text: SECTION 1. PROSPECTIVE PAYMENT FOR INPATIENT REHABILITATION HOSPITAL 
                SERVICES BASED ON DISCHARGES CLASSIFIED BY FUNCTIONAL-
                RELATED GROUPS.
  
      (a) In General.--Section 1886 of the Social Security Act (42 U.S.C. 
  1395ww) is amended by adding at the end the following new subsection:
      ``(j) Prospective Payment for Inpatient Rehabilitation Services.--
              ``(1) In general.--Notwithstanding section 1814(b), but 
          subject to the provisions of section 1813, the amount of the 
          payment with respect to the operating and capital costs of 
          inpatient hospital services of a rehabilitation hospital or a 
          rehabilitation unit (in this subsection referred to as a 
          `rehabilitation facility') for a discharge is equal to the per 
          discharge payment rate established under this subsection.
              ``(2) Functional-related groups.--
                      ``(A) Establishment.--The Secretary shall 
                  establish--
                              ``(i) classes of discharges of 
                          rehabilitation facilities by functional-related 
                          groups (each in this subsection referred to as 
                          a `functional-related group' or `FRG'), based 
                          on impairment, age, and functional capability 
                          of the discharged individual and such other 
                          factors as the Secretary deems appropriate, and
                              ``(ii) a method of classifying specific 
                          discharges from rehabilitation facilities 
                          within these groups.
                      ``(B) Weighting factors.--For each functional-
                  related group the Secretary shall assign an appropriate 
                  weighting which reflects the relative facility 
                  resources used with respect to discharges classified 
                  within that group compared to discharges classified 
                  within other groups.
                      ``(C) Adjustments.--The Secretary shall from time 
                  to time adjust the classifications and weighting 
                  factors established under this paragraph as appropriate 
                  to correct for forecast errors and to reflect changes 
                  in treatment patterns, technology, and other factors 
                  which may affect the relative use of resources.
              ``(3) Payment rate.--
                      ``(A) In general.--The Secretary shall determine a 
                  prospective payment rate for each rehabilitation 
                  facility discharge for which such rehabilitation 
                  facility is entitled to receive payment under this 
                  title. Subject to subparagraph (B), such rate for 
                  discharges during a fiscal year shall be based on the 
                  average payment per discharge under this title for 
                  inpatient operating and capital costs of rehabilitation 
                  facilities in fiscal year 1995 (as estimated by the 
                  Secretary) adjusted--
                              ``(i) by updating such per-discharge amount 
                          to the fiscal year involved by the applicable 
                          percentage increases provided under subsection 
                          (b)(3)(B)(i) for each year after fiscal year 
                          1995 and up to the fiscal year involved;
                              ``(ii) by reducing such rates by a factor 
                          equal to the proportion of payments under this 
                          subsection (as estimated by the Secretary) 
                          based on FRG prospective payment amounts which 
                          are additional payments described in paragraph 
                          (4) (relating to outlier and related payments) 
                          or paragraph (7);
                              ``(iii) for variations among rehabilitation 
                          facilities by area under paragraph (6);
                              ``(iv) by the weighting factors established 
                          under paragraph (2)(B); and
                              ``(v) by such other factors as the 
                          Secretary determines are necessary to properly 
                          reflect variations in necessary costs of 
                          treatment among rehabilitation facilities.
                      ``(B) Budget neutral rates.--The Secretary shall 
                  establish the prospective payment amounts under this 
                  subsection for discharges during each of fiscal years 
                  1998 through 2002 at levels such that, in the 
                  Secretary's estimation, the amount of total payments 
                  under this subsection for each such fiscal year 
                  (including any payment adjustments pursuant to 
                  paragraph (7)) shall not exceed the amount of payments 
                  that would have been made under this title during the 
                  fiscal year for operating and capital costs of 
                  rehabilitation facilities had this subsection not been 
                  enacted.
              ``(4) Outlier and special payments.--
                      ``(A) Outliers.--
                              ``(i) Day outliers.--The Secretary shall 
                          provide for an additional payment to a 
                          rehabilitation facility for discharges in a 
                          functional-related group, the lengths of stay 
                          of which exceeded the mean length of stay for 
                          discharges within that group by a fixed number 
                          of days or exceeds such mean length of stay by 
                          some fixed number of deviations, whichever is 
                          the fewer number of days.
                              ``(ii) Requesting additional payments.--For 
                          cases not included in clause (i), a 
                          rehabilitation facility may request additional 
                          payments in any case in which charges, adjusted 
                          to cost, exceed a fixed multiple of the 
                          applicable prospective payment rate, or exceed 
                          such other fixed dollar amount, whichever is 
                          greater, or exceed the prospective payment rate 
                          plus a fixed dollar amount determined by the 
                          Secretary.
                              ``(iii) Payment based on marginal cost of 
                          care.--The amount of such additional payment 
                          under clauses (i) and (ii) shall be determined 
                          by the Secretary and shall approximate the 
                          marginal cost of care beyond the cutoff point 
                          applicable under clause (i) or (ii).
                              ``(iv) Total payments.--The total amount of 
                          the additional payments made under this 
                          subparagraph for discharges in a fiscal year 
                          may not be less than 5 percent nor more than 6 
                          percent of the total payments projected or 
                          estimated to be made based on FRG prospective 
                          payment rates for discharges in that year.
                      ``(B) Adjustment.--The Secretary may provide for 
                  such adjustments to the payment amounts under this 
                  subsection as the Secretary deems appropriate to take 
                  into account the unique circumstances of rehabilitation 
                  facilities located in Alaska and Hawaii.
              ``(5) Publication.--The Secretary shall provide for 
          publication in the Federal Register, on or before September 1 
          before each fiscal year (beginning with fiscal year 1998), of 
          the classification and weighting factors for FRGs under 
          paragraph (2) for such fiscal year and a description of the 
          methodology and data used in computing the prospective payment 
          rates under this subsection for that fiscal year.
              ``(6) Area wage adjustment.--The Secretary shall adjust the 
          proportion (as estimated by the Secretary from time to time) of 
          rehabilitation facilities' costs which are attributable to 
          wages and wage-related costs, of the prospective payment rates 
          computed under paragraph (3) for area differences in wage 
          levels by a factor (established by the Secretary) reflecting 
          the relative hospital wage level in the geographic area of the 
          rehabilitation facility compared to the national average wage 
          level for such facilities. Not later than October 1, 1998 (and 
          at least every 12 months thereafter), the Secretary shall 
          update the factor under the preceding sentence on the basis of 
          a survey conducted by the Secretary (and updated as 
          appropriate) of the wages and wage-related costs incurred in 
          furnishing rehabilitation services. Any adjustments or updates 
          made under this paragraph for a fiscal year shall be made in a 
          manner that assures that the aggregated payments under this 
          subsection in the fiscal year are not greater or less than 
          those that would have been made in the year without such 
          adjustment.
              ``(7) Additional adjustments.--The Secretary shall provide 
          by regulation for--
                      ``(A) an additional payment to take into account 
                  indirect costs of medical education and the special 
                  circumstances of hospitals that serve a significantly 
                  disproportionate number of low-income patients in a 
                  manner similar to that provided under subparagraphs (B) 
                  and (F), respectively, of subsection (d)(5); and
                      ``(B) such other exceptions and adjustments to 
                  payment amounts under this subsection in a manner 
                  similar to that provided under subsection (d)(5)(I) in 
                  relation to payments under subsection (d).
              ``(8) Limitation on review.--There shall be no 
          administrative or judicial review under section 1878 or 
          otherwise of--
                      ``(A) the establishment of FRGs, of the methodology 
                  for the classification of discharges within such 
                  groups, and of the appropriate weighting factors 
                  thereof under paragraph (2), and
                      (B) the establishment of the prospective payment 
                  rates under paragraph (3).''.
      (b) Conforming Amendments.--Section 1886(b) of such Act (42 U.S.C. 
  1395ww(b)) is amended--
              (1) in paragraph (1), by inserting ``and other than a 
          rehabilitation facility described in subsection (j)(1)'' after 
          ``subsection (d)(1)(B)'', and
              (2) in paragraph (3)(B)(i), by inserting ``and subsection 
          (j)'' after ``For purposes of subsection (d)''.
      (c) Effective Date.--The amendments made by this section shall 
  apply to cost reporting periods beginning on or after October 1, 1997.
target: Amends title XVIII (Medicare) of the Social Security Act to provide for prospective payment under Medicare for inpatient rehabilitation hospital services and units based on discharges classified by functional-related groups.
feat_title: To amend title XVIII of the Social Security Act to provide for prospective payment under the Medicare program for inpatient services of rehabilitation hospitals and units based on discharges classified by functional-related groups.