A bill to amend title XVIII of the Social Security Act to assure fair and adequate payment for high-risk medicare beneficiaries and to establish payment incentives and to evaluate clinical methods for assuring quality services to people with serious and disabling chronic conditions.

Summary: Promoting Care for the Frail Elderly Act of 2002 - Amends part C (Medicare+Choice) of title XVIII (Medicare) of the Social Security Act to direct the Secretary of Health and Human Services to revise the risk adjustment methodology applicable to payments to Medicare+Choice organizations offering, whether directly or under a contract, specialized programs for frail elderly or at-risk beneficiaries to take into account variations in costs incurred by such organizations.Provides for interim continuation of the following until the revised risk adjustment methodology required above is implemented by the Secretary: (1) blended rate for specialized programs for frail elderly and at-risk Medicare beneficiaries residing in institutions; and (2) payment methodologies for Medicare demonstration programs for specialized programs for frail elderly or at-risk beneficiaries.Directs the Secretary to establish a five-year demonstration program to develop and evaluate: (1) payment models that pay appropriately for specialized Medicare+Choice plans that exclusively serve, or serve a disproportionate number of, frail elderly or at-risk beneficiaries; and (2) clinical models that improve outcomes.Requires the Medicare Payment Advisory Commission (MEDPAC) to study and report to Congress and the Secretary on the feasibility and advisability of establishing a frailty adjustment to the Medicare+Choice risk adjustment methodology that ensures that an appropriate level of payment is made to Medicare+Choice plans that serve a disproportionate number of frail or at-risk beneficiaries.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Promoting Care for the Frail Elderly 
Act of 2002''.

SEC. 2. PROMOTION OF CARE FOR THE FRAIL ELDERLY.

    (a) Revisions to Risk Adjustment Methodology.--
            (1) In general.--The Secretary shall revise the risk 
        adjustment methodology under section 1853(a)(3) of the Social 
        Security Act (42 U.S.C. 1395w-23(a)(3)) applicable to payments 
        to Medicare+Choice organizations offering, whether directly or 
        under a contract, specialized programs for frail elderly or at-
        risk beneficiaries to take into account variations in costs 
        incurred by such organizations.
            (2) Methods considered.--In revising the risk adjustment 
        methodology under paragraph (1), the Secretary shall consider--
                    (A) hybrid risk adjustment payment systems, such as 
                partial capitation;
                    (B) new diagnostic and service markers that 
                accurately predict high risk;
                    (C) including structural components to reduce 
                payment lag and to account for specific risk factors, 
                such as high end-of-life costs and high death rates;
                    (D) providing for adjustments to payment amounts 
                for beneficiaries with comorbidities;
                    (E) testing concurrent risk adjustment 
                methodologies;
                    (F) testing payment methods using data from 
                specialized programs for frail elderly or at-risk 
                beneficiaries; and
                    (G) the recommendations contained in the report 
                required to be submitted under subsection (e)(2).
            (3) Implementation.--The Secretary shall implement the 
        revisions required under paragraph (1) not later than January 
        1, 2006.
    (b) Interim Continuation of Blended Rate for Specialized Programs 
for Frail Elderly and At-Risk Medicare Beneficiaries Residing in 
Institutions.--In the case of a Medicare+Choice organization that 
offers a Medicare+Choice plan that offers, either directly or under a 
contract, a specialized program for frail elderly or at-risk 
beneficiaries that exclusively serves beneficiaries in institutions or 
beneficiaries who are entitled to medical assistance under a State plan 
under title XIX, notwithstanding section 1853(a)(3)(C)(ii) of the 
Social Security Act (42 U.S.C. 1395w-23(a)(3)(C)(ii)), such 
organization shall be paid according to the method described in 
subclause (I) of such section until such time as the Secretary has 
implemented the revised risk adjustment methodology required under 
subsection (a).
    (c) Interim Continuation of Payment Methodologies for Demonstration 
Programs.--Notwithstanding any other provision of law, payment 
methodologies for medicare demonstration programs for specialized 
programs for frail elderly or at-risk beneficiaries (as defined in 
subsection (f)) shall continue under the terms and conditions of the 
demonstration authority for such programs in effect during 2002, 
including the risk adjustment factors and formula used for paying such 
demonstration programs. Such terms and conditions shall continue to 
apply with respect to each specialized program for frail elderly or at-
risk beneficiaries offered by a Medicare+Choice organization that 
participated in a demonstration program after the termination of such 
program until such time as the Secretary has implemented the revised 
risk adjustment methodology required under subsection (a).
    (d) Demonstration Program for Medicare+Choice Payment Reform for 
Specialized Programs.--
            (1) In general.--The Secretary shall establish a 5-year 
        demonstration program to develop and evaluate--
                    (A) payment models that pay appropriately for 
                specialized Medicare+Choice plans that exclusively 
                serve, or serve a disproportionate number of, frail 
                elderly or at-risk beneficiaries (either directly or 
                under a contract); and
                    (B) clinical models that improve outcomes.
            (2) Requirements.--A Medicare+Choice organization that 
        offers, either directly or under a contract, a specialized 
        program for frail elderly or at-risk beneficiaries may 
        participate in the demonstration program under this subsection 
        if such Medicare+Choice organization meets the following 
        requirements:
                    (A) Plan composition.--The specialized program for 
                frail elderly or at-risk beneficiaries shall--
                            (i) serve frail elderly or at-risk 
                        beneficiaries exclusively;
                            (ii) serve a disproportionate number of 
                        frail or at-risk beneficiaries; or
                            (iii) serve a disproportionate number of 
                        frail or at-risk beneficiaries who are also 
                        entitled to benefits under a State plan under 
                        title XIX.
                    (B) Clinical capacity.--The specialized program for 
                frail elderly or at-risk beneficiaries shall employ a 
                clinical delivery system that  meets the needs of frail 
elderly or at-risk beneficiaries, including--
                            (i) initiatives to prevent, delay, or 
                        minimize the progression of chronic disease and 
                        disabilities;
                            (ii) high-risk screening to identify risk 
                        of hospitalization, nursing home placement, 
                        functional decline, death, and other factors 
                        that increase the costs of care provided;
                            (iii) staff with special training in 
                        chronic care and geriatric care such as 
                        geriatricians, geriatric nurse practitioners, 
                        and geriatric care managers;
                            (iv) initiatives for promoting integration 
                        of care, financing, and administrative 
                        functions across health care settings; and
                            (v) clinical protocols for specific high 
                        cost conditions identified by the Secretary for 
                        which outcomes will be evaluated as part of the 
                        demonstration program under this subsection.
                    (C) Data collection.--Each Medicare+Choice 
                organization that participates in the demonstration 
                program under this subsection shall collect such data 
                in such format as the Secretary may require to monitor 
                the quality of services provided, outcomes, and costs, 
                including functional and diagnostic data and 
                information collected through the Health Outcomes 
                Survey or another appropriate mechanism.
                    (D) Quality assurance.--Each Medicare+Choice 
                organization that participates in the demonstration 
                program under this section shall employ such quality 
                standards and track such quality indicators as the 
                Secretary may specify that are relevant to the special 
                needs of enrollees. The Secretary shall identify such 
                quality standards and indicators prior to implementing 
                the demonstration program under this subsection.
            (3) Payment.--
                    (A) Minimum amount.--The Secretary shall ensure 
                that each Medicare+Choice organization that 
                participates in the demonstration program under this 
                subsection is not paid less than the amount that would 
                have been paid with respect to each frail elderly or 
                at-risk beneficiary enrolled in a specialized program 
                for frail elderly or at-risk beneficiaries offered by 
                such organization than would have been paid with 
                respect to such beneficiaries if such beneficiaries 
                received benefits under the original medicare fee-for-
                service program under parts A and B of title XVIII of 
                the Social Security Act.
                    (B) Model.--The Secretary shall establish a payment 
                model applicable under the demonstration program that 
                is based upon the CMS-HCC 61 significant condition 
                model.
                    (C) Payment for standard benefits.--The Secretary 
                shall pay Medicare+Choice organizations participating 
                in the demonstration program under the standard CMS-HCC 
                61-condition model for nonfrail members and under a 
                special frailty-adjusted payment for the frail or at-
                risk members based on requirements under parts A and B 
                of title XVIII of the Social Security Act.
                    (D) Payment for additional benefits.--
                Medicare+Choice organizations that participate in the 
                demonstration program and that agree to an additional 
                mandate for benefits exceeding those required under 
                parts A and B of title XVIII of the Social Security Act 
                shall be compensated separately for providing such 
                benefits.
                    (E) Frailty adjuster.--The Secretary shall 
                establish and apply a frailty adjuster that is 
                structured as an add-on payment in relation to the 
                amount of underpayment resulting from the standard 
                formula.
                    (F) Reinsurance.--The Secretary shall provide 
                reinsurance above a specified threshold.
                    (G) Financial incentives.--The Secretary shall 
                provide for financial incentives for Medicare+Choice 
                organizations that participate in the demonstration 
                program, including bonus payments that shall be made in 
                relation to meeting predefined outcome targets.
            (4) Waiver authority.--The Secretary may waive such 
        requirements of titles XI and XVIII of the Social Security Act 
        as may be necessary to carry out the demonstration program 
        under this subsection.
            (5) Funding.--From the sums already authorized to be 
        appropriated for demonstration projects to be conducted by the 
        Secretary, $25,000,000 may be appropriated to carry out the 
        demonstration program under this subsection.
            (6) Budget neutrality adjustment factor.--Upon enactment of 
        this subsection, the Secretary shall provide for an adjustment 
        to Medicare+Choice payment rates for the year to ensure that 
        the aggregate payments under this part in that year shall be 
        equal to aggregate payments that would have been made under the 
        Medicare+Choice program in that year if this subsection had not 
        been enacted.
    (e) MedPAC Study To Identify Frailty Indicators and Develop Frailty 
Adjustment to Medicare+Choice Payments.--
            (1) Study.--
                    (A) In general.--The Medicare Payment Advisory 
                Commission, in consultation with private organizations 
                representing Medicare+Choice organizations that offer 
                specialized programs for frail elderly or at-risk 
                beneficiaries, shall conduct a study on the feasibility 
                and advisability of establishing a frailty adjustment 
                to the Medicare+Choice risk adjustment methodology that 
                ensures that an appropriate level of payment is made to 
                Medicare+Choice plans that serve a disproportionate 
                number of frail or at-risk beneficiaries.
                    (B) Study parameters.--The study shall identify 
                indicators of frailty, medical complexity, or risk that 
                result in higher costs for certain risk groups within 
                the medicare population such as institutionalized 
                residents, nursing home certifiable residents living in 
                the community, beneficiaries with multiple complex 
                chronic conditions, beneficiaries with late-stage 
                diseases or conditions, medicare beneficiaries with 
                functional or cognitive impairments that limit the 
                ability of such beneficiaries to live independently, 
                and other indicators of higher health care utilization.
                    (C) Frailty indicators.--The indicators of frailty 
                described in subparagraph (B) may include--
                            (i) specific diagnoses or clusters of 
                        diagnoses;
                            (ii) the presence of multiple serious 
                        chronic conditions;
                            (iii) certain groupings of chronic 
                        conditions;
                            (iv) the presence of functional impairments 
                        or, alone or in combination with diagnostic 
                        factors, a specific hierarchy of functional 
                        loss; or
                            (v) other factors that result in the need 
                        for complex medical care or higher medical 
                        costs.
            (2) Report.--Not later than the date that is 2 years after 
        the date of enactment of this Act, the Medicare Payment 
        Advisory Commission shall submit to Congress and the Secretary 
        a report on the study conducted under paragraph (1) together 
        with such recommendations for legislation or administrative 
        action as the Secretary determines appropriate.
    (f) Definitions.--In this section:
            (1) Activities of daily living.--The term ``activities of 
        daily living'' means each of the following:
                    (A) Eating.
                    (B) Toileting.
                    (C) Transferring.
                    (D) Bathing.
                    (E) Dressing.
                    (F) Continence.
            (2) Disproportionate.--The term ``disproportionate'' means, 
        in relation to the composition of a Medicare+Choice plan, a 
        higher percentage of frail or at-risk beneficiaries than the 
        national average for all Medicare+Choice plans.
            (3) Frail or at-risk beneficiary.--The term ``frail or at-
        risk beneficiary'' means an individual who--
                    (A) has a level of disability such that the 
                individual is unable to perform for a period of at 
                least 90 days due to a loss of functional capacity--
                            (i) at least 2 activities of daily living; 
                        or
                            (ii) such number of instrumental activities 
                        of daily living that is equivalent (as 
                        determined by the Secretary) to the level of 
                        disability described in clause (i);
                    (B) requires substantial supervision to protect the 
                individual from threats to health and safety due to 
                severe cognitive impairment;
                    (C) has multiple medically complex chronic 
                conditions;
                    (D) is at risk of hospitalization, nursing home 
                placement, functional decline, or death within 12 
                months or other factors that increase the costs of 
                medical care; and
                    (E) has a severity of condition that makes the 
                individual frail or disabled (as determined under 
                guidelines approved by the Secretary).
            (4) Secretary.--The term ``Secretary'' means the Secretary 
        of Health and Human Services.
            (5) Specialized programs for frail elderly or at-risk 
        beneficiaries.--The term ``specialized programs for frail 
        elderly or at-risk beneficiaries'' means--
                    (A) demonstrations approved by the Secretary for 
                purposes of testing the integration of acute and 
                expanded care services under prepaid financing which 
                include prescription drugs and other noncovered 
                ancillary services, care coordination, and home and 
                community-based services, such as the social health 
                maintenance organization demonstration project 
                authorized under section 2355 of the Deficit Reduction 
                Act of 1984 and expanded under section 4207(b)(4)(B)(i) 
                of the Omnibus Reconciliation Act of 1990;
                    (B) demonstrations approved by the Secretary for 
                purposes of improving quality of care and preventing 
                hospitalizations for nursing home residents, such as 
                the EverCare demonstration project;
                    (C) demonstrations approved by the Secretary for 
                purposes of testing methods for integrating medicare 
                and medicaid benefits for the dually eligible, such as 
                the Minnesota Senior Health Options program, the 
                Wisconsin Partnership program, the Massachusetts Senior 
                Care Organization program, and the Rochester Continuing 
                Care Network program (Seniors Health Plus);
                    (D) demonstrations approved by the Secretary under 
                subsection (d);
                    (E) specialized provider-based programs that focus 
                on improving the quality of care provided to, and 
                preventing the hospitalizations of, residents of 
                skilled nursing facilities; and
                    (F) such other demonstrations or programs approved 
                by the Secretary for similar purposes, as determined by 
                the Secretary.