# H.R. 3200/Division B/Title I/Subtitle B/Part 1
## PART 1 — PHYSICIANS' SERVICES
### Sec. 1121. Sustainable Growth Rate Reform.

    (a) Transitional Update for 2010.—
       Section 1848(d) of the Social Security Act (42 U.S.C. 1395w–4(d)) is amended by adding at the end the following new paragraph:
          ``(10) Update for 2010.—The update to the single conversion factor established in paragraph (1)(C) for 2010 shall be the percentage increase in the MEI (as defined in section 1842(i)(3)) for that year.´´.
    (b) Rebasing SGR using 2009; Limitation on Cumulative Adjustment Period.—
       Section 1848(d)(4) of such Act (42 U.S.C. 1395w–4(d)(4)) is amended—
          (1) in subparagraph (B), by striking ``subparagraph (D)´´ and inserting ``subparagraphs (D) and (G)´´; and
          (2) by adding at the end the following new subparagraph:
             ``(G) Rebasing using 2009 for future update adjustments.—In determining the update adjustment factor under subparagraph (B) for 2011 and subsequent years—
                ``(i) the allowed expenditures for 2009 shall be equal to the amount of the actual expenditures for physicians’ services during 2009; and
                ``(ii) the reference in subparagraph (B)(ii)(I) to ‘April 1, 1996’ shall be treated as a reference to ‘January 1, 2009 (or, if later, the first day of the fifth year before the year involved)’.´´.
    (c) Limitation on Physicians' Services Included in Target Growth Rate Computation to Services Covered Under Physician Fee Schedule.—
       Effective for services furnished on or after January 1, 2009, section 1848(f)(4)(A) of such Act is amended striking ``(such as clinical´´ and all that follows through ``in a physician’s office´´ and inserting ``for which payment under this part is made under the fee schedule under this section, for services for practitioners described in section 1842(b)(18)(C) on a basis related to such fee schedule, or for services described in section 1861(p) (other than such services when furnished in the facility of a provider of services)´´.
    (d) Establishment of Separate Target Growth Rates for Categories of Services.—
          (1) Establishment of Service Categories.—
             Subsection (j) of section 1848 of the Social Security Act (42 U.S.C. 1395w–4) is amended by adding at the end the following new paragraph:
                ``(5) Service categories.—For services furnished on or after January 1, 2009, each of the following categories of physicians’ services (as defined in paragraph (3)) shall be treated as a separate ‘service category’:
                   ``(A) Evaluation and management services that are procedure codes (for services covered under this title) for—
                      ``(i) services in the category designated Evaluation and Management in the Health Care Common Procedure Coding System (established by the Secretary under subsection (c)(5) as of December 31, 2009, and as subsequently modified by the Secretary); and
                      ``(ii) preventive services (as defined in section 1861(iii)) for which payment is made under this section.
                   ``(B) All other services not described in subparagraph (A).
                ``Service categories established under this paragraph shall apply without regard to the specialty of the physician furnishing the service.´´.
          (2) Establishment of Separate Conversion Factors for Each Service Category.—
             Subsection (d)(1) of section 1848 of the Social Security Act (42 U.S.C. 1395w–4) is amended—
                (A) in subparagraph (A)—
                      (i) by designating the sentence beginning ``The conversion factor´´ as clause (i) with the heading ``Application of single conversion factor.—´´ and with appropriate indentation;
                      (ii) by striking ``The conversion factor´´ and inserting ``Subject to clause (ii), the conversion factor´´; and
                      (iii) by adding at the end the following new clause:
                         ``(ii) Application of multiple conversion factors beginning with 2011.—
                            ``(I) In general.—In applying clause (i) for years beginning with 2011, separate conversion factors shall be established for each service category of physicians’ services (as defined in subsection (j)(5)) and any reference in this section to a conversion factor for such years shall be deemed to be a reference to the conversion factor for each of such categories.
                            ``(II) Initial conversion factors.—Such factors for 2011 shall be based upon the single conversion factor for the previous year multiplied by the update established under paragraph (11) for such category for 2011.
                            ``(III) Updating of conversion factors.—Such factor for a service category for a subsequent year shall be based upon the conversion factor for such category for the previous year and adjusted by the update established for such category under paragraph (11) for the year involved.´´; and
                (B) in subparagraph (D), by striking ``other physicians’ services´´ and inserting ``for physicians’ services described in the service category described in subsection (j)(5)(B)´´.
          (3) Establishing Updates for Conversion Factors for Service Categories.—
             Section 1848(d) of the Social Security Act (42 U.S.C. 1395w–4(d)), as amended by subsection (a), is amended—
                (A) in paragraph (4)(C)(iii), by striking ``The allowed´´ and inserting ``Subject to paragraph (11)(B), the allowed´´; and
                (B) by adding at the end the following new paragraph:
                   ``(11) Updates for service categories beginning with 2011.—
                      ``(A) In general.—In applying paragraph (4) for a year beginning with 2011, the following rules apply:
                         ``(i) Application of separate update adjustments for each service category.—Pursuant to paragraph (1)(A)(ii)(I), the update shall be made to the conversion factor for each service category (as defined in subsection (j)(5)) based upon an update adjustment factor for the respective category and year and the update adjustment factor shall be computed, for a year, separately for each service category.
                         ``(ii) Computation of allowed and actual expenditures based on service categories.—In computing the prior year adjustment component and the cumulative adjustment component under clauses (i) and (ii) of paragraph (4)(B), the following rules apply:
                               ``(I) Application based on service categories.—The allowed expenditures and actual expenditures shall be the allowed and actual expenditures for the service category, as determined under subparagraph (B).
                            ``(II) Application of category specific target growth rate.—The growth rate applied under clause (ii)(II) of such paragraph shall be the target growth rate for the service category involved under subsection (f)(5).
                      ``(B) Determination of allowed expenditures.—In applying paragraph (4) for a year beginning with 2010, notwithstanding subparagraph (C)(iii) of such paragraph, the allowed expenditures for a service category for a year is an amount computed by the Secretary as follows:
                         ``(i) For 2010.—For 2010:
                            ``(I) Total 2009 actual expenditures for all services included in SGR computation for each service category.—Compute total actual expenditures for physicians’ services (as defined in subsection (f)(4)(A)) for 2009 for each service category.
                            ``(II) Increase by growth rate to obtain 2010 allowed expenditures for service category.—Compute allowed expenditures for the service category for 2010 by increasing the allowed expenditures for the service category for 2009 computed under subclause (I) by the target growth rate for such service category under subsection (f) for 2010.
                         ``(ii) For subsequent years.—For a subsequent year, take the amount of allowed expenditures for such category for the preceding year (under clause (i) or this clause) and increase it by the target growth rate determined under subsection (f) for such category and year.´´.
          (4) Application of Separate Target Growth Rates for Each Category.—
                (A) In General.—
                   Section 1848(f) of the Social Security Act (42 U.S.C. 1395w–4(f)) is amended by adding at the end the following new paragraph:
                      ``(5) Application of separate target growth rates for each service category beginning with 2010.—The target growth rate for a year beginning with 2010 shall be computed and applied separately under this subsection for each service category (as defined in subsection (j)(5)) and shall be computed using the same method for computing the target growth rate except that the factor described in paragraph (2)(C) for—
                         ``(A) the service category described in subsection (j)(5)(A) shall be increased by 0.02; and
                         ``(B) the service category described in subsection (j)(5)(B) shall be increased by 0.01.´´.
                (B) Use of Target Growth Rates.—
                   Section 1848 of such Act is further amended—
                      (i) in subsection (d)—
                            (I) in paragraph (1)(E)(ii), by inserting ``or target´´ after ``sustainable´´; and
                            (II) in paragraph (4)(B)(ii)(II), by inserting ``or target´´ after ``sustainable´´; and
                      (ii) in the heading of subsection (f), by inserting ``and target growth rate´´ after ``sustainable growth rate´´;
                      (iii) in subsection (f)(1)—
                            (I) by striking ``and´´ at the end of subparagraph (A);
                            (II) in subparagraph (B), by inserting ``before 2010´´ after ``each succeeding year´´ and by striking the period at the end and inserting ``; and´´; and
                            (III) by adding at the end the following new subparagraph:
                               ``(C) November 1 of each succeeding year the target growth rate for such succeeding year and each of the 2 preceding years.´´; and
                      (iv) in subsection (f)(2), in the matter before subparagraph (A), by inserting after ``beginning with 2000´´ the following: ``and ending with 2009´´.
    (e) Application to Accountable Care Organization Pilot Program.—
       In applying the target growth rate under subsections (d) and (f) of section 1848 of the Social Security Act to services furnished by a practitioner to beneficiaries who are attributable to an accountable care organization under the pilot program provided under section 1866D of such Act, the Secretary of Health and Human Services shall develop, not later than January 1, 2012, for application beginning with 2012, a method that—
          (1) allows each such organization to have its own expenditure targets and updates for such practitioners, with respect to beneficiaries who are attributable to that organization, that are consistent with the methodologies described in such subsection (f); and
          (2) provides that the target growth rate applicable to other physicians shall not apply to such physicians to the extent that the physicians’ services are furnished through the accountable care organization.
       In applying paragraph (1), the Secretary of Health and Human Services may apply the difference in the update under such paragraph on a claim-by-claim or lump sum basis and such a payment shall be taken into account under the pilot program.

### Sec. 1122. Misvalued Codes Under the Physician Fee Schedule.

    (a) In General.—
       Section 1848(c)(2) of the Social Security Act (42 U.S.C. 1395w–4(c)(2)) is amended by adding at the end the following new subparagraphs:
          ``(K) Potentially misvalued codes.—
             ``(i) In general.—The Secretary shall—
                ``(I) periodically identify services as being potentially misvalued using criteria specified in clause (ii); and
                ``(II) review and make appropriate adjustments to the relative values established under this paragraph for services identified as being potentially misvalued under subclause (I).
             ``(ii) Identification of potentially misvalued codes.—For purposes of identifying potentially misvalued services pursuant to clause (i)(I), the Secretary shall examine (as the Secretary determines to be appropriate) codes (and families of codes as appropriate) for which there has been the fastest growth; codes (and families of codes as appropriate) that have experienced substantial changes in practice expenses; codes for new technologies or services within an appropriate period (such as three years) after the relative values are initially established for such codes; multiple codes that are frequently billed in conjunction with furnishing a single service; codes with low relative values, particularly those that are often billed multiple times for a single treatment; codes which have not been subject to review since the implementation of the RBRVS (the so-called ‘Harvard-valued codes’); and such other codes determined to be appropriate by the Secretary.
             ``(iii) Review and adjustments.—
                ``(I) The Secretary may use existing processes to receive recommendations on the review and appropriate adjustment of potentially misvalued services described clause (i)(II).
                ``(II) The Secretary may conduct surveys, other data collection activities, studies, or other analyses as the Secretary determines to be appropriate to facilitate the review and appropriate adjustment described in clause (i)(II).
                ``(III) The Secretary may use analytic contractors to identify and analyze services identified under clause (i)(I), conduct surveys or collect data, and make recommendations on the review and appropriate adjustment of services described in clause (i)(II).
                ``(IV) The Secretary may coordinate the review and appropriate adjustment described in clause (i)(II) with the periodic review described in subparagraph (B).
                ``(V) As part of the review and adjustment described in clause (i)(II), including with respect to codes with low relative values described in clause (ii), the Secretary may make appropriate coding revisions (including using existing processes for consideration of coding changes) which may include consolidation of individual services into bundled codes for payment under the fee schedule under subsection (b).
                ``(VI) The provisions of subparagraph (B)(ii)(II) shall apply to adjustments to relative value units made pursuant to this subparagraph in the same manner as such provisions apply to adjustments under subparagraph (B)(ii)(II).
          ``(L) Validating relative value units.—
             ``(i) In general.—The Secretary shall establish a process to validate relative value units under the fee schedule under subsection (b).
             ``(ii) Components and elements of work.—The process described in clause (i) may include validation of work elements (such as time, mental effort and professional judgment, technical skill and physical effort, and stress due to risk) involved with furnishing a service and may include validation of the pre, post, and intra-service components of work.
             ``(iii) Scope of codes.—The validation of work relative value units shall include a sampling of codes for services that is the same as the codes listed under subparagraph (K)(ii).
             ``(iv) Methods.—The Secretary may conduct the validation under this subparagraph using methods described in subclauses (I) through (V) of subparagraph (K)(iii) as the Secretary determines to be appropriate.
             ``(v) Adjustments.—The Secretary shall make appropriate adjustments to the work relative value units under the fee schedule under subsection (b). The provisions of subparagraph (B)(ii)(II) shall apply to adjustments to relative value units made pursuant to this subparagraph in the same manner as such provisions apply to adjustments under subparagraph (B)(ii)(II).´´.
    (b) Implementation.—
          (1) Funding.—
             For purposes of carrying out the provisions of subparagraphs (K) and (L) of 1848(c)(2) of the Social Security Act, as added by subsection (a), 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 $20,000,000 for fiscal year 2010 and each subsequent fiscal year. Amounts appropriated under this paragraph for a fiscal year shall be available until expended.
          (2) Administration.—
                (A) Chapter 35 of title 44, United States Code and the provisions of the Federal Advisory Committee Act (5 U.S.C. App.) shall not apply to this section or the amendment made by this section.
                (B) Notwithstanding any other provision of law, the Secretary may implement subparagraphs (K) and (L) of 1848(c)(2) of the Social Security Act, as added by subsection (a), by program instruction or otherwise.
                (C) Section 4505(d) of the Balanced Budget Act of 1997 is repealed.
                (D) Except for provisions related to confidentiality of information, the provisions of the Federal Acquisition Regulation shall not apply to this section or the amendment made by this section.
          (3) Focusing CMS resources on potentially overvalued codes.—Section 1868(a) of the Social Security Act (42 U.S.C. 1395ee(a)) is repealed.

### Sec. 1123. Payments for Efficient Areas.

    Section 1833 of the Social Security Act (42 U.S.C. 1395l) is amended by adding at the end the following new subsection:
       ``(x) Incentive Payments for Efficient areas.—
          ``(1) In general.—In the case of services furnished under the physician fee schedule under section 1848 on or after January 1, 2011, and before January 1, 2013, by a supplier that is paid under such fee schedule in an efficient area (as identified under paragraph (2)), in addition to the amount of payment that would otherwise be made for such services under this part, there also shall be paid (on a monthly or quarterly basis) an amount equal to 5 percent of the payment amount for the services under this part.
          ``(2) Identification of efficient areas.—
             ``(A) In general.—Based upon available data, the Secretary shall identify those counties or equivalent areas in the United States in the lowest fifth percentile of utilization based on per capita spending under this part and part A for services provided in the most recent year for which data are available as of the date of the enactment of this subsection, as standardized to eliminate the effect of geographic adjustments in payment rates.
             ``(B) Identification of counties where service is furnished.—For purposes of paying the additional amount specified in paragraph (1), if the Secretary uses the 5-digit postal ZIP Code where the service is furnished, the dominant county of the postal ZIP Code (as determined by the United States Postal Service, or otherwise) shall be used to determine whether the postal ZIP Code is in a county described in subparagraph (A).
             ``(C) Limitation on review.—There shall be no administrative or judicial review under section 1869, 1878, or otherwise, respecting—
                ``(i) the identification of a county or other area under subparagraph (A); or
                ``(ii) the assignment of a postal ZIP Code to a county or other area under subparagraph (B).
             ``(D) Publication of list of counties; posting on website.—With respect to a year for which a county or area is identified under this paragraph, the Secretary shall identify such counties or areas as part of the proposed and final rule to implement the physician fee schedule under section 1848 for the applicable year. The Secretary shall post the list of counties identified under this paragraph on the Internet website of the Centers for Medicare & Medicaid Services.´´.

### Sec. 1124. Modifications to the Physician Quality Reporting Initiative (PQRI).

    (a) Feedback.—
       Section 1848(m)(5) of the Social Security Act (42 U.S.C. 1395w–4(m)(5)) is amended by adding at the end the following new subparagraph:
          ``(H) Feedback.—The Secretary shall provide timely feedback to eligible professionals on the performance of the eligible professional with respect to satisfactorily submitting data on quality measures under this subsection.´´.
    (b) Appeals.—
       Such section is further amended—
          (1) in subparagraph (E), by striking ``There shall be´´ and inserting ``Subject to subparagraph (I), there shall be´´; and
          (2) by adding at the end the following new subparagraph:
             ``(I) Informal appeals process.—Notwithstanding subparagraph (E), by not later than January 1, 2011, the Secretary shall establish and have in place an informal process for eligible professionals to appeal the determination that an eligible professional did not satisfactorily submit data on quality measures under this subsection.´´.
    (c) Integration of Physician Quality Reporting and EHR Reporting.—
       Section 1848(m) of such Act is amended by adding at the end the following new paragraph:
          ``(7) Integration of physician quality reporting and EHR reporting.—Not later than January 1, 2012, the Secretary shall develop a plan to integrate clinical reporting on quality measures under this subsection with reporting requirements under subsection (o) relating to the meaningful use of electronic health records. Such integration shall consist of the following:
             ``(A) The development of measures, the reporting of which would both demonstrate—
                ``(i) meaningful use of an electronic health record for purposes of subsection (o); and
                ``(ii) clinical quality of care furnished to an individual.
             ``(B) The collection of health data to identify deficiencies in the quality and coordination of care for individuals eligible for benefits under this part.
             ``(C) Such other activities as specified by the Secretary.´´.
    (d) Extension of Incentive Payments.—
       Section 1848(m)(1) of such Act (42 U.S.C. 1395w–4(m)(1)) is amended—
          (1) in subparagraph (A), by striking ``2010´´ and inserting ``2012´´; and
          (2) in subparagraph (B)(ii), by striking ``2009 and 2010´´ and inserting ``for each of the years 2009 through 2012´´.

### Sec. 1125. Adjustment to Medicare Payment Localities.

    (a) In General.—
       Section 1848(e) of the Social Security Act (42 U.S.C.1395w–4(e)) is amended by adding at the end the following new paragraph:
          ``(6) Transition to use of MSAs as fee schedule areas in California.—
             ``(A) In general.—
                ``(i) Revision.—Subject to clause (ii) and notwithstanding the previous provisions of this subsection, for services furnished on or after January 1, 2011, the Secretary shall revise the fee schedule areas used for payment under this section applicable to the State of California using the Metropolitan Statistical Area (MSA) iterative Geographic Adjustment Factor methodology as follows:
                   ``(I) The Secretary shall configure the physician fee schedule areas using the Core-Based Statistical Areas-Metropolitan Statistical Areas (each in this paragraph referred to as an ‘MSA’), as defined by the Director of the Office of Management and Budget, as the basis for the fee schedule areas. The Secretary shall employ an iterative process to transition fee schedule areas. First, the Secretary shall list all MSAs within the State by Geographic Adjustment Factor described in paragraph (2) (in this paragraph referred to as a ‘GAF’) in descending order. In the first iteration, the Secretary shall compare the GAF of the highest cost MSA in the State to the weighted-average GAF of the group of remaining MSAs in the State. If the ratio of the GAF of the highest cost MSA to the weighted-average GAF of the rest of State is 1.05 or greater then the highest cost MSA becomes a separate fee schedule area.
                   ``(II) In the next iteration, the Secretary shall compare the MSA of the second-highest GAF to the weighted-average GAF of the group of remaining MSAs. If the ratio of the second-highest MSA’s GAF to the weighted-average of the remaining lower cost MSAs is 1.05 or greater, the second-highest MSA becomes a separate fee schedule area. The iterative process continues until the ratio of the GAF of the highest-cost remaining MSA to the weighted-average of the remaining lower-cost MSAs is less than 1.05, and the remaining group of lower cost MSAs form a single fee schedule area, If two MSAs have identical GAFs, they shall be combined in the iterative comparison.
                ``(ii) Transition.—For services furnished on or after January 1, 2011, and before January 1, 2016, in the State of California, after calculating the work, practice expense, and malpractice geographic indices described in clauses (i), (ii), and (iii) of paragraph (1)(A) that would otherwise apply through application of this paragraph, the Secretary shall increase any such index to the county-based fee schedule area value on December 31, 2009, if such index would otherwise be less than the value on January 1, 2010.
             ``(B) Subsequent revisions.—
                ``(i) Periodic review and adjustments in fee schedule areas.—Subsequent to the process outlined in paragraph (1)(C), not less often than every three years, the Secretary shall review and update the California Rest-of-State fee schedule area using MSAs as defined by the Director of the Office of Management and Budget and the iterative methodology described in subparagraph (A)(i).
                ``(ii) Link with geographic index data revision.—The revision described in clause (i) shall be made effective concurrently with the application of the periodic review of the adjustment factors required under paragraph (1)(C) for California for 2012 and subsequent periods. Upon request, the Secretary shall make available to the public any county-level or MSA derived data used to calculate the geographic practice cost index.
             ``(C) References to fee schedule areas.—Effective for services furnished on or after January 1, 2010, for the State of California, any reference in this section to a fee schedule area shall be deemed a reference to an MSA in the State.´´.
    (b) Conforming Amendment to Definition of Fee Schedule Area.—
       Section 1848(j)(2) of the Social Security Act (42 U.S.C. 1395w(j)(2)) is amended by striking ``The term´´ and inserting ``Except as provided in subsection (e)(6)(C), the term´´.