SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Medicare Value and Quality 
Demonstration Act of 2002''.

SEC. 2. FINDINGS.

    The Senate makes the following findings:
            (1) The United States Government should reward physicians, 
        hospitals, and other health care providers that provide high-
        quality, cost-effective health care to beneficiaries under the 
        medicare program.
            (2) The Journal of the American Medical Association has 
        published quality indicators in an article entitled ``Quality 
        of Medical Care Delivered to Medicare Beneficiaries: A Profile 
        at State and National Levels''.
            (3) The cost of health care is--
                    (A) reflected in the type and volume of physicians' 
                services and in physician ordering and prescribing 
                behavior; and
                    (B) reflected in the amount of the average payment 
                to hospitals under the medicare program for each 
                medicare beneficiary in each State.
            (4) Physician and hospital practice patterns contribute to 
        the total cost and quality of care for each medicare 
        beneficiary in each State.
            (5) The original medicare fee-for-service program under 
        parts A and B of title XVIII of the Social Security Act does 
        not include a mechanism to pay for interventions designed to 
        improve quality of care. While the framework for payments to 
        managed care organizations under the Medicare+Choice program 
        under part C of such title allows for the reallocation of 
        capitation revenues to cover such things as disease state 
        management and quality improvement infrastructure, even the 
        most optimistic projections for managed care enrollment leave 
        the majority of medicare beneficiaries in the original medicare 
        fee-for-service program.

SEC. 3. DEMONSTRATION PROJECT TO ENCOURAGE THE PROVISION OF HIGH-
              QUALITY, COST-EFFECTIVE INPATIENT HOSPITAL SERVICES.

    (a) Purpose.--The purpose of the demonstration project conducted 
under this section is to encourage the provision of high-quality, cost-
effective health care to beneficiaries under the medicare program under 
title XVIII of the Social Security Act (42 U.S.C. 1395 et seq.) by 
providing incentive payments to hospitals located in States in which 
high-quality and cost-effective services are being provided in order to 
finance further quality improvements.
    (b) Demonstration Project.--
            (1) Establishment.--Not later than 6 months after the date 
        of enactment of this Act, the Secretary shall establish a 
        demonstration project under which--
                    (A) the Secretary provides bonus payments to 
                providers of inpatient hospital services that deliver 
                high-quality health care at low costs in accordance 
                with the methodology established by the Agency for 
                Healthcare Research and Quality under paragraph (2); 
                and
                    (B) the Secretary funds a plan at each site to 
                increase the number of providers of inpatient hospital 
                services that provide high-quality, low-cost health 
                care to beneficiaries under the medicare program under 
                title XVIII of the Social Security Act.
            (2) Value and quality ranking methodology.--
                    (A) In general.--The Agency for Healthcare Research 
                and Quality shall establish a value and quality ranking 
                methodology under which the Secretary awards bonus 
                payments to providers of inpatient hospital services 
                located in those States that demonstrate that such 
                providers in the State are providing high value because 
                of the high-quality, cost-effective health care 
                services being provided to medicare beneficiaries.
                    (B) Basis.--The methodology established under 
                subparagraph (A) shall be based on the rank and 
                performance on medicare quality indicators contained in 
                the article entitled ``Quality of Medical Care 
                Delivered to Medicare Beneficiaries: A Profile at State 
                and National Levels'' published in the October 4, 2000, 
                issue of the Journal of the American Medical 
                Association or such other quality indicators as the 
                Secretary determines to be appropriate.
            (3) Sites.--The Secretary shall select 2 States in which to 
        conduct the demonstration project--
                    (A) from among the top 25 States (as ranked using 
                the methodology established under paragraph (2)) that 
                are also among the group of 25 States with the lowest 
                per capita cost to the medicare program under title 
                XVIII of the Social Security Act during the most recent 
                12-month period for which data are available; and
                    (B) based upon information contained in 
                applications submitted to the Secretary by such States 
                at such time, in such form and manner, and containing 
                such information as the Secretary may require.
            (4) Duration of project.--The demonstration project shall 
        be conducted over a 5-year period.
    (c) Reports.--The Secretary shall submit to the appropriate 
committees of Congress interim reports on the demonstration project and 
a final report on the project within 6 months after the conclusion of 
the project together with recommendations for such legislative or 
administrative action as the Secretary determines appropriate.
    (d) Waiver.--The Secretary shall waive such provisions of titles XI 
and XVIII of the Social Security Act (42 U.S.C. 1301 et seq. and 1395 
et seq.) as may be necessary to conduct the demonstration project under 
this section.
    (e) Definitions.--In this section:
            (1) Provider of inpatient hospital services.--The term 
        ``provider of inpatient hospital services'' means any 
        individual or entity that receives payment under the medicare 
        program under title XVIII of the Social Security Act (42 U.S.C. 
        1395 et seq.) for providing an inpatient hospital service (as 
        defined in section 1861(b) of such Act (42 U.S.C. 1395x(b))).
            (2) Secretary.--The term ``Secretary'' means the Secretary 
        of Health and Human Services.
    (f) Funding.--There are appropriated from the Federal Hospital 
Insurance Trust Fund under section 1817 of the Social Security Act (42 
U.S.C. 1395i) such sums as the Secretary determines are necessary to 
conduct the demonstration project under this section.

SEC. 4. DEMONSTRATION PROJECT TO ENCOURAGE THE PROVISION OF HIGH-
              QUALITY, COST-EFFECTIVE PHYSICIANS' SERVICES.

    (a) Purpose.--The purpose of the demonstration project conducted 
under this section is to encourage the provision of high-quality, cost-
effective health care to beneficiaries under the medicare program under 
title XVIII of the Social Security Act (42 U.S.C. 1395 et seq.) by 
providing incentive payments to physicians located in States in which 
high-quality and cost-effective services are being provided in order to 
finance further quality improvements.
    (b) Demonstration Project.--
            (1) Establishment.--Not later than 6 months after the date 
        of enactment of this Act, the Secretary shall establish a 
        demonstration project under which--
                    (A) the Secretary provides bonus payments to 
                providers of physicians' services that deliver high-
                quality, cost-effective health care in accordance with 
                the methodology established by the Agency for 
                Healthcare Research and Quality under paragraph (2); 
                and
                    (B) the Secretary funds a plan in each State to 
                increase the number of providers of physicians' 
                services that provide high-quality, cost-effective 
                health care to beneficiaries under the medicare program 
                under title XVIII of the Social Security Act.
            (2) Value and quality ranking methodology.--
                    (A) In general.--The Agency for Healthcare Research 
                and Quality shall establish a value and quality ranking 
                methodology under which the Secretary awards bonus 
                payments to providers of physicians' services located 
                in those States that demonstrate that such providers in 
                the State are providing high value because of the high-
                quality, cost-effective health care services being 
                provided to medicare beneficiaries.
                    (B) Basis.--The methodology established under 
                subparagraph (A) shall be based on the rank and 
                performance on medicare quality indicators contained in 
                the article entitled ``Quality of Medical Care 
                Delivered to Medicare Beneficiaries: A Profile at State 
                and National Levels'' published in the October 4, 2000, 
                issue of the Journal of the American Medical 
                Association or such other quality indicators as the 
                Secretary determines to be appropriate.
            (3) Sites.--The Secretary shall select 2 States in which to 
        conduct the demonstration project--
                    (A) from among the top 25 States (as ranked using 
                the methodology established under paragraph (2)) that 
                are also among the 25 States with the lowest per capita 
                cost to the medicare program under title XVIII of the 
                Social Security Act during the most recent 12-month 
                period for which data are available; and
                    (B) based upon information contained in 
                applications submitted to the Secretary by such States 
                at such time, in such form and manner, and containing 
                such information as the Secretary may require.
            (4) Duration of project.--The demonstration project shall 
        be conducted over a 5-year period.
    (c) Reports.--The Secretary shall submit to the appropriate 
committees of Congress interim reports on the demonstration project and 
a final report on the project within 6 months after the conclusion of 
the project together with recommendations for such legislative or 
administrative action as the Secretary determines appropriate.
    (d) Waiver.--The Secretary shall waive such provisions of titles XI 
and XVIII of the Social Security Act (42 U.S.C. 1301 et seq. and 1395 
et seq.) as may be necessary to conduct the demonstration project under 
this section.
    (e) Definitions.--In this section:
            (1) Provider of physicians' services.--The term ``provider 
        of physicians' services'' means any individual or entity that 
        receives payment under the medicare program under title XVIII 
        of the Social Security Act (42 U.S.C. 1395 et seq.) for 
        providing physicians' services (as defined in section 1861(q) 
        of such Act (42 U.S.C. 1395x(q))).
            (2) Secretary.--The term ``Secretary'' means the Secretary 
        of Health and Human Services.
    (f) Funding.--There are appropriated from the Federal Supplementary 
Medical Insurance Trust Fund under section 1841 of the Social Security 
Act (42 U.S.C. 1395t) such sums as the Secretary determines are 
necessary to conduct the demonstration project under this section.
Medicare Value and Quality Demonstration Act of 2002 - Directs the Secretary of Health and Human Services to establish demonstration projects under which the Secretary: (1) provides bonus payments to providers of inpatient hospital services and providers of physicians' services that deliver high-quality health care at low costs in accordance with a value and quality ranking methodology established by the Agency for Healthcare Research and Quality under this Act; and (2) funds a plan at each site to increase the number of such service providers that provide high-quality, low-cost health care to beneficiaries under the Medicare program under title XVIII of the Social Security Act.
A bill to establish demonstration projects under the medicare program under title XVIII of the Social Security Act to reward and expand the number of health care providers delivering high-quality, cost-effective health care to medicare beneficiaries.