"(3) has policies, established by a group of professional personnel (associated with the agency), including 1 or more physicians and 1 or more registered professional nurses, to govern the service (referred to in paragraph (2)) which it provides,

"(4) maintains clinical records on all patients,

"(5) in the case of an agency in any State in which State or local law provides for the licensing of agencies of this nature, (A) is licensed pursuant to such law, or (B) is approved, by the agency of such State responsible for licensing agencies of this nature, as meeting standards established for such licensing, and

"(6) meets such other conditions of participation as the Secretary may find necessary in the interest of the health and safety of individuals who are furnished services by such agency;

except that such term shall not include any agency which is primarily for the care and treatment of tuberculosis or mentally ill patients.

"Physician

“(d) The term 'physical', when used in connection with the performance of any function or action, means an individual (including a physician within the meaning of section 1101 (a) (7)) legally authorized to practice surgery or medicine by the State in which he performs such function or action.

"Utilization Review

"(e) A utilization review plan of a hospital shall be deemed sufficient if it is applicable to services furnished by the institution to individuals entitled to benefits under this title and if it provides

"(1) for the review, on a sample or other basis, of admissions to the institution, the duration of stays therein, and the professional services furnished, (A) with respect to the medical necessity of the services, and (B) for the purpose of promoting the most efficient use of available health facilities and services;

"(2) for such review to be made by either (A) a hospital staff committee composed of 2 or more physicians, without participation of other professional personnel, or (B) a group outside the hospital which is similarly composed;

"(3) for such review, in each case in which inpatient hospital services are furnished to such individuals during a continuous period, as of the twenty-first day, and as of such subsequent days as may be specified in regulations, with such review to be made as promptly after such twenty-first or subsequent specified day as possible, and in no event later than 1 week following such day;

"(4) for prompt notification to the institution, the individual, and his attending physician of any finding (after opportunity for consultation to such attending physician) by the physician members of such committee or group that any further stay therein is not medically necessary. The provisions of clause (A) of paragraph (2) shall not apply to any hospital where, because of the small size of the institution or for such other reason or reasons as may be included in regulations, it is impracticable for the institution to have a properly functioning staff committee for the purposes of this subsection.

"Provider of Services

"(f) The term 'provider of services' means a hospital, skilled nursing facility, or home agency.

"Skilled Nursing Facilities Affiliated or Under Common Control With Hospitals

"(g) A hospital and a skilled nursing facility shall be deemed to be affiliated or under common control if, by reason of a written agreement between them or by reason of a written undertaking by a person or body which controls both of them, there is reasonable assurance that

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"(1) the facility will be operated under standards which are developed jointly by, or are agreed to by, the 2 institutions, with respect to―

"(A) skilled nursing and related health services (other than physicians' services),

"(B) a system of clinical records, and

"(C) appropriate methods and procedures for the dispensing and administering of drugs and biologicals;

"(2) timely transfer of patients will be effected between the hospital and the skilled nursing facility whenever such transfer is medically appropriate, and provision is made for the transfer or the joint use (to the extent practicable) of clinical records of the 2 institutions; and

"(3) the utilization review plan of the hospital will be extended to include review of admissions to, duration of stays in, and the professional services furnished in the skilled nursing facility and including review of such individual cases (and at such intervals) as may be specified in this title or in regulations thereunder, and with notice to the facility, the individual, and his attending physician in case of a finding (after opportunity for consultation to such attending physician) that further skilled nursing facility services are not medically necessary.

"States and United States

"(h) The term 'State' and 'United States' shall have the same meaning as when used in ttile II.

"Additional Skilled Nursing Facilities

"(i) The Secretary shall as soon as practicable after December 31, 1964, study the best ways of increasing the availability of skilled nursing facility care for beneficiaries under this title under conditions assuring good quality of care; and, on the basis of such study and after consultation with associations of nursing homes, the American Hospital Association, the Joint Commission on Accreditation of Hopitals, and other appropriate professional organizations, he may determine that additional nursing facilities in which such conditions assuring good quality of care exist constitute skilled nursing facilities under subsection (b) if they meet the requirements of such subsection (other than the requirement of affiliation and other than the requirement that a hospital utilization review plan be made applicable) and if the Secretary finds that such action will not create (or increase) any actuarial imbalance in the Federal Hospital Insurance Trust Fund. The Secretary shall report to the Congress from time to time, and in any event by July 1, 1966, the results of the study under this subsection and any action taken as a result thereof.

"USE OF STATE AGENCIES AND OTHER ORGANIZATIONS TO DEVELOP CONDITIONS OF PARTICIPATION FOR PROVIDERS OF SERVICE

"SEC. 1707. In carrying out his functions, relating to determination of conditions of participation by providers of services, under section 1706 (a) (7), section 1706 (b) (8), or section 1706(c) (6), the Secretary shall consult with the Hospital Insurance Benefits Advisory Council established by section 1712, appropriate State agencies, and recognized national listing or accrediting bodies. Such conditions prescribed under any of such sections may be varied for different areas or different classes of institutions or agencies and may, at the request of a State, provide (subject to the limitation provided in section 1706 (a) (7)) higher requirements for such State than for other States.

"USE OF STATE AGENCIES AND OTHER ORGANIZATIONS TO DETERMINE COMPLIANCE BY PROVIDERS OF SERVICES WITH CONDITIONS OF PARTICIPATION

"SEC. 1708. (a) The Secretary may, pursuant to agreement, utilize the services of State health agencies or other appropriate State agencies for the purposes of (1) determining whether an institution is a hospital or skilled nursing facility, or whether an agency is a home health agency, or (2) providing consultative services to institutions or agencies to assist them (A) to qualify as hospitals, skilled nursing facilities, or home health agencies, (B) to establish and maintain fiscal records necessary for purposes of this title, and (C) to provide information which may be necessary to permit determination under this title as to whether payments are due and the amounts thereof. To the extent that the Secretary finds it appropriate, an institution or agency which such a State agency certifies is a hospital, skilled nursing facility, or home health agency may be treated as such by the Secretary. The Secretary shall pay any such State agency, in advance or by way of reimbursement, as may be provided in the agreement with it (and may

make adjustments in such payments on account of overpayments or underpayments previously made), for the reasonable cost of performing the functions specified in the first sentence of this subsection, and for the fair share of the costs attributable to the planning and other efforts directed toward coordination of activities in carrying out its agreement and other activities related to the provision of services similar to those for which payment may be made under this title, or related to the facilities and personnel required for the provision of such services, or related to improving the quality of such services.

"(b) (1) An institution shall be deemed to meet the conditions of participation under section 1706 (a) (except paragraph (5) thereof) if such institution is accredited as a hospital by the Joint Commission on the Accreditation of Hospitals. If such Commission, as a condition for accreditation of a hospital, hereafter requires a utilization review plan or imposes another requirement which serves substantially the same purpose, the Secretary is authorized to find that all institutions so accredited by the Commission comply also with section 1706 (a) (5).

"(2) If the Secretary find that accreditation of an institution by a national accreditation body, other than the Joint Commission on the Accreditation of Hospitals, provides reasonable assurance that any or all of the conditions of section 1706 (a), (b), or (c), as the case may be, are met, he may, to the extent he deems it appropriate, treat such institution as meeting the condition or conditions with respect to which he made such finding.

"CONDITIONS OF AND LIMITATIONS ON PAYMENT FOR SERVICES

"Requirement of Requests and Certifications

"SEC. 1709. (a) Except as provided in subsection (f), payment for services furnished an individual may be made only to eligible providers of services and only if

"(1) written request, signed by such individual except in cases in which the Secretary finds it impractical for the individual to do so, is filed for such payment in such form, in such manner, within such time, and by such person or persons as the Secretary may by regulation prescribe;

"(2) a physician certifies (and recertifies, where such services are furnished over a period of time, such cases and with such frequency, appropriate to the case involved, as may be provided in regulations) that

"(A) in the case of inpatient hospital services, such services are or were required for such individual's medical treatment, or such services are or were required for inpatient diagnostic study;

"(B) in the case of outpatient hospital diagnostic services, such services are or were required for diagnostic study;

"(C) in the case of skilled nursing facility services, such services are or were required because the individual needed skilled nursing care on a continuing basis for any of the conditions with respect to which he was receiving inpatient hospital services prior to transfer to the skilled nursing facility or for a condition requiring such care which arose after such transfer and while he was still in the facility for treatment of the condition or conditions for which he was receiving such inpatient hospital services;

"(D) in the case of home health services, such services are or were required because the individual needed skilled nursing care on an intermittent basis or because he needed physical or speech therapy; a plan for furnishing such services to such individual has been established and is periodically reviewed by a physician; and such services are or were furnished while the individual was under the care of a physician; "(3) with respect to inpatient hospital services or skilled nursing facility services furnished such individual after the twenty-first day of a continuous period of such services, there was not in effect, at the time of admission of such individual to the hospital, a decision under section 1710 (e) (based on a finding that timely utilization review of long-stay cases is not being made in such hospital or facility);

"(4) with respect to inpatient hospital services or skilled nursing facility services furnished such individual during a continuous period, a finding has not been made (by the physician members of the committee or group) pursuant to the system of utilization review that further inpatient hospital services or further skilled nursing facility services, as the case may be, are

not medically necessary; except that, if such a finding has been made, payment may be made for such services furnished in such period before the fourth day after the day on which the hospital or skilled nursing facility, as the case may be, received notice of such finding.

"Determination of Costs of Services

“(b) The amount paid to any provider of services with respect to services for which payment may be made under this title shall be the reasonable cost of such services, as determined in accordance with regulations establishing the method or methods to be used in determining such costs for various types or classes of institutions, services, and agencies. In prescribing such regulations, the Secretary shall consider, among other things, the principles generally applied by national organizations (which have developed such principles) in computing the amount of payment, to be made by persons other than the recipients of services, to providers of services on account of services furnished to such recipients by such providers. Such regulations may provide for payment on a per diem, per unit, per capita, or other basis, may provide for using different methods in different eircumstances, and may provide for the use of estimates of costs of particular items or services.

"Amount of Payment for More Expensive Services

“(c) (1) In case the bed and board furnished as part of inpatient hospital services or skilled nursing facility services is in accommodations more expensive than two, three-, or four-bed accommodations and the use of such more expensive accommodations rather than such two-, three-, or four-bed accommodations was not at the request of the patient, payment with respect to such services may not exceed an amount equal to the reasonable cost of such services if furnished in such two, three-, or four-bed accommodations unless the more expensive accommodations were required for medical reasons.

"(2) Where a provider of services with which an agreement under this title is in effect furnishes to an individual, at his request, items or services which are in excess of or more expensive than the items or services with respect to which payment may be made under this title, the Secretary shall pay to such provider of services only the equivalent of the reasonable cost of the items or services with respect to which payment under this title may be made.

"Amount of Payment Where Less Expensive Services Furnished

"(d) In case the bed and board furnished as part of inpatient hospital services or skilled nursing facility services in accommodations other than, but not more expensive than, two-, three-, of four-bed accommodations and the use of such other accommodations rather than two-, three-, of four-bed accommodations was neither at the request of the patient nor for a reason which the Secretary determines is consistent with the purposes of this title, the amount of the payment with respect to such services under this title shall be the reasonable cost of such services minus the difference between the charge customarily made by the hospital or skilled nursing facility for such services in two-, three-, or four-bed accommodations and the charge customarily made by it for such services in the accommodations furnished.

"No Payments to Federal Providers of Services

"(e) No payment may be made under this title (except under subsection (f) of this section) to any Federal provider of services, except a provider of services which the Secretary determines, in accordance with regulations, is providing services to the public generally as a community institution or agency; and no such payment may be made to any provider of services for any item or service which such provider is obligated by a law of, or a contract with, the United States to render at public expense.

"Payment for Emergency Inpatient Hospital Services

"(f) Payments shall also be made to any hospital for inpatient hospital services or outpatient hospital diagnostic services furnished, by the hospital or under arrangements (as defined in section 1703 (f)) with it, to an individual entitled to health insurance benefits under this title even though such hospital does not

have an agreement in effect under this title if (A) such services were emergency services and (B) the Secretary would be required to make such payment if the hospital had such an agreement in effect and otherwise met the conditions of payment hereunder. Such payment shall be made only in amounts determined as provided in subsection (b) and then only if such hospital agrees to comply, with respect to the emergency services provided, with the provisions of section 1710(a). "Payment for Services Prior to Notification of Noneligibility

"(g) Notwithstanding that an individual is not entitled to have payment made under this title for inpatient hospital services, skilled nursing facility services, home health services, or outpatient hospital diagnostic services furnished by any provider of services, payment shall be made to such provider of services (unless such provider elects not to receive such payment or, if payment has already been made, refunds such payment within the time specified by the Secretary) for such services which are furnished to the individual prior to notification from the Secretary of his lack of entitlement if such payments are not otherwise precluded under this title and if such provider complies with the rules established hereunder with respect to such payments, has acted in good faith and without knowledge of such lack of entitlement, and has acted reasonably in assuming entitlement existed.

"AGREEMENTS WITH PROVIDERS OF SERVICES

"SEC. 1710. (a) Any provider of services shall be eligible for payments under this title if it files with the Secretary an agreement not to charge any individual or any other person for items or services for which such individual is entitled to have payment made under this title (or for which he would be so entitled if such provider had complied with the procedural and other requirements under or pursuant to this title or for which such provider is paid pursuant to the provisions of section 1709 (g)), and to make adequate provision for return (or other disposition, in accordance with regulations) of any moneys incorrectly collected from such individual or other person, except that such provider of services may charge such individual or other person the amount of any deduction imposed pursuant to subsection (a) or (c) of section 1704 with respect to such services (not in excess of the amount customarily charged for such services by such provider) and, where the provider of services has furnished, at the request of such individual, items or services which are in excess of or more expensive than the items or services with respect to which payment may be made under this title, such provider may also charge such individual or other person for such more expensive items or services but not more than the difference between the amount customarily charged by it for the items or services furnished at such request and the amount customarily charged by it for the items or services with respect to which payment may be made under this title.

"(b) An agreement with the Secretary under this section may be terminated— "(1) by the provider of services at such time and upon such notice to the Secretary and the public as may be provided in regulations, except that the time such agreement is thereby required by the Secretary to continue in effect after such notice may not exceed six months after such notice, or

"(2) by the Secretary at such time and upon such notice to the provider of services and the public as may be specified in regulations, but only after the Secretary has determined, and has given such provider notification thereof, (A) that such provider of services is not complying substantially with the provisions of such agreement, or with the provisions of this title and regulations thereunder, or (B) that such provider no longer substantially meets the applicable provisions of section 1706, or (C) that such provider of services has failed to provide such information as the Secretary finds necessary to determine whether payments are or were due under this title and the amounts thereof, or has refused to permit such examination of its fiscal and other records by or on behalf of the Secretary as may be necessary to verify such information.

Any termination shall be applicable—

"(3) in the case of inpatient hospital services or skilled nursing facility services, with respect to such services furnished to any individual who is admitted to the hospital or skilled nursing facility furnishing such services on or after the effective date of such termination,

"(4) (A) with respect to home health services furnished to an individual under a plan therefor established on or after the effective date of such termi