Side-by-Side Comparison of Medicare, Medicaid, and SCHIP Provisions in the Deficit Reduction Act of 2005

Side-by-Side Comparison of Medicare, Medicaid, and SCHIP Provisions in the Deficit Reduction Act of 2005

Order Code RL33251
CRS Report for Congress
Received through the CRS Web
Side-by-Side Comparison of Medicare,
Medicaid, and SCHIP Provisions
in the Deficit Reduction Act of 2005
January 30, 2006
Karen Tritz, Sibyl Tilson, Julie Stone, Chris Peterson, Jennifer
O’Sullivan, Paulette C. Morgan, Elicia J. Herz, Jean Hearne, Jim
Hahn, April Grady, Hinda Chaikind, and Evelyne P. Baumrucker
Analysts and Specialists in Health Insurance and Financing
Domestic Social Policy Division
Congressional Research Service ˜ The Library of Congress

Side-by-Side Comparison of Medicare, Medicaid, and
SCHIP Provisions in the Deficit Reduction Act of 2005
Summary
On December 19, 2005, the House agreed to a conference report on S. 1932.
However, the Senate amended the report, removing a few provisions as the result of
a point of order raised associated with the “Byrd Rule.” The amended agreement
passed the Senate on December 21, 2005, and was returned to the House for further
action. It is expected that the agreement will be taken up in the early part of the
session.
This report provides a comparison of Medicare, Medicaid and State Child
Health Insurance Program provisions contained in the Deficit Reduction Act of 2005
(S. 1932) as amended and passed by the Senate. The report compares the bill’s
provisions with current law.
This report will be updated.

Contents
Medicare’s update factor to increase operating payments
to acute-care hospitals as affected by submission
of quality data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Value-based purchasing for acute care hospitals . . . . . . . . . . . . . . . . . . 2
DRG Adjustment for Certain Hospital Acquired Infections . . . . . . . . . 3
Clarification of Inclusion of Medicaid Patient Days
in Medicare’s Computation of its Disproportionate
Share Hospital (DSH) Adjustment . . . . . . . . . . . . . . . . . . . . . . . . 4
Improvements to the Medicare-Dependent Hospital
(MDH) Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Reduction in Payments to Skilled Nursing Facilities (SNFs)
for Bad Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Extend Phase-in of the Inpatient Rehabilitation Facility
(IRF) Compliance Thresholds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Development of a Strategic Plan Regarding
Physician Investment in Specialty Hospitals . . . . . . . . . . . . . . . . . 6
Gainsharing Demonstration Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Post-acute Care Payment Reform Demonstration Program . . . . . . . . . . 8
Beneficiary ownership of certain DME and Oxygen equipment . . . . . . 9
Adjustments in Payments for Imaging Services . . . . . . . . . . . . . . . . . 10
Limitation on Medicare Payments for Procedures
in Ambulatory Care Surgical Centers (ASCs) . . . . . . . . . . . . . . . 11
Update for Physicians’ Services for 2006 . . . . . . . . . . . . . . . . . . . . . . 12
Three Year Hold Harmless Transition for Small Rural Hospitals
Into the Outpatient Prospective Payment System (OPPS) . . . . . . 14
Update to the Composite Rate Component of the Basic Case-Mix
Adjusted Prospective Payment System for Dialysis Services . . . 14
Revisions to Payments for Therapy Services . . . . . . . . . . . . . . . . . . . . 15
Accelerated Implementation of Income-Related Reduction
in Part B Premium Subsidy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Medicare Coverage of Ultrasound Screening for
Abdominal Aortic Aneurysms . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Improving Patient Access to, and Utilization of,
Colorectal Cancer Screening Under Medicare . . . . . . . . . . . . . . . 18
Delivery of Services at Federally Qualified Health Centers
(FQHC) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Waiver of Part B Late Enrollment Penalty for
Certain International Volunteers . . . . . . . . . . . . . . . . . . . . . . . . . 18
Home health payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Revision of period for providing payment for claims
that are submitted electronically . . . . . . . . . . . . . . . . . . . . . . . . . 20
Time frame for part A and B payments . . . . . . . . . . . . . . . . . . . . . . . . 20
Increase in Medicare Integrity Program (MIP) Funding . . . . . . . . . . . 21
Phase-out of risk adjustment budget neutrality in determining
the amount of payments to Medicare Advantage
organizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Establishment of PACE Provider Grant Program . . . . . . . . . . . . . . . . 24

Title VI. Medicaid and SCHIP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Subtitle A. Medicaid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Chapter 1. Payment for Prescription Drugs . . . . . . . . . . . . . . . . . . . . . . . . 26
Modification of Federal Upper Payment Limit for
Multiple Source Drugs; Definition of Multiple Source Drugs . . 26
Disclosure of Price Information
to States and the Public . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Definition of Average Manufacturer Price . . . . . . . . . . . . . . . . . . . . . 27
Exclusion of Sales at a Nominal Price from Determination
of Best Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Retail Survey Prices; State Payment and
Utilization Rates; and Performance Rankings . . . . . . . . . . . . . . . 29
Miscellaneous Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Effective Date for Prescription Drug Provisions . . . . . . . . . . . . . . . . . 31
Collection and Submission of Utilization Data for
Certain Physician Administered Drugs . . . . . . . . . . . . . . . . . . . . 31
Collection and Submission of Utilization Data for
Certain Physician Administered Drugs . . . . . . . . . . . . . . . . . . . . 32
Children’s Hospital Participation in Drug Discount Program . . . . . . . 33
Chapter 2. Asset Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Lengthening Look-Back Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Change in Beginning Date for Period of Ineligibility . . . . . . . . . . . . . 35
Effective Date Section 6011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Availability of Hardship Waivers; Additional Provisions
on Hardship Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Disclosure and Treatment of Annuities . . . . . . . . . . . . . . . . . . . . . . . . 36
Application of “Income-First” Rule in Applying
Community Spouse’s Income Before Assets in
Providing Support of Community Spouse . . . . . . . . . . . . . . . . . . 39
Disqualification for Long-Term Care Assistance
for Individuals with Substantial Home Equity . . . . . . . . . . . . . . . 41
Enforceability of Continuing Care Retirement Communities
(CCRC) and Life Care Community Admission Contracts . . . . . . 42
Requirement to Impose Partial Months of Ineligibility . . . . . . . . . . . . 44
Authority for States to Accumulate Multiple Transfers into
One Penalty Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Inclusion of Transfer of Certain Notes and Loans Assets . . . . . . . . . . 46
Inclusion of Transfers to Purchase Life Estates . . . . . . . . . . . . . . . . . . 47
Effective Date for Section 6016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Expansion of State Long-Term Care Partnership Program . . . . . . . . . 49
Chapter 3. Eliminating Fraud, Waste, and Abuse in Medicaid . . . . . . . . . . 57
Encouraging the Enactment of State False Claims Acts . . . . . . . . . . . 57
Employee Education About False Claims Recovery . . . . . . . . . . . . . . 57
Prohibition on Restocking and Double Billing of
Prescription Drugs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Medicaid Integrity Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Enhancing Third Party Identification and Payment . . . . . . . . . . . . . . . 59
Improved Enforcement of Documentation Requirements . . . . . . . . . . 60
Chapter 4. Flexibility in Cost Sharing and Benefits . . . . . . . . . . . . . . . . . . 62
State Option for Alternative Premiums and Cost Sharing . . . . . . . . . . 62
General Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Specified Groups Exempt from Premiums . . . . . . . . . . . . . . . . . . . . . 63

Specified Groups and Services Exempt from
Service-Related Cost Sharing . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Beneficiary Conditions For Continued Medicaid Enrollment
and Receipt of Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Indexing Nominal Cost Sharing and Conforming Amendment . . . . . . 65
Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Special Rules for Cost Sharing for Prescription Drugs . . . . . . . . . . . . 65
Limitations on cost-sharing for non-preferred drugs . . . . . . . . . . . . . . 66
Special conditions and applicable cost-sharing . . . . . . . . . . . . . . . . . . 66
Flexibility regarding drugs excluded from cost sharing provisions . . . 66
Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Emergency Room Co-Payments for Non-Emergency Care . . . . . . . . . 66
Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Provider Obligations Regarding Emergency Services . . . . . . . . . . . . . 67
Provider Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Grants to Establish Alternative Non-Emergency
Provider Networks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Use of Benchmark Packages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Full Benefit Eligible Individuals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Exempted Groups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Standard Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Wrap-Around Benefits for Children Only . . . . . . . . . . . . . . . . . . . . . . 73
Treatment of Rural Health Clinics (RHCs) and
Federally Qualified Health Centers (FQHCs) . . . . . . . . . . . . . . . 73
Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Chapter 5. State Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Managed Care Organization Provider Tax . . . . . . . . . . . . . . . . . . . . . 74
Reforms of Case Management and Targeted
Case Management (TCM) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Additional FMAP Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
DSH Allotment for the District of Columbia . . . . . . . . . . . . . . . . . . . . 76
Increase In Medicaid Payments to the Insular Areas . . . . . . . . . . . . . . 76
Subchapter A — Family Opportunity Act . . . . . . . . . . . . . . . . . . . . . . 78
Opportunity for Families of Disabled Children
to Purchase Medicaid Coverage for Such Children . . . . . . . . . . . 78
Interaction with Employer-Sponsored Family Coverage . . . . . . . . . . . 79
State Option to Impose Income-Related Premiums . . . . . . . . . . . . . . . 79
Conforming Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Demonstration Projects Regarding Home- and
Community-Based Alternatives to Psychiatric
Residential Treatment Facilities for Children . . . . . . . . . . . . . . . 81
State Demonstration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Federal Evaluation and Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Appropriation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Family-to-Family Health Information Centers . . . . . . . . . . . . . . . . . . 82
Restoration of Medicaid Eligibility for Certain SSI Beneficiaries . . . 83
Subchapter B — Money Follows the Person
Rebalancing Demonstration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84

Money Follows the Person Demonstration . . . . . . . . . . . . . . . . . . . . . 84
State Demonstrations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Eligible Individuals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
State Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Requirements for Self-Directed Services . . . . . . . . . . . . . . . . . . . . . . . 87
Secretary’s Award of Competitive Grants and Waivers . . . . . . . . . . . 87
Conditional Approval of Out-Year Grants . . . . . . . . . . . . . . . . . . . . . 87
Payments to States/ Carryover of Unused Grant Amounts . . . . . . . . . 88
Quality Assurance and Improvement; Technical Assistance
and Oversight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Research and Evaluation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Appropriations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Subchapter C — Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Medicaid Transformation Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Health Opportunity Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Eligibility Rules for Demonstration Participants . . . . . . . . . . . . . . . . . 91
Benefits for Demonstration Participants . . . . . . . . . . . . . . . . . . . . . . . 93
Cost Sharing for Demonstration Participants . . . . . . . . . . . . . . . . . . . 93
Provider Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Demonstration evaluation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
State Option to Establish Non-Emergency
Medical Transportation Program . . . . . . . . . . . . . . . . . . . . . . . . . 95
Extension of Transitional Medical Assistance (TMA)
and Abstinence Education Program . . . . . . . . . . . . . . . . . . . . . . . 95
Emergency Services Furnished by Non-Contract Providers
for Medicaid Managed Care Enrollees . . . . . . . . . . . . . . . . . . . . 96
Expansion of home and community-based services . . . . . . . . . . . . . . 97
Establishment of Needs-Based Criteria . . . . . . . . . . . . . . . . . . . . . . . . 98
Projected Number of Enrollees in the Benefit and Modification
of Needs-Based Criteria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Independent Evaluation of Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . 99
Independent Assessment Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Individualized Care Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
State Option to Offer Self-Directed Services . . . . . . . . . . . . . . . . . . . 101
Quality Assurance and Conflict of Interest Standards . . . . . . . . . . . . 101
Redeterminations and Appeals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Presumptive Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
No Effect on Other Waiver Authority . . . . . . . . . . . . . . . . . . . . . . . . 102
Continued Federal Medicaid Funding for Certain Individuals . . . . . 102
Quality of care measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
Optional Choice of Self-Directed Personal Assistance Services
(Cash and Counseling) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
State Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
Reports and Evaluation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
Limits to the Availability of Self-Directed Services . . . . . . . . . . . . . 105
Scope of Self-Directed Personal Assistance Services . . . . . . . . . . . . 106
Self-Directed Services Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
Self-Directed Services Budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
Application of Quality Assurance and Risk Management . . . . . . . . . 107
Financial Management Entity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
Effective date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108

Subtitle B — State Children’s Health Insurance Program . . . . . . . . . . . . . 109
Additional allotments to eliminate FY2006 funding shortfalls . . . . . 109
Use of Additional FY2006 Appropriation for Child Health
Assistance for Targeted Low-Income Children . . . . . . . . . . . . . 110
Prohibition against covering nonpregnant adults
with SCHIP funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Continued authority for qualifying states to use certain funds
for Medicaid expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Subtitle C — Katrina Relief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
Additional Federal Payments Under Hurricane-Related
Multi-State Section 1115 Demonstrations . . . . . . . . . . . . . . . . . 113
List of Tables
Title V. Medicare . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Title VI. Medicaid and SCHIP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Subchapter A — Reform of Asset Transfer Rules . . . . . . . . . . . . . . . . . . . . . . . . 34
Subchapter B — Expanded Access to Certain Benefits . . . . . . . . . . . . . . . . . . . 49
Chapter 6. Other Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Subchapter A — Family Opportunity Act. . . . . . . . . . . . . . . . . . . . . . . . . . 78
Subchapter B — Money Follows the Person
Rebalancing Demonstration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Subchapter C — Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90

Side-by-Side Comparison of Medicare,
Medicaid, and SCHIP Provisions
in the Deficit Reduction Act of 2005
On December 19, 2005, the House agreed to a conference report on S. 1932.
However, the Senate amended the report, removing a few provisions as the result of
a point of order raised associated with the “Byrd Rule.” 1 The amended agreement
passed the Senate on December 21, 2005, and was returned to the House for further
action. Among the many provisions in the act, Title V proposes changes in the
Medicare program, and Title VI proposes changes in the Medicaid and State Child
Health Insurance Program (SCHIP) and provides some fiscal relief for Katrina
victims using Social Security Act section 1115 waiver authority. The House is slated
to act on the bill when it returns in 2006.
This report provides a side-by-side comparison of the provisions contained in
the Senate-passed version of the bill with current law. Additional information on
provisions in the House and Senate versions of the bill can be found in CRS Report
RL33131, Budget Reconciliation FY2006: Medicaid, Medicare, and State Child
Health Insurance Program (SCHIP) Provisions.
This report will be updated.
1 See CRS Report RL33132, Budget Reconciliation Legislation in 2005, by Robert Keith.

CRS-2
Title V. Medicare
Provision
Current Law
Conference Agreement as passed by the Senate
Medicare’s update factor to increase
Medicare’s annual increase in its operating payments to
Section 5001(a). Hospitals that do not submit the
operating payments to acute-care hospitals as
hospitals is determined in part by the projected annual
required data in FY2007 and each subsequent year will
affected by submission of quality data.
change in the hospital market basket (MB), a measure that
have the applicable MB percentage increase reduced by
estimates price inflation affecting hospitals. Congress
two percentage points. Each IPPS hospital is required to
establishes this update for Medicare’s inpatient prospective
submit data on measures selected by the Secretary in the
payment system (IPPS) often several years in advance.
established form, manner, and specified time. Any
Currently, through FY2007, the IPPS operating update has
reduction applies only to the fiscal year in question and
been established as the MB for hospitals that submit
does not affect subsequent fiscal years. The conference
specific quality information and as the MB minus 0.4
agreement establishes that the Secretary will expand the
percentage points for hospitals that do not provide such
number of quality indicators required from acute care
information. The required data are those 10 quality
hospitals. Beginning October 1, 2006 the Secretary will
indicators established as of November 1, 2003. Starting in
begin to adopt the baseline set of performance measures
FY2008, the IPPS update will be the hospital MB. Any
set forth in the November 2005 Institute of Medicine
MB reduction does not apply when computing the
report that was required by Section 238(b) of MMA.
applicable percentage increase in subsequent years
Beginning October 1, 2007, the Secretary will add other
measures that reflect consensus among the affected
parties. Quality measures of process, structure, outcome,
patients’ perspective on care, efficiency, and costs of care
that relate to inpatient services are to be reported on the
CMS website.
Value-based purchasing for acute care
No current law.
Section 5001 (b). The Secretary is required to develop a
hospitals.
plan to implement a value-based purchasing program for
IPPS payments to acute care hospitals beginning with
FY2009. The plan is required to consider specified
factors such as (1) the development, selection, and
modification process for quality measures (2) data

CRS-3
Provision
Current Law
Conference Agreement as passed by the Senate
reporting, collection, and validation; (3) the structure of
value-based payment adjustments and sources of its
funding; and (4) the disclosure of information on hospital
performance. The Secretary will consult with relevant
affected parties and consider experience with applicable
demonstration programs.
DRG Adjustment for Certain Hospital
Medicare discharges are classified into diagnosis related
Section 5001(c). Starting for discharges on October 1,
Acquired Infections.
groups (DRGs) primarily on the basis of the diagnosis and
2007, hospitals are required to report any secondary
procedure code information included on the beneficiary’s
diagnosis codes applicable to patients at their admission
claim. The information includes the principal diagnosis
in order to be paid. By October 1, 2007, the Secretary is
(or main problem requiring inpatient care), up to eight
required to identify at least two high cost or high volume
secondary diagnoses codes as well as up to six procedures
(or both high cost and high volume) diagnoses codes with
performed during the stay. Medicare pays for inpatient
a DRG assignment that has a higher payment weight when
hospital services using per discharge rates that will vary by
present as a secondary diagnosis. These codes represent
the DRG (and its calculated weight) to which a patient’s
conditions, including certain hospital acquired infections,
stay is assigned. Each DRG weight represents the average
that could reasonably have been prevented through the use
resources required to provide care for cases in that specific
of evidence-based guidelines. Starting for discharges on
DRG relative to the average resources used to treat cases
October 1, 2008, the DRG assigned to a discharge with
in all DRGs. Under the DRG classification system, certain
the identified diagnosis codes will be the lower paid
secondary diagnoses are considered to be complications or
DRG. The assignment of the lower paid DRG applies to
comorbidities (CC). When present as a secondary
discharges, where, at the time of the patient’s admission,
condition (with a specific principal diagnosis), these
the beneficiary had none of the identified diagnosis codes.
diagnosis codes are considered to increase the length of
Adjustments to the relative weight that occur because of
stay by least one day in at least 75% of the patients. In
this action are not budget neutral. The list of diagnoses
FY2006, 524 DRGs are used for Medicare payment
may be revised from time to time as long as there are at
purposes; 121 paired DRGs are split into higher and lower
least two diagnosis codes selected for discharges
paid DRGs on the presence or the absence of a CC. CMS
occurring during any fiscal year. The Secretary is
has added and deleted codes from the standard list of CCs,
required to consult with the Centers for Disease Control
but has never conducted a comprehensive review of the
and Prevention and other appropriate entities when

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list. It is planning systematic review of the CC list for
selecting and revising the identified diagnosis codes. The
FY2007 Medicare payments.
list of diagnosis codes and DRGs are not subject to
judicial review.
Clarification of Inclusion of Medicaid Patient
Hospitals that serve a certain number of low income
Section 5002. The Secretary can include inpatient
Days in Medicare’s Computation of its
Medicare and Medicaid beneficiaries will receive a DSH
hospital days of patients eligible for medical assistance
Disproportionate Share Hospital (DSH)
adjustment that increases their Medicare IPPS payments.
under a Section 1115 demonstration waiver in the
Adjustment .
Most hospitals receive the additional payments based on
Medicare DSH calculation. These days will be counted as
their DSH patient percentage which is calculated using
if they were provided to patients who were eligible for
proportion of the hospital’s total days provided to
medical assistance under an approved Medicaid state plan.
Medicaid recipients added to the proportion of the
The existing regulations and their effective date are
hospital’s Medicare inpatient days provided to poor
ratified. No hospital cost reports that are closed on the
Medicare beneficiaries (those who are eligible for Part A
enactment date will be reopened to implement this
and receive Supplemental Security Income.) After a
provision
minimum threshold of 15% is met, a hospital’s DSH
adjustment will vary by the hospital’s bed size or urban or
rural location. The policy of whether inpatient days
provided to a patient covered under a demonstration
projects established by Section 1115 waivers could be
included in the Medicare DSH calculation has changed
over time. Starting January 20, 2000, hospitals were
allowed to include the inpatient hospital days attributable
to patients made eligible for Medicaid pursuant to a state’s
Social Security Act Section 1115 waiver. Previously,
hospitals could include days for populations under the
Section 1115 waiver who were or could have been made
eligible under a state Medicaid plan. Starting for
discharges on October 1, 2003, hospital days attributed to
patients who do not receive coverage for inpatient benefits
under Section 1115 demonstration projects cannot be

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counted in the Medicare DSH calculation. These policies
were established by regulation in January 2000 and August
2003.
Improvements to the Medicare-Dependent
Certain small rural hospitals (with 100 beds or less) that
Section 5003. The MDH status for qualifying rural
Hospital (MDH) Program.
have at least 60% of its inpatient days or discharges during
hospitals would be extended through discharges occurring
FY1987 or during two of the three most recently audited
before October 1, 2011. Starting for discharges on
cost reporting periods (for which there is a settled cost
October 1, 2006, a MDH would be able to elect payments
report) attributed to Medicare patients qualify for special
based on 50% of its FY2002 hospital-specific costs if that
treatment as MDHs. MDH hospitals are paid at national
would result in higher Medicare payments. MDH’s
standardized rate or, if higher, 50% of their adjusted
payments would be based on 75% of their adjusted
FY1982 or FY1987 hospital-specific costs. This special
hospital-specific costs starting for discharges on October
treatment will lapse for discharges starting on October 1,
1, 2006. MDH’s that qualify for a disproportionate share
2006. Certain hospitals that serve a high proportion of
hospital (DSH) adjustment would not have the adjustment
Medicaid patients or poor Medicare beneficiaries qualify
capped at 12%.
for a DSH adjustment to their inpatient payments. Small
urban and most rural hospitals (except for rural referral
centers) have their DSH adjustment capped at 12%.
Reduction in Payments to Skilled Nursing
Medicare pays the costs of certain items on a reasonable
Section 5004. Medicare payments to SNFS for allowable
Facilities (SNFs) for Bad Debt.
cost basis (outside of the applicable prospective payment
bad debts would be reduced to 70% for beneficiaries who
system) including the unpaid debt for beneficiaries’
are not eligible for both Medicare and Medicare.
coinsurance and deductible amounts. CMS has reimbursed
Medicare’s payments for allowable bad debts attributed to
certain providers for 100% of the debt. Effective for cost
dual eligible beneficiaries would remain at 100%.
reports starting in FY2001, Medicare began reimbursing
acute care hospitals for 70% of the reasonable costs
associated with beneficiaries’ allowable bad debt. SNFs
are still reimbursed 100% for this bad debt.

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Extend Phase-in of the Inpatient
IRFs are either freestanding hospitals or distinct part units
Section 5005. The compliance threshold for IRFs is
Rehabilitation Facility (IRF) Compliance
of other hospitals that are exempt from Medicare’s IPPS
established at 60% during the 12-month period beginning
Thresholds.
used to pay acute care hospitals. The Medicare statute
on July 1, 2006; at 65% during the 12-month period
gives the Secretary discretion to establish the criteria that
beginning on July 1, 2007; and at 75% beginning on July
facilities must meet in order to be considered an IRF.
1, 2008 and subsequently.
Recently issued regulations by CMS require that a facility
must treat a certain proportion of patients with specified
medical conditions in order to qualify as an IRF and
receive higher Medicare payments. CMS adopted a
transition period for the compliance threshold as follows:
at 50% from July 1, 2004 and before July 1, 2005; at 60%
from July 1, 2005 and before July 1, 2006; at 65 % from
July 1, 2006 and before July 1, 2007; and at 75% from
July 1, 2007 and thereafter.
Development of a Strategic Plan Regarding
Physicians are generally prohibited from referring
Section 5006. The Secretary is required to develop a
Physician Investment in Specialty Hospitals.
Medicare and Medicaid patients to facilities in which they
strategic and implementing plan regarding physician
(or their immediate family member) have financial
investment in specialty hospitals. The plan will address
interests. This prohibition does not extend to patient
the proportionality of investment return, bona fide
referrals to hospitals where physicians have ownership or
investments, annual disclosure of investment income, the
investment interest in the whole hospital itself (and not
provision of care to Medicaid patients and to charity care
merely in a subdivision of the hospital). Section 507 of
patients by specialty hospitals, and appropriate
MMA established that the exception for physician
enforcement. An interim report is due within three
investment and self-referral would not extend to specialty
months and the final report is due no later than six months
hospitals for a period of 18-months from enactment (or
after the date of enactment. The Secretary will continue
until June 8, 2004). This moratorium has been extended
to suspend the enrollment of new specialty hospitals until
administratively by CMS which has not issued provider
the earlier of the date of submission of the report or six
numbers to new specialty hospitals while it examines the
months after the date of enactment. If the Secretary does
criteria used to award such numbers. Generally, a
not submit the final report within the six month time
specialty hospital is primarily or exclusively engaged in
period, then the enrollment suspension will be extended

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the care and treatment of cardiac or orthopedic patients,
an additional two months. The Secretary will also provide
but does not include those that are in operation or under
an appropriate certification of the failure to congressional
development as of November 18, 2003 (with the same
committees of jurisdiction. The Secretary may waive
number of physician investors as of such date that meets
certain requirements of the Administrative Procedures Act
other specified requirements). For instance, an increase in
when developing the strategic and implementing plan.
the number of beds could only occur on the main campus
Two million dollars from the Treasury is appropriated in
of the hospital and could not exceed the greater of 50% of
FY2006 for this strategic plan.
the number of beds in the hospital as of November 18,
2003, or five beds. The Secretary was directed to consider
certain factors in determining whether a hospital is under
development, such as the completion of architectural plans,
and the status of funding, zoning requirements, and
necessary approvals from State agencies.
Gainsharing Demonstration Project.
Anti-kickback and patient referral laws are intended to
Section 5007. The Secretary will establish a gainsharing
discourage physicians and other health care providers from
demonstration project to evaluate arrangements between
improperly profiting from referrals of Medicare and
IPPS hospitals and physicians and practitioners. Up to six
Medicaid patients. Exceptions to those laws permit certain
projects (with at least two in rural areas) will be approved
physician-facility arrangements under specific
by November 1, 2006 and operational no later than
circumstances. In 2004, a federal district court stopped
January 1, 2007. The Secretary will solicit applications
CMS from implementing an eight hospital gainsharing
90 days after enactment. The projects will end on
demonstration project because of civil monetary penalty
December 31, 2009. The projects must meet certain
concerns. In March 2005, MedPAC recommended that
requirements for maintaining or improving quality while
Congress grant the Secretary the authority to allow
achieving cost savings. Certain existing restrictions
regulated gainsharing arrangements between physicians
concerning incentive payments will be waived. The
and hospitals.
Secretary will meet the following reporting requirements:
(1) a report to Congress on the number of projects will be
due no later than December 1, 2006; (2) a project update
will be due no later than December 1, 2007; (3) a report
on quality improvement and savings will be due no later

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than December 1, 2008; and (4) a final report will be due
no later than May 1, 2010. Six million dollars will be
appropriated from the Treasury in FY2006 to carry out the
projects and will remain available for expenditure through
FY2010.
Post-acute Care Payment Reform
No provision.
Section 5008. The Secretary is required to establish a
Demonstration Program.
three-year demonstration program to assess the costs and
outcomes across different post-acute care sites by January
1, 2008. Under this demonstration, an individual
provided treatment for specific diagnoses will receive a
comprehensive assessment at discharge to determine the
appropriate post-acute care placement for the patient. A
standardized patient assessment instrument will be used
across all post-acute care sites to measure the patients’
functional status and other factors. Participants are
required to provide information on the fixed and variable
cost for each patient and provide an additional
comprehensive assessment at the end of the person’s
episode of care. The demonstration program is required
to consist of sufficient numbers to determine statistically
reliable results. The Secretary is required to submit a
report to Congress no less than six months from the end of
the project. Six million dollars will be transferred from
Medicare’s Hospital Insurance Trust Fund for the costs of
carrying out the demonstration program.

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Conference Agreement as passed by the Senate
Beneficiary ownership of certain DME and
Medicare Part B pays for certain items of durable medical
Section 5101. The conference agreement would require
Oxygen equipment.
equipment such as hospital beds, nebulizers and power-
the supplier to transfer the title of durable medical
driven wheelchairs under the capped rental category. Most
equipment in the capped rental category to the beneficiary
items in this category are provided on a rental basis for a
after a 13-month rental period. The option for a 15-
period that can not exceed 15 months. After using the
month rental period with the supplier retaining ownership
equipment for 10 months, beneficiaries must be given the
of the item would be eliminated. The option for
option of purchasing it effective 13 months after the start
beneficiaries to purchase power-driven wheelchairs when
of the rental period. If they choose the purchase option,
initially furnished would be retained.
the title to the equipment is transferred to beneficiaries. If
the purchase option is not chosen, the supplier retains
Automatic payment to the suppliers every six months for
ownership of the equipment. Beneficiaries can continue to
maintenance and servicing would be eliminated. Such
use it, but Medicare rental payments to the supplier are
payments (for parts and labor not covered by the
terminated. In the case of a power-driven wheelchair, the
supplier’s or manufacturer’s warranty) would only be
supplier must offer the beneficiary the option of
made if the Secretary determined them to be reasonable
purchasing the equipment when it is first furnished.
and necessary. This amendment would apply to items for
which the first rental month occurred on or after January
Medicare payments to suppliers for maintenance and
1, 2006.
servicing differ based on whether the beneficiary has
purchased the equipment or whether the supplier continues
The agreement further provides that rental payments for
to own it. In the case of a purchase agreement, payment
oxygen equipment (including portable oxygen equipment)
for repairs and maintenance recommended by the
are converted to ownership at 36 months. The supplier is
manufacturer is covered. When the equipment remains in
required to transfer the title of the equipment to the
the ownership of the supplier and continues to be used by
beneficiary after a 36-month rental period. After transfer
the beneficiary after the 15-month rental period, Medicare
of the title, monthly payments for oxygen contents (in the
makes a payment to the supplier every six months for
case of gaseous and liquid oxygen) will continue to be
servicing and maintenance regardless of whether any
made, as provided for under current law, for the period of
maintenance and servicing is performed.
medical need. Payments for maintenance and servicing
(for parts and labor not covered by the supplier’s or
manufacturer’s warranty) will be made if the Secretary

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determines them to be reasonable and necessary. The
agreement specifies that the provision takes effect on
January 1, 2006. In the case of an individual receiving
oxygen equipment as of December 31, 2005, the 36
month period begins January 1, 2006.
Adjustments in Payments for Imaging
Medicare has a long-standing policy of reducing payment
Section 5102. The conference agreement specifies that,
Services.
for multiple surgical procedures performed by the same
effective for fee schedules established beginning with
physician, on the same patient on the same day. Full
2007, the reduced expenditures attributable to the multiple
payment is made for the highest priced procedure, with
procedure payment reduction for imaging (under the final
any subsequent procedure paid at 50%. In 1995, the policy
rule published November 21, 2005) will not be taken into
was extended to certain nuclear medicine diagnostic
account for purposes of the budget neutrality calculation
procedures.
for fee schedules for 2006 and 2007.
Under the physician fee schedule, diagnostic imaging
The agreement further provides that for specified
procedures are priced as follows: (1) the professional
imaging services furnished on or after January 1, 2007,
component (PC) represents the physician work, that is the
the technical component (including the technical
interpretation; (2) the technical component (TC) represents
component of the global fee) for a service will be reduced
practice expenses including clinical staff, supplies, and
if it exceeds (without regard to the geographic wage
equipment; and (3) the global service which represents
adjustment factor) the outpatient department (OPD) fee
both the PC and TC. Diagnostic imaging services, even
schedule amount for the service established under the
those performed on contiguous body parts, are generally
prospective payment system for hospital outpatient
paid at 100% for each procedure.
departments. In such cases, the Secretary will provide for
the use of that OPD amount, adjusted by the geographic
On November 21, 2005, CMS issued its final
adjustment factor under the physician fee schedule. The
physician fee schedule regulation for 2006 (Federal
services this policy applies to are: imaging and computer-
Register, vol. 70, pp. 70116-70476). This regulation
assisted imaging services, including X-ray, ultrasound
provided for a reduction in the TC for the subsequent
(including echocardiography), nuclear medicine
imaging procedure performed on contiguous body parts.
(including positron emission tomography), magnetic
The multiple procedure reduction is not applied to PC
resonance imaging, computed tomography, and

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services. When a global service code is billed, the TC
fluoroscopy. Not included are diagnostic and screening
portion, but not the PC portion, is reduced. CMS
mammography. This change is not to be taken into
identified 11 families of imaging procedures by imaging
account for purposes of the budget neutrality calculation
modality. The multiple procedure TC payment reduction
beginning in 2007.
is to be applied only to procedures involving contiguous
body parts within a family of codes, not across families.
The payment reduction is to be phased-in with a 25%
reduction in 2006 and a 50% reduction in 2007. Further,
the budget neutrality adjustment is to be applied only to
practice expense relative value units rather than to both
work and practice expense relative value units.
Limitation on Medicare Payments for
Medicare uses a fee schedule to pay for the facility
Section 5103. Starting for surgical procedures on
Procedures in Ambulatory Care Surgical Centers
services related to a surgery provided in an ASC. The
January 1, 2007, when the ASC facility payment (without
(ASCs).
associated physician services (surgery and anesthesia) are
application of any geographic price differences) is greater
reimbursed under the physician fee schedule. CMS
than the Medicare OPD fee schedule amount established
maintains a list of approved ASC procedures which is
under OPPS (without application of any geographic
required to be updated every two years. The approved
adjustment) for the same service, the ASC will be paid the
ASC procedures are categorized into one of nine payment
OPD fee schedule amount. This adjustment applies to
groups that comprise the ASC facility fee schedule. The
ASC payments until the revised ASC payment system is
nine payment rates reflect the national median cost of
implemented. Total payments to ASCs under the revised
procedures in that group adjusted to reflect geographic
payment system can be no more than those under the
price variation. Payments are also adjusted when multiple
existing ASC payment system, including the reduced
surgical procedures are performed at the same time. The
expenditures that result from the application of this
Secretary is required to implement a new ASC payment
provision.
system no later than January 2008. Medicare
reimbursement for hospital outpatient department (OPD)
services is based on a fee schedule established by a
separate prospective payment system (OPPS). Under
OPPS, the unit of payment is the individual service or

CRS-12
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Conference Agreement as passed by the Senate
procedure as assigned to a ambulatory payment
classification (APC). The payment rate for each service
is determined by multiplying the relative weight for the
service’s APC by the conversion factor.
Update for Physicians’ Services for 2006.
Medicare payments for services of physicians and certain
Section 5104. The conference agreement overrides
nonphysician practitioners are made on the basis of a fee
application of the formula for 2006 by setting the update
schedule. The fee schedule assigns relative values to
at zero. In effect, this means that the 2006 conversion
services that reflect physician work (i.e., the time, skill,
factor is the same as the 2005 conversion factor.
and intensity it takes to provide the service), practice
expenses, and malpractice costs. The relative values are
The agreement also requires the Medicare Payment
adjusted for geographic variations in costs. The adjusted
Advisory Commission (MedPAC) to submit a report to
relative values are then converted into a dollar payment
Congress by March 1, 2007 on mechanisms that could be
amount by a conversion factor. The conversion factor for
used to replace the sustainable growth rate system. The
2005 is $37.8975.
report is to: (1) identify and examine alternative methods
for assessing volume growth; (2) review options to control
The conversion factor is the same for all services. It
the volume of physicians services under Medicare while
is updated each year according to a formula specified in
maintaining access for beneficiaries; (3) examine the
law. The intent of the formula is to place a restraint on
application of volume controls under the fee schedule; (4)
overall spending for physicians’ services. Several factors
identify levels of application of volume controls such as
enter into the calculation of the formula. These include (1)
group practice, hospital medical staff, type of service,
the sustainable growth rate (SGR) which is essentially a
geographic area, and outliers; (5) examine the
cumulative target for Medicare spending growth over time
administrative feasibility of implementing options under
(with 1996 serving as the base period); (2) the Medicare
(2), including the availability of data and time lags; (6)
economic index (MEI) which measures inflation in the
examine the extent to which the alternative methods
inputs needed to produce physicians services; and (3) the
identified and examined under (1) should be specified;
update adjustment factor which modifies the update, which
and (7) identify the appropriate levels of discretion for the
would otherwise be allowed by the MEI, to bring spending
Secretary of HHS to change payment rates under the fee
in line with the SGR target. In no case can the adjustment
schedule or to otherwise take steps that affect physician
factor be less than minus 7% or more than plus 3%.
behavior. The report is to include recommendations on

CRS-13
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The law specifies a formula for calculating the SGR.
alternative mechanisms to replace the SGR. The section
It is based on changes in four factors: (1) estimated
appropriates $550,000 from the Treasury, out of amounts
changes in fees; (2) estimated change in the average
not otherwise appropriated, to MedPAC to carry out the
number of Part B enrollees (excluding Medicare
study.
Advantage beneficiaries); (3) estimated projected growth
in real gross domestic product (GDP) growth per capita;
and (4) estimated change in expenditures due to changes in
law or regulations. In order to even out large fluctuations,
MMA changed the GDP calculation from an annual
change to an annual average change over the preceding 10
years (a “10-year rolling average”).
The SGR target is not a limit on expenditures.
Rather, the fee schedule update reflects the success or
failure in meeting the target. If expenditures exceed the
target, the update for a future year is reduced. This is what
occurred for 2002. It was also slated to occur in 2003 and
2004; however, legislation prevented this from occurring
through 2005. Under the formula, a negative 4.4 % update
goes into effect in 2006.

CRS-14
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Conference Agreement as passed by the Senate
Three Year Hold Harmless Transition for
The OPPS for services provided by hospital outpatient
Section 5105. Certain small rural hospitals (with no more
Small Rural Hospitals Into the Outpatient
departments (OPD) was implemented in August 2000 for
than 100 beds that are not SCHs) can receive additional
Prospective Payment System (OPPS).
most acute care hospitals. Under hold harmless provisions,
Medicare payments if their outpatient payments under
as modified by the MMA, rural hospitals with no more
OPPS are less than under the old payment system. For
than 100 beds and sole community hospitals (SCH) located
calendar year (CY) 2006, these hospitals will receive 95%
in rural areas are paid no less under OPPS than they would
of any difference. The hospitals will receive 90% of the
have received under the prior reimbursement system for
difference in CY2007 and 85% of the difference in
covered OPD services provided until January 1, 2006.
CY2008.
Under its administrative authority, starting for services on
January 1, 2006, CMS has increased OPPS payments to
rural SCHs by 7.1%.
Update to the Composite Rate Component
The Medicare Prescription Drug, Improvement, and
Section 5106. The conference agreement increases the
of the Basic Case-Mix Adjusted Prospective
Modernization Act of 2003 (MMA) required the Secretary
composite rate component of the basic case-mix adjusted
Payment System for Dialysis Services.
to establish a basic case-mix adjusted prospective payment
system by 1.6% for services beginning January 1, 2006.
system for dialysis services furnished either at a facility or
in a patient’s home, for services furnished beginning on
January 1, 2005. The basic case-mix adjusted system has
two components: (1) the composite rate, which covers
services, including dialysis; and (2) a drug add-on
adjustment for the difference between the payment
amounts for separately billable drugs and biologicals and
their acquisition costs, as determined by Inspector General
Reports.
The Secretary is required to update the basic case-mix
adjusted payment amounts annually beginning with 2006,
but only for that portion of the case-mix adjusted system
that is represented by the add-on adjustment and not for
the portion represented by the composite rate.

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Revisions to Payments for Therapy
The Balanced Budget Act of 1997 (BBA 97) established
Section 5107. The conference agreement does not extend
Services.
annual per beneficiary payment limits for all outpatient
the moratorium. However, the Secretary is required to
therapy services provided by non-hospital providers. The
implement an exceptions process for expenses incurred in
limits applied to services provided by independent
2006. Under the process, a Part B enrollee, or a person
therapists as well as to those provided by comprehensive
acting on behalf of the enrollee, may request an exception
outpatient rehabilitation facilities (CORFs) and other
from the physical therapy and occupational therapy caps.
rehabilitation agencies. The limits did not apply to
The individual may obtain such exception if the provision
outpatient services provided by hospitals.
of services is determined medically necessary. If the
Secretary does not make a decision on a request within 10
Beginning in 1999, there were two beneficiary
business days of receipt, the Secretary is deemed to have
limits. The first was a $1,500 per beneficiary annual cap
found the services medically necessary. The Secretary is
for all outpatient physical therapy services and speech
required to waive such provisions of law and regulations
language pathology services. The second was a $1,500 per
(including those related to the Paperwork Reduction Act)
beneficiary annual cap for all outpatient occupational
as are necessary to implement these amendments on a
therapy services. Beginning in 2002, the amount would
timely basis. The amendments may be implemented by
increase by the Medicare economic index (MEI) rounded
program instruction or otherwise. The agreement specifies
to the nearest multiple of $10.
that there can be no administrative or judicial review of
the exceptions process (including establishment of the
The Balanced Budget Refinement Act of 1999
process).
(BBRA) suspended application of the limits for 2000 and
2001. The Medicare, Medicaid, and SCHIP Benefits
The agreement also requires the Secretary, by July
Improvement and Protection Act of 2000 (BIPA) extended
1, 2006, to implement clinically appropriate code edits for
the suspension through 2002. Implementation of the
physical therapy services, occupational therapy services,
provision was delayed until September 2003. The caps
and speech language pathology services. The edits are to
were implemented from September 1, 2003 through
identify and eliminate improper payments. The edits are
December 7, 2003. MMA reinstated the moratorium from
to include edits of clinically illogical combinations of
December 8, 2003 through December 31, 2005. The caps
procedure codes and other edits to control inappropriate
go into effect again beginning January 1, 2006. In the
billings.
November 2005, final physician fee schedule regulation

CRS-16
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Conference Agreement as passed by the Senate
for 2006 CMS announced that the cap would be $1,740 in
2006.
Accelerated Implementation of Income-
Since the inception of Medicare, all Part B enrollees have
Section 5111. The agreement accelerates the phase-in
Related Reduction in Part B Premium Subsidy.
paid the same Part B premium, regardless of their income
period from five years to three years, with the provision
level. MMA increased the Part B premiums for higher
fully effective in 2009. In 2007, higher income enrollees
income enrollees beginning in 2007. In 2007, individuals
will pay total premiums ranging from 28.3% to 43.15% of
whose modified adjusted gross income (AGI) exceeds
the total value of Part B. In 2010, enrollees will pay total
$80,000 and couples whose modified AGI exceeds
premiums ranging from 31.7% to 61.85% of the total
$160,000 will be subject to higher premium amounts. The
value of Part B. When fully phased-in in 2009, higher
increase is to be phased-in over five years. During the first
income individuals will pay total premiums ranging from
year, higher income enrollees will pay premiums ranging
35% to 80% of the total value of Part B.
from 27% to 36% of the value of Part B. When fully
phased-in, higher income individuals will pay premiums
ranging from 35% to 80% of the value of Part B. The term
modified AGI means adjusted gross income as defined
under the Internal Revenue Code (determined without
regard to specified exclusions), increased by tax-exempt
interest. In general, the taxable year to be used is that
beginning in the second calendar year preceding the year
involved. Under certain circumstances, an individual may
request to have the determination made for a more recent
year. The current law provision which specifies that a
beneficiary’s check can not go down from one year to the
next as a result of the Part B premium increase will not
apply to persons subject to an income-related increase in
their Part B premiums.
Medicare Coverage of Ultrasound Screening
Medicare provides coverage for services which are
Section 5112. The agreement authorizes Medicare
for Abdominal Aortic Aneurysms.
reasonable and necessary for the diagnosis or treatment of
coverage of ultrasound screening for abdominal aortic

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Conference Agreement as passed by the Senate
illness or injury or to improve the functioning of a
aneurysms for individuals who: (1) receive referrals for
malformed body member. In addition, Medicare covers
such screenings as a result of an initial preventive physical
certain preventive services specified in law.
exam performed for new Medicare enrollees; (2) who
have not previously had such a test covered by Medicare;
and (3) who have a family history of abdominal aortic
aneurysm or who manifest risk factors included in a
beneficiary category identified by the United States
Preventive Services Task Force.
An ultrasound screening for abdominal aortic
aneurysm is defined as a procedure using sound waves
provided for the early detection of abdominal aortic
aneurysm. The Secretary could specify other procedures
using alternative technologies which are of commensurate
accuracy and cost. The term includes the physician’s
interpretation of the results of the procedure. Ultrasound
screening for abdominal aortic aneurysm is to be included
in the package of services provided in the initial
preventive service exam offered to new Medicare
enrollees.
Payments are made under the physician fee
schedule for screenings performed on or after January 1,
2007. The Part B deductible does not apply to these
services.

CRS-18
Provision
Current Law
Conference Agreement as passed by the Senate
Improving Patient Access to, and Utilization
Medicare covers certain colorectal cancer screening tests,
Section 5113. The agreement provides that the Part B
of, Colorectal Cancer Screening Under Medicare.
subject to coverage limitations based on the type of test
deductible does not apply to colorectal cancer screening
and the individual’s level of risk. Covered tests are fecal
tests, effective January 1, 2007
occult blood test, flexible sigmoidoscopy, screening
colonoscopy, and barium enema. Payments for services
are made under the physician fee schedule, subject to the
Part B deductible and coinsurance.
Delivery of Services at Federally Qualified
According to statute, an FQHC is required to provide
Section 5114. Medicare covered diabetes self-
Health Centers (FQHC).
certain primary care services by physicians and appropriate
management training and medical nutrition therapy
mid-level practitioners as well as other preventive health
services (provided by registered dietitian or nutrition
services including those required under certain sections of
professional) are added as FQHC services. Services
the Public Health Service (PHS) Act (specifically Sections
furnished by a health care professional who is under
329, 330, and 340 of the PHS). Prior to the enactment of
contract with a FQHC would be made directly to the
MMA, FQHC services were covered by a skilled nursing
FQHC.
facility’s (SNF) consolidated billing requirement. FQHC
services were bundled into the SNF’s comprehensive per
diem payment for the covered stay and not separately
billable. MMA specified that a SNF Part A resident who
receives FQHC services from a physician or appropriate
practitioner would be excluded from SNF consolidated
billing and be paid separately.
Waiver of Part B Late Enrollment Penalty for
Medicare Part B is a voluntary program. People generally
Section 5115. The agreement permits certain individuals
Certain International Volunteers .
enroll in Part B when they turn 65. Persons who delay
to delay enrollment in Part B without a delayed
enrollment in the program after their initial enrollment
enrollment penalty. Those individuals permitted to delay
period are subject to a premium penalty. This penalty is a
enrollment would be those who volunteered outside of the
surcharge equal to 10% of the premium amount for each
United States for at least 12 months through a program
12 months of delayed enrollment. There is no upper limit
sponsored by a tax-exempt organization defined under
on the amount of the surcharge that may apply. Further,
Section 501(c)(3) of the Internal Revenue Code. The

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Conference Agreement as passed by the Senate
the penalty continues to apply for the entire time the
individuals must demonstrate they had health insurance
individual is enrolled in Part B. The law establishes
coverage while serving in the international program.
certain exceptions to the delayed enrollment penalty. One
exception applies to the “working aged.” Delayed
Individuals permitted to delay enrollment will have
enrollment is also permitted for certain disabled persons
a special Part B enrollment period which will be the six-
who have group health insurance coverage based on their
month period beginning on the first day of the month the
own or a family member’s current employment with a
individual is no longer in the program. Coverage will
large group health plan.
begin the month after the individual enrolls. This section
applies to months and special enrollment periods
Individuals who are permitted to delay enrollment
beginning January 2007.
have their own special enrollment periods. A special
enrollment period begins when current employment ends
or when coverage under the plan ends. The special
enrollment period ends eight months later. Individuals
who fail to enroll in this period are considered to have
delayed enrollment and could become subject to the
penalty.
Home health payments.
The Medicare home health prospective payment system,
Section 5201. The conference agreement eliminates the
which was implemented on October 1, 2000, provides a
update for home health payments in 2006. It also extends
standardized payment for a 60-day episode of care
the 5% additional payment for rural home health episodes
furnished to a Medicare beneficiary. Medicare’s payment
or visits beginning on or after January 1, 2006 and before
is adjusted to reflect the type and intensity of care
January 1, 2007.
furnished and area wages as measured by the hospital
wage index.
Starting in 2007, the conference agreement directs home
health agencies to submit to the Secretary health care
Each year Medicare’s payment to home health agencies is
quality data in a form, manner, and time period specified
updated by the projected annual change in the home health
by the Secretary. In 2007 and subsequent years, a home
market basket (HHMB), with specified reductions in some
health agency that does not submit the required quality
years. For the last three calendar quarters of 2004-2006,
data will receive an update of the market basket minus

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Conference Agreement as passed by the Senate
the home health update is the HHMB minus 0.8 percentage
two percentage points. This reduction would only apply
points. In 2007 and subsequent years, the payment update
to the fiscal year in question. The conference agreement
for home health agencies is equal to the full HHMB.
directs the Secretary to design procedures for making the
data available to the public.
The Medicare Prescription Drug Improvement and
Modernization Act of 2003 provided for a one-year 5%
The conference agreement directs the Medicare Payment
additional payment for home health services furnished in
Advisory Commission to submit a report to Congress no
rural areas. The temporary payment began for episodes
later than June 1, 2007 on a value-based purchasing
and visits ending on or after April 1, 2004 and before April
program for home health services. The report is to
1, 2005. It was made without regard to certain budget
include recommendations on the structure of the program,
neutrality provisions and was not included in the base for
determining thresholds, the size of value-based payments,
determination of payment updates.
sources of funds, and the relationship of payments and
improvements in health care quality. The conference
agreement directs $550,000 to be appropriate to the
Medicare Payment Advisory Commission to write this
report.
Revision of period for providing payment for
Mandatory electronic claims submission went into effect
Section 5202. The Conference agreement directs
claims that are submitted electronically.
on July 1, 2005 for all providers, with a few exceptions.
Medicare contractors to delay the payment of claims that
The exceptions include (1) small providers with fewer than
are not submitted electronically. The contractors are
25 full-time equivalent (FTEs) employees and physicians,
directed to pay 95% of all “clean” claims within 29-30
practitioners, or suppliers with fewer than 10 FTEs, (2)
days of receipt for paper claims.
dentists, and (3) other providers as specified by the Centers
for Medicare and Medicaid Services (CMS). Medicare
contractors must pay 95% of all “clean” paper claims
within 27-30 days of receipt.
Time frame for part A and B payments.
Medicare contractors accept, process, and pay claims
Section 5203. The Conference agreement delays
submitted by providers for Medicare-covered services.
Medicare Part A and B payments by nine days. Claims
Medicare contractors must pay interest on claims that are
that would otherwise be paid on September 22, 2006,

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Conference Agreement as passed by the Senate
not paid promptly.
through September 30, 2006 would be paid on the first
business day of October 2006. No interest or late penalty
The contractors must pay 95% of all “clean” claims within
would be paid to an entity or individual for any delay in
14-30 days of receipt for electronically submitted claims,
a payment during the period.
and within 27-30 days of receipt for paper claims. If the
payment is not made within that time, interest begins
accruing on the day after the required payment date and
ends on the date on which the payment is made. The
interest rate is set at the higher of the “private consumer
rate”, or the “current value of funds.”
Increase in Medicare Integrity Program (MIP)
As part of the Health Insurance Portability and
Section 5204. MIP funding is increased by $100 million
Funding.
Accountability Act of 1996 (HIPAA), Congress acted to
for FY2006.
increase and stabilize federal funding for anti-fraud
activities. As required by Section 1817(k) of the Medicare
law, an expenditure account was established within the
Federal Hospital Insurance Trust Fund (the HCFAC
account). Certain amounts were appropriated from the
Trust Fund for specific activities, including the Medicare
Integrity Program (MIP). These amounts have been
established as not less than $710 million and not more than
$720 million for FY2002 and subsequently.
Phase-out of risk adjustment budget
Medicare Advantage payment rates are risk adjusted to
Section 5301. Beginning in 2007, this section (1) would
neutrality in determining the amount of payments
control for the variation in the cost of providing health care
change the way MA area-specific non-drug monthly
to Medicare Advantage organizations.
among beneficiaries. Rates are adjusted by demographic
benchmarks (or MA benchmarks) are calculated, and (2)
and health status indicators. In the report language to the
would specify an adjustment to the benchmarks to phase-
Medicare, Medicaid, and SCHIP Balanced Budget
out overall increases in MA rates that are the result of the
Refinement Act of 1999, Congress urged the Secretary to
budget neutral implementation of risk adjustment.
implement a more clinically-based risk adjustment

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Conference Agreement as passed by the Senate
methodology without reducing overall payments to plans.
Changes to the benchmark: In 2007, if the Secretary
To keep payments from being reduced overall, the
does not rebase rates to 100% of per capita fee-for-service
Secretary applied a budget neutrality adjustment to the risk
costs, the MA benchmarks would be equal to the 2006
adjusted rates. However, the Secretary has proposed to
rates as announced by the Secretary on April 4, 2005, with
phase-out the budget neutrality adjustment citing studies
four adjustments — (1) exclusion of any national
that show a difference in the reported health status of
adjustments for coding intensity, (2) exclusion of risk
Medicare Advantage enrollees compared to the reported
adjustment budget neutrality, (3) increase based on the
health status of beneficiaries in traditional Medicare.
national per capita MA growth percentage, and (4)
omission of any adjustments to account for errors in
previous years’ projections of the national per capita MA
growth percentage. If the Secretary does rebase the rates
in 2007, the MA benchmark would be set at the greater of
either the rate calculated above, or 100% of per capita fee-
for-service spending in the area. After 2007, if the
Secretary does not rebase rates, the MA benchmarks
would be the previous year’s benchmark (prior to the
application of the phase-out percentage discussed below)
increased by the national per capita MA growth
percentage without adjusting for errors in the estimation
of the growth percentage for a year before 2004. After
2007, if the Secretary rebases rates, the benchmark would
be equal to the greater of either the rate calculated above,
or 100% of per capita fee-for-service spending.
Phasing out Budget Neutrality for Risk Adjustment: The
new benchmarks described above would be free of the
budget neutral risk adjustment. However, the new
benchmarks would be adjusted so that budget neutrality
would be phased-out over four years. The applicable

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Conference Agreement as passed by the Senate
phase-out factors would be equal to .55 in 2007, .40 in
2008, .25 in 2009 and .05 in 2010. This means that in
2007, 55% of the payment to plans would be based on the
budget neutral risk adjustment, and 45% of the payment
to plans would be based on a rate without the budget
neutral adjustment. Additionally, the benchmark would
be multiplied by a complex formula that equals the
Secretary’s estimate of the total amount of payments that
would have been made to plans with budget neutrality,
divided by the Secretary’s estimate of the total amount of
payments that would be made without budget neutrality.
When making this calculation, the Secretary would (a) use
a complete set of the most recent and representative MA
risk scores available, (b) adjust the risk scores to reflect
changes in treatment and coding practices in fee-for-
service, and (c) adjust the risk scores for differences in
coding patterns under Medicare Part A and B compared to
MA plans to the extent the Secretary has identified
differences and (d) as necessary, adjust for late data
submissions, lagged cohorts, and changes in MA
enrollment. The Secretary could take into account
estimated health risk of enrollees in preferred provider
organizations (including MA regional plans) for the year.
The Secretary would be required to conduct a study of the
difference between treatment and coding patterns between
MA plans and providers under Parts A and B of Medicare
using data starting in 2004. The findings would be
incorporated into calculations of MA benchmarks in 2008,
2009, and 2010. No adjustments would be made if

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Conference Agreement as passed by the Senate
payments increased relative to current law.
The Secretary could not make any adjustments to MA
benchmarks, other than those specified above. The
Secretary’s authority to risk adjust MA benchmarks based
on 100% of per capita fee-for-service spending would not
be limited by these changes.
Establishment of PACE Provider Grant
PACE is a program providing comprehensive Medicare
Section 5302. This provision creates site development
Program.
and Medicaid services under a managed care arrangement
grants, provides technical assistance to established rural
to individuals over age 55 who are eligible for a nursing
PACE providers, and establishes an outlier fund for rural
home level of care. PACE organizations, which are public
PACE providers. A rural area would be a county that is
or private non-profit entities, receive a fixed monthly
not part of a Metropolitan Statistical Areas (as defined by
Medicare and Medicaid payment to cover a comprehensive
the Office of Management and Budget) as established for
set of services for PACE participants. The PACE service
Medicare IPPS payments to acute care hospitals. The
package must include all Medicare and Medicaid covered
Secretary will establish a procedures to award site
services, and other services determined necessary by the
development grants to up to 15 qualified PACE providers
multidisciplinary team for the care of the PACE
that serve a rural area. These providers are rural PACE
participant.
pilot sites. The PACE grants would not exceed $750,000.
The Secretary is appropriated $7.5 million in FY2006 out
of the Treasury for these development grants and remain
available for expenditure until FY2008. The Secretary
will establish a technical assistance program to provide (1)
outreach and education to specified entities interested in
starting rural PACE programs, and (2) technical assistance
necessary to support rural PACE pilot sites. An outlier
fund for inpatient and related physician and ancillary
costs incurred for an eligible participant within a given
12-month period is required. Outlier costs are those
inpatient and other costs in excess of $50,000 incurred

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Conference Agreement as passed by the Senate
within a given 12-month period for an eligible participant
who resides in a rural area. For the first three years of its
operation, a rural PACE site will receive 80% of the
outlier costs in excess of $50,000 for that period. Total
outlier payments for an eligible participant could not
exceed $100,000 for the 12 month period used to
calculate the payment. No site may receive more than
$500,000 in total outlier expense payments in a period. A
rural PACE pilot site is required to access and exhaust risk
reserves held or arranged for the provider and any
working capital amounts prior to receiving any payment
from the outlier fund. The Secretary is appropriated $10
million for FY2006 for the outlier fund which are
available for expenditure through FY2010. The Secretary
is required to submit a report to Congress on the
evaluation of the rural PACE pilot sites no later than 60
months from the date of enactment. Any amount paid
under this authority would be in addition to Medicare
PACE funds paid under Section 1894 of the Social
Security Act or Medicaid PACE funds paid for under
Section 1934 of the same act.

CRS-26
Title VI. Medicaid and SCHIP
Subtitle A. MedicaidChapter 1. Payment for Prescription Drugs
Provision
Current Law
Conference Agreement as passed by the Senate
Modification of Federal Upper Payment
States set the amounts to pay pharmacies for outpatient
Section 6001.(a). The conference agreement applies
Limit for Multiple Source Drugs; Definition of
prescription drugs provided to Medicaid enrollees. States
FULs to multiple source drugs for which the FDA has
Multiple Source Drugs.
pay those amounts to pharmacies and then seek
rated two or more products to be therapeutically and
reimbursement of the federal share of those payments.
pharmaceutically equivalent. For those drugs, the FUL
Federal reimbursements to states for state spending for
would be equal to 250% of the average manufacturer price
certain outpatient prescription drugs are subject to ceilings
computed without regard to prompt pay discounts.
called federal upper limits (FULs). The FUL applies, in the
Effective January 1, 2007.
aggregate, to payments for multiple source drugs — those
that have at least three therapeutically equivalent drug
The agreement modifies the definition of multiple source
versions. The Centers for Medicare and Medicaid Services
drug so that a drug qualifies as a multiple source drug if
(CMS) calculates the FUL to be equal to 150% of the
there is at least one other drug sold and marketed during
published price for the least costly therapeutic equivalent.
the period that is rated as therapeutically equivalent and
The published prices that CMS uses as a basis for calculating
bioequivalent to it.
the FULs are the lowest of the average wholesale prices
(AWP) for each group of drug equivalents. Brand name
drugs are subject to an upper limit equal to the amount that
pharmacists must pay to acquire the drug (the acquisition
cost) as estimated by the states.
Pharmaceutical manufacturers whose drugs are available to
Medicaid beneficiaries must provide state Medicaid
programs with rebates. Rebates are calculated based on the
average manufacturer’s price (AMP) of each product, and for
certain other products, the best price at which the

CRS-27
Provision
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Conference Agreement as passed by the Senate
manufacturers sell the drug. The AMP is defined as the
average price paid to a manufacturer by wholesalers for
drugs distributed to retail pharmacies. Certain federal drug
purchases as well as several other specific kinds of sales are
exempt from the AMP and from the best price calculation.
Sales at prices that are “nominal” in amount are excluded
from the computation of best price. CMS defines nominal
prices to be those that are below 10% of the AMP.
Disclosure of Price Information to States
AMP and best price data are required to be reported by
Section 6001(b). The conference agreement would
and the Public.
manufacturers to CMS no later than 30 days after the date of
increase the required reporting of AMP and best prices.
entering into a rebate agreement and then no later than 30
AMP would be reported and calculated on a monthly
days after the last day of each rebate period. Those prices are
basis. In addition, the agreement allows states to have
required to be kept confidential except for the purpose of
access to reported AMP data for multiple source drugs for
carrying out the requirements of Medicaid rebates, or to
the purpose of carrying out the Medicaid programs and
permit the Comptroller General and the Director of the
would require the Secretary to disclose such information
Congressional Budget Office to review the information.
through a website accessible to the public. In addition, the
provision requires the Secretary to provide AMPs to states
on a monthly basis and to update information posted to the
website on at least a quarterly basis.
Definition of Average Manufacturer Price.
The AMP is defined as the average price paid to a
Section 6001(c). The conference agreement amends the
manufacturer by wholesalers for drugs distributed to retail
definition of AMP to exclude customary prompt pay
pharmacies. CMS instructs manufacturers to exclude certain
discounts extended to wholesalers from those amounts. In
federal drug purchases as well as free goods from the
addition, the agreement modifies the price reporting
computation of AMP. Sales at nominal prices are excluded
requirements so that manufacturers would be required to
from the best price computation. Manufacturers are required
submit, not later than 30 days after the last day of each
to report, for each rebate period, the AMP for all Medicaid
rebate period, the customary prompt pay discounts
covered outpatient drug products and the best price for single
extended to wholesalers in addition to the AMP and best
source and innovator multiple source drugs to CMS.
price reporting required under current law.

CRS-28
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Conference Agreement as passed by the Senate
The conference agreement requires the Inspector General
of the Department of Health and Human Services (HHS)
to, no later than June 1, 2006, review the requirements for,
and the manner in which AMP is determined and to
submit to the Secretary and Congress any
recommendations for changes as determined to be
appropriate.
The agreement also requires the Secretary of HHS to
promulgate a regulation clarifying the requirements for
and the manner in which AMPs are to be determined,
taking into consideration the recommendations of the
Inspector General.
Exclusion of Sales at a Nominal Price
In addition to the AMP, pharmaceutical manufacturers are
Section 6001 (d). The conference agreement modifies the
from Determination of Best Price.
required to report to the Secretary of HHS the “best price” at
manufacturer price reporting requirements so that for
which the manufacturer sells each of its drug products to
calendar quarters beginning on or after January 1, 2007,
certain purchasers for the purpose of calculating the rebate
manufacturers would be required to report information on
amounts. Prices that are nominal in amount are excluded
sales of Medicaid covered drugs that are made at a
from best price reporting. Nominal prices are defined by
nominal price.
CMS to be those that are below 10% of the average
manufacturer’s price.
In addition, the agreement defines the sales that are to be
considered nominal for the purpose of reporting nominal
price sales and for computing and reporting the best price.
(The agreement does not amend the AMP vis-a-vis
nominal prices.) Nominal sales are those made by a
manufacturer of covered drugs at nominal prices to (a)
entities eligible for discounted prescription drug prices
under Section 340(B) of the Public Health Service Act; (b)

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Conference Agreement as passed by the Senate
intermediate care facilities for the mentally retarded, (c)
state-owned or operated nursing facilities, d) any other
facility or entity that the Secretary determines is a safety
net provider to which sales of such drugs at nominal prices
would be appropriate based on the type of facility, the
services it provides, the patients served and the number of
other such facilities eligible for nominal pricing in the
area. The nominal price limitations do not apply to
nominal drug purchases pursuant to a master agreement
for procurement of drugs on the Federal Supply Schedule.
Retail Survey Prices; State Payment and
No provision.
Section 6001(e). The agreement allows the Secretary to
Utilization Rates; and Performance Rankings.
contract for services for the determination of retail survey
prices for covered outpatient drugs that represent a
nationwide average of consumer purchase prices for such
drugs, net of all discounts and rebates. Such a contract
would be awarded for a term of two years.
The Secretary would be required to competitively bid for
an outside vendor with a demonstrated history in
surveying and determining on a representative nationwide
basis, retail prices for ingredient costs of prescription
drugs; working with retail pharmacies, commercial payers,
and states in obtaining and disseminating price
information; and collecting and reporting price
information on at least a monthly basis. The contract
would include the terms and conditions specified by the
Secretary and would include a requirement that the vendor
monitor the marketplace and report to the Secretary each

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Current Law
Conference Agreement as passed by the Senate
time there is a new covered outpatient drug available
nationwide; and update the Secretary no less often than
monthly on the retail survey prices for multiple source
drugs and on the computed upper payment limit for those
drugs. Information on the retail survey prices obtained
through this process, including information on single
source drugs would be required to be provided to states on
an ongoing and timely basis. The Secretary would be
required to devise and implement a means for providing
access to each state Medicaid agency of collected price
information and to provide information on retail survey
prices, including information on single source drugs, to
states at least monthly.
The agreement allows such a contract to include
notification of the Secretary when a drug product that is
therapeutically and pharmaceutically equivalent and
bioequivalent becomes generally available. If the
Secretary were to be notified that such a product has
become generally available, the Secretary would be
required to make a determination within seven days as to
whether the drug meets the definition of a multiple source
drug subject to the application of the FUL. The agreement
allows the Secretary to waive those provisions the
Secretary determines are appropriate to waive, of the
Federal Acquisition Regulation, for the efficient
implementation of the contract.
The agreement requires an annual report from each
state agency. States are required to provide to the

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Conference Agreement as passed by the Senate
Secretary, the payment rates for all covered drugs,
dispensing fees and utilization of multiple source drugs
under the state Medicaid plan. The Secretary is required
to compare, on an annual basis, for the 50 most widely
prescribed drugs, the national retail sales price data for
each state. In addition, the Secretary is required to submit
full information regarding the annual rankings to
Congress. The provision becomes effective on January 1,
2007.

Miscellaneous Amendments.
States are required to have in place a program of prospective
Section 6001(f). The conference agreement clarifies that
drug review wherein before each prescription is filled, the
the requirement to provide prospective drug reviews is not
use of the prescription is screened for potential drug therapy
intended to require verifications that consultations were
problems. The requirement includes language clarifying that
offered or refused. Effective on the date of enactment.
nothing in the provision is intended to require a pharmacist
to provide this consultation when a beneficiary refuses such
a consultation.
Effective Date for Prescription Drug
No provision.
Section 6001(g). Unless otherwise specified,
the
Provisions.
provisions in Section 6001 take effect on January 1, 2007,
without regard to whether or not final regulations to carry
out such amendments have been promulgated by such
date.
Collection and Submission of Utilization
Manufacturers are required to provide rebates to states for all
Section 6002. For administered drugs administered on or
Data for Certain Physician Administered Drugs.
outpatient prescription drugs with some exceptions.
after January 1, 2006, states are required to provide for the
Outpatient prescription drugs provided through managed care
collection and submission of utilization and coding
organizations are explicitly exempted from the rebate
information for each Medicaid single source drug that is
requirement. In addition, outpatient drugs dispensed by a
physician administered. For drugs administered on or
hospital and billed at no more than the hospital’s purchasing
after January 1, 2008, states are required to provide for the

CRS-32
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Conference Agreement as passed by the Senate
costs are exempt from the rebate requirement. Certain drugs
collection and submission of utilization and coding
administered by physicians in their offices or in another
information for each Medicaid multiple source drug that
outpatient setting, such as chemotherapy, have often been
is physician administered. Submissions from states will be
excluded from the drug rebate program although there is no
based on National Drug Codes unless the Secretary
specific statutory exclusion. This is because providers use
specified an alternative coding system. All other
Healthcare Common Procedure Coding System (HCPCS)
provisions are identical to the House bill.
J-codes to bill the Medicaid program for injectible
prescription drugs, including cancer drugs. The HCPCS
J-codes do not, however, provide States with the specific
manufacturer information necessary to enable them to seek
rebates. The NDC number is necessary for the state to bill
manufacturers for rebates. CMS has requested that states
identify Medicaid drugs, specifically those using HCPCS
J-codes, by their NDC codes so that rebates can be collected
for these drugs (Letter to State Medicaid Director, SMDL
#03-002, dated March 14, 2003). CMS has concluded that
because of this coding, many state Medicaid programs have
not collected rebates on these drugs, resulting in millions of
dollars in uncollected rebates.
Collection and Submission of Utilization
Manufacturers are required to provide rebates to states for all
Section 6002. For administered drugs administered on or
Data for Certain Physician Administered Drugs.
outpatient prescription drugs with some exceptions.
after January 1, 2006, states are required to provide for the
Outpatient prescription drugs provided through managed care
collection and submission of utilization and coding
organizations are explicitly exempted from the rebate
information for each Medicaid single source drug that is
requirement. In addition, outpatient drugs dispensed by a
physician administered. For drugs administered on or
hospital and billed at no more than the hospital’s purchasing
after January 1, 2008, states are required to provide for the
costs are exempt from the rebate requirement. Certain drugs
collection and submission of utilization and coding
administered by physicians in their offices or in another
information for each Medicaid multiple source drug that
outpatient setting, such as chemotherapy, have often been
is physician administered. Submissions from states will

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Conference Agreement as passed by the Senate
excluded from the drug rebate program although there is no
be based on National Drug Codes unless the Secretary
specific statutory exclusion. This is because providers use
specified an alternative coding system. All other
Healthcare Common Procedure Coding System (HCPCS)
provisions are identical to the House bill.
J-codes to bill the Medicaid program for injectible
prescription drugs, including cancer drugs. The HCPCS
J-codes do not, however, provide states with the specific
manufacturer information necessary to enable them to seek
rebates. The NDC number is necessary for the state to bill
manufacturers for rebates. CMS has requested that states
identify Medicaid drugs, specifically those using HCPCS
J-codes, by their NDC codes so that rebates can be collected
for these drugs (Letter to State Medicaid Director, SMDL
#03-002, dated March 14, 2003). CMS has concluded that
because of this coding, many state Medicaid programs have
not collected rebates on these drugs, resulting in millions of
dollars in uncollected rebates.
Children’s Hospital Participation in Drug
Section 340(B) of the Public Health Service Act allows
Section 6004. The conference agreement includes a
Discount Program.
certain health care providers, including community health
provision adding Children’s Hospitals to the list of
centers and disproportionate share hospitals, access to
providers that may have access to 340(B) discounted
prescription drug prices that are similar to the prices paid by
prices. The provision would become effective for drugs
Medicaid agencies after being reduced by manufacturer
purchased on or after the date of enactment.
rebates.

CRS-34
Chapter 2. Asset Transfers
Subchapter A — Reform of Asset Transfer Rules
Provision
Current Law
Conference Agreement, as Passed by the Senate
Lengthening Look-Back Period.
Current law requires states to impose penalties on individuals
Section 6011(a). The Conference agreement would
who transfer assets (all income and resources of the
amend section 1917(c)(1)(B)(i) of the Social Security
individual and of the individual’s spouse) for less than fair
Act to lengthen the look-back date to five years, or 60
market value (an estimate of the value of an asset if sold at
months, for all income and assets disposed of by the
the prevailing price at the time it was actually transferred).
individual after enactment. For income and assets
Specifically, the rules require states to delay Medicaid
disposed of prior to the enactment date, the look back
eligibility for certain Medicaid long-term care services for
periods of 36 months for income and assets and 60
individuals applying for care in a nursing home, and, at state
months for certain trusts would apply.
option, for certain people receiving care in community-based
settings, who have transferred assets for less than fair market
value on or after a “look-back date.” The “look-back date”
is 36 months prior to application for Medicaid for income and
most assets disposed of by the individual, and 60 months in
the case of certain trusts.
Ineligibility for Medicaid coverage is limited to only certain
long-term care services, not all services covered under the
program. The services for which the penalty applies include
nursing facility care; services provided in any institution in
which the level of care is equivalent to those provided by a
nursing facility; Section 1915(c) home and community-based
waiver services; home health services; and personal care
furnished in a home or other locations. States may choose to
apply this ineligibility period to other state plan long-term
care services. (They also currently apply to home and
community care for functionally disabled elderly individuals

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Provision
Current Law
Conference Agreement, as Passed by the Senate
under Section 1929 of the act. This is an optional coverage
group which operates only in Texas.) In general, states do
not extend the penalty to Medicaid’s acute care services.
Change in Beginning Date for Period of
The period of ineligibility, or penalty period, begins on the
Section 6011(b). The Conference agreement amends
Ineligibility.
first day of the first month during or after which assets have
Section 1917(c)(1)(D) of the Social Security Act by
been improperly transferred and which does not occur in any
changing the start date of the ineligibility period for all
other period of ineligibility. There is no limit to the length of
transfers made on or after the date of enactment, to begin
the penalty period.
on the first day of a month during or after which assets
have been transferred for less than fair market value, or
the date on which the individual is eligible for Medicaid
and would otherwise be receiving institutional level care
based on an approved application for such care but for
the application of the penalty period, whichever is later,
and which does not occur during any period of
ineligibility as a result of an asset transfer policy. For
transfers made prior to this act’s enactment, current law
applies.
Effective Date Section 6011.
Currently effective.
Section 6011(c). The Conference agreement makes the
provisions in this section effective on or after the date of
enactment.

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Provision
Current Law
Conference Agreement, as Passed by the Senate
Availability of Hardship Waivers; Additional
To protect beneficiaries from unintended consequences as a
Sections 6011(d) and (e). The Conference agreement
Provisions on Hardship Waivers.
result of asset transfer penalties, current law requires states to
amends Section 1917(c)(2(D)) of the Social Security Act
establish procedures for not imposing penalties on persons
by adding requirements that states approve undue
who, according to criteria established by the Secretary, can
hardship requests when the asset transfer penalty would
show that a penalty would impose an undue hardship. CMS
deprive the individual of (A) medical care such that the
guidance specifies that undue hardship can occur when
individual’s health or life would be endangered; or (b)
application of the penalty would deprive the individual of
food, clothing, shelter, or other necessities of life. States
medical care so that his or her health or life would be
are required to provide for: (1) notice to recipients that
endangered, or when it would deprive the individual of food,
an undue hardship exception exists; a (2) a timely
clothing, shelter, or other necessities of life. The guidance
process for determining whether an undue hardship
explains that undue hardship does not exist when application
waiver will be granted for the individual; and (3) a
of the penalty would merely cause the individual
process under which an adverse determination can be
inconvenience or when it might restrict his or her lifestyle but
appealed.
would not put him or her at risk of serious deprivation.
The Conference agreement also amends Section
CMS guidance requires that state procedures, at a minimum,
1917(c)(2) of the Social Security Act to permit facilities
provide for and discuss: (1) a notice to recipients that an
in which institutionalized individuals reside to file undue
undue hardship exception exists; (2) a timely process for
hardship waiver applications on behalf of the individual,
determining whether an undue hardship waiver will be
with the institutionalized individual’s consent or that of
granted; and (3) a process under which an adverse
the personal representative. If the application for undue
determination can be appealed.
hardship of nursing facility residents meets criteria
specified by the Secretary, the state would have the
option of providing payments for nursing facility
services to hold the bed for these individuals at a facility
while an application is pending. Such payments could
not be made for longer than 30 days.
Disclosure and Treatment of Annuities.
Current law provides that the term “trust,” for purposes of
Section 6012. The Conference agreement amends
asset transfers and the look-back period, includes annuities
Section 1917 of the Social Security Act and requires
only to the extent that the Secretary of DHHS defines them as
individuals applying for Medicaid-covered LTC services,

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Provision
Current Law
Conference Agreement, as Passed by the Senate
such. CMS guidance (Transmittal Letter 64) asks states to
upon Medicaid application and recertification of
determine the ultimate purpose of an annuity in order to
eligibility, to disclose to the state, a description of any
distinguish those that are validly purchased as part of a
interest the individual or community spouse has in an
retirement plan from those that abusively shelter assets. To
annuity (or similar financial instrument, as specified by
be deemed valid in this respect, the life of the annuity must
the Secretary), regardless of whether the annuity is
coincide with the average number of years of life expectancy
irrevocable or is treated as an asset. Such application or
for the individual (according to tables in the transmittal). If
recertification form includes a statement naming the state
the individual is not reasonably expected to live longer than
as the remainder beneficiary. In the case of disclosure
the guarantee period of the annuity, the individual will not
concerning an annuity, the state notifies the annuity’s
receive fair market value for the annuity based on the
issuer of the state’s right as a preferred remainder
projected return; in this case, the annuity is not “actuarially
beneficiary for Medicaid assistance furnished to the
sound” and a transfer of assets for less than fair market value
individual. Issuers may notify persons with any other
has taken place. The state Medicaid Manual provides life
remainder interest of the state’s remainder interest.
expectancy tables to be used by states for determining
whether an annuity is actuarially sound.
States may require an issuer to notify the state when
there is a change in the amount of income or principal
withdrawn from the amount withdrawn at the point of
Medicaid application or recertification. States take this
information into account when determining the amount
of the state’s financial share of costs or in the
individual’s eligibility for Medicaid.
The Secretary may provide guidance to states on
categories of transactions that may be treated as a
transfer of asset for less than fair market value. States
may deny eligibility for medical assistance for an
individual based on the income or resources derived
from an annuity.

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Provision
Current Law
Conference Agreement, as Passed by the Senate
The Conference agreement also amends Section
1917(c)(1) of the Social Security Act by adding that the
purchase of an annuity be treated as a disposal of an
asset for less than fair market value unless the state is
named as the remainder beneficiary in the first position
for at least the total amount of Medicaid expenditures
paid on behalf of the annuitant or is named in the second
position after the community spouse or minor or disabled
child and such spouse or a representative of the such
child does not dispose of any such remainder for less
than fair market value.
Includes annuities purchased by or on behalf of an
annuitant who has applied for Medicaid-covered nursing
facility or other long-term care services in the definition
of annuities that are subject to asset transfer rules.
The Conference agreement excludes from the definition
of an asset, those that are described in subsection (b) and
(q) of Section 408 of the Internal Revenue Code (IRC) of
1986, or purchased with proceeds from: (1) an account
or trust described in subsections (a), (c), and (p) of
Section 408 of the IRC; (2) a simplified employee
pension as defined in Section 408(k) of the IRC; or (3)
a Roth IRA defined in Section 408A of the IRC.
Annuities would also be excluded from penalties if they
are irrevocable and non-assignable, actuarially sound (as
determined by actuarial publications of the Office of the
Chief Actuary of the Social Security Administration),

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Provision
Current Law
Conference Agreement, as Passed by the Senate
and provide for payments in equal amounts during the
term of the annuity, with no deferral and no balloon
payments.
The Conference agreement amends Section 1917(b)(4)
of the Social Security Act to include an annuity in the
definition of estate that is subject to estate recovery
unless the annuity is issued by a financial institution or
other business that sells annuities in the state as part of
its regular business.
The amendments apply to transactions, including the
purchase of annuity, occurring on or after the date of this
act’s enactment.
Application of “Income-First” Rule in
Regarding income, current law exempts all income (e.g.,
Section 6013. The Conference agreement amends
Applying Community Spouse’s Income Before
pension or Social Security) of the community spouse (the
Section 1924(d), and therein sections (c) and (e), of the
Assets in Providing Support of Community
spouse of a Medicaid beneficiary receiving institutional, or at
Social Security Act to require states to consider that all
Spouse.
state option, home and community-based long-term care
income of the institutionalized spouse that could be made
services) from being considered available to the other spouse
available to the community spouse, in accordance with
for purposes of Medicaid eligibility. For community spouses
the calculation of the post-eligibility allocation of
with more limited income, Section 1924(d) of the Social
income or additional income allowance allocated at a fair
Security Act provides for the establishment of a minimum
hearing, has been made before states allocate to the
monthly maintenance needs allowance for each community
community spouse resources from the institutionalized
spouse to try to ensure that the community spouse has
spouse to provide the difference between the minimum
sufficient income to meet his or her basic monthly needs.
monthly maintenance needs allowance and all income
(The community spouse’s minimum monthly maintenance
available to the community spouse. These amendments
needs allowance is set at a level that is higher than the official
apply to transfers and allocations made on or after the
federal poverty level.) Once income is attributed to each of
date of this act’s enactment by individuals who become
the spouses according to their ownership interest, the
institutionalized spouses on or after such date.

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Provision
Current Law
Conference Agreement, as Passed by the Senate
community spouse’s monthly income is compared against the
minimum monthly maintenance needs allowance.
Regarding assets, federal law allows states to select the
amount of assets a community spouse may be allowed to
retain. This amount is referred to as the community spouse
resource allowance (CSRA). Federal requirements specify
that this amount may be no greater than $95,100 and no less
than $19,020 in total countable assets in 2005. When
determining eligibility, all assets of the couple are combined,
counted, and split in half, regardless of ownership. If the
community spouse’s share of the assets is less than the state-
specified maximum, then the Medicaid beneficiary must
transfer his or her share of the assets to the community spouse
until the community-spouse’s share reaches the maximum.
All other non-exempt assets must be depleted before the
applicant can qualify for Medicaid.
If the community spouse’s monthly income amount is less
than the minimum monthly maintenance needs allowance, the
institutionalized spouse may choose to transfer an amount of
his or her income or assets to make up for the shortfall (i.e.,
the difference between the community spouse’s monthly
income and the state-specified minimum monthly
maintenance needs allowance). This transfer allows more
income to be available to the community spouse, while
Medicaid pays a larger share of the institutionalized spouse’s
care costs. Within federal limits, states set the maximum
monthly income level that community spouses may retain.
Federal requirements specify that this amount may be no

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Provision
Current Law
Conference Agreement, as Passed by the Senate
greater than $2,377.50 per month, and no less than $1,561.25
per month in 2005.
The Medicaid beneficiary or community spouse is entitled to
a fair hearing if either is dissatisfied with: (1) a determination
of the community spouse monthly income allowance; (2) the
amount of monthly income otherwise available; (3) the
computation or attribution of the spousal share of resources;
or (4) the determination of the community spouse resource
allowance. If either spouse establishes that the community
spouse needs income above the amounts provided by the
minimum monthly needs allowance, due to exceptional
circumstances resulting in significant financial duress, there
shall be substituted for the minimum monthly maintenance
needs allowance amounts adequate to provide additional
necessary income. Federal law allows either income or
resources from the spouse receiving Medicaid to be
transferred to the community spouse to meet this need.
Disqualification for Long-Term Care
Within federal law, states set asset standards that applicants
Section 6014. The Conference agreement amends
Assistance for Individuals with Substantial
must meet to qualify for Medicaid coverage. Among other
Section 1917 of the Social Security Act to exclude from
Home Equity.
things, these standards specify a limit on the amount of
Medicaid eligibility for nursing facility or other long-
countable assets a person may have to qualify, as well as
term care services, certain individuals with an equity
define which types of assets are counted and not counted. In
interest in their home of greater than $500,000. A state
general, countable assets cannot exceed $2,000 for an
may elect, without regard to Medicaid’s requirements
individual applicant. States generally follow SSI rules for
concerning statewideness and comparability, to
computing both countable and non-countable assets.
substitute an amount that exceed $500,000 but does not
exceed $750,000. These dollar amounts are increased,
Current Medicaid and SSI asset counting practices generally
beginning in 2011, from year to year based on the
exclude the entire value of an applicant’s home. A home is
percentage increase in the consumer price index for all

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Provision
Current Law
Conference Agreement, as Passed by the Senate
defined as any property in which an individual (and spouse,
urban consumers (all items, United States city average),
if any) has an ownership interest and which serves as the
rounded to the nearest $1,000. The Secretary establishes
individual’s principal place of residence. This property
a process for waiving this provision in the case of a
includes the shelter in which an individual resides, the land
demonstrated hardship.
on which the shelter is located and related outbuildings. If an
individual (and spouse, if any) moves out of his or her home
Individuals whose spouse, child under age 21, or child
without the intent to return, the home becomes a countable
who is blind or disabled (as defined by the Section 1614
resource because it is no longer the individual’s principal
of the Social Security Act) lawfully resides in the
place of residence. However, if an individual leaves his or
individual’s home would not be excluded from
her home to live in an institution, the home is still considered
eligibility. This provision would not prevent an
to be the individual’s principal place of residence,
individual from using a reverse mortgage or home equity
irrespective of the individual’s intent to return, as long as a
loan to reduce the individual’s total equity interest in the
spouse or dependent relative of the eligible individual
home.
continues to live there. The individual’s equity in the former
home becomes a countable resource effective with the first
The Conference agreement would apply to individuals
day of the month following the month it is no longer his or
who are determined eligible for Medicaid nursing
her principal place of residence.
facility or other long-term care services based on an
application filed on or after January 1, 2006.
Enforceability of Continuing Care
Continuing Care Retirement Communities (CCRCs) offer a
Section 6015. The Conference agreement amends
Retirement Communities (CCRC) and Life Care
range of housing and health care services to serve older
Section 1919(c)(5) of the Social Security Act to provide
Community Admission Contracts.
persons as they age and as their health care needs change over
an exception for state-licensed, registered, certified, or
time. CCRCs generally offer independent living units,
equivalent continuing care retirement communities
assisted living, and nursing facility care for persons who can
(CCRCs) or a life care community (including nursing
afford to pay entrance fees and who often reside in such
facility services provided as part of that community) to
CCRCs throughout their older years. The services generally
allow them to require in their admissions contracts that
offered include meals, transportation, emergency response
residents spend their resources (subject to Medicaid’s
systems, and on-site nursing and physician services. Many
rules concerning the resources allowance for community
also offer home care, maid services and laundry. CCRCs
spouses, described above), declared for the purposes of
were developed, in large part, in response to an interest
admission, on their care before they apply for Medicaid.

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Provision
Current Law
Conference Agreement, as Passed by the Senate
among many elderly persons to age-in-place. CCRCs can be
For applicants with community spouses, only that part of
either for-profit or not-for-profits. They are paid primarily
the entrance fee that is not protected for by the
with private funds, but a number also accept Medicaid
community spouse’s resource allowance would be
payment for nursing facility services. Although the majority
considered in the computation of the spousal share
of CCRC residents do not meet the financial criteria for
available to Medicaid.
Medicaid, some do.
The Conference agreement amends Section 1917 of the
Social Security Act to consider certain entrance fees for
CCRCs or life care communities to be countable
resources, and thus available to the applicant, for
purposes of the Medicaid eligibility determination to the
extent that:
(A) the individual has the ability to use the entrance fee,
or the contract provides that the entrance fee may be
used, to pay for care should other resources or income of
the individual be insufficient to pay for care;
(B) the individual is eligible for a refund of any
remaining entrance fee when the individual dies or
terminates the CCRC or life care community contracts
and leaves the community; and
(C) the entrance fee does not confer an ownership
interest in the continuing care retirement community or
life care community.

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Provision
Current Law
Conference Agreement, as Passed by the Senate
Requirement to Impose Partial Months of
Current law requires states to impose penalties on individuals
Section 6016(a). The Conference agreement amends
Ineligibility.
applying for Medicaid who transfer assets (all income and
Section 1917(c)(1)(E) of the Social Security Act by
resources of the individual and of the individual’s spouse) for
adding that a state shall not round down, or otherwise
less than fair market value (an estimate of the value of an
disregard any fractional period of ineligibility when
asset if sold at the prevailing price at the time it was actually
determining the ineligibility period with respect to the
transferred). Specifically, the rules require states to delay
disposal of assets.
Medicaid eligibility for individuals receiving care in a
nursing home, and, at state option, certain people receiving
care in community-based settings, who have transferred
assets for less than fair market value on or after a “look-back
date.” The “look-back date” is 36 months prior to application
for Medicaid for income and most assets disposed of by the
individual, and 60 months in the case of certain trusts.
The length of the delay is determined by dividing the total
cumulative uncompensated value of all assets transferred by
the individual (or individual’s spouse) on or after the look-
back date by the average monthly cost to a private patient of
a nursing facility in the state (or, at the option of the state, in
the community in which the individual is institutionalized) at
the time of application. For example, a transferred asset
worth $60,000, divided by a $5,000 average monthly private
pay rate in a nursing home, results in a 12-month period of
ineligibility for Medicaid long-term care services. The period
of ineligibility begins the first day of the first month during
or after which assets have been improperly transferred and
which does not occur in any other period of ineligibility.
There is no limit to the length of the penalty period.

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Provision
Current Law
Conference Agreement, as Passed by the Senate
When calculating the length of the penalty period when assets
are transferred for less than fair market value, current law
allows states to “round down,” or not include in the
ineligibility period the quotient amounts (resulting from the
division of the value of the transferred asset by the average
monthly private pay rate in a nursing home) that are less than
one month. For example, in a state with an average private
stay in a nursing home of $4,100, an ineligibility period for
an improper transfer of $53,000 could be 12.92 months (i.e.,
$53,000/$4,100=12.92). Although some states would impose
an ineligibility period of 12 months and 28 days (of a 31 day
month), other states may round down the quotient to an
ineligibility period of 12 months only.
Authority for States to Accumulate Multiple
Current law and additional CMS guidance provides that when
Section 6016(b) The Conference agreement amends
Transfers into One Penalty Period.
a number of assets are transferred for less than fair market
Section 1917(c)(1) of the Social Security Act by adding
value on or after the look-back date during the same month,
that for an individual or an individual’s spouse who
the penalty period is calculated using the total cumulative
disposes of multiple fractional assets in more than one
uncompensated value of all assets transferred during that
month for less than fair market value on or after the
month by the individual (or individual’s spouse) divided by
applicable look-back date, states may determine the
the average monthly cost to a private patient of a nursing
penalty period by treating the total, cumulative
facility in the state (or, at the option of the state, in the
uncompensated value of all assets transferred by the
community in which the individual is institutionalized) at the
individual (or individual’s spouse) during all months as
time of application. When a number of assets are transferred
one transfer. States would be allowed to begin such
during different months, then the rules vary based upon
penalty periods on the earliest date which would apply to
whether the penalty periods overlap. If a penalty period for
such transfers.
each transfer overlaps with the beginning of a new penalty
period, then states may either add together the value of the
transferred assets and calculate a single penalty period or
impose each penalty period sequentially. If the penalty

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Provision
Current Law
Conference Agreement, as Passed by the Senate
period for each transfer does not overlap, then states must
treat each transfer as a separate event and impose each
penalty period starting on the first day of the month in which
each transfer was made.
Inclusion of Transfer of Certain Notes and
Under current law, states set standards, within federal
Section 6016(c). The Conference agreement amends
Loans Assets.
parameters, for the amount and type of assets that applicants
Section 1917(c)(1) of the Social Security Act to make
may have to qualify for Medicaid. In general, countable
additional assets subject to the look-back period, and
assets cannot exceed $2,000 for an individual. However, not
thus a penalty, if established or transferred for less than
all assets are counted for eligibility purposes. The standards
fair market value. Such assets would include funds used
states set also include criteria for defining non-countable, or
to purchase a promissory note, loan or mortgage, unless
exempt, assets. States generally follow rules for the
the repayment terms are actuarially sound, provide for
Supplemental Security Income (SSI) program for computing
payments to be made in equal amounts during the term
both countable and non-countable assets.
of the loan and with no deferral nor balloon payments,
and prohibit the cancellation of the balance upon the
Under state Medicaid and SSI rules, countable assets may
death of the lender.
include, but are not limited to, funds in a savings or money
market account, stocks or other types of equities, accelerated
In the case of a promissory note, loan, or mortgage that
cash benefits from certain types of insurance policies, and
does not satisfy these requirements, their value shall be
funds from certain types of trusts that can be obtained by the
the outstanding balance due as of the date of the
individual, the individual’s spouse, or anyone acting for the
individual’s application for certain Medicaid long-term
individual or the individual’s spouse, to pay for the
care services.
individual’s medical or nursing facility care, even if the funds
or payments are not distributed. Under Medicaid and SSI
rules, non-countable assets include an individual’s primary
place of residence, one automobile, household goods and
personal effects, property essential to income-producing
activity, up to $1,500 in burial funds, life insurance policies
whose total face value is not greater than $1,500, and
miscellaneous other items.

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Provision
Current Law
Conference Agreement, as Passed by the Senate
Other rules defining countable and non-countable assets
apply only in particular states. Their rules are generally
intended to restrict the use of certain financial instruments
(e.g. annuities, promissory notes, or trusts) to protect assets
so that applicants can qualify for Medicaid earlier than they
might otherwise.
Inclusion of Transfers to Purchase Life
Current law does not specify whether life estates should be
Section 6016(d). The Conference agreement amends
Estates.
treated as countable or noncountable assets for purposes of
Section 1917(c)(1) of the Social Security Act by adding
applying the Medicaid asset transfer rules. In CMS guidance,
a provision that would redefine the term ‘assets,’ with
however, the Secretary specifies that the establishment of a
respect to the Medicaid asset transfer rules, to include the
life estate constitutes a transfer of assets. The guidance also
purchase of a life estate interest in another individual’s
explains that a transfer for less than fair market value occurs
home unless the purchaser resides in the home for at
whenever the value of the transferred asset is greater than the
least one year after the date of purchase.
value of the rights conferred by the life estate. According to
CMS, a life estate is involved when an individual who owns
property transfers ownership to another individual while
retaining, for the rest of his or her life (or the life of another
person), certain rights to that property. Generally, a life
estate entitles the grantor to possess, use, and obtain profits
from the property as long as he or she lives, even though
actual ownership of the property has passed to another
individual.
Effective Date for Section 6016.
No provision.
Section 6016(f). This provision applies to payment
made under the Medicaid program for calendar quarters
beginning on or after the date of this act’s enactment,
without regard to whether or not final regulations to
carry out such amendments have been promulgated by
such date. Amendments made by this provision do not

CRS-48
Provision
Current Law
Conference Agreement, as Passed by the Senate
apply to Medicaid assistance provided for services
before the date of enactment, assets disposed of on or
before the date of enactment, or trusts established on or
before the date of enactment.
In the case of a state that the Secretary of Health and
Human Services determines requires state legislation to
meet the additional requirements of this provision, the
state Medicaid plan would not be regarded as failing to
comply with the requirements solely on the basis of its
failure to meet these additional requirements before the
first day of the first calendar quarter beginning after the
close of the first regular session of the state legislature
that begins after the date of enactment of this act. In the
case of a state that has a two-year legislative session,
each year of the session would be considered to be a
separate regular session of the state legislature. This
amendment applies to provision under Section 6016 of
the Conference agreement.

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Subchapter B — Expanded Access to Certain Benefits
Provision
Current Law
Conference Agreement, as Passed by the Senate
Expansion of State Long-Term Care
Under Medicaid’s long-term care (LTC) insurance
Section 6021. The conference agreement amends Section
Partnership Program.
partnership program, certain persons who have
1917(b)(1)(C)(ii) of the Social Security Act to: (1) require
exhausted (or used at least some of) the benefits of a
that existing partnership programs not allow consumer
private long-term care insurance policy may access
protection standards to be less stringent (determined by the
Medicaid without meeting the same means-testing
Secretary) than those applying under the state plan
requirements as other groups of Medicaid eligibles. For
amendment as of December 31, 2005; and (2) allows certain
these individuals, means-testing requirements are relaxed
individuals in states with state plan amendments approved
at (1) the time of application to Medicaid; and (2) the
after May 14, 1993 to be exempt from estate recovery
time of the beneficiary’s death when Medicaid estate
requirements if the amendment provides for the disregard of
recovery is generally applied.
any assets or resources in the amount equal to the amount of
insurance benefits made to or on behalf of an individual who
In general, states allow individuals to retain no more than
is a beneficiary under a LTC policy (including a certificate
$2,000 in countable assets and exempt certain non-
issued under a group insurance contract), if the following
countable assets such as an individual’s primary place of
requirements are met:
residence, one automobile, household goods and
personal effects. Under Section 1902 of the Social
(I) The policy covers an insured who was a resident of such
Security Act, a state may request the Secretary’s
state when coverage first became effective under the policy.
permission to amend its Medicaid state plans to allow
In the case of a LTC insurance policy exchanged for another
certain applicants to retain greater amounts of countable
such policy, this requirement applies based on the coverage
assets than other applicants and still qualify for
of the first such policy that was exchanged;
Medicaid. Specifically, states that obtain the Secretary’s
approval may disregard some or all of the assets of
(II) The policy is a qualified LTC insurance policy (meeting
persons applying for Medicaid who have purchased
specifications defined in Section 7702B(b) of the Internal
long-term care insurance policies.
Revenue Code of 1986) issued not earlier than the effective
date of the Medicaid state plan amendment;
Section 1917 of the Social Security Act (amended by the
Omnibus Budget Reconciliation Act of 1993, P.L. 103-
(III) The policy meets the following requirements specified

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Conference Agreement, as Passed by the Senate
66) allows only those states with an approved state plan
in the National Association of Insurance Commissioner’s
amendment as of May 14, 1993 to exempt individuals
(NAIC) Long-Term Care Insurance Model Regulations and
from Medicaid estate recovery who apply to Medicaid
Long-Term Care Insurance Model Act (as adopted as of
after exhausting their private long-term care insurance
October 2000).
benefits. By that date, five states (California,
Connecticut, Indiana, Iowa, and New York) had received
CMS approval. All of these states, except Iowa, have
implemented partnership programs.
The four partnership states with active programs have
Model Regulations relating to:
different models for determining the amount of assets
- Guaranteed renewal or noncancellability (including some
that an eligible participant may protect. Connecticut and
sections of the Model Act);
California use a dollar-for-dollar model, in which the
- Prohibitions on limitations and exclusions;
amount of the assets protected is equivalent to the value
- Extension of benefits;
of the benefit package paid by the policy purchased (e.g.,
- Continuation or conversion of coverage;
$100,000 of nursing home or assisted living benefits paid
- Discontinuance and replacement of policies;
enables that individual to retain up to $100,000 in assets
- Unintentional lapse;
and still qualify for Medicaid coverage in that state).
- Disclosure;
New York uses a total asset protection model in which
- Required disclosure of rating practices to consumer;
persons who purchase certain state-approved policies
- Prohibitions against post-claims underwriting;
may qualify for Medicaid without having to meet any of
- Minimum standards;
Medicaid’s asset criteria. Indiana uses a hybrid model,
- Application forms and replacement coverage;
offering both dollar-for-dollar and total asset protection
- Reporting requirements;
(Indiana switched from the dollar-for-dollar model to the
- Filing requirements for marketing;
hybrid model in 1998).
- Standards for marketing, including inaccurate completion
of medical histories;
Federal oversight of LTC insurance is largely limited to
- Suitability;
provisions established by the Health Insurance
- Prohibition against preexisting conditions and probationary
Portability and Accountability Act of 1996 (HIPAA, P.L.
periods in replacement policies or certificates;
104-191). HIPAA established new rules regarding the
- Contingent nonforfeiture benefits if the policyholder

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Provision
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Conference Agreement, as Passed by the Senate
tax treatment of LTC insurance and expenses, and
declines the offer of a nonforfeiture provision;
defined the requirements for a tax-qualified LTC
- Standard format outline of coverage; and
insurance policy. LTC insurance products are largely
- Delivery of shopper’s guide.
regulated by states. Every state and the District of
Columbia has some laws governing LTC insurance.
Many of these laws reflect guidance provided by the
National Association of Insurance Commissioners
(NAIC), an organization of state insurance regulators.
This guidance, provided in the form of a Model Act and
Model Regulations for LTC insurance, addresses a
number of areas, including the following.
Model regulations:
Model Act relating to:
- Application forms and replacement coverage;
- Preexisting conditions;
- Reporting requirements;
- Prior hospitalization;
- Filing requirements for marketing;
- Contingent nonforfeiture benefits;
- Standards for marketing;
- Right of return;
- Appropriateness of recommended purchase;
- Outline of coverage;
- Standard format outline of coverage; and
- Requirements for certificates under group plans;
- Requirements to deliver shopper’s guide.
- Policy summary;
- Monthly reports on accelerated death benefits; and
Model Act:
Incontestability period.
- Outline of coverage;
- Requirements for certificates under group plans; policy
These provisions of the Long-Term Care Insurance Model
summary;
Regulation and Long-Term Care Insurance Model Act are
- Accelerated death benefits; and
treated as including any other provision the Regulation or Act
- Incontestability period.
necessary to implement the provision. Long-term care
insurance policies issued in a state shall be deemed as
HIPPA also includes requirements that tax-qualified
meeting the requirements of the model regulation or the
policies comply with consumer protections regarding the
Model Act if the state plan amendment provides that the state

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Provision
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Conference Agreement, as Passed by the Senate
delivery of policies, information on denials of claims,
insurance commissioner for the state certifies (in a manner
and disclosure. While many state laws and regulations
satisfactory to the Secretary) that the policy meets such
are based largely on the NAIC standards, others have
requirements.
adopted only some of these standards. As a result, there
(IV) If at the date of purchase the purchaser is younger than
is significant variation in regulatory practices across
age 61, the policy must provide for compound inflation; if the
states.
purchaser is at least age 61 but not older than age 76, the
policy must provide some level of inflation protection; and if
the purchaser is age 76 or older, the policy may, but is not
required to, provide some level of inflation protection.
National Clearinghouse for Long-Term Care. No
(V) The state Medicaid agency provides information and
provision in current law requires the establishment of a
technical assistance to the state insurance department on the
LTC consumer clearinghouse.
insurance department’s role of assuring that any individual
who sells a LTC insurance policy under the partnership
In related activities, DHHS has funded some states to
receives training or demonstrates evidence of an
establish state-based consumer-friendly access to
understanding of such policies and how they relate to other
information about LTC services. In FY2003 and
public and private coverage of LTC;
FY2004, the Centers for Medicare and Medicaid (CMS)
and AoA awarded approximately $19 million in grants
(VI) The issuer of the policy provides regular reports to the
to states for the purpose of assisting their efforts to
Secretary that include, in accordance with the Secretary’s
create a single, coordinated system of information and
regulations (after consultation with the National Association
access for all persons seeking long term care to minimize
of Insurance Commissioners, issuers of LTC insurance
confusion, enhance individual choice, and support
policies, states with experience with LTC insurance
informed decision-making. In FY2005, $15 million was
partnership plans, other states, and representatives of
awarded. A total of 43 states have received grants for
consumers of LTC insurance policies) notification regarding
this purpose. Some of the common activities under this
when all benefits and their amounts under the policy have
grants program include information and referral,
been paid, when the policy otherwise terminates, and other
outreach, counseling about public benefits and LTC
information that the Secretary determines is appropriate to the
options, and case management. States’ methods for
administration of the partnership programs. These
implementing the grant may vary; some states have
regulations shall specify the type and format of the data and

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Conference Agreement, as Passed by the Senate
established an actual physical location, and other states
information to be reported, and the frequency with which
have established a statewide clearinghouse through a
such reports are to be made. The Secretary, as appropriate,
toll-free number or a web-based information site.
provides copies of the reports to the state involved;
In addition, CMS has made available to the public, via its
website, a comparison of Medicare and Medicaid-
certified nursing homes and home health agencies. The
information provides detailed facility and agency
information and characteristics, and contains several
measures of quality (e.g., improvement in mobility).
This website does not cover assisted living facilities,
group homes and other residential facilities that are not
nursing facilities; nor does it cover non-medical, non-
certified, home and community-based LTC services.
(VII) The state does not impose any requirement affecting the
terms or benefits of such a policy unless the state imposes
such requirement on LTC insurance policies without regard
to whether the policy is covered under the partnership or is
offered in connection with such a partnership.
In consultation with other appropriate federal agencies,
issuers of LTC insurance, and the National Association of
Insurance Commissioners, state insurance commissioners,
states with experience with LTC insurance partnership plans,
other states, and representatives of consumers of LTC
insurance policies, the Secretary develops recommendations
for Congress to authorize and fund a uniform minimum data
set to be reported electronically by all issuers of LTC
insurance policies under qualified state LTC insurance

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Provision
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Conference Agreement, as Passed by the Senate
partnerships to a secure, centralized electronic query and
report generating mechanism that state, the Secretary, and
other federal agencies can access.
Not later than 12 months after the National Association of
Insurance Commissioners issues a revision, update or other
modification of a model regulation or model act provision
listed above or substantially related those listed above, the
Secretary reviews these changes, determines whether
incorporating such changes into the corresponding provision
would improve qualified state LTC insurance partnerships,
and, if so, incorporate the changes into the provision.
States may require issuers of LTC insurance policies sold in
that state (regardless of whether the policy is issued under a
qualified state LTC insurance partnership) to report additional
information or data to the state.
Out of any fund in the Treasury not otherwise appropriated,
there is appropriated to the Secretary $1 million for the period
of FYs2006-2010.
To permit portability in LTC insurance policies purchased
under state LTC insurance partnerships, the Secretary
develops no later than January 1, 2007, in consultation with
the National Association of Insurance Commissioners, states
with experience with LTC insurance partnership plans, other
state, and representatives of consumers of LTC insurance
policies, standards for uniform reciprocal recognition of such
policies among states with qualified state LTC insurance

CRS-55
Provision
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Conference Agreement, as Passed by the Senate
partnerships which have benefits paid under such policies will
be treated the same by all such states, and states with such
partnerships shall be subject to such standards unless the state
notifies the Secretary of the State’s election to be exempt
from such standards.
The Secretary annually reports to Congress on the LTC
insurance partnerships. Such reports would include analyses
of the extent to which partnership programs expand or limit
access of individuals to LTC and the impact of such
partnerships on federal and state expenditures under Medicare
and Medicaid. Nothing in this provision shall require the
Secretary to conduct an independent review of each LTC
insurance policy offered under or in connection with a state
partnership program.
A state plan amendment that provides for a qualified state
LTC insurance partnership may provide that the amendment
be effective for LTC insurance policies issued on or after a
date that is not earlier than the first day of the first calendar
quarter in which the plan amendment was submitted to the
Secretary.

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Provision
Current Law
Conference Agreement, as Passed by the Senate
National Clearinghouse for LTC. The Secretary establishes
a National Clearinghouse for LTC Information (this may be
done through a contract or interagency agreement). The
National Clearinghouse for LTC: (1) educates consumers
with respect to the availability and limitations of Medicaid
LTC coverage (and provides contact information for
obtaining specific state information on LTC coverage),
including state Medicaid eligibility and estate recovery
requirements; (2) provides objective information to assist
consumers with the decision-making process for determining
whether to purchase LTC insurance or to pursue other private
market alternatives for purchasing LTC and provide contact
information for additional objective resources on planning for
LTC needs; and (3) maintain a list of states with state LTC
insurance partnerships.
In providing information to consumers on LTC, the National
Clearinghouse for LTC Information shall not advocate in
favor of a specific LTC insurance provider or a specific LTC
insurance policy.
Out of any funds in the Treasury not otherwise appropriated,
there is appropriated to carry out for the National
Clearinghouse for LTC $3 million for each of FY2006-2010.

CRS-57
Chapter 3. Eliminating Fraud, Waste, and Abuse in Medicaid
Provision
Current Law
Conference Agreement, as Passed by the Senate
Encouraging the Enactment of State False
Under the federal False Claims Act, anyone who knowingly
Section 6031. Under the conference agreement, if a
Claims Acts.
submits a false claim to the federal government is liable for
state has in effect a law relating to false or fraudulent
damages up to three times the amount of the government’s
claims that meets requirements specified in the bill, the
damages plus mandatory penalties of $5,500 to $11,000 for
FMAP, with respect to any amounts recovered under a
each false claim submitted. Under qui tam (whistleblower)
state action brought under such a law, is decreased by 10
provisions of the act, private citizens with knowledge of
percentage points.
potential violations (“relators”) may file suit on behalf of the
government and are entitled to receive a share of the proceeds
The provision is effective January 1, 2007, except in the
of the action or settlement of the claim (ranging from 15% to
case of a state which the Secretary of HHS determines
30%, depending on whether or not the government elects to
that state legislation is required for compliance.
participate in the case).
States may have a variety of laws in place to facilitate
prosecution of Medicaid fraud, and some have established
their own versions of a false claims act. With limited
exceptions, a state must repay the federal share (generally
determined by the federal medical assistance percentage, or
FMAP) of any provider overpayment within 60 days of
discovering the overpayment, regardless of whether or not the
state has recovered the overpayment to the provider.
Employee Education About False Claims
No provision.
Section 6032. Under the conference agreement, a state
Recovery.
is required to provide that any entity that receives annual
Medicaid payments of at least $5 million, as a condition
of receiving such payments, must: (1) establish written
policies for all employees (and any contractor or agent)
of the entity that provide detailed information on state

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Conference Agreement, as Passed by the Senate
and federal false claims laws and whistle-blower
protections under such laws, (2) include in such written
polices detailed provisions regarding the entity’s policies
and procedures for detecting and preventing fraud,
waste, and abuse, and (3) include in any employee
handbook for the entity a specific discussion of such
laws, the rights of employees to be protected as
whistleblowers, and the entity’s policies and procedures
for detecting and preventing fraud, waste, and abuse.
The provision is effective January 1, 2007, except in the
case of a state which the Secretary of HHS determines
that state legislation is required for compliance.
Prohibition on Restocking and Double
No provision.
Section 6033. The conference agreement would prohibit
Billing of Prescription Drugs.
federal matching payments for the ingredient cost of a
covered outpatient drug for which the pharmacy has
already received payment (other than a reasonable
re-stocking fee). It would become effective on the first
day of the first fiscal quarter beginning after enactment.
Medicaid Integrity Program.
States and the federal government share in the responsibility
Section 6034. The conference agreement establishes a
for safeguarding Medicaid program integrity. States must
Medicaid Integrity Program, under which the Secretary
comply with federal requirements designed to ensure that
of HHS shall enter into contracts with eligible entities to
Medicaid funds are properly spent (or recovered, when
carry out its activities, including review of the actions of
necessary). The Centers for Medicare and Medicaid Services
individuals or entities, audit of claims for payment,
(CMS) is the primary federal agency responsible for
identification of overpayments, and education with
providing oversight of states’ activities and facilitating their
respect to payment integrity and quality of care.
program integrity efforts. The HHS Office of Inspector
Appropriations for the program total $5 million in
General (OIG) also plays a role in Medicaid fraud and abuse
FY2006, $50 million in each of FY2007 and FY2008,

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Conference Agreement, as Passed by the Senate
detection and prevention efforts through its investigations,
and $75 million in each fiscal year thereafter (with a
audits, evaluations, issuances of program recommendations,
mandated increase of 100 employees whose duties
and other activities.
consist solely of protecting the integrity of the Medicaid
program). States are required to comply with any
As part of its program integrity activities, CMS operates a
requirements determined by the Secretary to be
Medicare-Medicaid (Medi-Medi) data match project that
necessary for carrying out the Medicaid Integrity
analyzes claims data from both programs together to detect
Program.
aberrant patterns that may not be evident when billings are
viewed in isolation (e.g., providers submitting claims to both
In each of FY2006-2010, $25 million is appropriated for
programs for procedures that add up to an excessive number
Medicaid activities of the HHS Office of Inspector
of hours of patient care in a single day). The Medi-Medi
General (in addition to any other amounts appropriated
project began with one state in 2001, and was subsequently
or made available for its Medicaid activities, to remain
expanded to include eight others. It is primarily supported by
available until expended).
“wedge” funds from the Health Care Fraud and Abuse
Control (HCFAC) account within the federal Hospital
The conference agreement also establishes a national
Insurance (Medicare Part A) trust fund. HCFAC wedge
expansion of the Medicare-Medicaid data match project
funds are divided between the Department of Justice, the
(referred to as the Medi-Medi Program) as a required
HHS Office of Inspector General, CMS, and other HHS
activity of the Medicare Integrity Program. In addition
agencies. The HCFAC account also funds the Medicare
to HCFAC appropriations for the Medicare Integrity
Integrity Program and activities of the Federal Bureau of
Program, the Medi-Medi Program is appropriated $12
Investigation related to health care fraud. Annual minimum
million in FY2006, $24 million in FY2007, $36 million
and maximum HCFAC appropriations are specified in statute.
in FY2008, $48 million in FY2009, and $60 million in
FY2010 and each fiscal year thereafter.
Enhancing Third Party Identification and
Third-party liability (TPL) refers to the legal obligation of
Section 6035. The conference agreement substitutes the
Payment.
third parties — individuals, entities, or programs — to pay all
term “managed care organization” for “health
or part of the expenditures for medical assistance furnished
maintenance organization” and amends the list of third
under a Medicaid state plan. In general, federal law requires
parties named in Section 1902(a)(25) of the Social
Medicaid to be the payor of last resort, meaning that all other
Security Act for which states must take all reasonable
available third parties must meet their legal obligation to pay
measures to ascertain the legal liability to include

CRS-60
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Conference Agreement, as Passed by the Senate
claims before the Medicaid program pays for the care of an
self-insured plans, pharmacy benefit managers, and other
individual.
parties that are legally responsible (by statute, contract,
or agreement) for payment of a claim for a health care
States are required to take all reasonable measures to
item or service. It also amends that section to include
ascertain the legal liability of third parties to pay for care and
these entities in the list of health insurers that states must
services available under the state Medicaid plan. If the state
prohibit from taking an individual’s Medicaid status into
has determined that probable third party liability exists at the
account when enrolling the individual or making
time a claim for reimbursement is filed, it generally must
payments for benefits to or on behalf of the individual.
reject the claim and return it to the provider for a
determination of the amount of third party liability (referred
In addition, it requires a state to provide assurances
to as “cost avoidance”). If probable liability has not been
satisfactory to the Secretary of HHS that it has laws in
established or the third party is not available to pay the
effect requiring third parties to provide, upon request of
individual’s medical expenses, the state must pay the claim
the state, information to determine health insurance
and then attempt to recover the amount paid (referred to as
coverage (in a manner prescribed by the Secretary) and
“pay and chase”). States are generally required to cost avoid
to cooperate with payment and recovery efforts by
claims unless they have an approved waiver that allows them
Medicaid.
to use the pay and chase method.
The provision is effective January 1, 2006, except in the
As a condition of eligibility for Medicaid, individuals are
case of a state which the Secretary of HHS determines
required to assign to the state Medicaid agency their rights to
that state legislation is required for compliance.
medical support and payment for medical care from any third
party. This assignment of rights facilitates TPL recovery by
allowing the state to collect, on behalf of Medicaid enrollees,
amounts owed by third parties for claims paid by Medicaid.
Improved Enforcement of Documentation
To be eligible for the full range of benefits offered under
Section 6036. Under the conference agreement, states
Requirements.
Medicaid, an individual must be a citizen or national of the
are prohibited from receiving federal Medicaid
United States or a qualified alien (e.g., a legal permanent
reimbursement for an individual who has not provided
resident, refugee, alien granted asylum or related relief) who
satisfactory documentary evidence of citizenship or
meets all other Medicaid program eligibility criteria.
nationality. Such evidence includes one of the following

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Conference Agreement, as Passed by the Senate
Non-qualified aliens (e.g., those who are unauthorized or
documents: (1) a U.S. passport; (2) Certificate of
illegally present, non-immigrants admitted for a temporary
Naturalization; (3) Certificate of U.S. Citizenship; (4) a
purpose) who would otherwise be eligible for Medicaid
valid state-issued driver’s license or other identity
except for their immigration status may only receive
document described in Section 274A(b)(1)(D) of the
Medicaid care and services that are necessary for the
Immigration and Nationality Act, but only if the state
treatment of an emergency medical condition and are not
issuing the license or document requires proof of U.S.
related to an organ transplant procedure.
citizenship or a verified Social Security number before
issuance; (5) such other document specified in regulation
As a condition of an individual’s eligibility for Medicaid
by the Secretary that provides reliable documentation of
benefits, Section 1137(d) of the Social Security Act requires
identity and proof of U.S. citizenship or nationality.
a state to obtain a written declaration, under penalty of
perjury, stating whether the individual is a citizen or national
Satisfactory evidence also includes a document from
of the United States. If an individual declares that he or she
each of the following lists: (1) a certificate of birth in the
is a citizen or national, the state is not required to obtain
U.S; (2) Certificate of Birth Abroad; (3) U.S. Citizen
additional documentary evidence but may choose to do so.
Identification Card; (4) Report of Birth Abroad of a
If an individual declares that he or she is not a citizen or
Citizen of the U.S.; or (5) such other document specified
national, the individual must declare that he or she is a
by the Secretary that provides proof of U.S. citizenship
qualified alien and present Department of Homeland Security
or nationality; AND (1) any identity document described
United States Citizenship and Immigration Services Bureau
in Section 274A(b)(1)(D) of the Immigration and
(DHS/USCIS, formerly the Immigration and Naturalization
Nationality Act; or (2) any other document specified in
Service) or other documentation determined by the state to
regulation by the Secretary that provides reliable
constitute reasonable evidence of satisfactory immigration
documentation of identity.
status. If an individual presents DHS/USCIS documentation,
the state must verify immigration status with DHS/USCIS
The requirements do not apply to aliens who are entitled
through the automated Systematic Alien Verification for
to or enrolled for Medicare benefits, receiving
Entitlements (SAVE) system, or through an alternative
Supplemental Security Income (SSI) benefits, or eligible
system approved by the Secretary of HHS.
for Medicaid on such other basis as the Secretary may
specify that satisfactory evidence had been previously
presented. The provision would apply to initial

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Conference Agreement, as Passed by the Senate
determinations and to redeterminations of eligibility for
Medicaid made on or after July 1, 2006.
Chapter 4. Flexibility in Cost Sharing and Benefits
Provision
Current Law
Conference Agreement, as Amended by the Senate
State Option for Alternative Premiums and
With some exceptions, premiums and enrollment fees are
Section 6041(a). The conference agreement allows
Cost Sharing.
generally prohibited under Medicaid. When applicable,
states to impose premiums and cost-sharing for any
nominal amounts for such charges are between $1 and $19
group of individuals for any type of service (except
per month depending on family income. States are allowed
prescribed drugs which are treated separately; see
to establish nominal service-related cost-sharing requirements
below), through Medicaid state plan amendments (rather
that are generally between $0.50 and $3, depending on the
than waivers), subject to specific restrictions. Premiums
cost of the service provided. Specific services and groups are
and cost-sharing imposed under this option are allowed
exempted from such cost-sharing. Waiver authority is
to vary among classes or groups of individuals, or types
required to change these rules.
of service. Premiums and cost-sharing provisions in
current law for workers with disabilities are not affected.
General Limitations.
See above.
In general, for individuals in families with income
between 100 and 150% FPL: (1) no premiums may be
imposed, (2) cost sharing for any item or service cannot
exceed 10% of the cost of the item or service, and (3) the
total aggregate amount of all cost-sharing (including cost
sharing for prescribed drugs and emergency room
copayments for non-emergency care; see below) cannot
exceed 5% of family income as applied on a quarterly or
monthly basis as specified by the state. For individuals

CRS-63
Provision
Current Law
Conference Agreement, as Amended by the Senate
in families with income above 150% FPL: (1) the total
aggregate amount of all cost sharing (including cost
sharing for prescribed drugs and emergency room
copayments for non-emergency care) cannot exceed 5%
of family income as applied on a quarterly or monthly
basis as specified by the state, and (2) cost-sharing for
any item or service cannot exceed 20% of the cost of the
item or service.
Specified Groups Exempt from Premiums.
Under certain circumstances, families qualifying for
Premiums are not permitted for: (1) mandatory groups
transitional Medicaid, pregnant women and infants with
of children under 18, including individuals in foster care
income over 150% FPL, medically needy groups, and
receiving aid or assistance under Part B of Title IV and
workers with disabilities may be charged premiums for
persons receiving adoption or foster care assistance
Medicaid coverage. Otherwise, in the absence of a waiver,
under Title IV-E, regardless of age; (2) pregnant women;
premiums may not be charged for other individuals and
(3) terminally ill persons receiving Medicaid hospice
groups.
care; (4) individuals in medical institutions who are
required to pay for costs of care all but a minimal
amount of their income for personal needs, and (5)
women who qualify for Medicaid under the breast and
cervical cancer eligibility group. States may exempt
additional groups from premiums.
Specified Groups and Services Exempt
All service-related cost-sharing is prohibited for: (1) children
Service related cost-sharing is not permitted for: (1)
from Service-Related Cost Sharing.
under 18 years of age; (2) pregnant women for any services
services provided to mandatory groups of children under
that relate to the pregnancy or to any other medical condition
18, including individuals in foster care receiving aid or
which may complicate pregnancy; (3) services furnished to
assistance under Part B of Title IV and persons receiving
individuals who are inpatients in a hospital, or are residing in
adoption or foster care assistance under Title IV-E,
a long term care facility or in another medical institution if
regardless of age; (2) preventive services provided to
the individual is required to spend most of their income for
children under 18 regardless of family income; (3)
medical care; (4) services furnished to individuals receiving
services provided to pregnant women that relate to

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Conference Agreement, as Amended by the Senate
hospice care; (5) emergency services; and (6) family planning
pregnancy or to other medical conditions that may
services and supplies. For most other beneficiaries and
complicate pregnancy; (4) services provided to
services, states may impose nominal service-related
terminally ill individuals receiving Medicaid hospice
cost-sharing (described above). For workers with disabilities,
services; (5) services provided to individuals in medical
service-related cost-sharing may be required that exceeds
institutions who are required to spend for costs of care all
nominal amounts as long as they are set on a sliding scale
but a minimal amount of their income for personal
based on income.
needs; (6) emergency services; (7) family planning
services and supplies, and (8) services to women who
qualify for Medicaid under the breast and cervical cancer
eligibility group. States may exempt additional
individuals or services from service-related cost-sharing.
Construction.
No provision.
The agreement further specifies that these provisions
would not prevent states from further limiting premiums
and cost sharing, affect the authority of the Secretary to
waive limits on premiums or cost-sharing, nor affect
related waivers in effect before the date of enactment.
Beneficiary Conditions For Continued
Under the state Medicaid plan, providers must not deny care
The agreement allows states to condition the provision of
Medicaid Enrollment and Receipt of Services.
or services to Medicaid beneficiaries due to the individual’s
medical assistance on the payment of premiums, and to
inability to pay a cost-sharing charge. However, this
terminate Medicaid eligibility on the basis of failure to
requirement does not eliminate the beneficiary’s liability for
pay a premium if that failure continues for at least 60
payment of such charges. For certain groups of pregnant
days. States may apply this provision to some or all
women and infants for which monthly premiums may be
groups of beneficiaries, and may waive premium
charged, states must not require prepayment and must not
payments in cases where such payments would be an
terminate Medicaid eligibility for failure to pay such
undue hardship. In addition, the provision would allow
premiums until such failure continues for at least 60 days.
states to permit providers participating in Medicaid to
States may waive those premiums when such payments
require a Medicaid beneficiary to pay authorized
would cause undue hardship.
cost-sharing as a condition of receiving care or services.
Providers would also be allowed to reduce or waive

CRS-65
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Conference Agreement, as Amended by the Senate
cost-sharing amounts on a case-by-case basis.
Indexing Nominal Cost Sharing and
The regulations that specify nominal premium and
Section 6041(b). Beginning with 2006, the Secretary is
Conforming Amendment.
service-related cost-sharing amounts were published and
required to increase nominal amounts for service-related
amended in the late 1970s and the early 1980s. These
cost-sharing by the annual percentage increase in the
amounts are not adjusted by any factor.
medical care component of the consumer price index
(CPI) for all urban consumers (U.S. city average), as
rounded up in an appropriate manner. These changes
apply to premium and cost-sharing provisions involving
nominal amounts in existing statute (Section 1916) as
well as to the new cost-sharing provisions specific to
prescription drugs and non-emergency care provided in
an emergency room (described below).
Effective Date.
No provision.
Section 6041(c) These provisions apply to cost-sharing
for items and services furnished on or after March 31,
2006.
Special Rules for Cost Sharing for
States are allowed to establish nominal service-related
Section 6042. Under the conference agreement, states
Prescription Drugs.
cost-sharing requirements (defined in regulation) that are
may impose higher cost-sharing amounts for state-
generally between $0.50 and $3, depending on the cost of the
identified non-preferred drugs within a class; waive or
service provided. Specific services and groups are exempted
reduce the cost-sharing otherwise applicable for
from such cost-sharing. Waiver authority is required to
preferred drugs within such class; and must not apply
change these rules. As with other Medicaid benefits, nominal
such cost-sharing for preferred drugs to persons exempt
cost-sharing may be imposed on prescribed drugs, and states
from cost-sharing (identified above). Within these
may vary nominal cost-sharing amounts for preferred and
parameters, states identify the group(s) of beneficiaries
non-preferred drugs. States may also implement prior
for which these special cost-sharing rules will apply.
authorization for prescribed drugs.

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Provision
Current Law
Conference Agreement, as Amended by the Senate
Limitations on cost-sharing for non-
See above.
Cost-sharing for non-preferred drugs may not exceed:
preferred drugs.
(1) nominal amounts for individuals in families with
income below or equal to 150% FPL, and (2) 20% of the
cost of the drug for individuals in families with income
above 150% FPL. For persons generally exempt from
cost-sharing (identified above), cost-sharing for
non-preferred drugs may be applied. Such cost-sharing
may not exceed nominal amounts, and aggregate caps on
cost-sharing (identified above) would still apply.
Special conditions and applicable cost-
No provision.
In cases in which a prescribing physician determines that
sharing.
the preferred drug would not be effective or would have
adverse health effects or both, the state may impose the
cost-sharing amount for preferred drugs on the
prescribed non-preferred product.
Flexibility regarding drugs excluded from
No provision.
The agreement does not prevent states from excluding
cost sharing provisions.
specified drugs or classes of drugs from these special
cost-sharing rules.
Effective Date.
No provision.
These provisions are effective for cost-sharing imposed
for items and services furnished on or after March 31,
2006.
Emergency Room Co-Payments for Non-
Waivers may be used to allow states to impose up to twice the
Section 6043. The conference agreement would allow
Emergency Care.
otherwise applicable nominal cost-sharing amounts for
states, through a state plan amendment, to impose
non-emergency services provided in a hospital emergency
increased cost-sharing on state-specified groups for
room (ER). States may impose these higher amounts if they
non-emergency services provided in an ER, when certain
have established that Medicaid beneficiaries have available
conditions are met. First, alternative non-emergency
and accessible alternative sources of non-emergency,
providers must be available and accessible to the person

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Provision
Current Law
Conference Agreement, as Amended by the Senate
outpatient services.
seeking care. Second, after a medical screening for
emergency medical conditions (as defined in Medicare
law) and a determination that such an emergency does
not exist, but before the non-emergency care is provided
at the ER, the beneficiary must be told: (1) the hospital
can require a copayment, (2) the name and location of an
alternative non-emergency provider who is actually
available and accessible and that such a provider may not
impose the same cost-sharing, and (3) the hospital can
provide a referral. When these conditions are met, states
can apply or waive cost-sharing for services delivered by
the alternative non-emergency provider.
Limitations.
See above.
For persons with income between 100-150% FPL,
cost-sharing for non-emergency services in an ER can
not exceed twice the nominal amounts. Individuals
exempt from premiums or service-related cost-sharing
under other provisions of this agreement may be subject
to nominal copayments for non-emergency services in an
ER, only when no cost-sharing is imposed for care in
hospital outpatient departments or by other alternative
providers in the area served by the hospital ER.
Aggregate caps on cost-sharing (described above) still
apply.
Provider Obligations Regarding Emergency
Contracts with managed care plans must provide for coverage
These provisions have no impact on a hospital’s
Services.
of emergency services without regard to whether the
obligations with respect to screening and stabilizing an
emergency care provider has a contractual relationship with
emergency medical condition, nor do they modify the
the plan or prior authorization. An emergency medical
application of the prudent-layperson standard with
condition is one manifesting itself by acute symptoms of
respect to payment or coverage of emergency services by

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Current Law
Conference Agreement, as Amended by the Senate
sufficient severity (including severe pain) such that a prudent
any managed care organization.
layperson, who possesses an average knowledge of health and
medicine, could reasonably expect the absence of immediate
medical attention to result in placing the health of the
individual in serious jeopardy (and in the case of a pregnant
woman, her health or that of her unborn child), serious
impairment to bodily functions, or serious dysfunction of any
bodily organ or part.
Provider Liability.
No provision. (In general, state laws govern provider
In addition, no hospital or physician that imposes
liability.)
cost-sharing for non-emergency care in an ER is liable in
any civil action or proceeding, absent a finding by clear
and convincing evidence of gross negligence. Liabilities
related to the provision of emergency care or other
applicable state laws regarding delivery of care are not
affected by these provisions. On December 21, 2005,
the Senate passed an amended conference agreement
that, through a point of order, struck this provision.
Definitions.
No provision.
“Non-emergency services” means any care or services
furnished in an ER that the physician determines does
not constitute an appropriate medical screening
examination or stabilizing examination and treatment
screening required for hospitals under Medicare law
(regarding examination and treatment for emergency
medical conditions and women in labor). “Alternative
non-emergency services provider” means a
Medicaid-participating health care provider, such as a
physician’s office, health care clinic, community health
center, hospital outpatient department, or similar health

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Provision
Current Law
Conference Agreement, as Amended by the Senate
care provider that provides clinically appropriate services
for the diagnosis or treatment of the condition
contemporaneously with the provision of non-emergency
services that would otherwise be provided in the ER.
Grants to Establish Alternative Non-
No provision.
The Secretary is required to provide for payments to
Emergency Provider Networks.
states for the establishment of alternate non-emergency
providers, or networks of such providers. The
conference agreement also authorizes and appropriates
$50 million for paying such providers for the four-year
period beginning with 2006. The Secretary is required
to give a preference to states that establish or provide for
alternate non-emergency services providers (or
networks) that serve rural or underserved areas where
beneficiaries may have limited access to primary care
providers, or in partnership with local community
hospitals. To access these funds, states are required to
file an application meeting requirements set by the
Secretary.
Effective Date.
No provision.
These amendments apply to non-emergency services
furnished on or after January 1, 2007.
Use of Benchmark Packages.
Categorically needy (CN) eligibility groups include families
Section 6044. The agreement gives states the option to
with children, the elderly, certain persons with disabilities,
provide Medicaid to state-specified groups through
and certain other pregnant women and children who meet
enrollment in benchmark and benchmark-equivalent
applicable financial standards. Medically needy (MN) groups
coverage (described below). States can only exercise
include the same types of individuals, but different, typically
this option for eligibility groups that were established
higher financial standards apply. Some benefits are
under the state plan on or before the date of enactment of
mandatory for the CN (e.g., inpatient and outpatient hospital
this option. States may choose to provide other

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Conference Agreement, as Amended by the Senate
care, lab and x-ray services, physician services, nursing
wrap-around and additional benefits (see below).
facility care for persons age 21 and over). Other benefits are
optional for the CN (e.g., other practitioner services, routine
dental care, physical therapy). Benefits offered to CN groups
must be the same statewide, and in amount, duration and
scope. States may offer a more restrictive benefit package to
the MN, but must offer prenatal and delivery services,
ambulatory services for persons under 21 and those entitled
to institutional services, and home health services for those
entitled to nursing facility care. Benefits offered to MN
groups must be the same statewide, and in amount, duration
and scope. Changes in comparability or statewideness for
benefits for CN and MN groups require a waiver.
Full Benefit Eligible Individuals.
See above.
Enrollment in benchmark and benchmark-equivalent
coverage can be required for “full benefit eligible
individuals,” including persons eligible for all services
covered for the CN, or any other category of eligibility
for all covered services under the state Medicaid plan as
determined by the Secretary. Certain individuals would
be excluded from the definition of a full-benefit eligible,
including (1) the MN; (2) CN individuals in certain states
who are required to pay for medical expenses from their
income until their remaining net income meets SSI
financial standards in effect in 1972; and (3) other
individuals who qualify for Medicaid when costs
incurred for medical expenses or other remedial care are
subtracted from income to meet financial eligibility
requirements (also known as spend-down populations).

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Current Law
Conference Agreement, as Amended by the Senate
Exempted Groups.
No
provision.
Specific groups are exempted
from
mandatory
enrollment in the benefit package option, including (1)
mandatory pregnant women; (2) individuals who qualify
for Medicaid under the state plan on the basis of being
blind or disabled regardless of their eligibility for SSI on
such basis, including children that meet SSI disability
standards who require institutional care, but for whom
care is delivered outside the institution, and the cost of
that care does not exceed institutional care (also known
as Katie Beckett or TEFRA children); (3) dual eligibles;
(4) terminally ill hospice patients; (5) individuals in
medical institutions who are required to pay for costs of
medical services except for a minimal amount retained
from their income for personal needs; (6) individuals
who are medically frail or who have special medical
needs, as identified in accordance with regulations of the
Secretary; (7) individuals who qualify for Medicaid
long-term care services (i.e., nursing facility or
equivalent level of care, home and community-based
waiver services, home health, home and community care
for functionally disabled elderly, personal care, and other
optional long-term care offered by the state); (8) children
in foster care receiving child welfare services (under
Title IV-B) and children receiving foster care or adoption
assistance under Title IV-E regardless of age; (9)
individuals who qualify for Medicaid on the basis of
receiving assistance under TANF (as in effect on or after
the welfare reform effective date applicable to the state);
(10) women in the breast and cervical cancer eligibility

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Provision
Current Law
Conference Agreement, as Amended by the Senate
group; and (11) other “limited services beneficiaries,”
including certain tuberculosis-infected individuals, and
legal and undocumented non-citizens who meet the
financial and categorical requirements for Medicaid
eligibility without regard to time in the U.S. and are
eligible only for emergency medical services.
Standard Benefits.
As described above, some benefits are mandatory for the CN
Benchmark and benchmark-equivalent packages would
(e.g., inpatient and outpatient hospital care, lab and x-ray
be nearly identical to those offered under SCHIP, with
services, physician services, FQHC services, nursing facility
some additions. Benchmark coverage would include (1)
care for persons age 21 and over). Other benefits are optional
the standard Blue Cross/Blue Shield preferred provider
for the CN (e.g., other practitioner services, routine dental
plan under FEHBP; (2) health coverage for state
care, physical therapy). Benefits offered to CN groups must
employees; (3) health coverage offered by the largest
be the same statewide, and in amount, duration and scope.
commercial HMO; and (4) secretary approved coverage
States may offer a more restrictive benefit package to the
which may include any other health benefits coverage
MN, but must offer prenatal and delivery services,
that the Secretary determines will provide appropriate
ambulatory services for persons under 21 and those entitled
coverage for the population targeted to receive such
to institutional services, and home health services for those
coverage. Benchmark-equivalent coverage would have
entitled to nursing facility care. Benefits offered to MN
the same actuarial value as one of the benchmark plans.
groups must be the same statewide, and in amount, duration
Such coverage includes (1) inpatient and outpatient
and scope. Changes in comparability or statewideness for
hospital services, (2) physician services, (3) lab and
benefits for CN and MN groups require a waiver.
x-ray services, (4) well child care, including
immunizations, and (5) other appropriate preventive care
(designated by the Secretary). Such coverage must also
include at least 75% of the actuarial value of coverage
under the benchmark plan for: (1) prescribed drugs, (2)
mental health services, (3) vision care, and (4) hearing
services. Determination of actuarial value would follow
generally accepted actuarial principles and
methodologies and would be conducted by a member of

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Provision
Current Law
Conference Agreement, as Amended by the Senate
the American Academy of Actuaries.
Wrap-Around Benefits for Children Only.
Under the Early and Periodic, Screening, Diagnostic and
For any child under age 19 in one of the major
Treatment (EPSDT) benefit, Medicaid children under age 21
mandatory and optional eligibility groups (defined in
in CN groups receive comprehensive screening services and
Section 1902(a)(10)(A)) under the state Medicaid plan,
preventive care, and are guaranteed access to all federally
wrap-around benefits to the benchmark or benchmark-
coverable services necessary to treat a problem or condition.
equivalent coverage includes ESPDT as defined in
EPSDT may be offered to MN children.
current Medicaid law.
Treatment of Rural Health Clinics (RHCs)
Both the services provided by RHCs and FQHCs are
States can only enroll eligible beneficiaries in benchmark
and Federally Qualified Health Centers (FQHCs).
required benefits for CN groups under Medicaid. Among
and benchmark-equivalent coverage if such persons have
other mandatory benefits for MN groups, states must offer
access to services provided by RHCs and FQHCs, and
ambulatory services for persons under 21 and those entitled
the Medicaid prospective payment system for both types
to institutional services. Such ambulatory services may
of providers remains in effect.
include RHC and FQHC services at state option. In general,
RHCs and FQHCs are paid on a per visit basis, using a
prospective payment system that takes into account costs
incurred and changes in the scope of services provided. Per
visit payment rates are also adjusted annually by the
Medicare Economic Index applicable to primary care
services.
Effective Date.
No provision.
These provisions are effective on March 31, 2006.

CRS-74
Chapter 5. State Financing
Provision
Current Law
Conference Agreement, as Passed by the Senate
Managed Care Organization Provider Tax.
States’ ability to use provider-specific taxes to fund
Section 6051. The conference agreement would expand
Medicaid expenditures is limited. If a state establishes
the Medicaid MCO provider class to include all MCOs.
provider-specific taxes to fund the state’s share of program
To qualify for federal reimbursement, a state’s provider
costs, reimbursement of the federal share will not be available
tax would need to apply to both Medicaid and
unless the tax program meets the following three rules: the
non-Medicaid MCOs. This would make the MCO
taxes collected cannot exceed 25% of the state (or
provider class more consistent with the other provider
non-federal) share of Medicaid expenditures; the state cannot
classes for purposes of determining if a provider tax is
provide a guarantee to the providers that the taxes will be
broad-based.
returned to them; and the tax must be “broad-based.” A
broad-based tax is a tax that is uniformly applied to all
The provision becomes effective upon enactment except
providers or services within the provider class. The federal
in states with taxes based on the current law Medicaid
statute identifies each of the classes of providers or services
MCO provider class in place as of December 8, 2005. In
for the purpose of determining whether a tax is broad-based.
those states, the provision becomes effective on October
1, 2009.
Medicaid managed care organizations (MCOs) are identified
as a separate class of providers for the purposes of
determining if a tax is broad-based. This class is unlike all of
the other classes of providers or services because it is limited
to only Medicaid providers. Other classes of providers or
services identified in statute, such as inpatient hospital
services, outpatient hospital services, physicians — are not
restricted to Medicaid providers or Medicaid services.

CRS-75
Provision
Current Law
Conference Agreement, as Passed by the Senate
Reforms of Case Management and
Case management is an optional Medicaid benefit designed
Section 6052. The conference agreement clarifies the
Targeted Case Management (TCM).
to help Medicaid beneficiaries access needed medical, social,
activities that can be considered case management or
educational, and other services. States that cover case
targeted case management, and those activities (primarily
management do not have to offer the benefit statewide and
foster care-related activities) that may not be reimbursed
can limit the service to specific groups of Medicaid
as case management services or TCM.
beneficiaries which is referred to as “targeted case
management” (TCM). Several states extend case
management services to individuals who may also be
receiving certain case management services as part of another
state and/or federal program (e.g., foster care, juvenile
justice).
Additional FMAP Adjustments.
The federal medical assistance percentage (FMAP) is the rate
Section 6053. Under the conference agreement, if
at which states are reimbursed for most Medicaid service
Alaska’s FY2006 or FY2007 FMAP for Medicaid or
expenditures. It is based on a formula that provides higher
SCHIP is less than its FY2005 FMAP, the FY2005
reimbursement to states with lower per capita incomes
FMAP shall apply.
relative to the national average (and vice versa); it has a
statutory minimum of 50% and maximum of 83%. An
In addition, in computing Medicaid and SCHIP FMAPs
enhanced FMAP is available for both services and
for any year after 2006 for a state that the Secretary of
administration under the State Children’s Health Insurance
HHS determines has a significant number of individuals
Program (SCHIP), subject to the availability of funds from a
who were evacuated to and live in the state as a result of
state’s SCHIP allotment.
Hurricane Katrina as of October 1, 2005, the Secretary
shall disregard such evacuees and their incomes.
When state FMAPs are calculated by HHS for an upcoming
fiscal year, the state and U.S. amounts used in the formula are
equal to the average of the three most recent calendar years
of data on per capita personal income available from the
Department of Commerce’s Bureau of Economic Analysis
(BEA). BEA revises its most recent estimates of state per
capita personal income on an annual basis to incorporate

CRS-76
Provision
Current Law
Conference Agreement, as Passed by the Senate
revised Census Bureau population figures and newly
available source data. It also undertakes a comprehensive
data revision — reflecting methodological and other changes
— every few years.
P.L. 106-554 (Consolidated Appropriations Act, 2001),
provided that for FY2001-2005, Medicaid and SCHIP
FMAPs for Alaska would be calculated using the state’s per
capita income divided by 1.05. Dividing by 1.05 lowered the
state’s per capita income, thereby increasing its FMAP.
DSH Allotment for the District of Columbia.
States and the District of Columbia are required to recognize,
Section 6054. The conference agreement would raise
in establishing hospital payment rates, the situation of
the allotments for the District of Columbia for FY2000,
hospitals that serve a disproportionate number of Medicaid
2001, and 2002 from $ 32 million to $ 49 million. The
beneficiaries and other low-income patients with special
higher allotments would be used to calculate DSH
needs. Under broad federal guidelines, each state determines
allotments beginning with FY2005 amounts. The
which hospitals receive DSH payments and the payment
provision would take effect as if enacted on October 1,
amounts to be made to each qualifying hospital. The federal
2005 and would apply to expenditures made on or after
government shares in the cost of state DSH payments at the
that date
same federal matching percentage as for most other Medicaid
services. Total federal reimbursement for each state’s DSH
payments, however, are capped at a statewide ceiling,
referred to as the state’s DSH allotment.
Increase In Medicaid Payments to the
In the 50 states and the District of Columbia, Medicaid is an
Section 6055. For each of FY2006-2007, the
Insular Areas.
individual entitlement. There are no limits on the federal
Conference Agreement increases the federal Medicaid
payments for Medicaid as long as the state is able to
funding caps in the insular areas. For Puerto Rico, the
contribute its share of the matching funds. In contrast,
federal Medicaid cap is increased by $12 million in each
Medicaid programs in the territories are subject to spending
of FY2006 and FY2007. For the Virgin Islands and
caps. For FY1999 and subsequent fiscal years, these caps are
Guam, the federal Medicaid caps is increased by $2.5

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Conference Agreement, as Passed by the Senate
increased by the percentage change in the medical care
million in FY2006, and by $5.0 million in FY2007. For
component of the Consumer Price Index (CPI-U) for all
the Northern Marianas, the federal Medicaid cap is
Urban Consumers (as published by the Bureau of Labor
increased by $1.0 million in FY2006, and by $2.0
Statistics). The federal Medicaid matching rate, which
million in FY2007. For American Samoa, the federal
determines the share if Medicaid expenditures paid for by the
Medicaid cap is increased by $2.0 million in FY2006,
federal government, is statutorily set at 50% of the territories.
and by $4.0 million in FY2007. For FY2008 and
Therefore, the federal government pays 50% of the cost of
subsequent fiscal years, the total annual cap on federal
Medicaid items and services in the territories up to the
funding for the Medicaid programs in the insular areas is
spending caps.
calculated by increasing the FY2007 ceiling for inflation.
The Conference Agreement is effective upon enactment
of this act

CRS-78
Chapter 6. Other Provisions
Subchapter A — Family Opportunity Act.
Provision
Current Law
Conference Agreement, as Passed by the Senate
Opportunity for Families of Disabled
For children with disabilities, there are a number of
Section 6062(a)(1). The agreement creates a new optional
Children to Purchase Medicaid Coverage for
potentially applicable Medicaid eligibility groups, some
Medicaid eligibility group for children with disabilities under
Such Children.
mandatory but most optional. For some of these groups,
age 19 who meet the severity of disability required under SSI
disability status or medical need is directly related to
without regard to any income or asset eligibility requirements
Medicaid eligibility (e.g., children receiving
applicable under SSI for children, and whose family income
Supplemental Security Income or SSI with family
does not exceed 300% FPL. (States can exceed 300% FPL,
income below 75% FPL). There are other pathways
without federal matching funds for such coverage.) Medicaid
through which such children may also qualify for
coverage will be phased in by age group, beginning with
Medicaid coverage for which disability status and/or
children through age six in the second through fourth quarters
medical need are irrelevant (e.g., children under age 6
of FY2007, then covering children through age 12 beginning
with family income below 133% FPL). All of the
in FY2008, and finally, covering children through age 18
Medicaid eligibility pathways for children require
during FY2009 and thereafter.
income levels that are generally below 300% of the
federal poverty level (FPL) with some state-specific
exceptions.

CRS-79
Provision
Current Law
Conference Agreement, as Passed by the Senate
Interaction with Employer-Sponsored
States may require Medicaid beneficiaries to apply for
Section 6062(a)(2). Under the agreement, states must
Family Coverage.
coverage in certain employer-sponsored group health
require certain parents of children eligible for Medicaid under
plans (in which such persons are eligible) when it is
the new optional coverage group to enroll in, and pay
cost-effective to do so (defined below). This
premiums for, family coverage through employer-sponsored
requirement may be imposed as a condition of
insurance if certain conditions are met. When the employer
continuing Medicaid eligibility, except that failure of a
offers family coverage, the parent is eligible for such
parent to enroll a child must not affect the child’s
coverage, and the employer contributes at least 50% of the
continuing eligibility for Medicaid. If all members of the
total cost of annual premiums for such coverage, states must
family are not eligible for Medicaid, and the group
require participation in such coverage as a condition of
health plan requires enrollment of the entire family,
continuing Medicaid eligibility for the child. States can pay
Medicaid will pay associated premiums for full family
any portion of required premiums on behalf of eligible
coverage if doing so is cost-effective. Medicaid will not
children under such employer plans. Medicaid would be the
pay deductibles, coinsurance or other cost-sharing for
secondary payer to these employer plans. Benefits offered by
family members ineligible for Medicaid. Third party
Medicaid but not offered by the employer plans would be
liability rules apply to coverage in a group health plan;
covered under Medicaid. Also, if such employer coverage is
that is, such plans, not Medicaid, must pay for all
obtained, states must reduce income-related premiums for
covered services under the plan. Cost-effectiveness
Medicaid coverage (permitted under Section 6062(b); see
means that the reduction in Medicaid expenditures for
below) by an amount that reasonably reflects the premium
Medicaid beneficiaries enrolled in a group health plan is
contribution made by the parent for private coverage on
likely to be greater than the additional costs for
behalf of a child with a disability.
premiums and cost-sharing required under the group
health plan.
State Option to Impose Income-Related
For certain eligibility categories, states may not impose
Section 6062(b). States are permitted, within certain limits,
Premiums.
enrollment fees, premiums or similar charges. States are
to require families with children that qualify for Medicaid
specifically prohibited from requiring payment of
under the new optional eligibility category to pay monthly
deductions, cost-sharing or similar charges for services
premiums on a sliding scale based on income, but only if
furnished to children under 18 (up to age 21, or
specific caps on aggregate payments for cost-sharing,
reasonable subcategories, at state option). Also, in
including premiums for employer-sponsored family coverage
certain circumstances, states may impose monthly
if applicable, and other charges are met. These caps specify

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Current Law
Conference Agreement, as Passed by the Senate
premiums for Medicaid. For example, states may require
that cost-sharing cannot exceed 5% of income for families
certain workers with disabilities to pay premiums and
with income up to 200% FPL, and cannot exceed 7.5% of
cost-sharing set on a sliding scale based on income. For
income for families with income between 200% and 300%
one of these groups, states may require those with
FPL. States cannot require prepayment of premiums, nor can
income between 250% and 450% FPL to pay the full
states terminate eligibility of an enrolled child for failure to
premium. But the sum of such payments may not exceed
pay premiums unless lack of payment continues for a
7.5% of income. For other groups, states may not
minimum of 60 days beyond the due date. States can waive
require prepayment of premiums and may not terminate
payment of premiums when such payment would cause
eligibility due to failure to pay premiums, unless such
undue hardship.
failure continues for at least 60 days. States may also
waive premiums when such payments would cause
undue hardship.
Conforming Amendments.
Unless otherwise specified for a given coverage group,
Section 6062(c). The agreement permits the upper income
Medicaid eligibility for children is limited to those in
level for the new optional coverage group (set at 300% FPL)
families with income up to 133 and 1/3% of the
to exceed the otherwise applicable AFDC-related income
applicable AFDC payment standard in place as of July
standard for children under Medicaid. This section also
16, 1996. In addition, targeted low-income children
stipulates that children with disabilities made eligible for
under SCHIP statute are defined as those who would not
Medicaid through the new optional coverage group would not
qualify for Medicaid under the state plan in effect on
be considered to be targeted low-income children as defined
March 31, 1997. Payments for services provided to
under SCHIP. Thus, the regular Medicaid FMAP, rather than
children who receive Medicaid benefits through an
the higher SCHIP E-FMAP, applies for determining the
expansion of eligibility under SCHIP authority are
federal share of Medicaid expenditures for the new optional
reimbursed by the federal government at the enhanced
coverage group. In addition, federal payments will be drawn
federal medical assistance percentage (E-FMAP) rate,
from the open-ended Medicaid account and not the capped
and funds based on this rate are drawn from annual
SCHIP account.
SCHIP allotments. The SCHIP E-FMAP builds on the
Medicaid FMAP. The FMAP formula is designed to
provide a higher federal matching rate for states with
lower average per capita personal income, compared to

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Conference Agreement, as Passed by the Senate
the national average.
Effective Date.
No provision.
Section 6062(d). These provisions are effective for items
and services furnished on or after January 1, 2007.
Demonstration Projects Regarding Home-
Medicaid home and community-based service (HCBS)
Section 6063. The conference agreement establishes a five-
and Community-Based Alternatives to
waivers authorized by Section 1915(c) of the Social
year demonstration project in which up to 10 states could
Psychiatric Residential Treatment Facilities for
Security Act allows states to provide a broad range of
provide a broad range of home- and community-based
Children.
home and community-based services to Medicaid
services to children who would otherwise require services in
beneficiaries who would otherwise need the level of care
a psychiatric residential treatment facility. The demonstration
provided in a hospital, nursing facility, or intermediate
would test the effectiveness of improving or maintaining the
care facility for individuals with mental retardation (ICF-
child’s functional level, and the cost-effectiveness of
MR). The HCBS waiver does not allow states to provide
providing these types of services as an alternative to
these types of programs as an alternative to a psychiatric
psychiatric residential treatment services.
residential treatment facility for children with psychiatric
disabilities.
State Demonstration.
No provision
The state demonstration projects may provide a variety of
home and community-based services as an alternative to
psychiatric residential treatment facilities. The projects must
follow the existing requirements of the HCBS waiver, and be
budget neutral. The state must also provide for an interim
and final evaluations that must be conducted by an
independent third party.
Following the demonstration, a state may continue to provide
home and community-based services to those children who
are enrolled in the demonstration project as of the project’s
termination date.

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Current Law
Conference Agreement, as Passed by the Senate
Federal Evaluation and Report.
No provision.
The Secretary is required to complete evaluations of the
project and report the findings to the President and Congress
within 12 months of completing the evaluations. Of the
amount appropriated for the demonstration, the Secretary
may use $1 million each year in the FY2007-FY2011 period
for this purpose.
Appropriation.
No provision.
The conference agreement appropriates $218 million for
FY2007-FY2011 to carry out the demonstration. The funds
available for this demonstration total: $21 million in FY2007;
$37 million in FY2008; $49 million in FY2009, $53 million
in FY2010; and $57 million in FY2011.
Family-to-Family Health Information
Family-to-family health centers provide information and
Section 6064. The conference agreement increases funding
Centers.
assistance to help families of children with special health
under the SPRANS program of Title V of the Social Security
care needs navigate the system of care and make
Act for the development and support of new family-to-family
decisions about the needs and available supports for their
health information centers. It appropriates an additional $3
child. No provision in current law specifically
million for FY2007, $4 million for FY2008, and $5 million
authorizes a dedicated amount of funds for these family-
for FY2009 for this new purpose. For each of FYs 2010 and
to-family health information centers. However, since
2011, the conference agreement authorizes $5 million for this
2002, the Department of Health and Human Services
purpose. Funds would remain available until expended.
(HHS) has awarded approximately $6.9 million to
The purpose of the family-to-family health information
develop these information centers in 36 states under
centers is to: (1) assist families of children with disabilities
various program authorities including (1) Special
or special health care needs to make informed choices about
Projects of Regional and National Significance Program
health care so as to promote good treatment decisions, cost-
(SPRANS) of the Maternal and Child Services Block
effectiveness, and improved health outcomes for such
Grant (Title V of the Social Security Act) operated by
children; (2) provide information regarding the health care
the Health Resources Services Administration (HRSA);
needs of, and resources available for children with disabilities
(2) the Real Choice Systems Change grant program
or special health care needs; (3) identify successful health
operated by the Centers for Medicare and Medicaid

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Conference Agreement, as Passed by the Senate
Services (CMS); and (3) a one-year direct congressional
delivery models; (4) develop a model for collaboration
appropriation to an organization in Iowa. Federal
between families of such children and health professionals;
funding for these projects is time-limited. Except for the
(5) provide training and guidance with regard to the care of
one-year direct appropriation, state projects have
such children; and (6) conduct outreach activities to the
generally been funded for a three- or four-year period.
families of such children, health professionals, schools, and
HRSA intends to fund additional family-to-family health
other appropriate entities and individuals. The family-to-
information centers awarding up to $2.4 million to six
family health information center would be staffed by families
projects for a four-year period starting in FY2006.
who have expertise in public and private health care systems
and by health professionals.
The Secretary is required to develop family-to-family health
information centers in at least 25 states in FY2007, 40 states
in FY2008, and all states in FY2009.
Restoration of Medicaid Eligibility for
SSI and Medicaid eligibility is effective on the later of
Section 6065. The agreement extends Medicaid eligibility to
Certain SSI Beneficiaries.
(1) the first day of the month following the date the
persons who are under age 21 and who are eligible for SSI,
application is filed, or (2) the first day of the month
effective on the later of: (1) the date the application is filed,
following the date that the individual is determined
or (2) the date SSI eligibility is granted. This provision is
eligible.
effective one year after the date of enactment.

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Subchapter B — Money Follows the Person Rebalancing Demonstration.
Provision
Current Law
Conference Agreement, as Passed by the Senate
Money Follows the Person Demonstration.
States can provide a variety of home and community-
Section 6071(a). The conference agreement authorizes the
based services to Medicaid beneficiaries who need long-
Secretary to conduct a demonstration project in states to (1)
term care. Some of these services may be offered
increase the use of home and community-based care instead
statewide as part of the Medicaid state plan (e.g., home
of institutions by relocating individuals from institutions into
health services and personal care services). Other
the community, (2) expand the state’s capacity to provide
services may be offered through a home and community-
home and community-based long-term care services for
based services (HCBS) waiver under Section 1915(c) of
individuals who choose to transition into the community; and
the Social Security Act. The HCBS waivers allow states
(3) to ensure that procedures are in place to provide quality
to provide a broad range of home and community-based
assurance and continuous quality improvement, that is at least
services (e.g., respite, adult day care) to individuals who
comparable to other Medicaid home and community-based
would otherwise require the level of care provided in
services.
certain types of institutions (i.e., a hospital, nursing
facility or intermediate care facility for individuals with
mental retardation (ICF-MR)). As part of the HCBS
waiver, states have the ability to define the covered
services and specify a target population (e.g., elderly
individuals). States may also limit the number of waiver
participants.
Medicaid beneficiaries who are residents of an institution
(such as a nursing home) and who would like to leave
that institution would be entitled to receive those
Medicaid services covered by the Medicaid state plan.
However, individuals may not be able to access the
broader range of services under an HCBS waiver
because many states have waiting lists.

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Provision
Current Law
Conference Agreement, as Passed by the Senate
State Demonstrations.
No provision
States awarded a demonstration would receive additional
federal funding for the costs of home and community-based,
long-term care services (under a HCBS waiver and/or the
state plan) for 12 months following a demonstration
participant’s transition from an institution into the
community. In a given fiscal year, funding would be capped
at the amount of a state’s grant award. After the 12 months
of grant funding, the state would be required to continue
providing services through a Medicaid home and community-
based long-term care program.
Eligible Individuals.
No provision.
Individuals may participate in the demonstration if they meet
the following criteria: (1) they are residents of a hospital,
nursing facility, ICF-MR, or an institution for mental disease
(IMD) (but only to the extent that the IMD benefit is offered
as part of the existing state Medicaid plan); (2) they have
resided in the facility for no less than six months or for a
longer time period specified by the state (up to a maximum of
two years); (3) they are receiving Medicaid benefits for the
services in this facility; (4) they will continue to require the
level of care of the facility but for the provision of HCBS
services.
After relocating into the community, the individual must
reside in one of the following: a home owned or leased by
the individual or his/her family; an apartment with an
individual lease in which the individual (or family) has
domain and control over the space; or a community-based
residential setting where no more than four unrelated
individuals reside.

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Provision
Current Law
Conference Agreement, as Passed by the Senate
State Application.
No provision.
Section 6071(c). The state’s application for a demonstration
project is required to include, at a minimum, the following
information: (1) assurance that the project was developed
and will be operated through a public input process; (2)
assurance that the project will operate in conjunction with an
existing Medicaid home and community-based program; (3)
the duration of the project, which must be for at least two
consecutive fiscal years in a five-year period starting in
FY2007; (4) the service area, which may be statewide or less-
than-statewide; (5) the target groups and the projected
number to be enrolled and the estimated total expenditures for
each fiscal year; (6) assurance that the project defers to
individual choice and that the state will continue services for
participants after the demonstration ends, as long as the state
offers such services and the individual remains eligible; (7)
information on recent Medicaid expenditures for long-term
care and home and community-based services the year
preceding the demonstration, and proposed methods to
increase the state’s investment in home and community-based
services; (8) methods the state will use to eliminate barriers
to paying for long-term care services for participants in the
setting(s) of their choice; (9) assurance that the state will meet
a maintenance of effort for Medicaid HCBS expenditures and
will continue to operate a HCBS waiver that meets the
statutory requirements for cost-neutrality.
A state is also required to identify any requested waivers of
Medicaid law; describe a plan for quality assurance and
improvement of HCBS services under Medicaid; if

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Provision
Current Law
Conference Agreement, as Passed by the Senate
applicable, the process for participants to self-direct his or her
own services (meeting standards described below); and
compliance with reports and evaluation, as required by the
Secretary.
Requirements for Self-Directed Services.
No provision.
If a state allows demonstration participants to self-direct their
home and community-based long-term care services, the state
must include the following: (1) an assessment of the
individual’s needs, capabilities and preferences; (2) a service
plan that is developed jointly with the individual (or an
authorized representative).
If a state allows for an individualized budget which is the
value of the self-directed services, the state must describe the
method used to set the budget, define a process to adjust the
budget to reflect changes in individuals assessment and
service plans, and evaluate expenditures under the budget.
Secretary’s Award of Competitive Grants
No provision.
Section 6071(d). In addition to evaluating the merits of a
and Waivers.
state’s application, in selecting demonstration projects, the
Secretary is required to consider a national balance of target
groups and geographic distribution and to give a preference
to states that cover multiple groups or offer project
participants the opportunity to self-direct their services.
The Secretary is also authorized to waive certain sections of
Medicaid law to achieve the demonstration’s purpose.
Conditional Approval of Out-Year Grants.
No provision
To qualify for grant awards after year one, states will be
required to meet numerical benchmarks measuring the

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Current Law
Conference Agreement, as Passed by the Senate
increased investment in services under this proposal and the
number of individuals transitioned into the community.
States will also be required to demonstrate that they are
assuring the health and welfare of project participants. For
states that do not meet these requirements, the Secretary will
be required to rescind the grant award for future grant periods
and will be allowed to re-award unused funding.
Payments to States/ Carryover of Unused
Medicaid expenditures for services (including the
Section 6071 (e). Those states awarded a demonstration
Grant Amounts.
Medicaid state plan and HCBS waiver) are generally
would receive an enhanced FMAP rate (referred to as the
shared between the federal and state governments. The
`MFP-enhanced FMAP’) equal to the current FMAP rate for
specific federal share of a state is based on the state’s
the state increased by a number of percentage points equal to
federal medical assistance percentage (FMAP) rate
50% of the difference between 100% and the normal FMAP
which can range from 50% to 83%.
rate. However, in no case can the FMAP rate exceed 90% for
a state. The state will receive the MFP-enhanced FMAP for
the costs of home and community-based, long-term care
services for 12 months following a demonstration
participant’s transition from an institution into the
community.
Payments for home and community-based long-term care
services under the demonstration project would be in lieu of
payment for expenditures that could otherwise be paid for by
Medicaid. However, if a state exhausts its grant funding in a
particular year, the state is not prevented from using
Medicaid to pay for home and community-based long-term
care services. Finally, a state that does not use all of its
funding in a given fiscal year will continue to have access to
that funding for four subsequent fiscal years.

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Provision
Current Law
Conference Agreement, as Passed by the Senate
Quality Assurance and Improvement;
No provision.
Section 6071 (f). The Secretary is required to provide for
Technical Assistance and Oversight.
technical assistance and oversight of states to improve the
quality assurance and quality improvement systems under
Medicaid home and community-based waivers. The
Secretary may use up to $2.4 million of the amounts
appropriated in the portion of FY2007 that begins on January
1, 2007, and ends on September 30, 2007, and for FY2008,
to carry out these activities during the period beginning on
January 1, 2007, and ending on September 30, 2011.
Research and Evaluation.
No provision.
Section 6071 (g). The conference agreement requires the
Secretary to provide for research on, and conduct a national
evaluation of, the demonstration project. The Secretary must
make a final report to the President and Congress no later
than September 30, 2011, and may use up to $1.1 million
each year from FY2008-FY2011, to carry out these activities.
Appropriations.
No provision.
Section 6071(h). The conference agreement appropriates
$250 million for the portion of FY2007 which begins on
January 1, 2007, and ends on September 30, 2007; $300
million in FY2008; $350 million in FY2OO9; $400 million
in FY2010; and $450 million in FY2011 to carry out the
demonstration project.
Funds not awarded to states in a given fiscal year would
continue to be available in subsequent fiscal years, through
September 30, 2011.

CRS-90
Subchapter C — Miscellaneous.
Provision
Current Law
Conference Agreement, as Passed by the Senate
Medicaid Transformation Grants.
Section 1903(a) of the Social Security Act describes the level of
Section 6081. Under the House bill, in addition to the
federal reimbursement available to states for various Medicaid
normal federal Medicaid reimbursement received by
program functions. The federal medical assistance percentage
states under Section 1903(a), the Secretary of HHS shall
(FMAP) is the rate at which states are reimbursed for most
provide for payments to states for the adoption of
Medicaid service expenditures. It is based on a formula that
innovative methods to improve the effectiveness and
provides higher reimbursement to states with lower per capita
efficiency in Medicaid.
incomes relative to the national average (and vice versa); it has a
statutory minimum of 50% and maximum of 83%. The federal
Examples of innovative methods for which funds may be
reimbursement rate for Medicaid administrative expenditures does
used include (1) methods for reducing patient error rates
not vary by state and is generally 50%, but certain administrative
through the implementation and use of electronic
functions receive enhanced (usually 75%) reimbursement.
systems, (2) methods for improving rates of Medicaid
collection from estates, (3) methods for reducing waste,
fraud, and abuse, (4) implementation of a medication
risk management program, (5) methods for reducing
outpatient drug expenditures by increasing the utilization
of generics, and (6) methods for improving access to
primary and specialty physician care for the uninsured
using integrated university-based hospital and clinic
systems.
Total payments will equal and not exceed $75 million in
each of FY2007 and FY2008. The Secretary shall
specify a method for allocating funds among states,
providing preference for states targeting health providers
that treat significant numbers of Medicaid beneficiaries
and allocating at least 25% of the funds among states

CRS-91
Provision
Current Law
Conference Agreement, as Passed by the Senate
whose populations as of July 1, 2004 were more than
105% of their populations as of April 1, 2000.
Health Opportunity Accounts.
Medicaid is a joint federal-state entitlement program that finances
Section 6082. The conference agreement requires the
health care coverage for certain low-income families, children,
Secretary of HHS to establish no more then 10
pregnant women, and individuals who are aged or disabled. Each
demonstration programs within Medicaid for health
state designs and administers its own program under broad federal
opportunity accounts (HOA), effective January 1, 2007.
guidelines. Variation exists among states in eligibility, covered
If successful (based on cost-effectiveness, quality of care
services, and the delivery of, and reimbursement for services.
and other Secretary-specified criteria) during the initial
States that wish to experiment with new approaches for providing
five-year test period, such demonstrations may be
health care coverage that promote the objectives of the Medicaid
extended or made permanent, and other demonstrations
program may seek approval for Section 1115 demonstration
may be approved.
waivers. While the demonstration programs described in the
conference agreement have some of the elements of a Section
HOAs will be used to pay (via electronic funds transfers)
1115 demonstration waiver, “Health Opportunity Accounts”, as
health care expenses specified by the state; payments
defined by the provision are not explicitly authorized under
could be restricted to licensed or otherwise authorized
current law.
providers as well as to items and services that are
medically appropriate or necessary. Among other things,
state demonstration programs are required to make
patients aware of the high cost of medical care, provide
incentives for them to seek preventive care, and reduce
inappropriate uses of health care.
Eligibility Rules for Demonstration
To qualify for Medicaid, an individual must meet both categorical
Section 6082 (b). Eligibility for HOAs is determined by
Participants.
and financial eligibility requirements. The specific income and
the state, though individuals age 65 or older, or who are
resource limitations that apply to each eligibility group are set
blind or disabled regardless of whether the individual is
through a combination of federal parameters and state definitions.
eligible for SSI on such basis, who are pregnant, who
have been eligible for medical assistance for a continuos
period of less than three months, or who are receiving
terminal care or long-term care, are among those who are

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Provision
Current Law
Conference Agreement, as Passed by the Senate
precluded from participating. Other excluded groups
include (1) dual eligibles, (2) terminally ill hospice
patients, (3) children with disabilities that meet SSI
disability standards who require institutional care, but for
whom care is delivered outside the institution, and the
cost of that care does not exceed the otherwise applicable
institutional care (also known as Katie Beckett or
TEFRA children); (4) medically frail and special medical
needs individuals (as determined in accordance with
regulations of the Secretary); (5)children in foster care
receiving child welfare services (under Part B of Title
IV) and who are children receiving foster care or
adoption assistance under Part E of Title IV without
regard to age; (6) individuals who qualify for Medicaid
under the family coverage provision (Section 1931) or
on the basis of receiving assistance under TANF (as in
effect on or after the welfare reform effective date); (7)
women in the breast and cervical cancer eligibility
group; and (8) other “limited services beneficiaries,”
including certain tuberculosis-infected individuals, and
legal and undocumented non-citizens who meet the
financial and categorical requirements for Medicaid
eligibility without regard to time in the U.S. and are
eligible only for emergency medical services.
The conference agreement adds a one-year moratorium
for reenrollment, whereby eligible individuals
disenrolled from the state demonstration programs are
not permitted to reenroll for a full year from such
individual’s disenrollment date.

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Provision
Current Law
Conference Agreement, as Passed by the Senate
B e n e f i t s f o r D e m o n s t r a t i o n
Medicaid’s basic benefits rules require all states to provide certain
The conference agreement requires demonstration
Participants.
“mandatory” services as listed in Medicaid statute. Federal
participants have both an HOA and coverage for medical
matching payments are also available for optional services if states
items and services that, after an annual deductible is met,
choose to include them in their Medicaid plans. States define the
are available under the existing Medicaid state plan
specific features of each service to be provided under that plan
and/or Section 1115 waiver authorities. HOA
within broad federal guidelines including (1) Amount, duration,
contributions could be made by the state or by other
and scope. Each covered service must be sufficient in amount,
persons or entities, including charitable organizations as
duration, and scope to reasonably achieve its purpose, (2)
permitted under current law. Including federal shares,
Comparability. With certain exceptions, services available to any
state contributions generally may not exceed $2,500 for
categorically needy beneficiary in a state must be equal in amount,
each adult and $1,000 for each child.
duration, and scope to those available to any other categorically
needy beneficiary in the state. Similarly, services available to any
Once account holders are no longer eligible for Medicaid
medically needy beneficiary in a state must be equal in amount,
they may continue to make HOA withdrawals under
duration, and scope to those available to any other medically
state-specified conditions for a period of three years,
needy beneficiary in the state, (3) Statewideness. State plan
though no additional account contributions will be made
services must be covered throughout an entire state, and (4)
and the account balances will be reduced by 25%. For
Freedom of choice. With certain exceptions, a state’s Medicaid
ineligible individuals who participated in the
plan must allow recipients freedom of choice among health care
demonstration program for at least one year, accounts
providers or managed care entities participating in Medicaid.
could then also be used to pay for health insurance or, at
state option, for additional expenditures such as job
training or education.
Cost Sharing for Demonstration
States may generally impose nominal cost-sharing on
The conference agreement requires demonstration
Participants.
beneficiaries, with certain exceptions. They are precluded from
participants to meet an annual deductible before they are
imposing cost sharing on services for children under 18, services
permitted to access coverage for medical items and
related to pregnancy, family planning or emergency services,
services available under the existing Medicaid state plan
services provided to nursing facility residents who are required to
and/or Section 1115 waiver authorities. The deductible
spend all of their income for medical care except for a personal
must be at least 100%, but no more than 110%, of the
needs allowance, and services furnished to individuals receiving
annual state contributions to the HOA without regard to
hospice care. States may require nominal copayments,
state-specified limits on the HOA balance. Both the

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Conference Agreement, as Passed by the Senate
coinsurance, or deductibles within federal limits from other
deductible and the maximum for out-of-pocket cost-
beneficiaries or for other services. Beneficiaries may be charged
sharing could vary among families. The deductible need
only one type of cost sharing per service. Providers may collect
not apply to preventive care.
cost sharing amounts from beneficiaries and generally are not to
be reimbursed by the state if they are unsuccessful in collecting
cost sharing from beneficiaries. Providers generally may not deny
services if beneficiaries are unable to pay cost sharing amounts.
For the most part, states establish their own rates to pay Medicaid
The conference agreement requires demonstration
Provider Payments.
providers for services. By regulation these rates must be sufficient
participants to be able to obtain services from Medicaid
to enlist enough providers so that covered services will be
providers, or Medicaid managed care organizations at
available to Medicaid beneficiaries at least to the extent they are
the same payment rates that are applicable if the
available to the general population in a geographic area. All
coverage deductible did not apply, or from any other
providers are required to accept payments under the program as
provider or managed care organization at payment rates
payment in full for covered services except where states require
not exceeding 125% of such Medicaid provider payment
nominal cost-sharing by beneficiaries.
rates. The conference agreement requires that the
payment rates for Medicaid providers or managed care
organizations be computed without regard to any cost
sharing that are otherwise applicable under current law
(as modified by the conference agreement).
Demonstration evaluation.
No provision.
Not later than three months prior to the end of the initial
five-year test period, the conference agreement requires
the Comptroller General of the Unites States to submit to
Congress an evaluation of the demonstration programs
and, out of funds in the Treasury not otherwise
appropriated, the conference agreement appropriates
$550,000 for the period FY2007-FY2010 to the
Controller General of the United States to carry out such
an evaluation.

CRS-95
Provision
Current Law
Conference Agreement, as Passed by the Senate
Effective Date.
No provision.
The agreement is effective upon enactment of this act.
State Option to Establish Non-
Federal regulations require states to ensure necessary
Section 6083. The agreement allows states to establish
Emergency M edical Transportation
transportation for beneficiaries to and from providers. When
a non-emergency medical transportation brokerage
Program.
states offer transportation as an optional benefit, federal
program for beneficiaries who need access to medical
reimbursement uses FMAP which varies by state and ranges from
care but have no other means of transportation. States
50% to 83%. FMAP reimbursement is only available if
are not required to provide such services on a statewide
transportation is furnished by a provider to whom a direct
basis, comparable services for all Medicaid enrollees, nor
payment can be made. Beneficiaries must have freedom of choice
freedom of choice among providers. The program
among transportation providers and such services must be equal
includes wheelchair van, taxi, stretcher car, bus passes
in amount, duration and scope for all beneficiaries classified as
and tickets, and other transportation methods deemed
CN. This comparability requirement also applies among MN
appropriate by the Secretary, and can be conducted under
groups. Services must also be available statewide. Other
contract with a broker who: (1) is selected through a
arrangements, such as payments to a broker who manages and
competitive bidding process that assesses the broker’s
pays transportation vendors, must be claimed as an administrative
experience, references, qualifications, resources and
expense rather than as a benefit. Such costs are reimbursed by the
costs; (2) has oversight procedures to monitor
federal government at 50% for all states, and fewer federal
beneficiary access and complaints and to ensure that
requirements must be met.
transport personnel are licensed, qualified, competent
and courteous; (3) is subject to regular auditing by the
state to ensure quality of services and adequacy of
beneficiary access to medical care; and (4) complies with
requirements related to prohibitions on referrals and
conflict of interest established by the Secretary.
This provision takes effect on the date of enactment of
this act.
Extension of Transitional Medical
States are required to continue Medicaid benefits for certain
Section 6084. The conference agreement extends TMA
Assistance (TMA) and Abstinence Education
low-income families who would otherwise lose coverage because
under Section 1925 of the Social Security Act through
Program.
of changes in their income. This continuation of benefits is
December 31, 2006.
known as transitional medical assistance (TMA). States are

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Conference Agreement, as Passed by the Senate
currently required to provide TMA to families losing eligibility
for Medicaid under two scenarios. First, under Section 1931(c) of
the Social Security Act, states must provide four months of TMA
coverage to families losing Medicaid eligibility due to increased
child or spousal support. This is a permanent provision of law
with no sunset date.
Second, states are required to provide TMA to families losing
Medicaid eligibility for work-related reasons. While Section
1902(e)(1) of the Social Security Act permanently requires states
to provide four months of TMA to families losing Medicaid
eligibility due to an increase in hours of work or income from
employment, the Family Support Act (FSA) of 1988 expanded
state TMA requirements under Section 1925 of the Social Security
Act. As a result, states are currently required to provide at least
six, and up to 12, months of TMA coverage to families losing
Medicaid eligibility due to increased hours of work or income
from employment, as well as to families who lose eligibility due
to the loss of a time-limited earned income disregard (such
disregards have the effect of increasing the income level at which
a family may qualify for Medicaid). FSA originally authorized
Section 1925 to replace the four-month TMA requirement in
Section 1902(e)(1) through FY1998. However, the sunset date for
Section 1925 has been extended a number of times, most recently
through December 31, 2005.
Emergency Services Furnished by
Medicaid law provides certain protections for beneficiaries
Section 6085(a). A Medicaid provider that does not
Non-Contract Providers for Medicaid
enrolled in managed care, including assuring coverage of
have a contract with a Medicaid managed care entity
Managed Care Enrollees.
emergency services under each managed care contract awarded by
(MCE) that furnishes emergency care to a beneficiary
the state.
enrolled with that MCO must accept as payment in full

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no more than the amount otherwise applicable outside of
managed care (e.g., in the fee-for-service setting) minus
any payments for indirect costs of medical education and
direct costs of graduate medical education. Also, in a
state where rates paid to hospitals under the state
Medicaid plan are negotiated by contract and not
publicly released, the payment amount applicable under
this provision must be the average contract rate that
would apply under the state plan for general acute care
hospitals or the average contract rate that would apply
under the plan for tertiary hospitals.
This provision is effective on January 1, 2007.
Expansion of home and community-
Medicaid home and community-based service (HCBS) waivers
Section 6086. The conference agreement establishes
based services.
authorized by Section 1915(c) of the Social Security Act allow
home and community-based services as an optional
states to provide home and community-based services to Medicaid
Medicaid benefit that would not require a waiver and
beneficiaries who would otherwise need the level of care provided
that meets certain other requirements for individuals
in a nursing facility, intermediate care facility for persons with
whose income does not exceed 150% of the federal
mental retardation (ICF-MR) or hospital. HCBS waiver services
poverty level. The scope of services may include any
can include case management, homemaker/home health aide
services permitted under Section 1915(c)(4)(B) of the
services, personal care, psychosocial rehabilitation, home health,
Social Security Act which the Secretary has the authority
private duty nursing, adult day care, habilitation, respite care, day
to approve, and would not include an individual’s room
treatment, and any other service requested by the state and
and board. The state may provide this option to
approved by the Secretary. As part of the waiver, states may
individuals without determining that but for the
define the services that will be offered, target a specific population
provision of such services, the person would require the
(e.g., individuals with developmental disabilities) or a specific
level of care provided in a hospital, nursing home, or
geographic region, and limit the number of waiver participants
ICF-MR.
(resulting in a waiting list for services in many states).
Approval for a HCBS waiver is contingent on a state documenting

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the cost-neutrality of the waiver. Cost-neutrality is met if, on
average, the per person cost under the HCBS waiver is no higher
than the cost if the person were residing in one of the three types
of institutions identified in Medicaid law, (hospital, nursing
facility or ICF-MR). The state determines which type of
institution(s) it will use to make the cost-neutrality calculation. A
HCBS waiver is generally approved for a three- or five-year time
period and is subject to additional oversight from the Centers for
Medicare and Medicaid Services (CMS).
Establishment of Needs-Based Criteria.
No provision
States that offer this new benefit must establish needs-
based criteria to determine an individual’s eligibility for
HCBS services, and the specific HCBS the individual
will receive. The state must also establish needs-based
criteria for determining whether an individual requires
the level of care provided in a hospital, nursing home,
ICF-MR, or under a waiver of the state plan, that is more
stringent than the needs-based criteria for the HCBS
option established by this provision.
The needs-based criteria must be based on an assessment
of an individual’s support needs and capabilities, and
may take into account the inability of the individual to
perform two or more activities of daily living (ADLs) as
defined in the Internal Revenue Service (IRS) code (i.e.,
bathing, dressing, transferring, toileting, eating, and
continence), or the need for significant assistance to
perform these activities, and other risk factors
determined to be appropriate by the state

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Projected Number of Enrollees in the
No provision.
A state may limit the number of individuals who can
Benefit and Modification of Needs-Based
participate in this benefit and establish waiting lists. The
Criteria.
state must submit to the Secretary the projected number
of individuals who will receive HCBS services under this
option.
If the enrollment in the HCBS option exceeds the
projected enrollment, a state may modify the needs-
based criteria. The state is not required to seek prior
approval of the Secretary if the state wishes to modify
the needs-based criteria, but must give the Secretary and
the public at least 60 days notice of the proposed
modification.
If a state modifies the needs-based criteria, existing
recipients of the HCBS optional state plan services will
continue to be eligible to receive those services for at
least 12 months beginning on the date the individual first
received medical assistance for HCBS services. After
such a modification, the state, at a minimum, must apply
the level of care determination for hospitals, nursing
facilities, and ICF-MRs that were in effect prior to the
application of more stringent criteria.
Independent Evaluation of Eligibility.
No provision.
A state is required to use an independent evaluation for
determining an individual’s eligibility for the HCBS
option. The independent evaluation must include an
assessment of the needs of the individual to: (1)
determine a necessary level of services and supports
consistent with the individual’s physical and mental

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capacity; (2) prevent unnecessary or inappropriate care,
and (3) establish an individualized care plan for the
individual.
Independent Assessment Process.
No provision.
A state is required under the HCBS option to conduct an
independent assessment of the individual. This
independent assessment must include (1) an objective
evaluation of an individual’s inability or need for
significant assistance to perform two or more activities
of daily living as defined in the Internal Revenue Service
code; (2) a face-to-face evaluation of the individual by
an individual trained in the assessment and evaluation of
individuals whose physical or mental conditions trigger
a potential need for HCBS; (3) where appropriate,
consultation with the individual’s family, spouse,
guardian, or other responsible individual; (4)
consultation with all treating and consulting health and
support professionals caring for the individual; (5) an
examination of the individual’s relevant history and
medical records, and care and support needs guided by
best practices and research on effective strategies that
result in improved health and quality of life outcomes.
The assessment must also evaluate the ability of the
individual or individual’s representative to self-direct the
purchase and control of HCBS if he/she elects this
option, and if such an option is covered by the state.
Individualized Care Plan.
No provision.
The state must establish a written individualized care
plan for all individual participating in the HCBS option.
The care plan must be developed in consultation with the

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individual, the individual’s physician and other health
care and support professionals, and where appropriate
the individual’s family or representative. The service
plan must take into account existing family or other
supports, identify necessary home and community-based
services to be provided, and be reviewed at least
annually.
State Option to Offer Self-Directed
No provision.
For this new benefit, a state may allow an individual or
Services.
the individual’s representative to receive self-directed
home and community-based services. If the state
permits self-direction, there must be an assessment of the
needs, capabilities and preferences of the individual.
There must also be a service plan developed jointly with
the individual that is approved by the state. The service
plan must specify the services to be self-directed,
identify the method of self-direction, specify the roles of
various parties, and, if offered by the state, an
individualized budget for the value of the services and
supports to be self-directed.
Quality Assurance and Conflict of
No provision.
The state must ensure that the provision of home and
Interest Standards.
community-based services meets state and federal
guidelines for quality assurance. The state must also
establish standards for the conduct of the independent
evaluation and assessment to safeguard against conflict
of interest.
Redeterminations and Appeals.
No provision.
At least annually, the state must redetermine eligibility
for this benefit according to the frequency and method

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used for redeterminations and appeals under the
Medicaid state plan.
The state may provide presumptive eligibility, for up to
Presumptive Eligibility.
60 days, for individuals who the state believes may be
eligible for home and community-based services. An
individual may only receive home and community-based
services while the evaluation and assessment for
determining eligibility for the HCBS benefit is carried
out.
No Effect on Other Waiver Authority.
This provision does not affect a state’s option to offer
home and community-based services under waivers of
Sections 1915(c) or (d), or Section 1115 of the Social
Security Act
Continued Federal Medicaid Funding
Federal Medicaid funding continues to be available for
for Certain Individuals.
Medicaid beneficiaries who are residing in an institution,
or receiving home and community-based services under
a waiver of Section 1915(c), (d) or Section 1115 of this
act as of the effective date of a state plan amendment that
adds this HCBS benefit, without regard to whether the
individual satisfies the more stringent eligibility criteria
established by this option. The federal Medicaid funding
will be available until the individual is discharged from
the institution or waiver program, or no longer requires
such level of care
Quality of care measures.
The provision requires the Secretary acting through the
Director of the Agency for Healthcare Research and

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Quality, to consult with consumers and health and social
service providers and other professionals knowledgeable
about long-term care services and supports to develop
program performance indicators, client function
indicators, and measures of client satisfaction regarding
HCBS offered under Medicaid.
The Secretary is required to use the indicators and
measures to assess HCBS and outcomes, particularly
with respect to a recipient’s health and welfare, and the
overall system for RCBS under Medicaid. The Secretary
is also required to make best practices and comparative
analyses of system features available to the public.
The conference agreement appropriates $1 million for
the period of FY2006-FY2010 for the Secretary to carry
out these activities.
This section would be effective for home and
community-based services furnished on or after January
1, 2007.
Optional Choice of Self-Directed
Traditionally, Medicaid personal care services have been provided
Section 6087. This proposal would allow a state to
Personal Assistance Services (Cash and
to individuals through local public or private agencies. However,
cover, under the Medicaid program, payment for part or
Counseling).
in the last decade, Medicaid beneficiaries with disabilities or
all of the cost of self-directed personal assistance
chronic conditions and federal and state policymakers have been
services (other than room and board) based on a written
increasing the discretion that beneficiaries have over key elements
plan of care to individuals for whom there has been a
of the service (e.g., what time a personal care worker comes to the
determination that, but for the provision of such services,
home to help the beneficiary, who provides the service, etc.)
the individuals would require and receive personal care
These types of programs are broadly known as `self-directed’ or
services under Medicaid state plan or home and
`consumer-directed’ programs. The specific elements that a
community-based services under a HCBS waiver. Self-

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Medicaid beneficiary can control vary widely depending upon the
directed personal assistance services may not be
state and the type of service covered. Currently, Medicaid law
provided to individuals who reside in a home or property
allows certain types of self directed programs to be implemented
that is owned, operated, or controlled by a provider of
through the normal Medicaid state plan and HCBS waiver
services, not related by blood or marriage.
process. Other types of self-directed programs require a research
and demonstration waiver under Section 1115 of the Social
Security Act.
Generally, CMS policy has been that payments for personal care
(or similar) services delivered by legally responsible individuals
(e.g., the parent of a minor child or a spouse) are not eligible for
federal Medicaid matching funds. However, CMS has recently
amended its policy so that under a HCBS waiver (though not the
Medicaid personal care benefit), states have the option of paying
legally responsible relatives in extraordinary circumstances when
the provision of personal care services is determined to be
necessary to ensure the health and welfare of the waiver
participant and so long as the parent or spouse meets the Medicaid
provider requirements established by the state.
State Requirements.
The state must ensure that the necessary safeguards have
been taken to protect the health and welfare of
individuals receiving these services and to assure
financial accountability for funds expended for these
services.
The state must also evaluate the need for personal care
under the Medicaid state plan or personal services under
a HCBS waiver for individuals who (1) are entitled to
Medicaid personal care under the state plan or receive

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HCBS waiver services; (2) may require self-directed
personal assistance services; and (3) may be eligible for
self-directed personal assistance services. If covered by
the state and at the choice of the individual, those who
are likely to require personal care or HCBS waiver
services must be informed of the feasible alternatives in
the provision of Medicaid personal care services or
personal assistance services under a HCBS waiver.
The state must provide a support system that ensures
participants in the program are appropriately assessed
and counseled prior to enrollment and are able to manage
their budgets. Additional counseling and management
support may be provided at the request of the participant.
Reports and Evaluation.
States that elect this option must submit an annual report
to the Secretary which includes the number of
individuals served and total expenditures on their behalf,
in the aggregate. The state must also provide an
evaluation of overall impact on the health and welfare of
participants compared to non-participants every three
years.
Limits to the Availability of Self-
A state may provide self-directed personal assistance
Directed Services.
services under the state plan without regard to the
Medicaid requirements for statewideness (under Section
1902(a)(1) of the Social Security Act), and may limit the
population eligible to receive these services and the
number of persons served without regard to Medicaid
requirements regarding comparability (Section

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1902(a)(10)(B) of the Social Security Act).
Scope of Self-Directed Personal
The term `self-directed personal assistance services’
Assistance Services.
means personal care and related services, or HCBS
waiver services that are provided to an eligible
participant. Individuals participating in such services
would be permitted, within an approved self-directed
services plan and budget, to purchase personal assistance
and related services, and hire, fire, supervise, and
manage the individuals providing such services.
At the election of the state, a participant is be allowed to
(1) choose as a paid service provider, any individual
capable of providing the assigned tasks including legally
liable relatives, and (2) use the individualized budget to
acquire items that increase independence or substitute
(such as a microwave oven or an accessibility ramp) for
human assistance, to the extent that expenditures would
otherwise be made for the human assistance.
Self-Directed Services Plan.
The approved self-directed services plan developed
under option must meet the following requirements: (1)
The participant (or his/her guardian or authorized
representative if appropriate) exercises choice and
control over the budget, planning, and purchase of self-
directed personal assistance services, including the
amount, duration, scope, provider and location of service
provision; (2) There is an assessment of the needs,
strengths, and preferences of the participants for such
service; (3) An individual’s plan for self-directed

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services and supports, which has been developed and
approved by the state, is based on a person-centered
assessment process that builds upon the participant’s
capacity to engage in activities that promote community
life; respects the participant’s preferences, choices and
abilities; and involves families, and professionals in the
planning or delivery of services or supports as desired or
required by the participant.
Self-Directed Services Budget.
The budget for self-directed services and supports must
be developed and approved by the state based on the
assessment and plan, and on a methodology that uses
valid, reliable cost data, is open to public inspection, and
includes a calculation of the expected cost of such
services if those services were not self-directed. The
budget may not restrict access to other medically
necessary care and services furnished under the plan and
approved by the state but not included in the budget.
Application of Quality Assurance
In establishing and implementing the self-directed
and Risk Management.
services plan and budget, appropriate quality assurance
and risk management techniques must be used which
recognize the roles and sharing of responsibilities in
obtaining services in a self-directed manner and which
assure the appropriateness of the plan and the budget,
based on the individual’s resources and capabilities.

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Financial Management Entity.
A state may employ a financial management entity to
make payments to providers, track costs, and make
reports under this program. Payment for the activities of
the financial management entity is reimbursed at the
same rate as other Medicaid administrative activities
(generally federal Medicaid administrative
reimbursement is 50 %, though certain activities may be
eligible for 75 % reimbursement).
Effective date.
This provision becomes effective on January 1, 2007.

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Subtitle B — State Children’s Health Insurance Program
Provision
Current Law
Conference Agreement, as Passed by the Senate
Additional allotments to eliminate FY2006
Section 6101. Out of money not otherwise available in
funding shortfalls.
the Treasury, the Conference Agreement authorizes and
appropriates $283,000,000 for the purpose of providing
additional SCHIP allotments to shortfall states and
territories in FY2006. The Conference Agreement defines
shortfall states as those with an approved SCHIP plan for
which (based on the most recent SCHIP data as of
December 31, 2005) the Secretary estimates that such
state’s FY2006 projected expenditures exceed the sum of
all funds available for expenditure by that state in FY2006
including (1) the amount, if any, that is redistributed to
such state from unspent FY2003 original allotments
during FY2006; (2) the amount of such state’s FY2004
and FY2005 original allotments that will not be expended
in FY2005 and that remain available for expenditure in
FY2006; and (3) the amount of such state’s newly
available FY2006 original allotment.
From the additional FY2006 SCHIP appropriation, after a
1.05% set aside for distribution among the territories, each
FY2006 shortfall state would receive an allotment to cover
its projected shortfall. Such additional SCHIP allotments
are available for one year only. On October 1, 2006, any
remaining unspent additional allotments will not be
subject to redistribution, but will instead revert to the
Treasury. The Conference Agreement is silent on how the

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Secretary will distribute the additional appropriated funds
if such funds are inadequate to cover the FY2006
projected shortfalls.
Use of Additional FY2006 Appropriation
Like Medicaid, SCHIP is a federal -state matching
The Conference Agreement limits the types of payments
for Child Health Assistance for Targeted Low-
program. For each dollar of state spending, the federal
that may be matched at the SCHIP enhanced matching rate
Income Children.
government makes a matching payment drawn from
for SCHIP expenditures drawn against the additional
SCHIP accounts. The federal government contributes
FY2006 appropriation available to shortfall states to
more toward the coverage of individuals in SCHIP than it
include child health assistance payments made on behalf
does for those covered under Medicaid. All SCHIP
of targeted low-income children.
assistance for targeted low-income children, including
claims submitted and approved by CMS for expenditures
The amendments made by this section of the Conference
under the Section 1115 waiver authority, are matched at
Agreement apply to items and services furnished on or
the enhanced federal medical assistance percentage
after October 1, 2005, without regard to wether or not
(enhanced- FMAP).
regulations implementing such amendments have been
issued.
Title XXI of the Social Security Act specifies that federal
SCHIP funds can be used for child health assistance, that
meets certain requirements. Apart from these benefit
payments, SCHIP payments at the enhanced FMAP rate
for four other specific health care activities can be made,
including (1) other child health assistance for targeted
low-income children; (2) health services initiatives to
improve the health of targeted low-income children and
other low-income children; (3) outreach activities; and (4)
other reasonable administrative costs.
Prohibition against covering nonpregnant
Section 1115 of the Social Security Act gives the
Section 6102. The Conference Agreement limits the
adults with SCHIP funds.
Secretary of HHS broad authority to modify virtually all
Secretary of Health and Human Services’ Section 1115
aspects of the Medicaid and SCHIP programs. Under
waiver authority by prohibiting the approval of new

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Conference Agreement, as Passed by the Senate
Section 1115, the Secretary may waive requirements in
waiver, experimental, pilot, or demonstration projects
Section 1902 (usually, freedom of choice of provider,
(approved on or after October 1, 2005) that allow federal
comparability, and statewideness). For SCHIP, no specific
SCHIP funds to be used to provide child health assistance
sections or requirements are cited as “waive-able.” SCHIP
or other health benefits coverage to nonpregnant childless
statute simply states that Section 1115, pertaining to
adults. The Conference Agreement allows the Secretary
research and demonstration projects, applies to SCHIP.
to continue to approve projects that expand the SCHIP
program to caretaker relatives of Medicaid or SCHIP-
With respect to SCHIP, the Clinton Administration issued
eligible children (as defined under Section 1931of
a July 31, 2000, letter regarding treatment of adults.
Medicaid statue), and to pregnant adults. Finally, the
While this Administration was supportive of using the
Conference Agreement allows the continuation of existing
1115 authority to expand SCHIP to parents of Medicaid or
Medicaid or SCHIP waiver projects (and/or extensions,
SCHIP-eligible children, as well as to certain pregnant
amendments, or renewals to such projects) affecting
women, it opposed coverage of childless adults. Under the
federal SCHIP funds that were approved under the Section
Bush Administration, the Health Insurance Flexibility and
1115 waiver authority before the date of enactment of this
Accountability (HIFA) Initiative was implemented using
act.
the 1115 waiver authority. The initiative was created to
encourage states to increase the number of individuals
The Conference Agreement is effective as if enacted on
with health insurance coverage (including childless adults)
October 1, 2005, and shall apply to any waiver,
within current program resources
experimental, pilot, or demonstration project that is
approved on or after that date.
Continued authority for qualifying states
Current law permits qualifying states (i.e., states that on
Section 6103. The Conference Agreement continues the
to use certain funds for Medicaid expenditures.
or after April 15, 1997, had an income eligibility standard
authority for qualifying states to apply federal SCHIP
for children, other than infants, of at least 184% of the
matching funds toward the coverage of certain children
FPL. — Other qualifications also apply to states with
enrolled in regular Medicaid (not an SCHIP Medicaid
statewide waivers under Section 1115 of the Social
expansion). Specifically, the Conference Agreement
Security Act) to receive the SCHIP enhanced federal
allows qualifying states to use any available FY2004 and
matching rate for the coverage of certain children enrolled
FY2005 SCHIP funds (i.e., FY2005 original allotments,
in regular Medicaid. Specifically, for services delivered
and/or FY2004 and FY2005 retained allotments or
to Medicaid beneficiaries under the age of 19 who are not
redistributed funds, as the case may be) for such Medicaid

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otherwise eligible for SCHIP and have family income that
services made on or after October 1, 2005 under the 20%
exceeds 150% of the FPL, federal SCHIP funds can be
allowance.
used to pay the difference between the SCHIP enhanced
federal matching rate and the regular Medicaid federal
The Conference Agreement is effective on or after
matching rate. The maximum amount that qualifying
October 1, 2005.
states may claim under this allowance is the lesser of the
following two amounts: (1) 20% of the state’s available
FY1998 through FY2001 original SCHIP allotments; and
(2) the state’s balance (calculated quarterly) of any
available FY1998 to FY2001 federal SCHIP funds
(original allotments or reallocated funds). If there is no
balance, states may not claim 20% spending. No 20%
spending will be permitted in FY2006 or any fiscal year
thereafter.

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Subtitle C — Katrina Relief
Provision
Current Law
Conference Agreement, as Passed by the Senate
Additional Federal Payments Under
The federal medical assistance percentage (FMAP) is the rate at
Section 6201. The conference agreement appropriates $2
Hurricane-Related Multi-State Section 1115
which states are reimbursed for most Medicaid service
billion (in addition to any funds made available for the
Demonstrations.
expenditures. It is based on a formula that provides higher
National Disaster Medical System under the Department
reimbursement to states with lower per capita incomes relative
of Homeland Security for health care costs related to
to the national average (and vice versa); it has a statutory
Hurricane Katrina) for use by the Secretary of HHS to pay
minimum of 50% and maximum of 83%. An enhanced FMAP
eligible states (those who have provided care to affected
is available for both services and administration under SCHIP,
individuals or evacuees under a Section 1115 project) for:
subject to the availability of funds from a state’s SCHIP
(1) the non-federal (i.e., state) share of expenditures for
allotment.
health care provided to affected individuals (those who
resided in a county or parish designated for individual
assistance pursuant to the Stafford Act as a result of
Hurricane Katrina and continue to reside in the same state)
and evacuees (affected individuals displaced to another
state) under approved multi-state Section 1115
demonstration projects; (2) reasonable administrative costs
related to such projects; (3) only with respect to affected
counties and parishes, the non-federal share of
expenditures for medical assistance provided to
individuals under existing Medicaid and SCHIP state
plans; and (4) other purposes, if approved by the
Secretary, to restore access to health care in impacted
communities.
Using an application template developed by the Centers for
The non-federal share paid to eligible states shall not be
Medicare and Medicaid Services (CMS) within HHS, a number
regarded as federal funds for purposes of Medicaid
of states (17 as of December 15, 2005) have been granted
matching requirements. No payment obligations may be
waivers under Section 1115 of the Social Security Act to provide
incurred under approved multi-state Section 1115 projects

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Medicaid and SCHIP services to certain individuals affected by
for: (1) costs of health care provided as Medicaid or
Hurricane Katrina (these waivers are referred to as being part of
SCHIP medical assistance incurred after June 30, 2006,
a multi-state demonstration project).
(2) uncompensated care costs incurred after January 31,
2006, (3) uncompensated care costs for an item or service
All of the waivers granted thus far create a temporary eligibility
received by an evacuee or an affected individual from an
period, not to exceed five months, during which certain
individual or organization as part of a public or private
Hurricane Katrina evacuees will be granted access to Medicaid
hurricane relief effort.
and SCHIP services in the host state (i.e., the state that has been
granted a Section 1115 waiver) based on simplified eligibility
criteria. In addition, waivers for some states also create an
uncompensated care pool that may be used through January 31,
2006, to augment Medicaid and SCHIP services for evacuees
and to reimburse providers that incur uncompensated care costs
for uninsured evacuees who do not qualify for Medicaid or
SCHIP.