# H.R. 3200/Division B/Title I/Subtitle C
## SUBTITLE C — PROVISIONS RELATED TO MEDICARE PARTS A AND B
### Sec. 1151. Reducing Potentially Preventable Hospital Readmissions.

    (a) Hospitals.—
          (1) In General.—
             Section 1886 of the Social Security Act (42 U.S.C. 1395ww), as amended by section 1103(a), is amended by adding at the end the following new subsection:
                ``(p) Adjustment to hospital payments for excess readmissions.—
                   ``(1) In general.—With respect to payment for discharges from an applicable hospital (as defined in paragraph (5)(C)) occurring during a fiscal year beginning on or after October 1, 2011, in order to account for excess readmissions in the hospital, the Secretary shall reduce the payments that would otherwise be made to such hospital under subsection (d) (or section 1814(b)(3), as the case may be) for such a discharge by an amount equal to the product of—
                      ``(A) the base operating DRG payment amount (as defined in paragraph (2)) for the discharge; and
                      ``(B) the adjustment factor (described in paragraph (3)(A)) for the hospital for the fiscal year.
                   ``(2) Base operating drg payment amount.—
                      ``(A) In general.—Except as provided in subparagraph (B), for purposes of this subsection, the term ‘base operating DRG payment amount’ means, with respect to a hospital for a fiscal year, the payment amount that would otherwise be made under subsection (d) for a discharge if this subsection did not apply, reduced by any portion of such amount that is attributable to payments under subparagraphs (B) and (F) of paragraph (5).
                      ``(B) Adjustments.—For purposes of subparagraph (A), in the case of a hospital that is paid under section 1814(b)(3), the term ‘base operating DRG payment amount’ means the payment amount under such section.
                   ``(3) Adjustment factor.—
                      ``(A) In general.—For purposes of paragraph (1), the adjustment factor under this paragraph for an applicable hospital for a fiscal year is equal to the greater of—
                         ``(i) the ratio described in subparagraph (B) for the hospital for the applicable period (as defined in paragraph (5)(D)) for such fiscal year; or
                         ``(ii) the floor adjustment factor specified in subparagraph (C).
                      ``(B) Ratio.—The ratio described in this subparagraph for a hospital for an applicable period is equal to 1 minus the ratio of—
                         ``(i) the aggregate payments for excess readmissions (as defined in paragraph (4)(A)) with respect to an applicable hospital for the applicable period; and
                         ``(ii) the aggregate payments for all discharges (as defined in paragraph (4)(B)) with respect to such applicable hospital for such applicable period.
                      ``(C) Floor adjustment factor.—For purposes of subparagraph (A), the floor adjustment factor specified in this subparagraph for—
                         ``(i) fiscal year 2012 is 0.99;
                         ``(ii) fiscal year 2013 is 0.98;
                         ``(iii) fiscal year 2014 is 0.97; or
                         ``(iv) a subsequent fiscal year is 0.95.
                   ``(4) Aggregate payments, excess readmission ratio defined.—For purposes of this subsection:
                      ``(A) Aggregate payments for excess readmissions.—The term ‘aggregate payments for excess readmissions’ means, for a hospital for a fiscal year, the sum, for applicable conditions (as defined in paragraph (5)(A)), of the product, for each applicable condition, of—
                         ``(i) the base operating DRG payment amount for such hospital for such fiscal year for such condition;
                         ``(ii) the number of admissions for such condition for such hospital for such fiscal year; and
                         ``(iii) the excess readmissions ratio (as defined in subparagraph (C)) for such hospital for the applicable period for such fiscal year minus 1.
                      ``(B) Aggregate payments for all discharges.—The term ‘aggregate payments for all discharges’ means, for a hospital for a fiscal year, the sum of the base operating DRG payment amounts for all discharges for all conditions from such hospital for such fiscal year.
                      ``(C) Excess readmission ratio.—
                         ``(i) In general.—Subject to clauses (ii) and (iii), the term ‘excess readmissions ratio’ means, with respect to an applicable condition for a hospital for an applicable period, the ratio (but not less than 1.0) of—
                            ``(I) the risk adjusted readmissions based on actual readmissions, as determined consistent with a readmission measure methodology that has been endorsed under paragraph (5)(A)(ii)(I), for an applicable hospital for such condition with respect to the applicable period; to
                            ``(II) the risk adjusted expected readmissions (as determined consistent with such a methodology) for such hospital for such condition with respect to such applicable period.
                         ``(ii) Exclusion of certain readmissions.—For purposes of clause (i), with respect to a hospital, excess readmissions shall not include readmissions for an applicable condition for which there are fewer than a minimum number (as determined by the Secretary) of discharges for such applicable condition for the applicable period and such hospital.
                         ``(iii) Adjustment.—In order to promote a reduction over time in the overall rate of readmissions for applicable conditions, the Secretary may provide, beginning with discharges for fiscal year 2014, for the determination of the excess readmissions ratio under subparagraph (C) to be based on a ranking of hospitals by readmission ratios (from lower to higher readmission ratios) normalized to a benchmark that is lower than the 50th percentile.
                   ``(5) Definitions.—For purposes of this subsection:
                      ``(A) Applicable condition.—The term ‘applicable condition’ means, subject to subparagraph (B), a condition or procedure selected by the Secretary among conditions and procedures for which—
                         ``(i) readmissions (as defined in subparagraph (E)) that represent conditions or procedures that are high volume or high expenditures under this title (or other criteria specified by the Secretary); and
                         ``(ii) measures of such readmissions—
                            ``(I) have been endorsed by the entity with a contract under section 1890(a); and
                            ``(II) such endorsed measures have appropriate exclusions for readmissions that are unrelated to the prior discharge (such as a planned readmission or transfer to another applicable hospital).
                      ``(B) Expansion of applicable conditions.—Beginning with fiscal year 2013, the Secretary shall expand the applicable conditions beyond the 3 conditions for which measures have been endorsed as described in subparagraph (A)(ii)(I) as of the date of the enactment of this subsection to the additional 4 conditions that have been so identified by the Medicare Payment Advisory Commission in its report to Congress in June 2007 and to other conditions and procedures which may include an all-condition measure of readmissions, as determined appropriate by the Secretary. In expanding such applicable conditions, the Secretary shall seek the endorsement described in subparagraph (A)(ii)(I) but may apply such measures without such an endorsement.
                      ``(C) Applicable hospital.—The term ‘applicable hospital’ means a subsection (d) hospital or a hospital that is paid under section 1814(b)(3).
                      ``(D) Applicable period.—The term ‘applicable period’ means, with respect to a fiscal year, such period as the Secretary shall specify for purposes of determining excess readmissions.
                      ``(E) Readmission.—The term ‘readmission’ means, in the case of an individual who is discharged from an applicable hospital, the admission of the individual to the same or another applicable hospital within a time period specified by the Secretary from the date of such discharge. Insofar as the discharge relates to an applicable condition for which there is an endorsed measure described in subparagraph (A)(ii)(I), such time period (such as 30 days) shall be consistent with the time period specified for such measure.
                   ``(6) Limitations on review.—There shall be no administrative or judicial review under section 1869, section 1878, or otherwise of—
                      ``(A) the determination of base operating DRG payment amounts;
                      ``(B) the methodology for determining the adjustment factor under paragraph (3), including excess readmissions ratio under paragraph (4)(C), aggregate payments for excess readmissions under paragraph (4)(A), and aggregate payments for all discharges under paragraph (4)(B), and applicable periods and applicable conditions under paragraph (5);
                      ``(C) the measures of readmissions as described in paragraph (5)(A)(ii); and
                      ``(D) the determination of a targeted hospital under paragraph (8)(B)(i), the increase in payment under paragraph (8)(B)(ii), the aggregate cap under paragraph (8)(C)(i), the hospital-specific limit under paragraph (8)(C)(ii), and the form of payment made by the Secretary under paragraph (8)(D).
                   ``(7) Monitoring inappropriate changes in admissions practices.—The Secretary shall monitor the activities of applicable hospitals to determine if such hospitals have taken steps to avoid patients at risk in order to reduce the likelihood of increasing readmissions for applicable conditions. If the Secretary determines that such a hospital has taken such a step, after notice to the hospital and opportunity for the hospital to undertake action to alleviate such steps, the Secretary may impose an appropriate sanction.
                   ``(8) Assistance to certain hospitals.—
                      ``(A) In general.—For purposes of providing funds to applicable hospitals to take steps described in subparagraph (E) to address factors that may impact readmissions of individuals who are discharged from such a hospital, for fiscal years beginning on or after October 1, 2011, the Secretary shall make a payment adjustment for a hospital described in subparagraph (B), with respect to each such fiscal year, by a percent estimated by the Secretary to be consistent with subparagraph (C).
                      ``(B) Targeted hospitals.—Subparagraph (A) shall apply to an applicable hospital that—
                         ``(i) received (or, in the case of an 1814(b)(3) hospital, otherwise would have been eligible to receive) $10,000,000 or more in disproportionate share payments using the latest available data as estimated by the Secretary; and
                         ``(ii) provides assurances satisfactory to the Secretary that the increase in payment under this paragraph shall be used for purposes described in subparagraph (E).
                      ``(C) Caps.—
                         ``(i) Aggregate cap.—The aggregate amount of the payment adjustment under this paragraph for a fiscal year shall not exceed 5 percent of the estimated difference in the spending that would occur for such fiscal year with and without application of the adjustment factor described in paragraph (3) and applied pursuant to paragraph (1).
                         ``(ii) Hospital-specific limit.—The aggregate amount of the payment adjustment for a hospital under this paragraph shall not exceed the estimated difference in spending that would occur for such fiscal year for such hospital with and without application of the adjustment factor described in paragraph (3) and applied pursuant to paragraph (1).
                      ``(D) Form of payment.—The Secretary may make the additional payments under this paragraph on a lump sum basis, a periodic basis, a claim by claim basis, or otherwise.
                      ``(E) Use of additional payment.—Funding under this paragraph shall be used by targeted hospitals for transitional care activities designed to address the patient noncompliance issues that result in higher than normal readmission rates, such as one or more of the following:
                         ``(i) Providing care coordination services to assist in transitions from the targeted hospital to other settings.
                         ``(ii) Hiring translators and interpreters.
                         ``(iii) Increasing services offered by discharge planners.
                         ``(iv) Ensuring that individuals receive a summary of care and medication orders upon discharge.
                         ``(v) Developing a quality improvement plan to assess and remedy preventable readmission rates.
                         ``(vi) Assigning discharged individuals to a medical home.
                         ``(vii) Doing other activities as determined appropriate by the Secretary.
                      ``(F) GAO report on use of funds.—Not later than 3 years after the date on which funds are first made available under this paragraph, the Comptroller General of the United States shall submit to Congress a report on the use of such funds.
                      ``(G) Disproportionate share hospital payment.—In this paragraph, the term ‘disproportionate share hospital payment’ means an additional payment amount under subsection (d)(5)(F).´´.
    (b) Application to Critical Access Hospitals.—
       Section 1814(l) of the Social Security Act (42 U.S.C. 1395f(l)) is amended—
          (1) in paragraph (5)—
                (A) by striking ``and´´ at the end of subparagraph (C);
                (B) by striking the period at the end of subparagraph (D) and inserting ``; and´´;
                (C) by inserting at the end the following new subparagraph:
                   ``(E) The methodology for determining the adjustment factor under paragraph (5), including the determination of aggregate payments for actual and expected readmissions, applicable periods, applicable conditions and measures of readmissions.´´; and
                (D) by redesignating such paragraph as paragraph (6); and
          (2) by inserting after paragraph (4) the following new paragraph:
             ``(5) The adjustment factor described in section 1886(p)(3) shall apply to payments with respect to a critical access hospital with respect to a cost reporting period beginning in fiscal year 2012 and each subsequent fiscal year (after application of paragraph (4) of this subsection) in a manner similar to the manner in which such section applies with respect to a fiscal year to an applicable hospital as described in section 1886(p)(2).´´.
    (c) Post Acute Care Providers.—
          (1) Interim Policy.—
                (A) In General.—
                   With respect to a readmission to an applicable hospital or a critical access hospital (as described in section 1814(l) of the Social Security Act) from a post acute care provider (as defined in paragraph (3)) and such a readmission is not governed by section 412.531 of title 42, Code of Federal Regulations, if the claim submitted by such a post-acute care provider under title XVIII of the Social Security Act indicates that the individual was readmitted to a hospital from such a post-acute care provider or admitted from home and under the care of a home health agency within 30 days of an initial discharge from an applicable hospital or critical access hospital, the payment under such title on such claim shall be the applicable percent specified in subparagraph (B) of the payment that would otherwise be made under the respective payment system under such title for such post-acute care provider if this subsection did not apply.
                (B) Applicable Percent Defined.—
                   For purposes of subparagraph (A), the applicable percent is—
                      (i) for fiscal or rate year 2012 is 0.996;
                      (ii) for fiscal or rate year 2013 is 0.993; and
                      (iii) for fiscal or rate year 2014 is 0.99.
                (C) Effective Date.—
                   Subparagraph (1) shall apply to discharges or services furnished (as the case may be with respect to the applicable post acute care provider) on or after the first day of the fiscal year or rate year, beginning on or after October 1, 2011, with respect to the applicable post acute care provider.
          (2) Development and Application of Performance Measures.—
                (A) In General.—
                   The Secretary of Health and Human Services shall develop appropriate measures of readmission rates for post acute care providers. The Secretary shall seek endorsement of such measures by the entity with a contract under section 1890(a) of the Social Security Act but may adopt and apply such measures under this paragraph without such an endorsement. The Secretary shall expand such measures in a manner similar to the manner in which applicable conditions are expanded under paragraph (5)(B) of section 1886(p) of the Social Security Act, as added by subsection (a).
                (B) Implementation.—
                   The Secretary shall apply, on or after October 1, 2014, with respect to post acute care providers, policies similar to the policies applied with respect to applicable hospitals and critical access hospitals under the amendments made by subsection (a). The provisions of paragraph (1) shall apply with respect to any period on or after October 1, 2014, and before such application date described in the previous sentence in the same manner as such provisions apply with respect to fiscal or rate year 2014.
                (C) Monitoring and Penalties.—
                   The provisions of paragraph (7) of such section 1886(p) shall apply to providers under this paragraph in the same manner as they apply to hospitals under such section.
          (3) Definitions.—
             For purposes of this subsection:
                (A) Post Acute Care Provider.—
                   The term ``post acute care provider´´ means—
                      (i) a skilled nursing facility (as defined in section 1819(a) of the Social Security Act);
                      (ii) an inpatient rehabilitation facility (described in section 1886(h)(1)(A) of such Act);
                      (iii) a home health agency (as defined in section 1861(o) of such Act); and
                      (iv) a long term care hospital (as defined in section 1861(ccc) of such Act).
                (B) Other Terms.—
                   The terms ``applicable condition´´, ``applicable hospital´´, and ``readmission´´ have the meanings given such terms in section 1886(p)(5) of the Social Security Act, as added by subsection (a)(1).
    (d) Physicians.—
          (1) Study.—
             The Secretary of Health and Human Services shall conduct a study to determine how the readmissions policy described in the previous subsections could be applied to physicians.
          (2) Considerations.—
             In conducting the study, the Secretary shall consider approaches such as—
                (A) creating a new code (or codes) and payment amount (or amounts) under the fee schedule in section 1848 of the Social Security Act (in a budget neutral manner) for services furnished by an appropriate physician who sees an individual within the first week after discharge from a hospital or critical access hospital;
                (B) developing measures of rates of readmission for individuals treated by physicians;
                (C) applying a payment reduction for physicians who treat the patient during the initial admission that results in a readmission; and
                (D) methods for attributing payments or payment reductions to the appropriate physician or physicians.
          (3) Report.—
             The Secretary shall issue a public report on such study not later than the date that is one year after the date of the enactment of this Act.
    (e) Funding.—
       For purposes of carrying out the provisions of this section, in addition to funds otherwise available, out of any funds in the Treasury not otherwise appropriated, there are appropriated to the Secretary of Health and Human Services for the Center for Medicare & Medicaid Services Program Management Account $25,000,000 for each fiscal year beginning with 2010. Amounts appropriated under this subsection for a fiscal year shall be available until expended.

### Sec. 1152. Post Acute Care Services Payment Reform Plan and Bundling Pilot Program.

    (a) Plan.—
          (1) In General.—
             The Secretary of Health and Human Services (in this section referred to as the ``Secretary´´) shall develop a detailed plan to reform payment for post acute care (PAC) services under the Medicare program under title XVIII of the Social Security Act (in this section referred to as the ``Medicare program)´´. The goals of such payment reform are to—
                (A) improve the coordination, quality, and efficiency of such services; and
                (B) improve outcomes for individuals such as reducing the need for readmission to hospitals from providers of such services.
          (2) Bundling Post Acute Services.—
             The plan described in paragraph (1) shall include detailed specifications for a bundled payment for post acute services (in this section referred to as the ``post acute care bundle´´), and may include other approaches determined appropriate by the Secretary.
          (3) Post Acute Services.—
             For purposes of this section, the term ``post acute services´´ means services for which payment may be made under the Medicare program that are furnished by skilled nursing facilities, inpatient rehabilitation facilities, long term care hospitals, hospital based outpatient rehabilitation facilities and home health agencies to an individual after discharge of such individual from a hospital, and such other services determined appropriate by the Secretary.
    (b) Details.—
       The plan described in subsection (a)(1) shall include consideration of the following issues:
          (1) The nature of payments under a post acute care bundle, including the type of provider or entity to whom payment should be made, the scope of activities and services included in the bundle, whether payment for physicians’ services should be included in the bundle, and the period covered by the bundle.
          (2) Whether the payment should be consolidated with the payment under the inpatient prospective system under section 1886 of the Social Security Act (in this section referred to as MS–DRGs) or a separate payment should be established for such bundle, and if a separate payment is established, whether it should be made only upon use of post acute care services or for every discharge.
          (3) Whether the bundle should be applied across all categories of providers of inpatient services (including critical access hospitals) and post acute care services or whether it should be limited to certain categories of providers, services, or discharges, such as high volume or high cost MS–DRGs.
          (4) The extent to which payment rates could be established to achieve offsets for efficiencies that could be expected to be achieved with a bundle payment, whether such rates should be established on a national basis or for different geographic areas, should vary according to discharge, case mix, outliers, and geographic differences in wages or other appropriate adjustments, and how to update such rates.
          (5) The nature of protections needed for individuals under a system of bundled payments to ensure that individuals receive quality care, are furnished the level and amount of services needed as determined by an appropriate assessment instrument, are offered choice of provider, and the extent to which transitional care services would improve quality of care for individuals and the functioning of a bundled post-acute system.
          (6) The nature of relationships that may be required between hospitals and providers of post acute care services to facilitate bundled payments, including the application of gainsharing, anti-referral, anti-kickback, and anti-trust laws.
          (7) Quality measures that would be appropriate for reporting by hospitals and post acute providers (such as measures that assess changes in functional status and quality measures appropriate for each type of post acute services provider including how the reporting of such quality measures could be coordinated with other reporting of such quality measures by such providers otherwise required).
          (8) How cost-sharing for a post acute care bundle should be treated relative to current rules for cost-sharing for inpatient hospital, home health, skilled nursing facility, and other services.
          (9) How other programmatic issues should be treated in a post acute care bundle, including rules specific to various types of post-acute providers such as the post-acute transfer policy, three-day hospital stay to qualify for services furnished by skilled nursing facilities, and the coordination of payments and care under the Medicare program and the Medicaid program.
          (10) Such other issues as the Secretary deems appropriate.
    (c) Consultations and Analysis.—
          (1) Consultation with Stakeholders.—
             In developing the plan under subsection (a)(1), the Secretary shall consult with relevant stakeholders and shall consider experience with such research studies and demonstrations that the Secretary determines appropriate.
          (2) Analysis and Data Collection.—
             In developing such plan, the Secretary shall—
                (A) analyze the issues described in subsection (b) and other issues that the Secretary determines appropriate;
                (B) analyze the impacts (including geographic impacts) of post acute service reform approaches, including bundling of such services on individuals, hospitals, post acute care providers, and physicians;
                (C) use existing data (such as data submitted on claims) and collect such data as the Secretary determines are appropriate to develop such plan required in this section; and
                (D) if patient functional status measures are appropriate for the analysis, to the extent practical, build upon the CARE tool being developed pursuant to section 5008 of the Deficit Reduction Act of 2005.
    (d) Administration.—
          (1) Funding.—
             For purposes of carrying out the provisions of this section, in addition to funds otherwise available, out of any funds in the Treasury not otherwise appropriated, there are appropriated to the Secretary for the Center for Medicare & Medicaid Services Program Management Account $15,000,000 for each of the fiscal years 2010 through 2012. Amounts appropriated under this paragraph for a fiscal year shall be available until expended.
          (2) Expedited Data Collection.—
             Chapter 35 of title 44, United States Code shall not apply to this section.
    (e) Public Reports.—
          (1) Interim Reports.—
             The Secretary shall issue interim public reports on a periodic basis on the plan described in subsection (a)(1), the issues described in subsection (b), and impact analyses as the Secretary determines appropriate.
          (2) Final Report.—
             Not later than the date that is 3 years after the date of the enactment of this Act, the Secretary shall issue a final public report on such plan, including analysis of issues described in subsection (b) and impact analyses.
    (f) Conversion of Acute Care Episode Demonstration to Pilot Program and Expansion To Include Post Acute Services.—
          (1) In General.—
             Part E of title XVIII of the Social Security Act is amended by inserting after section 1866C the following new section:

##### ``Sec. 1866D. Conversion of Acute Care Episode Demonstration to Pilot Program and Expansion to Include Post Acute Services.

                ``(a) In general.—By not later than January 1, 2011, the Secretary shall, for the purpose of promoting the use of bundled payments to promote efficient and high quality delivery of care—
                   ``(1) convert the acute care episode demonstration program conducted under section 1866C to a pilot program; and
                   ``(2) subject to subsection (c), expand such program as so converted to include post acute services and such other services the Secretary determines to be appropriate, which may include transitional services.
                ``(b) Scope.—The pilot program under subsection (a) may include additional geographic areas and additional conditions which account for significant program spending, as defined by the Secretary. Nothing in this subsection shall be construed as limiting the number of hospital and physician groups or the number of hospital and post-acute provider groups that may participate in the pilot program.
                ``(c) Limitation.—The Secretary shall only expand the pilot program under subsection (a)(2) if the Secretary finds that—
                   ``(1) the demonstration program under section 1866C and pilot program under this section maintain or increase the quality of care received by individuals enrolled under this title; and
                   ``(2) such demonstration program and pilot program reduce program expenditures and, based on the certification under subsection (d), that the expansion of such pilot program would result in estimated spending that would be less than what spending would otherwise be in the absence of this section.
                ``(d) Certification.—For purposes of subsection (c), the Chief Actuary of the Centers for Medicare & Medicaid Services shall certify whether expansion of the pilot program under this section would result in estimated spending that would be less than what spending would otherwise be in the absence of this section.
                ``(e) Voluntary participation.—Nothing in this paragraph shall be construed as requiring the participation of an entity in the pilot program under this section.´´.
          (2) Conforming Amendment.—
             Section 1866C(b) of the Social Security Act (42 U.S.C. 1395cc–3(b)) is amended by striking ``The Secretary´´ and inserting ``Subject to section 1866D, the Secretary´´.

### Sec. 1153. Home Health Payment Update for 2010.

    Section 1895(b)(3)(B)(ii) of the Social Security Act (42 U.S.C. 1395fff(b)(3)(B)(ii)) is amended—
          (1) in subclause (IV), by striking ``and´´;
          (2) by redesignating subclause (V) as subclause (VII); and
          (3) by inserting after subclause (IV) the following new subclauses:
             ``(V) 2007, 2008, and 2009, subject to clause (v), the home health market basket percentage increase;
             ``(VI) 2010, subject to clause (v), 0 percent; and´´.

### Sec. 1154. Payment Adjustments for Home Health Care.

    (a) Acceleration of Adjustment for Case Mix Changes.—
       Section 1895(b)(3)(B) of the Social Security Act (42 U.S.C. 1395fff(b)(3)(B)) is amended—
          (1) in clause (iv), by striking ``Insofar as´´ and inserting ``Subject to clause (vi), insofar as´´; and
          (2) by adding at the end the following new clause:
             ``(vi) Special rule for case mix changes for 2011.—
                ``(I) In general.—With respect to the case mix adjustments established in section 484.220(a) of title 42, Code of Federal Regulations, the Secretary shall apply, in 2010, the adjustment established in paragraph (3) of such section for 2011, in addition to applying the adjustment established in paragraph (2) for 2010.
                ``(II) Construction.—Nothing in this clause shall be construed as limiting the amount of adjustment for case mix for 2010 or 2011 if more recent data indicate an appropriate adjustment that is greater than the amount established in the section described in subclause (I).´´.
    (b) Rebasing Home Health Prospective Payment Amount.—
       Section 1895(b)(3)(A) of the Social Security Act (42 U.S.C. 1395fff(b)(3)(A)) is amended—
          (1) in clause (i)—
                (A) in subclause (III), by inserting ``and before 2011´´ after ``after the period described in subclause (II)´´; and
                (B) by inserting after subclause (III) the following new subclauses:
                   ``(IV) Subject to clause (iii)(I), for 2011, such amount (or amounts) shall be adjusted by a uniform percentage determined to be appropriate by the Secretary based on analysis of factors such as changes in the average number and types of visits in an episode, the change in intensity of visits in an episode, growth in cost per episode, and other factors that the Secretary considers to be relevant.
                   ``(V) Subject to clause (iii)(II), for a year after 2011, such a amount (or amounts) shall be equal to the amount (or amounts) determined under this clause for the previous year, updated under subparagraph (B).´´; and
          (2) by adding at the end the following new clause:
             ``(iii) Special rule in case of inability to effect timely rebasing.—
                ``(I) Application of proxy amount for 2011.—If the Secretary is not able to compute the amount (or amounts) under clause (i)(IV) so as to permit, on a timely basis, the application of such clause for 2011, the Secretary shall substitute for such amount (or amounts) 95 percent of the amount (or amounts) that would otherwise be specified under clause (i)(III) if it applied for 2011.
                ``(II) Adjustment for subsequent years based on data.—If the Secretary applies subclause (I), the Secretary before July 1, 2011, shall compare the amount (or amounts) applied under such subclause with the amount (or amounts) that should have been applied under clause (i)(IV). The Secretary shall decrease or increase the prospective payment amount (or amounts) under clause (i)(V) for 2012 (or, at the Secretary’s discretion, over a period of several years beginning with 2012) by the amount (if any) by which the amount (or amounts) applied under subclause (I) is greater or less, respectively, than the amount (or amounts) that should have been applied under clause (i)(IV).´´.

### Sec. 1155. Incorporating Productivity Improvements into Market Basket Update for Home Health Services.

    (a) In General.—
       Section 1895(b)(3)(B) of the Social Security Act (42 U.S.C. 1395fff(b)(3)(B)) is amended—
          (1) in clause (iii), by inserting ``(including being subject to the productivity adjustment described in section 1886(b)(3)(B)(iii)(II))´´ after ``in the same manner´´; and
          (2) in clause (v)(I), by inserting ``(but not below 0)´´ after ``reduced´´.
    (b) Effective Date.—
       The amendment made by subsection (a) shall apply to home health market basket percentage increases for years beginning with 2010.

### Sec. 1156. Limitation on Medicare Exceptions to the Prohibition on Certain Physician Referrals Made to Hospitals.

    (a) In General.—
       Section 1877 of the Social Security Act (42 U.S.C. 1395nn) is amended—
          (1) in subsection (d)(2)—
                (A) in subparagraph (A), by striking ``and´´ at the end;
                (B) in subparagraph (B), by striking the period at the end and inserting ``; and´´; and
                (C) by adding at the end the following new subparagraph:
                   ``(C) in the case where the entity is a hospital, the hospital meets the requirements of paragraph (3)(D).´´;
          (2) in subsection (d)(3)—
                (A) in subparagraph (B), by striking ``and´´ at the end;
                (B) in subparagraph (C), by striking the period at the end and inserting ``; and´´; and
                (C) by adding at the end the following new subparagraph:
                   ``(D) the hospital meets the requirements described in subsection (i)(1).´´;
          (3) by amending subsection (f) to read as follows:
             ``(f) Reporting and disclosure requirements.—
                ``(1) In general.—Each entity providing covered items or services for which payment may be made under this title shall provide the Secretary with the information concerning the entity's ownership, investment, and compensation arrangements, including—
                   ``(A) the covered items and services provided by the entity, and
                   ``(B) the names and unique physician identification numbers of all physicians with an ownership or investment interest (as described in subsection (a)(2)(A)), or with a compensation arrangement (as described in subsection (a)(2)(B)), in the entity, or whose immediate relatives have such an ownership or investment interest or who have such a compensation relationship with the entity.
                ``Such information shall be provided in such form, manner, and at such times as the Secretary shall specify. The requirement of this subsection shall not apply to designated health services provided outside the United States or to entities which the Secretary determines provide services for which payment may be made under this title very infrequently.
                ``(2) Requirements for hospitals with physician ownership or investment.—In the case of a hospital that meets the requirements described in subsection (i)(1), the hospital shall—
                   ``(A) submit to the Secretary an initial report, and periodic updates at a frequency determined by the Secretary, containing a detailed description of the identity of each physician owner and physician investor and any other owners or investors of the hospital;
                   ``(B) require that any referring physician owner or investor discloses to the individual being referred, by a time that permits the individual to make a meaningful decision regarding the receipt of services, as determined by the Secretary, the ownership or investment interest, as applicable, of such referring physician in the hospital; and
                   ``(C) disclose the fact that the hospital is partially or wholly owned by one or more physicians or has one or more physician investors—
                      ``(i) on any public website for the hospital; and
                      ``(ii) in any public advertising for the hospital.
                   ``The information to be reported or disclosed under this paragraph shall be provided in such form, manner, and at such times as the Secretary shall specify. The requirements of this paragraph shall not apply to designated health services furnished outside the United States or to entities which the Secretary determines provide services for which payment may be made under this title very infrequently.
                ``(3) Publication of information.—The Secretary shall publish, and periodically update, the information submitted by hospitals under paragraph (2)(A) on the public Internet website of the Centers for Medicare & Medicaid Services.´´;
          (4) by amending subsection (g)(5) to read as follows:
             ``(5) Failure to report or disclose information.—
                ``(A) Reporting.—Any person who is required, but fails, to meet a reporting requirement of paragraphs (1) and (2)(A) of subsection (f) is subject to a civil money penalty of not more than $10,000 for each day for which reporting is required to have been made.
                ``(B) Disclosure.—Any physician who is required, but fails, to meet a disclosure requirement of subsection (f)(2)(B) or a hospital that is required, but fails, to meet a disclosure requirement of subsection (f)(2)(C) is subject to a civil money penalty of not more than $10,000 for each case in which disclosure is required to have been made.
                ``(C) Application.—The provisions of section 1128A (other than the first sentence of subsection (a) and other than subsection (b)) shall apply to a civil money penalty under subparagraphs (A) and (B) in the same manner as such provisions apply to a penalty or proceeding under section 1128A(a).´´; and
          (5) by adding at the end the following new subsection:
             ``(i) Requirements To qualify for rural provider and hospital ownership exceptions to self-referral prohibition.—
                ``(1) Requirements described.—For purposes of subsection (d)(3)(D), the requirements described in this paragraph are as follows:
                   ``(A) Provider agreement.—The hospital had—
                      ``(i) physician ownership or investment on January 1, 2009; and
                      ``(ii) a provider agreement under section 1866 in effect on such date.
                   ``(B) Prohibition on physician ownership or investment.—The percentage of the total value of the ownership or investment interests held in the hospital, or in an entity whose assets include the hospital, by physician owners or investors in the aggregate does not exceed such percentage as of the date of enactment of this subsection.
                   ``(C) Prohibition on expansion of facility capacity.—Except as provided in paragraph (2), the number of operating rooms, procedure rooms, or beds of the hospital at any time on or after the date of the enactment of this subsection are no greater than the number of operating rooms, procedure rooms, or beds, respectively, as of such date.
                   ``(D) Ensuring bona fide ownership and investment.—
                      ``(i) Any ownership or investment interests that the hospital offers to a physician are not offered on more favorable terms than the terms offered to a person who is not in a position to refer patients or otherwise generate business for the hospital.
                      ``(ii) The hospital (or any investors in the hospital) does not directly or indirectly provide loans or financing for any physician owner or investor in the hospital.
                      ``(iii) The hospital (or any investors in the hospital) does not directly or indirectly guarantee a loan, make a payment toward a loan, or otherwise subsidize a loan, for any physician owner or investor or group of physician owners or investors that is related to acquiring any ownership or investment interest in the hospital.
                      ``(iv) Ownership or investment returns are distributed to each owner or investor in the hospital in an amount that is directly proportional to the ownership or investment interest of such owner or investor in the hospital.
                      ``(v) The investment interest of the owner or investor is directly proportional to the owner’s or investor’s capital contributions made at the time the ownership or investment interest is obtained.
                      ``(vi) Physician owners and investors do not receive, directly or indirectly, any guaranteed receipt of or right to purchase other business interests related to the hospital, including the purchase or lease of any property under the control of other owners or investors in the hospital or located near the premises of the hospital.
                      ``(vii) The hospital does not offer a physician owner or investor the opportunity to purchase or lease any property under the control of the hospital or any other owner or investor in the hospital on more favorable terms than the terms offered to a person that is not a physician owner or investor.
                      ``(viii) The hospital does not condition any physician ownership or investment interests either directly or indirectly on the physician owner or investor making or influencing referrals to the hospital or otherwise generating business for the hospital.
                   ``(E) Patient safety.—In the case of a hospital that does not offer emergency services, the hospital has the capacity to—
                      ``(i) provide assessment and initial treatment for medical emergencies; and
                      ``(ii) if the hospital lacks additional capabilities required to treat the emergency involved, refer and transfer the patient with the medical emergency to a hospital with the required capability.
                   ``(F) Limitation on application to certain converted facilities.—The hospital was not converted from an ambulatory surgical center to a hospital on or after the date of enactment of this subsection.
                ``(2) Exception to prohibition on expansion of facility capacity.—
                   ``(A) Process.—
                      ``(i) Establishment.—The Secretary shall establish and implement a process under which a hospital may apply for an exception from the requirement under paragraph (1)(C).
                      ``(ii) Opportunity for community input.—The process under clause (i) shall provide persons and entities in the community in which the hospital applying for an exception is located with the opportunity to provide input with respect to the application.
                      ``(iii) Timing for implementation.—The Secretary shall implement the process under clause (i) on the date that is one month after the promulgation of regulations described in clause (iv).
                      ``(iv) Regulations.—Not later than the first day of the month beginning 18 months after the date of the enactment of this subsection, the Secretary shall promulgate regulations to carry out the process under clause (i). The Secretary may issue such regulations as interim final regulations.
                   ``(B) Frequency.—The process described in subparagraph (A) shall permit a hospital to apply for an exception up to once every 2 years.
                   ``(C) Permitted increase.—
                      ``(i) In general.—Subject to clause (ii) and subparagraph (D), a hospital granted an exception under the process described in subparagraph (A) may increase the number of operating rooms, procedure rooms, or beds of the hospital above the baseline number of operating rooms, procedure rooms, or beds, respectively, of the hospital (or, if the hospital has been granted a previous exception under this paragraph, above the number of operating rooms, procedure rooms, or beds, respectively, of the hospital after the application of the most recent increase under such an exception).
                      ``(ii) 100 percent increase limitation.—The Secretary shall not permit an increase in the number of operating rooms, procedure rooms, or beds of a hospital under clause (i) to the extent such increase would result in the number of operating rooms, procedure rooms, or beds of the hospital exceeding 200 percent of the baseline number of operating rooms, procedure rooms, or beds of the hospital.
                      ``(iii) Baseline number of operating rooms, procedure rooms, or beds.—In this paragraph, the term ‘baseline number of operating rooms, procedure rooms, or beds’ means the number of operating rooms, procedure rooms, or beds of a hospital as of the date of enactment of this subsection.
                   ``(D) Increase limited to facilities on the main campus of the hospital.—Any increase in the number of operating rooms, procedure rooms, or beds of a hospital pursuant to this paragraph may only occur in facilities on the main campus of the hospital.
                   ``(E) Conditions for approval of an increase in facility capacity.—The Secretary may grant an exception under the process described in subparagraph (A) only to a hospital—
                      ``(i) that is located in a county in which the percentage increase in the population during the most recent 5-year period for which data are available is estimated to be at least 150 percent of the percentage increase in the population growth of the State in which the hospital is located during that period, as estimated by Bureau of the Census and available to the Secretary;
                      ``(ii) whose annual percent of total inpatient admissions that represent inpatient admissions under the program under title XIX is estimated to be equal to or greater than the average percent with respect to such admissions for all hospitals located in the county in which the hospital is located;
                      ``(iii) that does not discriminate against beneficiaries of Federal health care programs and does not permit physicians practicing at the hospital to discriminate against such beneficiaries;
                      ``(iv) that is located in a State in which the average bed capacity in the State is estimated to be less than the national average bed capacity;
                      ``(v) that has an average bed occupancy rate that is estimated to be greater than the average bed occupancy rate in the State in which the hospital is located; and
                      ``(vi) that meets other conditions as determined by the Secretary.
                   ``(F) Procedure rooms.—In this subsection, the term ‘procedure rooms’ includes rooms in which catheterizations, angiographies, angiograms, and endoscopies are furnished, but such term shall not include emergency rooms or departments (except for rooms in which catheterizations, angiographies, angiograms, and endoscopies are furnished).
                   ``(G) Publication of final decisions.—Not later than 120 days after receiving a complete application under this paragraph, the Secretary shall publish on the public Internet website of the Centers for Medicare & Medicaid Services the final decision with respect to such application.
                   ``(H) Limitation on review.—There shall be no administrative or judicial review under section 1869, section 1878, or otherwise of the exception process under this paragraph, including the establishment of such process, and any determination made under such process.
                ``(3) Physician owner or investor defined.—For purposes of this subsection and subsection (f)(2), the term ‘physician owner or investor’ means a physician (or an immediate family member of such physician) with a direct or an indirect ownership or investment interest in the hospital.
                ``(4) Patient safety requirement.—In the case of a hospital to which the requirements of paragraph (1) apply, insofar as the hospital admits a patient and does not have any physician available on the premises 24 hours per day, 7 days per week, before admitting the patient—
                   ``(A) the hospital shall disclose such fact to the patient; and
                   ``(B) following such disclosure, the hospital shall receive from the patient a signed acknowledgment that the patient understands such fact.
                ``(5) Clarification.—Nothing in this subsection shall be construed as preventing the Secretary from terminating a hospital’s provider agreement if the hospital is not in compliance with regulations pursuant to section 1866.´´.
    (b) Verifying Compliance.—
       The Secretary of Health and Human Services shall establish policies and procedures to verify compliance with the requirements described in subsections (i)(1) and (i)(4) of section 1877 of the Social Security Act, as added by subsection (a)(5). The Secretary may use unannounced site reviews of hospitals and audits to verify compliance with such requirements.
    (c) Implementation.—
          (1) Funding.—
             For purposes of carrying out the amendments made by subsection (a) and the provisions of subsection (b), in addition to funds otherwise available, out of any funds in the Treasury not otherwise appropriated there are appropriated to the Secretary of Health and Human Services for the Centers for Medicare & Medicaid Services Program Management Account $5,000,000 for each fiscal year beginning with fiscal year 2010. Amounts appropriated under this paragraph for a fiscal year shall be available until expended.
          (2) Administration.—
             Chapter 35 of title 44, United States Code, shall not apply to the amendments made by subsection (a) and the provisions of subsection (b).

### Sec. 1157. Institute of Medicine Study of Geographic Adjustment Factors Under Medicare.

    (a) In General.—
       The Secretary of Health and Human Services shall enter into a contract with the Institute of Medicine of the National Academy of Science to conduct a comprehensive empirical study, and provide recommendations as appropriate, on the accuracy of the geographic adjustment factors established under sections 1848(e) and 1886(d)(3)(E) of the Social Security Act (42 U.S.C. 1395w–4(e), 11395ww(d)(3)).
    (b) Matters Included.—
       Such study shall include an evaluation and assessment of the following with respect to such adjustment factors:
          (1) Empirical validity of the adjustment factors.
          (2) Methodology used to determine the adjustment factors.
          (3) Measures used for the adjustment factors, taking into account—
                (A) timeliness of data and frequency of revisions to such data;
                (B) sources of data and the degree to which such data are representative of costs; and
                (C) operational costs of providers who participate in Medicare.
    (c) Evaluation.—
       Such study shall, within the context of the United States health care marketplace, evaluate and consider the following:
          (1) The effect of the adjustment factors on the level and distribution of the health care workforce and resources, including—
                (A) recruitment and retention that takes into account workforce mobility between urban and rural areas;
                (B) ability of hospitals and other facilities to maintain an adequate and skilled workforce; and
                (C) patient access to providers and needed medical technologies.
          (2) The effect of the adjustment factors on population health and quality of care.
          (3) The effect of the adjustment factors on the ability of providers to furnish efficient, high value care.
    (d) Report.—
       The contract under subsection (a) shall provide for the Institute of Medicine to submit, not later than one year after the date of the enactment of this Act, to the Secretary and the Congress a report containing results and recommendations of the study conducted under this section.
    (e) Funding.—
       There are authorized to be appropriated to carry out this section such sums as may be necessary.

### Sec. 1158. Revision of Medicare Payment Systems to Address Geographic Inequities.

    (a) In General.—
       The Secretary of Health and Human Services, taking into account the recommendations made in the report under section 1157(d), shall include in the proposed rules published to implement changes to payment systems for physicians and hospitals under sections 1848(e) and 1886(d)(3)(E), respectively, of the Social Security Act, proposals to revise geographic adjustment factors for such payment systems for services furnished under the Medicare program. Such proposed rules shall be published in the rulemaking period immediately following submission of the report under section 1157(d).
    (b) Payment Adjustments.—
          (1) Funding for Improvements.—
             In making any changes to the geographic adjustment factors in accordance with subsection (a), the Secretary shall use funds made available for such purposes under subsection (c).
          (2) Ensuring Fairness.—
             In carrying out this subsection, the Secretary shall not change payment rates to be less than they would have been had this section not been enacted.
    (c) Funding.—
       Amounts in the Medicare Improvement Fund under section 1898 of the Social Security Act (42 U.S.C. 1395iii), as amended by section 1146, shall be available to the Secretary to make changes to the geographic adjustments factors established under sections 1848(e) and 1886(d)(3)(E) of the Social Security Act. For such purpose, such funds shall be available for expenditure for services furnished before January 1, 2014, and shall not exceed the total amounts available under such Fund for such period. No more than one-half of such amounts shall be available for expenditure for services furnished in any one payment year.