103 STAT. 2106 PUBLIC LAW 101-239—DEC. 19,1989
Public Law 101-239
101st Congress
An Act
Dec. 19,1989
rH.R. 3299]
Omnibus Budget
Reconciliation
Act of 1989.
Agricultural
Reconciliation
Act of 1989. To provide for reconciliation pursuant to section 5 of the concurrent resolution on the
budget for the fiscal year 1990.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
'Omnibus Budget Reconciliation Act This Act may be cited as the
of 1989".
SEC 2. TABLE OF CONTENTS.
Title I—Agriculture and related programs. ' '
Title n—Student loan and pension fiduciary amendments.
Title m—Regulatoiy agency fees. «
Title rV—Civil service and postal service programs.
Title V—Veterans programs.
Title VI—Medicare, medicaid, maternal and child health, and other health provi­
sions.
Title Vn—Revenue provisions.
Title Vin—Human resource and income security provisions.
Title DC—Ofbhore oil pollution compensation fimd.
Title X—Miscellaneous and technical Social Securi^ Act amendments.
Title XI—^Miscellaneous.
TITLE I—AGRICULTURE AND RELATED
PROGRAMS
SEC 1001. SHORT TITLE; TABLE OF CONTENTS.
7 use 1421 note. (a) SHORT TITLE.—This title may be cited as the "Agricultural
Reconciliation Act of 1989".
(b) TABLE OF CONTENTS.—The table of contents is as follows:
Sec. 1001. Short title; table of contents.
Sec. 1002. Soybean, sunflower, and safflower planting program; feed grain acreage
limitation program.
Sec. 1003. Reduction of deficiency p^rments for 1990 crops.
Sec. 1004. Repayment of advance deficiency payments.
Sec. 1005. Reduction of expenditures under the export enhancement program and
for targeted export assistance.
Sec. 1006. Purchases of Financial Assistance Corporation stock by Farm Credit
Spmtem institutions.
Sec 1007. Adjustments in dairy price support program.
SEC 1002. SOYBEAN, SUNFLOWER, AND SAFFLOWER PLANTING PRO­
GRAM; FEED GRAIN ACREAGE UMITATION PROGRAM.
(a) PLANTING OF SOYBEANS, SUNFLOWERS, AND SAFFLOWERS ON
PERMTITED ACREAGE.—Effective only for the 1990 crops, subsection
(e) of section 504 of the Agricultural Act of 1949 (7 U.S.C. 1464(e)) is
amended to read as follows:
"(e)Notwithstandinganyotherprovisionof this Act— PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2107
"(1) Effective for the 1990 crops, the Secretary shall, subiect to
paragraph (2), permit producers on a farm to plant soybeans, –
sunflowers, or safflowers on a portion specified by the producer
Oljut in any event not more than 25 percent) of the producers* •
1990 wheat, feed grain, upland cotton, extra long staple cotton,
and rice permitted acreage, as determined by the Secretary.
"(2XA) The Secretary shall establish a sign-up period during
which the producers on a farm, participating in the 1990 crop
wheat, feed grain, upland cotton, extra long staple cotton, or
rice price support and production adjustment program, must
state their intentions regarding use of the increased planting
provision under paragraph (1).
"(B) After termination of the sign-up period under subpara­
graph (A), the Secretary shall estimate whether, based on the
anticipated additional soybean, sunflower, and safflower plant­
ings for the crop, the average market price for the 1990 crop of
soybeans will be below 110 percent of the loan rate established
for the 1989 crop of soybeans.
"(C) If the Secretary estimates that the average market price
for the 1990 crop of soybeans will be below 110 percent of such
loan rate, the Secretary shall reduce the percentage of per­
mitted acreage on the rarm that may be planted to soybeans,
sunflowers, and safflowers to a level, or prohibit such plantings, ,, ^ , –
as necessaiy to ensure that the average soybean market price
does not fall below 110 percent of such loan rate.
"(D) The Secretary shall submit to the Conmiittee on Agri­
culture of the House of Representatives and the Committee on
Agriculture, Nutrition, and Forestry of the Senate a statement ^
setting forth the reasons for any reduction in the permitted
planting percentage, or prohibition on such plantings, under
this paragraph.
"(3XA) For the purposes of determining the farm acreage base
or the crop acreage bases for the farm, any acreage on the farm
on which soybeans, simffowers, or safflowers are planted imder
this subsection shall be considered to be planted to the program
crop for which soybeans, sunflowers, or safflowers are
sul^tituted.
"(B) The Secretary may not make program benefits other
than soybean or sunflower seed price support loans and pur­
chases available to producers with respect to acreage planted to
soybeans, sunflowers, or safflowers under this subsection and
shall ensure that the crop acreage bases established for the
farm and the farm acreage base are not increased due to such
plantings.",
(b) FEED GRAIN ACREAGE LIMITATION PROGRAM.—Effective only
for the 1990 crop of feed grains, section 105C(fKlXC) of such Act
(7 U.S.C. 1444e(fXlXC)) is amended—
(1) by striking "(C)", "1990", "(i)", and "(u)" and inserting
"(CXi)", "1989", ^'(D", and "(H)", respectively; and
(2) by adding at the end the following new clause:
"(ii) In tiie case of the 1990 crop of feed grains, if the Secretary
estimates, not later than September 30, 1989, tiiat the quantity of
com on hand in the United States on the flrst dav of the marketing
year for that crop (not including any quantity of com of that crop)
ivill be
"(D more than 2,000,000,000 bushels, the Secretary shall pro­
vide for an acreage limitation program (as described in para-103 STAT. 2108 PUBLIC LAW 101-239—DEC. 19, 1989
7 use 1433d.
Disaster
assistance. graph (2)) under which the acreage planted to feed grains for
harvest on a farm would be limited to the feed grain crop
acreage base for the farm for the crop reduced by not less than
12 y2 percent nor more than 20 percent;
"(II) less than 2,000,000,000 bushels but more than
1,800,000,000 bushels, the Secretary shall provide for an acreage
limitation program (as described in paragraph (2)) under which
the acreage planted to feed grains for harvest on a farm would
be limited to the feed grain crop acreage base for the farm for
the crop reduced by not less than 10 percent nor more than 12 y2
percent; or
"(III) 1,800,000,000 bushels or less, the Secretary may provide
^- for an acreage limitation program (as described in paragraph
(2)) under which the acreage planted to feed grains for harvest
on a farm would be limited to the feed grain crop acreage base
for the farm for the crop reduced by not more than 10 percent.".
SEC. 1003. REDUCTION OF DEFICIENCY PAYMENTS FOR 1990 CROPS.
(a) IN GENERAL.—Effective only for the 1990 crops, title IV of the
Agricultural Act of 1949 (7 U.S.C. 1421 et seq.) is amended by adding
at the end the following new section:
"SEC. 425. REDUCTION OF DEFICIENCY PAYMENTS FOR 1990 CROPS.
"(a) IN GENERAL.—Notwithstanding any other provision of law,
the amount of deficiency pajonents made available to producers of
the 1990 crops of wheat, feed grains, upland cotton, and rice under
sections 107D(c), 105(Xc), 103A(c), and lOlA(c), respectively, shall be
reduced by—
"(1) in the case of wheat, 2.33 cents per bushel;
"(2) in the case of corn, 2.33 cents per bushel (and a com­
parable amount for other feed grains, as determined by the
Secretary);
"(3) in the case of upland cotton, .515 cents per pound; and
"(4) in the case of rice, 5.15 cents per hundredweight.
"(b) APPUCATION TO AnvANCif DEFICIENCY PAYMENTS.—To the
extent practicable, the Secretary shall apply the reduction required
under subsection (a) to any advance deficiency payment made avail­
able to producers of the 1990 crops under section 107C.".
Ot>) TECHNICAL AND CONFORMING AMENDMENTS.—
(1) Effective only for the 1990 crpps of wheat, feed grains,
upland cotton, and rice, section 107(XaX2XG) of such Act
(7 U.S.C. 1445b-2(aX2XG)) is amended—
(A) by inserting after "subsection" the following: "(taking
into consideration any reduction in the payment made
under section 425)"; and
(B) by striking "finalUy" and inserting "finally".
(2) Effective only for the 1986 through 1990 crops of feed
grains, section 105acXlXDXi) of such Act (7 U.S.C.
1444e(cXlXDXi)) is amended by striking "subsection (aX4)" and
inserting "subsection (aX3)".
SEC. 1004. REPAYMENT OF ADVANCE DEFICIENCY PAYMENTS.
(a) DELAY IN REFUND.—Paragraph (4) of section 201(b) of the
Disaster Assistance Act of 1988 (7 U.S.C. 1421 note) (as amended by
section 602 of the Disaster Assistance Act of 1989 (Public Law
101-82; 103 Stat. 587)) is amended to read as follows: PUBLIC LAW 101-239—DEC. 19,1989 103 STAT. 2109
"(4) Effective only for the 1988 crops of wheat, feed grains, upland
cotton, and rice, if the Secretary determines that any portion of the
advance deficiency payment made to producers for the crop under
section 107C of such Act must be refunded, such refimd shall not be
required—
"(A) prior to December 31, 1989, if such producers suffered
losses of 1988 or 1989 crops due to a natural disaster in 1988 or
1989; or
"(B) prior to July 31, 1990, for that portion of the crop for
which a disaster payment is made under subsection (a).".
(Jb) RATIONALE.—^For purposes of section 202 of Public Law 100-119
(2 U.S.C. 909), the amendment made by subsection (a) is a necessary
(but secondary) result of a significant policy change.
SEC 1005. REDUCTION OF EXPENDITURES UNDER THE EXPORT
ENHANCEMENT PROGRAM AND FOR TARGETED EXPORT
ASSISTANCE.
(a) EXPORT ENHANCSiifENT PROGRAM.—During fiscal year 1990, the
Commodity Oedit Corporation shall not, except to the extent pro­
vided for under section 4301 of the Agricultural Competitiveness
and Trade Act of 1988 (Public Law 100-418; 7 U.S.C. 1446 note),
make available to exportiers, processors, or foreign importers imder
the authority of section 5(f) of the Commodity Oedit Corporation
Charter Act (15 U.S.C. 714c(f)) more than $566,000,000 in commod­
ities of the Commodity Credit Corporation to enhance the export of
United States commodities by making the price of such commodities
competitive in the world market.
(b) TARGETED EXPORT ASSISTANCE.—Section 1124(a) of the Food
Security Act of 1985 (7 U.S.C. 1736s(a)) is amended—
(1) by strildi^ "and" at the end of paragraph (2); and
(2) by striking paragraph (3) and inserting the following:
"(3) for the fiscal year 1989, the Secretary shcdl use under this
section not less than $325,000,000 of the funds of, or commod­
ities owned by, the Corporation; and
"(4) for the fiscal year 1990, the Secretary shall use under this
section not less than $200,000,000 of the funds of, or commod­
ities owned by, the Corporation.''.
SEC 1006. PURCHASES OF FINANCIAL ASSISTANCE CORPORATION STOCK 12 USC 2278b-9
BY FARM CREDIT SYSTEM INSTITUTIONS. note.
(a) DELAYED EFFECTIVE DATE FOR STOCK PURCHASE REQUIRE­
MENT.—Notwithstanding any other provision of law, the amend­
ments to section 6.29 of the Farm Credit Act of 1971 (12 U.S.C.
2278b-9) made by section 646 of the Rural Development, Agri­
culture, and Related Agencies Appropriations Act, 1989 (Public Law
100-460; 102 Stat 2266) shall be effective on October 1,1992.
(b) PAYMENTS.—
(1) FOUR ANNUAL PAYMENTS.—Notwithstanding any other
provision of law, the Financial Assistance Corporation shall
pay, out of the Financial Assistance Ck>rporation Trust Fund
(hereinafter in this section referred to as the "Trust Fund")
established under section 6.250)) of the Farm Credit Act of 1971
(12 U.S.C. 2278b-5a))), to each of the institutions of the Farm
Credit System that purchased stock in the Financial Assistance
Corporation under section 6.29 of the Farm Oedit Act of 1971,
four annual payments as provided in this subsection. 103 STAT. 2110 PUBLIC LAW 101-239—DEC. 19, 1989
(2) TIMING OP PAYMENTS.—The annual payments provided for
by this subsection shall be made available as soon as practicable
after October 1 of each of the calendar years 1989 through 1992.
^. (3) CALCULATION OP PIRST PAYMENT.—The first annual pay­
ment made available under this subsection shall be in an
amount equal to—
(A) a percentage equal to 1.5 times the avereige rate of
interest received by the Financial Assistance Corporation
I « on assets of the Trust Fund from March 30, 1988, through
September 30,1989; times
(B) the difference between $177,000,000 and 4.4 percent of
the cumulative amoimt of the bonds issued by the Financial
Assistance Corporation through September 30,1989.
(4) CALCULATION OP REMAINING PAYMENTS.—The second, third,
and fourth annual pa3anents made available under this subsec­
tion shall be in an amoimt equal to—
(A) a percentage equal to the average rate of interest
received by the Financial Assistance Corporation on assets
, of the Trust Fund during each of the fiscal years 1990
through 1992; times
(B) the difference between $177,000,000 and 4.4 percent of
the cumulative amount of the bonds issued by the Financial
Assistance Corporation through September 30 of each of
such fiscal years.
(5) DISTRIBUTION OP ANNUAL PAYMENTS.—Annual pa3nnents
due under this subsection shall be made available to each
f, institution described in paragraph (1) in an amount equal to the
total amount of annual pa3rments to be made available times
the ratio of the amount of stock each institution purchased
divided by $177,000,000.
SEC. 1007. ADJUSTMENTS IN DAIRY PRICE SUPPORT PROGRAM.
Effective only for calendar year 1990, section 201(dXl) of the
Agricultural Act of 1949 (7 U.S.C. 1446(dXl)) is amended—
(1) in subparagraph CO­
CA) in clause (ii), by inserting after "Except as provided
in" the following: "clause (iii) and"; and
V ^* – (B) by adding at the end the following new clause:
"(iii) In carrying out this paragraph during calendar year
1990, the Secretary shall offer to purchase butter for not more
than $1.10 per pound, except that the Secretary may allocate
the rate of price support between the purchase prices for nonfat
dry milk and butter in such other manner as the Secretary
determines will result in the lowest level of expenditures by the
Commodity Credit Corporation and shall notify the Committee
on Agriculture of the House of Representatives and the
Committee on Agriculture, Nutrition, and Forestry of the
Senate of such determination."; and
^ (2) in subparagraph (DXi)—
(A) by striking "each of the calendar years 1988 and
1990" and inserting "calendar year 1990"; and
(B) by striking "shall reduce by" and inserting "may
reduce by not more than". PUBLIC LAW 101-239—DEC. 19,1989 103 STAT. 2111
TITLE II—STUDENT LOAN AND PENSION
FIDUCIARY AMENDMENTS
Subtitle A—Student Loan Reconciliation
Amendments
SEC. 2001. SHORT TITLE.
This subtitle may be cited as the "Student Loan Reconciliation
Amendments of 1989".
SEC. 2002. INTERNSHIP DEFERMENTS AND FORBEARANCE.
(a) DEFERMENTS.—
(1) FEDERALLY INSURED STUDENT LOANS.—Section 427(aX2XCXi)
of the Higher Education Act of 1965 (20 U.S.C. 1077(aX2XCXi)) is
amended by inserting before the semicolon at the end thereof
the following: ", except that no borrower shall be eligible for a
deferment under this clause, or a loan made under this part
(other than a loan made under 428B or 428C), while serving in a
medical internship or residency program".
(2) FEDERAL PAYMENTS TO REDUCE STUDENT INTEREST COSTS.—
Section 428(bXlXMXi) of such Act (20 U.S.C. 1078(bXlXMXi)) is
amended by inserting before the semicolon at the end thereof
the following: ", except that no borrower shall be eligible for a
deferment under this clause, or loan made under this part
(other than a loan made imder 428B or 428C), while serving in a
medical internship or residency program".
(3) LOAN AGREEMENTS.—Section 464(cX2XAXi) of such Act (20
U.S.C. 1087dd(cX2XAXi)) is amended by inserting before the
semicolon at the end thereof the following: ", except that no
borrower shall be eligible for a deferment imder this clause, or a
loan made imder this part (other than a loan made imder 428B
or 428C), while serving in a medical internship or residency
program".
(4) EFFECTIVE DATE.—The amendments made by this subsec­
tion shall apply to any loan made, insured, or guaranteed under
part B or part £ of title IV of the Higher Education Act of 1965,
mcluding a loan made before the enactment of this Act, and
shall take effect on January 1, 1990, except that such amend­
ments shall not apply with respect to any portion of a period of
deferment granted to a borrower under section 427(aX2XCXi),
428(bXlXMXi), or 464(cX2XAXi) of the Higher Education Act of
1965 for service in a medical internship or residency prc^am
that is completed prior to the effective date of this section.
(b) FORBEARANCE.—
(1) FEDERAL PAYMENTS TO REDUCE STUDENT INTEREST COSTS.—
Section 428 of the Higher Education Act of 1965 (20 U.S.C. 1078)
is amended—
(A) in subsection (bXl)—
(i) in subparagraph (D, by striking "and" at the end
thereof;
(ii) in subpara^aph (U), by striking the period at the
end thereof and inserting "; and"; and
(iii) by adding at the end thereof the following new
subparagraph: Student Loan
Reconciliation
Amendments of
1989.
20 use 1001
note.
Health care
professionals.
20 use 1077
note. 103 STAT. 2112 PUBLIC LAW 101-239—DEC. 19, 1989
"(VXi) provides that, upon written request, a lender shall
grant a borrower forbearance, renewable at 12-month inter­
vals for a period equal to the length of time remaining in
the borrower's medical or dental internship or residency
program, on such terms as are otherwise consistent with
the regulations of the Secretary and agreed upon in writing
by the parties to the loan, with the approval of the insurer,
it the borrower—
. ,,. "(I) is serving in a medical or dental internship or
residency program, the successful completion of which
* *' ^**^ is required to begin professional practice or service, or
is serving in a medical or dental internship or resi­
dency program leading to a degree or certificate
ST.-,*. awarded by an institution of higher education, a hos­
pital, or a health care facility that offers postgraduate
training; and
* "(II) has exhausted his or her eligibility for a
deferment under section 427(aX2XCXvii) or subpara­
graph (MXvii) of this paragraph; and
"(ii) provides that no administrative or other fee may be
* charged in connection with the granting of a forbearance
under clause (i), and that no adverse information regarding
a borrower may be reported to a credit bureau organization
– solely because of the granting of a forbearance under clause
V (i).";and
(B) by amending subsection (cX3) to read as follows:
"(3) FORBEARANCE.—A guaranty agreement under this
subsection—
"(A) shall contain provisions providing for forbearance in
accordance with subsection (bXlXV) for the benefit of the
student borrower serving in a medical or dental internship
* or residency program; and
"(B) may, to the extent provided in regulations of the
' Secretary, contain provisions that permit such forbearance
for the benefit of the student borrower as may be agreed
upon by the parties to an insured loan and approved by the
'' – insurer.
Such regulations shall not preclude guaranty agencies from
permitting the parties to such a loan from entering into a
forbearance agreement solely because the loan is in default.".
20 use 1078 (2) EFFECTIVE DATE.—The amendments made by this subsec-
note. tion shall apply with respect to loans made before, on, or after
the date of enactment of this Act.
SEC. 2003. CHANGES IN THE SUPPLEMENTAL LOANS FOR STUDENTS
^ PROGRAM.
(a) RESTRICTIONS ON SLS PROGRAM AT INSTITUTIONS WITH HIGH
COHORT DEFAULT RATES.—
(1) RESTRICTION.—Section 428A(a) of the Higher Education
Act of 1965 (20 U.S.C. 1078-l(a)) is amended—
(A) by striking "(a) AUTHORFTY TO BORROW.—Graduate
and professional students"; and inserting the following:
"(a) AUTHORITY To BORROW.—
"(1) STUDENT EUGIBIUTY.—Graduate and professional
students";
'« (B) by indenting the remaining text of subsection (a) two
em spaces; and «^ *. PUBLIC LAW 101-239—DEC. 19,1989 103 STAT. 2113
' (C) by adding at the end thereof the following:
"(2) INSTITUTIONAL ELIGIBILITY.—Funds may not be borrowed
under this section by any undergraduate student who is en­
rolled at any institution during any fiscal year if the cohort
default rate for such institution, for the most recent fiscal year
for which such rates are available, equals or exceeds 30 percent.
The Secretary shall notify institutions to which such restriction
applies annually, and specify the fiscal year covered by the
restriction. The Secretary shall afford any institution to which
such restriction applies an opportunity to present evidence
contesting the accuracy of the calculation of the cohort default
rate for such institution.".
(2) DEFINITION.—Section 435 of such Act (20 U.S.C. 1085) is
amended by adding at the end thereof the following new
subsection:
"(m) COHORT DEFAULT RATE.—The term 'cohort default rate'
means, for any fiscal year in which 30 or more current and former
students at the institution enter repajonent on loans under section
428 or 428A received for attendance at the institution, the percent­
age of those current and former students who enter repayment on
such loans received for attendance at that institution in that fiscal
year who default before the end of the following fiscal year. For any
fiscal year in which less than 30 of the institution's current and
former students enter repayment, the term 'cohort default rate'
means the average of the rate calculated under the preceding
sentence for the 3 most recent fiscal years. In the case of a student
who has attended and borrowed at more than one school, the
student (and his or her subsequent repayment or default) is attrib­
uted to each school for attendance at which the student received a
loan that entered repajrment in the fiscal year. A loan on which a
payment is made by the school, its owner, agent, contractor, em­
ployee, or any other entity or individusd affiliated with such school,
in order to avoid default by the borrower, is considered as in default
for purposes of this subsection. Any loan which has been rehabili­
tated before the end of such following fiscal year is not considered as
in default for purposes of this subsection. The Secretary shall pre­
scribe regulations designed to prevent an institution from evading
the application to that institution of a default rate determination
under this subsection through the use of such measures as branch­
ing, consolidation, change of ownership or control, or any similar
device.".
(3) EFFECTIVE DATE.—
(A) Except as provided in subparagraph (B), the amend­
ments made by this subsection shall apply to loans made on
or £ifter January 1, 1990, and before October 1, 1991. Regu­
lations prescribed by the Secretary under the last sentence
of section 435(m) of the Higher Education Act of 1965 (as
added by such amendmente) shall apply with respect to
measures described in such sentence that are used on or
after October 1,1989.
(B) The amendments made by this subsection shall not be
applied to prevent an individual who is enrolled on the date
of enactment of this Act in a program of instruction for
which the individual has obtained a loan under section
i= 428A of the Higher Education Act of 1965 from receiving
additional loans under such section to cover the cost of Regulations.
20 use 1078-1
note. 103 STAT. 2114 PUBLIC LAW 101-239—DEC. 19, 1989
R^ulations.
20 use 1078-1
note.
20 use 1094.
20 use 1078-1
note. attendance at that eligible institution to complete that
^' program of instruction.
(C) If, on or after November 8, 1989, the duration of any
program of instruction is extended, subparagraph (B) shall
not permit a student enrolled in such program of instruc­
tion to receive additional loans under such section 428A
during the extension.
(b) MAXIMUM LOAN AMOUNTS.—
(1) AMENDMENT.—Section 428A(bXl) of the Higher Education
Act of 1965 (20 U.S.C. 1078-l(bXl)) is amended to read as
follows:
"(1) ANNUAL UMIT.—Subject to paragraphs (2) and (3), the
maximum amount a student may borrow in any academic year
or its equivalent (as defined by regulation by the Secretary), or
in any period of 9 consecutive months, whichever is longer, is
$4,000, except that in the case of a student who has not success­
fully completed the first year of a program of undergraduate
education and who is not enrolled in a program that is at least
one academic year in length, as determmed in accordance with
regulations prescribed by the Secretary, such maximum amount
shall be—
"(A) $2,500 for a student who is determined, in accord­
ance with such regulations, to be enrolled in a program
whose length is at least % of an academic year;
"(B) $1,500 for a student who is determined, in accord­
ance with such regulations, to be enrolled in a program
whose length is less than %, but at least Vs, of an academic
year; and
"(C) zero for a student who is determined, in accordance
with such regulations, to be enrolled in a program whose
length is less than Va of an academic year.".
(2) EFFECTIVE DATE.—The amendment made by this subsection
shall apply to loans made on or after January 1, 1990, and
before October 1,1991.
(c) COMPLETION OF HIGH SCHOOL EQUIVALENCY REQUIRED.—
(1) ABILTTY-TO-BENEFIT STUDENTS INELIGIBLE FOR SLS PROGRAM
UNTIL GED COMPLETION.—Section 428A(aXl) of the Higher Edu­
cation Act of 1965 (20 U.S.C. 1078-l(aXl)) is further amended by
adding at the end thereof the following new sentence: "No
student who is admitted on the basis of the ability to benefit
from the education or training provided by the institution (as
determined under section 484(d)) shall be eligible to borrow
funds under this section until such student has obtained a
certificate of high school equivalency or a high school diploma.".
(2) GED PROGRAM REQUIRED FOR ABILITY-TO-BENEFIT STU­
DENTS.—Section 487(a) of the Higher Education Act of 1965 is
amended by adding at the end thereof the following new
paragraph:
"(11) In the case of any institution which admits students on
the basis of their ability to benefit from the education or
training provided by such institution (as determined under
section 484(d)), the institution will make available to such stu­
dents a program proven successful in assisting students in
obtaining a certificate of high school equivalency. .
(3) EFFECTIVE DATE.—The amendments made by this subsec­
tion shall apply with respect to periods of enrollment beginning
on or after January 1,1990. PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2115
SEC. 2004. ADDITIONAL REQUIREMENTS WITH RESPECT TO DISBURSE­
MENT OF STUDENT LOANS.
(a) AMENDMENT.—Part B of title IV of the Higher Education Act
of 1965 is amended by inserting after section 428F (20 U.S.C. 1078-6)
the following new section:
"REQUIREMENTS FOR DISBURSEMENT OF STUDENT LOANS
"SEC. 428G. (a) MULTIPLE DISBURSEMENT REQUIRED.— 20 use 1078-7.
"(1) Two DISBURSEMENTS REQUIRED.—The proceeds of any loan
made, insured, or guaranteed under this part that is made for
any period of enrollment shall be disbursed in 2 or more install- „
ments, none of which exceeds one-half of the loan.
"(2) MINIMUM INTERVAL REQUIRED.—The intervgd between the
first and second such installments shall be not less than one-
half of such period of enrollment, except as necessary to permit
the second installment to be disbursed at the beginning of the
second semester, quarter, or similar division of such period of
enrollment.
"(b) DISBURSEMENT AND ENDORSEMENT REQUIREMENTS.—
"(1) SLS LOANS TO FIRST-YEAR STUDENTS.—The first install­
ment of the proceeds of any loan made under section 428A that
is made to a student borrower who has not successfully com­
pleted the first year of a program of undergraduate education
shall not (regardless of the amount of such loan or the duration
of the period of enrollment) be presented by the institution to
the student for endorsement until—
"(A) 30 days after the borrower begins a course of study; /
and
"(B) the institution certifies that the borrower continues
to be enrolled and in attendance at the end of such 30-day
period, and is maintaining satisfactory progress;
but may be disbursed to the eligible institution prior to the end
of such 30-day period.
"(2) OTHER STUDENTS.—The proceeds of any loan made, in­
sured, or guaranteed under this part that is made to any
student other than a student described in paragraph (1) shall
not be disbursed more than 30 days prior to the beginning of the
period of enrollment for which the loan is made.
"(c) METHOD OF MULTIPLE DISBURSEMENT.—Disbursements under
subsection (a)—
"(1) shall be made in accordance with a schedule provided by
the institution (under section 428(aX2)(AXiXni)) that complies
with the requirements of this section; and
"(2) may be made directly by the lender or, in the case of a
loan under sections 428 and 428A, may be disbursed pursuant to
the escrow provisions of section 428(i).
"(d) WITHHOLDING OF SECOND DISBURSEMENT.—
"(1) WITHDRAWING STUDENTS.—A lender or escrow agent that
is informed by the borrower or the institution that the borrower
has ceased to be enrolled before the disbursement of the second
or any succeeding installment shall withhold such disburse­
ment. Any disbursement which is so withheld shall be credited
to the borrower's loan and treated as a prepayment thereon.
"(2) STUDENTS RECEIVING OVER-AWARDS.—If the sum of a
disbursement for any student and the other financial aid
obtained by such student exceeds the amount of assistance for 103 STAT. 2116 PUBLIC LAW 101-239—DEC. 19, 1989
which the student is eligible under this title, the institution
such student is attending shall withhold and return to the
lender or escrow agent the portion (or all) ci such installment
that exceeds such eligible amount. Any portion (or all) of a
disbursement installment which is so redimed shall be credited
to the borrower's loan and treated as a prepayment thereon.
"ie) EXCLUSION OF FLUS» CONSOUOATION, AND FOBEIGN STUDY
LOANS.—^The provisions of this section shall not apply in the case of
a loan made under section 42^ or 428C or made to a student to
cover the cost of attendance at an eUgiUe institution outside the
United States.
"(0 BEGINNING OF PERIOD OF ENBOLLMENT.—^For purposes of this
section, a period of enndlmoit begins on the first day that classes
begin fbr the applicable period of enrollment.".
Cb) OoNFOBMiNG AMENDMENTS.—
(1) TRANSMITTAL OF INSTITUTION SCHEDULES TO LENDERS.—
Section 428(aX2XAXD of the Hic^ Education Act of 1965 (20
U JS.C. 1078(aX2XAXD) is amended—
(A) by striking "and" at the end of clause CD; and
(B) by inserting after dause (ID the following:
*VID sets forth a schedule for di^ursement of
the proceeds (tf the loan in installments, consistent
with the requirements of section 428G; and".
(Zi FEDERALLY INSURED LOANS.—Section 427(aX4) of the Higher
Education Act of 1965 (20 UJS.C. 1077(aX4)) ia amended to read
as follows:
'X4) the fimds borrowed by a student are disbursed in accord­
ance with section 428G.".
(3) STAFFORD LOANS.—Section 428(bXlXO) of the Higher Edu­
cation Act of 1965 (20 U.S.C. 1078(bXlXO)) is amended to read as
– follows:
"(O) inrovides that the proceeds of the loans will be dis­
bursed in accordance with the requirements of section
428G;".
20 use 1077 (c) EFFECTIVE DATE.-The amendments made by this section shall
iqiply with req;)ect to loans made to cover the cost of instruction for
periods of enrollment bqpnning on or after January 1,1990.
SEC low. DEFAULT BEDUCnON PROGRAM.
(a) AMENDMENT.—Section 428F of the Higher Education Act of
1965 (20 UJS.C. 1078-6) is amended to read as follows:
"DEFAULT REDUCTION PROGRAM
"SEC. 428F. (a) PROGRAM REQUIREMENTS.—
*X1) AUTHORITY TO ESTABLISH A DEFAULT REDUCTION PRO­
GRAM.—^The Secretary shall, in accordance with the require­
ments of this section, establish a default reduction program fcnr
borroweis who have one or more loans under part B of this title
which are in de&ult, as defined in section 435(1), as of the date
of enactment of this section. Such program shall be commenced
on, March 1,1990, and shall last for six months.
*2) EuGraniTY FOR THE BENEFITS OF THE DEFAULT REDUCTION
PROGRAM.—^In order to be eligible for the benefits of the default
reduction program, a borrower who has a loan or loans which
are in default shall contact the hcdder of such loan or loans note. PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2117
during the default reductioii invgram and shall pay in full all
remaining principal and intenrest on such loan or loans.
''(3) BENEFITS OF THE DEFAULT BEDUcnoN PBOGRAM.—For each
borrower meeting the requirement of paragraph (2)—
"(A) no penalties shall be chaiged on defaulted loans
whkh are paid in fiil^
''(B) the guaranty agency shall report to the appropriate
credit bureau or biueaus that the loan has been paid in full;
and
* notwithstanding section 484, eligibility to receive
additional assistance under this title shall be reestablished.
"(4) SBCBETART'S SHASB OF BEPAYifENTS.—The Secretary's
equitable share for purposes of section 428(cX2XD) of amounts
paid by any borrower under paragraph (2) of this subsection
shall be 81.5 percent of the principal amount outstanding on the
loan at the time <^ repayment, multiplied by the reinsurance
percentage in effect when the payment under the guaranty
agreement was made with respect to such loan.
'(b) OTHER REPAYMENT INCENTIVES.—
'XD SALE OF LOAN.—
"(A) Upon securing consecutive payments for 12 months
of amounts owed on a loan for which the Secretary has
made a payment under paragraph (1) of section 428(c), the
guaranty agency (pursuant to an agreement with the Sec­
retary) or the Secretaxy shall, if practicable, sell the loan to
an eligible lender. Sucn loan shall not be sold to an eligible
lender who has been found bv the guaranty agency or the
Secretary to have substantially fiaued to exercise the due
diligraice required of lenders under this part
"(B) An agreement between the guaranty agency and the Contracts.
Secretary for purposes of this paragraph shall provide—
'Xi) for tne repayment by uie agency to the Secretary
of 81.5 percent of the amount of the principal balance
outstanding at the time of such sale, multiplied by the
reinsurance percentage in effect when payment under
the guaranty agreement was made with respect to the
loan; and
**(u) for the reinstatement by the Secretary (D of the
obligation to reimburse such agenpy for the amount
expended by it in dischaige of its insurance obligation
under its loan insurance program, and (ID of the obliga­
tion to pay to the holder of such loan a spedal allow­
ance pursuant to section 438.
"(Q A loan which does not meet the requir^nents of
subparagraph (A) may also be eligible for sale under this
paragraph upon a determination that the loan was in de­
fault due to clerical or data processing error and would not,
in the absence of such error, be in a delinquent status.
"(2) USE OF PROCEEDS OF SALES.—Amounts received by the
Secretary pursuant to the sale of such loans by a guaranty
ageiu7 under this paragraph shall be deducted finmi the calcula­
tions d the amount of reimbursement for which the agency is
eligible under paragraph (l)(BXii) oi this section for the fiscal
year in which the amount was received, notwithstanding the
fact that the default occurred in a prior fiscal year.
"(3) BORROWER EUGranjTV.—Any borrower whose loan is sold
under paragraph (1) shall not be precluded by section 484 firom 103 STAT. 2118 PUBLIC LAW 101-239—DEC. 19, 1989
receiving additional loans under this title (for which he or she is
otherwise eligible) on the basis of defaulting on the loan prior to
such loan sale.
"(4) APPUCABILITY OF GENERAL LOAN CONDITIONS.—A loan
which is sold under this paragraph shall, so long as the bor­
rower continues to make scheduled repayments thereon, be
subject to the same terms and conditions and qualify for the
same benefits and privileges as other loans made under this
part.".
20 use 1078-6 (b) PUBLICITY.—The Secretary of Education shall, from funds
^°^- available through student loan collections, commencing not less
than 30 days before the beginning of the default reduction program
required by the amendment made by this section, and continuing
throughout the duration of such program, widely publicize (through
various communications media) the availability of the default reduc­
tion program.
SEC. 2006. SANCTIONS AGAINST LENDERS AND INSTITUTIONS.
(a) SANCTIONS BY SECRETARY ON LENDERS.—Section 432 of the
Higher Education Act of 1965 (20 U.S.C. 1082) is amended by adding
at the end thereof the following new subsection:
"(j) AUTHORITY OF THE SECRETARY TO TAKE EMERGENCY ACTIONS
AGAINST LENDERS.—
"(1) IMPOSITION OP SANCTIONS.—If the Secretary—
ii "(A) receives information, determined by the Secretary to
be reliable, that a lender is violating any provision of this
s title, any regulation prescribed under tlus title, or any
*> applicable specitil arrangement, agreement, or limitation;
(B) determines that immediate action is necessary to
prevent misuse of Federal funds; and
"(C) determines that the likelihood of loss outweighs the
f importance of following the limitation, suspension, or
termination procedures authorized in subsection (h);
Mail. the Secretary shall, effective on the date on which a notice and
statement of the basis of the action is mailed to the lender (by
registered mail, return receipt requested), take emergency
action to stop the issuance of guarantee commitments and the
{)ayment of interest benefits and special allowance to the
ender.
"(2) LENGTH OF EMERGENCY ACTION.—An emergency action
under this subsection may not exceed 30 da^s unless a limita­
tion, suspension, or termination proceeding is initiated against
the lender under subsection (h) before the expiration of that
period.
"(3) OPPORTUNITY TO SHOW CAUSE.—The Secretary shall pro­
vide the lender, if it so requests, an opportunity to show cause
that the emergency action is unwarranted.".
Ot») SANCTIONS BY GUARANTY AGENCIES.—Section 428(bXl) (20
U.S.C. 1078(bXl)) is amended—
(1) by inserting "emergency action," before "limitation," each
place it appears in subparagraphs (T) and (U); and
(2) by inserting "take emergency action," before "limit, sus­
pend," in subpareigraph (U).
(c) SANCTIONS AGAINST INSTITUTIONS AND INSTITUTIONS' AGENTS.—
Section 487(cXl) of the Higher Education Act of 1965 (20 U.S.C.
1094(cXl)) is amended—
(1) in subparagraph (C), by striking "and" at the end thereof; PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2119
(2) in subparagraph (D)—
(A) by striking "or any regulation prescribed under this
title," and inserting in lieu thereof a comma and "any
regulation prescribed under this title, or any applicable
special arrangement, agreement, or limitation,'; and
(B) by striking out the period at the end thereof and
inserting in lieu thereof a semicolon; and
(3) by adding at the end thereof the following new
subparagraphs:
"(E) an emergency action against £ui institution, under Mail,
which the Secretary shall, effective on the date on which a
notice and statement of the basis of the action is mailed to
the institution (by registered mail, return receipt re­
quested), withhold funds from the institution or its students
and withdraw the institution's authority to obligate funds
under any program under this title, if the Secretanr—
"(i) receives information, determined by the Sec­
retary to be reliable, that the institution is violating
any provision of this title, any regulation prescribed
under this title, or any applicable special arrangement,
agreement, or limitation,
"(ii) determines that immediate action is necessary to
prevent misuse of Federal funds, and
"(iii) determines that the likelihood of loss out­
weighs the importance of the procedures prescribed
under subparagraph (D) for limitation, suspension, or
termination,
except that an emergency action shall not exceed 30 days
unless limitation, suspension, or termination proceedings
are initiated by the Secretary against the institution within
that period of time, and except that the Secretary shall
provide the institution an opportunity to show cause, if it so
requests, that the emergency action is unwarranted;
(F) the limitation, suspension, or termination of the Contracts,
eligibility of an individual or an organization to contract
with any institution to administer any aspect of an institu­
tion's student assistance program under this title, or the
imposition of a civil penalty under paragraph (2XB), when­
ever the Secretary has determined, after reasonable notice
and opportunity for a hearing on the record, that such
organization, acting on behalf of an institution, has violated
or failed to carry out any provision of this title, any regula­
tion prescribed under this title, or any applicable special
arrangement, sigreement, or limitation, except that no
period of suspension under this subparagraph shall exceed
60 days unless the organization and the Secretary agree to
an extension, or unless limitation or termination proceed­
ings are initiated by the Secretary against the individual or
organization within that period of time; and
"(G) an emergency action against an individual or an Ck)ntracts.
organization that has contracted with an institution to Mail,
administer any aspect of the institution's student assistance
program under this title, under which the Secretary shall,
effective on the date on which a notice and statement of the
basis of the action is mailed to such individual or organiza­
tion (by registered mail, return receipt requested), withhold
funds from the individual or organization and withdraw the 103 STAT. 2120 PUBLIC LAW 101-239—DEC. 19, 1989
individual or organization's authority to act on behalf of
an institution under any program under this title, if the
Secretarjr—
"(i) receives information, determined by the Sec­
retary to be reliable, that the individual or organiza­
tion, acting on behalf of an institution, is violating any
provision of this title, any regulation prescribed under
this title, or any applicable special arrangement, agree­
ment, or limitation,
"(ii) determines that immediate action is necessary to
prevent misuse of Federal funds, and
"(iii) determines that the likelihood of loss out­
weighs the importance of the procedures prescribed
under subparagraph (F), for limitation, suspension, or
termination,
except that an emergency action shall not exceed 30 days
unless the limitation, suspension, or termination proceed­
ings are initiated by the Secretary against the individual or
organization within that period of time, and except that the
Secretary shall provide the individual or organization an
opportunity to show cause, if it so requests, that the emer­
gency action is unwarranted.".
SEC. 2007. EFFECT OF LOSS OF ACCREDITATION.
(a) STATUS AS EUGIBLE INSTITUTION FOR STAFFORD STUDENT LOAN
PROGRAM.—Section 435 of the Higher Education Act of 1965 (20
U.S.C. 1085) is amended—
(1) in subsection (aXl), by striking "The term" and inserting
"Subject to subsection (n), the term"; and
(2) by adding at the end thereof the following:
"(n) IMPACT OF Loss OF AccREDriATiON.—An institution may not
be certified or recertified as an eligible institution under subsection
(a) of this section if such institution has—
"(1) had its institutional accreditation withdrawn, revoked, or
otherwise terminated for cause during the preceding 24 months;
or
"(2) withdrawn from institutional accreditation voluntarily
under a show cause or suspension order during the preceding 24
months;
unless—
"(A) such accreditation has been restored by the same
accrediting agency which had accredited it prior to the
withdrawal, revocation, or termination; or
"(B) the institution has demonstrated its academic integ­
rity to the satisfaction of the Secretary in accordance with
section 1201(aX5) (A) or (B) of this Act".
(b) STATUS AS EUGIBLE INSTITUTION FOR OTHER TITLE IV PRO­
GRAMS.—Section 481 of the Higher Education Act of 1965 (20 U.S.C.
1088) is amended—
(1) in subsection (aXD, by striking "For the purpose" and
inserting "Subject to subsection (e), for the purpose"; and
(2) by adding at the end thereof the following:
"(e) IMPACT OF Loss OP ACCREDIFATION.—An institution may not
be certified or recertified as an institution of higher education under
subsection (a) of this section if such institution has— PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2121
"(1) had its institutional accreditation withdrawn, revoked, or
otherwise terminated for cause during the preceding 24 months;
or
"(2) withdrawn from institutional accreditation voluntarily
under a show cause or suspension order during the preceding 24
months;
unless—
"(A) such accreditation has been restored by the same
accrediting agency which had accredited it prior to the
withdrawal, revocation, or termination; or
"(B) the institution has demonstrated its academic integ­
rity to the satisfaction of the Secretary in accordance with
section 1201(aX5) (A) or (B) of this Act.'
(c) EuGiBLE INSTITUTION ACCREDITATION RULE.—Section 481(a) of
the Higher Education Act of 1965 (20 U.S.C. 1088(a)) is amended by
inserting after paragraph (2) the following new paragraph:
"(3) Whenever the Secretary determines eligibility under para­
graph (1), the Secretary shall not recognize the accreditation of any
eligible institution of higher education under this subsection if the
institution of higher education is in the process of receiving a new
accreditation or changing accrediting agency or association unless
the eligible institution submits to the Secretary all materials relat­
ing to the prior accreditation, including materials demonstrat­
ing reasonable cause for changing the accrediting agency or
association.".
SEC. 2008. REVISION OF NATIONAL STUDENT LOAN DATA SYSTEM.
Section 485B of the Higher Education Act of 1965 (20 U.S.C
1092(b)) is amended to read as follows:
"NATIONAL STUDENT LOAN DATA SYSTEM
"SEC. 485B. (a) DEVELOPMENT OF THE SYSTEM.—The Secretary shall 20 use I092b.
consult with a representative group of gfuaranty agencies, eligible
lenders, and eligible institutions to develop a mutually agreeable
proposal for the establishment of a National Student Loan Data
System containing information regarding loans made, insured, or
guaranteed imder part B and loans made under part E. The
information in the data system shall include (but is not limited to)—
"(1) the amount and type of each such loan made;
"(2) the names and social security numbers of the borrowers;
"(3) the guaranty agency responsible for the guarantee of the
loan;
"(4) the institution of higher education or organization
responsible for loans made under part E;
' (5) the eligible institution in which the student was enrolled
or accepted for enrollment at the time the loan was made, and
anv additional institutions attended by the borrower;
'(6) the total amount of loans made to any borrower and the
remaining balance of the loans;
"(7) the lender, holder, and servicer of such loans;
"(8) information concerning the date of any default on the
loan and the collection of the loan, including any information
concerning the repajrment status of any defaulted loan on which
the Secretary has made a payment pursuant to section 43(Ka) or
the guaranty agency has made a payment to the previous holder
of the loan; 103 STAT. 2122 PUBLIC LAW 101-239—DEC. 19, 1989
"(9) information regarding any deferments or forbearance
granted on such loans; and
"(10) the date of cancellation of the note upon completion of
repayment by the borrower of the loan or payment by the
S^inretary pursuant to section 437.
"(b) ADDITIONAL INFORMATION.—For the purposes of research and
polipy analysis, the proposal shall also contain provisions for obtain-
mg additional data concerning the characteristics of borrowers and
the extent of student loan indebtedness on a statistically valid
sample of borrowers under part B. Such data shall include—
"(1) information concerning the income level of the borrower
and his family and the extent of the borrower's need for student
financial assistance, including loans;
"(2) information concerning the l^pe of institution attended
by the borrower and the year of the program of education for
which the loan was obtained;
"(3) information concerning other student financial assistance
received by the borrower; and
"(4) information concerning Federal costs associated with the
student loan program under part B of this title, including the
costs of interest subsidies, special allowance payments, and
other subsidies.
"(c) VERIFICATION.—^The Secretary may require lenders, guaranty
agencies, or institutions of higher education to verify information or
obtain eligibility or other information through the National Student
Loan Data System prior to making, guaranteeing, or certifying a
loan made under part B or part E.
"(d) REPORT TO CONGRESS.—^The Secretary shall prepare and
submit to the appropriate committees of the (Jongress, m each fiscal
year, a report descnbing the results obtained by the establishment
and operation of the student loan data system authorized by this
section.".
SEC 2009. INFORMATION USED IN EXEROSE OF AID ADMINISTRATOR
DISCRETION.
Section 479A(a) of such Act (20 U.S.C. 1987tt(a)) is amended to
^ read as follows:
"SEC. 479A (a) IN GENERAL.—Nothing in this title shall be inter­
preted as limiting the authority of the financial aid administrator,
on the basis of adequate documentation, to make adjustments on a
case-by-case basis to the cost of attendance or the data required to
calculate the expected student or parent contribution (or both) to
allow for treatment of an individual eligible applicant with special
circumstances not addressed by the data elements in subparts 1 and
2 of part A and parts B, C, and E of this title. However, this
authority shall not be construed to permit aid administrators to
deviate from the contributions expected under subparts 1 and 2 of
part A and parts B, C, and E in the absence of specisd circumstances.
SpcK^ial circumstances shall be conditions that differentiate an
individual student from a class of students rather than conditions
Records. that exist across a class of students. Adequate documentation for
such ckyustments shsdl substantiate such special circumstances of
individual students. In addition, nothing in this title shall be inter­
preted as limiting the authority of the student financial aid adminis­
trator in such cases to request and use supplementary information
about tibe financial status or personal circumstances of eligible
applicants in selecting recipients and determining the amoimt of PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2123
awards under subparts 1 and 2 of part A and parts B, C, and E of
this title.".
Subtitle B—Fiduciary Responsibilities
SEC. 2101. CIVIL PENALTIES ON VIOLATIONS BY FIDUCIARIES.
(a) IN GENERAL.—Section 502 of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1132) is amended by adding at the
end thereof the following new subsection:
"aXD In the case of—
"(A) any breach of fiduciary responsibility under (or other
violation of) part 4 by a fiduciary, or
"(B) any knowing participation in such a breach or violation
by any other person,
the Secretary shall assess a civil penalty against such fiduciary or
other person in an amount equal to 20 percent of the applicable
recovery amount.
"(2) For purposes of paragraph (1), the term 'applicable recovery
amount' means any amount which is recovered from a fiduciary or
other person with respect to a breach or violation described in
paragraph (1)—
"(A) pursuant to any settlement agreement with the Sec­
retary, or
"(B) ordered by a court to be paid by such fiduciary or other
person to a plan or its participants and beneficiaries in a
judicial proceeding instituted by the Secretary under subsection
(aX2)or(aX5).
"(3) The Secretary may, in the Secretary's sole discretion, waive or
reduce the penalty under paragraph (1) if the Secretary determines
in writing that—
"(A) the fiduciary or other person acted reasonably and in
good faith, or
"(B) it is reasonable to expect that the fiduciary or other
person will not be able to restore all losses to the plan without
severe financial hardship unless such waiver or reduction is
granted.
"(4) The penalty imposed on a fiduciary or other person imder this
subsection with respect to any transaction shall be reduced by the
amount of any penalty or tax imposed on such fiduciary or other
person with respect to such transaction under subsection (i) of this
section and section 4975 of the Internal Revenue Code of 1986.".
(b) CONFORMING AMENDMENT.—Section 502(aX6) of the Employee
Retirement Income Security Act of 1974 (29 U.S.C. 1132(aX6)) is
amended by inserting "or G)" after "subsection (i)".
(c) EFFECTIVE DATE.—The amendments made by this section shall 29 use 1132
apply to any breach of fiduciary responsibility or other violation °°**-
occurring on or after the date of the enactment of this Act. 103 STAT. 2124 PUBLIC LAW 101-239—DEC. 19,1989
TITLE III—REGULATORY AGENCY FEES
Subtitle A—Federal Communications
Commission Fees and Penalties
SEC 3001. FEDERAL COMMUNICATIONS COMMISSION FEES.
(a) UPDATB OF FEE SCHEDULE.—Section 8 of the Communications
Act of 1934 (47 U.S.C. 158) is amended by adding at the end thereof
the following:
"(g) Until modified pursuant to subsection (b) of this section, the
Schedule of Charges which the Federal Communications Commis­
sion shall prescribe pursuant to subsection (a) of this section ^all be
as foUows:
. – V , "SCHEDULE OF CHARGES
Service Fee amount
PRIVATE RADIO SKHVICBS
1. Marine Coast Stations
a. New License (per station) $70.00
b. Modification of License (per station) . 70.00
c Renewal of License (per station) 70.00
d. Special Temporary Authority (Initial, Modifications, Extensions)— 100.00
e. Assignments (per station) 70.00
f. Transfers of Control (per station) … 35.00
g. Request for Waiver
(i) Routine (per request) .. 105.00
(ii) Non-Routine (per rule section/per station) 105.00
2. Ship Stations
a. New License (per application) . 35.00
b. Modification of license (per application) 35.00
c Renewal of License (per application) 35.00
d. Request for Waiver
(i) Routine (per request) . . 105.00
(ii) Non-Routine (per rule section/per station) . 105.00
3. Operational Fixed Microwave Stations
a. New License (per station) .-. . 155.00
b. Modification of License (per station) …. 155.00
c. Renewal of License (per station) 155.00
d. Special Temporary Authority (Initial, Modifications, fbctensions)…. 35.00
e. Assignments (per station) 155.00
f. Transfers of Control (per station) . 35.00
g. Request for Waiver
(i) Routine (per request) . ………..— 105.00
(ii) Non-Routine (per rule section/per station) 105.00
4. Aviation (Ground Stations)
a. New License (per station) . 70.00
b. Modification of License (per station) . 70.00
c. Renewal of License (per station) 70.00
d. Special Temporary Authority (Initial, Modifications, Extensions)— 100.00
e. Assignments (per station) 70.00
f. Transfers of Control (per station) . 35.00
. . .t,. g. Request for Wsdver
(i) Routine (per request) . .. …. .. 105.00
(iO Non-Routine (per rule section/per station) 105.00
5. Aircraft Stations
a. New License (per application) . ……. ….. …… … 35.00
b. Modification of License (per application) . . 35.00
c. Renewal of License (per application) … . 35.00
d. Request for Waiver
(i) Routine (per request) , . 105.00
(ii) Non-Routine (per rule section/per station) 105.00
6. Land Mobile Radio Stations (including Special Emergency and Public
Safety Stations)
a. New License (per call sign) 35.00 PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2125
b. Modification of License (per call sign) 35.00
c. Renewal of License (per call sign) 35.00
d. Special Temporary Authority (Initial, Modifications, Extensions)…. 35.00
e. Assignments (per station) 35.00
f. Transfers of Control (per call sign) 35.00
g. Request for Waiver
(i) Routine (per request) 105.00
(ii) Non-Routine (per rule section/per station) 105.00
h. Reinstatement (per call ngn) 35.00
i. Specialized Mobile Radio ^rstems-Base Stations
(i) New License (per call sign) 35.00
(ii) Modification of License (per call sign) 35.00
(iii) Renewal of License (per call sign) 35.00
(iv) Waiting List (annual charge per application).. 35.00
(v) Special Temporary Authority (Imtial, Modifications, Exten­
sions) > 35.00 ,
(vi) Assignments (per call sign) „ 35.00
(vii)Transfersof Control (per call sign) 35.00
(viii) Request for Waiver
(1) Routine (per request) 105.00
(2) Non-Routine (per rule section/per station) 105.00
(ix) Reinstatements (per call sign) 35.00
j. Private Carrier Licenses
(i) New License (per call sign) „.. 35.00
(ii) Modification of License (per call sign) 35.00
(iii) Renewal of License (per call sign) 35.00
(iv) Special Temporary Authority (Initial, Modifications, Exten­
sions) 35.00
(v) Assignments (per call sign)….. 35.00
(vi) Transfers of Control (per call sign) 35.00
(vii) Request for Waiver
(1) Routine (per request) 105.00
(2) Non-Routine (per rule section/per station) 105.00
(viii) Reinstatements (per call sign) 35.00
7. General Mobile Radio Service
a. New License (per call sign) 35.00
b. Modifications of License (per call sign) 35.00
c. Renewal of License (per call sign) 35.00
d. Request for Waiver
(i) Routine (per request) 105.00
(ii) Non-Routine (per rule section/per station) .. .. 105.00
e. Special Temporary Authority (Initial, Modifications, Extensions)…. 35.00
f. Transfer of control (per call sign) 35.00
8. Restricted Radiotelephone Operator Permit . ….. 35.00
9. Request for Duplicate Station License (all services) … 35.00
10. Hearing (Comparative, New, and Modifications) .. 6,760.00
EQUIPMENT APPROVAL SEKVICES/EXPERIMENTAL KAOIO
1. Certification
a. Receivers (except TV and FM receivers) 285.00
b. All Other Devices 735.00
c. Modifications and Class n Permissive Changes . …………. 35.00
d. Request for Confidentiality 105.00
2. Type Acceptance
a. All Devices 870.00
b. Modifications and Class n Permissive Changes 35.00
c. Request for Confidentialily 105.00
3. Type Approval (all devices)
a. With Testing (including Mtgor Modifications) 1,465.00
b. Without Testing (including Minor Modifications) 170.00
c. Request for Confidentiality 105.00
4. Notifications 115.00
5. Advance Approval for Subscription TV System 2,255.00
a. Request for Confidentiality . . 105.00
6. Assignment of Grantee Code for Equipment Identification …. 35.00
7. Experimental Radio Service
a. New Construction Permit and Station Authorization (per applica­
tion) 35.00
b. Modification to Existing Construction Permit and Station Authori­
zation (per application) 35.00
c. Renewal of Station Authorization (per application) 36.00 103 STAT. 2126 PUBLIC LAW 101-239—DEC. 19, 1989
d. Assignment or Transfer of Control (per application) 35.00
e. Special Temporary Authority (per application) 35.00
f. Additional Charge for Applications Containing Requests to With­
hold Information From Public Inspection (per application) 35.00
BIASS MEDIA SERVICES
1. Commercial TV Stations
a. New or Mcgor Change Construction Permits 2,535.00
b. Minor Change 565.00
c. Hearing (Migor/Minor Change, Comparative New, or Comparative
Renewal) 6,760.00
d. License 170.00
e. Assignment or Transfer
(i) Long Form (Forms 314/315) 565.00
(ii) Short Form (Form 316) 80.00
f. Renewal 100.00
g. Call Sign (New or Modification) 55.00
. Special Temporary Authority (other than to remain silent or
extend an existing STA to remain silent) 100.00
L Extension of Time to Construct or Replacement of CP 200.00
iPermit to Deliver Programs to Foreign Broadcast Stations 55.00
. Petition for Rulemakmg for New Community of License 1,565.00
1. Ownership Report (per report) 35,00
2. Commercial Radio Stations
a. New and Mcg'or Change Construction Permit
(i) AM Station 2,255.00
(ii) FM Station 2,030.00
b. Minor Change
(i) AM Station 565.00
(ii) FM Station 565.00
c. Hearing (Mtgor/Minor Change, Comparative New, or Comparative
Renewal) 6,760.00
d. License
(i) AM 370.00
(ii) FM 115.00
(iii) AM Directional Antenna 425.00
(iv) FM Directional Antenna 355.00
(v) AM Remote Control 35.00
e. Assignment or Transfer
(i) Long Form (Forms 314/315) 565.00
(ii) Short Form (Form 316) 80.00
f. Renewal 100.00
ECall Sign (New or Modification) 55.00
Special Temporary Authority (other than to remain silent or
extend an existing STA to remain silent) 100.00
i E!xtension of Time to Construct or Replacement of CP 200.00
tPermit to Deliver Pro^^rams to Foreign Broadcast Stations 55.00
Petition for Rulemaking for New Community of License or Higher
Class Channel 1,565.00
1. Ownership Report (per report) 35.00
3. FM Translators
a. New or Mtgor Change Construction Permit 425.00
b. License 85.00
c. Assignment or Transfer 80.00
d. Renewal 35.00
e. Special Temporary Authority (other than to remain silent or
extend an existing STA to remain silent) 100.00
4. TV Translators and LPTV Stations
a. New or M^or CSiange Construction Permit 425.00
b. License 85.00
.0. Assignment or Transfer 80.00
d. Renewal 35.00
e. Special Temporary Authority (other than to remain silent or
extend an existing STA to remain silent) 100.00
5. Auxiliary Services (Includes Remote Pickup stations, TV Auxiliary
Broadcast stations. Aural Broadcast STL and Intercity Relay stations,
and Low Power Auxiliary stations)
a. M^jor Actions 85.00
b. Renewals 35.00
c. Special Temporary Authority (other than to remain silent or
extend an existing STA to remain silent) 100.00 PUBLIC LAW 101-239—DEC. 19,1989 103 STAT. 2127
6. FM/TV Boosters
a. New and Major Change Construction Permits 425.00
b. License 85.00
c. Special Temporary Authority (other than to remain silent or
extend an existing STA to remain silent) 100.00
7. International Broadcast Station
a. New Construction Permit and Facilities Change CP 1,705.00
b. License 385.00
c. Assignment or Transfer (per station) 60.00
d. Renewal 95.00
e. Frequency Assignment and Coordination (per frequency hour) 35.00
f.' Special Temporary Authority (other than to remain silent or
extend an existing STA to remain silent) 100.00
8. Cable Television Service
a. Cable Television Relay Service
(i) Construction Permit 155.00
(ii) Assignment or Transfer 155.00
(iii) Renewal 155.00
(iv) Modification 155.00
(v) Special Temporary Authority (other than to remain silent or
extend an existing STA to remain silent) 100.00
b. Cable Special Relief Petition 790.00
c. 76.12 Registration Statement (per statement) 35.00
d. Aeronautical Frequency Usage Notifications (per notice) 35.00
e. Aeronautical Frequency Usage Waivers (per waiver) 35.00
9. Direct Broadcast Satellite
a. New or Mtgor Change Construction Permit
(i) Application for Authorization to Construct a Direct Broadcast
Satellite 2,030.00
(ii) Issuance of Construction Permit & Launch Authority 19,710.00 ^
(iii) License to Operate Satellite 565.00
b. Hearing (Comparative New, Mfgor/Minor ModiHcations, or Com­
parative Renewal) 6,760.00
c. Special Temporary Authority (bther than to remain silent or
extend an existing STA to remain silent) 100.00
COMMON CARRIER SERVICES I
1. All Common (Darrier Services
a. Hearing (Comparative New or M^or/Minor Modifications) 6,760.00
b. Development Authority . . . Same charge as regular authority in
service unless otherwise indicated
c. Formal Complaints and Pole Attachment Complaints Filing Fee 120.00
2. Domestic Public Land Mobile Stations (includes Base, Dispatch, Con­
trol & Repeater Stations)
a. New or Additional Facility (per transmitter) 230.00
b. Major Modifications (per transmitter) ; 230.00
c. Fill In Transmitters (per transmitter) 230.00
d. Major Amendment to a Pending Application (per transmitter) 230.00
e. Assignment or Transfer
(i) First Call Sign on Application 230.00
(ii) Each Additional Call Si^ 35.00
f. Partial Assignment (per call sign) 230.00
g. Renewal (per call sign) 35.00
h. Minor Modification (per transmitter) 35.00
i. Special Temporary Authority (per frequency/per location) 200.00
tExtension of Time to Ck)nstruct (per application) 35.00
. Notice of Completion of Construction (per application) 35.00
1. Auxiliary Test Station (per transmitter) 200.00
m. Subsidiary Communications Service (per request) 100.00
n. Reinstatement (per application) 35.00
o. Combining Call Signs (per call sign) 200.00
p. Standby Transmitter (per transmitter/per location) 200.00 —-
q. 900 MHz Nationwide Paging
(i) Renewal
(1) Network Organizer 35.00
(2) Network Operator (per operator/per city) 35.00
r. Air-Ground Individual License (per station)
(i) Initial License 35.00
(ii) Renewal of License 35.00
(iii) Modiflcation of License 35.00 103 STAT. 2128 PUBLIC LAW 101-239—DEC. 19,1989
3. Cellular Systems (per system)
a. New or Additional Facilities 230.00
b. Major Modification 230.00
c. Minor Modification 60.00
d. Assignment or Transfer (including partial) 230.00
e. License to Cover Construction
(i) Initial License for Wireline Carrier 595.00
(ii) Subsequent License for Wireline Carrier 60.00
(iii) License for Nonwireline Carrier 60.00
(iv) Fill In License (all carriers) 60.00
f Renewal 35.00
g. Extension of Time to Complete Construction 35.00
h. Special Temporary Authority (per system) 200.00
i. Combining Cellular Geographic Service Areas (per system) 50.00
4. Rural Radio (includes Central Office, Interoffice, or Relay Facilities)
a. New or Additional Facility (per transmitter) 105.00
b. Major Modification (per transmitter) 105.00
c. Major Amendment to Pending Application (per transmitter) 105.00
d. Minor Modification (per transmitter) 35.00
e. Assignments or Transfers
(i) First Call Sign on Application 105.00
(ii) Each Additional Call Sign 35.00
(iii) Partial Assignment (per call sign) 105.00
f. Renewal (per call sign) 35.00
g. Extension of Time to Complete Construction (per application) 35.00
h. Notice of CJompletion of Construction (per application) 35.00
i. Special Temporary Authority (per frequency/per location) 200.00
tReinstatement (per application) 35.00
. Combining Call Signs (per call sign) 200.00
1. Auxiliary Test Station (per transmitter) 200.00
m. Standby Transmitter (per transmitter/per location) 200.00
/ 5. Offshore Radio Service (Mobile, Subscriber, and Central Stations; fees
would also apply to any expansion of this service into coastal waters
other than the Gulf of Mexico)
a. New or Additional Facility (per transmitter) 105.00
b. Major Modifications (per transmitter) 105.00
c. Fill In Transmitters (per transmitter) 105.00
d. Major Amendment to Pending Application (per transmitter) 105.00
e. Minor Modification (per transmitter) 35.00
f. Assignment or Transfer
(i) Each Additional Call Sign 35.00
(ii) Partial Assignment (per call sign) 105.00
Renewal (per call sign) 35.00
1. Extension of Time to Complete Construction (per application) 35.00
i. Reinstatement (per application) 35.00
tNotice of Completion of Ck>nstruction (per application) 35.00
. Special Temporary Authority (per frequency/per location) 200.00
1. Combining Call Signs (per call sign) 200.00
m. Auxiliary Test Station (per transmitter) 200.00
n. Standby Transmitter (per transmitter/ per location) 200.00
6. Point-to-Point Microwave and Local Television Radio Service
a. Conditional License (per station) 155.00
b. Major Modification of Conditional License or License Authoriza­
tion (per station) 155.00
: c. Certification of C!ompletion of Construction (per station) 155.00
d. Renewal (per licensed station) 155.00
e. Assignment or Transfer
(i) First Station on Application 55.00
(ii) Each Additional Station 35.00
f. Extension of Construction Authorization (per station) 55.00
g. Special Temporary Authority or Request for Waiver of Prior Con­
struction Authorization (per request) 70.00
7. Multipoint Distribution Service (including multichannel MDS)
a. Conditional License (per station) 155.00
b. Major Modification of Conditional License or License Authoriza­
tion (per station) 155.00
c. Certification of Completion of Construction (per channel) 455.00
d. Renewal (per licensed station) 155.00
e. Assignment or Transfer
(i) First Station on Application 55.00
(ii) Each Additional Station 35.00 I PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2129
f. Ebctension of Construction Authorization (per station) 110.00
g. Special Temporary Authority or Request for Waiver of Prior Con­
struction Authorization (per request) 70.(K)
8. Digital Electronic Message Service
a. Conditional License (per nodal station) 155.00
b. Modification of Conditional license or License Authorization (per
nodal station) 155.00
c. Certification of Completion of Construction (per nodal station) 155.00
d. Renewal (per licensed nodal station) 155.00
e. Assi^mient or Transfer
(i) First Station on Application 55.00
(ii) Each Additional Station 35.00
f. Extension of Construction Authorization (per station) 55.00
g. Special Temporary Authority or Request for Waiver of Prior Con­
struction Authorization (per request) 70.00
9. International Fixed Public Radio (Public and Control Stations)
a. Initial Construction Permit (per station) 510.00
b. Assignment or Transfer (per application) 510.00
c. Renewal (per license) 370.00
d. Modification (per station). 370.00
e. Extension of Construction Authorization (per station) 185.00
f. Special Temporary Authority or Request for Waiver (per request)… 185.00
10. Fixed Satellite Transmit/Receive Earth Stations
a. Initial Ai]^lication (per station) 1,525.00
b. Modification of Lic^ise (per station) 105.00
c. Assignment or Transfer
(i) First Station on Application 300.00
(ii) Each Additional Station 100.00
d. Developmental Station (per station) 1,000.00
e. Roiewal of lAceaase (per station) 105.00
f. Special Temporary Authority or Waivers of Prior Construction Au­
thorization (per request) 105.00
g. Amendment of Application (per station) 105.00
n. Extension of Construction Permit (per station) 105.00
11. Small Transmit/Receive Earth Stations (2 meters or less and operat­
ing in the 4/6 GHz frequency band)
a. Lead Application 3,380.00
b. Routine Application (per station) 35.00
c. Modification of License (per station) 105.00
d. Anwignment or Transfer
(D First Station on Application 300.00
(ii) Each Additional Station 35.00
e. Developmental Station (per station) 1,000.00
f. Renewal of license (per station) 105.00
g. Special Temporary Aut^rity or Waivers of Prior Construction
Authorization (per request) 105.00
h. Amendment of Application (per station) 105.00
L Extension of Construction Permit (per station) 105.00
12. Receive Only Earth Stations
a. Initial Application for Registration *. 230.00
b. Modification of license or R^istration (per station) 105.00
c. Assignment or Transfer
(i) first Station on Application 300.00
(ii) Each Additional Station 100.00
d. Renewal of license (per station) 105.00
e. Amendment of Application (per station) 105.00
f. Extension of Construction Permit (per station) 105.00
g. Waivers (per request) 105.00
13. Venr Small Aperture Terminal (VSAT) Systems
a. uiitial Application (per system) 5,630.00
b. Modification of license (per system) 105.(W
c. Assignment or Transfer of S^tem 1,505.00
d. Developmental Station 1,000.00
e. Renewal of license (per system) 105.00
f. Special Temporary Authority or Waivers of Prior Construction Au­
thorization (per request) 105.00
g. Amendment of Application (per system) 105.00
h. Extension of Construction Permit (per system) 105.00
14. Mobile Satellite Earth Stations
a. Initial Application of Blanket Authorization 5,630.00
b. Initial Application for Individual Earth Station 1,350.00 103 STAT. 2130 PUBLIC LAW 101-239—DEC. 19, 1989
c. Modification of License (per system) 105.00
d. Assignment or Transfer (per system) 1,505.00
e. Developmental Station 1,000.00
f. Renewal of License (per c^stem) 105.00
g. Special Temporary Authority or Waivers of Prior Construction
Authorization (per request) 105.00
h. Amendment of Application (per system) 105.00
i. Extension of Ck>nstruction Permit (per system) 105.00
15. Radio determination Satellite Earth Stations
a. Initial Application of Blanket Authorization 5,630.00
b. Initial Application for Individual Earth Station 1,350.00
c. Modification of License (per system) 105.00
d. Assignment or Transfer (per system) 1,505.00
e. Developmental Station 1,000.00
• f. Renewal of License (per system) 105.00
g. Special Temporary Authority or Waivers of Prior Construction
Authorization (per request) 105.00
h. Amendment of Application (per sjrstem) 105.00
i. Extension of Construction Permit (per system) 105.00
16. Space Stations
a. Application for Authority to Construct 2,030.00
b. Application for Authority to Laimch & Operate
(i) Initial Application 70,000.00
(ii) Replacement Satellite 70,000.00
c. Assignment or Transfer (per satellite) 5,000.00
d. Modification 5,000.00
e. Special Temporary Authority or Waiver of Prior Construction Au­
thorization (per request) 500.00
f. Amendment of Application 1,000.00
g. Extension of Construction Permit/Laimch Authorization (per re­
quest) 500.00
17. Section 214 Applications
a. Overseas (jable C>>nstruction 9,125.00
b. Cable Landing License
(i) <:k)mmon Carrier 1,025.00
(ii) Non-Common Carrier 10,150.00
c. Domestic Cable (Construction 610.00
> d. All Other 214 Applications 610.00
e. Special Temporary Authority (all services) 610.00
f. Assignments or Transfers (all services) 610.00
' y ' 18. Recognized Private Operating Status (per application) 610.00
19. Telephone Equipment Registration 155.00
20. Tariff Filings
a. Filing Fee 490.00
b. Special Permission Filing (per filing) 490.00
21. Accounting and Audits
a. Field Audit 62,290.00
b. Review of Attest Audit 34,000.00
c. Review of Depreciation Update Study (Single State) 20,685.00
, f (i) EacTi Additional State 680.00
''' d. Interpretation of Accounting Rules (per request) 2,885.00
e. Petition for Waiver (per petition) 4,660.00
MISCELLANEOUS CHARGES
1. International Telecommunications Settlements Administrative Fee for
(Collections (per line item) 2.00
2. Radio Operator Examinations
a. Commercial Radio Operator Examination 35.00
b. Renewal of Commercial Radio Operator License, Permit, or (Certif­
icate 35.00
c. Duplicate or Replacement (Commercial Radio Operator License,
Permit, or Certificate 35.00
3. Ship Inspections
a. Inspection of Oceangoing Vessels Under Title III, Part II of the
Communications Act (per inspection) 620.00
^ b. Inspection of Passenger Vessels Under Title HI, Part III of the
Communications Act (per inspection) 320.00
~ c. Inspection of Vessels Under the Great Lakes Agreement (per in­
spection) 360.00 PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2131
d. Inspection of Foreign Vessels Under the Safety of Life at Sea
(SOLAS) Convention (per inspection) 540.00
e. Temporary Waiver for Compulsorily Equipped Vessel 60.00".
(b) CONFORMING AMENDMENTS.—Section 8 of the Communications
Act of 1934 is further amended— 47 use 158.
(1) by striking the last sentence of subsection (a);
(2) in subsection (bXD, by striking "April 1, 1987" and insert­
ing "October 1,1991"; and
(3) in subsection (dXl)—
(A) by striking out "to the following radio services:" and
inserting "(A) to governmental entities and nonprofit enti­
ties licensed in the following radio services:"; and
(B) by inserting "(B)" after "Emergency Radio, or".
(c) EFFECTIVE DATE; IMPLEMENTATION.—The amendments made by 47 USC158 note,
this section shall take effect on the date of enactment of this Act,
and the Schedule of Charges required by the amendment made by
subsection (a) of this section shall be implemented not later than 150
days after the date of enactment of this Act.
SEC. 3002. FINES AND PENALTIES UNDER THE COMMUNICATIONS ACT OF
1934.
(a) DISCRIMINATION AND PREFERENCE BY COMMON CARRIER.—Sec­
tion 202(c) of the Communications Act of 1934 (47 TJ.S.C. 202(c)) is
amended— '
(1) by striking "$500" and inserting "$6,000"; and
(2) by striking "$25" and inserting "$300".
OJ) FAILURE IN FIUNG OF SCHEDULE OF CHARGES.—Section 203(e) of
such Act (47 U.S.C. 203(e)) is amended—
(1) by striking "$500" and inserting "$6,000"; and
(2) by striking "$25" and inserting "$300".
(c) NONCOMPLIANCE WITH RATE ORDERS.—Section 205(b) of such
Act (47 U.S.C. 205(b)) is amended by striking "$1,000" and inserting
"$12,000".
(d) NONCOMPUANCE WiTH LiNE EXTENSION ORDERS.—Section
214(d) of the Act (47 U.S.C. 214(d)) is amended by Striking "$100" and
inserting "$1,200".
(e) FAILURE TO FILE REPORTS OR INFORMATION.—Section 219(b) of
the Act (47 U.S.C. 219(b)) is amended by striking "$100" and insert­
ing "$1,200".
(f) RECORDKEEPING FAILURES.—Section 220(d) of the Act (47 U.S.C.
220(d)) is amended by striking "$500" and inserting "$6,000".
(g) NoNCOMPUANCE WiTH SHIPBOARD RADIO REQUIREMENTS.—Sec­
tion 364 of such Act (47 U.S.C. 362) is amended—
(1) by striking "$500" in subsection (a) and inserting "$5,000";
and
(2) by striking "$100" in subsection (b) and mserting "$1,000".
(h) NONCOMPLIANCE WITH PASSENGER VESSEL RADIO REQUIRE­
MENTS.—Section 386 of such Act (47 U.S.C. 386) is amended—
(1) by striking "$500" in subsection (a) and inserting "$5,000";
and
(2) by striking "$100" in subsection (b) and inserting "$1,000".
(i) GENERAL FORFEITURES.—Subsection (b) of section 503 of the
Communications Act of 1934 (47 U.S.C. 503(b)) is amended—
(1) by inserting "(1)" after "(b)" at the beginning of such
subsection; and
(2) by striking paragraph (2) and inserting the following: 103 STAT. 2132 PUBLIC LAW 101-239—DEC. 19,1989
"(2XA) If the violator is (i) a broadcast station licensee or permit­
tee, (ii) a cable television operator, or (iii) an applicant for any
broadcast or cable television operator license, permit, certificate, or
other instrument or authorization issued by the Commission, the
– amount of any forfeiture penalty determined under this section
shall not exceed $25,000 for each violation or each day of a continu­
ing violation, except that the amount assessed for any continuing
violation shall not exceed a total of $250,000 for any single act or
failure to act described in par£igraph (1) of this subsection.
^ "(B) If the violator is a common carrier subject to the provisions of
this Act or an applicant for any common carrier license, permit,
certificate, or other instrument of authorization issued by the
Commission, the amount of any forfeiture penalty determined under
?' ^ t this subsection shall not exceed $100,000 for each violation or each
day of a continuing violation, except that the amount assessed for
any continuing violation shall not exceed a total of $1,000,000 for
any single act or failure to act described in paragraph (1) of this
subsection.
"(C) In any case not covered in subparagraph (A) or (B), the
amount of any forfeiture penalty determined under this subsection
shall not exceed $10,000 for each violation or each day of a continu­
ing violation, except that the amount assessed for any continuing
violation shail not exceed a total of $75,000 for any single act or
failure to act described in paragraph (1) of this subsection.
"(D) The amount of such forfeiture penalty shall be assessed by
the Commission, or its designee, by written notice. In determining
the amount of such a forfeiture penalty, the Commission or ite
designee shall take into account the nature, circumstances, extent,
and gravity of the violation and, with respect to the violator, the
degree of culpability, any history of prior offenses, ability to pay,
and such other matters as justice may require.".
Subtitle B—NRC User Fees
SEC. 3201. NRC USER FEES.
Section 7601 of the Consolidated Omnibus Budget Reconciliation
42 use 2213. Act of 1985 (COBRA) (Public Law 99-272) is amended to read as
follows:
"(1) IN GENERAL.—The Nuclear Regulatory Commission shall
assess and collect annual charges from its licensees on a fiscal
V year basis, except that—
"(A) the maximum amount of the aggregate charges
. v|| assessed pursucint to this paragraph in any fiscal year may
not exceed an amount that, when added to other amounts
'^ collected by the Commission for such fiscal year under
,. other provisions of law, is estimated to be equal to 33
percent of the costs incurred by the Commission with re­
spect to such fiscal year, except that for fiscal year 1990
such maximum amount shall be estimated to be equal to 45
percent of the costs incurred by the Commission for fiscal
year 1990; and
"(B) any such charge assessed pursuant to this paragraph
shall be reasonably related to the regulatory service pro­
vided by the Commission and shall fairly reflect the cost to
the Commission of providing such service. PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2133
"(2) ESTABLISHMENT OF AMOUNT BY RULE.—The amount of the
charges assessed pursuant to this p£u-agraph shall be estab­
lished by rule.".
TITLE IV—CIVIL SERVICE AND POSTAL
SERVICE PROGRAMS
SEC 4001. BUDGETARY TREATMENT OF THE POSTAL SERVICE FUND.
(a) TREATMENT OF THE POSTAL SERVICE FUND.—
(1) IN GENERAL.—Chapter 20 of title 39, United States Code, is
amended by inserting after section 2009 the following:
"§ 2009a. Budgetary treatment of the Postal Service Fund
"Notwithstanding any other provision of law, the receipts and
disbursements of the Postal Service Fund, including disbursements
for administrative expenses incurred in connection with the Fund—
"(1) shall not be included in the totals of—
"(A) the budget of the United States Government as
submitted by the President, or
"(B) the congressional budget (including allocations of
budget authority and outlays provided therein);
"(2) shall be exempt from any general budget limitation
imposed by statute on expenditures and net lending (budget
outlays) of the United Stat^ Government; and
"(3) i^iall be exempt from any order issued under part C of the
Balanced Budget and Emergency Deficit Control Act of 1985,
and shall not be counted for purposes of calculating the deficit
under section 3(6) of the Congressional Budget and Impound­
ment Control Act of 1974 for purposes of comparison with the
maximum deficit amount under the Balanced Budget and
Emergency Deficit Control Act of 1985 nor counted in calculat­
ing the excess deficit for purposes of sections 251 and 252 of the
Balanced Budget and Emergency Deficit Control Act of 1985, for
any fiscal year.".
(2) CHAPTER ANALYSIS.—The analysis for chapter 20 of title 39,
United States Code, is amended by inserting after the item
relatii^ to section 2(K)9 the following:
"2009a. Budgetary treatment of the Postal Service Fund."
(b) CONSTRUCTION.—Nothing in any amendment made by subsec­
tion (a) shall be considered to diminish the oversight responsibilities
or authority of. the Congress under law, rule, or regulation with
respect to the budget and operations of the United States Postal
Service.
(c) APPUCABIUTY.—^The amendments made by this section shall
apply with respect to budgets for fiscal years beginning after
September 30,1989.
SEC 4002. FUNDING OF COST-OF-LIVING ADJUSTMENTS FOR CERTAIN
POSTAL SERVICE ANNUITANTS AND SURVIVOR ANNUITANTS.
(a) IN GENERAL.—Section 8348 of title 5, United States Code, is
amended by adding at the end the following:
"(mXD Notwithstanding any other provision of law, the United
Stat^ Postal Service shall be liable for that portion of any esti­
mated increase in the unfunded liability of the Fund which is 39 use 2009a
note.
39 use 2009a
note. 103 STAT. 2134 PUBLIC LAW 101-239—DEC. 19, 1989
attributable to any benefits payable from the Fund to former
employees of the Postal Service who first become annuitants by
reason of separation from the Postal Service on or after October 1,
1986, or to their survivors, or to the survivors of individuals who die
on or after October 1, 1986, while employed by the Postal Service,
when the increase results from a cost-of-living adjustment under
section 8340 of this title.
"(2) The estimated increase in the unfunded liability referred to in
paragraph (1) of this subsection shall be determined by the Office
after consultation with the Postal Service. The Postal Service shall
pay the amount so determined to the Office in 15 equal annual
installments with interest computed at the rate used in the most
recent valuation of the Civil Service Retirement System, and with
the first payment thereof due at the end of the fiscal year in which
the cost-of-living adjustment with respect to which the pasnnent
relates becomes effective.
"(3) In determining any amount for which the Postal Service is
liable under this subsection, the amount of the liability shall be
prorated to reflect only that portion of total service (used in comput­
ing the benefits involved) which is attributable to civilian service
performed after June 30,1971, as estimated by the Office.".
5 use 8348 note. (b) EFFECTIVE DATE; SIZE OF ANNUAL iNSTALLlifENTS TO FUND
EARUER COLAS; AnDrnoNAL AMOUNT INITIALLY PAYABLE.—
(1) EFFECTIVE DATE.—This section and the amendment made
by this section shall be effective as of October 1,1986.
(2) SIZE OF ANNUAL INSTALLMENTS TO FUND PREVIOUS YEARS'
COLAs.—Notwithstanding any provision of section 8348(m) of
title 5, United States Code (as added by subsection (a)), the
estimated increase in the unfunded liability referred to in
paragraph (1) of such section 8348(m) shall be payable based on
V annual installments equal to—
(A) $100,000 each, with respect to the cost-of-living adjust­
ment which took effect in fiscal year 1987;
< (B) $6,000,000 each, with respect to the costK)f-living
adjustment which took effect in fiscal year 1988; and
(C) $15,000,000 each, with respect to the cost-of-living
adjustment which took effect in fiscal year 1989.
(3) ^DITIONAL AMOUNT PAYABLE.—
(A) GENERALLY.—The first pasrment made under the
provisions of section 8348(m) of title 5, United States Code
(as added by subsection (a)) shall include, in addition to the
amount which would otherwise be payable at that time, an
, amount equal to the sum of any amounts which would have
been due under those provisions in any prior year if this
. section had been enacted before October 1,1986.
(B) COMPUTATION METHOD.—Subject to paragraph (2), the
additional amount payable under this paragraph shall be
computed in accord£ince with section 8348(m) of title 5,
United States Code (as added by subsection (a)), and shall
^ include interest. Interest on an amount—
(i) shall be computed at the rate used in the most
recent valuation of the Civil Service Retirement
System;
.^ (ii) shall accrue, and be compounded, annually; and
(iii) shall be computed for the period beginning on
the date by which such amount should have been paid PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2135
(if this section had been enacted before October 1,1986)
and ending on the date on which pa3mient is made.
SEC. 4003. FUNDING OF HEALTH BENEFIT PREMIUMS FOR SURVIVORS OF ^
EMPLOYEES AND FORMER EMPLOYEES OF THE POSTAL
SERVICE.
(a) GENERALLY.—Section 8906(gX2) of title 5, United States Code, is
amended by inserting "or for a survivor of such an individual or of
an individual who died on or after October 1, 1986, while employed
by the United States Postal Service," after "1986,".
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 5 use 8906 note.
shall take effect on October 1, 1989, and shall apply with respect to
amounts payable for periods beginning on or after that date.
SEC. 4004. POSTAL SERVICE PAYMENTS TO THE EMPLOYEES'COMPENSA­
TION FUND.
(a) AMENDMENT.—Section 2003 of title 39, United States Code, is
amended by adding at the end the following:
"(g) Notwithstanding any provision of section 8147 of title 5, ,
whenever the Secretary of Labor furnishes a statement to the Postal
Service indicating an amount due from the Postal Service under
subsection (b) of that section, the Postal Service shall make the
deposit required pursuant to that statement (and any additional
pajonent under subsection (c) of that section, to the extent that it
relates to the period covered by such statement) not later than 30
days after the date on which such statement is so furnished. Any
deposit (and any additional payment) which is subject to the preced­
ing sentence shall, once made, remain available without fiscal year
limitation.".
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 39 use 2003
shall take effect on October 1,1989. note.
SEC. 4005. PARTIAL DEFERRED PAYMENT OF LUMP-SUM CREDIT FOR 5 USC 8343a
CERTAIN INDIVIDUALS ELECTING ALTERNATIVE FORMS OF note.
ANNUITIES.
(a) IN GENERAL.—Notwithstanding any other provision of law, and
except as provided in subsection (c), any lump-sum credit payable to
an employee or Member pursuant to the election of an alternative
form of annuity by such employee or Member under section 8343a or
section 8420a of title 5, United States Code, shall be paid in accord-
£ince with the schedule, under subsection (b) (instead of the schedule
which would otherwise apply), if the commencement date of the
annuity payable to such employee or Member occurs after December
2,1989, and before October 1,1990.
(b) SCHEDULE OF PAYMENTS.—The schedule of pa3rment of any
lump-sum credit subject to this section is as follows:
(1) 50 percent of the lump-sum credit shall be payable on the
date on which, but for the enactment of this section, the full
amount of the lump-sum credit would otherwise be payable.
(2) The remainder of the lump-sum credit shall be payable on
the date which occurs 12 months after the date described in
paragraph (1).
An amount payable in accordance with paragraph (2) shall be
payable with interest, computed using the rate under section
8334(eX3) of title 5, United States Code.
(c) EXCEPTIONS.—The Office of Personnel Management shall pre- Regulations,
scribe regulations to provide that, unless the individual involved 103 STAT. 2136 PUBLIC LAW 101-239—DEC. 19, 1989
indicates otherwise by written notice to the Office (submitted at
such time and in such manner as the r^ulations may require), this
section shall not apply—
(1) in the case of any individual who is separated from
Government service involuntarily, other than for cause on
chaii^es of misconduct or delinquency; and
(2) in the case of any individual as to whom the application of
this section would be against equity and good conscience, due to
a life-threatening affliction or other critical medical condition
afTecting such individual.
(d) ANNUITY BENEFITS NOT AFFECTED.—Nothing in this section
shall affect the commencement date, the amount, or any other
a^»ect of any annuity benefits payable under section 8343a or
section 8420a of title 5, United States Code.
(e) DEFINITIONS.—For purposes of this section, the terms "lump­
sum credit", "employee , and "Member" each has the meaning
given such term by section 8331 or section 8401 of title 5, United
States Code, as appropriate.
SEC 4006. COORDINATION.
For purposes of section 202 of the Balanced Budget and Emer­
gency Deficit ReafBrmation Act of 1987 (2 U.S.C. 909), any transfer
resulting from any provision of this title or any of the amendments
made by this title is a necessary G>ut secondary) result of a signifi­
cant policy change (within the meaning of section 202(b) of such
Act).
TITLE V—VETERANS PROGRAMS
SEC 5001. EXTENSION OF LOAN FEE.
Section 1829(c) of title 38, United States Code, is amended by
striking out "September 30, 1989" and inserting in lieu thereof
"September 30,1990".
SEC 5002. POSTPONEMENT OF RESTRICTIONS ON WITHOUT-RECOURSE
VENDEE LOAN SALES.
Section 1833(aX3) of title 38, United States Code, is amended by
striking out "October 1,1989" each place it appears and inserting in
lieu thereof "October 1,1990".
SEC 5003. PROCEEDS OF VENDEE LOAN SALES.
(a) IN GENERAL.~Section 1833 of title 38, United States Code, is
amended by adding at the end the following new subsection:
"(e) Notwithstanding any other provision of law, the amount
received firom the sale of any note evidencing a loan secured by real
property described in subsection (aXD of this section shall be cred-
ited, without any reduction and for the fiscal year in which the
amount is received, as ofTsetting collections of—
"(1) the revolving fund ror which a fee under section 1829 of
this title was collected (or was exempted from being collected) at
the time of the original guaranty of the loan that was secured
by the same propei^ or
"(2) in any case m which there was no requirement of (or
exemption from) a fee at the time of the original guaranty of the
V loan that was secured by the same property, the Loan Guaranty
Revolving Fund; and note. PUBLIC LAW 101-239—DEC. 19,1989 103 STAT. 2137
the total so credited to any revolving fund for a fiscal year shall
offset outlays attributed to such revolving fund during such fiscal
year.".
(b) EFFECTIVE DATE.—Subsection (e) of section 1833 of title 38, 38 use 1833
United States Code, as added by subsection (a), shall apply with
respect to amounts referred to in such subsection (e) received on or
after October 1,1989.
TITLE VI—MEDICARE, MEDICAID, MATER­
NAL AND CHILD HEALTH, AND OTHER
HEALTH PROVISIONS
TABLE OF CONTENTS OF TITLE
Subtitle A—Medicare •'
Part 1—^Provisions Relating to Part A
Subpart A—General Provisions
Sec. 6001. Extension of reductions under original sequester order and applicability
of new sequester order.
Sec. 6002. Reduction in payments for capital-related costs of inpatient hospital serv­
ices for fiscal year 1990.
Sec. 6003. Prospective payment hospitals.
Sec. 6004. PP&exempt hospitals.
Sec. 6005. Payments for hospice care.
Subpart B—Technical and Miscellaneous Provisions
Sec. 6011. Pass through payment for hemophilia inpatients.
Sec. 6012. Medicare buy-in for continued benefits for disabled individuals.
Sec. 6013. Buy-in under part A for qualified medicare beneficiaries.
Sec. 6014. PROPAC study on medicare dependent hospitals.
Sec. 6015. Provisions relating to taiget amount adjustments.
Sec. 6016. Study of methods to compensate hospices for high-cost care.
Sec. 6017. Prohibition on nursing home balance billing.
Sec. 6018. Hospital anti-dumping provisions.
Sec. 6019. Release and use of hospital accreditation surveys.
Sec. 6020. Intermediate sanctions for psychiatric hospitals.
Sec. 6021. Eligibility of meiged or consolidated hospitals for periodic interim
payments.
Sec. 6022. Extension of waiver for Finger Lakes Area Hospital Corporation.
Sec. 6023. Clarification of continuation of August 1987 hospital bad debt recognition
policy.
Sec. 6024. Use of more recent data regarding routine service costs of skilled nursing
facilities.
Sec. 6025. Permitting dentist to serve as hospital medical director.
Sec. 6026. GAO study of hospital-based and freestanding skilled nursing facilities.
Sec. 6027. Ma^achusetts medicare repayment.
Sec. 6028. Allowing certifications and recertifications by nurse practitioners and
clinical nurse specialists for certain services.
Part 2—Provisions Relating to Part B
Subpart A—General Provisions
Sec. 6101. Extension of reductions under sequester order.
Sec. 6102. Physician payment reform.
Sec. 6103. Establishment of Agency for Health Care Policy and Research.
Sec. 6104. Reduction in payments for certain procedures.
Sec. 6105. Reduction in payments for radiology services.
Sec. 6106. Anesthesia services.
Sec. 6107. Delay in update and reduction in percentage increase in the medicare
economic index.
Sec. 6108. Miscellaneous provisions relating to payment for physicians' services.
Sec. 6109. Waiver of liability limiting recoupment in certain cases.
Sec. 6110. Reduction in capital payments for outpatient hospital services. 103 STAT. 2138 PUBLIC LAW 101-239—DEC. 19, 1989
Sec. 6111. Clinical diagnostic laboratory tests.
Sec. 6112. Durable medical equipment. '•• .. V;
Sec. 6113. Mental health services.
Sec. 6114. Coverage of nurse practitioner services in nursing facilities.
Sec. 6115. Coverage of screemng pap smears.
Sec 6116. Coverage under, and payment for, outpatient rural primary care hospital
services under part B.
Subpart B—^Technical and Miscellaneous Provisions
Sec. 6131. Modification of payment for therapeutic shoes for individuals with severe
diabetic foot dis^ise.
Sec. 6132. Payments to certified registered nurse anesthetists.
Sea 6133. Increase in payment limit for physical and occupational therapy services.
Sec 6134. Study of payment for portable x-ray services.
Sec 6135. Extension (rf'municipcu health service demonstration projects.
Sec 6136. Study of reimbursement for ambulance services.
Sec 6137. PROPAC study of payments for services in hospital outpatient
departments.
Sec 6138. PhysPRC study of payments for assistants at surgery.
Sec 6139. GAO study of standards for use of and payment for items of durable
medical equipment.
Sec 6140. Narrowing equipment.
Sec 6141. niysician cffice labs.
Sec 6142. Study of reimbursement for blood clotting factor for hemophilia patients.
Part 3—^Provisions Relating to Parts A and B
Subpart A—General Provisions
Sec 6201. Reductions under original sequester order and applicability of new se­
quester order for health maintenance organizations.
Sec 6202. Medicare as secondary payer.
Sec 6203. Payinent for end stage renal disease services.
Sec 6204. Physician ownership of, and referral to, health care entities.
Sec 6205. Costs of nursing and allied health education.
Sec 6206. Disclosure of assumptions in establishing AAPCC; elimination of coordi­
nated open enrollment requirement.
Sec 6207. Extension of expiring authorities.
Subpart B—Technical and Miscellaneous Provisions
Sec 6211. Medicare hospital patient protection amendments.
Sec 6212. Health maintenance organizations and competitive medical plans.
Sec 6213. Rural health clinic services.
Sec 6214. Determining eligibility of home health agencies for waiver of liability for
denied claims.
Sec 6215. Extension of authority to contract with fiscal intermediaries and carriers
on other than a cost basis.
Sec 6216. Expansion of rural health medical education demonstration project
Sec 6217. IrmerSec 6218. GAO study of administrative costs of medicare pn^ram.
Sec 6219. Provisions relating to end stage renal disease services.
Sec 6220. Amendments delating to the United States Bipartisan Coirmussion on
Comprehensive Health Care.
Sec 6221. National Commission on Children.
Sec 6222. Continued use of home health wage index in effect prior to July 1,1989,
until after July 1,1990.
Sec 6223. HCFA persormel study.
Sec. 6224. Peer review organizations.
Part 4—Part B Premium
Sec. 6301. Part B premium.
Subtitle B—Medicaid ^
Parti—General Provisions
Sec. 6401. Mandatory coverage of certain low-income pregnant women and
children.
Sec. 6402. Payment for obstetrical and petUatric services.
Sec. 6403. Early and periodic screening, diagnostic, and treatment services defined.
Sec. 6404. Payment for federally qualified health center services. PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2139
Sec. 640S. Required coverage of nmse practitioner services.
Sec. 6406. Required medicaid notioe and coordination with special supplemental
food program Cor women, infants, and children (WIC9.
Sec. 6407. Danonstratifm prcgects to study the effect of allowing States to extend
medicaid to pregnant wnnen and children not otherwise qualified to re­
ceive medicaid benefits.
Sec. 6408. Other medicaid int>visiPart 2—Technical and A£scellaneous Provisions
Sec. 6411. Ifiscellaneous medicaid technical amendments.
Subtitle C—^Maternal and CSuld Health Block Grant Prc^^ram
Sec. 6501. Increase in authorization of appropriations.
Sec 6502. AUotmoits to State and Federal set^sides.
Sec. 6503. Use of allotment funds and application for block grant fimds.
Sea 6504. Reports.
Sec. 6505. Federal administration and assistance. ~^ '•'" _
Sec 6506. DevelSec 6507. Researdi on infimt mortidity and medicaid services.
Sec 6508. Demonstration imgect on health insurance for medically uninsurable
children.
Sec 6509. Maternal and child health handbook.
Sec 6510. Effective dates.
Subtitle D—Vaccine Compensation Technicals
Sec 6601. Vaccine injury compensation technicals.
Sec 6602. Serorability.
. V Subtitle E—Proviaons With Respect to COBRA Continuation Coverage
Part 1—Extension <^ Coverage for Disabled Employees
Sec 6701. Eztenraon, under Internal Revenue Code, of coverage from 18 to
29 months for those with a disability at time of termination <^ *'
onploymeni.
Sec 6702. Extension, under Public Healtii Service Act, of coverage from 18 to
29 montiis for those with a disability at time of termination of
employment.
Sec 6703. Extension, under ERISA, (^coverage from 18 to 29 months for those with
a disability at time ci employment.
Part 2—^Miscdlaneous Amendments
Sec 6801. Public Health Service Act
Subtitle F—Technical and Miscellaneous Provisions Relating to Nursing Home
Reform
Sec 6901. Medicare and medicaid technical corrections relating to nursing home
.^ reform.
Subtitle G—Public Health Service Act
Sec 6911. Establishment (rf Agency for Health Care Poli<7 and Research.
Subtitle A—Medicare
PART 1—PROVISIONS RELATING TO PART A
Subpart A—General Provisions
SEC 6001. EXTENSION OF REDUCTIONS UNDER ORIGINAL SEQUESTER 2 USC 902 note.
ORDER AND APPLICABILITY OF NEW SEQUESTER ORDER.
Notwithstanding any other provision of law (including section
11002 or any other provision of this Act, other than section 6201), 103 STAT. 2140 PUBLIC LAW 101-239—DEC. 19, 1989
Rural Eireas.
Urban areas.
42 use 1395ww
note.
42 use 1395WW
note. the reductions in the amount of payments required under title
XVIII of the Social Security Act made by the final sequester order
issued by the President on October 16, 1989, pursuant to section
252(b) of the Balanced Budget and Emergency Eteficit Control Act of
1985 shall continue to be effective (as provided by sections
252(aX4XB) and 256(dX2) of such Act) through December 31, 1989,
with respect to payments for items and services under part A of
such title (including payments under section 1886 of such title
attributable or allocated to such part). Each such payment made for
items and services provided during fiscal year 1990 after such date
shall be incresised by 1.42 percent above what it would otherwise be
under this Act.
SEC. 6002. REDUCTION IN PAYMENTS FOR CAPITAL-RELATED COSTS OF
INPATIENT HOSPITAL SERVICES FOR FISCAL YEAR 1990.
Section 1886(gX3XA) of the Social Security Act (42 U.S.C.
1395ww(gX3XA)) is amended—
(1) in clause (iii), by striking "and";
(2) in clause (iv), by striking the period at the end and
inserting ", and"; and
(3) by adding at the end the following new clause:
"(v) 15 percent for payments attributable to portions of cost
reporting periods or discharges (as the case may be) occurring
during the period beginning January 1, 1990, and ending
September 30,1990.".
SEC. 6003. PROSPECTIVE PAYMENT HOSPITALS.
(a) CHANGES IN HOSPITAL UPDATE FACTORS.—
(1) IN GENERAL.—Section 1886(bX3XBXi) of the Social Security
Act (42 U.S.C. 1395ww(bX3XBXi)) is amended—
(A) by striking "and" at the end of subclause (IV),
(B) in subclause (V), by striking "1990" and inserting
"1991" and redesignating such subclause as subclause (VI),
and
(C) by inserting after subclause (IV) the following new
subclause:
"(V) for fiscal year 1990, the market basket percentage in­
crease plus 4.22 percentage points for hospitals located in a
rural area, the market basket percentage increase plus 0.12
percentage points for hospitals located in a large urban area,
and the market basket percentage increase minus 0.53 percent­
age points for hospitals located in other urban areas, and".
(2) EFFECTIVE DATE.—The amendments made by paragraph (1)
shall apply to payments for discharges occurring on or after
January 1,1990.
(3) INDEXING OF FUTURE APPUCABLE PERCENTAGE INCREASES.—
For discharges occurring on or after October 1, 1990, the ap­
plicable percentage increase (described in section 1886(bX3XB) of
the Social Security Act) for discharges occurring during fiscal
year 1990 is deemed to have been such percentage increase as
amended by paragraph (1).
(b) REDUCTION IN DRG WEIGHTING FACTORS FOR FISCAL YEAR 1990;
FUTURE ANNUAL RECALIBRATION OF DRG WEIGHTS ON BUDGET-
NEUTRAL BASIS.—Section 1886(dX4XC) of such Act (42 U.S.C.
1395ww(dX4XC)) is amended—
(1) by striking "(C)" and inserting "(CXi)"; and
(2) by adding at the end the following new clauses: PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2141
"(ii) For discharges in Hscal year 1990, the Secretary shall reduce
the weighting factor for each diagnosis-related group by 1.22
percent.
"(iii) Any such adjustment under clause (i) for discharges in a
fiscal year Gieginning with fiscal year 1991) shall be made in a
manner that assures that the aggregate pa3rments under this subsec­
tion for discharges in the fiscal year are not greater or less than
those that would have been made for discharges in the year without
such adjustment.
"(iv) The Secretary shall include recommendations with respect to Reports,
adjustments to weighting factors under clause (i) in the annual
report to Congress required under subsection (eX3XB).".
(c) INCREASE IN DISPROPORTIONATE SHARE ADJUSTMENT.—
(1) CHANGE IN FORMULA.—Section 1886(dX5XF) of such Act (42
U.S.C. 1395ww(dX5XF)) is amended—
(A) in clause (ivXD, by striking "the following formula"
and all that follows through "(as defined in clause (vi));"
and inserting "the applicable formula described in clause
(vii);", and
(B) by adding at the end the following new clause:
"(vii) The formula used to determine the disproportionate share
adjustment percentage for a cost reporting period for a hospital
described in clause (iv)(I) is—
"(I) in the case of such a hospital with a disproportionate
patient percentage (as defined in clause (vi)) greater than 20.2,
(P-20.2X.65)+5.62,or
"(II) in the case of any other such hospital, (P-15X.6)+2.5,
where *P' is the hospital's disproportionate patient i)ercentage (as
defined in clause (vi)).".
(2) TREATMENT OP RURAL HOSPITALS FOR DISPROPORTIONATE
SHARE CALCULATION.—Section 1886(dX5XF) of such Act (42 U.S.C.
1395ww(dX5XF)), as amended by paragraph (1), is amended—
(A) in clause (iv)—
(i) in subclause (II), by striking "or",
(ii) in subclause (III), by inserting "in subclause (TV)
or (V) or" after "described",
(iii) by striking the period at the end of subclause (III)
and inserting a semicolon, and
(iv) by adding at the end the following new
subclauses:
"(IV) is located in a rural area, is classified as a rural referral
center under subparagraph (C), and is classified as a sole
community hospital under subparagraph (D), is equal to 10
percent or, if greater, the percent determined in accordance
with the applicable formula described in clause (viii);
"(V) is located in a rural area, is classified as a rural referral
center under subparagraph (C), and is not classified as a sole
community hospital under subparagraph (D), is equal to the
percent determined in accordance with the applicable formula
described in clause (viii); or
"(VI) is located in a rural area, is classified as a sole commu­
nity hospital under subparagraph (D), and is not classified as a ^
rural referral center under subparagraph (C), is 10 percent.",
(B) in clause (v)—
(i) in subclause (III), by striking "area" and inserting
"area and is not described in subclause (II)", 103 STAT. 2142 PUBLIC LAW 101-239—DEC. 19, 1989
42 use 1395WW
note.
42 use 1395WW
note. (ii) by redesignating subclauses (II) and (III) as
, . : ^ subclauses (III) and (IV), and
(iii) by inserting after subclause (I) the following new
subclause:
"(II) 30 percent, if the hospital is located in a rural area and
has more than 100 beds, or is located in a rural area and is
classified as a sole community hospital under subparagraph
(D),", and
(C) by adding at the end the following new clause:
"(viii) The formula used to determine the disproportionate share
adjustment percentage for a cost reporting period for a hospital
described in clause (ivXIV) or (ivXV) is the percentage determined in
accordance with the following formula: (P-30X.6)+4,0, where 'P' is
the hospital's disproportionate patient percentage (as defined in
clause (vi)).".
(3) INCREASE FOR HOSPITALS WITH DISPROPORTIONATE INDIGENT
CARE REVENUES.—Section 1886(dX5XFXiii) of such Act (42 U.S.C.
1395ww(dX5XFXiii)) is amended by striking "25 percent" and
inserting "30 percent".
(4) EFFECTIVE DATE.—The amendments made by this subsec­
tion shall apply with respect to discharges occurring on or after
April 1,1990.
(d) EXTENSION OF REGIONAL REFERRAL CENTER CLASSIFICATION.—
Any hospital that is classified as a regional referral center under
section 1886(dX5)(C) of the Social Security Act as of September 30,
1989, including a hospital so classified as a result of section
9302(dX2) of the Omnibus Budget Reconciliation Act of 1986, shall
continue to be classified as a regional referral center for cost
reporting periods beginning on or after October 1, 1989, and before
October 1,1992.
(e) CRITERIA AND PAYMENT FOR SOLE (DOMMUNITY HOSPITALS.—
(1) IN GENERAL.—(A) Section 1886(dX5) of the Social Security
Act (42 U.S.C. 1395ww(dX5)) is amended—
(i) by transferring clause (iv) of subparagraph (C) to the
end and by redesignating it as subparagraph (H),
(ii) by transferring clause (iii) of subparagraph (C) to the
end and by redesignating it as subparagraph (I),
(iii) in subparagraph (D), by striking "(DXi)" and inserting
"(EXi)",and
(iv) by amending clause (ii) of subparagraph (C) to read as
follows:
"(DXi) For any cost reporting period beginning on or after April 1,
1990, with respect to a subsection (d) hospital which is a sole
community hospital, payment under paragraph (IXA) shall be—
"(I) an amount based on 100 percent of the hospital's target
amount for the cost reporting period, as defined in subsection
^t" a)X3XC),or
"(II) the amount determined under paragraph (IXAXiii),
whichever results in greater payment to the hospital.
"(ii) In the case of a sole community hospital that experiences, in a
cost reporting period compared to the previous cost reporting period,
a decrease of more than 5 percent in its total number of inpatient
cases due to circumstances beyond its control, the Secretary shall
provide for such adjustment to the pajonent amounts under this
subsection (other than under paragraph (9)) as may be necessary to
fully compensate the hospital for the fixed costs it incurs in the PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2143
period in providing inpatient hospital services, including the reason­
able cost of maintaining necessary core staff and services,
"(iii) The term 'sole community hospital' means any hospital—
"(I) that the Secretary determines is located more than 35
road miles from another hospital, or
"(11) that, by reason of factors such as the time required for an
individual to travel to the nearest alternative source of appro­
priate inpatient care (in accordance with standards promul­
gated by the Secretary), location, weather conditions, travel
conditions, or absence of other like hospitals (as determined by
the Secretary), is the sole source of inpatient hospital services
reasonably available to individuals in a geographic area who
are entitled to benefits under part A.
"(iv) The Secretary shall promulgate a standard for determining
whether a hospital meets the criteria for classification as a sole
community hospital under clause (iii)(II) because of the time re­
quired for an individual to travel to the nearest alternative source of
appropriate inpatient care.". '
(B) Section 1886(bX3) of such Act (42 U.S.C. 1395ww(bX3)) is
amended—
(i) in subparagraph (A), by striking "(A) For purposes of
this subsection" and inserting "(A) Except as provided in
subparagraph (C), for purposes of this subsection", and
(ii) by adding at the end the following new subparagraph:
"(C) In the case of a hospital that is a sole community hospital (as
defined in subsection (dX5XDXiii)), the term 'target amount' means—
"(i) with respect to the first 12-month cost reporting period in
which this subparagraph is applied to the hospital—
"(I) the allowable operating costs of inpatient hospital
services (as defined in subsection (aX4)) recognized under
this title for the hospital for the 12-month cost reporting
period (in this subparagraph referred to as the 'base cost
reporting period') preceding the first cost reporting period
for which this subsection was in effect with respect to such
hospital, increased (in a compounded manner) by—
"(II) the applicable percentage increases applied to such
hospital under this paragraph for cost reporting periods
after the base cost reporting period and up to and including
such first 12-month cost reporting period, or
"(ii) with respect to a later cost reporting period, the target
amount for the preceding 12-month cost reporting period, in­
creased by the applicable percentage increase under subpara­
graph (BXi) for discharges occurrii^ in the fiscal year in which
that later cost reporting period begins.
There shall be substituted for the base cost reporting period de­
scribed in clause (i) a hospital's cost reporting period (if any) begin­
ning during fiscal year 1987 if such substitution results in an
increase in the tai^et amount for the hospital.".
(2) CONFORMING AMENDMENTS.—Such Act is further
amended—
(A) in section 1833(hXlXD), by striking "the last sentence 42 use 1395/.
of section 1886(dX5XCXii)" and inserting "section
1886(dX5XDXiii)";
-3. (B) in section 1886(dX5XCXi)— 42usci395ww.
(i) by striking "(CXiXI)" and inserting "(CXi)", and 103 STAT. 2144 PUBLIC LAW 101-239—DEC. 19, 1989
42 use 1395WW.
42 use 1395WW
note. f . (ii) by redesignating subclause (II) as clause (ii) and
by striking "subclause (I)" each place it appears in such
Clause and inserting "clause (i)";
(C) in section 1886(dX9XBXiiXIV), by striking "(DXv)" and
inserting "(DXiii)";
(D) in section 1886(dX9XD)— zrC
(i) by striking clause (iv),
(ii) by transferring clause (iii) to the end and re­
designating it as clause (iv), and by striking "(CXiii)"
and inserting "(H)", and
(iii) by redesignating clause (v) as clause (iii); and
(E) in section 1886(gX3XB), by striking "(dX5XCXii)" and
inserting "(dXSXDXiii) .
(3) CONTINUATION OF SOLE COMMUNITY HOSPITAL DESIGNATION
FOR CURRENT SOLE COMMUNITY HOSPITALS.—Any hospital classi­
fied as a sole community hospital under section 1886(dX5XC)(ii)
of the Social Security Act on the date of the enactment of this
Act that will no longer be classified as a sole community
hospital after such date as a result of the amendments made by
paragraph (1) shall continue to be classified as a sole community
hospital for purposes of section 1886(dX5XD) of such Act.
(f) CRITERIA AND PAYMENT FOR MEDICARE-DEPENDENT, SMALL
RURAL HOSPITALS.—
(1) CRITERIA.—Section 1886(dX5) of the Social Security Act (42
U.S.C. 1395ww(dX5)), as amended by subsection (eXlXA), is fur­
ther amended by inserting after subparagraph (F) the following
new subparagraph:
"(GXi) For any cost reporting period beginning on or after April 1,
1990, and ending on or before March 31, 1993, with respect to a
subsection (d) hospital which is a medicare-dependent, small rural
hospital, payment under paragraph (IXA) shall be—
"(I) an amount based on 100 percent of the hospital's target
amount for the cost reporting period, as defined in subsection
(bX3XD), or
"(II) the amount determined under paragraph (IXAXiii),
whichever results in the greater payment to the hospital.
"(ii) In the case of a m^icare dependent, small rural hospital that
experiences, in a cost reporting period compared to the previous cost
reporting period, a decrease of more than 5 percent in its total
number of inpatient cases due to circumstances beyond its control,
the Secretary shall provide for such adjustment to the pa3nnent
amounts under this subsection (other than under paragraph (9)) as
may be necessary to fully compensate the hospital for the fixed costs
it incurs in the period in providing inpatient hospital services,
including the reasonable cost of maintaining necessary core staff
and services.
"(iii) The term 'medicare-dependent, small rursd hospital' means,
with respect to any cost reporting period to which clause (i) applies,
any hospital—
"(I) located in a rural area, '
"(II) that has not more than 100 beds,
"(III) that is not classified as a sole community hospital under
subparagraph (D), and
"(IV) for which not less than 60 percent of its inpatient days
or discharges during the cost reporting period beginning in
fiscal year 1987 were attributable to inpatients entitled to bene­
fits under part A.". PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2145
(2) PAYMENT.—Section 1886(bX3) of such Act (42 U.S.C. j
1395ww(bX3)), as amended by subsection (eXlXB), is further
amended—
(i) in subparagraph (A), by striking "subparagraph (C)"
and inserting "subparagraphs (C) and (D)", and
(ii) by adding at the end the following new subparagraph:
"(D) For cost reporting periods ending on or before March 31,
1993, in the case of a hospital that is a medicare-dependent, small
rural hospital (as defined in subsection (dX5XG)), the term 'target
amount' means—
"(i) with respect to the first 12-month cost reporting period in
which this subparagraph is applied to the hospital—
"(I) the allowable operating costs of inpatient hospital
services (as defined in subsection (aX4)) recognized under
this title for the hospital for the 12-month cost reporting
period (in this subparagraph referred to as the 'base cost
reporting period') preceding the first cost reporting period
for which this subsection was in effect with respect to such
hospital, increased (in a compounded manner) by—
"(II) the applicable percentage increases applied to such
hospital under this paragraph for cost reporting periods
after the base cost reporting period and up to and including
such first 12-month cost reporting period, or
"(ii) with respect to a later cost reporting period, the target
amount for the preceding 12-month cost reporting period, in­
creased by the applicable percentage increase under subpara­
graph (BXi) for discharges occurring in the fiscal year in which
that later cost reporting period begins.
There shall be substituted for the base cost reporting period de­
scribed in clause (i) a hospital's cost reporting period (if any) begin­
ning during fiscal year 1987 if such substitution results in an
increase in the target amount for the hospital.",
(g) ESSENTIAL ACCESS COMMUNITY HOSPITAL PROGRAM.—
(1) ESTABLISHMENT OF PROGRAM.—
(A) IN GENERAL.—Part A of title XVIII of the Social
Security Act (42 U.S.C. 1395c et seq.) is amended by adding
at the end the following new section:
"ESSENTIAL ACCESS COMMUNITY HOSPITAL PROGRAM
42 use 1395i-4. "SEC. 1820. (a) IN GENERAL.—There is hereby established a pro- Grants.
gram under which the Secretary— S*®*® ^<* ^?^^
"(1) shall make grants to not more than 7 States to carry out ^°^^^^Si
the activities described in subsection (dXD;
"(2) shall make grants to eligible hospitals and facilities (or
consortia of hospitals and facilities) to carry out the activities
described in subsection (dX2); and
"(3) shall designate (under subsection (i)) hospitals and facili­
ties located in States receiving grants under paragraph (1) as
essential access community hospitals or rural primary care
hospitals.
"(b) ELIGIBILITY OP STATES FOR GRANTS.—A State is eligible to
receive a grant under subsection (aXD only if the State submits to
the Secretary, at such time and in such form as the Secretary may
require, an application containing—
"(1) assurances that the State— 103 STAT. 2146 PUBLIC LAW 101-239—DEC. 19, 1989
Communications
and
telecommunications.
Transportation. "(A) has developed, or is in the process of developing, a
State rural hesdth care plan that—
"(i) provides for the creation of one or more rural
, health networks (as defined in subsection (g)) in the
State,
"(ii) promotes regionalization of rursl health services
in the State,
"(iii) improves access to hospital and other health
services for rural residents of the State, and
"(iv) enhances the provision of emergency and other
transportation services related to health care;
"(B) has developed the rural health care plan described in
subparagraph (A) in consultation with the hospital associa­
tion of the State and rural hospitals located in the State (or,
in the case of a State in the process of developing such plan,
that assures the Secretary that it will consult with its State
hospital association and rural hospitals located in the State
in developing such plan); and
"(C) has designated, or is in the process of designating,
rural non-profit or public hospitals or facilities located in
the State as essential access community hospitals or rural
primary care hospitals within such networks; and
"(2) such other information and assurances as the Secretary
may require.
*(C) EUGIBIUTY OF HOSPITALS AND Ck)NSORTIA FOR GRANTS.—
"(1) IN GENERAL.—Except as provided in paragraph (3), a
hospital or facility is eligible to receive a grant under subsection
(aX2) only if the hospital or facility—
"(A) is located in a State receiving a grant under subsec­
tion (aXD;
"(B) is designated as an essential access community hos­
pital or a rural primary care hospital by the State in which
it is located or is a member of a rural health network (as
defined in subsection (g));
"(C) submits to the State in which it is located and to the
Secretary, at such time and in such form as the Secretary
may require, an application containing such information
and assurances as the Secretary may require; and
"(D) the State in which the hospital or facility is located
certifies to the Secretary that—
"(i) the receiving of such a grant by the hospital or
facility is consistent with the State's rural health care
plan (described in subsection (bXlXA)), and
"(ii) the State has approved the application submit­
ted under subparagraph (C).
"(2) TREATMENT OF CONSORTIA.—A consortium of hospitals or
facilities each of which is part of the same rural health network
is eligible to receive a grant under subsection (aX2) if each of its
members would individually be eligible to receive such a grant.
"(3) EUGIBIUTY OF RPC HOSPFFALS NOT LOCATED IN A STATE
RECEIVING GRANT.—A facility designated as a rural primary
care hospital by the Secretary under subsection (iX2XC) shall be
eligible to receive a grant under subsection (aX2).
'(d) ACTIVITIES FOR WHICH GRANTS MAY BE USED.—
"(1) GRANTS TO STATES.—A State shall use a grant received
under subsection (aXD to carry out the demonstration program
established under this section in the State. Such grant may be PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2147
used for engaging in activities relating to planning and im­
plementing a rural health care plan and rural health networks,
designating hospitals or facilities in the State as essential access
community hospitals or rural primary care hospitals, and devel­
oping and supporting communication and emergency transpor­
tation systems.
"(2) GRANTS TO HOSPITALS, FACILITIES, AND CONSORTIA.—A hos- : ^
pital or facility shall use a grant received under subsection (aX2)
to finance the costs it incurs in converting itself to a rural
primary care hospital or an essential access community hospital
or in becoming part of a rural health network in the State in
which it is located, including capital costs, costs incurred in the
development of necessary communications systems, and costs
incurred in the development of an emergency transportation
system. A consortium shall use a grant received under subsec­
tion (aX2) to finance the costs it incurs in converting hospitals or
facilities that are part of the consortium into rural primary care
hospitals or in developing and implementing a rural health
network consisting of its members in the State in which it is
located, including capital costs, costs incurred in the develop­
ment of necessary communications systems, and costs incurred
in the development of an emergency transportation system.
"(e) DESIGNATION BY STATE OF ESSENTIAL ACCESS COMMUNITY HOS­
PITALS.—A State may designate a hospital as an essential access
community hospital only if the hospital—
"(1) is located in a rural area (as defined in section
1886(dX2)(D));
"(2XA) is located more than 35 miles from any hospital that
either (i) has been designated as an essential access community
hospital, (ii) is classified by the Secretary as a rural referral
center under section 1886(dX5XC), or (iii) is located in an urban
area that meets the criteria for classification as a regional
referral center under such section, or (B) meets such other
criteria relating to geographic location as the State may impose
with the approval of the Secretary;
"(3) has at least 75 inpatient beds or is located more than 35
miles from any other hospital;
"(4) has in effect an agreement to provide emergency and Contracts,
medical backup services to rural primary care hospitals partici­
pating in the rural health network of which it is a member and
throughout its service area;
"(5) has in effect an agreement, with each rural primary care
hospital participating in the rural health network of which it is
a member, to accept patients transferred from such primary
care hospital, to receive data from and transmit data to such
primary care hospital, and to provide staff privileges to physi­
cians providing care at such primary care hospital; and
"(6) meets any other requirements imposed by the State with
the approval of the Secretary.
"(f) DESIGNATION BY STATE OF RURAL PRIMARY CARE HosprrAis.—
"(1) CRITERIA FOR DESIGNATION.—A State may designate a
facility as a rural primary care hospital only if the facility—
"(A) is located in a rural area (as defined in section
1886(dX2XD));
.4, "(B) at the time such facility applies to the State for
« . . designation as a rural primary care hospital, is a hospital
with a participation agreement in effect under section 103 STAT. 2148 PUBLIC LAW 101-239—DEC. 19,1989
Contracts.
Ck>miuunication8
and
telecommunications. 1866(a) and had not been found, on the basis of a survey
under section 1864, to be in violation of any requirement to
participate as a hospital under this title;
"(C) has ceased, or agrees (upon the approval of such
application) to cease, providing inpatient care (except as
required under subpar^aph (F));
(D) in the case of a facility that is a member of a rural
health network, has in effect an agreement to participate
with other hospitals and facilities in the communications
svstem of such network, including the network's system for
the electronic sharing of patient data, including telemetry
and medical records, if the network has in operation such a
sjrstem;
"(E) makes available 24-hour emergency care;
"(F) provides not more than 6 inpatient beds (meeting
such conditions as the Secretaiy may establish) for provid­
ing inpatient care for a period not to exceed 72 hours
(unless a longer period is required because transfer to a
hospital is precluded because of inclement weather or other
emergency conditions) to patients requiring stabilization
before discharge or transfer to a hospital;
"(G) meets such staffing requirements as would apply
under section 1861(e) to a hospital located in a rural area,
except that—
"(i) the facility need not meet hospital standards
relating to the number of hours during a day, or days
during a week, in which the facility must be open,
except insofar as the facility is required to provide
emergency care on a 24-hour basis under subparagraph
(E),
"(ii) the facility may provide any services otherwise
required to be provided by a full-time, on-site dietician,
pharmacist, laboratory technician, medical tech­
nologist, and radiological technologist on a part-time,
off-site basis, and
"(iii) the inpatient care described in subparagraph (F)
may be provided by a physician's assistant or nurse
practitioner, subject to the oversight of a physician; and
"(H) meets the requirements of subparagraphs (C)
through (J) of paragraph (2) of section 1861(aa) and of
clauses (ii) and (iv) of the second sentence of that
paragraph.
"(2) PREFERENCE GIVEN TO HOSPITALS OR FACIUTIES PARTICIPAT­
ING IN RURAL HEALTH NETWORK.—In designating facilities as
rural primary care hospitals under paragraph (1), the State
shall give preference to hospitals or facilities participating in a
rural health network.
"(3) PEaiMITTING RURAL PRIMARY CARE HOSPFFALS TO MAINTAIN
SWING BEDS.—Nothing in this subsection shall be construed to
prohibit a State from designating a facility as a rural primary
care hospital solely because the facility has entered into an
agreement with the Secretary under section 1883 under which
the facility's inpatient hospital facilities may be used for the
furnishing of extended ccu*e services.
"(g) RURAL HEALTH NETWORK DEFINED.—For purposes of this
section, the term 'rural health network' means, with respect to a
State, an organization— PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2149
"(1) consisting of—
"(A) at least 1 hospital that—
"(i) the State has designated or plans to designate as
an essential access community hospital under subsec­
tion (bXlXC),
"(ii) is classified by the Secretary as a rural referral
center under section 1886(dX5XC), or
"(iii) is located in an urban area and meets the
criteria for classification as a regional referral center
under such section, and
"(B) at least 1 facility that the State has designated or
plans to designate as a rurcd primary care hospital, and
"(2) the members of which have entered into agreements
regarding—
"(A) patient referral and transfer,
"(B) the development and use of communications systems,
including (where feasible) telemetry systems and systems
for electronic sharing of patient data, and
"(C) the provision of emergency and non-emergency
transportation among the members.
"(h) LIMIT ON AMOUNT OF GRANT TO HOSPITAL OR FACILITY.—A
grant made to a hospital or facility under subsection (aX2) may not
exceed $200,000.
"(i) EuGiBiuTY OF HOSPITALS OR FACILITIES FOR DESIGNATION BY
SECRETARY.—
"(1) ESSENTIAL ACCESS COMMUNITY HOSPITAL.—(A) The Sec­
retary shall designate a hospital as an essential access commu­
nity hospital if the hospital—
"(i) is located in a State receiving a grant under subsec­
tion (aXD;
"(ii) is designated as an essential access community hos­
pital by the State in which it is located (except as provided
in subparagraph (B)); and
"(iii) meets such other criteria as the Secretary may
require.
"(B) In the case of a hospital that is not eligible for designa­
tion as an essential access community hospital under this para­
graph solely because it is not designated as an essential access
community hospital by the State in which it is located, the
Secretary may designate such hospital as an essential access
community hospital under this paragraph if the hospital is not
so designated by the State in which it is located solely because
of its failure to meet the criteria described in paragraph (3) of
subsection (e).
"(2) RURAL PRIMARY CARE HOSPITAL.—(A) The Secretary shall
designate a facility as a rural primary care hospital if the
facility—
"(i) is located in a State receiving a grant under subsec­
tion (aXD;
"(ii) is designated as a rural primary care hospital by the
State in which it is located (except as provided in subpara-
j- graph (B)); and
"(iii) meets such other criteria as the Secretary may
require.
"(B) In the case of a facility that is not eligible for designation
as a rural primary care hospital under this paragraph solely
because it is not designated £U3 a rural primary care hospital by 103 STAT. 2150 PUBLIC LAW 101-239—DEC. 19, 1989
the State in which it is located, the Secretary may designate
such facility as a rural primary care hospital under this para­
graph if the facility is not so designated by the State in which it
is located solely because of its failure to meet the criteria
described in subparagraphs (C), (F), or (G) of subsection (fKD.
"(C) The Secretary may designate not more than 15 facilities
as rural primary care hospitals under this paragraph that do
not meet the requirements of clauses (i) and (ii) of subparagraph
(A) if such a facility meets the criteria described in subpara­
graphs (A), (B), and (E) of subsection (fKD, except that nothing in
this subparagraph shall be construed to prohibit the Secretary
from designating a facility £is a rural primary care hospital
solely because the facility has entered into an agreement with
the Secretary under section 1883 under which the facility's
inpatient hospital facilities may be used for the furnishing of
extended care services,
"(j) WAIVER OP CONFLICTING PART A PROVISIONS.—The Secretary
is authorized to waive such provisions of this part as are necessary
to conduct the program established under this section.
"(k) AUTHORIZATION OF APPROPRIATIONS.—There are authorized to
be appropriated from the Federal Hospital Insurance Trust Fund for
each of the fiscal years 1990,1991, and 1992—
"(1) $10,000,000 for grants to States under subsection (aXD;
and
"(2) $15,000,000 for grants to hospitals, facilities, and consor­
tia under subsection (aX2).".
(B) MODIFICATION OF RURAL HEALTH CARE TRANSITION
GRANT PROGRAM.—(i) Section 4005(e) of the Omnibus Budget
42 use 1395WW Reconciliation Act of 1987 is amended—
*^o*e. (I) in paragraph (1), by adding at the end the follow­
ing new sentence: "Grants under this paragraph may
be used to provide instruction and consultation (and
such other services as the Administrator determines
appropriate) via telecommunications to physicians in
such rural areas (within the meaning of section
1886(dX2XD) of the Social Security Act) as are des­
ignated either class 1 or class 2 health manpower
shortage areas under section 332(aXlXA) of the Public
Health Service Act.",
(II) in paragraph (3XA), by striking "an application to
the Governor" and inserting "an application to the
Administrator and a copy of such application to the
Governor",
(HI) in paragraph (3XB), by striking "any applica­
tion" and all that follows through "accompanied by"
and inserting "to the Administrator, within a reason­
able time after receiving a copy of an application
pursuant to subparagraph (A),",
(TV) in paragraph (6), by striking "2 years" and
inserting "3 years",
(V) in paragraph (7XA), by striking "(D)" and insert­
ing "(B)",
(VI) in paragraph (7XC), by striking the period at the
end and inserting the following: ", except that this
limitation shall not apply with respect to a grant used
for the purposes described in subparagraph (D).", PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2151
._^ (VII) by adding at the end of paragraph (7) the foUow-
mg new subparagraph:
"(D) A hospital may use a grant received under this subsec­
tion to develop a plan for converting itself to a rural primary
care hospital (as described in section 1820 of the Social Security
Act) or to develop a rural health network (as defined in section
1820(g) of such Act) in the State in which it is located if the
State is receiving a grant under section 1820(aXl).", and
(Vin) in paragraph (9), by striking "each of the fiscal
years 1989 and 1990" and inserting "fiscal year 1989
and $25,000,000 for each of the fiscal years 1990, 1991,
and 1992".
(ii) The amendments made by clause (i) shall apply with Effective date,
respect to applications for grants under the Rural Health 42 USC 1395ww
Care Transition Grant Program described in section 4005(e) ^***®-
of the Omnibus Budget Reconciliation Act of 1987 submit­
ted on or after October 1,1989, except that the amendments
made by subclauses (V) and (VII) of such clause shall take
effect on the date of the enactment of this Act.
(2) TREATMENT OF ESSENTIAL ACCESS C!oMMUNiTY HOSPITALS AS
SOLE COMMUNITY HOSPITALS.—Section 1886(dX5XD) of such Act
(42 U.S.C. 1395ww(dX5XD)) (as redesignated and amended by
subsection (eXlXA)) is further amended—
(A) in clause (iii)—
(i) in subclause (I), by striking "or",
(ii) in subclause (II), by striking the period at the end
and inserting ", or", and
(iii) by adding at the end the following new subclause:
"(III) that is designated by the Secretary as an essential
access community hospital under section 1820(iXl).", and
(B) by adding at the end the following new clause:
"(v) If the Secretary determines that, in the case of a hospital
designated by the Secretary as an essential access community hos­
pital under section 1820(iXl), the hospital has incurred increases in –
reasonable costs during a cost reporting period as a result of becom­
ing a member of a rural health network (as defined in section
1820(g)) in the State in which it is located, and in incurring such
increases, the hospital will increase its costs for subsequent cost
reporting periods, the Secretary shall increase the hospital's target
amount under subsection Ot)X3XC) to account for such incurred
increases.".
(3) COVERAGE OF, AND PAYMENT FOR, INPATIENT RURAL PRI­
MARY CARE HOSPITAL SERVICES.—
(A) DEFINITIONS.—Section 1861 of such Act (42 U.S.C.
1395x) is amended by adding at the end the following new
subsection:
"Rural Primary Care Hospital; Rural Primary Care Hospital
Services
"(mmXl) The term 'rural primary care hospital' means a facility
designated by the Secretary as a rural primary care hospital under
section 1820(iX2).
"(2) The term 'inpatient rural primary care hospital services'
means items and services, furnished to an inpatient of a rural
primary care hospital by such a hospital, that would be inpatient 103 STAT. 2152 PUBLIC LAW 101-239—DEC. 19, 1989
hospital services if furnished to an inpatient of a hospital by a
hospital.".
(B) COVERAGE AND PAYMENT.—(i) Section 1812(aXl) of
such Act (42 U.S.C. 1395d(aXl)), as restored by the Medicare
Catastrophic Coverage Repeal Act of 1989, is amended by
inserting "and inpatient rural primary care hospital serv­
ices" before the semicolon.
(ii) Section 1814(a) of such Act (42 U.S.C. 1395f(a)) is
amended—
(I) by striking "and" at the end of paragraph (6),
(II) by striking the period at the end of paragraph (7)
and inserting "; and", and
'V (III) by inserting after paragraph (7) the following
new paragraph:
"(8) in the case of inpatient rural primary care hospital
services, a physician certifies that such services were required
to be immediately furnished on a temporary, inpatient basis.".
– (iii) Section 1814 of such Act is further amended—
(I) in subsection (b), by inserting ", other than a rural
primary care hospital providing inpatient rural pri­
mary care hospital services," after "providing hospice
^ care", and
(II) by adding at the end the following new
subsection:
"Payment for Inpatient Rural Primary Care Hospital Services
"(IXD The amount of payment under this part for inpatient rural
primary care hospital services—
"(A) in the case of the first 12-month cost reporting period for
which the facility operates as such a hospital, is the reasonable
costs of the facility in providing inpatient rural primary care
hospital services during such period, as such costs are deter­
mined on a per diem basis, and
"(B) in the case of a later reporting period, is the per diem
pa3nnent amount established under this paragraph for the
preceding 12-month cost reporting period, increased by the
applicable percentage increase under section 1886(bX3XBXi) for
that particular cost reporting period applicable to hospitals
located in a rural area.
The payment amounts otherwise determined under this paragraph
shall be reduced, to the extent necessary, to avoid duplication of any
payment made under section 1820(aX2) (or under section 4005(e) of
the Omnibus Budget Reconciliation Act of 1987) to cover the provi­
sion of inpatient rural primary care hospital services.
"(2) The Secretary shall develop a prospective pajmient system for
determining pajnnent amounts for inpatient rural primary care
hospital services under this part furnished on or after January 1,
1993.".
(C) TREATMENT OF RURAL PRIMARY CARE HOSPITALS AS
^ ' , PROVIDERS OF SERViCES.^i) Section 1861(u) of such Act (42
U.S.C. 1395x(u)) is amended by inserting "rural primary
care hospital," after "hospital,".
^ ^ (ii) Section 1863 of such Act (42 U.S.C. 1395z) is amended
by striking "and (jjX3)" and inserting "(ijX3), and (mmXD".
(iii) The first sentence of section 1864(a) of such Act (42
U.S.C. 1395aa(a)) is amended by inserting ", a rural primary PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2153
care hospital, as defined in section 1861(mmXl)," after
"1861(aaX2)". N
(iv) The third sentence of section 1865(a) of such Act (42
U.S.C. 1395bb(a)) is amended by striking "or 1861(ddX2)"
and inserting "1861(ddX2), or 1861(mmXl)".
(D) CONFORMING AMENDMENTS,—such Act (42 U.S.C. 1320a-7a(bXl)) is amended by striking
"hospital" each place it appears and inserting "hospital or
a rural primary care hospital".
"^ (ii) Section 1128B(c) of such Act (42 U.S.C. 1320a-7b(c)) is
amended by inserting "rursd primary care hospital," after
"hospital,".
(iii) Section 1134 ofsuch Act (42 U.S.C.1320b-4) is amend- 3
ed by striking "hospitals" each place it appears and insert-
'•' ing "hospitals or rural primary care hospitals".
(iv) Section 1138(aXl) of such Act (42 U.S.C. 1320b-8(aXl))
is amended by striking "hospital" each place it appears in
the matter preceding clause (i) of subparagraph (A) and
inserting "hospital or rural primary care hospital".
(v) Section 1164(e) of such Act (42 U.S.C. 1320c-13(e)) is
amended by inserting "rural primary care hospitals," after
"hospitals,".
(vi) Section 1816(cX2XC) of such Act (42 U.S.C.
1395h(cX2XC)) is amended by inserting "rural primary care
hospital," after "hospital,".
(vii) Section 1833 of such Act (42 U.S.C. 13951) is
amended—
(I) in subsection (hX5XAXiii), by striking "hospital,"
each place it appears and inserting "hospital or rural
primary care hospital,";
(II) in subsection (iXlXA), by inserting ", rural pri­
mary care hospital," after "1832(aX2XFXi))";
Gil) in subjection (iX3XA), by inserting "or rural
primary care hospital services" after "facility
services";
(IV) in subsection (1X5XA), by inserting "rural pri­
mary care hospital," after "hospital," each place it
appears; and
(V) in subsection (1X5XC), by striking "hospital" each
place it appears and inserting "hospital or rural pri-
/ mary care hospital".
(viii) Section 1835(c) of such Act (42 U.S.C. 1395n(c)) is
amended by adding at the end the following: "A rural
primary c£ire hospital shall be considered a hospital for
purposes of this subsection.".
(ix) Section 1842(bX6XAXii) of such Act (42 U.S.C.
1395u(bX6XAXii)) is amended by inserting "rural primary
care hospital," after "hospital,".
(x) Section 1861 of such Act (42 U.S.C. 1395x) is
amended—
(I) in subsection (e), by adding at the end the
following:
"The term 'hospital' does not include, unless the context otherwise
requires, a rural primary care hospital (as defined in section
1861(mmXl)).".
(II) in subsection (wXD, by inserting "rural primary
care hospital," after "hospital,", and 103 STAT. 2154 PUBLIC LAW 101-239—DEC. 19, 1989
(III) in subsection (wX2), by striking "hospital" each
place it appears and inserting "hospital or rural pri­
mary care hospital",
(xi) Section 1862(aX14) of such Act (42 U.S.C. 1395y(aX14))
is amended by striking "hospital" each place it appears and
inserting "hospital or rural primary care hospital .
(xii) Section 1866(a)(1) of such Act (42 U.S.C. 1395cc(aXl))
is amended—
(I) in subparagraph (FXii), by inserting "rural pri-
'• • mary care hospitals, after "hospitals,";
' (II) in subparagraph (H), by inserting after "this
title" the first place it appears the following: "and in
the case of rural primary care hospitals which provide
rural primary care hospital services";
(III) in subparagraph (I), by inserting "and in the case
of a rural primary care hospital" after "hospitgd"; and
(IV) in subparagraph (N), by striking "hospitals" and
"hospital," and inserting "hospitals and rural primary
care hospitals" and "hospital or rural primary care
hospital, , respectively.
(xiii) Section 1866(aX3) of such Act (42 U.S.C. 1395cc(aX3))
is amended—
(I) by striking "hospital," each place it appears in
,, subparagraphs (A) and (B) and inserting hospital,
rured primary care hospital,", and
(II) in subparagraph (CXii)(II), by striking "facilities"
each place it appears and inserting "facilities, rural
primary care hospitals,".
(xiv) Section 1867(e) of such Act (42 U.S.C. 1395dd(e)) is
amended by adding at the end the following new
paragraph:
"(6) The term 'hospital' includes a rural primary care hospital
(as defined in section 1861(mmXl)).".
(4) AVOIDING DUPUCATIVE PAYMENTS TO HOSPITALS PARTICIPAT­
ING IN RURAL HEALTH CARE TRANSITION GRANTS.—Section 1886 of
the Social Security Act (42 U.S.C. 1395ww) is amended by
adding at the end the following new subsection:
"(i) AVOIDING DUPUCATIVE PAYMENTS TO HOSPITALS PARTICIPATING
IN RURAL DEMONSTRATION PROGRAMS.—The Secretary shall reduce
any pa3mient amounts otherwise determined under this section to
the extent necessary to avoid duplication of any pa5mient made
under section 4005(e) of the Omnibus Budget Reconciliation Act of
1987.".
(h) GEOGRAPHIC CLASSIFICATION OF HOSPITALS.—
(1) ESTABUSHMENT OF MEDICARE GEOGRAPHICAL CLASSIFICATION
BOARD.—Section 1886(d) of the Social Security Act (42 U.S.C.
1395ww(d)) is amended by adding at the end the following new
paragraph:
"(lOXA) There is hereby established the Medicare Geographical
Classification Review Board (hereinafter in this paragraph referred
to as the 'Board').
"(BXi) The Board shall be composed of 5 members appointed by
the Secretary without regard to the provisions of title 5, United
States Code, governing appointments in the competitive service.
Two of such members shall be representatives of subsection (d)
hospitals located in a rural area under paragraph (2)(D). At least 1
member shall be a member of the Prospective Payment Assessment PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2155
Commission, and at least 1 member shall be knowledgeable in the
field of analyzing costs with respect to the provision of inpatient
hospital services.
"(ii) The Secretary shall make all appointments to the Board as
provided in this paragraph within 180 days after the date of the
enactment of this paragraph.
"(CXi) The Board shall consider the application of any subsection
(d) hospital requesting that the Secretary change the hot^ital's
geographic classification for purposes of determining for a fiscal
year—
"(I) the hospital's average standardized amount under para­
graph (2)(D), or
"(11) the area wage index applicable to such hospital under
paragraph (3XE).
"(ii) A hospital requesting a change in geographic classification
under clause (i) for a fiscal year shall submit its application to the
Board not later than the first day of the preceding fiscal year.
"(iiiXD The Board shall render a decision on an application
submitted under clause (i) not later than 180 days after the deadline
referred to in clause (ii).
"(ID A decision of the Board shall be final unless the unsuccessful
applicant appeals such decision to the Secretaiy by not later than 15
days after the Board renders its decision. The Secretary in consider- .
ing the appeal of an applicant shall receive no new evidence but
shall consider the record as a whole as such record appeared before
the Board. The Secretary shall issue a decision on such an appeal
not later than 90 days after the appeal is filed. The decision of the
Secretary shall be final and shall not be subject to judicial review.
"(DXi) The Secretary shall publish guidelines to be utilized by the
Board in rendering decisions on applications submitted under this
paragraph, and shall include in such guidelines the following:
"CD Guidelines for comparing wages, taking into account
occupational mix, in the area in which the hospital is classified
and the area in which the hospital is applying to be classified.
"(ID Guidelines for determining whether the coimty in which
the hospital is located should be treated as being a part of a
particular Metropolitan Statistical Area.
"(in) Guidelines for considering information provided by an
applicant with respect to the effects of the hospital's geographic
classification on access to inpatient hospital services by medi­
care beneficiaries.
"(IV) Guidelines for considering the appropriateness of the
criteria used to define New England (Jounty Metropolitan
Areas,
"(ii) The Secretary shall publish the guidelines described in clause
(i) by July 1,1990.
"^Xi) The Board shall have full power and authority to make
rules and establish procedures, not inconsistent with the provisions
of this title or r^ulations of the Secretary, which are necessary or
appropriate to cany out the provisions of this paragraph. In the
course of any hearing the Boand may administer oaths and affirma- ^
tions. The provisions of subsections (d) and (e) of section 205 with
respect to subpenas shall apply to the Board to the same extent as
such provisions apply to the Secretary with respect to title II.
"(ii) The Board is authorized to engage such technical assistance
and to receive such information as may be required to cany out its
functions, and the Secretary shall, in addition, make available to the 103 STAT. 2156 PUBLIC LAW 101-239—DEC. 19, 1989
Board such secretarial, clerical, and other assistance as the Board
may require to carry out its functions.
"(FXi) Each member of the Board who is not an officer or em­
ployee of the Federal Government shall be compensated at a rate
equal to the daily equivalent of the annual rate of basic pay pre­
scribed for grade GS-18 of the General Schedule under section 5332
of title 5, United States Code, for each day (including travel time)
during which such member is engaged in the performance of the
duties of the Board. Each member of the Board who is an officer or
employee of the United States shall serve without compensation in
addition to that received for service as an officer or employee of the
United States.
"(ii) Members of the Board shall be allowed travel expenses,
including per diem in lieu of subsistence, at rates authorized for
employees of agencies under subchapter I of chapter 57 of title 5,
United States Code, while away from their homes or regular places
of business in the performance of services for the Board.".
(2) EFFECT OF DECISIONS OF BOARD ON PAYMENTS TO HOS­
PITALS.—Section 1886(dX8) of such Act (42 U.S.C. 1395ww(dX8)) is
amended—
(A) in subparagraph (CXi), by striking "subparagraph (B)"
each place it appears and inserting "subparagraph (B) or a
decision of the Medicare Geographic Classification Review
Board or the Secretary under paragraph (10),", and
(B) in subparagraph (D), by striking "(B) and (C)" each
place it^ppears and inserting "(B) and (C) or a decision of
the Medicare Geographic Classification Review Board or
the Secretary under paragraph (10)".
Urban areas. (3) REVISION OF RULES FOR TREATMENT OF RECLASSIFIED HOS-
42 use 1395WW. PiTALS.—Section 1886(dX8)(C) of such Act is amended to read as
follows:
"(CXi) If the application of subparagraph (B) or a decision of the
Medicare Geographic Classification Review Board or the Secretary
under paragraph (10), by treating hospitals located in a rural county
or counties as being located in an urban area—
"(I) reduces the wage index for that urban area (as applied
under this subsection) by 1 percentage point or less, the Sec­
retary, in calculating such wage index under this subsection,
shall exclude those hospitals so treated, or
"(II) reduces the wage index for that urban area by more than
1 percent£ige point (as applied under this subsection), the Sec­
retary shall calculate and apply such wage index under this
subsection separately to hospitals located in such urban area
(excluding all the hospitals so treated) and to the hospitals so
treated (as if each affected rural county were a separate urban
area),
"(ii) If the application of subpareigraph (B) or a decision of the
Medicare Geographic Classification Review Board or the Secretary
under paragraph (10), by reclassif3dng a county from a rural to an
urban area or by reclsissifying an urban county from one urban area
to another urban area—
"(I) reduces the wage index for the urban area within which
the county or counties is reclassified by 1 percentage point or
less (as applied under this subsection), the Secretary, in cal­
culating such wage index under this subsection, shall exclude
those counties so reclassified, or PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2157
"(ID reduces the wage index for the urban area within which
the county or counties is reclassified by more than 1 percentage
point (as applied under this subsection), the Secretary shall
calculate and apply such wage index under this sul^ection
separately to hospitals located in such urban area (excluding all
the hospitals so reclassified) and to hospitals located in the
counties so reclassified (as if each affected county were a sepa­
rate area),
"(iii) If the application of subparagraph (B) or a decision of the
Medicare Geographic Classification Review Board or the Secretary
under paragraph (10), by treating hospitals located in a rural county
or counties as not being located in the rural area in a State, reduces
the wage index for that rural area (as applied under this subsection),
the Seoretary shall calculate and apply such wage index under this
subsection as if the hospitals so treated had not been excluded from
calculation of the wage index for that rural area.".
(4) FLOOR FOR AREA WAGE INDICES.—Section 1886(dX8XC) of
such Act (as amended by paragraph (3)) is further amended by
adding at the end the following new clause:
"(iv) The application of subparagraph (B) or a decision of the
Medicare Ge(^aphic Classification Review Board or the Secretary
under paragraph (10) may not result in the reduction of any county s
wage index to a level below the wage index for rural areas in the
State in which the county is located. .
(5) ADDITIONAL PAYMENT RESULTING FROM CORRECTIONS OP 42 use I395ww
ERRONEOUSLY DETERMINED WAGE INDEX.— note.
(A) IN GENERAL.—If the Secretary of Health and Human
Services (hereinafter referred to as the "Secretary") discov­
ers an error with respect to the determination, adjustment,
or computation of the area wage index described in section
1886(dX3XE) of the Social Security Act and subsequently
corrects such error, the Secretary shall make an ad(htional
payment under title XVm of such Act to a hospital affected
by such error for inpatient hospital discharges occurring
during the period when the erroneously determined, ad­
justed, or computed wage index was in effect.
CB) CONDITIONS FOR ADDITIONAL PAYMENT.—A hospital is
eligible for an additional payment under subparagraph (A)
only if—
(i) the error resulted from the submission of erro­
neous data, except that a hospital is not eligible for
such additional payment if it submitted such erroneous
data; /
(ii) the error was made with respect to the survey of
the 1984 wages and wage-related costs of hospitals in
the United States conducted under section 1886(dX3XE)
of the Social Security Act; and
(iii) the correction of the error resulted in an adjust­
ment to the area wage index of not less than 3 percent­
age points.
(CO PERIOD OF APPLICABILITY.—^A hospital may not receive
an additional payment under subparagraph (A) for dis-
4 charges occurring after October 1,1990.
(6) UPDATES TO WAGE INDEX SURVEY.—Section 1886(dX3)(E) of
the Social Security Act (42 US.C. 1395ww(dX3XE)) is amended—
^j (A) by striking "October 1, 1990 (and at least every 36
months thereafter)" and inserting "October 1, 1990, and 103 STAT. 2158 PUBLIC LAW 101-239—DEC. 19,1989
October 1, 1993 (and at least every 12 months thereafter)",
and
(B) by adding at the end the following new sentence:
"Any adjustments or updates made under this subpara­
graph for a fiscal year (beginning with fiscal year 1991)
shall be made in a manner that assures that the aggregate
payments under this subsection in the fiscal year are not
greater or less than those that would have been made in the
year without such adjustment.".
42 use I395ww (7) EFFECTIVE DATE.—The amendments made by paragraphs
°°*®- (3) and (4) shall apply to discharges occurring on or after April
1,1990.
Urbmi areas. (j) LEGISLATIVE PROPOSAL EUMINATING SEPARATE AVERAGE
42USC1395W STANDARDIZED AMOUNTS.-
(1) IN GENERAL.—The Secretary of Health and Human Serv­
ices (hereinafter referred to as the "Secretary") shall design a
legislative proposal eliminating the system of determining sepa­
rate average standardized amounts for subsection (d) hospitals
(as defined in section 1886(dXlXB) of the Social Security Act)
classified as being located in large urban, other urban, or rural
areas under section 1886(dX2XD) of such Act, and shall include
in such proposal the following:
(A) A transition period beginning in fiscal year 1992
during which a single rate for determining pajrment to
hospitals in all areas shall be phased in with such single
rate to be completely in effect by fiscal year 1995.
(B) Recommendations, where appropriate, for modifying
or maintaining additional payments or adjustments made
under title XVIII of the Social Security Act for teaching
hospitals, rural referral centers, sole community hospitals,
disproportionate share hospitals, and outlier cases, and for
creating additional payments or adjustments where deemed
appropriate by the Secretary.
(C) Recommendations with respect to recalculating
standardized amounts to reflect information from more
recent cost reporting periods.
(D) Recommendations, where appropriate, for modifjdng
reimbursement for hospitals that are not subsection (d)
hospitals under title XVIII of such Act.
(E) A recommendation for a methodology to reflect the
severity of illness of different patients within the same
diagnosis-related group (as determined in section
1886(dX4XB) of such Act).
(2) REPORT TO CONGRESS AND PROPAC.—(A) Not later than
October 1, 1990, the Secretary shall submit the proposal de­
scribed in par£igraph (1) and an accompanying analysis of the
impact of the proposed elimination of separate average
standardized amounts on various categories of hospitals to Con­
gress and the Prospective Payment Assessment Commission.
(B) Not later than February 1,1991, the Prospective Payment
^ Assessment Commission and the Director of the Congressional
Budget Office shall each prepare and submit to Congress a
report analyzing the legislative proposal submitted under
subparagraph (A), and shall include in such report an analysis
of the probable impact of such legislation on hospitals partici­
pating in the medicare program. PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2159
0*) PROPAC STUDY OF PAYMENTS TO RURAL SOLE COMMUNITY
HOSPITALS AND SMALL RURAL HOSPITALS.—
(1) STUDY.—The Prospective Payment Assessment Commis­
sion (hereinafter referred to as the "Commission") shall conduct
a study of the feasibility and desirability of—
(A) using a cost-based reimbursement system to deter­
mine the amount of payments to be made under the medi­
care program to small rural hosi)itals and rural sole
community hospitals for the operating costs of inpatient
hospital services;
(B) developing and appljdng alternative definitions of
market share for use in determining the eligibility of hos­
pitals for classification as sole community hospitals under
section 1886(dX5) of the Social Security Act; and
(C) developing and applying a method for accounting for
decreases in the number of inpatients served in determin­
ing pajmient to small rural hospitals under section 1886(d)
of the Social Security Act for the operating costs of in­
patient hospital services.
(2) REPORT.—By not later than May 1, 1990, the Commission
shall submit a report to (Congress on the study conducted under
paragraph (1).
SEC. 6004. PPS-EXEMPT HOSPITALS.
(a) EXEMPTION OF CANCER HOSPITALS FROM PROSPECTIVE PAYMENT
CyQmyfcJT ^^m,
(i) IN GENERAL.—Section 1886(dXlXB) of the Social Security
Act (42 U.S.C. 1395ww(d)(l)(B)) is amended—
(A) in clause (iii), by striking "or"; ,
(B) in clause (iv), by striking the semicolon at the end and
inserting ", or"; and
(C) by inserting after clause (iv) the following new clause:
"(v) a hospital that the Secretary has classified, at any time
on or before December 31, 1990, (or, in the case of a hospital
that, as of the date of the enactment of this clause, is located in
a State operating a demonstration project under section 1814(b),
on or before December 31, 1991) for purposes of appl3dng excep­
tions and adjustments to payment amounts under this subsec­
tion, as a hospital involved extensively in treatment for or
research on cancer;".
(2) CONFORMING AMENDMENT.—Section 1886(dX5XI) of such –
Act (as redesignated by section 6003(eXlXA)) is amended by
striking "(including" and all that follows through "cancer)'.
(3) EFFECTIVE DATE.—The amendments made by this subsec- 42 use I395ww
tion shall apply with respect to cost reporting periods beginning ^°^-
on or after October 1,1989, except that—
(A) in the case of a hospital classified by the Secretary of
Health and Human Services as a hospital involved exten-
->•- sively in treatment for or research on cancer under section
1886(dX5XI) of the Social Security Act (as redesignated by
section 6003(eXlXA)) after the date of the enactment of this
Act, such amendments shall apply with respect to cost
reporting periods beginning on or after the date of such
classification,
(B) in the case of a hospital that is not described in
subparagraph (A), such amendments shall apply with re­
spect to portions of cost reporting periods or discharges 103 STAT. 2160 PUBLIC LAW 101-239—DEC. 19, 1989
' occurring during and after fiscal year 1987 for purposes of
section 1886(g) of the Social Security Act, and
(C) such amendments shall take effect 30 days after the
date of the enactment of this Act for purposes of determin-
^ ^ ing the eligibility of a hospital to receive periodic interim
payments under section 1815(eX2) of the Social Security
Act.
01>) REBASING FOR CANCER HOSPITALS.—
(1) IN GENERAL.—Section 1886fl[>X3) of such Act (42 U.S.C.
1395ww(bX3)), as amended by subsections (eXlXB) and (fK2) of
section 6()03, is further amended—
(A) in subparagraph (A), by striking "(C) and (D)" and
insertmg "(O, (D), and (E)",
(B) in subparagraph (BXii), by striking "For purposes of
subparagraph (A)" and inserting "For purposes of subpara-
j graphs (A) and (E)", and
(C) by adding at ihe end the following new subparagraph:
"(E) In the case of a hospital described in clause (v) of subsection
(dXl)(B), the term 'target amount' means—
"(i) with respect to the first 12-mQnth cost reporting period in
which this subparagraph is applied to the hospital—
"OD the allowable operating costs of inpatient hospital
services (as defined in subsection (aX4)) recognized under
ic: this title for the hospital for the 12-month cost reporting
period (in this subparagraph referred to as the 'base cost
reporting period') preceding the first cost reporting period
for which this subsection was in effect with respect to such
hospital, increased (in a compounded manner) by—
' "(ID the sum of the applicable percentage increases ap­
plied to such hospital under this paragraph for cost report­
ing periods after the base cost reporting period and up to
– and including such first 12-month cost reporting period, or
"(ii) with respect to a later cost reporting period, the target
amount for the preceding 12-month cost reporting period, in­
creased by the applicable percentage increase under subpara­
graph (BXii) for that later cost reporting period.
There shall be substituted for the base cost reporting period de-
~ scribed in clause (i) a hospital's cost reporting period (if any) b^in-
ning during fiscal year 1987 if such substitution results in an
increase in the target amount for the hospital.".
42 use I395ww (2) EFFECTIVE DATE.—^TTio amendments made by paragraph (1)
"°*®- shall apply with respect to cast reporting periods beginning on
or after April 1,1989.
SEC 6005. PAYBIENTS FOR HOSPICE CARE.
(a) INCREASE IN CURRENT RATES.—Section 1814(iXl) of the Socisd
Security Act (42 U.S.C. 1395f(iXl)) is amended—
(1) in subpargigraph (A), by inserting "and except as otherwise
provided in this paragraph" after "1813(aX4)", and
(2) by strikii^ subparagraph (C) and inserting the following:
"(CXi) With respect to routine home care and other services
included in hospice care furnished diu-ing fiscal year 1990, the
payment rates for such care and services shall be 120 percent of
such rates in effect as of September 30,1989. PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2161
42 use 1395f
note. "(ii) With respect to routine home care and other services included
in hospice care furnished during a subsequent fiscal year, the
payment rates for such care and services shall be the payment rates
in effect under this subparagraph during the previous fiscal year
increased by the market basket percentage increase (as defined in
section 1886(bX3XBXiii)) otherwise applicable to discharges occurring
in the fiscal year.".
(b) REQUIREMENT OF CERTIFICATION OF TERMINAL ILLNESS FOR HOS­
PICE CARE MODIFIED.—Section 1814(aX7XAXi) of the Social Security
Act (42 U.S.C. 1395f[aX7XAXi)) is amended by striking "certify," and
all that follows through "initiated," and inserting the following:
"certify in writing, not later than 2 days after hospice care is
iriitiated (or, if each certify verbally not later than 2 days after
hospice care is initiated, not later than 8 days after such care is
initiated),".
(c) EFFECTIVE DATE.—The amendments made by subsection (a)
shall become effective with respect to care and services furnished on
or after January 1,1990.
Subpart B—Technical and Miscellaneous Provisions
SEC. 6011. PASS THROUGH PAYMENT FOR HEMOPHILIA INPATIENTS.
(a) PASS THROUGH PAYMENT FOR HEMOPHIUA INPATIENTS.—The
second sentence of section 1886(aX4) of the Social Security Act (42
U.S.C. 1395ww(dX4)) is amended—
(1) by striking "or,"; and
(2) by striking "October 1, 1987)" and inserting "October 1,
1987), or costs with respect to administering blood clotting
factors to individuals with hemophilia".
(b) DETERMINING PAYMENT AMOUNT.—The Secretary of Health
and Human Services shall determine the amount of payment made
to hospitals under part A of title XVIII of the Social Security Act for
the costs of administering blood clotting factors to individuals with
hemophilia by multiplying a predetermined price per unit of blood
clotting factor (determined in consultation with the Prospective
Payment Assessment Commission) by the number of units provided
to the individual.
(c) RECOMMENDATIONS ON PAYMENTS.—The Prospective Payment
Assessment Commission and the Health Care Financing Adminis­
tration shall develop recommendations with respect to payments to
hospitals under part A of title XVIII of the Social Security Act for
the costs of administering blood clotting factors to individuals with
hemophilia, and shall submit such recommendations to Congress
not later than 18 months after the date of enactment of this Act.
(d) EFFECTIVE DATE.—The amendments made by subsection (a)
shall apply with respect to items furnished 6 months after the date
of enactment of this Act and shall expire 2 years after the date of
enactment of this Act.
SEC. 6012. MEDICARE BUY-IN FOR CONTINUED BENEFITS FOR DISABLED
INDIVIDUALS.
(a) IN GENERAL.—Title XVIII of the Social Security Act is
amended—
(1) in the heading of section 1818, by inserting "ELDERLY" after ^2 USC 1395i-2.
"UNINSURED"; and
(2) by inserting after section 1818 the following new section: 42 USC 1395WW
note.
42 USC 1395WW
note.
42 USC 1395WW
note. 103 STAT. 2162 PUBLIC LAW 101-239—DEC. 19, 1989
HOSPITAL INSUBANCE BENEFITS FOB DISABLED INDIVIDUAI5 WHO
HAVE EXHAUSTED OTHEB ENTITLEMENT
42 use "SEa 1818A. (a) Eveiy individual who—
^^^^'-^- "(1) has not attained the age of 65;
"(2XA) has been entitled to benefits under this part under
section 226(bX and
"(BXi) continues to have the disabling physical or mental
impairment on the basis of which the individual was found to be
under a disability or to be a disabled qualified railroad retire­
ment beneficiary, or (ii) is blind (within the meaning of section
216(iXl)),but
"(C) whose entitlement under section 226(b) ends due solely to
the individual having earnings that exceed the substantial gain­
ful activity amount (as defin^ in section 223(dX4)); and
"(3) is not otherwise entitled to benefits under this part,
shall be eligible to enroll in the insurance program established by
this part
"(bXD An individual may enroll under this section only in such
manner and form as may be prescribed in r^ulations, and only
during an enrollment period prescribed in or under this section.
'X2) The individual's initial enrollment period shall b^gin with the
month in which the individual receives notice that the individual's
entitlement to benefits under section 226(b) will end due solely to
the individual having earnings that exceed the substantial gainfiil
activity amount (as defined in section 223(dX4)) and shall end 7
months later.
''(3) There shall be a general enrollment period during the period
b^finning on January 1 and ending on March 31 of each year
(beginning vidth 1990).
"(PKX) The period (in this subsection referred to as a 'coverage
period') during which an individual is entitled to benefits under the
insurance program under this part shall begin on whichever of the
following is the latest:
"(A) In the case of an individual who enrolls under subsection
(bX2) before the month in which the individual first satisfies
subsection (a), the first day of such month.
"(B) In the case of an individual who enrolls under subsection
(bX2) in the month in which the individual first satisfies subsec­
tion (a), the first day of the month following the month in which
the individual so enrolls.
* In the case of an individual who enrolls under subsection
(bX2) in the month following the month in which the individual
first satisfies subsection (a), the first day of the second month
' following the month in which the individual so enrolls.
"(D) In the case of an individual who enrolls under subsection
(bX2) more than one month following the month in which the
individual first satisfies subsection (a), the first day of the third
month following the month in which the individual so enrolls.
"(E) In the case of an individual who enrolls under subsection
(bX3), the July 1 following the month in which the individual so
enrolls.
"(2) An individual's coverage period under this section shall con­
tinue until the individual's enrollment is terminated as follows:
"(A) As of the month following the month in which the
Secretary provides notice to the individual that the individual
no longer meets the condition described in subsection (aX2)(B). PUBLIC LAW 101-239—DEC. 19,1989 103 STAT. 2163
"(B) As of the month foUowmg the month in which the
individual files notice that the individual no longer wishes to
participate in the insurance program established by this part.
"(C) As of the month before the first month in which the
individual becomes eligible for hospital insurance benefits
under section 226(a) or 226A.
"(D) As of a date, determined under regulations of the Sec­
retary, for nonpayment of premiums.
The regulations under subparagraph (D) may provide a grace period
of not longer than 90 days, which may be extended to not to exceed
180 days in any case where the Secretary determines that there was
good cause for failure to pay the overdue premiums within such 90-
day period. Termination of coverage under this section shall result
in simultaneous termination of any coverage affected under any
other part of this title.
"(3) The provisions of subsections (h) and (i) of section 1837 apply
to enrollment and nonenroUment under this section in the same
manner as they apply to enrollment and nonenroUment and special
enrollment periods under section 1818.
"(dXlXA) Premiums shall be paid to the Secretary at such times,
and in such manner, as the Secretary shall by regulations prescribe,
and shall be deposited in the Treasury to the credit of the Federal
Hospital Insurance Trust Fund.
"(BXi) Subject to clause (ii), such premiums shall be payable for
the period commencing with the first month of an individual's
coverage period and ending with the month in which the individual
dies or, if earlier, in which the individusd's coverage period termi­
nates.
"(ii) Such premiums shall not be payable for any month in which
the individual is eligible for benefits under this part pursuant to
section 226(b).
"(C) For purposes of appl3dng section 1839(g) of this title and
section 59B(0(lXBXi) of the Internal Revenue Code of 1986, any ,
reference to section 1818 shall be deemed to include a reference to
this section. '
"(2) The provisions of subsections (d) through (f) of section 1818
(relating to premiums) shall apply to individuals enrolled under this
section in the same manner as they apply to individuals enrolled
under that section.".
(b) EFFECTIVE DATE.—The amendments made by this section shall 42 use I395i-2a
take effect on the date of the enactment of this Act, but shall not ^°^-
apply so as to provide for coverage under part A of title XVIII of the
Social Security Act for any month before July 1990. • '
SEC. 6013. BUY-IN UNDER PART A FOR QUALIFIED MEDICARE BENE-
FICIARIES.
(a) IN GENERAL.—Section 1818 of the Social Security Act (42 U.S.C.
1395i-2) is amended by adding at the end the following:
"(gXD The Secretary shall, at the request of a State made after Contracts.
1989, enter into a modification of an agreement entered into with
the State pursuant to section 1843(a) under which the agreement
provides for enrollment in the program established by this part of
qualified medicare beneficiaries (as defined in section 1905(pXl)).
"(2XA) Except as provided in subparagraph (B), the provisions of
subsections (c), (d), (e), and (f) of section 1843 shall apply to qualified
medicare beneficiaries enrolled, pursuant to such agreement, in the
program established by this part in the same manner and to the 103 STAT. 2164 PUBLIC LAW 101-239—DEC. 19, 1989
42 use 1395i-2
note.
42 use 1395WW
note.
42 use 1395WW
note.
42 use 1395f
note. same extent as they apply to qualified medicare beneficiaries en­
rolled, pursuant to such agreement, in part B.
"(B) For purposes of this subsection, section 1843(dXl) shall be
applied by substituting 'section 1818' for 'section 1839' and 'subsec­
tion (c) (with reference to subsection (b) of section 1839/ for 'subsec­
tion (b).'.".
(b) CONFORMING AMENDMENT.—Section 1843 of such Act (42 U.S.C.
1395v) is amended by adding at the end the following:
"(i) For provisions relating to enrollment of qualified medicare
beneficiaries under part A, see section lSlS(g)".
(c) E^FFEcnvB DATE.—^The amendments made by this section shall
become effective January 1,1990.
SEC 6014. PBOPAC STUDY ON MEDICARE-DEPENDENT HOSPITALS.
(a) STUDY.—^The Prospective Payment Assessment Commission
shall conduct a study of the appropriateness of making an adjust­
ment to the methodology for determining the amount of payment to
hospitals for which individuals entitled to benefits under part A of
title XVm of the Social Security Act represent a high proportion of
discharges.
(b) Rra>ORT.—^Not later than June 1, 1990, the Commission shall
include a report on the study conducted under subsection (a) in its
annual report submitted to Congress.
SEC 6015. PROVISIONS RELATING TO TARGET AMOUNT ADJUSTMENTS,
(a) INCLUDING NEW BASE PERIOD IN TARGET ADJUSTMENTS.—Sec­
tion 1886(bX4XA) of the Social Security Act (42 U.S.C.
1395ww(bX4XA)) is amended by striking "deems appropriate," and
inserting "deems appropriate, including the assignment of a new
base period which is more representative, as determined by the
Secretary, of the reasonable and necessary cost of inpatient services
and".
(b) PUBLICATION OF INSTRUCTIONS RELATING TO EXCEPTIONS AND
ADJUSTMENTS IN TARGET AMOUNTS.—By not later than 180 days
after the date of enactment of this Act, the Secretaiy of Health and
Human Services shall publish instructions specifying the applica­
tion process to be used in providing exceptions and adjustments
under section 18860bX4XA) of the Social Security Act.
(c) ElFFEcnvE DATE.—The amendment made by subsection (a) shall
become effective with respect to cost reporting periods beginning on
or after April 1,1990.
SEC 6016. STUDY OF METHODS TO COMPENSATE HOSPICES FOR HIGH-
COST CARE.
(a) STUDY.—^The Secretary of Health and Human Services shall—
(1) conduct a study of high-cost hospice care provided to
medicare beneficiaries under the medicare program, and evalu­
ate the ability of hospice programs participating in the medi­
care program to provide such high-cost care to such patients;
and
(2) based on such study, develop methods to compensate such
programs for providing such high-cost care.
(b) RQ>ORT TO CONGRESS.—Not later than April 1, 1991, the Sec­
retary shall submit a report to the Committee on Ways and Means
of the House of Representatives and the Committee on Finance of
the Senate on the study conducted under subsection (a) and shall
include in the report any recommendations developed by the Sec-PUBLIC LAW 101-239—DEC. 19,1989 103 STAT. 2165
retary to compensate hospice programs for providing high-cost hos­
pice care to medicare beneficiaries.
SEC. 6017. PROHIBITION ON NURSING HOME BALANCE BILLING. ^^
Section 1866(a)(2XB) of the Social Security Act (42 U.S.C.
1395cc(a)(2)(B)) is amended—
(1) in clause (i), by striking "(i)"; and
(2) by striking clause (ii).
SEC. 6018. HOSPITAL ANTI-DUMPING PROVISIONS.
(a) HOSPITAL OBLIGATIONS WITH RESPECT TO TREATMENT OF EMER­
GENCY MEDICAL CONDITIONS AND INDIGENT CARE.—Section 1866(a)(1)
of the Social Security Act (42 U.S.C. 1395cc(aXl)) is amended— . .
(1) by amending subparagraph (I) to read as follows:
"(I) in the case of a hospital or rural primary care hospital—
"(i) to adopt and enforce a policy to ensure compliance
with the requirements of section 1867,
"(ii) to maintain medical and other records related to
individuals transferred to or from the hospital for a period
of five years from the date of the transfer, and
"(iii) to maintain a list of physicians who are on call for
duty after the initial examination to provide treatment
necessary to stabilize an individual with an emergency
medical condition;"; and
/• (2) in subparagraph (N)—
(A) by striking "and" at the end of clause (i),
(B) by striking "and" at the end of clause (ii), and
(C) by adding at the end the following new clauses:
"(iii) to post conspicuously in any emergency department
a sign (in a form specified by the Secretary) specifying
rights of individuals under section 1867 with respect to
examination and treatment for emergency medical condi­
tions and women in labor, and
"(iv) to post conspicuously (in a form specified by the
Secretary) information indicating whether or not the hos­
pital participates in the medicaid program under a State
plan approved under title XIX, and'.
(b) EFFECTIVE DATE.—The amendments made by subsection (a) ^2 use I395cc
shall take effect on the first day of the first month that begins more
than 180 days after the date of the enactment of this Act, without
regard to whether regulations to carry out such amendments have
been promulgated by such date.
SEC. 6019. RELEASE AND USE OF HOSPITAL ACCREDITATION SURVEYS.
(a) REQUIRING ALL INSTFTUTIONS AND JCAHO TO RELEASE SURVEYS
TO SECRETARY.—Section 1865(aX2) of the Social Security Act (42
U.S.C. 1395bb(aX2)) is amended—
(1) by striking "(2) such institution" and inserting "(2XA) such
institution";
(2) by striking "(if it is included within a survey described in
section 1864(c))'^
(3) by striking the comma at the end and inserting the
following: ", together with any other information directly re­
lated to the survey as the Secretary may require (including
corrective action plans),"; and
(4) by adding at the end the following new subparagraph: note. 103 STAT. 2166 PUBLIC LAW 101-239—DEC. 19, 1989
42 use 1395bb.
42 use 1395bb
note.
eontracts. "(B) such Commission releases such a copy and any such
information to the Secretary,".
(b) AUTHORIZING SECRETARY TO RELEASE CERTAIN INFORMATION.—
Section 1865(a) of such Act is further amended by striking the period
at the end of the last sentence and inserting the following: ", except
that the Secretary may disclose such a survey and information
related to such a survey to the extent such survey and information
relate to an enforcement action taken by the Secretary.".
(c) PERMITTING SECRETARY TO WITHDRAW HOSPITAL'S STATUS BASED
UPON INFORMATION OTHER THAN SURVEYS.—Section 1865(b) of such
Act is amended by striking "following a survey made pursuant to
section 1864(c)".
(d) EFFECTIVE DATE.—(1) Except as provided in paragraph (2), the
amendments made by this section shall take efTect on the date of the
enactment of this Act.
(2) The £unendments made by subsection (a) shall take effect 6
months after the date of the enactment of this Act.
SEC. 6020. INTERMEDIATE SANCTIONS FOR PSYCHIATRIC HOSPITALS.
Section 1866 of the Social Security Act (42 U.S.C. 1395cc) is
amended by adding at the end the following new subsection:
"(iXD If the Secretary determines that a psychiatric hospital
which has an agreement in effect under this section no longer meets
the requirements for a psychiatric hospital under this title and
further finds that the hospital's deficiencies—
"(A) immediately jeopardize the health and safety of its pa­
tients, the Secretary shall terminate such agreement; or
"(B) do not immediately jeopardize the health and safety of its
patients, the Secretary may terminate such agreement, or pro-
i vide that no payment will be made under this title with respect
to any individual admitted to such hospital after the effective
date of the finding, or both.
"(2) If a psychiatric hospital, found to have deficiencies described
in paragraph (IXB), has not complied with the requirements of this
title—
"(A) within 3 months after the date the hospital is found to be
out of compliance with such requirements, the Secretary shall
provide that no payment will be made under this title with
V respect to any individual admitted to such hospital after the end
of such 3-month period, or
"(B) within 6 months after the date the hospital is found to be
out of compliance with such requirements, no payment may be
made under this title with respect to any individual in the
' hospital until the Secretary finds that the hospital is in compli­
ance with the requirements of this title.".
SEC. 602L ELIGIBILITY OF MERGED OR CONSOLIDATED HOSPITALS FOR
PERIODIC INTERIM PAYMENTS.
(a) IN GENERAL.—Section 1815(e) of the Social Security Act (42
U.S.C. 1395g(e)) is amended by adding at the end the following new
paragraph:
"(4) A hospital created by the merger or consolidation of 2 or more
hospitals or hospital campuses shall be eligible to receive periodic
interim payment on the basis described in paragraph (IXB) if-^
"(A) at least one of the hospitals or campuses received peri­
odic interim pa3mient on such basis prior to the merger or
consolidation; and PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2167
"(B) the merging or consolidating hospitals or campuses
would each meet the requirement of paragraph (IXBXi) if such
hospitals or campuses were treated as independent hospitals for
purposes of this title.".
(Jb) EFFECTIVE DATE.—The amendment made by subsection (a)
shall apply to payments made for discharges occurring on or after
the expiration of the 30-day period that begins on the date of the
enactment of this Act, regardless of the date of the merger or
consolidation involved.
SEC. 6022. EXTENSION OF WAIVER FOR FINGER LAKES AREA HOSPITAL
CORPORATION.
Section 1886(cX4) of the Social Security Act (42 U.S.C.
1395ww(cX4)) is amended in the second sentence by striking "the
aggregate payment or payments" and all that follows and inserting
"the Eiggregate rate of increase from October 1, 1984, to the most
recent date for which annual data are available.".
SEC. 6023. CLARIFICATION OP CONTINUATION OF AUGUST 1987 HOSPITAL
BAD DEBT RECOGNITION POLICY.
(a) IN GENERAL.—Section 4008(c) of the Omnibus Budget Reconcili­
ation Act of 1987 is amended by adding at the end the following:
"The Secretary may not require a hospital to change its bad debt
collection policy if a fiscal intermediary, in accordance with the
rules in effect as of August 1, 1987, with respect to criteria for
indigency determination procedures, record keeping, and determin­
ing whether to refer a claim to an external collection agency, has
accepted such policy before that date, and the Secretary may not
collect from the hospital on the basis of an expectation of a change
in the hospital's collection policy.".
(b) EFFECTIVE DATE.—The amendment made by subsection (a)
shall take effect as if included in the enactment of the Omnibus
Budget Reconciliation Act of 1987.
SEC. 6024. USE OF MORE RECENT DATA REGARDING ROUTINE SERVICE
COSTS OF SKILLED NURSING FACILITIES.
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 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 perioids beginning not earlier than Octo­
ber 1,1985.
SEC. 6025. PERMITTING DENTIST TO SERVE AS HOSPITAL MEDICAL
DIRECTOR
Notwithstanding the requirement that the responsibility for
organization and conduct of the medical staff of an institution be
assigned only to a doctor of medicine or osteopathy in order for the
institution to participate as a hospital under the medicare program,
an institution that has a doctor of dental surgery or of dental
medicine serving as its medical director shall be considered to meet
such requirement if the laws of the State in which the institution is
located permit a doctor of dental surgery or of dental medicine to
serve as the medical staff director of a hospital. 42 use 1395g
note.
42 use 1395f
note.
42 use 1395f
note.
42 use 1395yy
note.
42 use 1395x
note. 103 STAT. 2168 PUBLIC LAW 101-239—DEC. 19, 1989
SEC. 6026. GAO STUDY OF HOSPITAL-BASED AND FREESTANDING SKILLED
NURSING FACILITIES.
(a) STUDY.—The Comptroller General shall conduct a study to
assess the differences in costs and case-mix between hospital-based
and freestanding skilled nursing facilities participating in the medi­
care program.
(b) REPORT.—By not later than June 1, 1990, the Comptroller
General shall submit a report to the Committee on Ways and Means
of the House of Representatives and the Committee on Finance of
the Senate on the study conducted under paragraph (1) and shall
include in the report any recommendations, including recommenda­
tions regarding the pa)anent differential between hospital-based and
freestanding skilled nursing facilities, the Comptroller General
considers appropriate.
SEC. 6027. MASSACHUSETTS MEDICARE REPAYMENT.
The Secretary of Health and Human Services may not, on or after
the date of the enactment of this Act and before May 1, 1990, recoup
from, or otherwise reduce pa)mtients to, hospitals in the State of
Massachusetts because of alleged overpa)nnents to such hospitals
under part A of title XVIII of the Social Security Act which occurred
during the period of the statewide hospital reimbursement dem­
onstration project conducted in that State between October 1, 1982,
and June 30, 1986, under section 402 of the Social Security Amend­
ments of 1967 and section 222 of the Social Security Amendments of
1972. Interest shall not accrue on any such alleged overpayments
during the period beginning on the date of the enactment of this Act
and ending on May 1,1990.
SEC. 6028. ALLOWING CERTIFICATIONS AND RECERTIFICATIONS BY
NURSE PRACTITIONERS AND CLINICAL NURSE SPECIALISTS
* FOR CERTAIN SERVICES.
Section 1814(a) of the Social Security Act (42 U.S.C. 1395f(a)) is
amended—
(1) in paragraph (2) by striking "(2) a physician" and inserting
"(2) a physician, or, in the case of services described in subpara­
graph (B), a physician, or a nurse practitioner or clinical nurse
specialist who does not have a direct or indirect employment
relationship with the facility but is working in collaboration
with a physician,"; and
(2) in the matter following the final paragraph by striking "a
physician makes" and inserting "a physician, nurse practi­
tioner, or clinical nurse specialist (as the case may be) makes".
PART 2—PROVISIONS RELATING TO PART B
Subpart A—General Provisions
2 use 902 note. SEC. 6101. EXTENSION OF REDUCTIONS UNDER SEQUESTER ORDER.
Notwithstanding any other provision of law (including any other
provision of this Act, other than section 6201), the reductions in the
amount of payments required under title XVIII of the Social Secu­
rity Act made by the final sequester order issued by the President
on October 16, 1989, pursuant to section 252(b) of the Balanced
Budget and Emergency Deficit Control Act of 1985 shall continue to
be effective (as provided by sections 252(aX4XB) and 256(dX2) of such PUBLIC LAW 101-239—DEC. 19,1989 103 STAT. 2169
Act) through March 31,1990, with respect to payments for items and
services under part B of such title.
SEC. 6102. PHYSICIAN PAYMENT REFORM.
(a) IN GENERAL.—Part B of title XVIII of the Social Security Act is
amended by adding at the end the following new section:
"PAYMENT FOR PHYSICIANS' SERVICES »
"SEC. 1848. (a) PAYMENT BASED ON FEE SCHEDULE.— 42 use i395w-4.
"(1) IN GENERAL.—Effective for all physicians' services (as
defined in subsection (jX^)) furnished under this part during a
year (beginning with 1992) for which pajnnent is otherwise
made on the basis of a reasonable charge or on the basis of a fee
schedule under section 1834(b) or 1834(f), payment under this
part shall instead be based on the lesser of—
"(A) the actual charge for the service, or
"(B) subject to the succeeding provisions of this subsec­
tion, the amount determined under the fee schedule estab­
lished under subsection (b) for services furnished during
that year (in this subsection referred to as the 'fee schedule
amount').
"(2) TRANSITION TO FULL FEE SCHEDULE.—
"(A) LIMITING REDUCTIONS AND INCREASES TO 15 PERCENT
IN 1992.—
"(i) LIMIT ON INCREASE.—In the case of a service in a
fee schedule area (as defined in subsection (jX2)) for
which the adjusted historical payment basis (as defined
o in subparagraph (D)) is less than 85 percent of the fee
schedule amount for services furnished in 1992, there
shall be substituted for the fee schedule amount an
amount equal to the adjusted historical pajrment basis
plus 15 percent of the fee schedule amount otherwise
established (without regard to this paragraph).
"(ii) LIMIT IN REDUCTION.—In the case of a service in
a fee schedule area for which the adjusted historical
payment basis exceeds 115 percent of the fee schedule
amount for services furnished in 1992, there shall be
substituted for the fee schedule amount an amount
_ equ£il to the adjusted historical pajnnent bsisis minus 15
C. percent of the fee schedule amount otherwise estab­
lished (without regard to this paragraph).
"(B) SPECIAL RULE FOR 1993, 1994, AND 1995.—If a physi­
cians' service in a fee schedule area is subject to the provi­
sions of subparagraph (A) in 1992, for physicians' services
furnished in the area—
"(i) during 1993, there shall be substituted for the fee
schedule amount an amount equal to the sum of—
"(I) 75 percent of the fee schedule amount deter­
mined under subparagraph (A), adjusted by the
update established under subsection (dX3) for 1993,
and
"(II) 25 percent of the fee schedule amount deter­
mined under paragraph (1) for 1993 without regard
to this paragraph;
"(ii) during 1994, there shall be substituted for the
fee schedule amount an amount equal to the sum of— 103 STAT. 2170 PUBLIC LAW 101-239—DEC. 19, 1989
"(I) 67 percent of the fee schedule amount deter­
mined under clause (i), adjusted by the update
established under subsection (dX3) for 1994, and
"(11) 33 percent of the fee schedule amount deter­
mined under paragraph (1) for 1994 without regard
to this paragraph; and
"(iii) during 1995, there shall be substituted for the
fee schedule amount an amount equal to the sum of—
"(I) 50 percent of the fee schedule amount deter­
mined under clause (ii) adjusted by the update
established under subsection (dX3) for 1995, and
"(II) 50 percent of the fee schedule amount deter­
mined under paragraph (1) for 1995 without regard
to this paragraph.
"(C) SPECIAL RULE FOR ANESTHESIA SERVICES.—With
respect to physicians' services which are anesthesia serv­
ices, the Secretary shall provide for a transition in the same
manner as a transition is provided for other services under
subparagraph (B).
"(D) ADJUSTED HISTORICAL PAYMENT BASIS DEFINED.—
"(i) IN GENERAL.—In this paragraph, the term 'ad­
justed historical payment basis' means, with respect to
a physicians' service furnished in a fee schedule area,
the weighted average prevailing charge applied in the
area for the service in 1991 (as determined by the
Secretary without regard to physician specialty and as
adjusted to reflect pa3mients for services with cus­
tomary charges below the prevailing charge or other
payment limitations imposed by law or regulation) ad­
justed by the update established under subsection (dX3)
for 1992.
"(ii) APPUCATION TO RADIOLOGY SERVICES.—In apply­
ing clause (i) in the case of phjrsicians' services which
are radiology services (including radiologist services, as
defined in section 1834(bX6)), there shall be substituted
for the weighted average prevailing charge the amount
provided under the fee schedule established for the
service for the fee schedule area under section 1834(b).
"(3) INCENTIVES FOR PARTICIPATING PHYSICIANS.—In applying
paragraph (IXB) in the case of a nonparticipating physician, the
fee schedule amount shall be 95 percent of such amount other­
wise applied under this subsection (without regard to this para­
graph).
Regulations. "(b) ESTABUSHMENT OF FEE SCHEDULES.—
"(1) IN GENERAL.—Before Jtinuary 1 of each year beginning
with 1992, the Secretary shall establish, by regulation, fee
schedules that establish pa3rment amounts for all physicians'
services furnished in all fee schedule areas (as defined in subsec­
tion (jX2)) for the year. Except as provided in paragraph (2), each
such pajnnent amount for a service shall be equal to the product
of—
"(A) the relative value for the service (as determined in
subsection (cX2)),
"(B) the conversion factor (established under subsection
(d)) for the year, and
"(C) the geographic adjustment factor (established under
subsection (eX2)) for the service for the fee schedule area. PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2171
"(2) TREATMENT OF RADIOLOGY SERVICES AND ANESTHESIA SERV­
ICES.—
"(A) RADIOLOGY SERVICES.—^With respect to radiology
services (including radiologist services, as defined in section
1834(bX6)), the Secretary shall base the relative values on
the relative value scale developed under section
18340i)XlXA), with appropriate modifications of the relative
values to assure that the relative values established for
radiology services which are similar or related to other
physicians' services are consistent with the relative values
established for those similar or related services.
"(B) ANESTHESIA SERVICES.—In establishing the fee sched­
ule for anesthesia services for which a relative value guide
has been established under section 4048(b) of the Omnibus
Budget Reconciliation Act of 1987, the Secretary shall use,
to the extent practicable, such relative value guide, with
appropriate adjustment of the conversion factor, in a
manner to assure that the fee schedule amoimts for
anesthesia services are consistent with the fee schedule
amounts for other services determined by the Secretary to
be of comparable value. In applying the previous sentence,
the Secretary shall adjust the conversion factor by geo­
graphic adjustment factors in the same manner as such
adjustment is made under paragraph (IXC).
(C) CONSULTATION.—The Secretary shall consult with
the Physician Payment Review Commission and organiza­
tions representing physicians or suppliers who furnish radi­
ology services and anesthesia services in applying subpara­
graphs (A) and (B).
"(c) DETERMINATION OF RELATIVE VALUES FOR PHYSICIANS* SERV­
ICES.—
"(1) DIVISION OF PHYSICIANS' SERVICES INTO COMPONENTS.—In
this section, with respect to a physicians' service:
"(A) WORK COMPONENT DEFINED.—^The term 'work compo­
nent' means the portion of the resources used in fumishmg
the service that reflects ph3rsician time and intensity in
furnishing the service. Such portion shall—
"(i) include activities before and after direct patient
contact, and
"(ii) be defined, with respect to surgical procedures,
to reflect a global definition including pre-operative
and postoperative physicians' services.
"(B) Irenes EXPENSE COMPONENT DEFINED.—^The term
'practice expense component' means the portion of the
resources used in furnishing the service that reflects the
general cat^ories of expenses (such as office rent and
wages of personnel, but excluding malpractice expenses)
comprising practice expenses. In this subparagraph, the
term 'practice expenses includes all expenses for furnish­
ing physicians' services, excluding malpractice expenses,
physician compensation, and other physician fringe bene­
fits.
"(C) MALPRACTICE COMPONENT DEFINED.—The term 'mal­
practice component' means the portion of the resources
used in furnishing the service that reflects malpractice
expenses in furnishing the service.
"(2) DETERMINATION OF RELATIVE VALUES.— 103 STAT. 2172 PUBLIC LAW 101-239—DEC. 19, 1989
"(A) IN GENERAL.—
"(i) COMBINATION OF UNITS FOR COMPONENTS.—The
Secretary shall develop a methodology for combining
the work, practice expense, and malpractice relative
value units, determined under subparagraph (C), for
each service in a manner to produce a single relative
value for that service.
"(ii) EXTRAPOLATION.—The Secretary may use
extrapolation and other techniques to determine the
number of relative value units for physicians' services
for which specific data are not available and shall take
into account recommendations of the Physician Pay­
ment Review Commission and the results of consulta­
tions with organizations representing physicians who
provide such services.
"(B) PERIODIC REVIEW AND ADJUSTMENTS IN RELATIVE
VALUES.—
"(i) PERIODIC REVIEW.—The Secretary, not less often
than every 5 years, shall review the relative values
established under this paragraph for all physicians'
services,
"(ii) ADJUSTMENTS.—
"(I) IN GENERAL.—The Secretary shall, to the
extent the Secretary determines to be necessary
and subject to subclause (II), adjust the number of
such units to take into account changes in medical
practice, coding changes, new data on relative
value components, or the addition of new proce­
dures. The Secretary shall publish an explanation
of the basis for such adjustments.
"(II) LIMITATION ON ANNUAL ADJUSTMENTS.—The
adjustments under subclause (I) for a year may not
cause the amount of expenditures under this part
for the year to differ by more than $20,000,000
from the amount of expenditures under this part
that would have been made if such adjustments
had not been made,
"(iii) CONSULTATION.—The Secretary, in making
a4justments under clause (ii), shall consult with the
Physician Payment Review Commission and organiza­
tions representing physicians.
"(C) COMPUTATION OF RELATIVE VALUE UNITS FOR COMPO­
NENTS.—For purposes of this section for each physicians'
service—
"(i) WORK RELATIVE VALUE UNITS.—The Secretary
shall determine a number of work relative value units
for the service based on the relative resources incor­
porating physician time and intensity required in fur­
nishing the service.
"(ii) PRACTICE EXPENSE RELATIVE VALUE UNITS.—The
Secretary shall determine a number of practice ex­
pense relative value units equal to the product of—
"(I) the base allowed charges (as defined in
subparagraph (D)) for the service, and
"(II) the practice expense percentage for the
service (as determined under paragraph (3XCXii)). PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2173
"(iii) MALPRACTICE RELATIVE VALUE UNITS.—The Sec­
retary shall determme a number of malpractice rel­
ative value units equal to the product of—
"(I) the base allowed charges (as defined in
subparagraph (D)) for the service, and
"(11) the malpractice percentage for the service
(as determined under paragraph (SXCXiii))-
"(D) BASE ALLOWED CHARGES DEFINED.—In this paragraph,
the term 'base allowed charges' means, with respect to a
physician's service, the national avergige cdlowed charges
for the service under this part for services furnished during
1991, as estimated by the Secretary using the most recent
data available.
"(3) COMPONENT PERCENTAGES.—For purposes of paragraph
(2), the Secretary shall determine a work percentage, a practice
expense percentage, and a malpractice percentage for each
physician s service as follows:
"(A) DIVISION OF SERVICES BY SPECIALTY.—For each physi­
cian's service or class of physicians' services, the Secretary
shall determine the average percentage of each such service
or class of services that is performed, nationwide, under
this part by physicians in each of the different physician
specialties (as identified by the Secretary).
"(B) DIVISION OF SPECIALTY BY COMPONENT.—The Sec­
retary shall determine the average percentage division of
resources, among the work component, the practice expense
component, and the malpractice component, used by physi­
cians in each of such specialties in furnishing physicians'
services. Such percentages shall be based on national data
that describe the elements of physician practice costs and
revenues, by physician specialty. The Secretary may use
extrapolation and other techniques to determine practice
costs and revenues for specialties for which adequate data
are not available.
"(C) DETERMINATION OF COMPONENT PERCENTAGES.—
"(i) WORK PERCENTAGE.—The work percentage for a
service (or class of services) is equ£il to the sum (for all
physician specialties) of—
"(I) the average percentage division for the work
component for each physician specialty (deter­
mined under subparagraph (B)), multiplied by
"(II) the proportion (determined under subpara­
graph (A)) of such service (or services) performed
by physicians in that specialty,
"(ii) PRACTICE EXPENSE PERCENTAGE.—The practice i ;
expense percentage for a service (or class of services) is
equal to the sum (for all physician specialties) of—
"(I) the average percentage division for the prac­
tice expense component for each physician spe­
cialty (determined under subparagraph (B)), multi­
plied by
"(II) by the proportion (determined under
subparagraph (A)) of such service (or services) per­
formed by phjrsicians in that specialty,
"(iii) MALPRACTICE PERCENTAGE.—The malpractice
percentage for a service (or class of services) is equal to
the sum (for all physician specialties) of— 103 STAT. 2174 PUBLIC LAW 101-239—DEC. 19, 1989
Federal
Register,
publication.
Reports. "(D the average percentage division for the mal­
practice component for each phjrsician specialty
(determined under subparagraph (B)), multiplied
by
"(11) by the proportion (determined under
subparagraph (A)) of such service (or services) per­
formed by physicians in that specialty.
"(D) PERIODIC RECOMPUTATION.—The Secretary may, from
time to time, provide for the recomputation of work
percentages, practice expense percentages, and malpractice
percentages determined under this paragraph.
"(3) ANCILLARY POUCIES.—The Secretary may establish an­
cillary policies (with respect to the use of modifiers, local codes,
and other matters) as may be necessary to implement this
subsection.
"(4) CODING.—The Secretary shall establish a uniform proce­
dure coding system for the coding of all physicians' services. The
Secretary shall provide for an appropriate coding structure for
visits and consultations. The Secretary may incorporate the use
of time in the coding for visits and consultations only for
services furnished on or after January 1,1993. The Secretary, in
establishing such coding system, shall consult with the Physi­
cian Pa)mient Review (Commission and other organizations rep­
resenting physicians.
"(5) No VARIATION FOR SPECIALISTS.—The Secretary may not
vary the conversion factor or the number of relative value units
for a physicians' service based on whether the physician fur­
nishing the service is a specialist or based on the type of
specialty of the physician.
'(d) CONVERSION FACTORS.— r
"(1) HlSTABUSHMENT.—
"(A) IN GENERAL.—The conversion factor for each year
shall be the conversion factor established under this subsec­
tion for the previous year (or, in the case of 1992, specified
in subparagraph (B)) adjusted by the update (established
under subparagraph (O) for the year involved.
"(B) SPECIAL PROVISION FOR I992,—For purposes of
subparagraph (A), the conversion factor specified in this
subparagraph is a conversion factor (determined by the
Secretary) which, if this section were to apply during 1991
using such conversion factor, would result in the same
aggregate amount of payments under this part for physi­
cians' services as the estimated aggregate amount of the
pavments under this part for such services in 1991.
(C) PUBLICATION.—The Secretary shall cause to have
published in the Federal Register, during the last 15 days of
October of—
"(i) 1991, the conversion factor (or factors) which will
apply to phjrsicians' services for 1992, and the update
(or updates) determined under parsigraph (3) for 1992;
and
"(ii) each succeeding year, the update (or updates)
determined under paragraph (3) for the following year.
"(2) RECOMMENDATION OF UPDATE,—
"(A) IN GENERAL.—Not later than April 15 of each year
(beginning with 1991), the Secretary shall transmit to the
Congress a report that includes a recommendation on the PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2175
appropriate update (or updates) in the conversion factor (or
factors) for all phjrsicians' services in the following year.
The Secretary may recommend a uniform update or dif­
ferent updates for different categories or groups of services.
In making the recommendation, the Secretary shall con­
sider—
"(i) the percentage change in the medicare economic
index (described in the fourth sentence of section
1842(bX3)) for that year;
"(ii) the percentage by which actual expenditures for
all physicians' services (as defined in subsection
(fX5XA)) under this part for the fiscal year ending in
the year preceding the year in which such rec­
ommendation is made were greater or less than actual ,
expenditures for all such physicians' services in the
fiscal year ending in the second preceding year;
"(iii) the relationship between the percentage deter­
mined under clause (ii) for a fiscal year emd the
performance standard rate of increase (established
under subsection (fK2)) for that fiscal year;
"(iv) changes in volume or intensity of services;
"(v) access to services; and
"(vi) other factors that may contribute to changes in
volume or intensity of services or access to services.
For purposes of making the comparison under clause (iii),
the Secretary shall adjust the performance standard rate of
increase for a fiscal year to refiect changes in the actual
proportion of HMO enroUees (as defined in subsection
(fX5XB)) in that fiscal year compared with such proportion
for the previous fiscal year.
"(B) ADDITIONAL CONSIDERATIONS.—In making rec­
ommendations under subparagraph (A), the Secretary may
also consider—
"(i) unexpected changes by physicians in response to
the implementation of the fee schedule;
"(ii) unexpected changes in outlay projections;
"(iii) changes in the quality or appropriateness of
care; and
"(iv) any other relevant factors not measured in the
resource-based payment methodology.
"(C) SPECIAL RULE FOR 1992 UPDATE.—In considering the
update for 1992, the Secretary shall make a separate deter­
mination of the percentage and relationship described in
clauses (ii) and (iii) of subparagraph (A) with respect to the
category of surgical services (as defined by the Secretary
pursuant to subsection (jXD).
"(D) EXPLANATION OP UPDATE.—The Secretary shall in­
clude in each report under subparagraph (A)^
"(i) the update recommended for each category of
physicians' services (established by the Secretary under
subsection (jXD) and for each of the following groups of
physicians' services: nonsurgical services, visits, con­
sultations, and emergency room services;
"(ii) the rationale for the recommended update (or
updates) for each category and group of services de­
scribed in clause (i); and 103 STAT. 2176 PUBLIC LAW 101-239—DEC. 19, 1989
"(iii) the data and analyses underl3dng the update (or
updates) recommended.
"(E) COMPUTATION OF BUDGET-NEUTRAL ADJUSTMENT.—
"(i) IN GENERAL.—The Secretary shall include in the
report made under subparagraph (A) in a year a state­
ment of the percentage by which (I) the actual expendi­
tures for physicians' services under this part (during
the fiscal year ending in the preceding year, as set
forth in most recent annual report made pursuant to
v;] : section 1841(bX2)), exceeded, or was less than (II) the
expenditures projected for the fiscal year under clause
(ii).
"(ii) PROJECTED EXPENDITURES.—For purposes of
clause (i), the expenditures projected under this clause
for a fiscal year is the actual expenditures for physi-
s cians' services made under this part in the second
preceding fiscal year—
"(I) increased by the weighted average percent­
age increase permitted under this part for physi­
cians'services in the preceding fiscal year;
"(II) adjusted to reflect the percentage change in
the average number of individuals enrolled under
this p£U^ (who are not enrolled with a risk-sharing
contract under section 1876) for the preceding
fiscal year compared with the second preceding
fiscal year;
"(III) adjusted to reflect the average annual
percentage growth in the volume and intensity of
physicians' services under this part for the five-
fiscal-year period ending with the second preceding
fiscal year; and
"(IV) adjusted to reflect the percentage change
in expenditures for physicians' services under this
i-. part in the preceding fiscal year (compared with
the second preceding fiscal year) which result from
changes in law or regulations.
Reports. "(F) COMMISSION REVIEW.—The Physician Payment
Review Commission shall review the report submitted
under subparagraph (A) in a year and shall submit to the
Congress, by not later than May 15 of the year, a report
including ite recommendations respecting the update (or
updates) in the conversion factor (or factors) for the follow­
ing year.
"(3) UPDATE.—
"(A) BASED ON INDEX.—
"(i) IN GENERAL.—Unless (Dongress otherwise pro­
vides, subject to subparagraph (B), for purposes of this
section the update for a year is equal to the Secretary's
estimate of the percents^e increase in the appropriate
update index (as defined in clause (ii)) for the year,
"(ii) APPROPRIATE UPDATE INDEX DEFINED.—In clause
(i), the term 'appropriate update index' means—
"(I) for services for which prevailing charges in
1989 were subject to a limit under the fourth sen­
tence of section 1842(bX3), the medicare economic
index (referred to in that sentence), and PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2177
"(ID for other services, such index (such as the
consumer price index) that was applicable under
this part in 1989 to increases in the payment
]^ amounts recognized under this part with respect to
such services.
"(B) ADJUSTMENT IN UPDATE.—
"(i) IN GENERAL.—The update for a year provided
under subparagraph (A) shall, subject to clause (ii), be
increased or decreased by the same percentage by
which (I) the percentage increase in the actual expendi­
tures for physicians' services (as defined in section
(f)(5XA)) in the second previous fiscal year over the
third previous fiscal year, was less or greater, respec­
tively, than (II) the performance standard rate of in­
crease (established under subsection (f)) for such cat­
egory of services for the second previous fiscal year.
"(ii) RESTRICTIONS ON ADJUSTMENT.—The adjustment
made under clause (i) for a year may not result in a
decrease of—
"(I) more than 2 percentage points for the update
for 1992 or 1993,
"(II) 2y2 percentage points for the update for
1994 or 1995, and
"(III) 3 percentage points for the update for any
succeeding year,
"(e) GEOGRAPHIC ADJUSTMENT FACTORS.—
"(1) ESTABUSHMENT OF GEOGRAPHIC INDICES.—
"(A) IN GENERAL.—Subject to subparagraph (B), the Sec­
retary shall establish—
"(i) an index which reflects the relative costs of the
mix of goods and services comprising practice expenses
-1 (other than malpractice expenses) in the different fee
schedule areas compared to the national average of
such costs,
"(ii) an index which reflects the relative costs of
malpractice expenses in the different fee schedule
areas compared to the national average of such costs,
and
"(iii) an index which reflects V4 of the difference
between the relative value of physicians' work effort in
each of the different fee schedule areas and the na-
tioned average of such work effort.
"(B) (JLASS-SPECIFIC GEOGRAPHIC COST-OF-PRACTICE IN­
DICES.—The Secretary may establish more than one index
under subparagraph (AXi) in the case of classes of physi­
cians' services, if, because of differences in the mix of goods
and services comprising practice expenses for the different
classes of services, the application of a single index under
such clause to different classes of such services would be
substantially inequitable.
"(2) CJOMPUTATION OF GEOGRAPHIC ADJUSTMENT FACTOR.—For
purposes of subsection (bXlXC), for all physicians' services for
each fee schedule area the Secretary shall establish a geo­
graphic adjustment factor equal to the sum of the geographic
cost-of-practice adjustment factor (specified in paragraph (3)),
the geographic malpractice adjustment factor (specified in para-103 STAT. 2178 PUBLIC LAW 101-239—DEC. 19, 1989
graph (4)), and the gec^aphic physician work acb'ustment factor
(specified in paragraph (5)) for the service and the area.
"(3) GEOGRAPHIC CO6T-OP-PRACTICE ADJUSTMENT FACJTOR.—For
purposes of paragraph (2), the 'geographic cost-of-practice
adjustment factor', for a service for a fee schedule area, is the
product of—
"(A) the proportion of the total relative value for the
service that reflects the relative value units for the practice
expense component, and
'(B) the gec^aphic cost-of-practice index value for the
area for the service, based on the index established under
paragraph dXAXi) or (IXB) (as the case may be).
"(4) GEOGRAPHIC BSALPRACTICE ADJUSTMENT FACTOR.—For pur­
poses of paragraph (2), the 'geographic malpractice a4justment
factor', for a service for a fee schedule area, is the product of—
"(A) the proportion of the total relative value for the
service that reflects the relative value units for the mal­
practice component, and
"(B) the geographic malpractice index value for the area,
based on the index established under paragraph (IXAXii).
"(5) GEOGRAPHIC PHYSICIAN WORK ADJUSTMENT FACTOR.—For
purposes of paragraph (2), the 'geographic physician work
adjustment factor', for a service for a fee schedule area, is the
product of—
"(A) the proportion of the total relative value for the
service that reflects the relative value units for the work
component, and
"(B) the geographic physician work index value for the
area, based on the index established under paragraph
(IXAXiii).
"(f) MEDICARE VOLUME PERFORMANCE STANDARD RATES OF IN­
CREASE.-
"(1) PROCESS FOR ESTABLISHING MEDICARE VOLUME PERFORM­
ANCE STANDARD RATES OF INCREASE.—
"(A) SECRETARY'S RECOMMENDATION.—By not later than
April 15 of each year (beanning with 1990), the Secretary
^ shall transmit to the Congress a recommendation on
performance standard rates of increase for all physicians'
services and for each category of such services for the fiscal
year banning in such year. In making the recommenda­
tion, t^e Secretary shall confer with oi^anizations rep­
resenting physicians and shall consider—
"(Dmflation,
"(ii) changes in numbers of enrollees (otiier than
. HMO enrollees) under this part,
"(iii) changes in the age composition of enrollees
(other than IDIO enrollees) under this part,
"(iv) changes in technology,
"(v) evidence of inappropriate utilization of services,
"(vi) evidence of lack of access to necessary physi­
cians' services, and
"(vii) such other factors as the Secretary considers
appropriate.
"(B) (COMMISSION REVIEW.—The Phjrsician Payment
Review Commission shall review the recommendation
transmitted during a year under subpars^aph (A) and
shall make its recommendation to Congress, by not later PUBLIC LAW 101-239—DEC. 19,1989 103 STAT. 2179
h" than May 15 of the year, respecting the performance stand­
ard rates of increase for the fiscal year beginning in that
year.
"(C) PUBUCATION OP PERFORMANCE STANDARD RATES OF
INCREASE.—The Secretary shall cause to have published in
the Federal Register, in the last 15 days of October of each
year (beginning with 1990), the performance standard rates
of increase for all physicians' services and for each category
of physicians' services for the fiscal year beginning in that
year. The Secretary shall cause to have published in the
Federal Register, by not later than January 1, 1990, the
performance standard rate of increase under subparagraph
(D) for fiscal year 1990.
"(D) PERFORMANCE STANDARD RATE OP INCREASE FOR
FISCAL YEAR 1990.—The performance standard rate of in­
crease for fiscal year 1990 is equal to the sum of—
"(i) the Secretary's estimate of the weighted average
percentage increase in the reasonable charges for
physicians' services (as defined in subsection (fK5XA))
under this part for calendar years included in fiscal
year 1990,
"(ii) the Secretary's estimate of the percentage in­
crease or decrease in the average number of individuals
enrolled under this part (other than HMO enroUees)
from fiscal year 1989 to fiscal year 1990,
"(iii) the Secretary's estimate of the average annual
percentage growth in volume and intensity of physi­
cians' services under this part for the 5-fiscal-year
period ending with fiscal year 1989 (based upon
information contained in the most recent annual report
made pursuant to section 18410>X2)), and
"(iv) the Secretary's estimate of the percentage in­
crease or decrease in expenditures for physicians serv­
ices (as defined in subsection (fX5XA)) m fiscal year
1990 (compared with fiscal year 1989) which will result
from changes in law or regulations and which is not
taken into account in the percentage increase described
in clause (i),
reduced by Vz percent.
"(2) SPECIFICATION OF PERFORMANCE STANDARD RATES OF IN­
CREASE FOR SUBSEQUENT FISCAL YEARS.—
"(A) IN GENERAL.—Unless Congress otherwise provides,
subject to paragraph (4), each performance standard rate of
increase for a fiscal year Ol)eginning with fiscal year 1991)
shall be equal to the sum of—
"(i) the Secretary's estimate of the weighted average
percentage increase in the fees for physicians' services
(as defined in subsection (fX5XA)) under this part for
', calendar years included in the fiscal year involved,
"(ii) the Secretary's estimate of the percentage in­
crease or decrease in the average number of individuals
enrolled under this part (other than HMO enroUees)
from the previous fiscal year to the fiscal year involved,
V. "(iii) the Secretary's estimate of the average annual
percentage growth in volume and intensity of physi­
cians' services under this part for the 5-fiscal-year Federal
Register,
publication. 103 STAT. 2180 PUBLIC LAW 101-239—DEC. 19, 1989
period ending with the preceding fiscal year (based
upon information contained in the most recent annual
report made pursuant to section 1841(bX2)), and
*(iv) the Secretary's estimate of the percent^^e in­
crease or decrease in expenditures for physicians serv­
ices (as defined in subsection (fKSXA)) in the fiscal year
(compared with the preceding fiscal year) which will
result from chemges in law or regulations and which is
not taken into account in the percentage increase de­
scribed in clause (i),
reduced by the performance standard factor (specified in
subparagraph (B)). In clause (i), the term 'fees' means, with
respect to 1991, reasonable charges and, with respect to any
succeeding year, fee schedule smiounts.
"(B) PERFORMANCE STANDARD FACTOR.—For purposes of
subparagraph (A), the performance standard factor—
"(i) for 1991 is 1 percentage point,
"(ii) for 1992 is 1 ¥2 percentage points, and
"(iii) for each succeeding year is 2 percentage points.
"(3) QUARTERLY REPORTING.—The Secretary shall establish
procedures for providing, on a quarterly basis to the Physician
Pajmient Review Commission, the Congressional Budget Office,
the Congressional Research Service, the Committees on Ways
and Means and Energy and Commerce of the House of Rep­
resentatives, and the Committee on Finance of the Senate,
information on compliance with performance standard rates of
increase established under this subsection.
"(4) SEPARATE GROUP-SPECIFIC PERFORMANCE STANDARD RATES
OF INCREASE.—
"(A) IMPLEMENTATION OF PLAN.—Subject to paragraph
(B), the Secretary shall, after completion of the study re­
quired under section 6102(eX3) of the Omnibus Budget Rec­
onciliation Act of 1989, but not before October 1, 1991,
implement a plan under which qualified physician groups
could elect annually separate performance standard rates
of increase other than the performance standard rate of
increase established for the year under paragraph (2) for
such physicians. The Secretary shall develop criteria to
determine which physician groups are eligible to elect to
have applied to such groups separate performance standard
rates of increase and the methods by which such group-
specific performance standard rates of increase would be
Reports. accomplished. The Secretary shall report to the Congress on
the criteria and methods by April 15, 1991. The Physician
Payment Review Commission shall review and comment on
Federal such recommendations by May 15, 1991. Before implement-
^^^*®p ing group-specific performance standard rates of incresuse,
publication. ^j^^ Secretary shall provide for notice and comment in the
Federsd Register and consult with organizations represent­
ing physicians.
"(B) APPROVAL.—The Secretary may not implement the
plan described in subparagraph (A), unless Congress specifi­
cally approves the plan.
"(5) DEFINITIONS.—In this subsection:
"(A) SERVICES INCLUDED IN PHYSICIANS' SERVICES.—The
) term 'physicians' services' includes other items and services
(such as clinical diagnostic laboratory tests and radiology PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2181
services), specified by the Secretary, that are commonly
performed or furnished by a physician or in a physician's
office, but does not include services furnished to an HMO
enrollee under a risk-sharing contract under section 1876.
"(B) HMO ENROLLEE.—^The term 'HMO enrollee' means,
with respect to a fiscal year, an individual enrolled under
this part who is enrolled with an entity under a risk-
sharing contract under section 1876 in the fiscal year.
'(g) LDOTATION ON BENEFICIABT LIABILITY.—
"(1) LIMITATION ON ACTUAL CHARGES FOR UNASSIGNED
CLAIMS.—^If a nonparticipating physician knowingly and will­
fully bills on a repeated basis for physicians' services (furnished
with respect to an individual enrolled under this part on or
after January 1,1991) an actual charge in excess of the limiting
charge descx^i>ed in paragraph (2) and for which payment is not
made on an assignment-related basis under this part, the Sec­
retary may apply sanctions against such physician in accord­
ance with section 1842(jX2).
"(2) LIMITING CHARGE DEFINED.—
"(A) FOR 1991.—^For physicians' services of a physician
furnished during 1991, the 'limiting charge' shsdl be the
same percentage (or, if less, 25 percent) above the recog­
nized payment amount under this part with respect to the
physician (as a nonparticipating physician) as the percent­
age by which—
"(i) the maximum allowable actual charge (as deter­
mined under section 1842(jXlXC) as of December 31,
1990, or, if less, the maximum actual charge otherwise
permitted for the service under this part as of such
date) for the service of the physician, exceeds
"(ii) the recognized payment amount for the service
of the physician (as a nonparticipating physician) as of
such date.
"(B) FOR 1992.—^For physicians' services furnished during
1992, the 'limiting charge' shall be the same percentage (or,
if less, 20 percent) above the recognized payment amount
under this part for nonparticipating physicians as the
percentage by which—
"(i) the limiting chaise (as determined under
subparagraph (A) as of Ik^^mber 31, 1991) for the
service, exceeds
"(ii) the reo^nized payment amount for the service
for nonparticipating physicians as of such date.
"(CD AFTER 1992.—For physicians' services furnished in a
year after 1992, the 'limiting charge' shall be 115 percent of
the recognized payment amoimt under this part for
nonparticipating physicians.
"G)) RECOGNIZED PAYMENT AMOUNT.—^In this section, the
term 'recognized payment amount' means, for services fur­
nished on or after January 1,1992, the fee schedule amoimt
determined under subsection (a), and, for services furnished
during 1991, the applicable percentage (as defined in sec­
tion 18420)X4XAXiv)) of the prevailing chaise (or fee sched­
ule amount) for nonparticipating physicians for that year.
"(3) LDJOTATION ON CHARGES FOR MEDICARE BENEFICIARIES EU-
GIBLB FOR MEDICAm BENEFITS.— 103 STAT. 2182 PUBLIC LAW 101-239—DEC. 19, 1989
"(A) IN GENERAL.—Pajrment for physicians' services fur­
nished on or after April 1, 1990, to an individual who is
enrolled under this part and eligible for any medical assist­
ance (including as a qualified medicare benei^ciary, as de­
fined in section 1905(pXl)) with respect to such services
under a State plan approved under title XIX may only be
made on an assignment-related basis.
"(B) PENALTY.—A person may not bill for physicians*
services subject to subparagraph (A) other than on an
assignment-related basis. If a person knowingly and will­
fully bills for physicians' services in violation of the pre­
vious sentence, the Secretary may apply sanctions against
the person in accordance with section 1842(jX2).
"(4) PHYSICIAN SUBMISSION OF CLAIMS.—
"(A) IN GENERAL.—For services furnished on or after
September 1,1990, within 1 year after the date of providing
^ a service for which payment is made under this part on a
reasonable charge or fee schedule basis, a physician, sup­
plier, or other person (or an employer or facility in the
cases described in section 1842(bX6XA))—
Claims. "(i) shall complete and submit a claim for such serv­
ice on a standard claim form specified by the Secretary
to the carrier on behalf of a beneficiary, and
"(ii) may not impose any charge relating to complet­
ing and submitting such a form.
"(B) PENALTY.—(i) With respect to an assigned claim
wherever a physician, provider, supplier or other person (or
an employer or facility in the cases described in section
1842(bX6XA)) fails to submit such a claim as required in
subparagraph (A), the Secretary shall reduce by 10 percent
the amount that would otherwise be paid for such claim
under this part,
"(ii) If a physician, supplier, or other person (or an em-
li ployer or facility in the cases described in section
1842(bX6XA)) fails to submit a claim required to be submit­
ted under subparagraph (A) or imposes a charge in viola­
tion of such subparagraph, the Secretary shall apply the
sanction with respect to such a violation in the same
manner as a sanction may be imposed under section
1842(pX3) for a violation of section 1842(pXl).
"(5) ELECTRONIC BILUNG; DIRECT DEPOSIT.—The Secretary shall
encourage and develop a system providing for expedited pay­
ment for claims submitted electronically. The Secretary shall
also encourage and provide incentives allowing for direct de­
posit as payments for services furnished by participating physi­
cians. The Secretary shall provide physicians with such tech­
nical information as necessary to enable such physicians to
submit claims electronically. The Secretary shall submit a plan
to Congress on this paragraph by May 1,1990.
"(6) MONITORING OF CHARGES.—
"(A) IN GENERAL.—The Secretary shall monitor—
"(i) the actual charges of nonparticipating physicians
for physicians' services furnished on or after January 1,
1991, to individuals enrolled under this part, and
"(ii) changes 0)y specialty, type of service, and geo­
graphic area) in (I) the proportion of expenditures for
physicians' services provided under this part by partici-PUBLIC LAW 101-239—DEC. 19,1989 103 STAT. 2183
pating physicians, (ID the proportion of expenditures
for such services for which pajrment is made under this
part on an assignment-related basis, and (III) the
amounts charged above the recognized payment
amounts under this part.
"(B) REPORT.—The Secretary shall, by not later than
April 15 of each year (beginning in 1992), report to the
Congress regarding the changes described in subparagraph
(AXii).
"(C) PLAN.—If the Secretary finds that there has been a
significant decrease in the proportions described in
subclauses (I) and (II) of subparagraph (AXii) or an increase
in the amounts described in subclause (III) of that subpara­
graph, the Secretary shall develop a plan to address such a
problem and transmit to (Dongress recommendations
regarding the plan. The Physician Payment Review
Commission shall review the Secretary's plan and rec­
ommendations and transmit to Congress its comments
regarding such plan and recommendations. ^
"(7) MONITORING OP unuzATiON AND ACCESS.—
"(A) IN GENERAL.—The Secretary shall monitor—
"(i) changes in the utilization of and access to serv­
ices furnished under this part within geographic, popu­
lation, and service related categories,
"(ii) possible sources of inappropriate utilization of
services furnished under this part which contribute to
the overall level of expenditures under this part, and
"(iii) factors underlying these changes and their
interrelationships.
"(B) REPORT.—The Secretary shall by not later than April
15, of each year (beginning with 1991) report to the Con­
gress on the changes described in subparagraph (AXi) and
shall include in the report an examination of the factors
(including factors relating to different services and specific
categories and groups of services and geographic and demo­
graphic variations in utilization) which may contribute to
such changes.
"(C) RECOMMENDATIONS.—The Secretary shall include in
each annual report under subparagraph (B) recommenda­
tions—
"(i) addressing any identified patterns of inappropri­
ate utilization,
"(ii) on utilization review,
"(iii) on ph3^ician education or patient education,
"(iv) addressing any problems of beneficiary access to
care made evident by the monitoring process, and
"(v) on such other matters as the Secretary deems
appropriate.
The Phjrsician Payment Review Commission shall comment
on the Secretary's recommendations and in developing its
comments, the Commission shall convene and consult a
panel of phjrsician experts to evaluate the implications of
medical utilization patterns for the quality of and access to
patient care.
"(h) SENDING INFORMATION TO PHYSICIANS.—Before the beginning
of each year (beginning with 1992), the Secretary shall send to each
physician furnishing physicians' services under this part, for serv-103 STAT. 2184 PUBLIC LAW 101-239—DEC. 19, 1989
Federal
Register,
publication. ices commonly performed by the physician, information on fee
schedule amounte that apply for the year in the fee schedule area
for participating and non-participating physicians, and the maxi­
mum amount that may be charged consistent with subsection (gK2).
Such information shall be transmitted in conjunction with notices to
physicians under section 1842(h) (relating to the participating physi­
cian program) for a year.
"(i) MISCELLANEOUS PROVISIONS.—
"(1) RESTRICTION ON ADMINISTRATIVE AND JUDICIAL REVIEW.—
There shall be no administrative or judicial review under sec­
tion 1869 or otherwise of—
"(A) the determination of the historical payment basis (as
defined in subsection (aX2XCXi)),
"(B) the determination of relative values and relative
value units under subsection (c),
"(C) the determination of conversion factors under
subsection (d),
"(D) the establishment of geographic adjustment factors
under subsection (e), and
"(E) the establishment of the system for the coding of
physicians' services under this section.
"0") DEFINITIONS.—In this section:
"(1) CATEGORY.—^The term 'category* means, with respect to
physicians' services, surgical services, and all physicians' serv­
ices other than surgical services, and such other category or
cct^ories of physicians' services as the Secretary, from time to
time, defines in regulation. The Secretary shall define surgical
services and publish such definition in the Federal Register no
later than May 1, 1990, after consultation with organizations
representing physicians.
(2) FEE SCHEDULE AREA.—The term 'fee schedule area' means
a locality used under section 1842(b) for purposes of computing
pavment amoimts for physicians' services.
(3) PHYSICIANS' SERVICES.—The term 'physicians' services'
includes items and services described in paragraphs (1), (2XA),
(2XD), (3), and (4) of section 1861(s) (other than clinical diag­
nostic laboratory tests and such other items and services as the
Secretary may specify).
"(4) PRACTICE EXPENSES.—The term 'practice expenses' in­
cludes all expenses for furnishing ph3rsicians' services, exclud­
ing malpractice expenses, physician compensation, and other
physician fringe benefits.".
(b) REQUIREMENTS FOR CARRIERS TO PROFILE PHYSICIANS.—Section
1842(bX3) of such Act (42 U.S.C. 1395u(bX3)) is amended—
(1) by striking "and" at the end of subparagraph (J),
(2) by inserting "and" at the end of subparagraph (K), and
(3) by inserting after subparagraph (K) the following new
subparagraph:
"(L) will monitor and profile physicians' billing patterns
within each area or locality and provide comparative data to
physicians whose utilization patterns vary significantly from
other physicians in the same payment area or locality;".
(c) RURAL AND INNER-CITY ACCESS ADJUSTMENTS.—
(1) ADJUSTMENTS.—Section 1833(m) of such Act (42 U.S.C.
13951(m)) is amended—
(A) by striking "class 1 or class 2", and
(B) by striking "5 percent" and inserting "10 percent". PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2185
(2) EFFECTIVE DATE.—The amendments made by paragraph (1)
shall apply to services furnished on or after January 1, 1991.
(d) STUDIES.—
(1) GAO STUDY OF ALTERNATIVE PAYMENT METHODOLOGY FOR
MALPRACTICE COMPONENT.—The Comptroller General shall pro­
vide for—
(A) a study of alternative ways of paying, under section
1848 of the Social Security Act, for the malpractice compo­
nent for physicieuis' services, in a manner that would
assure, to the extent practicable, payment for medicare's
share of malpractice insurance premiums, and
(B) a study to examine alternative resolution procedures
for malpractice claims respecting professional services fur­
nished under the medicare program.
The examination under subparagraph (B) shall include review
of the feasibility of establishing procedures that involve no-fault
pa)anent or that involve mandatory arbitration. By not later
than April 1, 1991, the Comptroller General shall submit a
report to Congress on the results of the studies.
(2) STUDY OF PAYMENTS TO RISK-CONTRACTING PLANS.—The
Secretary of Health £ind Human Services (in this subsection
referred to as the "Secretary") shall conduct a study of how
pa3mients under section 1848 of the Social Security Act may
affect pa5rments to eligible organizations with risk-sharing con­
tracts under section 1876 of such Act. By not later than April 1,
1990, the Secretary shall submit a report to Congress on such
study and shall include in the report such recommendations for
such changes in the methodology for payment under such risk-
sharing contracts as the Secretary deems appropriate.
(3) STUDY OF VOLUME PERFORMANCE STANDARD RATES OF IN­
CREASE BY GEOGRAPHY, SPECIALTY, AND TYPE OF SERVICE.—The
Secretary shall conduct a study of the feasibility of establishing,
under section 1848(f) of the Social Security Act, separate
performance standard rates of increase for services furnished by
or within each of the following (including combinations of the
following):
(A) Geographic area (such as a region. State, or other
area).
(B) Specialty or group of specialties of physicisins.
(C) T^ype of services (such as primary care, services of
hospital-based physicians, and other inpatient services).
Such study shall also include the scope of services included
within, or excluded from, the rate of increase in expenditure
system. By not later than July 1, 1990, the Secretary shall
submit a report to Congress on such study and shall include in
the report such recommendations respecting the feasibility of
establishing separate performance standard rates of increase in
expenditures as the Secretary deems appropriate.
(4) HHS VISIT CODE MODIFICATION STUDY.—The Secretary shall
conduct a study of the desirability of including time as a factor
in establishing visit codes. By not later than July 1, 1991, the
Secretary shall consult with the Physician Payment Review
Commission, and submit a report to Congress on such study and
shall include in the report recommendations respecting the
desirability of modifying the number of visit codes, whether
greater coding uniformity would result from including time in
visit codes when compared with clarifying the clinical descrip-42 use 1395i
note.
42 use 1395W-4
note.
Reports.
Reports.
Reports.
Reports. 103 STAT. 2186 PUBLIC LAW 101-239—DEC. 19, 1989
Reports.
Reports.
Reports. tions of existing codes, and the ability to audit ph3rsician time
accurately.
(5) COMMISSION STUDY OF PAYMENT FOR PRACTICE EXPENSES.—
The Physician Payment Review Commission shall conduct a
study of—
(A) the extent to which practice costs and malpractice
costs vary by geographic locality (including region, State,
Metropolitan Statistical Areas, or other areas and by spe­
cialty),
(B) the extent to which available geographic practice-cost
indices accurately reflect practice costs and malpractice
costs in rural aresis,
(C) which geographic units would be most appropriate to
use in measuring and adjusting practice costs and mal­
practice costs,
(D) appropriate methods for allocating malpractice ex­
penses to particular procedures which could be incor­
porated into the determination of relative values for
particular procedures using a consensus panel and other
appropriate methodologies,
(E) the effect of alternative methods of allocating mal­
practice expenses on medicare expenditures by specialty,
t3rpe of service, and by geographic area, and
(F) the special circumstances of rural independent labora­
tories in determining the geographic cost-of-practice index.
By not later than July 1, 1991, the Commission shall submit a
report to the Committees on Ways and Means and Energy and
Commerce of the House of Representatives and the Committee
on Finance of the Senate on the study and shall include in the
report such recommendations as it deems appropriate.
(6) COMMISSION STUDY OF GEOGRAPHIC PAYMENT AREAS.—The
Physician Payment Review Commission shall conduct a study of
the feasibility and desirability of using Metropolitan Statistical
Areas or other pa3rment areas for purposes of pajrment for
physicians' services under part B of title XVIII of the Social
Security Act. By not later than July 1, 1991, the Commission
shall submit a report to Congress on such study and shall
include in the report recommendations on the desirability of
retaining current carrier-wide localities, changing to a system
of statewide localities, or adopting Metropolitan Statistical
Areas or other payment areas for purposes of payment under
such part B.
(7) COMMISSION STUDY OF PAYMENT FOR NON-PHYSICIAN PROVID­
ERS OF MEDICARE SERVICES.—The Physician Pa3mient Review
Commission shall conduct a study of the implications of a
resource-based fee schedule for physicians' services for non-
physician practitioners, such as physician assistants, clinical
psychologists, nurse midwives, and other health practitioners
whose services can be billed under the medicare program on a
fee-for-service basis. The study shall address (A) what the proper
level of pajrment should be for these practitioners, (B) whether
or not adjustments to their payments should be subject to the
medicare volume performance standard process, and (C) what
update to use for services outside the medicare volume perform­
ance standard process. The Commission shall submit a report to
Congress on such study by not later than July 1,1991. PUBLIC LAW 101-239—DEC. 19,1989 103 STAT. 2187
(8) COMMISSION STUDY OP PHYSICIAN FEES UNDER MEDICAID.—
The Ph3rsician Payment Review Commission shall conduct a
study on physician fees under State medicaid programs estab­
lished under title XIX of the Social Security Act. The Commis­
sion shall specifically examine in such study the adequacy of A
physician reimbursement under such programs, physician
participation in such programs, and access to care by medicaid
beneficiaries. By no later than July 1, 1991, the Commission Reports,
shall submit a report to Congress on such study and shall
include such recommendations as the Commission deems appro­
priate.
(9) GAO STUDY ON PHYSICIAN ANTI-TRUST ISSUES.—The
Comptroller General shall conduct a study of the effect of anti­
trust laws on the ability of physicians to act in groups to
educate and discipline peers of such physicians in order to
reduce and eliminate ineffective practice patterns and inappro­
priate utilization. The study shall further address anti-trust
issues as they relate to the adoption of practice guidelines by
third-party payers and the role that practice guidelines might
play as a defense in malpractice cases. By no later than July 1, Reports.
1991, the Comptroller General shall submit a report to Congress
on such study and shall make such recommendations as the
Comptroller General deems appropriate,
(e) MISCELLANEOUS CONFORMING AMENDMENTS.—
(1) REFERENCE TO NEW PAYMENT RULES.—Section 1833(aXl) of
the Social Security Act (42 U.S.C. 13951(aXl)) is amended—
(A) by striking "and" before clause (M), and
(B) by inserting before the semicolon the following new
clause: "and (N) with respect to expenses incurred for
physicians' services (as defined in section 1848(jX3)), the
amounts paid shall be 80 percent of the payment basis
determined under section 1848(aXl)".
(2) CHANGING REFERENCE TO MAXIMUM ALLOWABLE ACTUAL
CHARGES.—Section 1842(bX3XG) of such Act (42 U.S.C.
1395u(bX3XG)) is amended by striking "maximum allowable
actusd charges (established under subsection (jXlXC))" and
inserting "limiting charges established under subsection
(jXlXC)".
(3) DIFFERENTIAL FOR PARTICIPATING PHYSICIANS.—Effective Effective date.
for physicians' services furnished on or after January 1, 1992,
the first sentence of section 1842(bX4XAXiv) of such Act (42
U.S.C. 1395u(bX4XAXiv)) is amended by inserting "and before
January 1,1992," after "January 1,1987,".
(4) PAYMENT FOR PHYSICIAN ASSISTANTS.—Section
1842(bX12XAXiiXII) of such Act (42 U.S.C. 1395u(bX12XAXiiXII))
is amended by inserting "(or, for services furnished on or after
January 1, 1992, the fee schedule amount specified in section
1848, as the case may be)" after "prevailing charge rate for such
services".
(5) PAYMENT FOR CERTIFIED REGISTERED NURSE ANESTHETISTS.—
Section 1833(aXlXH) of such Act (42 U.S.C. 13951(aXlXH)) is
amended by inserting "(or, for services furnished on or after
January 1, 1992, the fee schedule amount provided under sec­
tion 1848, as the case may be)" after "prevailing charge that
would be recognized". 103 STAT. 2188 PUBLIC LAW 101-239—DEC. 19, 1989
42 use 1395m
note.
42 use 1395U
note.
42 use 1395W-4
note.
Public
information. (6) PAYMENT FOR RADIOLOGIST SERVICES.—(A) Section
1833(aXlXJ) of such Act (42 U.S.C. 13951(aXlXJ)) is amended by
inserting "subject to section 1848," before "the amounts".
(B) S^tion 4049(bX2) of the Omnibus Budget Reconciliation
Act of 1987 is amended by striking ", and until" and all that
follows through "Social Security Act".
(7) PAYMENT FOR NURSE MIDWIVES.—Section 1833(aXlXK) of
the Social Security Act (42 U.S.C. 13951(aXlXK)) is amended by
inserting ", or, for services furnished on or after January 1,
1992, 65 percent of the fee schedule amount provided under
section 1848 for the same service performed by a physician"
after "for the same service performed by a physician".
(8) PHYSICIANS' SERVICES FOR INDIVIDUALS WITH END STAGE
RENAL DISEASE.—Section 1881(bX3XA) of such Act (42 U.S.C.
1395rr(bX3XA)) is amended by inserting "or, for services fur­
nished on or after January 1, 1992, on the basis described in
section 1848" after "comparable services".
(9) EXTENSION OF MAXIMUM ALLOWABLE ACTUAL CHARGE
UMiTS.—Subparagraphs (BXii) and (DXv) of section 1842(jXl) of
such Act (42 U.S.C. 1395u(jXl)) are each amended by striking all
that follows "after" the first place it appears and inserting
"December 31,1990.".
(10) TREATMENT OF CERTAIN EYE EXAMINATION VISITS AS PRI­
MARY CARE SERVICES.—In applying section 1842(iX4) of the Social
Security Act for services furnished on or eifter January 1, 1990,
intermediate and comprehensive office visits for eye examina­
tions and treatments (codes 92002 and 92004) shall bie considered
to be primary care services.
(11) DISTRIBUTION OF MODEL FEE SCHEDULE.—By September 1,
1990, the Secretary shall develop a Model Fee Schedule, using
the methodology set forth in section 1848 of the Social Security
Act. The Model Fee Schedule shall include as many services as
the Secretary concludes can be assigned valid relative values.
The Secretary shall submit the Model Fee Schedule to the
appropriate committees of Congress and make it generally
available to the public.
(f) PAYMENT FOR PATHOLOGY SERVICES.—
(1) FEE SCHEDULE.—Section 1834 of the Socisd Security Act (42
U.S.C. 1395m) is amended by adding at the end the following
new subsection:
"(f) FEE SCHEDULE FOR PHYSICIAN PATHOLOGY SERVICES.—
"(1) APPUCATION.—Subject to section 1848, the Secretary shall
provide for application of a fee schedule with respect to physi­
cian pathology services. Subject to paragraph (2), such fee sched­
ule shall be based on relative values developed by the Secretary,
in consultation with organizations representing physicians
performing such services. Such fee schedule shall be designed so
as to result in expenditures under this part for services covered
under the schedule in an amount that would not exceed the
amount of such expenditures which would otherwise occur. In
developing such fee schedule the Secretary shall take into
account the special circumstances of rural independent labora­
tories.
"(2) GEOGRAPHIC AREA ADJUSTMENT.—The Secretary shall pro­
vide for a geographic area adjustment of the conversion factors
in a manner comparable to the geographic area adjustment
applied to physicians' services under section 1848 during the
year in which the services are furnished.". PUBLIC LAW 101-239—DEC. 19,1989 103 STAT. 2189
(2) PAYMENT ON BASIS OP FEE SCHEDULE.—Section 1833(aXlXJ)
of such Act (42 U.S.C. 13951(aXlXJ)) is amended—
(A) by inserting "or physician pathology services" after
"1834(bX6))", and
(B) by inserting "or section 1834(f), respectively" after
"1834(b)".
(3) EFFECTIVE DATE.—The amendments made by this subsec- 42 use 1395/
tion shall apply to services furnished on or after January 1, ^°^-
1991.
(g) EFFECTIVE DATE.—Except as otherwise provided in this section, 42 use 1395/
this section, and the amendments made by this section, shall take ^°^-
effect on the date of the enactment of this Act.
SEC 6103. ESTABLISHMENT OF AGENCY FOR HEALTH CARE POLICY AND
RESEARCH.
(a) IN GENERAL.—The Public Health Service Act (42 U.S.C. 201 et
seq.) is amended by inserting after title VIII the following new title:
"TITLE IX—AGENCY FOR HEALTH CARE POLICY AND
RESEARCH
"PART A—ESTABLISHMENT AND GENERAL DUTIES
"SEC. 901. ESTABLISHMENT. 42 USC 299.
"(a) IN GENERAL.—There is established within the Service an
agency to be known as the Agency for Health Care Policy and
Research.
"(b) PURPOSE.—^The purpose of the Agency is to enhance the
quality, appropriateness, and effectiveness of health care services,
and access to such services, through the establishment of a broad
base of scientific research and through the promotion of improve­
ments in clinical practice and in the organization, financing, and
delivery of health care services.
"(c) APPOINTMENT OF ADMINISTRATOR.—There shall be at the head
of the Agency an official to be known as the Administrator for
Health Care Policy and Research. The Administrator shsdl be ap­
pointed by the Secretary. The Secretary, acting through the
Administrator, shadl carry out the authorities and duties established
in this title.
"SEC. 902. GENERAL AUTHORITIES AND DUTIES. 42 USC 299a.
"(a) IN GENERAL.—In carrying out section 901(b), the Adminis-
tratx)r shall conduct and support research, demonstration projects,
evaluations, training, guideline development, and the dissemination
of information, on health care services and on systems for the
delivery of such services, including activities with respect to—
"(1) the effectiveness, efficiency, and quality of health care
services;
"(2) subject to subsection (d), the outcomes of health care
services and procedures;
"(3) clinical practice, including primary care and practice-
oriented research;
"(4) health care technologies, facilities, and equipment;
"(5) health care costs, productivity, and market forces;
"(6) health promotion and disease prevention;
"(7) health statistics and epidemiology; and
"(8) medical liability. 103 STAT. 2190 PUBLIC LAW 101-239—DEC. 19, 1989
"Ot)) REQUIREMENTS WITH RESPECT TO RURAL AREAS AND UNDER-
SERVED POPULATIONS.—In carrying out subsection (a), the Adminis­
trator shall undertake and support research, demonstration
projects, and evaluations with respect to^
"(1) the delivery of health care services in rural areas (includ­
ing frontier areas); and
(2) the health of low-income groups, minority groups, and the
elderly.
"(c) MULTIDISCIPUNARY CENTERS.—The Administrator may pro­
vide financial assistance to public or nonprofit private entities for
meeting the costs of planning and establishing new centers, and
operating existing and new centers, for multidisciplinary health
services research, demonstration projects, evaluations, training,
policy analysis, and demonstrations respecting the matters referred
to in subsection (b).
"(d) RELATION TO CERTAIN AUTHORITIES REGARDING SOCIAL SECU­
RITY.—Activities authorized in this section may include, and shall be
appropriately coordinated with, experiments, demonstration
projects, and other related activities authorized by the Social Secu­
rity Act and the Social Security Amendments of 1967. Activities
under subsection (aX2) of this section that affect the programs under
titles XVIII and XIX of the Social Security Act shall be carried out
consistent with section 1142 of such Act.
42USC299a-l. "SEC. 903. DISSEMINATION.
"(a) IN GENERAL.—The Administrator shall—
"(1) promptly publish, make available, and otherwise dissemi­
nate, in a form understandable and on as broad a basis as
practicable so as to maximize its use, the results of research,
demonstration projects, and evaluations conducted or supported
under this title and the guidelines, standards, and review cri­
teria developed under this title;
"(2) promptly make available to the public data developed in
such research, demonstration projects, and evaluations;
"(3) provide indexing, abstracting, translating, publishing,
and other services leading to a more effective and timely
dissemination of information on research, demonstration
projects, and evaluations with respect to health care to public
and private entities and individuals engaged in the improve­
ment of health care delivery and the general public, and under­
take programs to develop new or improved methods for making
such information available; and
State and local "(4) as appropriate, provide technical assistance to State and
governments. local government and health agencies and conduct liaison
activities to such agencies to foster dissemination.
"(b) PROHIBITION AGAINST RESTRICTIONS.—Except as provided in
subsection (c), the Administrator may not restrict the publication or
dissemination of data from, or the results of, projects conducted or
supported under this title.
(c) LIMITATION ON USE OP CERTAIN INFORMATION.—No informa­
tion, if an establishment or person supplying the information or
described in it is identifiable, obtained in the course of activities
undertaken or supported under this title may be used for any
purpose other than the purpose for which it was supplied unless
such establishment or person has consented (as determined under
regulations of the Secretary) to its use for such other purpose. Such
information may not be published or released in other form if the Public
information. PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2191
person who supplied the mformation or who is described in it is
identifiable unless such person has consented (as determined under
regulations of the Secretary) to its publication or release in other
form.
"(d) CERTAIN INTERAGENCY AGREEMENT.—The Administrator and Ck)ntracts.
the £>irector of the National Library of Medicine shall enter into an
agreement provichng for the implementation of subsection (aX3).
-SEC. 904. HEALTH CARE TECHNOLOGY AND TECHNOLOGY ASSESSMENT. 42 USC 299a-2.
"(a) IN GENERAL.—In carrying out section 901(b), the Adminis­
trator shall promote the development and application of appropriate
health care technolc^ assessments—
"(1) by identif^ng needs in, and establishing priorities for, the
assessment of specific health care technologies;
, "(2) by developing and evaluating criteria and methodologies
for health care technology assessment;
"(3) by conducting and supporting research on the develop­
ment and diffusion of health care technology;
"(4) by conducting and supporting research on assessment
methodologies; and
"(5) by promoting education, training, and technical assist­
ance in the use of health care technology assessment methodolo­
gies and results.
"(b) SPECIFIC ASSESSMENTS.—
"(1) IN GENERAL.—In carrying out section 901(b), the Adminis­
trator shall conduct and support specific assessments of health
care technologies.
"(2) CONSIDERATION OP CERTAIN FACTORS.—In carrying out
paragraph (1), the Administrator shall consider the safety, effi­
cacy, and effectiveness, and, as appropriate, the cost-effective­
ness, legal, social, and ethical implications, and appropriate
uses of such technologies, including consideration of geographic
factors.
"(c) INFORMATION CENTER.—
"(1) IN GENERAL.—There shall be established at the National Establishment.
Library of Medicine an information center on health care tech­
nologies and health care technology assessment.
"(2) INTERAGENCY AGREEMENT.—The Administrator and the Contracts.
Director of the National Library of Medicine shall enter into an
agreement providing for the implementation of paragraph (1).
"(d) RECOMMENDATIONS WITH RESPECT TO HEALTH CARE TECH­
NOLOGY.—
"(1) IN GENERAL.—The Administrator shall make rec­
ommendations to the Secretary with respect to whether specific
health care technologies should be reimbursable under federally
financed health programs, including recommendations with re­
spect to cuiy conditions and requirements under which any such
reimbursements should be made.
"(2) CONSIDERATION OF CERTAIN FACTORS.—In making rec­
ommendations respecting health care technologies, the
Administrator shall consider tiie safety, efficacy, and effective-
I ness, and, as appropriate, the cost-effectiveness and appropriate
;, uses of such technologies.
"(3) CONSULTATIONS.—In carrying out this subsection, the
I Administrator shall cooperate and consult with the Director of
the National Institutes of Health, the Commissioner of Food 103 STAT. 2192 PUBLIC LAW 101-239—DEC. 19,1989
and Drugs, and the heads of any other interested Federal
department or agency.
"PART B—FORUM FOR QUALITY AND EFFECTIVENESS IN HEALTH CARE
42 use 299b. "SEC. 911. ESTABLISHMENT OF OFFICE.
"There is established within the Agency an office to be known as
the Office of the Forum for Quality and Effectiveness in Health
Care. The office shall be headed by a director, who shall be ap­
pointed by the Administrator.
42 use 299b-l. "SEC. 912. DUTIES.
"(a) EsTABUSHMENT OF FoRUM PROGRAM.—The Administrator,
acting through the Director, shall establish a program to be known
as the Forum for Quality and Effectiveness in Health Care. For the
purpose of promoting the quality, appropriateness, and effectiveness
of health care, the Director, using the process set forth in section
913, shall arrange for the development and periodic review and
updating of—
"(1) clinically relevant guidelines that may be used by physi­
cians, educators, and health care practitioners to assist in deter-
'^*' mining how diseases, disorders, and other health conditions can
most effectively and appropriately be prevented, diagnosed,
treated, and managed clinically; and
"(2) standards of quality, performance measures, and medical
review criteria through which health care providers and other
appropriate entities may assess or review the provision of
health care and assure the quality of such care.
"(b) CERTAIN REQUIREMENTS.—Guidelines, standards, performance
measures, and review criteria under subsection (a) shall—
"(1) be based on the best available research and professional
judgment regarding the effectiveness and appropriateness of
health care services and procedures;
"(2) be presented in formats appropriate for use by physicians,
health care practitioners, providers, medical educators, and
medical review organizations and in formats appropriate for use
by consumers of health care; and
"(3) include treatment-specific or condition-specific practice
guidelines for clinical treatments and conditions in forms appro­
priate for use in clinical practice, for use in educational pro­
grams, and for use in reviewing quality and appropriateness of
medical care.
"(c) AUTHORITY FOR CONTRACTS.—In canning out this part, the
Director may enter into contracts with public or nonprofit private
entities.
"(d) DATE CERTAIN FOR INITIAL GUIDELINES AND STANDARDS.—The
Administrator, by not later than January 1, 1991, shall assure the
development of an initial set of guidelines, standards, performance
measures, and review criteria under subsection (a) that includes not
less than 3 clinical treatments or conditions described in section
1142(aX3) of the Social Security Act.
"(e) RELATIONSHIP WITH MEDICARE PROGRAM.—To assure £in
appropriate reflection of the needs and priorities of the program
under title XVIII of the Social Security Act, activities under this
part that affect such program shall be conducted consistent with
section 1142 of such Act. PUBLIC LAW 101-239—DEC. 19,1989 103 STAT. 2193
'*SEC. 913. PROCESS FOR DEVELOPMENT OF GUIDELINES AND STAND- 42 USC 299b-2.
ARDS.
"(a) DEVEix)PMENT THROUGH CONTRACTS AND PANELS.—The Direc­
tor shall—
"(1) enter into contracts with public and nonprofit private
entities for the purpose of developing and periodically reviewing
and updating the guidelines, standards, performance measures,
and review criteria described in section 912(a); and
"(2) convene panels of appropriately qualified experts (includ­
ing practicing physicians with appropriate expertise) and health
care consumers for the put^pose of—
"(A) developing and periodically reviewing and updating
the guidelines, standards, performance measures, and
review criteria described in section 912(a); and
"(B) reviewing the guidelines, standards, performance
measures, and review criteria developed imder contracts
under paragraph (1).
"(b) AUTHORITY FOR AoomoNAL PANELS.—The Director may con­
vene panels of appropriately qualified experts (including practicing
physicians with appropriate expertise) and health care consumers
for the purpose of—
(1) developing the standards and criteria described in section
914(b); and
"(2) providing advice to the Administrator and the Director
with respect to any other activities carried out imder this part
or under section 902(aX2).
"(c) SELECTION OP PANEL MEMBERS.—In selecting individuals to
serve on panels convened under this section, the Director shall
consult with a broad range of interested individuals and organiza­
tions, including oi^anizations representing^ ^lysicians in the general
practice of medicine and organizations representing phyincians in
specialties and subspecialties pertinent to the purposes d the panel
involved. The Director shall seek to appoint physicians reflecting a
variety of practice settings.
"SEC. 914. ADDITIONAL REQUIREMENTS. 42 USC 299b-3.
"(a) PROGRAM AGENDA.—
"(1) IN GENERAL.—The Administrator shall provide for an
agenda for the development of the guidelines, standards,
performance measures, and review criteria described in section
912(a), including—
"(A) with respect to the guidelines, identifying specific
diseases, disorders, and other health conditions for which
the guidelines are to be developed and those that are to be
given priority in the development of the guidelines; and
"(B) with respect to the standards, performance meas­
ures, and review criteria, identifying specific aspects of
health care for which the standards, performance meas­
ures, and review criteria are to be developed and those that
are to be given priority in the development of the stand­
ards, performance measures, and review criteria.
"(2) CONSIDERATION OF CERTAIN FACTORS IN ESTABLISHING
PRIORITIES.—
"(A) Factors considered by the Administrator in
j establishing priorities for purposes of paragraph (1) shall
include consideration of the extent to which the guidelines. 103 STAT. 2194 PUBLIC LAW 101-239—DEC. 19, 1989
standards, performance measures, and review criteria in­
volved can be expected—
"(i) to improve methods of prevention, diagnosis,
treatment, and clinical management for the benefit of
a significant number of individuals;
"(ii) to reduce clinically significant variations among
physicians in the particular services and procedures
– utilized in making diagnoses and providing treatments;
and
"(iii) to reduce clinically significant variations in the
outcomes of health care services and procedures.
"(B) In providing for the agenda required in paragraph
(1), including the priorities, the Administrator shall consult
with the Administrator of the Health Care Financing
Administration and otherwise act consistent with section
1142(bX3) of the Social Security Act.
"(b) STANDARDS AND CRITERIA.—
"(1) PROCESS FOR DEVELOPMENT, REVIEW, AND UPDATING.—The
Director shall establish standards and criteria to be utilized by
the recipients of contracts under section 913, and by the expert
panels convened under such section, with respect to the develop­
ment and periodic review and updating of the guidelines, stand­
ards, performance measures, and review criteria described in
section 912(a).
"(2) AWARD OF CONTRACTS.—The Director shall establish
standards and criteria to be utilized for the purpose of ensuring
that contracts entered into for the development or periodic
review or updating of the guidelines, standards, performance
measures, and review criteria described in section 912(a) will be
entered into only with appropriately qualified entities.
"(3) CERTAIN REQUIREMENTS FOR STANDARDS AND CRITERIA.—
The Director shall ensure that the standards and criteria estab­
lished under pareigraphs (1) and (2) specify that—
"(A) appropriate consultations with interested individ­
uals and organizations are to be conducted in the develop­
ment of the guidelines, standards, performance measures,
and review criteria described in section 912(a); and
"(B) such development may be accomplished through the
adoption, with or without modification, of guidelines, stand­
ards, performance measures, and review criteria that^
"(i) meet the requirements of this part; and
"(ii) are developed by entities independently of the
program established in this part.
"(4) IMPROVEMENTS OF STANDARDS AND CRITERIA.—The Direc­
tor shall conduct and support research with respect to improv­
ing the standards and criteria developed under this subsection.
"(c) DISSEMINATION.—The Director shall promote and support the
dissemination of the guidelines, standards, performance measures,
and review criteria described in section 912(a). Such dissemination
shall be C£u-ried out through organizations representing health care
providers, organizations representing health care consumers, peer
review organizations, accrediting bodies, and other appropriate enti­
ties.
"(d) PILOT TESTING.—The Director may conduct or support pilot
testing of the guidelines, standards, performance measures, and
review criteria developed under section 912(a). Any such pilot test-PUBLIC LAW 101-239—DEC. 19,1989 103 STAT. 2195
ing may be conducted prior to, or concurrently with, their dissemi­
nation under subsection (c).
"(e) EVALUATIONS.—The Director shall conduct and support
evaluations of the extent to which the guidelines, standards,
performance standards, and review criteria developed under section
912 have had an effect on the clinical practice of medicine.
"(f) RECOMMENDATIONS TO ADMINISTRATOR.—The Director shall
make recommendations to the Administrator on activities that
should be carried out under section 902(aX2) and under section 1142
of the Social Security Act, including recommendations of particular
research projects that should be carried out with respect to—
"(1) evaluating the outcomes of health care services and
procedures;
"(2) developing the standards and criteria required in subsec­
tion (b); and
"(3) promoting the utilization of the guidelines, standards,
performance standards, and review criteria developed under
section 912(a).".
(b) OUTCOMES OP HEALTH CARE SERVICES AND PROCEDURES.—
(1) E^ABUSHMENT OP PROGRAM OF RESEARCH.—Part A of title
XI of the Social Security Act (42 U.S.C. 1301 et seq.) is cunended
by adding at the end the following new section:
"RESEARCH ON OUTCOMES OP HEALTH CARE SERVICES AND PROCEDURES
s "SEC. 1142. (a) ESTABLISHMENT OF PROGRAM.— 42 use
"(1) IN GENERAL.—The Secretary, acting through the Adminis- I320b-12.
trator for Health Care Policy and Research, shall—
"(A) conduct and support research with respect to the
outcomes, effectiveness, and appropriateness of health care
? services and procedures in order to identify the manner in
which diseases, disorders, and other health conditions can
most effectively and appropriately be prevented, diagnosed,
treated, and managed clinically; and
"(B) assure that the needs and priorities of the program
under title XVIII are appropriately reflected in the develop­
ment and periodic review and updating (through the proc- ^
ess set forth in section 913 of the Public Health Service Act)
of treatment-specific or condition-specific practice guide­
lines for clinical treatments and conditions in forms appro­
priate for use in clinical practice, for use in educational
programs, and for use in reviewing quality and appropriate­
ness of medical care.
"(2) EVALUATIONS OF ALTERNATIVE SERVICES AND PROCE­
DURES.—In carrying out paragraph (1), the Secretary shall con­
duct or support evaluations of the comparative effects, on
health and functional capacity, of alternative services and
procedures utilized in preventing, diagnosing, treating, and
clinically managing diseases, disorders, and other health condi­
tions.
"(3) INITIAL GUIDEUNES,—
"(A) In carrying out paragraph (IXB) of this subsection,
and section 912(d) of the Public Health Service Act, the
Secretary shall, by not later than January 1, 1991, assure ^
i the development of an initial set of the guidelines specified
in paragraph (1)(B) that shall include not less than 3 clini­
cal treatments or conditions that— 103 STAT. 2196 PUBLIC LAW 101-239—DEC. 19, 1989
Reports. "(iXD account for a significant portion of expendi­
tures under title XVIII; and
"(II) have a significant variation in the fi-equency or
the type of treatment provided; or
.K.< •• "(ii) otherwise meet the needs and priorities of the
program under title XVIII, as set forth under subsec­
tion (bX3).
"(BXi) The Secretary shall provide for the use of guide­
lines developed under subparagrah (A) to improve the qual­
ity, effectiveness, and appropriateness of care provided
under title XVIII. The Secretary shall determine the
impact of such use on the quality, appropriateness,
effectiveness, and cost of medical care provided under such
title and shall report to the Congress on such determination
by not later than January 1,1993.
"(ii) For the purpose of carrying out clause (i), the Sec­
retary shall expend, from the amounts specified in clause
(iii), $1,000,000 for fiscal year 1990 and $1,500,000 for each
of the fiscal years 1991 and 1992.
"(iii) For each fiscal year, for purposes of expenditures
required in clause (ii)—
"(I) 60 percent of an amount equal to the expenditure
involved is appropriated from the Federal Hospital
: :r Insurance Trust Fund (established under section 1817);
and
"(II) 40 percent of an amount equal to the expendi-
– ture involved is appropriated from the Federal Supple­
mentary Medical Insurance Trust Fund (established
under section 1841).
"Ot)) PRIORITIES.—
"(1) IN GENERAL.—The Secretary shall establish priorities
with respect to the diseases, disorders, and other health condi­
tions for which research and evaluations are to be conducted or
supported under subsection (a). In establishing such priorities,
the Secretary shall, with respect to a disease, disorder, or other
health condition, consider the extent to which—
"(A) improved methods of prevention, diagnosis, treat­
ment, and clinical management can benefit a significant
number of individuals;
"(B) there is significant variation among physicians in
the particular services and procedures utilized in making
diagnoses and providing treatments or there is significant
variation in the outcomes of health care services or proce­
dures due to different patterns of diagnosis or treatment;
^ "(C) the services and procedures utilized for diagnosis and
treatment result in relatively substantial expenditures; and
"(D) the data necessary for such evaluations are readily
available or can readily be developed.
"(2) PREUMINARY ASSESSMENTS.—For the purpose of establish­
ing priorities under paragraph (1), the Secretary may, with
respect to services and procedures utilized in preventing, di­
agnosing, treating, and clinically managing diseases, disorders,
and other health conditions, conduct or support assessments of
the extent to which—
"(A) rates of utilization vary among similar populations
for particular diseases, disorders, and other health condi­
tions; PUBLIC LAW 101-239—DEC. 19,1989 103 STAT. 2197
"(B) uncertainties exist on the effect of utilizing a particu­
lar service or procedure; or
"(C) inappropriate services and procedures are provided.
"(3) RELATIONSHIP WITH MEDICARE PROGRAM.—In establishing
priorities under paragraph (1) for research and evaluation, and
under section 914(a) of the Public Health Service Act for the
agenda under such section, the Secretary shall assure that such
priorities appropriately reflect the needs and priorities of the
program under title XvIII, as set forth by the Administrator of
the Health Care Financing Administration.
"(c) METHODOLOGIES AND OUTERIA FOR EVALUATIONS.—For the
purpose of facilitating research under subsection (a), the Secretary
shall—
"(1) conduct and support research with respect to the
improvement of methodologies and criteria utilized in conduct­
ing research with respect to outcomes of health care services
and procedures;
"(2) conduct and support reviews and evaluations of existing
research findings with respect to such treatment or conditions;
"(3) conduct and support reviews and evaluations of the exist­
ing methodologies that use large data bases in conducting such
research and shall develop new research methodologies, includ­
ing data-based methods of advancing knowledge and methodolo­
gies that measure clinical and functional status of patients,
with respect to such research;
"(4) provide grants and contracts to research centers, and
contracts to other entities, to conduct such research on such
treatment or conditions, including research on the appropriate
use of prescription drugs;
"(5) conduct and support research and demonstrations on the
use of claims data and data on clinical and functional status of
patients in determining the outcomes, effectiveness, and appro­
priateness of such treatment; and
"(6) conduct and support supplementation of existing data
bases, including the collection of new information, to enhance
data bsises for research purposes, and the design and develop­
ment of new data bases that would be used in outcomes and
effectiveness research.
"(d) STANDARDS FOR DATA BASES.—In carrying out this section, the
Secretary shall develop—
"(1) uniform definitions of data to be collected and used in
describing a patient's cliniced and functional status;
"(2) common reporting formats and linkages for such data;
and
"(3) standards to assure the security, confidentiality, ac­
curacy, and appropriate maintenance of such data.
"(e) DISSEMINATION OF RESEARCH FINDINGS AND GUIDELINES.—
"(1) IN GENERAL.—The Secretary shall provide for the dissemi­
nation of the findings of research and the guidelines described
in subsection (a), and for the education of providers and others
in the application of such research findings and guidelines.
"(2) COOPERATIVE EDUCATIONAL ACTIVITIES.—In disseminating
findings and guidelines under paragraph (1), and in providing
for education under such paragraph, the Secretary shall work
with professioncd associations, medical specialty and sub­
specialty organizations, and other relevant groups to identify
and implement effective means to educate physicians, other Grants.
Contracts.
Education. 103 STAT. 2198 PUBLIC LAW 101-239—DEC. 19, 1989
providers, consumers, and others in using such findings and
guidelines, including training for ph3rsician managers within
provider organizations,
"w EVALUATIONS.—The Secretary shall conduct and support
evaluations of the activities carried out under this section to deter­
mine the extent to which such activities have had an effect on the
practices of physicians in providing medical treatment, the delivery
of health care, and the outcomes of health care services and proce­
dures.
"(g) RESEARCH WITH RESPECT TO DISSEMINATION.—The Secretary
may conduct or support research with respect to improving metho(u
of disseminating information on the efTectiveness and appropriate­
ness of health care services and procedures.
"(h) REPORT TO CONGRESS.—Not later than February 1 of each of
the years 1991 and 1992, and of each second year thereafter, the
Secretary shall report to the Congress on the progress of the activi­
ties under this section during the preceding fiscal year (or preceding
2 fiscal ^ears, as appropriate), including the impact of such activities
on medical care (particularly medical care for individuals receiving
benefits under title XVUI).
"(i) AUTHORIZATION OP APPROPRIATIONS.—
"(1) IN GENERAL.—There are authorized to be appropriated to
carry out this section—
"(A) $50,000,000 for fiscal year 1990;
"(B) $75,000,000 for fiscal year 1991;
"(C) $110,000,000 for fiscal year 1992;
"(D) $148,000,000 for fiscal year 1993; and
"(E) $185,000,000 for fiscal year 1994.
"(2) SPECIFICATIONS.—For the purpose of carrying out this
section, for each of the fiscal years 1990 through 1992 an
amount equal to two-thirds of the amoimts authorized to be
appropriated under paragraph (1), and for each of the fiscal
years 1993 and 1994 an amount equal to 70 percent of such
amounts, are to be appropriated in the following proportions
from the following trust funds:
"(A) 60 percent from the Federal Hospital Insurance
Trust Fund (established under section 1817).
"(B) 40 percent from the Federal Supplementary Medical
Insurance Trust Fund (established under section 1841).
"(3) ALLOCATIONS.—•
"(A) For each fiscal year, of the amounts transferred or
otherwise appropriated to carry out this section, the Sec­
retary shall reserve appropriate amounts for each of the
purposes specified in clauses (i) through (iv) of subpara­
graph (B).
"(B) The purposes referred to in subparagraph (A) are—
"(i) the development of guidelines, standards,
performance measures, and review criteria;
"(ii) research and evaluation;
"(iii) data-base standards and development; £md
"(iv) education and information dissemination.".
42 use 1320b-12 (2) REPORT ON UNKAGE OF PUBUC AND PRIVATE RESEARCH
"<**®- RELATED DATA.—Not later than 1 year after the date of the
enactment of this Act, the Secretary of Health and Human
Services shall report to the Congress on the feasibility of linking
research-related data described in section 1142(d) of the SocicJ
Security Act (as added by paragraph (1) of this subsection) with PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2199
similar data collected or maintained by non-Federal entities and
by Federal agencies other than the Department of Health and
Human Services (including the Departments of Defense and
Veterans Affairs and the Office of Personnel Management).
(3) TECHNICAL AND CONFORMING PROVISIONS.—
(A) Effective for fiscal years beginning after fiscal year
1990, subsection (c) of section 1875 of the Social Security Act
(42 U.S.C. 139511) is repealed.
(B) Section 1862(aXlXE) of the Social Security Act (42
U.S.C. 1395y(aXlXE)) is amended by striking "section
1875(c)" and inserting "section 1142".
(c) ADDITIONAL AUTHORITIES AND DUTIES WITH RESPECT TO AGENCY
FOR HEALTH CARE POUCY AND RESEARCH.—Title IX of the Public
Health Service Act, as added by subsection (a) of this section, is
amended by adding at the end the following new part:
"PART C—GENERAL PROVISIONS
"SEC. 921. ADVISORY COUNCIL FOR HEALTH CARE POLICY, RESEARCH, 42 USC 299c.
AND EVALUATION.
"(a) ESTABUSHMENT.—There is established an advisory council to
be known as the National Advisory Council for Health Care Policy,
Research, and Evaluation.
"(b) DUTIES.—
"(1) IN GENERAL.—The Council shall advise the Secretary and
the Administrator with respect to activities to carry out the
purpose of the Agency under section 901(b).
"(2) CERTAIN RECOMMENDATIONS.—Activities of the Council
under paragraph (1) shall include making recommendations to
the Administrator regarding priorities for a national agenda
and strategy for—
"(A) the conduct of research, demonstration projects, and
evaluations with respect to health care, including clinical
practice and primary care;
"(B) the development and application of appropriate
health care technology assessments;
"(C) the development and periodic review and updating of
guidelines for clinical practice, standards of quality,
performance mesisures, and medical review criteria with
respect to health care; and
"(D) the conduct of research on outcomes of health care
services £ind procedures.
"(c) MEMBERSHIP.—
"(1) IN GENERAL.—The Council shall, in accordance with this
subsection, be composed of appointed members and ex ofRcio
members. All members of the Council shall be voting members,
other than officials designated under paragraph (3XB) as ex
officio members of the Council.
"(2) APPOINTED MEMBERS.—The Secretary shall appoint to the
Council 17 appropriately qualified representatives of the public
who are not officers or employees of the United States. The ,
Secretary shall ensure that the appointed members of the Coun­
cil, as a group, are representative of professions and entities
concerned with, or affected by, activities under this title and 103 STAT. 2200 PUBLIC LAW 101-239—DEC. 19, 1989
under section 1142 of the Social Security Act. Of such mem­
bers—
"(A) 8 shall be individuals distinguished in the conduct of
research, demonstration projects, and evaluations with re­
spect to health care;
"(B) 3 shall be individuals distinguished in the practice of
• medicine;
"(C) 2 shall be individuals distinguished in the health
professions;
' "(D) 2 shall be individuals distinguished in the fields of
business, law, ethics, economics, and public policy; and
"(E) 2 shall be individuals representing the interests of
consumers of hecdth care.
"(3) Ex OFFICIO MEMBERS.—The Secretary shall designate as
ex officio members of the Council—
"(A) the Director of the National Institutes of Health, the
Director of the Centers for Disease Control, the Adminis­
trator of the Health Care Financing Administration, the
«' ' Assistant Secretary of Defense (Health Affairs), the Chief
> Medical Officer of the Department of Veterans Affairs; and
"(B) such other Federal officials as the Secretary may
consider appropriate. , .=
"(d) SUBCOUNCIL ON OUTCOMES AND GuiDEUNES.—
"(1) E^ABUSHMENT.—For the purpose of carrjring out the
duties specified in subparagraphs (C) and (D) of sul^ection (bX2),
the Secretary shall establish a subcouncil of the Coimcil and
shall designate the membership of the subcouncil in accordance
with paragraph (2).
"(2) MEMBERSHIP.—The subcouncil established pursuant to
paragraph (1) shsdl consist of^
"(A) 6 individuals from among the individuals appointed
to the Council under subparagraphs (A) through (C) of
subsection (cX2);
"(B) 2 individuals from among the individuals appointed
to the Council under subparagraphs (D) and (E) of such
subsection; and
"(C) each of the ofQcials designated as ex officio members
of the Council under subsection (cX3XA).
"(e) TERMS.—
"(1) IN GENERAL.—Except as provided in paragraph (2), mem­
bers of the Council appointed under subsection (cX2) shall serve
for a term of 3 years.
"(2) STAGGERED ROTATION.—Of the members first appointed to
the Council under subsection (cX2), the Secretary shall appoint 6
members to serve for a term of 3 years, 6 members to serve for a
term of 2 years, and 5 members to serve for a term of 1 year.
"(3) SERVICE BEYOND TERM.—A member of the Council ap­
pointed under subsection (cX2) may continue to serve after the
expiration of the term of the member until a successor is
appointed.
"(f) VACANCIES.—If a member of the Council appointed under
subsection (cX2) does not serve the full term applicable under subsec­
tion (e), the. individual appointed to fill the resulting vacancy shall
be appointed for the remainder of the term of the predecessor of the
individual. PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2201
"(g) CHAIR.—The Administrator shall, from among the members
of the Council appointed under subsection (cX2), designate an
individual to serve as the chair of the Council.
"(h) MEETINGS.—The Council shall meet not less than once during
each discrete 4-month period and shall otherwise meet at the call of
the Administrator or the chair,
"(i) COMPENSATION AND REIMBURSEMENT OF EXPENSES.—
"(1) APPOINTED MEMBERS.—Members of the Council appointed
under subsection (cX2) shall receive compensation for each day
(including traveltime) engaged in canying out the duties of the
Council. Such compensation may not be in an amount in excess
of the maximum rate of basic pay payable for GS-18 of the
Greneral Schedule.
"(2) Ex OFFICIO MEMBERS.—Officials designated under subsec­
tion (cX3) as ex officio members of the Council may not receive
compensation for service on the Council in addition to the
compensation otherwise received for duties carried out as offi­
cers of the United States,
"(j) STAFF.—The Administrator shall provide to the Council such
staff, information, and other assistance as may be necessary to carry
out the duties of the Council.
"(is.) DURATION.—Notwithstanding section 14(a) of the Federal
Advisory Committee Act, the Council shall continue in existence
until otherwise provided by law.
"SEC. 922. PEER REVIEW WITH RESPECT TO GRANTS AND CONTRACTS. 42 USC 299c-l.
"(a) REQUIREMENT OF REVIEW.—
"(1) IN GENERAL.—Appropriate technical and scientific peer
review shall be conducted with respect to each application for a
grant, cooperative agreement, or contract under this title.
"(2) REPORTS TO ADMINISTRATOR.—Each peer review group to
which an application is submitted pursuant to paragraph (1)
shall report its finding and recommendations respecting the
application to the Administrator in such form and in such
manner as the Administrator shall require.
"(b) APPROVAL AS PRECONDITION OF AWARDS.—The Administrator
may not approve an application described in subsection (aXD unless
the application is recommended for approval by a peer review group
established under subsection (c).
"(c) EsTABusHMENT OF PEER REVIEW GROUPS.—
"(1) IN GENERAL.—The Administrator shall establish such
technical £md scientific peer review groups as may be necessary
to carry out this section. Such groups shall be established
without regard to the provisions of title 5, United States Code,
that govern appointments in the competitive service, and with­
out regard to the provisions of chapter 51, and subchapter III of
chapter 53, of such title that relate to classification and pay
rates under the General Schedule.
"(2) MEMBERSHIP.—The members of any peer review group
established under this section shall be appointed from among
individuals who are not officers or employees of the United
Stetes and who by virtue of their training or experience are
eminently qualified to carry out the duties of such peer review
group.
"(3) DURATION.—Notwithstanding section 14(a) of the Federal
Advisory Committee Act, peer review groups esteblished under 103 STAT. 2202 PUBLIC LAW 101-239—DEC. 19, 1989
this section shall continue in existence until otherwise provided
by law.
"(d) CATEGORIES OP REVIEW.—
"(1) IN GENERAL.—With respect to technical and scientific
peer review under this section, such review of applications with
respect to research, demonstration projects, or evaluations shall
be conducted by different peer review groups than the peer
review groups that conduct such review of applications with
respect to dissemination activities or the development of re­
search agendas (including conferences, workshops, and meet­
ings).
(2) AUTHORITY FOR PROCEDURAL ADJUSTMENTS IN CERTAIN
CASES.—In the case of applications described in subsection (aXD
for financial assistance whose direct costs will not exceed
$50,000, the Administrator may make appropriate adjustments
in the procedures otherwise established by the Administrator
for the conduct of peer review under this section. Such adjust­
ments may be made for the purpose of encouraging the entry of
individual into the field of research, for the purpose of
encouraging clinical practice-oriented research, and for such
other purposes as the Administrator may determine to be
appropriate.
"(e) REGULATIONS.—The Secretary shall issue r^ulations for the
conduct of peer review under this section.
42 use 299C-2. "SEC. 923. CERTAIN PROVISIONS WITH RESPECT TO DEVELOPMENT,
COIXECTION, AND DISSEMINATION OF DATA.
"(a) STANDARDS WITH RESPECT TO UTILITY OF DATA.—
"(1) IN GENERAL.—With respect to data developed or collected
by any entity for the purpose described in section 901(b), the
Administrator shall, in order to assure the utility, accuracy, and
sufficiency of such data for all interested entities, establish
guidelines for uniform methods of developing and collecting
such data. Such guidelines shall include specSications for the
development and collection of data on the outcomes of health
care services and procedures.
"(2) RELATIONSHIP WITH MEDICARE PROGRAM.—In any case
where guidelines under paragraph (1) may affect the aominis-
tration of the program under title XVIII of the Social Security
Act, the guidelines shall be in the form of recommendations to
the Secretary for such program.
"(b) STATISTICS.—The Administrator shall—
"(1) take such action as may be necessaiy to assure that
statistics developed under this title are of high quality, timely,
and comprehensive, as well as specific, standardized, and ade­
quately analyzed and indexed; and
"(2) publish, make available, and disseminate such statistics
on as wide a basis as is practicable.
42 use 299C-3. "^EC. 924. ADDITIONAL PROVISIONS WITH RESPECT TO GRANTS AND
CONTRACTS.
"(a) REQUIREMENT OF APPUCATION.—The Administrator may not,
with respect to any pn^am under this title authorizing the provi­
sion of grants, cooperative agreements, or contracts, provide any
such financial assistance unless an application for the assistance is
submitted to the Secretary and the application is in such form, is
made in such manner, and contains such agreements, assurances. PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2203
and information as the Administrator determines to be necessary to
carry out the program involved.
"(b) PROVISION OF SUPPUES AND SERVICES IN LIEU OF FUNDS.—
"(1) IN GENERAL.—Upon the request of an entity receiving a
grant, cooperative agreement, or contract under this title, the
Secretary may, subject to paragraph (2), provide supplies, equip­
ment, and services for the purpose of aiding the entity in
carrying out the project involved and, for such purpose, may
detail to the entity any officer or employee of the Department of
Health and Human Services.
"(2) CORRESPONDING REDUCTION IN FUNDS.—With respect to a
request described in paragraph (1), the Secretary shall reduce
the amount of the financial assistance involved by £ui amount
equal to the costs of detailing personnel and the fair market
value of any supplies, equipment, or services provided by the
Administrator. The Secretary shall, for the payment of ex­
penses incurred in complying with such request, expend the
amounts withheld.
"(c) APPLICABILITY OF CERTAIN PROVISIONS WITH RESPECT TO CON­
TRACTS.—Contracts may be entered into under this part without
regard to sections 3648 and 3709 of the Revised Statutes (31 U.S.C.
529; 41 U.S.C. 5).
"SEC. 925. CERTAIN ADMINISTRATIVE AUTHORITIES.
"(a) DEPUTY ADMINISTRATOR AND OTHER OFFICERS AND EMPLOY­
EES.—
"(1) DEPUTY ADMINISTRATOR.—The Administrator may ap­
point a deputy administrator for the Agency.
"(2) OTHER OFFICERS AND EMPLOYEES.—The Administrator
may appoint and fix the compensation of such officers and
employees as may be necessary to carry out this title. Except as
otherwise provided by law, such officers and employees sh^l be
appointed in accordance with the civil service laws and their
compensation fixed in accordance with title 5, United States
Code.
"(b) FACILITIES.—The Secretary, in carrying out this title—
"(1) may acquire, without regard to the Act of March 3, 1877
(40 U.S.C. 34), by lease or otherwise through the Administrator
of General Services, buildings or portions of buildings in the
District of dlolumbia or communities located adjacent to the
District of Columbia for use for a period not to exceed 10 years;
and
"(2) may acquire, construct, improve, repair, operate, and
maintain laboratory, research, and other necessarv facilities
and equipment, and such other real or personal property
(including patents) as the Secretary deems necessary.
"(c) PROVISION OF FINANCIAL ASSISTANCE.—The Administrator, in
canying out this title, may make grants to, and enter into coopera­
tive agreements with, public and nonprofit private entities and
individuals, and when appropriate, may enter into contracts with
public and private entities and individuals.
"(d) UTIUZATION OF CJERTAIN PERSONNEL AND RESOURCES.—
"(1) DEPARTMENT OF HEALTH AND HUMAN SERVICES.—The
Administrator, in carrying out this title, may utilize personnel
and equipment, facilities, and other physical resources of the
Department of Health and Human Services, permit appropriate
(as determined by the Secretary) entities and individuals to 42 use 299C-4.
District of
Columbia.
Grants.
Contracts. 103 STAT. 2204 PUBLIC LAW 101-239—DEC. 19, 1989
utilize the physical resources of such Department, and provide
technical assistance and advice.
"(2) OTHER AGENCIES.—The Administrator, in carrying out
this title, may use, with their consent, the services, equipment,
personnel, information, and facilities of other Federal, State, or
local public agencies, or of any foreign government, with or
without reimbursement of such agencies.
"(e) CONSULTANTS.—The Secretary, in canying out this title, may
secure, from time to time and for such periods as the Administrator
deems advisable but in accordance with section 3109 of title 5,
United States Code, the assistance and advice of consultants from
the United States or abroad.
"(f) EXPERTS.—
"(1) IN GENERAL.—The Secretary may, in carrying out this
^ title, obtain the services of not more than 50 experts or consult­
ants who have appropriate scientific or professional qualifica­
tions. Such experts or consultants shall be obtained in accord­
ance with section 3109 of title 5, United States Code, except that
the limitation in such section on the duration of service shall
not apply.
"(2) TRAVEL EXPENSES.—
"(A) Experts and consultants whose services are obtained
under paragraph (1) shall be paid or reimbursed for their
expenses associated with traveling to and from their assign­
ment location in accordance with sections 5724, 5724a(aXl),
5724a(aX3), and 5726(c) of title 5, United States Code.
"(B) Expenses specified in subparagraph (A) may not be
allowed in connection with the assignment of an expert or
consultant whose services are obtained under paragraph (1)
unless and until the expert agrees in writing to complete
the entire period of assignment, or one year, whichever is
shorter, unless separated or reassigned for reasons that are
beyond the control of the expert or consultant and that are
acceptable to the Secretary. If the expert or consultant
violates the agreement, the money spent by the United
States for the expenses specified in subparagraph (A) is
recoverable from the expert or consultant as a debt of the
United States. The Secretary may waive in whole or in part
a right of recovery under this subparagraph.
"(g) VOLUNTARY AND UNCOMPENSATED SERVICES.—The Adminis­
trator, in carrying out this title, may accept voluntary and un­
compensated services.
42 use 299C-5. "SEC. 926. FUNDING.
"(a) AUTHORIZATION OF APPROPRIATIONS.—For the purpose of
canying out this title, there are authorized to be appropriated
$35,000,000 for fiscal year 1990, $50,000,000 for fiscal year 1991, and
$70,000,000 for fiscal year 1992.
"(b) EVALUATIONS.—In addition to amounts available pursuant to
subsection (a) for carrying out this title, there shall be made avail­
able for such purpose, from the amounts made available pursuant to
section 2611 of this Act (relating to evaluations), an amount equal to
40 percent of the maximum amount authorized in such section 2611
to be made available.
42USC299C-6. "SEC. 927. DEFINITIONS.
"For purposes of this title: > PUBLIC LAW 101-239—DEC. 19,1989 103 STAT. 2205
"(1) The term 'Administrator' means the Administrator for
Health Care PoU(^ and Research.
"(2) The term Agency* means the Agency for Health Care
Policy and Research.
"(3) The term 'Council* means the National Advisory Council
on Health Care Policy, Research, and Evaluation.
"(4) The term 'Director' means the Director of the Office of
the Forum for Quality and Effectiveness in Health Care.".
(d) GENERAL PROVISIONS.—
f 1) TERMINATIONS ~***
(A) The National Center for Health Services Research 42 use 242c
and Health Care Technology Assessment is terminated, and ^°**-
part A of title HI of the Public Health Service Act (42 U.S.C.
241 et seq.) is amended by striking section 305. 42 use 242c.
(B) The council on health care technology established 42USe242n
under section 309 of the Public Health Service Act is termi- "
nated, and part A of title III of such Act is amended by
striking section 309. 42 use 242n.
(2) CONTRACT FOR TEMPORARY ASSISTANCE TO SECRETARY WITH 42 use 299a-2
RESPECT TO HEALTH CARE TECHNOLOGY ASSESSMENT.— ^°^
(A) The Secretary of Health and Human Services shall
request the Institute of Medicine of the National Academy
of Sciences to enter into a contract—
(i) to develop and recommend to the Secretary prior­
ities for the assessment of specific health care tech­
nologies under section 904 of the Public Health Service
Act (as added by subsection (a) of this section); and
(ii) to assist the Administrator for Health Care Policy
and Research, and the Director of the National Library
of Medicine, in establishing the information center
required under subsection (cXD of such section 904.
(B) In carrying out section 904(c)(1) of the Public Health
Service Act (as added by subsection (a) of this section), the
Secretary of Health and Human Services shall, as appro­
priate, provide for the transfer to the Secretary of any
information and materials developed by the council on
health care technology under section 309(cXlXA) of the
Public Health Service Act (as such section was in effect on
the day before the effective date of this section).
(C) The Secretary of Health and Human Services shall
ensure that the contract under subparagraph (A) specifies
that the activities described in clauses (i) and (ii) of such
subparagraph shall be completed not later than 1 year after
the date on which the Secretary enters into the contract.
(D) For the purpose of carrying out the contract under Appropriation
subparagraph (A), there is authorized to be appropriated authorization.
$300,000 for fiscal year 1990.
(e) TECHNICAL AND CONFORMING AMENDMENTS.—
(1) SECTION 304.—Section 304 of the Public Health Service Act
(42 U.S.C. 242b) is amended—
(A) in subsection (a)—
(i) bv striking paragraphs (1) and (2); and
(ii) by striking the paragraph designation in para­
graph (3);
(B) in subsection (a) (as amended by subparagraph (A) of
this paragraph)— 103 STAT. 2206 PUBLIC LAW 101-239—DEC. 19,1989
,* (i) by striking "the National Center for Health Serv­
ices Research and Health Care Technology Assess­
ment" and inserting "the Agency for Health Care
Policy and Research'; and
(ii) by striking "m sections 305, 306, and 309" and
inserting "in section 306 and in title IX";
(C) in subsection (b), in the matter preceding paragraph
(1), by striking "subsection (a)," and inserting "subsection
(a) and section 306,"; and
(D) in subsection (c)—
(i) in paragraph (1), in the second sentence, by strik­
ing "the National Center for Health Services Research
and Health Care Technology Assessment" and insert­
ing "the Agency for Health Care Policy and Research";
and
(ii) in paragraph (2), by striking "the Nationsd Center
for Health Services R^arch and Health Care Tech-
nol(^y Assessment" and inserting "the Agency for
Health Care Policy and Research".
(2) SECTION 306.—Section 306 of the Public Health Service Act
(42 U.S.C. 242k) is amended—
(A) in subsection (a), by adding at the end the following
new sentence: "The Secretary, acting through the Center,
shall conduct and support statistical and epidemiological
activities for the purpose of improving the effectiveness,
^ efGciency, and quality of health services in the United
, States.";
(B) in subsection (b), in the matter preceding paragraph
(1), by striking "section 304(a)," and inserting "subsection
(a),"; and
(C) by adding at the end the following new subsection:
Appropriation "(m) For health statistical and epidemiological activities under-
auttiorization. taken or supported under this section, there are authorized to be
appropriated $55,000,000 for fiscal year 1988 and such sums as may
be necessary for each of the fiscal years 1989 and 1990.".
(3) SECTION 307.—Section 307(a) of the Public Health Service
Act (42 U.S.C. 2421(a)) is amended by strikmg "sections 304, 305,
306, and 309" and inserting "section 306 and by title IX".
(4) SECTION 308.—Section 308 of the Public Health Service Act
(42 U.S.C. 242m) is amended—
(A) in the section heading, by striking "SECTIONS" and all
that follows and inserting the following: "EFFBCTTVENESS,
EFFICIENCY, AND QUALITY OF HEALTH SERVICES";
(B) in subsection (a)—
,t (i) in paragraph (IXAXi), by striking "secticms 304
through 307 and section 309" and inserting "sections
304, 306, and 307 and title DC"; and
(ii) in par^raph (2), by striking "the National Center
for Health l^rvices Research and Health Care Tech­
nology Assessment" and inserting "the Agency for
Health Care Policy and Research";
(C) in subsection (b>—
(i) in paragraph (1), by striking "sections 304, 305,
306, 307, and 309" and mserting "section 304, 306, or
307";
(ii) in subparagraph (A) of paragraph (2)— PUBLIC LAW 101-239—DEC. 19,1989 103 STAT. 2207
(D in the first sentence, by striking "under sec­
tion 304 or 305," and inserting "under section 306";
(II) by striking the second sentence; and
(in) by amending the last sentence to read as
follows: "The Director of the National Center for
Health Statistics shall establish such peer review
groups as may be necessary to provide for such an
evaluation of each such application.";
(iii) in subparagraph (B) of paragraph (2), by striking
"the Director involved," and mserting "the Director <^
the National Center for Health Statistics,";
(iv) in subparagraph (C) of paragraph (2), by striking
"the Directors," and inserting "the Director of the
National Center for Health Statistics,"; and
(v) in paragraph (3), in the first sentence—
(I) by striking "section 304, 305, or 306" the first
place such term appears and inserting "section
306"; and
(II) by striking "section 304, 305, or 306" the
,.• second place such term appears and inserting "any
of such sections";
(D) in subsection (d)—
(i) in the matter preceding paragraph (1), by striking
"section 304, 305, 306, 307, or 309^^ and inserting "sec­
tion 304, 306, or 307";
(ii) in paragraph (1), l^ striking "in other form, and"
and inserting in other form." and by striking the
paragraph designation; and
(iii) by striking paragraph (2>,
(E) in subsection {eh-
(i) in paragraph (1), by striking "section 304, 305, 306,
307, or 309'^ and inserting "section 304, 306, or 307";
and
(ii) in paragraph (2), in the matter preceding subpara­
graph (A), by striking "section 304, 305, 306, 307, or
309^' and inserting "section 304,306, or 307";
(F) in subsection (f), by striking "section 304, 305, 306, or
309" and inserting "section 304 or 306";
(G) in subsection (g>—
(i) in paragraph (1), by striking the matter after and
below subparagraph (Q; and
(ii) in paragraph (2), by striking "sections 304, 305,
306, and 309" and inserting "sections 304 and 306";
(H) in subsection (hXl)—
(i) by striking "section 304, 305, 306, or 309" the first
place such term appears and inserting "section 306";
and
(ii) by striking "section 304, 305, 306, or 309" the
second place such term appears and inserting "any of
such sections"; and
(I) by striking subsection (i).
(5) SECTION 330.—Section 330(eX3XGXi) of the Public Health Indians.
Service Act (42 U.S.C. 254c(eX3XGXi)) is amended by insertmg
after "(i)" the following: "except in the case of an entity oper­
ated by an Indian tribe or tribal or Indian organization under
the Indian Self-Determination Act,". 103 STAT. 2208 PUBLIC LAW 101-239~DEC. 19,1989
42 use 11137
note.
State and local
governments.
42 use 11111.
42 use 11115.
42 use 11137
note.
42 use 299 note. (6) SECTION 402.—Section 402 of the Public Health Service
Amendments of 1987 is amended—
(A) by redesignating subsection (c) as subsection (d) and
, . by inserting after subsection (b) the following new subsec­
tion:
"(c) Such Act is amended in section 411(cX2) by striking subpara­
graph (B), by striking 'subparagraphs (A) and (B)' in subparagraph
(C), and by redesignating subparagraph (C) as subparagraph (B).
Such Act is amended in section 415(a) by inserting before the period
at the end the following: 'or as preempting or overriding any State
law which provides incentives, mimunities, or protection for those
engaged in a professional review action that is in addition to or
greater than that provided by this part'"; and
(B) in subsection (dXD (as so redesignated), by striking
"subsection (a)" and inserting "subsections (a) and (c) .
(7) SECTION 487.—Section 487(dX3XB) of the Public Health
Service Act (42 U.S.C. 288(dX3XB)) is amended by striking "Na­
tional Center" and all that follows through "Assessment" and
inserting "Agency for Health Care Policy and Research".
(f) TRANSITIONAL AND SAVINGS PROVISIONS.—
(1) TRANSFER OF PERSONNEL, ASSETS, AND LIABILITIES.—Person­
nel of the Department of Health and Human Services employed
on the date of the enactment of this Act in connection with the
functions vested in the Administrator for Health Care Policy
and Research pursuant to the amendments made by this sec­
tion, and assetis, property, contracts, liabilities, records, unex­
pended balances of appropriations, authorizations, cdlocations,
and other funds, of such Department arising from or employed,
held, used, or available on such date, or to be made available
after such date, in connection with such functions shall be
transferred to the Administrator for appropriate allodation.
Unexpended funds transferred under this paragraph shall be
used only for the purposes for which the funds were originally
authorized and appropriated.
(2) SAVINGS PROVISIONS.—With respect to functions vested in
the Administrator for Health Care Policy and Research pursu­
ant to the amendments made by this section, all orders, rules,
regulations, grants, contracts, certificates, licenses, privileges,
and other determinations, actions, or official documents, of the
Department of Health and Human Services that have been
issued, made, granted, or allowed to become effective in the
performance of such functions, and that are effective on the
date of the enactment of this Act, shall continue in effect
according to their terms unless changed pursuant to law.
SEC. 6104. REDUCTION IN PAYMENTS FOR CERTAIN PROCEDURES.
(a) IN GENERAL.—Section 1842(b) of the Social Security Act (42
U.S.C. 1395u(b)) is amended by adding at the end the following new
paragraph:
"(14XA) In determining the reasonable chaige for a physicians'
service specified in subparagraph (CXi) and furnished during the 9-
month period beginning on April 1, 1990, the prevailing charge for
such service shall be the prevailing charge otherwise recognized for
such service for 1989 reduced by 15 percent or, if less, Vs of the
percent (if any) by which the prevailing charge otherwise applied in
the locality in 1989 exceeds the locally-adjusted reduced prevailing
amount (as determined under subparagraph (BXi)) for the service. -*. *
PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2209
"(B) For purposes of this paragraph:
"(i) The 'locally-adjusted reduced prevailing amount' for a
locality for a physicians' service is equal to the product of—
"(I) the reduced national weighted average prevailing
– charge for the service (specified under clause (ii)), and
"(11) the adjustment factor (specified under clause (iii)) for
the locality,
"(ii) The 'reduced national weighted average prevailing
charge' for a physicians' service is equal to the national
weighted average prevailing charge for the service (specified in
subparagraph (CXii)) reduced by the percentage change (speci­
fied in subparagraph (CXiii)) for the service.
"(iii) The 'adjustment factor', for a physicians' service for a
locality, is the sum of—
"(I) the practice expense ratio for the service (specified in
Table # 1 in the J^iint Explanatory Statement referred to in
subparagraph (CXi)), multiplied by the geographic practice
cost index value (specified in subparagraph ((5Xiv)) for the
locality, and
"(II) 1 minus the practice expense ratio. ' ' –
"(C) For purposes of this paragraph:
"(i) The physicians' services specified in this clause are the
physicians' services specified in Table #2 in the Joint Explana­
tory Statement of the (Dommittee of Conference submitted with
the Ck)nference Report to accompany H.R. 3299 (the 'Omnibus
Budget Reconciliation Act of 1989'), 101st (Dongress, which speci­
fication is of physicians' services that have been identified as
overvalued by at least 10 percent based on a comparison of
payments for such services under a resource-based relative
value scale and of the national aversige prevailing charges
under this part.
"(ii) The 'national weighted average prevailing charge' speci­
fied in this clause, for a physicians' service specified in clause (i),
is the national weighted average prevailing charge for the
service in 1989 as determined by the Secretary using the best
data available.
"(iii) The 'percent change' specified in this clause, for a
physicians' service specified in clause (i), is the percent change
specified for the service in Table #2 in the Joint Explanatory
Statement referred to in clause (i).
"(iv) The geographic practice cost index value specified in this
clause for a locality is such value specified for the locality in
Table #3 in the Joint Explanatory Statement referred to in
clause (i).
"(D) In the case of a reduction in the prevailing charge for a
physicians' service under subparagraph (A), if a nonparticipating
physician furnishes the service to an individual entitled to benefits
under this part, after the effective date of such reduction, the
physician's actual charge is subject to a limit under subsection
O'XIXD).".
(b) SPECIAL LIMITS ON ACTUAL CHARGES.—Section 18420'XIXD) of
such Act is amended— 42 USC 1395u.
(1) in clause (iiXII), by inserting "or (bX14XA)" after
"(bXlOXA)", and
(2) in clause (iiiXII), by striking "or (bXUXCXi)" and inserting
"(bXllXCXi), or (bX14XA)". 103 STAT. 2210 PUBLIC LAW 101-239—DEC. 19, 1989
42 use 1395m
note.
42 use 1395m
note.
Regulations.
42 use 1395u
note. SEC. 6105. REDUCTION IN PAYMENTS FOR RADIOLOGY SERVICES.
(a) FEE SCHEDULES FOR RADIOLOGIST SERVICES REDUCED.—Section
1834(bX4) of the Social Security Act (42 U.S.C. 1395m(bX4)) is amend­
ed—
(1) by redesignating subparagraphs (C) and (D) as subpara­
graphs (D) and (E), and
(2) by inserting after subparagraph (B) the following new
subparagraph:
"(C) 1990 FEE SCHEDULES.—For radiologist services (other
than portable X-ray services) furnished under this part
during 1990, after March 31 of such year, the conversion
' factors used under this subsection shall be 96 percent of the
conversion factors that applied under this subsection as of
December 31,1989.".
Ot>) SPECIAL RULE FOR NUCLEAR MEDICINE PHYSICIANS.—In apply­
ing section 1834(b) of the Social Security "Act with respect to nuclear
medicine services furnished by a physician for whom nuclear medi­
cine services account for at least 80 percent of the total amount of
charges made under part B of title XVIII of the Social Security
Act—
(1) during 1990, after April 1,1990, there shall be substituted
for the fee schedule otherwise applicable a fee schedule based Vs
on the fee schedule computed under such section (without
regard to this subsection) and % on 101 percent of the 1988
prevailing charge for such services; and
(2) during 1991, there shall be substituted for the fee schedule
otherwise applicable a fee schedule based % on the fee schedule
computed under such section (without regard to this subsection)
and Vs on 101 percent of the 1988 prevailing charge for such
services.
(c) INTERVENTIONAL RADIOLOGISTS.—In applying section 1834(b) of
the Social Security Act to radiologist services furnished in 1990, the
exception for "spUt billing" set forth at section 5262J of the Medi­
care Carriers Manual shall apply to services furnished in 1990 in the
same manner and to the same extent as the exception applied to
services furnished in 1989.
SEC. 6106. ANESTHESIA SERVICES.
(a) COUNTING ACTUAL TIME UNITS FOR ANESTHESIA SERVICES AND
CODIFICATION OF PREVIOUS AUTHORITY.—Section 1842 of the Social
Security Act (42 U.S.C. 1395u) is amended by adding at the end the
following new subsection:
"(qXD The Secretary, in consultation with groups representing
{>hysicians who furnish anesthesia services, shall establish by regu-
ation a relative value guide for use in all carrier localities in
making payment for physician anesthesia services furnished under
this part. Such guide shall be designed so as to result in expendi­
tures under this title for such services in an amount that would not
exceed the amount of such expenditures which would otherwise
occur.
"(2) For purposes of payment for anesthesia services (whether
furnished by physicians or by certified roistered nurse anesthetists)
under this part, the time units shall be counted based on actual time
rather than rounded to full time units.".
(b) EFFECTIVE DATE.—The amendment made by subsection (a)
shall apply to services furnished on or after April 1,1990. PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2211
SEC. 6107. DELAY IN UPDATE AND REDUCTION IN PERCENTAGE IN­
CREASE IN THE MEDICARE ECONOMIC INDEX.
(a) DELAYING UPDATES UNTIL APRIL 1.— 42 USC I395u
(1) IN GENERAL.—Subject to the amendments made by this ^°*®-
section, any increase or adjustment in customary, prevailing, or
reeisonable charges, fee schedule amounts, maximum allowable
actual charges, and other limits on actual charges with respect
to physicians' services and other items and services described in
paragraph (2) under part B of title XVIII of the Social Security
Act which would otherwise occur as of January 1, 1990, shall be
delayed so as to occur as of April 1, 1990, and, notwithstanding
any other provision of law, the amount of payment under such
part for such items and services which are .furnished during the
period beginning on January 1, 1990, and ending on March 31,
1990, shall be determined on the same basis as the amount of
payment for such services furnished on December 31, 1989.
(2) ITEMS AND SERVICES COVERED.—The items and services
described in this paragraph are items and services (other than
ambulance services and clinical diagnostic laboratory services)
for which payment is made under part B of title XVIII of the
Social Security Act on the basis of a reasonable charge or a fee
schedule.
(3) EXTENSION OF PARTICIPATION AGREEMENTS AND RELATED
PROVISIONS.—Notwithstanding any other provision of law—
(A) subject to the last sentence of this paragraph, each
participation agreement in effect on December 31, 1989,
under section 1842(hXl) of the Social Security Act shall
remain in effect for the 3-month period beginning on Janu­
ary 1,1990;
(B) the effective period for such agreements under such
section entered into for 1990 shall be the 9-month period
beginning on April 1,1990, and the Secretary of Health and
':;.. Human Services shall provide an opportunity for physi­
cians and suppliers to enroll as participating physicians
•A and suppliers l>efore April 1,1990;
(C) instead of publishing, under section 1842(hX4) of the
Social Security Act, at the beginning of 1990, directories of
participating physicians and suppliers for 1990, the Sec­
retary shall provide for such publication, at the beginning
1 * of the 9-month period beginning on April 1, 1990, of such
directories of participating physicians £md suppliers for
such period; and
(D) instead of providing to nonparticipating physicians
under section 1842(b)(3)(G) of the Social Security Act at the
beginning of 1990, a list of maximum allowable actual
charges for 1990, the Secretary shall provide, at the begin­
ning of the 9-month period beginning on April 1, 1990, such
physicians such a list for such 9-month period.
An agreement with a participating physician or supplier de­
scribed in subparagraph (A) in effect on December 31, 1989,
under section 1842(hXl) of the Social Security Act shall not
remain in effect for the period described in subparagraph (A) if
the participating physician or supplier requests on or before
December 31,1989, that the agreement be terminated. 103 STAT. 2212 PUBLIC LAW 101-239—DEC. 19, 1989
(b) PERCENTAGE INCREASE IN MEI FOR 1990.—Section 18420aX4XE)
of the Social Security Act (42 U.S.C. 1395u03X4XE)) is amended by
adding at the end the following new clause:
"(iv) For purposes of this part for items and services furnished in
1990, after March 31, 1990, the percentage increase in the MEI is—
"(I) 0 percent for radiology services, for anesthesia services,
and for other services specified in Table #2 in the Joint
Explanatory Statement of the Committee of Conference submit­
ted with the Conference Report to accompany H.R. 3299 (the
'Omnibus Budget Reconciliation Act of 1989'), 101st Congress,
"(II) 2 percent for other services (other than primary care
services), and
"(III) such percentage increase in the MEI (as defined in
subsection (iX3)) £is would be otherwise determined for primary
care services (as defined in subsection (iX4)).".
SEC. 6108. MISCELLANEOUS PROVISIONS RELATING TO PAYMENT FOR
PHYSICIANS' SERVICES.
(a) CUSTOMARY CHARGE FOR NEW PHYSICTANS.—
(1) PHASE-IN TO PREVAIUNG CHARGE LEVEL.—Section
1842(bX4XF) of the Social Security Act (42 U.S.C. 1395u(bX4XF))
is amended—
(A) by inserting "furnished during a calendar year" after
"phjrsicians' services", and
(B) by adding at the end the following: "For the first
calendar year during which the preceding sentence no
longer applies, the Secretary shall set the customary charge
at a level no higher than 85 percent of the prevailing
charge for the service.".
42USC1395U (2) EFFECTIVE DATE.—(A) Subject to Subparagraph (B), the
'^°**- amendments made by paragraph (1) apply to services furnished
in 1990 which were subject to the Hrst sentence of section
18420bX4XF) of the Social Security Act in 1989.
(B) The amendments made by paragraph (1) shall not apply to
services furnished in 1990 before April 1, 1990. With respect to
physicians' services furnished during 1990 on and after April 1,
such amendments shall be applied as though any reference, in
the matter inserted by such amendments, to the "first calendar
year during which the preceding sentence no longer applies"
were deemed a reference to the remainder of 1990.
Ot)) LIMITATION ON AMOUNTS FOR CERTAIN SERVICES FURNISHED BY
MORE THAN ONE SPECIALTY.—
(1) IN GENERAL.—Section 1842(b) of such Act (42 U.S.C.
1395u(b)), aa amended by section 6104(a) of this subtitle, is
amended by adding at the end the following:
"(15XA) In determining the reasonable charge for surgery, radiol­
ogy, and diagnostic physicians' services which the Secretary shall
designate (based on their high volume of expenditures under this
part) and for which the prevailing charge (but for this paragraph)
-y differs by phjrsician specialty, the prevailing charge for such a
service may not exceed the prevailing charge or fee schedule
amount for that specialty of physicians that furnish the service most
frequently nationally.
"(B) In the case of a reduction in the prevailing chaise for a
physician's service under subparagraph (A), if a nonparticipating
physician furnishes the sei'vice to an individual entitled to benefits PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2213
under this part, after the effective date of the reduction, the physi­
cian's actual charge is subject to a limit under subsection (jXlXD).".
(2) SPECIAL UMITS ON ACTUAL CHARGES.—Section 1842(jXlXD)
of such Act (42 U.S.C. 1895u(jXlXD)) is amended—
(A) in clause (iiXrV), by inserting "or (bX15XA)" before the
comma at the end, and
(B) in clause (iiiXII), by striking "or (bX14XA)" and insert­
ing "(bXHXA), or (bX15XA)".
(3) EFFECTIVE DATE.—The amendments made by this subsec- 42 USC I395u
tion apply to procedures performed after March 31,1990. ^°^-
SEC. 6109. WAIVER OF LIABILITY LIMITING RECOUPMENT IN CERTAIN 42 USC 1395gg
CASES. ^°^-
In the case where more than the correct amount may have been
paid to a physician or individual under part B of title XVIII of the
Social Security Act with respect to services furnished during the
period beginning on July 1,1985, and ending on March 31,1986, as a
result of a carrier's establishing statewide fees for certain procedure • ^y
codes while the carrier was in the process of implementing the
national common procedure coding system of the Health Care
Financing Administration, the provisions of section 1870(c) of the
Social Security Act shall apply, without the need for affirmative
action by such a physician or individual, so as to prevent any
recoupment, or other decrease in subsequent payments, to the physi­
cian or individual. The previous sentence shall apply to claims for
items and services which were reopened by carriers on or after
July 31, 1987.
SEC. 6110. REDUCTION IN CAPITAL PAYMENTS FOR OUTPATIENT HOS­
PITAL SERVICES.
Section 1861(vXlXS) of the Social Security Act (42 U.S.C.
1395x(vXlXS)) is amended—
(1) by inserting "(i)" after "(S)", and
(2) by adding at the end the following new clause:
"(iiXI) Such regulations shall provide that, in determining the
amount of the pa3nnents that may be made under this title with
respect to all the capital-related costs of outpatient hospital services,
the Secretary shall reduce the amounts of such payments otherwise
established under this title by 15 percent for payments attributable
to portions of cost reporting periods occurring during fiscal year
1990.
"(II) Subclause (I) shall not apply to payments with respect to the
capital-related costs of any hospital that is a sole community hos­
pital (as defined in section 1886(dX5XDXiii)).
"(Ill) In applying subclause (I) to services for which pa3mient is
made on the basis of a blend amount under section 1833(iX3)(AXii) or
1833(n)(lXAXii), capital-related costs reflected in the amounts de­
scribed in sections 1833(iX3)(BXiXI) and 1833(nXlXBXi)(I), respec­
tively, shall be reduced in accordance with such subclause.".
SEC. 6111. CLINICAL DIAGNOSTIC LABORATORY TESTS.
(a) REDUCTION OF LIMITATION AMOUNT ON PAYMENT AMOUNT.—
Section 1833(h) of the Social Security Act (42 U.S.C. 13951(h)) is
amended—
(1) in subparagraphs (B) and (C) of paragraph (1), by striking
"during the period" and all that follows through "established on
a nationwide basis" and inserting "on or after July 1, 1984"; 103 STAT. 2214 PUBLIC LAW 101-239—DEC. 19, 1989
(2) in paragraph (4)(BXi), by striking "or" at the end;
(3) in paragraph (4XBXii)—
(A) by striking "and so long as a fee schedule for the test
has not been established on a nationwide basis,",
(B) by inserting "and before January 1, 1990," after
"March 31,1988,", and
(C) by striking the period at the end and inserting ",
and"; and
(4) by adding at the end of paragraph (4XB) the following new
clause:
^ "(iii) after December 31, 1989, is equal to 93 percent of the
^ median of £dl the fee schedules established for that test for that
laboratory setting under paragraph (1).".
(b) RESTRICTION ON PAYMENT TO REFERRING LABORATORY.—
(1) IN GENERAL.—Section 1833(hX5XAXii) of such Act (42
U.S.C. 13951(hX5XAXii)) is amended by striking "referring lab­
oratory, and" and inserting "referring laboratory but only if—
Rural areas. "(I) the referring laboratory is located in, or is part of, a
rural hospital,
"(II) the referring laboratory is a wholly-owned subsidi­
ary of the entity performing such test, the referring labora­
tory wholly owns the entity performing such test, or both
the referring laboratory and the entity performing such
test are wholly-owned by a third entity, or
"(III) not more than 30 percent of the clinical diagnostic
laboratory tests for which such referring laboratory sub­
mits bills or requests for pa3rment in any year are per­
formed by another laboratory, and".
42 use 1395/ (2) EFFECTIVE DATE.—The amendment made by paragfraph (1)
note. shall apply with respect to clinical diagnostic laboratory tests
performed on or after January 1,1990.
SEC. 6112. DURABLE MEDICAL EQUIPMENT.
(a) DELAY IN AND REDUCTION OF UPDATE FOR 1990.—
(1) INEXPENSIVE AND ROUTINELY PURCHASED DURABLE MEDICAL
EQUIPMENT AND ITEMS REQUIRING FREQUENT AND SUBSTANTIAL
SERVICING.—Paragraphs (2XBXi) and (3XBXi) of section 1834(a) of
the Social Security Act (42 U.S.C. 1395m(a)) are each amended
by striking "in 1989" and inserting "in 1989 and in 1990".
(2) MISCELLANEOUS DEVICES AND ITEMS AND OTHER COVERED
ITEMS.—Paragraph (8XAXii) of such section is amended—
(A) in subclause (I), by striking "1989" and inserting
"1989 and 1990", and
(B) in subclause (II), by striking "1990, 1991," and insert­
ing "1991".
(3) OXYGEN AND OXYGEN EQUIPMENT.—Paragraph (9XAXii) of
such section is amended—
(A) in subclause (I), by striking "1989" and inserting
"1989 and 1990", and
(B) in subclause 01), by striking "1990, 1991," and insert­
ing "1991".
(4) CONFORMING AMENDMENTS.—Such section is further
amended—
(A) in paragraph (7XAXi), by striking "this subparagraph"
and inserting "this clause";
(B) in paragraph (7XBXi), by inserting "in" after "rental
of the item"; and PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2215
42 use 1395m
note. (C) in paragraph (TXBXii), by striking "the payment
amount" and all that follows and inserting "clause (i) shall
apply in the same manner as it applies to items furnished
during 1989.".
(b) RENTAL PAYMENTS FOR ENTERAL AND PARENTERAL PUMPS.—
(1) IN GENERAL.—Except as provided in paragraph (2), the
amount of any monthly rental payment under part B of title
XVni of the Social Security Act for an enteral or parenteral
pump furnished on or after April 1,1990, shall be determined in
accordance with the methodology under which monthly rental
pajrments for such pumps were determined during 1989.
(2) CAP ON RENTAL PAYMENTS, SERVICING, AND REPAIRS.—In
the case of an enteral or parenteral pump described in para­
graph (1) that is furnished on a rental basis during a period of
medical need—
(A) monthly rental pajnnents shall not be made under
part B of title XVIII pf the Social Security Act for more
than 15 months during such period, and
(B) after monthly rental pasonents have been made for 15
months during such period, payment under such part shall
be made for maintenance and servicing of the pump in such
amounts £is the Secretary of Health and Human Services
determines to be reasonable and necessary to ensure the
proper operation of the pump.
(c) REDUCTION IN FEE SCHEDULES FOR SEAT-LIFT CHAIRS AND
TRANSCUTANEOUS ELECTRICAL NERVE STIMULATORS.—Paragraph (1)
of such section 1834(a) is amended by adding at the end the following 42 USC 1395m,
new subparagraph:
"(D) REDUCTION IN FEE SCHEDULES FOR CERTAIN ITEMS.—
With respect to a seat-lift chair or transcutaneous electrical
nerve stimulator furnished on or after April 1, 1990, the
Secretary shall reduce the payment amount applied under
subparagraph (BXii) for such an item by 15 percent.".
(d) TREATMENT OF POWER DRIVEN WHEELCHAIRS.—
(1) As ROUTINELY PURCHASED.—Section 1834(aX2XA) of the
Social Security Act (42 U.S.C. 1395m(aX2XA)) is amended—
(A) by striking "or" at the end of clause (i),
(B) by adding "or" at the end of clause (ii), and ^
(C) by inserting after clause (ii) the following new clause:
(iii) which is a power-driven wheelchair (other than
a customized wheelchair that is classified as a cus­
tomized item under paragraph (4) pursuant to criteria
specified by the Secretary),".
(2) As CUSTOMIZED ITEM.—The Secretary of Health and
Human Services shall by regulation specify criteria to be used
by carriers in making determinations on a case-by-case basis as
whether to classify power-driven wheelchairs as a customized
item (as described in section 1834(aX4) of the Social Security
Act) for purposes of reimbursement under title XVIII of such
Act.
(e) OSTOMY SUPPLIES AS PART OF HOME HEALTH SERVICES.—
(1) SPECIFIC INCLUSION IN HOME HEALTH SERVICES.—Section
1861(mX5) of the Social Security Act (42 U.S.C. 1395x(mX5)) is
amended to read as follows:
"(5) medical supplies (including catheters, catheter supplies,
ostomy bags, and supplies related to ostomy care, but excluding Regulations.
42 USC 1395m
note. 103 STAT. 2216 PUBLIC LAW 101-239—DEC. 19, 1989
drugs and biologicals) and durable medical equipment while
under such a plan;".
(2) EXCLUSION FROM COVERED ITEMS.—Section 1834(aX13) of
such Act (42 U.S.C. 1395m(aX13)) is amended by inserting after
"intraocular lenses" the following: "or medical supplies (includ­
ing catheters, catheter supplies, ostomy bags, and supplies re­
lated to ostomy care) furnished by a home health agency under
section 1861(mX5)".
(3) REQUIRING PROVISION AS PART or HOME HEALTH SERVICES.—
Section 1866(aXl) of such Act (42 U.S.C. 1395cc(aXl)) is amend­
ed—
(A) by striking "and" at the end of subparagraph (N),
(B) by striking the period at the end of subparagraph (O)
and inserting "; and",
(C) and by inserting after subparagraph (O) the following
new subparagraph:
"(P) in the case of home health agencies which provide home
health services to individuals entitled to benefits under this title
who require ostomy supplies (described in section 1861(mX5)), to
offer to furnish such supplies to such an individual as part of
their furnishing of home health services.".
42 use 1395m (4) EFFECTTVE DATE.—The amendments made by this subsec-
^°^- tion shall apply with respect to items furnished on or after
January 1,1990.
SEC. 6113. MENTAL HEALTH SERVICES.
(a) EUMINATING RESTRICTION ON PSYCHOLOGISTS' SERVICES TO
SERVICES FURNISHED AT COMMUNITY MENTAL HEALTH CENTERS.—
Section 1861(ii) of the Social Security Act (42 U.S.C. 1395x(ii)) is
amended by striking "on-site at a community mental health center"
and all that follows through "because of similar circtmistances of
the individual,".
(b) CuNicAL SOCIAL WORKERS.—
(1) (AVERAGE OF SERVICES.—Section 1861(sX2) of the Social
Security Act (42 U.S.C. 1395x(sX2)) is amended—
(A) by striking "and" at the end of subparagraph (L);
(B) by adding "and" at the end of subparagraph (M); and
(C) by adding at the end the following new subparagraph:
"(N) clinical social worker services (as defined in subsecticm
(hhX2));".
(2) DEFiNmoNS.—Section 1861 of such Act (42 U.S.C. 1395x) is
amended—
^ (A) in subsection (sX2XHXii), by striking "(hh)" Mid insert-
, ing"(hhX2)",and
(B) in subsection (hh)—
(i) by amending the heading to read as follows:
"Clinical Social Worker; Clinical Social Worker Services",
(ii) by redesignating clauses (i) and (ii) of paragraph
(3XB) as subclauses (I) £md (II), respectively,
(iii) by redesignating subparagraphs (A) and (B) of
paragraph (3) as clauses (i) and (ii), respectively,
(iv) by redesignating paragraphs (1), (2), and C3) as
subparagraphs (A), (B), and (C), respectively,
(v) by striking "(hh)" and inserting "(hhXD", and PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2217
(vi) by adding at the end the following new para­
graph:
"(2) The term 'clinical social worker services' means services
performed by a clinical social worker (as defined in paragraph (1))
for the diagnosis and treatment of mental illnesses (other than
services furnished to an inpatient of a hospital and other than
services furnished to an inpatient of a skilled nursing facility which
the facility is required to provide as a requirement for participation)
which the clinical social worker is legally authorized to perform
under State law (or the State r^ulatory mechanism provided by
State law) of the State in which such services are performed as
would otherwise be covered if furnished by a physician or as an
incident to a physician's professional service.".
(3) PAYMENT BASIS.—Section 1833 of such Act (42 U.S.C. 13951)
is amended—
(A) by inserting after clause (E) of subsection (aXD the
following new clause: "(F) with respect to clinical social
worker services under section 1861(sX2)(N), the amounts
paid shall be 80 percent of the lesser of (i) the actual charge
for the services or (ii) 75 percent of the amount determined
for payment of a psychologist imder clause (L),"; and
(B) in subsection (p)—
(i) by striking "1861(sX2XL) and" and by inserting
"1861(sX2XL),", and
(ii) by inserting "and in the case of clinical social
worker services for which payment may be made under
this part only pursuant to section 1861(sX2XN)/' after
"1861(8X2XM),".
(c) DEVELOPMENT OP CRITERIA REGARDING CONSULTATION WITH A 42 use 1395/
PHYSICIAN.—The Secretary of Health and Human Services shall, "°*®-
taking into consideration concerns for patient confidentiality, de­
velop criteria with respect to pajrment for qualified psychologist
services for which payment may be made directly to the psychologist
under part B of title XVIII of the Social Security Act under which
such a psychologist must agree to consult with a patient's attending
physician in accordance with such criteria.
(d) ELIMINATING DOLLAR LIMITATION ON MENTAL HEALTH SERV­
ICES.—Section 1833(dXl) of the Social Security Act (42 U.S.C.
13951(dXl)) is amended by striking "whichever" and all that follows
in the first sentence and inserting "62V& percent of such expenses.".
(e) EFFECTIVE DATE.—The amendments made by this section, and 42 use 1395/
the provisions of subsection (c), shall apply to services furnished on °°^'
or after July 1, 1990, and the amendments made by subsection (d)
shall apply to expenses incurred in a year beginning with 1990.
SEC C114. COVERAGE OF NURSE PRACTITIONER SERVICES IN NURSING
FACILITIES.
(a) SERVICES COVERED.—Section 1861(sX2) of the Social Security
Act (42 U.S.C. 1395x(sX2)) is amended—
(1) by striking "and" at the end of subparagraph (J), and
(2) in subparagraph (K)—
(A) in clause (i), by striking "and" at the end,
(B) in clause (ii), by striking "to such services" luid insert­
ing "to services described in clause (i) or (ii)",
(C) by redesignating clause (ii) as clause (iii), and
(D) by inserting after clause (i) the following new clause: 103 STAT. 2218 PUBLIC LAW 101-239—DEC. 19, 1989
42 use 1395u
note.
42 use 1395u
note. "(ii) services which would be physicians' services if furnished
by a phjrsician (as defined in subsection (rXD) and which are
performed by a nurse practitioner (as defined in subjection
(aaX3)) working in collaboration (as defined in subsection (aaX4))
with a physician (as defined in subsection (rXD) in a skilled
nursing facility or nursing facility (as defined in section 1919(a))
which the nurse practitioner is legally authorized to perform by
the State in which the services are performed, and".
(b) DETERMINATION OF PAYMENT AMOUNT.—Section 1842(bX12XA)
of such Act (42 U.S.C. 1395u(bX12XA)) is amended by striking "physi­
cian assistant acting under the supervision of a physician and
inserting "physician assistants and nurse practitioners .
(c) PAYMENT TO EMPLOYER; PAYMENT FOR ROUTINE VISITS BY MEM­
BERS OF A TEAM.—Section 1842(b) of such Act (42 U.S.C. 1395u(b)) is
amended—
(1) in clause (C) of the first sentence of paragraph (6), bv
inserting "or nurse practitioner" after "physician assistant ,
and
(2) by adding at the end of paragraph (2), the following new
subparagraph:
"(C) In the case of residents of nursing facilities who receive
services described in clause (i) or (ii) of section 1861(sX2XK) per­
formed by a member of a team, the Secretary shall instruct carriers
to develop mechanisms which permit routine pa3nnent under this
part for up to 1.5 visits per month per resident. In the previous
sentence, the term 'team' refers to a physician and includes a
physician assistant acting under the supervision of the physician or
a nurse practitioner wor^ng in collaboration with that physician, or
both.".
(d) DEFINITION OF COLLABORATION.—Section 1861(aa) of such Act
(42 U.S.C. 1395x(aa)) is amended by adding at the end the following
new paragraph:
"(4) The term 'collaboration' means a process in which a nurse
practitioner works with a physician to deliver health care services
within the scope of the practitioner's professional expertise, with
medical direction and appropriate supervision as provided for in
jointly developed guidelines or other mechanisms as defined by the
law of the State in which the services are performed.".
(e) STATE DEMONSTRATION PROJECTS ON APPUCATION OF LIMITA­
TION ON VISITS PER MONTH PER RESIDENT ON AGGREGATE BASIS FOR
A TEAM.—The Secretary of Health and Human Services shall pro­
vide for at least 1 demonstration project under which, in the app.Uca-
tion of section 1842(bX2XC) of the l^ial Security Act (as added by
subsection (cX2) of this section) in one or more States, the limitation
on the number of visits per month per resident would be applied on
an average basis over the aggregate total of residents receiving
services from members of the team.
(f) EFFECTIVE DATE.—The amendments made by this section shall
apply to services furnished on or after April 1,1990.
SEC. 6115. COVERAGE OF SCREENING PAP SMEARS.
(a) IN GENERAL.—Section 1861 of the Social Security Act (42 U.S.C.
1395x), as amended by section 6003CgX3XA) of this subtitle, is
amended—
(1) in subsection (s)—
(A) by striking "and" at the end of paragraph (12), PUBLIC LAW 101-239—DEC. 19,1989 103 STAT. 2219
(B) by striking the period at the end of paragraph (13) and
inserting "; and',
(C) by redesignating paragraphs (14) and (15) as para­
graphs (15) and (16), respectively, and
(D) by inserting after paragraph (13) the following new
paragraph;
"(14) screening pap smear."; £uid
(2) by adding at the end the following new subsection:
"Screening Pap Smear
"(nn) The term 'screening pap smear' means a diagnostic labora­
tory test consisting of a routine exfoliative cytology test (Papani­
colaou test) provided to a womcui for the purpose of early detection
of cervicsil cancer and includes a physician's interpretation of the
results of the test, if the individual involved has not had such a test
during the preceding 3 years (or such shorter period as the Secretary
may specify in the case of a woman who is at high risk of developing
cervical cancer (as determined pursuant to factors identified by the
Secretary)).".
(b) REVISION OP EXCLUSION GROUNDS.—Section 1862(aXl)(F) of
such Act (42 U.S.C. 1395y(aXlXF)) is amended by inserting before the
semicolon at the end the following: ", and, in the case of screening
pap smear, which is performed more frequently than is provided
under 1861(nn)".
(c) CONFORMING AMENDMENTS.—Sections 1864(a), 1865(a),
1902(aX9XC), and 1915(aXlXBXuXI) of such Act (42 U.S.C. 1395aa(a),
1395bb(a), 1396(aX9XC), 1396n(aXlXBXiiXD) are each amended by
striking "paragraphs (14) and (15)" and inserting "paragraphs (15)
and (16)".
(d) EFFECTIVE DATE.—The amendments made by this section shall
apply to screening pap smears performed on or after July 1, 1990.
SEC. 6116. COVERAGE UNDER, AND PAYMENT FOR, OUTPATIENT RURAL
PRIMARY CARE HOSPITAL SERVICES UNDER PART B.
(a) COVBSIAGE.^—
(1) Section 1861(mm) of the Social Security Act (42 U.S.C.
1395x(mm)), as added bv section 6003(gX3XA) of this subtitle, is
amended by adding at tne end the following:
"(3) The term 'outpatient rural primary care hospital services'
means medical and other health services furnished by a rural
primary care hospital.".
(2) Section 1832(aX2) of such Act (42 U.S.C. 1395k(aX2)) is
amended—
(A) in subparsigraph (F), by striking "and" at the end,
(B) in subpare^aph (G) by striking the period at the end and
inserting "; and', and
(C) by inserting after subparagraph (G) the following new
subparagraph:
"(H) outpatient rural primary care hospital services (as
defined in section 1861(mmX3)).'
(b) PAYMENT.—
(1) Section 1833(a) of such Act (42 U.S.C. 13951(a)) is
amended—
(A) in paragraph (2). in the matter before subparagraph
(A), by striking "and (G)" and insertmg "(G), and (H)",
(B) in paragraph (4), by striking "and" at the end, 42 use 1396a.
42 use 1395x note. 103 STAT. 2220 PUBLIC LAW 101-239—DEC. 19, 1989
(C) in paragraph (5), by striking the period at the end an'd
.,,, inserting "; and", and
* (D) by inserting after paragraph (5) the following new
paragraph:
"(6) in the case of outpatient rural primary care hospital
services, the amounts described in section 1834(g).".
(2) Section 1834 of such Act (42 U.S.C. 1395m) is amended by
adding at the end the following new subsection:
"(g) PAYMENT FOR OUTPATIENT RURAL PRIMARY CARE HOSPITAL
SERVICES.—
"(1) IN GENERAL.—The amount of payment for outpatient
rural primary care hospital services provided during a year
before 1993 in a rural primary care hospital under this part
shall be determined by one of the 2 following methods, as
elected by the rural primary care hospital:
"(A) COST-BASED FACILITY FEE PLUS PROFESSIONAL
CHARGES.—
"(i) FACILITY FEE.—With respect to facility services,
not including any services for which pajrment may be
made under clause (ii), there shall be paid amounts
equal to the amounts described in section 1833(aX2)(B)
(describing amounts paid for hospital outpatient serv­
ices).
"(ii) REASONABLE CHARGES FOR PROFESSIONAL SERV­
ICES.—In electing treatment under this subparagraph,
pajmaent for professional medical services otherwise
_ included within outpatient rural primary care hospital
services shall be made under such other provisions of
this part as would apply to pajmient for such services if
they were not included in outpatient rural primary
care hospital services.
"(B) ALL-INCLUSIVE RATE.—With respect to both facility
services and professional medical services, there shall be
paid amounts equal to the costs which are reasonable and
J related to the cost of furnishing such services or which are
based on such other tests of reasonableness as the Secretary
may prescribe in regulations, less the amount the hospital
may charge as described in clause (i) of section 1866(aX2XA),
but in no case may the pa3rment for such services (other
than for items and services described in section
1861(sX10XA) and for items and services furnished in
connection with obtaining a second opinion required under
section 1164(cX2), or a third opinion, if the second opinion
was in disagreement with the first opinion) exceed 80 per­
cent of such costs.
"(2) DEVELOPMENT AND IMPLEMENTATION OF ALL INCLUSIVE,
PROSPECTIVE PAYMENT SYSTEM.— Not later than January 1,1993,
the Secretary shall develop and implement a prospective pay­
ment system for determining pa3mients under this part for
outpatient rural primary care hospital services using a meth­
odology that includes all costs in providing all such services
(including related professional medical services) and that deter­
mines the pa3mient amount for such services on a prospective
basis.". PUBLIC LAW 101-239—DEC. 19,1989 103 STAT. 2221
Subpart B—Technical and Miscellaneous Provisions
SEC. 6131. MODIFICATION OF PAYMENT FOR THERAPEUTIC SHOES FOR
INDIVIDUALS WITH SEVERE DIABETIC FOOT DISEASE.
(a) PERMITTING ADDITIONAL INSERTS.—
(1) IN GENERAL.—Section 1833(o) of the Social Security Act (42
U.S.C. 13951(o)) is amended—
(A) by amending subparagraph (A) of paragraph (1) to
read as follows:
"(A) no payment may be made under this part, with respect to
any individual for any year, for the furnishing of—
"(i) more than one pair of custom molded shoes (including
inserts provided with such shoes) and 2 additional pairs of
inserts for such shoes, or
"(ii) more than one pair of extra-depth shoes (not includ­
ing inserts provided with such shoes) and 3 pairs of inserts
^ for such shoes, and";
(B) in paragraphs (1)(B) and (2XA), by striking "limit" and
inserting "limits";
(C) in the second sentence of paragraph (1), by inserting
"(or inserts)" after "shoes" each place it appears;
(D) by amending clause (i) of paragraph (2XA) to read as
follows:
"(i) for the furnishing of—
"(I) one pair of custom molded shoes (including any in­
serts that are provided initially with the shoes) is $300, and
"(II) any additional pair of inserts with respect to such
shoes is $50; and"; and
(E) in paragraph (2XAXiiXII), by inserting "any pairs of*
after "$50 for^'.
(2) CONFORMING AMENDMENT.—Section 1861(sX12) of such Act
(42 U.S.C. 1395x(sX12)) is amended by inserting "with inserts"
after "custom molded shoes".
(b) PERMITTING SUBSTITUTION OP SHOE MODIFICATIONS FOR IN­
SERTS.—Section 1833(oX2) of such Act is amended by adding at the
end the following new subparagraph:
"(D) In accordance with procedures established by the Secretary,
an individual entitled to benefits with respect to shoes described in
section 1861(sX12) may substitute modification of such shoes instead
of obtaining one (or more, as specified by the Secretary) pairs of
inserts (other than the original pair of inserts with respect to such
shoes). In such case, the Secretary shall substitute, for the limits
established under subparagraph (A), such limits as the Secretary
estimates will assure that there is no net increase in expenditures K
under this subsection as a result of this subparagraph.".
(c) EFFECTIVE DATE.— 42USC1395/
(1) The amendments made by this section shall apply with ^°^-
respect to therapeutic shoes and inserts furnished on or after
July 1,1989.
(2) In applying the amendments made by this section, the
increase under subparagraph (C) of section 1833(oX2) of the
Social Security Act shall apply to the dollar amounts specified
under subparagraph (A) of such section (as amended by this
section) in the same manner as the increase would have applied
to the dollar amounts specified under subparagraph (A) of such
section (as in effect before the date of the enactment of this Act). 103 STAT. 2222 PUBLIC LAW 101-239—DEC. 19, 1989
42 use 1395k
note.
42 use 1395k
note.
42 use 1395/
note.
42 use 1395m
note.
Reports.
42 use 1395b-l
note.
Reports.
42 use 1395/
note. SEC. 6132. PAYMENTS TO CERTIFIED REGISTERED ANESTHETISTS.
(a) EXTENSION AND EXPANSION OF CRNA PASS-THROUGH.—Section
9320(k) of the Omnibus Budget Reconciliation Act of 1986, as added
by section 608(cX2) of the Family Support Act of 1988, is amended—
(1) by striking "250" each place it appears and inserting
"500";
(2) in paragraph (1)—
(A) by striking "1989, 1990, and 1991" and inserting "a
year Obeginning with 1989)", and
(B) by striking "before April 1, 1989," and inserting "at
any time before the year";
(3) in paragraph (2)—
(A) by striking "1990 or 1991" and inserting "in a year
(after 1989)", and
(B) by striking "each respective year" and inserting "the
year"; and
(4) by striking paragraph (3).
(b) EFFECTIVE DATE.—"Die amendments made by this section shall
apply to services furnished on or after January 1,1990.
SEC. 6133. INCREASE IN PAYMENT LIMIT FOR PHYSICAL AND OCCUPA-
TIONAL THERAPY SERVICES.
(a) IN GENERAL.—Section 1833(g) of the Social Security Act (42
U.S.C. 13951(g)) is amended by striking "$500" each place it appears
and inserting "$750".
(b) EFFECTIVE DATE.—The amendment made by subsection (a)
shall apply to services furnished on or £ifter January 1, 1990.
SEC. 6134. STUDY OF PAYMENT FOR PORTABLE X-RAY SERVICES.
The Secretary of Health and Human Services shall conduct a
studjr of the costs of furnishing, and payments for, portable x-ray
services under part B of title XVIII of the Social Security Act. Not
later than 1 year after the date of the enactment of this Act, the
Secretary shall report to Congress on the results of such study and
shall include a recommendation respecting whether pajrment for
such services should be made in the same manner as for radiologists'
services or on the basis of a separate fee schedule.
SEC. 6135. EXTENSION OF MUNICIPAL HEALTH SERVICE DEMONSTRA­
TION PROJECTS.
Section 9215 of the Consolidated Omnibus Budget Reconciliation
Act of 1985 is amended—
(1) by striking ", for a period of three additional years," and
inserting "through December 31,1993,"; and
(2) by adding at the end the following: "The Secretary shall
submit a report to Congress on the waiver program with respect
to the quality of health care, beneficiary costs, and such other
factors as may be appropriate.".
SEC. 6136. STUDY OF REIMBURSEMENT FOR AMBULANCE SERVICES.
(a) IN GENERAL.—The Secretary of Health and Human Services
shall conduct a study to determine the adequacy and appropriate­
ness of pa3anent amounts under title XVIII of the Social Security
Act for ambulance services. Such study shall examine at least the
following:
(1) The effect of payment amounts on the provision of ambu­
lance services in rural areas. PUBLIC LAW 101-239—DEC. 19,1989 103 STAT. 2223
(2) The relationship of such payment amounts to the direct
and indirect costs of providing ambulance services. Such rela­
tionship shall be examined separately—
(AXi) for tax-subsidized, municipally-owned and operated
services, (ii) for volunteer services, (iii) for private, for-profit
services, and (iv) for hospital-owned services, and
(B) for different levels (such as basic life support and
advanced life support) of such services.
(3) How such payment amounts compare to the payment
amounts made for ambulance services under medicaid plans
under title XDC of such Act.
(b) REPORT.—^By not later than one year after the date of the
enactment of this Act, the Secretary shall submit a report to
Congress on the results of the study conducted under subsection (a)
and shall include in the report such recommendations for changes in
medicare payment policy with respect to ambulance services as may
be needed to ensure access by medicare beneficiaries to quality
ambulance services in metropolitan and rural areas.
SEC 6137. PROPAC S'iTJDY OF PAYMENTS FOR SERVICES IN HOSPITAL 42 USC 1395Z
OUTPATIENT DEPARTMENTS. "°^
(a) IN GENERAL.—^The Prospective Payment Assessment Commis­
sion shall conduct a study on payment under title XVm of the
Social Security Act for hospital outpatient services. Such study shall
include an examination of—
(1) the sources of growth in spending for hospital outpatient
services;
(2) the differences between the costs of delivering services in a
hospital outpatient department as opposed to providing similar
services in other appropriate settings (including ambulatory
surgery centers and physician offices);
(3) the effects on outpatient hospital costs of the step-down
method used to allocate hospital capital between inpatient and
outpatient departments and the extent to which hospital out­
patient costs were affected by the implementation of the
prospective payment system of payment for inpatient hospital
services and by increased review of such services by peer review
organizations; and
(4) alternative methods for reimbursing hospitals for services
in outpatient departments under the medicare pix^am, includ­
ing prospective payment methods, fee schedules, and such other
meljiods as the (Commission may consider appropriate.
(b) REPORTS.—(1) By not later than July 1, 1990, the Commission
shall submit a report to Congress on the study conducted under
subsection (a) with respect to the portions of the study described in
paragraphs (1), (2), and (3) of such subsection, and shall include in
the report such recommendations as the Commission deems appro­
priate.
(2) By not later than March 1,1991, the Commission shall submit
a report to Congress on the study conducted under subsection (a)
with respect to the portion of the study described in paragraph (4) of
such subsection, and shall include in the report such recommenda­
tions as the Commission deems appropriate. 103 STAT. 2224 PUBLIC LAW 101-239—DEC. 19,1989
42 use 1395W-1
note.
42 use 1395m
note. SEC 6138. PHTSPRC STUDY OF PAYMENTS FOR ASSISTANTS AT SURGERY.
(a) STUDIO CJONTENTS.—^The Physician Pajonent Review Comi&ifh
sion shall conduct a study of the payments made under title X VDI of
the Social Security Act for assistants at sui^ery. Such study shall
examine—
(1) the necessity and appropriateness of using an assistant at
suigeipr;
(2) the use of physician and non-physician assistants at sur-
(3) the appropriateness of providing for payments, and the
appropriate level of payment, under title X^ of the Social
Security Act for assistants at surgeiy; and
(4) the effect of the amendments made l^ section 9338 of the
Omnibus Budget Reconciliation Act of 1986 on the employment
of roistered nurses as assistants at sundry, and whether or not
the reductions described in subsection (d) of such section have
been implemented.
(b) REPOBT.—^By not later than April 1,1991, the Commission shall
submit a report to Congress on the study conducted under subsec­
tion (a), and shall include in the report such recommendations as it
deems appropriate.
SECL 6139. GAO STUDY OF STANDARDS FOR USE OF AND PAYMENT FOR
ITEMS OF DURABLE MEDICAL EQUIPMENT.
(a) STUDY.—^The Comptroller General shall conduct a study of the
appropriate uses of items of durable medical equipment and of the
appropriate criteria for making determinations of medical necessity
under title XVIII of the Social Security Act for such items, with
particular emphasis on items (includii^ seat-lift chairs) that may be
subject to abusive billing practices. Such study shall include an
analysis of—
(1) the appropriate use of forms in making medical necessity
determinations for items of durable medic^ equipment under
such title; and
(2) procedures for identifying items of durable medical equip­
ment that should no longer be covered under such title.
(b) UsB OF PANEL IN CONDUCTING STUDY.—^The Comptroller Cren-
eral shall conduct such study with a panel convened by the
Comptroller General consisting of—
(1) sp«nalists in the disciplines of orthopedic medicine, re­
habilitation, arthritis, and geriatric medicine;
(2) representatives of consumer organizations; and
(3) representative of carriers under the medicare program.
(c) REPOBT.—^Not later than April 1,1991, the Comptroller General
shaU submit a report to the Committees on Ways and Means and
Eneigy and Commerce of the House of Representatives and the
Committee on Finance of the Senate on the study conducted under
subsection (a), and shall include in such report such recommenda­
tions as the Comptroller General deems appropriate.
SEC 6140. NARROWING OF RANGE OF AMOUNTS RECOGNIZED FOR ITEMS
OF DURABLE MEDICAL EQUIPMENT.
Paragraphs (8) and (9) of section 1834(a) of the Social Security Act
(42 U.S.C. 1395m(a)) are each amended in subparagraph (D)—
(1) in clause (i), by striking "1991" and all that follows
through "80 percent" and inserting "1991, mav not exceed 125
percent, and may not be lower than 85 percent'; and PUBLIC LAW 101-239—DEC. 19,1989 103 STAT. 2225
(2) in clause (ii), by striking "125 percent" and all that follows
through "85 percent" and inserting "120 percent, and may not
be lower than 90 percent".
SEC. 6141. PHYSICIAN OFFICE LABS.
(a) IN GENERAL.—Section 1861(s) of the Social Security Act (42
U.S.C. 1395x(s)) is amended—
(1) in the matter following paragraph (14), by striking "which
is independent" and all that follows through "per year," and
inserting the following: ", including a laboratory that is part
of;
(2) by redesignating paragraph (16) as subparagraph (B); and
(3) by inserting immediately after paragraph (15) the follow­
ing:
"(16XA) meets the certification requirements under section
353 of the Public Health Service Act; and".
(b) EFFECTIVE DATE.—The amendments made by subsection (a) 42 USC I395x
shall take effect on the date of the enactment of this Act. °°*®-
SEC. 6142. STUDY OF REIMBURSEMENT FOR BLOOD CLOTTING FACTOR
FOR HEMOPHILIA PATIENTS.
The Secretary of Health and Human Services shall review the
current methodology for reimbursing for blood clotting factor for
hemophilia patients under part B of title XVIII of the Social Secu­
rity Act and shall evaluate the effect of such methodology on the
accessibility and affordability of such factor to medicare bene­
ficiaries. By not later than 6 months after the date of the enactment Reports,
of this Act, the Secretary shall report to the (Dommittees on Energy
and Commerce and Ways and Means of the House of Representa­
tives and the Committee on Finance of the Senate on such review
and shall include in such report such recommendations as the
Secretary deems appropriate.
PART 3—PROVISIONS RELATING TO PARTS A
ANDB
Subpart A—General Provisions
SEC. 6201. REDUCTIONS UNDER ORIGINAL SEQUESTER ORDER AND AP- 2 USC 902 note.
PLICABILITY OF NEW SEQUESTER ORDER FOR HEALTH
MAINTENANCE ORGANIZATIONS.
Notwithstanding any other provision of law (including section
11002 or any other provision of this Act), the reductions in the
amount of payments required under title XVIII of the Social Secu­
rity Act made by the final sequester order issued by the President
on October 16, 1989, pursuant to section 252(b) of the Balanced
Budget and Emergency Deficit Control Act of 1985 shall continue to
be effective (as provided by sections 252(aX4XB) and 256(dX2) of such
Act) through December 31, 1989, with respect to payments under
section 1833(aXlXA) or 1876 of the Social Security Act, section 402 of
the Social Security Amendments of 1967, or section 222 of the Social
Security Amendments of 1972. E}ach such pajrment made during
fiscal year 1990 after such date shall be increased by 1.42 percent
above what it would otherwise be under this Act.
SEC. 6202. MEDICARE AS SECONDARY PAYER
(a) IDENTIFICATION OP MEDICARE SECONDARY PAYER SFFUATIONS.— 103 STAT. 2226 PUBLIC LAW 101-239—DEC. 19, 1989
(1) DISCLOSURE OF CERTAIN TAXPAYER IDENTITY INFORMATION
FOR VERIFICATION OF EMPLOYMENT STATUS OF MEDICARE BENE­
FICIARY AND SPOUSE OF MEDICARE BENEFICIARY.—
(A) IN GENERAL.—Subsection (1) of section 6103 of the
26 use 6103. Internal Revenue Code of 1986 (relating to disclosure of
returns and return information for purposes other than tax
administration) is amended by adding at the end thereof
the following new paragraph:
"(12) DISCLOSURE OF CERTAIN TAXPAYER IDENTITY INFORMATION
FOR VERIFICATION OF EMPLOYMENT STATUS OF MEDICARE BENE­
FICIARY AND SPOUSE OF MEDICARE BENEFICIARY.—
"(A) RETURN INFORMATION FROM INTERNAL REVENUE SERV­
ICE.—The Secretary shall, upon written request from the
Commissioner of Social Security, disclose to the (Dommis-
sioner available filing status and taxpayer identity informa­
tion from the individual master files of the Internal
Revenue Service relating to whether any medicare bene­
ficiary identified by the Commissioner was a married
individual (as defined in section 7703) for any specified year
after 1986, and, if so, the name of the spouse of such
individual and such spouse's TIN.
"(B) RETURN INFORMATION FROM SOCIAL SECURITY ADMINIS­
TRATION.—The Ck)mmissioner of Socied Security shsdl, upon
written request from the Administrator of the Health Care
Financing Administration, disclose to the Administrator
the following information:
"(i) The name and TIN of each medicare beneficiary
who is identified as having received wages (as defined
in section 3401(a)) from a qualified employer in a pre­
vious year.
"(ii) For each medicare beneficiary who was identi­
fied as married under subparagraph (A) and whose
spouse is identified as having received wages from a
qualified employer in a previous year—
"(I) the name and TIN of the medicare bene­
ficiary, and
"(II) the name and TIN of the spouse,
"(iii) With respect to each such qualified employer,
the name, address, and TIN of the employer and the
number of individuals with respect to whom written
statements were furnished under section 6051 by the
employer with respect to such previous year.
"(C) DISCLOSURE BY HEALTH CARE FINANCING ADMINISTRA­
TION.—With respect to the information disclosed under
subparagraph (B), the Administrator of the Health Care
Financing Administration may disclose—
"(i) to the qualified employer referred to in such
subparagraph the name and TIN of each individual
identifi^ under such subparagraph as having received
wages from the employer (hereinafter in this subpara­
graph referred to as the 'employee') for purposes of
,- determining during what period such employee or the
employee's spouse may be (or have been) covered under
a group health plan of the employer and what benefits
are or were covered under the plan (including the
name, address, and identifying number of the plan), PUBLIC LAW 101-239—DEC. 19,1989 103 STAT. 2227
"(ii) to any group health plan which provides or
provided coverage to such an employee or spouse, the '
name of such employee and the employee's spouse (if
the spouse is a medicare beneficiary) and the name and
address of the employer, and, for the purpose of
presenting a claim to the plan—
"(I) the TIN of such employee if benefits were
paid under title XVIII of the Social Security Act
with respect to the employee during a period in
which the plan was a primary plan (as defined in
section 1862(bX2XA) of the Social Security Act), and
"(II) the TIN of such spouse if benefits were paid
under such title with respect to the spouse during
such period, and
"(iii) to any agent of such Administrator the informa­
tion referred to in subparagraph (B) for purposes of
canying out clauses (i) and (ii) on behalf of such
Administrator.
"(D) SPECIAL RULES.—
"(i) RESTRICTIONS ON DISCLOSURE.—Information may
be disclosed under this parsigraph only for purposes of,
and to the extent necessary in, determining the extent
to which any medicare beneficiary is covered under any
group health plan.
"(ii) TIMELY RESPONSE TO REQUESTS.—Any request
made under subparagraph (A) or (B) shall be complied
with as soon as possible but in no event later than 120
days after the date the request was made.
"(E) DEFINITIONS.—For purposes of this paragraph—
"(i) MEDICARE BENEFICIARY.—The term 'medicare
beneficiary' means an individued entitled to benefits
under part A, or enrolled under part B, of title XVIII of
the Social Security Act, but does not include such an
individual enrolled in part A under section 1818.
"(ii) GROUP HEALTH PLAN.—The term 'group health
plan' means—
"(I) any group health plan (as defined in section
5000(bXl)), and
"(II) any large group health plan (as defined in
section 5000(bX2)).
"(iii) QuAUFiED EMPLOYER.—The term 'qualified em­
ployer' means, for a calendar year, an employer which
has furnished written statements under section 6051
with respect to at least 20 individuals for wages paid in
the year.
"(F) TERMINATION.—Subparagraphs (A) and (B) shall not
apply to—
"(i) any request made after September 30, 1991, and
"(ii) any request made before such date for informa­
tion relating to—
"(I) 1990 or thereafter in the case of subpara­
graph (A), or
"(II) 1991 or thereafter in the case of subpara­
graph (B)."
(B) SAFEGUARDS.—
(i) Paragraph (3) of section 6103(a) of such Code is 26 USC 6103.
amended by inserting "(1X12)," after "(eXlXDXiii),". note. 103 STAT. 2228 PUBLIC LAW 101-239—DEC. 19,1989
(ii) Subparagraph (A) of section 6103(pX3) of such
26 use 6103. Code is amended by striking "or (11)" and inserting
• "(11), or (12)".
(iii) Paragraph (4) of section 6103(p) of such Code is
amended in the material preceding subparagraph (A)
by striking "or (9) shall" and inserting "(9), or (12)
shall".
(iv) Clause (ii) of section 6103(pX4XF) of such Code is
amended by striking "or (11)" and inserting "(11), or
(12)".
(v) The next to the Isist sentence of paragraph (4) of
section 6103(p) of such C!ode is amended by inserting
"or which receives any information under subsection
(1X12XB) and which discloses any such information to
any agent" before ", this paragraph".
(C) PENALTY.—Paragraph (2) of section 7213(a) of such
Code is amended by striking "or (10)" and inserting "(10), or
(12)".
26^80 6103 (D) EFFECTIVE DATE.—The amendments made by this
paragraph shall take effect on the date of the enactment of
this Act.
(2) RESPONSIBIUTIES OF HCFA.—
(A) IN GENERAL.—Section 1862(b) of the Social Security
Act (42 U.S.C. 1395y(b)), as amended by subsection (bXD of
this section, is amended by inserting after paragraph (4) the
following new paragraph:
"(5) IDENTIFICATION OF SECONDARY PAYER SITUATIONS.—
"(A) REQUESTING MATCHING INFORMATION.—
"(i) (COMMISSIONER OF SOCIAL SECURITY.—The Commis­
sioner of Social Security shall, not less often than
annually, transmit to the Secretary of the Treasury a
list of the names and TINs of medicare beneficiaries (as
defined in section 6103(1X12) of the Internal Revenue
(Dode of 1986) and request that the Secretary disclose to
the (Dommissioner the information described in
subparagraph (A) of such section.
"(ii) ADMINISTRATOR.—The Administrator of the
Health Care Financing Administration shall request,
not less often than annually, the (Dommissioner of the
Social Security Administration to disclose to the
Administrator the information described in subpara­
graph (B) of section 6103(1X12) of the Internal Revenue
Code of 1986.
"(B) DISCLOSURE TO FISCAL INTERMEDIARIES AND CAR­
RIERS.—In addition to any other information provided
under this title to fiscal intermediaries and carriers, the
Administrator shall disclose to such intermediaries and
carriers (or to such a single intermediary or carrier as the
Secretary may designate) the information received under
subparagraph (A) for the purposes of carrying out this
subsection.
"(C) CONTACTING EMPLOYERS.—
"(i) IN GENERAL.—With respect to each individual (in
this subparagraph referred to as an 'employee') who
was furnished a written statement under section 6051
of the Internal Revenue C!k)de of 1986 by a qualified
employer (as defined in section 6103(lX12XDXiii) of such note. PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2229
Code), as disclosed under subparagraph (B), the appro­
priate fiscal intermediary or carrier shall contact the
employer in order to determine during what period the
employee or employee's spouse may be (or have been)
covered under a group health plan of the employer and
the nature of the coverage that is or was provided
under the plan (including the name, address, and
identifying number of the plan).
"(ii) EMPLOYER RESPONSE.—Within 30 days of the date
of receipt of the inquiry, the employer shall notify the
intermediary or carrier making the inquiry as to the
determinations described in clause (i). An employer
(other than a Federal or other governmental entity)
who willfully or repeatedly fails to provide timely and
accurate notice in accordance with the previous sen­
tence shall be subject to a civil money penalty of not to
exceed $1,000 for each individual witn respect to which
such an inquiry is made. The provisions of section
1128A (other than subsections (a) and (b)) shall apply to >
a civil money penalty under the previous sentence in
the same manner as such provisions apply to a penalty
or proceeding under section 1128A(a).
(iii) SUNSET ON REQUIREMENT.—Clause (ii) shall not
apply to inquiries made after September 30, 1991.".
(B) DEADUNE FOR FIRST REQUEST.—The Commissioner of 42 USC I395y
Social Security shall first—
(i) transmit to the Secretary of the Treasury informa­
tion under paragraph (5XA)(i) of section 1862(b) of the
Social Security Act (as inserted by subparagraph (A)),
and
(ii) request from the Secretary disclosure of informa-
' ' tion described in section 6013(1X12XA) of the Internal
Revenue Code of 1986,
by not later than 14 days after the date of the enactment of
this Act.
(b) UNIFORM ENFORCEMENT AND COORDINATION OF BENEFITS.—
(1) IN GENERAL.—Section 1862 of the Social Security Act (42
U.S.C. 1395y) is amended—
(A) in the heading, by adding at the end the following:
"AND MEDICARE AS SECONDARY PAYER"; and
(B) by amending subsection (b) to read as follows:
"(b) MEDICARE AS SECONDARY PAYER.—
"(1) REQUIREMENTS OF GROUP HEALTH PLANS.—
"(A) WORKING AGED UNDER GROUP HEALTH PLANS.—
"(i) IN GENERAL.—A group health plan—
"(I) may not take into account, for any item or
service furnished to an individual 65 years of age
or older at the time the individual is covered under
the plan by reason of the current employment of
the individual (or the individual's spouse), that the
individual is entitled to benefits under this title
under section 226(a), and
"(II) shall provide that any employee age 65 or
older, and any employee's spouse age 65 or older,
shall be entitled to the same benefits under the
plan under the same conditions as any employee,
and the spouse of such employee, under age 65. 103 STAT. 2230 PUBLIC LAW 101-239—DEC. 19, 1989
"(ii) EXCLUSION OF GROUP HEALTH PLAN OF A
SMALL EMPLOYER.—Clause (i) shall not apply to a
group health plan unless the plan is sponsored by
or contributed to by an employer that has 20 or
more employees for each working day in each of 20
or more calendar weeks in the current calendar
year or the preceding calendar year.
"(iii) EXCEPTION FOR SMALL EMPLOYERS IN MULTI­
EMPLOYER OR MULTIPLE EMPLOYER GROUP HEALTH
PLANS.—Clause (i) also shall not apply with respect
to individuals enrolled in a multiemployer or mul­
tiple employer group health plan if the coverage of
the individuals under the plan is by virtue of
emplo3ntnent with an employer that does not have
20 or more employees for each working day in each
of 20 or more calendar weeks in the current cal­
endar year or the preceding calendar year; except
that the exception provided in this clause shall
only apply if the plan elects treatment under this
clause.
"(iv) EXCEPTION FOR INDIVIDUALS WITH END STAGE
RENAL DISEASE.—Clause (i) shall not apply to an
item or service furnished in a month to an individ-
u£il if for the month the individual is, or would
upon application be, entitled to benefits under sec­
tion 226A.
"(v) GROUP HEALTH PLAN DEFINED.—In this
subparagraph, and subparagraph (C), the term
'group health plan' has the meaning given such
term in section 50000t>Xl) of the Internal Revenue
Code of 1986.
"(B) DISABLED ACTIVE INDIVIDUALS IN LARGE GROUP
HEALTH PLANS.—
"(i) IN GENERAL.—^A large group health plan (as de­
fined in clause (ivXID) may not take into account that
an active individual (as defined in clause (ivXD) is
entitled to benefits under this title under section 226(b).
"(ii) EXCEPTION FOR INDIVIDUALS WITH END STAGE
RENAL DISEASE.—Clause (i) shall not apply to an item or
service furnished in a month to an individual if for the
month the individual is, or would upon application be,
entitled to benefits under section 226A.
"(iii) SuNSET.^Dlause (i) shall only apply to items
and services furnished on or after January 1, 1987, and
before January 1,1992.
"(iv) DEFINITIONS.—In this subparagraph:
"(I) ACTIVE INDIVIDUAL.—The term 'active
individual' means an employee (as may be defined
in regulations), the employer, self-employed
individual (such as the employer), an individual
associated with the employer in a business rela­
tionship, or a member of the family of any of such
persons.
"(II) LARGE GROUP HEALTH PLAN.—The term
'large group health plan' h£is the meaning given
such term in section 5000(bX2) of the Internal
Revenue Code of 1986. PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2231
"(C) INDIVIDUAI^ WITH END STAGE RENAL DISEASE.—A
group health plan (as defined in subparagraph (AXv))—
"(i) may not take into account that an individual is
entitled to benefits under this title solelv bv reason of
section 226A during the 12-month period which begins
with the earlier of—
"(I) the month in which a regular course of renal
dialvBis is initiated, or
"(U) in the case of an individual who receives a
kidney transplant, the first month in which he
would be eligible for benefits imder part A (if he
had filed an application for such benefits) under
the provisions of section 226A(bXl)(B); and
"(ii) may not differentiate in the benefits it provides
between individuals having end stage renal disease and
other individuals covered by such plan on the basis of
the existence of end stage renal disease, the need for
rencd dialysis, or in anv other manner;
except that clause (ii) shall not prohibit a plan from taking
into account that an individual is entitled to benefits under
this title solely by reason of section 226A after the end of
the 12-month period described in clause (i).
"(2) MEDICARE SECONDARY PAYER.—
"(A) IN GENERAL.—Payment under this title may not be
made, except as provided in subparagraph (B), with respect
to any item or service to the extent thiat—
"(i) payment has been made, or can reasonably be
expected to be made, with respect to the item or service
as required under paragraph (1), or
"(ii) payment has been made or can reasonably be
expected to be made promptly (as determined in accord­
ance with regulations) under a workmen's compensa­
tion law or plan of the United Stetes or a Stete or under
an automobile or liabilitv insurance policy or plan
(including a self-insured plan) or under no fault insur­
ance.
In this subsection, the term 'primazy plan' means a group
health plan or large group health plan, to the extent that
clause (i) applies, and a workmen s compensation law or
plan, an automobile or liability insurance policy or plan
(including a self-insured plan) or no fault insurance, to the
extent that clause (ii) applies.
"(B) CONDITIONAL PAYMENT.—
"(i) PRIMARY PLANS.—Any payment under this title
with respect to any item or service to which subpara­
graph (A) applies shall be conditioned on reimburse­
ment to the appropriate Trust Fund esteblished bv this
title when notice or other information is received that
payment for such item or service has been or could be
made under such subparagraph.
"(ii) ACTION BY UNITED STATES.—In order to recover
payment under this title for such an item or service,
the United Stetes may bring an action against an;y
entity which is required or responsible under this
subsection to pay with respect to such item or service
(or any portion thereof) imder a primary plan (and
may, in accordance with paragraph (3XA) collect double 103 STAT. 2232 PUBLIC LAW 101-239—DEC. 19, 1989
damages against that entity), or against any other
* entity (including any physician or provider) that has
received pa)rment from that entity with respect to the
item or service, and may join or intervene in any action
• i related to the events that gave rise to the need for the
item or service.
"(iii) SUBROGATION RIGHTS.—The United States shall
be subrogated (to the extent of payment made under
this title for such an item or service) to any right under
this subsection of an individual or any other entity to
payment with respect to such item or service under a
primary plan.
"(iv) WAIVER OF RIGHTS.—The Secretary may waive
' •' (in whole or in part) the provisions of this subpara­
graph in the case of an individual claim if the
Secretary determines that the waiver is in the best
interests of the program established under this title.
"(3) ENFORCEMENT.—
"(A) PRIVATE CAUSE OF ACTION.—There is established a
private cause of action for damages (which shall be in an
amount double the amount otherwise provided) in the case
of a primary plan which fails to provide for primary pay­
ment (or appropriate reimbursement) in accordance with
such paragraphs (1) and (2XA).
"(B) REFERENCE TO EXCISE TAX WITH RESPECT TO NON-
,| CONFORMING GROUP HEALTH PLANS.—For provision imposing
^ , an excise tax with respect to nonconforming group health
plans, see section 5000 of the Internal Revenue Code of
1986.
"(4) COORDINATION OF BENEFITS.—Where payment for an item
or service by a primary plan is less than the amount of the
charge for such item or service and is not pajrment in full,
pajonent may be made under this title (without regard to
deductibles and coinsurance under this title) for the remainder
of such charge, but—
"(A) payment under this title may not exceed an amount
which would be payable under this title for such item or
service if paragraph (2XA) did not apply; and
"(B) pajnnent under this title, when combined with the
amount payable under the primary plan, may not exceed—
"(i) in the case of an item or service pa3rment for
which is determined under this title on the basis of
reasonable cost (or other cost-related basis) or under
section 1886, the amount which would be payable
under this title on such basis, and
"(ii) in the case of an item or service for which
payment is authorized under this title on another
IA] basis—
"(I) the amount which would be payable under
the primary plan (without regard to deductibles
and coinsurance under such plan), or
"(II) the reasonable charge or other amount
which would be payable under this title (without
regard to deductibles and coinsurance under this
i " title),
whichever is greater.". PUBLIC LAW 101-239—DEC. 19,1989 103 STAT. 2233
'^ (2) ENFORCEMENT THROUGH EXCISE TAX.—Section 5000 of the
Internal Revenue Code of 1986 is amended— 26 USC 5000.
(A) by striking "LARGE" in the heading;
(B) in subsection (a), by striking "large" each place it
? appears; and
(C) by amending subsections Ot>) and (c) to read as follows:
"(b) GROUP HEALTH PLAN AND LARGE GROUP HEALTH PLAN.—For
purposes of this section—
"(1) GROUP HEALTH PLAN.—The term 'group health plan'
means any plan of, or contributed to by, an employer (including
a self-insured plan) to provide health care (directly or otherwise)
to the employer's employees, former employees, or the families
of such employees or former employees.
"(2) LARGE GROUP HEALTH PLAN.—The term 'large group
health plan' means a plan of, or contributed to by, an employer
or employee organization (including a self-insured plan) to pro­
vide health care (directly or otherwise) to the employees, former
employees, the employer, others associated or formerly associ­
ated with the employer in a business relationship, or their
families, that covers employees of at legist one employer that
normally employed at least 100 employees on a typical business
day during the previous calendar year.
"(c) NONCONFORMING GROUP HEALTH PLAN.—For purposes of this
section, the term 'nonconforming group health plan means a group
health plan or large group health plan that at any time during a
calendar year does not comply with the requirements of subpara­
graphs (A) and (C) or subparagraph (B), respectively, of section
1862(bXl) of the Social Security Act.'
(3) REPEAL OF CERTAIN ALTERNATIVE ENFORCEMENT PROVI­
SIONS.—
(A) DENIAL OF DEDUCTION FOR GROUP HEALTH PLANS.—
Subsection (i) of section 162 of such Code (relating to group
health plans) is repealed.
(B) CONFORMING AMENDMENT.—Section 4980B(gX2) of
such Code is amended by striking "162(i)" and inserting
"5000(bXl)".
(C) AGE DISCRIMINATION IN EMPLOYMENT ACT.—The Age
Discrimination in Emplo)rment Act of 1967 is amended—
(i) by striking subsection (g) of section 4, and 29 USC 623.
(ii) in section 12(a), by striking "(except the provi- 29 USC 631.
sions of section 4(g))".
(4) CLERICAL AND CONFORMING AMENDMENTS.—
(A) Chapter 47 of the Internal Revenue Code of 1986 is
amended—
(i) in the heading, by striking "LARGE", and ,,
(ii) in the table of sections, by striking "large".
(B) The item in the table of chapters of subtitle D of such
Code relating to chapter 47 is amended by striking "large".
(C) Sections 1837(i) and 1839(b) of the &)cial Security Act
(42 U.S.C. 1395p(i), 1395r(b)) are each amended by striking
"1862(bX3XAXiv)" and "1862(bX4XB)" each place each
appears and inserting "1862(bXlXAXv)" and
"1862(bXlXBXiv)", respectively.
(5) EFFECTIVE DATE.—The amendments made by this subsec- 42 USC 162 note,
tion shall apply to items and services furnished after the date of
the enactment of this Act.
(c) SPECIAL ENROLLMENT PERIOD FOR DISABLED EMPLOYEES.— 103 STAT. 2234 PUBLIC LAW 101-239—DEC. 19,1989
(1) IN GENERAL.—Section 1837(i) of the Social Security Act (42
U.S.C. 1395p(i)) is amended—
(A) in paragraph (1)—
(i) by strilang subparagraph (A),
(ii) by redesignating subparagraphs (B) and (O as
subparagraphs (A) and (B), respectively, and
'" (iii) in the second sentence, by inserting "not de­
scribed in the previous sentence" after "In the case of
,^ an individual"; and
^ (B) in paragraph (2)— ^ '
(i) in subparagraph (BXi), by striking "(IXB)" and
inserting "(IXAr,
(ii) by striking subparagraph (A),
(iii) Dy redesignating subparagraphs (B) through (D)
as subparagraphs (A) through (C), respectively, and
(iv) in the second sentence, by inserting "not de-
" ^ scribed in the previous sentence" after "In the case of
an individual".
(2) CONFORMING AMENDMENT.—^The second sentence of section
1839(b) of such Act (42 U.S.C. 1395r(b)) is amended by striking
"during which the individual has attained the age of 65 and'.
42 use I395p (3) EFFECTIVE DATE.—The amendments made by this subsec-
^°^- tion shall apply to enrollments occurring after, and premiums
for months siter, the second calendar quarter beginning after
the date of the enactment of this Act.
(d) No MATCHING BASED ON PRIVATE ACTIVITIES REQUIRED IN
FISCAL INTERMEDIARY AGREEMENTS AND CARRIER CONTRACTS.—
(1) FISCAL INTERMEDIARY AGREEMENTS.—Section 1816(cXl) of
the Social Security Act (42 U.S.C. 1395h(cXl)) is amended by
adding at the end the following: "The Secretary may not re­
quire, as a condition of entering into or renewing an agreement
under this section or under section 1871, that a fiscal
intermediary match data obtained other than in its activities
under this part with data used in the administration of this part
for purposes of identifying situations in which the provisions of
section 1862(b) may apply.".
(2) CARRIER CONTRACTS.—Section 1842(bX2XA) of such Act (42
U.S.C. 1395u(bX2XA)) is amended by adding at the end the
following: "The Secretary may not require, as a condition of
entering into or renewing a contract imder this section or under
section 1871, that a carrier match data obtained other than in
its activities under this part with data used in the administra­
tion of this part for purposes of identifying situations in which
section 1862(b) may apply.".
42 use I395h (3) EFFECTIVE DATE.—The amendments made by this subsec-
^ote. tion shjdl apply to agreements and contracts entered into or
renewed on or after the date of the enactment of this Act.
(e) TREATMENT OF EMPLOYMENT AS A MEMBER OF A RELIGIOUS
ORDER.—
(1) IN GENERAL.—Section 1862(bXl) of the Social Security Act
(42 U.S.C. 1395y(bXl)), as amended by subsection (bXD of this
section, is amended by adding at the end the following new
subparagraph:
"(D) TREATMENT OF CERTAIN MEMBERS OF RELIGIOUS
ORDERS.—In this subsection, an individual shall not be
considered to be employed, or an employee, with respect to
the performance of services as a member of a religious PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2235
note.
42 use 1395rr
note.
42 use 1395rr
note. -; order which are considered employment only by virtue of
an election made by the religious order under section
3121(r) of the Internal Revenue Code of 1986.".
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 42 use I395y
shall apply to items and services furnished on or after Octo­
ber 1, 1989.
SEC. 6203. PAYMENT FOR END STAGE RENAL DISEASE SERVICES.
(a) MAINTENANCE OF CURRENT COMPOSITE RATE.—
(1) IN GENERAL.—Section 9335(aXl) of the Omnibus Budget
Reconciliation Act of 1986 is amended—
(A) by striking "and before October 1,1988" and inserting
"and before October 1,1990", and
(B) by adding at the end the following: "No change may
r be made in the base rate in effect as of September 30, 1990,
unless the Secretary makes such change in accordance with
notice and comment requirements set forth in section
1871(bXl)ofsuchAct.".
(2) EFFECTIVE DATE.—The amendment made by paragraph (1)
shall take effect as if included in the enactment of the Omnibus
Budget Reconciliation Act of 1986.
(b) REQUIREMENTS FOR PATIENTS DEAUNG DIRECTLY WITH MEDI­
CARE.—
(1) LIMITATION ON AMOUNT OF PAYMENT GENERALLY.—Section
188ia>)(7) of the Social Security Act (42 U.S.C. 1395rr(b)(7)) is
amended by inserting after the second sentence the following
new sentence: "The amount of a payment made under any
method other than a method based on a single composite
weighted formula may not exceed the amount (or, in the case of
continuous cycling peritoneal dialysis, 130 percent of the
amount) of the median payment that would have been made
under the formula for hospital-based facilities.".
(2) AGREEMENTS WITH PROVIDERS OF SERVICES.—Section
1881(bX4) of such Act (42 U.S.C. 1395rrOt)X4)) is amended—
(A) by striking "(4)" and inserting "(4XA)", and
(B) by adding at the end the following new subparagraph:
"(B) The Secretary shall make payments to a supplier of home
dialysis supplies and equipment furnished to a patient whose self-
care home dialysis is not under the direct supervision of an ap­
proved provider of services or renal dialysis facility only in
accordance with a written agreement under which—
"(i) the patient certifies that the supplier is the sole provider
of such supplies and equipment to the patient,
"(ii) the supplier agrees to receive pajnnent for the cost of
such supplies and equipment only on an assignment-related
basis, and
"(iii) the supplier certifies that it has entered into a written
agreement with an approved provider of services or renal dialy­
sis facility under which such provider or facility agrees to
furnish to such patient £dl self-care home dialysis support serv­
ices and all other necessary dialysis services and supplies,
including institutional dialysis services and supplies £ind emer­
gency services.".
(3) EFFECTIVE DATE.—The amendments made by this subsec­
tion shall apply with respect to dialysis services, supplies, and
equipment furnished on or after February 1,1990. 42 use 1395rr
note. 103 STAT. 2236 PUBLIC LAW 101-239—DEC. 19, 1989
SEC. 6204. PHYSICIAN OWNERSHIP OF, AND REFERRAL TO, HEALTH CARE
ENTITIES.
(a) PROHIBITION OF CERTAIN FINANCIAL ARRANGEMENTS BETWEEN
REFERRING PHYSICIANS AND CUNICAL LABORATORIES.—Title XVIII of
the Social Security Act is amended by inserting after section 1876
the following new section:
"UMITATION ON CERTAIN PHYSICIAN REFERRALS
42 use 1395nn. "SEC. 1877. (a) PROHIBITION OF CERTAIN REFERRALS.—
"(1) IN GENERAL.—Except as provided in subsection (b), if a
physician (or immediate family member of such physician) has a
financial relationship with an entity specified in paragraph (2),
then—
"(A) the physician may not make a referral to the entity
for the furnishing of clinical laboratory services for which
" payment otherwise may be made under this title, and
(B) the entity may not present or cause to be presented a
claim under this title or bill to any individual, third party
payor, or other entity for clinical laboratory services fur­
nished pursuant to a referral prohibited under subpara­
graph (A).
"(2) FINANCIAL RELATIONSHIP SPECIFIED.—For purposes of this
section, a financied relationship of a physician (or immediate
family member) with an entity specified in this paragraph is—
"(A) except as provided in subsections (c) and (d), an
ownership or investment interest in the entity; or
"(B) except as provided in subsection (e), a compensation
arrangement (as defined in subsection (hXlXA)) between the
physician (or immediate family member) and the entity.
An ownership or investment interest described in subparagraph
(A) may be through equity, debt, or other means.
"(b) GENERAL EXCEPTIONS TO BOTH OWNERSHIP AND COMPENSATION
ARRANGEMENT PROHIBITIONS.—Subsection (aXD shall not apply in
the following cases:
"(1) PHYSICIANS' SERVICES.—In the case of physicians' services
(as defined in section 1861(q)) provided personally by (or under
the personal supervision of) another physician in the same
group practice (as defined in subsection (hX4)) as the referring
physician.
(2) IN-OFFICE ANCILLARY SERVICES.—In the case of services—
"(A) that are furnished—
"(i) personally by the referring physician, personally
by a physician who is a member of the same group
practice as the referring physician, or personally by
individuals who are employed by such physician or
group practice and who are personally supervised by
the physician or by another physician in the group
practice, and
"(iiXD in a building in which the referring physician
(or another physician who is a member of the same
group practice) furnishes physicians' services unrelated
to the furnishing of clinical laboratory services, or
"(II) in the case of a referring physician wha is a
member of a group practice, in another building which
is used by the group practice for the centralized provi­
sion of the group's clinical laboratory services, and PUBLIC LAW 101-239—DEC. 19,1989 103 STAT. 2237
"(B) that are billed by the physician performing or super­
vising the services, by a group practice of iK^ch such
physician is a member, or by an entit^^ that is wholly owned
by such ph^cian or such group practice,
if the ownership or investment interest in such services meets
such other requirements as the Secretary may impose by regu­
lation as needed to protect against program or patient abuse.
"(3) PREPAID PLANS.—In the case of services furnished—
"(A) by an organization with a contract.under section
1876 to an individual enrolled with the organization,
"(B) by an organization described in section 1833(aXlXA)
to an individual enrolled with the organization, or
"(Q by an organization receiving payments on a prepaid
basis, under a demonstration project under section 402(a) of
the Social Security Amendments of 1967 or under section
222(a) of the Social Security Amendments of 1972, to an
individual enrolled with the organization.
"(4) OTHER PERMISSIBLE EXCEPTIONS.—^In the case of any other
financial relationship which the Secretary determines, and
specifies in regulations, does not pose a risk of program or
patient abuse.
"(c) GENERAL EXCEPTION RELATED ONLY TO OWNERSHIP OR INVEST­
MENT PROHIBITION FOR OWNERSHIP IN PUBUCLY-TRADED SECURI­
TIES.—Ownership of investment securities (including shares or
bonds, debentures, notes, or other'debt instruments) which were
purchased on terms generally available to the public and which are
in a corporation that—
"(1) is listed for trading on the New York Stock Exchange or
on the American Stock Exchange, or is a national market
s^nstem security traded under an automated interdealer quota­
tion system operated by the National Association of Securities
Dealers, and
"(2) had, at the end of the corporation's most recent fiscal
year, total assets exceeding $100,0()0,000,
shall not be considered to be an ownership or investment interest
described in subsection (aX2XA).
"(d) ADDmoNAL EXCEPTIONS RELATED ONLY TO OWNERSHIP OR
INVESTMENT PROHIBITION.—The following, if not otherwise excepted
under subsection (b), shall not be considered to be an ownership or
investment interest described in subsection (aX2XA):
"(1) HOSPITALS IN PUERTO RICO.—^In the case of clinical labora­
tory services provided by a hospital located in Puerto Rico.
(2) RURAL PROVIDER.—In the case of clinical laboratory serv­
ices if the laboratory furnishing the services is in a rural area
(as defined in section 1886(dX2XD)).
"(3) HOSPITAL OWNERSHIP.—In the case of clinical laboratory
services provided by a hospital (other than a hospital described
in paragraph (D) if—
'(A) the referring physician is authorized to perform
services at the ho^ital, and
"(B) the ownership or investment interest is in the hos­
pital itself (and not merely in a subdivision thereof).
"(e) EXCEPTIONS RELATING TO OTHER COMPENSATION ARRANGE­
MENTS.—^The following shall not be considered to be a compensation
arrangement described in subsection (aX2)(B):
"(1) RENTAL OF OFFICE SPACE.—Payments made for the rental
or lease of office space if— 103 STAT. 2238 PUBLIC LAW 101-239~DEC. 19, 1989
"(A) there is a written agreement, signed by the parties,
for the rental or lease of the space, which agreement—
"(i) specifies the space covered by the agreement and
dedicated for the use of the lessee,
"(ii) provides for a term of rental or lease of at least
one year;
"(iii) provides for pa3rment on a periodic basis of an
amount that is consistent with fair market value;
"(iv) provides for an amount of aggregate pajrments
that does not vary (directly or indirectly) based on the
volume or value of any referrals of business between
the parties; and
"(v) would be considered to be commercially reason­
able even if no referrals were made between the par­
ties;
"(B) in the case of rental or lease of office space in which
a physici£ui who is an interested investor (or an interested
investor who is an immediate family member of the physi­
cian) has an ownership or investment interest, the office
space is in the same building as the building in which the
physician (or group practice of which the physician is a
member) has a practice; and
"(C) the arr£mgement meets such other requirements as
the Secretary may impose by regulation as needed to pro­
tect against progrcun or patient abuse.
"(2) EMPLOYMENT AND SERVICE ARRANGEMENTS WITH HOS­
PITALS.—An arrangement between a hospital and a physician
(or immediate family member) for the employment of the physi­
cian (or family member) or for the provision of administrative
services, if^
"(A) the arrangement is for identifiable services;
"(B) the amount of the remuneration under the arrange­
ment—
"(i) is consistent with the fair market value of the
services, and
"(ii) is not determined in a manner that takes into
account (directly or indirectly) the volume or value of
any referrals by the referring physician;
"(C) the remuneration is provided pursuant to an agree­
ment which would be commercially reasonable even if no
referrals were made to the hospital; and
"(D) the arrangement meets such other requirements as
the Secretary may impose by regulation as needed to pro­
tect against program or patient abuse.
"(3) OTHER SERVICE ARRANGEMENTS.—Remuneration from an
entity (other than a hospital) under an arrangement if—
"(A) the arrangement is—
"(i) for specific identifiable services as the medical
director or as a member of a medical advisory board at
the entity pursuant to a requirement of this title,
"(ii) for specific identifiable physicians' services to be
furnished to an individual receiving hospice care if
payment for such services may only be made under this
title as hospice care,
"(iii) for specific physicians' services furnished to a
nonprofit blood center, or PUBLIC LAW 101-239—DEC. 19,1989 103 STAT. 2239
"(iv) for specific identifiable administrative services
(other than direct patient care services), but only under
exceptional circumstances specified by the Secretary in
regulations;
"(B) the requirements described in subparagraphs (B) and
(C) of par£igraph (2) are met with respect to the entity in the
• same manner as they apply to a hospital; and
"(C) the arrangement meets such other requirements as
the Secretary may impose by regulation as needed to pro­
tect against program or patient abuse.
"(4) PHYSICIAN RECRUITMENT.—In the case of remuneration
which is provided by a hospital to a physician to induce the
physician to relocate to the geographic area served by the
hospital in order to be a member of the medical staff of the
hospital, if—
"(A) the physician is not required to refer patients to the
hospital,
"(B) the amount of the remuneration under the arrange­
ment is not determined in a manner that takes into account
(directly or indirectly) the volume or value of any referrals
by the referring physician, and
"(C) the arrangement meets such other requirements as
the Secretary may impose by regulation as needed to pro­
tect against program or patient abuse.
"(5) ISOLATED TRANSACTIONS.—In the case of £ui isolated finan­
cial transaction, such as a one-time sale of property, if^
"(A) the requirements described in subparagraphs (B) and
(C) of paragraph (2) are met with respect to the entity in the
same manner as they apply to a hospital, and
"(B) the transaction meets such other requirements as
the Secretary may impose by regulation as needed to pro­
tect against program or patient abuse.
"(6) SALARIED PHYSICIANS IN A GROUP PRACTICE.—A compensa­
tion arrangement involving pa5mient by a group practice of the
salary of a physician member of the group practice.
"(f) REPORTING REQUIREMENTS.—Each entity providing covered
items or services for which payment may be made under this title
shall provide the Secretary with the information concerning the
entity s ownership arrangements, including—
"(1) the covered items and services provided by the entity, and
"(2) the names and all of the medicare provider numbers of
the physicians who are interested investors or who are imme­
diate relatives of interested investors.
Such information shall be provided in such form, manner, and at
such times as the Secretary shall specify. Such information shall
first be provided not later than 1 year after the date of the enact­
ment of this section.
"(g) SANCTIONS.—
"(1) DENIAL OF PAYMENT.—No pa3rment may be made under
this title for a clinical laboratory service which is provided in
violation of subsection (aXl).
"(2) REQUIRING REFUNDS FOR CERTAIN CLAIMS.—If a person
collects any amounts that were billed in violation of subsection
(aXD, the person shall be liable to the individual for, and shall
refund on a timely basis to the individual, any amounts so
collected. 103 STAT. 2240 PUBLIC LAW 101-239—DEC. 19, 1989
"(3) CIVIL MONEY PENALTY AND EXCLUSION FOR IMPROPER
CLAIMS.—Any person that presents or causes to be presented a
bill or a claim for a service that such person knows or should
know is for a service for which payment may not be made under
paragraph (1) or for which a refund has not been made under
paragraph (2) shall be subject to a civil money penalty of not
more than $15,000 for each such service. The provisions of
section 1128A (other than the first sentence of subsection (a) and
other than subsection (b)) shall apply to a civil money penalty
under the previous sentence in the same manner as such provi­
sions apply to a penalty or proceeding under section 1128A(a).
"(4) CIVIL MONEY PENALTY AND EXCLUSION FOR CIRCUMVENTION
SCHEMES.—Any physician or other entity that enters into an
arrangement or scheme (such as a cross-referral arrangement)
which the physician or entity knows or should know has a
principal purpose of assuring referrals by the physician to a
particular entity which, if the physician directly made referrals
to such entity, would be in violation of this section, shall be
subject to a civil money penalty of not more than $100,000 for
each such arrangement or scheme. The provisions of section
1128A (other than the first sentence of subsection (a) and other
than subsection (b)) shall apply to a civil money penalty under
the previous sentence in the same manner as such provisions
apply to a penalty or proceeding under section 1128A(a).
(5) FAILURE TO REPORT INFORMATION.—Any person who is
required, but fails, to meet a reporting requirement of subsec­
tion (f) is subject to a civil money penalty of not more than
$10,000 for each day for which reporting is required to have
been made.
"(h) DEFINITIONS.—For purposes of this section:
"(1) COMPENSATION ARRANGEMENT; REMUNERATION.—(A) The
term 'compensation arrangement' means any arrangement
involving any remuneration between a physician (or immediate
family member) and an entity.
"(B) The term 'remuneration' includes any remuneration,
directly or indirectly, overtly or covertly, in cash or in kind.
"(2) EMPLOYEE.—An individual is considered to be 'employed
by' or an 'employee' of an entity if the individual would be
considered to be an employee of the entity under the usual
common law rules applicable in determining the employer-
employee relationship (as applied for purposes of section
3121(dX2) of the Internal Revenue Code of 1986).
"(3) FAIR MARKET VALUE.—The term 'fair market value'
means the value in arms length trsuisactions, consistent with
the general market value, and, with respect to rentals or leases,
the value of rental property for general commercial purposes
(not taking into account its intended use) and, in the case of a
lease of space, not adjusted to reflect the additional value the
prospective lessee or lessor would attribute to the proximity or
convenience to the lessor where the lessor is a potential source
of patient referrsds to the lessee.
(4) GROUP PRACTICE.—The term 'group practice' means a
group of two or more physicians legally orgsuiized as a partner­
ship, professional corporation, foundation, not-for-profit cor­
poration, faculty practice plan, or similar association—
"(A) in which each physician who is a member of the
group provides substantially the full range of services PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2241
which the physician routinely provides (including medical
care, consultation, diagnosis, or treatment) through the
joint use of shared office space, facilities, equipment, and
personnel;
'' "(B) for which substantially all of the services of the
physicians who are member? of the group are provided
through the group and are billed in the name of the group
and amounts so received are treated as receipts of the
group;
"(C) in which the overhead expenses of and the income
from the practice are distributed in accordance with meth­
ods previously determined by members of the group; and
"(D) which meets such other standards as the Secretary
may impose by regulation.
In the case of a faculty practice plan associated with a hospital,
with an approved medical residency training program in which
physician members may provide a variety of different specialty
services and provide professional services both within and out­
side the group (as well as perform other tasks such as research),
the previous sentence shall be applied only with respect to the
services provided within the faculty practice plan.
"(5) INTERESTED INVESTOR; DISINTERESTED INVESTOR.—The term
'interested investor' means, with respect to an entity, an inves­
tor who is a physician in a position to make or to influence
referrals or business to the entity (or who is an immediate
family member of such an investor), and the term 'disinterested
investor' means an investor other than an interested investor.
"(6) REFERRAL; REFERRING PHYSICIAN.—
"(A) PHYSICIANS' SERVICES.—Except as provided in
subparagraph (C), in the case of a clinical laboratory service
which under law is required to be provided by (or under the
supervision of) a physicigm, the request by a physician for
the service, including the request by a physician for a
consultetion with another physician (and any test or proce­
dure ordered by, or to be performed by (or under the ^* '" "
supervision of) that other physician), constitutes a'referral'
by a 'referring physician'.
"(B) OTHER ITEMS.—Except as provided in subparagraph
(C), in the case of another clinical laboratory service, the
request or establishment of a plan of care by a physician
which includes the provision of the clinical laboratory serv­
ice constitutes a 'referral' by a 'referring physician'.
"(C) CLARIFICATION RESPECTING CERTAIN SERVICES
INTEGRAL TO A CONSULTATION BY CERTAIN SPECIAUSTS.—A
request by a pathologist for clinical diagnostic laboratory
tests and pathological examination services, if such services
are furnished by (or under the supervision of) such patholo­
gist pursuant to a consultetion requested by another
physician does not constitute a 'referral' by a 'referring
physician'.",
(b) REQUIRING REQUESTS FOR PAYMENT TO INCLUDE INFORMATION
ON REFERRING PHYSICIAN.—Section 1833 of such Act (42 U.S.C.
13951) is amended by adding at the end the following new subsection:
"(qXD Each request for payment, or bill submitted, for an item or
service furnished by an entity for which payment may be made
under this part and for which the entity knows or has reason to
believe there has been a referral by a referring physician (within the 103 STAT. 2242 PUBLIC LAW 101-239—DEC. 19,1989
42 use 1395nn
note.
42 use 1395nn
note.
42 use 1395nn
note.
Reports. meaning of section 1877) shall include the name and provider
number for the referring physician and indicate whether or not the
referring physician is an interested investor (within the meaning of
section 1877(hX5)).
"(2XA) In the case of a request for pa3mient for an item or service
furnished by an entity under this part on an assignment-related
basis and for which information is required to be provided under
paragraph (1) but not included, payment may be denied under this
part,
"(B) In the case of a request for payment for an item or service
furnished by an entity under this part not submitted on an assign­
ment-related basis and for which information is required to be
provided under paragraph (1) but not included—
"(i) if the entity knowingly and willfully fails to provide such
information promptly upon request of the Secretary or a car­
rier, the entity may be subject to a civil money penalty in an
amount not to exceed $2,000, and
"(ii) if the entity knowingly, willfully, and in repeated cases
fails, after being notified by the Secretary of the obligations and
requirements of this subsection to provide the information re­
quired under paragraph (1), the entity may be subject to exclu­
sion from participation in the programs under this Act for a
period not to exceed 5 years, in accordance with the procedures
of subsections (c), (f), and (g) of section 1128.
The provisions of section 1128A (other than subsections (a) and (b))
shall apply to civil money penalties under clause (i) in the same
manner as they apply to a penalty or proceeding under section
1128A(a).".
(c) EFFECTIVE DATES.—
(1) Except as provided in paragraph (2), the amendments
made by this section shall become effective with respect to
referrals made on or after January 1,1992.
(2) The reporting requirement of section 1877(f) of the Social
Security Act shall take effect on October 1,1990.
(d) DEADUNE FOR CERTAIN REGULATIONS.—The Secretary of
Health and Human Services shall publish final regulations to carry
out section 1877 of the Social Security Act by not later than October
1,1990.
(e) GAO STUDY OF OWNERSHIP BY REFERRING PHYSICIANS.—The
Comptroller General shall conduct a study of the ownership of
hospitals and other providers of medicare services by referring
physicians. Such study shall investigate—
(1) the types of such ownership arrangements and tjrpes of
services offered under such arrangements,
(2) the returns generally earned by physician investors in
such arrangements,
(3) the effect of such arrangements on (A) the utilization of
items and services by medicare beneficiaries, (B) medicare
expenditures, and (C) other entities providing items and services
in the communities served,
(4) the effect of such arrangements on independent providers
of similar services, and
(5) the effect on the provision of in-office clinical laboratory
services of the limitation on payment for certain referrals
contained in section 1877 of the Social Security Act.
By not later than February 1, 1991, the Comptroller General shall
report to Congress on the results of such study. PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2243
42 use 1395x
note. (f) QUARTERLY REPORTS TO CONGRESS ON COMPARATIVE UTIUZA- 42 use I395nn
TiON.—The Secretary of Health and Human Services shall submit to '^o*®-
the Congress and the Comptroller General, not later than 90 days
after the end of each calendar quarter, a report which provides a
statistical profile (by State and type of item or service) comparing
utilization of items and services by medicare beneficiaries served by
entities in which the referring physician has a direct or indirect
financial interest and by medicare beneficiaries served by other
entities.
SEC. 6205. COSTS OF NURSING AND ALLIED HEALTH EDUCATION.
(a) RECOGNITION OF COSTS OP CERTAIN HOSPITAL-BASED NURSING
SCHOOLS.—
(1) IN GENERAL.—(A) The reasonable costs incurred by a hos­
pital in training students of a hospital-based nursing school
,- shall be allowable as reasonable costs under title XVIII of the
Social Security Act and reimbursed under such title on the
same basis as if they were allowable direct costs of a hospital-
operated educational program (other than an approved grad­
uate medical education program) if, before June 15, 1989, and
: thereafter, the hospital demonstrates that for each year, it
incurs at least 50 percent of the costs of training nursing
students at such school, the nursing school and the hospital
share some common board members, and all instruction is
provided at the hospital or, if in another building, a building on
the immediate grounds of the hospital.
(B) Section 8411(b) of the Technical and Miscellaneous Reve­
nue Act of 1988 is amended by striking "1989, 1990, and" and
inserting "1986 through".
(2) EFFECTIVE DATE.—Paragraph (IXA) shall apply with re­
spect to cost reporting periods beginning on or after the date of
the enactment of this Act and on or before the date on which
the Secretary issues regulations pursuant to subsection
(bX2XA).
(b) DELAY IN RECOUPMENT OF CERTAIN NURSING AND ALUED EDU­
CATION COSTS.—
(1) The Secretary of Health and Human Services (in this
subsection referred to as the "Secretary") shall not, before
October 1, 1990, recoup from, or otherwise reduce or adjust
payments under title XVIII of the Social Security Act to, hos­
pitals because of alleged overpajrments to such hospitals under
such title due to a determination that costs which were reported
by a hospital on its medicare cost reports relating to approved
nursing and allied health education programs were allowable
costs and are included in the definition of "operating costs of
inpatient hospital services" pursuant to section 1886(aX4) of
such Act, so that no pass-through of such costs was permitted
under that section.
(2XA) Before July 1, 1990, the Secretary shall issue regula- Regulations.
tions respecting payment of costs described in paragraph (1).
(B) In issuing such regulations—
(i) the Secretary shall allow a comment period of not less
than 60 days,
(ii) the Secretary shall consult with the Prospective Pay-
'-" ment Assessment Commission, and 42 use 1395b-l
note.
42 use 1395x
note.
42 use 1395WW
note. 103 STAT. 2244 PUBLIC LAW 101-239—DEC. 19, 1989
Federal
Register,
publication.
42 use 1395mm
note.
Contracts. (iii) any final rule shall not be effective prior to October 1,
1990, or 30 days after publication of the final rule in the
Federal Register, whichever is later.
(C) Such regulations shall specify—
^j^ (i) the relationship required between an approved nursing
( ^ or allied health education program and a hospital for the
program's costs to be attributed to the hospital;
(ii) the types of costs related to nursing or allied health
education programs that are allowable by medicare;
(iii) the distinction between costs of approved educational
activities as recognized under section 1886(aX3) of the Social
., Security Act and educational costs treated as operating
costs of inpatient hospital services; and
(iv) the treatment of other funding sources for the pro­
gram.
SEC. 6206. DISCLOSURE OF ASSUMPTIONS IN ESTABLISHING AAPCC;
ELIMINATION OP COORDINATED OPEN ENROLLMENT
REQUIREMENT.
(a) DISCLOSURE OF ASSUMPTIONS IN ESTABUSHING AAPCC.—
(1) IN GENERAL.—Section 1876(aXl) of the Social Security Act
'' (42 U.S.C. 1395mm(aXl)) is amended by adding at the end the
following new subparagraph:
"(FXi) At least 45 days before making the announcement under
subparagraph (A) for a year (beginning with the announcement for
1991), the Secretary shall provide for notice to eligible organizations
of proposed changes to be made in the methodology or benefit
coverage assumptions from the methodology and assumptions used
in the previous announcement and shall provide such organizations
an opportunity to comment on such proposed changes.
"(ii) In each announcement made under subparagraph (A) for a
year (beginning with the announcement for 1991), the Secretary
shall include an explanation of the assumptions (including any
benefit coverage assumptions) and changes in methodology used in
the announcement in sufficient detail so that eligible organizations
can compute per capita rates of pajnnent for classes of individuals
located in eacn county (or equivsJent area) which is in whole or in
part within the service area of such an organization.".
(2) NOTICE.—Before July 1, 1990, the Secretary of Health and
Human Services shall provide for notice to eligible organiza­
tions of the methodology used in making the announcement
under section 1876(aXlXA) of the Social Security Act for 1990.
(b) EUMINATION OF COORDINATED OPEN ENROLLMENT REQUIRE­
MENT.—
(1) IN GENERAL.—Section 1876(cX3XA) of such Act (42 U.S.C.
1395mm(cX3XA)) is amended—
(A) in clause (i), by striking "30-day period" and inserting
"period or periods", and
(B) by striking clause (ii) and inserting the following:
"(iiXD If a risk-sharing contract under this section is not renewed
or is otherwise terminated, eligible organizations with risk-sharing
contracts under this section and serving a part of the same service
area as under the terminated contract are required to have an open
enrollment period for individuals who were enrolled under the
terminated contract as of the date of notice of such termination. If a
risk-sharing contract under this section is renewed in a manner that
discontinues coverage for individuals residing in part of the service PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2245
area, eligible organizations with risk-sharing contracts under this
section and enrolling individuals residing in that part of the service
area are required to have an open enrollment period for individuals
residing in the part of the service area who were enrolled under the
contract as of the date of notice of such discontinued coverage.
"(II) The open enrollment periods required under subclause (I)
shall be for 30 days and shall begin 30 days sifter the date that the
Secretary provides notice of such requirement.
"(Ill) Enrollment under this clause shall be effective 30 days after
the end of the open enrollment period, or, if the Secretary deter­
mines that such date is not feasible, such other date as the Secretary
specifies.".
(2) EFFECTIVE DATE.—The amendments made by paragraph (1)
shall take effect 60 days after the date of the enactment of this
Act.
SEC. 6207. EXTENSION OF EXPIRING AUTHORITIES.
(a) DELAY IN EFFECTIVE DATE IN PHYSICIAN INCENTIVE RULES.—
Section 9313(cX2XB) of the Omnibus Budget Reconciliation Act of
1986, as amended by section 4016 of the Omnibus Budget Reconcili­
ation Act of 1987, is amended by striking "April 1, 1990" and
inserting "April 1,1991".
(b) EXTENSION OF PROHIBITION ON COST SAVINGS POLICIES. BEFORE
BEGINNING OF FISCAL YEAR.—Section 4039(d) of the Omnibus Budget
Reconciliation Act of 1987, as amended by section 426(e) of the
Medicare Catastrophic Coverage Act of 1988, is amended—
(1) by striking "October 15, 1989" and inserting "October 15,
1990", and
(2) by inserting "or in fiscal year 1991" after "fiscal year
1990".
Subpart B—Technical and Miscellaneous Provisions
SEC. 6211. MEDICARE HOSPITAL PATIENT PROTECTION AMENDMENTS.
(a) SCOPE OF HOSPITAL RESPONSIBILITY FOR SCREENING.—Subsec­
tion (a) of section 1867 of the Social Security Act (42 U.S.C. 1395dd)
is amended by striking "department" the third place it appears and
inserting the following: "department, including ancillary services
routinely available to the emergency department,".
(b) INFORMED REFUSALS OF TREATMENT OR TRANSFERS.—Subsection
(b) of such section is amended—
(1) in paragraph (2)—
(A) by inserting "and informs the individual (or a person
acting on the individual's behalf) of the risks and benefits to
the individual of such examination and treatment," after
"in that paragraph",
(B) by striking "or treatment" and inserting "and treat­
ment", and
(C) by adding at the end the following new sentence: "The
hospital shall take all reasonable steps to secure the
individual's (or person's) written informed consent to refuse
such examination and treatment."; and
(2) in paragraph (3)—
(A) by inserting "and informs the individual (or a person
acting on the individual's behalf) of the risks and benefits to
the individual of such transfer," after "with subsection (c)",
and 42 use 1395mm
note.
42 use 1320a-7a
note.
42 use 1395WW
note. 103 STAT. 2246 PUBLIC LAW 101-239—DEC. 19, 1989
(B) by adding at the end the following new sentence: "The
>. hospital shall take all reasonable steps to secure the
individual's (or person's) written informed consent to refuse
such transfer.".
(c) AUTHORIZATION FOR TRANSFERS.—
(1) INFORMED CK>NSENT FOR TRANSFERS AT INDIVIDUAL RE­
QUEST.—Subsection (cXlXAXi) of such section is amended by
striking "requests that the transfer be effected" and inserting
"after being informed of the hospital's obligations under this
section and of the risk of transfer, in writing requests transfer
to another medical facility".
(2) CLARIFYING PHYSICIAN AUTHORIZATION FOR TRANSFERS.—
Subsection (cXlXA) of such section is amended—
^ (A)by striking "or" at the end of claused);
(B) in clause (ii)—
(i) by striking ", or other qualified medical personnel
when a physician is not readily available in the emer­
gency department,", and
(ii) by inserting "of transfer" after "information
available at the time";
(C) by striking "; and" at the end of clause (ii) and
inserting ", or", and
(D) by adding at the end the following new clause:
"(iii) if a physician is not physically present in the emer­
gency department at the time an individual is transferred,
a qusdified medical person (as defined by the Secretary in
r^ulations) has signed a certification described in clause
(ii) after a physician (as defined in section 1861(rXl)), in
consultation with the person, has made the determination
described in such clause, and subsequently countersigns the
certification; and".
(3) STANDARD FOR AUTHORIZING TRANSFER.—Subsection
(cXlXAXii)ofsuch section is amended—
(A) by striking ", based upon the reasonable risks and
benefits to the patient, and", and
(B) by striking "individual's medical condition" and
inserting "individual and, in the case of labor, to the
unborn child".
(4) INCLUSION OF SUMMARY OF RISKS AND BENEFITS IN CERTIFI­
CATE OF TRANSFER.—SubsectioD (cXD of such section is amended
by adding at the end the following:
"A certification described in clause (ii) or (iii) of subparagraph
(A) shall include a summary of the risks and benefits upon
which the certification is based.".
(5) PROVISION OF SERVICES PENDING TRANSFER.—Subsection
(cX2) of such section is amended—
(A) by redesignating subparagraphs (A) through (D) as
subparagraphs (B) through (E), respectively, and
(B) by inserting before subparagraph (B), as so redesig-
, ' nated, the following new subparagraph:
"(A) in which the transferring hospital provides the medi­
cal treatment within its capacity which minimizes the risks
to the individual's health and, in the case of a woman in
"^ labor, the health of the unborn child;".
(d) REQUIRING MAINTENANCE OF RECORDS OF TRANSFERS.—Subsec­
tion (cX2XC) of such section, as redesignated by subsection (cX5XA) of
this section, is amended—
(1) by striking "provides" and inserting "sends to", and PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2247
* (2) by striking "with appropriate medical records" and all
that follows through "transferring hospital" and inserting "all
medical records (or copies thereof), related to the emergency
condition for which the individual has presented, available at
the time of the transfer, including records related to the individ­
ual's emergency medical condition, observations of signs or
• symptoms, preliminary diagnosis, treatment provided, results of
any tests and the informed written consent or certification (or
copy thereof) provided under pars^aph (IXA), and the name
and address of any on-call physician (described in subsection
(dX2XC)) who has refused or failed to appear within a reasonable
time to provide necessary stabilizing treatment".
(e) PHYSICIAN LIABILITY.—Subsection (dX2) of such subsection is
amended—
(1) by amending subparagraph (B) to read as follows:
"(B) Subject to subparagraph (C), any physician who is respon­
sible for the examination, treatment, or transfer of £in individ­
ual in a participating hospital, including a physician on-call for
the care of such an individual, and who knowingly violates a
requirement of this section, including a physiciein who—
"(i) signs a certification under subsection (cXlXA) that the
, medical benefits reasonably to be expected from a transfer
to another facility outweigh the risks associated with the
transfer, if the physician knew or should have known that
the benefits did not outweigh the risks, or
"(ii) misrepresents an individual's condition or other
information, including a hospital's obligations under this
section,
is subject to a civil money penalty of not more than $50,000 for
each such violation and, if the violation is knowing and willful
or negligent, to exclusion from participation in this title and
State health care programs. The provisions of section 1128A
(other than the first and second sentences of subsection (a) and
subsection (b)) shall apply to a civil money penalty and exclu­
sion under this subparagraph in the same manner as such
provisions apply with respect to a penalty, exclusion, or proceed­
ing under section 1128A(a)."; and
(2) by striking subparagraph (C) and inserting the following:
"(C) If, after an initial examination, a physician determines
that the individual requires the services of a physician listed by
the hospital on its list of on-call physicians (required to be
maintained under section 1866(aXlXI)) and notifies the on-call
physician and the on-call physician fails or refuses to appear
within a reasonable period of time, and the physician orders the
transfer of the individual because the physician determines that
without the services of the on-call physician the benefits of
transfer outweigh the risks of transfer, the physician authoriz­
ing the transfer shall not be subject to a penalty under subpara­
graph (B). However, the previous sentence shall not apply to the
hospital or to the on-call physician who failed or refused to
appear.".
(f) ADDITIONAL OBLIGATIONS.—Such section is amended by adding
at the end the following new subsections:
"(g) NONDISCRIMINATION.—A participating hospital that has
specialized capabilities or facilities (such as burn units, shock-103 STAT. 2248 PUBLIC LAW 101-239—DEC. 19, 1989
trauma units, neonatal intensive care units, or (with respect to rural
areas) regional referral centers as identified by the Secretary in
regulation) shall not refuse to accept an appropriate transfer of an
individual who requires such specialized capabilities or facilities if
the hospital heis the capacity to treat the individual.
"(h) No DELAY IN EXAMINATION OR TREATMENT.—A participating
hospital may not delay provision of an appropriate medical screen­
ing examination required under subsection (a) or further medical
examination and treatment required under subsection (b) in order to
inquire about the individual's method of payment or insurance
status.
"(i) WHISTLEBLOWER PROTECTIONS.—A participating hospital may
not penalize or take adverse action against a physician because the
physician refuses to authorize the transfer of an individual with an
emergency medical condition that has not been stabilized.".
(g) CHANGE IN "PATIENT" TERMINOLOGY.—
(1) Subsection (c) of such section is amended—
(A) by striking "PATIENT" and inserting "INDIVIDUAL",
and
(B) by striking "a patient" "the patient", "patient's", and
^ ,,, [ "patients" each place each appears and inserting "an
individual", "the individual", "individual's", and "individ­
uals", respectively.
(2) Subsection (eX5) of such section is amended by striking "a
patient" each place it appears and inserting "an individual".
(h) CLARIFICATION OF "EMERGENCY MEDICAL CONDITION" DEFINI­
TION.—
(1) IN GENERAL.—Subsection (e) of such section (as amended by
section 6003(gX3XD)(xiv)) is amended—
(A) in paragraph (1), by striking "means" and all that
follows and inserting the following:
' "means—
"(A) a medical condition manifesting itself by acute symp-
• ^ toms of sufficient severity (including severe pain) such that
^ the absence of immediate medical attention could reason-
• ably be expected to result in—
"(i) placing the health of the individual (or, with
respect to a pregnant woman, the health of the woman
or her unborn child) in serious jeopardy,
"(ii) serious impairment to bodily functions, or
"(iii) serious dysfunction of any bodily organ or part;
1 or
"(B) with respect to a pregnant women who is having
contractions—
"(i) that there is inadequate time to effect a safe
transfer to another hospital before delivery, or
"^^ -^^ "(ii) that transfer may pose a threat to the health or
• safety of the woman or the unborn child.";
(B) by striking paragraph (2);
^. – (C) in paragraph (4XA)—
(i) by inserting "described in paragraph (IXA)" after
"emergency medical condition",
(ii) by inserting "or occur during" after "likely to
result from",
(iii) by inserting before the period at the end the
following: ", or, with respect to an emergency medical PUBLIC LAW 101-239—DEC. 19,1989 103 STAT. 2249
, ;. condition described in paragraph (IXB), to deliver
(including the placenta)";
(D) in parc^aph (4XB)—
,; (i) by inserting "described in paragraph (IXA)" after
"emergency medical condition",
(ii) by inserting "or occur during" after "to result
r from", and
(iii) by inserting before the period at the end the
following: ", or, with respect to an emergency medical
condition described in paragraph (IXB), that the
^ woman has delivered (including the placenta)"; and
(E) by redesignating paragraphs (3) through (6) as para­
graphs (2) through (5), respectively.
(2) CONFORMING AMENDMENTS.—Such section is further
amended—
(A) in the heading, by striking "ACTIVE";
(B) in subsection (a), by striking "or to determine if the
individual is in active labor (within the meaning of section
(eX2))";
(C) in the heading of subsection (b), by striking "ACTIVE";
(D) in subsection (bXD—
(i) by striking "or is in active labor", and
(ii) in subparagraph (A), by striking "or to provide for
treatment of the labor"; and
(E) in subsection (cXD, by striking "(eX4XB)) or is in active
labor" and inserting "(eX3XB))".
(i) EFFECTIVE DATE.—The amendments made by this section shall
take effect on the first day of the first month that begins more than
180 days after the date of the enactment of this Act, without regard
to whether regulations to carry out such amendments have been
promulgated by such date.
SEC. 6212. HEALTH MAINTENANCE ORGANIZATIONS AND COMPETITIVE
MEDICAL PLANS.
(a) TEMPORARY WAIVER FOR WATTS HEALTH FOUNDATION.—Section
9312(cX3XD) of the Omnibus Budget Reconciliation Act of 1986, as
added by section 4018(d) of the Omnibus Budget Reconciliation Act
of 1987, is amended—
(1) in clause (i), by striking "January 1, 1990" and inserting
, "January 1,1994"; and
(2) by amending clauses (ii) and (iii) to read as follows:
"(ii) beginning on January 1. 1990, the Secretary of
Health and Human Services snail conduct an annual
review of the organization to determine the organiza­
tion's compliance with the quality assurance require­
ments of section 1876(cX6) of such Act; and
"(iii) after January 1, 1990, if the organization re­
ceives an unfavorable review under clause (ii), the
Secretary, after notice to the organization of the un-
^, favorable review and an opportunity to correct any
deficiencies identified during the review, may provide
for the sanction described in section 1876(fXo) of such
Act effective with respect to individuals enrolling with
the organization after the date the Secretary notices
the organization that the organization is not in compli-
, ance with the requirements of section 1876(cX6) of such
Act.". 42 use 1395dd
note.
42 use 1395mm
note.
42 use 1320a-7a
note. 103 STAT. 2250 PUBLIC LAW 101-239—DEC. 19, 1989
42 use 1395mm
note.
42 use 1395mm
note.
42 use 1395mm
note. (b) LIMIT ON CHARGES POR EMERGENCY SERVICES AND OUT-OF-AREA
COVERAGE.—
(1) IN GENERAL.—Section 1876 of the Social Security Act (42
•* U.S.C. 1395mm) is emiended by adding at the end the following
new subsection:
"(JXIXA) In the case of physicians' services described in paragraph
(2) which are furnished by a participating physician to an individual
enrolled with an eligible organization under this section and en­
rolled under part B, the participation agreement under section
1842(hXl) is deemed to provide that the physician will accept as
pa}mient in full from the eligible organization the amount that
would be payable to the physician under part B and from the
individual under such part, if the individual were not enrolled with
an eligible organization under this section.
"(B) In the case of physicians' services described in paragraph (2)
which are furnished by a nonparticipating physician, the limitations
on actual charges for such services otherwise applicable under part
B (to services furnished by individuals not enrolled with an eligible
organization under this section) shall apply in the same manner as
such limitations apply to services furnished to individuals not en­
rolled with such an organization.
"(2) The physicians' services described in this paragraph are
physicians' services which—
"(A) are emergency services or out-of-area coverage (described
in clauses (iii) and (iv) of subsection (bX2XA)), and
"(B) are furnished to an enroUee of an eligible organization
under this section by a person who is not under a contract with
the organization.".
(2) EFFECTIVE DATE.—The amendment made by paragraph (1)
shall apply to services furnished on or after April 1, 1990.
(c) MAKING AUTHORITY FOR BENEFIT STABILIZATION FUND PERMA­
NENT.—
(1) REPEAL ON UMITATION ON ESTABUSHMENT OF A FUND.—
Section 2350(b) of the Deficit Reduction Act of 1984 (Public Law
98-369) is amended by striking paragraphs (3) and (4).
(2) REPEAL ON UMITING PERIOD OF USE.—Section 1876(gX5) of
the Social Security Act (42 U.S.C. 1395mm(gX5)) is amended bv
striking "and during a period of not longer than four years'.
(3) EFFECTIVE DATE.—"The amendments made by this subsec­
tion shall take effect on the date of the enactment of this Act.
SEC. 6213. RURAL HEALTH CLINIC SERVICES.
(a) STAFFING REQUIREMENTS; INCLUSION OF NURSE-MIDWIFE SERV­
ICES.—Section 1861(aaX2) of the Social Security Act (42 U.S.C.
1395x(aaX2)) is amended—
(1) by striking "; and" at the end of subparagraph (I) and
inserting a semicolon;
(2) by redesignating subparagraph (J) as subparagraph (K);
and
(3) by inserting after subparagraph (I) the following new
; subparagraph:
"(J) has a nurse practitioner, a physician assistant, or a
certified nurse-midwife (as defined in subsection (gg)) available
to furnish patient care services not less than 50 percent of the
time the clinic operates; and".
(b) COVERAGE OF SOCIAL WORKER SERVICES.—Section 1861(aaXl)(B)
of such Act (42 U.S.C. 1395x(aaXlXB)) is amended— PUBLIC LAW 101-239—DEC. 19,1989 103 STAT. 2251
(1) by striking "or" before "b/'; and
(2) by inserting "or by a clinical social worker (as defined in
subsection (hhXD)," after "Secretary)".
(c) EbcPANSiON OF EuGiBLE AREAS.—^The second sentence of section
1861(aaX2) of such Act is amended—
(1) by striking "designated by the Secretary" and inserting
"designated by the chief executive officer of the State and
certified by the Secretary as an area with a shortage of personal
health services, or that is designated by the Secretary";
(2) by striking "section 1302(7) of the Public Health Service
Act or" and inserting "section 330(bX3) or 1302(7) of the Public
Health Service Act,"; and
(3) by striking "medical care manpower," and inserting the
following: "medical care manpower, (m) as a high impact area
described in section 329(aX5) of that Act, or (IV) as an area
which includes a population group which the Secretary deter­
mines has a health manpower shortage under section
332(aXlXB) of that Act,".
(d) EFFECTIVE DATE.—^The amendments made by subsections (a)
through (c) of this section shall take effect October 1,1989.
(e) DISSEMINATION OF RURAL HEALTH CUNIC INFORMATION.—
(1) IN GENERAL.—Not later than 60 days after the date of the
enactment of this Act, the Secretary of Health and Human
Services, in consultation with the Director of the Office of Rural
Health Policy, shall disseminate to health care facilities and to
the chief executive officer, chief health officer, and chief human
services officer of each State, applications and other necessary
information to enable such a facility to apply for designation as
a rural health clinic for the purposes of titles XVIII and XIX of
the Social Security Act.
(2) DEFINITIONS.—For purposes of this subsection:
(A) The term "health care facility" means a community
health center or a migrant health center, or a hospital,
home health agency, or skilled nursing facility participat­
ing in a program established under title XVIII or title XIX
of the Social Security Act.
(B) The term "State" includes the District of Columbia,
the Commonwealth of Puerto Rico, the Virgin Islands,
Guam, and American Samoa.
(f) TREATMENT OF CERTAIN FACILITIES AS RURAL HEALTH (DLINICS.—
The Secretary of Health and Human Services shall not deny certifi­
cation of a facility as a rural health clinic under section 1861(aaX2)
of the Social Security Act if the facility is located on an island and
would otherwise be qualified to be certified as such a facility but for
the requirement that the services of a physician assistant or nurse
practitioner be provided in the facility.
(g) EbcPANSiON OF FUNCTIONS OF OFFICE OF RURAL HEALTH
PoucY.—Section 711(b) of the Social Security Act (42 U.S.C. 912(b))
is amended—
(1) in paragraph (2XA), by striking "health care issues" and
inserting "heiedth care issues, including rural mental health,
rural infant mortality prevention, and rural occupational safety
and preventive health promotion";
(2) in paragraph (2XC), by striking "rural areas" and inserting
"rural areas, including programs providing community-based
mental health services, pre-natal and infant care services, and 42 use 1395x.
42 use 1395x
note.
State and local
governments.
42 use 1395x
note.
42 use 1395x
note. 103 STAT. 2252 PUBLIC LAW 101-239—DEC. 19, 1989
42 use 1395pp
note.
42 use 1395h
note.
42 use 1395h
note. rural occupational safety and preventive health education and
promotion"; and
(3) in paragraph (4), by striking "rural health care" and
inserting "rural health care, including activities relating to
rural mental health, rural infant mortality, and rural occupa­
tional safety and preventive health promotion".
SEC. 6214. DETERMINING ELIGIBILITY OF HOME HEALTH AGENCIES FOR
WAIVER OF LIABILITY FOR DENIED CLAIMS.
(a) SCOPE OF WAIVER AND DETERMINATION OF DENIED CLAIM.—
Section 1879(f) of the Social Security Act (42 U.S.C. 1395pp(f)) is
amended—
(1) in paragraph (1), by striking "with respect to" and all that
follows and inserting a period; and
(2) in paragraph (4), by striking "(4) The requirement" and
inserting "(4XA) The requirement", and by adding at the end
the following new subparagraph:
"(B) For purposes of determining the rate of denial of bills for a
home health agency under subparagraph (A), a bill shall not be
considered to be denied until the expiration of the 60-day period that
begins on the date such bill is denied by the fiscal intermediary, or,
with respect to such a denial for which the agency requests re­
consideration, until the fiscal intermediary issues a decision denying
payment for such bill.".
(b) MONITORING OF DENIED CLAIMS.—Section 1879(f) of such Act
(42 U.S.C. 1395pp(f)) is amended by adding at the end the following
new paragraph:
"(6) The Secretary shall monitor the proportion of denied bills
submitted by home health agencies for which reconsideration is
requested, and shall notify Congress if the proportion of denials
reversed upon reconsideration increases significantly.".
(c) EFFECTIVE DATE.—The amendments made by subsection (a)
shall apply to determinations for quarters beginning on or after the
date of the enactment of this Act.
SEC. 6215. EXTENSION OF AUTHORITY TO CONTRACT WITH FISCAL
INTERMEDIARIES AND CARRIERS ON OTHER THAN A COST
BASIS.
(a) IN GENERAL.—Section 2326(a) of the Deficit Reduction Act of
1984 is amended—
(1) in the first sentence, by striking "fiscal year 1989" and
inserting "fiscal year 1993",
(2) in the second sentence, by striking "over a period of time"
and inserting "over a 2-year period of time", and
(3) by inserting £ifter the second sentence the following: "In
addition, during such period the Secretary may enter into such
additional agreements and contracts without regard to such cost
reimbursement provisions if the fiscal intermediary or carrier
involved and the Secretary agree to waive such provisions, but
the Secretary may not take any action that has the effect of
requiring that the intermediary or carrier agree to waive such
provisions, including requiring such a waiver as a condition for
entering into or renewing such an agreement or contract.".
(b) EFFECTIVE DATE.—The amendments made by subsection (a)
shall apply beginning vrith fiscal year 1990. PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2253
SEC 6216. EXPANSION OF RURAL HEALTH MEDICAL EDUCATION DEM­
ONSTRATION PROJECT.
(a) NUMBER OF PROJECTS.—Section 4038(a) of the Omnibus Budget
Reconciliation Act of 1987 is amended by striking "four sponsoring
hospitals" and inserting "10 sponsoring hospitals".
(b) SELECTION OP NEW PROJECTS.—Section 4038(c) of such Act is
amended—
(1) by striking "In selecting" and inserting "(1) In selecting";
(2) by redesignating paragraphs (1) and (2) as subparagraphs
(A) and (B); and
(3) by adding at the end the following new paragraph:
"(2) The provisions of paragraph (1) shall not apply with respect to
applications submitted as a result of amendments made by section
6216 of the Omnibus Budget Reconciliation Act of 1989.".
(c) COMMENCEMENT OF NEW PROJECTS.—Section 4038(e) of such
Act is amended by inserting "(or the date of the enactment of the
Omnibus Budget Reconciliation Act of 1989, in the case of a project
conducted as a result of the amendments made by section 6216 of
such Act)" after "this Act".
SEC. 6217. INNER-CITY HOSPITAL TRUGE DEMONSTRATION PROJECT.
(a) EsTABUSHMENT.—The Secretary of Health and Human Serv­
ices shall establish a demonstration project in a public hospital that
is located in a large urban area and that has established a triage
system, under which the Secretary shall make payments for 3 years
to reimburse the hospital for the reasonable costs of operating the
system, including costs—
(1) to train hospital personnel to operate and participate in
, the system; and
(2) to provide services to patients who might otherwise be
denied appropriate and prompt care.
(b) LIMITATIONS ON PAYMENT.–(1) The Secretary may not make
payment under the demonstration project established under subsec­
tion (a) for costs that the Secretary determines are not reasonable.
(2) The amount of pajonent made under the demonstration project
during a single year may not exceed $500,000.
SEC. 6218. GAO STUDY OF ADMINISTRATIVE COSTS OF MEDICARE PRO­
GRAM.
(a) STUDY.—The Comptroller Greneral shall conduct a study of the
administrative burden of medicare regulations and program
requirements on providers of services, fiscal intermediaries, and
carriers, and shall include in such study—
(1) an assessment of current administrative costs to such
entities and of trends in such administrative costs since 1982;
and
(2) a comparison of the administrative burden to such entities
in providing services to individuals who are not medicare bene­
ficiaries.
For purposes of such assessment, administrative costs shall include
personnel costs, training costs, the costs of data and communications
systems as affected by changes in requirements of the medicare
program, and costs to such entities of non-compliance with such
requirements resulting from the failure of the Secretary of Health
and Human Services to provide entities with adequate notice of
changes in program requirements. 42 use 1395WW
note.
42 use 1395WW
note. 103 STAT. 2254 PUBLIC LAW 101-239—DEC. 19, 1989
(b) REPORT.—Not later than March 31, 1990, the Comptroller
General shall submit a report to the Committees on Ways and
Means and Energy and Commerce of the House of Representatives
«£ . ., and the Committee on Finance of the Senate on the study conducted
under subsection (a).
SEC. 6219. PROVISIONS RELATING TO END STAGE RENAL DISEASE SERV­
ICES.
(a) FLEXIBILITY IN FUNDING ESRD NETWORK ORGANIZATIONS.—
The last sentence of section 1881(b)(7) of the Social Security Act (42
U.S.C. 1395rr(bX7)) is amended by striking "network administra­
tive" and all that follows and inserting the following: "organizations
(designated under subsection (cXlXA)) for such organizations' nec­
essary and proper administrative costs incurred in carrying out the
responsibilities described in subsection (c)(2). The Secretary shall
provide that amounts paid under the previous sentence shall be
distributed to the organizations described in subsection (c)(1)(A) to
ensure equitable treatment of all such network organizations. The
. Secretary in distributing any such payments to network organiza-
,,. tions shall take into account—
"(A) the geographic size of the network area; ' ' –
"(B) the number of providers of end stage renal disease
services in the network area;
"(C) the number of individuals who are entitled to end stage
w; renal disease services in the network area; and
"(D) the proportion of the aggregate administrative funds
collected in the network area.".
(b) LIABILITY PROTECTION FOR ESRD NETWORK ORGANIZATIONS
AND PROHIBITION AGAINST DISCLOSURE OF INFORMATION.—Section
1881(c) of such Act (42 U.S.C. 1395rr(c)) is amended by adding at the
end the following new paragraph:
"(8) The provisions of sections 1157 and 1160 shall apply with
respect to network administrative organizations (including such
organizations as medical review boards) with which the Secretary
h£is entered into agreements under this subsection.".
(c) REPORT ON PAYMENT FOR ERYTHROPOIETIN (EPO).—Not later
than April 1, 1990, the Secretary of Health and Human Services
shall submit a report to the Committees on Ways and Means and
Energy and Commerce of the House of Representatives and the
Committee on Finance of the Senate and to the Comptroller General
on the methodology and rationale used to establish a payment rate
for the drug erythropoietin (EPO) under title XVIII of the Social
Security Act and shall include in the report (1) a summary of
information provided to the Secretary by the manufacturer of EPO
and used by the Secretary to establish such rate and (2) a plan for
ensuring the appropriateness of such rate in the future.
SEC. 6220. AMENDMENTS RELATING TO THE UNITED STATES BIPARTISAN
COMMISSION ON COMPREHENSIVE HEALTH CARE.
(a) COMMISSION NAME.—Section 401 of the Medicare Catastrophic
42 use 1395b Coverage Act of 1988 is amended by inserting before the period at
note. the end the following: "and also to be known as the 'Claude Pepper
Commission' or the 'Pepper Commission' ".
42 use 1395b (b) 4 ViCE CHAIRMEN.—Section 4030t)) of such Act is amended—
note. (1) by striking "VICE CHAIRMAN" and inserting "VICE CHAIR­
MEN"; and PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2255
(2) by striking "vice chairman" and inserting "4 vice chair­
men".
(c) ADDITIONAL MAIUNG PRiviLEGE.–Section 405(f) of such Act is
amended by inserting before the period at the end the following: ",
and shall, for purposes of the frank, be considered a commission of
Congress as described in section 3215 of title 39, United States
Code".
(d) PRINTING OF REPORTS.—Section 405 of such Act is further
amended by adding at the end the following new subsection:
"(j) PRINTING.—For purposes of costs relating to printing and
binding, including the costs of personnel detailed from the Govern­
ment Printing Office, the Commission shall be deemed to be a
committee of the Congress.".
(e) REPORT DEADUNES.—Section 406 of such Act is amended—
(1) in each of subsections (a) and 01)), by striking ", not later
than" and all that follows through "for the Commission,"; and
(2) by adding at the end the following new subsection:
"(c) DEADUNES.—The two reports required under this section shall
be submitted concurrently by not later than November 9, 1989.".
SEC. 6221. NATIONAL COMMISSION ON CHILDREN.
Section 1139 of the Social Security Act (42 U.S.C. 1320b-9) is
amended—
(1) in subsection (d)—
(A) by striking "September 30, 1988" and inserting
"March 31,1990"; and
(B) by striking "March 31, 1990" and inserting "March
31,1991";
(2) in subsection (e), by striking "September 30, 1990" and
inserting "March 31,1991";
(3) in subsection (j), by striking "such sums" and inserting
"through fiscal year 1991, such sums"; and
(4) by adding at the end thereof the following new subsections:
"(kXl) The (Dommission is authorized to' accept donations of
money, property, or personal services. Funds received from dona­
tions shall be deposited in the Treasury in a separate fund created
for this purpose. Funds appropriated for the Commission and do­
nated funds may be expended for such purposes as official reception
and representation expenses, public surveys, public service
announcements, preparation of special papers, analyses, and docu­
mentaries, and for such other purposes as determined by the
(Commission to be in furtherance of its mission to review national
issues affecting children.
"(2) For purposes of Federal income, estate, and gift taxation,
money and other property accepted under paragraph (1) of this
subsection shall be considered as a gift or bequest to or for the use of
the United States.
"(3) Expenditure of appropriated and donated funds shall be
subject to such rules and regulations as may be adopted by the
(Commission and shall not be subject to Federal procurement
requirements.
"(1) The Commission is authorized to conduct such public surveys
as it deems necessaiy in support of its review of nationed issues
affecting children and, in conducting such surve3rs, the Commission
shall not be deemed to be an 'agency^ for the purpose of section 3502
of title 44, United States Ckxle.". 42 use 1395b
note.
42 use 1395b
note.
Gifts and
property. 103 STAT. 2256 PUBLIC LAW 101-239—DEC. 19, 1989
42 use 1395x SEC. 6222. CONTINUED USE OF HOME HEALTH WAGE INDEX IN EFFECT
note. PRIOR TO JULY 1,1989, UNTIL AFTER JULY 1,1991.
Notwithstanding the requirement of section 1861(vXlXLXiii) of the
Social Security Act, the Secretary of Health and Human Services
shall, in determining the limits of reasonable costs under title XVIII
of the Social Security Act with respect to services furnished by home
health agencies, continue to utilize the wage index that was in effect
for cost reporting periods beginning before July 1, 1989, until cost
reporting periods beginning on or after July 1,1991.
SEC. 6223. HCFA PERSONNEL STUDY.
(a) IN GENERAL.—The Secretary of Health and Human Services
shall (subject to subsection (c)) enter into an agreement with the
National Academy of Public Administration (hereafter in this sec­
tion referred to as the "Academy") to—
(1) study personnel administration at the Health Care Financ­
ing Administration (hereafter in this section referred to as
"HCFA");
(2) assess the adequacy of HCFA staffing; and
(3) recommend any needed changes with respect to HCFA
staffing to the Secretary of Health and Human Services and the
(Dongress.
(b) REQUIREMENTS OF STUDY.—In conducting the study, the Acad­
emy shail interview management officials at HCFA and other
appropriate agencies. The study shall include consideration of—
(1) the average years in service, years to retirement and
average age of various categories of HC^FA personnel;
(2) the adequacy of HCFA practices to recruit personnel to
replace persons who retire or resign and train new employees in
the intricacies of HCFA programs;
(3) the grade structure of various categories of HCFA person­
nel, and the need for additional nonsupervisoir positions at the
GS-13, GS-14, and GS-15 levels for particularly skilled and
expert personnel needed for HCFA to carry out its missions;
(4) the grade structure at HCFA with Federal agencies of
,; similar size and responsibilities;
(5) whether bonus payments or other incentives are needed
for HCFA to recruit and retain specialized personnel;
« (6) particular problems in hiring personnel that may prevent
/ recruitment and retention of qualified staff;
(7) Office of Personnel Management rules that may be
^ burdensome to the hiring process; and
(8) how HCFA can more appropriately address the priorities
of both Congress and the executive branch of Government.
(c) ARRANGEMENTS FOR STUDY,—The Secretary shall request the
Academy, acting through appropriate units, to submit an applica­
tion to conduct the study described in this section. If the Academy
submits an acceptable application, the Secretary shall enter into an
appropriate arrangement with the Academy for the conduct of the
study. If the Academy does not submit an acceptable application to
conduct the study, the Secretary may request one or more appro­
priate nonprofit private entities to submit an application to conduct
the study and may enter into an appropriate arrangement for the
conduct of the study by the entity which submits the best acceptable
application. PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2257
42 use 1320C-3
note. (d) DATE OF REPORT.—The results of the study shall be reported to
Congress and the Secretary of Health and Human Services no later
than December 31,1990.
SEC. 6224. PEER REVIEW ORGANIZATIONS.
(a) PEER REVIEW OF NON-PHYSICIAN SERVICES.—
(1) IN GENERAL.—Section 1154(aXl) of the Social Security Act
(42 U.S.C. 1320c-3(aXl)) is amended by adding at the end the
following:
"If the organization performs such reviews with respect to a
type of health care practitioner other than medical doctors, the
organization shall establish procedures for the involvement of
health care practitioners of that type in such reviews.".
(2) EFFECTIVE DATE.—The amendment made by paragraph (1)
shaU apply to contracts entered into after the date of the
enactment of this Act.
(b) PROVIDER AND PRACTITIONER RIGHT TO RECONSIDERATION OF
PRO DETERMINATION BEFORE NOTICE TO BENEFICIARY.—
(1) IN GENERAL.—Section 1154(aX3) of the Social Security Act
(42 U.S.C. 1320c-3(aX3)) is amended—
(A) in subparagraph (A), by striking "subparagraph (B)"
and inserting "subparagraphs (B) and (D)",
(B) in subparagraph (B), by inserting "with respect to
services or items disapproved by reason of subparagraph (A)
or (CJ) of paragraph (1)" after "under subparagraph (A)",
and
(CD) by adding at the end the following new subpara­
graphs:
"CD) The notification under subparagraph (A) with respect to
services or items disapproved by reason of paragraph (IXB) shall
not occur until after—
"(i) the organization has notified the practitioner or pro­
vider involved of the determination and of the practition­
er's or provider's right to a formal reconsideration of the
determination under section 1155, and
"(ii) if the provider or practitioner requests such a re­
consideration, the organization has made such a reconsider­
ation.
If a provider or practitioner is provided a reconsideration, such
reconsideration shall be in lieu of any subsequent reconsider­
ation to which the provider or practitioner may be otherwise
entitled under section 1155, but shall not afTect the right of a
beneficiary from seeking reconsideration under such section of
the organization's determination (after any reconsideration re­
quested by the provider or physician imder clause (ii)).
"(E) In the case of services and items disapproved by reason of
paragraph (1)(B), the notice to the patient shall state the follow­
ing: 'In the judgment of the peer review organization, the
medical care received was not acceptable under the medicare
program. The reasons for the denial have been discussed with
your physician and hospital.*.".
" (2) CONFORMING AMENDMENT.—Section 1155 of such Act (42
U.S.C. 1320C-5) is amended by inserting ", subject to section 42 USC 1320c-4
1154(aX3)(D)," before "any practitioner or provider".
«> (3) EFFECTIVE DATE.—The amendments made by this subsec-
s.- tion shall apply to determinations by utilization and quality
control peer review organizations with respect to which prelimi-42 USC 1320C-3
note. 103 STAT. 2258 PUBLIC LAW 101-239—DEC. 19,1989
nary notifications were made under section 1154(aX3XB) of the
Social Security Act more than 30 days after the date of the
enactment of this Act.
PART 4—PART B PREMIUM
SEC. 6301. PART B PREMIUM.
Section 1839(e) of the Social Security Act (42 U.S.C. 1395r(e)) is
amended by striking "1990" each place it appears and inserting
"1991".
Subtitle B—Medicaid
PART 1—GENERAL PROVISIONS
SEC. 6401. MANDATORY COVERAGE OF CERTAIN LOW-INCOME PREGNANT
WOMEN AND CHILDREN.
(a) IN GENERAL.—Section 1902 of the Social Security Act (42 U.S.C.
1396a) is amended—
(1) in subsection (aXlOXAXi)—
(A) by striking "or" at the end of subclause (IV),
A ; (B) by striking the semicolon at the end of subclause (V)
and inserting ", or", and
(C) by adding at the end the following new subclause:
"(VI) who are described in subparagraph (C) of
subsection (1X1) and whose family income does not
exceed the income level the State is required to
establish under subsection (1X2XB) for such a
family;";
(2) in subsection (aXlOXAXiiXIX), by inserting "or clause
(iXVI)" after "clause (iXIV)";
(3) in subsection (IXD—
(A) by striking "and" at the end of subparagraph (B), and
(B) by striking subparagraph (C) and inserting the follow­
ing:
"(C) children who have attained one year of age but have not
attained 6 years of age, and
"(D) at the option of the State, children born after
September 30, 1983, who have attained 6 years of age but have
not attained 7 or 8 years of age (as selected by the State),";
(4) in subsection (1X2XA)—
(A) in clause (ii), by amending subclause (II) to read as
follows:
"(II) April 1, 1990, 133 percent, or, if greater, the percentage
provided under clause (iv)."; and
(B) by adding at the end the following new clause:
"(iv) In the case of a State which, as of the date of the enactment
of this clause, has established under clause (i), or has enacted
legislation authorizing, or appropriating funds, to provide for, a
percentage (of the income official poverty line) that is greater than
; 133 percent, the percentage provided under clause (ii) for medical
assistance on or after April 1,1990, shall not be less than—
"(I) the percentage specified by the State in an amendment to
its State plan (whether approved or not) as of the date of the
enactment of this clause, or PUBLIC LAW 101-239—DEC. 19,1989 103 STAT. 2259
"(11) if no such percentage is specified as of the date of the
enactment of this clause, the percentage established under the
State's authorizing legislation or provided for under the State's
appropriations.";
(5) in subparagraph (B) of subsection GX2)—
(A) by striUng ", or , if less, the percentage established
under subparc^aph (A)", and
(B) by redesignating such subparagraph as subparagraph
(C);
(6) in subsection (1X2), by inserting after subparagraph (A) the
following new subparagraph:
"(B) For purposes of paragraph (1) with respect to individuals
described in subparagraph (C) of such paragraph, the State shall
establish an income level which is equal to 133 percent of the income
official poverty line described in subparagraph (A) applicable to a
family of the size involved,";
(6) in subsection (1X3)—
(A)byinserting",(aX10XAXiXVI),"after"(aX10XAXiXIV)",
and
(B) in subparagraph (C), by striking "or (C)" and inserting
"ACXoriDt;
(7) in subsection (1X4)—
• (A) in subparagraph (A), by inserting "and for children
described in subsection (aX10XAXi)(VI)" after
"(aXlOXAXiXIV)", and
(B) in subparagraph (B), by insertmg "or (aXlOXAXiXVI)"
after "(aXlOXAXiXIV)";
(8) in subsection (eX7), by striking "or (€)" and inserting ", (C),
^ or (D)"; and
(9) in subsection (rX2XA), by mserting "(aXlOXAXiXVI)," after
"(aXlOXAXiXIV),".
(b) CONFORMING AMENDMENT.—Section 1903(fX4) of such Act (42
U.S.C. 1396b(fX4)) is amended by inserting "1902(aX10XAXiXVI),"
after "1902(aX10XAXiXIV),".
(c) EFFECTTIVE DATE.— 42 use 1396a
(1) Except as provided in paragraph (2), the amendments »<><».
made by this section shall applv to payments under title XIX of
the Social Security Act for calendar quarters beginning on or
after April 1, 1990, with respect to eligibilitv for medical assist­
ance on or after such date, without regard to whether or not
final regulations to carry out such amendments have been
promulgated by such date.
(2) In the case of a State plan for medical assistance under
title XIX of the Social Security Act which the Secretary of
Health and Human Services determines requires State legisla­
tion (other than legislation appropriating funds) in order for the
plan to meet the additional requirements imposed by the
amendments made by this section, the State plan shall not be
regarded as failing to comply with the requirements of such
title solely on the basis of its failure to meet these additional
requirements before the first day of the first calendar quarter
beginning after the close of the first regular session of the State
legislature that begins after the date of the enactment of this
Act. For purposes of the previous sentence, in the case of a State
that has a 2-year legislative session, each year of such session
shall be deemed to be a separate regular session of the State
legislature. 103 STAT. 2260 PUBLIC LAW 101-239—DEC. 19, 1989
SEC. €402. PAYMENT FOR OBSTETRICAL AND PEDIATRIC SERVICES.
(a) CODIFICATION OP ADEQUATE PAYMENT LEVEL PROVISIONS.—Sec­
tion 1902(aX30XA) of the Social Security Act (42 U.S.C.
1396a(aX30XA)) is amended by inserting before the semicolon at the
end the following: "and are sufficient to enlist enough providers so
that care and services are available under the plan at least to the
extent that such care and services are available to the general
population in the geographic area".
(b) ASSURING ADEQUATE PAYMENT LEVELS FOR OBSTETRICAL AND
PEDIATRIC SERVICES.—Title XIX of such Act, as amended by section
303 of the Family Support Act of 1988, is amended by redesignating
42 use 13968. section 1926 as section 1927 and by inserting after section 1925 the
following new section:
"ASSURING ADEQUATE PAYMENT LEVELS FOR OBSTETRICAL AND
PEDIATRIC SERVICES
42USCl396r-7. "SEC. 1926. (aXD A State plan under this title shall not be
considered to meet the requirement of section 1902(aX30XA) with
respect to obstetrical services (as defined in paragraph (4XA)), as of
July 1 of each year (beginning with 1990), unless, by not later than
April 1 of such year, the State submits to the Secretary an amend­
ment to the plan that specifies the payment rates to be used for such
services under the plan in the succeeding period and includes in
such submission such additional data as wUl assist the Secretary in
evaluating the State's compliance with such requirement, including
data relating to how rates established for payments to health
maintenance organizations under section 1903(m) take into account
such payment rates.
"(2) A State plan under this title shall not be considered to meet
the requirement of section 1902(aX30XA) with respect to pediatric
services (as defined in paragraph (4XB)), as of July 1 of each year
(beginning with 1990), unless, by not later than Apnl 1 of such year,
the State submits to the Secretary an amendment to the plan that
specifies, by pediatric procedure, the payment rates to be used for
such services under the plan in the succeeding period and includes
in such submission such additional data as will assist the Secretary
in evaluating the State's compliance with such requirement, includ­
ing data relating to how rates established for payments to health
maintenance organizations under section 1903(m) take into account
such payment rates.
"(3) The Secretary, by not later than 90 days after the date of
submission of a plan amendment under paragraph (1) or (2), shall—
"(A) review each such amendment for compliance with the
requirement of section 1902(aX30XA), and
(B) approve or disapprove each such amendment.
If the Secretary disapproves such an amendment, the State shall
immediately submit a revised amendment which meets such
requirement.
(4) In this section:
"(A) The term 'obstetrical services' means services relating to
pregnancy covered under the State plan provided by an obstetri­
cian, olx3tetrician-g3mecologist, family practitioner, certified
nurse midwife, or certified family nurse practitioner and does
not include inpatient or outpatient hospital services or other
institutional services. PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2261
"(B) The term 'pediatric services' means services covered
under the State plan provided by a pediatrician, family practi- v
tioner, or certified pediatric nurse practitioner to children
under 18 years of age and does not include inpatient or out­
patient hospital services or other institutional services.
"(b) For amendments submitted under subsection (aXl) in 1992
and thereafter, the data submitted under such subsection must
include, for the second previous year, at least the statewide average
payment rates under the State plan for obstetrical services
furnished by obstetricians, obstetrician-gynecologists, family
practitioners, certified family nurse practitioners, and certified
nurse midwives, by procedure. Such information shall be provided
separately for providers located in each metropolitan statistical area
(or similar area) in the State and in the remainder of the State.
"(c) For amendments submitted under subsection (aX2) in 1992
and thereafter, the data submitted under such subsection must
include, for the second previous year, at least the statewide average
payment rates under the State plan for pediatric services furnished ^-
by pediatricians, family practitioners, and certified pediatric nurse
practitioners by procedure. Such information shall be provided sepa­
rately for providers located in each metropolitan statistical area (or
similar area) in the State and in the remainder of the State.
"(d) Nothing in this title (including section 1902(aX30XA)) shall be
construed as preventing a State from establishing payment levels
for obstetrical or pediatric services that are higher for those services
furnished in rural areas than those furnished in metropolitan statis­
tical areas.".
(c) PAYMENT FOR CERTAIN SERVICES IN CERTAIN FEDERALLY -^
FUNDED HEALTH CENTERS.—
(1) COVERAGE.—Section 1905(aX2) of the Social Security Act
(42 U.S.C. 1396d(aX2)) is amended by striking "and" before "(B)"
and by inserting before the semicolon at the end the following: ,
", and (C) ambulatory services offered by a health center receiv­
ing funds under section 329, 330, or 340 of the Public Health
Service Act to a pregnant woman or individual under 18 years
of age".
(2) PAYMENT AMOUNTS.—Section 1902(aX13XE) of such Act (42
U.S.C. 1396a(aX13XE)) is amended by inserting ", and for pay­
ment for services described in section 1905(aX2)(C) under the
plan," after "provided by a rural health clinic under the plan".
(d) EFFECTIVE DATE.—(1) The amendments made by subsections (a) 42 use I396a
and (b) (except £is otherwise provided in such amendments) shall ^°^-
take effect on the date of the enactment of this Act.
(2XA) The amendments made by subsection (c) apply (except as
provided under subparagraph (B)) to payments under title XIX of
the Social Security Act for calendar quarters beginning on or after
July 1, 1990, without regard to whether or not final regulations to
carry out such amendments have been promulgated by such date.
(B) In the case of a State plan for medical assistance under title
XIX of the Social Security Act which the Secretary of Health and
Human Services determines requires State legislation (other than
legislation appropriating funds) in order for the plan to meet the
additional requirements imposed by the amendments made by
subsection (c), the State plan shall not be regarded as failing to
comply with the requirements of such title solely on the basis of its
failure to meet these additional requirements before the first day of
the first calendar quarter beginning after the close of the first 103 STAT. 2262 PUBLIC LAW 101-239—DEC. 19, 1989
regular session of the State legislature that begins after the date of
the enactment of this Act. For purposes of the previous sentence, in
the case of a State that has a 2-year legislative session, each year of
such session shall be deemed to be a separate regular session of the
State legislature.
SEC. 6403. EARLY AND PERIODIC SCREENING. DIAGNOSTIC, AND TREAT­
MENT SERVICES DEFINED.
(a) IN GENERAL.—Section 1905 of the Social Security Act (42 U.S.C.
1396d) is amended by adding at the end the following new subsec­
tion:
"(r) The term 'early and periodic screening, diagnostic, and treat­
ment services' means the following items and services:
"(1) Screening services—
"(A) which are provided—
"(i) at intervals which meet reasonable standards of
medical and dental practice, as determined by the State
after consultation with recognized medical £ind dental
organizations involved in child health care, and
'(ii) at such other intervals, indicated as medically
necessary, to determine the existence of certain phys­
ical or mental illnesses or conditions; and
"(B) which shall at a minimum include—
"(i) a comprehensive health and developmental his­
tory (including assessment of both physical and mental
health development),
"(ii) a comprehensive unclothed physical exam,
"(iii) appropriate immunizations according to age and
health history,
N "(iv) laboratory tests (including lead blood level
assessment appropriate for age and risk factors), and
"(v) health education (including anticipatory guid­
ance).
"(2) Vision services—
"(A) which are provided—
"(i) at intervals which meet reasonable standards of
medical practice, as determined by the State after con­
sultation with recognized medical organizations in­
volved in child health care, and
"(ii) at such other intervals, indicated as medically
tf* necessary, to determine the existence of a suspected
illness or condition; and
"(B) which shall at a minimum include diagnosis and
treatment for defects in vision, including eyeglasses.
"(3) Dental services—
"(A) which are provided—
"(i) at intervals which meet reasonable standards of
dental practice, as determined by the State after con­
sultation with recognized dental organizations involved
in child health care, and
"(ii) at such other intervals, indicated as medically
necessary, to determine the existence of a suspected
illness or condition; and
"(B) which shall at a minimum include relief of pain and
infections, restoration of teeth, and maintenance of dental
health.
"(4) Hearing services— PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2263
"(A) which are provided—
"(i) at intervals which meet reasonable standards of
medical practice, as determined by the State after con-
' sultation with recognized medical organizations in­
volved in child health care, and
"(ii) at such other intervals, indicated as medically
necessary, to determine the existence of a suspected
illness or condition; and
"(B) which shsdl at a minimum include diagnosis and
treatment for defects in hearing, including hearing aids.
"(5) Such other necessary health care, diagnostic services,
treatment, and other measures described in section 1905(a) to '
i correct or ameliorate defects and physical and mental illnesses
and conditions discovered by the screening services, whether or
not such services are covered under the State plan.
Nothing in this title shall be construed as limiting providers of early
and periodic screening, diagnostic, and treatment services to provid­
ers who are qualified to provide all of the items and services
described in the previous sentence or as preventing a provider that
is qualified under the plan to furnish one or more (but not all) of
such items or services from being qualified to provide such items
and services as part of early and periodic screening, diagnostic, and
treatment services.".
(b) REPORT ON PROVISION OF EPSDT.—Section 1902(aX43) of such
Act (42 U.S.C. 1396a(aX43)) is amended—
(1) by striking "and" at the end of subparagraph (B),
(2) by striking the semicolon at the end of subparagraph (CJ)
and inserting ", and", and
(3) by adding at the end the following new subparagraph:
"(D) reporting to the Secretary (in a uniform form and
manner established by the Secretary, by age group and by
basis of eligibility for medical assistance, and by not later
than April 1 after the end of each fiscal year, beginning
with fiscal year 1990) the following information relating to
early and periodic screening, diagnostic, and treatment
services provided under the plan during each fiscal year:
"(i) the number of children provided child health
screening services,
"(ii) the number of children referred for corrective
treatment (the need for which is disclosed by such child
^ health screening services),
"(iii) the number of children receiving dental serv­
ices, and
"(iv) the State's results in attaining the participation
goals set for the State under section 1905(r);".
(c) ANNUAL PARTICIPATION GOALS.—Section 1905(r) of such Act, as
added by subsection (a), is amended by adding at the end the * *^
following: "The Secretary shall, not later than July 1, 1990, and
every 12 months thereafter, develop and set annual participation
goals for each State for participation of individuals who are covered
under the State plan under this title in early and periodic screening,
diagnostic, and treatment services.".
(d) CONFORMING AMENDMENTS.—(1) Section 1902(aX43XA) of such
Act (42 U.S.C. 1396a(aX43XA)) is amended by striking "and treat­
ment services as described in section 1905(aX4)(B)" and inserting
"and treatment services as described in section 19()5(r)". 103 STAT. 2264 PUBLIC LAW 101-239—DEC. 19, 1989
(2) Section 1905(aX4) of such Act (42 U.S.C. 1396d(aX4)) is amended
by amending clause (B) to read as follows: "(B) early and periodic
screening, diagnostic, and treatment services (as defined in subsec­
tion (r)) for individuals who are eligible under the plan and are
under the age of 21; and".
42 use 1396a (e) EFFECTIVE DATE.—The amendments made by this section shall
note. take effect on April 1, 1990, without regard to whether or not final
regulations to carry out such amendments have been promulgated
by such date.
SEC. 6404. PAYMENT FOR FEDERALLY-QUALIFIED HEALTH CENTER
SERVICES.
(a) COVERAGE.—Section 1905(aX2) of the Social Security Act (42
U.S.C. 1396d(aX2)) is amended—
(1) by striking "and" before "(B)",
(2) by striking "subsection (1)" and inserting "subsection
dXD", and
(3) by inserting before the semicolon at the end the following:
", and (C) Federally-qualified health center services (as defined
in subsection (1X2)) and any other ambulatory services offered
by a Federally-qualified health center and which are otherwise
included in the plan".
(b) TERMS DEFINED.—Section 1905(1) of such Act is amended—
(1) by redesignating clauses (1) and (2) as clauses (A) and (B),
(2) by inserting "(1)^'after "(1)", and
(3) by adding at the end the following new paragraph:
"(2XA) The term 'Federally-qualified healtJi center services'
means services of the type described in subparagraphs (A) through
(C) of section 1861(aaXl) when furnished to an individual £is an
outpatient of a Federally-qualified health center and, for this pur­
pose, any reference to a rural health clinic or a physician described
in section 1861(aaX2XB) is deemed a reference to a Federally-quali­
fied health center or a physician at the center, respectively.
"(B) The term 'Federally-qualified health center' means a facility
which—
^ "(i) is receiving a grant under section 329, 330, or 340 of the
Public Health Service Act, or
"(ii) based on the recommendation of the Health Resources
and Services Administration within the Public Health Service,
is determined by the Secretary to meet the requirements for
receiving such a grant.
/ In applying clause (ii), the Secretary may waive any requirement
referred to in such clause for up to 2 years for good cause shown.".
(c) PAYMENT AMOUNTS.—Section 1902(aX13XE) of such Act (42
U.S.C. 1396a(aX13XE)) is amended by striking "section 1905(aX2XB)
provided by a rural health clinic" and inserting "clause (B) or (C) of
section 1905(aX2)".
42 use 1396a (d) EFFECTIVE DATE.—(1) The amendments made by this section
note. apply (except as provided under paragraph (2)) to payments under
title XIX of the Social Security Act for calendar quarters beginning
on or after April 1, 1990, without regard to whether or not final
regulations to carry out such amendments have been promulgated
by such date.
(2) In the case of a State plan for medical assistance under title
XIX of the Social Security Act which the Secretary of Health and
Human Services determines requires State legislation (other than
legislation appropriating funds) in order for the plan to meet the PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2265
additional requirements imposed by the amendments made by this
section, the State plan shall not be regarded as failing to comply
with the requirements of such title solely on the basis of its failure
to meet these additional requirements before the first day of the
first calendar quarter b^inning after the close of the first regular
session of the State legislature that b^ins after the date of the
enactment of this Act. For purposes of the previous sentence, in the
case of a State that has a 2-year legislative session, each year of such .M
session shall be deemed to be a separate regular session of the State
legislature.
SEC 6405. REQUIRED COVERAGE OF NURSE PRACTITIONER SERVICES.
(a) IN GENERAL.—Section 1905(a) of the Social Security Act (42
U.S.C. 1396d(a)) is amended—
(1) in paragraph (20), by striking "and";
(2) by redesignating paragraph (21) as paragraph (22); and
(3) by inserting after paragraph (20) the following new para­
graph:
"(21) services fiimished by a certified pediatric nurse practi­
tioner or certified family nurse practitioner (as defined by the
Secretary) which the certified pediatric nurse practitioner or
certified family nurse practitioner is legally authorized to per­
form under State law (or the State regulatory mechanism pro­
vided by State law), whether or not the certified pediatric nurse
practitioner or certified family nurse practitioner is under the
supervision of, or associated with, a ph3rsician or other health
care provider; and".
(b) CJoNPORMiNG AMENDMENT.—Section 1902(aX10XA) of such Act
(42 U.S.C. 1396a(aX10XA)) is amended by striking "(1) through (5)
and (17)" and by inserting "(1) through (5), (17) and (21)".
(c) EFFECTIVE DATE.—The amendments made by this section shall 42 USC 1396a
become effective with respect to services furnished by a certified ^°*^-
pediatric nurse practitioner or certified family nurse practitioner on
or after July 1,1990.
SEC 6406. REQUIRED MEDICAID NOTICE AND COORDINATION WITH SPE-
CIAL SUPPLEMENTAL FOOD PROGRAM FOR WOMEN, IN-
0 FANTS. AND CHILDREN (WIC).
(a) STATE PLAN REQUIREMENTS OF NOTICE AND (COORDINATION.—
Section 1902(a) of the Social Security Act (42 U.S.C. 1396a(a)) is
amended—
(1) in paragraph (11), by striking "and" before "(B)" and by
inserting before the semicolon at the end the following: ", and
(Q provide for coordination of the operations imder this title
with the State's operations under tlie special supplemental food
program for women, infants, and children imder section 17 of
the Child Nutrition Act of 1966";
(2) by striking "and" at the end of paragraph (51);
(3) by striking the period at the end of paragraph (52) and
inserting "; and ; and
(4) by inserting after paragraph (52) the following new para­
graph:
"(53)jprovide—
(A) for notifying in a timely manner all individuals in
the State who are determinea to be eligible for medical
assistance and who are pregnant women, breastfeeding or 103 STAT. 2266 PUBLIC LAW 101-239—DEC. 19, 1989
42 use 1396a
note.
Disadvantaged
persons.
42 use 1396r-7
note.
eontracts. postpartum women (as defined in section 17 of the Child
Nutrition Act of 1966), or children below the age of 5, of the
availability of benefits furnished by the special supple­
mental food program under such section, and
' "(B) for referring any such individual to the State agency
responsible for administering such prc^am.".
(b) EFFECTIVE DATE.—The amendments made by subsection (a)
shall take effect on July 1, 1990, without regard to whether regula­
tions to carry out such amendments have been promulgated by such
date.
SEC. 6407. DEMONSTRATION PROJECTS TO STUDY THE EFFECT OF
ALLOWING STATES TO EXTEND MEDICAID TO PREGNANT
WOMEN AND CHILDREN NOT OTHERWISE QUALIFIED TO RE­
CEIVE MEDICAID BENEFITS.
(a) IN GENERAL.—In order to allow States to develop and carry out
innovative programs to extend health insurance coverage to preg­
nant women and children under age 20 who lack insurance and to
encourage workers to obtain health insurance for themselves and
their children, the Secretary of Health and Human Services (in this
section referred to as the "Secretary") shall enter into agreements
with several States submitting applications in accordance with
subsection (b) for the purpose of conducting demonstration projects
to study the effect on access to health care, private insurance
coverage, and costs of health care when such States are allowed to
extend benefits under title XIX of the Social Security Act, either
directly, in the same manner, or otherwise as alternative assistance
authorized in section 1925(bX4)(D) of such Act, to pregnant women
and children under 20 years of age who are not otherwise qualified
to receive benefits under such section.
(b) PROJECT REQUIREMENTS.—(1) Each State applying to partici­
pate in the demonstration project under subsection (a) shall assure
the Secretary that eligibility shall be limited to pregnant women
and children who have not attained 20 years of age who are in
families with income below 185 percent of the income official pov­
erty line (referred to in subsection (cXD).
(2) The Secretary shall further provide in conducting demonstra­
tion projects under this section that, if one or more of such dem­
onstration projects utilizes employer coverage as allowed under
section 1925(bX4)CD) of the Social Security Act, such project shall
require an employer contribution.
(c) PREMIUMS.—In the case of pregnant women and children eli­
gible to participate in such demonstration projects whose family
income level is—
(1) below 100 percent of the income official poverty line (as
defined by the Office of Management and Budget, and revised
annually in accordance with section 673(2) of the Omnibus
rf^. Budget Reconciliation Act of 1981) applicable to a family of the
size involved, there shall be no premium charged; and
> (2) between 100 and 185 percent of such income official pov­
erty line, there shall be a premium equal to—
(A) an amount based on a sliding scale relating to income,
.t…,,.? or
(B) 3 percent of the family's average gross monthly earn­
ings,
whichever is less. PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2267
(d) DURATION.—Each demonstration project under this section
shall be conducted for a period not to exceed 3 years. >
(e) WAIVER.—The Secretary where he deems appropriate may
waive the statewideness requirement described in section 1902(aXl)
of the Social Security Act.
(f) LIMIT ON ExPENorruRES.—^The Secretary in conducting the
demonstration projects described in this section shall limit the
amount of the Federal share of benefits paid and expenses incurred
under title XDC of the Social Security Act to $10,000,000 in each of
fiscal years 1990,1991, and 1992.
(g) EVALUATION AND REPORT.—(1) For each demonstration project
conducted under this section, the Secretary shall assure that an
evaluation is conducted on the effect of the project with respect to—
(A) access to health care;
(B) private health care insurance coverage;
(C) costs with respect to health care; and
(D) developing feasible premium and cost-sharing policies.
(2) The Secretary shall submit to Congress an interim report
containing a summary of the evaluations conducted under para­
graph (1) not later than January 1, 1992, and a final report contain­
ing such summary together with such further recommendations as
the Secretary may determine appropriate not later than January 1,
1994.
SEC 6408. OTHER MEDICAID PROVISIONS.
(a) INSTITUTIONS FOR MENTAL DISEASES.—
(1) STUDY.—The Secretary of Health and Human Services
shall conduct a study of—
(A) the implementation, under current provisions, regula­
tions, guidelines, and regulatoiy practices under title XIX
of the Social Security Act, of the exclusion of coverage of
services to certain individuals residing in institutions for
mental diseases, and
(B) the costs and benefits of providing services under title
XIX of the Social Security Act in public subacute psy-
. chiatric facilities which provide services to psychiatric pa­
tients who would otherwise require acute hospitalization.
(2) REPORT.—By not later than October 1, 1990, the Secretary
shall submit a report to Congress on the study and shall include
in the report recommendations respecting—
(A) modifications in such provisions, regulations, guide­
lines, and practices, if any, that may be appropriate to
accommodate changes that may have occurred since 1972 in
the delivery of psychiatric and other mental health services
on an inpatient basis to such individuals, and
a- (B) the continued coverage of services provided in
subacute psychiatric facilities under title XIX of the Social
Security Act.
(3) MORATORIUM ON TREATMENT OP CERTAIN FACIUTIES.—Any Michigan.
determination by the Secretary that Kent Community Hospital
Complex in Michigan or Saginaw Community Hospital in Michi­
gan is an institution for mental diseases, for purposes of title
XIX of the Social Security Act shall not take effect until 180
days after the date the Congress receives the report required
under paragraph (2).
(b) EXTENSION OF TEXAS PERSONAL CARE SERVICES WAIVER.—Sec­
tion 9523(a) of the Consolidated Omnibus Budget Reconciliation Act
of 1985, as amended by section 4115(d) of the Omnibus Budget 103 STAT. 2268 PUBLIC LAW 101-239—DEC. 19, 1989
Reconciliation Act of 1987 (added by section 411(kX9XC) of the
102 Stat. 768. Medicare Catastrophic Coverage Act of 1988), is amended by striking
"January 1,1990" and inserting "July 1,1990".
(c) HOSPICE PAYMENT FOR ROOM AND BOARD.—
(1) IN GENERAL.—Section 1902(aX13XD) of the Social Security
Act (42 U.S.C. 1396a(aX13XD)) is amended—
(A) by striking "in the same amounts, and using the same
methodolc^y, as used" and inserting "in amounts no lower
than the amounts, using the same methodology, used", and
(B) by striking "a separate rate may be paid for" and
inserting "in the case of', and
(d!) by striking "to take into account the room and board
furnished by such facility" and inserting "there shall be
paid an adcUtional amount, to take into account the room
and board furnished by the facility, equal to at least 95
percent of the rate that would have been psdd by the State
under the plan for facility services in that facility for that
individual'.
42 use 1396a (2) EpFECTTVE DATE.—The amendments made by paragraph (1)
"°*®- shall apply to services furnished on or after April 1, 1990,
without r^ard to whether or not final regulations have been
promulgated by such date to implement such amendments.
(d) MEDICARE BUY-IN FOR PREMIUMS OF (CERTAIN WORKING DIS­
ABLED.—
(1) IN GENERAL.—Section 1902(aX10XE) of the Social Security
Act (42 U.S.C. 1396a(aX10XE)) is amended—
(A) by insertmg "(i)" after "(E)",
(B) by striking the semicolon at the end and inserting ",
and", and
(Q by adding at the end the following new clause:
"(ii) for making medical assistance available for payment
of medicare cost-sharing described in section 1905(pX3XAXi)
for qualified disabled and working individuals described in
section 1905(s)"".
(2) ELIGIBILITY.—Section 1905 of such Act (42 U.S.C. 1396d), as
amended by section 6403(a) of this subtitle, is amended by
adding at the end the following new subsection:
"(s) The term 'qualified disabled and working individual' means
an individual—
"(1) who is entitled to enroll for hospital insurance benefits
under part A of title XVIII under section 1818A (as added by
6012 of the Omnibus Budget Reconciliation Act of 1989);
"(2) whose income (as determined under section 1612 for
purposes of the supplemental security income program) does not
exceed 200 percent of the ofQcial poverty line (as defined by the
Office of Management and Budget and revised annually in
accordance with section 673(2) of the Omnibus Budget Reconcili­
ation Act of 1981) applicable to a family of the size involved;
"(3) whose resources (as determined under section 1613 for
purposes of the supplemental security income program) do not
exceed twice the maximum amount of resources that an individ­
ual or a couple (in the case of an individual with a spouse) may
have and obtain benefits for supplemental security income
benefits under title XVI; and
"(4) who is not otherwise eligible for medical assistance under
this title.". PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2269
(3) PREMIUM PAYMENTS REQUIRED FOR CERTAIN INDIVIDUALS.—
Section 1916 of such Act (42 U.S.C. 1396o) is amended—
(A) in subsection (a), by striking "(E)" and inserting
"(EXi)",
(B) by redesignating subsections (d) and (e) as subsections
(e) and (f), respectively, and
(C) by inserting after subsection (c) the following new
subsection: v
"(d) With respect to a qualified disabled and working individual
described in section 1905(s) whose income (as determined under
paragraph (3) of that section) exceeds 150 percent of the official
poverty line referred to in that paragraph, the State plan of a State
may provide for the charging of a premium (expressed as a percent­
age of the medicare cost-sharing described in section 1905(pX3XAXi)
provided with respect to the individual) according to a sliding scale
under which such percentage increases from 0 percent to 100 per­
cent, in reasonable increments (as determined by the Secretary), as
the individual's income increases from 150 percent of such poverty
line to 200 percent of such poverty line.".
(4) (CONFORMING AMENDMENTS.— v
(A) Section 1905(pX3) of such Act (42 U.S.C. 1396d(pX3)) is
amended—
(i) by amending subparagraph (A) to read as follows:
"(AXi) premiums under section 1818, and
"(ii) premiums under section 1839,", and
(ii) in subparagraph (A) as so amended, by striking
"section 1818" and inserting "section 1818 or 1818A".
(. (B) Section 1905(pXlXA) of such Act is amended by insert­
ing ", but not including an individual entitled to such
benefits only pursuant to an enrollment under section
1818A" after "1818".
(C) Section 1902(f) of such Act (42 U.S.C. 1396a(f)) is
amended by inserting ", except with respect to qualified
disabled and working individuals (described in section
1905(s))," after "1619(bX3)".
(5) EFFECTIVE DATE.— ^^ ^^ I396a
(A) The amendments made by this subsection apply "° '
(except as provided under subparagraph (B)) to pajrmente
under title XIX of the Social Security Act for calendar
quarters beginning on or after July 1, 1990, without regard
to whether or not final regulations to carry out such
amendments have been promulgated by such date.
(B) In the case of a State plan for medical assistance
under title XIX of the Social Security Act which the Sec­
retary of Health and Human Services determines requires
State legislation (other than legislation appropriating
funds) in order for the plan to meet the additional require­
ments imposed by the amendments made by this subsec­
tion, the State plan shall not be regarded as failing to
comply with the requirements of such title solely on the
basis of its failure to meet these additioned requirements
before the first dav of the first calendar quarter beginning
after the close of the first regular session of the State
legislature that begins after the date of the enactment of
this Act. For purposes of the previous sentence, in the case ; • 103 STAT. 2270 PUBLIC LAW 101-239–DEC. 19, 1989
of a State that has a 2-year legislative session, each year of
such session shall be deemed to be a separate regular
session of the State legislature.
PART 2—TECHNICAL AND MISCELLANEOUS
PROVISIONS
42 use 1396a
note.
102 Stat. 3804.
Missouri.
Disadvantaged
persons.
42 use 1396n note.
42 use 1320a-7. SEC. 6411. MISCELLANEOUS MEDICAID TECHNICAL AMENDMENTS.
(a) TECHNICAL CORRECTION TO MEDICARE BUY-IN FOR THE
ELDERLY.—
(1) CLARIFICATION WITH RESPECT TO "SECTION 209 (B) " STATES.—
The first sentence of section 1902(f) of the Social Security Act
(42 U.S.C. 1396a(f)) is amended by inserting "and except with
respect to qualified medicare beneficiaries, qualified severely
impaired individuals, and individuals described in subsection
(mXD" before ", no State".
(2) EFFECTIVE DATE.—The amendment made by paragraph (1)
shall apply as if it had been included in the enactment of the
Medicare Catastrophic Coverage Act of 1988.
(b) EXTENSION OF DELAY IN ISSUANCE OF CERTAIN FINAL REGULA­
TIONS.—Section 8431 of the Technical and Miscellaneous Revenue
Act of 1988 is amended by striking "May 1, 1989" and inserting
"December 31,1990".
(c) DISPROPORTIONATE SHARE HOSPITALS.—
(1) SPECIAL RULE FOR NEW JERSEY UNCOMPENSATED CARE TRUST
FUND.—Section 1923(eXl) of the Social Security Act (42 U.S.C.
1396r-4(eXl)) is amended—
(A) by inserting "(AXi)" after "without regard to the
requirement of subsection (a) if, and
(B) by striking "and if and inserting "or (ii) the plan as
of January 1,1987, provided for pa3rment adjustments based
on a statewide pooling arrangement involving all acute care
hospitals and the arrangement provides for reimbursement
of the total amount of uncompensated care provided by
each participating hospital, and (B)".
(2) CONFORMING AMENDMENT.—Section 1915(bX4) of such Act
(42 U.S.C. 1396n(bX4)) is amended by inserting "shall be consist­
ent with the requirements of section 1923 and" after "which
standards".
(3) TRANSITION RULE.—The State of Missouri shall be treated
as having met the requirement of section 1902(aX13XA) of the
Social Security Act (insofar as it requires payments to hospitals
to take into account the situation of hospitals that serve a
disproportionate number of low-income patients with special
needs) for the period beginning with July 1, 1988, and ending
with (and including) June 30, 1990, if the total amount of such
payments for such period is not less than the total of such
payments otherwise required by law for such period.
(4) EFFECTIVE DATE.—The amendment made by paragraph (2)
shall be effective as if included in the enactment of the Omnibus
Budget Reconciliation Act of 1987.
(d) FRAUD AND ABUSE TECHNICAL AMENDMENTS.—
(1) TREATMENT OF LOSS OF RIGHT TO RENEW UCENSE.—Section
1128(bX4XA) of the Social Security Act (42 U.S.C. 1396a-
7(bX4XA)) is amended by inserting "or the right to apply for or
renew such a license" after "lost such a license". PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2271
(2) CLARIFICATION WITH RESPECT TO EMERGENCY TREATMENT.—
Sections 1862(eXl) and 1903(iX2) of such Act (42 U.S.C.
1395y(eXl), 1396b(iX2)) are each amended by inserting ", not
including items or services furnished in an emergency room of a
hospital' after "emergency item or service".
(3) CLARIFICATION OF EXCLUSION WITH RESPECT TO EMPLOYMENT
BY HEALTH MAINTENANCE ORGANIZATIONS.—(A) Scction
1876(iX6XA) of the Social Security Act (42 U.S.C.
1395mm(iX6XA)) is amended—
(i) by striking "or" at the end of clause (v),
(ii) by adding "or" at the end of clause (vi), and
(iii) by inserting after clause (vi) the following new clause:
"(vii) in the case of a risk-sharing contract, emplo3rs or con­
tracts with any individual or entity that is excluded from
participation under this title under section 1128 or 1128A for
the provision of health care, utilization review, medical social
work, or administrative services or employs or contracts with
any entity for the provision (directly or indirectly) through such
an excluded individual or entity of such services;'.
(B) Section 1902(pX2) of such Act (42 U.S.C. 1396a(pX2)) is
amended— v
(i) by striking "or" at the end of subparagraph (A),
(ii) by striking the period at the end of subparagraph (B)
and inserting ", or", and
(iii) by adding at the end the following new subparagraph:
"(O employs or contracts with any individual or entity that is
excluded from participation under this title under section 1128
or 1128A for the provision of health care, utilization review,
medical social work, or administrative services or employs or
contracts with any entity for the provision (directly or in­
directly) through such an excluded individual or entity of such
services.".
(4) EFFECTIVE DATES.—^The amendments made by paragraphs
(1) and (2) shall take efTect on the date of the enactment of this
Act.
(B) The amendments made by paragraph (3) shall apply to
employment and contracts as of 90 days after the date of the
enactment of this Act.
(e) SPOUSAL IMPOVERISHMENT.—
(1) EQUAL TREATMENT OF TRANSFERS BY COMMUNITY SPOUSE
BEFORE INSTITUTIONALIZATION.—Section 1917(c) of the Social
Security Act (42 U.S.C. 1396p(c)) is amended—
(A) in paragraph (1), by inserting "or whose spouse," after
"an institutionalized individual (as defined in paragraph
(3)) who,", and
(B) in paragraph (2XB)—
(i) by amending clause (i) to read as follows: "(i) to or
from (or to another for the sole benefit of) the individ­
ual's spouse, or", and
(ii) by striking ", or (iii)" and all that follows through
"fair market vsdue".
(2) CJLARIFYING APPLICATION TO "SECTION 209(B)" STATES.—
Section 1902(f) of such Act (42 U.S.C. 1396a(f)) is amended by
inserting "and section 1924" after "1619(bX3)".
(3) CLARIFICATION OF APPLICATION OF INCOME RULES TO
REDETERMINATIONS.—Subsections (bX2) and (dXD of section 1924 42 use 1320a-7
note.
42 use 1395mm
note. 103 STAT. 2272 PUBLIC LAW 101-239—DEC. 19, 1989
of such Act (42 U.S.C. 1396r-5) are amended by inserting "or
redetermined" after "determined".
42 use 1396a (4) EFFECTIVE DATES.—
"°**- ; (A) SPOUSAL TRANSFERS.—^The amendments made by para­
graph (1) shall apply to transfers occurring after the date of
the enactment of tlus Act.
(B) OTHER AMENDMENTS.—Elxcept as provided in subpara­
graph (A), the amendments made by this subsection shall
apply as if included in the enactment of section 303 of the
Medicare Catastrophic Coverage Act of 1988.
(f) EXTENSION OF WAIVER FOR HEALTH INSURING ORGANIZATION.—
' The Secretary of Health and Human Services shall continue to
waive, through June 30, 1992, the application of section
1903(mX2XAXii) of the Social Security Act to the Tennessee Primary
Care Network, Inc., under the same terms and conditions as applied
to such waiver as of July 1,1989.
42 use 1396b (g) DAY HABIIITATION AND RELATED SERVICES.—
^°^' (1) PROHIBITION OF DISALLOWANCE PENDING ISSUANCE OF REGU­
LATIONS.—Except as specifically permitted under paragraph (3),
the Secretary of Health and Human Services may not—
(A) withhold, suspend, disallow, or deny Federal financial
psuiidpation under section 1903(a) of the Social Security
Act for day habilitation and related services under para­
graph (9) or (13) of section 1905(a) of such Act on behalf of
persons with mental retardation or with related conditions
pursuant to a provision of its State plan as approved on or
before June 30,1989, or
(B) withdraw Federal approval of any such State plan
provision.
(2) REQUiREBfENTS FOR REGULATION.—A final regulation de­
scribed in this paragraph is a r^^ation, promulgated after a
notice of proposed rule-making and a period of at least 60 days
for public comment, that—
(A) specifies the types of day habilitation and related
services that a State may cover under paragraph (9) or (13)
of section 1905(a) of the Social Security Act on behalf of
{ persons with mental retardation or with related conditions,
^ and
(B) any requirements respecting such coverage.
(3) PROSPECTIVE APPUCATION OF REGULATION.—If the Sec-
^ retaxy promulgates a final r^ulation described in paragraph (2)
' and the Secretary determines that a State plan under title XIX
of the Social Security Act does not comply with such regulation,
1 the Secretary shall notify the State of the determination and its
-^u- basis, and such determination shall not apply to day habili­
tation and related services furnished before uie first day of the
first calendar quarter beginning after the date of the notice to
the State,
(h) MORATORIUM ON ISSUANCE OF FINAL REGULATION ON MEDI­
CALLY NEEDY INCOME LEVELS FOR CESTAIN 1-MEMBER FAMIUES.—
The Secretary of Health and Human Services may not issue in final
form, before December 31, 1990, any r^^ation implementing the
' proposed r^ulation published on September 26, 1989 (54 Federal
Raster 39421) insofar as such regulation changes the method for
establishing the medically needy income level for single individuals
in any State (including the proposed change to section 435.1007(aXl)
oftitle42, Code of Federal R^ulations). , PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2273
(i) TECHNICAL COBRECTIONS CONCERNING TRANSITIONAL COV­
ERAGE.—
(1) CLARIFICATION OF TERMINATION WHEN NO CHILD IN HOUSE­
HOLD.—Subsections (aXBXA) and (bXSXAXi) of section 1925 of the
Social Security Act (42 U.S.C. 1396r-6) are each amended bv
striking "who is" and inserting ", whether or not the child is'.
(2) E^FFHCTIVE DATE FOR TERMINATION OF CURRENT 9-MONTH
EXTENSION.—Section 303(fX2XA) of the Family Support Act of
1988 is amended by inserting before the period at the end the 42 USC 602 note.
following: * but such amendment shall not apply with respect
to families that cease to be eligible for aid under part A of title
IV of the Social Security Act before such date".
(3) CORRECTION OF REFERENCES.—Subsections (aXSXO and
(bX3XCXi) of section 1925 of the Social Security Act (42 U.S.C.
1396r-6) are each amended by striking "or (v) of section 1905(a)"
and inserting "of section 1905(a) or clause (i)(IV), (i)(VD, or
(iiXIX) of section 1902(aX10XA)".
(4) EFFECTIVE DATE.—^The amendments made by this subsec- 42 USC l396r-6
tion shall be effective as if included in the enactment of the °°*®-
Family Support Act of 1988.
(j) MiNi^soTA PREPAID MEDICAID DEMONSTRATION PROJECT EXTEN­
SION.—Section 507 of the Family Support Act of 1988 is amended by 102 Stat. 2407.
strikmg "1990" and inserting "1991'"
Subtitle C—Maternal and Child Health Block
Grant Program
SEC 6501. INCREASE m AUTHORIZATION OF APPROPRIATIONS.
(a) IN GENERAL.—Section 501 of the Social Security Act (42 U.S.C.
701) is amended—
(1) by amending subsection (a) to read as follows:
"(a) To improve the health of all mothers and children consistent
with the applicable health status goals and national health objec­
tives established by the Secretary under the Public Health Service
Act for the year 2000, there are authorized to be appropriated –
$686,000,000 for fiscal year 1990 and each fiscal year thereafter—
"(1) for the purpose of enabling each State—
"(A) to provide and to assure mothers and children (in
particular those with low income or with limited availabil­
ity of health services) access to quality maternal and child
health services;
"(B) to reduce infant mortality and the incidence of
preventable diseases and handicapping conditions among
children, to reduce the need for inpatient and long-term
care services, to increase the number of children (especially
preschool children) appropriately immunized against dis­
ease and the number of low income children receiving
health assessments and follow-up diagnostic and treatment
services, and otherwise to promote the health of mothers
and infants by providing prenatal, delivery, and
postpartum care for low income, at-risk pregnant women,
and to promote the health of children by providing preven­
tive and primary care services for low income children;
"(C) to provide rehabilitation services for blind and dis­
abled individuals under the age of 16 receiving benefits 103 STAT. 2274 PUBLIC LAW 101-239—DEC. 19, 1989
under title XVI, to the extent medical assistance for such
services is not provided under title XDC; and
"(D) to provide and to promote family-centered, commu-
nity-base(C coordinated care (including care coordination
services, as defined in subsection (bX3)) for children with
special health care needs and to facilitate the development
of community-based systems of services for such children
and their families;
' ^ ' "(2) for the purpose of enabling the Secretary (through grants,
contracts, or otherwise) to provide for special projects of re­
gional and national significance, research, and training with
respect to maternal and child health and children with special
health care needs (including early intervention training and
services development), for genetic disease testing, counseling,
and information development and dissemination programs, for
grants (including funding for comprehensive hemophilia diag­
nostic treatment centers) relating to hemophilia without r^ard
to age, and for the screening of newborns for sickle cell anemia,
and otiier genetic disorders and follow-up services; and
"(3) subject to section 502(b) for the purpose of enabling the
Secretary (through grants, contracts, or otherwise) to provide
for developing and expanding the following—
"(A) maternal and infant health home visiting programs
in which case management services as defined in subpara-
^ graphs (A) and (B) of subsection (bX4), health education
services, and related social support services are provided in
the home to pr^nant women or families with an infant up
to the age one by an appropriate health professional or by a
qualified nonprofessional acting under tiie supervision of a
health care professional,
"(B) projects designed to increase the participation of
obstetricians and pediatricians under the program under
this title and under state plans approved under title XIX,
"(O int^rated maternal and cMd health service deliv­
ery systems (of the type described in section 1136 and using,
once developed, the model application form developed
under section 6506(a) of the Omnibus Budget Reconciliation
Act of 1989),
"(D) maternal and child health centers which (i) provide
prenatal, delivery, and postpartum care for pregnant
women and preventive and primary care services for in­
fants up to age one, and (ii) operate under the direction of a
not-for-profit hospital,
"(E) maternal and child health projects to serve rural
populations, and
"(F) outpatient and community based services programs
(including day care services) for children with special
health care needs whose medical services are provided
primarily through inpatient institutional care.", and
(2) by adding at the end of subsection (b) the following new
paragraphs:
"(3) Tiie term 'care coordination services* means services to
promote the effective and efficient organization and utilization
of resources to assure access to necessary comprehensive
services for children with special health care needs and their
families.
"(4) The term'case management services'means— PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2275
"(A) with respect to pregnant women, services to assure
access to quality prenatal, delivery, and postpartum care;
and
"(B) with respect to infants up to age one, services to
assure access to quality preventive and primary care serv­
ices.",
(b) CONFORMING AMENDMENT.—Section 505(2)(CXii) of such Act (42 ^
U.S.C. 705(2)(CXii)) is amended by striking "paragraphs (1) through
(3) of section 501(a)" and inserting "subparagraphs (A) through (D) of
section 501(aXl)".
SEC. 6502. ALLOTMENTS TO STATE AND FEDERAL SET-ASIDES.
(a) IN GENERAL.—Section 502 of the Social Security Act (42 U.S.C.
702) is amended—
(1) by amending the first sentence of paragraph (1) of subsec­
tion (a) to read as follows: "Of the amounts appropriated under
section 501(a) for a fiscal year that are not in excess of
$600,000,000, the Secretary shall retain an amount equal to 15
percent for the purpose of canying out activities described in
section 501(aX2).";
(2) in subsection (aX3), by inserting "or subsection (b)" after
"this subsection";
(3) by striking subsection (c), by redesignating subsection (b)
as subsection (c), and by inserting after subsection (a) the follow­
ing new subsection:
"(bXlXA) Of the amounts appropriated under section 501(a) for a
fiscal year in excess of $600,000,000 the Secretary shall retain an
amount equal to 12% percent thereof for the projects described in
subparagraphs (A) through (F) of section 501(aX3).
"(B) Any amount appropriated under section 501(a) for a fiscal
year in excess of $600,000,000 that remains after the Secretary has
retained the applicable amount (if any) under subparagraph (A)
shall be retained by the Secretary in accordance with subsection (a)
and allocated to the States in accordance with subsection (c).
"(2XA) Of the amounts retained for the purpose of canying out
activities described in section 501(aX3XA), (B), (C), (D) and (E), the
Secretary shall provide preference to qualified applicants which
demonstrate that the activities to be carried out with such amounts
shall be in areas with a high infant mortality rate (relative to the –
average infant mortality rate in the United States or in the State in
which the area is located).
"(B) In carrying out activities described in section 501(aX3XD), the
Secretary shall not provide for developing or expanding a maternal
and child health center unless the Secretary has received satisfac­
tory assurances that there will be applied, towards the costs of such
development or expansion, non-Federal funds in an amount at least
equal to the amount of funds provided under this title toward such
development or expansion."; and
(4) in subsection (c), as redesignated by paragraph (2)—
(A) by striking "$478,000,000" and inserting
"$600,000,000", and
(B) by amending paragraph (2) to read as follows:
"(2) Each such State shall be allotted for each fiscal year an
amount equal to the sum of—
"(A) the amount of the allotment to the State under this
subsection in fiscal year 1983, and 103 STAT. 2276 PUBLIC LAW 101-239—DEC. 19, 1989
' ' "(B) the State's proportion (determined under paragraph
(IXBXii)) of the amount by which the allotment available
under this subsection for all the States for that fiscal year
exceeds the amount that was available under this subsec­
tion for allotment for all the States for fiscEil year 1983.".
(b) CONFORMING AMENDMENTS.—Sections 503(a) and 508(b) of such
Act (42 U.S.C. 703(a), 708(b)) are amended by striking "502(b)" each
place it appears and inserting "502(c)".
SEC. 6503. USE OF ALLOTMENT FUNDS AND APPLICATION FOR BLOCK
GRANT FUNDS.
(a) EXPANDING USE OF FUNDS AND LIMITATION ON USE OF FUNDS
FOR ADMINISTRATIVE COSTS.—Section 504 of the Social Security Act
(42 U.S.C. 704) is amended—
(1) in subsection (a), by inserting "and including payment of
salaries and other related expenses of National Health Service
Corps personnel" after "education, and evaluation", and
(2) by adding at the end the following new subsection:
, "(d) Of the amounts paid to a State under section 503 from an
allotment for a fiscal year under section 502(c), not more than 10
percent may be used for administering the funds paid under such
section.".
(b) APPUCATION.—Section 505 of such Act <42 U.S.C. 705) is
amended—
(1) by amending the heading to read as follows:
"APPUCATION FOR BLOCK GRANT FUNDS";
(2) by inserting "(a)" after "SEC. 505.";
(3) in the matter before paragraph (1), by inserting "an ap­
plication (in a standardized form specified by the Secretary)
that" after "must prepare and transmit to the Secretary';
(4) by striking paragraph (1) and redesignating paragraph (2)
as paragraph (5) and by inserting before paragraph (5), as
redesignated, the following new paragraphs:
"(1) contains a statewide needs assessment (to be conducted
every 5 years) that shall identify (consistent with the health
status goals and national health objectives referred to in section
501(a)) the need for—
"(A) preventive and primary care services for pregnant
women, mothers, and infants up to age one;
"(B) preventive and primary care services for children;
and
"(C) services for children with special health care needs
(as specified in section 501(aXlXD));
"(2) includes for each fiscal year—
"(A) a plan for meeting the needs identified by the state­
wide needs assessment under paragraph (1); and
"(B) a description of how the funds allotted to the State
under section 502(c) will be used for the provision and
coordination of services to carry out such plan that shall
include—
"(i) subject to paragraph (3), a statement of the goals
and objectives consistent with the health status goals ,
and national health objectives referred to in section
' -" 501(a) for meeting the needs specified in the State plan
described in subparagraph (A); PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2277
"(ii) an identification of the areas and localities in
the State in which services are to be provided and
coordinated;
"(iii) an identification of the types of services to be
provided and the categories or characteristics of
individuals to be served; and
"(iv) information the State will collect in order to
prepare reports required under section 506(a);
"(3) except as provided under subsection (b), provides that the
State will use—
"(A) at least 30 percent of such payment amounts for
preventive and primary care services for children, and
"(B) at least 30 percent of such pajmient amounts for
services for children with special health care needs (as
specified in section 501(aXl)(D));
"(4) provides that a State receiving funds for maternal and
child health services under this title shall maintain the level of
funds being provided solely by such State for maternal and child
health programs at a level at least equal to the level that such
State provided for such programs in fiscal year 1989; and"; and
(5) in paragraph (5), as redesignated by paragraph (4) of this
subsection—
(A) Iw striking "a statement of assurances that represents
to the Secretary" and inserting "provides";
(B) in subparagraph (A), by striking "will provide" and
inserting "will establish";
(C) by amending subparagraph (CXi) to read as follows:
(i) special consideration (where appropriate) for the
continuation of the funding of special projects in the
State previously funded under this title (as in effect
before August 31,1981), and";
(D) in subparagraph (D), by striking "and" at the end;
(E) by redesignating subparagraph (E) as subparagraph
(F) and by inserting after subparagraph (D) the following
new subparagraph:
"(E) the State agency (or agencies) administering the
State's program under this title will provide for a toll-free
telephone number (and other appropriate methods) for the
use of parents to access information about health care
providers and practitioners who provide health care serv­
ices under this title and title XIX and about other relevEuit
health and health-related providers and practitioners;
and"; and
(F) in subparagraph (F) (as redesignated by subparagraph
(E))-
(i) by striking "participate" before clause (i),
(ii) in clause (i), by striking "diagnosis" and inserting
"diagnostic",
(iii) in clause (i), by striking "title XIX" and inserting
"section 1905(a)(4)(B) (including the establishment of
periodicity and content standards for early and periodic
screening, diagnostic, and treatment services)",
(iv) by inserting "participate" after "(i)", after "(ii)",
and after "(iii)",
(v) by striking "and" at the end of clause (ii),
(vi) by striking the period at the end of clause (iii) and
inserting ", and , and 103 STAT. 2278 PUBLIC LAW 101-239—DEC. 19,1989
' ' (vii) by inserting after clause (iii) the following new
clause:
"(iv) provide, directly and through their providers
and institutional contractors, for services to identify
pregnant women and infants who are eligible for medi­
cal assistance under subparagraph (A) or (B) of section
1902(1X1) and, once identified, to assist them in apply­
ing for such assistance.";
(6) by striking the last 2 sentences and inserting the following:
Public "The application shall be developed by, or in consultation with, the
information. State maternal and child health agency and shall be made public
within the State in such manner as to facilitate comment from any
person (including any Federal or other public agency) during its
development and after its transmittal."; and
(7) by adding at the end the following new subsection:
"(b) The Secretary may waive the requirement under subsection
(aX3) that a State's application for a fiscal year provide for the use of
funds for specific activities if for that fiscal year—
"(1) the Secretary determines—
^^ y, "(A) on the basis of information provided in the State's
most recent annual report submitted under section
506(aXl), that the State has demonstrated an extraordinary
unmet need for one of the activities described in subsection
(aX3),and
"(B) that the granting of the waiver is justified and will
assist in carrying out the purposes of this title; and
"(2) the State provides assurances to the Secretary that the
State will provide for the use of some amounts paid to it under
'^ section 503 for the activities described in subparagraphs (A) and
(B) of subsection (aX3) and specifies the percentages to be sub­
stituted in each of such subparagraphs.",
(c) CONFORMING AMENDMENTS.—(1) Section 502(c) of such Act (42
U.S.C. 702(c)), as redesignated by section 6502(aX3) of this subtitle, is
amended by striking "a description of intended activities and state­
ment of assurances' and inserting "an application".
(2) Section 504(a) of such Act (42 U.S.C. 704(a)) is amended by
striking "its description of intended expenditures and statement of
assurances" and insert "its application".
(3) Section 506(aXlXC) of such Act (42 U.S.C. 706(aXlXC)) is
amended by striking "description and statement" and inserting
"application".
(4) Sections 502(b), 502(dXl), 503(c), 504(a), 506(aXlXC), and 509(aX6)
of such Act (42 U.S.C. 702(b), 702(dXl), 703(c), 704(a), 706(aXlXC),
709(aX6)) are each amended by striking "505" each place it appears
and inserting "505(a)".
SEC 6504. REPORTS.
(a) STATE REPORTS.—Subsection (a) of section 506 of the Social
Security Act (42 U.S.C. 706) is amended—
, . (1) in paragraph (1>—
(A) by inserting after the first sentence the following:
"Each such report shall be prepared by, or in consultation
with, the State maternal and child health agency.",
(B) by striking "be in such form and contain such
? r^ information" and inserting "be in such standardized form
and contain such information (including information de­
scribed in paragraph (2))", and PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2279
(C) by striking "and of the progress made toward achiev­
ing the purposes of this title, and (C)" and inserting ", (C) to
describe the extent to which the State has met the goals
and objectives it set forth under section 505(aX2XBXi) and
the national health objectives referred to in section 501(a),
and(D)";
(2) by redesignating paragraph (2) as paragraph (3); and
(3) by inserting after paragraph (1) the following new para­
graph:
"(2) Each annual report under paragraph (1) shall include the
following information:
"(AXi) The number of individuals served by the State under
this title (by class of individuals).
"(ii) The proportion of each class of such individuals which
has health coverage.
"(iii) The types (as defined by the Secretary) of services pro­
vided under this title to individuals within each such class,
"(iv) The amounts spent under this title on each type of
services, by class of individuals served.
"(B) Information on the status of maternal and child health in
the State, including—
"(i) information (by county and by racial and ethnic
group) on—
"(I) the rate of infant mortality, and
"(ID the rate of low-birth-weight births;
"(ii) information (on a State-wide basis) on—
"(I) the rate of maternal mortality,
"(II) the rate of neonatal death,
"(QD the rate of perinatal death,
"(TV) the number of children with chronic illness and
the type of illness,
"(V) the proportion of infants bom with fetal alcohol
syndrome,
"(VI) the proportion of infants bom with drug
dependency,
(Vn) the proportion of women who deliver who do
not receive prenatal care during the first trimester of
pregnancy, and
"(VIII) the proportion of children, who at their
second birthday, have been vaccinated against each of
measles, mumps, rubella, polio, diphtheria, tetanus,
pertussis, Hib meningitis, and hepatitis B; and
"(iii) information on such other indicators of maternal,
infant, and child health care status as the Secretary may
specify.
"(C) Information (by racial and ethnic group) on—
"(i) the number of deliveries in the State in the year, and
"(ii) the number of such deliveries to pregnant women
who were provided prenatal, delivery, or postpartum care
under this title or were entitled to benefits with respect to /
such deliveries under the State plan under title XIX in the
year.
"(D) Information (by racial and ethnic group) on—
"(i) the number of infants under one year of age who were
in the State in the year, and
"(ii) the number of such infants who were provided serv­
ices under this title or were entitled to benefits under the
State plan under title XIX at any time during the year. 103 STAT. 2280 PUBLIC LAW 101-239—DEC. 19, 1989
"(E) Information on the number of—
"(i) obstetricians,
"(ii) family practitioners,
^ t – "(iii) certified family nurse practitioners,
"(iv) certified nurse midwives,
"(v) pediatricians, and
"(vi) certified pediatric nurse practitioners,
who were licensed in the State in the year.
For purposes of subparagraph (A), each of the following shall be
considered to be a separate class of individuals: pregnant women,
infants up to age one, children with special health care needs, other
children under age 22, and other individuals.".
(b) SECRETARIAL REPORT.—Paragraph (3) of subsection (a) of such
section, as redesignated by subsection (aX2) of this section, is amend­
ed to read as follows:
"(3) The Secretary shall annually transmit to the Committee on
Energy and Commerce of the House of Representatives and the
Committee on Finance of the Senate a report that includes—
"(A) a description of each project receiving funding under
paragraph (2) or (3) of section 502(a), including the amount of
Federal funds provided, the number of individuals served or
trained, as appropriate, under the project, and a summary of
any formal evaluation conducted with respect to the project;
"(B) a summary of the information described in paragraph
(2XA) reported by States;
"(C) based on information described in paragraph (2XB) sup-
plieid by the States under paragraph (1), a compilation of the
following mesisures of maternal and child health in the United
States and in each State:
"(i) Information on—
"(I) the rate of infant mortality, and
"(II) the rate of low-birth-weight births.
Information under this clause shall also be compiled by
racial and ethnic group,
"(ii) Information on—
"(I) the rate of maternal mortality,
"(II) the rate of neonatal death,
"(III) the rate of perinatal death,
"(IV) the proportion of infants bom with fetal alcohol
S3mdrome,
"(V) the proportion of infants born with drug depend­
ency,
"(VI) the proportion of women who deliver who do
not receive prenatal care during the first trimester of
pregnancy, and
"(VII) the proportion of children, who at their second
.» birthday, have been vaccinated against each of measles,
/-< • mumps, rubella, polio, diphtheria, tetanus, pertussis,
Hib meningitis, and hepatitis B.
"(iii) Information on such other indicators of maternal,
infant, and child health care status as the Secretary has
specified under paragraph (2XBXiii)-
"(iv) Information (by racial and ethnic group) on—
"(I) the number of deliveries in the State in the year,
and
V ; "(II) the number of such deliveries to pregnant
i -, women who were provided prenatal, delivery, or PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2281
postpartum care under this title or were entitled to
benefits with respect to such deliveries under the State
plan under title XIX in the year;
"(D) based on information described in subparagraphs (C), (D),
and (E) of paragraph (2) supplied by the States under paragraph
(1), a compilation of the following information in the United
States and in each State:
"(i) Information on—
"(I) the number of deliveries in the year, and
"(II) the number of such deliveries to pregnant
• ' women who were provided prenatal, delivery, or
postpartum care under this title or were entitled to
benefits with respect to such deliveries under a State
plan under title XIX in the year.
Information under this clause shall also be compiled by –
racial and ethnic group,
"(ii) Information on—
"(I) the number of infants under one year of age in
^ the year, and
"(II) the number of such infants who were provided
,. services under this title or were entitled to benefits
under a State plan under title XIX at any time during
the year.
Information under this clause shall also be compiled by
racial and ethnic group,
"(iii) Information on the number of—
"(I) obstetricians,
"(II) family practitioners,
"(III) certified family nurse practitioners,
. , "(IV) certified nurse midwives,
"(V) pediatricians, and c=
"(VI) certified pediatric nurse practitioners, "^
who were licensed in a State in the year; and
"(E) an assessment of the progress being made to meet the
health status goals and national health objectives referred to in
section 501(a).^.
SEC. 6505. FEDERAL ADMINISTRATION AND ASSISTANCE.
Section 509(a) of the Social Security Act (42 U.S.C. 709(a)) is
amended—
(1) in paragraph (4) by inserting before the semicolon at the
end the following: "and in developing consistent and accurate
data collection mechanisms in order to report the information
required under section 506(aX2)";
(2) in paragraph (5) by striking "and" at the end thereof;
(3) in paragraph (6) by striking the period and inserting ";
and"; and
(4) by adding at the end thereof the following new paragraphs:
"(7) assisting States in the development of care coordination
services (as defined in section 501(bX3)); and
"(8) developing and making available to the State agency (or
agencies) administering the State's program under this title a
national directory listing by State the toll-free numbers de­
scribed in section 505(aX5XE).".
SEC. 6506. DEVELOPMENT OF MODEL APPLICATIONS.
(a) FOR MATERNAL AND CHILD ASSISTANCE PROGRAMS.— 42 use 70i note. 103 STAT. 2282 PUBLIC LAW 101-239—DEC. 19, 1989
Federal
Register,
publication. (1) IN GENERAL.—The Secretary of Health and Human Serv­
ices shall develop, by not later than one year after the date of
the enactment of this Act and in consultation with the Sec­
retary of Agriculture, a model application form for use in
applying, simultaneously, for assistance for a pregnant woman
^ or a child less than 6 years of age under maternal and child
assistance programs (as defined in paragraph (3)). In developing
such form, the Secretary is not authorized to change any
requirement with respect to eligibility under any maternal and
child assistance program.
(2) DISSEMINATION OF MODEL FORM.—The Secretary shall pro­
vide for publication in the Federal Register of the model ap­
plication form developed under paragraph (1) and shall send a
copy of such form to each State agency responsible for admin­
istering a maternal and child assistance program.
(3) MATERNAL AND CHILD ASSISTANCE PROGRAM DEFINED.—In
this subsection, the term "maternal and child assistance pro­
gram" means any of the following programs:
(A) The maternal and child health services block grant
program under title V of the Social Security Act.
(B) The medicaid program under title XIX of the Social
Security Act.
(C) The migrant and community health centers programs
under sections 329 and 330 of the Public Health Service
Act.
(D) The grant program for the homeless under section 340
of the Public Health Service Act.
(E) The "WIG" program under section 17 of the Child
Nutrition Act of 1966.
(F) The head start program under the Head Start Act.
(b) FOR MEDICAID PROGRAM.—
(1) IN GENERAL.—The Secretary of Health and Human Serv­
ices shall, by not later than 1 year after the date of the
enactment of this Act, develop a model application form for use
in appl3dng for benefits under title XIX of the Social Security
Act for individuals who are not receiving cash assistance under
part A of title IV of the Social Security Act, and who are not
institutionalized. In developing such model application form,
the Secretary is not authorized to require that such form be
adopted by States as part of their State medicaid plan.
(2) DISSEMINATION OF MODEL FORM.—The Secretary shall pro­
vide for publication in the Federal Register of the model ap­
plication form developed under paragraph (1), and shall send a
copy of such form to each State agency responsible for admin­
istering a State medicaid plan.
42 use 701 note. SEC. 6507. RESEARCH ON INFANT MORTALITY AND MEDICAID SERVICES.
The Secretary of Health and Human Services shall develop a
national data system for linking, for any infant up to age one—
(1) the infant's birth record,
(2) any death record for the infant, and
(3) information on any claims submitted under title XIX of
the Social Security Act for health care furnished to the infant
or with respect to the birth of the infant. 42 use 1396a
note.
Federal
Register,
publication. PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2283
SEC. 6508. DEMONSTRATION PROJECT ON HEALTH INSURANCE FOR MEDL 42 USC 701 note.
CALLY UNINSURABLE CHILDREN.
(a) IN GENERAL.—^The Secretanr of Health and Human Services (in
this section referred to as the '^Secretarjr") may conduct not more
than 4 demonstration projects to provide health insurance coverage
(as defined by the Secretary) through an eligible plan (as defined in
subsection (b)) to medically uninsurable children (as defined by the
Secretary) imder 19 years of age.
(b) ELIGIBILITY.—In this section, the term "eligible plan" means—
(1) a school-based plan;
(2) a plan operated under the direction of a not-for-profit
entity offering health insurance; and
(3) a plan operated by a not-for-profit hospital.
(c) REQUIREMENTS,—A demonstration project conducted under
subsection (a) may only be conducted under an agreement between
the Secretary and an eligible plan which provides that—
(1) health insurance coverage will be made available imder
the project for at least 2 years, and, if the eligible plan fails to
provide such coverage during such period, the Secretary will
guarantee the provision of such coverage;
(2) non-Federal funds will be made available to fund the
project at a level not less than—
(A) 50 percent in the first year of such agreement,
(B) 65 percent in the second year of such agreement, and
(C) 80 percent in the third or subsequent year of such
agreement;
(3) the plan may not—
(A) restrict health insurance coverage on the basis of a
child's medical condition, or
(B) impose waiting periods or exclusions for preexisting
conditions;
(4) any premium imposed under the project shall be disclosed
in advance of enrollment and shall be varied by the income of
individuals; and
(5) with respect to a plan which at the time of entering into
such agreement is conducting a project similar to the one
described in this subsection such plan must maintain its current
level of non-Federal funding at its current level unless such
level is less than the applicable level described in paragraph (2).
(d) APPUCATION.—No funds may be made available by the Sec­
retary under this section unless an application therefor has been
submitted to, and approved by, the Secretary. Such application shall
be in such form, be submitted in such manner, and contain and be
accompanied by such information, as the Secretary may specify. No
such application may be approved unless it contains assurances that
the applicant will use the funds provided only for the purposes
speciHed in the approved application and will establish such fiscal
control and fund accounting procedures as may be necessary to
assure proper disbursement and accounting of Federal funds paid to ^
the applicant under this section.
(e) EVALUATION AND REPORT.—
(1) EVALUATION.—The Secretary shall provide for an evalua­
tion of the effects of the demonstration projects conducted
under subsection (a) on— 103 STAT. 2284 PUBLIC LAW 101-239—DEC. 19, 1989
(A) access to health services by previously medically un­
insurable children,
(B) the availability of insurance coverage to psirticipating
medically uninsurable children,
(C) the demographic characteristics and health status of
^^ participating medically uninsurable children and their
*' families, and
(D) out-of-pocket health care costs for such families.
(2) REPORT.—^The Secretary shall submit a report on the
4 demonstration projects conducted under subsection (a) to the
Committee on Energy and Commerce of the House of Represent­
atives and the Committee on Finance of the Senate, and shall
include in such report a summary of the evaluation described in
paragraph (1).
(f) AUTHORIZATION OF APPROPRIATIONS.—There are authorized to
be appropriated to carry out this section $5,000,000, for each of fiscal
years 1991,1992, and 1993.
42 use 701 note. SEC. 6509. MATERNAL AND CHILD HEALTH HANDBOOK.
(a) IN GENERAL.—
(1) DEVELOPMENT.—^The Secretary of Health and Human Serv­
ices shall develop a maternal and child health handbook in
consultation with the National Commission to Prevent Infant
1 Mortality and public and private organizations interested in the
health and welfare of mothers and children.
(2) FIELD TESTING AND EVALUATION.—The Secretary shall com-
g plete publication of the handbook for field testing by July 1,
1990, and shall complete field testing and evaluation by June 1,
1991.
(3) AVAILABILITY AND DISTRIBUTION.—The Secretary shall
make the handbook available to pregnant women and families
/ , with young children, and shall provide copies of the handbook
to maternal and child health programs (including maternal and
child health clinics supported through either title V or title XIX
of the Social Security Act, community and migrant health
centers under sections 329 and 330 of the Public Health Service
Act, the grant program for the homeless under section 340 of
the Public Health Service Act, the "WIC" program under sec­
tion 17 of the Child Nutrition Act of 1966, and the head start
pn^ram under the Head Start Act) that serve high-risk women.
The Secretary shall coordinate the distribution of the handbook
with State maternal and child health departments. State and
local pubUc health clinics, private providers of obstetric and
pediatric care, and community groups where appUcable. The
Secretary shall make efforts to involve private entities in the
distribution of the handbook under this paragraph.
(b) AUTHORIZATION OF APPROPRIATIONS.—There are authorized to
be appropriated $1,000,000 for each of fiscal years 1991, 1992, and
1993, for carrying out the purposes of this section.
42 use 701 note. SEC. 6510. EFFECTIVE DATES.
(a) IN GENERAL.—Elxcept as provided in subsection Ot>), the amend­
ments made by this subtitle shall apply to appropriations for fiscal
years b^inning with fiscal year 1990.
fl>) APPLICATION AND REPORT.—The amendments made— PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2285
(1) by subsections (b) and (c) of section 6503 shall apply to
pajrments for allotments for fiscal years beginning with fiscal
year 1991, and
(2) by section 6504 shall apply to annual reports for fiscal
years beginning with fiscal year 1991.
Subtitle D—Vaccine Compensation Technicals
SEC. 6601. VACCINE INJURY COMPENSATION TECHNICALS.
(a) REFERENCE.—Whenever in this section an amendment or
repeal is expressed in terms of an amendment to, or repeal of, a
section or other provision, the reference shall be considered to be
made to a section or other provision of the Public Health Service
Act.
(b) PuBUCATiON OP PROGRAM.—Section 2110 (42 U.S.C. 300aa-10)
is amended by adding at the end thereof the following:
"(c) PuBLicrry,—The Secretary shall undertake reasonable efforts
to inform the public of the availability of the Program.".
(c) PETITIONS.—
(1) Section 2111(aXl) (42 U.S.C. 300aa-ll(aXl)) is amended—
(A) by striking out "filing of a petition" and inserting in ^
– lieu thereof "filing of a petition containing the matter
prescribed by subsection (c)", and
(B) by inserting at the end of paragraph (1) "The clerk of
the United States Claims Court shall immediately forward
the filed petition to the chief special master for assignment
to a special master under section 2112(dXl).".
(2) Section 2111(aX2XAXi) (42 U.S.C. 300aa-ll(aX2XAXi)) is
amended by striking out "under subsection (b)".
(3) Section 2111(aX5) (42 U.S.C. 300aa-ll(aX5)) is amended—
(A) in subparagraph (A), by striking out "elect to with­
draw such action" and inserting in lieu thereof "petition to
have such action dismissed without prejudice or costs", and
(B) in subparagraph (B), by striking out "on the effective
date of this part had pending" and inserting in lieu thereof
"has pending" and by striking out "does not withdraw the
action under subparagraph (A)".
. (4) Section 2111(aX6) (42 U.S.C. 300aa-ll(aX6)) is amended by
striking out "the effective date of this part" each place it occurs
and inserting in lieu thereof "November 15,1988".
(5) Section 2111(a) (42 U.S.C. 300aa-ll(a)) is amended by
redesignating paragraph (8) as paragraph (9) and by inserting
after paragraph (7) the following:
"(8) If on the effective date of this part there was pending an
appeal or rehearing with respect to a civil action brought
against a vaccine administrator or manufacturer and if the
outcome of the last appellate review of such action or the last
rehearing of such action is the denial of dsimages for a vaccine-
related injury or death, the person who brought such action
may file a petition under subsection (b) for such injury or
death.".
(6) Section 2111(c) (42 U.S.C. 300aa-ll(c)) is amended—
(A) in paragraph (1), by inserting "except as provided in
paragraph (3)," after "(1)" and in paragraph (2), bv insert­
ing "except as provided in paragraph (3)," after "(2) , 103 STAT. 2286 PUBLIC LAW 101-239—DEC. 19, 1989
Records.
42 use 300aa-ll.
Establishment. (B) by redesignating paragraph (2) as subsection (d), by
r^ expanding the margin of the paragraph to full measure,
and by striking out "all available and inserting in lieu
thereof "(d) AoornoNAL INFORMATION.—A petition may also
include other available", by striking out "(including au­
topsy reports, if any)", and by striking out "and an identi­
fication and all that follows and inserting in lieu thereof a
period,
(C) by adding after paragraph (1) the following new para­
graphs:
"(2) except as provided in paragraph (3), maternal prenatal
and delivery records, newborn hospital records (including all
physicians' and nurses' notes and test results), vaccination
records associated with the vaccine allegedly causing the injury,
pre- and post-injuiy physician or clinic records (including sdl
relevant growth charts and test results), all post-injuiy in­
patient and outpatient records (including all provider notes, test
results, and medication records), if applicable, a death certifi­
cate, and if applicable, autopsy results, and
"(3) an identification of any records of the type described in
paragraph (1) or (2) which are unavailable to the petitioner and
the reasons for their unavailability.", and
(D) by redesignating paragraph (3), as in effect on the date of
the enactment, as sul^ection (e), by expanding the margin of the
paragraph to full measure, and by striking out "appropriate"
and inserting in lieu thereof "(e) SCHEDULE.—The petitioner
shall submit in accordance with a schedule set by the special
master assigned to the petition".
(7) The margin on paragraph (9) of section 2111(a) (as so
redesignated) is indented two ems.
(8) Section 2115(eX2) (42 U.S.C. 300aa-15(eX2)) is amended—
(A) by striking out "and elected under section 2111(aX4)
to withdraw such action" and inserting in lieu thereof "and
petitioned under section 2111(aX5) to have such action dis­
missed", and
(B) by striking out "the judgment of the court on such
petition may include" and inserting in lieu thereof "in
awarding compensation on such petition the special master
or court may include".
(d) JURISDICTION.—Section 2112(a) (42 U.S.C. 300aa-12(a)) is
amended—
(1) by striking out "shall have jurisdiction (1)" and inserting
in lieu thereof "and the United States Claims Court special
masters shall, in accordance with this section, have jurisdic­
tion",
(2) by striking out ", and (2) to issue" and inserting in lieu
thereoi a period and the following: "The United States Claims
Court may issue", and
(3) by striking out "deem" and inserting in lieu thereof
"deems".
(e) SPECIAL MASTERS ESTABUSHED.—Section 2112 (42 U.S.C. SOOaa-
12) is amended—
(1) by redesignating subsections (c), (d), and (e) as subsections
(d), (e), and (f), respectively, and
(2) by inserting after subsection (b) the following new subsec­
tion:
"(c) UNITED STATES CLAIMS COURT SPECIAL MASTERS.— PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2287
^'(1) There is established within the United States Claims
Court an office of special masters which shall consist of not
more than 8 special masters. The judges of the United States
Claims Court shall appoint the special meisters, 1 of whom, by
designation of the judges of the United States Claims Court,
shall serve as chief special master. The appointment and re­
appointment of the special masters shall be by the concurrence
of a majority of the judges of the court.
"(2) The chief special master and other special masters shall
be subject to removal by the judges of the United States Claims
Court for incompetency, misconduct, or neglect of duty or for
physical or mental disability or for other good cause shown.
"(3) A special master's office shall be terminated if the judges
of the United States Claims Court determine, upon advice of the
chief special master, that the services performed by that office
are no longer needed.
"(4) The appointment of any individual as a special master
shall be for a term of 4 years, subject to termination under
par£igraphs (2) and (3). Individuals serving as special masters
upon the date of the enactment of this subsection shall serve for
4 years from the date of their original appointment, subject to
termination under paragraphs (2) and (3). The chief special
master in office on the date of the enactment of this subsection
shall continue to serve as chief special master for the balance of
the master's term, subject to termination under paragraphs (2)
and (3).
"(5) The compensation of the special masters shall be deter­
mined by the judges of the United States Claims Court, upon
advice of the chief special master. The salary of the chief special
master shall be the annual rate of basic pay for level IV of the
Executive Schedule, as prescribed by section 5315, title 5,
United States Code. The salaries of the other special masters
shall not exceed the annual rate of basic pay of level V of the
Executive Schedule, as prescribed by section 5316, title 5,
United States Code.
"(6) The chief special master shall be responsible for the
following:
"(A) Administering the office of special masters and their
staff, providing for the efficient, expeditious, and effective
handling of petitions, and performing such other duties
related to the Program as may be assigned to the chief
special master by a concurrence of a majority of the United
States Claims Courts judges.
"(B) Appointing and fixing the salary and duties of such
administrative staff as are necessary. Such staff shall be
subject to removal for good cause by the chief special
master.
"(C) Managing and executing all aspects of budgetary and
administrative affairs affecting the special masters and
their staff, subject to the rules and regulations of the
Judicial Conference of the United States. The Conference
rules and regulations pertaining to United States msig-
istrates shall be applied to the special masters.
"(D) Coordinating with the United States Claims Court
the use of services, equipment, personnel, information, and
facilities of the United States Claims Court without re­
imbursement. 103 STAT. 2288 PUBLIC LAW 101-239—DEC. 19, 1989
"(E) Reporting annually to the Congress and the judges of
the United States Claims Court on the number of petitions
filed under section 2111 and their disposition, the dates on
t- which the vaccine-related injuries and deaths for which the
• petitions were filed occurred, the types and amounts of
-^ awards, the length of time for the disposition of petitions,
^ the cost of administering the Program, and recommenda­
tions for changes in the Program.".
(f) PARTIES.—Section 2112(b) (42 U.S.C. 300aa-12(b)) is amended—
(1) by amending the first sentence to read as follows: "In all
proceedings brought by the filing of a petition under section
2111(b), the Secretary shall be named as the respondent, shall
participate, and shall be represented in accordance with section
518(a) of title 28, United States Code.", and
(2) by striking out the second sentence.
(g) SPECIAL MASTER FUNCTIONS.—Section 2112(d) (42 U.S.C. 300aa-
12(d)) (as so redesignated by subsection (e)) is amended—
(1) by amending paragraph (1) to read as follows:
"(1) Following the receipt and filing of a petition under
section 2111, the clerk of the United States Claims Court shall
forward the petition to the chief special master who shall
designate a special master to carry out the functions authorized
by paragraph (3).", and
(2) by stnking out paragraph (2) and inserting in lieu thereof
the following:
"(2) The special masters shall recommend rules to the Claims
Court and, taking into account such recommended rules, the
Claims Court shall promulgate rules pursuant to section 2071 of
title 28, United States Code. Such rules shall—
"(A) provide for a less-adversarial, expeditious, and infor­
mal proceeding for the resolution of petitions,
. – "(B) include flexible and informal standards of admissibil­
ity of evidence,
"(C) include the opportunity for summary judgment,
"(D) include the opportunity for parties to submit argu­
ments and evidence on the record without requiring routine
use of oral presentations, cross examinations, or hearings,
and
"(E) provide for limitations on discovery and allow the
special masters to replace the usual rules of discovery in
yj; civil actions in the United States Claims Court.
"(3XA) A special master to whom a petition has been assigned
. . shall issue a decision on such petition with respect to whether
compensation is to be provided under the Program and the
amount of such compensation. The decision of the special
master shall—
"(i) include findings of fact and conclusions of law, and
. ., "(ii) be issued as expeditiously as practicable but not later
., than 240 days, exclusive of suspended time under subpara­
graph (C), after the date the petition was filed.
The decision of the special master may be reviewed by the
United States Claims Court in accordance with subsection (e).
"(B) In conducting a proceeding on a petition a special
'• •> master—
"(i) may require such evidence as may be reasonable and
necessary. PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2289
"(ii) may require the submission of such information as ^
may be reasonable and necessary,
"(iii) may require the testimony of any person and the
production of any documents as may be reasonable and
necessary,
"(iv) shall afford all interested persons an opportunity to
submit relevant written information—
"(I) relating to the existence of the evidence de­
scribed in section 2113(aXlXB), or
"(II) relating to any allegation in a petition with
respect to the matters described in section
2111(cXlXCXii), and
"(v) may conduct such hearings as may be reasonable and
necessary.
There may be no discovery in a proceeding on a petition other
than the discovery required by the special master.
"(C) In conducting a proceeding on a petition a special master
shall suspend the proceedings one time for 30 days on the
motion of either party. After a motion for suspension is granted,
further motions for suspension by either party may be granted
by the special master, if the special master determines the
suspension is reasonable and necessary, for an aggregate period
not to exceed 150 days.
"(4XA) Except as provided in subparagraph (B), information
submitted to a special master or the court in a proceeding on a
petition may not be disclosed to a person who is not a party to
the proceeding without the express written consent of the
person who submitted the information.
"(B) A decision of a special master or the court in a proceed- Classified
ing shall be disclosed, except that if the decision is to include information,
information—
"(i) which is trade secret or commercial or financial ^
information which is privileged and confidential, or
"(ii) which are medical files and similar files the disclo­
sure of which would constitute a clearly unwarranted inva­
sion of privacy,
and if the person who submitted such information objects to the ^
inclusion of such information in the decision, the decision shall
be disclosed without such information.",
(h) ACTION BY THE UNITED STATES CLAIMS COURT.—Section 2112(e)
(42 U.S.C. 300£ia-12(e)) (as so redesignated by subsection (e)) is
amended to read as follows:
"(e) ACTION BY THE UNITED STATES CLAIMS COURT.—
"(1) Upon issuance of the special master's decision, the parties
shall have 30 dajrs to file with the clerk of the United States
Claims Court a motion to have the court review the decision. If
such a motion is filed, the other party shall file a response with
the clerk of the United States Claims dburt no later than 30
days after the filing of such motion.
'(2) Upon the filing of a motion under paragraph (1) with
respect to a petition, the United States Claims Court shall have
jurisdiction to undertake a review of the record of the proceed­
ings and may thereafter—
"(A) uphold the findings of fact and conclusions of law of
the special master and sustain the special master's decision,
"(B) set aside any findings of fact or conclusion of law of
the special master found to be arbitrary, capricious, an 103 STAT. 2290 PUBLIC LAW 101-239—DEC. 19, 1989
abuse of discretion, or otherwise not in accordance with law
and issue its own findings of fact and conclusions of law, or
"(C) remand the petition to the special master for further
action in accordance with the court s direction.
The court shall complete its action on a petition within 120 days
of the filing of a response under paragraph (1) excluding any
days the petition is oefore a special master as a result of a
remand under subparagraph (C). The court may allow not more
than 90 days for remands under subparagraph (C).
"(3) In the absence of a motion under paragraph (1) respecting
the special master's decision or if the United States Claims
Court takes the action described in paragraph (2XA) with re­
spect to the special master's decision, the clerk of the United
States Claims Court shall immediately enter judgment in
accordance with the special master's decision.",
(i) APPEALS.—Section 2112(f) (42 U.S.C. 300aa-12(f)) (as so redesig­
nated by subsection (e)) is amended by inserting before the period
the following: "within 60 days of the date of entry of the United
States Claims Court's judgment with such court of appeals".
(j) DETERMINATION OF EUGIBILITY AND COMPENSATION,—Section
2113 (42 U.S.C. 300aa-13) is amended—
(1) by striking "court" each place it appears and inserting in
lieu thereof "special master or court", and
(2) by inserting before "United States Claims Court" in
subsection (c) "special masters of.
(k) TABLE.
(1) The table contained in section 2114(a) (42 U.S.C. 300aa-
14(a)) is amended by striking out "(cX2)" each place it appears
and inserting in lieu thereof (bX2)".
(2) Section 2114(bX3XB) (42 U.S.C. 300aa-14(bX3XB)) is
amended by striking out "2111(b)" and inserting in lieu thereof
"2111".
(1) COMPENSATION.—
(1) Section 2115(b) (42 U.S.C. 300aa-15(b)) is amended by
striking out "may not include" and all that follows and insert­
ing in lieu thereof "may include the compensation described in
paragraphs (IXA) and (2) of subsection (a) and may also include
an amount, not to exceed a combined total of $30,000, for—
"(1) lost earnings (as provided in paragraph (3) of subsec­
tion (a)),
"(2) pain and suffering (as provided in paragraph (4) of
subsection (a)), and
"(3) reasonable attorneys' fees and costs (as provided in
• (2) Section 2115(e) (42 US.C. 300aa-15(b)) is amended—
(A) in the first sentence of paragraph (1), by striking out
"The judgment of the United States Claims Court on a
petition filed under section 2111 awarding compensation
shall include an amount to cover" and inserting in lieu
li thereof "In awarding compensation on a petition filed
~ under section 2111 the special master or court shall also
award as part of such compensation an amount to cover",
(B) in the second sentence of paragraph (1), by striking
out "civil action" each place it appears and insertmg in lieu
thereof "petition",
(C) in the second sentence of paragraph (1), by striking
out "may include in the judgment an amount to cover" and
inserting in lieu thereof "may award an amount of com-PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2291
pensation to cover" and by striking out "court" each place
it appears and inserting in lieu thereof "special master or ^
court",
(D) in paragraph (2), by striking out "the judgment of the
court on such petition may include an amount' and insert­
ing in lieu thereof "the special master or court may also
award an amount of compensation", and
(E) in paragraph (3), by striking out "included under
paragraph (1) in a judgment on such petition" and inserting
in lieu thereof "awarded as compensation by the special
master or court under paragraph (1)".
(3) Section 2115(f) (42 U.S.C. 300aa-15(f)) is amended—
(A) in paragraph (3), by inserting after "Pa3mients of
compensation' the following: "under the Program and the
costs of carrying out the Program",
(B) in paragraph (4XA), bv striking out "made in a lump
sum" and by adding aifter compensation" the second time
it appears the following: "and shall be paid from the trust
fund in a lump sum of which all or a portion of the proceeds
may be used as ordered by the special master to purchase ^
an annuity or otherwise be used, with the consent of the
petitioner, in a manner determined by the special master to
be in the best interests of the petitioner", and
(C) in paragraph (4XB), by striking out "paid in 4 equal
annual installments." and inserting in lieu thereof "deter­
mined on the basis of the net present value of the elements
of compensation and paid in 4 equal annual installments of
which all or a portion of the proceeds may be used £is
ordered by the special master to purchase an annuity or _^
otherwise be used, with the consent of the petitioner, in a
manner determined by the special master to be in the best
interests of the petitioner. Any reasonable attorneys' fees
and costs shall be paid in a lump sum.".
(4) Section 2115 (42 U.S.C. 300aa-15) is amended—
(A) in subsection (g), by inserting "(other than under title
XIX of the Social Security Act)" after "State health benefits
program", and
(B) in subsection (h), by inserting before the period at the
end the following: ", except that this subsection shall not
apply to the provision of services or benefits under title XIX
of t/lifi Soci3.1 Sccuritv Act''
(5) Section 2115(iXl) (42 U.S.C. 300aa-15(iXl)) is amended by
striking out "(i)" and inserting in lieu thereof "(j)".
(6) The first sentence of section 2115(j) (42 U.S.C. 300aa-15(j))
is amended by striking out "and" after 1991," and by inserting
before the period a comma and "$80,000,000 for fiscal year
1993".
(m) TECHNICALS.—
(1) Section 2116(c) (42 U.S.C. 300aa-16(c)) is amended by strik­
ing out "2111(b)" and inserting in lieu thereof "2111".
(2) Section 21170)) (42 U.S.C. 300aa-17(b)) is amended by
striking out "the trust fund which has been established to
provide compensation under the Program" and inserting in lieu
thereof "the Vaccine Injury Compensation Trust Fund estab­
lished under section 9510 of the Internal Revenue Code of 1986".
(n) ELECTION.—
(1) Section 2121(a) (42 U.S.C. 300aa-21(a)) is amended— ) 103 STAT. 2292 PUBLIC LAW 101-239—DEC. 19, 1989
' (A) in the first sentence, by striking out "After the judg­
ment of the United States Claims Court under section 2111
on a petition filed for compensation under the Program for
a vaccine-related injury or death has become final, the
person who filed the petition shall file with the court" and
inserting in lieu thereof: "After judgment has been entered
by the United States Claims Court or, if an appeal is taken
• under section 2112(f), after the appellate court's mandate is
issued, the petitioner who filed the petition under section
2111 shall file with the clerk of the United States Claims
Court", and
(B) by amending the last sentence to read as follows: "For
limitations on the bringing of civil actions, see section
2111(aX2).".
(2) Section 2121(b) (42 U.S.C. 300aa-21(b)) is amended—
(A) in the first sentence, by striking out "within 365
days" and inserting in lieu thereof "within 420 days
(excluding any period of suspension under section 2112(d)
and excluding any days the petition is before a special
master as a result of a remand under section 2112(eX2XC))",
/ and
(B) by amending the second sentence to read as follows:
"An election shall be filed under this subsection not later
than 90 days after the date of the entry of the Claims
Court's judgment or the appellate court's mandate with
respect to which the election is to be made.".
(o) TRIAL.—Section 2123(e) (42 U.S.C. 300aa-23(e)) is amended—
(1) by striking out "finding" and inserting in lieu thereof
"finding of fact or conclusion of law",
(2) by striking out "master appointed by such court" and
,,,,w> inserting in lieu thereof "special master", and
(3) by striking out "a district court of the United States" and
inserting in lieu thereof "the United States Claims Court and
subsequent appellate review".
(p) VACCINE INFORMATION.—Section 2126(cX9) (42 U.S.C. 300aa-
26(cX9)) is amended to read as follows:
"(9) a summary of—
"(A) relevant Federal recommendations concerning a
; ^ complete schedule of childhood immunizations, and
"(B) the availability of the Program, and",
(q) SAFER VACCINES.—Section 2127 (42 U.S.C. 300aa-27) is
amended by redesignating subsection (b) as subsection (c) and by
adding after subsection (a) the following:
Establishment. "(b) TASK FORCE.—
"(1) The Secretary shall establish a task force on safer child­
hood vaccines which shall consist of the Director of the National
Institutes of Health, the Commissioner of the Food and Drug
iS^f Administration, and the Director of the Centers for Disease
Control.
"(2) The Director of the National Institutes of Health shall
serve as chairman of the task force.
"(3) In consultation with the Advisory Commission on Child­
hood Vaccines, the task force shall prepare recommendations to
the Secretary concerning implementation of the requirements
of subsection (a).",
(r) AUTHORIZATIONS.— PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2293
(1) For administering part A of subtitle 2 of title XXI of the
Public Health Service Act there is authorized to be appro­
priated from the Vaccine Injury Compensation Trust Fund
established under section 951(Kc) of the InternEd Revenue Code
of 1986 to the Secretary of Health and Human Services
$1,500,000 for each of the fiscal years 1990 and 1991.
(2) For administering part A of subtitle 2 of title XXI of the
Public Health Service Act there is authorized to be appro­
priated from the Vaccine Injury Compensation Trust Fund to
the Attorney Genersd $1,500,000 for each of the fiscal years 1990
and 1991.
(3) For administering part A of subtitle 2 of title XXI of the
Public Health Service Act there is authorized to be appro­
priated from the Vaccine Injury Compensation Trust Fund to
the United States Claims Court $1,500,000 for each of the fiscal
. years 1990 and 1991.
(s) APPLICABILITY AND EFFECTIVE DATE.— 42 USC 300aa-l0
(1) Except as provided in paragraph (2), the amendments note,
made by this section shall apply as follows:
(A) Petitions filed after the date of enactment of this
section shall proceed under the National Vaccine Injury
Compensation Program under title XXI of the Public
Health Service Act as amended by this section.
(B) Petitions currently pending in which the evidentiary
record is closed shall continue to proceed under the Pro­
gram in accordance with the law in effect before the date of
the enactment of this section, except that if the United
States Claims Court is to review the findings of fact and
conclusions of law of a special master on such a petition,
the court may receive further evidence in conducting such
review.
(C) Petitions currently pending in which the evidentiary
record is not closed shall proceed under the Program in
accordance with the law as amended by this section.
All pending cases which will proceed under the Program as
amended by this section shall be immediately suspended for 30
days to enable the special masters and parties to prepare for
'proceeding under the Program as amended by this section. In
determining the 240-day period prescribed by section 2112(d) of
the Public Health Service Act, as amended by this section, or
the 420-day period prescribed by section 2121(b) of such Act, as
so amended, any period of suspension under the preceding
sentence shall be excluded.
(2) The amendments to section 2115 of the Public Health
Service Act shall apply to all pending and subsequently filed
petitions.
(t) STUDY.—The Secretary of Health and Human Services shall Reports.
evaluate the National Vaccine Injury Compensation Program under 42 use 3oaaa-^
title XXI of the Public Health Service Act and shall report the ^°*«-
results of such study to the Committee on Energy and Commerce of
the House of Representatives and the Committee on Labor and
Human Resources of the Senate not later than January 1, 1992.
SEC. 6602. SEVERABILITY.
Section 322 of the National Childhood Vaccine Injury Act of 1986
(42 U.S.C, 300aa-l note) is amended to read as follows: 103 STAT. 2294 PUBLIC LAW 101-239—DEC. 19, 1989
"SEC. 322. SEVERABILITY.
"(a) IN GENERAL.—Except as provided in subsection (b), if any
provision of title XXI of the Public Health Service Act, as added by
section 311(a), or the application of such a provision to any person or
circumstance is held invalid by reason of a violation of the Constitu­
tion, such title XXI shall be considered invalid.
"(b) SPECIAL RULE.—If any amendment made by section 6601 of
the Omnibus Budget Reconciliation Act of 1989 to title XXI of the
Public Health Service Act or the application of such a provision to
any person or circumstance is held invalid by reason of the Constitu­
tion, subsection (a) shall not apply and such title XXI of the Public
Health Service Act without such amendment shall continue in
effect.".
Subtitle E—Provisions With Respect to
COBRA Continuation Coverage
PART 1—EXTENSION OF COVERAGE FOR
DISABLED EMPLOYEES
SEC. 6701. EXTENSION, UNDER INTERNAL REVENUE CODE, OF COVERAGE
FROM 18 TO 29 MONTHS FOR THOSE WITH A DISABILITY AT
TIME OF TERMINATION OF EMPLOYMENT.
(a) IN GENERAL.—Paragraph (2XB) of section 4980B(f) of the In­
ternal Revenue Code of 1986, as added by section 3011(a) of the
Technical and Miscellaneous Revenue Act of 1988 (Public Law 100-
647), (relating to maximum required period of continuation cov­
erage), is amended—
(1) in clause (i) by adding after and below subclause (IV) the
following new sentence:
"In the case of a qualified beneficiary who is deter­
mined, under title II or XVI of the Social Security Act,
to have been disabled at the time of a qualifjdng event
described in paragraph (3XB), any reference in
subclause (I) or (II) to 18 months with respect to such
event is deemed a reference to 29 months, but only if
the qualified beneficiary has provided notice of such
determination under paragraph (6XC) before the end of
such 18 months."; and
^ (2) by adding at the end the following new clause:
"(v) TERMINATION OF EXTENDED COVERAGE FOR
DISABILITY.—In the case of a qualified beneficiary who
is disabled at the time of a qualifying event described
in paragraph (3XB), the month that begins more than
30 days after the date of the final determination under
• title II or XVI of the Social Security Act that the
qualified beneficiary is no longer disabled.".
(b) INCREASED PREMIUM PERMITTED.—Paragraph (2XC) of such
section (relating to premium requirements) is eimended by adding at
the end the following new sentence: "In the case of an individusd
described in the last sentence of subparagraph (BXi), any reference
in clause (i) of this subparagraph to '102 percent' is deemed a
reference to '150 percent for any month after the 18th month of
continuation coverage described in subclause (I) or (II) of subpara­
graph (BXi).". PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2295
(c) NOTICES REQUIRED.—Paragraph (6XC) of such section (relatmg
to certain notices to plan administrator) is amended by inserting
before the period at the end the following: "and each qualified
beneficiary who is determined, under title II or XVI of the Social
Security Act, to have been disabled at the time of a qualifying event
described in paragraph (3XB) is responsible for notifying the plan
administrator of such determination within 60 days after the date of
the determination and for notif3dng the plan administrator within
30 days of the date of any final determination under such title or
titles that the qualified beneficiary is no longer disabled".
(d) EFFECTIVE DATE.—The amendments made by this section shall 42 use 4980B
apply to plan years beginning on or after the date of the enactment note.
of this Act, regardless of whether the qualifying event occurred
before, on, or after such date.
SEC. 6702. EXTENSION, UNDER PUBLIC HEALTH SERVICE ACT, OF COV­
ERAGE FROM 18 TO 29 MONTHS FOR THOSE WITH A DISABIL­
ITY AT TIME OF TERMINATION OF EMPLOYMENT.
(a) IN GENERAL.—Section 2202(2) of the Public Health Service Act
(42 U.S.C. 300bb-2) is amended—
(1) in subparagraph (A), by adding after and below clause (iii)
the following new sentence:
"In the case of an individual who is determined, under title
II or XVI of the Social Security Act, to have been disabled
at the time of a qualif)ring event described in section
2203(2), any reference in clause (i) or (ii) to 18 months with
respect to such event is deemed a reference to 29 months,
but only if the qualified beneficiary has provided notice of
such determination under section 2206(3) before the end of
such 18 months."; and
(2) by adding at the end the following new subparagraph:
"(E) TERMINATION OF EXTENDED COVERAGE FOR DISABIL­
ITY.—In the case of a qualified beneficiary who is disabled
at the time of a qualif}dng event described in section
2203(2), the month that begins more than 30 days after the
date of the final determination under title II or XVI of the
Social Security Act that the qualified beneficiary is no
longer disabled.".
(b) INCREASED PREMIUM PERMITTED.—Section 2202(3) of the Public
Health Service Act (42 U.S.C. 300bb-3) is amended in the matter 42 USC 300bb-2.
after and below subparagraph (B) by adding at the end the following
new sentence: "In the case of an individual described in the last
sentence of paragraph (2XA), any reference in subparagraph (A) of
this paragraph to '102 percent' is deemed a reference to '150 per­
cent' for any month after the 18th month of continuation coverage
described in clause (i) or (ii) of paragraph (2XA).".
(c) NOTICES REQUIRED.—Section 2206(3) of such Act (42 U.S.C.
300bb-6(3)) (relating to certain notices to plan administrator) is
amended by inserting before the comma the following: "and each
qualified beneficiary who is determined, under title II or XVI of the
Socied Security Act, to have been disabled at the time of a qualifjdng
event described in section 2203(2) is responsible for notifying the
plan administrator of such determination within 60 days after the
date of the determination and for notifying the plan administrator '
within 30 days after the date of any final determination under such
title or titles that the qualified beneficiary is no longer disabled". 103 STAT. 2296 PUBLIC LAW 101-239—DEC. 19, 1989
42 use 300bb-2 (d) EFFECTIVE DATE.—The amendments made by this section shall
^ote. apply to plan years b^inning on or after the date of the enactment
of this Act, r^ardless of whether the qualifying event occurred
before, on, or after such date.
SEC. 6703. EXTENSION, UNDER ERISA, OF COVERAGE FROM 18 TO 29
MONTHS FOR THOSE WITH A DISABILITY AT TIME OF TERMI-
,.j,; NATION OF EMPLOYMENT.
(a) IN GENERAL.—Section 602(2) of the Employee Retirement
29 use 1162. Income Security Act of 1974 (42 U.S.C. 1162(2)) is amended—
>=; (1) in subparagraph (A), by adding after and below clause (iv)
-_ the following new sentence:
^ ^ "In the case of an individual who is determined, under title
n or XVI of the Social Security Act, to have been disabled
at the time of a qualifying event described in section 603(2),
'^^ any reference in clause (i) or (ii) to 18 months with respect
to such event is deemed a reference to 29 months, but only
if the qualified beneficiary has provided notice of such
determination under section 606(3) before the end of such
18 months."; and
(2) by adding at the end the following new subparagraph:
"(E) TERMINATION OF EXTENDED COVERAGE FOR DISABIL-
' ' ITY.—In the case of a qualified beneficiary who is disabled
' at the time of a qualifying event described in section 603(2),
the month that begins more than 30 days after the date of
. the final determination under title II or XVI of the Social
Security Act that the qualified beneficiary is no longer
disabled.".
(b) INCREASED PREMIUM PERMITTED.—Section 602(3) of such Act (42
29 use 1162. U.S.C. 1162(3)) is amended in the matter after and below subpara­
graph (B) by adding at the end the following new sentence: "In the
case of an individual described in the last sentence of paragraph
(2XA), any reference in subparagraph (A) of this paragraph to '102
percent' is deemed a reference to '150 percent' for any month after
the 18th month of continuation coverage described in clause (i) or (ii)
of paragraph (2XA).".
(c) NOTICES REQUIRED.—Section 606(3) of such Act (42 U.S.C.
29 use 1166. 1166(3)) (relating to certain notices to plan administrator) is amend-
, ed by inserting before the comma the following: "and each qualified
beneficiary who is determined, under title II or XVI of the Social
Security Act, to have been disabled at the time of a qualifying event
described in section 603(2) is responsible for notifying the plan
administrator of such determination within 60 days after the date of
the determination and for notifying the plan administrator within
30 days after the date of any final determination under such title or
titles that the qualified beneficiary is no longer disabled".
29 use 1162 (d) EFFECTIVE DATE.—The amendments made by this section shall
note. apply to plan years beginning on or after the date of the enactment
of this Act, regardless of whether the qualifying event occurred
before, on, or after such date. ?, r .
PART 2—MISCELLANEOUS AMENDMENTS
SEa 6801. PUBLIC HEALTH SERVICE ACT.
(a) SECTION 2201.— PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2297
(1) SUBSECTION (B).—Section 2201(b) of the Public Health
Service Act (42 U.S.C. 300bb-l(b)) is amended by striking the
matter after and below paragraph (2).
(2) EFFECTIVE DATE.—The amendment made by paragraph (1)
shall apply to years beginning after December 31,1986.
(b) SECTION 2202.—
(1) PARAGRAPH (2XA).—
(A) IN GENERAL.—Section 2202(2XA) of the Public Health
Service Act (42 U.S.C. 300bb-2(2XA)) is amended by adding
at the end the following new clause:
"(iv) QUALIFYING EVENT INVOLVING MEDICARE
^^ ENTTTLEMENT.—In the C£ise of an event described in
section 2203(4) (without regard to whether such event is
a qualifying event), the period of coverage for qualified
beneficiaries other than the covered employee for such
event or any subsequent qualifying event shall not
terminate before the close of the 36-month period
beginning on the date the covered employee becomes
entitled to benefits under title XVIII of the Social
Security Act."
(B) EFFECTIVE DATE.—The amendments made 1^ this
paragraph shall apply to plan years beginning after Decem­
ber 31,1989.
(2) PARAGRAPH (2XD).—
(A) IN GENERAL.—Section 2202(2XD) of the Public Health
Service Act (42 U.S.C. 300bb-2(2XD)) is amended—
(i) in the heading for such paragraph, by striking
"EUGIBIIJTY" and inserting "ENTITLEMENT"; and
(ii) in clause (i), by inserting before the comma the
following: "which does not contain any exclusion or
limitation with respect to any preexisting condition of
such beneficiary".
(B) EFFECTIVE DATE.—The amendments made by subpara­
graph (A) shall apply to^
(i) qualifying events occurring after December 31,
1989, and
(ii) in the case of qualified beneficiaries who elected
continuation coverage after December 31, 1988, the
period for which the required premium was paid (or
was attempted to be paid but was rejected as such).
(3) PARAGRAPH (3).—
(A) IN GENERAL.—Section 2202(3) of the Public Health
Service Act (42 U.S.C. 300bb-2(3)) is amended by amending
the matter after and below subparagraph (B) to read as
follows:
"In no event may the plan require the payment of any premium
before the day which is 45 days after the day on which the
qualified beneficiary made the initial election for continuation
coverage.".
(B) EFFECTIVE DATE.—^The amendment made by subpara-
raph (A) shall apply to plan years beginning after Decem-
ir 31,1989.
(c) SECTION 2208.—
(1) PARAGRAPH (2).—Section 2208(2) of the Public Health Serv­
ice Act (42 U.S.C. 300bb-8(2)) is amended by striking "the
individual's employment or previous employment with an em­
ployer" and inserting "tJie performance of services by the grs
bei 42 use 300bb-l
note.
42 use 300bb-2
note.
42 use 300bb-2
note.
42 use 300bb-2
note. 103 STAT. 2298 PUBLIC LAW 101-239—DEC. 19, 1989
individual for 1 or more persons maintaining the plan (includ­
ing as an employee defined in section 401(cXl) of the Internal
Revenue Code of 1986)".
42 use 300bb-8 (2) EFFECTIVS DATE.—The amendment made by paragraph (1)
note. shall apply to plan years b^^inning after December 31, 1989.
Subtitle F—Technical and Miscellaneous
Provisions Relating to Nursing Home Reform
SEC. 6901. MEDICARE AND MEDICAID TECHNICAL CORRECTIONS RELAT-
ING TO NURSING HOME REFORM.
(a) MORATORIUM ON IMPLEMENTATION OF FEBRUARY 2,1989 REGU­
LATION.—^The regulations promulgated by the Secretary of Health
and Human Services on February 2,1989 (54 Federal Register 5315
et seq., relating to requirements for long-term care facilities) shall
not be effective before October 1, 1990, insofar as such regulations
apply to skilled nursing facilities and intermediate care facilities
,;. under title XVm or XIX of the Social Security Act.
G)) NURSE AIDE TRAINING.—
(1) DELAY IN REQUIREBIENT.—Sections 1819(bX5) and 1919(bX5)
of the Social Security Act (42 U.S.C. 1395i-3(bX5), 1396r(bX5))
are each amended—
(A) in subparagraph (A), by striking "January 1, 1990"
and inserting "October 1,1990", and
(B) in subparagraph (B), by striking "July 1, 1989" and
"January 1, 1990" and mserting "January 1, 1990" and
"October 1,1990". respectively.
42 use i395i-3 (2) PuBUCATioN OP PROPOSED REGULATIONS.—The Secretary of
note. Health and Human Services shall issue proposed regulations to
i,^ establish the requirements described in sections 1819(fX2) and
' 1919(fX2) of the Social Security Act by not later than 90 days
after the date of the enactment of this Act.
(3) REQUIREMENTS FOR TRAINING AND EVALUATION PRO­
GRAMS.—Sections 1819(fX2XA) and 1919(fX2XA) of the Social
Security Act (42 U.S.C. 1395i-3(fX2XA), 1396r(fX2XA)) are each
amended—
(A) in clause (iXD, by inserting "care of cognitively im­
paired residents," after "social service needs.";
(6) in clause (ii), by striking "cognitive, behavioral and
social care" and inserting "recognition of mental health
and social service needs, care of C(^nitively impaired resi­
dents";
(Q by striking the period at the end of clause (iii) and
inserting "; and ; and
(D) by adding at the end the following new clause:
(iv) requirements, under both such programs, that—
* "(I) provide procedures for determining com­
petency that permit a nurse aide, at the nurse
aide's option, to establish competency through
procedures or methods other than the passing of a
written examination and to have the competency
evaluation conducted at the nursing facility at
which the aide is (or will be) employed (imless the
facility is described in subparagraph (BXiiiXD), and PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2299
"(Q) prohibit the imposition on a niirse aide of
any chaises (including any charges for textbooks
and other required course materials and any
changes for the competency evaluation) for either
such program.'
(4) DELAY AND TRANSITION IN 75-HOUB TRAINING PROGRAM
REQUIREMENT.— •'-' '""•''>
(A) Section 1919(fX2)(BXii) of such Act (42 U.S.C.
1396r(fX2XBXii)) is amended by striking "January 1, 1989"
and inserting "July 1,1989".
(B) A nurse aide shall be considered to satisfy the require- 42 USC i395i-3
ment of sections 1819(bX5XA) and 1919(bX5XA) of the Social note.
Security Act (of having completed a training and com­
petency evaluation program approved by a State under
section 1819(eXlXA) or 1919(eXlXA) of such Act), if such aide
would have satisfied such requirement as of July 1,1989, if
a number of hours (not less than 60 hours) were substituted
for "75 hours" in sections 1819(fX2) and 1919(fX2) of such
Act, respectively, and if such aide had received, before
July 1, 1989, at least the difference in the number of such "
hours in supervised practical nurse £dde training or in
r^ular in-service nurse aide education.
(CO A nurse aide shall be considered to satisfy the require­
ment of sections 1819a>X5XA) and 1919(bX5XA) of the Social
Security Act (of having completed a training and com­
petency evaluation pn^ram approved by a State under
section 1819(eXlXA) or 1919(eXlXA) of such Act), if such aide
was found competent (whether or not by the State), before
July 1,1989, after the completion of a course of nurse aide
training of at least 100 hours duration.
(D) With respect to the nurse aide competency evsQuation
requirements described in sections 1819(bX5XA) and
19190W(5)(A) of the Social Security Act, a State may waive ;3| ,
such requirements with respect to an individual who can ^
demonstrate to the satisfaction of the State that such
individual has served as a nurse aide at one or more
facilities of the same employer in the State for at least 24
consecutive months before the date of the enactment of this
Act.
(5) CLARIFICATION OF TEMPORARY ENHANCED FEDERAL FINAN­
CIAL PARTICIPATION FOR NURSE AIDE TRAINING BY NURSING FACILI­
TIES.— I
(A) IN GENERAL.—Section 1903(aX2)(B) of such Act (42
U.S.C 1396b(aX2XB)) is amended—
(D by inserting "(including the costs for nurse aides to
complete such competency evaluation programs)" after
"1919(eXl)",and
(ii) by inserting "(or, for calendar quarters b^inning
on or after July 1, 1988, and before July 1, 1990, the
lesser of 90 percent or ihe Federal medical assistance
percentage plus 25 percentage points)" after "50 per­
cent".
(B) No ALLOCATION OF COSTS BEFORE OCTOBER 1, 1990.—^In 42 USC 1396b
making payments under section 1903(aX2)(B) of the Social note.
Securi^ Act for amounts expended for nurse aide training
and competency evaluation programs, and competency 103 STAT. 2300 PUBLIC LAW 101-239—DEC. 19, 1989
42 use 1395i-3
note.
42 use 1396r
note.
42 use 1396b
note.
New York.
Wisconsin. > evaluation programs, described in section 1919(eXl) of such
Act, in the case of activities conducted before October 1,
1990, the Secretary of Health and Human Services shall not
^ take into accoimt, or allocate amounts on the basis of, the
proportion of residents of nursing facilities that is entitled
f* •' tobenefitsundertitleXVniorXIXof such Act.
(6) EFFKCTIVE DATES.—
(A) IN GENERAL.—Except as provided in subparagraph (B),
the amendments made by this subsection shall take effect
as if they were included in the enactment of the Omnibus
Budget Reconciliation Act of 1987.
(B) EXCEPTION.—The amendments made by paragraph (3)
shall apply to nurse aide training and competency evalua­
tion prc^ams, and nurse aide competency evaluation pro­
grams, offered on or after the end of the 90-day period
beginning on the date of the enactment of this Act, but
shall not affect competency evaluations conducted imder
programs offered before the end of such period.
(c) PUBUCATION OF PROPOSED REGULATIONS RESPECTING
PREADMISSION SCREENING AND ANNUAL RESIDENT REVIEW.—The
Secretary of Health and Himian Services shall issue proposed regu­
lations to establish the criteria described in section 1919(fX8XA) of
the Social Security Act by not later than 90 days after the date of
the enactment of this Act.
(d) OTHER AMENDMENTS.—
(1) CLARIFICATION OF APPUCABILTTY OF ENFORCEMENT RULES TO
DUALLY-CERTIFIED FACILITIES.—Section 19190iX8) of the Social
Security Act (42 U.S.C. 1396r(hX8)) is amended by adding at the
end the following: "The provisions of this subsection shall apply
to a nursing facility (or portion thereof) notwithstanding that
the facility (or portion thereof) also is a skilled nursing facility
for purposes of title XVIII.".
(2) CLARIFICATION OF FEDERAL MATCHING RATE FOR SURVEY AND
CERTIFICATION ACTIVITIES.—During the period before October 1,
1990, the Federal percents^ matehing pajrment rate under
section 1903(a) of the Social Security Act for so much of the
sums expended under a State plan imder title XIX of such Act
as are attributeble to compensation or training of personnel
responsible for inspecting public or private skilled nursing or
intermediate care facilities to individuals receiving medical
assistance to determine compliance with health or saiety stand­
ards shall be 75 percent.
(3) MEDICARE WAIVER AUTHORITY FOR CERTAIN DEMONSTRATION
PROJECTS.—(A) The Secretary of Health and Human Services
may waive the survey and certification requirements of sections
1819(g) and 1864(a) of the Social Security Act to the extent the
Secretary determines is required to carry out a demonstration
project in New York (relating to testing an approved alternative
survey and certification process), which has been approved as of
the date of the enactment of this Act. Such waiver shall apply
only during the period beginning on November 1, 1988, and
enmngon October 31,1991.
(B) The Secretary also may waive the survey and certification
requirements described in subparagraph (A) to the extent the
Secretaiy determines is required to carry out a pilot demonstra­
tion project in Wisconsin (relating to testing an approved alter­
native survey and certification process). Such waiver shall apply PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2301
only during the one-year period beginning on the date of im­
plementation of the project.
(4) MISCELLANEOUS TECHNICAL coRREcnoNS.'-Sections 1819
and 1919 of the Social Security Act are each further amended—
(A) in subsection (cXlXAXii)^, by striking the closing
parenthesis after "Secretary" and inserting a closing paren­
thesis after "obtained",
(B) in subsection (cXlXAXvXD, by striking "accommoda­
tions" and inserting "accommodation",
(C) in subsection (fX2XAXi)* by striking ", content of the
curriculum" €md inserting "and content of the curriculum",
and
(D) in subsection (hX2XC) (of section 1819) and in subsec­
tion (hX3XD) (of section 1919), by insertiiu; "after the effec­
tive date of the findings" after "6 months .
(5) ADDITIONAL MISCELLANEOUS TECHNICAL CORRECTIONS.—Sec­
tion 1910 of such Act (42 U.S.C. 13961) is amended—
(A) by inserting "AND INTERII03)IATE CARE FACILITIES FOR
THE MENTALLY RETARDED" after "RURAL HEALTH CUNICS",
(B) in subsection (b)(1), by striking "skilled nursing or
intermediate care facility" and inserting "intermediate
care facility for the mentally retarded",
iQ in subsection (bXl)> as amended by section 411GX6)(F)
of the Medicare Catastrophic Coverage Act of 1988, by
striking "1902(aX28) or section 1919 or section 1905(c)" and
insertmg "1902(aX31) or section 1905(d)", and
/ (D) in subsections ObXD and a>X2), by striking "skilled
nursing facili^ or intermediate care facility" each place it
appears and inserting "intermediate care facility for the
mentally retarded".
(6) EFFECTIVE DATE.—
(A) IN GENERAL.—Except as provided in subparagraph (B),
the amendments made b^ this subsection shall take effect
as if th^ were included in the enactment of the Omnibus
Budget reconciliation Act of 1987.
(B) EXCEPTION.—^The amendment made by paragraph (1)
shall take effect on the date of the enactment of this Act. 42 use 1395i-3,
1396r.
42 use 1395i-3.
Subtitle G—Public Health Service Act
SEC 6911. ESTABUSHMENT OF AGENCY FOR HEALTH CARE POUCY AND
RESEARCH.
For amendments establishing the Agen^ for Health Care Policy
and Research and creating a new tiue & in the Public Health
Service Act, see section 6103 of this Act.
TITLE VII—REVENUE MEASURES
SEC. 7001. SHORT TITLE; ETC.
(a) SHORT TiTLE.~This title may be cited as the "Revenue Rec­
onciliation Act of 1989".
0>) AMENDMENT OF 1986 CODE.—Except as otherwise expressly
provided, whenever in this title an amendment or repeal is
expressed in terms of an amendment to, or repeal of, a section or Revenue
Reconciliation
Act of 1989.
26 use 1 note. 103 STAT. 2302 PUBLIC LAW 101-239—DEC. 19, 1989
other provision, the reference shall be considered to be made to a
section or other provision of the Internal Revenue Code of 1986.
(c) TABLE OP CONTENTS.—
TITLE Vn—REVENUE MEASURES
Sec. 7001. Short title; etc.
Subtitle A—Extension of Expiring Tax Provisions
Sec. 7101. Employer-provided educational assistance.
Sec. 7102. Employer-provided group l^al services.
Sec. 7103. Extension and modification of targeted jobs credit.
Sec. 7104. Extension of qualified mortmge bonds.
Sec. 7105. Extension of qualified small issue bonds.
Sec. 7106. Extension of energy investment credit for solar, geothermal, and ocean
thermal property.
Sec. 7107. Ebctension of special rules for health insurance costs of self-employed
individuals.
Sec. 7108. Extension and modification of low-income housing credit.
Sec. 7109. Low-income housing credit exempt from income phaseout of $25,000
exemption from passive loss rules.
Sec. 7110. Extension and modification of research credit.
Sec. 7111. Allocation of research and experimental expenditures.
Subtitle B—Corporate Provisions
Sec. 7201. Limitation on use of group losses to offset income of subsidiary paying
preferred dividends.
Sec. 7202. Ireatment of certain high yield original issue discount obligations.
Sec. 7203. Securities treated as boot under section 351.
Sec. 7204. Provisions related to r^^ulated investment companies.
Sec. 7205. Limitation on threshold requirement under section 382 built-in gain and
loss provisions.
Sec. 7206. Distnoutions on certain preferred stock treated as extraordinary divi­
dends.
Sec. 7207. Repeal of election to reduce excess loss account recapture by reducing
basis of indebtedness.
Sec. 7208. Other provisions relating to treatment of stock and debt; etc.
Sec. 7209. Estimated tax payments required for S corporations.
Sec. 7210. Limitation on deduction for certain interest paid to related person.
Sec. 7211. Limitations on refimds due to net operating loss carrybacks or excess
interest allocable to corporate equity reduction transactions.
Subtitle C—Employee Benefit Provisions
PART I—EMPLOYKE STOCK OWNBRSHIP PLAN PROVISION8
Sec. 7301. Limitations on partial exclusion of interest on loans used to acquire
emplojrer securities.
Sec. 7302. Limitations on deductions for dividends paid on employer securities.
Sec. 7303. 3-year holding period required before section 1042 sale.
Sec. 7304. Repeal of certain provisions relating to employee stock ownership plans.
PART II—SscrnoN 401(h) ACC»UNT8
Sec. 7311. Limitation on contributions to section 401(h) accounts.
Subtitle D—Foreign Provisions
Sec. 7401. Taxable year of certain foreign colorations.
Sec. 7402. Limitation on use of deconsolidation to avoid foreign tax credit limita­
tions.
Sec. 7403. Information with respect to certain foreign-owned corporations.
Sec. 7404. Repeal of special treatment of interest on certain foreign loans.
Subtitle E—Excise Tax Provisions
Sec. 7501. 1-year suspension of automatic reduction in aviation-related taxes.
Sec. 7502. Acceleration of deposit requirements for airline ticket tax.
Sec. 7503. Increase in international air pissenger departure tax.
Sec. 7504. Ship passengers international departure tax.
Sec. 7505. Oil Spill LiiUbility Trust Fund tax to take effect on January 1,1990.
Sec. 7506. Excise tax on sale of chemicals which deplete the ozone layer and of
products contakiing such chemicals.
Sec. 7507. Acceleration of deposit requirements for gasoline excise tax. PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2303
Sec. 7508. Taxation of bulk cigar imports.
Subtitle F—Miscellaneous Provisions
I PART I—LIMITATION ON NoNRECOGNrnoN FOR CsaiTAiN EXCHANGES
Sec. 7601. Like kind exchanges between related persons.
PART II—MINIMUM TAX PROVISIONS
Sec. 7611. Simplification of adjusted current earnings preference.
Sec. 7612. Other modifications to minimum tax.
PART III—ACCOUNTING PROVISIONS
Sec. 7621. Repeid of completed contract method of accounting for long-term con­
tracts.
Sec. 7622. Changes in treatment of transfers of franchises, trademarks, and trade
names.
PART IV—EMPLOYMENT TAX PROVISIONS
Sec. 7631. Treatment of agricultural workers under wEige withholding.
Sec. 7632. Acceleration of deposit requirements.
•J />> 5-,<
PART V—OTHER PROVISIONS
Sec. 7641. Limitation on section 104 exclusion.
Sec. 7642. Treatment of distributions by partnerships of contributed property.
Sec. 7643. Depreciation treatment of cellular telephones.
Sec. 7644. Elimination of retroactive certification of employees for work incentive
jobs credit.
Sec. 7645. Disallowance of depreciation for certain term interests.
Sec. 7646. Reporting of points on mortgage loans.
Sec. 7647. Treatment of certain investment-oriented life insurance contracts.
PART VI—TAX-EXEMPT BOND I*ROVISIONS
Sec. 7651. Treatment of hedge bonds.
Sec. 7652. Exceptions from arbitrage rebate requirement.
Subtitle G—Revision of Civil Penalties
Sec. 7701. Short title.
PART I—DOCUMENT AND INFORMATION RETURN PENALTIES
Sec. 7711. Uniform penalties for failures to comply with certain information report­
ing requirements.
Sec. 7712. Information required with respect to certain foreign corporations.
Sec. 7713. Uniform requirements for returns on magnetic media.
Sec. 7714. Study of procedures to prevent mismatching.
Sec. 7715. Study of service bureaus.
PART II—REVISION OF ACCURACY-RELATED PENALTIES
Sec. 7721. Revision of accuracy-related penalties.
PART III—PREPARER, PROMOTER, AND PROTESTER PENALTIES
Sec. 7731. Penalty for instituting proceedings before tax court primarily for delay,
etc.
Sec. 7732. Modifications to penalties on return preparers for certain understate­
ments.
Sec. 7733. Modifications to other assessable penalties with respect to return prepar­
ers.
Sec. 7734. Modifications to penalty for promoting abusive tax shelters, etc.
Sec. 7735. Modifications to penalties for aiding and abetting understatement of tax
liability.
Sec. 7736. Modification to penalty for frivolous income tax return. '' •
Sec. 7737. Authority to counterclaim for balance of penalty in partial refund suits.
Sec. 7738. Repeal of bonding requirement under section 7407.
Sec. 7739. Certain disclosures of information by preparers permitted.
PART IV—FAILURES TO FILE OR PAY
Sec. 7741. Increase in penalty for fraudulent failure to file.
Sec. 7742. Failure to make deposit of taxes.
Sec. 7743. Effect of payment of tax by recipient on certain penalties. 103 STAT. 2304 PUBLIC LAW 101-239—DEC. 19,1989
Sobtitle H—Technical Corrections
Sec 7801. Definition^ coordination with oilier subtitles.
PAST I—AXIENIXIIENIS RELATED TO TBCHNICAI. AND MISCELLANEOUS KEVENUE ACT OF
1988
Sec. 7811. Amendments related to title I of the 1988 Act
Sec. 7812. Amfaidments related to titie n of the 1988 Act
Sec 7813. Amendments related to title m of the 1988 Act
Sec 7814. Amondments related to title IV of the 1988 Act k i r<
Sec 7815. Amendmmts related to titie V Sec 7816. Amendmoits rdated to titie VI rfthe 1988 Act
Sec 7817. infective date. ^ .
PAST II—AMENDMENTS RELATED TO REVEmnc ACT OF 1987
Sec 7^1. Amraodments related to subtitle B.
Sec 7822. Amendmraits related to subtitle C and following siibtities.
Sec 7823. Efifective date.
PABT m—AMENDMENTS RELATED TO TAX REFOBM ACT OF 1986
Sec 7831. Amendments related to Tax Reform Act of 1986.
PAST IV—MISCELLANEOUS CHANGES
Sec 7841. Miscellaneous changes.
PABT V—AMENDMENTS RELATED TO PENSION PROVISIONS
Sec 7851. Definiticnis.
SUBPAST A—AMENDMENTS BELATED TO TAX BEFOBM ACT OF 1986
Sec 7861. Amendments related to titie XI of the Reform Act
Sec 7862. Amratdmraits related to titie X Vm of the Reform Act.
Sec 7863. ESiective date.
SUBPABT B—^AMENDMENTS BELATED TO OMNIBUS BUDGET BBOONCILIATION ACT OF 1986
Sec 7871. Amendmfflits related to Omnibus Budget Reconciliation Act of 1986.
SUBPABT C—AMENDMENTS BELATED TO PENSION PBOTECTTON ACT
Sec 7881. Amendments related to Pension Protection Act
Sec 7882. Effective dale. * "
SUBPABT D—ADDITIONAL PENSION PROVISIONS
Sec. 7891. Amendments relating to the Tax Reform Act of 1986.
Sec 7892. Am^idments relating to the Pension Protection Act
Sec 7893. Amendmmts relating to the Single-Emplover Pension Plan Amendments
Act of 1986. ,^. , .
Sec 7894. Other amendments to ERISA.
Subtitle A—^Extension of Expiring Tax
Provisions
SEC 7101. EMPLOYER-PROVIDED EDUCATIONAL ASSISTANCE.
(a) EXTENSION.—
(1) IN GENERAL.—^Subsection (d) of section 127 (relating to
educational assistance programs) is amended by striking
"December 31,1988" and inserting "September 30,1990".
26 use 127 note. (2) SPECIAL RULE.—^In the case of any taxable year beginning
in 1990, only amounts paid before October 1, 1990, by the
employer for educational assistance for the employee shall be
taken into account in determining the amount excluded under
section 127 of the Internal Revenue Code of 1986 with respect to
such employee for such taxable year.
(b) CERTAIN OTHERWISE TAXABLE EMPLOYER-PROVIDED EDU­
CATIONAL ASSISTANCE MAY BE EXCLUDIBLE AS WORKING CONDITION PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2305
FRINGE.—Subsection (h) of section 132 is amended by adding at the 26 USC 132.
end thereof the following new paragraph:
"(9) APPUCATION OF SECTION TO OTHERWISE TAXABLE EM­
PLOYER-PROVIDED EDUCATIONAL ASSISTANCE.—Amounts which
would be excludible from gross income under section 127 but for
subsection (aX2) thereof or the last sentence of subsection (cXD
thereof shall be excluded from gross income under this section if
(and only if) such amounts are a working condition fringe."
(c) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 127 note.
apply to taxable years beginning £ifter December 31,1988.
SEC. 7102. EMPLOYER-PROVIDED GROUP LEGAL SERVICES.
(a) EXTENSION.—
(1) IN GENERAL.—Subsection (e) of section 120 (relating to
group legal services plans) is amended by striking "ending after
December 31, 1988" and inserting "beginning after September
30,1990".
(2) SPECIAL RULE.—In the case of any taxable year beginning 26 USC 120 note,
in 1990, only amounts paid before October 1, 1990, by the
employer for coverage for the employee, his spouse, or his
dependents under a qualified group legal services plan for
periods before October 1, 1990, shall be taken into account in
determining the amount excluded under section 120 of the
Internal Revenue Code of 1986 with respect to such employee
for such taxable year.
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 26 USC 120 note,
shall apply to taxable years ending after December 31,1988.
SEC. 7103. EXTENSION AND MODIFICATION OF TARGETED JOBS CREDIT.
(a) EXTENSION.—Paragraph (4) of section 51(c) (relating to termi­
nation) is amended by striking "December 31, 1989" and inserting
"September 30,1990".
(b) EXTENSION OF AUTHORIZATION.—Paragraph (2) of section 261(f)
of the Economic Recovery Tax Act of 1981 is amended by striking 26 USC 51 note,
"and 1989" and inserting "1989, and 1990".
(c) MODIFICATION OF REQUEST FOR CERTIFICATION.—
(1) IN GENERAL.—Paragraph (16) of section 51(d) is amended
by adding at the end thereof the following new subparagraph:
"(C) EMPLOYER REQUEST MUST SPECIFY POTENTIAL BASIS FOR
EUGiBiLiTY.—In any request for a certification of an individ­
ual as a member of a targeted group, the employer shall—
'* "(i) specify each subparagraph (but not more than 2)
of paragraph (1) by reason of which the employer be­
lieves that such individual is such a member, and
"(ii) certify that a good faith effort was made to
determine that such individual is such a member."
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 26 USC 51 note,
shall apply to individuals who begin work for the employer after
December 31,1989.
SEC. 7104. EXTENSION OF QUALIFIED MORTGAGE BONDS.
(a) IN GENERAL.—Subparagraph (B) of section 143(aXl) (defining
qualified mortgage bond) is amended by striking "December 31,
1989" each place it appears and inserting "September 30, 1990".
(h) MORTGAGE CREDIT CERTIFICATES.—Subsection (h) of section 25
is amended by striking "for any calendar year after 1989" and
inserting "for any period after September 30,1990". 103 STAT. 2306 PUBLIC LAW 101-239—DEC. 19, 1989
SEC 7105. EXTENSION OF QUALIFIED SMALL ISSUE BONDS.
Subparagraph (B) of section 144(aX12) is amended by striking
"substituting '1989' for '1986'" and inserting "substituting 'Septem­
ber 30,1990' for 'December 31,1986'".
SEC 7106. EXTENSION OF ENERGY INVESTMENT CREDIT FOR SOLAR,
GEOTHERBIAL, AND OCEAN THERMAL PROPERTY.
The table contained in section 460>X2XA) (relating to energy
percentage) is amended by striking "Dec. 31, 1989" in clauses (viii),
(ix), and (x) and inserting '^Sept. 30,1990".
SEC 7107. EXTENSION OF SPECIAL RULES FOR HEALTH INSURANCE
COSTS OF SELF-EMPLOYED INDIVIDUALS.
(a) EXTENSION.—
(1) GENERAL RULE.—^Paragraph (5) of section 162(1) (relating to
special rules for health insurance costs of self-employed individ-
imls) is amended by striking "December 31,1989" and inserting
"September 30,1990".
26 use 162 note. (2) SPECIAL RULE.—In the case of any taxable year b^inning
in 1990—
(A) only amounts paid before October 1, 1990, by the
individual for insurance coverage for periods before October
1, 1990, shall be taken into account in determining the
amount deductible under section 162G) of the Internal Reve­
nue Code of 1986 with respect to such individual for such
taxable year, and
(B) for purposes of section 162(1X2XA) of such Code, the
amount of the earned income described in such paragraph
taken into account for such taxable year shall be the
amount which bears the same ratio to tiie total amount of
such earned income as the number of months in such
taxable year ending before October 1, 1990, bears to the
number of months in such taxable year.
(b) SPECIAL RULE FOR C^TAIN S CORPORATION SHAREHOLDERS.—
Subsection (1) of section 162 (as amended by subsection (a)) is
amended by redesignating paragraph (5) as paragraph (6) and by
inserting after paragraph (4) the following new paragraph:
"(5) TREATMENT OF CERTAIN S CORPORATION SHAREHOLDERS.—
This subsection shall apply in the case of any individual treated
as a partner under section 1372(a), except that—
"(A) for purposes of this subsection, such individual's
wages (as defined in section 3121) from the S corporation
sh^ be treated as such individual's earned income (within
the meaning of section 401(cXl)), and
"(B) there shall be such adjustments in the application of
this subsection as the Secretary may by regulations pre­
scribe."
26 use 162 note. (c) EFFECTIVE DATE.—The amendments made by this section shall
apply to taxable years beginning after December 31,1989.
SEC. 7108. EXTENSION AND MODIFICATION OF LOW-INCOME HOUSING
CREDIT.
(a) EXTENSION.—
(1) IN GENERAL.—Subsection (n) of section 42 (relating to low-
income housing credit) is amended to read as follows—
"(n) TERMINATION.— PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2307
"(1) IN GENERAL.—Except as provided in paragraph (2), for
any calendar year after 1990—
"(A) clause (i) of subsection (hX3XC) shall not apply, and
"(B) subsection (hX4) shall not apply to any building
placed in service after 1990.
"(2) EXCEPTION FOR BOND-FINANCED BUILDINGS IN PROGRESS.—
For purposes of paragraph (IXB), a building shall be treated as
placed in service before 1990 if—
"(A) the bonds with respect to such building are issued
before 1990,
"(B) such building is constructed, reconstructed, or re­
habilitated by the taxpayer,
"(C) more than 10 percent of the reasonably anticipated
cost of such construction, reconstruction, or rehabilitation
has been incurred as of January 1, 1990, and some of such
cost is incurred on or after such date, and
"(D) such building is placed in service before January 1,
1992."
(2) SPECIAL RULE.—In the CEise of calendar year 1990, section 26 use 42 note.
42(hX3)(CXi) of the Internal Revenue Code of 1986 (as amended
by subsection (bXD) shall be applied by substituting "$.9375" for
"$1.25".
(b) 1-YEAR CARRYOVER OF UNUSED CREDIT AUTHORITY, ETC.—
(1) IN GENERAL.—Section 42(hX3) (relating to housing credit
dollar amount for agencies) is amended by redesignating sub­
paragraphs (D), (E), and (F) as subparagraphs (E), (F), and (G),
respectively, and by striking subparagraph (C) and inserting the
following new subparagraphs: c
"(C) STATE HOUSING CREDIT CEIUNG.—The State housing
credit ceiling applicable to £iny State for any calendar year
shall be an amount equal to the sum of—
"(i) $1.25 multiplied by the State population,
"(ii) the unused State housing credit ceiling (if any) of
such State for the preceding calendar year,
"(iii) the amount of State housing credit ceiling
returned in the calendar year, plus
"(iv) the amount (if any) allocated under subpara­
graph (D) to such State by the Secretary.
For purposes of clause (ii), the unused State housing credit
ceiling for any calendar year is the excess (if any) of the
amount described in clause (i) over the aggregate housing
credit dollar amount allocated for such year. For purposes
of clause (iii), the amount of State housing credit ceiling
returned in the calendar year equals the housing credit
dollar amount previously allocated within the State to any
project which does not become a qualiHed low-income hous­
ing project within the period required by this section or the
terms of the allocation or to any project with respect to
which an allocation is cancelled by mutual consent of the
housing credit agency and the allocation recipient.
"(D) UNUSED HOUSING CREDIT CARRYOVERS ALLOCATED
AMONG CERTAIN STATES.—
"(i) IN GENERAL.—The unused housing credit carry­
over of a State for any calendar year shall be assigned
to the Secretary for allocation among qualified States
for the succeeding calendar year. 103 STAT. 2308 PUBLIC LAW 101-239—DEC. 19, 1989
"(ii) UNUSED HOUSING CREDIT CARRYOVER.—For pur­
poses of this subparagraph, the unused housing credit
carryover of a State for any ctdendar year is the excess
(if any) of the unused State housing credit ceiHng for
such year (as defined in subparagraph (CXii)) over the
excess (if any) of—
"(I) the aggregate housing credit dollar amount
allocated for such year, over
"(II) the amount described in clause (i) of
subparEigraph (C).
"(iii) FORMULA FOR ALLOCATION OF UNUSED HOUSING
CREDIT CARRYOVERS AMONG QUALIFIED STATES.—The
amount allocated under this subparagraph to a quali­
fied State for any calendar year shall be the amount
determined by the Secretary to bear the same ratio to
the aggregate unused housing credit carryovers of all
States for the preceding calendar year sis such State's
population for the calendar year bears to the popu­
lation of all qualified States for the calendar year. For
purposes of the preceding sentence, population shall be
determined in accordance with section 146(j).
"(iv) QuAUFiED STATE.—For purposes of this subpara­
graph, the term 'qualified Static' means, with respect to
a calendar year, any State—
"(I) which allocated its entire State housing
credit ceiling for the preceding calendar year, and
"(II) for which a request is made (not later than
May 1 of the calendar year) to receive an allocation
under clause (iii)."
(2) CONFORMING AMENDMENTS.—
(A) Subparagraph (E) of section 42(hX5) is amended by
striking "subparagraph (E)" and inserting "subparagraph
' – (F)".
(B) Paragraph (6) of section 42(h) is amended by striking
subparagraph (B) and by redesignating subparagraphs (C),
(D), and (E) as subparsigraphs (B), (C), and (D), respectively.
(c) BUILDINGS EUGIBLE FOR CREDIT ONLY IF MINIMUM LONG-TERM
COMMITMENT TO LOW-INCOME HOUSING.—
(1) IN GENERAL.—Section 42(h) (relating to limitation on
aggregate credit allowable with respect to projects located in a
State) is amended by redesignating paragraphs (6) and (7) as
paragraphs (7) and (8), respectively, and by inserting after
paragraph (5) the following new paragraph:
"(6) BUILDINGS EUGIBLE FOR CREDIT ONLY IF MINIMUM LONG-
TERM COMMITMENT TO LOW-INCOME HOUSING.—
"(A) IN GENERAL.—No credit shall be allowed by reason of
this section with respect to any building for the taxable
year unless an extended low-income housing commitment is
in effect as of the end of such taxable year.
"(B) EXTENDED LOW-INCOME HOUSING COMMITMENT.—For
purposes of this paragraph, the term 'extended low-income
housing commitment means any agreement between the
taxpayer and the housing credit agency—
"(i) which requires that the applicable fraction (as
defined in subsection (cXD) for the building for each
taxable year in the extended use period will not be less PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2309
than the applicable fraction specified in such agree­
ment,
"(ii) which allows individuals who meet the income
limitation applicable to the building under subsection
(g) (whether prospective, present, or former occupants
of the building) the right to enforce in any State court
the requirement of clause (i),
"(iii) which is binding on all successors of the tax-
paver, and
'(iv) which, with respect to the property, is recorded
pursuant to State law as a restrictive covenant.
"(C) ALLOCATION OF CREDIT BIAY NOT EXCEED AMOUNT
NECESSARY TO SUPPORT COMMITMENT.—
"(i) IN GENERAL.—The housing credit dollar amount
allocated to any building may not exceed the amount
necessary to support the applicable fraction specified in
the extended low-income housing commitment for such
building, including any increase in such fraction pursu­
ant to the application of subsection (fX3) if such in­
crease is reflected in an amended low-income housing
commitment.
"(ii) BUILDINGS FINANCED BY TAX-EXEMPT BONDS.—-If
paragraph (4) applies to any building the amount of
credit allowed in any taxable year may not exceed the
amount necessary to support the applicable fraction
specified in the extended low-income housing commit­
ment for such building. Such commitment may be
amended to increase such fraction.
"(D) EXTENDED USE PERIOD.—For purposes of this para­
graph, the term 'extended use period' means the period—
"(i) beginning on the 1st day in the compliance period
on which such building is part of a qualified low-income
housing project, and
"(ii) ending on the later of—
"(D the date specified by such agency in such
agreement, or
"(II) the date which is 15 years after the close of
the compliance period.
"(E) EXCEPTIONS IF FORECLOSURE OR IF NO BUYER WILLING
TO MAINTAIN LOW-INCOME STATUS.—
"(i) IN GENERAL.—The extended use period for any
building shall terminate—
([) on the date the building is acquired by fore­
closure (or instrument in lieu of foreclosure), or
"(n) on the last day of the period specified in
subparagraph (I) if the housing credit agencpr is
unable to present during such period a qualuied
contract for the acquisition of the low-income por­
tion of the building by any person who will con­
tinue to operate such portion as a qualified low-
income building.
Subclause (II) shall not apply to the extent more strin­
gent requirements are provided in the agreement or in
Stetelaw.
"(ii) EVICTION, ETC. OF EXISTING LOW-INCOME TENANTS
NOT PERMITTED.—The termination of an extended use
period under clause (i) shall not be construed to permit 103 STAT. 2310 PUBLIC LAW 101-239—DEC. 19, 1989
Regulations.
'' -'''k-before the close of the 3-year period following such
termination—
"(I) the eviction or the termination of tenancy
(other than for good cause) of an existing tenant of
anv low-income unit, or
(ID any increase in the gross rent with respect
to such unit.
"(F) QUALIFIED CONTRACT.—For purposes of subparagraph
(E), the term 'qualified contract' means a bona fide contract
to acquire (within a reasonable period after the contract is
entered into) the low-income portion of the building for an
amount not less than the applicable fraction (specified in
the extended low-income housmg commitment) of—
"(i) the sum of—
"(I) the outstanding indebtedness secured by, or
with respect to, the building,
"(11) the adjusted investor equity in the building,
plus
"(m) other capital contributions not reflected in
the amoimts described in subclause (I) or (U), re­
duced by
"(ii) cash distributions from (or available for distribu­
tion from) the project.
The Secretary shall prescribe such regulations as may be
necessary or appropriate to cany out this paragraph,
including regulations to prevent the manipulation of the
amount determined under the preceding sentence.
"(G) ADJUSTED INVESTOR EQUITY.—
"(i) IN GENERAL.—For purposes of subparagraph (E),
the term 'adjusted investor equity* means, with respect
to any calendar year, the aggregate amount of cash
taxpayers invested with respect to the project increased
by the amount equal to—
"(I) such amount, multiplied by
"(II) the cost-of-living adjustment for such cal­
endar year, determined under section l(fX3) by
substituting the base calendar year for 'calendar
year 1987'.
An amount shall be taken into accoimt as an invest­
ment in the project only to the extent there was an
obligation to invest such amount as of the beginning of
the credit period and to the extent such amount is
reflected in the adjusted basis of the project.
"(ii) Ck>siH>F-LiviNG INCREASES IN EXCESS OF 5 PERCENT
NOT TAKEN INTO ACCOUNT.—Under regulations pre­
scribed by the Secretary, if the CPI for any calendar
year (as defined in section l(fX4)) exceeds the CPI for
the preceding calendar year by more than 5 percent,
the CPI for the base calendar year shall be increased
such that such excess shall never be taken into accoimt
under clause (i).
"(iii) BASE CALENDAR YEAR.—For purposes of this
subparagraph, the term 'base calendar year' means the
calendar year with or within which the 1st taxable year
of the creoit period ends.
"(H) LOW-INCOME PORTION.—^For purposes of this para­
graph, the low-income portion of a buildmg is the portion of PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2311
such building equal to the applicable fraction specified in
the extended low-income housing commitment for the
building.
"(I) I^JiiOD FOR FINDING BUYER.—The period referred to in
this subparsigraph is the 1-year period beginning on the
date (after the 14th year of the compliance period) the
taxpayer submits a written request to the housing credit
agency to find a person to acquire the taxpayer's interest in
the low-income portion of the building.
"(J) SALES OF LESS THAN LOW-INCOME PORTION OF BUILD­
ING.—In the case of a sale or exchange of only a portion of
the low-income portion of the building, only the same por­
tion (as the portion sold or exchanged) of the amount
determined under subparagraph (F) shall be taken into
account thereunder.
"(K) EFFECT OF NONCOMPLIANCE.—If, during a taxable
year, there is a determination that an extended low-income
housing agreement was not in effect as of the beginning of
such year, such determination shall not apply to any period
before such year and subparagraph (A) shall be applied
without regard to such determination if the failure is cor­
rected within 1 year from the date of the determination.
"(L) PROJECTS WHICH CONSIST OF MORE THAN i BUILDING,—
The application of this paragraph to projects which consist
of more than 1 building shall be made under regulations
prescribed by the Secretary."
(2) (CONFORMING AMENDMENT.—Subparagraph (C) of section
42(bX3) is amended by striking "subsection (hX6))" and inserting
"subsection (hX7)".
(d) CREDIT FOR ACQUISITION OF EXISTING BUILDING TO APPLY ONLY
IF BUILDING TO BE REHABILITATED; INCREASE IN REQUIRED RE­
HABILITATION EXPENDITURES.—
(1) IN GENERAL.—Subparagraph (B) of section 42(dX2) is
amended by striking "and" at the end of clause (ii), by striking
the period at the end of clause (iii) and inserting ", and", and by
adding at the end thereof the following new clause:
"(iv) except as provided in subsection (fX5), a credit is
allowable under subsection (a) by reason of subsection
(e) with respect to the building."
(2) CJREDIT PERIOD FOR EXISTING BUILDINGS NOT TO BEGIN
BEFORE REHABILITATION CREDIT ALLOWED.—Subsection (f) of sec­
tion 42 (relating to definition and special rules relating to credit
period), as amended b^ subtitle H, is amended by adding at the
end thereof the foUowmg new paragraph:
"(5) CREDIT PERIOD FOR EXISTING BUILDINGS NOT TO BEGIN
BEFORE REHABILITATION CREDIT ALLOWED.—
"(A) IN GENERAL.—The credit period for an existing build­
ing shall not begin before the 1st taxable year of the credit
period for rehabilitation expenditures with respect to the
building.
"(B) ACQUISITION CREDIT ALLOWED FOR CERTAIN BUILDINGS
NOT ALLOWED A REHABILITATION CREDIT.—
"(i) IN GENERAL.—In the case of a building described
in clause (ii)—
"(I) subsection (dX2)(BXiv) shall not apply, and
"(II) the credit period for such building shall not ^
begin before the taxable year which would be the "" 103 STAT. 2312 PUBLIC LAW 101-239—DEC. 19, 1989
1st taxable year of the credit period for rehabilita­
tion expenditures with respect to the building
under the modifications described in clause (iiXH).
"(ii) BUILDING DESCRIBED.—A building is described in
this clause if—
"(I) a waiver is granted under subsection (d)(6XC)
' ' with respect to the acquisition of the building, and
"(II) a credit would be allowed for rehabilitation
expenditures with respect to such building if
* – * ' – subsection (eX3XAXiiXI) did not apply and if subsec­
tion (eX3XAXiiXII) were applied by substituting
'$2,000'for'$3,000'."
^ (3) INCREASE IN REQUIRED REHABIUTATION EXPENDITURES.—
Paragraph (3) of section 42(e) is amended by redesignating
subparagraph (B) as subparagraph (C) and by striking so much
of such paragraph as precedes such subparagraph and inserting
the following:
"(3) MINIMUM EXPENDITURES TO QUALIFY.—
"(A) IN GENERAL.—Paragraph (1) shall apply to re­
habilitation expenditures with respect to any building only
if—
"(i) the expenditures are allocable to 1 or more low-
income units or substantially benefit such units, and
"(ii) the amount of such expenditures during any 24-
month period meets the requirements of whichever of
the following subclauses requires the greater amount of
such expenditures:
"(I) The requirement of this subclause is met if
. such amount is not less than 10 percent of the
adjusted basis of the building (determined as of the
' 1st day of such period and without regard to para-
,, .. N, , graphs (2) and (3) of section 1016(a)).
, ^,, •., j^ -^ V "(II) The requirement of this subclause is met if
. *' : the qualified basis attributable to such amount,
when divided by the number of low-income units in
^ _»; the building, is $3,000 or more.
v;., "(B) EXCEPTION FROM lO PERCENT REHABILITATION.—In the
case of a building acquired by the taxpayer from a govern­
mental unit, at the election of the taxpayer, subparagraph
(AXiiXD shall not apply and the credit under this section for
such rehabilitation expenditures shall be determined using
the percentage applicable under subsection (bX2XBXii)-"
(e) CHANGES IN RULES RELATING TO RENT RESTRICTIONS.—
(1) RENT RESTRICTION DETERMINED ON BASIS OF NUMBER OF
BEDROOMS.—
(A) Section 42(gX2) is amended by redesignating subpara­
graph (C) as subparagraph (E) and by inserting after
-,. : subparagraph (B) the following new subparagraphs:
"(C) IMPUTED INCOME UMITATION APPUCABLE TO UNIT.—
For purposes of this paragraph, the imputed income limita­
tion applicable to a unit is the income limitation which
; 1, would apply under paragraph (1) to individuals occupying
the unit if the number of individuals occup3ring the unit
were as follows:
"(i) In the case of a unit which does not have a
separate bedroom, 1 individual. , PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2313
' ^ "(ii) In the case of a unit which has 1 or more
separate bedrooms, 1.5 individuals for each separate
bedroom.
In the case of a project with respect to which a credit is
1 allowable by reason of this section and for which financing
is provided by a bond described in section 142(aX7), the
imputed income limitation shall apply in lieu of the other­
wise applicable income limitation for purposes of applying
section 142(dX4XBXii).
"(D) TREATMENT OF UNITS OCCUPIED BY INDIVIDUALS
WHOSE INCOMES RISE ABOVE UMIT.—
"(i) IN GENERAL.—Except as provided in clause (ii),
notwithstanding an increase in the income of the occu­
pants of a low-income unit above the income limitation
applicable under paragraph (1), such unit shall con­
tinue to be treated as a low-income unit if the income of
such occupants initially met such income limitation.
1 > r, "(ii) NEXT AVAILABLE UNIT MUST BE RENTED TO LOW-
INCOME TENANT IF INCOME RISES ABOVE 140 PERCENT OF
INCOME UMIT.—If the income of the occupants of the
unit increases above 140 percent of the income limita­
tion applicable under paragraph (1), clause (i) shall
cease to apply to such unit if any residential rental unit
in the building (of a size comparable to, or smaller
than, such unit) is occupied by a new resident whose
income exceeds such income limitation."
(B) Subparagraph (A) of section 42(gX2) is amended by
striking ' the income limitation under paragraph (1) ap­
plicable to individuals occupying such unit" and inserting
'the imputed income limitation applicable to such unit'
(2) REDUCTION IN AREA MEDIAN GROSS INCOME NOT TO REQUIRE
REDUCTION OF RENT.—Subparagraph (A) of section 42(gX2) (relat­
ing to rent-restricted units) is amended by adding at the end
thereof the following new sentence: "For purposes of the preced­
ing sentence, the amount of the income limitation under para­
graph (1) applicable for any period shall not be less than such
limitation applicable for the earliest period the building (which
contains the unit) was included in the determination of whether
the project is a qualified low-income housing project."
(3) EXCLUSION WITH RESPECT TO CONTINUING CARE FACILITIES
NOT TO APPLY IN DETERMINING INCOME.—Subparagraph (B) of
section 142(dX2) is amended by adding at the end thereof the
following:
"Section 7872(g) shall not apply in determining the income of
individuals under this subparagraph."
(f) ADDITIONAL BUILDINGS EUGIBLE FOR WAIVER OF 10-YEAR
PERIOD APPUCABLE TO ACQUISITIONS OF EXISTING BUILDINGS.—Para­
graph (6) of section 42(d) is amended by redesignating subparagraph
(C) as subparagraph (E) and by inserting after subparagraph (B) the
following new subparagraphs:
"(C) LOW-INCOME BUILDINGS WHERE MORTGAGE MAY BE
PREPAID.—A waiver may be granted under subparagraph
(A) (without regard to any clause thereof) with respect to a
federally-assisted building described in clause (ii) or (iii) of
t- subparagraph (B) if^
.• "(i) the mortgage on such building is eligible for
? prepayment under subtitle B of the Emergency Low 103 STAT. 2314 PUBLIC LAW 101-239—DEC. 19, 1989
Income Housing Preservation Act of 1987 or under
section 502(c) of the Housing Act of 1949 at any time
within 1 year after the date of the application for such
•'> '' a waiver,
"(ii) the appropriate Federal official certifies to the
Secretary that it is resisonable to expect that, if the
waiver is not granted, such building will cease comply­
ing with its low-income occupancy requirements, and
(iii) the eligibility to prepay such mortgage without
the approval of the appropriate Federal official is
waived by all persons who are so eligible and such
waiver is binding on all successors of such persons.
"(D) BUILDINGS ACQUIRED FROM INSURED DEPOSITORY
INSTITUTIONS IN DEFAULT.—A WEUver may be granted under
subparagraph (A) (without regard to any clause thereof)
with respect to any building acquired from an insured
depository institution in default (as defined in section 3 of
the Federal Deposit Insurance Act) or from a receiver or
conservator of such an institution."
(g) INCREASE IN CREDIT FOR BUILDINGS IN HIGH COST AREAS.—
Paragraph (5) of section 42(d) (relating to eligible basis) is amended
by adding at the end thereof the following new subparagraph:
"(D) INCREASE IN CREDIT FOR BUILDINGS IN HIGH COST
AREAS.—
"(i) IN GENERAL.—In the CEise of any building located
in a qualified census tract or difficult development area
which is designated for purposes of this subpara­
graph—
"(I) in the case of a new building, the eligible
basis of such building shall be 130 percent of such
*'-' basis determined without regard to this subpara­
graph, and
' ^ "(II) in the case of an existing building, the
rehabilitation expenditures taken into account
-' ' under subsection (e) shall be 130 percent of such
expenditures determined without regard to this
' , subparagraph.
"(ii) QUAUFIED CENSUS TRACT.—
"(I) IN GENERAL.—The term 'qualified census
tract' means any census tract in which 50 percent
' ' or more of the households have an income which is
• " less than 60 percent of the area median gross
income.
' '^ ' "(II) LIMIT ON MSA'S DESIGNATED.—The portion of
a metropolitan statistical area which may be des-
* ' ignated for purposes of this subparagraph shall not
exceed an area having 20 percent of the population
of such metropolitan statistical area.
"(Ill) DETERMINATION OF AREAS.—For purposes of
this clause, each metropolitan statistical area shall
be treated as a separate area and all
nonmetropolitan areas in a State shall be treated
as 1 area,
"(iii) DIFFICULT DEVELOPMENT AREAS.—
"(I) IN GENERAL.—The term 'difficult develop-
' ' '•' • ment areas' means any area designated by the
^ ^:«t Secretary of Housing and Urban Development as PUBLIC LAW 101-239—DEC. 19, 1989 _ 103 STAT. 2315
an area which has high construction, land, and
utility costs relative to area median gross income.
"dD LIMIT ON AREAS DESIGNATED.—The portions
of metropolitan statistical areas which may be des­
ignated for purposes of this subparagraph shall not
exceed an aggr^ate area having 20 percent of the
population of such metropolitan statistical areas. A
comparable rule shall apply to nonmetropolitan
areas,
"(iv) SPECIAL RULES AND DEFINITIONS.—For purposes
of this subparagraph—
"(0 population shall be determined on the basis
of the most recent decennial census for which data
4- are available,
**0J) area median gross income shall be deter­
mined in accordance with subsection (gX4),
"(HD the term 'metropolitan statistical area' has
the same meaning as when used in section
143(kX2)(B),and
"(IV) the term 'nonmetropolitan area' means
any county (or portion thereof) which is not within
a metropolitan statistical area."
(h) CHANGES IN RULES RELATING TO BUILDINGS FOR WHICH CREDIT
MAY BE ALLOWED.—
(1) SINGLE-ROOM OOCUPANCT UNITS RENTED ON A MONTHLY
BASIS.—Subparagraph (B) of section 42(iX3) (relating to low
income unit) is amended by adding at the end thereof the
following new sentence: "For purposes of the preceding sen­
tence, a single-room occupancy unit shall not be treated as used
on a transient basis merely because it is rented on a month-by-
month basis."
(2) SPECIAL NEEDS HOUSING.—Subparagraph (B) of section
42(^2) (relating to gross rent) is amended—
(A) in clause (i), by striking "and" at the end,
(B) in clause (ii), by striking the period at the end and
inserting ", and", and
(Q by adding at the end the following:
"(iii) does not include any fee for a supportive service
which is paid to the owner of the unit (on the basis of
the low-income status of the tenant of the unit) by any
governmental program of assistance (or by an oiganiza-
tion described in section 501(cX3) and exempt from tax
under section 501(a)) if such program (or organization)
provides assistance for rent and the amoimt of assist­
ance provided for rent is not separable from the
amoimt of assistance provided for supportive services.
For purposes of clause (iii), the term 'supportive service'
means any service provided under a planned program of
services designed to enable residents of a residentLed rental
property to remcun independent and avoid placement in a
hospital, nursing home, or intermediate care facility for the
mentally or physically handicapped. In the case of a single-
room occupancy unit or a buildmg described in subsection
(iX3)(BXiii), such term includes any service provided to
assist tenants in locating and retaining permanent
housing." 103 STAT. 2316 PUBLIC LAW 101-239—DEC. 19, 1989
(3) SCATTERED SITE PROJECTTS.—Section 42(g) (relating to quali­
fied low-income housing project) is amended by addmg at the
end thereof the following new paragraph:
"(7) SCATTERED SITE PROJEcrrs.—Buildings which would (but for
their lack of proximity) be treated as a project for purposes of
this section sncdl be so treated if all of the dwelling units in
each of the buildings are rent-restricted (within the meaning of
paragraph (2)) residential rental units."
(4) OWNER-OCCUPIED BUILDINGS HAVING 4 OR FEWER UNFFS
EUGIBLE FOR CREDIT WHERE DEVELOPMENT PLAN.—SeCtion 42(iX3)
(defining low-income unit), as amended by subtitle H, is
amended by adding at the end thereof the following new
subparagraph:
"CE) OWNER-OCCUPIED BUILDINGS HAVING 4 OR FEWER
UNTTS ELIGIBLE FOR CREDTT WHERE DEVELOPMENT PLAN.—
"(i) IN GENERAL.—Subparagraph (C) shall not apply
• "' •. to the acquisition or rehabilitation of a building pursu­
ant to a development plan of action sponsored by a
State or local government or a qualified nonprofit
organization (as defined in subsection (hX5XC)).
(ii) LIMITATION ON CREDCT.—In the case of a building
to which clause (i) applies, the applicable fraction shaU
?-*•<, not exceed 80 percent of the unit fraction.
"(iii) CERTAIN UNRENTED UNITS TREATED AS OWNER-
' -'- •- ^ OCCUPIED.—In the case of a building to which clause (i)
f applies, any unit which is not rented for 90 days or
more shall be treated as occupied by the owner of the
building as of the 1st day it is not rented."
(5) BUILDINGS RECEIVING SECTION 8 MODERATE REHABIUTATION
ASSISTANCE OR SIMILAR ASSISTANCE NOT ELIGIBLE FOR CREDIT.—
Section 42(bXl) (relating to applicable percentage for buildings
placed in service during 1987) is amended by adding at the end
thereof the following new flush sentence:
"A building shall not be treated as described in subparagraph
i (B) if, at any time during the credit period, moderate rehabilita­
tion assistance is provided with respect to such building under
section 8(eX2) of the United States Housing Act of 1937."
(i) APPUCATION OF CREDIT TO TRANSIHONAL HOUSING FOR THE
HOMELESS; DENIAL OF CREDIT FOR SUBSTANDARD HOUSING.—
(1) IN GENERAL.—Subparagraph (B) of section 42(iX3) (defining
low-income unit) is amended to read £is follows:
"(B) EXCEPTIONS.—
"(i) IN GENERAL.—A unit shall not be treated as a
low-income unit unless the unit is suitable for occu­
pancy and used other than on a transient basis.
"(u) SunABiLHY FOR OCCUPANCY.—For purposes of
clause (i), the suitability of a unit for occupancv shall
be determined under regulations prescribed by the Sec­
retary taking into account local health, ssdfety, and
building codes.
"(iii) TuANsmoNAL HOUSING FOR HOMELESS.—For
purposes of clause (i), a unit shall be considered to be
used other than on a transient basis if the unit contains
sleeping accommodations and kitchen and bathroom
faciuties and is located in a building—
"(I) which is used exclusively to facilitate the
transition of homeless individuals (within the PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2317
meaniiig of section 103 of the Stewart B. McKinney
Homeless Assistance Act (42 UJS.C. 11302), as in
efiTect on the date of the enactment of this clause)
to independent living within 24 months, and
''dD in which a governmental entity or qualified
nonprofit organization (as defined in subsection
(hX5)) provides such individuals with temporary
housing and supportive services designed to assist
such individuals in locating and retaining perma­
nent housing.
*'(iv) SiNGLB-HOOM OCCUPANCY UNITS.—For purposes
of dause (i), a single-room occupancy unit shall not be
treated as uised on a transient basis merely because it is
rented on a month-by-month basis."
(2) QUALIFIED BASIS TO INCLUDE POBTION OF BUILDING USED TO
PBOViDE supFOBnvE SERVICES.—^Paragraph (1) of section 42(c) is
amended by adding at the end thereof tiie following new
subparagraph:
''CB) QUALIFIED BASIS TO INCLUDE POBTION OF BUILDING
USED TO PROVIDE SUPPORTIVE SERVICES FOR HOMELESS.—In
the case of a qualified low-income buildii^ described in
subsection (iX3)^Xiii)» the qualified basis of such building
for any taxable year shall be increased by the lesser of—
''(i) so much of the eligible basis of such building as is
used throughout the year to provide supportive services
designed to assist tenants in locating and retaining
permanent housing, or
"(ii) 20 percent of the qualified basis of such building
(determined without r^iurd to this subparagraph)."
(j) VOLUME CAP NOT TO APPLY WHERE 50 PERCENT OR MORE OF
BUILDING Is FINANCED Wrni TAX-EXEMPT BONDS.—Subparagraph
(B) of section 42(hX4) is amended by striking "70 percent" each place
it appears and inserting "50 percent".
(k) BUILDING NOT TUBATED AS FEDERALLY SUBSTOIZED BY REASON
OF COMMUNITY DEVELOPMENT BLOCK GRANT.—Subparagraph (D) of
section 42(iX2) (defining below market Federal loan) is amended by
adding at the end thereof the following new sentence: "Such term
shall not include any loan which would be a below market Federal
loan solely by reason of assistance provided under section 106, 107,
or 108 of the Housing and Conmiunity Development Act of 1974 (as
in efiTect on the date of the enactment of this sentence)."
(D ELIGIBLE BASIS FOR NEW BUILDINGS TO INCLUDE EXPENDITURES
BEFORE C!LO6E OF 1ST YEAR OF CREDIT PERIOD.—
(1) NEW BUILDINGS.—Paragraph (1) of section 42(d) (relating to
eligible basis for new buildings) is amended by inserting berore
the period "as of the close of the 1st taxable year of the credit
period".
(2) EXISTING BUILDINGS.—Subparagraph (A) of section 42(dX2)
(relating to eligible basis for existing buildings) is amended by
striking "subparagraph (B)" and all that follows through the
end of clause (i) and inserting "subparagraph (B), its adjusted
basis as of the close of the 1st taxable year of the credit period,
and".
(3) CONFORMING AMENDMENTS.—
(A) Subparagraph (CD of section 42(dX2) is amended by
striking "ACQUISITION COST" in the heading and inserting 103 STAT. 2318 PUBLIC LAW 101-239—DEC. 19, 1989
, i- "ADJUSTED BASIS" and by striking "cost" in the text and
^ inserting "adjusted basis .
,-i , (B) Paragraph (5) of section 42(d), as amended by subsec­
tion (g), is further amended by striking subparagraph (A),
by redesignating subparagraphs (B), (C), and (D) as subpara­
graphs (A), (B), and (C), respectively, and by striking the
parsigraph heading and inserting the following:
"(5) SPECIAL RULES FOR DETERMINING EUGIBLE BASIS.—".
•m-T (C) Paragraph (5) of section 42(e) is amended by striking
"subsection (dX2)(AXiXII)" and inserting "subsection
(dX2XAXi)".
(m) HOUSING CREDIT MAY BE ALLOCATED ON PROJECT BASIS.—
(1) IN GENERAL.—Section 42(hXl) (relating to credit may not
exceed credit amount allocated to building) is amended by
adding at the end thereof the following new subparagraph:
"(F) ALLOCATION OF CREDIT ON A PROJECT BASIS.—
"(i) IN GENERAL.—In the case of a project which
includes (or will include) more than 1 building, an
, t allocation meets the requirements of this subparagraph
, . "(I) the allocation is made to the project for a
1^ calendar year during the project period,
. ." .. "(II) the allocation only applies to buildings
,.J5 ." placed in service during or after the calendar year
* ^ , for which the allocation is made, and
"(III) the portion of such allocation which is
allocated to any building in such project is speci­
fied not later than the close of the calendar year in
which the building is placed in service,
"(ii) PROJECT PERIOD.—For purposes of clause (i), the
term 'project period' means the period—
"(I) beginning with the 1st calendar year for
which an allocation may be made for the 1st build­
ing placed in service as part of such project, and
"(II) ending with the calendar year the last
… building is placed in service as part of such
project.'
(2) CONFORMING AMENDMENT.—Subparagraph (B) of section
42(hXl) is amended by striking "or (E)" and inserting "(E), or
(F)".
(8) PROJECTS WITH MORE THAN i BUILDING MUST BE IDENTI­
FIED.—Section 42(gX3) (relating to date for meeting require­
ments) is amended by adding at the end thereof the following
new subparagraph:
"(D) RlOJECTS WITH MORE THAN 1 BUILDING MUST BE
IDENTIFIED.—For purposes of this section, a project shall be
treated as consisting of only 1 building unless, before the
close of the 1st calendar year in the project period (as
defined in subsection (hXlXFXii)), each building which is (or
will be) part of such project is identified in such form and
manner as the Secretary may provide."
(n) CHANGES IN RULES RELATED TO DEEP RENT SKEWED PROJECTS.—
(1) Clause (iii) of section 142(dX4XB) (relating to deep rent
skewed project) is amended by striking "Vb" and inserting "V2".
(2) Section 42(gX4) (relating to certain rules made applicable)
is amended by striking "(other than section 142(dX4XBXiii))". PUBLIC LAW 101-239—DEC. 19,1989 103 STAT. 2319
(o) INCREASED RESPONSIBILITIES FOR HOUSING CREDIT AGENCIES.—
Section 42 is amended by redesignating subsections (m) and (n) as
subsections (n) and (o), respectively, and by inserting after subsec­
tion (1) the following new subsection:
"(m) RESPONSIBILITIES OF HOUSING CREDIT AGENCIES.—
"(1) PLANS FOR ALLOCATION OF CREDIT AMONG PROJECTS.—
"(A) IN GENERAL.—Notwithstanding any other provision
of this section, the housing credit dollar amount with re­
spect to any building shall be zero unless—
"(i) such amount was allocated pursuant to a quali­
fied allocation plan of the housing credit agency which
is approved by the governmental unit (in accordance
with rules similar to the rules of section 147(fK2) (other
than subparagraph (BXii) thereof)) of which such
agency is a part, and
"(ii) such agency notifies the chief executive officer
(or the equivalent) of the local jurisdiction within
which the building is located of such project and pro­
vides such individual a reasonable opportunity to com­
ment on the project.
"(B) QUALIFIED ALLOCATION PLAN.—For purposes of this
paragraph, the term 'qualified allocation plan' means any
plan—
"(i) which sets forth selection criteria to be used to
determine housing priorities of the housing credit
agency which are appropriate to local conditions,
"(ii) which gives the highest priority to those projects
as to which the highest percentage of the housing
credit dollar amount is to be used for project costs other
than the cost of intermediaries unless granting such
priority would impede the development of projects in
hard-to-develop areas,
"(iii) which also gives preference in allocating hous­
ing credit dollar amounts among selected projects to—
"(I) projects serving the lowest income tenants,
and
"(II) projects obligated to serve qualified tenants
.'. for the longest periods, and
"(iv) which provides a procedure that the agency will
follow in notifying the Internal Revenue Service of
noncompliance with the provisions of this section
which such agency becomes aware of.
"(C) CERTAIN SELECTION CRITERIA MUST BE USED.—The
selection criteria set forth in a qualified allocation plan
must include—
"(i) project location,
"(ii) housing needs characteristics,
"(iii) project characteristics,
"(iv) sponsor characteristics,
"(v) participation of loccJ tax-exempt organizations,
"(vi) tenant populations with special housing needs,
and
"(vii) public housing waiting lists.
"(D) APPUCATION TO BOND FINANCED PROJECTS.—Subsec­
tion (hX4) shall not apply to any project unless the project
satisfies the requirements for allocation of a housing credit 103 STAT. 2320 PUBLIC LAW 101-239—DEC. 19, 1989
dollar amount under the qualified allocation plan ap­
plicable to the area in which the project is located.
"(2) CREDIT ALLOCATED TO BUILDING NOT TO EXCEED AMOUNT
NECESSARY TO ASSURE PROJECT FEASIBILITY.—
"(A) IN GENERAL.—The housing credit dollar amount allo­
cated to a project shall not exceed the amount the housing
,, , credit sigency determines is necessary for the financial
j' feasibility of the project £uid its viability as a qualified low-
income housing project throughout the credit period.
"(B) AGENCY EVALUATION.—In making the determination
1- under subparagraph (A), the housing credit agency shall
consider—
"(i) the sources and uses of funds and the total
financing planned for the project, and
"(ii) any proceeds or receipts expected to be gen­
erated by reason of tax benefits.
Such a determination shall not be construed to be a rep­
resentation or warranty as to the feasibility or viability of
the project.
"(C) DETERMINATION MADE WHEN CREDIT AMOUNT APPUED
FOR AND WHEN BUILDING PLACED IN SERVICE.—
"(i) IN GENERAL.—A determination under subpara­
graph (A) shall be made as of each of the following
times:
"(I) The application for the housing credit dollar
4 amount.
"(II) The allocation of the housing credit dollar
•^^ amount.
* "(III) The date the building is placed in service,
"(ii) CERTIFICATION AS TO AMOUNT OF OTHER SUB­
SIDIES.—Prior to each determination under clause (i),
the taxpayer shall certify to the housing credit agency
the full extent of all Federal, State, and local subsidies
• " "» which apply (or which the taxpayer expects to apply)
with respect to the building.
"(D) APPLICATION TO BOND FINANCED PROJECTS.—Subsec­
tion (hX4) shall not apply to any project unless the govern­
mental unit which issued the bonds (or on behalf of which
the bonds were issued) makes a determination under rules
similar to the rules of subparagraphs (A) and (B)."
(o) APPUCATION OF AT-RISK RULES WITH RESPECT TO CERTAIN
FINANCING PROVIDED BY QUAUFIED NONPROFIT ORGANIZATIONS.—
Subparagraph (D) of section 42(kX2) (relating to application of at-
risk rules) is amended by adding at the end thereof the following
new flush sentence:
"In the case of a qualified nonprofit organization which is
not described in section 46(cX8XDXivXII) with respect to a
building, clause (ii) of this subparagraph shall be applied as
if the date described therein were the 90th day after the
earlier of the date the building ceases to be a qualified low-
income building or the date which is 15 years after the close
of a compliance period with respect thereto."
(p) TIME FOR (CERTIFICATION.—Section 42(1X1) (relating to certifi­
cation with respect to 1st year of credit period) is amended—
(1) by striking "Not later than the 90th day following" and
inserting "Following", and
(2) by inserting at such time and" before "in such form". PUBLIC LAW 101-239—DEC. 19,1989 103 STAT. 2321
(q) IBIPACT OF TENANT'S RIGHT OF 1ST REFUSAL TO ACQUIRE PROP-
EBTY.—Subsection (i) of section 42 is amended by adding at the end
thereof the following new paragraph:
"(8) IMPACT OF TENANT'S RIGHT OF 1ST REFUSAL TO ACQUIRE
PROPERTY.—
"(A) IN GENERAL.—No Federal income tax benefit shall
i fail to be aUowable to the taxpayer with respect to any
qualified low-income building merely by reason of a right of
1st refusal held by the tenants of such building to purchase
the property after the close of the compliance period for a
price which is not less than the minimum purchase price
determined under subparagraph (B).
"(B) MINIMUM PURCHASE PRICE.—For purposes of subpara­
graph (A), the minimum purchase price under this subpara­
graph is an amount equal to the sum of—
"(i) the principal amount of outstanding indebtedness
secured by the building (other than indebtedness in­
curred within the 5-year period ending on the date of
– / the sale to the tenants), and
"(ii) all Federal, State, and local taxes attributable to
such sale.
Except in the case of Federal income taxes, there shall not
be taken into account under clause (ii) any additional tax
attributable to the application of clause (ii).
(r) EFFECTIVE DATES.— 26 use 42 note.
(1) IN GENERAL.—Except as otherwise provided in this subsec­
tion, the amendments made by this section shall apply to
determinations under section 42 of the Internal Revenue (I!ode
of 1986 with respect to housing credit dollar amoimts allocated
from State housing credit ceilings for calendar years after 1989.
(2) BUILDINGS NOT SUBJECT TO ALLOCATION UMITS.—Except as
otherwise provided in this subsection, to the extent paragraph
(1) of section 42(h) of such Code does not apply to any buBding
by reason of paragraph (4) thereof, the amendments made by
this section shall apply to buildings placed in service after
December 31,1989.
(3) ONE-YEAR CARRYOVER OF UNUSED CREDIT AUTHORITY, ETC.—
The amendments made by subsection (b) shall apply to calendar
years after 1989, but clauses (ii), (iii), and (iv) of section
42(hX3XC) of such Code (as added by this section) shall be
applied without r^ard to allocations for 1989 or any preceding
year.
(4) ADDITIONAL BUILDINGS EUGIBLE FOR WAIVER OF IO-YEAR
RULE.—^The amendments made by subsection (f) shall take effect
on the date of the enactment of this Act.
(5) CERTIFICATIONS WITH RESPECT TO IST YEAR OF CREDIT
PERIOD.—The amendment made by sul^ection (p) shall apply to
taxable years ending on or after December 31,1989.
(6) CERTAIN RULES WHICH APPLY TO BONDS.—Paragraphs (1)(D)
and (2)(D) of section 42(m) of such Code, as added by this section,
shall apply to obligations issued December 31,1989.
(7) CLARIFICATIONS.—^The amendments made by the following
provisions of this section shall apply as if included in the
amendments made by section 252 of the Tax Reform Act of
1986:
(A) Paragraph (1) of subsection (h) (relating to units
rented on a monthly basis). 103 STAT. 2322 PUBLIC LAW 101-239—DEC. 19, 1989
(B) Subsection (1) (relating to eligible basis for new build­
ings to include expenditures before close of 1st year of
credit period).
3 (8) GUIDANCE ON DIFFICULT DEVELOPMENT AREAS AND POSTING
OF BOND TO AVOID RECAPTURE.—Not later than 180 days after the
date of the enactment of this Act—
(A) the Secretary of Housing and Urban Development
i shall publish initirn guidance on the designation of d^cult
development areas under section 42(dX5XC) of such Code, as
added by this section, and
* (B) the Secretary of the Treasury shall publish initial
guidance under section 42(jX6) of such Code (relating to no
''" recapture on disposition of building (or interest therein)
where bond posted).
SEC. 7109. LOW-INCOME HOUSING CREDIT EXEMPT FROM INCOME
PHASE-OUT OF $25,000 EXEMPTION FROM PASSIVE LOSS
RULES.
(a) IN GENERAL.—Paragraph (3) of section 469(i) (relating to phase-
out of exemption) is amended by redesignating subparagraph (D) as
subparagraph (E) and by striking subparagraphs (B) and (C) and
inserting the following new subparagraphs:
"(B) SPECIAL PHASE-OUT OF REHABILITATION CREDIT.—In
the case of any portion of the passive activity credit for any
taxable year which is attributable to the rehabilitation
investment credit (within the meaning of section 48(o)),
subparagraph (A) shall be applied by substituting '$200,000'
for ^$100,000'.
"(C) EXCEPTION FOR LOW-INCOME HOUSING CREDIT.—
Subparagraph (A) sh^l not apply to any portion of the
passive activity credit for any taxable year which is attrib­
utable to any credit determined under section 42.
"(D) ORDERING RULES TO REFLECT EXCEPTION AND SEPA­
RATE PHASE-OUT.—If subparagraph (B) or (C) applies for any
taxable year, par£igraph(l) shall be applied—
"(i) first to the passive activity loss,
"(ii) second to the portion of the passive activity
credit to which subparagraph (B) or (C) does not apply,
"(iii) third to the portion of such credit to which
subparagraph (B) applies, and
"(iv) then to the portion of such credit to which
subparagraph (C) applies."
26 use 469 note. (b) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in paragraph (2), the
amendments made by this section shall apply to property placed
in service after December 31,1989, in taxable years endmg after
such date.
(2) SPECIAL RULE WHERE INTEREST HELD IN PASS-THRU ENTITY.—
In the case of a taxpayer who holds an indirect interest in
property described in paragraph (1), the amendments made by
this section shall apply only if such interest is acquired after
December 31,1989.
SEC. 7110. EXTENSION AND MODIFICATION OF RESEARCH CREDIT.
(a) EXTENSION.—
(1) IN GENERAL.—Subsection (h) of section 41 (relating to
termination), as redesignated by subtitle H, is amended— PUBLIC LAW 101-239—DEC. 19,1989 103 STAT. 2323
(A) by striking "December 31,1989" each place it appears
and inserting "December 31,1990", and
(B) by striking "January 1, 1990" each place it appears
and inserting "January 1,1991".
(2) SPECIAL RULES.— 26 use 4i note.
(A) In the case of any taxable year which b^ins before
October 1, 1990, and ends after September 30, 1990, the
amount treated as the qualified research expenses for such
taxable year for purposes of section 41 of the Internal
Revenue Code of 1986 shall be the amount which bears the
same ratio to the amount which would have been deter­
mined for such taxable year without r^ard to this subpara­
graph as the number of days in such taxable year before
October 1, 1990, bears to the total number of days in such
taxable year before January 1,1991.
(B) In the case of a taxable year described in subpara- ^^
graph (A), paragraph (2) of section 41(h) of such Code, as so
redesignated, shall be applied by substituting "October 1,
1990" for "January 1, 1991" each place it appears and by
substituting "September 30,1990" for "December 31,1990'
(3) CONFORMING AMENDMENT.—Subparagraph (D) of section
28(bXl) is amended by striking "December 31,1989" and insert­
ing "December 31,1990".
(b) CHANGES IN COMPUTATION OF INCREMENTAL CREDIT.—
(1) IN GENERAL.—Subsection (c) of section 41 is amended to
read as follows:
"(c) BASE AMOUNT.—
"(1) IN GENERAL.—The term 'base amount' means the product
of—
"(A) the fixed-base percentage, and
"(B) the average annual gross receipts of the taxpayer for
the 4 taxable years preceding the taxable year for which
the credit is being determined (hereinafter in this subsec­
tion referred to as the 'credit year').
"(2) MINIMUM BASE AMOUNT.—^In no event shall the base
amount be less than 50 percent of the qualified research ex­
penses for the credit year.
"(3) FIXED-BASE PERCENTAGE.—
"(A) IN GENERAL.—Except as otherwise provided in this
paragraph, the fixed-base percentage is the percentage
which the aggregate qusdined research expenses of the
taxpayer for taxable years beginning after December 31,
1983, and before January 1, 1989, is of the aggregate gross
receipts of the taxpayer for such taxable years.
"(B) START-UP COMPANIES.—
"(i) TAXPAYERS TO WHICH SUBPARAGRAPH APPLIES.—
The fixed-base percentage shall be determined under
this subparagraph if there are fewer than 3 taxable
years beginning after December 31, 1983, and before
January 1, 1989, in which the taxpayer had both gross
receipts and qualified research escpenses.
"(ii) FIXED-BASE PERCENTAGE.—In a case to which this
subparagraph appUes, the fixed-base percentage is 3
percent.
"(iii) TREATMENT OF DE MiNnas AMOUNTS OF GROSS
RECEIPTS AND QUALIFIED RESEARCH EXPENSES.—The Sec­
retary may prescribe regulations providing that de 103 STAT. 2324 PUBLIC LAW 101-239—DEC. 19, 1989
•J minimis amounts of gross receipts and qualified re­
search expenses shall be disregarded under clause (i).
"(C) MAXIMUM FIXED-BASE PERCENTAGE.—In no event
shall the fixed-base percentage exceed 16 percent.
"(D) ROUNDING.—The percentages determined under
subparagraph (A) shall be rounded to the nearest 1/100th of
1 percent.
"(4) CONSISTENT TREATMENT OF EXPENSES REQUIRED.—
"(A) IN GENERAL.—Notwithstanding whether the period
for filing a claim for credit or refund h£is expired for any
taxable year taken into account in determining the fixed-
base percentage, the qualified research expenses taken into
account in computing such percentage shall be determined
on a bgisis consistent with the determination of qualified
research expenses for the credit year.
^ "(B) PREVENTION OF DISTORTIONS.—The Secretary may
prescribe regulations to prevent distortions in calculating a
taxpayer's qualified research expenses or gross receipts
caused by a change in accounting methods used by such
taxpayer between the current year and a year taken into
account in computing such taxpayer's fixed-base percent­
age.
"(5) GROSS RECEIPTS.—For purposes of this subsection, gross
receipts for any taxable year shall be reduced by returns and
allowances made during the taxable year. In the case of a
foreign corporation, there shall be taken into account only gross
receipts which are effectively connected with the conduct of a
trade or business within the United States."
(2) CONFORMING AMENDMENTS.—
(A) Subparagraph (B) of section 41(aXl) is amended to
read as follows:
"(B) the base amount, and".
(B) Clause (ii) of section 41(eX7XC) is amended by striking
"base period research expenses" and inserting "base
* amount .
(C) Paragraph (1) of section 41(f) (relating to aggregation
of expenditures) is amended by striking "proportionate
share of the increase in qualified research expenses" each
place it appears and inserting "proportionate shares of the
' qualified research expenses and basic research payments".
(D) Subparagraph (A) of section 41(fX3) is amended—
(i) by striking "June 30,1980" and inserting "Decem­
ber 31,1983", and
(ii) by inserting before the period ", and the gross
receipts of the taxpayer for such periods shall be in­
creased by so much of the gross receipts of such prede­
cessor with respect to the acquired trade or business as
is attributable to such portion".
(E) Subparagraph (B) of section 41(fX3) is amended—
(i) by striking "June 30, 1980" and inserting "Decem­
ber 31,1983", and
(ii) by inserting before the period ", and the gross
receipts of the taxpayer for such periods shall be de­
creased by so much of the gross receipts as is attrib­
utable to such portion".
(FXi) Subparagraph (C) of section 41(fX3) is amended by
striking "for the base period" and all that follows and PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2325
inserting "for the taxable years taken into account in
computing the fixed-base percentage shall be increased by
the lesser of—
"(i) the amount of the decresise under subparagraph
* * (B) which is allocable to taxable years so taken into
account, or
"(ii) the product of the number of taxable years so
taken into account, multiplied by the amount of the
reimbursement described in this subparagraph."
(ii) The heading for such subparagraph (C) is amended to
read as follows:
"(C) CERTAIN REIMBURSEMENTS TAKEN INTO ACCOUNT IN
DETERMINING FIXED-BASE PERCENTAGE.—".
(G) Par£igraph (4) of section 41(f) is amended by inserting
"and gross receipts" after "qualified research expenses'.
(H) Paragraph (2) of section 41(h), as redesignated by
subtitle H, is amended—
(i) by striking "BASE PERIOD EXPENSES" in the heading
and inserting "BASE AMOUNT", and
(ii) by striking "any amount for any base period" and
all that follows through "such base period" and insert­
ing "the base amount with respect to such taxable year
shall be the amount which bears the same ratio to the
base gunount for such year (determined without regard
to this paragraph)".
(b) TRADE OR BUSINESS REQUIREMENT DISREGARDED FOR IN-HOUSE
RESEARCH EXPENSES OF CERTAIN STARTUP VENTURES.—Subsection (b)
of section 41 (defining qualified research expenses) is amended by
adding at the end thereof the following new paragraph:
"(4) TRADE OR BUSINESS REQUIREMENT DISREGARDED FOR IN-
HOUSE RESEARCH EXPENSES OF CERTAIN STARTUP VENTURES.—In
the case of in-house research expenses, a taxpayer shall be
treated £is meeting the trade or business requirement of para­
graph (1) if, at the time such in-house research expenses are
paid or incurred, the principal purpose of the taxpayer in
making such expenditures is to use the results of the research
in the active conduct of a future trade or business—
"(A) of the taxpayer, or
"(B) of 1 or more other persons who with the taxpayer are
treated as a single taxpayer under subsection (fXD."
(c) FULL DISALLOWANCE OF DEDUCTION FOR QUAUFIED RESEARCH
EXPENSES.—
(1) Subsection (c) of section 280C, as amended by subtitle H, is
further amended by striking "50 percent of each place it
appears.
(2) Paragraph (2) of section 196(d) is amended by inserting
before the period "for a taxable year beginning before January
1,1990".
(d) ONLY REASONABLE RESEARCH EXPENDITURES EUGIBLE FOR SEC­
TION 174.—Section 174 is amended by redesignating subsection (e) as
subsection (0 and by inserting after subsection (d) the following new
subsection:
"(e) ONLY REASONABLE RESEARCH EXPENDITURES EUGIBLE.—This
section shall apply to a research or experimental expenditure only
to the extent that the amount thereof is reasonable under the
circumstances." 103 STAT. 2326 PUBLIC LAW 101-239—DEC. 19, 1989 –
26 use 41 note. (e) EFFECTIVE DATE.—^The amendments made by this section
(other than subsection (a)) shall apply to taxable years beginning
after December 31,1989.
SEC. 7111. ALLOCATION OF RESEARCH AND EXPERIMENTAL EXPENDI-
TURES.
Section 864 (relating to definitions and special rule) is amended by
adding at the end thereof the following new subsection:
"(f) ALLOCATION OF RESEARCH AND EXPERIMENTAL EXPENDI­
TURES.—
"(1) IN GENERAL.—For purposes of sections 861(b), 862(b), and
863(b), qualified research and experimental expenditures shall
be allocated and apportioned as follows:
"(A) Any qualified research and experimental expendi­
tures expended solely to meet legal requirements imposed
^ by a political entity with respect to the improvement or
marketing of specific products or processes for purposes not
4 • reasonably expected to generate gross income (beyond de
minimis amounts) outside the jurisdiction of the political
entity shall be allocated only to gross income from sources
within such jurisdiction.
"(B) In the case of any qualified research and experi­
mental expenditures (not allocated under subparagraph (A))
to the extent—
"(i) that such expenditures are attributable to activi­
ties conducted in the United States, 64 percent of such
expenditures shall be allocated and apportioned to
income from sources within the United States and
deducted from such income in determining the amount
of taxable income from sources within the United
States, and
"(ii) that such expenditures are attributable to activi­
ties conducted outside the United States, 64 percent of
. , such expenditures shall be allocated and apportioned to
income from sources outside the United States and
deducted from such income in determining the amount
of taxable income from sources outside the United
States.
"(C) The remaining portion of qualified research and
experimental expenditures (not allocated under subpara­
graphs (A) and (B)) shall be apportioned, at the annual
election of the taxpayer, on the oasis of gross sales or gross
, income, except that, if the taxpayer elects to apportion on
the basis of gross income, the amount apportioned to
income from sources outside the United States shall at least
be 30 percent of the amount which would be so apportioned
on the basis of gross sales.
"(2) QUALIFIED RESEARCH AND EXPERIMENTAL EXPENDITURES.—
For purposes of this section, the term 'qualified research and
experimental expenditures' means amounts which are research
and experimental expenditures within the meaning of section
174. For purposes of this paragraph, rules similar to the rules of
subsection (c) of section 174 shall apply. Any qualified research
and experimental expenditures treated as deferred expenses
under subsection (b) of section 174 shall be taken into account
under this subsection for the taxable year for which such
expenditures are allowed as a deduction under such subsection. PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2327
"(3) SPECIAL RULES FOR EXPENDITURES ATTRIBUTABLE TO ACTIVI­
TIES CONDUCTED IN SPACE, ETC.—
"(A) IN GENERAL.—Any qualified research and experi­
mental expenditures described in subparagraph (B)—
"(i) if incurred by a United States person, shall be
allocated and apportioned under this section in the
same manner as if they were attributable to activities
conducted in the United States, and
"(ii) if incurred by a person other than a United
States person, shall be allocated and apportioned under
this section in the same manner as if they were attrib­
utable to activities conducted outside the United
States.
"(B) DESCRIPTION OF EXPENDITURES.—For purposes of
subparagraph (A), qualified research and experimental
expenditures are described in this subparagraph if such
expenditures are attributable to activities conducted—
'(i) in space,
"(ii) on or under water not within the jurisdiction (as
recognized by the United States) of a foreign country,
possession of the United States, or the United States, or
"(iii) in Antarctica.
"(4) AFFIUATED GROUP.—
"(A) Except as provided in subparagraph (B), the alloca­
tion and apportionment required by paragraph (1) shall be
determined as if all members of the affiliated group (as
defined in subsection (eX5)) were a single corporation.
"(B) For purposes of the allocation and apportionment
required by paragraph (1)—
"(i) sales and gross income from products produced in
whole or in part in a possession by an electing corpora­
tion (within the meaning of section 936(hX5XE)), and
"(ii) dividends from an electing corporation, 1^
shall not be taken into account, except that this subpara­
graph shall not apply to sales of (and gross income and
dividends attributable to sales of) products with respect to
which an election under section 936(hX5XF) is not in effect.
"(C) The qualified research and experimental expendi­
tures taken into account for purposes of paragraph (1) shall
be adjusted to reflect the amount of such expenditures
included in computing the cost-sharing amount (determined
under section 936(hX5XCXiXI)).
"(D) The Secretary may prescribe such regulations as
may be necessary to carry out the purposes of this para­
graph, including regulations providing for the source of
gross income and the allocation and apportionment of
deductions to take into account the adjustments required by
subparagraph (C).
"(E) Paragraph (6) of subsection (e) shall not apply to
qualified research and experimental expenditures.
"(5) YEAR TO WHICH RULE APPUES.—
"(A) IN GENERAL.—Except as provided in this paragraph,
this subsection shall apply to the taxpayer's first taxable
year beginning after August 1, 1989, and before August 2,
1990.
"(B) REDUCTION.—Notwithstanding subparagraph (A)
this subsection shall only apply to that portion of the
103 STAT. 2328 PUBLIC LAW 101-239—DEC. 19, 1989
qualified research and experimental expenditures for the
taxable year referred to in subparagraph (A) which bears
the same ratio to the total amount of such expenditures
as—
"(i) the lesser of 9 months or the number of months
in the taxable year, bears to
"(ii) the number of months in the taxable year."
Securities. Subtitle B—Corporate Provisions
SEC. 7201. UMITATION ON USE OF GROUP LOSSES TO OFFSET INCOME OF
SUBSIDIARY PAYING PREFERRED DIVIDENDS.
(a) GENERAL RULE.—Section 1503 (relating to computation and
payment of tax) is amended by adding at the end thereof the
following new subsection:
"(f) LnoTATiON ON USE OF GROUP LOSSES TO OFFSET INCOME OF
SuBsmiARY PAYING PREFERRED DIVIDENDS.—
"(1) IN GENERAL.—In the case of any subsidiary distributing
,,. during any taxable year dividends on any applicable preferred
stock—
"(A) no group loss item shall be allowed to reduce the
^ disqualified separately computed income of such subsidiary
for such taxable year, and
"(B) no group credit item shall be allowed against the tax
imposed by this chapter on such disqualified separately
computed income.
"(2) GROUP ITEMS.—For purposes of this subsection—
"(A) GROUP LOSS ITEM.—TTie term 'group loss item' means
any of the following items of any other member of the
affiliated group which includes the subsidiary:
"(i) Any net operating loss and any net operating loss
carryover or carryback under section 172.
"(li) Any loss from the sale or exchange of any capital
asset and any capital loss carryover or carryback under
section 1212.
"(B) GROUP CREDIT ITEM.—The term jgroup credit item'
means any credit allowable under part IV of subchapter A
of chapter 1 (other than section 34) to any other member of
the affiliated group which includes the subsidiary and any
carryover or carryback of any such credit.
, "(3) OTHER DEFINITIONS.—For purposes of this subsection—
"(A) DISQUALIFIED SEPARATELY COMPUTED INCOME.—^The
term 'disqualified separately computed income' means the
portion of the separately computed taxable income of the
subsidiary which does not exceed the dividends distributed
by the subsidiary during the taxable year on applicable
« preferred stock.
"(B) SEPARATELY COMPUTED TAXABLE iNOOiifE.-The term
'separately computed taxable income' means the separate
taxable income of the subsidiary for the taxable year deter­
mined—
"(i) by taking into account gains and losses from the
sale or exchiuoge of a capital asset and section 1231
gains and losses,
"(ii) without r^ard to any net operating loss or
capital loss carryover or carryback, and PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2329
– "(iii) with such adjustments as the Secretary may
prescribe.
"(C) SUBSIDIARY.—The term 'subsidiary* means any cor­
poration which is a member of an affiliated group filing a
consolidated return other than the common parent.
"(D) APPUCABLE PREFERRED STOCK.—^The term 'applicable
preferred stock' means stock described in section 1504(aX4)
in the subsidiary which is—
"(i) issued after November 17,1989, and
"(ii) held by a person other than a member of the
same affiliated group as the subsidiary.
"(4) REGULATIONS.—The Secretary shall prescribe such regu­
lations as may be necessary or appropriate to carry out the
provisions of this subsection, including regulations—
"(A) to prevent the avoidance of this subsection through
the transfer of built-in losses to the subsidiary,
"(B) to provide rules for cases in which the subsidiary
owns (directly or indirectly) stock in another member of the
affiliated group, and
"(C) to provide for the application of this subsection
where dividends are not paid currently, where the redemp­
tion and liquidation righte of the applicable preferred stock
exceed the issue price for such stocky or where the stock is
otherwise structured to avoid the purposes of this subsec­
tion."
(b) EFFECTIVE DATES.— 26 use 1503
(1) IN GENERAL.—The amendment made by this section shall note.
apply to taxable years ending after November 17,1989.
(2) BINDING CONTRACT EXCEPTION.—For purposes of section
1503(fK3XD) of the Internal Revenue Code of 1986, stock issued
after November 17,1989, pursuant to a written binding contract
in effect on November 17, 1989, and at all times thereafter
before such issuance, shall be treated as issued on November 17,
1989.
(3) SPECIAL RULE WHEN SUBSIDIARY LEAVES GROUP.—If, by
reason of a transaction after November 17, 1989, a corporation
ceases to be, or becomes, a member of an affiliated group, the
stock of such corporation shall be treated, for purposes of
section 1503(fX3XD) of such Code, as issued on the date of such
cessation or commencement, unless such transaction is of a kind
which would not result in the recognition of any deferred
intercompany gain under the consolidated return regulations by
reason of the acquisition of the entire group.
(4) RETIRED STOCK.—
(A) Except as provided in subparagraph (B), if stock
issued before November 18,1989, (or described in paragraph
(2)), is retired or acquired after November 17, 1989, by the
corporation or another member of the same affiliated
group, such stock shall be treated, for purposes of section
1503(fX3XD) of such Code, as issued on the date of such
retirement or acquisition.
(B) Subparagraph (A) shall not apply to any retirement or
acquisition pursuant to an obligation to reissue under a
binding written contract in effect on November 17, 1989, .
and at all times thereafter before such retirement or ac­
quisition. 103 STAT. 2330 PUBLIC LAW 101-239—DEC. 19, 1989
(5) AUCTION RATE PREFERRED.—For purposes of section
1503(fX3XD) of such Code, auction rate preferred stock shall be
treated as issued when the contract requiring the auction
became binding.
(6) SPECIAL RULE FOR CERTAIN AUCTION RATE PREFERRED.—For
{ ^ purposes of section 1503(fK3XD) of the Internal Revenue Code of
1986, any auction rate preferred stock shall be treated as issued
before November 18,1989, if—
(A) a subsidiary was incorporated before July 10,1989 for
the si>ecial purpose of issuing such stock,
(B) a rating agency was retcdned before July 10,1989, £ind
(C) such stock is issued before the date 30 days after the
date of the enactment of this Act.
SEC. 7202. TREATMENT OF CERTAIN HIGH YIELD ORIGINAL ISSUE DIS-
COUNT OBLIGATIONS.
(a) GENERAL RULE.—Subsection (e) of section 163 (relating to
interest deductions on original issue discount obligations) is
amended by redesignating paragraph (5) as paragraph (6) and by
inserting after paragraph (4) the following new paragraph:
"(5) SPECIAL RULES FOR ORIGINAL ISSUE DISCOUNT ON CERTAIN
HIGH YIELD OBUGATIONS.—
"(A) IN GENERAL.—In the case of an applicable high yield
discount obligation issued by a corporation—
"(i) no deduction shall be allowed under this chapter
for the disqualified portion of the original issue dis­
count on such obligation, and
"(ii) the remainder of such original issue discount
shall not be allowable as a deduction until paid.
For purposes of clause (ii), rules similar to the rules of
subsection (iX3XB) shall apply in determining the time
when the original issue discount is paid.
"(B) DiSQUAUFIED PORTION TREATED AS STOCK DISTRIBU­
TION FOR PURPOSES OF DIVIDEND RECEIVED DEDUCTION.—
"(i) IN GENERAL.—Solely for purposes of sections 243,
' 245, 246, and 246A, the dividend equivalent portion of
^^* any amount includible in gross income of a corporation
under section 1272(a) in respect of an applicable high
yield discount obligation shsdl be treated as a dividend
received by such corporation from the corporation issu­
ing such obligation.
(ii) DIVIDEND EQUIVALENT PORTION.—For purposes of
clause (i), the dividend equivalent portion of any
amount includible in gross income under section
1272(a) in respect of an applicable high yield discount
obligation is the portion of the amount so includible—
"(I) which is attributeble to the disqualified por-
^ tion of the original issue discount on such obliga-
'•''' tion, and
"(II) which would have been treated as a divi­
dend if it had been a distribution made by the
issuing corporation with respect to stock in such
corporation.
"(C) DISQUALIFIED PORTION.—
"(i) IN GENERAL.—For purposes of this parc^aph, the
disqualified portion of the original issue discount on PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2331
any applicable high yield discount obligation is the
lesser of—
"(I) the amount of such original issue discount,
or
"(II) the portion of the total return on such
obligation which bears the same ratio to such total ^
return as the disqualified jdeld on such obligation
bears to the jdeld to maturity on such obligation,
"(ii) DEFINITIONS,—For purposes of clause (i), the
term 'disqualified yield' means the excess of the yield
to maturity on the obligation over the sum referred to
subsection (iXlXB) plus 1 percentage point, and the
term 'total return' is the amount which would have
^ _ been the original issue discount on the obligation if
interest described in the parenthetical in section
1273(aX2) were included in the stated redemption price
at maturity.
"(D) EXCEPTION FOR S CORPORATIONS.—This paragraph
shall not apply to any obligation issued by any corporation
for any period for which such corporation is an S corpora­
tion.
"(E) EFFECT ON EARNINGS AND PROFITS.—This paragraph
shall not apply for purposes of determining earnings and ^
profits; except that, for purposes of determining the divi­
dend equivalent portion of any amount includible in gross
income under section 1272(a) in respect of an applicable
high yield discount obligation, no reduction shall be made
for any amount attributable to the disqualified portion of
any original issue discount on such obligation.
"(F) CROSS REFERENCE.—
"For deflnition of applicable high yield discount obligation, see subsec­
tion (i)."
(b) APPUCABLE HIGH YIELD DISCOUNT OBUGATION.—Section 163 is
amended by redesignating subsection (i) as subsection 0') and by
inserting after subsection (h) the following new subsection:
"(i) APPUCABLE HIGH YIELD DISCOUNT OBUGATION.—
"(1) IN GENERAL.—For purposes of this section, the term
'applicable high yield discount obligation' means any debt in­
strument if—
"(A) the maturity date of such instrument is more than 5
years from the date of issue,
"(B) the )deld to maturity on such instrument equals or
exceeds the sum of—
"(i) the applicable Federal rate in effect under sec­
tion 1274(d) for the calendar month in which the obliga­
tion is issued, plus
"(ii) 5 percentage points, and
"(C) such instrument has significant original issue dis­
count.
For purposes of subparagraph (BXi), the Secretary may by
regulation permit a rate to be used with respect to any debt
instrument which is higher than the applicable Federal rate if
the taxpayer establishes to the satisfaction of the Secretary that
such higher rate is based on the same principles as the ap­
plicable Federal rate and is appropriate for the term of the
instrument. 103 STAT. 2332 PUBLIC LAW 101-239—DEC. 19, 1989
"(2) SIGNIFICANT ORIGINAL ISSUE DISCOUNT.—For purposes of
paragraph (IXC), a debt instrument shall be treated as having
signi]^cant original issue discount if—
"(A) the aggregate amount which would be includible in
gross income with respect to such instrument for periods
before the close of any accrual period (as defined in section
1272(aX5)) ending after the date 5 years after the date of
issue, exceeds—
"(B) the sum of—
"(i) the aggregate amount of interest to be paid under
the instrument before the close of such accrual period,
and
"(ii) the product of the issue price of such instrument
(as defined in sections 1278(b) and 1274(a)) and its yield
to maturity.
"(3) SPECIAL RULES.—For purposes of determining whether a
debt instrument is an applicable high jdeld discount obliga­
tion—
"(A) any pajonent under the instrument shall be assumed
to be made on the last day permitted under the instrument,
and
"(B) any payment to be made in the form of another
obligation (or stock) of the issuer (or a related person within
f the meaning of section 453(fKl)) shall be assumed to be
e made when such obligation (or stock) is required to be paid
in cash or in property other than such obligation (or stock).
"(4) DEBT INSTRUMENT.—For purposes of this subsection, the
term 'debt instrument' mesms any instrument which is a debt
instrument as defined in section 1275(a).
"(5) REGULATIONS.—The Secretary shall prescribe such regu­
lations as may be appropriate to carry out the purposes of this
subsection and subsection (eX5), including—
"(A) regulations providing for modifications to the provi­
sions of this subsection and subsection (eX5) in the case of
varying rates of interest, put or call options, indefinite
maturities, contingent payments, assumptions of debt in­
struments, conversion rights, or other circumstances where
such modifications are appropriate to carry out the pur­
poses of this subsection and subsection (eX5), and
"(B) regulations to prevent avoidance of the purposes of
this subjection and subsection (eX5) through the use of
issuers other than C corporations, agreements to borrow
amounts due under the debt instrument, or other arrange­
ments."
26 use 163 note. (c) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in par£igraph (2), the
amendments made by tlus section shall apply to instruments
issued after July 10,1989.
(2) EXCEPTIONS.—
(A) The amendments made by this section shall not apply
to any instrument if—
(i) such instrument is issued in connection with an
acquisition—
(I) which is made on or before July 10, 1989,
(H) for which there w£is a written binding con­
tract in effect on July 10, 1989, and at all times
thereafter before such acquisition, or PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2333
(m) for which a tender offer was filed with the
Securities and Exchange Ck)mmission on or before
July 10,1989,
(ii) the term of such instrument is not greater than—
(I) the term specified in the written documents
described in clause (iii), or
(II) if no term is determined under subclause (I),
10 years, and
(iii) the use of such instrument in connection with
such acquisition (and the maximum amount of pro­
ceeds from such instrument) was determined on or
before July 10, 1989, and such determination is evi­
denced by written documents—
(I) which were transmitted on or before July 10,
1989, between the issuer and any governmental
regulatory bodies or prospective parties to the issu­
ance or acquisition, and
(ID which are customarily used for the tjrpe of
acquisition or financing involved.
(B) The amendments made by this section shall not apply
to any instrument issued pursuant to the terms of a debt –
instrument issued on or before July 10,1989, or described in
sulK>aragraph (A) or (D).
(C) The amendments made by this section shall not apply
to any instrument issued to refinance an original issue
discount debt instrument to which the amendments made
by this section do not apply if—
(i) the maturity date of the refinancing instrument is ,
not later than the maturity date of the refincmced
instrument,
(ii) the issue price of the refinancing instrument does
not exceed the adjusted issue price of the refinanced
instrument,
(iii) the stated redemption price at maturity of the
refinancing instrument is not greater than the stated
redemption price at maturity of the refinanced in­
strument, and
(iv) the interest payments required under the re­
financing instrument before maturity are not less than
t (and are paid not later than) the interest payments
required under the refinanced instrument. ' f
(D) Tlie amendments made by this section shall not apply ^
to instruments issued after July 10, 1989, pursuant to a
reorganization plan in a title 11 or similar case (as defined
in section 868(aX3) of the Internal Revenue Code of 1986) if
the amount of proceeds of such instruments, and the matu­
rities of such instruments, do not exceed the amount or
maturities specified in the last reorganization plan filed in
such case on or before July 10,1989.
SEC. 7203. SECURITIES TREATED AS BOOT UNDER SECTION 351.
(a) GENERAL RULE.—Section 351(a) (relating to nonrecognition in
cases of transfers to corporations controlled by transferor) is
amended by striking "or securities".
(b) CONFORMING AMENDMENTS.—
(1) Subsections (b), (d), and (eX2) of section 351 are each
amended by striking "or securities". 103 STAT. 2334 PUBLIC LAW 101-239—DEC. 19, 1989
(2) Paragraph (2) of section 351(g) is amended by striking
"stock, securities, or property" and inserting "stock or prop­
erty".
26 use 351 note. (c) EPFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in this subsection, the
amendments made by this section shall apply to transfers after
October 2,1989, in taxable years ending after such date.
(2) BINDING CONTRACT.—The amendments made by this sec-
4i tion shall not apply to any transfer pursuemt to a written
. „ binding contract in effect on October 2, 1989, and at all times
thereafter before such transfer.
(8) CORPORATE TRANSFERS.—In the case of property trans­
ferred (directly or indirectly through a partnership or other­
wise) by a C corporation, paragraphs (1) and (2) shall be applied
by substituting "July 11, 1989'^ for "October 2, 1989'. The
preceding sentence shall not apply where the corporation meets
the requirements of section 1504(aX2) of the Internal Revenue
Code of 1986 with respect to the transferee corporation (and
where the transfer is not part of a plan pursuant to which the
transferor subsequently fails to meet such requirements).
SEC. 7204. PROVISIONS RELATED TO REGULATED INVESTMENT COMPA-
NIES.
(a) REQUIREMENT TO DISTRIBUTE 98 PERCENT OF ORDINARY
INCOME.—
(1) IN GENERAL.—Subparagraph (A) of section 4982(b)(1) (defin­
ing required distribution) is amended by striking "97 percent"
and inserting "98 percent".
26 use 4982 (2) EFFECTIVE DATE.—The amendment made by paragraph (1)
^o*®- shall apply to calendar years ending after July 10,1989.
(b) TREATMENT OF CERTAIN MUTUAL FUND LOAD CHARGES.—
(1) IN GENERAL.—Section 852 (relating to taxation of regulated
investment companies and their shareholders) is amended by
adding at the end thereof the following new subsection:
"(f) TREATMENT OF CERTAIN LOAD CHARGES.—
"(1) IN GENERAL.—If^
"(A) the taxpayer incurs a load charge in acquiring stock
in a regulated investment company and, by reason of incur­
ring such charge or making such acquisition, the taxpayer
acquires a reinvestment right,
(B) such stock is disposed of before the 91st day after the
date on which such stock was acquired, and
"(C) the taxpayer subsequently acquires stock in such
regulated investment company or in another regulated
investment company and the otherwise applicable load
charge is reduced by reason of the reinvestment right,
the load charge referred to in subparagraph (A) (to the extent it
does not exceed the reduction referred to in subparagraph (C))
shall not be taken into account for purposes of determining the
amount of gain or loss on the disposition referred to in subpara­
graph (B). To the extent such charge is not taken into account in
determining the amount of such gain or loss, such charge shall
be treated as incurred in connection with the acquisition re­
ferred to in subparagraph (C) (including for purposes of
reappljdng this paragraph).
"(2) DEFINITIONS AND SPECIAL RULES.—For purposes of this
subsection— PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2335
"(A) LOAD CHARGE.—The term 'load charge' means any
sales or similar charge incurred by a person in acquiring
stock of a regulated investment company. Such term does
not include any charge incurred by reason of the reinvest­
ment of a dividend.
"(B) REINVESTMENT RIGHT.—The term 'reinvestment
right' means any right to acquire stock of 1 or more regu­
lated investment companies without the payment of a load
charge or with the pajnnent of a reduced charge.
"(C) NoNRECOGNiTiON TRANSACTIONS.—If the taxpayer ac­
quires stock in a regulated investment company from an­
other person in a transaction in which gain or loss is not
recognized, the taxpayer shall succeed to the treatment of
such other person under this subsection."
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 26 USC 852 note,
shall apply to charges incurred after October 3, 1989, in taxable
years ending after such date.
(c) REGULATED INVESTMENT COMPANIES REQUIRED TO ACCRUE DIVI­
DENDS ON THE EX-DIVIDEND DATE.—
(1) IN GENERAL.—Subsection (b) of section 852 (relating to
treatment of companies and shareholders) is amended by adding
at the end thereof the following new paragraph:
"(9) DIVIDENDS TREATED AS RECEIVED BY COMPANY ON EX-DIVI­
DEND DATE.—For purposes of this title, if a regulated investment
company is the holder of record of any share of stock on the
record date for any dividend payable with respect to such stock,
such dividend shall be included in gross income by such com­
pany as of the later of—
"(A) the date such share became ex-dividend with respect
to such dividend, or
"(B) the date such company acquired such share,"
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 26 USC 852 note,
shall apply to dividends in cases where the stock becomes ex-
dividend after the date of the enactment of this Act.
SEC. 7205. LIMITATION ON THRESHOLD REQUIREMENT UNDER SECTION
382 BUILT-IN GAIN AND LOSS PROVISIONS.
(a) GENERAL RULE.—Clause (i) of section 382(hX3XB) (relating to
threshold requirement) is amended to read as follows:
"(i) IN GENERAL.—If the amount of the net unrealized
built-in gain or net unrealized built-in loss (determined
without regard to this subparagraph) of any old loss
corporation is not greater than the lesser of—
"(I) 15 percent of the amount determined for
purposes of subparagraph (AXiXD, or
"(II) $10,000,000,
the net unrealized built-in gain or net unrealized built-in
loss shall be zero."
(b) C!ONFORMING AMENDMENT TO ADJUSTED CURRENT EARNINGS
PREFERENCE.—Subparagraph (H) of section 56(gX4) (relating to treat­
ment of certain ownership changes) is amended by striking clause
(ii) and all that follows and inserting the following:
"(ii) there is a net unrealized built-in loss (within the
meaning of section 382(h)) with respect to such corpora­
tion,
then the adjusted basis of each asset of such corporation
(immediately after the ownership change) shall be its 103 STAT. 2336 PUBLIC LAW 101-239—DEC. 19, 1989
proportionate share (determined on the basis of respective
fair market values) of the fair market value of the assets of
such corporation (determined under section 382(h)) imme­
diately before the ownership change."
26 use 56 note. (c) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as otherwise provided in this subsec­
tion, the amendments made by this section shall apply to
ownership changes and acquisitions after October 2, 1989, in
taxable years ending after such date.
(2) BINDING CONTRACT.—The amendments made by this sec­
tion shall not apply to any ownership change or' acquisition
' ^ pursuant to a written binding contract in effect on October 2,
^ 1989, and at all times thereafter before such change or acquisi­
tion.
(3) BANKRUPTCY PROCEEDINGS.—In the case of a reorganization
described in section 368(aXlXG) of the Internal Revenue Code of
1986, or an exchange of debt for stock in a title 11 or similar
case (as defined in section 368(aX3) of such Code), the amend­
ments made by this section shall not apply to any ownership
a change resulting from such a reorganization or proceeding if a
petition in such case WEUS filed with the court before October 3,
1989.
(4) SUBSIDIARIES OF BANKRUPT PARENT.—The amendments
made by this section shall not apply to £uiy built-in loss of a
. corporation which is a member (on October 2, 1989) of an
affiliated group the common parent of which (on such date) was
subject to title 11 or similar case (as defined in section 368(aX3)
of such Code). The preceding sentence shall apply only if the
. ownership change or acquisition is pursuant to the plan ap­
proved in such proceeding and is before the date 2 years after
the date on which the petition which commenced such proceed­
ing was filed.
SEC. 7206. DISTRIBUTIONS ON CERTAIN PREFERRED STOCK TREATED AS
EXTRAORDINARY DIVIDENDS.
(a) GENERAL RULE.—Section 1059 (relating to corporate sharehold­
er's basis in stock reduced by nontaxed portion of extraordinary
dividends) is amended by striking subsection (f) and inserting the
following:
"(f) TREATMENT OF DIVIDENDS ON CERTAIN PREFERRED STOCK.—
"(1) IN GENERAL.—Any dividend with respect to dis(][ualified
preferred stock shall be treated as an extraordinary dividend to
which paragraphs (1) and (2) of subsection (a) apply without
; regard to the period the taxpayer held the stock.
(2) DiSQUAUFiED PREFERRED STOCK.—For purposes of this
subsection, the term 'disqualified preferred stock' mecuis any
stock which is preferred as to dividends if—
"(A) when issued, such stock has a dividend rate which
declines (or can reasonably be expected to decline) in the
future,
"(B) the issue price of such stock exceeds its liquidation
rights or its stated redemption price, or
"(C) such stock is otherwise structured—
"(i) to avoid the other provisions of this section, and
"(ii) to enable corporate shareholders to reduce tax
through a combination of dividend received deductions
and loss on the disposition of the stock. PUBLIC LAW 101-239—DEC. 19, 1989 . 103 STAT. 2337
"(g) REGULATIONS.—The Secretary shall prescribe such r^ula-
tions as may be appropriate to carry out the purposes of this section,
including regulations—
"(1) providing for the application of this section in the case of
stock dividends, stock splits, reorganizations, and other similar
transactions and in the case of stock held by pass-thru entities,
and
"(2) providing that the rules of subsection (f) shall apply in the
case of stock which is not preferred as to dividends in cases
where stock is structured to avoid the purposes of this section."
(b) EFFECTIVE DATE.— 26 use 1059
(1) IN GENERAL.—Except as provided in paragraph (2), the ^°^
amendment made by subsection (a) shall apply to stock issued
after July 10, 1989, in taxable years ending after such date.
(2) BINDING CONTRACT.—The amendment made by subsection
(a) shsdl not apply to any stock issued pursuant to a written
binding contract in effect on July 10, 1989, and at all times
thereafter before the stock is issued.
SEC. 7207. REPEAL OF ELECTION TO REDUCE EXCESS LOSS ACCOUNT
RECAPTURE BY REDUCING BASIS OF INDEBTEDNESS.
(a) GENERAL RULE.—Subsection (e) of section 1503 (relating to
special rule for determining adjustment to basis) is amended by
adding at the end thereof the following new paragraph:
"(4) ELIMINATION OF ELECTION TO REDUCE BASIS OF INDEBTED­
NESS.—Nothing in the regulations prescribed under section 1502
shall permit any reduction in the amount otherwise included in
gross income by reason of an excess loss account if such reduc­
tion is on account of a reduction in the basis of indebtedness."
(b) EFFECTIVE DATE.— 26 use 1503
(1) IN GENERAL.—Except as provided in paragraph (2), the "°^
amendment made by subsection (a) shall apply to dispositions
after July 10, 1989, in taxable years ending after such date.
(2) BINDING CONTRACT.—The amendment made by subsection
(a) shall not apply to any disposition pursuant to a written
binding contract in effect on July 10, 1989, and at all times
thereafter before such disposition.
SEC. 7208. OTHER PROVISIONS RELATING TO TREATMENT OF STOCK AND
DEBT; ETC.
(a) CLARIFICATION OF REGULATORY AUTHORITY UNDER SECTION
385.—
(1) IN GENERAL.—Subsection (a) of section 385 (relating to
treatment of certain interests in corporations as stock or indebt­
edness) is amended by inserting "(or as in part stock and in part
indebtedness)" before the period at the end thereof.
(2) REGULATIONS NOT TO BE APPUED RETROACTFVELY.—Any 26 use 385 note.
regulations issued pursuant to the authority granted by the
amendment made by paragraph (1) shall only apply with re­
spect to instruments issued after the date on which the Sec­
retary of the Treasury or his delegate provides public guidance
as to the characterization of such instruments whether by
regulation, ruling, or otherwise.
(b) REPORTING OF CERTAIN AcQUisrnoNS OR RECAPFTALIZATIONS.—
(1) IN GENERAL.—Section 6043 is amended by striking subsec­
tion (c) and inserting the following new subsections:
"(c) CHANGES IN CONTROL AND RscAPrrAuzATiONS.—If— 103 STAT. 2338 PUBLIC LAW 101-239—DEC. 19, 1989
"(1) control (as defined in section 304(cXl)) of a corporation is
acquired by any person (or group of persons) in a transaction (or
series of related transactions), or
"(2) there is a recapitalization of a corporation or other
substantial change in the capital structure of a corporation,
when required by the Secretary, such corporation shall make a
return (at such time and in such manner as the Secretary may
prescribe) setting forth the identity of the parties to the transaction,
the fees involved, the changes in the capital structure involved, and
such other information as the Secretary may require with respect to
; !:- such transaction.
"(d) CROSS REFERENCES.^
"For provisions relating to penalties for failure to file—
.^ "(1) a return under subsection (b), see section 6652(c), or
"(2) a return under subsection (c), see section 6652(1)."
(2) PENALTY.—Section 6652 is amended by redesignating
subsection (L) as subsection (m) and by inserting after subsection
(k) the following new subsection:
"(1) FAILURE TO FILE RETURN WITH RESPECT TO CERTAIN COR­
PORATE TRANSACTIONS.—In the case of any failure to make a return
required under section 6043(c) containing the information required
by such section on the date prescribed therefor (determined with
regard to any extension of time for filing), unless it is shown that
such failure is due to reasonable cause, there shall be paid (on notice
and demand by the Secretary and in the ssime manner as tax) by the
person failing to file such return, an amount equal to $500 for each
day during which such failure continues, but the total amount
imposed under this subsection with respect to any return shall not
exceed $100,000."
(3) CONFORMING AMENDMENTS.—
(A) The subsection heading for subsection (a) of section
»• 6043 is amended by striking CORPORATIONS" and inserting
"CORPORATE LIQUIDATING, ETC., TRANSACTIONS".
(B) The section heading for section 6043 is amended to
read as follows:
"SEC. 6043. LIQUIDATING; ETC., TRANSACTIONS." '
(C) The table of sections for subpart B of part III of
subchapter A of chapter 61 is amended by striking the item
relating to section 6043 and inserting the following:
-I* "Sec. 6043. Liquidating; etc., transactions."
26 use 6043 (4) EFFECTIVE DATE.—The amendments made by this subsec-
^°*®- tion shall £^ply to transactions after March 31,1990.
SEC. 7209. ESTIMATED TAX PAYMENTS REQUIRED FOR S CORPORATIONS.
. . : J: (a) IN GENERAL.—Subsection (g) of section 6655 (relating to failure
by corporation to pay estimated income tax) is amended by adding
at the end thereof the following new paragraph:
"(4) APPUCATION OF SECTION TO CERTAIN TAXES IMPOSED ON S
CORPORATIONS.—In the case of an S corporation, for purposes of
this section—
"(A) The following taxes shall be treated as imposed by
section 11:
"(i) The tax imposed by section 1374(a) (or the cor­
responding provisions of prior law). PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2339
"(ii) The tax imposed by section 1375(a).
"(iii) Any tax for which the S corporation is liable by
reason of section 1371(dX2).
"(B) Paragraph (2) of subsection (d) shall not apply.
"(C) Clause (ii) of subsection (dXlXB) shall be applied as if
it read as follows:
"'(ii) the sum of—
"'(I) the amount determined under clause (i) by
only taking into account the taxes referred to in
clauses (i) and (iii) of subsection (gX4XA), and
"'(II) 100 percent of the tax imposed by section
1375(a) which was shown on the return of the
corporation for the preceding taxable year.'
"(D) The requirement in the last sentence of subsection
(dXlXB) that the return for the preceding taxable year show
a liability for tax shall not apply.
"(E) Any reference in subsection (e) to taxable income
shall be treated as including a reference to the net recog­
nized built-in gain or the excess passive income (as the case
may be)."
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 26 use 6655
shall apply to taxable years beginning after December 31, 1989. "°*®-
SEC. 7210. LIMITATION ON DEDUCTION FOR CERTAIN INTEREST PAID TO
RELATED PERSON.
(a) GENERAL RULE.—Section 163 (as amended by section 7202) is
amended by redesignating subsection (j) as subsection (k) and by
inserting after subsection (i) the following new subsection:
"(j) LIMITATION ON DEDUCTION FOR CERTAIN INTEREST PAID BY
CORPORATION TO RELATED PERSON.—
"(1) LIMITATION.—
"(A) IN GENERAL.—If this subsection applies to any cor­
poration for any taxable year, no deduction shall be allowed
under this chapter for disqualified interest paid or accrued
by such corporation during such taxable year. The amount
disallowed under the preceding sentence shall not exceed
the corporation's excess interest expense for the taxable
year.
"(B) DISALLOWED AMOUNT CARRIED TO SUCCEEDING TAX­
ABLE YEAR.—Any amount disallowed under subparagraph
(A) for any taxable year shall be treated as disqualified
interest paid or accrued in the succeeding taxable year.
"(2) CORPORATIONS TO WHICH SUBSECTION APPUES.—
"(A) IN GENERAL.—This subsection shall apply to any
corporation for any taxable year if—
"(i) such corporation has excess interest expense for
such taxable year, and
"(ii) the ratio of debt to equity of such corporation as
of the close of such taxable year (and on such other
days during the taxable year as the Secretary may by
regulations prescribe) exceeds 1.5 to 1.
"(B) EXCESS INTEREST EXPENSE.—
"(i) IN GENERAL.—For purposes of this subsection, the
term 'excess interest expense' means the excess (if any)
of—
"(I) the corporation's net interest expense, over 103 STAT. 2340 PUBLIC LAW 101-239—DEC. 19, 1989
"(II) the sum of 50 percent of the adjusted tax­
able income of the corporation plus any excess
limitation carryforward under clause (ii).
"(ii) EXCESS UMITATION CARRYFORWARD,—If a cor­
poration has £ui excess limitation for any taxable year,
the amount of such excess limitation shall be an excess
limitation canyforward to the 1st succeeding taxable
year and to the 2nd and 3rd succeeding taxable years to
the extent not previously taken into account under this
clause. The amount of such a carryforward taken into
account for any such succeeding taxable year shall not
exceed the excess interest expense for such succeeding
taxable year (determined without regard to the
carryforward from the taxable year of such excess
limitation).
"(iii) EXCESS UMITATION.—For purposes of clause (i),
the term 'excess limitation' means the excess (if any)
of-
"(I) 50 percent of the adjusted taxable income of
the corporation, over
– _^. "(II) the corporation's net interest expense.
"(C) RATIO OP DEBT TO EQUITY.—For purposes of this
paragraph, the term 'ratio of debt to equity means the ratio
which the total indebtedness of the corporation bears to the
sum of its money and all other assets less such total indebt­
edness. For purposes of the preceding sentence—
"(i) the cunount taken into account with respect to
any asset shall be the adjusted basis thereof for pur­
poses of determining gain,
"(ii) the amount ts^en into account with respect to
any indebtedness with original issue discount shedl be
^ its issue price plus the portion of the original issue
discount previously accrued as determined under the
rules of section 1272 (determined without regard to
subsection (aX7) or (bX4) thereof), and
"(iii) there shall be such other adjustments as the
Secretary may by regulations prescribe.
"(3) DiSQUAUFiED INTEREST.—For purposes of this subsec-
• tion—
"(A) IN GENERAL.—Except as provided in subparagraph
(B), the term 'disqualified interest' means any interest paid
or accrued by the taxpayer (directly or indirectly) to a
related person if no tax is imposed by this subtitle with
respect to such interest.
'(B) EXCEPTION FOR CERTAIN EXISTING INDEBTEDNESS.—
The term 'disqualified interest' does not include any in­
terest paid or accrued under indebtedness with a ^ed
term—
"(i) which was issued on or before July 10, 1989, or
"(ii) which was issued after such date pursuant to a
written binding contract in effect on such date and all
times thereafter before such indebtedness was issued.
"(4) RELATED PERSON.—For purposes of this subsection—
"(A) IN GENERAL.—Except as provided in subparagraph
V (B), the term 'related person' means any person who is
related (within the meaning of section 267(b) or 7070)X1)) to
the taxpayer. PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2341
"(B) SPECIAL RULE FOR CERTAIN PARTNERSHIPS.—
"(i) IN GENERAL.—Any interest paid or accrued to a
partnership which (without regard to this subpara­
graph) is a related person shall not be treated as paid
or accrued to a related person if less than 10 percent of
the profits and capital interests in such partnership are
held by persons with respect to whom no tax is imposed
by this subtitle on such interest. The preceding sen­
tence shall not apply to any interest allocable to any
partner in such partnership who is a related person to
the taxpayer.
"(ii) SPECIAL RULE WHERE TREATY REDUCTION.—If any
treaty between the United States and any foreign coun­
try reduces the rate of tax imposed by this subtitle on a
partner's share of any interest paid or accrued to a
partnership, such partner's interests in such partner­
ship shall, for purposes of clause (i), be treated as held
in part by a tax-exempt person and in part by a taxable
person under rules similar to the rules of paragraph
(5)(B).
"(5) SPECIAL RULES FOR DETERMINING WHETHER INTEREST IS
SUBJECT TO TAX.—
"(A) TREATMENT OF PASS-THRU ENTITIES.—In the case of
any interest paid or accrued to a partnership, the deter­
mination of whether any tax is imposed by this subtitle on
such interest shall be made at the partner level. Rules
similar to the rules of the preceding sentence shall apply in
the case of any pass-thru entity other than a partnership
and in the case of tiered partnerships and other entities.
"(B) INTEREST TREATED AS TAX-EXEMPT TO EXTENT OF
TREATY REDUCTION.—If any treaty between the United
Stetes and any foreign country reduces the rate of tax
imposed by this subtitle on any interest paid or accrued by
the taxpayer to a related person, such interest shall be
treated as interest on which no tax is imposed by this
subtitle to the extent of the same proportion of such in­
terest as—
"(i) the rate of tax imposed without regard to such
treaty, reduced by the rate of tax imposed under the
treaty, bears to
"(ii) the rate of tax imposed without regard to the
treaty.
"(6) OTHER DEFINITIONS AND SPECIAL RULES.—For purposes of
this subsection—
"(A) ADJUSTED TAXABLE INCOME.—The term 'adjusted tax­
able income' means the taxable income of the taxpayer—
"(i) computed without regard to—
"(I) any deduction allowable under this chapter
for the net interest expense,
"(II) the amount of any net operating loss deduc­
tion under section 172, eind
"(III) any deduction allowable for depreciation,
amortization, or depletion, and
"(ii) computed with such other adjustments as the "
Secretary may by regulations prescribe.
"(B) NET INTEREST EXPENSE.—The term 'net interest
expense'means the excess (if any) of— 103 STAT. 2342 PUBLIC LAW 101-239—DEC. 19, 1989
"(i) the interest pedd or accrued by the taxpayer
during the taxable year, over
"(ii) the amount of interest includible in the gross
income of such taxpayer for such taxable year.
The Secretary may by regulations provide for adjustments
in determining the amount of net interest expense.
"(C) TREATMENT OF AFFILIATED GROUP.—All members of
the same affiliated group (within the meaning of section
1504(a)) shall be treated as 1 taxpayer.
"(7) REGULATIONS.—The Secretary shall prescribe such regu­
lations as may be appropriate to carry out the purposes of this
subsection, including—
"(A) such regulations as may be appropriate to prevent
the avoidance of the purposes of this subsection,
"(B) regulations providing such adjustments in the case of
corporations which are members of an affiliated group as
may be appropriate to carry out the purposes of this subsec­
tion, and
"(C) regulations for the coordination of this subsection
with section 884." ^^ ^ .
26 use 163 note. (b) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendment made by this section shall
apply to interest paid or accrued in taxable years beginning
after July 10,1989.
(2) SPECIAL RULE FOR DEMAND LOANS, ETC.—In the case of any
demand loan (or other loan without a fixed term) which was
outstanding on July 10,1989, interest on such loan to the extent
attributable to periods before September 1, 1989, shall not be
treated as disqualified interest for purposes of section 163(j) of
the Internal Revenue Code of 1986 (as added by subsection (a)).
SEC. 7211. LIMITATIONS ON REFUNDS DUE TO NET OPERATING LOSS
^ CARRYBACKS OR EXCESS INTEREST ALLOCABLE TO COR-
– PORATE EQUITY REDUCTION TRANSACTIONS.
(a) IN GENERAL.—Paragraph (1) of section 172(b) (relating to years
to which loss may be carried) is amended by adding at the end
thereof the following new subparagraph;
"(M) EXCESS INTEREST LOSS.—
"(i) IN GENERAL.—If—
"(I) there is a corporate equity reduction trans­
action, and
"(II) an applicable corporation has a corporate
equity reduction interest loss for any loss limita­
tion year ending after August 2,1989,
then the corporate equity reduction interest loss shall
be a net operating loss carryback and carryover to the
taxable years described in subparagraphs (A) and (B),
except that such loss shall not be carried back to a
taxable year preceding the taxable year in which the
corporate equity reduction transaction occurs.
"(ii) Loss UMITATION YEAR.—For purposes of clause (i)
»« and subsection (m), the term 'loss limitation year'
means, with respect to any corporate equity reduction
transaction, the taxable year in which such transaction
occurs and each of the 2 succeeding taxable years. PUBLIC LAW 101-239—DEC. 19, 1989 103 STATL2343
"(iii) APPUCABLE CORPORATION.—For purposes of
clause (i), the term 'applicable corporation means a C
corporation—
"(I) which acquires stock, or the stock of which is
^ acquired, in a msgor stock acquisition,
(ID a corporation making distributions with
respect to, or redeeming, its stock in connection
with an excess distribution, or
"(ni) any successor corporation of a corporation
described in subclause (I) or (II).
"(iv) OTHER DEFINITIONS.—
"For deHnitions of terms used in this subparasrapli, see subsection
(m)."
(b) CORPORATE EQUITY REDUCTION INTEREST LOANS AND (CORPORATE
EQUITY REDUCTION TRANSACTION DEFINED.—Section 172 is amended
by redesignating subsection (m) as subsection (n) and by inserting
after subsection (1) the following new subsection:
"(m) CORPORATE EQUITY REDUCTION INTEREST LOSSES.—For pur­
poses of this section—
"(1) IN GENERAL.—The term 'corporate equity reduction in­
terest loss' means, with respect to any loss limitation year, the
excess (if any) of—
"(A) the net operating loss for such taxable year, over
"(B) the net operating loss for such taxable year deter­
mined without regard to any allocable interest deductions
otherwise taken into account in computing such loss.
"(2) ALLOCABLE INTEREST DEDUCTIONS.—
"(A) IN GENERAL.—The term 'allocable interest deduc­
tions' means deductions allowed under this chapter for
interest on the portion of any indebtedness allocable to a '^
corporate equity reduction transaction.
"(B) METHOD OF ALLOCATION.—Except as provided in regu­
lations and subparagraph (E), indebtedness shall be allo­
cated to a corporate equity reduction transaction in the
manner prescribed under clause (ii) of section 263A(fK2XA)
(without regard to clause (i) thereof).
"(C) ALLOCABLE DEDUCTIONS NOT TO EXCEED INTEREST IN-
i:', ' CREASES.—Allocable interest deductions for any loss limita­
tion year shall not exceed the excess (if any) of—
"(i) the amount allowable as a deduction for interest
paid or accrued by the taxpayer during the loss limita­
tion year, over
"(ii) the average of such amounts for the 3 taxable
years preceding the taxable year in which the cor- ^
porate equity reduction transaction occurred.
"(D) DE MINIMIS RULE.—A taxpayer shall be treated as
having no allocable interest deductions for any taxable year
if the amount of such deductions (without regard to this
subparagraph) is less than $1,000,000.
"(E) SPECIAL RULE FOR CERTAIN UNFORESEEABLE EVENTS.—
If an unforeseeable extraordinary adverse event occurs
during a loss limitation year but dfter the corporate equity
/ reduction transaction—
"(i) indebtedness shall be allocated in the manner
described in subparagraph (B) to unreimbursed costs
– paid or incurred in connection with such event before 103 STAT. 2344 PUBLIC LAW 101-239—DEC. 19, 1989
being allocated to the corporate equity reduction trans-
:' ' action, and
"(ii) the amount determined under subparagraph
" (CXi) shall be reduced by the amount of interest on
indebtedness described in clause (i).
t *' "(F) TRANSITION RULE.—If any of the 3 taxable years
described in subparagraph (CXii) end on or before August 2,
1989, the taxpayer may sul^titute for the amount deter­
mined under such subparagraph an amount equal to the
interest paid or accrued (determined on an annualized
basis) during the taxpayer's taxable year which includes
August 3, 1989, on indebtedness of the taxpayer outstand­
ing on August 2,1989.
"(3) CORPORATE EQUITY REDUCTION TRANSACTION.—
"(A) IN GENERAL.—The term 'corporate equity reduction
transaction'means—
"(i) a major stock acquisition, or
"(ii) £ui excess distribution.
. "(B) MAJOR STOCK ACQUISITION.—
"(i) IN GENERAL.—The term 'major stock acquisition'
means the acquisition by a corporation pursuant to a
plan of such corporation (or any group of persons acting
in concert with such corporation) of stock in another
corporation representing 50 percent or more (by vote or
value) of the stock in such other corporation,
"(ii) EXCEPTIONS.—The term 'major stock acquisition'
shall not include—
"(I) a qualified stock purchase (within the meaning
of section 338) to which an election under section
338 applies, or
"(II) except as provided in regulations, an ac­
quisition in which a corporation acquires stock of
another corporation which, immediately before the
acquisition, was a member of an affiliated group
(within the meaning of section 1504(a)) other than
the common parent of such group.
"(C) EXCESS DISTRIBUTION.—The term 'excess distribution'
means the excess (if any) of—
"(i) the aggregate distributions (including redemp-
•'•''' tions) made during a taxable year by a corporation with
respect to its stock, over
* " ' * * "(ii) the greater of—
"(I) 150 percent of the average of such distribu­
tions during the 3 taxable years immediately
preceding such taxable year, or
"(II) 10 percent of the fair market value of the
stock of such corporation as of the beginning of
such taxable year.
"(D) RULES FOR APPLYING SUBPARAGRAPH (B).—For pur-
'" . poses of subpar£igraph (B)—
"(i) PLANS TO ACQUIRE STOCK.—All plans referred to
, in subparagraph (B) by any corporation (or group of
persons acting in concert with such corporation) with
respect to another corporation shall be treated as 1
plan. PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2345
"(ii) ACQUISITIONS DURING 24-MONTH PERIOD.—All ac-
* " quisitions during any 24-month period shall be treated
as pursuant to 1 plan.
"(E) RULES FOR APPLYING SUBPARAGRAPH (C).—For pur­
poses of subparagraph (C)—
"(i) CERTAIN PREFERRED STOCK DISREGARDED.—Stock
described in section 1504(aX4), and distributions
(including redemptions) with respect to such stock,
shall be disregarded.
"(ii) ISSUANCE OF STOCK.—The amounts determined
under clauses (i) and (iiXD of subparagraph (C) shall be
reduced by the aggregate amount of stock issued by the
corporation during the applicable period in exchange
for money or property other than stock in the corpora­
tion.
"(4) OTHER RULES.—
"(A) ORDERING RULE.—For purposes of paragraph (1), in
determining the allocable interest deductions taken into
account in computing the net operating loss for any taxable
year, taxable income for such taxable year shall be treated
as having been computed by taking allocable interest
deductions into account after £dl other deductions.
"(B) COORDINATION WITH SUBSECTION (BX2).—In applying
parEigraph (2) of subsection (b), the corporate equity reduc­
tion interest loss shall be treated in a manner similar to the
manner in which a foreign expropriation loss is treated.
"(C) MEMBERS OF AFFILIATED GROUPS.—Except as provided
by regulations, all members of an affiliated group filing a
consolidated return under section 1501 shall be treated as 1
taxpayer for purposes of this subsection and subsection
(bXlXM).
"(5) REGULATIONS.—The Secretary shall prescribe such regu­
lations as may be necessary to carry out the purposes of this
subsection, including regulations—
"(A) for appljdng this subsection to successor corporations
and in cases where a taxpayer becomes, or ceases to be, a
member of an affiliated group filing a consolidated return
under section 1501,
"(B) to prevent the avoidance of this subsection through
related parties, pass-through entities, and intermediaries,
and
"(C) for applying this subsection where more than 1
corporation is involved in a corporate equity reduction
transaction,
(c) EFFECTIVE DATE.— 26 use 172 note.
(1) IN GENERAL.—Except as.provided in this subsection, the
amendments made by this section shall apply to corjporate
equity reduction transactions occurring after August 2, 1989, in
taxable years ending after August 2,1989.
(2) EXCEPTIONS.—In determining whether a corporate equity
reduction transaction has occurred sifter August 2, 1989, there
shall not be taken into account—
(A) acquisitions or redemptions of stock, or distributions
with respect to stock, occurring on or before August 2,1989,
(B) acquisitions or redemptions of stock eifter August 2,
1989, pursuant to a binding written contract (or tender offer
filed with the Securities and Exchange Commission) in 103 STAT. 2346 PUBLIC LAW 101-239—DEC. 19, 1989
effect on August 2, 1989, and at all times thereafter before
such acquisition or redemption, or
„ (C) any distribution with respect to stock after August 2,
1989, which w£is declared on or before August 2, 1989.
Any distribution to which the preceding sentence applies shall
be taken into account under section 172(m)(3XCXiiXI) of the
; Internal Revenue Code of 1986 (relating to base period for
distributions).
Subtitle C—Employee Benetit Provisions
PART I—EMPLOYEE STOCK OWNERSHIP PLANS
SEC. 7301. LIMITATIONS ON PARTIAL EXCLUSION OF INTEREST ON LOANS
USED TO ACQUIRE EMPLOYER SECURITIES.
(a) EXCLUSION AVAILABLE ONLY WHERE EMPLOYEES RECEIVE
SIGNIFICANT OWNERSHIP INTEREST.—Subsection 0)) of section 133
(defining securities acquisition loans) is sunended by adding at the
, end thereof the following new paragraph:
"(6) PLAN MUST HOLD MORE THAN 50 PERCENT OF STOCK AFTER
ACQUISITION OR TRANSFER.—
"(A) IN GENERAL.—A losm shall not be treated as a securi­
ties acquisition loan for purposes of this section unless,
immediately after the acquisition or transfer referred to in
subparagraph (A) or (B) of paragraph (1), respectively, the
employee stock ownership plan owns more than 50 percent
of—
"(i) each class of outstanding stock of the corporation
issuing the employer securities, or
"(ii) the total value of all outstanding stock of the
corporation.
"(B) FAILURE TO RETAIN MINIMUM STOCK INTEREST.—
"(i) IN GENERAL.—Subsection (a) shall not apply to
any interest received with respect to a securities ac­
quisition loan which is allocable to any period during
which the employee stock ownership plan does not own
stock meeting the requirements of subparagraph (A),
"(ii) EXCEPTION.—To the extent provided by the Sec­
retary, clause (i) shall not apply to any period if, within
^.90 days of the first date on which the failure occurred
(or such longer period not in excess of 180 days as the
Secretary may prescribe), the plan acc[uires stock
– which results in its meeting the requirements of
subparagraph (A).
"(C) STOCK.—For purposes of subparagraph (A)—
"(i) IN GENERAL.—The term stock'means stock Other
than stock described in section 1504(aX4).
"(ii) TREATMENT OF CERTAIN RIGHTS.—The Secretary
V may provide that warrants, options, contracts to ac­
quire stock, convertible debt interests and other similar
«. interests be treated as stock for 1 or more purposes
under subparagraph (A).
"(D) AGGREGATION RULE.—For purposes of determining
whether the requirements of subparagraph (A) are met, an
employee stock ownership plan shall be treated as owning stock
in the corporation issuing the employer securities which is held PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2347
by any other employee stock ownership plan which is main­
tained by—
"(i) the employer maintaining the plan, or
"(ii) any member of a controlled group of corporations
(within the meeining of section 409GX4)) of which the em­
ployer described in clause (i) is a member."
(b) TERM OF LOAN MAY NOT EXCEED 15 YEARS.—Paragraph (1) of
section 133(b) is amended by adding at the end thereof the following
new sentence: "The term 'securities acquisition loan' shall not
include a loan with a term greater than 15 years."
(c) VOTING RIGHTS.—Subsection (b) of section 133, as smiended by
subsection (a), is amended by adding at the end thereof the following
new paragraph: ^^
"(7) VOTING RIGHTS OF EMPLOYER SECURITIES.—A loan shall not ^
be treated as a securities acquisition loan for purposes of this
section unless—
"(A) the employee stock ownership plan meets the
requirements of section 409(eX2) with respect to all
employer securities acquired by, or transferred to, the plan
in connection with such loan (without regard to whether or
not the employer has a registration-tjrpe class of securities),
and
"(B) no stock described in section 409GX3) is acquired by,
or transferred to, the plan in connection with such loan
unless—
"(i) such stock has voting rights equivalent to the
stock to which it may be converted, and
"(ii) the requirements of subparagraph (A) are met
with respect to such voting rights.".
(d) TAX ON DISPOSITION OF SECURITIES BY EMPLOYEE STOCK OWNER
SHIP PLANS.—
(1) IN GENERAL.—Chapter 43 is amended by inserting after
section 4978A the following new section:
"SEC. 4978B. TAX ON DISPOSITION OF EMPLOYER SECURITIES TO WHICH
SECTION 133 APPLIED.
"(a) IMPOSITION OF TAX.—In the case of an employee stock owner­
ship plan which has acquired section 133 securities, there is hereby
imposed a tax on each taxable event in an amount equal to the
amount determined under subsection (b).
"(b) AMOUNT OF TAX.—
"(1) IN GENERAL.—The amount of the tax imposed by subsec­
tion (a) shall be equal to 10 percent of the amount realized on
the disposition to the extent allocable to section 133 securities
under section 4978(bX2).
"(2) DISPOSITIONS OTHER THAN SALES OR EXCHANGES.—For pur­
poses of paragraph (1), in the case of a disposition of employer
securities which is not a sale or exchange, the amount realized
on such disposition shall be the fair market value of such
securities at the time of disposition.
"(c) TAXABLE EVENT.—For purposes of this section, the term 'tax­
able event' means any of the following dispositions:
"(1) DISPOSITIONS WITHIN S YEARS.—Any disposition of any
. employer securities by an employee stock ownership plan
within 3 years after such plan acquired section 133 securities
if— 103 STAT. 2348 PUBLIC LAW 101-239—DEC. 19, 1989
"(A) the total number of employer securities held by such
plan after such disposition is less than the total number of
employer securities held after such acquisition, or
"(B) except to the extent provided in regulations, the
' •"" value of employer securities held by such plan after the
disposition is 50 percent or less of the total value of all
employer securities as of the time of the disposition.
For purposes of subparagraph (B), the aggregation rule of sec­
tion 133(bX6XD) shall apply.
"(2) STOCK DISPOSED OP BEFORE ALLOCATION.—Any disposition
of section 133 securities to which paragraph (1) does not apply
if—
"(A) such disposition occurs before such securities are
' allocated to accounts of participants or their beneficiaries,
and
"(B) the proceeds from such disposition are not so allo­
cated.
"(d) SECTION NOT TO APPLY TO CERTAIN DISPOSITIONS.—
"(1) IN GENERAL.—This section shall not apply to any disposi­
tion described in paragraph (1), (3), or (4) of section 4978(d).
"(2) CERTAIN REORGANIZATIONS.—For purposes of this section,
any exchange of section 133 securities for employer securities of
another corporation in any reorganization described in section
368(a)(1) shall not be treated as a disposition, but the employer
securities received shall be treated as section 133 securities and
as having been held by the plan during the period the securities
which were exchanged were held.
"(3) FORCED DISPOSITION OCCURRING BY OPERATION OF STATE
LAW.—Any forced disposition of section 133 securities by an
employee stock ownership plan occurring by operation of a
State law shall not be treated as a disposition. This paragraph
shall only apply to securities which, at the time the securities
were acquired by the plan, were regularly traded on an estab­
lished securities market.
"(e) DEFINITIONS AND SPECIAL RULES.—For purposes of this sec­
tion—
"(1) LIABILITY FOR PAYMENT OF TAXES.—The teix imposed by
this section shall be paid by the employer.
"(2) SECTION 133 SECURITIES.—The term 'section 133 securities'
means employer securities acquired by an employee stock
ownership plan in a transaction to which section 133 applied,
except that such term shall not include—
"(A) qualified securities (as defined in section 4978(e)(2)),
or
"(B) qualified employer securities (as defined in section
4978A(fX2), as in effect on the day before the date of the
. ' enactment of this section).
"(3) DISPOSITION.—The term 'disposition' includes any dis-
"^ tribution.
"(4) ORDERING RULES.—For ordering rules for dispositions of
employer securities, see section 4978(bX2)."
(2) CONFORMING AMENDMENT.^The table of sections for chap-
^ ter 43 is amended by inserting after the item relating to section
4978A the following new item:
^ "Sec. 4978B. Tax on disposition of employer securities to which section 133
applied.". PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2349
(e) REPORTING REQUIREMENTS.—Section 6047 (relating to informa­
tion reports relating to certain trusts or annuity plans) is amended
by redesignating subsection (e) as subsection (f) and by inserting
^ter subsection (d) the following new subsection:
"(e) EMPLOYEE STOCK OWNERSHIP PLANS.—The Secretary shall
require—
"(1) any employer maintaining, or the plan administrator
(within the meaning of section 414(g)) of, an employee stock
ownership plan—
"(A) which acquired stock in a transaction to which
section 133 applies, or
"(B) which holds stock with respect to which section
404(k) applies to dividends paid on such stock,
"(2) any person making or holding a loan to which section 133
applies, or
"(3) both such employer or plan administrator and such
person,
to make returns and reports regarding such plan, transaction, or
loan to the Secretary and to such other persons as the Secretary
may prescribe. Such returns and reports shall be made in such form,
shall be made at such time, and shall contain such information as
the Secretary may prescribe."
(f) EFFECTIVE DATES.— 26 use 133 note.
(1) IN GENERAL.—Except as provided in this subsection, the
amendments made by this section shall apply to loans made
after July 10,1989.
(2) BINDING COMMITMENT EXCEPTIONS.—
(A) The amendments made by this section shall not apply
to any loan—
(i) which is made pursuant to a binding written
commitment in effect on June 6, 1989, and at all times
thereafter before such loan is made, or
(ii) to the extent that the proceeds of such loan are
used to acquire employer securities pursuant to a writ­
ten binding contract (or tender offer registered with the
Securities and Exchange Commission) in effect on June
6, 1989, and at all times thereafter before such securi­
ties are acquired.
(B) The amendments made by this section shall not apply
to any loan to which subparagraph (A) does not apply which
is made pursuant to a binding written commitment in effect
; on July 10, 1989, and at all times thereafter before such
loan is made. The preceding sentence shall only apply to
the extent that the proceeds of such loan are used to
acquire employer securities pursuant to a written binding
contract (or tender offer registered with the Securities and
Exchange Commission) in effect on July 10, 1989, and at all
times thereafter before such securities are acquired.
(C) The amendments made by this section shall not apply
to any loan made on or before July 10, 1992, pursuant to a
written agreement entered into on or before July 10, 1989,
if such agreement evidences the intent of the borrower on a
periodic basis to enter into securities acquisition loans de­
scribed in section 133(bXlXB) of the Internal Revenue Code
of 1986 (as in effect on the day before the date of the
enactment of this Act). The preceding sentence shall apply 103 STAT. 2350 PUBLIC LAW 101-239—DEC. 19, 1989
only if one or more securities acquisition loans were made
to the borrower on or before July 10,1989.
(3) REFINANCINGS.—The amendments made by this section
shall not apply to loans made after July 10, 1989, to refinance
securities acquisition loans (determined without regard to sec­
tion 1330)X2) of the Internal Revenue Code of 1986) made on or
before such date or to refinance loans described in this para­
graph or paragraph (2), (4), or (5) if—
(A) such refinancing loans meet the requirements of such
section 133 of such Code (as in effect before such amend­
ments) applicable to such loans,
(B) immediately after the refinancing the principal
amount of the loan resulting from the refinancing does not
exceed the principal amount of the refinanced loan (imme­
diately before the refinancing), and
(C) the term of such refinancing loan does not extend
beyond the later of—
(i) the last day of the term of the original securities
acquisition loan, or
(ii) the last day of the 7-year period beginning on the
date the original securities acquisition loan was made.
For purposes of this paragraph, the term "securities acquisition
.,-u loan' shall include a loan from a corporation to an employee
stock ownership plan described in section 13303X3) of such Code.
(4) CoLLEcnvB BARGAINING AGREEMENTS.—The amendments
made by this section shall not apply to any loan to the extent
such loan is used to acquire employer securities for an employee
stock ownership plan pursuant to a collective bargaining agree­
ment which sets forth the material terms of such employee
stock ownership plan and which was agreed to on or before
June 6,1989, by one or more employers and employee represent­
atives (and ratified on or before such date or within a reason­
able period thereafter).
(5) FiuNGS WITH UNFTED STATES.—The amendments made by
this section shall not apply to any loan the aggregate princip^
amount of which was specified in a filing with an agency of the
, United States on or before June 6,1989, if—
(A) such filing specifies such loan is to be a securities
acquisition loan for purposes of section 133 of the Internal
Revenue Code of 1986 and such filing is for the r^istration
required to permit the offering of such loan, or
^) such fUing is for the approval required in order for the
employee stock ownership plan to acquire more than a
certain percentcige of the stock of the employer.
(6) 30-PERCENT TEST SUBSTITUTED FOR 50-PERCENT TEST IN CASE
OP CERTAIN LOANS.—In the case of a loan to which the amend­
ments made by this section apply—
(A) which is made before November 18,1989, or
(B) with respect to which such amendments would not
* apply if paragraph (2XA) were applied by substituting
"November 17, 1989" for "June 6, 1989" each place it
appears,
section 133a>X6XA) of the Internal Revenue Code of 1986 (as
added by subsection (a)) shall be applied by substituting "at
least 30 percent" for "more than 50 percent" and section
4978B(cXlXB) of such Code (as added by subsection (d)) shall be PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2351
applied by substituting "less than 30 percent" for "50 percent or
less". The preceding sentence shall apply to any loan which is
used to refinance a loan described in such sentence if the
requirements of subparagraphs (A), (B), and (C) of paragraph (3)
are met with respect to the refinancing loan.
SEC. 7302. UMITATIONS ON DEDUCTIONS FOR DIVIDENDS PAID ON
EMPLOYER SECURITIES.
(a) IN GENERAL.—Subsection (k) of section 404 is amended to read
as follows:
"(k) DEDUCTION FOR DIVTOENDS PAID ON CERTAIN EMPLOYER SECU­
RITIES.—
"(1) GENERAL RULE.—In the case of a corporation, there shall
be allowed as a deduction for a taxable year the amount of any
applicable dividend paid in cash by such corporation during the
taxable year with respect to applicable employer securities.
Such deduction shall be in addition to the deductions allowed
under subsection (a).
"(2) APPUCABLE DIVIDEND.—For purposes of this subsection—
"(A) IN GENERAL.—The term 'applicable dividend' means
any dividend which, in accordance with the plan provi­
sions—
"(i) is paid in cash to the participants in the plan or
their beneficiaries,
"(ii) is paid to the plan and is distributed in cash to
participants in the plan or their beneficiaries not later
than 90 days after the close of the plan year in which
paid, or
"(ui) is used to make payments on a loan described in
subsection (aX9) the proceeds of which were used to
acquire the employer securities (whether or not allo­
cated to participants) with respect to which the divi­
dend is paid.
"(B) LIMITATION ON CERTAIN DIVIDENDS.—A dividend
described in subparagraph (AXiii) which is paid with respect
to any employer security which is allocated to a p£u*ticipant
shall not be treated £is an applicable dividend unless the
plan provides that employer securities with a fair market
value of not less than the £imount of such dividend are
allocated to such participant for the year which (but for
subparagraph (A)) such dividend would have been allocated
to such participant.
"(3) APPUCABLE EMPLOYER SECURITIES.—For purposes of this
subsection, the term 'applicable employer securities' means,
with respect to any dividend, employer securities which are held
on the record date for such dividend by an employee stock
ownership plan which is maintained by—
"(A) the corporation pajdng such dividend, or
"(B) any other corporation which is a member of a con­
trolled group of corporations (within the meaning of section
409(1X4)) which includes such corporation.
"(4) TIME FOR DEDUCTION.—
"(A) IN GENERAL.—The deduction under paragraph (1)
shall be allowable in the taxable year of the corporation in
which the dividend is paid or distributed to a participant or
his beneficiary. 103 STAT. 2352 PUBLIC LAW 101-239—DEC. 19, 1989
"(B) REPAYMENT OF LOANS.—In the case of an applicable
dividend described in clause (iii) of paragraph (2XA), the
– deduction under paragraph (1) shall be allowable in the
tEixable year of the corporation in which such dividend is
used to repay the loan described in such clause.
"(5) OTHER RULES.—For purposes of this subsection—
"(A) DISALLOWANCE OF DEDUCTION.—The Secretary may
disallow the deduction under paragraph (1) for any dividend
5. if the Secretary determines that such dividend constitutes,
in substance, an evasion of taxation.
"(B) PLAN QUAUFICATION.—A plan shall not be treated as
violating the requirements of section 401, 409, or 4975(eX7),
: or as engaging in a prohibited transaction for purposes of
section 4975(dX3), merely by reason of any payment or
distribution described in paragraph (2XA).
"(6) DEFINITIONS.—For purposes of this subsection—
"(A) EMPLOYER SECURITIES.—The term 'employer securi­
ties' has the meaning given such term by section 409(1).
"(B) EMPLOYEE STOCK OWNERSHIP PLAN.—The term 'em­
ployee stock ownership plan' has the meaning given such
term by section 4975(eX7). Such term includes a tax credit
employee stock ownership plan (as defined in section 409)."
26 use 404 note. (b) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendment made by this section shall
apply to employer securities acquired after August 4, 1989.
(2) SECURITIES ACQUIRED WITH CERTAIN LOANS.—The amend­
ment made by this section shall not apply to employer securities
acquired after August 4,1989, which are acquired—
(A) with the proceeds of any loan which was made pursu­
ant to a binding written commitment in effect on August 4,
1989, and at all times thereafter before such loan is made,
and
(B) pursuant to a written binding contract (or tender offer
registered with the Securities and Exchange Commission)
' in effect on August 4, 1989, and at all times thereafter
before such securities are acquired.
SEC. 7303. 3-YEAR HOLDING PERIOD REQUIRED BEFORE SECTION 1042
SALE.
(a) IN GENERAL.—Section 1042(b) (relating to requirements to
qualify for nonrecognition) is amended by adding at the end thereof
the following new paragraph:
"(4) 3-YEAR HOLDING PERIOD.—The taxpayer's holding period
with respect to the qualified securities is at least 3 years
(determined as of the time of the sale)."
26 use 1042 (b) EFFECTIVE DATE.—The amendment made by this section shall
note. apply to sales after July 10,1989.
SEC. 7304. REPEAL OF CERTAIN PROVISIONS RELATING TO EMPLOYEE
STOCK OWNERSHIP PLANS.
(a) ESTATE TAX DEDUCTION.—
(1) IN GENERAL.—Section 2057 (relating to sales of employer
securities to employee stock ownership plans or worker-owned
corporations) is hereby repealed.
(2) CONFORMING AMENDMENTS.—
(A) Paragraph (1) of section 409(n) is amended—
(i) by striking "or section 2057" each place it appears. PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2353
(ii) by striking "or any decedent if the executor of the
estate of such decedent makes a qualified sale to which
section 2057 applies" in subparagraph (AXi) thereof,
and
(iii) by striking "or the decedent" in subparagraph
(AXii) thereof.
(B) Paragraphs (2XCXi) and (SXAXii) of section 409(n) are
each amended by striking "or section 2057".
(CXi) Section 4978A is hereby repealed,
(ii) Section 4978(bX2) is amended by striking "(determined
as if such securities were disposed of in the order described
in section 4978A(e))." and inserting "determined as if such
securities were disposed of—
"(A) first, from section 133 securities (as defined in sec­
tion 4978B(eX2)) acquired during the 3-year period ending
on the date of such disposition, beginning with the securi­
ties first so acquired.
"(B) second, from section 133 securities (as so defined)
acquired before such 3-year period unless such securities (or
proceeds from the disposition) have been allocated to ac­
counts of participants or beneficiaries."
"(C) third, from qualified securities to which section 1042
applied acquired during the 3-year period ending on the
date of the disposition, beginning with the securities first so
acquired, and
* (D) then from any other employer securities.
If subsection (d) or section 4978B(d) applies to a disposition, the
disposition shall be treated as made from employer securities in
the opposite order of the preceding sentence.'
(iii) The table of sections for chapter 43 is amended by
striking the item relating to section 4978A.
(D) Section 4979A is amended—
(i) by striking "or section 2057" in subsection (bXD,
and
(ii) by striking "or section 2057(d)" in subsection
(cX2).
(E) The table of sections for part IV of subchapter A of
chapter 11 is amended by striking the item relating to
section 2057.
(3) EFFECTIVE DATE.—The amendments made by this subsec- 26 USC 409 note,
tion shall apply to the estates of decedents dying after the date
of the enactment of this Act.
(b) LIABILITY FOR PAYMENT OF ESTATE TAX.—
(1) IN GENERAL.—Section 2210 (relating to liability for pay­
ment in case of transfer of employer securities) is nereby re­
pealed.
' (2) CONFORMING AMENDMENTS.—
(A) Section 2002 is amended by striking "Except as pro­
vided in section 2210, the" and inserting "The".
(B) Section 6018 is amended by striking subsection (c).
(C) The table of sections for subchapter C of chapter 11 is
amended by striking the item relating to section 2210.
(3) EFFECTIVE DATE.—The amendments made by this subsec- 26 USC 2002
tion shall apply to estates of decedents dying after July 12,1989. °°*®-
(c) LIMITATIONS ON DEFINED CONTRIBUTION PLANS.—
(1) IN GENERAL.—Paragraph (6) of section 415(c) is amended to
read as follows: 103 STAT. 2354 PUBLIC LAW 101-239—DEC. 19, 1989
"(6) SPECIAL RULE FOR EMPLOYEE STOCK OWNERSHIP PLANS.—If
no more than one-third of the employer contributions to an
' employee stock ownership plan (as described in section
4975(eX7)) for a year which are deductible under paragraph (9)
of section 404(a) are allocated to highly compensated employees
(within the meaning of section 414(q)), the limitations imposed
by this section shall not apply to—
"(A) forfeitures of employer securities (within the mean­
ing of section 409) under such an employee stock ownership
.? plan if such securities were acquired with the proceeds of a
loan (as described in section 404(aX9XA)), or
"(B) employer contributions to such an employee stock
ownership plan which are deductible under section
404(aX9XB) and charged agEiinst the participant's account."
26 use 415 note. (2) EFFECTIVE DATE.—The amendment made by this subsection
shall apply to years beginning after July 12,1989.
(d) SPECIAL RULES RELATING TO NET OPERATING LOSSES.—
(1) IN GENERAL.—Section 382(1X3) is amended by striking
subparEigraph (C) and by redesignating subparagraph (D) as
subparagraph (C).
26 use 382 note. (2) EFFECTIVE DATE.—The amendments made by this subsec­
tion shall apply to acquisitions of employer securities after July
12, 1989, except that such amendments shall not apply to
acquisitions after July 12, 1989, pursuant to a written binding
contract in effect on July 12, 1989, and at all times thereafter
before such acquisition.
PART II—SECTION 401(H) ACCOUNTS
SEC. 7311. LIMITATION ON CONTRIBUTIONS TO SECTION 401(h) ACCOUNTS.
(a) IN GENERAL.—Section 401(h) is amended by adding at the end
thereof the following new sentence: "In no event shall the require­
ments of paragraph (1) be treated as met if the aggregate actual
contributions for medical benefits, when added to actual contribu­
tions for life insurance protection under the plan, exceed 25 percent
of the total actued contributions to the plan (other than contribu­
tions to fund past service credits) after the date on which the
account is established."
26 use 401 note. (b) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendment made by this section shall
apply to contributions after October 3,1989.
(2) TRANSITION.—The amendment made by this section shall
not apply to contributions made before January 1, 1990, if—
(A) the employer requested before October 3, 1989, a
private letter ruling or determination letter with respect to
the qualification of the plan maintaining the account under
t section 401(h) of the Internal Revenue Code of 1986,
(B) the request sets forth a method under which the
amount of contributions to the account are to be deter­
mined on the basis of cost,
(C) such method is permissible under section 401(h) of
such Code under the provisions of General Counsel Memo­
randum 39785, and
(D) the Internal Revenue Service issued before October 4,
1989, a private letter ruling, determination letter, or other
letter providing that the specific plan involved qualifies PUBLIC LAW 101-239—DEC. 19,1989 103 STAT. 2355
under section 401(a) of such Code when such method is
used, that contributions to the account are deductible, or
acknowledging that the account would not adversely affect
the qualified status of the plan (contingent on all phases of
the particular plan being approved).
Subtitle D—Foreign Provisions
SEC. 7401. TAXABLE YEAR OF CERTAIN FOREIGN CORPORATIONS.
(a) GENERAL RULE.—Subpart D of part II of subchapter N of
chapter 1 (relating to miscellaneous provisions) is amended by
adding at the end thereof the following new section:
"SEC. 898. TAXABLE YEAR OF CERTAIN FOREIGN CORPORATIONS.
"(a) GENERAL RULE.—For purposes of this title, the tsucable year of
any specified foreign corporation shall be the required year deter­
mined under subsection (c).
"(b) SPECIFIED FOREIGN CORPORATION.—For purposes of this sec­
tion—
"(1) IN GENERAL.—The term 'specified foreign corporation'
means any foreign corporation— (
"(A) which is—
"(i) treated as a controlled foreign corporation for
any purpose under subpart F of part III of this sub-
..? chapter, or
"(ii) a foreign personal holding company (as defined
in section 552), and
"(B) with respect to which the ownership requirements of
paragraph (2) are met.
"(2) OWNERSHIP REQUIREMENTS.—
' "(A) IN GENERAL.—The ownership requirements of this
paragraph are met with respect to any foreign corporation
if a United States shareholder owns, on each testing day,
more than 50 percent of—
"(i) the total voting power of all classes of stock of
t. such corporation entitled to vote, or
" "(ii) the total value of all classes of stock of such
corporation.
"(B) OWNERSHIP.—For purposes of subparagraph (A), the
rules of subsections (a) and (b) of section 958 and sections
551(f) and 554, whichever are applicable, shall apply in
determining ownership.
"(3) UNITED STATES SHAREHOLDER.—
"(A) IN GENERAL.—The term 'United States shareholder'
has the meaning given to such term by section 951(b),
except that, in the case of a foreign corporation having
related person insurance income (as defined in section
953(cX2)), the Secretary may treat any person as a United
States shareholder for purposes of this section if such
person is treated as a United States shareholder under
section 953(cXl).
"(B) FOREIGN PERSONAL HOLDING COMPANIES.—In the case '^
of any foreign personal holding company (as defined in
section 552) which is not a specified foreign corporation by
reason of paragraph (IXAXi), the term 'United States share-103 STAT. 2356 PUBLIC LAW 101-239—DEC. 19, 1989
holder' means any person who is treated as a United States
shareholder under section 551.
"(c) DETERMINATION OF REQUIRED YEAR.—
"(1) CONTROLLED FOREIGN CORPORATIONS.—
"(A) IN GENERAL.—In the case of a specified foreign cor­
poration described in subsection (bXlXAXi), the required
year is—
"(i) the majority U.S. shareholder year, or
"(ii) if there is no majority U.S. shareholder year, the
taxable year prescribea under regulations.
"(B) 1-MONTH DEFERRAL ALLOWED.—A Specified foreign
i . corporation mav elect, in lieu of the taxable year under
subparagraph (AXi), a taxable year beginning 1 month ear­
lier than the majority U.S. shareholder year.
"(C) MAJORITY U.S. SHAREHOLDER YEAR.—
"(i) IN GENERAL.—For purposes of this subsection, the
term 'majority U.S. shareholder year' means the tax­
able year (if any) which, on each testing day, con­
stituted the taxable year of—
"(I) each United States shareholder described in
subsection (bX2XA), and
*' "(II) each United States shareholder not de­
scribed in subclause (I) whose stock was treated as
owned under subsection (bX2)(B) by any share­
holder described in such subclause,
"(ii) TESTING DAY.—The testing days shall be—
"(I) the first day of the corporation's taxable year
(determined without regard to this section), or
"(II) the days during such representative period
as the Secret«ury may prescribe.
"(2) FOREIGN PERSONAL HOLDING COMPANIES.—In the case of a
foreign personal holding company described in subsection
(bX3XB), the required year shall be determined under par£^aph
-. (1), except that subparagraph (B) of paragraph (1) sh£ul not
apply."
(b) TREATMENT OF DIVIDENDS PAID AFTER CLOSE OF TAXABLE
YEAR.—
(1) IN GENERAL.—Section 563 is amended by redesignating
subsection (c) as subsection (d) and by inserting after subsection
(b) the following new subsection:
"(c) FOREIGN PERSONAL HOLDING COMPANY TAX.—
"(1) IN GENERAL.—In the determination of the dividends paid
deduction for purposes of part III, a dividend paid after the close
of any taxable year and on or before the 15th day of the 3rd
month following the close of such taxable year shall, to the
extent the company designates such dividend as being taken
into account under this subsection, be considered as paid during
such taxable year. The amount allowed as a deduction by reason
of the application of this subsection with respect to any taxable
year shall not exceed the undistributed foreign person^ holding
company income of the corporation for the taxable year com­
puted without regard to this subsection.
"(2) SPECIAL RULES.—In the case of any distribution referred
to in paragraph (1)—
"(A) paragraph (1) shall apply only if such distribution is
to the person who was the shareholder of record (as of the
last day of the taxable year of the foreign personal holding PUBUC LAW 101-239—DEC. 19, 1989 103 STAT. 2357
., company) with respect to the stock for which such distribu­
tion is made,
"(B) the determination of the person required to include
such distribution in gross income shall be made under the
principles of section 551(f), £ind
"(C) any person required to include such distribution in
gross or distributable net income shall include such dis­
tribution in income for such person's taxable year in which
the taxable year of the foreign personal holding company
ends."
(2) CONFORMING AMENDMENT.—Subsection (d) of section 563
(as redesignated by paragraph (1)) is amended by striking
"subsection (a) or (b)" and inserting "subsection (a), (b), or (c)'.
(c) CLERICAL AMENDMENT.—The table of sections for subpart D of
part II of subchapter N of chapter 1 is amended by adding at the end
thereof the following new item:
"Sec. 898. Taxable year of certain foreign corporations."
(d) EFFECTIVE DATE.— 26 use 898 note.
(1) IN GENERAL.—The amendments made by this section shall
apply to taxable years of foreign corporations beginning after
July 10,1989.
(2) SPECIAL RULES.—If any foreign corporation is required by
the amendments made by this section to change its taxable year
for its first taxable year beginning after July 10,1989—
(A) such change shall be treated as initiated by the
taxpayer,
(B) such change shall be treated as having been made
with the consent of the Secretary of the Treasury or his
•I delegate, and
(C) if, by reason of such change, any United States person
is required to include in gross income for 1 taxable year
amounts attributable to 2 taxable years of such foreign
corporation, the amount which would otherwise be required
to be included in gross income for such 1 taxable year by
reason of the short taxable year of the foreign corporation
resulting from such change shall be included in gross
income ratably over the 4-taxable-year period beginning
with such 1 taxable year.
SEC. 7402. LIMITATION ON USE OF DECONSOLIDATION TO AVOID FOR­
EIGN TAX CREDIT LIMITATIONS.
(a) GENERAL RULE.—Section 904 (relating to limitations on foreign
tax credit) is amended by redesignating subsection (i) £is subsection
(j) and by inserting after subsection (h) the following new subsection:
"(i) LIMITATION ON USE OF DECONSOUDATION To AVOID FOREIGN
TAX CREDIT LIMITATIONS.—If 2 or more domestic corporations would v
be members of the same affiliated group if— ^
"(1) section 1504(b) were applied without regard to the excep­
tions contained therein, and
"(2) the constructive ownership rules of section 1563(e) ap­
plied for purposes of section 1504(a),
the Secretary may by regulations provide for resourcing the income
of any of such corporations or for modifications to the consolidated
return regulations to the extent that such resourcing or modifica­
tions are necessary to prevent the avoidance of the provisions of this
subpart." 103 STAT. 2358 PUBLIC LAW 101-239—DEC. 19,1989
26 use 904 note. (b) EFFECTIVE DATE.—The amendment made by subsection (a)
shall apply to taxable years beginning after July 10, 1989.
SEC. 7403. INFORMATION WITH RESPECT TO CERTAIN FOREIGN-OWNED
CORPORATIONS.
(a) 25-PERCENT FOREIGN-OWNED CORPORATIONS REQUIRED TO
REPORT.—
(1) Peu-agraph (2) of section 6038A(a) is amended to read as
follows:
"(2) is 25-percent foreign-owned,".
(2) Subsection (c) of section 6038A is amended to read as
follows:
"(c) DEFINITIONS.—For purposes of this section—
"(1) 25-PERCENT FOREIGN-OWNED.—A Corporation is 25-percent
foreign-owned if at least 25 percent of—
"(A) the total voting power of all classes of stock of such
corporation entitled to vote, or
(B) the total value of all classes of stock of such corpora­
tion,
is owned at any time during the taxable 3rear by 1 foreign
person (hereinarter in this section referred to as a '25-percent
foreign shareholder').
"(2) RELATED PARTY.—The term 'related party' means—
"(A) any 25-percent foreign shareholder of the reporting
corporation,
'(B) any person who is related (within the meaning of
section 267(b) or 707(bXl)) to the reporting corporation or to
i i" * a 25-percent foreign shareholder of the reporting corpora-
' ^ s 1 tion, and
"(C) any other person who is related (within the meaning
of section 482) to the reporting corporation.
"(4) FOREIGN PERSON.—The term 'foreign person' means any
person who is not a United States person. For purposes of the
preceding sentence, the term 'United States person' has the
meaning given to such term by section 7701(aX30), except that
any individual who is a citizen of any possession of the United
States (but not otherwise a citizen of the United States) and who
' is not a resident of the United States shall not be treated £is a
United States person.
fs "(5) RECORDS.—The term 'records' includes any books, papers,
or other data.
"(6) SECTION 318 TO APPLY.—Section 318 shall apply for pur­
poses of paragraphs (1) and (2), except that—
"(A) '10 percent' shall be substituted for '50 percent' in
section 318(aX2XC), and
"(B) subparagraphs (A), (B), and (C) of section 318(aX3)
shall not be applied so as to consider a United States person
as owning stock which is owned by a person who is not a
United States person."
Regulations. (b) U.S. RECORDKEEPING REQUIREMENTS.—Subsection (a) of section
6038A is amended by inserting before the period at the end thereof
the following: "and such corporation shall maintain (in the location,
in the manner, and to the extent prescribed in regulations) such
records as may be appropriate to determine the correct treatment of
transactions with related parties as the Secretary shall by regula­
tions prescribe (or shall cause another person to so maintain such
records)". . PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2359
(c) INCREASE IN PENALTY.—Subsection (d) of section 6038A is
amended to read as follows:
"(d) PENALTY FOR FAILURE TO FURNISH INFORMATION OR MAINTAIN
RECORDS.—
"(1) IN GENERAL.—If a reporting corporation—
"(A) fails to furnish (within the time prescribed by regula­
tions) any information described in subsection (b), or
"(B) fails to maintain (or cause another to maintain)
records as required by subsection (a),
such corporation shall pay a penalty of $10,000 for each taxable
year with respect to which such failure occurs.
"(2) INCREASE IN PENALTY WHERE FAILURE CONTINUES AFTER
NOTIFICATION.—If any failure described in paragraph (1) contin­
ues for more than 90 days after the day on which the Secretary
mails notice of such failure to the reporting corporation, such
corporation shedl pay a penalty (in addition to the amount
required under paragraph (1)) of $10,000 for each 30-day period
(or fraction thereof) during which such failure continues after
the expiration of such 90-day period.
"(3) REASONABLE CAUSE.—For purposes of this subsection, the
time prescribed by regulations to furnish information or main­
tain records (and the beginning of the 90-day period after notice
by the Secretary) shall be treated as not earlier than the last
day on which (as shown to the satisfaction of the Secretary)
reasonable cause existed for failure to furnish the information
or maintain the records."
(d) ENFORCEMENT OF INFORMATION REQUESTS.—Section 6038A is
amended by redesignating subsection (e) as subsection (f) and by
inserting after subsection (d) the following new subsection:
"(e) ENFORCEMENT OF REQUESTS FOR CERTAIN RECORDS.—
"(1) AGREEMENT TO TREAT CORPORATION AS AGENT.—The rules
of paragraph (3) shall apply to any transaction between the
reporting corporation and any related party who is a foreign
person unless such related party agrees (in such manner and at
such time £is the Secretary shall prescribe) to authorize the
reporting corporation to act as such related party's limited
agent solely for purposes of applying sections 7602, 7603, and
7604 with respect to any request by the Secretary to examine
records or produce testimony related to any such transaction or
with respect to any summons by the Secretary for such records
or testimony. The appearance of persons or production of •
records by reason of the reporting corporation being such an
£igent shall not subject such persons or records to legal process
for any purpose other than determining the correct treatment
under this title of any transaction between the reporting cor­
poration and such related party.
"(2) RULES WHERE INFORMATION NOT FURNISHED.—If^
"(A) for purposes of determining the correct treatment
under this title of any transaction between the reporting
corporation and a related party who is a foreign person, the
Secretary issues a summons to such corporation to produce
(either directly or £is agent for such related party) any
records or testimony,
"(B) such summons is not quashed in a proceeding begun
under paragraph (4) and is not determined to be invalid in a
proceeding begun under section 7604(b) to enforce such
summons, and 103 STAT. 2360 PUBLIC LAW 101-239—DEC. 19, 1989
IfaiL
Real property. "(C) the reporting corporation does not substantially
comply in a timely manner with such summons and the
Secretary has sent by certified or registered mail a notice to
such reporting corporation that such reporting corporation
has not so substantially complied,
the Secretary may apply the rules of paragraph (3) with respect
to such transaction (whether or not the Secretary begins a
proceeding to enforce such summons). If the reporting corpora­
tion fails to maintain (or cause another to maintain) records as
required by subsection (a), and by reason of that failure, the
summons is quashed in a proceeding described in subparagraph
(B) or the reporting corporation is not able to provide the
records requested in the summons, the Secretary may apply the
rules of paragraph (3) with respect to any transaction to which
the records relate.
"(3) APPUCABLE RULES IN CASES OF NONCOMPUANCE.—If the
rules of this paragraph apply to any transaction—
"(A) the amount of the deduction allowed under subtitle
A for any amount paid or incurred by the reporting cor­
poration to the related party in connection with such trans­
action, and
"(B) the cost to the reporting corporation of any property
acquired in such transaction from the related party (or
transferred by such corporation in such transaction to the
related party),
shall be the amount determined by the Secretary in the Sec­
retary's sole discretion from the Secretary's own knowledge or
from such information as the Secretary may obtain through
testimony or otherwise.
"(4) JUDICIAL PROCEEDINGS.—
"(A) PROCEEDINGS TO QUASH.—Notwithstanding any law
or rule of law, any reporting corporation to which the
Secretary issues a summons referred to in paragraph (2XA)
shall have the right to begin a proceeding to quash such
summons not later than the 90th day after such summons
was issued. In any such proceeding, the Secretary may seek
to compel compliance with such summons.
"(B) REVIEW OF SECRETARIAL DETERMINATION OF NON­
COMPUANCE.—Notwithstanding any law or rule of law, any
reporting corporation which has been notified by the Sec­
retary that the Secretary has determined that such cor­
poration has not substantially complied with a summons
referred to in paragraph (2) shall have the right to begin a
proceeding to review such determination not later than the
90th day after the day on which the notice referred to in
paragraph (2XC) was mailed. If such a proceeding is not
begun on or before such 90th day, such determination by
the Secretary shall be binding and shall not be reviewed by
any court.
(C) JURISDICTION.—The United States district court for
the district in which the person (to whom the summons is
issued) resides or is found shall have jurisdiction to hear
any proceeding brought under subparagraph (A) or (B). Any
order or other determination in such a proceeding shall be
treated as a final order which may be appealed.
"(D) SUSPENSION OF STATUTE OF UMITATIONS.—If the
reporting corporation brings an action under subparagraph PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. ^361
(A) or (B), the running of any period of limitations under
section 6501 (relating to assessment and collection of tax) or
under section 6531 (relating to criminal prosecutions) with
respect to any transaction to which the summons relates
sh£dl be suspended for the period during which such
proceeding, and appeals therein, are pending. In no event
shall any such period expire before the 90th day after the
day on which there is a final determination in such proceed-
mg.
(e) EFFECTIVE DATE.—The amendments made by this section shall 26 use 6038A
apply to taxable years beginning after July 10,1989. ^****-
SEC. 7404. REPEAL OF SPECIAL TREATMENT OF INTEREST ON CERTAIN
FOREIGN LOANS. v
(a) GENERAL RULE.—Paragraph (2) of section 1201(e) of the Tax
Reform Act of 1986 is hereby repealed. 26 USC 904 note.
(b) EFFECTIVE DATE.—The repeal made by subsection (a) shall 26 USC 904 note,
apply to taxable years beginning after December 31,1989.
(c) EXCEPTION FOR CERTAIN TAXPAYERS WITH SUBSTANTIAL LOAN 26 use 904 note.
Loss RESERVES.—
(1) IN GENERAL.—The repeal made by subsection (a) shall not
apply to any taxpayer if, on any financial statement filed by
^ such taxpayer for regulatory purposes with respect to any
quarter ending during the period beginning on March 31, 1989,
and ending on December 31, 1989, such taxpayer showed loss
reserves against its qualified loans equal to at least 25 percent
of the amount of such loans.
(2) DEFINITIONS AND SPECIAL RUL^S.—For purposes of this
subsection—
(A) QUALIFIED LOAN.—The term "qualified loan" has the
meaning given such term by section 1201(eX2)(H) of the Tax
Reform Act of 1986 (as in effect before its repeal by subsec­
tion (a)). ^
(B) PARENT-SUBSIDIARY CONTROLLED GROUPS.—In the case
of any taxpayer which is a member of a parent-subsidiaiy
ei;^. controlled group (as defined in section 585(cX5XA)), this
subsection shall be applied by treating all members of such
f group as 1 taxpayer.
Subtitle E—Excise Tax Provisions
SEC. 7501. 1-YEAR SUSPENSION OF AUTOMATIC REDUCTION IN AVIATION-
RELATED TAXES.
(a) IN GENERAL.—Subsection (a) of section 4283 (relating to reduc­
tion in aviation-related taxes in certain cases) is amended by strik­
ing "1990" and inserting "1991".
(b) CONFORMING AMENDMENTS.—
(1) Clause (i) of section 4283(bXlXA) is amended by striking
"1988 and 1989" and inserting "1989 and 1990".
(2) Paragraph (3) of section 4283(b) is amended—
(A) by striking "1990" and inserting "1991", and
(B) by striking "1989" and inserting "1990".
(3) Subsection (q) of section 6427 is amended by striking
"1990" each place it appears and inserting "1991". 103 STAT. 2362 PUBLIC LAW 101-239—DEC. 19, 1989
SEC. 7502. ACCELERATION OF DEPOSIT REQUIREMENTS FOR AIRLINE
TICKET TAX.
(a) IN GENERAL.—Section 6302 (relating to mode or time of collec­
tion) is amended by redesignating subsection (e) as subsection (f) and
by inserting after subsection (d) the following new subsection:
"(e) TIME FOR DEPOSIT OF TAXES ON AIRLINE TICKETS.—If, under
regulations prescribed by the Secretary, a person is required to
make deposits of any tax imposed by subsection (a) or (b) of section
4261 with respect to amounts considered collected by such person
-* •-'"' ' during any semimonthly period, such deposit shall be made not later
than the 3rd day (not mcluding Saturdajrs, Sundays, or legal holi­
days) after the close of the 1st week of the 2nd semimonthly period
following the period to which such amounts relate."
26 use 6302 (b) EFFECTIVE DATE.—The amendment made by subsection (a)
"°*®- shall apply to payments of taxes considered collected for semi­
monthly periods beginning after June 30,1990.
SEC. 7503. INCREASE IN INTERNATIONAL AIR PASSENGER DEPARTURE
.j,^,.•:.•^.; ::-,'•.. TAX.
(a) IN GENERAL.—Section 4261(c) (relating to tax on use of inter-
I national travel facilities) is amended by striking "$3" and inserting
"$6".
26 use 4261 (b) EFFECTIVE DATE.—The amendment made by subsection (a)
*iote. shall apply with respect to transportation beginning after December
31,1989, which weus not paid for before such date.
SEC. 7504. SHIP PASSENGERS INTERNATIONAL DEPARTURE TAX.
(a) IN GENERAL.—Chapter 36 (relating to certain other excise
taxes) is amended by inserting after subchapter A the following new
subchapter:
"Subchapter B—Transportation by Water
"Sec. 4471. Imposition of tax.
"Sec. 4472. Definitions and special rules.
"SEC. 4471. IMPOSITION OF TAX.
"(a) IN GENERAL.—There is hereby imposed a tax of $3 per pas­
senger on a covered voyage.
"(b) BY WHOM PAID.—The tax imposed by this section shall be
paid by the person providing the covered voyage.
"(c) TIME OF IMPOSITION.—The tax imposed by this section shall be
imposed only once for each passenger on a covered voyage, either at
the time of first embarkation or disembarkation in the United
States.
"SEC. 4472. DEFINITIONS.
"For purposes of this subchapter—
(X) COVERED VOYAGE.—
"(A) IN GENERAL.—The term 'covered voyage* means a
voyage of—
"(i) a commercial passenger vessel which extends
over 1 or more nights, or
"(ii) a commercial vessel transporting passengers en­
gaged in gambling aboard the vessel beyond the terri­
torial waters of the United States,
?^* during which passengers embark or disembark the vessel in
the United States. Such term shall not include any voyage PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2363
on any vessel owned or operated by the United States, a
State, or any sigency or subdivision thereof.
"(B) EXCEPTION FOR CERTAIN VOYAGES ON PASSENGER VES­
SELS.—The term 'covered voyage' shall not include a voyage
of a passenger vessel of less than 12 hours between 2 ports
in the United States.
"(2) PASSENGER VESSEL.—The term 'passenger vessel' means
any vessel having berth or stateroom accommodations for more
than 16 passengers."
(b) CLERICAL AMENDMENTS.—The table of subchapters for chapter
36 is amended by inserting after the item relating to subchapter A
the following new item:
"SUBCHAPTER B. Transportation by water."
(c) EFFECTIVE DATE.— 26 USC 4471
(1) IN GENERAL.—The amendments made by this section shall "°*®-
apply to voyages beginning after December 31,1989, which were
not paid for before such date.
(2) No DEPOSITS REQUIRED BEFORE APRIL 1,1990.—No deposit of
any tax imposed by subchapter B of chapter 36 of the Internal
Revenue Code of 1986, as added by this section, shall be required
to be made before April 1,1990.
SEC. 7505. OIL SPILL LIABILITY TRUST FUND TAX TO TAKE EFFECT ON
JANUARY 1,1990.
(a) TAX TO TAKE EFFECT ON JANUARY 1,1990.—
(1) IN GENERAL.—Subsection (f) of section 4611 (relating to
application of Oil Spill Liability Trust Fund financing rate) is
amended to read as follows:
"(f) APPUCATION OF OIL SPILL LIABILITY TRUST FUND FINANCING
RATE.—
"(1) IN GENERAL.—Except as provided in paragraph (2), the Oil
Spill Liability Trust Fund financing rate under subsection (c)
shall apply after December 31,1989, and before January 1,1995.
"(2) No TAX IF UNOBUGATED BALANCE IN FUND EXCEEDS
$1,000,000,000.—The Oil Spill Liability Trust Fund financing
rate shall not apply during any calendar quarter if the Sec­
retary estimates that as of the close of the preceding calendar
quarter the unobligated balance in the Oil Spill Liability Trust
Fund exceeds $1,000,000,000."
Ot)) 5 CENT RATE OF TAX.—Subparagraph (B) of section 4611(cX2) is
amended by striking "1.3 cents" and inserting "5 cents".
(c) CREDIT AGAINST OIL SPILL TAX FOR EXCESS AMOUNTS IN THE
TRANS-ALASKA PIPEUNE LIABILITY FUND.—Subsection (d) of section
4612 is amended by adding at the end thereof the following new
sentence:
"The preceding sentence shall also apply to amounts paid by the
taxpayer into the Trans-Alaska Pipeline Liability Fund to the
extent of amounts transferred from such Fund into the Oil Spill
Liability Trust Fund. Amounts may be trcmsferred from the Trans-
Alaska Pipeline Liability Fund into the Oil Spill Liability Trust
Fund only to the extent the administrators of the Trans-Alaska
Pipeline Liability Fund determine that such amounts are not
needed to satisfy claims against such Fund."
(d) OIL SPILL LIABIUTY TRUST FUND TO BE OPERATING FUND.— 26 USC 4611
(1) IN GENERAL.—For purposes of sections 8032(d) and 8033(c) "«*«•
of the Omnibus Budget Reconciliation Act of 1986, the
commencement date is January 1,1990. 103 STAT. 2364 PUBLIC LAW 101-239—DEC. 19, 1989
(2) CONFORMING AMENDMENTS.—
(A) Section 9509 (relating to Oil Spill Liability Trust
Fund) is amended by adding at the end thereof the follow­
ing new subsection:
"(f) REFERENCES TO Ck)MPREHENSiVE OIL POLLUTION LIABILITY AND
COMPENSATION ACT.—For purposes of this section, references to the
Comprehensive Oil Pollution Liability and Compensation Act shall
be treated as references to any law enacted before December 31,
1990, which is substantially identical to subtitle E of title VI, or
subtitle D of title VIII, of H.R. 5300 of the 99th Congress as passed
by the House of Representatives."
(B) Paragraph (3) of section 9509(b) is amended by strik­
ing "(on the 1st day the Oil Spill Liability Trust Fund
financing rate under section 4611(c) applies) and inserting
"(on January 1,1990)".
(C) Paragraph (1) of section 9509(c) is amended by striking
the last sentence.
Environmental SEC. 7506. EXCISE TAX ON SALE OF CHEMICALS WHICH DEPLETE THE
protection. OZONE LAYER AND OF PRODUCTS CONTAINING SUCH CHEMI­
CALS.
(a) IN GENERAL.—Chapter 38 (relating to environmental taxes) is
amended by adding at the end thereof the following new subchapter:
"Subchapter D—Ozone-Depleting Chemicals, Etc.
"Sec. 4681. Imposition of tax. -^
"Sec. 4682. Definitions and special rules.
"SEC. 4681. IMPOSITION OF TAX.
"(a) GENERAL RULE.—There is hereby imposed a tax on—
"(1) any ozone-depleting chemical sold or used by the manu­
facturer, producer, or importer thereof, and
Imports. "(2) any imported taxable product sold or used by the im­
porter thereof.
"0)) AMOUNT OF TAX.—
"(1) OZONE-DEPLETING CHEMICALS.— -^
"(A) IN GENERAL.—The amount of the tax imposed by
subsection (a) on each pound of ozone-depleting chemical
shall be an amount equal to—
"(i) the base tax amount, multiplied by
"(ii) the ozone-depletion factor for such chemical.
"(B) BASE TAX AMOUNT FOR YEARS BEFORE 1995.—The base
tax amount for purposes of subparagraph (A) with respect
to any sale or use during a calendar year before 1995 is the
amount determined under the following table for such cal­
endar year:
„„ . . Base tax
"Calendar year. amount
1990 or 1991 $1.37
1992 1.67
1993 or 1994 2.65.
"(C) BASE TAX AMOUNT FOR YEARS AFTER 1994.—The base
tax amount for purposes of subparagraph (A) with respect
to any sale or use during a calendar year after 1994 shau be
the base tax amount for 1994 increased by 45 cents for each
year after 1994.
"(z) IMPORTED TAXABLE PRODUCT.— PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2365
"(A) IN GENERAL.—The amount of the tax imposed by
subsection (a) on any imported taxable product shall be the
amount of tax which would have been imposed by subsec­
tion (a) on the ozone-depleting chemicals used as materials
in the manufacture or production of such product if such
ozone-depleting chemicals had been sold in the United
States on the date of the sale of such imported taxable
product.
"(B) CERTAIN RULES TO APPLY.—Rules similar to the rules
of paragraphs (2) and (3) of section 4671(b) shall apply.
"SEC. 4682. DEFINITIONS AND SPECIAL RULES.
"(a) OZONE-DEPLETING CHEMICAL.—For purposes of this sub­
chapter—
"(1) IN GENERAL.—The term 'ozone-depleting chemical' means
any substance—
"(A) which, at the time of the sale or use by the manufac­
turer, producer, or importer, is listed as an ozone-depleting
chemical in the table contained in paragraph (2), and
"(B) which is manufactured or produced in the United
States or entered into the United States for consumption,
use, or warehousing.
"(2) OZONE-DEPLETING CHEMICALS.—
"Common name: Chemical nomenclature:
CFC-11 trichlorofluoromethane
CFC-12 dichlorodifluoromethane
CFC-113 trichlorotrifluoroethane
CFC-114 l,2-dichloro-l,l,2,2-tetra-fluoroethane
CFC-115 chloropentafluoroethane ^
Halon-1211 bromochlorodifluoromethane
Halon-1301 bromotrifluoromethane
Halon-2402 dibromotetrafluoroethane.
"(b) OZONE-DEPLETION FACTOR.—For purposes of this subchapter,
the term 'ozone-depletion factor' means, with respect to an ozone-
depleting chemical, the factor £issigned to such chemical under the
following table: ,
"Ozone-depleting chemical: Ozone-depletion factor.
CFC-11 1.0
CFC-12 1.0
CFC-113 0.8
• CFC-114 1.0
CFC-115 0.6
Halon-1211 3.0
Halon-1301 10.0
Halon-2402 6.0.
"(c) IMPORTED TAXABLE PRODUCT.—For purposes of this sub­
chapter—
"(1) IN GENERAL.—The term 'imported taxable product' means
any product (other than an ozone-depleting chemical) entered
into the United States for consumption, use, or warehousing if
any ozone-depleting chemical was used as material in the manu­
facture or production of such product.
"(2) DE MINIMIS EXCEPTION.—The term 'imported taxable
product' shall not include any product specified in regulations
prescribed by the Secretary as using a de minimis amount of
ozone-depleting chemicals as materials in the manufacture or
production thereof. The preceding sentence shall not apply to
any product in which any ozone-depleting chemical is used for
purposes of refrigeration or air conditioning, creating an aerosol
or foam, or manufacturing electronic components. 103 STAT. 2366 PUBLIC LAW 101-239—DEC. 19, 1989
"(d) EXCEPTIONS.—
"(1) RECYCUNG.—No tax shall be imposed by section 4681 on
: any ozone-depleting chemical which is diverted or recovered in
the United States as part of a recycling process (and not as part
' of the original manufacturing or production process).
"(2) USE IN FURTHER MANUFACTURE.—
"(A) IN GENERAL.—No tax shall be imposed by section
4681—
"(i) on the use of any ozone-depleting chemical in the
r r ; manufacture or production of any other chemical if the
ozone-depleting chemical is entirely consumed in such
use,
"(ii) on the sale by the manufacturer, producer, or
importer of any ozone-depleting chemical—
"(I) for a use by the purchaser which meets the
requirements of clause (i), or
"(11) for resale by the purchaser to a second
purchaser for a use by the second purchaser which
meets the requirements of clause (i).
Clause (ii) shall apply only if the manufacturer, producer,
r and importer, and the 1st and 2d purchasers (if any), meet
such registration requirements as may be prescribed by the
Secretary.
"(B) CREDIT OR REFUND.—Under regulations prescribed by
the Secretary, if—
"(i) a tax under this subchapter was paid with respect
to any ozone-depleting chemical, and
"(ii) such chemical was used (and entirely consumed)
by any person in the manufacture or production of any
other chemical,
then an amount equal to the tax so paid shall be allowed as
^ a credit or refund (without interest) to such person in the
same manner as if it were an overpayment of tax imposed
by section 4681.
"(3) EXPORTS.—
"(A) IN GENERAL.—Except as provided in subparagraph
(B), rules similar to the rules of section 4662(e) (other than
section 4662(eX2XAXii)(II)) shall apply for purposes of this
subchapter.
"(B) LIMIT ON BENEFIT.—
"(i) IN GENERAL.—The aggregate tax benefit allow­
able under subparagraph (A) with respect to ozone-
depleting chemicals manufactured or produced by any
person during a calendar year shall not exceed the sum
of—
"(I) the amount equal to the 1986 export percent­
age of the aggregate tax imposed by this sub-
.' chapter with respect to ozone-depleting chemicals
"' manufactured or produced by such person during
such calendar year (other than chemicals with re­
spect to which subclause (ID applies), and
"(II) the aggregate tax imposed by this sub­
chapter with respect to any additional production
allowance granted to such person with respect to
ozone-depleting chemicals manufactured or pro­
duced by such person during such calendar year by PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2367
the Environmental Protection Agency under 40
CFR Part 82 (as in effect on September 14, 1989).
"(ii) 1986 EXPORT PERCENTAGE.—A person's 1986
export percentage is the percentage equal to the ozone-
depletion factor adjusted pounds of ozone-depleting
chemicals manufactured or produced by such person
during 1986 which were exported during 1986, divided
by the ozone-depletion factor adjusted pounds of all
**' ozone-depleting chemicals manufactured or produced
by such person during 1986. The percentage deter- ^
mined under the preceding sentence shall be based on
data published by the Environmental Protection
Agency.
"(e) OTHER DEFINITIONS.—For purposes of this subchapter—
"(1) IMPORTER.—The term 'importer' mesms the person enter­
ing the article for consumption, use, or warehousing.
"(2) UNITED STATES.—The term 'United States' has the mean­
ing given such term by section 4612(aX4).
"(f) SPECIAL RULES.—
"(1) FRACTIONAL PARTS OP A POUND.—In the case of a fraction
of a pound, the tax imposed by this subchapter shall be the
same fraction of the amount of such tax imposed on a whole
pound.
"(2) DISPOSITION OF REVENUES FROM PUERTO RICO AND THE
VIRGIN ISLANDS.—The provisions of subsections (aX3) and (bX3)
of section 7652 shall not apply to any tax imposed by this
subchapter.
"(g) PHASE-IN OF TAX ON CERTAIN SUBSTANCES.—
"(1) TREATMENT FOR 1990.—
"(A) HALONS.—The term 'ozone-depleting chemical' shall
not include halon-1211, halon-1301, or halon-2402 with re­
spect to any sale or use during 1990.
"(B) CHEMICALS USED IN RIGID FOAM INSULATION.—No tax
shall be imposed by section 4681—
"(i) on the use during 1990 of any substance in the
manufacture of rigid foam insulation,
"(ii) on the sale during 1990 by the manufacturer,
producer, or importer of any substance—
J "(I) for use by the purchaser in the manufacture V
' ' of rigid foam insulation, or
"(II) for resale by the purchaser to a second
purchaser for such use by the second purchaser, or
"(iii) on the sale or use during 1990 by the importer
of any rigid foam insulation.
Clause (ii) shall apply only if the manufacturer, producer, and
importer, and the 1st and 2d purchasers (if any) meet such
registration requirements as may be prescribed by the Sec­
retary.
"(2) TREATMENT FOR 199I, I992, AND I993.—
"(A) HALONS.—The tax imposed by section 4681 during
1991, 1992, or 1993 by reason of the treatment of halon-
1211, halon-1301, and halon-2402 as ozone-depleting chemi­
cals shall be the applicable percentage (determined under
the following table) of the amount of such tax which would
(but for this subparagraph) be imposed. 103 STAT. 2368 PUBLIC LAW 101-239—DEC. 19, 1989
i-r , . ^ -1 .'T .,).-. . The applicable percentage is:
For For For
' "In the case of: • . sales or sales or sales or
use use use
during during during
' ; 1991 1992 1993
* *•'
Halon-1211 6.0 5.0 3.3
Halon-1301 1.8 1.5 1.0
Halon-2402 3.0 2.5 1.6.
'^^- "(B) CHEMICALS USED IN RIGID FOAM INSULATION.—In the
case of a sale or use during 1991,1992, or 1993 on which no
tax would have been imposed by reason of paragraph (IXB)
had such sale or use occurred during 1990, the tax imposed
by section 4681 shall be the applicable percentage (deter­
mined in accordance with the following table) of the
amount of such tax which would (but for this subparagraph)
be imposed.
"In the case of sales or
use during: The applicable percentage is:
^r 1991 18
; 1992 15
1993 10.
"(3) OVERPAYMENTS WITH RESPECT TO CHEMICALS USED IN RIGID
FOAM INSULATION.—If any substance on which tax was paid
under this subchapter is used during 1990,1991,1992, or 1993 by
any person in the manufacture of rigid foam insulation, credit
or refund (without interest) shall be allowed to such person an
amount equal to the excess of^
"(A) the tax paid under this subchapter on such sub­
stance, over
"(B) the tax (if any) which would be imposed by section
4681 if such substance were used for such use by the
manufacturer, producer, or importer thereof on the date of
its use by such person.
"Amounts payable under the preceding sentence with respect to
uses during the taxable year shall be treated as described in
section 34(a) for such year unless claim therefor has been timely
filed under this paragraph.
"(h) IMPOSITION OF FLOOR STOCKS TAXES.—
"(1) JANUARY i, 1990, TAX.^Dn any ozone-depleting chemical
which on January 1, 1990, is held by any person (other than the
manufacturer, producer, or importer thereof) for sale or for use
in further manufacture, there is hereby imposed a floor stocks
tax in an amount equal to the tax which would be imposed by
section 4681 on such chemical if the sale of such chemical by the
manufacturer, producer, or importer thereof had occurred
during 1990. n
"(2) OTHER TAX-INCREASE DATES.—
"(A) IN GENERAL.—If, on any tax-increase date, any ozone-
depleting chemical is held by any person (other than the
manufacturer, producer, or importer thereof) for sale or for
use in further manufacture, there is hereby imposed a floor
stocks tax.
"(B) AMOUNT OF TAX.—The amount of the tax imposed by
subparagraph (A) shall be the excess (if any) of—
"(i) the tax which would be imposed under section
4681 on such substance if the sale of such chemical by PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2369
the manufacturer, producer, or importer thereof had
occurred on the tax-increase date, over
"(ii) the prior tax (if any) imposed by this subchapter
on such substance.
"(C) TAX-INCREASE DATE.—For purposes of this paragraph,
the term 'tax-increase date* means January 1 of 1991,1992,
1993, and 1994.
"(3) DUE DATE.—The taxes imposed by this subsection on
January 1 of any calendar year shall be paid on or before April
1 of such year.
"(4) APPUCATION OF OTHER LAWS.—All other provisions of law,
including penalties, applicable with respect to the taxes im­
posed by section 4681 shall apply to the floor stocks taxes
imposed by this subsection."
(b) CLERICAL AMENDMENT.—The table of subchapters for chapter
38 is amended by adding at the end thereof the following new item:
"SUBCHAPTER D. Ozone-depleting chemicals, etc."
(c) EFFECTIVE DATE.— 26 use 4681
(1) IN GENERAL.—The amendments made by this section shall "°^-
take effect on January 1,1990.
(2) No DEPOSITS REQUIRED BEFORE APRIL 1,1990.—No deposit of
any tax imposed by subchapter D of chapter 38 of the Internal
Revenue Code of 1986, as added by this section, shall be required
to be made before April 1,1990.
(3) NOTIFICATION OF CHANGES IN INTERNATIONAL AGREE­
MENTS.—The Secretary of the Treasury or his delegate shall
notify the Committee on Ways and Means of the House of
Representatives and the Committee on Finance of the Senate of
changes in the Montreal Protocol and of other intemationEil
agreements to which the United States is a signatory relating to
ozone-depleting chemicals.
SEC. 7507. ACCELERATION OF DEPOSIT REQUIREMENTS FOR GASOLINE
EXCISE TAX.
(a) IN GENERAL.—Section 6302 (relating to mode or time of collec­
tion), as amended by section 7502, is amended by redesignating
subsection (f) as subsection (g) and by inserting after subsection (e)
the following new subsection:
"(f) TIME FOR DEPOSIT OF TAXES ON GASOUNE.—
"(1) GENERAL RULE.—Notwithstanding section 518 of the
Highway Revenue Act of 1982, any person whose liability for
tax under section 4081 is payable with respect to semimonthly
periods shall, not later than September 27, make deposits of
such tax for the period beginning on September 16 and ending
on September 22.
"(2) SPECIAL RULE WHERE DUE DATE FALLS ON SATURDAY,
SUNDAY, OR HOUDAY.—If, but for this paragraph, the due date District of
under paragraph (1) would fall on a Saturday, Sunday, or Columbia,
holiday in the District of Columbia, such due date shall be
deemed to be the immediately preceding day which is not a ^
Saturday, Sunday, or such a holiday."
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 26 use 6302
shall apply to payments of taxes for tax periods beginning after note.
December 31,1989. 103 STAT. 2370 PUBLIC LAW 101-239—DEC. 19, 1989
SEC. 7508. TAXATION OF BULK CIGAR IMPORTS.
(a) IN GENERAL.—Subsection (c) of section 5704 (relating to tobacco
products and cigarette papers and tubes released in bond from
customs custody) is amended by inserting "or to a manufacturer of
tobacco products or cigarette papers and tubes if such articles are
not put up in packages," after "export warehouse,".
26 use 5704 flj) EFFECTIVE DATE.—The amendment made by subsection (a)
•lo**. shall apply to articles imported or brought into the United States
after the date of the enactment of this Act.
Subtitle F—Miscellaneous Provisions
Real property PART I—LIMITATION ON NONRECOGNITION FOR
CERTAIN EXCHANGES
SEC. 7601. LIKE KIND EXCHANGES BETWEEN RELATED PERSONS.
(a) SPECIAL RULES FOR EXCHANGES BETWEEN RELATED PERSONS,
ETC.—Section 1031 (relating to exchange of property held for
productive use or investment) is amended by adding at the end
thereof the following new subsections:
"(f) SPECIAL RULES FOR EXCHANGES BETWEEN RELATED PERSONS.—
"(1) IN GENERAL.—If—
"(A) a taxpayer exchanges property with a related
person,
"(B) there is nonrecognition of gain or loss to the tax­
payer under this section with respect to the exchange of
such property (determined without regard to this subsec-
y – tion), and
"(C) before the date 2 years after the date of the last
transfer which was part of such exchange—
"(i) the related person disposes of such property, or
"(ii) the taxpayer disposes of the property received in
the exchange from the related person which was of like
kind to the property transferred by the taxpayer,
there shall be no nonrecognition of gain or loss under this
section to the taxpayer with respect to such exchange; except
that any gain or loss recognized by the taxpayer by reason of
this subsection shall be taken into account as of the date on
which the disposition referred to in subparagraph (C) occurs.
"(2) CERTAIN DISPOSITIONS NOT TAKEN INTO ACCOUNT.—For
purposes of paragraph (IXC), there shall not be taken into
account any disposition—
"(A) after the earlier of the death of the taxpayer or the
death of the related person,
"(B) in a compulsory or involuntary conversion (within
the meaning of section 1033) if the exchange occurred
before the threat or imminence of such conversion, or
,^ "(C) with respect to which it is established to the satisfac­
tion of the Secretary that neither the exchange nor such
disposition had as one of its principal purposes the avoid­
ance of Federal income tax.
"(3) RELATED PERSON.—For purposes of this subsection, the
term 'related person' means any person bearing a relationship
to the taxpayer described in section 267(b). PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2371
"(4) TREATMENT OF CERTAIN TRANSACTIONS.—This section shall
not apply to any exchange which is part of a transaction (or
series of transactions) structured to avoid the purposes of this
subsection.
"(g) SPECIAL RULE WHERE SUBSTANTIAL DIMINUTION OF RISK.—
"(1) IN GENERAL.—If paragraph (2) applies to any property for
any period, the running of the period set forth in subsection
(fKlXC) with respect to such property shall be suspended during
such period,
"(2) PROPERTY TO WHICH SUBSECTION APPLIES.—This paragraph
shall apply to any property for any period during which the
holder's risk of loss with respect to the property is substantially
diminished by—
"(A) the holding of a put with respect to such property,
"(B) the holding by another person of a right to acquire
such property, or
"(C) a short S£de or any other transaction.
"(h) SPECIAL RULE FOR FOREIGN REAL PROPERTY.—For purposes of
this section, real property located in the United States and real
property located outside the United States are not property of a like
kind."
(b) EFFECTIVE DATE.— 26 use 1031
(1) IN GENERAL.—Except as provided in paragraph (2), the "°*®-
amendments made by this section shall apply to transfers after
July 10,1989, in taxable years ending after such date.
(2) BINDING CONTRACT.—The amendments made by this sec­
tion shall not apply to any transfer pursuant to a written
binding contract in effect on July 10, 1989, and at all times
thereafter before the transfer.
PART II—MINIMUM TAX PROVISIONS
SEC. 7611. SIMPLIFICATION OF ADJUSTED CURRENT EARNINGS PREF­
ERENCE.
(a) EUMINATION OF BoOK LIMITATIONS APPUCABLE TO DEPRECIA­
TION.—
(1) IN GENERAL.—
(A) Clause (i) of section 56(gX4XA) (relating to deprecia­
tion) is amended to read as follows:
"(i) PROPERTY PLACED IN SERVICE AFTER 1989.—The
depreciation deduction with respect to any property
placed in service in a taxable year beginning after 1989
shall be determined under the alternative system of
section 168(g)."
(B) Subparagraph (A) of section 56(gX4) is amended by
striking clauses (v) and (vi) and by redesignating clause (vii)
as clause (v).
(2) TECHNICAL AMENDMENT.—Clause (iii) of section 56(gX4XA)
is amended by inserting "and which is placed in service in a
taxable year beginning before 1990" after "thereof) applies".
flb) TREATMENT OF CERTAIN EARNINGS AND PROFITS ADJUST­
MENTS.—Subparagraph (D) of section 56(gX4) is amended to read as
follows:
"(D) CERTAIN OTHER EARNpfGS AND PROFITS ADJUST­
MENTS.— 103 STAT. 2372 PUBLIC LAW 101-239—DEC. 19, 1989
"(i) INTANGIBLE DRILLING COSTS,—The adjustments
provided in section 312(nX2XA) shall apply in the case
of amounts paid or incurred in taxable years beginning
after December 31,1989.
"(ii) CERTAIN AMORTIZATION PROVISIONS NOT TO
APPLY.—Sections 173 and 248 shall not apply to
expenditures paid or incurred in taxable year begin­
ning after December 31,1989.
"(iii) LIFO INVENTORY ADJUSTMENTS.—The adjust-
* ments provided in section 312(nX4) shall apply.
"(iv) INSTALLMENT SALES.—In the case of any install-
'' ' ment sale in a taxable year beginning after December
31, 1989, adjusted current earnings shall be computed
• as if the corporation did not use the installment
method. The preceding sentence shall not apply to the
applicable percentage (as determined under section
453A) of the gain from any installment sale with re­
spect to which section 453A(aXl) applies."
(c) EuMiNATiON OF BooK LIMITATION ON DEPLETION.—Subpara­
graph (G) of section 56(gX4) is amended to read as follows:
"(G) DEPLETION.—The allowance for depletion with re­
spect to any property placed in service in a taxable year
beginning after 1989 shall be cost depletion determined
under section 611."
(d) TREATMENT OF CERTAIN DIVIDENDS.—Clause (ii) of section
56(gX4XC) is amended to read as follows:
"(ii) SPECIAL RULE FOR CERTAIN DIVIDENDS.—
"(I) IN GENERAL.—Clause (i) shall not apply to
any deduction allowable under section 243 or 245
for any dividend which is a 100-percent dividend or
which is received from a 20-percent owned corpora­
tion (as defined in section 243(cX2)), but only to the
extent such dividend is attributable to income of
the pa3dng corporation which is subject to tax
under this chapter (determined after the applica­
tion of sections 936 and 921).
"(II) 100-PERCENT DIVIDEND.—For purposes of the
subclause (I), the term '100 percent dividend'
means any dividend if the percentage used for
purposes of determining the amount allowable as a
deduction under section 243 or 245 with respect to
such dividend is 100 percent."
(e) SPECIAL RULE FOR CERTAIN DIVIDENDS RECEIVED BY COOPERA­
TIVES.—Subparagraph (C) of section 56(g)(4) is amended by adding at
the end thereof the following new clause:
"(iv) SPECIAL RULE FOR CERTAIN DIVIDENDS RECEIVED
BY CERTAIN COOPERATIVES.—In the case of a cooperative
described in section 927(aX4), clause (i) shall not apply
to any amount allowable as a deduction under section
245(c)."
(f) TECHNICAL AND CONFORMING AMENDMENTS.—
(1) Clause (i) of section 56(gX4XH) is amended by striking
"after the date of the enactment of the Tax Reform Act of 1986 '
and inserting "in a taxable year beginning after 1989".
(2) Clause (i) of section 56(gX4XB) is amended by adding at the
end thereof the following new sentence: PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2373
"The preceding sentence shall not apply in the case of
any amount excluded from gross income under section
108 (or the corresponding provisions of prior law)."
(3) Clause (iii) of section 56(jgX4XB) is hereby repealed.
(4) Paragraph (5) of section 56(g) is amended by striking
subparagraphs (A) and (C) and by redesignating subparagraphs
(B) and (D) £is subparagraphs (A) and (B), respectively.
(5XA) Clause (ii) of section 312(nX2)(A) is amended by striking
"in which the production from the well begins" and inserting
"in which such amount was pedd or incurred'.
(B) Paragraph (1) of section 59(e) is amended by inserting
before the period at the end thereof: "(or, in the case of a
qualified expenditure described in paragraph (2XC), over the 60-
month period beginning with the month in which such expendi­
ture was paid or incurred)".
(6) Subsection (i) of section 59 is amended—
(A) by striking "interest shall" and inserting "any
amount shall", and
(B) by striking "INTEREST" in the subsection heading and
inserting "AMOUNTS".
(g) EFFECTIVE DATES.— 26 use 56 note.
(1) IN GENERAL.—Except as otherwise provided in this subsec­
tion, the amendments made by this section shall apply to
taxable years beginning after December 31,1989.
(2) INTANGIBLE DRILLING COSTS.—The amendments made by
subsection (fK5) shall apply to costs paid or incurred in taxable
years beginning after December 31,1989.
(3) REGULATIONS ON EARNINGS AND PROFITS RULES.—Not later
than March 15, 1991, the Secretary of the Treasury or his ^
delegate shall prescribe initial regulations providing guidance
as to which items of income are included in adjusted current
earnings under section 56(gX4XBXi) of the Internal Revenue
Code of 1986 and which items of deduction £u*e disallowed under
section 56(gX4XC) of sich Code. ^
SEC. 7612. OTHER MODIFICATIONS TO MINIMUM TAX.
(a) MODIFICATION TO CORPORATE MINIMUM TAX CREDIT.—
(1) IN GENERAL.—Subparagraph (B) of section 53(dXl) (relating
to credit not allowed for exclusion preferences) is amended by
adding at the end thereof the following new clause:
"(iv) CREDIT ALLOWABLE FOR EXCLUSION PREFERENCES
OF CORPORATIONS.—In the case of a corporation—
"(I) the preceding provisions of this subpara­
graph shall not apply, and
"(II) the adjusted net minimum tax for any tax­
able year is the amount of the net minimum tax
for such year increased by the amount of any
credit not allowed under section 29 solely by reason
of the application of section 29(bX5XB)."
(2) CONFORMING AMENDMENT.—Clause (ii) of section 53(dXlXB)
IS amended—
(A) by striking "subsections (bXl) and (cX3)" and inserting
"subsection (bXD", and
(B) by striking the last sentence.
(8) EFFECTIVE DATE.—The amendments made by this subsec- 26 USC 53 note,
tion shall apply for purposes of determining the adjusted net 103 STAT. 2374 PUBLIC LAW 101-239—DEC. 19, 1989
minimum tax for taxable years beginning after December 31,
1989.
(b) ADJUSTMENT FOR DISALLOWED PORTION OF ORPHAN DRUG
CREDIT.—
(1) IN GENERAL.—Clauses (iii) and (iv) of section 53(dXlXB) (as
amended by subsection (a)) are each amended by inserting after
"section 29(dX5XB)" the following: "or not allowed under section
28 solely by reason of the application of section 28(dX2XB)".
26 use 53 note. (2) EFFECTIVE DATE.—The amendment made by paragraph (1)
shall apply for purposes of determining the amount of the
minimum tax credit for taxable years beginning after December
31, 1989; except that, for such purposes, section 53(bXl) of the
Internal Revenue Code of 1986 shall be applied as if such
amendment had been in effect for all prior taxable years.
(c) EXEMPTION FOR CERTAIN HOME CONSTRUCTION CONTRACTS.—
(1) IN GENERAL.—Paragraph (3) of section 56(a) (relating to
treatment of certain long-term contracts) is amended by strik­
ing "with respect to which the requirements of clauses (i) and
(ii) of section 460(eXlXB) are met".
26 use 56 note. (2) EFFECTIVE DATE.—The amendment made by paragraph (1)
shall apply to contracts entered into in taxable years beginning
after September 30,1990.
(d) TREATMENT OF CERTAIN RESEARCH AND EXPERIMENTAL
EXPENDITURES.—
(1) IN GENERAL.—Paragraph (2) of section 56(b) (relating to
circulation and research and experimental expenditures) is
amended by adding at the end thereof the following new
subparagraph:
"(D) EXCEPTION FOR CERTAIN RESEARCH AND EXPERI­
MENTAL EXPENDITURES.—If the taxpayer materially partici­
pates (within the meaning of section 469(h)) in an activity,
this paragraph shall not apply to any amount allowable as
a deduction under section 174(a) for expenditures paid or
incurred in connection with such activity."
26 use 56 note. (2) EFFECTIVE DATE.—The amendment made by paragraph (1)
shall apply to taxable years beginning after December 31, 1990.
(e) 90-PERCENT LIMITATION ON FOREIGN TAX CREDIT NOT TO APPLY
TO CERTAIN CORPORATIONS.—
(1) IN GENERAL.—Paragraph (2) of section 59(a) (relating to
_ limitation of foreign taix credit to 90-percent of tax) is amended
by adding at the end thereof the following new subparagraph:
"(C) EXCEPTION.—Subparagraph (A) shall not apply to
any domestic corporation if^
"(i) more than 50 percent of the stock of such domes­
tic corporation (by vote and value) is owned by United
States persons who are not members of an affiliated
group (as defined in section 1504 of such Code) which
includes such corporation.
International "(ii) all of the activities of such corporation are con-
agreements, ducted in 1 foreign country with which the United
States has an income tax treaty in effect and such
treaty provides for the exchange of information be­
tween such foreign country and the United States,
"(iii) all of the current earnings and profits of such
" corporation are distributed at least annually (other
than current earnings and profits retained for normal PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2375
maintenance or capital replacements or improvements
of an existing business), and
"(iv) all of such distributions by such corporation to
United States persons are used by such persons in a
trade or business conducted in the United States."
(2) EFFECTIVE DATE.— 26 use 59 note.
(A) IN GENERAL.—The amendment made by paragraph (1)
shall apply to taxable years beginning after March 31,1990.
(B) SPECIAL RULE FOR YEAR WHICH INCLUDES MARCH 31,
1990.—In the case of £Uiy taxable year (of a corporation
described in subparagraph (C) of section 59(aX2) of the
Internal Revenue Code of 1986 (as added by paragraph (1)))
which begins after December 31, 1989, and includes March
31,1990, the amount determined under clause (ii) of section
59(aX2XA) of such dkxle shall be an amount which bears the
same ratio to the amount which would have been deter­
mined under such clause without regard to this subpara­
graph as the number of dayB in such taxable year on or
before March 31, 1990, bears to the total number of dajrs in
such taxable year.
(f) STUDY OF DEPRECIATION TREATMENT OF CERTAIN VEHICLES.—
(1) IN GENERAL.—The Secretary of the Treasury or his dele­
gate shall conduct a study on the proper class life for cars and
light trucks.
(2) REPORT.—Not later than the day 1 year after the date of
the enactment of this Act, the Secretary shall submit a report to
the Committee on Ways and Means of the House of Representa­
tives and the Committee on Finemce of the Senate on the report
conducted under paragraph (1), together with such rec­
ommendations as he may deem advisable.
PART III—ACCOUNTING PROVISIONS
SEC. 7621. REPEAL OF COMPLETED CONTRACT METHOD OF ACCOUNTING
FOR LONG-TERM CONTRACTS.
(a) IN GENERAL.—Subsection (a) of section 460 (relating to special
rules for long-term contracts) is amended to read as follows:
"(a) REQUIREMENT THAT PERCENTAGE OF COMPLETION METHOD BE
USED.—In the case of any long-term contract, the taxable income
from such contract shall be determined under the percentage of
completion method (as modified by subsection (b))."
(b) ELECTION TO USE MODIFIED PERCENTAGE OF COMPLETION
METHOD.—Subsection (b) of section 460 (as amended by subsection
(cXD) is amended by adding at the end thereof the following new
paragraph:
"(5) ELECTION TO USE IO-PERCENT METHOD.—
"(A) GENERAL RULE.—In the case of any long-term con­
tract with respect to which an election under this peu*a-
graph is in effect, the 10-percent method shall apply in
determining the taxable income from such contract.
"(B) 10-PERCENT METHOD.—For purposes of this para­
graph­
ed) IN GENERAL.—The 10-percent method is the
percentage of completion method, modified so that any
item which would otherwise be taken into account in
computing taxable income with respect to a contract 103 STAT. 2376 PUBLIC LAW 101-239—DEC. 19, 1989
for any taxable year before the 10-percent year is taken
into account in tiie 10-percent year.
"(ii) 10-pEBCENT YEAR.—The term '10-percent year'
means the 1st taxable year as of the close of which at
least 10 percent of the estimated total contract costs
have been incurred.
*Q ELBCTION.—An election under this paragraph shall
apply to all long-term contracts of the taxpayer which are
entered into during the taxable year in which the election
is made or any subsequent taxable year.
"(D) COORDINATION WITH OTHEB PROVISIONS.—
"(i) SIMPLIFIED METHOD OF COST ALLOCATION.—This
paragraph shall not apply to any taxpayer which uses a
simplified procedure for allocation of costs under para­
graph (3XA).
"(ii) LOOK-BACK METHOD.—The 10-percent method
shall be taken into account for purposes of applying the
look-back method of paragraph (2) to any taxpayer
making an election under tlus paragraph."
(C) CONFORMINO ABfENDMENTS.—
(1) Subsection (b) of section 460 is amended by striking para­
graph (1) and by redesignating paragraphs (2) through (5) as
paragraphs (1) through (4), respectively.
(2) Paragraph (1) of section 4600biX as redesignated by para-
y- graph (1), is amended—
(A) by striking "paragraph (4)" and inserting "paragraph
(3)" and
(B) by striking "paragraph (3)'* and inserting "para­
graph (2)". *^
para-
suDsec-
'Para^aphi
(4) Subparagraph (A) of section 460(bX4), as redesignated by
paragraph (1), is amended—
(A) by striking "paragraph (3)" each place it appears and
inserting "paragraph (2)",
(B) by striking paragraph (3XB)" and inserting "para­
graph (2)(Br. and
(C) by strUdng "paragraph (3XA)" and inserting "para­
graph (2XA)".
(5) Paragraph (5) of section 460(e) is amended by striking so
much of such paragraph as precedes subparagraph (A) and
inserting the following:
"(5) SPECIAL RULE FOR RESIDENTIAL CONSTRUCHON CONTRACTS
WHICH ARE NOT HOME CONSTRUCTION CONTRACTS.—In the Case of
any residential construction contract which is not a home
construction contract, subsection (a) (as in effect on the day
before the date of the enactment of the Revenue Reconciliation
Act of 1989) shall apply except that such subsection shall be
applied—".
26 use 460 note. (d) EFFECTIVE DATB.—
(1) IN GENERAL.—Except as provided in paragraph (2), the
amendments made by this section shall apply to contracts
entered into on or after July 11,1989.
(2) BINDING BIDS.—The amendments made by this section
shall not apply to any contract resulting from the acceptance of
a bid made oefore July 11, 1989. The preceding sentence shall PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2377
apply only if the bid could not have been revoked or altered at
any time on or after July 11,1989.
(3) SPECIAL RULE FOR CERTAIN SHIP CONTRACTS.—The amend- _
ments made by this section shall not apply in the case of a
qualified ship contract (as defined in section 10203(bX2XB) of the
Revenue Act of 1987).
SEC. 7622. CHANGES IN TREATMENT OF TRANSFERS OF FRANCHISES,
TRADEMARKS, AND TRADE NAMES.
(a) CONTINGENT PAYMENTS.—Paragraph (1) of section 1253(d)
(relating to treatment of pajrments by transferee) is amended to read
as follows:
"(1) CONTINGENT SERIAL PAYMENTS.—
"(A) IN GENERAL.—Any amount described in subpara­
graph (B) which is paid or incurred during the taxable year
on account of a transfer, sale, or other disposition of a
franchise, trademark, or trade name shall be allowed as a
deduction under section 162(a) (relating to trade or business
expenses).
(B) AMOUNTS TO WHICH PARAGRAPH APPUES.—An
amount is described in this subparagraph if it—
"(i) is contingent on the productivity, use, or disposi­
tion of the franchise, trademark, or trade name, and
"(ii) is paid as part of a series of payments—
.,,,.. "(I) which are payable not less frequently than
''' * annually throughout the entire term of the trans­
fer agreement, and
"(II) which are substantisdly equal in amount (or
payable under a fixed formula)."
(b) $100,000 LIMITATION ON CERTAIN PAYMENTS.—
(1) IN GENERAL.—Paragraph (2) of section 1253(d) is amended
by adding at the end thereof the following new subparagraph:
"(B) $100,000 LIMFTATION ON DEDUCTIBILITY OF PRINCIPAL
SUM.—Subparagraph (A) shall not apply if the principal
I"' sum referred to in such subparagraph exceeds $100,000. For
purposes of the preceding sentence, all payments which are
part of the same transaction (or a series of related trans­
actions) shall be taken into account as payments with
respect to each such transaction,"
(2) CONFORMING AMENDMENTS.—Paragraph (2) of section
1253(d) is amended—
(A) by striking all that precedes "If and inserting:
"(2) CERTAIN PAYMENTS IN DISCHARGE OF PRINCIPAL SUMS.—
"(A) IN GENERAL.—", and
(B) by redesignating subparagraphs (A), (B), and (C) as
clauses (i), (ii), and (iii), respectively, and by redesignating
* clauses (i) and (ii) of subparagraph (B) as subclauses (I) and
(II), respectively,
(c) OTHER PAYMENTS, ETC.—Section 1253(d) is amended by adding
at the end thereof the following new paragraphs:
"(3) OTHER PAYMENTS,—
"(A) IN GENERAL.—Any amount paid or incurred on ac­
count of a transfer, sale, or other disposition of a franchise,
trademark, or trade name to which paragraph (1) or (2) does
not apply shall be treated as an amount chargeable to
capital account.
"(B) ELECTION TO RECOVER AMOUNTS OVER 25 YEARS.— 103 STAT. 2378 PUBLIC LAW 101-239—DEC. 19, 1989
''(i) IN GENERAL.—If the taxpayer elects the applica-
,^,, tion of this subparagraph, an amount chargeidble to
capital account—
"(D to which paragraph (1) would apply but for
subparagraph (BXii) tiiereof, or
"(ID to which paragraph (2) would apply but for
subparagraph (B) thereof,
shall be allowed as a deduction ratably over the 25-year
period b^inning with the taxable year in which the
transfer occurs.
"(ii) CONSISTENT TREATMENT.—An election under
clause (i) shall apply to all amounts which are part of
' •"' the same transaction (or a series of related trans­
actions).
"(4) RmrawAiiS, ETC.—For purposes of determining the term of
a transfer agreement or any period of amortization under this
subsection, there shall be taken into account all renewal options
(and any other period for which the parties reasonably expect
the agreement to be renewed).
"(5) CERTAIN RULES MADE APPUCABLE.—Rules similar to the
rules of section 168(i)(7) shall apply for purposes of this subsec­
tion.",
(b) TECHNICAL AMENDMENTS.—
(1) DEPRECIATION ALLOWABLE.—Subsection (r) of section 167 is
hereby repealed.
(2) DEDUCTION SUBJECT TO RECAPTURE.—
(A) Subparagraph (C) of section 1245(aX2) is amended by
striking "or 193" and inserting "193, or 1253(d) (2) or (3)'
(B) The material preceding subparagraph (A) of section
1245(aX3) is amended by striking "section 185" and insert­
ing "section 185 or 1253(d) (2) or (3)".
26 use 167 note. (c) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by this section shall
apply to transfers after October 2,1989.
y (2) BINDING CONTRACT.—The amendments made by this sec­
tion shall not apply to any transfer pursuant to a written
binding contract in effect on October 2, 1989, and at all times
thereafter before the transfer.
PART IV—EMPLOYMENT TAX PROVISIONS
SEC. 7631. TREATMENT OF AGRICULTURAL WORKERS UNDER WAGE
WITHHOLDING.
(a) IN GENERAL.—Paragraph (2) of section 3401(a) (defining wages)
is amended to read as follows:
"(2) for agricultural labor (as defined in section 3121(g)) unless
the remuneration paid for such labor is wages (as defined in
section 3121(a)); or".
(b) CREW LEADER RULES To APPLY.—Section 3401 is amended by
adding at the end thereof the following new subsection:
"(h) CREW LEADER RULES To APPLY.—Rules similar to the rules of
section 3121(o) shall apply for purposes of this chapter."
26 use 3401 (c) EFFECTIVE DATE.—The amendments made by this section shall
note. apply to remuneration paid after December 31,1989. PUBLIC LAW 101-239—DEC. 19,1989 103 STAT. 2379
SEC. 7632. ACCELERATION OF DEPOSIT REQUIREMENTS.
(a) IN GENERAL.—Section 6302 (relating to mode or time for
collection), as amended by this title, is amended by redesignating
subsection (g) as subsection (h) and by inserting after subsection (f)
the following new subsection:
"(g) DEPOSITS OF SOCIAL SECURITY TAXES AND WITHHELD INCOME
TAXES.—
"(1) IN GENERAL.—If, under regulations prescribed by the
Secretary, a person is required to make deposits of taxes im­
posed by chapters 21 and 24 on the basis of eighth-month
periods, such person shall, for the years specified in paragraph
(2), make deposits of such taxes on the applicable banking day
after any day on which such person has $100,000 or more of
such taxes for deposit.
"(2) SPECIFIED YEARS.—For purposes of paragraph (1)—
The applicable
"In the case of: banking day is:
1990 1st
1991 2d
1992 8rd
1993 Ist
1994 „ Ist."
0>) EFFECTIVE DATE.— 26 use 6302
(1) GENERAL RULE.—Except as provided in paragraph (2), note.
. the amendment made by subsection (a) shall apply to
amounts required to be deposited after July 31,1990.
(2) RULE FOR 1995 AND THEREAFTER.—For calendar year R^uiations. •
1995 and thereafter, the Secretary of the Treasury shall
prescribe regulations with respect to the date on which
deposits of such taxes shall be made in order to minimize
the imevenness in the revenue effects of the amendment
made by subsection (a).
PART V—OTHER PROVISIONS
SEC 7641. LIMITATION ON SECTION 104 EXCLUSION. ^
(a) GENERAL RULE.—Section 104(a) (relating to compensation for
injuries or sickness) is amended by adding at the end thereof the
following new sentence: "Paragraph (2) shall not apply to any
punitive damages in connection with a case not involving physicsd
ii^jury or physical sickness."
(b) EFFECTIVE DATE.— 26 use 104 note.
(1) IN GENERAL.—Except as provided in paragraph (2), the
amendment made by subsection (a) shall apply to amounts
received after July 10, 1989, in taxable years encQng after such
date.
(2) EbccEPTioN.—The amendment made by subsection (a) shall
not apply to any amount received—
(A) under any written binding agreement, court decree,
or mediation award in effect on (or issued on or before) July
10,1989, or
(B) pursuant to any suit Hied on or before July 10, 1989.
SEC. 7642. TREATMENT OF DISTRIBUTIONS BY PARTNERSHIPS OF
CONTRIBUTED PROPERTY.
(a) GENERAL RULE.—Subsection (c) of section 704 (relating to
contributed property) is amended to read as follows: 103 STAT. 2380 PUBLIC LAW 101-239—DEC. 19, 1989
"(c) CONTRIBUTED PROPERTY.—
"(1) IN GENERAL.—Under regulations prescribed by the Sec-
'' retary—
"(A) income, gain, loss, and deduction with respect to
property contributed to the partnership by a partner shall
' * ^^ ' be shared among the partners so as to take account of the
. ,, variation between the basis of the property to the partner­
ship and its fair market value at the time of contribution,
and
"(B) if any property so contributed is distributed by the
partnership (other than to the contributing partner) within
^ , 5 years of being contributed—
' '*^ "(i) the contributing partner shall be treated as rec­
ognizing gain or loss (as the case may be) from the sale
, / of such property in an amount equal to the gain or loss
' '* * which would have been allocated to such partner under
subparagraph (A) by reason of the variation described
in subparagraph (A) if the property had been sold at its
fair market value at the time of the distribution,
"(ii) the character of such gain or loss shall be deter­
mined by reference to the character of the gain or loss
which would have resulted if such property had been
* sold by the partnership to the distributee, and
"(iii) appropriate adjustments shall be made to the
adjusted basis of the contributing partner's interest in
the partnership and to the adjusted basis of the prop­
erty distributed to reflect any geiin or loss recognized
under this subparagraph.
, "(2) SPECIAL RULE FOR DISTRIBUTIONS WHERE GAIN OR LOSS
WOULD NOT BE RECOGNIZED OUTSIDE PARTNERSHIPS.—Under regu­
lations prescribed by the Secretary, if—
"(A) property contributed by a partner (hereinafter re­
ferred to as the 'contributing partner') is distributed by the
partnership to another partner, and
"(B) other property of a like kind (within the meaning of
section 1031) is distributed by the partnership to the
contributing partner not later than the earlier of—
"(i) the 180th day after the date of the distribution
described in subparagraph (A), or
"(ii) the due date (determined with regard to exten­
sions) for the contributing partner's return of the tax
imposed by this chapter for the taxable year in which
the distribution described in subparagraph (A) occurs,
then to the extent of the value of the property described in
subparagraph (B), paragraph (IXB) shall be applied as if the
contributing partner had contributed to the partnership the
property described in subparagraph (B).
"(3) OTHER RULES.—Under regulations prescribed by the Sec­
retary, rules similar to the rules of paragraph (1) shall apply to
contributions by a partner (using the cash receipts and disburse­
ments method of accounting) of accounts payable and other
accrued but unpaid items. Any reference in paragraph (1) or (2)
to the contributing partner shall be treated as including a
reference to any successor of such partner." PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2381
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 26 use 704 note.
shall apply in the case of property contributed to the partnership
after October 3, 1989, in taxable years ending after such date.
SEC. 7643. DEPRECIATION TREATMENT OF CELLULAR TELEPHONES.
(a) GENERAL RULE.—Subparagraph (A) of section 280F(dX4) (defin­
ing listed property) is amended by striking "and" at the end of
clause (iv), by redesignating clause (v) as clause (vi), and by inserting
after clause (iv) the following new clause:
"(v) any cellular telephone (or other similar tele­
communications equipment), and".
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 26USC280F
shall apply to property placed in service or leased in taxable years "°^-
beginning after December 31,1989.
SEC. 7644. ELIMINATION OF RETROACTIVE CERTIFICATION OF EMPLOY-
EES FOR WORK INCENTIVE JOBS CREDIT.
(a) IN GENERAL.—So much of subparagraph (A) of section 50B(hXl)
of the Internal Revenue (Dode of 1954 (as in effect for taxable years
beginning before January 1, 1982) as precedes clause (i) thereof is
amended to read as follows:
"(A) who has been certified (or for whom a written re­
quest for certification has been made) on or before the day
the individual began work for the taxpayer by the Sec­
retary of Labor or by the appropriate agency of State or
local government as—".
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 26USC50B
shall apply for purposes of credits first claimed after March 11,1987. "o**-
SEC. 7645. DISALLOWANCE OF DEPRECIATION FOR CERTAIN TERM IN- Real property.
TERESTS.
(a) GENERAL RULE.—Section 167 (as amended by section 7622) is
amended by inserting after subsection (q) the following new subsec­
tion:
"(r) CERTAIN TERM INTERESTS NOT DEPRECIABLE.—
"(1) IN GENERAL.—No depreciation deduction shall be allowed
under this section (and no depreciation or amortization deduc­
tion shall be allowed under any other provision of this subtitle)
to the taxpayer for any term interest in property for any period
during which the remainder interest in such property is held
(directly or indirectly) by a related person.
"(2) COORDINATION WITH SECTION 273.—This subsection shall
not apply to any term interest to which section 273 applies.
"(3) BASIS ADJUSTMENTS.—If, but for this subsection, a depre­
ciation or amortization deduction would be allowable to the
taxpayer with respect to any term interest in property—
"(A) the tiucpayer's basis in such property shall be re­
duced by any depreciation or amortization deductions dis­
allowed under this subsection, and
"(B) the basis of the remainder interest in such property
shall be increased by the amount of such disallowed deduc­
tions (properly adjusted for any depreciation deductions
allowable under subsection (h) to the taxpayer).
"(4) SPECIAL RULES.—
"(A) DENIAL OF INCREASE IN BASIS OF REMAINDERMAN.—
No increase in the basis of the remainder interest shall be
made under paragraph (3XB) for any disallowed deductions 103 STAT. 2382 PUBLIC LAW 101-239—DEC. 19, 1989
attributable to periods during which the term interest was
held—
"(i) by an organization exempt from tax under this
subtitle, or
Aliens. "(ii) by a nonresident alien individual or foreign
SidusS ^** corporation but only if income from the term interest is
not effectively connected with the conduct of a trade or
business in the United States.
"(B) COORDINATION WITH SUBSECTION (h) .—If, but for this
subsection, a depreciation or amortization deduction would
be allowable to any person with respect to any term in­
terest in property, the principles of subsection (h) shall
apply to such person with respect to such term interest.
"(5) DEFINITIONS.—For purposes of this subsection—
"(A) TERM INTEREST IN PROPERTY.—The term 'term in­
terest in property' has the meaning given such term by
section 1001(eX2).
"(B) RELATED PERSON.—The term 'related person' means
any person bearing a relationship to the taxpayer described
in subsection (b) or (e) of section 267.
"(6) REGULATIONS.—liie Secretary shall prescribe such regu­
lations as may be necessary to carry out the purposes of this
subsection, including regulations preventing avoidance of this
subsection through cross-ownership arrangements or other­
wise."
26 use 167 note. (b) EFFECTIVE DATE.—The amendment made by subsection (a)
shall apply to interests created or acquired after July 27, 1989, in
taxable years ending after such date.
SEC. 7646. REPORTING OF POINTS ON MORTGAGE LOANS.
(a) GENERAL RULE.—Paragraph (2) of section 6050H(b) (relating to
form and manner of returns) is amended by striking "and" at the
end of subparagraph (B), by redesignating subparagraph (C) as
subparagraph (D) and bv inserting after subparagraph (B) the fol­
lowing new subparagraph:
"(C) the amount of points on the mortgage received
during the calendar year and whether such points were
^ paid directly by the borrower, and".
(b) TECHNICAL AMENDMENTS.—
(1) Subparagraph (B) of section 6050H(bXl) is amended by
inserting "(other than points)" after "such interest".
(2) Paragraph (2) of section 6050H(d) is amended—
(A) by inserting "(other than points)" after "subsection
(aX2)",and
(B) by inserting before the period at the end thereof the
following: "(and the information required under subsection
0^X2X0)^^.
26 use 6050H (c) EFFECTIVE DATE.—The amendments made by this section shall
"o**- apply to returns and statements the due date for which (determined
without regard to extensions) is after December 31,1991.
SEC. 7647. TREATMENT OF CERTAIN INVESTMENT-ORIENTED LIFE INSUR­
ANCE CONTRACTS.
(a) GENERAL RULE.—Subsection (c) of section 7702A (relating to
computational rules) is amended by adding at the end thereof the
following new paragraph: PUBLIC LAW 101-239—DEC. 19,1989 103 STAT. 2383
"(6) TREATMENT OP CERTAIN CONTRACTS WITH MORE THAN ONE
INSURED.—If—
"(A) a contract provides a death benefit which is payable
only upon the death of 1 insured following (or occurring
simultaneously with) the death of another insured, and
"(B) there is a reduction in such death benefit below the
lowest level of such death benefit provided under the con­
tract during the 1st 7 contract years,
this section shall be applied as if the contract had originally
been issued at the reduced benefit level."
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 26USC7702A
shall apply to contracts entered into on or after September 14,1989, note.
PART VI—TAX-EXEMPT BOND PROVISIONS
SEC. 7651. TREATMENT OF HEDGE BONDS.
(a) IN GENERAL.—Section 149 (relating to bonds must be registered
to be tax-exempt; other requirements) is amended by adding at the
end thereof the following new subsection:
"(g) TMIATMENT OF HEDGE BONDS.—
"(1) IN GENERAL.—Section 103(a) shall not apply to any hedge
bond unless, with respect to the issue of which such bond is a
part—
"(A) the requirement of paragraph (2) is met, and
"(B) the requirement of subsection (fX3) is met.
"(2) REASONABLE EXPECTATIONS AS TO WHEN PROCEEDS WILL BE
SPENT.—An issue meets the requirement of this paragraph if the
issuer reasonably expects that—
"(A) 10 percent of the spendable proceeds of the issue will
be spent for the governmental purposes of the issue within
the 1-year period beginning on the date the bonds are
issued,
"(B) 30 percent of the spendable proceeds of the issue will
be spent for such purposes within the 2-year period begin­
ning on such date,
"(C) 60 percent of the spendable proceeds of the issue will
be spent for such purposes within the 3-year period begin­
ning on such date, and
"(D) 85 percent of the spendable proceeds of the issue will
be spent for such purposes within the 5-year period begin­
ning on such date.
"(3) HEDGE BOND.—
"(A) IN GENERAL.—For purposes of this subsection, the
term 'hedge bond' means any bond issued as part of an
'"* issue unless—
"(i) the issuer reasonably expects that 85 percent of
the spendable proceeds of the issue will be used to carry
out the governmental purposes of the issue within the
3-year period beginning on the date the bonds are
issued, and
' • "(ii) not more than 50 percent of the proceeds of the
issue are invested in nonpurpose investments (as de­
fined in section 148(fX6XA)) having a substantially
guaranteed 3deld for 4 years or more.
"(B) EXCEPTION FOR INVESTMENT IN TAX-EXEMPT BONDS
4 -• NOT SUBJECT TO MINIMUM TAX.— 103 STAT. 2384 PUBLIC LAW 101-239—DEC. 19, 1989
"(i) IN GENERAL.—Such term shall not mclude any
bond issued as part of an issue 95 percent of the net
proceeds of which are invested in bonds—
"(I) the interest on which is not includible in
gross income under section 103, and
"(II) which are not specified private activity
bonds (as defined in section 57(aX5XC)).
"(ii) AMOUNTS IN BONA FIDE DEBT SERVICE FUND.—
Amounts in a bona fide debt service fund shall be
treated as invested in bonds described in clause (i).
"(iii) INVESTMENT EARNINGS HELD PENDING REINVEST­
MENT.—Investment earnings held for not more than 30
days pending reinvestment shall be treated as invested
. in bonds described in clause (i).
"(C) EXCEPTION FOR REFUNDING BONDS.—
"(i) IN GENERAL.—A refunding bond shall be treated
as meeting the requirements of this subsection only if
the original bond met such requirements.
"(ii) GENERAL RULE FOR REFUNDING OF PRE-EFFECTTVE
DATE BONDS.—A refunding bond shall be treated as
meeting the requirements of this subsection if—
(I) this subsection does not apply to the original
bond,
"(II) the average maturity date of the issue of
which the refunding bond is a part is not later than
the average maturity date of the bonds to be re­
funded by such issue, and
"(III) the amount of the refunding bond does not
exceed the outstanding amount of the refunded
bond,
"(iii) REFUNDING OF PRE-EFFECTTVE DATE BONDS ENTI­
TLED TO 5-YEAR TEMPORARY PERIOD.—A refunding bond
shall be treated as meeting the requirements of this
subsection if—
"(I) this subsection does not apply to the original
bond,
"(II) the issuer reasonably expected that 85 per­
cent of the spendable proceeds of the issue of which
the original bond is a part would be used to carry
out the governmental purposes of the issue within
the 5-year period beginning on the date the origi­
nal bonds were issued but did not reasonably
expect that 85 percent of such proceeds would be so
spent within the 3-year period beginning on such
date, and
"(III) at least 85 percent of the spendable pro­
ceeds of the original issue (and all other prior
original issues issued to finance the governmental
purposes of such issue) were spent before the date
the refunding bonds are issued.
"(4) SPECIAL RULES.—For purposes of this subsection—
"(A) CONSTRUCTION PERIOD IN EXCESS OF 5 YEARS.—The
Secretary may, at the request of any issuer, provide that
the requirement of paragraph (2) shall be treated as met
with respect to the portion of the spendable proceeds of an
issue which is to be used for any construction project
having a construction period in excess of 5 years if it is PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2385
reasonably expected that such proceeds will be spent over a
reasonable construction schedule specified in such request.
"(B) RULES FOR DETERiifiNiNG EXPECTATIONS.—^The rules of
subsection (fX2XB) shall apply.
"(5) REGULATIONS.—The Secretary may prescribe regulations
to prevent the avoidance of the rules of this subsection, includ­
ing through tiie aggr^ation of projects within a single issue."
(b) EFFECTIVE DATE.— 26 use 149 note.
(1) IN GENERAL.—Except as otherwise provided in this subsec­
tion, the amendment made by subsection (a) shall apply to
bonds issued after September 14,1989.
(2) BONDS SOLD BEFORE SEPTEMBER IS, 1989.—The amendment
made bv subsection (a) shall not apply to any bond sold before ^
September 15,1989, and issued before October 15,1989.
(3) BONDS WITH RESPECT TO WHICH PRELIMINARY OFFERING
MATERIAL MAILED.—The amendment made by subsection (a)
shall not apply to any issue issued after the date of the enact­
ment of this Act if the preliminary offering materials with
respect to such issue were mailed (or otherwise delivered) to
members of the underwriting syndicate before September 15,
1989.
(4) CERTAIN OTHER BONDS.—In the case of a bond issued before
January 1,1991, with respect to which official action was taken
(or a series of official actions were taken), or other comparable
preliminary approval was given, before November lb, 1989,
demonstrating an intent to issue such bonds in a maximum
specified amount for such issue or with a maximum specified
amount of net proceeds of such issue, the issuer may elect to
apply section 149(g)(2) of the Internal Revenue Code of 1986 (as
added bv this section) by substituting "15 percent" for "10
percent in subparagraph (A) and "50 percent for "60 percent"
m subparagraph (C).
(5) BONDS ISSUED TO FINANCE SELF-INSURANCE FUNDS.—The
amendment made by subsection (a) shall not apply to any bonds
issued before July 1, 1990, to finance a self-insurance fund if
official action was taken (or a series of official actions were
taken), or other comparable preliminaiy approval was ^ven,
before September 15, 1989, demonstrating an intent to issue '^
such bonds in a maximum specified amount for such issue or
with a maximum specified amoimt of net proceeds of such issue.
SEC 7652. EXCEPTIONS FROM ARBITRAGE REBATE REQUIREMENT.
(a) IN GENERAL.—Clause (i) of section 148(fK4)(B) (relating to tem­
porary investments) is amended to read as follows:
"(i) IN GENERAL.—An issue shall, for purposes of this
subsection, be treated as meeting the requirements of J
paragraph (2) if—
"(I) the gross proceeds of such issue are expended
for the governmental purposes for which the issue
was issued no later than the day which is 6 months
after the date of issuance of the issue, and
"(ID the requirements of paragraph (2) are met
after such 6 months with resp^ to earnings on
amoimts in any reasonably required reserve or
replacement fund.
Gross proceeds which are held in a bona fide debt
service fund or a reasonably required reserve or 103 STAT. 2386 PUBLIC LAW 101-239—DEC. 19,1989
replacement fund shall not be considered gross pro­
ceeds for purposes of this subparagraph only,
(b) CONSTRUCTION BONDS.—Subparagraph (B) of section 148(fK4)
(relating to temporary investments) is £unended by adding at the end
thereof the following new clause:
"(iv) 2-YEAR PERIOD FOR CERTAIN CONSTRUCTION
BONDS.—
"(I) IN GENERAL.—In the case of an issue de-
.'- t scribed in subclause (IV), clause (i) shall be applied
by substituting '2 years' for '6 months' each place
it appears.
, * -^ "(II) PROCEEDS MUST BE SPENT WITHIN CERTAIN
^ '^ , PERIODS.—Subclause (I) shall not apply to any issue
if less than 10 percent of the net proceeds of the
issue are spent for the governmental purposes of
^ the issue within the 6-month period beginning on
the date the bonds are issued, less than 45 percent
of such proceeds are spent for such purposes within
the 1-year period beginning on such date, less than
75 percent of such proceeds are spent for such
purposes within the 18-month period beginning on
such date, or less than 100 percent of such proceeds
are spent for such purposes within the 2-year
period beginning on such date. For purposes of the
preceding sentence, the term net proceeds'
includes investment proceeds earned before the
close of the period involved on the investment of
the sale proceeds of the issue.
"(Ill) EXCEPTION FOR REASONABLE RETAINAGE.—
i > For purposes of subclause (II), 100 percent of the
'. „• net proceeds of an issue shall be treated as spent
for the governmental purposes of the issue within
, .. the 2-year period beginning on the date the bonds
are issued if such requirement is met within the
^ 3-year period beginning on such date and such
requirement would have been met within such 2-
year period but for a reasonable retainage (not
i- . ,. exceeding 5 percent of the net proceeds of the
issue).
– ' "(IV) ISSUES TO WHICH SUBCLAUSE (I) APPLIES.—
An issue is described in this subclause if at least 75
percent of the net proceeds of the issue are to be
used for construction expenditures with respect to
property which is owned by a governmental unit or
,. -, a 501(cX3) organization. For purposes of the preced­
ing sentence, the term 'construction' includes
reconstruction and rehabilitation, and section
142(bXl) shall apply. An issue is not described in
this subclause if any bond which is part of such
issue is a bond other than a qualified 501(cX3) bond,
a bond.which is not a private activity bond, or a
private activity bond to finance property to be
owned by a governmental unit or a 501(cX3)
=; organization.
(V) ELECTION TO PAY PENALTY IN UEU OF
J < REBATE.—In the case of an issue described in
subclause (IV) which fails to meet the require-PUBLIC LAW 101-239—DEC. 19,1989 103 STAT. 2387
^ ments of subclause (II), if the issuer elected the
application of this subclause, the requirements of
paragraph (2) shall be treated as met if the issuer
pays the penalty under paragraph (7) or pays a
: • penalty with respect to the close of each 6 month
period after the date the bonds are issued equal to
IVz percent of the amount of the net proceeds of i
M*iji the issue which, as of the close of such period, are
not spent as required by subclause (II). The penalty ,
under this subclause shall cease to apply only after
., ~ , the bonds (including any refunding bonds with ^
respect thereto) are no longer outstanding.
(VI) ELECTION TO REBATE ON EARNINGS ON RE­
SERVE.—If the issuer so elects, the term 'net pro­
ceeds' for purposes of subclause (II) shall not in­
clude earnings on any reasonably required reserve _,
or replacement fund and the requirements of para­
graph (2) shall apply to such earnings,
"(VII) POOLED FINANCING BONDS.—At the elec­
tion of the issuer of an issue the proceeds of which
are to be used to make or finance loans (other than
nonpurpose investments) to 2 or more persons, the
_ . periods described in clause (i) and this clause shall
' ' ""' begin on the date the loan is made in the case of
loans made within the 1-year period after the date
the bonds were issued. In the case of loans made
after such 1-year period, the periods described in
clause (i) and this clause shall begin at the close of
* such 1-year period.
"(VIII) PORTIONS OF ISSUE MAY BE TREATED SEPA­
RATELY.—If only a portion of an issue is to be used
for construction expenditures referred to in
subclause (IV), such portion and the other portion
of such issue may, at the election of the issuer, be
treated as separate issues for purposes of this
clause and clause (i).
"(IX) ELECTIONS.—Any election under this clause
shall be made on or before the date the bonds are
issued; and, once made, shall be irrevocable."
(c) POOLED FINANCING BONDS.—Subparagraph (A) of section
148(cX2) is amended by redesignating subparagraph (D) as subpara­
graph (E) and by inserting after subparagraph (C) the following new .
subparagraph:
(D) BONDS USED TO PROVIDE CONSTRUCTION FINANCING.— ^
In the case of an issue described in subparagraph (A) any
portion of which is used to make or finance loans for
construction expenditures (within the meaning of subsec­
tion (fK4XBXivXrV))-
"(i) rules similar to the rules of subsection
(fX4XBXivXVIII) shall apply, and
"(ii) subparagraph (A) shall be applied with respect to
such portion by substituting '2 years' for '6 months'."
(d) CONFORMING AMENDMENT.—Subclause (I) of section
148(fX4XBXii) is amended by inserting "each place it appears" after
"'6 months'".
(e) EFFECTIVE DATE.—The amendments made by this section shall 26 USC148 note,
apply to bonds issued after the date of the enactment of this Act. 103 STAT. 2388
Improved
Penalty
Administration
and Compliance
Tax Act.
26 use 1 note. PUBLIC LAW 101-239—DEC. 19, 1989
Subtitle G—Revision of Civil Penalties
SEC. 7701. SHORT TITLE.
This subtitle may be cited as the "Improved Penalty Administra­
tion and Compliance Tax Act".
PART I—DOCUMENT AND INFORMATION RETURN
PENALTIES
SEC 7711. UNIFORM PENALTIES FOR FAILURES TO COMPLY WITH CER.
TAIN INFORMATION REPORTING REQUIREMENTS.
(a) GENERAL RULE.—^Part n of subchapter B of chapter 68 (relating
to failure to file certain information returns or statements) is
amended to read as follows:
"PART II—FAILURE TO COMPLY WITH CERTAIN
INFORMATION REPORTING REQUIREMENTS
"Sec. 6721. Failure to file correct information returns.
^ "Sec. 6722. Failure to furnish correct payee statements.
"Sec. 6723. Failure to comply with other information reporting require­
ments.
"Sec. 6724. Waiver; definitions and special rules.
"SEC 6721. FAILURE TO FILE CORRECT INFORMATION RETURNS.
"(a) IMPOSITION OP PENALTY.—
"(1) IN GENERAL.—In the case of a failure described in para­
graph (2) by any person with respect to an information return,
such person shall pay a penalty of $50 for each return with
respect to which such a failure occurs, but the total amount
imposed on such person for all such failures during any cal­
endar year shall not exceed $250,000.
"(2) FAILURES SUBJECT TO PENALTY.—For purposes of para­
graph (1), the failures described in this paragraph are—
"(A) any failure to file an information return with the
Secretary on or before the required filing date, and
"(B) any failure to include all of the ii^ormation required
to be shown on the return or the inclusion of incorrect
information.
"Ot)) REDUCTION WHERE CORRECTION IN SPECIFIED PERIOD.—
"(1) Ck>RRECTiON WTFHiN 30 DAYS.—If any failure described in
subsection (aX2) is corrected on or before the day 30 days after
the required filing date—
(A) the penalty imposed by subsection (a) shall be $15 in
lieu of $50, and
"(B) the total amount imposed on the person for all such
failures during any calendar year which are so corrected
shall not exceed $75,000.
"(2) FAILURES CORRECTED ON OR BEFORE AUGUST i.—If any
failure described in subsection (aX2) is corrected after the 30tn
day referred to in paragraph (1) but on or before August 1 of the
calendcu* year in which the required filing date occurs—
"(A) the penalty imposed by subsection (a) shall be $30 in
lieu of $50, and PUBLIC LAW 101-239—DEC. 19,1989 103 STAT. 2389
"(B) the total amount imposed on the person for all such
failures during the calendar year which are so corrected
shall not exceed $150,000.
"(c) EXCEPTION FOR DE MINIMIS FAILURES TO INCLUDE ALL RE­
QUIRED INFORMATION.—
"(1) IN GENERAL.—If—
"(A) an information return is filed with the Secretaiy,
"(B) there is a failure described in subsection (aX2)(B)
t (determined after the application of section 6724(a)) with
respect to such return, and
(C) such failure is corrected on or before August 1 of the
calendar year in which the required filing date occurs,
for purposes of this section, such return shall be treated as
having been filed with all of the correct required information.
"(2) LIMITATION.—The number of information returns to
which paragraph (1) applies for any calendar year shall not
exceed the greater of—
"(A) 10, or
"(B) one-half of 1 percent of the total number of informa­
tion returns required to be filed by the person during the
calendar year.
"(d) LOWER LIMITATIONS FOR PERSONS WITH GROSS RECEIPTS OF
NOT MORE THAN $5,000,000.—
"(1) IN GENERAL.—If any person meets the gross receipts test
of paragraph (2) with respect to any calendar year, with respect
to failures during such taxable year—
"(A) subsection (aXD shall be applied by substituting
'$100,000' for '$250,000',
"(B) subsection (bXl)(B) shall be applied by substituting
'$25,000'for'$75,000', and
"(C) subsection (bX2XB) shall be applied by substituting
'$50,000' for '$150,000'.
"(2) GROSS RECEIPTS TEST.—
"(A) IN GENERAL.—A person meets the gross receipts test
of this paragraph for any calendar year if the average
annusJ gross receipts of such person for the most recent 3
taxable years ending before such calendar year do not
exceed $5,000,000.
"(B) CERTAIN RULES MADE APPUCABLE.—For purposes of
subparagraph (A), the rules of paragraphs (2) and (3) of
section 448(c) shall apply.
"(e) PENALTY IN CASE OF INTENTIONAL DISREGARD.—If 1 or more
failures described in subsection (aX2) are due to intentional dis­
regard of the filing requirement (or the correct information report­
ing requirement), then, with respect to each such failure—
'(1) subsections (b), (c), and (d) shall not apply,
"(2) the penalty imposed under subsection (a) shall be $100, or,
if greater—
"(A) in the case of a return other than a return required
under section 6045(a), 6041A(b), 6050H, 6050J, 6050K, or
6050L, 10 percent of the aggregate amount of the items
required to be reported correctly, or
(B) in the case of a return required to be filed by section
6045(a), 6050K, or 6050L, 5 percent of the aggregate amount
of the items required to be reported correctly, and
"(3) in the case of any penalty determined under para­
graph (2)— 103 STAT. 2390 PUBLIC LAW 101-239—DEC. 19, 1989
"(A) the $250,000 limitation under subsection (a) shall not
apply, and
"(B) such penalty shall not be taken into account in
appljdng such limitation (or any similar limitation under
subsection (b)) to penalties not determined under para­
graph (2).
"SEC. 6722. FAILURE TO FURNISH CORRECT PAYEE STATEMENTS.
"(a) GENERAL RULE.—In the case of each failure described in
subsection (b) by any person with respect to a payee statement, such
person shall pay a penalty of $50 for each statement with respect to
which such a failure occurs, but the total amount imposed on such
person for all such failures during any calendar year shall not
exceed $100,000.
"(b) FAILURES SUBJECT TO PENALTY.—For purposes of subsection
(a), the failures described in this subsection are—
"(1) any failure to furnish a payee statement on or before the
date prescribed therefor to the person to whom such statement
is required to be furnished, and
"(2) any failure to include all of the information required to
be shown on a payee statement or the inclusion of incorrect
information.
"(c) PENALTY IN CASE OF INTENTIONAL DISREGARD.—If 1 or more
failures to which subsection (a) applies are due to intentional dis­
regard of the requirement to furnish a payee statement (or the
correct information reporting requirement), then, with respect to
each failure—
"(1) the penalty imposed under subsection (a) shsill be $100, or,
if greater—
"(A) in the case of a payee statement other than a
statement required under section 6045(b), 6041A(e) (in re­
spect of a return required under section 6041A(b)), 6050H(d),
6050J(e), 6050K(b), or 6050L(c), 10 percent of the aggregate
amount of the items required to be reported correctly, or
"(B) in the case of a payee statement required under
section 6045(b), 6050K(b), or 6050L(c), 5 percent of the aggre­
gate amount of the items required to be reported correctly,
and
"(2) in the case of any penalty determined under paragraph
(1)-
"(A) the $100,000 limitation under subsection (a) shall not
apply, and
"(B) such penalty shall not be taken into account in
applying such limitation to penalties not determined under
paragraph (1).
"SEC. 6723. FAILURE TO COMPLY WITH OTHER INFORMATION REPORT­
ING REQUIREMENTS.
"In the case of a failure by any person to comply with a specified
information reporting requirement on or before the time prescribed
therefor, such person shall pay a penalty of $50 for each such
failure, but the total amount imposed on such person for all such
failures during any calendar year shall not exceed $100,000. PUBUC LAW 101-239—DEC. 19,1989 103 STAT. 2391
•SEC. 6724. WAIVER; DEFINITIONS AND SPECIAL RULES.
"(a) REASONABLE CAUSE WAIVER.—No penalty shall be imposed
under this part with respect to any failure if it is shown that such
failure is due to reasonable cause and not to willful neglect.
"(b) PAYMENT OF PENALTY.—Any penalty imposed by this part
shall be paid on notice and demand by the Secretary and in the
same manner as tax.
"(c) SPECIAL RULE FOR FAILURE TO MEET MAGNETIC MEDIA
REQUIREMENTS,—No penalty shall be imposed under section 6721
solely by reason of any failure to comply with the requirements of
the regulations prescribed under section 6011(eX2), except to the
extent that such a failure occurs with respect to more than 250
information returns. V
"(d) DEFINITIONS.—For purposes of this part—
"(1) INFORMATION RETURN.—The term 'information return'
means—
"(A) any statement of the amount of payments to another
, . person required by—
"(i) section 6041(a) or (b) (relating to certain informa­
tion at source),
"(ii) section 6042(aXl) (relating to payments of divi-
iij dends),
"(iii) section 6044(aXl) (relating to payments of
patronage dividends),
• .^ "(iv) section 6049(a) (relating to payments of interest),
"(v) section 6050A(a) (relating to reporting require­
ments of certain fishing boat operators),
"(vi) section 6050N(a) (relating to payments of royal­
ties), or
"(vii) section 6051(d) (relating to information returns
with respect to income tax withheld), and
– "(B) any return required by—
"(i) section 6041A(a) or Ot)) (relating to returns of
' direct sellers),
"(ii) section 6045(a) or (d) (relating to returns of
brokers),
"(iii) section 6050H(a) (relating to mortgage interest
received in trade or business from individuals),
"(iv) section 60501(a) (relating to CEish received in
trade or business),
"(v) section 6050J(a) (relating to foreclosures and
abandonments of security),
"(vi) section 6050K(a) (relating to exchanges of cer­
tain partnership interests),
"(vii) section 6050L(a) (relating to returns relating to
certain dispositions of donated property),
"(viii) section 6052(a) (relating to reporting payment
of wages in the form of group-life insurance),
"(ix) section 6053(cXl) (relating to reporting with re­
spect to certain tips),
ments of transferors and transferees in certain asset
acquisitions), or
"(xi) subparagraph (A) or (C) of subsection (cX4), or
subsection (e), of section 4093 (relating to information 103 StA^. 2392 PUBLIC LAW 101-239—DEC. 19,1989
reporting with respect to tax on diesel and aviation
fuels).
Such term also includes any form, statement, or schedule
required to be filed with the Secretary with respect to any
amount from which tax was required to be deducted and
11 withheld under chapter 3 (or from which tax would be
required to be so deducted and withheld but for an exemp­
tion under this title or any treaty obligation of the United
States).
"(2) PAYEE STATEMENT.—The term 'payee statement* means
any statement required to be furnished under—
"(A) section 6031(b) or (c), 6034A, or 6037(b) (relatmg to
statements furnished by certain pass-thru entities),
"(B) section 6039(a) (relating to information required in
connection with certain options),
"(C) section 6041(d) (relating to information at source),
"(D) section 6041A(e) (relating to returns regarding pay­
ments of remuneration for services and direct sales),
"(E) section 6042(c) (relating to returns regarding pay­
ments of dividends and corporate earnings and profits),
"(F) section 6044(e) (relating to returns regarding pay­
ments of patronage dividends),
"(G) section 6045(b) or (d) (relating to returns of brokers),
"(H) section 6049(c) (relating to returns regarding pay­
ments of interest),
"(I) section 6050A(b) (relating to reporting requirements
of certain fishing boat operators),
"(J) section 6050H(d) relating to returns relating to mort­
gage interest received in trade or business from individ­
uals),
"(K) section 60501(e) (relating to returns relating to cash
received in trade or business),
"(L) section 6050J(e) (relating to returns relating to fore­
closures and abandonments of security),
"(M) section 6050K(b) (relating to returns relating to
exchanges of certain partnership interests),
"(N) section 6050L(c) (relating to returns relating to cer­
tain dispositions of donated property),
"(O) section 6050N(b) (relating to returns regarding pay­
ments of royalties),
"(P) section 6051 (relating to receipts for employees),
"(^ section 6052(b) (relating to returns regarding pay­
ment of wages in the form of £n*pup-term life insurance),
"(R) section 6053(b) or (c) (relating to reports of tips), or
"(S) section 4093(cX4XB) (relating to certain purchasers of
diesel and aviation fuels).
Such term also includes any form, statement, or schedule re­
quired to be furnished to the recipient of any amount from
which tax was required to be deducted and withheld under
chapter 3 (or from which tax would be required to be so de­
ducted and withheld but for an exemption under this title or
any treaty obligation of the United States).
(3) SPECIFIED INFORMATION REPORTING REQUIREMENT.—The
term 'specified information reporting requirement' means-
"(A) the notice required by section 6050K(cXl) (relating to
requirement that transferor notify partnership of ex­
change). PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2393
"(B) any requirement contained in the r^ulations pre­
scribed under section 6109 that a person—
•*. "(i) include his TIN on any return, statement, or
other document (other than an information return or
pavee statement),
(ii) furnish his TIN to another person, or
"(iii) include on any return, statement, or other docu­
ment (other than an information return or payee state­
ment) made with respect to another person the TIN of
such person,
"(C) any requirement contained in the r^ulations pre-
. '' scrtt)ed under section 215 that a person—
"(i) furnish his TIN to another person, or
"(ii) include on his return the TIN of another person,
and
"(D) the requirement of section 6109(e) that a person
include the TIN of any dependent on his return.
"(4) REQUIRED nuNO DATE.—The term 'required filing date'
means the date prescribed for filing an information return with
the Secretary (determined with regard to any extension of time
forming)."
(b) TECHNICAL AMENDiifENTS.—
(1) Sections 6017A, 6676, and 6687 are hereby repealed.
(2) Subsection (b) of section 7205 is amended to read as follows:
"01>) BACKUP WrmHOLDmo ON INTEREST AND DIVIDENDS.—If any
individual willfully makes a false certification under paragraph (1)
or (2XC) of section 3406(d), tiien such individual shall, m adoition to
any other penal^ provided by law, upon conviction thereof, be fined
not more than $1,()00, or imprisoned not more than Ivear, or both."
(3) The table of sections for subpart B of part II of subchapter
A of chapter 61 is amended by striking the item relating to
section 6017A
(4) The table of sections for part I of subchapter B of chapter
68 is amended by striking the items relating to sections 6676
and 6687.
(5) The table of parts for subchapter B of chapter 68 is
amended by striking the item relating to part II ana inserting
the following:
'Tart n. Failure to comply with certain infonnation reporting
requirements."
(c) EFFECTIVE DATE.—The amendments made by this section shall
apply to returns and statements the due date for which (determined
without regard to extensions) is after December 31,1989.
SEC. 7712. INFORMATION REQUIRED WITH RESPECT TO CERTAIN FOR­
EIGN CORPORATIONS.
(a) CLARIFICATION OF REPORTINO REQUIREMENTS UNDER SECTION
6038.—
(1) Subsection (a) of section 6038 (relating to information with
respect to certain foreign corporations) is amended by adding at
the end thereof the following new paragraph:
"(4) INFORMATION REQUIRED FROM CERTAIN SHAREHOLDERS IN
CERTAIN CASES.—If any foreign corporation is treated as a con­
trolled foreign corporation for any purpose under subpart F of
part m of subchapter N of chapter 1, the Secretaiy may require
any United States person treated as a United States share-Fraud.
Law
enforcement
and crime.
26 use 6721
note. 103 STAT. 2394 PUBLIC LAW 101-239—DEC. 19, 1989
holder of such corporation for any purpose under subpart F to
furnish the information required under paragraph (1)."
(2) Paragraph (1) of section 6038(a) is amended by inserting
before the period at the end of the second sentence the follow­
ing: "or which the Secretary determines to be appropriate to
carry out the provisions of this title."
26 use 6038 (b) EFFECTIVB DATB.—The amendments made by subsection (a)
°^^- shall apply to returns and statements the due date for which
(determined without r^ard to extensions) is after December 31,
1989.
SEC. 7713. UNIFORM REQUIREMENTS FOR RETURNS ON MAGNETIC
MEDIA.
(a) GENERAL RULE.—Subsection (e) of section 6011 (relating to
regulations requiring returns on magnetic tape, etc.) is amended to
read as follows:
"(e) REGULATIONS REQUHUNO RETURNS ON MAGNETIC MEDIA,
ETC.—
"(1) IN GENERAL.—^The Secretary shall prescribe r^ulations
providing standards for determining which returns must be
filed on magnetic media or in other machine-readable form. The
Secretary may not require returns of any tax imposed by sub­
title A on individuals, estates, and trusts to be other than on
paper forms supplied by the Secretary.
(2) REQUIREMENTS OF REGULATIONS.—In prescribing regula­
tions under paragraph (1), the Secretary—
"(A) shall not require any person to file returns on
magnetic media unless such person is required to file at
least 250 returns during the calendar year, and
"(B) shall take into account (among otiier relevant fac­
tors) the ability of the taxpayer to comply at reasonable cost
with the requirements of such r^ulations."
26 use 6011 (b) EFFECTIVE DATE.—The amendment made by subsection (a)
iiote- shall apply to returns the due date for which (determined without
regard to extensions) is after December 31,1989.
SEC. 7714. STUDY OF PROCEDURES TO PREVENT MISMATCHING.
(a) GENERAL RULE.—The Comptroller General (in consultation
with the Secretary of the Treasury or his delegate) shall conduct a
study on procedures to resolve, with the least disclosure of return
information possible, discrepancies between taxpayer-identity
information shown on information returns and such information in
the records of the Internal Revenue Service.
(b) REPORT.—Not later than June 1,1990, the Comptroller General
shall submit to the Committee on Ways and Means of the House of
Representatives and the Committee on Finance of the Senate a
report on the study conducted under subsection (a), together with
such recommendations as he may deem advisable.
SEC. 7715. STUDY OF SERVICE BUREAUS.
(a) GENERAL RULE.—^The Comptroller General (in consultation
with the Secretary of the Treasury or his delegate) shall conduct a
study of whetiier persons engaged in the business of transmitting
information returns or other documents to the Internal Revenue
Service on behalf of other persons should be subject to r^istration
or other r^ulation. ^ PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2395
(b) REPORT.—Not later than July 1,1990, the Comptroller General
shall submit to the Committee on Ways and Means of the House of
Representatives and the Committee on Finance of the Senate a
report on the stud^ conducted under subsection (a), together with
such recommendations as he may deem advisable.
PART II—REVISION OF ACCURACY-RELATED
PENALTIES
SEC. 7721. REVISION OF ACCURACY-RELATED PENALTIES.
(a) GENERAL RULE.—Subchapter A of chaj^ter 68 (relating to addi­
tions to the tax and additional amounts) is amended by striking
section 6662 and inserting the following:
"PART II—ACCURACY-RELATED AND FRAUD
PENALTIES
"Sec. 6662. Imposition of accuracy-related penalty.
"Sec. 6663. Imposition of fraud penalty.
"Sec. 6664. Definitions and special rules.
"SEC. 6662. IMPOSITION OF ACCURACY-RELATED PENALTY.
"(a) iMPOsmoN OF PENALTY.—If this section applies to any portion
of an underpayment of tax required to be shown on a return, there
shall be added to the t^c an amount equal to 20 percent of the
portion of the undeipayment to which this section applies.
"(b) PORTION OP UNDERPAYMENT TO WHICH SECTION APPLIES.—
This section shall apply to the portion of any underpayment which
is attributable to 1 or more of the following:
"(1) Negligence or disr^ard of rules or r^ulations.
"(2) Any substantial understatement of income tax.
"(3) Any substantial valuation overstatement under chap­
ter 1.
"(4) Any substantial overstatement of pension liabilities.
"(5) Any substantial estate or gift tax valuation understate­
ment.
This section shall not apply to any portion of an underpa3anent on
which a penalty is imposed under section 6663.
"(c) NEGUGENCE.—For purposes of this section, the term 'n^-
ligence' includes any failure to make a reasonable attempt to
comply with the provisions of this title, and tibe term 'disr^ard'
includes any careless, reckless, or intentional disr^ard.
"(d) SUBSTANTIAL UNDERSTATEMENT OF INCOME TAX.—
"(1) SUBSTANTIAL UNDERSTATEMENT.—
"(A) IN GENERAL.—For purposes of this section, there is a
substantial understetement of income tax for any taxable
year if the amount of the tmderstotement for the taxable
year exceeds the greater of—
"(i) 10 percent of the tax required to be shown on the
return for the taxable year, or
"(ii) $5,000.
"(B) SPECIAL RULE FOR CORPORATIONS.—^In the case of a
corporation other than an S corporation or a personal
holding company (as defined in section 542), paragraph (1)
shaU be applied by substituting "$10,000'^ for^'$5,000".
"(2) UNDERSTATEMENT.— 103 STAT. 2396 PUBLIC LAW 101-239—DEC. 19, 1989
"(A) IN GENERAL.—For purposes of paragraph (1), the
term 'understatement' means the excess of—
"(i) the amount of the tax required to be shown on
the return for the taxable ye£u*, over
"(ii) the amount of the tax imposed which is shown
on the return, reduced by any rebate (within the mean-
mg of section 6211(bX2)).
"(B) REDUCTION FOR UNDERSTATEMENT DUE TO POSITION OP
TAXPAYER OR DISCLOSED ITEM.—The amount of the under­
statement under subparagraph (A) shall be reduced by that
portion of the understatement which is attributable to—
"(i) the tax treatment of any item by the taxpayer if
'I there is or was substantial authority for such treat­
ment, or
"(ii) any item with respect to which the relevant facts
' affecting the item's tax treatment are adequately dis­
closed in the return or in a statement attached to the
return.
"(C) SPECIAL RULES IN CASES INVOLVING TAX SHELTERS.—
"(i) IN GENERAL.—In the case of any item attributable
to a tax shelter—
"(I) subparagraph (BXii) shall not apply, and
"(II) subparagraph (B)(i) shall not apply unless
(in addition to meeting the requirements of such
subpareigraph) the taxpayer reasonably believed
that the tax treatment of such item by the tax­
payer was more likely than not the proper treat­
ment,
"(ii) TAX SHELTER.—For purposes of clause (i), the
term 'tax shelter* means—
"(I) a partnership or other entity,
"(II) any investment plan or arrangement, or
"(III) any other plan or arrangement,
if the principal purpose of such partnership, entity,
plan, or arrangement is the avoidance or evasion of
Federal income tax.
"(D) SECRETARIAL LIST.—The Secretary shall prescribe
(and revise not less frequently than annually) a list of
positions—
"(i) for which the Secretary believes there is not
substantial authority, and
"(ii) which affect a significant number of tfocpayers.
Federal Such list (and any revision thereof) shall be published in
Register, the Federal Register.
publication. «(g) SUBSTANTIAL VALUATION OVERSTATEMENT UNDER CHAP­
TER 1.—
"(1) IN GENERAL.—For purposes of this section, there is a
substantial valuation overstatement under chapter 1 if the
value of any property (or the adjusted basis of any property)
claimed on any return of tax imposed by chapter 1 is 200
percent or more of the amount determined to be the correct
amount of such valuation or adjusted basis (as the case may be).
"(2) LIMITATION.—No penalty shall be imposed by reason of
subsection (bX3) unless the portion of the underpayment for the
taxable year attributable to substantial valuation overstate­
ments under chapter 1 exceeds $5,000 ($10,000 in the case of a PUBLIC LAW 101-239—DEC. 19,1989 103 STAT. 2397
corporation other than an S corporation or a personal holding
company (as defined in section 542)).
"(f) SUBSTANTIAL OVERSTATEMENT OF PENSION LIABILITIES.—
"(1) IN GENERAL.—For purposes of this section, there is a
substantial overstatement of pension liabilities if the actuarial
determination of the liabilities taken into account for purposes
of computing the deduction under paragraph (1) or (2) of section
404(a) is 200 percent or more of the amount determined to be
the correct amount of such liabilities.
"(2) LIMITATION.—No penalty shall be imposed by reason of
subsection (bX4) unless the portion of the underpayment for the
taxable year attributable to substantial overstatements of pen­
sion liabilities exceeds $1,000.
"(g) SUBSTANTIAL ESTATE OR GIFT TAX VALUATION UNDERSTATE­
MENT.—
"(1) IN GENERAL.—For purposes of this section, there is a
substantial estate or gift tax valuation understatement if the
value of any property claimed on any return of tax imposed by
subtitle B is 50 percent or less of the amount determined to be
the correct amount of such valuation.
"(2) LIMITATION.—No penalty shall be imposed by reason of
subsection (bX5) unless the portion of the underpayment attrib­
utable to substantial estate or gift tax valuation understate­
ments for the taxable period (or, in the case of the tax imposed
by chapter 11, with respect to the estate of the decedent)
exceeds $5,000.
"(h) INCREASE IN PENALTY IN CASE OF GROSS VALUATION
MISSTATEMENTS.—
"(1) IN GENERAL.—To the extent that a portion of the
underpayment to which this section applies is attributable to
one or more gross venation misstatements, subsection (a) shall
be applied with respect to such portion by substituting *40
percent' for '20 percent'.
"(2) GROSS VALUATION MISSTATEMENTS.—The term 'gross valu­
ation misstatements' means—
"(A) any substantial valuation overstatement under chap­
ter 1 as determined under subsection (e) by substituting '400
percent' for '200 percent*,
"(B) any substantial overstatement of pension liabilities
as determined under subsection (f) by substituting '400
percent' for '200 percent', and
"(C) any substantial estate or gift tax valuation under­
statement as determined under subsection (g) by substitut­
ing '25 percent' for '50 percent'.
"SEC. 6663. IMPOSITION OF FRAUD PENALTY.
"(a) IMPOSITION OF PENALTY.—If any part of any underpa3mient of
tax required to be shown on a return is due to fraud, there shall be
added to the tax an amount equal to 75 percent of the portion of the
underpayment which is attributable to fraud.
"(b) DETERMINATION OF PORTION ATTRIBUTABLE TO FRAUD.—If the
Secretary establishes that any portion of an underpayment is attrib­
utable to fraud, the entire underpa3mient shall be treated as attrib­
utable to fraud, except with respect to any portion of the
underpayment which the taxpayer establishes (by a preponderance
of the evidence) is not attributable to fraud. 103 STAT. 2398 PUBLIC LAW 101-239—DEC. 19,1989
"(c) SPECIAL RxnjE FOR JOINT RETURNS.—In the case of a joint
return, this section shall not apply with respect to a spouse unless
some part of the underpayment is due to the fraud of such spouse.
'^EC 6664. DEFINITIONS AND SPECIAL RULES.
"(a) UNDERPAYMENT.—For purposes of this part, the term
'underpayment' means the amount by which any tax imposed by
this tide exceeds the excess of—
"(1) the sum of—
"(A) the amount shown as the tax by the taxpayer on his
return, plus
"(B) amounts not so shown previously assessed (or col­
lected without assessment), over
"(2) the amount of rebates made.
For purposes of paragraph (2), the term 'rebate' means so much of
an abatement, credit, refund, or other repayment, as was made on
the ground that the tax imposed was less than the excess of the
amount specified in paragraph (1) over the rebates previously made.
"(b) PisALToa APPUCABLE ONLY WHERE RETURN FILED.—The
penalties provided in this part shall apply only in cases where a
return of tax is filed (other than a retiun prepared by the Secretary
under the authority of section 6020(b)).
"(c) REASONABLE CAUSE EXCEPTION.—
"(1) IN GENERAL.—NO penalty shall be imposed under this
part with respect to any portion of an underpavment if it is
shown that there was a reasonable cause for sucn portion and
that the taxpayer acted in good faith with respect to such
portion.
Gifts and "(2) SPECIAL RULE FOR CERTAIN VALUATION OVERSTATElifENTS.—
property. JQ J^Q Q^g^ ^f g^y underpayment attributable to a substantial or
gross valuation overstatement under chapter 1 with respect to
charitable deduction property, paragraph (1) shall not apply
unless—
"(A) the claimed value of the property was based on a
qualified appraisal made by a qualified appraiser, and
"(B) in addition to obtaining such appraisal, the taxpayer
made a good faith investigation of the value of the contrib*
uted property.
"(3) DEFDOTIONS.—For purposes of this subsection—
"(A) CHARITABLE DEDUCTION PROPERTY.—The term'chari­
table deduction property* means any property contributed
bv the taxpayer in a contribution for which a deduction was
claimed under section 170. For purposes of paragraph (2),
such term shall not include any securities for which (as of
the date of the contribution) market quotations are readily
available on an established securities market.
"(B) QUALIFIED APPRAISER.—The term 'qualified ap­
praiser* means any appraiser meeting the requirements of
the regulations prescribed under section 170(aXl).
"(C) QUALIFIED APPRAISAL.—^The term 'qualified ap­
praisal' means any appraisal meeting the requirements of
the r^ulations prescribed under section 170(aXl).
*TART III—APPLICABLE RULES
"Sec. 6665. Applicable rules. PUBLIC LAW 101-239—DEC. 19,1989 103 STAT. 2399
"SEC. 6665. APPLICABLE RULES.
"(a) ADDITIONS TREATED AS TAX.—Except as otherwise provided in
this title—
"(1) the additions to the tax, additional amounts, and pen­
alties provided by this chapter sh£dl be paid upon notice and
demand and shall be assessed, collected, and paid in the same
manner as taxes; and
"(2) any reference in this title to 'tax* imposed by this title
shall be deemed also to refer to the additions to the tax,
additional amounts, and penalties provided by this chapter.
"(b) PROCEDURE FOR ASSESSING CERTAIN ADDITIONS TO TAX.—For
purposes of subchapter B of chapter 63 (relating to deficiency proce­
dures for income, estate, gift, and certain excise taxes), subsection (a)
shall not apply to any addition to tax under section 6651, 6654, or
6655; except that it shall apply—
"(1) in the case of an addition described in section 6651, to
that portion of such addition which is attributable to a defi­
ciency in tax described in section 6211; or
"(2) to an addition described in section 6654 or 6655, if no
return is filed for the taxable year."
(b) REPEAL OF INCREASE IN INTEREST ON CERTAIN SUBSTANTIAL
UNDERPAYMENTS.—Subsection (c) of section 6621 (relating to interest
on substantial underpa3rments attributable to tax motivated trans­
actions) is hereby repealed.
(c) TECHNICAL AND CONFORMING AMENDMENTS.—
(1) Section 6653 is amended to read as follows:
"SEC. 6653. FAILURE TO PAY STAMP TAX.
"Any person (as defined in section 6671(b)) who—
"(1) willfully fails to pay any tax imposed by this title which is
payable by stamp, coupons, tickets, books, or other devices or
methods prescribed by this title or by regulations under the
authority of this title, or
"(2) willfully attempts in any manner to evade or defeat any
such tax or the payment thereof,
shall, in addition to other penalties provided by law, be liable for a
penalty of 50 percent of the total amount of the underpajmient of
the tax."
(2) Sections 6659, 6659A, 6660, and 6661 are hereby repealed.
(3) Subsection (b) of section 5684 is amended—
(A) by striking "6662(a)" and inserting "6665(a)", and
(B) by striking "6662" in the subsection heading and
inserting "6665".
(4) Subsection (a) of section 5761 is amended by striking "or
6653" and inserting "or 6653 or part II of subchapter A of
chapter 68".
(5) Subsection (c) of section 5761 is amended—
(A) by striking "6662(a)" and inserting "6665(a)", and
(B) by striking "6662" in the subsection heading and
inserting "6665".
(6) Subparagraph (A) of section 6013(bX5) is amended—
(A) by striking "section 6653" and inserting "part 11 of
subchapter A of chapter 68", and
(B) by striking "SECTION 6653" in the subparagraph
heading and inserting "PART II OF SUBCHAPTER A OF
CHAPTER 68". 103 STAT. 2400 PUBLIC LAW 101-239—DEC. 19, 1989
(7) Subsection (d) of section 6222 is amended by striking
"section 6653(a)" and inserting "part II of subchapter A of
chapter 68".
(8) Paragraph (2) of section 6601(e) is amended by striking
"section 6651(aXl), 6653, 6659, 6660, or 6661" each place it
appears and inserting "section 6651(aXl) or 6653 or under part
II of subchapter A of chapter 68".
(9) Subsection (a) of section 6672 is amended by striking
"under section 6653" and inserting "under section 6653 or part
II of subchapter A of chapter 68".
(10) Subparagraph (C) of section 461(iX3) is amended by strik­
ing "section 6662(bX2XCXii)" and inserting '^section
6662(dX2XCXii)".
(11) Clause (i) of section 1274(bX3)(B) is amended by striking
"section 6661(bX2XCXii)" and insertmg "section 6662(dX2XCXii)'.
(12) Subparagraph (B) of section 7519(fK4) is amended by
striking "section 6653" and inserting "part II of subchapter A of
chapter 68".
(13) Subchapter A of chapter 68 is amended by inserting after
the subchapter heading the following:
J "Part I. General provisions.
"Part n. Accuracy-related and fraud penalties.
"Part ni. Applicable rules.
"PART I—GENERAL PROVISIONS".
(14) The table of sections for part I of subchapter A of chapter
68 (as amended by paragraph (1)) is amended—
(A) by stnkmg out the items relating to sections 6659,
– 6659A, 6660, and 6661, and
(B) by striking the item relating to section 6653 and
inserting:
"Sec. 6653. Failure to pay stamp tax."
26 use 461 note. (d) EFFECTIVE DATE.—The amendments made by this section shall
apply to returns the due date for which (determined without regard
to extensions) is after December 31,1989.
PART III—PREPARER, PROMOTER, AND
PROTESTER PENALTIES
SEC. 7731. PENALTY FOR INSTITUTING PROCEEDINGS BEFORE TAX
COURT PRIMARILY FOR DELAY, ETC
(a) GENERAL RULE.—Section 6673 (relating to damages assessable
for instituting proceedings before the Tax Court primcuily for delay,
etc.) is amended to read as follows:
"SEC. 6673. SANCTIONS AND COSTS AWARDED BY COURTS.
"(a) TAX C!OURT PROCEEDINGS.—
"(1) PROCEDURES INSTITUTED PRIMARILY FOR DELAY, ETC.—
Whenever it appears to the Tax Court that—
"(A) proceedings before it have been instituted or main­
tained bv the taxpayer primarily for delay,
"(B) the taxpayer's position m such proceeding is frivo­
lous or groundless, or PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2401
"(C) the taxpayer unreasonably failed to pursue available
administrative remedies,
the Tax Court, in its decision, may require the taxpayer to pay
to the United States a penalty not in excess of $25,000.
"(2) COUNSEL'S UABILTTY FOR EXCESSIVE COSTS.—Whenever it
appears to the Tax Court that any attorney or other person
admitted to practice before the Tax Court has multiplied the
proceedings in any case unreasonably and vexatiously, the Tax
Court may require—
"(A) that such attorney or other person pay personally
the excess costs, expenses, and attorneys* fees reasonably
incurred because of such conduct, or
"(B) if such attorney is appearing on behalf of the
Commissioner of Internal Revenue, that the United States
pay such excess costs, expenses, and attorneys' fees in the
same manner as such an award by a district court.
"(b) PROCEEDINGS IN OTHER COURTS.—
"(1) CLAIMS UNDER SECTION 7433.—Whenever it appears to the
court that the taxpayer's position in the proceedings before the
court instituted or maintained by such taxpayer under section
7433 is frivolous or groundless, the court may require the
taxpayer to pay to the United States a penalty not in excess of
$10,000.
"(2) COLLECTION OF SANCTIONS AND COSTS.—In any civil
proceeding before any court (other than the Tax Court) which is
brought by or against the United States in connection with the
determination, collection, or refund of any tax, interest, or
penalty under this title, any monetary sanctions, penalties, or
costs awarded by the court to the United States may be assessed
by the Secretary and, upon notice and demand, may be collected
in the same manner as a tax.
"(3) SANCTIONS AND COSTS AWARDED BY A COURT OF APPEALS.—
In connection with any appeal from a proceeding in the Tax
Court or a civil proceeding described in paragraph (2), an order
of a United States Court of Appeals or the Supreme Court
awarding monetary sanctions, penalties or court costs to the
United States may be registered in a district court upon filing a
certified copy of such order and shall be enforceable as other
district court judgments. Any such sanctions, penalties, or costs
may be assessed by the Secretary and, upon notice and demand,
may be collected in the same manner as a tax."
(b) CLARIFICATION OF AUTHORITY TO IMPOSE PENALTIES BY APPEL­
LATE COURTS.—Paragraph (4) of section 7482(c) (relating to power to
impose damages) is amended to read as follows:
"(4) To IMPOSE PENALTIES.—The United States Court of Ap­
peals and the Supreme Court shall have the power to require
the taxpayer to pay to the United States a penalty in any case
where the decision of the Tax Court is affirmed and it appears
that the appeal was instituted or maintained primarily for
delay or that the taxpayer's position in the appeal is frivolous or
groundless."
(c) CLERICAL AMENDMENT.—The table of sections for part I of
subchapter B of chapter 68 is amended by striking the item relating
to section 6673 and inserting the following:
"Sec. 6673. Sanctions and costs awarded by courts." 103 STAT. 2402 PUBLIC LAW 101-239—DEC. 19, 1989
26 use 6673 (d) EFFECTIVE DATE.—The amendments made by this section shall
*^°*®- apply to positions taken after December 31, 1989, in proceedings
which are pending on, or commenced after such date.
SEC. 7732. MODIFICATIONS TO PENALTIES ON RETURN PREPARERS FOR
CERTAIN UNDERSTATEMENTS.
(a) GENERAL RULE.—Subsections (a) and Qji) of section 6694 (relat­
ing to understatement of taxpayer's liability by income tax return
preparer) are amended to read as follows:
"(a) UNDERSTATEMENTS DUE TO UNREALISTIC POSITIONS.—If—
"(1) any part of any understatement of liability with respect
to any return or claim for refund is due to a position for which
there was not a realistic possibility of being sustained on its
merits,
"(2) any person who is an income tax return preparer with
respect to such return or claim knew (or reasonably should have
known) of such position, and
"(3) such position was not disclosed as provided in section
6662(dX2XBXii) or was frivolous,
such person shall pay a penalty of $250 with respect to such return
or claim unless it is shown that there is reasonable cause for the
understatement and such person acted in good faith.
"(b) WILLFUL OR RECKLESS CONDUCT.—^If any part of any under­
statement of liability with respect to any return or claim for refund
is due—
"(1) to a willful attempt in any manner to understate the
liability for tax by a person who is an income tax return
preparer with respect to such return or claim, or
"(2) to any reckless or intentional disregard of rules or regula­
tions by any such person,
such person shall pay a penalty of $1,000 with respect to such return
or claim. With respect to any return or claim, the amount of the
penalty payable by any person by reason of this subsection shall be
reduced by the amount of the penalty paid by such person by reason
of subsection (a)."
26 use 6694 (b) EFFECTIVE DATE.—The amendment made by subsection (a)
note. shall apply with respect to documents prepared after December 31,
1989.
SEC. 7733. MODIFICATIONS TO OTHER ASSESSABLE PENALTIES WITH
RESPECT TO RETURN PREPARERS.
(a) FAILURE TO FURNISH COPY TO TAXPAYER.—Subsection (a) of
section 6695 is amended—
(1) by striking "$25" and inserting "$50", and
(2) by adding at the end thereof the following new sentence:
"The maximum penalty imposed under this subsection on any
person with respect to documents filed during any calendar
year shall not exceed $25,000."
(b) FAILURE TO SIGN RETURN.—Subsection (b) of section 6695 is
amended—
(1) by striking "$25" and inserting "$50", and
(2) by adding at the end thereof the following new sentence:
"The maximum penalty imposed under this subsection on any
person with respect to documents filed during any calendar
year shall not exceed $25,000,"
(c) FAILURE TO FURNISH IDENTIFYING NUMBER.—Subsection (c) of
section 6695 is amended— PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2403
(1) by striking "$25" and inserting "$50", and
(2) by adding at the end thereof the following new sentence:
"The maximum penalty imposed under this subsection on any
person with respect to documents filed during any calendar:
year shall not exceed $25,000."
(d) FAILURE TO FILE CoRREcrr INFORMATION RETURNS.—Subsection
(e) of section 6695 is Eunended to read as follows:
"(e) FAILURE TO FILE CORRECT INFORMATION RETURNS.—Any
person required to make a return under section 6060 who fails to
comply with the requirements of such section shall pay a penalty of
$50 for—
"(1) each failure to file a return as required under such
section, and
"(2) each failure to set forth an item in the return as required
under section,
unless it is shown that such failure is due to reasonable cause and
not due to willful neglect. The maximum penalty imposed under this
subsection on any person with respect to any return period shall not
exceed $25,000."
(e) EFFECTIVE DATE.—The amendments made by this section shall 26 use 6695
apply to documents prepared after December 31,1989. "°*®-
SEC. 7734. MODIFICATIONS TO PENALTY FOR PROMOTING ABUSIVE TAX
SHELTERS, ETC.
(a) GENERAL RULE.—Subsection (a) of section 6700 is amended—
(1) by inserting "(directly or indirectly)" after "participates"
in paragraph (1)^),
(2) bv inserting "or causes another person to make or furnish"
after' makes or furnishes" in paragraph (2), and
(3) by striking the matenal following paragraph (2) and
inserting the following:
"shall pay, with respect to each activity described in paragraph (1), a
penalty equal to the $1,000 or, if the person establishes that it is
lesser, 100 percent of the gross income derived (or to be derived) by
such person from such activity. For purposes of the preceding
sentence, activities described in paragraph (IXA) with respect to
each entity or arrangement shall be treated as a separate activity
and participation in each sale described in paragraph (1)(B) shall be
so treated.
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 26 use 6700
shall apply to activities after December 31,1989. ''°^
SEC. 7735. MODIFICATIONS TO PENALTIES FOR AIDING AND ABETTING
UNDERSTATEMENT OF TAX LIABILITY.
(a) GENERAL RULE.—Subsection (a) of section 6701 (relating to
penalties for aiding and abetting understetement of tax liability) is
amended—
(1) by striking "in connection with any matter arising under
the internal revenue laws" in paragraph (1),
(2) by striking "who knows in paragraph (2) and inserting
"who knows (or has reason to believe)", and
(3) by striking "will result" in paragraph (3) and inserting
"would result".
(b) COORDINATION WITH PENALTY UNDER SECTION 6700.—
(1) IN GENERAL.—Subsection (f) of section 6701 is amended by
adding at the end thereof the following new paragraph: 103 STAT. 2404 PUBLIC LAW 101-239—DEC. 19, 1989
"(3) COORDINATION WITH SECTION 6700.—No penalty shall be
assessed under section 6700 on any person with respect to any
document for which a penalty is assessed on such person under
subsection (a)."
(2) TECHNICAL AMENDMENT.—Paragraph (1) of section 6701(f)
is amended by striking "paragraph (2) and inserting "para­
graphs (2) and (3)".
26 use 6701 (c) EFFECTIVE DATE.—The amendments made by this section shall
note. take effect on December 31,1989.
SEC. 7736. MODIFICATION TO PENALTY FOR FRIVOLOUS INCOME TAX
RETURN.
(a) REQUIREMENT OF FULL PAYMENT OF PENALTY.—Subsection (c) of
section 6703 is amended by striking "section 6700, 6701, or 6702"
each place it appears and inserting "section 6700 or 6701".
26 use 6703 (b) EFFECTIVE DATE.—The amendment made by subsection (a)
"°*®- shall apply to returns filed after December 31,1989.
SEC. 7737. AUTHORITY TO COUNTERCLAIM FOR BALANCE OF PENALTY IN
PARTIAL REFUND SUITS.
(a) GENERAL RULE.—Sections 6672(bXl), 6694(cXl), and 6703(cXl)
are each amended by adding at the end thereof the following new
sentence: "Nothing in this paragraph shall be construed to prohibit
any counterclaim for the remainder of such penalty in a proceeding
begun as provided in paragraph (2)."
26 use 6672 (b) EFFECTIVE DATE.—The amendment made by subsection (a)
^°*®- shall take effect on the date of the enactment of this Act.
SEC. 7738. REPEAL OF BONDING REQUIREMENT UNDER SECTION 7407.
(a) GENERAL RULE.—Subsection (c) of section 7407 (relating to
bond to stay injunction) is hereby repealed.
(b) CONFORMING AMENDMENT.—Subsection (a) of section 7407 is
amended by striking "Except as provided in subsection (c), a civil"
and inserting "A civil".
26 use 7407 (c) EFFECTIVE DATE.—The amendments made by this section shall
^°*®- apply to actions commenced after December 31,1989.
SEC. 7739. CERTAIN DISCLOSURES OF INFORMATION BY PREPARERS PER­
MITTED.
(a) GENERAL RULE.—Paragraph (3) of section 7216(b) (relating to
exceptions) is amended by adding at the end thereof the following
new sentence: "Such regulations shall permit (subject to such condi­
tions as such regulations shall provide) the disclosure or use of
information for quality or peer reviews."
26 use 7216 (b) EFFECTIVE DATE.—The amendment made by subsection (a)
»ote. shall take effect on the date of the enactment of this Act.
PART IV—FAILURES TO FILE OR PAY
SEC. 7741. INCREASE IN PENALTY FOR FRAUDULENT FAILURE TO FILE.
(a) GENERAL RULE.—Section