PROSPECTIVE PAYMENT HOSPITALS.

SEC. 6003. PROSPECTIVE PAYMENT HOSPITALS. (a) Changes in Hospital Update Factors.— (1) In general.— Section 1886(b)(3)(B)(i) of the Social Security Act (42 U.S.C. 1395ww(b)(3)(B)(i)) is amended— (A) by striking “and” at the end of subclause (IV), (B) in subclause (V), by striking “1990” and inserting “1991” and redesignating such subclause as subclause (VI), and (C) by inserting after subclause (IV) the following new subclause: “(V) for fiscal year 1990, the market basket percentage increase plus 4.22 percentage points for hospitals located in a rural area, the market basket percentage increase plus 0.12 percentage points for hospitals located in a large urban area, and the market basket percentage increase minus 0.53 percentage points for hospitals located in other urban areas, and”. (2) Effective date.—The amendments made by paragraph (1) shall apply to payments for discharges occurring on or after January 1, 1990. (3) Indexing of future applicable percentage increases.—For discharges occurring on or after October 1, 1990, the applicable percentage increase (described in section 1886(b)(3)(B) of the Social Security Act) for discharges occurring during fiscal year 1990 is deemed to have been such percentage increase as amended by paragraph (1). (b) Reduction in DRG Weighting Factors for Fiscal Year 1990; Future Annual Recalibration of DRG Weights on Budget-Neutral Basis.—Section 1886(d)(4)(C) of such Act (42 U.S.C. 1395ww(d)(4)(C)) is amended— (1) by striking “(C)” and inserting “(C)(i)”; and (2) by adding at the end the following new clauses: 103 STAT. 2141 “(ii) For discharges in fiscal year 1990, the Secretary shall reduce the weighting factor for each diagnosis-related group by 1.22 percent. “(iii) Any such adjustment under clause (i) for discharges in a fiscal year (beginning with fiscal year 1991) shall be made in a manner that assures that the aggregate payments under this subsection for discharges in the fiscal year are not greater or less than those that would have been made for discharges in the year without such adjustment. “(iv) The Secretary shall include recommendations with respect to adjustments to weighting factors under clause (i) in the annual report to Congress required under subsection (e)(3)(B).”. (c) Increase in Disproportionate Share Adjustment.— (1) Change in formula.— Section 1886(d)(5)(F) of such Act (42 U.S.C. 1395ww(d)(5)(F)) is amended— (A) in clause (iv)(I), by striking “the following formula” and all that follows through “(as defined in clause (vi));” and inserting “the applicable formula described in clause (vii);”, and (B) by adding at the end the following new clause: “(vii) The formula used to determine the disproportionate share adjustment percentage for a cost reporting period for a hospital described in clause (iv)(I) is— “(I) in the case of such a hospital with a disproportionate patient percentage (as defined in clause (vi)) greater than 20.2, (P–20.2)(.65)+5.62, or “(II) in the case of any other such hospital, (P–15)(.6)+2.5, where ‘P’ is the hospital’s disproportionate patient percentage (as defined in clause (vi)).”. (2) Treatment of rural hospitals for disproportionate share calculation.— Section 1886(d)(5)(F) of such Act (42 U.S.C. 1395ww(d)(5)(F)), as amended by paragraph (1), is amended— (A) in clause (iv)— (i) in subclause (II), by striking “or”, (ii) in subclause (III), by inserting “in subclause (IV) or (V) or” after “described”, (iii) by striking the period at the end of subclause (III) and inserting a semicolon, and (iv) by adding at the end the following new subclauses: “(IV) is located in a rural area, is classified as a rural referral center under subparagraph (C), and is classified as a sole community hospital under subparagraph (D), is equal to 10 percent or, if greater, the percent determined in accordance with the applicable formula described in clause (viii); “(V) is located in a rural area, is classified as a rural referral center under subparagraph (C), and is not classified as a sole community hospital under subparagraph (D), is equal to the percent determined in accordance with the applicable formula described in clause (viii); or “(VI) is located in a rural area, is classified as a sole community hospital under subparagraph (D), and is not classified as a rural referral center under subparagraph (C), is 10 percent.”, (B) in clause (v)— (i) in subclause (III), by striking “area” and inserting “area and is not described in subclause (II)”, 103 STAT. 2142 (ii) by redesignating subclauses (II) and (III) as subclauses (III) and (IV), and (iii) by inserting after subclause (I) the following new subclause: “(II) 30 percent, if the hospital is located in a rural area and has more than 100 beds, or is located in a rural area and is classified as a sole community hospital under subparagraph (D),”, and (C) by adding at the end the following new clause: “(viii) The formula used to determine the disproportionate share adjustment percentage for a cost reporting period for a hospital described in clause (iv)(IV) or (iv)(V) is the percentage determined in accordance with the following formula: (P–30)(.6)+4.0, where ‘P’ is the hospital’s disproportionate patient percentage (as defined in clause (vi)).”. (3) Increase for hospitals with disproportionate indigent care revenues.—Section 1886(d)(5)(F)(iii) of such Act (42 U.S.C. 1395ww(d)(5)(F)(iii)) is amended by striking “25 percent” and inserting “30 percent”. (4) Effective date.—The amendments made by this subsection shall apply with respect to discharges occurring on or after April 1, 1990. (d) Extension of Regional Referral Center Classification.—Any hospital that is classified as a regional referral center under section 1886(d)(5)(C) of the Social Security Act as of September 30, 1989, including a hospital so classified as a result of section 9302(d)(2) of the Omnibus Budget Reconciliation Act of 1986, shall continue to be classified as a regional referral center for cost reporting periods beginning on or after October 1, 1989, and before October 1, 1992. (e) Criteria and Payment for Sole Community Hospitals.— (1) In general.—(A) Section 1886(d)(5) of the Social Security Act (42 U.S.C. 1395ww(d)(5)) is amended— (i) by transferring clause (iv) of subparagraph (C) to the end and by redesignating it as subparagraph (H), (ii) by transferring clause (iii) of subparagraph (C) to the end and by redesignating it as subparagraph (I), (iii) in subparagraph (D), by striking “(D)(i)” and inserting “(E)(i)”, and (iv) by amending clause (ii) of subparagraph (C) to read as follows: “(D)(i) For any cost reporting period beginning on or after April 1, 1990, with respect to a subsection (d) hospital which is a sole community hospital, payment under paragraph (1)(A) shall be— “(I) an amount based on 100 percent of the hospital’s target amount for the cost reporting period, as defined in subsection (b)(3)(O, or “(II) the amount determined under paragraph (1)(A)(iii), whichever results in greater payment to the hospital. “(ii) In the case of a sole community hospital that experiences, in a cost reporting period compared to the previous cost reporting period, a decrease of more than 5 percent in its total number of inpatient cases due to circumstances beyond its control, the Secretary shall provide for such adjustment to the payment amounts under this subsection (other than under paragraph (9)) as may be necessary to fully compensate the hospital for the fixed costs it incurs in the 103 STAT. 2143period in providing inpatient hospital services, including the reasonable cost of maintaining necessary core staff and services. “(iii) The term ‘sole community hospital’ means any hospital— “(I) that the Secretary determines is located more than 35 road miles from another hospital, or “(II) that, by reason of factors such as the time required for an individual to travel to the nearest alternative source of appropriate inpatient care (in accordance with standards promulgated by the Secretary), location, weather conditions, travel conditions, or absence of other like hospitals (as determined by the Secretary), is the sole source of inpatient hospital services reasonably available to individuals in a geographic area who are entitled to benefits under part A. “(iv) The Secretary shall promulgate a standard for determining whether a hospital meets the criteria for classification as a sole community hospital under clause (iii)(II) because of the time required for an individual to travel to the nearest alternative source of appropriate inpatient care.”. (B) Section 1886(b)(8) of such Act (42 U.S.C. 1395ww(b)(8)) is amended— (i) in subparagraph (A), by striking “(A) For purposes of this subsection” and inserting “(A) Except as provided in subparagraph (C), for purposes of this subsection”, and (ii) by adding at the end the following new subparagraph: “(C) In the case of a hospital that is a sole community hospital (as defined in subsection (d)(5)(D)(iii)), the term ‘target amount’ means— “(i) with respect to the first 12-month cost reporting period in which this subparagraph is applied to the hospital— “(I) the allowable operating costs of inpatient hospital services (as defined in subsection (a)(4)) recognized under this title for the hospital for the 12-month cost reporting period (in this subparagraph referred to as the ‘base cost reporting period’) preceding the first cost reporting period for which this subsection was in effect with respect to such hospital, increased (in a compounded manner) by— “(II) the applicable percentage increases applied to such hospital under this paragraph for cost reporting periods after the base cost reporting period and up to and including such first 12-month cost reporting period, or “(ii) with respect to a later cost reporting period, the target amount for the preceding 12-month cost reporting period, increased by the applicable percentage increase under subparagraph (B)(i) for discharges occurring in the fiscal year in which that later cost reporting period begins. There shall be substituted for the base cost reporting period described in clause (i) a hospital’s cost reporting period (if any) beginning during fiscal year 1987 if such substitution results in an increase in the target amount for the hospital.”. (2) Conforming amendments.— Such Act is further amended— (A) in section 1833(h)(1)(D), by striking “the last sentence of section 1886(d)(5)(C)(ii)” and inserting “section 1886(d)(5)(D)(iii)”; (B) in section 1886(d)(5)(C)(i)— (i) by striking “(C)(i)(I)” and inserting “(C)(i)”, and 103 STAT. 2144 (ii) by redesignating subclause (II) as clause (ii) and by striking “subclause (I)” each place it appears in such clause and inserting “clause (i)”; (C) in section 1886(d)(9)(B)(ii)(IV), by striking “(D)(v)” and inserting “(D)(iii)”; (D) in section 1886(d)(9)(D)— (i) by striking clause (iv), (ii) by transferring clause (iii) to the end and redesignating it as clause (iv), and by striking “(C)(iii)” and inserting “(H)”, and (iii) by redesignating clause (v) as clause (iii); and (E) in section 1886(g)(3)(B), by striking “(d)(5)(C)(ii)” and inserting “(d)(5)(D)(iii)”. (3) Continuation of sole community hospital designation for current sole community hospitals.—Any hospital classified as a sole community hospital under section 1886(d)(5)(C)(ii) of the Social Security Act on the date of the enactment of this Act that will no longer be classified as a sole community hospital after such date as a result of the amendments made by paragraph (1) shall continue to be classified as a sole community hospital for purposes of section 1886(d)(5)(D) of such Act. (f) Criteria and Payment for Medicare-Dependent, Small Rural Hospitals.— (1) Criteria.— Section 1886(d)(5) of the Social Security Act (42 U.S.C. 1395ww(d)(5)), as amended by subsection (e)(1)(A), is further amended by inserting after subparagraph (F) the following new subparagraph: “(G)(i) For any cost reporting period beginning on or after April 1, 1990, and ending on or before March 31, 1993, with respect to a subsection (d) hospital which is a medicare-dependent, small rural hospital, payment under paragraph (1)(A) shall be— “(I) an amount based on 100 percent of the hospital’s target amount for the cost reporting period, as defined in subsection (b)(3)(D), or “(II) the amount determined under paragraph (1)(A)(iii), whichever results in the greater payment to the hospital. “(ii) In the case of a medicare dependent, small rural hospital that experiences, in a cost reporting period compared to the previous cost reporting period, a decrease of more than 5 percent in its total number of inpatient cases due to circumstances beyond its control, the Secretary shall provide for such adjustment to the payment amounts under this subsection (other than under paragraph (9)) as may be necessary to fully compensate the hospital for the fixed costs it incurs in the period in providing inpatient hospital services, including the reasonable cost of maintaining necessary core staff and services. “(iii) The term ‘medicare-dependent, small rural hospital’ means, with respect to any cost reporting period to which clause (i) applies, any hospital— “(I) located in a rural area, “(II) that has not more than 100 beds, “(III) that is not classified as a sole community hospital under subparagraph (D), and “(IV) for which not less than 60 percent of its inpatient days or discharges during the cost reporting period beginning in fiscal year 1987 were attributable to inpatients entitled to benefits under part A.”. 103 STAT. 2145 (2) Payment.—Section 1886(b)(3) of such Act (42 U.S.C. 1395ww(b)(3)), as amended by subsection (e)(1)(B), is further amended— (i) in subparagraph (A), by striking “subparagraph (C)” and inserting “subparagraphs (C) and (D)”, and (ii) by adding at the end the following new subparagraph: “(D) For cost reporting periods ending on or before March 31, 1993, in the case of a hospital that is a medicare-dependent, small rural hospital (as defined in subsection (d)(5)(G)), the term ‘target amount’ means— “(i) with respect to the first 12-month cost reporting period in which this subparagraph is applied to the hospital— “(I) the allowable operating costs of inpatient hospital services (as defined in subsection (a)(4)) recognized under this title for the hospital for the 12-month cost reporting period (in this subparagraph referred to as the “base cost reporting period’) preceding the first cost reporting period for which this subsection was in effect with respect to such hospital, increased (in a compounded manner) by— “(II) the applicable percentage increases applied to such hospital under this paragraph for cost reporting periods after the base cost reporting period and up to and including such first 12-month cost reporting period, or “(ii) with respect to a later cost reporting period, the target amount for the preceding 12-month cost reporting period, increased by the applicable percentage increase under subparagraph (B)(i) for discharges occurring in the fiscal year in which that later cost reporting period begins. There shall be substituted for the base cost reporting period described in clause (i) a hospital’s cost reporting period (if any) beginning during fiscal year 1987 if such substitution results in an increase in the target amount for the hospital.”. (g) Essential Access Community Hospital Program.— (1) Establishment of program.— (A) In general.—Part A of title XVIII of the Social Security Act (42 U.S.C. 1395c et seq.) is amended by adding at the end the following new section: “essential access community hospital program “Sec. 1820. (a) In General.—There is hereby established a program under which the Secretary— “(1) shall make grants to not more than 7 States to carry out the activities described in subsection (d)(1); “(2) shall make grants to eligible hospitals and facilities (or consortia of hospitals and facilities) to carry out the activities described in subsection (d)(2); and “(3) shall designate (under subsection (i)) hospitals and facilities located in States receiving grants under paragraph (1) as essential access community hospitals or rural primary care hospitals. “(b) Eligibility of States for Grants.—A State is eligible to receive a grant under subsection (a)(1) only if the State submits to the Secretary, at such time and in such form as the Secretary may require, an application containing— “(1) assurances that the State— 103 STAT. 2146 “(A) has developed, or is in the process of developing, a State rural health care plan that— “(i) provides for the creation of one or more rural health networks (as defined in subsection (g)) in the State, “(ii) promotes regionalization of rural health services in the State, “(iii) improves access to hospital and other health services for rural residents of the State, and “(iv) enhances the provision of emergency and other transportation services related to health care; “(B) has developed the rural health care plan described in subparagraph (A) in consultation with the hospital association of the State and rural hospitals located in the State (or, in the case of a State in the process of developing such plan, that assures the Secretary that it will consult with its State hospital association and rural hospitals located in the State in developing such plan); and “(C) has designated, or is in the process of designating, rural non-profit or public hospitals or facilities located in the State as essential access community hospitals or rural primary care hospitals within such networks; and “(2) such other information and assurances as the Secretary may require. “(c) Eligibility of Hospitals and Consortia for Grants.— “(1) In general.— Except as provided in paragraph (3), a hospital or facility is eligible to receive a grant under subsection (a)(2) only if the hospital or facility— “(A) is located in a State receiving a grant under subsection (a)(1); “(B) is designated as an essential access community hospital or a rural primary care hospital by the State in which it is located or is a member of a rural health network (as defined in subsection (g)); “(C) submits to the State in which it is located and to the Secretary, at such time and in such form as the Secretary may require, an application containing such information and assurances as the Secretary may require; and “(D) the State in which the hospital or facility is located certifies to the Secretary that— “(i) the receiving of such a grant by the hospital or facility is consistent with the State’s rural health care plan (described in subsection (b)(1)(A)), and “(ii) the State has approved the application submitted under subparagraph (C). “(2) Treatment of consortia.—A consortium of hospitals or facilities each of which is part of the same rural health network is eligible to receive a grant under subsection (a)(2) if each of its members would individually be eligible to receive such a grant. “(3) Eligibility of rpc hospitals not located in a state receiving grant.—A facility designated as a rural primary care hospital by the Secretary under subsection (i)(2)(C) shall be eligible to receive a grant under subsection (a)(2). “(d) Activities for Which Grants May Be Used.— “(1) Grants to states.—A State shall use a grant received under subsection (a)(1) to carry out the demonstration program established under this section in the State. Such grant may be 103 STAT. 2147used for engaging in activities relating to planning and implementing a rural health care plan and rural health networks, designating hospitals or facilities in the State as essential access community hospitals or rural primary care hospitals, and developing and supporting communication and emergency transportation systems. “(2) Grants to hospitals, facilities, and consortia.—A hospital or facility shall use a grant received under subsection (a)(2) to finance the costs it incurs in converting itself to a rural primary care hospital or an essential access community hospital or in becoming part of a rural health network in the State in which it is located, including capital costs, costs incurred in the development of necessary communications systems, and costs incurred in the development of an emergency transportation system. A consortium shall use a grant received under subsection (a)(2) to finance the costs it incurs in converting hospitals or facilities that are part of the consortium into rural primary care hospitals or in developing and implementing a rural health network consisting of its members in the State in which it is located, including capital costs, costs incurred in the development of necessary communications systems, and costs incurred in the development of an emergency transportation system. “(e) Designation by State of Essential Access Community Hospitals.—A State may designate a hospital as an essential access community hospital only if the hospital— “(1) is located in a rural area (as defined in section 1886(d)(2)(D)); “(2)(A) is located more than 35 miles from any hospital that either (i) has been designated as an essential access community hospital, (ii) is classified by the Secretary as a rural referral center under section 1886(d)(5)(C), or (iii) is located in an urban area that meets the criteria for classification as a regional referral center under such section, or (B) meets such other criteria relating to geographic location as the State may impose with the approval of the Secretary; “(3) has at least 75 inpatient beds or is located more than 35 miles from any other hospital; “(4) has in effect an agreement to provide emergency and medical backup services to rural primary care hospitals participating in the rural health network of which it is a member and throughout its service area; “(5) has in effect an agreement, with each rural primary care hospital participating in the rural health network of which it is a member, to accept patients transferred from such primary care hospital, to receive data from and transmit data to such primary care hospital, and to provide staff privileges to physicians providing care at such primary care hospital; and “(6) meets any other requirements imposed by the State with the approval of the Secretary. “(f) Designation by State of Rural Primary Care Hospitals.— “(1) Criteria for designation.— A State may designate a facility as a rural primary care hospital only if the facility— “(A) is located in a rural area (as defined in section 1886(d)(2)(D)); “(B) at the time such facility applies to the State for designation as a rural primary care hospital, is a hospital with a participation agreement in effect under section 103 STAT. 21481866(a) and had not been found, on the basis of a survey under section 1864, to be in violation of any requirement to participate as a hospital under this title; “(C) has ceased, or agrees (upon the approval of such application) to cease, providing inpatient care (except as required under subparagraph (F)); “(D) in the case of a facility that is a member of a rural health network, has in effect an agreement to participate with other hospitals and facilities in the communications system of such network, including the network’s system for the electronic sharing of patient data, including telemetry and medical records, if the network has in operation such a system; “(E) makes available 24-hour emergency care; “(F) provides not more than 6 inpatient beds (meeting such conditions as the Secretary may establish) for providing inpatient care for a period not to exceed 72 hours (unless a longer period is required because transfer to a hospital is precluded because of inclement weather or other emergency conditions) to patients requiring stabilization before discharge or transfer to a hospital; “(G) meets such staffing requirements as would apply under section 1861(e) to a hospital located in a rural area, except that— “(i) the facility need not meet hospital standards relating to the number of hours during a day, or days during a week, in which the facility must be open, except insofar as the facility is required to provide emergency care on a 24-hour basis under subparagraph (E), “(ii) the facility may provide any services otherwise required to be provided by a full-time, on-site dietician, pharmacist, laboratory technician, medical technologist, and radiological technologist on a part-time, off-site basis, and “(iii) the inpatient care described in subparagraph (F) may be provided by a physician’s assistant or nurse practitioner, subject to the oversight of a physician; and “(H) meets the requirements of subparagraphs (C) through (J) of paragraph (2) of section 1861(aa) and of clauses (ii) and (iv) of the second sentence of that paragraph. “(2) Preference given to hospitals or facilities participating in rural health network.—In designating facilities as rural primary care hospitals under paragraph (1), the State shall give preference to hospitals or facilities participating in a rural health network. “(3) Permitting rural primary care hospitals to maintain swing beds.—Nothing in this subsection shall be construed to prohibit a State from designating a facility as a rural primary care hospital solely because the facility has entered into an agreement with the Secretary under section 1883 under which the facility’s inpatient hospital facilities may be used for the furnishing of extended care services. “(g) Rural Health Network Defined.—For purposes of this section, the term ‘rural health network’ means, with respect to a State, an organization— 103 STAT. 2149 “(1) consisting of— “(A) at least 1 hospital that— “(i) the State has designated or plans to designate as an essential access community hospital under subsection (b)(1)(C), “(ii) is classified by the Secretary as a rural referral center under section 1886(d)(5)(C), or “(iii) is located in an urban area and meets the criteria for classification as a regional referral center under such section, and “(B) at least 1 facility that the State has designated or plans to designate as a rural primary care hospital, and “(2) the members of which have entered into agreements regarding— “(A) patient referral and transfer, “(B) the development and use of communications systems, including (where feasible) telemetry systems and systems for electronic sharing of patient data, and “(C) the provision of emergency and non-emergency transportation among the members. “(h) Limit on Amount of Grant to Hospital or Facility.—A grant made to a hospital or facility under subsection (a)(2) may not exceed $200,000. “(i) Eligibility of Hospitals or Facilities for Designation by Secretary.— “(1) Essential access community hospital.—(A) The Secretary shall designate a hospital as an essential access community hospital if the hospital— “(i) is located in a State receiving a grant under subsection (a)(1); “(ii) is designated as an essential access community hospital by the State in which it is located (except as provided in subparagraph (B)); and “(iii) meets such other criteria as the Secretary may require. “(B) In the case of a hospital that is not eligible for designation as an essential access community hospital under this paragraph solely because it is not designated as an essential access community hospital by the State in which it is located, the Secretary may designate such hospital as an essential access community hospital under this paragraph if the hospital is not so designated by the State in which it is located solely because of its failure to meet the criteria described in paragraph (3) of subsection (e). “(2) Rural primary care hospital.—(A) The Secretary shall designate a facility as a rural primary care hospital if the facility— “(i) is located in a State receiving a grant under subsection (a)(1); “(ii) is designated as a rural primary care hospital by the State in which it is located (except as provided in subparagraph (B)); and “(iii) meets such other criteria as the Secretary may require. “(B) In the case of a facility that is not eligible for designation as a rural primary care hospital under this paragraph solely because it is not designated as a rural primary care hospital by 103 STAT. 2150the State in which it is located, the Secretary may designate such facility as a rural primary care hospital under this paragraph if the facility is not so designated by the State in which it is located solely because of its failure to meet the criteria described in subparagraphs (C), (F), or (G) of subsection (f)(1). “(C) The Secretary may designate not more than 15 facilities as rural primary care hospitals under this paragraph that do not meet the requirements of clauses (i) and (ii) of subparagraph (A) if such a facility meets the criteria described in subparagraphs (A), (B), and (E) of subsection (f)(1), except that nothing in this subparagraph shall be construed to prohibit the Secretary from designating a facility as a rural primary care hospital solely because the facility has entered into an agreement with the Secretary under section 1883 under which the facility’s inpatient hospital facilities may be used for the furnishing of extended care services. “(j) Waiver of Conflicting Part A Provisions.—The Secretary is authorized to waive such provisions of this part as are necessary to conduct the program established under this section. “(k) Authorization of Appropriations.—There are authorized to be appropriated from the Federal Hospital Insurance Trust Fund for each of the fiscal years 1990, 1991, and 1992— “(1) $10,000,000 for grants to States under subsection (a)(1); and “(2) $15,000,000 for grants to hospitals, facilities, and consortia under subsection (a)(2).”. (B) Modification of rural health care transition grant program.—(i) Section 4005(e) of the Omnibus Budget Reconciliation Act of 1987 is amended— (I) in paragraph (1), by adding at the end the following new sentence: “Grants under this paragraph may be used to provide instruction and consultation (and such other services as the Administrator determines appropriate) via telecommunications to physicians in such rural areas (within the meaning of section 1886(d)(2)(D) of the Social Security Act) as are designated either class 1 or class 2 health manpower shortage areas under section 332(a)(1)(A) of the Public Health Service Act.”, (II) in paragraph (3)(A), by striking “an application to the Governor” and inserting “an application to the Administrator and a copy of such application to the Governor”, (III) in paragraph (3)(B), by striking “any application” and all that follows through “accompanied by” and inserting “to the Administrator, within a reasonable time after receiving a copy of an application pursuant to subparagraph (A),”, (IV) in paragraph (6), by striking “2 years” and inserting “3 years”, (V) in paragraph (7)(A), by striking “(D)” and inserting “(B)”, (VI) in paragraph (7)(C), by striking the period at the end and inserting the following: “, except that this limitation shall not apply with respect to a grant used for the purposes described in subparagraph (D).”, 103 STAT. 2151 (VII) by adding at the end of paragraph (7) the following new subparagraph: “(D) A hospital may use a grant received under this subsection to develop a plan for converting itself to a rural primary care hospital (as described in section 1820 of the Social Security Act) or to develop a rural health network (as defined in section 1820(g) of such Act) in the State in which it is located if the State is receiving a grant under section 1820(a)(1).”, and (VIII) in paragraph (9), by striking “each of the fiscal years 1989 and 1990” and inserting “fiscal year 1989 and $25,000,000 for each of the fiscal years 1990, 1991, and 1992”. (ii) The amendments made by clause (i) shall apply with respect to applications for grants under the Rural Health Care Transition Grant Program described in section 4005(e) of the Omnibus Budget Reconciliation Act of 1987 submitted on or after October 1, 1989, except that the amendments made by subclauses (V) and (VII) of such clause shall take effect on the date of the enactment of this Act. (2) Treatment of Essential Access Community Hospitals as Sole Community Hospitals.— Section 1886(d)(5)(D) of such Act (42 U.S.C. 1395ww(d)(5)(D)) (as redesignated and amended by subsection (e)(1)(A)) is further amended— (A) in clause (iii)— (i) in subclause (I), by striking “or”, (ii) in subclause (II), by striking the period at the end and inserting “, or”, and (iii) by adding at the end the following new subclause: “(III) that is designated by the Secretary as an essential access community hospital under section 1820(i)(1).”, and (B) by adding at the end the following new clause: “(v) If the Secretary determines that, in the case of a hospital designated by the Secretary as an essential access community hospital under section 1820(i)(1), the hospital has incurred increases in reasonable costs during a cost reporting period as a result of becoming a member of a rural health network (as defined in section 1820(g)) in the State in which it is located, and in incurring such increases, the hospital will increase its costs for subsequent cost reporting periods, the Secretary shall increase the hospital’s target amount under subsection (b)(3)(C) to account for such incurred increases.”. (3) Coverage of, and payment for, inpatient rural primary care hospital services.— (A) Definitions.— Section 1861 of such Act (42 U.S.C. 1395x) is amended by adding at the end the following new subsection: “Rural Primary Care Hospital; Rural Primary Care Hospital Services “(mm)(1) The term ‘rural primary care hospital’ means a facility designated by the Secretary as a rural primary care hospital under section 1820(i)(2). “(2) The term ‘inpatient rural primary care hospital services’ means items and services, furnished to an inpatient of a rural primary care hospital by such a hospital, that would be inpatient 103 STAT. 2152hospital services if furnished to an inpatient of a hospital by a hospital.”. (B) Coverage and payment.—(i) Section 1812(a)(1) of such Act (42 U.S.C. 1395d(a)(1)), as restored by the Medicare Catastrophic Coverage Repeal Act of 1989, is amended by inserting “and inpatient rural primary care hospital services” before the semicolon. (ii) Section 1814(a) of such Act (42 U.S.C. 1395f(a)) is amended— (I) by striking “and” at the end of paragraph (6), (II) by striking the period at the end of paragraph (7) and inserting and”, and (III) by inserting after paragraph (7) the following new paragraph: “(8) in the case of inpatient rural primary care hospital services, a physician certifies that such services were required to be immediately furnished on a temporary, inpatient basis.”. (iii) Section 1814 of such Act is further amended— (I) in subsection (b), by inserting “, other than a rural primary care hospital providing inpatient rural primary care hospital services,” after “providing hospice care”, and (II) by adding at the end the following new subsection: “Payment for Inpatient Rural Primary Care Hospital Services “(l)(1) The amount of payment under this part for inpatient rural primary care hospital services— “(A) in the case of the first 12-month cost reporting period for which the facility operates as such a hospital, is the reasonable costs of the facility in providing inpatient rural primary care hospital services during such period, as such costs are determined on a per diem basis, and “(B) in the case of a later reporting period, is the per diem payment amount established under this paragraph for the preceding 12-month cost reporting period, increased by the applicable percentage increase under section 1886(b)(3)(B)(i) for that particular cost reporting period applicable to hospitals located in a rural area. The payment amounts otherwise determined under this paragraph shall be reduced, to the extent necessary, to avoid duplication of any payment made under section 1820(a)(2) (or under section 4005(e) of the Omnibus Budget Reconciliation Act of 1987) to cover the provision of inpatient rural primary care hospital services. (2) The Secretary shall develop a prospective payment system for determining payment amounts for inpatient rural primary care hospital services under this part furnished on or after January 1, 1993.”. (C) Treatment of rural primary care hospitals as providers of services.—(i) Section 1861(u) of such Act (42 U.S.C. 1395x(u)) is amended by inserting “rural primary care hospital,” after “hospital,”. (ii) Section 1863 of such Act (42 U.S.C. 1395z) is amended by striking “and (jj)(3)” and inserting “(jj)(3), and (mm)(1)”. (iii) The first sentence of section 1864(a) of such Act (42 U.S.C. 1395aa(a)) is amended by inserting “, a rural primary 103 STAT. 2153care hospital, as defined in section 1861(mm)(1),” after “1861(aa)(2)”. (iv) The third sentence of section 1865(a) of such Act (42 U.S.C. 1395bb(a)) is amended by striking “or 1861(dd)(2)” and inserting “1861(dd)(2), or 1861(mm)(1)”. (D) Conforming amendments.—(i) Section 1128A(b)(1) of such Act (42 U.S.C. 1320a–7a(b)(1)) is amended by striking “hospital” each place it appears and inserting “hospital or a rural primary care hospital”. (ii) Section 1128B(c) of such Act (42 U.S.C. 1320a–7b(c)) is amended by inserting “rural primary care hospital,” after “hospital,”. (iii) Section 1134 of such Act (42 U.S.C. 1320b–4) is amended by striking “hospitals” each place it appears and inserting “hospitals or rural primary care hospitals”. (iv) Section 1138(a)(1) of such Act (42 U.S.C. 1320b–8(a)(1)) is amended by striking “hospital” each place it appears in the matter preceding clause (i) of subparagraph (A) and inserting “hospital or rural primary care hospital”. (v) Section 1164(e) of such Act (42 U.S.C. 1320c–13(e)) is amended by inserting “rural primary care hospitals,” after “hospitals,”. (vi) Section 1816(c)(2)(C) of such Act (42 U.S.C. 1395h(c)(2)(O) is amended by inserting “rural primary care hospital,” after “hospital,”. (vii) Section 1833 of such Act (42 U.S.C. 13951) is amended— (I) in subsection (h)(5)(A)(iii), by striking “hospital,” each place it appears and inserting “hospital or rural primary care hospital,”; (II) in subsection (i)(I)(A), by inserting “, rural primary care hospital,” after “1832(a)(2)(F)(i))”; (III) in subsection (i)(3)(A), by inserting “or rural primary care hospital services” after “facility services”; (IV) in subsection (l)(5)(A), by inserting “rural primary care hospital,” after “hospital,” each place it appears; and (V) in subsection (1)(5)(0, by striking “hospital” each place it appears and inserting “hospital or rural primary care hospital”. (viii) Section 1835(c) of such Act (42 U.S.C. 1395n(c)) is amended by adding at the end the following: “A rural primary care hospital shall be considered a hospital for purposes of this subsection.”. (ix) Section 1842(b)(6)(A)(ii) of such Act (42 U.S.C. 1395u(b)(6)(A)(ii)) is amended by inserting “rural primary care hospital,” after “hospital,”. (x) Section 1861 of such Act (42 U.S.C. 1395x) is amended— (I) in subsection (e), by adding at the end the following: “The term ‘hospital’ does not include, unless the context otherwise requires, a rural primary care hospital (as defined in section 1861(mm)(1)).”, (II) in subsection (w)(1), by inserting “rural primary care hospital,” after “hospital,”, and 103 STAT. 2154 (III) in subsection (w)(2), by striking “hospital” each place it appears and inserting “hospital or rural primary care hospital”. (xi) Section 1862(a)(14) of such Act (42 U.S.C. 1395y(a)(14)) is amended by striking “hospital” each place it appears and inserting “hospital or rural primary care hospital”. (xii) Section 1866(a)(1) of such Act (42 U.S.C. 1395cc(a)(1)) is amended— (I) in subparagraph (F)(ii), by inserting “rural primary care hospitals,” after “hospitals,”; (II) in subparagraph (H), by inserting after “this title” the first place it appears the following: “and in the case of rural primary care hospitals which provide rural primary care hospital services”; (III) in subparagraph (I), by inserting “and in the case of a rural primary care hospital” after “hospital”; and (IV) in subparagraph (N), by striking “hospitals” and “hospital,” and inserting “hospitals and rural primary care hospitals” and “hospital or rural primary care hospital,”, respectively. (xiii) Section 1866(a)(3) of such Act (42 U.S.C. 1395cc(a)(3)) is amended— (I) by striking “hospital,” each place it appears in subparagraphs (A) and (B) and inserting “hospital, rural primary care hospital,”, and (II) in subparagraph (C)(ii)(II), by striking “facilities” each place it appears and inserting “facilities, rural primary care hospitals,”. (xiv) Section 1867(e) of such Act (42 U.S.C. 1395dd(e)) is amended by adding at the end the following new paragraph: “(6) The term ‘hospital’ includes a rural primary care hospital (as defined in section 1861(mm)(1)).”. (4) Avoiding duplicative payments to hospitals participating in rural health care transition grants.—Section 1886 of the Social Security Act (42 U.S.C. 1395ww) is amended by adding at the end the following new subsection: “(i) Avoiding Duplicative Payments to Hospitals Participating in Rural Demonstration Programs.—The Secretary shall reduce any payment amounts otherwise determined under this section to the extent necessary to avoid duplication of any payment made under section 4005(e) of the Omnibus Budget Reconciliation Act of 1987.”. (h) Geographic Classification of Hospitals.— (1) Establishment of medicare geographical classification board.—Section 1886(d) of the Social Security Act (42 U.S.C. 1395ww(d)) is amended by adding at the end the following new paragraph: “(10)(A) There is hereby established the Medicare Geographical Classification Review Board (hereinafter in this paragraph referred to as the ‘Board’). “(B)(i) The Board shall be composed of 5 members appointed by the Secretary without regard to the provisions of title 5, United States Code, governing appointments in the competitive service. Two of such members shall be representatives of subsection (d) hospitals located in a rural area under paragraph (2)(D). At least 1 member shall be a member of the Prospective Payment Assessment 103 STAT. 2155Commission, and at least 1 member shall be knowledgeable in the field of analyzing costs with respect to the provision of inpatient hospital services. “(ii) The Secretary shall make all appointments to the Board as provided in this paragraph within 180 days after the date of the enactment of this paragraph. “(C)(i) The Board shall consider the application of any subsection (d) hospital requesting that the Secretary change the hospital’s geographic classification for purposes of determining for a fiscal year— “(I) the hospital’s average standardized amount under paragraph (2)(D), or “(II) the area wage index applicable to such hospital under paragraph (3)(E). “(ii) A hospital requesting a change in geographic classification under clause (i) for a fiscal year shall submit its application to the Board not later than the first day of the preceding fiscal year. “(iii)(I) The Board shall render a decision on an application submitted under clause (i) not later than 180 days after the deadline referred to in clause (ii). “(II) A decision of the Board shall be final unless the unsuccessful applicant appeals such decision to the Secretary by not later than 15 days after the Board renders its decision. The Secretary in considering the appeal of an applicant shall receive no new evidence but shall consider the record as a whole as such record appeared before the Board. The Secretary shall issue a decision on such an appeal not later than 90 days after the appeal is filed. The decision of the Secretary shall be final and shall not be subject to judicial review. “(D)(i) The Secretary shall publish guidelines to be utilized by the Board in rendering decisions on applications submitted under this paragraph, and shall include in such guidelines the following: “(I) Guidelines for comparing wages, taking into account occupational mix, in the area in which the hospital is classified and the area in which the hospital is applying to be classified. “(II) Guidelines for determining whether the county in which the hospital is located should be treated as being a part of a particular Metropolitan Statistical Area. “(III) Guidelines for considering information provided by an applicant with respect to the effects of the hospital’s geographic classification on access to inpatient hospital services by medicare beneficiaries. “(IV) Guidelines for considering the appropriateness of the criteria used to define New England County Metropolitan Areas. “(ii) The Secretary shall publish the guidelines described in clause (i) by July 1, 1990. “(E)(i) The Board shall have full power and authority to make rules and establish procedures, not inconsistent with the provisions of this title or regulations of the Secretary, which are necessary or appropriate to carry out the provisions of this paragraph. In the course of any hearing the Board may administer oaths and affirmations. The provisions of subsections (d) and (e) of section 205 with respect to subpenas shall apply to the Board to the same extent as such provisions apply to the Secretary with respect to title II. “(ii) The Board is authorized to engage such technical assistance and to receive such information as may be required to carry out its functions, and the Secretary shall, in addition, make available to the 103 STAT. 2156Board such secretarial, clerical, and other assistance as the Board may require to carry out its functions. “(F)(i) Each member of the Board who is not an officer or employee of the Federal Government shall be compensated at a rate equal to the daily equivalent of the annual rate of basic pay prescribed for grade GS–18 of the General Schedule under section 5332 of title 5, United States Code, for each day (including travel time) during which such member is engaged in the performance of the duties of the Board. Each member of the Board who is an officer or employee of the United States shall serve without compensation in addition to that received for service as an officer or employee of the United States. “(ii) Members of the Board shall be allowed travel expenses, including per diem in lieu of subsistence, at rates authorized for employees of agencies under subchapter I of chapter 57 of title 5, United States Code, while away from their homes or regular places of business in the performance of services for the Board.”. (2) Effect of decisions of board on payments to hospitals.— Section 1886(d)(8) of such Act (42 U.S.C. 1395ww(d)(8)) is amended— (A) in subparagraph (C)(i), by striking “subparagraph (B)” each place it appears and inserting “subparagraph (B) or a decision of the Medicare Geographic Classification Review Board or the Secretary under paragraph (10),”, and (B) in subparagraph (D), by striking “(B) and (C)” each place it appears and inserting “(B) and (C) or a decision of the Medicare Geographic Classification Review Board or the Secretary under paragraph (10)”. (3) Revision of rules for treatment of reclassified hospitals.— Section 1886(d)(8)(C) of such Act is amended to read as follows: “(C)(i) If the application of subparagraph (B) or a decision of the Medicare Geographic Classification Review Board or the Secretary under paragraph (10), by treating hospitals located in a rural county or counties as being located in an urban area— “(I) reduces the wage index for that urban area (as applied under this subsection) by 1 percentage point or less, the Secretary, in calculating such wage index under this subsection, shall exclude those hospitals so treated, or “(II) reduces the wage index for that urban area by more than 1 percentage point (as applied under this subsection), the Secretary shall calculate and apply such wage index under this subsection separately to hospitals located in such urban area (excluding all the hospitals so treated) and to the hospitals so treated (as if each affected rural county were a separate urban area). “(ii) If the application of subparagraph (B) or a decision of the Medicare Geographic Classification Review Board or the Secretary under paragraph (10), by reclassifying a county from a rural to an urban area or by reclassifying an urban county from one urban area to another urban area— “(I) reduces the wage index for the urban area within which the county or counties is reclassified by 1 percentage point or less (as applied under this subsection), the Secretary, in calculating such wage index under this subsection, shall exclude those counties so reclassified, or 103 STAT. 2157 “(II) reduces the wage index for the urban area within which the county or counties is reclassified by more than 1 percentage point (as applied under this subsection), the Secretary shall calculate and apply such wage index under this subsection separately to hospitals located in such urban area (excluding all the hospitals so reclassified) and to hospitals located in the counties so reclassified (as if each affected county were a separate area). “(iii) If the application of subparagraph (B) or a decision of the Medicare Geographic Classification Review Board or the Secretary under paragraph (10), by treating hospitals located in a rural county or counties as not being located in the rural area in a State, reduces the wage index for that rural area (as applied under this subsection), the Secretary shall calculate and apply such wage index under this subsection as if the hospitals so treated had not been excluded from calculation of the wage index for that rural area.”. (4) Floor for area wage indices.—Section 1886(d)(8)(C) of such Act (as amended by paragraph (3)) is further amended by adding at the end the following new clause: “(iv) The application of subparagraph (B) or a decision of the Medicare Geographic Classification Review Board or the Secretary under paragraph (10) may not result in the reduction of any county’s wage index to a level below the wage index for rural areas in the State in which the county is located.”. (5) Additional payment resulting from corrections of erroneously determined wage index.— (A) In general.—If the Secretary of Health and Human Services (hereinafter referred to as the “Secretary”) discovers an error with respect to the determination, adjustment, or computation of the area wage index described in section 1886(d)(3)(E) of the Social Security Act and subsequently corrects such error, the Secretary shall make an additional payment under title XVIII of such Act to a hospital affected by such error for inpatient hospital discharges occurring during the period when the erroneously determined, adjusted, or computed wage index was in effect. (B) Conditions for additional payment.—A hospital is eligible for an additional payment under subparagraph (A) only if— (i) the error resulted from the submission of erroneous data, except that a hospital is not eligible for such additional payment if it submitted such erroneous data; (ii) the error was made with respect to the survey of the 1984 wages and wage-related costs of hospitals in the United States conducted under section 1886(d)(3)(E) of the Social Security Act; and (iii) the correction of the error resulted in an adjustment to the area wage index of not less than 3 percentage points. (C) Period of applicability.—A hospital may not receive an additional payment under subparagraph (A) for discharges occurring after October 1, 1990. (6) Updates to wage index survey.— Section 1886(d)(3)(E) of the Social Security Act (42 U.S.C. 1395ww(d)(3)(E)) is amended— (A) by striking “October 1, 1990 (and at least every 36 months thereafter)” and inserting “October 1, 1990, and 103 STAT. 2158October 1, 1993 (and at least every 12 months thereafter)”, and (B) by adding at the end the following new sentence: “Any adjustments or updates made under this subparagraph for a fiscal year (beginning with fiscal year 1991) shall be made in a manner that assures that the aggregate payments under this subsection in the fiscal year are not greater or less than those that would have been made in the year without such adjustment”. (7) Effective date.—The amendments made by paragraphs (3) and (4) shall apply to discharges occurring on or after April 1, 1990. (i) Legislative Proposal Eliminating Separate Average Standardized Amounts.— (1) In general.— The Secretary of Health and Human Services (hereinafter referred to as the “Secretary”) shall design a legislative proposal eliminating the system of determining separate average standardized amounts for subsection (d) hospitals (as defined in section 1886(d)(1)(B) of the Social Security Act) classified as being located in large urban, other urban, or rural areas under section 1886(d)(2)(D) of such Act, and shall include in such proposal the following: (A) A transition period beginning in fiscal year 1992 during which a single rate for determining payment to hospitals in all areas shall be phased in with such single rate to be completely in effect by fiscal year 1995. (B) Recommendations, where appropriate, for modifying or maintaining additional payments or adjustments made under title XVIII of the Social Security Act for teaching hospitals, rural referral centers, sole community hospitals, disproportionate share hospitals, and outlier cases, and for creating additional payments or adjustments where deemed appropriate by the Secretary. (C) Recommendations with respect to recalculating standardized amounts to reflect information from more recent cost reporting periods. (D) Recommendations, where appropriate, for modifying reimbursement for hospitals that are not subsection (d) hospitals under title XVIII of such Act. (E) A recommendation for a methodology to reflect the severity of illness of different patients within the same diagnosis-related group (as determined in section 1886(d)(4)(B) of such Act). (2) Report to congress and propac.—(A) Not later than October 1, 1990, the Secretary shall submit the proposal described in paragraph (1) and an accompanying analysis of the impact of the proposed elimination of separate average standardized amounts on various categories of hospitals to Congress and the Prospective Payment Assessment Commission. (B) Not later than February 1, 1991, the Prospective Payment Assessment Commission and the Director of the Congressional Budget Office shall each prepare and submit to Congress a report analyzing the legislative proposal submitted under subparagraph (A), and shall include in such report an analysis of the probable impact of such legislation on hospitals participating in the medicare program. 103 STAT. 2159 (j) PROPAC Study of Payments to Rural Sole Community Hospitals and Small Rural Hospitals.— (1) Study.— The Prospective Payment Assessment Commission (hereinafter referred to as the “Commission”) shall conduct a study of the feasibility and desirability of— (A) using a cost-based reimbursement system to determine the amount of payments to be made under the medicare program to small rural hospitals and rural sole community hospitals for the operating costs of inpatient hospital services; (B) developing and applying alternative definitions of market share for use in determining the eligibility of hospitals for classification as sole community hospitals under section 1886(d)(5) of the Social Security Act; and (C) developing and applying a method for accounting for decreases in the number of inpatients served in determining payment to small rural hospitals under section 1886(d) of the Social Security Act for the operating costs of in-patient hospital services. (2) Report.—By not later than May 1, 1990, the Commission shall submit a report to Congress on the study conducted under paragraph (1).