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SubtitleE

SubtitleE

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

H.R.2015

One Hundred Fifth Congress

of the

United States of America

AT THE FIRST SESSION

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

An Act

Subtitle E–Provisions Relating to
Part A Only

CHAPTER 1–PAYMENT OF PPS HOSPITALS

SEC. 4401. PPS HOSPITAL PAYMENT UPDATE.

(a) In General.–Section 1886(b)(3)(B)(i) (42 U.S.C.

1395ww(b)(3)(B)(i)) is amended– (1) by striking “and” at the end
of subclause (XII), and (2) by striking subclause (XIII) and
inserting the following: (XIII) for fiscal year 1998, 0 percent,
(XIV) for fiscal year 1999, the market basket percentage increase
minus 1.9 percentage points for hospitals in all areas, (XV) for
fiscal year 2000, the market basket percentage increase minus 1.8
percentage points for hospitals in all areas, (XVI) for each of
fiscal years 2001 and 2002, the market basket percentage increase
minus 1.1 percentage point for hospitals in all areas, and (XVII) for
fiscal year 2003 and each subsequent fiscal year, the market basket
percentage increase for hospitals in all areas.”.

(b) Temporary Relief for Certain Non-Teaching, Non-DSH
Hospitals.– (1) In general.–In the case of a hospital described in
paragraph (2) for its cost reporting period– (A) beginning in fiscal
year 1998 the amount of payment made to the hospital under section
1886(d) of the Social Security Act for discharges occurring during
such fiscal year only shall be increased as though the applicable
percentage increase (otherwise applicable to discharges occurring
during fiscal year 1998 under section 1886(b)(3)(B)(i)(XIII) of the
Social Security Act (42 U.S.C. 1395ww(b)(3)(B)(i)(XIII))) had been
increased by 0.5 percentage points; and (B) beginning in fiscal year
1999 the amount of payment made to the hospital under section 1886(d)
of the Social Security Act for discharges occurring during such
fiscal year only shall be increased as though the applicable
percentage increase (otherwise applicable to discharges occurring
during fiscal year 1999 under section 1886(b)(3)(B)(i)(XIII) of the
Social Security Act (42 U.S.C. 1395ww(b)(3)(B)(i)(XIII))) had been
increased by 0.3 percentage points.

Subparagraph (A) shall not apply in computing the increase under
subparagraph (B) and neither subparagraph shall affect payment for
discharges for any hospital occurring during a fiscal year after
fiscal year 1999. Payment increases under this subsection for
discharges occurring during a fiscal year are subject to settlement
after the close of the fiscal year.

(2) Hospitals covered.–A hospital described in this paragraph for
a cost reporting period is a hospital– (A) that is described in
paragraph (3) for such period; (B) that is located in a State in
which the amount of the aggregate payments under section 1886(d) of
such Act for hospitals located in the State and described in
paragraph (3) for their cost reporting periods beginning during
fiscal year 1995 is less than the aggregate allowable operating costs
of inpatient hospital services (as defined in section 1886(a)(4) of
such Act) for all such hospitals in such State with respect to such
cost reporting periods; and (C) with respect to which the payments
under section 1886(d) of such Act (42 U.S.C. 1395ww(d)) for
discharges occurring in the cost reporting period involved, as
estimated by the Secretary, is less than the allowable operating
costs of inpatient hospital services (as defined in section
1886(a)(4) of such Act (42 U.S.C. 1395ww(a)(4)) for such hospital for
such period, as estimated by the Secretary.

(3) Non-teaching, non-DSH hospitals described.–A hospital
described in this paragraph for a cost reporting period is a
subsection (d) hospital (as defined in section 1886(d)(1)(B) of such
Act (42 U.S.C. 1395ww(d)(1)(B))) that– (A) is not receiving any
additional payment amount described in section 1886(d)(5)(F) of such
Act (42 U.S.C.

1395ww(d)(5)(F)) for discharges occurring during the period; (B)
is not receiving any additional payment under section 1886(d)(5)(B)
of such Act (42 U.S.C. 1395ww(d)(5)(B)) or a payment under section
1886(h) of such Act (42 U.S.C. 1395ww(h)) for discharges occurring
during the period; and (C) does not qualify for payment under section
1886(d)(5)(G) of such Act (42 U.S.C. 1395ww(d)(5)(G)) for the period.

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

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

SEC. 4403. DISPROPORTIONATE SHARE.

(a) In General.–Section 1886(d)(5)(F) (42 U.S.C. 1395ww(d)(5)(F))
is amended– (1) in clause (i) by inserting “and before October 1,
1997” after “May 1, 1986”; (2) in clause (ii), by striking “The
amount” and inserting “Subject to clause (ix), the amount”; and (3)
by adding at the end the following new clause: (ix) In the case of
discharges occurring– (I) during fiscal year 1998, the additional
payment amount otherwise determined under clause (ii) shall be
reduced by 1 percent; (II) during fiscal year 1999, such additional
payment amount shall be reduced by 2 percent; (III) during fiscal
year 2000, such additional payment amount shall be reduced by 3
percent; (IV) during fiscal year 2001, such additional payment amount
shall be reduced by 4 percent; (V) during fiscal year 2002, such
additional payment amount shall be reduced by 5 percent; and (VI)
during fiscal year 2003 and each subsequent fiscal year, such
additional payment amount shall be reduced by 0 percent.”.

(b) Report on New Payment Formula.– (1) Report.–Not later than 1
year after the date of the enactment of this Act, the Secretary of
Health and Human Services shall submit to the Committee on Ways and
Means of the House of Representatives and the Committee on Finance of
the Senate a report that contains a formula for determining
additional payment amounts to hospitals under section 1886(d)(5)(F)
of the Social Security Act (42 U.S.C. 1395ww(d)(5)(F)).

(2) Factors in Determination of Formula.–In determining such
formula the Secretary shall– (A) establish a single threshold for
costs incurred by hospitals in serving low-income patients, and (B)
consider the costs described in paragraph (3).

(3) The costs described in this paragraph are as follows: (A) The
costs incurred by the hospital during a period (as determined by the
Secretary) of furnishing hospital services to individuals who are
entitled to benefits under part A of title XVIII of the Social
Security Act and who receive supplemental security income benefits
under title XVI of such Act (excluding any supplementation of those
benefits by a State under section 1616 of such Act (42 U.S.C.
1382e)).

(B) The costs incurred by the hospital during a period (as so
determined) of furnishing hospital services to individuals who
receive medical assistance under the State plan under title XIX of
such Act and are not entitled to benefits under part A of title XVIII
of such Act (including individuals enrolled in a managed care
organization (as defined in section 1903(m)(1)(A) of such Act (42
U.S.C. 1396b(m)(1)(A)) or any other managed care plan under such
title and individuals who receive medical assistance under such title
pursuant to a waiver approved by the Secretary under section 1115 of
such Act (42 U.S.C. 1315)).

(c) Data Collection.–In developing the formula described in
subsection (b), the Secretary of Health and Human Services may
require any subsection (d) hospital (as defined in section
1886(d)(1)(B) of the Social Security Act (42 U.S.C. 1395ww(d)(1)(B)))
receiving additional payments by reason of section 1886(d)(5)(F) of
such Act (42 U.S.C.

1395ww(d)(5)(F)) to submit to the Secretary any information that
the Secretary determines is necessary to develop such formula.

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

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

(b) Effective Date.–The amendments made by subsection (a) apply
to changes of ownership that occur after the third month beginning
after the date of enactment of this section.

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

(a) Indirect Medical Education.–Section 1886(d)(5)(B)(i)(I) (42
U.S.C. 1395ww(d)(5)(B)(i)(I)) is amended by inserting “, for cases
qualifying for additional payment under subparagraph (A)(i),” before
“the amount paid to the hospital under subparagraph (A)”.

(b) Disproportionate Share Adjustments.–Section
1886(d)(5)(F)(ii)(I) (42 U.S.C. 1395ww(d)(5)(F)(ii)(I)) is amended by
inserting “, for cases qualifying for additional payment under
subparagraph (A)(i),” before “the amount paid to the hospital under
subparagraph (A)”.

(c) Cost Outlier Payments.–Section 1886(d)(5)(A)(ii) (42 U.S.C.
1395ww(d)(5)(A)(ii)) is amended by striking “exceed the applicable
DRG prospective payment rate” and inserting “exceed the sum of the
applicable DRG prospective payment rate plus any amounts payable
under subparagraphs (B) and (F)”.

(d) Effective Date.–The amendments made by this section apply to
discharges occurring after September 30, 1997.

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

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

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

Section 1886(d)(5) (42 U.S.C. 1395ww(d)(5)) is amended– (1) in
subparagraph (I)(ii) by inserting “not taking in account the effect
of subparagraph (J),” after “in a fiscal year, “; and (2) by adding
at the end the following new subparagraph: (J)(i) The Secretary shall
treat the term ‘transfer case’ (as defined in subparagraph (I)(ii))
as including the case of a qualified discharge (as defined in clause
(ii)), which is classified within a diagnosis-related group described
in clause (iii), and which occurs on or after October 1, 1998. In the
case of a qualified discharge for which a substantial portion of the
costs of care are incurred in the early days of the inpatient stay
(as defined by the Secretary), in no case may the payment amount
otherwise provided under this subsection exceed an amount equal to
the sum of– (I) 50 percent of the amount of payment under this
subsection for transfer cases (as established under subparagraph
(I)(i)), and (II) 50 percent of the amount of payment which would
have been made under this subsection with respect to the qualified
discharge if no transfer were involved.

(ii) For purposes of clause (i), subject to clause (iii), the term
‘qualified discharge’ means a discharge classified with a
diagnosis-related group (described in clause (iii)) of an individual
from a subsection (d) hospital, if upon such discharge the
individual– (I) is admitted as an inpatient to a hospital or
hospital unit that is not a subsection (d) hospital for the provision
of inpatient hospital services; (II) is admitted to a skilled nursing
facility; (III) is provided home health services from a home health
agency, if such services relate to the condition or diagnosis for
which such individual received inpatient hospital services from the
subsection (d) hospital, and if such services are provided within an
appropriate period (as determined by the Secretary); or (IV) for
discharges occurring on or after October 1, 2000, the individual
receives post discharge services described in clause (iv)(I).

(iii) Subject to clause (iv), a diagnosis-related group described
in this clause is– (I) 1 of 10 diagnosis-related groups selected by
the Secretary based upon a high volume of discharges classified
within such groups and a disproportionate use of post discharge
services described in clause (ii); and (II) a diagnosis-related group
specified by the Secretary under clause (iv)(II).

(iv) The Secretary shall include in the proposed rule published
under subsection (e)(5)(A) for fiscal year 2001, a description of the
effect of this subparagraph. The Secretary may include in the
proposed rule (and in the final rule published under paragraph (6))
for fiscal year 2001 or a subsequent fiscal year, a description of–
(I) post-discharge services not described in subclauses (I), (II),
and (III) of clause (ii), the receipt of which results in a qualified
discharge; and (II) diagnosis-related groups described in clause
(iii)(I) in addition to the 10 selected under such clause.”.

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

(a) In General.–For purposes of section 1886(d) of the Social
Security Act (42 U.S.C. 1395ww(d)), the large urban area of
Charlotte- Gastonia-Rock Hill-North Carolina-South Carolina may be
deemed to include Stanly County, North Carolina.

(b) Effective Date.–This section shall apply with respect to
discharges occurring on or after October 1, 1997.

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

(a) New Guidelines for Reclassification.–Notwithstanding the
guidelines published under section 1886(d)(10)(D)(i)(I) of the Social
Security Act (42 U.S.C. 1395ww(d)(10)(D)(i)(I)), the Secretary of
Health and Human Services shall publish and use alternative
guidelines under which a hospital described in subsection (b)
qualifies for geographic reclassification under such section for a
fiscal year beginning with fiscal year 1998.

(b) Hospitals Covered.–A hospital described in this subsection is
a hospital that demonstrates that– (1) the average hourly wage paid
by the hospital is not less than 108 percent of the average hourly
wage paid by all other hospitals located in the Metropolitan
Statistical Area (or the New England County Metropolitan Area) in
which the hospital is located; (2) not less than 40 percent of the
adjusted uninflated wages paid by all hospitals located in such Area
is attributable to wages paid by the hospital; and (3) the hospital
submitted an application requesting reclassification for purposes of
wage index under section 1886(d)(10)(C) of such Act (42 U.S.C.
1395ww(d)(10)(C)) in each of fiscal years 1992 through 1997 and that
such request was approved for each of such fiscal years.

SEC. 4410. FLOOR ON AREA WAGE INDEX.

(a) In General.–For purposes of section 1886(d)(3)(E) of the
Social Security Act (42 U.S.C. 1395ww(d)(3)(E)) for discharges
occurring on or after October 1, 1997, the area wage index applicable
under such section to any hospital which is not located in a rural
area (as defined in section 1886(d)(2)(D) of such Act (42 U.S.C.

1395ww(d)(2)(D)) may not be less than the area wage index
applicable under such section to hospitals located in rural areas in
the State in which the hospital is located.

(b) Implementation.–The Secretary of Health and Human Services
shall adjust the area wage index referred to in subsection (a) for
hospitals not described in such subsection in a manner which assures
that the aggregate payments made under section 1886(d) of the Social
Security Act (42 U.S.C. 1395ww(d)) in a fiscal year for the operating
costs of inpatient hospital services are not greater or less than
those which would have been made in the year if this section did not
apply.

(c) Exclusion of Certain Wages.–In the case of a hospital that is
owned by a municipality and that was reclassified as an urban
hospital under section 1886(d)(10) of the Social Security Act for
fiscal year 1996, in calculating the hospital’s average hourly wage
for purposes of geographic reclassification under such section for
fiscal year 1998, the Secretary of Health and Human Services shall
exclude the general service wages and hours of personnel associated
with a skilled nursing facility that is owned by the hospital of the
same municipality and that is physically separated from the hospital
to the extent that such wages and hours of such personnel are not
shared with the hospital and are separately documented. A hospital
that applied for and was denied reclassification as an urban hospital
for fiscal year 1998, but that would have received reclassification
had the exclusion required by this section been applied to it, shall
be reclassified as an urban hospital for fiscal year 1998.

CHAPTER 2–PAYMENT OF PPS-EXEMPT
HOSPITALS

Subchapter A–General Payment Provisions

SEC. 4411. PAYMENT UPDATE.

(a) In General.–Section 1886(b)(3)(B) (42 U.S.C. 1395ww(b)(3)(B))
is amended– (1) in clause (ii)– (A) by striking “and” at the end of
subclause (V), (B) by redesignating subclause (VI) as subclause
(VIII); and (C) by inserting after subclause (V), the following
subclauses: (VI) for fiscal year 1998, is 0 percent; (VII) for fiscal
years 1999 through 2002, is the applicable update factor specified
under clause (vi) for the fiscal year; and”; and (2) by adding at the
end the following new clause: (vi) For purposes of clause (ii)(VII)
for a fiscal year, if a hospital’s allowable operating costs of
inpatient hospital services recognized under this title for the most
recent cost reporting period for which information is available– (I)
is equal to, or exceeds, 110 percent of the hospital’s target amount
(as determined under subparagraph (A)) for such cost reporting
period, the applicable update factor specified under this clause is
the market basket percentage; (II) exceeds 100 percent, but is less
than 110 percent, of such target amount for the hospital, the
applicable update factor specified under this clause is 0 percent or,
if greater, the market basket percentage minus 0.25 percentage points
for each percentage point by which such allowable operating costs
(expressed as a percentage of such target amount) is less than 110
percent of such target amount; (III) is equal to, or less than 100
percent, but exceeds \2/ 3\ of such target amount for the hospital,
the applicable update factor specified under this clause is 0 percent
or, if greater, the market basket percentage minus 2.5 percentage
points; or (IV) does not exceed \2/3\ of such target amount for the
hospital, the applicable update factor specified under this clause is
0 percent.”.

(b) No Effect of Payment Reduction on Exceptions and
Adjustments.– Section 1886(b)(4)(A)(ii) (42 U.S.C.
1395ww(b)(4)(A)(ii)) is amended by adding at the end the following
new sentence: In making such reductions, the Secretary shall treat
the applicable update factor described in paragraph (3)(B)(vi) for a
fiscal year as being equal to the market basket percentage for that
year.”.

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

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

SEC. 4413. REBASING.

(a) Option of Rebasing for Hospitals In Operation Before 1990.–
Section 1886(b)(3)(42 U.S.C. 1395ww(b)(3)) is amended– (1) in
subparagraph (A) by striking “subparagraphs (C), (D), and (E)” and
inserting “subparagraph (C) and succeeding subparagraphs”, and (2) by
adding at the end the following new subparagraph: (F)(i) In the case
of a hospital (or unit described in the matter following clause (v)
of subsection (d)(1)(B)) that received payment under this subsection
for inpatient hospital services furnished during cost reporting
periods beginning before October 1, 1990, that is within a class of
hospital described in clause (iii), and that elects (in a form and
manner determined by the Secretary) this subparagraph to apply to the
hospital, the target amount for the hospital’s 12-month cost
reporting period beginning during fiscal year 1998 is equal to the
average described in clause (ii).

(ii) The average described in this clause for a hospital or unit
shall be determined by the Secretary as follows: (I) The Secretary
shall determine the allowable operating costs for inpatient hospital
services for the hospital or unit for each of the 5 cost reporting
periods for which the Secretary has the most recent settled cost
reports as of the date of the enactment of this subparagraph.

(II) The Secretary shall increase the amount determined under
subclause (I) for each cost reporting period by the applicable
percentage increase under subparagraph (B)(ii) for each subsequent
cost reporting period up to the cost reporting period described in
clause (i).

(III) The Secretary shall identify among such 5 cost reporting
periods the cost reporting periods for which the amount determined
under subclause (II) is the highest, and the lowest.

(IV) The Secretary shall compute the averages of the amounts
determined under subclause (II) for the 3 cost reporting periods not
identified under subclause (III).

(iii) For purposes of this subparagraph, each of the following
shall be treated as a separate class of hospital: (I) Hospitals
described in clause (i) of subsection (d)(1)(B) and psychiatric units
described in the matter following clause (v) of such subsection.

(II) Hospitals described in clause (ii) of such subsection and
rehabilitation units described in the matter following clause (v) of
such subsection.

(III) Hospitals described in clause (iii) of such subsection.

(IV) Hospitals described in clause (iv) of such subsection.

(V) Hospitals described in clause (v) of such subsection.”.

(b) Certain Long-Term Care Hospitals.–Section 1886(b)(3) (42
U.S.C. 1395ww(b)(3)), as amended by subsection (a), is amended by
adding at the end the following new subparagraph: (G)(i) In the case
of a qualified long-term care hospital (as defined in clause (ii))
that elects (in a form and manner determined by the Secretary) this
subparagraph to apply to the hospital, the target amount for the
hospital’s 12-month cost reporting period beginning during fiscal
year 1998 is equal to the allowable operating costs of inpatient
hospital services (as defined in subsection (a)(4)) recognized under
this title for the hospital for the 12-month cost reporting period
beginning during fiscal year 1996, increased by the applicable
percentage increase for the cost reporting period beginning during
fiscal year 1997.

(ii) In clause (i), a ‘qualified long-term care hospital’ means,
with respect to a cost reporting period, a hospital described in
clause (iv) of subsection (d)(1)(B) during each of the 2 cost
reporting periods for which the Secretary has the most recent settled
cost reports as of the date of the enactment of this subparagraph for
each of which– (I) the hospital’s allowable operating costs of
inpatient hospital services recognized under this title exceeded 115
percent of the hospital’s target amount, and (II) the hospital would
have a disproportionate patient percentage of at least 70 percent (as
determined by the Secretary under subsection (d)(5)(F)(vi)) if the
hospital were a subsection (d) hospital.”.

SEC. 4414. CAP ON TEFRA LIMITS.

Section 1886(b)(3) (42 U.S.C. 1395ww(b)(3)), as amended by section
4413, is amended by adding at the end the following new subparagraph:
(H)(i) In the case of a hospital or unit that is within a class of
hospital described in clause (iv), the Secretary shall estimate the
75th percentile of the target amounts for such hospitals within such
class for cost reporting periods ending during fiscal year 1996.

(ii) The Secretary shall update the amount determined under clause
(i), for each cost reporting period after the cost reporting period
described in such clause and up to the first cost reporting period
beginning on or after October 1, 1997, by a factor equal to the
market basket percentage increase.

(iii) For cost reporting periods beginning during each of fiscal
years 1999 through 2002, the Secretary shall update such amount by a
factor equal to the market basket percentage increase.

(iv) For purposes of this subparagraph, each of the following
shall be treated as a separate class of hospital: (I) Hospitals
described in clause (i) of subsection (d)(1)(B) and psychiatric units
described in the matter following clause (v) of such subsection.

(II) Hospitals described in clause (ii) of such subsection and
rehabilitation units described in the matter following clause (v) of
such subsection.

(III) Hospitals described in clause (iv) of such subsection.”.

SEC. 4415. BONUS AND RELIEF PAYMENTS.

(a) Change in Bonus Payment.–Section 1886(b)(1) (42 U.S.C.

1395ww(b)(1)) is amended in subparagraph (A) by striking “all that
follows plus–” and inserting the following: (i) 15 percent of the
amount by which the target amount exceeds the amount of the operating
costs, or (ii) 2 percent of the target amount, whichever is less;”.

(b) Continuous Improvement Bonus Payments.–Section 1886(b) (42
U.S.C. 1395ww(b)) is amended– (1) in paragraph (1), by inserting
“plus the amount, if any, provided under paragraph (2)” before
“except that in no case”; and (2) by inserting after paragraph (1),
the following new paragraph: (2)(A) In addition to the payment
computed under paragraph (1), in the case of an eligible hospital
(described in subparagraph (B)) for a cost reporting period beginning
on or after October 1, 1997, the amount of payment on a per discharge
basis under paragraph (1) shall be increased by the lesser of– (i)
50 percent of the amount by which the operating costs are less than
the expected costs (as defined in subparagraph (D)) for the period;
or (ii) 1 percent of the target amount for the period.

(B) For purposes of this paragraph, an ‘eligible hospital’ means
with respect to a cost reporting period, a hospital– (i) that has
received payments under this subsection for at least 3 full cost
reporting periods before that cost reporting period, and (ii) whose
operating costs for the period are less than the least of its target
amount, its trended costs (as defined in subparagraph (C)), or its
expected costs (as defined in subparagraph (D)) for the period.

(C) For purposes of subparagraph (B)(ii), the term ‘trended costs’
means for a hospital cost reporting period ending in a fiscal year–
(i) in the case of a hospital for which its cost reporting period
ending in fiscal year 1996 was its third or subsequent full cost
reporting period for which it receives payments under this
subsection, the lesser of the operating costs or target amount for
that hospital for its cost reporting period ending in fiscal year
1996, or (ii) in the case of any other hospital, the operating costs
for that hospital for its third full cost reporting period for which
it receives payments under this subsection, increased (in a
compounded manner) for each succeeding fiscal year (through the
fiscal year involved) by the market basket percentage increase for
the fiscal year.

(D) For purposes of this paragraph, the term ‘expected costs’,
with respect to the cost reporting period ending in a fiscal year,
means the lesser of the operating costs of inpatient hospital
services or target amount per discharge for the previous cost
reporting period updated by the market basket percentage increase (as
defined in paragraph (3)(B)(iii)) for the fiscal year.”.

(c) Change in Relief Payments.–Section 1886(b)(1) (42 U.S.C.
1395ww(b)(1)), as amended in subsections (a) and (b), is further
amended– (1) by redesignating subparagraph (B) as subparagraph (C)
(2) in subparagraph (C), as so redesignated– (A) by striking
“greater than the target amount” and inserting “greater than 110
percent of the target amount”, and (B) by striking “exceed the target
amount” and inserting “exceed 110 percent of the target amount”, and
(3) by inserting after subparagraph (A), the following new
subparagraph: (B) are greater than the target amount but do not
exceed 110 percent of the target amount, the amount of the payment
with respect to those operating costs payable under part A on a per
discharge basis shall equal the target amount; or”.

(d) Report.–Not later than October 1, 1999, the Secretary of
Health and Human Services shall submit to the Committee on Ways and
Means of the House of Representatives and the Committee on Finance of
the Senate a report that describes the effect of the amendments to
section 1886(b)(1) of the Social Security Act (42 U.S.C.
1395ww(b)(1)), made under this section, on psychiatric hospitals (as
defined in section 1886(d)(1)(B)(i) of such Act (42 U.S.C.
1395ww(d)(1)(B)(i)) that have approved medical residency training
programs under title XVIII of such Act (42 U.S.C. 1395 et seq.)).

(e) Effective Date.–The amendments made by subsections (a) and
(c) shall apply with respect to cost reporting periods beginning on
or after October 1, 1997.

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

Section 1886(b) (42 U.S.C. 1395ww(b)) is amended– (1) by adding
at the end the following new paragraph: (7)(A) Notwithstanding
paragraph (1), in the case of a hospital or unit that is within a
class of hospital described in subparagraph (B) which first receives
payments under this section on or after October 1, 1997– (i) for
each of the first 2 cost reporting periods for which the hospital has
a settled cost report, the amount of the payment with respect to
operating costs described in paragraph (1) under part A on a per
discharge or per admission basis (as the case may be) is equal to the
lesser of– (I) the amount of operating costs for such respective
period, or (II) 110 percent of the national median of the target
amount for hospitals in the same class as the hospital for cost
reporting periods ending during fiscal year 1996, updated by the
hospital market basket increase percentage to the fiscal year in
which the hospital first received payments under this section, as
adjusted under subparagraph (C); and (ii) for purposes of computing
the target amount for the subsequent cost reporting period, the
target amount for the preceding cost reporting period is equal to the
amount determined under clause (i) for such preceding period.

(B) For purposes of this paragraph, each of the following shall be
treated as a separate class of hospital: (i) Hospitals described in
clause (i) of subsection (d)(1)(B) and psychiatric units described in
the matter following clause (v) of such subsection.

(ii) Hospitals described in clause (ii) of such subsection and
rehabilitation units described in the matter following clause (v) of
such subsection.

(iii) Hospitals described in clause (iv) of such subsection.

(C) In applying subparagraph (A)(i)(II) in the case of a hospital
or unit, the Secretary shall provide for an appropriate adjustment to
the labor-related portion of the amount determined under such
subparagraph to take into account differences between average wage-
related costs in the area of the hospital and the national average of
such costs within the same class of hospital.”; and (2) in paragraph
(3)(A), as amended in sections 4413 and 4414, by inserting “and in
paragraph (7)(A)(ii),” before “for purposes of”.

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

(a) In General.–(1) Section 1886(d)(1)(B) (42 U.S.C.

1395ww(d)(1)(B)) is amended by adding at the end the following new
sentence: A hospital that was classified by the Secretary on or
before September 30, 1995, as a hospital described in clause (iv)
shall continue to be so classified notwithstanding that it is located
in the same building as, or on the same campus as, another
hospital.”.

(2) Effective date.–The amendment made by paragraph (1) shall
apply to discharges occurring on or after October 1, 1995.

(b) Certain Long-Term Care Hospitals That Treat Cancer Patients.–
(1) Section 1886(d)(1)(B)(iv) (42 U.S.C. 1395ww(d)(1)(B)(iv)) is
amended– (A) by inserting “(I)” after “(iv)”; and (B) by adding at
the end the following: (II) a hospital that first received payment
under this subsection in 1986 which has an average inpatient length
of stay (as determined by the Secretary) of greater than 20 days and
that has 80 percent or more of its annual medicare inpatient
discharges with a principal diagnosis that reflects a finding of
neoplastic disease in the 12-month cost reporting period ending in
fiscal year 1997, or”.

(2) Effective date.–The amendment made by paragraph (1) shall
apply to cost reporting periods beginning on or after the date of the
enactment of this Act.

SEC. 4418. TREATMENT OF CERTAIN CANCER HOSPITALS.

(a) In General.–Section 1886(d)(1) (42 U.S.C. 1395ww(d)(1)) is
amended– (1) in subparagraph (B)(v)– (A) by inserting “(I)” after
“(v)”; (B) by striking the semicolon at the end and inserting “, or”;
and (C) by adding at the end the following: (II) a hospital that was
recognized as a comprehensive cancer center or clinical cancer
research center by the National Cancer Institute of the National
Institutes of Health as of April 20, 1983, that is located in a State
which, as of December 19, 1989, was not operating a demonstration
project under section 1814(b), that applied and was denied, on or
before December 31, 1990, for classification as a hospital involved
extensively in treatment for or research on cancer under this clause
(as in effect on the day before the date of the enactment of this
subclause), that as of the date of the enactment of this subclause,
is licensed for less than 50 acute care beds, and that demonstrates
for the 4-year period ending on December 31, 1996, that at least 50
percent of its total discharges have a principal finding of
neoplastic disease, as defined in subparagraph (E);” and (2) by
adding at the end the following: (E) For purposes of subparagraph
(B)(v)(II) only, the term ‘principal finding of neoplastic disease’
means the condition established after study to be chiefly responsible
for occasioning the admission of a patient to a hospital, except that
only discharges with ICD-9-CM principal diagnosis codes of 140
through 239, V58.0, V58.1, V66.1, V66.2, or 990 will be considered to
reflect such a principal diagnosis.”.

(b) Payment.– (1) Application to cost reporting periods.–Any
classification by reason of section 1886(d)(1)(B)(v)(II) of the
Social Security Act (42 U.S.C. 1395ww(d)(1)(B)(v)(II)) (as added by
subsection (a)) shall apply to all cost reporting periods beginning
on or after January 1, 1991.

(2) Base year.–Notwithstanding the provisions of section
1886(b)(3)(E) of such Act (42 U.S.C. 1395ww(b)(3)(E)) or other
provisions to the contrary, the base cost reporting period for
purposes of determining the target amount for any hospital classified
by reason of section 1886(d)(1)(B)(v)(II) of such Act shall be
either– (A) the hospital’s cost reporting period beginning during
fiscal year 1990, or (B) pursuant to an election under 1886(b)(3)(G)
of such Act (42 U.S.C. 1395ww(b)(3)(G)), as added in section 4413(b),
the period provided for under such section.

(3) Deadline for payments.–Any payments owed to a hospital by
reason of this subsection shall be made expeditiously, but in no
event later than 1 year after the date of the enactment of this Act.

SEC. 4419. ELIMINATION OF EXEMPTIONS FOR CERTAIN HOSPITALS.

(a) Reduction of Exemptions.– (1) In general.–Section
1886(b)(4)(A)(i) (42 U.S.C. 1395ww(b)(4)(A)(i)) is amended in the
first sentence by striking “The Secretary shall provide for an
exemption from, or an exception and adjustment to, ” and inserting
“The Secretary shall provide for an exception and adjustment to (and
in the case of a hospital or unit described in subsection
(d)(1)(B)(iii), may provide an exemption from)”.

(2) Effective date.–The amendment made by paragraph (1) shall
apply to hospitals or units that first qualify as a hospital or unit
described in section 1886(d)(1)(B) (42 U.S.C. 1395ww(d)(1)(B)) for
cost reporting periods beginning on or after October 1, 1997.

(b) Report on Exceptions.–The Secretary of Health and Human
Services shall publish annually in the Federal Register a report
describing the total amount of payments made to hospitals by reason
of section 1886(b)(4) of the Social Security Act (42 U.S.C.
1395ww(b)(4)), as amended by subsection (a), ending during the
previous fiscal year.

Subchapter B–Prospective Payment System for PPS-Exempt Hospitals

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

(a) In General.–Section 1886 (42 U.S.C. 1395ww) is amended by
adding at the end the following new subsection: (j) Prospective
Payment for Inpatient Rehabilitation Services.– (1) Payment during
transition period.– (A) In general.–Notwithstanding section
1814(b), but subject to the provisions of section 1813, the amount of
the payment with respect to the operating and capital costs of
inpatient hospital services of a rehabilitation hospital or a
rehabilitation unit (in this subsection referred to as a
‘rehabilitation facility’), in a cost reporting period beginning on
or after October 1, 2000, and before October 1, 2002, is equal to the
sum of– (i) the TEFRA percentage (as defined in subparagraph (C)) of
the amount that would have been paid under part A with respect to
such costs if this subsection did not apply, and (ii) the prospective
payment percentage (as defined in subparagraph (C)) of the product of
(I) the per unit payment rate established under this subsection for
the fiscal year in which the payment unit of service occurs, and (II)
the number of such payment units occurring in the cost reporting
period.

(B) Fully implemented system.–Notwithstanding section 1814(b),
but subject to the provisions of section 1813, the amount of the
payment with respect to the operating and capital costs of inpatient
hospital services of a rehabilitation facility for a payment unit in
a cost reporting period beginning on or after October 1, 2002, is
equal to the per unit payment rate established under this subsection
for the fiscal year in which the payment unit of service occurs.

(C) TEFRA and prospective payment percentages specified.–For
purposes of subparagraph (A), for a cost reporting period beginning–
(i) on or after October 1, 2000, and before October 1, 2001, the
‘TEFRA percentage’ is 66\2/3\ percent and the ‘prospective payment
percentage’ is 33\1/3\ percent; and (ii) on or after October 1, 2001,
and before October 1, 2002, the ‘TEFRA percentage’ is 33\1/3\ percent
and the ‘prospective payment percentage’ is 66\2/3\ percent.

(D) Payment unit.–For purposes of this subsection, the term
‘payment unit’ means a discharge, day of inpatient hospital services,
or other unit of payment defined by the Secretary.

(2) Patient case mix groups.– (A) Establishment.–The Secretary
shall establish– (i) classes of patients of rehabilitation
facilities (each in this subsection referred to as a ‘case mix
group’), based on such factors as the Secretary deems appropriate,
which may include impairment, age, related prior hospitalization,
comorbidities, and functional capability of the patient; and (ii) a
method of classifying specific patients in rehabilitation facilities
within these groups.

(B) Weighting factors.–For each case mix group the Secretary
shall assign an appropriate weighting which reflects the relative
facility resources used with respect to patients classified within
that group compared to patients classified within other groups.

(C) Adjustments for case mix.– (i) In general.–The Secretary
shall from time to time adjust the classifications and weighting
factors established under this paragraph as appropriate to reflect
changes in treatment patterns, technology, case mix, number of
payment units for which payment is made under this title, and other
factors which may affect the relative use of resources. Such
adjustments shall be made in a manner so that changes in aggregate
payments under the classification system are a result of real changes
and are not a result of changes in coding that are unrelated to real
changes in case mix.

(ii) Adjustment.–Insofar as the Secretary determines that such
adjustments for a previous fiscal year (or estimates that such
adjustments for a future fiscal year) did (or are likely to) result
in a change in aggregate payments under the classification system
during the fiscal year that are a result of changes in the coding or
classification of patients that do not reflect real changes in case
mix, the Secretary shall adjust the per payment unit payment rate for
subsequent years so as to eliminate the effect of such coding or
classification changes.

(D) Data collection.–The Secretary is authorized to require
rehabilitation facilities that provide inpatient hospital services to
submit such data as the Secretary deems necessary to establish and
administer the prospective payment system under this subsection.

(3) Payment rate.– (A) In general.–The Secretary shall determine
a prospective payment rate for each payment unit for which such
rehabilitation facility is entitled to receive payment under this
title. Subject to subparagraph (B), such rate for payment units
occurring during a fiscal year shall be based on the average payment
per payment unit under this title for inpatient operating and capital
costs of rehabilitation facilities using the most recent data
available (as estimated by the Secretary as of the date of
establishment of the system) adjusted– (i) by updating such
per-payment-unit amount to the fiscal year involved by the weighted
average of the applicable percentage increases provided under
subsection (b)(3)(B)(ii) (for cost reporting periods beginning during
the fiscal year) covering the period from the midpoint of the period
for such data through the midpoint of fiscal year 2000 and by an
increase factor (described in subparagraph (C)) specified by the
Secretary for subsequent fiscal years up to the fiscal year involved;
(ii) by reducing such rates by a factor equal to the proportion of
payments under this subsection (as estimated by the Secretary) based
on prospective payment amounts which are additional payments
described in paragraph (4) (relating to outlier and related
payments); (iii) for variations among rehabilitation facilities by
area under paragraph (6); (iv) by the weighting factors established
under paragraph (2)(B); and (v) by such other factors as the
Secretary determines are necessary to properly reflect variations in
necessary costs of treatment among rehabilitation facilities.

(B) Budget neutral rates.–The Secretary shall establish the
prospective payment amounts under this subsection for payment units
during fiscal years 2001 and 2002 at levels such that, in the
Secretary’s estimation, the amount of total payments under this
subsection for such fiscal years (including any payment adjustments
pursuant to paragraphs (4) and (6)) shall be equal to 98 percent of
the amount of payments that would have been made under this title
during the fiscal years for operating and capital costs of
rehabilitation facilities had this subsection not been enacted. In
establishing such payment amounts, the Secretary shall consider the
effects of the prospective payment system established under this
subsection on the total number of payment units from rehabilitation
facilities and other factors described in subparagraph (A).

(C) Increase factor.–For purposes of this subsection for payment
units in each fiscal year (beginning with fiscal year 2001), the
Secretary shall establish an increase factor. Such factor shall be
based on an appropriate percentage increase in a market basket of
goods and services comprising services for which payment is made
under this subsection, which may be the market basket percentage
increase described in subsection (b)(3)(B)(iii).

(4) Outlier and special payments.– (A) Outliers.– (i) In
general.–The Secretary may provide for an additional payment to a
rehabilitation facility for patients in a case mix group, based upon
the patient being classified as an outlier based on an unusual length
of stay, costs, or other factors specified by the Secretary.

(ii) Payment based on marginal cost of care.–The amount of such
additional payment under clause (i) shall be determined by the
Secretary and shall approximate the marginal cost of care beyond the
cutoff point applicable under clause (i).

(iii) Total payments.–The total amount of the additional payments
made under this subparagraph for payment units in a fiscal year may
not exceed 5 percent of the total payments projected or estimated to
be made based on prospective payment rates for payment units in that
year.

(B) Adjustment.–The Secretary may provide for such adjustments to
the payment amounts under this subsection as the Secretary deems
appropriate to take into account the unique circumstances of
rehabilitation facilities located in Alaska and Hawaii.

(5) Publication.–The Secretary shall provide for publication in
the Federal Register, on or before August 1 before each fiscal year
(beginning with fiscal year 2001), of the classification and
weighting factors for case mix groups under paragraph (2) for such
fiscal year and a description of the methodology and data used in
computing the prospective payment rates under this subsection for
that fiscal year.

(6) Area wage adjustment.–The Secretary shall adjust the
proportion (as estimated by the Secretary from time to time) of
rehabilitation facilities’ costs which are attributable to wages and
wage-related costs, of the prospective payment rates computed under
paragraph (3) for area differences in wage levels by a factor
(established by the Secretary) reflecting the relative hospital wage
level in the geographic area of the rehabilitation facility compared
to the national average wage level for such facilities.

Not later than October 1, 2001 (and at least every 36 months
thereafter), the Secretary shall update the factor under the
preceding sentence on the basis of information available to the
Secretary (and updated as appropriate) of the wages and wage- related
costs incurred in furnishing rehabilitation services. Any adjustments
or updates made under this paragraph for a fiscal year shall be made
in a manner that assures that the aggregated payments under this
subsection in the fiscal year are not greater or less than those that
would have been made in the year without such adjustment.

(7) Limitation on review.–There shall be no administrative or
judicial review under section 1869, 1878, or otherwise of the
establishment of– (A) case mix groups, of the methodology for the
classification of patients within such groups, and of the appropriate
weighting factors thereof under paragraph (2), (B) the prospective
payment rates under paragraph (3), (C) outlier and special payments
under paragraph (4), and (D) area wage adjustments under paragraph
(6).”.

(b) Conforming Amendments.–Section 1886(b) (42 U.S.C. 1395ww(b))
is amended– (1) in paragraph (1), by inserting “and other than a
rehabilitation facility described in subsection (j)(1)” after
“subsection (d)(1)(B)”, and (2) in paragraph (3)(B)(i), by inserting
“and subsection (j)” after “For purposes of subsection (d)”.

(c) Effective Date.–The amendments made by this section shall
apply to cost reporting periods beginning on or after October 1,
2000, except that the Secretary of Health and Human Services may
require the submission of data under section 1886(j)(2)(D) of the
Social Security Act (as added by subsection (a)) on and after the
date of the enactment of this section.

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

(a) In General.– (1) Legislative proposal.–The Secretary of
Health and Human Services shall develop a legislative proposal for
establishing a case-mix adjusted prospective payment system for
payment of long- term care hospitals described in section
1886(d)(1)(B)(iv) of the Social Security Act (42 U.S.C.
1395ww(d)(1)(B)(iv)) under the medicare program. Such system shall
include an adequate patient classification system that reflects the
differences in patient resource use and costs among such hospitals.

(2) Collection of data and evaluation.–In developing the
legislative proposal described in paragraph (1), the Secretary– (A)
may require such long-term care hospitals to submit such information
to the Secretary as the Secretary may require to develop the
proposal; and (B) shall consider several payment methodologies,
including the feasibility of expanding the current diagnosis-related
groups and prospective payment system established under section
1886(d) of the Social Security Act to apply to payments under the
medicare program to long-term care hospitals.

(b) Report.–Not later than October 1, 1999, the Secretary shall
submit to the appropriate committees of Congress a report that
includes the legislative proposal developed under subsection (a)(1).

CHAPTER 3–PAYMENT FOR SKILLED NURSING
FACILITIES

SEC. 4431. EXTENSION OF COST LIMITS.

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

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

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

(2) Definitions.–For purposes of this subsection: (A) Covered
skilled nursing facility services.– (i) In general.–The term
‘covered skilled nursing facility services’–

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

(ii) Services excluded.–Services described in this clause are
physicians’ services, services described by clauses (i) through (iii)
of section 1861(s)(2)(K), certified nurse-midwife services, qualified
psychologist services, services of a certified registered nurse
anesthetist, items and services described in subparagraphs (F) and
(O) of section 1861(s)(2), and, only with respect to services
furnished during 1998, the transportation costs of electrocardiogram
equipment for electrocardiogram test services (HCPCS Code R0076).
Services described in this clause do not include any physical,
occupational, or speech-language therapy services regardless of
whether or not the services are furnished by, or under the
supervision of, a physician or other health care professional.

(B) All costs.–The term ‘all costs’ means routine service costs,
ancillary costs, and capital-related costs of covered skilled nursing
facility services, but does not include costs associated with
approved educational activities.

(C) Non-federal percentage; federal percentage.–For– (i) the
first cost reporting period (as defined in subparagraph (D)) of a
facility, the ‘non-Federal percentage’ is 75 percent and the ‘Federal
percentage’ is 25 percent; (ii) the next cost reporting period of
such facility, the ‘non-Federal percentage’ is 50 percent and the
‘Federal percentage’ is 50 percent; and (iii) the subsequent cost
reporting period of such facility, the ‘non-Federal percentage’ is 25
percent and the ‘Federal percentage’ is 75 percent.

(D) First cost reporting period.–The term ‘first cost reporting
period’ means, with respect to a skilled nursing facility, the first
cost reporting period of the facility beginning on or after July 1,
1998.

(E) Transition period.– (i) In general.–The term ‘transition
period’ means, with respect to a skilled nursing facility, the 3 cost
reporting periods of the facility beginning with the first cost
reporting period.

(ii) Treatment of new skilled nursing facilities.–In the case of
a skilled nursing facility that first received payment for services
under this title on or after October 1, 1995, payment for such
services shall be made under this subsection as if all services were
furnished after the transition period.

(3) Determination of facility specific per diem rates.–The
Secretary shall determine a facility-specific per diem rate for each
skilled nursing facility not described in paragraph (2)(E)(ii) for a
cost reporting period as follows: (A) Determining base payments.–The
Secretary shall determine, on a per diem basis, the total of– (i)
the allowable costs of extended care services for the facility for
cost reporting periods beginning in fiscal year 1995, including costs
associated with facilities described in subsection (d), with
appropriate adjustments (as determined by the Secretary) to
non-settled cost reports, and (ii) an estimate of the amounts that
would be payable under part B (disregarding any applicable
deductibles, coinsurance, and copayments) for covered skilled nursing
facility services described in paragraph (2)(A)(i)(II) furnished
during such period to an individual who is a resident of the
facility, regardless of whether or not the payment was made to the
facility or to another entity.

In making appropriate adjustments under clause (i), the Secretary
shall take into account exceptions and shall take into account
exemptions but, with respect to exemptions, only to the extent that
routine costs do not exceed 150 percent of the routine cost limits
otherwise applicable but for the exemption.

(B) Update to first cost reporting period.– (i) In
general.–Subject to clause (ii), the Secretary shall update the
amount determined under subparagraph (A), for each cost reporting
period after the cost reporting period described in subparagraph
(A)(i) and up to the first cost reporting period by a factor equal to
the skilled nursing facility market basket percentage increase minus
1 percentage point.

(ii) Certain demonstration projects.–In the case of a facility
participating in the Nursing Home Case-Mix and Quality Demonstration
(RUGS-III), there shall be substituted for the amount described in
clause (i) the RUGS-III rate received by the facility for 1997.

(C) Updating to applicable cost reporting period.–The Secretary
shall update the amount determined under subparagraph (B) for each
cost reporting period beginning with the first cost reporting period
and up to and including the cost reporting period involved by a
factor equal to the facility- specific update factor.

(D) Facility-specific update factor.–For purposes of this
paragraph, the ‘facility-specific update factor’ for cost reporting
periods beginning during– (i) during each of fiscal years 1998 and
1999, is equal to the skilled nursing facility market basket
percentage increase for such fiscal year minus 1 percentage point,
and (ii) during each subsequent fiscal year is equal to the skilled
nursing facility market basket percentage increase for such fiscal
year.

(4) Federal per diem rate.– (A) Determination of historical per
diem for facilities.–For each skilled nursing facility that received
payments for post-hospital extended care services during a cost
reporting period beginning in fiscal year 1995 and that was subject
to (and not exempted from) the per diem limits referred to in
paragraph (1) or (2) of subsection (a) (and facilities described in
subsection (d)), the Secretary shall estimate, on a per diem basis
for such cost reporting period, the total of– (i) the allowable
costs of extended care services (excluding exceptions payments) for
the facility for cost reporting periods beginning in 1995 with
appropriate adjustments (as determined by the Secretary) to
non-settled cost reports, and (ii) an estimate of the amounts that
would be payable under part B (disregarding any applicable
deductibles, coinsurance, and copayments) for covered skilled nursing
facility services described in paragraph (2)(A)(i)(II) furnished
during such period to an individual who is a resident of the
facility, regardless of whether or not the payment was made to the
facility or to another entity.

(B) Update to first fiscal year.–The Secretary shall update the
amount determined under subparagraph (A), for each cost reporting
period after the cost reporting period described in subparagraph
(A)(i) and up to the first cost reporting period by a factor equal to
the skilled nursing facility market basket percentage increase
reduced (on an annualized basis) by 1 percentage point.

(C) Computation of standardized per diem rate.–The Secretary
shall standardize the amount updated under subparagraph (B) for each
facility by– (i) adjusting for variations among facilities by area
in the average facility wage level per diem, and (ii) adjusting for
variations in case mix per diem among facilities.

(D) Computation of weighted average per diem rates.– (i) All
facilities.–The Secretary shall compute a weighted average per diem
rate for all facilities by computing an average of the standardized
amounts computed under subparagraph (C), weighted for each facility
by the number of days of extended care services furnished during the
cost reporting period referred to in subparagraph (A).

(ii) Freestanding facilities.–The Secretary shall compute a
weighted average per diem rate for freestanding facilities by
computing an average of the standardized amounts computed under
subparagraph (C) only for such facilities , weighted for each
facility by the number of days of extended care services furnished
during the cost reporting period referred to in subparagraph (A).

(iii) Separate computation.–The Secretary may compute and apply
such averages separately for facilities located in urban and rural
areas (as defined in section 1886(d)(2)(D)).

(E) Updating.– (i) Initial period.–For the initial period
beginning on July 1, 1998, and ending on September 30, 1999, the
Secretary shall compute for skilled nursing facilities an unadjusted
federal per diem rate equal to the average of the weighted average
per diem rates computed under clauses (i) and (ii) of subparagraph
(D), increased by skilled nursing facility market basket percentage
change for such period minus 1 percentage point.

(ii) Subsequent fiscal years.–The Secretary shall compute an
unadjusted federal per diem rate equal to the federal per diem rate
computed under this subparagraph–

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

(F) Adjustment for case mix creep.–Insofar as the Secretary
determines that the adjustments under subparagraph (G)(i) for a
previous fiscal year (or estimates that such adjustments for a future
fiscal year) did (or are likely to) result in a change in aggregate
payments under this subsection during the fiscal year that are a
result of changes in the coding or classification of residents that
do not reflect real changes in case mix, the Secretary may adjust
unadjusted Federal per diem rates for subsequent fiscal years so as
to eliminate the effect of such coding or classification changes.

(G) Determination of federal rate.–The Secretary shall compute
for each skilled nursing facility for each fiscal year (beginning
with the initial period described in subparagraph (E)(i)) an adjusted
Federal per diem rate equal to the unadjusted Federal per diem rate
determined under subparagraph (E), as adjusted under subparagraph
(F), and as further adjusted as follows: (i) Adjustment for case
mix.–The Secretary shall provide for an appropriate adjustment to
account for case mix. Such adjustment shall be based on a resident
classification system, established by the Secretary, that accounts
for the relative resource utilization of different patient types. The
case mix adjustment shall be based on resident assessment data and
other data that the Secretary considers appropriate.

(ii) Adjustment for geographic variations in labor costs.–The
Secretary shall adjust the portion of such per diem rate attributable
to wages and wage-related costs for the area in which the facility is
located compared to the national average of such costs using an
appropriate wage index as determined by the Secretary. Such
adjustment shall be done in a manner that does not result in
aggregate payments under this subsection that are greater or less
than those that would otherwise be made if such adjustment had not
been made.

(H) Publication of information on per diem rates.–The Secretary
shall provide for publication in the Federal Register, before May 1,
1998 (with respect to fiscal period described in subparagraph (E)(i))
and before the August 1 preceding each succeeding fiscal year (with
respect to that succeeding fiscal year), of– (i) the unadjusted
Federal per diem rates to be applied to days of covered skilled
nursing facility services furnished during the fiscal year, (ii) the
case mix classification system to be applied under subparagraph
(G)(i) with respect to such services during the fiscal year, and
(iii) the factors to be applied in making the area wage adjustment
under subparagraph (G)(ii) with respect to such services.

(5) Skilled nursing facility market basket index and
percentage.–For purposes of this subsection: (A) Skilled nursing
facility market basket index.–The Secretary shall establish a
skilled nursing facility market basket index that reflects changes
over time in the prices of an appropriate mix of goods and services
included in covered skilled nursing facility services.

(B) Skilled nursing facility market basket percentage.– The term
‘skilled nursing facility market basket percentage’ means, for a
fiscal year or other annual period and as calculated by the
Secretary, the percentage change in the skilled nursing facility
market basket index (established under subparagraph (A)) from the
midpoint of the prior fiscal year (or period) to the midpoint of the
fiscal year (or other period) involved.

(6) Submission of resident assessment data.–A skilled nursing
facility, or a facility described in paragraph (7)(B), shall provide
the Secretary, in a manner and within the timeframes prescribed by
the Secretary, the resident assessment data necessary to develop and
implement the rates under this subsection. For purposes of meeting
such requirement, a skilled nursing facility, or a facility described
in paragraph (7), may submit the resident assessment data required
under section 1819(b)(3), using the standard instrument designated by
the State under section 1819(e)(5).

(7) Transition for medicare swing bed hospitals.– (A) In
general.–The Secretary shall determine an appropriate manner in
which to apply this subsection to the facilities described in
subparagraph (B), taking into account the purposes of this
subsection, and shall provide that at the end of the transition
period (as defined in paragraph (2)(E)) such facilities shall be paid
only under this subsection.

Payment shall not be made under this subsection to such facilities
for cost reporting periods beginning before such date (not earlier
than July 1, 1999) as the Secretary specifies.

(B) Facilities described.–The facilities described in this
subparagraph are facilities that have in effect an agreement
described in section 1883, for which payment is made for the
furnishing of extended care services on a reasonable cost basis under
section 1814(l) (as in effect on and after such date).

(8) Limitation on review.–There shall be no administrative or
judicial review under section 1869, 1878, or otherwise of– (A) the
establishment of Federal per diem rates under paragraph (4),
including the computation of the standardized per diem rates under
paragraph (4)(C), adjustments and corrections for case mix under
paragraphs (4)(F) and (4)(G)(i), and adjustments for variations in
labor-related costs under paragraph (4)(G)(ii); (B) the establishment
of facility specific rates before January 1, 1999, (except any
determination of costs paid under part A of this title); and (C) the
establishment of transitional amounts under paragraph (7).”.

(b) Consolidated Billing.– (1) For snf services.–Section 1862(a)
(42 U.S.C. 1395y(a)), as amended by 4319(b), is amended– (A) by
striking “or” at the end of paragraph (16), (B) by striking the
period at the end of paragraph (17) and inserting “; or”, and (C) by
inserting after paragraph (17) the following new paragraph: (18)
which are covered skilled nursing facility services described in
section 1888(e)(2)(A)(i) and which are furnished to an individual who
is a resident of a skilled nursing facility or of a part of a
facility that includes a skilled nursing facility (as determined
under regulations), by an entity other than the skilled nursing
facility, unless the services are furnished under arrangements (as
defined in section 1861(w)(1)) with the entity made by the skilled
nursing facility.”.

(2) Requiring payment for all part b items and services to be made
to facility.–The first sentence of section 1842(b)(6) (42 U.S.C.
1395u(b)(6)) is amended– (A) by striking “and (D)” and inserting
“(D)”; and (B) by striking the period at the end and inserting the
following: , and (E) in the case of an item or service (other than
services described in section 1888(e)(2)(A)(ii)) furnished to an
individual who (at the time the item or service is furnished) is a
resident of a skilled nursing facility or of a part of a facility
that includes a skilled nursing facility (as determined under
regulations), payment shall be made to the facility (without regard
to whether or not the item or service was furnished by the facility,
by others under arrangement with them made by the facility, under any
other contracting or consulting arrangement, or otherwise).”.

(3) Payment rules.–Section 1888(e) (42 U.S.C. 1395yy(e)), as
added by subsection (a), is amended by adding at the end the
following: (9) Payment for certain services.–In the case of an item
or service furnished to a resident of a skilled nursing facility or a
part of a facility that includes a skilled nursing facility (as
determined under regulations) for which payment would (but for this
paragraph) be made under part B in an amount determined in accordance
with section 1833(a)(2)(B), the amount of the payment under such part
shall be the amount provided under the fee schedule for such item or
service.

(10) Required coding.–No payment may be made under part B for
items and services (other than services described in paragraph
(2)(A)(ii)) furnished to an individual who is a resident of a skilled
nursing facility or of a part of a facility that includes a skilled
nursing facility (as determined under regulations), unless the claim
for such payment includes a code (or codes) under a uniform coding
system specified by the Secretary that identifies the items or
services furnished.”.

(4) Facility provider number required on claims submitted by
physicians.–Section 1842 (42 U.S.C. 1395u) is amended by adding at
the end the following new section: (t) Each request for payment, or
bill submitted, for an item or service furnished by a physician to an
individual who is a resident of a skilled nursing facility or of a
part of a facility that includes a skilled nursing facility (as
determined under regulations), for which payment may be made under
this part shall include the facility’s medicare provider number.”.

(5) Conforming amendments.– (A) Section 1819(b)(3)(C)(i) (42
U.S.C. 1395i- 3(b)(3)(C)(i)) is amended by striking “Such” and
inserting “Subject to the timeframes prescribed by the Secretary
under section 1888(e)(6), such”.

(B) Section 1832(a)(1) (42 U.S.C. 1395k(a)(1)) is amended by
striking “(2);” and inserting “(2) and section 1842(b)(6)(E);”.

(C) Section 1833(a)(2)(B) (42 U.S.C. 1395l(a)(2)(B)) is amended by
inserting “or section 1888(e)(9)” after “section 1886”.

(D) Section 1861(h) (42 U.S.C 1395x(h)) is amended– (i) in the
opening paragraph, by striking “paragraphs (3) and (6)” and inserting
“paragraphs (3), (6), and (7)”, and (ii) in paragraph (7), after
“skilled nursing facilities”, by inserting “, or by others under
arrangements with them made by the facility”.

(E) Section 1861(v)(7)(D) (42 U.S.C. 1395x(v)(7)(D)) is amended by
inserting “subsections (a) through (c) of” before “section 1888.”.

(F) Section 1866(a)(1)(H) (42 U.S.C. 1395cc(a)(1)(H)) is amended–
(i) by redesignating clauses (i) and (ii) as subclauses (I) and (II)
respectively, (ii) by inserting “(i)” after “(H)”, and (iii) by
adding after clause (i), as so redesignated, the following new
clause: (ii) in the case of skilled nursing facilities which provide
covered skilled nursing facility services– (I) that are furnished to
an individual who is a resident of the skilled nursing facility, and
(II) for which the individual is entitled to have payment made under
this title, to have items and services (other than services described
in section 1888(e)(2)(A)(ii)) furnished by the skilled nursing
facility or otherwise under arrangements (as defined in section
1861(w)(1)) made by the skilled nursing facility,”.

(G) Section 1883(a)(2)(B)(ii)(II) (42 U.S.C.
1395tt(a)(2)(B)(ii)(II)) is amended by inserting “subsections (a)
through (d) of” before “section 1888”.

(H) Section 1888(d)(1) (42 U.S.C. 1395yy(d)(1)) is amended by
striking “Any skilled nursing facility” and inserting “Subject to
subsection (e), any skilled nursing facility”.

(c) Medical Review Process.–In order to ensure that medicare
beneficiaries are furnished appropriate services in skilled nursing
facilities, the Secretary of Health and Human Services shall
establish and implement a thorough medical review process to examine
the effects of the amendments made by this section on the quality of
covered skilled nursing facility services furnished to medicare
beneficiaries.

In developing such a medical review process, the Secretary shall
place a particular emphasis on the quality of non-routine covered
services and physicians’ services for which payment is made under
title XVIII of the Social Security Act.

(d) Effective Date.–The amendments made by this section are
effective for cost reporting periods beginning on or after July 1,
1998; except that the amendments made by subsection (b) shall apply
to items and services furnished on or after July 1, 1998.

CHAPTER 4–PROVISIONS RELATED TO HOSPICE
SERVICES

SEC. 4441. PAYMENTS FOR HOSPICE SERVICES.

(a) Payment Update.–Section 1814(i)(1)(C)(ii) (42 U.S.C.

1395f(i)(1)(C)(ii)) is amended– (1) in subclause (V), by striking
“and” at the end; (2) by redesignating subclause (VI) as subclause
(VII); and (3) by inserting after subclause (V) the following new
subclause: (VI) for each of fiscal years 1998 through 2002, the
market basket percentage increase for the fiscal year involved minus
1.0 percentage points; and”.

(b) Collection of Data.–Section 1814(i) (42 U.S.C. 1395f(i)) is
amended by adding at the end the following new paragraph: (3) Hospice
programs providing hospice care for which payment is made under this
subsection shall submit to the Secretary such data with respect to
the costs for providing such care for each fiscal year, beginning
with fiscal year 1999, as the Secretary determines necessary.”.

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

(a) In General.–Section 1814(i)(2) (42 U.S.C. 1395f(i)(2)) is
amended by adding at the end the following: (D) A hospice program
shall submit claims for payment for hospice care furnished in an
individual’s home under this title only on the basis of the
geographic location at which the service is furnished, as determined
by the Secretary.”.

(b) Effective Date.–The amendment made by subsection (a) applies
to cost reporting periods beginning on or after October 1, 1997.

SEC. 4443. HOSPICE CARE BENEFITS PERIODS.

(a) Restructuring of Benefit Period.–Section 1812 (42 U.S.C.

1395d) is amended in subsections (a)(4) and (d)(1) by striking “,
a subsequent period of 30 days, and a subsequent extension period”
and inserting “and an unlimited number of subsequent periods of 60
days each”.

(b) Conforming Amendments.–(1) Section 1812 (42 U.S.C. 1395d) is
amended in subsection (d)(2)(B) by striking “90- or 30-day period or
a subsequent extension period” and inserting “90-day period or a
subsequent 60-day period”.

(2) Section 1814(a)(7)(A) (42 U.S.C. 1395f(a)(7)(A)) is amended–
(A) in clause (i), by inserting “and” at the end; (B) in clause
(ii)– (i) by striking “30-day” and inserting “60-day”; and (ii) by
striking “, and” at the end and inserting a period; and (C) by
striking clause (iii).

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

(a) In General.–Section 1861(dd)(1) (42 U.S.C. 1395x(dd)(1)) is
amended– (1) in subparagraph (G), by striking “and” at the end; (2)
in subparagraph (H), by striking the period at the end and inserting
“, and”; and (3) by inserting after subparagraph (H) the following:
(I) any other item or service which is specified in the plan and for
which payment may otherwise be made under this title.”.

(b) Effective Date.–The amendment made by subsection (a) shall
apply with respect to items or services furnished on or after April
1, 1998.

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

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

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

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

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

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

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

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

SEC. 4449. EFFECTIVE DATE.

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

CHAPTER 5–OTHER PAYMENT PROVISIONS

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

Section 1861(v)(1) (42 U.S.C. 1395x(v)(1)) is amended by adding at
the end the following new subparagraph: (T) In determining such
reasonable costs for hospitals, no reduction in copayments under
section 1833(t)(5)(B) shall be treated as a bad debt and the amount
of bad debts otherwise treated as allowable costs which are
attributable to the deductibles and coinsurance amounts under this
title shall be reduced– (i) for cost reporting periods beginning
during fiscal year 1998, by 25 percent of such amount otherwise
allowable, (ii) for cost reporting periods beginning during fiscal
year 1999, by 40 percent of such amount otherwise allowable, and
(iii) for cost reporting periods beginning during a subsequent fiscal
year, by 45 percent of such amount otherwise allowable.”.

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

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

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

(a) In General.–Section 1818(d) (42 U.S.C. 1395i-2(d)) is
amended– (1) in paragraph (2), by striking “paragraph (4)” and
inserting “paragraphs (4) and (5)”; and (2) by adding at the end the
following new paragraph: (5)(A) The amount of the monthly premium
shall be zero in the case of an individual who is a person described
in subparagraph (B) for a month, if– (i) the individual’s premium
under this section for the month is not (and will not be) paid for,
in whole or in part, by a State (under title XIX or otherwise), a
political subdivision of a State, or an agency or instrumentality of
one or more States or political subdivisions thereof; and (ii) in
each of 84 months before such month, the individual was enrolled in
this part under this section and the payment of the individual’s
premium under this section for the month was not paid for, in whole
or in part, by a State (under title XIX or otherwise), a political
subdivision of a State, or an agency or instrumentality of one or
more States or political subdivisions thereof.

(B) A person described in this subparagraph for a month is a
person who establishes to the satisfaction of the Secretary that, as
of the last day of the previous month– (i)(I) the person was
receiving cash benefits under a qualified State or local government
retirement system (as defined in subparagraph (C)) on the basis of
the person’s employment in one or more positions covered under any
such system, and (II) the person would have at least 40 quarters of
coverage under title II if remuneration for medicare qualified
government employment (as defined in paragraph (1) of section 210(p),
but determined without regard to paragraph (3) of such section) paid
to such person were treated as wages paid to such person and credited
for purposes of determining quarters of coverage under section 213;
(ii)(I) the person was married (and had been married for the previous
1-year period) to an individual who is described in clause (i), or
(II) the person met the requirement of clause (i)(II) and was married
(and had been married for the previous 1-year period) to an
individual described in clause (i)(I); (iii) the person had been
married to an individual for a period of at least 1 year (at the time
of such individual’s death) if (I) the individual was described in
clause (i) at the time of the individual’s death, or (II) the person
met the requirement of clause (i)(II) and the individual was
described in clause (i)(I) at the time of the individual’s death; or
(iv) the person is divorced from an individual and had been married
to the individual for a period of at least 10 years (at the time of
the divorce) if (I) the individual was described in clause (i) at the
time of the divorce, or (II) the person met the requirement of clause
(i)(II) and the individual was described in clause (i)(I) at the time
of the divorce.

(C) For purposes of subparagraph (B)(i)(I), the term ‘qualified
State or local government retirement system’ means a retirement
system that– (i) is established or maintained by a State or
political subdivision thereof, or an agency or instrumentality of one
or more States or political subdivisions thereof; (ii) covers
positions of some or all employees of such a State, subdivision,
agency, or instrumentality; and (iii) does not adjust cash retirement
benefits based on eligibility for a reduction in premium under this
paragraph.”.

(b) Effective Date.–The amendments made by subsection (a) shall
apply to premiums for months beginning with January 1998, and months
before such month may be taken into account for purposes of meeting
the requirement of section 1818(d)(5)(B)(iii) of the Social Security
Act, as added by subsection (a).

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

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

Extended Care in Religious Nonmedical Health Care Institutions”,

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

Religious Nonmedical Health Care Institution

(ss)(1) The term ‘religious nonmedical health care institution’
means an institution that– (A) is described in subsection (c)(3) of
section 501 of the Internal Revenue Code of 1986 and is exempt from
taxes under subsection (a) of such section; (B) is lawfully operated
under all applicable Federal, State, and local laws and regulations;
(C) provides only nonmedical nursing items and services exclusively
to patients who choose to rely solely upon a religious method of
healing and for whom the acceptance of medical health services would
be inconsistent with their religious beliefs; (D) provides such
nonmedical items and services exclusively through nonmedical nursing
personnel who are experienced in caring for the physical needs of
such patients; (E) provides such nonmedical items and services to
inpatients on a 24-hour basis; (F) on the basis of its religious
beliefs, does not provide through its personnel or otherwise medical
items and services (including any medical screening, examination,
diagnosis, prognosis, treatment, or the administration of drugs) for
its patients; (G)(i) is not owed by, under common ownership with, or
has an ownership interest in, a provider of medical treatment of
services; (ii) is not affiliated with– (I) a provider of medical
treatment or services, or (II) an individual who has an ownership
interest in a provider of medical treatment or services; (H) has in
effect a utilization review plan which– (i) provides for the review
of admissions to the institution, of the duration of stays therein,
of cases of continuous extended duration, and of the items and
services furnished by the institution, (ii) requires that such
reviews be made by an appropriate committee of the institution that
includes the individuals responsible for overall administration and
for supervision of nursing personnel at the institution, (iii)
provides that records be maintained of the meetings, decisions, and
actions of such committee, and (iv) meets such other requirements as
the Secretary finds necessary to establish an effective utilization
review plan; (I) provides the Secretary with such information as the
Secretary may require to implement section 1821, including
information relating to quality of care and coverage determinations;
and (J) meets such other requirements as the Secretary finds
necessary in the interest of the health and safety of individuals who
are furnished services in the institution.

(2) To the extent that the Secretary finds that the accreditation
of an institution by a State, regional, or national agency or
association provides reasonable assurances that any or all of the
requirements of paragraph (1) are met or exceeded, the Secretary may
treat such institution as meeting the condition or conditions with
respect to which the Secretary made such finding.

(3)(A)(i) In administering this subsection and section 1821, the
Secretary shall not require any patient of a religious nonmedical
health care institution to undergo medical screening, examination,
diagnosis, prognosis, or treatment or to accept any other medical
health care service, if such patient (or legal representative of the
patient) objects thereto on religious grounds.

(ii) Clause (i) shall not be construed as preventing the Secretary
from requiring under section 1821(a)(2) the provision of sufficient
information regarding an individual’s condition as a condition for
receipt of benefits under part A for services provided in such an
institution.

(B)(i) In administering this subsection and section 1821, the
Secretary shall not subject a religious nonmedical health care
institution or its personnel to any medical supervision, regulation,
or control, insofar as such supervision, regulation, or control would
be contrary to the religious beliefs observed by the institution or
such personnel.

(ii) Clause (i) shall not be construed as preventing the Secretary
from reviewing items and services billed by the institution to the
extent the Secretary determines such review to be necessary to
determine whether such items and services were not covered under part
A, are excessive, or are fraudulent.

(4)(A) For purposes of paragraph (1)(G)(i), an ownership interest
of less than 5 percent shall not be taken into account.

(B) For purposes of paragraph (1)(G)(ii), none of the following
shall be considered to create an affiliation: (i) An individual
serving as an uncompensated director, trustee, officer, or other
member of the governing body of a religious nonmedical health care
institution.

(ii) An individual who is a director, trustee, officer, employee,
or staff member of a religious nonmedical health care institution
having a family relationship with an individual who is affiliated
with (or has an ownership interest in) a provider of medical
treatment or services.

(iii) An individual or entity furnishing goods or services as a
vendor to both providers of medical treatment or services and
religious nonmedical health care institutions.”.

(2) Conditions of coverage.–Part A of title XVIII is amended by
adding at the end the following new section:

conditions for coverage of religious nonmedical health care
institutional services

Sec. 1821. (a) In General.–Subject to subsections (c) and (d),
payment under this part may be made for inpatient hospital services
or post-hospital extended care services furnished an individual in a
religious nonmedical health care institution only if– (1) the
individual has an election in effect for such benefits under
subsection (b); and (2) the individual has a condition such that the
individual would qualify for benefits under this part for inpatient
hospital services or extended care services, respectively, if the
individual were an inpatient or resident in a hospital or skilled
nursing facility that was not such an institution.

(b) Election.– (1) In general.–An individual may make an
election under this subsection in a form and manner specified by the
Secretary consistent with this subsection. Unless otherwise provided,
such an election shall take effect immediately upon its execution.
Such an election, once made, shall continue in effect until revoked.

(2) Form.–The election form under this subsection shall include
the following: (A) A written statement, signed by the individual (or
such individual’s legal representative), that– (i) the individual is
conscientiously opposed to acceptance of nonexcepted medical
treatment; and (ii) the individual’s acceptance of nonexcepted
medical treatment would be inconsistent with the individual’s sincere
religious beliefs.

(B) A statement that the receipt of nonexcepted medical services
shall constitute a revocation of the election and may limit further
receipt of services described in subsection (a).

(3) Revocation.–An election under this subsection by an
individual may be revoked by voluntarily notifying the Secretary in
writing of such revocation and shall be deemed to be revoked if the
individual receives nonexcepted medical treatment for which
reimbursement is made under this title.

(4) Limitation on subsequent elections.–Once an individual’s
election under this subsection has been made and revoked twice– (A)
the next election may not become effective until the date that is 1
year after the date of most recent previous revocation, and (B) any
succeeding election may not become effective until the date that is 5
years after the date of the most recent previous revocation.

(5) Excepted medical treatment.–For purposes of this subsection:
(A) Excepted medical treatment.–The term ‘excepted medical
treatment’ means medical care or treatment (including medical and
other health services)– (i) received involuntarily, or (ii) required
under Federal or State law or law of a political subdivision of a
State.

(B) Nonexcepted medical treatment.–The term ‘nonexcepted medical
treatment’ means medical care or treatment (including medical and
other health services) other than excepted medical treatment.

(c) Monitoring and Safeguard Against Excessive Expenditures.– (1)
Estimate of expenditures.–Before the beginning of each fiscal year
(beginning with fiscal year 2000), the Secretary shall estimate the
level of expenditures under this part for services described in
subsection (a) for that fiscal year.

(2) Adjustment in payments.– (A) Proportional adjustment.–If the
Secretary determines that the level estimated under paragraph (1) for
a fiscal year will exceed the trigger level (as defined in
subparagraph (C)) for that fiscal year, the Secretary shall, subject
to subparagraph (B), provide for such a proportional reduction in
payment amounts under this part for services described in subsection
(a) for the fiscal year involved as will assure that such level
(taking into account any adjustment under subparagraph (B)) does not
exceed the trigger level for that fiscal year.

(B) Alternative adjustments.–The Secretary may, instead of making
some or all of the reduction described in subparagraph (A), impose
such other conditions or limitations with respect to the coverage of
covered services (including limitations on new elections of coverage
and new facilities) as may be appropriate to reduce the level of
expenditures described in paragraph (1) to the trigger level.

(C) Trigger level.–For purposes of this subsection– (i) In
general.–Subject to adjustment under paragraph (3)(B), the ‘trigger
level’ for a year is the unadjusted trigger level described in clause
(ii).

(ii) Unadjusted trigger level.–The ‘unadjusted trigger level’
for–

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

(D) Prohibition of administrative and judicial review.– There
shall be no administrative or judicial review under section 1869,
1878, or otherwise of the estimation of expenditures under
subparagraph (A) or the application of reduction amounts under
subparagraph (B).

(E) Effect on billing.–Notwithstanding any other provision of
this title, in the case of a reduction in payment provided under this
subsection for services of a religious nonmedical health care
institution provided to an individual, the amount that the
institution is otherwise permitted to charge the individual for such
services is increased by the amount of such reduction.

(3) Monitoring expenditure level.– (A) In general.–The Secretary
shall monitor the expenditure level described in paragraph (2)(A) for
each fiscal year (beginning with fiscal year 1999).

(B) Adjustment in trigger level.– (i) In general.–If the
Secretary determines that such level for a fiscal year exceeded, or
was less than, the trigger level for that fiscal year, then, subject
to clause (ii), the trigger level for the succeeding fiscal year
shall be reduced, or increased, respectively, by the amount of such
excess or deficit.

(ii) Limitation on carryforward.–In no case may the increase
effected under clause (i) for a fiscal year exceed $50,000,000.

(d) Sunset.–If the Secretary determines that the level of
expenditures described in subsection (c)(1) for 3 consecutive fiscal
years (with the first such year being not earlier than fiscal year
2002) exceeds the trigger level for such expenditures for such years
(as determined under subsection (c)(2)), benefits shall be paid under
this part for services described in subsection (a) and furnished on
or after the first January 1 that occurs after such 3 consecutive
years only with respect to an individual who has an election in
effect under subsection (b) as of such January 1 and only during the
duration of such election.

(e) Annual Report.–At the beginning of each fiscal year
(beginning with fiscal year 1999), the Secretary shall submit to the
Committee on Ways and Means of the House of Representatives and the
Committee on Finance of the Senate an annual report on coverage and
expenditures for services described in subsection (a) under this part
and under State plans under title XIX. Such report shall include–
(1) level of expenditures described in subsection (c)(1) for the
previous fiscal year and estimated for the fiscal year involved; (2)
trends in such level; and (3) facts and circumstances of any
significant change in such level from the level in previous fiscal
years.”.

(b) Medicaid.– (1) The third sentence of section 1902(a) (42
U.S.C. 1396a(a)) is amended by striking “all that follows shall not
apply” and inserting “to a religious nonmedical health care
institution (as defined in section 1861(ss)(1)).”.

(2) Section 1908(e)(1) (42 U.S.C. 1396g-1(e)(1)) is amended by
striking “all that follows does not include” and inserting “a
religious nonmedical health care institution (as defined in section
1861(ss)(1)).”.

(c) Conforming Amendments.– (1) Section 1122(h) (42 U.S.C.
1320a-1(h)) is amended by striking “all that follows shall not apply
to” and inserting “a religious nonmedical health care institution (as
defined in section 1861(ss)(1)).”.

(2) Section 1162 (42 U.S.C. 1320c-11) is amended– (A) by amending
the heading to read as follows:

exemptions for religious nonmedical health care institutions”; and

(B) by striking “all that follows shall not apply with respect to
a” and inserting “religious nonmedical health care institution (as
defined in section 1861(ss)(1)).”.

(d) Effective Date.–The amendments made by this section shall
take effect on the date of the enactment of this Act and shall apply
to items and services furnished on or after such date. By not later
than July 1, 1998, the Secretary of Health and Human Services shall
first issue regulations to carry out such amendments. Such
regulations may be issued so they are effective on an interim basis
pending notice and opportunity for public comment. For periods before
the effective date of such regulations, such regulations shall
recognize elections entered into in good faith in order to comply
with the requirements of section 1821(b) of the Social Security Act.

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