Medicare Provisions of the Balanced Budget Refinement Act of 1999 (P.L. 106-113)

Medicare Provisions of the Balanced Budget Refinement Act of 1999 (P.L. 106-113)

Order Code RL30860
CRS Report for Congress
Received through the CRS Web
Medicare Provisions of the Balanced Budget
Refinement Act of 1999 (P.L. 106-113)
February 22, 2001
Carolyn L. Merck
Jennifer O’Sullivan
Madeline Smith
Sibyl Tilson
Specialists in Social Legislation
Domestic Social Policy Division
Congressional Research Service ˜ The Library of Congress

Medicare Provisions of the Balanced Budget
Refinement Act of 1999 (P.L. 106-113)
Summary
On August 5, 1997, the President signed into law the Balanced Budget Act of
1997 (BBA97, P.L. 105-33). This legislation sought to reduce the federal budget
deficit to zero by 2002. A significant amount of the spending reductions necessary
to reach that target were achieved by slowing the rate of growth in Medicare
payments to health care providers, including hospitals, physicians, skilled nursing
facilities, and home health care agencies. The Congressional Budget Office (CBO)
estimated that the legislation would achieve $116.4 billion in Medicare savings over
5 years (FY1998-FY2002), and $393.8 billion over 10 years (FY1998-FY2007).
In the 10 years prior to BBA 97, Medicare spending grew at an average annual
rate of about 10%. After implementation of BBA 97, Medicare spending slowed
significantly, and in FY1999, for the first time ever, spending dropped below the prior
year’s level by almost 1%. In March 1999, CBO revised its budget projections and
lowered Medicare spending estimates by $80 billion over 5 years (FY1998-FY2002)
and by $229 billion over 10 years (FY1998-FY2007). In July 1999, CBO revised and
again reduced its Medicare spending estimates. Many analysts opine that, although
the original estimates of the impact of the BBA 97 may have been too low, the
improved economic conditions that CBO included in its revised estimates (e.g.,
reduced inflation in health care costs) and heightened federal efforts to reduce fraud
and abuse also affected program spending.
Nevertheless, health care industry representatives argued that the payment
system changes and the restrictions on payment rate increases required by BBA 97
threatened both their ability to provide services to beneficiaries. During congressional
hearings in 1999, witnesses from the Medicare Payment Advisory Commission, the
General Accounting Office, and others testified that little evidence was available
regarding how the Medicare provisions of BBA 97 would affect providers or
beneficiary access to care, but they urged watchful caution.
In the first session of the 106th Congress, the House and Senate considered bills
to mitigate the impact of BBA 97 on Medicare providers. The Senate Finance
Committee reported a bipartisan bill, S. 1788; the full House passed a different bill,
H.R. 3075, the Medicare Balanced Budget Act of 1999. Informal negotiations
between the House and Senate resulted in agreement on the Medicare, Medicaid, and
SCHIP Balanced Budget Refinement Act of 1999 (H.R. 3426), which was
incorporated by reference into H.R. 3194, the District of Columbia appropriations bill;
it passed the Congress on November 19, 1999, as part of the Consolidated
Appropriations Act, 2000 (P.L. 106-113). The CBO estimated that this legislation
would increase Medicare spending by $16 billion over 5 years (FY2001-FY2005) and
$27 billion over 10 years (FY2001-FY2010). About three-fourths of the additional
spending would go to hospitals (including outpatient departments), skilled nursing
facilities, home health agencies, and Medicare+Choice organizations. This report will
not be updated.

Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Title I — Provisions Relating to Part A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Subtitle A — Adjustment to PPS Payments for Skilled Nursing Facilities
(SNFs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Subtitle B — PPS Hospitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Subtitle C — PPS Exempt Hospitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Subtitle D — Hospice Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Subtitle E — Other Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Subtitle F — Transitional Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Title II — Provisions Relating to Part B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Subtitle A — Hospital Outpatient Services . . . . . . . . . . . . . . . . . . . . . . . . 14
Subtitle B — Physician Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Subtitle C — Other Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Title III — Provisions Relating to Parts A and B . . . . . . . . . . . . . . . . . . . . . . . 28
Subtitle A — Home Health Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Subtitle B — Direct Graduate Medical Education . . . . . . . . . . . . . . . . . . 30
Subtitle C — Technical Corrections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Title IV — Rural Provider Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Subtitle A — Rural Hospitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Subtitle B — Other Rural Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Title V — Provisions Relating to Part C
(Medicare+Choice Program) and
Other Medicare Managed Care Provisions . . . . . . . . . . . . . . . . . . . . . . . . 36
Subtitle A — Provisions to Accommodate and Protect Medicare
Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Subtitle B — Provisions to Facilitate Implementation of the
Medicare+Choice Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Subtitle C — Demonstration Projects and Special Medicare Populations . 42
Subtitle D — Medicare+Choice Nursing and Allied Health
Professional Education Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Subtitle E — Studies and Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Other Medicare-Related Provisions in P.L. 106-113 . . . . . . . . . . . . . . . . . . . . 45

Medicare Provisions of the Balanced Budget
Refinement Act of 1999 (P.L. 106-113)
Introduction
The Medicare program is authorized in Title XVIII of the Social Security Act.
Part A of that title includes coverage for inpatient hospital care and services, care in
skilled nursing facilities (SNFs), hospice care, and some home health care. Enrollment
in Part A is automatic at age 65 for all workers who paid the hospital insurance
payroll tax during their working years or whose spouse is covered. Part B provides
for payments to physicians and other health care practitioners; services and items
provided on an outpatient basis; and some home health care. Part B is voluntary and
requires participating beneficiaries to pay monthly premiums. Part C authorizes the
Medicare+ Choice program under which beneficiaries may elect to participate in
comprehensive managed care plans such as health maintenance organizations
(HMOs), although they must pay premiums at least equal to the Part B premium.
In FY1999, the Medicare program spent $211 billion to provide health insurance
coverage for 39 million disabled individuals and elderly persons age 65 or over.
Beneficiary premiums for Part B coverage offset about $21.5 billion of program
spending. In comparison, nearly 10 years earlier, in FY1990, Medicare spending
totaled about $110 billion (including $11 billion in beneficiary premiums) and covered
about 33.4 million beneficiaries.
During the 10 years preceding BBA 97, annual rates of growth in Medicare
spending ranged from 5% to 15.5%. Total spending net of beneficiary Part B
premiums grew at an average annual rate of about 10%, with some components of the
program growing at much higher rates. For example, during this time period, home
health care spending grew at an average annual rate of 24%, and payments to skilled
nursing facilities grew at an average annual rate of 17%.
On August 5, 1997, the President signed into law the Balanced Budget Act of
1997 (BBA 97, P.L. 105-33). In this legislation, the Administration and the Congress
agreed to reduce the federal budget deficit to zero by 2002. A significant amount of
the spending reductions necessary to reach that target were achieved by slowing the
rate of growth in the Medicare program. The Medicare savings, which the
Congressional Budget Office (CBO) estimated originally at $116.4 billion over 5
years (FY1998-FY2002), and $393.8 billion over 10 years (FY1998-FY2007), were
achieved by restricting the rate of increase in payments to hospitals, physicians, and
other providers, and by establishing new prospective payment systems for skilled
nursing facilities, home health agencies, and hospital outpatient departments.
BBA 97 also established the Medicare+Choice program which modified the way
payments are made to health maintenance organizations (HMOs), and it broadened

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private plan options available to Medicare beneficiaries. The objective of these
provisions was to expand participation in Medicare by private, managed care plans.
In the 2 years following enactment of BBA 97, Medicare spending slowed
significantly. In FY1998, the first year in which many of the BBA 97 provisions were
effective, Medicare spending grew by only 1.5%, and, in the following year, for the
first time in the program’s history, Medicare spending dropped by almost 1%, to an
estimated $209.3 billion for FY1999.
In March 1999, CBO revised its budget projections and lowered Medicare
spending estimates by $80 billion over 5 years (FY1998-FY2002), and by $229 billion
over 10 years (FY1998-FY2007). A few months later, in July 1999, CBO projected
further reductions in estimated Medicare spending. No one major cause can be
identified for these large and unanticipated declines in Medicare spending; most
analysts agree that they are attributable to a variety of factors. Although the original
estimates of the impact of some of the changes made by BBA 97 may have been too
low, changes in CBO’s economic assumptions also affect the estimates. For instance,
lower inflation rates would reduce provider payment rate updates. In addition,
heightened anti-fraud and abuse initiatives reportedly have had substantial effects.
A number of health care provider organizations say that the larger than estimated
Medicare spending reductions since BBA 97 are evidence of overreaching in many of
that legislation’s provisions. They have expressed concern that beneficiaries,
particularly the sickest who need the most costly care, will experience increasing
difficulty in obtaining needed services because providers will be unwilling to serve
them, will drop out of Medicare, or will go out of business. On June 10, 1999, the
Senate Finance Committee conducted a hearing on Medicare spending under the BBA
97, and, on October 1, 1999, the House Ways and Means Health Subcommittee held
a similar hearing. Witnesses from the Medicare Payment Advisory Commission
(MedPAC), the General Accounting Office (GAO), and others testified that little
conclusive evidence was available at that time regarding how the BBA 97 would
affect providers and access to care in the future, but generally urged watchful caution.
In the first session of the 106th Congress both the House and Senate considered
bills to mitigate the impact of BBA 97 on Medicare providers. On October 21, 1999,
the Senate Finance Committee reported a bipartisan bill, the Medicare and Medicaid
Budget Correction and Refinement Act of 1999 (S. 1788), and on November 5, 1999,
the House passed the Medicare Balanced Budget Refinement Act of 1999 (H.R.
3075). The Finance Committee bill was not taken up on the Senate floor, but the
chairmen and majority staff of the relevant committees (Senate Finance, House Ways
and Means, and House Commerce) met informally to reconcile Senate Committee and
House-passed measures. They agreed on the Medicare, Medicaid, and SCHIP
Balanced Budget Refinement Act of 1999 (BBRA99) which was introduced in the
House by Representative William Thomas on November 17, 1999, as H.R. 3426.
This bill was incorporated by reference into the District of Columbia appropriations
bill, H.R. 3194, and it passed the Congress on November 19, 1999, as part of the
Consolidated Appropriations Act, 2000. President Clinton signed the bill on
November 29, 1999, and it became P.L. 106-113.

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CBO estimated that this legislation would increase Medicare spending by $16
billion over 5 years (FY2001-FY2005) and $27 billion over 10 years (FY2001-
FY2010). About three-fourths of the additional spending would go to hospitals
(including outpatient departments), skilled nursing facilities, home health agencies,
and Medicare+Choice organizations.
This report summarizes the Medicare provisions in the BBRA99 and describes
the prior law to which the changes in BBRA99 apply.1 In general, the prior law
provisions to which the BBRA99 is compared are those that were included in BBA
97. This report also includes provisions applicable to Medicare that are included in
P.L. 106-113 but that are outside of the Medicare titles of the law.
1For additional information on Medicare and 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, Richard Price, and Kathleen Swendiman;
and CRS Report RL30300, Medicare Beneficiary Access to Care: The Effects of New
Prospective Payment Systems on Outpatient Hospital Care, Home Health Care, and Skilled
Nursing Facility Care, by Carolyn Merck.

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Title I — Provisions Relating to Part A
Subtitle A — Adjustment to PPS Payments for Skilled Nursing
Facilities (SNFs)
Section 101. Temporary Increase in Payment for Certain High Cost
Patients
Prior Law. BBA 97 required that a prospective payment system (PPS) for SNFs be
phased in over 3 years, starting with facility cost reporting periods beginning on or after July
1, 1998. PPS-covered costs include (a) routine services such as room, board, nursing services,
and minor medical supplies; (b) ancillary costs such as therapies, drugs, and lab services; and
(c) capital costs, which are land, building, and equipment. The payment is made on a daily rate
or “per diem” basis. During the 3-year PPS phase-in period, payments to SNFs under the PPS
have two components: a federal per diem amount and a “facility-specific” per diem amount
that is computed separately for each SNF to reflect the facility’s own average daily costs under
the pre-PPS system.
In the first year of the PPS, SNFs received per diem rates that were computed as 75% of
the facility-specific rate plus 25% of the federal per diem rate. In each subsequent year, the
proportion paid under the facility-specific rate and under the federal per diem rate shifts by 25
percentage points until, starting mid-2001, the federal rate is the full payment.
The SNF PPS described in BBA 97 reflects the Resource Utilization Group (RUG)
design HCFA developed and tested on a demonstration project basis over several years. SNFs
receive a payment for each day a beneficiary is a resident of the SNF. The per diem payment
is first computed as an overall average daily rate, and that average payment is adjusted for
“case mix, ” which accounts for the clinical characteristics of individual SNF residents and the
type and intensity of care each needs. The payment is further adjusted to account for the
geographic location of the facility and for local area wage rates.
The RUG case-mix adjustment scheme is a hierarchical classification system reflecting the
relative amount of resources required to provide a SNF resident’s care. The original SNF PPS
implemented in mid-1998 included seven basic categories of care, including, in hierarchical
order: rehabilitation, extensive services, special care, clinically complex care, care for patients
with impaired cognition, care for patients with behavior problems, and care for patients with
reduced physical function. These seven categories were further differentiated into 44 more
specific patient groupings. SNFs categorize each newly admitted beneficiary into one of the
RUG categories using a protocol prescribed by HCFA. SNF residents may be reclassified
during their stay in the facility as their condition or care needs change.
For each of FY2001 and FY2002 the federal per diem rates are to be increased by the
increase in the SNF market basket index compared to the previous year minus one percentage
point.
Like other PPSs that compensate health care providers for care to Medicare beneficiaries
by the use of predetermined, fixed amounts, Medicare PPS payments to SNFs are intended to
pay the provider for the cost of care to Medicare beneficiaries on average. That is, although
the RUG payment for all residents in the same category is a fixed amount, a facility’s actual

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costs may be above or below that amount for an individual. The goal for the facility is to incur
costs that, on average, over time, do not exceed the PPS average amounts.
As experience is gained with the SNF PPS and the RUG system, it will be revised and
refined periodically.
BBRA 99. For SNF services furnished on or after April 1, 2000, and before the later of
October 1, 2000, or implementation by the Secretary of Health and Human Services (HHS)
of a refined, revised RUG system, the BBRA 99 increased per diem payments by 20% for 15
RUGs, including those for extensive services, special care, clinically complex care, and certain
high level and medium level rehabilitation services. The RUG codes for these 15 categories
are: SE3; SE2; SE1; SSC; SSB; SSA; CC2; CC1; CB2; CB1; CA2; CA1; RHC; RMC; RMB.
(Tables 3 and 4, 64 Fed. Reg. 41684.) In addition, if a revised RUG system is not
implemented by October 1, 2000, the BBRA 99 calls for all federal per diem rates to be
increased by 4% for FY2001 and FY2002. These are temporary additions to the PPS rates;
they are not part of the market basket update procedure and are not included in the base on
which future market basket updates are computed.
Effective Date. April 1, 2000.
Section 102. Authorizing Facilities to Elect Immediate Transition to Federal Rate
Prior Law. The transition to the federal per diem rate under the SNF PPS is to be phased
in over 3 years, starting with facility cost reporting periods beginning on or after July 1, 1998.
In the first year, a facility’s payment is equal to 75% of the facility-specific rate plus 25% of
the federal per diem rate; in the second year the payment is 50% of the facility-specific rate
plus 50% of the federal per diem rate; in the third year the payment is 25% of the facility-
specific rate plus 75% of the federal rate. In subsequent years, 100% of the payment will be
at the federal rate.
BBRA 99. Individual SNFs may elect, on or after December 15, 1999, immediate
transition to 100% of the federal per diem rate for cost reporting periods beginning on or after
January 1, 2000. SNFs may elect immediate transition up to 30 days after the start of their
cost reporting period.
Effective Date. Enactment.
Section 103. Part-A Pass Through Payment for Certain Ambulance Services,
Prostheses, and Chemotherapy Drugs
Prior Law. SNF per diem payments under the PPS/RUG system are intended to cover
virtually all services needed by a SNF resident, including drugs, chemotherapy agents, and
ancillary services needed by SNF patients. However, separate payments above and beyond
PPS per diem amounts are made for renal dialysis services for SNF residents when they receive
dialysis at centers away from the SNF, although the cost of ambulance transportation to and
from a dialysis center is not paid separately. Also, separate payments are not made for certain
prostheses delivered to patients during a SNF stay.
BBRA 99. Separate payments above and beyond the PPS/RUG rates will be paid for SNF
residents needing (a) certain chemotherapy drugs and chemotherapy administration services;

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(b) ambulance transportation to and from a renal dialysis center; and (c) certain radioisotope
services identified by the Secretary of HHS. Also, separate payment will be made beyond the
PPS per diem for certain customized prosthetic devises delivered to a SNF inpatient for use
during and after the SNF stay. Items and services that would be paid for under Medicare Part
A when included in the PPS per diem will be paid in amounts determined under Part B but
financed with Part A funds.
In order to achieve budget neutrality, the Secretary of HHS is required to adjust overall
PPS rates to reflect the increased costs of separate payments for the covered drugs, services,
and items paid separately from PPS payments.
Effective Date. Effective for items and services furnished on or after April 1, 2000.
Section 104. Provision for Part B Add-Ons for Facilities Participating in the
Nursing Home Case Mix and Quality (NHCMQ) Demonstration Project
Prior Law. SNFs that had participated in the NHCMQ demonstration project that
preceded implementation of the RUG system do not have the cost of Medicare Part B services
to Medicare beneficiaries accounted for under the facility-specific component of the PPS
during the transition period as do other SNFs.
BBRA 99. The cost of Part B services will be included in the computation of the facility-
specific component of SNF per diem payments during the transition to the federal per diem
PPS for SNFs that had participated in the NHCMQ demonstration, including updates based
on the SNF market basket index increase minus one percentage point.
Effective Date. The provision is retroactive to implementation of the BBA 97.
Section 105. Special Consideration for Facilities Serving Specialized Patient
Populations
Prior Law. No provision.
BBRA 99. For cost reporting periods starting on or after November 29, 1999, and until
September 30, 2001, PPS payments to certain hospital-based SNFs furnishing Medicare-
covered SNF services on the date of enactment of the BBRA 99 (November 29, 1999) will be
computed as 50% of the facility-specific component in effect during the transition to the PPS
and 50% on the federal per diem rate. This special payment rule applies to SNFs: (a) that
were certified for Medicare before July 1, 1992; (b) that, in 1998, served patients who were
immuno-compromised secondary to an infectious disease; and (c) if such patients made up
more than 60% of the facility’s total patient days in 1998. Not later than March 1, 2001, the
Secretary of HHS is required to assess and report on the resource use of such patients and
recommend whether permanent adjustments should be made to the RUGs in which they are
classified.
Effective Date. Effective for cost reporting periods beginning on or after November 29,
1999.

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Section 106. MedPAC Study on Special Payment for Facilities Located in Hawaii
and Alaska
Prior Law. No provision.
BBRA 99. MedPAC is required to study and report within 18 months of enactment on
the need for an additional payment amount under the adjusted federal per diem rates for SNFs
in Alaska and Hawaii.
Effective Date. Enactment.
Section 107. Study and Report Regarding State Licensure and Certification
Standards and Respiratory Therapy Competency Examinations
Prior Law. No provision.
BBRA 99. The Secretary of HHS is required to report within 1 year of enactment on
variations in state licensure and certification standards for workers providing respiratory
therapy in SNFs and to make recommendations regarding Medicare requirements for licensing
or certification.
Effective Date. Enactment.
Subtitle B — PPS Hospitals
Section 111. Modification in Transition for Indirect Medical Education (IME)
Percentage Adjustment
Prior Law. Medicare pays teaching hospitals for a share of the direct medical education
(DME) costs of providing graduate medical education. (Medicare’s direct cost payments are
based on resident and faculty salaries and fringe benefits, overhead costs related to teaching
activities, and the number of full-time equivalent residents the hospital employs.) Medicare
payments for IME costs associated with approved graduate medical education are computed
as an adjustment to hospital Diagnosis Related Group (DRG) payments. (Medicare’s IME
payment is designed to compensate teaching hospitals for their relatively higher costs
attributable to the involvement of residents in patient care and patients requiring specialized
services available only in teaching hospitals.) BBA 97 reduced the amount of the IME
adjustment from the existing 7.7% increase (for each 10% increase in a hospital’s ratio of
interns and residents to beds) in FY1997 to 7.0% in FY1998; to 6.5% in FY1999; to 6.0%
in FY2000; and to 5.5% in FY2001 and subsequent years.
BBRA 99. The IME adjustment is frozen at 6.5% through FY2000; reduced to 6.25%
in FY2001 and then to 5.5% in FY2002 and subsequently.
Effective Date. Enactment.

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Section 112. Decrease in Reductions for Disproportionate Share Hospitals; Data
Collection Requirements
Prior law. Medicare makes additional payments to hospitals that serve a disproportionate
share of low income Medicare and Medicaid patients. BBA 97 reduced the disproportionate
share hospital (DSH) payment formula amounts by 1% in FY1998; 2% in FY1999; 3% in
FY2000; 4% in FY2001; 5% in FY2002 and 0% in FY2003 and in each subsequent year.
BBRA 99. The DSH payment reduction is frozen at 3% in FY2001and then changed to
4% in FY2002. The Secretary is required 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.
Effective Date. Enactment. Data collection requirements start with cost reporting
periods starting on or after October 1, 2001.
Subtitle C — PPS Exempt Hospitals
Section 121. Wage Adjustment to Percentile Cap for PPS-Exempt Hospitals
Prior Law. Psychiatric, rehabilitation, and long-term care providers, including separate
facilities and qualified distinct part units in acute general hospitals, were excluded from
Medicare’s inpatient hospital PPS when the system was implemented in FY1984. These
Medicare providers are subject to payment limitations and incentives established by the Tax
Equity and Fiscal Responsibility of 1982 (TEFRA) as modified by BBA 97.
Generally speaking, these PPS-exempt providers are paid based on their costs per
discharge, subject to provider-specific limits established by TEFRA and to national limits
established by BBA 97. A provider’s target amount is based on its Medicare allowable costs
per discharge in a base year, inflated to the current year by an annual update factor. A national
limit or cap amount is calculated for these three classes of PPS-exempt providers. Each
provider’s limit is the lesser of its target and cap amount. Generally, a provider with costs
under its limit is rewarded with a bonus payment; a provider with costs per discharge above
its limit will receive a relief payment.
BBA 97 established a national cap on the TEFRA limits for PPS-exempt hospitals and
units in cost reporting periods beginning on or after October 1, 1997, and before October 1,
2002. The cap is set at the 75th percentile of the target amount for each class of provider in
FY1996, updated each year by the increase in the market basket.
BBRA 99. The 75% cap used to set limits for established PPS-exempt providers is to be
adjusted to reflect differences in wage related costs in a hospital’s area for cost reporting
periods on or after October 1, 1999.
Effective Date. Enactment.

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Section 122. Enhanced Payments for Long-term Care and Psychiatric Hospitals
Until Development of Prospective Payment Systems for Those Hospitals
Prior Law. BBA 97 established the amount of bonus and relief payments paid to eligible
PPS-exempt providers. A provider with costs under its limit is rewarded with a bonus
payment that is equal to the lesser of (1) 15% of the amount by which the target amount
exceeds the amount of operating costs, or (2) 2% of the target amount. In addition, eligible
hospitals could also receive an increased bonus payment (called a continuous improvement
payment) equal to the lesser of: (1) 50% of the amount by which the eligible hospital’s
operating costs are less than those expected for the period; or (2) 1% of the target amount for
the period. The sum of these two possible bonus payments can equal up to 3% of a provider’s
limit. Alternatively, a PPS-exempt provider with costs over 110% of its limit is eligible for
relief payments equal to half the amount by which these costs exceed 110% of the limit. Relief
payments may equal up to 10% of the provider’s limit.
BBRA 99. The amount of continuous bonus payments to eligible long-term and
psychiatric providers is to be increased from 1% to 1.5% of the target amount for cost
reporting periods beginning on or after October 1, 2000, and before September 30, 2001, and
to 2% for cost reporting periods beginning on or after October 1, 2001, and before September
30, 2002.
Effective Date. Enactment.
Section 123. Per Discharge Prospective Payment System for Long-term Care
Hospitals
Prior Law. BBA 97 requires the Secretary to collect data to develop, establish,
administer, and evaluate a case-mix adjusted PPS for long-term care hospitals. The Secretary
is required to develop a legislative proposal for establishing and administering a payment
system that includes an adequate patient classification system that reflects differences in patient
resource use. The Secretary may require these hospitals to submit necessary data to develop
this proposal. The Secretary is instructed to consider several payment methodologies including
the feasibility of expanding the diagnosis related groups and inpatient PPS for acute hospitals
and submit a legislative proposal to the appropriate Congressional committees no later than
October 1, 1999.
BBRA 99. The Secretary is required to report on a discharge-based PPS with an
adequate patient classification system for long-term hospitals to appropriate Congressional
committees by October 1, 2001. The PPS for long-term hospitals is to be implemented in a
budget neutral fashion for cost reporting periods beginning on or after October 1, 2002.
Effective Date. Enactment.
Section 124. Per Diem Prospective Payment System for Psychiatric Hospitals
Prior Law. No provision.
BBRA 99. The Secretary is required to report on a per-diem based PPS with an adequate
patient classification system for psychiatric hospitals to appropriate Congressional committees

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by October 1, 2001. The PPS for psychiatric hospitals is to be implemented in a budget neutral
fashion for cost reporting periods beginning on or after October 1, 2002.
Effective Date. Enactment.
Section 125. Refinement of Prospective Payment System for Inpatient
Rehabilitation Services
Prior law. BBA 97 requires the Secretary to establish a case-mix adjusted PPS for
rehabilitation hospitals and distinct part units, effective beginning in FY2001. PPS rates are
to be phased-in between October 1, 2000, and before October 1, 2002, with an increasing
percentage of the hospitals’ payment based on the PPS amount. For FY2001 and FY2002,
the Secretary is required to establish prospective payment amounts that are budget neutral so
that total payments for rehabilitation hospitals equal 98% of the amount that would have been
paid if the PPS system had not been enacted. PPS will be fully implemented by October 1,
2002.
BBRA 99. The Secretary is required to base the PPS for rehabilitation facilities on
discharges; establish classes of patient discharges by functional related groups, based on the
patient’s impairment, age, co-morbidities, and functional capabilities as well as other
appropriate factors that improve the explanatory power of functional independence measures-
function related groups; and submit a study to Congress not later than 3 years after PPS
implementation on its impact on utilization and access.
Effective Date. Enactment.
Subtitle D — Hospice Care
Section 131. Temporary Increase in Payment for Hospice Care
Prior Law. Payment for hospice care is based on one of four prospectively determined
rates for each day a beneficiary is under the care of the hospice. The four rate categories
correspond to levels of care, which are: routine home care, continuous home care, inpatient
respite care, and general inpatient care. Payment rates are adjusted to reflect differences in
area wage levels; periodic updates are based on the hospital market basket index.
Medicare payments to a hospice are subject to an aggregate annual cap that is determined
by multiplying the cap amount for a given year by the number of Medicare beneficiaries who
receive hospice services during the year. (For example, the cap for the year from November
1, 1999, through October 31, 2000, was $15,313.) Updates to the annual cap amount are
based on the medical care component of the Consumer Price Index for all Urban Consumers
(CPI-U). Limited cost sharing applies to outpatient drugs and respite care.
Before BBA 97, the daily rates were updated annually by the hospital market basket index
increase; BBA 97 reduced the updates to market basket index increase minus one percentage
point for FY1999-FY2002 and required the Secretary of HHS to collect hospice cost data.
BBRA 99. The hospice daily payment rates for the four categories of care are increased
by 0.5 in FY2001 and by 0.75% in FY2002. These increases are not included in the base for
computing subsequent updates to these rates.

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Effective Date. Enactment.
Section 132. Study and Report to Congress Regarding Modification of the Payment
Rates for Hospice Care
Prior Law. The Secretary of HHS is required to collect data from hospices on the costs
of care provided for each fiscal year beginning with FY1999.
BBRA 99. The GAO is required to conduct a study on the feasibility and advisability of
updating the hospice rates and capped payment amounts, including an evaluation of whether
the cost factors used to determine the rates should be modified, eliminated, or supplemented
with additional cost factors. The report and recommendations are to be submitted to Congress
within 1 year of enactment.
Effective date. Enactment.
Subtitle E — Other Provisions
Section 141. MedPAC Study on Medicare Payment for Nonphysician Health
Professional Clinical Training in Hospitals
Prior law. No later than 2 years after enactment BBA 97 required that MedPAC submit
to Congress a study of Medicare’s graduate medical education payment policy and
reimbursement methodologies including whether and to what extent payments are being made
(or should be made) for training in nursing and other allied health professions.
BBRA 99. Within 18 months of enactment, MedPAC is required 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).
Effective Date. Enactment.
Subtitle F — Transitional Provisions
Section 151. Exception to Case Mix Index (CMI) Qualifier for One Year
Prior law. Regional or rural referral centers receive special treatment under the acute
hospital prospective payment system with respect to their disproportionate share hospital
adjustment and when considered for geographic reclassification. Generally, a referral center
is located in a rural area, has at least 275 or more beds, can show that at least 50% of its
Medicare patients are referred from other hospitals, and that at least 60% of its Medicare
patients live more than 25 miles from the hospital or that 60% of all services that the hospital
furnishes to Medicare beneficiaries are furnished to those that live more than 25 miles from the
hospital.
Alternatively, a hospital may meet certain other specified criteria including (1) a case mix
index (CMI) above the national average or above the median case mix value for urban
hospitals located in that region; (2) a number of discharges greater than 5,000 or, if less, above

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the median number of discharges for urban hospitals in the region; (3) more than 50% of the
hospital’s active medical staff are specialists; (4) at least 60% of all its discharges are for
patients who live more than 25 miles from the hospital; (5) at least 40% of all patients treated
at the hospital are referred from other hospitals or by physicians not on the hospital staff.
BBRA 99. The Northwest Mississippi Regional Medical Center is to be treated as if it
meets the case mix index criterion in order to be classified as a referral center for FY2000.
Effective Date. Enactment.
Section 152. Reclassification of Certain Counties and Other Areas for Purposes of
Reimbursement under the Medicare Program
Prior law. Medicare’s payments to acute hospitals for inpatient services vary by
urban/rural classification and the geographic area where a hospital is located or to which a
hospital is assigned.
BBRA 99. For the purposes of Medicare inpatient hospital reimbursement in FY2001 and
FY2001, Iredell County is considered to be part of the Charlotte-Gastonia-Rock Hill, North
Carolina-South Carolina metropolitan statistical area (MSA); Orange County, New York is
considered to be part of the large urban area of New York, NY; 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 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, Vermont is deemed to be considered part of the Boston-Worcester-
Lawrence-Lowell-Brockton, Massachusetts-New Hampshire MSA.
Effective Date. Enactment.
Section 153. Wage Index Correction
Prior law. Medicare’s inpatient hospital PPS payments are adjusted to reflect the wage
level in the geographic area where a hospital is located or to which a hospital is assigned.
Hospitals can only submit and correct wage data during specified times. All payment changes
that result from changes to the wage data are implemented in a budget neutral fashion.
BBRA 99. The FY2000 wage index for Hattiesburg, Mississippi MSA is to be
recalculated without the data from Wesley Medical Center, and the resulting wage index
change will not affect other areas.
Effective Date. Enactment.
Section 154. Calculation and Application of Wage Index to Certain Area
Prior law. Medicare’s inpatient hospital PPS payments are adjusted to reflect the wage
level in the geographic area where a hospital is located or to which a hospital is assigned.
Hospitals can only submit and correct wage data during specified times. All payment changes
that result from changes to the wage data are implemented in a budget neutral fashion.

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BBRA 99. The FY2000 wage index for Allentown-Bethlehem-Easton Pennsylvania MSA
is to be recalculated as if Lehigh Valley Hospital were classified in the area without affecting
the wage index for any other area. For FY2001, Lehigh Valley Hospital is to be treated as if
it is in Allentown-Bethlehem-Easton, Pennsylvania MSA.
Effective Date. Enactment.
Section 155. Special Rule for Certain Skilled Nursing Facilities
Prior Law. The SNF PPS pays a per diem amount for all covered services provided to
Medicare beneficiaries. During a transition period lasting through three of a facility’s cost
reporting periods, the first of which began on or after July 1, 1998, a portion of the per diem
payment to a SNF is based on a facility-specific rate, and the remaining portion on a federal
rate. By the end of the transition, 100% of the per diem payment will be based on the federal
rate. Federal and facility-specific payments are based on updated 1995 cost reports.
BBRA 99. The Secretary of HHS is required to establish special per diem payments for
certain SNFs for each cost reporting period beginning in FY2000 and in FY2001. These SNFs
are those located in Baldwin or Mobile Counties, Alabama (a) that began participation in the
Medicare program before January 1, 1995, and (b) for which Medicare beneficiary inpatient
days accounted for at least 80% of total inpatient days of the facility in the cost reporting
period beginning in 1998. If an eligible facility elects, the per diem payments for Medicare
residents in these facilities would include a facility-specific component only and would be
based on allowable costs in 1998 (rather than 1995) and updated for cost reporting periods in
years after FY1998.
Effective Date. Enactment.

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Title II — Provisions Relating to Part B
Subtitle A — Hospital Outpatient Services
Section 201. Outlier Adjustment; Transitional Pass-Through for Certain Medical
Devices, Drugs, Biologicals
Subsection 201(a). Outlier Adjustment.
Prior Law. BBA 97 required that Medicare payment for hospital outpatient department
(HOPD) care and services be paid under a PPS instead of the long-standing retrospective cost-
based system. A PPS for HOPD care and services was scheduled for implementation July 1,
2000. (HCFA later delayed implementation until August 1, 2000.) The HOPD PPS payments
are uniform for all patients undergoing a certain procedure. Under the new PPS, outpatient
services that are similar clinically and in terms of resource utilization are arranged into groups
according to an “ambulatory payment classification” (APC) system. The original APC system
includes 451 payment groups. A payment amount is established for each group and is the
same for each service in the group. The payments cover hospital facility and nonphysician
personnel costs with adjustments for geographic location of the facility and area wages.
BBRA 99. The Secretary of HHS is required to provide additional payments to HOPDs
for each covered service (or group of service) for which the HOPD costs (“charges adjusted
to costs”) exceed a fixed multiple of the PPS amount, plus pass-through payments under
Subsection 201(b) (described below), plus additional amounts determined by the Secretary.
The aggregate amount of these outlier payments may not exceed 2.5% of total program
payments for HOPD services furnished in years before 2004 and 3% for years thereafter. As
a transition to this outlier system, for HOPD services furnished before January 1, 2002, the
base amount to which the multiple and the pass-through and add-ons are applied may be
certain charges for a particular outpatient encounter (rather than for a service or group of
services), and the charges adjusted to cost amount may be that applicable to the whole
hospital, not just the outpatient department.
Effective date. See Section 201(m).
Subsection 201(b). Transitional Pass-Through for Additional Costs of Innovative
Medical Devices, Drugs, and Biologicals.
Prior Law. Most PPS payments for HOPD services include costs for associated devices,
drugs, and biologicals.
BBRA 99. For a defined period of time, the Secretary of HHS is required to provide
additional payments for costs of certain “current innovative” devices, drugs, and biologicals,
and certain “new” high cost devices, drugs, and biologicals used in HOPD care. These
payments are referred to as “pass-through payments” because they would pass through the
PPS and be paid over and above PPS payments. (“Current” is defined as something for which
Medicare is paying under outpatient services on the first day of the PPS; “new” is defined as
something for which Medicare was not paying on an outpatient basis on December 31, 1996.)

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A pass-through for the cost of current innovative products applies to (1) orphan drugs;
(2) certain cancer therapy drugs, biologicals, and brachytherapy; and (3) radiopharmaceutical
drugs and biological products.
A pass-through of costs for “new” medical devices, drugs, and biologicals is required if
the costs of those items is “not insignificant” in relation to the fee schedule amount payable for
the service.
These transitional pass-through payments would be for a period of at least 2 years but not
more than 3 years. For drugs, biologicals, and brachytherapy used in cancer therapy and for
orphan drugs, the period would begin with the implementation date of the outpatient PPS.
This also would be the period applicable to medical devices first paid as an outpatient hospital
service after 1996 but before implementation of the outpatient PPS (as well as for any other
item or service eligible for the additional payments at the inception of the outpatient PPS
because of insufficient data or use of the Secretary’s discretion). For products first paid as an
outpatient service after implementation of the outpatient PPS, the transitional payment would
begin with the first date on which payment is made for the device, drug, or biological as an
outpatient hospital service and continue for at least 2, but not more than 3 years.
The amount of the additional payment to hospitals, before applying the limitation
described below, should equal the amount specified for the new technology less the average
cost included in the outpatient payment schedule for the existing technology. Specifically, for
drugs and biologicals, the amount of the additional payment is the amount by which 95% of
the average wholesale price exceeds the portion of the applicable outpatient fee schedule
amount that the secretary determines is associated with the drug or biological. Similarly, for
new medical devices, the add-on payment is the amount by which the hospital’s charges for
the device, adjusted to cost, exceeds the outpatient fee schedule amount associated with the
device.
The total amount of additional pass-through payments in a year should not exceed a
prescribed percentage of the total projected payments under the outpatient PPS. The
applicable percentages are (1) 2.5% for the first 3 years after implementation of the new
outpatient payment system; and (2) up to 2% in subsequent years. In setting the HOPD rates
and add-on amounts for a particular year, the Secretary will estimate the total amount of
additional payments that would be made based on the add-on amounts specified above and
beyond the expected utilization for each service. If the estimated total amount exceeds the
percentage limitation, the Secretary of HHS will apply a pro rata reduction to the add-on
payment amounts so that projected total payments do not exceed the applicable percentage
increase limits (i.e., 2.5% for the first 3 years and 2% in subsequent years).
Effective Date. See Section 201(m).
Subsection 201(c). Application of New Adjustments on a Budget Neutral Basis.
Prior Law. No provision.
BBRA 99. Outlier payments for costly outpatient cases provided under Subsection 201(a)
and pass-through payments under Subsection 201(b) are required to be budget neutral to
Medicare, meaning cost increases for providing those additional payments for outpatient care
must be offset by reductions elsewhere in payments for outpatient care.

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Effective Date. See Section 201(m).
Subsection 201(d). Limitation on Judicial Review for New Adjustments.
Prior Law. There is no provision for administrative or judicial review regarding the basic
design features of the HOPD PPS.
BBRA 99. The outlier payments for costly outpatient cases and the pass-through
payments for certain devices, drugs, and biologicals are not subject to administrative or judicial
review.
Effective Date. See Section 201(m).
Subsection 201(e). Inclusion of Certain Implantable Items Under System.
Prior Law. Medicare-covered HOPD services include implantation of certain devices,
although the cost of the devices themselves are paid according to a fee schedule generally
applicable to durable medical equipment (DME).
BBRA 99. Payment for certain medical devices implanted in a hospital setting would be
made through the HOPD PPS rather than according to the DME fee schedule. These devices
include, for example, pacemakers, defibrillators, cardiac sensors, venous grafts, drug pumps,
stents, neurostimulators, and orthopedic implants, as well as items that come into contact with
internal human tissue during invasive medical procedures (but are not permanently implanted).
The implantable device is to be classified to the PPS group that includes the service to which
the item relates.
Effective Date. See Section 201(m).
Subsection 201(f). Authorizing Payment Weights Based on Mean Hospital Costs.
Prior Law. In establishing the relative payment weights of payment groups in the HOPD
PPS, the Secretary uses the median cost of the item or services in the group.
BBRA 99. The Secretary may elect to use either the median or the mean cost of the item
or service in a group in establishing the relative payment weight of a group.
Effective Date. See Section 201(m).
Subsection 201(g). Limiting Variation of Costs of Services Classified With a
Group.
Prior Law. The services classified within each group on which a PPS payment amount
is established are to be comparable clinically and with respect to the use of resources.
BBRA 99. An upper limit is placed on the variation of costs among services included in
the same group. The most costly item or service in a group may not have a mean or median
cost that is more that twice the mean or median cost of the least costly item or service in the
group.

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Effective Date. See Section 201(m).
Subsection 201(h). Annual Review of Out Patient Department (OPD) PPS
Components.
Prior Law. The Secretary may periodically review and revise the HOPD PPS groups, the
relative payment weights, and the wage and other adjustments to take into account changes
in medical practice, changes in technology, the addition of new services, new cost data, and
other relevant information and factors.
BBRA 99. The Secretary is required to carry out a review of the components of the
HOPD PPS not less often than annually; is required to consult with an outside advisory panel
composed of provider representatives; and such panel may use data collected or developed by
entities or organizations other than HHS when consulting with the Secretary about the clinical
integrity and weights of the payment groups.
Effective Date. The first annual review of the components of the PPS shall be conducted
in 2001 for application in 2002, with the requirement for an outside advisory panel effective
upon enactment.
Subsection 201(i). No Impact on Copayment.
Prior Law. Prior to BBA 97, beneficiary copayments for HOPD care and services were
generally 20% of hospital charges; BBA 97 froze beneficiary payments at a specific amount
for each type of outpatient procedure. These copayment amounts will not increase over time.
BBRA 99. Beneficiaries may not be required to pay additional copayments for procedures
for which outlier or pass-through payments are provided to the facility.
Effective Date. See Section 201(m).
Subsection 201(j). Technical Correction in Reference Relating to Hospital-Based
Ambulance Services.
This provision made a technical drafting change.
Subsection 201(k). Extension of Payment Provisions of Section 4522 of BBA Until
Implementation of PPS.
Prior Law. For Medicare payments under the cost-based reimbursement system that
preceded the PPS, OBRA 1993 and later BBA 97 required that Medicare payments for the
capital-related costs of an HOPD be 90% of such allowable costs (a 10% reduction), and
payments for allowable costs other than capital-related costs be 94.2% of such costs (a 5.8%
reduction). These reductions were to continue through January 1, 2000.
BBRA 99. The payment reductions would continue until implementation of the HOPD
PPS.
Effective date. See Section 201(m).

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Subsection 201(l). Congressional Intention Regarding Base Amounts in Applying
the HOPD PPS.
Prior Law. When the change from the cost-base reimbursement system to the PPS took
place for HOPDs, Medicare’s total, aggregate payments to HOPDs were to be the same as it
would have been had the pre-PPS system remained in effect. However, limitation of
beneficiary copaymets to “frozen” flat dollar amounts, per procedure, resulted in total
payments to some hospitals being less that they would have been under the prior system.
Therefore, some hospitals could realize a reduction in aggregate payments for Medicare
beneficiaries.
BBRA 99. Without regard to the budget neutrality requirement of the PPS, Medicare will
make up shortfalls in payments to hospitals that result from reduced beneficiary copayments
for outpatient care.
Effective date. See Section 201(m)
Subsection 201(m). Effective date.
Prior Law. No provision.
BBRA 99. All the amendments in Section 201(a) through 201(l) are effective as if
enacted with the BBA 97.
Subsection 201(n). Study of Delivery of Intravenous Immune Globulin (IVIG)
Outside Hospitals and Physicians’ Offices.
Prior Law. No provision.
BBRA 99. The Secretary of HHS shall conduct a study of the extent to which
intravenous immune globulin could be reimbursed under Medicare when it is delivered outside
of a hospital or physician’s office, such as in a beneficiary’s home. The Secretary shall submit
a report on the study to the House Committee on Ways and Means and the Senate Committee
on Finance within 18 months of enactment of BBRA 99.
Section 202. Establishing a Transitional Corridor for Application of OPD PPS
Prior Law. The HOPD PPS was to be implemented in such a way that payments to these
facilities from Medicare would be budget neutral compared with payments under the prior
retrospective cost-based payment system. HCFA’s analysis showed that the fiscal effects of
the new system would differ among facilities, and some would receive less money than they
would have received if the prior system had remained in place.
BBRA 99. Payments in addition to PPS payments will be made to a hospital outpatient
department during the first 3 years of the PPS if the hospital’s PPS aggregate payments from
Medicare are less than they would have been under the pre-BBA cost-based reimbursement
system. The law includes a formula for determining what a hospital’s pre-BBA amount would
be for a given year.

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During the first year of the PPS, a hospital outpatient department would receive an
additional amount equal to 80% of the first 10% of the difference between its payments under
the pre-BBA system and under the PPS, 70% of the next 10% of the reduced payments, and
60% of the next 10%. If PPS payments are less than 70% of those under the pre-BBA
system, the additional sum is 21% of the pre-BBA amount. During the second year, the
payments as a proportion of reduced payments will change to 70% of the first 10%, and 60%
of the second 10%. If PPS payments are less than 80% of pre-BBA amounts, the additional
sum is 13% of the pre-BBA amount. In the third year, the payment would be 60% of the first
10% of reduced payments, and if the PPS payments are less than 90% of the prior amounts,
the additional payment is 6% of the pre-BBA amount. These additional payments would be
made through 2003.
Until January 1, 2004, special “hold harmless” payments are provided for outpatient
departments of rural hospitals with fewer than 100 beds, and permanently for outpatient
departments of cancer hospitals, to bring payments to hospital outpatient departments up to
the full amount of their pre-PPS Medicare payments if their PPS payments total less than under
the prior system. The budget neutrality requirement of the PPS is waived to make these
payments, but beneficiary copayments would remain at the “frozen” amounts required by BBA.
Effective Date. Effective as if included in BBA.
Section 203. Study and Report to Congress Regarding the Special Treatment of
Rural and Cancer Hospitals in Prospective Payment System for Hospital Outpatient
Department Services
Prior Law. No provision.
BBRA 99. MedPAC is required to study and report to Congress within 2 years of
enactment on the appropriateness of and method for covering certain rural and cancer hospitals
under the PPS. The included hospitals are: Medicare-dependent small rural hospitals; sole
community hospitals; rural health clinics; rural referral centers; and any other rural hospital
with no more than 100 beds and others as determined by the Secretary. The Secretary is to
submit a report commenting on the MedPAC study within 60 days of its completion.
Effective Date. Enactment.
Section 204. Limitation on Outpatient Hospital Copayment for a Procedure to the
Hospital Deductible Amount
Prior Law. When the hospital outpatient department PPS was implemented, BBA 97
froze beneficiary copayments at the dollar amount that is equal to 20% of national median
charges for a procedure in 1996 updated to the date of implementation of the PPS.
BBRA 99. Beneficiary copayments under the PPS for HODP care and services are limited
to the amount of the Medicare deductible for an inpatient hospital stay under Part A. Medicare
funds are authorized to make up the difference between this capped copayment and 20% of
the national median charge for the services to which the cap applies.
Effective Date. Effective retroactive to enactment of the BBA 97.

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Subtitle B — Physician Payments
Section 211. Modification of Update Adjustment Factor to Reduce Update
Oscillation
Prior Law. Payments for physicians’ services are made on the basis of a fee schedule.
The fee schedule is intended to relate payments for a given service to actual resources used.
The fee schedule assigns relative values to services. The relative values reflect physician work,
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 conversion factor is updated each year according to a formula established in law.
The update percentage equals the Medicare Economic Index (MEI), subject to an adjustment
to match target spending for physicians services under the sustainable growth rate (SGR)
system. In no case can the adjustment be more than three percentage points above or seven
percentage points below the MEI.
Four factors make up the SGR: changes in spending due to fee increases, fee-for-service
enrollment, gross domestic product (GDP) growth per capita, and laws and regulations. All
four factors are based on HCFA estimates. The law did not specifically require that the factors
be updated when actual data become available. Data from various measurement periods were
used for the SGR calculation. Time lags between these measurement periods could lead to
unevenness in conversion factor updates.
BBRA 99. The calculation of the update adjustment factor to the conversion factor is to
be made on a calendar year basis, beginning in 2001. The formula for determining the update
is modified to add a new component to measure variances from the allowed growth rate in the
past year. The transition to the new system is made on a budget neutral basis.
By March 1 of each year, the Secretary is required to make available to MedPAC and the
public an estimate of the SGR and the conversion factor that will apply in the following year
and the data used in making such estimate. MedPac is required to include a review of the
estimate in its June report. The Secretary is required to publish the conversion factor by
November 1 (beginning in 2000) for the following year. The Secretary is required to publish,
by November 1, 2000, the sustainable growth rate for 2000 and 2001. Beginning in 2001, the
Secretary is required to publish the SGR for the following year and each of the two preceding
years.
Calculation of the sustainable growth rate is to be made on a calendar year (CY) basis.
The 2001 update to the conversion factor is to be based on the FY2000 SGR as well as the
CY2000 and 2001 SGRs (using the best data available to the Secretary as of September 1,
2000). The 2002 update to the conversion factor will use the FY2000 SGR as well as the
2000, 2001, and 2002 SGRs (using the best data available to the Secretary as of September
1, 2001). For 2003 and succeeding years, the SGR for that year and the two preceding 2 years
would be determined on the basis of the best data available to the Secretary as of September
1 of the preceding year.
The Secretary, acting through the Administrator of the Agency for Health Care Policy
and Research (renamed Agency for Healthcare Research and Quality) is to conduct a study of

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the following issues: (1) the various methods for accurately estimating the economic impact
on Medicare fee-for-service expenditures of improvements in medical capabilities,
advancements in scientific technology, demographic changes, and geographic changes in
locations where beneficiaries receive services; (2) the rate of usage of physicians’ services
under fee-for-service by various age cohorts; and (3) other factors which may be reliable
predictors of beneficiary utilization of such services. The Secretary, within 3 years of
enactment, is required to report to Congress on the results of the study, together with any
recommendations deemed appropriate. MedPAC is required to submit its own report to
Congress within 180 days of the report’s submission. MedPAC’s report is to include an
analysis and evaluation of the Secretary’s report as well as any recommendations determined
appropriate.
Effective Date. The changes apply to calculations made to determine the conversion
factor for years beginning with 2001. They do not apply to or affect any update (or any update
adjustment factor) for any year before 2001.
Section 212. Use of Data Collected by Organizations and Entities in Determining
Practice Expense Relative Values
Prior Law. The fee schedule assigns relative values to services. The relative values
reflect physician work, practice expenses, and malpractice costs. When the fee schedule went
into effect in 1992, practice expense relative value units were based on historical charges. The
Social Security Act Amendments of 1994 (P.L. 103-432) required the Secretary to develop
a methodology for a resource-based system for calculating practice expenses which would be
implemented in calendar year 1998. BBA 97 delayed implementation of a resource-based
practice expense methodology for a year, until 1999. In 1998, certain practice expense relative
value units were reduced. The new resource-based system is being phased-in beginning in
CY1999. In 1999, 75% of the payment was based on the 1998 charge-based relative value
unit and 25% on the resource-based relative value. In 2000, the percentages are 50% charge-
based and 50% resource-based. For 2001, the percentages will be 25% charge-based and 75%
resource-based. Beginning in 2002, the values will be totally resource-based.
BBRA 99. The Secretary is required to establish by regulation (after notice and public
comment) a process (including data collection standards) for determining practice expense
relative values. Under this process, the Secretary will accept for use and will use to the
maximum extent practicable and consistent with sound data practices, data collected or
developed outside HHS. These outside data are to supplement data normally developed by
HHS for determining the practice expense component. The Secretary would first promulgate
the regulation on an interim basis in a manner that permits submission and use of outside data
in the computation of relative value units for 2001.
The Secretary is required, when publishing the estimated and final updates for 2001 and
2002, to include a description of the process established for using external data. The Secretary
is also required to provide information on the extent to which such data have been used in
making adjustments in practice expenses, particularly in cases in which the data are otherwise
inadequate because the data are not based on a large enough sample size to be statistically
reliable.
Effective Date. Enactment.

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Section 213. GAO Study on Resources Required to Provide Safe and Effective
Outpatient Cancer Therapy
Prior Law. No provision.
BBRA 99. GAO is required to conduct a nationwide study to determine the physician and
non-physician clinical resources necessary to provide safe outpatient cancer therapy services
and the appropriate payment rates for such services. In making this determination GAO is
required to: (1) determine the adequacy of practice expense relative value units associated
with the use of those clinical resources; (2) determine the adequacy of work units in the
practice expense formula; and (3) assess various standards to assure the provision of safe
outpatient cancer therapy services. GAO is required to submit a report to Congress on this
study. The report is to include recommendations regarding practice expense adjustments,
including the development and inclusion of adequate work units to assure the adequacy of
payment amounts for safe outpatient cancer therapy services. The study is to include cost
estimates for the recommendations.
Effective Date. Enactment.
Subtitle C — Other Services
Section 221. Revision of Provisions Relating to Therapy Services
Prior Law. BBA 97 established annual payment limits per beneficiary for all outpatient
therapy services provided by non-hospital providers. The limits applied to services provided
by independent therapists as well as to those provided by comprehensive outpatient
rehabilitation facilities (CORFs) and other rehabilitation agencies. The limits did not apply to
outpatient services provided by hospitals.
There were two per beneficiary limits. The first was a $1,500 per beneficiary annual cap
for all outpatient physical therapy services and speech language pathology services. The
second was a $1,500 per beneficiary annual cap for all outpatient occupational therapy
services. Beginning in 2002, the amount would increase by the MEI, rounded to the nearest
multiple of $10.
BBA 97 also required the Secretary to report to Congress by January 1, 2001, on
recommendations for establishing a revised coverage policy based on diagnostic groups.
Persons receiving outpatient physical therapy must be under the care of a physician. For
this purpose, a physician is defined as a doctor of medicine, osteopathy, or podiatry.
BBRA 99. The law suspends application of the therapy limits in 2000 and 2001. (In the
absence of additional legislation, the caps would be imposed again beginning in 2002.) During
this time, the Secretary is required to conduct focused medical reviews of therapy claims with
emphasis on claims for services provided to residents of SNFs.
The law also modifies the current required report to Congress to specify that the study
is to establish an alternate payment policy and to include functional status in the calculation.
The report must include recommendations for establishment of a mechanism to assure
appropriate utilization of covered therapy services.

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The Secretary is also required to study utilization patterns in 2000 compared to those in
1998 and 1999. The study (which must be based on a statistically significant number of
claims) will look at nationwide patterns as well as patterns by region, types of setting, and
diagnosis or condition. The Secretary is required to report the results of this study to
Congress by June 30, 2001, together with any legislative recommendations deemed
appropriate.
The provision further includes optometrists within the definition of those physicians under
whose care a beneficiary must be in order to receive covered therapy services.
Effective Date. Generally, enactment, except that the revision to the report requirements
is effective as if it had been incorporated in BBA 97. The physician supervision provision is
effective January 1, 2000.
Section 222. Update in Renal Dialysis Composite Rate
Prior Law. Dialysis facilities providing care to beneficiaries with end-stage renal disease
(ESRD) receive a fixed prospective payment amount for each dialysis treatment. In 1999, the
base composite rate was $126 for hospital-based providers and $122 for free-standing
facilities.
BBRA 99. The composite rate is updated by 1.2% for dialysis services furnished during
2000 and an additional 1.2% for services furnished in 2001. MedPAC is required to study the
appropriateness of the payment differential between services furnished in a facility and those
furnished at home. Within 18 months of enactment, it is required to submit a report on the
study to Congress, including recommendations regarding changes in payment policy.
Effective Date. Enactment.
Section 223. Implementation of Inherent Reasonableness Authority
Prior Law. The Secretary has the authority to determine whether payment methodologies
for certain Part B services, such as purchase of durable medical equipment and items paid
according to a fee schedule, result in payments that are inherently unreasonable. The Secretary
is required, by regulation, to describe the factors used in making this determination.
Regulations were issued January 7, 1998.
BBRA 99. The Secretary is prohibited from exercising inherent reasonableness authority
until after: (1) the GAO releases a report (requested March 1, 1999) regarding the impact of
the use of such authority by the Secretary, carriers, and intermediaries; and (2) the Secretary
has published final regulations that respond to both such report and comments received in
response to the Secretary’s interim final regulations published January 7, 1998. The Secretary
is required to reevaluate the appropriateness of the criteria included in the interim final
regulations and take appropriate steps to ensure the use of valid and reliable data when
exercising inherent reasonableness authority.
Effective Date. Enactment.

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Section 224. Increase in Reimbursement for PAP Smears
Prior Law. Payments for PAP smears are made under the clinical laboratory fee schedule.
BBRA 99. The Secretary is required to establish a national minimum payment amount
for PAP smears at $14.60 for tests furnished in 2000. The payment amount is to be adjusted
annually by the increase otherwise applicable for clinical lab tests. The minimum payment
amount applies to both diagnostic and screening PAP smears including all cervical cancer
screening technologies that have been approved by the FDA as a primary screening mechanism
for the detection of cervical cancer.
The section also includes language expressing the sense of the Congress that HCFA
should institute an appropriate increase for new cervical cancer screening technologies
approved by the FDA.
Effective Date. Enactment.
Section 225. Refinement of Ambulance Services Demonstration Project
Prior Law. BBA 97 authorized up to three demonstration projects under which a unit
of local government could enter into a contract with the Secretary to furnish, on a capitated
basis, ambulance services for individuals living in the local government unit. The Secretary
could not enter into such a contract unless the contract covered at least 80% of Medicare Part
B enrollees (not including Medicare+Choice enrollees) residing in the area. Capitated
payments in the first year are to equal 95% of the amounts which would otherwise be payable;
in subsequent years they are updated by changes in the consumer price index.
BBRA 99. The provision requires the Secretary to publish a request for proposals by July
1, 2000. It also specifies that in the first year the capitation rate is to be based on the most
current data and that the aggregate payments can not exceed what would otherwise be paid
in the jurisdiction. The payment amount is updated in subsequent years by an appropriate
inflation adjustment factor.
Effective Date. Effective as if included in the enactment of BBA 97.
Section 226. Phase-in of PPS for Ambulatory Surgical Centers
Prior Law. Medicare payments for ambulatory surgical centers (ASCs) have been based
on a fee schedule since such services were first covered by the program in 1982. ASC services
that are similar clinically and in terms of resource utilization are arranged into groups
according to an “ambulatory payment classification” (APC) system. A payment amount is
established for each group and is the same for each service in the group. The payments cover
facility and nonphysician personnel costs with adjustments for geographic location of the
facility and area wages. (Medicare pays physicians and surgeons providing care in ASCs
according to the physician fee schedule.) BBA 97 mandated annual updates of ASC payments
by the CPI-U minus 2 percentage points in 1998-2002. In June, 1998, HCFA proposed a
major revision of the APC groups and rules, including regrouping and revising the rates based
on a survey of ASC costs in 1994.

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BBRA 99. BBRA 99 requires any new ASC rates based on data from pre-1999 cost
surveys to be phased-in over 3 years, one-third in the first year; two-thirds in the second year,
and fully implemented in the third year.
Effective Date. Enactment.
Section 227. Extension of Medicare Benefits for Immunosuppressive Drugs
Prior Law. In general, Medicare does not pay for outpatient prescription drugs. One
exception is for immunosuppressive drugs. Medicare will pay for drugs used in
immunosuppressive therapy during the first 36 months following a Medicare covered organ
transplant.
BBRA 99. The law provides for a temporary extension of the current 36-month limit on
immunosuppressive drugs for persons otherwise exhausting their coverage in 2000-2004. In
each calendar year, there will be an extension specified by the Secretary (as the number of
months or partial months), applicable to persons who exhaust their benefits in that calendar
year. The increase for persons exhausting their benefits in 2000 is 8 months. The minimum
increase for persons exhausting their benefits in 2001 is 8 months.
By May 1 of 2001, the Secretary may increase the number of months for the cohort
exhausting their benefits in 2001. At the same time, the Secretary is also required to announce
the additional months of benefits that will be available for the cohort exhausting their benefits
in 2002. Similarly, by May 1 of 2002 and 2003, the Secretary is required to announce the
number of months that will apply to the cohort exhausting their benefits in the following year.
Total expenditures over the 5-year period are limited to $150 million. The Secretary, in
making the specification of the number of additional months for 2002-2004 is required to make
the computation so that expenditures do not exceed this limit. Further, the Secretary is
directed to seek to provide a level number of months for each cohort exhausting benefits in
2001-2004. The Secretary may adjust the amount of additional months from the prior year to
the extent necessary to take into account differences between actual and estimated
expenditures for previous years.
By March 1, 2003, the Secretary is required to submit a report to Congress on the
operation of the temporary extension. The report is to include an analysis of the impact and
recommendations regarding an appropriate cost-effective method for providing coverage on
a permanent basis. In making the recommendations, the Secretary is required to identify
potential modifications to the benefit that would best promote the following objectives: 1)
improving health outcomes by decreasing transplant rejection rates attributable to failure to
comply with immunosuppressive drug regimens; (2) achieving cost savings to the Medicare
program by decreasing the need for secondary transplants and other care related to post-
transplant complications; and (3) meeting the needs of those beneficiaries who because of low
income or other factors, would be less likely to maintain a drug regimen in the absence of the
modifications.
Effective Date. Enactment.

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Section 228. Temporary Increase in Payment Rates for Durable Medical
Equipment and Oxygen
Prior Law. Payments for durable medical equipment are determined on the basis of fee
schedules for five different classifications of items. In general, the fee schedules establish
national payment limits for DME, and the limits have floors and ceilings. The fee schedule
amounts are updated annually based on the increase in the CPI-U, although in past years
Congress required that the updates be less than the full CPI-U increase. In BBA 97, Congress
eliminated altogether the updates for 1998-2002, but, for subsequent years, specified that the
update would be the CPI-U increase as measured over a 12-month period ending in June of
the previous year.
BBRA 99. DME payment amounts in effect for covered items furnished during 2001 and
2002 are increased by 0.3% and 0.6% respectively. These extra amounts are not included the
base when updates are made in future years.
Effective Date. Enactment.
Section 229. Studies and Reports
Prior Law. No provision.
BBRA. This section requires several studies.
MedPAC is required to conduct a study on the cost-effectiveness and efficacy of covering
services of a post-surgical care recovery center (which provides an intermediate level of
recovery care following surgery). In conducting the study, MedPAC is to consider data
gathered on these centers in demonstration projects. A report on the study is due to Congress
within 1 year of enactment. The report is to include recommendations on the feasibility, costs,
and savings of covering such services under Medicare.
The Agency for Health Care Policy and Research (renamed Agency for Healthcare
Research and Quality) is required to conduct a study comparing the differences in the quality
of ultrasound and other imaging services provided by credentialed individuals versus those
provided by non-credentialed individuals. The study is to compare the differences in error
rates, resulting complications, and patient outcomes. The Administrator of the Agency is
required to consult with organizations nationally recognized for their expertise in ultrasound.
The report is due to Congress within 2 years of enactment.
MedPac is required to undertake a comprehensive study reviewing the regulatory burdens
placed on health care providers under Medicare. The study is to determine the cost of these
burdens on the nation’s health care system. The study is also to examine the complexity of the
current regulatory system and its impact on providers. MedPAC is required to submit one or
more reports on the study to Congress by December 31, 2001. The report is to include
recommendations on: (1) how HCFA can reduce the regulatory burden; and (2) legislation
that may be appropriate to reduce the complexity of the Medicare program.
The section also requires GAO to continue monitoring the compliance of the Department
of Justice (DOJ) and U.S. attorneys with the DOJ “Guidelines on the Use of the False Claims

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Act in Civil Health Care Matters.” GAO is required to report on such compliance to the
appropriate committees of Congress by April 1 of 2000, 2001, and 2002.
Effective Date. Enactment.

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Title III — Provisions Relating to Parts A and B
Subtitle A — Home Health Services
Section 301. Adjustment to Reflect Administrative Costs Not included in the
Interim Payment System; GAO Report on Costs of Compliance with OASIS Data
Collection Requirements
Prior Law. Home health agencies are required to administer the Outcome and
Assessment Information Set (OASIS), a data collection instrument which includes information
regarding home health patient demographics, health history, living arrangements, supportive
assistance, clinical situation, ability to carry out activities of daily living, medications, etc. The
cost of a home health worker’s time to collect these data are factored into the new home health
PPS system.
BBRA 99. Home health agencies would receive a special payment of $10 per beneficiary
for administration of the OASIS questionnaire for new home health patients for whom services
are furnished during cost reporting periods in FY 2000. One-half of the payment is made in
April 2000 and the remainder at cost report settlement. The GAO is required to study the cost
of collecting OASIS data and to report to Congress by April 1, 2000.
Effective Date. Enactment.
Section 302. Delay in Application of 15 Percent Reduction in Payment Rates for
Home Health Services Until One Year After Implementation of Prospective Payment
System
Prior Law. The BBA 97 required that a PPS be implemented for home health care
beginning in 1999. It required that the PPS be designed to reduce aggregate home health
payments by 15% from what Medicare would have spent for home health care in that year had
the PPS not been implemented; it specified that the 15% reduction was to go into effect even
if the PPS were not ready for implementation in 1999. In P.L. 105-277 (the Omnibus
Consolidated and Emergency Supplemental Appropriations Act for Fiscal Year 1999),
Congress delayed implementation of the PPS until October 1, 2000, and moved the 15%
reduction to coincide with commencement of the PPS.
BBRA 99. BBRA 99 postponed the 15% reduction to 12 months after implementation
of the PPS.
Effective Date. Enactment.
Section 303. Increase in Per Beneficiary Limits
Prior Law. Under the home health care interim payment system established in BBA 97,
aggregate payments to home health agencies were computed as the least of (a) reasonable
costs, (b) payments based on per visit limits (applied in the aggregate), or (c) payments based
on an average payment per beneficiary in FY1994, updated to the applicable year, with that
amount multiplied by an agency’s Medicare caseload in the applicable year (to achieve an
aggregate payment limit).

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BBRA 99. For cost reporting periods starting in FY2000, agency per beneficiary limits
below the national median per beneficiary limit are increased by 2%. This increase is not
included in the pre-PPS base to which PPS payment levels are benchmarked.
Effective Date. Enactment.
Section 304. Clarification of Surety Bond Requirements
Prior Law. Home health agencies must provide the Secretary on a continuing basis with
a surety bond that is not less than $50,000. HCFA regulations require the bond to be not less
than 15% of the agency’s Medicare payments in the previous year.
BBRA 99. Home health agencies are required to have a surety bond equal to the lesser
of $50,000 or 10% of the agency’s Medicare payments in the previous year. The bond must
be in effect for 4 years, or longer if agency ownership changes; prior periods covered by a
bond may be counted. Medicare and Medicaid surety bonds are to be coordinated.
Effective Date. Enactment.
Section 305. Refinement of Home Health Agency Consolidated Billing
Prior Law. Simultaneous with implementation of the home health PPS, home health
agencies will be responsible for billing Medicare and paying all providers for goods, equipment,
or services supplied to home health patients during an episode of care.
BBRA 99. Durable medical equipment (including oxygen and oxygen supplies), are
excluded from the consolidated billing requirement.
Section 306. Technical Amendment Clarifying Applicable Market Basket Increase
for PPS
This provision corrects drafting errors in the BBA 97.
Section 307. Study and Report to Congress Regarding the Exemption of Rural
Agencies and Populations from Inclusion in the Home Health Prospective Payment
System
Prior Law. All home health agencies are included in the home health PPS regardless of
location.
BBRA 99. MedPCA is required to report to Congress within 2 years of enactment on the
feasibility and advisability of exempting rural home health agencies, or service to individual
residing in rural areas, from the home health PPS.
Effective Date. Enactment.

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Subtitle B — Direct Graduate Medical Education
Section 311. Use of National Average Payment Methodology in Computing Direct
Graduate Medical Education (DGME) Payments
Prior Law. Medicare pays hospitals for its share of direct graduate medical education
(DME) costs in approved programs using a count of the hospital’s number of full-time
equivalent residents and a hospital-specific historic cost per resident, updated for inflation.
BBRA 99. Medicare’s methodology for calculating DME payments to teaching hospitals
will incorporate a national average amount based on FY1997 hospital specific per resident
amounts updated annually by the CPI-U. 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 they
would receive an update equal to the Consumer Price Index (CPI) increase minus two
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.
Effective Date. Enactment.
Section 312. Initial Residency Period for Child Neurology Residency Training
Programs
Prior Law. For the purposes of Medicare’s reimbursement of graduate medical
education, each full-time intern and resident is counted as 1.0 full-time equivalent (FTE) during
their initial residency period. After the initial residency period, a full-time resident can be
counted only as .5 FTE for Medicare’s direct graduate medical education payment. Generally,
the initial residency period is the minimum number of years in which a resident must train to
be eligible for certification in a medical specialty as listed in the AMA’s Graduate Medical
Education Directory. When there is a combined primary care and specialty program, such as
internal medicine-pediatrics, the initial residency period is defined as the minimum number of
years for the longer of the two programs, plus 1 additional year. However, when a combined
program does not include primary care, the initial residency period is based on the minimum
years to qualify for the longer of the composite programs.
BBRA 99. The period of initial residency counted by Medicare 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.
Effective Date. Enactment.
Subtitle C — Technical Corrections
Section 321. BBA Technical Corrections
This provision corrects drafting errors in the BBA 97.

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Title IV — Rural Provider Provisions
Subtitle A — Rural Hospitals
Section 401. Permitting Reclassification of Certain Urban Hospitals as Rural
Hospitals
Prior Law. Medicare’s payments to an acute hospital will vary depending upon the
geographic location of the hospital.
BBRA 99. The Secretary is required 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; (3) would otherwise qualify as a referral center or sole
community hospital; (4) would meet other criteria as the Secretary specifies.
Effective Date. Enactment.
Section 402. Update of Standards Applied for Geographic Reclassification for
Certain Hospitals
Prior Law. The Secretary is required to treat a hospital located in a rural county adjacent
to one or more urban areas as being located in the urban metropolitan statistical area (MSA)
to which the greatest number of rural workers commute, if the rural county’s aggregate
commuting rate (to all of the contiguous MSAs) meets the standards for designating outlier
counties to MSAs (and New England County Metropolitan Statistical Areas) that were
published in the Federal Register on January 3, 1980.
BBRA 99. The existing criteria used to designate outlying rural counties as part of MSAs
is updated.
Effective Date. Enactment.
Section 403. Improvements in the Critical Access Hospital (CAH) Program
Prior law. BBA 97 established the criteria for a small, rural, limited service hospital to
be designated as a CAH. These hospitals are required to be a rural nonprofit or public hospital
either located more that 35 miles away (or given geographic constraints, 15 miles away) from
another hospital and certified by the state as a necessary provider. The CAHs provide 24-hour
emergency services, have up to 15 acute care inpatient beds (or up to 25 beds if CAH is also
a swing bed provider also offering nursing home care under Medicare or Medicaid) and have
hospital stays of no more than 96 hours except under certain circumstances. For instance, a
longer inpatient stay is permitted if inclement weather or other emergency circumstances
prevent the transfer of a patient to another hospital; alternatively, a peer review organization
or comparable entity may waive the 96-hour restriction on a case-by-case basis.

CRS-32
BBRA 99. The 96-hour length of stay limitation for CAHs is applied on an average
annual basis rather than on a per case basis. Eligible 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 will be able to qualify as CAHs. CAHs will be able to
elect payment methods for outpatient services. As drafted, CAHs will be reimbursed using the
clinical diagnostic laboratory fee schedule, and Medicare beneficiaries may be liable for
coinsurance for those services.
Effective Date. Enactment.
Section 404. 5-year Extension of Medicare Dependent Hospital (MDH) Program
Prior Law. MDHs are small rural hospitals that are not classified as sole community
hospitals but that treat relatively high proportions of Medicare patients. From April 1, 1990,
to April 1, 1993, MDHs had been reimbursed as sole community hospitals. This special
payment status was phased out as of September 30, 1994. BBA 97 reinstated and extended
the MDH classification, starting on October 1, 1997, through October, 2001.
BBRA 99. The Medicare Dependent Hospital program is extended through FY2006.
Effective Date. Enactment.
Section 405. Rebasing for Certain Sole Community Hospitals
Prior Law. Sole community hospitals (SCH) are paid based on whichever of the
following target amounts yields the greatest Medicare reimbursement: (1) a hospital- specific
amount based on its updated FY1982 costs; (2) a hospital-specific amount based on its
updated FY1987 costs; or (3) the federal amount (which is the basis of the DRG payment
calculation in a “typical” acute care hospital).
BBRA 99. As drafted, SCHs that are paid on the basis of either FY1982 or FY1987
hospital-specific amounts would be permitted to transition over time to Medicare payment
based on their FY1996 costs.
Effective Date. Enactment.
Section 406. One Year Sole Community Hospital Payment Increase
Prior Law. SCHs are paid based on whichever of the following target amounts yields the
greatest Medicare reimbursement: (1) a hospital-specific amount based on its updated FY1982
costs; (2) a hospital-specific amount based on its updated FY1987 costs; or (3) the federal
amount. Each year these amounts are increased annually using an update factor which is
determined in part by the projected increase in the hospital market basket index (MBI). BBA
97 included a 0% update for FY1998; the MBI minus 1.9 percentage points for FY1999; the
MBI minus 1.8 percentage points for FY2000; the MBI minus 1.1 percentage points for
FY2001 and FY2002; and for FY2003 and each subsequent year, the MBI percentage
increase.
BBRA 99. A SCH’s FY2000 target amount will be increased by the market basket for
discharges occurring in FY2001.

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Effective Date. Enactment.
Section 407. Increased Flexibility in Providing Graduate Physician Training in
Rural and Other Areas
Prior Law. BBA 97 limited the number of residents that a hospital may count for
Medicare reimbursement of graduate medical education to the number of full time equivalent
residents recognized by the hospital in its cost reporting period ending on or before December
31, 1996.
BBRA 99. A teaching hospital may increase the number of primary care residents that it
counts in the “base year limit” by up to three 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 hospital that received residents who were
transferred from a Veterans Affairs (VA) facility that lost its accreditation will not have those
individuals count toward its resident cap.
Effective Date. Enactment.
Section 408. Elimination of Certain Restrictions with Respect to Hospital Swing
Bed Program
Prior Law. In general, “swing beds” are inpatient hospital beds that may, under some
circumstances, be used to provide skilled nursing facility-type of services like those Medicare
covers for beneficiaries in skilled nursing facilities. Certain rural hospitals with fewer than 100
beds, and that have a certificate of need (CON) for such beds from the state health planning
and development agency, may receive payment from Medicare for Medicare-covered services
for beneficiaries who are swing bed patients and thus are no longer considered hospital
inpatients and are not paid for under Medicare’s inpatient rules. Restrictions apply to
Medicare coverage of swing beds for inpatient hospitals with more than 49 (but less than 100)
beds, including limitation to 5 working days for Medicare swing bed coverage if a skilled
nursing facility bed (other than one affiliated with a hospital) becomes available in the area,
unless a physician determines that transferring the patient would not be medically appropriate.
A hospital may designate no more that 15% of its total bed days as swing beds.
BBRA 99. Hospitals with swing beds are no longer required to have a state-issued CON
in order to operate a swing bed program with Medicare coverage, and restrictions on coverage
for hospitals with 50 to 100 swing beds are removed, including the requirement for transfer
of the patient to a freestanding skilled nursing facility after 5 days in a swing bed and the
limitation on the number of swing beds to 15% of the hospital’s bed days.
Effective Date. Effective on the first day after the end of the 3-year period during which
Medicare payments to skilled nursing facilities changes to a federal per diem payment under
the new SNF prospective payment system. In general, this effective date is the first cost

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reporting period starting during or after July 2001, at which time Medicare will pay for swing
bed care under the SNF prospective payment system.
Section 409. Grant Program for Rural Hospital Transition to Prospective Payment
Prior Law. BBA 97 replaced and modified the existing Essential Access Community
Hospital (EACH) program with the Medicare Rural Flexibility Program. As part of this
program, the Secretary was authorized to award grants to States that applied for grants for
development or approval of a rural health plan, for purposes of engaging in activities related
to planning and implementing a rural health care plan or rural health network, as well as for
activities related to designating facilities as critical access hospitals.
BBRA 99. Rural hospitals with fewer than 50 beds may 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.
Effective Date. Enactment.
Section 410. GAO Study on Geographic Reclassification
Prior Law. No provision.
BBRA 99. GAO is required 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.
Effective Date. Enactment.
Subtitle B — Other Rural Provisions
Section 411. MedPAC Study of Rural Providers
Prior Law. No provision.
BBRA 99. MedPAC is required to conduct a study of rural providers. The report, which
shall be submitted to Congress no later than 18 months of enactment, will evaluate the
adequacy and appropriateness of the categories of special Medicare payments (and payment
methodologies) for rural hospitals and address the impact of special payments on beneficiary
access and quality of health services.
Effective Date. Enactment.
Section 412. Expansion of Access to Paramedic Intercept Services in Rural Areas
Prior Law. BBA 97 authorized Medicare coverage of advanced life support (ALS)
services provided by a paramedic intercept service provider in a rural area when such service
is medically necessary for the individual being transported and is provided under contract with
one or more qualified volunteer ambulance services. The qualified volunteer ambulance
service is certified, provides only basic life support services, and is prohibited by state law from

CRS-35
billing for any of these services. The entity supplying the advanced life support service is
Medicare-certified and bills all recipients who receive ALS services, regardless of whether the
recipients are Medicare-eligible.
BBRA 99. The coverage of medically necessary ALS services provided by a paramedic
intercept service provider in a rural area is expanded 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).
Effective Date. Enactment.
Section 413. Promoting Prompt Implementation of Informatics, Telemedicine, and
Education Demonstration Project
Prior Law. BBA 97 authorized a telehealth demonstration project for beneficiaries with
diabetes mellitus in medically under served rural or inner city areas.
BBRA 99. The Secretary is required to award funding for the diabetes mellitus
telemedicine demonstration project no later than 3 months after enactment to the best technical
proposal that had been submitted as of the bill’s enactment date; the Secretary may not require
additional review of the proposal or require resubmission of the proposal. Qualified medically
under served areas are those that are federally designated as such at the time of a beneficiary’s
enrollment in this project. The project’s data requirements are changed. Cost sharing
requirements cannot be imposed on beneficiaries who enroll in the demonstration project.
Effective Date. Enactment.

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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
Section 501. Changes in Medicare+Choice Enrollment Rules
Prior Law. Beneficiaries enrolled in an Medicare+Choice (M+C) plan that terminates its
contract with HCFA are guaranteed access to certain Medicare supplemental insurance (i.e.,
Medigap) policies offered in their area of residence if they sign up within 63 days of their
Medicare+Choice plan termination. (Terminations generally occur at the end of the year.)
There is an annual election period during November of each year for the following year
when beneficiaries may enroll or disenroll from an M+C plan offered in their area. Currently,
beneficiaries, at their option, may enroll or disenroll at any time during the year. Beginning
in 2002, beneficiaries may change their election only once during the first 6 months of the year.
In 2003 and subsequent years they can change elections only once during the first 3 months
of the year. However, beginning in 2002, special election periods apply in case an M+C plan
terminates coverage.
BBRA 99. The provision specifies that, if an M+C plan announces its intention to
withdraw from the program, beneficiaries may elect to obtain a Medigap policy within 63 days
of such notification (rather than within 63 days of the termination date). Coverage under
Medigap becomes effective upon termination of coverage under the M+C plan. The provision
also clarifies that the special election periods which begin in 2002 apply to announcements of
impending terminations.
The provision further authorizes, after 2001, continuous open enrollment for
institutionalized persons. Under this provision, individuals may enroll in a M+C plan or change
their M+C plan enrollment.
Under certain conditions, a plan leaving an M+C payment area (typically a county) may
choose to offer enrollees in that county the option of continuing enrollment in the plan if it is
continuing as an M+C plan but in a different service area. The enrollees must agree to obtain
all basic services (excluding emergency and urgently needed care) exclusively at facilities
designated by the organization within the plan’s service area. Further, at the time of the
organization’s decision to offer such coverage, there can be no other M+C plans in the
enrollees’ area.
Effective Date. Generally applies with respect to notices and elections made on or after
enactment.

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Section 502. Change in Effective Date of Elections and Changes of Elections of
Medicare+Choice Plans
Prior Law. Changes in elections during continuous open enrollment periods were
effective on the first day of the first calendar month following the election.
BBRA 99. If elections or changes in elections are made after the 10th day of the month,
the effective date would be the second calendar month following the election.
Effective Date. January 1, 2000.
Section 503. Two-Year Extension of Medicare Cost Contracts
Prior Law. Prior to enactment of BBA 97, beneficiaries could enroll in health maintenance
organizations with cost contracts as well as those with risk contracts. Under cost contracts,
HMOs are paid on the basis of costs incurred in providing services. BBA 97 specified that
cost contracts could not be renewed after December 31, 2002.
BBRA 99. The cost contract program is extended through 2004.
Effective Date. Enactment.
Subtitle B — Provisions to Facilitate Implementation of the
Medicare+Choice Program
Section 511. Phase-In of New Risk Adjustment Methodology
Prior Law. M+C payments to plans are adjusted using only demographic factors,
including age, gender, coverage by Medicaid, institutionalized status, and working status. The
law requires the Secretary of Health and Human Services (HHS) to develop and then
implement a risk-adjustment payment methodology based on health status, effective January
1, 2000. The Secretary developed a method based on 15 principal inpatient diagnostic cost
groups (PIP-DCGs), along with a phase-in schedule. The Secretary also plans to develop a
new risk adjustment system for 2004 and beyond that would incorporate both inpatient and
outpatient diagnosis.
BBRA 99. The phase-in schedule proposed by the Secretary of HHS is modified. In 2000
and 2001, 10% of payments will include risk adjustment for health-status and demographics
and 90% will be based solely on demographic characteristics. In 2002, up to 20% of the
payments will be adjusted under the new risk system, with the remainder of the payment based
on adjustments for demographic characteristics. The BBRA provides for a Medicare Payment
Advisory Commission (MedPAC) study and report on the new risk adjustment procedure, as
well as a study and report by the Secretary of HHS regarding reporting of encounter data.
Effective Date. Enactment.

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Section 512. Encourage Offering of M+C Plans in Areas Without Plans
Prior Law. An M+C plan receives the payment rate applicable to the payment area
(typically a county) in which the enrollee resides, adjusted for risk. This rate is based on a
formula which assigns to the county the highest of three different rates: a floor; a minimum
update; or a blended rate. These rates are subject to a budget neutrality provision.
BBRA 99. A bonus payment is established to encourage new M+C plans to enter
counties that would otherwise not have a participating plan. The first plan to enter a
previously unserved county (or an area where all organizations announced their withdrawal
from the area as of October 13, 1999) will receive a 5% added payment during their first year
and a 3% added payment during their second year. The bonus will be available to plans which
are first offered during the 2-year period beginning on January 1, 2000.
Effective Date. Enactment.
Section 513. Modification of 5-Year Re-Entry Rule for Contract Terminations
Prior Law. The Secretary could not enter into an M+C contract if, within the preceding
5 years, that organization had an M+C contract which it did not renew. Exceptions could be
made in circumstances which warrant special consideration, as determined by the Secretary.
On October 6, 1999, the Secretary issued Operational Policy Letter #99.103. It specified that
special services exceptions would generally be granted when: (1) the organization is proposing
to introduce an M+C plan(s) in a geographic area(s) currently served by two or fewer M+C
plans; (2) the organization is proposing to introduce M+C plans in counties other than the
counties they had previously withdrawn from; or (3) the organization proposes to offer a
different M+C plan type than they had previously offered (for example a preferred provider
organization instead of an HMO).
BBRA 99. The provision reduces the general exclusion period to 2 years. A specific
exception is authorized where, during a 6-month period beginning on the date the organization
notifies the Secretary of its intent to terminate their M+C plan, there is a legislative change
enacted (or a regulatory change adopted) that has the effect of increasing the payment rates
for the area. The provision further specifies that nothing in this amendment is to be construed
to affect the authority of the Secretary to provide for additional exceptions, including those
provided in OPL99.103.
Effective Date. Applies to contract terminations occurring before, on, or after enactment.
Section 514. Continued Computation and Publication of Medicare Original Fee-
for-Service Expenditures on a County-Specific Basis
Prior Law. The Secretary is required to announce each year the M+C payment rates for
each payment area, as well as risk and other factors used in adjusting those payments. The
Secretary is not required to publish adjusted annual per capita cost (AAPCC) data.
BBRA 99. Beginning in 2001, the Secretary must provide county-level data for the
original Medicare fee-for-service program under Parts A and B for each M+C payment area.
Effective Date. Enactment.

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Section 515. Flexibility to Tailor Benefits Under Medicare+Choice Plans
Prior Law. Premiums, benefits, and cost-sharing may not be segmented among
individuals enrolled in the plan.
BBRA 99. Organizations may vary premiums, benefits, and cost-sharing across
individuals enrolled in the plan, so long as these are uniform within segments of a service area.
A segment is defined as one or more counties within the plan’s service area.
Effective Date. Contract years beginning on or after January 1, 2001.
Section 516. Delay in Deadline for Submission of Adjusted Community Rates
Prior Law. BBA 97 required M+C plans to submit adjusted community rate (ACR)
proposals by May 1 of the previous calendar year.
BBRA 99. The deadline is changed to July 1.
Effective Date. The provision applies to information submitted by M+C organizations
for years beginning with 1999.
Section 517. Reduction in Adjustment in National Per Capita Medicare+Choice
Growth Percentage for 2002
Prior Law. The calculation of the national per capita M+C growth percentage included
a negative adjustment of -0.5 percentage points annually from 1999-2002. The national per
capita M+C growth percentage is used to calculate blended M+C payment rates and the floor
payment rates.
BBRA 99. The adjustment for 2002 is -0.3 percentage points rather than -0.5 percentage
points.
Effective Date. Enactment.
Section 518. Deeming of Medicare+Choice Organization to Meet Requirements
Prior Law. A M+C organization is required to meet certain standards. It is deemed to
meet standards relating to quality assurance and confidentiality of records if it is accredited by
a private organization that applies standards that are no less strict than M+C standards
specified in law and regulations.
BBRA 99. The law requires the Secretary to recognize M+C accreditation standards
relating to quality assurance, anti-discrimination, access to services, confidentiality and
accuracy of enrollee records, information on advance directives, and provider participation
rules.
Within 210 days of receiving an application from a private accrediting organization, the
Secretary is required to determine whether such entity’s accreditation process meets the
requirements. The determination is to be made with respect to compliance with one or more
of the specified standards as detailed in the application. Nothing in this section is to be

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construed as limiting the Secretary’s authority under Section 1857 (relating to contracts with
M+C organizations) including the authority to terminate contracts.
Effective Date. Enactment.
Section 519. Timing of Medicare+Choice Health Information Fairs
Prior Law. There is an annual coordinated period in November of each year during which
beneficiaries may sign up for a M+C plan. Beginning in 2002, this will generally be the only
time that an election or change of election can be made. A nationally coordinated information
campaign is held in November each year to provide information to beneficiaries about plan
options.
BBRA 99. The campaign period is changed to the fall season.
Effective Date. Applies to campaigns conducted beginning in 2000.
Section 520. Quality Assurance Requirements for Preferred Provider Organization
Plans
Prior Law. M+C plans may be coordinated care plans including HMOs, provider
sponsored organizations, and preferred provider organizations (PPOs); they may also be
private fee-for-service plans or medical savings accounts. The M+C program requires that
participating plans maintain ongoing quality assurance programs. Quality assurance program
requirements have been more extensive for coordinated care plans (which rely on a network
of providers) than they are for private fee-for-service plans and medical savings accounts.
BBRA 99. PPOs are exempted from the requirements for a quality assurance program.
A PPO plan is defined as an M+C plan that: (1) has a network of providers that have agreed
to a contractually specified reimbursement for covered benefits with the organization offering
the plan; (2) provides for reimbursement for all covered benefits regardless of whether such
benefits are provided within such network of providers; and (3) is offered by an organization
that is not licensed or organized under state law as an HMO.
MedPAC is required to conduct a study on the appropriate quality improvement
standards that should apply to each type of M+C plan (including each type of coordinated care
plan) and the original fee-for-service program. The study is to examine the effects, costs, and
feasibility of requiring entities, physicians, and other health care providers to comply with
quality standards and related reporting requirements that are comparable to those applicable
to M+C organizations. Within 2 years of enactment, MedPac is required to submit a report
on the study, together with legislative recommendations, to the Congress.
Effective Date. The PPO exemption applies to contract years beginning on or after
January 1, 2000. The MedPAC requirement is effective on enactment.
Section 521. Clarification of Nonapplicability of Certain Provisions of Discharge
Planning Process to Medicare+Choice Plans
Prior Law. A hospital discharge planning evaluation must include an evaluation of a
patient’s need for appropriate post-hospital services including the availability of home health

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services through individuals and entities that serve both the area where the patient resides and
request to be listed by the hospital as available.
BBRA 99. The discharge planning process for beneficiaries enrolled in a M+C plan 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 M+C organization. Further, the
plan may specify or limit the provider or providers of post-hospital home health services or
other providers of post-hospital services under the plan.
Effective Date. Enactment.
Section 522. User Fee for Medicare+Choice Organizations Based on Number of
Enrolled Beneficiaries
Prior Law. The Secretary is required to collect a user fee from each M+C organization
for use in carrying out both the enrollment activities for the M+C program and the health
insurance and counseling assistance program. The user fee has been equal to the
organization’s pro rata share of the aggregate amount of the fees collected from M+C
organizations. Collection of fees was contingent on enactment of appropriations.
BBRA 99. An M+C organization’s share of total user fees is the same proportion as their
proportion of the total Medicare population; thus if a plan enrolls 1% of the Medicare
population it would be responsible for 1% of the costs. Up to $100 million is authorized each
year with the amount collected in user fees subtracted from the total. No further
appropriation is required.
Effective Date. Applies to fees charged on or after January 1, 2001. The Secretary may
not increase the fees for the 3-month period beginning October 1, 2000 over the level in effect
for the preceding 9 months.
Section 523. Clarification Regarding the Ability of a Religious Fraternal Benefit
Society to Operate Any Medicare+Choice Plan
Prior Law. The law permits religious fraternal benefit societies to restrict enrollment in
M+C plans to their members. This restriction has applied only to coordinated care plans.
BBRA 99. The authority is extended to all M+C plans.
Effective Date. Enactment.
Section 524. Rules Regarding Physician Referrals for Medicare+Choice
Organizations
Prior Law. It is unlawful for physicians who bill Medicare to refer patients to certain
entities if they have an ownership interest in or a compensation arrangement with the entity to
which the patient is referred. An exception to this prohibition is authorized for referrals to
certain specified health plans that agree to provide care on a prepaid basis.
BBRA 99. The exception is extended to M+C coordinated care plans.

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Effective Date. Applies to services furnished on or after the date of enactment.
Subtitle C — Demonstration Projects and Special Medicare
Populations
Section 531. Extension of Social Health Maintenance Organization Demonstration
(SHMO) Project Authority
Prior Law. The Deficit Reduction Act of 1984 required the Secretary of HHS to grant
3-year waivers for demonstrations of SHMOs which provide integrated health and long-term
care services on a prepaid capitation basis. The waivers have been extended on several
occasions since then, and a second generation of projects was authorized by the Omnibus
Budget Reconciliation Act of 1990. BBA 97 extended waivers for SHMOs through December
31, 2000, and expanded the number of persons who can be served per site to 36,000 (the prior
limit was 12,000). The Secretary is required to submit to Congress by January 1, 999, a report
with a plan for integration and transition of SHMOs into an option under Medicare+Choice.
BBRA 99. The provision 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.
Effective Date. Enactment.
Section 532. Extension of Medicare Community Nursing Organization
Demonstration Project
Prior Law. The Community Nursing Organization (CNO) demonstration project was
established as a social experiment to evaluate the ability of community nursing organizations
to deliver coordinated community nursing and ambulatory care services to Medicare Part B
beneficiaries for fixed capitated payments. Originally authorized in OBRA 87, the project
began operation in 1994 and was scheduled to operate in four sites through 1997.
BBRA 99. The CNO demonstration is extended for 2 years, but the total federal
expenditures for it are required to be budget neutral; that is, the capitation payments must be
set at a level such that the expenditures per beneficiary are the same as would be expended per
beneficiary in regular Part B Medicare. The Secretary is required to report to Congress on the
results of the demonstration by July 1, 2001.
Section 533. Medicare +Choice Competitive Bidding Demonstration Project
Prior Law. BBA 97 requires the Secretary to establish a demonstration project under
which payments to Medicare+Choice organizations are determined by a competitive pricing
methodology, in accordance with the recommendations of the Competitive Pricing Advisory
Committee (CPAC), the composition and responsibilities of which were also established by
BBA 97.

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BBRA 99. The implementation of the Medicare+Choice Competitive Bidding
Demonstration project is delayed until January 1, 2002, or, if later, 6 months after the
Competitive Pricing Advisory Committee (CPAC) submits reports on (a) incorporating
original fee-for-service Medicare into the demonstration; (b) quality assurance 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.
Effective Date. Enactment.
Section 534. Extension of Medicare Municipal Health Services Demonstration
Projects
Prior Law. The municipal health services demonstration program is a multisite
demonstration intended to improve access to primary care services in underserved urban areas
and to reduce the cost of health care. BBA 97 authorized the Secretary to extend the project
through December 31, 2000, but only with respect to persons who had received at least one
service for the period January 1, 1996 - August 7, 1997 (enactment of BBA 97). Sites wishing
the extension were required to submit plans for the orderly transition of participants to a non-
demonstration health care delivery system.
BBRA 99. The project is extended through December 31, 2002.
Effective Date. Enactment.
Section 535. Medicare Coordinated Care Demonstration Project
Prior Law. BBA 97 provided for a coordinated care demonstration project in a cancer
hospital. Funds would only be available as provided for in any law making appropriations for
the District of Columbia.
BBRA 99. The law provides for the transfer of funds from the Medicare trust funds of
such funds as are necessary to cover the costs of the project including the costs for information
infrastructure and recurring costs of case management services, flexible benefits, and program
management.
Effective Date. Enactment.
Subtitle D — Medicare+Choice Nursing and Allied Health
Professional Education Payments
Section 541. Medicare +Choice Nursing and Allied Health Professional Education
Payments
Prior Law. Medicare calculation of managed care rates includes the additional payments
to teaching hospitals operating residency training programs. BBA 97 reduced these rates by
carving out the costs attributable to graduate medical education payments for physicians. The

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payment reduction is phased in over 5 years. Teaching hospitals will receive additional
payments depending upon the number of Medicare managed care beneficiaries they serve.
BBRA 99. Hospitals with approved nursing and allied health professional training
programs would receive additional Medicare payments to reflect utilization of
Medicare+Choice enrollees. In no case would the total payment under this section exceed $60
million.
Effective Date. Enactment.
Subtitle E — Studies and Reports
Section 551. Report on Accounting for VA and DOD Expenditures for Medicare
Beneficiaries.
Prior Law. No provision.
BBRA 99. The Secretaries of HHS, DOD, and VA are required 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.
Effective Date. Enactment.
Section 552. Medicare Payment Advisory Commission Studies and Reports
Prior Law. No provision.
BBRA 99. MedPAC is required to conduct a study on the development of a M+C
payment methodology for the frail elderly enrolled under a special program for the frail elderly.
The methodology is to: (1) account for the prevalence, mix, and severity of chronic conditions
among these beneficiaries; (2) include medical diagnostic factors from all provider settings
(including hospital and nursing facilty settings); and (3) include functional indicators of health
status and such other factors as may be necessary to achieve appropriate payments for plans
serving these beneficiaries. MedPac is required to submit a report on the study to Congress,
within 1 year of enactment, together with any legislative recommendations deemed
appropriate.
MedPAC is also required to submit a report to Congress, within 1 year of enactment, on
specific legislative changes that should be made to make medical savings accounts a viable
option under M+C.
Effective Dates. Enactment.
Section 553. GAO Studies, Audits, and Reports
Prior Law. No provision.
BBRA 99. GAO is required to conduct a study on the following issues related to
Medigap policies: (1) the level of coverage provided by each type of policy; (2) the current

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enrollment levels in each type of policy; (3) the availability of each type of policy to
beneficiaries over age 65½; (4) the number and type of Medigap policies offered in each state;
and (5) the average out-of-pocket costs (including premiums) per beneficiary under each type
of Medigap policy. GAO is required to report to Congress, by July 31, 2001, on the study
together with any legislative recommendation deemed appropriate.
Beginning in 2000, GAO is required to conduct an annual audit of the expenditures made
by HHS during the preceding year in providing information on the M+C program to Medicare
beneficiaries. GAO is to submit a report to Congress on the results of the audit for the
preceding three years together with an evaluation of the effectiveness of the means used by the
Secretary in providing the information. Reports on the audit are due not later than March 31
of 2001, 2004, 2007, and 2010.
Effective Date. Enactment.
Other Medicare-Related Provisions in P.L. 106-113
P.L. 106-113 included a few Medicare provisions which were not part of the Medicare
section.
Section 211 of General Provisions in Title II, Department of Health and Human
Services (HHS) (Medicare+Choice abortion language — No section title)
Prior Law. Medicare does not pay for abortions except in the case of rape or incest or
where the life of the mother is in danger. The FY1999 appropriations language for HHS
prohibited the Secretary from denying an eligible organization from participating in the M+C
program because it has indicated it will not provide, pay for, or provide referrals for abortion
services. Participating M+C organizations are responsible for informing enrollees where to
obtain information about all covered Medicare services.
Section 211 of Title II of HHS. Section 211 includes similar language for FY2000.
Effective Date. Enactment.
Section 217 of General Provisions in Title II, HHS. Study and Report on the
Geographic Adjustment Factors Under the Medicare Program
Prior Law. Payments for physicians’ services are made on the basis of a fee schedule.
The fee schedule assigns relative values to services. The relative values reflect physician work,
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.
Section 217 of Title II, HHS. The section requires the Secretary to conduct a study on
the reasons why, and the appropriateness of the fact that the geographic adjustment factor is
lower for physicians services provided in New Mexico than for such services provided in
Arizona, Colorado and Texas. The study is also to consider the effect that the level of the
geographic adjustment factor has on the recruitment and retention of physicians in small rural

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states including New Mexico, Iowa, Louisiana, and Arkansas. The Secretary is required to
report to Congress, within 3 months of enactment, on the study together with any
recommendations for legislative changes determined appropriate.
Effective Date. Enactment.
Section 219 of General Provisions in Title II, HHS. (Medicare drug provision. No
section title)
Prior Law. In general, Medicare does not cover outpatient prescription drugs. It does,
however, cover drugs that can not be self-administered. On August 13, 1997, HCFA issued
a memorandum to Medicare carriers stating that the inability to self-administer is to be based
on the typical means of administration of the drug, not on the individual patient’s ability to
administer the drug.
Section 219 of Title II, HHS. The provision prohibits the use of any funds to carry out
the transmittal or to promulgate any regulation or other transmittal or policy directive that has
the effect of imposing (or clarifying the imposition of) a restriction on the coverage of
injectable drugs beyond those applied on the day before issuance of the transmittal. The
prohibition is effective for FY2000.
Effective Date. Enactment.