H.R. 3162: Provisions in the Children's Health and Medicare Protection Act of 2007

H.R. 3162: Provisions in the Children’s Health and
Medicare Protection Act of 2007
Updated August 14, 2007
Richard Rimkunas, Coordinator
Health Insurance and Financing Team
Domestic Social Policy Division

H.R. 3162: Provisions in the Children’s Health and
Medicare Protection Act of 2007
Summary
On August 1, 2007, the House passed H.R. 3162, the Children’s Health and
Medicare Protection (CHAMP) Act of 2007. The bill would reauthorize and increase
funding levels and state grant distributions for the State Children’s Health Insurance
Program (SCHIP) and make changes to the Medicare and Medicaid programs. The
major SCHIP provisions would provide authorized program appropriations in
perpetuity and would make changes to the Medicare and Medicaid programs. Other
major SCHIP provisions would provide more options and incentives to states to
increase the number of children covered by SCHIP and Medicaid, modify the
citizenship verification process, and change minimum benefit requirements.
The bill’s Medicare provisions would implement a 0.5% increase in Medicare
physician fees for 2008 and 2009 while creating six categories of physician services
for which annual updates would be considered separately, establish bonus payments
for physicians practicing in counties with low Medicare per capita expenditures,
require the Secretary to implement a resource use feedback program for physicians
to identify efficient providers, expand a medical home demonstration project, and
require the Centers for Medicare and Medicaid Services (CMS) to modify physician
payment localities, beginning with California. Other Medicare provisions would
reduce payments to Medicare Advantage plans, eliminate Medicare cost-sharing for
certain preventive benefits, eliminate the market basket update for FY2008 for
Medicare payments for skilled nursing facilities, home health agencies, and long-term
care hospitals and reduce the annual update for certain hospitals. It would also
establish a bundled payment system for Medicare renal dialysis services and would
make a number of changes to the Low-Income Subsidy Program for Medicare Part
D, including eliminating cost-sharing requirements for certain full benefit dual
eligibles receiving Medicaid-covered long-term care services.
Medicaid provisions in the bill would make changes to rebate payments for
certain drugs, prohibit the implementation of the new health opportunity account
demonstration authorized under the Deficit Reduction Act of 2005 (DRA, P.L. 109-
171), and make other changes. Additional miscellaneous provisions would establish
a Center for Comparative Effectiveness Research within the Agency for Healthcare
Research and Quality (AHRQ), — funded by public contributions from the Medicare
Part A, B, and D trust fund accounts and fees imposed on private health insurance
plans, require CMS to develop a plan for the implementation of health information
technology under Medicare, and establish a national entity to coordinate development
of health care measures.
The Congressional Budget Office (CBO) estimates that H.R. 3162 would result
in a net increase of $25.6 billion in Federal spending between 2008 and 2012. The
Joint Committee on Taxation estimates a revenue offset of $26.9 billion for the same
period from increases in the excise tax rate on tobacco-related products, a
modification to the definition of roll-your-own tobacco, with an extension of an
exemption from fuel excise tax for use in ambulances. This report provides short
descriptions of the major provisions contained in H.R. 3162.

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Contents
A Brief Description of the Current Programs............................2
SCHIP ......................................................2
Medicare ....................................................3
Medicaid ....................................................4
Summary of Provisions in H.R. 3162..................................4
Title I — Children’s Health Insurance Program......................4
Section 100. Purpose.......................................4
Subtitle A — Funding..........................................4
Section 101. Establishment of new base CHIP allotments..........4
Section 102. 2-year initial availability of CHIP allotments.........5
Section 103. Redistribution of unused allotments to address State funding
shortfalls .............................................5
Section 104. Extension of option for qualifying States............6
Subtitle B — Improving Enrollment and Retention of Eligible Children...7
Section 111. CHIP performance bonus payment to offset additional
enrollment costs resulting from enrollment and retention efforts
....................................................7
Section 112. State option to rely on findings from an express lane agency
to conduct simplified eligibility determinations..............7
Section 113. Application of Medicaid outreach procedures to all children
and pregnant women...................................8
Section 114. Encouraging culturally appropriate enrollment and retention
practices .............................................8
Section 115. Continuous coverage under SCHIP.................8
Subtitle C — Coverage.........................................9
Section 121. Ensuring child-centered coverage...................9
Section 122. Improving benchmark coverage options.............9
Section 123. Premium grace period...........................9
Subtitle D — Populations......................................10
Section 131. Optional coverage of children up to age 21 under CHIP
...................................................10
Section 132. Optional coverage of legal immigrants under the Medicaid
program and CHIP....................................10
Section 133. State option to expand or add coverage of certain pregnant
women under CHIP...................................10
Section 134. Limitation on waiver authority to cover adults........11
Section 135. No federal funding for illegal aliens...............11
Section 136. Auditing requirement to enforce citizenship restrictions on
eligibility for Medicaid and CHIP benefits.................11
Subtitle E — Access..........................................12
Section 141. Children’s Access, Payment, and Equality Commission
...................................................12
Section 142. Model of Interstate coordinated enrollment and coverage
process .............................................12
Section 143. Medicaid citizenship documentation requirements....13
Section 144. Access to dental care for children..................13

demonstration programs................................14
Subtitle F — Quality and Program Integrity........................14
Section 151. Pediatric health quality measurement program.......14
Section 152. Application of certain managed care quality safeguards to
CHIP ..............................................15
Section 153. Updated federal evaluation of CHIP...............15
Section 154. Access to records for IG and GAO audits...........16
Section 155. References to XXI..............................16
Section 156. Reliance on law; exception for state legislation......16
Title II — Medicare Beneficiary Improvements.....................16
Subtitle A — Improvements in Benefits...........................16
Section 201. Coverage and Waiver of Cost-Sharing for Preventive
Services ............................................16
Section 202. Waiver of Deductible for Colorectal Cancer Screening Tests
Regardless of Coding, Subsequent Diagnosis, or Ancillary Tissue
Removal ............................................17
Section 203. Parity for Mental Health Coinsurance..............17
Subtitle B — Improving, Clarifying, and Simplifying Financial Assistance for
Low-Income Medicare Beneficiaries..........................17
Section 211. Improving Assets Tests for Medicare Savings Program and
Low-Income Subsidy Program...........................17
Section 212. Making QI-1 Program Permanent and Expanding Eligibility
...................................................17
Section 213. Eliminating Barriers to Enrollment.................18
Section 214. Eliminating Application of Estate Recovery.........18
Section 215. Elimination of Part D Cost-Sharing for Certain Non-
Institutionalized Full-Benefit Dual Eligible Individuals.......18
Section 216. Exemptions From Income and Resources For Determination
of Eligibility for Low-Income Subsidy....................18
Section 217. Cost-Sharing Protections for Low-Income Subsidy Eligible
Individuals ..........................................18
Section 218. Intelligent Assignment in Enrollment..............19
Subtitle C — Part D Beneficiary Improvements.....................19
Section 221. Including Costs Incurred By Aids Drug Assistance Programs
and Indian Health Service in Providing Prescription Drugs Toward
the Annual Out of Pocket Threshold Under Part D...........19
Section 222. Permitting Mid-Year Changes in Enrollment for Formulary
Changes Adversely Impacting an Enrollee.................19
Section 223. Removal of Exclusion of Benzodiazepines From Required
Coverage Under the Medicare Prescription Drug Program.....20
Section 224. Permitting Updating Drug Compendia under Part D Using
Part B Update Process.................................20
Section 225. Codification of Special Protections for Six Protected Drug
Classifications .......................................20
Section 226. Elimination of Medicare Part D Late Enrollment Penalties
Paid by Low-Income Subsidy-Eligible Individuals...........20
Section 227. Special Enrollment Period for Low-Income Subsidy Eligible
Individuals ..........................................20
Subtitle D — Reducing Health Disparities.........................20
Section 231. Medicare Data on Race, Ethnicity, and Primary Language
...................................................20

Section 233. Demonstration to promote access for Medicare beneficiaries
with limited English proficiency by providing reimbursement for
culturally and linguistically appropriate services.............21
Section 234. Demonstration to improve care to previously uninsured
...................................................22
Section 235. Office of the Inspector General report on compliance with
and enforcement of national standards on Culturally and
Linguistically Appropriate Services (CLAS) in Medicare......22
Section 236. IOM report on impact of language access services....23
Section 237. Definitions...................................23
Title III — Physicians’ Service Payment Reform....................23
Section 301. Establishment of Separate Target Growth Rates for Service
Categories ..........................................23
Section 302. Improving accuracy of relative values under the Medicare
physician fee schedule.................................24
Section 303. Physician feedback mechanism on practice patterns...25
Section 304. Payments for Efficient Physicians.................26
Section 305. Recommendations on refining the physician fee schedule
...................................................27
Section 306. Improved and Expanded Medical Home Demonstration
Project .............................................27
Section 307. Repeal of Physician Assistance and Quality Initiative Fund
...................................................28
Section 308. Adjustment to Medicare Payment Localities.........28
Section 309. Payment for Imaging Services....................29
Section 310. Reducing Frequency of Meetings of the Practicing Physicians
Advisory Council.....................................30
Title IV — Medicare Advantage Reforms..........................30
Subtitle A — Payment Reform..................................30
Section 401. Equalizing payments between Medicare Advantage Plans and
fee-for-service Medicare...............................30
Subtitle B — Beneficiary Protections.............................30
Section 411. NAIC development of marketing, advertising, and related
protections ..........................................30
Section 412. Limitation on out-of-pocket costs for individual health
services .............................................31
Section 413. MA plan enrollment modifications.................31
Section 414. Information for beneficiaries on MA plan administrative
costs ...............................................31
Subtitle C — Quality and Other Provisions.........................31
Section 421. Requiring all MA plans to meet equal standards......31
Section 422. Development of new quality reporting measures on racial
disparities ...........................................32
Section 423. Strengthening Audit Authority....................32
Section 424. Improving risk adjustment for MA plans............32
Section 425. Eliminating special treatment for private fee-for-service plans
...................................................32
Section 426. Renaming of Medicare Advantage program..........32
Subtitle D — Extension of Authorities............................32
Section 431. Extension and revision of authority for special needs plans
(SNPs) .............................................32

cost contracts........................................32
Title V — Provisions Relating to Medicare Part A...................33
Section 501. Inpatient Hospital Payment Updates................33
Section 502. Payment for Inpatient Rehabilitation Facility (IRF) Services
...................................................33
Section 503. Long-Term Care Hospitals.......................33
Section 504. Increasing the DSH Adjustment Cap...............35
Section 505. PPS-Exempt Cancer Hospitals....................35
Section 506. Skilled Nursing Facility Payment Update............35
Section 507. Revocation of Unique Deeming Authority of the Joint
Commission for the Accreditation of Healthcare Organizations
...................................................36
Section 508. Treatment of Medicare Hospital Reclassifications....36
Section 509. Medicare Critical Access Hospital Designations......37
Title VI — Other Provisions Relating to Medicare Part B.............37
Subtitle A — Payment and Coverage Improvements.................37
Section 601. Payment for Therapy Services....................37
Section 602. Medicare Separate Definition of Outpatient Speech Language
Pathology Services....................................38
Section 603. Increased Reimbursement Rate for Certified Nurse Midwives
...................................................38
Section 604. Adjustment in Outpatient Hospital Fee Schedule Increase
Factor ..............................................38
Section 605. Exception to 60-Day Limit on Medicare Reciprocal Billing
Arrangements in Case of Physicians Ordered to Active Duty in the
Armed Forces........................................38
Section 606. Excluding clinical social worker services from coverage
under the Medicare skilled nursing facility prospective payment
system and consolidated payment........................38
Section 607. Coverage of Marriage and Family Therapists and Mental
Health Counselor Services..............................38
Section 608. Rental and Purchase of Power-Driven Wheelchairs....39
Section 609. Rental and Purchase of Oxygen Equipment..........39
Section 610. Adjustment for Medicare Mental Health Services.....39
Section 611. Extension of Brachytherapy Special Rule...........39
Section 612. Payment for Part B Drugs........................39
Subtitle B — Extension of Medicare Rural Access Protections.........40
Section 621. 2-Year Extension of Floor on Medicare Work Geographic
Adjustment ..........................................40
Section 622. 2-Year Extension of Special Treatment of Certain Physician
Pathology Services Under Medicare......................40
Section 623. 2-Year Extension of Medicare Reasonable Cost Payments
for Certain Clinical Diagnostic Laboratory Tests Furnished to
Hospital Patients in Certain Rural Areas...................40
Section 624. 2-Year Extension of Medicare Incentive Payment Program
for Physician Scarcity Areas............................40
Section 625. 2-Year Extension of Medicare Increase Payments for
Ground Ambulance Services in Rural Areas................40
Section 626. Extending Hold Harmless for Small Rural Hospitals under
the HOPD Prospective Payment System...................40
Subtitle C — End Stage Renal Disease Program.....................41

Section 632. Medicare Coverage of Kidney Disease Patient Education
Services ............................................41
Section 633. Required Training for Patient Care Dialysis Technicians
...................................................42
Section 634. MedPAC Report on Treatment Modalities for Patients with
Kidney Failure.......................................42
Section 635. Adjustment for Erythropoietin Stimulating Agents (ESAs)
...................................................42
Section 636. Site Neutral Composite Rate......................43
Section 637. Development of ESRD Bundling System and Quality
Incentive Payments...................................43
Section 638. MedPAC Report on ESRD Bundling System.........44
Section 639. OIG Study and Report on Erythropoietin............44
Subtitle D — Miscellaneous....................................44
Sec. 651. Limitation on Exception to the Prohibition of Certain Physician
Referrals for Hospitals.................................44
Title VII — Provisions Relating to Medicare Parts A and B............45
Section 701. Home Health Payment Update for 2008............45
Section 702. 2-Year extension of temporary Medicare payment increase
for home health services furnished in rural areas............45
Section 703. Extension off Medicare Secondary Payer for beneficiaries
with End Stage Renal Disease for Large Group Plans........45
Section 704. Plan for Medicare Payment Adjustment for Never Events
...................................................46
Section 705. Reinstatement of Residency Slots.................46
Section 706. Studies Relating to Home Health..................47
Section 707. Rural Home Health Quality Demonstration Projects...47
Title VIII — Medicaid.........................................47
Subtitle A — Protecting Existing Coverage........................47
Section 801. Modernizing transitional Medicaid................47
Section 802. Family planning services........................48
Section 803. Authority to continue providing adult day health services
approved under a State Medicaid plan.....................49
Section 804. State option to protect community spouses of individuals
with disabilities......................................49
Section 805. County Medicaid health insuring organizations.......49
Subtitle B — Payments........................................50
Section 811. Payments for Puerto Rico and the territories.........50
Section 812. Medicaid Drug Rebate..........................50
Section 813. Adjustment in computation of Medicaid FMAP to disregard
an extraordinary employer pension contribution.............51
Section 814. Moratorium on certain payment restrictions.........51
Section 815. Tennessee DSH................................52
Section 816. Clarification treatment of regional medical center.....52
Section 817. Extension of SSI web-based asset demonstration project to
the Medicaid program.................................52
Subtitle C — Miscellaneous....................................53
Section 821. Demonstration project for employer buy-in..........53
Section 822. Diabetes grants................................53
Section 823. Technical correction............................53
Title IX — Miscellaneous......................................54

Section 902. Repeal of Trigger Provision......................54
Section 903. Repeal of Comparative Cost Adjustment (CCA) Program
...................................................54
Section 904. Comparative Effectiveness Research...............54
Section 905. Implementation of Health Information Technology (IT)
Under Medicare......................................55
Section 906. Development, Reporting, and Use of Health Care Measures
...................................................56
Section 907. Improvements to the Medigap Program.............57
Section 908. Implementation Funding........................57
Section 909. Access to Data on Prescription Drug Plans and Medicare
Advantage Plans......................................57
Section 910. Abstinence Education..........................58

H.R. 3162: Provisions in the Children’s
Health and Medicare Protection Act of 2007
On July 27, 2007, the House Committee on Ways and Means ordered reported
H.R. 3162, the Children’s Health and Medicare Protection (CHAMP) Act of 2007.
On the same day, the House Committee on Energy and Commerce adjourned without
completing the markup. The Committee on Rules discharged the Committee on
Energy and Commerce from further consideration of the bill, amended the legislative
language, and ordered reported H.R. 3162 on August 1, 2007. The House passed the
bill later that day. This report describes provisions in the bill as passed by the House.
The bill would reauthorize and increase funding levels and state grant
distributions for the State Children’s Health Insurance Program (SCHIP) and make
changes to the Medicare and Medicaid programs. The major SCHIP provisions
would provide authorized program appropriations in perpetuity and would make
changes to the Medicare and Medicaid programs. Other major SCHIP provisions
would provide more options and incentives to states to increase the number of
children covered by SCHIP and Medicaid, modify the citizenship verification
process, and change minimum benefit requirements.
The bill’s Medicare provisions would address a number of issues. The bill
would make many changes to Medicare physician payments, including implementing
a 0.5% increase in Medicare physician fees for 2008 and 2009 while making
substantive changes to the calculation of updates to the Medicare physician fee
schedule in future years by creating six categories of physician services for which
annual updates would be considered separately, establish bonus payments for
physicians practicing in counties with low Medicare per capita expenditures, require
the Secretary to implement a resource use feedback program for physicians to
identify efficient providers, expand a medical home demonstration project, repeal the
Physician Assistance and Quality Initiative fund, and require the Centers for
Medicare and Medicaid Services (CMS) to modify physician payment localities,
beginning with California.
Other Medicare provisions of the bill would reduce payments to Medicare
Advantage plans, eliminate Medicare cost-sharing for certain preventive benefits, and
repeal the Medicare trigger requirement. In addition, the bill would eliminate the
market basket update for FY2008 for Medicare payments for skilled nursing
facilities, home health agencies, and long-term care hospitals and reduce the annual
update for certain hospitals. It would also establish a bundled payment system for
Medicare renal dialysis services and would make a number of changes to the Low-
Income Subsidy Program for Medicare Part D, including eliminating cost-sharing
requirements for certain full benefit dual eligibles receiving Medicaid-covered long-
term care services.

Regarding Medicaid, the bill would make changes to rebate payments for certain
drugs, and prohibit the implementation of the new health opportunity account
demonstration authorized under the Deficit Reduction Act of 2005 (DRA, P.L. 109-

171), among other things.

Additional miscellaneous provisions would establish a Center for Comparative
Effectiveness Research within the Agency for Healthcare Research and Quality
(AHRQ), — funded by a combination of public contributions from the Medicare Part
A, B, and D trust fund accounts and fees imposed on private health insurance plans,
require CMS to develop a plan for the implementation of health information
technology under Medicare, and establish a national entity to coordinate development
of health care measures.
The Congressional Budget Office (CBO) estimates that H.R. 3162 would result
in a net increase of $25.6 billion in Federal spending between 2008 and 2012.¹ The
Joint Committee on Taxation estimates a revenue offset of $26.9 billion for the same
period from increases in the excise tax rate on tobacco-related products, a
modification to the definition of roll-your-own tobacco, with an extension of an
exemption from fuel excise tax for use in ambulances.²
This report provides short descriptions of the major provisions contained in H.R.

3162.

A Brief Description of the Current Programs
H.R. 3162 would make changes to the SCHIP, Medicare, and Medicaid
programs, briefly described below. More complete and detailed descriptions are
available from CRS.³
SCHIP
SCHIP is authorized under Title XXI of the Social Security Act. In general, this
program allows states to cover targeted low-income children with no health insurance
in families with income that is above Medicaid eligibility levels. As of July 2006, the
highest upper-income eligibility limit under SCHIP had reached 350% of the federal
poverty level (FPL) in one state. States may enroll targeted low-income children in
an SCHIP-financed expansion of Medicaid, create a new separate state SCHIP
program, or devise a combination of both approaches. States choosing the Medicaid

¹ CBO, “Estimated Effect on Direct Spending and Revenues of H.R. 3162, the Children’s
Health and Medicare Protection Act, for the Rules Committee,” August 1, 2007.
² The Joint Committee on Taxation estimate for H.R. 3162, as scheduled for consideration
by the House on August 1, 2007. [http://www.house.gov/jct/x-59-07.pdf]
³ See, for example, CRS Report RL33712, Medicare: A Primer, by Jennifer O’Sullivan,
April 30, 2007, CRS Report RL33202, Medicaid: A Primer, by Elicia J. Herz, January 24,
2007, and CRS Report RL30473, State Children’s Health Insurance Program (SCHIP): A
Brief Overview, by Elicia J. Herz and Chris L. Peterson, January 30, 2007.

option must provide all mandatory benefits and all optional services covered under
the state plan, and must follow the nominal Medicaid cost-sharing rules (with some
exceptions). In general, separate state programs must follow certain coverage and
benefit options outlined in SCHIP law. While some cost-sharing provisions vary by
family income, the total annual aggregate cost-sharing (including premiums,
copayments, and other similar charges) for a family may not exceed 5% of total
income in a year. Preventive services are exempt from cost-sharing.
In the Balanced Budget Act of 1997, nearly $40 billion was appropriated for
SCHIP for FY1998 to FY2007. Appropriations for FY2007 equaled about $5.7
billion.⁴ Annual allotments among the states are determined by a formula that is
based on a combination of the number of low-income children and low-income
uninsured children in the state, and includes a cost factor that represents the average
health service industry wages in the state compared to the national average. Like
Medicaid, SCHIP is a federal-state matching program. While the Medicaid federal
medical assistance percentage (FMAP) ranged from 50% to 75.89% in FY2007, the
enhanced SCHIP FMAP ranged from 65% to 83.12% across states.
All states, the District of Columbia, and five territories have SCHIP programs.
As of November 2006, 17 use Medicaid expansions, 18 use separate state programs,
and 21 use a combination approach. Approximately 6.7 million children were
enrolled in SCHIP during FY2006. In addition, 12 states reported enrolling about

700,000 adults in SCHIP through program waivers.

Medicare
Medicare is the nation’s health insurance program for persons aged 65 and over
and certain disabled persons. In FY2008, the program will cover an estimated 44.6
million persons (37.3 million aged and 7.3 million disabled) at a total cost of $456.3
billion. Federal costs (after deduction of beneficiary premiums and other offsetting
receipts) will total $389.7 billion. In FY2007, federal Medicare spending will
represent approximately 13% of the total federal budget and 3% of GDP. Medicare
is an entitlement program, which means that it is required to pay for all covered
services provided to eligible persons, so long as specific criteria are met.
Medicare consists of four distinct parts: Part A (Hospital Insurance, or HI); Part
B (Supplementary Medical Insurance, or SMI); Part C (Medicare Advantage, or
MA); and Part D (the new prescription drug benefit added by the Medicare
Prescription Drug, Improvement, and Modernization Act of 2003, or MMA). The
program is administered by CMS.

⁴ In addition to the original appropriation level of $5.04 billion this appropriation amount
includes supplemental funding up to $650 million. In some years, there were unspent prior
year funds that were available for a state’s use. As a result, relying on appropriation
amounts alone may not accurately reflect total funds available in any given year.

Medicaid
Medicaid is a means-tested entitlement program that finances the delivery of
primary and acute medical services as well as long-term care to more than 63 million
people at an estimated cost to the federal and state governments of roughly $317
billion. Each state designs and administers its own version of Medicaid under broad
federal rules. State variability in eligibility, covered services, and how those services
are reimbursed and delivered is the rule rather than the exception. In the federal
budget, Medicaid is an entitlement program that constitutes a large share of
mandatory spending. Federal Medicaid spending is open-ended, with total outlays
dependent on the spending levels of state Medicaid programs.
Summary of Provisions in H.R. 3162
Title I — Children’s Health Insurance Program
Section 100. Purpose. The House bill states that the purpose of the title is
to provide dependable and stable funding for children’s health insurance under titles
XXI (SCHIP) and XIX (Medicaid) of the Social Security Act in order to enroll all six
million children who are eligible, but not enrolled, for coverage today through such
titles.
Subtitle A — Funding
Section 101. Establishment of new base CHIP allotments. No
specific national appropriation amounts would be specified for FY2008 onward. The
annual appropriation would be determined automatically as the sum total of the
allotments calculated for all the states (including the District of Columbia) and
territories and commonwealths. No end year would be specified; the program would
receive annual appropriations in perpetuity.
Generally, a state’s FY2008 federal SCHIP allotment would be the greater of
(1) its own projection of federal SCHIP expenditures in FY2008, based on the state’s
May 2007 submission of projections provided to the Centers for Medicare and
Medicaid Services (CMS), and (2) the state’s FY2007 SCHIP allotment multiplied
by the allotment increase factor (described below). If the state enacted legislation
during 2007 that would expand eligibility or improve benefits (including reduction
of out-of-pocket expenditures) in its SCHIP program, the state may use its August

2007 submission of projections instead.

The allotment increase factor would be calculated annually as the product of the
following two components: (1) the per capita health care growth factor, and (2) the
child population growth factor. The per capita health care growth factor would be
equal to 1 plus the percentage increase in the projected per capita amount of National
Health Expenditures over the prior year’s. The child population growth factor would
be equal to 1.01 plus the percentage increase (if any) in the population of children
under 19 years of age in the state from July 1 in the previous fiscal year to July 1 in
the fiscal year involved.

Computation of future allotments would depend on the year. For FY2009 and
every future odd-numbered fiscal year, a state’s federal SCHIP allotment would be
equal to the prior year’s allotment multiplied by the allotment increase factor. For
FY2010 and every future even-numbered fiscal year, a state’s federal SCHIP
allotment would be “rebased.” In these years, the state’s allotment would be the prior
year’s federal SCHIP expenditures multiplied by the allotment increase factor.
Beginning with FY2008, the allotment to a territory or commonwealth would be
equal to its prior year federal SCHIP expenditures multiplied by the per capita health
care growth factor (described above) and by 1.01 plus the percentage increase (if any)
in the population of children under 19 years of age in the United States.
A state’s allotment as determined above may be increased through a
“performance-based shortfall adjustment.” To qualify for this adjustment, a state
would have to meet the following two requirements: (1) its federal SCHIP
expenditures in a fiscal year (beginning with FY2008) exceed the amount of federal
SCHIP allotments available to the state in the previous fiscal year (not including any
available SCHIP funds redistributed from other states), and (2) its average monthly
enrollment of children in SCHIP must have exceeded the target number for the year,
which is the prior year’s average monthly SCHIP enrollment increased by 1% and by
the state’s child population growth.
For the states that qualify, the performance-based shortfall adjustment would be
added to the state’s allotment at the start of the subsequent fiscal year. For example,
if a state experienced a shortfall in FY2008, a shortfall adjustment (if the state
qualified) would be added to the state’s FY2009 allotment. However, the legislation
also instructs the Secretary to “develop a process to administer the
performance-based shortfall adjustment in a manner so it is applied to (and before the
end of) the fiscal year (rather than the subsequent fiscal year) involved for a State that
the Secretary estimates will be in shortfall and will exceed its enrollment target for
that fiscal year.” The adjustment would be calculated as the product of (1) the
amount by which the actual average monthly caseload exceeded the target number
of enrollees, and (2) the state’s projected per capita SCHIP expenditures (state and
federal) multiplied by the enhanced FMAP for the state for the fiscal year involved.
Section 102. 2-year initial availability of CHIP allotments. SCHIP
allotments through FY2007 are available for three years. SCHIP allotments
beginning with FY2008 would be available for two years. Unspent FY2007
allotments and unspent FY2008 allotments would both be available for redistribution
in FY2010.
Redistributed funds would be available only for the fiscal year in which they are
provided. Redistributed funds that are unspent at the end of the fiscal year may then
be used for subsequent redistribution.
Section 103. Redistribution of unused allotments to address State
funding shortfalls. Only shortfall states would be eligible to receive redistributed
funds, in the amount of their projected shortfall for the fiscal year. If the amounts
available for redistribution exceed the amount of applicable shortfalls, the remaining
funds would be available for redistribution in the next fiscal year.

A shortfall state would be defined as a state in which its projected federal
SCHIP spending for the year exceeds the state’s available balances from (1) its own
remaining prior-year allotments, (2) the performance-based shortfall adjustment, and
(3) the current fiscal year’s allotment. If the estimated shortfalls exceed the funds
available for redistribution, the amounts to be redistributed to the shortfall states
would be reduced proportionally.
Section 104. Extension of option for qualifying States. Under current
law, §2105(g) of the Social Security Act permits qualifying states to apply federal
SCHIP funds toward the coverage of certain children already enrolled in regular
Medicaid (that is, not SCHIP-funded expansions of Medicaid). Specifically, these
federal SCHIP funds are used to pay the difference between SCHIP’s enhanced
FMAP and the Medicaid FMAP that the state is already receiving for these children.
Funds under this provision may only be claimed for expenditures occurring after
August 15, 2003.
Under current law, qualifying states are limited in the amount they can claim for
this purpose to the lesser of the following two amounts:
^!20% of the state’s original SCHIP allotment amounts (if available)
from FY1998-FY2001 and FY2004-FY2007 (hence the terms “20%
allowance” and “20% spending”); and
^!the state’s available balances of those allotments. If there is no
balance, states may not claim Section 2105(g) spending.
The statutory definitions for qualifying states capture most of those that had
expanded their upper-income eligibility levels for children in their Medicaid
programs to 185% of the federal poverty level or higher prior to the enactment of
SCHIP. Based on statutory definitions, 11 states were determined to be qualifying
states: Connecticut, Hawaii, Maryland, Minnesota, New Hampshire, New Mexico,
Rhode Island, Tennessee, Vermont, Washington and Wisconsin.
Under current law, SCHIP spending under §2105(g) can be used by qualifying
states only for Medicaid enrollees (excluding those covered by an SCHIP-funded
expansion of Medicaid) who are under age 19 and whose family income exceeds
150% of poverty, to pay the difference between the SCHIP enhanced FMAP and the
regular Medicaid FMAP.
In addition to the current-law provisions, qualifying states would be able to use
all of any allotment from FY2008 onward for SCHIP spending under §2105(g).
Subtitle B — Improving Enrollment and Retention of Eligible
Children
Section 111. CHIP performance bonus payment to offset additional
enrollment costs resulting from enrollment and retention efforts.
Beginning in FY2008 and ending with FY2013, the provision would establish an
additional performance bonus payment to offset Medicaid and SCHIP child

enrollment costs resulting from implementing specified enrollment and retention
efforts, and enrolling eligible children above specified target growth percentages.
States that implement at least 4 out of 7 specified enrollment and retention
efforts would receive a single bonus payment in a given fiscal year in an amount
equal to the weighted sum of the number of enrollees that exceed tiered target
enrollment growth levels in Medicaid and SCHIP multiplied by a share of projected
Medicaid and SCHIP per capita costs.
For such calculations, costs would be defined as projected average per capita
Federal and State Medicaid and SCHIP expenditures for children for the most recent
fiscal year, increased by the annual percentage increase in per capita amounts of
National Health Expenditures for the respective subsequent fiscal year, and
multiplied by a state matching percentage equal to 100% minus each such state’s
FMAP rate for the fiscal year involved. The bill also requires the Government
Accountability Office (GAO) to submit a report for Congress not later than January
1, 2013, regarding the effectiveness of the performance bonus payment program in
enrolling and retaining uninsured children in Medicaid and SCHIP.
Section 112. State option to rely on findings from an express lane
agency to conduct simplified eligibility determinations. Beginning in
January 2008, the provision would allow states the option to rely on a finding made
within a state-defined period from an Express Lane Agency to determine whether a
child under age 19 (or up to age 21 at state option) has met one or more of the
eligibility requirements (e.g., income, assets or resources, citizenship, or other
criteria) necessary to determine an individual’s initial eligibility, eligibility
redetermination, or renewal of eligibility for medical assistance under Medicaid.
If a finding from an Express Lane Agency results in a child not being found
eligible for Medicaid or SCHIP, the state would be required to determine Medicaid
or SCHIP eligibility using its regular procedures and the state would be required to
inform the family that they may qualify for lower premium payments if the family’s
income were directly evaluated for an eligibility determination by the state using its
regular policies. States may initiate an eligibility determination (and determine
program eligibility) without a program application based on findings from an Express
Lane Agency and information from sources other than the child only if the family has
affirmatively consented to being enrolled in Medicaid or SCHIP.
Signatures under penalty of perjury would not be required on a Medicaid
application form attesting to any element of the application for which eligibility is
based on information received from an Express Lane Agency or from another public
agency. The provision would authorize federal or state agencies or private entities
in possession of potentially pertinent data relevant for the determination of eligibility
under Medicaid to share such information with the Medicaid agency for the purposes
of child enrollment in Medicaid, and would impose criminal penalties for entities
who engage in unauthorized activities with such data.
Section 113. Application of Medicaid outreach procedures to all
children and pregnant women. Under current law, a Medicaid state plan must
provide for the receipt and initial processing of applications for medical assistance

for low-income pregnant women, infants, and children under age 19 at outstation
locations other than Temporary Assistance for Needy Families (TANF) offices such
as, disproportionate share hospitals, and Federally-qualified health centers. State
eligibility workers assigned to outstation locations perform initial processing of
Medicaid applications including taking applications, assisting applicants in
completing the application, providing information and referrals, obtaining required
documentation to complete processing of the application, assuring that the
information contained on the application form is complete, and conducting any
necessary interviews.
Effective January 1, 2008, the provision would provide for the receipt and initial
processing of applications for medical assistance for children and pregnant women
under any provision of this title, and would allow for such application forms to vary
across outstation locations.
Section 114. Encouraging culturally appropriate enrollment and
retention practices. The federal and state governments share in the costs of both
Medicaid and SCHIP, based on formulas defining the federal contribution in federal
law. The federal match for administrative expenditures does not vary by state and
is generally 50%, but certain administrative functions have a higher federal matching
rate.
The provision would permit states to receive Medicaid federal matching
payments for translation or interpretation services in connection with the enrollment
and use of services by individuals for whom English is not their primary language.
Payments for this activity would be matched at 75%.
Section 115. Continuous coverage under SCHIP. States are required
to redetermine Medicaid and SCHIP eligibility at least every 12 months with respect
to circumstances that may change and affect eligibility. Continuous eligibility allows
a child to remain enrolled for a set period of time regardless of whether the child’s
circumstances change (e.g., the family’s income rises above the eligibility threshold),
thus making it easier for a child to stay enrolled. Not all states offer it, but among
those that do the period of continuous eligibility ranges from 6 months to 12 months.
The provision would require separate SCHIP programs (or SCHIP programs
operating under the Section 1115 waiver authority) to implement 12 months of
continuous eligibility for targeted low-income children whose annual family income
is less than 200% FPL.
Subtitle C — Coverage
Section 121. Ensuring child-centered coverage. The provision would
make dental services, and services provided by federally qualified health centers
(FQHCs) and rural health clinics (RHCs) required benefits under SCHIP. States
would also be required to assure access to these services. The provision would
require that payments for FQHC and RHC services provided under SCHIP follow the
prospective payment system for such services under Medicaid, which provides
adjusted, per-visit cost-based reimbursement for such services. With respect to
benchmark-equivalent coverage, the provision would increase the minimum actuarial

value for mental health services from 75% to 100%. Benchmark coverage would
also be required to be at least equivalent to the benchmark benefit packages specified
in statute. These provisions would apply to coverage provided on or after October

1, 2008.

For the parallel benchmark package option available under Medicaid, as allowed
under the Deficit Reduction Act of 2005 (P.L. 109-171), the provision would require
coverage of the “Early and Periodic Screening, Diagnosis, and Treatment” (EPSDT)
benefit for individuals under age 21, whether such persons are enrolled in benchmark
plans, benchmark-equivalent plans, or otherwise. The effective date of this provision
would be March 31, 2006 (the date of enactment of the related DRA provisions).
The provision would also add “school-based health center services” to the
“clinic services” benefit category in SCHIP statute, and would apply this change to
services furnished on or after the date of enactment of this Act.
Section 122. Improving benchmark coverage options. The provision
would continue to allow Secretary-approved coverage under both SCHIP and under
the DRA option for Medicaid, but only if such coverage is at least equivalent to a
benchmark benefit package. The provision would also more explicitly define state
employees benchmark coverage for both SCHIP and the DRA option for Medicaid
to include the state employee plan that has been selected the most frequently, by
employees seeking dependent coverage, among such plans that provide dependent
coverage, in either of the previous two years. The provision would apply to health
benefits coverage provided on or after October 1, 2008.
Section 123. Premium grace period. States would have to provide
SCHIP enrollees with a grace period of at least 30 days from the beginning of a new
coverage period to make premium payments before the individual’s coverage may
be terminated. Within seven days after the first day of the grace period, the state
would have to provide the individual with notice that failure to make a premium
payment within the grace period will result in termination of coverage and that the
individual has the right to challenge the proposed termination pursuant to the
applicable federal regulations. This provision would be effective for new coverage
periods beginning on or after January 1, 2009.
Subtitle D — Populations
Section 131. Optional coverage of children up to age 21 under
CHIP. Generally, eligibility for children under Medicaid is limited to persons under
the age of 19 (or in some cases, persons under 18 or 21, for example). Under SCHIP,
children are defined as individuals under the age of 19. The provision would expand
the definition of child under SCHIP to include individuals under age 20 or 21, at state
option. The effective date would be January 1, 2008.
Section 132. Optional coverage of legal immigrants under the
Medicaid program and CHIP. States may provide full Medicaid coverage to
legal immigrants who meet applicable categorical and financial eligibility
requirements after such persons have been in the United States for a minimum of five

years. Sponsors can be held liable for the costs of public benefits (such as Medicaid
and SCHIP) provided to legal immigrants.
The provision would allow states to cover legal immigrants who are pregnant
women and/or children under age 21 (or such higher age as the state has elected)
under Medicaid or SCHIP before the five-year bar is met effective upon the date of
enactment. Sponsors would not be held liable for the costs associated with providing
benefits to such legal immigrants, and the cost of such assistance would not be
considered an unreimbursed cost.
Section 133. State option to expand or add coverage of certain
pregnant women under CHIP. Currently under SCHIP, states can cover
pregnant women ages 19 and older through waiver authority or by providing
coverage to unborn children as permitted through regulation. In the latter case,
coverage includes prenatal and delivery services only. The provision would allow
states to provide optional coverage to pregnant women under SCHIP through a state
plan amendment only if (1) the state has established an income eligibility level of at
least 185% FPL under Medicaid, but in no case a percentage that is lower than the
percentage in effect for certain coverage groups for pregnant women as of July 1,
2007, (2) the state has established an income eligibility level of at least 200% FPL
for children under SCHIP or Medicaid, and (3) the state does not impose certain
enrollment limitations for children under SCHIP.
For the new group of pregnant women under SCHIP, the lower income limit
would exceed 185% FPL (i.e., or the applicable Medicaid threshold, if higher) and
the upper income limit could be up to the level for coverage of SCHIP children in the
state. Other limitations on eligibility for children under SCHIP would also apply to
the new coverage group for pregnant women. States would not be permitted to
impose pre-existing condition exclusions or waiting periods, and all cost-sharing
incurred by pregnant women under SCHIP would be capped at 5% of annual income,
as is the case for SCHIP children. States adopting this new coverage group for
pregnant women under SCHIP would receive an adjustment to their annual SCHIP
allotments to cover these additional costs. (Different adjustments would apply
depending on whether a state did or did not cover pregnant women in SCHIP prior
to FY2008 through waiver or regulatory authority.) Pregnancy-related assistance
would include all services covered for children under SCHIP (excluding EPSDT),
and the period of coverage would be during pregnancy through the end of the month
in which the 60-day postpartum period ends.
Additional provisions would: (1) deem infants born to the new group of
pregnant women under SCHIP to be eligible for Medicaid or SCHIP, as applicable,
up to age one (without regard to whether the infant lives with the mother or whether
the mother remains eligible), (2) allow presumptive eligibility determinations for
pregnant women and children under SCHIP, and (3) allow entities that make
presumptive eligibility determinations for children under Medicaid to make such
determinations for pregnant women under SCHIP.
Section 134. Limitation on waiver authority to cover adults. Under
current law, Section 1115 of the Social Security Act gives the Secretary of Health and
Human Services (HHS) broad authority to modify virtually all aspects of the

Medicaid and SCHIP programs including expanding eligibility to populations who
are not otherwise eligible for Medicaid or SCHIP (e.g., childless adults). Approved
SCHIP Section 1115 waivers are deemed to be part of a state’s SCHIP state plan for
purposes of federal reimbursement. Costs associated with waiver programs are
subject to each state’s enhanced-FMAP. Under SCHIP Section 1115 waivers, states
must meet an “allotment neutrality test” where combined federal expenditures for the
state’s regular SCHIP program and for the state’s SCHIP demonstration program are
capped at the state’s individual SCHIP allotment.
The provision would prohibit the Secretary from allowing federal SCHIP
allotments to be used to provide health care services (under the Section 1115 waiver
authority) to individuals who are not targeted low-income children or pregnant
women (e.g., non-pregnant childless adults or parents of Medicaid or SCHIP eligible
children) unless the Secretary determines that no SCHIP-eligible child in the state
would be denied SCHIP coverage because of such eligibility. The provision would
require states to assure that they have not instituted a waiting list for their SCHIP
program, and that they have an outreach program to reach all targeted low-income
children in families with annual income less than 200% FPL.
Section 135. No federal funding for illegal aliens. Under the Medicaid
program, unauthorized aliens who meet all other program criteria are only eligible
for emergency coverage. Under SCHIP, states may opt to cover unauthorized aliens
who are pregnant, but covered services must be related to the pregnancy or to
conditions that could complicate the pregnancy or threaten the health of the unborn
child (who will be a U.S. citizen if he or she is born in the United States). The House
bill would specify that nothing in the bill allows federal payment for individuals who
are not legal residents.
Section 136. Auditing requirement to enforce citizenship
restrictions on eligibility for Medicaid and CHIP benefits. Federal
Medicaid law and associated Medicaid Eligibility Quality Control (MEQC)
regulations specify an allowable error rate (3%) for erroneous excess payments that
are due to eligibility errors, as well as a methodology for determining a state’s error
rate. Since error rates discovered through MEQC programs were consistently below
3% as of the mid-1990s, states were offered the option to develop alternative ways
to identify and reduce erroneous payments. The Improper Payments Information Act
of 2002 (IPIA, P.L. 107-300) also requires federal agencies to identify programs that
are susceptible to significant improper payments, estimate the amount of
overpayments, and report annually to Congress on those figures and on the steps
being taken to reduce such payments. To comply with IPIA, a new regulation on
Payment Error Rate Measurement (PERM) for Medicaid and SCHIP became
effective on October 1, 2006. With respect to these two programs, a subset of states
selected for review in a given year are reviewed using a statistically valid random
sample of claims and eligibility determinations to determine error rates. States must
submit a corrective action plan based on the error rate analysis, and must return
overpayments of federal funds.
Under the House bill, each state would be required to audit a statistically based
sample of individuals whose Medicaid or SCHIP eligibility is determined under one
of the following: (1) optional citizenship documentation rules for children (specified

in section 143 of the bill) or (2) optional coverage rules for legal immigrant pregnant
women and children (specified in section 132 of the bill) to demonstrate to the
satisfaction of the Secretary that federal Medicaid and SCHIP funds are not
unlawfully spent on individuals who are not legal residents. In conducting such
audits, a state may rely on MEQC or PERM eligibility reviews. States would be
required to remit the federal share of any unlawful expenditures which are identified
under the required audit.
Subtitle E — Access
Section 141. Children’s Access, Payment, and Equality
Commission. Among many tasks, this new Commission to be established by the
provision would review (1) factors affecting expenditures for services in different
sectors, payment methodologies, and their relationship to access and quality of care
for Medicaid and CHIP beneficiaries, (2) the impact of Medicaid and SCHIP policies
on the overall financial stability of safety net providers (e.g., FQHCs, school-based
clinics, disproportionate share hospitals), and (3) the extent to which the operation
of Medicaid and CHIP ensures access comparable to access under
employer-sponsored or other private health insurance.
This Commission would be required to make recommendations to Congress and
to submit two annual reports, the first focusing on results of reviews and related
policy recommendations and the second examining issues affecting these programs.
The Commission would also comment on any reports submitted to Congress by the
Secretary of HHS on Medicaid or SCHIP payment policies. The provision requires
that the Commission recommendations be voted on by all members, and the voting
results be included in each report. Recommendations would be required to consider
budget consequences. Certain provisions governing the Medicare Payment Advisory
Commission would apply to this new commission (i.e., relating to membership with
the addition of Medicaid and CHIP beneficiary representatives, staff and consultants,
and powers). The provision would authorize to be appropriated such sums as
necessary to carry out the duties of the new Commission.
Section 142. Model of Interstate coordinated enrollment and
coverage process. The provision would require the Comptroller General, in
consultation with State Medicaid, CHIP directors, and organizations representing
program beneficiaries to develop a model process (and report for Congress) for the
coordination of enrollment, retention, and coverage of children who frequently
change their residency due to migration of families, emergency evacuations,
educational needs, etc. The provision would require that such model process be
disseminated not later than 18 months after the date of enactment of this Act.
Section 143. Medicaid citizenship documentation requirements.
Under current law, noncitizens who apply for full Medicaid benefits have been
required since 1986 to present documentation that indicates a “satisfactory
immigration status.” Due to recent changes, citizens and nationals also must present
documentation that proves citizenship and documents personal identity in order for
states to receive federal Medicaid reimbursement for services provided to them. This
citizenship documentation requirement was included in the Deficit Reduction Act of

2005 (DRA, P.L. 109-171) and modified by the Tax Relief and Health Care Act of

2006 (P.L. 109-432). Before the DRA, states could accept self-declaration of
citizenship for Medicaid, although some chose to require additional supporting
evidence. The citizenship documentation requirement is outlined under Section
1903(x) of the Social Security Act and applies to Medicaid eligibility determinations
and redeterminations made on or after July 1, 2006. The law specifies documents
that are acceptable for this purpose and exempts certain groups from the requirement.
It does not apply to SCHIP. However, since some states use the same enrollment
procedures for all Medicaid and SCHIP applicants, it is possible that some SCHIP
enrollees would be asked to present evidence of citizenship.
The House bill would make Medicaid citizenship documentation for children
under age 21 a state option, using criteria that are no more stringent than the existing
documentation specified in section 1903(x)(3) of the Social Security Act. Groups
that are exempt from the citizenship documentation requirement would remain the
same as under current law, except for the inclusion of an additional permanent
exemption for children who are deemed eligible for Medicaid coverage by virtue of
being born to a woman on Medicaid. The provision would require additional
documentation options for federally recognized Indian tribes. It would also specify
that states must provide citizens with the same reasonable opportunity to present
evidence that is provided under section 1137(d)(4)(A) of the Social Security Act to
noncitizens who are required to present evidence of satisfactory immigration status
and must not deny medical assistance on the basis of failure to provide such
documentation until the individual has had such an opportunity. These changes
would be effective as if included in the Deficit Reduction Act of 2005, and states
would be allowed to provide retroactive eligibility for certain individuals who had
been determined ineligible under previous citizenship documentation rules.
Section 144. Access to dental care for children. The provision would
require the Secretary of HHS to develop and implement, through entities that fund
or provide perinatal care to CHIP children, a program to deliver oral health education
materials that inform new parents about risks for, and prevention of, early childhood
caries and the need for a dental visit within a newborn’s first year of life. The
provision also specifies that states may not prevent a federally qualified health center
(FQHC) from entering into contractual relationships with private practice dental
providers in the provision of FQHC services under both the Medicaid and CHIP
programs. The effective date of these provisions would be January 1, 2008.
The provision would also require that the data states submit on the CMS-416
form for Medicaid, documenting the receipt of EPSDT services in each fiscal year,
include parallel information on the receipt of dental services among CHIP children.
In addition, each annual CHIP report submitted by states to the Secretary of HHS
would be required to include similar information. These data would also be required
to include information on such children enrolled in managed care plans, other private
health plans, and contracts with such plans under CHIP. These amendments would
be effective for annual state CHIP reports submitted for years beginning after the date
of enactment of this Act.
Finally, the provision would also require GAO to conduct a study to examine
access to dental services by children in under-served areas and the feasibility and
appropriateness of using qualified mid-level dental health providers, in coordination

with dentists, to improve access for children to oral health services and public health
overall. The GAO would submit a report to Congress based on the findings of this
study not later than one year after the date of enactment of this Act.
Section 145. Prohibiting initiation of new health opportunity
account demonstration programs. The Deficit Reduction Act of 2005 allowed
the Secretary of HHS to establish no more then 10 demonstration programs within
Medicaid for health opportunity accounts (HOAs). HOAs are used to pay (via
electronic funds transfers) health care expenses specified by the state. As of July
2007, South Carolina was the only state to receive CMS approval for a Health
Opportunity Account Demonstration. The provision would prohibit the Secretary of
HHS from approving any new Health Opportunity Account demonstrations as of the
date of enactment of this Act.
Subtitle F — Quality and Program Integrity
Section 151. Pediatric health quality measurement program. The
Centers for Medicare and Medicaid Services (CMS) and the Agency for Healthcare
Research and Quality (AHRQ) are both actively involved in funding and
implementing an array of quality improvement initiatives, though only AHRQ has
engaged in activities specific to children.
The provision would require the Secretary of HHS to establish a child health
care quality measurement program. The purpose would be to develop and implement
pediatric quality measures on children’s health care that may be used by public and
private health care purchasers (and a system for reporting such measures), and
measures of overall program performance that may be used by public and private
sector health care purchasers. Not later than September 30, 2009, the Secretary
would be required to publish the recommended measures under this program for
years beginning with 2010. In developing and implementing this program, the
Secretary would be required to consult with a number of entities. The Secretary
would have the option to award grants and contracts to develop, test, validate, update,
and disseminate quality measures. The Secretary would also be required to provide
technical assistance to states to establish reporting of quality measures under both
Medicaid and CHIP.
Not later than January 1, 2009, and annually thereafter, the Secretary would be
required to collect, analyze, and make publicly available in an on-line format a
complete list of all measures in use by states to measure the quality of medical and
dental health services provided to Medicaid and SCHIP children by participating
providers, managed care entities, and plan issurers, and other information. Also, not
later than January 1, 2010, and every two years thereafter, the Secretary would be
required to report to Congress on the quality of health care for children enrolled in
Medicaid and SCHIP, and patterns of health care utilization by pediatric
charact eri s t i cs.
Section 152. Application of certain managed care quality
safeguards to CHIP. A number of sections of the Social Security Act apply to
states under title XXI (SCHIP) in the same manner as they apply to a state under title
XIX (Medicaid). These include the following: section 1902(a)(4)(C) (relating to

conflict of interest standards); paragraphs (2), (16), and (17) of section 1903(i)
(relating to limitations on payment); section 1903(w) (relating to limitations on
provider taxes and donations); and section 1920A (relating to presumptive eligibility
for children). The House bill would add subsections (a)(4), (a)(5), (b), (c), (d), and
(e) of section 1932 (relating to requirements for managed care) to the list of title XIX
provisions that apply under title XXI. It would apply to contract years for health
plans beginning on or after July 1, 2008.
Section 153. Updated federal evaluation of CHIP. Under prior law, the
Secretary was required to conduct an independent evaluation of 10 states with
approved CHIP plans, and to submit a report on that study to Congress by December
31, 2001. Ten million dollars was appropriated for this purpose in FY2000 and was
available for expenditure through FY2002. The 10 states chosen for the evaluation
were to be ones that utilized diverse approaches to providing CHIP coverage,
represented various geographic areas (including a mix of rural and urban areas), and
contained a significant portion of uninsured children. (The 10 states ultimately
chosen for the evaluation were California, Colorado, Florida, Illinois, Louisiana,
Missouri, New Jersey, New York, North Carolina and Texas.)
In addition to the information states were required to provide to the Secretary
in their own evaluations by March 31, 2000, the federal evaluation of the 10 states
was to include the following matters: (1) surveys of the target population (enrollees,
disenrollees, and individuals eligible for but not enrolled in CHIP); (2) an evaluation
of effective and ineffective outreach and enrollment practices, and identification of
enrollment barriers and key elements of effective outreach and enrollment practices,
including practices that have successfully enrolled hard-to-reach populations; (3) an
evaluation of the extent to which state Medicaid eligibility practices and procedures
are a barrier to the enrollment of children, and the extent to which coordination (or
lack of coordination) between Medicaid and CHIP affects enrollment; (4) an
assessment of the effect of cost-sharing on utilization, enrollment, and coverage
retention; and (5) an evaluation of disenrollment or other retention issues, such as
switching to private coverage, failure to pay premiums, or barriers in the
recertification process.
As before, directly or through contracts or interagency agreements, the provision
would require the Secretary to conduct an independent evaluation of 10 states with
approved CHIP plans. The new evaluation would be submitted to Congress by
December 31, 2010. Ten million dollars would be appropriated for this purpose in
FY2009 and made available for expenditure through FY2011. The current-law
language for the types of states to be chosen and the matters included in the
evaluation would also apply to this new evaluation.
Section 154. Access to records for IG and GAO audits. Every third
fiscal year (beginning with FY2000), the Secretary (through the Inspector General of
the Department of Health and Human Services) must audit a sample from among the
states with an approved SCHIP state plan that does not, as part of such plan, provide
health benefits coverage under Medicaid. The Comptroller General of the United
States must monitor these audits and, not later than March 1 of each fiscal year after
a fiscal year in which an audit is conducted, submit a report to Congress on the
results of the audit conducted during the prior fiscal year. Under the House bill, for

the purpose of evaluating and auditing the SCHIP program, the Secretary, the Office
of Inspector General, and the Comptroller General would have access to any books,
accounts, records, correspondence, and other documents that are related to the
expenditure of federal SCHIP funds and that are in the possession, custody, or control
of states, political subdivisions of states, or their grantees or contractors.
Section 155. References to XXI. The provision would repeal the section
in P.L. 106-113 that directed the Secretary of HHS or any other federal officer or
employee, with respect to references to the program under Title XXI, in any
publication or official communication to use the term “SCHIP” instead of “CHIP”
and to use the term “State children’s health insurance program” instead of “children’s
health insurance program.” Thus, for official publication and communication
purposes, the provision would reinstate “CHIP” and “children’s health insurance
program,” as applicable, when referencing Title XXI.
Section 156. Reliance on law; exception for state legislation. This
provision states that with respect to amendments made by title I or title VIII of the
House bill that become effective as of a date, the following would apply: (1) that
such amendments are effective as of such date whether or not regulations
implementing such amendments have been issued, and (2) that federal financial
participation for medical or child health assistance furnished under Medicaid or
SCHIP on or after such date by a state in good faith reliance on such amendments
before the date of promulgation of final regulations (if any) to carry out such
amendments, or the date of guidance (if any) regarding the implementation of such
amendments shall not be denied on the basis of the state’s failure to comply with
such regulations or guidance. The provision also provides a grace period for states
that require state legislation in order to meet certain requirements imposed by the
House bill.
Title II — Medicare Beneficiary Improvements
Subtitle A — Improvements in Benefits
Section 201. Coverage and Waiver of Cost-Sharing for Preventive
Services. Medicare Part B generally pays 80% of the approved amount for covered
services in excess of the annual deductible ($131 in 2007). The beneficiary is liable
for the remaining 20%. The deductible and/or coinsurance are waived for certain
services, primarily preventive services. The provision would add a new category of
additional preventive services (including mental health services) that the Secretary
determined to be reasonable and necessary for the prevention or early detection of an
illness or disability. No coinsurance would apply for such services or for services
provided in a hospital outpatient department or for sigmoidoscopies and
colonoscopies. The deductible would be waived for all preventive services. All
preventive services, including the new additional preventive services category, would
be included within the definition of the initial preventive physical exam. The
provision would apply to services furnished on or after January 1, 2008.

Section 202. Waiver of Deductible for Colorectal Cancer Screening
Tests Regardless of Coding, Subsequent Diagnosis, or Ancillary Tissue
Removal. The Medicare Part B deductible does not apply to colorectal cancer
screening tests. Effective January 1, 2008, the provision would specify that the
waiver of the deductible would apply regardless of the coding, subsequent diagnosis,
or the removal of tissue or other matter or procedure performed in connection with
and as a result of the screening test.
Section 203. Parity for Mental Health Coinsurance. Medicare Part B
generally pays 80% of the approved amount (generally a fee schedule or other
predetermined amount) for covered services in excess of the annual deductible.
However, it pays 62 ½% of covered expenses incurred in connection with the
treatment of mental, psychoneurotic, and personality disorders of a person who is not
a hospital inpatient. As a result it generally pays 50% rather than 80% of Medicare’s
recognized amount. The provision would eliminate the limitation effective January

1, 2008.

Subtitle B — Improving, Clarifying, and Simplifying Financial
Assistance for Low-Income Medicare Beneficiaries
Section 211. Improving Assets Tests for Medicare Savings Program
and Low-Income Subsidy Program. The law includes assets tests for
determining eligibility for both the low-income subsidy (LIS) assistance program for
Part D drug benefits and the Medicare Savings Program (MSP). In 2007, the
maximum LIS level is $10,210 for an individual and $20,410 for a couple (increased
in future years by the percentage increase in the CPI). The maximum MSP level is
$4,000 for an individual and $6,000 for a couple. The provision would increase the
maximum resources levels, effective January 1, 2009, to $17,000 for an individual
and $34,000 for a couple. In subsequent years, it would be the previous year’s level
increased by the consumer price index.
Section 212. Making QI-1 Program Permanent and Expanding
Eligibility. Certain low-income individuals are eligible to have their Medicare Part
B premiums paid for by Medicaid under the Medicare Savings Program (MSP). One
eligible group is Qualifying Individuals (QI-1s). These persons have incomes
between 120% and 135% of poverty. Federal spending under the QI-I program is
subject to annual limits. The program is currently slated to terminate September 30,
2007. The provision would make the program permanent, eliminate the current
federal funding limitation, provide 100% federal matching for payments under the
program, and increase the income standard to 150% of poverty, effective January 1,

2008.

Section 213. Eliminating Barriers to Enrollment. Effective January 1,

2009, the provision would permit applicants for the low-income subsidy (LIS)

program to qualify on the basis of self-certification of income and resources. Matters
attested to in the application would be subject to appropriate verification without a
requirement for additional documentation except in unusual circumstances. These
persons would continue to remain eligible without the need for any annual or periodic
application until they notified a federal or state official of a change in circumstances.

The provision would require the Secretary to take all reasonable steps to encourage
states to provide, under the MSP program, for administrative verification of income
and automatic reenrollment. The provision would extend the outreach requirements
currently applicable for the Commissioner of Social Security. It would require the
Secretary to translate the model application form into at least 10 languages and to
make such translated forms available to the states and to the Commissioner of Social
Security. For two years the Commissioner of Social Security would be allowed to
obtain information from the IRS to identify persons potentially eligible for LIS.
Section 214. Eliminating Application of Estate Recovery. Medicaid
law requires states to recover, from the estate of the beneficiary, amounts paid by the
program for certain long-term care, related services, and other services at state
option. Effective January 1, 2008, the provision would exempt from estate recovery
any Medicaid payments for premiums, deductibles, and coinsurance made on behalf
of an individual eligible under the Medicare Savings Program.
Section 215. Elimination of Part D Cost-Sharing for Certain
Non-Institutionalized Full-Benefit Dual Eligible Individuals. Full benefit
dual eligibles who are residents of a medical institution or nursing facility have no
Part D cost-sharing. Effective January 1, 2009, the provision would extend the cost-
sharing exemption to persons who would otherwise require institutional care paid for
by Medicaid except for the fact that they are receiving care under a home- and
community-based care waiver.
Section 216. Exemptions From Income and Resources For
Determination of Eligibility for Low-Income Subsidy. The definitions of
income and assets used for making eligibility determinations for low-income
subsidies generally follow that used for determining eligibility under the Medicare
Savings program. Certain items are excluded from the calculations. Effective
January 1, 2009, the provision would exclude support and maintenance furnished in
kind from the definition of income. It would also exclude the following from the
definition of resources: (1) any part of the value of any life insurance policy; and (2)
any balance in any pension or retirement plan.
Section 217. Cost-Sharing Protections for Low-Income Subsidy
Eligible Individuals. Non-institutionalized persons who are low-income subsidy
individuals are required to pay nominal cost-sharing charges. The provision would
limit aggregate cost-sharing in a year to 5% of income, effective January 1, 2009.
Section 218. Intelligent Assignment in Enrollment. The law requires
automatic enrollment for full benefit dual eligibles who failed to enroll in a Part D
plan. Individuals are enrolled with the plan in the region that has a premium not
exceeding the premium subsidy amount. If more than one such plan is available,
enrollment among these plans is made on a random basis. The provision would
specify that for enrollments effected on or after November 15, 2009, no Part D full
benefit dual eligible individual could be enrolled in a plan unless one of the following
apply: (1) the formulary covered 95% of the 100 most commonly prescribed generic
covered Part D drugs and 95% of the 100 most commonly prescribed brand name
covered Part D drugs for the Medicare population; (2) the plan had a network of
pharmacies that substantially exceeded the minimum requirements for plans in the

state and that provided access in areas where lower income individuals resided; (3)
the plan (except for a new plan) had an above average score on quality ratings made
by the Secretary; (4) the total cost of providing coverage under the plan (consistent
with the new requirements)was among the lowest 25th percentile of prescription
plans under Part D in the state.
Subtitle C — Part D Beneficiary Improvements
Section 221. Including Costs Incurred By Aids Drug Assistance
Programs and Indian Health Service in Providing Prescription Drugs
Toward the Annual Out of Pocket Threshold Under Part D. Beneficiaries
enrolled in prescription drug plans under Part D are required to incur a certain level
in out-of-pocket costs in connection with the purchase of covered drugs before
catastrophic coverage begins. Costs are treated as incurred, and thus treated as true
out-of-pocket (TROOP) costs only if they are paid by the individual (or by another
family member on behalf of the individual), paid on behalf of a low-income
individual under the subsidy provisions, or under a state pharmaceutical assistance
program. Any costs for which the individual is reimbursed by insurance or otherwise
do not count toward the TROOP amount. Beginning January 1, 2009, the provision
would count toward TROOP costs paid by the Indian Health Service, Indian tribe or
tribal organization or an urban Indian organization and costs paid under an AIDS
Drug Assistance Program under Part B of Title XXVI of the Public Health Service
Act.
Section 222. Permitting Mid-Year Changes in Enrollment for
Formulary Changes Adversely Impacting an Enrollee. Part D plans can
change their formularies at the beginning of a year; during the year, plans can make
changes only after giving notice. CMS policy specifies that plans should make
formulary changes (such as removing drugs from the formulary, moving drugs to a
less preferred tier status, or adding utilization management requirements) during the
year only if enrollees currently taking the affected drugs are exempted from the
change for the remainder of the plan year. The provision would establish a special
open enrollment period, beginning January 1, 2009, for an individual to change plans
during a period (other than during the annual open enrollment period) if the
formulary of their existing plan materially changed (other than at the end of the
contract year) such as to reduce coverage or change the cost-sharing of the drug.
Section 223. Removal of Exclusion of Benzodiazepines From
Required Coverage Under the Medicare Prescription Drug Program. The
provision would remove, effective January 1, 2013, the existing exclusion of
benzodiazepines from those drugs that prescription drug plans are required to include
in their formularies.
Section 224. Permitting Updating Drug Compendia under Part D
Using Part B Update Process. The provision would permit the Secretary to
update drug compendia used under Part D using a process similar to that used for
Part B.

Section 225. Codification of Special Protections for Six Protected
Drug Classifications. Part D plans are required to include in their formularies
drugs within each therapeutic category and class of covered Part D drugs, although
not necessarily all drugs within such categories and classes. CMS has required plans
to cover all or substantially all drugs in the following six classes: anticonvulsants,
antineoplastics, antiretrovirals, antidepressants, antipsychotics, and
immunosuppressives. The provision would codify this requirement effective January
1, 2009. A plan sponsor would only be permitted to use prior authorization or step
therapy for the initiation of medications within one of these classifications if
approved by the Secretary. However, such prior authorization or step therapy could
not be used in the case of antiretrovirals or in the case of individuals already
stabilized on a drug treatment regimen.
Section 226. Elimination of Medicare Part D Late Enrollment
Penalties Paid by Low-Income Subsidy-Eligible Individuals. A late
enrollment penalty is assessed on persons who go for 63 days or longer after the close
of their initial Part D enrollment period without creditable coverage and subsequently
enroll in Part D. CMS waived this penalty for 2006 and 2007 for persons deemed
eligible for a low-income subsidy after the close of their initial enrollment period.
The provision would eliminate the late enrollment penalties for low-income subsidy
eligible individuals, beginning January 2008.
Section 227. Special Enrollment Period for Low-Income Subsidy
Eligible Individuals. CMS established special enrollment periods for 2006 and
2007 for persons determined eligible for a low-income subsidy outside of the annual
open enrollment period. The provision would establish, beginning January 1, 2008,
a special 90- day enrollment period for such persons beginning on the date the
individual received notification that they were subsidy eligible. The Secretary would
be required to provide for a facilitated enrollment in a plan for persons deemed low
income subsidy eligible but who failed to enroll in a plan.
Subtitle D — Reducing Health Disparities
Section 231. Medicare Data on Race, Ethnicity, and Primary
Language. The provision would require the Secretary to collect and annually
analyze data on race, ethnicity and the primary language of Medicare applicants and
beneficiaries to be used in analyses related to health disparities. The Secretary would
report the results of these analyses annually to the Director of the Office for Civil
Rights and the appropriate committees of Congress. The Secretary would be required
to develop and implement a plan to improve the collection, analysis, and reporting
of racial, ethnic, and primary language data within the Medicare program. In
consultation with the National Committee on Vital Health Statistics, the Office of
Minority Health, and other public and private entities, the Secretary would be
required to make recommendations on racial, ethnic, and primary language data
collection, awareness, quality, analysis, access, and use. Within one year of the
enactment of the Act, the Director of the Office of Minority Health, in consultation
with the Office for Civil Rights of the Department of HHS, would be required to
develop and disseminate Standards for the Classification of Federal Data on Preferred
Written and Spoken Language. The Secretary would be allowed to provide direct or

indirect technical assistance to enable a Medicare health care provider or plan to
comply with racial, ethnic, and primary language data collection. The Secretary,
acting through the Director of the Agency for Health Care Research and Quality
(AHRQ) and the Administrator of the Centers for Medicare and Medicaid Services
(CMS) would be required to (1) identify appropriate quality assurance mechanisms
to monitor for health disparities under Medicare, (2) specify the measures that should
be monitored, (3) develop new quality measures for racial and ethnic disparities in
health and health care, (4) identify the level at which data analysis should be
conducted, and (5) share data with external organizations for research and quality
improvement purposes, in compliance with applicable federal privacy laws. Not later
than two years after the date of enactment, and biennially thereafter, the Secretary
would submit to the appropriate committees of Congress a report on the effectiveness
of data collection, analysis, and reporting on race, ethnicity, and primary language
under the Medicare program. An applicant or recipient of assistance could not be
denied or otherwise adversely affected because of the failure of the applicant or
recipient to provide data. The data collected for these purposes would be protected
under the Health Insurance Portability and Accountability Act of 1996 (HIPAA).
The Secretary would also ensure that the data is protected from all inappropriate
internal use by any entity. The provision authorizes to be appropriated such sums as
may be necessary for FY2008 to 2012.
Section 232. Ensuring effective communication by the CMS. The
provision would require the Secretary to conduct a study examining ways that
Medicare should pay for language services, using the results from the demonstration
program described in Section 233. In considering payment methods, the Secretary
could vary the types of service providers, available delivery methods, and costs for
providing language services. The Secretary would be required to submit a report on
the study to the appropriate committees of Congress within one year of the expiration
of the demonstration program. If a Medicare Part C organization failed substantially
to provide language services to limited English proficient beneficiaries enrolled in
the plan, then the Secretary would be allowed to place sanctions on the organization.
Section 233. Demonstration to promote access for Medicare
beneficiaries with limited English proficiency by providing
reimbursement for culturally and linguistically appropriate services.
The provision would require the Secretary, acting through the CMS, to award 24
three-year demonstration grants to eligible Medicare service providers within one
year of the enactment of the Act. The purpose of the demonstrations would be to
improve communication between Medicare service providers and Medicare
beneficiaries who are living in communities where racial and ethnic minorities,
including populations that face language barriers, are underserved with respect to
such services. Each three-year grant must be less than or equal to $500,000. Only
service providers under Medicare Part A, B, C, or D would be eligible for the grants.
To the extent feasible, the Secretary would be required to award the grants to an
equal number of service providers under each part of Medicare (Parts A, B, C, and
D), such that 6 providers, sponsors, or organizations under each of the 4 parts would
receive grants. The Secretary would be required to ensure that variation exists among
grantees, giving priority consideration to applicants that have developed partnerships
with community organizations or with agencies with experience in language access.

A grantee would be allowed to use the grant funds to pay for the provision of
competent language and translation services to Medicare beneficiaries who are
limited English proficient. Grantees who are also Medicare Part C organizations or
Part D sponsors would be required to ensure that their network providers, including
physicians and pharmacies, receive at least 50% of the grant funds to pay for the
provision of competent language services to Medicare beneficiaries who are limited
English proficient. The limited English proficient beneficiaries would not be
required to pay cost-sharing or co-pays for language services provided through the
demonstration.
Payments to grantees would be required to be calculated based on the estimated
number of limited English proficient Medicare beneficiaries in a grantee’s service
area. Payments would be contingent on grantees reporting their costs of providing
language services and utilizing competent bilingual staff, or competent interpretation
or translation services. Grantees would be required to provide, at the conclusion of
each grant year, reports to the Secretary.
The Secretary would be required to conduct an evaluation of the demonstration
program and submit a report to the appropriate committees of Congress within one
year after completion of the program. There would be authorized to be appropriated
$10,000,000 for each fiscal year of the demonstration.
Section 234. Demonstration to improve care to previously
uninsured. The provision would require the Secretary to establish, within one year
of the date of enactment of the provision, a two-year demonstration project to
determine the greatest needs and most effective methods of outreach to Medicare
beneficiaries who were previously uninsured. The demonstration would be required
to include at least 10 sites, as well as state health insurance assistance programs,
community health centers, and other service providers under Medicare Parts A, B,
and C. The Secretary would be required to conduct an evaluation of the
demonstration, and submit a report to Congress within one year of the completion of
the project.
Section 235. Office of the Inspector General report on compliance
with and enforcement of national standards on Culturally and
Linguistically Appropriate Services (CLAS) in Medicare. This provision
would require the Inspector General of the Department of HHS to prepare and
publish a report, within two years of the date of enactment of the Act, that examines
the extent to which Medicare providers and plans are complying with the Office of
Civil Rights’ Guidance to Federal Financial Assistance Recipients Regarding Title
VI Prohibition Against National Origin Discrimination Affecting Limited English
Proficient Persons and the Office of Minority Health’s Culturally and Linguistically
Appropriate Services Standards in health care. The report must also describe the
costs or savings related to the provision of language services and recommend ways
of improving compliance with and enforcement of Culturally and Linguistically
Appropriate Services (CLAS) Standards. Within one year of the report’s publication
date, the Department of HHS would be required to implement any changes resulting
from any deficiencies identified in the report.

Section 236. IOM report on impact of language access services.
This provision would require the Institute of Medicine to prepare and publish a
report, within three years, on the impact of language access services on the health and
health care of limited English proficient populations.
Section 237. Definitions. The provision defines the terms bilingual,
competent interpreter services, competent translation services, effective
communication, interpreting/interpretation, health care services, health care-related
services, language access, language services, limited English proficient, Medicare
program, and service provider.
Title III — Physicians’ Service Payment Reform
Section 301. Establishment of Separate Target Growth Rates for
Service Categories. Medicare pays for services of physicians and certain
nonphysician practitioners on the basis of a fee schedule. With a few exceptions,
most physicians’ services are considered together in the calculation of the fee
schedules, related expenditure targets and annual updates. In some instances, special
rules apply to the calculation of Medicare fees for some services including
anesthesia, radiology, and nuclear medicine. The Medicare physician fee schedule
assigns relative values to services that reflect physician work (i.e., the time, skill, and
intensity it takes to provide the service), practice expenses, and malpractice costs.
The relative values are adjusted for geographic variations in costs. The adjusted
relative values are then converted into a dollar payment amount by a conversion
factor. The single conversion factor for 2007 is $37.8975, the same level as in 2005
and 2006.
The physician fee schedule places a limit on payment per service but not on
overall volume of services. The formula for calculating the annual update to the
conversion factor responds to changes in volume. If the overall volume of services
increases, the update is lower; if the overall volume is reduced, the update is higher.
The intent of the formula is to place a restraint on overall increases in Medicare
spending for physicians’ services.
Several factors enter into the current calculation of the annual update (and
increase or decrease) of Medicare physician fees. These include (1) the Medicare
economic index (MEI), which measures inflation in the inputs needed to produce
physicians’ services; (2) the sustainable growth rate (SGR), which is essentially a
target for Medicare spending growth for physicians’ services; and (3) an adjustment
that modifies the update, which would otherwise be allowed by the MEI, to bring
spending in line with the SGR target. The SGR target is not a limit on expenditures.
Rather, the fee schedule update reflects the success or failure in meeting the target.
If expenditures exceed the target, the update for a future year is reduced. This is what
occurred for 2002. Fee reductions were also slated to occur in subsequent years;
however, legislation has prevented this from occurring through 2007. Most recently,
the Tax Relief and Health Care Act of 2006 (TRHCA, P.L.109-432) kept the 2007
conversion factor at the 2006 level.

The performance adjustment factor sets the conversion factor at a level so that
projected spending for the year will meet allowed spending by the end of the year.
Current law restrictions prevent the adjustment factor from being less than minus 7%
or more than plus 3%. Under the current update formula, a reduction in the
conversion factor will occur for the next several years. In the absence of legislation,
payment rates will be reduced by about 10% in 2008 and around 5% annually for at
least several years thereafter. The 2008 estimate reflects the fact that TRHCA
specified that the 2007 override of the statutory formula was to be treated as if it did
not occur. Therefore, the starting base for the calculation is 5% below the actual
2007 conversion factor. Further, for the six-month period from July 1, 2007 to
December 31, 2007, physicians who voluntarily report certain quality measures that
meet the reporting criteria can receive bonus payments of 1.5%.
The provision would create six new categories of physicians’ services beginning
January 1, 2008: (1) evaluation and management services for primary care and for
preventive services; (2) evaluation and management services not included in (1); (3)
imaging services and diagnostic tests (other than clinical diagnostic laboratory tests);
(4) major procedures; (5) anesthesia services; and (6) minor procedures and any other
physicians’ services not described above. The provision would eliminate the single
conversion factor currently applied to all physician services and establish a separate
conversion factor for each of the six newly created service categories.
Beginning with 2008, the conversion factors would be computed and updated
separately for each of the six service categories, as would be the target growth rate
and the allocation of the cumulative adjustment component, or overhang. However,
in the calculation of the target growth rate, the rate would be increased by 2.5% for
the primary and preventive health care category. The provision would establish a
floor for updates equal to 0.5% for 2008 and 2009. However, the restriction on the
update adjustment factor for 2010 and 2011 would be changed from -7% to -14%,
and for 2013 and each succeeding year the update conversion factor for each of the
service categories would be 0%.
Section 302. Improving accuracy of relative values under the
Medicare physician fee schedule. Medicare pays for services of physicians and
certain nonphysician practitioners on the basis of a fee schedule. The fee schedule
assigns relative values to services that reflect physician work (i.e., the time, skill, and
intensity it takes to provide the service), practice expenses, and malpractice costs.
The work relative value units (RVUs) incorporated in the initial fee schedule were
developed after extensive input from the physician community. Refinements in
existing values and establishment of values for new services have been included in
the annual fee schedule updates. This refinement and update process is based in part
on recommendations made by the American Medical Association/ Specialty Society
Relative Value Update Committee (RUC) which receives input from over 100
specialty societies.
Traditionally, the five-year review has led to more increases in work RVUs than
decreases. MedPAC and other observers have stated that more attention needs to be
given to overvalued services in order to maintain the integrity of the fee schedule.
The most recent five-year review resulted in significant increases in values for

evaluation and management services; however, the impact was reduced by the budget
neutrality adjustment.
This provision would require the Secretary to establish an expert panel to
identify misvalued physicians’ services. The panel would conduct data analysis to
identify physicians’ services for which the relative value is potentially misvalued,
particularly those which are overvalued, and assess whether those misvalued services
warrant review through existing processes. The panel would also advise the Secretary
as part of the periodic review (not less than every five years) and adjustments in
relative values.
The Secretary would consult with the expert panel and would also perform the
following: (1) in conjunction with the RUC five-year review, conduct a five-year
review of physicians’ services that have experienced substantial changes in length of
stay, site of service, volume, practice expense, or other factors that may indicate
changes in physician work; (2) identify new services to determine if they are likely
to experience a reduction in value over time and forward a list of the services
identified to the RUC for review in the next five-year review cycle; and (3) for
physicians’ services that are otherwise unreviewed by the RUC, periodically review
a sample of relative value units within different types of services to ensure the
accuracy of the relative values contained in the Medicare physician fee schedule.
The provision would give the Secretary the authority to reduce the work
component for services with accelerated volume growth without using the RUC
process beginning January 1, 2009. In consultation with the expert panel described
above, the Secretary would be able to reduce the work value units for a particular
physicians’ service if the annual rate of growth in expenditures for the service
provided under Medicare for 2006 or a subsequent year exceeds the average annual
rate of growth in expenditures for all Medicare physicians’ services by more than 10
percentage points. The Secretary would take into account clinical evidence
supporting or refuting the merits of such accelerated growth. The Secretary would
also be granted the authority to adjust payments for efficiency gains for new
procedures. The Secretary may apply a methodology, based on supporting evidence,
under which there is imposed a reduction over a period of years in specified value
units in the case of a new (or newer) procedure to take into account inherent
efficiencies that are typically or likely to be gained during the period of initial
increased application of the procedure.
Section 303. Physician feedback mechanism on practice patterns.
Both MedPAC and GAO have recently recommended providing information to
physicians on their resource use. MedPAC asserts that physicians would be able to
assess their practice styles, evaluate whether they tend to use more resources than
their peers or what evidence-based research (if available) recommends, and revise
practice styles as appropriate. MedPAC notes that in certain instances, the private
sector use of feedback has led to a small downward trend in resource use. According
to MedPAC, Medicare has the potential to be more successful since it is the single
largest purchaser of health care and therefore its reports should command more
attention. MedPAC states that using the results for physician education would
provide CMS and physicians with experience with the measurement tool and allow
for refinements. With more experience and confidence in the approach, physician

feedback on resource use could be used for payment purposes or to create other
incentives.
In an April 2007 report (Focus on Physician Practice Patterns Can Lead to
Greater Program Efficiency), GAO explored linking physician compensation to
efficiency - defined as providing and ordering a level of services sufficient to meet
a patient’s needs but not excessive given a patient’s health status. The analysis
focused on generalists, namely physicians who defined their specialty as general
practice, internal medicine, or family practice. The report categorized physicians
who treated a disproportionate share of overly expensive patients as outlier
generalists. The report found outlier generalist physicians in all twelve metropolitan
areas studied. GAO found that Medicare patients who saw outlier generalists were
more likely to have been hospitalized, more likely to have been hospitalized multiple
times, and more likely to have used home health services. They were however, less
likely to have been admitted to a skilled nursing home.
The GAO report noted that certain public and private health care purchasers
routinely evaluate physicians in their networks using measures of efficiency and other
factors. It noted that the purchasers it studied linked their evaluation results to a
range of incentives, from steering patients toward the most efficient providers to
excluding physicians from the provider’s network because of inefficient practice
patterns. GAO noted that while CMS has the tools available to evaluate physician
practices it may not have the flexibility that other purchasers have to link physician
profiling results to a range of incentives to encourage efficiency.
The provision would require the Secretary of Health and Human Services to
develop and implement a mechanism to measure resource use on a per capita and an
episode basis by June 1, 2008. This activity is meant to provide feedback to
physicians who participate in the Medicare program on how their practice patterns
compare to physicians generally, both in the same locality as well as nationally. This
feedback would not be subject to disclosure under the Freedom of Information Act.
Section 304. Payments for Efficient Physicians. MMA provided for an
additional 5% in payments for certain physicians in scarcity areas for the period
January 1, 2005 through December 31, 2007. The Secretary was required to
calculate, separately for practicing primary care physicians and specialists, the ratios
of such physicians to Medicare beneficiaries in the county, rank each county (or
equivalent area) according to its ratio for primary care and specialists separately, and
then identify those scarcity areas with the lowest ratios which collectively represented
20% of the total Medicare beneficiary population in those areas. The list of counties
was to be revised no less often than once every three years unless there were no new
data. The listing of counties appeared in Appendix I and Appendix J of the 2005
physician fee schedule update.
This provision would create incentive payments under the Medicare program
for physicians practicing in areas identified as an efficient area. From January 1,
2009 through December 31, 2010, physicians practicing in counties or equivalent
areas that are in the lowest fifth percentile based on per capita spending for Medicare
Part A and Part B, standardized to eliminate the effect of geographic adjustments in
payment rates, would receive an amount equal to 5% of the Medicare payment

amount. For each year, the Secretary would identify and post low volume areas as
part of the proposed and final rule to implement the annual physician fee schedule.
The Secretary would post the list of counties identified on the CMS website.
Section 305. Recommendations on refining the physician fee
schedule. The provision would modify the physician fee schedule by requiring the
Secretary to analyze and recommend ways to consolidate coding for procedures and
to increase use of bundled payments. No later than December 31, 2008, the Secretary
of Health and Human Services would be required to complete an analysis of those
procedures under the Medicare physician fee schedule for which there is no global
payment methodology being applied for which a bundled payment methodology
would be appropriate, and submit a report on such analysis and recommendations on
increasing the use of bundled payments under the Medicare physician fee schedule.
Section 306. Improved and Expanded Medical Home Demonstration
Project. Advocates of the advanced medical home concept propose a vision of
health care focused on physician-guided, patient-centered care through the promotion
of continuous care relationships and the delivery of care in a variety of settings
according to the needs of the patient and skills of the medical provider. In theory, the
advanced medical home model emphasizes patient-centered, physician-guided,
cost-efficient, longitudinal care over episodic, illness-oriented, complaint-based care.
The personal physician would coordinate and facilitate care and provide guidance,
insight, and advice to help the patients. In most cases, primary care physicians, with
their office care team, would be best suited to provide principal care and be a
patient’s care coordinator, or personal physician, in the advanced medical home
model. However, a medical specialist with his or her office care team could also
fulfill the role of personal physician. Proponents of this model claim that a personal
physician would be able to coordinate and facilitate the care of patients and would
be directly accountable to each patient, in contrast to a “gatekeeper” who is
sometimes viewed as an impediment, restricting patient access to services.
Section 204 of the Tax Relief and Health Care Act of 2006 mandated a
Medicare medical home demonstration project. The demonstration is to be
conducted in up to 8 states to provide targeted, accessible, continuous and
coordinated family-centered care to Medicare beneficiaries who are deemed to be
high need (with multiple chronic or prolonged illnesses that require regular medical
monitoring, advising or treatment.) CMS anticipates selecting a contractor to provide
assistance in the design of the Medical Home Demonstration by September, 2007.
Implementation is expected by late September, 2008.
The provision would require the Secretary to establish an expanded medical
home Medicare demonstration project (“expanded project”), which would supersede
the project initiated under section 204 of the Tax Relief and Health Care Act of 2006.
The expanded project’s purposes would be as follows: (1) to guide the redesign of
the health care delivery system to provide accessible, continuous, comprehensive,
and coordinated care to Medicare beneficiaries; and (2) to provide care management
fees to personal physicians delivering continuous and comprehensive care in
qualified medical homes.

Under the expanded Medicare medical home project, the Secretary would
provide a monthly medical home care management fee payment to the personal
physician of each participating beneficiary. In determining the amount of the fee, the
Secretary would consider the operating expenses, the added value services, a risk
adjustment, a HIT adjustment, and a performance-based payment.
The expanded project would be funded through monies for the original
demonstration as well as $500,000,000 of additional funds from the Federal
Supplementary Medical Insurance Trust Fund (Part B). This would include the
payments of the monthly medical home care management fees described above,
reductions in coinsurance for participating beneficiaries, and funds for the design,
implementation, and evaluation of the expanded project. The Secretary would
monitor the expenditures under the expanded project and could terminate the project
early so that expenditures would not exceed the amount of funding provided for the
project. The Secretary would provide and submit to Congress an annual report on the
project and an evaluation of the project, by a date specified by the Secretary. The
Secretary would also provide for an evaluation of the expanded project and would
submit to Congress, not later than 18 months after the date of completion of the
project, a report on the project and on the evaluation of the project.
Section 307. Repeal of Physician Assistance and Quality Initiative
Fund. The provision would repeal the Physician Assistance and Quality Initiative
Fund established by TRHCA. TRHCA authorized $1.35 billion for 2008 for the
fund, which is to be available to the Secretary for physician payment and quality
improvement initiatives.
Section 308. Adjustment to Medicare Payment Localities. Medicare
payments to physicians vary according to geographic areas called Medicare payment
localities or fee schedule geographic areas. There are currently 89 localities; some
are statewide, while others are substate areas. Medicare makes a separate geographic
adjustment to each component of the physician fee schedule: a work adjustment, a
practice expense adjustment, and a malpractice adjustment. These adjustments are
intended to reflect the variation in the costs of providing services in different parts
of the country. These three components are weighted and then added together to
produce an indexed relative value unit for the service for the locality. The payment
locality structure for the current Medicare’s physician fee schedule was established
in 1996 and took effect January 1, 1997. The objective was to ensure that the
localities had relatively homogenous resource costs. Currently, there are 89 separate
payment localities of which 34 are statewide.
MMA made temporary changes to the geographic adjusters. From 2004 - 2006,
the geographic adjustment for the work component of the fee schedule was increased
to 1.000 in any area where the multiplier would otherwise be less. The Tax Relief
and Health Care Act of 2006 extended the provision for an additional year, through
2007. MMA further directed the GAO to conduct a study of the geographic
adjusters. A GAO report issued in March 2005 concluded that all three adjusters were
valid in their fundamental design, and appropriately reflected broad patterns of
geographic differences in running a practice. The report made several
recommendations for improving the data and methods used to construct the data.
CMS has stated that any changes must be made in a budget-neutral fashion for the

state. Thus, if higher geographic practice cost indices (and thus payments) are
applied in one part of the state, they must be offset by lower indices (and payments)
in other parts of the state.
Two counties in California (Santa Cruz and Sonoma) are assigned to a larger
payment locality (“rest of California”), but in the years since the payment localities
were initially established, the cost and expenditure measures used to calculate
geographic adjusters for Medicare physician payment have increased more quickly
in those areas than in the “rest of California” payment locality. In the July 12, 2007,
proposed rule for the 2008 physician fee schedule (72 Federal Register 38122, July

12, 2007), CMS proposed three options for addressing the situation.

The provision would require the Secretary to revise the fee schedule areas for
California using the county-based geographic adjustment factor as specified in option
3 (table 9) in the proposed rule for Medicare physician services beginning January
1, 2008. This approach would group counties within a state into localities based on
similarity of GAFs even if the counties were not geographically contiguous and
would reduce the number of payment localities in California from 9 to 6, each based
on counties or aggregates of counties, with the resulting localities reflecting similar
geographic adjustment factors (GAFs). CMS claims that this option would be the
most administratively burdensome option to implement because of the significant
systems changes and provider education that would be required to reconfigure the
California localities in this manner. It would also place a greater burden on
practicing physicians who are more likely to experience a change in his or her
practice’s locality. The county-by-county impact of this option is detailed in table
9, 72 Federal Register 38141 (July 12, 2007). In the transition from the existing
payment localities to the new payment localities, for services provided January 1,

2009, through December 31, 2010, the new GAF would apply unless there is a loss,

in which case the old GAF would apply. In other words, the higher of the two GAFs
as calculated under the existing or the new methodology would apply.
No later than January 1, 2011, the Secretary would review and make revisions
to fee schedule areas in all states where there is more than one Medicare physician
payment fee schedule area. The Secretary may revise the fee schedule areas in these
states using the same methodology used for California. Any such revisions would
be made effective concurrently with the application of the periodic (3-year) review
of geographic adjustment factors required by law for 2011.
Section 309. Payment for Imaging Services. The provision would
establish an accreditation process for facilities that provide diagnostic imaging
services; the process would be modeled on that used for mammography facilities
under Section 354 of the Public Health Service Act. Effective January 1. 2010,
imaging services could only be paid for if provided in accredited facilities, except
that this limitation would not apply with respect to the technical component if the
imaging equipment meets certification standards and the professional component of
a diagnostic imaging service that is furnished by a physician. (The provision would
apply to ultrasound services on January 1, 2012.) Effective January 1, 2008, The
provision would require separate billing for the technical component and professional
component of imaging services. It would require CMS to increase the assumption
regarding the time equipment is in use from 50% to 75%. It would also require CMS

to assume the interest rate for capital purchases reflects the prevailing rate, but in no
case higher than 11%.
Section 310. Reducing Frequency of Meetings of the Practicing
Physicians Advisory Council. The provision would modify the frequency of
meetings of the Physicians Advisory Council, as established under Section 1868(a)
of the Social Security Act, from quarterly to once each year (“and at such other times
as the Secretary may specify”). The Council’s duties are to discuss certain proposed
changes in regulations and carrier manual instructions related to physician services
identified by the Secretary. The council members are appointed by the Secretary,
based upon nominations submitted by medical organizations representing physicians.
The Council is composed of 15 physicians, each of whom has submitted at least 250
Medicare claims for physicians’ services in the previous year. At least 11 of the
members of the Council are doctors of medicine or osteopathy (not doctors of
dentistry or dental surgery, podiatry, optometry, or chiropractic) and the members of
the Council include both physicians participating in Medicare as well as
nonparticipating physicians and physicians practicing in rural areas and underserved
urban areas.
Title IV — Medicare Advantage Reforms
Subtitle A — Payment Reform
Section 401. Equalizing payments between Medicare Advantage
Plans and fee-for-service Medicare. The provision would phase-in Medicare
Advantage benchmarks equal to per capita fee-for-service (FFS) spending in each
county; this would result in decreased MA benchmarks in some areas. Plans bidding
a specified percent above per capita FFS would not be allowed to enroll new
enrollees. The calculation of per capita FFS would be altered to exclude costs
attributable to indirect medical education. The stabilization fund would be repealed.
Subtitle B — Beneficiary Protections
Section 411. NAIC development of marketing, advertising, and
related protections. Currently, MA plans are required to conform to fair
marketing standards. This provision would request the National Association of
Insurance Commissioners (NAIC), in consultation with a working group of MA plan
representatives, consumer groups, beneficiaries, and others, to develop new
marketing and advertising standards for Medicare Part C and Prescription Drug Plans
(PDPs). Model regulations would be required to address the sales and advertising
techniques used by plans, beneficiary education, training by sales agents and brokers,
and agent and broker commissions. Plans would be required to comply with the new
marketing standards by January 1, 2011. In addition, the provision would double the
penalties for violations of the new marketing standards and expand the state’s role
in oversight of MA plans. The Secretary would be required to publicly disclose all
MA plan violations. The provision would also increase funding for the State Health
Insurance Assistance Program (SHIPs), which provides community-based counseling
and outreach assistance to beneficiaries on Medicare-related issues.

Section 412. Limitation on out-of-pocket costs for individual health
services. All MA plans can impose cost sharing on Medicare beneficiaries that is
equal to the cost sharing required under traditional Medicare or equal to an
actuarially equivalent level of cost sharing under traditional Medicare. Beginning
January 1, 2009 this provision would prohibit plans from imposing cost sharing
amounts that were greater than the cost sharing amounts for the same service in FFS
Medicare. Additionally, beginning January 1, 2008, cost-sharing amounts for dual
eligibles and Qualified Medicare Beneficiaries (QMBs) would be required to be at
a minimum equivalent to the cost sharing amounts imposed under a state’s Medicaid
program.
Section 413. MA plan enrollment modifications. This provision would
provide continuous open enrollment to full benefit dual-eligibles and qualified
Medicare beneficiaries (QMBs). Specified Low-Income Beneficiaries (SLMBs)
would be eligible to participate in special election periods and change their
enrollment in a MA plan outside of the annual coordinated election period.
Beneficiaries that disenroll from MA plans would have two years instead of one to
re-enroll in their previous Medigap plan. Further, the Secretary would be prohibited
from enrolling Medicaid-eligible individuals as dual-eligibles or QMBs in a MA plan
without explicit permission from the beneficiary.
Section 414. Information for beneficiaries on MA plan
administrative costs. This provision would require MA plans to submit certain
financial information to the Secretary, including the plan’s medical loss ratio,
adjusted per enrollee payment amount, average risk score, and other data elements.
Beginning in 2009, the Secretary would be required to publicly report this data. By
2010, the data submitted related to a plan’s medical loss ratio, would be based on
standardized definitions and data elements developed by the Secretary in consultation
with the National Association of Health Insurance Commissioners (NAIC), MA plan
representatives, and experts on health plan accounting systems. Plans that did not
have a minimum medical loss ratio of at least 0.85 would face a reduced benchmark
amount the following year, limits on new enrollment after three consecutive years,
and termination from the Medicare program after five years. The provision would
also require MedPAC to conduct a study on the feasibility of providing for different
medical loss ratios for different types of MA plans.
Subtitle C — Quality and Other Provisions
Section 421. Requiring all MA plans to meet equal standards. The
provision would require Medicare Part C private fee-for-service plans and medical
savings accounts to submit the same performance measure information as preferred
provider plans in 2009 and the same performance measure information as other Part
C plans starting in 2010. The Secretary’s authority to waive or modify requirements
for Part C plans sponsored by employers and unions would be limited beginning in
January 2009.
Section 422. Development of new quality reporting measures on
racial disparities. The Secretary would be required to develop quality measures
that measure disparities in the amount and quality of health services provided to
racial and ethnic minorities. Plans would be required to submit data on the new

measures. The Secretary would be required to submit a report to Congress based on
this data.
Section 423. Strengthening Audit Authority. The audits of Medicare
Part C plans that the Secretary currently conducts would be expanded to include
information on risk adjustment. The Secretary would be authorized to pursue
financial recoveries necessary to address deficiencies identified in the audit or other
activities. These provision would apply to Medicare Part D plans as well.
Section 424. Improving risk adjustment for MA plans. No later than
one year after enactment, the Secretary would be required to submit a report to
Congress that evaluated the adequacy of risk adjustment under Medicare Part C.
Section 425. Eliminating special treatment for private fee-for-
service plans. In 2009, this provision would eliminate a provider’s ability to bill
enrollees in private FFS plans more than the fee schedule amount. The Secretary
would have the authority to review and negotiate the bid amounts from private FFS
plans in the same manner as with all other Part C plans.
Section 426. Renaming of Medicare Advantage program. The
Medicare Advantage program would be renamed the Medicare Part C program.
Subtitle D — Extension of Authorities
Section 431. Extension and revision of authority for special needs
plans (SNPs). The authority to limit SNP enrollment to only special needs
beneficiaries would be extended from January 1, 2009 to January 1, 2012. As of
January 1, 2009, the definition of SNPs would be changed to include MA plans in
which at least 90% of enrollees were institutionalized, dually-eligible, or had one of
six specific chronic conditions as indicated by MA risk-adjustment data. Chronic
care SNPs would have to meet additional requirements such as having an average
risk score of 1.35 or greater and maintaining a sufficient network of providers. The
Secretary would be required to develop new quality measures appropriate for all
types of SNPs. Effective January 1, 2009, the provision would repeal the special
authority granted to the Secretary by Section 231 of MMA to designate MA plans
that disproportionately serve special needs individuals as SNPs.
Section 432. Extension and revision of authority for Medicare
reasonable cost contracts. The provision would extend for three additional
years - from January 1, 2008 to January 1, 2011 - the length of time a cost-based plan
could continue operating in an area where either 2 local or 2 regional Medicare
Advantage plans had entered. Any reasonable cost plan contract that was extended
or renewed on or after enactment would be required to comply with substantially
similar requirements as other Medicare Part C organizations.
Title V — Provisions Relating to Medicare Part A
Section 501. Inpatient Hospital Payment Updates. Medicare increases
hospital payments each year. The legislation would establish that acute care hospitals

paid under Medicare’s inpatient prospective payment system (IPPS) would receive
a smaller payment update. Instead of the hospital market basket (MB), hospitals
would receive the MB minus 0.25 percentage points as their payment update. Other
hospitals, including cancer hospitals, that are paid on the basis of reasonable costs
subject to certain limits or hospital-specific target amounts, would also receive a
smaller payment increase. Target amounts for certain IPPS exempt hospitals would
be increased by the MB minus 0.25 percentage points in FY2008.
Section 502. Payment for Inpatient Rehabilitation Facility (IRF)
Services. Starting January 1, 2002, payments to inpatient rehabilitation facilities
(IRFs) are made under a discharge-based prospective payment system where one
payment covers capital and operating costs. Each year, the per discharge payment
amount is increased by an update factor based on the increase in the market basket
index. The provision would establish the IRF update factor at 1% in FY2008,
starting for discharges on January 1, 2008. The IRF compliance threshold (that
determines if a facility is an IRF or an acute care hospital) would be established as
no greater than the 60% compliance rate that became effective for cost reporting
periods beginning July 1, 2006; comorbidities would be included as qualifying
conditions.
The provision would create a special payment rule for patients in IRFs admitted
for three applicable medical conditions: unilateral knee replacement, unilateral hip
replacement, and unilateral hip fracture. Instead of the IRF standardized amount,
starting October 1, 2008, discharges with applicable medical conditions would be
paid based on a modified standardized amount, generally based on the SNF payment
rate. These provisions would apply until the Secretary implements an integrated,
site-neutral payment methodology for post acute care. These provisions would not
be subject to administrative or judicial review. For discharges from April 1, 2008
through September 30, 2008, the standardized payment amount would be $9,507 for
unilateral knee replacements; $10,398 for unilateral hip replacements; and $10,958
for unilateral hip fractures.
Not later than one year after this legislation is enacted, the Secretary, in
consultation with interested parties, would submit a report to appropriate
Congressional committees on the IRF compliance criteria and beneficiary access to
IRF care among other issues.
Section 503. Long-Term Care Hospitals. A long-term care hospital
(LTCH) is an acute care general hospital that has a Medicare inpatient average length
of stay greater than 25 days. Since 2002, LTCHs have been paid under their own
prospective payment system (PPS). This provision would establish 1886(m) of the
Social Security Act (SSA) entitled “Prospective Payment for Long-Term Care
Hospitals.” The base rate for LTCH’s rate year (RY) 2008 would be the same as that
used for discharges in the previous rate year, starting January 1, 2008. This
legislation would also establish section 1861(ccc) in the SSA that would define an
LTCH as an institution which qualifies as one of the following: 1) the institution is
primarily engaged in providing inpatient services by or under the supervision of a
physician to Medicare beneficiaries whose medically complex conditions require a
long hospital stay and LTCH services; 2) the institution has a Medicare inpatient

average length of stay greater than 25 days; 3) the institution satisfies Medicare’s
hospital definition; or 4) the institution meets certain facility criteria.
An LTCH would be required to have a patient review process prior to admission
and other established procedures to ensure the patient’s continued need for LTCH
care. Other LTCH staffing and care requirements, including patient criteria, would
be imposed, starting for discharges occurring on January 1, 2008. If rehabilitation
services are not included as one of the patient criteria, then the Secretary would be
required to approve distinct part rehabilitation units in certain LTCHs (those
classified as such by October 1, 2004 with specified accreditation). The one-year
waiting period applicable to the conversion of hospital beds into distinct-part IRFs
would not apply. The above provisions would apply to discharges on or after January

1, 2008.

No later than one year from enactment, the Secretary would be required to
submit a report to the appropriate Congressional committees that contained
recommendations regarding the promulgation of national LTCH facility and patient
criteria. Starting October 1, 2007, the Secretary would be required to contract with
one or more appropriate Medicare administrative contractors to review the medical
necessity of LTCH admissions and continued LTCH stays. The reviews would be
funded by the aggregate overpayments recouped by the Secretary from LTCHs for
medically unnecessary care.
The Secretary would impose a four-year moratorium on the certification of new
LTCHs and satellite facilities as well as LTCH beds and satellite facility beds. The
moratorium would not apply to an LTCH hospital, satellite facility or additional beds
that are under development (according to criteria specified in the legislation) as of the
enactment date. Certain exceptions to the moratorium would be established. There
would be no administrative or judicial review of these exceptions.
Certain LTCH payment policies would be precluded for specific periods. CMS
limits the proportion of patients who can be admitted to an LTCH from an acute care
hospital during a cost reporting period and be paid under the LTCH-PPS. Under this
policy (referred to as the “25% rule”), after the threshold is reached, the LTCH is
paid the lesser of the LTCH PPS rate or the acute hospital IPPS rate. During a
five-year period beginning with enactment, the existing 25% rule would not apply to
freestanding LTCHs or certain LTCH hospitals-with-hospital (or HwHs) referred to
as “grandfathered LTCHs” that have been considered to be freestanding. The existing
50% threshold would be increased to 75% for applicable LTCHs (HwHs or satellite
facilities) in rural areas or LTCHs that are co-located with an urban single or MSA
dominant hospital. For other HwHs or satellite facilities, the admission threshold
from a co-located hospital would be established at 50%. Also, the Secretary would
not be able to apply the new short-stay outlier policy during a five-year period. The
Secretary would not be able to make the one-time prospective adjustment to LTCH
prospective payments during a five-year moratorium period. These changes would
apply to discharges starting October 1, 2007 and before October 1, 2012.
As established by the Balanced Budget Act of 1997 (BBA), there is one
“subclause II” long term care hospital identified in 1886(d)(1)(B)(iv)(II) of the Social
Security Act (SSA). A separate classification for this hospital as a long-stay cancer

hospital would be created in Section 1886(d)(1)(B)(vi) of the SSA. Starting for cost
reporting periods after the date of enactment, Medicare payments to this hospital
would be based on the rates in effect for the cost reporting period for the hospital
during FY2001 increased by the applicable update factor. This hospital would
include satellite or remote site locations that met the applicable Medicare provider
based regulations and other applicable state licensure and certification requirements.
Section 504. Increasing the DSH Adjustment Cap. Medicare will
increase its payments to hospitals that qualify for a disproportionate share hospital
(DSH) adjustment. Small urban hospitals and many rural hospitals have their DSH
adjustment capped at 12%. The provision would raise the DSH adjustment cap for
these hospitals to 16% for discharges occurring in FY2008 and to 18% for discharges
in FY2009. For discharges starting October 1, 2009, the DSH adjustment cap would
revert to 12%. The DSH adjustment formula for hospitals in Puerto Rico would
change.
Section 505. PPS-Exempt Cancer Hospitals. Certain specialty hospitals
were exempt from IPPS. Historically, they were paid on a reasonable cost basis,
subject to TEFRA payment limitations which establishes a ceiling or target amount
that serves as an upper limit on operating costs. Children’s and cancer hospitals are
still paid on a reasonable cost basis, subject to TEFRA limits. Psychiatric hospitals,
inpatient rehabilitation, and long-term care hospitals have separate prospective
payment systems.
A hospital receiving reasonable cost reimbursement during cost reporting
periods before October 1, 1999 would be able to request a new target amount.
Beginning during FY2008, the target amount would be based on the five most recent
settled cost reporting periods prior to the enactment of this clause. This recalculation
(or re-basing) would not apply to long-term care hospitals.
Presently there are 11 freestanding IPPS exempt cancer hospitals. Other cancer
hospitals (exempt from IPPS) would be established starting for cost reporting periods
on or after January 1, 2006. Certain hospitals would have this IPPS exempt
classification apply to cost reporting periods beginning on or after January 1, 2006.
One would take effect on January 1, 2008. Other provisions would apply.
No later than March 1, 2009, MedPAC would be required to evaluate the
following: (1) measures of payment adequacy and Medicare margins for PPS-exempt
cancer hospitals; (2) margin information for PPS cancer hospitals that were
previously affiliated with another hospital; and (3) payment adequacy for cancer
discharges paid for under Medicare’s IPPS.
Section 506. Skilled Nursing Facility Payment Update. Skilled Nursing
Facilities (SNFs) are paid through a prospective payment system (PPS) which is
composed of a daily (“per-diem”) urban or rural base payment amount that is then
adjusted for case mix and area wages. The urban and rural federal per diem payment
rates are increased annually by an update factor that is determined, in part, by the
projected increase in the SNF market basket (MB) index, a measure of the changes
in the costs of goods and services purchased by SNFs. The provision would eliminate

the MB update for FY2008, effective for payments for days on or after January 1,

2008.

Section 507. Revocation of Unique Deeming Authority of the Joint
Commission for the Accreditation of Healthcare Organizations. In order
to receive Medicare payments, healthcare providers and suppliers must meet certain
conditions of participation established by the Secretary. A hospital is deemed to have
met these conditions of participation if it has been accredited by the Joint
Commission of Healthcare Organizations (JCAHO). This provision would revoke
the unique authority granted the Joint Commission of Healthcare Organizations
(JCAHO) to accredit hospitals for participation in Medicare. Hospitals, like other
Medicare provider entities, would be accredited by national accrediting organizations
approved by the Secretary. The Secretary would have the authority to recognize
JCAHO as a national accreditation body. The provision would take effect 18 months
after the enactment date.
Section 508. Treatment of Medicare Hospital Reclassifications.
Under IPPS, a hospital (or group of hospitals) can increase its Medicare payments
though administrative reclassification (by the Medicare Geographic Classification
Review Board or MGCRB) to a different area with a higher wage index value. These
reclassifications are budget neutral. Other hospitals have been reclassified by
legislation. Section 508 of MMA provided $900 million for a one-time, three-year
geographic reclassification of certain hospitals who were otherwise unable to qualify
for administrative reclassification to areas with higher wage index values. These
reclassifications were extended from March 31, 2006, to September 30, 2007, by the
Tax Relief and Health Care Act of 2006. This extension was exempt from any
budget neutrality requirements.
The provision would extend the Section 508 reclassifications until September
30, 2009. Hospitals that were reclassified through the Secretary’s authority to make
exceptions and adjustments during the FY2005 rulemaking process would have their
reclassification extended until September 30, 2009. A hospital that has been
reclassified under Section 508 (as extended) would not prevent the group
reclassification of otherwise eligible hospitals.
Special treatment was established for other hospitals or groups of hospitals for
a three-year period starting October 1, 2008 as follows:
^!Hospitals located in Putnam County, TN, with a reclassified wage
index that would expire on September 30, 2007, would have such
reclassification extended through September 30, 2008;
^!Any hospital in Orange County, NY, that received a Section 508
reclassification would be reclassified into New York-White
Plains-Wayne NY-NJ urban area;
^!The large urban area of New York, NY, would include hospitals
required by state law to have a single governance structure if certain
requirements are met;
^!The large urban area of Buffalo-Niagara Falls, NY, would include
Chautaugua County, NY. There would be no reduction in the
hospital wage index for Erie County, NY, or any adjoining county

as a result of this provision except for that associated with the
budget neutrality requirements associated with a MGCRB
recl assi fi cat i on;
^!A hospital in Burlington County, NJ, would be reclassified into the
New York-White Plans NY-NJ urban area if certain criteria are met;
^!A hospital that is located in a core-based statistical area with certain
characteristics would be reclassified to a urban area that is within the
same state and is adjacent to the area where the hospital is located
with an average hourly wage that is closest to, but does not exceed
its own average hourly wage. This provision would apply to
hospitals in Orange County, NY, that were described above;
^!Albany, Schenectady, and Rensselaer counties are deemed to be part
of the Hartford, CT, urban area;
^!Cumberland County, TN, is deemed to be part of the Nashville-
Davidson-Murfreesboro urban area;
^!Hospitals that are colocated in Marinette, WI, and Meominee, MI,
are deemed to be located in Chicago, IL;
^!A hospital in Massachusetts or Clinton County, NY, that is
reclassified into an area that uses the higher rural wage index would
receive the rural wage index;
^!A hospital in Toledo, OH, and one in Adrian, MI, would treated as
if they are located in Ann Arbor, MI.
^!A hospital in Columbia County, NY, with less than 250 beds is
deemed to be in the New York-White Plains-Wayne, NY-NY urban
area.
Generally, these reclassifications would be treated as MGCRB decisions and would
be subject to budget neutrality requirements.
Section 509. Medicare Critical Access Hospital Designations.
Critical access hospitals (CAHs) are limited-service facilities that are located more
than 35 miles from another hospital or 15 miles in certain circumstances; offer
24-hour emergency care; have no more than 25 acute care inpatient beds and have a
96-hour average length of stay. Until January 1, 2006, states could waive the CAH
mileage requirements and designate an entity as a necessary provider of health care
and qualify as a CAH. The State of Minnesota would be able to designate one
hospital in Cass County, MN, as a necessary provider of health care on or after
January 1, 2006. A hospital in the county seat of Butler, AL, with a 32-mile drive
would be deemed to meet the CAH mileage requirement. These provisions would
apply to cost reporting periods beginning on or after enactment date.
Title VI — Other Provisions Relating to Medicare Part B
Subtitle A — Payment and Coverage Improvements
Section 601. Payment for Therapy Services. The law places an annual
per beneficiary payment limit on outpatient physical therapy services and speech
language pathology services. A second annual per beneficiary payment limit applies
to outpatient occupational therapy services. A temporary exceptions process applies

for certain specified conditions or complex situations. The provision would extend
the exceptions process for two years, through 2009. It would also require the
Secretary to conduct a study on refined and alternative payment systems for therapy
services.
Section 602. Medicare Separate Definition of Outpatient Speech
Language Pathology Services. The provision would permit, effective January
1, 2008, speech language pathologists practicing independently to bill Part B subject
to the same conditions applicable to physical and occupational therapists in
independent practice.
Section 603. Increased Reimbursement Rate for Certified Nurse
Midwives. The provision would remove the current law provision which specifies
that the fee schedule amount for a service furnished by a certified nurse midwife can
in no case exceed 65% of the fee schedule amount for the same service performed by
a physician.
Section 604. Adjustment in Outpatient Hospital Fee Schedule
Increase Factor. Each year, the hospital outpatient department conversion factor
is increased by an amount that is loosely based on increases in the hospital market
basket index. Under this provision, Medicare’s increase in hospital outpatient
department payments for services furnished in 2008 would be established as the
market basket increase reduced by 0.25 percentage points.
Section 605. Exception to 60-Day Limit on Medicare Reciprocal
Billing Arrangements in Case of Physicians Ordered to Active Duty in
the Armed Forces. Medicare payment may be made to a physician for services
furnished by a second physician to patients of the first physician provided certain
conditions are met. The services cannot be provided by the second physician for more
than 60 days. The provision would permit reciprocal billing over a longer period in
cases where the first physician has been called or ordered to active duty as a member
of a reserve component of the Armed Forces.
Section 606. Excluding clinical social worker services from
coverage under the Medicare skilled nursing facility prospective
payment system and consolidated payment. Skilled Nursing Facilities
(SNFs) are paid through a prospective payment system (PPS) that is composed of a
daily (“per-diem”) urban or rural base payment and is adjusted for case mix and area
wages. The PPS provides a bundled payment for services provided to the beneficiary
that day. Services provided to residents by certain types of providers, such as
physicians, are excluded from the bundled payment. The provision would exclude
clinical social worker services from the SNF PPS; to be effective for items and
services furnished on or after January 2008.
Section 607. Coverage of Marriage and Family Therapists and
Mental Health Counselor Services. The provision would add coverage,
effective January 1, 2008, for state-licensed or certified marriage and family
therapists and mental health counselors. Payment would equal the lesser of 80% of
the actual charge for the service or 75% of the amount paid to a psychologist for such
services.

Section 608. Rental and Purchase of Power-Driven Wheelchairs.
On or after January 1, 2008, the provision would eliminate the option to purchase a
power-driven wheelchair with a lump sum payment. The provision would not apply
to the Durable Medical Equipment Competitive Acquisition Program.
Section 609. Rental and Purchase of Oxygen Equipment. The
provision would require the Secretary to conduct a study on oxygen services and
equipment provided to beneficiaries. The provision would reduce the length of time
that Medicare rented oxygen equipment from 36 months to 18 months, but would
exempt oxygen generating portable equipment and equipment offered through the
DME Competitive Acquisition Program.
Section 610. Adjustment for Medicare Mental Health Services. The
provision would provide for a temporary increase of 5% over the amount otherwise
payable for certain specified mental health services for the period beginning January
1, 2008, and ending December 31 of the year before the effective date of the first five
year review of relative values conducted after January 1, 2008.
Section 611. Extension of Brachytherapy Special Rule. MMA
required Medicare’s outpatient prospective payment system to make separate
payments for specified brachytherapy sources As mandated by TRHCA, until
January 1, 2008, this separate payment will be made using hospitals’ charges adjusted
to their costs. The provision would extend cost reimbursement for brachytherapy
services until January 1, 2009.
Section 612. Payment for Part B Drugs. Payments for most Part B drugs
are based on an average sales price (ASP) payment methodology. Alternatively, drugs
can be provided through the competitive acquisition program (CAP); each year, each
physician is given the opportunity either to receive payment using the ASP
methodology or to obtain drugs and biologicals through the CAP. The provision
would require the Secretary to use consistent volume weighting in the computation
of the ASP. The provision would modify the CAP program as follows: permit
continuous open enrollment and selection of a CAP vendor; specify that an election
and selection would continue to be effective without the need for any periodic
reelection or reapplication or selection; specify that vendors would not be prevented
from delivering drugs to a satellite office designated by the prescribing physician or
allowing a physician to transport drugs to the site of administration consistent with
state law; and require the Secretary to conduct an outreach and education program
on the CAP. The provision would also establish, beginning January 1, 2008, a
special rule for the payment calculation for inhalation drugs furnished through items
of durable medical equipment to specify that the payment for both single source and
multiple source drugs would be the lower of the current or historic level.
Subtitle B — Extension of Medicare Rural Access Protections
Section 621. 2-Year Extension of Floor on Medicare Work
Geographic Adjustment. Current law includes a temporary provision under
which the value of any work geographic index under the physician fee schedule that
is below 1.00 is increased to 1.00 for services furnished on or after January 1, 2004,

and before January 1, 2008. The provision would extend the floor through December

31, 2009.

Section 622. 2-Year Extension of Special Treatment of Certain
Physician Pathology Services Under Medicare. The provision would extend
through December 31, 2009, the temporary provision that allows independent
laboratories providing services to hospitals to continue to bill directly for such
services. The provision is limited to labs that had agreements with hospitals on July

22, 1999, to bill directly for the technical component of pathology services.

Section 623. 2-Year Extension of Medicare Reasonable Cost
Payments for Certain Clinical Diagnostic Laboratory Tests Furnished
to Hospital Patients in Certain Rural Areas. Generally, hospitals that provide
clinical diagnostic laboratory services under Part B are reimbursed using a fee
schedule. Hospitals with under 50 beds in qualified rural areas (certain rural areas
with low population densities) receive 100% of reasonable cost reimbursement for
the clinical diagnostic laboratories covered under Part B that are provided as
outpatient hospital services. Reasonable cost reimbursement for laboratory services
provided by these hospitals will end July 1, 2007. This provision would extend
reasonable cost reimbursement for clinical laboratory services provided by qualified
rural hospitals until July 1, 2009.
Section 624. 2-Year Extension of Medicare Incentive Payment
Program for Physician Scarcity Areas. Current law provides a 5% bonus
payment for certain physicians in scarcity areas for the period January 1, 2005,
through December 31, 2007. The provision would extend the add-on payments
through December 31, 2009. During 2008 and 2009, the Secretary would be required
to use the primary care scarcity areas and specialty care scarcity areas that the
Secretary was using on December 31, 2007.
Section 625. 2-Year Extension of Medicare Increase Payments for
Ground Ambulance Services in Rural Areas. Ambulance services are paid
on the basis of a national fee schedule, which is being phased-in. For the period July
2004 through December 2006, the law provided for a temporary increase in payments
for ground ambulance services. The increase was 2% in rural areas and 1% in other
areas. The provision would reinstate the bonus payments for rural areas for 2008 and

2009.

Section 626. Extending Hold Harmless for Small Rural Hospitals
under the HOPD Prospective Payment System. Small rural hospitals (with
no more than 100 beds) that are not sole community hospitals can receive additional
Medicare payments if their outpatient payments under the prospective payment
system are less than under the prior reimbursement system. For calendar year (CY)
2006, these hospitals will receive 95% of the difference between payments under the
prospective payment system and those that would have been made under the prior
reimbursement system. The hospitals will receive 90% of the difference in CY2007
and 85% of the difference in CY2008. The provision would establish that these
small rural hospitals would receive 90% of the payment difference for service
furnished after CY2006.

Subtitle C — End Stage Renal Disease Program
Section 631. Chronic Kidney Disease Demonstration Projects. The
Secretary, acting through the Director of the National Institutes of Health (NIH),
would be required to establish demonstration projects to do the following: (1)
increase public and medical community awareness about the causal factors,
prevention, diagnosis, and treatment of chronic kidney disease; (2) increase screening
and use of prevention techniques for chronic kidney disease for Medicare
beneficiaries and the general public; and, (3) enhance surveillance systems and
expand research to better assess the prevalence and incidence of chronic kidney
disease, building on work of the Centers for Disease Control and Prevention (CDC).
The Secretary would be required to conduct an evaluation of the demonstration
projects. Within 12 months after completion of the projects, the Secretary would be
required to submit a report to Congress including the evaluation and
recommendations for appropriate legislative and administrative action.
Section 632. Medicare Coverage of Kidney Disease Patient
Education Services. Medicare coverage would be expanded to include coverage
for kidney disease education services, defined as education services that are (1)
furnished to an individual with stage IV chronic kidney disease who, according to
accepted clinical guidelines identified by the Secretary, would require dialysis or a
kidney transplant; (2) furnished, upon the referral of the physician managing the
individual’s kidney condition, by a qualified person; (3) designed to provide
comprehensive information regarding the management of co-morbidities (including
delaying the need for dialysis), prevention of uremic complications, and options for
renal replacement therapy; (4) designed to ensure that individuals have the
opportunity to actively participate in the choice of therapy; and (5) tailored to meet
the needs of the individual involved. Qualified person would mean a physician,
physician assistant, nurse practitioner, or clinical nurse specialist who provides
services that are paid under the Medicare fee-schedule, but would not include a renal
dialysis facility. The Secretary would be required to set standards for the content of
the educational services, after consulting with physicians and others as required by
statute, excluding to the extent possible those who have received industry funding
from a drug or biological manufacturer or dialysis facility. The Secretary would be
required to monitor and to promulgate regulations to carry out this education, to
ensure that beneficiaries entitled to these services received them in a timely manner
to maximize the benefit of the services. Individuals would be eligible for no more
than 6 sessions of kidney disease education services.
No later than September 1, 2010, GAO would be required to submit a report to
Congress on the following: (1) the number of Medicare beneficiaries who are eligible
for kidney disease education services and who received the services; (2) the extent
to which there is a sufficient number of physicians and eligible providers to furnish
these services and whether or not renal dialysis facilities and their employees should
be included as an eligible entity to furnish such services; and, (3) recommendations
for facilities and their employees to structure education services that are objective,
unbiased and provide options and alternative locations for renal replacement therapy
and management of co-morbidities that may delay the need for dialysis. These
provisions would be effective January 1, 2009.

Section 633. Required Training for Patient Care Dialysis
Technicians. A provider of services or a renal dialysis facility could not use an
individual as a patient care dialysis technician for more than 12 months during 2009,
or at any time thereafter, unless the individual completed a training program in
chronic kidney failure dialysis care and treatment and was certified by a nationally
recognized certification entity for dialysis technicians. An exception would be made
for those who were enrolled in a training program and those who had performed such
services for at least five years. Individuals who had not provided services for which
they were paid, for 24 consecutive months since their last training, would be required
to complete a new training program or be required to become recertified. Providers
of services or renal dialysis facilities would be required to provide regular
performance review and in-service education to assure competency of individuals
who perform dialysis-related services.
Section 634. MedPAC Report on Treatment Modalities for Patients
with Kidney Failure. No later than March 1, 2009, the Medicare Payment
Advisory Commission (MedPAC) would be required to submit a report to the
Secretary and to Congress evaluating the barriers to increasing the number of
Medicare ESRD beneficiaries electing home dialysis services. The report would
include the following: (1) a review of Medicare home dialysis demonstration projects
initiated before the date of enactment of this Act, including recommendations for
future demonstrations or changes to the Medicare program to test models that could
improve access to home dialysis; (2) a comparison of current costs and payments
between Medicare home dialysis and in-center and hospital dialysis; (3) an analysis
of the adequacy of Medicare reimbursement for patient training for home dialysis and
recommendations for ensuring appropriate payments for home dialysis training; (4)
a catalogue and evaluation of the incentives and disincentives in the current
reimbursement system that influence whether patients receive home dialysis services
or other treatment modalities; (5) an evaluation of patient education services and how
they impact patients’ treatment choices; and (6) recommendations for implementing
incentives to encourage patients to use home dialysis or other Medicare treatment
modalities.
Section 635. Adjustment for Erythropoietin Stimulating Agents
(ESAs). The payment amount for erythropoietin furnished by a large dialysis facility
during 2008 or 2009 to a patient with ESRD would be changed from the average
sales price (ASP) + 6% to the lesser of $8.75 per 1,000 units (rounded to the nearest
100 units) or 102% of the ASP for such drug or biological. The payment amounts
for darbepoetin alfa furnished by a large dialysis facility during 2008 or 2009 to a
patient with ESRD would be changed from the ASP + 6% to the lesser of $2.92 per
microgram or 102% of the ASP for such drug or biological. A large dialysis facility
would be defined as one that was owned or managed by a corporate entity that as of
July 24, 2007, owned or managed 300 or more such providers or facilities and
included a successor to such a corporate entity. This provision would not affect the
amount of a drug add-on payment.
Section 636. Site Neutral Composite Rate. Beginning January 1, 2008,
the payment for providers of dialysis services furnished by hospital-based facilities
would be the same as the rate for such services furnished by renal dialysis facilities
that are not hospital based, except that in applying the geographic index to

hospital-based facilities, the labor share would be based on the labor share otherwise
applied for such facilities. Adjustments would no longer be made to the composite
rate for hospital-based dialysis facilities to reflect higher overhead costs.
Section 637. Development of ESRD Bundling System and Quality
Incentive Payments. Beginning January 1, 2010, the Secretary would implement
a bundled payment system under which a single payment would be made for
Medicare renal dialysis services, ensuring that the estimated total payment for 2010
for Medicare renal dialysis services would equal 96% of payments that would have
been made if the bundled payment system had not been implemented. The term
“renal dialysis services” would include as follows: (1) items and services which were
included in the composite rate as of December 31, 2009; (2) erythropoietin
stimulating agents (ESAs) furnished to patients with ESRD; (3) certain other drugs,
biologicals, and diagnostic laboratory tests; and (4) home dialysis training. The term
“renal dialysis services” would not include vaccines. The Secretary could determine
payments on the basis of services furnished during a week, month, or another unit.
The payment system would include adjustments for case mix, high cost outliers, and
other appropriate measures. The Secretary could phase-in the payment system, for
providers and facilities that had pediatric patients, low volume of services, operated
in rural areas and were not large. The phase-in would be required to be fully
implemented for services furnished on or after January 1, 2013. The Secretary would
annually increase the bundled payment amounts by the same increase that would
have applied to the drug-add on adjustment required under current law.
In addition to the bundled payment amount, providers and facilities would
receive an additional amount if they met the specified performance standard for the
period, and beginning in 2009, the specified reporting requirements. The four
periods would be July 1, 2008 to December 31, 2008, CY2009, CY2010, and a
multi-month period in 2011, as specified by the Secretary. Total bonus payments
would be limited to $50 million for 2008, $100 million for 2009, $150 million for

2010, and $200 million for 2011.

The Secretary would provide an annual written notification to each individual
receiving dialysis services that informs the individual of relevant quality measures,
compares the scores and measures with average local and national scores and
measures, and provides information on how to access additional information on
quality of other providers and facilities, along with web-based information.
No later than January 1, 2013, the Secretary would submit a report to Congress
on the implementation of the bundled payment system and the quality initiative. No
later than January 1, 2015, the Secretary would be required to submit a report to
Congress including an update on aspects of the bundled payment system discussed
in the previous report and a comparison of the result of the bundled payment system
during the two-year period beginning on January 1, 2013, and the result of such
payment system during the previous two-year period.
Section 638. MedPAC Report on ESRD Bundling System. No later
than March 1, 2012, MedPAC would be required to submit a report to Congress on
the implementation of the ESRD bundling payment system, including an analysis of
the following: (1) the overall adequacy of the payment for all such services; (2) a

comparison of the adequacy of payment for services furnished by (a) a large dialysis
facility (one that was owned or managed by a corporate entity that as of July 24,
2007, owned or managed 300 or more such providers or facilities and included a
successor to such a corporate entity), (b) a provider or facility that is not large, (c) a
hospital-based facility, (d) a free-standing facility, (e) a facility in an urban area, and
(f) a facility in a rural area; (3) the financial status of providers and facilities,
including access to capital, return on equity, and return on capital; (4) the adequacy
of payment under the bundling payment system and the adequacy of quality
improvement payments, in ensuring that Medicare payments for such services are
consistent with costs for such services; and (5) any recommendations for modifying
the payment system.
Section 639. OIG Study and Report on Erythropoietin. No later than
January 1, 2009, the Inspector General of the Department of Health and Human
Services would be required to conduct a study and submit a report to Congress with
recommendations on dosing guidelines, standards, protocols, and algorithms for
ESAs recommended or used at large dialysis facilities (facilities owned or managed
by a corporate entity that as of July 24, 2007, owned or managed 300 or more such
providers or facilities and included a successor to such a corporate entity) and those
that are not large. The study would examine these guidelines, standards, protocols,
and algorithms for the following: (1) the consistency with the labeling of the Food
and Drug Administration; (2) the extent of which physicians sign standing orders for
ESAs that are consistent with providers or facilities; (3) the extent to which the
prescribing decisions of physicians for ESAs are independent of these measures or
recommendations of an anemia management nurse or other appropriate employee of
the provider or facility; and (4) the role of the medical director and the financial
relationship between the medical director hired by a provider or facility.
Subtitle D — Miscellaneous
Sec. 651. Limitation on Exception to the Prohibition of Certain
Physician Referrals for Hospitals. Physicians are generally prohibited from
referring Medicare patients for certain services to facilities in which they (or their
immediate family members) have financial interests. However, among other
exceptions, physicians are not prohibited from referring patients to whole hospitals
in which they have ownership or investment interests. Providers that furnish
substantially all of its designated health services to individuals residing in rural areas
are exempt as well. Only hospitals meeting certain requirements would be exempt
from the prohibition on self referral. Hospitals with a Medicare provider agreement
on July 24, 2007, and no increase in the number of operating rooms and beds after
the date of enactment that meet other specified requirements would be exempt from
this self-referral ban. These requirements would address conflicts of interest, bona
fide investments and proportional returns, and patient safety. Rural providers that
meet the requirements no later than 18 months after the date of enactment would
retain an exception to the requirements. For the purposes of this subsection, a
physician owner would be defined as a physician (or an immediate family member
of such a physician) with a direct or indirect ownership interest in the hospital.
The Secretary would be required to establish policies and procedures to ensure
compliance with these requirements, beginning on their effective date. The

enforcement efforts would be able to include unannounced site reviews of hospitals.
Beginning no later than 18 months from the date of enactment, the Secretary would
be required to conduct audits to determine if hospitals violate the above
requirements.
Title VII — Provisions Relating to Medicare Parts A and B
Section 701. Home Health Payment Update for 2008. Home health
agencies (HHAs) are paid under a prospective payment system that is based on 60-
day episodes of care for beneficiaries with unlimited episodes of care in a year. The
base payment is increased annually by an update factor that is determined, in part, by
the projected increase in the home health market basket (MB) index. Starting in
2007, HHAs are required to submit health care quality data to the Secretary. HHAs
that do not submit these data will receive an update of the MB minus two percentage
points. The provision would eliminate the MB update for home health payments for

2008. HHAs would still be subject to the data quality provision.

Section 702. 2-Year extension of temporary Medicare payment
increase for home health services furnished in rural areas. MMA
provided for a one-year 5% additional payment for home health (HH) services
furnished in rural areas for episodes and visits ending on or after April 1, 2004, and
before April 1, 2005. DRA extended the payments for rural HH episodes or visits
beginning on or after January 1, 2006, and before January 1, 2007. The provision
would renew these additional payments for episodes and visits beginning on or after
January 1, 2008, and before January 1, 2010.
Section 703. Extension off Medicare Secondary Payer for
beneficiaries with End Stage Renal Disease for Large Group Plans.
Medicare entitlement based on ESRD usually begins with the third month after the
month in which the beneficiary starts a regular course of dialysis, referred to as the
three-month waiting period. In addition to the waiting period, for individuals whose
Medicare eligibility is based solely on ESRD, any group health plan coverage they
receive through their employer or their spouse’s employer is the primary payer for the
first 30 months of ESRD benefit eligibility, referred to as the 30-month coordination
period and Medicare is the secondary payer (MSP). After 30 months, Medicare
becomes the primary insurer. Beginning January 1, 2008, the coordination period for
ESRD MSP would be extended from 30 months to 42 months, but only for those
individuals who receive group coverage through a large group health plan. A large
group health plan is a plan offered by an employer that normally employed at least
100 employees on a typical business day during the preceding calendar year. This
also applies to certain smaller plans that are part of a multiple or multi-employer
plan.
Section 704. Plan for Medicare Payment Adjustment for Never
Events. According to the National Quality Forum (NQF) “ never events” are errors
in medical care that are clearly identifiable, preventable, and serious in their
consequences for patients, and indicate a real problem in the safety and credibility of
a health care facility.

TRHCA directs the OIG to report to Congress on the following: 1) the incidence
of never events (those listed and endorsed as serious reportable events by the
National Quality Forum or NQF as of November 16, 2006) for Medicare
beneficiaries; 2) the extent to which the Medicare program paid, denied payment, or
recouped payment for services furnished in connection with such events, and the
extent to which beneficiaries paid for them; and 3) the administrative processes of
CMS to detect such events and to deny or recoup payments for related services. The
OIG was appropriated $3 million to carry out this section; these funds are available
until January 1, 2010.
The Secretary would be required to develop a plan to reduce or eliminate
payments for hospital based never events beginning in FY2010. A hospital based
never event would be defined as an event involving the delivery (or failure to deliver)
physician services, inpatient or outpatient hospital services, ambulatory surgery
center facility in which there is an error in medical care that is clearly identifiable,
usually preventable and serious in consequences to patients and that indicates a
deficiency in the safety and process controls for such services. No later than June 1,
2008, the Secretary would submit a report to Congress on this plan, including
relevant recommendations.
Section 705. Reinstatement of Residency Slots. Medicare pays for the
direct and indirect graduate medical education expenses in teaching hospitals with
approved physician training programs. BBA generally capped the total number of
allopathic and osteopathic residents reimbursed under Medicare at the level that
existed for the cost reporting period ending in calendar year 1996. The limit does not
include dental or podiatry residents. Rural hospitals, and hospitals that established
new training programs before August 5, 1997, will be partially exempt from the cap.
Also, MMA provided for the redistribution of unused residency slots to other
teaching hospitals. Other exceptions apply to hospitals with new programs
established after that date.
If one or more hospitals with approved medical residency training programs as
of January 1, 2000, closes, the Secretary would increase the otherwise applicable
resident limit of qualifying hospitals in the same metropolitan area. The receiving
hospitals would have to meet certain criteria. In no event would the resident limit for
any hospital be increased above 50. In no event would the total of all residency
positions added by this provision exceed 10. This provision would be effective for
cost reporting periods beginning on or after July 1, 2005.
A hospital with a dual accredited osteopathic and allopathic family practice
program that had its resident limit adjusted under the MMA redistribution provisions
would receive an adjustment if such reduction was determined using a cost report
that was subsequently revised between September 1, 2006, and September 15, 2006.
This revision would have resulted in a higher resident level than that which served
as the basis for the MMA redistribution calculation. The resident adjustment would
be effective as if it were included in MMA and would apply to portions of cost
reporting periods occurring on or after July 1, 2005.
A hospital in Peoria County, IL, with more than 500 beds would have its
resident limit increased by 2.

Section 706. Studies Relating to Home Health. The provision would
require the Medicare Payment Advisory Commission (MedPAC) to conduct a study
of Medicare home health (HH) beneficiaries to determine the impact that remote
monitoring equipment and related services have on the following: (1) improving
health outcomes for persons with chronic conditions; (2) the percentage of inpatient
hospital and emergency room visits; and (3) the estimated reduction in aggregate Part
A and B Medicare expenditures. It would also study the percentage of Medicare
beneficiaries utilizing remote monitoring equipment and variation in utilization
across geographic regions and sizes of HH agencies. The provision would require
HH agencies to submit relevant data as a condition of participation in Medicare,
beginning no later than January 1, 2008. By June 1, 2010, MedPAC would report its
findings to Congress and provide recommendations on how Congress may enact HH
reimbursement policies that would appropriately increase the use of remote
monitoring equipment and other services for persons with chronic conditions.
Section 707. Rural Home Health Quality Demonstration Projects.
No later than 180 days after enactment, the Secretary would make grants to certain
states for two-year demonstration projects to assist home health agencies in serving
Medicare beneficiaries while reducing costs through the use of telemonitoring and
other telehealth technologies, health information technologies, and
telecommunications technologies, among others. These technologies would be
intended to reduce costs and the need for inpatient hospital services and health center
visits and address safety, effectiveness, patient or community-centeredness, among
others. The Secretary would submit a report to Congress with its findings no later
than one year after the project’s completion. Out of the funds of the Treasury not
otherwise appropriated, the provision would appropriate $3 million for FY2008, to
remain available until expended.
Title VIII — Medicaid
Subtitle A — Protecting Existing Coverage
Section 801. Modernizing transitional Medicaid. States are required
to continue Medicaid benefits for certain low-income families who would otherwise
lose coverage because of changes in their income. This continuation is called
transitional medical assistance (TMA). Federal law permanently requires four
months of TMA for families who lose Medicaid eligibility due to increased child or
spousal support collections, as well as those who lose eligibility due to an increase
in earned income or hours of employment. Congress expanded work-related TMA
under section 1925 of the Social Security Act in 1988, requiring states to provide
TMA to families who lose Medicaid for work-related reasons for at least six, and up
to 12 months. Since 2001, work-related TMA requirements under section 1925 have
been funded by a series of short-term extensions, most recently through September

30, 2007.

The House bill would extend work-related TMA under section 1925 through
September 30, 2011. States could opt to treat any reference to a 6-month period (or
6 months) as a reference to a 12-month period (or 12 months) for purposes of the
initial eligibility period for work-related TMA, in which case the additional 6-month

extension would not apply. States could opt to waive the requirement that a family
have received Medicaid in at least three of the last six months in order to qualify.
They would be required to collect and submit to the Secretary of HHS (and make
publicly available) information on average monthly enrollment and participation rates
for adults and children under work-related TMA, and on the number and percentage
of children who become ineligible for work-related TMA and whose eligibility is
continued under another Medicaid eligibility category or who are enrolled in SCHIP.
Except for the four-year extension of work-related TMA, which would be effective
October 1, 2007, the provision would be effective upon enactment.
Section 802. Family planning services. State Medicaid programs must
offer family planning services and supplies to categorically needy individuals of
childbearing age, including minors considered to be sexually active. Family planning
services must be available to eligible pregnant women through the 60th day following
the end of the pregnancy. Coverage of the medically needy other than pregnant
women may include family planning. States receive a 90% federal matching rate for
expenditures attributable to the offering, arranging, and furnishing of family planning
services and supplies.
The provision would provide states with the option to extend family planning
services and supplies to women who are not pregnant and whose income does not
exceed an income eligibility level established by the state that does not exceed the
highest income eligibility level established under the state plan under this title (or
under its State child health plan under title XXI) for pregnant women. States could
opt to include individuals who are determined to meet these eligibility requirements
under the terms, conditions, and procedures applicable to a Medicaid family planning
waiver granted to the state under section 1115 of the Social Security Act as of
January 1, 2007.
Federal financial participation (at the 90% federal Medicaid match rate) for
medical assistance made available to such individuals would be limited to family
planning services and supplies including medical diagnosis or treatment services that
are provided pursuant to a family planning service in a family planning setting and
only for the duration of the woman’s eligibility under this state option.
States would be permitted to extend such Medicaid family planning services and
supplies to women who are determined eligible for Medicaid because they meet the
eligibility requirements of this provision during a period of presumptive eligibility.
Finally, the provision would prohibit the enrollment of such individuals in a
Medicaid benchmark and benchmark-equivalent state plan option, unless such
coverage includes medical assistance for family planning services and supplies.
Section 803. Authority to continue providing adult day health
services approved under a State Medicaid plan. Adult day care programs
provide health and social services in a group setting on a part-time basis to certain
frail older persons and other persons with physical, emotional, or mental
impairments. Generally, states that cover adult day care under Medicaid do so under
home and community-based waivers, the Program for All-Inclusive Care for the
Elderly (PACE), or section 1115 waiver authority. Some states cover adult day care
under their Medicaid state plans even though Medicaid law does not list adult day

care as a mandatory or optional benefit. There have been concerns that CMS may not
continue to allow adult day care to be offered under a state’s Medicaid plan without
the use of a waiver. The provision would require the Secretary to provide for federal
financial participation for adult day health care services, as defined under a state
Medicaid plan, approved during or before 1994. The provision would be effective
beginning November 3, 2005, and ending on March 1, 2009.
Section 804. State option to protect community spouses of
individuals with disabilities. Although Medicaid law grants states the option to
apply spousal impoverishment rules to the counting of income and assets for a
married person who applies to Medicaid as a medically needy individual under
section 1915(c) and (d) home and community-based waivers, states may not apply
spousal impoverishment rules to the eligibility determination for medically needy for
1915(e) waivers. In addition, states may not apply spousal impoverishment rules to
the post-eligibility treatment of income for medically needy persons enrolled in
1915(c), (d), and (e) waivers. Neither eligibility nor post-eligibility spousal
impoverishment rules are applied to persons receiving section 1915(i) or 1915(j)
benefits unless these persons qualify for Medicaid through an eligibility group for
which spousal impoverishment rules apply. The provision would amend Medicaid
law to allow states to apply spousal impoverishment rules to medically needy
applicants and their spouses during the eligibility and post-eligibility determination
of income process for applicants of HCBS waivers authorized under sections
1915(c), (d), or (e) as well as section 1115 of the Social Security Act. It would also
apply to medically needy individuals who are receiving benefits under sections

1915(i) and (j).

Section 805. County Medicaid health insuring organizations. In
general, Medicaid managed care organizations (MCOs) are subject to contracting
requirements described in section 1903(m)(2)(A) of the Social Security Act.
However, certain county-operated managed care plans in California that serve
Medicaid beneficiaries, which are referred to as “county organized health systems”
or “health insuring organizations” (HIOs), are exempt from these contracting
requirements. The Consolidated Omnibus Budget Reconciliation Act of 1985 (P.L.
99-272) grandfathered the 1903(m)(2)(A) exemption for HIOs operating before
January 1, 1986. In addition, the Omnibus Budget Reconciliation Act of 1990 (P.L.
101-508) provided an exemption for up to three county-operated HIOs in California
that became operational on or after January 1, 1986, provided that certain
requirements were met. For example, the three entities could enroll no more than

10% of all Medicaid beneficiaries in California, later raised to 14% by the Medicare,

Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000
(incorporated by reference in P.L. 106-554). The House bill would add an exemption
for HIOs operated by Ventura County and Merced County, and would raise the
allowable percentage of beneficiaries to 16%. The provision would be effective upon
enactment.
Subtitle B — Payments
Section 811. Payments for Puerto Rico and the territories. In the 50
states and the District of Columbia, Medicaid is an individual entitlement. There are
no limits on the federal payments for Medicaid as long as the state is able to

contribute its share of the matching funds. In contrast, Medicaid programs in the
territories are subject to spending caps. For FY1999 and subsequent fiscal years,
these caps are increased by the percentage change in the medical care component of
the Consumer Price Index (CPI-U) for all Urban Consumers (as published by the
Bureau of Labor Statistics). The Deficit Reduction Act of 2005 increased the federal
Medicaid cap in Puerto Rico by $12 million in each of FY2006 and FY2007. For the
Virgin Islands and Guam, the federal Medicaid caps were increased by $2.5 million
in FY2006, and by $5.0 million in FY2007. For the Northern Marianas, the federal
Medicaid cap was increased by $1.0 million in FY2006, and by $2.0 million in
FY2007. For American Samoa, the federal Medicaid cap was increased by $2.0
million in FY2006, and by $4.0 million in FY2007. For FY2008 and subsequent
fiscal years, the total annual cap on federal funding for the Medicaid programs in the
insular areas is calculated by increasing the FY2007 ceiling for inflation.
The federal Medicaid matching rate, which determines the federal share of most
Medicaid expenditures, is statutorily set at 50% in the territories (an enhanced match
is also available for certain administrative costs). Therefore, the federal government
generally pays 50% of the cost of Medicaid items and services in the territories up
to the spending caps.
The provision would increase the territory Medicaid caps by the following
amounts:
^!For Puerto Rico, $250,000,000 for FY2009; $350,000,000 for
FY2010; $500,000,000 for FY2011; and $600,000,000 for FY2012.
^!For the Virgin Islands, $5,000,000 for each of fiscal years 2009
through 2012.
^!For Guam, $5,000,000 for each of fiscal years 2009 through 2012.
^!For the Northern Mariana Islands, $4,000,000 for each of fiscal years

2009 through 2012.

^!For American Samoa, $4,000,000 for each of fiscal years 2009
through 2012.
For years after FY2008, if a territory qualifies for the enhanced federal match
(90% or 75%) that is available under Medicaid for improvements in data reporting
systems, such reimbursement would not count towards its spending cap.
Section 812. Medicaid Drug Rebate. Pharmaceutical manufacturers that
wish to have their products available to Medicaid beneficiaries must enter into
“rebate agreements” under which they agree to provide state Medicaid programs with
the rebates for drugs provided to Medicaid beneficiaries. Rebates for single source
drugs (generally, those still under patent) and “innovator” multiple source drugs
(drugs originally marketed under a patent or original new drug application (NDA) but
for which generic competition now exists) are calculated to be equal to the greater
of 15.1% of the average manufacturer’s price (AMP) or the difference between the
AMP and the best price. Additional rebates are required if the weighted average
prices for all of a given manufacturer’s single source and innovator multiple source
drugs rise faster than inflation. For non-innovator multiple source drugs, rebates are
equal to 11% of the AMP.

The provision would increase the rebate percentage for the basic rebate for
single source and innovator multiple source drugs to 22.1% of the AMP or the
difference between the AMP and the best price. The higher rebate percentage would
become effective after December 31, 2007.
Section 813. Adjustment in computation of Medicaid FMAP to
disregard an extraordinary employer pension contribution. The federal
medical assistance percentage (FMAP) is the rate at which states are reimbursed for
most Medicaid service expenditures. It is based on a formula that provides higher
reimbursement to states with lower per capita incomes relative to the national
average (and vice versa). When state FMAPs are calculated by HHS for the
upcoming fiscal year, the state and U.S. per capita income amounts used in the
formula are equal to the average of the three most recent calendar years of data on per
capita personal income available from the Department of Commerce’s Bureau of
Economic Analysis (BEA). BEA revises its most recent estimates of state per capita
personal income on an annual basis to incorporate revised and newly available source
data on population and income. It also undertakes a comprehensive data revision
every few years that may result in upward and downward revisions to each of the
component parts of personal income, one of which is employer contributions for
employee pension and insurance funds. In describing its 2003 comprehensive
revision, BEA reported that upward revisions to employer contributions for pensions
beginning with 1989 were the result of methodological improvements and more
complete source data.
Under the House bill, for purposes of computing Medicaid FMAPs beginning
with FY2006, any significantly disproportionate employer pension contribution
would be disregarded in computing state per capita income, but not U.S. per capita
income. A significantly disproportionate employer pension contribution would be
defined as an employer contribution towards pensions that is allocated to a state for
a period if the aggregate amount so allocated exceeds 25% of the total increase in
personal income in that state for the period involved.
Section 814. Moratorium on certain payment restrictions. For one
year after the date of enactment of this Act, the provision would prohibit the
Secretary of HHS from taking any action through regulation, official guidance, use
of federal payment audit procedures, or other administrative action, policy or practice
to restrict Medicaid coverage or payments for rehabilitation services, or school-based
administration, transportation, or medical services if such restrictions are more
restrictive in any aspect than those applied to such coverage or payment as of July 1,

2007.

Section 815. Tennessee DSH. When establishing hospital payment rates,
state Medicaid programs are required to recognize the situation of hospitals that
provide a disproportionate share of care to low-income patients with special needs.
Such “disproportionate share (DSH) payments” are subject to statewide allotment
caps. Allotments for the state of Tennessee, however, are equal to zero. This is
because the state has, in the past, operated its state Medicaid program under the
provisions of a research and demonstration waiver. The requirement to make
disproportionate share payments is one of the provisions that have been waived by
the state under the conditions of their research and demonstration waiver. The

provision would set a DSH allotment for the state of Tennessee for fiscal years
beginning with 2008 to be equal to $30 million for each year. In addition, the
provision would allow the Secretary of HHS to limit the total amount of payments
made to hospitals under Tennessee’s research and demonstration waiver authorized
under Section 1115 of the Social Security Act only to the extent that such limitation
is necessary to ensure that a hospital does not receive a payment in excess of
Tennessee’s annual state DSH allotment or is necessary to ensure that the spending
under waiver remains budget neutral.
Section 816. Clarification treatment of regional medical center. The
states and federal government share in the cost of the Medicaid program. Sometimes
states fund their share of program costs by using funds transferred from certain health
care institutional providers that are publicly-owned or are governmental providers.
Such “inter-governmental transfers” of certified public expenditures made by those
types of health care providers to fund the non-federal share of a state’s Medicaid
expenditures are allowable but only when transferred to the state in which the facility
is located. The provision would establish that funds transferred from the Regional
Medical Center of Memphis, a hospital in a tri-state region that provides a significant
amount of uncompensated care to individuals in all three states, can be used to fund
a state other than Tennessee’s share of Medicaid costs if the Secretary determines
that the use of such funds is proper and in the interest of the Medicaid program.
Section 817. Extension of SSI web-based asset demonstration
project to the Medicaid program. The Social Security Administration (SSA)
is piloting (in certain field offices) a financial account verification system that uses
an electronic asset verification system to help confirm that individuals who apply for
Supplemental Security Income (SSI) benefits are eligible. The process permits
automated paperless transmission of asset verification requests between SSA field
offices and financial institutions. Part of this pilot involved a comprehensive study
to measure the value of such a system for SSI applicants as well as recipients already
on the payment rolls. This study identified a small percentage (about 5 percent) of
applicants and recipients who were overpaid based on this financial account
verification system.
Under the House bill, the Secretary of HHS would be required to provide for
application of the SSI pilot to asset eligibility determinations under the Medicaid
program. This application would only extend to states in which the SSI pilot is
operating and only for the period in which the pilot is otherwise provided. For
purposes of applying the SSI pilot to Medicaid, information obtained from a financial
institution that is used for purposes of SSI eligibility determinations could also be
shared and used by states for purposes of Medicaid eligibility determinations.
Subtitle C — Miscellaneous
Section 821. Demonstration project for employer buy-in. An enrollee
buy-in program is a program under which the family of a child that does not qualify
for the SCHIP program (usually due to excess income) can enroll their children into
the SCHIP program by paying for most or all of the cost of coverage. Under current
law, states may not receive federal matching funds for the services provided to these
children, or for the costs of administering the buy-in program.

The bill allows the Secretary of Health and Human Services to establish a five-
year demonstration project under which up to 10 states would be permitted to provide
SCHIP child health assistance to children (and their families) who would be targeted
low-income children but for coverage as beneficiaries under a group health plan as
allowed under this provision. To qualify, states must have an SCHIP income
eligibility that is at least 200% FPL. Under the demonstrations, SCHIP federal
financial participation would be permitted only for such costs attributable to eligible
children.
The bill requires coverage and benefits under a demonstration project to be the
same as the coverage and benefits provided under the state’s SCHIP plan for targeted
low-income children with the highest family income level provided.
Covered families would be responsible for payments towards the premium for
such assistance in an amount specified by the state as long as no cost sharing is
imposed on benefits for preventive services, and SCHIP rules related to income-
related limitations on cost sharing are applied. Qualifying providers would be
responsible for providing payment in an amount that is equal to at least 50% of the
portion of the cost of the family coverage that exceeds the amount of the family’s
cost sharing contribution.
Qualifying employers would be defined as an employer with a majority of its
workforce that is composed of full time workers (where two, part time workers are
treated as a single full-time worker) with family incomes reasonably estimated by the
employer (based on wage information) at or below 200% FPL.
Section 822. Diabetes grants. As specified in Section 330B of the Public
Health Service Act, the Secretary, directly or through grants, must provide for
research into the prevention and cure of Type I diabetes. Appropriations are set at
$150 million per year during the period FY2004 through FY2008. As specified in
Section 330C of the Public Health Service Act, the Secretary must make grants for
providing services for the prevention and treatment of diabetes among American
Indian and Alaska Natives. Appropriations are set at $150 million per year during
the period FY2004 through FY2008. As a part of the appropriation for SCHIP under
this bill, for each of these two diabetes grant programs, the provision would provide
$150 million for FY2009.
Section 823. Technical correction. The Deficit Reduction Act of 2005
(DRA; P.L. 109-171) gave states the option to provide Medicaid to state-specified
groups through enrollment in benchmark and benchmark-equivalent coverage which
is nearly identical to plans available under SCHIP. DRA identifies a number of
groups as exempt from mandatory enrollment in benchmark or benchmark-equivalent
plans. These exempted groups may be enrolled in such plans on a voluntary basis.
One such exempted group is children in foster care receiving child welfare services
under Part B of title IV of the Social Security Act and children receiving foster care
or adoption assistance under Part E of such title. The provision would make a
correction to the reference to children in foster care receiving child welfare services
in the DRA; this change would be effective as if included in DRA (i.e., March 31,

2006).

Title IX — Miscellaneous
Section 901. Medicare Payment Advisory Commission Status. The
Medicare Payment Advisory Commission (MedPAC) is an independent federal body
established by the Balanced Budget Act of 1997 to advise the U.S. Congress on
issues affecting the Medicare program. The Commission’s statutory mandate is to
(1) advise the Congress on payments to private health plans participating in Medicare
and providers in Medicare’s traditional fee-for-service program, and (2) analyze
access to care, quality of care, and other issues affecting Medicare. The provision
would establish MedPAC as an agency of Congress.
Section 902. Repeal of Trigger Provision. The provision in MMA that
requires the annual report of the Hospital Insurance (HI) and Supplementary Medical
Insurance (SMI) trustees’ to include an expanded analysis of Medicare expenditures
and revenues would be repealed. Specifically, the provision requires that a
determination must be made as to whether or not general revenue financing will
exceed 45% of total Medicare outlays within the next seven years. General revenues
financing is defined as total Medicare outlays minus dedicated financing sources (i.e.,
HI payroll taxes; income from taxation of Social Security benefits; state transfers for
prescription drug benefits; premiums paid under Parts A, B, and D; and any gifts
received by the trust funds).
Section 903. Repeal of Comparative Cost Adjustment (CCA)
Program. The requirement for a six-year program that will begin in 2010 to
examine comparative cost adjustment (CCA) in designated CCA areas would be
repealed. Specifically this program requires that payments to local MA plans in CCA
areas would, in part, be based on competitive bids (similar to payments for regional
MA plans), and Part B premiums for individuals enrolled in traditional Medicare may
be adjusted, either up of down. This program would be phased-in and there is also
a 5% annual limit on the adjustment, so that the amount of the adjustment to the
beneficiary’s premium for a year can not exceed 5% of the amount of the monthly
Part B premium, in non-CCA areas.
Section 904. Comparative Effectiveness Research. There are few
provisions in current Medicare statutes that address comparative clinical
effectiveness research. Section 1013 of MMA authorizes the Agency for Healthcare
Research and Quality (AHRQ) to conduct and support evidence syntheses and
research to meet the priorities and requests for scientific evidence and information
identified by the Medicare, Medicaid and SCHIP programs. This includes
developing information with respect to (1) outcomes, comparative clinical
effectiveness, and appropriateness of health care items and services, including
prescription drugs, and (2) strategies for improving the efficiency and effectiveness
of such programs, including the ways in which such items and services are organized,
managed, and delivered under such programs. To carry out Section 1013, MMA
authorized $50 million for FY2004, and “such sums as may be necessary for each
fiscal year thereafter.” Congress has appropriated $15 million a year for AHRQ’s
comparative effectiveness endeavors under MMA section 1013.
The provision would establish a Center for Comparative Effectiveness Research
(“Center”) within the Agency for Healthcare Research and Quality, which would

“conduct, support, and synthesize research with respect to the outcomes,
effectiveness, and appropriateness of health care services and procedures in order to
identify the manner in which diseases, disorders, and other health conditions can
most effectively and appropriately be prevented, diagnosed, treated, and managed
clinically.” These activities would include the research conducted or supported under
section 1013 of MMA. An independent Comparative Effectiveness Research
Commission (“Commission”), established by the Secretary, would have oversight
responsibility over the Center and would evaluate the Center’s activities to ensure
that highly credible research and information result from such research.
The comparative effectiveness research activities would be funded by both
private and public contributions. The provision would alter the tax code to allow for
the collection of the fair share per capita amount from health insurance and
self-insured plans. Beginning with FY2011, the fair share pre capita amount would
be an amount that would result in revenues of $375,000,000 for the fiscal year.
Alternatively, if the Secretary is unable to compute the fair share per capita amount,
the fair share per capita amount would be the default amount, which for FY2013
would equal $2, and in subsequent years would be increased by the annual percentage
increase in the medical care component of the consumer price index.
For the public contribution, a Comparative Effectiveness Research Trust Fund
(“CERTF”) would be created in the Treasury of the United States and at least the
following amounts would be appropriated for the first three years: (1) for FY2008,
$90 million; (2) for FY2009, $100 million; and (3) for FY2010, $110 million. The
amounts appropriated would be transferred from the Federal Hospital Insurance Trust
Fund (Part A), from the Federal Supplementary Medical Insurance Trust Fund (Part
B), and from the Medicare Prescription Drug Account (Part D), in proportion (as
estimated by the Secretary) to the total Medicare expenditures during such fiscal year
from the respective trust fund or account. In no case would the amount transferred,
resulting from the calculation of the fair share per capita amount multiplied by the
average number of Medicare beneficiaries for fiscal years beginning 2011, exceed
$90,000,000.
Funds in the CERTF would be available to the Secretary for comparative
effectiveness research activities as established by this provision. For the oversight
activities of the Comparative Effectiveness Research Commission, at least $7 million
would be available for FY2008, at least $9 million for FY2009, and at least $10
million for each fiscal year beginning with 2010.
Section 905. Implementation of Health Information Technology (IT)
Under Medicare. While the quality, safety, and efficiency benefits of the
widespread adoption of health information technology (HIT) systems have been
lauded by many, there are currently no requirements for the implementation of an
HIT system that meets a common set of criteria under the Medicare program,
particularly in physicians’ offices. However, a few initiatives do address the
adoption of HIT among providers in the Medicare program. The Physician Quality
Reporting Initiative, implemented as part of the Tax Relief and Health Care Act of
2006, includes structural quality measures addressing the adoption of health
information technology systems. CMS has a few demonstration projects in place to
examine the impact of HIT on providers and beneficiaries, including the Doctor’s

Office Quality - Information Technology project and the VistA-Office Electronic
Health Record project.
The provision would require the Secretary to submit a report to Congress by
January 10, 2010, that would include a plan to develop and implement a health
information technology system for all health care providers under the Medicare
program. This plan would meet the following specifications: (1) the system protects
the privacy and security of individually identifiable health information; (2) the system
maintains and provides permitted access to health information in an electronic format
(such as through computerized patient records or a clinical data repository); (3) the
system utilizes interface software that allows for interoperability; (4) the system
includes clinical decision support; (5) the system incorporates e-prescribing and
computerized physician order entry; (6) the system incorporates patient tracking and
reminders; and (7) the system utilizes technology that is open source (if available) or
technology that has been developed by the government. The report would include
recommendations regarding the level of subsidies needed for all such health care
providers to adopt the system. The Secretary’s report to Congress would also include
an analysis of the impact feasibility and cost associated with the use of health
information technology in medically underserved communities.
Section 906. Development, Reporting, and Use of Health Care
Measures. The provision would foster efforts to develop, report, and use health
care measures in the Medicare program under the auspices of a single entity. No
earlier than January 1, 2008, and no later than September 30, 2008, the Secretary
would designate a single organization (such as the National Quality Forum) that
would provide the Secretary with advice on, and recommendations with respect to,
the key elements and priorities of a national system for establishing health care
measures.
The designated organization’s duties would include the following: (1)
establishing and managing an integrated national strategy and process for setting
priorities and goals in establishing health care measures; (2) coordinating the
development and specifications of such measures; (3) establishing standards for the
development and testing of such measures; (4) endorsing national consensus health
care measures; and (5) advancing the use of electronic health records for automating
the collection, aggregation, and transmission of measurement information.
The Secretary, acting through the Agency for Healthcare Research and Quality,
would be able to contract with organizations to support the development and testing
of health care measures meeting the standards established by the designated
organization. In order to make comparative effectiveness information available to
health care consumers, health professionals, public health officials, oversight
organizations, researchers, and other appropriate individuals and entities, the
Secretary would work with multi-stakeholder groups to provide for the dissemination
of effectiveness information developed pursuant to this title.
Funding for the activities specified in this provision, including for expenses
incurred for the arrangement with the designated organization, would come from
both the Federal Hospital Insurance Trust Fund and the Federal Supplementary
Medical Insurance Trust Fund (Medicare Part A and Part B trust funds) in the amount

of $15 million for FY2008, pro-rated to reflect the potion of the year the designated
organization is performing the duties described above, and $15 million for fiscal
years 2009 through 2012.
Section 907. Improvements to the Medigap Program. Many Medicare
beneficiaries have individually purchased health insurance policies, commonly
referred to as “Medigap” policies. Beneficiaries with Medigap insurance typically
have coverage for Medicare’s deductibles and coinsurance; they may also have
coverage for some items and services not covered by Medicare. Individuals generally
select from one of 10 standardized plans (Plan “A” through Plan “J,” though not all
10 plans are offered in all states). The law incorporates by reference, as part of the
statutory requirements, certain minimum standards established by the National
Association of Insurance Commissioners (NAIC) and provides for modification
where appropriate to reflect program changes. MMA added two new standardized
plan types, Plan “K” and Plan “L” which, unlike the other standardized plans,
eliminated first-dollar coverage for most Medicare cost-sharing and included an
annual out-of-pocket limit on such charges. The provision would require the
Secretary to accept modifications recommended by the NAIC in March 2007, as
further modified by this section. Policy issuers would be required to offer, in
addition to the core package, at least polices classified as “C” or “F.” The provision
would eliminate benefit packages “K” and “L.” It would apply to policies issued on
or after January 1, 2008.
Section 908. Implementation Funding. This provision would require the
Secretary to transfer $40,000,000 from the Medicare Supplementary Medical
Insurance Trust Fund to the Centers for Medicare and Medicaid Services program
management account for the purposes of administering the provisions of this bill.
The funds would be available for FY2008.
Section 909. Access to Data on Prescription Drug Plans and
Medicare Advantage Plans. The provision would allow Congressional support
agencies access to some of the prescription drug data collected by the Secretary under
Part D. Data to be made available would include the following: (1) aggregate
negotiated prices for drugs covered under prescription drug plans and MA-PD plans;
(2) negotiated rebates, discounts, and other price concessions by drug and by contract
or plan; (3) bid information submitted by the plans; (4) data or a representative
sample of data regarding drug claims and other data regarding drug claims submitted
by PDP sponsors and MA organizations that can be linked at the individual level to
part A and part B data; (5) the amount of reinsurance payments to plans; (6) the
adjustments to plan payments because of the risk corridor; and (7) drug event data.
Congressional support agencies would not disclose, report, or release the data
in identifiable form, that is, any representation that permits identification of a specific
PDP, MA-PD plan, pharmacy benefit manager, drug manufacturer, drug wholesaler,
or individual enrolled in a Medicare Part D prescripton drug plan or MA-PD plan.
They would be required to implement safeguards specified by the Secretary to protect
against unauthorized disclosure of the data, and would be prohibited from disclosing
the data where such disclosure by the Secretary would be prohibited under applicable
federal law. Congressional support agencies would only use the data for the
functions and activities of the agency as mandated by Congress. This provision

defines Congressional support agencies as the Medicare Payment Advisory
Commission (MedPAC), the Government Accountability Office (GAO) and the
Congressional Budget Office (CBO).
Section 910. Abstinence Education⁵. P.L. 104-193, the 1996 welfare
reform law, provided $250 million in federal funds specifically for an abstinence
education program ($50 million per year for each of five years, FY1998-FY2002).
This program is referred to as the Title V Abstinence Education block grant. Funds
must be requested by states when they solicit Title V Maternal and Child Health
(MCH) block grant funds and must be used exclusively for teaching abstinence. To
receive federal funds, a state must match every $4 in federal funds with $3 in state
funds. This means that if maximum federal funding is provided, funding for Title V
Abstinence Education must total at least $87.5 million annually. Although the Title
V Abstinence Education block grant has not yet been reauthorized, the latest
temporary extension, contained in P.L. 110-48 (S. 1701), continues funding for the
Title V Abstinence Education block grant through September 30, 2007.
The House bill would do the following: (1) reauthorize the Title V Abstinence
Education block grant at $50 million per year for each of two years (FY2008 and
FY2009), (2) require that states only fund programs that are medically and
scientifically accurate, (3) allow states to provide funding for both abstinence-only
education and abstinence-plus education programs, and (4) require that states only
fund programs that are based on a model that has been demonstrated to be effective
in preventing unintended pregnancy, or in reducing the transmission of sexually
transmitted diseases, including HIV/AIDS.

⁵ This description was prepared by Carmen Solomon-Fears of the Children and Families
section of the Domestic Social Policy Division at CRS.