BILL ANALYSIS AND FISCAL IMPACT REPORT	Page 1 of  7 plus Appendix

DATE:  March 12, 2001	Submitted by: TAXATION AND REVENUE DEPT.
	T. GLENN ELLINGTON, SECRETARY
BILL NUMBER: SFC Substitute for SFC Substitute for SB – 124 as amended on Senate Floor and House Taxation and Revenue Committee (3/11/01)

SPONSOR: Senate Finance Committee (as completely rewritten by HTRC)

BILL SHORT TITLE: Taxable Income-Based, Two-year Rebate for New Mexico Residents; Increasing Low-Income Comprehensive Tax Rebate; Making Job-Mentorship Credit permanent; GRT deduction for certain receipts of a franchisor; expanding GRT deduction for Healthcare Practitioners (Medicare B); 

DESCRIPTION: (1) Provides a non-recurring rebate for two tax years – TY 2001 and TY 2002. (2) Provides a recurring  two-year phased decrease of the highest personal income tax rate to 7.8% for TY 2001 and 7.7% for TY 2002. The top bracket is restored to $65,000 (single) and $100,000 (MFJ) by TY 2002. (3) Low-Income Comprehensive Tax Rebate (LICTR) increased by about $10M in FY 2002, and decreasing over time because of “bracket creep”. This change primarily benefits children in low-income families, but extends some benefits to low-income elderly. (4) Makes the public school-based  job-mentorship credit permanent as explained in HB-67 FIR. (5) Provides a GRT deduction for certain receipts of a franchisor as explained in HB-188 FIR, except this bill has an effective date of July 1, 2001, while HB-188 has an emergency clause. (6) Expands GRT deduction for healthcare practitioners from physicians and hospices only to all payments for medical and other health services, including home health care from Medicare A and B. Unless amended, this probably includes payments to for-profit hospitals. (7) TRICARE payments to physicians (only) are made deductible as explained in HB-94 FIR.

EFFECTIVE DATE: July 1, 2001 for the gross receipts tax portions; applicable for tax years beginning on or after January 1, 2001; applicable for tax years beginning in 2001 or 2002.

FISCAL IMPACT (Thousands of dollars):  		Note: Parenthesis ( ) indicate a revenue loss:
		Recurring or		
Estimated Impact on Revenues	Nonrecurring	Funds 	
 FY 2002 	FY 2003	FY 2004   	     Impact     t     	             Affected          .             	
(300)	(800)	(800)	Recurring	General Fund (Job Mentorship)*	
(800)	(1,600)	(1,760)	Recurring	General Fund (franchisors)	
(400)	(800)	(880)	Recurring	Local Governments (franchisors)	
(1,600)	(1,800)	(1,900)	Recurring	General Fund (health practitioners)	
(1,200)	(1,400)	(1,500)	Recurring	Local Governments (health practitioners)	
(240)	(280)	(300)	Recurring	General Fund (TRICARE)	
(190)	(220)	(230)	Recurring	Local Governments (TRICARE)	
(19,000)	(30,600)	(34,000)	Recurring	General Fund (Top Rate)	
	3,500 	5,600 	Recurring	State Deduction Recovery (Top Rate)	
(9,600)	(9,500)	(9,000)	Recurring	LICTR Increase	
(30,600)	(32,700)	(1,300)	Non-Recurring	General Fund (TI Rebate)	
	1,900 	2,000 	Non-Recurring	State Deduction Recovery (TI Rebate)	
(59,200)	(67,400)	(36,700)	Rec. & N/R	Net General Fund	
	5,800 	9,300 	Recurring	Federal Deduction Recovery (Top Rate)	
	6,500 	6,800 	Non-Recurring	Federal Deduction Recovery (TI Rebate)	
59,200 	55,100 	20,600 		Net Taxpayer Benefit	
(62,140)	(71,880)	(41,460)	Rec. & N/R	Net General Fund	
(1,790)	(2,420)	(2,610)	Recurring	Net Local Governments	
(63,930)	(74,300)	(44,070)	Rec. & N/R	Total	

* See Other Issues and Impacts #12 below for fiscal impact.

ADMINISTRATIVE IMPACT: despite the volume of changes proposed, the Department should have no difficulty administering the provisions, with the sole exception of the Gross Receipts portions. In the case of franchisors, the usual forms and instructions, taxpayer seminar materials and technical advice memoranda to auditors will have to be updated. This may require a considerable effort, in consultation with industry representatives, to determine how to unbundle the franchise payment into a royalty portion, advertising, reservation system, and other components. Similarly, the healthcare portions will require an equally considerable regulatory effort to exclude for-profit hospitals from the deduction. An amendment to clarify would help (see Technical Issues #3).

TECHNICAL ISSUES:
1.	The most costly portion of the bill after HTRC amendment is not explicitly mentioned in the bill title; this is the high-end rate reduction of personal income tax rates.

2.	The Department will not change withholding tables in mid-June 2002 to embrace the non-recurring portions of the bill and will change the tables in January 2002 to reflect the second year and permanent rate cut at the top. The fiscal impact is consistent with this plan.

3.	Title 18 of the Social Security Act includes part A – hospitalization – and part B – doctor’s services. In order to ensure that hospice and home health care are included in the deduction, the previous restriction to Part B has been relaxed. This has the, perhaps unintended, consequence that for-profit hospital payments under Medicare A are included in the deduction proposed in this bill. The deduction under 7-9-73.1 NMSA 1978 already reimburses for-profit hospitals for 50% of the gross receipts taxes paid on  Medicare reimbursements.

OTHER IMPACTS AND ISSUES:
1.	Five-year impact of PIT top rate cut, non-recurring TI rebate and LICTR increase.
	FY 2002	FY 2003	FY 2004	FY 2005	FY 2006	
Gross General Fund	(19,000)	(30,600)	(34,000)	(37,200)	(39,200)	
State Deduction Recovery		3,500	5,600	6,300	6,900	
LICTR Increase	(9,600)	(9,500)	(9,000)	(8,600)	(8,200)	
Non-recurring TI Rebate	(30,600)	(32,700)	(1,300)	0	0	
Non-recurring State Deduction Recovery		1,900	2,000	0		
Net General Fund	(59,200)	(67,400)	(36,700)	(39,500)	(40,500)	
Federal Deduction Recovery (Top Rate)		5,800	9,300	10,400	11,400	
Federal Deduction Recovery (TI Rebate)		6,500	6,800	200		
Net Taxpayer Benefit	59,200	55,100	20,600	28,900	29,100	

2.	Taxable-Income Based rebate detail.
	Est Filers
TY 2001	Amount, Resident Rebate	
Single – under $42K	356,101	$9,954,124	
           -- over $42K	21,416	0	
 Married Joint – under $64K	292,263	 $16,339,309	
                       -- over $64K	53,007	0	
Married Separate – under $32K	7,308	 $204,281	
                            -- over $32K	1,400	0	
Head of Household – under $53K	127,808	 $5,358,943	
                                -- over $53K	2,299		
		 $31,856,657	
3.	Rate table for Tax Year 2001 (Fiscal Year 2002)
TY 2001 Current Law Single Tax Table		TY 2001 Proposed Single	
If Taxable Income is	Then tax		of Amount in		If Taxable Income is	Then tax		of Amount in	
over	but not over	is	Plus	Excess of		over	but not over	is	Plus	Excess of	
0	5,500	$0.00	1.7%	0		0	5,500	0.00	1.7%	0	
5,500	11,000	$93.50	3.2%	5,500		5,500	11,000	93.50	3.2%	5,500	
11,000	16,000	$269.50	4.7%	11,000		11,000	16,000	269.50	4.7%	11,000	
16,000	26,000	$504.50	6.0%	16,000		16,000	26,000	504.50	6.0%	16,000	
26,000	42,000	$1,104.50	7.1%	26,000		26,000	52,000	1,104.50	7.1%	26,000	
42,000	65,000	$2,240.50	7.9%	42,000		52,000	and over  	2,950.50	7.8%	52,000	
65,000	and over  	$4,057.50	8.2%	65,000							
											
TY 2001 Current Law Married Joint Tax Table		TY 2001 Proposed MFJ	
If Taxable Income is		Then tax		of Amount in 		If Taxable Income is		Then tax		of Amount in 	
over	but not over	is	Plus	Excess of		over	but not over	is	Plus	Excess of	
0	8,000	$-0.00	1.7%	0		0	8,000	0.00	1.7%	0	
8,000	16,000	$136.00	3.2%	8,000		8,000	16,000	136.00	3.2%	8,000	
16,000	24,000	$392.00	4.7%	16,000		16,000	24,000	392.00	4.7%	16,000	
24,000	40,000	$768.00	6.0%	24,000		24,000	40,000	768.00	6.0%	24,000	
40,000	64,000	$1,728.00	7.1%	40,000		40,000	80,000	1,728.00	7.1%	40,000	
64,000	100,000	$3,432.00	7.9%	64,000		80,000	and over  	4,568.00	7.8%	80,000	
100,000	and over  	$6,276.00	8.2%	100,000							
											
TY 2001 Current Law Head of Household Tax Table		TY 2001 Proposed HH	
If Taxable Income is	Then tax		of Amount in		If Taxable Income is	Then tax		of Amount in	
over	but not over	is	Plus	Excess of		over	but not over	is	Plus	Excess of	
0	7,000	$0.00	1.7%	0		0	7,000	0.00	1.7%	0	
7,000	14,000	$119.00	3.2%	7,000		7,000	14,000	119.00	3.2%	7,000	
14,000	20,000	$343.00	4.7%	14,000		14,000	20,000	343.00	4.7%	14,000	
20,000	33,000	$625.00	6.0%	20,000		20,000	33,000	625.00	6.0%	20,000	
33,000	53,000	$1,405.00	7.1%	33,000		33,000	65,000	1,405.00	7.1%	33,000	
53,000	83,000	$2,825.00	7.9%	53,000		65,000	and over  	3,677.00	7.8%	65,000	
83,000	and over  	$5,195.00	8.2%	83,000							

4.	Burden Summary for TY 2001 (Fiscal Year 2002)

CY 2001	Current	Proposed				
PIT Liability	Liability	Liability	Decrease	Decrease	Decrease	
	(Million $)	(Million $)	(Million $)	%	Per Retn.	
Single	$230.2	$226.4	($3.8)	-1.7%	($17)	
Married Joint	$724.6	$709.7	($14.9)	-2.1%	($58)	
Married Separate	$10.3	$10.1	($0.3)	-2.5%	($39)	
Head of Household	$48.6	$48.0	($0.5)	-1.1%	($8)	
  Total	$1,013.7	$994.2	($19.5)	-1.9%	($35)	
						
	Current	Proposed				
	Liability	Liability	Decrease	Decrease	Decrease	
 Base Taxable	(Millions)	(Millions)	(Millions $)	%	Per Retn.	
     0 - 15,000	$38.2	$38.2	$0.0	0.0%	$0	
15,000 - 25,000	$72.0	$72.0	$0.0	0.0%	$0	
25,000 - 40,000	$143.4	$143.4	($0.0)	-0.0%	($0)	
40,000 - 75,000	$280.8	$278.3	($2.5)	-0.9%	($27)	
Over 75,000	$479.4	$462.4	($17.0)	-3.5%	($372)	
	$1,013.7	$994.2	($19.5)	-1.9%	($35)	

5.	Demonstration marriage penalty calculation decreases significantly for TY 2001/FY 2002.
Note: marriage tax penalty changes from 	
$609	    (17.6%)	      to 	$545	    (15.8%)	

6.	Detail for TY 2001 (Fiscal Year 2002)
Detail						
	Current	Proposed 	Decrease			
2001 Single	Liability	Liability	$	Decrease	Decrease	
  Base Taxable	(Millions)	(Millions)	(Millions)	%	Per Retn.	
     0 - 15,000	$21.6	$21.6	0.0	-0.0%	$-0	
15,000 - 25,000	$35.9	$35.9	0.0	-0.0%	$-0	
25,000 - 40,000	$50.6	$50.6	(0.0)	-0.0%	($0)	
40,000 - 75,000	$53.9	$52.7	(1.2)	-2.2%	($70)	
Over 75,000	$68.2	$65.6	(2.7)	-3.9%	($417)	
	$230.2	$226.4	(3.8)	-1.7%	($17)	
						
	Current	Proposed 	Decrease			
2001 MFJ	Liability	Liability	$	Decrease	Decrease	
  Base Taxable	(Millions)	(Millions)	(Millions)	%	Per Retn.	
     0 - 15,000	$9.5	$9.5	0.0	-0.0%	$-0	
15,000 - 25,000	$26.1	$26.1	0.0	-0.0%	$-0	
25,000 - 40,000	$79.3	$79.3	0.0	-0.0%	$-0	
40,000 - 75,000	$214.7	$213.5	(1.2)	-0.5%	($17)	
Over 75,000	$395.0	$381.3	(13.7)	-3.5%	($362)	
	$724.6	$709.7	(14.9)	-2.1%	($58)	
						
	Current	Proposed 	 Decrease			
2001 MFS	Liability	Liability	$	 Decrease	 Decrease	
  Base Taxable	(Millions)	(Millions)	(Millions)	%	Per Retn.	
     0 - 15,000	$0.8	$0.8	0.0	-0.0%	$-0	
15,000 - 25,000	$1.4	$1.4	0.0	-0.0%	$-0	
25,000 - 40,000	$1.7	$1.6	(0.0)	-1.2%	($22)	
40,000 - 75,000	$2.0	$2.0	(0.1)	-2.5%	($81)	
Over 75,000	$4.4	$4.2	(0.2)	-4.3%	($535)	
	$10.3	$10.1	(0.3)	-2.5%	($38)	
						
	Current	Proposed 	 Decrease			
2001 H/H	Liability	Liability	$	 Decrease	 Decrease	
  Base Taxable	(Millions)	(Millions)	(Millions)	%	Per Retn.	
     0 - 15,000	$6.4	$6.4	0.0	-0.0%	$-0	
15,000 - 25,000	$8.5	$8.5	0.0	-0.0%	$-0	
25,000 - 40,000	$11.9	$11.9	0.0	-0.0%	$-0	
40,000 - 75,000	$10.2	$10.1	(0.1)	-1.1%	($33)	
Over 75,000	$11.7	$11.3	(0.4)	-3.6%	($404)	
	$48.6	$48.0	(0.5)	-1.1%	($7)	

7.	Tax Rate Table for TY 2002 et. seq.
TY 2002 Current Law Single Tax Table		TY 2002 Proposed Single	
If Taxable Income is	Then tax		of Amount in		If Taxable Income is	Then tax		of Amount in	
Over	but not over	is	Plus	Excess of		over	but not over	is	Plus	Excess of	
0	5,500	$0.00	1.7%	0		0	5,500	$0.00	1.7%	0	
5,500	11,000	$93.50	3.2%	5,500		5,500	11,000	$93.50	3.2%	5,500	
11,000	16,000	$269.50	4.7%	11,000		11,000	16,000	$269.50	4.7%	11,000	
16,000	26,000	$504.50	6.0%	16,000		16,000	26,000	$504.50	6.0%	16,000	
26,000	42,000	$1,104.50	7.1%	26,000		26,000	65,000	$1,104.50	7.1%	26,000	
42,000	65,000	$2,240.50	7.9%	42,000		65,000	and over  	$3,873.50	7.7%	65,000	
65,000	and over  	$4,057.50	8.2%	65,000							
											
TY 2002 Current Law Married Joint Tax Table		TY 2002 Proposed MFJ	
If Taxable Income is	Then tax		of Amount in 		If Taxable Income is	Then tax		of Amount in 	
Over	but not over	is	Plus	Excess of		over	but not over	is	Plus	Excess of	
0	8,000	$0.00	1.7%	0		0	8,000	$0.00	1.7%	0	
8,000	16,000	$136.00	3.2%	8,000		8,000	16,000	$136.00	3.2%	8,000	
16,000	24,000	$392.00	4.7%	16,000		16,000	24,000	$392.00	4.7%	16,000	
24,000	40,000	$768.00	6.0%	24,000		24,000	40,000	$768.00	6.0%	24,000	
40,000	64,000	$1,728.00	7.1%	40,000		40,000	100,000	$1,728.00	7.1%	40,000	
64,000	100,000	$3,432.00	7.9%	64,000		100,000	and over  	$5,988.00	7.7%	100,000	
100,000	and over  	$6,276.00	8.2%	100,000							
											
TY 2002 Current Law Head of Household Tax Table		TY 2002 Proposed Head of Household   	
If Taxable Income is	Then tax		of Amount in 		If Taxable Income is	Then tax		of Amount in 	
Over	but not over	is	Plus	Excess of		over	but not over	is	Plus	Excess of	
0	7,000	$0.00	1.7%	0		0	0	$0.00	0.0%	0	
7,000	14,000	$119.00	3.2%	7,000		0	7,000	$0.00	1.7%	0	
14,000	20,000	$343.00	4.7%	14,000		7,000	14,000	$119.00	3.2%	7,000	
20,000	33,000	$625.00	6.0%	20,000		14,000	20,000	$343.00	4.7%	14,000	
33,000	53,000	$1,405.00	7.1%	33,000		20,000	33,000	$625.00	6.0%	20,000	
53,000	83,000	$2,825.00	7.9%	53,000		33,000	83,000	$1,405.00	7.1%	33,000	
83,000	and over  	$5,195.00	8.2%	83,000		83,000	and over  	$4,955.00	7.7%	83,000	

8.	Summary burden chart for TY 2002 et. seq. (FY 2003 et. seq.)
CY 2002	Current	Proposed				
PIT Liability	2002	2002	Decrease	Decrease	Decrease	
	(Million $)	(Million $)	(Million $)	%	Per Retn.	
						
Single	$248.4	$242.3	($6.1)	-2.4%	($26)	
Married Joint	$779.8	$756.2	($23.6)	-3.0%	($87)	
Married Separate	$11.1	$10.7	($0.4)	-3.6%	($59)	
Head of Household	$52.6	$51.7	($0.9)	-1.6%	($12)	
  Total	$1,091.9	$1,060.9	($30.9)	-2.8%	($53)	
						
	Current 2002	Proposed				
CY 2002	Liability	2002	Decrease	Decrease	Decrease	
 Base Taxable	(Millions)	(Millions)	(Millions $)	%	Per Retn.	
						
     0 - 15,000	$41.8	$41.8	$0.0	0.0%	$0	
15,000 - 25,000	$78.7	$78.7	$0.0	0.0%	$0	
25,000 - 40,000	$155.8	$155.7	($0.1)	-0.0%	($1)	
40,000 - 75,000	$303.4	$299.3	($4.1)	-1.3%	($44)	
Over 75,000	$512.3	$485.6	($26.8)	-5.2%	($585)	
	$1,091.9	$1,060.9	($30.9)	-2.8%	($53)	

Note: marriage tax penalty changes from 	
$610	    (17.8%)	to	$549	    (16.0%)	

9.	Detail tables of LICTR increase are not available. Every current recipient receives about 15% more than under current practice (about $3.8M). About 60% of the remaining increase goes to families with one child and 40% to families with two or more children. A one adult/one child family will receive up to $135 extra per year under this proposal. A one adult/2 (or more) child family will receive up to $230 more a year. A two-adult family/1 child family will receive up to $120 a year extra under this proposal while a two-adult/2 (or more) child family will receive up to $260 a year more.

10.	Two-year rebate of gross receipts tax. The rebate is available only to residents. Because this rebate affects most income taxpayers, it may occur to non-residents (a not insignificant number of whom work in New Mexico) to sue for access to the rebate, alleging violation of the equal protection, full faith and credit and privileges and immunities clauses of the federal constitution. 

11.	Job mentorship tax credit (this item copied from analysis of HB–67). The job mentorship tax credit, equal to 50% of gross wages paid to qualified students, was limited in 1999 to a pilot program with a maximum of 1,000 students. This bill repeals the limit of 1,000 students and makes the program permanent. Credit amounts may be claimed against gross receipts, compensating or withholding taxes.

a.	For 1999 personal income tax returns, only 16 taxpayers claimed a pilot credit for a total of about $17 thousand dollars. The program only got underway for the fall term of 1999. It is not unusual that new programs are not taken full advantage of in the first year or two. Thus, our estimate of a full-year, fully implemented program at 1,000 students would cost the general fund (and including a factor of five for corporations) about ($200.0). It is expected that roughly four  times as many students – 4,000 – will participate in the fully-implemented expanded program but this will take a year or two to achieve. Thus the fiscal impact for FY 2002 shows a transition impact, whereas the “full year” impact indicates the potential impact of a fully-implemented program.

b.	Although a factor of five times the personal income tax credit amount was used above in the fiscal impact estimate, corporate income tax processing is not fully automated and so experience with the credit against this tax is uncertain. Thus, the number of verified credit claims may be as low as 10, excluding the credits that seem to have been claimed by the students, not employers. 

c.	The administrative complexity of this credit may have something to do with the disappointingly low response rate. State Department of Education issues vouchers to job placement coordinators in the various school districts. Students and coordinators recruit employers for on-the-job training experiences for students. Then the student or the coordinator presents the voucher to the employer. At tax filing time in April or May, the employer may or may not remember to give the voucher to the firm’s accountant. The accountant attaches the voucher to the tax return and claims the credit. Among other disadvantages to this system, two state agencies and 88 school districts touch the vouchers by the time they allot money to employers.

d.	This is an example of using the tax system for non-tax purposes. Rather than making this cumbersome mechanism permanent, perhaps a direct subsidy program similar to the in-plant training subsidy should be considered.

12.	Gross Receipts Tax Deduction for Franchisors (Item #11 is copied from the analysis for HB-188. For more information see the FIR of HB-188) This bill proposes a gross receipts tax deduction for certain shared costs between franchisee and franchisor. The shared costs of developing, maintaining or modifying a reservation system (such as those used by car rental agencies or hotels) would become deductible. Hotels, motels and the like may reimburse the franchisor for payments of commission to travel agents for booking guests without tax imposed on the franchisor. Amounts paid by a franchisee to the franchisor for off-site training are deductible. Finally receipts of an advertising cooperative from franchisee or franchisor are deductible. These deductions are proposed to change the future impact of a series of audits by the Department that resulted in multimillion dollar assessments. These assessments are well supported by case law (detailed below) and common sense.

a.	Previous estimates of the value of gross receipts tax imposed on the 4% to 8% franchise fees charged by out-of-state franchisors to in-state participants have ranged up to $30 million. This includes the tax on the shared services enumerated in this bill, along with the straight royalty payments excluded from this bill. The primary franchises are in car rentals, hotels, motels and restaurants. The total taxable gross receipts in these industries (franchise, wholly owned chain stores, and mom and pops) exceeds $2.1 billion. A conservative guess is that 30% of this total, or $600 million is from franchise operations. Assuming that the average franchise fee is 6% and that half the value of the franchise fee is from shared services, the cost of this deduction is about $1.2 million. It is possible that, in the wake of this deduction, that franchisors would rewrite the franchise contract and characterize a relatively greater portion of the total as “shared costs” rather than royalties. This would increase the cost of this measure over a few years to $2.4 or $2.5 million. The provisions of this bill are effective July 1, 2001, so the FY 2001 impact included in the review of HB-188 go away.

b	The Department’s victories (so far) in the litigation over these issues prompted these proposals. This illustrates a major problem with the gross receipts tax: it taxes heavily many business-to-business transactions. The fundamental design of the tax should be examined to reduce this impact, for both equity and economic development reasons. Until then, this piecemeal deduction approach is probably inevitable. It may be, however, unbundling may create the worst of all possible worlds. 

13.	Gross receipts deduction for other health practitioners paid by Medicare (item #19 is extracted from the analysis of CS/HB-994). This extends 1998’s Medicare B gross receipts tax deduction to all heath practitioners, including home health agencies. The additional impact over HB-994 is for non-PA ambulance attendant’s services and optometrists.

14.	Gross receipts deduction for TRICARE payments (Item #13 is extracted from the analysis of HB-94). This bill proposes a deduction for receipts from Federal Military “Tricare”. This is a managed care health insurance similar to the state’s SALUD program for Medicaid recipients, or various managed care private insurance programs.

a.	Tricare is simply an employer-provided health care plan similar to a facility-based HMO. It is difficult to see why this particular type of employer-provided health insurance should be singled out for preferred tax treatment. Once the state “rolled over” on Medicare B receipts, however, it has become very difficult to forestall the types of requests for preferred treatment as exhibited in this bill.

b.	As has previously been noted, if this is good policy for doctors and osteopaths, it is probably equally good policy for nurses, dentists, podiatrists and other licensed health care practitioners. This would increase the general fund and local government costs by about 74%.

APPENDIX A
Social Security Act, Title 18, Section 1861

The term "medical and other health services" means any of the following items or services: 
(1) physicians' services; 
(2)
(A) services and supplies (including drugs and biologicals which cannot, as determined in accordance with regulations, be self-administered) furnished as an incident to a physician's professional service, of kinds which are commonly furnished in physicians' offices and are commonly either rendered without charge or included in the physicians' bills; 
(B) hospital services (including drugs and biologicals which cannot, as determined in accordance with regulations, be self-administered) incident to physicians' services rendered to outpatients and partial hospitalization services incident to such services; 
(C) diagnostic services which are-- 
(i) furnished to an individual as an outpatient by a hospital or by others under arrangements with them made by a hospital, and 
(ii) ordinarily furnished by such hospital (or by others under such arrangements) to its outpatients for the purpose of diagnostic study; 
(D) outpatient physical therapy services and outpatient occupational therapy services; 
(E) rural health clinic services and Federally qualified health center services; 
(F) home dialysis supplies and equipment, self-care home dialysis support services, and institutional dialysis services and supplies; 
(G) antigens (subject to quantity limitations prescribed in regulations by the Secretary) prepared by a physician, as defined in section 1861(r)(1), for a particular patient, including antigens so prepared which are forwarded to another qualified person (including a rural health clinic) for administration to such patient, from time to time, by or under the supervision of another such physician; 
(H)
(i) services furnished pursuant to a contract under section 1876 to a member of an eligible organization by a physician assistant or by a nurse practitioner (as defined in subsection (aa)(5)) and such services and supplies furnished as an incident to his service to such a member as would otherwise be covered under this part if furnished by a physician or as an incident to a physician's service; and 
(ii) services furnished pursuant to a risk-sharing contract under section 1876(g) to a member of an eligible organization by a clinical psychologist (as defined by the Secretary) or by a clinical social worker (as defined in subsection (hh)(2)), and such services and supplies furnished as an incident to such clinical psychologist's services or clinical social worker's services to such a member as would otherwise be covered under this part if furnished by a physician or as an incident to a physician's service; 
(I) blood clotting factors, for hemophilia patients competent to use such factors to control bleeding without medical or other supervision, and items related to the administration of such factors, subject to utilization controls deemed necessary by the Secretary for the efficient use of such factors; 
(J)[353] prescription drugs used in immunosuppressive therapy furnished, to an individual who receives an organ transplant for which payment is made under this title, but only in the case of drugs furnished-- 
(i) before 1995, within 12 months after the date of the transplant procedure, 
(ii) during 1995, within 18 months after the date of the transplant procedure, 
(iii) during 1996, within 24 months after the date of the transplant procedure, 
(iv) during 1997, within 30 months after the date of the transplant procedure, and 
(v) during any year after 1997, within 36 months after the date of the transplant procedure; 
(K)
(i) services which would be physicians' services if furnished by a physician (as defined in subsection (r)(1)) and which are performed by a physician assistant (as defined in subsection (aa)(5)) under the supervision of a physician (as so defined) [354] and which the physician assistant is legally authorized to perform by the State in which the services are performed, and such services and supplies furnished as incident to such services as would be covered under subparagraph (A) if furnished incident to a physician's professional service; and[355] but only if no facility or other provider charges or is paid any amounts with respect to the furnishing of such services,[356] 
(ii) services which would be physicians' services if furnished by a physician (as defined in subsection (r)(1)) and which are performed by a nurse practitioner or clinical nurse specialist (as defined in subsection (aa)(5)) working in collaboration (as defined in subsection (aa)(6)) with a physician (as defined in subsection (r)(1)) which the nurse practitioner or clinical nurse specialist is legally authorized to perform by the State in which the services are performed, and such services and supplies furnished as an incident to such services as would be covered under subparagraph (A) if furnished incident to a physician's professional service, but only if no facility or other provider charges or is paid any amounts with respect to the furnishing of such services;[357] 
(L) certified nurse-midwife services; 
(M) qualified psychologist services; 
(N) clinical social worker services (as defined in subsection (hh)(2)); [358] 
(O) erythropoietin for dialysis patients competent to use such drug without medical or other supervision with respect to the administration of such drug, subject to methods and standards established by the Secretary by regulation for the safe and effective use of such drug, and items related to the administration of such drug; [359] 
(P) prostate cancer screening tests (as defined in subsection (oo)); [360] 
(Q) an oral drug (which is approved by the Federal Food and Drug Administration) prescribed for use as an anticancer chemotherapeutic agent for a given indication, and containing an active ingredient (or ingredients), which is the same indication and active ingredient (or ingredients) as a drug which the carrier determines would be covered pursuant to subparagraph (A) or (B) if the drug could not be self-administered; [361] 
(R) colorectal cancer screening tests (as defined in subsection (pp)); [362] 
(S) diabetes outpatient self-management training services (as defined in subsection (qq)); and[363] 
(T) an oral drug (which is approved by the Federal Food and Drug Administration) prescribed for use as an acute anti-emetic used as part of an anticancer chemotherapeutic regimen if the drug is administered by a physician (or as prescribed by a physician)-- 
(i) for use immediately before, at, or within 48 hours after the time of the administration of the anticancer chemotherapeutic agent; and 
(ii) as a full replacement for the anti-emetic therapy which would otherwise be administered intravenously.[364] 
(3) diagnostic X-ray tests (including tests under the supervision of a physician, furnished in a place of residence used as the patient's home, if the performance of such tests meets such conditions relating to health and safety as the Secretary may find necessary and including diagnostic mammography if conducted by a facility that has a certificate (or provisional certificate) issued under section 354 of the Public Health Service Act[365]), diagnostic laboratory tests, and other diagnostic tests; 
(4) X-ray, radium, and radioactive isotope therapy, including materials and services of technicians; 
(5) surgical dressings, and splints, casts, and other devices used for reduction of fractures and dislocations; 
(6) durable medical equipment; 
(7) ambulance service where the use of other methods of transportation is contraindicated by the individual's condition, but only to the extent provided in regulations;[366] 
(8) prosthetic devices (other than dental) which replace all or part of an internal body organ (including colostomy bags and supplies directly related to colostomy care), including replacement of such devices, and including one pair of conventional eyeglasses or contact lenses furnished subsequent to each cataract surgery with insertion of an intraocular lens; 
(9) leg, arm, back, and neck braces, and artificial legs, arms, and eyes, including replacements if required because of a change in the patient's physical condition; 
(10)
(A) pneumococcal vaccine and its administration and, subject to section 4071(b) of the Omnibus Budget Reconciliation Act of 1987,[367] influenza vaccine and its administration; and 
(B) hepatitis B vaccine and its administration, furnished to an individual who is at high or intermediate risk of contracting hepatitis B (as determined by the Secretary under regulations); 
(11) services of a certified registered nurse anesthetist (as defined in subsection (bb)); 
(12) subject to section 4072(e) of the Omnibus Budget Reconciliation Act of 1987[368], extra-depth shoes with inserts or custom molded shoes with inserts for an individual with diabetes, if-- 
(A) the physician who is managing the individual's diabetic condition (i) documents that the individual has peripheral neuropathy with evidence of callus formation, a history of pre-ulcerative calluses, a history of previous ulceration, foot deformity, or previous amputation, or poor circulation, and (ii) certifies that the individual needs such shoes under a comprehensive plan of care related to the individual's diabetic condition; 
(B) the particular type of shoes are prescribed by a podiatrist or other qualified physician (as established by the Secretary); and 
(C) the shoes are fitted and furnished by a podiatrist or other qualified individual (such as a pedorthist or orthotist, as established by the Secretary) who is not the physician described in subparagraph (A) (unless the Secretary finds that the physician is the only such qualified individual in the area); [369] 
(13) screening mammography (as defined in subsection (jj)); 
(14) screening pap smear and screening pelvic exam[370]; and[371] 
(15) bone mass measurement (as defined in subsection (rr)).[372] 
No diagnostic tests performed in any laboratory, including a laboratory that is part of a rural health clinic, or a hospital (which, for purposes of this sentence, means an institution considered a hospital for purposes of section 1814(d)) shall be included within paragraph (3) unless such laboratory-- 
(16)[373] if situated in any State in which State or applicable local law provides for licensing of establishments of this nature, (A) is licensed pursuant to such law, or (B) is approved, by the agency of such State or locality responsible for licensing establishments of this nature, as meeting the standards established for such licensing; and 
(17)[374] 
(A) meets the certification requirements under section 353 of the Public Health Service Act;[375] and 
(B) meets such other conditions relating to the health and safety of individuals with respect to whom such tests are performed as the Secretary may find necessary. 
There shall be excluded from the diagnostic services specified in paragraph (2)(C) any item or service (except services referred to in paragraph (1)) which would not be included under subsection (b) if it were furnished to an inpatient of a hospital. None of the items and services referred to in the preceding paragraphs (other than paragraphs (1) and (2)(A)) of this subsection which are furnished to a patient of an institution which meets the definition of a hospital for purposes of section 1814(d) shall be included unless such other conditions are met as the Secretary may find necessary relating to health and safety of individuals with respect to whom such items and services are furnished.