To amend title XVIII of the Social Security Act to revise and improve payments to providers of services under the Medicare Program, and for other purposes.

January 7, 2003

Mr. CARDIN introduced the following bill; which was referred to the Committee on Ways and Means, and in addition to the Committee on Energy and Commerce, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned

To amend title XVIII of the Social Security Act to revise and improve payments to providers of services under the Medicare Program, and for other purposes.

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

SECTION 1. SHORT TITLE; AMENDMENTS TO SOCIAL SECURITY ACT; REFERENCES TO BIPA AND SECRETARY; TABLE OF CONTENTS.

(a) SHORT TITLE- This Act may be cited as the `Medicare Payment Restoration and Benefits Improvement Act of 2003'.

(b) AMENDMENTS TO SOCIAL SECURITY ACT- Except as otherwise specifically provided, whenever in this Act an amendment is expressed in terms of an amendment to or repeal of a section or other provision, the reference shall be considered to be made to that section or other provision of the Social Security Act.

(c) BIPA; SECRETARY- In this Act:

(1) BIPA- The term `BIPA' means the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000, as enacted into law by section 1(a)(6) of Public Law 106-554.

(2) SECRETARY- The term `Secretary' means the Secretary of Health and Human Services.

(d) TABLE OF CONTENTS- The table of contents of this Act is as follows:

Sec. 1. Short title; amendments to Social Security Act; references to BIPA and Secretary; table of contents.

TITLE I--PROVISIONS RELATING TO PART A

Subtitle A--Inpatient Hospital Services

Sec. 101. Revision of acute care hospital payment updates.

Sec. 102. 2-year phased-in increase in the standardized amount in rural and small urban areas to achieve a single, uniform standardized amount.

Sec. 103. 3-year increase in level of adjustment for indirect costs of medical education (IME).

Sec. 104. More frequent update in weights used in hospital market basket.

Sec. 105. Relief for certain non-teaching hospitals.

Sec. 106. Enhanced disproportionate share hospital (DSH) treatment for rural hospitals and urban hospitals with fewer than 100 beds.

Sec. 107. Recognition of new medical technologies under inpatient hospital PPS.

Sec. 108. Improvements to critical access hospital program.

Sec. 109. Phase-in of Federal rate for hospitals in Puerto Rico.

Sec. 110. GAO study on improving the hospital wage index.

Subtitle B--Skilled Nursing Facility Services

Sec. 121. Payment for covered skilled nursing facility services.

Subtitle C--Hospice Care

Sec. 131. Coverage of hospice consultation services.

Sec. 132. 10 percent increase in payment for hospice care furnished in a frontier area.

Sec. 133. Rural hospice demonstration project.

TITLE II--PROVISIONS RELATING TO PART B

Subtitle A--Physicians' Services

Sec. 201. Revision of updates for physicians' services.

Sec. 202. Studies on access to physicians' services.

Sec. 203. MedPAC report on payment for physicians' services.

Sec. 204. 1-year extension of treatment of certain physician pathology services under medicare.

Sec. 205. Physician fee schedule wage index revision.

Subtitle B--Provisions Relating to Preventive Benefits

Sec. 211. Coverage of an initial preventive physical examination.

Sec. 212. Coverage of cholesterol and blood lipid screening.

Sec. 213. Improved payment for certain mammography services.

Subtitle C--Hospital Outpatient Department Services

Sec. 221. Adjustment to limit decline in payment.

Subtitle D--Other Services

Sec. 231. Adjustments to local fee schedules for clinical laboratory tests for improvement in cervical cancer detection.

Sec. 232. Payment for ambulance services.

Sec. 233. 2-year extension of moratorium on therapy caps; provisions relating to reports.

Sec. 234. Renal dialysis services.

Sec. 235. Waiver of part B late enrollment penalty for certain military retirees; special enrollment period.

Sec. 236. Coverage of immunosuppressive drugs for all medicare beneficiaries.

TITLE III--PROVISIONS RELATING TO PARTS A AND B

Subtitle A--Home Health Services

Sec. 301. Elimination of 15 percent reduction in payment rates under the prospective payment system.

Sec. 302. Update in home health services.

Sec. 303. Extension of temporary increase for home health services furnished in a rural area.

Sec. 304. OASIS Task Force; suspension of certain OASIS data collection requirements pending Task Force submittal of report.

Sec. 305. MedPAC study on medicare margins of home health agencies.

Subtitle B--Other Provisions

Sec. 311. Modifications to Medicare Payment Advisory Commission (MedPAC).

Sec. 312. Demonstration project for disease management for certain medicare beneficiaries with diabetes.

Sec. 313. Demonstration project for medical adult day care services.

Sec. 314. Publication on final written guidance concerning prohibitions against discrimination by national origin with respect to health care services.

TITLE IV--PROVISIONS RELATING TO MANAGED CARE

Sec. 401. Medicare+Choice improvements.

Sec. 402. Specialized Medicare+Choice plans for special needs beneficiaries.

Sec. 403. Extension of reasonable cost and SHMO contracts.

Sec. 404. Extension of municipal health service demonstration projects.

Sec. 405. Payment by PACE providers for medicare and medicaid services furnished by noncontract providers.

TITLE V--REGULATORY REDUCTION AND CONTRACTING REFORM

Subtitle A--Regulatory Reform

Sec. 501. Construction; definition of supplier.

Sec. 502. Issuance of regulations.

Sec. 503. Compliance with changes in regulations and policies.

Sec. 504. Reports and studies relating to regulatory reform.

Subtitle B--Contracting Reform

Sec. 511. Increased flexibility in medicare administration.

Sec. 512. Requirements for information security for medicare administrative contractors.

Subtitle C--Education and Outreach

Sec. 521. Provider education and technical assistance.

Sec. 522. Small provider technical assistance demonstration program.

Sec. 523. Medicare provider ombudsman; medicare beneficiary ombudsman.

Sec. 524. Beneficiary outreach demonstration program.

Subtitle D--Appeals and Recovery

Sec. 531. Transfer of responsibility for medicare appeals.

Sec. 532. Process for expedited access to review.

Sec. 533. Revisions to medicare appeals process.

Sec. 534. Prepayment review.

Sec. 535. Recovery of overpayments.

Sec. 536. Provider enrollment process; right of appeal.

Sec. 537. Process for correction of minor errors and omissions on claims without pursuing appeals process.

Sec. 538. Prior determination process for certain items and services; advance beneficiary notices.

Sec. 539. Appeals by providers when there is no other party available.

Subtitle E--Miscellaneous Provisions

Sec. 541. Policy development regarding evaluation and management (E & M) documentation guidelines.

Sec. 542. Prohibition of incidental fees and required purchase of non-covered items or services.

Sec. 543. Improvement in oversight of technology and coverage.

Sec. 544. Treatment of hospitals for certain services under medicare secondary payor (MSP) provisions.

Sec. 545. Authorizing use of arrangements with other hospice programs to provide core hospice services in certain circumstances.

Sec. 546. Application of OSHA bloodborne pathogens standard to certain hospitals.

Sec. 547. BIPA-related technical amendments and corrections.

Sec. 548. Conforming authority to waive a program exclusion.

Sec. 549. Treatment of certain dental claims.

Sec. 550. Annual publication of list of national coverage determinations.

TITLE I--PROVISIONS RELATING TO PART A

Subtitle A--Inpatient Hospital Services

SEC. 101. REVISION OF ACUTE CARE HOSPITAL PAYMENT UPDATES.

Subclause (XVIII) of section 1886(b)(3)(B)(i) (42 U.S.C. 1395ww(b)(3)(B)(i)) is amended to read as follows:

`(XVIII) for fiscal year 2003, the market basket percentage increase for sole community hospitals and such increase minus 0.25 percentage points for other hospitals, and'.

SEC. 102. 2-YEAR PHASED-IN INCREASE IN THE STANDARDIZED AMOUNT IN RURAL AND SMALL URBAN AREAS TO ACHIEVE A SINGLE, UNIFORM STANDARDIZED AMOUNT.

Section 1886(d)(3)(A)(iv) (42 U.S.C. 1395ww(d)(3)(A)(iv)) is amended--

(1) by striking `(iv) For discharges' and inserting `(iv)(I) Subject to the succeeding provisions of this clause, for discharges'; and

(2) by adding at the end the following new subclauses:

`(II) For discharges occurring during fiscal year 2003, the average standardized amount for hospitals located other than in a large urban area shall be increased by 1/2 of the difference between the average standardized amount determined under subclause (I) for hospitals located in large urban areas for such fiscal year and such amount determined (without regard to this subclause) for other hospitals for such fiscal year.

`(III) For discharges occurring in a fiscal year beginning with fiscal year 2004, the Secretary shall compute an average standardized amount for hospitals located in any area within the United States and within each region equal to the average standardized amount computed for the previous fiscal year under this subparagraph for hospitals located in a large urban area (or, beginning with fiscal year 2005, for hospitals located in any area) increased by the applicable percentage increase under subsection (b)(3)(B)(i).'.

SEC. 103. 3-YEAR INCREASE IN LEVEL OF ADJUSTMENT FOR INDIRECT COSTS OF MEDICAL EDUCATION (IME).

(a) IN GENERAL- Section 1886(d)(5)(B)(ii) (42 U.S.C. 1395ww(d)(5)(B)(ii)) is amended--

(1) in subclause (VI)--

(A) by striking `fiscal year 2002' and inserting `fiscal years 2002, 2003, and 2004'; and

(B) by striking `and' at the end;

(2) by redesignating subclause (VII) as subclause (VIII);

(3) in subclause (VIII) as so redesignated, by striking `2002' and inserting `2005'; and

(4) by inserting after subclause (VI) the following new subclause:

`(VII) during fiscal year 2005, `c' is equal to 1.47; and'.

(b) CONFORMING AMENDMENT RELATING TO DETERMINATION OF STANDARDIZED AMOUNT- Section 1886(d)(2)(C)(i) (42 U.S.C. 1395ww(d)(2)(C)(i)) is amended--

(1) by striking `1999 or' and inserting `1999,'; and

(2) by inserting `, or of section 103(a) of the Medicare Payment Restoration and Benefits Improvement Act of 2003' after `2000'.

SEC. 104. MORE FREQUENT UPDATE IN WEIGHTS USED IN HOSPITAL MARKET BASKET.

(a) MORE FREQUENT UPDATES IN WEIGHTS- After revising the weights used in the hospital market basket under section 1886(b)(3)(B)(iii) of the Social Security Act (42 U.S.C. 1395ww(b)(3)(B)(iii)) to reflect the most current data available, the Secretary shall establish a frequency for revising such weights in such market basket to reflect the most current data available more frequently than once every 5 years.

(b) REPORT- Not later than October 1, 2003, the Secretary shall submit a report to Congress on the frequency established under subsection (a), including an explanation of the reasons for, and options considered, in determining such frequency.

SEC. 105. RELIEF FOR CERTAIN NON-TEACHING HOSPITALS.

(a) IN GENERAL- In the case of a non-teaching hospital that meets the condition of subsection (b), in each of fiscal years 2003, 2004, and 2005 the amount of payment made to the hospital under section 1886(d) of the Social Security Act for discharges occurring during such fiscal year only shall be increased as though the applicable percentage increase (otherwise applicable to discharges occurring during such fiscal year under section 1886(b)(3)(B)(i) of the Social Security Act (42 U.S.C. 1395ww(b)(3)(B)(i)) had been increased by 5 percentage points. The previous sentence shall be applied for each such fiscal year separately without regard to its application in a previous fiscal year and shall not affect payment for discharges for any hospital occurring during a fiscal year after fiscal year 2005.

(b) CONDITION- A non-teaching hospital meets the condition of this subsection if--

(1) it is located in a rural area and the amount of the aggregate payments under subsection (d) of section 1886 of the Social Security Act for hospitals located in rural areas in the State for their cost reporting periods beginning during fiscal year 1999 is less than the aggregate allowable operating costs of inpatient hospital services (as defined in subsection (a)(4) of such section) for all subsection (d) hospitals in such areas in such State with respect to such cost reporting periods; or

(2) it is located in an urban area and the amount of the aggregate payments under subsection (d) of such section for hospitals located in urban areas in the State for their cost reporting periods beginning during fiscal year 1999 is less than 103 percent of the aggregate allowable

operating costs of inpatient hospital services (as defined in subsection (a)(4) of such section) for all subsection (d) hospitals in such areas in such State with respect to such cost reporting periods.

The amounts under paragraphs (1) and (2) shall be determined by the Secretary of Health and Human Services based on data of the Medicare Payment Advisory Commission.

(c) DEFINITIONS- For purposes of this section:

(1) NON-TEACHING HOSPITAL- The term `non-teaching hospital' means, for a cost reporting period, a subsection (d) hospital (as defined in subsection (d)(1)(B) of section 1886 of the Social Security Act, 42 U.S.C. 1395ww)) that is not receiving any additional payment under subsection (d)(5)(B) of such section or a payment under subsection (h) of such section for discharges occurring during the period. A subsection (d) hospital that receives additional payments under subsection (d)(5)(B) or (h) of such section shall, for purposes of this section, also be treated as a non-teaching hospital unless a chairman of a department in the medical school with which the hospital is affiliated is serving or has been appointed as a clinical chief of service in the hospital.

(2) RURAL; URBAN- The terms `rural' and `urban' have the meanings given such terms for purposes of section 1886(d) of the Social Security Act (42 U.S.C. 1395ww(d)).

SEC. 106. ENHANCED DISPROPORTIONATE SHARE HOSPITAL (DSH) TREATMENT FOR RURAL HOSPITALS AND URBAN HOSPITALS WITH FEWER THAN 100 BEDS.

(a) BLENDING OF PAYMENT AMOUNTS-

(1) IN GENERAL- Section 1886(d)(5)(F) (42 U.S.C. 1395ww(d)(5)(F)) is amended by adding at the end the following new clause:

`(xiv)(I) In the case of discharges in a fiscal year beginning on or after October 1, 2002, subject to subclause (II), there shall be substituted for the disproportionate share adjustment percentage otherwise determined under clause (iv) (other than subclause (I)) or under clause (viii), (x), (xi), (xii), or (xiii), the old blend proportion (specified under subclause (III)) of the disproportionate share adjustment percentage otherwise determined under the respective clause and 100 percent minus such old blend proportion of the disproportionate share adjustment percentage determined under clause (vii) (relating to large, urban hospitals).

`(II) Under subclause (I), the disproportionate share adjustment percentage shall not exceed 10 percent for a hospital that is not classified as a rural referral center under subparagraph (C).

`(III) For purposes of subclause (I), the old blend proportion for fiscal year 2003 is 80 percent, for each subsequent year (through 2006) is the old blend proportion under this subclause for the previous year minus 20 percentage points, and for each year beginning with 2007 is 0 percent.'.

(2) CONFORMING AMENDMENTS- Section 1886(d)(5)(F) (42 U.S.C. 1395ww(d)(5)(F)) is amended--

(A) in each of subclauses (II), (III), (IV), (V), and (VI) of clause (iv), by inserting `subject to clause (xiv) and' before `for discharges occurring';

(B) in clause (viii), by striking `The formula' and inserting `Subject to clause (xiv), the formula'; and

(C) in each of clauses (x), (xi), (xii), and (xiii), by striking `For purposes' and inserting `Subject to clause (xiv), for purposes'.

(b) EFFECTIVE DATE- The amendments made by this section shall apply with respect to discharges occurring on or after October 1, 2002.

SEC. 107. RECOGNITION OF NEW MEDICAL TECHNOLOGIES UNDER INPATIENT HOSPITAL PPS.

(a) IMPROVING TIMELINESS OF DATA COLLECTION- Section 1886(d)(5)(K) (42 U.S.C. 1395ww(d)(5)(K)) is amended by adding at the end the following new clause:

`(vii) Under the mechanism under this subparagraph, the Secretary shall provide for the addition of new diagnosis and

procedure codes in April 1 of each year, but the addition of such codes shall not require the Secretary to adjust the payment (or diagnosis-related group classification) under this subsection until the fiscal year that begins after such date.'.

(b) ELIGIBILITY STANDARD-

(1) MINIMUM PERIOD FOR RECOGNITION OF NEW TECHNOLOGIES- Section 1886(d)(5)(K)(vi) (42 U.S.C. 1395ww(d)(5)(K)(vi)) is amended--

(A) by inserting `(I)' after `(vi)'; and

(B) by adding at the end the following new subclause:

`(II) Under such criteria, a service or technology shall not be denied treatment as a new service or technology on the basis of the period of time in which the service or technology has been in use if such period ends before the end of the 2-to-3-year period that begins on the effective date of implementation of a code under ICD-9-CM (or a successor coding methodology) that enables the identification of a significant sample of specific discharges in which the service or technology has been used.'.

(2) ADJUSTMENT OF THRESHOLD- Section 1886(d)(5)(K)(ii)(I) (42 U.S.C. 1395ww(d)(5)(K)(ii)(I)) is amended by inserting `(applying a threshold specified by the Secretary that is the lesser of 50 percent of the national average standardized amount for operating costs of inpatient hospital services for all hospitals and all diagnosis-related groups or one standard deviation for the diagnosis-related group involved)' after `is inadequate'.

(3) CRITERION FOR SUBSTANTIAL IMPROVEMENT- Section 1886(d)(5)(K)(vi) (42 U.S.C. 1395ww(d)(5)(K)(vi)), as amended by paragraph (1), is further amended by adding at the end the following subclause:

`(III) The Secretary shall by regulation provide for further clarification of the criteria applied to determine whether a new service or technology represents an advance in medical technology that substantially improves the diagnosis or treatment of beneficiaries. Under such criteria, in determining whether a new service or technology represents an advance in medical technology that substantially improves the diagnosis or treatment of beneficiaries, the Secretary shall deem a service or technology as meeting such requirement if the service or technology is a drug or biological that is designated under section 506 or 526 of the Federal Food, Drug, and Cosmetic Act, approved under section 314.510 or 601.41 of title 21, Code of Federal Regulations, or designated for priority review when the marketing application for such drug or biological was filed or is a medical device for which an exemption has been granted under section 520(m) of such Act, or for which priority review has been provided under section 515(d)(5) of such Act.'.

(4) PROCESS FOR PUBLIC INPUT- Section 1886(d)(5)(K) (42 U.S.C. 1395ww(d)(5)(K)), as amended by paragraph (1), is amended--

(A) in clause (i), by adding at the end the following: `Such mechanism shall be modified to meet the requirements of clause (viii).'; and

(B) by adding at the end the following new clause:

`(viii) The mechanism established pursuant to clause (i) shall be adjusted to provide, before publication of a proposed rule, for public input regarding whether a new service or technology not described in the second sentence of clause (vi)(III) represents an advance in medical technology that substantially improves the diagnosis or treatment of beneficiaries as follows:

`(I) The Secretary shall make public and periodically update a list of all the services and technologies for which an application for additional payment under this subparagraph is pending.

`(II) The Secretary shall accept comments, recommendations, and data from the public regarding whether the service or technology represents a substantial improvement.

`(III) The Secretary shall provide for a meeting at which organizations representing hospitals, physicians, medicare beneficiaries, manufacturers, and any other interested party may present comments, recommendations, and data to the clinical staff of the Centers for Medicare & Medicaid Services before publication of a notice of proposed rulemaking regarding whether service or technology represents a substantial improvement.'.

(c) PREFERENCE FOR USE OF DRG ADJUSTMENT- Section 1886(d)(5)(K) (42 U.S.C. 1395ww(d)(5)(K)) is further amended by adding at the end the following new clause:

`(ix) Before establishing any add-on payment under this subparagraph with respect to a new technology, the Secretary shall seek to identify one or more diagnosis-related groups associated with such technology, based on similar clinical or anatomical characteristics and the cost of the technology. Within such groups the Secretary shall assign an eligible new technology into a diagnosis-related group where the average costs of care most closely approximate the costs of care of using the new technology. In such case, no add-on payment under this subparagraph shall be made with respect to such new technology and this clause shall not affect the application of paragraph (4)(C)(iii).'.

(d) IMPROVEMENT IN PAYMENT FOR NEW TECHNOLOGY- Section 1886(d)(5)(K)(ii)(III) (42 U.S.C. 1395ww(d)(5)(K)(ii)(III)) is amended by inserting after `the estimated average cost of such service or technology' the following: `(based on the marginal rate applied to costs under subparagraph (A))'.

(e) EFFECTIVE DATE-

(1) IN GENERAL- The Secretary shall implement the amendments made by this section so that they apply to classification for fiscal years beginning with fiscal year 2004.

(2) RECONSIDERATIONS OF APPLICATIONS FOR FISCAL YEAR 2003 THAT ARE DENIED- In the case of an application for a classification of a medical service or technology as a new medical service or technology under section 1886(d)(5)(K) of the Social Security Act (42 U.S.C.

1395ww(d)(5)(K)) that was filed for fiscal year 2003 and that is denied--

(A) the Secretary shall automatically reconsider the application as an application for fiscal year 2004 under the amendments made by this section; and

(B) the maximum time period otherwise permitted for such classification of the service or technology shall be extended by 12 months.

SEC. 108. IMPROVEMENTS TO CRITICAL ACCESS HOSPITAL PROGRAM.

(a) REINSTATEMENT OF PERIODIC INTERIM PAYMENT (PIP)- Section 1815(e)(2) (42 U.S.C. 1395g(e)(2)) is amended--

(1) by striking `and' at the end of subparagraph (C);

(2) by adding `and' at the end of subparagraph (D); and

(3) by inserting after subparagraph (D) the following new subparagraph:

`(E) inpatient critical access hospital services;'.

(b) CONDITION FOR APPLICATION OF SPECIAL PHYSICIAN PAYMENT ADJUSTMENT- Section 1834(g)(2) (42 U.S.C. 1395m(g)(2)) is amended by adding after and below subparagraph (B) the following:

`The Secretary may not require, as a condition for applying subparagraph (B) with respect to a critical access hospital, that each physician providing professional services in the hospital must assign billing rights with respect to such services, except that such subparagraph shall not apply to those physicians who have not assigned such billing rights.'.

(c) FLEXIBILITY IN BED LIMITATION FOR HOSPITALS- Section 1820 (42 U.S.C. 1395i-4) is amended--

(1) in subsection (c)(2)(B)(iii), by inserting `subject to paragraph (3)' after `(iii) provides';

(2) by adding at the end of subsection (c) the following new paragraph:

`(3) INCREASE IN MAXIMUM NUMBER OF BEDS FOR HOSPITALS WITH STRONG SEASONAL CENSUS FLUCTUATIONS-

`(A) IN GENERAL- Subject to subparagraph (C), in the case of a hospital that demonstrates that it meets the standards established under subparagraph (B) and has not made the election described in subsection (f)(2)(A), the bed limitations otherwise applicable under paragraph (2)(B)(iii) and subsection (f) shall be increased by 5 beds.

`(B) STANDARDS- The Secretary shall specify standards for determining whether a critical access hospital has sufficiently strong seasonal variations in patient admissions to justify the increase in bed limitation provided under subparagraph (A).'; and

(3) in subsection (f)--

(A) by inserting `(1)' after `(f)'; and

(B) by adding at the end the following new paragraph:

`(2)(A) A hospital may elect to treat the reference in paragraph (1) to `15 beds' as a reference to `25 beds', but only if no more than 10 beds in the hospital are at any time used for non-acute care services. A hospital that makes such an election is not eligible for the increase provided under subsection (c)(3)(A).

`(B) The limitations in numbers of beds under the first sentence of paragraph (1) are subject to adjustment under subsection (c)(3).'.

(d) 5-YEAR EXTENSION OF THE AUTHORIZATION FOR APPROPRIATIONS FOR GRANT PROGRAM- Section 1820(j) (42 U.S.C. 1395i-4(j)) is amended by striking `through 2002' and inserting `through 2007'.

(e) PROHIBITION OF RETROACTIVE RECOUPMENT- The Secretary shall not recoup (or otherwise seek to recover) overpayments made for outpatient critical access hospital services under part B of title XVIII of the Social Security Act, for services furnished in cost reporting periods that began before October 1, 2002, insofar as such overpayments are attributable to payment being based on 80 percent of reasonable costs (instead of 100 percent of reasonable costs minus 20 percent of charges).

(f) EFFECTIVE DATES-

(1) REINSTATEMENT OF PIP- The amendments made by subsection (a) shall apply to payments made on or after January 1, 2003.

(2) PHYSICIAN PAYMENT ADJUSTMENT CONDITION- The amendment made by subsection (b) shall be effective as if included in the enactment of section 403(d) of the Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999 (113 Stat. 1501A-371).

(3) FLEXIBILITY IN BED LIMITATION- The amendments made by subsection (c) shall apply to designations made on or after January 1, 2003, but shall not apply to critical access hospitals that were designated as of such date.

SEC. 109. PHASE-IN OF FEDERAL RATE FOR HOSPITALS IN PUERTO RICO.

Section 1886(d)(9) (42 U.S.C. 1395ww(d)(9)) is amended--

(1) in subparagraph (A)--

(A) in clause (i), by striking `for discharges beginning on or after October 1, 1997, 50 percent (and for discharges between October 1, 1987, and September 30, 1997, 75 percent)' and inserting `the applicable Puerto Rico percentage (specified in subparagraph (E))'; and

(B) in clause (ii), by striking `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)' and inserting `the applicable Federal percentage (specified in subparagraph (E))'; and

(2) by adding at the end the following new subparagraph:

`(E) For purposes of subparagraph (A), for discharges occurring--

`(i) between October 1, 1987, and September 30, 1997, the applicable Puerto Rico percentage is 75 percent and the applicable Federal percentage is 25 percent;

`(ii) on or after October 1, 1997, and before October 1, 2003, the applicable Puerto Rico percentage is 50 percent and the applicable Federal percentage is 50 percent;

`(iii) during fiscal year 2004, the applicable Puerto Rico percentage is 45 percent and the applicable Federal percentage is 55 percent;

`(iv) during fiscal year 2005, the applicable Puerto Rico percentage is 40 percent and the applicable Federal percentage is 60 percent;

`(v) during fiscal year 2006, the applicable Puerto Rico percentage is 35 percent and the applicable Federal percentage is 65 percent;

`(vi) during fiscal year 2007, the applicable Puerto Rico percentage is 30 percent and the applicable Federal percentage is 70 percent; and

`(vii) on or after October 1, 2007, the applicable Puerto Rico percentage is 25 percent and the applicable Federal percentage is 75 percent.'.

SEC. 110. GAO STUDY ON IMPROVING THE HOSPITAL WAGE INDEX.

(a) STUDY-

(1) IN GENERAL- The Comptroller General of the United States shall conduct a study on the improvements that can be made in the measurement of regional differences in hospital wages reflected in the hospital wage index under section 1886(d) of the Social Security Act (42 U.S.C. 1395ww(d)).

(2) EXAMINATION OF USE OF METROPOLITAN STATISTICAL AREAS (MSAS)- The study shall specifically examine the use of metropolitan statistical areas for purposes of computing and applying the wage index and whether the boundaries of such areas accurately reflect local labor markets. In addition, the study shall examine whether regional inequities are created as a result of infrequent updates of such boundaries and policies of the Bureau of the Census relating to commuting criteria.

(3) WAGE DATA- The study shall specifically examine the portions of the hospital cost reports relating to wages, and methods for improving the accuracy of the wage data and for reducing inequities resulting from differences among hospitals in the reporting of wage data.

(b) CONSULTATION WITH OMB- The Comptroller General shall consult with the Director of Office of Management and Budget in conducting the study under subsection (a)(2).

(c) REPORT- Not later than July 1, 2003, the Comptroller General shall submit to Congress a report on the study conducted under subsection (a) and shall include in the report such recommendations as may be appropriate on--

(1) changes in the definition of labor market areas used for purposes of the area wage index under section 1886 of the Social Security Act; and

(2) improvements in methods for the collection of wage data.

Subtitle B--Skilled Nursing Facility Services

SEC. 121. PAYMENT FOR COVERED SKILLED NURSING FACILITY SERVICES.

(a) 2-YEAR EXTENSION OF TEMPORARY INCREASE IN NURSING COMPONENT OF PPS FEDERAL RATE- Section 312(a) of BIPA is amended by striking `, and before October 1, 2002' and inserting `and before October 1, 2004'.

(b) ADJUSTMENT TO RUGS FOR AIDS RESIDENTS-

(1) IN GENERAL- Paragraph (12) of section 1888(e) (42 U.S.C. 1395yy(e)) is amended to read as follows:

`(12) ADJUSTMENT FOR RESIDENTS WITH AIDS-

`(A) IN GENERAL- Subject to subparagraph (B), in the case of a resident of a skilled nursing facility who is afflicted with acquired immune deficiency syndrome (AIDS), the per diem amount of payment otherwise applicable shall be increased by 128 percent to reflect increased costs associated with such residents.

`(B) SUNSET- Subparagraph (A) shall not apply on and after such date as the Secretary certifies that there is an appropriate adjustment in the case mix under paragraph (4)(G)(i) to compensate for the increased costs associated with residents described in such subparagraph.'.

(2) EFFECTIVE DATE- The amendment made by paragraph (1) shall apply to services furnished on or after October 1, 2003.

(c) CMS STUDY AND REPORT-

(1) STUDY- The Secretary shall conduct a study to review the adequacy of funding under the medicaid program under title XIX of the Social Security Act for nursing facility care.

(2) REPORT- Not later than one year after the date of the enactment of this Act, the Secretary shall submit to Congress a report on the study conducted under paragraph (1). The report shall include recommendations of the Secretary with respect to structural reform of funding systems to ensure quality nursing facility services for those eligible for benefits under the medicaid program.

Subtitle C--Hospice Care

SEC. 131. COVERAGE OF HOSPICE CONSULTATION SERVICES.

(a) COVERAGE OF HOSPICE CONSULTATION SERVICES- Section 1812(a) (42 U.S.C. 1395d(a)) is amended--

(1) by striking `and' at the end of paragraph (3);

(2) by striking the period at the end of paragraph (4) and inserting `; and'; and

(3) by inserting after paragraph (4) the following new paragraph:

`(5) for individuals who are terminally ill, have not made an election under subsection (d)(1), and have not previously received services under this paragraph, services that are furnished by a physician who is either the medical

director or an employee of a hospice program and that consist of--

`(A) an evaluation of the individual's need for pain and symptom management;

`(B) counseling the individual with respect to end-of-life issues and care options; and

`(C) advising the individual regarding advanced care planning.'.

(b) PAYMENT- Section 1814(i) (42 U.S.C. l395f(i)) is amended by adding at the end the following new paragraph:

`(4) The amount paid to a hospice program with respect to the services under section 1812(a)(5) for which payment may be made under this part shall be equal to an amount equivalent to the amount established for an office or other outpatient visit for evaluation and management associated with presenting problems of moderate severity under the fee schedule established under section 1848(b), other than the portion of such amount attributable to the practice expense component.'.

(c) CONFORMING AMENDMENT- Section 1861(dd)(2)(A)(i) (42 U.S.C. 1395x(dd)(2)(A)(i)) is amended by inserting before the comma at the end the following: `and services described in section 1812(a)(5)'.

(d) EFFECTIVE DATE- The amendments made by this section shall apply to services provided by a hospice program on or after January 1, 2004.

SEC. 132. 10 PERCENT INCREASE IN PAYMENT FOR HOSPICE CARE FURNISHED IN A FRONTIER AREA.

(a) IN GENERAL- Section 1814(i)(1) (42 U.S.C. 1395f(i)(1)) is amended by adding at the end the following new subparagraph:

`(D) With respect to hospice care furnished in a frontier area on or after January 1, 2003, and before January 1, 2008, the payment rates otherwise established for such care shall be increased by 10 percent. For purposes of this subparagraph, the term `frontier area' means a county in which the population density is less than 7 persons per square mile.'.

(b) REPORT ON COSTS- Not later than January 1, 2007, the Comptroller General of the United States shall submit to Congress a report on the costs of furnishing hospice care in frontier areas. Such report shall include recommendations regarding the appropriateness of extending, and modifying, the payment increase provided under the amendment made by subsection (a).

SEC. 133. RURAL HOSPICE DEMONSTRATION PROJECT.

(a) IN GENERAL- The Secretary shall conduct a demonstration project for the delivery of hospice care to medicare beneficiaries in rural areas. Under the project medicare beneficiaries who are unable to receive hospice care in the home for lack of an appropriate caregiver are provided such care in a facility of 20 or fewer beds which offers, within its walls, the full range of services provided by hospice programs under section 1861(dd) of the Social Security Act (42 U.S.C. 1395x(dd)).

(b) SCOPE OF PROJECT- The Secretary shall conduct the project under this section with respect to no more than 3 hospice programs over a period of not longer than 5 years each.

(c) COMPLIANCE WITH CONDITIONS- Under the demonstration project--

(1) the hospice program shall comply with otherwise applicable requirements, except that it shall not be required to offer services outside of the home or to meet the requirements of section 1861(dd)(2)(A)(iii) of the Social Security Act; and

(2) payments for hospice care shall be made at the rates otherwise applicable to such care under title XVIII of such Act.

The Secretary may require the program to comply with such additional quality assurance standards for its provision of services in its facility as the Secretary deems appropriate.

(d) REPORT- Upon completion of the project, the Secretary shall submit a report to Congress on the project and shall include in the report recommendations regarding extension of such project to hospice programs serving rural areas.

TITLE II--PROVISIONS RELATING TO PART B

Subtitle A--Physicians' Services

SEC. 201. REVISION OF UPDATES FOR PHYSICIANS' SERVICES.

(a) UPDATE FOR 2003 THROUGH 2005-

(1) IN GENERAL- Section 1848(d) (42 U.S.C. 1395w-4(d)) is amended by adding at the end the following new paragraphs:

`(5) UPDATE FOR 2003- The update to the single conversion factor established in paragraph (1)(C) for 2003 is 2 percent.

`(6) SPECIAL RULES FOR UPDATE FOR 2004 AND 2005- The following rules apply in determining the update adjustment factors under paragraph (4)(B) for 2004 and 2005:

`(A) USE OF 2002 DATA IN DETERMINING ALLOWABLE COSTS-

`(i) The reference in clause (ii)(I) of such paragraph to April 1, 1996, is deemed to be a reference to January 1, 2002.

`(ii) The allowed expenditures for 2002 is deemed to be equal to the actual expenditures for physicians' services furnished during 2002, as estimated by the Secretary.

`(B) 1 PERCENTAGE POINT INCREASE IN GDP UNDER SGR- The annual average percentage growth in real gross domestic product per capita under subsection (f)(2)(C) for each of 2003, 2004, and 2005 is deemed to be increased by 1 percentage point.'.

(2) CONFORMING AMENDMENT- Paragraph (4)(B) of such section is amended, in the matter before clause (i), by inserting `and paragraph (6)' after `subparagraph (D)'.

(3) NOT TREATED AS CHANGE IN LAW AND REGULATION IN SUSTAINABLE GROWTH RATE DETERMINATION- The amendments made by this subsection shall not be treated as a change in law for purposes of applying section 1848(f)(2)(D) of the Social Security Act (42 U.S.C. 1395w-4(f)(2)(D)).

(b) USE OF 10-YEAR ROLLING AVERAGE IN COMPUTING GROSS DOMESTIC PRODUCT-

(1) IN GENERAL- Section 1848(f)(2)(C) (42 U.S.C. 1395w-4(f)(2)(C)) is amended--

(A) by striking `projected' and inserting `annual average'; and

(B) by striking `from the previous applicable period to the applicable period involved' and inserting `during the 10-year period ending with the applicable period involved'.

(2) EFFECTIVE DATE- The amendment made by paragraph (1) shall apply to computations of the sustainable growth rate for years beginning with 2002.

(c) ELIMINATION OF TRANSITIONAL ADJUSTMENT- Section 1848(d)(4)(F) (42 U.S.C. 1395w-4(d)(4)(F)) is amended by striking `subparagraph (A)' and all that follows and inserting `subparagraph (A), for each of 2001 and 2002, of -0.2 percent.'.

(d) GAO Study of Medicare Payment for Inhalation Therapy-

(1) STUDY- The Comptroller General of the United States shall conduct a study to examine the adequacy of current reimbursements for inhalation therapy under the medicare program.

(2) REPORT- Not later than July 1, 2003, the Comptroller General shall submit to Congress a report on the study conducted under paragraph (1).

SEC. 202. STUDIES ON ACCESS TO PHYSICIANS' SERVICES.

(a) GAO STUDY ON BENEFICIARY ACCESS TO PHYSICIANS' SERVICES-

(1) STUDY- The Comptroller General of the United States shall conduct a study on access of medicare beneficiaries to physicians' services under the medicare program. The study shall include--

(A) an assessment of the use by beneficiaries of such services through an analysis of claims submitted by physicians for such services under part B of the medicare program;

(B) an examination of changes in the use by beneficiaries of physicians' services over time;

(C) an examination of the extent to which physicians are not accepting new medicare beneficiaries as patients.

(2) REPORT- Not later than 18 months after the date of the enactment of this Act, the Comptroller General shall submit to Congress a report on the study conducted under paragraph (1). The report shall include a determination whether--

(A) data from claims submitted by physicians under part B of the medicare program indicate potential access problems for medicare beneficiaries in certain geographic areas; and

(B) access by medicare beneficiaries to physicians' services may have improved, remained constant, or deteriorated over time.

(b) STUDY AND REPORT ON SUPPLY OF PHYSICIANS-

(1) STUDY- The Secretary shall request the Institute of Medicine of the National Academy of Sciences to conduct a study on the adequacy of the supply of physicians (including specialists) in the United States and the factors that affect such supply.

(2) REPORT TO CONGRESS- Not later than 2 years after the date of enactment of this section, the Secretary shall submit to Congress a report on the results of the study described in paragraph (1), including any recommendations for legislation.

SEC. 203. MEDPAC REPORT ON PAYMENT FOR PHYSICIANS' SERVICES.

Not later than 1 year after the date of the enactment of this Act, the Medicare Payment Advisory Commission shall submit to Congress a report on the effect of refinements to the practice expense component of payments for physicians' services, after the transition to a full resource-based payment system in 2002, under section 1848 of the Social Security Act (42 U.S.C. 1395w-4). Such report shall examine the following matters by physician specialty:

(1) The effect of such refinements on payment for physicians' services.

(2) The interaction of the practice expense component with other components of and adjustments to payment for physicians' services under such section.

(3) The appropriateness of the amount of compensation by reason of such refinements.

(4) The effect of such refinements on access to care by medicare beneficiaries to physicians' services.

(5) The effect of such refinements on physician participation under the medicare program.

SEC. 204. 1-YEAR EXTENSION OF TREATMENT OF CERTAIN PHYSICIAN PATHOLOGY SERVICES UNDER MEDICARE.

Section 542(c) of BIPA is amended by striking `2-year period' and inserting `3-year period'.

SEC. 205. PHYSICIAN FEE SCHEDULE WAGE INDEX REVISION.

(a) INDEX REVISION-

(1) IN GENERAL- Subject to paragraph (2), notwithstanding any other provision of law, for purposes of payment under the physician fee schedule under section 1848 of the Social Security Act (42 U.S.C. 1395w-4) for physicians' services furnished during 2004, in no case may the work geographic index otherwise calculated under subsection (e)(1)(A)(iii) of such section be less than 0.985.

(2) SECRETARIAL DISCRETION- Paragraph (1) shall not take effect or be in force if the Secretary determines,

taking into account the report of the Comptroller General under subsection (b)(2), that there is no sound economic rationale for the implementation of such paragraph.

(3) EXEMPTION FROM LIMITATION ON ANNUAL ADJUSTMENTS- Any increase in expenditures attributable to paragraph (1) during 2004 shall not be taken into account in applying section 1848(c)(2)(B)(ii)(II) of the Social Security Act (42 U.S.C. 1395w-4(c)(2)(B)(ii)(II)) for that year.

(b) GAO REPORT-

(1) EVALUATION- As part of the study on geographic differences in payments for physicians' services conducted under section 309, the Comptroller General shall evaluate the following:

(A) Whether there is a sound economic basis for the implementation of the adjustment under subsection (a)(1) in those areas in which the adjustment applies.

(B) The effect of such adjustment on physician location and retention in areas affected by such adjustment, taking into account--

(i) differences in recruitment costs and retention rates for physicians, including specialists, between large urban areas and other areas; and

(ii) the mobility of physicians, including specialists, over the last decade.

(C) The appropriateness of establishing a floor of 1.0 for the work geographic index.

(2) REPORT- By not later than September 1, 2003, the Comptroller General shall submit to Congress and to the Secretary a report on the evaluation conducted under paragraph (1).

Subtitle B--Provisions Relating to Preventive Benefits

SEC. 211. COVERAGE OF AN INITIAL PREVENTIVE PHYSICAL EXAMINATION.

(a) COVERAGE- Section 1861(s)(2) (42 U.S.C. 1395x(s)(2)) is amended--

(1) in subparagraph (U), by striking `and' at the end;

(2) in subparagraph (V), by inserting `and' at the end; and

(3) by adding at the end the following new subparagraph:

`(W) an initial preventive physical examination (as defined in subsection (ww));'.

(b) SERVICES DESCRIBED- Section 1861 (42 U.S.C. 1395x) is amended by adding at the end the following new subsection:

`Initial Preventive Physical Examination

`(ww) The term `initial preventive physical examination' means physicians' services consisting of a physical examination with the goal of health promotion and disease detection and includes items and services (excluding clinical laboratory tests), as determined by the Secretary, consistent with the recommendations of the United States Preventive Services Task Force.'.

(c) WAIVER OF DEDUCTIBLE AND COINSURANCE-

(1) DEDUCTIBLE- The first sentence of section 1833(b) (42 U.S.C. 1395l(b)) is amended--

(A) by striking `and' before `(6)', and

(B) by inserting before the period at the end the following: `, and (7) such deductible shall not apply with respect to an initial preventive physical examination (as defined in section 1861(ww))'.

(2) COINSURANCE- Section 1833(a)(1) (42 U.S.C. 1395l(a)(1)) is amended--

(A) in clause (N), by inserting `(or 100 percent in the case of an initial preventive physical examination, as defined in section 1861(ww))' after `80 percent'; and

(B) in clause (O), by inserting `(or 100 percent in the case of an initial preventive physical examination, as defined in section 1861(ww))' after `80 percent'.

(d) PAYMENT AS PHYSICIANS' SERVICES- Section 1848(j)(3) (42 U.S.C. 1395w-4(j)(3)) is amended by inserting `(2)(W),' after `(2)(S),'.

(e) OTHER CONFORMING AMENDMENTS- Section 1862(a) (42 U.S.C. 1395y(a)) is amended--

(1) in paragraph (1)--

(A) by striking `and' at the end of subparagraph (H);

(B) by striking the semicolon at the end of subparagraph (I) and inserting `, and'; and

(C) by adding at the end the following new subparagraph:

`(J) in the case of an initial preventive physical examination, which is performed not later than 1 year after the date the individual's first coverage period begins under part B;'; and

(2) in paragraph (7), by striking `or (H)' and inserting `(H), or (J)'.

(f) EFFECTIVE DATE- The amendments made by this section shall apply to services furnished on or after January 1, 2004, but only for individuals whose coverage period begins on or after such date.

SEC. 212. COVERAGE OF CHOLESTEROL AND BLOOD LIPID SCREENING.

(a) COVERAGE- Section 1861(s)(2) (42 U.S.C. 1395x(s)(2)), as amended by section 211(a), is amended--

(1) in subparagraph (V), by striking `and' at the end;

(2) in subparagraph (W), by inserting `and' at the end; and

(3) by adding at the end the following new subparagraph:

`(X) cholesterol and other blood lipid screening tests (as defined in subsection (XX));'.

(b) SERVICES DESCRIBED- Section 1861 (42 U.S.C. 1395x), as amended by section 211(b), is amended by adding at the end the following new subsection:

`Cholesterol and Other Blood Lipid Screening Tests

`(xx)(1) The term `cholesterol and other blood lipid screening tests' means diagnostic testing of cholesterol and other lipid levels of the blood for the purpose of early detection of abnormal cholesterol and other lipid levels.

`(2) The Secretary shall establish standards, in consultation with appropriate organizations, regarding the frequency and type of cholesterol and other blood lipid screening tests, except that such frequency may not be more often than once every 2 years.'.

(c) FREQUENCY- Section 1862(a)(1) (42 U.S.C. 1395y(a)(1)), as amended by section 514(e), is amended--

(1) by striking `and' at the end of subparagraph (I);

(2) by striking the semicolon at the end of subparagraph (J) and inserting `; and'; and

(3) by adding at the end the following new subparagraph:

`(K) in the case of a cholesterol and other blood lipid screening tests (as defined in section 1861(xx)(1)), which is performed more frequently than is covered under section 1861(xx)(2).'.

(d) EFFECTIVE DATE- The amendments made by this section shall apply to tests furnished on or after January 1, 2004.

SEC. 213. IMPROVED PAYMENT FOR CERTAIN MAMMOGRAPHY SERVICES.

(a) EXCLUSION FROM OPD FEE SCHEDULE- Section 1833(t)(1)(B)(iv) (42 U.S.C. 1395l(t)(1)(B)(iv)) is amended by inserting before the period at the end the following: `and does not include screening mammography (as defined in section 1861(jj)) and unilateral and bilateral diagnostic mammography'.

(b) ADJUSTMENT TO TECHNICAL COMPONENT- For diagnostic mammography performed on or after January 1, 2004, for which payment is made under the physician fee schedule under section 1848 of the Social Security Act (42 U.S.C. 1395w-4), the Secretary, based on the most recent cost data available, shall provide for an appropriate adjustment in the payment amount for the technical component of the diagnostic mammography.

(c) EFFECTIVE DATE- The amendment made by subsection (a) shall apply to mammography performed on or after January 1, 2004.

Subtitle C--Hospital Outpatient Department Services

SEC. 221. ADJUSTMENT TO LIMIT DECLINE IN PAYMENT.

Section 1833(t)(7) (42 U.S.C. 1395l(t)(7)) is amended--

(1) in the heading, by striking `TRANSITIONAL ADJUSTMENT' and inserting `ADJUSTMENT';

(2) in subparagraph (A)--

(A) in the heading, by striking `BEFORE 2002' and inserting `IN GENERAL';

(B) in the matter preceding clause (i)--

(i) by striking `subparagraph (D)' and inserting `subparagraph (B)';

(ii) by striking `furnished before January 1, 2002,'; and

(iii) by striking `subparagraph (E)' and inserting `subparagraph (C)'; and

(C) in clause (i), by striking `subparagraph (F)' and inserting `subparagraph (D)';

(3) by striking subparagraph (D) and inserting the following new subparagraph:

`(D) HOLD HARMLESS PROVISIONS FOR CANCER AND CHILDREN'S HOSPITALS- In the case of a hospital that is described in clause (iii) or (v) of section 1886(d)(1)(B), for covered OPD services--

`(i) that are furnished on or after the date on which payment is first made under this subsection; and

`(ii) for which the PPS amount is less than the pre-BBA amount (or for services furnished on or after January 1, 2002, is less than the greater of the pre-BBA amount or the reasonable costs incurred in furnishing such services),

the amount of payment under this subsection shall be increased by the amount of such difference.';

(4) in subparagraph (F)(ii)(I), by striking `subparagraph (E)' and inserting `subparagraph (C)'; and

(5) by striking subparagraphs (B) and (C) and redesignating subparagraphs (D), (E), (F), (G), (H), and (I) as subparagraphs (B), (C), (D), (E), (F), and (G), respectively.

Subtitle D--Other Services

SEC. 231. ADJUSTMENTS TO LOCAL FEE SCHEDULES FOR CLINICAL LABORATORY TESTS FOR IMPROVEMENT IN CERVICAL CANCER DETECTION.

Section 1833(h)(2) (42 U.S.C. 1395l(h)(2)) is amended by adding at the end the following new subparagraph:

`(C) Notwithstanding any other provision of law, in the case of a diagnostic test for the detection of cervical cancer utilizing automated thin layer preparation techniques for specimens collected in fluid medium, and for which a national limitation amount has been set pursuant to the parenthetical in paragraph (4)(B)(viii), furnished on or after July 1, 2003, and before June 30, 2005, the Secretary shall permit carriers and medicare administrative contractors, as the case may be, to raise their local fee schedule amount for purposes of determining payment for such tests under this section, up to, but not to exceed the national limitation amount previously established for that test. Any such adjustment shall not affect such national limitation amount.'.

SEC. 232. PAYMENT FOR AMBULANCE SERVICES.

(a) PHASE-IN PROVIDING FLOOR USING BLEND OF FEE SCHEDULE AND REGIONAL FEE SCHEDULES- Section 1834(l) (42 U.S.C. 1395m(l)) is amended--

(1) in paragraph (2)(E), by inserting `consistent with paragraph (10)' after `in an efficient and fair manner';

(2) by redesignating the paragraph (8) added by section 221(a) of BIPA as paragraph (9); and

(3) by adding at the end the following new paragraph:

`(10) PHASE-IN PROVIDING FLOOR USING BLEND OF FEE SCHEDULE AND REGIONAL FEE SCHEDULES- In carrying out the phase-in under paragraph (2)(E) for each level of service furnished in a year before January 1, 2007, the portion of the payment amount that is based on the fee schedule shall not be less than the following blended rate of the fee schedule under paragraph (1) and of a regional fee schedule for the region involved:

`(A) For 2003, the blended rate shall be based 20 percent on the fee schedule under paragraph (1) and 80 percent on the regional fee schedule.

`(B) For 2004, the blended rate shall be based 40 percent on the fee schedule under paragraph (1) and 60 percent on the regional fee schedule.

`(C) For 2005, the blended rate shall be based 60 percent on the fee schedule under paragraph (1) and 40 percent on the regional fee schedule.

`(D) For 2006, the blended rate shall be based 80 percent on the fee schedule under paragraph (1) and 20 percent on the regional fee schedule.

For purposes of this paragraph, the Secretary shall establish a regional fee schedule for each of the 9 Census divisions using the methodology (used in establishing the fee schedule under paragraph (1)) to calculate a regional conversion factor and a regional mileage payment rate and using the same payment adjustments and the same relative value units as used in the fee schedule under such paragraph.'.

(b) ADJUSTMENT IN PAYMENT FOR CERTAIN LONG TRIPS- Section 1834(l), as amended by subsection (a), is further amended by adding at the end the following new paragraph:

`(11) ADJUSTMENT IN PAYMENT FOR CERTAIN LONG TRIPS- In the case of ground ambulance services furnished on or after January 1, 2003, and before January 1, 2008, regardless of where the transportation originates, the fee schedule established under this subsection shall provide that, with respect to the payment rate for mileage for a trip above 50 miles the per mile rate otherwise established shall be increased by 1/4 of the payment per mile otherwise applicable to such miles.'.

(c) EFFECTIVE DATE- The amendments made by this section shall apply to ambulance services furnished on or after January 1, 2003.

SEC. 233. 2-YEAR EXTENSION OF MORATORIUM ON THERAPY CAPS; PROVISIONS RELATING TO REPORTS.

(a) 2-YEAR EXTENSION OF MORATORIUM ON THERAPY CAPS- Section 1833(g)(4) (42 U.S.C. 1395l(g)(4)) is amended by striking `and 2002' and inserting `2002, 2003, and 2004'.

(b) PROMPT SUBMISSION OF OVERDUE REPORTS ON PAYMENT AND UTILIZATION OF OUTPATIENT THERAPY SERVICES- Not later than December 31, 2002, the Secretary shall submit to Congress the reports required under section 4541(d)(2) of the Balanced Budget Act of 1997 (relating to alternatives to a single annual dollar cap on outpatient therapy) and under section 221(d) of the Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999 (relating to utilization patterns for outpatient therapy).

(c) IDENTIFICATION OF CONDITIONS AND DISEASES JUSTIFYING WAIVER OF THERAPY CAP-

(1) STUDY- The Secretary shall request the Institute of Medicine of the National Academy of Sciences to identify conditions or diseases that should justify conducting an assessment of the need to waive the therapy caps under section 1833(g)(4) of the Social Security Act (42 U.S.C. 1395l(g)(4)).

(2) REPORTS TO CONGRESS- Not later than September 1, 2003, the Secretary shall submit to Congress a preliminary report on the conditions and diseases identified under paragraph (1) and not later than December 31, 2003, a final report on the conditions and diseases so identified.

(d) GAO STUDY OF PATIENT ACCESS TO PHYSICAL THERAPIST SERVICES-

(1) STUDY- The Comptroller General of the United States shall conduct a study on access to physical therapist services in States authorizing such services without a physician referral and in States that require such a physician referral. The study shall--

(A) examine the use of and referral patterns for physical therapist services for patients age 50 and older in States that authorize such services without a physician referral and in States that require such a physician referral;

(B) examine the use of and referral patterns for physical therapist services for patients who are medicare beneficiaries;

(C) examine the potential effect of prohibiting a physician from referring patients to physical therapy services owned by the physician and provided in the physician's office;

(D) examine the delivery of physical therapists' services within the facilities of Department of Defense; and

(E) analyze the potential impact on medicare beneficiaries and on expenditures under the medicare program of eliminating the need for a physician referral and physician certification for physical therapist services under the medicare program.

(2) REPORT- The Comptroller General shall submit to Congress a report on the study conducted under paragraph (1) by not later than 1 year after the date of the enactment of this Act.

SEC. 234. RENAL DIALYSIS SERVICES.

(a) REPORT ON DIFFERENCES IN COSTS IN DIFFERENT SETTINGS- Not later than 1 year after the date of the enactment of this Act, the Comptroller General of the United States shall submit to Congress a report containing--

(1) an analysis of the differences in costs of providing renal dialysis services under the medicare program in home settings and in facility settings;

(2) an assessment of the percentage of overhead costs in home settings and in facility settings; and

(3) an evaluation of whether the charges for home dialysis supplies and equipment are reasonable and necessary.

(b) RESTORING COMPOSITE RATE EXCEPTIONS FOR PEDIATRIC FACILITIES-

(1) IN GENERAL- Section 422(a)(2) of BIPA is amended--

(A) in subparagraph (A), by striking `and (C)' and inserting `, (C), and (D)';

(B) in subparagraph (B), by striking `In the case' and inserting `Subject to subparagraph (D), in the case'; and

(C) by adding at the end the following new subparagraph:

`(D) INAPPLICABILITY TO PEDIATRIC FACILITIES- Subparagraphs (A) and (B) shall not apply, as of October 1, 2002, to pediatric facilities that do not have an exception rate described in subparagraph (C) in effect on such date. For purposes of this subparagraph, the term `pediatric facility' means a renal facility at least 50 percent of whose patients are individuals under 18 years of age.'.

(2) CONFORMING AMENDMENT- The fourth sentence of section 1881(b)(7) (42 U.S.C. 1395rr(b)(7)) is amended by striking `The Secretary' and inserting `Subject to section 422(a)(2) of the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000, the Secretary'.

(c) INCREASE IN RENAL DIALYSIS COMPOSITE RATE FOR SERVICES FURNISHED IN 2004- Notwithstanding any other

provision of law, with respect to payment under part B of title XVIII of the Social Security Act for renal dialysis services furnished in 2004, the composite payment rate otherwise established under section 1881(b)(7) of such Act (42 U.S.C. 1395rr(b)(7)) shall be increased by 1.2 percent.

SEC. 235. WAIVER OF PART B LATE ENROLLMENT PENALTY FOR CERTAIN MILITARY RETIREES; SPECIAL ENROLLMENT PERIOD.

(a) WAIVER OF PENALTY-

(1) IN GENERAL- Section 1839(b) (42 U.S.C. 1395r(b)) is amended by adding at the end the following new sentence: `No increase in the premium shall be effected for a month in the case of an individual who is 65 years of age or older, who enrolls under this part during 2001, 2002, or 2003, and who demonstrates to the Secretary before December 31, 2003, that the individual is a covered beneficiary (as defined in section 1072(5) of title 10, United States Code). The Secretary of Health and Human Services shall consult with the Secretary of Defense in identifying individuals described in the previous sentence.'.

(2) EFFECTIVE DATE- The amendment made by paragraph (1) shall apply to premiums for months beginning with January 2003. The Secretary of Health and Human Services shall establish a method for providing rebates of premium penalties paid for months on or after January 2003 for which a penalty does not apply under such amendment but for which a penalty was previously collected.

(b) MEDICARE PART B SPECIAL ENROLLMENT PERIOD-

(1) IN GENERAL- In the case of any individual who, as of the date of the enactment of this Act, is 65 years of age or older, is eligible to enroll but is not enrolled under part B of title XVIII of the Social Security Act, and is a covered beneficiary (as defined in section 1072(5) of title 10, United States Code), the Secretary of Health and Human Services shall provide for a special enrollment period during which the individual may enroll under such part. Such period shall begin as soon as possible after the date of the enactment of this Act and shall end on December 31, 2003.

(2) COVERAGE PERIOD- In the case of an individual who enrolls during the special enrollment period provided under paragraph (1), the coverage period under part B of title XVIII of the Social Security Act shall begin on the first day of the month following the month in which the individual enrolls.

SEC. 236. COVERAGE OF IMMUNOSUPPRESSIVE DRUGS FOR ALL MEDICARE BENEFICIARIES.

(a) IN GENERAL- Section 1861(s)(2)(J) (42 U.S.C. 1395x(s)(2)(J)) is amended by striking `, to an individual who receives' and all that follows before the semicolon at the end and inserting `to an individual who has received an organ transplant'.

(b) EFFECTIVE DATE- The amendments made by this section shall apply to drugs furnished on or after the date of the enactment of this Act.

TITLE III--PROVISIONS RELATING TO PARTS A AND B

Subtitle A--Home Health Services

SEC. 301. ELIMINATION OF 15 PERCENT REDUCTION IN PAYMENT RATES UNDER THE PROSPECTIVE PAYMENT SYSTEM.

(a) IN GENERAL- Section 1895(b)(3)(A) (42 U.S.C. 1395fff(b)(3)(A)) is amended to read as follows:

`(A) INITIAL BASIS- Under such system the Secretary shall provide for computation of a standard prospective payment amount (or amounts) as follows:

`(i) Such amount (or amounts) shall initially be based on the most current audited cost report data available to the Secretary and shall be computed in a manner so that the total amounts payable under the system for fiscal year 2001 shall be equal to the total amount that would have been made if the system had not been in effect and if section 1861(v)(1)(L)(ix) had not been enacted.

`(ii) For fiscal year 2002 and for the first quarter of fiscal year 2003, such amount (or amounts) shall be equal to the amount (or amounts) determined under this paragraph for the previous fiscal year, updated under subparagraph (B).

`(iii) For 2003, such amount (or amounts) shall be equal to the amount (or amounts) determined under this paragraph for fiscal year 2002, updated under subparagraph (B) for 2003.

`(iv) For 2004 and each subsequent year, such amount (or amounts) shall be equal to the amount (or amounts) determined under this paragraph for the previous year, updated under subparagraph (B).

Each such amount shall be standardized in a manner that eliminates the effect of variations in relative case mix and area wage adjustments among different home health agencies in a budget neutral manner consistent with the case mix and wage level adjustments provided under paragraph (4)(A). Under the system, the Secretary may recognize regional differences or differences based upon whether or not the services or agency are in an urbanized area.'.

(b) EFFECTIVE DATE- The amendment made by subsection (a) shall take effect as if included in the amendments made by section 501 of the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (as enacted into law by section 1(a)(6) of Public Law 106-554).

SEC. 302. UPDATE IN HOME HEALTH SERVICES.

(a) CHANGE TO CALENDAR YEAR UPDATE-

(1) IN GENERAL- Section 1895(b) (42 U.S.C. 1395fff(b)(3)) is amended--

(A) in paragraph (3)(B)(i)--

(i) by striking `each fiscal year (beginning with fiscal year 2002)' and inserting `fiscal year 2002 and for each subsequent year (beginning with 2003)'; and

(ii) by inserting `or year' after `the fiscal year';

(B) in paragraph (3)(B)(ii)--

(i) in subclause (II), by striking `fiscal year' and inserting `year' and by redesignating such subclause as subclause (III); and

(ii) in subclause (I), by striking `each of fiscal years 2002 and 2003' and inserting the following: `fiscal year 2002, the home health market basket percentage increase (as defined in clause (iii)) minus 1.1 percentage points;

`(II) 2003';

(C) in paragraph (3)(B)(iii), by inserting `or year' after `fiscal year' each place it appears;

(D) in paragraph (3)(B)(iv)--

(i) by inserting `or year' after `fiscal year' each place it appears; and

(ii) by inserting `or years' after `fiscal years'; and

(E) in paragraph (5), by inserting `or year' after `fiscal year'.

(2) TRANSITION RULE- The standard prospective payment amount (or amounts) under section 1895(b)(3) of the Social Security Act for the calendar quarter beginning on October 1, 2002, shall be such amount (or amounts) for the previous calendar quarter.

(b) CHANGES IN UPDATES FOR 2003, 2004, AND 2005- Section 1895(b)(3)(B)(ii) (42 U.S.C. 1395fff(b)(3)(B)(ii)), as amended by subsection (a)(1)(B), is amended--

(1) in subclause (II), by striking `the home health market basket percentage increase (as defined in clause (iii)) minus 1.1 percentage points' and inserting `2.0 percentage points';

(2) by striking `or' at the end of subclause (II);

(3) by redesignating subclause (III) as subclause (V); and

(4) by inserting after subclause (II) the following new subclause:

`(III) 2004, 1.1 percentage points;

`(IV) 2005, 2.7 percentage points; or'.

(c) PAYMENT ADJUSTMENT-

(1) IN GENERAL- Section 1895(b)(5) (42 U.S.C. 1395fff(b)(5)) is amended by striking `5 percent' and inserting `3 percent'.

(2) EFFECTIVE DATE- The amendment made by paragraph (1) shall apply to years beginning with 2003.

SEC. 303. EXTENSION OF TEMPORARY INCREASE FOR HOME HEALTH SERVICES FURNISHED IN A RURAL AREA.

(a) IN GENERAL- Section 508(a) BIPA (114 Stat. 2763A-533) is amended--

(1) by striking `24-MONTH INCREASE BEGINNING APRIL 1, 2001' and inserting `IN GENERAL'; and

(2) by striking `April 1, 2003' and inserting `January 1, 2005'.

(b) CONFORMING AMENDMENT- Section 547(c)(2) of BIPA (114 Stat. 2763A-553) is amended by striking `the period beginning on April 1, 2001, and ending on September 30, 2002,' and inserting `a period under such section'.

SEC. 304. OASIS TASK FORCE; SUSPENSION OF CERTAIN OASIS DATA COLLECTION REQUIREMENTS PENDING TASK FORCE SUBMITTAL OF REPORT.

(a) ESTABLISHMENT- The Secretary of Health and Human Services shall establish and appoint a task force (to be known as the `OASIS Task Force') to examine the data collection and reporting requirements under OASIS. For purposes of this section, the term `OASIS' means the Outcome and Assessment Information Set required by reason of section 4602(e) of Balanced Budget Act of 1997 (42 U.S.C. 1395fff note).

(b) COMPOSITION- The OASIS Task Force shall be composed of the following:

(1) Staff of the Centers for Medicare & Medicaid Services with expertise in post-acute care.

(2) Representatives of home health agencies.

(3) Health care professionals and research and health care quality experts outside the Federal Government with expertise in post-acute care.

(4) Advocates for individuals requiring home health services.

(c) DUTIES-

(1) REVIEW AND RECOMMENDATIONS- The OASIS Task Force shall review and make recommendations to the Secretary regarding changes in OASIS to improve and simplify data collection for purposes of--

(A) assessing the quality of home health services; and

(B) providing consistency in classification of patients into home health resource groups (HHRGs) for payment under section 1895 of the Social Security Act (42 U.S.C. 1395fff).

(2) SPECIFIC ITEMS- In conducting the review under paragraph (1), the OASIS Task Force shall specifically examine--

(A) the 41 outcome measures currently in use;

(B) the timing and frequency of data collection; and

(C) the collection of information on comorbidities and clinical indicators.

(3) REPORT- The OASIS Task Force shall submit a report to the Secretary containing its findings and recommendations for changes in OASIS by not later than 18 months after the date of the enactment of this Act.

(d) SUNSET- The OASIS Task Force shall terminate 60 days after the date on which the report is submitted under subsection (c)(2).

(e) NONAPPLICATION OF FACA- The provisions of the Federal Advisory Committee Act shall not apply to the OASIS Task Force.

(f) SUSPENSION OF OASIS REQUIREMENT FOR COLLECTION OF DATA ON NON-MEDICARE AND NON-MEDICAID PATIENTS PENDING TASK FORCE REPORT-

(1) IN GENERAL- During the period described in paragraph (2), the Secretary of Health and Human Services may not require, under section 4602(e) of the Balanced Budget Act of 1997 or otherwise under OASIS, a home health agency to gather or submit information that relates to an individual who is not eligible for benefits under either title XVIII or title XIX of the Social Security Act.

(2) PERIOD OF SUSPENSION- The period described in this paragraph--

(A) begins on January 1, 2003, and

(B) ends on the last day of the second month beginning after the date the report is submitted under subsection (c)(2).

SEC. 305. MEDPAC STUDY ON MEDICARE MARGINS OF HOME HEALTH AGENCIES.

(a) STUDY- The Medicare Payment Advisory Commission shall conduct a study of payment margins of home health agencies under the home health prospective payment system under section 1895 of the Social Security Act (42 U.S.C. 1395fff). Such study shall examine whether systematic differences in payment margins are related to differences in case mix (as measured by home health resource groups (HHRGs)) among such agencies. The study shall use the partial or full-year cost reports filed by home health agencies.

(b) REPORT- Not later than 2 years after the date of the enactment of this Act, the Commission shall submit to Congress a report on the study under subsection (a).

Subtitle B--Other Provisions

SEC. 311. MODIFICATIONS TO MEDICARE PAYMENT ADVISORY COMMISSION (MEDPAC).

(a) EXAMINATION OF BUDGET CONSEQUENCES- Section 1805(b) (42 U.S.C. 1395b-6(b)) is amended by adding at the end the following new paragraph:

`(8) EXAMINATION OF BUDGET CONSEQUENCES- Before making any recommendations, the Commission shall examine the budget consequences of such recommendations, directly or through consultation with appropriate expert entities.'.

(b) CONSIDERATION OF EFFICIENT PROVISION OF SERVICES- Section 1805(b)(2)(B)(i) (42 U.S.C. 1395b-6(b)(2)(B)(i)) is amended by inserting `the efficient provision of' after `expenditures for'.

(c) ADDITIONAL REPORTS-

(1) DATA NEEDS AND SOURCES- The Medicare Payment Advisory Commission shall conduct a study, and submit a report to Congress by not later than June 1, 2003, on the need for current data, and sources of current data available, to determine the solvency and financial circumstances of hospitals and other medicare providers of services. The Commission shall examine data on uncompensated care, as well as the share of uncompensated care accounted for by the expenses for treating illegal aliens.

(2) USE OF TAX-RELATED RETURNS- Using return information provided under Form 990 of the Internal Revenue Service, the Commission shall submit to Congress, by not later than July 1, 2003, a report on the following:

(A) Investments and capital financing of hospitals participating under the medicare program and related foundations.

(B) Access to capital financing for private and for not-for-profit hospitals.

SEC. 312. DEMONSTRATION PROJECT FOR DISEASE MANAGEMENT FOR CERTAIN MEDICARE BENEFICIARIES WITH DIABETES.

(a) IN GENERAL- The Secretary of Health and Human Services shall conduct a demonstration project under this section (in this section referred to as the `project') to demonstrate the impact on costs and health outcomes of applying disease management to certain medicare beneficiaries with diagnosed diabetes. In no case may the number of participants in the project exceed 30,000 at any time.

(b) VOLUNTARY PARTICIPATION-

(1) ELIGIBILITY- Medicare beneficiaries are eligible to participate in the project only if--

(A) they are a member of a health disparity population (as defined in section 485E(d) of the Public Health Service Act), such as Hispanics;

(B) they meet specific medical criteria demonstrating the appropriate diagnosis and the advanced nature of their disease;

(C) their physicians approve of participation in the project; and

(D) they are not enrolled in a Medicare+Choice plan.

(2) BENEFITS- A medicare beneficiary who is enrolled in the project shall be eligible--

(A) for disease management services related to their diabetes; and

(B) for payment for all costs for prescription drugs without regard to whether or not they relate to the diabetes, except that the project may provide for modest cost-sharing with respect to prescription drug coverage.

(c) CONTRACTS WITH DISEASE MANAGEMENT ORGANIZATIONS-

(1) IN GENERAL- The Secretary of Health and Human Services shall carry out the project through contracts with up to three disease management organizations.

The Secretary shall not enter into such a contract with an organization unless the organization demonstrates that it can produce improved health outcomes and reduce aggregate medicare expenditures consistent with paragraph (2).

(2) CONTRACT PROVISIONS- Under such contracts--

(A) such an organization shall be required to provide for prescription drug coverage described in subsection (b)(2)(B);

(B) such an organization shall be paid a fee negotiated and established by the Secretary in a manner so that (taking into account savings in expenditures under parts A and B of the medicare program under title XVIII of the Social Security Act) there will be no net increase, and to the extent practicable, there will be a net reduction in expenditures under the medicare program as a result of the project; and

(C) such an organization shall guarantee, through an appropriate arrangement with a reinsurance company or otherwise, the prohibition on net increases in expenditures described in subparagraph (B).

(3) PAYMENTS- Payments to such organizations shall be made in appropriate proportion from the Trust Funds established under title XVIII of the Social Security Act.

(d) APPLICATION OF MEDIGAP PROTECTIONS TO DEMONSTRATION PROJECT ENROLLEES- (1) Subject to paragraph (2), the provisions of section 1882(s)(3) (other than clauses (i) through (iv) of subparagraph (B)) and 1882(s)(4) of the Social Security Act shall apply to enrollment (and termination of enrollment) in the demonstration project under this section, in the same manner as they apply to enrollment (and termination of enrollment) with a Medicare+Choice organization in a Medicare+Choice plan.

(2) In applying paragraph (1)--

(A) any reference in clause (v) or (vi) of section 1882(s)(3)(B) of such Act to 12 months is deemed a reference to the period of the demonstration project; and

(B) the notification required under section 1882(s)(3)(D) of such Act shall be provided in a manner specified by the Secretary of Health and Human Services.

(e) DURATION- The project shall last for not longer than 3 years.

(f) WAIVER- The Secretary of Health and Human Services shall waive such provisions of title XVIII of the Social Security Act as may be necessary to provide for payment for services under the project in accordance with subsection (c)(3).

(g) REPORT- The Secretary of Health and Human Services shall submit to Congress an interim report on the project not later than 2 years after the date it is first implemented and a final report on the project not later than 6 months after the date of its completion. Such reports shall include information on the impact of the project on costs and health outcomes and recommendations on the cost-effectiveness of extending or expanding the project.

(h) WORKING GROUP ON MEDICARE DISEASE MANAGEMENT PROGRAMS- The Secretary shall establish within the Department of Health and Human Services a working group consisting of employees of the Department to carry out the following:

(1) To oversee the project.

(2) To establish policy and criteria for medicare disease management programs within the Department, including the establishment of policy and criteria for such programs.

(3) To identify targeted medical conditions and targeted individuals.

(4) To select areas in which such programs are carried out.

(5) To monitor health outcomes under such programs.

(6) To measure the effectiveness of such programs in meeting any budget neutrality requirements.

(7) Otherwise to serve as a central focal point within the Department for dissemination of information on medicare disease management programs.

(i) GAO STUDY ON DISEASE MANAGEMENT PROGRAMS- The Comptroller General of the United States shall conduct a study that compares disease management programs under title XVIII of the Social Security Act with such programs conducted in the private sector, including the prevalence of such programs and programs for case management. The study shall identify the cost-effectiveness of such programs and any savings achieved by such programs. The Comptroller General shall submit a report on such study to Congress by not later than 18 months after the date of the enactment of this Act.

SEC. 313. DEMONSTRATION PROJECT FOR MEDICAL ADULT DAY CARE SERVICES.

(a) ESTABLISHMENT- Subject to the succeeding provisions of this section, the Secretary of Health and Human Services shall establish a demonstration project (in this section referred to as the `demonstration project') under which the Secretary shall, as part of a plan of an episode of care for home health services established for a medicare beneficiary, permit a home health agency, directly or under arrangements with a medical adult day care facility, to provide medical adult day care services as a substitute for a portion of home health services that would otherwise be provided in the beneficiary's home.

(b) PAYMENT-

(1) IN GENERAL- The amount of payment for an episode of care for home health services, a portion of which consists of substitute medical adult day care services, under the demonstration project shall be made at a rate equal to 95 percent of the amount that would otherwise apply for such home health services under section 1895 of the Social Security Act (42 U.S.C. 1395fff). In no case may a home health agency, or a medical adult day care facility under arrangements with a home health agency, separately charge a beneficiary for medical adult day care services furnished under the plan of care.

(2) BUDGET NEUTRALITY FOR DEMONSTRATION PROJECT- Notwithstanding any other provision of law, the Secretary shall provide for an appropriate reduction in the

aggregate amount of additional payments made under section 1895 of the Social Security Act (42 U.S.C. 1395fff) to reflect any increase in amounts expended from the Trust Funds as a result of the demonstration project conducted under this section.

(c) DEMONSTRATION PROJECT SITES- The project established under this section shall be conducted in not more than 5 States selected by the Secretary that license or certify providers of services that furnish medical adult day care services.

(d) DURATION- The Secretary shall conduct the demonstration project for a period of 3 years.

(e) VOLUNTARY PARTICIPATION- Participation of medicare beneficiaries in the demonstration project shall be voluntary. The total number of such beneficiaries that may participate in the project at any given time may not exceed 15,000.

(f) PREFERENCE IN SELECTING AGENCIES- In selecting home health agencies to participate under the demonstration project, the Secretary shall give preference to those agencies that are currently licensed or certified through common ownership and control to furnish medical adult day care services.

(g) WAIVER AUTHORITY- The Secretary may waive such requirements of title XVIII of the Social Security Act as may be necessary for the purposes of carrying out the demonstration project, other than waiving the requirement that an individual be homebound in order to be eligible for benefits for home health services.

(h) EVALUATION AND REPORT- The Secretary shall conduct an evaluation of the clinical and cost effectiveness of the demonstration project. Not later than 30 months after the commencement of the project, the Secretary shall submit to Congress a report on the evaluation, and shall include in the report the following:

(1) An analysis of the patient outcomes and costs of furnishing care to the medicare beneficiaries participating in the project as compared to such outcomes and costs to beneficiaries receiving only home health services for the same health conditions.

(2) Such recommendations regarding the extension, expansion, or termination of the project as the Secretary determines appropriate.

(i) DEFINITIONS- In this section:

(1) HOME HEALTH AGENCY- The term `home health agency' has the meaning given such term in section 1861(o) of the Social Security Act (42 U.S.C. 1395x(o)).

(2) MEDICAL ADULT DAY CARE FACILITY- The term `medical adult day care facility' means a facility that--

(A) has been licensed or certified by a State to furnish medical adult day care services in the State for a continuous 2-year period;

(B) is engaged in providing skilled nursing services and other therapeutic services directly or under arrangement with a home health agency;

(C) meets such standards established by the Secretary to assure quality of care and such other requirements as the Secretary finds necessary in the interest of the health and safety of individuals who are furnished services in the facility; and

(D) provides medical adult day care services.

(3) MEDICAL ADULT DAY CARE SERVICES- The term `medical adult day care services' means--

(A) home health service items and services described in paragraphs (1) through (7) of section 1861(m) furnished in a medical adult day care facility;

(B) a program of supervised activities furnished in a group setting in the facility that--

(i) meet such criteria as the Secretary determines appropriate; and

(ii) is designed to promote physical and mental health of the individuals; and

(C) such other services as the Secretary may specify.

(4) MEDICARE BENEFICIARY- The term `medicare beneficiary' means an individual entitled to benefits under part A of this title, enrolled under part B of this title, or both.

SEC. 314. PUBLICATION ON FINAL WRITTEN GUIDANCE CONCERNING PROHIBITIONS AGAINST DISCRIMINATION BY NATIONAL ORIGIN WITH RESPECT TO HEALTH CARE SERVICES.

Not later than June 1, 2003, the Secretary shall issue final written guidance concerning the application of the prohibition in title VI of the Civil Rights Act of 1964 (42 U.S.C. 2000d et seq.) against national origin discrimination as it affects persons with limited English proficiency with respect to access to health care services under the medicare program under title XVIII of the Social Security Act, the medicaid program under title XIX of such Act, and the SCHIP program under title XXI of such Act.

TITLE IV--PROVISIONS RELATING TO MANAGED CARE

SEC. 401. MEDICARE+CHOICE IMPROVEMENTS.

(a) EQUALIZING PAYMENTS BETWEEN FEE-FOR-SERVICE AND MEDICARE+CHOICE-

(1) IN GENERAL- Section 1853(c)(1) (42 U.S.C. 1395w-23(c)(1)) is amended by adding at the end the following:

`(D) BASED ON 100 PERCENT OF FEE-FOR-SERVICE COSTS-

`(i) IN GENERAL- For 2003 and 2004, the adjusted average per capita cost for the year involved, determined under section 1876(a)(4) for the Medicare+Choice payment area for services covered under parts A and B for individuals entitled to benefits under part A and enrolled under part B who are not enrolled in a Medicare+Choice plan under this part for the year, but adjusted to exclude costs attributable to payments under section 1886(h).

`(ii) INCLUSION OF COSTS OF VA AND DOD MILITARY FACILITY SERVICES TO MEDICARE-ELIGIBLE BENEFICIARIES- In determining the adjusted average per capita cost under clause (i) for a year, such cost shall be adjusted to include the Secretary's estimate, on a per capita basis, of the amount of additional payments that would have been made in the area involved under this title if individuals entitled to benefits under this title had not received services from facilities of the Department of Veterans Affairs or the Department of Defense.'.

(2) CONFORMING AMENDMENT- Such section is further amended, in the matter before subparagraph (A), by striking `or (C)' and inserting `(C), or (D)'.

(b) REVISION OF BLEND-

(1) REVISION OF NATIONAL AVERAGE USED IN CALCULATION OF BLEND- Section 1853(c)(4)(B)(i)(II) (42 U.S.C. 1395w-23(c)(4)(B)(i)(II)) is amended by inserting `who (with respect to determinations for 2003 and for 2004) are enrolled in a Medicare+Choice plan' after `the average number of medicare beneficiaries'.

(2) CHANGE IN BUDGET NEUTRALITY- Section 1853(c) (42 U.S.C. 1395w-23(c)) is amended--

(A) in paragraph (1)(A), by inserting `(for a year before 2003)' after `multiplied'; and

(B) in paragraph (5), by inserting `(before 2003)' after `for each year'.

(c) REVISION IN MINIMUM PERCENTAGE INCREASE FOR 2003 AND 2004- Section 1853(c)(1)(C) (42 U.S.C. 1395w-23(c)(1)(C)) is amended by striking clause (iv) and inserting the following:

`(iv) For 2002, 102 percent of the annual Medicare+Choice capitation rate under this paragraph for the area for 2001.

`(v) For 2003 and 2004, 103 percent of the annual Medicare+Choice capitation rate under this paragraph for the area for the previous year.

`(vi) For 2005 and each succeeding year, 102 percent of the annual Medicare+Choice capitation rate under this paragraph for the area for the previous year.'.

(d) INCLUSION OF COSTS OF DOD AND VA MILITARY FACILITY SERVICES TO MEDICARE-ELIGIBLE BENEFICIARIES IN CALCULATION OF MEDICARE+CHOICE PAYMENT RATES- Section 1853(c)(3) (42 U.S.C. 1395w-23(c)(3)) is amended--