Amends title XVIII (Medicare) of the Social Security Act to limit aggregate payment reductions to urban hospitals in FY 1993 that are attributable to geographical reclassifications in an effort to maintain budget neutrality. Requires the Secretary of Health and Human Services, in a report to the Congress, to make recommendations for: (1) modifications to the methodology used to determine the initial geographic areas in which hospitals are located for purposes of adjusting payments to hospitals under part A (Hospital Insurance) of Medicare for differences in area wage levels; (2) appropriate bases for determining the geographic classification of hospitals under Medicare that recognize the unique labor market conditions affecting hospitals; and (3) modifications to the payment adjustments required under Medicare to offset increases in aggregate payments resulting from changes in geographic classification. Requires the Prospective Payment Commission to submit comments to the Congress on such report.

Amends the Balanced Budget and Emergency Deficit Control Act of 1985 (Gramm-Rudman-Hollings Act) to provide that, to the extent that budget neutrality is not achieved under such limitation above, payment of any increase in aggregate hospital payments attributable to such reclassifications will be made through reductions in discretionary defense spending.

Amends title XIX (Medicaid) of the Social Security Act to provide that disproportionate share payment adjustments to hospitals that are geographically reclassified shall be computed as if such hospitals had not been so reclassified.