           CONFERENCE REPORT

                              to accompany

                               H.R. 2015




  July 30, (legislative day of July 29), 1997.--Ordered to be printed





105th Congress                                                   Report
 1st Session              HOUSE OF REPRESENTATIVES               105-217


_______________________________________________________________________


                      BALANCED BUDGET ACT OF 1997

                                _______
                                

    July 30 (legislative day, July 29), 1997.--Ordered to be printed

_______________________________________________________________________


 Mr. Kasich, from the committee of conference, submitted the following

                           CONFERENCE REPORT

                        [To accompany H.R. 2015]

      The committee of conference on the disagreeing votes of 
the two Houses on the amendment of the Senate to the bill (H.R. 
2015), to provide for reconciliation pursuant to section 104(a) 
of the concurrent resolution on the budget for fiscal year 
1998, having met, after full and free conference, have agreed 
to recommend and do recommend to their respective Houses as 
follows:
      That the House recede from its disagreement to the 
amendment of the Senate and agree to the same with an amendment 
as follows:
      In lieu of the matter proposed to be inserted by the 
Senate amendment, insert the following:

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 shallgrant 
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 licensedpursuant 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 (ifnecessary 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 Subdivision 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 lost 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 at 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 
          non-compliant 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 terminatesuch 
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 atleast 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 orthe 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 a 
                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 
        annualMedicare+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 planshall 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 or 
                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 
        planthrough 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 limitmedically 
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+Choiceplan 
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 for1997 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 respectto 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 
                substantiallycomplete 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 containingthe 
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 adverselyaffected 
(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 thechurch, 
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 ratesunder 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 
        Secretaryshall 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 
        benefitsor 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 of1996 (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 
applying 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 shallconsult 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 forensuring 
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 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 
medicareprogram 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 be 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 beingtransferred 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 suchinformation 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 endthe 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 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 areexpected 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
                    ``(iv) 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 afterthe 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 amountotherwise 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 sharedwith 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 operatingcosts 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 inwhich 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 BENEFIT 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 cityaverage) 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 enrollmentwith 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). TheSecretary 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 servicesprovided 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 
undersection 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 asoutlier 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 
acovered 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 sentenceof 
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 uponsuch 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 
        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 
                        basedon 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 levelof 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 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 forthe 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  (((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 additionalpayment 
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,
                                    ``(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 
                        medicalresidency 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 inparagraph (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 prominentmanner 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 organizationshall 
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 availablewithin 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 privateindependent 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 
wouldreasonably 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 otherthan 
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 residentsare 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 formental 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 
        hospitalon 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--
            (1) in paragraph (17), by striking the period at 
        the end and inserting ``; or''; and
            (2) 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 supplieror 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 paymentsunder 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 t