Medicare: Changes to Balanced Budget Act of 1997 (BBA 97, P.L. 105-33) Provisions

Medicare: Changes to Balanced Budget Act of 1997 (BBA 97, P.L. 105-33) Provisions

Order Code RL30347
CRS Report for Congress
Received through the CRS Web
Medicare: Changes to Balanced Budget Act of
1997 (BBA 97, P.L. 105-33) Provisions
Updated November 19, 1999
Jennifer O’Sullivan, Carolyn Merck,
Madeleine Smith, Sibyl Tilson
Specialists in Social Legislation
Domestic Social Policy Division
Congressional Research Service ˜ The Library of Congress

Medicare: Changes to Balanced Budget Act of 1997
(BBA 97, P.L. 105-33) Provisions
Summary
On August 5, 1997, the President signed into law the Balanced Budget Act of
1997 (BBA 97, P.L. 105-33). This legislation included a number of Medicare
provisions. At the time of enactment, the Congressional Budget Office (CBO)
estimated that Medicare spending would be reduced by $116.4 billion over 5 years
(FY1998-FY2002) and $393.8 billion over 10 years (FY1998-FY2007). The BBA
was expected to achieve the target savings both by slowing the rate of growth in
payments to hospitals, physicians, and other providers and by establishing new
prospective payment systems (PPSs) and other new payment methodologies for
skilled nursing facilities, home health agencies, and other service categories. In
addition, the measure established the Medicare+Choice program which expanded
private plan options available to Medicare beneficiaries and modified the way
payments are made to health maintenance organizations (HMOs).
In March 1999, and subsequently in July 1999, CBO lowered its Medicare
spending estimates. The estimates made since enactment of BBA 97 reflect a number
of factors, many of which are only indirectly related to the BBA provisions. These
include an improved economic forecast, heightened anti-fraud and abuse initiatives,
a slowdown in payments to providers, and lower projected enrollment in the
Medicare+Choice program.
A number of health care provider groups have stated that actual Medicare
payment reductions resulting from BBA 97 are larger than were intended when BBA
97 was enacted. Some groups further contend that beneficiary access to care has
been adversely affected as a result. It is difficult to determine the actual impact of the
legislation due to the limited data that are currently available and the fact that a
number of the provisions have not been fully implemented. The Medicare Payment
Advisory Commission (MedPAC) and the General Accounting Office (GAO) have
reviewed existing information and find that, in general, BBA 97 provisions have not
impeded beneficiary access to care. However, they caution that continued review of
the implementation of the law is warranted.
Both the House and Senate considered bills to mitigate the impact of BBA
provisions on Medicare providers. On November 5, 1999, the House passed the
Medicare Balanced Budget Refinement Act of 1999 (H.R. 3075). On October 26,
1999, the Senate Finance Committee reported the Medicare and Medicaid Budget
Correction and Refinement Act of 1999 (S. 1788). On November 18, 1999, the
House passed the conference report on H.R. 3194 the District of Columbia
appropriations bill. This measure incorporates the agreement reached by House and
Senate negotiators on the Medicare provisions. This report summarizes the major
provisions of the agreement. This report will be updated as additional legislative
actions occur.

Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Impact of BBA 97 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Pending Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Summary of the Medicare Balanced Budget Refinement Act of 1999 . . . . . . . . . 6
Title I — Provisions Relating to Part A . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Subtitle A — Adjustments to PPS Payments for Skilled Nursing
Facilities (SNFs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Subtitle B — PPS Hospitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Subtitle C — PPS-Exempt Hospitals . . . . . . . . . . . . . . . . . . . . . . . . . 7
Subtitle D — Hospice Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Subtitle E — Other Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Subtitle F — Transitional Provisions . . . . . . . . . . . . . . . . . . . . . . . . . 9
Title II — Provisions Relating to Part B . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Subtitle A — Hospital Outpatient Services . . . . . . . . . . . . . . . . . . . . 10
Subtitle B — Physician Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Subtitle C — Other Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Title III — Provisions Relating to Parts A and B . . . . . . . . . . . . . . . . . . . 13
Subtitle A — Home Health Services . . . . . . . . . . . . . . . . . . . . . . . . . 13
Subtitle B — Direct Graduate Medical Education . . . . . . . . . . . . . . . 14
Subtitle C — Technical Corrections . . . . . . . . . . . . . . . . . . . . . . . . . 14
Title IV — Rural Provider Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Subtitle A — Rural Hospitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Subtitle B — Other Rural Provisions . . . . . . . . . . . . . . . . . . . . . . . . 16
Title V — Provisions Relating to Part C (Medicare+Choice Program)
and Other Medicare Managed Care Provisions . . . . . . . . . . . . . . . . . 17
Subtitle A — Provisions to Accommodate and Protect
Medicare Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Subtitle B — Provisions to Facilitate Implementation of the
Medicare +Choice Program . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Subtitle C — Demonstration Projects and Special Medicare
Populations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Subtitle D — Medicare+Choice Nursing and Allied Health
Professional Education Payments . . . . . . . . . . . . . . . . . . . . . . . 21
Subtitle E — Studies and Reports . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Medicare: Changes to Balanced Budget Act of
1997 (BBA 97, P.L. 105-33) Provisions
Introduction
On August 5, 1997, the President signed into law the Balanced Budget Act of
1997 (BBA 97, P.L. 105-33). This legislation included Medicare provisions that were
intended to slow the rate of growth in that program’s spending. At the time of
enactment, the Congressional Budget Office (CBO) estimated that Medicare spending
would be reduced by $116.4 billion over 5 years (FY1998-FY2002) and $393.8
billion over 10 years (FY1998-FY2007). The BBA was expected to achieve the
target savings both by slowing the rate of growth in payments to hospitals, physicians,
and other providers and by establishing new prospective payment systems (PPSs) and
other new payment methodologies for skilled nursing facilities, home health agencies,
and other service categories. In addition, the measure established the
Medicare+Choice program which expanded private plan options available to Medicare
beneficiaries and modified the way payments are made to health maintenance
organizations (HMOs).1
In March 1999, CBO revised its budget projections. It lowered its Medicare
spending estimates by an additional $80 billion over the FY1998-FY2002 period and
$229 billion over the FY1998-FY2007 period. In July 1999, CBO projected a further
reduction of $11 billion over the FY1998-FY2002 period and $21 billion over the
FY1998-FY2007 period. The estimates made since enactment of BBA 97 reflect a
number of factors, many of which are only indirectly related to the BBA provisions.
These include an improved economic forecast, heightened anti-fraud and abuse
initiatives, a slowdown in payments to providers, and lower projected enrollment in
the Medicare+Choice program.2
Impact of BBA 97
A number of health care provider groups have stated that actual Medicare
payment reductions resulting from BBA 97 are larger than were intended when BBA
97 was enacted. Some groups further contend that beneficiary access to care has
been adversely affected as a result. In addition, some Medicare+Choice (M+C)
organizations, which are either terminating their program participation or reducing
1 For a description of BBA 97, see CRS Report 97-802, Medicare Provisions in the Balanced
Budget Act of 1997 (BBA 97, P.L. 105-33), by Jennifer O’Sullivan, Celinda Franco, Beth
Fuchs, Bob Lyke, and Richard Price.
2 For a discussion of changes in Medicare spending since BBA 97, see CRS Report RS20238,
Trends in Medicare Spending After the Balanced Budget Act, by Hinda Chaikind.

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their service areas, attribute these actions to reductions in Medicare payment rates and
other BBA changes.
It is difficult to determine the actual impact of the legislation due to the limited
data that are currently available.3 On October 1, 1999, the Ways and Means Health
Subcommittee held a hearing on the impact of BBA 97 provisions. Witnesses from
both the Medicare Payment Advisory Commission (MedPAC) and the General
Accounting Office (GAO) testified on the information available to date.
MedPAC reported that it is difficult to sort out the effects of multiple changes
in payment policies as well as the introduction of new prospective payment systems.
It noted that many of the BBA changes have yet to be fully phased-in and that data
to evaluate the impact of recent changes are not available in many cases. MedPAC
also noted that it was difficult to isolate the effects of changes in Medicare policy
from other changes in the health care system. The following are some of MedPAC’s
key findings by service category:
! Hospitals — Inpatient Services. MedPAC testified that while industry reports
somewhat overstate the negative impact of BBA on hospital margins, the
reports do reflect the overall direction. As was intended by BBA, the law
reverses a 6-year trend of Medicare payments rising more rapidly than the cost
of treating Medicare patients. MedPAC has not seen convincing evidence that
the changes to date have affected either quality or access to inpatient care, but
it will continue to monitor developments. MedPAC cited its March 1999
report which concluded that the FY2000 update included in BBA was
appropriate; however, it recognized factors pointing to the need for caution in
specifying future updates. It also questioned whether the unusually low rate
of cost growth observed in recent years can be sustained without adverse
effects on quality.
! Hospitals — Outpatient Services. MedPAC reports that hospitals have not felt
the impact of BBA provisions because the PPS that was to be implemented
in 1999 will not be implemented until mid-2000. MedPAC has increased its
savings estimates of the impact of PPS but suggests that certain hospitals may
counter some of the reduction by coding services more accurately. Given that
implementation of PPS could have a larger impact on some hospitals than
others, it recommended that the Secretary of the Department of Health and
Human Services (HHS) closely monitor the use of care to ensure that access
to appropriate care is not compromised. It also suggested that consideration
be given to phasing in the system.
! Home Health Agencies (HHAs). MedPAC cited the findings from a recent
GAO study which showed that although 14% of HHAs closed between
October 1997 and January 1999 there were more agencies in existence at the
beginning of FY1999 than at the beginning of FY1996. Hospital discharge
planners and others interviewed by GAO reported few access problems.
However, GAO noted that beneficiaries who are more costly than average may
3 For further information see: CRS Report RL30300, Medicare Beneficiary Access to Care:
The Effects of the New Prospective Payment Systems on Outpatient Hospital Care, Home
Health Care, and Skilled Nursing Facility Care, by Carolyn Merck.

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face difficulties in the future as agencies change their behavior in response to
the interim payment system (IPS) established by BBA 97. The IPS among
other things, established a new methodology for limiting annual Medicare
payments to individual agencies through per beneficiary limits. MedPAC’s
survey of HHAs contained findings that were consistent with the claim that the
IPS has hampered access. However, it notes that changes in payment policy
were occurring at the same time that HCFA was implementing other policies
intended to reduce fraud and abuse (including stepped up in-depth case
reviews by intermediaries). It also cited the lack of clear eligibility and
coverage guidelines. It is therefore difficult to interpret the findings. In its
June report, MedPAC was concerned about the tight timetable for
implementation of the new PPS system. It recommended that Congress
explore the feasibility of excluding, on a budget neutral basis, a small
percentage of patients who have intense service needs (e.g., 2%) from the
aggregate per beneficiary limits.
! Skilled Nursing Facilities (SNFs). MedPAC cited a survey of hospital
discharge planners by the Office of the Inspector General (OIG) of HHS. The
OIG report stated that serious problems in placing beneficiaries are not
apparent, although some SNFs are changing their admitting practices in
response to the new payment system. The OIG noted that half of those
surveyed reported that they have begun requesting more clinical information
about patients and are often assessing patients more directly before making
admissions decisions. The survey further reported that some medically
complex patients had become harder to place. This is consistent with
MedPAC’s concerns that payment weights under the new PPS do not
adequately account for the service needs of certain patients, particularly those
who require relatively high levels of nontherapy ancillary services and supplies.
Its March 1999 report recommended a refinement in the classification system.
HCFA has undertaken a review of this potential problem.
! Physicians. A survey of beneficiary access to physicians’ services indicated few
problems. However, MedPac suggested that technical changes were needed
in the sustainable growth rate system (that determines annual updates in
physician payments) in order to avoid access problems in the future.
! Medicare+Choice (M+C) Plans. While Congress intended that the M+C
program expand beneficiaries’ health plan options to include preferred provider
organizations, provider sponsored organizations, private fee-for-service plans
and medical savings accounts, this has not occurred. However, enrollment in
M+C plans (typically HMOs) has continued to grow. MedPAC states that
M+C payment levels alone do not appear to have had much impact on either
encouraging new plans to enter the market or encouraging existing plans to
leave the market. MedPAC’s March report recommended that the Secretary
work with organizations offering plans to identify specific regulation or policy
changes which could reduce the burden of compliance without compromising
the objectives of the program. It further recommended delaying the filing date
for the adjusted community rate proposals and giving M+C organizations the
flexibility to tailor their benefit packages within their service areas. Finally, it
supported phasing-in the risk adjustment payment mechanism.

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The GAO testimony from October 1, 1999 included the following observations:
! Home Health Agencies. As noted in the MedPAC testimony (above) GAO has
found little evidence to date of impaired access to care. GAO points out,
however, that the PPS system is a more appropriate tool for controlling
program spending than the IPS because it can align payments with patient
needs. GAO notes that a number of PPS design issues remain and that the
payment system will likely require continued adjustments even after its
implementation next year.
! Skilled Nursing Facilities. GAO reports that some business decisions
unrelated to the PPS have contributed to fiscal difficulties for some
corporations operating SNFs. While overall SNF payment rates are likely to
prove sufficient or even generous, the distribution may be out of balance. The
current case mix adjustment method may not adequately ensure that providers
serving high cost beneficiaries are paid enough. A potential access problem
could result if Medicare underpays for high cost patients.
! Outpatient Therapy Services. For the vast majority of patients, the caps are
unlikely to curtail access. Whether caps restrict access for a small share of
nursing home residents is less straightforward. A needs-based system could
better target payments toward patients who genuinely require more services
than allowed under the caps.
! Medicare+Choice Plans. BBA provisions addressed the long recognized
problem of excess payments to plans. The net effect of the new provisions has
been modest and, on average, has likely removed only a portion of the excess
payments built into the base rates. Further, plan withdrawals are attributable
to a number of factors in addition to changes in M+C payment rates. Critical
to making M+C payment modifications is the establishment of an appropriate
base rate and risk adjustment mechanism that pays more for beneficiaries with
serious health problems and less for relatively healthy persons.
Pending Legislation
Both the House and Senate considered bills to mitigate the impact of BBA
provisions on providers. These measures were considered in the context of stringent
federal budget limitations.
On November 5, 1999, the House passed the Medicare Balanced Budget
Refinement Act of 1999 (H.R. 3075). This measure is the bill reported by the House
Ways and Means Committee on November 2, 1999, with some modifications as
agreed to in discussions between the Ways and Means Committee and Commerce
Committee (which shares jurisdiction over a portion of Medicare). The Congressional
Budget cost estimates for the Ways and Means bill were $10.5 billion over 5 years
(FY2000-FY2004) and $17.2 billion over 10 years (FY2000-FY2009); an estimate
of the House-passed bill is not available.

On October 26, 1999, the Senate Finance Committee ordered reported the
Medicare and Medicaid Balanced Budget Correction and Refinement Act of 1999
(S. 1788). This measure had a cost estimate (including the non-Medicare provisions)
of $11.9 billion over 5 years and $15.7 billion over 10 years.

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On November 17, 1999, House and Senate negotiators reached agreement on
the Medicare provisions. The agreement also included provisions related to the State
Children’s Health Insurance Program (SCHIP) and Medicaid. CBO has estimated the
cost of this package at $16 billion over the FY2000-FY2004 period and $27 billion
over the FY2000-FY2009 period. The agreement was introduced as H.R. 3496, the
Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999. It was
incorporated by reference into the conference agreement, on H.R. 3194, the District
of Columbia Appropriations Act. The House passed the measure on November 18,
1999. This report summarizes the Medicare portions of the bill.

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Summary of the Medicare Balanced Budget Refinement
Act of 1999
Title I — Provisions Relating to Part A
Subtitle A — Adjustments to PPS Payments for Skilled Nursing Facilities
(SNFs).
Sec. 101. Temporary Increase in Payment for Certain High Cost Patients
The agreement increases federal per diem PPS payments by 20% for 15
categories of Medicare patients in SNFs starting April 1, 2000, and increases the
federal rates for all categories of patients by 4.0% in FY2001 and FY2002.
Sec. 102. Authorizing Facilities to Elect Immediate Transition to Federal Rate
The agreement permits SNFs to elect, on or after December 15, 1999, to receive
Medicare payments based 100% on the federal per diem rate rather than partially on
a federal per diem rate and partially on a pre-PPS facility specific rate.
Sec. 103. Part A Pass-Through for Certain Ambulance Services, Prostheses, and
Chemotherapy Drugs
The agreement requires that certain ambulance services for dialysis patients,
certain prostheses, and certain chemotherapy drugs for SNF patients be paid for by
Medicare in addition to SNF PPS per diem amounts starting April 1, 2000 and then
should be paid with a budget neutral adjustment to total payments beginning in
FY2001.
Sec. 104. Provision for Part B Add-ons for Facilities Participating in the
NHCMQ Demonstration Project
The agreement includes the cost of Part B services in the computation of the
facility specific component of the SNF per diem payment during the transition to the
federal per diem PPS for SNFs that had participated in the Nursing Home Case Mix
and Quality demonstration, including updates of the SNF market basket increase
minus 1 percentage point.
Sec. 105. Special Consideration for Facilities Serving Specialized Patient
Populations
The agreement provides that from enactment until September 30, 2001, PPS
payments to certain SNFs will be based 50% on the facility specific rate and 50% on
the federal per diem rate (rather than moving to 100% at the federal rate) if the SNF
was in operation before July 1, 1992, and if at least 60% of the SNF’s patients in cost
reporting periods beginning in 1998 were immuno-compromised secondary to an
infectious disease (with other diagnoses).

CRS-7
Sec. 106. MedPAC Study on Special Payment for Facilities Located in Hawaii
and Alaska
The agreement requires the Secretary to study and report within 18 months of
enactment on the need for additional payments under the SNF PPS for facilities in
Alaska and Hawaii.
Sec. 107. Study and Report Regarding State Licensure and Certification
Standards and Respiratory Therapy Competency Examinations
The agreement requires the Secretary to study and report within 18 months of
enactment on the variations in State licensure and certification standards regarding
providers of respiratory therapy in SNFs and the need for Medicare to require
examinations for, or certification of, workers providing respiratory therapy.
Subtitle B — PPS Hospitals.
Sec. 111. Modification in Transition for Indirect Medical Education (IME)
Percentage Adjustment
The agreement provides that the IME adjustment would be frozen at 6.5%
through FY2000, reduced to 6.25% in FY2001 and then to 5.5% in FY2002 and
subsequent years. The agreement also provides for a special adjustment to achieve
the 6.5% IME payment for the first six months of FY2000.
Sec. 112. Decrease in Reductions for Disproportionate Share Hospitals; Data
Collection Requirements
The agreement freezes the reduction in the DSH payment formula to 3% in
FY2001, changes the reduction to 4% in FY2002, and requires the Secretary to
collect hospital cost data on uncompensated inpatient and outpatient care, including
non-Medicare bad debt and charity care as well as Medicaid and indigent care charges
for cost reporting periods beginning on or after October 1, 2001.
Subtitle C — PPS-Exempt Hospitals.
Sec. 121. Wage Adjustment of Percentile Cap for PPS-exempt Hospitals
Percentage Adjustment
The agreement adjusts the labor-related portion of the 75% cap to reflect
differences between the wage-related costs in the hospital’s area and the national
average of such costs within the same class of PPS-exempt hospitals beginning for
cost reporting periods on or after October 1, 1999.
Sec. 122. Enhanced Payments for Long-Term Care and Psychiatric Hospitals
Until Development of Prospective Payment Systems (PPS) for those Hospitals
The agreement provides for an increase to the amount of continuous bonus
payments to the eligible long-term care and psychiatric providers from 1% to 1.5%
for cost reporting periods beginning on or after October 1, 2000, and before

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September 30, 2001, and 2% for cost reporting periods beginning on or after October
1, 2001, and before September 30, 2002.
Sec. 123. Per Discharge Prospective Payment System (PPS) for Long-Term
Care Hospitals
The agreement requires the Secretary to report to the appropriate Congressional
committees by October 1, 2001 on a discharge-based PPS with an adequate patient
classification system for long-term care hospitals which would be implemented in a
budget neutral fashion for cost reporting periods beginning on or after October 1,
2002.
Sec. 124. Per Diem Prospective Payment System (PPS) for Psychiatric Hospitals
The agreement requires the Secretary to report to the appropriate Congressional
committees by October 1, 2001 on a per-diem based PPS with an adequate patient
classification system for psychiatric hospitals and units which would be implemented
in a budget neutral fashion for cost reporting periods beginning on or after October
1, 2002.
Sec. 125. Refinement of Prospective Payment System (PPS) for Inpatient
Rehabilitation Hospitals
The agreement requires the Secretary to base a PPS on discharges, establish
classes of patient discharges of rehabilitation facilities by functional-related groups,
based on impairment, age, co-morbidities, and functional capability of the patient and
such other factors as the Secretary deems appropriate to improve the explanatory
power of functional independence measure-function related groups, and submit a
study to Congress not later than 3 years after PPS implementation on its impact on
utilization and access.
Subtitle D — Hospice Care.
Sec. 131. Temporary Increase in Payment for Hospice Care
The agreement increases payment rates to hospices by 0.5% in FY2001 and by
0.75% in FY2002.
Sec. 132. Study and Report to Congress Regarding Modification of the
Payment Rates for Hospice Care
The agreement requires the GAO to study the cost factors used to determine
hospice payment rates and amounts and report to Congress within 1 year of
enactment.

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Subtitle E — Other Provisions.
Sec. 141. MedPAC Study on Medicare Payment for Non-Physician Health
Professional Clinical Training in Hospitals
The agreement requires MedPAC, within 18 months of enactment, to submit to
Congress a study of Medicare payment policy with respect to professional clinical
training of different types of non-physician health care professionals (such as nurses,
nurse practitioners, allied health professionals, physician assistants, and
psychologists).
Subtitle F — Transitional Provisions.
Sec. 151. Exception to CMI Qualifier for One Year
The agreement deems that Northwest Mississippi Regional Medical Center meets
the case mix index criteria for classification as a referral center for FY2000.
Sec. 152. Reclassification of Certain Counties and Areas for Purposes of
Reimbursement Under the Medicare Program
The agreement provides that Iredell County, NC is to be considered part of
Charlotte-Gastonia Rock Hill NC-SC metropolitan statistical area (MSA) and Orange
County, NY is to be considered part of the large urban area of New York, NY for the
purposes of Medicare inpatient PPS in FY2000 and FY2001. In addition, Lake
County, Indiana and Lee County, Illinois are deemed to be considered part of the
Chicago, Illinois MSA; Hamilton-Middletown, Ohio is deemed to be considered part
of the Cincinnati, Ohio-Kentucky-Indiana MSA; Brazoria County, Texas is deemed
to be considered part of the Houston, Texas MSA; and Chittenden County is deemed
to be considered part of the Boston-Worcester-Lawrence-Lowell-Brockton,
Massachusetts-New Hampshire MSA. For FY2001, these reclassifications should be
treated as a decision of the Medicare Geographic Reclassification Review Board.
Sec. 153. Wage Index Correction
The agreement requires the Secretary to recalculate and apply the Hattiesburg,
MS MSA wage index for FY2000 using FY1996 wage and hour data for Wesley
Medical Center without adjusting the wage indices in any other areas.
Sec. 154. Calculation and Application of Wage Index Floor for a Certain Area
The agreement provides that the Secretary will calculate and apply the wage
index for the Allentown-Bethlehem-Easton MSA for FY2000 and FY2001 as if
Lehigh Valley Hospital were classified in such area and, for FY2000 not adjust the
wage index for any other area.

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Sec. 155. Special Rule for Certain Skilled Nursing Facilities
The agreement provides that PPS payments for certain facilities in Baldwin or
Mobile County, Alabama are to be based on 100% of the facility specific component
of the SNF PPS rates for cost reporting periods starting in FY2000 or FY2001.
Title II — Provisions Relating to Part B
Subtitle A — Hospital Outpatient Services.
Sec. 201. Outlier Adjustment and Transitional Pass-Through for Certain
Medical Devices, Drugs, and Biologicals
The agreement permits the Secretary to provide for 2 to 3 years of payments in
addition to hospital outpatient PPS payments (“pass-through”) for certain devices,
drugs, and biologicals. It also allows additional payments to hospitals for certain high
cost cases for which costs for each covered service exceed a fixed multiple of the PPS
amount, plus pass-through payments, plus additional amounts. Such payments cannot
exceed a certain portion of all outpatient payments and must be budget neutral. The
agreement extends the 5.8% reduction for hospital operating costs and 10% for
capital-related costs until the outpatient PPS is implemented. The agreement instructs
the Secretary to design the PPS so that payments to hospitals will reflect pre-BBA
beneficiary coinsurance amounts (i.e., without regard to copayments pegged at 20%
of median hospital charges).
Sec. 202. Establishing a Transitional Corridor for Application of OPD PPS
The agreement provides payments in addition to PPS payments to hospitals
during the first 3 years of the PPS if their payments are less than their pre-PPS
payments in 1996 (determined according to a certain formula), but as if the formula-
driven overpayment correction in BBA had been in effect in 1996. The additional
payments are a specified percentage of the difference between old and new payment
levels. The agreement temporarily holds certain rural hospitals harmless from
payment reductions under the PPS and holds cancer hospitals harmless from such
reductions permanently; requires BBA 97 beneficiary copayment amounts to be
unaffected by these provisions.
Sec. 203. Study and Report to Congress Regarding the Special Treatment of
Rural and Cancer Hospitals in Prospective Payment System for Hospital
Outpatient Department Services
The agreement requires MedPAC to report to Congress within 2 years of
enactment on the appropriateness of and method for covering certain rural and cancer
hospitals under the PPS.

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Sec. 204. Limitation on Outpatient Hospital Copayment for Procedure to the
Hospital Deductible Amount
The agreement limits the amount for which a Medicare beneficiary can be billed
for an outpatient procedure to the Medicare deductible amount for an inpatient stay
($776 in 2000), and it provides funds to compensate hospitals for the difference.
Subtitle B — Physician Payments.
Sec. 211. Modification of Update Adjustment Factor Provisions to Reduce
Update Oscillations and Require Estimate Revisions
The agreement makes technical changes to limit oscillations in the annual update
to the conversion factor beginning in 2001 and provides that the sustainable growth
rate is calculated on a calendar year basis. The Secretary is required to conduct a
study on the utilization of physician services under the fee-for-service program.
Sec. 212. Use of Data Collected by Organizations and Entities in Determining
Practice Expense Relative Values
The agreement requires the Secretary, in determining practice expense relative
values, to establish by regulation a process under which the Secretary would accept
for use and would use, to the maximum extent practicable and consistent with sound
data practices, data collected by outside organizations and entities.
Sec. 213. GAO Study on Resources Required to Provide Save and Effective
Outpatient Cancer Therapy
The agreement requires the GAO to study and determine the physician and
nonphysician resources necessary to provide safe outpatient cancer therapy services
and the appropriate rates for such services.
Subtitle C — Other Services.
Sec. 221. Revision of Provisions Relating to Therapy Services
The agreement suspends for two years (2000 and 2001) application of the caps
on physical therapy and occupational therapy services. The Secretary is to conduct
focused medical reviews of therapy services during 2000 and 2001, with emphasis on
claims for services provided to residents of SNFs.
Sec. 222. Update in Renal Dialysis Composite Rate
The agreement updates the composite rate for payment by 1.2% for renal dialysis
services furnished during CY2000 and an additional 1.2% for such services furnished
in CY2001.

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Sec. 223. Implementation of Inherent Reasonableness Authority
The agreement prohibits the Secretary from exercising inherent reasonableness
authority until after both the GAO releases its report on the issue and the Secretary
has issued final rule-making.
Sec. 224. Increase in Reimbursement for Pap Smears
The agreement sets the minimum payment for the test component of a Pap smear
at $14.60, and expresses the sense of Congress that HCFA should institute an
appropriate increase for new cervical cancer screening technologies approved by the
FDA.
Sec. 225. Refinement of Ambulance Services Demonstration Project
The agreement modifies the ambulance services demonstration project provision,
added by BBA 97, to require the Secretary to publish a request for proposals by July
1, 2000, and to specify that the capitated rate is to be based on the most current data
available.
Sec. 226. Phase-in of PPS for Ambulatory Surgical Centers
The agreement requires phasing-in over 3 years new ASC rates based on pre-
1999 survey data (new rates based on 1994 data are currently scheduled to go into
effect in July 2000).
Sec. 227. Extension of Medicare Benefits for Immunosuppressive Drugs
The agreement provides for an extension of the current 36-month limit on
coverage of immunosuppressive drugs for persons exhausting their coverage in 2000 -
2004. In each calendar year there will be an extension, specified by the Secretary (as
a number of months or partial months), applicable to persons exhausting their benefits
in that year. The increase for persons exhausting benefits in 2000 is 8 months; the
minimum increase for persons exhausting benefits in 2001 is 8 months. Total
expenditures are limited to $150 million over the 5 years.
Sec. 228. Temporary Increase in Payment Rates for Durable Medical
Equipment and Oxygen
The agreement increases payment rates for durable medical equipment by 0.3%
in 2001 and by 0.6% in 2002, but those increases will not be included in the base for
calculating increases after 2002.
Sec. 229. Studies and Reports
The agreement requires the following studies: (1) MedPAC study on cost-
effectiveness of covering services of a post-surgical recovery center; (2) Agency for
Health Care Policy and Research (AHCPR) study comparing differences in the quality
of ultrasound and other imaging services provided by credentialed individuals versus
those provided by non-credentialed individuals; (3) MedPAC comprehensive study

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of the regulatory burdens placed on all classes of providers under fee-for-service
Medicare and the associated costs; and (4) GAO monitoring of Department of Justice
application of guidelines on use of False Claims Act in civil health care matters.
Title III — Provisions Relating to Parts A and B
Subtitle A — Home Health Services.
Sec. 301. Adjustment to Reflect Administrative Costs not Included in the
Interim Payment System; GAO Report on Costs of Compliance with OASIS
Data Collection Requirements
The agreement provides home health agencies with $10 per beneficiary for
administration of the Outcome and Assessment Information Set (OASIS)
questionnaire to new home health patients for services furnished during cost reporting
periods in FY2000. One-half of the payment will be made in April 2000 and the
remainder at cost report settlement. It requires GAO to study the costs of collecting
these data and to report by April 1, 2000.
Sec. 302. Delay in Application of 15% Reduction in Payment Rates for Home
Health Services until 1 Year after Implementation of Prospective Payment
System
The agreement delays the 15% reduction required under the PPS by the BBA
regarding payments to home health agencies until 12 months after implementation of
the PPS and requires the Secretary to report within 6 months of implementation of the
PPS on the need for the 15% or other reduction.
Sec. 303. Increase in Per Beneficiary Limits
The agreement requires that per beneficiary limits under the BBA 97 home health
interim payment system be increased by 2% in cost reporting periods starting in
FY2000 for those home health agencies for which the per beneficiary limit is below
the national median; the increase will not be included in the base for determining PPS
amounts.
Sec. 304. Clarification of Surety Bond Requirements
The agreement establishes the lesser of $50,000 or 10% of a home health
agency’s Medicare payments in the previous year as the annual amount of an agency’s
surety bond requirement, and it requires the bond to be in effect for 4 years or longer
if ownership changes. Prior periods covered by a bond may be counted and Medicare
and Medicaid bond requirements are to be coordinated.
Sec. 305. Refinement of Home Health Agency Consolidated Billing
The agreement excludes durable medical equipment, including oxygen and
oxygen supplies, from the home health consolidated billing program.

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Sec. 306. Technical Amendment Clarifying Applicable Market Basket Increase
for PPS
The agreement clarifies that the increase in the home health PPS in FY2002 and
FY2003 will be the market basket increase minus 1.1 percentage point.
Sec. 307. Study and Report to Congress Regarding the Exemption of Rural
Agencies and Populations from Inclusion in the Home Health Prospective
Payment System
The agreement requires MedPAC to study and report within 2 years of
enactment on the feasibility and advisability of excluding rural home health agencies
and beneficiaries living in rural areas from the home health PPS.
Subtitle B — Direct Graduate Medical Education.
Sec. 311. Use of National Average Payment Methodology in Computing Direct
Graduate Medical Education (DGME) Payments
The agreement changes the methodology for Medicare’s direct graduate medical
education (DGME) payments to teaching hospitals to incorporate a national average
amount based on FY1997 hospital-specific per resident amounts. In FY2001,
hospitals would receive no less than 70% of a geographically adjusted national
average amount. Hospitals with per resident amounts above 140% of the
geographically adjusted national average amount would have payments frozen at
current levels for FY2001 and FY2002, and in FY2003-FY2005 would receive an
update of the Consumer Price Index (CPI) minus 2 percentage points. Hospitals with
per resident amounts between 70% and 140% of the geographically adjusted national
average would continue to receive payments based on their hospital-specific per
resident amounts updated for inflation.
Sec. 312. Initial Residency Period for Child Neurology Residency Training
Programs
The agreement provides that the period of initial residency for individuals
enrolled in child neurology training programs will be the period of initial residency for
pediatrics plus 2 years. MedPAC is required to report to Congress on the
appropriateness of extending this policy to other combined residencies by March
2001.
Subtitle C — Technical Corrections.
Sec. 321. BBA Technical Corrections
The agreement provides for technical corrections to the Social Security Act.

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Title IV — Rural Provider Provisions
Subtitle A — Rural Hospitals.
Sec. 401. Permitting Reclassification of Certain Urban Hospitals as Rural
Hospitals
The agreement requires the Secretary to treat certain urban hospitals as rural
hospitals no later than 60 days after their application for such treatment if the
hospitals: (1) are located in a rural census tract of a metropolitan statistical area (as
determined by the most recent Goldsmith Modification, originally published in the
Federal Register on February 27, 1992); (2) are located in an area designated by State
law or regulation as a rural area or designated by the State as rural providers; or (3)
meet other criteria as the Secretary specifies.

Sec. 402. Update of Standards Applied for Geographic Reclassification for
Certain Hospitals
The agreement updates existing criteria used to designate outlying rural counties
as part of metropolitan statistical areas (MSAs).
Sec. 403. Improvements to the Critical Access Hospital (CAH) Program

The agreement applies the 96-hour length of stay limitation on an average annual
basis rather than on a per case basis; permits for-profit hospitals, state-designated
hospitals that have closed within the past 10 years, and downsized facilities that are
state-licensed health centers or health clinics to be CAHs; specifies the payment
methods for outpatient critical access hospital services, and clarifies CAHs’ ability to
participate in Medicare swing-bed program.
Sec. 404. 5-Year Extension of Medicare Dependent Hospital (MDH) Program
The agreement extends the Medicare Dependent Hospital program through
FY2006.
Sec. 405. Rebasing for Certain Sole Community Hospitals
The agreement permits sole community hospitals that are now paid using the
federal rate to transition over time to payment based on their hospital-specific FY1996
costs.
Sec. 406. One-year Sole Community Hospital Payment Increase
The agreement updates the FY2000 target amount by the market basket for
discharges from sole community hospitals occurring in FY2001.

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Sec. 407. Increased Flexibility in Providing Graduate Physician Training in
Rural and Other Areas
The agreement permits hospitals to increase the number of primary care residents
that it counts in the base year limit by up to 3 full-time equivalent residents if those
individuals were on maternity, disability, or a similar approved leave of absence.
Hospitals located in rural areas are permitted to increase their resident limits by 30%
for direct and indirect medical education payments. In addition, non-rural facilities
that operate separately accredited rural training programs in rural areas, or that
operate accredited training programs with integrated rural tracks, may receive direct
graduate medical education and indirect medical education payments for cost
reporting periods beginning on April 1, 2000 and for discharges occurring on or after
April 1, 2000 respectively. The agreement also includes the Senate provision
regarding an exception to the count of residents to include those who participated in
GME at a Veterans Affairs (VA) facility and were subsequently transferred.
Sec. 408. Elimination of Certain Restrictions with Respect to Hospital Swing
Bed Program
The agreement eliminates the existing requirement that states review the need
for swing beds through the Certificate of Need (CON) process and removes other
constraints on length of stay.
Sec. 409. Grant Program For Rural Hospital Transition to Prospective Payment
The agreement permits rural hospitals with fewer than 50 beds to apply for
grants not to exceed $50,000 to pay for data systems required to meet BBA 97
amendments, including the costs associated with purchase of computer software and
hardware, education and training of hospital staff, and costs related to the
implementation of PPS systems.
Sec. 410. GAO Study on Geographic Reclassification
The agreement requires GAO to submit a report to Congress no later than 18
months after enactment on the current laws and regulations for geographic
reclassification of hospitals under Medicare.
Subtitle B — Other Rural Provisions.
Sec. 411. MedPAC Study of Rural Providers
The agreement requires MedPAC to conduct a study on rural providers, evaluate
the adequacy and appropriateness of the categories of special Medicare payments (and
payment methodologies) for rural hospitals, and their impact on beneficiary access and
quality of health services and submit a report to Congress no later than 18 months of
enactment.

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Sec. 412. Expansion of Access to Paramedic Intercept Services in Rural Areas
The agreement expands the coverage of medically necessary, advanced life
support (ALS) services provided by a paramedic intercept service provider in a rural
area to include areas designated as rural areas by any State law or regulation or those
located in a rural census tract of a metropolitan statistical area (as determined under
the most recent Goldsmith Modification, originally published in the Federal Register
on February 27, 1992).
Sec. 413. Promoting Prompt Implementation of Informatics, Telemedicine, and
Education Demonstration Project
The agreement requires the Secretary to award without additional review the
diabetes mellitus telemedicine demonstration project no later than 3 months after
enactment to the best technical proposal as of the bill’s enactment date.
Title V — Provisions Relating to Part C (Medicare+Choice Program)
and Other Medicare Managed Care Provisions
Subtitle A — Provisions to Accommodate and Protect Medicare
Beneficiaries.
Sec. 501. Changes in Medicare+Choice Enrollment Rules
The agreement establishes a special election period for persons in a plan which
has notified the individual of an impending termination and permits these persons to
choose a Medigap plan within 63 days of receiving a notice from their plan rather than
waiting for the contract to end. The agreement also establishes a continuous open
enrollment period for institutionalized beneficiaries. Further, a plan leaving a service
area may offer enrollees the option to continue to receive all their basic services from
plan providers in another service area.
Sec. 502. Change in Effective Date of Elections and Changes of Elections of
Medicare+Choice Plans
The agreement specifies that any enrollment changes made after the 10th of a
month do not take effect until the beginning of the second calendar month thereafter.
Sec. 503. 2-Year Extension of Medicare Cost Contracts
The agreement extends the cost contract program through 2004.

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Subtitle B — Provisions to Facilitate Implementation of the Medicare
+Choice Program.
Sec. 511. Phase-In of New Risk Adjustment Methodology; Studies and Reports
on Risk Adjustment
The agreement: 1) changes the phase-in of the new risk adjustment method
based on health status to a blend of 10% new health status method/90% old
demographic method in 2000 and 2001, and not more than 20% health status in 2002;
2) provides for a MedPAC study and report on the new risk adjustment procedure;
and 3) provides for a study and report by the Secretary regarding reporting of
encounter data.
Sec. 512. Encouraging Offering of Medicare+Choice Plans in Areas Without
Plans
The agreement provides for payment of a new entry bonus of 5% of the monthly
Medicare+Choice payment rate in the first 12 months and 3% in the subsequent 12
months to organizations that offer a plan in a payment area without a
Medicare+Choice plan since 1997, or in an area where all organizations have
announced their withdrawal from the area as of October 13, 1999.
Sec. 513. Modification of 5-Year Re-Entry Rule for Contract Terminations
The agreement reduces the exclusion period from 5-years to 2-years for
organizations seeking to re-enter the Medicare+Choice program after withdrawing.
Specific exceptions are permitted where there is a change in payment policy. Nothing
affects the Secretary’s authority to provide additional exceptions including those
specified in HCFA’s Operational Policy Letter #103 (which permits an exception in
areas served by 2 or fewer plans).
Sec. 514. Continued Computation and Publication of Medicare Original Fee-
For-Service Expenditures on a County-Specific Basis
The agreement provides for the publication of various payment-related
information for the original Medicare fee-for-service program for each
Medicare+Choice payment area.
Sec. 515. Flexibility to Tailor Benefits Under Medicare+Choice Plans
The agreement allows organizations to vary premiums, benefits, and cost-sharing
across individuals enrolled in the plan so long as these are uniform within segments
comprising 1 or more Medicare+Choice payment areas.
Sec. 516. Delay in Deadline for Submission of Adjusted Community Rates
The agreement provides for submission of adjusted community rates by July 1
instead of May 1.

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Sec. 517. Reduction in Adjustment in National Per Capita Medicare+Choice
Growth Percentage for 2002
The agreement provides for a reduction in the national per capita
Medicare+Choice growth percentage of 0.3 percentage points in 2002 instead of the
0.5 percentage point reduction now scheduled in law.
Sec. 518. Deeming of Medicare+Choice Organization to Meet Requirements
The agreement requires the Secretary within 210 days of receiving an application
from a private accrediting organization, to determine whether such organization’s
processes meets the requirements for M+C plan accreditors. If it does, the Secretary
would be required to deem that a M+C plan accredited by such organization met
certain standards required of M+C plans. A private accreditation organization could
elect to deem one or more of the following standards required of M+C plans: quality
assurance, confidentiality of records, antidiscrimination, access to services,
information on advance directives, and provider participation.
Sec. 519. Timing of Medicare+Choice Health Information Fairs
The agreement permits HCFA to conduct the health information campaign
during the fall season, rather than just November.
Sec. 520. Quality Assurance Requirements for Preferred Provider Organization
Plans
The agreement requires preferred provider organizations to meet the same
quality assurance requirements as are applicable to private fee-for-service plans and
non-network MSAs. MedPAC is required to study appropriate quality improvement
standards that should apply to each type of M+C plan (including each type of
coordinated care plans) and to the original Medicare program.
Sec. 521. Clarification of Non-Applicability of Certain Provisions of Discharge
Planning Process to Medicare+Choice Plans
The agreement specifies that a Medicare+Choice discharge planning evaluation
is not required to include information on the availability of home health services
provided by individuals or entities that do not have a contract with the organization.
Further, the plan may specify or limit the provider or providers of post-hospital home
health services or other post-hospital services.
Sec. 522. User Fee for Medicare+Choice Organizations Based on Number of
Enrolled Beneficiaries
Specifies that the total amount of funds available in a fiscal year to the Secretary
to carry out annual beneficiary education functions is limited to $100 million. The
agreement specifies that the aggregate amount of user fees that can be imposed on
M+C plans, to fund these activities, will be restricted and proportionate to the
percentage of Medicare beneficiaries enrolled in M+C plans. A Medicare+Choice
plan’s share of the total is the same proportion as its share of the total Medicare

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population. The remainder of these activities must be funded through standard
appropriations processes.
Sec. 523. Clarification Regarding the Ability of a Religious Fraternal Benefit
Society to Operate Any Medicare+Choice Plan
The agreement permits religious fraternal benefit societies to restrict enrollment
in any of their Medicare+Choice plans (not just coordinated care plans) to their
members.
Sec. 524. Rules Regarding Physician Referrals for Medicare+Choice Program
The agreement clarifies that there is an exception for Medicare+Choice
coordinated care plans to both the ownership and compensation prohibitions of the
self-referral law.
Subtitle C — Demonstration Projects and Special Medicare Populations.
Sec. 531. Extension of Social Health Maintenance Organization Demonstration
(SHMO) Project Authority
The agreement extends the Medicare waivers for SHMOs until 18 months after
the Secretary submits a report with a plan for integration and transition of SHMOs
into an option under Medicare+Choice. It requires the Secretary to submit a final
report 21 months after the integration and transition report. Six months after the
Secretary’s final report, MedPAC is required to submit a report with
recommendations. The agreement specifies that no enrollment limit may be imposed
under the project, other than the aggregate limit on enrollment at all sites, which
remains not less than 324,000.
Sec. 532. Extension of Medicare Community Nursing Organization
Demonstration Project
The agreement extends the Community Nursing Organization demonstration
project for 2 years but limits total federal expenditures for it to the amount that would
be spent if the demonstration were not in operation; it requires the Secretary to report
to Congress on the results of the demonstration by July 1, 2001.
Sec. 533. Medicare+Choice Competitive Bidding Demonstration Project
The agreement delays implementation of the Medicare +Choice Competitive
Bidding Demonstration project until January 1, 2002 or, if later, 6 months after
Competitive Pricing Advisory Committee (CPAC) submits reports on (a)
incorporating original fee-for-service Medicare into the demonstration; (b) quality
activities required by participating plans; (c) the viability of expanding the
demonstration project to a rural site; and (d) the nature of the benefit structure
required from plans that participate in the demonstration. The Secretary is also
required, subject to recommendations by CPAC, to allow plans that make bids below
the established government contribution rate, to offer beneficiaries rebates on their
Part B premiums.

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Sec. 534. Extension of Medicare Municipal Health Services Demonstration
Projects
The agreement extends the Medicare Municipal Health Services Demonstration
Project for 2 years, through 2002.
Sec. 535. Medicare Coordinated Care Demonstration Project
The agreement specifies that funding for the coordinated care demonstration
project to be located in the District of Columbia is to come from Medicare trust fund.
Sec. 536. Medigap Protections for PACE Program Enrollees
The agreement extends certain Medigap guaranteed issue protections to PACE
enrollees over age 65 whose PACE enrollment is discontinued under circumstances
parallel to those which would permit guaranteed issue if Medicare+Choice enrollment
was discontinued.
Subtitle D — Medicare+Choice Nursing and Allied Health Professional
Education Payments.
Sec. 541. Medicare+Choice Nursing and Allied Health Professional Education
Payments
The agreement provides that hospitals with approved nursing and allied health
professional training programs would receive additional payments to reflect utilization
of Medicare+Choice enrollees. In no case would the total payment under this section
exceed $60 million.
Subtitle E — Studies and Reports.
Sec. 551. Report on Accounting for VA and DOD Expenditures for Medicare
Beneficiaries
The agreement requires the Secretaries of HHS, DOD, and VA to submit to
Congress a report no later than April 1, 2001 on the use of health services furnished
by DOD and VA to Medicare beneficiaries, including both Medicare+Choice enrollees
and Medicare fee-for-service beneficiaries.
Sec. 552. Medicare Payment Advisory Commission Studies and Reports
The agreement requires MedPAC to: 1) conduct a study and report to Congress,
on the development of a payment methodology under Medicare+Choice for frail
elderly beneficiaries enrolled in specialized programs; and 2) submit to Congress a
report on specific legislative changes that would make MSA plans a viable option
under the M+C program.

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Sec. 553. GAO Studies, Audits, and Reports
The agreement requires GAO to conduct: 1) a study of Medigap policies, and
2) an annual audit of the Secretary’s expenditures for providing M+C information to
beneficiaries.