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[CITE: 42USC1395yy]

 
                 TITLE 42--THE PUBLIC HEALTH AND WELFARE
 
                       CHAPTER 7--SOCIAL SECURITY
 
        SUBCHAPTER XVIII--HEALTH INSURANCE FOR AGED AND DISABLED
 
                    Part D--Miscellaneous Provisions
 
Sec. 1395yy. Payment to skilled nursing facilities for routine 
        service costs
        

(a) Per diem limitations

    The Secretary, in determining the amount of the payments which may 
be made under this subchapter with respect to routine service costs of 
extended care services shall not recognize as reasonable (in the 
efficient delivery of health services) per diem costs of such services 
to the extent that such per diem costs exceed the following per diem 
limits, except as otherwise provided in this section:
        (1) With respect to freestanding skilled nursing facilities 
    located in urban areas, the limit shall be equal to 112 percent of 
    the mean per diem routine service costs for freestanding skilled 
    nursing facilities located in urban areas.
        (2) With respect to freestanding skilled nursing facilities 
    located in rural areas, the limit shall be equal to 112 percent of 
    the mean per diem routine service costs for freestanding skilled 
    nursing facilities located in rural areas.
        (3) With respect to hospital-based skilled nursing facilities 
    located in urban areas, the limit shall be equal to the sum of the 
    limit for freestanding skilled nursing facilities located in urban 
    areas, plus 50 percent of the amount by which 112 percent of the 
    mean per diem routine service costs for hospital-based skilled 
    nursing facilities located in urban areas exceeds the limit for 
    freestanding skilled nursing facilities located in urban areas.
        (4) With respect to hospital-based skilled nursing facilities 
    located in rural areas, the limit shall be equal to the sum of the 
    limit for freestanding skilled nursing facilities located in rural 
    areas, plus 50 percent of the amount by which 112 percent of the 
    mean per diem routine service costs for hospital-based skilled 
    nursing facilities located in rural areas exceeds the limit for 
    freestanding skilled nursing facilities located in rural areas.

In applying this subsection the Secretary shall make appropriate 
adjustments to the labor related portion of the costs based upon an 
appropriate wage index, and shall, for cost reporting periods beginning 
on or after October 1, 1992, on or after October 1, 1995, and every 2 
years thereafter, provide for an update to the per diem cost limits 
described in this subsection, except that the limits effective for cost 
reporting periods beginning on or after October 1, 1997, shall be based 
on the limits effective for cost reporting periods beginning on or after 
October 1, 1996.

(b) Excess overhead allocations for hospital-based facilities

    With respect to a hospital-based skilled nursing facility, the 
Secretary may not recognize as reasonable the portion of the cost 
differences between hospital-based and freestanding skilled nursing 
facilities attributable to excess overhead allocations.

(c) Adjustments in limitations; publication of data

    The Secretary may make adjustments in the limits set forth in 
subsection (a) of this section with respect to any skilled nursing 
facility to the extent the Secretary deems appropriate, based upon case 
mix or circumstances beyond the control of the facility. The Secretary 
shall publish the data and criteria to be used for purposes of this 
subsection on an annual basis.

(d) Access to skilled nursing facilities

    (1) Subject to subsection (e) of this section, any skilled nursing 
facility may choose to be paid under this subsection on the basis of a 
prospective payment for all routine service costs (including the costs 
of services required to attain or maintain the highest practicable 
physical, mental, and psychosocial well-being of each resident eligible 
for benefits under this subchapter) and capital-related costs of 
extended care services provided in a cost reporting period if such 
facility had, in the preceding cost reporting period, fewer than 1,500 
patient days with respect to which payments were made under this 
subchapter. Such prospective payment shall be in lieu of payments which 
would otherwise be made for routine service costs pursuant to section 
1395x(v) of this title and subsections (a) through (c) of this section 
and capital-related costs pursuant to section 1395x(v) of this title. 
This subsection shall not apply to a facility for any cost reporting 
period immediately following a cost reporting period in which such 
facility had 1,500 or more patient days with respect to which payments 
were made under this subchapter, without regard to whether payments were 
made under this subsection during such preceding cost reporting period.
    (2)(A) The amount of the payment under this section shall be 
determined on a per diem basis.
    (B) Subject to the limitations of subparagraph (C), for skilled 
nursing facilities located--
        (i) in an urban area, the amount shall be equal to 105 percent 
    of the mean of the per diem reasonable routine service and capital-
    related costs of extended care services for skilled nursing 
    facilities in urban areas within the same region, determined without 
    regard to the limitations of subsection (a) of this section and 
    adjusted for different area wage levels, and
        (ii) in a rural area the amount shall be equal to 105 percent of 
    the mean of the per diem reasonable routine service and capital-
    related costs of extended care services for skilled nursing 
    facilities in rural areas within the same region, determined without 
    regard to the limitations of subsection (a) of this section and 
    adjusted for different area wage levels.

    (C) The per diem amounts determined under subparagraph (B) shall not 
exceed the limit on routine service costs determined under subsection 
(a) of this section with respect to the facility, adjusted to take into 
account average capital-related costs with respect to the type and 
location of the facility.
    (3) For purposes of this subsection, urban and rural areas shall be 
determined in the same manner as for purposes of subsection (a) of this 
section, and the term ``region'' shall have the same meaning as under 
section 1395ww(d)(2)(D) of this title.
    (4) The Secretary shall establish the prospective payment amounts 
for cost reporting periods beginning in a fiscal year at least 90 days 
prior to the beginning of such fiscal year, on the basis of the most 
recent data available for a 12-month period. A skilled nursing facility 
must notify the Secretary of its intention to be paid pursuant to this 
subsection for a cost reporting period no later than 30 days before the 
beginning of that period.
    (5) The Secretary shall provide for a simplified cost report to be 
filed by facilities being paid pursuant to this subsection, which shall 
require only the cost information necessary for determining prospective 
payment amounts pursuant to paragraph (2) and reasonable costs of 
ancillary services.
    (6) In lieu of payment on a cost basis for ancillary services 
provided by a facility which is being paid pursuant to this subsection, 
the Secretary may pay for such ancillary services on a reasonable charge 
basis if the Secretary determines that such payment basis will provide 
an equitable level of reimbursement and will ease the reporting burden 
of the facility.
    (7) In computing the rates of payment to be made under this 
subsection, there shall be taken into account the costs described in the 
last sentence of section 1395x(v)(1)(E) of this title (relating to 
compliance with nursing facility requirements and of conducting nurse 
aide training and competency evaluation programs and competency 
evaluation programs).

(e) Prospective payment

                        (1) Payment provision

        Notwithstanding any other provision of this subchapter, subject 
    to paragraphs (7), (11), and (12), the amount of the payment for all 
    costs (as defined in paragraph (2)(B)) of covered skilled nursing 
    facility services (as defined in paragraph (2)(A)) for each day of 
    such services furnished--
            (A) in a cost reporting period during the transition period 
        (as defined in paragraph (2)(E)), is equal to the sum of--
                (i) the non-Federal percentage of the facility-specific 
            per diem rate (computed under paragraph (3)), and
                (ii) the Federal percentage of the adjusted Federal per 
            diem rate (determined under paragraph (4)) applicable to the 
            facility; and

            (B) after the transition period is equal to the adjusted 
        Federal per diem rate applicable to the facility.

                           (2) Definitions

        For purposes of this subsection:

        (A) Covered skilled nursing facility services

            (i) In general

                The term ``covered skilled nursing facility services''--
                    (I) means post-hospital extended care services as 
                defined in section 1395x(i) of this title for which 
                benefits are provided under part A of this subchapter; 
                and
                    (II) includes all items and services (other than 
                items and services described in clauses (ii) and (iii)) 
                for which payment may be made under part B of this 
                subchapter and which are furnished to an individual who 
                is a resident of a skilled nursing facility during the 
                period in which the individual is provided covered post-
                hospital extended care services.
            (ii) Services excluded

                Services described in this clause are physicians' 
            services, services described by clauses (i) and (ii) of 
            section 1395x(s)(2)(K) of this title, certified nurse-
            midwife services, qualified psychologist services, services 
            of a certified registered nurse anesthetist, items and 
            services described in subparagraphs (F) and (O) of section 
            1395x(s)(2) of this title, and, only with respect to 
            services furnished during 1998, the transportation costs of 
            electrocardiogram equipment for electrocardiogram test 
            services (HCPCS Code R0076). Services described in this 
            clause do not include any physical, occupational, or speech-
            language therapy services regardless of whether or not the 
            services are furnished by, or under the supervision of, a 
            physician or other health care professional.
            (iii) Exclusion of certain additional items and 
                    services

                Items and services described in this clause are the 
            following:
                    (I) Ambulance services furnished to an individual in 
                conjunction with renal dialysis services described in 
                section 1395x(s)(2)(F) of this title.
                    (II) Chemotherapy items (identified as of July 1, 
                1999, by HCPCS codes J9000-J9020; J9040-J9151; J9170-
                J9185; J9200-J9201; J9206-J9208; J9211; J9230-J9245; and 
                J9265-J9600 (and as subsequently modified by the 
                Secretary)) and any additional chemotherapy items 
                identified by the Secretary.
                    (III) Chemotherapy administration services 
                (identified as of July 1, 1999, by HCPCS codes 36260-
                36262; 36489; 36530-36535; 36640; 36823; and 96405-96542 
                (and as subsequently modified by the Secretary)) and any 
                additional chemotherapy administration services 
                identified by the Secretary.
                    (IV) Radioisotope services (identified as of July 1, 
                1999, by HCPCS codes 79030-79440 (and as subsequently 
                modified by the Secretary)) and any additional 
                radioisotope services identified by the Secretary.
                    (V) Customized prosthetic devices (commonly known as 
                artificial limbs or components of artificial limbs) 
                under the following HCPCS codes (as of July 1, 1999 (and 
                as subsequently modified by the Secretary)), and any 
                additional customized prosthetic devices identified by 
                the Secretary, if delivered to an inpatient for use 
                during the stay in the skilled nursing facility and 
                intended to be used by the individual after discharge 
                from the facility: L5050-L5340; L5500-L5611; L5613-
                L5986; L5988; L6050-L6370; L6400-L6880; L6920-L7274; and 
                L7362-7366.

        (B) All costs

            The term ``all costs'' means routine service costs, 
        ancillary costs, and capital-related costs of covered skilled 
        nursing facility services, but does not include costs associated 
        with approved educational activities.

        (C) Non-Federal percentage; Federal percentage

            For--
                (i) the first cost reporting period (as defined in 
            subparagraph (D)) of a facility, the ``non-Federal 
            percentage'' is 75 percent and the ``Federal percentage'' is 
            25 percent;
                (ii) the next cost reporting period of such facility, 
            the ``non-Federal percentage'' is 50 percent and the 
            ``Federal percentage'' is 50 percent; and
                (iii) the subsequent cost reporting period of such 
            facility, the ``non-Federal percentage'' is 25 percent and 
            the ``Federal percentage'' is 75 percent.

        (D) First cost reporting period

            The term ``first cost reporting period'' means, with respect 
        to a skilled nursing facility, the first cost reporting period 
        of the facility beginning on or after July 1, 1998.

        (E) Transition period

            (i) In general

                The term ``transition period'' means, with respect to a 
            skilled nursing facility, the 3 cost reporting periods of 
            the facility beginning with the first cost reporting period.
            (ii) Treatment of new skilled nursing facilities

                In the case of a skilled nursing facility that first 
            received payment for services under this subchapter on or 
            after October 1, 1995, payment for such services shall be 
            made under this subsection as if all services were furnished 
            after the transition period.

        (3) Determination of facility specific per diem rates

        The Secretary shall determine a facility-specific per diem rate 
    for each skilled nursing facility not described in paragraph 
    (2)(E)(ii) for a cost reporting period as follows:

        (A) Determining base payments

            The Secretary shall determine, on a per diem basis, the 
        total of--
                (i) the allowable costs of extended care services for 
            the facility for cost reporting periods beginning in fiscal 
            year 1995, including costs associated with facilities 
            described in subsection (d) of this section, with 
            appropriate adjustments (as determined by the Secretary) to 
            non-settled cost reports or, in the case of a facility 
            participating in the Nursing Home Case-Mix and Quality 
            Demonstration (RUGS-III), the RUGS-III rate received by the 
            facility during the cost reporting period beginning in 1997, 
            and
                (ii) an estimate of the amounts that would be payable 
            under part B of this subchapter (disregarding any applicable 
            deductibles, coinsurance, and copayments) for covered 
            skilled nursing facility services described in paragraph 
            (2)(A)(i)(II) furnished during the applicable cost reporting 
            period described in clause (i) to an individual who is a 
            resident of the facility, regardless of whether or not the 
            payment was made to the facility or to another entity.

        In making appropriate adjustments under clause (i), the 
        Secretary shall take into account exceptions and shall take into 
        account exemptions but, with respect to exemptions, only to the 
        extent that routine costs do not exceed 150 percent of the 
        routine cost limits otherwise applicable but for the exemption.

        (B) Update to first cost reporting period

            The Secretary shall update the amount determined under 
        subparagraph (A), for each cost reporting period after the 
        applicable cost reporting period described in subparagraph 
        (A)(i) and up to the first cost reporting period by a factor 
        equal to the skilled nursing facility market basket percentage 
        increase minus 1.0 percentage point.

        (C) Updating to applicable cost reporting period

            The Secretary shall update the amount determined under 
        subparagraph (B) for each cost reporting period beginning with 
        the first cost reporting period and up to and including the cost 
        reporting period involved by a factor equal to the facility-
        specific update factor.

        (D) Facility-specific update factor

            For purposes of this paragraph, the ``facility-specific 
        update factor'' for cost reporting periods beginning during--
                (i) during each of fiscal years 1998 and 1999, is equal 
            to the skilled nursing facility market basket percentage 
            increase for such fiscal year minus 1 percentage point, and
                (ii) during each subsequent fiscal year is equal to the 
            skilled nursing facility market basket percentage increase 
            for such fiscal year.

                      (4) Federal per diem rate

        (A) Determination of historical per diem for facilities

            For each skilled nursing facility that received payments for 
        post-hospital extended care services during a cost reporting 
        period beginning in fiscal year 1995 and that was subject to 
        (and not exempted from) the per diem limits referred to in 
        paragraph (1) or (2) of subsection (a) of this section (and 
        facilities described in subsection (d) of this section), the 
        Secretary shall estimate, on a per diem basis for such cost 
        reporting period, the total of--
                (i) the allowable costs of extended care services 
            (excluding exceptions payments) for the facility for cost 
            reporting periods beginning in 1995 with appropriate 
            adjustments (as determined by the Secretary) to non-settled 
            cost reports, and
                (ii) an estimate of the amounts that would be payable 
            under part B of this subchapter (disregarding any applicable 
            deductibles, coinsurance, and copayments) for covered 
            skilled nursing facility services described in paragraph 
            (2)(A)(i)(II) furnished during such period to an individual 
            who is a resident of the facility, regardless of whether or 
            not the payment was made to the facility or to another 
            entity.

        (B) Update to first fiscal year

            The Secretary shall update the amount determined under 
        subparagraph (A), for each cost reporting period after the cost 
        reporting period described in subparagraph (A)(i) and up to the 
        first cost reporting period by a factor equal to the skilled 
        nursing facility market basket percentage increase reduced (on 
        an annualized basis) by 1 percentage point.

        (C) Computation of standardized per diem rate

            The Secretary shall standardize the amount updated under 
        subparagraph (B) for each facility by--
                (i) adjusting for variations among facilities by area in 
            the average facility wage level per diem, and
                (ii) adjusting for variations in case mix per diem among 
            facilities.

        (D) Computation of weighted average per diem rates

            (i) All facilities

                The Secretary shall compute a weighted average per diem 
            rate for all facilities by computing an average of the 
            standardized amounts computed under subparagraph (C), 
            weighted for each facility by the number of days of extended 
            care services furnished during the cost reporting period 
            referred to in subparagraph (A).
            (ii) Freestanding facilities

                The Secretary shall compute a weighted average per diem 
            rate for freestanding facilities by computing an average of 
            the standardized amounts computed under subparagraph (C) 
            only for such facilities, weighted for each facility by the 
            number of days of extended care services furnished during 
            the cost reporting period referred to in subparagraph (A).
            (iii) Separate computation

                The Secretary may compute and apply such averages 
            separately for facilities located in urban and rural areas 
            (as defined in section 1395ww(d)(2)(D) of this title).

        (E) Updating

            (i) Initial period

                For the initial period beginning on July 1, 1998, and 
            ending on September 30, 1999, the Secretary shall compute 
            for skilled nursing facilities an unadjusted Federal per 
            diem rate equal to the average of the weighted average per 
            diem rates computed under clauses (i) and (ii) of 
            subparagraph (D), increased by skilled nursing facility 
            market basket percentage change for such period minus 1 
            percentage point.
            (ii) Subsequent fiscal years

                The Secretary shall compute an unadjusted Federal per 
            diem rate equal to the Federal per diem rate computed under 
            this subparagraph--
                    (I) for fiscal year 2000, the rate computed for the 
                initial period described in clause (i), increased by the 
                skilled nursing facility market basket percentage change 
                for the initial period minus 1 percentage point;
                    (II) for each of fiscal years 2001 and 2002, the 
                rate computed for the previous fiscal year increased by 
                the skilled nursing facility market basket percentage 
                change for the fiscal year involved minus 1 percentage 
                point; and
                    (III) for each subsequent fiscal year, the rate 
                computed for the previous fiscal year increased by the 
                skilled nursing facility market basket percentage change 
                for the fiscal year involved.

        (F) Adjustment for case mix creep

            Insofar as the Secretary determines that the adjustments 
        under subparagraph (G)(i) for a previous fiscal year (or 
        estimates that such adjustments for a future fiscal year) did 
        (or are likely to) result in a change in aggregate payments 
        under this subsection during the fiscal year that are a result 
        of changes in the coding or classification of residents that do 
        not reflect real changes in case mix, the Secretary may adjust 
        unadjusted Federal per diem rates for subsequent fiscal years so 
        as to eliminate the effect of such coding or classification 
        changes.

        (G) Determination of Federal rate

            The Secretary shall compute for each skilled nursing 
        facility for each fiscal year (beginning with the initial period 
        described in subparagraph (E)(i)) an adjusted Federal per diem 
        rate equal to the unadjusted Federal per diem rate determined 
        under subparagraph (E), as adjusted under subparagraph (F), and 
        as further adjusted as follows:
            (i) Adjustment for case mix

                The Secretary shall provide for an appropriate 
            adjustment to account for case mix. Such adjustment shall be 
            based on a resident classification system, established by 
            the Secretary, that accounts for the relative resource 
            utilization of different patient types. The case mix 
            adjustment shall be based on resident assessment data and 
            other data that the Secretary considers appropriate.
            (ii) Adjustment for geographic variations in labor 
                    costs

                The Secretary shall adjust the portion of such per diem 
            rate attributable to wages and wage-related costs for the 
            area in which the facility is located compared to the 
            national average of such costs using an appropriate wage 
            index as determined by the Secretary. Such adjustment shall 
            be done in a manner that does not result in aggregate 
            payments under this subsection that are greater or less than 
            those that would otherwise be made if such adjustment had 
            not been made.
            (iii) Adjustment for exclusion of certain additional 
                    items and services

                The Secretary shall provide for an appropriate 
            proportional reduction in payments so that beginning with 
            fiscal year 2001, the aggregate amount of such reductions is 
            equal to the aggregate increase in payments attributable to 
            the exclusion effected under clause (iii) of paragraph 
            (2)(A).

        (H) Publication of information on per diem rates

            The Secretary shall provide for publication in the Federal 
        Register, before May 1, 1998 (with respect to fiscal period 
        described in subparagraph (E)(i)) and before the August 1 
        preceding each succeeding fiscal year (with respect to that 
        succeeding fiscal year), of--
                (i) the unadjusted Federal per diem rates to be applied 
            to days of covered skilled nursing facility services 
            furnished during the fiscal year,
                (ii) the case mix classification system to be applied 
            under subparagraph (G)(i) with respect to such services 
            during the fiscal year, and
                (iii) the factors to be applied in making the area wage 
            adjustment under subparagraph (G)(ii) with respect to such 
            services.

        (5) Skilled nursing facility market basket index and 
                                 percentage

        For purposes of this subsection:

        (A) Skilled nursing facility market basket index

            The Secretary shall establish a skilled nursing facility 
        market basket index that reflects changes over time in the 
        prices of an appropriate mix of goods and services included in 
        covered skilled nursing facility services.

        (B) Skilled nursing facility market basket percentage

            The term ``skilled nursing facility market basket 
        percentage'' means, for a fiscal year or other annual period and 
        as calculated by the Secretary, the percentage change in the 
        skilled nursing facility market basket index (established under 
        subparagraph (A)) from the midpoint of the prior fiscal year (or 
        period) to the midpoint of the fiscal year (or other period) 
        involved.

             (6) Submission of resident assessment data

        A skilled nursing facility, or a facility described in paragraph 
    (7)(B), shall provide the Secretary, in a manner and within the 
    timeframes prescribed by the Secretary, the resident assessment data 
    necessary to develop and implement the rates under this subsection. 
    For purposes of meeting such requirement, a skilled nursing 
    facility, or a facility described in paragraph (7), may submit the 
    resident assessment data required under section 1395i-3(b)(3) of 
    this title, using the standard instrument designated by the State 
    under section 1395i-3(e)(5) of this title.

           (7) Transition for medicare swing bed hospitals

        (A) In general

            The Secretary shall determine an appropriate manner in which 
        to apply this subsection to the facilities described in 
        subparagraph (B), taking into account the purposes of this 
        subsection, and shall provide that at the end of the transition 
        period (as defined in paragraph (2)(E)) such facilities shall be 
        paid only under this subsection. Payment shall not be made under 
        this subsection to such facilities for cost reporting periods 
        beginning before such date (not earlier than July 1, 1999) as 
        the Secretary specifies.

        (B) Facilities described

            The facilities described in this subparagraph are facilities 
        that have in effect an agreement described in section 1395tt of 
        this title, for which payment is made for the furnishing of 
        extended care services on a reasonable cost basis under section 
        1395f(l) of this title (as in effect on and after such date).

                      (8) Limitation on review

        There shall be no administrative or judicial review under 
    section 1395ff of this title, 1395oo of this title, or otherwise 
    of--
            (A) the establishment of Federal per diem rates under 
        paragraph (4), including the computation of the standardized per 
        diem rates under paragraph (4)(C), adjustments and corrections 
        for case mix under paragraphs (4)(F) and (4)(G)(i), adjustments 
        for variations in labor-related costs under paragraph 
        (4)(G)(ii), and adjustments under paragraph (4)(G)(iii);
            (B) the establishment of facility specific rates before July 
        1, 1999 (except any determination of costs paid under part A of 
        this subchapter); and
            (C) the establishment of transitional amounts under 
        paragraph (7).

                  (9) Payment for certain services

        In the case of an item or service furnished to a resident of a 
    skilled nursing facility or a part of a facility that includes a 
    skilled nursing facility (as determined under regulations) for which 
    payment would (but for this paragraph) be made under part B of this 
    subchapter in an amount determined in accordance with section 
    1395l(a)(2)(B) of this title, the amount of the payment under such 
    part shall be the amount provided under the fee schedule for such 
    item or service. In the case of an item or service described in 
    clause (iii) of paragraph (2)(A) that would be payable under part A 
    of this subchapter but for the exclusion of such item or service 
    under such clause, payment shall be made for the item or service, in 
    an amount otherwise determined under part B of this subchapter for 
    such item or service, from the Federal Hospital Insurance Trust Fund 
    under section 1395i of this title (rather than from the Federal 
    Supplementary Medical Insurance Trust Fund under section 1395t of 
    this title).

                        (10) Required coding

        No payment may be made under part B of this subchapter for items 
    and services (other than services described in paragraph (2)(A)(ii)) 
    furnished to an individual who is a resident of a skilled nursing 
    facility or of a part of a facility that includes a skilled nursing 
    facility (as determined under regulations), unless the claim for 
    such payment includes a code (or codes) under a uniform coding 
    system specified by the Secretary that identifies the items or 
    services furnished.

        (11) Permitting facilities to waive 3-year transition

        Notwithstanding paragraph (1)(A), a facility may elect to have 
    the amount of the payment for all costs of covered skilled nursing 
    facility services for each day of such services furnished in cost 
    reporting periods beginning no earlier than 30 days before the date 
    of such election determined pursuant to paragraph (1)(B).

              (12) Payment rule for certain facilities

        (A) In general

            In the case of a qualified acute skilled nursing facility 
        described in subparagraph (B), the per diem amount of payment 
        shall be determined by applying the non-Federal percentage and 
        Federal percentage specified in paragraph (2)(C)(ii).

        (B) Facility described

            For purposes of subparagraph (A), a qualified acute skilled 
        nursing facility is a facility that--
                (i) was certified by the Secretary as a skilled nursing 
            facility eligible to furnish services under this subchapter 
            before July 1, 1992;
                (ii) is a hospital-based facility; and
                (iii) for the cost reporting period beginning in fiscal 
            year 1998, the facility had more than 60 percent of total 
            patient days comprised of patients who are described in 
            subparagraph (C).

        (C) Description of patients

            For purposes of subparagraph (B), a patient described in 
        this subparagraph is an individual who--
                (i) is entitled to benefits under part A of this 
            subchapter; and
                (ii) is immuno-compromised secondary to an infectious 
            disease, with specific diagnoses as specified by the 
            Secretary.

(Aug. 14, 1935, ch. 531, title XVIII, Sec. 1888, as added Pub. L. 98-
369, div. B, title III, Sec. 2319(b), July 18, 1984, 98 Stat. 1082; 
amended Pub. L. 99-272, title IX, Secs. 9126(a), (b), 9219(b)(1)(C), 
Apr. 7, 1986, 100 Stat. 168, 170, 182; Pub. L. 99-514, title XVIII, 
Sec. 1895(b)(7)(A), (B), Oct. 22, 1986, 100 Stat. 2933; Pub. L. 100-203, 
title IV, Sec. 4201(b)(2), Dec. 22, 1987, 101 Stat. 1330-174; Pub. L. 
101-508, title IV, Sec. 4008(e)(2), (h)(2)(A)(ii), Nov. 5, 1990, 104 
Stat. 1388-45, 1388-48; Pub. L. 103-66, title XIII, Sec. 13503(a)(2), 
(3)(A), Aug. 10, 1993, 107 Stat. 578; Pub. L. 105-33, title IV, 
Secs. 4431, 4432(a), (b)(3), (5)(H), 4511(a)(2)(E), Aug. 5, 1997, 111 
Stat. 414, 421, 422, 442; Pub. L. 106-113, div. B, Sec. 1000(a)(6) 
[title I, Secs. 102(a), 103(a), (b), 104(a), 105(a), title III, 
Sec. 321(g)(1), (k)(18)], Nov. 29, 1999, 113 Stat. 1536, 1501A-325 to 
1501A-327, 1501A-366, 1501A-368.)

                       References in Text

    Parts A and B of this subchapter, referred to in subsec. (e), are 
classified to section 1395c et seq. and section 1395j et seq., 
respectively, of this title.


                               Amendments

    1999--Subsec. (e)(1). Pub. L. 106-113, Sec. 1000(a)(6) [title I, 
Sec. 105(a)(1)], substituted ``subject to paragraphs (7), (11), and 
(12)'' for ``subject to paragraphs (7) and (11)'' in introductory 
provisions.
    Pub. L. 106-113, Sec. 1000(a)(6) [title I, Sec. 102(a)(1)], 
substituted ``paragraphs (7) and (11)'' for ``paragraph (7)'' in 
introductory provisions.
    Subsec. (e)(2)(A)(i)(II). Pub. L. 106-113, Sec. 1000(a)(6) [title I, 
Sec. 103(a)(1)], substituted ``items and services described in clauses 
(ii) and (iii)'' for ``services described in clause (ii)''.
    Subsec. (e)(2)(A)(iii). Pub. L. 106-113, Sec. 1000(a)(6) [title I, 
Sec. 103(a)(2)], added cl. (iii).
    Subsec. (e)(3)(A)(i). Pub. L. 106-113, Sec. 1000(a)(6) [title I, 
Sec. 104(a)(1)(A)], inserted ``or, in the case of a facility 
participating in the Nursing Home Case-Mix and Quality Demonstration 
(RUGS-III), the RUGS-III rate received by the facility during the cost 
reporting period beginning in 1997'' after ``to non-settled cost 
reports''.
    Subsec. (e)(3)(A)(ii). Pub. L. 106-113, Sec. 1000(a)(6) [title I, 
Sec. 104(a)(1)(B)], substituted ``furnished during the applicable cost 
reporting period described in clause (i)'' for ``furnished during such 
period''.
    Subsec. (e)(3)(B). Pub. L. 106-113, Sec. 1000(a)(6) [title I, 
Sec. 104(a)(2)], added subpar. (B) and struck out heading and text of 
former subpar. (B). Text read as follows:
    ``(i) In general.--Subject to clause (ii), the Secretary shall 
update the amount determined under subparagraph (A), for each cost 
reporting period after the cost reporting period described in 
subparagraph (A)(i) and up to the first cost reporting period by a 
factor equal to the skilled nursing facility market basket percentage 
increase minus 1 percentage point.
    ``(ii) Certain demonstration projects.--In the case of a facility 
participating in the Nursing Home Case-Mix and Quality Demonstration 
(RUGS-III), there shall be substituted for the amount described in 
clause (i) the RUGS-III rate received by the facility for 1997.''
    Subsec. (e)(4)(E)(i). Pub. L. 106-113, Sec. 1000(a)(6) [title III, 
Sec. 321(k)(18)(A)], substituted ``Federal'' for ``federal''.
    Subsec. (e)(4)(E)(ii). Pub. L. 106-113, Sec. 1000(a)(6) [title III, 
Sec. 321(k)(18)(B)], substituted ``Federal'' for ``federal'' in two 
places in introductory provisions.
    Subsec. (e)(4)(G)(iii). Pub. L. 106-113, Sec. 1000(a)(6) [title I, 
Sec. 103(b)(1)], added cl. (iii).
    Subsec. (e)(8)(A). Pub. L. 106-113, Sec. 1000(a)(6) [title I, 
Sec. 103(b)(2)], substituted ``adjustments for variations in labor-
related costs under paragraph (4)(G)(ii), and adjustments under 
paragraph (4)(G)(iii)'' for ``and adjustments for variations in labor-
related costs under paragraph (4)(G)(ii)''.
    Subsec. (e)(8)(B). Pub. L. 106-113, Sec. 1000(a)(6) [title III, 
Sec. 321(g)(1)], substituted ``July 1, 1999'' for ``January 1, 1999,''.
    Subsec. (e)(9). Pub. L. 106-113, Sec. 1000(a)(6) [title I, 
Sec. 103(a)(3)], inserted at end ``In the case of an item or service 
described in clause (iii) of paragraph (2)(A) that would be payable 
under part A of this subchapter but for the exclusion of such item or 
service under such clause, payment shall be made for the item or 
service, in an amount otherwise determined under part B of this 
subchapter for such item or service, from the Federal Hospital Insurance 
Trust Fund under section 1395i of this title (rather than from the 
Federal Supplementary Medical Insurance Trust Fund under section 1395t 
of this title).''
    Subsec. (e)(11). Pub. L. 106-113, Sec. 1000(a)(6) [title I, 
Sec. 102(a)(2)], added par. (11).
    Subsec. (e)(12). Pub. L. 106-113, Sec. 1000(a)(6) [title I, 
Sec. 105(a)(2), (b)], temporarily added par. (12).
    1997--Subsec. (a). Pub. L. 105-33, Sec. 4431, substituted 
``described in this subsection, except that the limits effective for 
cost reporting periods beginning on or after October 1, 1997, shall be 
based on the limits effective for cost reporting periods beginning on or 
after October 1, 1996.'' for ``described in this subsection'' at end.
    Subsec. (d)(1). Pub. L. 105-33, Sec. 4432(b)(5)(H), substituted 
``Subject to subsection (e) of this section, any skilled nursing 
facility'' for ``Any skilled nursing facility''.
    Subsec. (e). Pub. L. 105-33, Sec. 4432(a), added subsec. (e).
    Subsec. (e)(2)(A)(ii). Pub. L. 105-33, Sec. 4511(a)(2)(E), 
substituted ``and (ii)'' for ``through (iii)''.
    Subsec. (e)(9), (10). Pub. L. 105-33, Sec. 4432(b)(3), added pars. 
(9) and (10).
    1993--Subsec. (a). Pub. L. 103-66, Sec. 13503(a)(2), inserted ``, on 
or after October 1, 1995,'' after ``October 1, 1992'' in concluding 
provisions.
    Subsec. (b). Pub. L. 103-66, Sec. 13503(a)(3)(A), substituted 
``Secretary may not recognize'' for ``Secretary shall recognize'' and a 
period for ``(as determined by the Secretary) resulting from the 
reimbursement principles under this subchapter, notwithstanding the 
limits set forth in paragraph (3) or (4) of subsection (a) of this 
section.''
    1990--Subsec. (a). Pub. L. 101-508, Sec. 4008(e)(2), struck out 
period at end and inserted ``, and shall, for cost reporting periods 
beginning on or after October 1, 1992 and every 2 years thereafter, 
provide for an update to the per diem cost limits described in this 
subsection''.
    Subsec. (d)(1). Pub. L. 101-508, Sec. 4008(h)(2)(A)(ii), substituted 
``(including the costs of services required to attain or maintain the 
highest practicable physical, mental, and psychosocial well-being of 
each resident eligible for benefits under this subchapter) and capital-
related costs'' for ``(and capital-related costs)''.
    1987--Subsec. (d)(7). Pub. L. 100-203 added par. (7).
    1986--Subsec. (b). Pub. L. 99-272, Sec. 9219(b)(1)(C), substituted 
``notwithstanding'' for ``nothwithstanding''.
    Subsec. (c). Pub. L. 99-272, Sec. 9126(b), inserted provision 
requiring the Secretary to publish data and criteria to be used for 
purposes of this subsection on an annual basis.
    Subsec. (d). Pub. L. 99-272, Sec. 9126(a), added subsec. (d).
    Subsec. (d)(1). Pub. L. 99-514, Sec. 1895(b)(7)(A), substituted 
``cost reporting period'' for ``fiscal year'' in five places.
    Subsec. (d)(4). Pub. L. 99-514, Sec. 1895(b)(7)(B), substituted 
``cost reporting periods beginning in a fiscal year'' for ``each fiscal 
year'' and ``cost reporting period no later than 30 days before the 
beginning of that period'' for ``fiscal year within 60 days after the 
Secretary establishes the final prospective payment amounts for such 
fiscal year''.


                    Effective Date of 1999 Amendment

    Pub. L. 106-113, div. B, Sec. 1000(a)(6) [title I, Sec. 102(b)], 
Nov. 29, 1999, 113 Stat. 1536, 1501A-325, provided that: ``The 
amendments made by subsection (a) [amending this section] shall apply to 
elections made on or after December 15, 1999, except that no election 
shall be effective under such amendments for a cost reporting period 
beginning before January 1, 2000.''
    Pub. L. 106-113, div. B, Sec. 1000(a)(6) [title I, Sec. 103(c)], 
Nov. 29, 1999, 113 Stat. 1536, 1501A-326, provided that: ``The 
amendments made by subsection (a) [amending this section] shall apply to 
payments made for items and services furnished on or after April 1, 
2000.''
    Pub. L. 106-113, div. B, Sec. 1000(a)(6) [title I, Sec. 104(b)], 
Nov. 29, 1999, 113 Stat. 1536, 1501A-327, provided that: ``The 
amendments made by subsection (a) [amending this section] shall be 
effective as if included in the enactment of section 4432(a) of BBA [the 
Balanced Budget Act of 1997, Pub. L. 105-33].
    Pub. L. 106-113, div. B, Sec. 1000(a)(6) [title I, Sec. 105(b)], 
Nov. 29, 1999, 113 Stat. 1536, 1501A-328, provided that: ``The 
amendments made by subsection (a) [amending this section] shall apply 
for the period beginning on the date on which the first cost reporting 
period of the facility begins after the date of the enactment of this 
Act [Nov. 29, 1999] and ending on September 30, 2001, and applies to 
skilled nursing facilities furnishing covered skilled nursing facility 
services on the date of the enactment of this Act for which payment is 
made under title XVIII of the Social Security Act [this subchapter].''
    Amendment by section 1000(a)(6) [title III, Sec. 321(g)(1), (k)(18)] 
of Pub. L. 106-113 effective as if included in the enactment of the 
Balanced Budget Act of 1997, Pub. L. 105-33, except as otherwise 
provided, see section 1000(a)(6) [title III, Sec. 321(m)] of Pub. L. 
106-113, set out as a note under section 1395d of this title.


                    Effective Date of 1997 Amendment

    Amendment by section 4432(a), (b)(3), (5)(H) of Pub. L. 105-33 
effective for cost reporting periods beginning on or after July 1, 1998, 
except that amendment by section 4432(b) applicable to items and 
services furnished on or after July 1, 1998, see section 4432(d) of Pub. 
L. 105-33, set out as a note under section 1395i-3 of this title.
    Amendment by section 4511(a)(2)(E) of Pub. L. 105-33 applicable with 
respect to services furnished and supplies provided on and after Jan. 1, 
1998, see section 4511(e) of Pub. L. 105-33, set out as a note under 
section 1395k of this title.


                    Effective Date of 1993 Amendment

    Section 13503(a)(3)(B) of Pub. L. 103-66 provided that: ``The 
amendments made by subparagraph (A) [amending this section] shall apply 
to cost reporting periods beginning on or after October 1, 1993.''


                    Effective Date of 1990 Amendment

    Section 4008(e)(3) of Pub. L. 101-508 provided that: ``The 
amendments made by paragraphs (1) and (2) [amending this section and 
provisions set out as a note below] shall take effect as if included in 
the enactment of the Omnibus Budget Reconciliation Act of 1989 [Pub. L. 
101-239].''
    Amendment by section 4008(h)(2)(A)(ii) of Pub. L. 101-508 effective 
as if included in the enactment of the Omnibus Budget Reconciliation Act 
of 1987, Pub. L. 100-203, see section 4008(h)(2)(P) of Pub. L. 101-508, 
set out as a note under section 1395i-3 of this title.


                    Effective Date of 1987 Amendment

    Amendment by Pub. L. 100-203 applicable to services furnished on or 
after Oct. 1, 1990, without regard to whether regulations implementing 
such amendment are promulgated by such date, except as otherwise 
specifically provided in section 1395i-3 of this title, see section 
4204(a) of Pub. L. 100-203, as amended, set out as an Effective Date 
note under section 1395i-3 of this title.


                    Effective Date of 1986 Amendments

    Section 1895(b)(7)(D) of Pub. L. 99-514 provided that: ``The 
amendments made by subparagraphs (A) and (B) [amending this section] 
apply to cost reporting periods beginning on or after October 1, 1986.''
    Amendment by section 9219(b)(1)(C) of Pub. L. 99-272 effective as if 
originally included in the Deficit Reduction Act of 1984, Pub. L. 98-
369, see section 9219(b)(1)(D) of Pub. L. 99-272, set out as a note 
under section 1395u of this title.
    Section 9126(d) of Pub. L. 99-272, as amended by Pub. L. 99-514, 
title XVIII, Sec. 1895(b)(7)(C), Oct. 22, 1986, 100 Stat. 2933, provided 
that:
    ``(1) The amendment made by subsection (a) [amending this section] 
shall apply to cost reporting periods beginning on or after October 1, 
1986.
    ``(2) The amendment made by subsection (b) [amending this section] 
shall become effective on the date of the enactment of this Act [Apr. 7, 
1986].''


                             Effective Date

    Section 2319(c) of Pub. L. 98-369 provided that: ``The amendments 
made by subsections (a) [amending section 1395x of this title] and (b) 
[enacting this section] shall apply to cost reporting periods beginning 
on or after July 1, 1984.''


                           Report to Congress

    Pub. L. 106-113, div. B, Sec. 1000(a)(6) [title I, Sec. 105(c)], 
Nov. 29, 1999, 113 Stat. 1536, 1501A-328, provided that: ``Not later 
than March 1, 2001, the Secretary of Health and Human Services shall 
assess the resource use of patients of skilled nursing facilities 
furnishing services under the medicare program who are immuno-
compromised secondary to an infectious disease, with specific diagnoses 
as specified by the Secretary (under paragraph (12)(C), as added by 
subsection (a), of section 1888(e) of the Social Security Act (42 U.S.C. 
1395yy(e))) to determine whether any permanent adjustments are needed to 
the RUGs to take into account the resource uses and costs of these 
patients.''


                         Medical Review Process

    Section 4432(c) of Pub. L. 105-33 provided that: ``In order to 
ensure that medicare beneficiaries are furnished appropriate services in 
skilled nursing facilities, the Secretary of Health and Human Services 
shall establish and implement a thorough medical review process to 
examine the effects of the amendments made by this section [amending 
this section and sections 1395i-3, 1395k, 1395l, 1395u, 1395x, 1395y, 
1395cc, and 1395tt of this title] on the quality of covered skilled 
nursing facility services furnished to medicare beneficiaries. In 
developing such a medical review process, the Secretary shall place a 
particular emphasis on the quality of non-routine covered services and 
physicians' services for which payment is made under title XVIII of the 
Social Security Act [this subchapter].''


        Construction of Wage Index for Skilled Nursing Facilities

    Pub. L. 103-432, title I, Sec. 106(a), Oct. 31, 1994, 108 Stat. 
4405, provided that: ``Not later than 1 year after the date of the 
enactment of this Act [Oct. 31, 1994], the Secretary of Health and Human 
Services shall begin to collect data on employee compensation and paid 
hours of employment in skilled nursing facilities for the purpose of 
constructing a skilled nursing facility wage index adjustment to the 
routine service cost limits required under section 1888(a)(4) of the 
Social Security Act [subsec. (a)(4) of this section].''


No Change in Limits on Per Diem Service Costs for Extended Care Services 
                     for Fiscal Years 1994 and 1995

    Section 13503(a)(1) of Pub. L. 103-66 provided that: ``The Secretary 
of Health and Human Services may not provide for any change in the 
limits on per diem routine service costs for extended care services 
under section 1888 of the Social Security Act [this section] for cost 
reporting periods beginning during fiscal years 1994 and 1995, except as 
may be necessary to take into account the amendments made by paragraph 
(3)(A) [amending this section]. The effect of the preceding sentence 
shall not be considered by the Secretary in making adjustments pursuant 
to section 1888(c) of such Act to the payment limits for such services 
during such fiscal years.''


 No Change in Prospective Payments for Services Furnished During Fiscal 
                           Years 1994 and 1995

    Section 13503(b) of Pub. L. 103-66 provided that: ``The Secretary of 
Health and Human Services may not change the amount of any prospective 
payment paid to a skilled nursing facility under section 1888(d) of the 
Social Security Act [subsec. (d) of this section] for services furnished 
during cost reporting periods beginning during fiscal years 1994 and 
1995, except as may be necessary to take into account the amendment made 
by subsection (c)(1)(A) [amending section 1395x of this title].''


    Prospective Payment System for Skilled Nursing Facility Services

    Section 4008(k) of Pub. L. 101-508 provided that:
    ``(1) Development of proposal.--The Secretary of Health and Human 
Services shall develop a proposal to modify the current system under 
which skilled nursing facilities receive payment for extended care 
services under part A [part A of this subchapter] of the medicare 
program or a proposal to replace such system with a system under which 
such payments would be made on the basis of prospectively determined 
rates. In developing any proposal under this paragraph to replace the 
current system with a prospective payment system, the Secretary shall--
        ``(A) take into consideration the need to provide for 
    appropriate limits on increases in expenditures under the medicare 
    program without jeopardizing access to extended care services for 
    individuals unable to care for themselves;
        ``(B) provide for adjustments to prospectively determined rates 
    to account for changes in a facility's case mix, volume of cases, 
    and the development of new technologies and standards of medical 
    practice;
        ``(C) take into consideration the need to increase the payment 
    otherwise made under such system in the case of services provided to 
    patients whose length of stay or costs of treatment greatly exceed 
    the length of stay or cost of treatment provided for under the 
    applicable prospectively determined payment rate;
        ``(D) take into consideration the need to adjust payments under 
    the system to take into account factors such as a disproportionate 
    share of low-income patients, differences in wages and wage-related 
    costs among facilities located in various geographic areas, and 
    other factors the Secretary considers appropriate; and
        ``(E) take into consideration the appropriateness of classifying 
    patients and payments upon functional disability, cognitive 
    impairment, and other patient characteristics.
    ``(2) Reports.--(A) By not later than April 1, 1991, the Secretary 
(acting through the Administrator of the Health Care Financing 
Administration) shall submit any research studies to be used in 
developing the proposal under paragraph (1) to the Committee on Finance 
of the Senate and the Committee on Ways and Means of the House of 
Representatives.
    ``(B) By not later than September 1, 1991, the Secretary shall 
submit the proposal developed under paragraph (1) to the Committee on 
Finance of the Senate and the Committee on Ways and Means of the House 
of Representatives.
    ``(C) By not later than March 1, 1992, the Prospective Payment 
Assessment Commission shall submit an analysis of and comments on the 
proposal developed under paragraph (1) to the Committee on Finance of 
the Senate and the Committee on Ways and Means of the House of 
Representatives.''


   Use of More Recent Data Regarding Routine Service Costs of Skilled 
                           Nursing Facilities

    Pub. L. 101-239, title VI, Sec. 6024, Dec. 19, 1989, 103 Stat. 2167, 
as amended by Pub. L. 101-508, title IV, Sec. 4008(e)(1), Nov. 5, 1990, 
104 Stat. 1388-45, provided that: ``The Secretary of Health and Human 
Services shall determine mean per diem routine service costs for 
freestanding and hospital based skilled nursing facilities under section 
1888(a) of the Social Security Act [subsec. (a) of this section] for 
cost reporting periods beginning on or after October 1, 1989, in 
accordance with regulations published by the Secretary that require the 
use of cost reports submitted by skilled nursing facilities for cost 
reporting periods beginning not earlier than October 1, 1985. The 
Secretary shall update such costs under such section for cost reporting 
periods beginning on or after October 1, 1989, by using cost reports 
submitted by skilled nursing facilities for cost reporting periods 
ending not earlier than January 31, 1988, and not later than December 
31, 1988.''

                  Section Referred To in Other Sections

    This section is referred to in sections 1395i-3, 1395l, 1395u, 
1395x, 1395y, 1395cc, 1395tt of this title.
