An ownership or investment interest described in subparagraph (A)

may be through equity, debt, or other means and includes an

interest in an entity that holds an ownership or investment

interest in any entity providing the designated health service.

(b) General exceptions to both ownership and compensation

arrangement prohibitions

Subsection (a)(1) of this section shall not apply in the

following cases:

(1) Physicians' services

In the case of physicians' services (as defined in section

1395x(q) of this title) provided personally by (or under the

personal supervision of) another physician in the same group

practice (as defined in subsection (h)(4) of this section) as the

referring physician.

(2) In-office ancillary services

In the case of services (other than durable medical equipment

(excluding infusion pumps) and parenteral and enteral nutrients,

equipment, and supplies) -

(A) that are furnished -

(i) personally by the referring physician, personally by a

physician who is a member of the same group practice as the

referring physician, or personally by individuals who are

directly supervised by the physician or by another physician

in the group practice, and

(ii)(I) in a building in which the referring physician (or

another physician who is a member of the same group practice)

furnishes physicians' services unrelated to the furnishing of

designated health services, or

(II) in the case of a referring physician who is a member

of a group practice, in another building which is used by the

group practice -

(aa) for the provision of some or all of the group's

clinical laboratory services, or

(bb) for the centralized provision of the group's

designated health services (other than clinical laboratory

services),

unless the Secretary determines other terms and conditions

under which the provision of such services does not present a

risk of program or patient abuse, and

(B) that are billed by the physician performing or

supervising the services, by a group practice of which such

physician is a member under a billing number assigned to the

group practice, or by an entity that is wholly owned by such

physician or such group practice,

if the ownership or investment interest in such services meets

such other requirements as the Secretary may impose by regulation

as needed to protect against program or patient abuse.

(3) Prepaid plans

In the case of services furnished by an organization -

(A) with a contract under section 1395mm of this title to an

individual enrolled with the organization,

(B) described in section 1395l(a)(1)(A) of this title to an

individual enrolled with the organization,

(C) receiving payments on a prepaid basis, under a

demonstration project under section 1395b-1(a) of this title or

under section 222(a) of the Social Security Amendments of 1972,

to an individual enrolled with the organization,

(D) that is a qualified health maintenance organization

(within the meaning of section 300e-9(d) (!1) of this title) to

an individual enrolled with the organization, or

(E) that is a Medicare+Choice organization under part C of

this subchapter that is offering a coordinated care plan

described in section 1395w-21(a)(2)(A) of this title to an

individual enrolled with the organization.

(4) Other permissible exceptions

In the case of any other financial relationship which the

Secretary determines, and specifies in regulations, does not pose

a risk of program or patient abuse.

(c) General exception related only to ownership or investment

prohibition for ownership in publicly traded securities and

mutual funds

Ownership of the following shall not be considered to be an

ownership or investment interest described in subsection (a)(2)(A)

of this section:

(1) Ownership of investment securities (including shares or

bonds, debentures, notes, or other debt instruments) which may be

purchased on terms generally available to the public and which

are -

(A)(i) securities listed on the New York Stock Exchange, the

American Stock Exchange, or any regional exchange in which

quotations are published on a daily basis, or foreign

securities listed on a recognized foreign, national, or

regional exchange in which quotations are published on a daily

basis, or

(ii) traded under an automated interdealer quotation system

operated by the National Association of Securities Dealers, and

(B) in a corporation that had, at the end of the

corporation's most recent fiscal year, or on average during the

previous 3 fiscal years, stockholder equity exceeding

$75,000,000.

(2) Ownership of shares in a regulated investment company as

defined in section 851(a) of the Internal Revenue Code of 1986,

if such company had, at the end of the company's most recent

fiscal year, or on average during the previous 3 fiscal years,

total assets exceeding $75,000,000.

(d) Additional exceptions related only to ownership or investment

prohibition

The following, if not otherwise excepted under subsection (b) of

this section, shall not be considered to be an ownership or

investment interest described in subsection (a)(2)(A) of this

section:

(1) Hospitals in Puerto Rico

In the case of designated health services provided by a

hospital located in Puerto Rico.

(2) Rural provider

In the case of designated health services furnished in a rural

area (as defined in section 1395ww(d)(2)(D) of this title) by an

entity, if substantially all of the designated health services

furnished by such entity are furnished to individuals residing in

such a rural area.

(3) Hospital ownership

In the case of designated health services provided by a

hospital (other than a hospital described in paragraph (1)) if -

(A) the referring physician is authorized to perform services

at the hospital, and

(B) the ownership or investment interest is in the hospital

itself (and not merely in a subdivision of the hospital).

(e) Exceptions relating to other compensation arrangements

The following shall not be considered to be a compensation

arrangement described in subsection (a)(2)(B) of this section:

(1) Rental of office space; rental of equipment

(A) Office space

Payments made by a lessee to a lessor for the use of premises

if -

(i) the lease is set out in writing, signed by the parties,

and specifies the premises covered by the lease,

(ii) the space rented or leased does not exceed that which

is reasonable and necessary for the legitimate business

purposes of the lease or rental and is used exclusively by

the lessee when being used by the lessee, except that the

lessee may make payments for the use of space consisting of

common areas if such payments do not exceed the lessee's pro

rata share of expenses for such space based upon the ratio of

the space used exclusively by the lessee to the total amount

of space (other than common areas) occupied by all persons

using such common areas,

(iii) the lease provides for a term of rental or lease for

at least 1 year,

(iv) the rental charges over the term of the lease are set

in advance, are consistent with fair market value, and are

not determined in a manner that takes into account the volume

or value of any referrals or other business generated between

the parties,

(v) the lease would be commercially reasonable even if no

referrals were made between the parties, and

(vi) the lease meets such other requirements as the

Secretary may impose by regulation as needed to protect

against program or patient abuse.

(B) Equipment

Payments made by a lessee of equipment to the lessor of the

equipment for the use of the equipment if -

(i) the lease is set out in writing, signed by the parties,

and specifies the equipment covered by the lease,

(ii) the equipment rented or leased does not exceed that

which is reasonable and necessary for the legitimate business

purposes of the lease or rental and is used exclusively by

the lessee when being used by the lessee,

(iii) the lease provides for a term of rental or lease of

at least 1 year,

(iv) the rental charges over the term of the lease are set

in advance, are consistent with fair market value, and are

not determined in a manner that takes into account the volume

or value of any referrals or other business generated between

the parties,

(v) the lease would be commercially reasonable even if no

referrals were made between the parties, and

(vi) the lease meets such other requirements as the

Secretary may impose by regulation as needed to protect

against program or patient abuse.

(2) Bona fide employment relationships

Any amount paid by an employer to a physician (or an immediate

family member of such physician) who has a bona fide employment

relationship with the employer for the provision of services if -

(A) the employment is for identifiable services,

(B) the amount of the remuneration under the employment -

(i) is consistent with the fair market value of the

services, and

(ii) is not determined in a manner that takes into account

(directly or indirectly) the volume or value of any referrals

by the referring physician,

(C) the remuneration is provided pursuant to an agreement

which would be commercially reasonable even if no referrals

were made to the employer, and

(D) the employment meets such other requirements as the

Secretary may impose by regulation as needed to protect against

program or patient abuse.

Subparagraph (B)(ii) shall not prohibit the payment of

remuneration in the form of a productivity bonus based on

services performed personally by the physician (or an immediate

family member of such physician).

(3) Personal service arrangements

(A) In general

Remuneration from an entity under an arrangement (including

remuneration for specific physicians' services furnished to a

nonprofit blood center) if -

(i) the arrangement is set out in writing, signed by the

parties, and specifies the services covered by the

arrangement,

(ii) the arrangement covers all of the services to be

provided by the physician (or an immediate family member of

such physician) to the entity,

(iii) the aggregate services contracted for do not exceed

those that are reasonable and necessary for the legitimate

business purposes of the arrangement,

(iv) the term of the arrangement is for at least 1 year,

(v) the compensation to be paid over the term of the

arrangement is set in advance, does not exceed fair market

value, and except in the case of a physician incentive plan

described in subparagraph (B), is not determined in a manner

that takes into account the volume or value of any referrals

or other business generated between the parties,

(vi) the services to be performed under the arrangement do

not involve the counseling or promotion or a business

arrangement or other activity that violates any State or

Federal law, and

(vii) the arrangement meets such other requirements as the

Secretary may impose by regulation as needed to protect

against program or patient abuse.

(B) Physician incentive plan exception

(i) In general

In the case of a physician incentive plan (as defined in

clause (ii)) between a physician and an entity, the

compensation may be determined in a manner (through a

withhold, capitation, bonus, or otherwise) that takes into

account directly or indirectly the volume or value of any

referrals or other business generated between the parties, if

the plan meets the following requirements:

(I) No specific payment is made directly or indirectly

under the plan to a physician or a physician group as an

inducement to reduce or limit medically necessary services

provided with respect to a specific individual enrolled

with the entity.

(II) In the case of a plan that places a physician or a

physician group at substantial financial risk as determined

by the Secretary pursuant to section 1395mm(i)(8)(A)(ii) of

this title, the plan complies with any requirements the

Secretary may impose pursuant to such section.

(III) Upon request by the Secretary, the entity provides

the Secretary with access to descriptive information

regarding the plan, in order to permit the Secretary to

determine whether the plan is in compliance with the

requirements of this clause.

(ii) "Physician incentive plan" defined

For purposes of this subparagraph, the term "physician

incentive plan" means any compensation arrangement between an

entity and a physician or physician group that may directly

or indirectly have the effect of reducing or limiting

services provided with respect to individuals enrolled with

the entity.

(4) Remuneration unrelated to the provision of designated health

services

In the case of remuneration which is provided by a hospital to

a physician if such remuneration does not relate to the provision

of designated health services.

(5) Physician recruitment

In the case of remuneration which is provided by a hospital to

a physician to induce the physician to relocate to the geographic

area served by the hospital in order to be a member of the

medical staff of the hospital, if -

(A) the physician is not required to refer patients to the

hospital,

(B) the amount of the remuneration under the arrangement is

not determined in a manner that takes into account (directly or

indirectly) the volume or value of any referrals by the

referring physician, and

(C) the arrangement meets such other requirements as the

Secretary may impose by regulation as needed to protect against

program or patient abuse.

(6) Isolated transactions

In the case of an isolated financial transaction, such as a

one-time sale of property or practice, if -

(A) the requirements described in subparagraphs (B) and (C)

of paragraph (2) are met with respect to the entity in the same

manner as they apply to an employer, and

(B) the transaction meets such other requirements as the

Secretary may impose by regulation as needed to protect against

program or patient abuse.

(7) Certain group practice arrangements with a hospital

(A) (!2) In general

An arrangement between a hospital and a group under which

designated health services are provided by the group but are

billed by the hospital if -

(i) with respect to services provided to an inpatient of

the hospital, the arrangement is pursuant to the provision of

inpatient hospital services under section 1395x(b)(3) of this

title.

(ii) the arrangement began before December 19, 1989, and

has continued in effect without interruption since such date,

(iii) with respect to the designated health services

covered under the arrangement, substantially all of such

services furnished to patients of the hospital are furnished

by the group under the arrangement,

(iv) the arrangement is pursuant to an agreement that is

set out in writing and that specifies the services to be

provided by the parties and the compensation for services

provided under the agreement,

(v) the compensation paid over the term of the agreement is

consistent with fair market value and the compensation per

unit of services is fixed in advance and is not determined in

a manner that takes into account the volume or value of any

referrals or other business generated between the parties,

(vi) the compensation is provided pursuant to an agreement

which would be commercially reasonable even if no referrals

were made to the entity, and

(vii) the arrangement between the parties meets such other

requirements as the Secretary may impose by regulation as

needed to protect against program or patient abuse.

(8) Payments by a physician for items and services

Payments made by a physician -

(A) to a laboratory in exchange for the provision of clinical

laboratory services, or

(B) to an entity as compensation for other items or services

if the items or services are furnished at a price that is

consistent with fair market value.

(f) Reporting requirements

Each entity providing covered items or services for which payment

may be made under this subchapter shall provide the Secretary with

the information concerning the entity's ownership, investment, and

compensation arrangements, including -

(1) the covered items and services provided by the entity, and

(2) the names and unique physician identification numbers of

all physicians with an ownership or investment interest (as

described in subsection (a)(2)(A) of this section), or with a

compensation arrangement (as described in subsection (a)(2)(B) of

this section), in the entity, or whose immediate relatives have

such an ownership or investment interest or who have such a

compensation relationship with the entity.

Such information shall be provided in such form, manner, and at

such times as the Secretary shall specify. The requirement of this

subsection shall not apply to designated health services provided

outside the United States or to entities which the Secretary

determines provides (!3) services for which payment may be made

under this subchapter very infrequently.

(g) Sanctions

(1) Denial of payment

No payment may be made under this subchapter for a designated

health service which is provided in violation of subsection

(a)(1) of this section.

(2) Requiring refunds for certain claims

If a person collects any amounts that were billed in violation

of subsection (a)(1) of this section, the person shall be liable

to the individual for, and shall refund on a timely basis to the

individual, any amounts so collected.

(3) Civil money penalty and exclusion for improper claims

Any person that presents or causes to be presented a bill or a

claim for a service that such person knows or should know is for

a service for which payment may not be made under paragraph (1)

or for which a refund has not been made under paragraph (2) shall

be subject to a civil money penalty of not more than $15,000 for

each such service. The provisions of section 1320a-7a of this

title (other than the first sentence of subsection (a) and other

than subsection (b)) shall apply to a civil money penalty under

the previous sentence in the same manner as such provisions apply

to a penalty or proceeding under section 1320a-7a(a) of this

title.

(4) Civil money penalty and exclusion for circumvention schemes

Any physician or other entity that enters into an arrangement

or scheme (such as a cross-referral arrangement) which the

physician or entity knows or should know has a principal purpose

of assuring referrals by the physician to a particular entity

which, if the physician directly made referrals to such entity,

would be in violation of this section, shall be subject to a

civil money penalty of not more than $100,000 for each such

arrangement or scheme. The provisions of section 1320a-7a of this

title (other than the first sentence of subsection (a) and other

than subsection (b)) shall apply to a civil money penalty under

the previous sentence in the same manner as such provisions apply

to a penalty or proceeding under section 1320a-7a(a) of this

title.

(5) Failure to report information

Any person who is required, but fails, to meet a reporting

requirement of subsection (f) of this section is subject to a

civil money penalty of not more than $10,000 for each day for

which reporting is required to have been made. The provisions of

section 1320a-7a of this title (other than the first sentence of

subsection (a) and other than subsection (b)) shall apply to a

civil money penalty under the previous sentence in the same

manner as such provisions apply to a penalty or proceeding under

section 1320a-7a(a) of this title.

(6) Advisory opinions

(A) In general

The Secretary shall issue written advisory opinions

concerning whether a referral relating to designated health

services (other than clinical laboratory services) is

prohibited under this section. Each advisory opinion issued by

the Secretary shall be binding as to the Secretary and the

party or parties requesting the opinion.

(B) Application of certain rules

The Secretary shall, to the extent practicable, apply the

rules under subsections (b)(3) and (b)(4) of this section and

take into account the regulations promulgated under subsection

(b)(5) of section 1320a-7d of this title in the issuance of

advisory opinions under this paragraph.

(C) Regulations

In order to implement this paragraph in a timely manner, the

Secretary may promulgate regulations that take effect on an

interim basis, after notice and pending opportunity for public

comment.

(D) Applicability

This paragraph shall apply to requests for advisory opinions

made after the date which is 90 days after August 5, 1997, and

before the close of the period described in section

1320a-7d(b)(6) of this title.

(h) Definitions and special rules

For purposes of this section:

(1) Compensation arrangement; remuneration

(A) The term "compensation arrangement" means any arrangement

involving any remuneration between a physician (or an immediate

family member of such physician) and an entity other than an

arrangement involving only remuneration described in subparagraph

(C).

(B) The term "remuneration" includes any remuneration, directly

or indirectly, overtly or covertly, in cash or in kind.

(C) Remuneration described in this subparagraph is any

remuneration consisting of any of the following:

(i) The forgiveness of amounts owed for inaccurate tests or

procedures, mistakenly performed tests or procedures, or the

correction of minor billing errors.

(ii) The provision of items, devices, or supplies that are

used solely to -

(I) collect, transport, process, or store specimens for the

entity providing the item, device, or supply, or

(II) order or communicate the results of tests or

procedures for such entity.

(iii) A payment made by an insurer or a self-insured plan to

a physician to satisfy a claim, submitted on a fee for service

basis, for the furnishing of health services by that physician

to an individual who is covered by a policy with the insurer or

by the self-insured plan, if -

(I) the health services are not furnished, and the payment

is not made, pursuant to a contract or other arrangement

between the insurer or the plan and the physician,

(II) the payment is made to the physician on behalf of the

covered individual and would otherwise be made directly to

such individual,

(III) the amount of the payment is set in advance, does not

exceed fair market value, and is not determined in a manner

that takes into account directly or indirectly the volume or

value of any referrals, and

(IV) the payment meets such other requirements as the

Secretary may impose by regulation as needed to protect

against program or patient abuse.

(2) Employee

An individual is considered to be "employed by" or an

"employee" of an entity if the individual would be considered to

be an employee of the entity under the usual common law rules

applicable in determining the employer-employee relationship (as

applied for purposes of section 3121(d)(2) of the Internal

Revenue Code of 1986).

(3) Fair market value

The term "fair market value" means the value in arms length

transactions, consistent with the general market value, and, with

respect to rentals or leases, the value of rental property for

general commercial purposes (not taking into account its intended

use) and, in the case of a lease of space, not adjusted to

reflect the additional value the prospective lessee or lessor

would attribute to the proximity or convenience to the lessor

where the lessor is a potential source of patient referrals to

the lessee.

(4) Group practice

(A) Definition of group practice

The term "group practice" means a group of 2 or more

physicians legally organized as a partnership, professional

corporation, foundation, not-for-profit corporation, faculty

practice plan, or similar association -

(i) in which each physician who is a member of the group

provides substantially the full range of services which the

physician routinely provides, including medical care,

consultation, diagnosis, or treatment, through the joint use

of shared office space, facilities, equipment and personnel,

(ii) for which substantially all of the services of the

physicians who are members of the group are provided through

the group and are billed under a billing number assigned to

the group and amounts so received are treated as receipts of

the group,

(iii) in which the overhead expenses of and the income from

the practice are distributed in accordance with methods

previously determined,

(iv) except as provided in subparagraph (B)(i), in which no

physician who is a member of the group directly or indirectly

receives compensation based on the volume or value of

referrals by the physician,

(v) in which members of the group personally conduct no

less than 75 percent of the physician-patient encounters of

the group practice, and

(vi) which meets such other standards as the Secretary may

impose by regulation.

(B) Special rules

(i) Profits and productivity bonuses

A physician in a group practice may be paid a share of

overall profits of the group, or a productivity bonus based

on services personally performed or services incident to such

personally performed services, so long as the share or bonus

is not determined in any manner which is directly related to

the volume or value of referrals by such physician.

(ii) Faculty practice plans

In the case of a faculty practice plan associated with a

hospital, institution of higher education, or medical school

with an approved medical residency training program in which

physician members may provide a variety of different

specialty services and provide professional services both

within and outside the group, as well as perform other tasks

such as research, subparagraph (A) shall be applied only with

respect to the services provided within the faculty practice

plan.

(5) Referral; referring physician

(A) Physicians' services

Except as provided in subparagraph (C), in the case of an

item or service for which payment may be made under part B of

this subchapter, the request by a physician for the item or

service, including the request by a physician for a

consultation with another physician (and any test or procedure

ordered by, or to be performed by (or under the supervision of)

that other physician), constitutes a "referral" by a "referring

physician".

(B) Other items

Except as provided in subparagraph (C), the request or

establishment of a plan of care by a physician which includes

the provision of the designated health service constitutes a

"referral" by a "referring physician".

(C) Clarification respecting certain services integral to a

consultation by certain specialists

A request by a pathologist for clinical diagnostic laboratory

tests and pathological examination services, a request by a

radiologist for diagnostic radiology services, and a request by

a radiation oncologist for radiation therapy, if such services

are furnished by (or under the supervision of) such

pathologist, radiologist, or radiation oncologist pursuant to a

consultation requested by another physician does not constitute

a "referral" by a "referring physician".

(6) Designated health services

The term "designated health services" means any of the

following items or services:

(A) Clinical laboratory services.

(B) Physical therapy services.

(C) Occupational therapy services.

(D) Radiology services, including magnetic resonance imaging,

computerized axial tomography scans, and ultrasound services.

(E) Radiation therapy services and supplies.

(F) Durable medical equipment and supplies.

(G) Parenteral and enteral nutrients, equipment, and

supplies.

(H) Prosthetics, orthotics, and prosthetic devices and

supplies.

(I) Home health services.

(J) Outpatient prescription drugs.

(K) Inpatient and outpatient hospital services.

-SOURCE-

(Aug. 14, 1935, ch. 531, title XVIII, Sec. 1877, as added Pub. L.

101-239, title VI, Sec. 6204(a), Dec. 19, 1989, 103 Stat. 2236;

amended Pub. L. 101-508, title IV, Sec. 4207(e)(1)-(3), (k)(2),

formerly Sec. 4027(e)(1)-(3), (k)(2), Nov. 5, 1990, 104 Stat.

1388-121, 1388-122, 1388-124, renumbered Pub. L. 103-432, title I,

Sec. 160(d)(4), Oct. 31, 1994, 108 Stat. 4444; Pub. L. 103-66,

title XIII, Sec. 13562(a), Aug. 10, 1993, 107 Stat. 596; Pub. L.

103-432, title I, Sec. 152(a), (b), Oct. 31, 1994, 108 Stat. 4436;

Pub. L. 105-33, title IV, Sec. 4314, Aug. 5, 1997, 111 Stat. 389;

Pub. L. 106-113, div. B, Sec. 1000(a)(6) [title V, Sec. 524(a)],

Nov. 29, 1999, 113 Stat. 1536, 1501A-387.)

-REFTEXT-

REFERENCES IN TEXT

Section 222(a) of the Social Security Amendments of 1972,

referred to in subsec. (b)(3)(C), is section 222(a) of Pub. L.

92-603, Oct. 30, 1972, 86 Stat. 1329, which is set out as a note

under section 1395b-1 of this title.

Section 300e-9(d) of this title, referred to in subsec.

(b)(3)(D), was redesignated section 300e-9(c) of this title by Pub.

L. 100-517, Sec. 7(b), Oct. 24, 1988, 102 Stat. 2580.

Part C of this subchapter, referred to in subsec. (b)(3)(E), is

classified to section 1395w-21 et seq. of this title.

The Internal Revenue Code, referred to in subsecs. (c)(2) and

(h)(2), is classified generally to Title 26, Internal Revenue Code.

Part B of this subchapter, referred to in subsec. (h)(5)(A), is

classified to section 1395j et seq. of this title.

-MISC1-

PRIOR PROVISIONS

A prior section 1395nn, act Aug. 14, 1935, ch. 531, title XVIII,

Sec. 1877, as added and amended Oct. 30, 1972, Pub. L. 92-603,

title II, Secs. 242(b), 278(b)(8), 86 Stat. 1419, 1454; Oct. 25,

1977, Pub. L. 95-142, Sec. 4(a), 91 Stat. 1179; Dec. 5, 1980, Pub.

L. 96-499, title IX, Sec. 917, 94 Stat. 2625; July 18, 1984, Pub.

L. 98-369, div. B, title III, Sec. 2306(f)(2), 98 Stat. 1073; Oct.

21, 1986, Pub. L. 99-509, title IX, Sec. 9321(a)(1), 100 Stat.

2016; Aug. 18, 1987, Pub. L. 100-93, Sec. 4(c), 101 Stat. 689,

enumerated offenses relating to the Medicare program and penalties

for such offenses, prior to repeal by Pub. L. 100-93, Secs. 4(e),

15(a), Aug. 18, 1987, 101 Stat. 689, 698, effective at end of

fourteen-day period beginning Aug. 18, 1987, and inapplicable to

administrative proceedings commenced before end of such period.

AMENDMENTS

1999 - Subsec. (b)(3)(C). Pub. L. 106-113, Sec. 1000(a)(6) [title

V, Sec. 524(a)(1)], struck out "or" at the end.

Subsec. (b)(3)(D). Pub. L. 106-113, Sec. 1000(a)(6) [title V,

Sec. 524(a)(2)], substituted ", or" for period at end.

Subsec. (b)(3)(E). Pub. L. 106-113, Sec. 1000(a)(6) [title V,

Sec. 524(a)(3)], which directed addition of provisions at end of

par. (3) but which separated directory language from language to be

added because of the apparent placement out of sequence of pars.

(2) and (3) of Sec. 524(a), was executed by adding subpar. (E) at

end of par. (3) to reflect the probable intent of Congress.

1997 - Subsec. (g)(6). Pub. L. 105-33 added par. (6).

1994 - Subsec. (f). Pub. L. 103-432, Sec. 152(a)(1), (4), (5), in

introductory provisions, substituted "ownership, investment, and

compensation arrangements" for "ownership arrangements", and in

closing provisions, substituted "designated health services" for

"covered items and services" and struck out "Such information shall

first be provided not later than October 1, 1991." after "shall

specify." and "The Secretary may waive the requirements of this

subsection (and the requirements of chapter 35 of title 44 with

respect to information provided under this subsection) with respect

to reporting by entities in a State (except for entities providing

designated health services) so long as such reporting occurs in at

least 10 States, and the Secretary may waive such requirements with

respect to the providers in a State required to report so long as

such requirements are not waived with respect to parenteral and

enteral suppliers, end stage renal disease facilities, suppliers of

ambulance services, hospitals, entities providing physical therapy

services, and entities providing diagnostic imaging services of any

type." at end.

Subsec. (f)(2). Pub. L. 103-432, Sec. 152(a)(2), (3), inserted ",

or with a compensation arrangement (as described in subsection

(a)(2)(B) of this section)," after "investment interest (as

described in subsection (a)(2)(A) of this section)" and "interest

or who have such a compensation relationship with the entity"

before period at end.

Subsec. (h)(6). Pub. L. 103-432, Sec. 152(b), in subpar. (D),

substituted "services, including magnetic resonance imaging,

computerized axial tomography scans, and ultrasound services" for

"or other diagnostic services", and in subpars. (E), (F), and (H),

inserted "and supplies" before period at end.

1993 - Subsecs. (a) to (e). Pub. L. 103-66, Sec. 13562(a)(1),

amended headings and text of subsecs. (a) to (e) generally,

substituting present provisions for provisions which related to:

prohibition of certain referrals in subsec. (a), general exceptions

to both ownership and compensation arrangement prohibitions in

subsec. (b), general exception related only to ownership or

investment prohibition for ownership in publicly-traded securities

in subsec. (c), additional exceptions related only to ownership or

investment prohibition in subsec. (d), and exceptions relating to

other compensation arrangements in subsec. (e).

Subsec. (f). Pub. L. 103-66, Sec. 13562(a)(3), substituted

"designated health services" for "clinical laboratory services" in

concluding provisions.

Subsec. (g)(1). Pub. L. 103-66, Sec. 13562(a)(4), substituted

"designated health service" for "clinical laboratory service".

Subsec. (h). Pub. L. 103-66, Sec. 13562(a)(2), amended heading

and text of subsec. (h) generally, substituting pars. (1) to (6)

for former pars. (1) to (7) which defined "compensation

arrangement", "remuneration", "employee", "fair market value",

"group practice", "investor", "interested investor", "disinterested

investor", "referral", and "referring physician".

1990 - Subsec. (b)(4), (5). Pub. L. 101-508, Sec. 4207(e)(2),

formerly Sec. 4027(e)(2), as renumbered by Pub. L. 103-432, Sec.

160(d)(4), added par. (4) and redesignated former par. (4) as (5).

Subsec. (f). Pub. L. 101-508, Sec. 4207(e)(3)(B), (C), formerly

Sec. 4027(e)(3)(B), (C), as renumbered by Pub. L. 103-432, Sec.

160(d)(4), substituted "October 1, 1991" for "1 year after December

19, 1989" in second sentence and inserted at end "The requirement

of this subsection shall not apply to covered items and services

provided outside the United States or to entities which the

Secretary determines provides services for which payment may be

made under this subchapter very infrequently. The Secretary may

waive the requirements of this subsection (and the requirements of

chapter 35 of title 44 with respect to information provided under

this subsection) with respect to reporting by entities in a State

(except for entities providing clinical laboratory services) so

long as such reporting occurs in at least 10 States, and the

Secretary may waive such requirements with respect to the providers

in a State required to report so long as such requirements are not

waived with respect to parenteral and enteral suppliers, end stage

renal disease facilities, suppliers of ambulance services,

hospitals, entities providing physical therapy services, and

entities providing diagnostic imaging services of any type."

Subsec. (f)(2). Pub. L. 101-508, Sec. 4207(e)(3)(A), formerly

Sec. 4027(e)(3)(A), as renumbered by Pub. L. 103-432, Sec.

160(d)(4), amended par. (2) generally. Prior to amendment, par. (2)

read as follows: "the names and all of the medicare provider

numbers of the physicians who are interested investors or who are

immediate relatives of interested investors."

Subsec. (g)(5). Pub. L. 101-508, Sec. 4207(k)(2), formerly Sec.

4027(k)(2), as renumbered by Pub. L. 103-432, Sec. 160(d)(4),

inserted at end "The provisions of section 1320a-7a of this title

(other than the first sentence of subsection (a) and other than

subsection (b)) shall apply to a civil money penalty under the

previous sentence in the same manner as such provisions apply to a

penalty or proceeding under section 1320a-7a(a) of this title."

Subsec. (h)(6). Pub. L. 101-508, Sec. 4207(e)(1)(C), formerly

Sec. 4027(e)(1)(C), as renumbered by Pub. L. 103-432, Sec.

160(d)(4), added par. (6). Former par. (6) redesignated (7).

Pub. L. 101-508, Sec. 4207(e)(1)(A), (B), formerly Sec.

4027(e)(1)(A), (B), as renumbered by Pub. L. 103-432, Sec.

160(d)(4), substituted "in the case of an item or service for which

payment may be made under part B of this subchapter, the request by

a physician for the item or service," for "in the case of a

clinical laboratory service which under law is required to be

provided by (or under the supervision of) a physician, the request

by a physician for the service," in subpar. (A) and struck out "in

the case of another clinical laboratory service," after

"subparagraph (C)," in subpar. (B).

Subsec. (h)(7). Pub. L. 101-508, Sec. 4207(e)(1)(C), formerly

Sec. 4027(e)(1)(C), as renumbered by Pub. L. 103-432, Sec.

160(d)(4), redesignated par. (6) as (7).

EFFECTIVE DATE OF 1999 AMENDMENT

Pub. L. 106-113, div. B, Sec. 1000(a)(6) [title V, Sec. 524(b)],

Nov. 29, 1999, 113 Stat. 1536, 1501A-388, provided that: "The

amendment made by this section [amending this section] shall apply

to services furnished on or after the date of the enactment of this

Act [Nov. 29, 1999]."

EFFECTIVE DATE OF 1994 AMENDMENT

Section 152(d)(1) of Pub. L. 103-432 provided that: "The

amendments made by subsections (a) and (b) [amending this section]

shall apply to referrals made on or after January 1, 1995."

EFFECTIVE DATE OF 1993 AMENDMENT

Section 13562(b) of Pub. L. 103-66, as amended by Pub. L.

103-432, title I, Sec. 152(c), Oct. 31, 1994, 108 Stat. 4437,

provided that:

"(1) In general. - Except as provided in paragraph (2), the

amendments made by this section [amending this section] shall apply

to referrals -

"(A) made on or after January 1, 1992, in the case of clinical

laboratory services, and

"(B) made after December 31, 1994, in the case of other

designated health services.

"(2) Exceptions. - With respect to referrals made for clinical

laboratory services on or before December 31, 1994 -

"(A) the second sentence of subsection (a)(2), and subsections

(b)(2)(B) and (d)(2), of section 1877 of the Social Security Act

[subsecs. (a)(2), (b)(2)(B), and (d)(2) of this section] (as in

effect on the day before the date of the enactment of this Act

[Aug. 10, 1993]) shall apply instead of the corresponding

provisions in section 1877 (as amended by this Act);

"(B) section 1877(b)(4) of the Social Security Act [subsec.

(b)(4) of this section] (as in effect on the day before the date

of the enactment of this Act) shall apply;

"(C) the requirements of section 1877(c)(2) of the Social

Security Act [subsec. (c)(2) of this section] (as amended by this

Act) shall not apply to any securities of a corporation that

meets the requirements of section 1877(c)(2) of the Social

Security Act (as in effect on the day before the date of the

enactment of this Act);

"(D) section 1877(e)(3) of the Social Security Act [subsec.

(e)(3) of this section] (as amended by this Act) shall apply,

except that it shall not apply to any arrangement that meets the

requirements of subsection (e)(2) or subsection (e)(3) of section

1877 of the Social Security Act (as in effect on the day before

the date of the enactment of this Act);

"(E) the requirements of clauses (iv) and (v) of section

1877(h)(4)(A), and of clause (i) of section 1877(h)(4)(B), of the

Social Security Act [subsec. (h)(4)(A)(iv), (v), (B)(i) of this

section] (as amended by this Act) shall not apply; and

"(F) section 1877(h)(4)(B) of the Social Security Act [subsec.

(h)(4)(B) of this section] (as in effect on the day before the

date of the enactment of this Act) shall apply instead of section

1877(h)(4)(A)(ii) of such Act (as amended by this Act)."

[Section 152(d)(2) of Pub. L. 103-432 provided that: "The

amendment made by subsection (c) [amending section 13562(b) of Pub.

L. 103-66, set out above] shall apply as if included in the

enactment of OBRA-1993 [Pub. L. 103-66]."]

EFFECTIVE DATE OF 1990 AMENDMENT

Section 4207(e)(5), formerly 4027(e)(5), of Pub. L. 101-508, as

renumbered by Pub. L. 103-432, title I, Sec. 160(d)(4), Oct. 31,

1994, 108 Stat. 4444, provided that: "The amendments made by this

subsection [amending this section and provisions set out below]

shall be effective as if included in the enactment of section 6204

of the Omnibus Budget Reconciliation Act of 1989 [Pub. L.

101-239]."

EFFECTIVE DATE

Section 6204(c) of Pub. L. 101-239 provided that:

"(1) Except as provided in paragraph (2), the amendments made by

this section [enacting this section and amending section 1395l of

this title] shall become effective with respect to referrals made

on or after January 1, 1992.

"(2) The reporting requirement of section 1877(f) of the Social

Security Act [subsec. (f) of this section] shall take effect on

October 1, 1990."

DEADLINE FOR CERTAIN REGULATIONS

Section 6204(d) of Pub. L. 101-239, as amended by Pub. L.

101-508, title IV, Sec. 4207(e)(4)(B), formerly Sec. 4027(e)(4)(B),

Nov. 5, 1990, 104 Stat. 1388-122, renumbered Pub. L. 103-432, title

I, Sec. 160(d)(4), Oct. 31, 1994, 108 Stat. 4444, provided that:

"The Secretary of Health and Human Services shall publish final

regulations to carry out section 1877 of the Social Security Act

[this section] by not later than October 1, 1991."

GAO STUDY OF OWNERSHIP BY REFERRING PHYSICIANS

Section 6204(e) of Pub. L. 101-239 directed Comptroller General

to conduct a study of ownership of hospitals and other providers of

medicare services by referring physicians and, by not later than

Feb. 1, 1991, report to Congress on results of such study, prior to

repeal by Pub. L. 104-316, title I, Sec. 122(h)(1), Oct. 19, 1996,

110 Stat. 3837.

STATISTICAL SUMMARY OF COMPARATIVE UTILIZATION

Section 6204(f) of Pub. L. 101-239, as amended by Pub. L.

101-508, title IV, Sec. 4207(e)(4)(A), formerly Sec. 4027(e)(4)(A),

Nov. 5, 1990, 104 Stat. 1388-122, renumbered Pub. L. 103-432, title

I, Sec. 160(d)(4), Oct. 31, 1994, 108 Stat. 4444; Pub. L. 104-316,

title I, Sec. 122(h)(2), Oct. 19, 1996, 110 Stat. 3837, directed

Secretary of Health and Human Services, not later than June 30,

1992, to submit to Congress a statistical profile comparing

utilization of items and services by medicare beneficiaries served

by entities in which the referring physician has a direct or

indirect financial interest and by medicare beneficiaries served by

other entities, for the States and entities specified in subsec.

(f) of this section (other than entities providing clinical

laboratory services).

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 1320b-5, 1396b of this

title; title 21 section 823.

-FOOTNOTE-

(!1) See References in Text note below.

(!2) So in original. No subpar. (B) has been enacted.

(!3) So in original. Probably should be "provide".

-End-

-CITE-

42 USC Sec. 1395oo 01/06/03

-EXPCITE-

TITLE 42 - THE PUBLIC HEALTH AND WELFARE

CHAPTER 7 - SOCIAL SECURITY

SUBCHAPTER XVIII - HEALTH INSURANCE FOR AGED AND DISABLED

Part D - Miscellaneous Provisions

-HEAD-

Sec. 1395oo. Provider Reimbursement Review Board

-STATUTE-

(a) Establishment

Any provider of services which has filed a required cost report

within the time specified in regulations may obtain a hearing with

respect to such cost report by a Provider Reimbursement Review

Board (hereinafter referred to as the "Board") which shall be

established by the Secretary in accordance with subsection (h) of

this section and (except as provided in subsection (g)(2) of this

section) any hospital which receives payments in amounts computed

under subsection (b) or (d) of section 1395ww of this title and

which has submitted such reports within such time as the Secretary

may require in order to make payment under such section may obtain

a hearing with respect to such payment by the Board, if -

(1) such provider -

(A)(i) is dissatisfied with a final determination of the

organization serving as its fiscal intermediary pursuant to

section 1395h of this title as to the amount of total program

reimbursement due the provider for the items and services

furnished to individuals for which payment may be made under

this subchapter for the period covered by such report, or

(ii) is dissatisfied with a final determination of the

Secretary as to the amount of the payment under subsection (b)

or (d) of section 1395ww of this title,

(B) has not received such final determination from such

intermediary on a timely basis after filing such report, where

such report complied with the rules and regulations of the

Secretary relating to such report, or

(C) has not received such final determination on a timely

basis after filing a supplementary cost report, where such cost

report did not so comply and such supplementary cost report did

so comply,

(2) the amount in controversy is $10,000 or more, and

(3) such provider files a request for a hearing within 180 days

after notice of the intermediary's final determination under

paragraph (1)(A)(i), or with respect to appeals under paragraph

(1)(A)(ii), 180 days after notice of the Secretary's final

determination, or with respect to appeals pursuant to paragraph

(1) (B) or (C), within 180 days after notice of such

determination would have been received if such determination had

been made on a timely basis.

(b) Appeals by groups

The provisions of subsection (a) of this section shall apply to

any group of providers of services if each provider of services in

such group would, upon the filing of an appeal (but without regard

to the $10,000 limitation), be entitled to such a hearing, but only

if the matters in controversy involve a common question of fact or

interpretation of law or regulations and the amount in controversy

is, in the aggregate, $50,000 or more.

(c) Right to counsel; rules of evidence

At such hearing, the provider of services shall have the right to

be represented by counsel, to introduce evidence, and to examine

and cross-examine witnesses. Evidence may be received at any such

hearing even though inadmissible under rules of evidence applicable

to court procedure.

(d) Decisions of Board

A decision by the Board shall be based upon the record made at

such hearing, which shall include the evidence considered by the

intermediary and such other evidence as may be obtained or received

by the Board, and shall be supported by substantial evidence when

the record is viewed as a whole. The Board shall have the power to

affirm, modify, or reverse a final determination of the fiscal

intermediary with respect to a cost report and to make any other

revisions on matters covered by such cost report (including

revisions adverse to the provider of services) even though such

matters were not considered by the intermediary in making such

final determination.

(e) Rules and regulations

The Board shall have full power and authority to make rules and

establish procedures, not inconsistent with the provisions of this

subchapter or regulations of the Secretary, which are necessary or

appropriate to carry out the provisions of this section. In the

course of any hearing the Board may administer oaths and

affirmations. The provisions of subsections (d) and (e) of section

405 of this title with respect to subpenas shall apply to the Board

to the same extent as they apply to the Secretary with respect to

subchapter II of this chapter.

(f) Finality of decision; judicial review; determinations of Board

authority; jurisdiction; venue; interest on amount in controversy

(1) A decision of the Board shall be final unless the Secretary,

on his own motion, and within 60 days after the provider of

services is notified of the Board's decision, reverses, affirms, or

modifies the Board's decision. Providers shall have the right to

obtain judicial review of any final decision of the Board, or of

any reversal, affirmance, or modification by the Secretary, by a

civil action commenced within 60 days of the date on which notice

of any final decision by the Board or of any reversal, affirmance,

or modification by the Secretary is received. Providers shall also

have the right to obtain judicial review of any action of the

fiscal intermediary which involves a question of law or regulations

relevant to the matters in controversy whenever the Board

determines (on its own motion or at the request of a provider of

services as described in the following sentence) that it is without

authority to decide the question, by a civil action commenced

within sixty days of the date on which notification of such

determination is received. If a provider of services may obtain a

hearing under subsection (a) of this section and has filed a

request for such a hearing, such provider may file a request for a

determination by the Board of its authority to decide the question

of law or regulations relevant to the matters in controversy

(accompanied by such documents and materials as the Board shall

require for purposes of rendering such determination). The Board

shall render such determination in writing within thirty days after

the Board receives the request and such accompanying documents and

materials, and the determination shall be considered a final

decision and not subject to review by the Secretary. If the Board

fails to render such determination within such period, the provider

may bring a civil action (within sixty days of the end of such

period) with respect to the matter in controversy contained in such

request for a hearing. Such action shall be brought in the district

court of the United States for the judicial district in which the

provider is located (or, in an action brought jointly by several

providers, the judicial district in which the greatest number of

such providers are located) or in the District Court for the

District of Columbia and shall be tried pursuant to the applicable

provisions under chapter 7 of title 5 notwithstanding any other

provisions in section 405 of this title. Any appeal to the Board or

action for judicial review by providers which are under common

ownership or control or which have obtained a hearing under

subsection (b) of this section must be brought by such providers as

a group with respect to any matter involving an issue common to

such providers.

(2) Where a provider seeks judicial review pursuant to paragraph

(1), the amount in controversy shall be subject to annual interest

beginning on the first day of the first month beginning after the

180-day period as determined pursuant to subsection (a)(3) of this

section and equal to the rate of interest on obligations issued for

purchase by the Federal Hospital Insurance Trust Fund for the month

in which the civil action authorized under paragraph (1) is

commenced, to be awarded by the reviewing court in favor of the

prevailing party.

(3) No interest awarded pursuant to paragraph (2) shall be deemed

income or cost for the purposes of determining reimbursement due

providers under this chapter.

(g) Certain findings not reviewable

(1) The finding of a fiscal intermediary that no payment may be

made under this subchapter for any expenses incurred for items or

services furnished to an individual because such items or services

are listed in section 1395y of this title shall not be reviewed by

the Board, or by any court pursuant to an action brought under

subsection (f) of this section.

(2) The determinations and other decisions described in section

1395ww(d)(7) of this title shall not be reviewed by the Board or by

any court pursuant to an action brought under subsection (f) of

this section or otherwise.

(h) Composition and compensation

The Board shall be composed of five members appointed by the

Secretary without regard to the provisions of title 5 governing

appointments in the competitive services. Two of such members shall

be representative of providers of services. All of the members of

the Board shall be persons knowledgeable in the field of payment of

providers of services, and at least one of them shall be a

certified public accountant. Members of the Board shall be entitled

to receive compensation at rates fixed by the Secretary, but not

exceeding the rate specified (at the time the service involved is

rendered by such members) for grade GS-18 in section 5332 of title

5. The term of office shall be three years, except that the

Secretary shall appoint the initial members of the Board for

shorter terms to the extent necessary to permit staggered terms of

office.

(i) Technical and clerical assistance

The Board is authorized to engage such technical assistance as

may be required to carry out its functions, and the Secretary

shall, in addition, make available to the Board such secretarial,

clerical, and other assistance as the Board may require to carry

out its functions.

(j) "Provider of services" defined

In this section, the term "provider of services" includes a rural

health clinic and a Federally qualified health center.

-SOURCE-

(Aug. 14, 1935, ch. 531, title XVIII, Sec. 1878, as added Pub. L.

92-603, title II, Sec. 243(a), Oct. 30, 1972, 86 Stat. 1420;

amended Pub. L. 93-484, Sec. 3(a), Oct. 26, 1974, 88 Stat. 1459;

Pub. L. 96-499, title IX, Sec. 955, Dec. 5, 1980, 94 Stat. 2647;

Pub. L. 98-21, title VI, Sec. 602(h), Apr. 20, 1983, 97 Stat. 165;

Pub. L. 98-369, div. B, title III, Secs. 2351(a)(1), (b)(1),

2354(b)(39), (40), July 18, 1984, 98 Stat. 1098, 1099, 1102; Pub.

L. 101-508, title IV, Sec. 4161(a)(6), (b)(4), Nov. 5, 1990, 104

Stat. 1388-94, 1388-95; Pub. L. 103-66, title XIII, Sec.

13503(c)(1)(B), Aug. 10, 1993, 107 Stat. 579.)

-REFTEXT-

REFERENCES IN TEXT

The provisions of title 5 governing appointments in the

competitive service, referred to in subsec. (h), are classified to

section 3301 et seq. of Title 5, Government Organization and

Employees.

-MISC1-

AMENDMENTS

1993 - Subsec. (f)(2). Pub. L. 103-66 substituted "the rate of

interest on obligations issued for purchase by the Federal Hospital

Insurance Trust Fund for the month in which" for "the rate of

return on equity capital established by regulation pursuant to

section 1395x(v)(1)(B) of this title and in effect at the time".

1990 - Subsec. (j). Pub. L. 101-508, Sec. 4161(b)(4), inserted "a

rural health clinic and" after "includes".

Pub. L. 101-508, Sec. 4161(a)(6), added subsec. (j).

1984 - Subsec. (c). Pub. L. 98-369, Sec. 2354(b)(39), substituted

"inadmissible" for "inadmissable".

Subsec. (e). Pub. L. 98-369, Sec. 2354(b)(40), substituted "and

(e)" for ", (e), and (f)".

Subsec. (f)(1). Pub. L. 98-369, Sec. 2351(a)(1), substituted

"notification of such determination is received" for "such

determination is rendered" in third sentence.

Pub. L. 98-369, Sec. 2351(b)(1), inserted "or which have obtained

a hearing under subsection (b) of this section" after "common

ownership or control" in last sentence.

1983 - Subsec. (a). Pub. L. 98-21, Sec. 602(h)(1)(A), inserted

provision in introductory text that, except as provided in subsec.

(g)(2) of this section, any hospital which receives payments in

amounts computed under section 1395ww(b) or (d) of this title and

which has submitted such reports within such time as Secretary may

require in order to make payment under such section may obtain a

hearing with respect to such payment by Board.

Subsec. (a)(1)(A). Pub. L. 98-21, Sec. 602(h)(1)(B), (C),

designated existing provisions as cl. (i) and added cl. (ii).

Subsec. (a)(3). Pub. L. 98-21, Sec. 602(h)(1)(D), substituted

"(1)(A)(i), or with respect to appeals under paragraph (1)(A)(ii),

180 days after notice of the Secretary's final determination," for

"(1)(A)".

Subsec. (f)(1). Pub. L. 98-21, Sec. 602(h)(2), inserted "(or, in

an action brought jointly by several providers, the judicial

district in which the greatest number of such providers are

located)" after "the judicial district in which the provider is

located", and "Any appeal to the Board or action for judicial

review by providers which are under common ownership or control

must be brought by such providers as a group with respect to any

matter involving an issue common to such providers."

Subsec. (g). Pub. L. 98-21, Sec. 602(h)(3), designated existing

provisions as par. (1) and added par. (2).

Subsec. (h). Pub. L. 98-21, Sec. 602(h)(4), substituted "payment

of providers of services" for "cost reimbursement".

1980 - Subsec. (f)(1). Pub. L. 96-499 inserted provision

empowering providers of services to obtain judicial review of any

action of a fiscal intermediary involving a question of law or

regulations relevant to matters in controversy whenever Board

determined that it was without authority to decide such matters in

controversy.

1974 - Subsec. (f). Pub. L. 93-484 redesignated existing

provisions as par. (1), inserted provisions authorizing judicial

review for providers of final decisions of Board and judicial

review of any affirmance by Secretary, and added pars. (2) and (3).

EFFECTIVE DATE OF 1993 AMENDMENT

Amendment by Pub. L. 103-66 effective Oct. 1, 1993, see section

13503(c)(2) of Pub. L. 103-66, set out as a note under section

1395x of this title.

EFFECTIVE DATE OF 1990 AMENDMENT

Amendment by section 4161(a)(6) of Pub. L. 101-508 applicable to

cost reports for periods beginning on or after Oct. 1, 1991, see

section 4161(a)(8)(C) of Pub. L. 101-508, set out as a note under

section 1395k of this title.

Amendment by section 4161(b)(4) of Pub. L. 101-508 applicable to

cost reports for periods beginning on or after Oct. 1, 1991, see

section 4161(b)(5) of Pub. L. 101-508, set out as a note under

section 1395x of this title.

EFFECTIVE DATE OF 1984 AMENDMENT

Section 2351(a)(2) of Pub. L. 98-369 provided that: "The

amendment made by paragraph (1) [amending this section] shall be

effective with respect to any civil action commenced on or after

the date of the enactment of this Act [July 18, 1984]."

Section 2351(b)(2) of Pub. L. 98-369 provided that: "The

amendment made by paragraph (1) [amending this section] shall be

effective with respect to any appeal or action brought on or after

the date of the enactment of this Act [July 18, 1984]."

Amendment by section 2354(b)(39), (40) of Pub. L. 98-369

effective July 18, 1984, but not to be construed as changing or

affecting any right, liability, status, or interpretation which

existed (under the provisions of law involved) before that date,

see section 2354(e)(1) of Pub. L. 98-369, set out as a note under

section 1320a-1 of this title.

EFFECTIVE DATE OF 1983 AMENDMENT

Amendment by Pub. L. 98-21 applicable to items and services

furnished by or under arrangement with a hospital beginning with

its first cost reporting period that begins on or after Oct. 1,

1983, any change in a hospital's cost reporting period made after

November 1982 to be recognized for such purposes only if the

Secretary finds good cause therefor, see section 604(a)(1) of Pub.

L. 98-21, set out as a note under section 1395ww of this title.

See, also, section 2351(c) of Pub. L. 98-369, set out as a note

below.

EFFECTIVE DATE OF 1974 AMENDMENT

Section 3(b) of Pub. L. 93-484 provided that: "The amendment made

by subsection (a) [amending this section] shall be applicable to

cost reports of providers of services for accounting periods ending

on or after June 30, 1973."

EFFECTIVE DATE

Section 243(c) of Pub. L. 92-603 provided that: "The amendments

made by this section [enacting this section and amending section

1395h of this title] shall apply with respect to cost reports of

providers of services, as defined in title XVIII of the Social

Security Act [this subchapter], for accounting periods ending on or

after June 30, 1973."

REFERENCES IN OTHER LAWS TO GS-16, 17, OR 18 PAY RATES

References in laws to the rates of pay for GS-16, 17, or 18, or

to maximum rates of pay under the General Schedule, to be

considered references to rates payable under specified sections of

Title 5, Government Organization and Employees, see section 529

[title I, Sec. 101(c)(1)] of Pub. L. 101-509, set out in a note

under section 5376 of Title 5.

REVIEW OF PROVIDER REIMBURSEMENT REVIEW BOARD DECISIONS

Section 2351(c) of Pub. L. 98-369 provided that: "Notwithstanding

section 604 of the Social Security Amendments of 1983 (Public Law

98-21) [set out as an Effective Date of 1983 Amendments note under

section 1395ww of this title] -

"(1) the amendments made by section 602(h)(2)(A) of that Act

[amending this section] shall be effective with respect to any

appeal or action brought on or after April 20, 1983; and

"(2) the amendments made by section 602(h)(2)(B) of that Act

[amending this section] shall be effective with respect to any

appeal or action brought on or after the date of the enactment of

this Act [July 18, 1984]."

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 256e, 1395h, 1395i-5,

1395l, 1395rr, 1395ww, 1395yy, 1395fff of this title.

-End-

-CITE-

42 USC Sec. 1395pp 01/06/03

-EXPCITE-

TITLE 42 - THE PUBLIC HEALTH AND WELFARE

CHAPTER 7 - SOCIAL SECURITY

SUBCHAPTER XVIII - HEALTH INSURANCE FOR AGED AND DISABLED

Part D - Miscellaneous Provisions

-HEAD-

Sec. 1395pp. Limitation on liability where claims are disallowed

-STATUTE-

(a) Conditions prerequisite to payment for items and services

notwithstanding determination of disallowance

Where -

(1) a determination is made that, by reason of section

1395y(a)(1) or (9) of this title or by reason of a coverage

denial described in subsection (g) of this section, payment may

not be made under part A or part B of this subchapter for any

expenses incurred for items or services furnished an individual

by a provider of services or by another person pursuant to an

assignment under section 1395u(b)(3)(B)(ii) of this title, and

(2) both such individual and such provider of services or such

other person, as the case may be, did not know, and could not

reasonably have been expected to know, that payment would not be

made for such items or services under such part A or part B of

this subchapter,

then to the extent permitted by this subchapter, payment shall,

notwithstanding such determination, be made for such items or

services (and for such period of time as the Secretary finds will

carry out the objectives of this subchapter), as though section

1395y(a)(1) and section 1395y(a)(9) of this title did not apply and

as though the coverage denial described in subsection (g) of this

section had not occurred. In each such case the Secretary shall

notify both such individual and such provider of services or such

other person, as the case may be, of the conditions under which

payment for such items or services was made and in the case of

comparable situations arising thereafter with respect to such

individual or such provider or such other person, each shall, by

reason of such notice (or similar notices provided before the

enactment of this section), be deemed to have knowledge that

payment cannot be made for such items or services or reasonably

comparable items or services. Any provider or other person

furnishing items or services for which payment may not be made by

reason of section 1395y(a)(1) or (9) of this title or by reason of

a coverage denial described in subsection (g) of this section shall

be deemed to have knowledge that payment cannot be made for such

items or services if the claim relating to such items or services

involves a case, provider or other person furnishing services,

procedure, or test, with respect to which such provider or other

person has been notified by the Secretary (including notification

by a utilization and quality control peer review organization) that

a pattern of inappropriate utilization has occurred in the past,

and such provider or other person has been allowed a reasonable

time to correct such inappropriate utilization.

(b) Knowledge of person or provider that payment could not be made;

indemnification of individual

In any case in which the provisions of paragraphs (1) and (2) of

subsection (a) of this section are met, except that such provider

or such other person, as the case may be, knew, or could be

expected to know, that payment for such services or items could not

be made under such part A or part B of this subchapter, then the

Secretary shall, upon proper application filed within such time as

may be prescribed in regulations, indemnify the individual

(referred to in such paragraphs) for any payments received from

such individual by such provider or such other person, as the case

may be, for such items or services. Any payments made by the

Secretary as indemnification shall be deemed to have been made to

such provider or such other person, as the case may be, and shall

be treated as overpayments, recoverable from such provider or such

other person, as the case may be, under applicable provisions of

law. In each such case the Secretary shall notify such individual

of the conditions under which indemnification is made and in the

case of comparable situations arising thereafter with respect to

such individual, he shall, by reason of such notice (or similar

notices provided before the enactment of this section), be deemed

to have knowledge that payment cannot be made for such items or

services. No item or service for which an individual is indemnified

under this subsection shall be taken into account in applying any

limitation on the amount of items and services for which payment

may be made to or on behalf of the individual under this

subchapter.

(c) Knowledge of both provider and individual to whom items or

services were furnished that payment could not be made

No payments shall be made under this subchapter in any cases in

which the provisions of paragraph (1) of subsection (a) of this

section are met, but both the individual to whom the items or

services were furnished and the provider of service or other

person, as the case may be, who furnished the items or services

knew, or could reasonably have been expected to know, that payment

could not be made for items or services under part A or part B of

this subchapter by reason of section 1395y(a)(1) or (a)(9) of this

title or by reason of a coverage denial described in subsection (g)

of this section.

(d) Exercise of rights

In any case arising under subsection (b) of this section (but

without regard to whether payments have been made by the individual

to the provider or other person) or subsection (c) of this section,

the provider or other person shall have the same rights that an

individual has under sections 1395ff(b) and 1395u(b)(3)(C) of this

title (as may be applicable) when the amount of benefit or payments

is in controversy, except that such rights may, under prescribed

regulations, be exercised by such provider or other person only

after the Secretary determines that the individual will not

exercise such rights under such sections.

(e) Payment where beneficiary not at fault

Where payment for inpatient hospital services or extended care

services may not be made under part A of this subchapter on behalf

of an individual entitled to benefits under such part solely

because of an unintentional, inadvertent, or erroneous action with

respect to the transfer of such individual from a hospital or

skilled nursing facility that meets the requirements of section

1395x(e) or (j) of this title by such a provider of services acting

in good faith in accordance with the advice of a utilization review

committee, quality control and peer review organization, or fiscal

intermediary, or on the basis of a clearly erroneous administrative

decision by a provider of services, the Secretary shall take such

action with respect to the payment of such benefits as he

determines may be necessary to correct the effects of such

unintentional, inadvertent, or erroneous action.

(f) Presumption with respect to coverage denial; rebuttal;

requirements; "fiscal intermediary" defined

(1) A home health agency which meets the applicable requirements

of paragraphs (3) and (4) shall be presumed to meet the requirement

of subsection (a)(2) of this section.

(2) The presumption of paragraph (1) with respect to specific

services may be rebutted by actual or imputed knowledge of the

facts described in subsection (a)(2) of this section, including any

of the following:

(A) Notice by the fiscal intermediary of the fact that payment

may not be made under this subchapter with respect to the

services.

(B) It is clear and obvious that the provider should have known

at the time the services were furnished that they were excluded

from coverage.

(3) The requirements of this paragraph are as follows:

(A) The agency complies with requirements of the Secretary

under this subchapter respecting timely submittal of bills for

payment and medical documentation.

(B) The agency program has reasonable procedures to notify

promptly each patient (and the patient's physician) where it is

determined that a patient is being or will be furnished items or

services which are excluded from coverage under this subchapter.

(4)(A) The requirement of this paragraph is that, on the basis of

bills submitted by a home health agency during the previous

quarter, the rate of denial of bills for the agency by reason of a

coverage denial described in subsection (g) of this section does

not exceed 2.5 percent, computed based on visits for home health

services billed.

(B) For purposes of determining the rate of denial of bills for a

home health agency under subparagraph (A), a bill shall not be

considered to be denied until the expiration of the 60-day period

that begins on the date such bill is denied by the fiscal

intermediary, or, with respect to such a denial for which the

agency requests reconsideration, until the fiscal intermediary

issues a decision denying payment for such bill.

(5) In this subsection, the term "fiscal intermediary" means,

with respect to a home health agency, an agency or organization

with an agreement under section 1395h of this title with respect to

the agency.

(6) The Secretary shall monitor the proportion of denied bills

submitted by home health agencies for which reconsideration is

requested, and shall notify Congress if the proportion of denials

reversed upon reconsideration increases significantly.

(g) Coverage denial defined

The coverage denial described in this subsection is -

(1) with respect to the provision of home health services to an

individual, a failure to meet the requirements of section

1395f(a)(2)(C) of this title or section 1395n(a)(2)(A) of this

title in that the individual -

(A) is or was not confined to his home, or

(B) does or did not need skilled nursing care on an

intermittent basis; and

(2) with respect to the provision of hospice care to an

individual, a determination that the individual is not terminally

ill.

(h) Supplier responsibility for items furnished on assignment basis

If a supplier of medical equipment and supplies (as defined in

section 1395m(j)(5) of this title) -

(1) furnishes an item or service to a beneficiary for which no

payment may be made by reason of section 1395m(j)(1) of this

title;

(2) furnishes an item or service to a beneficiary for which

payment is denied in advance under section 1395m(a)(15) of this

title; or

(3) furnishes an item or service to a beneficiary for which no

payment may be made by reason of section 1395m(a)(17)(B) of this

title,

any expenses incurred for items and services furnished to an

individual by such a supplier on an assignment-related basis shall

be the responsibility of such supplier. The individual shall have

no financial responsibility for such expenses and the supplier

shall refund on a timely basis to the individual (and shall be

liable to the individual for) any amounts collected from the

individual for such items or services. The provisions of section

1395m(a)(18) of this title shall apply to refunds required under

the previous sentence in the same manner as such provisions apply

to refunds under such section.

-SOURCE-

(Aug. 14, 1935, ch. 531, title XVIII, Sec. 1879, as added Pub. L.

92-603, title II, Sec. 213(a), Oct. 30, 1972, 86 Stat. 1384;

amended Pub. L. 96-499, title IX, Sec. 956(a), Dec. 5, 1980, 94

Stat. 2648; Pub. L. 97-248, title I, Secs. 145, 148(e), Sept. 3,

1982, 96 Stat. 393, 394; Pub. L. 99-509, title IX, Secs.

9305(g)(1), 9341(a)(3), Oct. 21, 1986, 100 Stat. 1991, 2038; Pub.

L. 100-203, title IV, Sec. 4096(b), Dec. 22, 1987, 101 Stat.

1330-139; Pub. L. 101-239, title VI, Sec. 6214(a), (b), Dec. 19,

1989, 103 Stat. 2252; Pub. L. 103-432, title I, Sec. 133(b), Oct.

31, 1994, 108 Stat. 4421; Pub. L. 105-33, title IV, Sec. 4447, Aug.

5, 1997, 111 Stat. 424.)

-REFTEXT-

REFERENCES IN TEXT

Parts A and B of this subchapter, referred to in text, are

classified to sections 1395c et seq. and 1395j et seq.,

respectively, of this title.

-MISC1-

AMENDMENTS

1997 - Subsec. (g). Pub. L. 105-33 substituted "subsection is - "

for "subsection is,", redesignated remaining text as par. (1) and

former pars. (1) and (2) as subpars. (A) and (B), respectively, of

par. (1), realigned margins, substituted "; and" for period at end,

and added par. (2).

1994 - Subsec. (h). Pub. L. 103-432 added subsec. (h).

1989 - Subsec. (f)(1). Pub. L. 101-239, Sec. 6214(a)(1), struck

out "with respect to any coverage denial described in subsection

(g) of this section" before period at end.

Subsec. (f)(4). Pub. L. 101-239, Sec. 6214(a)(2), designated

existing provisions as subpar. (A) and added subpar. (B).

Subsec. (f)(6). Pub. L. 101-239, Sec. 6214(b), added par. (6).

1987 - Subsec. (b). Pub. L. 100-203 struck out ", subject to the

deductible and coinsurance provisions of this subchapter," after

"(referred to in such paragraphs)" and inserted at end "No item or

service for which an individual is indemnified under this

subsection shall be taken into account in applying any limitation

on the amount of items and services for which payment may be made

to or on behalf of the individual under this subchapter."

1986 - Subsec. (a). Pub. L. 99-509, Sec. 9305(g)(1)(A)-(C),

inserted in par. (1) "or by reason of a coverage denial described

in subsection (g) of this section", and in concluding provisions

inserted "and as though the coverage denial described in subsection

(g) of this section had not occurred" and "or by reason of a

coverage denial described in subsection (g) of this section".

Subsec. (c). Pub. L. 99-509, Sec. 9305(g)(1)(D), inserted "or by

reason of a coverage denial described in subsection (g) of this

section".

Subsec. (d). Pub. L. 99-509, Sec. 9341(a)(3), substituted

"sections 1395ff(b) and 1395u(b)(3)(C) of this title (as may be

applicable)" for "section 1395ff(b) of this title (when the

determination is under part A) or section 1395u(b)(3)(C) of this

title (when the determination is under part B)".

Subsecs. (f), (g). Pub. L. 99-509, Sec. 9305(g)(1)(E), added

subsecs. (f) and (g).

1982 - Subsec. (a). Pub. L. 97-248, Sec. 145, inserted provisions

relating to imputing knowledge to provider or other person

furnishing items or services for which payment may not be made that

payment may not be made if the provider or other person has been

notified that a pattern of inappropriate utilization has occurred

in the past and there has been a reasonable time for correction of

such utilization.

Subsec. (e). Pub. L. 97-248, Sec. 148(e), substituted "quality

control and peer review organization" for "professional standards

review organization".

1980 - Subsec. (e). Pub. L. 96-499 added subsec. (e).

EFFECTIVE DATE OF 1997 AMENDMENT

Amendment by Pub. L. 105-33 applicable to benefits provided on or

after Aug. 5, 1997, except as otherwise provided, see section 4449

of Pub. L. 105-33, set out as a note under section 1395d of this

title.

EFFECTIVE DATE OF 1994 AMENDMENT

Amendment by Pub. L. 103-432 applicable to items or services

furnished on or after Jan. 1, 1995, see section 133(c) of Pub. L.

103-432, set out as a note under section 1395m of this title.

EFFECTIVE DATE OF 1989 AMENDMENT

Section 6214(c) of Pub. L. 101-239 provided that: "The amendments

made by subsection (a) [amending this section] shall apply to

determinations for quarters beginning on or after the date of the

enactment of this Act [Dec. 19, 1989]."

EFFECTIVE DATE OF 1987 AMENDMENT

Amendment by Pub. L. 100-203 applicable to services furnished on

or after Jan. 1, 1988, see section 4096(d) of Pub. L. 100-203, set

out as a note under section 1320c-3 of this title.

EFFECTIVE DATE OF 1986 AMENDMENT

Section 9305(g)(3) of Pub. L. 99-509, as amended by Pub. L.

100-360, title IV, Sec. 426(c), July 1, 1988, 102 Stat. 814; Pub.

L. 101-508, title IV, Sec. 4207(b)(3), formerly Sec. 4027(b)(3),

Nov. 5, 1990, 104 Stat. 1388-118, renumbered Pub. L. 103-432, title

I, Sec. 160(d)(4), Oct. 31, 1994, 108 Stat. 4444, provided that:

"The amendments made by paragraph (1) [amending this section] shall

apply to coverage denials occurring on or after July 1, 1987, and

before December 31, 1995."

Amendment by section 9341(a)(3) of Pub. L. 99-509 applicable to

items and services furnished on or after Jan. 1, 1987, see section

9341(b) of Pub. L. 99-509, set out as a note under section 1395ff

of this title.

EFFECTIVE DATE OF 1982 AMENDMENT

Amendment by Pub. L. 97-248 effective with respect to contracts

entered into or renewed on or after Sept. 3, 1982, see section 149

of Pub. L. 97-248, set out as an Effective Date note under section

1320c of this title.

EFFECTIVE DATE OF 1980 AMENDMENT

Section 956(b) of Pub. L. 96-499 provided that: "The amendment

made by subsection (a) [amending this section] shall take effect on

January 1, 1981."

EFFECTIVE DATE

Section 213(b) of Pub. L. 92-603 provided that: "The amendments

made by this section [enacting this section] shall be effective

with respect to claims under part A or part B of title XVIII of the

Social Security Act [part A or part B of this subchapter], filed

with respect to items or services furnished after the date of the

enactment of this Act [Oct. 30, 1972]."

REPORTS TO CONGRESS ON DENIALS OF BILLS FOR PAYMENT

Section 9305(g)(2) of Pub. L. 99-509 directed Secretary of Health

and Human Services to report to Congress annually in March of 1987

and 1988 information on frequency and distribution (by type of

provider) of denials of bills for payment under this subchapter for

extended care services, home health services, and hospice care, by

reason of section 1395y(a)(1) or (9) of this title, and coverage

denials described in subsec. (g) of this section, and such other

information as appropriate to evaluate the appropriateness of any

percentage standards established for the granting of favorable

presumptions with respect to such denials.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 1320c-3, 1395h, 1395ff of

this title.

-End-

-CITE-

42 USC Sec. 1395qq 01/06/03

-EXPCITE-

TITLE 42 - THE PUBLIC HEALTH AND WELFARE

CHAPTER 7 - SOCIAL SECURITY

SUBCHAPTER XVIII - HEALTH INSURANCE FOR AGED AND DISABLED

Part D - Miscellaneous Provisions

-HEAD-

Sec. 1395qq. Indian health service facilities

-STATUTE-

(a) Eligibility for payments; conditions and requirements

A hospital or skilled nursing facility of the Indian Health

Service, whether operated by such Service or by an Indian tribe or

tribal organization (as those terms are defined in section 1603 of

title 25), shall be eligible for payments under this subchapter,

notwithstanding sections 1395f(c) and 1395n(d) of this title, if

and for so long as it meets all of the conditions and requirements

for such payments which are applicable generally to hospitals or

skilled nursing facilities (as the case may be) under this

subchapter.

(b) Eligibility based on submission of plan to achieve compliance

with conditions and requirements; twelve-month period

Notwithstanding subsection (a) of this section, a hospital or

skilled nursing facility of the Indian Health Service which does

not meet all of the conditions and requirements of this subchapter

which are applicable generally to hospitals or skilled nursing

facilities (as the case may be), but which submits to the Secretary

within six months after September 30, 1976, an acceptable plan for

achieving compliance with such conditions and requirements, shall

be deemed to meet such conditions and requirements (and to be

eligible for payments under this subchapter), without regard to the

extent of its actual compliance with such conditions and

requirements, during the first 12 months after the month in which

such plan is submitted.

(c) Payments into special fund for improvements to achieve

compliance with conditions and requirements; certification of

compliance by Secretary

Notwithstanding any other provision of this subchapter, payments

to which any hospital or skilled nursing facility of the Indian

Health Service is entitled by reason of this section shall be

placed in a special fund to be held by the Secretary and used by

him (to such extent or in such amounts as are provided in

appropriation Acts) exclusively for the purpose of making any

improvements in the hospitals and skilled nursing facilities of

such Service which may be necessary to achieve compliance with the

applicable conditions and requirements of this subchapter. The

preceding sentence shall cease to apply when the Secretary

determines and certifies that substantially all of the hospitals

and skilled nursing facilities of such Service in the United States

are in compliance with such conditions and requirements.

(d) Report by Secretary; status of facilities in complying with

conditions and requirements

The annual report of the Secretary which is required by section

1671 of title 25 shall include (along with the matters specified in

section 1643 of title 25) a detailed statement of the status of the

hospitals and skilled nursing facilities of the Service in terms of

their compliance with the applicable conditions and requirements of

this subchapter and of the progress being made by such hospitals

and facilities (under plans submitted under subsection (b) of this

section and otherwise) toward the achievement of such compliance.

(e) Services provided by Indian Health Service, Indian tribe, or

tribal organization

(1)(A) Notwithstanding section 1395n(d) of this title, subject to

subparagraph (B), the Secretary shall make payment under part B of

this subchapter to a hospital or an ambulatory care clinic (whether

provider-based or freestanding) that is operated by the Indian

Health Service or by an Indian tribe or tribal organization (as

defined for purposes of subsection (a) of this section) for

services described in paragraph (2) furnished in or at the

direction of the hospital or clinic under the same situations,

terms, and conditions as would apply if the services were furnished

in or at the direction of such a hospital or clinic that was not

operated by such Service, tribe, or organization.

(B) Payment shall not be made for services under subparagraph (A)

to the extent that payment is otherwise made for such services

under this subchapter.

(2) The services described in this paragraph are the following:

(A) Services for which payment is made under section 1395w-4 of

this title.

(B) Services furnished by a practitioner described in section

1395u(b)(18)(C) of this title for which payment under part B of

this subchapter is made under a fee schedule.

(C) Services furnished by a physical therapist or occupational

therapist as described in section 1395x(p) of this title for

which payment under part B of this subchapter is made under a fee

schedule.

(3) Subsection (c) of this section shall not apply to payments

made under this subsection.

(f) Cross reference

For provisions relating to the authority of certain Indian

tribes, tribal organizations, and Alaska Native health

organizations to elect to directly bill for, and receive payment

for, health care services provided by a hospital or clinic of such

tribes or organizations and for which payment may be made under

this subchapter, see section 1645 of title 25.

-SOURCE-

(Aug. 14, 1935, ch. 531, title XVIII, Sec. 1880, as added Pub. L.

94-437, title IV, Sec. 401(b), Sept. 30, 1976, 90 Stat. 1408;

amended Pub. L. 102-573, title VII, Sec. 701(d), Oct. 29, 1992, 106

Stat. 4572; Pub. L. 106-417, Sec. 3(b)(1), Nov. 1, 2000, 114 Stat.

1815; Pub. L. 106-554, Sec. 1(a)(6) [title IV, Sec. 432(a)], Dec.

21, 2000, 114 Stat. 2763, 2763A-525.)

-REFTEXT-

REFERENCES IN TEXT

Part B of this subchapter, referred to in subsec. (e)(1)(A),

(2)(B), (C), is classified to section 1395j et seq. of this title.

-MISC1-

AMENDMENTS

2000 - Subsec. (e). Pub. L. 106-554, Sec. 1(a)(6) [title IV, Sec.

432(a)(2)], added subsec. (e). Former subsec. (e) redesignated (f).

Pub. L. 106-417 added subsec. (e).

Subsec. (f). Pub. L. 106-554, Sec. 1(a)(6) [title IV, Sec.

432(a)(1)], redesignated subsec. (e) as (f).

1992 - Subsec. (d). Pub. L. 102-573 made technical amendment to

the reference to section 1671 of title 25 to reflect renumbering of

corresponding section of original act.

EFFECTIVE DATE OF 2000 AMENDMENT

Amendment by section 1(a)(6) [title IV, Sec. 432(a)] of Pub. L.

106-554 applicable to services furnished on or after July 1, 2001,

see section 1(a)(6) [title IV, Sec. 432(c)] of Pub. L. 106-554, set

out as a note under section 1395u of this title.

Amendment by Pub. L. 106-417 effective Oct. 1, 2000, see section

3(c) of Pub. L. 106-417, set out as a note under section 1645 of

Title 25, Indians.

MEDICARE PAYMENTS NOT CONSIDERED IN DETERMINING APPROPRIATIONS FOR

INDIAN HEALTH CARE

Section 401(c) of Pub. L. 94-437 provided that any payments

received for services provided to beneficiaries under this section

were not to be considered in determining appropriations for health

care and services to Indians, prior to the general amendment of

section 401 of Pub. L. 94-437 by Pub. L. 102-573, title IV, Sec.

401(a), Oct. 29, 1992, 106 Stat. 4565. Similar provisions are

contained in section 401(a) of Pub. L. 94-437, which is classified

to section 1641(a) of Title 25, Indians.

PREFERENCE IN SERVICES FOR INDIANS WITH MEDICARE COVERAGE NOT

AUTHORIZED

Section 401(d) of Pub. L. 94-437, which provided that nothing in

this section authorized the Secretary to provide services to an

Indian beneficiary with coverage under this subchapter, in

preference to an Indian beneficiary without such coverage, was

omitted in the general amendment of section 401 of Pub. L. 94-437

by Pub. L. 102-573, title IV, Sec. 401(a), Oct. 29, 1992, 106 Stat.

4565. Similar provisions are contained in section 401(b) of Pub. L.

94-437, which is classified to section 1641(b) of Title 25,

Indians.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 1395f, 1395n, 1395u,

1395y of this title; title 25 sections 1645, 1680c.

-End-

-CITE-

42 USC Sec. 1395rr 01/06/03

-EXPCITE-

TITLE 42 - THE PUBLIC HEALTH AND WELFARE

CHAPTER 7 - SOCIAL SECURITY

SUBCHAPTER XVIII - HEALTH INSURANCE FOR AGED AND DISABLED

Part D - Miscellaneous Provisions

-HEAD-

Sec. 1395rr. End stage renal disease program

-STATUTE-

(a) Type, duration, and scope of benefits

The benefits provided by parts A and B of this subchapter shall

include benefits for individuals who have been determined to have

end stage renal disease as provided in section 426-1 of this title,

and benefits for kidney donors as provided in subsection (d) of

this section. Notwithstanding any other provision of this

subchapter, the type, duration, and scope of the benefit provided

by parts A and B of this subchapter with respect to individuals who

have been determined to have end stage renal disease and who are

entitled to such benefits without regard to section 426-1 of this

title shall in no case be less than the type, duration, and scope

of the benefits so provided for individuals entitled to such

benefits solely by reason of that section.

(b) Payments with respect to services; dialysis; regulations;

physicians' services; target reimbursement rates; home dialysis

supplies and equipment; self-care home dialysis support services;

self-care dialysis units; hepatitis B vaccine

(1) Payments under this subchapter with respect to services, in

addition to services for which payment would otherwise be made

under this subchapter, furnished to individuals who have been

determined to have end stage renal disease shall include (A)

payments on behalf of such individuals to providers of services and

renal dialysis facilities which meet such requirements as the

Secretary shall by regulation prescribe for institutional dialysis

services and supplies (including self-dialysis services in a

self-care dialysis unit maintained by the provider or facility),

transplantation services, self-care home dialysis support services

which are furnished by the provider or facility, and routine

professional services performed by a physician during a maintenance

dialysis episode if payments for his other professional services

furnished to an individual who has end stage renal disease are made

on the basis specified in paragraph (3)(A) of this subsection, (B)

payments to or on behalf of such individuals for home dialysis

supplies and equipment, and (C) payments to a supplier of home

dialysis supplies and equipment that is not a provider of services,

a renal dialysis facility, or a physician for self-administered

erythropoietin as described in section 1395x(s)(2)(P) (!1) of this

title if the Secretary finds that the patient receiving such drug

from such a supplier can safely and effectively administer the drug

(in accordance with the applicable methods and standards

established by the Secretary pursuant to such section). The

requirements prescribed by the Secretary under subparagraph (A)

shall include requirements for a minimum utilization rate for

transplantations.

(2)(A) With respect to payments for dialysis services furnished

by providers of services and renal dialysis facilities to

individuals determined to have end stage renal disease for which

payments may be made under part B of this subchapter, such payments

(unless otherwise provided in this section) shall be equal to 80

percent of the amounts determined in accordance with subparagraph

(B); and with respect to payments for services for which payments

may be made under part A of this subchapter, the amounts of such

payments (which amounts shall not exceed, in respect to costs in

procuring organs attributable to payments made to an organ

procurement agency or histocompatibility laboratory, the costs

incurred by that agency or laboratory) shall be determined in

accordance with section 1395x(v) of this title or section 1395ww of

this title (if applicable). Payments shall be made to a renal

dialysis facility only if it agrees to accept such payments as

payment in full for covered services, except for payment by the

individual of 20 percent of the estimated amounts for such services

calculated on the basis established by the Secretary under

subparagraph (B) and the deductible amount imposed by section

1395l(b) of this title.

(B) The Secretary shall prescribe in regulations any methods and

procedures to (i) determine the costs incurred by providers of

services and renal dialysis facilities in furnishing covered

services to individuals determined to have end stage renal disease,

and (ii) determine, on a cost-related basis or other economical and

equitable basis (including any basis authorized under section

1395x(v) of this title) and consistent with any regulations

promulgated under paragraph (7), the amounts of payments to be made

for part B services furnished by such providers and facilities to

such individuals.

(C) Such regulations, in the case of services furnished by

proprietary providers and facilities (other than hospital

outpatient departments) may include, if the Secretary finds it

feasible and appropriate, provision for recognition of a reasonable

rate of return on equity capital, providing such rate of return

does not exceed the rate of return stipulated in section

1395x(v)(1)(B) of this title.

(D) For purposes of section 1395oo of this title, a renal

dialysis facility shall be treated as a provider of services.

(3) With respect to payments for physicians' services furnished

to individuals determined to have end stage renal disease, the

Secretary shall pay 80 percent of the amounts calculated for such

services -

(A) on a reasonable charge basis (but may, in such case, make

payment on the basis of the prevailing charges of other

physicians for comparable services or, for services furnished on

or after January 1, 1992, on the basis described in section

1395w-4 of this title) except that payment may not be made under

this subparagraph for routine services furnished during a

maintenance dialysis episode, or

(B) on a comprehensive monthly fee or other basis (which

effectively encourages the efficient delivery of dialysis

services and provides incentives for the increased use of home

dialysis) for an aggregate of services provided over a period of

time (as defined in regulations).

(4)(A) Pursuant to agreements with approved providers of services

and renal dialysis facilities, the Secretary may make payments to

such providers and facilities for the cost of home dialysis

supplies and equipment and self-care home dialysis support services

furnished to patients whose self-care home dialysis is under the

direct supervision of such provider or facility, on the basis of a

target reimbursement rate (as defined in paragraph (6)) or on the

basis of a method established under paragraph (7).

(B) The Secretary shall make payments to a supplier of home

dialysis supplies and equipment furnished to a patient whose

self-care home dialysis is not under the direct supervision of an

approved provider of services or renal dialysis facility only in

accordance with a written agreement under which -

(i) the patient certifies that the supplier is the sole

provider of such supplies and equipment to the patient,

(ii) the supplier agrees to receive payment for the cost of

such supplies and equipment only on an assignment-related basis,

and

(iii) the supplier certifies that it has entered into a written

agreement with an approved provider of services or renal dialysis

facility under which such provider or facility agrees to furnish

to such patient all self-care home dialysis support services and

all other necessary dialysis services and supplies, including

institutional dialysis services and supplies and emergency

services.

(5) An agreement under paragraph (4) shall require, in accordance

with regulations prescribed by the Secretary, that the provider or

facility will -

(A) assume full responsibility for directly obtaining or

arranging for the provision of -

(i) such medically necessary dialysis equipment as is

prescribed by the attending physician;

(ii) dialysis equipment maintenance and repair services;

(iii) the purchase and delivery of all necessary medical

supplies; and

(iv) where necessary, the services of trained home dialysis

aides;

(B) perform all such administrative functions and maintain such

information and records as the Secretary may require to verify

the transactions and arrangements described in subparagraph (A);

(C) submit such cost reports, data, and information as the

Secretary may require with respect to the costs incurred for

equipment, supplies, and services furnished to the facility's

home dialysis patient population; and

(D) provide for full access for the Secretary to all such

records, data, and information as he may require to perform his

functions under this section.

(6) The Secretary shall establish, for each calendar year,

commencing with January 1, 1979, a target reimbursement rate for

home dialysis which shall be adjusted for regional variations in

the cost of providing home dialysis. In establishing such a rate,

the Secretary shall include -

(A) the Secretary's estimate of the cost of providing medically

necessary home dialysis supplies and equipment;

(B) an allowance, in an amount determined by the Secretary, to

cover the cost of providing personnel to aid in home dialysis;

and

(C) an allowance, in an amount determined by the Secretary, to

cover administrative costs and to provide an incentive for the

efficient delivery of home dialysis;

but in no event (except as may be provided in regulations under

paragraph (7)) shall such target rate exceed 75 percent of the

national average payment, adjusted for regional variations, for

maintenance dialysis services furnished in approved providers and

facilities during the preceding fiscal year. Any such target rate

so established shall be utilized, without renegotiation of the

rate, throughout the calendar year for which it is established.

During the last quarter of each calendar year, the Secretary shall

establish a home dialysis target reimbursement rate for the next

calendar year based on the most recent data available to the

Secretary at the time. In establishing any rate under this

paragraph, the Secretary may utilize a competitive-bid procedure, a

prenegotiated rate procedure, or any other procedure (including

methods established under paragraph (7)) which the Secretary

determines is appropriate and feasible in order to carry out this

paragraph in an effective and efficient manner.

(7) The Secretary shall provide by regulation for a method (or

methods) for determining prospectively the amounts of payments to

be made for dialysis services furnished by providers of services

and renal dialysis facilities to individuals in a facility and to

such individuals at home. Such method (or methods) shall provide

for the prospective determination of a rate (or rates) for each

mode of care based on a single composite weighted formula (which

takes into account the mix of patients who receive dialysis

services at a facility or at home and the relative costs of

providing such services in such settings) for hospital-based

facilities and such a single composite weighted formula for other

renal dialysis facilities, or based on such other method or

combination of methods which differentiate between hospital-based

facilities and other renal dialysis facilities and which the

Secretary determines, after detailed analysis, will more

effectively encourage the more efficient delivery of dialysis

services and will provide greater incentives for increased use of

home dialysis than through the single composite weighted formulas.

The amount of a payment made under any method other than a method

based on a single composite weighted formula may not exceed the

amount (or, in the case of continuous cycling peritoneal dialysis,

130 percent of the amount) of the median payment that would have

been made under the formula for hospital-based facilities. The

Secretary shall provide for such exceptions to such methods as may

be warranted by unusual circumstances (including the special

circumstances of sole facilities located in isolated, rural areas

and of pediatric facilities). Each application for such an

exception shall be deemed to be approved unless the Secretary

disapproves it by not later than 60 working days after the date the

application is filed. The Secretary may provide that such method

will serve in lieu of any target reimbursement rate that would

otherwise be established under paragraph (6). The Secretary shall

reduce the amount of each composite rate payment under this

paragraph for each treatment by 50 cents (subject to such

adjustments as may be required to reflect modes of dialysis other

than hemodialysis) and provide for payment of such amount to the

organizations (designated under subsection (c)(1)(A) of this

section) for such organizations' necessary and proper

administrative costs incurred in carrying out the responsibilities

described in subsection (c)(2) of this section. The Secretary shall

provide that amounts paid under the previous sentence shall be

distributed to the organizations described in subsection (c)(1)(A)

of this section to ensure equitable treatment of all such network

organizations. The Secretary in distributing any such payments to

network organizations shall take into account -

(A) the geographic size of the network area;

(B) the number of providers of end stage renal disease services

in the network area;

(C) the number of individuals who are entitled to end stage

renal disease services in the network area; and

(D) the proportion of the aggregate administrative funds

collected in the network area.

The Secretary shall increase the amount of each composite rate

payment for dialysis services furnished during 2000 by 1.2 percent

above such composite rate payment amounts for such services

furnished on December 31, 1999, and for such services furnished on

or after January 1, 2001, by 2.4 percent above such composite rate

payment amounts for such services furnished on December 31, 2000.

(8) For purposes of this subchapter, the term "home dialysis

supplies and equipment" means medically necessary supplies and

equipment (including supportive equipment) required by an

individual suffering from end stage renal disease in connection

with renal dialysis carried out in his home (as defined in

regulations), including obtaining, installing, and maintaining such

equipment.

(9) For purposes of this subchapter, the term "self-care home

dialysis support services", to the extent permitted in regulation,

means -

(A) periodic monitoring of the patient's home adaptation,

including visits by qualified provider or facility personnel (as

defined in regulations), so long as this is done in accordance

with a plan prepared and periodically reviewed by a professional

team (as defined in regulations) including the individual's

physician;

(B) installation and maintenance of dialysis equipment;

(C) testing and appropriate treatment of the water; and

(D) such additional supportive services as the Secretary finds

appropriate and desirable.

(10) For purposes of this subchapter, the term "self-care

dialysis unit" means a renal dialysis facility or a distinct part

of such facility or of a provider of services, which has been

approved by the Secretary to make self-dialysis services, as

defined by the Secretary in regulations, available to individuals

who have been trained for self-dialysis. A self-care dialysis unit

must, at a minimum, furnish the services, equipment and supplies

needed for self-care dialysis, have patient-staff ratios which are

appropriate to self-dialysis (allowing for such appropriate lesser

degree of ongoing medical supervision and assistance of ancillary

personnel than is required for full care maintenance dialysis), and

meet such other requirements as the Secretary may prescribe with

respect to the quality and cost-effectiveness of services.

(11)(A) Hepatitis B vaccine and its administration, when provided

to a patient determined to have end stage renal disease, shall not

be included as dialysis services for purposes of payment under any

prospective payment amount or comprehensive fee established under

this section. Payment for such vaccine and its administration shall

be made separately in accordance with section 1395l of this title.

(B) Erythropoietin, when provided to a patient determined to have

end stage renal disease, shall not be included as a dialysis

service for purposes of payment under any prospective payment

amount or comprehensive fee established under this section, and

payment for such item shall be made separately -

(i) in the case of erythropoietin provided by a physician, in

accordance with section 1395l of this title; and

(ii) in the case of erythropoietin provided by a provider of

services, renal dialysis facility, or other supplier of home

dialysis supplies and equipment -

(I) for erythropoietin provided during 1994, in an amount

equal to $10 per thousand units (rounded to the nearest 100

units), and

(II) for erythropoietin provided during a subsequent year, in

an amount determined to be appropriate by the Secretary, except

that such amount may not exceed the amount determined under

this clause for the previous year increased by the percentage

increase (if any) in the implicit price deflator for gross

national product (as published by the Department of Commerce)

for the second quarter of the preceding year over the implicit

price deflator for the second quarter of the second preceding

year.

(C) The amount payable to a supplier of home dialysis supplies

and equipment that is not a provider of services, a renal dialysis

facility, or a physician for erythropoietin shall be determined in

the same manner as the amount payable to a renal dialysis facility

for such item.

(c) Renal disease network areas; coordinating councils, executive

committees, and medical review boards; national end stage renal

disease medical information system; functions of network

organizations

(1)(A)(i) For the purpose of assuring effective and efficient

administration of the benefits provided under this section, the

Secretary shall, in accordance with such criteria as he finds

necessary to assure the performance of the responsibilities and

functions specified in paragraph (2) -

(I) establish at least 17 end stage renal disease network

areas, and

(II) for each such area, designate a network administrative

organization which, in accordance with regulations of the

Secretary, shall establish (aa) a network council of renal

dialysis and transplant facilities located in the area and (bb) a

medical review board, which has a membership including at least

one patient representative and physicians, nurses, and social

workers engaged in treatment relating to end stage renal disease.

The Secretary shall publish in the Federal Register a description

of the geographic area that he determines, after consultation with

appropriate professional and patient organizations, constitutes

each network area and the criteria on the basis of which such

determination is made.

(ii)(I) In order to determine whether the Secretary should enter

into, continue, or terminate an agreement with a network

administrative organization designated for an area established

under clause (i), the Secretary shall develop and publish in the

Federal Register standards, criteria, and procedures to evaluate an

applicant organization's capabilities to perform (and, in the case

of an organization with which such an agreement is in effect,

actual performance of) the responsibilities described in paragraph

(2). The Secretary shall evaluate each applicant based on quality

and scope of services and may not accord more than 20 percent of

the weight of the evaluation to the element of price.

(II) An agreement with a network administrative organization may

be terminated by the Secretary only if he finds, after applying

such standards and criteria, that the organization has failed to

perform its prescribed responsibilities effectively and

efficiently. If such an agreement is to be terminated, the

Secretary shall select a successor to the agreement on the basis of

competitive bidding and in a manner that provides an orderly

transition.

(B) At least one patient representative shall serve as a member

of each network council and each medical review board.

(C) The Secretary shall, in regulations, prescribe requirements

with respect to membership in network organizations by individuals

(and the relatives of such individuals) (i) who have an ownership

or control interest in a facility or provider which furnishes

services referred to in section 1395x(s)(2)(F) of this title, or

(ii) who have received remuneration from any such facility or

provider in excess of such amounts as constitute reasonable

compensation for services (including time and effort relative to

the provision of professional medical services) or goods supplied

to such facility or provider; and such requirements shall provide

for the definition, disclosure, and, to the maximum extent

consistent with effective administration, prevention of potential

or actual financial or professional conflicts of interest with

respect to decisions concerning the appropriateness, nature, or

site of patient care.

(2) The network organizations of each network shall be

responsible, in addition to such other duties and functions as may

be prescribed by the Secretary, for -

(A) encouraging, consistent with sound medical practice, the

use of those treatment settings most compatible with the

successful rehabilitation of the patient and the participation of

patients, providers of services, and renal disease facilities in

vocational rehabilitation programs;

(B) developing criteria and standards relating to the quality

and appropriateness of patient care and with respect to working

with patients, facilities, and providers in encouraging

participation in vocational rehabilitation programs; and network

goals with respect to the placement of patients in self-care

settings and undergoing or preparing for transplantation;

(C) evaluating the procedure by which facilities and providers

in the network assess the appropriateness of patients for

proposed treatment modalities;

(D) implementing a procedure for evaluating and resolving

patient grievances;

(E) conducting on-site reviews of facilities and providers as

necessary (as determined by a medical review board or the

Secretary), utilizing standards of care established by the

network organization to assure proper medical care;

(F) collecting, validating, and analyzing such data as are

necessary to prepare the reports required by subparagraph (H) and

to assure the maintenance of the registry established under

paragraph (7);

(G) identifying facilities and providers that are not

cooperating toward meeting network goals and assisting such

facilities and providers in developing appropriate plans for

correction and reporting to the Secretary on facilities and

providers that are not providing appropriate medical care; and

(H) submitting an annual report to the Secretary on July 1 of

each year which shall include a full statement of the network's

goals, data on the network's performance in meeting its goals

(including data on the comparative performance of facilities and

providers with respect to the identification and placement of

suitable candidates in self-care settings and transplantation and

encouraging participation in vocational rehabilitation programs),

identification of those facilities that have consistently failed

to cooperate with network goals, and recommendations with respect

to the need for additional or alternative services or facilities

in the network in order to meet the network goals, including

self-dialysis training, transplantation, and organ procurement

facilities.

(3) Where the Secretary determines, on the basis of the data

contained in the network's annual report and such other relevant

data as may be available to him, that a facility or provider has

consistently failed to cooperate with network plans and goals or to

follow the recommendations of the medical review board, he may

terminate or withhold certification of such facility or provider

(for purposes of payment for services furnished to individuals with

end stage renal disease) until he determines that such provider or

facility is making reasonable and appropriate efforts to cooperate

with the network's plans and goals. If the Secretary determines

that the facility's or provider's failure to cooperate with network

plans and goals does not jeopardize patient health or safety or

justify termination of certification, he may instead, after

reasonable notice to the provider or facility and to the public,

impose such other sanctions as he determines to be appropriate,

which sanctions may include denial of reimbursement with respect to

some or all patients admitted to the facility after the date of

notice to the facility or provider, and graduated reduction in

reimbursement for all patients.

(4) The Secretary shall, in determining whether to certify

additional facilities or expansion of existing facilities within a

network, take into account the network's goals and performance as

reflected in the network's annual report.

(5) The Secretary, after consultation with appropriate

professional and planning organizations, shall provide such

guidelines with respect to the planning and delivery of renal

disease services as are necessary to assist network organizations

in their development of their respective networks' goals to promote

the optimum use of self-dialysis and transplantation by suitable

candidates for such modalities.

(6) It is the intent of the Congress that the maximum practical

number of patients who are medically, socially, and psychologically

suitable candidates for home dialysis or transplantation should be

so treated and that the maximum practical number of patients who

are suitable candidates for vocational rehabilitation services be

given access to such services and encouraged to return to gainful

employment. The Secretary shall consult with appropriate

professional and network organizations and consider available

evidence relating to developments in research, treatment methods,

and technology for home dialysis and transplantation.

(7) The Secretary shall establish a national end stage renal

disease registry the purpose of which shall be to assemble and

analyze the data reported by network organizations, transplant

centers, and other sources on all end stage renal disease patients

in a manner that will permit -

(A) the preparation of the annual report to the Congress

required under subsection (g) (!1) of this section;

(B) an identification of the economic impact,

cost-effectiveness, and medical efficacy of alternative

modalities of treatment;

(C) an evaluation with respect to the most appropriate

allocation of resources for the treatment and research into the

cause of end stage renal disease;

(D) the determination of patient mortality and morbidity rates,

and trends in such rates, and other indices of quality of care;

and

(E) such other analyses relating to the treatment and

management of end stage renal disease as will assist the Congress

in evaluating the end stage renal disease program under this

section.

The Secretary shall provide for such coordination of data

collection activities, and such consolidation of existing end stage

renal disease data systems, as is necessary to achieve the purpose

of such registry, shall determine the appropriate location of the

registry, and shall provide for the appointment of a professional

advisory group to assist the Secretary in the formulation of

policies and procedures relevant to the management of such

registry.

(8) The provisions of sections 1320c-6 and 1320c-9 of this title

shall apply with respect to network administrative organizations

(including such organizations as medical review boards) with which

the Secretary has entered into agreements under this subsection.

(d) Donors of kidney for transplant surgery

Notwithstanding any provision to the contrary in section 426 of

this title any individual who donates a kidney for transplant

surgery shall be entitled to benefits under parts A and B of this

subchapter with respect to such donation. Reimbursement for the

reasonable expenses incurred by such an individual with respect to

a kidney donation shall be made (without regard to the deductible,

premium, and coinsurance provisions of this subchapter), in such

manner as may be prescribed by the Secretary in regulations, for

all reasonable preparatory, operation, and postoperation recovery

expenses associated with such donation, including but not limited

to the expenses for which payment could be made if he were an

eligible individual for purposes of parts A and B of this

subchapter without regard to this subsection. Payments for

postoperation recovery expenses shall be limited to the actual

period of recovery.

(e) Reimbursement of providers, facilities, and nonprofit entities

for costs of artificial kidney and automated dialysis peritoneal

machines for home dialysis

(1) Notwithstanding any other provision of this subchapter, the

Secretary may, pursuant to agreements with approved providers of

services, renal dialysis facilities, and nonprofit entities which

the Secretary finds can furnish equipment economically and

efficiently, reimburse such providers, facilities, and nonprofit

entities (without regard to the deductible and coinsurance

provisions of this subchapter) for the reasonable cost of the

purchase, installation, maintenance and reconditioning for

subsequent use of artificial kidney and automated dialysis

peritoneal machines (including supportive equipment) which are to

be used exclusively by entitled individuals dialyzing at home.

(2) An agreement under this subsection shall require that the

provider, facility, or other entity will -

(A) make the equipment available for use only by entitled

individuals dialyzing at home;

(B) recondition the equipment, as needed, for reuse by such

individuals throughout the useful life of the equipment,

including modification of the equipment consistent with advances

in research and technology;

(C) provide for full access for the Secretary to all records

and information relating to the purchase, maintenance, and use of

the equipment; and

(D) submit such reports, data, and information as the Secretary

may require with respect to the cost, management, and use of the

equipment.

(3) For purposes of this section, the term "supportive equipment"

includes blood pumps, heparin pumps, bubble detectors, other alarm

systems, and such other items as the Secretary may determine are

medically necessary.

(f) Experiments, studies, and pilot projects

(1) The Secretary shall initiate and carry out, at selected

locations in the United States, pilot projects under which

financial assistance in the purchase of new or used durable medical

equipment for renal dialysis is provided to individuals suffering

from end stage renal disease at the time home dialysis is begun,

with provision for a trial period to assure successful adaptation

to home dialysis before the actual purchase of such equipment.

(2) The Secretary shall conduct experiments to evaluate methods

for reducing the costs of the end stage renal disease program. Such

experiments shall include (without being limited to) reimbursement

for nurses and dialysis technicians to assist with home dialysis,

and reimbursement to family members assisting with home dialysis.

(3) The Secretary shall conduct experiments to evaluate methods

of dietary control for reducing the costs of the end stage renal

disease program, including (without being limited to) the use of

protein-controlled products to delay the necessity for, or reduce

the frequency of, dialysis in the treatment of end stage renal

disease.

(4) The Secretary shall conduct a comprehensive study of methods

for increasing public participation in kidney donation and other

organ donation programs.

(5) The Secretary shall conduct a full and complete study of the

reimbursement of physicians for services furnished to patients with

end stage renal disease under this subchapter, giving particular

attention to the range of payments to physicians for such services,

the average amounts of such payments, and the number of hours

devoted to furnishing such services to patients at home, in renal

disease facilities, in hospitals, and elsewhere.

(6) The Secretary shall conduct a study of the number of patients

with end stage renal disease who are not eligible for benefits with

respect to such disease under this subchapter (by reason of this

section or otherwise), and of the economic impact of such

noneligibility of such individuals. Such study shall include

consideration of mechanisms whereby governmental and other health

plans might be instituted or modified to permit the purchase of

actuarially sound coverage for the costs of end stage renal

disease.

(7)(A) The Secretary shall establish protocols on standards and

conditions for the reuse of dialyzer filters for those facilities

and providers which voluntarily elect to reuse such filters.

(B) With respect to dialysis services furnished on or after

January 1, 1988 (or July 1, 1988, with respect to protocols that

relate to the reuse of bloodlines), no dialysis facility may reuse

dialysis supplies (other than dialyzer filters) unless the

Secretary has established a protocol with respect to the reuse of

such supplies and the facility follows the protocol so established.

(C) The Secretary shall incorporate protocols established under

this paragraph, and the requirement of subparagraph (B), into the

requirements for facilities prescribed under subsection (b)(1)(A)

of this section and failure to follow such a protocol or

requirement subjects such a facility to denial of participation in

the program established under this section and to denial of payment

for dialysis treatment not furnished in compliance with such a

protocol or in violation of such requirement.

(8) The Secretary shall submit to the Congress no later than

October 1, 1979, a full report on the experiments conducted under

paragraphs (1), (2), (3), and (7), and the studies under paragraphs

(4), (5), (6), and (7). Such report shall include any

recommendations for legislative changes which the Secretary finds

necessary or desirable as a result of such experiments and studies.

(g) Conditional approval of dialysis facilities;

restriction-of-payments notice to public and facility; notice and

hearing; judicial review

(1) In any case where the Secretary -

(A) finds that a renal dialysis facility is not in substantial

compliance with requirements for such facilities prescribed under

subsection (b)(1)(A) of this section,

(B) finds that the facility's deficiencies do not immediately

jeopardize the health and safety of patients, and

(C) has given the facility a reasonable opportunity to correct

its deficiencies,

the Secretary may, in lieu of terminating approval of the facility,

determine that payment under this subchapter shall be made to the

facility only for services furnished to individuals who were

patients of the facility before the effective date of the notice.

(2) The Secretary's decision to restrict payments under this

subsection shall be made effective only after such notice to the

public and to the facility as may be prescribed in regulations, and

shall remain in effect until (A) the Secretary finds that the

facility is in substantial compliance with the requirements under

subsection (b)(1)(A) of this section, or (B) the Secretary

terminates the agreement under this subchapter with the facility.

(3) A facility dissatisfied with a determination by the Secretary

under paragraph (1) shall be entitled to a hearing thereon by the

Secretary (after reasonable notice) to the same extent as is

provided in section 405(b) of this title, and to judicial review of

the Secretary's final decision after such hearing as is provided in

section 405(g) of this title, except that, in so applying such

sections and in applying section 405(l) of this title thereto, any

reference therein to the Commissioner of Social Security or the

Social Security Administration shall be considered a reference to

the Secretary or the Department of Health and Human Services,

respectively.

-SOURCE-

(Aug. 14, 1935, ch. 531, title XVIII, Sec. 1881, as added Pub. L.

95-292, Sec. 2, June 13, 1978, 92 Stat. 308; amended Pub. L.

96-499, title IX, Sec. 957, Dec. 5, 1980, 94 Stat. 2648; Pub. L.

97-35, title XXI, Sec. 2145(a), Aug. 13, 1981, 95 Stat. 799; Pub.

L. 98-21, title VI, Sec. 602(i), Apr. 20, 1983, 97 Stat. 165; Pub.

L. 98-369, div. B, title III, Secs. 2323(c), 2352(a), 2354(b)(41),

July 18, 1984, 98 Stat. 1086, 1099, 1102; Pub. L. 98-617, Sec.

3(b)(8), Nov. 8, 1984, 98 Stat. 3296; Pub. L. 99-509, title IX,

Sec. 9335(a)(2), (d)(1), (e)-(i)(1), (j)(1), (k)(1), Oct. 21, 1986,

100 Stat. 2029-2033; Pub. L. 100-93, Sec. 12, Aug. 18, 1987, 101

Stat. 697; Pub. L. 100-203, title IV, Secs. 4036(b), (c)(2),

(d)(5), 4065(b), Dec. 22, 1987, 101 Stat. 1330-79, 1330-80,

1330-112; Pub. L. 101-239, title VI, Secs. 6102(e)(8), 6203(b)(1),

(2), 6219(a), (b), Dec. 19, 1989, 103 Stat. 2188, 2235, 2254; Pub.

L. 101-508, title IV, Sec. 4201(c)(1), (d)(2), formerly (d)(2),

(3), Nov. 5, 1990, 104 Stat. 1388-103, 1388-104, renumbered Pub. L.

103-432, title I, Sec. 160(d)(3), Oct. 31, 1994, 108 Stat. 4444;

Pub. L. 103-66, title XIII, Sec. 13566(a), Aug. 10, 1993, 107 Stat.

607; Pub. L. 103-296, title I, Sec. 108(c)(5), Aug. 15, 1994, 108

Stat. 1485; Pub. L. 106-113, div. B, Sec. 1000(a)(6) [title II,

Sec. 222(a)], Nov. 29, 1999, 113 Stat. 1536, 1501A-352; Pub. L.

106-554, Sec. 1(a)(6) [title IV, Sec. 422(a)(1)], Dec. 21, 2000,

114 Stat. 2763, 2763A-516.)

-REFTEXT-

REFERENCES IN TEXT

Section 1395x(s)(2)(P) of this title, referred to in subsec.

(b)(1), was redesignated section 1395x(s)(2)(O) of this title by

Pub. L. 103-432, title I, Sec. 147(f)(6)(B)(iii)(II), Oct. 31,

1994, 108 Stat. 4432.

Subsection (g) of this section, referred to in subsec. (c)(7)(A),

was repealed, and subsec. (h) was redesignated (g), by Pub. L.

100-203, title IV, Secs. 4036(d)(5)(C), (D), Dec. 22, 1987, 101

Stat. 1330-80.

-MISC1-

AMENDMENTS

2000 - Subsec. (b)(7). Pub. L. 106-554 substituted "for such

services furnished on or after January 1, 2001, by 2.4 percent" for

"for such services furnished on or after January 1, 2001, by 1.2

percent" in concluding provisions.

1999 - Subsec. (b)(7). Pub. L. 106-113 inserted concluding

provisions.

1994 - Subsec. (g)(3). Pub. L. 103-296 inserted before period at

end ", except that, in so applying such sections and in applying

section 405(l) of this title thereto, any reference therein to the

Commissioner of Social Security or the Social Security

Administration shall be considered a reference to the Secretary or

the Department of Health and Human Services, respectively".

1993 - Subsec. (b)(1)(C). Pub. L. 103-66, Sec. 13566(a)(1),

substituted "section 1395x(s)(2)(P)" for "section 1395x(s)(2)(Q)".

Subsec. (b)(11)(B)(ii)(I). Pub. L. 103-66, Sec. 13566(a)(2),

substituted "1994" for "1991" and "$10" for "$11".

1990 - Subsec. (b)(1). Pub. L. 101-508, Sec. 4201(d)(2)(A),

formerly Sec. 4201(d)(2), as renumbered by Pub. L. 103-432, Sec.

160(d)(3), added cl. (C).

Subsec. (b)(11). Pub. L. 101-508, Sec. 4201(d)(2)(B), formerly

Sec. 4201(d)(3), as renumbered by Pub. L. 103-432, Sec. 160(d)(3),

added subpar. (C).

Pub. L. 101-508, Sec. 4201(c)(1), designated existing provisions

as subpar. (A) and added subpar. (B).

1989 - Subsec. (b)(3)(A). Pub. L. 101-239, Sec. 6102(e)(8),

inserted "or, for services furnished on or after January 1, 1992,

on the basis described in section 1395w-4 of this title" after

"comparable services".

Subsec. (b)(4). Pub. L. 101-239, Sec. 6203(b)(2), designated

existing provisions as subpar. (A) and added subpar. (B).

Subsec. (b)(7). Pub. L. 101-239, Sec. 6219(a), substituted

"organizations (designated under subsection (c)(1)(A) of this

section) for such organizations' necessary and proper

administrative costs incurred in carrying out the responsibilities

described in subsection (c)(2) of this section. The Secretary shall

provide that amounts paid under the previous sentence shall be

distributed to the organizations described in subsection (c)(1)(A)

of this section to ensure equitable treatment of all such network

organizations. The Secretary in distributing any such payments to

network organizations shall take into account - " and subpars. (A)

to (D) for "network administrative organization (designated under

subsection (c)(1)(A) of this section for the network area in which

the treatment is provided) for its necessary and proper

administrative costs incurred in carrying out its responsibilities

under subsection (c)(2) of this section." in last sentence.

Pub. L. 101-239, Sec. 6203(b)(1), inserted after second sentence

"The amount of a payment made under any method other than a method

based on a single composite weighted formula may not exceed the

amount (or, in the case of continuous cycling peritoneal dialysis,

130 percent of the amount) of the median payment that would have

been made under the formula for hospital-based facilities."

Subsec. (c)(8). Pub. L. 101-239, Sec. 6219(b), added par. (8).

1987 - Subsec. (b)(1). Pub. L. 100-203, Sec. 4036(b), substituted

"transplantations" for "covered procedures and for self-dialysis

training programs".

Subsec. (b)(2)(C). Pub. L. 100-203, Sec. 4065(b), substituted

"facilities (other than hospital outpatient departments)" for

"facilities".

Subsec. (c)(2)(F). Pub. L. 100-203, Sec. 4036(d)(5)(A), struck

out "and subsection (g) of this section" after "required by

subparagraph (H)".

Subsec. (c)(6). Pub. L. 100-203, Sec. 4036(d)(5)(B), struck out

at end "The Secretary shall periodically submit to the Congress

such legislative recommendations as the Secretary finds warranted

on the basis of such consultation and evidence to further the

national objective of maximizing the use of home dialysis and

transplantation consistent with good medical practice."

Subsec. (f)(7)(B). Pub. L. 100-203, Sec. 4036(c)(2), inserted

"(or July 1, 1988, with respect to protocols that relate to the

reuse of bloodlines)" after "January 1, 1988".

Subsec. (g). Pub. L. 100-203, Sec. 4036(d)(5)(C), (D),

redesignated subsec. (h) as (g) and struck out former subsec. (g)

which directed the Secretary to submit to Congress on July 1, 1979,

and on July 1 of each year thereafter a report on end stage renal

disease program.

Subsec. (h). Pub. L. 100-203, Sec. 4036(d)(5)(D), redesignated

subsec. (h) as (g).

Pub. L. 100-93 added subsec. (h).

1986 - Subsec. (b)(7). Pub. L. 99-509, Sec. 9335(j)(1), inserted

at end "The Secretary shall reduce the amount of each composite

rate payment under this paragraph for each treatment by 50 cents

(subject to such adjustments as may be required to reflect modes of

dialysis other than hemodialysis) and provide for payment of such

amount to the network administrative organization (designated under

subsection (c)(1)(A) of this section for the network area in which

the treatment is provided) for its necessary and proper

administrative costs incurred in carrying out its responsibilities

under subsection (c)(2) of this section."

Pub. L. 99-509, Sec. 9335(a)(2), inserted "and of pediatric

facilities" after "isolated rural areas" in third sentence, and

inserted after third sentence "Each application for such an

exception shall be deemed to be approved unless the Secretary

disapproves it by not later than 60 working days after the date the

application is filed."

Subsec. (c)(1)(A). Pub. L. 99-509, Sec. 9335(d)(1), amended

subpar. (A) generally. Prior to amendment, subpar. (A) read as

follows: "For the purpose of assuring effective and efficient

administration of the benefits provided under this section, the

Secretary shall establish, in accordance with such criteria as he

finds appropriate, renal disease network areas, such network

organizations (including a coordinating council, an executive

committee of such council, and a medical review board, for each

network area) as he finds necessary to accomplish such purpose, and

a national end stage renal disease medical information system. The

Secretary may by regulations provide for such coordination of

network planning and quality assurance activities and such exchange

of data and information among agencies with responsibilities for

health planning and quality assurance activities under Federal law

as is consistent with the economical and efficient administration

of this section and with the responsibilities established for

network organizations under this section."

Subsec. (c)(1)(B). Pub. L. 99-509, Sec. 9335(e), amended subpar.

(B) generally, substituting "network council and each medical

review board" for "coordinating council and executive committee".

Subsec. (c)(2)(A). Pub. L. 99-509, Sec. 9335(f)(1), inserted "and

the participation of patients, providers of services, and renal

disease facilities in vocational rehabilitation programs" before

the semicolon.

Subsec. (c)(2)(B). Pub. L. 99-509, Sec. 9335(f)(2), inserted "and

with respect to working with patients, facilities, and providers in

encouraging participation in vocational rehabilitation programs"

before first semicolon.

Subsec. (c)(2)(D) to (F). Pub. L. 99-509, Sec. 9335(f)(5), added

subpars. (D) to (F). Former subpars. (D) and (E) redesignated (G)

and (H), respectively.

Subsec. (c)(2)(G). Pub. L. 99-509, Sec. 9335(f)(3), (5),

redesignated former subpar. (D) as (G) and inserted "and reporting

to the Secretary on facilities and providers that are not providing

appropriate medical care" before the semicolon.

Subsec. (c)(2)(H). Pub. L. 99-509, Sec. 9335(f)(4), (5),

redesignated former subpar. (E) as (H) and inserted "and

encouraging participation in vocational rehabilitation programs"

after "and transplantation".

Subsec. (c)(3). Pub. L. 99-509, Sec. 9335(g), inserted "or to

follow the recommendations of the medical review board" after

"network plans and goals".

Subsec. (c)(6). Pub. L. 99-509, Sec. 9335(h), inserted "and that

the maximum practical number of patients who are suitable

candidates for vocational rehabilitation services be given access

to such services and encouraged to return to gainful employment" at

end of first sentence.

Subsec. (c)(7). Pub. L. 99-509, Sec. 9335(i)(1), added par. (7).

Subsec. (f)(7). Pub. L. 99-509, Sec. 9335(k)(1), amended par. (7)

generally. Prior to amendment, par. (7) read as follows: "The

Secretary shall conduct a study of the medical appropriateness and

safety of cleaning and reusing dialysis filters by home dialysis

patients. In such cases in which the Secretary determines that such

home cleaning and reuse of filters is a medically sound procedure,

the Secretary shall conduct experiments to evaluate such home

cleaning and reuse as a method of reducing the costs of the end

stage renal disease program."

1984 - Subsecs. (a), (b)(1), (2)(A), (B), (3), (8). Pub. L.

98-369, Sec. 2354(b)(41), substituted "end stage" for "end-stage"

wherever appearing.

Subsec. (b)(11). Pub. L. 98-617 realigned margin of par. (11).

Pub. L. 98-369, Sec. 2323(c), added par. (11).

Subsec. (c)(3). Pub. L. 98-369, Sec. 2352(a), inserted provision

that if the Secretary determines that the facility's or provider's

failure to cooperate with network plans and goals does not

jeopardize patient health or safety or justify termination of

certification, he may instead, after reasonable notice to the

provider or facility and to the public, impose such other sanctions

as he determines to be appropriate, which sanctions may include

denial of reimbursement with respect to some or all patients

admitted to the facility after the date of notice to the facility

or provider, and graduated reduction in reimbursement for all

patients.

1983 - Subsec. (b)(2)(A). Pub. L. 98-21 inserted "or section

1395ww of this title (if applicable)" after "section 1395x(v) of

this title".

1981 - Subsec. (b)(2)(B). Pub. L. 97-35, Sec. 2145(a)(1), (2),

substituted "section 1395x(v) of this title) and consistent with

any regulations promulgated under paragraph (7)" for "section

1395x(v) of this title)" and struck out provisions that such

regulations provide for the implementation of appropriate

incentives for encouraging more efficient and effective delivery of

services, and include a system for classifying comparable providers

and facilities, and prospectively set rates or target rates with

arrangements for sharing such reductions in costs as may be

attributable to more efficient and effective delivery of services.

Subsec. (b)(3)(B). Pub. L. 97-35, Sec. 2145(a)(3), substituted

"or other basis (which effectively encourages the efficient

delivery of dialysis services and provides incentives for the

increased use of home dialysis)" for "or other basis".

Subsec. (b)(4). Pub. L. 97-35, Sec. 2145(a)(4), inserted

reference to alternative basis of a method established under par.

(7).

Subsec. (b)(6). Pub. L. 97-35, Sec. 2145(a)(5), (6), substituted

"(except as may be provided in regulations under paragraph (7))

shall such target rate exceed 75 percent" and "any other procedure

(including methods established under paragraph (7)) which the

Secretary" for "shall such target rate exceed 70 percent" and "any

other procedure which the Secretary", respectively.

Subsec. (b)(7) to (10). Pub. L. 97-35, Sec. 2145(a)(7), (8),

added par. (7) and redesignated former pars. (7) to (9) as (8) to

(10), respectively.

1980 - Subsec. (e)(1). Pub. L. 96-499, Sec. 957(a)(1)-(3),

substituted "services, renal dialysis facilities, and nonprofit

entities which the Secretary finds can furnish equipment

economically and efficiently," for "services and renal dialysis

facilities" and "such providers, facilities, and nonprofit

entities" for "such providers and facilities".

Subsec. (e)(2). Pub. L. 96-499, Sec. 957(a)(4), substituted ",

facility, or other entity will" for "or facility will".

Subsec. (g). Pub. L. 96-499, Sec. 957(b), substituted "July" for

"April" in two places.

EFFECTIVE DATE OF 1994 AMENDMENT

Amendment by Pub. L. 103-296 effective Mar. 31, 1995, see section

110(a) of Pub. L. 103-296, set out as a note under section 401 of

this title.

EFFECTIVE DATE OF 1993 AMENDMENT

Amendment by Pub. L. 103-66 applicable to erythropoietin

furnished on or after Jan. 1, 1994, see section 13566(c) of Pub. L.

103-66, set out as a note under section 1395x of this title.

EFFECTIVE DATE OF 1990 AMENDMENT

Section 4201(c)(2) of Pub. L. 101-508 provided that: "The

amendments made by paragraph (1) [amending this section] shall

apply to erythropoietin furnished on or after January 1, 1991."

Amendment by section 4201(d)(2) of Pub. L. 101-508 applicable to

items and services furnished on or after July 1, 1991, see section

4201(d)(3)[(4)] of Pub. L. 101-508, set out as a note under section

1395x of this title.

EFFECTIVE DATE OF 1989 AMENDMENT

Section 6203(b)(3) of Pub. L. 101-239 provided that: "The

amendments made by this subsection [amending this section] shall

apply with respect to dialysis services, supplies, and equipment

furnished on or after February 1, 1990."

EFFECTIVE DATE OF 1987 AMENDMENTS

Amendment by section 4065(b) of Pub. L. 100-203 effective Jan. 1,

1988, see section 4065(c) of Pub. L. 100-203, set out as a note

under section 1395x of this title.

Amendment by Pub. L. 100-93 effective at end of fourteen-day

period beginning Aug. 18, 1987, and inapplicable to administrative

proceedings commenced before end of such period, see section 15(a)

of Pub. L. 100-93, set out as a note under section 1320a-7 of this

title.

EFFECTIVE DATE OF 1986 AMENDMENT

Section 9335(a)(3) of Pub. L. 99-509 provided that: "The

amendments made by paragraph (2) [amending this section] shall

apply to applications filed on or after the date of the enactment

of this Act [Oct. 21, 1986]."

Section 9335(j)(2) of Pub. L. 99-509, as amended by Pub. L.

100-203, title IV, Sec. 4085(i)(21)(C), Dec. 22, 1987, 101 Stat.

1330-133, provided that: "The amendment made by paragraph (1)

[amending this section] shall apply to treatment furnished on or

after January 1, 1987[,] except that, until network administrative

organizations are established under section 1881(c)(1)(A) of the

Social Security Act [subsec. (c)(1)(A) of this section] (as amended

by subsection (d)(1) of this section), the distribution of payments

described in the last sentence of section 1881(b)(7) of such Act

shall be made based on the distribution of payments under section

1881 of such Act to network administrative organizations for fiscal

year 1986."

[Section 4085(i)(21) of Pub. L. 100-203 provided that the

amendment of section 9335(j)(2) of Pub. L. 99-509, set out above,

by section 4085(i)(21)(C) of Pub. L. 100-203 is effective as if

included in the enactment of Pub. L. 99-509.]

Section 9335(l) of Pub. L. 99-509 provided that: "The amendments

made by subsections (e), (f), and (g) [amending this section] shall

apply to network administrative organizations designated for

network areas established under the amendment made by subsection

(d)(1) [amending this section]."

EFFECTIVE DATE OF 1984 AMENDMENTS

Amendment by Pub. L. 98-617 effective as if originally included

in the Deficit Reduction Act of 1984, Pub. L. 98-369, see section

3(c) of Pub. L. 98-617, set out as a note under section 1395f of

this title.

Amendment by section 2323(c) of Pub. L. 98-369 applicable to

services furnished on or after Sept. 1, 1984, see section 2323(d)

of Pub. L. 98-369, set out as a note under section 1395l of this

title.

Section 2352(b) of Pub. L. 98-369 provided that: "The amendment

made by this section [amending this section] shall apply to

determinations made by the Secretary on or after the date of the

enactment of this Act [July 18, 1984]."

Amendment by section 2354(b)(41) of Pub. L. 98-369 effective July

18, 1984, but not to be construed as changing or affecting any

right, liability, status, or interpretation which existed (under

the provisions of law involved) before that date, see section

2354(e)(1) of Pub. L. 98-369, set out as a note under section

1320a-1 of this title.

EFFECTIVE DATE OF 1983 AMENDMENT

Amendment by Pub. L. 98-21 applicable to items and services

furnished by or under arrangement with a hospital beginning with

its first cost reporting period that begins on or after Oct. 1,

1983, any change in a hospital's cost reporting period made after

November 1982 to be recognized for such purposes only if the

Secretary finds good cause therefor, see section 604(a)(1) of Pub.

L. 98-21, set out as a note under section 1395ww of this title.

EFFECTIVE DATE OF 1981 AMENDMENT

Section 2145(b) of Pub. L. 97-35 provided that: "The amendments

made by subsection (a) [amending this section] apply to services

furnished on or after October 1, 1981, and the Secretary of Health

and Human Services shall first promulgate regulations to carry out

section 1881(b)(7) of the Social Security Act [subsec. (b)(7) of

this section] not later than October 1, 1981."

EFFECTIVE DATE

Section effective with respect to services, supplies, and

equipment furnished after the third calendar month beginning after

June 13, 1978, except that provisions for the implementation of an

incentive reimbursement system for dialysis services furnished in

facilities and providers to become effective with respect to a

facility's or provider's first accounting period beginning after

the last day of the twelfth month following the month of June 1978,

and except that provisions for reimbursement rates for home

dialysis to become effective on Apr. 1, 1979, see section 6 of Pub.

L. 95-292, set out as an Effective Date of 1978 Amendment note

under section 426 of this title.

PROHIBITION ON EXCEPTIONS

Pub. L. 106-554, Sec. 1(a)(6) [title IV, Sec. 422(a)(2)], Dec.

21, 2000, 114 Stat. 2763, 2763A-516, provided that:

"(A) In general. - Subject to subparagraphs (B) and (C), the

Secretary of Health and Human Services may not provide for an

exception under section 1881(b)(7) of the Social Security Act (42

U.S.C. 1395rr(b)(7)) on or after December 31, 2000.

"(B) Deadline for new applications. - In the case of a facility

that during 2000 did not file for an exception rate under such

section, the facility may submit an application for an exception

rate by not later than July 1, 2001.

"(C) Protection of approved exception rates. - Any exception rate

under such section in effect on December 31, 2000 (or, in the case

of an application under subparagraph (B), as approved under such

application) shall continue in effect so long as such rate is

greater than the composite rate as updated by the amendment made by

paragraph (1) [amending this section]."

DEVELOPMENT OF ESRD MARKET BASKET

Pub. L. 106-554, Sec. 1(a)(6) [title IV, Sec. 422(b)], Dec. 21,

2000, 114 Stat. 2763, 2763A-516, provided that:

"(1) Development. - The Secretary of Health and Human Services

shall collect data and develop an ESRD market basket whereby the

Secretary can estimate, before the beginning of a year, the

percentage by which the costs for the year of the mix of labor and

nonlabor goods and services included in the ESRD composite rate

under section 1881(b)(7) of the Social Security Act (42 U.S.C.

1395rr(b)(7)) will exceed the costs of such mix of goods and

services for the preceding year. In developing such index, the

Secretary may take into account measures of changes in -

"(A) technology used in furnishing dialysis services;

"(B) the manner or method of furnishing dialysis services; and

"(C) the amounts by which the payments under such section for

all services billed by a facility for a year exceed the aggregate

allowable audited costs of such services for such facility for

such year.

"(2) Report. - The Secretary of Health and Human Services shall

submit to Congress a report on the index developed under paragraph

(1) no later than July 1, 2002, and shall include in the report

recommendations on the appropriateness of an annual or periodic

update mechanism for renal dialysis services under the medicare

program under title XVIII of the Social Security Act [this

subchapter] based on such index."

INCLUSION OF ADDITIONAL SERVICES IN COMPOSITE RATE

Pub. L. 106-554, Sec. 1(a)(6) [title IV, Sec. 422(c)], Dec. 21,

2000, 114 Stat. 2763, 2763A-517, provided that:

"(1) Development. - The Secretary of Health and Human Services

shall develop a system which includes, to the maximum extent

feasible, in the composite rate used for payment under section

1881(b)(7) of the Social Security Act (42 U.S.C. 1395rr(b)(7)),

payment for clinical diagnostic laboratory tests and drugs

(including drugs paid under section 1881(b)(11)(B) of such Act (42

U.S.C. 1395rr(b)(11)(B)) that are routinely used in furnishing

dialysis services to medicare beneficiaries but which are currently

separately billable by renal dialysis facilities.

"(2) Report. - The Secretary shall include, as part of the report

submitted under subsection (b)(2) [set out above], a report on the

system developed under paragraph (1) and recommendations on the

appropriateness of incorporating the system into medicare payment

for renal dialysis services."

GAO STUDY ON ACCESS TO SERVICES

Pub. L. 106-554, Sec. 1(a)(6) [title IV, Sec. 422(d)], Dec. 21,

2000, 114 Stat. 2763, 2763A-517, provided that:

"(1) Study. - The Comptroller General of the United States shall

study access of medicare beneficiaries to renal dialysis services.

Such study shall include whether there is a sufficient supply of

facilities to furnish needed renal dialysis services, whether

medicare payment levels are appropriate, taking into account

audited costs of facilities for all services furnished, to ensure

continued access to such services, and improvements in access (and

quality of care) that may result in the increased use of long

nightly and short daily hemodialysis modalities.

"(2) Report. - Not later than January 1, 2003, the Comptroller

General shall submit to Congress a report on the study conducted

under paragraph (1)."

SPECIAL RULE FOR PAYMENT FOR 2001

Pub. L. 106-554, Sec. 1(a)(6) [title IV, Sec. 422(e)], Dec. 21,

2000, 114 Stat. 2763, 2763A-517, provided that: "Notwithstanding

the amendment made by subsection (a)(1) [amending this section],

for purposes of making payments under section 1881(b) of the Social

Security Act (42 U.S.C. 1395rr(b)) for dialysis services furnished

during 2001, the composite rate payment under paragraph (7) of such

section -

"(1) for services furnished on or after January 1, 2001, and

before April 1, 2001, shall be the composite rate payment

determined under the provisions of law in effect on the day

before the date of the enactment of this Act [Dec. 21, 2000]; and

"(2) for services furnished on or after April 1, 2001, and

before January 1, 2002, shall be the composite rate payment (as

determined taking into account the amendment made by subsection

(a)(1)) increased by a transitional percentage allowance equal to

0.39 percent (to account for the timing of implementation of the

CPI update)."

STUDY ON PAYMENT LEVEL FOR HOME HEMODIALYSIS

Pub. L. 106-113, div. B, Sec. 1000(a)(6) [title II, Sec. 222(c)],

Nov. 29, 1999, 113 Stat. 1536, 1501A-352, provided that: "The

Medicare Payment Advisory Commission shall conduct a study on the

appropriateness of the differential in payment under the medicare

program for hemodialysis services furnished in a facility and such

services furnished in a home. Not later than 18 months after the

date of the enactment of this Act [Nov. 29, 1999], the Commission

shall submit to Congress a report on such study and shall include

recommendations regarding changes in medicare payment policy in

response to the study."

RENAL DIALYSIS-RELATED SERVICES

Pub. L. 105-33, title IV, Sec. 4558, Aug. 5, 1997, 111 Stat. 463,

provided that:

"(a) Auditing of Cost Reports. - Beginning with cost reports for

1996, the Secretary shall audit cost reports of each renal dialysis

provider at least once every 3 years.

"(b) Implementation of Quality Standards. - The Secretary of

Health and Human Services shall develop, by not later than January

1, 1999, and implement, by not later than January 1, 2000, a method

to measure and report quality of renal dialysis services provided

under the medicare program under title XVIII of the Social Security

Act [this subchapter]."

PROPAC STUDY ON ESRD COMPOSITE RATES

Section 4201(b) of Pub. L. 101-508 provided that:

"(1) In general. -

"(A) Study. - The Prospective Payment Assessment Commission (in

this subsection referred to as the 'Commission') shall conduct a

study to determine the costs and services and profits associated

with various modalities of dialysis treatments provided to end

stage renal disease patients provided under title XVIII of the

Social Security Act [this subchapter].

"(B) Recommendations. - Based on information collected for the

study described in subparagraph (A), the Commission shall make

recommendations to Congress regarding the method or methods and

the levels at which the payments made for the facility component

of dialysis services by providers of service and renal dialysis

facilities under title XVIII of the Social Security Act should be

established for dialysis services furnished during fiscal year

1993 and the methodology to be used to update such payments for

subsequent fiscal years. In making recommendations concerning the

appropriate methodology the Commission shall consider -

"(i) hemodialysis and other modalities of treatment,

"(ii) the appropriate services to be included in such

payments,

"(iii) the adjustment factors to be incorporated including

facility characteristics, such as hospital versus free-standing

facilities, urban versus rural, size and mix of services,

"(iv) adjustments for labor and nonlabor costs,

"(v) comparative profit margins for all types of renal

dialysis providers of service and renal dialysis facilities,

"(vi) adjustments for patient complexity, such as age,

diagnosis, case mix, and pediatric services, and

"(vii) efficient costs related to high quality of care and

positive outcomes for all treatment modalities.

"(2) Report. - Not later than June 1, 1992, the Commission shall

submit a report to the Committee on Finance of the Senate, and the

Committees on Ways and Means and Energy and Commerce of the House

of Representatives on the study conducted under paragraph (1)(A)

and shall include in the report the recommendations described in

paragraph (1)(B), taking into account the factors described in

paragraph (1)(B).

"(3) Annual report. - The Commission, not later than March 1

before the beginning of each fiscal year (beginning with fiscal

year 1993) shall report its recommendations to the Committee on

Finance of the Senate and the Committees on Ways and Means and

Energy and Commerce of the House of Representatives on an

appropriate change factor which should be used for updating

payments for services rendered in that fiscal year. The Commission

in making such report to Congress shall consider conclusions and

recommendations available from the Institute of Medicine."

[Prospective Payment Assessment Commission (ProPAC) was

terminated and its assets and staff transferred to the Medicare

Payment Advisory Commission (MedPAC) by section 4022(c)(2), (3) of

Pub. L. 105-33, set out as a note under section 1395b-6 of this

title. Section 4022(c)(2), (3) further provided that MedPAC was to

be responsible for preparation and submission of reports required

by law to be submitted by ProPAC, and that, for that purpose, any

reference in law to ProPAC was to be deemed, after the appointment

of MedPAC, to refer to MedPAC.]

STAFF-ASSISTED HOME DIALYSIS DEMONSTRATION PROJECT

Section 4202 of Pub. L. 101-508, as amended by Pub. L. 103-432,

title I, Sec. 160(b), Oct. 31, 1994, 108 Stat. 4443, provided that:

"(a) Establishment. -

"(1) In general. - Not later than 9 months after the date of

the enactment of this Act [Nov. 5, 1990], the Secretary of Health

and Human Services shall establish and carry out a 3-year

demonstration project to determine whether the services of a home

dialysis staff assistant providing services to a patient during

hemodialysis treatment at the patient's home may be covered under

the medicare program in a cost-effective manner that ensures

patient safety.

"(2) Number of participants. - The total number of eligible

patients receiving services under the demonstration project

established under paragraph (1) may not exceed 800.

"(b) Payments to Participating Providers and Facilities. -

"(1) Services for which payment may be made. -

"(A) In general. - Under the demonstration project

established under subsection (a), the Secretary shall make

payments for 3 years under title XVIII of the Social Security

Act [this subchapter] to providers of services (other than a

skilled nursing facility) or renal dialysis facilities for

services of a qualified home hemodialysis staff assistant (as

described in subsection (d)) provided to an individual

described in subsection (c) during hemodialysis treatment at

the individual's home in an amount determined under paragraph

(2).

"(B) Services described. - For purposes of subparagraph (A),

the term 'services of a home hemodialysis staff assistant'

means -

"(i) technical assistance with the operation of a

hemodialysis machine in the patient's home and with such

patient's care during in-home hemodialysis; and

"(ii) administration of medications within the patient's

home to maintain the patency of the extra corporeal circuit.

"(2) Amount of payment. -

"(A) In general. - Payment to a provider of services or renal

dialysis facility participating in the demonstration project

established under subsection (a) for the services described in

paragraph (1) shall be prospectively determined by the

Secretary, made on a per treatment basis, and shall be in an

amount determined under subparagraph (B).

"(B) Determination of payment amount. - (i) The amount of

payment made under subparagraph (A) shall be the product of -

"(I) the rate determined under clause (ii) with respect to

a provider of services or a renal dialysis facility; and

"(II) the factor by which the labor portion of the

composite rate determined under section 1881(b)(7) of the

Social Security Act [subsec. (b)(7) of this section] is

adjusted for differences in area wage levels.

"(ii) The rate determined under this clause, with respect to

a provider of services or renal dialysis facility, shall be

equal to the difference between -

"(I) two-thirds of the labor portion of the composite rate

applicable under section 1881(b)(7) of such Act to the

provider or facility, and

"(II) the product of the national median hourly wage for a

home hemodialysis staff assistant and the national median

time expended in the provision of home hemodialysis staff

assistant services (taking into account time expended in

travel and predialysis patient care).

"(iii) For purposes of clause (ii)(II) -

"(I) the national median hourly wage for a home

hemodialysis staff assistant and the national median average

time expended for home hemodialysis staff assistant services

shall be determined annually on the basis of the most recent

data available, and

"(II) the national median hourly wage for a home

hemodialysis staff assistant shall be the sum of 65 percent

of the national median hourly wage for a licensed practical

nurse and 35 percent of the national median hourly wage for a

registered nurse.

"(C) Payment as add-on to composite rate. - The amount of

payment determined under this paragraph shall be in addition to

the amount of payment otherwise made to the provider of

services or renal dialysis facility under section 1881(b) of

such Act.

"(c) Individuals Eligible to Receive Services Under Project. -

"(1) In general. - An individual may receive services from a

provider of services or renal dialysis facility participating in

the demonstration project if -

"(A) the individual is not a resident of a nursing facility;

"(B) the individual is an end stage renal disease patient

entitled to benefits under title XVIII of the Social Security

Act [this subchapter];

"(C) the individual's physician certifies that the individual

is confined to a bed or wheelchair and cannot transfer

themselves [sic] from a bed to a chair;

"(D) the individual has a serious medical condition (as

specified by the Secretary) which would be exacerbated by

travel to and from a dialysis facility;

"(E) the individual is eligible for ambulance transportation

to receive routine maintenance dialysis treatments, and, based

on the individual's medical condition, there is reasonable

expectation that such transportation will be used by the

individual for a period of at least 6 consecutive months, such

that the cost of ambulance transportation can reasonably be

expected to meet or exceed the cost of home hemodialysis staff

assistance as provided under subsection (b)(2); and

"(F) no family member or other individual is available to

provide such assistance to the individual.

"(2) Coverage of individuals currently receiving services. -

Any individual who, on the date of the enactment of this Act

[Nov. 5, 1990], is receiving staff assistance under the

experimental authority provided under section 1881(f)(2) of the

Social Security Act [subsec. (f)(2) of this section] shall be

deemed to be an eligible individual for purposes of this

subsection.

"(3) Continuation of coverage upon termination of project. -

Notwithstanding any provision of title XVIII of the Social

Security Act, any individual receiving services under the

demonstration project established under subsection (a) as of the

date of the termination of the project shall continue to be

eligible for home hemodialysis staff assistance after such date

under such title on the same terms and conditions as applied

under the demonstration project.

"(d) Qualifications for Home Hemodialysis Staff Assistants. - For

purposes of subsection (b), a home dialysis aide is qualified if

the aide -

"(1) meets minimum qualifications as specified by the

Secretary; and

"(2) meets any applicable qualifications as specified under the

law of the State in which the home hemodialysis staff assistant

is providing services.

"(e) Reports. -

"(1) Interim status report. - Not later than December 1, 1992,

the Secretary shall submit to Congress a preliminary report on

the status of the demonstration project established under

subsection (a).

"(2) Final report. - Not later than December 31, 1995, the

Secretary shall submit to Congress a final report evaluating the

project, and shall include in such report recommendations

regarding appropriate eligibility criteria and cost-control

mechanisms for medicare coverage of the services of a home

dialysis aide providing medical assistance to a patient during

hemodialysis treatment at the patient's home.

"(f) Authorization of Appropriations. - The Secretary shall

provide for the transfer from the Federal Supplementary Medical

Insurance Trust Fund (established under section 1841 of the Social

Security Act [section 1395t of this title]) of not more than the

following amounts to carry out the demonstration project

established under subsection (a) (without regard to amounts

appropriated in advance in appropriation Acts):

"(1) For fiscal year 1991, $4,000,000.

"(2) For fiscal year 1992, $4,000,000.

"(3) For fiscal year 1993, $3,000,000.

"(4) For fiscal year 1994, $2,000,000.

"(5) For fiscal year 1995, $1,000,000."

STUDIES OF END-STAGE RENAL DISEASE PROGRAM

Section 4036(d)(1)-(4) of Pub. L. 100-203 provided that:

"(1) The Secretary of Health and Human Services (in this

subsection referred to as the 'Secretary') shall arrange for a

study of the end-stage renal disease program within the medicare

program.

"(2) Among other items, the study shall address -

"(A) access to treatment by both individuals eligible for

medicare benefits and those not eligible for such benefits;

"(B) the quality of care provided to end-stage renal disease

beneficiaries, as measured by clinical indicators, functional

status of patients, and patient satisfaction;

"(C) the effect of reimbursement on quality of treatment;

"(D) major epidemiological and demographic changes in the

end-stage renal disease population that may affect access to

treatment, the quality of care, or the resource requirements of

the program; and

"(E) the adequacy of existing data systems to monitor these

matters on a continuing basis.

"(3) The Secretary shall submit to Congress, not later than 3

years after the date of the enactment of this Act [Dec. 22, 1987],

a report on the study.

"(4) The Secretary shall request the National Academy of

Sciences, acting through the Institute of Medicine, to submit an

application to conduct the study described in this section. If the

Academy submits an acceptable application, the Secretary shall

enter into an appropriate arrangement with the Academy for the

conduct of the study. If the Academy does not submit an acceptable

application to conduct the study, the Secretary may request one or

more appropriate nonprofit private entities to submit an

application to conduct the study and may enter into an appropriate

arrangement for the conduct of the study by the entity which

submits the best acceptable application."

RATES FOR DIALYSIS SERVICES

Pub. L. 99-509, title IX, Sec. 9335(a)(1), Oct. 21, 1986, 100

Stat. 2029, as amended by Pub. L. 101-239, title VI, Sec.

6203(a)(1), Dec. 19, 1989, 103 Stat. 2235; Pub. L. 101-508, title

IV, Sec. 4201(a), Nov. 5, 1990, 104 Stat. 1388-102; Pub. L.

106-113, div. B, Sec. 1000(a)(6) [title II, Sec. 222(b)], Nov. 29,

1999, 113 Stat. 1536, 1501A-352, provided that: "Effective with

respect to dialysis services provided on or after October 1, 1986,

and before December 31, 1990, the Secretary of Health and Human

Services shall establish the base rate for routine dialysis

treatment in a free-standing facility and in a hospital-based

facility under section 1881(b)(7) of the Social Security Act

[subsec. (b)(7) of this section] at a level equal to the respective

rate in effect as of May 13, 1986, reduced by $2.00. With respect

to services furnished on or after January 1, 1991, and before

January 1, 2000, such base rate shall be equal to the respective

rate in effect as of September 30, 1990 (determined without regard

to any reductions imposed pursuant to section 6201 of the Omnibus

Budget Reconciliation Act of 1989 [Pub. L. 101-239, set out as a

note under section 902 of Title 2, The Congress]), increased by

$1.00. No change may be made in the base rate in effect as of

September 30, 1990, unless the Secretary makes such change in

accordance with notice and comment requirements set forth in

section 1871(b)(1) of such Act [subsec. (b)(1) of this section]."

[Section 6203(a)(2) of Pub. L. 101-239 provided that: "The

amendment made by paragraph (1) [amending section 9335(a)(1) of

Pub. L. 99-509, set out above] shall take effect as if included in

the enactment of the Omnibus Budget Reconciliation Act of 1986

[Pub. L. 99-509]."]

STUDY AND REPORT ON MEDICARE PAYMENT RATE REDUCTIONS FOR PATIENTS

WITH END STAGE RENAL DISEASE

Section 9335(b) of Pub. L. 99-509 directed Secretary of Health

and Human Services to provide for a study to evaluate the effects

of reductions in the rates of payment for facility and physicians'

services under the medicare program for patients with end stage

renal disease on their access to care or on the quality of care,

and a report to Congress on results of the study by not later than

Jan. 1, 1988, with Secretary to enter into an appropriate

arrangement with the National Academy of Sciences or other

appropriate nonprofit private entity for the conduct of the study.

DEADLINE FOR ESTABLISHING NEW END STAGE RENAL DISEASE NETWORK

AREAS; TRANSITION

Section 9335(d)(2), (3) of Pub. L. 99-509, as amended by Pub. L.

100-203, title IV, Sec. 4009(j)(6)(E), Dec. 22, 1987, 101 Stat.

1330-59, provided that:

"(2) Deadline for establishing new areas. - The Secretary of

Health and Human Services shall establish end stage renal disease

network areas, pursuant to the amendment made by paragraph (1)

[amending this section], not later than May 1, 1987. The Secretary

shall designate network administrative organizations for such areas

by not later than July 1, 1987.

"(3) Transition. - If, under the amendment made by paragraph (1),

the Secretary designates a network administrative organization for

an area which was not previously designated for that area, the

Secretary shall offer to continue to fund the previously designated

organization for that area for a period of 30 days after the first

date the newly designated organization assumes the duties of a

network administrative organization for that area."

REPORT ON ESTABLISHMENT OF NATIONAL END STAGE RENAL DISEASE

REGISTRY

Section 9335(i)(2) of Pub. L. 99-509 provided that: "The

Secretary of Health and Human Services shall submit to the

Congress, no later than April 1, 1987, a full report on the

progress made in establishing the national end stage renal disease

registry under the amendment made by paragraph (1) [amending this

section] and shall establish such registry by not later than

January 1, 1988."

DEADLINE FOR ESTABLISHMENT OF PROTOCOLS ON REUSE OF DIALYZER

FILTERS

Section 9335(k)(2) of Pub. L. 99-509, as amended by Pub. L.

100-203, title IV, Sec. 4036(c)(1)(A), Dec. 22, 1987, 101 Stat.

1330-79, provided that: "The Secretary of Health and Human Services

shall establish the protocols described in section 1881(f)(7)(A) of

the Social Security Act [subsec. (f)(7)(A) of this section] by not

later than October 1, 1987 (or July 1, 1988, with respect to

protocols that relate to the reuse of bloodlines)."

[Section 4036(c)(1)(B) of Pub. L. 100-203 provided that: "The

amendment made by subparagraph (A) [amending section 9335(k)(2) of

Pub. L. 99-509, set out above] shall be effective as if included in

the enactment of section 9335(k)(2) of the Omnibus Budget

Reconciliation Act of 1986 [Pub. L. 99-509]."]

LIMITATION ON MERGER OF END STAGE RENAL DISEASE NETWORKS

Pub. L. 99-272, title IX, Sec. 9214, Apr. 7, 1986, 100 Stat. 180,

provided that: "The Secretary of Health and Human Services shall

maintain renal disease network organizations as authorized under

section 1881(c) of the Social Security Act [subsec. (c) of this

section], and may not merge the network organizations into other

organizations or entities. The Secretary may consolidate such

network organizations, but only if such consolidation does not

result in fewer than 14 such organizations being permitted to

exist."

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 426-1, 1395f, 1395l,

1395u, 1395w-23, 1395x, 1395aa, 1395bb of this title.

-FOOTNOTE-

(!1) See References in Text note below.

-End-

-CITE-

42 USC Sec. 1395ss 01/06/03

-EXPCITE-

TITLE 42 - THE PUBLIC HEALTH AND WELFARE

CHAPTER 7 - SOCIAL SECURITY

SUBCHAPTER XVIII - HEALTH INSURANCE FOR AGED AND DISABLED

Part D - Miscellaneous Provisions

-HEAD-

Sec. 1395ss. Certification of medicare supplemental health

insurance policies

-STATUTE-

(a) Submission of policy by insurer

(1) The Secretary shall establish a procedure whereby medicare

supplemental policies (as defined in subsection (g)(1) of this

section) may be certified by the Secretary as meeting minimum

standards and requirements set forth in subsection (c) of this

section. Such procedure shall provide an opportunity for any

insurer to submit any such policy, and such additional data as the

Secretary finds necessary, to the Secretary for his examination and

for his certification thereof as meeting the standards and

requirements set forth in subsection (c) of this section. Subject

to subsections (k)(3), (m), and (n) of this section, such

certification shall remain in effect if the insurer files a

notarized statement with the Secretary no later than June 30 of

each year stating that the policy continues to meet such standards

and requirements and if the insurer submits such additional data as

the Secretary finds necessary to independently verify the accuracy

of such notarized statement. Where the Secretary determines such a

policy meets (or continues to meet) such standards and

requirements, he shall authorize the insurer to have printed on

such policy (but only in accordance with such requirements and

conditions as the Secretary may prescribe) an emblem which the

Secretary shall cause to be designed for use as an indication that

a policy has received the Secretary's certification. The Secretary

shall provide each State commissioner or superintendent of

insurance with a list of all the policies which have received his

certification.

(2) No medicare supplemental policy may be issued in a State on

or after the date specified in subsection (p)(1)(C) of this section

unless -

(A) the State's regulatory program under subsection (b)(1) of

this section provides for the application and enforcement of the

standards and requirements set forth in such subsection

(including the 1991 NAIC Model Regulation or 1991 Federal

Regulation (as the case may be)) by the date specified in

subsection (p)(1)(C) of this section; or

(B) if the State's program does not provide for the application

and enforcement of such standards and requirements, the policy

has been certified by the Secretary under paragraph (1) as

meeting the standards and requirements set forth in subsection

(c) of this section (including such applicable standards) by such

date.

Any person who issues a medicare supplemental policy, on and after

the effective date specified in subsection (p)(1)(C) of this

section, in violation of this paragraph is subject to a civil money

penalty of not to exceed $25,000 for each such violation. The

provisions of section 1320a-7a of this title (other than the first

sentence of subsection (a) and other than subsection (b)) shall

apply to a civil money penalty under the previous sentence in the

same manner as such provisions apply to a penalty or proceeding

under section 1320a-7a(a) of this title.

(b) Standards and requirements; periodic review by Secretary

(1) Any medicare supplemental policy issued in any State which

the Secretary determines has established under State law a

regulatory program that -

(A) provides for the application and enforcement of standards

with respect to such policies equal to or more stringent than the

NAIC Model Standards (as defined in subsection (g)(2)(A) of this

section), except as otherwise provided by subparagraph (H);

(B) includes requirements equal to or more stringent than the

requirements described in paragraphs (2) through (5) of

subsection (c) of this section;

(C) provides that -

(i) information with respect to the actual ratio of benefits

provided to premiums collected under such policies will be

reported to the State on forms conforming to those developed by

the National Association of Insurance Commissioners for such

purpose, or

(ii) such ratios will be monitored under the program in an

alternative manner approved by the Secretary, and that a copy

of each such policy, the most recent premium for each such

policy, and a listing of the ratio of benefits provided to

premiums collected for the most recent 3-year period for each

such policy issued or sold in the State is maintained and made

available to interested persons;

(D) provides for application and enforcement of the standards

and requirements described in subparagraphs (A), (B), and (C) to

all medicare supplemental policies (as defined in subsection

(g)(1) of this section) issued in such State,

(E) provides the Secretary periodically (but at least annually)

with a list containing the name and address of the issuer of each

such policy and the name and number of each such policy

(including an indication of policies that have been previously

approved, newly approved, or withdrawn from approval since the

previous list was provided),

(F) reports to the Secretary on the implementation and

enforcement of standards and requirements of this paragraph at

intervals established by the Secretary,

(G) provides for a process for approving or disapproving

proposed premium increases with respect to such policies, and

establishes a policy for the holding of public hearings prior to

approval of a premium increase, and

(H) in the case of a policy that meets the standards under

subparagraph (A) except that benefits under the policy are

limited to items and services furnished by certain entities (or

reduced benefits are provided when items or services are

furnished by other entities), provides for the application of

requirements equal to or more stringent than the requirements

under subsection (t) of this section,

shall be deemed (subject to subsections (k)(3), (m), and (n) of

this section, for so long as the Secretary finds that such State

regulatory program continues to meet the standards and requirements

of this paragraph) to meet the standards and requirements set forth

in subsection (c) of this section. Each report required under

subparagraph (F) shall include information on loss ratios of

policies sold in the State, frequency and types of instances in

which policies approved by the State fail to meet the standards and

requirements of this paragraph, actions taken by the State to bring

such policies into compliance, information regarding State programs

implementing consumer protection provisions, and such further

information as the Secretary in consultation with the National

Association of Insurance Commissioners may specify.

(2) The Secretary periodically shall review State regulatory

programs to determine if they continue to meet the standards and

requirements specified in paragraph (1). If the Secretary finds

that a State regulatory program no longer meets the standards and

requirements, before making a final determination, the Secretary

shall provide the State an opportunity to adopt such a plan of

correction as would permit the State regulatory program to continue

to meet such standards and requirements. If the Secretary makes a

final determination that the State regulatory program, after such

an opportunity, fails to meet such standards and requirements, the

program shall no longer be considered to have in operation a

program meeting such standards and requirements.

(3) Notwithstanding paragraph (1), a medicare supplemental policy

offered in a State shall not be deemed to meet the standards and

requirements set forth in subsection (c) of this section, with

respect to an advertisement (whether through written, radio, or

television medium) used (or, at a State's option, to be used) for

the policy in the State, unless the entity issuing the policy

provides a copy of each advertisement to the Commissioner of

Insurance (or comparable officer identified by the Secretary) of

that State for review or approval to the extent it may be required

under State law.

(c) Requisite findings

The Secretary shall certify under this section any medicare

supplemental policy, or continue certification of such a policy,

only if he finds that such policy (or, with respect to paragraph

(3) or the requirement described in subsection (s) of this section,

the issuer of the policy) -

(1) meets or exceeds (either in a single policy or, in the case

of nonprofit hospital and medical service associations, in one or

more policies issued in conjunction with one another) the NAIC

Model Standards (except as otherwise provided by subsection (t)

of this section);

(2) meets the requirements of subsection (r) of this section;

(3)(A) accepts a notice under section 1395u(h)(3)(B) of this

title as a claim form for benefits under such policy in lieu of

any claim form otherwise required and agrees to make a payment

determination on the basis of the information contained in such

notice;

(B) where such a notice is received -

(i) provides notice to such physician or supplier and the

beneficiary of the payment determination under the policy, and

(ii) provides any payment covered by such policy directly to

the participating physician or supplier involved;

(C) provides each enrollee at the time of enrollment a card

listing the policy name and number and a single mailing address

to which notices under section 1395u(h)(3)(B) of this title

respecting the policy are to be sent;

(D) agrees to pay any user fees established under section

1395u(h)(3)(B) of this title with respect to information

transmitted to the issuer of the policy; and

(E) provides to the Secretary at least annually, for

transmittal to carriers, a single mailing address to which

notices under section 1395u(h)(3)(B) of this title respecting the

policy are to be sent;

(4) may, during a period of not less than 30 days after the

policy is issued, be returned for a full refund of any premiums

paid (without regard to the manner in which the purchase of the

policy was solicited); and

(5) meets the applicable requirements of subsections (o)

through (t) of this section.

(d) Criminal penalties; civil penalties for certain violations

(1) Whoever knowingly and willfully makes or causes to be made or

induces or seeks to induce the making of any false statement or

representation of a material fact with respect to the compliance of

any policy with the standards and requirements set forth in

subsection (c) of this section or in regulations promulgated

pursuant to such subsection, or with respect to the use of the

emblem designed by the Secretary under subsection (a) of this

section, shall be fined under title 18 or imprisoned not more than

5 years, or both, and, in addition to or in lieu of such a criminal

penalty, is subject to a civil money penalty of not to exceed

$5,000 for each such prohibited act.

(2) Whoever falsely assumes or pretends to be acting, or

misrepresents in any way that he is acting, under the authority of

or in association with, the program of health insurance established

by this subchapter, or any Federal agency, for the purpose of

selling or attempting to sell insurance, or in such pretended

character demands, or obtains money, paper, documents, or anything

of value, shall be fined under title 18 or imprisoned not more than

5 years, or both, and, in addition to or in lieu of such a criminal

penalty, is subject to a civil money penalty of not to exceed

$5,000 for each such prohibited act.

(3)(A)(i) It is unlawful for a person to sell or issue to an

individual entitled to benefits under part A of this subchapter or

enrolled under part B of this subchapter (including an individual

electing a Medicare+Choice plan under section 1395w-21 of this

title) -

(I) a health insurance policy with knowledge that the policy

duplicates health benefits to which the individual is otherwise

entitled under this subchapter or subchapter XIX of this chapter,

(II) in the case of an individual not electing a

Medicare+Choice plan (!1) a medicare supplemental policy with

knowledge that the individual is entitled to benefits under

another medicare supplemental policy or in the case of an

individual electing a Medicare+Choice plan, a medicare

supplemental policy with knowledge that the policy duplicates

health benefits to which the individual is otherwise entitled

under the Medicare+Choice plan or under another medicare

supplemental policy, or

(III) a health insurance policy (other than a medicare

supplemental policy) with knowledge that the policy duplicates

health benefits to which the individual is otherwise entitled,

other than benefits to which the individual is entitled under a

requirement of State or Federal law.

(ii) Whoever violates clause (i) shall be fined under title 18 or

imprisoned not more than 5 years, or both, and, in addition to or

in lieu of such a criminal penalty, is subject to a civil money

penalty of not to exceed $25,000 (or $15,000 in the case of a

person other than the issuer of the policy) for each such

prohibited act.

(iii) A seller (who is not the issuer of a health insurance

policy) shall not be considered to violate clause (i)(II) with

respect to the sale of a medicare supplemental policy if the policy

is sold in compliance with subparagraph (B).

(iv) For purposes of this subparagraph, a health insurance policy

(other than a Medicare supplemental policy) providing for benefits

which are payable to or on behalf of an individual without regard

to other health benefit coverage of such individual is not

considered to "duplicate" any health benefits under this

subchapter, under subchapter XIX of this chapter, or under a health

insurance policy, and subclauses (I) and (III) of clause (i) do not

apply to such a policy.

(v) For purposes of this subparagraph, a health insurance policy

(or a rider to an insurance contract which is not a health

insurance policy) is not considered to "duplicate" health benefits

under this subchapter or under another health insurance policy if

it -

(I) provides health care benefits only for long-term care,

nursing home care, home health care, or community-based care, or

any combination thereof,

(II) coordinates against or excludes items and services

available or paid for under this subchapter or under another

health insurance policy, and

(III) for policies sold or issued on or after the end of the

90-day period beginning on August 21, 1996, discloses such

coordination or exclusion in the policy's outline of coverage.

For purposes of this clause, the terms "coordinates" and

"coordination" mean, with respect to a policy in relation to health

benefits under this subchapter or under another health insurance

policy, that the policy under its terms is secondary to, or

excludes from payment, items and services to the extent available

or paid for under this subchapter or under another health insurance

policy.

(vi)(I) An individual entitled to benefits under part A of this

subchapter or enrolled under part B of this subchapter who is

applying for a health insurance policy (other than a policy

described in subclause (III)) shall be furnished a disclosure

statement described in clause (vii) for the type of policy being

applied for. Such statement shall be furnished as a part of (or

together with) the application for such policy.

(II) Whoever issues or sells a health insurance policy (other

than a policy described in subclause (III)) to an individual

described in subclause (I) and fails to furnish the appropriate

disclosure statement as required under such subclause shall be

fined under title 18, or imprisoned not more than 5 years, or both,

and, in addition to or in lieu of such a criminal penalty, is

subject to a civil money penalty of not to exceed $25,000 (or

$15,000 in the case of a person other than the issuer of the

policy) for each such violation.

(III) A policy described in this subclause (to which subclauses

(I) and (II) do not apply) is a Medicare supplemental policy, a

policy described in clause (v), or a health insurance policy

identified under 60 Federal Register 30880 (June 12, 1995) as a

policy not required to have a disclosure statement.

(IV) Any reference in this section to the revised NAIC model

regulation (referred to in subsection (m)(1)(A) of this section) is

deemed a reference to such regulation as revised by section

171(m)(2) of the Social Security Act Amendments of 1994 (Public Law

103-432) and as modified by substituting, for the disclosure

required under section 16D(2), disclosure under subclause (I) of an

appropriate disclosure statement under clause (vii).

(vii) The disclosure statement described in this clause for a

type of policy is the statement specified under subparagraph (D) of

this paragraph (as in effect before August 21, 1996) for that type

of policy, as revised as follows:

(I) In each statement, amend the second line to read as

follows:

"THIS IS NOT MEDICARE SUPPLEMENT

INSURANCE".

(II) In each statement, strike the third line and insert the

following: "Some health care services paid for by Medicare may

also trigger the payment of benefits under this policy.".

(III) In each statement not described in subclause (V), strike

the boldface matter that begins "This insurance" and all that

follows up to the next paragraph that begins "Medicare".

(IV) In each statement not described in subclause (V), insert

before the boxed matter (that states "Before You Buy This

Insurance") the following: "This policy must pay benefits without

regard to other health benefit coverage to which you may be

entitled under Medicare or other insurance.".

(V) In a statement relating to policies providing both nursing

home and non-institutional coverage, to policies providing

nursing home benefits only, or policies providing home care

benefits only, amend the sentence that begins "Federal law" to

read as follows: "Federal law requires us to inform you that in

certain situations this insurance may pay for some care also

covered by Medicare.".

(viii)(I) Subject to subclause (II), nothing in this subparagraph

shall restrict or preclude a State's ability to regulate health

insurance policies, including any health insurance policy that is

described in clause (iv), (v), or (vi)(III).

(II) A State may not declare or specify, in statute, regulation,

or otherwise, that a health insurance policy (other than a Medicare

supplemental policy) or rider to an insurance contract which is not

a health insurance policy, that is described in clause (iv), (v),

or (vi)(III) and that is sold, issued, or renewed to an individual

entitled to benefits under part A of this subchapter or enrolled

under part B of this subchapter "duplicates" health benefits under

this subchapter or under a Medicare supplemental policy.

(B)(i) It is unlawful for a person to issue or sell a medicare

supplemental policy to an individual entitled to benefits under

part A of this subchapter or enrolled under part B of this

subchapter, whether directly, through the mail, or otherwise,

unless -

(I) the person obtains from the individual, as part of the

application for the issuance or purchase and on a form described

in clause (ii), a written statement signed by the individual

stating, to the best of the individual's knowledge, what health

insurance policies (including any Medicare+Choice plan) the

individual has, from what source, and whether the individual is

entitled to any medical assistance under subchapter XIX of this

chapter, whether as a qualified medicare beneficiary or

otherwise, and

(II) the written statement is accompanied by a written

acknowledgment, signed by the seller of the policy, of the

request for and receipt of such statement.

(ii) The statement required by clause (i) shall be made on a form

that -

(I) states in substance that a medicare-eligible individual

does not need more than one medicare supplemental policy,

(II) states in substance that individuals may be eligible for

benefits under the State medicaid program under subchapter XIX of

this chapter and that such individuals who are entitled to

benefits under that program usually do not need a medicare

supplemental policy and that benefits and premiums under any such

policy shall be suspended upon request of the policyholder during

the period (of not longer than 24 months) of entitlement to

benefits under such subchapter and may be reinstituted upon loss

of such entitlement, and

(III) states that counseling services may be available in the

State to provide advice concerning the purchase of medicare

supplemental policies and enrollment under the medicaid program

and may provide the telephone number for such services.

(iii)(I) Except as provided in subclauses (II) and (III), if the

statement required by clause (i) is not obtained or indicates that

the individual has a medicare supplemental policy or indicates that

the individual is entitled to any medical assistance under

subchapter XIX of this chapter, the sale of a medicare supplemental

policy shall be considered to be a violation of subparagraph (A).

(II) Subclause (I) shall not apply in the case of an individual

who has a medicare supplemental policy, if the individual indicates

in writing, as part of the application for purchase, that the

policy being purchased replaces such other policy and indicates an

intent to terminate the policy being replaced when the new policy

becomes effective and the issuer or seller certifies in writing

that such policy will not, to the best of the issuer (!2) or

seller's knowledge, duplicate coverage (taking into account any

such replacement).

(III) If the statement required by clause (i) is obtained and

indicates that the individual is entitled to any medical assistance

under subchapter XIX of this chapter, the sale of the policy is not

in violation of clause (i) (insofar as such clause relates to such

medical assistance), if (aa) a State medicaid plan under such

subchapter pays the premiums for the policy, (bb) in the case of a

qualified medicare beneficiary described in section 1396d(p)(1) of

this title, the policy provides for coverage of outpatient

prescription drugs, or (cc) the only medical assistance to which

the individual is entitled under the State plan is medicare cost

sharing described in section 1396d(p)(3)(A)(ii) of this title.

(iv) Whoever issues or sells a medicare supplemental policy in

violation of this subparagraph shall be fined under title 18, or

imprisoned not more than 5 years, or both, and, in addition to or

in lieu of such a criminal penalty, is subject to a civil money

penalty of not to exceed $25,000 (or $15,000 in the case of a

seller who is not the issuer of a policy) for each such violation.

(C) Subparagraph (A) shall not apply with respect to the sale or

issuance of a group policy or plan of one or more employers or

labor organizations, or of the trustees of a fund established by

one or more employers or labor organizations (or combination

thereof), for employees or former employees (or combination

thereof) or for members or former members (or combination thereof)

of the labor organizations.

(4)(A) Whoever knowingly, directly or through his agent, mails or

causes to be mailed any matter for a prohibited purpose (as

determined under subparagraph (B)) shall be fined under title 18 or

imprisoned not more than 5 years, or both, and, in addition to or

in lieu of such a criminal penalty, is subject to a civil money

penalty of not to exceed $5,000 for each such prohibited act.

(B) For purposes of subparagraph (A), a prohibited purpose means

the advertising, solicitation, or offer for sale of a medicare

supplemental policy, or the delivery of such a policy, in or into

any State in which such policy has not been approved by the State

commissioner or superintendent of insurance.

(C) Subparagraph (A) shall not apply in the case of a person who

mails or causes to be mailed a medicare supplemental policy into a

State if such person has ascertained that the party insured under

such policy to whom (or on whose behalf) such policy is mailed is

located in such State on a temporary basis.

(D) Subparagraph (A) shall not apply in the case of a person who

mails or causes to be mailed a duplicate copy of a medicare

supplemental policy previously issued to the party to whom (or on

whose behalf) such duplicate copy is mailed.

(E) Subparagraph (A) shall not apply in the case of an issuer who

mails or causes to be mailed a policy, certificate, or other matter

solely to comply with the requirements of subsection (q) of this

section.

(5) The provisions of section 1320a-7a of this title (other than

subsections (a) and (b)) shall apply to civil money penalties under

paragraphs (1), (2), (3)(A), and (4)(A) in the same manner as such

provisions apply to penalties and proceedings under section

1320a-7a(a) of this title.

(e) Dissemination of information

(1) The Secretary shall provide to all individuals entitled to

benefits under this subchapter (and, to the extent feasible, to

individuals about to become so entitled) such information as will

permit such individuals to evaluate the value of medicare

supplemental policies to them and the relationship of any such

policies to benefits provided under this subchapter.

(2) The Secretary shall -

(A) inform all individuals entitled to benefits under this

subchapter (and, to the extent feasible, individuals about to

become so entitled) of -

(i) the actions and practices that are subject to sanctions

under subsection (d) of this section, and

(ii) the manner in which they may report any such action or

practice to an appropriate official of the Department of Health

and Human Services (or to an appropriate State official), and

(B) publish the toll-free telephone number for individuals to

report suspected violations of the provisions of such subsection.

(3) The Secretary shall provide individuals entitled to benefits

under this subchapter (and, to the extent feasible, individuals

about to become so entitled) with a listing of the addresses and

telephone numbers of State and Federal agencies and offices that

provide information and assistance to individuals with respect to

the selection of medicare supplemental policies.

(f) Study and evaluation of comparative effectiveness of various

State approaches to regulating medicare supplemental policies;

report to Congress no later than January 1, 1982; periodic

evaluations

(1)(A) The Secretary shall, in consultation with Federal and

State regulatory agencies, the National Association of Insurance

Commissioners, private insurers, and organizations representing

consumers and the aged, conduct a comprehensive study and

evaluation of the comparative effectiveness of various State

approaches to the regulation of medicare supplemental policies in

(i) limiting marketing and agent abuse, (ii) assuring the

dissemination of such information to individuals entitled to

benefits under this subchapter (and to other consumers) as is

necessary to permit informed choice, (iii) promoting policies which

provide reasonable economic benefits for such individuals, (iv)

reducing the purchase of unnecessary duplicative coverage, (v)

improving price competition, and (vi) establishing effective

approved State regulatory programs described in subsection (b) of

this section.

(B) Such study shall also address the need for standards or

certification of health insurance policies, other than medicare

supplemental policies, sold to individuals eligible for benefits

under this subchapter.

(C) The Secretary shall, no later than January 1, 1982, submit a

report to the Congress on the results of such study and evaluation,

accompanied by such recommendations as the Secretary finds

warranted by such results with respect to the need for legislative

or administrative changes to accomplish the objectives set forth in

subparagraphs (A) and (B), including the need for a mandatory

Federal regulatory program to assure the marketing of appropriate

types of medicare supplemental policies, and such other means as he

finds may be appropriate to enhance effective State regulation of

such policies.

(2) The Secretary shall submit to the Congress no later than July

1, 1982, and periodically as may be appropriate thereafter (but not

less often than once every 2 years), a report evaluating the

effectiveness of the certification procedure and the criminal

penalties established under this section, and shall include in such

reports an analysis of -

(A) the impact of such procedure and penalties on the types,

market share, value, and cost to individuals entitled to benefits

under this subchapter of medicare supplemental policies which

have been certified by the Secretary;

(B) the need for any change in the certification procedure to

improve its administration or effectiveness; and

(C) whether the certification program and criminal penalties

should be continued.

(3) The Secretary shall provide information via a toll-free

telephone number on medicare supplemental policies (including the

relationship of State programs under subchapter XIX of this chapter

to such policies).

(g) Definitions

(1) For purposes of this section, a medicare supplemental policy

is a health insurance policy or other health benefit plan offered

by a private entity to individuals who are entitled to have payment

made under this subchapter, which provides reimbursement for

expenses incurred for services and items for which payment may be

made under this subchapter but which are not reimbursable by reason

of the applicability of deductibles, coinsurance amounts, or other

limitations imposed pursuant to this subchapter; but does not

include a Medicare+Choice plan or any such policy or plan of one or

more employers or labor organizations, or of the trustees of a fund

established by one or more employers or labor organizations (or

combination thereof), for employees or former employees (or

combination thereof) or for members or former members (or

combination thereof) of the labor organizations and does not

include a policy or plan of an eligible organization (as defined in

section 1395mm(b) of this title) if the policy or plan provides

benefits pursuant to a contract under section 1395mm of this title

or an approved demonstration project described in section 603(c) of

the Social Security Amendments of 1983, section 2355 of the Deficit

Reduction Act of 1984, or section 9412(b) of the Omnibus Budget

Reconciliation Act of 1986, or a policy or plan of an organization

if the policy or plan provides benefits pursuant to an agreement

under section 1395l(a)(1)(A) of this title. For purposes of this

section, the term "policy" includes a certificate issued under such

policy.

(2) For purposes of this section:

(A) The term "NAIC Model Standards" means the "NAIC Model

Regulation to Implement the Individual Accident and Sickness

Insurance Minimum Standards Act", adopted by the National

Association of Insurance Commissioners on June 6, 1979, as it

applies to medicare supplement (!3) policies.

(B) The term "State with an approved regulatory program" means

a State for which the Secretary has made a determination under

subsection (b)(1) of this section.

(C) The State in which a policy is issued means -

(i) in the case of an individual policy, the State in which

the policyholder resides; and

(ii) in the case of a group policy, the State in which the

holder of the master policy resides.

(h) Rules and regulations

The Secretary shall prescribe such regulations as may be

necessary for the effective, efficient, and equitable

administration of the certification procedure established under

this section. The Secretary shall first issue final regulations to

implement the certification procedure established under subsection

(a) of this section not later than March 1, 1981.

(i) Commencement of certification program

(1) No medicare supplemental policy shall be certified and no

such policy may be issued bearing the emblem authorized by the

Secretary under subsection (a) of this section until July 1, 1982.

On and after such date policies certified by the Secretary may bear

such emblem, including policies which were issued prior to such

date and were subsequently certified, and insurers may notify

holders of such certified policies issued prior to such date using

such emblem in the notification.

(2)(A) The Secretary shall not implement the certification

program established under subsection (a) of this section with

respect to policies issued in a State unless the Panel makes a

finding that such State cannot be expected to have established, by

July 1, 1982, an approved State regulatory program meeting the

standards and requirements of subsection (b)(1) of this section. If

the Panel makes such a finding, the Secretary shall implement such

program under subsection (a) of this section with respect to

medicare supplemental policies issued in such State, until such

time as the Panel determines that such State has a program that

meets the standards and requirements of subsection (b)(1) of this

section.

(B) Any finding by the Panel under subparagraph (A) shall be

transmitted in writing, not later than January 1, 1982, to the

Committee on Finance of the Senate and to the Committee on Energy

and Commerce and the Committee on Ways and Means of the House of

Representatives and shall not become effective until 60 days after

the date of its transmittal to the Committees of the Congress under

this subparagraph. In counting such days, days on which either

House is not in session because of an adjournment sine die or an

adjournment of more than three days to a day certain are excluded

in the computation.

(j) State regulation of policies issued in other States

Nothing in this section shall be construed so as to affect the

right of any State to regulate medicare supplemental policies

which, under the provisions of this section, are considered to be

issued in another State.

(k) Amended NAIC Model Regulation or Federal model standards

applicable; effective date; medicare supplemental policy and

State regulatory program meeting applicable standards

(1)(A) If, within the 90-day period beginning on July 1, 1988,

the National Association of Insurance Commissioners (in this

subsection referred to as the "Association") amends the NAIC Model

Regulation adopted on June 6, 1979 (as it relates to medicare

supplemental policies), with respect to matters such as minimum

benefit standards, loss ratios, disclosure requirements, and

replacement requirements and provisions otherwise necessary to

reflect the changes in law made by the Medicare Catastrophic

Coverage Act of 1988, except as provided in subsection (m) of this

section, subsection (g)(2)(A) of this section shall be applied in a

State, effective on and after the date specified in subparagraph

(B), as if the reference to the Model Regulation adopted on June 6,

1979, were a reference to the Model Regulation as amended by the

Association in accordance with this paragraph (in this subsection

and subsection (l) of this section referred to as the "amended NAIC

Model Regulation").

(B) The date specified in this subparagraph for a State is the

earlier of the date the State adopts standards equal to or more

stringent than the amended NAIC Model Regulation or 1 year after

the date the Association first adopts such amended Regulation.

(2)(A) If the Association does not amend the NAIC Model

Regulation within the 90-day period specified in paragraph (1)(A),

the Secretary shall promulgate, not later than 60 days after the

end of such period, Federal model standards (in this subsection and

subsection (l) of this section referred to as "Federal model

standards") for medicare supplemental policies to reflect the

changes in law made by the Medicare Catastrophic Coverage Act of

1988, and subsection (g)(2)(A) of this section shall be applied in

a State, effective on and after the date specified in subparagraph

(B), as if the reference to the Model Regulation adopted on June 6,

1979, were a reference to Federal model standards.

(B) The date specified in this subparagraph for a State is the

earlier of the date the State adopts standards equal to or more

stringent than the Federal model standards or 1 year after the date

the Secretary first promulgates such standards.

(3) Notwithstanding any other provision of this section (except

as provided in subsections (l), (m), and (n) of this section) -

(A) no medicare supplemental policy may be certified by the

Secretary pursuant to subsection (a) of this section,

(B) no certification made pursuant to subsection (a) of this

section shall remain in effect, and

(C) no State regulatory program shall be found to meet (or to

continue to meet) the requirements of subsection (b)(1)(A) of

this section,

unless such policy meets (or such program provides for the

application of standards equal to or more stringent than) the

standards set forth in the amended NAIC Model Regulation or the

Federal model standards (as the case may be) by the date specified

in paragraph (1)(B) or (2)(B) (as the case may be).

(l) Transitional compliance with NAIC Model Transition Regulation;

"qualifying medicare supplemental policy" and "NAIC Model

Transition Regulation" defined

(1) Until the date specified in paragraph (3), in the case of a

qualifying medicare supplemental policy described in paragraph (2)

issued -

(A) before January 1, 1989, the policy is deemed to remain in

compliance with this section if the insurer issuing the policy

complies with the NAIC Model Transition Regulation (including

giving notices to subscribers and filing for premium adjustments

with the State as described in section 5.B. of such Regulation)

by January 1, 1989; or

(B) on or after January 1, 1989, the policy is deemed to be in

compliance with this section if the insurer issuing the policy

complies with the NAIC Model Transition Regulation before the

date of the sale of the policy.

(2) In paragraph (1), the term "qualifying medicare supplemental

policy" means a medicare supplemental policy -

(A) issued in a State which -

(i) has not adopted standards equal to or more stringent than

the NAIC Model Transition Regulation by January 1, 1989, and

(ii) has not adopted standards equal to or more stringent

than the amended NAIC Model Regulation (or Federal model

standards) by January 1, 1989; and

(B) which has been issued in compliance with this section (as

in effect on June 1, 1988).

(3)(A) The date specified in this paragraph is the earlier of -

(i) the first date a State adopts, after January 1, 1989,

standards equal to or more stringent than the NAIC Model

Transition Regulation or equal to or more stringent than the

amended NAIC Model Regulation (or Federal model standards), as

the case may be, or

(ii) the later of (I) the date specified in subsection

(k)(1)(B) or (k)(2)(B) of this section (as the case may be), or

(II) the date specified in subparagraph (B).

(B) In the case of a State which the Secretary identifies as -

(i) requiring State legislation (other than legislation

appropriating funds) in order for medicare supplemental policies

to meet standards described in subparagraph (A)(i), but

(ii) having a legislature which is not scheduled to meet in

1989 in a legislative session in which such legislation may be

considered,

the date specified in this subparagraph is the first day of the

first calendar quarter beginning after the close of the first

legislative session of the State legislature that begins on or

after January 1, 1989, and in which legislation described in clause

(i) may be considered. For purposes of the previous sentence, in

the case of a State that has a 2-year legislative session, each

year of such session shall be deemed to be a separate regular

session of the State legislature.

(4) In the case of a medicare supplemental policy in effect on

January 1, 1989, and offered in a State which, as of such date -

(A) has adopted standards equal to or more stringent than the

amended NAIC Model Regulation (or Federal model standards), but

(B) does not have in effect standards equal to or more

stringent than the NAIC Model Transition Regulation (or otherwise

requiring notice substantially the same as the notice required in

section 5.B. of such Regulation),

the policy shall not be deemed to meet the standards in subsection

(c) of this section unless each individual who is entitled to

benefits under this subchapter and is a policyholder under such

policy on January 1, 1989, is sent such a notice in any appropriate

form by not later than January 31, 1989, that explains -

(A) the improved benefits under this subchapter contained in

the Medicare Catastrophic Coverage Act of 1988, and

(B) how these improvements affect the benefits contained in the

policies and the premium for the policy.

(5) In this subsection, the term "NAIC Model Transition

Regulation" refers to the standards contained in the "Model

Regulation to Implement Transitional Requirements for the

Conversion of Medicare Supplement Insurance Benefits and Premiums

to Conform to Medicare Program Revisions" (as adopted by the

National Association of Insurance Commissioners in September 1987).

(m) Revision of amended NAIC Model Regulation and amended Federal

model standards; effective dates; medicare supplemental policy

and State regulatory program meeting applicable standards

(1)(A) If, within the 90-day period beginning on December 13,

1989, the National Association of Insurance Commissioners (in this

subsection and subsection (n) of this section referred to as the

"Association") revises the amended NAIC Model Regulation (referred

to in subsection (k)(1)(A) of this section and adopted on September

20, 1988) to improve such regulation and otherwise to reflect the

changes in law made by the Medicare Catastrophic Coverage Repeal

Act of 1989, subsection (g)(2)(A) of this section shall be applied

in a State, effective on and after the date specified in

subparagraph (B), as if the reference to the Model Regulation

adopted on June 6, 1979, were a reference to the amended NAIC Model

Regulation (referred to in subsection (k)(1)(A) of this section) as

revised by the Association in accordance with this paragraph (in

this subsection and subsection (n) of this section referred to as

the "revised NAIC Model Regulation").

(B) The date specified in this subparagraph for a State is the

earlier of the date the State adopts standards equal to or more

stringent than the revised NAIC Model Regulation or 1 year after

the date the Association first adopts such revised Regulation.

(2)(A) If the Association does not revise the amended NAIC Model

Regulation, within the 90-day period specified in paragraph (1)(A),

the Secretary shall promulgate, not later than 60 days after the

end of such period, revised Federal model standards (in this

subsection and subsection (n) of this section referred to as

"revised Federal model standards") for medicare supplemental

policies to improve such standards and otherwise to reflect the

changes in law made by the Medicare Catastrophic Coverage Repeal

Act of 1989, subsection (g)(2)(A) of this section shall be applied

in a State, effective on and after the date specified in

subparagraph (B), as if the reference to the Model Regulation

adopted on June 6, 1979, were a reference to the revised Federal

model standards.

(B) The date specified in this subparagraph for a State is the

earlier of the date the State adopts standards equal to or more

stringent than the revised Federal model standards or 1 year after

the date the Secretary first promulgates such standards.

(3) Notwithstanding any other provision of this section (except

as provided in subsection (n) of this section) -

(A) no medicare supplemental policy may be certified by the

Secretary pursuant to subsection (a) of this section,

(B) no certification made pursuant to subsection (a) of this

section shall remain in effect, and

(C) no State regulatory program shall be found to meet (or to

continue to meet) the requirements of subsection (b)(1)(A) of

this section,

unless such policy meets (or such program provides for the

application of standards equal to or more stringent than) the

standards set forth in the revised NAIC Model Regulation or the

revised Federal model standards (as the case may be) by the date

specified in paragraph (1)(B) or (2)(B) (as the case may be).

(n) Transition compliance with revision of NAIC Model Regulation

and Federal model standards

(1) Until the date specified in paragraph (4), in the case of a

qualifying medicare supplemental policy described in paragraph (3)

issued in a State -

(A) before the transition deadline, the policy is deemed to

remain in compliance with the standards described in subsection

(b)(1)(A) of this section only if the insurer issuing the policy

complies with the transition provision described in paragraph

(2), or

(B) on or after the transition deadline, the policy is deemed

to be in compliance with the standards described in subsection

(b)(1)(A) of this section only if the insurer issuing the policy

complies with the revised NAIC Model Regulation or the revised

Federal model standards (as the case may be) before the date of

the sale of the policy.

In this paragraph, the term "transition deadline" means 1 year

after the date the Association adopts the revised NAIC Model

Regulation or 1 year after the date the Secretary promulgates

revised Federal model standards (as the case may be).

(2) The transition provision described in this paragraph is -

(A) such transition provision as the Association provides, by

not later than December 15, 1989, so as to provide for an

appropriate transition (i) to restore benefit provisions which

are no longer duplicative as a result of the changes in benefits

under this subchapter made by the Medicare Catastrophic Coverage

Repeal Act of 1989 and (ii) to eliminate the requirement of

payment for the first 8 days of coinsurance for extended care

services, or

(B) if the Association does not provide for a transition

provision by the date described in subparagraph (A), such

transition provision as the Secretary shall provide, by January

1, 1990, so as to provide for an appropriate transition described

in subparagraph (A).

(3) In paragraph (1), the term "qualifying medicare supplemental

policy" means a medicare supplemental policy which has been issued

in compliance with this section as in effect on the date before

December 13, 1989.

(4)(A) The date specified in this paragraph for a policy issued

in a State is -

(i) the first date a State adopts, after December 13, 1989,

standards equal to or more stringent than the revised NAIC Model

Regulation (or revised Federal model standards), as the case may

be, or

(ii) the date specified in subparagraph (B),

whichever is earlier.

(B) In the case of a State which the Secretary identifies, in

consultation with the Association, as -

(i) requiring State legislation (other than legislation

appropriating funds) in order for medicare supplemental policies

to meet standards described in subparagraph (A)(i), but

(ii) having a legislature which is not scheduled to meet in

1990 in a legislative session in which such legislation may be

considered,

the date specified in this subparagraph is the first day of the

first calendar quarter beginning after the close of the first

legislative session of the State legislature that begins on or

after January 1, 1990. For purposes of the previous sentence, in

the case of a State that has a 2-year legislative session, each

year of such session shall be deemed to be a separate regular

session of the State legislature.

(5) In the case of a medicare supplemental policy in effect on

January 1, 1990, the policy shall not be deemed to meet the

standards in subsection (c) of this section unless each individual

who is entitled to benefits under this subchapter and is a

policyholder or certificate holder under such policy on such date

is sent a notice in an appropriate form by not later than January

31, 1990, that explains -

(A) the changes in benefits under this subchapter effected by

the Medicare Catastrophic Coverage Repeal Act of 1989, and

(B) how these changes may affect the benefits contained in such

policy and the premium for the policy.

(6)(A) Except as provided in subparagraph (B), in the case of an

individual who had in effect, as of December 31, 1988, a medicare

supplemental policy with an insurer (as a policyholder or, in the

case of a group policy, as a certificate holder) and the individual

terminated coverage under such policy before December 13, 1989, no

medicare supplemental policy of the insurer shall be deemed to meet

the standards in subsection (c) of this section unless the insurer

-

(i) provides written notice, no earlier than December 15, 1989,

and no later than January 30, 1990, to the policyholder or

certificate holder (at the most recent available address) of the

offer described in clause (ii), and

(ii) offers the individual, during a period of at least 60 days

beginning not later than February 1, 1990, reinstitution of

coverage (with coverage effective as of January 1, 1990), under

the terms which (I) do not provide for any waiting period with

respect to treatment of pre-existing conditions, (II) provides

for coverage which is substantially equivalent to coverage in

effect before the date of such termination, and (III) provides

for classification of premiums on which terms are at least as

favorable to the policyholder or certificate holder as the

premium classification terms that would have applied to the

policyholder or certificate holder had the coverage never

terminated.

(B) An insurer is not required to make the offer under

subparagraph (A)(ii) in the case of an individual who is a

policyholder or certificate holder in another medicare supplemental

policy as of December 13, 1989, if (as of January 1, 1990) the

individual is not subject to a waiting period with respect to

treatment of a pre-existing condition under such other policy.

(o) Requirements of group benefits; core group benefits; uniform

outline of coverage

The requirements of this subsection are as follows:

(1) Each medicare supplemental policy shall provide for

coverage of a group of benefits consistent with subsection (p) of

this section.

(2) If the medicare supplemental policy provides for coverage

of a group of benefits other than the core group of basic

benefits described in subsection (p)(2)(B) of this section, the

issuer of the policy must make available to the individual a

medicare supplemental policy with only such core group of basic

benefits.

(3) The issuer of the policy has provided, before the sale of

the policy, an outline of coverage that uses uniform language and

format (including layout and print size) that facilitates

comparison among medicare supplemental policies and comparison

with medicare benefits.

(p) Standards for group benefits

(1)(A) If, within 9 months after November 5, 1990, the National

Association of Insurance Commissioners (in this subsection referred

to as the "Association") changes the revised NAIC Model Regulation

(described in subsection (m) of this section) to incorporate -

(i) limitations on the groups or packages of benefits that may

be offered under a medicare supplemental policy consistent with

paragraphs (2) and (3) of this subsection,

(ii) uniform language and definitions to be used with respect

to such benefits,

(iii) uniform format to be used in the policy with respect to

such benefits, and

(iv) other standards to meet the additional requirements

imposed by the amendments made by the Omnibus Budget

Reconciliation Act of 1990,

subsection (g)(2)(A) of this section shall be applied in each

State, effective for policies issued to policyholders on and after

the date specified in subparagraph (C), as if the reference to the

Model Regulation adopted on June 6, 1979, were a reference to the

revised NAIC Model Regulation as changed under this subparagraph

(such changed regulation referred to in this section as the "1991

NAIC Model Regulation").

(B) If the Association does not make the changes in the revised

NAIC Model Regulation within the 9-month period specified in

subparagraph (A), the Secretary shall promulgate, not later than 9

months after the end of such period, a regulation and subsection

(g)(2)(A) of this section shall be applied in each State, effective

for policies issued to policyholders on and after the date

specified in subparagraph (C), as if the reference to the Model

Regulation adopted on June 6, 1979, were a reference to the revised

NAIC Model Regulation as changed by the Secretary under this

subparagraph (such changed regulation referred to in this section

as the "1991 Federal Regulation").

(C)(i) Subject to clause (ii), the date specified in this

subparagraph for a State is the date the State adopts the 1991 NAIC

Model Regulation or 1991 Federal Regulation or 1 year after the

date the Association or the Secretary first adopts such standards,

whichever is earlier.

(ii) In the case of a State which the Secretary identifies, in

consultation with the Association, as -

(I) requiring State legislation (other than legislation

appropriating funds) in order for medicare supplemental policies

to meet the 1991 NAIC Model Regulation or 1991 Federal

Regulation, but

(II) having a legislature which is not scheduled to meet in

1992 in a legislative session in which such legislation may be

considered,

the date specified in this subparagraph is the first day of the

first calendar quarter beginning after the close of the first

legislative session of the State legislature that begins on or

after January 1, 1992. For purposes of the previous sentence, in

the case of a State that has a 2-year legislative session, each

year of such session shall be deemed to be a separate regular

session of the State legislature.

(D) In promulgating standards under this paragraph, the

Association or Secretary shall consult with a working group

composed of representatives of issuers of medicare supplemental

policies, consumer groups, medicare beneficiaries, and other

qualified individuals. Such representatives shall be selected in a

manner so as to assure balanced representation among the interested

groups.

(E) If benefits (including deductibles and coinsurance) under

this subchapter are changed and the Secretary determines, in

consultation with the Association, that changes in the 1991 NAIC

Model Regulation or 1991 Federal Regulation are needed to reflect

such changes, the preceding provisions of this paragraph shall

apply to the modification of standards previously established in

the same manner as they applied to the original establishment of

such standards.

(2) The benefits under the 1991 NAIC Model Regulation or 1991

Federal Regulation shall provide -

(A) for such groups or packages of benefits as may be

appropriate taking into account the considerations specified in

paragraph (3) and the requirements of the succeeding

subparagraphs;

(B) for identification of a core group of basic benefits common

to all policies,(!4) and

(C) that, subject to paragraph (4)(B), the total number of

different benefit packages (counting the core group of basic

benefits described in subparagraph (B) and each other combination

of benefits that may be offered as a separate benefit package)

that may be established in all the States and by all issuers

shall not exceed 10 plus the 2 plans described in paragraph

(11)(A).

(3) The benefits under paragraph (2) shall, to the extent

possible -

(A) provide for benefits that offer consumers the ability to

purchase the benefits that are available in the market as of

November 5, 1990; and

(B) balance the objectives of (i) simplifying the market to

facilitate comparisons among policies, (ii) avoiding adverse

selection, (iii) providing consumer choice, (iv) providing market

stability, and (v) promoting competition.

(4)(A)(i) Except as provided in subparagraph (B) or paragraph

(6), no State with a regulatory program approved under subsection

(b)(1) of this section may provide for or permit the grouping of

benefits (or language or format with respect to such benefits)

under a medicare supplemental policy unless such grouping meets the

applicable 1991 NAIC Model Regulation or 1991 Federal Regulation.

(ii) Except as provided in subparagraph (B), the Secretary may

not provide for or permit the grouping of benefits (or language or

format with respect to such benefits) under a medicare supplemental

policy seeking approval by the Secretary unless such grouping meets

the applicable 1991 NAIC Model Regulation or 1991 Federal

Regulation.

(B) With the approval of the State (in the case of a policy

issued in a State with an approved regulatory program) or the

Secretary (in the case of any other policy), the issuer of a

medicare supplemental policy may offer new or innovative benefits

in addition to the benefits provided in a policy that otherwise

complies with the applicable 1991 NAIC Model Regulation or 1991

Federal Regulation. Any such new or innovative benefits may include

benefits that are not otherwise available and are cost-effective

and shall be offered in a manner which is consistent with the goal

of simplification of medicare supplemental policies.

(5)(A) Except as provided in subparagraph (B), this subsection

shall not be construed as preventing a State from restricting the

groups of benefits that may be offered in medicare supplemental

policies in the State.

(B) A State with a regulatory program approved under subsection

(b)(1) of this section may not restrict under subparagraph (A) the

offering of a medicare supplemental policy consisting only of the

core group of benefits described in paragraph (2)(B).

(6) The Secretary may waive the application of standards

described in clauses (i) through (iii) of paragraph (1)(A) in those

States that on November 5, 1990, had in place an alternative

simplification program.

(7) This subsection shall not be construed as preventing an

issuer of a medicare supplemental policy who otherwise meets the

requirements of this section from providing, through an arrangement

with a vendor, for discounts from that vendor to policyholders or

certificateholders for the purchase of items or services not

covered under its medicare supplemental policies.

(8) Any person who sells or issues a medicare supplemental

policy, on and after the effective date specified in paragraph

(1)(C) (but subject to paragraph (10)), in violation of the

applicable 1991 NAIC Model Regulation or 1991 Federal Regulation

insofar as such regulation relates to the requirements of

subsection (o) or (q) of this section or clause (i), (ii), or (iii)

of paragraph (1)(A) is subject to a civil money penalty of not to

exceed $25,000 (or $15,000 in the case of a seller who is not an

issuer of a policy) for each such violation. The provisions of

section 1320a-7a of this title (other than the first sentence of

subsection (a) and other than subsection (b)) shall apply to a

civil money penalty under the previous sentence in the same manner

as such provisions apply to a penalty or proceeding under section

1320a-7a(a) of this title.

(9)(A) Anyone who sells a medicare supplemental policy to an

individual shall make available for sale to the individual a

medicare supplemental policy with only the core group of basic

benefits (described in paragraph (2)(B)).

(B) Anyone who sells a medicare supplemental policy to an

individual shall provide the individual, before the sale of the

policy, an outline of coverage which describes the benefits under

the policy. Such outline shall be on a standard form approved by

the State regulatory program or the Secretary (as the case may be)

consistent with the 1991 NAIC Model Regulation or 1991 Federal

Regulation under this subsection.

(C) Whoever sells a medicare supplemental policy in violation of

this paragraph is subject to a civil money penalty of not to exceed

$25,000 (or $15,000 in the case of a seller who is not the issuer

of the policy) for each such violation. The provisions of section

1320a-7a of this title (other than the first sentence of subsection

(a) and other than subsection (b)) shall apply to a civil money

penalty under the previous sentence in the same manner as such

provisions apply to a penalty or proceeding under section

1320a-7a(a) of this title.

(D) Subject to paragraph (10), this paragraph shall apply to

sales of policies occurring on or after the effective date

specified in paragraph (1)(C).

(10) No penalty may be imposed under paragraph (8) or (9) in the

case of a seller who is not the issuer of a policy until the

Secretary has published a list of the groups of benefit packages

that may be sold or issued consistent with paragraph (1)(A)(i).

(11)(A) For purposes of paragraph (2), the benefit packages

described in this subparagraph are as follows:

(i) The benefit package classified as "F" under the standards

established by such paragraph, except that it has a high

deductible feature.

(ii) The benefit package classified as "J" under the standards

established by such paragraph, except that it has a high

deductible feature.

(B) For purposes of subparagraph (A), a high deductible feature

is one which -

(i) requires the beneficiary of the policy to pay annual

out-of-pocket expenses (other than premiums) in the amount

specified in subparagraph (C) before the policy begins payment of

benefits, and

(ii) covers 100 percent of covered out-of-pocket expenses once

such deductible has been satisfied in a year.

(C) The amount specified in this subparagraph -

(i) for 1998 and 1999 is $1,500, and

(ii) for a subsequent year, is the amount specified in this

subparagraph for the previous year increased by the percentage

increase in the Consumer Price Index for all urban consumers (all

items; U.S. city average) for the 12-month period ending with

August of the preceding year.

If any amount determined under clause (ii) is not a multiple of

$10, it shall be rounded to the nearest multiple of $10.

(q) Guaranteed renewal of policies; termination; suspension

The requirements of this subsection are as follows:

(1) Each medicare supplemental policy shall be guaranteed

renewable and -

(A) the issuer may not cancel or nonrenew the policy solely

on the ground of health status of the individual; and

(B) the issuer shall not cancel or nonrenew the policy for

any reason other than nonpayment of premium or material

misrepresentation.

(2) If the medicare supplemental policy is terminated by the

group policyholder and is not replaced as provided under

paragraph (4), the issuer shall offer certificateholders an

individual medicare supplemental policy which (at the option of

the certificateholder) -

(A) provides for continuation of the benefits contained in

the group policy, or

(B) provides for such benefits as otherwise meets (!5) the

requirements of this section.

(3) If an individual is a certificateholder in a group medicare

supplemental policy and the individual terminates membership in

the group, the issuer shall -

(A) offer the certificateholder the conversion opportunity

described in paragraph (2), or

(B) at the option of the group policyholder, offer the

certificateholder continuation of coverage under the group

policy.

(4) If a group medicare supplemental policy is replaced by

another group medicare supplemental policy purchased by the same

policyholder, issuer (!6) of the replacement policy shall offer

coverage to all persons covered under the old group policy on its

date of termination. Coverage under the new group policy shall

not result in any exclusion for preexisting conditions that would

have been covered under the group policy being replaced.

(5)(A) Each medicare supplemental policy shall provide that

benefits and premiums under the policy shall be suspended at the

request of the policyholder for the period (not to exceed 24

months) in which the policyholder has applied for and is

determined to be entitled to medical assistance under subchapter

XIX of this chapter, but only if the policyholder notifies the

issuer of such policy within 90 days after the date the

individual becomes entitled to such assistance. If such

suspension occurs and if the policyholder or certificate holder

loses entitlement to such medical assistance, such policy shall

be automatically reinstituted (effective as of the date of

termination of such entitlement) under terms described in

subsection (n)(6)(A)(ii) of this section as of the termination of

such entitlement if the policyholder provides notice of loss of

such entitlement within 90 days after the date of such loss.

(B) Nothing in this section shall be construed as affecting the

authority of a State, under subchapter XIX of this chapter, to

purchase a medicare supplemental policy for an individual

otherwise entitled to assistance under such subchapter.

(C) Any person who issues a medicare supplemental policy and

fails to comply with the requirements of this paragraph or

paragraph (6) is subject to a civil money penalty of not to

exceed $25,000 for each such violation. The provisions of section

1320a-7a of this title (other than the first sentence of

subsection (a) and other than subsection (b)) shall apply to a

civil money penalty under the previous sentence in the same

manner as such provisions apply to a penalty or proceeding under

section 1320a-7a(a) of this title.

(6) Each medicare supplemental policy shall provide that

benefits and premiums under the policy shall be suspended at the

request of the policyholder if the policyholder is entitled to

benefits under section 426(b) of this title and is covered under

a group health plan (as defined in section 1395y(b)(1)(A)(v) of

this title). If such suspension occurs and if the policyholder or

certificate holder loses coverage under the group health plan,

such policy shall be automatically reinstituted (effective as of

the date of such loss of coverage) under terms described in

subsection (n)(6)(A)(ii) of this section as of the loss of such

coverage if the policyholder provides notice of loss of such

coverage within 90 days after the date of such loss.

(r) Required ratio of aggregate benefits to aggregate premiums

(1) A medicare supplemental policy may not be issued or renewed

(or otherwise provide coverage after the date described in

subsection (p)(1)(C) of this section) in any State unless -

(A) the policy can be expected for periods after the effective

date of these provisions (as estimated for the entire period for

which rates are computed to provide coverage, on the basis of

incurred claims experience and earned premiums for such periods

and in accordance with a uniform methodology, including uniform

reporting standards, developed by the National Association of

Insurance Commissioners) to return to policyholders in the form

of aggregate benefits provided under the policy, at least 75

percent of the aggregate amount of premiums collected in the case

of group policies and at least 65 percent in the case of

individual policies; and

(B) the issuer of the policy provides for the issuance of a

proportional refund, or a credit against future premiums of a

proportional amount, based on the premium paid and in accordance

with paragraph (2), of the amount of premiums received necessary

to assure that the ratio of aggregate benefits provided to the

aggregate premiums collected (net of such refunds or credits)

complies with the expectation required under subparagraph (A),

treating policies of the same type as a single policy for each

standard package.

For purposes of applying subparagraph (A) only, policies issued as

a result of solicitations of individuals through the mails or by

mass media advertising (including both print and broadcast

advertising) shall be deemed to be individual policies. For the

purpose of calculating the refund or credit required under

paragraph (1)(B) for a policy issued before the date specified in

subsection (p)(1)(C) of this section, the refund or credit

calculation shall be based on the aggregate benefits provided and

premiums collected under all such policies issued by an insurer in

a State (separated as to individual and group policies) and shall

be based only on aggregate benefits provided and premiums collected

under such policies after the date specified in section 171(m)(4)

of the Social Security Act Amendments of 1994.

(2)(A) Paragraph (1)(B) shall be applied with respect to each

type of policy by standard package. Paragraph (1)(B) shall not

apply to a policy until 12 months following issue. The Comptroller

General, in consultation with the National Association of Insurance

Commissioners, shall submit to Congress a report containing

recommendations on adjustment in the percentages under paragraph

(1)(A) that may be appropriate. In the case of a policy issued

before the date specified in subsection (p)(1)(C) of this section,

paragraph (1)(B) shall not apply until 1 year after the date

specified in section 171(m)(4) of the Social Security Act

Amendments of 1994.

(B) A refund or credit required under paragraph (1)(B) shall be

made to each policyholder insured under the applicable policy as of

the last day of the year involved.

(C) Such a refund or credit shall include interest from the end

of the calendar year involved until the date of the refund or

credit at a rate as specified by the Secretary for this purpose

from time to time which is not less than the average rate of

interest for 13-week Treasury notes.

(D) For purposes of this paragraph and paragraph (1)(B), refunds

or credits against premiums due shall be made, with respect to a

calendar year, not later than the third quarter of the succeeding

calendar year.

(3) The provisions of this subsection do not preempt a State from

requiring a higher percentage than that specified in paragraph

(1)(A).

(4) The Secretary shall submit in October of each year (beginning

with 1993) a report to the Committees on Energy and Commerce and

Ways and Means of the House of Representatives and the Committee on

Finance of the Senate on loss ratios under medicare supplemental

policies and the use of sanctions, such as a required rebate or

credit or the disallowance of premium increases, for policies that

fail to meet the requirements of this subsection (relating to loss

ratios). Such report shall include a list of the policies that

failed to comply with such loss ratio requirements or other

requirements of this section.

(5)(A) The Comptroller General shall periodically, not less often

than once every 3 years, perform audits with respect to the

compliance of medicare supplemental policies with the loss ratio

requirements of this subsection and shall report the results of

such audits to the State involved and to the Secretary.

(B) The Secretary may independently perform such compliance

audits.

(6)(A) A person who fails to provide refunds or credits as

required in paragraph (1)(B) is subject to a civil money penalty of

not to exceed $25,000 for each policy issued for which such failure

occurred. The provisions of section 1320a-7a of this title (other

than the first sentence of subsection (a) and other than subsection

(b)) shall apply to a civil money penalty under the previous

sentence in the same manner as such provisions apply to a penalty

or proceeding under section 1320a-7a(a) of this title.

(B) Each issuer of a policy subject to the requirements of

paragraph (1)(B) shall be liable to the policyholder or, in the

case of a group policy, to the certificate holder for credits

required under such paragraph.

(s) Coverage for pre-existing conditions

(1) If a medicare supplemental policy replaces another medicare

supplemental policy, the issuer of the replacing policy shall waive

any time periods applicable to preexisting conditions, waiting

period, elimination periods and probationary periods in the new

medicare supplemental policy for similar benefits to the extent

such time was spent under the original policy.

(2)(A) The issuer of a medicare supplemental policy may not deny

or condition the issuance or effectiveness of a medicare

supplemental policy, or discriminate in the pricing of the policy,

because of health status, claims experience, receipt of health

care, or medical condition in the case of an individual for whom an

application is submitted prior to or during the 6 month period

beginning with the first month as of the first day on which the

individual is 65 years of age or older and is enrolled for benefits

under part B of this subchapter.

(B) Subject to subparagraphs (C) and (D), subparagraph (A) shall

not be construed as preventing the exclusion of benefits under a

policy, during its first 6 months, based on a pre-existing

condition for which the policyholder received treatment or was

otherwise diagnosed during the 6 months before the policy became

effective.

(C) If a medicare supplemental policy or certificate replaces

another such policy or certificate which has been in effect for 6

months or longer, the replacing policy may not provide any time

period applicable to pre-existing conditions, waiting periods,

elimination periods, and probationary periods in the new policy or

certificate for similar benefits.

(D) In the case of a policy issued during the 6-month period

described in subparagraph (A) to an individual who is 65 years of

age or older as of the date of issuance and who as of the date of

the application for enrollment has a continuous period of

creditable coverage (as defined in section 300gg(c) of this title)

of -

(i) at least 6 months, the policy may not exclude benefits

based on a pre-existing condition; or

(ii) less than 6 months, if the policy excludes benefits based

on a preexisting condition, the policy shall reduce the period of

any preexisting condition exclusion by the aggregate of the

periods of creditable coverage (if any, as so defined) applicable

to the individual as of the enrollment date.

The Secretary shall specify the manner of the reduction under

clause (ii), based upon the rules used by the Secretary in carrying

out section 300gg(a)(3) of this title.

(3)(A) The issuer of a medicare supplemental policy -

(i) may not deny or condition the issuance or effectiveness of

a medicare supplemental policy described in subparagraph (C) that

is offered and is available for issuance to new enrollees by such

issuer;

(ii) may not discriminate in the pricing of such policy,

because of health status, claims experience, receipt of health

care, or medical condition; and

(iii) may not impose an exclusion of benefits based on a

pre-existing (!9) condition under such policy,

in the case of an individual described in subparagraph (B) who

seeks to enroll under the policy during the period specified in

subparagraph (E) and who submits evidence of the date of

termination or disenrollment along with the application for such

medicare supplemental policy.

(B) An individual described in this subparagraph is an individual

described in any of the following clauses:

(i) The individual is enrolled under an employee welfare

benefit plan that provides health benefits that supplement the

benefits under this subchapter and the plan terminates or ceases

to provide all such supplemental health benefits to the

individual.

(ii) The individual is enrolled with a Medicare+Choice

organization under a Medicare+Choice plan under part C of this

subchapter, and there are circumstances permitting discontinuance

of the individual's election of the plan under the first sentence

of section 1395w-21(e)(4) of this title or the individual is 65

years of age or older and is enrolled with a PACE provider under

section 1395eee of this title, and there are circumstances that

would permit the discontinuance of the individual's enrollment

with such provider under circumstances that are similar to the

circumstances that would permit discontinuance of the

individual's election under the first sentence of such section if

such individual were enrolled in a Medicare+Choice plan.

(iii) The individual is enrolled with an eligible organization

under a contract under section 1395mm of this title, a similar

organization operating under demonstration project authority,

effective for periods before April 1, 1999, with an organization

under an agreement under section 1395l(a)(1)(A) of this title, or

with an organization under a policy described in subsection (t)

of this section, and such enrollment ceases under the same

circumstances that would permit discontinuance of an individual's

election of coverage under the first sentence of section

1395w-21(e)(4) of this title and, in the case of a policy

described in subsection (t) of this section, there is no

provision under applicable State law for the continuation or

conversion of coverage under such policy.

(iv) The individual is enrolled under a medicare supplemental

policy under this section and such enrollment ceases because -

(I) of the bankruptcy or insolvency of the issuer or because

of other involuntary termination of coverage or enrollment

under such policy and there is no provision under applicable

State law for the continuation or conversion of such coverage;

(II) the issuer of the policy substantially violated a

material provision of the policy; or

(III) the issuer (or an agent or other entity acting on the

issuer's behalf) materially misrepresented the policy's

provisions in marketing the policy to the individual.

(v) The individual -

(I) was enrolled under a medicare supplemental policy under

this section,

(II) subsequently terminates such enrollment and enrolls, for

the first time, with any Medicare+Choice organization under a

Medicare+Choice plan under part C of this subchapter, any

eligible organization under a contract under section 1395mm of

this title, any similar organization operating under

demonstration project authority, any PACE provider under

section 1395eee of this title, or any policy described in

subsection (t) of this section, and

(III) the subsequent enrollment under subclause (II) is

terminated by the enrollee during any period within the first

12 months of such enrollment (during which the enrollee is

permitted to terminate such subsequent enrollment under section

1395w-21(e) of this title).

(vi) The individual, upon first becoming eligible for benefits

under part A of this subchapter at age 65, enrolls in a

Medicare+ÐChoice plan under part C of this subchapter or in a

PACE program under section 1395eee of this title, and disenrolls

from such plan or such program by not later than 12 months after

the effective date of such enrollment.

(C)(i) Subject to clauses (ii) and (iii), a medicare supplemental

policy described in this subparagraph is a medicare supplemental

policy which has a benefit package classified as "A", "B", "C", or

"F" under the standards established under subsection (p)(2) of this

section.

(ii) Only for purposes of an individual described in subparagraph

(B)(v), a medicare supplemental policy described in this

subparagraph is the same medicare supplemental policy referred to

in such subparagraph in which the individual was most recently

previously enrolled, if available from the same issuer, or, if not

so available, a policy described in clause (i).

(iii) Only for purposes of an individual described in

subparagraph (B)(vi), a medicare supplemental policy described in

this subparagraph shall include any medicare supplemental policy.

(iv) For purposes of applying this paragraph in the case of a

State that provides for offering of benefit packages other than

under the classification referred to in clause (i), the references

to benefit packages in such clause are deemed references to

comparable benefit packages offered in such State.

(D) At the time of an event described in subparagraph (B) because

of which an individual ceases enrollment or loses coverage or

benefits under a contract or agreement, policy, or plan, the

organization that offers the contract or agreement, the insurer

offering the policy, or the administrator of the plan,

respectively, shall notify the individual of the rights of the

individual under this paragraph, and obligations of issuers of

medicare supplemental policies, under subparagraph (A).

(E) For purposes of subparagraph (A), the time period specified

in this subparagraph is -

(i) in the case of an individual described in subparagraph

(B)(i), the period beginning on the date the individual receives

a notice of termination or cessation of all supplemental health

benefits (or, if no such notice is received, notice that a claim

has been denied because of such a termination or cessation) and

ending on the date that is 63 days after the applicable notice;

(ii) in the case of an individual described in clause (ii),

(iii), (v), or (vi) of subparagraph (B) whose enrollment is

terminated involuntarily, the period beginning on the date that

the individual receives a notice of termination and ending on the

date that is 63 days after the date the applicable coverage is

terminated;

(iii) in the case of an individual described in subparagraph

(B)(iv)(I), the period beginning on the earlier of (I) the date

that the individual receives a notice of termination, a notice of

the issuer's bankruptcy or insolvency, or other such similar

notice, if any, and (II) the date that the applicable coverage is

terminated, and ending on the date that is 63 days after the date

the coverage is terminated;

(iv) in the case of an individual described in clause (ii),

(iii), (iv)(II), (iv)(III), (v), or (vi) of subparagraph (B) who

disenrolls voluntarily, the period beginning on the date that is

60 days before the effective date of the disenrollment and ending

on the date that is 63 days after such effective date; and

(v) in the case of an individual described in subparagraph (B)

but not described in the preceding provisions of this

subparagraph, the period beginning on the effective date of the

disenrollment and ending on the date that is 63 days after such

effective date.

(F)(i) Subject to clause (ii), for purposes of this paragraph -

(I) in the case of an individual described in subparagraph

(B)(v) (or deemed to be so described, pursuant to this

subparagraph) whose enrollment with an organization or provider

described in subclause (II) of such subparagraph is involuntarily

terminated within the first 12 months of such enrollment, and

who, without an intervening enrollment, enrolls with another such

organization or provider, such subsequent enrollment shall be

deemed to be an initial enrollment described in such

subparagraph; and

(II) in the case of an individual described in clause (vi) of

subparagraph (B) (or deemed to be so described, pursuant to this

subparagraph) whose enrollment with a plan or in a program

described in such clause is involuntarily terminated within the

first 12 months of such enrollment, and who, without an

intervening enrollment, enrolls in another such plan or program,

such subsequent enrollment shall be deemed to be an initial

enrollment described in such clause.

(ii) For purposes of clauses (v) and (vi) of subparagraph (B), no

enrollment of an individual with an organization or provider

described in clause (v)(II), or with a plan or in a program

described in clause (vi), may be deemed to be an initial enrollment

under this clause after the 2-year period beginning on the date on

which the individual first enrolled with such an organization,

provider, plan, or program.

(4) Any issuer of a medicare supplemental policy that fails to

meet the requirements of this subsection is subject to a civil

money penalty of not to exceed $5,000 for each such failure. The

provisions of section 1320a-7a of this title (other than the first

sentence of subsection (a) and other than subsection (b)) shall

apply to a civil money penalty under the previous sentence in the

same manner as such provisions apply to a penalty or proceeding

under section 1320a-7a(a) of this title.

(t) Medicare select policies

(1) If a medicare supplemental policy meets the 1991 NAIC Model

Regulation or 1991 Federal Regulation and otherwise complies with

the requirements of this section except that benefits under the

policy are restricted to items and services furnished by certain

entities (or reduced benefits are provided when items or services

are furnished by other entities), the policy shall nevertheless be

treated as meeting those standards if -

(A) full benefits are provided for items and services furnished

through a network of entities which have entered into contracts

or agreements with the issuer of the policy;

(B) full benefits are provided for items and services furnished

by other entities if the services are medically necessary and

immediately required because of an unforeseen illness, injury, or

condition and it is not reasonable given the circumstances to

obtain the services through the network;

(C) the network offers sufficient access;

(D) the issuer of the policy has arrangements for an ongoing

quality assurance program for items and services furnished

through the network;

(E)(i) the issuer of the policy provides to each enrollee at

the time of enrollment an explanation of (I) the restrictions on

payment under the policy for services furnished other than by or

through the network, (II) out of area coverage under the policy,

(III) the policy's coverage of emergency services and urgently

needed care, and (IV) the availability of a policy through the

entity that meets the standards in the 1991 NAIC Model Regulation

or 1991 Federal Regulation without reference to this subsection

and the premium charged for such policy, and

(ii) each enrollee prior to enrollment acknowledges receipt of

the explanation provided under clause (i); and

(F) the issuer of the policy makes available to individuals, in

addition to the policy described in this subsection, any policy

(otherwise offered by the issuer to individuals in the State)

that meets the standards in the 1991 NAIC Model Regulation or

1991 Federal Regulation and other requirements of this section

without reference to this subsection.

(2) If the Secretary determines that an issuer of a policy

approved under paragraph (1) -

(A) fails substantially to provide medically necessary items

and services to enrollees seeking such items and services through

the issuer's network, if the failure has adversely affected (or

has substantial likelihood of adversely affecting) the

individual,

(B) imposes premiums on enrollees in excess of the premiums

approved by the State,

(C) acts to expel an enrollee for reasons other than nonpayment

of premiums, or

(D) does not provide the explanation required under paragraph

(1)(E)(i) or does not obtain the acknowledgment required under

paragraph (1)(E)(ii),

the issuer is subject to a civil money penalty in an amount not to

exceed $25,000 for each such violation. The provisions of section

1320a-7a of this title (other than the first sentence of subsection

(a) and other than subsection (b)) shall apply to a civil money

penalty under the previous sentence in the same manner as such

provisions apply to a penalty or proceeding under section

1320a-7a(a) of this title.

(3) The Secretary may enter into a contract with an entity whose

policy has been certified under paragraph (1) or has been approved

by a State under subsection (b)(1)(H) of this section to determine

whether items and services (furnished to individuals entitled to

benefits under this subchapter and under that policy) are not

allowable under section 1395y(a)(1) of this title. Payments to the

entity shall be in such amounts as the Secretary may determine,

taking into account estimated savings under contracts with carriers

and fiscal intermediaries and other factors that the Secretary

finds appropriate. Paragraph (1), the first sentence of paragraph

(2)(A), paragraph (2)(B), paragraph (3)(C), paragraph (3)(D), and

paragraph (3)(E) of section 1395u(b) of this title shall apply to

the entity.

(u) Additional rules relating to individuals enrolled in MSA plans

and in private fee-for-service plans

(1) It is unlawful for a person to sell or issue a policy

described in paragraph (2) to an individual with knowledge that the

individual has in effect under section 1395w-21 of this title an

election of an MSA plan or a Medicare+Choice private

fee-for-service plan.

(2)(A) A policy described in this subparagraph is a health

insurance policy (other than a policy described in subparagraph

(B)) that provides for coverage of expenses that are otherwise

required to be counted toward meeting the annual deductible amount

provided under the MSA plan.

(B) A policy described in this subparagraph is any of the

following:

(i) A policy that provides coverage (whether through insurance

or otherwise) for accidents, disability, dental care, vision

care, or long-term care.

(ii) A policy of insurance to which substantially all of the

coverage relates to -

(I) liabilities incurred under workers' compensation laws,

(II) tort liabilities,

(III) liabilities relating to ownership or use of property,

or

(IV) such other similar liabilities as the Secretary may

specify by regulations.

(iii) A policy of insurance that provides coverage for a

specified disease or illness.

(iv) A policy of insurance that pays a fixed amount per day (or

other period) of hospitalization.

-SOURCE-

(Aug. 14, 1935, ch. 531, title XVIII, Sec. 1882, as added Pub. L.

96-265, title V, Sec. 507(a), June 9, 1980, 94 Stat. 476; amended

H. Res. 549, Mar. 25, 1980; Pub. L. 100-93, Sec. 13, Aug. 18, 1987,

101 Stat. 697; Pub. L. 100-203, title IV, Sec. 4081(b), Dec. 22,

1987, 101 Stat. 1330-127; Pub. L. 100-360, title II, Sec.

221(a)-(f), title IV, Secs. 411(i)(1)(B), (C), 428(b), July 1,

1988, 102 Stat. 742-746, 788, 817; Pub. L. 101-234, title II, Sec.

203(a)(1), Dec. 13, 1989, 103 Stat. 1982; Pub. L. 101-508, title

IV, Secs. 4207(k)(1), formerly 4027(k)(1), 4351, formerly 4351(a),

4352, 4353(a)-(d)(1), 4354(a), (b), 4355(a)-(c), 4356(a), 4357(a),

4358(a), (b)(1), (2), Nov. 5, 1990, 104 Stat. 1388-124, 1388-125,

1388-129, 1388-130, 1388-132, 1388-134 to 1388-137; Pub. L.

103-432, title I, Secs. 160(d)(4), 171(a)-(d)(3)(B), (4), (e)(1),

(2), (f)(1), (g), (h)(1), (j)(2), (k), Oct. 31, 1994, 108 Stat.

4444-4451; Pub. L. 104-191, title II, Sec. 271(a), (b), Aug. 21,

1996, 110 Stat. 2034-2036; Pub. L. 105-33, title IV, Secs.

4002(j)(2), 4003, 4031(a)-(c), 4032(a), Aug. 5, 1997, 111 Stat.

330, 355, 357, 359; Pub. L. 105-362, title VI, Sec. 601(b)(6), Nov.

10, 1998, 112 Stat. 3286; Pub. L. 106-113, div. B, Sec. 1000(a)(6)

[title III, Sec. 321(k)(13), (14), title V, Secs. 501(a)(2),

536(a)], Nov. 29, 1999, 113 Stat. 1536, 1501A-368, 1501A-378,

1501A-390; Pub. L. 106-170, title II, Sec. 205(a), Dec. 17, 1999,

113 Stat. 1899; Pub. L. 106-554, Sec. 1(a)(6) [title VI, Sec. 618],

Dec. 21, 2000, 114 Stat. 2763, 2763A-562.)

-REFTEXT-

REFERENCES IN TEXT

Parts A and B of this subchapter, referred to in subsecs.

(d)(3)(A)(i), (vi)(I), (viii)(II), (B)(i) and (s)(2)(A),

(3)(B)(vi), are classified to sections 1395c et seq. and 1395j et

seq., respectively, of this title.

Section 171(m) of the Social Security Act Amendments of 1994,

referred to in subsecs. (d)(3)(A)(vi)(IV) and (r)(1), (2)(A), is

section 171(m) of Pub. L. 103-432, title I, Oct. 31, 1994, 108

Stat. 4452, which is set out as a note below.

Section 603(c) of the Social Security Amendments of 1983,

referred to in subsec. (g)(1), is section 603(c) of Pub. L. 98-21,

title VI, Apr. 20, 1983, 97 Stat. 168, which was not classified to

the Code, and was repealed by Pub. L. 105-33, title IV, Sec.

4803(d), Aug. 5, 1997, 111 Stat. 550, subject to transition

provisions.

Section 2355 of the Deficit Reduction Act of 1984, referred to in

subsec. (g)(1), is section 2355 of Pub. L. 98-369, div. B, title

III, July 18, 1984, 98 Stat. 1103, which is not classified to the

Code.

Section 9412(b) of the Omnibus Budget Reconciliation Act of 1986,

referred to in subsec. (g)(1), is section 9412(b) of Pub. L.

99-509, title IX, Oct. 21, 1986, 100 Stat. 2062, which was not

classified to the Code, and was repealed by Pub. L. 105-33, title

IV, Sec. 4803(d), Aug. 5, 1997, 111 Stat. 550, subject to

transition provisions.

The Medicare Catastrophic Coverage Act of 1988, referred to in

subsecs. (k)(1)(A), (2)(A) and (l)(4)(A), is Pub. L. 100-360, July

1, 1988, 102 Stat. 683, as amended. For complete classification of

this Act to the Code, see Short Title of 1988 Amendment note set

out under section 1305 of this title and Tables.

The Medicare Catastrophic Coverage Repeal Act of 1989, referred

to in subsecs. (m)(1)(A), (2)(A) and (n)(2)(A), (5)(A), is Pub. L.

101-234, Dec. 13, 1989, 103 Stat. 1979. For complete classification

of this Act to the Code, see Short Title of 1989 Amendment note set

out under section 1305 of this title and Tables.

The Omnibus Budget Reconciliation Act of 1990, referred to in

subsec. (p)(1)(A)(iv), is Pub. L. 101-508, Nov. 5, 1990, 104 Stat.

1388. For complete classification of this Act to the Code, see

Tables.

Part C of this subchapter, referred to in subsec. (s)(3)(B)(ii),

(v)(II), (vi), is classified to section 1395w-21 et seq. of this

title.

-MISC1-

AMENDMENTS

2000 - Subsec. (s)(3)(A). Pub. L. 106-554, Sec. 1(a)(6) [title

VI, Sec. 618(a)(1)], in concluding provisions, substituted "seeks

to enroll under the policy during the period specified in

subparagraph (E)" for ", subject to subparagraph (E), seeks to

enroll under the policy not later than 63 days after the date of

the termination of enrollment described in such subparagraph".

Subsec. (s)(3)(E). Pub. L. 106-554, Sec. 1(a)(6) [title VI, Sec.

618(a)(2)], added subpar. (E) and struck out former subpar. (E)

which read as follows:

"(E)(i) An individual described in subparagraph (B)(ii) may elect

to apply subparagraph (A) by substituting, for the date of

termination of enrollment, the date on which the individual was

notified by the Medicare+Choice organization of the impending

termination or discontinuance of the Medicare+Choice plan it offers

in the area in which the individual resides, but only if the

individual disenrolls from the plan as a result of such

notification.

"(ii) In the case of an individual making such an election, the

issuer involved shall accept the application of the individual

submitted before the date of termination of enrollment, but the

coverage under subparagraph (A) shall only become effective upon

termination of coverage under the Medicare+Choice plan involved."

Subsec. (s)(3)(F). Pub. L. 106-554, Sec. 1(a)(6) [title VI, Sec.

618(b)], added subpar. (F).

1999 - Subsec. (g)(1). Pub. L. 106-113, Sec. 1000(a)(6) [title

III, Sec. 321(k)(13)], struck out "or" after "; but does not

include".

Subsec. (q)(5)(C). Pub. L. 106-170, Sec. 205(a)(1), inserted "or

paragraph (6)" after "this paragraph".

Subsec. (q)(6). Pub. L. 106-170, Sec. 205(a)(2), added par. (6).

Subsec. (s)(2)(D). Pub. L. 106-113, Sec. 1000(a)(6) [title III,

Sec. 321(k)(14)], inserted "section" after "(as defined in" in

introductory provisions.

Subsec. (s)(3)(A). Pub. L. 106-113, Sec. 1000(a)(6) [title V,

Sec. 501(a)(2)(A)], inserted ", subject to subparagraph (E)," after

"in the case of an individual described in subparagraph (B) who" in

concluding provisions.

Subsec. (s)(3)(B)(ii). Pub. L. 106-113, Sec. 1000(a)(6) [title V,

Sec. 536(a)(1)], inserted before period at end "or the individual

is 65 years of age or older and is enrolled with a PACE provider

under section 1395eee of this title, and there are circumstances

that would permit the discontinuance of the individual's enrollment

with such provider under circumstances that are similar to the

circumstances that would permit discontinuance of the individual's

election under the first sentence of such section if such

individual were enrolled in a Medicare+Choice plan".

Subsec. (s)(3)(B)(v)(II). Pub. L. 106-113, Sec. 1000(a)(6) [title

V, Sec. 536(a)(2)], inserted "any PACE provider under section

1395eee of this title," after "demonstration project authority,".

Subsec. (s)(3)(B)(vi). Pub. L. 106-113, Sec. 1000(a)(6) [title V,

Sec. 536(a)(3)], inserted "or in a PACE program under section

1395eee of this title" after "part C of this subchapter" and

substituted "such plan or such program" for "such plan".

Subsec. (s)(3)(E). Pub. L. 106-113, Sec. 1000(a)(6) [title V,

Sec. 501(a)(2)(B)], added subpar. (E).

1998 - Subsec. (l)(6). Pub. L. 105-362 struck out par. (6) which

read as follows: "The Secretary shall report to the Congress in

March 1989 and in July 1990 on actions States have taken in

adopting standards equal to or more stringent than the NAIC Model

Transition Regulation or the amended NAIC Model Regulation (or

Federal model standards)."

1997 - Subsec. (d)(3)(A)(i). Pub. L. 105-33, Sec. 4003(a)(1)(A),

inserted "(including an individual electing a Medicare+Choice plan

under section 1395w-21 of this title)" after "part B of this

subchapter" in introductory provisions.

Subsec. (d)(3)(A)(i)(II). Pub. L. 105-33, Sec. 4003(a)(1)(B),

inserted "in the case of an individual not electing a

Medicare+Choice plan" after "(II)" and inserted "or in the case of

an individual electing a Medicare+Choice plan, a medicare

supplemental policy with knowledge that the policy duplicates

health benefits to which the individual is otherwise entitled under

the Medicare+ÐChoice plan or under another medicare supplemental

policy" before comma at end.

Subsec. (d)(3)(A)(vi)(III). Pub. L. 105-33, Sec. 4031(c),

inserted ", a policy described in clause (v)," after "Medicare

supplemental policy".

Subsec. (d)(3)(B)(i)(I). Pub. L. 105-33, Sec. 4003(a)(2),

inserted "(including any Medicare+Choice plan)" after "health

insurance policies".

Subsec. (g)(1). Pub. L. 105-33, Sec. 4003(a)(3), inserted "or a

Medicare+Choice plan or" after "does not include" the first place

appearing.

Pub. L. 105-33, Sec. 4002(j)(2), struck out ", during the period

beginning on the date specified in subsection (p)(1)(C) of this

section and ending on December 31, 1995," after "Omnibus Budget

Reconciliation Act of 1986, or".

Subsec. (p)(2)(C). Pub. L. 105-33, Sec. 4032(a)(1), inserted

before period at end "plus the 2 plans described in paragraph

(11)(A)".

Subsec. (p)(11). Pub. L. 105-33, Sec. 4032(a)(2), added par.

(11).

Subsec. (s)(2)(B). Pub. L. 105-33, Sec. 4031(b)(1), substituted

"subparagraphs (C) and (D)" for "subparagraph (C)".

Subsec. (s)(2)(D). Pub. L. 105-33, Sec. 4031(b)(2), added subpar.

(D).

Subsec. (s)(3). Pub. L. 105-33, Sec. 4031(a)(3), added par. (3).

Former par. (3) redesignated (4).

Pub. L. 105-33, Sec. 4031(a)(1), (2), substituted "requirements

of this subsection" for "requirements of paragraphs (1) and (2)"

and redesignated par. (3) as (4).

Subsec. (s)(4). Pub. L. 105-33, Sec. 4031(a)(2), redesignated

par. (3) as (4).

Subsec. (u). Pub. L. 105-33, Sec. 4003(b), added subsec. (u).

1996 - Subsec. (d)(3)(A)(iii). Pub. L. 104-191, Sec. 271(a)(1),

substituted "clause (i)(II)" for "clause (i)".

Subsec. (d)(3)(A)(iv) to (viii). Pub. L. 104-191, Sec. 271(a)(2),

added cls. (iv) to (viii).

Subsec. (d)(3)(C). Pub. L. 104-191, Sec. 271(b)(1), substituted

"with respect to" for "with respect to (i)" and struck out before

period at end ", (ii) the sale or issuance of a policy or plan

described in subparagraph (A)(i)(I) (other than a medicare

supplemental policy to an individual entitled to any medical

assistance under subchapter XIX of this chapter) under which all

the benefits are fully payable directly to or on behalf of the

individual without regard to other health benefit coverage of the

individual but only if (for policies sold or issued more than 60

days after the date the statements are published or promulgated

under subparagraph (D)) there is disclosed in a prominent manner as

part of (or together with) the application the applicable statement

(specified under subparagraph (D)) of the extent to which benefits

payable under the policy or plan duplicate benefits under this

subchapter, or (iii) the sale or issuance of a policy or plan

described in subparagraph (A)(i)(III) under which all the benefits

are fully payable directly to or on behalf of the individual

without regard to other health benefit coverage of the individual".

Subsec. (d)(3)(D). Pub. L. 104-191, Sec. 271(b)(2), struck out

subpar. (D) which provided for development of statements for

various types of health insurance policies sold or issued to

persons entitled to health benefits under this subchapter regarding

extent to which benefits payable under those policies duplicate

benefits under this subchapter.

1994 - Subsec. (a)(2). Pub. L. 103-432, Sec. 171(c)(1)(B), in

closing provisions substituted "on and after the effective date

specified in subsection (p)(1)(C) of this section" for "after the

effective date of the NAIC or Federal standards with respect to the

policy".

Subsec. (a)(2)(A). Pub. L. 103-432, Sec. 171(c)(1)(A),

substituted "1991 NAIC Model Regulation or 1991 Federal Regulation"

for "NAIC standards or the Federal standards".

Subsec. (b)(1). Pub. L. 103-432, Sec. 171(e)(2), substituted

"subparagraph (F)" for "subsection (F)" in last sentence.

Pub. L. 103-432, Sec. 171(c)(4), substituted "the Secretary

determines" for "the the Secretary determines" in introductory

provisions.

Pub. L. 103-432, Sec. 171(c)(2), in last sentence substituted

"Each report" for "The report", "fail to meet the standards and

requirements" for "fail to meet the standards", "compliance,

information regarding" for "compliance, and information regarding",

and "Commissioners may specify" for "Commissioners, may specify".

Subsecs. (b)(1)(B), (c)(5). Pub. L. 103-432, Sec. 171(a)(1), made

technical amendment to Pub. L. 101-508, Sec. 4351. See 1990

Amendment notes below.

Subsec. (d)(3)(A). Pub. L. 103-432, Sec. 171(d)(1)(D), struck out

at end "This subsection shall not apply to such a seller until such

date as the Secretary publishes a list of the standardized benefit

packages that may be offered consistent with subsection (p) of this

section."

Pub. L. 103-432, Sec. 171(d)(1)(C), designated third sentence as

cl. (iii), substituted "clause (i) with respect to the sale of a

medicare supplemental policy" for "the previous sentence", and

struck out "and the statement under such subparagraph indicates on

its face that the sale of the policy will not duplicate health

benefits to which the individual is otherwise entitled" after

"compliance with subparagraph (B)".

Pub. L. 103-432, Sec. 171(d)(1)(B), designated second sentence as

cl. (ii) and substituted "Whoever violates clause (i)" for "Whoever

violates the previous sentence".

Pub. L. 103-432, Sec. 171(d)(1)(A), designated first sentence as

cl. (i) and amended it generally. Prior to amendment, first

sentence read as follows: "It is unlawful for a person to sell or

issue a health insurance policy to an individual entitled to

benefits under part A of this subchapter or enrolled under part B

of this subchapter, with knowledge that such policy duplicates

health benefits to which such individual is otherwise entitled,

other than benefits to which he is entitled under a requirement of

State or Federal law (other than this subchapter or subchapter XIX

of this chapter)."

Subsec. (d)(3)(B)(ii)(II). Pub. L. 103-432, Sec. 171(d)(2)(A),

struck out "65 years of age or older" before "may be eligible".

Subsec. (d)(3)(B)(iii)(I). Pub. L. 103-432, Sec. 171(d)(2)(B),

(C), substituted "has a medicare supplemental policy" for "has

another medicare supplemental policy" and "sale of a medicare

supplemental policy" for "sale of such a policy".

Subsec. (d)(3)(B)(iii)(II). Pub. L. 103-432, Sec. 171(d)(2)(D),

substituted "has a medicare supplemental policy" for "has another

policy".

Subsec. (d)(3)(B)(iii)(III). Pub. L. 103-432, Sec. 171(d)(2)(E),

amended subcl. (III) generally. Prior to amendment, subcl. (III)

read as follows: "Subclause (I) also shall not apply if a State

medicaid plan under subchapter XIX of this chapter pays the

premiums for the policy, or pays less than an individual's (who is

described in section 1396d(p)(1) of this title) full liability for

medicare cost sharing as defined in section 1396d(p)(3)(A) of this

title."

Subsec. (d)(3)(C). Pub. L. 103-432, Sec. 171(d)(3)(A),

substituted "(i) the sale or issuance of a group policy" for "the

selling of a group policy" and added cls. (ii) and (iii).

Subsec. (d)(3)(D). Pub. L. 103-432, Sec. 171(d)(3)(B), added

subpar. (D).

Subsec. (d)(4)(D). Pub. L. 103-432, Sec. 171(k)(1), struck out

before period at end ", if such policy expires not more than 12

months after the date on which the duplicate copy is mailed".

Subsec. (d)(4)(E). Pub. L. 103-432, Sec. 171(k)(2), added subpar.

(E).

Subsec. (f)(3). Pub. L. 103-432, Sec. 171(j)(2), added par. (3).

Subsec. (g)(1). Pub. L. 103-432, Sec. 171(f)(1), substituted "an

eligible organization (as defined in section 1395mm(b) of this

title) if the policy or plan provides benefits pursuant to a

contract under section 1395mm of this title or an approved

demonstration project described in section 603(c) of the Social

Security Amendments of 1983, section 2355 of the Deficit Reduction

Act of 1984, or section 9412(b) of the Omnibus Budget

Reconciliation Act of 1986, or, during the period beginning on the

date specified in subsection (p)(1)(C) of this section and ending

on December 31, 1995, a policy or plan of an organization if the

policy or plan provides benefits pursuant to an agreement under

section 1395l(a)(1)(A) of this title" for "a health maintenance

organization or other direct service organization which offers

benefits under this subchapter, including such services under a

contract under under section 1395mm of this title or an agreement

under section 1395l of this title."

Subsec. (g)(2)(B). Pub. L. 103-432, Sec. 171(c)(3), substituted

"Secretary" for "Panel".

Subsec. (o). Pub. L. 103-432, Sec. 171(a)(1), made technical

amendment to Pub. L. 101-508, Sec. 4351. See 1990 Amendment note

below.

Subsec. (p). Pub. L. 103-432, Sec. 171(a)(1), made technical

amendment to Pub. L. 101-508, Sec. 4351. See 1990 Amendment note

below.

Subsec. (p)(1)(A). Pub. L. 103-432, Sec. 171(a)(2)(A), in

introductory provisions, substituted "changes the revised NAIC

Model Regulation (described in subsection (m) of this section) to

incorporate" for "promulgates", and in closing provisions, struck

out "(such limitations, language, definitions, format, and

standards referred to collectively in this subsection as 'NAIC

standards')," before "subsection (g)(2)(A) of this section" and

substituted "were a reference to the revised NAIC Model Regulation

as changed under this subparagraph (such changed regulation

referred to in this section as the '1991 NAIC Model Regulation')"

for "included a reference to the NAIC standards".

Subsec. (p)(1)(B). Pub. L. 103-432, Sec. 171(a)(2)(B),

substituted "make the changes in the revised NAIC Model Regulation"

for "promulgate NAIC standards", "a regulation" for "limitations,

language, definitions, format, and standards described in clauses

(i) through (iv) of such subparagraph (in this subsection referred

to collectively as 'Federal standards')", and "were a reference to

the revised NAIC Model Regulation as changed by the Secretary under

this subparagraph (such changed regulation referred to in this

section as the '1991 Federal Regulation')" for "included a

reference to the Federal standards".

Subsec. (p)(1)(C)(i). Pub. L. 103-432, Sec. 171(a)(2)(C),

substituted "1991 NAIC Model Regulation or 1991 Federal Regulation"

for "NAIC standards or the Federal standards".

Subsec. (p)(1)(C)(ii)(I), (E). Pub. L. 103-432, Sec.

171(a)(2)(D), substituted "1991 NAIC Model Regulation or 1991

Federal Regulation" for "NAIC or Federal standards".

Subsec. (p)(2). Pub. L. 103-432, Sec. 171(a)(2)(D), substituted

"1991 NAIC Model Regulation or 1991 Federal Regulation" for "NAIC

or Federal standards" in introductory provisions.

Subsec. (p)(2)(C). Pub. L. 103-432, Sec. 171(a)(2)(E),

substituted "paragraph (4)(B)" for "paragraph (5)(B)".

Subsec. (p)(4). Pub. L. 103-432, Sec. 171(a)(2)(G), substituted

"applicable 1991 NAIC Model Regulation or 1991 Federal Regulation"

for "applicable standards" wherever appearing.

Subsec. (p)(4)(A)(i). Pub. L. 103-432, Sec. 171(a)(2)(F),

inserted "or paragraph (6)" after "subparagraph (B)".

Subsec. (p)(6). Pub. L. 103-432, Sec. 171(a)(2)(H), substituted

"described in clauses (i) through (iii) of paragraph (1)(A)" for

"in regard to the limitation of benefits described in paragraph

(4)".

Subsec. (p)(7). Pub. L. 103-432, Sec. 171(a)(2)(I), substituted

"policyholders" for "policyholder".

Subsec. (p)(8). Pub. L. 103-432, Sec. 171(a)(2)(J), substituted

"on and after the effective date specified in paragraph (1)(C) (but

subject to paragraph (10)), in violation of the applicable 1991

NAIC Model Regulation or 1991 Federal Regulation insofar as such

regulation relates to the requirements of subsection (o) or (q) of

this section or clause (i), (ii), or (iii) of paragraph (1)(A)" for

"after the effective date of the NAIC or Federal standards with

respect to the policy, in violation of the previous requirements of

this subsection".

Subsec. (p)(9)(B). Pub. L. 103-432, Sec. 171(a)(2)(D),

substituted "1991 NAIC Model Regulation or 1991 Federal Regulation"

for "NAIC or Federal standards".

Subsec. (p)(9)(D). Pub. L. 103-432, Sec. 171(a)(2)(K), added

subpar. (D).

Subsec. (p)(10). Pub. L. 103-432, Sec. 171(a)(2)(L), substituted

"consistent with paragraph (1)(A)(i)" for "consistent with this

subsection".

Subsec. (q)(2). Pub. L. 103-432, Sec. 171(b)(1), substituted

"paragraph (4)" for "paragraph (2)".

Subsec. (q)(4). Pub. L. 103-432, Sec. 171(b)(2), substituted

"issuer of the replacement policy" for "the succeeding issuer".

Subsec. (q)(5)(A), (B). Pub. L. 103-432, Sec. 171(d)(4), made

technical amendment to the reference to subchapter XIX of this

chapter to correct reference to corresponding provision of original

act.

Subsec. (r)(1). Pub. L. 103-432, Sec. 171(e)(1)(A), (E), in

introductory provisions substituted "or renewed (or otherwise

provide coverage after the date described in subsection (p)(1)(C)

of this section)" for "or sold" and inserted at end of closing

provisions "For the purpose of calculating the refund or credit

required under paragraph (1)(B) for a policy issued before the date

specified in subsection (p)(1)(C) of this section, the refund or

credit calculation shall be based on the aggregate benefits

provided and premiums collected under all such policies issued by

an insurer in a State (separated as to individual and group

policies) and shall be based only on aggregate benefits provided

and premiums collected under such policies after the date specified

in section 171(m)(4) of the Social Security Act Amendments of

1994."

Subsec. (r)(1)(A). Pub. L. 103-432, Sec. 171(e)(1)(C),

substituted "Commissioners)" for "Commissioners,".

Pub. L. 103-432, Sec. 171(e)(1)(B), inserted "for periods after

the effective date of these provisions" after "the policy can be

expected".

Subsec. (r)(1)(B). Pub. L. 103-432, Sec. 171(e)(1)(D), inserted

before period at end ", treating policies of the same type as a

single policy for each standard package".

Subsec. (r)(2)(A). Pub. L. 103-432, Sec. 171(e)(1)(F)-(I),

substituted "by standard package" for "by policy number" in first

sentence and "until 12 months following issue" for "with respect to

the first 2 years in which it is in effect" in second sentence,

struck out "in order to apply paragraph (1)(B) to the first 2 years

in which policies are effective" after "may be appropriate" in

third sentence, and inserted at end "In the case of a policy issued

before the date specified in subsection (p)(1)(C) of this section,

paragraph (1)(B) shall not apply until 1 year after the date

specified in section 171(m)(4) of the Social Security Act

Amendments of 1994."

Subsec. (r)(2)(C), (D). Pub. L. 103-432, Sec. 171(e)(1)(J),

substituted "calendar year" for "policy year" wherever appearing.

Subsec. (r)(4). Pub. L. 103-432, Sec. 171(e)(1)(K), substituted

"October" for "February", "disallowance" for "disllowance", "loss

ratios" for "loss-ratios" in two places, and "loss ratio" for

"loss-ratio".

Subsec. (r)(6)(A). Pub. L. 103-432, Sec. 171(e)(1)(L),

substituted "fails to provide refunds or credits as required in

paragraph (1)(B)" for "issues a policy in violation of the loss

ratio requirements of this subsection" and "policy issued for which

such failure occurred" for "such violation".

Subsec. (r)(6)(B). Pub. L. 103-432, Sec. 171(e)(1)(M),

substituted "to the policyholder or, in the case of a group policy,

to the certificate holder" for "to policyholders".

Subsec. (s)(2)(A). Pub. L. 103-432, Sec. 171(g)(1), (2),

substituted "in the case of an individual for whom an application

is submitted prior to or" for "for which an application is

submitted" and "as of the first day on which the individual is 65

years of age or older and is enrolled for benefits under part B"

for "in which the individual (who is 65 years of age or older)

first is enrolled for benefits under part B".

Subsec. (s)(2)(B). Pub. L. 103-432, Sec. 171(g)(3), substituted

"before the policy became effective" for "before it became

effective".

Subsec. (t)(1). Pub. L. 103-432, Sec. 171(h)(1)(A), (B),

substituted "If a medicare supplemental policy meets the 1991 NAIC

Model Regulation or 1991 Federal Regulation" for "If a policy meets

the NAIC Model Standards".

Subsec. (t)(1)(A). Pub. L. 103-432, Sec. 171(h)(1)(C), inserted

"or agreements" after "contracts".

Subsec. (t)(1)(E)(i), (F). Pub. L. 103-432, Sec. 171(h)(1)(D),

substituted "standards in the 1991 NAIC Model Regulation or 1991

Federal Regulation" for "NAIC standards".

Subsec. (t)(2). Pub. L. 103-432, Sec. 171(h)(1)(E), inserted "the

issuer" before "is subject to a civil money penalty" in concluding

provisions.

1990 - Pub. L. 101-508, Sec. 4353(a)(1), struck out "Voluntary"

at beginning of section catchline.

Subsec. (a). Pub. L. 101-508, Sec. 4353(a)(2), designated

existing provisions as par. (1) and added par. (2).

Pub. L. 101-508, Sec. 4207(k)(1), formerly Sec. 4027(k)(1), as

renumbered by Pub. L. 103-432, Sec. 160(d)(4), struck out "(k)(4),"

after "subsections (k)(3)," in third sentence.

Subsec. (b)(1). Pub. L. 101-508, Sec. 4353(c)(5), inserted at end

"The report required under subsection (F) shall include information

on loss ratios of policies sold in the State, frequency and types

of instances in which policies approved by the State fail to meet

the standards of this paragraph, actions taken by the State to

bring such policies into compliance, and information regarding

State programs implementing consumer protection provisions, and

such further information as the Secretary in consultation with the

National Association of Insurance Commissioners, may specify."

Pub. L. 101-508, Sec. 4353(b)(1), (2), substituted "the

Secretary" for "Supplemental Health Insurance Panel (established

under paragraph (2))" in introductory provisions and for "the

Panel" in concluding provisions.

Pub. L. 101-508, Sec. 4207(k)(1), formerly Sec. 4027(k)(1), as

renumbered by Pub. L. 103-432, Sec. 160(d)(4), which directed the

amendment of third sentence of par. (1) by striking out "(k)(4),"

was executed by making the deletion after "subsections (k)(3)," in

concluding provisions to reflect the probable intent of Congress.

Subsec. (b)(1)(A). Pub. L. 101-508, Sec. 4358(b)(2)(A), inserted

before semicolon at end ", except as otherwise provided by

subparagraph (H)".

Pub. L. 101-508, Sec. 4353(b)(3), inserted "and enforcement"

after "application".

Subsec. (b)(1)(B). Pub. L. 101-508, Sec. 4351(1), formerly Sec.

4351(a)(1), as renumbered and amended by Pub. L. 103-432, Sec.

171(a)(1), substituted "through (5)" for "through (4)".

Subsec. (b)(1)(C). Pub. L. 101-508, Sec. 4355(b), substituted for

semicolon at end ", and that a copy of each such policy, the most

recent premium for each such policy, and a listing of the ratio of

benefits provided to premiums collected for the most recent 3-year

period for each such policy issued or sold in the State is

maintained and made available to interested persons;".

Subsec. (b)(1)(D). Pub. L. 101-508, Sec. 4353(b)(3), inserted

"and enforcement" after "application".

Subsec. (b)(1)(F). Pub. L. 101-508, Sec. 4353(c)(1)-(3), added

subpar. (F).

Subsec. (b)(1)(G). Pub. L. 101-508, Sec. 4355(c), which directed

amendment of par. (1) by adding at the end thereof a new subpar.

(G), was executed by adding the new subpar. (G) immediately after

subpar. (F) to reflect the probable intent of Congress.

Subsec. (b)(1)(H). Pub. L. 101-508, Sec. 4358(b)(2)(B)-(D), added

subpar. (H).

Subsec. (b)(2). Pub. L. 101-508, Sec. 4353(b)(4), amended par.

(2) generally. Prior to amendment, par. (2) read as follows:

"(A) There is hereby established a panel (hereinafter in this

section referred to as the 'Panel') to be known as the Supplemental

Health Insurance Panel. The Panel shall consist of the Secretary,

who shall serve as the Chairman, and four State commissioners or

superintendents of insurance, who shall be appointed by the

Secretary and serve at his pleasure. Such members shall first be

appointed not later than December 31, 1980.

"(B) A majority of the members of the Panel shall constitute a

quorum, but a lesser number may conduct hearings.

"(C) The Secretary shall provide such technical, secretarial,

clerical, and other assistance as the Panel may require.

"(D) There are authorized to be appropriated such sums as may be

necessary to carry out this paragraph.

"(E) Members of the Panel shall be allowed, while away from their

homes or regular places of business in the performance of services

for the Panel, travel expenses (including per diem in lieu of

subsistence) in the same manner as persons employed intermittently

in the Government service are allowed expenses under section 5703

of title 5."

Subsec. (c). Pub. L. 101-508, Sec. 4357(a)(1), inserted "or the

requirement described in subsection (s) of this section" after

"paragraph (3)" in introductory provisions.

Pub. L. 101-508, Sec. 4355(a)(2), struck out at end "For purposes

of paragraph (2), policies issued as a result of solicitations of

individuals through the mails or by mass media advertising

(including both print and broadcast advertising) shall be deemed to

be individual policies."

Subsec. (c)(1). Pub. L. 101-508, Sec. 4358(b)(1), inserted before

semicolon at end "(except as otherwise provided by subsection (t)

of this section)".

Subsec. (c)(2). Pub. L. 101-508, Sec. 4355(a)(1), amended par.

(2) generally. Prior to amendment, par. (2) read as follows: "can

be expected (as estimated for the entire period for which rates are

computed to provide coverage, on the basis of incurred claims

experience and earned premiums for such period and in accordance

with accepted actuarial principles and practices) to return to

policyholders in the form of aggregate benefits provided under the

policy, at least 75 percent of the aggregate amount of premiums

collected in the case of group policies and at least 60 percent of

the aggregate amount of premiums collected in the case of

individual policies;".

Subsec. (c)(5). Pub. L. 101-508, Sec. 4351(2), formerly Sec.

4351(a)(2), as renumbered and amended by Pub. L. 103-432, Sec.

171(a)(1), added par. (5).

Subsec. (d)(3)(A). Pub. L. 101-508, Sec. 4354(a)(1), substituted

"It is unlawful for a person to sell or issue" for "Whoever

knowingly sells", "duplicates health benefits" for "substantially

duplicates health benefits", ". Whoever violates the previous

sentence shall be fined" for ", shall be fined", "(other than this

subchapter or subchapter XIX of this chapter)" for "(other than

this subchapter)", and "$25,000 (or $15,000 in the case of a person

other than the issuer of the policy)" for "$5,000" and inserted at

end "A seller (who is not the issuer of a health insurance policy)

shall not be considered to violate the previous sentence if the

policy is sold in compliance with subparagraph (B) and the

statement under such subparagraph indicates on its face that the

sale of the policy will not duplicate health benefits to which the

individual is otherwise entitled. This subsection shall not apply

to such a seller until such date as the Secretary publishes a list

of the standardized benefit packages that may be offered consistent

with subsection (p) of this section."

Subsec. (d)(3)(B). Pub. L. 101-508, Sec. 4354(a)(2), amended

subpar. (B) generally. Prior to amendment, subpar. (B) read as

follows: "For purposes of this paragraph, benefits which are

payable to or on behalf of an individual without regard to other

health benefit coverage of such individual, shall not be considered

as duplicative."

Subsec. (d)(4)(B). Pub. L. 101-508, Sec. 4353(d)(1), struck out

at end "For purposes of this paragraph, a medicare supplemental

policy shall be deemed to be approved by the commissioner or

superintendent of insurance of a State if -

"(i) the policy has been certified by the Secretary pursuant to

subsection (c) of this section or was issued in a State with an

approved regulatory program (as defined in subsection (g)(2)(B)

of this section);

"(ii) the policy has been approved by the commissioners or

superintendents of insurance in States in which more than 30

percent of such policies are sold; or

"(iii) the State has in effect a law which the commissioner or

superintendent of insurance of the State has determined gives him

the authority to review, and to approve, or effectively bar from

sale in the State, such policy;

except that such a policy shall not be deemed to be approved by a

State commissioner or superintendent of insurance if the State

notifies the Secretary that such policy has been submitted for

approval to the State and has been specifically disapproved by such

State after providing appropriate notice and opportunity for

hearing pursuant to the procedures (if any) of the State."

Subsec. (g)(1). Pub. L. 101-508, Sec. 4356(a), inserted before

period at end of first sentence "and does not include a policy or

plan of a health maintenance organization or other direct service

organization which offers benefits under this subchapter, including

such services under a contract under under section 1395mm of this

title or an agreement under section 1395l of this title".

Subsecs. (o), (p). Pub. L. 101-508, Sec. 4351(3), formerly Sec.

4351(a)(3), as renumbered and amended by Pub. L. 103-432, Sec.

171(a)(1), added subsecs. (o) and (p).

Subsec. (q). Pub. L. 101-508, Sec. 4352, added subsec. (q).

Subsec. (q)(5). Pub. L. 101-508, Sec. 4354(b), added par. (5).

Subsec. (r). Pub. L. 101-508, Sec. 4355(a)(3), added subsec. (r).

Subsec. (s). Pub. L. 101-508, Sec. 4357(a)(2), added subsec. (s).

Subsec. (t). Pub. L. 101-508, Sec. 4358(a), added subsec. (t).

1989 - Subsecs. (a), (b)(1). Pub. L. 101-234, Sec. 203(a)(1)(A),

substituted "subsections (k)(3), (k)(4), (m), and (n) of this

section" for "subsection (k)(3) of this section".

Subsec. (k)(1)(A). Pub. L. 101-234, Sec. 203(a)(1)(B)(i),

inserted "except as provided in subsection (m) of this section,"

before "subsection (g)(2)(A)".

Subsec. (k)(3). Pub. L. 101-234, Sec. 203(a)(1)(B)(ii),

substituted "subsections (l), (m), and (n) of this section" for

"subsection (l) of this section".

Subsecs. (m), (n). Pub. L. 101-234, Sec. 203(a)(1)(C), added

subsecs. (m) and (n).

1988 - Subsec. (a). Pub. L. 100-360, Sec. 221(d)(1), substituted

"Subject to subsection (k)(3) of this section, such" for "Such".

Subsec. (b)(1). Pub. L. 100-360, Sec. 221(d)(2), substituted

"(subject to subsection (k)(3) of this section, for so long as" for

"(for so long as" in concluding provisions.

Subsec. (b)(1)(B). Pub. L. 100-360, Sec. 221(a)(1), substituted

"through (4)" for "and (3)".

Subsec. (b)(1)(C). Pub. L. 100-360, Sec. 221(b)(2), (3), added

subpar. (C). Former subpar. (C) redesignated (D).

Pub. L. 100-360, Sec. 221(b)(1), substituted "(A), (B), and (C)"

for "(A) and (B)".

Subsec. (b)(1)(D), (E). Pub. L. 100-360, Sec. 221(b)(2),

redesignated former subpars. (C) and (D) as (D) and (E),

respectively.

Subsec. (b)(2)(A). Pub. L. 100-360, Sec. 221(f), substituted

"appointed by the Secretary" for "appointed by the President".

Subsec. (b)(3). Pub. L. 100-360, Sec. 221(e), added par. (3).

Subsec. (c). Pub. L. 100-360, Sec. 411(i)(1)(B), added Pub. L.

100-203, Sec. 4081(b)(2)(A), see 1987 Amendment note below.

Subsec. (c)(3). Pub. L. 100-360, Sec. 411(i)(1)(B), redesignated

Pub. L. 100-203, Sec. 4081(b)(2)(B)-(D), see 1987 Amendment note

below.

Subsec. (c)(3)(A). Pub. L. 100-360, Sec. 411(i)(1)(C)(i),

substituted "claim form" for "claims form" in two places and "such

notice" for "such claims form".

Subsec. (c)(3)(B)(i). Pub. L. 100-360, Sec. 411(i)(1)(C)(ii),

inserted "under the policy" after "payment determination".

Subsec. (c)(3)(B)(ii). Pub. L. 100-360, Sec. 411(i)(1)(C)(iii),

substituted "payment covered by such policy" for "appropriate

payment".

Subsec. (c)(4). Pub. L. 100-360, Sec. 221(a)(2), added par. (4).

Subsec. (d). Pub. L. 100-360, Sec. 428(b)(1), substituted "shall

be fined under title 18 or imprisoned not more than 5 years, or

both, and, in addition to or in lieu of such a criminal penalty, is

subject to a civil money penalty of not to exceed $5,000 for each

such prohibited act" for "shall be guilty of a felony and upon

conviction thereof shall be fined not more than $25,000 or

imprisoned for not more than 5 years, or both" in pars. (1), (2),

(3)(A), and (4)(A).

Subsec. (d)(5). Pub. L. 100-360, Sec. 428(b)(2), added par. (5).

Subsec. (e). Pub. L. 100-360, Sec. 221(c), designated existing

provision as par. (1) and added pars. (2) and (3).

Subsecs. (k), (l). Pub. L. 100-360, Sec. 221(d)(3), added

subsecs. (k) and (l).

1987 - Subsec. (b)(1)(B). Pub. L. 100-203, Sec. 4081(b)(1)(A),

amended subpar. (B) generally. Prior to amendment, subpar. (B) read

as follows: "includes a requirement equal to or more stringent than

the requirement described in subsection (c)(2) of this section;

and".

Subsec. (b)(1)(D). Pub. L. 100-203, Sec. 4081(b)(1)(B), (C),

added subpar. (D).

Subsec. (c). Pub. L. 100-203, Sec. 4081(b)(2)(A), as added by

Pub. L. 100-360, Sec. 411(i)(1)(B), inserted "(or, with respect to

paragraph (3), the issuer of the policy)" in introductory

provisions.

Subsec. (c)(3). Pub. L. 100-203, Sec. 4081(b)(2)(B)-(D), formerly

Sec. 4081(b)(2), as redesignated by Pub. L. 100-360, Sec.

411(i)(1)(B), added par. (3).

Subsec. (d)(1). Pub. L. 100-93 substituted "knowingly and

willfully" for "knowingly or willfully".

-CHANGE-

CHANGE OF NAME

Committee on Interstate and Foreign Commerce of House of

Representatives changed to Committee on Energy and Commerce of

House of Representatives immediately prior to noon on Jan. 3, 1981,

by House Resolution No. 549, Ninety-sixth Congress, Mar. 25, 1980.

Committee on Energy and Commerce of House of Representatives

treated as referring to Committee on Commerce of House of

Representatives by section 1(a) of Pub. L. 104-14, set out as a

note preceding section 21 of Title 2, The Congress. Committee on

Commerce of House of Representatives changed to Committee on Energy

and Commerce of House of Representatives, and jurisdiction over

matters relating to securities and exchanges and insurance

generally transferred to Committee on Financial Services of House

of Representatives by House Resolution No. 5, One Hundred Seventh

Congress, Jan. 3, 2001.

-MISC2-

EFFECTIVE DATE OF 1999 AMENDMENTS

Pub. L. 106-170, title II, Sec. 205(b), Dec. 17, 1999, 113 Stat.

1900, provided that: "The amendments made by subsection (a)

[amending this section] apply with respect to requests made after

the date of the enactment of this Act [Dec. 17, 1999]."

Amendment by section 1000(a)(6) [title III, Sec. 321(k)(13),

(14)] of Pub. L. 106-113 effective as if included in the enactment

of the Balanced Budget Act of 1997, Pub. L. 105-33, except as

otherwise provided, see section 1000(a)(6) [title III, Sec. 321(m)]

of Pub. L. 106-113, set out as a note under section 1395d of this

title.

Amendment by section 1000(a)(6) [title V, Sec. 501(a)(2)] of Pub.

L. 106-113 applicable to notices of impending terminations or

discontinuances made on or after Nov. 29, 1999, see section

1000(a)(6) [title V, Sec. 501(d)(1)] of Pub. L. 106-113, set out as

a note under section 1395w-21 of this title.

Pub. L. 106-113, div. B, Sec. 1000(a)(6) [title V, Sec. 536(b)],

Nov. 29, 1999, 113 Stat. 1536, 1501A-391, provided that: "The

amendments made by this section [amending this section] shall apply

to terminations or discontinuances made on or after the date of the

enactment of this Act [Nov. 29, 1999]."

EFFECTIVE DATE OF 1997 AMENDMENT

Section 4002(j)(2) of Pub. L. 105-33 provided that the amendment

made by that section is effective Jan. 1, 1999.

Section 4031(d) of Pub. L. 105-33 provided that:

"(1) Guaranteed issue. - The amendment made by subsection (a)

[amending this section] shall take effect on July 1, 1998.

"(2) Limit on preexisting condition exclusions. - The amendment

made by subsection (b) [amending this section] shall apply to

policies issued on or after July 1, 1998.

"(3) Conforming amendment. - The amendment made by subsection (c)

[amending this section] shall be effective as if included in the

enactment of the Health Insurance Portability and Accountability

Act of 1996 [Pub. L. 104-191]."

Section 4032(b) of Pub. L. 105-33 provided that:

"(1) In general. - The amendments made by subsection (a)

[amending this section] shall take effect the date of the enactment

of this Act [Aug. 5, 1997].

"(2) Transition. - The provisions of section 4031(e) [set out as

a note below] shall apply with respect to this section in the same

manner as they apply to section 4031 [amending this section and

enacting provisions set out as notes below]."

EFFECTIVE DATE OF 1996 AMENDMENT

Section 271(d) of Pub. L. 104-191 provided that:

"(1) Except as provided in this subsection, the amendment made by

subsection (a) [amending this section] shall be effective as if

included in the enactment of section 4354 of the Omnibus Budget

Reconciliation Act of 1990 [Pub. L. 101-508].

"(2)(A) Clause (vi) of section 1882(d)(3)(A) of the Social

Security Act [subsec. (d)(3)(A)(vi) of this section], as added by

subsection (a), shall only apply to individuals applying for -

"(i) a health insurance policy described in section

1882(d)(3)(A)(iv) of such Act (as added by subsection (a)), after

the date of the enactment of this Act [Aug. 21, 1996], or

"(ii) another health insurance policy after the end of the

30-day period beginning on the date of the enactment of this Act.

"(B) A seller or issuer of a health insurance policy may

substitute, for the disclosure statement described in clause (vii)

of such section, the statement specified under section

1882(d)(3)(D) of the Social Security Act (as in effect before the

date of the enactment of this Act), without the revision specified

in such clause."

EFFECTIVE DATE OF 1994 AMENDMENT

Section 171(l) of Pub. L. 103-432 provided that: "The amendments

made by this section [amending this section and sections 1320c-3,

1395b-2, and 1395b-4 of this title, repealing section 1395zz of

this title, and enacting and amending provisions set out as notes

below] shall be effective as if included in the enactment of

OBRA-1990 [Pub. L. 101-508]; except that -

"(1) the amendments made by subsection (d)(1) [amending this

section] shall take effect on the date of the enactment of this

Act [Oct. 31, 1994], but no penalty shall be imposed under

section 1882(d)(3)(A) of the Social Security Act [subsec.

(d)(3)(A) of this section] (for an action occurring after the

effective date of the amendments made by section 4354 of

OBRA-1990 [see section 4354(c) of Pub. L. 101-508, set out as an

Effective Date of 1990 Amendment note below] and before the date

of the enactment of this Act) with respect to the sale or

issuance of a policy which is not unlawful under section

1882(d)(3)(A)(i)(II) of the Social Security Act [subsec.

(d)(3)(A)(i)(II) of this section] (as amended by this section);

"(2) the amendments made by subsection (d)(2)(A) [amending this

section] and by subparagraphs (A), (B), and (E) of subsection

(e)(1) [amending this section] shall be effective on the date

specified in subsection (m)(4) [set out as a note below]; and

"(3) the amendment made by subsection (g)(2) [amending this

section] shall take effect on January 1, 1995, and shall apply to

individuals who attain 65 years of age or older on or after the

effective date of section 1882(s)(2) of the Social Security Act

[subsec. (s)(2) of this section, for effective date see section

4357(b) of Pub. L. 101-508, set out as an Effective Date of 1990

Amendment note below] (and, in the case of individuals who

attained 65 years of age after such effective date and before

January 1, 1995, and who were not covered under such section

before January 1, 1995, the 6-month period specified in that

section shall begin January 1, 1995)."

EFFECTIVE DATE OF 1990 AMENDMENT

Section 4353(d)(2) of Pub. L. 101-508 provided that: "The

amendment made by paragraph (1) [amending this section] shall apply

to policies mailed, or caused to be mailed, on and after July 1,

1991."

Section 4354(c) of Pub. L. 101-508 provided that: "The amendments

made by this section [amending this section] shall apply to

policies issued or sold more than 1 year after the date of the

enactment of this Act [Nov. 5, 1990]."

Section 4355(d) of Pub. L. 101-508, as amended by Pub. L.

103-432, title I, Sec. 171(e)(3), Oct. 31, 1994, 108 Stat. 4449,

provided that: "The amendments made by this section [amending this

section] shall apply to policies issued or renewed (or otherwise

providing coverage after the date described in section

1882(p)(1)(C) of the Social Security Act [subsec. (p)(1)(C) of this

section]) on or after the date specified in section 1882(p)(1)(C)

of the Social Security Act."

Section 4356(b) of Pub. L. 101-508, as amended by Pub. L.

103-432, title I, Sec. 171(f)(2), Oct. 31, 1994, 108 Stat. 4449,

provided that: "The amendment made by subsection (a) [amending this

section] shall take effect on the date specified in section

1882(p)(1)(C) of the Social Security Act [subsec. (p)(1)(C) of this

section]."

Section 4357(b) of Pub. L. 101-508 provided that: "The amendments

made by subsection (a) [amending this section] shall take effect 1

year after the date of the enactment of this Act [Nov. 5, 1990]."

Amendment by section 4358(a), (b)(1), (2) of Pub. L. 101-508 only

applicable in 15 States (as determined by Secretary of Health and

Human Services) and such other States as elect such amendment to

apply to them, and during the 6 1/2 -year period beginning with

1992, with such amendment to remain in effect beyond the 6 1/2

-year period unless the Secretary makes certain determinations, see

section 4358(c) of Pub. L. 101-508, as amended, set out as a note

under section 1320c-3 of this title.

EFFECTIVE DATE OF 1989 AMENDMENT

Section 203(e) of Pub. L. 101-234 provided that: "The provisions

of this section [amending this section, enacting provisions set out

as notes under sections 1395b-2 and 1395mm of this title, and

amending provisions set out as a note under this section] shall

take effect January 1, 1990, except that the amendment made by

subsection (d) [amending provisions set out as an Effective Date of

1988 Amendment note under this section] shall be effective as if

included in the enactment of MCCA [Pub. L. 100-360]."

EFFECTIVE DATE OF 1988 AMENDMENT

Section 221(g) of Pub. L. 100-360, as amended by Pub. L. 100-485,

title VI, Sec. 608(d)(12), Oct. 13, 1988, 102 Stat. 2415; Pub. L.

101-234, title II, Sec. 203(d), Dec. 13, 1989, 103 Stat. 1985,

provided that:

"(1) Except as provided in paragraphs (2) and (3), the amendments

made by this section [amending this section] shall take effect on

the date of the enactment of this Act [July 1, 1988].

"(2) The amendments made by subsections (a) and (b) [amending

this section] shall become effective on the date specified in

subsection (k)(1)(B) or (k)(2)(B) of section 1882 of the Social

Security Act [subsec. (k)(1)(B) or (k)(2)(B) of this section] (as

added by subsection (d) of this section).

"(3) The amendment made by subsection (e) [amending this section]

shall apply to medicare supplemental policies as of January 1,

1989, with respect to advertising used on or after such date.

"(4) The Secretary of Health and Human Services shall provide for

the reappointment of members to the Supplemental Health Insurance

Panel (under section 1882(b)(2) of the Social Security Act [subsec.

(b)(2) of this section]) by not later than 90 days after the date

of the enactment of this Act [July 1, 1988]."

Except as specifically provided in section 411 of Pub. L.

100-360, amendment by section 411(i)(1)(B), (C) of Pub. L. 100-360,

as it relates to a provision in the Omnibus Budget Reconciliation

Act of 1987, Pub. L. 100-203, effective as if included in the

enactment of that provision in Pub. L. 100-203, see section 411(a)

of Pub. L. 100-360, set out as a Reference to OBRA; Effective Date

note under section 106 of Title 1, General Provisions.

Amendment by section 428(b) of Pub. L. 100-360 effective July 1,

1988, and applicable only with respect to violations occurring on

or after such date, see section 428(c) of Pub. L. 100-360, set out

as an Effective Date note under section 1320b-10 of this title.

EFFECTIVE DATE OF 1987 AMENDMENTS

Section 4081(c)(2) of Pub. L. 100-203, as amended by Pub. L.

100-360, title IV, Sec. 411(i)(1)(D), (E), July 1, 1988, 102 Stat.

788; Pub. L. 100-485, title VI, Sec. 608(d)(24)(A), Oct. 13, 1988,

102 Stat. 2421, provided that:

"(A) The amendments made by subsection (b) [amending this

section] shall apply to medicare supplemental policies as of

January 1, 1989 (or, if applicable, the date established under

subparagraph (B)).

"(B) In the case of a State which the Secretary of Health and

Human Services identifies as -

"(i) requiring State legislation (other than legislation

appropriating funds) in order for medicare supplemental policies

to be changed to meet the requirements of section 1882(c)(3) of

the Social Security Act [subsec. (c)(3) of this section], and

"(ii) having a legislature which is not scheduled to meet in

1988 in a legislative session in which such legislation may be

considered or which has not enacted such legislation before July

1, 1988,

the date specified in this subparagraph is the first day of the

first calendar quarter beginning after the close of the first

legislative session of the State legislature that begins on or

after January 1, 1989, and in which legislation described in clause

(i) may be considered."

Amendment by Pub. L. 100-93 effective at end of fourteen-day

period beginning Aug. 18, 1987, and inapplicable to administrative

proceedings commenced before end of such period, see section 15(a)

of Pub. L. 100-93, set out as a note under section 1320a-7 of this

title.

EFFECTIVE DATE

Section 507(b) of Pub. L. 96-265 provided that: "The amendment

made by this section [enacting this section] shall become effective

on the date of the enactment of this Act [June 9, 1980], except

that the provisions of paragraph (4) of section 1882(d) of the

Social Security Act [subsec. (d)(4) of this section] (as added by

this section) shall become effective on July 1, 1982."

STUDY OF MEDIGAP POLICIES

Pub. L. 106-113, div. B, Sec. 1000(a)(6) [title V, Sec. 553(a)],

Nov. 29, 1999, 113 Stat. 1536, 1501A-393, provided that:

"(1) In general. - The Comptroller General of the United States

(in this section referred to as the 'Comptroller General') shall

conduct a study of the issues described in paragraph (2) regarding

medicare supplemental policies described in section 1882(g)(1) of

the Social Security Act (42 U.S.C. 1395ss(g)(1)).

"(2) Issues to be studied. - The issues described in this

paragraph are the following:

"(A) The level of coverage provided by each type of medicare

supplemental policy.

"(B) The current enrollment levels in each type of medicare

supplemental policy.

"(C) The availability of each type of medicare supplemental

policy to medicare beneficiaries over age 65 1/2 .

"(D) The number and type of medicare supplemental policies

offered in each State.

"(E) The average out-of-pocket costs (including premiums) per

beneficiary under each type of medicare supplemental policy.

"(2)[(3)] Report. - Not later than July 31, 2001, the Comptroller

General shall submit a report to Congress on the results of the

study conducted under this subsection, together with any

recommendations for legislation that the Comptroller General

determines to be appropriate as a result of such study."

CONFORMING BENEFITS TO CHANGES IN TERMINOLOGY FOR HOSPITAL

OUTPATIENT DEPARTMENT COST SHARING

Section 4031(f) of Pub. L. 105-33 provided that: "For purposes of

apply [sic] section 1882 of the Social Security Act (42 U.S.C.

1395ss) and regulations referred to in subsection (e) [set out as a

note above], copayment amounts provided under section 1833(t)(5) of

such Act [section 1395l(t)(5) of this title] with respect to

hospital outpatient department services shall be treated under

medicare supplemental policies in the same manner as coinsurance

with respect to such services."

TRANSITION PROVISIONS

Section 4031(e) of Pub. L. 105-33 provided that:

"(1) In general. - If the Secretary of Health and Human Services

identifies a State as requiring a change to its statutes or

regulations to conform its regulatory program to the changes made

by this section [amending this section], the State regulatory

program shall not be considered to be out of compliance with the

requirements of section 1882 of the Social Security Act [this

section] due solely to failure to make such change until the date

specified in paragraph (4).

"(2) NAIC standards. - If, within 9 months after the date of the

enactment of this Act [Aug. 5, 1997], the National Association of

Insurance Commissioners (in this subsection referred to as the

'NAIC') modifies its NAIC Model Regulation relating to section 1882

of the Social Security Act [this section] (referred to in such

section as the 1991 NAIC Model Regulation, as modified pursuant to

section 171(m)(2) of the Social Security Act Amendments of 1994

(Public Law 103-432) [set out as a note below] and as modified

pursuant to section 1882(d)(3)(A)(vi)(IV) of the Social Security

Act [subsec. (d)(3)(A)(vi)(IV) of this section], as added by

section 271(a) of the Health Insurance Portability and

Accountability Act of 1996 (Public Law 104-191) to conform to the

amendments made by this section [amending this section], such

revised regulation incorporating the modifications shall be

considered to be the applicable NAIC model regulation (including

the revised NAIC model regulation and the 1991 NAIC Model

Regulation) for the purposes of such section.

"(3) Secretary standards. - If the NAIC does not make the

modifications described in paragraph (2) within the period

specified in such paragraph, the Secretary of Health and Human

Services shall make the modifications described in such paragraph

and such revised regulation incorporating the modifications shall

be considered to be the appropriate Regulation for the purposes of

such section.

"(4) Date specified. -

"(A) In general. - Subject to subparagraph (B), the date

specified in this paragraph for a State is the earlier of -

"(i) the date the State changes its statutes or regulations

to conform its regulatory program to the changes made by this

section, or

"(ii) 1 year after the date the NAIC or the Secretary first

makes the modifications under paragraph (2) or (3),

respectively.

"(B) Additional legislative action required. - In the case of a

State which the Secretary identifies as -

"(i) requiring State legislation (other than legislation

appropriating funds) to conform its regulatory program to the

changes made in this section, but

"(ii) having a legislature which is not scheduled to meet in

1999 in a legislative session in which such legislation may be

considered,

the date specified in this paragraph is the first day of the

first calendar quarter beginning after the close of the first

legislative session of the State legislature that begins on or

after July 1, 1999. For purposes of the previous sentence, in the

case of a State that has a 2-year legislative session, each year

of such session shall be deemed to be a separate regular session

of the State legislature."

Section 271(c) of Pub. L. 104-191 provided that:

"(1) No penalties. - Subject to paragraph (3), no criminal or

civil money penalty may be imposed under section 1882(d)(3)(A) of

the Social Security Act [subsec. (d)(3)(A) of this section] for any

act or omission that occurred during the transition period (as

defined in paragraph (4)) and that relates to any health insurance

policy that is described in clause (iv) or (v) of such section (as

amended by subsection (a)).

"(2) Limitation on legal action. - Subject to paragraph (3), no

legal action shall be brought or continued in any Federal or State

court insofar as such action -

"(A) includes a cause of action which arose, or which is based

on or evidenced by any act or omission which occurred, during the

transition period; and

"(B) relates to the application of section 1882(d)(3)(A) of the

Social Security Act to any act or omission with respect to the

sale, issuance, or renewal of any health insurance policy that is

described in clause (iv) or (v) of such section (as amended by

subsection (a)).

"(3) Disclosure condition. - In the case of a policy described in

clause (iv) of section 1882(d)(3)(A) of the Social Security Act

that is sold or issued on or after the effective date of statements

under section 171(d)(3)(C) of the Social Security Act Amendments of

1994 [Pub. L. 103-432, set out below] and before the end of the

30-day period beginning on the date of the enactment of this Act

[Aug. 21, 1996], paragraphs (1) and (2) shall only apply if

disclosure was made in accordance with section 1882(d)(3)(C)(ii) of

the Social Security Act (as in effect before the date of the

enactment of this Act).

"(4) Transition period. - In this subsection, the term

'transition period' means the period beginning on November 5, 1991,

and ending on the date of the enactment of this Act."

APPLICABILITY OF DISCLOSURE REQUIREMENT

Section 171(d)(3)(C) of Pub. L. 103-432 provided that: "The

requirement of a disclosure under section 1882(d)(3)(C)(ii) of the

Social Security Act [subsec. (d)(3)(C)(ii) of this section] shall

not apply to an application made for a policy or plan before 60

days after the date the Secretary of Health and Human Services

publishes or promulgates all the statements under section

1882(d)(3)(D) of such Act."

STATE REGULATORY PROGRAMS

Section 171(m) of Pub. L. 103-432 provided that:

"(1) In general. - If the Secretary of Health and Human Services

identifies a State as requiring a change to its statutes or

regulations to conform its regulatory program to the changes made

by this section [amending this section and sections 1320c-3,

1395b-2, and 1395b-4 of this title, repealing section 1395zz of

this title, and enacting and amending provisions set out as notes

under this section], the State regulatory program shall not be

considered to be out of compliance with the requirements of section

1882 of the Social Security Act [this section] due solely to

failure to make such change until the date specified in paragraph

(4).

"(2) NAIC standards. - If, within 6 months after the date of the

enactment of this Act [Oct. 31, 1994], the National Association of

Insurance Commissioners (in this subsection referred to as the

'NAIC') modifies its 1991 NAIC Model Regulation (adopted in July

1991) to conform to the amendments made by this section and to

delete from section 15C the exception which begins with 'unless',

such revised regulation incorporating the modifications shall be

considered to be the 1991 Regulation for the purposes of section

1882 of the Social Security Act.

"(3) Secretary standards. - If the NAIC does not make the

modifications described in paragraph (2) within the period

specified in such paragraph, the Secretary of Health and Human

Services shall make the modifications described in such paragraph

and such revised regulation incorporating the modifications shall

be considered to be the 1991 Regulation for the purposes of section

1882 of the Social Security Act.

"(4) Date specified. -

"(A) In general. - Subject to subparagraph (B), the date

specified in this paragraph for a State is the earlier of -

"(i) the date the State changes its statutes or regulations

to conform its regulatory program to the changes made by this

section, or

"(ii) 1 year after the date the NAIC or the Secretary first

makes the modifications under paragraph (2) or (3),

respectively.

"(B) Additional legislative action required. - In the case of a

State which the Secretary identifies as -

"(i) requiring State legislation (other than legislation

appropriating funds) to conform its regulatory program to the

changes made in this section, but

"(ii) having a legislature which is not scheduled to meet in

1996 in a legislative session in which such legislation may be

considered,

the date specified in this paragraph is the first day of the

first calendar quarter beginning after the close of the first

legislative session of the State legislature that begins on or

after January 1, 1996. For purposes of the previous sentence, in

the case of a State that has a 2-year legislative session, each

year of such session shall be deemed to be a separate regular

session of the State legislature."

EVALUATION OF 1990 AMENDMENTS

Section 4358(d) of Pub. L. 101-508 provided that: "The Secretary

of Health and Human Services shall conduct an evaluation of the

amendments made by this section [amending this section and section

1320c-3 of this title] and shall report to Congress on such

evaluation by not later than January 1, 1995."

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 300gg-91, 1320c-3, 1320d,

1395a, 1395b-3, 1395b-4, 1395u, 1395w-21, 1395w-22 of this title;

title 10 section 1108; title 26 section 9832; title 29 section

1191b.

-FOOTNOTE-

(!1) So in original. Probably should be followed by a comma.

(!2) So in original. Probably should be "issuer's".

(!3) So in original. Probably should be "supplemental".

(!4) So in original. The comma probably should be a semicolon.

(!5) So in original. Probably should be "meet".

(!6) So in original. Probably should be preceded by "the".

-End-

-CITE-

42 USC Sec. 1395tt 01/06/03

-EXPCITE-

TITLE 42 - THE PUBLIC HEALTH AND WELFARE

CHAPTER 7 - SOCIAL SECURITY

SUBCHAPTER XVIII - HEALTH INSURANCE FOR AGED AND DISABLED

Part D - Miscellaneous Provisions

-HEAD-

Sec. 1395tt. Hospital providers of extended care services

-STATUTE-

(a) Hospital facility agreements; reasonable costs of services

(1) Any hospital which has an agreement under section 1395cc of

this title may (subject to subsection (b) of this section) enter

into an agreement with the Secretary under which its inpatient

hospital facilities may be used for the furnishing of services of

the type which, if furnished by a skilled nursing facility, would

constitute extended care services.

(2)(A) Notwithstanding any other provision of this subchapter,

payment to any hospital (other than a critical access hospital) for

services furnished under an agreement entered into under this

section shall be based upon the reasonable cost of the services as

determined under subparagraph (B).

(B)(i) The reasonable cost of the services consists of the

reasonable cost of routine services (determined under clause (ii))

and the reasonable cost of ancillary services (determined under

clause (iii)).

(ii) The reasonable cost of routine services furnished during any

calendar year by a hospital under an agreement under this section

is equal to the product of -

(I) the number of patient-days during the year for which the

services were furnished, and

(II) the average reasonable cost per patient-day, such average

reasonable cost per patient-day being the average rate per

patient-day paid for routine services during the most recent year

for which cost reporting data are available with respect to such

services (increased in a compounded manner by the applicable

increase for payments for routine service costs of skilled

nursing facilities under subsections (a) through (d) of section

1395yy of this title for subsequent cost reporting periods and up

to and including such calendar year) under this subchapter to

freestanding skilled nursing facilities in the region (as defined

in section 1395ww(d)(2)(D) of this title) in which the facility

is located.

(iii) The reasonable cost of ancillary services shall be

determined in the same manner as the reasonable cost of ancillary

services provided for inpatient hospital services.

(3) Notwithstanding any other provision of this subchapter, a

critical access hospital shall be paid for covered skilled nursing

facility services furnished under an agreement entered into under

this section on the basis of the reasonable costs of such services

(as determined under section 1395x(v) of this title).

(b) Eligible facilities

The Secretary may not enter into an agreement under this section

with any hospital unless, except as provided under subsection (g)

of this section, the hospital is located in a rural area and has

less than 100 beds.

(c) Terms and conditions of facility agreements

An agreement with a hospital under this section shall, except as

otherwise provided under regulations of the Secretary, be of the

same duration and subject to termination on the same conditions as

are agreements with skilled nursing facilities under section 1395cc

of this title and shall, where not inconsistent with any provision

of this section, impose the same duties, responsibilities,

conditions, and limitations, as those imposed under such agreements

entered into under section 1395cc of this title; except that no

such agreement with any hospital shall be in effect for any period

during which the hospital does not have in effect an agreement

under section 1395cc of this title. A hospital with respect to

which an agreement under this section has been terminated shall not

be eligible to enter into a new agreement until a two-year period

has elapsed from the termination date.

(d) Post-hospital extended care services

Any agreement with a hospital under this section shall provide

that payment for services will be made only for services for which

payment would be made as post-hospital extended care services if

those services had been furnished by a skilled nursing facility

under an agreement entered into under section 1395cc of this title;

and any individual who is furnished services, for which payment may

be made under an agreement under this section, shall, for purposes

of this subchapter (other than this section), be deemed to have

received post-hospital extended care services in like manner and to

the same extent as if the services furnished to him had been

post-hospital extended care services furnished by a skilled nursing

facility under an agreement under section 1395cc of this title.

(e) Reimbursement for routine hospital services

During a period for which a hospital has in effect an agreement

under this section, in order to allocate routine costs between

hospital and long-term care services for purposes of determining

payment for inpatient hospital services, the total reimbursement

due for routine services from all classes of long-term care

patients (including this subchapter, subchapter XIX of this

chapter, and private pay patients) shall be subtracted from the

hospital's total routine costs before calculations are made to

determine this subchapter reimbursement for routine hospital

services.

(f) Conditions applicable to skilled nursing facilities

A hospital which enters into an agreement with the Secretary

under this section shall be required to meet those conditions

applicable to skilled nursing facilities relating to discharge

planning and the social services function (and staffing

requirements to satisfy it) which are promulgated by the Secretary

under section 1395i-3 of this title. Services furnished by such a

hospital which would otherwise constitute post-hospital extended

care services if furnished by a skilled nursing facility shall be

subject to the same requirements applicable to such services when

furnished by a skilled nursing facility except for those

requirements the Secretary determines are inappropriate in the case

of these services being furnished by a hospital under this section.

(g) Agreements on demonstration basis

The Secretary may enter into an agreement under this section on a

demonstration basis with any hospital which does not meet the

requirement of subsection (b)(1) of this section, if the hospital

otherwise meets the requirements of this section.

-SOURCE-

(Aug. 14, 1935, ch. 531, title XVIII, Sec. 1883, as added Pub. L.

96-499, title IX, Sec. 904(a)(1), Dec. 5, 1980, 94 Stat. 2615;

amended Pub. L. 100-203, title IV, Secs. 4005(b)(1), (2),

4201(d)(3), Dec. 22, 1987, 101 Stat. 1330-48, as amended Pub. L.

100-360, title IV, Sec. 411(l)(1)(C), July 1, 1988, as added Pub.

L. 100-485, title VI, Sec. 608(d)(27)(B), Oct. 13, 1988, 102 Stat.

2422; Pub. L. 100-360, title I, Sec. 104(d)(6), title IV, Sec.

411(b)(4)(D), July 1, 1988, 102 Stat. 689, 770; Pub. L. 101-234,

title I, Sec. 101(a), Dec. 13, 1989, 103 Stat. 1979; Pub. L.

101-508, title IV, Sec. 4008(j)(1), Nov. 5, 1990, 104 Stat.

1388-51; Pub. L. 105-33, title IV, Sec. 4432(b)(5)(G), Aug. 5,

1997, 111 Stat. 422; Pub. L. 106-113, div. B, Sec. 1000(a)(6)

[title IV, Secs. 403(f), 408(a), (b)], Nov. 29, 1999, 113 Stat.

1536, 1501A-371, 1501A-375; Pub. L. 106-554, Sec. 1(a)(6) [title

II, Sec. 203(b)], Dec. 21, 2000, 114 Stat. 2763, 2763A-482.)

-MISC1-

AMENDMENTS

2000 - Subsec. (a)(2)(A). Pub. L. 106-554, Sec. 1(a)(6) [title

II, Sec. 203(b)(1)], inserted "(other than a critical access

hospital)" after "any hospital".

Subsec. (a)(3). Pub. L. 106-554, Sec. 1(a)(6) [title II, Sec.

203(b)(2)], added par. (3).

1999 - Subsec. (a)(1). Pub. L. 106-113, Sec. 1000(a)(6) [title

IV, Sec. 403(f)(1)], struck out "(other than a hospital which has

in effect a waiver under subparagraph (A) of the last sentence of

section 1395x(e) of this title)" after "Any hospital".

Subsec. (b). Pub. L. 106-113, Sec. 1000(a)(6) [title IV, Sec.

408(a)], amended subsec. (b) generally. Prior to amendment, subsec.

(b) read as follows: "The Secretary may not enter into an agreement

under this section with any hospital unless -

"(1) except as provided under subsection (g) of this section,

the hospital is located in a rural area and has less than 100

beds, and

"(2) the hospital has been granted a certificate of need for

the provision of long-term care services from the State health

planning and development agency (designated under section 300m of

this title) for the State in which the hospital is located."

Subsec. (c). Pub. L. 106-113, Sec. 1000(a)(6) [title IV, Sec.

403(f)(2)], struck out ", or during which there is in effect for

the hospital a waiver under subparagraph (A) of the last sentence

of section 1395x(e) of this title" before the period at end of

first sentence.

Subsec. (d). Pub. L. 106-113, Sec. 1000(a)(6) [title IV, Sec.

408(b)], struck out "(1)" before "Any agreement with a hospital"

and struck out pars. (2) and (3), which related to limiting

payments under extended care service agreements pursuant to this

section to hospitals with more than 49 beds where skilled nursing

facilities were available or where such payments exceeded a

designated maximum.

1997 - Subsec. (a)(2)(B)(ii)(II). Pub. L. 105-33 inserted

"subsections (a) through (d) of" before "section 1395yy".

1990 - Subsec. (a)(2)(B)(ii)(II). Pub. L. 101-508 substituted

"the most recent year for which cost reporting data are available

with respect to such services (increased in a compounded manner by

the applicable increase for payments for routine service costs of

skilled nursing facilities under section 1395yy of this title for

subsequent cost reporting periods and up to and including such

calendar year) under this subchapter to freestanding skilled

nursing facilities in the region (as defined in section

1395ww(d)(2)(D) of this title) in which the facility is located."

for "the previous calendar year" and all that follows through the

period, which was executed by making the substitution for "the

previous calendar year under the State plan (of the State in which

the hospital is located) under subchapter XIX of this chapter to

skilled nursing facilities located in the State and which meet the

requirements specified in section 1396a(a)(28) of this title, or,

in the case of a hospital located in a State which does not have

such a State plan, the average rate per patient-day paid for

routine services during the previous calendar year under this

subchapter to skilled nursing facilities in such State."

1989 - Subsecs. (d)(1), (f). Pub. L. 101-234 repealed Pub. L.

100-360, Sec. 104(d)(6), and provided that the provisions of law

amended or repealed by such section are restored or revived as if

such section had not been enacted, see 1988 Amendment notes below.

1988 - Subsec. (d)(1). Pub. L. 100-360, Sec. 104(d)(6), struck

out "post-hospital" before "extended care services" wherever

appearing.

Subsec. (d)(3). Pub. L. 100-360, Sec. 411(b)(4)(D), inserted

before period at end ", except that such payment shall continue to

be made in the period for those patients who are receiving extended

care services at the time the hospital reaches the limit specified

in this paragraph".

Subsec. (f). Pub. L. 100-360, Sec. 411(l)(1)(C), as added by Pub.

L. 100-485, Sec. 608(d)(27)(B), added Pub. L. 100-203, Sec.

4201(d)(3), see 1987 Amendment note below.

Pub. L. 100-360, Sec. 104(d)(6), struck out "post-hospital"

before "extended care services".

1987 - Subsec. (b)(1). Pub. L. 100-203, Sec. 4005(b)(1),

substituted "100" for "50".

Subsec. (d). Pub. L. 100-203, Sec. 4005(b)(2), designated

existing provisions as par. (1) and added pars. (2) and (3).

Subsec. (f). Pub. L. 100-203, Sec. 4201(d)(3), as added by Pub.

L. 100-360, Sec. 411(l)(1)(C), and Pub. L. 100-485, Sec.

608(d)(27)(B), substituted "section 1395i-3" for "section

1395x(j)(15)".

EFFECTIVE DATE OF 2000 AMENDMENT

Pub. L. 106-554, Sec. 1(a)(6) [title II, Sec. 203(c)], Dec. 21,

2000, 114 Stat. 2763, 2763A-482, provided that: "The amendments

made by this section [amending this section and section 1395yy of

this title] shall apply to cost reporting periods beginning on or

after the date of the enactment of this Act [Dec. 21, 2000]."

EFFECTIVE DATE OF 1999 AMENDMENT

Pub. L. 106-113, div. B, Sec. 1000(a)(6) [title IV, Sec. 408(c)],

Nov. 29, 1999, 113 Stat. 1536, 1501A-375, provided that: "The

amendments made by this section [amending this section] take effect

on the date that is the first day after the expiration of the

transition period under section 1888(e)(2)(E) of the Social

Security Act (42 U.S.C. 1395yy(e)(2)(E)) for payments for covered

skilled nursing facility services under the medicare program."

EFFECTIVE DATE OF 1997 AMENDMENT

Amendment by Pub. L. 105-33 applicable to items and services

furnished on or after July 1, 1998, see section 4432(d) of Pub. L.

105-33, set out as a note under section 1395i-3 of this title.

EFFECTIVE DATE OF 1990 AMENDMENT

Section 4008(j)(4) of Pub. L. 101-508 provided that: "The

amendment made by paragraph (1) [amending this section] shall apply

to services furnished on or after October 1, 1990."

EFFECTIVE DATE OF 1989 AMENDMENT

Amendment by Pub. L. 101-234 effective Jan. 1, 1990, see section

101(d) of Pub. L. 101-234, set out as a note under section 1395c of

this title.

EFFECTIVE DATE OF 1988 AMENDMENTS

Amendment by Pub. L. 100-485 effective as if included in the

enactment of the Medicare Catastrophic Coverage Act of 1988, Pub.

L. 100-360, see section 608(g)(1) of Pub. L. 100-485, set out as a

note under section 704 of this title.

Amendment by section 104(d)(6) of Pub. L. 100-360 effective Jan.

1, 1989, except as otherwise provided, and applicable to inpatient

hospital deductible for 1989 and succeeding years, to care and

services furnished on or after Jan. 1, 1989, to premiums for

January 1989 and succeeding months, and to blood or blood cells

furnished on or after Jan. 1, 1989, see section 104(a) of Pub. L.

100-360, set out as a note under section 1395d of this title.

Except as specifically provided in section 411 of Pub. L.

100-360, amendment by section 411(b)(4)(D), (l)(1)(C) of Pub. L.

100-360, as it relates to a provision in the Omnibus Budget

Reconciliation Act of 1987, Pub. L. 100-203, effective as if

included in the enactment of that provision in Pub. L. 100-203, see

section 411(a) of Pub. L. 100-360, set out as a Reference to OBRA;

Effective Date note under section 106 of Title 1, General

Provisions.

EFFECTIVE DATE OF 1987 AMENDMENT

Section 4005(b)(4) of Pub. L. 100-203 provided that: "The

amendments made by paragraphs (1) and (2) [amending this section]

shall apply to agreements under section 1883 of the Social Security

Act [this section] entered into after March 31, 1988."

Amendment by section 4201(d)(3) of Pub. L. 100-203 applicable to

services furnished on or after Oct. 1, 1990, without regard to

whether regulations to implement such amendment are promulgated by

such date, except as otherwise specifically provided in section

1395i-3 of this title, see section 4204(a) of Pub. L. 100-203, as

amended, set out as an Effective Date note under section 1395i-3 of

this title.

EFFECTIVE DATE

Section 904(d) of Pub. L. 96-499 provided that: "The amendments

made by this section [enacting this section and section 1396l of

this title] shall become effective on the date on which final

regulations, promulgated by the Secretary to implement such

amendments, are first issued; and those regulations shall be issued

not later than the first day of the sixth month following the month

in which this Act is enacted [December 1980]."

HOLD HARMLESS FOR AMENDMENT BY PUB. L. 101-508

Section 4008(j)(2) of Pub. L. 101-508 provided that: "If, as a

result of the amendment made by paragraph (1) [amending this

section], the reasonable cost of routine services furnished by a

hospital during a calendar year (as determined under section 1883

of the Social Security Act [this section]) is less than the

reasonable cost of such services determined under such section for

the previous calendar year, the reasonable cost of such services

furnished by the hospital during the calendar year under such

section shall be equal to the reasonable cost determined under such

section for the previous calendar year."

SWING BEDS CERTIFIED PRIOR TO MAY 1, 1987

Section 4008(j)(3) of Pub. L. 101-508 provided that:

"Notwithstanding the requirement of section 1883(b)(1) of the

Social Security Act [subsec. (b)(1) of this section] that the

Secretary may not enter into an agreement under such section with a

hospital that is not located in a rural area, any agreement entered

into under such section on or before May 1, 1987, between the

Secretary of Health and Human Services and a hospital located in an

urban area shall remain in effect."

REPORT OF HOSPITAL ADMISSIONS FOR EXTENDED CARE SERVICES

Section 4005(b)(3) of Pub. L. 100-203, as amended by Pub. L.

100-360, title IV, Sec. 411(b)(4)(E), as added by Pub. L. 100-485,

title VI, Sec. 608(d)(18)(C), Oct. 13, 1988, 102 Stat. 2419,

directed Secretary of Health and Human Services to report to

Congress, not later than Feb. 1, 1989, concerning the proportion of

admissions to hospitals for extended care services under this

section which are denied or approved by a peer review organization,

and recommendations for methods of encouraging hospitals that have

a low occupancy rate, are eligible to enter (but have not entered)

into an agreement under this section, and are located in areas with

a need for additional providers of extended care services, to enter

into such agreements.

REPORT ON HOSPITAL PROVIDERS OF EXTENDED CARE, SKILLED NURSING, AND

INTERMEDIATE CARE SERVICES

Section 904(c) of Pub. L. 96-499 directed Secretary of Health and

Human Services, within three years after Dec. 5, 1980, to submit to

Congress a report evaluating programs established by the amendments

made by this section (enacting this section and section 1396l of

this title), including in such report an analysis of the extent and

effect of the agreements under such programs on availability and

effective and economical provision of long-term care services,

whether such programs should be continued, the results of any

demonstration projects conducted under such programs, and whether

eligibility to participate in such programs should be extended to

other hospitals, regardless of bed size or geographic location,

where there is a shortage of long-term care beds.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 1395i-4, 1395yy, 1396l of

this title.

-End-

-CITE-

42 USC Sec. 1395uu 01/06/03

-EXPCITE-

TITLE 42 - THE PUBLIC HEALTH AND WELFARE

CHAPTER 7 - SOCIAL SECURITY

SUBCHAPTER XVIII - HEALTH INSURANCE FOR AGED AND DISABLED

Part D - Miscellaneous Provisions

-HEAD-

Sec. 1395uu. Payments to promote closing or conversion of

underutilized hospital facilities

-STATUTE-

(a) Transitional allowances; procedures applicable

Any hospital may file an application with the Secretary (in such

form and including such data and information as the Secretary may

require) for establishment of a transitional allowance under this

subchapter with respect to the closing or conversion of an

underutilized hospital facility. The Secretary also may establish

procedures, consistent with this section, by which a hospital,

before undergoing an actual closure or conversion of a hospital

facility, can have a determination made as to whether or not it

will be eligible for a transitional allowance under this section

with respect to such closure or conversion.

(b) Allowable costs as transitional allowances; findings and

determinations

If the Secretary finds, after consideration of an application

under subsection (a) of this section, that -

(1) the hospital's closure or conversion -

(A) is formally initiated after September 30, 1981,

(B) is expected to benefit the program under this subchapter

by (i) eliminating excess bed capacity, (ii) discontinuing an

underutilized service for which there are adequate alternative

sources, or (iii) substituting for the underutilized service

some other service which is needed in the area, and

(C) is consistent with the findings of an appropriate health

planning agency and with any applicable State program for

reduction in the number of hospital beds in the State, and

(2) in the case of a complete closure of a hospital -

(A) the hospital is a private nonprofit hospital or a local

governmental hospital, and

(B) the closure is not for replacement of the hospital,

the Secretary may include as an allowable cost in the hospital's

reasonable cost (for the purpose of making payments to the hospital

under this subchapter) an amount (in this section referred to as a

"transitional allowance"), as provided in subsection (c) of this

section.

(c) Factors determinative of transitional allowance

(1) Each transitional allowance established shall be reasonably

related to the prior or prospective use of the facility involved

under this subchapter and shall recognize -

(A) in the case of a facility conversion or closure (other than

a complete closure of a hospital) -

(i) in the case of a private nonprofit or local governmental

hospital, that portion of the hospital's costs attributable to

capital assets of the facility which have been taken into

account in determining reasonable cost for purposes of

determining the amount of payment to the hospital under this

subchapter, and

(ii) in the case of any hospital, transitional operating cost

increases related to the conversion or closure to the extent

that such operating costs exceed amounts ordinarily

reimbursable under this subchapter; and

(B) in the case of complete closure of a hospital, the

outstanding portion of actual debt obligations previously

recognized as reasonable for purposes of reimbursement under this

subchapter, less any salvage value of the hospital.

(2) A transitional allowance shall be for a period (not to exceed

20 years) specified by the Secretary, except that, in the case of a

complete closure described in paragraph (1)(B), the Secretary may

provide for a lump-sum allowance where the Secretary determines

that such a one-time allowance is more efficient and economical.

(3) A transitional allowance shall take effect on a date

established by the Secretary, but not earlier than the date of

completion of the closure or conversion concerned.

(4) A transitional allowance shall not be considered in applying

the limits to costs recognized as reasonable pursuant to the third

sentence of subparagraph (A) and subparagraph (L)(i) of section

1395x(v)(1) of this title, or in determining whether the reasonable

cost exceeds the customary charges for a service for purposes of

determining the amount to be paid to a provider pursuant to

sections 1395f(b) and 1395l(a)(2) of this title.

(d) Hearing to review determination

A hospital dissatisfied with a determination of the Secretary on

its application under this section may obtain an informal or formal

hearing, at the discretion of the Secretary, by filing (in such

form and within such time period as the Secretary establishes) a

request for such a hearing. The Secretary shall make a final

determination on such application within 30 days after the last day

of such hearing.

-SOURCE-

(Aug. 14, 1935, ch. 531, title XVIII, Sec. 1884, as added Pub. L.

97-35, title XXI, Sec. 2101(a)[(1)], Aug. 13, 1981, 95 Stat. 785;

amended Pub. L. 97-248, title I, Sec. 128(a)(6), Sept. 3, 1982, 96

Stat. 366.)

-MISC1-

AMENDMENTS

1982 - Subsec. (d). Pub. L. 97-248 redesignated second subsec.

(c), relating to hearing to review determination, as subsec. (d).

EFFECTIVE DATE OF 1982 AMENDMENT

Amendment by Pub. L. 97-248 effective as if originally included

as part of this section as this section was enacted by the Omnibus

Budget Reconciliation Act of 1981, Pub. L. 97-35, see section

128(e)(2) of Pub. L. 97-248, set out as a note under section 1395x

of this title.

EFFECTIVE DATE

Section 2101(c) of Pub. L. 97-35 provided that: "The amendment

made by subsection (a) [enacting this section and amending section

1396b of this title] shall apply only to services furnished by a

hospital during any accounting year beginning on or after October

1, 1981."

PAYMENTS TO PROMOTE CLOSURE AND CONVERSION OF UNDERUTILIZED

HOSPITAL FACILITIES

Pub. L. 98-369, div. B, title III, Sec. 2353, July 18, 1984, 98

Stat. 1099, directed Secretary of Health and Human Services to

carry out a study and report to Congress prior to Mar. 31, 1985, on

modifications required in this section in order to conform the

closure and conversion program authorized in that section to the

prospective payment system under section 1395ww(d) of this title,

so as to provide assistance to hospitals which may have particular

problems in converting facilities (or parts thereof) from acute

care to less intensive care or in closing facilities (or parts

thereof), such report to include recommendations as to how, and

whether, implementation of this section as modified may result in

reductions in total hospital inpatient costs and total expenditures

under this subchapter, and prohibited from implementing this

section prior to Mar. 31, 1985.

ESTABLISHMENT AND EVALUATION OF TRANSITIONAL ALLOWANCES; REPORT AND

RECOMMENDATIONS TO CONGRESS

Section 2101(b) of Pub. L. 97-35 prohibited Secretary of Health

and Human Services from establishing under this section

transitional allowances with respect to more than 50 hospitals

prior to Jan. 1, 1984, and directed Secretary to evaluate

effectiveness of program of transitional allowances established

under this section and, not later than Jan. 1, 1983, report to

Congress on such evaluation and include in such report such

recommendations for such legislative changes as deemed appropriate.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in section 1396b of this title.

-End-

-CITE-

42 USC Sec. 1395vv 01/06/03

-EXPCITE-

TITLE 42 - THE PUBLIC HEALTH AND WELFARE

CHAPTER 7 - SOCIAL SECURITY

SUBCHAPTER XVIII - HEALTH INSURANCE FOR AGED AND DISABLED

Part D - Miscellaneous Provisions

-HEAD-

Sec. 1395vv. Withholding payments from certain medicaid providers

-STATUTE-

(a) Adjustments by Secretary

The Secretary may adjust, in accordance with this section,

payments under parts A and B to any institution which has in effect

an agreement with the Secretary under section 1395cc of this title,

and any person who has accepted payment on the basis of an

assignment under section 1395u(b)(3)(B)(ii) of this title, where

such institution or person -

(1) has (or previously had) in effect an agreement with a State

agency to furnish medical care and services under a State plan

approved under subchapter XIX of this chapter, and

(2) from which (or from whom) such State agency (A) has been

unable to recover overpayments made under the State plan, or (B)

has been unable to collect the information necessary to enable it

to determine the amount (if any) of the overpayments made to such

institution or person under the State plan.

(b) Implementing regulations; notice, opportunity to be heard, etc.

The Secretary shall by regulation provide procedures for

implementation of this section, which procedures shall -

(1) assure that the authority under this section is exercised

only on behalf of a State agency which demonstrates to the

Secretary's satisfaction that it has provided adequate notice of

a determination or of a need for information, and an opportunity

to appeal such determination or to provide such information,

(2) determine the amount of the payment to which the

institution or person would otherwise be entitled under this

subchapter which shall be treated as a setoff against

overpayments under subchapter XIX of this chapter, and

(3) assure the restoration to the institution or person of

amounts withheld under this section which are ultimately

determined to be in excess of overpayments under subchapter XIX

of this chapter and to which the institution or person would

otherwise be entitled under this subchapter.

(c) Payment to States of amounts recovered

Notwithstanding any other provision of this chapter, from the

trust funds established under sections 1395i and 1395t of this

title, as appropriate, the Secretary shall pay to the appropriate

State agency amounts recovered under this section to offset the

State agency's overpayment under subchapter XIX of this chapter.

Such payments shall be accounted for by the State agency as

recoveries of overpayments under the State plan.

-SOURCE-

(Aug. 14, 1935, ch. 531, title XVIII, Sec. 1885, as added Pub. L.

97-35, title XXI, Sec. 2104, Aug. 13, 1981, 95 Stat. 788.)

-End-

-CITE-

42 USC Sec. 1395ww 01/06/03

-EXPCITE-

TITLE 42 - THE PUBLIC HEALTH AND WELFARE

CHAPTER 7 - SOCIAL SECURITY

SUBCHAPTER XVIII - HEALTH INSURANCE FOR AGED AND DISABLED

Part D - Miscellaneous Provisions

-HEAD-

Sec. 1395ww. Payments to hospitals for inpatient hospital services

-STATUTE-

(a) Determination of costs for inpatient hospital services;

limitations; exemptions; "operating costs of inpatient hospital

services" defined

(1)(A)(i) The Secretary, in determining the amount of the

payments that may be made under this subchapter with respect to

operating costs of inpatient hospital services (as defined in

paragraph (4)) shall not recognize as reasonable (in the efficient

delivery of health services) costs for the provision of such

services by a hospital for a cost reporting period to the extent

such costs exceed the applicable percentage (as determined under

clause (ii)) of the average of such costs for all hospitals in the

same grouping as such hospital for comparable time periods.

(ii) For purposes of clause (i), the applicable percentage for

hospital cost reporting periods beginning -

(I) on or after October 1, 1982, and before October 1, 1983, is

120 percent;

(II) on or after October 1, 1983, and before October 1, 1984,

is 115 percent; and

(III) on or after October 1, 1984, is 110 percent.

(B)(i) For purposes of subparagraph (A) the Secretary shall

establish case mix indexes for all short-term hospitals, and shall

set limits for each hospital based upon the general mix of types of

medical cases with respect to which such hospital provides services

for which payment may be made under this subchapter.

(ii) The Secretary shall set such limits for a cost reporting

period of a hospital -

(I) by updating available data for a previous period to the

immediate preceding cost reporting period by the estimated

average rate of change of hospital costs industry-wide, and

(II) by projecting for the cost reporting period by the

applicable percentage increase (as defined in subsection

(b)(3)(B) of this section).

(C) The limitation established under subparagraph (A) for any

hospital shall in no event be lower than the allowable operating

costs of inpatient hospital services (as defined in paragraph (4))

recognized under this subchapter for such hospital for such

hospital's last cost reporting period prior to the hospital's first

cost reporting period for which this section is in effect.

(D) Subparagraph (A) shall not apply to cost reporting periods

beginning on or after October 1, 1983.

(2) The Secretary shall provide for such exemptions from, and

exceptions and adjustments to, the limitation established under

paragraph (1)(A) as he deems appropriate, including those which he

deems necessary to take into account -

(A) the special needs of sole community hospitals, of new

hospitals, of risk based health maintenance organizations, and of

hospitals which provide atypical services or essential community

services, and to take into account extraordinary circumstances

beyond the hospital's control, medical and paramedical education

costs, significantly fluctuating population in the service area

of the hospital, and unusual labor costs,

(B) the special needs of psychiatric hospitals and of public or

other hospitals that serve a significantly disproportionate

number of patients who have low income or are entitled to

benefits under part A of this subchapter, and

(C) a decrease in the inpatient hospital services that a

hospital provides and that are customarily provided directly by

similar hospitals which results in a significant distortion in

the operating costs of inpatient hospital services.

(3) The limitation established under paragraph (1)(A) shall not

apply with respect to any hospital which -

(A) is located outside of a standard metropolitan statistical

area, and

(B)(i) has less than 50 beds, and

(ii) was in operation and had less than 50 beds on September 3,

1982.

(4) For purposes of this section, the term "operating costs of

inpatient hospital services" includes all routine operating costs,

ancillary service operating costs, and special care unit operating

costs with respect to inpatient hospital services as such costs are

determined on an average per admission or per discharge basis (as

determined by the Secretary), and includes the costs of all

services for which payment may be made under this subchapter that

are provided by the hospital (or by an entity wholly owned or

operated by the hospital) to the patient during the 3 days (or, in

the case of a hospital that is not a subsection (d) hospital,

during the 1 day) immediately preceding the date of the patient's

admission if such services are diagnostic services (including

clinical diagnostic laboratory tests) or are other services related

to the admission (as defined by the Secretary). Such term does not

include costs of approved educational activities, a return on

equity capital, other capital-related costs (as defined by the

Secretary for periods before October 1, 1987), or costs with

respect to administering blood clotting factors to individuals with

hemophilia.

(b) Computation of payment; definitions; exemptions; adjustments

(1) Notwithstanding section 1395f(b) of this title but subject to

the provisions of section 1395e of this title, if the operating

costs of inpatient hospital services (as defined in subsection

(a)(4) of this section) of a hospital (other than a subsection (d)

hospital, as defined in subsection (d)(1)(B) of this section and

other than a rehabilitation facility described in subsection (j)(1)

of this section) for a cost reporting period subject to this

paragraph -

(A) are less than or equal to the target amount (as defined in

paragraph (3)) for that hospital for that period, the amount of

the payment with respect to such operating costs payable under

part A of this subchapter on a per discharge or per admission

basis (as the case may be) shall be equal to the amount of such

operating costs, plus -

(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) 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 of this

subchapter on a per discharge basis shall equal the target

amount; or

(C) are greater than 110 percent of the target amount, the

amount of the payment with respect to such operating costs

payable under part A of this subchapter on a per discharge or per

admission basis (as the case may be) shall be equal to (i) the

target amount, plus (ii) in the case of cost reporting periods

beginning on or after October 1, 1991, an additional amount equal

to 50 percent of the amount by which the operating costs exceed

110 percent of the target amount (except that such additional

amount may not exceed 10 percent of the target amount) after any

exceptions or adjustments are made to such target amount for the

cost reporting period;

plus the amount, if any, provided under paragraph (2), except that

in no case may the amount payable under this subchapter (other than

on the basis of a DRG prospective payment rate determined under

subsection (d) of this section) with respect to operating costs of

inpatient hospital services exceed the maximum amount payable with

respect to such costs pursuant to subsection (a) of this section.

(2)(A) Except as provided in subparagraph (E), 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.

(E)(i) In the case of an eligible hospital that is a hospital or

unit that is within a class of hospital described in clause (ii)

with a 12-month cost reporting period beginning before November 29,

1999, in determining the amount of the increase under subparagraph

(A), the Secretary shall substitute for the percentage of the

target amount applicable under subparagraph (A)(ii) -

(I) for a cost reporting period beginning on or after October

1, 2000, and before September 30, 2001, 1.5 percent; and

(II) for a cost reporting period beginning on or after October

1, 2001, and before September 30, 2002, 2 percent.

(ii) For purposes of clause (i), each of the following shall be

treated as a separate class of hospital:

(I) Hospitals described in clause (i) of subsection (d)(1)(B)

of this section and psychiatric units described in the matter

following clause (v) of such subsection.

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

(3)(A) Except as provided in subparagraph (C) and succeeding

subparagraphs, and in paragraph (7)(A)(ii), for purposes of this

subsection, the term "target amount" means, with respect to a

hospital for a particular 12-month cost reporting period -

(i) in the case of the first such reporting period for which

this subsection is in effect, the allowable operating costs of

inpatient hospital services (as defined in subsection (a)(4) of

this section) recognized under this subchapter for such hospital

for the preceding 12-month cost reporting period, and

(ii) in the case of a later reporting period, the target amount

for the preceding 12-month cost reporting period,

increased by the applicable percentage increase under subparagraph

(B) for that particular cost reporting period.

(B)(i) For purposes of subsection (d) of this section and

subsection (j) of this section for discharges occurring during a

fiscal year, the "applicable percentage increase" shall be -

(I) for fiscal year 1986, 1/2 percent,

(II) for fiscal year 1987, 1.15 percent,

(III) for fiscal year 1988, 3.0 percent for hospitals located

in a rural area, 1.5 percent for hospitals located in a large

urban area (as defined in subsection (d)(2)(D) of this section),

and 1.0 percent for hospitals located in other urban areas,

(IV) for fiscal year 1989, the market basket percentage

increase minus 1.5 percent for hospitals located in a rural area,

the market basket percentage increase minus 2.0 percentage points

for hospitals located in a large urban area, and the market

basket percentage increase minus 2.5 percentage points for

hospitals located in other urban areas,

(V) for fiscal year 1990, the market basket percentage increase

plus 4.22 percentage points for hospitals located in a rural

area, the market basket percentage increase plus 0.12 percentage

points for hospitals located in a large urban area, and the

market basket percentage increase minus 0.53 percentage points

for hospitals located in other urban areas,

(VI) for fiscal year 1991, the market basket percentage

increase minus 2.0 percentage points for hospitals in a large

urban or other urban area, and the market basket percentage

increase minus 0.7 percentage point for hospitals located in a

rural area,

(VII) for fiscal year 1992, the market basket percentage

increase minus 1.6 percentage points for hospitals in a large

urban or other urban area, and the market basket percentage

increase minus 0.6 percentage point for hospitals located in a

rural area,

(VIII) for fiscal year 1993, the market basket percentage

increase minus 1.55 percentage point for hospitals in a large

urban or other urban area, and the market basket percentage

increase minus 0.55 (!1) for hospitals located in a rural area,

(IX) for fiscal year 1994, the market basket percentage

increase minus 2.5 percentage points for hospitals located in a

large urban or other urban area, and the market basket percentage

increase minus 1.0 percentage point for hospitals located in a

rural area,

(X) for fiscal year 1995, the market basket percentage increase

minus 2.5 percentage points for hospitals located in a large

urban or other urban area, and such percentage increase for

hospitals located in a rural area as will provide for the average

standardized amount determined under subsection (d)(3)(A) of this

section for hospitals located in a rural area being equal to such

average standardized amount for hospitals located in an urban

area (other than a large urban area),

(XI) for fiscal year 1996, the market basket percentage

increase minus 2.0 percentage points for hospitals in all areas,

(XII) for fiscal year 1997, the market basket percentage

increase minus 0.5 percentage point for hospitals in all areas,

(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 fiscal year 2001, the market basket percentage

increase for hospitals in all areas,

(XVII) for fiscal year 2002, the market basket percentage

increase minus 0.55 percentage points for hospitals in all areas,

(XVIII) for fiscal year 2003, the market basket percentage

increase minus 0.55 percentage points for hospitals in all areas,

and

(XIX) for fiscal year 2004 and each subsequent fiscal year, the

market basket percentage increase for hospitals in all areas.

(ii) For purposes of subparagraphs (A) and (E), the "applicable

percentage increase" for 12-month cost reporting periods beginning

during -

(I) fiscal year 1986, is 0.5 percent,

(II) fiscal year 1987, is 1.15 percent,

(III) fiscal year 1988, is the market basket percentage

increase minus 2.0 percentage points,

(IV) a subsequent fiscal year ending on or before September 30,

1993, is the market basket percentage increase,

(V) fiscal years 1994 through 1997, is the market basket

percentage increase minus the applicable reduction (as defined in

clause (v)(II)), or in the case of a hospital for a fiscal year

for which the hospital's update adjustment percentage (as defined

in clause (v)(I)) is at least 10 percent, the market basket

percentage increase,

(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

(VIII) subsequent fiscal years is the market basket percentage

increase.

(iii) For purposes of this subparagraph, the term "market basket

percentage increase" means, with respect to cost reporting periods

and discharges occurring in a fiscal year, the percentage,

estimated by the Secretary before the beginning of the period or

fiscal year, by which the cost of the mix of goods and services

(including personnel costs but excluding nonoperating costs)

comprising routine, ancillary, and special care unit inpatient

hospital services, based on an index of appropriately weighted

indicators of changes in wages and prices which are representative

of the mix of goods and services included in such inpatient

hospital services, for the period or fiscal year will exceed the

cost of such mix of goods and services for the preceding 12-month

cost reporting period or fiscal year.

(iv) For purposes of subparagraphs (C) and (D), the "applicable

percentage increase" is -

(I) for 12-month cost reporting periods beginning during fiscal

years 1986 through 1993, the applicable percentage increase

specified in clause (ii),

(II) for fiscal year 1994, the market basket percentage

increase minus 2.3 percentage points (adjusted to exclude any

portion of a cost reporting period beginning during fiscal year

1993 for which the applicable percentage increase is determined

under subparagraph (I)),

(III) for fiscal year 1995, the market basket percentage

increase minus 2.2 percentage points, and

(IV) for fiscal year 1996 and each subsequent fiscal year, the

applicable percentage increase under clause (i).

(v) For purposes of clause (ii)(V) -

(I) a hospital's "update adjustment percentage" for a fiscal

year is the percentage by which the hospital's allowable

operating costs of inpatient hospital services recognized under

this subchapter for the cost reporting period beginning in fiscal

year 1990 exceeds the hospital's target amount (as determined

under subparagraph (A)) for such cost reporting period, increased

for each fiscal year (beginning with fiscal year 1994) by the sum

of any of the hospital's applicable reductions under subclause

(V) for previous fiscal years; and

(II) the "applicable reduction" with respect to a hospital for

a fiscal year is the lesser of 1 percentage point or the

percentage point difference between 10 percent and the hospital's

update adjustment percentage for the fiscal year.

(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 subchapter 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.

(C) In the case of a hospital that is a sole community hospital

(as defined in subsection (d)(5)(D)(iii) of this section), subject

to subparagraph (I), the term "target amount" means -

(i) with respect to the first 12-month cost reporting period in

which this subparagraph is applied to the hospital -

(I) the allowable operating costs of inpatient hospital

services (as defined in subsection (a)(4) of this section)

recognized under this subchapter for the hospital for the

12-month cost reporting period (in this subparagraph referred

to as the "base cost reporting period") preceding the first

cost reporting period for which this subsection was in effect

with respect to such hospital, increased (in a compounded

manner) by -

(II) the applicable percentage increases applied to such

hospital under this paragraph for cost reporting periods after

the base cost reporting period and up to and including such

first 12-month cost reporting period,

(ii) with respect to a later cost reporting period beginning

before fiscal year 1994, the target amount for the preceding

12-month cost reporting period, increased by the applicable

percentage increase under subparagraph (B)(iv) for discharges

occurring in the fiscal year in which that later cost reporting

period begins,

(iii) with respect to discharges occurring in fiscal year 1994,

the target amount for the cost reporting period beginning in

fiscal year 1993 increased by the applicable percentage increase

under subparagraph (B)(iv), or

(iv) with respect to discharges occurring in fiscal year 1995

and each subsequent fiscal year, the target amount for the

preceding year increased by the applicable percentage increase

under subparagraph (B)(iv).

There shall be substituted for the base cost reporting period

described in clause (i) a hospital's cost reporting period (if any)

beginning during fiscal year 1987 if such substitution results in

an increase in the target amount for the hospital.

(D) For cost reporting periods ending on or before September 30,

1994, and for discharges beginning on or after October 1, 1997, and

before October 1, 2006, in the case of a hospital that is a

medicare-dependent, small rural hospital (as defined in subsection

(d)(5)(G) of this section), the term "target amount" means -

(i) with respect to the first 12-month cost reporting period in

which this subparagraph is applied to the hospital -

(I) the allowable operating costs of inpatient hospital

services (as defined in subsection (a)(4) of this section)

recognized under this subchapter for the hospital for the

12-month cost reporting period (in this subparagraph referred

to as the "base cost reporting period") preceding the first

cost reporting period for which this subsection was in effect

with respect to such hospital, increased (in a compounded

manner) by -

(II) the applicable percentage increases applied to such

hospital under this paragraph for cost reporting periods after

the base cost reporting period and up to and including such

first 12-month cost reporting period, or

(ii) with respect to a later cost reporting period beginning

before fiscal year 1994, the target amount for the preceding

12-month cost reporting period, increased by the applicable

percentage increase under subparagraph (B)(iv) for discharges

occurring in the fiscal year in which that later cost reporting

period begins,

(iii) with respect to discharges occurring in fiscal year 1994,

the target amount for the cost reporting period beginning in

fiscal year 1993 increased by the applicable percentage increase

under subparagraph (B)(iv), and

(iv) with respect to discharges occurring during fiscal year

1998 through fiscal year 2005, the target amount for the

preceding year increased by the applicable percentage increase

under subparagraph (B)(iv).

There shall be substituted for the base cost reporting period

described in clause (i) a hospital's cost reporting period (if any)

beginning during fiscal year 1987 if such substitution results in

an increase in the target amount for the hospital.

(E) In the case of a hospital described in clause (v) of

subsection (d)(1)(B) of this section, the term "target amount"

means -

(i) with respect to the first 12-month cost reporting period in

which this subparagraph is applied to the hospital -

(I) the allowable operating costs of inpatient hospital

services (as defined in subsection (a)(4) of this section)

recognized under this subchapter for the hospital for the

12-month cost reporting period (in this subparagraph referred

to as the "base cost reporting period") preceding the first

cost reporting period for which this subsection was in effect

with respect to such hospital, increased (in a compounded

manner) by -

(II) the sum of the applicable percentage increases applied

to such hospital under this paragraph for cost reporting

periods after the base cost reporting period and up to and

including such first 12-month cost reporting period, or

(ii) with respect to a later cost reporting period, the target

amount for the preceding 12-month cost reporting period,

increased by the applicable percentage increase under

subparagraph (B)(ii) for that later cost reporting period.

There shall be substituted for the base cost reporting period

described in clause (i) a hospital's cost reporting period (if any)

beginning during fiscal year 1987 if such substitution results in

an increase in the target amount for the hospital.

(F)(i) In the case of a hospital (or unit described in the matter

following clause (v) of subsection (d)(1)(B) of this section) 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 August 5, 1997.

(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)

of this section 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.

(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) of this section) recognized under this

subchapter 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) of this section during each of

the 2 cost reporting periods for which the Secretary has the most

recent settled cost reports as of August 5, 1997, for each of which

-

(I) the hospital's allowable operating costs of inpatient

hospital services recognized under this subchapter 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) of this section) if the hospital

were a subsection (d) hospital.

(H)(i) In the case of a hospital or unit that is within a class

of hospital described in clause (iv), for a cost reporting period

beginning during fiscal years 1998 through 2002, the target amount

for such a hospital or unit may not exceed the amount as updated up

to or for such cost reporting period under clause (ii).

(ii)(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, as adjusted under clause (iii).

(II) The Secretary shall update the amount determined under

subclause (I), for each cost reporting period after the cost

reporting period described in such subclause 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, subject to subparagraph (J), the Secretary

shall update such amount by a factor equal to the market basket

percentage increase.

(iii) In applying clause (ii)(I) 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.

(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)

of this section 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.

(I)(i) For cost reporting periods beginning on or after October

1, 2000, in the case of a sole community hospital there shall be

substituted for the amount otherwise determined under subsection

(d)(5)(D)(i) of this section, if such substitution results in a

greater amount of payment under this section for the hospital -

(I) with respect to discharges occurring in fiscal year 2001,

75 percent of the the (!2) amount otherwise applicable to the

hospital under subsection (d)(5)(D)(i) of this section (referred

to in this clause as the "subsection (d)(5)(D)(i) amount") and 25

percent of the rebased target amount (as defined in clause (ii));

(II) with respect to discharges occurring in fiscal year 2002,

50 percent of the subsection (d)(5)(D)(i) amount and 50 percent

of the rebased target amount;

(III) with respect to discharges occurring in fiscal year 2003,

25 percent of the subsection (d)(5)(D)(i) amount and 75 percent

of the rebased target amount; and

(IV) with respect to discharges occurring after fiscal year

2003, 100 percent of the rebased target amount.

(ii) For purposes of this subparagraph, the "rebased target

amount" has the meaning given the term "target amount" in

subparagraph (C) except that -

(I) there shall be substituted for the base cost reporting

period the 12-month cost reporting period beginning during fiscal

year 1996;

(II) any reference in subparagraph (C)(i) to the "first cost

reporting period" described in such subparagraph is deemed a

reference to the first cost reporting period beginning on or

after October 1, 2000; and

(III) applicable increase percentage shall only be applied

under subparagraph (C)(iv) for discharges occurring in fiscal

years beginning with fiscal year 2002.

(J) For cost reporting periods beginning during fiscal year 2001,

for a hospital described in subsection (d)(1)(B)(iv) of this

section -

(i) the limiting or cap amount otherwise determined under

subparagraph (H) shall be increased by 2 percent; and

(ii) the target amount otherwise determined under subparagraph

(A) shall be increased by 25 percent (subject to the limiting or

cap amount determined under subparagraph (H), as increased by

clause (i)).

(4)(A)(i) The Secretary shall provide for an exception and

adjustment to (and in the case of a hospital described in

subsection (d)(1)(B)(iii) of this section, may provide an exemption

from) the method under this subsection for determining the amount

of payment to a hospital where events beyond the hospital's control

or extraordinary circumstances, including changes in the case mix

of such hospital, create a distortion in the increase in costs for

a cost reporting period (including any distortion in the costs for

the base period against which such increase is measured). The

Secretary may provide for such other exemptions from, and

exceptions and adjustments to, such method as the Secretary deems

appropriate, including the assignment of a new base period which is

more representative, as determined by the Secretary, of the

reasonable and necessary cost of inpatient services and including

those which he deems necessary to take into account a decrease in

the inpatient hospital services that a hospital provides and that

are customarily provided directly by similar hospitals which

results in a significant distortion in the operating costs of

inpatient hospital services. The Secretary shall announce a

decision on any request for an exemption, exception, or adjustment

under this paragraph not later than 180 days after receiving a

completed application from the intermediary for such exemption,

exception, or adjustment, and shall include in such decision a

detailed explanation of the grounds on which such request was

approved or denied.

(ii) The payment reductions under paragraph (3)(B)(ii)(V) shall

not be considered by the Secretary in making adjustments pursuant

to clause (i). 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.

(B) In determining under subparagraph (A) whether to assign a new

base period which is more representative of the reasonable and

necessary cost to a hospital of providing inpatient services, the

Secretary shall take into consideration -

(i) changes in applicable technologies and medical practices,

or differences in the severity of illness among patients, that

increase the hospital's costs;

(ii) whether increases in wages and wage-related costs for

hospitals located in the geographic area in which the hospital is

located exceed the average of the increases in such costs paid by

hospitals in the United States; and

(iii) such other factors as the Secretary considers appropriate

in determining increases in the hospital's costs of providing

inpatient services.

(C) Paragraph (1) shall not apply to payment of hospitals which

is otherwise determined under paragraph (3) of section 1395f(b) of

this title.

(5) In the case of any hospital having any cost reporting period

of other than a 12-month period, the Secretary shall determine the

12-month period which shall be used for purposes of this section.

(6) In the case of any hospital which becomes subject to the

taxes under section 3111 of the Internal Revenue Code of 1986, with

respect to any or all of its employees, for part or all of a cost

reporting period, and was not subject to such taxes with respect to

any or all of its employees for all or part of the 12-month base

cost reporting period referred to in subsection (b)(3)(A)(i) of

this section, the Secretary shall provide for an adjustment by

increasing the base period amount described in such subsection for

such hospital by an amount equal to the amount of such taxes which

would have been paid or accrued by such hospital for such base

period if such hospital had been subject to such taxes for all of

such base period with respect to all its employees, minus the

amount of any such taxes actually paid or accrued for such base

period.

(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 of this subchapter 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 (as estimated by the

Secretary) 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)

of this section 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.

(c) Payment in accordance with State hospital reimbursement control

system; amount of payment; discontinuance of payments

(1) The Secretary may provide, in his discretion, that payment

with respect to services provided by a hospital in a State may be

made in accordance with a hospital reimbursement control system in

a State, rather than in accordance with the other provisions of

this title, if the chief executive officer of the State requests

such treatment and if -

(A) the Secretary determines that the system, if approved under

this subsection, will apply (i) to substantially all non-Federal

acute care hospitals (as defined by the Secretary) in the State

and (ii) to the review of at least 75 percent of all revenues or

expenses in the State for inpatient hospital services and of

revenues or expenses for inpatient hospital services provided

under the State's plan approved under subchapter XIX of this

chapter;

(B) the Secretary has been provided satisfactory assurances as

to the equitable treatment under the system of all entities

(including Federal and State programs) that pay hospitals for

inpatient hospital services, of hospital employees, and of

hospital patients;

(C) the Secretary has been provided satisfactory assurances

that under the system, over 36-month periods (the first such

period beginning with the first month in which this subsection

applies to that system in the State), the amount of payments made

under this subchapter under such system will not exceed the

amount of payments which would otherwise have been made under

this subchapter not using such system;

(D) the Secretary determines that the system will not preclude

an eligible organization (as defined in section 1395mm(b) of this

title) from negotiating directly with hospitals with respect to

the organization's rate of payment for inpatient hospital

services; and

(E) the Secretary determines that the system requires hospitals

to meet the requirement of section 1395cc(a)(1)(G) of this title

and the system provides for the exclusion of certain costs in

accordance with section 1395y(a)(14) of this title (except for

such waivers thereof as the Secretary provides by regulation).

The Secretary cannot deny the application of a State under this

subsection on the ground that the State's hospital reimbursement

control system is based on a payment methodology other than on the

basis of a diagnosis-related group or on the ground that the amount

of payments made under this subchapter under such system must be

less than the amount of payments which would otherwise have been

made under this subchapter not using such system. If the Secretary

determines that the conditions described in subparagraph (C) are

based on maintaining payment amounts at no more than a specified

percentage increase above the payment amounts in a base period, the

State has the option of applying such test (for inpatient hospital

services under part A of this subchapter) on an aggregate payment

basis or on the basis of the amount of payment per inpatient

discharge or admission. If the Secretary determines that the

conditions described in subparagraph (C) are based on maintaining

aggregate payment amounts below a national average percentage

increase in total payments under part A of this subchapter for

inpatient hospital services, the Secretary cannot deny the

application of a State under this subsection on the ground that the

State's rate of increase in such payments for such services must be

less than such national average rate of increase.

(2) In determining under paragraph (1)(C) the amount of payment

which would otherwise have been made under this subchapter for a

State, the Secretary may provide for appropriate adjustment of such

amount to take into account previous reductions effected in the

amount of payments made under this subchapter in the State due to

the operation of the hospital reimbursement control system in the

State if the system has resulted in an aggregate rate of increase

in operating costs of inpatient hospital services (as defined in

subsection (a)(4) of this section) under this subchapter for

hospitals in the State which is less than the aggregate rate of

increase in such costs under this subchapter for hospitals in the

United States.

(3) The Secretary shall discontinue payments under a system

described in paragraph (1) if the Secretary -

(A) determines that the system no longer meets the requirements

of subparagraphs (A), (D), and (E) of paragraph (1) and, if

applicable, the requirements of paragraph (5), or

(B) has reason to believe that the assurances described in

subparagraph (B) or (C) of paragraph (1) (or, if applicable, in

paragraph (5)) are not being (or will not be) met.

(4) The Secretary shall approve the request of a State under

paragraph (1) with respect to a hospital reimbursement control

system if -

(A) the requirements of subparagraphs (A), (B), (C), (D), and

(E) of paragraph (1) have been met with respect to the system,

and

(B) with respect to that system a waiver of certain

requirements of this subchapter has been approved on or before

(and which is in effect as of) April 20, 1983, pursuant to

section 1395b-1(a) of this title or section 222(a) of the Social

Security Amendments of 1972.

With respect to a State system described in this paragraph, the

Secretary shall judge the effectiveness of such system on the basis

of its rate of increase or inflation in inpatient hospital payments

for individuals under this subchapter, as compared to the national

rate of increase or inflation for such payments, with the State

retaining the option to have the test applied on the basis of the

aggregate payments under the State system as compared to aggregate

payments which would have been made under the national system since

October 1, 1984, to the most recent date for which annual data are

available.

(5) The Secretary shall approve the request of a State under

paragraph (1) with respect to a hospital reimbursement control

system if -

(A) the requirements of subparagraphs (A), (B), (C), (D), and

(E) of paragraph (1) have been met with respect to the system;

(B) the Secretary determines that the system -

(i) is operated directly by the State or by an entity

designated pursuant to State law,

(ii) provides for payment of hospitals covered under the

system under a methodology (which sets forth exceptions and

adjustments, as well as any method for changes in the

methodology) by which rates or amounts to be paid for hospital

services during a specified period are established under the

system prior to the defined rate period, and

(iii) hospitals covered under the system will make such

reports (in lieu of cost and other reports, identified by the

Secretary, otherwise required under this subchapter) as the

Secretary may require in order to properly monitor assurances

provided under this subsection;

(C) the State has provided the Secretary with satisfactory

assurances that operation of the system will not result in any

change in hospital admission practices which result in -

(i) a significant reduction in the proportion of patients

(receiving hospital services covered under the system) who have

no third-party coverage and who are unable to pay for hospital

services,

(ii) a significant reduction in the proportion of individuals

admitted to hospitals for inpatient hospital services for which

payment is (or is likely to be) less than the anticipated

charges for or costs of such services,

(iii) the refusal to admit patients who would be expected to

require unusually costly or prolonged treatment for reasons

other than those related to the appropriateness of the care

available at the hospital, or

(iv) the refusal to provide emergency services to any person

who is in need of emergency services if the hospital provides

such services;

(D) any change by the State in the system which has the effect

of materially reducing payments to hospitals can only take effect

upon 60 days notice to the Secretary and to the hospitals the

payment to which is likely to be materially affected by the

change; and

(E) the State has provided the Secretary with satisfactory

assurances that in the development of the system the State has

consulted with local governmental officials concerning the impact

of the system on public hospitals.

The Secretary shall respond to requests of States under this

paragraph within 60 days of the date the request is submitted to

the Secretary.

(6) If the Secretary determines that the assurances described in

paragraph (1)(C) have not been met with respect to any 36-month

period, the Secretary may reduce payments under this subchapter to

hospitals under the system in an amount equal to the amount by

which the payment under this subchapter under such system for such

period exceeded the amount of payments which would otherwise have

been made under this subchapter not using such system.

(7) In the case of a State which made a request under paragraph

(5) before December 31, 1984, for the approval of a State hospital

reimbursement control system and which request was approved -

(A) in applying paragraphs (1)(C) and (6), a reference to a

"36-month period" is deemed a reference to a "48-month period",

and

(B) in order to allow the State the opportunity to provide the

assurances described in paragraph (1)(C) for a 48-month period,

the Secretary may not discontinue payments under the system,

under the authority of paragraph (3)(A) because the Secretary has

reason to believe that such assurances are not being (or will not

be) met, before July 1, 1986.

(d) Inpatient hospital service payments on basis of prospective

rates; Medicare Geographical Classification Review Board

(1)(A) Notwithstanding section 1395f(b) of this title but subject

to the provisions of section 1395e of this title, the amount of the

payment with respect to the operating costs of inpatient hospital

services (as defined in subsection (a)(4) of this section) of a

subsection (d) hospital (as defined in subparagraph (B)) for

inpatient hospital discharges in a cost reporting period or in a

fiscal year -

(i) beginning on or after October 1, 1983, and before October

1, 1984, is equal to the sum of -

(I) the target percentage (as defined in subparagraph (C)) of

the hospital's target amount for the cost reporting period (as

defined in subsection (b)(3)(A) of this section, but determined

without the application of subsection (a) of this section), and

(II) the DRG percentage (as defined in subparagraph (C)) of

the regional adjusted DRG prospective payment rate determined

under paragraph (2) for such discharges;

(ii) beginning on or after October 1, 1984, and before October

1, 1987, is equal to the sum of -

(I) the target percentage (as defined in subparagraph (C)) of

the hospital's target amount for the cost reporting period (as

defined in subsection (b)(3)(A) of this section, but determined

without the application of subsection (a) of this section), and

(II) the DRG percentage (as defined in subparagraph (C)) of

the applicable combined adjusted DRG prospective payment rate

determined under subparagraph (D) for such discharges; or

(iii) beginning on or after April 1, 1988, is equal to -

(I) the national adjusted DRG prospective payment rate

determined under paragraph (3) for such discharges, or

(II) for discharges occurring during a fiscal year ending on

or before September 30, 1996, the sum of 85 percent of the

national adjusted DRG prospective payment rate determined under

paragraph (3) for such discharges and 15 percent of the

regional adjusted DRG prospective payment rate determined under

such paragraph, but only if the average standardized amount

(described in clause (i)(I) or clause (ii)(I) of paragraph

(3)(D)) for hospitals within the region of, and in the same

large urban or other area (or, for discharges occurring during

a fiscal year ending on or before September 30, 1994, the same

large urban or other area) as, the hospital is greater than the

average standardized amount (described in the respective

clause) for hospitals within the United States in that type of

area for discharges occurring during such fiscal year.

(B) As used in this section, the term "subsection (d) hospital"

means a hospital located in one of the fifty States or the District

of Columbia other than -

(i) a psychiatric hospital (as defined in section 1395x(f) of

this title),

(ii) a rehabilitation hospital (as defined by the Secretary),

(iii) a hospital whose inpatients are predominantly individuals

under 18 years of age,

(iv)(I) a hospital which has an average inpatient length of

stay (as determined by the Secretary) of greater than 25 days, or

(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

(v)(I) a hospital that the Secretary has classified, at any

time on or before December 31, 1990,(!3) (or, in the case of a

hospital that, as of December 19, 1989, is located in a State

operating a demonstration project under section 1395f(b) of this

title, on or before December 31, 1991) for purposes of applying

exceptions and adjustments to payment amounts under this

subsection, as a hospital involved extensively in treatment for

or research on cancer,

(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 1395f(b)

of this title, 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 August 5, 1997), that as of August 5,

1997, 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), or

(III) a hospital that was recognized as a clinical cancer

research center by the National Cancer Institute of the National

Institutes of Health as of February 18, 1998, that has never been

reimbursed for inpatient hospital services pursuant to a

reimbursement system under a demonstration project under section

1395f(b) of this title, that is a freestanding facility organized

primarily for treatment of and research on cancer and is not a

unit of another hospital, that as of December 21, 2000, is

licensed for 162 acute care beds, and that demonstrates for the

4-year period ending on June 30, 1999, that at least 50 percent

of its total discharges have a principal finding of neoplastic

disease, as defined in subparagraph (E);

and, in accordance with regulations of the Secretary, does not

include a psychiatric or rehabilitation unit of the hospital which

is a distinct part of the hospital (as defined by the Secretary). 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.

(C) For purposes of this subsection, for cost reporting periods

beginning -

(i) on or after October 1, 1983, and before October 1, 1984,

the "target percentage" is 75 percent and the "DRG percentage" is

25 percent;

(ii) on or after October 1, 1984, and before October 1, 1985,

the "target percentage" is 50 percent and the "DRG percentage" is

50 percent;

(iii) on or after October 1, 1985, and before October 1, 1986,

the "target percentage" is 45 percent and the "DRG percentage" is

55 percent; and

(iv) on or after October 1, 1986, and before October 1, 1987,

the "target percentage" is 25 percent and the "DRG percentage" is

75 percent.

(D) For purposes of subparagraph (A)(ii)(II), the "applicable

combined adjusted DRG prospective payment rate" for discharges

occurring -

(i) on or after October 1, 1984, and before October 1, 1986, is

a combined rate consisting of 25 percent of the national adjusted

DRG prospective payment rate, and 75 percent of the regional

adjusted DRG prospective payment rate, determined under paragraph

(3) for such discharges; and

(ii) on or after October 1, 1986, and before October 1, 1987,

is a combined rate consisting of 50 percent of the national

adjusted DRG prospective payment rate, and 50 percent of the

regional adjusted DRG prospective payment rate, determined under

paragraph (3) for such discharges.

(E) For purposes of subclauses (II) and (III) of subparagraph

(B)(v) 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.

(2) The Secretary shall determine a national adjusted DRG

prospective payment rate, for each inpatient hospital discharge in

fiscal year 1984 involving inpatient hospital services of a

subsection (d) hospital in the United States, and shall determine a

regional adjusted DRG prospective payment rate for such discharges

in each region, for which payment may be made under part A of this

subchapter. Each such rate shall be determined for hospitals

located in urban or rural areas within the United States or within

each such region, respectively, as follows:

(A) The Secretary shall determine the allowable operating costs

per discharge of inpatient hospital services for the hospital for

the most recent cost reporting period for which data are

available.

(B) The Secretary shall update each amount determined under

subparagraph (A) for fiscal year 1984 by -

(i) updating for fiscal year 1983 by the estimated average

rate of change of hospital costs industry-wide between the cost

reporting period used under such subparagraph and fiscal year

1983 and the most recent case-mix data available, and

(ii) projecting for fiscal year 1984 by the applicable

percentage increase (as defined in subsection (b)(3)(B) of this

section) for fiscal year 1984.

(C) The Secretary shall standardize the amount updated under

subparagraph (B) for each hospital by -

(i) excluding an estimate of indirect medical education costs

(taking into account, for discharges occurring after September

30, 1986, the amendments made by section 9104(a) of the

Medicare and Medicaid Budget Reconciliation Amendments of

1985), except that the Secretary shall not take into account

any reduction in the amount of additional payments under

paragraph (5)(B)(ii) resulting from the amendment made by

section 4621(a)(1) of the Balanced Budget Act of 1997 or any

additional payments under such paragraph resulting from the

application of section 111 of the Medicare, Medicaid, and SCHIP

Balanced Budget Refinement Act of 1999 or of section 302 of the

Medicare, Medicaid, and SCHIP Benefits Improvement and

Protection Act of 2000,

(ii) adjusting for variations among hospitals by area in the

average hospital wage level,

(iii) adjusting for variations in case mix among hospitals,

and

(iv) for discharges occurring on or after October 1, 1986,

excluding an estimate of the additional payments to certain

hospitals to be made under paragraph (5)(F), except that the

Secretary shall not exclude additional payments under such

paragraph made as a result of the enactment of section 6003(c)

of the Omnibus Budget Reconciliation Act of 1989, the enactment

of section 4002(b) of the Omnibus Budget Reconciliation Act of

1990, or the enactment of section 303 of the Medicare,

Medicaid, and SCHIP Benefits Improvement and Protection Act of

2000.

(D) The Secretary shall compute an average of the standardized

amounts determined under subparagraph (C) for the United States

and for each region -

(i) for all subsection (d) hospitals located in an urban area

within the United States or that region, respectively, and

(ii) for all subsection (d) hospitals located in a rural area

within the United States or that region, respectively.

For purposes of this subsection, the term "region" means one of

the nine census divisions, comprising the fifty States and the

District of Columbia, established by the Bureau of the Census for

statistical and reporting purposes; the term "urban area" means

an area within a Metropolitan Statistical Area (as defined by the

Office of Management and Budget) or within such similar area as

the Secretary has recognized under subsection (a) of this section

by regulation; the term "large urban area" means, with respect to

a fiscal year, such an urban area which the Secretary determines

(in the publications described in subsection (e)(5) of this

section before the fiscal year) has a population of more than

1,000,000 (as determined by the Secretary based on the most

recent available population data published by the Bureau of the

Census); and the term "rural area" means any area outside such an

area or similar area. A hospital located in a Metropolitan

Statistical Area shall be deemed to be located in the region in

which the largest number of the hospitals in the same

Metropolitan Statistical Area are located, or, at the option of

the Secretary, the region in which the majority of the inpatient

discharges (with respect to which payments are made under this

subchapter) from hospitals in the same Metropolitan Statistical

Area are made.

(E) The Secretary shall reduce each of the average standardized

amounts determined under subparagraph (D) by a proportion equal

to the proportion (estimated by the Secretary) of the amount of

payments under this subsection based on DRG prospective payment

rates which are additional payments described in paragraph (5)(A)

(relating to outlier payments).

(F) The Secretary shall adjust each of such average

standardized amounts as may be required under subsection

(e)(1)(B) of this section for that fiscal year.

(G) For each discharge classified within a diagnosis-related

group, the Secretary shall establish a national DRG prospective

payment rate and shall establish a regional DRG prospective

payment rate for each region, each of which is equal -

(i) for hospitals located in an urban area in the United

States or that region (respectively), to the product of -

(I) the average standardized amount (computed under

subparagraph (D), reduced under subparagraph (E), and

adjusted under subparagraph (F)) for hospitals located in an

urban area in the United States or that region, and

(II) the weighting factor (determined under paragraph

(4)(B)) for that diagnosis-related group; and

(ii) for hospitals located in a rural area in the United

States or that region (respectively), to the product of -

(I) the average standardized amount (computed under

subparagraph (D), reduced under subparagraph (E), and

adjusted under subparagraph (F)) for hospitals located in a

rural area in the United States or that region, and

(II) the weighting factor (determined under paragraph

(4)(B)) for that diagnosis-related group.

(H) The Secretary shall adjust the proportion, (as estimated by

the Secretary from time to time) of hospitals' costs which are

attributable to wages and wage-related costs, of the national and

regional DRG prospective payment rates computed under

subparagraph (G) for area differences in hospital wage levels by

a factor (established by the Secretary) reflecting the relative

hospital wage level in the geographic area of the hospital

compared to the national average hospital wage level.

(3) The Secretary shall determine a national adjusted DRG

prospective payment rate, for each inpatient hospital discharge in

a fiscal year after fiscal year 1984 involving inpatient hospital

services of a subsection (d) hospital in the United States, and

shall determine a regional adjusted DRG prospective payment rate

for such discharges in each region for which payment may be made

under part A of this subchapter. Each such rate shall be determined

for hospitals located in large urban, other urban, or rural areas

within the United States and within each such region, respectively,

as follows:

(A)(i) For discharges occurring in a fiscal year beginning

before October 1, 1987, the Secretary shall compute an average

standardized amount for hospitals located in an urban area and

for hospitals located in a rural area within the United States

and for hospitals located in an urban area and for hospitals

located in a rural area within each region, equal to the

respective average standardized amount computed for the previous

fiscal year under paragraph (2)(D) or under this subparagraph,

increased for the fiscal year involved by the applicable

percentage increase under subsection (b)(3)(B) of this section.

With respect to discharges occurring on or after October 1, 1987,

the Secretary shall compute urban and rural averages on the basis

of discharge weighting rather than hospital weighting, making

appropriate adjustments to ensure that computation on such basis

does not result in total payments under this section that are

greater or less than the total payments that would have been made

under this section but for this sentence, and making appropriate

changes in the manner of determining the reductions under

subparagraph (C)(ii).

(ii) For discharges occurring in a fiscal year beginning on or

after October 1, 1987, and ending on or before September 30,

1994, the Secretary shall compute an average standardized amount

for hospitals located in a large urban area, for hospitals

located in a rural area, and for hospitals located in other urban

areas, within the United States and within each region, equal to

the respective average standardized amount computed for the

previous fiscal year under this subparagraph increased by the

applicable percentage increase under subsection (b)(3)(B)(i) of

this section with respect to hospitals located in the respective

areas for the fiscal year involved.

(iii) For discharges occurring in the fiscal year beginning on

October 1, 1994, the average standardized amount for hospitals

located in a rural area shall be equal to the average

standardized amount for hospitals located in an other (!4) urban

area. For discharges occurring on or after October 1, 1994, the

Secretary shall adjust the ratio of the labor portion to

non-labor portion of each average standardized amount to equal

such ratio for the national average of all standardized amounts.

(iv) For discharges occurring in a fiscal year beginning on or

after October 1, 1995, the Secretary shall compute an average

standardized amount for hospitals located in a large urban area

and for hospitals located in other areas within the United States

and within each region equal to the respective average

standardized amount computed for the previous fiscal year under

this subparagraph increased by the applicable percentage increase

under subsection (b)(3)(B)(i) of this section with respect to

hospitals located in the respective areas for the fiscal year

involved.

(v) Average standardized amounts computed under this paragraph

shall be adjusted to reflect the most recent case-mix data

available.

(vi) Insofar as the Secretary determines that the adjustments

under paragraph (4)(C)(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 discharges that do not

reflect real changes in case mix, the Secretary may adjust the

average standardized amounts computed under this paragraph for

subsequent fiscal years so as to eliminate the effect of such

coding or classification changes.

(B) The Secretary shall reduce each of the average standardized

amounts determined under subparagraph (A) by a factor equal to

the proportion of payments under this subsection (as estimated by

the Secretary) based on DRG prospective payment amounts which are

additional payments described in paragraph (5)(A) (relating to

outlier payments).

(C)(i) For discharges occurring in fiscal year 1985, the

Secretary shall adjust each of such average standardized amounts

as may be required under subsection (e)(1)(B) of this section for

that fiscal year.

(ii) For discharges occurring after September 30, 1986, the

Secretary shall further reduce each of the average standardized

amounts (in a proportion which takes into account the differing

effects of the standardization effected under paragraph

(2)(C)(i)) so as to provide for a reduction in the total of the

payments (attributable to this paragraph) made for discharges

occurring on or after October 1, 1986, of an amount equal to the

estimated reduction in the payment amounts under paragraph (5)(B)

that would have resulted from the enactment of the amendments

made by section 9104 of the Medicare and Medicaid Budget

Reconciliation Amendments of 1985 and by section 4003(a)(1) of

the Omnibus Budget Reconciliation Act of 1987 if the factor

described in clause (ii)(II) of paragraph (5)(B) (determined

without regard to amendments made by the Omnibus Budget

Reconciliation Act of 1990) were applied for discharges occurring

on or after such date instead of the factor described in clause

(ii) of that paragraph.

(D) For each discharge classified within a diagnosis-related

group, the Secretary shall establish for the fiscal year a

national DRG prospective payment rate and shall establish a

regional DRG prospective payment rate for each region, each of

which is equal -

(i) for hospitals located in a large urban area in the United

States or that region (respectively), to the product of -

(I) the average standardized amount (computed under

subparagraph (A), reduced under subparagraph (B), and

adjusted or reduced under subparagraph (C)) for the fiscal

year for hospitals located in such a large urban area in the

United States or that region, and

(II) the weighting factor (determined under paragraph

(4)(B)) for that diagnosis-related group; and

(ii) for hospitals located in other areas in the United

States or that region (respectively), to the product of -

(I) the average standardized amount (computed under

subparagraph (A), reduced under subparagraph (B), and

adjusted or reduced under subparagraph (C)) for the fiscal

year for hospitals located in other areas in the United

States or that region, and

(II) the weighting factor (determined under paragraph

(4)(B)) for that diagnosis-related group.

(E) The Secretary shall adjust the proportion, (as estimated by

the Secretary from time to time) of hospitals' costs which are

attributable to wages and wage-related costs, of the DRG

prospective payment rates computed under subparagraph (D) for

area differences in hospital wage levels by a factor (established

by the Secretary) reflecting the relative hospital wage level in

the geographic area of the hospital compared to the national

average hospital wage level. Not later than October 1, 1990, and

October 1, 1993 (and at least every 12 months thereafter), the

Secretary shall update the factor under the preceding sentence on

the basis of a survey conducted by the Secretary (and updated as

appropriate) of the wages and wage-related costs of subsection

(d) hospitals in the United States. Not less often than once

every 3 years the Secretary (through such survey or otherwise)

shall measure the earnings and paid hours of employment by

occupational category and shall exclude data with respect to the

wages and wage-related costs incurred in furnishing skilled

nursing facility services. Any adjustments or updates made under

this subparagraph for a fiscal year (beginning with fiscal year

1991) shall be made in a manner that assures that the aggregate

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.

(4)(A) The Secretary shall establish a classification of

inpatient hospital discharges by diagnosis-related groups and a

methodology for classifying specific hospital discharges within

these groups.

(B) For each such diagnosis-related group the Secretary shall

assign an appropriate weighting factor which reflects the relative

hospital resources used with respect to discharges classified

within that group compared to discharges classified within other

groups.

(C)(i) The Secretary shall adjust the classifications and

weighting factors established under subparagraphs (A) and (B), for

discharges in fiscal year 1988 and at least annually thereafter, to

reflect changes in treatment patterns, technology (including a new

medical service or technology under paragraph (5)(K)), and other

factors which may change the relative use of hospital resources.

(ii) For discharges in fiscal year 1990, the Secretary shall

reduce the weighting factor for each diagnosis-related group by

1.22 percent.

(iii) Any such adjustment under clause (i) for discharges in a

fiscal year (beginning with fiscal year 1991) shall be made in a

manner that assures that the aggregate payments under this

subsection for discharges in the fiscal year are not greater or

less than those that would have been made for discharges in the

year without such adjustment.

(iv) The Secretary shall include recommendations with respect to

adjustments to weighting factors under clause (i) in the annual

report to Congress required under subsection (e)(3)(B) (!5) of this

section.

(5)(A)(i) For discharges occurring during fiscal years ending on

or before September 30, 1997, the Secretary shall provide for an

additional payment for a subsection (d) hospital for any discharge

in a diagnosis-related group, the length of stay of which exceeds

the mean length of stay for discharges within that group by a fixed

number of days, or exceeds such mean length of stay by some fixed

number of standard deviations, whichever is the fewer number of

days.

(ii) For cases which are not included in clause (i), a subsection

(d) hospital may request additional payments in any case where

charges, adjusted to cost, exceed a fixed multiple of the

applicable DRG prospective payment rate, or exceed such other fixed

dollar amount, whichever is greater, or, for discharges in fiscal

years beginning on or after October 1, 1994, exceed the sum of the

applicable DRG prospective payment rate plus any amounts payable

under subparagraphs (B) and (F) plus a fixed dollar amount

determined by the Secretary.

(iii) The amount of such additional payment under clauses (i) and

(ii) shall be determined by the Secretary and shall (except as

payments under clause (i) are required to be reduced to take into

account the requirements of clause (v)) approximate the marginal

cost of care beyond the cutoff point applicable under clause (i) or

(ii).

(iv) The total amount of the additional payments made under this

subparagraph for discharges in a fiscal year may not be less than 5

percent nor more than 6 percent of the total payments projected or

estimated to be made based on DRG prospective payment rates for

discharges in that year.

(v) The Secretary shall provide that -

(I) the day outlier percentage for fiscal year 1995 shall be 75

percent of the day outlier percentage for fiscal year 1994;

(II) the day outlier percentage for fiscal year 1996 shall be

50 percent of the day outlier percentage for fiscal year 1994;

and

(III) the day outlier percentage for fiscal year 1997 shall be

25 percent of the day outlier percentage for fiscal year 1994.

(vi) For purposes of this subparagraph, the term "day outlier

percentage" means, for a fiscal year, the percentage of the total

additional payments made by the Secretary under this subparagraph

for discharges in that fiscal year which are additional payments

under clause (i).

(B) The Secretary shall provide for an additional payment amount

for subsection (d) hospitals with indirect costs of medical

education, in an amount computed in the same manner as the

adjustment for such costs under regulations (in effect as of

January 1, 1983) under subsection (a)(2) of this section, except as

follows:

(i) The amount of such additional payment shall be determined

by multiplying (I) the sum of the amount determined under

paragraph (1)(A)(ii)(II) (or, if applicable, the amount

determined under paragraph (1)(A)(iii)) and, for cases qualifying

for additional payment under subparagraph (A)(i), the amount paid

to the hospital under subparagraph (A), by (II) the indirect

teaching adjustment factor described in clause (ii).

(ii) For purposes of clause (i)(II), the indirect teaching

adjustment factor is equal to c * (((1+r) to the nth power) -1),

where "r" is the ratio of the hospital's full-time equivalent

interns and residents to beds and "n" equals .405. For discharges

occurring -

(I) on or after October 1, 1988, and before October 1, 1997,

"c" is equal to 1.89;

(II) during fiscal year 1998, "c" is equal to 1.72;

(III) during fiscal year 1999, "c" is equal to 1.6;

(IV) during fiscal year 2000, "c" is equal to 1.47;

(V) during fiscal year 2001, "c" is equal to 1.54;

(VI) during fiscal year 2002, "c" is equal to 1.6; and

(VII) on or after October 1, 2002, "c" is equal to 1.35.

(iii) In determining such adjustment the Secretary shall not

distinguish between those interns and residents who are employees

of a hospital and those interns and residents who furnish

services to a hospital but are not employees of such hospital.

(iv) Effective for discharges occurring on or after October 1,

1997, all the time spent by an intern or resident in patient care

activities under an approved medical residency training program

at an entity in a nonhospital setting shall be counted towards

the determination of full-time equivalency if the hospital incurs

all, or substantially all, of the costs for the training program

in that setting.

(v) In determining the adjustment with respect to a hospital

for discharges occurring on or after October 1, 1997, the total

number of full-time equivalent interns and residents in the

fields of allopathic and osteopathic medicine in either a

hospital or nonhospital setting may not exceed the number (or,

130 percent of such number in the case of a hospital located in a

rural area) of such full-time equivalent interns and residents in

the hospital with respect to the hospital's most recent cost

reporting period ending on or before December 31, 1996. Rules

similar to the rules of subsection (h)(4)(F)(ii) of this section

shall apply for purposes of this clause.

(vi) For purposes of clause (ii) -

(I) "r" may not exceed the ratio of the number of interns and

residents, subject to the limit under clause (v), with respect

to the hospital for its most recent cost reporting period to

the hospital's available beds (as defined by the Secretary)

during that cost reporting period, and

(II) for the hospital's cost reporting periods beginning on

or after October 1, 1997, subject to the limits described in

clauses (iv) and (v), the total number of full-time equivalent

residents for payment purposes shall equal the average of the

actual full-time equivalent resident count for the cost

reporting period and the preceding two cost reporting periods.

In the case of the first cost reporting period beginning on or

after October 1, 1997, subclause (II) shall be applied by using

the average for such period and the preceding cost reporting

period.

(vii) If any cost reporting period beginning on or after

October 1, 1997, is not equal to twelve months, the Secretary

shall make appropriate modifications to ensure that the average

full-time equivalent residency count pursuant to subclause (II)

of clause (vi) is based on the equivalent of full twelve-month

cost reporting periods.

(viii) Rules similar to the rules of subsection (h)(4)(H) shall

apply for purposes of clauses (v) and (vi).

(C)(i) The Secretary shall provide for such exceptions and

adjustments to the payment amounts established under this

subsection (other than under paragraph (9)) as the Secretary deems

appropriate to take into account the special needs of regional and

national referral centers (including those hospitals of 275 or more

beds located in rural areas). A hospital which is classified as a

rural hospital may appeal to the Secretary to be classified as a

rural referral center under this clause on the basis of criteria

(established by the Secretary) which shall allow the hospital to

demonstrate that it should be so reclassified by reason of certain

of its operating characteristics being similar to those of a

typical urban hospital located in the same census region and which

shall not require a rural osteopathic hospital to have more than

3,000 discharges in a year in order to be classified as a rural

referral center. Such characteristics may include wages, scope of

services, service area, and the mix of medical specialties. The

Secretary shall publish the criteria not later than August 17,

1984, for implementation by October 1, 1984. An appeal allowed

under this clause must be submitted to the Secretary (in such form

and manner as the Secretary may prescribe) during the quarter

before the first quarter of the hospital's cost reporting period

(or, in the case of a cost reporting period beginning during

October 1984, during the first quarter of that period), and the

Secretary must make a final determination with respect to such

appeal within 60 days after the date the appeal was submitted. Any

payment adjustments necessitated by a reclassification based upon

the appeal shall be effective at the beginning of such cost

reporting period.

(ii) The Secretary shall provide, under clause (i), for the

classification of a rural hospital as a regional referral center if

the hospital has a case mix index equal to or greater than the

median case mix index for hospitals (other than hospitals with

approved teaching programs) located in an urban area in the same

region (as defined in paragraph (2)(D)), has at least 5,000

discharges a year or, if less, the median number of discharges in

urban hospitals in the region in which the hospital is located (or,

in the case of a rural osteopathic hospital, meets the criterion

established by the Secretary under clause (i) with respect to the

annual number of discharges for such hospitals), and meets any

other criteria established by the Secretary under clause (i).

(D)(i) For any cost reporting period beginning on or after April

1, 1990, with respect to a subsection (d) hospital which is a sole

community hospital, payment under paragraph (1)(A) shall be -

(I) an amount based on 100 percent of the hospital's target

amount for the cost reporting period, as defined in subsection

(b)(3)(C) of this section, or

(II) the amount determined under paragraph (1)(A)(iii),

whichever results in greater payment to the hospital.

(ii) In the case of a sole community hospital that experiences,

in a cost reporting period compared to the previous cost reporting

period, a decrease of more than 5 percent in its total number of

inpatient cases due to circumstances beyond its control, the

Secretary shall provide for such adjustment to the payment amounts

under this subsection (other than under paragraph (9)) as may be

necessary to fully compensate the hospital for the fixed costs it

incurs in the period in providing inpatient hospital services,

including the reasonable cost of maintaining necessary core staff

and services.

(iii) For purposes of this subchapter, the term "sole community

hospital" means any hospital -

(I) that the Secretary determines is located more than 35 road

miles from another hospital,

(II) that, by reason of factors such as the time required for

an individual to travel to the nearest alternative source of

appropriate inpatient care (in accordance with standards

promulgated by the Secretary), location, weather conditions,

travel conditions, or absence of other like hospitals (as

determined by the Secretary), is the sole source of inpatient

hospital services reasonably available to individuals in a

geographic area who are entitled to benefits under part A of this

subchapter, or

(III) that is located in a rural area and designated by the

Secretary as an essential access community hospital under section

1395i-4(i)(1) of this title as in effect on September 30, 1997.

(iv) The Secretary shall promulgate a standard for determining

whether a hospital meets the criteria for classification as a sole

community hospital under clause (iii)(II) because of the time

required for an individual to travel to the nearest alternative

source of appropriate inpatient care.

(v) If the Secretary determines that, in the case of a hospital

located in a rural area and designated by the Secretary as an

essential access community hospital under section 1395i-4(i)(1) of

this title as in effect on September 30, 1997, the hospital has

incurred increases in reasonable costs during a cost reporting

period as a result of becoming a member of a rural health network

(as defined in section 1395i-4(d) of this title) in the State in

which it is located, and in incurring such increases, the hospital

will increase its costs for subsequent cost reporting periods, the

Secretary shall increase the hospital's target amount under

subsection (b)(3)(C) of this section to account for such incurred

increases.

(E)(i) The Secretary shall estimate the amount of reimbursement

made for services described in section 1395y(a)(14) of this title

with respect to which payment was made under part B of this

subchapter in the base reporting periods referred to in paragraph

(2)(A) and with respect to which payment is no longer being made.

(ii) The Secretary shall provide for an adjustment to the payment

for subsection (d) hospitals in each fiscal year so as

appropriately to reflect the net amount described in clause (i).

(F)(i) For discharges occurring on or after May 1, 1986, the

Secretary shall provide, in accordance with this subparagraph, for

an additional payment amount for each subsection (d) hospital which

-

(I) serves a significantly disproportionate number of

low-income patients (as defined in clause (v)), or

(II) is located in an urban area, has 100 or more beds, and can

demonstrate that its net inpatient care revenues (excluding any

of such revenues attributable to this subchapter or State plans

approved under subchapter XIX of this chapter), during the cost

reporting period in which the discharges occur, for indigent care

from State and local government sources exceed 30 percent of its

total of such net inpatient care revenues during the period.

(ii) Subject to clause (ix), the amount of such payment for each

discharge shall be determined by multiplying (I) the sum of the

amount determined under paragraph (1)(A)(ii)(II) (or, if

applicable, the amount determined under paragraph (1)(A)(iii)) and,

for cases qualifying for additional payment under subparagraph

(A)(i), the amount paid to the hospital under subparagraph (A) for

that discharge, by (II) the disproportionate share adjustment

percentage established under clause (iii) or (iv) for the cost

reporting period in which the discharge occurs.

(iii) The disproportionate share adjustment percentage for a cost

reporting period for a hospital described in clause (i)(II) is

equal to 35 percent.

(iv) The disproportionate share adjustment percentage for a cost

reporting period for a hospital that is not described in clause

(i)(II) and that -

(I) is located in an urban area and has 100 or more beds or is

described in the second sentence of clause (v), is equal to the

percent determined in accordance with the applicable formula

described in clause (vii);

(II) is located in an urban area and has less than 100 beds, is

equal to 5 percent or, for discharges occurring on or after April

1, 2001, is equal to the percent determined in accordance with

clause (xiii);

(III) is located in a rural area and is not described in

subclause (IV) or (V) or in the second sentence of clause (v), is

equal to 4 percent or, for discharges occurring on or after April

1, 2001, is equal to the percent determined in accordance with

clause (xii);

(IV) is located in a rural area, is classified as a rural

referral center under subparagraph (C), and is classified as a

sole community hospital under subparagraph (D), is equal to 10

percent or, if greater, the percent determined in accordance with

the applicable formula described in clause (viii) or, for

discharges occurring on or after April 1, 2001, the greater of

the percentages determined under clause (x) or (xi);

(V) is located in a rural area, is classified as a rural

referral center under subparagraph (C), and is not classified as

a sole community hospital under subparagraph (D), is equal to the

percent determined in accordance with the applicable formula

described in clause (viii) or, for discharges occurring on or

after April 1, 2001, is equal to the percent determined in

accordance with clause (xi); or

(VI) is located in a rural area, is classified as a sole

community hospital under subparagraph (D), and is not classified

as a rural referral center under subparagraph (C), is 10 percent

or, for discharges occurring on or after April 1, 2001, is equal

to the percent determined in accordance with clause (x).

(v) In this subparagraph, a hospital "serves a significantly

disproportionate number of low income patients" for a cost

reporting period if the hospital has a disproportionate patient

percentage (as defined in clause (vi)) for that period which

equals, or exceeds -

(I) 15 percent, if the hospital is located in an urban area and

has 100 or more beds,

(II) 30 percent (or 15 percent, for discharges occurring on or

after April 1, 2001), if the hospital is located in a rural area

and has more than 100 beds, or is located in a rural area and is

classified as a sole community hospital under subparagraph (D),

(III) 40 percent (or 15 percent, for discharges occurring on or

after April 1, 2001), if the hospital is located in an urban area

and has less than 100 beds, or

(IV) 45 percent (or 15 percent, for discharges occurring on or

after April 1, 2001), if the hospital is located in a rural area

and is not described in subclause (II).

A hospital located in a rural area and with 500 or more beds also

"serves a significantly disproportionate number of low income

patients" for a cost reporting period if the hospital has a

disproportionate patient percentage (as defined in clause (vi)) for

that period which equals or exceeds a percentage specified by the

Secretary.

(vi) In this subparagraph, the term "disproportionate patient

percentage" means, with respect to a cost reporting period of a

hospital, the sum of -

(I) the fraction (expressed as a percentage), the numerator of

which is the number of such hospital's patient days for such

period which were made up of patients who (for such days) were

entitled to benefits under part A of this subchapter and were

entitled to supplementary security income benefits (excluding any

State supplementation) under subchapter XVI of this chapter, and

the denominator of which is the number of such hospital's patient

days for such fiscal year which were made up of patients who (for

such days) were entitled to benefits under part A of this

subchapter, and

(II) the fraction (expressed as a percentage), the numerator of

which is the number of the hospital's patient days for such

period which consist of patients who (for such days) were

eligible for medical assistance under a State plan approved under

subchapter XIX of this chapter, but who were not entitled to

benefits under part A of this subchapter, and the denominator of

which is the total number of the hospital's patient days for such

period.

(vii) The formula used to determine the disproportionate share

adjustment percentage for a cost reporting period for a hospital

described in clause (iv)(I) is -

(I) in the case of such a hospital with a disproportionate

patient percentage (as defined in clause (vi)) greater than 20.2

-

(a) for discharges occurring on or after April 1, 1990, and

on or before December 31, 1990, (PG6-20.2)(.65) + 5.62,

(b) for discharges occurring on or after January 1, 1991, and

on or before September 30, 1993, (PG6-20.2)(.7) + 5.62,

(c) for discharges occurring on or after October 1, 1993, and

on or before September 30, 1994, (PG6-20.2)(.8) + 5.88, and

(d) for discharges occurring on or after October 1, 1994,

(PG6-20.2)(.825) + 5.88; or

(II) in the case of any other such hospital -

(a) for discharges occurring on or after April 1, 1990, and

on or before December 31, 1990, (PG6-15)(.6) + 2.5,

(b) for discharges occurring on or after January 1, 1991, and

on or before September 30, 1993, (PG6-15)(.6) + 2.5,(!6)

(c) for discharges occurring on or after October 1, 1993,

(PG6-15)(.65) + 2.5,

where "P" is the hospital's disproportionate patient percentage (as

defined in clause (vi)).

(viii) The formula used to determine the disproportionate share

adjustment percentage for a cost reporting period for a hospital

described in clause (iv)(IV) or (iv)(V) is the percentage

determined in accordance with the following formula:

(P-30)(.6)+4.0, where "P" is the hospital's disproportionate

patient percentage (as defined in clause (vi)).

(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 years 2000 and 2001, such additional

payment amount shall be reduced by 3 percent and 2 percent,

respectively;

(IV) during fiscal year 2002, such additional payment amount

shall be reduced by 3 percent; and

(V) during fiscal year 2003 and each subsequent fiscal year,

such additional payment amount shall be reduced by 0 percent.

(x) For purposes of clause (iv)(VI) (relating to sole community

hospitals), in the case of a hospital for a cost reporting period

with a disproportionate patient percentage (as defined in clause

(vi)) that -

(I) is less than 19.3, the disproportionate share adjustment

percentage is determined in accordance with the following

formula: (PG6-15)(.65) + 2.5;

(II) is equal to or exceeds 19.3, but is less than 30.0, such

adjustment percentage is equal to 5.25 percent; or

(III) is equal to or exceeds 30, such adjustment percentage is

equal to 10 percent,

where "P" is the hospital's disproportionate patient percentage (as

defined in clause (vi)).

(xi) For purposes of clause (iv)(V) (relating to rural referral

centers), in the case of a hospital for a cost reporting period

with a disproportionate patient percentage (as defined in clause

(vi)) that -

(I) is less than 19.3, the disproportionate share adjustment

percentage is determined in accordance with the following

formula: (PG6-15)(.65) + 2.5;

(II) is equal to or exceeds 19.3, but is less than 30.0, such

adjustment percentage is equal to 5.25 percent; or

(III) is equal to or exceeds 30, such adjustment percentage is

determined in accordance with the following formula:

(PG6-30)(.6) + 5.25,

where "P" is the hospital's disproportionate patient percentage (as

defined in clause (vi)).

(xii) For purposes of clause (iv)(III) (relating to small rural

hospitals generally), in the case of a hospital for a cost

reporting period with a disproportionate patient percentage (as

defined in clause (vi)) that -

(I) is less than 19.3, the disproportionate share adjustment

percentage is determined in accordance with the following

formula: (PG6-15)(.65) + 2.5; or

(II) is equal to or exceeds 19.3, such adjustment percentage is

equal to 5.25 percent,

where "P" is the hospital's disproportionate patient percentage (as

defined in clause (vi)).

(xiii) For purposes of clause (iv)(II) (relating to urban

hospitals with less than 100 beds), in the case of a hospital for a

cost reporting period with a disproportionate patient percentage

(as defined in clause (vi)) that -

(I) is less than 19.3, the disproportionate share adjustment

percentage is determined in accordance with the following

formula: (PG6-15)(.65) + 2.5; or

(II) is equal to or exceeds 19.3, such adjustment percentage is

equal to 5.25 percent,

where "P" is the hospital's disproportionate patient percentage (as

defined in clause (vi)).

(G)(i) For any cost reporting period beginning on or after April

1, 1990, and before October 1, 1994, or discharges occurring on or

after October 1, 1997, and before October 1, 2006, in the case of a

subsection (d) hospital which is a medicare-dependent, small rural

hospital, payment under paragraph (1)(A) shall be equal to the sum

of the amount determined under clause (ii) and the amount

determined under paragraph (1)(A)(iii).

(ii) The amount determined under this clause is -

(I) for discharges occurring during the 36-month period

beginning with the first day of the cost reporting period that

begins on or after April 1, 1990, the amount by which the

hospital's target amount for the cost reporting period (as

defined in subsection (b)(3)(D) of this section) exceeds the

amount determined under paragraph (1)(A)(iii); and

(II) for discharges occurring during any subsequent cost

reporting period (or portion thereof) and before October 1, 1994,

or discharges occurring on or after October 1, 1997, and before

October 1, 2006, 50 percent of the amount by which the hospital's

target amount for the cost reporting period (as defined in

subsection (b)(3)(D) of this section) exceeds the amount

determined under paragraph (1)(A)(iii).

(iii) In the case of a medicare dependent, small rural hospital

that experiences, in a cost reporting period compared to the

previous cost reporting period, a decrease of more than 5 percent

in its total number of inpatient cases due to circumstances beyond

its control, the Secretary shall provide for such adjustment to the

payment amounts under this subsection (other than under paragraph

(9)) as may be necessary to fully compensate the hospital for the

fixed costs it incurs in the period in providing inpatient hospital

services, including the reasonable cost of maintaining necessary

core staff and services.

(iv) The term "medicare-dependent, small rural hospital" means,

with respect to any cost reporting period to which clause (i)

applies, any hospital -

(I) located in a rural area,

(II) that has not more than 100 beds,

(III) that is not classified as a sole community hospital under

subparagraph (D), and

(IV) for which not less than 60 percent of its inpatient days

or discharges during the cost reporting period beginning in

fiscal year 1987, or two of the three most recently audited cost

reporting periods for which the Secretary has a settled cost

report, were attributable to inpatients entitled to benefits

under part A of this subchapter.

(H) 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 hospitals located in

Alaska and Hawaii.

(I)(i) The Secretary shall provide by regulation for such other

exceptions and adjustments to such payment amounts under this

subsection as the Secretary deems appropriate.

(ii) In making adjustments under clause (i) for transfer cases

(as defined by the Secretary) in a fiscal year, not taking in

account the effect of subparagraph (J), the Secretary may make

adjustments to each of the average standardized amounts determined

under paragraph (3) to assure that the aggregate payments made

under this subsection for such fiscal year are not greater or

lesser than those that would have otherwise been made in such

fiscal year.

(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) of this section 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.

(K)(i) Effective for discharges beginning on or after October 1,

2001, the Secretary shall establish a mechanism to recognize the

costs of new medical services and technologies under the payment

system established under this subsection. Such mechanism shall be

established after notice and opportunity for public comment (in the

publications required by subsection (e)(5) of this section for a

fiscal year or otherwise).

(ii) The mechanism established pursuant to clause (i) shall -

(I) apply to a new medical service or technology if, based on

the estimated costs incurred with respect to discharges involving

such service or technology, the DRG prospective payment rate

otherwise applicable to such discharges under this subsection is

inadequate;

(II) provide for the collection of data with respect to the

costs of a new medical service or technology described in

subclause (I) for a period of not less than two years and not

more than three years beginning on the date on which an inpatient

hospital code is issued with respect to the service or

technology;

(III) subject to paragraph (4)(C)(iii), provide for additional

payment to be made under this subsection with respect to

discharges involving a new medical service or technology

described in subclause (I) that occur during the period described

in subclause (II) in an amount that adequately reflects the

estimated average cost of such service or technology; and

(IV) provide that discharges involving such a service or

technology that occur after the close of the period described in

subclause (II) will be classified within a new or existing

diagnosis-related group with a weighting factor under paragraph

(4)(B) that is derived from cost data collected with respect to

discharges occurring during such period.

(iii) For purposes of clause (ii)(II), the term "inpatient

hospital code" means any code that is used with respect to

inpatient hospital services for which payment may be made under

this subsection and includes an alphanumeric code issued under the

International Classification of Diseases, 9th Revision, Clinical

Modification ("ICD-9-CM") and its subsequent revisions.

(iv) For purposes of clause (ii)(III), the term "additional

payment" means, with respect to a discharge for a new medical

service or technology described in clause (ii)(I), an amount that

exceeds the prospective payment rate otherwise applicable under

this subsection to discharges involving such service or technology

that would be made but for this subparagraph.

(v) The requirement under clause (ii)(III) for an additional

payment may be satisfied by means of a new-technology group

(described in subparagraph (L)), an add-on payment, a payment

adjustment, or any other similar mechanism for increasing the

amount otherwise payable with respect to a discharge under this

subsection. The Secretary may not establish a separate fee schedule

for such additional payment for such services and technologies, by

utilizing a methodology established under subsection (a) or (h) of

section 1395m of this title to determine the amount of such

additional payment, or by other similar mechanisms or

methodologies.

(vi) For purposes of this subparagraph and subparagraph (L), a

medical service or technology will be considered a "new medical

service or technology" if the service or technology meets criteria

established by the Secretary after notice and an opportunity for

public comment.

(L)(i) In establishing the mechanism under subparagraph (K), the

Secretary may establish new-technology groups into which a new

medical service or technology will be classified if, based on the

estimated average costs incurred with respect to discharges

involving such service or technology, the DRG prospective payment

rate otherwise applicable to such discharges under this subsection

is inadequate.

(ii) Such groups -

(I) shall not be based on the costs associated with a specific

new medical service or technology; but

(II) shall, in combination with the applicable standardized

amounts and the weighting factors assigned to such groups under

paragraph (4)(B), reflect such cost cohorts as the Secretary

determines are appropriate for all new medical services and

technologies that are likely to be provided as inpatient hospital

services in a fiscal year.

(iii) The methodology for classifying specific hospital

discharges within a diagnosis-related group under paragraph (4)(A)

or a new-technology group shall provide that a specific hospital

discharge may not be classified within both a diagnosis-related

group and a new-technology group.

(6) The Secretary shall provide for publication in the Federal

Register, on or before the August 1 before each fiscal year

(beginning with fiscal year 1984), of a description of the

methodology and data used in computing the adjusted DRG prospective

payment rates under this subsection, including any adjustments

required under subsection (e)(1)(B) of this section.

(7) There shall be no administrative or judicial review under

section 1395oo of this title or otherwise of -

(A) the determination of the requirement, or the proportional

amount, of any adjustment effected pursuant to subsection (e)(1)

of this section, and

(B) the establishment of diagnosis-related groups, of the

methodology for the classification of discharges within such

groups, and of the appropriate weighting factors thereof under

paragraph (4).

(8)(A) In the case of any hospital which is located in an area

which is, at any time after April 20, 1983, reclassified from an

urban to a rural area, payments to such hospital for the first two

cost reporting periods for which such reclassification is effective

shall be made as follows:

(i) For the first such cost reporting period, payment shall be

equal to the amount payable to such hospital for such reporting

period on the basis of the rural classification, plus an amount

equal to two-thirds of the amount (if any) by which -

(I) the amount which would have been payable to such hospital

for such reporting period on the basis of an urban

classification, exceeds

(II) the amount payable to such hospital for such reporting

period on the basis of the rural classification.

(ii) For the second such cost reporting period, payment shall

be equal to the amount payable to such hospital for such

reporting period on the basis of the rural classification, plus

an amount equal to one-third of the amount (if any) by which -

(I) the amount which would have been payable to such hospital

for such reporting period on the basis of an urban

classification, exceeds

(II) the amount payable to such hospital for such reporting

period on the basis of the rural classification.

(B)(i) For purposes of this subsection, the Secretary shall treat

a hospital located in a rural county adjacent to one or more urban

areas as being located in the urban metropolitan statistical area

to which the greatest number of workers in the county commute, if

the rural county would otherwise be considered part of an urban

area, under the standards for designating Metropolitan Statistical

Areas (and for designating New England County Metropolitan Areas)

described in clause (ii), if the commuting rates used in

determining outlying counties (or, for New England, similar

recognized areas) were determined on the basis of the aggregate

number of resident workers who commute to (and, if applicable under

the standards, from) the central county or counties of all

contiguous Metropolitan Statistical Areas (or New England County

Metropolitan Areas).

(ii) The standards described in this clause for cost reporting

periods beginning in a fiscal year -

(I) before fiscal year 2003, are the standards published in the

Federal Register on January 3, 1980, or, at the election of the

hospital with respect to fiscal years 2001 and 2002, standards so

published on March 30, 1990; and

(II) after fiscal year 2002, are the standards published in the

Federal Register by the Director of the Office of Management and

Budget based on the most recent available decennial population

data.

Subparagraphs (C) and (D) shall not apply with respect to the

application of subclause (I).

(C)(i) If the application of subparagraph (B) or a decision of

the Medicare Geographic Classification Review Board or the

Secretary under paragraph (10), by treating hospitals located in a

rural county or counties as being located in an urban area, or by

treating hospitals located in one urban area as being located in

another urban area -

(I) reduces the wage index for that urban area (as applied

under this subsection) by 1 percentage point or less, the

Secretary, in calculating such wage index under this subsection,

shall exclude those hospitals so treated, or

(II) reduces the wage index for that urban area by more than 1

percentage point (as applied under this subsection), the

Secretary shall calculate and apply such wage index under this

subsection separately to hospitals located in such urban area

(excluding all the hospitals so treated) and to the hospitals so

treated (as if such hospitals were located in such urban area).

(ii) If the application of subparagraph (B) or a decision of the

Medicare Geographic Classification Review Board or the Secretary

under paragraph (10), by treating hospitals located in a rural

county or counties as not being located in the rural area in a

State, reduces the wage index for that rural area (as applied under

this subsection), the Secretary shall calculate and apply such wage

index under this subsection as if the hospitals so treated had not

been excluded from calculation of the wage index for that rural

area.

(iii) The application of subparagraph (B) or a decision of the

Medicare Geographic Classification Review Board or the Secretary

under paragraph (10) may not result in the reduction of any

county's wage index to a level below the wage index for rural areas

in the State in which the county is located.

(iv) The application of subparagraph (B) or a decision of the

Medicare Geographic Classification Review Board or of the Secretary

under paragraph (10) may not result in a reduction in an urban

area's wage index if -

(I) the urban area has a wage index below the wage index for

rural areas in the State in which it is located; or

(II) the urban area is located in a State that is composed of a

single urban area.

(v) This subparagraph shall apply with respect to discharges

occurring in a fiscal year only if the Secretary uses a method for

making adjustments to the DRG prospective payment rate for area

differences in hospital wage levels under paragraph (3)(E) for the

fiscal year that is based on the use of Metropolitan Statistical

Area classifications.

(D) The Secretary shall make a proportional adjustment in the

standardized amounts determined under paragraph (3) to assure that

the provisions of subparagraphs (B) and (C) or a decision of the

Medicare Geographic Classification Review Board or the Secretary

under paragraph (10) do not result in aggregate payments under this

section that are greater or less than those that would otherwise be

made.

(E)(i) For purposes of this subsection, not later than 60 days

after the receipt of an application (in a form and manner

determined by the Secretary) from a subsection (d) hospital

described in clause (ii), the Secretary shall treat the hospital as

being located in the rural area (as defined in paragraph (2)(D)) of

the State in which the hospital is located.

(ii) For purposes of clause (i), a subsection (d) hospital

described in this clause is a subsection (d) hospital that is

located in an urban area (as defined in paragraph (2)(D)) and

satisfies any of the following criteria:

(I) The hospital is located in a rural census tract of a

metropolitan statistical area (as determined under the most

recent modification of the Goldsmith Modification, originally

published in the Federal Register on February 27, 1992 (57 Fed.

Reg. 6725)).

(II) The hospital is located in an area designated by any law

or regulation of such State as a rural area (or is designated by

such State as a rural hospital).

(III) The hospital would qualify as a rural, regional, or

national referral center under paragraph (5)(C) or as a sole

community hospital under paragraph (5)(D) if the hospital were

located in a rural area.

(IV) The hospital meets such other criteria as the Secretary

may specify.

(9)(A) Notwithstanding section 1395f(b) of this title but subject

to the provisions of section 1395e of this title, the amount of the

payment with respect to the operating costs of inpatient hospital

services of a subsection (d) Puerto Rico hospital for inpatient

hospital discharges is equal to the sum of -

(i) for discharges beginning on or after October 1, 1997, 50

percent (and for discharges between October 1, 1987, and

September 30, 1997, 75 percent) of the Puerto Rico adjusted DRG

prospective payment rate (determined under subparagraph (B) or

(C)) for such discharges, and

(ii) 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) of the

discharge-weighted average of -

(I) the national adjusted DRG prospective payment rate

(determined under paragraph (3)(D)) for hospitals located in a

large urban area,

(II) such rate for hospitals located in other urban areas,

and

(III) such rate for hospitals located in a rural area,

for such discharges, adjusted in the manner provided in paragraph

(3)(E) for different area wage levels. As used in this section,

the term "subsection (d) Puerto Rico hospital" means a hospital

that is located in Puerto Rico and that would be a subsection (d)

hospital (as defined in paragraph (1)(B)) if it were located in

one of the fifty States.

(B) The Secretary shall determine a Puerto Rico adjusted DRG

prospective payment rate, for each inpatient hospital discharge in

fiscal year 1988 involving inpatient hospital services of a

subsection (d) Puerto Rico hospital for which payment may be made

under part A of this subchapter. Such rate shall be determined for

such hospitals located in urban or rural areas within Puerto Rico,

as follows:

(i) The Secretary shall determine the target amount (as defined

in subsection (b)(3)(A) of this section) for the hospital for the

cost reporting period beginning in fiscal year 1987 and increase

such amount by prorating the applicable percentage increase (as

defined in subsection (b)(3)(B) of this section) to update the

amount to the midpoint in fiscal year 1988.

(ii) The Secretary shall standardize the amount determined

under clause (i) for each hospital by -

(I) excluding an estimate of indirect medical education

costs,

(II) adjusting for variations among hospitals by area in the

average hospital wage level,

(III) adjusting for variations in case mix among hospitals,

and

(IV) excluding an estimate of the additional payments to

certain subsection (d) Puerto Rico hospitals to be made under

subparagraph (D)(iii) (relating to disproportionate share

payments).

(iii) The Secretary shall compute a discharge weighted average

of the standardized amounts determined under clause (ii) for all

hospitals located in an urban area and for all hospitals located

in a rural area (as such terms are defined in paragraph (2)(D)).

(iv) The Secretary shall reduce the average standardized amount

by a proportion equal to the proportion (estimated by the

Secretary) of the amount of payments under this paragraph which

are additional payments described in subparagraph (D)(i)

(relating to outlier payments).

(v) For each discharge classified within a diagnosis-related

group for hospitals located in an urban or rural area,

respectively, the Secretary shall establish a Puerto Rico DRG

prospective payment rate equal to the product of -

(I) the average standardized amount (computed under clause

(iii) and reduced under clause (iv)) for hospitals located in

an urban or rural area, respectively, and

(II) the weighting factor (determined under paragraph (4)(B))

for that diagnosis-related group.

(vi) The Secretary shall adjust the proportion (as estimated by

the Secretary from time to time) of hospitals' costs which are

attributable to wages and wage-related costs, of the Puerto Rico

DRG prospective payment rate computed under clause (v) for area

differences in hospital wage levels by a factor (established by

the Secretary) reflecting the relative hospital wage level in the

geographic area of the hospital compared to the Puerto Rican

average hospital wage level.

(C) The Secretary shall determine a Puerto Rico adjusted DRG

prospective payment rate, for each inpatient hospital discharge

after fiscal year 1988 involving inpatient hospital services of a

subsection (d) Puerto Rico hospital for which payment may be made

under part A of this subchapter. Such rate shall be determined for

hospitals located in urban or rural areas within Puerto Rico as

follows:

(i) The Secretary shall compute an average standardized amount

for hospitals located in an urban area and for hospitals located

in a rural area equal to the respective average standardized

amount computed for the previous fiscal year under subparagraph

(B)(iii) or under this clause, increased for fiscal year 1989 by

the applicable percentage increase under subsection (b)(3)(B) of

this section, and adjusted for subsequent fiscal years in

accordance with the final determination of the Secretary under

subsection (e)(4) of this section, and adjusted to reflect the

most recent case-mix data available.

(ii) The Secretary shall reduce each of the average

standardized amounts by a proportion equal to the proportion

(estimated by the Secretary) of the amount of payments under this

paragraph which are additional payments described in subparagraph

(D)(i) (relating to outlier payments).

(iii) For each discharge classified within a diagnosis-related

group for hospitals located in an urban or rural area,

respectively, the Secretary shall establish a Puerto Rico DRG

prospective payment rate equal to the product of -

(I) the average standardized amount (computed under clause

(i) and reduced under clause (ii)) for hospitals located in an

urban or rural area, respectively, and

(II) the weighting factor (determined under paragraph (4)(B))

for that diagnosis-related group.

(iv) The Secretary shall adjust the proportion (as estimated by

the Secretary from time to time) of hospitals' costs which are

attributable to wages and wage-related costs, of the Puerto Rico

DRG prospective payment rate computed under clause (iii) for area

differences in hospital wage levels by a factor (established by

the Secretary) reflecting the relative hospital wage level in the

geographic area of the hospital compared to the Puerto Rico

average hospital wage level. The second and third sentences of

paragraph (3)(E) shall apply to subsection (d) Puerto Rico

hospitals under this clause in the same manner as they apply to

subsection (d) hospitals under such paragraph and, for purposes

of this clause, any reference in such paragraph to a subsection

(d) hospital is deemed a reference to a subsection (d) Puerto

Rico hospital.

(D) The following provisions of paragraph (5) shall apply to

subsection (d) Puerto Rico hospitals receiving payment under this

paragraph in the same manner and to the extent as they apply to

subsection (d) hospitals receiving payment under this subsection:

(i) Subparagraph (A) (relating to outlier payments).

(ii) Subparagraph (B) (relating to payments for indirect

medical education costs), except that for this purpose the sum of

the amount determined under subparagraph (A) of this paragraph

and the amount paid to the hospital under clause (i) of this

subparagraph shall be substituted for the sum referred to in

paragraph (5)(B)(i)(I).

(iii) Subparagraph (F) (relating to disproportionate share

payments), except that for this purpose the sum described in

clause (ii) of this subparagraph shall be substituted for the sum

referred to in paragraph (5)(F)(ii)(I).

(iv) Subparagraph (H) (relating to exceptions and adjustments).

(10)(A) There is hereby established the Medicare Geographic

Classification Review Board (hereinafter in this paragraph referred

to as the "Board").

(B)(i) The Board shall be composed of 5 members appointed by the

Secretary without regard to the provisions of title 5, governing

appointments in the competitive service. Two of such members shall

be representative of subsection (d) hospitals located in a rural

area under paragraph (2)(D). At least 1 member shall be

knowledgeable in the field of analyzing costs with respect to the

provision of inpatient hospital services.

(ii) The Secretary shall make initial appointments to the Board

as provided in this paragraph within 180 days after December 19,

1989.

(C)(i) The Board shall consider the application of any subsection

(d) hospital requesting that the Secretary change the hospital's

geographic classification for purposes of determining for a fiscal

year -

(I) the hospital's average standardized amount under paragraph

(2)(D), or

(II) the factor used to adjust the DRG prospective payment rate

for area differences in hospital wage levels that applies to such

hospital under paragraph (3)(E).

(ii) A hospital requesting a change in geographic classification

under clause (i) for a fiscal year shall submit its application to

the Board not later than the first day of the 13-month period

ending on September 30 of the preceding fiscal year.

(iii)(I) The Board shall render a decision on an application

submitted under clause (i) not later than 180 days after the

deadline referred to in clause (ii).

(II) Appeal of decisions of the Board shall be subject to the

provisions of section 557b (!7) of title 5. The Secretary shall

issue a decision on such an appeal not later than 90 days after the

date on which the appeal is filed. The decision of the Secretary

shall be final and shall not be subject to judicial review.

(D)(i) The Secretary shall publish guidelines to be utilized by

the Board in rendering decisions on applications submitted under

this paragraph, and shall include in such guidelines the following:

(I) Guidelines for comparing wages, taking into account (to the

extent the Secretary determines appropriate) occupational mix, in

the area in which the hospital is classified and the area in

which the hospital is applying to be classified.

(II) Guidelines for determining whether the county in which the

hospital is located should be treated as being a part of a

particular Metropolitan Statistical Area.

(III) Guidelines for considering information provided by an

applicant with respect to the effects of the hospital's

geographic classification on access to inpatient hospital

services by medicare beneficiaries.

(IV) Guidelines for considering the appropriateness of the

criteria used to define New England County Metropolitan Areas.

(ii) Notwithstanding clause (i), if the Secretary uses a method

for making adjustments to the DRG prospective payment rate for area

differences in hospital wage levels under paragraph (3)(E) that is

not based on the use of Metropolitan Statistical Area

classifications, the Secretary may revise the guidelines published

under clause (i) to the extent such guidelines are used to

determine the appropriateness of the geographic area in which the

hospital is determined to be located for purposes of making such

adjustments.

(iii) Under the guidelines published by the Secretary under

clause (i), in the case of a hospital which has ever been

classified by the Secretary as a rural referral center under

paragraph (5)(C), the Board may not reject the application of the

hospital under this paragraph on the basis of any comparison

between the average hourly wage of the hospital and the average

hourly wage of hospitals in the area in which it is located.

(iv) The Secretary shall publish the guidelines described in

clause (i) by July 1, 1990.

(v) Any decision of the Board to reclassify a subsection (d)

hospital for purposes of the adjustment factor described in

subparagraph (C)(i)(II) for fiscal year 2001 or any fiscal year

thereafter shall be effective for a period of 3 fiscal years,

except that the Secretary shall establish procedures under which a

subsection (d) hospital may elect to terminate such

reclassification before the end of such period.

(vi) Such guidelines shall provide that, in making decisions on

applications for reclassification for the purposes described in

clause (v) for fiscal year 2003 and any succeeding fiscal year, the

Board shall base any comparison of the average hourly wage for the

hospital with the average hourly wage for hospitals in an area on -

(I) an average of the average hourly wage amount for the

hospital from the most recently published hospital wage survey

data of the Secretary (as of the date on which the hospital

applies for reclassification) and such amount from each of the

two immediately preceding surveys; and

(II) an average of the average hourly wage amount for hospitals

in such area from the most recently published hospital wage

survey data of the Secretary (as of the date on which the

hospital applies for reclassification) and such amount from each

of the two immediately preceding surveys.

(E)(i) The Board shall have full power and authority to make

rules and establish procedures, not inconsistent with the

provisions of this subchapter or regulations of the Secretary,

which are necessary or appropriate to carry out the provisions of

this paragraph. In the course of any hearing the Board may

administer oaths and affirmations. The provisions of subsections

(d) and (e) of section 405 of this title with respect to subpenas

shall apply to the Board to the same extent as such provisions

apply to the Secretary with respect to subchapter II of this

chapter.

(ii) The Board is authorized to engage such technical assistance

and to receive such information as may be required to carry out its

functions, and the Secretary shall, in addition, make available to

the Board such secretarial, clerical, and other assistance as the

Board may require to carry out its functions.

(F)(i) Each member of the Board who is not an officer or employee

of the Federal Government shall be compensated at a rate equal to

the daily equivalent of the annual rate of basic pay prescribed for

grade GS-18 of the General Schedule under section 5332 of title 5

for each day (including travel time) during which such member is

engaged in the performance of the duties of the Board. Each member

of the Board who is an officer or employee of the United States

shall serve without compensation in addition to that received for

service as an officer or employee of the United States.

(ii) Members of the Board shall be allowed travel expenses,

including per diem in lieu of subsistence, at rates authorized for

employees of agencies under subchapter I of chapter 57 of title 5,

while away from their homes or regular places of business in the

performance of services for the Board.

(11) Additional payments for managed care enrollees. -

(A) In general. - For portions of cost reporting periods

occurring on or after January 1, 1998, the Secretary shall

provide for an additional payment amount for each applicable

discharge of any subsection (d) hospital that has an approved

medical residency training program.

(B) Applicable discharge. - For purposes of this paragraph, the

term "applicable discharge" means the discharge of any individual

who is enrolled under a risk-sharing contract with an eligible

organization under section 1395mm of this title and who is

entitled to benefits under part A of this subchapter or any

individual who is enrolled with a Medicare+ÐChoice organization

under part C of this subchapter.

(C) Determination of amount. - The amount of the payment under

this paragraph with respect to any applicable discharge shall be

equal to the applicable percentage (as defined in subsection

(h)(3)(D)(ii) of this section) of the estimated average per

discharge amount that would otherwise have been paid under

paragraph (5)(B) if the individuals had not been enrolled as

described in subparagraph (B).

(D) Special rule for hospitals under reimbursement system. -

The Secretary shall establish rules for the application of this

paragraph to a hospital reimbursed under a reimbursement system

authorized under section 1395f(b)(3) of this title in the same

manner as it would apply to the hospital if it were not

reimbursed under such section.

(e) Proportional adjustments in applicable percentage increases

(1)(A) For cost reporting periods of hospitals beginning in

fiscal year 1984 or fiscal year 1985, the Secretary shall provide

for such proportional adjustment in the applicable percentage

increase (otherwise applicable to the periods under subsection

(b)(3)(B) of this section) as may be necessary to assure that -

(i) the aggregate payment amounts otherwise provided under

subsection (d)(1)(A)(i)(I) of this section for that fiscal year

for operating costs of inpatient hospital services of hospitals

(excluding payments made under section 1395cc(a)(1)(F) of this

title),

are not greater or less than -

(ii) the target percentage (as defined in subsection (d)(1)(C)

of this section) of the payment amounts which would have been

payable for such services for those same hospitals for that

fiscal year under this section under the law as in effect before

April 20, 1983 (excluding payments made under section

1395cc(a)(1)(F) of this title);

except that the adjustment made under this subparagraph shall apply

only to subsection (d) hospitals and shall not apply for purposes

of making computations under subsection (d)(2)(B)(ii) of this

section or subsection (d)(3)(A) of this section.

(B) For discharges occurring in fiscal year 1984 or fiscal year

1985, the Secretary shall provide under subsections (d)(2)(F) and

(d)(3)(C) of this section for such equal proportional adjustment in

each of the average standardized amounts otherwise computed for

that fiscal year as may be necessary to assure that -

(i) the aggregate payment amounts otherwise provided under

subsection (d)(1)(A)(i)(II) and (d)(5) of this section for that

fiscal year for operating costs of inpatient hospital services of

hospitals (excluding payments made under section 1395cc(a)(1)(F)

of this title),

are not greater or less than -

(ii) the DRG percentage (as defined in subsection (d)(1)(C) of

this section) of the payment amounts which would have been

payable for such services for those same hospitals for that

fiscal year under this section under the law as in effect before

April 20, 1983 (excluding payments made under section

1395cc(a)(1)(F) of this title).

(C) For discharges occurring in fiscal year 1988, the Secretary

shall provide for such equal proportional adjustment in each of the

average standardized amounts otherwise computed under subsection

(d)(3) of this section for that fiscal year as may be necessary to

assure that -

(i) the aggregate payment amounts otherwise provided under

subsections (d)(1)(A)(iii), (d)(5), and (d)(9) of this section

for that fiscal year for operating costs of inpatient hospital

services of subsection (d) hospitals and subsection (d) Puerto

Rico hospitals,

are not greater or less than -

(ii) the payment amounts that would have been payable for such

services for those same hospitals for that fiscal year but for

the enactment of the amendments made by section 9304 of the

Omnibus Budget Reconciliation Act of 1986.

(2) Repealed. Pub. L. 105-33, title IV, Sec. 4022(b)(1)(A)(i),

Aug. 5, 1997, 111 Stat. 354.

(3) The Secretary, not later than April 1, 1987, for fiscal year

1988 and not later than March 1 before the beginning of each fiscal

year (beginning with fiscal year 1989), shall report to the

Congress the Secretary's initial estimate of the percentage change

that the Secretary will recommend under paragraph (4) with respect

to that fiscal year.

(4)(A) Taking into consideration the recommendations of the

Commission, the Secretary shall recommend for each fiscal year

(beginning with fiscal year 1988) an appropriate change factor for

inpatient hospital services for discharges in that fiscal year

which will take into account amounts necessary for the efficient

and effective delivery of medically appropriate and necessary care

of high quality. The appropriate change factor may be different for

all large urban subsection (d) hospitals, other urban subsection

(d) hospitals, urban subsection (d) Puerto Rico hospitals, rural

subsection (d) hospitals, and rural subsection (d) Puerto Rico

hospitals, and all other hospitals and units not paid under

subsection (d) of this section, and may vary among such other

hospitals and units.

(B) In addition to the recommendation made under subparagraph

(A), the Secretary shall, taking into consideration the

recommendations of the Commission under paragraph (2)(B), recommend

for each fiscal year (beginning with fiscal year 1992) other

appropriate changes in each existing reimbursement policy under

this subchapter under which payments to an institution are based

upon prospectively determined rates.

(5) The Secretary shall cause to have published in the Federal

Register, not later than -

(A) the April 1 before each fiscal year (beginning with fiscal

year 1986), the Secretary's proposed recommendations under

paragraph (4) for that fiscal year for public comment, and

(B) the August 1 before such fiscal year after such

consideration of public comment on the proposal as is feasible in

the time available, the Secretary's final recommendations under

such paragraph for that year.

The Secretary shall include in the publication referred to in

subparagraph (A) for a fiscal year the report of the Commission's

recommendations submitted under paragraph (3) for that fiscal year.

To the extent that the Secretary's recommendations under paragraph

(4) differ from the Commission's recommendations for that fiscal

year, the Secretary shall include in the publication referred to in

subparagraph (A) an explanation of the Secretary's grounds for not

following the Commission's recommendations.

(f) Reporting of costs of hospitals receiving payments on basis of

prospective rates

(1)(A) The Secretary shall maintain a system for the reporting of

costs of hospitals receiving payments computed under subsection (d)

of this section.

(B)(i) Subject to clause (ii), the Secretary shall place into

effect a standardized electronic cost reporting format for

hospitals under this subchapter.

(ii) The Secretary may delay or waive the implementation of such

format in particular instances where such implementation would

result in financial hardship (in particular with respect to

hospitals with a small percentage of inpatients entitled to

benefits under this subchapter).

(2) If the Secretary determines, based upon information supplied

by a utilization and quality control peer review organization under

part B of subchapter XI of this chapter, that a hospital, in order

to circumvent the payment method established under subsection (b)

or (d) of this section, has taken an action that results in the

admission of individuals entitled to benefits under part A

unnecessarily, unnecessary multiple admissions of the same such

individuals, or other inappropriate medical or other practices with

respect to such individuals, the Secretary may -

(A) deny payment (in whole or in part) under part A of this

subchapter with respect to inpatient hospital services provided

with respect to such an unnecessary admission (or subsequent

admission of the same individual), or

(B) require the hospital to take other corrective action

necessary to prevent or correct the inappropriate practice.

(3) The provisions of subsections (c) through (g) of section

1320a-7 of this title shall apply to determinations made under

paragraph (2) in the same manner as they apply to exclusions

effected under section 1320a-7(b)(13) of this title.

(g) Prospective payment for capital-related costs; return on equity

capital for hospitals

(1)(A) Notwithstanding section 1395x(v) of this title, instead of

any amounts that are otherwise payable under this subchapter with

respect to the reasonable costs of subsection (d) hospitals and

subsection (d) Puerto Rico hospitals for capital-related costs of

inpatient hospital services, the Secretary shall, for hospital cost

reporting periods beginning on or after October 1, 1991, provide

for payments for such costs in accordance with a prospective

payment system established by the Secretary. Aggregate payments

made under subsection (d) of this section and this subsection

during fiscal years 1992 through 1995 shall be reduced in a manner

that results in a reduction (as estimated by the Secretary) in the

amount of such payments equal to a 10 percent reduction in the

amount of payments attributable to capital-related costs that would

otherwise have been made during such fiscal year had the amount of

such payments been based on reasonable costs (as defined in section

1395x(v) of this title). For discharges occurring after September

30, 1993, the Secretary shall reduce by 7.4 percent the unadjusted

standard Federal capital payment rate (as described in 42 CFR

412.308(c), as in effect on August 10, 1993) and shall (for

hospital cost reporting periods beginning on or after October 1,

1993) redetermine which payment methodology is applied to the

hospital under such system to take into account such reduction. 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

October 1, 2002, reduce the rates described in clauses (i) and (ii)

by 2.1 percent.

(B) Such system -

(i) shall provide for (I) a payment on a per discharge basis,

and (II) an appropriate weighting of such payment amount as

relates to the classification of the discharge;

(ii) may provide for an adjustment to take into account

variations in the relative costs of capital and construction for

the different types of facilities or areas in which they are

located;

(iii) may provide for such exceptions (including appropriate

exceptions to reflect capital obligations) as the Secretary

determines to be appropriate, and

(iv) may provide for suitable adjustment to reflect hospital

occupancy rate.

(C) In this paragraph, the term "capital-related costs" has the

meaning given such term by the Secretary under subsection (a)(4) of

this section as of September 30, 1987, and does not include a

return on equity capital.

(2)(A) The Secretary shall provide that the amount which is

allowable, with respect to reasonable costs of inpatient hospital

services for which payment may be made under this subchapter, for a

return on equity capital for hospitals shall, for cost reporting

periods beginning on or after April 20, 1983, be equal to amounts

otherwise allowable under regulations in effect on March 1, 1983,

except that the rate of return to be recognized shall be equal to

the applicable percentage (described in subparagraph (B)) of the

average of the rates of interest, for each of the months any part

of which is included in the reporting period, on obligations issued

for purchase by the Federal Hospital Insurance Trust Fund.

(B) In this paragraph, the "applicable percentage" is -

(i) 75 percent, for cost reporting periods beginning during

fiscal year 1987,

(ii) 50 percent, for cost reporting periods beginning during

fiscal year 1988,

(iii) 25 percent, for cost reporting periods beginning during

fiscal year 1989, and

(iv) 0 percent, for cost reporting periods beginning on or

after October 1, 1989.

(3)(A) Except as provided in subparagraph (B), in determining the

amount of the payments that may be made under this subchapter with

respect to all the capital-related costs of inpatient hospital

services of a subsection (d) hospital and a subsection (d) Puerto

Rico hospital, the Secretary shall reduce the amounts of such

payments otherwise established under this subchapter by -

(i) 3.5 percent for payments attributable to portions of cost

reporting periods occurring during fiscal year 1987,

(ii) 7 percent for payments attributable to portions of cost

reporting periods or discharges (as the case may be) occurring

during fiscal year 1988 on or after October 1, 1987, and before

January 1, 1988,

(iii) 12 percent for payments attributable to portions of cost

reporting periods or discharges (as the case may be) in fiscal

year 1988, occurring on or after January 1, 1988,

(iv) 15 percent for payments attributable to portions of cost

reporting periods or discharges (as the case may be) occurring

during fiscal year 1989, and

(v) 15 percent for payments attributable to portions of cost

reporting periods or discharges (as the case may be) occurring

during the period beginning January 1, 1990, and ending September

30, 1991.

(B) Subparagraph (A) shall not apply to payments with respect to

the capital-related costs of any hospital that is a sole community

hospital (as defined in subsection (d)(5)(D)(iii) of this section

(!8) or a critical access hospital (as defined in section

1395x(mm)(1) of this title).

(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

subchapter 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) of this section 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 subchapter by 15 percent.

(h) Payments for direct graduate medical education costs

(1) Substitution of special payment rules

Notwithstanding section 1395x(v) of this title, instead of any

amounts that are otherwise payable under this subchapter with

respect to the reasonable costs of hospitals for direct graduate

medical education costs, the Secretary shall provide for payments

for such costs in accordance with paragraph (3) of this

subsection. In providing for such payments, the Secretary shall

provide for an allocation of such payments between part A and

part B of this subchapter (and the trust funds established under

the respective parts) as reasonably reflects the proportion of

direct graduate medical education costs of hospitals associated

with the provision of services under each respective part.

(2) Determination of hospital-specific approved FTE resident

amounts

The Secretary shall determine, for each hospital with an

approved medical residency training program, an approved FTE

resident amount for each cost reporting period beginning on or

after July 1, 1985, as follows:

(A) Determining allowable average cost per FTE resident in a

hospital's base period

The Secretary shall determine, for the hospital's cost

reporting period that began during fiscal year 1984, the

average amount recognized as reasonable under this subchapter

for direct graduate medical education costs of the hospital for

each full-time-equivalent resident.

(B) Updating to the first cost reporting period

(i) In general

The Secretary shall update each average amount determined

under subparagraph (A) by the percentage increase in the

consumer price index during the 12-month cost reporting

period described in such subparagraph.

(ii) Exception

The Secretary shall not perform an update under clause (i)

in the case of a hospital if the hospital's reporting period,

described in subparagraph (A), began on or after July 1,

1984, and before October 1, 1984.

(C) Amount for first cost reporting period

For the first cost reporting period of the hospital beginning

on or after July 1, 1985, the approved FTE resident amount for

the hospital is equal to the amount determined under

subparagraph (B) increased by 1 percent.

(D) Amount for subsequent cost reporting periods

(i) In general

Except as provided in a subsequent clause, for each

subsequent cost reporting period, the approved FTE resident

amount for the hospital is equal to the approved FTE resident

amount determined under this paragraph for the previous cost

reporting period updated, through the midpoint of the period,

by projecting the estimated percentage change in the consumer

price index during the 12-month period ending at that

midpoint, with appropriate adjustments to reflect previous

under- or over-estimations under this subparagraph in the

projected percentage change in the consumer price index.

(ii) Freeze in update for fiscal years 1994 and 1995

For cost reporting periods beginning during fiscal year

1994 or fiscal year 1995, the approved FTE resident amount

for a hospital shall not be updated under clause (i) for a

resident who is not a primary care resident (as defined in

paragraph (5)(H)) or a resident enrolled in an approved

medical residency training program in obstetrics and

gynecology.

(iii) Floor for locality adjusted national average per

resident amount

The approved FTE resident amount for a hospital for the

cost reporting period beginning during fiscal year 2001 shall

not be less than 70 percent, and for the cost reporting

period beginning during fiscal year 2002 shall not be less

than 85 percent, of the locality adjusted national average

per resident amount computed under subparagraph (E) for the

hospital and period.

(iv) Adjustment in rate of increase for hospitals with FTE

approved amount above 140 percent of locality adjusted

national average per resident amount

(I) Freeze for fiscal years 2001 and 2002

For a cost reporting period beginning during fiscal year

2001 or fiscal year 2002, if the approved FTE resident

amount for a hospital for the preceding cost reporting

period exceeds 140 percent of the locality adjusted

national average per resident amount computed under

subparagraph (E) for that hospital and period, subject to

subclause (III), the approved FTE resident amount for the

period involved shall be the same as the approved FTE

resident amount for the hospital for such preceding cost

reporting period.

(II) 2 percent decrease in update for fiscal years 2003,

2004, and 2005

For a cost reporting period beginning during fiscal year

2003, fiscal year 2004, or fiscal year 2005, if the

approved FTE resident amount for a hospital for the

preceding cost reporting period exceeds 140 percent of the

locality adjusted national average per resident amount

computed under subparagraph (E) for that hospital and

preceding period, the approved FTE resident amount for the

period involved shall be updated in the manner described in

subparagraph (D)(i) except that, subject to subclause

(III), the consumer price index applied for a 12-month

period shall be reduced (but not below zero) by 2

percentage points.

(III) No adjustment below 140 percent

In no case shall subclause (I) or (II) reduce an approved

FTE resident amount for a hospital for a cost reporting

period below 140 percent of the locality adjusted national

average per resident amount computed under subparagraph (E)

for such hospital and period.

(E) Determination of locality adjusted national average per

resident amount

The Secretary shall determine a locality adjusted national

average per resident amount with respect to a cost reporting

period of a hospital beginning during a fiscal year as follows:

(i) Determining hospital single per resident amount

The Secretary shall compute for each hospital operating an

approved graduate medical education program a single per

resident amount equal to the average (weighted by number of

full-time equivalent residents, as determined under paragraph

(4)) of the primary care per resident amount and the

non-primary care per resident amount computed under paragraph

(2) for cost reporting periods ending during fiscal year

1997.

(ii) Standardizing per resident amounts

The Secretary shall compute a standardized per resident

amount for each such hospital by dividing the single per

resident amount computed under clause (i) by an average of

the 3 geographic index values (weighted by the national

average weight for each of the work, practice expense, and

malpractice components) as applied under section 1395w-4(e)

of this title for 1999 for the fee schedule area in which the

hospital is located.

(iii) Computing of weighted average

The Secretary shall compute the average of the standardized

per resident amounts computed under clause (ii) for such

hospitals, with the amount for each hospital weighted by the

average number of full-time equivalent residents at such

hospital (as determined under paragraph (4)).

(iv) Computing national average per resident amount

The Secretary shall compute the national average per

resident amount, for a hospital's cost reporting period that

begins during fiscal year 2001, equal to the weighted average

computed under clause (iii) increased by the estimated

percentage increase in the consumer price index for all urban

consumers during the period beginning with the month that

represents the midpoint of the cost reporting periods

described in clause (i) and ending with the midpoint of the

hospital's cost reporting period that begins during fiscal

year 2001.

(v) Adjusting for locality

The Secretary shall compute the product of -

(I) the national average per resident amount computed

under clause (iv) for the hospital, and

(II) the geographic index value average (described and

applied under clause (ii)) for the fee schedule area in

which the hospital is located.

(vi) Computing locality adjusted amount

The locality adjusted national per resident amount for a

hospital for -

(I) the cost reporting period beginning during fiscal

year 2001 is the product computed under clause (v); or

(II) each subsequent cost reporting period is equal to

the locality adjusted national per resident amount for the

hospital for the previous cost reporting period (as

determined under this clause) updated, through the midpoint

of the period, by projecting the estimated percentage

change in the consumer price index for all urban consumers

during the 12-month period ending at that midpoint.

(F) Treatment of certain hospitals

In the case of a hospital that did not have an approved

medical residency training program or was not participating in

the program under this subchapter for a cost reporting period

beginning during fiscal year 1984, the Secretary shall, for the

first such period for which it has such a residency training

program and is participating under this subchapter, provide for

such approved FTE resident amount as the Secretary determines

to be appropriate, based on approved FTE resident amounts for

comparable programs.

(3) Hospital payment amount per resident

(A) In general

The payment amount, for a hospital cost reporting period

beginning on or after July 1, 1985, is equal to the product of

-

(i) the aggregate approved amount (as defined in

subparagraph (B)) for that period, and

(ii) the hospital's medicare patient load (as defined in

subparagraph (C)) for that period.

(B) Aggregate approved amount

As used in subparagraph (A), the term "aggregate approved

amount" means, for a hospital cost reporting period, the

product of -

(i) the hospital's approved FTE resident amount (determined

under paragraph (2)) for that period, and

(ii) the weighted average number of full-time-equivalent

residents (as determined under paragraph (4)) in the

hospital's approved medical residency training programs in

that period.

The Secretary shall reduce the aggregate approved amount to the

extent payment is made under subsection (k) of this section for

residents included in the hospital's count of full-time

equivalent residents.

(C) Medicare patient load

As used in subparagraph (A), the term "medicare patient load"

means, with respect to a hospital's cost reporting period, the

fraction of the total number of inpatient-bed-days (as

established by the Secretary) during the period which are

attributable to patients with respect to whom payment may be

made under part A of this subchapter.

(D) Payment for managed care enrollees

(i) In general

For portions of cost reporting periods occurring on or

after January 1, 1998, the Secretary shall provide for an

additional payment amount under this subsection for services

furnished to individuals who are enrolled under a

risk-sharing contract with an eligible organization under

section 1395mm of this title and who are entitled to part A

of this subchapter or with a Medicare+Choice organization

under part C of this subchapter. The amount of such a payment

shall equal, subject to clause (iii), the applicable

percentage of the product of -

(I) the aggregate approved amount (as defined in

subparagraph (B)) for that period; and

(II) the fraction of the total number of inpatient-bed

days (as established by the Secretary) during the period

which are attributable to such enrolled individuals.

(ii) Applicable percentage

For purposes of clause (i), the applicable percentage is -

(I) 20 percent in 1998,

(II) 40 percent in 1999,

(III) 60 percent in 2000, and (!9)

(IV) 80 percent in 2001, and

(V) 100 percent in 2002 and subsequent years.

(iii) Proportional reduction for nursing and allied health

education

The Secretary shall estimate a proportional adjustment in

payments to all hospitals determined under clauses (i) and

(ii) for portions of cost reporting periods beginning in a

year (beginning with 2000) such that the proportional

adjustment reduces payments in an amount for such year equal

to the total additional payment amounts for nursing and

allied health education determined under subsection (l) of

this section for portions of cost reporting periods occurring

in that year.

(iv) Special rule for hospitals under reimbursement system

The Secretary shall establish rules for the application of

this subparagraph to a hospital reimbursed under a

reimbursement system authorized under section 1395f(b)(3) of

this title in the same manner as it would apply to the

hospital if it were not reimbursed under such section.

(4) Determination of full-time-equivalent residents

(A) Rules

The Secretary shall establish rules consistent with this

paragraph for the computation of the number of

full-time-equivalent residents in an approved medical residency

training program.

(B) Adjustment for part-year or part-time residents

Such rules shall take into account individuals who serve as

residents for only a portion of a period with a hospital or

simultaneously with more than one hospital.

(C) Weighting factors for certain residents

Subject to subparagraph (D), such rules shall provide, in

calculating the number of full-time-equivalent residents in an

approved residency program -

(i) before July 1, 1986, for each resident the weighting

factor is 1.00,

(ii) on or after July 1, 1986, for a resident who is in the

resident's initial residency period (as defined in paragraph

(5)(F)), the weighting factor is 1.00,

(iii) on or after July 1, 1986, and before July 1, 1987,

for a resident who is not in the resident's initial residency

period (as defined in paragraph (5)(F)), the weighting factor

is .75, and

(iv) on or after July 1, 1987, for a resident who is not in

the resident's initial residency period (as defined in

paragraph (5)(F)), the weighting factor is .50.

(D) Foreign medical graduates required to pass FMGEMS

examination

(i) In general

Except as provided in clause (ii), such rules shall provide

that, in the case of an individual who is a foreign medical

graduate (as defined in paragraph (5)(D)), the individual

shall not be counted as a resident on or after July 1, 1986,

unless -

(I) the individual has passed the FMGEMS examination (as

defined in paragraph (5)(E)), or

(II) the individual has previously received certification

from, or has previously passed the examination of, the

Educational Commission for Foreign Medical Graduates.

(ii) Transition for current FMGS

On or after July 1, 1986, but before July 1, 1987, in the

case of a foreign medical graduate who -

(I) has served as a resident before July 1, 1986, and is

serving as a resident after that date, but

(II) has not passed the FMGEMS examination or a previous

examination of the Educational Commission for Foreign

Medical Graduates before July 1, 1986,

the individual shall be counted as a resident at a rate equal

to one-half of the rate at which the individual would

otherwise be counted.

(E) Counting time spent in outpatient settings

Such rules shall provide that only time spent in activities

relating to patient care shall be counted and that all the time

so spent by a resident under an approved medical residency

training program shall be counted towards the determination of

full-time equivalency, without regard to the setting in which

the activities are performed, if the hospital incurs all, or

substantially all, of the costs for the training program in

that setting.

(F) Limitation on number of residents in allopathic and

osteopathic medicine

(i) In general

Such rules shall provide that for purposes of a cost

reporting period beginning on or after October 1, 1997, the

total number of full-time equivalent residents before

application of weighting factors (as determined under this

paragraph) with respect to a hospital's approved medical

residency training program in the fields of allopathic

medicine and osteopathic medicine may not exceed the number

(or, 130 percent of such number in the case of a hospital

located in a rural area) of such full-time equivalent

residents for the hospital's most recent cost reporting

period ending on or before December 31, 1996.

(ii) Counting primary care residents on certain approved

leaves of absence in base year FTE count

(I) In general

In determining the number of such full-time equivalent

residents for a hospital's most recent cost reporting

period ending on or before December 31, 1996, for purposes

of clause (i), the Secretary shall count an individual to

the extent that the individual would have been counted as a

primary care resident for such period but for the fact that

the individual, as determined by the Secretary, was on

maternity or disability leave or a similar approved leave

of absence.

(II) Limitation to 3 FTE residents for any hospital

The total number of individuals counted under subclause

(I) for a hospital may not exceed 3 full-time equivalent

residents.

(G) Counting interns and residents for FY 1998 and subsequent

years

(i) In general

For cost reporting periods beginning during fiscal years

beginning on or after October 1, 1997, subject to the limit

described in subparagraph (F), the total number of full-time

equivalent residents for determining a hospital's graduate

medical education payment shall equal the average of the

actual full-time equivalent resident counts for the cost

reporting period and the preceding two cost reporting

periods.

(ii) Adjustment for short periods

If any cost reporting period beginning on or after October

1, 1997, is not equal to twelve months, the Secretary shall

make appropriate modifications to ensure that the average

full-time equivalent resident counts pursuant to clause (i)

are based on the equivalent of full twelve-month cost

reporting periods.

(iii) Transition rule for 1998

In the case of a hospital's first cost reporting period

beginning on or after October 1, 1997, clause (i) shall be

applied by using the average for such period and the

preceding cost reporting period.

(H) Special rules for application of subparagraphs (F) and (G)

(i) New facilities

The Secretary shall, consistent with the principles of

subparagraphs (F) and (G), prescribe rules for the

application of such subparagraphs in the case of medical

residency training programs established on or after January

1, 1995. In promulgating such rules for purposes of

subparagraph (F), the Secretary shall give special

consideration to facilities that meet the needs of

underserved rural areas.

(ii) Aggregation

The Secretary may prescribe rules which allow institutions

which are members of the same affiliated group (as defined by

the Secretary) to elect to apply the limitation of

subparagraph (F) on an aggregate basis.

(iii) Data collection

The Secretary may require any entity that operates a

medical residency training program and to which subparagraphs

(F) and (G) apply to submit to the Secretary such additional

information as the Secretary considers necessary to carry out

such subparagraphs.

(iv) Nonrural hospitals operating training programs in rural

areas

In the case of a hospital that is not located in a rural

area but establishes separately accredited approved medical

residency training programs (or rural tracks) in an (!10)

rural area or has an accredited training program with an

integrated rural track, the Secretary shall adjust the

limitation under subparagraph (F) in an appropriate manner

insofar as it applies to such programs in such rural areas in

order to encourage the training of physicians in rural areas.

(5) Definitions and special rules

As used in this subsection:

(A) Approved medical residency training program

The term "approved medical residency training program" means

a residency or other postgraduate medical training program

participation in which may be counted toward certification in a

specialty or subspecialty and includes formal postgraduate

training programs in geriatric medicine approved by the

Secretary.

(B) Consumer price index

The term "consumer price index" refers to the Consumer Price

Index for All Urban Consumers (United States city average), as

published by the Secretary of Commerce.

(C) Direct graduate medical education costs

The term "direct graduate medical education costs" means

direct costs of approved educational activities for approved

medical residency training programs.

(D) Foreign medical graduate

The term "foreign medical graduate" means a resident who is

not a graduate of -

(i) a school of medicine accredited by the Liaison

Committee on Medical Education of the American Medical

Association and the Association of American Medical Colleges

(or approved by such Committee as meeting the standards

necessary for such accreditation),

(ii) a school of osteopathy accredited by the American

Osteopathic Association, or approved by such Association as

meeting the standards necessary for such accreditation, or

(iii) a school of dentistry or podiatry which is accredited

(or meets the standards for accreditation) by an organization

recognized by the Secretary for such purpose.

(E) FMGEMS examination

The term "FMGEMS examination" means parts I and II of the

Foreign Medical Graduate Examination in the Medical Sciences or

any successor examination recognized by the Secretary for this

purpose.

(F) Initial residency period

The term "initial residency period" means the period of board

eligibility, except that -

(i) except as provided in clause (ii), in no case shall the

initial period of residency exceed an aggregate period of

formal training of more than five years for any individual,

and

(ii) a period, of not more than two years, during which an

individual is in a geriatric residency or fellowship program

or a preventive medicine residency or fellowship program

which meets such criteria as the Secretary may establish,

shall be treated as part of the initial residency period, but

shall not be counted against any limitation on the initial

residency period.

Subject to subparagraph (G)(v), the initial residency period

shall be determined, with respect to a resident, as of the time

the resident enters the residency training program.

(G) Period of board eligibility

(i) General rule

Subject to clauses (ii), (iii), (iv), and (v), the term

"period of board eligibility" means, for a resident, the

minimum number of years of formal training necessary to

satisfy the requirements for initial board eligibility in the

particular specialty for which the resident is training.

(ii) Application of 1985-1986 directory

Except as provided in clause (iii), the period of board

eligibility shall be such period specified in the 1985-1986

Directory of Residency Training Programs published by the

Accreditation Council on Graduate Medical Education.

(iii) Changes in period of board eligibility

On or after July 1, 1989, if the Accreditation Council on

Graduate Medical Education, in its Directory of Residency

Training Programs -

(I) increases the minimum number of years of formal

training necessary to satisfy the requirements for a

specialty, above the period specified in its 1985-1986

Directory, the Secretary may increase the period of board

eligibility for that specialty, but not to exceed the

period of board eligibility specified in that later

Directory, or

(II) decreases the minimum number of years of formal

training necessary to satisfy the requirements for a

specialty, below the period specified in its 1985-1986

Directory, the Secretary may decrease the period of board

eligibility for that specialty, but not below the period of

board eligibility specified in that later Directory.

(iv) Special rule for certain primary care combined residency

programs

(I) In the case of a resident enrolled in a combined

medical residency training program in which all of the

individual programs (that are combined) are for training a

primary care resident (as defined in subparagraph (H)), the

period of board eligibility shall be the minimum number of

years of formal training required to satisfy the requirements

for initial board eligibility in the longest of the

individual programs plus one additional year.

(II) A resident enrolled in a combined medical residency

training program that includes an obstetrics and gynecology

program shall qualify for the period of board eligibility

under subclause (I) if the other programs such resident

combines with such obstetrics and gynecology program are for

training a primary care resident.

(v) Child neurology training programs

In the case of a resident enrolled in a child neurology

residency training program, the period of board eligibility

and the initial residency period shall be the period of board

eligibility for pediatrics plus 2 years.

(H) Primary care resident

The term "primary care resident" means a resident enrolled in

an approved medical residency training program in family

medicine, general internal medicine, general pediatrics,

preventive medicine, geriatric medicine, or osteopathic general

practice.

(I) Resident

The term "resident" includes an intern or other participant

in an approved medical residency training program.

(J) Adjustments for certain family practice residency programs

(i) In general

In the case of an approved medical residency training

program (meeting the requirements of clause (ii)) of a

hospital which received funds from the United States, a

State, or a political subdivision of a State or an

instrumentality of such a State or political subdivision

(other than payments under this subchapter or a State plan

under subchapter XIX of this chapter) for the program during

the cost reporting period that began during fiscal year 1984,

the Secretary shall -

(I) provide for an average amount under paragraph (2)(A)

that takes into account the Secretary's estimate of the

amount that would have been recognized as reasonable under

this subchapter if the hospital had not received such

funds, and

(II) reduce the payment amount otherwise provided under

this subsection in an amount equal to the proportion of

such program funds received during the cost reporting

period involved that is allocable to this subchapter.

(ii) Additional requirements

A hospital's approved medical residency program meets the

requirements of this clause if -

(I) the program is limited to training for family and

community medicine;

(II) the program is the only approved medical residency

program of the hospital; and

(III) the average amount determined under paragraph

(2)(A) for the hospital (as determined without regard to

the increase in such amount described in clause (i)(I))

does not exceed $10,000.

(6) Incentive payment under plans for voluntary reduction in

number of residents

(A) In general

In the case of a voluntary residency reduction plan for which

an application is approved under subparagraph (B), subject to

subparagraph (F), each hospital which is part of the qualifying

entity submitting the plan shall be paid an applicable hold

harmless percentage (as specified in subparagraph (E)) of the

sum of -

(i) the amount (if any) by which -

(I) the amount of payment which would have been made

under this subsection if there had been a 5-percent

reduction in the number of full-time equivalent residents

in the approved medical education training programs of the

hospital as of June 30, 1997, exceeds

(II) the amount of payment which is made under this

subsection, taking into account the reduction in such

number effected under the reduction plan; and

(ii) the amount of the reduction in payment under

subsection (d)(5)(B) of this section for the hospital that is

attributable to the reduction in number of residents effected

under the plan below 95 percent of the number of full-time

equivalent residents in such programs of the hospital as of

June 30, 1997.

The determination of the amounts under clauses (i) and (ii) for

any year shall be made on the basis of the provisions of this

subchapter in effect on the application deadline date for the

first calendar year to which the reduction plan applies.

(B) Approval of plan applications

The Secretary may not approve the application of an

qualifying entity unless -

(i) the application is submitted in a form and manner

specified by the Secretary and by not later than November 1,

1999,(!11)

(ii) the application provides for the operation of a plan

for the reduction in the number of full-time equivalent

residents in the approved medical residency training programs

of the entity consistent with the requirements of

subparagraph (D);

(iii) the entity elects in the application the period of

residency training years (not greater than 5) over which the

reduction will occur;

(iv) the entity will not reduce the proportion of its

residents in primary care (to the total number of residents)

below such proportion as in effect as of the applicable time

described in subparagraph (D)(v); and

(v) the Secretary determines that the application and the

entity and such plan meet such other requirements as the

Secretary specifies in regulations.

(C) Qualifying entity

For purposes of this paragraph, any of the following may be a

qualifying entity:

(i) Individual hospitals operating one or more approved

medical residency training programs.

(ii) Two or more hospitals that operate such programs and

apply for treatment under this paragraph as a single

qualifying entity.

(iii) A qualifying consortium (as described in section 4628

of the Balanced Budget Act of 1997).

(D) Residency reduction requirements

(i) Individual hospital applicants

In the case of a qualifying entity described in

subparagraph (C)(i), the number of full-time equivalent

residents in all the approved medical residency training

programs operated by or through the entity shall be reduced

as follows:

(I) If the base number of residents exceeds 750

residents, by a number equal to at least 20 percent of such

base number.

(II) Subject to subclause (IV), if the base number of

residents exceeds 600 but is less than 750 residents, by

150 residents.

(III) Subject to subclause (IV), if the base number of

residents does not exceed 600 residents, by a number equal

to at least 25 percent of such base number.

(IV) In the case of a qualifying entity which is

described in clause (v) and which elects treatment under

this subclause, by a number equal to at least 20 percent of

the base number.

(ii) Joint applicants

In the case of a qualifying entity described in

subparagraph (C)(ii), the number of full-time equivalent

residents in the aggregate for all the approved medical

residency training programs operated by or through the entity

shall be reduced as follows:

(I) Subject to subclause (II), by a number equal to at

least 25 percent of the base number.

(II) In the case of such a qualifying entity which is

described in clause (v) and which elects treatment under

this subclause, by a number equal to at least 20 percent of

the base number.

(iii) Consortia

In the case of a qualifying entity described in

subparagraph (C)(iii), the number of full-time equivalent

residents in the aggregate for all the approved medical

residency training programs operated by or through the entity

shall be reduced by a number equal to at least 20 percent of

the base number.

(iv) Manner of reduction

The reductions specified under the preceding provisions of

this subparagraph for a qualifying entity shall be below the

base number of residents for that entity and shall be fully

effective not later than the 5th residency training year in

which the application under subparagraph (B) is effective.

(v) Entities providing assurance of increase in primary care

residents

An entity is described in this clause if -

(I) the base number of residents for the entity is less

than 750 or the entity is described in subparagraph

(C)(ii); and

(II) the entity represents in its application under

subparagraph (B) that it will increase the number of

full-time equivalent residents in primary care by at least

20 percent (from such number included in the base number of

residents) by not later than the 5th residency training

year in which the application under subparagraph (B) is

effective.

If a qualifying entity fails to comply with the

representation described in subclause (II) by the end of such

5th residency training year, the entity shall be subject to

repayment of all amounts paid under this paragraph, in

accordance with procedures established to carry out

subparagraph (F).

(vi) "Base number of residents" defined

For purposes of this paragraph, the term "base number of

residents" means, with respect to a qualifying entity (or its

participating hospitals) operating approved medical residency

training programs, the number of full-time equivalent

residents in such programs (before application of weighting

factors) of the entity as of the most recent residency

training year ending before June 30, 1997, or, if less, for

any subsequent residency training year that ends before the

date the entity makes application under this paragraph.

(E) Applicable hold harmless percentage

For purposes of subparagraph (A), the "applicable hold

harmless percentage" for the -

(i) first and second residency training years in which the

reduction plan is in effect, 100 percent,

(ii) third such year, 75 percent,

(iii) fourth such year, 50 percent, and

(iv) fifth such year, 25 percent.

(F) Penalty for noncompliance

(i) In general

No payment may be made under this paragraph to a hospital

for a residency training year if the hospital has failed to

reduce the number of full-time equivalent residents (in the

manner required under subparagraph (D)) to the number agreed

to by the Secretary and the qualifying entity in approving

the application under this paragraph with respect to such

year.

(ii) Increase in number of residents in subsequent years

If payments are made under this paragraph to a hospital,

and if the hospital increases the number of full-time

equivalent residents above the number of such residents

permitted under the reduction plan as of the completion of

the plan, then, as specified by the Secretary, the entity is

liable for repayment to the Secretary of the total amounts

paid under this paragraph to the entity.

(G) Treatment of rotating residents

In applying this paragraph, the Secretary shall establish

rules regarding the counting of residents who are assigned to

institutions the medical residency training programs in which

are not covered under approved applications under this

paragraph.

(i) Avoiding duplicative payments to hospitals participating in

rural demonstration programs

The Secretary shall reduce any payment amounts otherwise

determined under this section to the extent necessary to avoid

duplication of any payment made under section 4005(e) of the

Omnibus Budget Reconciliation Act of 1987.

(j) Prospective payment for inpatient rehabilitation services

(1) Payment during transition period

(A) In general

Notwithstanding section 1395f(b) of this title, but subject

to the provisions of section 1395e of this title, 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"), other than a facility making an

election under subparagraph (F) 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 of this

subchapter 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 1395f(b) of this title, but subject

to the provisions of section 1395e of this title, 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, or, in the case of a facility making an

election under subparagraph (F), for any cost reporting period

described in such subparagraph, 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.

(E) Construction relating to transfer authority

Nothing in this subsection shall be construed as preventing

the Secretary from providing for an adjustment to payments to

take into account the early transfer of a patient from a

rehabilitation facility to another site of care.

(F) Election to apply full prospective payment system

A rehabilitation facility may elect, not later than 30 days

before its first cost reporting period for which the payment

methodology under this subsection applies to the facility, to

have payment made to the facility under this subsection under

the provisions of subparagraph (B) (rather than subparagraph

(A)) for each cost reporting period to which such payment

methodology applies.

(2) Patient case mix groups

(A) Establishment

The Secretary shall establish -

(i) classes of patient discharges of rehabilitation

facilities by functional-related groups (each in this

subsection referred to as a "case mix group"), based on

impairment, age, comorbidities, and functional capability of

the patient and such other factors as the Secretary deems

appropriate to improve the explanatory power of functional

independence measure-function related groups; 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 subchapter, 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 subchapter. 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 subchapter 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)

of this section (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) but not taking into account

any payment adjustment resulting from an election permitted

under paragraph (1)(F)) shall be equal to 98 percent for fiscal

year 2001 and 100 percent for fiscal year 2002 of the amount of

payments that would have been made under this subchapter 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) of

this section.

(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 1395ff of this title, 1395oo of this title, 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).

(k) Payment to nonhospital providers

(1) In general

For cost reporting periods beginning on or after October 1,

1997, the Secretary may establish rules for payment to qualified

nonhospital providers for their direct costs of medical

education, if those costs are incurred in the operation of an

approved medical residency training program described in

subsection (h) of this section. Such rules shall specify the

amounts, form, and manner in which such payments will be made and

the portion of such payments that will be made from each of the

trust funds under this subchapter.

(2) Qualified nonhospital providers

For purposes of this subsection, the term "qualified

nonhospital providers" means -

(A) a Federally (!12) qualified health center, as defined in

section 1395x(aa)(4) of this title;

(B) a rural health clinic, as defined in section 1395x(aa)(2)

of this title;

(C) Medicare+Choice organizations; and

(D) such other providers (other than hospitals) as the

Secretary determines to be appropriate.

(l) Payment for nursing and allied health education for managed

care enrollees

(1) In general

For portions of cost reporting periods occurring in a year

(beginning with 2000), the Secretary shall provide for an

additional payment amount for any hospital that receives payments

for the costs of approved educational activities for nurse and

allied health professional training under section 1395x(v)(1) of

this title.

(2) Payment amount

The additional payment amount under this subsection for each

hospital for portions of cost reporting periods occurring in a

year shall be an amount specified by the Secretary in a manner

consistent with the following:

(A) Determination of managed care enrollee payment ratio for

graduate medical education payments

The Secretary shall estimate the ratio of payments for all

hospitals for portions of cost reporting periods occurring in

the year under subsection (h)(3)(D) of this section to total

direct graduate medical education payments estimated for such

portions of periods under subsection (h)(3) of this section.

(B) Application to fee-for-service nursing and allied health

education payments

Such ratio shall be applied to the Secretary's estimate of

total payments for nursing and allied health education

determined under section 1395x(v) of this title for portions of

cost reporting periods occurring in the year to determine a

total amount of additional payments for nursing and allied

health education to be distributed to hospitals under this

subsection for portions of cost reporting periods occurring in

the year; except that in no case shall such total amount exceed

$60,000,000 in any year.

(C) Application to hospital

The amount of payment under this subsection to a hospital for

portions of cost reporting periods occurring in a year is equal

to the total amount of payments determined under subparagraph

(B) for the year multiplied by the ratio of -

(i) the product of (I) the Secretary's estimate of the

ratio of the amount of payments made under section 1395x(v)

of this title to the hospital for nursing and allied health

education activities for the hospital's cost reporting period

ending in the second preceding fiscal year, to the hospital's

total inpatient days for such period, and (II) the total

number of inpatient days (as established by the Secretary)

for such period which are attributable to services furnished

to individuals who are enrolled under a risk sharing contract

with an eligible organization under section 1395mm of this

title and who are entitled to benefits under part A of this

subchapter or who are enrolled with a Medicare+Choice

organization under part C of this subchapter; to

(ii) the sum of the products determined under clause (i)

for such cost reporting periods.

-SOURCE-

(Aug. 14, 1935, ch. 531, title XVIII, Sec. 1886, as added and

amended Pub. L. 97-248, title I, Secs. 101(a)(1), 110, Sept. 3,

1982, 96 Stat. 331, 339; Pub. L. 97-448, title III, Sec.

309(b)(13)-(15), Jan. 12, 1983, 96 Stat. 2409; Pub. L. 98-21, title

VI, Sec. 601(a)(1), (2), (b), (c), (d)(2), (e), Apr. 20, 1983, 97

Stat. 149, 150, 152; Pub. L. 98-369, div. B, title III, Secs.

2307(b)(1), 2310(a), 2311(a)-(c), 2312(a), (b), 2313(a), (b), (d),

2315(a)-(c), 2354(b)(42)-(44), July 18, 1984, 98 Stat. 1073,

1075-1080, 1102; Pub. L. 98-617, Sec. 3(b)(9), Nov. 8, 1984, 98

Stat. 3296; Pub. L. 99-272, title IX, Secs. 9101(b), (c),

9102(a)-(c), 9104(a), (b), 9105(a)-(c), 9106(a), 9107(a), 9109(a),

9111(a), 9127(a), 9202(a), Apr. 7, 1986, 100 Stat. 153-155,

157-162, 170, 171; Pub. L. 99-349, title II, Sec. 206, July 2,

1986, 100 Stat. 749; Pub. L. 99-509, title IX, Secs. 9302(a)(1),

(2), (b)(1), (c), (d)(1)(A), (e), 9303, 9304(a)-(c), 9306(a)-(c),

9307(c)(1), 9314(a), 9320(g), 9321(e)(2), Oct. 21, 1986, 100 Stat.

1982-1985, 1988, 1995, 2005, 2015, 2018; Pub. L. 99-514, Sec. 2,

title XVIII, Sec. 1895(b)(1)(A)-(C), (2)(A)-(C), (3), (9), Oct. 22,

1986, 100 Stat. 2095, 2931-2933; Pub. L. 100-93, Sec. 8(c)(4), Aug.

18, 1987, 101 Stat. 693; Pub. L. 100-203, title IV, Secs.

4002(a)-(f)(1), 4003(a)-(c), 4004(a), 4005(a)(1), (c)(1),

(d)(1)(A), 4006(a)-(b)(2), 4007(b)(1), 4009(d)(1), (j)(1)-(6)(B),

4083(b)(1), Dec. 22, 1987, 101 Stat. 1330-42 to 1330-44, 1330-46,

1330-47, 1330-49, 1330-52, 1330-53, 1330-57 to 1330-59, 1330-129,

as amended Pub. L. 100-360, title IV, Sec. 411(b)(1)(E), (3),

(4)(C)(i), (5)(B), (6)(B), (8)(B), July 1, 1988, 102 Stat. 769,

770, 772; Pub. L. 100-360, title IV, Sec. 411(b)(1)(A)-(D),

(F)-(H)(i), (4)(A), (B), (5)(A), July 1, 1988, 102 Stat. 768-770;

Pub. L. 100-485, title VI, Sec. 608(d)(18)(A), (B), Oct. 13, 1988,

102 Stat. 2418; Pub. L. 100-647, title I, Sec. 1018(r)(1), title

VIII, Secs. 8401, 8403(a), Nov. 10, 1988, 102 Stat. 3586, 3798;

Pub. L. 101-234, title III, Sec. 301(b)(3), (c)(3), Dec. 13, 1989,

103 Stat. 1985, 1986; Pub. L. 101-239, title VI, Secs. 6002,

6003(a)(1), (b)-(c)(3), (e)(1), (2)(B)-(E), (f), (g)(2),

(4)-(h)(4), (6), 6004(a)(1), (2), (b)(1), 6011(a), 6015(a), 6022,

Dec. 19, 1989, 103 Stat. 2140-2144, 2151, 2154-2157, 2159-2161,

2164, 2167; Pub. L. 101-403, title I, Sec. 115(b)(1), Oct. 1, 1990,

104 Stat. 870; Pub. L. 101-508, title IV, Secs. 4001, 4002(a)(1),

(b)(1)-(4), (c)(1), (2), (e)(1), (g)(1), (2), (h)(1)(A), (2)(B),

4003(a), 4005(a)(1), (c)(1)(B), (2), 4008(f)(1), (m)(2)(A), Nov. 5,

1990, 104 Stat. 1388-31 to 1388-38, 1388-40, 1388-42, 1388-45,

1388-53; Pub. L. 103-66, title XIII, Secs. 13501(a), (b)(1), (c),

(e)(1), (f), 13502, 13506, 13563(a), (b)(1), (c)(1), Aug. 10, 1993,

107 Stat. 572, 574, 575, 577, 579, 605; Pub. L. 103-432, title I,

Secs. 101(a)(1), (b), (c), 102(b)(1)(B), 105, 108-110(a), (c),

153(a), Oct. 31, 1994, 108 Stat. 4400-4402, 4405, 4407, 4408, 4437;

Pub. L. 105-33, title IV, Secs. 4022(b)(1)(A), 4201(c)(1), (4),

4202(a), 4204(a)(1), (2), 4401(a), 4402, 4403(a), 4405(a)-(c),

4406, 4407, 4411-4415(c), 4416, 4417(a)(1), (b)(1), 4418(a),

4419(a)(1), 4421(a), (b), 4621-4626(a), 4627(a), 4644(a)(1),

(b)(1), (c)(1), Aug. 5, 1997, 111 Stat. 354, 373-375, 397, 398,

400, 401, 403-410, 413, 475-480, 483, 488; Pub. L. 106-113, div. B,

Sec. 1000(a)(6) [title I, Secs. 111(a), (c), 112(a), 121(a), 122,

125(a), title III, Secs. 311, 312(a), 321(b), (e), (f), (h),

(k)(15)-(17), title IV, Secs. 401(a), 402(a), 404(a), (b)(1),

405-407(a)(2), (b)(1), (2), (c)(1), title V, Sec. 541], Nov. 29,

1999, 113 Stat. 1536, 1501A-329 to 1501A-332, 1501A-362 to

150A-366, 1501A-368, 1501A-369, 1501A-372 to 1501A-374, 1501A-391;

Pub. L. 106-554, Sec. 1(a)(4) [div. B, title I, Sec. 152(a), (b)],

Sec. 1(a)(6) [title II, Secs. 211, 212(a), 213(a), title III, Secs.

301(a), (e)(1), 302(a), (c), (d), 303(a), (c), (d)(1), 304(a),

(c)(2), 305(a), (b), 307(a)(1), title V, Secs. 511, 512(a),

533(b)(1), (3)], Dec. 21, 2000, 114 Stat. 2763, 2763A-251,

2763A-252, 2763A-483, 2763A-485, 2763A-491 to 2763A-496, 2763A-533,

2763A-548, 2763A-550.)