Major Provisions of the Medicare Modernization and Prescription Drug Act of 2002, H.R. 4954, as Passed by the House

Major Provisions of the Medicare Modernization and Prescription Drug Act of 2002, H.R. 4954, as Passed by the House

Order Code RL31462
Report for Congress
Received through the CRS Web
Major Provisions of the Medicare Modernization
and Prescription Drug Act of 2002,
H.R. 4954, as Passed by the House
Updated July 5, 2002
Jennifer O’Sullivan, Hinda Ripps Chaikind, and Sibyl Tilson
Specialists in Social Legislation
Domestic Social Policy Division
Congressional Research Service ˜ The Library of Congress

Major Provisions of the Medicare Modernization
and Prescription Drug Act of 2002,
H.R. 4954, as Passed by the House
Summary
On June 28, 2002, the House passed H.R. 4954, the Medicare Modernization
and Prescription Drug Act of 2002. This bill represents a reconciliation of the slight
differences in measures reported by the two House Committees, Ways and Means
and Energy and Commerce, which share jurisdiction over the Medicare program.
This bill would establish a voluntary Medicare prescription drug benefit under
a new Part D. The bill would rely on private plans to provide coverage and to bear
some of the financial risk for drug costs; federal subsidies would be provided to
encourage participation. Coverage would be provided through prescription drug
plans (PDPs) or Medicare+Choice (M+C) plans. Beneficiaries could purchase either
a standard plan or an actuarially equivalent plan. For 2005, “standard coverage”
would be defined as having a $250 deductible, 20% cost-sharing for drug costs
between $251 and $1,000, 50% cost-sharing for drug costs between $1,001 and the
initial coverage limit of $2,000, and then no coverage until the beneficiary had out-
of-pocket costs of $3,700 ($4,800 in total spending); once the beneficiary reached
the $3,700 catastrophic limit full coverage would be provided. Low income
subsidies would be provided for persons with incomes below 175% of poverty.
The Medicare+Choice (M+C) provisions of this bill would increase payments
to M+C plans and establish a new M+C payment system based on competitive
bidding. Additionally, this bill would establish a four-site demonstration program
for “competitive demonstration areas” that have a high concentration of M+C
enrollees. Part B premium amounts for fee-for-service Medicare beneficiaries in
these demonstration sites could also be adjusted. The bill would make a number of
other changes to the M+C program, including permanently changing reporting dates
and deadlines, creating specialized M+C plans for special needs beneficiaries,
permanently extending M+C savings accounts (MSAs) and other changes.
Additionally, H.R. 4954 would increase funding and make other changes to the
Medicare program for services provided by hospitals, home health agencies, skilled
nursing facilities, physicians, durable medical equipment suppliers, and others. The
bill would also establish a new Medicare Benefits Administration to administer the
prescription drug and Medicare+Choice programs. In addition, the bill includes a
number of regulatory reforms.
This report will be updated, as necessary, to reflect additional legislative action.

Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Provisions of H.R. 4954, as Passed by the House . . . . . . . . . . . . . . . . . . . . . . . . . 3
Drug Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
In General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Program Design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Administration; Financial Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Pricing; Cost Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Low-Income Subsidies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Relationship to Other Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Drug Card; Transitional Low-Income Assistance . . . . . . . . . . . . . . . . . . . . 10
Medicare+Choice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Medicare+Choice Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Other Major Medicare+Choice Provisions . . . . . . . . . . . . . . . . . . . . . . . . . 15
Provider Payment Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Inpatient Hospital Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Rural Providers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Graduate Medical Education Reimbursement . . . . . . . . . . . . . . . . . . . . . . . 18
Skilled Nursing Facilities (SNFs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Hospice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Home Health . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Physicians . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Durable Medical Equipment (DME) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Ambulance Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Physical and Occupational Therapy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Renal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Physicals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Part B Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
New Administrative Entity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Medicare Benefits Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Administrative and Procedural Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Changes to Issuing Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Changes to Medicare’s Claims Processing Contracts . . . . . . . . . . . . . . . . . 25
Changes in Medicare’s Appeal Processes . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Provider Education Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Changes in Medicare’s Provider Audit and Overpayment Recovery
Processes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Major Provisions of the Medicare
Modernization and Prescription Drug Act of
2002, H.R. 4954,as Passed by the House
Introduction
On June 28, 2002, the House passed H.R. 4954, the Medicare Modernization
and Prescription Drug Act of 2002. Two House committees share jurisdiction over
Medicare and took action on the bill. The House Ways and Means Committee
ordered reported the Chairman’s amendment to H.R. 4954, on June 18, 2002, and
filed its report (H. Rept. 107-537) on June 26, 2002. The House Energy and
Commerce Committee ordered reported similar legislation on June 21, 2002. The
Commerce Committee had broken the measure (which included some non-Medicare
provisions) into 12 bills which were reported on June 26, 2002. (H.Rept. 107-540,
H.Rept. 107-541, H.Rept. 107-542, H.Rept. 107-549, H.Rept. 107-550, and H.Rept.
107-551 were on the Medicare provisions). The differences between the two bills
were resolved and incorporated into an amendment to H.R. 4954 submitted to the
House Rules Committee on June 27, 2002; the Rules Committee reported a rule
(H.Res. 465) for consideration of the bill on the same day. The bill passed the House
by a vote of 221-208.1
This bill would establish a voluntary Medicare prescription drug benefit under
a new Part D. The bill would rely on private plans to provide coverage and to bear
some of the financial risk for drug costs; federal subsidies would be provided to
encourage participation. Coverage would be provided through prescription drug
plans (PDPs) or Medicare+Choice (M+C) plans. Beneficiaries could purchase either
a standard plan or an actuarially equivalent plan. For 2005, “standard coverage”
would be defined as having a $250 deductible, 20% cost-sharing for drug costs
between $251 and $1,000, 50% cost-sharing for drug costs between $1,001 and the
initial coverage limit of $2,000, and then no coverage until the beneficiary had out-
of-pocket costs of $3,700 ($4,800 in total spending); once the beneficiary reached the
$3,700 catastrophic limit full coverage would be provided. Low income subsidies
would be provided for persons with incomes below 175% of poverty.
The M+C provisions of this bill would increase payments to M+C plans and
establish a new M+C payment system based on competitive bidding. Additionally,
this bill would establish a four-site demonstration program for “competitive
demonstration areas” that have a high concentration of M+C enrollees. Part B
premium amounts for fee-for-service Medicare beneficiaries in these demonstration
1 For the complete text of the House-passed bill see: Congressional Record, v.148, no.89,
June 27, 2002, H4226-H4270.

CRS-2
sites could also be adjusted. The bill would make a number of other changes to the
M+C program, including permanently changing reporting dates and deadlines,
creating specialized M+C plans for special needs beneficiaries, permanently
extending M+C medical savings accounts (MSAs), and other changes.
Additionally, H.R. 4954 would increase funding and make other changes to the
Medicare program for services provided by hospitals, home health agencies, skilled
nursing facilities, physicians, and others. It would require competitive bidding for
suppliers of durable medical equipment. The bill would also establish a new
Medicare Benefits Administration to administer the prescription drug and
Medicare+Choice programs. In addition, the bill includes a number of regulatory
reforms.
For more detailed information on the Medicare issues discussed in the paper, see
the following: 1) CRS Report RL30819, Medicare Prescription Drug Coverage for
Beneficiaries: Background and Issues; 2) CRS Report RL31199, Medicare:
Payments to Physicians; 3) CRS Report RL30587, Medicare+Choice Payments; 4)
CRS Report RL30702, Medicare+Choice; 5) CRS Report RL31058, Medicare
Structural Reform: Background and Options; and 6) CRS Report RL31023,
Summary of the Medicare Regulatory and Contracting Reform Act of 2001.

CRS-3
Provisions of H.R. 4954, as Passed by the House

Drug Provisions
In General
Provisions
Current law
H.R. 4954
Summary
Medicare does not cover most outpatient prescription
Effective January 1, 2005, a new optional benefit would
drugs.
be established under a new Part D. The program would
rely on private plans to provide coverage and to bear
some of the financial risk for drug costs; federal subsidies
would be provided to encourage participation. Coverage
would be provided through prescription drug plans
(PDPs) or Medicare+Choice (M+C) plans. Beneficiaries
could purchase either a standard plan or an actuarially
equivalent plan. Low income subsidies would be
provided for persons with incomes below 175% of
poverty. A new Medicare Benefits Administration
(MBA) would be established within the Department of
Health and Human Services (HHS) to administer the
benefit and the M+C program.
Program Design
Provisions
Current law
H.R. 4954
Benefits
No
provision
“Qualified coverage” would be either
“standard
coverage” or “actuarially equivalent coverage.” In 2005,
“standard coverage” would be defined as having a $250
deductible, 20% cost-sharing for drug costs between $251
and $1,000, 50% cost-sharing for drug costs between
$1,001 and the initial coverage limit of $2,000, and then
no coverage until the beneficiary had out-of-pocket costs
of $3,700 ($4,800 in total spending); once the beneficiary
reached the $3,700 catastrophic limit full coverage would
be provided. The dollar amounts would be increased in

CRS-4
Provisions
Current law
H.R. 4954
future years by the percentage increase in the average per
capita expenditures for covered drugs for the year ending
the previous July. Out-of-pocket costs counting toward
the limit would include costs paid by the individual (or by
another individual such as a family member), paid on
behalf of a low-income individual under the subsidy
provisions, or paid under Medicaid. Any costs for which
the individual was reimbursed by insurance or by another
third-party payment arrangement could not be counted.
Plans could offer more generous drug coverage, if
approved by the MBA Administrator.
Premiums
No provision
The plan sponsor would establish the premium amount,
subject to approval by the Administrator. The premium
for a prescription drug plan could not vary among
individuals enrolled in the plan in the same service area,
unless the individuals were subject to penalties for late
enrollment. Premiums would be paid to the plans.
However, PDP sponsors would be required to permit each
enrollee to pay premiums through withholding from
social security checks in the same manner Part B
premium payments are withheld through an electronic
funds transfer.
Eligibility
No provision
All beneficiaries enrolled in Medicare Part A or Part B
could elect to enroll in Part D through enrollment in a
Medicare+Choice plan with prescription drug coverage or
in a PDP. The Administrator of the new MBA would
establish an enrollment process. An initial election period
would be established. For current beneficiaries this
would be the 6-month period beginning November 2004;
for future beneficiaries it would be the same 7-month
period applicable for initial Part B enrollment. Special
election periods would apply for persons who
involuntarily lose other drug coverage. Persons electing
coverage at the first opportunity and maintaining
continuous coverage would be guaranteed the protection
of community rating.

CRS-5
Provisions
Current law
H.R. 4954
Relationship to Medicare+Choice
No provision
A Medicare+Choice enrollee would obtain benefits
through the Medicare+Choice plan if the plan provided
qualified drug coverage. A Medicare+Choice plan could
not offer drug coverage (other than that already required
under Medicare) unless the coverage was at least qualified
prescription drug coverage.
Administration; Financial Risk
Provisions
Current law
H.R. 4954
Federal administration
No provision
The new MBA, within HHS, would administer the new
Part D drug benefit and the Medicare+Choice program.
(The Centers for Medicare and Medicaid Services (CMS)
would retain responsibility for the traditional fee-for-
service program.) A Medicare Policy Advisory Board
would be established within the MBA.
Administration of benefit
No provision
The benefit would be administered by a Medicare+Choice
plan or PDP. A PDP plan sponsor would be an entity
certified under Part D as meeting the Part D standards and
requirements. In general, a PDP sponsor would have to
be licensed under state law as a risk bearing entity eligible
to offer health benefits or health insurance coverage in
each state in which it offered a prescription drug plan.
Establishment of plan/benefit
No provision
Each PDP sponsor would be required to submit to the
MBA Administrator information on the qualified drug
coverage to be provided, including the premium. The
Administrator could not approve the premium unless it
accurately reflected: 1) the value of benefits provided;
and 2) the 67% federal subsidy for standard benefits (see
below). PDP plan sponsors would be required to enter
into a contract with the Administrator; the contract could
cover more than one plan. The Administrator would have
the same authority to negotiate the terms and conditions
of the plans as the Director of Personnel Management has
with respect to Federal Employee Health Benefits (FEHB)
plans.

CRS-6
Provisions
Current law
H.R. 4954
Plan enrollment
No
provision
Beneficiaries would enroll in a M+C
plan
with
prescription drug coverage or in a PDP.
Federal payments to plans
No provision
The federal government would pay direct subsidies and
reinsurance payments to PDPs, Medicare+Choice plans,
and qualified retiree plans which would equal 67% of the
value of standard coverage. Direct subsidies would be
equal to 37% of the value of standard coverage provided
under the plan. Reinsurance payments would be equal to
30% of the value of standard coverage. Reinsurance
payments would be provided for: 1) 30% of an
individual’s allowable drug costs over the initial
copayment threshold ($1,000 in 2005) but not over the
initial coverage limit ($2,000 in 2005); and 2) 80% for
costs over the out-of-pocket limit ($3,700 in 2005). The
Administrator would proportionately adjust payments so
that total reinsurance payments for the year equaled 30%
of total payments by qualifying plans for standard
coverage during the year. The Administrator could adjust
direct subsidy payments in order to avoid risk selection.
Assumption of financial risk
No provision
Plans would be required to assume full financial risk on
a prospective basis for covered benefits except: 1) as
covered by federal direct subsidy payments or reinsurance
payments for high cost enrollees; or 2) as covered by
federal incentive payments to encourage plans to expand
service areas for existing plans or establish new plans.
The entity could obtain insurance or make other
arrangements for the cost of coverage provided to
enrollees.
Access
No
provision
The Administrator would assure that all
eligible
individuals residing in the U.S. would have a choice of
enrollment in at least two qualifying plan options (at least
one of which was a PDP) in their area of residence. The
requirement would not be satisfied if only one PDP
sponsor or M+C organization offered all the qualifying
plans in the area. If necessary to ensure such access, the
Administrator would be authorized to provide financial

CRS-7
Provisions
Current law
H.R. 4954
incentives, including the partial underwriting of risk, for
a PDP sponsor to expand its service area under an existing
prescription drug plan to adjoining or additional areas, or
to establish such a plan, including offering such plan on
a regional or nationwide basis. The assistance would be
available only so long as, and to the extent necessary, to
assure the guaranteed access. However, the
Administrator could never provide for the full
underwriting of financial risk for any PDP sponsor, nor
could the Administrator provide for any assumption of
financial risk for a public PDP sponsor offering a
nationwide drug plan. Additionally, the Administrator
would be directed to seek to maximize the assumption of
financial risk by PDP sponsors and M+C organizations.
Pricing; Cost Controls
Provisions
Current law
H.R. 4954
Drug pricing and payment
No provision
The PDP sponsor would determine payments and would
be expected to negotiate discounts.
Access to negotiated prices
No provision
Both standard coverage and actuarially equivalent
coverage would have to provide beneficiaries access to
negotiated prices (including applicable discounts) even
when no benefits may be payable because the beneficiary
has reached the initial coverage limit.
Cost controls/formularies
No provision
Plans would be allowed to have formularies restricting
coverage to certain drugs. Plans electing to use a
formulary would be required to establish a pharmaceutical
and therapeutic committee (that included at least one
practicing physician and one practicing pharmacist) to
develop and revise the formulary. The formulary would
be required to include drugs within all therapeutic
categories and classes of covered drugs (although not
necessarily for all drugs within such categories and
classes). An enrollee would have the right to appeal to
obtain coverage for a drug not on the formulary if the
prescribing physician determined that the formulary drug

CRS-8
Provisions
Current law
H.R. 4954
was not as effective for the individual or had adverse
effects for the individual.
Requirements
Provisions
Current law
H.R. 4954
Beneficiary protections
No provision
Plans would be required to comply with a number of
beneficiary protection provisions including those related
to: 1) community-rated premiums; 2) non-discrimination;
3) information disclosure; 4) assuring the participation of
a sufficient number of pharmacies; 5) issuance of a card
so beneficiaries could assure access to negotiated prices
when coverage is not otherwise available under the plan;
6) a cost and drug utilization management program
including medication therapy management and an
electronic prescription drug program that provides for
electronic transfer of prescriptions and provision of
information to the prescribing health professional; and
7) provisions for hearing appeals and resolving
grievances.
Low-Income Subsidies
Provisions
Current law
H.R. 4954
Subsidies
No provision
Low-income persons would receive a premium subsidy
(based on the value of standard coverage). Individuals
with incomes at or below 150% of poverty (and assets
below $4,000) would have a subsidy equal to 100% of the
value of standard drug coverage provided under the plan.
Individuals with incomes between 150% and 175% of
poverty would have a sliding scale premium subsidy
ranging from 100% of such value at 150% of poverty to
0% of such value at 175% of poverty. For both groups,
beneficiary cost-sharing for spending up to the initial
coverage limit ($2,000 in 2005) would be reduced to an
amount not to exceed $2 for a multiple source or generic
drug and $5 for a non-preferred drug. PDPs could not

CRS-9
Provisions
Current law
H.R. 4954
charge individuals receiving cost-sharing subsidies more
than $5 per prescription. PDPs could reduce to zero the
cost-sharing otherwise applicable for generic drugs.
Relationship to Other Coverage
Provisions
Current law
H.R. 4954
Relationship to Medicaid
Some low-income Medicare beneficiaries are also eligible
States would be required to make eligibility
for full Medicaid benefits (including drugs); these are
determinations for low-income subsidies; there would be
known as dual eligibles. Some low-income Medicare
a phase-in of the federal assumption of associated
beneficiaries are only entitled to Medicaid assistance for
administrative costs. (Alternatively, the eligibility
Medicare Part B premiums, and, in certain cases,
determinations could be made by the Social Security
Medicare cost-sharing charges.
Administration.) There would also be a federal phase-in
of the costs of premiums and cost-sharing subsidies for
dual eligibles. States would be required to maintain
Medicaid benefits as a wrap around to Medicare benefits
for dual eligibles; states could require that these persons
elect Part D drug coverage.
The bill would also exempt any prices negotiated by a
PDP, Medicare+Choice plan, or qualified retiree program
from Medicaid’s determination of “best price” for
purposes of the Medicaid drug rebate program.
Relationship to private plans
No provision
Qualified prescription drug plans offered by employers to
retirees would be eligible for direct subsidies and
reinsurance payments. At a minimum, qualified retiree
coverage would have to meet the requirements for
qualified prescription drug coverage.
Relationship to Medigap
Beneficiaries with Medigap insurance generally select
Effective January 1, 2005, the issuance of new Medigap
from one of 10 standardized plans, though not all 10 plans
policies with prescription drug coverage would be
are offered in all states. The 10 plans are known as Plans
prohibited unless 1) the policies replace another policy
A through Plan J. Plans H, I, and J offer some drug
with drug coverage; or 2) policies met requirements for
coverage.
two new standardized policies. The first new policy
would have the following benefits (notwithstanding other
provisions of law relating to core benefits): 1) coverage
of 50% of the cost-sharing otherwise applicable (except

CRS-10
Provisions
Current law
H.R. 4954
coverage of 100% cost-sharing applicable for preventive
benefits); 2) no coverage of the Part B deductible; 3)
coverage of all hospital coinsurance for long stays (as in
current core package); and 4) a limitation on annual out-
of-pocket costs of $4,000 in 2005 (increased in future
years by an appropriate inflation adjustment as specified
by the Secretary). The second new policy would have the
same benefit structure as the first new policy, except that:
1) coverage would be provided for 75%, rather than 50%,
of cost-sharing otherwise applicable; and 2) the limitation
on out-of-pocket costs would be $2,000, rather than
$4,000. Both policies could provide for coverage of Part
D cost-sharing; however, neither policy could cover the
Part D deductible. The bill would require plans to sell
any of the Plans A through Plan G to certain persons;
these are individuals who enroll in Part D within 63 days
and who were covered until then by Medigap policy H, I,
or J.
Drug Card; Transitional Low-Income Assistance
Provisions
Current law
H.R. 4954
Discount Drug Card Program
On July 12, 2001, the President announced a new national
The provision would require the Secretary to endorse
drug discount card program for Medicare beneficiaries, an
prescription drug discount programs meeting certain
initiative undertaken by the Administration without direct
requirements and to make available information on
statutory authorization. Under this program, CMS would
such programs to beneficiaries. The program: 1)
endorse drug card programs meeting certain requirements.
would have to pass on to enrollees discounts on drugs,
This program was viewed as an interim step until a
including discounts negotiated with manufacturers; 2)
legislative reform package, including both a drug benefit
could not be limited to mail order drugs; 3) would have
and other Medicare reforms, was enacted. Implementation
to provide pharmaceutical support services, such as
of the drug discount card program was delayed by court
education and counseling, and services to prevent
action. However, CMS was allowed to proceed with rule-
adverse drug interactions; 4) would have to provide
making. On March 6, 2002, CMS issued proposed rule-
information to enrollees that the Secretary identified as
making.
being necessary to provide for informed choice by
beneficiaries among endorsed programs; 5) would have
to safeguard individually identifiable information in
accordance with the Health Insurance Portability and

CRS-11
Provisions
Current law
H.R. 4954
accountability Act (HIPAA); and 6) would have to
meet requirements the Secretary found necesssary to
participate in the transitional low-income assistance
program (see below). A beneficiary could only be
enrolled in one endorsed program at a time. Annual
enrollment fees could not exceed $25. The Secretary
would provide for an appropriate transition and
discontinuance of the card program at the time benefits
became available under the new Part D.
Transitional Low-Income Assistance Program
No provision
The bill would provide for the implementation of a
transitional prescription drug assistance program for
Medicare beneficiaries with incomes under 175% of
poverty who did not have drug coverage under
Medicaid, Medigap, group health insurance, or
federally-supported health care programs under the
Department of Defense, Veterans Administration,
Federal Employees Health Benefits program, or the
Indian Health Care Improvement Act. Individuals
eligible for assistance would have to be enrolled under
a prescription drug discount card program (or an
alternative state program approved by the Secretary).
Appropriations totaling $300 million in FY 2003, $2.1
billion in FY 2004, and $500 million in FY 2005 would
be available. Funds would be allotted among the states
based on the proportion of Medicare beneficiaries with
incomes below 175% of poverty. The assistance would
be in the form of a discount in addition to that available
under the discount card program. States could continue
to provide assistance under their own pharmaceutical
assistance programs.
Medicare+Choice

CRS-12
Medicare+Choice Payments
Provisions
Current law
H.R. 4954
Medicare+Choice (M+C) Payments
M+C plans are paid an administered monthly payment
This provision would modify current law payments for 2003
amount, (M+C payment rate), for each enrollee. The
and 2004, and add a fourth amount, based on 100% of fee-
payment area rate is the highest of one of three amounts:
for-service (FFS) costs, set at the adjusted average per capita
1) a minimum payment (floor) rate, 2) a blend of an
cost (AAPCC) for that year. The AAPCC would include
area-specific (local) rate and a national rate, or 3) a
costs for FFS beneficiaries only and not the costs for M+C
minimum increase from the prior year’s rate.
enrollees. Two adjustments would be made to the AAPCC:
1) to remove direct medical education costs, and 2) to include
Each year, the three payment amounts are updated by
payments that would have been made for services provided
formulas set in statute. Both the floor and the blend are
to Medicare beneficiaries, who instead used services from the
updated by a measure of growth in program spending, the
Departments of Veterans Affairs (VA) and Defense (DOD).
national growth percentage. The minimum increase is 2%
over the prior year’s amount.
Adjustments would also be made to the blend: 1) revise the
After preliminary M+C payment rates are determined, a
national average, to reflect only M+C enrollees, not all
budget neutrality adjustment is required to determine final
beneficiaries; 2) no budget neutrality adjustment, and 3)
payment rates. This adjustment is made so that estimated
include VA and DOD amounts (described above) in the area-
total M+C payments in a given year will be equal to the
specific rate. Budget neutrality would be eliminated in 2003.
total payments that would be made if payments were based
For 2003 and 2004, the minimum percentage increase would
solely on area-specific rates. The budget neutrality
be 3% above the previous year’s amount. New payment
adjustment may only be applied to the blended rates
rates would be announced within 4 weeks after enactment.
because rates cannot be reduced below the floor or
minimum increase amounts. The blend payment is also
adjusted to remove the direct and indirect costs of
graduate medical education.
Medicare+Choice Competition Program
See Current law description, above, of Medicare+Choice
Beginning in 2005, there would be a new M+C payment
(M+C) Payments
based on competitive bidding amounts. A benchmark
amount would be set for each payment area and plans would
develop a bid amount. Enrollees would be eligible for
rebates, under certain circumstances.
The Administrator could negotiate and/or reject monthly bid
amounts (including portions of the bid), that are not
supported by the actuarial bases provided by plans.
The FFS area-specific non-drug benchmark amount would be
set at the largest of one of three amounts; 1) the minimum

CRS-13
Provisions
Current law
H.R. 4954
update amount, 2) the minimum percentage increase amount,
or 3) a percentage of FFS costs (100% of FFS in 2005-2007
and 95% FFS thereafter). While the FFS payment
mechanism established for 2003 and 2004 (described above)
would exclude only the direct costs of graduate medical
education, the FFS payments in the competition program
would exclude both direct and indirect graduate medical
education costs.
Both the benchmark and the bids would be risk adjusted
based on county or statewide assumptions, or based on a
determination by the Administrator.
If the risk adjusted benchmark exceeded the risk adjusted bid
(for statutory non-drug benefits), beneficiaries would qualify
for rebates of 75% of the difference. The government would
retain the remaining 25% of the difference. If instead, the
monthly bid exceeded the benchmark, then enrollees would
pay the difference, in the form of an increased M+C
premium. Plans would be paid based on their bid amounts.
For plans with bids below the benchmark, their payment
would be the bid amount, risk adjusted for demographic and
health status factors, plus the rebate amount. The rebate
amount would be distributed to the plan’s enrollees by one of
the approved methods. For plans with bids at or above the
benchmark, their payments would equal the benchmark
amount, risk adjusted for demographic and health status
factors. Effective for payments and premiums for months
beginning with January 2005.
Demonstration Program for competitive-demonstration
See Current law description, above, of Medicare+Choice
This provision would establish a demonstration program for
areas
(M+C) Payments
“competitive-demonstration areas” defined as an area with a
substantial number of M+C enrollees that during open season
offers at least two M+C plans by different organizations, and
that during March of the previous year had at least 50% of
M+C eligibles enrolled in an M+C plan. The demonstration
program would be limited to a maximum of four sites and no

CRS-14
Provisions
Current law
H.R. 4954
area could be designated as a competitive-demonstration area
for more than 2 years. The Administrator would have the
authority to choose a demonstration area, from among
qualified areas.
Similar to the competition program, a benchmark amount
would be set for each payment area and plans would develop
a bid amount. The Administrator would set the annual
choice non-drug benchmark amount, defined as the sum of
the weighted FFS and M+C components. The weighted FFS
component equals the national FFS market share for the year
(defined as the nationwide proportion of M+C eligibles
during March of the previous year who were not enrolled in
an M+C plan) multiplied by the FFS area-specific non-drug
bid (100% of the FFS payment mechanism adjusted to
exclude graduate medical education costs and include
Veterans Administration (VA) and Department of Defense
(DOD) costs for Medicare beneficiaries). The M+C
component equals 1 minus the FFS market share for the year
multiplied by the weighted average of plan bids for the area
and year. The weighted average of plan bids equals the sum
of the proportion of each plan’s enrollees in the area times
the unadjusted monthly non-drug bid amount, as calculated
for each plan.
Rebates (or additional required premiums) and payments to
plans would be calculated in a similar method as that used for
the Medicare competition program.
FFS beneficiaries in competitive areas, could have an
adjustment made to their Medicare Part B premium. If the
FFS area specific non-drug bid was less than or equal to the
choice non-drug benchmark, the Part B premium would be
reduced by 75% of the difference. However, if the FFS area
specific non-drug bid was greater than the choice non-drug
benchmark, then the Part B premium would be increased by
the full amount of the difference. Effective January 1, 2005.

CRS-15
Other Major Medicare+Choice Provisions
Provisions
Current law
H.R. 4954
Permanent changes to reporting deadlines and annual,
The Public Health Security and Bioterrorism
This provision would permanently extend the deadline
coordinated election period
Preparedness and Response Act of 2002, P.L. 107-188,
changes that were temporarily changed by P.L. 107-188.
made temporary changes to reporting dates and deadlines:
CMS would make its annual announcement of payment
1) the M+C payment rate announcement moved from no
rates no later than the second Monday in May of each year.
later than March 1 to no later than the second Monday in
The deadline for plans to submit their information would
May for 2003 and 2004, 2) the plan deadline for
be no later than the second Monday in September. The
submitting ACRs and other information moved from no
annual coordinated election period would take place from
later than July 1 to no later than the second Monday in
November 15 through December 31 of each year.
September for 2002, 2003, and 2004, and 3) the annual
coordinated election period moved from the month of
November to November 15 through December 31 for
2002, 2003, and 2004.
Specialized Medicare+Choice plans for special needs
One model for providing a specialized M+C plan,
This provision would establish a new M+C option –
beneficiaries
EverCare, operates as a demonstration program.
specialized M+C plans for special needs beneficiaries
EverCare, is designed to study the effectiveness of
(such as the EverCare demonstration). Special needs
managing acute-care needs of nursing home residents by
beneficiaries are defined as those M+C eligible individuals
pairing physicians and geriatric nurse practitioners.
who are institutionalized, entitled to Medicaid, or meet
EverCare, receives a fixed capitated payment, based on a
requirements determined by the Secretary. Enrollment in
percentage of the AAPCC, for all nursing home resident
specialized M+C plans could be limited to special needs
Medicare enrollees.
beneficiaries until January 1, 2007.
Medical Savings Accounts (MSAs)
The Balanced Budget Act authorized a demonstration for
This provision would eliminate the requirement for quality
M+C MSAs. The M+C option combines a high-
assurance programs for M+C MSAs. It would
deductible health insurance plan with an M+C MSA.
permanently extend M+C MSAs and remove the
New enrollment is not allowed after 2003 or after the
enrollment cap. Non-contract M+C MSA providers would
number of enrollees reaches 390,000. However, to date,
be subject to the same balanced billing limitations as non-
no private plans have established an M+C MSA for
contract coordinated care M+C plan providers.
Medicare beneficiaries.

CRS-16
Provisions
Current law
H.R. 4954
Extension of reasonable cost contracts
Cost-based plans are reimbursed by Medicare for the
This provision would allow a reasonable cost contract to be
actual cost of furnishing covered services, less the
extended or renewed beyond December 31, 2004 if there
estimated value of beneficiary cost sharing. The
were no coordinated care M+C plans in its service area. A
Secretary can not extend or renew a reasonable cost
cost contract could re-enter a previously served area if all
reimbursement contract for any period beyond December
other coordinated care M+C plans in the area terminated
31, 2004.
their contracts.
Extension of Social Health Maintenance Organizations
The Deficit Reduction Act of 1984 established a 3-year
The provisions would further extend the waivers
(SHMO) demonstration
SHMO demonstration to provide prepaid, capitated
permitting operation of SHMOs through December 31,
payments for integrated health and long-term care
2004. Nothing would prevent a SHMO from offering an
services. The demonstration has been extended several
M+C plan.
times.
Provider Payment Provisions
Inpatient Hospital Services
Provisions
Current law
H.R. 4954
Increase in hospital update factor
Each year, Medicare’s operating payments to hospitals are
For FY2003, the hospital update factor would be MBI-
increased or updated by a factor that is determined in part
0.25 percentage points for all hospitals except sole
by the projected increase in the hospital market basket
community hospitals (SCHs) which would receive an
index (MBI). Currently, the update factor is set at MBI-
update factor of the MBI.
0.55 percentage points for FY2002 and FY2003 and at the
MBI for subsequent years.
Transition to one standardized amount
Under its prospective payment system (PPS), Medicare
For FY2003 discharges, the per discharge payment for
pays acute hospitals in large urban areas using a
hospitals in other areas would be increased by half the
standardized amount (or payment per discharge) that is
difference between the current amount and the larger
1.6% larger than the standardized amount used to
payment to hospitals in large urban areas. For FY2004,
reimburse hospitals in other areas (both rural areas and
the Secretary would compute an updated payment amount
smaller urban areas).
for hospitals in large urban areas which would be used to
pay all hospitals. Starting in FY2005, the Secretary would
compute an updated payment amount for all hospitals
which would be used to pay all hospitals.
Relief for Certain Non-Teaching Hospitals
BBA 97 provided temporary special payment for certain
Certain non-teaching hospitals would receive an additional
hospitals that did not receive a teaching or a
increase of 5 percentage points in its annual update for

CRS-17
Provisions
Current law
H.R. 4954
disproportionate share hospital (DSH) adjustment. To
FY2003, FY2004, and FY2005 respectively. Non-
qualify, a hospital had to be in a state where this subset of
teaching hospitals in rural areas would qualify if all rural
hospitals collectively had a negative PPS operating margin
hospitals in the state (including rural teaching hospitals)
(that is, had Medicare allowable operating costs greater
had a negative PPS operating margin in FY1999. Non-
than Medicare operating prospective payments) AND had
teaching hospitals in urban areas would qualify if all urban
to have a negative PPS operating margin for the fiscal year
hospitals in the state (including teaching hospitals) had a
in question. Qualifying hospitals received a 0.5% update
PPS operating margin that is less than 103% in FY1999.
in FY1998 (when other hospitals received a 0% update)
and a 0.8% update in FY1999 (when other hospitals
received a 0.5% update).
Increase in Disproportionate Share Hospital (DSH)
Medicare makes additional payments to certain acute
Starting for FY2003 discharges, the DSH adjustment for
adjustment
hospitals that serve a large number of low income
certain hospitals would be based on a blend of their
Medicare and Medicaid patients. Different formulas are
current DSH adjustment and the current DSH adjustment
used to establish a hospital’s DSH payment adjustment,
for large urban hospitals; this new DSH adjustment would
depending upon the hospital’s location, number of beds
be capped at 10% for most hospitals. A hospital’s new
and status as a rural referral center or sole community
DSH adjustment would be calculated on a blended
hospital.
transition basis which would be completed in FY2007.
Recognition of new technology in inpatient hospital
BIPA established that Medicare’s inpatient hospital
The Secretary would be required to establish certain
payments
payment system should include a mechanism to recognize
thresholds to indicate whether DRG payments are
the costs of new medical services and technologies for
inadequate and would be directed to identify distinct
discharges beginning on or after October 1, 2001. The
DRGs in preference to add-on payments for new
additional hospital payments can be made by the means of
technology wherever possible. The Secretary would be
a new technology groups, an add-on payment, a payment
required to deem that a technology provides substantial
adjustment, or other mechanism, but cannot be a separate
improvement on an existing treatment depending upon
fee schedule and must be budget-neutral.
FDA’s treatment of such technology. Other requirements
with respect to new technology would also be established.
Rural Providers
Provisions
Current law
H.R. 4954
Changes to critical access hospital payments
Critical access hospitals (CAHs) are limited-service
The Secretary would be required to specify standards for
hospitals that provide 24-hour emergency care services
determining whether a CAH has significant seasonal
with no more than 15 acute care beds or up 25 beds,
variations in patient admissions to warrant a 5-bed
including 10 swing beds, in limited cases. CAHs are not
increase and still retain its CAH classification. Certain
eligible for periodic interim payments (PIP) for their
hospitals with swing bed agreements would be able to use
inpatient services.
up to 25 beds for acute care services at any given time as
long as no more than 10 beds were ever used for long-term
care services. Such hospitals would not be eligible for the
increase in their bed limit for seasonal variations. Starting

CRS-18
Provisions
Current law
H.R. 4954
with payments made on or after January 1, 2003, eligible
CAHs would be able to receive payments made on a PIP
basis for inpatient services. Other provisions that would
affect CAHs are included.
Extension of the Rural Hospital Flexibility Grant Program
The Rural Hospital Flexibility Grant Program that awards
The provision would extend the grant program which
grants to states for certain rural health care planning,
permits annual appropriations from the Medicare’s Federal
implementation and development activities and to
Hospital Insurance Trust Fund of $25 million through
hospitals that have applied to be CAHs for certain
FY2007.
purposes expires in FY2002.
Graduate Medical Education Reimbursement
Provisions
Current law
H.R. 4954
Increase in Indirect Medical Education (IME) Adjustment
Medicare makes additional payments to teaching hospitals
This provision would set the IME adjustment at 6% in
using an adjustment based on a formula that incorporates
FY2003, 5.9% in FY2004 and 5.5% for FY2005.
the number of residents to beds in the hospital. Currently
the IME adjustment is set at 6.5% in FY2002 and 5.5%
for FY2003 and subsequently.
Redistribution of unused resident positions
With certain exceptions, Medicare limits the total number
Starting in January 1, 2003, if a teaching hospital’s
of residents in a hospital’s approved teaching programs
resident reference level (or the number of residents at the
that are reimbursed based on the number that were
hospital in a given time period) is less than its applicable
reported by the hospital in its cost reporting period ending
resident limit, its total number of Medicare-reimbursed
on or before December 31, 1996. The cap is calculated as
resident positions would be reduced by 75% of the
a 3-year rolling average, that is, the resident count will be
difference. The resident reference level would be the
based on the average of the resident count in the current
highest number of allopathic and osteopathic resident
year and the 2 preceding years.
position (before the application of any weighting factors)
for the hospital during the reference period. The Secretary
would be authorized to increase the resident limits by an
aggregate number that does not exceed the overall
reduction in such limits. The Secretary would first
distribute the increased residents to programs in hospital
located in rural areas and hospitals in smaller urban areas
on a first-come-first-served basis with certain restrictions.
No more than 25 positions would be given to any hospitals
and would be reimbursed at the locality adjusted national
average per resident amount. Reductions in residents

CRS-19
Provisions
Current law
H.R. 4954
would affect a hospital’s IME adjustment, but increased
counts would not affect a hospital’s IME adjustment.
Extension of update limitation on high cost programs
Medicare pays hospitals for its share of direct graduate
Hospitals with PRAs above 140% of the geographically
medical education (DGME) costs in approved programs.
adjusted national average amount in FY2001 or FY2002
Hospitals with per resident amounts (PRA) above 140% of
would receive those amounts through FY2012.
an adjusted national average amount had payments frozen
for FY2001 and FY2002, and would receive a limited
update in FY2003-FY2005.
Skilled Nursing Facilities (SNFs)
Provisions
Current law
H.R. 4954
Payments
Medicare uses a system of daily rates to pay for care in a
The bill would provide for an the increase in the nursing
SNF. There are 44 daily rate categories, known as
component of each RUG, over and above the rates
resource utilization groups (RUGS). BIPA 2000 increased
specified in the final rule published July 2000, and
the skilled nursing care component of each RUG (for the
subsequently updated, of 12% in FY2003, 10% in FY2004,
April 2000 - September 2002 period) by 16.66% over and
and 8% in FY2005.
above the RUG rates for SNF care as specified in the July
2000 regulations, and subsequently updated.
Hospice
Provisions
Current law
H.R. 4954
Payments
Medicare pays for hospice care for terminally ill
The Medicare daily payment rate for hospice care
beneficiaries at daily rates that differ depending on the
furnished in a frontier area would be increased by 10%
level of care, i.e., routine home care, continuous home
for services furnished on or after January 1, 2003, and
care, inpatient respite care, and general inpatient care.
before January 1, 2008.
Home Health
Provisions
Current law
H.R. 4954
Payments
In the first year of the home health PPS (FY2001),
The adjustment to PPS rates based on the 15% reduction
payments to home health agencies were to be calculated
in the per visit and per beneficiary limits would be
so that, in that year, Medicare total spending for home
eliminated.
health care would be the same as it would have been had

CRS-20
Provisions
Current law
H.R. 4954
the previous payment system remained in effect, but with
the cost of the previous system calculated to include a
15% cut to limits on payments per visit and per
beneficiary. However, Congress postponed the
adjustment to PPS rates based on the 15% cut to October
1, 2002.
Payment updates
Home health PPS amounts are updated annually by the
The implementation updates to the home health PPS
increase in the home health market basket index minus
amounts would be changed from the start of a fiscal year
1.1 percentage points in FY2002 and FY2003 and by the
to the start of a calendar year. Payments would be
full increase in the market basket index in subsequent
increased by 2.0 percentage points for 2003; by 1.1
years.
percentage points for 2004; and by 2.7percentage points
for 2005.
Outcome and Assessment Information Set (OASIS)
BBA 97 authorized the Secretary to require all home
The Secretary would be required to establish and appoint
health agencies to submit information that the Secretary
a task force, the OASIS Task Force, to examine the data
considered necessary for development of a reliable case
collection and reporting requirements under OASIS.
mix system. The Secretary has implemented OASIS;
agencies are required to collect OASIS data and report
information to their state survey agency.
Physicians
Provisions
Current law
H.R. 4954
Payments
Medicare pays for services of physicians and certain non-
For 2003, the update to the conversion factor would be
physician practitioners on the basis of a fee schedule. The
set at 2%. The calculation for 2004 and 2005 would be
fee schedule assigns relative values to services which are
modified, thereby making it less likely that physician
adjusted for geographic variations in costs. The adjusted
spending would reach levels that would trigger reductions
relative values are then converted into a dollar payment
in the conversion factor. When calculating the update
amount by a conversion factor. The conversion factor for
adjustment factor for 2004 and 2005, actual 2002
2002 dropped 5.4% from the 2001 amount; updates for
spending data would be used as the measure of allowable
the next several years are also projected to be negative.
costs for 2002. In addition, spending from January 1,
The law provides a formula for calculating the annual
2002, rather than April 1, 1996 would be used as the
update to the conversion factor. Several factors enter into
beginning date for calculating the base period for the SGR
the calculation of the formula including: 1) the
calculation. The provision would also modify the formula
sustainable growth rate (SGR), which is essentially a
for calculating the sustainable growth rate. For 2003,
target for Medicare spending growth for physicians’
2004, and 2005, 1 percentage point would be added to the
services; and 2) the Medicare economic index (MEI),
GDP factor. The provision would also make a permanent

CRS-21
Provisions
Current law
H.R. 4954
which measures inflation in the inputs needed to produce
change in the computation of the GDP, beginning for
physicians’ services; and 3) an adjustment that modifies
2002. It would replace the current factor which measures
the update, which would otherwise be allowable by the
the 1-year change from the preceding year with the
MEI, to bring spending in line with the SGR target. The
annual average change over the preceding 10 years.
fee schedule update reflects the success or failure in
meeting the target. If expenditures exceed the target, the
update for a future year is reduced. One component of
the SGR is the gross domestic product (GDP)
Studies
No provision
GAO would be required to: 1) conduct a study on access
of beneficiaries to physicians’ services; and 2) conduct a
study on geographic differences in the physician fee
schedule.
Durable Medical Equipment (DME)
Provisions
Current law
H.R. 4954
Competitive acquisition
BBA 97 authorized the Secretary to conduct up to five
The provision would replace the current demonstration
demonstration projects to test competitive bidding as a
authority. It would require the Secretary to establish and
way for Medicare to price and pay for Part B services
implement programs under which competitive acquisition
other than physician services. Medicare has implemented
areas were established throughout the U.S. The areas
competitive bidding demonstrations for durable medical
could differ for different items and services. The
equipment, prosthetics, orthotics, and supplies.
programs would be phased-in over a period of not longer
than 3 years with competition under the programs
occurring in at least one-third of the areas in 2004 and at
least two-thirds of the areas in 2005. Items and services
covered under the programs would be: 1) DME paid for
by Medicare (except for products used in infusion) and
inhalation drugs used in connection with DME; and
2) “off-the-shelf orthotics.” The Secretary would be
required to conduct a competition among entities
supplying covered items and services for each
competitive acquisition area in which the program was
implemented for such items and services. The Secretary
would award contracts to more than one entity submitting
a bid in each area for an item or service. Payments could
not be made for services provided by a contractor in a

CRS-22
Provisions
Current law
H.R. 4954
competition area unless the contractor had submitted a bid
and the Secretary had awarded a contract to the entity.
Ambulance Services
Provisions
Current law
H.R. 4954
Payments
BBA 97 provided for the phase-in of a national fee
The provision would substitute a new phase-in
schedule. The fee schedule became effective April 1,
methodology and lengthen the phase-in schedule. The
2002. By regulation, it is to be phased-in over the April
phase-in calculation would be based on a blend of the
2002-January 2006 period. Under the phase-in schedule,
national fee schedule and a regional fee schedule. The
a gradually decreasing portion of the payment is based on
regional fee schedule would be established by the
the previously existing payment methodology (reasonable
Secretary for each of the nine census regions using the
charges or reasonable costs) and a gradually increasing
methodology used for calculating the regional conversion
percentage on the national fee schedule. In 2002, the
factor and regional mileage rate used for the national fee
blend is 80% of existing payments and 20% of the fee
schedule. It would also use the same payment
schedule. The blend is 60%/40% in 2003, 40%/60% in
adjustments and the same relative value units as used for
2004, and 20%/80% in 2005. Beginning in 2006, the
the national fee schedule. In 2003, the blended rate
payment is to be based entirely on the fee schedule.
would be based 20% on the national fee schedule and
80% on the regional fee schedule. The blend would be
40%/60% in 2004, 60%/40% in 2005, and 80%/20% in
2006. Beginning in 2007, the payment would be based
entirely on the national fee schedule. Payments for trips
above 50 miles would be increased by at least one-quarter
of the amount otherwise established under the fee
schedule.
Physical and Occupational Therapy
Provisions
Current law
H.R. 4954
Therapy caps
BBA 97 established annual payment limits for all
Application of the therapy caps would be suspended for
outpatient therapy services provided by non-hospital
an additional 2 years through 2004.
providers. 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. BBRA 99 suspended application of the

CRS-23
Provisions
Current law
H.R. 4954
therapy limits in 2000 and 2001. BIPA extended the
suspension through 2002.
Renal
Provisions
Current law
H.R. 4954
Payments
Dialysis facilities providing care to beneficiaries with
The composite rate would be increased 1.2% for services
end-stage renal disease (ESRD) receive a fixed
furnished in 2004.
prospective payment amount for each dialysis treatment.
Beneficiaries
Physicals
Provisions
Current law
H.R. 4954
Initial preventive physical
Medicare covers a number of preventive services.
The program would cover an initial preventive physical
However, it does not cover routine physical examinations.
examination provided by a physician for persons first
covered under Part B on or after January 1, 2004.
Covered services would be physicians services, excluding
clinical laboratory tests. The exam would be covered if
performed within the first 6 months of Part B coverage.
The Part B deductible and coinsurance would be waived
for initial preventive physical exams.
Part B Premiums
Provisions
Current Law
H.R. 4954
Part B Premiums
Beneficiaries who delay enrollment ion Part B after their
Military retirees and their dependents over age 65 who
initial enrollment period are subject to a late enrollment
delayed enrollment in Part B would not be subject to a
period.
late enrollment penalty if they enrolled in Part B in 2001,
2002, or 2003. The provision would apply to premiums
beginning January 2003.

CRS-24
New Administrative Entity
Medicare Benefits Administration
Provisions
Current law
H.R. 4954
Establishment of a new agency within Health and Human
Medicare’s administrative structure is not specified in
An agency, the Medicare Benefits Administration (MBA),
Services (HHS)
statute. Currently, the Centers for Medicare and Medicaid
would be established within HHS to administer Parts C
Services has responsibility for administering the Medicare
and D of Medicare (the Medicare+Choice and the
Program.
prescription drug programs). The Secretary would ensure
appropriate coordination between the Administrators of
MBA and CMS.
Specified positions and divisions within the MBA
Certain provisions require that (1) the Administrator of
The MBA would be headed by an Administrator
the Health Care Financing Administration (HCFA, now
appointed by the President with the advice and consent of
known as CMS) be appointed by the President with the
the Senate for a 5-year term. The MBA would also have
advice and consent of the Senate and be paid at level III
a Deputy Administrator and a Chief Actuary with certain
of the Executive Schedule and (2) the HCFA
responsibilities. The Secretary would be required to
administrator appoint a Chief Actuary who reports
establish an Office of Beneficiary Assistance as a separate
directly to such administrator and is paid at the highest
operating division within the MBA.
rate of basic pay for the Senior Executive Service.
Exemptions from certain federal personnel requirements
No provision
The MBA Administrator would be able to hire employees
without regard to certain laws relating to hiring of federal
personnel and other employment matters with the
approval of the Secretary. This staff would be paid
without regard certain laws relating to classification and
pay schedules. There is a restriction on the number of
employees that could be hired.
Medicare Policy Advisory Board
No provision
A Medicare Policy Advisory Board would be established
within the MBA to advise, consult with, and make
recommendations to the MBA Administrator with respect
to Parts C and D.

CRS-25
Administrative and Procedural Changes
Changes to Issuing Regulations
Provisions
Current law
H.R. 4954
Issuance of regulations
The Secretary is required to prescribe regulations that are
The Secretary would be required to issue proposed, final
necessary to administer Parts A, B and C of the Medicare
and interim final regulations on one business day of every
program.
month except under certain limited circumstances.
Regular timeline for publication of final rules
The Secretary must publish a proposed regulation in the
The Secretary would be required, in consultation with
Federal Register, with at least 60 days to solicit public
OMB, to establish and publish a regular timeline for the
comment, before issuing the final regulation with certain
publication of final regulations. Timelines would vary
exceptions. The Secretary must publish in the Federal
depending upon regulatory complexity and the scope of
Register no less frequently than every 3 months a list of
public comments, but would not be longer than 3 years
all manual instructions, interpretative rules, statements of
except under exceptional circumstances.
policy, and guidelines which are promulgated to carry out
Medicare’s law.
Changes to Medicare’s Claims Processing Contracts
Provisions
Current law
H.R. 4954
Eligible entities
The Secretary is required to contract with certain entities
Section 1874A would be added to the Social Security Act
to process and pay Medicare claims.
to permit the Secretary to enter into contracts with any
eligible entity to serve as a Medicare administrative
contractor.
Contracting requirements
Certain terms and conditions of the
contracting
The Secretary would use competitive procedures when
agreements for FIs and carriers are specified in the
entering into such a Medicare contract, taking into
Medicare statute. Medicare regulations coupled with
account performance quality as well as price and other
long-standing agency practices have further limited the
factors. The Secretary would provide incentives to
way that contracts for claims administration services can
provide quality service and to promote efficiency.
be established.

CRS-26
Changes in Medicare’s Appeal Processes
Provisions
Current law
H.R. 4954
Transfer Administrative Law Judges (ALJs) from Social
Medicare beneficiaries and, in certain circumstances,
By October 1, 2003, the Commissioner of SSA and the
Security Administration (SSA) to Health and Human
providers and suppliers of health care services may appeal
Secretary would develop and transmit to Congress a plan
Services (HHS)
claims that are denied or payments that are reduced. A
to transfer the functions of the administrative law judges
hearing by an administrative law judge (ALJ) in the
(ALJs) who are responsible for hearing Medicare and
Social Security Administration (SSA) with review by the
Medicare related cases from SSA to HHS. ALJ functions
Department Appeals Board (DAB) are components of the
would be transferred no earlier than July 1, 2004 and no
administrative appeals process.
later than October 1, 2004.
Expedited access to judicial review
Section 521 of BIPA (which is not yet implemented)
The Secretary would establish a process where a provider,
amends Section 1869 to establish deadlines for filing
supplier, and a beneficiary who has filed an appeal may
appeals and for making decisions in the Medicare appeals
obtain access to judicial review when a review panel
process. In general, administrative appeals must be
determines, within 60 days of a written request and
exhausted prior to judicial review.
submission of supporting documentation, that no entity
has the authority to decide the question of law or
regulation and where material facts are not in dispute.
The decision would not be subject to review by the
Secretary. These provisions would apply to appeals filed
on or after October 1, 2003
Provider Education Changes
Provisions
Current law
H.R. 4954
Provider education activities
Medicare’s provider education activities are funded
The Secretary would be required to (1) coordinate the
through the program management appropriation and
educational activities provided through the Medicare
through Education and Training component of the
administrative and MIP contractors and (2) to implement
Medicare Integrity Program (MIP). Both claims
a methodology to measure the specific claims payment
processing contractors (FIs and carriers) and MIP
error rates of each contractor.
contractors may undertake provider education activities.
Communication with providers
No provision
By October 1, 2003, the Secretary and each contractor
would be required to maintain an Internet site which
provides answers to frequently asked questions in an
easily accessible form and other materials. Other
contractor requirements with respect to toll-free telephone
lines and written responses to written inquiries would also
be established.

CRS-27
Provisions
Current law
H.R. 4954
Medicare provider and beneficiary ombudsman
No provision
The Secretary would be required to appoint a Medicare
Provider and Beneficiary Ombudsman no later than 1
year from enactment to provide assistance to providers,
suppliers, and beneficiaries. The Ombudsman would not
advocate any payment increases or coverage changes but
may identify related issues and problems with payment
and coverage policies.
Changes in Medicare’s Provider Audit and Overpayment Recovery Processes
Provisions
Current law
H.R. 4954
Prepayment review
No
provision.
No later than a year from
enactment,
Medicare
contractors would be permitted to conduct random
prepayment reviews in accordance with standard protocol
developed by the Secretary. Non-random payment
reviews would be permitted only under certain
circumstances.
Recovering overpayments
No provision.
Repayment plans would be established under certain
circumstances when repayment would cause hardship.
Use of extrapolation to establish overpayment amounts
would be subject to limits. Requirements for the consent
settlement process would be established.
Protection for providers who rely on erroneous guidance
No provision
Providers and suppliers who follow written guidance
(which may be transmitted electronically) from the
Secretary or Medicare contractors would not be subject to
any sanction under certain circumstances.