TITLE III_ENTITLEMENT REFORMS SEC. 3000. REFERENCES IN TITLE. Except as otherwise specifically provided, whenever in this title an amendment is expressed in terms of an amendment to or repeal of a section or other provision, the reference shall be considered to be made to that section or other provision of the Social Security Act. Subtitle A_Medicaid PART 1_REFORMS Subpart A_Coordination of the Medicaid Program With Reformed Health Care System SEC. 3001. STATE PLAN REQUIREMENT REGARDING ELIGIBILITY FOR MEDICAL ASSISTANCE. (a) In General._Section 1902(a) (42 U.S.C. 1369a(a)) is amended_ (1) by striking ``and'' at the end of paragraph (61); (2) by striking the period at the end of paragraph (62) and inserting ``; and''; and (3) by adding at the end the following new paragraph: ``(63) provide that the State will continue to make eligible for medical assistance under section 1902(a)(10) any class or category of individuals eligible for medical assistance under such section as of the date of the enactment of the Health Reform Act.''. (b) Effective Date._The amendment made by subsection (a) shall be effective with respect to calendar quarters beginning on or after the date of the enactment of this Act. SEC. 3002. INTEGRATION OF CERTAIN MEDICAID ELIGIBLES INTO REFORMED HEALTH CARE SYSTEM THROUGH STATE PREMIUM AND COST-SHARING ASSISTANCE PROGRAM. (a) In General._Title XIX (42 U.S.C. 1396 et seq.) is amended by redesignating section 1931 as section 1932 and by inserting after section 1930 the following new section: ``integration of certain medicaid eligibles into reformed health care system ``Sec. 1931. (a) In General._ ``(1) Requirement on states._ ``(A) In general._Except as provided in subparagraph (B), with respect to calendar quarters beginning on or after January 1, 1999, a State with a State plan under this part_ ``(i) shall not furnish medical assistance consisting of acute medical services described in paragraph (3) to any individuals not described in subsection (b) who are otherwise eligible for medical assistance under the plan; and ``(ii) shall immediately enroll (as appropriate) such individuals into the State's premium and cost-sharing assistance program under subtitle B of title II of the Health Reform Act. ``(B) Special rule._Subparagraph (A) shall not apply if_ ``(i) the eligibility percentage (as described in section 2102(a)(2)(A)(ii) of the Health Reform Act) for premium assistance for individuals with incomes below certain income thresholds (described in section 2102(a)(2)(A) of such Act) does not equal or exceed 110 percent, and ``(ii) the eligibility percentage (as described in section 2102(a)(2)(B)(ii) of the Health Reform Act) for premium assistance for children and pregnant women (described in section 2102(a)(2)(B) of such Act) does not equal or exceed 240 percent. ``(2) State option._ ``(A) In general._For 1997, 1998, and for any succeeding year during which paragraph (1)(B) applies, a State may elect to integrate individuals into the State's premium and cost-sharing assistance program as described in paragraph (1)(A) if the State notifies the Secretary of such election not later than October 1 of the year preceding the year the State intends to begin such integration. ``(B) States furnishing services under a waiver._If a State making an election under subparagraph (A) is furnishing medical assistance consisting of acute medical services described in paragraph (3) under a waiver legally in effect under section 1115 and granted pursuant to an application submitted on or before the date of the enactment of the Health Reform Act to individuals who would otherwise be integrated into the State's premium and cost-sharing assistance program, such State may continue to furnish such services to such individuals until the earliest of_ ``(i) the termination of the waiver by the State or the Secretary; ``(ii) a determination that the waiver is not legally in effect; or ``(iii) January 1, 1999. ``(3) Acute medical services._The term `acute medical services' means items and services described in section 1905(a) other than the following: ``(A) Nursing facility services (as defined in section 1905(f)). ``(B) Intermediate care facility for the mentally retarded services (as defined in section 1905(d)). ``(C) Personal care services (as described in section 1905(a)(24)). ``(D) Private duty nursing services (as referred to in section 1905(a)(8)). ``(E) Home or community-based services furnished under a waiver granted under subsection (c), (d), or (e) of section 1915. ``(F) Home and community care furnished to functionally disabled elderly individuals under section 1929. ``(G) Community supported living arrangements services under section 1930. ``(H) Case-management services (as described in section 1915(g)(2)). ``(I) Home health care services (as referred to in section 1905(a)(7)), clinic services, and rehabilitation services that are furnished to an individual who has a condition or disability that qualifies the individual to receive any of the services described in a previous subparagraph. ``(J) Services furnished in an institution for mental diseases (as defined in section 1905(i)). ``(b) Individuals Described._ ``(1) In general._The individuals described in this subsection are_ ``(A) SSI-eligible individuals (as defined in paragraph (2)); ``(B) individuals who are eligible for benefits under part A of title XVIII; and ``(C) certain aliens with respect to whom emergency services are furnished under section 1903(v)(2). ``(2) SSI-eligible individual._The term `SSI-eligible individual' means an individual who is eligible for medical assistance under the State plan and_ ``(A) with respect to whom supplemental security income benefits are being paid under title XVI, ``(B) who is receiving a supplementary payment under section 1616 or under section 212 of Public Law 93˙0966, or ``(C) who is receiving monthly benefits under section 1619(a) (whether or not pursuant to section 1616(c)(3)). ``(c) State Maintenance of Effort._ ``(1) In general._ ``(A) Reduction in quarterly payments._For any calendar quarter in an integration year (as defined in subparagraph (B)), the amount otherwise payable to a State under section 1903 for the quarter shall be reduced by the State maintenance of effort amount for the quarter determined under paragraph (2). ``(B) Integration year._For purposes of this paragraph, the term `integration year' means the first year that the State integrates individuals into the State's premium and cost-sharing assistance program and any succeeding year. ``(2) Maintenance of effort amount._ ``(A) In general._The maintenance of effort amount for a State for a calendar quarter in an integration year shall be equal to 25 percent of the State's base payment amount (determined under subparagraph (B)), updated by the percentage change in the State inflation index (described in subparagraph (C)(i)) and the State population index (described in subparagraph (C)(ii)) during the period beginning on January 1, 1995, and ending on December 31 of the applicable integration year (as determined by the Secretary). ``(B) State base payment amount._The base payment amount for a State for an integration year shall be an amount, as determined by the Secretary, equal to the total expenditures from State funds made under the State plan during fiscal year 1994 with respect to medical assistance consisting of items and services of the type included in the standard benefits package (as defined in section 1101(1)(A) of the Health Reform Act) of the Health Reform Act) for individuals who would not have received such medical assistance if the provisions of this section and the State's premium and cost-sharing assistance program (as in effect in the applicable integration year) had been in effect in 1994. ``(C) Indexes._ ``(i) State inflation index._The Secretary shall establish an index which measures the percentage change in the weighted average maximum premium subsidy amount (as defined in paragraph (3)) for the State from year to year. ``(ii) State population index._The Secretary shall establish a State population index which measures the change in the number of individuals residing in a State from year to year. ``(3) Weighted average maximum premium subsidy amount for a state._ ``(A) In general._The term `weighted average maximum premium subsidy amount' for a State for a year means an amount equal to_ ``(i) the sum of_ ``(I) the amount determined under section 2102(b)(2)(B) of the Health Reform Act for each community-rating area in the State; multiplied by ``(II) the number of individuals in such community rating area enrolled in certified standard health plans (as defined in subparagraph (B)); divided by ``(ii) the total number of individuals in the State enrolled in certified standard health plans. ``(B) Certified standard heath plan._The term ``certified standard health plan'' shall have the meaning given such term under section 2109(1) of the Health Reform Act.''. (b) No Federal Financial Participation._Section 1903(i) (42 U.S.C. 1396b(i)) is amended_ (1) by striking ``or'' at the end of paragraph (14), (2) by striking the period at the end of paragraph (15) and inserting ``; or'', and (3) by inserting after paragraph (15) the following new paragraph: ``(16) with respect any medical assistance consisting of acute medical services described in section 1931(a)(3) furnished to individuals who are not described in section 1931(b).''. (c) Effective Date._The amendments made by this section shall be effective with respect calendar quarters beginning on or after January 1, 1997. SEC. 3003. STATE PROGRAMS FOR PROVIDING SUPPLEMENTAL BENEFITS. (a) Medicaid State Plan Requirement._Section 1902(a) of the Social Security Act (42 U.S.C. 1396a(a)), as amended by section 3001, is amended_ (1) by striking ``and'' at the end of paragraph (62); (2) by striking the period at the end of paragraph (63) and inserting ``; and''; and (3) by adding at the end the following new paragraph: ``(64) provide for a State program furnishing supplemental benefits in accordance with part B.''. (b) State Programs for Supplemental Benefits._Title XIX (42 U.S.C. 1396 et seq.) is amended by adding at the end the following new part: ``PART B_STATE PROGRAMS FOR SUPPLEMENTAL BENEFITS ``SEC. 1961. REQUIREMENT TO OPERATE STATE PROGRAM. ``(a) In General._A State with a State plan approved under part A shall have in effect a program for furnishing supplemental benefits (as defined in section 1962(c)) in accordance with this part in calendar years beginning after 1996. ``(b) Designation of State Agency._A State may designate any appropriate State agency to administer the program under this part. ``SEC. 1962. PROGRAM DESCRIBED. ``(a) In General._A State program under this part shall furnish supplemental benefits to such classes and categories of the individuals eligible for premium assistance under the State's program for premium and cost-sharing assistance under subtitle B of title II of the Health Reform Act, as determined appropriate by the State. ``(b) Priorities._ ``(1) In general._A State must give priority to children and pregnant women and may give priority to individuals residing in medically underserved areas in furnishing services under this part. ``(2) Definition._For purposes of paragraph (1), the term ``children'' means individuals who have not attained 19 years of age. ``(c) Supplemental Benefits Defined._The term `supplemental benefits' means the acute medical services described in section 1931(a)(3) that are not included in the items and services provided under the standard benefits package (as defined in section 1101(1)(A) of the Health Reform Act). ``SEC. 1963. PAYMENTS TO STATES. ``From its allotment under section 1964(b), the Secretary shall pay to each State for each quarter beginning with the quarter commencing January 1, 1997, an amount equal to_ ``(1) an amount equal to the State's Federal medical assistance percentage (as defined in section 1905(b)) of the amount demonstrated by State claims to have been expended during the quarter for furnishing services to eligible individuals under this part; plus ``(2) an amount equal to 50 percent of the remainder of the amounts expended during the quarter as found necessary by the Secretary for the proper and efficient administration of the State program. ``SEC. 1964. FUNDING. ``(a) In General._The total amount of Federal funds available for State programs under this part for each fiscal year is_ ``(1) for fiscal year 1997, $7,000,000,000; and ``(2) for succeeding fiscal years, the amount determined under this subsection for the preceding fiscal year updated by the estimated percentage change in the State inflation index described in section 1931(c)(2)(C)(i) and the State population index described in section 1931(c)(2)(C)(ii). ``(b) Allotments to States._ ``(1) In general._The Secretary shall allot the amounts available under subsection (a) for the fiscal year to the States in accordance with an allocation formula developed by the Secretary which takes into account_ ``(A) the number of individuals who are eligible for premium assistance under a State's program for premium and cost-sharing assistance compared to the number of such individuals in all States; and ``(B) a State's matching percentage (as defined in paragraph (3)). ``(2) Reallocations._Any amounts allotted to States under this subsection for a year that are not expended in such year shall remain available for State programs under this part and may be reallocated to States as the Secretary determines appropriate. ``(3) State matching percentage._The term `State matching percentage' means, with respect to a State, the amount (expressed as a percentage) equal to 1 minus the State's Federal medical assistance percentage. ``(c) State Entitlement._This part constitutes budget authority in advance of appropriations Acts, and represents the obligation of the Federal Government to provide for the payment to States of amounts described in section 1963.''. (c) Conforming Amendments._(1) Title XIX (42 U.S.C. 1396 et seq.) is amended by striking the title and inserting the following: ``TITLE XIX_MEDICAL ASSISTANCE PROGRAMS AND STATE PROGRAMS FOR SUPPLEMENTAL BENEFITS''. (2) Title XIX (42 U.S.C. 1396 et seq.) is amended by striking each reference to ``this title'' and inserting ``this part''. SEC. 3004. DEMONSTRATION PROJECTS PERMITTING COVERAGE UNDER CERTIFIED HEALTH PLANS OF SSI-ELIGIBLE INDIVIDUALS. (a) In General._Pursuant to section 1115 of the Social Security Act, the Secretary of Health and Human Services shall conduct demonstration projects under which a State may provide that a SSI-eligible individual has the option to receive medical assistance consisting of the items and services covered under the standard benefits package (as defined in section 1101(1)(A) of the Health Reform Act) through enrollment with a certified health plan providing such package instead of through enrollment in the State plan under title XIX of the Social Security Act. (b) Application._A State desiring to participate in a demonstration project under this section shall submit an application to the Secretary at such time, in such manner, and containing such information as the Secretary determines appropriate. (c) Requirements._A State participating in a demonstration project under this section shall, in addition to any requirements imposed by the Secretary, meet the following requirements with respect to SSI-eligible individuals: (1) Choice of plans._The State must offer individuals a choice of a certified health plans, except that nothing in this paragraph may be construed to waive any limits on the capacity of a certified health plan applicable under title II of this Act. (2) Informed choice._The State shall ensure that each SSI-eligible individual is provided sufficient information to make an informed choice about enrolling in a certified health plan and selecting such a plan. (3) Coordination of benefits._The State shall ensure that benefits covered under the standard benefits package and provided by a certified health plan are coordinated with any supplemental benefits provided by the State to an SSI-eligible individual. (4) Payments to certified health plans by states._The State shall make all necessary payments of premiums, copayments, coinsurance, and deductibles applicable under a certified health plan on behalf of a SSI-eligible individual who enrolls in a certified health plan. (d) Limitation on Number of Individuals Permitted to Make Election._ (1) In general._ (A) Limitation._The number of SSI-eligible individuals electing to enroll in a certified health plan under a demonstration project conducted in a State during a year may not exceed the applicable percentage determined under subparagraph (B) of the Secretary's estimate of the total number of such individuals in the State who are eligible to enroll in certified health plans under the project during the year. (B) Applicable percentage described._The `applicable percentage' determined under this subparagraph with respect to a State for a year_ (i) for each of the first 3 years for which the State participates in a demonstration project, 15 percent; and (ii) for each succeeding year in which the State participates in a such a project, the applicable percentage under this subparagraph for the preceding year, increased by 10 percent. (2) Waiver of limitation._The limit on the number of individuals provided in paragraph (1) may be waived by the Secretary with respect to a State if the Secretary determines that such a waiver is appropriate. (e) Definitions._ (1) Certified health plan._The term ``certified health plan'' means a certified health plan (as defined in section 3(a)(2) of the Health Reform Act) that provides a standard benefits package (as described in section 1101(1)(A) of such Act). (2) SSI-eligible individual._The term ``SSI-eligible individual'' means an individual who is eligible for medical assistance under the State plan and_ (A) with respect to whom supplemental security income benefits are being paid under title XVI of the Social Security Act, (B) who is receiving a supplementary payment under section 1616 of such Act or under section 212 of Public Law 93˙0966, or (C) who is receiving monthly benefits under section 1619(a) of the Social Security Act (whether or not pursuant to section 1616(c)(3) of such Act). Subpart B_State Eligibility to Contract for Coordinated Care Services SEC. 3011. MODIFICATION OF FEDERAL REQUIREMENTS TO ALLOW STATES MORE FLEXIBILITY IN CONTRACTING FOR COORDINATED CARE SERVICES UNDER MEDICAID. (a) In General._ (1) Payment provisions._Section 1903(m) (42 U.S.C. 1396b(m)) is amended to read as follows: ``(m)(1) No payment shall be made under this title to a State with respect to expenditures incurred by such State for payment to an entity which is at risk (as defined in section 1932(a)(4)) for services provided by such entity to individuals eligible for medical assistance under the State plan under this title, unless the entity is a risk contracting entity (as defined in section 1932(a)(3)) and the State and such entity comply with the applicable provisions of section 1932. ``(2) No payment shall be made under this title to a State with respect to expenditures incurred by such State for payment for services provided to an individual eligible for medical assistance under the State plan under this title if such payment by the State is contingent upon the individual receiving such services from a specified health care provider or subject to the approval of a specified health care provider, unless the entity receiving payment is a primary care case management entity (as defined in section 1932(a)(2)) and the State and such entity comply with the applicable provisions of section 1932.''. (2) Requirements for coordinated care services._Title XIX (42 U.S.C. 1396 et seq.), as amended by sections 3002, is amended by redesignating section 1932 as section 1933 and by inserting after section 1931 the following new section: ``requirements for coordinated care services ``Sec. 1932. (a) Definitions._For purposes of this title_ ``(1) Primary care case management program._The term `primary care case management program' means a program operated by a State agency under which such State agency enters into contracts with primary care case management entities for the provision of health care items and services which are specified in such contracts and the provision of case management services to individuals who are_ ``(A) eligible for medical assistance under the State plan, ``(B) enrolled with such primary care case management entities, and ``(C) entitled to receive such specified health care items and services and case management services only as approved and arranged for, or provided, by such entities. ``(2) Primary care case management entity._The term `primary care case management entity' means a health care provider which_ ``(A) must be a physician, group of physicians, a Federally qualified health center, a rural health clinic, or an entity employing or having other arrangements with physicians operating under a contract with a State to provide services under a primary care case management program, ``(B) receives payment on a fee for service basis (or, in the case of a Federally qualified health center or a rural health clinic, on a reasonable cost per encounter basis) for the provision of health care items and services specified in such contract to enrolled individuals, ``(C) receives an additional fixed fee per enrollee for a period specified in such contract for providing case management services (including approving and arranging for the provision of health care items and services specified in such contract on a referral basis) to enrolled individuals, and ``(D) is not an entity that is at risk (as defined in paragraph (4)) for such case management services. ``(3) Risk contracting entity._The term `risk contracting entity' means an entity which has a contract with the State agency (or a health insuring organization described in subsection (n)(2)) under which the entity_ ``(A) provides or arranges for the provision of health care items or services which are specified in such contract to individuals eligible for medical assistance under the State plan, and ``(B) is at risk (as defined in paragraph (4)) for part or all of the cost of such items or services furnished to individuals eligible for medical assistance under such plan. ``(4) At risk._The term `at risk' means an entity which_ ``(A) has a contract with the State agency under which such entity is paid a fixed amount for providing or arranging for the provision of health care items or services specified in such contract to an individual eligible for medical assistance under the State plan and enrolled with such entity, regardless of whether such items or services are furnished to such individual, and ``(B) is liable for all or part of the cost of furnishing such items or services, regardless of whether such cost exceeds such fixed payment. ``(5) Federally qualified health center._The term `Federally qualified health center' means a Federally qualified health center as defined in section 1905(l)(2)(B). ``(6) Rural health clinic._The term `rural health clinic' means a rural health clinic as defined in section 1905(l)(1). ``(b) General Requirements for Risk Contracting Entities._ ``(1) Organization._A risk contracting entity meets the requirements of this section only if such entity_ ``(A)(i) is a qualified health maintenance organization as defined in section 1310(d) of the Public Health Service Act, as determined by the Secretary pursuant to section 1312 of such Act; or ``(ii) is described in subparagraph (C), (D), (E), (F), or (G) of subsection (e)(4); ``(B) is a Federally qualified health center or a rural health clinic which has made adequate provision against the risk of insolvency (pursuant to the guidelines and regulations issued by the Secretary under this section), and ensures that individuals eligible for medical assistance under the State plan are not held liable for such entity's debts in case of such entity's insolvency; or ``(C) is an entity which meets all applicable State licensing requirements and has made adequate provision against the risk of insolvency (pursuant to the guidelines and regulations issued by the Secretary under this section), and ensures that individuals eligible for medical assistance under the State plan are not held liable for such entity's debts in case of such entity's insolvency. ``(2) Guarantees of enrollee access._A risk contracting entity meets the requirements of this section only if_ ``(A) the geographic locations, hours of operation, patient to staff ratios, and other relevant characteristics of such entity are sufficient to afford individuals eligible for medical assistance under the State plan access to care that is at least equivalent to the quality of care that would be available to such individuals if such individuals were not enrolled with such entity; ``(B) such entity has reasonable and adequate hours of operation, including 24-hour availability of_ ``(i)(I) treatment for an unforeseen illness, injury, or condition of an individual eligible for medical assistance under the State plan and enrolled with such entity; or ``(II) referral to other health care providers for such treatment; and ``(ii) other information, as determined by the Secretary or the State; and ``(C) such entity complies with such other requirements relating to access to care as the Secretary or the State may impose. ``(3) Contract with state agency._A risk contracting entity meets the requirements of this section only if such entity has a written contract with the State agency which provides_ ``(A) that the entity will comply with all applicable provisions of this section, that the State has the right to penalize the entity for failure to comply with such requirements and to terminate the contract in accordance with subsection (j), and that the entity will be subject to penalties imposed by the Secretary under subsection (i) for failure to comply with such requirements; ``(B) for a payment methodology based on experience rating or another actuarially sound methodology approved by the Secretary, which guarantees (as demonstrated by such models or formulas as the Secretary may approve) that_ ``(i) payments to the entity under the contract shall not exceed an amount equal to 100 percent of the costs (which shall include administrative costs and which may include costs for inpatient hospital services that would have been incurred in the absence of such contract) that would have been incurred by the State agency in the absence of the contract; and ``(ii) the financial risk for inpatient hospital services is limited to an extent established by the State; ``(C) that the Secretary and the State (or any person or organization designated by either) shall have the right to audit and inspect any books and records of the entity (and of any subcontractor) that pertain_ ``(i) to the ability of the entity (or a subcontractor) to bear the risk of potential financial losses; or ``(ii) to services performed or determinations of amounts payable under the contract and such other information deemed relevant by the Secretary; ``(D) that in the entity's enrollment, reenrollment, or disenrollment of individuals eligible for medical assistance under the State plan and eligible to enroll, reenroll, or disenroll with the entity pursuant to the contract, the entity will not discriminate among such individuals on the basis of such individuals' health status or requirements for health care services; ``(E)(i) individuals eligible for medical assistance under the State plan who have enrolled with the entity are permitted to terminate such enrollment without cause as of the beginning of the first calendar month (or in the case of an entity described in subsection (e)(4), as of the beginning of the first enrollment period) following a full calendar month after a request is made for such termination; ``(ii) that when an individual has relocated outside the entity's service area, and the entity has been notified of the relocation, services (within reasonable limits) furnished by a health care provider outside the service area will be reimbursed either by the entity or by the State agency; and ``(iii) for written notification of each such individual's right to terminate enrollment, which shall be provided at the time of such individual's enrollment, and, in the case of a child with special health care needs as defined in subsection (e)(1)(B)(ii), at the time the entity identifies such a child; ``(F) in the case of services immediately required to treat an unforeseen illness, injury, or condition, of an individual eligible for medical assistance under the State plan and enrolled with the entity_ ``(i) that such services shall not be subject to a preapproval requirement; and ``(ii) where such services are furnished by a health care provider other than the entity, for reimbursement of such provider either by the entity or by the State agency; ``(G) for disclosure of information in accordance with subsection (h) and section 1124; ``(H) that any physician incentive plan operated by the entity meets the requirements of section 1876(i)(8); ``(I) for maintenance of sufficient patient encounter data to identify the physician who delivers services to patients; ``(J) that the entity will comply with the requirement of section 1902(w) with respect to each enrollee; ``(K) that the entity will implement a grievance system, inform enrollees in writing about how to use such grievance system, ensure that grievances are addressed in a timely manner, and report grievances to the State at intervals to be determined by the State; ``(L) that contracts between the entity and each subcontractor of such entity will require each subcontractor_ ``(i) to cooperate with the entity in the implementation of its internal quality assurance program under paragraph (4) and adhere to the standards set forth in the quality assurance program, including standards with respect to access to care, facilities in which patients receive care, and availability, maintenance, and review of medical records; ``(ii) to cooperate with the Secretary, the State agency and any contractor to the State in monitoring and evaluating the quality and appropriateness of care provided to enrollees as required by Federal or State laws and regulations; and ``(iii) where applicable, to adhere to regulations and program guidance with respect to reporting requirements under section 1905(r); ``(M) that, where the State deems it necessary to ensure the timely provision to enrollees of the services listed in subsection (f)(2)(C)(ii), the State may arrange for the provision of such services by health care providers other than the entity and may adjust its payments to the entity accordingly; ``(N) that the entity and the State will comply with guidelines and regulations issued by the Secretary with respect to procedures for marketing and information that must be provided to individuals eligible for medical assistance under the State plan; ``(O) that the entity must provide payments to hospitals for inpatient hospital services furnished to infants who have not attained the age of 1 year, and to children who have not attained the age of 6 years and who receive such services in a disproportionate share hospital, in accordance with paragraphs (2) and (3) of section 1902(s); ``(P) that the entity shall report to the State, at such time and in such manner as the State shall require, on the rates paid for hospital services (by type of hospital and type of service) furnished to individuals enrolled with the entity; ``(Q) detailed information regarding the relative responsibilities of the entity and the State, for providing (or arranging for the provision of), and making payment for, the following items and services: ``(i) immunizations; ``(ii) the purchase of vaccines; ``(iii) lead screening and treatment services; ``(iv) screening and treatment for tuberculosis; ``(v) screening and treatment for, and preventive services related to, sexually transmitted diseases, including HIV infection; ``(vi) screening, diagnostic, and treatment services required under section 1905(r); ``(vii) family planning services; ``(viii) services prescribed under_ ``(I) an Individual Education Plan or Individualized Family Service Plan under part B or part H of the Individuals with Disabilities Education Act; and ``(II) any other individual plan of care or treatment developed under this title or title V; ``(ix) transportation needed to obtain services to which the enrollee is entitled under the State plan or pursuant to an individual plan of care or treatment described in subclauses (I) and (II) of clause (viii); and ``(x) such other services as the Secretary may specify; ``(R) detailed information regarding the procedures for coordinating the relative responsibilities of the entity and the State to ensure prompt delivery of, compliance with any applicable reporting requirements related to, and appropriate record keeping with respect to, the items and services described in subparagraph (Q); and ``(S) such other provisions as the Secretary may require. ``(4) Internal quality assurance._A risk contracting entity meets the requirements of this section only if such entity has in effect a written internal quality assurance program which includes a systematic process to achieve specified and measurable goals and objectives for access to, and quality of, care, which_ ``(A) identifies the organizational units responsible for performing specific quality assurance functions, and ensures that such units are accountable to the governing body of the entity and that such units have adequate supervision, staff, and other necessary resources to perform these functions effectively, ``(B) if any quality assurance functions are delegated to other entities, ensures that the risk contracting entity remains accountable for all quality assurance functions and has mechanisms to ensure that all quality assurance activities are carried out, ``(C) includes methods to ensure that physicians and other health care professionals under contract with the entity are licensed or certified as required by State law, or are otherwise qualified to perform the services such physicians and other professionals provide, and that these qualifications are ensured through appropriate credentialing and recredentialing procedures, ``(D) provides for continuous monitoring of the delivery of health care, through_ ``(i) identification of clinical areas to be monitored, including immunizations, prenatal care, services required under section 1905(r), and other appropriate clinical areas, to reflect care provided to enrollees eligible for medical assistance under the State plan, ``(ii) use of quality indicators and standards for assessing the quality and appropriateness of care delivered, and the availability and accessibility of all services for which the entity is responsible under such entity's contract with the State, ``(iii) use of epidemiological data or chart review, as appropriate, and patterns of care overall, ``(iv) patient surveys, spot checks, or other appropriate methods to determine whether_ ``(I) enrollees are able to obtain timely appointments with primary care providers and specialists, and ``(II) enrollees are otherwise guaranteed access and care as provided under paragraph (2), ``(v) provision of written information to health care providers and other personnel on the outcomes, quality, availability, accessibility, and appropriateness of care, and ``(vi) implementation of corrective actions, ``(E) includes standards for timely enrollee access to information and care which at a minimum shall incorporate standards used by the State or professional or accreditation bodies for facilities furnishing perinatal and neonatology care and other forms of specialized medical and surgical care, ``(F) includes standards for the facilities in which patients receive care, ``(G) includes standards for managing and treating medical conditions prevalent among such entity's enrollees eligible for medical assistance under the State plan, ``(H) includes mechanisms to ensure that enrollees eligible for medical assistance under the State plan receive services for which the entity is responsible under the contract which are consistent with standards established by the applicable professional societies or government agencies, ``(I) includes standards for the availability, maintenance, and review of medical records consistent with generally accepted medical practice, ``(J) provides for dissemination of quality assurance procedures to health care providers under contract with the entity, and ``(K) meets any other requirements prescribed by the Secretary or the State. ``(c) General Requirements for Primary Care Case Management Programs._A primary care case management program implemented by a State under this section shall_ ``(1) provide that each primary care case management entity participating in such program has a written contract with the State agency, ``(2) include methods for selection and monitoring of participating primary care case management entities to ensure_ ``(A) that the geographic locations, hours of operation, patient to staff ratio, and other relevant characteristics of such entities are sufficient to afford individuals eligible for medical assistance under the State plan access to care that is at least equivalent to the quality of care that would be available to such individuals if such individuals were not enrolled with such entity, ``(B) that such entities and their professional personnel are licensed as required by State law and qualified to provide case management services, through methods such as ongoing monitoring of compliance with applicable requirements and providing information and technical assistance, and ``(C) that such entities_ ``(i) provide timely and appropriate primary care to such enrollees consistent with standards established by applicable professional societies or governmental agencies, or such other standards prescribed by the Secretary or the State, and ``(ii) where other items and services are determined to be medically necessary, give timely approval of such items and services and referral to appropriate health care providers, ``(3) provide that no preapproval shall be required for emergency health care items or services, and ``(4) permit individuals eligible for medical assistance under the State plan who have enrolled with a primary care case management entity to terminate such enrollment without cause not later than the beginning of the first calendar month following a full calendar month after the request is made for such termination. ``(d) Exemptions From State Plan Requirements._A State plan may permit or require an individual eligible for medical assistance under such plan to enroll with a risk contracting entity or a primary care case management entity without regard to the requirements set forth in the following paragraphs of section 1902(a): ``(1) Paragraph (1) (concerning statewideness). ``(2) Paragraph (10)(B) (concerning comparability of benefits), to the extent benefits not included in the State plan are provided. ``(3) Paragraph (23) (concerning freedom of choice of provider), except with respect to services described in section 1905(a)(4)(C) and except as required under subsection (e). ``(e) State Options With Respect to Enrollment and Disenrollment._ ``(1) Mandatory enrollment._ ``(A) In general._Except as provided in subparagraph (B), a State plan may require an individual eligible for medical assistance under such plan to enroll with a risk contracting entity or a primary care case management entity only if the individual is permitted a choice within a reasonable service area (as defined by the State)_ ``(i) between or among 2 or more risk contracting entities, ``(ii) among a risk contracting entity and a primary care case management program, or ``(iii) among primary care case management entities. ``(B) Special needs children._ ``(i) In general._A State may not require a child with special health care needs (as defined in clause (ii)) to enroll with a risk contracting entity or a primary care case management entity. ``(ii) Definition._For purposes of this subparagraph, the term `child with special health care needs' refers to an individual eligible for supplemental security income under title XVI, a child described under section 501(a)(1)(D), or a child described in section 1902(e)(3). ``(2) Reenrollment of individuals who regain eligibility._In the case of an individual who_ ``(A) in a month is eligible for medical assistance under the State plan and enrolled with a risk contracting entity with a contract under this section, ``(B) in the next month (or next 2 months) is not eligible for such medical assistance, but ``(C) in the succeeding month is again eligible for such benefits, the State agency (subject to subsection (b)(3)(E)) may enroll the individual for that succeeding month with such entity, if the entity continues to have a contract with the State agency under this subsection. ``(3) Disenrollment._ ``(A) Restrictions on disenrollment without cause._Except as provided in subparagraph (C), a State plan may restrict the period in which individuals enrolled with risk contracting entities described in paragraph (4) may terminate such enrollment without cause to the first month of each period of enrollment (as defined in subparagraph (B)), but only if the State provides notification, at least once during each such enrollment period, to individuals enrolled with such entity of the right to terminate such enrollment and the restriction on the exercise of this right. Such restriction shall not apply to requests for termination of enrollment for cause. ``(B) Period of enrollment._For purposes of this paragraph, the term `period of enrollment' means_ ``(i) a period not to exceed 6 months in duration, or ``(ii) a period not to exceed 1 year in duration, in the case of a State that, on the effective date of this paragraph, had in effect a waiver under section 1115 of requirements under this title under which the State could establish a 1-year minimum period of enrollment with risk contracting entities. ``(C) Special needs children._A State may not restrict disenrollment of a child with special health care needs (as defined in paragraph (1)(B)(ii)). ``(4) Entities eligible for disenrollment restrictions._A risk contracting entity described in this paragraph is_ ``(A) a qualified health maintenance organization as defined in section 1310(d) of the Public Health Service Act, ``(B) an eligible organization with a contract under section 1876, ``(C) an entity that is receiving (and has received during the previous 2 years) a grant of at least $100,000 under section 329(d)(1)(A) or 330(d)(1) of the Public Health Service Act, ``(D) an entity that_ ``(i) received a grant of at least $100,000 under section 329(d)(1)(A) or section 330(d)(1) of the Public Health Service Act in the fiscal year ending June 30, 1976, and has been a grantee under either such section for all periods after that date, and ``(ii) provides to its enrollees, on a prepaid capitation or other risk basis, all of the services described in paragraphs (1), (2), (3), (4)(C), and (5) of section 1905(a) (and the services described in section 1905(a)(7), to the extent required by section 1902(a)(10)(D)), ``(E) an entity that is receiving (and has received during the previous 2 years) at least $100,000 (by grant, subgrant, or subcontract) under the Appalachian Regional Development Act of 1965, ``(F) a nonprofit primary health care entity located in a rural area (as defined by the Appalachian Regional Commission)_ ``(i) which received in the fiscal year ending June 30, 1976, at least $100,000 (by grant, subgrant, or subcontract) under the Appalachian Regional Development Act of 1965, and ``(ii) which, for all periods after such date, either has been the recipient of a grant, subgrant, or subcontract under such Act or has provided services on a prepaid capitation or other risk basis under a contract with the State agency initially entered into during a year in which the entity was the recipient of such a grant, subgrant, or subcontract, ``(G) an entity that had contracted with the State agency prior to 1970 for the provision, on a prepaid risk basis, of services (which did not include inpatient hospital services) to individuals eligible for medical assistance under the State plan, ``(H) a program pursuant to an undertaking described in subsection (n)(3) in which at least 25 percent of the membership enrolled on a prepaid basis are individuals who_ ``(i) are not insured for benefits under part B of title XVIII or eligible for medical assistance under the State plan, and ``(ii) (in the case of such individuals whose prepayments are made in whole or in part by any government entity) had the opportunity at the time of enrollment in the program to elect other coverage of health care costs that would have been paid in whole or in part by any governmental entity, ``(I) an entity that, on the date of enactment of this provision, had a contract with the State agency under a waiver under section 1115 or 1915(b) and was not subject to a requirement under this title to permit disenrollment without cause, or ``(J) an entity that has a contract with the State agency under a waiver under section 1915(b)(5). ``(f) State Monitoring and External Review._ ``(1) State grievance procedure._A State contracting with a risk contracting entity or a primary care case management entity under this section shall provide for a grievance procedure for enrollees of such entity with at least the following elements: ``(A) A toll-free telephone number for enrollee questions and grievances. ``(B) Periodic notification of enrollees of their rights with respect to such entity or program. ``(C) Periodic sample reviews of grievances registered with such entity or program or with the State. ``(D) Periodic survey and analysis of enrollee satisfaction with such entity or program, including interviews with individuals who disenroll from the entity or program. ``(2) State monitoring of quality and access._ ``(A) Risk contracting entities._A State contracting with a risk contracting entity under this section shall provide for ongoing monitoring of such entity's compliance with the requirements of subsection (b), including compliance with the requirements of such entity's contract under subsection (b)(3), and shall undertake appropriate followup activities to ensure that any problems identified are rectified and that compliance with the requirements of subsection (b) and the requirements of the contract under subsection (b)(3) is maintained. ``(B) Primary care case management entities._A State electing to implement a primary care case management program shall provide for ongoing monitoring of the program's compliance with the requirements of subsection (c) and shall undertake appropriate followup activities to ensure that any problems identified are rectified and that compliance with subsection (c) is maintained. ``(C) Services._ ``(i) In general._The State shall establish procedures (in addition to those required under subparagraphs (A) and (B)) to ensure that the services listed in clause (ii) are available in a timely manner to an individual enrolled with a risk contracting entity or a primary care case management entity. Where necessary to ensure the timely provision of such services, the State shall arrange for the provision of such services by health care providers other than the risk contracting entity or the primary care case management entity in which an individual is enrolled. ``(ii) Services listed._The services listed in this clause are_ ``(I) prenatal care; ``(II) immunizations; ``(III) lead screening and treatment; ``(IV) prevention, diagnosis and treatment of tuberculosis, sexually transmitted diseases (including HIV infection), and other communicable diseases; and ``(V) such other services as the Secretary may specify. ``(iii) Report._The procedures referred to in clause (i) shall be described in an annual report to the Secretary provided by the State. ``(3) External independent review._ ``(A) In general._Except as provided in paragraph (4), a State contracting with a risk contracting entity under this section shall provide for an annual external independent review of the quality and timeliness of, and access to, the items and services specified in such entity's contract with the State agency. Such review shall be conducted by a utilization control and peer review organization with a contract under section 1153 or another organization unaffiliated with the State government or with any risk contracting entity and approved by the Secretary. ``(B) Contents of review._An external independent review conducted under this paragraph shall include the following: ``(i) A review of the entity's medical care, through sampling of medical records or other appropriate methods, for indications of quality of care and inappropriate utilization (including overutilization) and treatment. ``(ii) A review of enrollee inpatient and ambulatory data, through sampling of medical records or other appropriate methods, to determine trends in quality and appropriateness of care. ``(iii) Notification of the entity and the State when the review under this paragraph indicates inappropriate care, treatment, or utilization of services (including overutilization). ``(iv) Other activities as prescribed by the Secretary or the State. ``(C) Availability._The results of each external independent review conducted under this paragraph shall be available to the public consistent with the requirements for disclosure of information contained in section 1160. ``(4) Deemed compliance with external independent quality of care review requirements._ ``(A) In general._The Secretary may deem the State to have fulfilled the requirement for independent external review of quality of care with respect to an entity which has been accredited by an organization described in subparagraph (B) and approved by the Secretary. ``(B) Accrediting organization._An accrediting organization described in this subparagraph must_ ``(i) exist for the primary purpose of accrediting coordinated care organizations; ``(ii) be governed by a group of individuals representing health care providers, purchasers, regulators, and consumers (a minority of which shall be representatives of health care providers); ``(iii) have substantial experience in accrediting coordinated care organizations, including an organization's internal quality assurance program; ``(iv) be independent of health care providers or associations of health care providers; ``(v) be a nonprofit organization; and ``(vi) have an accreditation process which meets requirements specified by the Secretary. ``(5) Federal monitoring responsibilities._The Secretary shall review the external independent reviews conducted pursuant to paragraph (3) and shall monitor the effectiveness of the State's monitoring and followup activities required under subparagraph (A) of paragraph (2). If the Secretary determines that a State's monitoring and followup activities are not adequate to ensure that the requirements of paragraph (2) are met, the Secretary shall undertake appropriate followup activities to ensure that the State improves its monitoring and followup activities. ``(g) Participation of Federally Qualified Health Centers and Rural Health Clinics._ ``(1) In general._Each risk contracting entity shall, with respect to each electing essential community provider (as defined in paragraph (5)) located within the plan's service area, either_ ``(A) enter into a written provider participation agreement (described in paragraph (2)) with the provider, or ``(B) enter into a written agreement under which the plan shall make payment to the provider in accordance with paragraph (3). ``(2) Participation agreement._A participation agreement between a risk contracting entity and an electing essential community provider under this subsection shall provide that the entity agrees to treat the provider in accordance with terms and conditions at least as favorable as those that are applicable to other participating providers with the risk contracting entity with respect to each of the following: ``(A) The scope of services for which payment is made by the entity to the provider. ``(B) The rate of payment for covered care and services. ``(C) The availability of financial incentives to participating providers. ``(D) Limitations on financial risk provided to other participating providers. ``(E) Assignment of enrollees to participating providers. ``(F) Access by the provider's patients to providers in medical specialties or subspecialties participating in the plan. ``(3) Payments for providers without participation agreements._Payment in accordance with this paragraph is payment based on payment methodologies and rates used under the applicable Medicare payment methodology and rates (or the most closely applicable methodology under such program as the Secretary of Health and Human Services specifies in regulations). ``(4) Election._ ``(A) In general._In this subsection, the term `electing essential community provider' means, with respect to a risk contracting entity, an essential community provider that elects this subpart to apply to the entity. ``(B) Form of election._An election under this paragraph shall be made in a form and manner specified by the Secretary, and shall include notice to the risk contracting entity involved. Such an election may be made annually with respect to an entity, except that the entity and provider may agree to make such an election on a more frequent basis. ``(5) Providers described._The categories of providers and organizations described in this subsection are as follows: ``(A) Migrant health centers._A recipient or subrecipient of a grant under section 329 of the Public Health Service Act. ``(B) Community health centers._A recipient or subrecipient of a grant under section 330 of the Public Health Service Act. ``(C) Homeless program providers._A recipient or subrecipient of a grant under section 340 of the Public Health Service Act. ``(D) Public housing providers._A recipient or subrecipient of a grant under section 340A of the Public Health Service Act. ``(E) Family planning clinics._A recipient or subrecipient of a grant under title X of the Public Health Service Act. ``(F) Indian health programs._A service unit of the Indian Health Service, a tribal organization, or an urban Indian program, as defined in the Indian Health Care Improvement Act. ``(G) AIDS providers under ryan white act._A public or private nonprofit health care provider that is a recipient or subrecipient of a grant under title XXIII of the Public Health Service Act. ``(H) Maternal and child health providers._A public or private nonprofit entity that provides prenatal care, pediatric care, or ambulatory services to children, including children with special health care needs, and that receives funding for such care or services under title V of the Social Security Act. ``(I) Federally qualified health center; rural health clinic._A Federally-qualified health center or a rural health clinic (as such terms are defined in section 1861(aa)). ``(6) Subrecipient defined._In this subsection, the term `subrecipient' means, with respect to a recipient of a grant under a particular authority, an entity that_ ``(A) is receiving funding from such a grant under a contract with the principal recipient of such a grant, and ``(B) meets the requirements established to be a recipient of such a grant. ``(7) Sunset of requirement._The requirements of this subsection shall only apply to risk contracting entities during calendar years 1995 through 2000. ``(h) Transactions With Parties in Interest._ ``(1) In general._Each risk contracting entity which is not a qualified health maintenance organization (as defined in section 1310(d) of the Public Health Service Act) must report to the State and, upon request, to the Secretary, the Inspector General of the Department of Health and Human Services, and the Comptroller General of the United States a description of transactions between the entity and a party in interest (as defined in section 1318(b) of such Act), including the following transactions: ``(A) Any sale or exchange, or leasing of any property between the entity and such a party. ``(B) Any furnishing for consideration of goods, services (including management services), or facilities between the entity and such a party, but not including salaries paid to employees for services provided in the normal course of their employment. ``(C) Any lending of money or other extension of credit between the entity and such a party. The State or the Secretary may require that information reported with respect to a risk contracting entity which controls, or is controlled by, or is under common control with, another entity be in the form of a consolidated financial statement for the risk contracting entity and such entity. ``(2) Availability of information._Each risk contracting entity shall make the information reported pursuant to paragraph (1) available to its enrollees upon reasonable request. ``(i) Remedies for Failure To Comply._ ``(1) In general._If the Secretary determines that a risk contracting entity or a primary care case management entity_ ``(A) fails substantially to provide services required under section 1905(r), when such an entity is required to do so, or provide medically necessary items and services that are required to be provided to an individual enrolled with such an entity, if the failure has adversely affected (or has substantial likelihood of adversely affecting) the individual; ``(B) imposes premiums on individuals enrolled with such an entity in excess of the premiums permitted under this title; ``(C) acts to discriminate among individuals in violation of the provision of subsection (b)(3)(D), including expulsion or refusal to reenroll an individual or engaging in any practice that would reasonably be expected to have the effect of denying or discouraging enrollment (except as permitted by this section) by eligible individuals with the entity whose medical condition or history indicates a need or a potential need for substantial future medical services; ``(D) misrepresents or falsifies information that is furnished_ ``(i) to the Secretary or the State under this section; or ``(ii) to an individual or to any other entity under this section; or ``(E) fails to comply with the requirements of section 1876(i)(8), the Secretary may provide, in addition to any other remedies available under law, for any of the remedies described in paragraph (2). ``(2) Additional remedies._The remedies described in this paragraph are_ ``(A) civil money penalties of not more than $25,000 for each determination under paragraph (1), or, with respect to a determination under subparagraph (C) or (D)(i) of such paragraph, of not more than $100,000 for each such determination, plus, with respect to a determination under paragraph (1)(B), double the excess amount charged in violation of such paragraph (and the excess amount charged shall be deducted from the penalty and returned to the individual concerned), and plus, with respect to a determination under paragraph (1)(C), $15,000 for each individual not enrolled as a result of a practice described in such paragraph, or ``(B) denial of payment to the State for medical assistance furnished by a risk contracting entity or a primary care case management entity under this section for individuals enrolled after the date the Secretary notifies the entity of a determination under paragraph (1) and until the Secretary is satisfied that the basis for such determination has been corrected and is not likely to recur. The provisions of section 1128A (other than subsections (a) and(b)) shall apply to a civil money penalty under subparagraph (A) in the same manner as such provisions apply to a penalty or proceeding under section 1128A(a). ``(j) Termination of Contract by State._Any State which has a contract with a risk contracting entity or a primary care case management entity may terminate such contract if such entity fails to comply with the terms of such contract or any applicable provision of this section. ``(k) Fair Hearing._Nothing in this section shall affect the rights of an individual eligible to receive medical assistance under the State plan to obtain a fair hearing under section 1902(a)(3) or under applicable State law. ``(l) Disproportionate Share Hospitals._Nothing in this section shall affect any requirement on a State to comply with section 1923. ``(m) Referral Payments._For 1 year following the date on which individuals eligible for medical assistance under the State plan in a service area are required to enroll with a risk contracting entity or a primary care case management entity, Federally qualified health centers and rural health centers located in such service area or providing care to such enrollees, shall receive a fee for educating such enrollees about the availability of services from the risk contracting entity or primary care case management entity with which such enrollees are enrolled. ``(n) Special Rules._ ``(1) Nonapplicability of certain provisions to certain risk contracting entities._ In the case of any risk contracting entity which_ ``(A)(i) is an individual physician or a physician group practice of less than 50 physicians, and ``(ii) is not described in paragraphs (A) and (B) of subsection (b)(1), and ``(B) is at risk only for the health care items and services directly provided by such entity, paragraphs (3)(K), (3)(L), (3)(O), (3)(P), and (4) of subsection (b), and paragraph (3) of subsection (f), shall not apply to such entity. ``(2) Exception from definition of risk contracting entity._For purposes of this section, the term `risk contracting entity' shall not include a health insuring organization which was used by a State before April 1, 1986, to administer a portion of the State plan of such State on a statewide basis. ``(3) New jersey._The rules under section 1903(m)(6) as in effect on the day before the effective date of this section shall apply in the case of an undertaking by the State of New Jersey (as described in such section 1903(m)(6)). ``(o) Continuation of Certain Coordinated Care Programs._The Secretary may provide for the continuation of any coordinated care program operating under section 1115 or 1915 without requiring compliance with any provision of this section which conflicts with the continuation of such program and without requiring any additional waivers under such sections 1115 and 1915 if the program has been successful in assuring quality and access to care, containing costs (as determining by the Secretary), and is likely to continue to be successful in the future. ``(p) Guidelines, Regulations, and Model Contract._ ``(1) Guidelines and regulations on solvency._At the earliest practicable time after the date of enactment of this section, the Secretary shall issue guidelines and regulations concerning solvency standards for risk contracting entities and subcontractors of such risk contracting entities. Such guidelines and regulations shall take into account characteristics that may differ among risk contracting entities including whether such an entity is at risk for inpatient hospital services. ``(2) Guidelines and regulations on marketing._At the earliest practicable time after the date of enactment of this section, the Secretary shall issue guidelines and regulations concerning_ ``(A) marketing undertaken by any risk contracting entity or any primary care case management program to individuals eligible for medical assistance under the State plan, and ``(B) information that must be provided by States or any such entity to individuals eligible for medical assistance under the State plan with respect to_ ``(i) the options and rights of such individuals to enroll with, and disenroll from, any such entity, as provided in this section, and ``(ii) the availability of services from any such entity (including a list of services for which such entity is responsible or must approve and information on how to obtain services for which such entity is not responsible). In developing the guidelines and regulations under this paragraph, the Secretary shall address the special circumstances of children with special health care needs (as defined in subsection (e)(1)(B)(ii)) and other individuals with special health care needs. ``(3) Model contract._The Secretary shall develop a model contract to reflect the requirements of subsection (b)(3) and such other requirements as the Secretary determines appropriate.''. (b) Waivers From Requirements on Coordinated Care Programs._Section 1915(b) (42 U.S.C. 1396n) is amended_ (1) in the matter preceding paragraph (1), by striking ``as may be necessary'' and inserting ``, and section 1932 as may be necessary''; (2) in paragraph (1), by striking ``a primary care case-management system or''; (3) by striking ``and'' at the end of paragraph (3); (4) by striking the period at the end of paragraph (4) and inserting ``, and''; and (5) by inserting after paragraph (4) the following new paragraph: ``(5) to permit a risk contracting entity (as defined in section 1932(a)(3)) to restrict the period in which individuals enrolled with such entity may terminate such enrollment without cause in accordance with section 1932(e)(3)(A).''. (c) State Option To Guarantee Medicaid Eligibility._Section 1902(e)(2) (42 U.S.C. 1396a(e)(2)) is amended_ (1) in subparagraph (A), by striking all that precedes ``(but for this paragraph)'' and inserting ``In the case of an individual who is enrolled_ ``(i) with a qualified health maintenance organization (as defined in title XIII of the Public Health Service Act) or with a risk contracting entity (as defined in section 1932(a)(3)), or ``(ii) with any risk contracting entity (as defined in section 1932(a)(3)) in a State that, on the effective date of this provision, had in effect a waiver under section 1115 of requirements under this title under which the State could extend eligibility for medical assistance for enrollees of such entity, or ``(iii) with an eligible organization with a contract under section 1876, and who would'', (2) in subparagraph (B), by striking ``organization or'' each place it appears, and (3) by adding at the end the following new subparagraph: ``(C) The State plan may provide, notwithstanding any other provision of this title, that an individual shall be deemed to continue to be eligible for benefits under this title until the end of the month following the month in which such individual would (but for this paragraph) lose such eligibility because of excess income and resources, if the individual is enrolled with a risk contracting entity or primary care case management entity (as those terms are defined in section 1932(a)).''. (d) Enhanced Match Related To Quality Review._Section 1903(a)(3)(C) (42 U.S.C. 1396b(a)(3)(C)) is amended_ (1) by striking ``organization or by'' and inserting ``organization, by''; and (2) by striking ``section 1152, as determined by the Secretary,'' and inserting ``section 1152, as determined by the Secretary, or by another organization approved by the Secretary which is unaffiliated with the State government or with any risk contracting entity (as defined in section 1932(a)(3)),''. (e) Accumulation of Reserves by Certain Entities._Any organization referred to in section 329, 330, or 340, of the Public Health Service Act which has contracted with a State agency as a risk contracting entity under section 1932(g)(3)(A) of the Social Security Act may accumulate reserves with respect to payments made to such organization under section 1932(g)(3)(C) of such Act. (f) Conforming Amendments._ (1) Section 1128(b)(6)(C)(i) (42 U.S.C. 1320a˙097(b)(6)(C)(i)) is amended by striking ``health maintenance organization'' and inserting ``risk contracting entity''. (2) Section 1902(a)(23) (42 U.S.C. 1396a(a)(23)) is amended by striking ``primary care case-management system (described in section 1915(b)(1)), a health maintenance organization,'' and inserting ``primary care case management program (as defined in section 1932(a)(1)), a risk contracting entity (as defined in section 1932(a)(3)),''. (3) Section 1902(a)(30)(C) (42 U.S.C. 1396a(a)(30)(C)) is amended by striking ``use a utilization'' and all that follows through ``with the results'' and inserting ``provide for independent review and quality assurance of entities with contracts under section 1932, in accordance with subsection (f) of such section 1932, with the results''. (4) Section 1902(a)(57) (42 U.S.C. 1396a(a)(57)) is amended by striking ``or health maintenance organization (as defined in section 1903(m)(1)(A))'' and inserting ``risk contracting entity, or primary care case management entity (as defined in section 1932(a))''. (5) Section 1902(a) (42 U.S.C. 1396a), as amended by sections 3001 and 3003, is amended_ (A) by striking ``and'' at the end of paragraph (63); (B) by striking the period at the end of paragraph (64) and inserting ``; and''; and (C) by adding at the end the following new paragraphs: ``(65) at State option, provide for a primary care case management program in accordance with section 1932; and ``(66) at State option, provide for a program under which the State contracts with risk contracting entities in accordance with section 1932.''. (6) Section 1902(p)(2) (42 U.S.C. 1396a(p)(2)) is amended by striking ``health maintenance organization (as defined in section 1903(m))'' and inserting ``risk contracting entity (as defined in section 1932(a)(3))''. (7) Section 1902(w) (42 U.S.C. 1396a(w)) is amended_ (A) in paragraph (1), by striking ``section 1903(m)(1)(A)'' and inserting ``section 1932(a)(3)'', and (B) in paragraph (2)(E)_ (i) by striking ``health maintenance organization'' and inserting ``risk contracting entity'', and (ii) by striking ``organization'' and inserting ``entity''. (8) Section 1903(k) (42 U.S.C. 1396b(k)) is amended by striking ``health maintenance organization which meets the requirements of subsection (m) of this section'' and inserting ``risk contracting entity which meets the requirements of section 1932''. (9) Section 1903(w)(7)(A)(viii) (42 U.S.C. 1396b(w)(7)(A)(viii)) is amended by striking ``health maintenance organizations (and other organizations with contracts under section 1903(m))'' and inserting ``risk contracting entities with contracts under section 1932''. (10) Section 1905(a) (42 U.S.C. 1396d(a)) is amended, in the matter preceding clause (i), by inserting ``(which may be on a prepaid capitation or other risk basis)'' after ``payment''. (11) Section 1916(b)(2)(D) (42 U.S.C. 1396o(b)(2)(D)) is amended by striking ``health maintenance organization (as defined in section 1903(m))'' and inserting ``risk contracting entity (as defined in section 1932(a)(3))''. (12) Section 1925(b)(4)(D)(iv) (42 U.S.C. 1396r˙096(b)(4)(D)(iv)) is amended_ (A) in the heading, by striking ``hmo'' and inserting ``risk contracting entity'', (B) by striking ``health maintenance organization (as defined in section 1903(m)(1)(A))'' and inserting ``risk contracting entity (as defined in section 1932(a)(3)'', and (C) by striking ``health maintenance organization in accordance with section 1903(m)'' and inserting ``risk contracting entity in accordance with section 1932''. (13) Paragraphs (1) and (2) of section 1926(a) (42 U.S.C. 1396r˙097(a)) are each amended by striking ``health maintenance organizations under section 1903(m)'' and inserting ``risk contracting entities under section 1932''. (14) Section 1927(j)(1) is amended by striking ``˙1A* * * Health Maintenance Organizations, including those organizations that contract under section 1903(m)'' and inserting ``risk contracting entities (as defined in section 1932(a)(3))''. (g) Effective Date._The amendments made by this section shall become effective with respect to calendar quarters beginning on or after January 1, 1995. PART 2_FINANCING PROVISIONS SEC. 3101. REPLACEMENT OF DSH PAYMENT PROVISIONS WITH PROVISIONS RELATING TO PAYMENTS TO HOSPITALS SERVING VULNERABLE POPULATIONS. (a) Amendments to Provisions Requiring States to Make DSH Payment Adjustments._ (1) Adjustments to national dsh payment limit._Section 1923(f)(1)(B) (42 U.S.C. 1396r˙094(f)(1)(B)) is amended to read as follows: ``(B) National dsh payment limit._ ``(i) In general._Except as provided in clause (ii), the national DSH payment limit for a fiscal year is equal to 12 percent of the total amount of expenditures under the State plans under this part for medical assistance during the fiscal year. ``(ii) Reduction in limit._For fiscal year_ ``(I) 1997, `10 percent' shall be substituted for `12 percent' in clause (i); ``(II) 1998, `8 percent' shall be substituted for `12 percent' in clause (i); ``(III) 1999, `6 percent' shall be substituted for `12 percent' in clause (i); and ``(IV) 2000, `4 percent' shall be substituted for `12 percent' in clause (i). (2) Adjustments to state allotment limits._Section 1923(f)(2)(B) (42 U.S.C. 1396r˙094(f)(2)(B)) is amended to read as follows: ``(B) Exceptions._ ``(i) In general._Except as provided in clause (ii), a State DSH allotment under subparagraph (A) for a fiscal year shall not exceed 12 percent of the total amount of expenditures under the State plan for medical assistance during the fiscal year. ``(ii) Reduction in limit._For fiscal year_ ``(I) 1997, `10 percent' shall be substituted for `12 percent' in clause (i); ``(II) 1998, `8 percent' shall be substituted for `12 percent' in clause (i); ``(III) 1999, `6 percent' shall be substituted for `12 percent' in clause (i); and ``(IV) 2000, `4 percent' shall be substituted for `12 percent' in clause (i). (3) Elimination of high dsh states and state supplemental amounts._ (A) In general._Section 1923(f)(2)(A) (42 U.S.C. 1396r˙094(f)(2)(A)) is amended to read as follows: ``(A) In general._Subject to subparagraph (B), the State DSH allotment for a fiscal year is equal to the State DSH allotment for the previous fiscal year increased by the State growth factor (as defined in paragraph (3)(B)) for the fiscal year.''. (B) Conforming amendments._(i) Section 1923(f) (42 U.S.C. 1396r˙094(f)) is amended by striking paragraph (3) and redesignating paragraph (4) as paragraph (3). (ii) Section 1923(f)(3) (42 U.S.C. 1396r˙094(f)(3)), as redesignated by clause (i), is amended by striking subparagraphs (A) and (C) and redesignating subparagraphs (B), (D), and (E) as subparagraphs (A), (B), and (C). (iii) Section 1923(f)(3)(B) (42 U.S.C. 1396r˙094(f)(3)(B)), as redesignated by clauses (i) and (ii), is amended to read as follows: ``(B) State growth amount._The term `State growth amount' means, with respect to a State for a fiscal year, the product of the State growth factor and the State DSH payment limit for the previous fiscal year.''. (iv) Section 1923(f)(1)(A) (42 U.S.C. 1396r˙094(f)(1)(A) is amended by striking ``(as defined in paragraph (4)(B))'' and inserting ``(as defined in paragraph (3)(A))''. (3) Termination of requirement on states to make dsh payment adjustments._Section 1923 (42 U.S.C. 1396r˙094), as amended by section 3102, is further amended by adding at the end the following new subsection: ``(i) Termination of Requirement to Make Payment Adjustments._Any requirement imposed by this section on a State to increase the rate or amount of payment for inpatient hospital services provided by a hospital which serves a disproportionate number of low income patients with special needs shall terminate on September 30, 2000.''. (4) No federal financial participation._Section 1903(i) (42 U.S.C. 1396b(i)), as amended by section 3002(b), is amended_ (1) by striking ``or'' at the end of paragraph (15), (2) by striking the period at the end of paragraph (16) and inserting ``; or'', and (3) by inserting after paragraph (16) the following new paragraph: ``(17) after September 30, 2000, with respect to any payment made by a State to a hospital which serves a disproportionate number of low income patients with special needs that is in excess of the payment otherwise required under this part.''. (5) Effective date._The amendments made by this section shall be effective for calendar quarters beginning on or after October 1, 1997. (b) Payments to Hospitals Serving Vulnerable Populations._Title XIX, as amended by section 3003, is amended by adding at the end the following new part: ``PART C_PAYMENTS TO HOSPITALS SERVING VULNERABLE POPULATIONS ``SEC. 1991. PAYMENTS TO HOSPITALS. ``(a) Entitlement Status._The Secretary shall make payments in accordance with this part to eligible hospitals described in section 1992. The preceding sentence constitutes budget authority in advance of appropriations Acts and represents the obligation of the Federal Government to provide funding for such payments in the amounts, and for the fiscal years, specified in subsection (b). ``(b) Amount of Entitlement._For purposes of subsection (a), the amounts and fiscal years specified in this subsection are (in the aggregate for all eligible hospitals) $2,500,000,000 for the first applicable fiscal year (as defined in section 1994) and for each subsequent fiscal year. ``(c) Payments Made on Quarterly Basis._Payments to an eligible hospital under this section for a fiscal year shall be made on a quarterly basis during the year. ``SEC. 1992. IDENTIFICATION OF ELIGIBLE HOSPITALS. ``(a) Hospitals in Participating States._In order to be an eligible hospital under this part for a fiscal year, a hospital must be located in a State that is a participating State under title I of the Health Reform Act. ``(b) State Identification._In accordance with the criteria described in subsection (c) and such procedures as the Secretary may require, each State shall identify the hospitals in the State that meet such criteria for a fiscal year and provide the Secretary with a list of such hospitals. ``(c) Criteria for Eligibility._A hospital meets the criteria described in this subsection if the hospital's low-income utilization rate for the previous year under section 1923(b)(3) (as such section is in effect on the day before the date of the enactment of this part) is not less than 25 percent. ``SEC. 1993. AMOUNT OF PAYMENTS. ``(a) In General._The total amount available for payments under this part in a fiscal year shall be allocated to hospitals for low-income assistance in accordance with this subsection. ``(b) Determination of Hospital Payment Amount._The amount of payment to an eligible hospital during a year shall be the equal to the hospital's low-income percentage (as defined in subsection (c)) of the total amount available for payments under this part for the year. ``(c) Low-Income Percentage Defined._ ``(1) In general._For purposes of this section, an eligible hospital's `low-income percentage' for a year is equal to the amount (expressed as a percentage) of the total low-income days for all eligible hospitals for the year that are attributable to the hospital. ``(2) Low-income days described._For purposes of paragraph (1), an eligible hospital's low-income days for a year shall be equal to the product of_ ``(A) the total number of inpatient days for the hospital for the year (as reported to the Secretary by the State in which the hospital is located, in accordance with a reporting schedule and procedures established by the Secretary); and ``(B) the hospital's low-income utilization rate for the previous year under section 1923(b)(3) (as such section is in effect on the day before the date of the enactment of this part). ``SEC. 1994. DEFINITION. ``For purposes of this part, the term `first applicable fiscal year' means fiscal year 2001.''. (c) Conforming Amendment._Title XIX (42 U.S.C. 1396 et seq.), as amended by section 3003, is amended by striking the title inserting the following: ``TITLE XIX_MEDICAL ASSISTANCE PROGRAMS, STATE PROGRAMS FOR SUPPLEMENTAL BENEFITS, AND PAYMENTS TO HOSPITALS SERVING VULNERABLE POPULATIONS''. SEC. 3102. WAIVER OF HOSPITAL-SPECIFIC DSH CAPS. Section 1923 (42 U.S.C. 1396r˙094) is amended by adding at the end the following new subsection: ``(h) Waiver of Limits on Amounts of Payments to Hospitals._ ``(1) In general._Subject to the provisions of this subsection, the Secretary shall waive the provisions of subsection (g) with respect to hospitals located in a State that has submitted an application in accordance with paragraph (2). ``(2) Application._An application under this subsection shall contain such information, be in such form, and be submitted in such manner, as the Secretary may require. ``(3) Conditions._A waiver shall not be granted under this subsection unless_ ``(A)(i) the State's unemployment rate for calendar year 1993 as determined by the Bureau of Labor Statistics exceeds the national unemployment rate by 2.0 percent; or ``(ii) the State's per capita income for calendar year 1993 is at or below the 20th percentile when compared to all States; ``(B) hospitals for which the waiver is sought are significant disproportionate share hospitals as defined in paragraph (4); and ``(C) the State certifies to the Secretary that payments made in excess of the limits determined under subsection (g) for such hospital are used to furnish acute care services during the period for which the waiver is granted by providers licensed to provide such care. ``(4) Significant disproportionate share hospital._For purposes of this subsection, a significant disproportionate share hospital is a hospital described in section 1886(d)(5)(iv)(I) with a disproportionate patient percentage (as defined in section 1886(d)(5)(F)(vi)) of greater than 20.2 percent. ``(5) Limit._A waiver granted pursuant to this section may not result in aggregate disproportionate share payments to hospitals in a State which exceeds the State disproportionate share allotment determined by the Secretary pursuant to subsection (f)(2). ``(6) Duration._A waiver granted pursuant to this subsection shall not exceed 1 year. ``(7) Termination._The authority provided under this subsection shall terminate 4 years after the date of the enactment of the Health Reform Act.''. III-B˙09 III-B˙09 III-B˙09 Subtitle B_Medicare PART 1_REFORMS SEC. 3201. IMPROVEMENTS TO RISK CONTRACTS. (a) Rating Areas._Section 1876(a)(1)(F)(ii) (42 U.S.C. 1395mm(a)(1)(F)(ii)) is amended by striking ``county (or equivalent area)'' and inserting ``Metropolitan Statistical Area (as defined by the Office of Management and Budget), New England County Metropolitan Area, or other appropriate geographic area outside a Metropolitan Statistical Area or a New England County Metropolitan Area subject to review and approval by the Secretary after a period of notice and comment (hereafter in this section referred to as a `rating area')''. (b) Period of Enrollment._Section 1876(c)(3)(A)(i) (42 U.S.C. 1395mm(c)(3)(A)(i)) is amended_ (1) by inserting ``(which may be specified by the Secretary)'' after ``open enrollment period''; and (2) by adding at the end the following new sentence: ``An eligible organization may offer open enrollment periods in addition to the open enrollment periods described in the previous sentence.''. (c) Comparative Materials._Section 1876(c)(3)(C) (42 U.S.C. 1395mm(c)(3)(C)) is amended by adding at the end the following: ``The Secretary shall develop comparative materials with respect to all eligible organizations in an area (and with respect to the program established under this title for individuals not enrolled with such an organization) for distribution by such organizations or the Secretary to individuals eligible to enroll under this section.''. (d) Fifty-Fifty Rule._Section 1876(f) (42 U.S.C. 1395mm(f)) is amended_ (1) by amending paragraph (2) to read as follows: ``(2) The Secretary may modify or waive the requirement imposed by paragraph (1) if an eligible organization demonstrates that it provides for adequate quality of care for individuals enrolled under this section by_ ``(A) meeting the quality standards for organizations with contracts under this section; ``(B) meeting the fiscal soundness requirements under this section; ``(C) demonstrating successful operational experience as an eligible organization under this section for at least the 3 years immediately preceding an application for a waiver under this paragraph; and ``(D) demonstrating that the number of individuals enrolled in the plan or its parent organization is at least 50,000 at the time of application for a waiver under this paragraph. In making a determination under subparagraph (A) with respect to an eligible organization, the Secretary may accept quality performance standards as measured by private organizations acceptable to the Secretary or organizations designated by the Secretary, including peer review organizations.''; and (2) by adding at the end the following new paragraph: ``(4) The Secretary may terminate the requirement under paragraph (1) when the Secretary determines that health plans have established alternative quality assurance mechanisms that effectively provide sufficient quality safeguards.''. (e) Rebates._Section 1876(g)(2) (42 U.S.C. 1395mm(g)(2)) is amended in the matter following subparagraph (B) by striking ``community rate (as so reduced); except'' and inserting ``community rate (as so reduced) or, at the election of the plan, a cash rebate equal to such difference; except''. (f) Direct Calculation of AAPCC._Section 1876(a)(4) (42 U.S.C. 1395mm(a)(4)) is amended by striking ``actual experience'' and all that follows through ``actuarial equivalence)'' and inserting ``actual experience in a rating area''. (g) Effective Date._The amendments made by this section shall apply on and after January 1, 1996. SEC. 3202. ADDITIONAL IMPROVEMENTS TO RISK CONTRACTS AND INCORPORATION OF INSURANCE REFORMS. (a) In General._Section 1876 (42 U.S.C. 1395mm) is amended to read as follows: ``MEDICARE CHOICE ``Sec. 1876. (a) In General._ ``(1) General permission to contract._ ``(A) Risk contracts._The Secretary may enter into a risk contract with any certified standard health plan (as defined in paragraph (4)(A)) in a community rating area (as defined in paragraph (4)(B)) if_ ``(i) the plan has at least 5,000 enrollees (except that the Secretary may enter into such a contract with a certified standard health plan that has fewer enrollees if the plan primarily serves members residing outside of urbanized areas); and ``(ii) the plan_ ``(I) meets the requirements of this section with respect to individuals enrolled under this section; and ``(II) meets the requirements necessary to maintain its status as a certified standard health plan with respect to individuals enrolled under this section that do not conflict with any of the requirements under this section. ``(B) Reasonable cost reimbursement contracts._The Secretary may enter into a reasonable cost reimbursement contract (as defined in paragraph (4)(C)) with any certified standard health plan in a community rating area if_ ``(i)(I) the plan so elects; ``(II) the Secretary is not satisfied that the plan has the capacity to bear the risk of potential losses under a risk contract under this section, or ``(III) the plan has an insufficient number of individuals enrolled to be eligible to enter into a risk contract; and ``(ii) the Secretary is otherwise satisfied that the plan is able to perform its contractual obligations effectively and efficiently. ``(2) Availability of plans._ ``(A) In general._Subject to the provisions of subsection (e), every individual entitled to benefits under part A and enrolled under part B or enrolled under part B only shall be eligible to enroll under this section with any certified standard health plan with a contract under this section which serves the community rating area in which the individual resides. ``(B) Enrollment by an individual._An individual may enroll under this section with a certified standard health plan with a contract under this section in such manner as may be prescribed in regulations (including enrollment through a third party) and the individual may terminate enrollment_ ``(i) during an annual period as prescribed by the Secretary, ``(ii) as specified by the Secretary if the plan is financially insolvent, if the individual moves from the community rating area served by the plan, if other special circumstances exist, or if the plan offers additional open enrollment periods, as prescribed by the Secretary, and ``(iii) for cause as defined by the Secretary in regulations. ``(C) Marketing materials._ ``(i) Distribution by plans._The Secretary may prescribe the procedures and conditions under which a certified standard health plan with a contract under this section may provide individuals eligible to enroll under this section with information about the plan. No brochures, application forms, or other promotional or informational material may be distributed by a plan to (or for the use of) individuals eligible to enroll with the plan under this section unless_ ``(I) at least 45 days before its distribution, the plan has submitted the material to the Secretary for review, and ``(II) the Secretary has not disapproved the distribution of the material. The Secretary shall review all such material submitted and shall disapprove such material if the Secretary determines, in the Secretary's discretion, that the material is materially inaccurate or misleading or otherwise makes a material misrepresentation. ``(ii) Distribution by the secretary._The Secretary shall develop and distribute comparative materials to individuals eligible to enroll under this section regarding all certified standard health plans with contracts under this section and the program established under this title for individuals not enrolled with such a plan. ``(3) Payments._ ``(A) Payments in lieu of normal payments._Subject to subsection (i)(3), payments under a contract to a certified standard health plan under this section shall be instead of the amounts which (in the absence of the contract) would be otherwise payable, pursuant to sections 1814(b) and 1833(a), for services furnished by or through the plan to individuals enrolled with the plan under this section. ``(B) Source of payment._The payment to a certified standard health plan under this section for individuals enrolled under this section with the plan and entitled to benefits under part A and enrolled under part B shall be made from the Federal Hospital Insurance Trust Fund and the Federal Supplementary Medical Insurance Trust Fund. The portion of that payment to the plan for a month to be paid by each trust fund shall be determined as follows: ``(i) With respect to expenditures by certified standard health plans with risk contracts under this section, the allocation shall be determined each year by the Secretary based on the ratio of expenditures from each trust fund for the preceding year to the expenditures from both trust funds for the preceding year. ``(ii) With respect to expenditures by a certified standard health plan with a reasonable cost reimbursement contract under this section, the initial allocation shall be based on the plan's most recent budget, such allocation to be adjusted, as needed, after cost settlement to reflect the distribution of actual expenditures. ``(4) Definitions._For purposes of this section: ``(A) Certified standard health plan._The term `certified standard health plan' shall have the meaning given such term in section 3(a)(2)(A) of the Health Reform Act. ``(B) Community rating area._The term `community rating area' means the community rating areas designated by a State under section 1303 of the Health Reform Act. ``(C) Reasonable cost reimbursement contract._The term `reasonable cost reimbursement contract' means a contract with a certified standard health plan pursuant to which such plan is reimbursed on the basis of its reasonable cost (as defined in section 1861(v)) in the manner prescribed in subsection (c)(2). ``(b) Payment Rules Under Risk Contracts._ ``(1) In general._ ``(A) Payments._Except as provided in subparagraph (C), with respect to any calendar year, each certified standard health plan with a risk contract under this section shall receive a payment under this title with respect to each individual enrolled with the plan for each month such individual is enrolled equal to the average medicare per capita rate determined under paragraph (2) for the plan's community rating area adjusted by the rate factor determined under subparagraph (B) for the class of such individual. ``(B) Determination of classes of individuals and rate factors for such classes._ ``(i) Determination of classes._For purposes of this section, the Secretary shall define appropriate classes of individuals, based on age, disability status, usage or nonusage of Veterans' Administration or military treatment facilities and associated physicians, providers, and suppliers, and such other factors as the Secretary determines to be appropriate. ``(ii) Rate factors._The Secretary shall annually determine the rate factors for each class of individuals defined in clause (i) reflecting the differences in the average per capita spending for benefits under parts A and B among individuals in such classes. The Secretary shall announce such rate factors (in a manner intended to provide notice to interested parties) not later than July 1 before the calendar year concerned. ``(C) Maximum per capita rate._ ``(i) In general._Except as provided in clause (v), the average medicare per capita rate in any community rating area may not exceed the product of_ ``(I) 95 percent of the projected average monthly fee-for-service costs for a community rating area determined under paragraph (2)(D) in all community rating areas, and ``(II) an adjustment factor for such community rating area. ``(ii) Adjustment factor._For purposes of clause (i)(II), and except as provided in clause (iv): ``(I) FFSPCC ratio less than .8._For community rating areas with a FFSPCC ratio less than or equal to .8, the adjustment factor shall be .8. ``(II) FFSPCC ratio between .8 and .95._For community rating areas with a FFSPCC ratio less than .95 but greater than .8, the adjustment factor shall be the sum of .85, plus_ ``(aa) .1, multiplied by ``(bb) the ratio of the excess of the FFSPCC ratio over .8, to .15. ``(III) FFSPCC ratio between .95 and 1.05._For community rating areas with a FFSPCC ratio of at least .95 but less than 1.05, the adjustment factor shall be the FFSPCC ratio. ``(IV) FFSPCC ratio between 1.05 and 1.2._For community rating areas with a FFSPCC ratio of at least 1.05 but less than 1.2, the adjustment factor shall be the sum of 1.05, plus_ ``(aa) .1, multiplied by ``(bb) the ratio of the excess of the FFSPCC ratio over 1.05, to .15. ``(V) FFSPCC ratio between 1.2 and 1.5._For community rating areas with a FFSPCC ratio of at least 1.2 but less than 1.5, the adjustment factor shall be the sum of 1.2, plus_ ``(aa) .1, multiplied, by ``(bb) the ratio of the excess of the FFSPCC ratio over 1.2, to .3. ``(VI) FFSPCC ratio greater than 1.5._For community rating areas with a FFSPCC ratio greater than or equal to 1.5, the adjustment factor shall be 1.5. ``(iii) FFSPCC ratio._For purposes of clause (ii), for each community rating area, the Secretary shall determine a FFSPCC ratio by dividing the projected average monthly fee-for-service costs for a community rating area determined under paragraph (2)(D) in such community rating area by the projected average monthly fee-for-service costs for a community rating area determined under paragraph (2)(D) for all community rating areas. ``(iv) Budget neutrality._The Secretary shall change the adjustment factors as necessary to ensure that total spending under this title shall not exceed the level of spending that would occur if the average medicare per capita rate in each community rating area were equal to the projected average monthly fee-for-service costs for a community rating area in each such community rating area. ``(v) Alternative formula._The Secretary may substitute an alternative formula for determining the maximum rate in each community rating area. Such an alternative formula shall generally conform to the pattern of adjustment factors specified in clause (ii), except that such formula shall maintain a consistent mathematical relationship between the adjustment factor and the FFSPCC ratio in each such community rating area in a manner that achieves budget neutrality. ``(2) Determination of average medicare per capita rate._ ``(A) Determination by secretary._The Secretary shall annually determine under subparagraph (B), and shall announce (in a manner intended to provide notice to interested parties) not later than October 1 before the calendar year concerned, the average medicare per capita rate of payment for each community rating area. ``(B) Formula for average medicare per capita rate._ ``(i) In general._The monthly average medicare per capita rate of payment for a community rating area served by a certified standard health plan shall be equal to the sum of_ ``(I) the plan component determined under clause (ii); and ``(II) the fee-for-service component determined under clause (iii). ``(ii) Plan component._The amount determined under this clause is the sum of the following amounts determined with respect to each certified standard health plan with a risk contract in the community rating area_ ``(I) the amount of the uniform monthly premium submitted by the plan to the Secretary under subparagraph (C), adjusted by a factor determined by the Secretary to normalize the difference in the distribution of individuals projected to be enrolled in the plan among the various classes of individuals defined by the Secretary to the community rating area distribution of all individuals in the program under this title among such classes; multiplied by ``(II) a fraction (expressed as a percentage), the numerator of which is the number of all medicare eligible individuals enrolled in the plan (as projected by the plan using either historical experience or some other methodology developed by the Secretary), and the denominator of which is the number of all medicare eligible individuals in the community rating area. ``(iii) Fee-for-service component._The amount determined under this clause is_ ``(I) the projected average monthly per capita fee-for-service costs (as defined in subparagraph (D)) for the community rating area for medicare eligible individuals not enrolled in certified standard health plans with contracts under this section, adjusted by the factor described in clause (ii)(I); multiplied by ``(II) a fraction (expressed as a percentage), the numerator of which is equal to the number of all medicare eligible individuals in the community rating area minus the number of such individuals who are enrolled in certified standard health plans with risk contracts under this section (as determined in accordance with subclause (I)), and the denominator of which is the number of all medicare eligible individuals in the community rating area. ``(iv) Alternative formula._The Secretary may substitute an alternative formula for determining the average medicare per capita rate in each community rating area. Such alternative formula shall be based on competitive bids submitted by participating certified standard health plans. ``(C) Uniform monthly premiums; premium for supplementary coverage plans._ ``(i) In general._Each certified standard health plan with a risk contract under this section shall, not later than August 1 of each year, submit to the Secretary a bid for the next calendar year for each community rating area with respect to which the plan has a risk contract. A bid with respect to a community rating area shall include the following: ``(I) Uniform monthly premium._A statement of the uniform monthly premium amount that the plan intends to charge for individuals enrolled under this section with the plan and entitled to benefits under part A and enrolled in part B or enrolled in part B only and a projection of the plan's enrollment by class for such services in the community rating area. ``(II) Premium for additional health care services._A statement of the premium amount that the plan intends to charge for each supplementary coverage plan described in subsection (d)(1)(B) offered by the plan. ``(ii) Actuarial basis._The uniform monthly premium and any premiums for supplemental plans described in subsection (d)(1)(B) must have an actuarial basis in the community rate for such services in the community rating area in accordance with regulations developed by the Secretary. ``(iii) Notice before bid submissions._At least 45 days before the date for submitting bids under clause (ii) for a year, the Secretary shall provide for notice to certified standard health plans with risk contracts of proposed changes to be made in the methodology or benefit coverage assumptions from the methodology and assumptions used in the previous calendar year and shall provide such plans an opportunity to comment on such proposed changes. ``(D) Projected average monthly per capita fee-for-service costs._ ``(i) In general._For purposes of subparagraph (B), the term `projected average monthly per capita fee-for-service costs' means, with respect to a community rating area, the amount, prorated to be expressed as a monthly amount, that the Secretary estimates in advance would be payable in any contract year for services covered under parts A and B or part B only and types of expenses otherwise reimbursable under parts A and B or part B only (including administrative costs incurred by organizations described in sections 1816 and 1842), if the services were to be furnished by other than a certified standard health plan with a contract under this section. ``(ii) Basis for estimates._ ``(I) Direct calculations._Except as provided in subclause (II), the estimate made by the Secretary under clause (i) shall be made on the basis of actual experience of the community rating area and shall include experience with actual expenditures under this title (trended forward) for individuals who are entitled to such services under this title and are not enrolled with a plan in such area (including individuals who receive services from a facility operated by the Veterans' Administration or a military treatment facility). ``(II) Inadequate data._If the Secretary determines that the data in that community rating area is inadequate to make an accurate estimate, the Secretary may use the actual experience of a similar area, with appropriate adjustments to assure actuarial equivalence, including adjustments the Secretary may determine appropriate to adjust for demographics, health status, and the presence of specific medical conditions. ``(3) Payment rules._ ``(A) Amount of premium._Each certified standard health plan with a contract under this section must provide to individuals enrolled with the plan under this section, for the duration of such enrollment during each contract period, a fixed monthly premium equal to the uniform monthly premium amount determined by the plan with respect to the individual under paragraph (2)(C). An individual enrolled in the plan shall be responsible for paying to the plan the difference between the fixed monthly premium amount described in the preceding sentence and the average medicare per capita rate paid to the plan in accordance with subparagraph (B). ``(B) Average medicare per capita rate._ ``(i) In general._The Secretary shall make monthly payments in advance and in accordance with the rate determined under paragraph (2) to each certified standard health plan with a risk contract under this section for each individual enrolled with the plan under this section. ``(ii) Adjustments._ ``(I) In general._The amount of payment under this paragraph may be retroactively adjusted to take into account any difference between the actual number of individuals enrolled in the plan under this section and the number of such individuals estimated to be so enrolled in determining the amount of the advance payment. ``(II) Special rule._The Secretary may make retroactive adjustments under subclause (I) to take into account individuals enrolled during the period beginning on the date on which the individual enrolls with a certified standard health plan with a risk contract under this section under a health benefit plan operated, sponsored, or contributed to, by the individual's employer or former employer (or the employer or former employer of the individual's spouse) and ending on the date on which the individual is enrolled in the plan under this section, except that for purposes of making such retroactive adjustments under this clause, such period may not exceed 90 days. No adjustment may be made under the preceding sentence with respect to any individual who does not certify that the plan provided the individual with the explanation described in subsection (e)(6) at the time the individual enrolled with the plan. ``(iii) Payment to plan only._Subject to subsection (i)(3), if an individual is enrolled under this section with a certified standard health plan with a risk contract under this section, only the plan shall be entitled to receive payments from the Secretary under this title for services furnished to the individual. ``(C) Payment greater than fixed monthly premium._If, with respect to any individual enrolled in a certified standard health plan with a risk contract under this section, the average medicare per capita rate paid under this section to the plan exceeds the fixed monthly premium amount described in subparagraph (A), the plan shall apply such excess to the individual as a contribution to a premium for any policy for any supplemental plan offered by the plan and described in subsection (d)(1)(B) that the individual may elect. ``(c) Payment Rules for Reasonable Cost Reimbursement Contracts._ ``(1) Reimbursement._ ``(A) In general._A certified standard health plan with a reasonable cost reimbursement contract under this section may, at the option of such plan, provide that the Secretary_ ``(i) will reimburse hospitals and skilled nursing facilities either for the reasonable cost (as determined under section 1861(v)) or for payment amounts determined in accordance with section 1886, as applicable, of services furnished to individuals enrolled with such plan, and ``(ii) will deduct the amount of such reimbursement from payment which would otherwise be made to such plan. ``(B) Direct payments._If a certified standard health plan with a reasonable cost reimbursement contract under this section pays a hospital or skilled nursing facility directly, the amount paid shall not exceed the reasonable cost of the services (as determined under section 1861(v)) or the amount determined under section 1886, as applicable, unless such plan demonstrates to the satisfaction of the Secretary that such excess payments are justified on the basis of advantages gained by the plan. ``(2) Payments to plans._Payments made to a certified standard health plan with a reasonable cost reimbursement contract under this section shall be subject to appropriate retroactive corrective adjustment at the end of each contract year so as to assure that such plan is paid for the reasonable cost actually incurred (excluding any part of incurred cost found to be unnecessary in the efficient delivery of health services) or the amounts otherwise determined under section 1886 for the types of expenses otherwise reimbursable under this title for providing services covered under this title to individuals enrolled in the plan. ``(3) Reports by plans._A certified standard health plan with a reasonable cost reimbursement contract under this subsection shall provide that the Secretary shall require, at such time following the expiration of each accounting period of the plan (and in such form and in such detail) as the Secretary may prescribe_ ``(A) that the plan report to the Secretary in an independently certified financial statement its per capita incurred cost based on the types of components of expenses otherwise reimbursable under this title for providing services under parts A and B, including therein, in accordance with accounting procedures prescribed by the Secretary, its methods of allocating costs between individuals enrolled under this section and other individuals enrolled with such plan; ``(B) that failure to report such information as may be required may be deemed to constitute evidence of likely overpayment on the basis of which appropriate collection action may be taken; ``(C) that in any case in which a plan is related to another plan by common ownership or control, a consolidated financial statement shall be filed and that the allowable costs for such organization may not include costs for the types of expense otherwise reimbursable under this title, in excess of those which would be determined to be reasonable in accordance with regulations (providing for limiting reimbursement to costs rather than charges to the plan by related plans and owners) issued by the Secretary; and ``(D) that in any case in which compensation is paid by a plan substantially in excess of what is normally paid for similar services by similar practitioners (regardless of method of compensation), such compensation may as appropriate be considered to constitute a distribution of profits. ``(d) Coverage of Benefits._ ``(1) In general._ ``(A) Standard package of services._A certified standard health plan with a contract under this section must provide to individuals enrolled in the plan under this section, through providers and other persons that meet the applicable requirements of this title and part A of title XI_ ``(i) only those services covered under parts A and B of this title for those members entitled to benefits under part A and enrolled under part B, or ``(ii) only those services covered under part B for those members enrolled only under such part. ``(B) Supplementary coverage plans._ ``(i) Requirement to enroll in minimum supplementary coverage plan._Each individual enrolled in a certified standard health plan must enroll in a supplementary coverage plan that offers at least the benefits described in subclauses (I) and (II) of clause (iii). ``(ii) Requirement to offer supplementary coverage plans._A certified standard health plan with a contract under this section must offer individuals enrolled with the plan under this section at least the 2 supplemental coverage plans described in clauses (iii) and (iv). ``(iii) Minimum supplementary coverage plan._The minimum supplementary coverage plan described under this clause provides_ ``(I) coverage for preventive care services (as defined by the Secretary); and ``(II) the following additions to part A coverage under the standard package of services described in subparagraph (A)(i): ``(aa) Inpatient hospital services shall not be limited to 150 days pursuant to section 1812(a)(1). ``(bb) The requirement that an individual be an inpatient in a hospital for 3 consecutive days prior to the individual's receipt of posthospital extended care services pursuant to section 1861(i) shall not apply. ``(iv) Outpatient prescription drug supplementary coverage plan._The supplementary coverage plan described in this clause provides coverage for outpatient prescription drugs (as defined by the Secretary). ``(v) One sponsor._A sponsor of a certified standard health plan may not offer a supplementary coverage plan to an individual that is enrolled in a certified standard health plan of another sponsor, except that sponsors of supplementary coverage plans may offer such supplementary coverage plans to any individual that is entitled to benefits under part A that does not enroll with a certified standard health plan under this section or pursuant to section 3203 of the Health Reform Act. ``(vi) Supplementary coverage plan._The term `supplementary coverage plan' means any health insurance coverage offered by a certified standard health plan or medicare supplemental policy (as defined in section 1882) that covers health care costs not covered under parts A and B and for which the enrollee in such plan must pay a premium. ``(2) Provision of medically necessary care._Each certified standard health plan with a contract under this section must_ ``(A) make the services described in paragraph (1)(A) (and such other health care services as enrolled individuals have contracted for under a supplemental plan described in paragraph (1)(B))_ ``(i) available and accessible to enrolled individuals within the community rating area with reasonable promptness and in a manner which assures continuity, and ``(ii) when medically necessary, available and accessible twenty-four hours a day and seven days a week, and ``(B) provide for reimbursement with respect to services which are described in subparagraph (A) (and such other health care services as enrolled individuals have contracted for under a supplemental plan described in paragraph (1)(B)) and which are provided to such an individual other than through the plan, if_ ``(i) the services were medically necessary and immediately required because of an unforeseen illness, injury, or condition, and ``(ii) it was not reasonable given the circumstances to obtain the services through the plan. ``(3) Special exception._If there is a national coverage determination made in the period beginning on the date for the submission of bids under subsection (b)(2)(C) and ending on the next such date of submission that the Secretary projects will result in a significant change in the costs to a certified standard health plan with a risk contract under this section of providing the benefits that are the subject of such national coverage determination and that was not incorporated in the determination of the bid for such period, and if such coverage determination provides for coverage of additional benefits or under additional circumstances, subsection (a)(3)(A) shall not apply to payment for such additional benefits or benefits provided under such additional circumstances until the first contract year that begins after the end of such period, unless otherwise required by law. ``(4) Cost sharing._ ``(A) In general._Each certified standard health plan with a contract under this section must provide to individuals enrolled under this section with respect to the services described in paragraph (1)(A), standard cost sharing requirements to be determined by the Secretary consistent with cost sharing requirements imposed under a health maintenance organization delivery system. ``(B) Cost sharing fixed during contract period._Each certified standard plan must provide to individuals enrolled under this section, for the duration of such enrollment during each contract period, cost sharing that is fixed during the duration of the contract period. ``(e) Enrollment Periods._ ``(1) In general._Each certified standard health plan with a contract under this section must have an open enrollment period (which may be specified by the Secretary), for the enrollment of individuals under this section, of at least 30 days duration every year and for the additional periods specified under paragraphs (2) through (4), and must provide that at any time during which enrollments are accepted, the plan will accept up to the limits of its capacity (as determined by the Secretary) and without restrictions, except as may be authorized in regulations, individuals who are eligible to enroll in the plan in the order in which they apply for enrollment, unless to do so would result in failure to meet the requirements of subsection (f) or would result in the enrollment of enrollees substantially nonrepresentative, as determined in accordance with regulations of the Secretary, of the population in the community rating area served by the plan. ``(2) Nonrenewal or termination._ ``(A) In general._If a contract under this section is not renewed or is otherwise terminated, certified standard health plans with contracts under this section and serving the same community rating area as under the terminated contract are required to have an open enrollment period for individuals who were enrolled under the terminated contract as of the date of notice of such termination. ``(B) Open enrollment period._The open enrollment periods required under subparagraph (A) shall be for 30 days and shall begin 30 days after the date that the Secretary provides notice of such requirement. ``(C) Effectiveness of enrollment._Enrollment under this paragraph shall be effective 30 days after the end of the open enrollment period, or, if the Secretary determines that such date is not feasible, such other date as the Secretary specifies. ``(3) Special rule._Each certified standard health plan with a contract under this section shall have an open enrollment period for each individual who enrolls in a plan during any enrollment period specified by section 1837 that applies to that individual. Enrollment under this clause shall be effective as specified by section 1838. ``(4) Residents outside community rating area._Each certified standard health plan with a contract under this section shall have an open enrollment period for each individual eligible to enroll in such a plan who has previously resided outside the community rating area. The enrollment period shall begin with the beginning of the month that precedes the month in which the individual becomes a resident of that community rating area and shall end at the end of the following month. Enrollment under this subparagraph shall be effective as of the first of the month following the month in which the individual enrolls. ``(5) Continued enrollment protected._Each certified standard health plan with a contract under this section must provide assurances to the Secretary that it will not expel or refuse to re-enroll any enrolled individual because of the individual's health status or requirements for health care services, and that it will notify each such individual of such fact at the time of the individual's enrollment. ``(6) Notice of rights, etc._Each certified standard health plan with a contract under this section shall provide each enrollee, at the time of enrollment and not less frequently than annually thereafter, an explanation of the enrollee's rights under this section, including an explanation of_ ``(A) the enrollee's rights to benefits from the plan, ``(B) the restrictions on payments under this title for services furnished other than by or through the plan, ``(C) out-of-area coverage provided by the plan, ``(D) the plan's coverage of emergency services and urgently needed care, and ``(E) appeal rights of enrollees. ``(7) Continuation of coverage._Each certified standard plan that provides items and services pursuant to a contract under this section shall provide assurances to the Secretary that in the event the plan ceases to provide such items and services, the plan shall provide or arrange for supplemental coverage of benefits under this title related to a pre-existing condition with respect to any exclusion period, to all individuals enrolled with the plan who receive benefits under this title, for the lesser of 6 months or the duration of such period. ``(8) Notice of right of termination._ ``(A) In general._Each certified standard health plan with a risk contract under this section shall notify individuals eligible to enroll with the plan under this section and individuals enrolled with the plan under this section that_ ``(i) the plan is authorized by law to terminate or refuse to renew the contract, and ``(ii) termination or nonrenewal of the contract may result in termination of the enrollments of individuals enrolled with the plan under this section. ``(B) Placement of notice._The notice required by subparagraph (A) shall be included in_ ``(i) any marketing materials described in subsection (a)(2)(C) that are distributed by a plan to individuals eligible to enroll under this section with the plan, and ``(ii) any explanation provided to enrollees by the plan pursuant to paragraph (6). ``(f) Membership Enrollment Requirements._ ``(1) In general._Each certified standard health plan with a contract under this section shall have, for the duration of such contract, an enrolled membership at least one-half of which consists of individuals who are not entitled to benefits under this title or under a State plan approved under title XIX. ``(2) Waiver._ ``(A) In general._The Secretary may modify or waive the requirement imposed by paragraph (1) if the plan demonstrates that it provides for an adequate quality of care for beneficiaries by_ ``(i) meeting the quality standards for plans with contracts under this section; ``(ii) meeting the fiscal soundness requirements under title XIII of the Public Health Service Act and any such requirements necessary to remain a certified standard health plan for at least the 3 years immediately preceding an application for a waiver under this paragraph; ``(iii) demonstrating successful operational experience as a certified standard health plan with a contract under this section for at least the 3 years immediately preceding an application for a waiver under this paragraph; and ``(iv) demonstrating that the number of individuals enrolled in the plan or its parent organization is at least 50,000 at the time of application for a waiver under this paragraph. ``(B) Standards._In reviewing a plan's quality performance, the Secretary may accept quality performance standards as measured by private organizations acceptable to the Secretary or organizations designated by the Secretary, including peer review organizations. ``(3) Suspension of enrollment._If the Secretary determines that a certified standard health plan with a contract under this section has failed to comply with the requirements of this subsection, the Secretary may provide for the suspension of enrollment of individuals under this section or of payment to the plan under this section for individuals newly enrolled with the plan, after the date the Secretary notifies the plan of such noncompliance. ``(4) Termination of requirement._The Secretary may terminate the requirement under paragraph (1) when the Secretary determines that health plans have established alternative quality assurance mechanisms that effectively provide sufficient quality safeguards. ``(g) Payment Rules for Plans._ ``(1) Subrogation rights._Notwithstanding any other provision of law, each certified standard health plan with a contract under this section may (in the case of the provision of services to an individual enrolled under this section by a primary plan under section 1862(b)(2)) charge or authorize the provider of such services to charge, in accordance with the charges allowed under such law or policy_ ``(A) the insurance carrier, employer, or other entity which under such law, plan, or policy is to pay for the provision of such services, or ``(B) such individual to the extent that the individual has been paid under such law, plan, or policy for such services. ``(2) Prompt payment requirement._ ``(A) In general._A risk contract under this section shall require the certified standard health plan to provide prompt payment (consistent with the provisions of sections 1816(c)(2) and 1842(c)(2)) of claims submitted for services and supplies furnished to individuals pursuant to such contract, if the services or supplies are not furnished under a contract between the plan and the provider or supplier. ``(B) Failure._In the case of a plan which the Secretary determines, after notice and opportunity for a hearing, has failed to make payments of amounts in compliance with subparagraph (A), the Secretary may provide for direct payment of the amounts owed to providers and suppliers for such covered services furnished to individuals enrolled under this section under the contract. If the Secretary provides for such direct payments, the Secretary shall provide for an appropriate reduction in the amount of payments otherwise made to the plan under this section to reflect the amount of the Secretary's payments (and costs incurred by the Secretary in making such payments). ``(h) Duration, Termination, Effective Date, and Terms of Contract; Powers and Duties of Secretary._ ``(1) Duration and termination._ ``(A) In general._Except as provided in subparagraph (B), each contract under this section shall be for a term of at least one year, as determined by the Secretary, and may be made automatically renewable from term to term in the absence of notice by either party of intention to terminate at the end of the current term. ``(B) Exception._The Secretary may terminate a contract at any time (after such reasonable notice and opportunity for hearing to the certified standard health plan involved as the Secretary may provide in regulations), if the Secretary finds that the plan_ ``(i) has failed substantially to carry out the contract, ``(ii) is carrying out the contract in a manner inconsistent with the efficient and effective administration of this section, or ``(iii) no longer substantially complies with the requirements of this section. ``(2) Effective date._The effective date of any contract executed pursuant to this section shall be specified in the contract. ``(3) Terms._Each contract under this section_ ``(A) shall provide that the Secretary, or any person or organization designated by the Secretary_ ``(i) shall have the right to inspect or otherwise evaluate_ ``(I) the quality, appropriateness, and timeliness of services performed under the contract, and ``(II) the facilities of the organization when there is reasonable evidence of some need for such inspection, and ``(ii) shall have the right to audit and inspect any books and records of the certified standard health plan that pertain_ ``(I) to the ability of the plan to bear the risk of potential financial losses, or ``(II) to services performed or determinations of amounts payable under the contract; ``(B) shall require the plan with a contract to provide (and pay for) written notice in advance of the contract's termination, as well as a description of alternatives for obtaining benefits under this title, to each individual enrolled under this section with the plan; ``(C)(i) shall require the plan to comply with subsections (a) and (c) of section 1318 of the Public Health Service Act (relating to disclosure of certain financial information) and with the requirement of section 1301(c)(8) of such Act (relating to liability arrangements to protect members); ``(ii) shall require the plan to provide and supply information determined appropriate by the Secretary in the manner determined appropriate by the Secretary; ``(iii) shall require the plan to notify the Secretary of loans and other special financial arrangements which are made between the plan and subcontractors, affiliates, and related parties; and ``(D) shall contain such other terms and conditions not inconsistent with this section (including requiring the organization to provide the Secretary with such information) as the Secretary may find necessary and appropriate. ``(4) Period of disqualification._The Secretary may not enter into a risk contract with a certified standard health plan if a previous risk contract with that plan under this section was terminated at the request of the plan within the preceding five-year period, except in circumstances which warrant special consideration, as determined by the Secretary. ``(5) Disregard of certain inconsistent laws, etc._The authority vested in the Secretary by this section may be performed without regard to such provisions of law or regulations relating to the making, performance, amendment, or modification of contracts of the United States as the Secretary may determine to be inconsistent with the furtherance of the purpose of this title. ``(6) Findings of failure._ ``(A) In general._If the Secretary determines that a certified standard health plan with a contract under this section_ ``(i) fails substantially to provide medically necessary items and services that are required (under law or under the contract) to be provided to an individual covered under the contract, if the failure has adversely affected (or has substantial likelihood of adversely affecting) the individual; ``(ii) imposes premiums on individuals enrolled under this section in excess of the premiums permitted; ``(iii) acts to expel or to refuse to re-enroll an individual in violation of the provisions of this section; ``(iv) engages in any practice that would reasonably be expected to have the effect of denying or discouraging enrollment (except as permitted by this section) by eligible individuals with the plan whose medical condition or history indicates a need for substantial future medical services; ``(v) misrepresents or falsifies information that is furnished_ ``(I) to the Secretary under this section, or ``(II) to an individual or to any other entity under this section; ``(vi) fails to comply with the requirements of subsection (g)(2)(A) or paragraph (8); ``(vii) employs or contracts with any individual or entity that is excluded from participation under this title under section 1128 or 1128A for the provision of health care, utilization review, medical social work, or administrative services or employs or contracts with any entity for the provision (directly or indirectly) through such an excluded individual or entity of such services; or ``(viii) substantially fails to cooperate with the utilization and quality control peer review organization; the Secretary may provide, in addition to any other remedies authorized by law, for any of the remedies described in subparagraph (B). ``(B) Remedies._The remedies described in this subparagraph are_ ``(i) civil money penalties of not more than $25,000 for each determination under subparagraph (A) or, with respect to a determination under clause (iv) or (v)(I) of such subparagraph, of not more than $ 100,000 for each such determination, plus, with respect to a determination under subparagraph (A)(ii), double the excess amount charged in violation of such subparagraph (and the excess amount charged shall be deducted from the penalty and returned to the individual concerned), and plus, with respect to a determination under subparagraph (A)(iv), $15,000 for each individual not enrolled as a result of the practice involved, ``(ii) suspension of enrollment of individuals under this section after the date the Secretary notifies the plan of a determination under subparagraph (A) and until the Secretary is satisfied that the basis for such determination has been corrected and is not likely to recur, or ``(iii) suspension of payment to the plan under this section for individuals enrolled after the date the Secretary notifies the plan of a determination under subparagraph (A) and until the Secretary is satisfied that the basis for such determination has been corrected and is not likely to recur. The provisions of section 1128A (other than subsections (a) and (b)) shall apply to a civil money penalty under clause (i) in the same manner as they apply to a civil money penalty or proceeding under section 1128A(a). ``(7) Agreement with utilization and quality control peer review organization._ ``(A) In general._Each risk contract with a certified standard health plan under this section shall provide that the plan will maintain an agreement with a utilization and quality control peer review organization (which has a contract with the Secretary under part B of title XI for the area in which the eligible organization is located) or with an entity selected by the Secretary under section 1154(a)(4)(C) under which the review organization will perform functions under section 1154(a)(4)(B) and section 1154(a)(14) (other than those performed under contracts described in section 1866(a)(1)(F)) with respect to services, furnished by the plan, for which payment may be made under this title. ``(B) Cost of services._For purposes of payment under this title, the cost of such agreement to the plan shall be considered a cost incurred by a provider of services in providing covered services under this title and shall be paid directly by the Secretary to the review organization on behalf of such plan in accordance with a schedule established by the Secretary. ``(C) Source of payments._Such payments_ ``(i) shall be transferred in appropriate proportions from the Federal Hospital Insurance Trust Fund and from the Supplementary Medical Insurance Trust Fund, without regard to amounts appropriated in advance in appropriation Acts, in the same manner as transfers are made for payment for services provided directly to beneficiaries, and ``(ii) shall not be less in the aggregate for such plans for a fiscal year than the amounts the Secretary determines to be sufficient to cover the costs of such plans' conducting activities described in subparagraph (A) with respect to such plans under part B of title XI. ``(i) Other General Requirements on Plans._ ``(1) Grievance procedures._Each certified standard health plan with a contract under this section must provide meaningful procedures for hearing and resolving grievances between the plan (including any entity or individual through which the plan provides health care services) and individuals enrolled with the plan under this section. ``(2) Appeals._An individual enrolled with a certified standard health plan under this section who is dissatisfied by reason of the individual's failure to receive any health service to which the individual believes the individual is entitled and at no greater charge than the individual believes the individual is required to pay is entitled, if the amount in controversy is $100 or more, to a hearing before the Secretary to the same extent as is provided in section 205(b), and in any such hearing the Secretary shall make the plan a party. If the amount in controversy is $1,000 or more, the individual or plan shall, upon notifying the other party, be entitled to judicial review of the Secretary's final decision as provided in section 205(g), and both the individual and the plan shall be entitled to be parties to that judicial review. ``(3) Advance directives._A contract under this section shall provide that the certified standard health plan shall meet the requirement of section 1866(f) (relating to maintaining written policies and procedures respecting advance directives). ``(4) Special requirement relating to subsection (d) hospitals._A risk contract under this section shall provide that in the case of an individual who is receiving inpatient hospital services from a subsection (d) hospital (as defined in section 1886(d)(1)(B)) as of the effective date of the individual's_ ``(A) enrollment with such plan under this section_ ``(i) payment for such services until the date of the individual's discharge shall be made under this title as if the individual were not enrolled with the plan, ``(ii) the plan shall not be financially responsible for payment for such services until the date after the date of the individual's discharge, and ``(iii) the plan shall nonetheless be paid the full amount otherwise payable to the plan under this section; or ``(B) termination of enrollment with a plan under this section_ ``(i) the plan shall be financially responsible for payment for such services after such date and until the date of the individual's discharge, ``(ii) payment for such services during the stay shall not be made under section 1886(d), and ``(iii) the plan shall not receive any payment with respect to the individual under this section during the period the individual is not enrolled. ``(j) Limit on Charges for Certain Services._ ``(1) In general._(A) In the case of physicians' services or renal dialysis services described in paragraph (2) which are furnished by a participating physician to an individual enrolled with a certified standard health plan under this section and enrolled under part B, the applicable participation agreement is deemed to provide that the physician or provider of services or renal dialysis facility will accept as payment in full from the eligible plan the amount that would be payable to the physician or provider of services or renal dialysis facility under part B and from the individual under such part, if the individual were not enrolled with a plan under this section. ``(B) In the case of physicians' services described in paragraph (2) which are furnished by a nonparticipating physician, the limitations on actual charges for such services otherwise applicable under part B (to services furnished by individuals not enrolled with an eligible organization under this section) shall apply in the same manner as such limitations apply to services furnished to individuals not enrolled with such an organization. ``(2) Services described._The `physicians' services described in this paragraph are physicians' services which are furnished to an enrollee of a certified standard health plan under this section by a physician, provider of services, or renal dialysis facility who is not under a contract with the plan. ``(k) Study on Certified Standard Health Plans._ ``(1) In general._The Prospective Payment Assessment Commission (established under section 1886(e)(2)) and the Physician Payment Review Commission (established under section 1845) shall study and make annual recommendations to Congress on the matters described in paragraph (2). ``(2) Matters described._The matters described in this paragraph include_ ``(A) ways in which enrollment in certified standard health plans with risk contracts under this section could be increased; ``(B) alternatives to the current payment methodology that might encourage more health plans to enter into certified standard health plans with risk contracts under this section and encourage more individuals to enroll in such plans; ``(C) whether the demographic characteristics and health status of beneficiaries enrolled in certified standard health plans with risk contracts under this section differs from other individuals entitled to benefits under part A and enrolled under part B; and ``(D) whether the volume and quality of care rendered to individuals enrolled in certified standard health plans with risk contracts under this section differs from that rendered to other individuals entitled to benefits under part A and enrolled under part B.''. (b) Technical and Conforming Amendments._The Secretary shall, within 90 days of the date of the enactment of this section, submit to the appropriate committees of Congress, a legislative proposal providing for such technical and conforming amendments in the law as are required by the provisions of this section. (c) Effective Date._The amendments made by this section shall be effective with respect to contracts in effect on or after January 1, 1997. SEC. 3203. ENROLLMENT OF MEDICARE BENEFICIARIES IN CERTIFIED STANDARD HEALTH PLANS. (a) Enrollment of Medicare Beneficiaries in Certified Standard Health Plans._ (1) In general._Notwithstanding title XVIII of the Social Security Act, the Secretary shall provide for a monthly payment as provided under subsection (b)(1) to a certified standard health plan on behalf of an enrolled medicare beneficiary. (2) Enrollment and termination._A medicare beneficiary may enroll in a certified standard health plan that receives payment under this section in accordance with the enrollment provisions described under section 1012, notwithstanding the provisions of subsections (a)(2)(B) and subsection (e)(3) of section 1876 of the Social Security Act (42 U.S.C. 1395ww). (3) Medicare beneficiary._For purposes of this section, the term ``medicare beneficiary'' means an individual who is eligible for benefits under part A of title XVIII of the Social Security Act and is enrolled under part B of such title. (b) Payment Specified._ (1) Federal payment._ (A) In general._The amount of payment specified in this paragraph for an individual who is enrolled in a certified standard health plan is the lesser of_ (i) the applicable rate specified in section 1876(b)(1)(A) of the Social Security Act (42 U.S.C. 1395mm(b)(1)(A)) for a certified standard health plan with a contract under section 1876; or (ii) the monthly premium charged the individual for coverage under the certified standard health plan. (B) Source of payment._The payment to a certified standard health plan under this paragraph for individuals entitled to benefits under part A and enrolled under part B of title XVIII of the Social Security Act shall be made from the Federal Hospital Insurance Trust Fund and the Federal Supplementary Medical Insurance Trust Fund, with the allocation to be determined by the Secretary. (2) Individual's share._ (A) In general._If the monthly premium for the certified standard health plan in which the individual is enrolled is greater than the amount specified under paragraph (1)(A)(i), the individual shall be responsible for paying to the certified standard health plan the difference between the monthly premium charged the individual for coverage under the certified standard health plan and the amount specified in paragraph (1)(A)(i). (B) Maximum premium._The premium imposed with respect to such an individual by the certified standard health plan shall be in an amount (determined in accordance with rules of the Secretary and notwithstanding other provisions of such Act) which reflects the difference between the premium otherwise established (adjusted by a factor to reflect the actuarial difference between medicare beneficiaries and other plan enrollees) and the amount payable under paragraph (1)(A)(i). (c) Payments Under This Section as Sole Medicare Benefits._Payments made under this section shall be instead of the amounts that would otherwise be payable, pursuant to sections 1814(b) and 1833(a) of the Social Security Act, for services furnished to medicare beneficiaries. (d) Certified Standard Health Plan._For purposes of this section, the term ``certified standard health plan'' shall have the meaning given to such term in section 3(a)(2)(A). (e) Effective Date._This section shall apply on and after January 1, 1997. PART 2_FINANCING PROVISIONS Subpart A_Provisions Relating to Part A SEC. 3211. INPATIENT HOSPITAL SERVICES UPDATE FOR PPS HOSPITALS. Section 1886(b)(3)(B)(i) (42 U.S.C. 1395ww(b)(3)(B)(i)) is amended_ (1) by amending subclause (XII) to read as follows: ``(XII) for fiscal years 1997 through 2000, the market basket percentage minus 2.0 percentage points for hospitals in all areas, and''; and (2) in subclause (XIII), by striking ``1998'' and inserting ``2001''. SEC. 3212. REDUCTION IN PAYMENTS FOR CAPITAL-RELATED COSTS FOR INPATIENT HOSPITAL SERVICES. (a) Reduction in Base Payment Rates for PPS Hospitals._Section 1886(g)(1)(A) (42 U.S.C. 1395ww(g)(1)(A)) is amended by adding at the end the following new sentence: ``In addition to the reduction described in the preceding sentence, for discharges occurring after September 30, 1995, the Secretary shall reduce by 7.31 percent the unadjusted standard Federal capital payment rate (as described in 42 CFR 412.308(c), as in effect on the date of the enactment of the Health Reform Act) and shall reduce by 10.41 percent the unadjusted hospital-specific rate (as described in 42 CFR 412.328(e)(1), as in effect on the date of the enactment of the Health Reform Act).''. (b) Reduction in Payments for PPS-Exempt Hospitals._Section 1861(v)(1) (42 U.S.C. 1395x(v)(1)) is amended by adding at the end the following new subparagraph: ``(T) Such regulations shall provide that, in determining the amount of the payments that may be made under this title with respect to the capital-related costs of inpatient hospital services furnished by a hospital that is not a subsection (d) hospital (as defined in section 1886(d)(1)(B)) or a subsection (d) Puerto Rico hospital (as defined in section 1886(d)(9)(A)), the Secretary shall reduce the amounts of such payments otherwise established under this title by 15 percent for payments attributable to portions of cost reporting periods occurring during each of the fiscal years 1996 through 2003.''. SEC. 3213. REDUCTIONS IN DISPROPORTIONATE SHARE PAYMENTS. Section 1886(d)(5)(F) (42 U.S.C. 1395ww(d)(5)(F)) is amended_ (1) in clause (ii), by striking ``The amount'' and inserting ``Subject to clause (ix), the amount''; (2) by adding at the end the following new clause: ``(ix) Notwithstanding any other provision of this subparagraph, the Secretary shall reduce the amount of any additional payment made under this subparagraph to a hospital located in a participating State by 33 percent of such additional payment with respect to discharges occurring on or after the date on which the State in which a hospital is located becomes a participating State (as such term is defined in the Health Reform Act).''. SEC. 3214. PROSPECTIVE PAYMENT METHODOLOGY AND REDUCTIONS IN INFLATION UPDATES FOR SKILLED NURSING FACILITIES. Section 1888 (42 U.S.C. 1395yy) is amended_ (1) in subsection (a), in the matter preceding paragraph (1), by striking ``The Secretary'' and inserting ``Except as provided in subsection (e), the Secretary''; and (2) by adding at the end the following new subsection: ``(e)(1) Not later than October 1, 1995, and notwithstanding any other provision of this title, the Secretary shall develop and implement a prospective payment system to provide payment to skilled nursing facilities for extended care services. Such prospective payment system shall establish rates that_ ``(A) are facility-specific, cost-based, and recalculated annually; ``(B) take into account and adjust for cost variations, including resident acuity and severity and geographic markets; ``(C) eliminate any payment differential for services provided in freestanding and hospital-based skilled nursing facilities; ``(D) encourage treatment of residents in heavy care categories and furnish incentives for efficiency and economy; and ``(E) take into account the cost of capital incurred by skilled nursing facilities through the use of a fair asset value approach. Under this system and subject to paragraph (2), per diem limits on routine service costs shall be established annually at 112 percent of the mean projected per diem routine service costs for freestanding and hospital-based skilled nursing facilities located within relevant geographic groupings. ``(2) In setting the prospective payment rates for all skilled nursing facilities for extended care services furnished for the first cost reporting periods of such facilities beginning on and after October 1, 1995, and for the 10-year period thereafter, the Secretary shall adjust the relevant market basket for skilled nursing facilities and other inflation factors used to establish the routine service cost component of the prospective payment rates determined for such facilities. The adjustments required by this paragraph shall be designed to provide payments under this section that are_ ``(A) in fiscal year 1996, $100,000,000 less than the amounts that would have been paid in such fiscal year under this section as in effect on the day before the date of the enactment of the Health Reform Act; and ``(B) in fiscal years 1997 through 2004, an aggregate amount of $1,750,000,000 less than the amount that would have been paid in such fiscal years under this section as in effect on the day before the date of the enactment of the Health Reform Act.''. SEC. 3215. REVISED PAYMENT METHODOLOGY FOR REHABILITATION AND LONG-TERM CARE HOSPITALS. (a) Rehabilitation Hospitals and Distinct Part Units._ (1) Definition._Section 1886(d)(1)(B) (42 U.S.C. 1395ww(d)(1)(B)) is amended by adding at the end the following new sentence: ``In defining a rehabilitation hospital and a rehabilitation unit of a hospital which is a distinct part of a hospital, the Secretary shall take into account the impact of new technologies, survival rates, and changes in the practice of rehabilitation medicine.''. (2) Target amount calculation for rehabilitation hospitals and distinct part units._ (A) In general._Section 1886(b)(3) (42 U.S.C. 1395ww(b)(3)) is amended_ (i) in subparagraph (A), by striking ``(D), and (E)'' and inserting ``(D), (E), and (F)''; (ii) in subparagraph (B)(ii), by striking ``and (E)'' and inserting ``(E), and (F)''; and (iii) by adding at the end the following new subparagraph: ``(F)(i) Subject to clause (ii), for cost reporting periods beginning on or after October 1, 1994, in the case of a hospital described in subsection (d)(1)(B)(ii) or a rehabilitation unit described in such subparagraph, 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 or unit_ ``(aa) the allowable operating costs of inpatient hospital services (as defined in subsection (a)(4)) recognized under this title for the hospital or unit 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 subparagraph was in effect with respect to such hospital, increased (in a compounded manner), by ``(bb) the applicable percentage increases applied to such hospital or unit 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). There shall be substituted for the allowable average costs of inpatient hospital services determined under subclause (I)(aa), the average of the allowable average costs of inpatient hospital services (as so defined) recognized under this title for the hospital or unit for cost reporting periods beginning during fiscal years 1990 and 1991 (if any). ``(ii)(I) Notwithstanding the provisions of clause (i), in the case of a hospital or unit to which the last sentence of clause (i) applies, the hospital or unit's target amount under such clause for a cost reporting period shall be_ ``(aa) not less than 70 percent of the national weighted average of all target amounts calculated under such clause for all hospitals and units described in such clause (as determined by the Secretary), and ``(bb) not less than the allowable operating costs of inpatient hospital services (as defined in subsection (a)(4) for such hospital or unit in the base cost reporting period (including any payments made to such hospital or unit pursuant to paragraph (1)(A)), multiplied by the applicable percentage increase for such cost reporting period under subparagraph (B). ``(II) Notwithstanding the provisions of clause (i), in the case of a hospital or unit that is not described in subclause (I), the hospital or unit's target amount under such clause for a cost reporting period shall be_ ``(aa) not less than the amount described in subclause (I)(aa), and ``(bb) not greater than 110 percent of the national weighted average of all target amounts calculated under clause (i) for all hospitals and units described in such clause (as determined by the Secretary).''. (B) Effective date._The amendments made by subparagraph (A) shall apply with respect to cost reporting periods beginning on or after October 1, 1994. (3) Development of national prospective rates for rehabilitation hospitals and distinct part units._ (A) Development of proposal._The Secretary shall develop a proposal to replace the current system under which rehabilitation hospitals and rehabilitation units of a hospital which are a distinct part of a hospital (as described in section 1886(d)(1)(B) of the Social Security Act (42 U.S.C. 1395ww(d)(1)(B))) receive payment for the operating and capital-related costs of inpatient hospital services under part A of title XVIII of such Act with a prospective payment system. In developing any proposal under this paragraph to replace the current system with a prospective payment system, the Secretary shall develop a system that provides for_ (i) a payment on a per-discharge basis, and (ii) an appropriate weighting of such payment amount as it relates to the classification of the discharge. (B) Reports._Not later than October 1, 1996, the Secretary shall submit the proposal developed under subparagraph (A) to the Congress. (b) Assignment of New Base Year for Certified Long-Stay Hospitals That Also Serve a Significant Proportion of Low-Income Patients._ (1) Rebasing for long-term hospitals._ (A) In general._Section 1886(b)(3) (42 U.S.C. 1395ww(b)(3)), as amended by subsection (a), is further amended_ (i) in subparagraph (A), by striking ``(E), and (F)'' and inserting ``(E), (F), and (G)''; (ii) in subparagraph (B)(ii), by striking ``(E), and (F)'' and inserting ``(E), (F), and (G)''; and (iii) by inserting after subparagraph (F) the following new subparagraph: ``(G)(i) For cost reporting periods beginning on or after October 1, 1994, in the case of a hospital described in subsection (d)(1)(B)(iv) that_ ``(I) has not received the additional payment amount described in paragraph (1)(A) for at least the preceding 2 consecutive 12-month cost reporting periods; and ``(II) for which the sum of the amounts described in subclauses (I) and (II) of subsection (d)(5)(F)(vi) during the period described in clause (I) exceeds 25 percent, the term `target amount' has the meaning given such term by clause (ii). ``(ii) In the case of a hospital described in clause (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_ ``(aa) the average allowable operating costs of inpatient hospital services (as defined in subsection (a)(4)) recognized under this title for the hospital during cost reporting periods of the hospital beginning during fiscal years 1990 and 1991 for such hospital (in this subparagraph referred to as the `base cost reporting period'), increased (in a compounded manner), by ``(bb) the applicable percentage increases applied to such hospital or under this paragraph for cost reporting periods after the base cost reporting period and up to and including such first 12-month cost reporting periods, or ``(II) with respect to a subsequent 12-month cost reporting period, the target amount for the preceding 12-month cost reporting period, increased by the applicable percentage increase under subparagraph (B). ``(iii) Notwithstanding clause (ii)(II), if, after 2 consecutive 12-month cost reporting periods, a hospital continues to be described in subclauses (I) and (II) of clause (i), there shall be substituted for the base cost reporting period described in clause (ii)(I)(aa) the most recent preceding 2 12-month cost reporting periods of the hospital for which data is available (as determined by the Secretary), but only if such substituting results in an increase in the target amount for the hospital. The substitution under the preceding sentence may not occur more often than every 2 years. ``(iv) Effective October 1, 1994, the Secretary shall take into account the enactment of this subparagraph in making available to the hospital the payments described in section 1815(e)(2), and shall increase such payments as if the target amount of the hospital had been established pursuant to this subparagraph as of such date.''. (2) Effective date._The amendments made by this subsection shall be effective with respect to cost reporting periods beginning on or after October 1, 1994. Subpart B_Provisions Relating to Part B SEC. 3221. SUBSTITUTION OF REAL GDP TO ADJUST FOR VOLUME AND INTENSITY; REPEAL OF RESTRICTION ON MAXIMUM REDUCTION PERMITTED IN DEFAULT UPDATE. (a) Use of Real GDP To Adjust for Volume and Intensity._Section 1848(f)(2)(A)(iii) (42 U.S.C. 1395w˙094(f)(2)(A)(iii)) is amended to read as follows: ``(iii) 1 plus the average per capita growth in the real gross domestic product (divided by 100) for the 5-fiscal-year period ending with the previous fiscal year (increased by 1.5 percentage points for the category of services consisting of primary care services), and''. (b) Repeal of Restriction on Maximum Reduction._Section 1848(d)(3)(B)(ii) (42 U.S.C. 1395w˙094(d)(3)(B)(ii)) is amended_ (1) in the heading, by inserting ``in certain years'' after ``adjustment''; (2) in the matter preceding subclause (I), by striking ``for a year''; (3) in subclause (I), by adding ``and'' at the end; (4) in subclause (II), by striking ``, and'' and inserting a period; and (5) by striking subclause (III). (c) Repeal of Performance Standard Factor._ (1) In general._Section 1848(f)(2) is amended by striking subparagraph (B) and redesignating subparagraph (C) as subparagraph (B). (2) Conforming amendment._Section 1848(f)(2)(A) is amended in the matter following clause (iv) by striking ``1, multiplied by 100'' and all that follows through ``subparagraph (B))'' and inserting ``1 and multiplied by 100''. (d) Effective Date._ (1) Volume performance standards._The amendments made by subsections (a) and (c) shall apply with respect to volume performance standards established beginning with fiscal year 1995. (2) Repeal of restriction on maximum reduction._The amendments made by subsection (b) shall apply to services furnished on or after January 1, 1997. SEC. 3222. CORRECTION OF MVPS UPWARD BIAS. (a) In General._Section 1848(f)(2)(A)(iv) (42 U.S.C. 1395w˙094(f)(2)(A)(iv)) is amended by striking ``including changes in law and regulations affecting the percentage increase described in clause (i)'' and inserting ``excluding anticipated responses to such changes''. (b) Effective Date._The amendment made by subsection (a) shall apply with respect to performance standard rates of increase determined for fiscal year 1995 and succeeding fiscal years. SEC. 3223. REDUCTION IN CONVERSION FACTOR FOR PHYSICIAN FEE SCHEDULE FOR 1995. Section 1848(d)(1) (42 U.S.C. 1395w˙094(d)(1)) is amended_ (1) in subparagraph (A), by inserting after ``subparagraph (B)'' the following: ``, and, in the case of 1995, specified in subparagraph (C)''; (2) by redesignating subparagraph (C) as subparagraph (D); and (3) by inserting after subparagraph (B) the following new subparagraph: ``(C) Special provision for 1995._For purposes of subparagraph (A), the conversion factor specified in this subparagraph for 1995 is_ ``(i) in the case of physicians' services included in the category of primary care services (as defined in subsection (j)(1)), the conversion factor established under this subsection for 1994 adjusted by the update established under paragraph (3) for 1995; and ``(ii) in the case of any other physicians' services, the conversion factor established under this subsection for 1994 reduced by 3 percent and adjusted by the update established under paragraph (3) for 1995.''. SEC. 3224. ELIMINATION OF FORMULA-DRIVEN OVERPAYMENTS FOR CERTAIN OUTPATIENT HOSPITAL SERVICES. (a) Ambulatory Surgical Center Procedures._Section 1833(i)(3)(B)(i)(II) (42 U.S.C. 1395l(i)(3)(B)(i)(II)) is amended_ (1) by striking ``of 80 percent''; and (2) by striking the period at the end and inserting the following: ``, less the amount a provider may charge as described in clause (ii) of section 1866(a)(2)(A).''. (b) Radiology Services and Diagnostic Procedures._Section 1833(n)(1)(B)(i)(II) (42 U.S.C. 1395l(n)(1)(B)(i)(II)) is amended_ (1) by striking ``of 80 percent''; and (2) by striking the period at the end and inserting the following: ``, less the amount a provider may charge as described in clause (ii) of section 1866(a)(2)(A).''. (c) Effective Date._The amendments made by this section shall apply to services furnished during portions of cost reporting periods occurring on or after January 1, 1995. SEC. 3225. GENERAL PART B PREMIUM. Section 1839(e) (42 U.S.C. 1395r(e)) is amended_ (1) in paragraph (1)(A), by striking ``and prior to January 1999''; and (2) in paragraph (2), by striking ``prior to January 1998''. Subpart C_Provisions Relating to Parts A and B SEC. 3231. REDUCTION IN ROUTINE COST LIMITS FOR HOME HEALTH SERVICES. (a) Reduction in Update To Maintain Freeze in 1996._Section 1861(v)(1)(L)(i) (42 U.S.C. 1395x(v)(1)(L)(i)) is amended_ (1) in subclause (II), by striking ``or'' at the end; (2) in subclause (III), by striking ``112 percent,'' and inserting ``and before July 1, 1996, 112 percent, or''; and (3) by inserting after subclause (III) the following new subclause: ``(IV) July 1, 1996, 100 percent (adjusted by such amount as the Secretary determines to be necessary to preserve the savings resulting from the enactment of section 13564(a)(1) of the Omnibus Budget Reconciliation Act of 1993),''. (b) Basing Limits in Subsequent Years on Median of Costs._ (1) In general._Section 1861(v)(1)(L)(i) (U.S.C. 1395x(v)(1)(L)(i)), as amended by subsection (a), is amended in the matter following subclause (IV) by striking ``the mean'' and inserting ``the median''. (2) Effective date._The amendment made by paragraph (1) shall apply to cost reporting periods beginning on or after July 1, 1997. SEC. 3232. MEDICARE AS SECONDARY PAYER. (a) Permanent Extension of Data Match Program._ (1) In general._Section 1862(b)(5)(C) (42 U.S.C. 1395y(b)(5)(C)) is amended by striking clause (iii). (2) Permanent extension of certain taxpayer identity information disclosure requirements._Section 6103(l)(12) of the Internal Revenue Code of 1986 is amended by striking subparagraph (F). (b) Permanent Extension of Medicare Secondary Payer to Disabled Beneficiaries._Section 1862(b)(1)(B)(iii) (42 U.S.C. 1395y(b)(1)(B)(iii)), is amended_ (1) in the heading, by striking ``Sunset'' and inserting ``Effective Date''; and (2) by striking ``, and October 1, 1998''. SEC. 3233. INCREASE IN MEDICARE SECONDARY PAYER COVERAGE FOR END STAGE RENAL DISEASE SERVICES TO 24 MONTHS. (a) In General._Section 1862(b)(1)(C) (42 U.S.C. 1395y(b)(1)(C)), as amended by section 8309, is amended_ (1) by striking the second sentence and inserting the following: ``Effective for items and services furnished on or after January 1, 1996 (with respect to periods beginning on or after July 1, 1994), this subparagraph shall be applied by substituting `24-month' for `12-month' each place it appears.''; and (2) in the last sentence, by striking ``18-month'' and inserting ``24-month''. (b) Effective Date._The amendment made by subsection (a) shall apply to items and services provided on or after January 1, 1996. IIIC˙09 IIIC˙09 IIIC˙09 Subtitle C_Home and Community-Based Services SEC. 3301. STATE PROGRAMS FOR HOME AND COMMUNITY-BASED SERVICES FOR ELIGIBLE INDIVIDUALS WITH DISABILITIES. (a) In General._Each State that has a plan for home and community-based services for eligible individuals with disabilities (as defined in section 3303(a)) submitted to and approved by the Secretary under section 3302(b) is entitled to payment in accordance with section 3308. (b) Entitlement to Services._Nothing in this subtitle shall be construed to create a right to services for individuals or a requirement that a State with an approved plan expend the entire amount of funds to which it is entitled under this subtitle. (c) Designation of Agency._Not later than 6 months after the date of enactment of this subtitle, the Secretary shall designate an agency responsible for program administration under this subtitle. SEC. 3302. STATE PLANS. (a) Plan Requirements._In order to be approved under subsection (b), a State plan for home and community-based services for eligible individuals with disabilities must meet the following requirements: (1) Eligibility._ (A) In general._Within the amounts provided by the State and under section 3308 for such plan, the plan shall provide that services under the plan will be available to eligible individuals with disabilities in the State. (B) Initial screening._The plan shall provide a process for the initial screening of an individual who has some reasonable probability of being an eligible individual with disabilities. Any such process shall require the provision of assistance to individuals who wish to apply but whose disability limits their ability to apply. The initial screening and the determination of disability (as defined under section 3303(b)(1)) shall be conducted by a public agency. (C) Restrictions._The plan may not limit the eligibility of individuals with disabilities based on_ (i) age, (ii) geography, (iii) nature or category of disability, (iv) residential setting (other than an institutional setting), or (v) other grounds specified by the Secretary; except that the Secretary may permit a State to limit eligibility based on level of disability. (D) Continuation of services._The plan must provide assurances that, in the case of an individual receiving medical assistance for home and community-based services under the State medicaid plan as of the date the first State plan is approved under this subtitle, the State will continue to make available (either under this plan, under the State medicaid plan, or otherwise) to such individual an appropriate level of assistance for home and community-based services, taking into account the level of assistance provided as of such date and the individual's need for home and community-based services. (2) Services._ (A) Needs assessment._Not later than the end of the second year of implementation, the plan or its amendments shall include the results of a statewide assessment of the needs of eligible individuals with disabilities in a format required by the Secretary. The needs assessment shall include demographic data concerning the number of individuals within each category of disability described in this subtitle, and the services available to meet the needs of such individuals. (B) Specification._Consistent with section 3304, the plan shall specify_ (i) the services made available under the plan, (ii) the extent and manner in which such services are allocated and made available to eligible individuals with disabilities, and (iii) the manner in which services under the plan are coordinated with each other and with health and long-term care services available outside the plan for eligible individuals with disabilities. (C) Taking into account informal care._A State plan may take into account, in determining the amount and array of services made available to eligible individuals with disabilities, the availability of informal care. (D) Allocation._The State plan_ (i) shall specify how services under the plan will be allocated among eligible individuals with disabilities, (ii) shall attempt to meet the needs of individuals with a variety of disabilities within the limits of available funding, (iii) shall include services that assist all categories of eligible individuals with disabilities, regardless of their age or the nature of their disabling conditions, (iv) shall demonstrate that services are allocated equitably, in accordance with the needs assessment required under subparagraph (A), and (v) shall ensure that_ (I) the proportion of the population of low-income individuals with disabilities in the State that represents eligible individuals with disabilities who are provided home and community-based services either under the plan, under the State medicaid plan, or under both, is not less than, (II) the proportion of the population of the State that represents individuals who are low-income individuals. (E) Limitation on licensure or certification._The State may not subject consumer-directed providers of personal assistance services to licensure, certification, or other requirements which the Secretary finds not to be necessary for the health and safety of eligible individuals with disabilities. (F) Consumer choice._To the extent feasible, the State shall follow the choice of an eligible individual with disabilities (or that individual's designated representative who may be a family member) regarding which covered services to receive and the providers who will provide such services. (3) Cost sharing._The plan shall impose cost sharing with respect to covered services only in accordance with section 3305. (4) Types of providers and requirements for participation._The plan shall specify_ (A) the types of service providers eligible to participate in the program under the plan, which shall include consumer-directed providers of personal assistance services, except that the plan_ (i) may not limit benefits to services provided by registered nurses or licensed practical nurses; and (ii) may not limit benefits to services provided by agencies or providers certified under title XVIII of the Social Security Act; and (B) any requirements for participation applicable to each type of service provider. (5) Provider reimbursement._ (A) Payment methods._The plan shall specify the payment methods to be used to reimburse providers for services furnished under the plan. Such methods may include retrospective reimbursement on a fee-for-service basis, prepayment on a capitation basis, payment by cash or vouchers to eligible individuals with disabilities, or any combination of these methods. In the case of payment to consumer-directed providers of personal assistance services, including payment through the use of cash or vouchers, the plan shall specify how the plan will assure compliance with applicable employment tax and health care coverage provisions. (B) Payment rates._The plan shall specify the methods and criteria to be used to set payment rates for_ (i) agency administered services furnished under the plan; and (ii) consumer-directed personal assistance services furnished under the plan, including cash payments or vouchers to eligible individuals with disabilities, except that such payments shall be adequate to cover amounts required under applicable employment tax and health care coverage provisions. (C) Plan payment as payment in full._The plan shall restrict payment under the plan for covered services to those providers that agree to accept the payment under the plan (at the rates established pursuant to subparagraph (B)) and any cost sharing permitted or provided for under section 3305 as payment in full for services furnished under the plan. (7) Quality assurance and safeguards._The State plan shall provide for quality assurance and safeguards for applicants and beneficiaries in accordance with section 3306. (8) Advisory group._The State plan shall_ (A) assure the establishment and maintenance of an advisory group under section 3307(b), and (B) include the documentation prepared by the group under section 3307(b)(4). (9) Administration and access._ (A) State agency._The plan shall designate a State agency or agencies to administer (or to supervise the administration of) the plan. (B) Coordination._The plan shall specify how it will_ (i) coordinate services provided under the plan, including eligibility prescreening, service coordination, and referrals for individuals with disabilities who are ineligible for services under this subtitle with the State medicaid plan, titles V and XX of the Social Security Act, programs under the Older Americans Act of 1965, programs under the Developmental Disabilities Assistance and Bill of Rights Act, the Individuals with Disabilities Education Act, and any other Federal or State programs that provide services or assistance targeted to individuals with disabilities, and (ii) coordinate with health plans. (C) Administrative expenditures._Effective beginning with fiscal year 2003, the plan shall contain assurances that not more than 10 percent of expenditures under the plan for all quarters in any fiscal year shall be for administrative costs. (10) Reports and information to secretary; audits._The plan shall provide that the State will furnish to the Secretary_ (A) such reports, and will cooperate with such audits, as the Secretary determines are needed concerning the State's administration of its plan under this subtitle, including the processing of claims under the plan, and (B) such data and information as the Secretary may require in a uniform format as specified by the Secretary. (11) Use of state funds for matching._The plan shall provide assurances that Federal funds will not be used to provide for the State share of expenditures under this subtitle. (12) Terminology._The plan shall adhere to uniform definitions of terms, as specified by the Secretary. (b) Approval of Plans._The Secretary shall approve a plan submitted by a State if the Secretary determines that the plan_ (1) was developed by the State after a public comment period of not less than 30 days, and (2) meets the requirements of subsection (a). The approval of such a plan shall take effect as of the first day of the first fiscal year beginning after the date of such approval (except that any approval made before January 1, 1998, shall be effective as of January 1, 1998). In order to budget funds allotted under this subtitle, the Secretary shall establish a deadline for the submission of such a plan before the beginning of a fiscal year as a condition of its approval effective with that fiscal year. Any significant changes to the State plan shall be submitted to the Secretary in the form of plan amendments and shall be subject to approval by the Secretary. (c) Monitoring._The Secretary shall annually monitor the compliance of State plans with the requirements of this subtitle according to specified performance standards. States that fail to comply with such requirements may be subject to the withholding of Federal funds for services or administration until such time as compliance is achieved. (d) Technical assistance._The Secretary shall ensure the availability of ongoing technical assistance to States under this section. Such assistance shall include serving as a clearinghouse for information regarding successful practices in providing long-term care services. (e) Regulations._The Secretary shall issue such regulations as may be appropriate to carry out this subtitle on a timely basis. SEC. 3303. INDIVIDUALS WITH DISABILITIES DEFINED. (a) Definitions._ (1) In general._The term ``eligible individual with disabilities'' means any individual who is within one or more of the categories of individuals described in subparagraphs (A) through (D) of paragraph (2) (2) Categories of individuals with disabilities._ (A) Individuals requiring help with activities of daily living._An individual of any age who_ (i) requires hands-on or standby assistance, supervision, or cueing (as defined in regulations) to perform three or more activities of daily living (as defined in subsection (d)), and (ii) is expected to require such assistance, supervision, or cueing over a period of at least 90 days. (B) Individuals with severe cognitive or mental impairment._An individual of any age_ (i) whose score, on a standard mental status protocol (or protocols) appropriate for measuring the individual's particular condition specified by the Secretary, indicates either severe cognitive impairment or severe mental impairment, or both; (ii) who_ (I) requires hands-on or standby assistance, supervision, or cueing with one or more activities of daily living, (II) requires hands-on or standby assistance, supervision, or cueing with at least such instrumental activity (or activities) of daily living related to cognitive or mental impairment as the Secretary specifies, or (III) displays symptoms of one or more serious behavioral problems (that is on a list of such problems specified by the Secretary) which create a need for supervision to prevent harm to self or others; and (iii) who is expected to meet the requirements of clauses (i) and (ii) over a period of at least 90 days. Not later than 2 years after the date of enactment of this subtitle, the Secretary shall make recommendations regarding the most appropriate duration of disability under this subparagraph. (C) Individuals with severe or profound mental retardation._An individual of any age who has severe or profound mental retardation (as determined according to a protocol specified by the Secretary). (D) Young children with severe disabilities._An individual under 6 years of age who_ (i) has a severe disability or chronic medical condition that limits functioning in a manner that is comparable in severity to the standards established under subparagraphs (A), (B), or (C), and (ii) is expected to have such a disability or condition and require such services over a period of at least 90 days. (b) Determination._ (1) In general._In formulating eligibility criteria under subsection (a), the Secretary shall establish criteria for assessing the functional level of disability among all categories of individuals with disabilities that are comparable in severity, regardless of the age or the nature of the disabling condition of the individual. The determination of whether an individual is an individual with disabilities shall be made by a public or nonprofit agency that is specified under the State plan and that is not a provider of home and community-based services under this subtitle and by using a uniform protocol consisting of an initial screening and a determination of disability specified by the Secretary. A State may not impose cost sharing with respect to a determination of disability. A State may collect additional information, at the time of obtaining information to make such determination, in order to provide for the assessment and plan described in section 3304(b) or for other purposes. (2) Periodic reassessment._The determination that an individual is an eligible individual with disabilities shall be considered to be effective under the State plan for a period of not more than 6 months (or for such longer period in such cases as a significant change in an individual's condition that may affect such determination is unlikely). A reassessment shall be made if there is a significant change in an individual's condition that may affect such determination. (c) Eligibility Criteria._The Secretary shall reassess the validity of the eligibility criteria described in subsection (a) as new knowledge regarding the assessments of functional disabilities becomes available. The Secretary shall 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 its findings under the preceding sentence as determined appropriate by the Secretary. (d) Activity of Daily Living Defined._For purposes of this subtitle, the term ``activity of daily living'' means any of the following: eating, toileting, dressing, bathing, and transferring. SEC. 3304. HOME AND COMMUNITY-BASED SERVICES COVERED UNDER STATE PLAN. (a) Specification._ (1) In general._Subject to the succeeding provisions of this section, the State plan under this subtitle shall specify_ (A) the home and community-based services available under the plan to eligible individuals with disabilities (or to such categories of such individuals), and (B) any limits with respect to such services. (2) Flexibility in meeting individual needs._Subject to subsection (f)(2), such services may be delivered in an individual's home, a range of community residential arrangements, or outside the home. (b) Requirement for Needs Assessment and Plan of Care._The State plan shall provide for home and community-based services to an individual with disabilities only if the following requirements are met: (1) Comprehensive assessment._A comprehensive assessment of an individual's need for home and community-based services (regardless of whether all need services are available under the plan) shall be made in accordance with a uniform, comprehensive assessment tool that shall be used by a State under this paragraph with the approval of the Secretary. The Secretary shall provide guidance to the States with regard to the appropriate qualifications for individuals who conduct comprehensive assessments. (2) Individualized plan of care._An individualized plan of care based on the assessment made under paragraph (1) shall be developed. A plan of care under this subparagraph shall_ (A) specify which services included under the individual plan will be provided under the State plan under this subtitle, (B) identify (to the extent possible) how the individual will be provided any services specified under the plan of care and not provided under the State plan, (C) specify how the provision of services to the individual under the plan will be coordinated with the provision of other health care services to the individual, and (D) be reviewed and updated every 6 months (or more frequently if there is a change in the individual's condition). The State shall make reasonable efforts to identify and arrange for services described in subparagraph (B). Nothing in this subsection shall be construed as requiring a State (under the State plan or otherwise) to provide all the services specified in such a plan. (3) Involvement of individuals._The individualized plan of care under paragraph (2) for an individual with disabilities shall_ (A) be developed by qualified individuals (specified under the State plan), (B) be developed and implemented in close consultation with the individual (or the individual's designated representative), and (C) be approved by the individual (or the individual's designated representative). (c) Requirement for Care Management._ (1) In general._The State shall make available to each category of eligible individuals with disabilities care management services that at a minimum include_ (A) a comprehensive assessment of the individual's need for home and community-based services (regardless of whether all needed services are available under the plan), (B) an individualized plan of care based on such assessment, (C) arrangements for the provision of such services, and (D) monitoring of the delivery of services. (2) Care management services._ (A) In general._Except as provided in subparagraph (B), the care management services described in paragraph (1) shall be provided by a public or private entity that is not providing home and community-based services under this subtitle. (B) Exception._A person who provides home and community-based services under this subtitle may provide care management services if_ (i) the State determines that there is an insufficient pool of entities willing to provide such services in an area due to a low population of individuals eligible to receive home and community-based services under this subtitle residing in such area; and (ii) the State plan specifies procedures that the State will implement in order to avoid conflicts of interest. (3) Comprehensive assessments._The Secretary shall develop a uniform comprehensive assessment tool that shall be used by the States under paragraph (1)(A). Alternative comprehensive assessment tools may be used by the States only with the approval of the Secretary. The Secretary shall provide guidance to the States with regard to the appropriate qualifications for individuals who conduct comprehensive assessments. (4) Individualized plan of care._ (A) In general._The plan of care under paragraph (1)(B) shall_ (i) specify which services included under the individual plan will be provided under the State plan under this subtitle, (ii) identify (to the extent possible) how the individual will be provided any services specified under the plan of care and not provided under the State plan, (iii) specify how the provision of services to the individual under the plan will be coordinated with the provision of other health care services to the individual, and (iv) be reviewed and updated every 6 months (or more frequently if there is a change in the individual's condition). The State shall make reasonable efforts to identify and arrange for services described in clause (ii). Nothing in this subsection shall be construed as requiring a State (under the State plan or otherwise) to provide all the services specified in such a plan. (B) Involvement of individuals._The individualized plan of care under paragraph (1)(B) for an individual with disabilities shall_ (i) be developed by qualified individuals (specified under the State plan), (ii) be developed and implemented in close consultation with the individual or the individual's designated representative, and (iii) be approved by the individual (or the individual's designated representative). (d) Mandatory Coverage of Personal Assistance Services._The State plan shall include, in the array of services made available to each category of individuals with disabilities, both agency-administered and consumer-directed personal assistance services (as defined in subsection (h)). (e) Additional Services._ (1) Types of services._Subject to subsection (f), services available under a State plan under this subtitle may include any (or all) of the following: (A) Homemaker and chore assistance. (B) Home modifications. (C) Respite services. (D) Assistive devices, as defined in the Technology Related Assistance for Individuals with Disabilities Act. (E) Adult day services. (F) Habilitation and rehabilitation. (G) Supported employment. (H) Home health services. (I) Transportation. (J) Any other care or assistive services specified by the State and approved by the Secretary that will help eligible individuals with disabilities to remain in their homes and communities. (2) Criteria for selection of services._The State electing services under paragraph (1) shall specify in the State plan_ (A) the methods and standards used to select the types, and the amount, duration, and scope, of services to be covered under the plan and to be available to each category of eligible individuals with disabilities, and (B) how the types, and the amount, duration, and scope, of services specified, within the limits of available funding, provide substantial assistance in living independently to individuals within each of the categories of eligible individuals with disabilities. (f) Exclusions and Limitations._ (1) In general._A State plan may not provide for coverage of_ (A) room and board, (B) services furnished in a hospital, nursing facility, intermediate care facility for the mentally retarded, or other institutional setting specified by the Secretary, or (C) items and services to the extent coverage is provided for the individual under a health plan or the medicare program. (2) Medicaid services described._The services described in this paragraph are the following: (A) Personal care services (as described in section 1905(a)(24) of the Social Security Act). (B) Private duty nursing services (as referred to in section 1905(a)(8) of the Social Security Act). (C) Home or community-based services furnished under a waiver granted under subsection (c), (d), or (e) of section 1915 of the Social Security Act. (D) Home and community care furnished to functionally disabled elderly individuals under section 1929 of the Social Security Act. (E) Community supported living arrangements services under section 1930 of the Social Security Act. (F) Case-management services (as described in section 1915(g)(2) of the Social Security Act). (G) Home health care services (as referred to in section 1905(a)(7) of the Social Security Act). (H) Clinic services and rehabilitation services that are furnished to an individual who has a condition or disability that qualifies the individual to receive any of the services described in subparagraph (F). (3) State maintenance of effort._ (A) In general._A State plan under this subtitle shall provide that the State will, during any fiscal year that the State is furnishing services under this subtitle, make expenditures of State funds in an amount equal to the State maintenance of effort amount for the year determined under subparagraph (B) for furnishing services under the State plan under this subtitle and the State plan under title XIX of the Social Security Act. (B) State maintenance of effort amount._ (i) In general._The maintenance of effort amount for a State for a fiscal year is an amount equal to_ (I) for fiscal year 1998, the base amount for the State (as determined under clause (ii)) updated through the midpoint of fiscal year 1998 by the estimated percentage change in the consumer price index during the period beginning on October 1, 1994 and ending at that midpoint; and (II) for succeeding fiscal years, an amount equal to the amount determined under this clause for the previous fiscal year updated through the midpoint of the year by the estimated percentage change in the consumer price index during the 12-month period ending at that midpoint, with appropriate adjustments to reflect previous underestimations or overestimations under this clause in the projected percentage change in the consumer price index. (ii) State base amount._The base amount for a State is an amount equal to the total expenditures from State funds made under the State plan under title XIX of the Social Security Act during fiscal year 1994 with respect to medical assistance consisting of the services. (C) Construction._Noting in this paragraph shall be construed as requiring that an individual seeking home and community based services under this subtitle establish or maintain eligibility for assistance under title XIX of the Social Security Act. (g) Payment for Services._In order to pay for covered services, a State plan may provide for the use of_ (1) vouchers, (2) cash payments directly to eligible individuals with disabilities, (3) capitation payments to health plans, and (4) payment to providers. (h) Personal Assistance Services._ (1) In general._For purposes of this subtitle, the term ``personal assistance services'' means those services specified under the State plan as personal assistance services and shall include at least hands-on and standby assistance, supervision, and cueing with activities of daily living and, with respect to individuals with primary mental, congnitive, or sensory impairments, such instrumental activities of daily living as determined necessary or appropriate, whether agency-administered or consumer-directed (as defined in paragraph (2)). Such services shall include services that are determined to be necessary to help all categories of individuals with disabilities, regardless of their age or the nature of their disabling conditions. (2) Consumer-directed._For purposes of this subtitle: (A) In general._The term ``consumer-directed'' means, with reference to personal assistance services or the provider of such services, services that are provided by an individual who is selected and managed (and, at the option of the service recipient, trained) by the individual receiving the services. (B) State responsibilities._A State plan shall ensure that where services are provided in a consumer-directed manner, the State shall create or contract with an entity, other than the consumer or the individual provider, to_ (i) inform both recipients and providers of rights and responsibilities under all applicable Federal labor and tax law; and (ii) assume responsibility for providing effective billing, payments for services, tax withholding, unemployment insurance, and workers' compensation coverage, and act as the employer of the home care provider. (C) Right of consumers._Notwithstanding the State responsibilities described in subparagraph (B), service recipients, and, where appropriate, their designated representative, shall retain the right to independently select, hire, terminate, and direct (including manage, train, schedule, and verify services provided) the work of a home care provider. (3) Agency administered._For purposes of this subtitle, the term ``agency-administered'' means, with respect to such services, services that are not consumer-directed. SEC. 3305. COST SHARING. (a) In General._ (1) No cost sharing for poorest._The State plan may not impose any cost sharing for eligible individuals with disabilities with income less than 100 percent of the official poverty level applicable to a family of the size involved. (2) Sliding scale for remainder._ (A) Required coinsurance._The State plan shall impose cost sharing in the form of coinsurance (based on the amount paid under the State plan for a service) on eligible individuals with disabilities_ (i) at a rate of 25 percent for such individuals with income not less than 100 percent, and less than 150 percent, of such official poverty line (as so applied); (ii) at a rate of 50 percent for such individuals with income not less than 150 percent, and less than 175 percent, of such official poverty line (as so applied); (iii) at a rate of 75 percent for such individuals with income not less than 175 percent, and less than 200 percent, of such official poverty line (as so applied); and (iv) at a rate of 100 percent for such individuals with income equal to at least 200 percent of such official poverty line (as so applied). (B) Required annual deductible._The State plan shall impose cost sharing in the form of an annual deductible on eligible individuals with disabilities_ (i) of $50 for such individuals with income not less than 100 percent, and less than 150 percent, of such official poverty line (as so applied); (ii) of $100 for such individuals with income not less than 150 percent, and less than 175 percent, of such official poverty line (as so applied); and (iii) of $200 for such individuals with income not less than 175 percent, and less than 200 percent, of such official poverty line (as so applied). (c) Determination of Income._The State plan shall specify the process to be used to determine the income of an individual with disabilities for purposes of this section. Such standards shall include a uniform Federal definition of income and any allowable deductions from income. (d) Definition of Official poverty level._For purposes of this section, the term ``applicable poverty level'' means, for a family for a year, the official poverty line (as defined by the Office of Management and Budget, and revised annually in accordance with section 673(2) of the Omnibus Budget Reconciliation Act of 1981) applicable to a family of the size involved. SEC. 3306. QUALITY ASSURANCE AND SAFEGUARDS. (a) Quality Assurance._ (1) In general._The State plan shall specify how the State will ensure and monitor the quality of services, including_ (A) safeguarding the health and safety of eligible individuals with disabilities, (B) setting the minimum standards for agency providers and how such standards will be enforced, (C) setting the minimum competency requirements for agency provider employees who provide direct services under this subtitle and how the competency of such employees will be enforced, (D) setting minimum competency requirements for consumer directed providers of personal assistance services and how such competency requirements will be demonstrated, (E) obtaining meaningful consumer input, including consumer surveys that measure the extent to which participants receive the services described in the plan of care and participant satisfaction with such services, (F) establishing a process to receive, investigate, and resolve allegations of neglect or abuse, (G) establishing optional training programs for eligible individuals with disabilities in the use and direction of consumer directed providers of personal assistance services, (H) establishing an appeals procedure for eligibility denials and a grievance procedure for disagreements with the terms of an individualized plan of care; (I) providing for participation in quality assurance activities, and (J) specifying the role of the long-term care ombudsman (under the Older Americans Act of 1965) and the Protection and Advocacy Agency (under the Developmental Disabilities Assistance and Bill of Rights Act) in assuring quality of services and protecting the rights of eligible individuals with disabilities. (2) Issuance of regulations._Not later than 1 year after the date of enactment of this subtitle, the Secretary shall issue regulations implementing the quality provisions of this subsection. (b) Federal Standards._The State plan shall adhere to Federal quality standards in the following areas: (1) Case review of a specified sample of client records. (2) The mandatory reporting of abuse, neglect, or exploitation. (3) The development of a registry of provider agencies or home care workers and consumer directed providers of personal assistance services against whom any complaints have been sustained, which shall be available to the public. (4) Sanctions to be imposed on States or providers, including disqualification from the program, if minimum standards are not met. (5) Surveys of client satisfaction. (6) State optional training programs for informal caregivers. (c) Client Advocacy._ (1) In general._The State plan shall provide that the State will expend the amount allocated under section 3309(b) for client advocacy activities. The State may use such funds to augment the budgets of the long-term care ombudsman (under the Older Americans Act of 1965) and the Protection and Advocacy Agency (under the Developmental Disabilities Assistance and Bill of Rights Act) or may establish a separate and independent client advocacy office in accordance with paragraph (2) to administer a new program designed to advocate for client rights. (2) Client advocacy office._ (A) In general._A client advocacy office established under this paragraph shall_ (i) identify, investigate, and resolve complaints that_ (I) are made by, or on behalf of, clients; and (II) relate to action, inaction, or decisions, that may adversely affect the health, safety, welfare, or rights of the clients (including the welfare and rights of the clients with respect to the appointment and activities of guardians and representative payees), of_ (aa) providers, or representatives of providers, of long-term care services; (bb) public agencies; or (cc) health and social service agencies; (ii) provide services to assist the clients in protecting the health, safety, welfare, and rights of the clients; (iii) inform the clients about means of obtaining services provided by providers or agencies described in clause (i)(II) or services described in clause (ii); (iv) ensure that the clients have regular and timely access to the services provided through the office and that the clients and complainants receive timely responses from representatives of the office to complaints; and (v) represent the interests of the clients before governmental agencies and seek administrative, legal, and other remedies to protect the health, safety, welfare, and rights of the clients with regard to the provisions of this subtitle. (B) Contracts and arrangements._ (i) In general._Except as provided in clause (ii), the State agency may establish and operate the office, and carry out the program, directly, or by contract or other arrangement with any public agency or nonprofit private organization. (ii) Licensing and certification organizations; associations._The State agency may not enter into the contract or other arrangement described in clause (i) with an agency or organization that is responsible for licensing, certifying, or providing long-term care services in the State. (d) Safeguards._ (1) Confidentiality._The State plan shall provide safeguards which restrict the use or disclosure of information concerning applicants and beneficiaries to purposes directly connected with the administration of the plan. (2) Safeguards against abuse._The State plans shall provide safeguards against physical, emotional, or financial abuse or exploitation (specifically including appropriate safeguards in cases where payment for program benefits is made by cash payments or vouchers given directly to eligible individuals with disabilities). All providers of services shall be required to register with the State agency. (e) Specified Rights._The State plan shall provide that in furnishing home and community-based services under the plan the following individual rights are protected: (1) The right to be fully informed in advance, orally and in writing, of the care to be provided, to be fully informed in advance of any changes in care to be provided, and (except with respect to an individual determined incompetent) to participate in planning care or changes in care. (2) The right to_ (A) voice grievances with respect to services that are (or fail to be) furnished without discrimination or reprisal for voicing grievances, (B) be told how to complain to State and local authorities, and (C) prompt resolution of any grievances or complaints. (3) The right to confidentiality of personal and clinical records and the right to have access to such records. (4) The right to privacy and to have one's property treated with respect. (5) The right to refuse all or part of any care and to be informed of the likely consequences of such refusal. (6) The right to education or training for oneself and for members of one's family or household on the management of care. (7) The right to be free from physical or mental abuse, corporal punishment, and any physical or chemical restraints imposed for purposes of discipline or convenience and not included in an individual's plan of care. (8) The right to be fully informed orally and in writing of the individual's rights. (9) The right to a free choice of providers. (10) The right to direct provider activities when an individual is competent and willing to direct such activities. SEC. 3307. ADVISORY GROUPS. (a) Federal Advisory Group._ (1) Establishment._The Secretary shall establish an advisory group, to advise the Secretary and States on all aspects of the program under this subtitle. (2) Composition._The group shall be composed of eligible individuals with disabilities and their representatives, providers, Federal and State officials, and local community implementing agencies. A majority of its members shall be eligible individuals with disabilities and their representatives. (b) State Advisory Groups._ (1) In general._Each State plan shall provide for the establishment and maintenance of an advisory group to advise the State on all aspects of the State plan under this subtitle. (2) Composition._Members of each advisory group shall be appointed by the Governor (or other chief executive officer of the State) and shall include eligible individuals with disabilities and their representatives, providers, State officials, and local community implementing agencies. A majority of its members shall be eligible individuals with disabilities and their representatives. The members of the advisory group shall be selected from the those nominated as described in paragraph (3). (3) Selection of members._Each State shall establish a process whereby all residents of the State, including eligible individuals with disabilities and their representatives, shall be given the opportunity to nominate members to the advisory group. (4) Particular concerns._Each advisory group shall_ (A) before the State plan is developed, advise the State on guiding principles and values, policy directions, and specific components of the plan, (B) meet regularly with State officials involved in developing the plan, during the development phase, to review and comment on all aspects of the plan, (C) participate in the public hearings to help assure that public comments are addressed to the extent practicable, (D) report to the Governor and make available to the public any differences between the group's recommendations and the plan, (E) report to the Governor and make available to the public specifically the degree to which the plan is consumer-directed, and (F) meet regularly with officials of the designated State agency (or agencies) to provide advice on all aspects of implementation and evaluation of the plan. SEC. 3308. PAYMENTS TO STATES. (a) In General._Subject to section 3302(a)(9)(C) (relating to limitation on payment for administrative costs), the Secretary, in accordance with the Cash Management Improvement Act, shall authorize payment to each State with a plan approved under this subtitle, for each quarter (beginning on or after January 1, 1998), from its allotment under section 3309(b), an amount equal to_ (1) the Federal home and community-based services matching percentage (as defined in subsection (b)) of amount demonstrated by State claims to have been expended during the quarter for home and community-based services under the plan for eligible individuals with disabilities; plus (2) an amount equal to 90 percent of the amount demonstrated by the State to have been expended during the quarter for quality assurance activities under the plan; plus (3) an amount equal to 90 percent of amount expended during the quarter under the plan for activities (including preliminary screening) relating to determination of eligibility and performance of needs assessment; plus (4) an amount equal to 90 percent (or, beginning with quarters in fiscal year 2003, 75 percent) of the amount expended during the quarter for the design, development, and installation of mechanical claims processing systems and for information retrieval; plus (5) an amount equal to 50 percent of the remainder of the amounts expended during the quarter as found necessary by the Secretary for the proper and efficient administration of the State plan. (b) Federal Home and Community-Based Services Matching Percentage._In subsection (a), the term ``Federal home and community-based services matching percentage'' means, with respect to a State, the State's Federal medical assistance percentage (as defined in section 1905(b) of the Social Security Act) increased by 15 percentage points, except that the Federal home and community-based services matching percentage shall in no case be less than 65 percent or more than 90 percent. (c) Payments on Estimates with Retrospective Adjustments._The method of computing and making payments under this section shall be as follows: (1) The Secretary shall, prior to the beginning of each quarter, estimate the amount to be paid to the State under subsection (a) for such quarter, based on a report filed by the State containing its estimate of the total sum to be expended in such quarter, and such other information as the Secretary may find necessary. (2) From the allotment available therefore, the Secretary shall provide for payment of the amount so estimated, reduced or increased, as the case may be, by any sum (not previously adjusted under this section) by which the Secretary finds that the estimate of the amount to be paid the State for any prior period under this section was greater or less than the amount which should have been paid. (d) Application of Rules Regarding Limitations on Provider-Related Donations and Health Care Related Taxes._The provisions of section 1903(w) of the Social Security Act shall apply to payments to States under this section in the same manner as they apply to payments to States under section 1903(a) of the Social Security Act. (e) Failure to Comply with State Plan._If a State furnishing home and community-based services under this subtitle fails to comply with the State plan approved under this subtitle, the Secretary may withhold an amount of funds determined appropriate by the Secretary from any payment to the State under this section. SEC. 3309. TOTAL FEDERAL BUDGET; ALLOTMENTS TO STATES. (a) In General._ (1) Fiscal years 1998 through 2004._Subject to paragraph (5)(C), the total Federal budget for State plans under this subtitle for each of fiscal years 1998 through 2004 is the following: (A) for fiscal year 1998, $500,000,000; (B) for fiscal year 1999, $750,000,000; (C) for fiscal year 2000, $1,000,000,000; (D) for fiscal year 2001, $1,500,000,000; (E) for fiscal year 2002, $1,750,000,000; (F) for fiscal year 2003, $2,000,000,000; and (G) for fiscal year 2004, $2,500,000,000. (2) Subsequent fiscal years._For purposes of this subtitle, the total Federal budget for State plans under this subtitle for each fiscal year after fiscal year 2004 is the total Federal budget under this subsection for the preceding fiscal year multiplied by_ (A) a factor (described in paragraph (3)) reflecting the change in the consumer price index for the fiscal year, and (B) a factor (described in paragraph (4)) reflecting the change in the number of individuals with disabilities for the fiscal year. (3) CPI increase factor._For purposes of paragraph (2)(A), the factor described in this paragraph for a fiscal year is the ratio of_ (A) the annual average index of the consumer price index for the preceding fiscal year, to_ (B) such index, as so measured, for the second preceding fiscal year. (4) Disabled population factor._For purposes of paragraph (2)(B), the factor described in this paragraph for a fiscal year is 100 percent plus (or minus) the percentage increase (or decrease) change in the disabled population of the United States (as determined for purposes of the most recent update under subsection (b)(3)(D)). (5) Additional funds due to medicaid offsets._ (A) In general._Each participating State must provide the Secretary with information concerning offsets and reductions in the medicaid program resulting from home and community-based services provided disabled individuals under this subtitle, that would have been paid for such individuals under the State medicaid plan but for the provision of similar services under the program under this subtitle. At the time a State first submits its plan under this subtitle and before each subsequent fiscal year (through fiscal year 2004), the State also must provide the Secretary with such budgetary information (for each fiscal year through fiscal year 2004), as the Secretary determines to be necessary to carry out this paragraph. (B) Reports._Each State with a program under this subtitle shall submit such reports to the Secretary as the Secretary may require in order to monitor compliance with subparagraph (A). The Secretary shall specify the format of such reports and establish uniform data reporting elements. (C) Adjustments to total federal budget._ (i) In general._For each fiscal year (beginning with fiscal year 1998 and ending with fiscal year 2004) and based on a review of information submitted under subparagraph (A), the Secretary shall determine the amount by which the total Federal budget under this subsection will increase. The amount of such increase for a fiscal year shall be limited to the reduction in Federal expenditures of medical assistance (as determined by Secretary) that would have been made under part A of title XIX for home and community based services for disabled individuals but for the provision of similar services under the program under this subtitle. (ii) Annual publication._The Secretary shall publish before the beginning of such fiscal year, the revised total Federal budget under this subsection for such fiscal year. (D) Construction._Nothing in this subsection shall be construed as requiring States to determine eligibility for medical assistance under the State medicaid plan on behalf of individuals receiving assistance under this subtitle. (b) Allotments to States._ (1) In general._The Secretary shall allot the amounts available under the appropriation authorized for the fiscal year (specified in subsection (a)) to the States with plans approved under this subtitle in accordance with an allocation formula developed by the Secretary which takes into account_ (A) the percentage of the total number of individuals with disabilities in all States that reside in a particular State; (B) the per capita costs of furnishing home and community-based services to individuals with disabilities in the State; and (C) the percentage of all individuals with incomes at or below 150 percent of the official poverty line (as described in section 3305(a)(2)) in all States that reside in a particular State. (2) Allocation for client advocacy activities._Each State with a plan approved under this subtitle shall allocate one-half of one percent of the State's total allotment under paragraph (1) for client advocacy activities as described in section 3306(c). (3) No duplicate payment._No payment may be made to a State under this section for any services provided to an individual to the extent that the State received payment for such services under section 1903(a) of the Social Security Act. (4) Reallocations._Any amounts allotted to States under this subsection for a year that are not expended in such year shall remain available for State programs under this subtitle and may be reallocated to States as the Secretary determines appropriate. (c) Carry-Over._With respect to fiscal years 1998 through 2005, a State shall be permitted to carry-over not more than 25 percent of the allotment of such State for expenditures in the subsequent year. (d) State Entitlement._This subtitle constitutes budget authority in advance of appropriations Acts, and represents the obligation of the Federal Government to provide for the payment to States of amounts described in subsection (a). SEC. 3310. FEDERAL EVALUATIONS. Not later than December 31, 2003, December 31, 2006, and each December 31 thereafter, the Secretary shall provide to Congress analytical reports that evaluate_ (1) the extent to which individuals with low incomes and disabilities are equitably served; (2) the adequacy and equity of service plans to individuals with similar levels of disability across States; (3) the comparability of program participation across States, described by level and type of disability; and (4) the ability of service providers to sufficiently meet the demand for services.