To amend the Social Security Act to permit hospitals to make incentive payments to physicians to promote quality and efficiency.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Aligning Incentives for Better 
Patient Care Act of 2011''.

SEC. 2. PERMITTING CERTAIN INCENTIVE PAYMENTS THAT PROMOTE QUALITY AND 
              EFFICIENCY.

    (a) In General.--Section 1877(e) of the Social Security Act (42 
U.S.C. 1395nn(e)) is amended by adding at the end the following new 
paragraph:
            ``(9) Incentive payments that promote quality and 
        efficiency.--Any remuneration made, directly or indirectly, to 
        a physician by a qualified hospital (as such term is defined in 
        subsection (j)(2)) under the terms of a quality incentive 
        agreement that meets the requirements of subsection (j)(1), for 
        purposes of sharing cost savings generated for the hospital 
        through the physician's voluntary participation in quality 
        improvement activities under such agreement.''.
    (b) Requirements for Incentive Payments.--Section 1877 of the 
Social Security Act (42 U.S.C. 1395nn) is amended by adding at the end 
the following new subsection:
    ``(j) Requirements for Exception for Incentive Payments That 
Promote Quality and Efficiency.--
            ``(1) Quality incentive agreement.--
                    ``(A) In general.--A quality incentive agreement 
                that meets the requirements of this paragraph is an 
                agreement between a physician and a qualified hospital 
                that meets the following requirements:
                            ``(i) Quality improvement activities.--The 
                        agreement lists the quality improvement 
                        activities under the hospital's quality 
                        improvement program that the physician agrees 
                        to participate in under the agreement.
                            ``(ii) Determination of remuneration.--The 
                        agreement specifies that remuneration will be 
                        made to the physician by the hospital for cost 
                        savings achieved through the physician's 
                        participation in the quality improvement 
                        activities under clause (i), and includes the 
                        methodology that will be used to determine--
                                    ``(I) the cost savings achieved 
                                through the physician's participation 
                                in such activities; and
                                    ``(II) subject to any limitation 
                                under paragraph (3)(A), the amount of 
                                any remuneration made to the physician 
                                under such agreement.
                            ``(iii) Records.--The agreement contains a 
                        requirement that the physician and the hospital 
                        retain records related to the agreement, 
                        including records related to any remuneration 
                        made under the agreement, for a period 
                        determined by the Secretary. At the request of 
                        the Secretary, the physician and the hospital 
                        shall make such records available to the 
                        Secretary for purposes of an audit conducted by 
                        the Secretary under paragraph (3)(B).
                    ``(B) Limitation on basis of payment.--The quality 
                incentive agreement under subparagraph (A) may not 
                allow remuneration to be made on the basis of--
                            ``(i) the volume of referrals made by the 
                        physician to the hospital;
                            ``(ii) the value of referrals made by the 
                        physician to the hospital;
                            ``(iii) cost savings achieved through 
                        limiting or denying a beneficiary's access to 
                        items or services solely on the basis that such 
                        services are new or improved; or
                            ``(iv) cost savings achieved through 
                        directly or indirectly reducing or restricting 
                        the provision of items and services which the 
                        physician involved determines to be medically 
                        necessary or medically appropriate.
            ``(2) Qualified hospital.--
                    ``(A) In general.--For purposes of this subsection, 
                the term `qualified hospital' means a hospital that--
                            ``(i) has established and maintains a 
                        quality improvement program that contains a 
                        list of quality improvement activities that 
                        meet the requirements of subparagraph (B) that 
                        the hospital seeks to encourage physicians to 
                        participate in;
                            ``(ii) makes payments to the Secretary 
                        under subparagraph (C);
                            ``(iii) provides notice to beneficiaries 
                        that meet the requirements under subparagraph 
                        (D);
                            ``(iv) complies with the requirements of 
                        subparagraph (E), related to physician 
                        independence; and
                            ``(v) submits the annual report required 
                        under subparagraph (F).
                    ``(B) Quality improvement activities.--
                            ``(i) In general.--With respect to a 
                        quality improvement program of a hospital under 
                        subparagraph (A)(i), a quality improvement 
                        activity is an activity--
                                    ``(I) that is designed by the 
                                hospital to--
                                            ``(aa) improve the quality 
                                        of inpatient hospital care 
                                        (including improvements in 
                                        patient safety); and
                                            ``(bb) generate cost 
                                        savings for the hospital; and
                                    ``(II) does not jeopardize patient 
                                health or safety.
                            ``(ii) Flexibility.--A quality improvement 
                        activity may be designed to--
                                    ``(I) be clinical or non-clinical 
                                in nature;
                                    ``(II) increase communication and 
                                coordination between physicians and 
                                other providers;
                                    ``(III) improve admission planning, 
                                discharge planning, operating room 
                                utilization, timely documentation of 
                                the medical record, or appropriate 
                                transfer of patients within departments 
                                of a hospital;
                                    ``(IV) reduce the rate of avoidable 
                                re-operations;
                                    ``(V) reduce avoidable 
                                readmissions;
                                    ``(VI) appropriately reduce the 
                                average length of stay for patients in 
                                a hospital; or
                                    ``(VII) make other appropriate 
                                quality improvements, based on quality 
                                improvement measures recommended by 
                                physician specialty societies, the 
                                National Quality Forum, the National 
                                Committee for Quality Assurance, and 
                                the Physician Consortium for 
                                Performance Improvement.
                            ``(iii) Other requirements.--
                                    ``(I) Quality and cost 
                                benchmarks.--The hospital shall include 
                                the quality and cost benchmarks that 
                                the hospital uses to determine if an 
                                activity is a quality improvement 
                                activity in the quality improvement 
                                program under subparagraph (A)(i).
                                    ``(II) Limitation.--A quality 
                                improvement program may not include 
                                incentives to encourage the hospital or 
                                a physician to avoid taking on 
                                difficult or complex cases, which, but 
                                for the remuneration permitted under 
                                subsection (e)(9), the hospital or 
                                provider would have taken on.
                    ``(C) Shared savings with medicare.--For each year 
                (except for the first such year) that a hospital makes 
                remuneration under subsection (e)(9), the hospital 
                shall make, at such time and in such manner as the 
                Secretary may require, a payment to the Secretary in an 
                amount that is determined by the Secretary, but exceeds 
                one percent of cost savings generated in such year as a 
                result of physician participation in quality 
                improvement activities through a quality incentive 
                agreement under paragraph (1). Any payments made by a 
                hospital to the Secretary under this subparagraph shall 
                be deposited in the Federal hospital insurance trust 
                fund.
                    ``(D) Notice requirements.--
                            ``(i) In general.--A hospital that is a 
                        party to a quality incentive agreement under 
                        paragraph (1) shall, during the period of such 
                        agreement--
                                    ``(I) provide notice to each 
                                beneficiary who receives inpatient 
                                hospital services in such hospital that 
                                the hospital provides remuneration to 
                                physicians who voluntarily participate 
                                in such agreement; and
                                    ``(II) disclose and prominently 
                                display on the public Internet website 
                                of the hospital information about the 
                                hospital's participation in such 
                                agreement and the remuneration made 
                                under such agreement.
                            ``(ii) Timing.--To the extent that is 
                        feasible, without compromising patient safety, 
                        the notice under clause (i)(I) shall be 
                        provided to a beneficiary before such 
                        beneficiary receives inpatient hospital 
                        services through the hospital.
                    ``(E) Protection of physician independence.--A 
                qualified hospital may not--
                            ``(i) require that any physician who works 
                        for the hospital (as an employee, an 
                        independent contractor, or in any other status) 
                        to enter into a quality incentive agreement 
                        under paragraph (1); or
                            ``(ii) penalize such physician (except 
                        through a denial of remuneration under 
                        subsection (e)(9), subject to the terms of the 
                        agreement under paragraph (1)) for the failure 
                        of such physician to participate in the quality 
                        improvement activities under the hospital's 
                        quality improvement program.
                    ``(F) Annual report.--A hospital shall submit to 
                the Secretary an annual report that includes--
                            ``(i) a copy of the hospital's quality 
                        improvement program;
                            ``(ii) a list of the major quality 
                        improvement activities for which remuneration 
                        was made under any quality incentive agreement 
                        to which the hospital is a party during the 
                        previous year;
                            ``(iii) the amount of cost savings 
                        generated for the hospital by such quality 
                        improvement activities during such year; and
                            ``(iv) the quality improvement activities 
                        that generated the most cost savings for the 
                        hospital.
            ``(3) Responsibilities of the secretary.--
                    ``(A) Authority to set limits to prevent misuse of 
                incentive payments.--The Secretary may set a limit to 
                the amount of remuneration that a hospital may make to 
                a physician under an agreement under paragraph (1) for 
                the purpose of the types of remuneration prohibited 
                under clauses (i) or (ii) of paragraph (1)(B).
                    ``(B) Audits.--The Secretary, may, in such time and 
                manner as the Secretary may specify, audit a hospital 
                or physician with respect to remuneration made pursuant 
                to a quality incentive agreement under paragraph (1).
                    ``(C) Public disclosure of participating hospitals 
                on website.--The Secretary shall maintain and publish a 
                list of hospitals that have quality incentive 
                agreements under paragraph (1) on the Medicare.gov 
                Internet website of the Centers for Medicare & Medicaid 
                Services.''.
    (c) Quality Incentive Ombudsman.--Section 1808(c) of such Act (42 
U.S.C. 1395b-9(c)) is amended by adding at the end the following new 
paragraph:
            ``(4) Quality incentive ombudsman.--
                    ``(A) In general.--The Secretary shall provide a 
                quality incentive ombudsman with Centers for Medicare & 
                Medicaid Services, who shall respond to complaints and 
                inquiries made by individuals described under paragraph 
                (2)(A), hospitals, and physicians relating to the 
                remuneration permitted under section 1877(e)(9).
                    ``(B) Office and report.--The quality incentive 
                ombudsman may be within the office of the Medicare 
                Beneficiary Ombudsman appointed under paragraph (1), 
                and the activities of the quality incentive ombudsman 
                shall be included in the report under paragraph 
                (2)(C).''.
    (d) Regulations.--
            (1) In general.--Not later than January 1, 2014, the 
        Secretary of Health and Human Services shall promulgate 
        regulations to implement subsections (e)(9) and (j) of section 
        1887 of the Social Security Act, as added by subsection (a). 
        Such regulations may include model quality incentive agreements 
        and quality improvement programs.
            (2) Consultation.--In developing the regulations under 
        paragraph (1), the Secretary of Health and Human Services shall 
        consult with physician specialty societies, hospitals, and 
        individuals entitled to benefits under part A or enrolled under 
        part B of title XVIII of the Social Security Act.
            (3) Federal trade commission and department of justice.--
        Not later than January 1, 2014, to the extent that quality 
        incentive agreements under section 1877(j) of the Social 
        Security Act may implicate anti-trust laws and regulations, the 
        Federal Trade Commission and the Attorney General shall review 
        such laws and regulations and shall issue regulations or 
        guidance that includes examples of quality incentive agreements 
        (as such term is used in section 1877(j) of the Social Security 
        Act) that are permitted under such laws and regulations, and 
        examples of such agreements that are not permitted under such 
        laws and regulations.
    (e) Effective Date.--The amendments made by this section shall 
apply to remuneration made on or after January 1, 2014.

SEC. 3. EXCEPTION TO CIVIL MONETARY PENALTIES FOR CERTAIN INCENTIVE 
              PAYMENTS.

    Section 1128A(b)(1) of the Social Security Act (42 U.S.C. 1320a-
7a(b)(1)) is amended, in the matter preceding subparagraph (A), by 
inserting ``(except for remuneration made pursuant to section 
1877(e)(9))'' after ``makes a payment''.

SEC. 4. ESTABLISHMENT OF A SAFE HARBOR FROM CERTAIN CRIMINAL PENALTIES 
              TO PROVIDE FOR USE OF INCENTIVE PAYMENT PROGRAMS BETWEEN 
              PHYSICIANS AND HOSPITALS.

    Section 1128B(b)(3) of the Social Security Act (42 U.S.C. 1320a-
7b(b)(3)) is amended--
            (1) in subparagraph (I), by striking ``and'' at the end;
            (2) in subparagraph (J), by striking the period at the end 
        and inserting ``; and''; and
            (3) by adding at the end the following:
                    ``(K) any remuneration between a hospital and a 
                physician made pursuant to section 1877(e)(9).''.

Summary: Aligning Incentives for Better Patient Care Act of 2011 sic - Amends title XVIII (Medicare) of the Social Security Act to: (1) except from the prohibition against certain physician referrals and other compensation any incentive payments promoting quality and efficiency that are made under a quality incentive agreement between a physician and a qualified hospital, (2) prescribe requirements for such agreements, and (3) direct the Secretary of Health and Human Services (HHS) to provide a quality incentive ombudsman with the Centers for Medicare Medicaid Services. Amends SSA title XI to exempt such incentive payments from certain civil money penalties as well as from criminal penalites for illegal remunerations.