(D) of paragraph (1) and has not made the requisite corrections as determined under paragraph (4), such State shall be subject to a termination of Federal matching under subsections (a)(2), (a)(3), and (a) (6).

"(6) (A) Any State for which a reduction or termination in Federal matching has been imposed under paragraph (5) shall continue to have the matching reduced or terminated as specified in such paragraph applicable to such State until the Secretary has determined (and the Comptroller General of the United States has certified) that the specified deficiency (or deficiencies) has (or have) been corrected.

"(B) A State which has been determined (as provided in subparagraph (A)) to have made the requisite corrections in all categories specified as deficient shall be entitled to the matching rate specified in subsections (a)(2), (a)(3), and (a) (6) beginning on the first day of the calendar quarter in which such determination was made.

"(C) In the case of a State for which matching has been terminated under subsections (a) (2), (a) (3), and (a) (6) as provided under subparagraph (5) (B) and the Secretary determines pursuant to subparagraph (A) that deficiencies continue to exist in only one of the four specified categories, such State shall, beginning on the first day of the calendar quarter in which such determination is made, be so notified and be entitled to the reduced matching rate specified in subparagraph (5) (A).

"(7) In the case of any State which is determined to substantially exceed the requirements of at least two of the subparagraphs (A), (B), (C), or (D) of paragraph (1) and meet the requirements of the remaining such subparagraphs as determined in an onsite evaluation as provided in paragraph (2). such State shall be so notified and entitled effective for the calendar quarter beginning on October 1, 1977, or for subsequent calendar quarters, whichever is appropriate, to a Federal matching rate under subsection (a) (6) of 75 per centum and such amount shall be applicable for each calendar quarter for which the Secretary determines the State continues to meet the requirements of this paragraph;

"(8) The Secretary shall in a timely fashion provide or arrange for the provision of technical assistance by experienced and qualified personnel to any State which requests assistance (and for whom the Secretary determines such request is reasonable) and in meeting the requirements of paragraph (1). Such assistance may include arranging for personnel from other States with useful experience in meeting the requirements of paragraph (1) to provide technical assistance to requesting States and such arrangements shall provide for compensation of such personnel in an amount determined reasonable by the Secretary;

"(9) The Secretary shall make available to the States in a timely fashion information on actions taken by specific States which have enabled them to effectively fulfill the requirements of paragraph (1) when such information would prove useful to other States in helping them meet such requirements;

"(10) In the case of any required notification by the Secretary to a State under this section respecting identification of deficiencies, or a reduction, termination, or increase in Federal matching, simultaneous notification shall also be made to the Governor of such State, the chief executive officer of each body of the State legislature, and (to the extent such information is known) the chairman of the legislative committees in such State with jurisdiction over the medical assistance program authorized under this title.".

(d) Title XIX of the Social Security Act is amended by adding at the end thereof the following new sections:

"QUALITY CONTROL

"SEC. 1911. The Secretary shall

"(a)(1) publish by September 1, 1976, the error rates in making eligibility determinations recorded for each State for the period October 1, 1975, through March 31. 1976, as reported under the medicaid eligibility quality control program (as specified in regulations of the Secretary prior to March 1, 1976), and specify actions (together with the projected time frame) to be taken by him to assist the States in improving the accuracy of their eligibility determination processes;

"(b) set a normative standard error rate defined as that rate which equals the 50th percentile of the rates reported by the States under (a) (1): and "(c) provide or arrange for the provisions of timely, technical, and professional assistance to the States to assist them in improving their eligibility determination process.

"REPORT BY THE SECRETARY

"SEC. 1912. (a) The Secretary shall prepare a biannual report (beginning with fiscal year 1976) on the characteristics of the State programs of medical assistance financed under this title, including as a minimum (1) a description of the amount, duration, and scope of benefits available in each State, (2) a description of eligibility criteria for all groups eligible for medical assistance in each State, (3) a specification of the reimbursement rates paid under the State program for the major types of services in each State, and (4) a listing of all fiscal agents contracted with for administration of the program. Such report shall be submitted to the Senate Committee on Finance and the House Committee on Interstate and Foreign Commerce and made generally available no later than six months following the close of the fiscal year.

"(b) The Secretary shall prepare a quarterly summary update of the report required in subsection (a) and submit it to the Senate Committee on Finance and the House Committee on Interstate and Foreign Commerce no later than four months following the close of the calendar quarter.".

PROCEDURES DESIGNED TO ASSURE ECONOMICAL PROCESSING OF CLAIMS BY CARRIERS SEC. 5. (a) Section 1842 (b) of the Social Security Act is amended by adding at the end thereof the following new paragraph:

"(6) (A) The Secretary shall by regulation establish procedures, consistent. with prevailing Federal procurement requirements, which are appropriately designed to assure that claims processing functions to be performed by carriers pursuant to any contract entered into under this section will be performed on the basis of a prospective fixed price per claim. Such procedures shall provide for the establishment of such fixed price on the basis of the economical and efficient performance of such functions, and after taking into account estimates of the reasonable costs which will be incurred in the performance thereof by the various entities (including the carrier) which are available to perform such functions, under subcontract or otherwise.

"(B) Regulations under this paragraph shall provide that, in the performance of any such claims processing function under any such contract, there will be provided to the Secretary (or any duly authorized employee of the Department of Health, Education, and Welfare) such access to the claims processing operation and the costs thereof and such information and data relating thereto as he deems to be necessary or appropriate to enable him to ascertain whether such operation is being properly conducted.".

(b) The regulations referred to in section 1842(b)(6) of the Social Security Act (as added by subsection (a) of this section) shall be promulgated by the Secretary of Health, Education, and Welfare and made effective with respect to all contracts entered into, or renewed, after September 30, 1976, pursuant to section 1842 of such Act.

CLAIMS PROCESSING AND INFORMATION RETRIEVAL SYSTEMS FOR MEDICAID PROGRAMS SEO. 6. (a) Section 1903 (a) (3) of the Social Security Act is amended

(1) in clause (A)(i), by inserting", and capable of being integrated into," immediately after "compatible with"; and

2) in clause (B), by inserting ", or to each individual in a sample group of individuals who are furnished such services," immediately after "covered by the plan".

(b) The amendment made by subsection (a) shall be applicable only with respect to expenditures under State plans approved under title XIX of the Social Security Act made on and after the first day of the first calendar month which begins more than sixty days after the date of enactment of this Act.

REGULATIONS OF THE SECRETARY; SAVINGS PROVISION

SEC. 7. (a) (1) Section 1102 of the Social Security Act is amended(A) by inserting "(a)" immediately after "SEC. 1102.", and

(B) by adding at the end thereof the following new subsection:

"(b) Whenever the Secretary, in compliance with applicable requirements imposed by law, causes to be published in the Federal Register a general notice of any proposed rule or regulation to be promulgated by him, such notice shall indicate whether the prompt promulgation thereof is urgent. In the case of any

such notice, which respect to a proposed rule or regulation, which does not indicate that the prompt promulgation thereof is urgent, such rule or regulation shall become effective not less than sixty days after publication of such notice; in any other case, such rule or regulations shall become effective without regard to the provisions of this subsection and in the manner prescribed in accordance with applicable provisions of law.".

(2) The amendments made by paragraph (1) shall be effective in the case of proposed rules published in the Federal Register on and after the first day of the first calendar month which begins more than thirty days after the date of enactment of this Act.

(b) (1) Except as otherwise specified in this Act or in a provision of law which is enacted or amended by this Act, any regulation of the Secretary of Health, Education, and Welfare (hereinafter in this section referred to as the "Secre tary"), which is necessary or appropriate to implement any provision of this Act or any other provision of law which is enacted or modified by this Act, shall, subject to paragraph (2), be promulgated so as to become effective not later than the first day of the thirteenth month following the month in which this Act is enacted.

(2) Nothing contained in paragraph (1) shall be construed to require the Secretary to promulgate any rule or regulation, which shall become effective within the time period referred to in paragraph (1), respecting any matter, if the Comptroller General has certified that, due to circumstances or conditions beyond the control of the Secretary, it is not feasible for the Secretary to do so.

(c) The Secretary shall, in issuing any major policy guidelines (other than those issued through regulations) to carry out any provision of this Act or any provision of law enacted or modified by this Act, employ procedures with respect thereto under which interested parties will, prior to any such guideline becoming final, be afforded reasonable opportunity to make known to the Secretary their comments thereon and suggestions with respect thereto.

TERMINATION OF HEALTH INSURANCE BENEFITS ADVISORY COUNCIL

SEC. 8. (a) The Health Insurance Benefits Advisory Council (established pursuant to section 1867 of the Social Security Act) is abolished, effective on the first day of the first calendar month which begins more than thirty days after the date of enactment of this Act, and the terms of office of all members of such Council shall end on such first day.

(b) At the earliest practicable date after the date of enactment of this Act (and in no event later than the first day referred to in subsecion (a)), such Advisory Council shall turn over all of its records, files, equipment, and materials to the Secretary of Health, Education, and Welfare.

(c) Effective with the close of the first day of the first calendar month which begins more than thirty days after the date of enactment of this Act, section 1867 of the Social Security Act is repealed.

IMPROVED METHODS FOR DETERMINING REASONABLE COST OF SERVICES PROVIDED BY HOSPITALS

SEC. 10. (a) (1) Section 1861 (v) (1) (A) of the Social Security Act is amended, in the first sentence thereof, by striking out "The" and inserting in lieu thereof "Subject to subsection (aa), the".

(2) Section 1861 (v) of such Act is further amended by adding at the end thereof the following new paragraph:

"(8) For additional requirements applicable to determination of reasonable cost in the case of services provided by hospitals, see subsection (aa).".

(b) Section 1861 of such Act is further amended by adding after subsection (z) the following new subsection:

"ADDITIONAL CRITERIA FOR DETERMINING REASONABLE COST OF HOSPITAL SERVICES "(aa) (1) In order more fairly and effectively to determine the reasonable cost incurred in the provision of hospital services for which payment may be made under this title, not later than July 1, 1978, the Secretary shall, in consultation with appropriate knowledgeable national organizations, establish

"(A) a uniform system of accounts and cost reporting (including uniform procedures for allocation of costs) for determining operating and capital

costs of hospitals providing such services, thereby assuring that operating and capital costs will be determined in the same manner for each hospital furnishing such services, and

"(B) an ongoing system of hospital classification under which hospitals furnishing such services will initially be classified as follows:

"(i) as to size, with each of the following sizes of hospitals being classified in separate categories: (I) those having more than 5, but fewer than 25, beds, (II) those having more than 24, but fewer than 50, beds, (III) those having more than 49, but fewer than 100, beds, (IV) those having more than 99, but fewer than 200, beds, (V) those having more than 199, but fewer than 300, beds, (VI) those having more than 299, but fewer than 400, beds, (VII) those having more than 399, but fewer than 500, beds, and (VIII) those having more than 499 beds, "(ii) as to type of hospital, with (I) short-term general hospitals being in a separate category, (II) hospitals which are the primary affiliates of accredited medical schools (with one such hospital to be nominated by each accredited medical school) being in one separate category (without regard to bed size), and (III) psychiatric, geriatric, maternity, pediatric, or other specialty hospitals being in the same or separate categories, as the Secretary may determine to be appropriate in light of the extent to which differences in specialty do or do not significantly affect the routine costs of such hospitals, and

“(iii) such other criteria as the Secretary may deem appropriate; but such system of hospital classification shall not differentiate between hospitals on the basis of the ownership thereof.

"(2) As used in this subsection, the term 'routine operating costs' does not include any of the following:

"(A) capital costs (including interest expense on loans to purchase capital assets, and depreciation),

"(B) direct personnel and supply costs of hospital education and training programs,

"(C) costs of interns, residents, and medical (but not nursing) personnel,. "(D) energy costs associated with heating or cooling the hospital plant. "(3)(A) During the calendar quarter commencing on January 1 of each calendar year (beginning with the calendar year 1977) the Secretary shall, in. accordance with the succeeding provisions of this paragraph, determine, for the hospitals classified in each category of the hospital classification system established pursuant to paragraph (1)(B), an average per diem routine operating cost amount which shall (except as is otherwise provided in this subsection) be utilized in determining, for purposes of making payment under this title to such hospitals for services furnished by them during the fiscal year which commences on or after July 1 of such calendar year, the reasonable cost of that portion of the hospital's costs which consists of routine operating costs. "(B) A determination under this paragraph made during any such calendar quarter shall be made on the basis of data, with respect to amount of routineoperating costs of the hospitals involved, for the preceding fiscal year.

"(C) For purposes of making any such determination, routine operating costs of the hospitals involved in any category shall be divided into two components: a personnel component, and a nonpersonnel component.

"(D) (i) The routine operating costs attributable to the nonpersonnel component and the personnel cost component for each of the hospitals (other than hospitals excluded pursuant to clause (ii)) in any particular classification category shall be aggregated to arrive at the total amount of routine operating costs of all hospitals in such category. Such total shall then be divided by the total number of days of routine care provided by the hospitals in such category to determine the average per diem routine operating cost for such hospitals. “(ii) In making the calculations prescribed in clause (i), the Secretary shall exclude therefrom any hospital (and data pertaining to any such hospital) which has significant understaffing problems or otherwise experiences significant cost differentials resulting from failure of the hospital fully to meet the standards and conditions of participation as a provider of services under this title, as determined by the Joint Commission on Accreditation of Hospitals, State agency certification procedures, or any other finding or information available to the Secretary.

"(E) On the basis of the average per diem routine operating cost amount determined, pursuant to the preceding subparagraphs of this paragraph, for

75-502-76- 2

any category of hospitals, there shall be determined for each hospital in such category a per diem payment rate for routine operating costs. Such payment rate for any such hospital shall be equal to the average per diem routine operating cost amount for the hospitals of the category in which such hospital is classified, except that the personnel component thereof shall be adjusted through the use of a wage index based on general wage levels (including fringe benefit costs) in the areas in which the hospitals are located so as properly to adjust such component to the general wage levels (including fringe benefit costs) in the area in which such hospital is located. If the Secretary finds that, in the area where one or more hospitals in any such classification category are located, for the fiscal year ending June 30, 1976, the wage level (including fringe benefit costs) for hospitals is significantly higher than the general wage level (including fringe benefit costs) in such area (relative to the relationship between hospital wages and general wages in other areas), then the general wage level in such area shall, for purposes of this subsection, be deemed to be equal to the wage level for hospitals in such area, but only during the first year in which the provisions of this subsection are effective in determining payment rates to hospitals (the fiscal year beginning on or after June 30, 1979).

“(4) (A) (i) As used in this paragraph, the term 'adjusted per diem payment rate for routine operating costs', when used in reference to any hospital, means the 'per diem payment rate for routine operating costs' (as determined under paragraph (3)) applicable to such hospital plus the increase in prices per centum determined pursuant to the succeeding provisions of this subparagraph.

"(ii) The amount of the per diem payment rate for routine operating costs for any hospital for any fiscal year (as determined under the preceding provisions of this subsection) shall be increased, so as to reflect (I) the per centum of increase (if any) which has occurred in the cost of the mix of goods and services (including personnel and nonpersonnel costs) which comprises routine operating costs (as determined under the preceding provisions of this subsection), or (II) if less, the actual per centum of increase (if any) which has occurred in the costs incurred by such hospital for such goods and services during such period.

"(iii) In making payments for services furnished by such hospital prior to the date such a determination of the proper amount of increase applicable to such services is made, the Secretary may add a semiannual per centum of increase, in the cost of the mix of goods and services referred to in clause (ii), equal to whichever of the following is the smaller: (I) the per centum of such increase as estimated by such hospital, or (II) the per centum of such increase in the area applied to such hospital's costs as estimated by the Secretary. “(iv) At the end of the fiscal year, a retrospective adjustment shall be made to the amounts paid pursuant to clause (iii) to reflect the lesser of (I) the actual cost increase incurred by the hospital or (II) the actual increase in prices which has occurred in the mix of goods and services referred to in clause (ii).

"(B) Except as otherwise provided in subparagraph (C), in determining, for purposes of payment under this title, the amount of the reasonable cost incurred by a hospital in furnishing services under this title, so much of the costs so incurred by such hospital as are attributable to routine operating costs shall be deemed to be equal

"(i) in the case of a hospital the actual routine operating costs of which are equal to or greater than the amount arrived at through the application of such hospital's adjusted per diem payment rate for routine operating costs, an amount equal to the greater of the following:

"(I) (a) 120 per centum of the amount arrived at through the application of such hospital's adjusted per diem payment rate for routine operating costs, or, (b) if less, the amount of such hospital's actual routine operating costs, or

"(II) (a) the amount of such hospital's actual routine operating costs, or (b) if less, the amount which would have been determined for such hospital under clause (I) (a) if such hospital had been classified in the category nearest (in terms of the number of beds in such hospital and minimum number of beds specified for the various categories of hospitals) the category to which such hospital actually is classified, and "(ii) in the case of a hospital the actual routine operating costs of which are less than the amount arrived at through the application of such hos