To amend title XVIII of the Social Security Act to create a value indexing mechanism for the physician work component of the Medicare physician hospital service and for inpatient hospital services.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Medicare Payment Fairness Act of 
2009''.

SEC. 2. VALUE INDEX UNDER THE MEDICARE PHYSICIAN HOSPITAL SERVICE.

    (a) In General.--Section 1848(e)(5) of the Social Security Act (42 
U.S.C. 1395w-4(e)) is amended by adding at the end the following new 
paragraph:
            ``(6) Value index.--
                    ``(A) In general.--The Secretary shall determine a 
                value index for each fee schedule area. The value index 
                shall be the ratio of the quality component under 
                subparagraph (B) to the cost component under 
                subparagraph (C) for that fee schedule area.
                    ``(B) Quality component.--
                            ``(i) In general.--The quality component 
                        shall be based on a composite score that 
                        reflects quality measures available on a State 
                        or fee schedule area basis. The measures shall 
                        reflect health outcomes and health status for 
                        the Medicare population, patient safety, and 
                        patient satisfaction. The Secretary shall use 
                        the best data available, after consultation 
                        with the Agency for Healthcare Research and 
                        Quality and with private entities that compile 
                        quality data.
                            ``(ii) Requirement.--In establishing the 
                        quality component under this subparagraph, the 
                        Secretary shall take into account the 
                        following:
                                    ``(I) Hospital readmission rates.
                                    ``(II) Hospital emergency 
                                department utilization for ambulatory 
                                care-sensitive conditions.
                                    ``(III) Hospital admissions for 
                                ambulatory care-sensitive conditions.
                                    ``(IV) Mortality amenable to health 
                                care.
                                    ``(V) Other items determined 
                                appropriate by the Secretary.
                            ``(iii) Establishment.--The quality 
                        component for each fee schedule area shall be 
                        the ratio of the quality score for such area to 
                        the national average quality score.
                            ``(iv) Application.--In the case of a fee 
                        schedule area that is less than an entire 
                        State, if available quality data is not 
                        sufficient to measure quality at the sub-State 
                        level, the quality component for a sub-State 
                        fee schedule area shall be the quality 
                        component for the entire State.
                    ``(C) Cost component.--
                            ``(i) In general.--The cost component shall 
                        be total annual per beneficiary Medicare 
                        expenditures under part A and this part for the 
                        fee schedule area. The Secretary may use total 
                        per beneficiary expenditures under such parts 
                        in the last two years of life as an alternative 
                        measure if the Secretary determines that such 
                        measure better takes into account severity 
                        differences among fee schedule areas.
                            ``(ii) Establishment.--The cost component 
                        for a fee schedule area shall be the ratio of 
                        the cost per beneficiary for such area to the 
                        national average cost per beneficiary.''.
    (b) Conforming Amendments.--Section 1848 of the Social Security Act 
(42 U.S.C. 1395w-4) is amended--
            (1) in subparagraph (b)(1)(C), by striking ``geographic'' 
        and inserting ``geographic and value''; and
            (2) in subsection (e)--
                    (A) in paragraph (1)--
                            (i) in the heading, by inserting ``and 
                        value'' after ``geographic'';
                            (ii) in subparagraph (A), by striking 
                        clause (iii) and inserting the following new 
                        clause:
                            ``(iii) a value index (as defined in 
                        paragraph (6)) applicable to physician work.'';
                            (iii) in subparagraph (C), by inserting 
                        ``and value'' after ``geographic'' in the first 
                        sentence;
                            (iv) in subparagraph (D), by striking 
                        ``physician work effort'' and inserting 
                        ``value'';
                            (v) by striking subparagraph (E); and
                            (vi) by striking subparagraph (G);
                    (B) by striking paragraph (2) and inserting the 
                following new paragraph:
            ``(2) Computation of geographic and value adjustment 
        factor.--For purposes of subsection (b)(1)(C), for all 
        physicians' services for each fee schedule area the Secretary 
        shall establish a geographic and value adjustment factor equal 
        to the sum of the geographic cost-of-practice adjustment factor 
        (specified in paragraph (3)), the geographic malpractice 
        adjustment factor (specified in paragraph (4)), and the value 
        adjustment factor (specified in paragraph (5)) for the service 
        and the area.''; and
                    (C) by striking paragraph (5) and inserting the 
                following new paragraph:
            ``(5) Physician work value adjustment factor.--For purposes 
        of paragraph (2), the `physician work value adjustment factor' 
        for a service for a fee schedule area, is the product of--
                    ``(A) the proportion of the total relative value 
                for the service that reflects the relative value units 
                for the work component; and
                    ``(B) the value index score for the area, based on 
                the value index established under paragraph (6).''.
    (c) Availability of Quality Component Prior to Implementation.--The 
Secretary of Health and Human Services shall make the quality component 
described in section 1848(c)(6)(B) of the Social Security Act, as added 
by subsection (a), for each fee schedule area available to the public 
by not later than January 1, 2011.
    (d) Effective Date.--The amendments made by this section shall 
apply to the Medicare physician hospital service for 2012 and each 
subsequent year.

SEC. 3. VALUE INDEX UNDER THE INPATIENT HOSPITAL PROSPECTIVE PAYMENT 
              SYSTEM.

    (a) In General.--Section 1886(d) of the Social Security Act (42 
U.S.C. 1395ww(d)) is amended by adding at the end the following new 
paragraph:
            ``(14) Value index.--
                    ``(A) In general.--The Secretary shall determine a 
                value index for each hospital service area. The value 
                index shall be the ratio of the quality component under 
                subparagraph (C) to the cost component under 
                subparagraph (D) for that hospital service area.
                    ``(B) Payment adjustment.--Notwithstanding any 
                other provision of this title, the payment amount made 
                to a subsection (d) hospital under this subsection or 
                section 1814(b)(3) for discharges during a fiscal year, 
                after all other adjustments and add-ons effected under 
                this title, shall be adjusted by multiplying such 
                amount by the value index determined under subparagraph 
                (A) for the hospital service area in which the 
                discharges occur.
                    ``(C) Quality component.--
                            ``(i) In general.--The quality component 
                        shall be based on a composite score that 
                        reflects quality measures available on a State 
                        or hospital service area basis. The measures 
                        shall reflect health outcomes and health status 
                        for the Medicare population, patient safety, 
                        and patient satisfaction. The Secretary shall 
                        use the best data available, after consultation 
                        with the Agency for Healthcare Research and 
                        Quality and with private entities that compile 
                        quality data.
                            ``(ii) Requirement.--In establishing the 
                        quality component under this subparagraph, the 
                        Secretary shall take into account quality 
                        measures reported by hospitals under subsection 
                        (b)(3)(B)(viii)(III) and shall, to the extent 
                        feasible, add additional measures relating to 
                        outcomes in hospitals.
                            ``(iii) Establishment.--The quality 
                        component for each hospital service area shall 
                        be the ratio of the quality score for such area 
                        to the national average quality score.
                            ``(iv) Application.--In the case of a 
                        hospital service area that is less than an 
                        entire State, if available quality data is not 
                        sufficient to measure quality at the sub-State 
                        level, the quality component for a sub-State 
                        hospital service area shall be the quality 
                        component for the entire State.
                    ``(D) Cost component.--
                            ``(i) In general.--The cost component shall 
                        be total annual per beneficiary Medicare 
                        expenditures under parts A and B for the 
                        hospital service area. The Secretary may use 
                        total per beneficiary expenditures under such 
                        parts in the last two years of life as an 
                        alternative measure if the Secretary determines 
                        that such measure better takes into account 
                        severity differences among hospital service 
                        areas.
                            ``(ii) Establishment.--The cost component 
                        for a hospital service area shall be the ratio 
                        of the cost per beneficiary for such area to 
                        the national average cost per beneficiary.
                    ``(E) Hospital service area.--In this paragraph, 
                the term `hospital service area' means such an area as 
                the Secretary shall define. In defining such areas, the 
                Secretary shall use a methodology similar to that used 
                in the establishment of the Dartmouth Atlas of Health 
                Care.''.
    (b) Availability of Quality Component Prior to Implementation.--The 
Secretary of Health and Human Services shall make the quality component 
described in section 1886(d)(14)(B) of the Social Security Act, as 
added by subsection (a), for each hospital service area available to 
the public by not later than January 1, 2011.
    (c) Effective Date.--The amendments made by this section shall 
apply to the discharges occurring on or after October 1, 2012.

Summary: Medicare Payment Fairness Act of 2009 - Amends title XVIII (Medicare) of the Social Security Act to require the Secretary of Health and Human Services (HHS) to create a value index for the physician work component for each Medicare physician fee schedule area. Requires the Secretary to create a value index for each hospital service area under the inpatient hospital prospective payment system (PPS).