49–006 

114TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 1st Session 114–156 

LTCH TECHNICAL CORRECTION ACT OF 2015 

JUNE 16, 2015.—Committed to the Committee of the Whole House on the State of 

the Union and ordered to be printed 

Mr. RYAN of Wisconsin, from the Committee on Ways and Means, 

submitted the following 

R E P O R T 

[To accompany H.R. 2580] 

[Including cost estimate of the Congressional Budget Office] 

The Committee on Ways and Means, to whom was referred the 

bill (H.R. 2580) to provide for a technical change to the Medicare 

long-term care hospital moratorium exception, and for other purposes, having considered the same, report favorably thereon with 

an amendment and recommend that the bill as amended do pass. 

CONTENTS 

Page 

I. SUMMARY AND BACKGROUND ................................................................. 2 

A. PURPOSE AND SUMMARY ............................................................... 2 

B. BACKGROUND AND NEED FOR LEGISLATION .......................... 2 

C. LEGISLATIVE HISTORY .................................................................... 3 

II. EXPLANATION OF THE BILL ...................................................................... 3 

III. VOTES OF THE COMMITTEE ...................................................................... 4 

IV. BUDGET EFFECTS OF THE BILL ............................................................... 4 

A. Committee Estimates of Budgetary Effects ....................................... 4 

B. Statement Regarding New Budget Authority and Tax Expenditures Budget Authority ...................................................................... 5 

C. Cost Estimate Prepared by the Congressional Budget Office ........... 5 

V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE 

HOUSE .......................................................................................................... 7 

A. Committee Oversight Findings and Recommendations .................... 7 

B. Statement of General Performance Goals and Objectives ................ 7 

C. Information Relating to Unfunded Mandates .................................... 7 

D. Congressional Earmarks, Limited Tax Benefits, and Limited Tariff 

Benefits ............................................................................................... 7 

E. Duplication of Federal Programs ........................................................ 8 

F. Disclosure of Directed Rule Makings .................................................. 8 

VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED 8 

A. Text of Existing Law Amended or Repealed by the Bill, as Reported .................................................................................................. 8 

B. Changes in Existing Law Proposed by the Bill, as Reported ........... 124 


emcdonald on DSK67QTVN1PROD with HEARING
2 

The amendment is as follows: 

Strike all after the enacting clause and insert the following: 

SECTION 1. SHORT TITLE. 

This Act may be cited as the ‘‘LTCH Technical Correction Act of 2015’’. 

SEC. 2. TECHNICAL CHANGE TO THE MEDICARE LONG-TERM CARE HOSPITAL MORATORIUM 

EXCEPTION. 

(a) IN GENERAL.—Section 114(d) of the Medicare, Medicaid, and SCHIP Extension 

Act of 2007 (42 U.S.C. 1395ww note), as amended by sections 3106(b) and 10312(b) 

of Public Law 111–148, section 1206(b)(2) of the Pathway for SGR Reform Act of 

2013 (division B of Public Law 113–67), and section 112 of the Protecting Access 

to Medicare Act of 2014, is amended, in paragraph (7), by striking ‘‘The moratorium 

under paragraph (1)(A)’’ and inserting ‘‘Any moratorium under paragraph (1)’’ in the 

matter preceding subparagraph (A). 

(b) EFFECTIVE DATE.—The amendment made by subsection (a) shall take effect as 

if included in the enactment of section 112 of the Protecting Access to Medicare Act 

of 2014. 

SEC. 3. MODIFICATION TO MEDICARE LONG-TERM CARE HOSPITAL HIGH COST OUTLIER PAYMENTS. 

Section 1886(m) of the Social Security Act (42 U.S.C. 1395ww(m)) is amended by 

adding at the end the following new paragraph: 

‘‘(7) TREATMENT OF HIGH COST OUTLIER PAYMENTS.— 

‘‘(A) ADJUSTMENT TO THE STANDARD FEDERAL PAYMENT RATE FOR ESTIMATED HIGH COST OUTLIER PAYMENTS.—Under the system described in 

paragraph (1), for fiscal years beginning on or after October 1, 2016, the 

Secretary shall reduce the standard Federal payment rate as if the estimated aggregate amount of high cost outlier payments for standard Federal 

payment rate discharges for each such fiscal year would be equal to 8 percent of estimated aggregate payments for standard Federal payment rate 

discharges for each such fiscal year. 

‘‘(B) LIMITATION ON HIGH COST OUTLIER PAYMENT AMOUNTS.—Notwithstanding subparagraph (A), the Secretary shall set the fixed loss amount 

for high cost outlier payments such that the estimated aggregate amount 

of high cost outlier payments made for standard Federal payment rate discharges for fiscal years beginning on or after October 1, 2016, shall be equal 

to 99.0625 percent of 8 percent of estimated aggregate payments for standard Federal payment rate discharges for each such fiscal year. 

‘‘(C) WAIVER OF BUDGET NEUTRALITY.—Any reduction in payments resulting from the application of subparagraph (B) shall not be taken into account in applying any budget neutrality provision under such system. 

‘‘(D) NO EFFECT ON SITE NEUTRAL HIGH COST OUTLIER PAYMENT RATE.— 

This paragraph shall not apply with respect to the computation of the applicable site neutral payment rate under paragraph (6), except for the standard Federal payment rate portion of blended payment rates determined 

under subparagraph (B)(iii)(II) of such paragraph.’’. 

I. SUMMARY AND BACKGROUND 

A. PURPOSE AND SUMMARY

The bill, H.R. 2580, as ordered reported by the Committee on 

Ways and Means on June 2, 2015, would provide for a technical fix 

that would allow qualifying long-term care hospitals (LTCH) to expand beds during the current law moratorium. The bill would also 

off-set the cost of the bed expansion by reducing the size of the current law LTCH outlier pool and adjusting the current law fixed loss 

amount for discharges that qualify for outlier payments. 

B. BACKGROUND AND NEED FOR LEGISLATION

On May 29, 2015, Rep. Charles Boustany (R–LA) introduced H.R. 

2580, a bill to provide for a technical fix that would allow qualifying LTCHs to expand beds during the current law moratorium. 

The Committee on Ways and Means received the sole referral for 


emcdonald on DSK67QTVN1PROD with HEARING
3 

the bill because the bill includes Medicare provisions that fall within the jurisdiction of the Committee, including relevant provisions 

of the Social Security Act (SSA). 

The Committee has a concern with the current law LTCH moratorium; including the lack of an exception process for those LTCHs 

who were mid-build when the original LTCH moratorium was 

signed into law. 

C. LEGISLATIVE HISTORY

Background 

H.R. 2580 was introduced on May 29, 2015, and was referred to 

the Committee on Ways and Means. 

Committee hearings 

On May 19, 2015, the Subcommittee on Health of the House 

Committee on Ways and Means held a hearing to specifically examine competition in the Medicare program, including the use of moratoria. Further, on June 14, 2013, the Subcommittee on Health of 

the House Committee on Ways and Means held a hearing to specifically examine the status of post-acute care in the Medicare program. 

Committee action 

The Committee on Ways and Means marked up H.R. 2580 on 

June 2, 2015, and ordered the bill favorably reported. 

II. EXPLANATION OF THE BILL 

LTCH TECHNICAL CORRECTION ACT OF 2015 

PRESENT LAW

The current law LTCH moratorium was created by section 1206 

Bipartisan Budget Act (BBA) of 2013 (P.L. 113–67). Beginning January 1, 2015 through September 30, 2017, section 1206 established 

the LTCH moratorium. Specifically, section 1206 modified section 

114(d) of the Medicare, Medicaid and SCHIP Extension Act of 2007 

(P.L. 110–173), as amended by sections 3106(b) and 10312(b) of the 

Affordable Care Act (P.L. 111–148). 

Three months after the Bipartisan Budget Act (BBA) of 2013 

(P.L. 113–67) was signed into law, Congress further modified the 

LTCH moratorium with section 112 of the Protecting Access to 

Medicare Act (PAMA) Act of 2014 (P.L. 113–93). Beginning April 

1, 2014, section 112 allowed for an exception process to the new 

building moratorium for those LTCHs that met the following criteria, prior to April 1, 2014: (1) has entered the Centers for Medicare & Medicaid Services (CMS) defined qualifying period to receive a Medicare provider number; (2) has a binding agreement 

with a party for construction and has expended a minimum of $2.5 

million; or (3) has obtained an approved certificate of need in a 

state where one is required. 

Using its broad authority under the Social Security Act (SSA), 

CMS has established an annual ‘‘pool’’ of payments that is set aside 

to reimburse LTCH outlier cases. The standard Federal LTCH payment rate is reduced on an annual basis to fund the LTCH outlier 


emcdonald on DSK67QTVN1PROD with HEARING
4 

pool. Historically, CMS has set the annual LTCH outlier pool at 8 

percent. In order for an LTCH discharge to qualify for an outlier 

payment, the discharge has to meet the CMS derived’’ ‘‘fixed loss 

amount’’ for high cost outlier payments. For fiscal year 2015, CMS 

proposed a fixed loss amount of $14,972 for LTCHs (compared to 

a fixed loss amount of $25,799 for general acute hospitals). If the 

LTCH discharge cost exceeds the fixed loss amount in a given fiscal 

year, rather than receive the LTCH diagnosis related group (DRG) 

pre-fixed amount, the LTCH is reimbursed 80 percent of cost above 

the fixed loss amount for the discharge. When CMS sets the outlier 

pool percentage each year, the percentage interacts with the fixed 

loss amount. 

REASONS FOR CHANGE

The Committee intended for the change made with section 112 

of the Protecting Access to Medicare Act (PAMA) Act of 2014 (P.L. 

113–93) to provide for an exception process that applied to both 

new building and expansion of beds. Due to a legislative drafting 

error, the exception process was not included for expansion of beds. 

Therefore, H.R. 2580 calls for a technical fix to the current law 

LTCH moratorium exception process. 

EXPLANATION OF PROVISIONS

H.R. 2580, as amended, would allow for an exception process for 

the current law LTCH bed expansion moratorium and would off-set 

the cost of the bed expansion by reducing the size of the current 

law LTCH outlier pool from 8 percent to 7.925 percent and adjusting the current law fixed loss amount for LTCH discharges that 

qualify for outlier payments. 

EFFECTIVE DATE

H.R. 2580 would become effective on the date of its enactment. 

III. VOTES OF THE COMMITTEE 

In compliance with clause 3(b) of rule XIII of the Rules of the 

House of Representatives, the following statements are made concerning the votes of the Committee on Ways and Means in its consideration of the bill, H.R. 2580, the LTCH Technical Correction 

Act of 2015, on June 2, 2015. 

H.R. 2580 was ordered favorably reported by a unanimous voice 

vote (with a quorum being present). 

IV. BUDGET EFFECTS OF THE BILL 

A. COMMITTEE ESTIMATES OF BUDGETARY EFFECTS

In compliance with clause 3(d) of rule XIII of the Rules of the 

House of Representatives, the following statement is made concerning the effects on the budget of the revenue provisions of the 

bill, H.R. 2580, as reported: the Committee agrees with the estimate prepared by the Congressional Budget Office (CBO), which is 

included below as Insert A. 


emcdonald on DSK67QTVN1PROD with HEARING
5 

B. STATEMENT REGARDING NEW BUDGET AUTHORITY AND TAX

EXPENDITURES BUDGET AUTHORITY

In compliance with clause 3(c)(2) of rule XIII of the Rules of the 

House of Representatives, the Committee states H.R. 2580, as reported, would not increase direct spending over the 2016–2025 period. 

C. COST ESTIMATE PREPARED BY THE CONGRESSIONAL BUDGET

OFFICE

In compliance with clause 3(c)(3) of rule XIII of the Rules of the 

House of Representatives, requiring a cost estimate prepared by 

the Congressional Budget Office (CBO), the following statement by 

CBO is provided. 

U.S. CONGRESS, 

CONGRESSIONAL BUDGET OFFICE, 

Washington, DC, June 15, 2015. 

Hon. PAUL RYAN, Chairman, Committee on Ways and Means, 

House of Representatives, Washington, DC. 

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 2580, the LTCH Technical Correction Act of 2015. 

If you wish further details on this estimate, we will be pleased 

to provide them. The CBO staff contact is Kevin McNellis. 

Sincerely, 

KEITH HALL, 

Director. 

Enclosure. 

H.R. 2580—LTCH Technical Correction Act of 2015 

Summary: H.R. 2580 would lift a moratorium in current law that 

prohibits existing long-term care hospitals (LTCHs) from increasing 

the number of beds in their facilities. The bill would also reduce 

the total amount of payments made to LTCHs by modifying the 

current payment system for patients with very high costs. 

Over the 2016–2025 period, CBO estimates that lifting the moratorium would increase Medicare spending by $47 million and that 

modifying the payment system for high-cost outliers in LTCHs 

would reduce Medicare spending by $48 million; the net reduction 

in direct spending would total $1 million. 

H.R. 2580 contains no intergovernmental or private-sector mandates as defined in the Unfunded Mandates Reform Act (UMRA) 

and would not affect the budgets of state, local, or tribal governments. 

Estimated cost to the Federal Government: The estimated budgetary effect of H.R. 2580 is shown in the following table. The costs 

of this legislation fall within budget function 570 (Medicare). 


emcdonald on DSK67QTVN1PROD with HEARING
6 

1See, for example, Medicare Payment Advisory Commission, March 2014 Report to the Congress: Medicare Payment Policy, Chapter 11: Long-Term Care Hositals, (March 2014), http:// 

medpac.gov/documents/reports/mar14lch11.pdf?sfvrsn=0. 

By fiscal year, in millions of dollars— 

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2016– 

2020 

2016– 

2025 

CHANGES IN DIRECT SPENDING (OUTLAYS a) 

Technical Change to Medicare Long-Term Care Hospital Moratorium Exception 6 27 12 2 0 0 0 0 0 0 47 47 

Modification to Medicare 

Long-Term Care Hospital 

Outlier Payments ............... 0 ¥4 ¥4 ¥5 ¥5 ¥5 ¥6 ¥6 ¥6 ¥7 ¥18 ¥48 

NET INCREASE OR DECREASE (¥) IN THE DEFICIT FROM CHANGES IN DIRECT SPENDING 

Impact on Deficit ................... 6 23 8 ¥3 ¥5 ¥5 ¥6 ¥6 ¥6 ¥7 29 ¥1 

a Budget authority equals outlays. 

Basis of estimate: Under current law, existing LTCHs are prohibited from increasing the number of beds in their facilities until October 1, 2017. H.R. 2580 would lift that moratorium. The bill would 

also reduce payments to LTCHs for patients for whom the hospital 

incurs extremely high costs. Assuming enactment near the beginning of fiscal year 2016, CBO estimates that enacting H.R. 2580 

would reduce net direct spending for Medicare by $1 million over 

the 2016–2025 period. 

CBO estimates that lifting the moratorium on expansion would 

enable some LTCHs to admit more patients who, under current 

law, will be treated in other acute and post-acute settings. Analyses by the Medicare Payment Advisory Commission (MedPAC) 

have found that Medicare’s payment rates for services furnished in 

an LTCH are higher than its payment rates for substitute services 

furnished by short-stay hospitals, skilled nursing facilities, or home 

health agencies.1 CBO estimates that paying the higher LTCH 

rates for some services would increase Medicare spending by $47 

million over the 2016–2025 period. 

H.R. 2580 would also modify how payment rates for patients 

with very high costs are determined. Under current law, CMS has 

the authority to make a payment adjustment for LTCH cases that 

are high-cost outliers. That adjustment is designed to be budget 

neutral: Payment rates for all LTCH cases are reduced by a specified percentage, and the Secretary adjusts the criteria for identifying outlier cases so that the full amount of that payment reduction is expected to be distributed to LTCHs in the form of outlier 

payments. For fiscal year 2015, the Secretary reduced the payment 

rates for all LTCH cases by 8 percent and established outlier criteria that she estimated would distribute the full 8 percent to 

LTCHs for outlier cases. 

The bill would require the Secretary to reduce the payment rate 

for all LTCH cases by 8 percent, but would require the Secretary 

to set outlier criteria that she expects would result in no more than 

7.925 percentage points of that reduction being paid for high-cost 

cases. CBO estimates that provision would reduce Medicare spending by $48 million over the 2016–2025 period. 

Pay-As-You-Go considerations: The Statutory Pay-As-You-Go Act 

of 2010 establishes budget-reporting and enforcement procedures 

for legislation affecting direct spending or revenues. The net 


emcdonald on DSK67QTVN1PROD with HEARING
7 

changes in direct spending that are subject to those pay-as-you-go 

procedures are shown in the following table. 

CBO ESTIMATE OF PAY-AS-YOU-GO EFFECTS FOR H.R. 2580, AS ORDERED REPORTED BY THE 

HOUSE COMMITTEE ON WAYS AND MEANS ON JUNE 2, 2015 

By fiscal year, in millions of dollars— 

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2016– 

2020 

2016– 

2025 

NET INCREASE OR DECREASE (¥) IN THE DEFICIT 

Statutory Pay-As-YouGo Impact ............. 0 6 23 8 ¥3 ¥5 ¥5 ¥6 ¥6 ¥6 ¥7 29 ¥1 

Intergovernmental and private-sector impact: H.R. 2580 contains 

no intergovernmental or private-sector mandates as defined in 

UMRA and would not affect the budgets of state, local, or tribal 

governments. 

Estimate prepared by: Federal costs: Kevin McNellis; Impact on 

state, local, and tribal governments: J’nell Blanco Suchy; Impact on 

the private sector: Amy Petz. 

Estimate approved by: Holly Harvey, Deputy Assistant Director 

for Budget Analysis. 

V. OTHER MATTERS TO BE DISCUSSED UNDER THE 

RULES OF THE HOUSE 

A. COMMITTEE OVERSIGHT FINDINGS AND RECOMMENDATIONS

With respect to clause 3(c)(1) of rule XIII of the Rules of the 

House of Representatives (relating to oversight findings), the Committee concluded that it was appropriate and timely to enact the 

sections included in the bill, as reported. 

B. STATEMENT OF GENERAL PERFORMANCE GOALS AND OBJECTIVES

With respect to clause 3(c)(4) of rule XIII of the Rules of the 

House of Representatives, the Committee states that the primary 

purpose of H.R. 2580, as reported, is to protect Medicare beneficiaries and strengthen the Medicare program. 

C. INFORMATION RELATING TO UNFUNDED MANDATES

This information is provided in accordance with section 423 of 

the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104–4). 

The Committee has determined that the bill does not contain 

Federal mandates on the private sector. The Committee has determined that the bill does not impose a Federal intergovernmental 

mandate on State, local, or tribal governments. 

D. CONGRESSIONAL EARMARKS, LIMITED TAX BENEFITS, AND

LIMITED TARIFF BENEFITS

With respect to clause 9 of rule XXI of the Rules of the House 

of Representatives, the Committee has carefully reviewed the provisions of the bill, and states that the provisions of the bill do not 

contain any congressional earmarks, limited tax benefits, or limited 

tariff benefits within the meaning of the rule. 


emcdonald on DSK67QTVN1PROD with HEARING
8 

E. DUPLICATION OF FEDERAL PROGRAMS

In compliance with Sec. 3(g)(2) of H. Res. 5 (114th Congress), the 

Committee states that no provision of the bill establishes or reauthorizes: (1) a program of the Federal Government known to be duplicative of another Federal program; (2) a program included in any 

report from the Government Accountability Office to Congress pursuant to section 21 of Public Law 111–139; or (3) a program related 

to a program identified in the most recent Catalog of Federal Domestic Assistance, published pursuant to the Federal Program Information Act (Pub. L. No. 95–220, as amended by Pub. L. No. 98– 

169). 

F. DISCLOSURE OF DIRECTED RULE MAKINGS

In compliance with Sec. 3(i) of H. Res. 5 (114th Congress), the 

following statement is made concerning directed rule makings: The 

Committee estimates that the bill requires no directed rule makings within the meaning of such section. 

VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS 

REPORTED 

A. TEXT OF EXISTING LAW AMENDED OR REPEALED BY THE BILL, AS

REPORTED

In compliance with clause 3(e)(1)(A) of rule XIII of the Rules of 

the House of Representatives, the text of each section proposed to 

be amended or repealed by the bill, as reported, is shown below: 

MEDICARE, MEDICAID, AND SCHIP EXTENSION ACT OF 

2007 

* * * * * * * 

TITLE I—MEDICARE 

* * * * * * * 

SEC. 114. LONG-TERM CARE HOSPITALS. 

(a) [Omitted Amendatory] 

(b) STUDY AND REPORT ON LONG-TERM CARE HOSPITAL FACILITY

AND PATIENT CRITERIA.— 

(1) IN GENERAL.—The Secretary of Health and Human Services (in this section referred to as the ‘‘Secretary’’) shall conduct a study on the establishment of national long-term care 

hospital facility and patient criteria for purposes of determining medical necessity, appropriateness of admission, and 

continued stay at, and discharge from, long-term care hospitals. 

(2) REPORT.—Not later than 18 months after the date of the 

enactment of this Act, the Secretary shall submit to Congress 

a report on the study conducted under paragraph (1), together 

with recommendations for such legislation and administrative 

actions, including timelines for implementation of patient criteria or other actions, as the Secretary determines appropriate. 


emcdonald on DSK67QTVN1PROD with HEARING
9 

(3) CONSIDERATIONS.—In conducting the study and preparing 

the report under this subsection, the Secretary shall consider— 

(A) recommendations contained in a report to Congress 

by the Medicare Payment Advisory Commission in June 

2004 for long-term care hospital-specific facility and patient criteria to ensure that patients admitted to long-term 

care hospitals are medically complex and appropriate to 

receive long-term care hospital services; and 

(B) ongoing work by the Secretary to evaluate and determine the feasibility of such recommendations. 

(c) PAYMENT FOR LONG-TERM CARE HOSPITAL SERVICES.— (1) DELAY IN APPLICATION OF 25 PERCENT PATIENT THRESHOLD

PAYMENT ADJUSTMENT.—The Secretary shall not apply, for cost 

reporting periods beginning on or after July 1, 2007,— 

(A) for a 9-year period, section 412.536 of title 42, Code 

of Federal Regulations, or any similar provision, to freestanding long-term care hospitals or to a long-termcare 

hospital, or satellite facility, that as of December29, 2007, 

was co-located with an entity that is a provider-based, offcampus location of a subsection (d) hospital whichdid not 

provide services payable under section 1886(d) ofthe Social 

Security Act at the off-campus location; and 

(B) such section or section 412.534 of title 42, Code of 

Federal Regulations, or any similar provisions, to a longterm care hospital identified by the amendment made by 

section 4417(a) of the Balanced Budget Act of 1997 (Public 

Law 105–33). 

(2) PAYMENT FOR HOSPITALS-WITHIN-HOSPITALS.— (A) IN GENERAL.—Payment to an applicable long-term 

care hospital or satellite facility which is located in a rural 

area or which is co-located with an urban single or MSA 

dominant hospital under paragraphs (d)(1), (e)(1), and 

(e)(4) of section 412.534 of title 42, Code of Federal Regulations, shall not be subject to any payment adjustment 

under such section if no more than 75 percent of the hospital’s Medicare discharges (other than discharges described in paragraph (d)(2) or (e)(3) of such section) are admitted from a co-located hospital. 

(B) CO-LOCATED LONG-TERM CARE HOSPITALS AND SAT- ELLITE FACILITIES.— 

(i) IN GENERAL.—Payment to an applicable longterm care hospital or satellite facility which is co-located with another hospital shall not be subject to any 

payment adjustment under section 412.534 of title 42, 

Code of Federal Regulations, if no more than 50 percent of the hospital’s Medicare discharges (other than 

discharges described in paragraph (c)(3) of such section) are admitted from a co-located hospital. 

(ii) APPLICABLE LONG-TERM CARE HOSPITAL OR SAT- ELLITE FACILITY DEFINED.—In this paragraph, the 

term ‘‘applicable long-term care hospital or satellite facility’’ means a hospital or satellite facility that is subject to the transition rules under section 412.534(g) of 

title 42, Code of Federal Regulations or that is described in section 412.22(h)(3)(i) of such title. 


emcdonald on DSK67QTVN1PROD with HEARING
10 

(C) EFFECTIVE DATE.—Subparagraphs (A) and (B) shall 

apply to cost reporting periods beginning on or after October 1, 2007 (or July 1, 2007, in the case of a satellite facility described in section 412.22(h)(3)(i) of title 42, Code of 

Federal Regulations) for a 9-year period. 

(3) NO APPLICATION OF VERY SHORT-STAY OUTLIER POLICY.— The Secretary shall not apply, for the 5-year period beginning 

on the date of the enactment of this Act, the amendments finalized on May 11, 2007 (72 Federal Register 26904, 26992) 

made to the short-stay outlier payment provision for long-term 

care hospitals contained in section 412.529(c)(3)(i) of title 42, 

Code of Federal Regulations, or any similar provision. 

(4) NO APPLICATION OF ONE-TIME ADJUSTMENT TO STANDARD

AMOUNT.—The Secretary shall not, for the 5-year period beginning on the date of the enactment of this Act, make the onetime prospective adjustment to long-term care hospital prospective payment rates provided for in section 412.523(d)(3) of 

title 42, Code of Federal Regulations, or any similar provision. 

(d) MORATORIUM ON THE ESTABLISHMENT OF LONG-TERM CARE

HOSPITALS, LONG-TERM CARE SATELLITE FACILITIES AND ON THE

INCREASE OF LONG-TERM CARE HOSPITAL BEDS IN EXISTING LONG- TERM CARE HOSPITALS OR SATELLITE FACILITIES.— (1) IN GENERAL.—During the 5-year period (and for the period beginning on the date of the enactment of paragraph (7) 

of this subsection and ending September 30, 2017) beginning 

on the date of the enactment of this Act, the Secretary shall 

impose a moratorium for purposes of the Medicare program 

under title XVIII of the Social Security Act— 

(A) subject to paragraph (2), on the establishment and 

classification of a long-term care hospital or satellite facility, other than an existing long-term care hospital or facility; and 

(B) subject to paragraph (3), on an increase of long-term 

care hospital beds in existing long-term care hospitals or 

satellite facilities. 

(2) EXCEPTION FOR CERTAIN LONG-TERM CARE HOSPITALS.— The moratorium under paragraph (1)(A) shall not apply to a 

long-term care hospital that as of the date of the enactment of 

this Act— 

(A) began its qualifying period for payment as a longterm care hospital under section 412.23(e) of title 42, Code 

of Federal Regulations, on or before the date of the enactment of this Act; 

(B) has a binding written agreement with an outside, 

unrelated party for the actual construction, renovation, 

lease, or demolition for a long-term care hospital, and has 

expended, before the date of the enactment of this Act, at 

least 10 percent of the estimated cost of the project (or, if 

less, $2,500,000); or 

(C) has obtained an approved certificate of need in a 

State where one is required on or before the date of the enactment of this Act. 

(3) EXCEPTION FOR BED INCREASES DURING MORATORIUM.— 

(A) IN GENERAL.—Subject to subparagraph (B), the moratorium under paragraph (1)(B) shall not apply to an inVerDate Sep 11 2014 02:06 Jun 18, 2015 Jkt 049006 PO 00000 Frm 00010 Fmt 6659 Sfmt 6602 E:\HR\OC\HR156.XXX HR156

emcdonald on DSK67QTVN1PROD with HEARING
11 

crease in beds in an existing hospital or satellite facility if 

the hospital or facility obtained a certificate of need for an 

increase in beds that is in a State for which such certificate of need is required and that was issued on or after 

April 1, 2005, and before December 29, 2007, or if the hospital or facility— 

(i) is located in a State where there is only one other 

long-term care hospital; and 

(ii) requests an increase in beds following the closure or the decrease in the number of beds of another 

long-term care hospital in the State. 

(B) NO EFFECT ON CERTAIN LIMITATION.—The exception 

under subparagraph (A) shall not effect the limitation on 

increasing beds under sections 412.22(h)(3) and 412.22(f) 

of title 42, Code of Federal Regulations. 

(4) EXISTING HOSPITAL OR SATELLITE FACILITY DEFINED.—For 

purposes of this subsection, the term ‘‘existing’’ means, with respect to a hospital or satellite facility, a hospital or satellite facility that received payment under the provisions of subpart O 

of part 412 of title 42, Code of Federal Regulations, as of the 

date of the enactment of this Act. 

(5) JUDICIAL REVIEW.—There shall be no administrative or 

judicial review under section 1869 of the Social Security Act 

(42 U.S.C. 1395ff), section 1878 of such Act (42 U.S.C. 1395oo), 

or otherwise, of the application of this subsection by the Secretary. 

(6) LIMITATION ON APPLICATION OF EXCEPTIONS.—Paragraphs 

(2) and (3) shall not apply during the period beginning on the 

date of the enactment of paragraph (7) of this subsection and 

ending September 30, 2017. 

(7) ADDITIONAL EXCEPTION FOR CERTAIN LONG-TERM CARE

HOSPITALS.— shall not apply to a long-term care hospital 

that— 

(A) began its qualifying period for payment as a longterm care hospital under section 412.23(e) of title 42, Code 

of Federal Regulations, on or before the date of enactment 

of this paragraph; 

(B) has a binding written agreement as of the date of the 

enactment of this paragraph with an outside, unrelated 

party for the actual construction, renovation, lease, or 

demolition for a long-term care hospital, and has expended, before such date of enactment, at least 10 percent 

of the estimated cost of the project (or, if less, $2,500,000); 

or 

(C) has obtained an approved certificate of need in a 

State where one is required on or before such date of enactment. 

(e) LONG-TERM CARE HOSPITAL PAYMENT UPDATE.— 

(1) [Omitted Amendatory] 

(2) DELAYED EFFECTIVE DATE.—Subsection (m)(2) of section 

1886 of the Social Security Act, as added by paragraph (1), 

shall not apply to discharges occurring on or after July 1, 2007, 

and before April 1, 2008. 

(f) EXPANDED REVIEW OF MEDICAL NECESSITY.— 


emcdonald on DSK67QTVN1PROD with HEARING
12 

(1) IN GENERAL.—The Secretary of Health and Human Services shall provide, under contracts with one or more appropriate fiscal intermediaries or medicare administrative contractors under section 1874A(a)(4)(G) of the Social Security Act (42 

U.S.C. 1395kk–1(a)(4)(G)), for reviews of the medical necessity 

of admissions to long-term care hospitals (described in section 

1886(d)(1)(B)(iv) of such Act) and continued stay at such hospitals, of individuals entitled to, or enrolled for, benefits under 

part A of title XVIII of such Act consistent with this subsection. Such reviews shall be made for discharges occurring on 

or after October 1, 2007. 

(2) REVIEW METHODOLOGY.—The medical necessity reviews 

under paragraph (1) shall be conducted on an annual basis in 

accordance with rules specified by the Secretary. Such reviews 

shall— 

(A) provide for a statistically valid and representative 

sample of admissions of such individuals sufficient to provide results at a 95 percent confidence interval; and 

(B) guarantee that at least 75 percent of overpayments 

received by long-term care hospitals for medically unnecessary admissions and continued stays of individuals in longterm care hospitals will be identified and recovered and 

that related days of care will not be counted toward the 

length of stay requirement contained in section 

1886(d)(1)(B)(iv) of the Social Security Act (42 U.S.C. 

1395ww(d)(1)(B)(iv)). 

(3) CONTINUATION OF REVIEWS.—Under contracts under this 

subsection, the Secretary shall establish an error rate with respect to such reviews that could require further review of the 

medical necessity of admissions and continued stay in the hospital involved and other actions as determined by the Secretary. 

(4) TERMINATION OF REQUIRED REVIEWS.— (A) IN GENERAL.—Subject to subparagraph (B), the previous provisions of this subsection shall cease to apply for 

discharges occurring on or after October 1, 2010. 

(B) CONTINUATION.—As of the date specified in subparagraph (A), the Secretary shall determine whether to continue to guarantee, through continued medical review and 

sampling under this paragraph, recovery of at least 75 percent of overpayments received by long-term care hospitals 

due to medically unnecessary admissions and continued 

stays. 

(5) FUNDING.—The costs to fiscal intermediaries or medicare 

administrative contractors conducting the medical necessity reviews under paragraph (1) shall be funded from the aggregate 

overpayments recouped by the Secretary of Health and Human 

Services from long-term care hospitals due to medically unnecessary admissions and continued stays. The Secretary may use 

an amount not in excess of 40 percent of the overpayments recouped under this paragraph to compensate the fiscal intermediaries or Medicare administrative contractors for the costs 

of services performed. 

(g) IMPLEMENTATION.—For purposes of carrying out the provisions of, and amendments made by, this title, in addition to any 


emcdonald on DSK67QTVN1PROD with HEARING
13 

amounts otherwise provided in this title, there are appropriated to 

the Centers for Medicare & Medicaid Services Program Management Account, out of any money in the Treasury not otherwise appropriated, $35,000,000 for the period of fiscal years 2008 and 

2009. 

* * * * * * * 

SOCIAL SECURITY ACT 

TITLE XVIII—HEALTH INSURANCE FOR THE AGED AND 

DISABLED 

* * * * * * * 

PART E—MISCELLANEOUS PROVISIONS

* * * * * * * 

PAYMENT TO HOSPITALS FOR INPATIENT HOSPITAL SERVICES

SEC. 1886. (a)(1)(A)(i) The Secretary, in determining the amount 

of the payments that may be made under this title with respect to 

operating costs of inpatient hospital services (as defined in paragraph (4)) shall not recognize as reasonable (in the efficient delivery of health services) costs for the provision of such services by a 

hospital for a cost reporting period to the extent such costs exceed 

the applicable percentage (as determined under clause (ii)) of the 

average of such costs for all hospitals in the same grouping as such 

hospital for comparable time periods. 

(ii) For purposes of clause (i), the applicable percentage for hospital cost reporting periods beginning— 

(I) on or after October 1, 1982, and before October 1, 1983, 

is 120 percent; 

(II) on or after October 1, 1983, and before October 1, 1984, 

is 115 percent; and 

(III) on or after October 1, 1984, is 110 percent. 

(B)(i) For purposes of subparagraph (A) the Secretary shall establish case mix indexes for all short- term hospitals, and shall set 

limits for each hospital based upon the general mix of types of 

medical cases with respect to which such hospital provides services 

for which payment may be made under this title. 

(ii) The Secretary shall set such limits for a cost reporting period 

of a hospital— 

(I) by updating available data for a previous period to the 

immediate preceding cost reporting period by the estimated average rate of change of hospital costs industry-wide, and 

(II) by projecting for the cost reporting period by the applicable percentage increase (as defined in subsection (b)(3)(B)). 

(C) The limitation established under subparagraph (A) for any 

hospital shall in no event be lower than the allowable operating 

costs of inpatient hospital services (as defined in paragraph (4)) 

recognized under this title for such hospital for such hospital’s last 

cost reporting period prior to the hospital’s first cost reporting period for which this section is in effect. 


emcdonald on DSK67QTVN1PROD with HEARING
14 

(D) Subparagraph (A) shall not apply to cost reporting periods 

beginning on or after October 1, 1983. 

(2) The Secretary shall provide for such exemptions from, and exceptions and adjustments to, the limitation established under paragraph (1)(A) as he deems appropriate, including those which he 

deems necessary to take into account— 

(A) the special needs of sole community hospitals, of new 

hospitals, of risk based health maintenance organizations, and 

of hospitals which provide atypical services or essential community services, and to take into account extraordinary circumstances beyond the hospital’s control, medical and paramedical education costs, significantly fluctuating population in 

the service area of the hospital, and unusual labor costs, 

(B) the special needs of psychiatric hospitals and of public or 

other hospitals that serve a significantly disproportionate number of patients who have low income or are entitled to benefits 

under part A of this title, and 

(C) a decrease in the inpatient hospital services that a hospital provides and that are customarily provided directly by 

similar hospitals which results in a significant distortion in the 

operating costs of inpatient hospital services. 

(3) The limitation established under paragraph (1)(A) shall not 

apply with respect to any hospital which— 

(A) is located outside of a standard metropolitan statistical 

area, and 

(B)(i) has less than 50 beds, and 

(ii) was in operation and had less than 50 beds on the date 

of the enactment of this section. 

(4) For purposes of this section, the term ‘‘operating costs of inpatient hospital services’’ includes all routine operating costs, ancillary service operating costs, and special care unit operating costs 

with respect to inpatient hospital services as such costs are determined on an average per admission or per discharge basis (as determined by the Secretary), and includes the costs of all services 

for which payment may be made under this title that are provided 

by the hospital (or by an entity wholly owned or operated by the 

hospital) to the patient during the 3 days (or, in the case of a hospital that is not a subsection (d) hospital, during the 1 day) immediately preceding the date of the patient’s admission if such services are diagnostic services (including clinical diagnostic laboratory 

tests) or are other services related to the admission (as defined by 

the Secretary). Such term does not include costs of approved educational activities, a return on equity capital, or, other capital-related costs (as defined by the Secretary for periods before October 

1, 1987). In applying the first sentence of this paragraph, the term 

‘‘other services related to the admission’’ includes all services that 

are not diagnostic services (other than ambulance and maintenance 

renal dialysis services) for which payment may be made under this 

title that are provided by a hospital (or an entity wholly owned or 

operated by the hospital) to a patient— 

(A) on the date of the patient’s inpatient admission; or 

(B) during the 3 days (or, in the case of a hospital that is 

not a subsection (d) hospital, during the 1 day) immediately 

preceding the date of such admission unless the hospital demonstrates (in a form and manner, and at a time, specified by 


emcdonald on DSK67QTVN1PROD with HEARING
15 

the Secretary) that such services are not related (as determined by the Secretary) to such admission. 

(b)(1) Notwithstanding section 1814(b) but subject to the provisions of section 1813, if the operating costs of inpatient hospital 

services (as defined in subsection (a)(4)) of a hospital (other than 

a subsection (d) hospital, as defined in subsection (d)(1)(B) and 

other than a rehabilitation facility described in subsection (j)(1)) for 

a cost reporting period subject to this paragraph— 

(A) are less than or equal to the target amount (as defined 

in paragraph (3)) for that hospital for that period, the amount 

of the payment with respect to such operating costs payable 

under part A on a per discharge or per admission basis (as the 

case may be) shall be equal to the amount of such operating 

costs, plus— 

(i) 15 percent of the amount by which the target amount 

exceeds the amount of the operating costs, or 

(ii) 2 percent of the target amount, 

whichever is less; 

(B) are greater than the target amount but do not exceed 110 

percent of the target amount, the amount of the payment with 

respect to those operating costs payable under part A on a per 

discharge basis shall equal the target amount; or 

(C) are greater than 110 percent of the target amount, the 

amount of the payment with respect to such operating costs 

payable under part A on a per discharge or per admission basis 

(as the case may be) shall be equal to (i) the target amount, 

plus (ii) in the case of cost reporting periods beginning on or 

after October 1, 1991, an additional amount equal to 50 percent of the amount by which the operating costs exceed 110 

percent of the target amount (except that such additional 

amount may not exceed 10 percent of the target amount) after 

any exceptions or adjustments are made to such target amount 

for the cost reporting period; 

plus the amount, if any, provided under paragraph (2), except that 

in no case may the amount payable under this title (other than on 

the basis of a DRG prospective payment rate determined under 

subsection (d)) with respect to operating costs of inpatient hospital 

services exceed the maximum amount payable with respect to such 

costs pursuant to subsection (a). 

(2)(A) Except as provided in subparagraph (E), in addition to the 

payment computed under paragraph (1), in the case of an eligible 

hospital (described in subparagraph (B)) for a cost reporting period 

beginning on or after October 1, 1997, the amount of payment on 

a per discharge basis under paragraph (1) shall be increased by the 

lesser of— 

(i) 50 percent of the amount by which the operating costs are 

less than the expected costs (as defined in subparagraph (D)) 

for the period; or 

(ii) 1 percent of the target amount for the period. 

(B) For purposes of this paragraph, an ‘‘eligible hospital’’ means 

with respect to a cost reporting period, a hospital— 

(i) that has received payments under this subsection for at 

least 3 full cost reporting periods before that cost reporting period, and 


emcdonald on DSK67QTVN1PROD with HEARING
16 

(ii) whose operating costs for the period are less than the 

least of its target amount, its trended costs (as defined in subparagraph (C)), or its expected costs (as defined in subparagraph (D)) for the period. 

(C) For purposes of subparagraph (B)(ii), the term ‘‘trended costs’’ 

means for a hospital cost reporting period ending in a fiscal year— 

(i) in the case of a hospital for which its cost reporting period 

ending in fiscal year 1996 was its third or subsequent full cost 

reporting period for which it receives payments under this subsection, the lesser of the operating costs or target amount for 

that hospital for its cost reporting period ending in fiscal year 

1996, or 

(ii) in the case of any other hospital, the operating costs for 

that hospital for its third full cost reporting period for which 

it receives payments under this subsection, 

increased (in a compounded manner) for each succeeding fiscal year 

(through the fiscal year involved) by the market basket percentage 

increase for the fiscal year. 

(D) For purposes of this paragraph, the term ‘‘expected costs’’, 

with respect to the cost reporting period ending in a fiscal year, 

means the lesser of the operating costs of inpatient hospital services or target amount per discharge for the previous cost reporting 

period updated by the market basket percentage increase (as defined in paragraph (3)(B)(iii)) for the fiscal year. 

(E)(i) In the case of an eligible hospital that is a hospital or unit 

that is within a class of hospital described in clause (ii) with a 12- 

month cost reporting period beginning before the enactment of this 

subparagraph, in determining the amount of the increase under 

subparagraph (A), the Secretary shall substitute for the percentage 

of the target amount applicable under subparagraph (A)(ii)— 

(I) for a cost reporting period beginning on or after October 

1, 2000, and before September 30, 2001, 1.5 percent; and 

(II) for a cost reporting period beginning on or after October 

1, 2001, and before September 30, 2002, 2 percent. 

(ii) For purposes of clause (i), each of the following shall be treated as a separate class of hospital: 

(I) Hospitals described in clause (i) of subsection (d)(1)(B) 

and psychiatric units described in the matter following clause 

(v) of such subsection. 

(II) Hospitals described in clause (iv) of such subsection. 

(3)(A) Except as provided in subparagraph (C) and succeeding 

subparagraphs and in paragraph (7)(A)(ii), for purposes of this subsection, the term ‘‘target amount’’ means, with respect to a hospital 

for a particular 12-month cost reporting period— 

(i) in the case of the first such reporting period for which this 

subsection is in effect, the allowable operating costs of inpatient hospital services (as defined in subsection (a)(4)) recognized under this title for such hospital for the preceding 12- 

month cost reporting period, and 

(ii) in the case of a later reporting period, the target amount 

for the preceding 12-month cost reporting period, 

increased by the applicable percentage increase under subparagraph (B) for that particular cost reporting period. 


emcdonald on DSK67QTVN1PROD with HEARING
17 

(B)(i) For purposes of subsection (d) and subsection (j) for discharges occurring during a fiscal year, the ‘‘applicable percentage 

increase’’ shall be— 

(I) for fiscal year 1986, 1⁄2 percent, 

(II) for fiscal year 1987, 1.15 percent, 

(III) for fiscal year 1988, 3.0 percent for hospitals located in 

a rural area, 1.5 percent for hospitals located in a large urban 

area (as defined in subsection (d)(2)(D)), and 1.0 percent for 

hospitals located in other urban areas, 

(IV) for fiscal year 1989, the market basket percentage increase minus 1.5 percentage points for hospitals located in a 

rural area, the market basket percentage increase minus 2.0 

percentage points for hospitals located in a large urban area, 

and the market basket percentage increase minus 2.5 percentage points for hospitals located in other urban areas, 

(V) for fiscal year 1990, the market basket percentage increase plus 4.22 percentage points for hospitals located in a 

rural area, the market basket percentage increase plus 0.12 

percentage points for hospitals located in a large urban area, 

and the market basket percentage increase minus 0.53 percentage points for hospitals located in other urban areas, 

(VI) for fiscal year 1991, the market basket percentage increase minus 2.0 percentage points for hospitals in a large 

urban or other urban area, and the market basket percentage 

increase minus 0.7 percentage point for hospitals located in a 

rural area, 

(VII) for fiscal year 1992, the market basket percentage increase minus 1.6 percentage points for hospitals in a large 

urban or other urban area, and the market basket percentage 

increase minus 0.6 percentage point for hospitals located in a 

rural area, 

(VIII) for fiscal year 1993, the market basket percentage increase minus 1.55 percentage point for hospitals in a large 

urban or other urban area, and the market basket percentage 

increase minus 0.55 for hospitals located in a rural area, 

(IX) for fiscal year 1994, the market basket percentage increase minus 2.5 percentage points for hospitals located in a 

large urban or other urban area, and the market basket percentage increase minus 1.0 percentage point for hospitals located in a rural area, 

(X) for fiscal year 1995, the market basket percentage increase minus 2.5 percentage points for hospitals located in a 

large urban or other urban area, and such percentage increase 

for hospitals located in a rural area as will provide for the average standardized amount determined under subsection 

(d)(3)(A) for hospitals located in a rural area being equal to 

such average standardized amount for hospitals located in an 

urban area (other than a large urban area), 

(XI) for fiscal year 1996, the market basket percentage increase minus 2.0 percentage points for hospitals in all areas, 

(XII) for fiscal year 1997, the market basket percentage increase minus 0.5 percentage point for hospitals in all areas, 

(XIII) for fiscal year 1998, 0 percent, 

(XIV) for fiscal year 1999, the market basket percentage increase minus 1.9 percentage points for hospitals in all areas, 


emcdonald on DSK67QTVN1PROD with HEARING
18 

(XV) for fiscal year 2000, the market basket percentage increase minus 1.8 percentage points for hospitals in all areas, 

(XVI) for fiscal year 2001, the market basket percentage increase for hospitals in all areas, 

(XVII) for fiscal year 2002, the market basket percentage increase minus 0.55 percentage points for hospitals in all areas, 

(XVIII) for fiscal year 2003, the market basket percentage increase minus 0.55 percentage points for hospitals in all areas, 

(XIX) for each of fiscal years 2004 through 2006, subject to 

clause (vii), the market basket percentage increase for hospitals in all areas; and 

(XX) for each subsequent fiscal year, subject to clauses (viii), 

(ix), (xi), and (xii), the market basket percentage increase for 

hospitals in all areas. 

(ii) For purposes of subparagraphs (A) and (E), the ‘‘applicable 

percentage increase’’ for 12-month cost reporting periods beginning 

during— 

(I) fiscal year 1986, is 0.5 percent, 

(II) fiscal year 1987, is 1.15 percent, 

(III) fiscal year 1988, is the market basket percentage increase minus 2.0 percentage points, 

(IV) a subsequent fiscal year ending on or before September 

30, 1993, is the market basket percentage increase, 

(V) fiscal years 1994 through 1997, is the market basket percentage increase minus the applicable reduction (as defined in 

clause (v)(II)), or in the case of a hospital for a fiscal year for 

which the hospital’s update adjustment percentage (as defined 

in clause (v)(I)) is at least 10 percent, the market basket percentage increase, 

(VI) for fiscal year 1998, is 0 percent, 

(VII) for fiscal years 1999 through 2002, is the applicable update factor specified under clause (vi) for the fiscal year, and 

(VIII) subsequent fiscal years is the market basket percentage increase. 

(iii) For purposes of this subparagraph, the term ‘‘market basket 

percentage increase’’ means, with respect to cost reporting periods 

and discharges occurring in a fiscal year, the percentage, estimated 

by the Secretary before the beginning of the period or fiscal year, 

by which the cost of the mix of goods and services (including personnel costs but excluding nonoperating costs) comprising routine, 

ancillary, and special care unit inpatient hospital services, based on 

an index of appropriately weighted indicators of changes in wages 

and prices which are representative of the mix of goods and services included in such inpatient hospital services, for the period or 

fiscal year will exceed the cost of such mix of goods and services 

for the preceding 12-month cost reporting period or fiscal year. 

(iv) For purposes of subparagraphs (C) and (D), the ‘‘applicable 

percentage increase’’ is— 

(I) for 12-month cost reporting periods beginning during fiscal years 1986 through 1993, the applicable percentage increase specified in clause (ii), 

(II) for fiscal year 1994, the market basket percentage increase minus 2.3 percentage points (adjusted to exclude any 

portion of a cost reporting period beginning during fiscal year 


emcdonald on DSK67QTVN1PROD with HEARING
19 

1993 for which the applicable percentage increase is determined under subparagraph (I)), 

(III) for fiscal year 1995, the market basket percentage increase minus 2.2 percentage points, and 

(IV) for fiscal year 1996 and each subsequent fiscal year, the 

applicable percentage increase under clause (i). 

(v) For purposes of clause (ii)(V)— 

(I) a hospital’s ‘‘update adjustment percentage’’ for a fiscal 

year is the percentage by which the hospital’s allowable operating costs of inpatient hospital services recognized under this 

title for the cost reporting period beginning in fiscal year 1990 

exceeds the hospital’s target amount (as determined under subparagraph (A)) for such cost reporting period, increased for 

each fiscal year (beginning with fiscal year 1994) by the sum 

of any of the hospital’s applicable reductions under subclause 

(V) for previous fiscal years; and 

(II) the ‘‘applicable reduction’’ with respect to a hospital for 

a fiscal year is the lesser of 1 percentage point or the percentage point difference between 10 percent and the hospital’s update adjustment percentage for the fiscal year. 

(vi) For purposes of clause (ii)(VII) for a fiscal year, if a hospital’s 

allowable operating costs of inpatient hospital services recognized 

under this title for the most recent cost reporting period for which 

information is available— 

(I) is equal to, or exceeds, 110 percent of the hospital’s target 

amount (as determined under subparagraph (A)) for such cost 

reporting period, the applicable update factor specified under 

this clause is the market basket percentage; 

(II) exceeds 100 percent, but is less than 110 percent, of such 

target amount for the hospital, the applicable update factor 

specified under this clause is 0 percent or, if greater, the market basket percentage minus 0.25 percentage points for each 

percentage point by which such allowable operating costs (expressed as a percentage of such target amount) is less than 110 

percent of such target amount; 

(III) is equal to, or less than 100 percent, but exceeds 2⁄3 of 

such target amount for the hospital, the applicable update factor specified under this clause is 0 percent or, if greater, the 

market basket percentage minus 2.5 percentage points; or 

(IV) does not exceed 2⁄3 of such target amount for the hospital, the applicable update factor specified under this clause 

is 0 percent. 

(vii)(I) For purposes of clause (i)(XIX) for fiscal years 2005 and 

2006, in a case of a subsection (d) hospital that does not submit 

data to the Secretary in accordance with subclause (II) with respect 

to such a fiscal year, the applicable percentage increase under such 

clause for such fiscal year shall be reduced by 0.4 percentage 

points. Such reduction shall apply only with respect to the fiscal 

year involved, and the Secretary shall not take into account such 

reduction in computing the applicable percentage increase under 

clause (i)(XIX) for a subsequent fiscal year. 

(II) For fiscal years 2005 and 2006, each subsection (d) hospital 

shall submit to the Secretary quality data (for a set of 10 indicators 

established by the Secretary as of November 1, 2003) that relate 

to the quality of care furnished by the hospital in inpatient settings 


emcdonald on DSK67QTVN1PROD with HEARING
20 

in a form and manner, and at a time, specified by the Secretary 

for purposes of this clause, but with respect to fiscal year 2005, the 

Secretary shall provide for a 30-day grace period for the submission 

of data by a hospital. 

(viii)(I) For purposes of clause (i) for fiscal year 2007 and each 

subsequent fiscal year, in the case of a subsection (d) hospital that 

does not submit, to the Secretary in accordance with this clause, 

data required to be submitted on measures selected under this 

clause with respect to such a fiscal year, the applicable percentage 

increase under clause (i) for such fiscal year shall be reduced by 2.0 

percentage points (or, beginning with fiscal year 2015, by one-quarter of such applicable percentage increase (determined without regard to clause (ix), (xi), or (xii))). Such reduction shall apply only 

with respect to the fiscal year involved and the Secretary shall not 

take into account such reduction in computing the applicable percentage increase under clause (i) for a subsequent fiscal year, and 

the Secretary and the Medicare Payment Advisory Commission 

shall carry out the requirements under section 5001(b) of the Deficit Reduction Act of 2005. 

(II) Each subsection (d) hospital shall submit data on measures 

selected under this clause to the Secretary in a form and manner, 

and at a time, specified by the Secretary for purposes of this 

clause. The Secretary may require hospitals to submit data on 

measures that are not used for the determination of value-based incentive payments under subsection (o). 

(III) The Secretary shall expand, beyond the measures specified 

under clause (vii)(II) and consistent with the succeeding subclauses, the set of measures that the Secretary determines to be 

appropriate for the measurement of the quality of care (including 

medication errors) furnished by hospitals in inpatient settings. 

(IV) Effective for payments beginning with fiscal year 2007, in 

expanding the number of measures under subclause (III), the Secretary shall begin to adopt the baseline set of performance measures as set forth in the November 2005 report by the Institute of 

Medicine of the National Academy of Sciences under section 238(b) 

of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. 

(V) Effective for payments for fiscal years 2008 through 2012, the 

Secretary shall add other measures that reflect consensus among 

affected parties and, to the extent feasible and practicable, shall include measures set forth by one or more national consensus building entities. 

(VI) For purposes of this clause and clause (vii), the Secretary 

may replace any measures or indicators in appropriate cases, such 

as where all hospitals are effectively in compliance or the measures 

or indicators have been subsequently shown not to represent the 

best clinical practice. 

(VII) The Secretary shall establish procedures for making information regarding measures submitted under this clause available 

to the public. Such procedures shall ensure that a hospital has the 

opportunity to review the data that are to be made public with respect to the hospital prior to such data being made public. The Secretary shall report quality measures of process, structure, outcome, 

patients’ perspectives on care, efficiency, and costs of care that reVerDate Sep 11 2014 01:51 Jun 18, 2015 Jkt 049006 PO 00000 Frm 00020 Fmt 6659 Sfmt 6602 E:\HR\OC\HR156.XXX HR156

emcdonald on DSK67QTVN1PROD with HEARING
21 

late to services furnished in inpatient settings in hospitals on the 

Internet website of the Centers for Medicare & Medicaid Services. 

(VIII) Effective for payments beginning with fiscal year 2013, 

with respect to quality measures for outcomes of care, the Secretary shall provide for such risk adjustment as the Secretary determines to be appropriate to maintain incentives for hospitals to 

treat patients with severe illnesses or conditions. 

(IX)(aa) Subject to item (bb), effective for payments beginning 

with fiscal year 2013, each measure specified by the Secretary 

under this clause shall be endorsed by the entity with a contract 

under section 1890(a). 

(bb) In the case of a specified area or medical topic determined 

appropriate by the Secretary for which a feasible and practical 

measure has not been endorsed by the entity with a contract under 

section 1890(a), the Secretary may specify a measure that is not so 

endorsed as long as due consideration is given to measures that 

have been endorsed or adopted by a consensus organization identified by the Secretary. 

(X) To the extent practicable, the Secretary shall, with input 

from consensus organizations and other stakeholders, take steps to 

ensure that the measures specified by the Secretary under this 

clause are coordinated and aligned with quality measures applicable to— 

(aa) physicians under section 1848(k); and 

(bb) other providers of services and suppliers under this title. 

(XI) The Secretary shall establish a process to validate measures 

specified under this clause as appropriate. Such process shall include the auditing of a number of randomly selected hospitals sufficient to ensure validity of the reporting program under this clause 

as a whole and shall provide a hospital with an opportunity to appeal the validation of measures reported by such hospital. 

(ix)(I) For purposes of clause (i) for fiscal year 2015 and each subsequent fiscal year, in the case of an eligible hospital (as defined 

in subsection (n)(6)(A)) that is not a meaningful EHR user (as defined in subsection (n)(3)) for an EHR reporting period for such fiscal year, three-quarters of the applicable percentage increase otherwise applicable under clause (i) (determined without regard to 

clause (viii), (xi), or (xii)) for such fiscal year shall be reduced by 

331⁄3 percent for fiscal year 2015, 662⁄3 percent for fiscal year 2016, 

and 100 percent for fiscal year 2017 and each subsequent fiscal 

year. Such reduction shall apply only with respect to the fiscal year 

involved and the Secretary shall not take into account such reduction in computing the applicable percentage increase under clause 

(i) for a subsequent fiscal year. 

(II) The Secretary may, on a case-by-case basis, exempt a subsection (d) hospital from the application of subclause (I) with respect to a fiscal year if the Secretary determines, subject to annual 

renewal, that requiring such hospital to be a meaningful EHR user 

during such fiscal year would result in a significant hardship, such 

as in the case of a hospital in a rural area without sufficient Internet access. In no case may a hospital be granted an exemption 

under this subclause for more than 5 years. 

(III) For fiscal year 2015 and each subsequent fiscal year, a State 

in which hospitals are paid for services under section 1814(b)(3) 

shall adjust the payments to each subsection (d) hospital in the 


emcdonald on DSK67QTVN1PROD with HEARING
22 

State that is not a meaningful EHR user (as defined in subsection 

(n)(3)) in a manner that is designed to result in an aggregate reduction in payments to hospitals in the State that is equivalent to 

the aggregate reduction that would have occurred if payments had 

been reduced to each subsection (d) hospital in the State in a manner comparable to the reduction under the previous provisions of 

this clause. The State shall report to the Secretary the methodology 

it will use to make the payment adjustment under the previous 

sentence. 

(IV) For purposes of this clause, the term ‘‘EHR reporting period’’ 

means, with respect to a fiscal year, any period (or periods) as specified by the Secretary. 

(x)(I) The Secretary shall develop standard Internet website reports tailored to meet the needs of various stakeholders such as 

hospitals, patients, researchers, and policymakers. The Secretary 

shall seek input from such stakeholders in determining the type of 

information that is useful and the formats that best facilitate the 

use of the information. 

(II) The Secretary shall modify the Hospital Compare Internet 

website to make the use and navigation of that website readily 

available to individuals accessing it. 

(xi)(I) For 2012 and each subsequent fiscal year, after determining the applicable percentage increase described in clause (i) 

and after application of clauses (viii) and (ix), such percentage increase shall be reduced by the productivity adjustment described in 

subclause (II). 

(II) The productivity adjustment described in this subclause, with 

respect to a percentage, factor, or update for a fiscal year, year, 

cost reporting period, or other annual period, is a productivity adjustment equal to the 10-year moving average of changes in annual 

economy-wide private nonfarm business multi-factor productivity 

(as projected by the Secretary for the 10-year period ending with 

the applicable fiscal year, year, cost reporting period, or other annual period). 

(III) The application of subclause (I) may result in the applicable 

percentage increase described in clause (i) being less than 0.0 for 

a fiscal year, and may result in payment rates under this section 

for a fiscal year being less than such payment rates for the preceding fiscal year. 

(xii) After determining the applicable percentage increase described in clause (i), and after application of clauses (viii), (ix), and 

(xi), the Secretary shall reduce such applicable percentage increase— 

(I) for each of fiscal years 2010 and 2011, by 0.25 percentage 

point; 

(II) for each of fiscal years 2012 and 2013, by 0.1 percentage 

point; 

(III) for fiscal year 2014, by 0.3 percentage point; 

(IV) for each of fiscal years 2015 and 2016, by 0.2 percentage 

point; and 

(V) for each of fiscal years 2017, 2018, and 2019, by 0.75 percentage point. 

The application of this clause may result in the applicable percentage increase described in clause (i) being less than 0.0 for a fiscal 

year, and may result in payment rates under this section for a fisVerDate Sep 11 2014 01:51 Jun 18, 2015 Jkt 049006 PO 00000 Frm 00022 Fmt 6659 Sfmt 6602 E:\HR\OC\HR156.XXX HR156

emcdonald on DSK67QTVN1PROD with HEARING
23 

cal year being less than such payment rates for the preceding fiscal 

year. 

(C) In the case of a hospital that is a sole community hospital 

(as defined in subsection (d)(5)(D)(iii)), subject to subparagraphs (I) 

and (L), the term ‘‘target amount’’ means— 

(i) with respect to the first 12-month cost reporting period in 

which this subparagraph is applied to the hospital— 

(I) the allowable operating costs of inpatient hospital 

services (as defined in subsection (a)(4)) recognized under 

this title for the hospital for the 12-month cost reporting 

period (in this subparagraph referred to as the ‘‘base cost 

reporting period’’) preceding the first cost reporting period 

for which this subsection was in effect with respect to such 

hospital, increased (in a compounded manner) by— 

(II) the applicable percentage increases applied to such 

hospital under this paragraph for cost reporting periods 

after the base cost reporting period and up to and including such first 12-month cost reporting period, 

(ii) with respect to a later cost reporting period beginning before fiscal year 1994, the target amount for the preceding 12- 

month cost reporting period, increased by the applicable percentage increase under subparagraph (B)(iv) for discharges occurring in the fiscal year in which that later cost reporting period begins, 

(iii) with respect to discharges occurring in fiscal year 1994, 

the target amount for the cost reporting period beginning in 

fiscal year 1993 increased by the applicable percentage increase under subparagraph (B)(iv), or 

(iv) with respect to discharges occurring in fiscal year 1995 

and each subsequent fiscal year, the target amount for the preceding year increased by the applicable percentage increase 

under subparagraph (B)(iv). 

There shall be substituted for the base cost reporting period described in clause (i) a hospital’s cost reporting period (if any) beginning during fiscal year 1987 if such substitution results in an increase in the target amount for the hospital. 

(D) For cost reporting periods ending on or before September 30, 

1994, and for cost reporting periods occurring on or after October 

1, 1997, and before October 1, 2017, in the case of a hospital that 

is a medicare-dependent, small rural hospital (as defined in subsection (d)(5)(G)), subject to subparagraph (K), the term ‘‘target 

amount’’ means— 

(i) with respect to the first 12-month cost reporting period in 

which this subparagraph is applied to the hospital— 

(I) the allowable operating costs of inpatient hospital 

services (as defined in subsection (a)(4)) recognized under 

this title for the hospital for the 12-month cost reporting 

period (in this subparagraph referred to as the ‘‘base cost 

reporting period’’) preceding the first cost reporting period 

for which this subsection was in effect with respect to such 

hospital, increased (in a compounded manner) by— 

(II) the applicable percentage increases applied to such 

hospital under this paragraph for cost reporting periods 

after the base cost reporting period and up to and including such first 12-month cost reporting period, or 


emcdonald on DSK67QTVN1PROD with HEARING
24 

(ii) with respect to a later cost reporting period beginning before fiscal year 1994, the target amount for the preceding 12- 

month cost reporting period, increased by the applicable percentage increase under subparagraph (B)(iv) for discharges occurring in the fiscal year in which that later cost reporting period begins, 

(iii) with respect to discharges occurring in fiscal year 1994, 

the target amount for the cost reporting period beginning in 

fiscal year 1993 increased by the applicable percentage increase under subparagraph (B)(iv), and 

(iv) with respect to discharges occurring during fiscal year 

1998 through fiscal year 2017, the target amount for the preceding year increased by the applicable percentage increase 

under subparagraph (B)(iv). 

There shall be substituted for the base cost reporting period described in clause (i) a hospital’s cost reporting period (if any) beginning during fiscal year 1987 if such substitution results in an increase in the target amount for the hospital. 

(E) In the case of a hospital described in clause (v) of subsection 

(d)(1)(B), the term ‘‘target amount’’ means— 

(i) with respect to the first 12-month cost reporting period in 

which this subparagraph is applied to the hospital— 

(I) the allowable operating costs of inpatient hospital 

services (as defined in subsection (a)(4)) recognized under 

this title for the hospital for the 12-month cost reporting 

period (in this subparagraph referred to as the ‘‘base cost 

reporting period’’) preceding the first cost reporting period 

for which this subsection was in effect with respect to such 

hospital, increased (in a compounded manner) by— 

(II) the sum of the applicable percentage increases applied to such hospital under this paragraph for cost reporting periods after the base cost reporting period and up to 

and including such first 12-month cost reporting period, or 

(ii) with respect to a later cost reporting period, the target 

amount for the preceding 12-month cost reporting period, increased by the applicable percentage increase under subparagraph (B)(ii) for that later cost reporting period. 

There shall be substituted for the base cost reporting period described in clause (i) a hospital’s cost reporting period (if any) beginning during fiscal year 1987 if such substitution results in an increase in the target amount for the hospital. 

(F)(i) In the case of a hospital (or unit described in the matter 

following clause (v) of subsection (d)(1)(B)) that received payment 

under this subsection for inpatient hospital services furnished during cost reporting periods beginning before October 1, 1990, that is 

within a class of hospital described in clause (iii), and that elects 

(in a form and manner determined by the Secretary) this subparagraph to apply to the hospital, the target amount for the hospital’s 

12-month cost reporting period beginning during fiscal year 1998 is 

equal to the average described in clause (ii). 

(ii) The average described in this clause for a hospital or unit 

shall be determined by the Secretary as follows: 

(I) The Secretary shall determine the allowable operating 

costs for inpatient hospital services for the hospital or unit for 

each of the 5 cost reporting periods for which the Secretary has 


emcdonald on DSK67QTVN1PROD with HEARING
25 

the most recent settled cost reports as of the date of the enactment of this subparagraph. 

(II) The Secretary shall increase the amount determined 

under subclause (I) for each cost reporting period by the applicable percentage increase under subparagraph (B)(ii) for each 

subsequent cost reporting period up to the cost reporting period described in clause (i). 

(III) The Secretary shall identify among such 5 cost reporting 

periods the cost reporting periods for which the amount determined under subclause (II) is the highest, and the lowest. 

(IV) The Secretary shall compute the averages of the 

amounts determined under subclause (II) for the 3 cost reporting periods not identified under subclause (III). 

(iii) For purposes of this subparagraph, each of the following 

shall be treated as a separate class of hospital: 

(I) Hospitals described in clause (i) of subsection (d)(1)(B) 

and psychiatric units described in the matter following clause 

(v) of such subsection. 

(II) Hospitals described in clause (ii) of such subsection and 

rehabilitation units described in the matter following clause (v) 

of such subsection. 

(III) Hospitals described in clause (iii) of such subsection. 

(IV) Hospitals described in clause (iv) of such subsection. 

(V) Hospitals described in clause (v) of such subsection. 

(G)(i) In the case of a qualified long-term care hospital (as defined in clause (ii)) that elects (in a form and manner determined 

by the Secretary) this subparagraph to apply to the hospital, the 

target amount for the hospital’s 12-month cost reporting period beginning during fiscal year 1998 is equal to the allowable operating 

costs of inpatient hospital services (as defined in subsection (a)(4)) 

recognized under this title for the hospital for the 12-month cost reporting period beginning during fiscal year 1996, increased by the 

applicable percentage increase for the cost reporting period beginning during fiscal year 1997. 

(ii) In clause (i), a ‘‘qualified long-term care hospital’’ means, with 

respect to a cost reporting period, a hospital described in clause (iv) 

of subsection (d)(1)(B) during each of the 2 cost reporting periods 

for which the Secretary has the most recent settled cost reports as 

of the date of the enactment of this subparagraph for each of 

which— 

(I) the hospital’s allowable operating costs of inpatient hospital services recognized under this title exceeded 115 percent 

of the hospital’s target amount, and 

(II) the hospital would have a disproportionate patient percentage of at least 70 percent (as determined by the Secretary 

under subsection (d)(5)(F)(vi)) if the hospital were a subsection 

(d) hospital. 

(H)(i) In the case of a hospital or unit that is within a class of 

hospital described in clause (iv), for a cost reporting period beginning during fiscal years 1998 through 2002, the target amount for 

such a hospital or unit may not exceed the amount as updated up 

to or for such cost reporting period under clause (ii). 

(ii)(I) In the case of a hospital or unit that is within a class of 

hospital described in clause (iv), the Secretary shall estimate the 

75th percentile of the target amounts for such hospitals within 


emcdonald on DSK67QTVN1PROD with HEARING
26 

such class for cost reporting periods ending during fiscal year 1996, 

as adjusted under clause (iii). 

(II) The Secretary shall update the amount determined under 

subclause (I), for each cost reporting period after the cost reporting 

period described in such subclause and up to the first cost reporting period beginning on or after October 1, 1997, by a factor equal 

to the market basket percentage increase. 

(III) For cost reporting periods beginning during each of fiscal 

years 1999 through 2002, subject to subparagraph (J), the Secretary shall update such amount by a factor equal to the market 

basket percentage increase. 

(iii) In applying clause (ii)(I) in the case of a hospital or unit, the 

Secretary shall provide for an appropriate adjustment to the laborrelated portion of the amount determined under such subparagraph 

to take into account differences between average wage-related costs 

in the area of the hospital and the national average of such costs 

within the same class of hospital. 

(iv) For purposes of this subparagraph, each of the following 

shall be treated as a separate class of hospital: 

(I) Hospitals described in clause (i) of subsection (d)(1)(B) 

and psychiatric units described in the matter following clause 

(v) of such subsection. 

(II) Hospitals described in clause (ii) of such subsection and 

rehabilitation units described in the matter following clause (v) 

of such subsection. 

(III) Hospitals described in clause (iv) of such subsection. 

(I)(i) Subject to subparagraph (L), for cost reporting periods beginning on or after October 1, 2000, in the case of a sole community 

hospital there shall be substituted for the amount otherwise determined under subsection (d)(5)(D)(i), if such substitution results in 

a greater amount of payment under this section for the hospital— 

(I) with respect to discharges occurring in fiscal year 2001, 

75 percent of the amount otherwise applicable to the hospital 

under subsection (d)(5)(D)(i) (referred to in this clause as the 

‘‘subsection (d)(5)(D)(i) amount’’) and 25 percent of the rebased 

target amount (as defined in clause (ii)); 

(II) with respect to discharges occurring in fiscal year 2002, 

50 percent of the subsection (d)(5)(D)(i) amount and 50 percent 

of the rebased target amount; 

(III) with respect to discharges occurring in fiscal year 2003, 

25 percent of the subsection (d)(5)(D)(i) amount and 75 percent 

of the rebased target amount; and 

(IV) with respect to discharges occurring after fiscal year 

2003, 100 percent of the rebased target amount. 

(ii) For purposes of this subparagraph, the ‘‘rebased target 

amount’’ has the meaning given the term ‘‘target amount’’ in subparagraph (C) except that— 

(I) there shall be substituted for the base cost reporting period the 12-month cost reporting period beginning during fiscal 

year 1996; 

(II) any reference in subparagraph (C)(i) to the ‘‘first cost reporting period’’ described in such subparagraph is deemed a 

reference to the first cost reporting period beginning on or after 

October 1, 2000; and 


emcdonald on DSK67QTVN1PROD with HEARING
27 

(III) applicable increase percentage shall only be applied 

under subparagraph (C)(iv) for discharges occurring in fiscal 

years beginning with fiscal year 2002. 

(iii) In no case shall a hospital be denied treatment as a sole 

community hospital or payment (on the basis of a target rate as 

such as a hospital) because data are unavailable for any cost reporting period due to changes in ownership, changes in fiscal intermediaries, or other extraordinary circumstances, so long as data for 

at least one applicable base cost reporting period is available. 

(J) For cost reporting periods beginning during fiscal year 2001, 

for a hospital described in subsection (d)(1)(B)(iv)— 

(i) the limiting or cap amount otherwise determined under 

subparagraph (H) shall be increased by 2 percent; and 

(ii) the target amount otherwise determined under subparagraph (A) shall be increased by 25 percent (subject to the limiting or cap amount determined under subparagraph (H), as increased by clause (i)). 

(K)(i) With respect to discharges occurring on or after October 1, 

2006, in the case of a medicare-dependent, small rural hospital, for 

purposes of applying subparagraph (D)— 

(I) there shall be substituted for the base cost reporting period described in subparagraph (D)(i) the 12-month cost reporting period beginning during fiscal year 2002; and 

(II) any reference in such subparagraph to the ‘‘first cost reporting period’’ described in such subparagraph is deemed a 

reference to the first cost reporting period beginning on or after 

October 1, 2006. 

(ii) This subparagraph shall only apply to a hospital if the substitution described in clause (i)(I) results in an increase in the target 

amount under subparagraph (D) for the hospital. 

(L)(i) For cost reporting periods beginning on or after January 1, 

2009, in the case of a sole community hospital there shall be substituted for the amount otherwise determined under subsection 

(d)(5)(D)(i) of this section, if such substitution results in a greater 

amount of payment under this section for the hospital, the subparagraph (L) rebased target amount. 

(ii) For purposes of this subparagraph, the term ‘‘subparagraph 

(L) rebased target amount’’ has the meaning given the term ‘‘target 

amount’’ in subparagraph (C), except that— 

(I) there shall be substituted for the base cost reporting period the 12-month cost reporting period beginning during fiscal 

year 2006; 

(II) any reference in subparagraph (C)(i) to the ‘‘first cost reporting period’’ described in such subparagraph is deemed a 

reference to the first cost reporting period beginning on or after 

January 1, 2009; and 

(III) the applicable percentage increase shall only be applied 

under subparagraph (C)(iv) for discharges occurring on or after 

January 1, 2009. 

(4)(A)(i) The Secretary shall provide for an exception and adjustment to (and in the case of a hospital described in subsection 

(d)(1)(B)(iii), may provide an exemption from) the method under 

this subsection for determining the amount of payment to a hospital where events beyond the hospital’s control or extraordinary 

circumstances, including changes in the case mix of such hospital, 


emcdonald on DSK67QTVN1PROD with HEARING
28 

create a distortion in the increase in costs for a cost reporting period (including any distortion in the costs for the base period 

against which such increase is measured). The Secretary may provide for such other exemptions from, and exceptions and adjustments to, such method as the Secretary deems appropriate, including the assignment of a new base period which is more representative, as determined by the Secretary, of the reasonable and necessary cost of inpatient services and including those which he 

deems necessary to take into account a decrease in the inpatient 

hospital services that a hospital provides and that are customarily 

provided directly by similar hospitals which results in a significant 

distortion in the operating costs of inpatient hospital services. The 

Secretary shall announce a decision on any request for an exemption, exception, or adjustment under this paragraph not later than 

180 days after receiving a completed application from the intermediary for such exemption, exception, or adjustment, and shall include in such decision a detailed explanation of the grounds on 

which such request was approved or denied. 

(ii) The payment reductions under paragraph (3)(B)(ii)(V) shall 

not be considered by the Secretary in making adjustments pursuant to clause (i). In making such reductions, the Secretary shall 

treat the applicable update factor described in paragraph (3)(B)(vi) 

for a fiscal year as being equal to the market basket percentage for 

that year. 

(B) In determining under subparagraph (A) whether to assign a 

new base period which is more representative of the reasonable 

and necessary cost to a hospital of providing inpatient services, the 

Secretary shall take into consideration— 

(i) changes in applicable technologies and medical practices, 

or differences in the severity of illness among patients, that increase the hospital’s costs; 

(ii) whether increases in wages and wage-related costs for 

hospitals located in the geographic area in which the hospital 

is located exceed the average of the increases in such costs 

paid by hospitals in the United States; and 

(iii) such other factors as the Secretary considers appropriate 

in determining increases in the hospital’s costs of providing inpatient services. 

(C) Paragraph (1) shall not apply to payment of hospitals which 

is otherwise determined under paragraph (3) of section 1814(b). 

(5) In the case of any hospital having any cost reporting period 

of other than a 12-month period, the Secretary shall determine the 

12-month period which shall be used for purposes of this section. 

(6) In the case of any hospital which becomes subject to the taxes 

under section 3111 of the Internal Revenue Code of 1954, with respect to any or all of its employees, for part or all of a cost reporting period, and was not subject to such taxes with respect to any 

or all of its employees for all or part of the 12-month base cost reporting period referred to in subsection (b)(3)(A)(i), the Secretary 

shall provide for an adjustment by increasing the base period 

amount described in such subsection for such hospital by an 

amount equal to the amount of such taxes which would have been 

paid or accrued by such hospital for such base period if such hospital had been subject to such taxes for all of such base period with 


emcdonald on DSK67QTVN1PROD with HEARING
29 

respect to all its employees, minus the amount of any such taxes 

actually paid or accrued for such base period. 

(7)(A) Notwithstanding paragraph (1), in the case of a hospital or 

unit that is within a class of hospital described in subparagraph 

(B) which first receives payments under this section on or after October 1, 1997— 

(i) for each of the first 2 cost reporting periods for which the 

hospital has a settled cost report, the amount of the payment 

with respect to operating costs described in paragraph (1) 

under part A on a per discharge or per admission basis (as the 

case may be) is equal to the lesser of— 

(I) the amount of operating costs for such respective period, or 

(II) 110 percent of the national median (as estimated by 

the Secretary) of the target amount for hospitals in the 

same class as the hospital for cost reporting periods ending 

during fiscal year 1996, updated by the hospital market 

basket increase percentage to the fiscal year in which the 

hospital first received payments under this section, as adjusted under subparagraph (C); and 

(ii) for purposes of computing the target amount for the subsequent cost reporting period, the target amount for the preceding cost reporting period is equal to the amount determined 

under clause (i) for such preceding period. 

(B) For purposes of this paragraph, each of the following shall be 

treated as a separate class of hospital: 

(i) Hospitals described in clause (i) of subsection (d)(1)(B) and 

psychiatric units described in the matter following clause (v) of 

such subsection. 

(ii) Hospitals described in clause (ii) of such subsection and 

rehabilitation units described in the matter following clause (v) 

of such subsection. 

(iii) Hospitals described in clause (iv) of such subsection. 

(C) In applying subparagraph (A)(i)(II) in the case of a hospital 

or unit, the Secretary shall provide for an appropriate adjustment 

to the labor-related portion of the amount determined under such 

subparagraph to take into account differences between average 

wage-related costs in the area of the hospital and the national average of such costs within the same class of hospital. 

(c)(1) The Secretary may provide, in his discretion, that payment 

with respect to services provided by a hospital in a State may be 

made in accordance with a hospital reimbursement control system 

in a State, rather than in accordance with the other provisions of 

this title, if the chief executive officer of the State requests such 

treatment and if— 

(A) the Secretary determines that the system, if approved 

under this subsection, will apply (i) to substantially all nonFederal acute care hospitals (as defined by the Secretary) in 

the State and (ii) to the review of at least 75 percent of all revenues or expenses in the State for inpatient hospital services 

and of revenues or expenses for inpatient hospital services provided under the State’s plan approved under title XIX; 

(B) the Secretary has been provided satisfactory assurances 

as to the equitable treatment under the system of all entities 

(including Federal and State programs) that pay hospitals for 


emcdonald on DSK67QTVN1PROD with HEARING
30 

inpatient hospital services, of hospital employees, and of hospital patients; 

(C) the Secretary has been provided satisfactory assurances 

that under the system, over 36-month periods (the first such 

period beginning with the first month in which this subsection 

applies to that system in the State), the amount of payments 

made under this title under such system will not exceed the 

amount of payments which would otherwise have been made 

under this title not using such system; 

(D) the Secretary determines that the system will not preclude an eligible organization (as defined in section 1876(b)) 

from negotiating directly with hospitals with respect to the organization’s rate of payment for inpatient hospital services; 

and 

(E) the Secretary determines that the system requires hospitals to meet the requirement of section 1866(a)(1)(G) and the 

system provides for the exclusion of certain costs in accordance 

with section 1862(a)(14) (except for such waivers thereof as the 

Secretary provides by regulation). 

The Secretary cannot deny the application of a State under this 

subsection on the ground that the State’s hospital reimbursement 

control system is based on a payment methodology other than on 

the basis of a diagnosis-related group or on the ground that the 

amount of payments made under this title under such system must 

be less than the amount of payments which would otherwise have 

been made under this title not using such system. If the Secretary 

determines that the conditions described in subparagraph (C) are 

based on maintaining payment amounts at no more than a specified percentage increase above the payment amounts in a base period, the State has the option of applying such test (for inpatient 

hospital services under part A) on an aggregate payment basis or 

on the basis of the amount of payment per inpatient discharge or 

admission. If the Secretary determines that the conditions described in subparagraph (C) are based on maintaining aggregate 

payment amounts below a national average percentage increase in 

total payments under part A for inpatient hospital services, the 

Secretary cannot deny the application of a State under this subsection on the ground that the State’s rate of increase in such payments for such services must be less than such national average 

rate of increase. 

(2) In determining under paragraph (1)(C) the amount of payment which would otherwise have been made under this title for 

a State, the Secretary may provide for appropriate adjustment of 

such amount to take into account previous reductions effected in 

the amount of payments made under this title in the State due to 

the operation of the hospital reimbursement control system in the 

State if the system has resulted in an aggregate rate of increase 

in operating costs of inpatient hospital services (as defined in subsection (a)(4)) under this title for hospitals in the State which is 

less than the aggregate rate of increase in such costs under this 

title for hospitals in the United States. 

(3) The Secretary shall discontinue payments under a system described in paragraph (1) if the Secretary— 


emcdonald on DSK67QTVN1PROD with HEARING
31 

(A) determines that the system no longer meets the requirements of subparagraphs (A), (D), and (E) of paragraph (1) and, 

if applicable, the requirements of paragraph (5), or 

(B) has reason to believe that the assurances described in 

subparagraph (B) or (C) of paragraph (1) (or, if applicable, in 

paragraph (5)) are not being (or will not be) met. 

(4) The Secretary shall approve the request of a State under 

paragraph (1) with respect to a hospital reimbursement control system if— 

(A) the requirements of subparagraphs (A), (B), (C), (D), and 

(E) of paragraph (1) have been met with respect to the system, 

and 

(B) with respect to that system a waiver of certain requirements of title XVIII of the Social Security Act has been approved on or before (and which is in effect as of) the date of 

the enactment of the Social Security Amendments of 1983, pursuant to section 402(a) of the Social Security Amendments of 

1967 or section 222(a) of the Social Security Amendments of 

1972. 

With respect to a State system described in this paragraph, the 

Secretary shall judge the effectiveness of such system on the basis 

of its rate of increase or inflation in inpatient hospital payments 

for individuals under this title, as compared to the national rate of 

increase or inflation for such payments, with the State retaining 

the option to have the test applied on the basis of the aggregate 

payments under the State system as compared to aggregate payments which would have been made under the national system 

since October 1, 1984, to the most recent date for which annual 

data are available. 

(5) The Secretary shall approve the request of a State under 

paragraph (1) with respect to a hospital reimbursement control system if— 

(A) the requirements of subparagraphs (A), (B), (C), (D), and 

(E) of paragraph (1) have been met with respect to the system; 

(B) the Secretary determines that the system— 

(i) is operated directly by the State or by an entity designated pursuant to State law, 

(ii) provides for payment of hospitals covered under the 

system under a methodology (which sets forth exceptions 

and adjustments, as well as any method for changes in the 

methodology) by which rates or amounts to be paid for hospital services during a specified period are established 

under the system prior to the defined rate period, and 

(iii) hospitals covered under the system will make such 

reports (in lieu of cost and other reports, identified by the 

Secretary, otherwise required under this title) as the Secretary may require in order to properly monitor assurances 

provided under this subsection; 

(C) the State has provided the Secretary with satisfactory assurances that operation of the system will not result in any 

change in hospital admission practices which result in— 

(i) a significant reduction in the proportion of patients 

(receiving hospital services covered under the system) who 

have no third-party coverage and who are unable to pay 

for hospital services, 


emcdonald on DSK67QTVN1PROD with HEARING
32 

(ii) a significant reduction in the proportion of individuals admitted to hospitals for inpatient hospital services 

for which payment is (or is likely to be) less than the anticipated charges for or costs of such services, 

(iii) the refusal to admit patients who would be expected 

to require unusually costly or prolonged treatment for reasons other than those related to the appropriateness of the 

care available at the hospital, or 

(iv) the refusal to provide emergency services to any person who is in need of emergency services if the hospital 

provides such services; 

(D) any change by the State in the system which has the effect of materially reducing payments to hospitals can only take 

effect upon 60 days notice to the Secretary and to the hospitals 

the payment to which is likely to be materially affected by the 

change; and 

(E) the State has provided the Secretary with satisfactory assurances that in the development of the system the State has 

consulted with local governmental officials concerning the impact of the system on public hospitals. 

The Secretary shall respond to requests of States under this paragraph within 60 days of the date the request is submitted to the 

Secretary. 

(6) If the Secretary determines that the assurances described in 

paragraph (1)(C) have not been met with respect to any 36-month 

period, the Secretary may reduce payments under this title to hospitals under the system in an amount equal to the amount by 

which the payment under this title under such system for such period exceeded the amount of payments which would otherwise have 

been made under this title not using such system. 

(7) In the case of a State which made a request under paragraph 

(5) before December 31, 1984, for the approval of a State hospital 

reimbursement control system and which request was approved— 

(A) in applying paragraphs (1)(C) and (6), a reference to a 

‘‘36-month period’’ is deemed a reference to a ‘‘48-month period’’, and 

(B) in order to allow the State the opportunity to provide the 

assurances described in paragraph (1)(C) for a 48-month period, the Secretary may not discontinue payments under the 

system, under the authority of paragraph (3)(A) because the 

Secretary has reason to believe that such assurances are not 

being (or will not be) met, before July 1, 1986. 

(d)(1)(A) Notwithstanding section 1814(b) but subject to the provisions of section 1813, the amount of the payment with respect to 

the operating costs of inpatient hospital services (as defined in subsection (a)(4)) of a subsection (d) hospital (as defined in subparagraph (B)) for inpatient hospital discharges in a cost reporting period or in a fiscal year— 

(i) beginning on or after October 1, 1983, and before October 

1, 1984, is equal to the sum of— 

(I) the target percentage (as defined in subparagraph 

(C)) of the hospital’s target amount for the cost reporting 

period (as defined in subsection (b)(3)(A), but determined 

without the application of subsection (a)), and 


emcdonald on DSK67QTVN1PROD with HEARING
33 

(II) the DRG percentage (as defined in subparagraph 

(C)) of the regional adjusted DRG prospective payment 

rate determined under paragraph (2) for such discharges; 

(ii) beginning on or after October 1, 1984, and before October 

1, 1987, is equal to the sum of— 

(I) the target percentage (as defined in subparagraph 

(C)) of the hospital’s target amount for the cost reporting 

period (as defined in subsection (b)(3)(A), but determined 

without the application of subsection (a)), and 

(II) the DRG percentage (as defined in subparagraph 

(C)) of the applicable combined adjusted DRG prospective 

payment rate determined under subparagraph (D) for such 

discharges; or 

(iii) beginning on or after April 1, 1988, is equal to 

(I) the national adjusted DRG prospective payment rate 

determined under paragraph (3) for such discharges, or 

(II) for discharges occurring during a fiscal year ending 

on or before September 30, 1996, the sum of 85 percent of 

the national adjusted DRG prospective payment rate determined under paragraph (3) for such discharges and 15 

percent of the regional adjusted DRG prospective payment 

rate determined under such paragraph, but only if the average standardized amount (described in clause (i)(I) or 

clause (ii)(I) of paragraph (3)(D)) for hospitals within the 

region of, and in the same large urban or other area (or, 

for discharges occurring during a fiscal year ending on or 

before September 30, 1994, the same rural, large urban, or 

other urban area) as, the hospital is greater than the average standardized amount (described in the respective 

clause) for hospitals within the United States in that type 

of area for discharges occurring during such fiscal year. 

(B) As used in this section, the term ‘‘subsection (d) hospital’’ 

means a hospital located in one of the fifty States or the District 

of Columbia other than— 

(i) a psychiatric hospital (as defined in section 1861(f)), 

(ii) a rehabilitation hospital (as defined by the Secretary), 

(iii) a hospital whose inpatients are predominantly individuals under 18 years of age, 

(iv)(I) a hospital which has an average inpatient length of 

stay (as determined by the Secretary) of greater than 25 days, 

or 

(II) a hospital that first received payment under this subsection in 1986 which has an average inpatient length of stay 

(as determined by the Secretary) of greater than 20 days and 

that has 80 percent or more of its annual medicare inpatient 

discharges with a principal diagnosis that reflects a finding of 

neoplastic disease in the 12-month cost reporting period ending 

in fiscal year 1997, or 

(v)(I) a hospital that the Secretary has classified, at any time 

on or before December 31, 1990, (or, in the case of a hospital 

that, as of the date of the enactment of this clause, is located 

in a State operating a demonstration project under section 

1814(b), on or before December 31, 1991) for purposes of applying exceptions and adjustments to payment amounts under 


emcdonald on DSK67QTVN1PROD with HEARING
34 

this subsection, as a hospital involved extensively in treatment 

for or research on cancer, 

(II) a hospital that was recognized as a comprehensive cancer center or clinical cancer research center by the National 

Cancer Institute of the National Institutes of Health as of 

April 20, 1983, that is located in a State which, as of December 

19, 1989, was not operating a demonstration project under section 1814(b), that applied and was denied, on or before December 31, 1990, for classification as a hospital involved extensively in treatment for or research on cancer under this clause 

(as in effect on the day before the date of the enactment of this 

subclause), that as of the date of the enactment of this subclause, is licensed for less than 50 acute care beds, and that 

demonstrates for the 4–year period ending on December 31, 

1996, that at least 50 percent of its total discharges have a 

principal finding of neoplastic disease, as defined in subparagraph (E), or 

(III) a hospital that was recognized as a clinical cancer research center by the National Cancer Institute of the National 

Institutes of Health as of February 18, 1998, that has never 

been reimbursed for inpatient hospital services pursuant to a 

reimbursement system under a demonstration project under 

section 1814(b), that is a freestanding facility organized primarily for treatment of and research on cancer and is not a 

unit of another hospital, that as of the date of the enactment 

of this subclause, is licensed for 162 acute care beds, and that 

demonstrates for the 4-year period ending on June 30, 1999, 

that at least 50 percent of its total discharges have a principal 

finding of neoplastic disease, as defined in subparagraph (E); 

and, in accordance with regulations of the Secretary, does not include a psychiatric or rehabilitation unit of the hospital which is 

a distinct part of the hospital (as defined by the Secretary). A hospital that was classified by the Secretary on or before September 

30, 1995, as a hospital described in clause (iv) shall continue to be 

so classified notwithstanding that it is located in the same building 

as, or on the same campus as, another hospital. 

(C) For purposes of this subsection, for cost reporting periods beginning— 

(i) on or after October 1, 1983, and before October 1, 1984, 

the ‘‘target percentage’’ is 75 percent and the ‘‘DRG percentage’’ is 25 percent; 

(ii) on or after October 1, 1984, and before October 1, 1985, 

the ‘‘target percentage’’ is 50 percent and the ‘‘DRG percentage’’ is 50 percent; 

(iii) on or after October 1, 1985, and before October 1, 1986, 

the ‘‘target percentage’’ is 45 percent and the ‘‘DRG percentage’’ is 55 percent; and 

(iv) on or after October 1, 1986, and before October 1, 1987, 

the ‘‘target percentage’’ is 25 percent and the ‘‘DRG percentage’’ is 75 percent. 

(D) For purposes of subparagraph (A)(ii)(II), the ‘‘applicable combined adjusted DRG prospective payment rate’’ for discharges occurring— 

(i) on or after October 1, 1984, and before October 1, 1986, 

is a combined rate consisting of 25 percent of the national adVerDate Sep 11 2014 01:51 Jun 18, 2015 Jkt 049006 PO 00000 Frm 00034 Fmt 6659 Sfmt 6602 E:\HR\OC\HR156.XXX HR156

emcdonald on DSK67QTVN1PROD with HEARING
35 

justed DRG prospective payment rate, and 75 percent of the regional adjusted DRG prospective payment rate, determined 

under paragraph (3) for such discharges; and 

(ii) on or after October 1, 1986, and before October 1, 1987, 

is a combined rate consisting of 50 percent of the national adjusted DRG prospective payment rate, and 50 percent of the regional adjusted DRG prospective payment rate, determined 

under paragraph (3) for such discharges. 

(E) For purposes of subclauses (II) and (III) of subparagraph 

(B)(v) only, the term ‘‘principal finding of neoplastic disease’’ means 

the condition established after study to be chiefly responsible for 

occasioning the admission of a patient to a hospital, except that 

only discharges with ICD–9–CM principal diagnosis codes of 140 

through 239, V58.0, V58.1, V66.1, V66.2, or 990 will be considered 

to reflect such a principal diagnosis. 

(2) The Secretary shall determine a national adjusted DRG prospective payment rate, for each inpatient hospital discharge in fiscal year 1984 involving inpatient hospital services of a subsection 

(d) hospital in the United States, and shall determine a regional 

adjusted DRG prospective payment rate for such discharges in each 

region, for which payment may be made under part A of this title. 

Each such rate shall be determined for hospitals located in urban 

or rural areas within the United States or within each such region, 

respectively, as follows: 

(A) DETERMINING ALLOWABLE INDIVIDUAL HOSPITAL COSTS

FOR BASE PERIOD.—The Secretary shall determine the allowable operating costs per discharge of inpatient hospital services 

for the hospital for the most recent cost reporting period for 

which data are available. 

(B) UPDATING FOR FISCAL YEAR 1984.—The Secretary shall 

update each amount determined under subparagraph (A) for 

fiscal year 1984 by— 

(i) updating for fiscal year 1983 by the estimated average rate of change of hospital costs industry-wide between 

the cost reporting period used under such subparagraph 

and fiscal year 1983 and the most recent case-mix data 

available, and 

(ii) projecting for fiscal year 1984 by the applicable percentage increase (as defined in subsection (b)(3)(B)) for fiscal year 1984. 

(C) STANDARDIZING AMOUNTS.—The Secretary shall standardize the amount updated under subparagraph (B) for each 

hospital by— 

(i) excluding an estimate of indirect medical education 

costs (taking into account, for discharges occurring after 

September 30, 1986, the amendments made by section 

9104(a) of the Medicare and Medicaid Budget Reconciliation Amendments of 1985), except that the Secretary 

shall not take into account any reduction in the amount of 

additional payments under paragraph (5)(B)(ii) resulting 

from the amendment made by section 4621(a)(1) of the 

Balanced Budget Act of 1997 or any additional payments 

under such paragraph resulting from the application of 

section 111 of the Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999, of section 302 of the 


emcdonald on DSK67QTVN1PROD with HEARING
36 

Medicare, Medicaid, and SCHIP Benefits Improvement 

and Protection Act of 2000, or the Medicare Prescription 

Drug, Improvement, and Modernization Act of 2003, 

(ii) adjusting for variations among hospitals by area in 

the average hospital wage level, 

(iii) adjusting for variations in case mix among hospitals, 

and 

(iv) for discharges occurring on or after October 1, 1986, 

excluding an estimate of the additional payments to certain hospitals to be made under paragraph (5)(F), except 

that the Secretary shall not exclude additional payments 

under such paragraph made as a result of the enactment 

of section 6003(c) of the Omnibus Budget Reconciliation 

Act of 1989, the enactment of section 4002(b) of the Omnibus Budget Reconciliation Act of 1990, the enactment of 

section 303 of the Medicare, Medicaid, and SCHIP Benefits 

Improvement and Protection Act of 2000, or the enactment 

of section 402(a)(1) of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. 

(D) COMPUTING URBAN AND RURAL AVERAGES.—The Secretary 

shall compute an average of the standardized amounts determined under subparagraph (C) for the United States and for 

each region— 

(i) for all subsection (d) hospitals located in an urban 

area within the United States or that region, respectively, 

and 

(ii) for all subsection (d) hospitals located in a rural area 

within the United States or that region, respectively. 

For purposes of this subsection, the term ‘‘region’’ means one 

of the nine census divisions, comprising the fifty States and the 

District of Columbia, established by the Bureau of the Census 

for statistical and reporting purposes; the term ‘‘urban area’’ 

means an area within a Metropolitan Statistical Area (as defined by the Office of Management and Budget) or within such 

similar area as the Secretary has recognized under subsection 

(a) by regulation; the term ‘‘large urban area’’ means, with respect to a fiscal year, such an urban area which the Secretary 

determines (in the publications described in subsection (e)(5) 

before the fiscal year) has a population of more than 1,000,000 

(as determined by the Secretary based on the most recent 

available population data published by the Bureau of the Census); and the term ‘‘rural area’’ means any area outside such 

an area or similar area. A hospital located in a Metropolitan 

Statistical Area shall be deemed to be located in the region in 

which the largest number of the hospitals in the same Metropolitan Statistical Area are located, or, at the option of the Secretary, the region in which the majority of the inpatient discharges (with respect to which payments are made under this 

title) from hospitals in the same Metropolitan Statistical Area 

are made. 

(E) REDUCING FOR VALUE OF OUTLIER PAYMENTS.—The Secretary shall reduce each of the average standardized amounts 

determined under subparagraph (D) by a proportion equal to 

the proportion (estimated by the Secretary) of the amount of 

payments under this subsection based on DRG prospective 


emcdonald on DSK67QTVN1PROD with HEARING
37 

payment rates which are additional payments described in 

paragraph (5)(A) (relating to outlier payments). 

(F) MAINTAINING BUDGET NEUTRALITY.—The Secretary shall 

adjust each of such average standardized amounts as may be 

required under subsection (e)(1)(B) for that fiscal year. 

(G) COMPUTING DRG-SPECIFIC RATES FOR URBAN AND RURAL

HOSPITALS IN THE UNITED STATES AND IN EACH REGION.—For 

each discharge classified within a diagnosis-related group, the 

Secretary shall establish a national DRG prospective payment 

rate and shall establish a regional DRG prospective payment 

rate for each region, each of which is equal— 

(i) for hospitals located in an urban area in the United 

States or that region (respectively), to the product of— 

(I) the average standardized amount (computed 

under subparagraph (D), reduced under subparagraph 

(E), and adjusted under subparagraph (F)) for hospitals located in an urban area in the United States 

or that region, and 

(II) the weighting factor (determined under paragraph (4)(B)) for that diagnosis-related group; and 

(ii) for hospitals located in a rural area in the United 

States or that region (respectively), to the product of— 

(I) the average standardized amount (computed 

under subparagraph (D), reduced under subparagraph 

(E), and adjusted under subparagraph (F)) for hospitals located in a rural area in the United States or 

that region, and 

(II) the weighting factor (determined under paragraph (4)(B)) for that diagnosis-related group. 

(H) ADJUSTING FOR DIFFERENT AREA WAGE LEVELS.—The Secretary shall adjust the proportion, (as estimated by the Secretary from time to time) of hospitals’ costs which are attributable to wages and wage-related costs, of the national and regional DRG prospective payment rates computed under subparagraph (G) for area differences in hospital wage levels by 

a factor (established by the Secretary) reflecting the relative 

hospital wage level in the geographic area of the hospital compared to the national average hospital wage level. 

(3) The Secretary shall determine a national adjusted DRG prospective payment rate, for each inpatient hospital discharge in a 

fiscal year after fiscal year 1984 involving inpatient hospital services of a subsection (d) hospital in the United States, and shall determine, for fiscal years before fiscal year 1997, a regional adjusted 

DRG prospective payment rate for such discharges in each region 

for which payment may be made under part A of this title. Each 

such rate shall be determined for hospitals located in large urban, 

other urban, or rural areas within the United States and within 

each such region, respectively, as follows: 

(A) UPDATING PREVIOUS STANDARDIZED AMOUNTS.—(i) For 

discharges occurring in a fiscal year beginning before October 

1, 1987, the Secretary shall compute an average standardized 

amount for hospitals located in an urban area and for hospitals 

located in a rural area within the United States and for hospitals located in an urban area and for hospitals located in a 

rural area within each region, equal to the respective average 


emcdonald on DSK67QTVN1PROD with HEARING
38 

standardized amount computed for the previous fiscal year 

under paragraph (2)(D) or under this subparagraph, increased 

for the fiscal year involved by the applicable percentage increase under subsection (b)(3)(B). With respect to discharges 

occurring on or after October 1, 1987, the Secretary shall compute urban and rural averages on the basis of discharge 

weighting rather than hospital weighting, making appropriate 

adjustments to ensure that computation on such basis does not 

result in total payments under this section that are greater or 

less than the total payments that would have been made under 

this section but for this sentence, and making appropriate 

changes in the manner of determining the reductions under 

subparagraph (C)(ii). 

(ii) For discharges occurring in a fiscal year beginning on or 

after October 1, 1987, and ending on or before September 30, 

1994, the Secretary shall compute an average standardized 

amount for hospitals located in a large urban area, for hospitals located in a rural area, and for hospitals located in other 

urban areas, within the United States and within each region, 

equal to the respective average standardized amount computed 

for the previous fiscal year under this subparagraph increased 

by the applicable percentage increase under subsection 

(b)(3)(B)(i) with respect to hospitals located in the respective 

areas for the fiscal year involved. 

(iii) For discharges occurring in the fiscal year beginning on 

October 1, 1994, the average standardized amount for hospitals 

located in a rural area shall be equal to the average standardized amount for hospitals located in an urban area. For discharges occurring on or after October 1, 1994, the Secretary 

shall adjust the ratio of the labor portion to non-labor portion 

of each average standardized amount to equal such ratio for 

the national average of all standardized amounts. 

(iv)(I) Subject to subclause (II), for discharges occurring in a 

fiscal year beginning on or after October 1, 1995, the Secretary 

shall compute an average standardized amount for hospitals 

located in a large urban area and for hospitals located in other 

areas within the United States and within each region equal 

to the respective average standardized amount computed for 

the previous fiscal year under this subparagraph increased by 

the applicable percentage increase under subsection (b)(3)(B)(i) 

with respect to hospitals located in the respective areas for the 

fiscal year involved. 

(II) For discharges occurring in a fiscal year (beginning with 

fiscal year 2004), the Secretary shall compute a standardized 

amount for hospitals located in any area within the United 

States and within each region equal to the standardized 

amount computed for the previous fiscal year under this subparagraph for hospitals located in a large urban area (or, beginning with fiscal year 2005, for all hospitals in the previous 

fiscal year) increased by the applicable percentage increase 

under subsection (b)(3)(B)(i) for the fiscal year involved. 

(v) Average standardized amounts computed under this 

paragraph shall be adjusted to reflect the most recent case-mix 

data available. 


emcdonald on DSK67QTVN1PROD with HEARING
39 

(vi) Insofar as the Secretary determines that the adjustments under paragraph (4)(C)(i) for a previous fiscal year (or 

estimates that such adjustments for a future fiscal year) did 

(or are likely to) result in a change in aggregate payments 

under this subsection during the fiscal year that are a result 

of changes in the coding or classification of discharges that do 

not reflect real changes in case mix, the Secretary may adjust 

the average standardized amounts computed under this paragraph for subsequent fiscal years so as to eliminate the effect 

of such coding or classification changes. 

(B) REDUCING FOR VALUE OF OUTLIER PAYMENTS.—The Secretary shall reduce each of the average standardized amounts 

determined under subparagraph (A) by a factor equal to the 

proportion of payments under this subsection (as estimated by 

the Secretary) based on DRG prospective payment amounts 

which are additional payments described in paragraph (5)(A) 

(relating to outlier payments). 

(C)(i) MAINTAINING BUDGET NEUTRALITY FOR FISCAL YEAR

1985.—For discharges occurring in fiscal year 1985, the Secretary shall adjust each of such average standardized amounts 

as may be required under subsection (e)(1)(B) for that fiscal 

year. 

(ii) REDUCING FOR SAVINGS FROM AMENDMENT TO INDIRECT

TEACHING ADJUSTMENT FOR DISCHARGES AFTER SEPTEMBER 30, 1986.—For discharges occurring after September 30, 1986, the 

Secretary shall further reduce each of the average standardized amounts (in a proportion which takes into account the differing effects of the standardization effected under paragraph 

(2)(C)(i)) so as to provide for a reduction in the total of the payments (attributable to this paragraph) made for discharges occurring on or after October 1, 1986, of an amount equal to the 

estimated reduction in the payment amounts under paragraph 

(5)(B) that would have resulted from the enactment of the 

amendments made by section 9104 of the Medicare and Medicaid Budget Reconciliation Amendments of 1985 and by section 4003(a)(1) of the Omnibus Budget Reconciliation Act of 

1987 if the factor described in clause (ii)(II) of paragraph (5)(B) 

(determined without regard to amendments made by the Omnibus Budget Reconciliation Act of 1990) were applied for discharges occurring on or after such date instead of the factor described in clause (ii) of that paragraph. 

(D) COMPUTING DRG-SPECIFIC RATES FOR HOSPITALS.—For 

each discharge classified within a diagnosis-related group, the 

Secretary shall establish for the fiscal year a national DRG 

prospective payment rate and shall establish, for fiscal years 

before fiscal year 1997, a regional DRG prospective payment 

rate for each region which is equal— 

(i) for fiscal years before fiscal year 2004, for hospitals 

located in a large urban area in the United States or that 

region (respectively), to the product of— 

(I) the average standardized amount (computed 

under subparagraph (A), reduced under subparagraph 

(B), and adjusted or reduced under subparagraph (C)) 

for the fiscal year for hospitals located in such a large 

urban area in the United States or that region, and 


emcdonald on DSK67QTVN1PROD with HEARING
40 

(II) the weighting factor (determined under paragraph (4)(B)) for that diagnosis-related group; 

(ii) for fiscal years before fiscal year 2004, for hospitals 

located in other areas in the United States or that region 

(respectively), to the product of— 

(I) the average standardized amount (computed 

under subparagraph (A), reduced under subparagraph 

(B), and adjusted or reduced under subparagraph (C)) 

for the fiscal year for hospitals located in other areas 

in the United States or that region, and 

(II) the weighting factor (determined under paragraph (4)(B)) for that diagnosis-related group; and 

(iii) for a fiscal year beginning after fiscal year 2003, for 

hospitals located in all areas, to the product of— 

(I) the applicable standardized amount (computed 

under subparagraph (A)), reduced under subparagraph 

(B), and adjusted or reduced under subparagraph (C) 

for the fiscal year; and 

(II) the weighting factor (determined under paragraph (4)(B)) for that diagnosis-related group. 

(E) ADJUSTING FOR DIFFERENT AREA WAGE LEVELS.— (i) IN GENERAL.—Except as provided in clause (ii) or (iii), 

the Secretary shall adjust the proportion, (as estimated by 

the Secretary from time to time) of hospitals’ costs which 

are attributable to wages and wage-related costs, of the 

DRG prospective payment rates computed under subparagraph (D) for area differences in hospital wage levels by a 

factor (established by the Secretary) reflecting the relative 

hospital wage level in the geographic area of the hospital 

compared to the national average hospital wage level. Not 

later than October 1, 1990, and October 1, 1993 (and at 

least every 12 months thereafter), the Secretary shall update the factor under the preceding sentence on the basis 

of a survey conducted by the Secretary (and updated as appropriate) of the wages and wage-related costs of subsection (d) hospitals in the United States. Not less often 

than once every 3 years the Secretary (through such survey or otherwise) shall measure the earnings and paid 

hours of employment by occupational category and shall 

exclude data with respect to the wages and wage-related 

costs incurred in furnishing skilled nursing facility services. Any adjustments or updates made under this subparagraph for a fiscal year (beginning with fiscal year 

1991) shall be made in a manner that assures that the aggregate payments under this subsection in the fiscal year 

are not greater or less than those that would have been 

made in the year without such adjustment. The Secretary 

shall apply the previous sentence for any period as if the 

amendments made by section 403(a)(1) of the Medicare 

Prescription Drug, Improvement, and Modernization Act of 

2003 and the amendments made by section 10324(a)(1) of 

the Patient Protection and Affordable Care Act had not 

been enacted. 

(ii) ALTERNATIVE PROPORTION TO BE ADJUSTED BEGINNING IN FISCAL YEAR 2005.—For discharges occurring on or 


emcdonald on DSK67QTVN1PROD with HEARING
41 

after October 1, 2004, the Secretary shall substitute ‘‘62 

percent’’ for the proportion described in the first sentence 

of clause (i), unless the application of this clause would result in lower payments to a hospital than would otherwise 

be made. 

(iii) FLOOR ON AREA WAGE INDEX FOR HOSPITALS IN FRON- TIER STATES.— (I) IN GENERAL.—Subject to subclause (IV), for discharges occurring on or after October 1, 2010, the area 

wage index applicable under this subparagraph to any 

hospital which is located in a frontier State (as defined 

in subclause (II)) may not be less than 1.00. 

(II) FRONTIER STATE DEFINED.—In this clause, the 

term ‘‘frontier State’’ means a State in which at least 

50 percent of the counties in the State are frontier 

counties. 

(III) FRONTIER COUNTY DEFINED.—In this clause, the 

term ‘‘frontier county’’ means a county in which the 

population per square mile is less than 6. 

(IV) LIMITATION.—This clause shall not apply to any 

hospital located in a State that receives a non-labor 

related share adjustment under paragraph (5)(H). 

(4)(A) The Secretary shall establish a classification of inpatient 

hospital discharges by diagnosis-related groups and a methodology 

for classifying specific hospital discharges within these groups. 

(B) For each such diagnosis-related group the Secretary shall assign an appropriate weighting factor which reflects the relative 

hospital resources used with respect to discharges classified within 

that group compared to discharges classified within other groups. 

(C)(i) The Secretary shall adjust the classifications and weighting 

factors established under subparagraphs (A) and (B), for discharges 

in fiscal year 1988 and at least annually thereafter, to reflect 

changes in treatment patterns, technology (including a new medical service or technology under paragraph (5)(K)), and other factors which may change the relative use of hospital resources. 

(ii) For discharges in fiscal year 1990, the Secretary shall reduce 

the weighting factor for each diagnosis-related group by 1.22 percent. 

(iii) Any such adjustment under clause (i) for discharges in a fiscal year (beginning with fiscal year 1991) shall be made in a manner that assures that the aggregate payments under this subsection for discharges in the fiscal year are not greater or less than 

those that would have been made for discharges in the year without such adjustment. 

(D)(i) For discharges occurring on or after October 1, 2008, the 

diagnosis-related group to be assigned under this paragraph for a 

discharge described in clause (ii) shall be a diagnosis-related group 

that does not result in higher payment based on the presence of a 

secondary diagnosis code described in clause (iv). 

(ii) A discharge described in this clause is a discharge which 

meets the following requirements: 

(I) The discharge includes a condition identified by a diagnosis code selected under clause (iv) as a secondary diagnosis. 

(II) But for clause (i), the discharge would have been classified to a diagnosis-related group that results in a higher payVerDate Sep 11 2014 01:51 Jun 18, 2015 Jkt 049006 PO 00000 Frm 00041 Fmt 6659 Sfmt 6602 E:\HR\OC\HR156.XXX HR156

emcdonald on DSK67QTVN1PROD with HEARING
42 

ment based on the presence of a secondary diagnosis code selected under clause (iv). 

(III) At the time of admission, no code selected under clause 

(iv) was present. 

(iii) As part of the information required to be reported by a hospital with respect to a discharge of an individual in order for payment to be made under this subsection, for discharges occurring on 

or after October 1, 2007, the information shall include the secondary diagnosis of the individual at admission. 

(iv) By not later than October 1, 2007, the Secretary shall select 

diagnosis codes associated with at least two conditions, each of 

which codes meets all of the following requirements (as determined 

by the Secretary): 

(I) Cases described by such code have a high cost or high volume, or both, under this title. 

(II) The code results in the assignment of a case to a diagnosis-related group that has a higher payment when the code 

is present as a secondary diagnosis. 

(III) The code describes such conditions that could reasonably have been prevented through the application of evidencebased guidelines. 

The Secretary may from time to time revise (through addition or 

deletion of codes) the diagnosis codes selected under this clause so 

long as there are diagnosis codes associated with at least two conditions selected for discharges occurring during any fiscal year. 

(v) In selecting and revising diagnosis codes under clause (iv), the 

Secretary shall consult with the Centers for Disease Control and 

Prevention and other appropriate entities. 

(vi) Any change resulting from the application of this subparagraph shall not be taken into account in adjusting the weighting 

factors under subparagraph (C)(i) or in applying budget neutrality 

under subparagraph (C)(iii). 

(5)(A)(i) For discharges occurring during fiscal years ending on or 

before September 30, 1997, the Secretary shall provide for an additional payment for a subsection (d) hospital for any discharge in a 

diagnosis-related group, the length of stay of which exceeds the 

mean length of stay for discharges within that group by a fixed 

number of days, or exceeds such mean length of stay by some fixed 

number of standard deviations, whichever is the fewer number of 

days. 

(ii) For cases which are not included in clause (i), a subsection 

(d) hospital may request additional payments in any case where 

charges, adjusted to cost, exceed a fixed multiple of the applicable 

DRG prospective payment rate, or exceed such other fixed dollar 

amount, whichever is greater, or for discharges in fiscal years beginning on or after October 1, 1994, exceed the sum of the applicable DRG prospective payment rate plus any amounts payable 

under subparagraphs (B) and (F) plus a fixed dollar amount determined by the Secretary. 

(iii) The amount of such additional payment under clauses (i) and 

(ii) shall be determined by the Secretary and shall (except as payments under clause (i) are required to be reduced to take into account the requirements of clause (v)) approximate the marginal 

cost of care beyond the cutoff point applicable under clause (i) or 

(ii). 


emcdonald on DSK67QTVN1PROD with HEARING
43 

(iv) The total amount of the additional payments made under 

this subparagraph for discharges in a fiscal year may not be less 

than 5 percent nor more than 6 percent of the total payments projected or estimated to be made based on DRG prospective payment 

rates for discharges in that year. 

(v) The Secretary shall provide that— 

(I) the day outlier percentage for fiscal year 1995 shall be 75 

percent of the day outlier percentage for fiscal year 1994; 

(II) the day outlier percentage for fiscal year 1996 shall be 

50 percent of the day outlier percentage for fiscal year 1994; 

and 

(III) the day outlier percentage for fiscal year 1997 shall be 

25 percent of the day outlier percentage for fiscal year 1994. 

(vi) For purposes of this subparagraph the term ‘‘day outlier percentage’’ means, for a fiscal year, the percentage of the total additional payments made by the Secretary under this subparagraph 

for discharges in that fiscal year which are additional payments 

under clause (i). 

(B) The Secretary shall provide for an additional payment 

amount for subsection (d) hospitals with indirect costs of medical 

education, in an amount computed in the same manner as the adjustment for such costs under regulations (in effect as of January 

1, 1983) under subsection (a)(2), except as follows: 

(i) The amount of such additional payment shall be determined by multiplying (I) the sum of the amount determined 

under paragraph (1)(A)(ii)(II) (or, if applicable, the amount determined under paragraph (1)(A)(iii)) and, for cases qualifying 

for additional payment under subparagraph (A)(i), the amount 

paid to the hospital under subparagraph (A), by (II) the indirect teaching adjustment factor described in clause (ii). 

(ii) For purposes of clause (i)(II), the indirect teaching adjustment factor is equal to c × (((1+r) to the nth power) ¥ 1), 

where ‘‘r’’ is the ratio of the hospital’s full-time equivalent interns and residents to beds and ‘‘n’’ equals .405. Subject to 

clause (ix), for discharges occurring— 

(I) on or after October 1, 1988, and before October 1, 

1997, ‘‘c’’ is equal to 1.89; 

(II) during fiscal year 1998, ‘‘c’’ is equal to 1.72; 

(III) during fiscal year 1999, ‘‘c’’ is equal to 1.6; 

(IV) during fiscal year 2000, ‘‘c’’ is equal to 1.47; 

(V) during fiscal year 2001, ‘‘c’’ is equal to 1.54; 

(VI) during fiscal year 2002, ‘‘c’’ is equal to 1.6; 

(VII) on or after October 1, 2002, and before April 1, 

2004, ‘‘c’’ is equal to 1.35; 

(VIII) on or after April 1, 2004, and before October 1, 

2004, ‘‘c’’ is equal to 1.47; 

(IX) during fiscal year 2005, ‘‘c’’ is equal to 1.42; 

(X) during fiscal year 2006, ‘‘c’’ is equal to 1.37; 

(XI) during fiscal year 2007, ‘‘c’’ is equal to 1.32; and 

(XII) on or after October 1, 2007, ‘‘c’’ is equal to 1.35. 

(iii) In determining such adjustment the Secretary shall not 

distinguish between those interns and residents who are employees of a hospital and those interns and residents who furnish services to a hospital but are not employees of such hospital. 


emcdonald on DSK67QTVN1PROD with HEARING
44 

(iv)(I) Effective for discharges occurring on or after October 

1, 1997, and before July 1, 2010, all the time spent by an intern or resident in patient care activities under an approved 

medical residency training program at an entity in a nonhospital setting shall be counted towards the determination of fulltime equivalency if the hospital incurs all, or substantially all, 

of the costs for the training program in that setting. 

(II) Effective for discharges occurring on or after July 1, 

2010, all the time spent by an intern or resident in patient 

care activities in a nonprovider setting shall be counted towards the determination of full-time equivalency if a hospital 

incurs the costs of the stipends and fringe benefits of the intern or resident during the time the intern or resident spends 

in that setting. If more than one hospital incurs these costs, either directly or through a third party, such hospitals shall 

count a proportional share of the time, as determined by written agreement between the hospitals, that a resident spends 

training in that setting. 

(v) In determining the adjustment with respect to a hospital 

for discharges occurring on or after October 1, 1997, the total 

number of full-time equivalent interns and residents in the 

fields of allopathic and osteopathic medicine in either a hospital or nonhospital setting may not exceed the number (or, 

130 percent of such number in the case of a hospital located 

in a rural area) of such full-time equivalent interns and residents in the hospital with respect to the hospital’s most recent 

cost reporting period ending on or before December 31, 1996. 

Rules similar to the rules of subsection (h)(4)(F)(ii) shall apply 

for purposes of this clause. The provisions of subsections 

(h)(4)(H)(vi), (h)(7), and (h)(8) shall apply with respect to the 

first sentence of this clause in the same manner as they apply 

with respect to subsection (h)(4)(F)(i). 

(vi) For purposes of clause (ii)— 

(I) ‘‘r’’ may not exceed the ratio of the number of interns 

and residents, subject to the limit under clause (v), with 

respect to the hospital for its most recent cost reporting 

period to the hospital’s available beds (as defined by the 

Secretary) during that cost reporting period, and 

(II) for the hospital’s cost reporting periods beginning on 

or after October 1, 1997, subject to the limits described in 

clauses (iv) and (v), the total number of full-time equivalent residents for payment purposes shall equal the average of the actual full-time equivalent resident count for the 

cost reporting period and the preceding two cost reporting 

periods. 

In the case of the first cost reporting period beginning on or 

after October 1, 1997, subclause (II) shall be applied by using 

the average for such period and the preceding cost reporting 

period. 

(vii) If any cost reporting period beginning on or after October 1, 1997, is not equal to twelve months, the Secretary shall 

make appropriate modifications to ensure that the average 

full-time equivalent residency count pursuant to subclause (II) 

of clause (vi) is based on the equivalent of full twelve-month 

cost reporting periods. 


emcdonald on DSK67QTVN1PROD with HEARING
45 

(viii) Rules similar to the rules of subsection (h)(4)(H) shall 

apply for purposes of clauses (v) and (vi). 

(ix) For discharges occurring on or after July 1, 2005, insofar 

as an additional payment amount under this subparagraph is 

attributable to resident positions redistributed to a hospital 

under subsection (h)(7)(B), in computing the indirect teaching 

adjustment factor under clause (ii) the adjustment shall be 

computed in a manner as if ‘‘c’’ were equal to 0.66 with respect 

to such resident positions. 

(x) For discharges occurring on or after July 1, 2011, insofar 

as an additional payment amount under this subparagraph is 

attributable to resident positions distributed to a hospital 

under subsection (h)(8)(B), the indirect teaching adjustment 

factor shall be computed in the same manner as provided 

under clause (ii) with respect to such resident positions. 

(x)(I) The provisions of subparagraph (K) of subsection (h)(4) 

shall apply under this subparagraph in the same manner as 

they apply under such subsection. 

(II) In determining the hospital’s number of fulltime equivalent residents for purposes of this subparagraph, all the time spent by an intern or resident in 

an approved medical residency training program in 

non-patient care activities, such as didactic conferences and seminars, as such time and activities are 

defined by the Secretary, that occurs in the hospital 

shall be counted toward the determination of full-time 

equivalency if the hospital— 

(aa) is recognized as a subsection (d) hospital; 

(bb) is recognized as a subsection (d) Puerto 

Rico hospital; 

(cc) is reimbursed under a reimbursement system authorized under section 1814(b)(3); or 

(dd) is a provider-based hospital outpatient department. 

(III) In determining the hospital’s number of fulltime equivalent residents for purposes of this subparagraph, all the time spent by an intern or resident in 

an approved medical residency training program in research activities that are not associated with the treatment or diagnosis of a particular patient, as such time 

and activities are defined by the Secretary, shall not 

be counted toward the determination of full-time 

equivalency. 

(C)(i) The Secretary shall provide for such exceptions and adjustments to the payment amounts established under this subsection 

(other than under paragraph (9)) as the Secretary deems appropriate to take into account the special needs of regional and national referral centers (including those hospitals of 275 or more 

beds located in rural areas). A hospital which is classified as a 

rural hospital may appeal to the Secretary to be classified as a 

rural referral center under this clause on the basis of criteria (established by the Secretary) which shall allow the hospital to demonstrate that it should be so reclassified by reason of certain of its 

operating characteristics being similar to those of a typical urban 

hospital located in the same census region and which shall not reVerDate Sep 11 2014 01:51 Jun 18, 2015 Jkt 049006 PO 00000 Frm 00045 Fmt 6659 Sfmt 6602 E:\HR\OC\HR156.XXX HR156

emcdonald on DSK67QTVN1PROD with HEARING
46 

quire a rural osteopathic hospital to have more than 3,000 discharges in a year in order to be classified as a rural referral center. 

Such characteristics may include wages, scope of services, service 

area, and the mix of medical specialties. The Secretary shall publish the criteria not later than August 17, 1984, for implementation 

by October 1, 1984. An appeal allowed under this clause must be 

submitted to the Secretary (in such form and manner as the Secretary may prescribe) during the quarter before the first quarter of 

the hospital’s cost reporting period (or, in the case of a cost reporting period beginning during October 1984, during the first quarter 

of that period), and the Secretary must make a final determination 

with respect to such appeal within 60 days after the date the appeal was submitted. Any payment adjustments necessitated by a 

reclassification based upon the appeal shall be effective at the beginning of such cost reporting period. 

(ii) The Secretary shall provide, under clause (i), for the classification of a rural hospital as a regional referral center if the hospital has a case mix index equal to or greater than the median case 

mix index for hospitals (other than hospitals with approved teaching programs) located in an urban area in the same region (as defined in paragraph (2)(D)), has at least 5,000 discharges a year or, 

if less, the median number of discharges in urban hospitals in the 

region in which the hospital is located (or, in the case of a rural 

osteopathic hospital, meets the criterion established by the Secretary under clause (i) with respect to the annual number of discharges for such hospitals), and meets any other criteria established by the Secretary under clause (i). 

(D)(i) For any cost reporting period beginning on or after April 

1, 1990, with respect to a subsection (d) hospital which is a sole 

community hospital, payment under paragraph (1)(A) shall be— 

(I) an amount based on 100 percent of the hospital’s target 

amount for the cost reporting period, as defined in subsection 

(b)(3)(C), or 

(II) the amount determined under paragraph (1)(A)(iii), 

whichever results in greater payment to the hospital. 

(ii) In the case of a sole community hospital that experiences, in 

a cost reporting period compared to the previous cost reporting period, a decrease of more than 5 percent in its total number of inpatient cases due to circumstances beyond its control, the Secretary 

shall provide for such adjustment to the payment amounts under 

this subsection (other than under paragraph (9)) as may be necessary to fully compensate the hospital for the fixed costs it incurs 

in the period in providing inpatient hospital services, including the 

reasonable cost of maintaining necessary core staff and services. 

(iii) For purposes of this title, the term ‘‘sole community hospital’’ 

means any hospital— 

(I) that the Secretary determines is located more than 35 

road miles from another hospital, 

(II) that, by reason of factors such as the time required for 

an individual to travel to the nearest alternative source of appropriate inpatient care (in accordance with standards promulgated by the Secretary), location, weather conditions, travel 

conditions, or absence of other like hospitals (as determined by 

the Secretary), is the sole source of inpatient hospital services 


emcdonald on DSK67QTVN1PROD with HEARING
47 

reasonably available to individuals in a geographic area who 

are entitled to benefits under part A, or 

(III) that is located in a rural area and designated by the 

Secretary as an essential access community hospital under section 1820(i)(1) as in effect on September 30, 1997. 

(iv) The Secretary shall promulgate a standard for determining 

whether a hospital meets the criteria for classification as a sole 

community hospital under clause (iii)(II) because of the time required for an individual to travel to the nearest alternative source 

of appropriate inpatient care. 

(v) If the Secretary determines that, in the case of a hospital located in a rural area and designated by the Secretary as an essential access community hospital under section 1820(i)(1) as in effect 

on September 30, 1997, the hospital has incurred increases in reasonable costs during a cost reporting period as a result of becoming 

a member of a rural health network (as defined in section 1820(d)) 

in the State in which it is located, and in incurring such increases, 

the hospital will increase its costs for subsequent cost reporting periods, the Secretary shall increase the hospital’s target amount 

under subsection (b)(3)(C) to account for such incurred increases. 

(E)(i) The Secretary shall estimate the amount of reimbursement 

made for services described in section 1862(a)(14) with respect to 

which payment was made under part B in the base reporting periods referred to in paragraph (2)(A) and with respect to which payment is no longer being made. 

(ii) The Secretary shall provide for an adjustment to the payment 

for subsection (d) hospitals in each fiscal year so as appropriately 

to reflect the net amount described in clause (i). 

(F)(i) Subject to subsection (r), for discharges occurring on or 

after May 1, 1986, the Secretary shall provide, in accordance with 

this subparagraph, for an additional payment amount for each subsection (d) hospital which— 

(I) serves a significantly disproportionate number of low-income patients (as defined in clause (v)), or 

(II) is located in an urban area, has 100 or more beds, and 

can demonstrate that its net inpatient care revenues (excluding any of such revenues attributable to this title or State 

plans approved under title XIX), during the cost reporting period in which the discharges occur, for indigent care from State 

and local government sources exceed 30 percent of its total of 

such net inpatient care revenues during the period. 

(ii) Subject to clause (ix), the amount of such payment for each 

discharge shall be determined by multiplying (I) the sum of the 

amount determined under paragraph (1)(A)(ii)(II) (or, if applicable, 

the amount determined under paragraph (1)(A)(iii)) and, for cases 

qualifying for additional payment under subparagraph (A)(i), the 

amount paid to the hospital under subparagraph (A) for that discharge, by (II) the disproportionate share adjustment percentage 

established under clause (iii) or (iv) for the cost reporting period in 

which the discharge occurs. 

(iii) The disproportionate share adjustment percentage for a cost 

reporting period for a hospital described in clause (i)(II) is equal to 

35 percent. 


emcdonald on DSK67QTVN1PROD with HEARING
48 

(iv) The disproportionate share adjustment percentage for a cost 

reporting period for a hospital that is not described in clause (i)(II) 

and that— 

(I) is located in an urban area and has 100 or more beds or 

is described in the second sentence of clause (v), is equal to the 

percent determined in accordance with the applicable formula 

described in clause (vii); 

(II) is located in an urban area and has less than 100 beds, 

is equal to 5 percent or, subject to clause (xiv) and for discharges occurring on or after April 1, 2001, is equal to the percent determined in accordance with clause (xiii); 

(III) is located in a rural area and is not described in subclause (IV) or (V) or in the second sentence of clause (v), is 

equal to 4 percent or, subject to clause (xiv) and for discharges 

occurring on or after April 1, 2001, is equal to the percent determined in accordance with clause (xii); 

(IV) is located in a rural area, is classified as a rural referral 

center under subparagraph (C), and is classified as a sole community hospital under subparagraph (D), is equal to 10 percent 

or, if greater, the percent determined in accordance with the 

applicable formula described in clause (viii) or, subject to 

clause (xiv) and for discharges occurring on or after April 1, 

2001, the greater of the percentages determined under clause 

(x) or (xi); 

(V) is located in a rural area, is classified as a rural referral 

center under subparagraph (C), and is not classified as a sole 

community hospital under subparagraph (D), is equal to the 

percent determined in accordance with the applicable formula 

described in clause (viii) or, subject to clause (xiv) and for discharges occurring on or after April 1, 2001, is equal to the percent determined in accordance with clause (xi); or 

(VI) is located in a rural area, is classified as a sole community hospital under subparagraph (D), and is not classified as 

a rural referral center under subparagraph (C), is 10 percent 

or, subject to clause (xiv) and for discharges occurring on or 

after April 1, 2001, is equal to the percent determined in accordance with clause (x). 

(v) In this subparagraph, a hospital ‘‘serves a significantly disproportionate number of low income patients’’ for a cost reporting 

period if the hospital has a disproportionate patient percentage (as 

defined in clause (vi)) for that period which equals, or exceeds— 

(I) 15 percent, if the hospital is located in an urban area and 

has 100 or more beds, 

(II) 30 percent (or 15 percent, for discharges occurring on or 

after April 1, 2001), if the hospital is located in a rural area 

and has more than 100 beds, or is located in a rural area and 

is classified as a sole community hospital under subparagraph 

(D), 

(III) 40 percent (or 15 percent, for discharges occurring on or 

after April 1, 2001), if the hospital is located in an urban area 

and has less than 100 beds, or 

(IV) 45 percent (or 15 percent, for discharges occurring on or 

after April 1, 2001), if the hospital is located in a rural area 

and is not described in subclause (II). 


emcdonald on DSK67QTVN1PROD with HEARING
49 

A hospital located in a rural area and with 500 or more beds also 

‘‘serves a significantly disproportionate number of low income patients’’ for a cost reporting period if the hospital has a disproportionate patient percentage (as defined in clause (vi)) for that period 

which equals or exceeds a percentage specified by the Secretary. 

(vi) In this subparagraph, the term ‘‘disproportionate patient percentage’’ means, with respect to a cost reporting period of a hospital, the sum of— 

(I) the fraction (expressed as a percentage), the numerator of 

which is the number of such hospital’s patient days for such 

period which were made up of patients who (for such days) 

were entitled to benefits under part A of this title and were entitled to supplementary security income benefits (excluding any 

State supplementation) under title XVI of this Act, and the denominator of which is the number of such hospital’s patient 

days for such fiscal year which were made up of patients who 

(for such days) were entitled to benefits under part A of this 

title, and 

(II) the fraction (expressed as a percentage), the numerator 

of which is the number of the hospital’s patient days for such 

period which consist of patients who (for such days) were eligible for medical assistance under a State plan approved under 

title XIX, but who were not entitled to benefits under part A 

of this title, and the denominator of which is the total number 

of the hospital’s patient days for such period. 

In determining under subclause (II) the number of the hospital’s 

patient days for such period which consist of patients who (for such 

days) were eligible for medical assistance under a State plan approved under title XIX, the Secretary may, to the extent and for 

the period the Secretary determines appropriate, include patient 

days of patients not so eligible but who are regarded as such because they receive benefits under a demonstration project approved 

under title XI. 

(vii) The formula used to determine the disproportionate share 

adjustment percentage for a cost reporting period for a hospital described in clause (iv)(I) is— 

(I) in the case of such a hospital with a disproportionate patient percentage (as defined in clause (vi)) greater than 20.2— 

(a) for discharges occurring on or after April 1, 1990, and 

on or before December 31, 1990, (P–20.2)(.65) + 5.62, 

(b) for discharges occurring on or after January 1, 1991, 

and on or before September 30, 1993, (P–20.2)(.7) + 5.62, 

(c) for discharges occurring on or after October 1, 1993, 

and on or before September 30, 1994, (P–20.2)(.8) + 5.88, 

and 

(d) for discharges occurring on or after October 1, 1994, 

(P–20.2)(.825) + 5.88; or 

(II) in the case of any other such hospital— 

(a) for discharges occurring on or after April 1, 1990, and 

on or before December 31, 1990, (P–15)(.6) + 2.5, 

(b) for discharges occurring on or after January 1, 1991, 

and on or before September 30, 1993, (P–15)(.6) + 2.5, 

(c) for discharges occurring on or after October 1, 1993, 

(P–15)(.65) + 2.5, 


emcdonald on DSK67QTVN1PROD with HEARING
50 

where ‘‘P’’ is the hospital’s disproportionate patient percentage (as 

defined in clause (vi)). 

(viii) Subject to clause (xiv), the formula used to determine the 

disproportionate share adjustment percentage for a cost reporting 

period for a hospital described in clause (iv)(IV) or (iv)(V) is the 

percentage determined in accordance with the following formula:(P–30)(.6) + 4.0, where ‘‘P’’ is the hospital’s disproportionate 

patient percentage (as defined in clause (vi)). 

(ix) In the case of discharges occurring— 

(I) during fiscal year 1998, the additional payment amount 

otherwise determined under clause (ii) shall be reduced by 1 

percent; 

(II) during fiscal year 1999, such additional payment amount 

shall be reduced by 2 percent; 

(III) during fiscal years 2000 and 2001, such additional payment amount shall be reduced by 3 percent and 2 percent, respectively; 

(IV) during fiscal year 2002, such additional payment 

amount shall be reduced by 3 percent; and 

(V) during fiscal year 2003 and each subsequent fiscal year, 

such additional payment amount shall be reduced by 0 percent. 

(x) Subject to clause (xiv), for purposes of clause (iv)(VI) (relating 

to sole community hospitals), in the case of a hospital for a cost reporting period with a disproportionate patient percentage (as defined in clause (vi)) that— 

(I) is less than 19.3, the disproportionate share adjustment 

percentage is determined in accordance with the following formula: (P–15)(.65) + 2.5; 

(II) is equal to or exceeds 19.3, but is less than 30.0, such 

adjustment percentage is equal to 5.25 percent; or 

(III) is equal to or exceeds 30, such adjustment percentage 

is equal to 10 percent, 

where ‘‘P’’ is the hospital’s disproportionate patient percentage (as 

defined in clause (vi)). 

(xi) Subject to clause (xiv), for purposes of clause (iv)(V) (relating 

to rural referral centers), in the case of a hospital for a cost reporting period with a disproportionate patient percentage (as defined in 

clause (vi)) that— 

(I) is less than 19.3, the disproportionate share adjustment 

percentage is determined in accordance with the following formula: (P–15)(.65) + 2.5; 

(II) is equal to or exceeds 19.3, but is less than 30.0, such 

adjustment percentage is equal to 5.25 percent; or 

(III) is equal to or exceeds 30, such adjustment percentage 

is determined in accordance with the following formula: (P– 

30)(.6) + 5.25, 

where ‘‘P’’ is the hospital’s disproportionate patient percentage (as 

defined in clause (vi)). 

(xii) Subject to clause (xiv), for purposes of clause (iv)(III) (relating to small rural hospitals generally), in the case of a hospital for 

a cost reporting period with a disproportionate patient percentage 

(as defined in clause (vi)) that— 

(I) is less than 19.3, the disproportionate share adjustment 

percentage is determined in accordance with the following formula: (P–15)(.65) + 2.5; or 


emcdonald on DSK67QTVN1PROD with HEARING
51 

(II) is equal to or exceeds 19.3, such adjustment percentage 

is equal to 5.25 percent, 

where ‘‘P’’ is the hospital’s disproportionate patient percentage (as 

defined in clause (vi)). 

(xiii) Subject to clause (xiv), for purposes of clause (iv)(II) (relating to urban hospitals with less than 100 beds), in the case of a 

hospital for a cost reporting period with a disproportionate patient 

percentage (as defined in clause (vi)) that— 

(I) is less than 19.3, the disproportionate share adjustment 

percentage is determined in accordance with the following formula: (P–15)(.65) + 2.5; or 

(II) is equal to or exceeds 19.3, such adjustment percentage 

is equal to 5.25 percent, 

where ‘‘P’’ is the hospital’s disproportionate patient percentage (as 

defined in clause (vi)). 

(xiv)(I) In the case of discharges occurring on or after April 1, 

2004, subject to subclause (II), there shall be substituted for the 

disproportionate share adjustment percentage otherwise determined under clause (iv) (other than subclause (I)) or under clause 

(viii), (x), (xi), (xii), or (xiii), the disproportionate share adjustment 

percentage determined under clause (vii) (relating to large, urban 

hospitals). 

(II) Under subclause (I), the disproportionate share adjustment 

percentage shall not exceed 12 percent for a hospital that is not 

classified as a rural referral center under subparagraph (C) or, in 

the case of discharges occurring on or after October 1, 2006, as a 

medicare-dependent, small rural hospital under subparagraph 

(G)(iv). 

(G)(i) For any cost reporting period beginning on or after April 

1, 1990, and before October 1, 1994, or discharges occurring on or 

after October 1, 1997, and before October 1, 2017, in the case of 

a subsection (d) hospital which is a medicare-dependent, small 

rural hospital, payment under paragraph (1)(A) shall be equal to 

the sum of the amount determined under clause (ii) and the 

amount determined under paragraph (1)(A)(iii). 

(ii) The amount determined under this clause is— 

(I) for discharges occurring during the 36-month period beginning with the first day of the cost reporting period that begins on or after April 1, 1990, the amount by which the hospital’s target amount for the cost reporting period (as defined 

in subsection (b)(3)(D)) exceeds the amount determined under 

paragraph (1)(A)(iii); and 

(II) for discharges occurring during any subsequent cost reporting period (or portion thereof) and before October 1, 1994, 

or discharges occurring on or after October 1, 1997, and before 

October 1, 2017, 50 percent (or 75 percent in the case of discharges occurring on or after October 1, 2006) of the amount 

by which the hospital’s target amount for the cost reporting period or for discharges in the fiscal year (as defined in subsection (b)(3)(D)) exceeds the amount determined under paragraph (1)(A)(iii). 

(iii) In the case of a medicare dependent, small rural hospital 

that experiences, in a cost reporting period compared to the previous cost reporting period, a decrease of more than 5 percent in 

its total number of inpatient cases due to circumstances beyond its 


emcdonald on DSK67QTVN1PROD with HEARING
52 

control, the Secretary shall provide for such adjustment to the payment amounts under this subsection (other than under paragraph 

(9)) as may be necessary to fully compensate the hospital for the 

fixed costs it incurs in the period in providing inpatient hospital 

services, including the reasonable cost of maintaining necessary 

core staff and services. 

(iv) The term ‘‘medicare-dependent, small rural hospital’’ means, 

with respect to any cost reporting period to which clause (i) applies, 

any hospital— 

(I) located in a rural area, 

(II) that has not more than 100 beds, 

(III) that is not classified as a sole community hospital under 

subparagraph (D), and 

(IV) for which not less than 60 percent of its inpatient days 

or discharges during the cost reporting period beginning in fiscal year 1987, or two of the three most recently audited cost 

reporting periods for which the Secretary has a settled cost report, were attributable to inpatients entitled to benefits under 

part A. 

(H) The Secretary may provide for such adjustments to the payment amounts under this subsection as the Secretary deems appropriate to take into account the unique circumstances of hospitals 

located in Alaska and Hawaii. 

(I)(i) The Secretary shall provide by regulation for such other exceptions and adjustments to such payment amounts under this 

subsection as the Secretary deems appropriate. 

(ii) In making adjustments under clause (i) for transfer cases (as 

defined by the Secretary) in a fiscal year, not taking in account the 

effect of subparagraph (J), the Secretary may make adjustments to 

each of the average standardized amounts determined under paragraph (3) to assure that the aggregate payments made under this 

subsection for such fiscal year are not greater or lesser than those 

that would have otherwise been made in such fiscal year. 

(J)(i) The Secretary shall treat the term ‘‘transfer case’’ (as defined in subparagraph (I)(ii)) as including the case of a qualified 

discharge (as defined in clause (ii)), which is classified within a diagnosis-related group described in clause (iii), and which occurs on 

or after October 1, 1998. In the case of a qualified discharge for 

which a substantial portion of the costs of care are incurred in the 

early days of the inpatient stay (as defined by the Secretary), in no 

case may the payment amount otherwise provided under this subsection exceed an amount equal to the sum of— 

(I) 50 percent of the amount of payment under this subsection for transfer cases (as established under subparagraph 

(I)(i)), and 

(II) 50 percent of the amount of payment which would have 

been made under this subsection with respect to the qualified 

discharge if no transfer were involved. 

(ii) For purposes of clause (i), subject to clause (iii), the term 

‘‘qualified discharge’’ means a discharge classified with a diagnosisrelated group (described in clause (iii)) of an individual from a subsection (d) hospital, if upon such discharge the individual— 

(I) is admitted as an inpatient to a hospital or hospital unit 

that is not a subsection (d) hospital for the provision of inpatient hospital services; 


emcdonald on DSK67QTVN1PROD with HEARING
53 

(II) is admitted to a skilled nursing facility; 

(III) is provided home health services from a home health 

agency, if such services relate to the condition or diagnosis for 

which such individual received inpatient hospital services from 

the subsection (d) hospital, and if such services are provided 

within an appropriate period (as determined by the Secretary); 

or 

(IV) for discharges occurring on or after October 1, 2000, the 

individual receives post discharge services described in clause 

(iv)(I). 

(iii) Subject to clause (iv), a diagnosis-related group described in 

this clause is— 

(I) 1 of 10 diagnosis-related groups selected by the Secretary 

based upon a high volume of discharges classified within such 

groups and a disproportionate use of post discharge services 

described in clause (ii); and 

(II) a diagnosis-related group specified by the Secretary 

under clause (iv)(II). 

(iv) The Secretary shall include in the proposed rule published 

under subsection (e)(5)(A) for fiscal year 2001, a description of the 

effect of this subparagraph. The Secretary may include in the proposed rule (and in the final rule published under paragraph (6)) for 

fiscal year 2001 or a subsequent fiscal year, a description of— 

(I) post-discharge services not described in subclauses (I), 

(II), and (III) of clause (ii), the receipt of which results in a 

qualified discharge; and 

(II) diagnosis-related groups described in clause (iii)(I) in addition to the 10 selected under such clause. 

(K)(i) Effective for discharges beginning on or after October 1, 

2001, the Secretary shall establish a mechanism to recognize the 

costs of new medical services and technologies under the payment 

system established under this subsection. Such mechanism shall be 

established after notice and opportunity for public comment (in the 

publications required by subsection (e)(5) for a fiscal year or otherwise). Such mechanism shall be modified to meet the requirements 

of clause (viii). 

(ii) The mechanism established pursuant to clause (i) shall— 

(I) apply to a new medical service or technology if, based on 

the estimated costs incurred with respect to discharges involving such service or technology, the DRG prospective payment 

rate otherwise applicable to such discharges under this subsection is inadequate (applying a threshold specified by the 

Secretary that is the lesser of 75 percent of the standardized 

amount (increased to reflect the difference between cost and 

charges) or 75 percent of one standard deviation for the diagnosis-related group involved); 

(II) provide for the collection of data with respect to the costs 

of a new medical service or technology described in subclause 

(I) for a period of not less than two years and not more than 

three years beginning on the date on which an inpatient hospital code is issued with respect to the service or technology; 

(III) provide for additional payment to be made under this 

subsection with respect to discharges involving a new medical 

service or technology described in subclause (I) that occur during the period described in subclause (II) in an amount that 


emcdonald on DSK67QTVN1PROD with HEARING
54 

adequately reflects the estimated average cost of such service 

or technology; and 

(IV) provide that discharges involving such a service or technology that occur after the close of the period described in subclause (II) will be classified within a new or existing diagnosisrelated group with a weighting factor under paragraph (4)(B) 

that is derived from cost data collected with respect to discharges occurring during such period. 

(iii) For purposes of clause (ii)(II), the term ‘‘inpatient hospital 

code’’ means any code that is used with respect to inpatient hospital services for which payment may be made under this subsection and includes an alphanumeric code issued under the International Classification of Diseases, 9th Revision, Clinical Modification (‘‘ICD–9–CM’’) and its subsequent revisions. 

(iv) For purposes of clause (ii)(III), the term ‘‘additional payment’’ 

means, with respect to a discharge for a new medical service or 

technology described in clause (ii)(I), an amount that exceeds the 

prospective payment rate otherwise applicable under this subsection to discharges involving such service or technology that 

would be made but for this subparagraph. 

(v) The requirement under clause (ii)(III) for an additional payment may be satisfied by means of a new-technology group (described in subparagraph (L)), an add-on payment, a payment adjustment, or any other similar mechanism for increasing the 

amount otherwise payable with respect to a discharge under this 

subsection. The Secretary may not establish a separate fee schedule for such additional payment for such services and technologies, 

by utilizing a methodology established under subsection (a) or (h) 

of section 1834 to determine the amount of such additional payment, or by other similar mechanisms or methodologies. 

(vi) For purposes of this subparagraph and subparagraph (L), a 

medical service or technology will be considered a ‘‘new medical 

service or technology’’ if the service or technology meets criteria established by the Secretary after notice and an opportunity for public comment. 

(vii) Under the mechanism under this subparagraph, the Secretary shall provide for the addition of new diagnosis and procedure codes in April 1 of each year, but the addition of such codes 

shall not require the Secretary to adjust the payment (or diagnosisrelated group classification) under this subsection until the fiscal 

year that begins after such date. 

(viii) The mechanism established pursuant to clause (i) shall be 

adjusted to provide, before publication of a proposed rule, for public 

input regarding whether a new service or technology represents an 

advance in medical technology that substantially improves the diagnosis or treatment of individuals entitled to benefits under part 

A as follows: 

(I) The Secretary shall make public and periodically update 

a list of all the services and technologies for which an application for additional payment under this subparagraph is pending. 

(II) The Secretary shall accept comments, recommendations, 

and data from the public regarding whether the service or 

technology represents a substantial improvement. 


emcdonald on DSK67QTVN1PROD with HEARING
55 

(III) The Secretary shall provide for a meeting at which organizations representing hospitals, physicians, such individuals, 

manufacturers, and any other interested party may present 

comments, recommendations, and data to the clinical staff of 

the Centers for Medicare & Medicaid Services before publication of a notice of proposed rulemaking regarding whether 

service or technology represents a substantial improvement. 

(ix) Before establishing any add-on payment under this subparagraph with respect to a new technology, the Secretary shall seek 

to identify one or more diagnosis-related groups associated with 

such technology, based on similar clinical or anatomical characteristics and the cost of the technology. Within such groups the Secretary shall assign an eligible new technology into a diagnosis-related group where the average costs of care most closely approximate the costs of care of using the new technology. No add-on payment under this subparagraph shall be made with respect to such 

new technology and this clause shall not affect the application of 

paragraph (4)(C)(iii). 

(L)(i) In establishing the mechanism under subparagraph (K), 

the Secretary may establish new-technology groups into which a 

new medical service or technology will be classified if, based on the 

estimated average costs incurred with respect to discharges involving such service or technology, the DRG prospective payment rate 

otherwise applicable to such discharges under this subsection is inadequate. 

(ii) Such groups— 

(I) shall not be based on the costs associated with a specific 

new medical service or technology; but 

(II) shall, in combination with the applicable standardized 

amounts and the weighting factors assigned to such groups 

under paragraph (4)(B), reflect such cost cohorts as the Secretary determines are appropriate for all new medical services 

and technologies that are likely to be provided as inpatient 

hospital services in a fiscal year. 

(iii) The methodology for classifying specific hospital discharges 

within a diagnosis-related group under paragraph (4)(A) or a newtechnology group shall provide that a specific hospital discharge 

may not be classified within both a diagnosis-related group and a 

new-technology group. 

(6) The Secretary shall provide for publication in the Federal 

Register, on or before the August 1 before each fiscal year (beginning with fiscal year 1984), of a description of the methodology and 

data used in computing the adjusted DRG prospective payment 

rates under this subsection, including any adjustments required 

under subsection (e)(1)(B). 

(7) There shall be no administrative or judicial review under section 1878 or otherwise of— 

(A) the determination of the requirement, or the proportional 

amount, of any adjustment effected pursuant to subsection 

(e)(1) or the determination of the applicable percentage increase under paragraph (12)(A)(ii), 

(B) the establishment of diagnosis-related groups, of the 

methodology for the classification of discharges within such 

groups, and of the appropriate weighting factors thereof under 


emcdonald on DSK67QTVN1PROD with HEARING
56 

paragraph (4), including the selection and revision of codes 

under paragraph (4)(D), and 

(C) the determination of whether services provided prior to 

a patient’s inpatient admission are related to the admission (as 

described in subsection (a)(4)). 

(8)(A) In the case of any hospital which is located in an area 

which is, at any time after April 20, 1983, reclassified from an 

urban to a rural area, payments to such hospital for the first two 

cost reporting periods for which such reclassification is effective 

shall be made as follows: 

(i) For the first such cost reporting period, payment shall be 

equal to the amount payable to such hospital for such reporting period on the basis of the rural classification, plus an 

amount equal to two-thirds of the amount (if any) by which— 

(I) the amount which would have been payable to such 

hospital for such reporting period on the basis of an urban 

classification, exceeds 

(II) the amount payable to such hospital for such reporting period on the basis of the rural classification. 

(ii) For the second such cost reporting period, payment shall 

be equal to the amount payable to such hospital for such reporting period on the basis of the rural classification, plus an 

amount equal to one-third of the amount (if any) by which— 

(I) the amount which would have been payable to such 

hospital for such reporting period on the basis of an urban 

classification, exceeds 

(II) the amount payable to such hospital for such reporting period on the basis of the rural classification. 

(B)(i) For purposes of this subsection, the Secretary shall treat a 

hospital located in a rural county adjacent to one or more urban 

areas as being located in the urban metropolitan statistical area to 

which the greatest number of workers in the county commute, if 

the rural county would otherwise be considered part of an urban 

area, under the standards for designating Metropolitan Statistical 

Areas (and for designating New England County Metropolitan 

Areas) described in clause (ii), if the commuting rates used in determining outlying counties (or, for New England, similar recognized areas) were determined on the basis of the aggregate number 

of resident workers who commute to (and, if applicable under the 

standards, from) the central county or counties of all contiguous 

Metropolitan Statistical Areas (or New England County Metropolitan Areas). 

(ii) The standards described in this clause for cost reporting periods beginning in a fiscal year— 

(I) before fiscal year 2003, are the standards published in the 

Federal Register on January 3, 1980, or, at the election of the 

hospital with respect to fiscal years 2001 and 2002, standards 

so published on March 30, 1990; and 

(II) after fiscal year 2002, are the standards published in the 

Federal Register by the Director of the Office of Management 

and Budget based on the most recent available decennial population data. 

Subparagraphs (C) and (D) shall not apply with respect to the application of subclause (I). 


emcdonald on DSK67QTVN1PROD with HEARING
57 

(C)(i) If the application of subparagraph (B) or a decision of the 

Medicare Geographic Classification Review Board or the Secretary 

under paragraph (10), by treating hospitals located in a rural county or counties as being located in an urban area, or by treating hospitals located in one urban area as being located in another urban 

area— 

(I) reduces the wage index for that urban area (as applied 

under this subsection) by 1 percentage point or less, the Secretary, in calculating such wage index under this subsection, 

shall exclude those hospitals so treated, or 

(II) reduces the wage index for that urban area by more than 

1 percentage point (as applied under this subsection), the Secretary shall calculate and apply such wage index under this 

subsection separately to hospitals located in such urban area 

(excluding all the hospitals so treated) and to the hospitals so 

treated (as if such hospitals were located in such urban area). 

(ii) If the application of subparagraph (B) or a decision of the 

Medicare Geographic Classification Review Board or the Secretary 

under paragraph (10), by treating hospitals located in a rural county or counties as not being located in the rural area in a State, reduces the wage index for that rural area (as applied under this 

subsection), the Secretary shall calculate and apply such wage 

index under this subsection as if the hospitals so treated had not 

been excluded from calculation of the wage index for that rural 

area. 

(iii) The application of subparagraph (B) or a decision of the 

Medicare Geographic Classification Review Board or the Secretary 

under paragraph (10) may not result in the reduction of any county’s wage index to a level below the wage index for rural areas in 

the State in which the county is located. 

(iv) The application of subparagraph (B) or a decision of the 

Medicare Geographic Classification Review Board or of the Secretary under paragraph (10) may not result in a reduction in an 

urban area’s wage index if— 

(I) the urban area has a wage index below the wage index 

for rural areas in the State in which it is located; or 

(II) the urban area is located in a State that is composed of 

a single urban area. 

(v) This subparagraph shall apply with respect to discharges occurring in a fiscal year only if the Secretary uses a method for 

making adjustments to the DRG prospective payment rate for area 

differences in hospital wage levels under paragraph (3)(E) for the 

fiscal year that is based on the use of Metropolitan Statistical Area 

classifications. 

(D) The Secretary shall make a proportional adjustment in the 

standardized amounts determined under paragraph (3) to assure 

that the provisions of subparagraphs (B) and (C) or a decision of 

the Medicare Geographic Classification Review Board or the Secretary under paragraph (10) do not result in aggregate payments 

under this section that are greater or less than those that would 

otherwise be made. 

(E)(i) For purposes of this subsection, not later than 60 days 

after the receipt of an application (in a form and manner determined by the Secretary) from a subsection (d) hospital described in 

clause (ii), the Secretary shall treat the hospital as being located 


emcdonald on DSK67QTVN1PROD with HEARING
58 

in the rural area (as defined in paragraph (2)(D)) of the State in 

which the hospital is located. 

(ii) For purposes of clause (i), a subsection (d) hospital described 

in this clause is a subsection (d) hospital that is located in an 

urban area (as defined in paragraph (2)(D)) and satisfies any of the 

following criteria: 

(I) The hospital is located in a rural census tract of a metropolitan statistical area (as determined under the most recent 

modification of the Goldsmith Modification, originally published in the Federal Register on February 27, 1992 (57 Fed. 

Reg. 6725)). 

(II) The hospital is located in an area designated by any law 

or regulation of such State as a rural area (or is designated by 

such State as a rural hospital). 

(III) The hospital would qualify as a rural, regional, or national referral center under paragraph (5)(C) or as a sole community hospital under paragraph (5)(D) if the hospital were located in a rural area. 

(IV) The hospital meets such other criteria as the Secretary 

may specify. 

(9)(A) Notwithstanding section 1814(b) but subject to the provisions of section 1813, the amount of the payment with respect to 

the operating costs of inpatient hospital services of a subsection (d) 

Puerto Rico hospital for inpatient hospital discharges is equal to 

the sum of— 

(i) the applicable Puerto Rico percentage (specified in subparagraph (E)) of the Puerto Rico adjusted DRG prospective 

payment rate (determined under subparagraph (B) or (C)) for 

such discharges, 

(ii) the applicable Federal percentage (specified in subparagraph (E)) of— 

(I) for discharges beginning in a fiscal year beginning on 

or after October 1, 1997, and before October 1, 2003, the 

discharge-weighted average of— 

(aa) the national adjusted DRG prospective payment 

rate (determined under paragraph (3)(D)) for hospitals 

located in a large urban area, 

(bb) such rate for hospitals located in other urban 

areas, and 

(cc) such rate for hospitals located in a rural area, 

for such discharges, adjusted in the manner provided in 

paragraph (3)(E) for different area wage levels; and 

(II) for discharges in a fiscal year beginning on or after 

October 1, 2003, the national DRG prospective payment 

rate determined under paragraph (3)(D)(iii) for hospitals 

located in any area for such discharges, adjusted in the 

manner provided in paragraph (3)(E) for different area 

wage levels. 

As used in this section, the term ‘‘subsection (d) Puerto Rico hospital’’ means a hospital that is located in Puerto Rico and that 

would be a subsection (d) hospital (as defined in paragraph (1)(B)) 

if it were located in one of the 50 States. 

(B) The Secretary shall determine a Puerto Rico adjusted DRG 

prospective payment rate, for each inpatient hospital discharge in 

fiscal year 1988 involving inpatient hospital services of a subVerDate Sep 11 2014 01:51 Jun 18, 2015 Jkt 049006 PO 00000 Frm 00058 Fmt 6659 Sfmt 6602 E:\HR\OC\HR156.XXX HR156

emcdonald on DSK67QTVN1PROD with HEARING
59 

section (d) Puerto Rico hospital for which payment may be made 

under part A of this title. Such rate shall be determined for such 

hospitals located in urban or rural areas within Puerto Rico, as follows: 

(i) The Secretary shall determine the target amount (as defined in subsection (b)(3)(A)) for the hospital for the cost reporting period beginning in fiscal year 1987 and increase such 

amount by prorating the applicable percentage increase (as defined in subsection (b)(3)(B)) to update the amount to the midpoint in fiscal year 1988. 

(ii) The Secretary shall standardize the amount determined 

under clause (i) for each hospital by— 

(I) excluding an estimate of indirect medical education 

costs, 

(II) adjusting for variations among hospitals by area in 

the average hospital wage level, 

(III) adjusting for variations in case mix among hospitals, and 

(IV) excluding an estimate of the additional payments to 

certain subsection (d) Puerto Rico hospitals to be made 

under subparagraph (D)(iii) (relating to disproportionate 

share payments). 

(iii) The Secretary shall compute a discharge weighted average of the standardized amounts determined under clause (ii) 

for all hospitals located in an urban area and for all hospitals 

located in a rural area (as such terms are defined in paragraph 

(2)(D)). 

(iv) The Secretary shall reduce the average standardized 

amount by a proportion equal to the proportion (estimated by 

the Secretary) of the amount of payments under this paragraph which are additional payments described in subparagraph (D)(i) (relating to outlier payments). 

(v) For each discharge classified within a diagnosis-related 

group for hospitals located in an urban or rural area, respectively, the Secretary shall establish a Puerto Rico DRG prospective payment rate equal to the product of— 

(I) the average standardized amount (computed under 

clause (iii) and reduced under clause (iv)) for hospitals located in an urban or rural area, respectively, and 

(II) the weighting factor (determined under paragraph 

(4)(B)) for that diagnosis-related group. 

(vi) The Secretary shall adjust the proportion (as estimated 

by the Secretary from time to time) of hospitals’ costs which 

are attributable to wages and wage-related costs, of the Puerto 

Rico DRG prospective payment rate computed under clause (v) 

for area differences in hospital wage levels by a factor (established by the Secretary) reflecting the relative hospital wage 

level in the geographic area of the hospital compared to the 

Puerto Rican average hospital wage level. 

(C) The Secretary shall determine a Puerto Rico adjusted DRG 

prospective payment rate, for each inpatient hospital discharge 

after fiscal year 1988 involving inpatient hospital services of a subsection (d) Puerto Rico hospital for which payment may be made 

under part A of this title. Such rate shall be determined for hospitals located in urban or rural areas within Puerto Rico as follows: 


emcdonald on DSK67QTVN1PROD with HEARING
60 

(i)(I) For discharges in a fiscal year after fiscal year 1988 and 

before fiscal year 2004, the Secretary shall compute an average 

standardized amount for hospitals located in an urban area 

and for hospitals located in a rural area equal to the respective 

average standardized amount computed for the previous fiscal 

year under subparagraph (B)(iii) or under this clause, increased for fiscal year 1989 by the applicable percentage increase under subsection (b)(3)(B), and adjusted for subsequent 

fiscal years in accordance with the final determination of the 

Secretary under subsection (e)(4), and adjusted to reflect the 

most recent case-mix data available. 

(II) For discharges occurring in a fiscal year (beginning with 

fiscal year 2004), the Secretary shall compute an average 

standardized amount for hospitals located in any area of Puerto Rico that is equal to the average standardized amount computed under subclause (I) for fiscal year 2003 for hospitals in 

a large urban area (or, beginning with fiscal year 2005, for all 

hospitals in the previous fiscal year) increased by the applicable percentage increase under subsection (b)(3)(B) for the fiscal 

year involved. 

(ii) The Secretary shall reduce each of the average standardized amounts (or for fiscal year 2004 and thereafter, the average standardized amount) by a proportion equal to the proportion (estimated by the Secretary) of the amount of payments 

under this paragraph which are additional payments described 

in subparagraph (D)(i) (relating to outlier payments). 

(iii) For each discharge classified within a diagnosis-related 

group for hospitals located in an urban or rural area, respectively, the Secretary shall establish a Puerto Rico DRG prospective payment rate equal to the product of— 

(I) the average standardized amount (computed under 

clause (i) and reduced under clause (ii)), and 

(II) the weighting factor (determined under paragraph 

(4)(B)) for that diagnosis-related group. 

(iv)(I) The Secretary shall adjust the proportion (as estimated by the Secretary from time to time) of hospitals’ costs 

which are attributable to wages and wage-related costs, of the 

Puerto Rico DRG prospective payment rate computed under 

clause (iii) for area differences in hospital wage levels by a factor (established by the Secretary) reflecting the relative hospital wage level in the geographic area of the hospital compared to the Puerto Rico average hospital wage level. The second and third sentences of paragraph (3)(E)(i) shall apply to 

subsection (d) Puerto Rico hospitals under this clause in the 

same manner as they apply to subsection (d) hospitals under 

such paragraph and, for purposes of this clause, any reference 

in such paragraph to a subsection (d) hospital is deemed a reference to a subsection (d) Puerto Rico hospital. 

(II) For discharges occurring on or after October 1, 2004, the 

Secretary shall substitute ‘‘62 percent’’ for the proportion described in the first sentence of clause (i), unless the application 

of this subclause would result in lower payments to a hospital 

than would otherwise be made. 

(D) The following provisions of paragraph (5) shall apply to subsection (d) Puerto Rico hospitals receiving payment under this 


emcdonald on DSK67QTVN1PROD with HEARING
61 

paragraph in the same manner and to the extent as they apply to 

subsection (d) hospitals receiving payment under this subsection: 

(i) Subparagraph (A) (relating to outlier payments). 

(ii) Subparagraph (B) (relating to payments for indirect medical education costs), except that for this purpose the sum of 

the amount determined under subparagraph (A) of this paragraph and the amount paid to the hospital under clause (i) of 

this subparagraph shall be substituted for the sum referred to 

in paragraph (5)(B)(i)(I). 

(iii) Subparagraph (F) (relating to disproportionate share 

payments), except that for this purpose the sum described in 

clause (ii) of this subparagraph shall be substituted for the 

sum referred to in paragraph (5)(F)(ii)(I). 

(iv) Subparagraph (H) (relating to exceptions and adjustments). 

(E) For purposes of subparagraph (A), for discharges occurring— 

(i) on or after October 1, 1987, and before October 1, 1997, 

the applicable Puerto Rico percentage is 75 percent and the applicable Federal percentage is 25 percent; 

(ii) on or after October 1, 1997, and before April 1, 2004, the 

applicable Puerto Rico percentage is 50 percent and the applicable Federal percentage is 50 percent; 

(iii) on or after April 1, 2004, and before October 1, 2004, the 

applicable Puerto Rico percentage is 37.5 percent and the applicable Federal percentage is 62.5 percent; and 

(iv) on or after October 1, 2004, the applicable Puerto Rico 

percentage is 25 percent and the applicable Federal percentage 

is 75 percent. 

(10)(A) There is hereby established the Medicare Geographic 

Classification Review Board (hereinafter in this paragraph referred 

to as the ‘‘Board’’). 

(B)(i) The Board shall be composed of 5 members appointed by 

the Secretary without regard to the provisions of title 5, United 

States Code, governing appointments in the competitive service. 

Two of such members shall be representative of subsection (d) hospitals located in a rural area under paragraph (2)(D). At least 1 

member shall be knowledgeable in the field of analyzing costs with 

respect to the provision of inpatient hospital services. 

(ii) The Secretary shall make initial appointments to the Board 

as provided in this paragraph within 180 days after the date of the 

enactment of this paragraph. 

(C)(i) The Board shall consider the application of any subsection 

(d) hospital requesting that the Secretary change the hospital’s geographic classification for purposes of determining for a fiscal year— 

(I) the hospital’s average standardized amount under paragraph (2)(D), or 

(II) the factor used to adjust the DRG prospective payment 

rate for area differences in hospital wage levels that applies to 

such hospital under paragraph (3)(E). 

(ii) A hospital requesting a change in geographic classification 

under clause (i) for a fiscal year shall submit its application to the 

Board not later than the first day of the 13-month period ending 

on September 30 of the preceding fiscal year. 


emcdonald on DSK67QTVN1PROD with HEARING
62 

(iii)(I) The Board shall render a decision on an application submitted under clause (i) not later than 180 days after the deadline 

referred to in clause (ii). 

(II) Appeal of decisions of the Board shall be subject to the provisions of section 557b of title 5, United States Code. The Secretary 

shall issue a decision on such an appeal not later than 90 days 

after the date on which the appeal is filed. The decision of the Secretary shall be final and shall not be subject to judicial review. 

(D)(i) The Secretary shall publish guidelines to be utilized by the 

Board in rendering decisions on applications submitted under this 

paragraph, and shall include in such guidelines the following: 

(I) Guidelines for comparing wages, taking into account (to 

the extent the Secretary determines appropriate) occupational 

mix, in the area in which the hospital is classified and the area 

in which the hospital is applying to be classified. 

(II) Guidelines for determining whether the county in which 

the hospital is located should be treated as being a part of a 

particular Metropolitan Statistical Area. 

(III) Guidelines for considering information provided by an 

applicant with respect to the effects of the hospital’s geographic 

classification on access to inpatient hospital services by medicare beneficiaries. 

(IV) Guidelines for considering the appropriateness of the 

criteria used to define New England County Metropolitan 

Areas. 

(ii) Notwithstanding clause (i), if the Secretary uses a method for 

making adjustments to the DRG prospective payment rate for area 

differences in hospital wage levels under paragraph (3)(E) that is 

not based on the use of Metropolitan Statistical Area classifications, the Secretary may revise the guidelines published under 

clause (i) to the extent such guidelines are used to determine the 

appropriateness of the geographic area in which the hospital is determined to be located for purposes of making such adjustments. 

(iii) Under the guidelines published by the Secretary under 

clause (i), in the case of a hospital which has ever been classified 

by the Secretary as a rural referral center under paragraph (5)(C), 

the Board may not reject the application of the hospital under this 

paragraph on the basis of any comparison between the average 

hourly wage of the hospital and the average hourly wage of hospitals in the area in which it is located. 

(iv) The Secretary shall publish the guidelines described in 

clause (i) by July 1, 1990. 

(v) Any decision of the Board to reclassify a subsection (d) hospital for purposes of the adjustment factor described in subparagraph (C)(i)(II) for fiscal year 2001 or any fiscal year thereafter 

shall be effective for a period of 3 fiscal years, except that the Secretary shall establish procedures under which a subsection (d) hospital may elect to terminate such reclassification before the end of 

such period. 

(vi) Such guidelines shall provide that, in making decisions on 

applications for reclassification for the purposes described in clause 

(v) for fiscal year 2003 and any succeeding fiscal year, the Board 

shall base any comparison of the average hourly wage for the hospital with the average hourly wage for hospitals in an area on— 


emcdonald on DSK67QTVN1PROD with HEARING
63 

(I) an average of the average hourly wage amount for the 

hospital from the most recently published hospital wage survey 

data of the Secretary (as of the date on which the hospital applies for reclassification) and such amount from each of the two 

immediately preceding surveys; and 

(II) an average of the average hourly wage amount for hospitals in such area from the most recently published hospital 

wage survey data of the Secretary (as of the date on which the 

hospital applies for reclassification) and such amount from 

each of the two immediately preceding surveys. 

(E)(i) The Board shall have full power and authority to make 

rules and establish procedures, not inconsistent with the provisions 

of this title or regulations of the Secretary, which are necessary or 

appropriate to carry out the provisions of this paragraph. In the 

course of any hearing the Board may administer oaths and affirmations. The provisions of subsections (d) and (e) of section 205 with 

respect to subpenas shall apply to the Board to the same extent as 

such provisions apply to the Secretary with respect to title II. 

(ii) The Board is authorized to engage such technical assistance 

and to receive such information as may be required to carry out its 

functions, and the Secretary shall, in addition, make available to 

the Board such secretarial, clerical, and other assistance as the 

Board may require to carry out its functions. 

(F)(i) Each member of the Board who is not an officer or employee of the Federal Government shall be compensated at a rate 

equal to the daily equivalent of the annual rate of basic pay prescribed for grade GS–18 of the General Schedule under section 

5332 of title 5, United States Code, for each day (including travel 

time) during which such member is engaged in the performance of 

the duties of the Board. Each member of the Board who is an officer or employee of the United States shall serve without compensation in addition to that received for service as an officer or employee of the United States. 

(ii) Members of the Board shall be allowed travel expenses, including per diem in lieu of subsistence, at rates authorized for employees of agencies under subchapter I of chapter 57 of title 5, 

United States Code, while away from their homes or regular places 

of business in the performance of services for the Board. 

(11) ADDITIONAL PAYMENTS FOR MANAGED CARE ENROLL- EES.— 

(A) IN GENERAL.—For portions of cost reporting periods 

occurring on or after January 1, 1998, the Secretary shall 

provide for an additional payment amount for each applicable discharge of any subsection (d) hospital that has an 

approved medical residency training program. 

(B) APPLICABLE DISCHARGE.—For purposes of this paragraph, the term ‘‘applicable discharge’’ means the discharge of any individual who is enrolled under a risk-sharing contract with an eligible organization under section 

1876 and who is entitled to benefits under part A or any 

individual who is enrolled with a Medicare+Choice organization under part C. 

(C) DETERMINATION OF AMOUNT.—The amount of the 

payment under this paragraph with respect to any applicable discharge shall be equal to the applicable percentage 


emcdonald on DSK67QTVN1PROD with HEARING
64 

(as defined in subsection (h)(3)(D)(ii)) of the estimated average per discharge amount that would otherwise have 

been paid under paragraph (5)(B) if the individuals had 

not been enrolled as described in subparagraph (B). 

(D) SPECIAL RULE FOR HOSPITALS UNDER REIMBURSEMENT

SYSTEM.—The Secretary shall establish rules for the application of this paragraph to a hospital reimbursed under a 

reimbursement system authorized under section 1814(b)(3) 

in the same manner as it would apply to the hospital if it 

were not reimbursed under such section. 

(12) PAYMENT ADJUSTMENT FOR LOW-VOLUME HOSPITALS.— (A) IN GENERAL.—In addition to any payments calculated under this section for a subsection (d) hospital, for 

discharges occurring during a fiscal year (beginning with 

fiscal year 2005), the Secretary shall provide for an additional payment amount to each low-volume hospital (as defined in subparagraph (C)(i)) for discharges occurring during that fiscal year that is equal to the applicable percentage increase (determined under subparagraph (B) or (D) 

for the hospital involved) in the amount paid to such hospital under this section for such discharges (determined 

without regard to this paragraph). 

(B) APPLICABLE PERCENTAGE INCREASE.—For discharges 

occurring in fiscal years 2005 through 2010 and for discharges occurring in fiscal year 2018 and subsequent fiscal 

years, the Secretary shall determine an applicable percentage increase for purposes of subparagraph (A) as follows: 

(i) The Secretary shall determine the empirical relationship for subsection (d) hospitals between the 

standardized cost-per-case for such hospitals and the 

total number of discharges of such hospitals and the 

amount of the additional incremental costs (if any) 

that are associated with such number of discharges. 

(ii) The applicable percentage increase shall be determined based upon such relationship in a manner 

that reflects, based upon the number of such discharges for a subsection (d) hospital, such additional 

incremental costs. 

(iii) In no case shall the applicable percentage increase exceed 25 percent. 

(C) DEFINITIONS.— 

(i) LOW-VOLUME HOSPITAL.—For purposes of this 

paragraph, the term ‘‘low-volume hospital’’ means, for 

a fiscal year, a subsection (d) hospital (as defined in 

paragraph (1)(B)) that the Secretary determines is located more than 25 road miles (or, with respect to fiscal years 2011 through 2017, 15 road miles) from another subsection (d) hospital and has less than 800 

discharges (or, with respect to fiscal years 2011 

through 2017, 1,600 discharges of individuals entitled 

to, or enrolled for, benefits under part A) during the 

fiscal year or portion of fiscal year. 

(ii) DISCHARGE.—For purposes of subparagraph (B) 

and clause (i), the term ‘‘discharge’’ means an inpatient acute care discharge of an individual regardless 


emcdonald on DSK67QTVN1PROD with HEARING
65 

of whether the individual is entitled to benefits under 

part A. 

(D) TEMPORARY APPLICABLE PERCENTAGE INCREASE.—For 

discharges occurring in fiscal years 2011 through 2017, the 

Secretary shall determine an applicable percentage increase for purposes of subparagraph (A) using a continuous 

linear sliding scale ranging from 25 percent for low-volume 

hospitals with 200 or fewer discharges of individuals entitled to, or enrolled for, benefits under part A in the fiscal 

year or the portion of fiscal year to 0 percent for low-volume hospitals with greater than 1,600 discharges of such 

individuals in the fiscal year. 

(13)(A) In order to recognize commuting patterns among geographic areas, the Secretary shall establish a process through application or otherwise for an increase of the wage index applied 

under paragraph (3)(E) for subsection (d) hospitals located in a 

qualifying county described in subparagraph (B) in the amount 

computed under subparagraph (D) based on out-migration of hospital employees who reside in that county to any higher wage index 

area. 

(B) The Secretary shall establish criteria for a qualifying county 

under this subparagraph based on the out-migration referred to in 

subparagraph (A) and differences in the area wage indices. Under 

such criteria the Secretary shall, utilizing such data as the Secretary determines to be appropriate, establish— 

(i) a threshold percentage, established by the Secretary, of 

the weighted average of the area wage index or indices for the 

higher wage index areas involved; 

(ii) a threshold (of not less than 10 percent) for minimum 

out-migration to a higher wage index area or areas; and 

(iii) a requirement that the average hourly wage of the hospitals in the qualifying county equals or exceeds the average 

hourly wage of all the hospitals in the area in which the qualifying county is located. 

(C) For purposes of this paragraph, the term ‘‘higher wage index 

area’’ means, with respect to a county, an area with a wage index 

that exceeds that of the county. 

(D) The increase in the wage index under subparagraph (A) for 

a qualifying county shall be equal to the percentage of the hospital 

employees residing in the qualifying county who are employed in 

any higher wage index area multiplied by the sum of the products, 

for each higher wage index area of— 

(i) the difference between— 

(I) the wage index for such higher wage index area, and 

(II) the wage index of the qualifying county; and 

(ii) the number of hospital employees residing in the qualifying county who are employed in such higher wage index area 

divided by the total number of hospital employees residing in 

the qualifying county who are employed in any higher wage 

index area. 

(E) The process under this paragraph may be based upon the 

process used by the Medicare Geographic Classification Review 

Board under paragraph (10). As the Secretary determines to be appropriate to carry out such process, the Secretary may require hospitals (including subsection (d) hospitals and other hospitals) and 


emcdonald on DSK67QTVN1PROD with HEARING
66 

critical access hospitals, as required under section 1866(a)(1)(T), to 

submit data regarding the location of residence, or the Secretary 

may use data from other sources. 

(F) A wage index increase under this paragraph shall be effective 

for a period of 3 fiscal years, except that the Secretary shall establish procedures under which a subsection (d) hospital may elect to 

waive the application of such wage index increase. 

(G) A hospital in a county that has a wage index increase under 

this paragraph for a period and that has not waived the application 

of such an increase under subparagraph (F) is not eligible for reclassification under paragraph (8) or (10) during that period. 

(H) Any increase in a wage index under this paragraph for a 

county shall not be taken into account for purposes of— 

(i) computing the wage index for portions of the wage index 

area (not including the county) in which the county is located; 

or 

(ii) applying any budget neutrality adjustment with respect 

to such index under paragraph (8)(D). 

(I) The thresholds described in subparagraph (B), data on hospital employees used under this paragraph, and any determination 

of the Secretary under the process described in subparagraph (E) 

shall be final and shall not be subject to judicial review. 

(e)(1)(A) For cost reporting periods of hospitals beginning in fiscal 

year 1984 or fiscal year 1985, the Secretary shall provide for such 

proportional adjustment in the applicable percentage increase (otherwise applicable to the periods under subsection (b)(3)(B)) as may 

be necessary to assure that— 

(i) the aggregate payment amounts otherwise provided under 

subsection (d)(1)(A)(i)(I) for that fiscal year for operating costs 

of inpatient hospital services of hospitals (excluding payments 

made under section 1866(a)(1)(F)), 

are not greater or less than— 

(ii) the target percentage (as defined in subsection (d)(1)(C)) 

of the payment amounts which would have been payable for 

such services for those same hospitals for that fiscal year 

under this section under the law as in effect before the date 

of the enactment of the Social Security Amendments of 1983 

(excluding payments made under section 1866(a)(1)(F)); 

except that the adjustment made under this subparagraph shall 

apply only to subsection (d) hospitals and shall not apply for purposes of making computations under subsection (d)(2)(B)(ii) or subsection (d)(3)(A). 

(B) For discharges occurring in fiscal year 1984 or fiscal year 

1985, the Secretary shall provide under subsections (d)(2)(F) and 

(d)(3)(C) for such equal proportional adjustment in each of the average standardized amounts otherwise computed for that fiscal 

year as may be necessary to assure that— 

(i) the aggregate payment amounts otherwise provided under 

subsection (d)(1)(A)(i)(II) and (d)(5) for that fiscal year for operating costs of inpatient hospital services of hospitals (excluding 

payments made under section 1866(a)(1)(F)), 

are not greater or less than— 

(ii) the DRG percentage (as defined in subsection (d)(1)(C)) of 

the payment amounts which would have been payable for such 

services for those same hospitals for that fiscal year under this 


emcdonald on DSK67QTVN1PROD with HEARING
67 

section under the law as in effect before the date of the enactment of the Social Security Amendments of 1983 (excluding 

payments made under section 1866(a)(1)(F)). 

(C) For discharges occurring in fiscal year 1988, the Secretary 

shall provide for such equal proportional adjustment in each of the 

average standardized amounts otherwise computed under subsection (d)(3) for that fiscal year as may be necessary to assure 

that— 

(i) the aggregate payment amounts otherwise provided under 

subsections (d)(1)(A)(iii), (d)(5), and (d)(9) for that fiscal year 

for operating costs of inpatient hospital services of subsection 

(d) hospitals and subsection (d) Puerto Rico hospitals, 

are not greater or less than— 

(ii) the payment amounts that would have been payable for 

such services for those same hospitals for that fiscal year but 

for the enactment of the amendments made by section 9304 of 

the Omnibus Budget Reconciliation Act of 1986. 

(4)(A) Taking into consideration the recommendations of the 

Commission, the Secretary shall recommend for each fiscal year 

(beginning with fiscal year 1988) an appropriate change factor for 

inpatient hospital services for discharges in that fiscal year which 

will take into account amounts necessary for the efficient and effective delivery of medically appropriate and necessary care of high 

quality. The appropriate change factor may be different for all 

large urban subsection (d) hospitals, other urban subsection (d) 

hospitals, urban subsection (d) Puerto Rico hospitals, rural subsection (d) hospitals, and rural subsection (d) Puerto Rico hospitals, 

and all other hospitals and units not paid under subsection (d), and 

may vary among such other hospitals and units. 

(B) In addition to the recommendation made under subparagraph 

(A), the Secretary shall, taking into consideration the recommendations of the Commission under paragraph (2)(B), recommend for 

each fiscal year (beginning with fiscal year 1992) other appropriate 

changes in each existing reimbursement policy under this title 

under which payments to an institution are based upon prospectively determined rates. 

(5) The Secretary shall cause to have published in the Federal 

Register, not later than— 

(A) the April 1 before each fiscal year (beginning with fiscal 

year 1986), the Secretary’s proposed recommendations under 

paragraph (4) for that fiscal year for public comment, and 

(B) the August 1 before such fiscal year after such consideration of public comment on the proposal as is feasible in the 

time available, the Secretary’s final recommendations under 

such paragraph for that year. 

The Secretary shall include in the publication referred to in subparagraph (A) for a fiscal year the report of the Commission’s recommendations submitted under paragraph (3) for that fiscal year. 

To the extent that the Secretary’s recommendations under paragraph (4) differ from the Commission’s recommendations for that 

fiscal year, the Secretary shall include in the publication referred 

to in subparagraph (A) an explanation of the Secretary’s grounds 

for not following the Commission’s recommendations. 


emcdonald on DSK67QTVN1PROD with HEARING
68 

(f)(1)(A) The Secretary shall maintain a system for the reporting 

of costs of hospitals receiving payments computed under subsection 

(d). 

(B)(i) Subject to clause (ii), the Secretary shall place into effect 

a standardized electronic cost reporting format for hospitals under 

this title. 

(ii) The Secretary may delay or waive the implementation of such 

format in particular instances where such implementation would 

result in financial hardship (in particular with respect to hospitals 

with a small percentage of inpatients entitled to benefits under this 

title). 

(2) If the Secretary determines, based upon information supplied 

by a quality improvement organization under part B of title XI, 

that a hospital, in order to circumvent the payment method established under subsection (b) or (d) of this section, has taken an action that results in the admission of individuals entitled to benefits 

under part A unnecessarily, unnecessary multiple admissions of 

the same such individuals, or other inappropriate medical or other 

practices with respect to such individuals, the Secretary may— 

(A) deny payment (in whole or in part) under part A with respect to inpatient hospital services provided with respect to 

such an unnecessary admission (or subsequent admission of 

the same individual), or 

(B) require the hospital to take other corrective action necessary to prevent or correct the inappropriate practice. 

(3) The provisions of subsections (c) through (g) of section 1128 

shall apply to determinations made under paragraph (2) in the 

same manner as they apply to exclusions effected under section 

1128(b)(13). 

(g)(1)(A) Notwithstanding section 1861(v), instead of any 

amounts that are otherwise payable under this title with respect 

to the reasonable costs of subsection (d) hospitals and subsection 

(d) Puerto Rico hospitals for capital-related costs of inpatient hospital services, the Secretary shall, for hospital cost reporting periods beginning on or after October 1, 1991, provide for payments for 

such costs in accordance with a prospective payment system established by the Secretary. Aggregate payments made under subsection (d) and this subsection during fiscal years 1992 through 

1995 shall be reduced in a manner that results in a reduction (as 

estimated by the Secretary) in the amount of such payments equal 

to a 10 percent reduction in the amount of payments attributable 

to capital-related costs that would otherwise have been made during such fiscal year had the amount of such payments been based 

on reasonable costs (as defined in section 1861(v)). For discharges 

occurring after September 30, 1993, the Secretary shall reduce by 

7.4 percent the unadjusted standard Federal capital payment rate 

(as described in 42 CFR 412.308(c), as in effect on the date of the 

enactment of the Omnibus Budget Reconciliation Act of 1993) and 

shall (for hospital cost reporting periods beginning on or after October 1, 1993) redetermine which payment methodology is applied to 

the hospital under such system to take into account such reduction. 

In addition to the reduction described in the preceding sentence, for 

discharges occurring on or after October 1, 1997, the Secretary 

shall apply the budget neutrality adjustment factor used to determine the Federal capital payment rate in effect on September 30, 


emcdonald on DSK67QTVN1PROD with HEARING
69 

1995 (as described in section 412.352 of title 42 of the Code of Federal Regulations), to (i) the unadjusted standard Federal capital 

payment rate (as described in section 412.308(c) of that title, as in 

effect on September 30, 1997), and (ii) the unadjusted hospital-specific rate (as described in section 412.328(e)(1) of that title, as in 

effect on September 30, 1997), and, for discharges occurring on or 

after October 1, 1997, and before October 1, 2002, reduce the rates 

described in clauses (i) and (ii) by 2.1 percent. 

(B) Such system— 

(i) shall provide for (I) a payment on a per discharge basis, 

and (II) an appropriate weighting of such payment amount as 

relates to the classification of the discharge; 

(ii) may provide for an adjustment to take into account variations in the relative costs of capital and construction for the 

different types of facilities or areas in which they are located; 

(iii) may provide for such exceptions (including appropriate 

exceptions to reflect capital obligations) as the Secretary determines to be appropriate, and 

(iv) may provide for suitable adjustment to reflect hospital 

occupancy rate. 

(C) In this paragraph, the term ‘‘capital-related costs’’ has the 

meaning given such term by the Secretary under subsection (a)(4) 

as of September 30, 1987, and does not include a return on equity 

capital. 

(2)(A) The Secretary shall provide that the amount which is allowable, with respect to reasonable costs of inpatient hospital services for which payment may be made under this title, for a return 

on equity capital for hospitals shall, for cost reporting periods beginning on or after the date of the enactment of this subsection, be 

equal to amounts otherwise allowable under regulations in effect 

on March 1, 1983, except that the rate of return to be recognized 

shall be equal to the applicable percentage (described in subparagraph (B)) of the average of the rates of interest, for each of the 

months any part of which is included in the reporting period, on 

obligations issued for purchase by the Federal Hospital Insurance 

Trust Fund. 

(B) In this paragraph, the ‘‘applicable percentage’’ is— 

(i) 75 percent, for cost reporting periods beginning during fiscal year 1987, 

(ii) 50 percent, for cost reporting periods beginning during 

fiscal year 1988, 

(iii) 25 percent, for cost reporting periods beginning during 

fiscal year 1989, and 

(iv) 0 percent, for cost reporting periods beginning on or after 

October 1, 1989. 

(3)(A) Except as provided in subparagraph (B), in determining 

the amount of the payments that may be made under this title 

with respect to all the capital-related costs of inpatient hospital 

services of a subsection (d) hospital and a subsection (d) Puerto 

Rico hospital, the Secretary shall reduce the amounts of such payments otherwise established under this title by— 

(i) 3.5 percent for payments attributable to portions of cost 

reporting periods occurring during fiscal year 1987, 

(ii) 7 percent for payments attributable to portions of cost reporting periods or discharges (as the case may be) occurring 


emcdonald on DSK67QTVN1PROD with HEARING
70 

during fiscal year 1988 on or after October 1, 1987, and before 

January 1, 1988, 

(iii) 12 percent for payments attributable to portions of cost 

reporting periods or discharges (as the case may be) in fiscal 

year 1988, occurring on or after January 1, 1988, 

(iv) 15 percent for payments attributable to portions of cost 

reporting periods or discharges (as the case may be) occurring 

during fiscal year 1989, and 

(v) 15 percent for payments attributable to portions of cost 

reporting periods or discharges (as the case may be) occurring 

during the period beginning January 1, 1990, and ending September 30, 1991. 

(B) Subparagraph (A) shall not apply to payments with respect 

to the capital-related costs of any hospital that is a sole community 

hospital (as defined in subsection (d)(5)(D)(iii)) or a critical access 

hospital (as defined in section 1861(mm)(1)). 

(4) In determining the amount of the payments that are attributable to portions of cost reporting periods occurring during fiscal 

years 1998 through 2002 and that may be made under this title 

with respect to capital-related costs of inpatient hospital services of 

a hospital which is described in clause (i), (ii), or (iv) of subsection 

(d)(1)(B) or a unit described in the matter after clause (v) of such 

subsection, the Secretary shall reduce the amounts of such payments otherwise determined under this title by 15 percent. 

(h) PAYMENTS FOR DIRECT GRADUATE MEDICAL EDUCATION

COSTS.— 

(1) SUBSTITUTION OF SPECIAL PAYMENT RULES.—Notwithstanding section 1861(v), instead of any amounts that are otherwise payable under this title with respect to the reasonable 

costs of hospitals for direct graduate medical education costs, 

the Secretary shall provide for payments for such costs in accordance with paragraph (3) of this subsection. In providing for 

such payments, the Secretary shall provide for an allocation of 

such payments between part A and part B (and the trust funds 

established under the respective parts) as reasonably reflects 

the proportion of direct graduate medical education costs of 

hospitals associated with the provision of services under each 

respective part. 

(2) DETERMINATION OF HOSPITAL-SPECIFIC APPROVED FTE

RESIDENT AMOUNTS.—The Secretary shall determine, for each 

hospital with an approved medical residency training program, 

an approved FTE resident amount for each cost reporting period beginning on or after July 1, 1985, as follows: 

(A) DETERMINING ALLOWABLE AVERAGE COST PER FTE

RESIDENT IN A HOSPITAL’S BASE PERIOD.—The Secretary 

shall determine, for the hospital’s cost reporting period 

that began during fiscal year 1984, the average amount 

recognized as reasonable under this title for direct graduate medical education costs of the hospital for each fulltime-equivalent resident. 

(B) UPDATING TO THE FIRST COST REPORTING PERIOD.— 

(i) IN GENERAL.—The Secretary shall update each 

average amount determined under subparagraph (A) 

by the percentage increase in the consumer price 


emcdonald on DSK67QTVN1PROD with HEARING
71 

index during the 12-month cost reporting period described in such subparagraph. 

(ii) EXCEPTION.—The Secretary shall not perform an 

update under clause (i) in the case of a hospital if the 

hospital’s reporting period, described in subparagraph 

(A), began on or after July 1, 1984, and before October 

1, 1984. 

(C) AMOUNT FOR FIRST COST REPORTING PERIOD.—For the 

first cost reporting period of the hospital beginning on or 

after July 1, 1985, the approved FTE resident amount for 

the hospital is equal to the amount determined under subparagraph (B) increased by 1 percent. 

(D) AMOUNT FOR SUBSEQUENT COST REPORTING PERIODS.— 

(i) IN GENERAL.—Except as provided in a subsequent 

clause, for each subsequent cost reporting period, the 

approved FTE resident amount for the hospital is 

equal to the approved FTE resident amount determined under this paragraph for the previous cost reporting period updated, through the midpoint of the 

period, by projecting the estimated percentage change 

in the consumer price index during the 12-month period ending at that midpoint, with appropriate adjustments to reflect previous under-or over-estimations 

under this subparagraph in the projected percentage 

change in the consumer price index. 

(ii) FREEZE IN UPDATE FOR FISCAL YEARS 1994 AND

1995.—For cost reporting periods beginning during fiscal year 1994 or fiscal year 1995, the approved FTE 

resident amount for a hospital shall not be updated 

under clause (i) for a resident who is not a primary 

care resident (as defined in paragraph (5)(H)) or a 

resident enrolled in an approved medical residency 

training program in obstetrics and gynecology. 

(iii) FLOOR FOR LOCALITY ADJUSTED NATIONAL AVER- AGE PER RESIDENT AMOUNT.—The approved FTE resident amount for a hospital for the cost reporting period beginning during fiscal year 2001 shall not be less 

than 70 percent, and for the cost reporting period beginning during fiscal year 2002 shall not be less than 

85 percent, of the locality adjusted national average 

per resident amount computed under subparagraph 

(E) for the hospital and period. 

(iv) ADJUSTMENT IN RATE OF INCREASE FOR HOSPITALS WITH FTE APPROVED AMOUNT ABOVE 140 PERCENT OF LOCALITY ADJUSTED NATIONAL AVERAGE PER

RESIDENT AMOUNT.— 

(I) FREEZE FOR FISCAL YEARS 2001 AND 2002 AND

2004 THROUGH 2013.—For a cost reporting period 

beginning during fiscal year 2001 or fiscal year 

2002 or during the period beginning with fiscal 

year 2004 and ending with fiscal year 2013, if the 

approved FTE resident amount for a hospital for 

the preceding cost reporting period exceeds 140 

percent of the locality adjusted national average 


emcdonald on DSK67QTVN1PROD with HEARING
72 

per resident amount computed under subparagraph (E) for that hospital and period, subject to 

subclause (III), the approved FTE resident 

amount for the period involved shall be the same 

as the approved FTE resident amount for the hospital for such preceding cost reporting period. 

(II) 2 PERCENT DECREASE IN UPDATE FOR FISCAL

YEARS 2003, 2004, AND 2005.—For the cost reporting 

period beginning during fiscal year 2003, if the 

approved FTE resident amount for a hospital for 

the preceding cost reporting period exceeds 140 

percent of the locality adjusted national average 

per resident amount computed under subparagraph (E) for that hospital and preceding period, 

the approved FTE resident amount for the period 

involved shall be updated in the manner described 

in subparagraph (D)(i) except that, subject to subclause (III), the consumer price index applied for 

a 12-month period shall be reduced (but not below 

zero) by 2 percentage points. 

(III) NO ADJUSTMENT BELOW 140 PERCENT.—In 

no case shall subclause (I) or (II) reduce an approved FTE resident amount for a hospital for a 

cost reporting period below 140 percent of the locality adjusted national average per resident 

amount computed under subparagraph (E) for 

such hospital and period. 

(E) DETERMINATION OF LOCALITY ADJUSTED NATIONAL AVERAGE PER RESIDENT AMOUNT.—The Secretary shall determine a locality adjusted national average per resident 

amount with respect to a cost reporting period of a hospital beginning during a fiscal year as follows: 

(i) DETERMINING HOSPITAL SINGLE PER RESIDENT

AMOUNT.—The Secretary shall compute for each hospital operating an approved graduate medical education program a single per resident amount equal to 

the average (weighted by number of full-time equivalent residents, as determined under paragraph (4)) of 

the primary care per resident amount and the non-primary care per resident amount computed under paragraph (2) for cost reporting periods ending during fiscal year 1997. 

(ii) STANDARDIZING PER RESIDENT AMOUNTS.—The 

Secretary shall compute a standardized per resident 

amount for each such hospital by dividing the single 

per resident amount computed under clause (i) by an 

average of the 3 geographic index values (weighted by 

the national average weight for each of the work, practice expense, and malpractice components) as applied 

under section 1848(e) for 1999 for the fee schedule 

area in which the hospital is located. 

(iii) COMPUTING OF WEIGHTED AVERAGE.—The Secretary shall compute the average of the standardized 

per resident amounts computed under clause (ii) for 

such hospitals, with the amount for each hospital 


emcdonald on DSK67QTVN1PROD with HEARING
73 

weighted by the average number of full-time equivalent residents at such hospital (as determined under 

paragraph (4)). 

(iv) COMPUTING NATIONAL AVERAGE PER RESIDENT

AMOUNT.—The Secretary shall compute the national 

average per resident amount, for a hospital’s cost reporting period that begins during fiscal year 2001, 

equal to the weighted average computed under clause 

(iii) increased by the estimated percentage increase in 

the consumer price index for all urban consumers during the period beginning with the month that represents the midpoint of the cost reporting periods described in clause (i) and ending with the midpoint of 

the hospital’s cost reporting period that begins during 

fiscal year 2001. 

(v) ADJUSTING FOR LOCALITY.—The Secretary shall 

compute the product of— 

(I) the national average per resident amount 

computed under clause (iv) for the hospital, and 

(II) the geographic index value average (described and applied under clause (ii)) for the fee 

schedule area in which the hospital is located. 

(vi) COMPUTING LOCALITY ADJUSTED AMOUNT.—The 

locality adjusted national per resident amount for a 

hospital for— 

(I) the cost reporting period beginning during 

fiscal year 2001 is the product computed under 

clause (v); or 

(II) each subsequent cost reporting period is 

equal to the locality adjusted national per resident 

amount for the hospital for the previous cost reporting period (as determined under this clause) 

updated, through the midpoint of the period, by 

projecting the estimated percentage change in the 

consumer price index for all urban consumers during the 12-month period ending at that midpoint. 

(F) TREATMENT OF CERTAIN HOSPITALS.—In the case of a 

hospital that did not have an approved medical residency 

training program or was not participating in the program 

under this title for a cost reporting period beginning during fiscal year 1984, the Secretary shall, for the first such 

period for which it has such a residency training program 

and is participating under this title, provide for such approved FTE resident amount as the Secretary determines 

to be appropriate, based on approved FTE resident 

amounts for comparable programs. 

(3) HOSPITAL PAYMENT AMOUNT PER RESIDENT.— 

(A) IN GENERAL.—The payment amount, for a hospital 

cost reporting period beginning on or after July 1, 1985, is 

equal to the product of— 

(i) the aggregate approved amount (as defined in 

subparagraph (B)) for that period, and 

(ii) the hospital’s medicare patient load (as defined 

in subparagraph (C)) for that period. 


emcdonald on DSK67QTVN1PROD with HEARING
74 

(B) AGGREGATE APPROVED AMOUNT.—As used in subparagraph (A), the term ‘‘aggregate approved amount’’ 

means, for a hospital cost reporting period, the product 

of— 

(i) the hospital’s approved FTE resident amount (determined under paragraph (2)) for that period, and 

(ii) the weighted average number of full-time-equivalent residents (as determined under paragraph (4)) in 

the hospital’s approved medical residency training programs in that period. 

The Secretary shall reduce the aggregate approved amount to 

the extent payment is made under subsection (k) for residents 

included in the hospital’s count of full-time equivalent residents. 

(C) MEDICARE PATIENT LOAD.—As used in subparagraph 

(A), the term ‘‘medicare patient load’’ means, with respect 

to a hospital’s cost reporting period, the fraction of the 

total number of inpatient-bed-days (as established by the 

Secretary) during the period which are attributable to patients with respect to whom payment may be made under 

part A. 

(D) PAYMENT FOR MANAGED CARE ENROLLEES.— 

(i) IN GENERAL.—For portions of cost reporting periods occurring on or after January 1, 1998, the Secretary shall provide for an additional payment amount 

under this subsection for services furnished to individuals who are enrolled under a risk-sharing contract 

with an eligible organization under section 1876 and 

who are entitled to part A or with a Medicare+Choice 

organization under part C. The amount of such a payment shall equal, subject to clause (iii), the applicable 

percentage of the product of— 

(I) the aggregate approved amount (as defined 

in subparagraph (B)) for that period; and 

(II) the fraction of the total number of inpatientbed days (as established by the Secretary) during 

the period which are attributable to such enrolled 

individuals. 

(ii) APPLICABLE PERCENTAGE.—For purposes of 

clause (i), the applicable percentage is— 

(I) 20 percent in 1998, 

(II) 40 percent in 1999, 

(III) 60 percent in 2000, 

(IV) 80 percent in 2001, and 

(V) 100 percent in 2002 and subsequent years. 

(iii) PROPORTIONAL REDUCTION FOR NURSING AND ALLIED HEALTH EDUCATION.—The Secretary shall estimate a proportional adjustment in payments to all 

hospitals determined under clauses (i) and (ii) for portions of cost reporting periods beginning in a year (beginning with 2000) such that the proportional adjustment reduces payments in an amount for such year 

equal to the total additional payment amounts for 

nursing and allied health education determined under 


emcdonald on DSK67QTVN1PROD with HEARING
75 

subsection (l) for portions of cost reporting periods occurring in that year. 

(iv) SPECIAL RULE FOR HOSPITALS UNDER REIMBURSEMENT SYSTEM.—The Secretary shall establish rules for 

the application of this subparagraph to a hospital reimbursed under a reimbursement system authorized 

under section 1814(b)(3) in the same manner as it 

would apply to the hospital if it were not reimbursed 

under such section. 

(4) DETERMINATION OF FULL-TIME-EQUIVALENT RESIDENTS.— 

(A) RULES.—The Secretary shall establish rules consistent with this paragraph for the computation of the 

number of full-time- equivalent residents in an approved 

medical residency training program. 

(B) ADJUSTMENT FOR PART-YEAR OR PART-TIME RESIDENTS.—Such rules shall take into account individuals 

who serve as residents for only a portion of a period with 

a hospital or simultaneously with more than one hospital. 

(C) WEIGHTING FACTORS FOR CERTAIN RESIDENTS.—Subject to subparagraph (D), such rules shall provide, in calculating the number of full-time-equivalent residents in an 

approved residency program— 

(i) before July 1, 1986, for each resident the 

weighting factor is 1.00, 

(ii) on or after July 1, 1986, for a resident who is in 

the resident’s initial residency period (as defined in 

paragraph (5)(F)), the weighting factor is 1.00, 

(iii) on or after July 1, 1986, and before July 1, 1987, 

for a resident who is not in the resident’s initial residency period (as defined in paragraph (5)(F)), the 

weighting factor is .75, and 

(iv) on or after July 1, 1987, for a resident who is 

not in the resident’s initial residency period (as defined in paragraph (5)(F)), the weighting factor is .50. 

(D) FOREIGN MEDICAL GRADUATES REQUIRED TO PASS

FMGEMS EXAMINATION.— 

(i) IN GENERAL.—Except as provided in clause (ii), 

such rules shall provide that, in the case of an individual who is a foreign medical graduate (as defined 

in paragraph (5)(D)), the individual shall not be counted as a resident on or after July 1, 1986, unless— 

(I) the individual has passed the FMGEMS examination (as defined in paragraph (5)(E)), or 

(II) the individual has previously received certification from, or has previously passed the examination of, the Educational Commission for Foreign Medical Graduates. 

(ii) TRANSITION FOR CURRENT FMGS.—On or after 

July 1, 1986, but before July 1, 1987, in the case of a 

foreign medical graduate who— 

(I) has served as a resident before July 1, 1986, 

and is serving as a resident after that date, but 

(II) has not passed the FMGEMS examination 

or a previous examination of the Educational 


emcdonald on DSK67QTVN1PROD with HEARING
76 

Commission for Foreign Medical Graduates before 

July 1, 1986, 

the individual shall be counted as a resident at a rate 

equal to one-half of the rate at which the individual 

would otherwise be counted. 

(E) COUNTING TIME SPENT IN OUTPATIENT SETTINGS.— Subject to subparagraphs (J) and (K), such rules shall provide that only time spent in activities relating to patient 

care shall be counted and that— 

(i) effective for cost reporting periods beginning before July 1, 2010, all the time; 

(ii) effective for cost reporting periods beginning on 

or after July 1, 2010, all the time so spent by a resident shall be counted towards the determination of 

full-time equivalency, without regard to the setting in 

which the activities are performed, if a hospital incurs 

the costs of the stipends and fringe benefits of the 

resident during the time the resident spends in that 

setting. If more than one hospital incurs these costs, 

either directly or through a third party, such hospitals 

shall count a proportional share of the time, as determined by written agreement between the hospitals, 

that a resident spends training in that setting. 

so spent by a resident under an approved medical residency training program shall be counted towards the determination of full-time equivalency, without regard to the 

setting in which the activities are performed, if the hospital incurs all, or substantially all, of the costs for the 

training program in that setting. 

Any hospital claiming under this subparagraph for time 

spent in a nonprovider setting shall maintain and make 

available to the Secretary records regarding the amount of 

such time and such amount in comparison with amounts 

of such time in such base year as the Secretary shall specify. 

(F) LIMITATION ON NUMBER OF RESIDENTS IN ALLOPATHIC

AND OSTEOPATHIC MEDICINE.— (i) IN GENERAL.—Such rules shall provide that for 

purposes of a cost reporting period beginning on or 

after October 1, 1997, subject to paragraphs (7) and 

(8), the total number of full-time equivalent residents 

before application of weighting factors (as determined 

under this paragraph) with respect to a hospital’s approved medical residency training program in the 

fields of allopathic medicine and osteopathic medicine 

may not exceed the number (or, 130 percent of such 

number in the case of a hospital located in a rural 

area) of such full-time equivalent residents for the 

hospital’s most recent cost reporting period ending on 

or before December 31, 1996. 

(ii) COUNTING PRIMARY CARE RESIDENTS ON CERTAIN

APPROVED LEAVES OF ABSENCE IN BASE YEAR FTE

COUNT.— 

(I) IN GENERAL.—In determining the number of 

such full-time equivalent residents for a hospital’s 


emcdonald on DSK67QTVN1PROD with HEARING
77 

most recent cost reporting period ending on or before December 31, 1996, for purposes of clause (i), 

the Secretary shall count an individual to the extent that the individual would have been counted 

as a primary care resident for such period but for 

the fact that the individual, as determined by the 

Secretary, was on maternity or disability leave or 

a similar approved leave of absence. 

(II) LIMITATION TO 3 FTE RESIDENTS FOR ANY

HOSPITAL.—The total number of individuals counted under subclause (I) for a hospital may not exceed 3 full-time equivalent residents. 

(G) COUNTING INTERNS AND RESIDENTS FOR FY 1998 AND

SUBSEQUENT YEARS.— 

(i) IN GENERAL.—For cost reporting periods beginning during fiscal years beginning on or after October 

1, 1997, subject to the limit described in subparagraph 

(F), the total number of full-time equivalent residents 

for determining a hospital’s graduate medical education payment shall equal the average of the actual 

full-time equivalent resident counts for the cost reporting period and the preceding two cost reporting periods. 

(ii) ADJUSTMENT FOR SHORT PERIODS.—If any cost reporting period beginning on or after October 1, 1997, 

is not equal to twelve months, the Secretary shall 

make appropriate modifications to ensure that the average full-time equivalent resident counts pursuant to 

clause (i) are based on the equivalent of full twelvemonth cost reporting periods. 

(iii) TRANSITION RULE FOR 1998.—In the case of a 

hospital’s first cost reporting period beginning on or 

after October 1, 1997, clause (i) shall be applied by 

using the average for such period and the preceding 

cost reporting period. 

(H) SPECIAL RULES FOR APPLICATION OF SUBPARAGRAPHS

(F) AND (G).— (i) NEW FACILITIES.—The Secretary shall, consistent 

with the principles of subparagraphs (F) and (G) and 

subject to paragraphs (7) and (8), prescribe rules for 

the application of such subparagraphs in the case of 

medical residency training programs established on or 

after January 1, 1995. In promulgating such rules for 

purposes of subparagraph (F), the Secretary shall give 

special consideration to facilities that meet the needs 

of underserved rural areas. 

(ii) AGGREGATION.—The Secretary may prescribe 

rules which allow institutions which are members of 

the same affiliated group (as defined by the Secretary) 

to elect to apply the limitation of subparagraph (F) on 

an aggregate basis. 

(iii) DATA COLLECTION.—The Secretary may require 

any entity that operates a medical residency training 

program and to which subparagraphs (F) and (G) 

apply to submit to the Secretary such additional inforVerDate Sep 11 2014 01:51 Jun 18, 2015 Jkt 049006 PO 00000 Frm 00077 Fmt 6659 Sfmt 6602 E:\HR\OC\HR156.XXX HR156

emcdonald on DSK67QTVN1PROD with HEARING
78 

mation as the Secretary considers necessary to carry 

out such subparagraphs. 

(iv) NONRURAL HOSPITALS OPERATING TRAINING PRO- GRAMS IN RURAL AREAS.—In the case of a hospital that 

is not located in a rural area but establishes separately accredited approved medical residency training 

programs (or rural tracks) in an rural area or has an 

accredited training program with an integrated rural 

track, the Secretary shall adjust the limitation under 

subparagraph (F) in an appropriate manner insofar as 

it applies to such programs in such rural areas in 

order to encourage the training of physicians in rural 

areas. 

(v) SPECIAL PROVIDER AGREEMENT.—If an entity enters into a provider agreement pursuant to section 

1866(a) to provide hospital services on the same physical site previously used by Medicare Provider No. 05– 

0578— 

(I) the limitation on the number of total full 

time equivalent residents under subparagraph (F) 

and clauses (v) and (vi)(I) of subsection (d)(5)(B) 

applicable to such provider shall be equal to the 

limitation applicable under such provisions to Provider No. 05–0578 for its cost reporting period 

ending on June 30, 2006; and 

(II) the provisions of subparagraph (G) and subsection (d)(5)(B)(vi)(II) shall not be applicable to 

such provider for the first three cost reporting 

years in which such provider trains residents 

under any approved medical residency training 

program. 

(vi) REDISTRIBUTION OF RESIDENCY SLOTS AFTER A

HOSPITAL CLOSES.— (I) IN GENERAL.—Subject to the succeeding provisions of this clause, the Secretary shall, by regulation, establish a process under which, in the 

case where a hospital (other than a hospital described in clause (v)) with an approved medical 

residency program closes on or after a date that is 

2 years before the date of enactment of this 

clause, the Secretary shall increase the otherwise 

applicable resident limit under this paragraph for 

other hospitals in accordance with this clause. 

(II) PRIORITY FOR HOSPITALS IN CERTAIN

AREAS.—Subject to the succeeding provisions of 

this clause, in determining for which hospitals the 

increase in the otherwise applicable resident limit 

is provided under such process, the Secretary 

shall distribute the increase to hospitals in the following priority order (with preference given within each category to hospitals that are members of 

the same affiliated group (as defined by the Secretary under clause (ii)) as the closed hospital): 

(aa) First, to hospitals located in the same 

core-based statistical area as, or a core-based 


emcdonald on DSK67QTVN1PROD with HEARING
79 

statistical area contiguous to, the hospital 

that closed. 

(bb) Second, to hospitals located in the 

same State as the hospital that closed. 

(cc) Third, to hospitals located in the same 

region of the country as the hospital that 

closed. 

(dd) Fourth, only if the Secretary is not able 

to distribute the increase to hospitals described in item (cc), to qualifying hospitals in 

accordance with the provisions of paragraph 

(8). 

(III) REQUIREMENT HOSPITAL LIKELY TO FILL POSITION WITHIN CERTAIN TIME PERIOD.—The Secretary may only increase the otherwise applicable 

resident limit of a hospital under such process if 

the Secretary determines the hospital has demonstrated a likelihood of filling the positions made 

available under this clause within 3 years. 

(IV) LIMITATION.—The aggregate number of increases in the otherwise applicable resident limits 

for hospitals under this clause shall be equal to 

the number of resident positions in the approved 

medical residency programs that closed on or after 

the date described in subclause (I). 

(V) ADMINISTRATION.—Chapter 35 of title 44, 

United States Code, shall not apply to the implementation of this clause. 

(J) TREATMENT OF CERTAIN NONPROVIDER AND DIDACTIC

ACTIVITIES.—Such rules shall provide that all time spent 

by an intern or resident in an approved medical residency 

training program in a nonprovider setting that is primarily 

engaged in furnishing patient care (as defined in paragraph (5)(K)) in non-patient care activities, such as didactic conferences and seminars, but not including research 

not associated with the treatment or diagnosis of a particular patient, as such time and activities are defined by 

the Secretary, shall be counted toward the determination 

of full-time equivalency. 

(K) TREATMENT OF CERTAIN OTHER ACTIVITIES.—In determining the hospital’s number of full-time equivalent residents for purposes of this subsection, all the time that is 

spent by an intern or resident in an approved medical residency training program on vacation, sick leave, or other 

approved leave, as such time is defined by the Secretary, 

and that does not prolong the total time the resident is 

participating in the approved program beyond the normal 

duration of the program shall be counted toward the determination of full-time equivalency. 

(5) DEFINITIONS AND SPECIAL RULES.—As used in this subsection: 

(A) APPROVED MEDICAL RESIDENCY TRAINING PROGRAM.— The term ‘‘approved medical residency training program’’ 

means a residency or other postgraduate medical training 

program participation in which may be counted toward 


emcdonald on DSK67QTVN1PROD with HEARING
80 

certification in a specialty or subspecialty and includes formal postgraduate training programs in geriatric medicine 

approved by the Secretary. 

(B) CONSUMER PRICE INDEX.—The term ‘‘consumer price 

index’’ refers to the Consumer Price Index for All Urban 

Consumers (United States city average), as published by 

the Secretary of Commerce. 

(C) DIRECT GRADUATE MEDICAL EDUCATION COSTS.—The 

term ‘‘direct graduate medical education costs’’ means direct costs of approved educational activities for approved 

medical residency training programs. 

(D) FOREIGN MEDICAL GRADUATE.—The term ‘‘foreign 

medical graduate’’ means a resident who is not a graduate 

of— 

(i) a school of medicine accredited by the Liaison 

Committee on Medical Education of the American 

Medical Association and the Association of American 

Medical Colleges (or approved by such Committee as 

meeting the standards necessary for such accreditation), 

(ii) a school of osteopathy accredited by the American Osteopathic Association, or approved by such Association as meeting the standards necessary for such 

accreditation, or 

(iii) a school of dentistry or podiatry which is accredited (or meets the standards for accreditation) by an 

organization recognized by the Secretary for such purpose. 

(E) FMGEMS EXAMINATION.—The term ‘‘FMGEMS examination’’ means parts I and II of the Foreign Medical 

Graduate Examination in the Medical Sciences or any successor examination recognized by the Secretary for this 

purpose. 

(F) INITIAL RESIDENCY PERIOD.—The term ‘‘initial residency period’’ means the period of board eligibility, except 

that— 

(i) except as provided in clause (ii), in no case shall 

the initial period of residency exceed an aggregate period of formal training of more than five years for any 

individual, and 

(ii) a period, of not more than two years, during 

which an individual is in a geriatric residency or fellowship program or a preventive medicine residency or 

fellowship program which meets such criteria as the 

Secretary may establish, shall be treated as part of 

the initial residency period, but shall not be counted 

against any limitation on the initial residency period. 

Subject to subparagraph (G)(v), the initial residency period 

shall be determined, with respect to a resident, as of the 

time the resident enters the residency training program. 

(G) PERIOD OF BOARD ELIGIBILITY.— (i) GENERAL RULE.—Subject to clauses (ii), (iii), (iv), 

and (v), the term ‘‘period of board eligibility’’ means, 

for a resident, the minimum number of years of formal 

training necessary to satisfy the requirements for iniVerDate Sep 11 2014 01:51 Jun 18, 2015 Jkt 049006 PO 00000 Frm 00080 Fmt 6659 Sfmt 6602 E:\HR\OC\HR156.XXX HR156

emcdonald on DSK67QTVN1PROD with HEARING
81 

tial board eligibility in the particular specialty for 

which the resident is training. 

(ii) APPLICATION OF 1985–1986 DIRECTORY.—Except as 

provided in clause (iii), the period of board eligibility 

shall be such period specified in the 1985–1986 Directory of Residency Training Programs published by the 

Accreditation Council on Graduate Medical Education. 

(iii) CHANGES IN PERIOD OF BOARD ELIGIBILITY.—On 

or after July 1, 1989, if the Accreditation Council on 

Graduate Medical Education, in its Directory of Residency Training Programs— 

(I) increases the minimum number of years of 

formal training necessary to satisfy the requirements for a specialty, above the period specified in 

its 1985–1986 Directory, the Secretary may increase the period of board eligibility for that specialty, but not to exceed the period of board eligibility specified in that later Directory, or 

(II) decreases the minimum number of years of 

formal training necessary to satisfy the requirements for a specialty, below the period specified in 

its 1985–1986 Directory, the Secretary may decrease the period of board eligibility for that specialty, but not below the period of board eligibility 

specified in that later Directory. 

(iv) SPECIAL RULE FOR CERTAIN PRIMARY CARE COM- BINED RESIDENCY PROGRAMS.—(I) In the case of a resident enrolled in a combined medical residency training 

program in which all of the individual programs (that 

are combined) are for training a primary care resident 

(as defined in subparagraph (H)), the period of board 

eligibility shall be the minimum number of years of 

formal training required to satisfy the requirements 

for initial board eligibility in the longest of the individual programs plus one additional year. 

(II) A resident enrolled in a combined medical residency training program that includes an obstetrics 

and gynecology program shall qualify for the period of 

board eligibility under subclause (I) if the other programs such resident combines with such obstetrics 

and gynecology program are for training a primary 

care resident. 

(v) CHILD NEUROLOGY TRAINING PROGRAMS.—In the 

case of a resident enrolled in a child neurology residency training program, the period of board eligibility 

and the initial residency period shall be the period of 

board eligibility for pediatrics plus 2 years. 

(H) PRIMARY CARE RESIDENT.—The term ‘‘primary care 

resident’’ means a resident enrolled in an approved medical residency training program in family medicine, general internal medicine, general pediatrics, preventive medicine, geriatric medicine, or osteopathic general practice. 

(I) RESIDENT.—The term ‘‘resident’’ includes an intern or 

other participant in an approved medical residency training program. 


emcdonald on DSK67QTVN1PROD with HEARING
82 

(J) ADJUSTMENTS FOR CERTAIN FAMILY PRACTICE RESI- DENCY PROGRAMS.— (i) IN GENERAL.—In the case of an approved medical 

residency training program (meeting the requirements 

of clause (ii)) of a hospital which received funds from 

the United States, a State, or a political subdivision of 

a State or an instrumentality of such a State or political subdivision (other than payments under this title 

or a State plan under title XIX) for the program during the cost reporting period that began during fiscal 

year 1984, the Secretary shall— 

(I) provide for an average amount under paragraph (2)(A) that takes into account the Secretary’s estimate of the amount that would have 

been recognized as reasonable under this title if 

the hospital had not received such funds, and 

(II) reduce the payment amount otherwise provided under this subsection in an amount equal to 

the proportion of such program funds received 

during the cost reporting period involved that is 

allocable to this title. 

(ii) ADDITIONAL REQUIREMENTS.—A hospital’s approved medical residency program meets the requirements of this clause if— 

(I) the program is limited to training for family 

and community medicine; 

(II) the program is the only approved medical 

residency program of the hospital; and 

(III) the average amount determined under 

paragraph (2)(A) for the hospital (as determined 

without regard to the increase in such amount described in clause (i)(I)) does not exceed $10,000. 

(K) NONPROVIDER SETTING THAT IS PRIMARILY ENGAGED

IN FURNISHING PATIENT CARE.—The term ‘‘nonprovider setting that is primarily engaged in furnishing patient care’’ 

means a nonprovider setting in which the primary activity 

is the care and treatment of patients, as defined by the 

Secretary. 

(6) INCENTIVE PAYMENT UNDER PLANS FOR VOLUNTARY RE- DUCTION IN NUMBER OF RESIDENTS.— 

(A) IN GENERAL.—In the case of a voluntary residency 

reduction plan for which an application is approved under 

subparagraph (B), subject to subparagraph (F), each hospital which is part of the qualifying entity submitting the 

plan shall be paid an applicable hold harmless percentage 

(as specified in subparagraph (E)) of the sum of— 

(i) the amount (if any) by which— 

(I) the amount of payment which would have 

been made under this subsection if there had been 

a 5-percent reduction in the number of full-time 

equivalent residents in the approved medical education training programs of the hospital as of 

June 30, 1997, exceeds 

(II) the amount of payment which is made 

under this subsection, taking into account the reVerDate Sep 11 2014 01:51 Jun 18, 2015 Jkt 049006 PO 00000 Frm 00082 Fmt 6659 Sfmt 6602 E:\HR\OC\HR156.XXX HR156

emcdonald on DSK67QTVN1PROD with HEARING
83 

duction in such number effected under the reduction plan; and 

(ii) the amount of the reduction in payment under 

subsection (d)(5)(B) for the hospital that is attributable to the reduction in number of residents effected 

under the plan below 95 percent of the number of fulltime equivalent residents in such programs of the hospital as of June 30, 1997. 

The determination of the amounts under clauses (i) and (ii) 

for any year shall be made on the basis of the provisions 

of this title in effect on the application deadline date for 

the first calendar year to which the reduction plan applies. 

(B) APPROVAL OF PLAN APPLICATIONS.—The Secretary 

may not approve the application of an qualifying entity unless— 

(i) the application is submitted in a form and manner specified by the Secretary and by not later than 

November 1, 1999, 

(ii) the application provides for the operation of a 

plan for the reduction in the number of full-time 

equivalent residents in the approved medical residency 

training programs of the entity consistent with the requirements of subparagraph (D); 

(iii) the entity elects in the application the period of 

residency training years (not greater than 5) over 

which the reduction will occur; 

(iv) the entity will not reduce the proportion of its 

residents in primary care (to the total number of residents) below such proportion as in effect as of the applicable time described in subparagraph (D)(v); and 

(v) the Secretary determines that the application 

and the entity and such plan meet such other requirements as the Secretary specifies in regulations. 

(C) QUALIFYING ENTITY.—For purposes of this paragraph, any of the following may be a qualifying entity: 

(i) Individual hospitals operating one or more approved medical residency training programs. 

(ii) Two or more hospitals that operate such programs and apply for treatment under this paragraph 

as a single qualifying entity. 

(iii) A qualifying consortium (as described in section 

4628 of the Balanced Budget Act of 1997). 

(D) RESIDENCY REDUCTION REQUIREMENTS.— 

(i) INDIVIDUAL HOSPITAL APPLICANTS.—In the case of 

a qualifying entity described in subparagraph (C)(i), 

the number of full-time equivalent residents in all the 

approved medical residency training programs operated by or through the entity shall be reduced as follows: 

(I) If the base number of residents exceeds 750 

residents, by a number equal to at least 20 percent of such base number. 

(II) Subject to subclause (IV), if the base number of residents exceeds 600 but is less than 750 

residents, by 150 residents. 


emcdonald on DSK67QTVN1PROD with HEARING
84 

(III) Subject to subclause (IV), if the base number of residents does not exceed 600 residents, by 

a number equal to at least 25 percent of such base 

number. 

(IV) In the case of a qualifying entity which is 

described in clause (v) and which elects treatment 

under this subclause, by a number equal to at 

least 20 percent of the base number. 

(ii) JOINT APPLICANTS.—In the case of a qualifying 

entity described in subparagraph (C)(ii), the number of 

full-time equivalent residents in the aggregate for all 

the approved medical residency training programs operated by or through the entity shall be reduced as follows: 

(I) Subject to subclause (II), by a number equal 

to at least 25 percent of the base number. 

(II) In the case of such a qualifying entity which 

is described in clause (v) and which elects treatment under this subclause, by a number equal to 

at least 20 percent of the base number. 

(iii) CONSORTIA.—In the case of a qualifying entity 

described in subparagraph (C)(iii), the number of fulltime equivalent residents in the aggregate for all the 

approved medical residency training programs operated by or through the entity shall be reduced by a 

number equal to at least 20 percent of the base number. 

(iv) MANNER OF REDUCTION.—The reductions specified under the preceding provisions of this subparagraph for a qualifying entity shall be below the base 

number of residents for that entity and shall be fully 

effective not later than the 5th residency training year 

in which the application under subparagraph (B) is effective. 

(v) ENTITIES PROVIDING ASSURANCE OF INCREASE IN

PRIMARY CARE RESIDENTS.—An entity is described in 

this clause if— 

(I) the base number of residents for the entity 

is less than 750 or the entity is described in subparagraph (C)(ii); and 

(II) the entity represents in its application 

under subparagraph (B) that it will increase the 

number of full-time equivalent residents in primary care by at least 20 percent (from such number included in the base number of residents) by 

not later than the 5th residency training year in 

which the application under subparagraph (B) is 

effective. 

If a qualifying entity fails to comply with the representation described in subclause (II) by the end of such 

5th residency training year, the entity shall be subject 

to repayment of all amounts paid under this paragraph, in accordance with procedures established to 

carry out subparagraph (F). 


emcdonald on DSK67QTVN1PROD with HEARING
85 

(vi) BASE NUMBER OF RESIDENTS DEFINED.—For purposes of this paragraph, the term ‘‘base number of 

residents’’ means, with respect to a qualifying entity 

(or its participating hospitals) operating approved 

medical residency training programs, the number of 

full-time equivalent residents in such programs (before 

application of weighting factors) of the entity as of the 

most recent residency training year ending before 

June 30, 1997, or, if less, for any subsequent residency 

training year that ends before the date the entity 

makes application under this paragraph. 

(E) APPLICABLE HOLD HARMLESS PERCENTAGE.—For purposes of subparagraph (A), the ‘‘applicable hold harmless 

percentage’’ for the— 

(i) first and second residency training years in which 

the reduction plan is in effect, 100 percent, 

(ii) third such year, 75 percent, 

(iii) fourth such year, 50 percent, and 

(iv) fifth such year, 25 percent. 

(F) PENALTY FOR NONCOMPLIANCE.— 

(i) IN GENERAL.—No payment may be made under 

this paragraph to a hospital for a residency training 

year if the hospital has failed to reduce the number of 

full-time equivalent residents (in the manner required 

under subparagraph (D)) to the number agreed to by 

the Secretary and the qualifying entity in approving 

the application under this paragraph with respect to 

such year. 

(ii) INCREASE IN NUMBER OF RESIDENTS IN SUBSEQUENT YEARS.—If payments are made under this paragraph to a hospital, and if the hospital increases the 

number of full-time equivalent residents above the 

number of such residents permitted under the reduction plan as of the completion of the plan, then, as 

specified by the Secretary, the entity is liable for repayment to the Secretary of the total amounts paid 

under this paragraph to the entity. 

(G) TREATMENT OF ROTATING RESIDENTS.—In applying 

this paragraph, the Secretary shall establish rules regarding the counting of residents who are assigned to institutions the medical residency training programs in which are 

not covered under approved applications under this paragraph. 

(7) REDISTRIBUTION OF UNUSED RESIDENT POSITIONS.— 

(A) REDUCTION IN LIMIT BASED ON UNUSED POSITIONS.— 

(i) PROGRAMS SUBJECT TO REDUCTION.— 

(I) IN GENERAL.—Except as provided in subclause (II), if a hospital’s reference resident level 

(specified in clause (ii)) is less than the otherwise 

applicable resident limit (as defined in subparagraph (C)(ii)), effective for portions of cost reporting periods occurring on or after July 1, 2005, the 

otherwise applicable resident limit shall be reduced by 75 percent of the difference between 


emcdonald on DSK67QTVN1PROD with HEARING
86 

such otherwise applicable resident limit and such 

reference resident level. 

(II) EXCEPTION FOR SMALL RURAL HOSPITALS.— 

This subparagraph shall not apply to a hospital 

located in a rural area (as defined in subsection 

(d)(2)(D)(ii)) with fewer than 250 acute care inpatient beds. 

(ii) REFERENCE RESIDENT LEVEL.— 

(I) IN GENERAL.—Except as otherwise provided 

in subclauses (II) and (III), the reference resident 

level specified in this clause for a hospital is the 

resident level for the most recent cost reporting 

period of the hospital ending on or before September 30, 2002, for which a cost report has been 

settled (or, if not, submitted (subject to audit)), as 

determined by the Secretary. 

(II) USE OF MOST RECENT ACCOUNTING PERIOD

TO RECOGNIZE EXPANSION OF EXISTING PROGRAMS.—If a hospital submits a timely request to 

increase its resident level due to an expansion of 

an existing residency training program that is not 

reflected on the most recent settled cost report, 

after audit and subject to the discretion of the 

Secretary, the reference resident level for such 

hospital is the resident level for the cost reporting 

period that includes July 1, 2003, as determined 

by the Secretary. 

(III) EXPANSIONS UNDER NEWLY APPROVED PROGRAMS.—Upon the timely request of a hospital, 

the Secretary shall adjust the reference resident 

level specified under subclause (I) or (II) to include the number of medical residents that were 

approved in an application for a medical residency 

training program that was approved by an appropriate accrediting organization (as determined by 

the Secretary) before January 1, 2002, but which 

was not in operation during the cost reporting period used under subclause (I) or (II), as the case 

may be, as determined by the Secretary. 

(iii) AFFILIATION.—The provisions of clause (i) shall 

be applied to hospitals which are members of the same 

affiliated group (as defined by the Secretary under 

paragraph (4)(H)(ii)) as of July 1, 2003. 

(B) REDISTRIBUTION.— 

(i) IN GENERAL.—The Secretary is authorized to increase the otherwise applicable resident limit for each 

qualifying hospital that submits a timely application 

under this subparagraph by such number as the Secretary may approve for portions of cost reporting periods occurring on or after July 1, 2005. The aggregate 

number of increases in the otherwise applicable resident limits under this subparagraph may not exceed 

the Secretary’s estimate of the aggregate reduction in 

such limits attributable to subparagraph (A). 


emcdonald on DSK67QTVN1PROD with HEARING
87 

(ii) CONSIDERATIONS IN REDISTRIBUTION.—In determining for which hospitals the increase in the otherwise applicable resident limit is provided under clause 

(i), the Secretary shall take into account the demonstrated likelihood of the hospital filling the positions 

within the first 3 cost reporting periods beginning on 

or after July 1, 2005, made available under this subparagraph, as determined by the Secretary. 

(iii) PRIORITY FOR RURAL AND SMALL URBAN AREAS.— 

In determining for which hospitals and residency 

training programs an increase in the otherwise applicable resident limit is provided under clause (i), the 

Secretary shall distribute the increase to programs of 

hospitals located in the following priority order: 

(I) First, to hospitals located in rural areas (as 

defined in subsection (d)(2)(D)(ii)). 

(II) Second, to hospitals located in urban areas 

that are not large urban areas (as defined for purposes of subsection (d)). 

(III) Third, to other hospitals in a State if the 

residency training program involved is in a specialty for which there are not other residency 

training programs in the State. 

Increases of residency limits within the same priority 

category under this clause shall be determined by the 

Secretary. 

(iv) LIMITATION.—In no case shall more than 25 fulltime equivalent additional residency positions be made 

available under this subparagraph with respect to any 

hospital. 

(v) APPLICATION OF LOCALITY ADJUSTED NATIONAL

AVERAGE PER RESIDENT AMOUNT.—With respect to additional residency positions in a hospital attributable 

to the increase provided under this subparagraph, notwithstanding any other provision of this subsection, 

the approved FTE resident amount is deemed to be 

equal to the locality adjusted national average per 

resident amount computed under paragraph (4)(E) for 

that hospital. 

(vi) CONSTRUCTION.—Nothing in this subparagraph 

shall be construed as permitting the redistribution of 

reductions in residency positions attributable to voluntary reduction programs under paragraph (6), under 

a demonstration project approved as of October 31, 

2003, under the authority of section 402 of Public Law 

90–248, or as affecting the ability of a hospital to establish new medical residency training programs 

under paragraph (4)(H). 

(C) RESIDENT LEVEL AND LIMIT DEFINED.—In this paragraph: 

(i) RESIDENT LEVEL.—The term ‘‘resident level’’ 

means, with respect to a hospital, the total number of 

full-time equivalent residents, before the application of 

weighting factors (as determined under paragraph (4)), 


emcdonald on DSK67QTVN1PROD with HEARING
88 

in the fields of allopathic and osteopathic medicine for 

the hospital. 

(ii) OTHERWISE APPLICABLE RESIDENT LIMIT.—The 

term ‘‘otherwise applicable resident limit’’ means, with 

respect to a hospital, the limit otherwise applicable 

under subparagraphs (F)(i) and (H) of paragraph (4) 

on the resident level for the hospital determined without regard to this paragraph. 

(D) ADJUSTMENT BASED ON SETTLED COST REPORT.—In 

the case of a hospital with a dual accredited osteopathic 

and allopathic family practice program for which— 

(i) the otherwise applicable resident limit was reduced under subparagraph (A)(i)(I); and 

(ii) such reduction was based on a reference resident 

level that was determined using a cost report and 

where a revised or corrected notice of program reimbursement was issued for such cost report between 

September 1, 2006 and September 15, 2006, whether 

as a result of an appeal or otherwise, and the reference resident level under such settled cost report is 

higher than the level used for the reduction under 

subparagraph (A)(i)(I); 

the Secretary shall apply subparagraph (A)(i)(I) using the 

higher resident reference level and make any necessary 

adjustments to such reduction. Any such necessary adjustments shall be effective for portions of cost reporting periods occurring on or after July 1, 2005. 

(E) JUDICIAL REVIEW.—There shall be no administrative 

or judicial review under section 1869, 1878, or otherwise, 

with respect to determinations made under this this paragraph, paragraph (8), or paragraph (4)(H)(vi). 

(8) DISTRIBUTION OF ADDITIONAL RESIDENCY POSITIONS.— 

(A) REDUCTIONS IN LIMIT BASED ON UNUSED POSITIONS.— (i) IN GENERAL.—Except as provided in clause (ii), if 

a hospital’s reference resident level (as defined in subparagraph (H)(i)) is less than the otherwise applicable 

resident limit (as defined in subparagraph (H)(iii)), effective for portions of cost reporting periods occurring 

on or after July 1, 2011, the otherwise applicable resident limit shall be reduced by 65 percent of the difference between such otherwise applicable resident 

limit and such reference resident level. 

(ii) EXCEPTIONS.—This subparagraph shall not apply 

to— 

(I) a hospital located in a rural area (as defined 

in subsection (d)(2)(D)(ii)) with fewer than 250 

acute care inpatient beds; 

(II) a hospital that was part of a qualifying entity which had a voluntary residency reduction plan 

approved under paragraph (6)(B) or under the authority of section 402 of Public Law 90–248, if the 

hospital demonstrates to the Secretary that it has 

a specified plan in place for filling the unused positions by not later than 2 years after the date of 

enactment of this paragraph; or 


emcdonald on DSK67QTVN1PROD with HEARING
89 

(III) a hospital described in paragraph (4)(H)(v). 

(B) DISTRIBUTION.— 

(i) IN GENERAL.—The Secretary shall increase the 

otherwise applicable resident limit for each qualifying 

hospital that submits an application under this subparagraph by such number as the Secretary may approve for portions of cost reporting periods occurring 

on or after July 1, 2011. The aggregate number of increases in the otherwise applicable resident limit 

under this subparagraph shall be equal to the aggregate reduction in such limits attributable to subparagraph (A) (as estimated by the Secretary). 

(ii) REQUIREMENTS.—Subject to clause (iii), a hospital that receives an increase in the otherwise applicable resident limit under this subparagraph shall ensure, during the 5-year period beginning on the date 

of such increase, that— 

(I) the number of full-time equivalent primary 

care residents, as defined in paragraph (5)(H) (as 

determined by the Secretary), excluding any additional positions under subclause (II), is not less 

than the average number of full-time equivalent 

primary care residents (as so determined) during 

the 3 most recent cost reporting periods ending 

prior to the date of enactment of this paragraph; 

and 

(II) not less than 75 percent of the positions attributable to such increase are in a primary care 

or general surgery residency (as determined by 

the Secretary). 

The Secretary may determine whether a hospital has 

met the requirements under this clause during such 5- 

year period in such manner and at such time as the 

Secretary determines appropriate, including at the end 

of such 5-year period. 

(iii) REDISTRIBUTION OF POSITIONS IF HOSPITAL NO

LONGER MEETS CERTAIN REQUIREMENTS.—In the case 

where the Secretary determines that a hospital described in clause (ii) does not meet either of the requirements under subclause (I) or (II) of such clause, 

the Secretary shall— 

(I) reduce the otherwise applicable resident 

limit of the hospital by the amount by which such 

limit was increased under this paragraph; and 

(II) provide for the distribution of positions attributable to such reduction in accordance with 

the requirements of this paragraph. 

(C) CONSIDERATIONS IN REDISTRIBUTION.—In determining for which hospitals the increase in the otherwise 

applicable resident limit is provided under subparagraph 

(B), the Secretary shall take into account— 

(i) the demonstration likelihood of the hospital filling the positions made available under this paragraph 

within the first 3 cost reporting periods beginning on 


emcdonald on DSK67QTVN1PROD with HEARING
90 

or after July 1, 2011, as determined by the Secretary; 

and 

(ii) whether the hospital has an accredited rural 

training track (as described in paragraph (4)(H)(iv)). 

(D) PRIORITY FOR CERTAIN AREAS.—In determining for 

which hospitals the increase in the otherwise applicable 

resident limit is provided under subparagraph (B), subject 

to subparagraph (E), the Secretary shall distribute the increase to hospitals based on the following factors: 

(i) Whether the hospital is located in a State with a 

resident-to-population ratio in the lowest quartile (as 

determined by the Secretary). 

(ii) Whether the hospital is located in a State, a territory of the United States, or the District of Columbia 

that is among the top 10 States, territories, or Districts in terms of the ratio of— 

(I) the total population of the State, territory, or 

District living in an area designated (under such 

section 332(a)(1)(A)) as a health professional 

shortage area (as of the date of enactment of this 

paragraph); to 

(II) the total population of the State, territory, 

or District (as determined by the Secretary based 

on the most recent available population data published by the Bureau of the Census). 

(iii) Whether the hospital is located in a rural area 

(as defined in subsection (d)(2)(D)(ii)). 

(E) RESERVATION OF POSITIONS FOR CERTAIN HOSPITALS.— 

(i) IN GENERAL.—Subject to clause (ii), the Secretary 

shall reserve the positions available for distribution 

under this paragraph as follows: 

(I) 70 percent of such positions for distribution 

to hospitals described in clause (i) of subparagraph (D). 

(II) 30 percent of such positions for distribution 

to hospitals described in clause (ii) and (iii) of 

such subparagraph. 

(ii) EXCEPTION IF POSITIONS NOT REDISTRIBUTED BY

JULY 1, 2011.—In the case where the Secretary does not 

distribute positions to hospitals in accordance with 

clause (i) by July 1, 2011, the Secretary shall distribute such positions to other hospitals in accordance 

with the considerations described in subparagraph (C) 

and the priority described in subparagraph (D). 

(F) LIMITATION.—A hospital may not receive more than 

75 full-time equivalent additional residency positions 

under this paragraph. 

(G) APPLICATION OF PER RESIDENT AMOUNTS FOR PRIMARY CARE AND NONPRIMARY CARE.—With respect to additional residency positions in a hospital attributable to the 

increase provided under this paragraph, the approved FTE 

per resident amounts are deemed to be equal to the hospital per resident amounts for primary care and nonpriVerDate Sep 11 2014 01:51 Jun 18, 2015 Jkt 049006 PO 00000 Frm 00090 Fmt 6659 Sfmt 6602 E:\HR\OC\HR156.XXX HR156

emcdonald on DSK67QTVN1PROD with HEARING
91 

mary care computed under paragraph (2)(D) for that hospital. 

(H) DEFINITIONS.—In this paragraph: 

(i) REFERENCE RESIDENT LEVEL.—The term ‘‘reference resident level’’ means, with respect to a hospital, the highest resident level for any of the 3 most 

recent cost reporting periods (ending before the date of 

the enactment of this paragraph) of the hospital for 

which a cost report has been settled (or, if not, submitted (subject to audit)), as determined by the Secretary. 

(ii) RESIDENT LEVEL.—The term ‘‘resident level’’ has 

the meaning given such term in paragraph (7)(C)(i). 

(iii) OTHERWISE APPLICABLE RESIDENT LIMIT.—The 

term ‘‘otherwise applicable resident limit’’ means, with 

respect to a hospital, the limit otherwise applicable 

under subparagraphs (F)(i) and (H) of paragraph (4) 

on the resident level for the hospital determined without regard to this paragraph but taking into account 

paragraph (7)(A). 

(I) AFFILIATION.—The provisions of this paragraph shall 

be applied to hospitals which are members of the same affiliated group (as defined by the Secretary under paragraph (4)(H)(ii)) and the reference resident level for each 

such hospital shall be the reference resident level with respect to the cost reporting period that results in the smallest difference between the reference resident level and the 

otherwise applicable resident limit. 

(i) AVOIDING DUPLICATIVE PAYMENTS TO HOSPITALS PARTICIPATING IN RURAL DEMONSTRATION PROGRAMS.—The Secretary shall 

reduce any payment amounts otherwise determined under this section to the extent necessary to avoid duplication of any payment 

made under section 4005(e) of the Omnibus Budget Reconciliation 

Act of 1987. 

(j) PROSPECTIVE PAYMENT FOR INPATIENT REHABILITATION SERVICES.— 

(1) PAYMENT DURING TRANSITION PERIOD.— 

(A) IN GENERAL.—Notwithstanding section 1814(b), but 

subject to the provisions of section 1813, the amount of the 

payment with respect to the operating and capital costs of 

inpatient hospital services of a rehabilitation hospital or a 

rehabilitation unit (in this subsection referred to as a ‘‘rehabilitation facility’’), other than a facility making an election under subparagraph (F) in a cost reporting period beginning on or after October 1, 2000, and before October 1, 

2002, is equal to the sum of— 

(i) the TEFRA percentage (as defined in subparagraph (C)) of the amount that would have been paid 

under part A with respect to such costs if this subsection did not apply, and 

(ii) the prospective payment percentage (as defined 

in subparagraph (C)) of the product of (I) the per unit 

payment rate established under this subsection for the 

fiscal year in which the payment unit of service ocVerDate Sep 11 2014 01:51 Jun 18, 2015 Jkt 049006 PO 00000 Frm 00091 Fmt 6659 Sfmt 6602 E:\HR\OC\HR156.XXX HR156

emcdonald on DSK67QTVN1PROD with HEARING
92 

curs, and (II) the number of such payment units occurring in the cost reporting period. 

(B) FULLY IMPLEMENTED SYSTEM.—Notwithstanding section 1814(b), but subject to the provisions of section 1813, 

the amount of the payment with respect to the operating 

and capital costs of inpatient hospital services of a rehabilitation facility for a payment unit in a cost reporting period beginning on or after October 1, 2002, or, in the case 

of a facility making an election under subparagraph (F), 

for any cost reporting period described in such subparagraph, is equal to the per unit payment rate established 

under this subsection for the fiscal year in which the payment unit of service occurs. 

(C) TEFRA AND PROSPECTIVE PAYMENT PERCENTAGES

SPECIFIED.—For purposes of subparagraph (A), for a cost 

reporting period beginning— 

(i) on or after October 1, 2000, and before October 

1, 2001, the ‘‘TEFRA percentage’’ is 662⁄3 percent and 

the ‘‘prospective payment percentage’’ is 331⁄3 percent; 

and 

(ii) on or after October 1, 2001, and before October 

1, 2002, the ‘‘TEFRA percentage’’ is 331⁄3 percent and 

the ‘‘prospective payment percentage’’ is 662⁄3 percent. 

(D) PAYMENT UNIT.—For purposes of this subsection, the 

term ‘‘payment unit’’ means a discharge. 

(E) CONSTRUCTION RELATING TO TRANSFER AUTHORITY.— Nothing in this subsection shall be construed as preventing the Secretary from providing for an adjustment to 

payments to take into account the early transfer of a patient from a rehabilitation facility to another site of care. 

(F) ELECTION TO APPLY FULL PROSPECTIVE PAYMENT SYSTEM.—A rehabilitation facility may elect, not later than 30 

days before its first cost reporting period for which the 

payment methodology under this subsection applies to the 

facility, to have payment made to the facility under this 

subsection under the provisions of subparagraph (B) (rather than subparagraph (A)) for each cost reporting period to 

which such payment methodology applies. 

(2) PATIENT CASE MIX GROUPS.— (A) ESTABLISHMENT.—The Secretary shall establish— 

(i) classes of patient discharges of rehabilitation facilities by functional-related groups (each in this subsection referred to as a ‘‘case mix group’’), based on 

impairment, age, comorbidities, and functional capability of the patient and such other factors as the Secretary deems appropriate to improve the explanatory 

power of functional independence measure-function related groups; and 

(ii) a method of classifying specific patients in rehabilitation facilities within these groups. 

(B) WEIGHTING FACTORS.—For each case mix group the 

Secretary shall assign an appropriate weighting which reflects the relative facility resources used with respect to 

patients classified within that group compared to patients 

classified within other groups. 


emcdonald on DSK67QTVN1PROD with HEARING
93 

(C) ADJUSTMENTS FOR CASE MIX.— 

(i) IN GENERAL.—The Secretary shall from time to 

time adjust the classifications and weighting factors 

established under this paragraph as appropriate to reflect changes in treatment patterns, technology, case 

mix, number of payment units for which payment is 

made under this title, and other factors which may affect the relative use of resources. Such adjustments 

shall be made in a manner so that changes in aggregate payments under the classification system are a 

result of real changes and are not a result of changes 

in coding that are unrelated to real changes in case 

mix. 

(ii) ADJUSTMENT.—Insofar as the Secretary determines that such adjustments for a previous fiscal year 

(or estimates that such adjustments for a future fiscal 

year) did (or are likely to) result in a change in aggregate payments under the classification system during 

the fiscal year that are a result of changes in the coding or classification of patients that do not reflect real 

changes in case mix, the Secretary shall adjust the per 

payment unit payment rate for subsequent years so as 

to eliminate the effect of such coding or classification 

changes. 

(D) DATA COLLECTION.—The Secretary is authorized to 

require rehabilitation facilities that provide inpatient hospital services to submit such data as the Secretary deems 

necessary to establish and administer the prospective payment system under this subsection. 

(3) PAYMENT RATE.— 

(A) IN GENERAL.—The Secretary shall determine a prospective payment rate for each payment unit for which 

such rehabilitation facility is entitled to receive payment 

under this title. Subject to subparagraph (B), such rate for 

payment units occurring during a fiscal year shall be 

based on the average payment per payment unit under 

this title for inpatient operating and capital costs of rehabilitation facilities using the most recent data available (as 

estimated by the Secretary as of the date of establishment 

of the system) adjusted— 

(i) by updating such per-payment-unit amount to the 

fiscal year involved by the weighted average of the applicable percentage increases provided under subsection (b)(3)(B)(ii) (for cost reporting periods beginning during the fiscal year) covering the period from 

the midpoint of the period for such data through the 

midpoint of fiscal year 2000 and by an increase factor 

(described in subparagraph (C)) specified by the Secretary for subsequent fiscal years up to the fiscal year 

involved; 

(ii) by reducing such rates by a factor equal to the 

proportion of payments under this subsection (as estimated by the Secretary) based on prospective payment 

amounts which are additional payments described in 


emcdonald on DSK67QTVN1PROD with HEARING
94 

paragraph (4) (relating to outlier and related payments); 

(iii) for variations among rehabilitation facilities by 

area under paragraph (6); 

(iv) by the weighting factors established under paragraph (2)(B); and 

(v) by such other factors as the Secretary determines 

are necessary to properly reflect variations in necessary costs of treatment among rehabilitation facilities. 

(B) BUDGET NEUTRAL RATES.—The Secretary shall establish the prospective payment amounts under this subsection for payment units during fiscal years 2001 and 

2002 at levels such that, in the Secretary’s estimation, the 

amount of total payments under this subsection for such 

fiscal years (including any payment adjustments pursuant 

to paragraphs (4) and (6) but not taking into account any 

payment adjustment resulting from an election permitted 

under paragraph (1)(F)) shall be equal to 98 percent for 

fiscal year 2001 and 100 percent for fiscal year 2002 of the 

amount of payments that would have been made under 

this title during the fiscal years for operating and capital 

costs of rehabilitation facilities had this subsection not 

been enacted. In establishing such payment amounts, the 

Secretary shall consider the effects of the prospective payment system established under this subsection on the total 

number of payment units from rehabilitation facilities and 

other factors described in subparagraph (A). 

(C) INCREASE FACTOR.— 

(i) IN GENERAL.—For purposes of this subsection for 

payment units in each fiscal year (beginning with fiscal year 2001), the Secretary shall establish an increase factor subject to clauses (ii) and (iii). Such factor shall be based on an appropriate percentage increase in a market basket of goods and services comprising services for which payment is made under this 

subsection, which may be the market basket percentage increase described in subsection (b)(3)(B)(iii). The 

increase factor to be applied under this subparagraph 

for each of fiscal years 2008 and 2009 shall be 0 percent. 

(ii) PRODUCTIVITY AND OTHER ADJUSTMENT.—Subject 

to clause (iii), after establishing the increase factor described in clause (i) for a fiscal year, the Secretary 

shall reduce such increase factor— 

(I) for fiscal year 2012 and each subsequent fiscal year, by the productivity adjustment described 

in section 1886(b)(3)(B)(xi)(II); and 

(II) for each of fiscal years 2010 through 2019, 

by the other adjustment described in subparagraph (D). 

The application of this clause may result in the increase factor under this subparagraph being less than 

0.0 for a fiscal year, and may result in payment rates 


emcdonald on DSK67QTVN1PROD with HEARING
95 

under this subsection for a fiscal year being less than 

such payment rates for the preceding fiscal year. 

(iii) SPECIAL RULE FOR FISCAL YEAR 2018.—The increase factor to be applied under this subparagraph 

for fiscal year 2018, after the application of clause (ii), 

shall be 1 percent. 

(D) OTHER ADJUSTMENT.—For purposes of subparagraph 

(C)(ii)(II), the other adjustment described in this subparagraph is— 

(i) for each of fiscal years 2010 and 2011, 0.25 percentage point; 

(ii) for each of fiscal years 2012 and 2013, 0.1 percentage point; 

(iii) for fiscal year 2014, 0.3 percentage point; 

(iv) for each of fiscal years 2015 and 2016, 0.2 percentage point; and 

(v) for each of fiscal years 2017, 2018, and 2019, 

0.75 percentage point. 

(4) OUTLIER AND SPECIAL PAYMENTS.— 

(A) OUTLIERS.— 

(i) IN GENERAL.—The Secretary may provide for an 

additional payment to a rehabilitation facility for patients in a case mix group, based upon the patient 

being classified as an outlier based on an unusual 

length of stay, costs, or other factors specified by the 

Secretary. 

(ii) PAYMENT BASED ON MARGINAL COST OF CARE.— The amount of such additional payment under clause 

(i) shall be determined by the Secretary and shall approximate the marginal cost of care beyond the cutoff 

point applicable under clause (i). 

(iii) TOTAL PAYMENTS.—The total amount of the additional payments made under this subparagraph for 

payment units in a fiscal year may not exceed 5 percent of the total payments projected or estimated to be 

made based on prospective payment rates for payment 

units in that year. 

(B) ADJUSTMENT.—The Secretary may provide for such 

adjustments to the payment amounts under this subsection as the Secretary deems appropriate to take into account the unique circumstances of rehabilitation facilities 

located in Alaska and Hawaii. 

(5) PUBLICATION.—The Secretary shall provide for publication in the Federal Register, on or before August 1 before each 

fiscal year (beginning with fiscal year 2001), of the classification and weighting factors for case mix groups under paragraph (2) for such fiscal year and a description of the methodology and data used in computing the prospective payment 

rates under this subsection for that fiscal year. 

(6) AREA WAGE ADJUSTMENT.—The Secretary shall adjust the 

proportion (as estimated by the Secretary from time to time) 

of rehabilitation facilities’ costs which are attributable to 

wages and wage-related costs, of the prospective payment rates 

computed under paragraph (3) for area differences in wage levels by a factor (established by the Secretary) reflecting the relVerDate Sep 11 2014 01:51 Jun 18, 2015 Jkt 049006 PO 00000 Frm 00095 Fmt 6659 Sfmt 6602 E:\HR\OC\HR156.XXX HR156

emcdonald on DSK67QTVN1PROD with HEARING
96 

ative hospital wage level in the geographic area of the rehabilitation facility compared to the national average wage level for 

such facilities. Not later than October 1, 2001 (and at least 

every 36 months thereafter), the Secretary shall update the 

factor under the preceding sentence on the basis of information 

available to the Secretary (and updated as appropriate) of the 

wages and wage-related costs incurred in furnishing rehabilitation services. Any adjustments or updates made under this 

paragraph for a fiscal year shall be made in a manner that 

assures that the aggregated payments under this subsection in 

the fiscal year are not greater or less than those that would 

have been made in the year without such adjustment. 

(7) QUALITY REPORTING.— 

(A) REDUCTION IN UPDATE FOR FAILURE TO REPORT.— 

(i) IN GENERAL.—For purposes of fiscal year 2014 

and each subsequent fiscal year, in the case of a rehabilitation facility that does not submit data to the Secretary in accordance with subparagraphs (C) and (F) 

with respect to such a fiscal year, after determining 

the increase factor described in paragraph (3)(C), and 

after application of subparagraphs (C)(iii) and (D) of 

paragraph (3), the Secretary shall reduce such increase factor for payments for discharges occurring 

during such fiscal year by 2 percentage points. 

(ii) SPECIAL RULE.—The application of this subparagraph may result in the increase factor described in 

paragraph (3)(C) being less than 0.0 for a fiscal year, 

and may result in payment rates under this subsection 

for a fiscal year being less than such payment rates 

for the preceding fiscal year. 

(B) NONCUMULATIVE APPLICATION.—Any reduction under 

subparagraph (A) shall apply only with respect to the fiscal year involved and the Secretary shall not take into account such reduction in computing the payment amount 

under this subsection for a subsequent fiscal year. 

(C) SUBMISSION OF QUALITY DATA.—Subject to subparagraph (G), for fiscal year 2014 and each subsequent fiscal 

year, each rehabilitation facility shall submit to the Secretary data on quality measures specified under subparagraph (D). Such data shall be submitted in a form and 

manner, and at a time, specified by the Secretary for purposes of this subparagraph. 

(D) QUALITY MEASURES.— 

(i) IN GENERAL.—Subject to clause (ii), any measure 

specified by the Secretary under this subparagraph 

must have been endorsed by the entity with a contract 

under section 1890(a). 

(ii) EXCEPTION.—In the case of a specified area or 

medical topic determined appropriate by the Secretary 

for which a feasible and practical measure has not 

been endorsed by the entity with a contract under section 1890(a), the Secretary may specify a measure that 

is not so endorsed as long as due consideration is 

given to measures that have been endorsed or adopted 


emcdonald on DSK67QTVN1PROD with HEARING
97 

by a consensus organization identified by the Secretary. 

(iii) TIME FRAME.—Not later than October 1, 2012, 

the Secretary shall publish the measures selected 

under this subparagraph that will be applicable with 

respect to fiscal year 2014. 

(E) PUBLIC AVAILABILITY OF DATA SUBMITTED.—The Secretary shall establish procedures for making data submitted under subparagraph (C) and subparagraph (F)(i) 

available to the public. Such procedures shall ensure that 

a rehabilitation facility has the opportunity to review the 

data that is to be made public with respect to the facility 

prior to such data being made public. The Secretary shall 

report quality measures that relate to services furnished in 

inpatient settings in rehabilitation facilities on the Internet website of the Centers for Medicare & Medicaid Services. 

(F) SUBMISSION OF ADDITIONAL DATA.— (i) IN GENERAL.—For the fiscal year beginning on 

the specified application date (as defined in subsection 

(a)(2)(E) of section 1899B), as applicable with respect 

to inpatient rehabilitation facilities and quality measures under subsection (c)(1) of such section and measures under subsection (d)(1) of such section, and each 

subsequent fiscal year, in addition to such data on the 

quality measures described in subparagraph (C), each 

rehabilitation facility shall submit to the Secretary 

data on the quality measures under such subsection 

(c)(1) and any necessary data specified by the Secretary under such subsection (d)(1). 

(ii) STANDARDIZED PATIENT ASSESSMENT DATA.—For 

fiscal year 2019 and each subsequent fiscal year, in 

addition to such data described in clause (i), each rehabilitation facility shall submit to the Secretary 

standardized patient assessment data required under 

subsection (b)(1) of section 1899B. 

(iii) SUBMISSION.—Such data shall be submitted in 

the form and manner, and at the time, specified by the 

Secretary for purposes of this subparagraph. 

(G) NON-DUPLICATION.—To the extent data submitted 

under subparagraph (F) duplicates other data required to 

be submitted under subparagraph (C), the submission of 

such data under subparagraph (F) shall be in lieu of the 

submission of such data under subparagraph (C). The previous sentence shall not apply insofar as the Secretary determines it is necessary to avoid a delay in the implementation of section 1899B, taking into account the different 

specified application dates under subsection (a)(2)(E) of 

such section. 

(8) LIMITATION ON REVIEW.—There shall be no administrative or judicial review under section 1869, 1878, or otherwise 

of the establishment of— 

(A) case mix groups, of the methodology for the classification of patients within such groups, and of the appropriate weighting factors thereof under paragraph (2), 


emcdonald on DSK67QTVN1PROD with HEARING
98 

(B) the prospective payment rates under paragraph (3), 

(C) outlier and special payments under paragraph (4), 

and 

(D) area wage adjustments under paragraph (6). 

(k) PAYMENT TO NONHOSPITAL PROVIDERS.— (1) IN GENERAL.—For cost reporting periods beginning on or 

after October 1, 1997, the Secretary may establish rules for 

payment to qualified nonhospital providers for their direct 

costs of medical education, if those costs are incurred in the operation of an approved medical residency training program described in subsection (h). Such rules shall specify the amounts, 

form, and manner in which such payments will be made and 

the portion of such payments that will be made from each of 

the trust funds under this title. 

(2) QUALIFIED NONHOSPITAL PROVIDERS.—For purposes of 

this subsection, the term ‘‘qualified nonhospital providers’’ 

means— 

(A) a Federally qualified health center, as defined in section 1861(aa)(4); 

(B) a rural health clinic, as defined in section 

1861(aa)(2); 

(C) Medicare+Choice organizations; and 

(D) such other providers (other than hospitals) as the 

Secretary determines to be appropriate. 

(l) PAYMENT FOR NURSING AND ALLIED HEALTH EDUCATION FOR

MANAGED CARE ENROLLEES.— (1) IN GENERAL.—For portions of cost reporting periods occurring in a year (beginning with 2000), the Secretary shall 

provide for an additional payment amount for any hospital 

that receives payments for the costs of approved educational 

activities for nurse and allied health professional training 

under section 1861(v)(1). 

(2) PAYMENT AMOUNT.—The additional payment amount 

under this subsection for each hospital for portions of cost reporting periods occurring in a year shall be an amount specified by the Secretary in a manner consistent with the following: 

(A) DETERMINATION OF MANAGED CARE ENROLLEE PAY- MENT RATIO FOR GRADUATE MEDICAL EDUCATION PAY- MENTS.—The Secretary shall estimate the ratio of payments for all hospitals for portions of cost reporting periods occurring in the year under subsection (h)(3)(D) to 

total direct graduate medical education payments estimated for such portions of periods under subsection (h)(3). 

(B) APPLICATION TO FEE-FOR-SERVICE NURSING AND ALLIED HEALTH EDUCATION PAYMENTS.—Such ratio shall be 

applied to the Secretary’s estimate of total payments for 

nursing and allied health education determined under section 1861(v) for portions of cost reporting periods occurring 

in the year to determine a total amount of additional payments for nursing and allied health education to be distributed to hospitals under this subsection for portions of 

cost reporting periods occurring in the year; except that in 

no case shall such total amount exceed $60,000,000 in any 

year. 


emcdonald on DSK67QTVN1PROD with HEARING
99 

(C) APPLICATION TO HOSPITAL.—The amount of payment 

under this subsection to a hospital for portions of cost reporting periods occurring in a year is equal to the total 

amount of payments determined under subparagraph (B) 

for the year multiplied by the ratio of— 

(i) the product of (I) the Secretary’s estimate of the 

ratio of the amount of payments made under section 

1861(v) to the hospital for nursing and allied health 

education activities for the hospital’s cost reporting period ending in the second preceding fiscal year, to the 

hospital’s total inpatient days for such period, and (II) 

the total number of inpatient days (as established by 

the Secretary) for such period which are attributable 

to services furnished to individuals who are enrolled 

under a risk sharing contract with an eligible organization under section 1876 and who are entitled to benefits under part A or who are enrolled with a 

Medicare+Choice organization under part C; to 

(ii) the sum of the products determined under clause 

(i) for such cost reporting periods. 

(m) PROSPECTIVE PAYMENT FOR LONG-TERM CARE HOSPITALS.— (1) REFERENCE TO ESTABLISHMENT AND IMPLEMENTATION OF

SYSTEM.—For provisions related to the establishment and implementation of a prospective payment system for payments 

under this title for inpatient hospital services furnished by a 

long-term care hospital described in subsection (d)(1)(B)(iv), see 

section 123 of the Medicare, Medicaid, and SCHIP Balanced 

Budget Refinement Act of 1999 and section 307(b) of the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000. 

(2) UPDATE FOR RATE YEAR 2008.—In implementing the system described in paragraph (1) for discharges occurring during 

the rate year ending in 2008 for a hospital, the base rate for 

such discharges for the hospital shall be the same as the base 

rate for discharges for the hospital occurring during the rate 

year ending in 2007. 

(3) IMPLEMENTATION FOR RATE YEAR 2010 AND SUBSEQUENT

YEARS.— 

(A) IN GENERAL.—Subject to subparagraph (C), in implementing the system described in paragraph (1) for rate 

year 2010 and each subsequent rate year, any annual update to a standard Federal rate for discharges for the hospital during the rate year, shall be reduced— 

(i) for rate year 2012 and each subsequent rate year, 

by the productivity adjustment described in section 

1886(b)(3)(B)(xi)(II); and 

(ii) for each of rate years 2010 through 2019, by the 

other adjustment described in paragraph (4). 

(B) SPECIAL RULE.—The application of this paragraph 

may result in such annual update being less than 0.0 for 

a rate year, and may result in payment rates under the 

system described in paragraph (1) for a rate year being 

less than such payment rates for the preceding rate year. 

(C) ADDITIONAL SPECIAL RULE.—For fiscal year 2018, the 

annual update under subparagraph (A) for the fiscal year, 


emcdonald on DSK67QTVN1PROD with HEARING
100 

after application of clauses (i) and (ii) of subparagraph (A), 

shall be 1 percent. 

(4) OTHER ADJUSTMENT.—For purposes of paragraph 

(3)(A)(ii), the other adjustment described in this paragraph is— 

(A) for rate year 2010, 0.25 percentage point; 

(B) for rate year 2011, 0.50 percentage point; 

(C) for each of the rate years beginning in 2012 and 

2013, 0.1 percentage point; 

(D) for rate year 2014, 0.3 percentage point; 

(E) for each of rate years 2015 and 2016, 0.2 percentage 

point; and 

(F) for each of rate years 2017, 2018, and 2019, 0.75 percentage point. 

(5) QUALITY REPORTING.— 

(A) REDUCTION IN UPDATE FOR FAILURE TO REPORT.— 

(i) IN GENERAL.—Under the system described in 

paragraph (1), for rate year 2014 and each subsequent 

rate year, in the case of a long-term care hospital that 

does not submit data to the Secretary in accordance 

with subparagraphs (C) and (F) with respect to such 

a rate year, any annual update to a standard Federal 

rate for discharges for the hospital during the rate 

year, and after application of paragraph (3), shall be 

reduced by 2 percentage points. 

(ii) SPECIAL RULE.—The application of this subparagraph may result in such annual update being less 

than 0.0 for a rate year, and may result in payment 

rates under the system described in paragraph (1) for 

a rate year being less than such payment rates for the 

preceding rate year. 

(B) NONCUMULATIVE APPLICATION.—Any reduction under 

subparagraph (A) shall apply only with respect to the rate 

year involved and the Secretary shall not take into account 

such reduction in computing the payment amount under 

the system described in paragraph (1) for a subsequent 

rate year. 

(C) SUBMISSION OF QUALITY DATA.—Subject to subparagraph (G), for rate year 2014 and each subsequent rate 

year, each long-term care hospital shall submit to the Secretary data on quality measures specified under subparagraph (D). Such data shall be submitted in a form and 

manner, and at a time, specified by the Secretary for purposes of this subparagraph. 

(D) QUALITY MEASURES.— 

(i) IN GENERAL.—Subject to clause (ii), any measure 

specified by the Secretary under this subparagraph 

must have been endorsed by the entity with a contract 

under section 1890(a). 

(ii) EXCEPTION.—In the case of a specified area or 

medical topic determined appropriate by the Secretary 

for which a feasible and practical measure has not 

been endorsed by the entity with a contract under section 1890(a), the Secretary may specify a measure that 

is not so endorsed as long as due consideration is 

given to measures that have been endorsed or adopted 


emcdonald on DSK67QTVN1PROD with HEARING
101 

by a consensus organization identified by the Secretary. 

(iii) TIME FRAME.—Not later than October 1, 2012, 

the Secretary shall publish the measures selected 

under this subparagraph that will be applicable with 

respect to rate year 2014. 

(iv) ADDITIONAL QUALITY MEASURES.—Not later than 

October 1, 2015, the Secretary shall establish a functional status quality measure for change in mobility 

among inpatients requiring ventilator support. 

(E) PUBLIC AVAILABILITY OF DATA SUBMITTED.—The Secretary shall establish procedures for making data submitted under subparagraph (C) and subparagraph (F)(i) 

available to the public. Such procedures shall ensure that 

a long-term care hospital has the opportunity to review the 

data that is to be made public with respect to the hospital 

prior to such data being made public. The Secretary shall 

report quality measures that relate to services furnished in 

inpatient settings in long-term care hospitals on the Internet website of the Centers for Medicare & Medicaid Services. 

(F) SUBMISSION OF ADDITIONAL DATA.— (i) IN GENERAL.—For the rate year beginning on the 

specified application date (as defined in subsection 

(a)(2)(E) of section 1899B), as applicable with respect 

to long-term care hospitals and quality measures 

under subsection (c)(1) of such section and measures 

under subsection (d)(1) of such section, and each subsequent rate year, in addition to the data on the quality measures described in subparagraph (C), each 

long-term care hospital (other than a hospital classified under subsection (d)(1)(B)(iv)(II)) shall submit to 

the Secretary data on the quality measures under 

such subsection (c)(1) and any necessary data specified 

by the Secretary under such subsection (d)(1). 

(ii) STANDARDIZED PATIENT ASSESSMENT DATA.—For 

rate year 2019 and each subsequent rate year, in addition to such data described in clause (i), each longterm care hospital (other than a hospital classified 

under subsection (d)(1)(B)(iv)(II)) shall submit to the 

Secretary standardized patient assessment data required under subsection (b)(1) of section 1899B. 

(iii) SUBMISSION.—Such data shall be submitted in 

the form and manner, and at the time, specified by the 

Secretary for purposes of this subparagraph. 

(G) NON-DUPLICATION.—To the extent data submitted 

under subparagraph (F) duplicates other data required to 

be submitted under subparagraph (C), the submission of 

such data under subparagraph (F) shall be in lieu of the 

submission of such data under subparagraph (C). The previous sentence shall not apply insofar as the Secretary determines it is necessary to avoid a delay in the implementation of section 1899B, taking into account the different 

specified application dates under subsection (a)(2)(E) of 

such section. 


emcdonald on DSK67QTVN1PROD with HEARING
102 

(6) APPLICATION OF SITE NEUTRAL IPPS PAYMENT RATE IN CERTAIN CASES.— 

(A) GENERAL APPLICATION OF SITE NEUTRAL IPPS PAYMENT AMOUNT FOR DISCHARGES FAILING TO MEET APPLICABLE CRITERIA.— 

(i) IN GENERAL.—For a discharge in cost reporting 

periods beginning on or after October 1, 2015, except 

as provided in clause (ii) and subparagraph (C), payment under this title to a long-term care hospital for 

inpatient hospital services shall be made at the applicable site neutral payment rate (as defined in subparagraph (B)). 

(ii) EXCEPTION FOR CERTAIN DISCHARGES MEETING

CRITERIA.—Clause (i) shall not apply (and payment 

shall be made to a long-term care hospital without regard to this paragraph) for a discharge if— 

(I) the discharge meets the ICU criterion under 

clause (iii) or the ventilator criterion under clause 

(iv); and 

(II) the discharge does not have a principal diagnosis relating to a psychiatric diagnosis or to rehabilitation. 

(iii) INTENSIVE CARE UNIT (ICU) CRITERION.— 

(I) IN GENERAL.—The criterion specified in this 

clause (in this paragraph referred to as the ‘‘ICU 

criterion’’), for a discharge from a long-term care 

hospital, is that the stay in the long-term care 

hospital ending with such discharge was immediately preceded by a discharge from a stay in a 

subsection (d) hospital that included at least 3 

days in an intensive care unit (ICU), as determined by the Secretary. 

(II) DETERMINING ICU DAYS.—In determining intensive care unit days under subclause (I), the 

Secretary shall use data from revenue center 

codes 020x or 021x (or such successor codes as the 

Secretary may establish). 

(iv) VENTILATOR CRITERION.—The criterion specified 

in this clause (in this paragraph referred to as the 

‘‘ventilator criterion’’), for a discharge from a long-term 

care hospital, is that— 

(I) the stay in the long-term care hospital ending with such discharge was immediately preceded 

by a discharge from a stay in a subsection (d) hospital; and 

(II) the individual discharged was assigned to a 

Medicare-Severity-Long-Term-Care-Diagnosis-Related-Group (MS–LTC–DRG) based on the receipt 

of ventilator services of at least 96 hours. 

(B) APPLICABLE SITE NEUTRAL PAYMENT RATE DEFINED.— 

(i) IN GENERAL.—In this paragraph, the term ‘‘applicable site neutral payment rate’’ means— 

(I) for discharges in cost reporting periods beginning during fiscal year 2016 or fiscal year 


emcdonald on DSK67QTVN1PROD with HEARING
103 

2017, the blended payment rate specified in clause 

(iii); and 

(II) for discharges in cost reporting periods beginning during fiscal year 2018 or a subsequent 

fiscal year, the site neutral payment rate (as defined in clause (ii)). 

(ii) SITE NEUTRAL PAYMENT RATE DEFINED.—In this 

paragraph, the term ‘‘site neutral payment rate’’ 

means the lower of— 

(I) the IPPS comparable per diem amount determined under paragraph (d)(4) of section 412.529 of 

title 42, Code of Federal Regulations, including 

any applicable outlier payments under section 

412.525 of such title; or 

(II) 100 percent of the estimated cost for the 

services involved. 

(iii) BLENDED PAYMENT RATE.—The blended payment 

rate specified in this clause, for a long-term care hospital for inpatient hospital services for a discharge, is 

comprised of— 

(I) half of the site neutral payment rate (as defined in clause (ii)) for the discharge; and 

(II) half of the payment rate that would otherwise be applicable to such discharge without regard to this paragraph, as determined by the Secretary. 

(C) LIMITING PAYMENT FOR ALL HOSPITAL DISCHARGES TO

SITE NEUTRAL PAYMENT RATE FOR HOSPITALS FAILING TO

MEET APPLICABLE LTCH DISCHARGE THRESHOLDS.— 

(i) NOTICE OF LTCH DISCHARGE PAYMENT PERCENT- AGE.—For cost reporting periods beginning during or 

after fiscal year 2016, the Secretary shall inform each 

long-term care hospital of its LTCH discharge payment percentage (as defined in clause (iv)) for such period. 

(ii) LIMITATION.—For cost reporting periods beginning during or after fiscal year 2020, if the Secretary 

determines for a long-term care hospital that its 

LTCH discharge payment percentage for the period is 

not at least 50 percent— 

(I) the Secretary shall inform the hospital of 

such fact; and 

(II) subject to clause (iii), for all discharges in 

the hospital in each succeeding cost reporting period, the payment amount under this subsection 

shall be the payment amount that would apply 

under subsection (d) for the discharge if the hospital were a subsection (d) hospital. 

(iii) PROCESS FOR REINSTATEMENT.—The Secretary 

shall establish a process whereby a long-term care 

hospital may seek to and have the provisions of subclause (II) of clause (ii) discontinued with respect to 

that hospital. 

(iv) LTCH DISCHARGE PAYMENT PERCENTAGE.—In 

this subparagraph, the term ‘‘LTCH discharge payVerDate Sep 11 2014 01:51 Jun 18, 2015 Jkt 049006 PO 00000 Frm 00103 Fmt 6659 Sfmt 6602 E:\HR\OC\HR156.XXX HR156

emcdonald on DSK67QTVN1PROD with HEARING
104 

ment percentage’’ means, with respect to a long-term 

care hospital for a cost reporting period beginning during or after fiscal year 2020, the ratio (expressed as a 

percentage) of— 

(I) the number of Medicare fee-for-service discharges for such hospital and period for which 

payment is not made at the site neutral payment 

rate, to 

(II) the total number of Medicare fee-for-service 

discharges for such hospital and period. 

(D) INCLUSION OF SUBSECTION (d) PUERTO RICO HOSPITALS.—In this paragraph, any reference in this paragraph to a subsection (d) hospital shall be deemed to include a reference to a subsection (d) Puerto Rico hospital. 

(n) INCENTIVES FOR ADOPTION AND MEANINGFUL USE OF CERTIFIED EHR TECHNOLOGY.— 

(1) IN GENERAL.—Subject to the succeeding provisions of this 

subsection, with respect to inpatient hospital services furnished by an eligible hospital during a payment year (as defined in paragraph (2)(G)), if the eligible hospital is a meaningful EHR user (as determined under paragraph (3)) for the EHR 

reporting period with respect to such year, in addition to the 

amount otherwise paid under this section, there also shall be 

paid to the eligible hospital, from the Federal Hospital Insurance Trust Fund established under section 1817, an amount 

equal to the applicable amount specified in paragraph (2)(A) 

for the hospital for such payment year. 

(2) PAYMENT AMOUNT.— (A) IN GENERAL.—Subject to the succeeding subparagraphs of this paragraph, the applicable amount specified 

in this subparagraph for an eligible hospital for a payment 

year is equal to the product of the following: 

(i) INITIAL AMOUNT.—The sum of— 

(I) the base amount specified in subparagraph 

(B); plus 

(II) the discharge related amount specified in 

subparagraph (C) for a 12-month period selected 

by the Secretary with respect to such payment 

year. 

(ii) MEDICARE SHARE.—The Medicare share as specified in subparagraph (D) for the eligible hospital for a 

period selected by the Secretary with respect to such 

payment year. 

(iii) TRANSITION FACTOR.—The transition factor specified in subparagraph (E) for the eligible hospital for 

the payment year. 

(B) BASE AMOUNT.—The base amount specified in this 

subparagraph is $2,000,000. 

(C) DISCHARGE RELATED AMOUNT.—The discharge related amount specified in this subparagraph for a 12- 

month period selected by the Secretary shall be determined as the sum of the amount, estimated based upon 

total discharges for the eligible hospital (regardless of any 

source of payment) for the period, for each discharge up to 

the 23,000th discharge as follows: 


emcdonald on DSK67QTVN1PROD with HEARING
105 

(i) For the first through 1,149th discharge, $0. 

(ii) For the 1,150th through the 23,000th discharge, 

$200. 

(iii) For any discharge greater than the 23,000th, $0. 

(D) MEDICARE SHARE.—The Medicare share specified 

under this subparagraph for an eligible hospital for a period selected by the Secretary for a payment year is equal 

to the fraction— 

(i) the numerator of which is the sum (for such period and with respect to the eligible hospital) of— 

(I) the estimated number of inpatient-bed-days 

(as established by the Secretary) which are attributable to individuals with respect to whom payment may be made under part A; and 

(II) the estimated number of inpatient-bed-days 

(as so established) which are attributable to individuals who are enrolled with a Medicare Advantage organization under part C; and 

(ii) the denominator of which is the product of— 

(I) the estimated total number of inpatient-beddays with respect to the eligible hospital during 

such period; and 

(II) the estimated total amount of the eligible 

hospital’s charges during such period, not including any charges that are attributable to charity 

care (as such term is used for purposes of hospital 

cost reporting under this title), divided by the estimated total amount of the hospital’s charges during such period. 

Insofar as the Secretary determines that data are not 

available on charity care necessary to calculate the portion 

of the formula specified in clause (ii)(II), the Secretary 

shall use data on uncompensated care and may adjust 

such data so as to be an appropriate proxy for charity care 

including a downward adjustment to eliminate bad debt 

data from uncompensated care data. In the absence of the 

data necessary, with respect to a hospital, for the Secretary to compute the amount described in clause (ii)(II), 

the amount under such clause shall be deemed to be 1. In 

the absence of data, with respect to a hospital, necessary 

to compute the amount described in clause (i)(II), the 

amount under such clause shall be deemed to be 0. 

(E) TRANSITION FACTOR SPECIFIED.— 

(i) IN GENERAL.—Subject to clause (ii), the transition 

factor specified in this subparagraph for an eligible 

hospital for a payment year is as follows: 

(I) For the first payment year for such hospital, 

1. 

(II) For the second payment year for such hospital, 3⁄4. 

(III) For the third payment year for such hospital, 1⁄2. 

(IV) For the fourth payment year for such hospital, 1⁄4. 


emcdonald on DSK67QTVN1PROD with HEARING
106 

(V) For any succeeding payment year for such 

hospital, 0. 

(ii) PHASE DOWN FOR ELIGIBLE HOSPITALS FIRST

ADOPTING EHR AFTER 2013.—If the first payment year 

for an eligible hospital is after 2013, then the transition factor specified in this subparagraph for a payment year for such hospital is the same as the amount 

specified in clause (i) for such payment year for an eligible hospital for which the first payment year is 2013. 

If the first payment year for an eligible hospital is 

after 2015 then the transition factor specified in this 

subparagraph for such hospital and for such year and 

any subsequent year shall be 0. 

(F) FORM OF PAYMENT.—The payment under this subsection for a payment year may be in the form of a single 

consolidated payment or in the form of such periodic installments as the Secretary may specify. 

(G) PAYMENT YEAR DEFINED.— (i) IN GENERAL.—For purposes of this subsection, the 

term ‘‘payment year’’ means a fiscal year beginning 

with fiscal year 2011. 

(ii) FIRST, SECOND, ETC. PAYMENT YEAR.—The term 

‘‘first payment year’’ means, with respect to inpatient 

hospital services furnished by an eligible hospital, the 

first fiscal year for which an incentive payment is 

made for such services under this subsection. The 

terms ‘‘second payment year’’, ‘‘third payment year’’, 

and ‘‘fourth payment year’’ mean, with respect to an 

eligible hospital, each successive year immediately following the first payment year for that hospital. 

(3) MEANINGFUL EHR USER.— (A) IN GENERAL.—For purposes of paragraph (1), an eligible hospital shall be treated as a meaningful EHR user 

for an EHR reporting period for a payment year (or, for 

purposes of subsection (b)(3)(B)(ix), for an EHR reporting 

period under such subsection for a fiscal year) if each of 

the following requirements are met: 

(i) MEANINGFUL USE OF CERTIFIED EHR TECH- NOLOGY.—The eligible hospital demonstrates to the 

satisfaction of the Secretary, in accordance with subparagraph (C)(i), that during such period the hospital 

is using certified EHR technology in a meaningful 

manner. 

(ii) INFORMATION EXCHANGE.—The eligible hospital 

demonstrates to the satisfaction of the Secretary, in 

accordance with subparagraph (C)(i), that during such 

period such certified EHR technology is connected in 

a manner that provides, in accordance with law and 

standards applicable to the exchange of information, 

for the electronic exchange of health information to 

improve the quality of health care, such as promoting 

care coordination, and the hospital demonstrates 

(through a process specified by the Secretary, such as 

the use of an attestation) that the hospital has not 

knowingly and willfully taken action (such as to disVerDate Sep 11 2014 01:51 Jun 18, 2015 Jkt 049006 PO 00000 Frm 00106 Fmt 6659 Sfmt 6602 E:\HR\OC\HR156.XXX HR156

emcdonald on DSK67QTVN1PROD with HEARING
107 

able functionality) to limit or restrict the compatibility 

or interoperability of the certified EHR technology. 

(iii) REPORTING ON MEASURES USING EHR.—Subject 

to subparagraph (B)(ii) and using such certified EHR 

technology, the eligible hospital submits information 

for such period, in a form and manner specified by the 

Secretary, on such clinical quality measures and such 

other measures as selected by the Secretary under 

subparagraph (B)(i). 

The Secretary shall seek to improve the use of electronic 

health records and health care quality over time by requiring more stringent measures of meaningful use selected 

under this paragraph. 

(B) REPORTING ON MEASURES.— 

(i) SELECTION.—The Secretary shall select measures 

for purposes of subparagraph (A)(iii) but only consistent with the following: 

(I) The Secretary shall provide preference to 

clinical quality measures that have been selected 

for purposes of applying subsection (b)(3)(B)(viii) 

or that have been endorsed by the entity with a 

contract with the Secretary under section 1890(a). 

(II) Prior to any measure (other than a clinical 

quality measure that has been selected for purposes of applying subsection (b)(3)(B)(viii)) being 

selected under this subparagraph, the Secretary 

shall publish in the Federal Register such measure and provide for a period of public comment on 

such measure. 

(ii) LIMITATIONS.—The Secretary may not require 

the electronic reporting of information on clinical quality measures under subparagraph (A)(iii) unless the 

Secretary has the capacity to accept the information 

electronically, which may be on a pilot basis. 

(iii) COORDINATION OF REPORTING OF INFORMA- TION.—In selecting such measures, and in establishing 

the form and manner for reporting measures under 

subparagraph (A)(iii), the Secretary shall seek to avoid 

redundant or duplicative reporting with reporting otherwise required, including reporting under subsection 

(b)(3)(B)(viii). 

(C) DEMONSTRATION OF MEANINGFUL USE OF CERTIFIED

EHR TECHNOLOGY AND INFORMATION EXCHANGE.— 

(i) IN GENERAL.—An eligible hospital may satisfy the 

demonstration requirement of clauses (i) and (ii) of 

subparagraph (A) through means specified by the Secretary, which may include— 

(I) an attestation; 

(II) the submission of claims with appropriate 

coding (such as a code indicating that inpatient 

care was documented using certified EHR technology); 

(III) a survey response; 

(IV) reporting under subparagraph (A)(iii); and 

(V) other means specified by the Secretary. 


emcdonald on DSK67QTVN1PROD with HEARING
108 

(ii) USE OF PART D DATA.—Notwithstanding sections 

1860D–15(d)(2)(B) and 1860D–15(f)(2), the Secretary 

may use data regarding drug claims submitted for 

purposes of section 1860D–15 that are necessary for 

purposes of subparagraph (A). 

(4) APPLICATION.— (A) LIMITATIONS ON REVIEW.—There shall be no administrative or judicial review under section 1869, section 1878, 

or otherwise, of— 

(i) the methodology and standards for determining 

payment amounts under this subsection and payment 

adjustments under subsection (b)(3)(B)(ix), including 

selection of periods under paragraph (2) for determining, and making estimates or using proxies of, discharges under paragraph (2)(C) and inpatient-beddays, hospital charges, charity charges, and Medicare 

share under paragraph (2)(D); 

(ii) the methodology and standards for determining 

a meaningful EHR user under paragraph (3), including selection of measures under paragraph (3)(B), 

specification of the means of demonstrating meaningful EHR use under paragraph (3)(C), and the hardship 

exception under subsection (b)(3)(B)(ix)(II); and 

(iii) the specification of EHR reporting periods under 

paragraph (6)(B) and the selection of the form of payment under paragraph (2)(F). 

(B) POSTING ON WEBSITE.—The Secretary shall post on 

the Internet website of the Centers for Medicare & Medicaid Services, in an easily understandable format, a list of 

the names of the eligible hospitals that are meaningful 

EHR users under this subsection or subsection (b)(3)(B)(ix) 

(and a list of the names of critical access hospitals to 

which paragraph (3) or (4) of section 1814(l) applies), and 

other relevant data as determined appropriate by the Secretary. The Secretary shall ensure that an eligible hospital 

(or critical access hospital) has the opportunity to review 

the other relevant data that are to be made public with respect to the hospital (or critical access hospital) prior to 

such data being made public. 

(5) CERTIFIED EHR TECHNOLOGY DEFINED.—The term ‘‘certified EHR technology’’ has the meaning given such term in 

section 1848(o)(4). 

(6) DEFINITIONS.—For purposes of this subsection: 

(A) EHR REPORTING PERIOD.—The term ‘‘EHR reporting 

period’’ means, with respect to a payment year, any period 

(or periods) as specified by the Secretary. 

(B) ELIGIBLE HOSPITAL.—The term ‘‘eligible hospital’’ 

means a subsection (d) hospital. 

(o) HOSPITAL VALUE-BASED PURCHASING PROGRAM.— (1) ESTABLISHMENT.— (A) IN GENERAL.—Subject to the succeeding provisions of 

this subsection, the Secretary shall establish a hospital 

value-based purchasing program (in this subsection referred to as the ‘‘Program’’) under which value-based incentive payments are made in a fiscal year to hospitals 


emcdonald on DSK67QTVN1PROD with HEARING
109 

that meet the performance standards under paragraph (3) 

for the performance period for such fiscal year (as established under paragraph (4)). 

(B) PROGRAM TO BEGIN IN FISCAL YEAR 2013.—The Program shall apply to payments for discharges occurring on 

or after October 1, 2012. 

(C) APPLICABILITY OF PROGRAM TO HOSPITALS.— (i) IN GENERAL.—For purposes of this subsection, 

subject to clause (ii), the term ‘‘hospital’’ means a subsection (d) hospital (as defined in subsection (d)(1)(B)). 

(ii) EXCLUSIONS.—The term ‘‘hospital’’ shall not include, with respect to a fiscal year, a hospital— 

(I) that is subject to the payment reduction 

under subsection (b)(3)(B)(viii)(I) for such fiscal 

year; 

(II) for which, during the performance period for 

such fiscal year, the Secretary has cited deficiencies that pose immediate jeopardy to the 

health or safety of patients; 

(III) for which there are not a minimum number 

(as determined by the Secretary) of measures that 

apply to the hospital for the performance period 

for such fiscal year; or 

(IV) for which there are not a minimum number 

(as determined by the Secretary) of cases for the 

measures that apply to the hospital for the performance period for such fiscal year. 

(iii) INDEPENDENT ANALYSIS.—For purposes of determining the minimum numbers under subclauses (III) 

and (IV) of clause (ii), the Secretary shall have conducted an independent analysis of what numbers are 

appropriate. 

(iv) EXEMPTION.—In the case of a hospital that is 

paid under section 1814(b)(3), the Secretary may exempt such hospital from the application of this subsection if the State which is paid under such section 

submits an annual report to the Secretary describing 

how a similar program in the State for a participating 

hospital or hospitals achieves or surpasses the measured results in terms of patient health outcomes and 

cost savings established under this subsection. 

(2) MEASURES.— 

(A) IN GENERAL.—The Secretary shall select measures, 

other than measures of readmissions, for purposes of the 

Program. Such measures shall be selected from the measures specified under subsection (b)(3)(B)(viii). 

(B) REQUIREMENTS.— 

(i) FOR FISCAL YEAR 2013.—For value-based incentive 

payments made with respect to discharges occurring 

during fiscal year 2013, the Secretary shall ensure the 

following: 

(I) CONDITIONS OR PROCEDURES.—Measures are 

selected under subparagraph (A) that cover at 

least the following 5 specific conditions or procedures: 


emcdonald on DSK67QTVN1PROD with HEARING
110 

(aa) Acute myocardial infarction (AMI). 

(bb) Heart failure. 

(cc) Pneumonia. 

(dd) Surgeries, as measured by the Surgical 

Care Improvement Project (formerly referred 

to as ‘‘Surgical Infection Prevention’’ for discharges occurring before July 2006). 

(ee) Healthcare-associated infections, as 

measured by the prevention metrics and targets established in the HHS Action Plan to 

Prevent Healthcare-Associated Infections (or 

any successor plan) of the Department of 

Health and Human Services. 

(II) HCAHPS.—Measures selected under subparagraph (A) shall be related to the Hospital 

Consumer Assessment of Healthcare Providers 

and Systems survey (HCAHPS). 

(ii) INCLUSION OF EFFICIENCY MEASURES.—For valuebased incentive payments made with respect to discharges occurring during fiscal year 2014 or a subsequent fiscal year, the Secretary shall ensure that 

measures selected under subparagraph (A) include efficiency measures, including measures of ‘‘Medicare 

spending per beneficiary’’. Such measures shall be adjusted for factors such as age, sex, race, severity of illness, and other factors that the Secretary determines 

appropriate. 

(C) LIMITATIONS.— 

(i) TIME REQUIREMENT FOR PRIOR REPORTING AND

NOTICE.—The Secretary may not select a measure 

under subparagraph (A) for use under the Program 

with respect to a performance period for a fiscal year 

(as established under paragraph (4)) unless such 

measure has been specified under subsection 

(b)(3)(B)(viii) and included on the Hospital Compare 

Internet website for at least 1 year prior to the beginning of such performance period. 

(ii) MEASURE NOT APPLICABLE UNLESS HOSPITAL FURNISHES SERVICES APPROPRIATE TO THE MEASURE.—A 

measure selected under subparagraph (A) shall not 

apply to a hospital if such hospital does not furnish 

services appropriate to such measure. 

(D) REPLACING MEASURES.—Subclause (VI) of subsection 

(b)(3)(B)(viii) shall apply to measures selected under subparagraph (A) in the same manner as such subclause applies to measures selected under such subsection. 

(3) PERFORMANCE STANDARDS.— 

(A) ESTABLISHMENT.—The Secretary shall establish performance standards with respect to measures selected 

under paragraph (2) for a performance period for a fiscal 

year (as established under paragraph (4)). 

(B) ACHIEVEMENT AND IMPROVEMENT.—The performance 

standards established under subparagraph (A) shall include levels of achievement and improvement. 


emcdonald on DSK67QTVN1PROD with HEARING
111 

(C) TIMING.—The Secretary shall establish and announce the performance standards under subparagraph (A) 

not later than 60 days prior to the beginning of the performance period for the fiscal year involved. 

(D) CONSIDERATIONS IN ESTABLISHING STANDARDS.—In 

establishing performance standards with respect to measures under this paragraph, the Secretary shall take into 

account appropriate factors, such as— 

(i) practical experience with the measures involved, 

including whether a significant proportion of hospitals 

failed to meet the performance standard during previous performance periods; 

(ii) historical performance standards; 

(iii) improvement rates; and 

(iv) the opportunity for continued improvement. 

(4) PERFORMANCE PERIOD.—For purposes of the Program, the 

Secretary shall establish the performance period for a fiscal 

year. Such performance period shall begin and end prior to the 

beginning of such fiscal year. 

(5) HOSPITAL PERFORMANCE SCORE.— 

(A) IN GENERAL.—Subject to subparagraph (B), the Secretary shall develop a methodology for assessing the total 

performance of each hospital based on performance standards with respect to the measures selected under paragraph (2) for a performance period (as established under 

paragraph (4)). Using such methodology, the Secretary 

shall provide for an assessment (in this subsection referred 

to as the ‘‘hospital performance score’’) for each hospital for 

each performance period. 

(B) APPLICATION.— 

(i) APPROPRIATE DISTRIBUTION.—The Secretary shall 

ensure that the application of the methodology developed under subparagraph (A) results in an appropriate 

distribution of value-based incentive payments under 

paragraph (6) among hospitals achieving different levels of hospital performance scores, with hospitals 

achieving the highest hospital performance scores receiving the largest value-based incentive payments. 

(ii) HIGHER OF ACHIEVEMENT OR IMPROVEMENT.— The methodology developed under subparagraph (A) 

shall provide that the hospital performance score is 

determined using the higher of its achievement or improvement score for each measure. 

(iii) WEIGHTS.—The methodology developed under 

subparagraph (A) shall provide for the assignment of 

weights for categories of measures as the Secretary determines appropriate. 

(iv) NO MINIMUM PERFORMANCE STANDARD.—The 

Secretary shall not set a minimum performance standard in determining the hospital performance score for 

any hospital. 

(v) REFLECTION OF MEASURES APPLICABLE TO THE

HOSPITAL.—The hospital performance score for a hospital shall reflect the measures that apply to the hospital. 


emcdonald on DSK67QTVN1PROD with HEARING
112 

(6) CALCULATION OF VALUE-BASED INCENTIVE PAYMENTS.— 

(A) IN GENERAL.—In the case of a hospital that the Secretary determines meets (or exceeds) the performance 

standards under paragraph (3) for the performance period 

for a fiscal year (as established under paragraph (4)), the 

Secretary shall increase the base operating DRG payment 

amount (as defined in paragraph (7)(D)), as determined 

after application of paragraph (7)(B)(i), for a hospital for 

each discharge occurring in such fiscal year by the valuebased incentive payment amount. 

(B) VALUE-BASED INCENTIVE PAYMENT AMOUNT.—The 

value-based incentive payment amount for each discharge 

of a hospital in a fiscal year shall be equal to the product 

of— 

(i) the base operating DRG payment amount (as defined in paragraph (7)(D)) for the discharge for the 

hospital for such fiscal year; and 

(ii) the value-based incentive payment percentage 

specified under subparagraph (C) for the hospital for 

such fiscal year. 

(C) VALUE-BASED INCENTIVE PAYMENT PERCENTAGE.— 

(i) IN GENERAL.—The Secretary shall specify a 

value-based incentive payment percentage for a hospital for a fiscal year. 

(ii) REQUIREMENTS.—In specifying the value-based 

incentive payment percentage for each hospital for a 

fiscal year under clause (i), the Secretary shall ensure 

that— 

(I) such percentage is based on the hospital performance score of the hospital under paragraph 

(5); and 

(II) the total amount of value-based incentive 

payments under this paragraph to all hospitals in 

such fiscal year is equal to the total amount available for value-based incentive payments for such 

fiscal year under paragraph (7)(A), as estimated 

by the Secretary. 

(7) FUNDING FOR VALUE-BASED INCENTIVE PAYMENTS.— 

(A) AMOUNT.—The total amount available for valuebased incentive payments under paragraph (6) for all hospitals for a fiscal year shall be equal to the total amount 

of reduced payments for all hospitals under subparagraph 

(B) for such fiscal year, as estimated by the Secretary. 

(B) ADJUSTMENT TO PAYMENTS.— 

(i) IN GENERAL.—The Secretary shall reduce the 

base operating DRG payment amount (as defined in 

subparagraph (D)) for a hospital for each discharge in 

a fiscal year (beginning with fiscal year 2013) by an 

amount equal to the applicable percent (as defined in 

subparagraph (C)) of the base operating DRG payment 

amount for the discharge for the hospital for such fiscal year. The Secretary shall make such reductions for 

all hospitals in the fiscal year involved, regardless of 

whether or not the hospital has been determined by 


emcdonald on DSK67QTVN1PROD with HEARING
113 

the Secretary to have earned a value-based incentive 

payment under paragraph (6) for such fiscal year. 

(ii) NO EFFECT ON OTHER PAYMENTS.—Payments described in items (aa) and (bb) of subparagraph 

(D)(i)(II) for a hospital shall be determined as if this 

subsection had not been enacted. 

(C) APPLICABLE PERCENT DEFINED.—For purposes of subparagraph (B), the term ‘‘applicable percent’’ means— 

(i) with respect to fiscal year 2013, 1.0 percent; 

(ii) with respect to fiscal year 2014, 1.25 percent; 

(iii) with respect to fiscal year 2015, 1.5 percent; 

(iv) with respect to fiscal year 2016, 1.75 percent; 

and 

(v) with respect to fiscal year 2017 and succeeding 

fiscal years, 2 percent. 

(D) BASE OPERATING DRG PAYMENT AMOUNT DEFINED.— 

(i) IN GENERAL.—Except as provided in clause (ii), in 

this subsection, the term ‘‘base operating DRG payment amount’’ means, with respect to a hospital for a 

fiscal year— 

(I) the payment amount that would otherwise be 

made under subsection (d) (determined without 

regard to subsection (q)) for a discharge if this 

subsection did not apply; reduced by 

(II) any portion of such payment amount that is 

attributable to— 

(aa) payments under paragraphs (5)(A), 

(5)(B), (5)(F), and (12) of subsection (d); and 

(bb) such other payments under subsection 

(d) determined appropriate by the Secretary. 

(ii) SPECIAL RULES FOR CERTAIN HOSPITALS.— (I) SOLE COMMUNITY HOSPITALS AND MEDICAREDEPENDENT, SMALL RURAL HOSPITALS.—In the case 

of a medicare-dependent, small rural hospital 

(with respect to discharges occurring during fiscal 

year 2012 and 2013) or a sole community hospital, 

in applying subparagraph (A)(i), the payment 

amount that would otherwise be made under subsection (d) shall be determined without regard to 

subparagraphs (I) and (L) of subsection (b)(3) and 

subparagraphs (D) and (G) of subsection (d)(5). 

(II) HOSPITALS PAID UNDER SECTION 1814.—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. 

(8) ANNOUNCEMENT OF NET RESULT OF ADJUSTMENTS.— 

Under the Program, the Secretary shall, not later than 60 days 

prior to the fiscal year involved, inform each hospital of the adjustments to payments to the hospital for discharges occurring 

in such fiscal year under paragraphs (6) and (7)(B)(i). 

(9) NO EFFECT IN SUBSEQUENT FISCAL YEARS.—The valuebased incentive payment under paragraph (6) and the payment 

reduction under paragraph (7)(B)(i) shall each apply only with 

respect to the fiscal year involved, and the Secretary shall not 


emcdonald on DSK67QTVN1PROD with HEARING
114 

take into account such value-based incentive payment or payment reduction in making payments to a hospital under this 

section in a subsequent fiscal year. 

(10) PUBLIC REPORTING.— 

(A) HOSPITAL SPECIFIC INFORMATION.— 

(i) IN GENERAL.—The Secretary shall make information available to the public regarding the performance 

of individual hospitals under the Program, including— 

(I) the performance of the hospital with respect 

to each measure that applies to the hospital; 

(II) the performance of the hospital with respect 

to each condition or procedure; and 

(III) the hospital performance score assessing 

the total performance of the hospital. 

(ii) OPPORTUNITY TO REVIEW AND SUBMIT CORRECTIONS.—The Secretary shall ensure that a hospital has 

the opportunity to review, and submit corrections for, 

the information to be made public with respect to the 

hospital under clause (i) prior to such information 

being made public. 

(iii) WEBSITE.—Such information shall be posted on 

the Hospital Compare Internet website in an easily 

understandable format. 

(B) AGGREGATE INFORMATION.—The Secretary shall periodically post on the Hospital Compare Internet website aggregate information on the Program, including— 

(i) the number of hospitals receiving value-based incentive payments under paragraph (6) and the range 

and total amount of such value-based incentive payments; and 

(ii) the number of hospitals receiving less than the 

maximum value-based incentive payment available to 

the hospital for the fiscal year involved and the range 

and amount of such payments. 

(11) IMPLEMENTATION.— 

(A) APPEALS.—The Secretary shall establish a process by 

which hospitals may appeal the calculation of a hospital’s 

performance assessment with respect to the performance 

standards established under paragraph (3)(A) and the hospital performance score under paragraph (5). The Secretary shall ensure that such process provides for resolution of such appeals in a timely manner. 

(B) LIMITATION ON REVIEW.—Except as provided in subparagraph (A), there shall be no administrative or judicial 

review under section 1869, section 1878, or otherwise of 

the following: 

(i) The methodology used to determine the amount 

of the value-based incentive payment under paragraph 

(6) and the determination of such amount. 

(ii) The determination of the amount of funding 

available for such value-based incentive payments 

under paragraph (7)(A) and the payment reduction 

under paragraph (7)(B)(i). 


emcdonald on DSK67QTVN1PROD with HEARING
115 

(iii) The establishment of the performance standards 

under paragraph (3) and the performance period 

under paragraph (4). 

(iv) The measures specified under subsection 

(b)(3)(B)(viii) and the measures selected under paragraph (2). 

(v) The methodology developed under paragraph (5) 

that is used to calculate hospital performance scores 

and the calculation of such scores. 

(vi) The validation methodology specified in subsection (b)(3)(B)(viii)(XI). 

(C) CONSULTATION WITH SMALL HOSPITALS.—The Secretary shall consult with small rural and urban hospitals 

on the application of the Program to such hospitals. 

(12) PROMULGATION OF REGULATIONS.—The Secretary shall 

promulgate regulations to carry out the Program, including the 

selection of measures under paragraph (2), the methodology developed under paragraph (5) that is used to calculate hospital 

performance scores, and the methodology used to determine 

the amount of value-based incentive payments under paragraph (6). 

(p) ADJUSTMENT TO HOSPITAL PAYMENTS FOR HOSPITAL AC- QUIRED CONDITIONS.— (1) IN GENERAL.—In order to provide an incentive for applicable hospitals to reduce hospital acquired conditions under this 

title, with respect to discharges from an applicable hospital occurring during fiscal year 2015 or a subsequent fiscal year, the 

amount of payment under this section or section 1814(b)(3), as 

applicable, for such discharges during the fiscal year shall be 

equal to 99 percent of the amount of payment that would otherwise apply to such discharges under this section or section 

1814(b)(3) (determined after the application of subsections (o) 

and (q) and section 1814(l)(4) but without regard to this subsection). 

(2) APPLICABLE HOSPITALS.— (A) IN GENERAL.—For purposes of this subsection, the 

term ‘‘applicable hospital’’ means a subsection (d) hospital 

that meets the criteria described in subparagraph (B). 

(B) CRITERIA DESCRIBED.— (i) IN GENERAL.—The criteria described in this subparagraph, with respect to a subsection (d) hospital, is 

that the subsection (d) hospital is in the top quartile 

of all subsection (d) hospitals, relative to the national 

average, of hospital acquired conditions during the applicable period, as determined by the Secretary. 

(ii) RISK ADJUSTMENT.—In carrying out clause (i), 

the Secretary shall establish and apply an appropriate 

risk adjustment methodology. 

(C) EXEMPTION.—In the case of a hospital that is paid 

under section 1814(b)(3), the Secretary may exempt such 

hospital from the application of this subsection if the State 

which is paid under such section submits an annual report 

to the Secretary describing how a similar program in the 

State for a participating hospital or hospitals achieves or 

surpasses the measured results in terms of patient health 


emcdonald on DSK67QTVN1PROD with HEARING
116 

outcomes and cost savings established under this subsection. 

(3) HOSPITAL ACQUIRED CONDITIONS.—For purposes of this 

subsection, the term ‘‘hospital acquired condition’’ means a condition identified for purposes of subsection (d)(4)(D)(iv) and any 

other condition determined appropriate by the Secretary that 

an individual acquires during a stay in an applicable hospital, 

as determined by the Secretary. 

(4) APPLICABLE PERIOD.—In this subsection, the term ‘‘applicable period’’ means, with respect to a fiscal year, a period 

specified by the Secretary. 

(5) REPORTING TO HOSPITALS.—Prior to fiscal year 2015 and 

each subsequent fiscal year, the Secretary shall provide confidential reports to applicable hospitals with respect to hospital 

acquired conditions of the applicable hospital during the applicable period. 

(6) REPORTING HOSPITAL SPECIFIC INFORMATION.— 

(A) IN GENERAL.—The Secretary shall make information 

available to the public regarding hospital acquired conditions of each applicable hospital. 

(B) OPPORTUNITY TO REVIEW AND SUBMIT CORREC- TIONS.—The Secretary shall ensure that an applicable hospital has the opportunity to review, and submit corrections 

for, the information to be made public with respect to the 

hospital under subparagraph (A) prior to such information 

being made public. 

(C) WEBSITE.—Such information shall be posted on the 

Hospital Compare Internet website in an easily understandable format. 

(7) LIMITATIONS ON REVIEW.—There shall be no administrative or judicial review under section 1869, section 1878, or otherwise of the following: 

(A) The criteria described in paragraph (2)(A). 

(B) The specification of hospital acquired conditions 

under paragraph (3). 

(C) The specification of the applicable period under paragraph (4). 

(D) The provision of reports to applicable hospitals under 

paragraph (5) and the information made available to the 

public under paragraph (6). 

(q) HOSPITAL READMISSIONS REDUCTION PROGRAM.— 

(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, 

2012, in order to account for excess readmissions in the hospital, the Secretary shall make payments (in addition to the 

payments described in paragraph (2)(A)(ii)) for such a discharge to such hospital under subsection (d) (or section 

1814(b)(3), as the case may be) in 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 DEFINED.— 


emcdonald on DSK67QTVN1PROD with HEARING
117 

(A) IN GENERAL.—Except as provided in subparagraph 

(B), in this subsection, the term ‘‘base operating DRG payment amount’’ means, with respect to a hospital for a fiscal 

year— 

(i) the payment amount that would otherwise be 

made under subsection (d) (determined without regard 

to subsection (o)) for a discharge if this subsection did 

not apply; reduced by 

(ii) any portion of such payment amount that is attributable to payments under paragraphs (5)(A), 

(5)(B), (5)(F), and (12) of subsection (d). 

(B) SPECIAL RULES FOR CERTAIN HOSPITALS.— 

(i) SOLE COMMUNITY HOSPITALS AND MEDICARE-DEPENDENT, SMALL RURAL HOSPITALS.—In the case of a 

medicare-dependent, small rural hospital (with respect 

to discharges occurring during fiscal years 2012 and 

2013) or a sole community hospital, in applying subparagraph (A)(i), the payment amount that would otherwise be made under subsection (d) shall be determined without regard to subparagraphs (I) and (L) of 

subsection (b)(3) and subparagraphs (D) and (G) of 

subsection (d)(5). 

(ii) HOSPITALS PAID UNDER SECTION 1814.—In the 

case of a hospital that is paid under section 1814(b)(3), 

the Secretary may exempt such hospitals provided 

that States paid under such section submit an annual 

report to the Secretary describing how a similar program in the State for a participating hospital or hospitals achieves or surpasses the measured results in 

terms of patient health outcomes and cost savings established herein with respect to this 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 2013 is 0.99; 

(ii) fiscal year 2014 is 0.98; or 


emcdonald on DSK67QTVN1PROD with HEARING
118 

(iii) fiscal year 2015 and subsequent fiscal years is 

0.97. 

(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 an applicable period, 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 applicable period for such condition; 

(ii) the number of admissions for such condition for 

such hospital for such applicable period; and 

(iii) the excess readmissions ratio (as defined in subparagraph (C)) for such hospital for such applicable 

period minus 1. 

(B) AGGREGATE PAYMENTS FOR ALL DISCHARGES.—The 

term ‘‘aggregate payments for all discharges’’ means, for a 

hospital for an applicable period, the sum of the base operating DRG payment amounts for all discharges for all conditions from such hospital for such applicable period. 

(C) EXCESS READMISSION RATIO.— 

(i) IN GENERAL.—Subject to clause (ii), 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 

such 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. 

(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— 


emcdonald on DSK67QTVN1PROD with HEARING
119 

(I) have been endorsed by the entity with a contract under section 1890(a); and 

(II) such endorsed measures have 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 2015, the Secretary shall, to the extent 

practicable, 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 identified by the Medicare Payment Advisory Commission in its report to Congress in June 2007 

and to other conditions and procedures 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 in the case of a 

specified area or medical topic determined appropriate by 

the Secretary for which a feasible and practical measure 

has not been endorsed by the entity with a contract under 

section 1890(a) as long as due consideration is given to 

measures that have been endorsed or adopted by a consensus organization identified by the Secretary. 

(C) APPLICABLE HOSPITAL.—The term ‘‘applicable hospital’’ means a subsection (d) hospital or a hospital that is 

paid under section 1814(b)(3), as the case may be. 

(D) APPLICABLE PERIOD.—The term ‘‘applicable period’’ 

means, with respect to a fiscal year, such period as the 

Secretary shall specify. 

(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) REPORTING HOSPITAL SPECIFIC INFORMATION.— 

(A) IN GENERAL.—The Secretary shall make information 

available to the public regarding readmission rates of each 

subsection (d) hospital under the program. 

(B) OPPORTUNITY TO REVIEW AND SUBMIT CORRECTIONS.—The Secretary shall ensure that a subsection (d) 

hospital has the opportunity to review, and submit corrections for, the information to be made public with respect 

to the hospital under subparagraph (A) prior to such information being made public. 

(C) WEBSITE.—Such information shall be posted on the 

Hospital Compare Internet website in an easily understandable format. 


emcdonald on DSK67QTVN1PROD with HEARING
120 

(7) LIMITATIONS ON REVIEW.—There shall be no administrative or judicial review under section 1869, section 1878, or otherwise of the following: 

(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). 

(8) READMISSION RATES FOR ALL PATIENTS.— 

(A) CALCULATION OF READMISSION.—The Secretary shall 

calculate readmission rates for all patients (as defined in 

subparagraph (D)) for a specified hospital (as defined in 

subparagraph (D)(ii)) for an applicable condition (as defined in paragraph (5)(B)) and other conditions deemed appropriate by the Secretary for an applicable period (as defined in paragraph (5)(D)) in the same manner as used to 

calculate such readmission rates for hospitals with respect 

to this title and posted on the CMS Hospital Compare 

website. 

(B) POSTING OF HOSPITAL SPECIFIC ALL PATIENT READMISSION RATES.—The Secretary shall make information on all 

patient readmission rates calculated under subparagraph 

(A) available on the CMS Hospital Compare website in a 

form and manner determined appropriate by the Secretary. The Secretary may also make other information determined appropriate by the Secretary available on such 

website. 

(C) HOSPITAL SUBMISSION OF ALL PATIENT DATA.— 

(i) Except as provided for in clause (ii), each specified hospital (as defined in subparagraph (D)(ii)) shall 

submit to the Secretary, in a form, manner and time 

specified by the Secretary, data and information determined necessary by the Secretary for the Secretary to 

calculate the all patient readmission rates described in 

subparagraph (A). 

(ii) Instead of a specified hospital submitting to the 

Secretary the data and information described in clause 

(i), such data and information may be submitted to the 

Secretary, on behalf of such a specified hospital, by a 

state or an entity determined appropriate by the Secretary. 

(D) DEFINITIONS.—For purposes of this paragraph: 

(i) The term ‘‘all patients’’ means patients who are 

treated on an inpatient basis and discharged from a 

specified hospital (as defined in clause (ii)). 

(ii) The term ‘‘specified hospital’’ means a subsection 

(d) hospital, hospitals described in clauses (i) through 

(v) of subsection (d)(1)(B) and, as determined feasible 


emcdonald on DSK67QTVN1PROD with HEARING
121 

and appropriate by the Secretary, other hospitals not 

otherwise described in this subparagraph. 

(r) ADJUSTMENTS TO MEDICARE DSH PAYMENTS.— (1) EMPIRICALLY JUSTIFIED DSH PAYMENTS.—For fiscal year 

2014 and each subsequent fiscal year, instead of the amount 

of disproportionate share hospital payment that would otherwise be made under subsection (d)(5)(F) to a subsection (d) hospital for the fiscal year, the Secretary shall pay to the subsection (d) hospital 25 percent of such amount (which represents the empirically justified amount for such payment, as 

determined by the Medicare Payment Advisory Commission in 

its March 2007 Report to the Congress). 

(2) ADDITIONAL PAYMENT.—In addition to the payment made 

to a subsection (d) hospital under paragraph (1), for fiscal year 

2014 and each subsequent fiscal year, the Secretary shall pay 

to such subsection (d) hospitals an additional amount equal to 

the product of the following factors: 

(A) FACTOR ONE.—A factor equal to the difference between— 

(i) the aggregate amount of payments that would be 

made to subsection (d) hospitals under subsection 

(d)(5)(F) if this subsection did not apply for such fiscal 

year (as estimated by the Secretary); and 

(ii) the aggregate amount of payments that are 

made to subsection (d) hospitals under paragraph (1) 

for such fiscal year (as so estimated). 

(B) FACTOR TWO.— (i) FISCAL YEARS 2014, 2015, 2016, AND 2017.—For each 

of fiscal years 2014, 2015, 2016, and 2017, a factor 

equal to 1 minus the percent change in the percent of 

individuals under the age of 65 who are uninsured, as 

determined by comparing the percent of such individuals— 

(I) who are uninsured in 2013, the last year before coverage expansion under the Patient Protection and Affordable Care Act (as calculated by the 

Secretary based on the most recent estimates 

available from the Director of the Congressional 

Budget Office before a vote in either House on the 

Health Care and Education Reconciliation Act of 

2010 that, if determined in the affirmative, would 

clear such Act for enrollment); and 

(II) who are uninsured in the most recent period 

for which data is available (as so calculated), 

minus 0.1 percentage points for fiscal year 2014 and 

minus 0.2 percentage points for each of fiscal years 

2015, 2016, and 2017. 

(ii) 2018 AND SUBSEQUENT YEARS.—For fiscal year 

2018 and each subsequent fiscal year, a factor equal to 

1 minus the percent change in the percent of individuals who are uninsured, as determined by comparing 

the percent of individuals— 

(I) who are uninsured in 2013 (as estimated by 

the Secretary, based on data from the Census Bureau or other sources the Secretary determines 


emcdonald on DSK67QTVN1PROD with HEARING
122 

appropriate, and certified by the Chief Actuary of 

the Centers for Medicare & Medicaid Services); 

and 

(II) who are uninsured in the most recent period 

for which data is available (as so estimated and 

certified), 

minus 0.2 percentage points for each of fiscal years 

2018 and 2019. 

(C) FACTOR THREE.—A factor equal to the percent, for 

each subsection (d) hospital, that represents the quotient 

of— 

(i) the amount of uncompensated care for such hospital for a period selected by the Secretary (as estimated by the Secretary, based on appropriate data (including, in the case where the Secretary determines 

that alternative data is available which is a better 

proxy for the costs of subsection (d) hospitals for treating the uninsured, the use of such alternative data)); 

and 

(ii) the aggregate amount of uncompensated care for 

all subsection (d) hospitals that receive a payment 

under this subsection for such period (as so estimated, 

based on such data). 

(3) LIMITATIONS ON REVIEW.—There shall be no administrative or judicial review under section 1869, section 1878, or otherwise of the following: 

(A) Any estimate of the Secretary for purposes of determining the factors described in paragraph (2). 

(B) Any period selected by the Secretary for such purposes. 

(s) PROSPECTIVE PAYMENT FOR PSYCHIATRIC HOSPITALS.— (1) REFERENCE TO ESTABLISHMENT AND IMPLEMENTATION OF

SYSTEM.—For provisions related to the establishment and implementation of a prospective payment system for payments 

under this title for inpatient hospital services furnished by psychiatric hospitals (as described in clause (i) of subsection 

(d)(1)(B)) and psychiatric units (as described in the matter following clause (v) of such subsection), see section 124 of the 

Medicare, Medicaid, and SCHIP Balanced Budget Refinement 

Act of 1999. 

(2) IMPLEMENTATION FOR RATE YEAR BEGINNING IN 2010 AND

SUBSEQUENT RATE YEARS.— 

(A) IN GENERAL.—In implementing the system described 

in paragraph (1) for the rate year beginning in 2010 and 

any subsequent rate year, any update to a base rate for 

days during the rate year for a psychiatric hospital or unit, 

respectively, shall be reduced— 

(i) for the rate year beginning in 2012 and each subsequent rate year, by the productivity adjustment described in section 1886(b)(3)(B)(xi)(II); and 

(ii) for each of the rate years beginning in 2010 

through 2019, by the other adjustment described in 

paragraph (3). 

(B) SPECIAL RULE.—The application of this paragraph 

may result in such update being less than 0.0 for a rate 


emcdonald on DSK67QTVN1PROD with HEARING
123 

year, and may result in payment rates under the system 

described in paragraph (1) for a rate year being less than 

such payment rates for the preceding rate year. 

(3) OTHER ADJUSTMENT.—For purposes of paragraph 

(2)(A)(ii), the other adjustment described in this paragraph is— 

(A) for each of the rate years beginning in 2010 and 

2011, 0.25 percentage point; 

(B) for each of the rate years beginning in 2012 and 

2013, 0.1 percentage point; 

(C) for the rate year beginning in 2014, 0.3 percentage 

point; 

(D) for each of the rate years beginning in 2015 and 

2016, 0.2 percentage point; and 

(E) for each of the rate years beginning in 2017, 2018, 

and 2019, 0.75 percentage point. 

(4) QUALITY REPORTING.— 

(A) REDUCTION IN UPDATE FOR FAILURE TO REPORT.— 

(i) IN GENERAL.—Under the system described in 

paragraph (1), for rate year 2014 and each subsequent 

rate year, in the case of a psychiatric hospital or psychiatric unit that does not submit data to the Secretary in accordance with subparagraph (C) with respect to such a rate year, any annual update to a 

standard Federal rate for discharges for the hospital 

during the rate year, and after application of paragraph (2), shall be reduced by 2 percentage points. 

(ii) SPECIAL RULE.—The application of this subparagraph may result in such annual update being less 

than 0.0 for a rate year, and may result in payment 

rates under the system described in paragraph (1) for 

a rate year being less than such payment rates for the 

preceding rate year. 

(B) NONCUMULATIVE APPLICATION.—Any reduction under 

subparagraph (A) shall apply only with respect to the rate 

year involved and the Secretary shall not take into account 

such reduction in computing the payment amount under 

the system described in paragraph (1) for a subsequent 

rate year. 

(C) SUBMISSION OF QUALITY DATA.—For rate year 2014 

and each subsequent rate year, each psychiatric hospital 

and psychiatric unit shall submit to the Secretary data on 

quality measures specified under subparagraph (D). Such 

data shall be submitted in a form and manner, and at a 

time, specified by the Secretary for purposes of this subparagraph. 

(D) QUALITY MEASURES.— 

(i) IN GENERAL.—Subject to clause (ii), any measure 

specified by the Secretary under this subparagraph 

must have been endorsed by the entity with a contract 

under section 1890(a). 

(ii) EXCEPTION.—In the case of a specified area or 

medical topic determined appropriate by the Secretary 

for which a feasible and practical measure has not 

been endorsed by the entity with a contract under section 1890(a), the Secretary may specify a measure that 


emcdonald on DSK67QTVN1PROD with HEARING
124 

is not so endorsed as long as due consideration is 

given to measures that have been endorsed or adopted 

by a consensus organization identified by the Secretary. 

(iii) TIME FRAME.—Not later than October 1, 2012, 

the Secretary shall publish the measures selected 

under this subparagraph that will be applicable with 

respect to rate year 2014. 

(E) PUBLIC AVAILABILITY OF DATA SUBMITTED.—The Secretary shall establish procedures for making data submitted under subparagraph (C) available to the public. 

Such procedures shall ensure that a psychiatric hospital 

and a psychiatric unit has the opportunity to review the 

data that is to be made public with respect to the hospital 

or unit prior to such data being made public. The Secretary shall report quality measures that relate to services 

furnished in inpatient settings in psychiatric hospitals and 

psychiatric units on the Internet website of the Centers for 

Medicare & Medicaid Services. 

* * * * * * * 

B. CHANGES IN EXISTING LAW PROPOSED BY THE BILL, AS REPORTED

In compliance with clause 3(e)(1)(B) of rule XIII of the Rules of 

the House of Representatives, changes in existing law proposed by 

the bill, as reported, are shown as follows (existing law proposed 

to be omitted is enclosed in black brackets, new matter is printed 

in italic, existing law in which no change is proposed is shown in 

roman): 

MEDICARE, MEDICAID, AND SCHIP EXTENSION ACT OF 

2007 

* * * * * * * 

TITLE I—MEDICARE 

* * * * * * * 

SEC. 114. LONG-TERM CARE HOSPITALS. 

(a) [Omitted Amendatory] 

(b) STUDY AND REPORT ON LONG-TERM CARE HOSPITAL FACILITY

AND PATIENT CRITERIA.— (1) IN GENERAL.—The Secretary of Health and Human Services (in this section referred to as the ‘‘Secretary’’) shall conduct a study on the establishment of national long-term care 

hospital facility and patient criteria for purposes of determining medical necessity, appropriateness of admission, and 

continued stay at, and discharge from, long-term care hospitals. 

(2) REPORT.—Not later than 18 months after the date of the 

enactment of this Act, the Secretary shall submit to Congress 

a report on the study conducted under paragraph (1), together 

with recommendations for such legislation and administrative 

actions, including timelines for implementation of patient criteria or other actions, as the Secretary determines appropriate. 


emcdonald on DSK67QTVN1PROD with HEARING
125 

(3) CONSIDERATIONS.—In conducting the study and preparing 

the report under this subsection, the Secretary shall consider— 

(A) recommendations contained in a report to Congress 

by the Medicare Payment Advisory Commission in June 

2004 for long-term care hospital-specific facility and patient criteria to ensure that patients admitted to long-term 

care hospitals are medically complex and appropriate to 

receive long-term care hospital services; and 

(B) ongoing work by the Secretary to evaluate and determine the feasibility of such recommendations. 

(c) PAYMENT FOR LONG-TERM CARE HOSPITAL SERVICES.— (1) DELAY IN APPLICATION OF 25 PERCENT PATIENT THRESHOLD

PAYMENT ADJUSTMENT.—The Secretary shall not apply, for cost 

reporting periods beginning on or after July 1, 2007,— 

(A) for a 9-year period, section 412.536 of title 42, Code 

of Federal Regulations, or any similar provision, to freestanding long-term care hospitals or to a long-termcare 

hospital, or satellite facility, that as of December29, 2007, 

was co-located with an entity that is a provider-based, offcampus location of a subsection (d) hospital whichdid not 

provide services payable under section 1886(d) ofthe Social 

Security Act at the off-campus location; and 

(B) such section or section 412.534 of title 42, Code of 

Federal Regulations, or any similar provisions, to a longterm care hospital identified by the amendment made by 

section 4417(a) of the Balanced Budget Act of 1997 (Public 

Law 105–33). 

(2) PAYMENT FOR HOSPITALS-WITHIN-HOSPITALS.— (A) IN GENERAL.—Payment to an applicable long-term 

care hospital or satellite facility which is located in a rural 

area or which is co-located with an urban single or MSA 

dominant hospital under paragraphs (d)(1), (e)(1), and 

(e)(4) of section 412.534 of title 42, Code of Federal Regulations, shall not be subject to any payment adjustment 

under such section if no more than 75 percent of the hospital’s Medicare discharges (other than discharges described in paragraph (d)(2) or (e)(3) of such section) are admitted from a co-located hospital. 

(B) CO-LOCATED LONG-TERM CARE HOSPITALS AND SAT- ELLITE FACILITIES.— 

(i) IN GENERAL.—Payment to an applicable longterm care hospital or satellite facility which is co-located with another hospital shall not be subject to any 

payment adjustment under section 412.534 of title 42, 

Code of Federal Regulations, if no more than 50 percent of the hospital’s Medicare discharges (other than 

discharges described in paragraph (c)(3) of such section) are admitted from a co-located hospital. 

(ii) APPLICABLE LONG-TERM CARE HOSPITAL OR SAT- ELLITE FACILITY DEFINED.—In this paragraph, the 

term ‘‘applicable long-term care hospital or satellite facility’’ means a hospital or satellite facility that is subject to the transition rules under section 412.534(g) of 

title 42, Code of Federal Regulations or that 

isdescribed in section 412.22(h)(3)(i) of such title. 


emcdonald on DSK67QTVN1PROD with HEARING
126 

(C) EFFECTIVE DATE.—Subparagraphs (A) and (B) shall 

apply to cost reporting periods beginning on or after October 1, 2007 (or July 1, 2007, in the case of a satellite facility described in section 412.22(h)(3)(i) of title 42, Code of 

Federal Regulations) for a 9-year period. 

(3) NO APPLICATION OF VERY SHORT-STAY OUTLIER POLICY.— The Secretary shall not apply, for the 5-year period beginning 

on the date of the enactment of this Act, the amendments finalized on May 11, 2007 (72 Federal Register 26904, 26992) 

made to the short-stay outlier payment provision for long-term 

care hospitals contained in section 412.529(c)(3)(i) of title 42, 

Code of Federal Regulations, or any similar provision. 

(4) NO APPLICATION OF ONE-TIME ADJUSTMENT TO STANDARD

AMOUNT.—The Secretary shall not, for the 5-year period beginning on the date of the enactment of this Act, make the onetime prospective adjustment to long-term care hospital prospective payment rates provided for in section 412.523(d)(3) of 

title 42, Code of Federal Regulations, or any similar provision. 

(d) MORATORIUM ON THE ESTABLISHMENT OF LONG-TERM CARE

HOSPITALS, LONG-TERM CARE SATELLITE FACILITIES AND ON THE

INCREASE OF LONG-TERM CARE HOSPITAL BEDS IN EXISTING LONG- TERM CARE HOSPITALS OR SATELLITE FACILITIES.— (1) IN GENERAL.—During the 5-year period (and for the period beginning on the date of the enactment of paragraph (7) 

of this subsection and ending September 30, 2017) beginning 

on the date of the enactment of this Act, the Secretary shall 

impose a moratorium for purposes of the Medicare program 

under title XVIII of the Social Security Act— 

(A) subject to paragraph (2), on the establishment and 

classification of a long-term care hospital or satellite facility, other than an existing long-term care hospital or facility; and 

(B) subject to paragraph (3), on an increase of long-term 

care hospital beds in existing long-term care hospitals or 

satellite facilities. 

(2) EXCEPTION FOR CERTAIN LONG-TERM CARE HOSPITALS.— The moratorium under paragraph (1)(A) shall not apply to a 

long-term care hospital that as of the date of the enactment of 

this Act— 

(A) began its qualifying period for payment as a longterm care hospital under section 412.23(e) of title 42, Code 

of Federal Regulations, on or before the date of the enactment of this Act; 

(B) has a binding written agreement with an outside, 

unrelated party for the actual construction, renovation, 

lease, or demolition for a long-term care hospital, and has 

expended, before the date of the enactment of this Act, at 

least 10 percent of the estimated cost of the project (or, if 

less, $2,500,000); or 

(C) has obtained an approved certificate of need in a 

State where one is required on or before the date of the enactment of this Act. 

(3) EXCEPTION FOR BED INCREASES DURING MORATORIUM.— 

(A) IN GENERAL.—Subject to subparagraph (B), the moratorium under paragraph (1)(B) shall not apply to an inVerDate Sep 11 2014 01:51 Jun 18, 2015 Jkt 049006 PO 00000 Frm 00126 Fmt 6659 Sfmt 6602 E:\HR\OC\HR156.XXX HR156

emcdonald on DSK67QTVN1PROD with HEARING
127 

crease in beds in an existing hospital or satellite facility if 

the hospital or facility obtained a certificate of need for an 

increase in beds that is in a State for which such certificate of need is required and that was issued on or after 

April 1, 2005, and before December 29, 2007, or if the hospital or facility— 

(i) is located in a State where there is only one other 

long-term care hospital; and 

(ii) requests an increase in beds following the closure or the decrease in the number of beds of another 

long-term care hospital in the State. 

(B) NO EFFECT ON CERTAIN LIMITATION.—The exception 

under subparagraph (A) shall not effect the limitation on 

increasing beds under sections 412.22(h)(3) and 412.22(f) 

of title 42, Code of Federal Regulations. 

(4) EXISTING HOSPITAL OR SATELLITE FACILITY DEFINED.—For 

purposes of this subsection, the term ‘‘existing’’ means, with respect to a hospital or satellite facility, a hospital or satellite facility that received payment under the provisions of subpart O 

of part 412 of title 42, Code of Federal Regulations, as of the 

date of the enactment of this Act. 

(5) JUDICIAL REVIEW.—There shall be no administrative or 

judicial review under section 1869 of the Social Security Act 

(42 U.S.C. 1395ff), section 1878 of such Act (42 U.S.C. 1395oo), 

or otherwise, of the application of this subsection by the Secretary. 

(6) LIMITATION ON APPLICATION OF EXCEPTIONS.—Paragraphs 

(2) and (3) shall not apply during the period beginning on the 

date of the enactment of paragraph (7) of this subsection and 

ending September 30, 2017. 

(7) ADDITIONAL EXCEPTION FOR CERTAIN LONG-TERM CARE

HOSPITALS.—øThe moratorium under paragraph (1)(A)¿ Any 

moratorium under paragraph (1) shall not apply to a long-term 

care hospital that— 

(A) began its qualifying period for payment as a longterm care hospital under section 412.23(e) of title 42, Code 

of Federal Regulations, on or before the date of enactment 

of this paragraph; 

(B) has a binding written agreement as of the date of the 

enactment of this paragraph with an outside, unrelated 

party for the actual construction, renovation, lease, or 

demolition for a long-term care hospital, and has expended, before such date of enactment, at least 10 percent 

of the estimated cost of the project (or, if less, $2,500,000); 

or 

(C) has obtained an approved certificate of need in a 

State where one is required on or before such date of enactment. 

(e) LONG-TERM CARE HOSPITAL PAYMENT UPDATE.— (1) [Omitted Amendatory] 

(2) DELAYED EFFECTIVE DATE.—Subsection (m)(2) of section 

1886 of the Social Security Act, as added by paragraph (1), 

shall not apply to discharges occurring on or after July 1, 2007, 

and before April 1, 2008. 

(f) EXPANDED REVIEW OF MEDICAL NECESSITY.— 


emcdonald on DSK67QTVN1PROD with HEARING
128 

(1) IN GENERAL.—The Secretary of Health and Human Services shall provide, under contracts with one or more appropriate fiscal intermediaries or medicare administrative contractors under section 1874A(a)(4)(G) of the Social Security Act (42 

U.S.C. 1395kk–1(a)(4)(G)), for reviews of the medical necessity 

of admissions to long-term care hospitals (described in section 

1886(d)(1)(B)(iv) of such Act) and continued stay at such hospitals, of individuals entitled to, or enrolled for, benefits under 

part A of title XVIII of such Act consistent with this subsection. Such reviews shall be made for discharges occurring on 

or after October 1, 2007. 

(2) REVIEW METHODOLOGY.—The medical necessity reviews 

under paragraph (1) shall be conducted on an annual basis in 

accordance with rules specified by the Secretary. Such reviews 

shall— 

(A) provide for a statistically valid and representative 

sample of admissions of such individuals sufficient to provide results at a 95 percent confidence interval; and 

(B) guarantee that at least 75 percent of overpayments 

received by long-term care hospitals for medically unnecessary admissions and continued stays of individuals in longterm care hospitals will be identified and recovered and 

that related days of care will not be counted toward the 

length of stay requirement contained in section 

1886(d)(1)(B)(iv) of the Social Security Act (42 U.S.C. 

1395ww(d)(1)(B)(iv)). 

(3) CONTINUATION OF REVIEWS.—Under contracts under this 

subsection, the Secretary shall establish an error rate with respect to such reviews that could require further review of the 

medical necessity of admissions and continued stay in the hospital involved and other actions as determined by the Secretary. 

(4) TERMINATION OF REQUIRED REVIEWS.— (A) IN GENERAL.—Subject to subparagraph (B), the previous provisions of this subsection shall cease to apply for 

discharges occurring on or after October 1, 2010. 

(B) CONTINUATION.—As of the date specified in subparagraph (A), the Secretary shall determine whether to continue to guarantee, through continued medical review and 

sampling under this paragraph, recovery of at least 75 percent of overpayments received by long-term care hospitals 

due to medically unnecessary admissions and continued 

stays. 

(5) FUNDING.—The costs to fiscal intermediaries or medicare 

administrative contractors conducting the medical necessity reviews under paragraph (1) shall be funded from the aggregate 

overpayments recouped by the Secretary of Health and Human 

Services from long-term care hospitals due to medically unnecessary admissions and continued stays. The Secretary may use 

an amount not in excess of 40 percent of the overpayments recouped under this paragraph to compensate the fiscal intermediaries or Medicare administrative contractors for the costs 

of services performed. 

(g) IMPLEMENTATION.—For purposes of carrying out the provisions of, and amendments made by, this title, in addition to any 


emcdonald on DSK67QTVN1PROD with HEARING
129 

amounts otherwise provided in this title, there are appropriated to 

the Centers for Medicare & Medicaid Services Program Management Account, out of any money in the Treasury not otherwise appropriated, $35,000,000 for the period of fiscal years 2008 and 

2009. 

* * * * * * * 

SOCIAL SECURITY ACT 

TITLE XVIII—HEALTH INSURANCE FOR THE AGED AND 

DISABLED 

* * * * * * * 

PART E—MISCELLANEOUS PROVISIONS

* * * * * * * 

PAYMENT TO HOSPITALS FOR INPATIENT HOSPITAL SERVICES

SEC. 1886. (a)(1)(A)(i) The Secretary, in determining the amount 

of the payments that may be made under this title with respect to 

operating costs of inpatient hospital services (as defined in paragraph (4)) shall not recognize as reasonable (in the efficient delivery of health services) costs for the provision of such services by a 

hospital for a cost reporting period to the extent such costs exceed 

the applicable percentage (as determined under clause (ii)) of the 

average of such costs for all hospitals in the same grouping as such 

hospital for comparable time periods. 

(ii) For purposes of clause (i), the applicable percentage for hospital cost reporting periods beginning— 

(I) on or after October 1, 1982, and before October 1, 1983, 

is 120 percent; 

(II) on or after October 1, 1983, and before October 1, 1984, 

is 115 percent; and 

(III) on or after October 1, 1984, is 110 percent. 

(B)(i) For purposes of subparagraph (A) the Secretary shall establish case mix indexes for all short- term hospitals, and shall set 

limits for each hospital based upon the general mix of types of 

medical cases with respect to which such hospital provides services 

for which payment may be made under this title. 

(ii) The Secretary shall set such limits for a cost reporting period 

of a hospital— 

(I) by updating available data for a previous period to the 

immediate preceding cost reporting period by the estimated average rate of change of hospital costs industry-wide, and 

(II) by projecting for the cost reporting period by the applicable percentage increase (as defined in subsection (b)(3)(B)). 

(C) The limitation established under subparagraph (A) for any 

hospital shall in no event be lower than the allowable operating 

costs of inpatient hospital services (as defined in paragraph (4)) 

recognized under this title for such hospital for such hospital’s last 

cost reporting period prior to the hospital’s first cost reporting period for which this section is in effect. 


emcdonald on DSK67QTVN1PROD with HEARING
130 

(D) Subparagraph (A) shall not apply to cost reporting periods 

beginning on or after October 1, 1983. 

(2) The Secretary shall provide for such exemptions from, and exceptions and adjustments to, the limitation established under paragraph (1)(A) as he deems appropriate, including those which he 

deems necessary to take into account— 

(A) the special needs of sole community hospitals, of new 

hospitals, of risk based health maintenance organizations, and 

of hospitals which provide atypical services or essential community services, and to take into account extraordinary circumstances beyond the hospital’s control, medical and paramedical education costs, significantly fluctuating population in 

the service area of the hospital, and unusual labor costs, 

(B) the special needs of psychiatric hospitals and of public or 

other hospitals that serve a significantly disproportionate number of patients who have low income or are entitled to benefits 

under part A of this title, and 

(C) a decrease in the inpatient hospital services that a hospital provides and that are customarily provided directly by 

similar hospitals which results in a significant distortion in the 

operating costs of inpatient hospital services. 

(3) The limitation established under paragraph (1)(A) shall not 

apply with respect to any hospital which— 

(A) is located outside of a standard metropolitan statistical 

area, and 

(B)(i) has less than 50 beds, and 

(ii) was in operation and had less than 50 beds on the date 

of the enactment of this section. 

(4) For purposes of this section, the term ‘‘operating costs of inpatient hospital services’’ includes all routine operating costs, ancillary service operating costs, and special care unit operating costs 

with respect to inpatient hospital services as such costs are determined on an average per admission or per discharge basis (as determined by the Secretary), and includes the costs of all services 

for which payment may be made under this title that are provided 

by the hospital (or by an entity wholly owned or operated by the 

hospital) to the patient during the 3 days (or, in the case of a hospital that is not a subsection (d) hospital, during the 1 day) immediately preceding the date of the patient’s admission if such services are diagnostic services (including clinical diagnostic laboratory 

tests) or are other services related to the admission (as defined by 

the Secretary). Such term does not include costs of approved educational activities, a return on equity capital, or, other capital-related costs (as defined by the Secretary for periods before October 

1, 1987). In applying the first sentence of this paragraph, the term 

‘‘other services related to the admission’’ includes all services that 

are not diagnostic services (other than ambulance and maintenance 

renal dialysis services) for which payment may be made under this 

title that are provided by a hospital (or an entity wholly owned or 

operated by the hospital) to a patient— 

(A) on the date of the patient’s inpatient admission; or 

(B) during the 3 days (or, in the case of a hospital that is 

not a subsection (d) hospital, during the 1 day) immediately 

preceding the date of such admission unless the hospital demonstrates (in a form and manner, and at a time, specified by 


emcdonald on DSK67QTVN1PROD with HEARING
131 

the Secretary) that such services are not related (as determined by the Secretary) to such admission. 

(b)(1) Notwithstanding section 1814(b) but subject to the provisions of section 1813, if the operating costs of inpatient hospital 

services (as defined in subsection (a)(4)) of a hospital (other than 

a subsection (d) hospital, as defined in subsection (d)(1)(B) and 

other than a rehabilitation facility described in subsection (j)(1)) for 

a cost reporting period subject to this paragraph— 

(A) are less than or equal to the target amount (as defined 

in paragraph (3)) for that hospital for that period, the amount 

of the payment with respect to such operating costs payable 

under part A on a per discharge or per admission basis (as the 

case may be) shall be equal to the amount of such operating 

costs, plus— 

(i) 15 percent of the amount by which the target amount 

exceeds the amount of the operating costs, or 

(ii) 2 percent of the target amount, 

whichever is less; 

(B) are greater than the target amount but do not exceed 110 

percent of the target amount, the amount of the payment with 

respect to those operating costs payable under part A on a per 

discharge basis shall equal the target amount; or 

(C) are greater than 110 percent of the target amount, the 

amount of the payment with respect to such operating costs 

payable under part A on a per discharge or per admission basis 

(as the case may be) shall be equal to (i) the target amount, 

plus (ii) in the case of cost reporting periods beginning on or 

after October 1, 1991, an additional amount equal to 50 percent of the amount by which the operating costs exceed 110 

percent of the target amount (except that such additional 

amount may not exceed 10 percent of the target amount) after 

any exceptions or adjustments are made to such target amount 

for the cost reporting period; 

plus the amount, if any, provided under paragraph (2), except that 

in no case may the amount payable under this title (other than on 

the basis of a DRG prospective payment rate determined under 

subsection (d)) with respect to operating costs of inpatient hospital 

services exceed the maximum amount payable with respect to such 

costs pursuant to subsection (a). 

(2)(A) Except as provided in subparagraph (E), in addition to the 

payment computed under paragraph (1), in the case of an eligible 

hospital (described in subparagraph (B)) for a cost reporting period 

beginning on or after October 1, 1997, the amount of payment on 

a per discharge basis under paragraph (1) shall be increased by the 

lesser of— 

(i) 50 percent of the amount by which the operating costs are 

less than the expected costs (as defined in subparagraph (D)) 

for the period; or 

(ii) 1 percent of the target amount for the period. 

(B) For purposes of this paragraph, an ‘‘eligible hospital’’ means 

with respect to a cost reporting period, a hospital— 

(i) that has received payments under this subsection for at 

least 3 full cost reporting periods before that cost reporting period, and 


emcdonald on DSK67QTVN1PROD with HEARING
132 

(ii) whose operating costs for the period are less than the 

least of its target amount, its trended costs (as defined in subparagraph (C)), or its expected costs (as defined in subparagraph (D)) for the period. 

(C) For purposes of subparagraph (B)(ii), the term ‘‘trended costs’’ 

means for a hospital cost reporting period ending in a fiscal year— 

(i) in the case of a hospital for which its cost reporting period 

ending in fiscal year 1996 was its third or subsequent full cost 

reporting period for which it receives payments under this subsection, the lesser of the operating costs or target amount for 

that hospital for its cost reporting period ending in fiscal year 

1996, or 

(ii) in the case of any other hospital, the operating costs for 

that hospital for its third full cost reporting period for which 

it receives payments under this subsection, 

increased (in a compounded manner) for each succeeding fiscal year 

(through the fiscal year involved) by the market basket percentage 

increase for the fiscal year. 

(D) For purposes of this paragraph, the term ‘‘expected costs’’, 

with respect to the cost reporting period ending in a fiscal year, 

means the lesser of the operating costs of inpatient hospital services or target amount per discharge for the previous cost reporting 

period updated by the market basket percentage increase (as defined in paragraph (3)(B)(iii)) for the fiscal year. 

(E)(i) In the case of an eligible hospital that is a hospital or unit 

that is within a class of hospital described in clause (ii) with a 12- 

month cost reporting period beginning before the enactment of this 

subparagraph, in determining the amount of the increase under 

subparagraph (A), the Secretary shall substitute for the percentage 

of the target amount applicable under subparagraph (A)(ii)— 

(I) for a cost reporting period beginning on or after October 

1, 2000, and before September 30, 2001, 1.5 percent; and 

(II) for a cost reporting period beginning on or after October 

1, 2001, and before September 30, 2002, 2 percent. 

(ii) For purposes of clause (i), each of the following shall be treated as a separate class of hospital: 

(I) Hospitals described in clause (i) of subsection (d)(1)(B) 

and psychiatric units described in the matter following clause 

(v) of such subsection. 

(II) Hospitals described in clause (iv) of such subsection. 

(3)(A) Except as provided in subparagraph (C) and succeeding 

subparagraphs and in paragraph (7)(A)(ii), for purposes of this subsection, the term ‘‘target amount’’ means, with respect to a hospital 

for a particular 12-month cost reporting period— 

(i) in the case of the first such reporting period for which this 

subsection is in effect, the allowable operating costs of inpatient hospital services (as defined in subsection (a)(4)) recognized under this title for such hospital for the preceding 12- 

month cost reporting period, and 

(ii) in the case of a later reporting period, the target amount 

for the preceding 12-month cost reporting period, 

increased by the applicable percentage increase under subparagraph (B) for that particular cost reporting period. 


emcdonald on DSK67QTVN1PROD with HEARING
133 

(B)(i) For purposes of subsection (d) and subsection (j) for discharges occurring during a fiscal year, the ‘‘applicable percentage 

increase’’ shall be— 

(I) for fiscal year 1986, 1⁄2 percent, 

(II) for fiscal year 1987, 1.15 percent, 

(III) for fiscal year 1988, 3.0 percent for hospitals located in 

a rural area, 1.5 percent for hospitals located in a large urban 

area (as defined in subsection (d)(2)(D)), and 1.0 percent for 

hospitals located in other urban areas, 

(IV) for fiscal year 1989, the market basket percentage increase minus 1.5 percentage points for hospitals located in a 

rural area, the market basket percentage increase minus 2.0 

percentage points for hospitals located in a large urban area, 

and the market basket percentage increase minus 2.5 percentage points for hospitals located in other urban areas, 

(V) for fiscal year 1990, the market basket percentage increase plus 4.22 percentage points for hospitals located in a 

rural area, the market basket percentage increase plus 0.12 

percentage points for hospitals located in a large urban area, 

and the market basket percentage increase minus 0.53 percentage points for hospitals located in other urban areas, 

(VI) for fiscal year 1991, the market basket percentage increase minus 2.0 percentage points for hospitals in a large 

urban or other urban area, and the market basket percentage 

increase minus 0.7 percentage point for hospitals located in a 

rural area, 

(VII) for fiscal year 1992, the market basket percentage increase minus 1.6 percentage points for hospitals in a large 

urban or other urban area, and the market basket percentage 

increase minus 0.6 percentage point for hospitals located in a 

rural area, 

(VIII) for fiscal year 1993, the market basket percentage increase minus 1.55 percentage point for hospitals in a large 

urban or other urban area, and the market basket percentage 

increase minus 0.55 for hospitals located in a rural area, 

(IX) for fiscal year 1994, the market basket percentage increase minus 2.5 percentage points for hospitals located in a 

large urban or other urban area, and the market basket percentage increase minus 1.0 percentage point for hospitals located in a rural area, 

(X) for fiscal year 1995, the market basket percentage increase minus 2.5 percentage points for hospitals located in a 

large urban or other urban area, and such percentage increase 

for hospitals located in a rural area as will provide for the average standardized amount determined under subsection 

(d)(3)(A) for hospitals located in a rural area being equal to 

such average standardized amount for hospitals located in an 

urban area (other than a large urban area), 

(XI) for fiscal year 1996, the market basket percentage increase minus 2.0 percentage points for hospitals in all areas, 

(XII) for fiscal year 1997, the market basket percentage increase minus 0.5 percentage point for hospitals in all areas, 

(XIII) for fiscal year 1998, 0 percent, 

(XIV) for fiscal year 1999, the market basket percentage increase minus 1.9 percentage points for hospitals in all areas, 


emcdonald on DSK67QTVN1PROD with HEARING
134 

(XV) for fiscal year 2000, the market basket percentage increase minus 1.8 percentage points for hospitals in all areas, 

(XVI) for fiscal year 2001, the market basket percentage increase for hospitals in all areas, 

(XVII) for fiscal year 2002, the market basket percentage increase minus 0.55 percentage points for hospitals in all areas, 

(XVIII) for fiscal year 2003, the market basket percentage increase minus 0.55 percentage points for hospitals in all areas, 

(XIX) for each of fiscal years 2004 through 2006, subject to 

clause (vii), the market basket percentage increase for hospitals in all areas; and 

(XX) for each subsequent fiscal year, subject to clauses (viii), 

(ix), (xi), and (xii), the market basket percentage increase for 

hospitals in all areas. 

(ii) For purposes of subparagraphs (A) and (E), the ‘‘applicable 

percentage increase’’ for 12-month cost reporting periods beginning 

during— 

(I) fiscal year 1986, is 0.5 percent, 

(II) fiscal year 1987, is 1.15 percent, 

(III) fiscal year 1988, is the market basket percentage increase minus 2.0 percentage points, 

(IV) a subsequent fiscal year ending on or before September 

30, 1993, is the market basket percentage increase, 

(V) fiscal years 1994 through 1997, is the market basket percentage increase minus the applicable reduction (as defined in 

clause (v)(II)), or in the case of a hospital for a fiscal year for 

which the hospital’s update adjustment percentage (as defined 

in clause (v)(I)) is at least 10 percent, the market basket percentage increase, 

(VI) for fiscal year 1998, is 0 percent, 

(VII) for fiscal years 1999 through 2002, is the applicable update factor specified under clause (vi) for the fiscal year, and 

(VIII) subsequent fiscal years is the market basket percentage increase. 

(iii) For purposes of this subparagraph, the term ‘‘market basket 

percentage increase’’ means, with respect to cost reporting periods 

and discharges occurring in a fiscal year, the percentage, estimated 

by the Secretary before the beginning of the period or fiscal year, 

by which the cost of the mix of goods and services (including personnel costs but excluding nonoperating costs) comprising routine, 

ancillary, and special care unit inpatient hospital services, based on 

an index of appropriately weighted indicators of changes in wages 

and prices which are representative of the mix of goods and services included in such inpatient hospital services, for the period or 

fiscal year will exceed the cost of such mix of goods and services 

for the preceding 12-month cost reporting period or fiscal year. 

(iv) For purposes of subparagraphs (C) and (D), the ‘‘applicable 

percentage increase’’ is— 

(I) for 12-month cost reporting periods beginning during fiscal years 1986 through 1993, the applicable percentage increase specified in clause (ii), 

(II) for fiscal year 1994, the market basket percentage increase minus 2.3 percentage points (adjusted to exclude any 

portion of a cost reporting period beginning during fiscal year 


emcdonald on DSK67QTVN1PROD with HEARING
135 

1993 for which the applicable percentage increase is determined under subparagraph (I)), 

(III) for fiscal year 1995, the market basket percentage increase minus 2.2 percentage points, and 

(IV) for fiscal year 1996 and each subsequent fiscal year, the 

applicable percentage increase under clause (i). 

(v) For purposes of clause (ii)(V)— 

(I) a hospital’s ‘‘update adjustment percentage’’ for a fiscal 

year is the percentage by which the hospital’s allowable operating costs of inpatient hospital services recognized under this 

title for the cost reporting period beginning in fiscal year 1990 

exceeds the hospital’s target amount (as determined under subparagraph (A)) for such cost reporting period, increased for 

each fiscal year (beginning with fiscal year 1994) by the sum 

of any of the hospital’s applicable reductions under subclause 

(V) for previous fiscal years; and 

(II) the ‘‘applicable reduction’’ with respect to a hospital for 

a fiscal year is the lesser of 1 percentage point or the percentage point difference between 10 percent and the hospital’s update adjustment percentage for the fiscal year. 

(vi) For purposes of clause (ii)(VII) for a fiscal year, if a hospital’s 

allowable operating costs of inpatient hospital services recognized 

under this title for the most recent cost reporting period for which 

information is available— 

(I) is equal to, or exceeds, 110 percent of the hospital’s target 

amount (as determined under subparagraph (A)) for such cost 

reporting period, the applicable update factor specified under 

this clause is the market basket percentage; 

(II) exceeds 100 percent, but is less than 110 percent, of such 

target amount for the hospital, the applicable update factor 

specified under this clause is 0 percent or, if greater, the market basket percentage minus 0.25 percentage points for each 

percentage point by which such allowable operating costs (expressed as a percentage of such target amount) is less than 110 

percent of such target amount; 

(III) is equal to, or less than 100 percent, but exceeds 2⁄3 of 

such target amount for the hospital, the applicable update factor specified under this clause is 0 percent or, if greater, the 

market basket percentage minus 2.5 percentage points; or 

(IV) does not exceed 2⁄3 of such target amount for the hospital, the applicable update factor specified under this clause 

is 0 percent. 

(vii)(I) For purposes of clause (i)(XIX) for fiscal years 2005 and 

2006, in a case of a subsection (d) hospital that does not submit 

data to the Secretary in accordance with subclause (II) with respect 

to such a fiscal year, the applicable percentage increase under such 

clause for such fiscal year shall be reduced by 0.4 percentage 

points. Such reduction shall apply only with respect to the fiscal 

year involved, and the Secretary shall not take into account such 

reduction in computing the applicable percentage increase under 

clause (i)(XIX) for a subsequent fiscal year. 

(II) For fiscal years 2005 and 2006, each subsection (d) hospital 

shall submit to the Secretary quality data (for a set of 10 indicators 

established by the Secretary as of November 1, 2003) that relate 

to the quality of care furnished by the hospital in inpatient settings 


emcdonald on DSK67QTVN1PROD with HEARING
136 

in a form and manner, and at a time, specified by the Secretary 

for purposes of this clause, but with respect to fiscal year 2005, the 

Secretary shall provide for a 30-day grace period for the submission 

of data by a hospital. 

(viii)(I) For purposes of clause (i) for fiscal year 2007 and each 

subsequent fiscal year, in the case of a subsection (d) hospital that 

does not submit, to the Secretary in accordance with this clause, 

data required to be submitted on measures selected under this 

clause with respect to such a fiscal year, the applicable percentage 

increase under clause (i) for such fiscal year shall be reduced by 2.0 

percentage points (or, beginning with fiscal year 2015, by one-quarter of such applicable percentage increase (determined without regard to clause (ix), (xi), or (xii))). Such reduction shall apply only 

with respect to the fiscal year involved and the Secretary shall not 

take into account such reduction in computing the applicable percentage increase under clause (i) for a subsequent fiscal year, and 

the Secretary and the Medicare Payment Advisory Commission 

shall carry out the requirements under section 5001(b) of the Deficit Reduction Act of 2005. 

(II) Each subsection (d) hospital shall submit data on measures 

selected under this clause to the Secretary in a form and manner, 

and at a time, specified by the Secretary for purposes of this 

clause. The Secretary may require hospitals to submit data on 

measures that are not used for the determination of value-based incentive payments under subsection (o). 

(III) The Secretary shall expand, beyond the measures specified 

under clause (vii)(II) and consistent with the succeeding subclauses, the set of measures that the Secretary determines to be 

appropriate for the measurement of the quality of care (including 

medication errors) furnished by hospitals in inpatient settings. 

(IV) Effective for payments beginning with fiscal year 2007, in 

expanding the number of measures under subclause (III), the Secretary shall begin to adopt the baseline set of performance measures as set forth in the November 2005 report by the Institute of 

Medicine of the National Academy of Sciences under section 238(b) 

of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. 

(V) Effective for payments for fiscal years 2008 through 2012, the 

Secretary shall add other measures that reflect consensus among 

affected parties and, to the extent feasible and practicable, shall include measures set forth by one or more national consensus building entities. 

(VI) For purposes of this clause and clause (vii), the Secretary 

may replace any measures or indicators in appropriate cases, such 

as where all hospitals are effectively in compliance or the measures 

or indicators have been subsequently shown not to represent the 

best clinical practice. 

(VII) The Secretary shall establish procedures for making information regarding measures submitted under this clause available 

to the public. Such procedures shall ensure that a hospital has the 

opportunity to review the data that are to be made public with respect to the hospital prior to such data being made public. The Secretary shall report quality measures of process, structure, outcome, 

patients’ perspectives on care, efficiency, and costs of care that reVerDate Sep 11 2014 01:51 Jun 18, 2015 Jkt 049006 PO 00000 Frm 00136 Fmt 6659 Sfmt 6602 E:\HR\OC\HR156.XXX HR156

emcdonald on DSK67QTVN1PROD with HEARING
137 

late to services furnished in inpatient settings in hospitals on the 

Internet website of the Centers for Medicare & Medicaid Services. 

(VIII) Effective for payments beginning with fiscal year 2013, 

with respect to quality measures for outcomes of care, the Secretary shall provide for such risk adjustment as the Secretary determines to be appropriate to maintain incentives for hospitals to 

treat patients with severe illnesses or conditions. 

(IX)(aa) Subject to item (bb), effective for payments beginning 

with fiscal year 2013, each measure specified by the Secretary 

under this clause shall be endorsed by the entity with a contract 

under section 1890(a). 

(bb) In the case of a specified area or medical topic determined 

appropriate by the Secretary for which a feasible and practical 

measure has not been endorsed by the entity with a contract under 

section 1890(a), the Secretary may specify a measure that is not so 

endorsed as long as due consideration is given to measures that 

have been endorsed or adopted by a consensus organization identified by the Secretary. 

(X) To the extent practicable, the Secretary shall, with input 

from consensus organizations and other stakeholders, take steps to 

ensure that the measures specified by the Secretary under this 

clause are coordinated and aligned with quality measures applicable to— 

(aa) physicians under section 1848(k); and 

(bb) other providers of services and suppliers under this title. 

(XI) The Secretary shall establish a process to validate measures 

specified under this clause as appropriate. Such process shall include the auditing of a number of randomly selected hospitals sufficient to ensure validity of the reporting program under this clause 

as a whole and shall provide a hospital with an opportunity to appeal the validation of measures reported by such hospital. 

(ix)(I) For purposes of clause (i) for fiscal year 2015 and each subsequent fiscal year, in the case of an eligible hospital (as defined 

in subsection (n)(6)(A)) that is not a meaningful EHR user (as defined in subsection (n)(3)) for an EHR reporting period for such fiscal year, three-quarters of the applicable percentage increase otherwise applicable under clause (i) (determined without regard to 

clause (viii), (xi), or (xii)) for such fiscal year shall be reduced by 

331⁄3 percent for fiscal year 2015, 662⁄3 percent for fiscal year 2016, 

and 100 percent for fiscal year 2017 and each subsequent fiscal 

year. Such reduction shall apply only with respect to the fiscal year 

involved and the Secretary shall not take into account such reduction in computing the applicable percentage increase under clause 

(i) for a subsequent fiscal year. 

(II) The Secretary may, on a case-by-case basis, exempt a subsection (d) hospital from the application of subclause (I) with respect to a fiscal year if the Secretary determines, subject to annual 

renewal, that requiring such hospital to be a meaningful EHR user 

during such fiscal year would result in a significant hardship, such 

as in the case of a hospital in a rural area without sufficient Internet access. In no case may a hospital be granted an exemption 

under this subclause for more than 5 years. 

(III) For fiscal year 2015 and each subsequent fiscal year, a State 

in which hospitals are paid for services under section 1814(b)(3) 

shall adjust the payments to each subsection (d) hospital in the 


emcdonald on DSK67QTVN1PROD with HEARING
138 

State that is not a meaningful EHR user (as defined in subsection 

(n)(3)) in a manner that is designed to result in an aggregate reduction in payments to hospitals in the State that is equivalent to 

the aggregate reduction that would have occurred if payments had 

been reduced to each subsection (d) hospital in the State in a manner comparable to the reduction under the previous provisions of 

this clause. The State shall report to the Secretary the methodology 

it will use to make the payment adjustment under the previous 

sentence. 

(IV) For purposes of this clause, the term ‘‘EHR reporting period’’ 

means, with respect to a fiscal year, any period (or periods) as specified by the Secretary. 

(x)(I) The Secretary shall develop standard Internet website reports tailored to meet the needs of various stakeholders such as 

hospitals, patients, researchers, and policymakers. The Secretary 

shall seek input from such stakeholders in determining the type of 

information that is useful and the formats that best facilitate the 

use of the information. 

(II) The Secretary shall modify the Hospital Compare Internet 

website to make the use and navigation of that website readily 

available to individuals accessing it. 

(xi)(I) For 2012 and each subsequent fiscal year, after determining the applicable percentage increase described in clause (i) 

and after application of clauses (viii) and (ix), such percentage increase shall be reduced by the productivity adjustment described in 

subclause (II). 

(II) The productivity adjustment described in this subclause, with 

respect to a percentage, factor, or update for a fiscal year, year, 

cost reporting period, or other annual period, is a productivity adjustment equal to the 10-year moving average of changes in annual 

economy-wide private nonfarm business multi-factor productivity 

(as projected by the Secretary for the 10-year period ending with 

the applicable fiscal year, year, cost reporting period, or other annual period). 

(III) The application of subclause (I) may result in the applicable 

percentage increase described in clause (i) being less than 0.0 for 

a fiscal year, and may result in payment rates under this section 

for a fiscal year being less than such payment rates for the preceding fiscal year. 

(xii) After determining the applicable percentage increase described in clause (i), and after application of clauses (viii), (ix), and 

(xi), the Secretary shall reduce such applicable percentage increase— 

(I) for each of fiscal years 2010 and 2011, by 0.25 percentage 

point; 

(II) for each of fiscal years 2012 and 2013, by 0.1 percentage 

point; 

(III) for fiscal year 2014, by 0.3 percentage point; 

(IV) for each of fiscal years 2015 and 2016, by 0.2 percentage 

point; and 

(V) for each of fiscal years 2017, 2018, and 2019, by 0.75 percentage point. 

The application of this clause may result in the applicable percentage increase described in clause (i) being less than 0.0 for a fiscal 

year, and may result in payment rates under this section for a fisVerDate Sep 11 2014 01:51 Jun 18, 2015 Jkt 049006 PO 00000 Frm 00138 Fmt 6659 Sfmt 6602 E:\HR\OC\HR156.XXX HR156

emcdonald on DSK67QTVN1PROD with HEARING
139 

cal year being less than such payment rates for the preceding fiscal 

year. 

(C) In the case of a hospital that is a sole community hospital 

(as defined in subsection (d)(5)(D)(iii)), subject to subparagraphs (I) 

and (L), the term ‘‘target amount’’ means— 

(i) with respect to the first 12-month cost reporting period in 

which this subparagraph is applied to the hospital— 

(I) the allowable operating costs of inpatient hospital 

services (as defined in subsection (a)(4)) recognized under 

this title for the hospital for the 12-month cost reporting 

period (in this subparagraph referred to as the ‘‘base cost 

reporting period’’) preceding the first cost reporting period 

for which this subsection was in effect with respect to such 

hospital, increased (in a compounded manner) by— 

(II) the applicable percentage increases applied to such 

hospital under this paragraph for cost reporting periods 

after the base cost reporting period and up to and including such first 12-month cost reporting period, 

(ii) with respect to a later cost reporting period beginning before fiscal year 1994, the target amount for the preceding 12- 

month cost reporting period, increased by the applicable percentage increase under subparagraph (B)(iv) for discharges occurring in the fiscal year in which that later cost reporting period begins, 

(iii) with respect to discharges occurring in fiscal year 1994, 

the target amount for the cost reporting period beginning in 

fiscal year 1993 increased by the applicable percentage increase under subparagraph (B)(iv), or 

(iv) with respect to discharges occurring in fiscal year 1995 

and each subsequent fiscal year, the target amount for the preceding year increased by the applicable percentage increase 

under subparagraph (B)(iv). 

There shall be substituted for the base cost reporting period described in clause (i) a hospital’s cost reporting period (if any) beginning during fiscal year 1987 if such substitution results in an increase in the target amount for the hospital. 

(D) For cost reporting periods ending on or before September 30, 

1994, and for cost reporting periods occurring on or after October 

1, 1997, and before October 1, 2017, in the case of a hospital that 

is a medicare-dependent, small rural hospital (as defined in subsection (d)(5)(G)), subject to subparagraph (K), the term ‘‘target 

amount’’ means— 

(i) with respect to the first 12-month cost reporting period in 

which this subparagraph is applied to the hospital— 

(I) the allowable operating costs of inpatient hospital 

services (as defined in subsection (a)(4)) recognized under 

this title for the hospital for the 12-month cost reporting 

period (in this subparagraph referred to as the ‘‘base cost 

reporting period’’) preceding the first cost reporting period 

for which this subsection was in effect with respect to such 

hospital, increased (in a compounded manner) by— 

(II) the applicable percentage increases applied to such 

hospital under this paragraph for cost reporting periods 

after the base cost reporting period and up to and including such first 12-month cost reporting period, or 


emcdonald on DSK67QTVN1PROD with HEARING
140 

(ii) with respect to a later cost reporting period beginning before fiscal year 1994, the target amount for the preceding 12- 

month cost reporting period, increased by the applicable percentage increase under subparagraph (B)(iv) for discharges occurring in the fiscal year in which that later cost reporting period begins, 

(iii) with respect to discharges occurring in fiscal year 1994, 

the target amount for the cost reporting period beginning in 

fiscal year 1993 increased by the applicable percentage increase under subparagraph (B)(iv), and 

(iv) with respect to discharges occurring during fiscal year 

1998 through fiscal year 2017, the target amount for the preceding year increased by the applicable percentage increase 

under subparagraph (B)(iv). 

There shall be substituted for the base cost reporting period described in clause (i) a hospital’s cost reporting period (if any) beginning during fiscal year 1987 if such substitution results in an increase in the target amount for the hospital. 

(E) In the case of a hospital described in clause (v) of subsection 

(d)(1)(B), the term ‘‘target amount’’ means— 

(i) with respect to the first 12-month cost reporting period in 

which this subparagraph is applied to the hospital— 

(I) the allowable operating costs of inpatient hospital 

services (as defined in subsection (a)(4)) recognized under 

this title for the hospital for the 12-month cost reporting 

period (in this subparagraph referred to as the ‘‘base cost 

reporting period’’) preceding the first cost reporting period 

for which this subsection was in effect with respect to such 

hospital, increased (in a compounded manner) by— 

(II) the sum of the applicable percentage increases applied to such hospital under this paragraph for cost reporting periods after the base cost reporting period and up to 

and including such first 12-month cost reporting period, or 

(ii) with respect to a later cost reporting period, the target 

amount for the preceding 12-month cost reporting period, increased by the applicable percentage increase under subparagraph (B)(ii) for that later cost reporting period. 

There shall be substituted for the base cost reporting period described in clause (i) a hospital’s cost reporting period (if any) beginning during fiscal year 1987 if such substitution results in an increase in the target amount for the hospital. 

(F)(i) In the case of a hospital (or unit described in the matter 

following clause (v) of subsection (d)(1)(B)) that received payment 

under this subsection for inpatient hospital services furnished during cost reporting periods beginning before October 1, 1990, that is 

within a class of hospital described in clause (iii), and that elects 

(in a form and manner determined by the Secretary) this subparagraph to apply to the hospital, the target amount for the hospital’s 

12-month cost reporting period beginning during fiscal year 1998 is 

equal to the average described in clause (ii). 

(ii) The average described in this clause for a hospital or unit 

shall be determined by the Secretary as follows: 

(I) The Secretary shall determine the allowable operating 

costs for inpatient hospital services for the hospital or unit for 

each of the 5 cost reporting periods for which the Secretary has 


emcdonald on DSK67QTVN1PROD with HEARING
141 

the most recent settled cost reports as of the date of the enactment of this subparagraph. 

(II) The Secretary shall increase the amount determined 

under subclause (I) for each cost reporting period by the applicable percentage increase under subparagraph (B)(ii) for each 

subsequent cost reporting period up to the cost reporting period described in clause (i). 

(III) The Secretary shall identify among such 5 cost reporting 

periods the cost reporting periods for which the amount determined under subclause (II) is the highest, and the lowest. 

(IV) The Secretary shall compute the averages of the 

amounts determined under subclause (II) for the 3 cost reporting periods not identified under subclause (III). 

(iii) For purposes of this subparagraph, each of the following 

shall be treated as a separate class of hospital: 

(I) Hospitals described in clause (i) of subsection (d)(1)(B) 

and psychiatric units described in the matter following clause 

(v) of such subsection. 

(II) Hospitals described in clause (ii) of such subsection and 

rehabilitation units described in the matter following clause (v) 

of such subsection. 

(III) Hospitals described in clause (iii) of such subsection. 

(IV) Hospitals described in clause (iv) of such subsection. 

(V) Hospitals described in clause (v) of such subsection. 

(G)(i) In the case of a qualified long-term care hospital (as defined in clause (ii)) that elects (in a form and manner determined 

by the Secretary) this subparagraph to apply to the hospital, the 

target amount for the hospital’s 12-month cost reporting period beginning during fiscal year 1998 is equal to the allowable operating 

costs of inpatient hospital services (as defined in subsection (a)(4)) 

recognized under this title for the hospital for the 12-month cost reporting period beginning during fiscal year 1996, increased by the 

applicable percentage increase for the cost reporting period beginning during fiscal year 1997. 

(ii) In clause (i), a ‘‘qualified long-term care hospital’’ means, with 

respect to a cost reporting period, a hospital described in clause (iv) 

of subsection (d)(1)(B) during each of the 2 cost reporting periods 

for which the Secretary has the most recent settled cost reports as 

of the date of the enactment of this subparagraph for each of 

which— 

(I) the hospital’s allowable operating costs of inpatient hospital services recognized under this title exceeded 115 percent 

of the hospital’s target amount, and 

(II) the hospital would have a disproportionate patient percentage of at least 70 percent (as determined by the Secretary 

under subsection (d)(5)(F)(vi)) if the hospital were a subsection 

(d) hospital. 

(H)(i) In the case of a hospital or unit that is within a class of 

hospital described in clause (iv), for a cost reporting period beginning during fiscal years 1998 through 2002, the target amount for 

such a hospital or unit may not exceed the amount as updated up 

to or for such cost reporting period under clause (ii). 

(ii)(I) In the case of a hospital or unit that is within a class of 

hospital described in clause (iv), the Secretary shall estimate the 

75th percentile of the target amounts for such hospitals within 


emcdonald on DSK67QTVN1PROD with HEARING
142 

such class for cost reporting periods ending during fiscal year 1996, 

as adjusted under clause (iii). 

(II) The Secretary shall update the amount determined under 

subclause (I), for each cost reporting period after the cost reporting 

period described in such subclause and up to the first cost reporting period beginning on or after October 1, 1997, by a factor equal 

to the market basket percentage increase. 

(III) For cost reporting periods beginning during each of fiscal 

years 1999 through 2002, subject to subparagraph (J), the Secretary shall update such amount by a factor equal to the market 

basket percentage increase. 

(iii) In applying clause (ii)(I) in the case of a hospital or unit, the 

Secretary shall provide for an appropriate adjustment to the laborrelated portion of the amount determined under such subparagraph 

to take into account differences between average wage-related costs 

in the area of the hospital and the national average of such costs 

within the same class of hospital. 

(iv) For purposes of this subparagraph, each of the following 

shall be treated as a separate class of hospital: 

(I) Hospitals described in clause (i) of subsection (d)(1)(B) 

and psychiatric units described in the matter following clause 

(v) of such subsection. 

(II) Hospitals described in clause (ii) of such subsection and 

rehabilitation units described in the matter following clause (v) 

of such subsection. 

(III) Hospitals described in clause (iv) of such subsection. 

(I)(i) Subject to subparagraph (L), for cost reporting periods beginning on or after October 1, 2000, in the case of a sole community 

hospital there shall be substituted for the amount otherwise determined under subsection (d)(5)(D)(i), if such substitution results in 

a greater amount of payment under this section for the hospital— 

(I) with respect to discharges occurring in fiscal year 2001, 

75 percent of the amount otherwise applicable to the hospital 

under subsection (d)(5)(D)(i) (referred to in this clause as the 

‘‘subsection (d)(5)(D)(i) amount’’) and 25 percent of the rebased 

target amount (as defined in clause (ii)); 

(II) with respect to discharges occurring in fiscal year 2002, 

50 percent of the subsection (d)(5)(D)(i) amount and 50 percent 

of the rebased target amount; 

(III) with respect to discharges occurring in fiscal year 2003, 

25 percent of the subsection (d)(5)(D)(i) amount and 75 percent 

of the rebased target amount; and 

(IV) with respect to discharges occurring after fiscal year 

2003, 100 percent of the rebased target amount. 

(ii) For purposes of this subparagraph, the ‘‘rebased target 

amount’’ has the meaning given the term ‘‘target amount’’ in subparagraph (C) except that— 

(I) there shall be substituted for the base cost reporting period the 12-month cost reporting period beginning during fiscal 

year 1996; 

(II) any reference in subparagraph (C)(i) to the ‘‘first cost reporting period’’ described in such subparagraph is deemed a 

reference to the first cost reporting period beginning on or after 

October 1, 2000; and 


emcdonald on DSK67QTVN1PROD with HEARING
143 

(III) applicable increase percentage shall only be applied 

under subparagraph (C)(iv) for discharges occurring in fiscal 

years beginning with fiscal year 2002. 

(iii) In no case shall a hospital be denied treatment as a sole 

community hospital or payment (on the basis of a target rate as 

such as a hospital) because data are unavailable for any cost reporting period due to changes in ownership, changes in fiscal intermediaries, or other extraordinary circumstances, so long as data for 

at least one applicable base cost reporting period is available. 

(J) For cost reporting periods beginning during fiscal year 2001, 

for a hospital described in subsection (d)(1)(B)(iv)— 

(i) the limiting or cap amount otherwise determined under 

subparagraph (H) shall be increased by 2 percent; and 

(ii) the target amount otherwise determined under subparagraph (A) shall be increased by 25 percent (subject to the limiting or cap amount determined under subparagraph (H), as increased by clause (i)). 

(K)(i) With respect to discharges occurring on or after October 1, 

2006, in the case of a medicare-dependent, small rural hospital, for 

purposes of applying subparagraph (D)— 

(I) there shall be substituted for the base cost reporting period described in subparagraph (D)(i) the 12-month cost reporting period beginning during fiscal year 2002; and 

(II) any reference in such subparagraph to the ‘‘first cost reporting period’’ described in such subparagraph is deemed a 

reference to the first cost reporting period beginning on or after 

October 1, 2006. 

(ii) This subparagraph shall only apply to a hospital if the substitution described in clause (i)(I) results in an increase in the target 

amount under subparagraph (D) for the hospital. 

(L)(i) For cost reporting periods beginning on or after January 1, 

2009, in the case of a sole community hospital there shall be substituted for the amount otherwise determined under subsection 

(d)(5)(D)(i) of this section, if such substitution results in a greater 

amount of payment under this section for the hospital, the subparagraph (L) rebased target amount. 

(ii) For purposes of this subparagraph, the term ‘‘subparagraph 

(L) rebased target amount’’ has the meaning given the term ‘‘target 

amount’’ in subparagraph (C), except that— 

(I) there shall be substituted for the base cost reporting period the 12-month cost reporting period beginning during fiscal 

year 2006; 

(II) any reference in subparagraph (C)(i) to the ‘‘first cost reporting period’’ described in such subparagraph is deemed a 

reference to the first cost reporting period beginning on or after 

January 1, 2009; and 

(III) the applicable percentage increase shall only be applied 

under subparagraph (C)(iv) for discharges occurring on or after 

January 1, 2009. 

(4)(A)(i) The Secretary shall provide for an exception and adjustment to (and in the case of a hospital described in subsection 

(d)(1)(B)(iii), may provide an exemption from) the method under 

this subsection for determining the amount of payment to a hospital where events beyond the hospital’s control or extraordinary 

circumstances, including changes in the case mix of such hospital, 


emcdonald on DSK67QTVN1PROD with HEARING
144 

create a distortion in the increase in costs for a cost reporting period (including any distortion in the costs for the base period 

against which such increase is measured). The Secretary may provide for such other exemptions from, and exceptions and adjustments to, such method as the Secretary deems appropriate, including the assignment of a new base period which is more representative, as determined by the Secretary, of the reasonable and necessary cost of inpatient services and including those which he 

deems necessary to take into account a decrease in the inpatient 

hospital services that a hospital provides and that are customarily 

provided directly by similar hospitals which results in a significant 

distortion in the operating costs of inpatient hospital services. The 

Secretary shall announce a decision on any request for an exemption, exception, or adjustment under this paragraph not later than 

180 days after receiving a completed application from the intermediary for such exemption, exception, or adjustment, and shall include in such decision a detailed explanation of the grounds on 

which such request was approved or denied. 

(ii) The payment reductions under paragraph (3)(B)(ii)(V) shall 

not be considered by the Secretary in making adjustments pursuant to clause (i). In making such reductions, the Secretary shall 

treat the applicable update factor described in paragraph (3)(B)(vi) 

for a fiscal year as being equal to the market basket percentage for 

that year. 

(B) In determining under subparagraph (A) whether to assign a 

new base period which is more representative of the reasonable 

and necessary cost to a hospital of providing inpatient services, the 

Secretary shall take into consideration— 

(i) changes in applicable technologies and medical practices, 

or differences in the severity of illness among patients, that increase the hospital’s costs; 

(ii) whether increases in wages and wage-related costs for 

hospitals located in the geographic area in which the hospital 

is located exceed the average of the increases in such costs 

paid by hospitals in the United States; and 

(iii) such other factors as the Secretary considers appropriate 

in determining increases in the hospital’s costs of providing inpatient services. 

(C) Paragraph (1) shall not apply to payment of hospitals which 

is otherwise determined under paragraph (3) of section 1814(b). 

(5) In the case of any hospital having any cost reporting period 

of other than a 12-month period, the Secretary shall determine the 

12-month period which shall be used for purposes of this section. 

(6) In the case of any hospital which becomes subject to the taxes 

under section 3111 of the Internal Revenue Code of 1954, with respect to any or all of its employees, for part or all of a cost reporting period, and was not subject to such taxes with respect to any 

or all of its employees for all or part of the 12-month base cost reporting period referred to in subsection (b)(3)(A)(i), the Secretary 

shall provide for an adjustment by increasing the base period 

amount described in such subsection for such hospital by an 

amount equal to the amount of such taxes which would have been 

paid or accrued by such hospital for such base period if such hospital had been subject to such taxes for all of such base period with 


emcdonald on DSK67QTVN1PROD with HEARING
145 

respect to all its employees, minus the amount of any such taxes 

actually paid or accrued for such base period. 

(7)(A) Notwithstanding paragraph (1), in the case of a hospital or 

unit that is within a class of hospital described in subparagraph 

(B) which first receives payments under this section on or after October 1, 1997— 

(i) for each of the first 2 cost reporting periods for which the 

hospital has a settled cost report, the amount of the payment 

with respect to operating costs described in paragraph (1) 

under part A on a per discharge or per admission basis (as the 

case may be) is equal to the lesser of— 

(I) the amount of operating costs for such respective period, or 

(II) 110 percent of the national median (as estimated by 

the Secretary) of the target amount for hospitals in the 

same class as the hospital for cost reporting periods ending 

during fiscal year 1996, updated by the hospital market 

basket increase percentage to the fiscal year in which the 

hospital first received payments under this section, as adjusted under subparagraph (C); and 

(ii) for purposes of computing the target amount for the subsequent cost reporting period, the target amount for the preceding cost reporting period is equal to the amount determined 

under clause (i) for such preceding period. 

(B) For purposes of this paragraph, each of the following shall be 

treated as a separate class of hospital: 

(i) Hospitals described in clause (i) of subsection (d)(1)(B) and 

psychiatric units described in the matter following clause (v) of 

such subsection. 

(ii) Hospitals described in clause (ii) of such subsection and 

rehabilitation units described in the matter following clause (v) 

of such subsection. 

(iii) Hospitals described in clause (iv) of such subsection. 

(C) In applying subparagraph (A)(i)(II) in the case of a hospital 

or unit, the Secretary shall provide for an appropriate adjustment 

to the labor-related portion of the amount determined under such 

subparagraph to take into account differences between average 

wage-related costs in the area of the hospital and the national average of such costs within the same class of hospital. 

(c)(1) The Secretary may provide, in his discretion, that payment 

with respect to services provided by a hospital in a State may be 

made in accordance with a hospital reimbursement control system 

in a State, rather than in accordance with the other provisions of 

this title, if the chief executive officer of the State requests such 

treatment and if— 

(A) the Secretary determines that the system, if approved 

under this subsection, will apply (i) to substantially all nonFederal acute care hospitals (as defined by the Secretary) in 

the State and (ii) to the review of at least 75 percent of all revenues or expenses in the State for inpatient hospital services 

and of revenues or expenses for inpatient hospital services provided under the State’s plan approved under title XIX; 

(B) the Secretary has been provided satisfactory assurances 

as to the equitable treatment under the system of all entities 

(including Federal and State programs) that pay hospitals for 


emcdonald on DSK67QTVN1PROD with HEARING
146 

inpatient hospital services, of hospital employees, and of hospital patients; 

(C) the Secretary has been provided satisfactory assurances 

that under the system, over 36-month periods (the first such 

period beginning with the first month in which this subsection 

applies to that system in the State), the amount of payments 

made under this title under such system will not exceed the 

amount of payments which would otherwise have been made 

under this title not using such system; 

(D) the Secretary determines that the system will not preclude an eligible organization (as defined in section 1876(b)) 

from negotiating directly with hospitals with respect to the organization’s rate of payment for inpatient hospital services; 

and 

(E) the Secretary determines that the system requires hospitals to meet the requirement of section 1866(a)(1)(G) and the 

system provides for the exclusion of certain costs in accordance 

with section 1862(a)(14) (except for such waivers thereof as the 

Secretary provides by regulation). 

The Secretary cannot deny the application of a State under this 

subsection on the ground that the State’s hospital reimbursement 

control system is based on a payment methodology other than on 

the basis of a diagnosis-related group or on the ground that the 

amount of payments made under this title under such system must 

be less than the amount of payments which would otherwise have 

been made under this title not using such system. If the Secretary 

determines that the conditions described in subparagraph (C) are 

based on maintaining payment amounts at no more than a specified percentage increase above the payment amounts in a base period, the State has the option of applying such test (for inpatient 

hospital services under part A) on an aggregate payment basis or 

on the basis of the amount of payment per inpatient discharge or 

admission. If the Secretary determines that the conditions described in subparagraph (C) are based on maintaining aggregate 

payment amounts below a national average percentage increase in 

total payments under part A for inpatient hospital services, the 

Secretary cannot deny the application of a State under this subsection on the ground that the State’s rate of increase in such payments for such services must be less than such national average 

rate of increase. 

(2) In determining under paragraph (1)(C) the amount of payment which would otherwise have been made under this title for 

a State, the Secretary may provide for appropriate adjustment of 

such amount to take into account previous reductions effected in 

the amount of payments made under this title in the State due to 

the operation of the hospital reimbursement control system in the 

State if the system has resulted in an aggregate rate of increase 

in operating costs of inpatient hospital services (as defined in subsection (a)(4)) under this title for hospitals in the State which is 

less than the aggregate rate of increase in such costs under this 

title for hospitals in the United States. 

(3) The Secretary shall discontinue payments under a system described in paragraph (1) if the Secretary— 


emcdonald on DSK67QTVN1PROD with HEARING
147 

(A) determines that the system no longer meets the requirements of subparagraphs (A), (D), and (E) of paragraph (1) and, 

if applicable, the requirements of paragraph (5), or 

(B) has reason to believe that the assurances described in 

subparagraph (B) or (C) of paragraph (1) (or, if applicable, in 

paragraph (5)) are not being (or will not be) met. 

(4) The Secretary shall approve the request of a State under 

paragraph (1) with respect to a hospital reimbursement control system if— 

(A) the requirements of subparagraphs (A), (B), (C), (D), and 

(E) of paragraph (1) have been met with respect to the system, 

and 

(B) with respect to that system a waiver of certain requirements of title XVIII of the Social Security Act has been approved on or before (and which is in effect as of) the date of 

the enactment of the Social Security Amendments of 1983, pursuant to section 402(a) of the Social Security Amendments of 

1967 or section 222(a) of the Social Security Amendments of 

1972. 

With respect to a State system described in this paragraph, the 

Secretary shall judge the effectiveness of such system on the basis 

of its rate of increase or inflation in inpatient hospital payments 

for individuals under this title, as compared to the national rate of 

increase or inflation for such payments, with the State retaining 

the option to have the test applied on the basis of the aggregate 

payments under the State system as compared to aggregate payments which would have been made under the national system 

since October 1, 1984, to the most recent date for which annual 

data are available. 

(5) The Secretary shall approve the request of a State under 

paragraph (1) with respect to a hospital reimbursement control system if— 

(A) the requirements of subparagraphs (A), (B), (C), (D), and 

(E) of paragraph (1) have been met with respect to the system; 

(B) the Secretary determines that the system— 

(i) is operated directly by the State or by an entity designated pursuant to State law, 

(ii) provides for payment of hospitals covered under the 

system under a methodology (which sets forth exceptions 

and adjustments, as well as any method for changes in the 

methodology) by which rates or amounts to be paid for hospital services during a specified period are established 

under the system prior to the defined rate period, and 

(iii) hospitals covered under the system will make such 

reports (in lieu of cost and other reports, identified by the 

Secretary, otherwise required under this title) as the Secretary may require in order to properly monitor assurances 

provided under this subsection; 

(C) the State has provided the Secretary with satisfactory assurances that operation of the system will not result in any 

change in hospital admission practices which result in— 

(i) a significant reduction in the proportion of patients 

(receiving hospital services covered under the system) who 

have no third-party coverage and who are unable to pay 

for hospital services, 


emcdonald on DSK67QTVN1PROD with HEARING
148 

(ii) a significant reduction in the proportion of individuals admitted to hospitals for inpatient hospital services 

for which payment is (or is likely to be) less than the anticipated charges for or costs of such services, 

(iii) the refusal to admit patients who would be expected 

to require unusually costly or prolonged treatment for reasons other than those related to the appropriateness of the 

care available at the hospital, or 

(iv) the refusal to provide emergency services to any person who is in need of emergency services if the hospital 

provides such services; 

(D) any change by the State in the system which has the effect of materially reducing payments to hospitals can only take 

effect upon 60 days notice to the Secretary and to the hospitals 

the payment to which is likely to be materially affected by the 

change; and 

(E) the State has provided the Secretary with satisfactory assurances that in the development of the system the State has 

consulted with local governmental officials concerning the impact of the system on public hospitals. 

The Secretary shall respond to requests of States under this paragraph within 60 days of the date the request is submitted to the 

Secretary. 

(6) If the Secretary determines that the assurances described in 

paragraph (1)(C) have not been met with respect to any 36-month 

period, the Secretary may reduce payments under this title to hospitals under the system in an amount equal to the amount by 

which the payment under this title under such system for such period exceeded the amount of payments which would otherwise have 

been made under this title not using such system. 

(7) In the case of a State which made a request under paragraph 

(5) before December 31, 1984, for the approval of a State hospital 

reimbursement control system and which request was approved— 

(A) in applying paragraphs (1)(C) and (6), a reference to a 

‘‘36-month period’’ is deemed a reference to a ‘‘48-month period’’, and 

(B) in order to allow the State the opportunity to provide the 

assurances described in paragraph (1)(C) for a 48-month period, the Secretary may not discontinue payments under the 

system, under the authority of paragraph (3)(A) because the 

Secretary has reason to believe that such assurances are not 

being (or will not be) met, before July 1, 1986. 

(d)(1)(A) Notwithstanding section 1814(b) but subject to the provisions of section 1813, the amount of the payment with respect to 

the operating costs of inpatient hospital services (as defined in subsection (a)(4)) of a subsection (d) hospital (as defined in subparagraph (B)) for inpatient hospital discharges in a cost reporting period or in a fiscal year— 

(i) beginning on or after October 1, 1983, and before October 

1, 1984, is equal to the sum of— 

(I) the target percentage (as defined in subparagraph 

(C)) of the hospital’s target amount for the cost reporting 

period (as defined in subsection (b)(3)(A), but determined 

without the application of subsection (a)), and 


emcdonald on DSK67QTVN1PROD with HEARING
149 

(II) the DRG percentage (as defined in subparagraph 

(C)) of the regional adjusted DRG prospective payment 

rate determined under paragraph (2) for such discharges; 

(ii) beginning on or after October 1, 1984, and before October 

1, 1987, is equal to the sum of— 

(I) the target percentage (as defined in subparagraph 

(C)) of the hospital’s target amount for the cost reporting 

period (as defined in subsection (b)(3)(A), but determined 

without the application of subsection (a)), and 

(II) the DRG percentage (as defined in subparagraph 

(C)) of the applicable combined adjusted DRG prospective 

payment rate determined under subparagraph (D) for such 

discharges; or 

(iii) beginning on or after April 1, 1988, is equal to 

(I) the national adjusted DRG prospective payment rate 

determined under paragraph (3) for such discharges, or 

(II) for discharges occurring during a fiscal year ending 

on or before September 30, 1996, the sum of 85 percent of 

the national adjusted DRG prospective payment rate determined under paragraph (3) for such discharges and 15 

percent of the regional adjusted DRG prospective payment 

rate determined under such paragraph, but only if the average standardized amount (described in clause (i)(I) or 

clause (ii)(I) of paragraph (3)(D)) for hospitals within the 

region of, and in the same large urban or other area (or, 

for discharges occurring during a fiscal year ending on or 

before September 30, 1994, the same rural, large urban, or 

other urban area) as, the hospital is greater than the average standardized amount (described in the respective 

clause) for hospitals within the United States in that type 

of area for discharges occurring during such fiscal year. 

(B) As used in this section, the term ‘‘subsection (d) hospital’’ 

means a hospital located in one of the fifty States or the District 

of Columbia other than— 

(i) a psychiatric hospital (as defined in section 1861(f)), 

(ii) a rehabilitation hospital (as defined by the Secretary), 

(iii) a hospital whose inpatients are predominantly individuals under 18 years of age, 

(iv)(I) a hospital which has an average inpatient length of 

stay (as determined by the Secretary) of greater than 25 days, 

or 

(II) a hospital that first received payment under this subsection in 1986 which has an average inpatient length of stay 

(as determined by the Secretary) of greater than 20 days and 

that has 80 percent or more of its annual medicare inpatient 

discharges with a principal diagnosis that reflects a finding of 

neoplastic disease in the 12-month cost reporting period ending 

in fiscal year 1997, or 

(v)(I) a hospital that the Secretary has classified, at any time 

on or before December 31, 1990, (or, in the case of a hospital 

that, as of the date of the enactment of this clause, is located 

in a State operating a demonstration project under section 

1814(b), on or before December 31, 1991) for purposes of applying exceptions and adjustments to payment amounts under 


emcdonald on DSK67QTVN1PROD with HEARING
150 

this subsection, as a hospital involved extensively in treatment 

for or research on cancer, 

(II) a hospital that was recognized as a comprehensive cancer center or clinical cancer research center by the National 

Cancer Institute of the National Institutes of Health as of 

April 20, 1983, that is located in a State which, as of December 

19, 1989, was not operating a demonstration project under section 1814(b), that applied and was denied, on or before December 31, 1990, for classification as a hospital involved extensively in treatment for or research on cancer under this clause 

(as in effect on the day before the date of the enactment of this 

subclause), that as of the date of the enactment of this subclause, is licensed for less than 50 acute care beds, and that 

demonstrates for the 4–year period ending on December 31, 

1996, that at least 50 percent of its total discharges have a 

principal finding of neoplastic disease, as defined in subparagraph (E), or 

(III) a hospital that was recognized as a clinical cancer research center by the National Cancer Institute of the National 

Institutes of Health as of February 18, 1998, that has never 

been reimbursed for inpatient hospital services pursuant to a 

reimbursement system under a demonstration project under 

section 1814(b), that is a freestanding facility organized primarily for treatment of and research on cancer and is not a 

unit of another hospital, that as of the date of the enactment 

of this subclause, is licensed for 162 acute care beds, and that 

demonstrates for the 4-year period ending on June 30, 1999, 

that at least 50 percent of its total discharges have a principal 

finding of neoplastic disease, as defined in subparagraph (E); 

and, in accordance with regulations of the Secretary, does not include a psychiatric or rehabilitation unit of the hospital which is 

a distinct part of the hospital (as defined by the Secretary). A hospital that was classified by the Secretary on or before September 

30, 1995, as a hospital described in clause (iv) shall continue to be 

so classified notwithstanding that it is located in the same building 

as, or on the same campus as, another hospital. 

(C) For purposes of this subsection, for cost reporting periods beginning— 

(i) on or after October 1, 1983, and before October 1, 1984, 

the ‘‘target percentage’’ is 75 percent and the ‘‘DRG percentage’’ is 25 percent; 

(ii) on or after October 1, 1984, and before October 1, 1985, 

the ‘‘target percentage’’ is 50 percent and the ‘‘DRG percentage’’ is 50 percent; 

(iii) on or after October 1, 1985, and before October 1, 1986, 

the ‘‘target percentage’’ is 45 percent and the ‘‘DRG percentage’’ is 55 percent; and 

(iv) on or after October 1, 1986, and before October 1, 1987, 

the ‘‘target percentage’’ is 25 percent and the ‘‘DRG percentage’’ is 75 percent. 

(D) For purposes of subparagraph (A)(ii)(II), the ‘‘applicable combined adjusted DRG prospective payment rate’’ for discharges occurring— 

(i) on or after October 1, 1984, and before October 1, 1986, 

is a combined rate consisting of 25 percent of the national adVerDate Sep 11 2014 01:51 Jun 18, 2015 Jkt 049006 PO 00000 Frm 00150 Fmt 6659 Sfmt 6602 E:\HR\OC\HR156.XXX HR156

emcdonald on DSK67QTVN1PROD with HEARING
151 

justed DRG prospective payment rate, and 75 percent of the regional adjusted DRG prospective payment rate, determined 

under paragraph (3) for such discharges; and 

(ii) on or after October 1, 1986, and before October 1, 1987, 

is a combined rate consisting of 50 percent of the national adjusted DRG prospective payment rate, and 50 percent of the regional adjusted DRG prospective payment rate, determined 

under paragraph (3) for such discharges. 

(E) For purposes of subclauses (II) and (III) of subparagraph 

(B)(v) only, the term ‘‘principal finding of neoplastic disease’’ means 

the condition established after study to be chiefly responsible for 

occasioning the admission of a patient to a hospital, except that 

only discharges with ICD–9–CM principal diagnosis codes of 140 

through 239, V58.0, V58.1, V66.1, V66.2, or 990 will be considered 

to reflect such a principal diagnosis. 

(2) The Secretary shall determine a national adjusted DRG prospective payment rate, for each inpatient hospital discharge in fiscal year 1984 involving inpatient hospital services of a subsection 

(d) hospital in the United States, and shall determine a regional 

adjusted DRG prospective payment rate for such discharges in each 

region, for which payment may be made under part A of this title. 

Each such rate shall be determined for hospitals located in urban 

or rural areas within the United States or within each such region, 

respectively, as follows: 

(A) DETERMINING ALLOWABLE INDIVIDUAL HOSPITAL COSTS

FOR BASE PERIOD.—The Secretary shall determine the allowable operating costs per discharge of inpatient hospital services 

for the hospital for the most recent cost reporting period for 

which data are available. 

(B) UPDATING FOR FISCAL YEAR 1984.—The Secretary shall 

update each amount determined under subparagraph (A) for 

fiscal year 1984 by— 

(i) updating for fiscal year 1983 by the estimated average rate of change of hospital costs industry-wide between 

the cost reporting period used under such subparagraph 

and fiscal year 1983 and the most recent case-mix data 

available, and 

(ii) projecting for fiscal year 1984 by the applicable percentage increase (as defined in subsection (b)(3)(B)) for fiscal year 1984. 

(C) STANDARDIZING AMOUNTS.—The Secretary shall standardize the amount updated under subparagraph (B) for each 

hospital by— 

(i) excluding an estimate of indirect medical education 

costs (taking into account, for discharges occurring after 

September 30, 1986, the amendments made by section 

9104(a) of the Medicare and Medicaid Budget Reconciliation Amendments of 1985), except that the Secretary 

shall not take into account any reduction in the amount of 

additional payments under paragraph (5)(B)(ii) resulting 

from the amendment made by section 4621(a)(1) of the 

Balanced Budget Act of 1997 or any additional payments 

under such paragraph resulting from the application of 

section 111 of the Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999, of section 302 of the 


emcdonald on DSK67QTVN1PROD with HEARING
152 

Medicare, Medicaid, and SCHIP Benefits Improvement 

and Protection Act of 2000, or the Medicare Prescription 

Drug, Improvement, and Modernization Act of 2003, 

(ii) adjusting for variations among hospitals by area in 

the average hospital wage level, 

(iii) adjusting for variations in case mix among hospitals, 

and 

(iv) for discharges occurring on or after October 1, 1986, 

excluding an estimate of the additional payments to certain hospitals to be made under paragraph (5)(F), except 

that the Secretary shall not exclude additional payments 

under such paragraph made as a result of the enactment 

of section 6003(c) of the Omnibus Budget Reconciliation 

Act of 1989, the enactment of section 4002(b) of the Omnibus Budget Reconciliation Act of 1990, the enactment of 

section 303 of the Medicare, Medicaid, and SCHIP Benefits 

Improvement and Protection Act of 2000, or the enactment 

of section 402(a)(1) of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. 

(D) COMPUTING URBAN AND RURAL AVERAGES.—The Secretary 

shall compute an average of the standardized amounts determined under subparagraph (C) for the United States and for 

each region— 

(i) for all subsection (d) hospitals located in an urban 

area within the United States or that region, respectively, 

and 

(ii) for all subsection (d) hospitals located in a rural area 

within the United States or that region, respectively. 

For purposes of this subsection, the term ‘‘region’’ means one 

of the nine census divisions, comprising the fifty States and the 

District of Columbia, established by the Bureau of the Census 

for statistical and reporting purposes; the term ‘‘urban area’’ 

means an area within a Metropolitan Statistical Area (as defined by the Office of Management and Budget) or within such 

similar area as the Secretary has recognized under subsection 

(a) by regulation; the term ‘‘large urban area’’ means, with respect to a fiscal year, such an urban area which the Secretary 

determines (in the publications described in subsection (e)(5) 

before the fiscal year) has a population of more than 1,000,000 

(as determined by the Secretary based on the most recent 

available population data published by the Bureau of the Census); and the term ‘‘rural area’’ means any area outside such 

an area or similar area. A hospital located in a Metropolitan 

Statistical Area shall be deemed to be located in the region in 

which the largest number of the hospitals in the same Metropolitan Statistical Area are located, or, at the option of the Secretary, the region in which the majority of the inpatient discharges (with respect to which payments are made under this 

title) from hospitals in the same Metropolitan Statistical Area 

are made. 

(E) REDUCING FOR VALUE OF OUTLIER PAYMENTS.—The Secretary shall reduce each of the average standardized amounts 

determined under subparagraph (D) by a proportion equal to 

the proportion (estimated by the Secretary) of the amount of 

payments under this subsection based on DRG prospective 


emcdonald on DSK67QTVN1PROD with HEARING
153 

payment rates which are additional payments described in 

paragraph (5)(A) (relating to outlier payments). 

(F) MAINTAINING BUDGET NEUTRALITY.—The Secretary shall 

adjust each of such average standardized amounts as may be 

required under subsection (e)(1)(B) for that fiscal year. 

(G) COMPUTING DRG-SPECIFIC RATES FOR URBAN AND RURAL

HOSPITALS IN THE UNITED STATES AND IN EACH REGION.—For 

each discharge classified within a diagnosis-related group, the 

Secretary shall establish a national DRG prospective payment 

rate and shall establish a regional DRG prospective payment 

rate for each region, each of which is equal— 

(i) for hospitals located in an urban area in the United 

States or that region (respectively), to the product of— 

(I) the average standardized amount (computed 

under subparagraph (D), reduced under subparagraph 

(E), and adjusted under subparagraph (F)) for hospitals located in an urban area in the United States 

or that region, and 

(II) the weighting factor (determined under paragraph (4)(B)) for that diagnosis-related group; and 

(ii) for hospitals located in a rural area in the United 

States or that region (respectively), to the product of— 

(I) the average standardized amount (computed 

under subparagraph (D), reduced under subparagraph 

(E), and adjusted under subparagraph (F)) for hospitals located in a rural area in the United States or 

that region, and 

(II) the weighting factor (determined under paragraph (4)(B)) for that diagnosis-related group. 

(H) ADJUSTING FOR DIFFERENT AREA WAGE LEVELS.—The Secretary shall adjust the proportion, (as estimated by the Secretary from time to time) of hospitals’ costs which are attributable to wages and wage-related costs, of the national and regional DRG prospective payment rates computed under subparagraph (G) for area differences in hospital wage levels by 

a factor (established by the Secretary) reflecting the relative 

hospital wage level in the geographic area of the hospital compared to the national average hospital wage level. 

(3) The Secretary shall determine a national adjusted DRG prospective payment rate, for each inpatient hospital discharge in a 

fiscal year after fiscal year 1984 involving inpatient hospital services of a subsection (d) hospital in the United States, and shall determine, for fiscal years before fiscal year 1997, a regional adjusted 

DRG prospective payment rate for such discharges in each region 

for which payment may be made under part A of this title. Each 

such rate shall be determined for hospitals located in large urban, 

other urban, or rural areas within the United States and within 

each such region, respectively, as follows: 

(A) UPDATING PREVIOUS STANDARDIZED AMOUNTS.—(i) For 

discharges occurring in a fiscal year beginning before October 

1, 1987, the Secretary shall compute an average standardized 

amount for hospitals located in an urban area and for hospitals 

located in a rural area within the United States and for hospitals located in an urban area and for hospitals located in a 

rural area within each region, equal to the respective average 


emcdonald on DSK67QTVN1PROD with HEARING
154 

standardized amount computed for the previous fiscal year 

under paragraph (2)(D) or under this subparagraph, increased 

for the fiscal year involved by the applicable percentage increase under subsection (b)(3)(B). With respect to discharges 

occurring on or after October 1, 1987, the Secretary shall compute urban and rural averages on the basis of discharge 

weighting rather than hospital weighting, making appropriate 

adjustments to ensure that computation on such basis does not 

result in total payments under this section that are greater or 

less than the total payments that would have been made under 

this section but for this sentence, and making appropriate 

changes in the manner of determining the reductions under 

subparagraph (C)(ii). 

(ii) For discharges occurring in a fiscal year beginning on or 

after October 1, 1987, and ending on or before September 30, 

1994, the Secretary shall compute an average standardized 

amount for hospitals located in a large urban area, for hospitals located in a rural area, and for hospitals located in other 

urban areas, within the United States and within each region, 

equal to the respective average standardized amount computed 

for the previous fiscal year under this subparagraph increased 

by the applicable percentage increase under subsection 

(b)(3)(B)(i) with respect to hospitals located in the respective 

areas for the fiscal year involved. 

(iii) For discharges occurring in the fiscal year beginning on 

October 1, 1994, the average standardized amount for hospitals 

located in a rural area shall be equal to the average standardized amount for hospitals located in an urban area. For discharges occurring on or after October 1, 1994, the Secretary 

shall adjust the ratio of the labor portion to non-labor portion 

of each average standardized amount to equal such ratio for 

the national average of all standardized amounts. 

(iv)(I) Subject to subclause (II), for discharges occurring in a 

fiscal year beginning on or after October 1, 1995, the Secretary 

shall compute an average standardized amount for hospitals 

located in a large urban area and for hospitals located in other 

areas within the United States and within each region equal 

to the respective average standardized amount computed for 

the previous fiscal year under this subparagraph increased by 

the applicable percentage increase under subsection (b)(3)(B)(i) 

with respect to hospitals located in the respective areas for the 

fiscal year involved. 

(II) For discharges occurring in a fiscal year (beginning with 

fiscal year 2004), the Secretary shall compute a standardized 

amount for hospitals located in any area within the United 

States and within each region equal to the standardized 

amount computed for the previous fiscal year under this subparagraph for hospitals located in a large urban area (or, beginning with fiscal year 2005, for all hospitals in the previous 

fiscal year) increased by the applicable percentage increase 

under subsection (b)(3)(B)(i) for the fiscal year involved. 

(v) Average standardized amounts computed under this 

paragraph shall be adjusted to reflect the most recent case-mix 

data available. 


emcdonald on DSK67QTVN1PROD with HEARING
155 

(vi) Insofar as the Secretary determines that the adjustments under paragraph (4)(C)(i) for a previous fiscal year (or 

estimates that such adjustments for a future fiscal year) did 

(or are likely to) result in a change in aggregate payments 

under this subsection during the fiscal year that are a result 

of changes in the coding or classification of discharges that do 

not reflect real changes in case mix, the Secretary may adjust 

the average standardized amounts computed under this paragraph for subsequent fiscal years so as to eliminate the effect 

of such coding or classification changes. 

(B) REDUCING FOR VALUE OF OUTLIER PAYMENTS.—The Secretary shall reduce each of the average standardized amounts 

determined under subparagraph (A) by a factor equal to the 

proportion of payments under this subsection (as estimated by 

the Secretary) based on DRG prospective payment amounts 

which are additional payments described in paragraph (5)(A) 

(relating to outlier payments). 

(C)(i) MAINTAINING BUDGET NEUTRALITY FOR FISCAL YEAR

1985.—For discharges occurring in fiscal year 1985, the Secretary shall adjust each of such average standardized amounts 

as may be required under subsection (e)(1)(B) for that fiscal 

year. 

(ii) REDUCING FOR SAVINGS FROM AMENDMENT TO INDIRECT

TEACHING ADJUSTMENT FOR DISCHARGES AFTER SEPTEMBER 30, 1986.—For discharges occurring after September 30, 1986, the 

Secretary shall further reduce each of the average standardized amounts (in a proportion which takes into account the differing effects of the standardization effected under paragraph 

(2)(C)(i)) so as to provide for a reduction in the total of the payments (attributable to this paragraph) made for discharges occurring on or after October 1, 1986, of an amount equal to the 

estimated reduction in the payment amounts under paragraph 

(5)(B) that would have resulted from the enactment of the 

amendments made by section 9104 of the Medicare and Medicaid Budget Reconciliation Amendments of 1985 and by section 4003(a)(1) of the Omnibus Budget Reconciliation Act of 

1987 if the factor described in clause (ii)(II) of paragraph (5)(B) 

(determined without regard to amendments made by the Omnibus Budget Reconciliation Act of 1990) were applied for discharges occurring on or after such date instead of the factor described in clause (ii) of that paragraph. 

(D) COMPUTING DRG-SPECIFIC RATES FOR HOSPITALS.—For 

each discharge classified within a diagnosis-related group, the 

Secretary shall establish for the fiscal year a national DRG 

prospective payment rate and shall establish, for fiscal years 

before fiscal year 1997, a regional DRG prospective payment 

rate for each region which is equal— 

(i) for fiscal years before fiscal year 2004, for hospitals 

located in a large urban area in the United States or that 

region (respectively), to the product of— 

(I) the average standardized amount (computed 

under subparagraph (A), reduced under subparagraph 

(B), and adjusted or reduced under subparagraph (C)) 

for the fiscal year for hospitals located in such a large 

urban area in the United States or that region, and 


emcdonald on DSK67QTVN1PROD with HEARING
156 

(II) the weighting factor (determined under paragraph (4)(B)) for that diagnosis-related group; 

(ii) for fiscal years before fiscal year 2004, for hospitals 

located in other areas in the United States or that region 

(respectively), to the product of— 

(I) the average standardized amount (computed 

under subparagraph (A), reduced under subparagraph 

(B), and adjusted or reduced under subparagraph (C)) 

for the fiscal year for hospitals located in other areas 

in the United States or that region, and 

(II) the weighting factor (determined under paragraph (4)(B)) for that diagnosis-related group; and 

(iii) for a fiscal year beginning after fiscal year 2003, for 

hospitals located in all areas, to the product of— 

(I) the applicable standardized amount (computed 

under subparagraph (A)), reduced under subparagraph 

(B), and adjusted or reduced under subparagraph (C) 

for the fiscal year; and 

(II) the weighting factor (determined under paragraph (4)(B)) for that diagnosis-related group. 

(E) ADJUSTING FOR DIFFERENT AREA WAGE LEVELS.— (i) IN GENERAL.—Except as provided in clause (ii) or (iii), 

the Secretary shall adjust the proportion, (as estimated by 

the Secretary from time to time) of hospitals’ costs which 

are attributable to wages and wage-related costs, of the 

DRG prospective payment rates computed under subparagraph (D) for area differences in hospital wage levels by a 

factor (established by the Secretary) reflecting the relative 

hospital wage level in the geographic area of the hospital 

compared to the national average hospital wage level. Not 

later than October 1, 1990, and October 1, 1993 (and at 

least every 12 months thereafter), the Secretary shall update the factor under the preceding sentence on the basis 

of a survey conducted by the Secretary (and updated as appropriate) of the wages and wage-related costs of subsection (d) hospitals in the United States. Not less often 

than once every 3 years the Secretary (through such survey or otherwise) shall measure the earnings and paid 

hours of employment by occupational category and shall 

exclude data with respect to the wages and wage-related 

costs incurred in furnishing skilled nursing facility services. Any adjustments or updates made under this subparagraph for a fiscal year (beginning with fiscal year 

1991) shall be made in a manner that assures that the aggregate payments under this subsection in the fiscal year 

are not greater or less than those that would have been 

made in the year without such adjustment. The Secretary 

shall apply the previous sentence for any period as if the 

amendments made by section 403(a)(1) of the Medicare 

Prescription Drug, Improvement, and Modernization Act of 

2003 and the amendments made by section 10324(a)(1) of 

the Patient Protection and Affordable Care Act had not 

been enacted. 

(ii) ALTERNATIVE PROPORTION TO BE ADJUSTED BEGINNING IN FISCAL YEAR 2005.—For discharges occurring on or 


emcdonald on DSK67QTVN1PROD with HEARING
157 

after October 1, 2004, the Secretary shall substitute ‘‘62 

percent’’ for the proportion described in the first sentence 

of clause (i), unless the application of this clause would result in lower payments to a hospital than would otherwise 

be made. 

(iii) FLOOR ON AREA WAGE INDEX FOR HOSPITALS IN FRON- TIER STATES.— (I) IN GENERAL.—Subject to subclause (IV), for discharges occurring on or after October 1, 2010, the area 

wage index applicable under this subparagraph to any 

hospital which is located in a frontier State (as defined 

in subclause (II)) may not be less than 1.00. 

(II) FRONTIER STATE DEFINED.—In this clause, the 

term ‘‘frontier State’’ means a State in which at least 

50 percent of the counties in the State are frontier 

counties. 

(III) FRONTIER COUNTY DEFINED.—In this clause, the 

term ‘‘frontier county’’ means a county in which the 

population per square mile is less than 6. 

(IV) LIMITATION.—This clause shall not apply to any 

hospital located in a State that receives a non-labor 

related share adjustment under paragraph (5)(H). 

(4)(A) The Secretary shall establish a classification of inpatient 

hospital discharges by diagnosis-related groups and a methodology 

for classifying specific hospital discharges within these groups. 

(B) For each such diagnosis-related group the Secretary shall assign an appropriate weighting factor which reflects the relative 

hospital resources used with respect to discharges classified within 

that group compared to discharges classified within other groups. 

(C)(i) The Secretary shall adjust the classifications and weighting 

factors established under subparagraphs (A) and (B), for discharges 

in fiscal year 1988 and at least annually thereafter, to reflect 

changes in treatment patterns, technology (including a new medical service or technology under paragraph (5)(K)), and other factors which may change the relative use of hospital resources. 

(ii) For discharges in fiscal year 1990, the Secretary shall reduce 

the weighting factor for each diagnosis-related group by 1.22 percent. 

(iii) Any such adjustment under clause (i) for discharges in a fiscal year (beginning with fiscal year 1991) shall be made in a manner that assures that the aggregate payments under this subsection for discharges in the fiscal year are not greater or less than 

those that would have been made for discharges in the year without such adjustment. 

(D)(i) For discharges occurring on or after October 1, 2008, the 

diagnosis-related group to be assigned under this paragraph for a 

discharge described in clause (ii) shall be a diagnosis-related group 

that does not result in higher payment based on the presence of a 

secondary diagnosis code described in clause (iv). 

(ii) A discharge described in this clause is a discharge which 

meets the following requirements: 

(I) The discharge includes a condition identified by a diagnosis code selected under clause (iv) as a secondary diagnosis. 

(II) But for clause (i), the discharge would have been classified to a diagnosis-related group that results in a higher payVerDate Sep 11 2014 01:51 Jun 18, 2015 Jkt 049006 PO 00000 Frm 00157 Fmt 6659 Sfmt 6602 E:\HR\OC\HR156.XXX HR156

emcdonald on DSK67QTVN1PROD with HEARING
158 

ment based on the presence of a secondary diagnosis code selected under clause (iv). 

(III) At the time of admission, no code selected under clause 

(iv) was present. 

(iii) As part of the information required to be reported by a hospital with respect to a discharge of an individual in order for payment to be made under this subsection, for discharges occurring on 

or after October 1, 2007, the information shall include the secondary diagnosis of the individual at admission. 

(iv) By not later than October 1, 2007, the Secretary shall select 

diagnosis codes associated with at least two conditions, each of 

which codes meets all of the following requirements (as determined 

by the Secretary): 

(I) Cases described by such code have a high cost or high volume, or both, under this title. 

(II) The code results in the assignment of a case to a diagnosis-related group that has a higher payment when the code 

is present as a secondary diagnosis. 

(III) The code describes such conditions that could reasonably have been prevented through the application of evidencebased guidelines. 

The Secretary may from time to time revise (through addition or 

deletion of codes) the diagnosis codes selected under this clause so 

long as there are diagnosis codes associated with at least two conditions selected for discharges occurring during any fiscal year. 

(v) In selecting and revising diagnosis codes under clause (iv), the 

Secretary shall consult with the Centers for Disease Control and 

Prevention and other appropriate entities. 

(vi) Any change resulting from the application of this subparagraph shall not be taken into account in adjusting the weighting 

factors under subparagraph (C)(i) or in applying budget neutrality 

under subparagraph (C)(iii). 

(5)(A)(i) For discharges occurring during fiscal years ending on or 

before September 30, 1997, the Secretary shall provide for an additional payment for a subsection (d) hospital for any discharge in a 

diagnosis-related group, the length of stay of which exceeds the 

mean length of stay for discharges within that group by a fixed 

number of days, or exceeds such mean length of stay by some fixed 

number of standard deviations, whichever is the fewer number of 

days. 

(ii) For cases which are not included in clause (i), a subsection 

(d) hospital may request additional payments in any case where 

charges, adjusted to cost, exceed a fixed multiple of the applicable 

DRG prospective payment rate, or exceed such other fixed dollar 

amount, whichever is greater, or for discharges in fiscal years beginning on or after October 1, 1994, exceed the sum of the applicable DRG prospective payment rate plus any amounts payable 

under subparagraphs (B) and (F) plus a fixed dollar amount determined by the Secretary. 

(iii) The amount of such additional payment under clauses (i) and 

(ii) shall be determined by the Secretary and shall (except as payments under clause (i) are required to be reduced to take into account the requirements of clause (v)) approximate the marginal 

cost of care beyond the cutoff point applicable under clause (i) or 

(ii). 


emcdonald on DSK67QTVN1PROD with HEARING
159 

(iv) The total amount of the additional payments made under 

this subparagraph for discharges in a fiscal year may not be less 

than 5 percent nor more than 6 percent of the total payments projected or estimated to be made based on DRG prospective payment 

rates for discharges in that year. 

(v) The Secretary shall provide that— 

(I) the day outlier percentage for fiscal year 1995 shall be 75 

percent of the day outlier percentage for fiscal year 1994; 

(II) the day outlier percentage for fiscal year 1996 shall be 

50 percent of the day outlier percentage for fiscal year 1994; 

and 

(III) the day outlier percentage for fiscal year 1997 shall be 

25 percent of the day outlier percentage for fiscal year 1994. 

(vi) For purposes of this subparagraph the term ‘‘day outlier percentage’’ means, for a fiscal year, the percentage of the total additional payments made by the Secretary under this subparagraph 

for discharges in that fiscal year which are additional payments 

under clause (i). 

(B) The Secretary shall provide for an additional payment 

amount for subsection (d) hospitals with indirect costs of medical 

education, in an amount computed in the same manner as the adjustment for such costs under regulations (in effect as of January 

1, 1983) under subsection (a)(2), except as follows: 

(i) The amount of such additional payment shall be determined by multiplying (I) the sum of the amount determined 

under paragraph (1)(A)(ii)(II) (or, if applicable, the amount determined under paragraph (1)(A)(iii)) and, for cases qualifying 

for additional payment under subparagraph (A)(i), the amount 

paid to the hospital under subparagraph (A), by (II) the indirect teaching adjustment factor described in clause (ii). 

(ii) For purposes of clause (i)(II), the indirect teaching adjustment factor is equal to c × (((1+r) to the nth power) ¥ 1), 

where ‘‘r’’ is the ratio of the hospital’s full-time equivalent interns and residents to beds and ‘‘n’’ equals .405. Subject to 

clause (ix), for discharges occurring— 

(I) on or after October 1, 1988, and before October 1, 

1997, ‘‘c’’ is equal to 1.89; 

(II) during fiscal year 1998, ‘‘c’’ is equal to 1.72; 

(III) during fiscal year 1999, ‘‘c’’ is equal to 1.6; 

(IV) during fiscal year 2000, ‘‘c’’ is equal to 1.47; 

(V) during fiscal year 2001, ‘‘c’’ is equal to 1.54; 

(VI) during fiscal year 2002, ‘‘c’’ is equal to 1.6; 

(VII) on or after October 1, 2002, and before April 1, 

2004, ‘‘c’’ is equal to 1.35; 

(VIII) on or after April 1, 2004, and before October 1, 

2004, ‘‘c’’ is equal to 1.47; 

(IX) during fiscal year 2005, ‘‘c’’ is equal to 1.42; 

(X) during fiscal year 2006, ‘‘c’’ is equal to 1.37; 

(XI) during fiscal year 2007, ‘‘c’’ is equal to 1.32; and 

(XII) on or after October 1, 2007, ‘‘c’’ is equal to 1.35. 

(iii) In determining such adjustment the Secretary shall not 

distinguish between those interns and residents who are employees of a hospital and those interns and residents who furnish services to a hospital but are not employees of such hospital. 


emcdonald on DSK67QTVN1PROD with HEARING
160 

(iv)(I) Effective for discharges occurring on or after October 

1, 1997, and before July 1, 2010, all the time spent by an intern or resident in patient care activities under an approved 

medical residency training program at an entity in a nonhospital setting shall be counted towards the determination of fulltime equivalency if the hospital incurs all, or substantially all, 

of the costs for the training program in that setting. 

(II) Effective for discharges occurring on or after July 1, 

2010, all the time spent by an intern or resident in patient 

care activities in a nonprovider setting shall be counted towards the determination of full-time equivalency if a hospital 

incurs the costs of the stipends and fringe benefits of the intern or resident during the time the intern or resident spends 

in that setting. If more than one hospital incurs these costs, either directly or through a third party, such hospitals shall 

count a proportional share of the time, as determined by written agreement between the hospitals, that a resident spends 

training in that setting. 

(v) In determining the adjustment with respect to a hospital 

for discharges occurring on or after October 1, 1997, the total 

number of full-time equivalent interns and residents in the 

fields of allopathic and osteopathic medicine in either a hospital or nonhospital setting may not exceed the number (or, 

130 percent of such number in the case of a hospital located 

in a rural area) of such full-time equivalent interns and residents in the hospital with respect to the hospital’s most recent 

cost reporting period ending on or before December 31, 1996. 

Rules similar to the rules of subsection (h)(4)(F)(ii) shall apply 

for purposes of this clause. The provisions of subsections 

(h)(4)(H)(vi), (h)(7), and (h)(8) shall apply with respect to the 

first sentence of this clause in the same manner as they apply 

with respect to subsection (h)(4)(F)(i). 

(vi) For purposes of clause (ii)— 

(I) ‘‘r’’ may not exceed the ratio of the number of interns 

and residents, subject to the limit under clause (v), with 

respect to the hospital for its most recent cost reporting 

period to the hospital’s available beds (as defined by the 

Secretary) during that cost reporting period, and 

(II) for the hospital’s cost reporting periods beginning on 

or after October 1, 1997, subject to the limits described in 

clauses (iv) and (v), the total number of full-time equivalent residents for payment purposes shall equal the average of the actual full-time equivalent resident count for the 

cost reporting period and the preceding two cost reporting 

periods. 

In the case of the first cost reporting period beginning on or 

after October 1, 1997, subclause (II) shall be applied by using 

the average for such period and the preceding cost reporting 

period. 

(vii) If any cost reporting period beginning on or after October 1, 1997, is not equal to twelve months, the Secretary shall 

make appropriate modifications to ensure that the average 

full-time equivalent residency count pursuant to subclause (II) 

of clause (vi) is based on the equivalent of full twelve-month 

cost reporting periods. 


emcdonald on DSK67QTVN1PROD with HEARING
161 

(viii) Rules similar to the rules of subsection (h)(4)(H) shall 

apply for purposes of clauses (v) and (vi). 

(ix) For discharges occurring on or after July 1, 2005, insofar 

as an additional payment amount under this subparagraph is 

attributable to resident positions redistributed to a hospital 

under subsection (h)(7)(B), in computing the indirect teaching 

adjustment factor under clause (ii) the adjustment shall be 

computed in a manner as if ‘‘c’’ were equal to 0.66 with respect 

to such resident positions. 

(x) For discharges occurring on or after July 1, 2011, insofar 

as an additional payment amount under this subparagraph is 

attributable to resident positions distributed to a hospital 

under subsection (h)(8)(B), the indirect teaching adjustment 

factor shall be computed in the same manner as provided 

under clause (ii) with respect to such resident positions. 

(x)(I) The provisions of subparagraph (K) of subsection (h)(4) 

shall apply under this subparagraph in the same manner as 

they apply under such subsection. 

(II) In determining the hospital’s number of fulltime equivalent residents for purposes of this subparagraph, all the time spent by an intern or resident in 

an approved medical residency training program in 

non-patient care activities, such as didactic conferences and seminars, as such time and activities are 

defined by the Secretary, that occurs in the hospital 

shall be counted toward the determination of full-time 

equivalency if the hospital— 

(aa) is recognized as a subsection (d) hospital; 

(bb) is recognized as a subsection (d) Puerto 

Rico hospital; 

(cc) is reimbursed under a reimbursement system authorized under section 1814(b)(3); or 

(dd) is a provider-based hospital outpatient department. 

(III) In determining the hospital’s number of fulltime equivalent residents for purposes of this subparagraph, all the time spent by an intern or resident in 

an approved medical residency training program in research activities that are not associated with the treatment or diagnosis of a particular patient, as such time 

and activities are defined by the Secretary, shall not 

be counted toward the determination of full-time 

equivalency. 

(C)(i) The Secretary shall provide for such exceptions and adjustments to the payment amounts established under this subsection 

(other than under paragraph (9)) as the Secretary deems appropriate to take into account the special needs of regional and national referral centers (including those hospitals of 275 or more 

beds located in rural areas). A hospital which is classified as a 

rural hospital may appeal to the Secretary to be classified as a 

rural referral center under this clause on the basis of criteria (established by the Secretary) which shall allow the hospital to demonstrate that it should be so reclassified by reason of certain of its 

operating characteristics being similar to those of a typical urban 

hospital located in the same census region and which shall not reVerDate Sep 11 2014 01:51 Jun 18, 2015 Jkt 049006 PO 00000 Frm 00161 Fmt 6659 Sfmt 6602 E:\HR\OC\HR156.XXX HR156

emcdonald on DSK67QTVN1PROD with HEARING
162 

quire a rural osteopathic hospital to have more than 3,000 discharges in a year in order to be classified as a rural referral center. 

Such characteristics may include wages, scope of services, service 

area, and the mix of medical specialties. The Secretary shall publish the criteria not later than August 17, 1984, for implementation 

by October 1, 1984. An appeal allowed under this clause must be 

submitted to the Secretary (in such form and manner as the Secretary may prescribe) during the quarter before the first quarter of 

the hospital’s cost reporting period (or, in the case of a cost reporting period beginning during October 1984, during the first quarter 

of that period), and the Secretary must make a final determination 

with respect to such appeal within 60 days after the date the appeal was submitted. Any payment adjustments necessitated by a 

reclassification based upon the appeal shall be effective at the beginning of such cost reporting period. 

(ii) The Secretary shall provide, under clause (i), for the classification of a rural hospital as a regional referral center if the hospital has a case mix index equal to or greater than the median case 

mix index for hospitals (other than hospitals with approved teaching programs) located in an urban area in the same region (as defined in paragraph (2)(D)), has at least 5,000 discharges a year or, 

if less, the median number of discharges in urban hospitals in the 

region in which the hospital is located (or, in the case of a rural 

osteopathic hospital, meets the criterion established by the Secretary under clause (i) with respect to the annual number of discharges for such hospitals), and meets any other criteria established by the Secretary under clause (i). 

(D)(i) For any cost reporting period beginning on or after April 

1, 1990, with respect to a subsection (d) hospital which is a sole 

community hospital, payment under paragraph (1)(A) shall be— 

(I) an amount based on 100 percent of the hospital’s target 

amount for the cost reporting period, as defined in subsection 

(b)(3)(C), or 

(II) the amount determined under paragraph (1)(A)(iii), 

whichever results in greater payment to the hospital. 

(ii) In the case of a sole community hospital that experiences, in 

a cost reporting period compared to the previous cost reporting period, a decrease of more than 5 percent in its total number of inpatient cases due to circumstances beyond its control, the Secretary 

shall provide for such adjustment to the payment amounts under 

this subsection (other than under paragraph (9)) as may be necessary to fully compensate the hospital for the fixed costs it incurs 

in the period in providing inpatient hospital services, including the 

reasonable cost of maintaining necessary core staff and services. 

(iii) For purposes of this title, the term ‘‘sole community hospital’’ 

means any hospital— 

(I) that the Secretary determines is located more than 35 

road miles from another hospital, 

(II) that, by reason of factors such as the time required for 

an individual to travel to the nearest alternative source of appropriate inpatient care (in accordance with standards promulgated by the Secretary), location, weather conditions, travel 

conditions, or absence of other like hospitals (as determined by 

the Secretary), is the sole source of inpatient hospital services 


emcdonald on DSK67QTVN1PROD with HEARING
163 

reasonably available to individuals in a geographic area who 

are entitled to benefits under part A, or 

(III) that is located in a rural area and designated by the 

Secretary as an essential access community hospital under section 1820(i)(1) as in effect on September 30, 1997. 

(iv) The Secretary shall promulgate a standard for determining 

whether a hospital meets the criteria for classification as a sole 

community hospital under clause (iii)(II) because of the time required for an individual to travel to the nearest alternative source 

of appropriate inpatient care. 

(v) If the Secretary determines that, in the case of a hospital located in a rural area and designated by the Secretary as an essential access community hospital under section 1820(i)(1) as in effect 

on September 30, 1997, the hospital has incurred increases in reasonable costs during a cost reporting period as a result of becoming 

a member of a rural health network (as defined in section 1820(d)) 

in the State in which it is located, and in incurring such increases, 

the hospital will increase its costs for subsequent cost reporting periods, the Secretary shall increase the hospital’s target amount 

under subsection (b)(3)(C) to account for such incurred increases. 

(E)(i) The Secretary shall estimate the amount of reimbursement 

made for services described in section 1862(a)(14) with respect to 

which payment was made under part B in the base reporting periods referred to in paragraph (2)(A) and with respect to which payment is no longer being made. 

(ii) The Secretary shall provide for an adjustment to the payment 

for subsection (d) hospitals in each fiscal year so as appropriately 

to reflect the net amount described in clause (i). 

(F)(i) Subject to subsection (r), for discharges occurring on or 

after May 1, 1986, the Secretary shall provide, in accordance with 

this subparagraph, for an additional payment amount for each subsection (d) hospital which— 

(I) serves a significantly disproportionate number of low-income patients (as defined in clause (v)), or 

(II) is located in an urban area, has 100 or more beds, and 

can demonstrate that its net inpatient care revenues (excluding any of such revenues attributable to this title or State 

plans approved under title XIX), during the cost reporting period in which the discharges occur, for indigent care from State 

and local government sources exceed 30 percent of its total of 

such net inpatient care revenues during the period. 

(ii) Subject to clause (ix), the amount of such payment for each 

discharge shall be determined by multiplying (I) the sum of the 

amount determined under paragraph (1)(A)(ii)(II) (or, if applicable, 

the amount determined under paragraph (1)(A)(iii)) and, for cases 

qualifying for additional payment under subparagraph (A)(i), the 

amount paid to the hospital under subparagraph (A) for that discharge, by (II) the disproportionate share adjustment percentage 

established under clause (iii) or (iv) for the cost reporting period in 

which the discharge occurs. 

(iii) The disproportionate share adjustment percentage for a cost 

reporting period for a hospital described in clause (i)(II) is equal to 

35 percent. 


emcdonald on DSK67QTVN1PROD with HEARING
164 

(iv) The disproportionate share adjustment percentage for a cost 

reporting period for a hospital that is not described in clause (i)(II) 

and that— 

(I) is located in an urban area and has 100 or more beds or 

is described in the second sentence of clause (v), is equal to the 

percent determined in accordance with the applicable formula 

described in clause (vii); 

(II) is located in an urban area and has less than 100 beds, 

is equal to 5 percent or, subject to clause (xiv) and for discharges occurring on or after April 1, 2001, is equal to the percent determined in accordance with clause (xiii); 

(III) is located in a rural area and is not described in subclause (IV) or (V) or in the second sentence of clause (v), is 

equal to 4 percent or, subject to clause (xiv) and for discharges 

occurring on or after April 1, 2001, is equal to the percent determined in accordance with clause (xii); 

(IV) is located in a rural area, is classified as a rural referral 

center under subparagraph (C), and is classified as a sole community hospital under subparagraph (D), is equal to 10 percent 

or, if greater, the percent determined in accordance with the 

applicable formula described in clause (viii) or, subject to 

clause (xiv) and for discharges occurring on or after April 1, 

2001, the greater of the percentages determined under clause 

(x) or (xi); 

(V) is located in a rural area, is classified as a rural referral 

center under subparagraph (C), and is not classified as a sole 

community hospital under subparagraph (D), is equal to the 

percent determined in accordance with the applicable formula 

described in clause (viii) or, subject to clause (xiv) and for discharges occurring on or after April 1, 2001, is equal to the percent determined in accordance with clause (xi); or 

(VI) is located in a rural area, is classified as a sole community hospital under subparagraph (D), and is not classified as 

a rural referral center under subparagraph (C), is 10 percent 

or, subject to clause (xiv) and for discharges occurring on or 

after April 1, 2001, is equal to the percent determined in accordance with clause (x). 

(v) In this subparagraph, a hospital ‘‘serves a significantly disproportionate number of low income patients’’ for a cost reporting 

period if the hospital has a disproportionate patient percentage (as 

defined in clause (vi)) for that period which equals, or exceeds— 

(I) 15 percent, if the hospital is located in an urban area and 

has 100 or more beds, 

(II) 30 percent (or 15 percent, for discharges occurring on or 

after April 1, 2001), if the hospital is located in a rural area 

and has more than 100 beds, or is located in a rural area and 

is classified as a sole community hospital under subparagraph 

(D), 

(III) 40 percent (or 15 percent, for discharges occurring on or 

after April 1, 2001), if the hospital is located in an urban area 

and has less than 100 beds, or 

(IV) 45 percent (or 15 percent, for discharges occurring on or 

after April 1, 2001), if the hospital is located in a rural area 

and is not described in subclause (II). 


emcdonald on DSK67QTVN1PROD with HEARING
165 

A hospital located in a rural area and with 500 or more beds also 

‘‘serves a significantly disproportionate number of low income patients’’ for a cost reporting period if the hospital has a disproportionate patient percentage (as defined in clause (vi)) for that period 

which equals or exceeds a percentage specified by the Secretary. 

(vi) In this subparagraph, the term ‘‘disproportionate patient percentage’’ means, with respect to a cost reporting period of a hospital, the sum of— 

(I) the fraction (expressed as a percentage), the numerator of 

which is the number of such hospital’s patient days for such 

period which were made up of patients who (for such days) 

were entitled to benefits under part A of this title and were entitled to supplementary security income benefits (excluding any 

State supplementation) under title XVI of this Act, and the denominator of which is the number of such hospital’s patient 

days for such fiscal year which were made up of patients who 

(for such days) were entitled to benefits under part A of this 

title, and 

(II) the fraction (expressed as a percentage), the numerator 

of which is the number of the hospital’s patient days for such 

period which consist of patients who (for such days) were eligible for medical assistance under a State plan approved under 

title XIX, but who were not entitled to benefits under part A 

of this title, and the denominator of which is the total number 

of the hospital’s patient days for such period. 

In determining under subclause (II) the number of the hospital’s 

patient days for such period which consist of patients who (for such 

days) were eligible for medical assistance under a State plan approved under title XIX, the Secretary may, to the extent and for 

the period the Secretary determines appropriate, include patient 

days of patients not so eligible but who are regarded as such because they receive benefits under a demonstration project approved 

under title XI. 

(vii) The formula used to determine the disproportionate share 

adjustment percentage for a cost reporting period for a hospital described in clause (iv)(I) is— 

(I) in the case of such a hospital with a disproportionate patient percentage (as defined in clause (vi)) greater than 20.2— 

(a) for discharges occurring on or after April 1, 1990, and 

on or before December 31, 1990, (P–20.2)(.65) + 5.62, 

(b) for discharges occurring on or after January 1, 1991, 

and on or before September 30, 1993, (P–20.2)(.7) + 5.62, 

(c) for discharges occurring on or after October 1, 1993, 

and on or before September 30, 1994, (P–20.2)(.8) + 5.88, 

and 

(d) for discharges occurring on or after October 1, 1994, 

(P–20.2)(.825) + 5.88; or 

(II) in the case of any other such hospital— 

(a) for discharges occurring on or after April 1, 1990, and 

on or before December 31, 1990, (P–15)(.6) + 2.5, 

(b) for discharges occurring on or after January 1, 1991, 

and on or before September 30, 1993, (P–15)(.6) + 2.5, 

(c) for discharges occurring on or after October 1, 1993, 

(P–15)(.65) + 2.5, 


emcdonald on DSK67QTVN1PROD with HEARING
166 

where ‘‘P’’ is the hospital’s disproportionate patient percentage (as 

defined in clause (vi)). 

(viii) Subject to clause (xiv), the formula used to determine the 

disproportionate share adjustment percentage for a cost reporting 

period for a hospital described in clause (iv)(IV) or (iv)(V) is the 

percentage determined in accordance with the following formula:(P–30)(.6) + 4.0, where ‘‘P’’ is the hospital’s disproportionate 

patient percentage (as defined in clause (vi)). 

(ix) In the case of discharges occurring— 

(I) during fiscal year 1998, the additional payment amount 

otherwise determined under clause (ii) shall be reduced by 1 

percent; 

(II) during fiscal year 1999, such additional payment amount 

shall be reduced by 2 percent; 

(III) during fiscal years 2000 and 2001, such additional payment amount shall be reduced by 3 percent and 2 percent, respectively; 

(IV) during fiscal year 2002, such additional payment 

amount shall be reduced by 3 percent; and 

(V) during fiscal year 2003 and each subsequent fiscal year, 

such additional payment amount shall be reduced by 0 percent. 

(x) Subject to clause (xiv), for purposes of clause (iv)(VI) (relating 

to sole community hospitals), in the case of a hospital for a cost reporting period with a disproportionate patient percentage (as defined in clause (vi)) that— 

(I) is less than 19.3, the disproportionate share adjustment 

percentage is determined in accordance with the following formula: (P–15)(.65) + 2.5; 

(II) is equal to or exceeds 19.3, but is less than 30.0, such 

adjustment percentage is equal to 5.25 percent; or 

(III) is equal to or exceeds 30, such adjustment percentage 

is equal to 10 percent, 

where ‘‘P’’ is the hospital’s disproportionate patient percentage (as 

defined in clause (vi)). 

(xi) Subject to clause (xiv), for purposes of clause (iv)(V) (relating 

to rural referral centers), in the case of a hospital for a cost reporting period with a disproportionate patient percentage (as defined in 

clause (vi)) that— 

(I) is less than 19.3, the disproportionate share adjustment 

percentage is determined in accordance with the following formula: (P–15)(.65) + 2.5; 

(II) is equal to or exceeds 19.3, but is less than 30.0, such 

adjustment percentage is equal to 5.25 percent; or 

(III) is equal to or exceeds 30, such adjustment percentage 

is determined in accordance with the following formula: (P– 

30)(.6) + 5.25, 

where ‘‘P’’ is the hospital’s disproportionate patient percentage (as 

defined in clause (vi)). 

(xii) Subject to clause (xiv), for purposes of clause (iv)(III) (relating to small rural hospitals generally), in the case of a hospital for 

a cost reporting period with a disproportionate patient percentage 

(as defined in clause (vi)) that— 

(I) is less than 19.3, the disproportionate share adjustment 

percentage is determined in accordance with the following formula: (P–15)(.65) + 2.5; or 


emcdonald on DSK67QTVN1PROD with HEARING
167 

(II) is equal to or exceeds 19.3, such adjustment percentage 

is equal to 5.25 percent, 

where ‘‘P’’ is the hospital’s disproportionate patient percentage (as 

defined in clause (vi)). 

(xiii) Subject to clause (xiv), for purposes of clause (iv)(II) (relating to urban hospitals with less than 100 beds), in the case of a 

hospital for a cost reporting period with a disproportionate patient 

percentage (as defined in clause (vi)) that— 

(I) is less than 19.3, the disproportionate share adjustment 

percentage is determined in accordance with the following formula: (P–15)(.65) + 2.5; or 

(II) is equal to or exceeds 19.3, such adjustment percentage 

is equal to 5.25 percent, 

where ‘‘P’’ is the hospital’s disproportionate patient percentage (as 

defined in clause (vi)). 

(xiv)(I) In the case of discharges occurring on or after April 1, 

2004, subject to subclause (II), there shall be substituted for the 

disproportionate share adjustment percentage otherwise determined under clause (iv) (other than subclause (I)) or under clause 

(viii), (x), (xi), (xii), or (xiii), the disproportionate share adjustment 

percentage determined under clause (vii) (relating to large, urban 

hospitals). 

(II) Under subclause (I), the disproportionate share adjustment 

percentage shall not exceed 12 percent for a hospital that is not 

classified as a rural referral center under subparagraph (C) or, in 

the case of discharges occurring on or after October 1, 2006, as a 

medicare-dependent, small rural hospital under subparagraph 

(G)(iv). 

(G)(i) For any cost reporting period beginning on or after April 

1, 1990, and before October 1, 1994, or discharges occurring on or 

after October 1, 1997, and before October 1, 2017, in the case of 

a subsection (d) hospital which is a medicare-dependent, small 

rural hospital, payment under paragraph (1)(A) shall be equal to 

the sum of the amount determined under clause (ii) and the 

amount determined under paragraph (1)(A)(iii). 

(ii) The amount determined under this clause is— 

(I) for discharges occurring during the 36-month period beginning with the first day of the cost reporting period that begins on or after April 1, 1990, the amount by which the hospital’s target amount for the cost reporting period (as defined 

in subsection (b)(3)(D)) exceeds the amount determined under 

paragraph (1)(A)(iii); and 

(II) for discharges occurring during any subsequent cost reporting period (or portion thereof) and before October 1, 1994, 

or discharges occurring on or after October 1, 1997, and before 

October 1, 2017, 50 percent (or 75 percent in the case of discharges occurring on or after October 1, 2006) of the amount 

by which the hospital’s target amount for the cost reporting period or for discharges in the fiscal year (as defined in subsection (b)(3)(D)) exceeds the amount determined under paragraph (1)(A)(iii). 

(iii) In the case of a medicare dependent, small rural hospital 

that experiences, in a cost reporting period compared to the previous cost reporting period, a decrease of more than 5 percent in 

its total number of inpatient cases due to circumstances beyond its 


emcdonald on DSK67QTVN1PROD with HEARING
168 

control, the Secretary shall provide for such adjustment to the payment amounts under this subsection (other than under paragraph 

(9)) as may be necessary to fully compensate the hospital for the 

fixed costs it incurs in the period in providing inpatient hospital 

services, including the reasonable cost of maintaining necessary 

core staff and services. 

(iv) The term ‘‘medicare-dependent, small rural hospital’’ means, 

with respect to any cost reporting period to which clause (i) applies, 

any hospital— 

(I) located in a rural area, 

(II) that has not more than 100 beds, 

(III) that is not classified as a sole community hospital under 

subparagraph (D), and 

(IV) for which not less than 60 percent of its inpatient days 

or discharges during the cost reporting period beginning in fiscal year 1987, or two of the three most recently audited cost 

reporting periods for which the Secretary has a settled cost report, were attributable to inpatients entitled to benefits under 

part A. 

(H) The Secretary may provide for such adjustments to the payment amounts under this subsection as the Secretary deems appropriate to take into account the unique circumstances of hospitals 

located in Alaska and Hawaii. 

(I)(i) The Secretary shall provide by regulation for such other exceptions and adjustments to such payment amounts under this 

subsection as the Secretary deems appropriate. 

(ii) In making adjustments under clause (i) for transfer cases (as 

defined by the Secretary) in a fiscal year, not taking in account the 

effect of subparagraph (J), the Secretary may make adjustments to 

each of the average standardized amounts determined under paragraph (3) to assure that the aggregate payments made under this 

subsection for such fiscal year are not greater or lesser than those 

that would have otherwise been made in such fiscal year. 

(J)(i) The Secretary shall treat the term ‘‘transfer case’’ (as defined in subparagraph (I)(ii)) as including the case of a qualified 

discharge (as defined in clause (ii)), which is classified within a diagnosis-related group described in clause (iii), and which occurs on 

or after October 1, 1998. In the case of a qualified discharge for 

which a substantial portion of the costs of care are incurred in the 

early days of the inpatient stay (as defined by the Secretary), in no 

case may the payment amount otherwise provided under this subsection exceed an amount equal to the sum of— 

(I) 50 percent of the amount of payment under this subsection for transfer cases (as established under subparagraph 

(I)(i)), and 

(II) 50 percent of the amount of payment which would have 

been made under this subsection with respect to the qualified 

discharge if no transfer were involved. 

(ii) For purposes of clause (i), subject to clause (iii), the term 

‘‘qualified discharge’’ means a discharge classified with a diagnosisrelated group (described in clause (iii)) of an individual from a subsection (d) hospital, if upon such discharge the individual— 

(I) is admitted as an inpatient to a hospital or hospital unit 

that is not a subsection (d) hospital for the provision of inpatient hospital services; 


emcdonald on DSK67QTVN1PROD with HEARING
169 

(II) is admitted to a skilled nursing facility; 

(III) is provided home health services from a home health 

agency, if such services relate to the condition or diagnosis for 

which such individual received inpatient hospital services from 

the subsection (d) hospital, and if such services are provided 

within an appropriate period (as determined by the Secretary); 

or 

(IV) for discharges occurring on or after October 1, 2000, the 

individual receives post discharge services described in clause 

(iv)(I). 

(iii) Subject to clause (iv), a diagnosis-related group described in 

this clause is— 

(I) 1 of 10 diagnosis-related groups selected by the Secretary 

based upon a high volume of discharges classified within such 

groups and a disproportionate use of post discharge services 

described in clause (ii); and 

(II) a diagnosis-related group specified by the Secretary 

under clause (iv)(II). 

(iv) The Secretary shall include in the proposed rule published 

under subsection (e)(5)(A) for fiscal year 2001, a description of the 

effect of this subparagraph. The Secretary may include in the proposed rule (and in the final rule published under paragraph (6)) for 

fiscal year 2001 or a subsequent fiscal year, a description of— 

(I) post-discharge services not described in subclauses (I), 

(II), and (III) of clause (ii), the receipt of which results in a 

qualified discharge; and 

(II) diagnosis-related groups described in clause (iii)(I) in addition to the 10 selected under such clause. 

(K)(i) Effective for discharges beginning on or after October 1, 

2001, the Secretary shall establish a mechanism to recognize the 

costs of new medical services and technologies under the payment 

system established under this subsection. Such mechanism shall be 

established after notice and opportunity for public comment (in the 

publications required by subsection (e)(5) for a fiscal year or otherwise). Such mechanism shall be modified to meet the requirements 

of clause (viii). 

(ii) The mechanism established pursuant to clause (i) shall— 

(I) apply to a new medical service or technology if, based on 

the estimated costs incurred with respect to discharges involving such service or technology, the DRG prospective payment 

rate otherwise applicable to such discharges under this subsection is inadequate (applying a threshold specified by the 

Secretary that is the lesser of 75 percent of the standardized 

amount (increased to reflect the difference between cost and 

charges) or 75 percent of one standard deviation for the diagnosis-related group involved); 

(II) provide for the collection of data with respect to the costs 

of a new medical service or technology described in subclause 

(I) for a period of not less than two years and not more than 

three years beginning on the date on which an inpatient hospital code is issued with respect to the service or technology; 

(III) provide for additional payment to be made under this 

subsection with respect to discharges involving a new medical 

service or technology described in subclause (I) that occur during the period described in subclause (II) in an amount that 


emcdonald on DSK67QTVN1PROD with HEARING
170 

adequately reflects the estimated average cost of such service 

or technology; and 

(IV) provide that discharges involving such a service or technology that occur after the close of the period described in subclause (II) will be classified within a new or existing diagnosisrelated group with a weighting factor under paragraph (4)(B) 

that is derived from cost data collected with respect to discharges occurring during such period. 

(iii) For purposes of clause (ii)(II), the term ‘‘inpatient hospital 

code’’ means any code that is used with respect to inpatient hospital services for which payment may be made under this subsection and includes an alphanumeric code issued under the International Classification of Diseases, 9th Revision, Clinical Modification (‘‘ICD–9–CM’’) and its subsequent revisions. 

(iv) For purposes of clause (ii)(III), the term ‘‘additional payment’’ 

means, with respect to a discharge for a new medical service or 

technology described in clause (ii)(I), an amount that exceeds the 

prospective payment rate otherwise applicable under this subsection to discharges involving such service or technology that 

would be made but for this subparagraph. 

(v) The requirement under clause (ii)(III) for an additional payment may be satisfied by means of a new-technology group (described in subparagraph (L)), an add-on payment, a payment adjustment, or any other similar mechanism for increasing the 

amount otherwise payable with respect to a discharge under this 

subsection. The Secretary may not establish a separate fee schedule for such additional payment for such services and technologies, 

by utilizing a methodology established under subsection (a) or (h) 

of section 1834 to determine the amount of such additional payment, or by other similar mechanisms or methodologies. 

(vi) For purposes of this subparagraph and subparagraph (L), a 

medical service or technology will be considered a ‘‘new medical 

service or technology’’ if the service or technology meets criteria established by the Secretary after notice and an opportunity for public comment. 

(vii) Under the mechanism under this subparagraph, the Secretary shall provide for the addition of new diagnosis and procedure codes in April 1 of each year, but the addition of such codes 

shall not require the Secretary to adjust the payment (or diagnosisrelated group classification) under this subsection until the fiscal 

year that begins after such date. 

(viii) The mechanism established pursuant to clause (i) shall be 

adjusted to provide, before publication of a proposed rule, for public 

input regarding whether a new service or technology represents an 

advance in medical technology that substantially improves the diagnosis or treatment of individuals entitled to benefits under part 

A as follows: 

(I) The Secretary shall make public and periodically update 

a list of all the services and technologies for which an application for additional payment under this subparagraph is pending. 

(II) The Secretary shall accept comments, recommendations, 

and data from the public regarding whether the service or 

technology represents a substantial improvement. 


emcdonald on DSK67QTVN1PROD with HEARING
171 

(III) The Secretary shall provide for a meeting at which organizations representing hospitals, physicians, such individuals, 

manufacturers, and any other interested party may present 

comments, recommendations, and data to the clinical staff of 

the Centers for Medicare & Medicaid Services before publication of a notice of proposed rulemaking regarding whether 

service or technology represents a substantial improvement. 

(ix) Before establishing any add-on payment under this subparagraph with respect to a new technology, the Secretary shall seek 

to identify one or more diagnosis-related groups associated with 

such technology, based on similar clinical or anatomical characteristics and the cost of the technology. Within such groups the Secretary shall assign an eligible new technology into a diagnosis-related group where the average costs of care most closely approximate the costs of care of using the new technology. No add-on payment under this subparagraph shall be made with respect to such 

new technology and this clause shall not affect the application of 

paragraph (4)(C)(iii). 

(L)(i) In establishing the mechanism under subparagraph (K), 

the Secretary may establish new-technology groups into which a 

new medical service or technology will be classified if, based on the 

estimated average costs incurred with respect to discharges involving such service or technology, the DRG prospective payment rate 

otherwise applicable to such discharges under this subsection is inadequate. 

(ii) Such groups— 

(I) shall not be based on the costs associated with a specific 

new medical service or technology; but 

(II) shall, in combination with the applicable standardized 

amounts and the weighting factors assigned to such groups 

under paragraph (4)(B), reflect such cost cohorts as the Secretary determines are appropriate for all new medical services 

and technologies that are likely to be provided as inpatient 

hospital services in a fiscal year. 

(iii) The methodology for classifying specific hospital discharges 

within a diagnosis-related group under paragraph (4)(A) or a newtechnology group shall provide that a specific hospital discharge 

may not be classified within both a diagnosis-related group and a 

new-technology group. 

(6) The Secretary shall provide for publication in the Federal 

Register, on or before the August 1 before each fiscal year (beginning with fiscal year 1984), of a description of the methodology and 

data used in computing the adjusted DRG prospective payment 

rates under this subsection, including any adjustments required 

under subsection (e)(1)(B). 

(7) There shall be no administrative or judicial review under section 1878 or otherwise of— 

(A) the determination of the requirement, or the proportional 

amount, of any adjustment effected pursuant to subsection 

(e)(1) or the determination of the applicable percentage increase under paragraph (12)(A)(ii), 

(B) the establishment of diagnosis-related groups, of the 

methodology for the classification of discharges within such 

groups, and of the appropriate weighting factors thereof under 


emcdonald on DSK67QTVN1PROD with HEARING
172 

paragraph (4), including the selection and revision of codes 

under paragraph (4)(D), and 

(C) the determination of whether services provided prior to 

a patient’s inpatient admission are related to the admission (as 

described in subsection (a)(4)). 

(8)(A) In the case of any hospital which is located in an area 

which is, at any time after April 20, 1983, reclassified from an 

urban to a rural area, payments to such hospital for the first two 

cost reporting periods for which such reclassification is effective 

shall be made as follows: 

(i) For the first such cost reporting period, payment shall be 

equal to the amount payable to such hospital for such reporting period on the basis of the rural classification, plus an 

amount equal to two-thirds of the amount (if any) by which— 

(I) the amount which would have been payable to such 

hospital for such reporting period on the basis of an urban 

classification, exceeds 

(II) the amount payable to such hospital for such reporting period on the basis of the rural classification. 

(ii) For the second such cost reporting period, payment shall 

be equal to the amount payable to such hospital for such reporting period on the basis of the rural classification, plus an 

amount equal to one-third of the amount (if any) by which— 

(I) the amount which would have been payable to such 

hospital for such reporting period on the basis of an urban 

classification, exceeds 

(II) the amount payable to such hospital for such reporting period on the basis of the rural classification. 

(B)(i) For purposes of this subsection, the Secretary shall treat a 

hospital located in a rural county adjacent to one or more urban 

areas as being located in the urban metropolitan statistical area to 

which the greatest number of workers in the county commute, if 

the rural county would otherwise be considered part of an urban 

area, under the standards for designating Metropolitan Statistical 

Areas (and for designating New England County Metropolitan 

Areas) described in clause (ii), if the commuting rates used in determining outlying counties (or, for New England, similar recognized areas) were determined on the basis of the aggregate number 

of resident workers who commute to (and, if applicable under the 

standards, from) the central county or counties of all contiguous 

Metropolitan Statistical Areas (or New England County Metropolitan Areas). 

(ii) The standards described in this clause for cost reporting periods beginning in a fiscal year— 

(I) before fiscal year 2003, are the standards published in the 

Federal Register on January 3, 1980, or, at the election of the 

hospital with respect to fiscal years 2001 and 2002, standards 

so published on March 30, 1990; and 

(II) after fiscal year 2002, are the standards published in the 

Federal Register by the Director of the Office of Management 

and Budget based on the most recent available decennial population data. 

Subparagraphs (C) and (D) shall not apply with respect to the application of subclause (I). 


emcdonald on DSK67QTVN1PROD with HEARING
173 

(C)(i) If the application of subparagraph (B) or a decision of the 

Medicare Geographic Classification Review Board or the Secretary 

under paragraph (10), by treating hospitals located in a rural county or counties as being located in an urban area, or by treating hospitals located in one urban area as being located in another urban 

area— 

(I) reduces the wage index for that urban area (as applied 

under this subsection) by 1 percentage point or less, the Secretary, in calculating such wage index under this subsection, 

shall exclude those hospitals so treated, or 

(II) reduces the wage index for that urban area by more than 

1 percentage point (as applied under this subsection), the Secretary shall calculate and apply such wage index under this 

subsection separately to hospitals located in such urban area 

(excluding all the hospitals so treated) and to the hospitals so 

treated (as if such hospitals were located in such urban area). 

(ii) If the application of subparagraph (B) or a decision of the 

Medicare Geographic Classification Review Board or the Secretary 

under paragraph (10), by treating hospitals located in a rural county or counties as not being located in the rural area in a State, reduces the wage index for that rural area (as applied under this 

subsection), the Secretary shall calculate and apply such wage 

index under this subsection as if the hospitals so treated had not 

been excluded from calculation of the wage index for that rural 

area. 

(iii) The application of subparagraph (B) or a decision of the 

Medicare Geographic Classification Review Board or the Secretary 

under paragraph (10) may not result in the reduction of any county’s wage index to a level below the wage index for rural areas in 

the State in which the county is located. 

(iv) The application of subparagraph (B) or a decision of the 

Medicare Geographic Classification Review Board or of the Secretary under paragraph (10) may not result in a reduction in an 

urban area’s wage index if— 

(I) the urban area has a wage index below the wage index 

for rural areas in the State in which it is located; or 

(II) the urban area is located in a State that is composed of 

a single urban area. 

(v) This subparagraph shall apply with respect to discharges occurring in a fiscal year only if the Secretary uses a method for 

making adjustments to the DRG prospective payment rate for area 

differences in hospital wage levels under paragraph (3)(E) for the 

fiscal year that is based on the use of Metropolitan Statistical Area 

classifications. 

(D) The Secretary shall make a proportional adjustment in the 

standardized amounts determined under paragraph (3) to assure 

that the provisions of subparagraphs (B) and (C) or a decision of 

the Medicare Geographic Classification Review Board or the Secretary under paragraph (10) do not result in aggregate payments 

under this section that are greater or less than those that would 

otherwise be made. 

(E)(i) For purposes of this subsection, not later than 60 days 

after the receipt of an application (in a form and manner determined by the Secretary) from a subsection (d) hospital described in 

clause (ii), the Secretary shall treat the hospital as being located 


emcdonald on DSK67QTVN1PROD with HEARING
174 

in the rural area (as defined in paragraph (2)(D)) of the State in 

which the hospital is located. 

(ii) For purposes of clause (i), a subsection (d) hospital described 

in this clause is a subsection (d) hospital that is located in an 

urban area (as defined in paragraph (2)(D)) and satisfies any of the 

following criteria: 

(I) The hospital is located in a rural census tract of a metropolitan statistical area (as determined under the most recent 

modification of the Goldsmith Modification, originally published in the Federal Register on February 27, 1992 (57 Fed. 

Reg. 6725)). 

(II) The hospital is located in an area designated by any law 

or regulation of such State as a rural area (or is designated by 

such State as a rural hospital). 

(III) The hospital would qualify as a rural, regional, or national referral center under paragraph (5)(C) or as a sole community hospital under paragraph (5)(D) if the hospital were located in a rural area. 

(IV) The hospital meets such other criteria as the Secretary 

may specify. 

(9)(A) Notwithstanding section 1814(b) but subject to the provisions of section 1813, the amount of the payment with respect to 

the operating costs of inpatient hospital services of a subsection (d) 

Puerto Rico hospital for inpatient hospital discharges is equal to 

the sum of— 

(i) the applicable Puerto Rico percentage (specified in subparagraph (E)) of the Puerto Rico adjusted DRG prospective 

payment rate (determined under subparagraph (B) or (C)) for 

such discharges, 

(ii) the applicable Federal percentage (specified in subparagraph (E)) of— 

(I) for discharges beginning in a fiscal year beginning on 

or after October 1, 1997, and before October 1, 2003, the 

discharge-weighted average of— 

(aa) the national adjusted DRG prospective payment 

rate (determined under paragraph (3)(D)) for hospitals 

located in a large urban area, 

(bb) such rate for hospitals located in other urban 

areas, and 

(cc) such rate for hospitals located in a rural area, 

for such discharges, adjusted in the manner provided in 

paragraph (3)(E) for different area wage levels; and 

(II) for discharges in a fiscal year beginning on or after 

October 1, 2003, the national DRG prospective payment 

rate determined under paragraph (3)(D)(iii) for hospitals 

located in any area for such discharges, adjusted in the 

manner provided in paragraph (3)(E) for different area 

wage levels. 

As used in this section, the term ‘‘subsection (d) Puerto Rico hospital’’ means a hospital that is located in Puerto Rico and that 

would be a subsection (d) hospital (as defined in paragraph (1)(B)) 

if it were located in one of the 50 States. 

(B) The Secretary shall determine a Puerto Rico adjusted DRG 

prospective payment rate, for each inpatient hospital discharge in 

fiscal year 1988 involving inpatient hospital services of a subVerDate Sep 11 2014 01:51 Jun 18, 2015 Jkt 049006 PO 00000 Frm 00174 Fmt 6659 Sfmt 6602 E:\HR\OC\HR156.XXX HR156

emcdonald on DSK67QTVN1PROD with HEARING
175 

section (d) Puerto Rico hospital for which payment may be made 

under part A of this title. Such rate shall be determined for such 

hospitals located in urban or rural areas within Puerto Rico, as follows: 

(i) The Secretary shall determine the target amount (as defined in subsection (b)(3)(A)) for the hospital for the cost reporting period beginning in fiscal year 1987 and increase such 

amount by prorating the applicable percentage increase (as defined in subsection (b)(3)(B)) to update the amount to the midpoint in fiscal year 1988. 

(ii) The Secretary shall standardize the amount determined 

under clause (i) for each hospital by— 

(I) excluding an estimate of indirect medical education 

costs, 

(II) adjusting for variations among hospitals by area in 

the average hospital wage level, 

(III) adjusting for variations in case mix among hospitals, and 

(IV) excluding an estimate of the additional payments to 

certain subsection (d) Puerto Rico hospitals to be made 

under subparagraph (D)(iii) (relating to disproportionate 

share payments). 

(iii) The Secretary shall compute a discharge weighted average of the standardized amounts determined under clause (ii) 

for all hospitals located in an urban area and for all hospitals 

located in a rural area (as such terms are defined in paragraph 

(2)(D)). 

(iv) The Secretary shall reduce the average standardized 

amount by a proportion equal to the proportion (estimated by 

the Secretary) of the amount of payments under this paragraph which are additional payments described in subparagraph (D)(i) (relating to outlier payments). 

(v) For each discharge classified within a diagnosis-related 

group for hospitals located in an urban or rural area, respectively, the Secretary shall establish a Puerto Rico DRG prospective payment rate equal to the product of— 

(I) the average standardized amount (computed under 

clause (iii) and reduced under clause (iv)) for hospitals located in an urban or rural area, respectively, and 

(II) the weighting factor (determined under paragraph 

(4)(B)) for that diagnosis-related group. 

(vi) The Secretary shall adjust the proportion (as estimated 

by the Secretary from time to time) of hospitals’ costs which 

are attributable to wages and wage-related costs, of the Puerto 

Rico DRG prospective payment rate computed under clause (v) 

for area differences in hospital wage levels by a factor (established by the Secretary) reflecting the relative hospital wage 

level in the geographic area of the hospital compared to the 

Puerto Rican average hospital wage level. 

(C) The Secretary shall determine a Puerto Rico adjusted DRG 

prospective payment rate, for each inpatient hospital discharge 

after fiscal year 1988 involving inpatient hospital services of a subsection (d) Puerto Rico hospital for which payment may be made 

under part A of this title. Such rate shall be determined for hospitals located in urban or rural areas within Puerto Rico as follows: 


emcdonald on DSK67QTVN1PROD with HEARING
176 

(i)(I) For discharges in a fiscal year after fiscal year 1988 and 

before fiscal year 2004, the Secretary shall compute an average 

standardized amount for hospitals located in an urban area 

and for hospitals located in a rural area equal to the respective 

average standardized amount computed for the previous fiscal 

year under subparagraph (B)(iii) or under this clause, increased for fiscal year 1989 by the applicable percentage increase under subsection (b)(3)(B), and adjusted for subsequent 

fiscal years in accordance with the final determination of the 

Secretary under subsection (e)(4), and adjusted to reflect the 

most recent case-mix data available. 

(II) For discharges occurring in a fiscal year (beginning with 

fiscal year 2004), the Secretary shall compute an average 

standardized amount for hospitals located in any area of Puerto Rico that is equal to the average standardized amount computed under subclause (I) for fiscal year 2003 for hospitals in 

a large urban area (or, beginning with fiscal year 2005, for all 

hospitals in the previous fiscal year) increased by the applicable percentage increase under subsection (b)(3)(B) for the fiscal 

year involved. 

(ii) The Secretary shall reduce each of the average standardized amounts (or for fiscal year 2004 and thereafter, the average standardized amount) by a proportion equal to the proportion (estimated by the Secretary) of the amount of payments 

under this paragraph which are additional payments described 

in subparagraph (D)(i) (relating to outlier payments). 

(iii) For each discharge classified within a diagnosis-related 

group for hospitals located in an urban or rural area, respectively, the Secretary shall establish a Puerto Rico DRG prospective payment rate equal to the product of— 

(I) the average standardized amount (computed under 

clause (i) and reduced under clause (ii)), and 

(II) the weighting factor (determined under paragraph 

(4)(B)) for that diagnosis-related group. 

(iv)(I) The Secretary shall adjust the proportion (as estimated by the Secretary from time to time) of hospitals’ costs 

which are attributable to wages and wage-related costs, of the 

Puerto Rico DRG prospective payment rate computed under 

clause (iii) for area differences in hospital wage levels by a factor (established by the Secretary) reflecting the relative hospital wage level in the geographic area of the hospital compared to the Puerto Rico average hospital wage level. The second and third sentences of paragraph (3)(E)(i) shall apply to 

subsection (d) Puerto Rico hospitals under this clause in the 

same manner as they apply to subsection (d) hospitals under 

such paragraph and, for purposes of this clause, any reference 

in such paragraph to a subsection (d) hospital is deemed a reference to a subsection (d) Puerto Rico hospital. 

(II) For discharges occurring on or after October 1, 2004, the 

Secretary shall substitute ‘‘62 percent’’ for the proportion described in the first sentence of clause (i), unless the application 

of this subclause would result in lower payments to a hospital 

than would otherwise be made. 

(D) The following provisions of paragraph (5) shall apply to subsection (d) Puerto Rico hospitals receiving payment under this 


emcdonald on DSK67QTVN1PROD with HEARING
177 

paragraph in the same manner and to the extent as they apply to 

subsection (d) hospitals receiving payment under this subsection: 

(i) Subparagraph (A) (relating to outlier payments). 

(ii) Subparagraph (B) (relating to payments for indirect medical education costs), except that for this purpose the sum of 

the amount determined under subparagraph (A) of this paragraph and the amount paid to the hospital under clause (i) of 

this subparagraph shall be substituted for the sum referred to 

in paragraph (5)(B)(i)(I). 

(iii) Subparagraph (F) (relating to disproportionate share 

payments), except that for this purpose the sum described in 

clause (ii) of this subparagraph shall be substituted for the 

sum referred to in paragraph (5)(F)(ii)(I). 

(iv) Subparagraph (H) (relating to exceptions and adjustments). 

(E) For purposes of subparagraph (A), for discharges occurring— 

(i) on or after October 1, 1987, and before October 1, 1997, 

the applicable Puerto Rico percentage is 75 percent and the applicable Federal percentage is 25 percent; 

(ii) on or after October 1, 1997, and before April 1, 2004, the 

applicable Puerto Rico percentage is 50 percent and the applicable Federal percentage is 50 percent; 

(iii) on or after April 1, 2004, and before October 1, 2004, the 

applicable Puerto Rico percentage is 37.5 percent and the applicable Federal percentage is 62.5 percent; and 

(iv) on or after October 1, 2004, the applicable Puerto Rico 

percentage is 25 percent and the applicable Federal percentage 

is 75 percent. 

(10)(A) There is hereby established the Medicare Geographic 

Classification Review Board (hereinafter in this paragraph referred 

to as the ‘‘Board’’). 

(B)(i) The Board shall be composed of 5 members appointed by 

the Secretary without regard to the provisions of title 5, United 

States Code, governing appointments in the competitive service. 

Two of such members shall be representative of subsection (d) hospitals located in a rural area under paragraph (2)(D). At least 1 

member shall be knowledgeable in the field of analyzing costs with 

respect to the provision of inpatient hospital services. 

(ii) The Secretary shall make initial appointments to the Board 

as provided in this paragraph within 180 days after the date of the 

enactment of this paragraph. 

(C)(i) The Board shall consider the application of any subsection 

(d) hospital requesting that the Secretary change the hospital’s geographic classification for purposes of determining for a fiscal year— 

(I) the hospital’s average standardized amount under paragraph (2)(D), or 

(II) the factor used to adjust the DRG prospective payment 

rate for area differences in hospital wage levels that applies to 

such hospital under paragraph (3)(E). 

(ii) A hospital requesting a change in geographic classification 

under clause (i) for a fiscal year shall submit its application to the 

Board not later than the first day of the 13-month period ending 

on September 30 of the preceding fiscal year. 


emcdonald on DSK67QTVN1PROD with HEARING
178 

(iii)(I) The Board shall render a decision on an application submitted under clause (i) not later than 180 days after the deadline 

referred to in clause (ii). 

(II) Appeal of decisions of the Board shall be subject to the provisions of section 557b of title 5, United States Code. The Secretary 

shall issue a decision on such an appeal not later than 90 days 

after the date on which the appeal is filed. The decision of the Secretary shall be final and shall not be subject to judicial review. 

(D)(i) The Secretary shall publish guidelines to be utilized by the 

Board in rendering decisions on applications submitted under this 

paragraph, and shall include in such guidelines the following: 

(I) Guidelines for comparing wages, taking into account (to 

the extent the Secretary determines appropriate) occupational 

mix, in the area in which the hospital is classified and the area 

in which the hospital is applying to be classified. 

(II) Guidelines for determining whether the county in which 

the hospital is located should be treated as being a part of a 

particular Metropolitan Statistical Area. 

(III) Guidelines for considering information provided by an 

applicant with respect to the effects of the hospital’s geographic 

classification on access to inpatient hospital services by medicare beneficiaries. 

(IV) Guidelines for considering the appropriateness of the 

criteria used to define New England County Metropolitan 

Areas. 

(ii) Notwithstanding clause (i), if the Secretary uses a method for 

making adjustments to the DRG prospective payment rate for area 

differences in hospital wage levels under paragraph (3)(E) that is 

not based on the use of Metropolitan Statistical Area classifications, the Secretary may revise the guidelines published under 

clause (i) to the extent such guidelines are used to determine the 

appropriateness of the geographic area in which the hospital is determined to be located for purposes of making such adjustments. 

(iii) Under the guidelines published by the Secretary under 

clause (i), in the case of a hospital which has ever been classified 

by the Secretary as a rural referral center under paragraph (5)(C), 

the Board may not reject the application of the hospital under this 

paragraph on the basis of any comparison between the average 

hourly wage of the hospital and the average hourly wage of hospitals in the area in which it is located. 

(iv) The Secretary shall publish the guidelines described in 

clause (i) by July 1, 1990. 

(v) Any decision of the Board to reclassify a subsection (d) hospital for purposes of the adjustment factor described in subparagraph (C)(i)(II) for fiscal year 2001 or any fiscal year thereafter 

shall be effective for a period of 3 fiscal years, except that the Secretary shall establish procedures under which a subsection (d) hospital may elect to terminate such reclassification before the end of 

such period. 

(vi) Such guidelines shall provide that, in making decisions on 

applications for reclassification for the purposes described in clause 

(v) for fiscal year 2003 and any succeeding fiscal year, the Board 

shall base any comparison of the average hourly wage for the hospital with the average hourly wage for hospitals in an area on— 


emcdonald on DSK67QTVN1PROD with HEARING
179 

(I) an average of the average hourly wage amount for the 

hospital from the most recently published hospital wage survey 

data of the Secretary (as of the date on which the hospital applies for reclassification) and such amount from each of the two 

immediately preceding surveys; and 

(II) an average of the average hourly wage amount for hospitals in such area from the most recently published hospital 

wage survey data of the Secretary (as of the date on which the 

hospital applies for reclassification) and such amount from 

each of the two immediately preceding surveys. 

(E)(i) The Board shall have full power and authority to make 

rules and establish procedures, not inconsistent with the provisions 

of this title or regulations of the Secretary, which are necessary or 

appropriate to carry out the provisions of this paragraph. In the 

course of any hearing the Board may administer oaths and affirmations. The provisions of subsections (d) and (e) of section 205 with 

respect to subpenas shall apply to the Board to the same extent as 

such provisions apply to the Secretary with respect to title II. 

(ii) The Board is authorized to engage such technical assistance 

and to receive such information as may be required to carry out its 

functions, and the Secretary shall, in addition, make available to 

the Board such secretarial, clerical, and other assistance as the 

Board may require to carry out its functions. 

(F)(i) Each member of the Board who is not an officer or employee of the Federal Government shall be compensated at a rate 

equal to the daily equivalent of the annual rate of basic pay prescribed for grade GS–18 of the General Schedule under section 

5332 of title 5, United States Code, for each day (including travel 

time) during which such member is engaged in the performance of 

the duties of the Board. Each member of the Board who is an officer or employee of the United States shall serve without compensation in addition to that received for service as an officer or employee of the United States. 

(ii) Members of the Board shall be allowed travel expenses, including per diem in lieu of subsistence, at rates authorized for employees of agencies under subchapter I of chapter 57 of title 5, 

United States Code, while away from their homes or regular places 

of business in the performance of services for the Board. 

(11) ADDITIONAL PAYMENTS FOR MANAGED CARE ENROLL- EES.— 

(A) IN GENERAL.—For portions of cost reporting periods 

occurring on or after January 1, 1998, the Secretary shall 

provide for an additional payment amount for each applicable discharge of any subsection (d) hospital that has an 

approved medical residency training program. 

(B) APPLICABLE DISCHARGE.—For purposes of this paragraph, the term ‘‘applicable discharge’’ means the discharge of any individual who is enrolled under a risk-sharing contract with an eligible organization under section 

1876 and who is entitled to benefits under part A or any 

individual who is enrolled with a Medicare+Choice organization under part C. 

(C) DETERMINATION OF AMOUNT.—The amount of the 

payment under this paragraph with respect to any applicable discharge shall be equal to the applicable percentage 


emcdonald on DSK67QTVN1PROD with HEARING
180 

(as defined in subsection (h)(3)(D)(ii)) of the estimated average per discharge amount that would otherwise have 

been paid under paragraph (5)(B) if the individuals had 

not been enrolled as described in subparagraph (B). 

(D) SPECIAL RULE FOR HOSPITALS UNDER REIMBURSEMENT

SYSTEM.—The Secretary shall establish rules for the application of this paragraph to a hospital reimbursed under a 

reimbursement system authorized under section 1814(b)(3) 

in the same manner as it would apply to the hospital if it 

were not reimbursed under such section. 

(12) PAYMENT ADJUSTMENT FOR LOW-VOLUME HOSPITALS.— (A) IN GENERAL.—In addition to any payments calculated under this section for a subsection (d) hospital, for 

discharges occurring during a fiscal year (beginning with 

fiscal year 2005), the Secretary shall provide for an additional payment amount to each low-volume hospital (as defined in subparagraph (C)(i)) for discharges occurring during that fiscal year that is equal to the applicable percentage increase (determined under subparagraph (B) or (D) 

for the hospital involved) in the amount paid to such hospital under this section for such discharges (determined 

without regard to this paragraph). 

(B) APPLICABLE PERCENTAGE INCREASE.—For discharges 

occurring in fiscal years 2005 through 2010 and for discharges occurring in fiscal year 2018 and subsequent fiscal 

years, the Secretary shall determine an applicable percentage increase for purposes of subparagraph (A) as follows: 

(i) The Secretary shall determine the empirical relationship for subsection (d) hospitals between the 

standardized cost-per-case for such hospitals and the 

total number of discharges of such hospitals and the 

amount of the additional incremental costs (if any) 

that are associated with such number of discharges. 

(ii) The applicable percentage increase shall be determined based upon such relationship in a manner 

that reflects, based upon the number of such discharges for a subsection (d) hospital, such additional 

incremental costs. 

(iii) In no case shall the applicable percentage increase exceed 25 percent. 

(C) DEFINITIONS.— 

(i) LOW-VOLUME HOSPITAL.—For purposes of this 

paragraph, the term ‘‘low-volume hospital’’ means, for 

a fiscal year, a subsection (d) hospital (as defined in 

paragraph (1)(B)) that the Secretary determines is located more than 25 road miles (or, with respect to fiscal years 2011 through 2017, 15 road miles) from another subsection (d) hospital and has less than 800 

discharges (or, with respect to fiscal years 2011 

through 2017, 1,600 discharges of individuals entitled 

to, or enrolled for, benefits under part A) during the 

fiscal year or portion of fiscal year. 

(ii) DISCHARGE.—For purposes of subparagraph (B) 

and clause (i), the term ‘‘discharge’’ means an inpatient acute care discharge of an individual regardless 


emcdonald on DSK67QTVN1PROD with HEARING
181 

of whether the individual is entitled to benefits under 

part A. 

(D) TEMPORARY APPLICABLE PERCENTAGE INCREASE.—For 

discharges occurring in fiscal years 2011 through 2017, the 

Secretary shall determine an applicable percentage increase for purposes of subparagraph (A) using a continuous 

linear sliding scale ranging from 25 percent for low-volume 

hospitals with 200 or fewer discharges of individuals entitled to, or enrolled for, benefits under part A in the fiscal 

year or the portion of fiscal year to 0 percent for low-volume hospitals with greater than 1,600 discharges of such 

individuals in the fiscal year. 

(13)(A) In order to recognize commuting patterns among geographic areas, the Secretary shall establish a process through application or otherwise for an increase of the wage index applied 

under paragraph (3)(E) for subsection (d) hospitals located in a 

qualifying county described in subparagraph (B) in the amount 

computed under subparagraph (D) based on out-migration of hospital employees who reside in that county to any higher wage index 

area. 

(B) The Secretary shall establish criteria for a qualifying county 

under this subparagraph based on the out-migration referred to in 

subparagraph (A) and differences in the area wage indices. Under 

such criteria the Secretary shall, utilizing such data as the Secretary determines to be appropriate, establish— 

(i) a threshold percentage, established by the Secretary, of 

the weighted average of the area wage index or indices for the 

higher wage index areas involved; 

(ii) a threshold (of not less than 10 percent) for minimum 

out-migration to a higher wage index area or areas; and 

(iii) a requirement that the average hourly wage of the hospitals in the qualifying county equals or exceeds the average 

hourly wage of all the hospitals in the area in which the qualifying county is located. 

(C) For purposes of this paragraph, the term ‘‘higher wage index 

area’’ means, with respect to a county, an area with a wage index 

that exceeds that of the county. 

(D) The increase in the wage index under subparagraph (A) for 

a qualifying county shall be equal to the percentage of the hospital 

employees residing in the qualifying county who are employed in 

any higher wage index area multiplied by the sum of the products, 

for each higher wage index area of— 

(i) the difference between— 

(I) the wage index for such higher wage index area, and 

(II) the wage index of the qualifying county; and 

(ii) the number of hospital employees residing in the qualifying county who are employed in such higher wage index area 

divided by the total number of hospital employees residing in 

the qualifying county who are employed in any higher wage 

index area. 

(E) The process under this paragraph may be based upon the 

process used by the Medicare Geographic Classification Review 

Board under paragraph (10). As the Secretary determines to be appropriate to carry out such process, the Secretary may require hospitals (including subsection (d) hospitals and other hospitals) and 


emcdonald on DSK67QTVN1PROD with HEARING
182 

critical access hospitals, as required under section 1866(a)(1)(T), to 

submit data regarding the location of residence, or the Secretary 

may use data from other sources. 

(F) A wage index increase under this paragraph shall be effective 

for a period of 3 fiscal years, except that the Secretary shall establish procedures under which a subsection (d) hospital may elect to 

waive the application of such wage index increase. 

(G) A hospital in a county that has a wage index increase under 

this paragraph for a period and that has not waived the application 

of such an increase under subparagraph (F) is not eligible for reclassification under paragraph (8) or (10) during that period. 

(H) Any increase in a wage index under this paragraph for a 

county shall not be taken into account for purposes of— 

(i) computing the wage index for portions of the wage index 

area (not including the county) in which the county is located; 

or 

(ii) applying any budget neutrality adjustment with respect 

to such index under paragraph (8)(D). 

(I) The thresholds described in subparagraph (B), data on hospital employees used under this paragraph, and any determination 

of the Secretary under the process described in subparagraph (E) 

shall be final and shall not be subject to judicial review. 

(e)(1)(A) For cost reporting periods of hospitals beginning in fiscal 

year 1984 or fiscal year 1985, the Secretary shall provide for such 

proportional adjustment in the applicable percentage increase (otherwise applicable to the periods under subsection (b)(3)(B)) as may 

be necessary to assure that— 

(i) the aggregate payment amounts otherwise provided under 

subsection (d)(1)(A)(i)(I) for that fiscal year for operating costs 

of inpatient hospital services of hospitals (excluding payments 

made under section 1866(a)(1)(F)), 

are not greater or less than— 

(ii) the target percentage (as defined in subsection (d)(1)(C)) 

of the payment amounts which would have been payable for 

such services for those same hospitals for that fiscal year 

under this section under the law as in effect before the date 

of the enactment of the Social Security Amendments of 1983 

(excluding payments made under section 1866(a)(1)(F)); 

except that the adjustment made under this subparagraph shall 

apply only to subsection (d) hospitals and shall not apply for purposes of making computations under subsection (d)(2)(B)(ii) or subsection (d)(3)(A). 

(B) For discharges occurring in fiscal year 1984 or fiscal year 

1985, the Secretary shall provide under subsections (d)(2)(F) and 

(d)(3)(C) for such equal proportional adjustment in each of the average standardized amounts otherwise computed for that fiscal 

year as may be necessary to assure that— 

(i) the aggregate payment amounts otherwise provided under 

subsection (d)(1)(A)(i)(II) and (d)(5) for that fiscal year for operating costs of inpatient hospital services of hospitals (excluding 

payments made under section 1866(a)(1)(F)), 

are not greater or less than— 

(ii) the DRG percentage (as defined in subsection (d)(1)(C)) of 

the payment amounts which would have been payable for such 

services for those same hospitals for that fiscal year under this 


emcdonald on DSK67QTVN1PROD with HEARING
183 

section under the law as in effect before the date of the enactment of the Social Security Amendments of 1983 (excluding 

payments made under section 1866(a)(1)(F)). 

(C) For discharges occurring in fiscal year 1988, the Secretary 

shall provide for such equal proportional adjustment in each of the 

average standardized amounts otherwise computed under subsection (d)(3) for that fiscal year as may be necessary to assure 

that— 

(i) the aggregate payment amounts otherwise provided under 

subsections (d)(1)(A)(iii), (d)(5), and (d)(9) for that fiscal year 

for operating costs of inpatient hospital services of subsection 

(d) hospitals and subsection (d) Puerto Rico hospitals, 

are not greater or less than— 

(ii) the payment amounts that would have been payable for 

such services for those same hospitals for that fiscal year but 

for the enactment of the amendments made by section 9304 of 

the Omnibus Budget Reconciliation Act of 1986. 

(4)(A) Taking into consideration the recommendations of the 

Commission, the Secretary shall recommend for each fiscal year 

(beginning with fiscal year 1988) an appropriate change factor for 

inpatient hospital services for discharges in that fiscal year which 

will take into account amounts necessary for the efficient and effective delivery of medically appropriate and necessary care of high 

quality. The appropriate change factor may be different for all 

large urban subsection (d) hospitals, other urban subsection (d) 

hospitals, urban subsection (d) Puerto Rico hospitals, rural subsection (d) hospitals, and rural subsection (d) Puerto Rico hospitals, 

and all other hospitals and units not paid under subsection (d), and 

may vary among such other hospitals and units. 

(B) In addition to the recommendation made under subparagraph 

(A), the Secretary shall, taking into consideration the recommendations of the Commission under paragraph (2)(B), recommend for 

each fiscal year (beginning with fiscal year 1992) other appropriate 

changes in each existing reimbursement policy under this title 

under which payments to an institution are based upon prospectively determined rates. 

(5) The Secretary shall cause to have published in the Federal 

Register, not later than— 

(A) the April 1 before each fiscal year (beginning with fiscal 

year 1986), the Secretary’s proposed recommendations under 

paragraph (4) for that fiscal year for public comment, and 

(B) the August 1 before such fiscal year after such consideration of public comment on the proposal as is feasible in the 

time available, the Secretary’s final recommendations under 

such paragraph for that year. 

The Secretary shall include in the publication referred to in subparagraph (A) for a fiscal year the report of the Commission’s recommendations submitted under paragraph (3) for that fiscal year. 

To the extent that the Secretary’s recommendations under paragraph (4) differ from the Commission’s recommendations for that 

fiscal year, the Secretary shall include in the publication referred 

to in subparagraph (A) an explanation of the Secretary’s grounds 

for not following the Commission’s recommendations. 


emcdonald on DSK67QTVN1PROD with HEARING
184 

(f)(1)(A) The Secretary shall maintain a system for the reporting 

of costs of hospitals receiving payments computed under subsection 

(d). 

(B)(i) Subject to clause (ii), the Secretary shall place into effect 

a standardized electronic cost reporting format for hospitals under 

this title. 

(ii) The Secretary may delay or waive the implementation of such 

format in particular instances where such implementation would 

result in financial hardship (in particular with respect to hospitals 

with a small percentage of inpatients entitled to benefits under this 

title). 

(2) If the Secretary determines, based upon information supplied 

by a quality improvement organization under part B of title XI, 

that a hospital, in order to circumvent the payment method established under subsection (b) or (d) of this section, has taken an action that results in the admission of individuals entitled to benefits 

under part A unnecessarily, unnecessary multiple admissions of 

the same such individuals, or other inappropriate medical or other 

practices with respect to such individuals, the Secretary may— 

(A) deny payment (in whole or in part) under part A with respect to inpatient hospital services provided with respect to 

such an unnecessary admission (or subsequent admission of 

the same individual), or 

(B) require the hospital to take other corrective action necessary to prevent or correct the inappropriate practice. 

(3) The provisions of subsections (c) through (g) of section 1128 

shall apply to determinations made under paragraph (2) in the 

same manner as they apply to exclusions effected under section 

1128(b)(13). 

(g)(1)(A) Notwithstanding section 1861(v), instead of any 

amounts that are otherwise payable under this title with respect 

to the reasonable costs of subsection (d) hospitals and subsection 

(d) Puerto Rico hospitals for capital-related costs of inpatient hospital services, the Secretary shall, for hospital cost reporting periods beginning on or after October 1, 1991, provide for payments for 

such costs in accordance with a prospective payment system established by the Secretary. Aggregate payments made under subsection (d) and this subsection during fiscal years 1992 through 

1995 shall be reduced in a manner that results in a reduction (as 

estimated by the Secretary) in the amount of such payments equal 

to a 10 percent reduction in the amount of payments attributable 

to capital-related costs that would otherwise have been made during such fiscal year had the amount of such payments been based 

on reasonable costs (as defined in section 1861(v)). For discharges 

occurring after September 30, 1993, the Secretary shall reduce by 

7.4 percent the unadjusted standard Federal capital payment rate 

(as described in 42 CFR 412.308(c), as in effect on the date of the 

enactment of the Omnibus Budget Reconciliation Act of 1993) and 

shall (for hospital cost reporting periods beginning on or after October 1, 1993) redetermine which payment methodology is applied to 

the hospital under such system to take into account such reduction. 

In addition to the reduction described in the preceding sentence, for 

discharges occurring on or after October 1, 1997, the Secretary 

shall apply the budget neutrality adjustment factor used to determine the Federal capital payment rate in effect on September 30, 


emcdonald on DSK67QTVN1PROD with HEARING
185 

1995 (as described in section 412.352 of title 42 of the Code of Federal Regulations), to (i) the unadjusted standard Federal capital 

payment rate (as described in section 412.308(c) of that title, as in 

effect on September 30, 1997), and (ii) the unadjusted hospital-specific rate (as described in section 412.328(e)(1) of that title, as in 

effect on September 30, 1997), and, for discharges occurring on or 

after October 1, 1997, and before October 1, 2002, reduce the rates 

described in clauses (i) and (ii) by 2.1 percent. 

(B) Such system— 

(i) shall provide for (I) a payment on a per discharge basis, 

and (II) an appropriate weighting of such payment amount as 

relates to the classification of the discharge; 

(ii) may provide for an adjustment to take into account variations in the relative costs of capital and construction for the 

different types of facilities or areas in which they are located; 

(iii) may provide for such exceptions (including appropriate 

exceptions to reflect capital obligations) as the Secretary determines to be appropriate, and 

(iv) may provide for suitable adjustment to reflect hospital 

occupancy rate. 

(C) In this paragraph, the term ‘‘capital-related costs’’ has the 

meaning given such term by the Secretary under subsection (a)(4) 

as of September 30, 1987, and does not include a return on equity 

capital. 

(2)(A) The Secretary shall provide that the amount which is allowable, with respect to reasonable costs of inpatient hospital services for which payment may be made under this title, for a return 

on equity capital for hospitals shall, for cost reporting periods beginning on or after the date of the enactment of this subsection, be 

equal to amounts otherwise allowable under regulations in effect 

on March 1, 1983, except that the rate of return to be recognized 

shall be equal to the applicable percentage (described in subparagraph (B)) of the average of the rates of interest, for each of the 

months any part of which is included in the reporting period, on 

obligations issued for purchase by the Federal Hospital Insurance 

Trust Fund. 

(B) In this paragraph, the ‘‘applicable percentage’’ is— 

(i) 75 percent, for cost reporting periods beginning during fiscal year 1987, 

(ii) 50 percent, for cost reporting periods beginning during 

fiscal year 1988, 

(iii) 25 percent, for cost reporting periods beginning during 

fiscal year 1989, and 

(iv) 0 percent, for cost reporting periods beginning on or after 

October 1, 1989. 

(3)(A) Except as provided in subparagraph (B), in determining 

the amount of the payments that may be made under this title 

with respect to all the capital-related costs of inpatient hospital 

services of a subsection (d) hospital and a subsection (d) Puerto 

Rico hospital, the Secretary shall reduce the amounts of such payments otherwise established under this title by— 

(i) 3.5 percent for payments attributable to portions of cost 

reporting periods occurring during fiscal year 1987, 

(ii) 7 percent for payments attributable to portions of cost reporting periods or discharges (as the case may be) occurring 


emcdonald on DSK67QTVN1PROD with HEARING
186 

during fiscal year 1988 on or after October 1, 1987, and before 

January 1, 1988, 

(iii) 12 percent for payments attributable to portions of cost 

reporting periods or discharges (as the case may be) in fiscal 

year 1988, occurring on or after January 1, 1988, 

(iv) 15 percent for payments attributable to portions of cost 

reporting periods or discharges (as the case may be) occurring 

during fiscal year 1989, and 

(v) 15 percent for payments attributable to portions of cost 

reporting periods or discharges (as the case may be) occurring 

during the period beginning January 1, 1990, and ending September 30, 1991. 

(B) Subparagraph (A) shall not apply to payments with respect 

to the capital-related costs of any hospital that is a sole community 

hospital (as defined in subsection (d)(5)(D)(iii)) or a critical access 

hospital (as defined in section 1861(mm)(1)). 

(4) In determining the amount of the payments that are attributable to portions of cost reporting periods occurring during fiscal 

years 1998 through 2002 and that may be made under this title 

with respect to capital-related costs of inpatient hospital services of 

a hospital which is described in clause (i), (ii), or (iv) of subsection 

(d)(1)(B) or a unit described in the matter after clause (v) of such 

subsection, the Secretary shall reduce the amounts of such payments otherwise determined under this title by 15 percent. 

(h) PAYMENTS FOR DIRECT GRADUATE MEDICAL EDUCATION

COSTS.— 

(1) SUBSTITUTION OF SPECIAL PAYMENT RULES.—Notwithstanding section 1861(v), instead of any amounts that are otherwise payable under this title with respect to the reasonable 

costs of hospitals for direct graduate medical education costs, 

the Secretary shall provide for payments for such costs in accordance with paragraph (3) of this subsection. In providing for 

such payments, the Secretary shall provide for an allocation of 

such payments between part A and part B (and the trust funds 

established under the respective parts) as reasonably reflects 

the proportion of direct graduate medical education costs of 

hospitals associated with the provision of services under each 

respective part. 

(2) DETERMINATION OF HOSPITAL-SPECIFIC APPROVED FTE

RESIDENT AMOUNTS.—The Secretary shall determine, for each 

hospital with an approved medical residency training program, 

an approved FTE resident amount for each cost reporting period beginning on or after July 1, 1985, as follows: 

(A) DETERMINING ALLOWABLE AVERAGE COST PER FTE

RESIDENT IN A HOSPITAL’S BASE PERIOD.—The Secretary 

shall determine, for the hospital’s cost reporting period 

that began during fiscal year 1984, the average amount 

recognized as reasonable under this title for direct graduate medical education costs of the hospital for each fulltime-equivalent resident. 

(B) UPDATING TO THE FIRST COST REPORTING PERIOD.— 

(i) IN GENERAL.—The Secretary shall update each 

average amount determined under subparagraph (A) 

by the percentage increase in the consumer price 


emcdonald on DSK67QTVN1PROD with HEARING
187 

index during the 12-month cost reporting period described in such subparagraph. 

(ii) EXCEPTION.—The Secretary shall not perform an 

update under clause (i) in the case of a hospital if the 

hospital’s reporting period, described in subparagraph 

(A), began on or after July 1, 1984, and before October 

1, 1984. 

(C) AMOUNT FOR FIRST COST REPORTING PERIOD.—For the 

first cost reporting period of the hospital beginning on or 

after July 1, 1985, the approved FTE resident amount for 

the hospital is equal to the amount determined under subparagraph (B) increased by 1 percent. 

(D) AMOUNT FOR SUBSEQUENT COST REPORTING PERIODS.— 

(i) IN GENERAL.—Except as provided in a subsequent 

clause, for each subsequent cost reporting period, the 

approved FTE resident amount for the hospital is 

equal to the approved FTE resident amount determined under this paragraph for the previous cost reporting period updated, through the midpoint of the 

period, by projecting the estimated percentage change 

in the consumer price index during the 12-month period ending at that midpoint, with appropriate adjustments to reflect previous under-or over-estimations 

under this subparagraph in the projected percentage 

change in the consumer price index. 

(ii) FREEZE IN UPDATE FOR FISCAL YEARS 1994 AND

1995.—For cost reporting periods beginning during fiscal year 1994 or fiscal year 1995, the approved FTE 

resident amount for a hospital shall not be updated 

under clause (i) for a resident who is not a primary 

care resident (as defined in paragraph (5)(H)) or a 

resident enrolled in an approved medical residency 

training program in obstetrics and gynecology. 

(iii) FLOOR FOR LOCALITY ADJUSTED NATIONAL AVER- AGE PER RESIDENT AMOUNT.—The approved FTE resident amount for a hospital for the cost reporting period beginning during fiscal year 2001 shall not be less 

than 70 percent, and for the cost reporting period beginning during fiscal year 2002 shall not be less than 

85 percent, of the locality adjusted national average 

per resident amount computed under subparagraph 

(E) for the hospital and period. 

(iv) ADJUSTMENT IN RATE OF INCREASE FOR HOSPITALS WITH FTE APPROVED AMOUNT ABOVE 140 PERCENT OF LOCALITY ADJUSTED NATIONAL AVERAGE PER

RESIDENT AMOUNT.— 

(I) FREEZE FOR FISCAL YEARS 2001 AND 2002 AND

2004 THROUGH 2013.—For a cost reporting period 

beginning during fiscal year 2001 or fiscal year 

2002 or during the period beginning with fiscal 

year 2004 and ending with fiscal year 2013, if the 

approved FTE resident amount for a hospital for 

the preceding cost reporting period exceeds 140 

percent of the locality adjusted national average 


emcdonald on DSK67QTVN1PROD with HEARING
188 

per resident amount computed under subparagraph (E) for that hospital and period, subject to 

subclause (III), the approved FTE resident 

amount for the period involved shall be the same 

as the approved FTE resident amount for the hospital for such preceding cost reporting period. 

(II) 2 PERCENT DECREASE IN UPDATE FOR FISCAL

YEARS 2003, 2004, AND 2005.—For the cost reporting 

period beginning during fiscal year 2003, if the 

approved FTE resident amount for a hospital for 

the preceding cost reporting period exceeds 140 

percent of the locality adjusted national average 

per resident amount computed under subparagraph (E) for that hospital and preceding period, 

the approved FTE resident amount for the period 

involved shall be updated in the manner described 

in subparagraph (D)(i) except that, subject to subclause (III), the consumer price index applied for 

a 12-month period shall be reduced (but not below 

zero) by 2 percentage points. 

(III) NO ADJUSTMENT BELOW 140 PERCENT.—In 

no case shall subclause (I) or (II) reduce an approved FTE resident amount for a hospital for a 

cost reporting period below 140 percent of the locality adjusted national average per resident 

amount computed under subparagraph (E) for 

such hospital and period. 

(E) DETERMINATION OF LOCALITY ADJUSTED NATIONAL AVERAGE PER RESIDENT AMOUNT.—The Secretary shall determine a locality adjusted national average per resident 

amount with respect to a cost reporting period of a hospital beginning during a fiscal year as follows: 

(i) DETERMINING HOSPITAL SINGLE PER RESIDENT

AMOUNT.—The Secretary shall compute for each hospital operating an approved graduate medical education program a single per resident amount equal to 

the average (weighted by number of full-time equivalent residents, as determined under paragraph (4)) of 

the primary care per resident amount and the non-primary care per resident amount computed under paragraph (2) for cost reporting periods ending during fiscal year 1997. 

(ii) STANDARDIZING PER RESIDENT AMOUNTS.—The 

Secretary shall compute a standardized per resident 

amount for each such hospital by dividing the single 

per resident amount computed under clause (i) by an 

average of the 3 geographic index values (weighted by 

the national average weight for each of the work, practice expense, and malpractice components) as applied 

under section 1848(e) for 1999 for the fee schedule 

area in which the hospital is located. 

(iii) COMPUTING OF WEIGHTED AVERAGE.—The Secretary shall compute the average of the standardized 

per resident amounts computed under clause (ii) for 

such hospitals, with the amount for each hospital 


emcdonald on DSK67QTVN1PROD with HEARING
189 

weighted by the average number of full-time equivalent residents at such hospital (as determined under 

paragraph (4)). 

(iv) COMPUTING NATIONAL AVERAGE PER RESIDENT

AMOUNT.—The Secretary shall compute the national 

average per resident amount, for a hospital’s cost reporting period that begins during fiscal year 2001, 

equal to the weighted average computed under clause 

(iii) increased by the estimated percentage increase in 

the consumer price index for all urban consumers during the period beginning with the month that represents the midpoint of the cost reporting periods described in clause (i) and ending with the midpoint of 

the hospital’s cost reporting period that begins during 

fiscal year 2001. 

(v) ADJUSTING FOR LOCALITY.—The Secretary shall 

compute the product of— 

(I) the national average per resident amount 

computed under clause (iv) for the hospital, and 

(II) the geographic index value average (described and applied under clause (ii)) for the fee 

schedule area in which the hospital is located. 

(vi) COMPUTING LOCALITY ADJUSTED AMOUNT.—The 

locality adjusted national per resident amount for a 

hospital for— 

(I) the cost reporting period beginning during 

fiscal year 2001 is the product computed under 

clause (v); or 

(II) each subsequent cost reporting period is 

equal to the locality adjusted national per resident 

amount for the hospital for the previous cost reporting period (as determined under this clause) 

updated, through the midpoint of the period, by 

projecting the estimated percentage change in the 

consumer price index for all urban consumers during the 12-month period ending at that midpoint. 

(F) TREATMENT OF CERTAIN HOSPITALS.—In the case of a 

hospital that did not have an approved medical residency 

training program or was not participating in the program 

under this title for a cost reporting period beginning during fiscal year 1984, the Secretary shall, for the first such 

period for which it has such a residency training program 

and is participating under this title, provide for such approved FTE resident amount as the Secretary determines 

to be appropriate, based on approved FTE resident 

amounts for comparable programs. 

(3) HOSPITAL PAYMENT AMOUNT PER RESIDENT.— 

(A) IN GENERAL.—The payment amount, for a hospital 

cost reporting period beginning on or after July 1, 1985, is 

equal to the product of— 

(i) the aggregate approved amount (as defined in 

subparagraph (B)) for that period, and 

(ii) the hospital’s medicare patient load (as defined 

in subparagraph (C)) for that period. 


emcdonald on DSK67QTVN1PROD with HEARING
190 

(B) AGGREGATE APPROVED AMOUNT.—As used in subparagraph (A), the term ‘‘aggregate approved amount’’ 

means, for a hospital cost reporting period, the product 

of— 

(i) the hospital’s approved FTE resident amount (determined under paragraph (2)) for that period, and 

(ii) the weighted average number of full-time-equivalent residents (as determined under paragraph (4)) in 

the hospital’s approved medical residency training programs in that period. 

The Secretary shall reduce the aggregate approved amount to 

the extent payment is made under subsection (k) for residents 

included in the hospital’s count of full-time equivalent residents. 

(C) MEDICARE PATIENT LOAD.—As used in subparagraph 

(A), the term ‘‘medicare patient load’’ means, with respect 

to a hospital’s cost reporting period, the fraction of the 

total number of inpatient-bed-days (as established by the 

Secretary) during the period which are attributable to patients with respect to whom payment may be made under 

part A. 

(D) PAYMENT FOR MANAGED CARE ENROLLEES.— 

(i) IN GENERAL.—For portions of cost reporting periods occurring on or after January 1, 1998, the Secretary shall provide for an additional payment amount 

under this subsection for services furnished to individuals who are enrolled under a risk-sharing contract 

with an eligible organization under section 1876 and 

who are entitled to part A or with a Medicare+Choice 

organization under part C. The amount of such a payment shall equal, subject to clause (iii), the applicable 

percentage of the product of— 

(I) the aggregate approved amount (as defined 

in subparagraph (B)) for that period; and 

(II) the fraction of the total number of inpatientbed days (as established by the Secretary) during 

the period which are attributable to such enrolled 

individuals. 

(ii) APPLICABLE PERCENTAGE.—For purposes of 

clause (i), the applicable percentage is— 

(I) 20 percent in 1998, 

(II) 40 percent in 1999, 

(III) 60 percent in 2000, 

(IV) 80 percent in 2001, and 

(V) 100 percent in 2002 and subsequent years. 

(iii) PROPORTIONAL REDUCTION FOR NURSING AND ALLIED HEALTH EDUCATION.—The Secretary shall estimate a proportional adjustment in payments to all 

hospitals determined under clauses (i) and (ii) for portions of cost reporting periods beginning in a year (beginning with 2000) such that the proportional adjustment reduces payments in an amount for such year 

equal to the total additional payment amounts for 

nursing and allied health education determined under 


emcdonald on DSK67QTVN1PROD with HEARING
191 

subsection (l) for portions of cost reporting periods occurring in that year. 

(iv) SPECIAL RULE FOR HOSPITALS UNDER REIMBURSEMENT SYSTEM.—The Secretary shall establish rules for 

the application of this subparagraph to a hospital reimbursed under a reimbursement system authorized 

under section 1814(b)(3) in the same manner as it 

would apply to the hospital if it were not reimbursed 

under such section. 

(4) DETERMINATION OF FULL-TIME-EQUIVALENT RESIDENTS.— 

(A) RULES.—The Secretary shall establish rules consistent with this paragraph for the computation of the 

number of full-time- equivalent residents in an approved 

medical residency training program. 

(B) ADJUSTMENT FOR PART-YEAR OR PART-TIME RESIDENTS.—Such rules shall take into account individuals 

who serve as residents for only a portion of a period with 

a hospital or simultaneously with more than one hospital. 

(C) WEIGHTING FACTORS FOR CERTAIN RESIDENTS.—Subject to subparagraph (D), such rules shall provide, in calculating the number of full-time-equivalent residents in an 

approved residency program— 

(i) before July 1, 1986, for each resident the 

weighting factor is 1.00, 

(ii) on or after July 1, 1986, for a resident who is in 

the resident’s initial residency period (as defined in 

paragraph (5)(F)), the weighting factor is 1.00, 

(iii) on or after July 1, 1986, and before July 1, 1987, 

for a resident who is not in the resident’s initial residency period (as defined in paragraph (5)(F)), the 

weighting factor is .75, and 

(iv) on or after July 1, 1987, for a resident who is 

not in the resident’s initial residency period (as defined in paragraph (5)(F)), the weighting factor is .50. 

(D) FOREIGN MEDICAL GRADUATES REQUIRED TO PASS

FMGEMS EXAMINATION.— 

(i) IN GENERAL.—Except as provided in clause (ii), 

such rules shall provide that, in the case of an individual who is a foreign medical graduate (as defined 

in paragraph (5)(D)), the individual shall not be counted as a resident on or after July 1, 1986, unless— 

(I) the individual has passed the FMGEMS examination (as defined in paragraph (5)(E)), or 

(II) the individual has previously received certification from, or has previously passed the examination of, the Educational Commission for Foreign Medical Graduates. 

(ii) TRANSITION FOR CURRENT FMGS.—On or after 

July 1, 1986, but before July 1, 1987, in the case of a 

foreign medical graduate who— 

(I) has served as a resident before July 1, 1986, 

and is serving as a resident after that date, but 

(II) has not passed the FMGEMS examination 

or a previous examination of the Educational 


emcdonald on DSK67QTVN1PROD with HEARING
192 

Commission for Foreign Medical Graduates before 

July 1, 1986, 

the individual shall be counted as a resident at a rate 

equal to one-half of the rate at which the individual 

would otherwise be counted. 

(E) COUNTING TIME SPENT IN OUTPATIENT SETTINGS.— Subject to subparagraphs (J) and (K), such rules shall provide that only time spent in activities relating to patient 

care shall be counted and that— 

(i) effective for cost reporting periods beginning before July 1, 2010, all the time; 

(ii) effective for cost reporting periods beginning on 

or after July 1, 2010, all the time so spent by a resident shall be counted towards the determination of 

full-time equivalency, without regard to the setting in 

which the activities are performed, if a hospital incurs 

the costs of the stipends and fringe benefits of the 

resident during the time the resident spends in that 

setting. If more than one hospital incurs these costs, 

either directly or through a third party, such hospitals 

shall count a proportional share of the time, as determined by written agreement between the hospitals, 

that a resident spends training in that setting. 

so spent by a resident under an approved medical residency training program shall be counted towards the determination of full-time equivalency, without regard to the 

setting in which the activities are performed, if the hospital incurs all, or substantially all, of the costs for the 

training program in that setting. 

Any hospital claiming under this subparagraph for time 

spent in a nonprovider setting shall maintain and make 

available to the Secretary records regarding the amount of 

such time and such amount in comparison with amounts 

of such time in such base year as the Secretary shall specify. 

(F) LIMITATION ON NUMBER OF RESIDENTS IN ALLOPATHIC

AND OSTEOPATHIC MEDICINE.— (i) IN GENERAL.—Such rules shall provide that for 

purposes of a cost reporting period beginning on or 

after October 1, 1997, subject to paragraphs (7) and 

(8), the total number of full-time equivalent residents 

before application of weighting factors (as determined 

under this paragraph) with respect to a hospital’s approved medical residency training program in the 

fields of allopathic medicine and osteopathic medicine 

may not exceed the number (or, 130 percent of such 

number in the case of a hospital located in a rural 

area) of such full-time equivalent residents for the 

hospital’s most recent cost reporting period ending on 

or before December 31, 1996. 

(ii) COUNTING PRIMARY CARE RESIDENTS ON CERTAIN

APPROVED LEAVES OF ABSENCE IN BASE YEAR FTE

COUNT.— 

(I) IN GENERAL.—In determining the number of 

such full-time equivalent residents for a hospital’s 


emcdonald on DSK67QTVN1PROD with HEARING
193 

most recent cost reporting period ending on or before December 31, 1996, for purposes of clause (i), 

the Secretary shall count an individual to the extent that the individual would have been counted 

as a primary care resident for such period but for 

the fact that the individual, as determined by the 

Secretary, was on maternity or disability leave or 

a similar approved leave of absence. 

(II) LIMITATION TO 3 FTE RESIDENTS FOR ANY

HOSPITAL.—The total number of individuals counted under subclause (I) for a hospital may not exceed 3 full-time equivalent residents. 

(G) COUNTING INTERNS AND RESIDENTS FOR FY 1998 AND

SUBSEQUENT YEARS.— 

(i) IN GENERAL.—For cost reporting periods beginning during fiscal years beginning on or after October 

1, 1997, subject to the limit described in subparagraph 

(F), the total number of full-time equivalent residents 

for determining a hospital’s graduate medical education payment shall equal the average of the actual 

full-time equivalent resident counts for the cost reporting period and the preceding two cost reporting periods. 

(ii) ADJUSTMENT FOR SHORT PERIODS.—If any cost reporting period beginning on or after October 1, 1997, 

is not equal to twelve months, the Secretary shall 

make appropriate modifications to ensure that the average full-time equivalent resident counts pursuant to 

clause (i) are based on the equivalent of full twelvemonth cost reporting periods. 

(iii) TRANSITION RULE FOR 1998.—In the case of a 

hospital’s first cost reporting period beginning on or 

after October 1, 1997, clause (i) shall be applied by 

using the average for such period and the preceding 

cost reporting period. 

(H) SPECIAL RULES FOR APPLICATION OF SUBPARAGRAPHS

(F) AND (G).— (i) NEW FACILITIES.—The Secretary shall, consistent 

with the principles of subparagraphs (F) and (G) and 

subject to paragraphs (7) and (8), prescribe rules for 

the application of such subparagraphs in the case of 

medical residency training programs established on or 

after January 1, 1995. In promulgating such rules for 

purposes of subparagraph (F), the Secretary shall give 

special consideration to facilities that meet the needs 

of underserved rural areas. 

(ii) AGGREGATION.—The Secretary may prescribe 

rules which allow institutions which are members of 

the same affiliated group (as defined by the Secretary) 

to elect to apply the limitation of subparagraph (F) on 

an aggregate basis. 

(iii) DATA COLLECTION.—The Secretary may require 

any entity that operates a medical residency training 

program and to which subparagraphs (F) and (G) 

apply to submit to the Secretary such additional inforVerDate Sep 11 2014 01:51 Jun 18, 2015 Jkt 049006 PO 00000 Frm 00193 Fmt 6659 Sfmt 6602 E:\HR\OC\HR156.XXX HR156

emcdonald on DSK67QTVN1PROD with HEARING
194 

mation as the Secretary considers necessary to carry 

out such subparagraphs. 

(iv) NONRURAL HOSPITALS OPERATING TRAINING PRO- GRAMS IN RURAL AREAS.—In the case of a hospital that 

is not located in a rural area but establishes separately accredited approved medical residency training 

programs (or rural tracks) in an rural area or has an 

accredited training program with an integrated rural 

track, the Secretary shall adjust the limitation under 

subparagraph (F) in an appropriate manner insofar as 

it applies to such programs in such rural areas in 

order to encourage the training of physicians in rural 

areas. 

(v) SPECIAL PROVIDER AGREEMENT.—If an entity enters into a provider agreement pursuant to section 

1866(a) to provide hospital services on the same physical site previously used by Medicare Provider No. 05– 

0578— 

(I) the limitation on the number of total full 

time equivalent residents under subparagraph (F) 

and clauses (v) and (vi)(I) of subsection (d)(5)(B) 

applicable to such provider shall be equal to the 

limitation applicable under such provisions to Provider No. 05–0578 for its cost reporting period 

ending on June 30, 2006; and 

(II) the provisions of subparagraph (G) and subsection (d)(5)(B)(vi)(II) shall not be applicable to 

such provider for the first three cost reporting 

years in which such provider trains residents 

under any approved medical residency training 

program. 

(vi) REDISTRIBUTION OF RESIDENCY SLOTS AFTER A

HOSPITAL CLOSES.— (I) IN GENERAL.—Subject to the succeeding provisions of this clause, the Secretary shall, by regulation, establish a process under which, in the 

case where a hospital (other than a hospital described in clause (v)) with an approved medical 

residency program closes on or after a date that is 

2 years before the date of enactment of this 

clause, the Secretary shall increase the otherwise 

applicable resident limit under this paragraph for 

other hospitals in accordance with this clause. 

(II) PRIORITY FOR HOSPITALS IN CERTAIN

AREAS.—Subject to the succeeding provisions of 

this clause, in determining for which hospitals the 

increase in the otherwise applicable resident limit 

is provided under such process, the Secretary 

shall distribute the increase to hospitals in the following priority order (with preference given within each category to hospitals that are members of 

the same affiliated group (as defined by the Secretary under clause (ii)) as the closed hospital): 

(aa) First, to hospitals located in the same 

core-based statistical area as, or a core-based 


emcdonald on DSK67QTVN1PROD with HEARING
195 

statistical area contiguous to, the hospital 

that closed. 

(bb) Second, to hospitals located in the 

same State as the hospital that closed. 

(cc) Third, to hospitals located in the same 

region of the country as the hospital that 

closed. 

(dd) Fourth, only if the Secretary is not able 

to distribute the increase to hospitals described in item (cc), to qualifying hospitals in 

accordance with the provisions of paragraph 

(8). 

(III) REQUIREMENT HOSPITAL LIKELY TO FILL POSITION WITHIN CERTAIN TIME PERIOD.—The Secretary may only increase the otherwise applicable 

resident limit of a hospital under such process if 

the Secretary determines the hospital has demonstrated a likelihood of filling the positions made 

available under this clause within 3 years. 

(IV) LIMITATION.—The aggregate number of increases in the otherwise applicable resident limits 

for hospitals under this clause shall be equal to 

the number of resident positions in the approved 

medical residency programs that closed on or after 

the date described in subclause (I). 

(V) ADMINISTRATION.—Chapter 35 of title 44, 

United States Code, shall not apply to the implementation of this clause. 

(J) TREATMENT OF CERTAIN NONPROVIDER AND DIDACTIC

ACTIVITIES.—Such rules shall provide that all time spent 

by an intern or resident in an approved medical residency 

training program in a nonprovider setting that is primarily 

engaged in furnishing patient care (as defined in paragraph (5)(K)) in non-patient care activities, such as didactic conferences and seminars, but not including research 

not associated with the treatment or diagnosis of a particular patient, as such time and activities are defined by 

the Secretary, shall be counted toward the determination 

of full-time equivalency. 

(K) TREATMENT OF CERTAIN OTHER ACTIVITIES.—In determining the hospital’s number of full-time equivalent residents for purposes of this subsection, all the time that is 

spent by an intern or resident in an approved medical residency training program on vacation, sick leave, or other 

approved leave, as such time is defined by the Secretary, 

and that does not prolong the total time the resident is 

participating in the approved program beyond the normal 

duration of the program shall be counted toward the determination of full-time equivalency. 

(5) DEFINITIONS AND SPECIAL RULES.—As used in this subsection: 

(A) APPROVED MEDICAL RESIDENCY TRAINING PROGRAM.— The term ‘‘approved medical residency training program’’ 

means a residency or other postgraduate medical training 

program participation in which may be counted toward 


emcdonald on DSK67QTVN1PROD with HEARING
196 

certification in a specialty or subspecialty and includes formal postgraduate training programs in geriatric medicine 

approved by the Secretary. 

(B) CONSUMER PRICE INDEX.—The term ‘‘consumer price 

index’’ refers to the Consumer Price Index for All Urban 

Consumers (United States city average), as published by 

the Secretary of Commerce. 

(C) DIRECT GRADUATE MEDICAL EDUCATION COSTS.—The 

term ‘‘direct graduate medical education costs’’ means direct costs of approved educational activities for approved 

medical residency training programs. 

(D) FOREIGN MEDICAL GRADUATE.—The term ‘‘foreign 

medical graduate’’ means a resident who is not a graduate 

of— 

(i) a school of medicine accredited by the Liaison 

Committee on Medical Education of the American 

Medical Association and the Association of American 

Medical Colleges (or approved by such Committee as 

meeting the standards necessary for such accreditation), 

(ii) a school of osteopathy accredited by the American Osteopathic Association, or approved by such Association as meeting the standards necessary for such 

accreditation, or 

(iii) a school of dentistry or podiatry which is accredited (or meets the standards for accreditation) by an 

organization recognized by the Secretary for such purpose. 

(E) FMGEMS EXAMINATION.—The term ‘‘FMGEMS examination’’ means parts I and II of the Foreign Medical 

Graduate Examination in the Medical Sciences or any successor examination recognized by the Secretary for this 

purpose. 

(F) INITIAL RESIDENCY PERIOD.—The term ‘‘initial residency period’’ means the period of board eligibility, except 

that— 

(i) except as provided in clause (ii), in no case shall 

the initial period of residency exceed an aggregate period of formal training of more than five years for any 

individual, and 

(ii) a period, of not more than two years, during 

which an individual is in a geriatric residency or fellowship program or a preventive medicine residency or 

fellowship program which meets such criteria as the 

Secretary may establish, shall be treated as part of 

the initial residency period, but shall not be counted 

against any limitation on the initial residency period. 

Subject to subparagraph (G)(v), the initial residency period 

shall be determined, with respect to a resident, as of the 

time the resident enters the residency training program. 

(G) PERIOD OF BOARD ELIGIBILITY.— (i) GENERAL RULE.—Subject to clauses (ii), (iii), (iv), 

and (v), the term ‘‘period of board eligibility’’ means, 

for a resident, the minimum number of years of formal 

training necessary to satisfy the requirements for iniVerDate Sep 11 2014 01:51 Jun 18, 2015 Jkt 049006 PO 00000 Frm 00196 Fmt 6659 Sfmt 6602 E:\HR\OC\HR156.XXX HR156

emcdonald on DSK67QTVN1PROD with HEARING
197 

tial board eligibility in the particular specialty for 

which the resident is training. 

(ii) APPLICATION OF 1985–1986 DIRECTORY.—Except as 

provided in clause (iii), the period of board eligibility 

shall be such period specified in the 1985–1986 Directory of Residency Training Programs published by the 

Accreditation Council on Graduate Medical Education. 

(iii) CHANGES IN PERIOD OF BOARD ELIGIBILITY.—On 

or after July 1, 1989, if the Accreditation Council on 

Graduate Medical Education, in its Directory of Residency Training Programs— 

(I) increases the minimum number of years of 

formal training necessary to satisfy the requirements for a specialty, above the period specified in 

its 1985–1986 Directory, the Secretary may increase the period of board eligibility for that specialty, but not to exceed the period of board eligibility specified in that later Directory, or 

(II) decreases the minimum number of years of 

formal training necessary to satisfy the requirements for a specialty, below the period specified in 

its 1985–1986 Directory, the Secretary may decrease the period of board eligibility for that specialty, but not below the period of board eligibility 

specified in that later Directory. 

(iv) SPECIAL RULE FOR CERTAIN PRIMARY CARE COM- BINED RESIDENCY PROGRAMS.—(I) In the case of a resident enrolled in a combined medical residency training 

program in which all of the individual programs (that 

are combined) are for training a primary care resident 

(as defined in subparagraph (H)), the period of board 

eligibility shall be the minimum number of years of 

formal training required to satisfy the requirements 

for initial board eligibility in the longest of the individual programs plus one additional year. 

(II) A resident enrolled in a combined medical residency training program that includes an obstetrics 

and gynecology program shall qualify for the period of 

board eligibility under subclause (I) if the other programs such resident combines with such obstetrics 

and gynecology program are for training a primary 

care resident. 

(v) CHILD NEUROLOGY TRAINING PROGRAMS.—In the 

case of a resident enrolled in a child neurology residency training program, the period of board eligibility 

and the initial residency period shall be the period of 

board eligibility for pediatrics plus 2 years. 

(H) PRIMARY CARE RESIDENT.—The term ‘‘primary care 

resident’’ means a resident enrolled in an approved medical residency training program in family medicine, general internal medicine, general pediatrics, preventive medicine, geriatric medicine, or osteopathic general practice. 

(I) RESIDENT.—The term ‘‘resident’’ includes an intern or 

other participant in an approved medical residency training program. 


emcdonald on DSK67QTVN1PROD with HEARING
198 

(J) ADJUSTMENTS FOR CERTAIN FAMILY PRACTICE RESI- DENCY PROGRAMS.— (i) IN GENERAL.—In the case of an approved medical 

residency training program (meeting the requirements 

of clause (ii)) of a hospital which received funds from 

the United States, a State, or a political subdivision of 

a State or an instrumentality of such a State or political subdivision (other than payments under this title 

or a State plan under title XIX) for the program during the cost reporting period that began during fiscal 

year 1984, the Secretary shall— 

(I) provide for an average amount under paragraph (2)(A) that takes into account the Secretary’s estimate of the amount that would have 

been recognized as reasonable under this title if 

the hospital had not received such funds, and 

(II) reduce the payment amount otherwise provided under this subsection in an amount equal to 

the proportion of such program funds received 

during the cost reporting period involved that is 

allocable to this title. 

(ii) ADDITIONAL REQUIREMENTS.—A hospital’s approved medical residency program meets the requirements of this clause if— 

(I) the program is limited to training for family 

and community medicine; 

(II) the program is the only approved medical 

residency program of the hospital; and 

(III) the average amount determined under 

paragraph (2)(A) for the hospital (as determined 

without regard to the increase in such amount described in clause (i)(I)) does not exceed $10,000. 

(K) NONPROVIDER SETTING THAT IS PRIMARILY ENGAGED

IN FURNISHING PATIENT CARE.—The term ‘‘nonprovider setting that is primarily engaged in furnishing patient care’’ 

means a nonprovider setting in which the primary activity 

is the care and treatment of patients, as defined by the 

Secretary. 

(6) INCENTIVE PAYMENT UNDER PLANS FOR VOLUNTARY RE- DUCTION IN NUMBER OF RESIDENTS.— 

(A) IN GENERAL.—In the case of a voluntary residency 

reduction plan for which an application is approved under 

subparagraph (B), subject to subparagraph (F), each hospital which is part of the qualifying entity submitting the 

plan shall be paid an applicable hold harmless percentage 

(as specified in subparagraph (E)) of the sum of— 

(i) the amount (if any) by which— 

(I) the amount of payment which would have 

been made under this subsection if there had been 

a 5-percent reduction in the number of full-time 

equivalent residents in the approved medical education training programs of the hospital as of 

June 30, 1997, exceeds 

(II) the amount of payment which is made 

under this subsection, taking into account the reVerDate Sep 11 2014 01:51 Jun 18, 2015 Jkt 049006 PO 00000 Frm 00198 Fmt 6659 Sfmt 6602 E:\HR\OC\HR156.XXX HR156

emcdonald on DSK67QTVN1PROD with HEARING
199 

duction in such number effected under the reduction plan; and 

(ii) the amount of the reduction in payment under 

subsection (d)(5)(B) for the hospital that is attributable to the reduction in number of residents effected 

under the plan below 95 percent of the number of fulltime equivalent residents in such programs of the hospital as of June 30, 1997. 

The determination of the amounts under clauses (i) and (ii) 

for any year shall be made on the basis of the provisions 

of this title in effect on the application deadline date for 

the first calendar year to which the reduction plan applies. 

(B) APPROVAL OF PLAN APPLICATIONS.—The Secretary 

may not approve the application of an qualifying entity unless— 

(i) the application is submitted in a form and manner specified by the Secretary and by not later than 

November 1, 1999, 

(ii) the application provides for the operation of a 

plan for the reduction in the number of full-time 

equivalent residents in the approved medical residency 

training programs of the entity consistent with the requirements of subparagraph (D); 

(iii) the entity elects in the application the period of 

residency training years (not greater than 5) over 

which the reduction will occur; 

(iv) the entity will not reduce the proportion of its 

residents in primary care (to the total number of residents) below such proportion as in effect as of the applicable time described in subparagraph (D)(v); and 

(v) the Secretary determines that the application 

and the entity and such plan meet such other requirements as the Secretary specifies in regulations. 

(C) QUALIFYING ENTITY.—For purposes of this paragraph, any of the following may be a qualifying entity: 

(i) Individual hospitals operating one or more approved medical residency training programs. 

(ii) Two or more hospitals that operate such programs and apply for treatment under this paragraph 

as a single qualifying entity. 

(iii) A qualifying consortium (as described in section 

4628 of the Balanced Budget Act of 1997). 

(D) RESIDENCY REDUCTION REQUIREMENTS.— 

(i) INDIVIDUAL HOSPITAL APPLICANTS.—In the case of 

a qualifying entity described in subparagraph (C)(i), 

the number of full-time equivalent residents in all the 

approved medical residency training programs operated by or through the entity shall be reduced as follows: 

(I) If the base number of residents exceeds 750 

residents, by a number equal to at least 20 percent of such base number. 

(II) Subject to subclause (IV), if the base number of residents exceeds 600 but is less than 750 

residents, by 150 residents. 


emcdonald on DSK67QTVN1PROD with HEARING
200 

(III) Subject to subclause (IV), if the base number of residents does not exceed 600 residents, by 

a number equal to at least 25 percent of such base 

number. 

(IV) In the case of a qualifying entity which is 

described in clause (v) and which elects treatment 

under this subclause, by a number equal to at 

least 20 percent of the base number. 

(ii) JOINT APPLICANTS.—In the case of a qualifying 

entity described in subparagraph (C)(ii), the number of 

full-time equivalent residents in the aggregate for all 

the approved medical residency training programs operated by or through the entity shall be reduced as follows: 

(I) Subject to subclause (II), by a number equal 

to at least 25 percent of the base number. 

(II) In the case of such a qualifying entity which 

is described in clause (v) and which elects treatment under this subclause, by a number equal to 

at least 20 percent of the base number. 

(iii) CONSORTIA.—In the case of a qualifying entity 

described in subparagraph (C)(iii), the number of fulltime equivalent residents in the aggregate for all the 

approved medical residency training programs operated by or through the entity shall be reduced by a 

number equal to at least 20 percent of the base number. 

(iv) MANNER OF REDUCTION.—The reductions specified under the preceding provisions of this subparagraph for a qualifying entity shall be below the base 

number of residents for that entity and shall be fully 

effective not later than the 5th residency training year 

in which the application under subparagraph (B) is effective. 

(v) ENTITIES PROVIDING ASSURANCE OF INCREASE IN

PRIMARY CARE RESIDENTS.—An entity is described in 

this clause if— 

(I) the base number of residents for the entity 

is less than 750 or the entity is described in subparagraph (C)(ii); and 

(II) the entity represents in its application 

under subparagraph (B) that it will increase the 

number of full-time equivalent residents in primary care by at least 20 percent (from such number included in the base number of residents) by 

not later than the 5th residency training year in 

which the application under subparagraph (B) is 

effective. 

If a qualifying entity fails to comply with the representation described in subclause (II) by the end of such 

5th residency training year, the entity shall be subject 

to repayment of all amounts paid under this paragraph, in accordance with procedures established to 

carry out subparagraph (F). 


emcdonald on DSK67QTVN1PROD with HEARING
201 

(vi) BASE NUMBER OF RESIDENTS DEFINED.—For purposes of this paragraph, the term ‘‘base number of 

residents’’ means, with respect to a qualifying entity 

(or its participating hospitals) operating approved 

medical residency training programs, the number of 

full-time equivalent residents in such programs (before 

application of weighting factors) of the entity as of the 

most recent residency training year ending before 

June 30, 1997, or, if less, for any subsequent residency 

training year that ends before the date the entity 

makes application under this paragraph. 

(E) APPLICABLE HOLD HARMLESS PERCENTAGE.—For purposes of subparagraph (A), the ‘‘applicable hold harmless 

percentage’’ for the— 

(i) first and second residency training years in which 

the reduction plan is in effect, 100 percent, 

(ii) third such year, 75 percent, 

(iii) fourth such year, 50 percent, and 

(iv) fifth such year, 25 percent. 

(F) PENALTY FOR NONCOMPLIANCE.— 

(i) IN GENERAL.—No payment may be made under 

this paragraph to a hospital for a residency training 

year if the hospital has failed to reduce the number of 

full-time equivalent residents (in the manner required 

under subparagraph (D)) to the number agreed to by 

the Secretary and the qualifying entity in approving 

the application under this paragraph with respect to 

such year. 

(ii) INCREASE IN NUMBER OF RESIDENTS IN SUBSEQUENT YEARS.—If payments are made under this paragraph to a hospital, and if the hospital increases the 

number of full-time equivalent residents above the 

number of such residents permitted under the reduction plan as of the completion of the plan, then, as 

specified by the Secretary, the entity is liable for repayment to the Secretary of the total amounts paid 

under this paragraph to the entity. 

(G) TREATMENT OF ROTATING RESIDENTS.—In applying 

this paragraph, the Secretary shall establish rules regarding the counting of residents who are assigned to institutions the medical residency training programs in which are 

not covered under approved applications under this paragraph. 

(7) REDISTRIBUTION OF UNUSED RESIDENT POSITIONS.— 

(A) REDUCTION IN LIMIT BASED ON UNUSED POSITIONS.— 

(i) PROGRAMS SUBJECT TO REDUCTION.— 

(I) IN GENERAL.—Except as provided in subclause (II), if a hospital’s reference resident level 

(specified in clause (ii)) is less than the otherwise 

applicable resident limit (as defined in subparagraph (C)(ii)), effective for portions of cost reporting periods occurring on or after July 1, 2005, the 

otherwise applicable resident limit shall be reduced by 75 percent of the difference between 


emcdonald on DSK67QTVN1PROD with HEARING
202 

such otherwise applicable resident limit and such 

reference resident level. 

(II) EXCEPTION FOR SMALL RURAL HOSPITALS.— 

This subparagraph shall not apply to a hospital 

located in a rural area (as defined in subsection 

(d)(2)(D)(ii)) with fewer than 250 acute care inpatient beds. 

(ii) REFERENCE RESIDENT LEVEL.— 

(I) IN GENERAL.—Except as otherwise provided 

in subclauses (II) and (III), the reference resident 

level specified in this clause for a hospital is the 

resident level for the most recent cost reporting 

period of the hospital ending on or before September 30, 2002, for which a cost report has been 

settled (or, if not, submitted (subject to audit)), as 

determined by the Secretary. 

(II) USE OF MOST RECENT ACCOUNTING PERIOD

TO RECOGNIZE EXPANSION OF EXISTING PROGRAMS.—If a hospital submits a timely request to 

increase its resident level due to an expansion of 

an existing residency training program that is not 

reflected on the most recent settled cost report, 

after audit and subject to the discretion of the 

Secretary, the reference resident level for such 

hospital is the resident level for the cost reporting 

period that includes July 1, 2003, as determined 

by the Secretary. 

(III) EXPANSIONS UNDER NEWLY APPROVED PROGRAMS.—Upon the timely request of a hospital, 

the Secretary shall adjust the reference resident 

level specified under subclause (I) or (II) to include the number of medical residents that were 

approved in an application for a medical residency 

training program that was approved by an appropriate accrediting organization (as determined by 

the Secretary) before January 1, 2002, but which 

was not in operation during the cost reporting period used under subclause (I) or (II), as the case 

may be, as determined by the Secretary. 

(iii) AFFILIATION.—The provisions of clause (i) shall 

be applied to hospitals which are members of the same 

affiliated group (as defined by the Secretary under 

paragraph (4)(H)(ii)) as of July 1, 2003. 

(B) REDISTRIBUTION.— 

(i) IN GENERAL.—The Secretary is authorized to increase the otherwise applicable resident limit for each 

qualifying hospital that submits a timely application 

under this subparagraph by such number as the Secretary may approve for portions of cost reporting periods occurring on or after July 1, 2005. The aggregate 

number of increases in the otherwise applicable resident limits under this subparagraph may not exceed 

the Secretary’s estimate of the aggregate reduction in 

such limits attributable to subparagraph (A). 


emcdonald on DSK67QTVN1PROD with HEARING
203 

(ii) CONSIDERATIONS IN REDISTRIBUTION.—In determining for which hospitals the increase in the otherwise applicable resident limit is provided under clause 

(i), the Secretary shall take into account the demonstrated likelihood of the hospital filling the positions 

within the first 3 cost reporting periods beginning on 

or after July 1, 2005, made available under this subparagraph, as determined by the Secretary. 

(iii) PRIORITY FOR RURAL AND SMALL URBAN AREAS.— 

In determining for which hospitals and residency 

training programs an increase in the otherwise applicable resident limit is provided under clause (i), the 

Secretary shall distribute the increase to programs of 

hospitals located in the following priority order: 

(I) First, to hospitals located in rural areas (as 

defined in subsection (d)(2)(D)(ii)). 

(II) Second, to hospitals located in urban areas 

that are not large urban areas (as defined for purposes of subsection (d)). 

(III) Third, to other hospitals in a State if the 

residency training program involved is in a specialty for which there are not other residency 

training programs in the State. 

Increases of residency limits within the same priority 

category under this clause shall be determined by the 

Secretary. 

(iv) LIMITATION.—In no case shall more than 25 fulltime equivalent additional residency positions be made 

available under this subparagraph with respect to any 

hospital. 

(v) APPLICATION OF LOCALITY ADJUSTED NATIONAL

AVERAGE PER RESIDENT AMOUNT.—With respect to additional residency positions in a hospital attributable 

to the increase provided under this subparagraph, notwithstanding any other provision of this subsection, 

the approved FTE resident amount is deemed to be 

equal to the locality adjusted national average per 

resident amount computed under paragraph (4)(E) for 

that hospital. 

(vi) CONSTRUCTION.—Nothing in this subparagraph 

shall be construed as permitting the redistribution of 

reductions in residency positions attributable to voluntary reduction programs under paragraph (6), under 

a demonstration project approved as of October 31, 

2003, under the authority of section 402 of Public Law 

90–248, or as affecting the ability of a hospital to establish new medical residency training programs 

under paragraph (4)(H). 

(C) RESIDENT LEVEL AND LIMIT DEFINED.—In this paragraph: 

(i) RESIDENT LEVEL.—The term ‘‘resident level’’ 

means, with respect to a hospital, the total number of 

full-time equivalent residents, before the application of 

weighting factors (as determined under paragraph (4)), 


emcdonald on DSK67QTVN1PROD with HEARING
204 

in the fields of allopathic and osteopathic medicine for 

the hospital. 

(ii) OTHERWISE APPLICABLE RESIDENT LIMIT.—The 

term ‘‘otherwise applicable resident limit’’ means, with 

respect to a hospital, the limit otherwise applicable 

under subparagraphs (F)(i) and (H) of paragraph (4) 

on the resident level for the hospital determined without regard to this paragraph. 

(D) ADJUSTMENT BASED ON SETTLED COST REPORT.—In 

the case of a hospital with a dual accredited osteopathic 

and allopathic family practice program for which— 

(i) the otherwise applicable resident limit was reduced under subparagraph (A)(i)(I); and 

(ii) such reduction was based on a reference resident 

level that was determined using a cost report and 

where a revised or corrected notice of program reimbursement was issued for such cost report between 

September 1, 2006 and September 15, 2006, whether 

as a result of an appeal or otherwise, and the reference resident level under such settled cost report is 

higher than the level used for the reduction under 

subparagraph (A)(i)(I); 

the Secretary shall apply subparagraph (A)(i)(I) using the 

higher resident reference level and make any necessary 

adjustments to such reduction. Any such necessary adjustments shall be effective for portions of cost reporting periods occurring on or after July 1, 2005. 

(E) JUDICIAL REVIEW.—There shall be no administrative 

or judicial review under section 1869, 1878, or otherwise, 

with respect to determinations made under this this paragraph, paragraph (8), or paragraph (4)(H)(vi). 

(8) DISTRIBUTION OF ADDITIONAL RESIDENCY POSITIONS.— 

(A) REDUCTIONS IN LIMIT BASED ON UNUSED POSITIONS.— (i) IN GENERAL.—Except as provided in clause (ii), if 

a hospital’s reference resident level (as defined in subparagraph (H)(i)) is less than the otherwise applicable 

resident limit (as defined in subparagraph (H)(iii)), effective for portions of cost reporting periods occurring 

on or after July 1, 2011, the otherwise applicable resident limit shall be reduced by 65 percent of the difference between such otherwise applicable resident 

limit and such reference resident level. 

(ii) EXCEPTIONS.—This subparagraph shall not apply 

to— 

(I) a hospital located in a rural area (as defined 

in subsection (d)(2)(D)(ii)) with fewer than 250 

acute care inpatient beds; 

(II) a hospital that was part of a qualifying entity which had a voluntary residency reduction plan 

approved under paragraph (6)(B) or under the authority of section 402 of Public Law 90–248, if the 

hospital demonstrates to the Secretary that it has 

a specified plan in place for filling the unused positions by not later than 2 years after the date of 

enactment of this paragraph; or 


emcdonald on DSK67QTVN1PROD with HEARING
205 

(III) a hospital described in paragraph (4)(H)(v). 

(B) DISTRIBUTION.— 

(i) IN GENERAL.—The Secretary shall increase the 

otherwise applicable resident limit for each qualifying 

hospital that submits an application under this subparagraph by such number as the Secretary may approve for portions of cost reporting periods occurring 

on or after July 1, 2011. The aggregate number of increases in the otherwise applicable resident limit 

under this subparagraph shall be equal to the aggregate reduction in such limits attributable to subparagraph (A) (as estimated by the Secretary). 

(ii) REQUIREMENTS.—Subject to clause (iii), a hospital that receives an increase in the otherwise applicable resident limit under this subparagraph shall ensure, during the 5-year period beginning on the date 

of such increase, that— 

(I) the number of full-time equivalent primary 

care residents, as defined in paragraph (5)(H) (as 

determined by the Secretary), excluding any additional positions under subclause (II), is not less 

than the average number of full-time equivalent 

primary care residents (as so determined) during 

the 3 most recent cost reporting periods ending 

prior to the date of enactment of this paragraph; 

and 

(II) not less than 75 percent of the positions attributable to such increase are in a primary care 

or general surgery residency (as determined by 

the Secretary). 

The Secretary may determine whether a hospital has 

met the requirements under this clause during such 5- 

year period in such manner and at such time as the 

Secretary determines appropriate, including at the end 

of such 5-year period. 

(iii) REDISTRIBUTION OF POSITIONS IF HOSPITAL NO

LONGER MEETS CERTAIN REQUIREMENTS.—In the case 

where the Secretary determines that a hospital described in clause (ii) does not meet either of the requirements under subclause (I) or (II) of such clause, 

the Secretary shall— 

(I) reduce the otherwise applicable resident 

limit of the hospital by the amount by which such 

limit was increased under this paragraph; and 

(II) provide for the distribution of positions attributable to such reduction in accordance with 

the requirements of this paragraph. 

(C) CONSIDERATIONS IN REDISTRIBUTION.—In determining for which hospitals the increase in the otherwise 

applicable resident limit is provided under subparagraph 

(B), the Secretary shall take into account— 

(i) the demonstration likelihood of the hospital filling the positions made available under this paragraph 

within the first 3 cost reporting periods beginning on 


emcdonald on DSK67QTVN1PROD with HEARING
206 

or after July 1, 2011, as determined by the Secretary; 

and 

(ii) whether the hospital has an accredited rural 

training track (as described in paragraph (4)(H)(iv)). 

(D) PRIORITY FOR CERTAIN AREAS.—In determining for 

which hospitals the increase in the otherwise applicable 

resident limit is provided under subparagraph (B), subject 

to subparagraph (E), the Secretary shall distribute the increase to hospitals based on the following factors: 

(i) Whether the hospital is located in a State with a 

resident-to-population ratio in the lowest quartile (as 

determined by the Secretary). 

(ii) Whether the hospital is located in a State, a territory of the United States, or the District of Columbia 

that is among the top 10 States, territories, or Districts in terms of the ratio of— 

(I) the total population of the State, territory, or 

District living in an area designated (under such 

section 332(a)(1)(A)) as a health professional 

shortage area (as of the date of enactment of this 

paragraph); to 

(II) the total population of the State, territory, 

or District (as determined by the Secretary based 

on the most recent available population data published by the Bureau of the Census). 

(iii) Whether the hospital is located in a rural area 

(as defined in subsection (d)(2)(D)(ii)). 

(E) RESERVATION OF POSITIONS FOR CERTAIN HOSPITALS.— 

(i) IN GENERAL.—Subject to clause (ii), the Secretary 

shall reserve the positions available for distribution 

under this paragraph as follows: 

(I) 70 percent of such positions for distribution 

to hospitals described in clause (i) of subparagraph (D). 

(II) 30 percent of such positions for distribution 

to hospitals described in clause (ii) and (iii) of 

such subparagraph. 

(ii) EXCEPTION IF POSITIONS NOT REDISTRIBUTED BY

JULY 1, 2011.—In the case where the Secretary does not 

distribute positions to hospitals in accordance with 

clause (i) by July 1, 2011, the Secretary shall distribute such positions to other hospitals in accordance 

with the considerations described in subparagraph (C) 

and the priority described in subparagraph (D). 

(F) LIMITATION.—A hospital may not receive more than 

75 full-time equivalent additional residency positions 

under this paragraph. 

(G) APPLICATION OF PER RESIDENT AMOUNTS FOR PRIMARY CARE AND NONPRIMARY CARE.—With respect to additional residency positions in a hospital attributable to the 

increase provided under this paragraph, the approved FTE 

per resident amounts are deemed to be equal to the hospital per resident amounts for primary care and nonpriVerDate Sep 11 2014 01:51 Jun 18, 2015 Jkt 049006 PO 00000 Frm 00206 Fmt 6659 Sfmt 6602 E:\HR\OC\HR156.XXX HR156

emcdonald on DSK67QTVN1PROD with HEARING
207 

mary care computed under paragraph (2)(D) for that hospital. 

(H) DEFINITIONS.—In this paragraph: 

(i) REFERENCE RESIDENT LEVEL.—The term ‘‘reference resident level’’ means, with respect to a hospital, the highest resident level for any of the 3 most 

recent cost reporting periods (ending before the date of 

the enactment of this paragraph) of the hospital for 

which a cost report has been settled (or, if not, submitted (subject to audit)), as determined by the Secretary. 

(ii) RESIDENT LEVEL.—The term ‘‘resident level’’ has 

the meaning given such term in paragraph (7)(C)(i). 

(iii) OTHERWISE APPLICABLE RESIDENT LIMIT.—The 

term ‘‘otherwise applicable resident limit’’ means, with 

respect to a hospital, the limit otherwise applicable 

under subparagraphs (F)(i) and (H) of paragraph (4) 

on the resident level for the hospital determined without regard to this paragraph but taking into account 

paragraph (7)(A). 

(I) AFFILIATION.—The provisions of this paragraph shall 

be applied to hospitals which are members of the same affiliated group (as defined by the Secretary under paragraph (4)(H)(ii)) and the reference resident level for each 

such hospital shall be the reference resident level with respect to the cost reporting period that results in the smallest difference between the reference resident level and the 

otherwise applicable resident limit. 

(i) AVOIDING DUPLICATIVE PAYMENTS TO HOSPITALS PARTICIPATING IN RURAL DEMONSTRATION PROGRAMS.—The Secretary shall 

reduce any payment amounts otherwise determined under this section to the extent necessary to avoid duplication of any payment 

made under section 4005(e) of the Omnibus Budget Reconciliation 

Act of 1987. 

(j) PROSPECTIVE PAYMENT FOR INPATIENT REHABILITATION SERVICES.— 

(1) PAYMENT DURING TRANSITION PERIOD.— 

(A) IN GENERAL.—Notwithstanding section 1814(b), but 

subject to the provisions of section 1813, the amount of the 

payment with respect to the operating and capital costs of 

inpatient hospital services of a rehabilitation hospital or a 

rehabilitation unit (in this subsection referred to as a ‘‘rehabilitation facility’’), other than a facility making an election under subparagraph (F) in a cost reporting period beginning on or after October 1, 2000, and before October 1, 

2002, is equal to the sum of— 

(i) the TEFRA percentage (as defined in subparagraph (C)) of the amount that would have been paid 

under part A with respect to such costs if this subsection did not apply, and 

(ii) the prospective payment percentage (as defined 

in subparagraph (C)) of the product of (I) the per unit 

payment rate established under this subsection for the 

fiscal year in which the payment unit of service ocVerDate Sep 11 2014 01:51 Jun 18, 2015 Jkt 049006 PO 00000 Frm 00207 Fmt 6659 Sfmt 6602 E:\HR\OC\HR156.XXX HR156

emcdonald on DSK67QTVN1PROD with HEARING
208 

curs, and (II) the number of such payment units occurring in the cost reporting period. 

(B) FULLY IMPLEMENTED SYSTEM.—Notwithstanding section 1814(b), but subject to the provisions of section 1813, 

the amount of the payment with respect to the operating 

and capital costs of inpatient hospital services of a rehabilitation facility for a payment unit in a cost reporting period beginning on or after October 1, 2002, or, in the case 

of a facility making an election under subparagraph (F), 

for any cost reporting period described in such subparagraph, is equal to the per unit payment rate established 

under this subsection for the fiscal year in which the payment unit of service occurs. 

(C) TEFRA AND PROSPECTIVE PAYMENT PERCENTAGES

SPECIFIED.—For purposes of subparagraph (A), for a cost 

reporting period beginning— 

(i) on or after October 1, 2000, and before October 

1, 2001, the ‘‘TEFRA percentage’’ is 662⁄3 percent and 

the ‘‘prospective payment percentage’’ is 331⁄3 percent; 

and 

(ii) on or after October 1, 2001, and before October 

1, 2002, the ‘‘TEFRA percentage’’ is 331⁄3 percent and 

the ‘‘prospective payment percentage’’ is 662⁄3 percent. 

(D) PAYMENT UNIT.—For purposes of this subsection, the 

term ‘‘payment unit’’ means a discharge. 

(E) CONSTRUCTION RELATING TO TRANSFER AUTHORITY.— Nothing in this subsection shall be construed as preventing the Secretary from providing for an adjustment to 

payments to take into account the early transfer of a patient from a rehabilitation facility to another site of care. 

(F) ELECTION TO APPLY FULL PROSPECTIVE PAYMENT SYSTEM.—A rehabilitation facility may elect, not later than 30 

days before its first cost reporting period for which the 

payment methodology under this subsection applies to the 

facility, to have payment made to the facility under this 

subsection under the provisions of subparagraph (B) (rather than subparagraph (A)) for each cost reporting period to 

which such payment methodology applies. 

(2) PATIENT CASE MIX GROUPS.— (A) ESTABLISHMENT.—The Secretary shall establish— 

(i) classes of patient discharges of rehabilitation facilities by functional-related groups (each in this subsection referred to as a ‘‘case mix group’’), based on 

impairment, age, comorbidities, and functional capability of the patient and such other factors as the Secretary deems appropriate to improve the explanatory 

power of functional independence measure-function related groups; and 

(ii) a method of classifying specific patients in rehabilitation facilities within these groups. 

(B) WEIGHTING FACTORS.—For each case mix group the 

Secretary shall assign an appropriate weighting which reflects the relative facility resources used with respect to 

patients classified within that group compared to patients 

classified within other groups. 


emcdonald on DSK67QTVN1PROD with HEARING
209 

(C) ADJUSTMENTS FOR CASE MIX.— 

(i) IN GENERAL.—The Secretary shall from time to 

time adjust the classifications and weighting factors 

established under this paragraph as appropriate to reflect changes in treatment patterns, technology, case 

mix, number of payment units for which payment is 

made under this title, and other factors which may affect the relative use of resources. Such adjustments 

shall be made in a manner so that changes in aggregate payments under the classification system are a 

result of real changes and are not a result of changes 

in coding that are unrelated to real changes in case 

mix. 

(ii) ADJUSTMENT.—Insofar as the Secretary determines that such adjustments for a previous fiscal year 

(or estimates that such adjustments for a future fiscal 

year) did (or are likely to) result in a change in aggregate payments under the classification system during 

the fiscal year that are a result of changes in the coding or classification of patients that do not reflect real 

changes in case mix, the Secretary shall adjust the per 

payment unit payment rate for subsequent years so as 

to eliminate the effect of such coding or classification 

changes. 

(D) DATA COLLECTION.—The Secretary is authorized to 

require rehabilitation facilities that provide inpatient hospital services to submit such data as the Secretary deems 

necessary to establish and administer the prospective payment system under this subsection. 

(3) PAYMENT RATE.— 

(A) IN GENERAL.—The Secretary shall determine a prospective payment rate for each payment unit for which 

such rehabilitation facility is entitled to receive payment 

under this title. Subject to subparagraph (B), such rate for 

payment units occurring during a fiscal year shall be 

based on the average payment per payment unit under 

this title for inpatient operating and capital costs of rehabilitation facilities using the most recent data available (as 

estimated by the Secretary as of the date of establishment 

of the system) adjusted— 

(i) by updating such per-payment-unit amount to the 

fiscal year involved by the weighted average of the applicable percentage increases provided under subsection (b)(3)(B)(ii) (for cost reporting periods beginning during the fiscal year) covering the period from 

the midpoint of the period for such data through the 

midpoint of fiscal year 2000 and by an increase factor 

(described in subparagraph (C)) specified by the Secretary for subsequent fiscal years up to the fiscal year 

involved; 

(ii) by reducing such rates by a factor equal to the 

proportion of payments under this subsection (as estimated by the Secretary) based on prospective payment 

amounts which are additional payments described in 


emcdonald on DSK67QTVN1PROD with HEARING
210 

paragraph (4) (relating to outlier and related payments); 

(iii) for variations among rehabilitation facilities by 

area under paragraph (6); 

(iv) by the weighting factors established under paragraph (2)(B); and 

(v) by such other factors as the Secretary determines 

are necessary to properly reflect variations in necessary costs of treatment among rehabilitation facilities. 

(B) BUDGET NEUTRAL RATES.—The Secretary shall establish the prospective payment amounts under this subsection for payment units during fiscal years 2001 and 

2002 at levels such that, in the Secretary’s estimation, the 

amount of total payments under this subsection for such 

fiscal years (including any payment adjustments pursuant 

to paragraphs (4) and (6) but not taking into account any 

payment adjustment resulting from an election permitted 

under paragraph (1)(F)) shall be equal to 98 percent for 

fiscal year 2001 and 100 percent for fiscal year 2002 of the 

amount of payments that would have been made under 

this title during the fiscal years for operating and capital 

costs of rehabilitation facilities had this subsection not 

been enacted. In establishing such payment amounts, the 

Secretary shall consider the effects of the prospective payment system established under this subsection on the total 

number of payment units from rehabilitation facilities and 

other factors described in subparagraph (A). 

(C) INCREASE FACTOR.— 

(i) IN GENERAL.—For purposes of this subsection for 

payment units in each fiscal year (beginning with fiscal year 2001), the Secretary shall establish an increase factor subject to clauses (ii) and (iii). Such factor shall be based on an appropriate percentage increase in a market basket of goods and services comprising services for which payment is made under this 

subsection, which may be the market basket percentage increase described in subsection (b)(3)(B)(iii). The 

increase factor to be applied under this subparagraph 

for each of fiscal years 2008 and 2009 shall be 0 percent. 

(ii) PRODUCTIVITY AND OTHER ADJUSTMENT.—Subject 

to clause (iii), after establishing the increase factor described in clause (i) for a fiscal year, the Secretary 

shall reduce such increase factor— 

(I) for fiscal year 2012 and each subsequent fiscal year, by the productivity adjustment described 

in section 1886(b)(3)(B)(xi)(II); and 

(II) for each of fiscal years 2010 through 2019, 

by the other adjustment described in subparagraph (D). 

The application of this clause may result in the increase factor under this subparagraph being less than 

0.0 for a fiscal year, and may result in payment rates 


emcdonald on DSK67QTVN1PROD with HEARING
211 

under this subsection for a fiscal year being less than 

such payment rates for the preceding fiscal year. 

(iii) SPECIAL RULE FOR FISCAL YEAR 2018.—The increase factor to be applied under this subparagraph 

for fiscal year 2018, after the application of clause (ii), 

shall be 1 percent. 

(D) OTHER ADJUSTMENT.—For purposes of subparagraph 

(C)(ii)(II), the other adjustment described in this subparagraph is— 

(i) for each of fiscal years 2010 and 2011, 0.25 percentage point; 

(ii) for each of fiscal years 2012 and 2013, 0.1 percentage point; 

(iii) for fiscal year 2014, 0.3 percentage point; 

(iv) for each of fiscal years 2015 and 2016, 0.2 percentage point; and 

(v) for each of fiscal years 2017, 2018, and 2019, 

0.75 percentage point. 

(4) OUTLIER AND SPECIAL PAYMENTS.— 

(A) OUTLIERS.— 

(i) IN GENERAL.—The Secretary may provide for an 

additional payment to a rehabilitation facility for patients in a case mix group, based upon the patient 

being classified as an outlier based on an unusual 

length of stay, costs, or other factors specified by the 

Secretary. 

(ii) PAYMENT BASED ON MARGINAL COST OF CARE.— The amount of such additional payment under clause 

(i) shall be determined by the Secretary and shall approximate the marginal cost of care beyond the cutoff 

point applicable under clause (i). 

(iii) TOTAL PAYMENTS.—The total amount of the additional payments made under this subparagraph for 

payment units in a fiscal year may not exceed 5 percent of the total payments projected or estimated to be 

made based on prospective payment rates for payment 

units in that year. 

(B) ADJUSTMENT.—The Secretary may provide for such 

adjustments to the payment amounts under this subsection as the Secretary deems appropriate to take into account the unique circumstances of rehabilitation facilities 

located in Alaska and Hawaii. 

(5) PUBLICATION.—The Secretary shall provide for publication in the Federal Register, on or before August 1 before each 

fiscal year (beginning with fiscal year 2001), of the classification and weighting factors for case mix groups under paragraph (2) for such fiscal year and a description of the methodology and data used in computing the prospective payment 

rates under this subsection for that fiscal year. 

(6) AREA WAGE ADJUSTMENT.—The Secretary shall adjust the 

proportion (as estimated by the Secretary from time to time) 

of rehabilitation facilities’ costs which are attributable to 

wages and wage-related costs, of the prospective payment rates 

computed under paragraph (3) for area differences in wage levels by a factor (established by the Secretary) reflecting the relVerDate Sep 11 2014 01:51 Jun 18, 2015 Jkt 049006 PO 00000 Frm 00211 Fmt 6659 Sfmt 6602 E:\HR\OC\HR156.XXX HR156

emcdonald on DSK67QTVN1PROD with HEARING
212 

ative hospital wage level in the geographic area of the rehabilitation facility compared to the national average wage level for 

such facilities. Not later than October 1, 2001 (and at least 

every 36 months thereafter), the Secretary shall update the 

factor under the preceding sentence on the basis of information 

available to the Secretary (and updated as appropriate) of the 

wages and wage-related costs incurred in furnishing rehabilitation services. Any adjustments or updates made under this 

paragraph for a fiscal year shall be made in a manner that 

assures that the aggregated payments under this subsection in 

the fiscal year are not greater or less than those that would 

have been made in the year without such adjustment. 

(7) QUALITY REPORTING.— 

(A) REDUCTION IN UPDATE FOR FAILURE TO REPORT.— 

(i) IN GENERAL.—For purposes of fiscal year 2014 

and each subsequent fiscal year, in the case of a rehabilitation facility that does not submit data to the Secretary in accordance with subparagraphs (C) and (F) 

with respect to such a fiscal year, after determining 

the increase factor described in paragraph (3)(C), and 

after application of subparagraphs (C)(iii) and (D) of 

paragraph (3), the Secretary shall reduce such increase factor for payments for discharges occurring 

during such fiscal year by 2 percentage points. 

(ii) SPECIAL RULE.—The application of this subparagraph may result in the increase factor described in 

paragraph (3)(C) being less than 0.0 for a fiscal year, 

and may result in payment rates under this subsection 

for a fiscal year being less than such payment rates 

for the preceding fiscal year. 

(B) NONCUMULATIVE APPLICATION.—Any reduction under 

subparagraph (A) shall apply only with respect to the fiscal year involved and the Secretary shall not take into account such reduction in computing the payment amount 

under this subsection for a subsequent fiscal year. 

(C) SUBMISSION OF QUALITY DATA.—Subject to subparagraph (G), for fiscal year 2014 and each subsequent fiscal 

year, each rehabilitation facility shall submit to the Secretary data on quality measures specified under subparagraph (D). Such data shall be submitted in a form and 

manner, and at a time, specified by the Secretary for purposes of this subparagraph. 

(D) QUALITY MEASURES.— 

(i) IN GENERAL.—Subject to clause (ii), any measure 

specified by the Secretary under this subparagraph 

must have been endorsed by the entity with a contract 

under section 1890(a). 

(ii) EXCEPTION.—In the case of a specified area or 

medical topic determined appropriate by the Secretary 

for which a feasible and practical measure has not 

been endorsed by the entity with a contract under section 1890(a), the Secretary may specify a measure that 

is not so endorsed as long as due consideration is 

given to measures that have been endorsed or adopted 


emcdonald on DSK67QTVN1PROD with HEARING
213 

by a consensus organization identified by the Secretary. 

(iii) TIME FRAME.—Not later than October 1, 2012, 

the Secretary shall publish the measures selected 

under this subparagraph that will be applicable with 

respect to fiscal year 2014. 

(E) PUBLIC AVAILABILITY OF DATA SUBMITTED.—The Secretary shall establish procedures for making data submitted under subparagraph (C) and subparagraph (F)(i) 

available to the public. Such procedures shall ensure that 

a rehabilitation facility has the opportunity to review the 

data that is to be made public with respect to the facility 

prior to such data being made public. The Secretary shall 

report quality measures that relate to services furnished in 

inpatient settings in rehabilitation facilities on the Internet website of the Centers for Medicare & Medicaid Services. 

(F) SUBMISSION OF ADDITIONAL DATA.— (i) IN GENERAL.—For the fiscal year beginning on 

the specified application date (as defined in subsection 

(a)(2)(E) of section 1899B), as applicable with respect 

to inpatient rehabilitation facilities and quality measures under subsection (c)(1) of such section and measures under subsection (d)(1) of such section, and each 

subsequent fiscal year, in addition to such data on the 

quality measures described in subparagraph (C), each 

rehabilitation facility shall submit to the Secretary 

data on the quality measures under such subsection 

(c)(1) and any necessary data specified by the Secretary under such subsection (d)(1). 

(ii) STANDARDIZED PATIENT ASSESSMENT DATA.—For 

fiscal year 2019 and each subsequent fiscal year, in 

addition to such data described in clause (i), each rehabilitation facility shall submit to the Secretary 

standardized patient assessment data required under 

subsection (b)(1) of section 1899B. 

(iii) SUBMISSION.—Such data shall be submitted in 

the form and manner, and at the time, specified by the 

Secretary for purposes of this subparagraph. 

(G) NON-DUPLICATION.—To the extent data submitted 

under subparagraph (F) duplicates other data required to 

be submitted under subparagraph (C), the submission of 

such data under subparagraph (F) shall be in lieu of the 

submission of such data under subparagraph (C). The previous sentence shall not apply insofar as the Secretary determines it is necessary to avoid a delay in the implementation of section 1899B, taking into account the different 

specified application dates under subsection (a)(2)(E) of 

such section. 

(8) LIMITATION ON REVIEW.—There shall be no administrative or judicial review under section 1869, 1878, or otherwise 

of the establishment of— 

(A) case mix groups, of the methodology for the classification of patients within such groups, and of the appropriate weighting factors thereof under paragraph (2), 


emcdonald on DSK67QTVN1PROD with HEARING
214 

(B) the prospective payment rates under paragraph (3), 

(C) outlier and special payments under paragraph (4), 

and 

(D) area wage adjustments under paragraph (6). 

(k) PAYMENT TO NONHOSPITAL PROVIDERS.— (1) IN GENERAL.—For cost reporting periods beginning on or 

after October 1, 1997, the Secretary may establish rules for 

payment to qualified nonhospital providers for their direct 

costs of medical education, if those costs are incurred in the operation of an approved medical residency training program described in subsection (h). Such rules shall specify the amounts, 

form, and manner in which such payments will be made and 

the portion of such payments that will be made from each of 

the trust funds under this title. 

(2) QUALIFIED NONHOSPITAL PROVIDERS.—For purposes of 

this subsection, the term ‘‘qualified nonhospital providers’’ 

means— 

(A) a Federally qualified health center, as defined in section 1861(aa)(4); 

(B) a rural health clinic, as defined in section 

1861(aa)(2); 

(C) Medicare+Choice organizations; and 

(D) such other providers (other than hospitals) as the 

Secretary determines to be appropriate. 

(l) PAYMENT FOR NURSING AND ALLIED HEALTH EDUCATION FOR

MANAGED CARE ENROLLEES.— (1) IN GENERAL.—For portions of cost reporting periods occurring in a year (beginning with 2000), the Secretary shall 

provide for an additional payment amount for any hospital 

that receives payments for the costs of approved educational 

activities for nurse and allied health professional training 

under section 1861(v)(1). 

(2) PAYMENT AMOUNT.—The additional payment amount 

under this subsection for each hospital for portions of cost reporting periods occurring in a year shall be an amount specified by the Secretary in a manner consistent with the following: 

(A) DETERMINATION OF MANAGED CARE ENROLLEE PAY- MENT RATIO FOR GRADUATE MEDICAL EDUCATION PAY- MENTS.—The Secretary shall estimate the ratio of payments for all hospitals for portions of cost reporting periods occurring in the year under subsection (h)(3)(D) to 

total direct graduate medical education payments estimated for such portions of periods under subsection (h)(3). 

(B) APPLICATION TO FEE-FOR-SERVICE NURSING AND ALLIED HEALTH EDUCATION PAYMENTS.—Such ratio shall be 

applied to the Secretary’s estimate of total payments for 

nursing and allied health education determined under section 1861(v) for portions of cost reporting periods occurring 

in the year to determine a total amount of additional payments for nursing and allied health education to be distributed to hospitals under this subsection for portions of 

cost reporting periods occurring in the year; except that in 

no case shall such total amount exceed $60,000,000 in any 

year. 


emcdonald on DSK67QTVN1PROD with HEARING
215 

(C) APPLICATION TO HOSPITAL.—The amount of payment 

under this subsection to a hospital for portions of cost reporting periods occurring in a year is equal to the total 

amount of payments determined under subparagraph (B) 

for the year multiplied by the ratio of— 

(i) the product of (I) the Secretary’s estimate of the 

ratio of the amount of payments made under section 

1861(v) to the hospital for nursing and allied health 

education activities for the hospital’s cost reporting period ending in the second preceding fiscal year, to the 

hospital’s total inpatient days for such period, and (II) 

the total number of inpatient days (as established by 

the Secretary) for such period which are attributable 

to services furnished to individuals who are enrolled 

under a risk sharing contract with an eligible organization under section 1876 and who are entitled to benefits under part A or who are enrolled with a 

Medicare+Choice organization under part C; to 

(ii) the sum of the products determined under clause 

(i) for such cost reporting periods. 

(m) PROSPECTIVE PAYMENT FOR LONG-TERM CARE HOSPITALS.— (1) REFERENCE TO ESTABLISHMENT AND IMPLEMENTATION OF

SYSTEM.—For provisions related to the establishment and implementation of a prospective payment system for payments 

under this title for inpatient hospital services furnished by a 

long-term care hospital described in subsection (d)(1)(B)(iv), see 

section 123 of the Medicare, Medicaid, and SCHIP Balanced 

Budget Refinement Act of 1999 and section 307(b) of the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000. 

(2) UPDATE FOR RATE YEAR 2008.—In implementing the system described in paragraph (1) for discharges occurring during 

the rate year ending in 2008 for a hospital, the base rate for 

such discharges for the hospital shall be the same as the base 

rate for discharges for the hospital occurring during the rate 

year ending in 2007. 

(3) IMPLEMENTATION FOR RATE YEAR 2010 AND SUBSEQUENT

YEARS.— 

(A) IN GENERAL.—Subject to subparagraph (C), in implementing the system described in paragraph (1) for rate 

year 2010 and each subsequent rate year, any annual update to a standard Federal rate for discharges for the hospital during the rate year, shall be reduced— 

(i) for rate year 2012 and each subsequent rate year, 

by the productivity adjustment described in section 

1886(b)(3)(B)(xi)(II); and 

(ii) for each of rate years 2010 through 2019, by the 

other adjustment described in paragraph (4). 

(B) SPECIAL RULE.—The application of this paragraph 

may result in such annual update being less than 0.0 for 

a rate year, and may result in payment rates under the 

system described in paragraph (1) for a rate year being 

less than such payment rates for the preceding rate year. 

(C) ADDITIONAL SPECIAL RULE.—For fiscal year 2018, the 

annual update under subparagraph (A) for the fiscal year, 


emcdonald on DSK67QTVN1PROD with HEARING
216 

after application of clauses (i) and (ii) of subparagraph (A), 

shall be 1 percent. 

(4) OTHER ADJUSTMENT.—For purposes of paragraph 

(3)(A)(ii), the other adjustment described in this paragraph is— 

(A) for rate year 2010, 0.25 percentage point; 

(B) for rate year 2011, 0.50 percentage point; 

(C) for each of the rate years beginning in 2012 and 

2013, 0.1 percentage point; 

(D) for rate year 2014, 0.3 percentage point; 

(E) for each of rate years 2015 and 2016, 0.2 percentage 

point; and 

(F) for each of rate years 2017, 2018, and 2019, 0.75 percentage point. 

(5) QUALITY REPORTING.— 

(A) REDUCTION IN UPDATE FOR FAILURE TO REPORT.— 

(i) IN GENERAL.—Under the system described in 

paragraph (1), for rate year 2014 and each subsequent 

rate year, in the case of a long-term care hospital that 

does not submit data to the Secretary in accordance 

with subparagraphs (C) and (F) with respect to such 

a rate year, any annual update to a standard Federal 

rate for discharges for the hospital during the rate 

year, and after application of paragraph (3), shall be 

reduced by 2 percentage points. 

(ii) SPECIAL RULE.—The application of this subparagraph may result in such annual update being less 

than 0.0 for a rate year, and may result in payment 

rates under the system described in paragraph (1) for 

a rate year being less than such payment rates for the 

preceding rate year. 

(B) NONCUMULATIVE APPLICATION.—Any reduction under 

subparagraph (A) shall apply only with respect to the rate 

year involved and the Secretary shall not take into account 

such reduction in computing the payment amount under 

the system described in paragraph (1) for a subsequent 

rate year. 

(C) SUBMISSION OF QUALITY DATA.—Subject to subparagraph (G), for rate year 2014 and each subsequent rate 

year, each long-term care hospital shall submit to the Secretary data on quality measures specified under subparagraph (D). Such data shall be submitted in a form and 

manner, and at a time, specified by the Secretary for purposes of this subparagraph. 

(D) QUALITY MEASURES.— 

(i) IN GENERAL.—Subject to clause (ii), any measure 

specified by the Secretary under this subparagraph 

must have been endorsed by the entity with a contract 

under section 1890(a). 

(ii) EXCEPTION.—In the case of a specified area or 

medical topic determined appropriate by the Secretary 

for which a feasible and practical measure has not 

been endorsed by the entity with a contract under section 1890(a), the Secretary may specify a measure that 

is not so endorsed as long as due consideration is 

given to measures that have been endorsed or adopted 


emcdonald on DSK67QTVN1PROD with HEARING
217 

by a consensus organization identified by the Secretary. 

(iii) TIME FRAME.—Not later than October 1, 2012, 

the Secretary shall publish the measures selected 

under this subparagraph that will be applicable with 

respect to rate year 2014. 

(iv) ADDITIONAL QUALITY MEASURES.—Not later than 

October 1, 2015, the Secretary shall establish a functional status quality measure for change in mobility 

among inpatients requiring ventilator support. 

(E) PUBLIC AVAILABILITY OF DATA SUBMITTED.—The Secretary shall establish procedures for making data submitted under subparagraph (C) and subparagraph (F)(i) 

available to the public. Such procedures shall ensure that 

a long-term care hospital has the opportunity to review the 

data that is to be made public with respect to the hospital 

prior to such data being made public. The Secretary shall 

report quality measures that relate to services furnished in 

inpatient settings in long-term care hospitals on the Internet website of the Centers for Medicare & Medicaid Services. 

(F) SUBMISSION OF ADDITIONAL DATA.— (i) IN GENERAL.—For the rate year beginning on the 

specified application date (as defined in subsection 

(a)(2)(E) of section 1899B), as applicable with respect 

to long-term care hospitals and quality measures 

under subsection (c)(1) of such section and measures 

under subsection (d)(1) of such section, and each subsequent rate year, in addition to the data on the quality measures described in subparagraph (C), each 

long-term care hospital (other than a hospital classified under subsection (d)(1)(B)(iv)(II)) shall submit to 

the Secretary data on the quality measures under 

such subsection (c)(1) and any necessary data specified 

by the Secretary under such subsection (d)(1). 

(ii) STANDARDIZED PATIENT ASSESSMENT DATA.—For 

rate year 2019 and each subsequent rate year, in addition to such data described in clause (i), each longterm care hospital (other than a hospital classified 

under subsection (d)(1)(B)(iv)(II)) shall submit to the 

Secretary standardized patient assessment data required under subsection (b)(1) of section 1899B. 

(iii) SUBMISSION.—Such data shall be submitted in 

the form and manner, and at the time, specified by the 

Secretary for purposes of this subparagraph. 

(G) NON-DUPLICATION.—To the extent data submitted 

under subparagraph (F) duplicates other data required to 

be submitted under subparagraph (C), the submission of 

such data under subparagraph (F) shall be in lieu of the 

submission of such data under subparagraph (C). The previous sentence shall not apply insofar as the Secretary determines it is necessary to avoid a delay in the implementation of section 1899B, taking into account the different 

specified application dates under subsection (a)(2)(E) of 

such section. 


emcdonald on DSK67QTVN1PROD with HEARING
218 

(6) APPLICATION OF SITE NEUTRAL IPPS PAYMENT RATE IN CERTAIN CASES.— 

(A) GENERAL APPLICATION OF SITE NEUTRAL IPPS PAYMENT AMOUNT FOR DISCHARGES FAILING TO MEET APPLICABLE CRITERIA.— 

(i) IN GENERAL.—For a discharge in cost reporting 

periods beginning on or after October 1, 2015, except 

as provided in clause (ii) and subparagraph (C), payment under this title to a long-term care hospital for 

inpatient hospital services shall be made at the applicable site neutral payment rate (as defined in subparagraph (B)). 

(ii) EXCEPTION FOR CERTAIN DISCHARGES MEETING

CRITERIA.—Clause (i) shall not apply (and payment 

shall be made to a long-term care hospital without regard to this paragraph) for a discharge if— 

(I) the discharge meets the ICU criterion under 

clause (iii) or the ventilator criterion under clause 

(iv); and 

(II) the discharge does not have a principal diagnosis relating to a psychiatric diagnosis or to rehabilitation. 

(iii) INTENSIVE CARE UNIT (ICU) CRITERION.— 

(I) IN GENERAL.—The criterion specified in this 

clause (in this paragraph referred to as the ‘‘ICU 

criterion’’), for a discharge from a long-term care 

hospital, is that the stay in the long-term care 

hospital ending with such discharge was immediately preceded by a discharge from a stay in a 

subsection (d) hospital that included at least 3 

days in an intensive care unit (ICU), as determined by the Secretary. 

(II) DETERMINING ICU DAYS.—In determining intensive care unit days under subclause (I), the 

Secretary shall use data from revenue center 

codes 020x or 021x (or such successor codes as the 

Secretary may establish). 

(iv) VENTILATOR CRITERION.—The criterion specified 

in this clause (in this paragraph referred to as the 

‘‘ventilator criterion’’), for a discharge from a long-term 

care hospital, is that— 

(I) the stay in the long-term care hospital ending with such discharge was immediately preceded 

by a discharge from a stay in a subsection (d) hospital; and 

(II) the individual discharged was assigned to a 

Medicare-Severity-Long-Term-Care-Diagnosis-Related-Group (MS–LTC–DRG) based on the receipt 

of ventilator services of at least 96 hours. 

(B) APPLICABLE SITE NEUTRAL PAYMENT RATE DEFINED.— 

(i) IN GENERAL.—In this paragraph, the term ‘‘applicable site neutral payment rate’’ means— 

(I) for discharges in cost reporting periods beginning during fiscal year 2016 or fiscal year 


emcdonald on DSK67QTVN1PROD with HEARING
219 

2017, the blended payment rate specified in clause 

(iii); and 

(II) for discharges in cost reporting periods beginning during fiscal year 2018 or a subsequent 

fiscal year, the site neutral payment rate (as defined in clause (ii)). 

(ii) SITE NEUTRAL PAYMENT RATE DEFINED.—In this 

paragraph, the term ‘‘site neutral payment rate’’ 

means the lower of— 

(I) the IPPS comparable per diem amount determined under paragraph (d)(4) of section 412.529 of 

title 42, Code of Federal Regulations, including 

any applicable outlier payments under section 

412.525 of such title; or 

(II) 100 percent of the estimated cost for the 

services involved. 

(iii) BLENDED PAYMENT RATE.—The blended payment 

rate specified in this clause, for a long-term care hospital for inpatient hospital services for a discharge, is 

comprised of— 

(I) half of the site neutral payment rate (as defined in clause (ii)) for the discharge; and 

(II) half of the payment rate that would otherwise be applicable to such discharge without regard to this paragraph, as determined by the Secretary. 

(C) LIMITING PAYMENT FOR ALL HOSPITAL DISCHARGES TO

SITE NEUTRAL PAYMENT RATE FOR HOSPITALS FAILING TO

MEET APPLICABLE LTCH DISCHARGE THRESHOLDS.— 

(i) NOTICE OF LTCH DISCHARGE PAYMENT PERCENT- AGE.—For cost reporting periods beginning during or 

after fiscal year 2016, the Secretary shall inform each 

long-term care hospital of its LTCH discharge payment percentage (as defined in clause (iv)) for such period. 

(ii) LIMITATION.—For cost reporting periods beginning during or after fiscal year 2020, if the Secretary 

determines for a long-term care hospital that its 

LTCH discharge payment percentage for the period is 

not at least 50 percent— 

(I) the Secretary shall inform the hospital of 

such fact; and 

(II) subject to clause (iii), for all discharges in 

the hospital in each succeeding cost reporting period, the payment amount under this subsection 

shall be the payment amount that would apply 

under subsection (d) for the discharge if the hospital were a subsection (d) hospital. 

(iii) PROCESS FOR REINSTATEMENT.—The Secretary 

shall establish a process whereby a long-term care 

hospital may seek to and have the provisions of subclause (II) of clause (ii) discontinued with respect to 

that hospital. 

(iv) LTCH DISCHARGE PAYMENT PERCENTAGE.—In 

this subparagraph, the term ‘‘LTCH discharge payVerDate Sep 11 2014 01:51 Jun 18, 2015 Jkt 049006 PO 00000 Frm 00219 Fmt 6659 Sfmt 6602 E:\HR\OC\HR156.XXX HR156

emcdonald on DSK67QTVN1PROD with HEARING
220 

ment percentage’’ means, with respect to a long-term 

care hospital for a cost reporting period beginning during or after fiscal year 2020, the ratio (expressed as a 

percentage) of— 

(I) the number of Medicare fee-for-service discharges for such hospital and period for which 

payment is not made at the site neutral payment 

rate, to 

(II) the total number of Medicare fee-for-service 

discharges for such hospital and period. 

(D) INCLUSION OF SUBSECTION (d) PUERTO RICO HOSPITALS.—In this paragraph, any reference in this paragraph to a subsection (d) hospital shall be deemed to include a reference to a subsection (d) Puerto Rico hospital. 

(7) TREATMENT OF HIGH COST OUTLIER PAYMENTS.— 

(A) ADJUSTMENT TO THE STANDARD FEDERAL PAYMENT

RATE FOR ESTIMATED HIGH COST OUTLIER PAYMENTS.— 

Under the system described in paragraph (1), for fiscal 

years beginning on or after October 1, 2016, the Secretary 

shall reduce the standard Federal payment rate as if the 

estimated aggregate amount of high cost outlier payments 

for standard Federal payment rate discharges for each such 

fiscal year would be equal to 8 percent of estimated aggregate payments for standard Federal payment rate discharges for each such fiscal year. 

(B) LIMITATION ON HIGH COST OUTLIER PAYMENT

AMOUNTS.—Notwithstanding subparagraph (A), the Secretary shall set the fixed loss amount for high cost outlier 

payments such that the estimated aggregate amount of high 

cost outlier payments made for standard Federal payment 

rate discharges for fiscal years beginning on or after October 1, 2016, shall be equal to 99.0625 percent of 8 percent 

of estimated aggregate payments for standard Federal payment rate discharges for each such fiscal year. 

(C) WAIVER OF BUDGET NEUTRALITY.—Any reduction in 

payments resulting from the application of subparagraph 

(B) shall not be taken into account in applying any budget 

neutrality provision under such system. 

(D) NO EFFECT ON SITE NEUTRAL HIGH COST OUTLIER

PAYMENT RATE.—This paragraph shall not apply with respect to the computation of the applicable site neutral payment rate under paragraph (6), except for the standard 

Federal payment rate portion of blended payment rates determined under subparagraph (B)(iii)(II) of such paragraph. 

(n) INCENTIVES FOR ADOPTION AND MEANINGFUL USE OF CERTIFIED EHR TECHNOLOGY.— 

(1) IN GENERAL.—Subject to the succeeding provisions of this 

subsection, with respect to inpatient hospital services furnished by an eligible hospital during a payment year (as defined in paragraph (2)(G)), if the eligible hospital is a meaningful EHR user (as determined under paragraph (3)) for the EHR 

reporting period with respect to such year, in addition to the 

amount otherwise paid under this section, there also shall be 

paid to the eligible hospital, from the Federal Hospital InsurVerDate Sep 11 2014 01:51 Jun 18, 2015 Jkt 049006 PO 00000 Frm 00220 Fmt 6659 Sfmt 6601 E:\HR\OC\HR156.XXX HR156

emcdonald on DSK67QTVN1PROD with HEARING
221 

ance Trust Fund established under section 1817, an amount 

equal to the applicable amount specified in paragraph (2)(A) 

for the hospital for such payment year. 

(2) PAYMENT AMOUNT.— (A) IN GENERAL.—Subject to the succeeding subparagraphs of this paragraph, the applicable amount specified 

in this subparagraph for an eligible hospital for a payment 

year is equal to the product of the following: 

(i) INITIAL AMOUNT.—The sum of— 

(I) the base amount specified in subparagraph 

(B); plus 

(II) the discharge related amount specified in 

subparagraph (C) for a 12-month period selected 

by the Secretary with respect to such payment 

year. 

(ii) MEDICARE SHARE.—The Medicare share as specified in subparagraph (D) for the eligible hospital for a 

period selected by the Secretary with respect to such 

payment year. 

(iii) TRANSITION FACTOR.—The transition factor specified in subparagraph (E) for the eligible hospital for 

the payment year. 

(B) BASE AMOUNT.—The base amount specified in this subparagraph is $2,000,000. 

(C) DISCHARGE RELATED AMOUNT.—The discharge related amount specified in this subparagraph for a 12- 

month period selected by the Secretary shall be determined as the sum of the amount, estimated based upon 

total discharges for the eligible hospital (regardless of any 

source of payment) for the period, for each discharge up to 

the 23,000th discharge as follows: (i) For the first through 1,149th discharge, $0. 

(ii) For the 1,150th through the 23,000th discharge, $200. 

(iii) For any discharge greater than the 23,000th, $0. 

(D) MEDICARE SHARE.—The Medicare share specified 

under this subparagraph for an eligible hospital for a period selected by the Secretary for a payment year is equal 

to the fraction— 

(i) the numerator of which is the sum (for such period and with respect to the eligible hospital) of— 

(I) the estimated number of inpatient-bed-days 

(as established by the Secretary) which are attributable to individuals with respect to whom payment may be made under part A; and 

(II) the estimated number of inpatient-bed-days 

(as so established) which are attributable to individuals who are enrolled with a Medicare Advantage organization under part C; and 

(ii) the denominator of which is the product of— 

(I) the estimated total number of inpatient-beddays with respect to the eligible hospital during 

such period; and 

(II) the estimated total amount of the eligible 

hospital’s charges during such period, not includVerDate Sep 11 2014 01:51 Jun 18, 2015 Jkt 049006 PO 00000 Frm 00221 Fmt 6659 Sfmt 6601 E:\HR\OC\HR156.XXX HR156

emcdonald on DSK67QTVN1PROD with HEARING
222 

ing any charges that are attributable to charity 

care (as such term is used for purposes of hospital 

cost reporting under this title), divided by the estimated total amount of the hospital’s charges during such period. 

Insofar as the Secretary determines that data are not 

available on charity care necessary to calculate the portion 

of the formula specified in clause (ii)(II), the Secretary 

shall use data on uncompensated care and may adjust 

such data so as to be an appropriate proxy for charity care 

including a downward adjustment to eliminate bad debt 

data from uncompensated care data. In the absence of the 

data necessary, with respect to a hospital, for the Secretary to compute the amount described in clause (ii)(II), 

the amount under such clause shall be deemed to be 1. In 

the absence of data, with respect to a hospital, necessary 

to compute the amount described in clause (i)(II), the 

amount under such clause shall be deemed to be 0. 

(E) TRANSITION FACTOR SPECIFIED.— 

(i) IN GENERAL.—Subject to clause (ii), the transition 

factor specified in this subparagraph for an eligible 

hospital for a payment year is as follows: 

(I) For the first payment year for such hospital, 

1. 

(II) For the second payment year for such hospital, 3⁄4. (III) For the third payment year for such hospital, 1⁄2. (IV) For the fourth payment year for such hospital, 1⁄4. 

(V) For any succeeding payment year for such 

hospital, 0. 

(ii) PHASE DOWN FOR ELIGIBLE HOSPITALS FIRST

ADOPTING EHR AFTER 2013.—If the first payment year 

for an eligible hospital is after 2013, then the transition factor specified in this subparagraph for a payment year for such hospital is the same as the amount 

specified in clause (i) for such payment year for an eligible hospital for which the first payment year is 2013. 

If the first payment year for an eligible hospital is 

after 2015 then the transition factor specified in this 

subparagraph for such hospital and for such year and 

any subsequent year shall be 0. 

(F) FORM OF PAYMENT.—The payment under this subsection for a payment year may be in the form of a single 

consolidated payment or in the form of such periodic installments as the Secretary may specify. 

(G) PAYMENT YEAR DEFINED.— 

(i) IN GENERAL.—For purposes of this subsection, the 

term ‘‘payment year’’ means a fiscal year beginning 

with fiscal year 2011. 

(ii) FIRST, SECOND, ETC. PAYMENT YEAR.—The term 

‘‘first payment year’’ means, with respect to inpatient 

hospital services furnished by an eligible hospital, the 

first fiscal year for which an incentive payment is 


emcdonald on DSK67QTVN1PROD with HEARING
223 

made for such services under this subsection. The 

terms ‘‘second payment year’’, ‘‘third payment year’’, 

and ‘‘fourth payment year’’ mean, with respect to an 

eligible hospital, each successive year immediately following the first payment year for that hospital. 

(3) MEANINGFUL EHR USER.— (A) IN GENERAL.—For purposes of paragraph (1), an eligible hospital shall be treated as a meaningful EHR user 

for an EHR reporting period for a payment year (or, for 

purposes of subsection (b)(3)(B)(ix), for an EHR reporting 

period under such subsection for a fiscal year) if each of 

the following requirements are met: 

(i) MEANINGFUL USE OF CERTIFIED EHR TECHNOLOGY.—The eligible hospital demonstrates to the 

satisfaction of the Secretary, in accordance with subparagraph (C)(i), that during such period the hospital 

is using certified EHR technology in a meaningful 

manner. 

(ii) INFORMATION EXCHANGE.—The eligible hospital 

demonstrates to the satisfaction of the Secretary, in 

accordance with subparagraph (C)(i), that during such 

period such certified EHR technology is connected in 

a manner that provides, in accordance with law and 

standards applicable to the exchange of information, 

for the electronic exchange of health information to 

improve the quality of health care, such as promoting 

care coordination, and the hospital demonstrates 

(through a process specified by the Secretary, such as 

the use of an attestation) that the hospital has not 

knowingly and willfully taken action (such as to disable functionality) to limit or restrict the compatibility 

or interoperability of the certified EHR technology. 

(iii) REPORTING ON MEASURES USING EHR.—Subject 

to subparagraph (B)(ii) and using such certified EHR 

technology, the eligible hospital submits information 

for such period, in a form and manner specified by the 

Secretary, on such clinical quality measures and such 

other measures as selected by the Secretary under 

subparagraph (B)(i). 

The Secretary shall seek to improve the use of electronic 

health records and health care quality over time by requiring more stringent measures of meaningful use selected 

under this paragraph. 

(B) REPORTING ON MEASURES.— 

(i) SELECTION.—The Secretary shall select measures 

for purposes of subparagraph (A)(iii) but only consistent with the following: 

(I) The Secretary shall provide preference to 

clinical quality measures that have been selected 

for purposes of applying subsection (b)(3)(B)(viii) 

or that have been endorsed by the entity with a 

contract with the Secretary under section 1890(a). 

(II) Prior to any measure (other than a clinical 

quality measure that has been selected for purposes of applying subsection (b)(3)(B)(viii)) being 


emcdonald on DSK67QTVN1PROD with HEARING
224 

selected under this subparagraph, the Secretary 

shall publish in the Federal Register such measure and provide for a period of public comment on 

such measure. 

(ii) LIMITATIONS.—The Secretary may not require 

the electronic reporting of information on clinical quality measures under subparagraph (A)(iii) unless the 

Secretary has the capacity to accept the information 

electronically, which may be on a pilot basis. 

(iii) COORDINATION OF REPORTING OF INFORMATION.—In selecting such measures, and in establishing 

the form and manner for reporting measures under 

subparagraph (A)(iii), the Secretary shall seek to avoid 

redundant or duplicative reporting with reporting otherwise required, including reporting under subsection 

(b)(3)(B)(viii). 

(C) DEMONSTRATION OF MEANINGFUL USE OF CERTIFIED

EHR TECHNOLOGY AND INFORMATION EXCHANGE.— 

(i) IN GENERAL.—An eligible hospital may satisfy the 

demonstration requirement of clauses (i) and (ii) of 

subparagraph (A) through means specified by the Secretary, which may include— 

(I) an attestation; 

(II) the submission of claims with appropriate 

coding (such as a code indicating that inpatient 

care was documented using certified EHR technology); 

(III) a survey response; 

(IV) reporting under subparagraph (A)(iii); and 

(V) other means specified by the Secretary. 

(ii) USE OF PART D DATA.—Notwithstanding sections 

1860D–15(d)(2)(B) and 1860D–15(f)(2), the Secretary 

may use data regarding drug claims submitted for 

purposes of section 1860D–15 that are necessary for 

purposes of subparagraph (A). 

(4) APPLICATION.— 

(A) LIMITATIONS ON REVIEW.—There shall be no administrative or judicial review under section 1869, section 1878, 

or otherwise, of— 

(i) the methodology and standards for determining 

payment amounts under this subsection and payment 

adjustments under subsection (b)(3)(B)(ix), including 

selection of periods under paragraph (2) for determining, and making estimates or using proxies of, discharges under paragraph (2)(C) and inpatient-beddays, hospital charges, charity charges, and Medicare 

share under paragraph (2)(D); 

(ii) the methodology and standards for determining 

a meaningful EHR user under paragraph (3), including selection of measures under paragraph (3)(B), 

specification of the means of demonstrating meaningful EHR use under paragraph (3)(C), and the hardship 

exception under subsection (b)(3)(B)(ix)(II); and 


emcdonald on DSK67QTVN1PROD with HEARING
225 

(iii) the specification of EHR reporting periods under 

paragraph (6)(B) and the selection of the form of payment under paragraph (2)(F). 

(B) POSTING ON WEBSITE.—The Secretary shall post on 

the Internet website of the Centers for Medicare & Medicaid Services, in an easily understandable format, a list of 

the names of the eligible hospitals that are meaningful 

EHR users under this subsection or subsection (b)(3)(B)(ix) 

(and a list of the names of critical access hospitals to 

which paragraph (3) or (4) of section 1814(l) applies), and 

other relevant data as determined appropriate by the Secretary. The Secretary shall ensure that an eligible hospital 

(or critical access hospital) has the opportunity to review 

the other relevant data that are to be made public with respect to the hospital (or critical access hospital) prior to 

such data being made public. 

(5) CERTIFIED EHR TECHNOLOGY DEFINED.—The term ‘‘certified EHR technology’’ has the meaning given such term in 

section 1848(o)(4). 

(6) DEFINITIONS.—For purposes of this subsection: 

(A) EHR REPORTING PERIOD.—The term ‘‘EHR reporting 

period’’ means, with respect to a payment year, any period 

(or periods) as specified by the Secretary. 

(B) ELIGIBLE HOSPITAL.—The term ‘‘eligible hospital’’ 

means a subsection (d) hospital. 

(o) HOSPITAL VALUE-BASED PURCHASING PROGRAM.— (1) ESTABLISHMENT.— (A) IN GENERAL.—Subject to the succeeding provisions of 

this subsection, the Secretary shall establish a hospital 

value-based purchasing program (in this subsection referred to as the ‘‘Program’’) under which value-based incentive payments are made in a fiscal year to hospitals 

that meet the performance standards under paragraph (3) 

for the performance period for such fiscal year (as established under paragraph (4)). 

(B) PROGRAM TO BEGIN IN FISCAL YEAR 2013.—The Program shall apply to payments for discharges occurring on 

or after October 1, 2012. 

(C) APPLICABILITY OF PROGRAM TO HOSPITALS.— (i) IN GENERAL.—For purposes of this subsection, 

subject to clause (ii), the term ‘‘hospital’’ means a subsection (d) hospital (as defined in subsection (d)(1)(B)). 

(ii) EXCLUSIONS.—The term ‘‘hospital’’ shall not include, with respect to a fiscal year, a hospital— 

(I) that is subject to the payment reduction 

under subsection (b)(3)(B)(viii)(I) for such fiscal 

year; 

(II) for which, during the performance period for 

such fiscal year, the Secretary has cited deficiencies that pose immediate jeopardy to the 

health or safety of patients; 

(III) for which there are not a minimum number 

(as determined by the Secretary) of measures that 

apply to the hospital for the performance period 

for such fiscal year; or 


emcdonald on DSK67QTVN1PROD with HEARING
226 

(IV) for which there are not a minimum number 

(as determined by the Secretary) of cases for the 

measures that apply to the hospital for the performance period for such fiscal year. 

(iii) INDEPENDENT ANALYSIS.—For purposes of determining the minimum numbers under subclauses (III) 

and (IV) of clause (ii), the Secretary shall have conducted an independent analysis of what numbers are 

appropriate. 

(iv) EXEMPTION.—In the case of a hospital that is 

paid under section 1814(b)(3), the Secretary may exempt such hospital from the application of this subsection if the State which is paid under such section 

submits an annual report to the Secretary describing 

how a similar program in the State for a participating 

hospital or hospitals achieves or surpasses the measured results in terms of patient health outcomes and 

cost savings established under this subsection. 

(2) MEASURES.— 

(A) IN GENERAL.—The Secretary shall select measures, 

other than measures of readmissions, for purposes of the 

Program. Such measures shall be selected from the measures specified under subsection (b)(3)(B)(viii). 

(B) REQUIREMENTS.— (i) FOR FISCAL YEAR 2013.—For value-based incentive 

payments made with respect to discharges occurring 

during fiscal year 2013, the Secretary shall ensure the 

following: 

(I) CONDITIONS OR PROCEDURES.—Measures are 

selected under subparagraph (A) that cover at 

least the following 5 specific conditions or procedures: 

(aa) Acute myocardial infarction (AMI). 

(bb) Heart failure. 

(cc) Pneumonia. 

(dd) Surgeries, as measured by the Surgical 

Care Improvement Project (formerly referred 

to as ‘‘Surgical Infection Prevention’’ for discharges occurring before July 2006). 

(ee) Healthcare-associated infections, as 

measured by the prevention metrics and targets established in the HHS Action Plan to 

Prevent Healthcare-Associated Infections (or 

any successor plan) of the Department of 

Health and Human Services. 

(II) HCAHPS.—Measures selected under subparagraph (A) shall be related to the Hospital 

Consumer Assessment of Healthcare Providers 

and Systems survey (HCAHPS). 

(ii) INCLUSION OF EFFICIENCY MEASURES.—For valuebased incentive payments made with respect to discharges occurring during fiscal year 2014 or a subsequent fiscal year, the Secretary shall ensure that 

measures selected under subparagraph (A) include efficiency measures, including measures of ‘‘Medicare 


emcdonald on DSK67QTVN1PROD with HEARING
227 

spending per beneficiary’’. Such measures shall be adjusted for factors such as age, sex, race, severity of illness, and other factors that the Secretary determines 

appropriate. 

(C) LIMITATIONS.— (i) TIME REQUIREMENT FOR PRIOR REPORTING AND

NOTICE.—The Secretary may not select a measure 

under subparagraph (A) for use under the Program 

with respect to a performance period for a fiscal year 

(as established under paragraph (4)) unless such 

measure has been specified under subsection 

(b)(3)(B)(viii) and included on the Hospital Compare 

Internet website for at least 1 year prior to the beginning of such performance period. 

(ii) MEASURE NOT APPLICABLE UNLESS HOSPITAL FURNISHES SERVICES APPROPRIATE TO THE MEASURE.—A 

measure selected under subparagraph (A) shall not 

apply to a hospital if such hospital does not furnish 

services appropriate to such measure. 

(D) REPLACING MEASURES.—Subclause (VI) of subsection 

(b)(3)(B)(viii) shall apply to measures selected under subparagraph (A) in the same manner as such subclause applies to measures selected under such subsection. 

(3) PERFORMANCE STANDARDS.— (A) ESTABLISHMENT.—The Secretary shall establish performance standards with respect to measures selected 

under paragraph (2) for a performance period for a fiscal 

year (as established under paragraph (4)). 

(B) ACHIEVEMENT AND IMPROVEMENT.—The performance 

standards established under subparagraph (A) shall include levels of achievement and improvement. 

(C) TIMING.—The Secretary shall establish and announce the performance standards under subparagraph (A) 

not later than 60 days prior to the beginning of the performance period for the fiscal year involved. 

(D) CONSIDERATIONS IN ESTABLISHING STANDARDS.—In 

establishing performance standards with respect to measures under this paragraph, the Secretary shall take into 

account appropriate factors, such as— 

(i) practical experience with the measures involved, 

including whether a significant proportion of hospitals 

failed to meet the performance standard during previous performance periods; 

(ii) historical performance standards; 

(iii) improvement rates; and 

(iv) the opportunity for continued improvement. 

(4) PERFORMANCE PERIOD.—For purposes of the Program, the 

Secretary shall establish the performance period for a fiscal 

year. Such performance period shall begin and end prior to the 

beginning of such fiscal year. 

(5) HOSPITAL PERFORMANCE SCORE.— (A) IN GENERAL.—Subject to subparagraph (B), the Secretary shall develop a methodology for assessing the total 

performance of each hospital based on performance standards with respect to the measures selected under paraVerDate Sep 11 2014 01:51 Jun 18, 2015 Jkt 049006 PO 00000 Frm 00227 Fmt 6659 Sfmt 6601 E:\HR\OC\HR156.XXX HR156

emcdonald on DSK67QTVN1PROD with HEARING
228 

graph (2) for a performance period (as established under 

paragraph (4)). Using such methodology, the Secretary 

shall provide for an assessment (in this subsection referred 

to as the ‘‘hospital performance score’’) for each hospital for 

each performance period. 

(B) APPLICATION.— (i) APPROPRIATE DISTRIBUTION.—The Secretary shall 

ensure that the application of the methodology developed under subparagraph (A) results in an appropriate 

distribution of value-based incentive payments under 

paragraph (6) among hospitals achieving different levels of hospital performance scores, with hospitals 

achieving the highest hospital performance scores receiving the largest value-based incentive payments. 

(ii) HIGHER OF ACHIEVEMENT OR IMPROVEMENT.— 

The methodology developed under subparagraph (A) 

shall provide that the hospital performance score is 

determined using the higher of its achievement or improvement score for each measure. 

(iii) WEIGHTS.—The methodology developed under 

subparagraph (A) shall provide for the assignment of 

weights for categories of measures as the Secretary determines appropriate. 

(iv) NO MINIMUM PERFORMANCE STANDARD.—The 

Secretary shall not set a minimum performance standard in determining the hospital performance score for 

any hospital. 

(v) REFLECTION OF MEASURES APPLICABLE TO THE

HOSPITAL.—The hospital performance score for a hospital shall reflect the measures that apply to the hospital. 

(6) CALCULATION OF VALUE-BASED INCENTIVE PAYMENTS.— 

(A) IN GENERAL.—In the case of a hospital that the Secretary determines meets (or exceeds) the performance 

standards under paragraph (3) for the performance period 

for a fiscal year (as established under paragraph (4)), the 

Secretary shall increase the base operating DRG payment 

amount (as defined in paragraph (7)(D)), as determined 

after application of paragraph (7)(B)(i), for a hospital for 

each discharge occurring in such fiscal year by the valuebased incentive payment amount. 

(B) VALUE-BASED INCENTIVE PAYMENT AMOUNT.—The 

value-based incentive payment amount for each discharge 

of a hospital in a fiscal year shall be equal to the product 

of— 

(i) the base operating DRG payment amount (as defined in paragraph (7)(D)) for the discharge for the 

hospital for such fiscal year; and 

(ii) the value-based incentive payment percentage 

specified under subparagraph (C) for the hospital for 

such fiscal year. 

(C) VALUE-BASED INCENTIVE PAYMENT PERCENTAGE.— (i) IN GENERAL.—The Secretary shall specify a 

value-based incentive payment percentage for a hospital for a fiscal year. 


emcdonald on DSK67QTVN1PROD with HEARING
229 

(ii) REQUIREMENTS.—In specifying the value-based 

incentive payment percentage for each hospital for a 

fiscal year under clause (i), the Secretary shall ensure 

that— 

(I) such percentage is based on the hospital performance score of the hospital under paragraph 

(5); and 

(II) the total amount of value-based incentive 

payments under this paragraph to all hospitals in 

such fiscal year is equal to the total amount available for value-based incentive payments for such 

fiscal year under paragraph (7)(A), as estimated 

by the Secretary. 

(7) FUNDING FOR VALUE-BASED INCENTIVE PAYMENTS.— 

(A) AMOUNT.—The total amount available for valuebased incentive payments under paragraph (6) for all hospitals for a fiscal year shall be equal to the total amount 

of reduced payments for all hospitals under subparagraph 

(B) for such fiscal year, as estimated by the Secretary. 

(B) ADJUSTMENT TO PAYMENTS.— 

(i) IN GENERAL.—The Secretary shall reduce the 

base operating DRG payment amount (as defined in 

subparagraph (D)) for a hospital for each discharge in 

a fiscal year (beginning with fiscal year 2013) by an 

amount equal to the applicable percent (as defined in 

subparagraph (C)) of the base operating DRG payment 

amount for the discharge for the hospital for such fiscal year. The Secretary shall make such reductions for 

all hospitals in the fiscal year involved, regardless of 

whether or not the hospital has been determined by 

the Secretary to have earned a value-based incentive 

payment under paragraph (6) for such fiscal year. 

(ii) NO EFFECT ON OTHER PAYMENTS.—Payments described in items (aa) and (bb) of subparagraph 

(D)(i)(II) for a hospital shall be determined as if this 

subsection had not been enacted. 

(C) APPLICABLE PERCENT DEFINED.—For purposes of subparagraph (B), the term ‘‘applicable percent’’ means— 

(i) with respect to fiscal year 2013, 1.0 percent; 

(ii) with respect to fiscal year 2014, 1.25 percent; 

(iii) with respect to fiscal year 2015, 1.5 percent; 

(iv) with respect to fiscal year 2016, 1.75 percent; 

and 

(v) with respect to fiscal year 2017 and succeeding 

fiscal years, 2 percent. 

(D) BASE OPERATING DRG PAYMENT AMOUNT DEFINED.— 

(i) IN GENERAL.—Except as provided in clause (ii), in 

this subsection, the term ‘‘base operating DRG payment amount’’ means, with respect to a hospital for a 

fiscal year— 

(I) the payment amount that would otherwise be 

made under subsection (d) (determined without 

regard to subsection (q)) for a discharge if this 

subsection did not apply; reduced by 


emcdonald on DSK67QTVN1PROD with HEARING
230 

(II) any portion of such payment amount that is 

attributable to— 

(aa) payments under paragraphs (5)(A), 

(5)(B), (5)(F), and (12) of subsection (d); and 

(bb) such other payments under subsection 

(d) determined appropriate by the Secretary. 

(ii) SPECIAL RULES FOR CERTAIN HOSPITALS.— 

(I) SOLE COMMUNITY HOSPITALS AND MEDICAREDEPENDENT, SMALL RURAL HOSPITALS.—In the case 

of a medicare-dependent, small rural hospital 

(with respect to discharges occurring during fiscal 

year 2012 and 2013) or a sole community hospital, 

in applying subparagraph (A)(i), the payment 

amount that would otherwise be made under subsection (d) shall be determined without regard to 

subparagraphs (I) and (L) of subsection (b)(3) and 

subparagraphs (D) and (G) of subsection (d)(5). 

(II) HOSPITALS PAID UNDER SECTION 1814.—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. 

(8) ANNOUNCEMENT OF NET RESULT OF ADJUSTMENTS.— 

Under the Program, the Secretary shall, not later than 60 days 

prior to the fiscal year involved, inform each hospital of the adjustments to payments to the hospital for discharges occurring 

in such fiscal year under paragraphs (6) and (7)(B)(i). 

(9) NO EFFECT IN SUBSEQUENT FISCAL YEARS.—The valuebased incentive payment under paragraph (6) and the payment 

reduction under paragraph (7)(B)(i) shall each apply only with 

respect to the fiscal year involved, and the Secretary shall not 

take into account such value-based incentive payment or payment reduction in making payments to a hospital under this 

section in a subsequent fiscal year. 

(10) PUBLIC REPORTING.— 

(A) HOSPITAL SPECIFIC INFORMATION.— 

(i) IN GENERAL.—The Secretary shall make information available to the public regarding the performance 

of individual hospitals under the Program, including— 

(I) the performance of the hospital with respect 

to each measure that applies to the hospital; 

(II) the performance of the hospital with respect 

to each condition or procedure; and 

(III) the hospital performance score assessing 

the total performance of the hospital. 

(ii) OPPORTUNITY TO REVIEW AND SUBMIT CORRECTIONS.—The Secretary shall ensure that a hospital has 

the opportunity to review, and submit corrections for, 

the information to be made public with respect to the 

hospital under clause (i) prior to such information 

being made public. 

(iii) WEBSITE.—Such information shall be posted on 

the Hospital Compare Internet website in an easily 

understandable format. 


emcdonald on DSK67QTVN1PROD with HEARING
231 

(B) AGGREGATE INFORMATION.—The Secretary shall periodically post on the Hospital Compare Internet website aggregate information on the Program, including— 

(i) the number of hospitals receiving value-based incentive payments under paragraph (6) and the range 

and total amount of such value-based incentive payments; and 

(ii) the number of hospitals receiving less than the 

maximum value-based incentive payment available to 

the hospital for the fiscal year involved and the range 

and amount of such payments. 

(11) IMPLEMENTATION.— 

(A) APPEALS.—The Secretary shall establish a process by 

which hospitals may appeal the calculation of a hospital’s 

performance assessment with respect to the performance 

standards established under paragraph (3)(A) and the hospital performance score under paragraph (5). The Secretary shall ensure that such process provides for resolution of such appeals in a timely manner. 

(B) LIMITATION ON REVIEW.—Except as provided in subparagraph (A), there shall be no administrative or judicial 

review under section 1869, section 1878, or otherwise of 

the following: 

(i) The methodology used to determine the amount 

of the value-based incentive payment under paragraph 

(6) and the determination of such amount. 

(ii) The determination of the amount of funding 

available for such value-based incentive payments 

under paragraph (7)(A) and the payment reduction 

under paragraph (7)(B)(i). 

(iii) The establishment of the performance standards 

under paragraph (3) and the performance period 

under paragraph (4). 

(iv) The measures specified under subsection 

(b)(3)(B)(viii) and the measures selected under paragraph (2). 

(v) The methodology developed under paragraph (5) 

that is used to calculate hospital performance scores 

and the calculation of such scores. 

(vi) The validation methodology specified in subsection (b)(3)(B)(viii)(XI). 

(C) CONSULTATION WITH SMALL HOSPITALS.—The Secretary shall consult with small rural and urban hospitals 

on the application of the Program to such hospitals. 

(12) PROMULGATION OF REGULATIONS.—The Secretary shall 

promulgate regulations to carry out the Program, including the 

selection of measures under paragraph (2), the methodology developed under paragraph (5) that is used to calculate hospital 

performance scores, and the methodology used to determine 

the amount of value-based incentive payments under paragraph (6). 

(p) ADJUSTMENT TO HOSPITAL PAYMENTS FOR HOSPITAL AC- QUIRED CONDITIONS.— 

(1) IN GENERAL.—In order to provide an incentive for applicable hospitals to reduce hospital acquired conditions under this 


emcdonald on DSK67QTVN1PROD with HEARING
232 

title, with respect to discharges from an applicable hospital occurring during fiscal year 2015 or a subsequent fiscal year, the 

amount of payment under this section or section 1814(b)(3), as 

applicable, for such discharges during the fiscal year shall be 

equal to 99 percent of the amount of payment that would otherwise apply to such discharges under this section or section 

1814(b)(3) (determined after the application of subsections (o) 

and (q) and section 1814(l)(4) but without regard to this subsection). 

(2) APPLICABLE HOSPITALS.— 

(A) IN GENERAL.—For purposes of this subsection, the 

term ‘‘applicable hospital’’ means a subsection (d) hospital 

that meets the criteria described in subparagraph (B). 

(B) CRITERIA DESCRIBED.— 

(i) IN GENERAL.—The criteria described in this subparagraph, with respect to a subsection (d) hospital, is 

that the subsection (d) hospital is in the top quartile 

of all subsection (d) hospitals, relative to the national 

average, of hospital acquired conditions during the applicable period, as determined by the Secretary. 

(ii) RISK ADJUSTMENT.—In carrying out clause (i), 

the Secretary shall establish and apply an appropriate 

risk adjustment methodology. 

(C) EXEMPTION.—In the case of a hospital that is paid 

under section 1814(b)(3), the Secretary may exempt such 

hospital from the application of this subsection if the State 

which is paid under such section submits an annual report 

to the Secretary describing how a similar program in the 

State for a participating hospital or hospitals achieves or 

surpasses the measured results in terms of patient health 

outcomes and cost savings established under this subsection. 

(3) HOSPITAL ACQUIRED CONDITIONS.—For purposes of this 

subsection, the term ‘‘hospital acquired condition’’ means a condition identified for purposes of subsection (d)(4)(D)(iv) and any 

other condition determined appropriate by the Secretary that 

an individual acquires during a stay in an applicable hospital, 

as determined by the Secretary. 

(4) APPLICABLE PERIOD.—In this subsection, the term ‘‘applicable period’’ means, with respect to a fiscal year, a period 

specified by the Secretary. 

(5) REPORTING TO HOSPITALS.—Prior to fiscal year 2015 and 

each subsequent fiscal year, the Secretary shall provide confidential reports to applicable hospitals with respect to hospital 

acquired conditions of the applicable hospital during the applicable period. 

(6) REPORTING HOSPITAL SPECIFIC INFORMATION.— 

(A) IN GENERAL.—The Secretary shall make information 

available to the public regarding hospital acquired conditions of each applicable hospital. 

(B) OPPORTUNITY TO REVIEW AND SUBMIT CORRECTIONS.—The Secretary shall ensure that an applicable hospital has the opportunity to review, and submit corrections 

for, the information to be made public with respect to the 


emcdonald on DSK67QTVN1PROD with HEARING
233 

hospital under subparagraph (A) prior to such information 

being made public. 

(C) WEBSITE.—Such information shall be posted on the 

Hospital Compare Internet website in an easily understandable format. 

(7) LIMITATIONS ON REVIEW.—There shall be no administrative or judicial review under section 1869, section 1878, or otherwise of the following: 

(A) The criteria described in paragraph (2)(A). 

(B) The specification of hospital acquired conditions 

under paragraph (3). 

(C) The specification of the applicable period under paragraph (4). 

(D) The provision of reports to applicable hospitals under 

paragraph (5) and the information made available to the 

public under paragraph (6). 

(q) HOSPITAL READMISSIONS REDUCTION PROGRAM.— 

(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, 

2012, in order to account for excess readmissions in the hospital, the Secretary shall make payments (in addition to the 

payments described in paragraph (2)(A)(ii)) for such a discharge to such hospital under subsection (d) (or section 

1814(b)(3), as the case may be) in 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 DEFINED.— (A) IN GENERAL.—Except as provided in subparagraph 

(B), in this subsection, the term ‘‘base operating DRG payment amount’’ means, with respect to a hospital for a fiscal 

year— 

(i) the payment amount that would otherwise be 

made under subsection (d) (determined without regard 

to subsection (o)) for a discharge if this subsection did 

not apply; reduced by 

(ii) any portion of such payment amount that is attributable to payments under paragraphs (5)(A), 

(5)(B), (5)(F), and (12) of subsection (d). 

(B) SPECIAL RULES FOR CERTAIN HOSPITALS.— 

(i) SOLE COMMUNITY HOSPITALS AND MEDICARE-DEPENDENT, SMALL RURAL HOSPITALS.—In the case of a 

medicare-dependent, small rural hospital (with respect 

to discharges occurring during fiscal years 2012 and 

2013) or a sole community hospital, in applying subparagraph (A)(i), the payment amount that would otherwise be made under subsection (d) shall be determined without regard to subparagraphs (I) and (L) of 

subsection (b)(3) and subparagraphs (D) and (G) of 

subsection (d)(5). 

(ii) HOSPITALS PAID UNDER SECTION 1814.—In the 

case of a hospital that is paid under section 1814(b)(3), 


emcdonald on DSK67QTVN1PROD with HEARING
234 

the Secretary may exempt such hospitals provided 

that States paid under such section submit an annual 

report to the Secretary describing how a similar program in the State for a participating hospital or hospitals achieves or surpasses the measured results in 

terms of patient health outcomes and cost savings established herein with respect to this 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 2013 is 0.99; 

(ii) fiscal year 2014 is 0.98; or 

(iii) fiscal year 2015 and subsequent fiscal years is 

0.97. 

(4) AGGREGATE PAYMENTS, EXCESS READMISSION RATIO DE- FINED.—For purposes of this subsection: 

(A) AGGREGATE PAYMENTS FOR EXCESS READMISSIONS.— The term ‘‘aggregate payments for excess readmissions’’ 

means, for a hospital for an applicable period, 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 applicable period for such condition; 

(ii) the number of admissions for such condition for 

such hospital for such applicable period; and 

(iii) the excess readmissions ratio (as defined in subparagraph (C)) for such hospital for such applicable 

period minus 1. 

(B) AGGREGATE PAYMENTS FOR ALL DISCHARGES.—The 

term ‘‘aggregate payments for all discharges’’ means, for a 

hospital for an applicable period, the sum of the base operating DRG payment amounts for all discharges for all conditions from such hospital for such applicable period. 

(C) EXCESS READMISSION RATIO.— 

(i) IN GENERAL.—Subject to clause (ii), the term ‘‘excess readmissions ratio’’ means, with respect to an apVerDate Sep 11 2014 01:51 Jun 18, 2015 Jkt 049006 PO 00000 Frm 00234 Fmt 6659 Sfmt 6601 E:\HR\OC\HR156.XXX HR156

emcdonald on DSK67QTVN1PROD with HEARING
235 

plicable 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 

such 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. 

(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 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 2015, the Secretary shall, to the extent 

practicable, 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 identified by the Medicare Payment Advisory Commission in its report to Congress in June 2007 

and to other conditions and procedures 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 in the case of a 

specified area or medical topic determined appropriate by 

the Secretary for which a feasible and practical measure 

has not been endorsed by the entity with a contract under 

section 1890(a) as long as due consideration is given to 

measures that have been endorsed or adopted by a consensus organization identified by the Secretary. 


emcdonald on DSK67QTVN1PROD with HEARING
236 

(C) APPLICABLE HOSPITAL.—The term ‘‘applicable hospital’’ means a subsection (d) hospital or a hospital that is 

paid under section 1814(b)(3), as the case may be. 

(D) APPLICABLE PERIOD.—The term ‘‘applicable period’’ 

means, with respect to a fiscal year, such period as the 

Secretary shall specify. 

(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) REPORTING HOSPITAL SPECIFIC INFORMATION.— 

(A) IN GENERAL.—The Secretary shall make information 

available to the public regarding readmission rates of each 

subsection (d) hospital under the program. 

(B) OPPORTUNITY TO REVIEW AND SUBMIT CORREC- TIONS.—The Secretary shall ensure that a subsection (d) 

hospital has the opportunity to review, and submit corrections for, the information to be made public with respect 

to the hospital under subparagraph (A) prior to such information being made public. 

(C) WEBSITE.—Such information shall be posted on the 

Hospital Compare Internet website in an easily understandable format. 

(7) LIMITATIONS ON REVIEW.—There shall be no administrative or judicial review under section 1869, section 1878, or otherwise of the following: 

(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). 

(8) READMISSION RATES FOR ALL PATIENTS.— 

(A) CALCULATION OF READMISSION.—The Secretary shall 

calculate readmission rates for all patients (as defined in 

subparagraph (D)) for a specified hospital (as defined in 

subparagraph (D)(ii)) for an applicable condition (as defined in paragraph (5)(B)) and other conditions deemed appropriate by the Secretary for an applicable period (as defined in paragraph (5)(D)) in the same manner as used to 

calculate such readmission rates for hospitals with respect 

to this title and posted on the CMS Hospital Compare 

website. 

(B) POSTING OF HOSPITAL SPECIFIC ALL PATIENT READMISSION RATES.—The Secretary shall make information on all 


emcdonald on DSK67QTVN1PROD with HEARING
237 

patient readmission rates calculated under subparagraph 

(A) available on the CMS Hospital Compare website in a 

form and manner determined appropriate by the Secretary. The Secretary may also make other information determined appropriate by the Secretary available on such 

website. 

(C) HOSPITAL SUBMISSION OF ALL PATIENT DATA.— 

(i) Except as provided for in clause (ii), each specified hospital (as defined in subparagraph (D)(ii)) shall 

submit to the Secretary, in a form, manner and time 

specified by the Secretary, data and information determined necessary by the Secretary for the Secretary to 

calculate the all patient readmission rates described in 

subparagraph (A). 

(ii) Instead of a specified hospital submitting to the 

Secretary the data and information described in clause 

(i), such data and information may be submitted to the 

Secretary, on behalf of such a specified hospital, by a 

state or an entity determined appropriate by the Secretary. 

(D) DEFINITIONS.—For purposes of this paragraph: 

(i) The term ‘‘all patients’’ means patients who are 

treated on an inpatient basis and discharged from a 

specified hospital (as defined in clause (ii)). 

(ii) The term ‘‘specified hospital’’ means a subsection 

(d) hospital, hospitals described in clauses (i) through 

(v) of subsection (d)(1)(B) and, as determined feasible 

and appropriate by the Secretary, other hospitals not 

otherwise described in this subparagraph. 

(r) ADJUSTMENTS TO MEDICARE DSH PAYMENTS.— 

(1) EMPIRICALLY JUSTIFIED DSH PAYMENTS.—For fiscal year 

2014 and each subsequent fiscal year, instead of the amount 

of disproportionate share hospital payment that would otherwise be made under subsection (d)(5)(F) to a subsection (d) hospital for the fiscal year, the Secretary shall pay to the subsection (d) hospital 25 percent of such amount (which represents the empirically justified amount for such payment, as 

determined by the Medicare Payment Advisory Commission in 

its March 2007 Report to the Congress). 

(2) ADDITIONAL PAYMENT.—In addition to the payment made 

to a subsection (d) hospital under paragraph (1), for fiscal year 

2014 and each subsequent fiscal year, the Secretary shall pay 

to such subsection (d) hospitals an additional amount equal to 

the product of the following factors: 

(A) FACTOR ONE.—A factor equal to the difference between— 

(i) the aggregate amount of payments that would be 

made to subsection (d) hospitals under subsection 

(d)(5)(F) if this subsection did not apply for such fiscal 

year (as estimated by the Secretary); and 

(ii) the aggregate amount of payments that are 

made to subsection (d) hospitals under paragraph (1) 

for such fiscal year (as so estimated). 

(B) FACTOR TWO.— 


emcdonald on DSK67QTVN1PROD with HEARING
238 

(i) FISCAL YEARS 2014, 2015, 2016, AND 2017.—For each 

of fiscal years 2014, 2015, 2016, and 2017, a factor 

equal to 1 minus the percent change in the percent of 

individuals under the age of 65 who are uninsured, as 

determined by comparing the percent of such individuals— 

(I) who are uninsured in 2013, the last year before coverage expansion under the Patient Protection and Affordable Care Act (as calculated by the 

Secretary based on the most recent estimates 

available from the Director of the Congressional 

Budget Office before a vote in either House on the 

Health Care and Education Reconciliation Act of 

2010 that, if determined in the affirmative, would 

clear such Act for enrollment); and 

(II) who are uninsured in the most recent period 

for which data is available (as so calculated), 

minus 0.1 percentage points for fiscal year 2014 and 

minus 0.2 percentage points for each of fiscal years 

2015, 2016, and 2017. 

(ii) 2018 AND SUBSEQUENT YEARS.—For fiscal year 

2018 and each subsequent fiscal year, a factor equal to 

1 minus the percent change in the percent of individuals who are uninsured, as determined by comparing 

the percent of individuals— 

(I) who are uninsured in 2013 (as estimated by 

the Secretary, based on data from the Census Bureau or other sources the Secretary determines 

appropriate, and certified by the Chief Actuary of 

the Centers for Medicare & Medicaid Services); 

and 

(II) who are uninsured in the most recent period 

for which data is available (as so estimated and 

certified), 

minus 0.2 percentage points for each of fiscal years 

2018 and 2019. 

(C) FACTOR THREE.—A factor equal to the percent, for 

each subsection (d) hospital, that represents the quotient 

of— 

(i) the amount of uncompensated care for such hospital for a period selected by the Secretary (as estimated by the Secretary, based on appropriate data (including, in the case where the Secretary determines 

that alternative data is available which is a better 

proxy for the costs of subsection (d) hospitals for treating the uninsured, the use of such alternative data)); 

and 

(ii) the aggregate amount of uncompensated care for 

all subsection (d) hospitals that receive a payment 

under this subsection for such period (as so estimated, 

based on such data). 

(3) LIMITATIONS ON REVIEW.—There shall be no administrative or judicial review under section 1869, section 1878, or otherwise of the following: 


emcdonald on DSK67QTVN1PROD with HEARING
239 

(A) Any estimate of the Secretary for purposes of determining the factors described in paragraph (2). 

(B) Any period selected by the Secretary for such purposes. 

(s) PROSPECTIVE PAYMENT FOR PSYCHIATRIC HOSPITALS.— (1) REFERENCE TO ESTABLISHMENT AND IMPLEMENTATION OF

SYSTEM.—For provisions related to the establishment and implementation of a prospective payment system for payments 

under this title for inpatient hospital services furnished by psychiatric hospitals (as described in clause (i) of subsection 

(d)(1)(B)) and psychiatric units (as described in the matter following clause (v) of such subsection), see section 124 of the 

Medicare, Medicaid, and SCHIP Balanced Budget Refinement 

Act of 1999. 

(2) IMPLEMENTATION FOR RATE YEAR BEGINNING IN 2010 AND

SUBSEQUENT RATE YEARS.— 

(A) IN GENERAL.—In implementing the system described 

in paragraph (1) for the rate year beginning in 2010 and 

any subsequent rate year, any update to a base rate for 

days during the rate year for a psychiatric hospital or unit, 

respectively, shall be reduced— 

(i) for the rate year beginning in 2012 and each subsequent rate year, by the productivity adjustment described in section 1886(b)(3)(B)(xi)(II); and 

(ii) for each of the rate years beginning in 2010 

through 2019, by the other adjustment described in 

paragraph (3). 

(B) SPECIAL RULE.—The application of this paragraph 

may result in such update being less than 0.0 for a rate 

year, and may result in payment rates under the system 

described in paragraph (1) for a rate year being less than 

such payment rates for the preceding rate year. 

(3) OTHER ADJUSTMENT.—For purposes of paragraph 

(2)(A)(ii), the other adjustment described in this paragraph is— 

(A) for each of the rate years beginning in 2010 and 

2011, 0.25 percentage point; 

(B) for each of the rate years beginning in 2012 and 

2013, 0.1 percentage point; 

(C) for the rate year beginning in 2014, 0.3 percentage 

point; 

(D) for each of the rate years beginning in 2015 and 

2016, 0.2 percentage point; and 

(E) for each of the rate years beginning in 2017, 2018, 

and 2019, 0.75 percentage point. 

(4) QUALITY REPORTING.— 

(A) REDUCTION IN UPDATE FOR FAILURE TO REPORT.— 

(i) IN GENERAL.—Under the system described in 

paragraph (1), for rate year 2014 and each subsequent 

rate year, in the case of a psychiatric hospital or psychiatric unit that does not submit data to the Secretary in accordance with subparagraph (C) with respect to such a rate year, any annual update to a 

standard Federal rate for discharges for the hospital 

during the rate year, and after application of paragraph (2), shall be reduced by 2 percentage points. 


emcdonald on DSK67QTVN1PROD with HEARING
240 

(ii) SPECIAL RULE.—The application of this subparagraph may result in such annual update being less 

than 0.0 for a rate year, and may result in payment 

rates under the system described in paragraph (1) for 

a rate year being less than such payment rates for the 

preceding rate year. 

(B) NONCUMULATIVE APPLICATION.—Any reduction under 

subparagraph (A) shall apply only with respect to the rate 

year involved and the Secretary shall not take into account 

such reduction in computing the payment amount under 

the system described in paragraph (1) for a subsequent 

rate year. 

(C) SUBMISSION OF QUALITY DATA.—For rate year 2014 

and each subsequent rate year, each psychiatric hospital 

and psychiatric unit shall submit to the Secretary data on 

quality measures specified under subparagraph (D). Such 

data shall be submitted in a form and manner, and at a 

time, specified by the Secretary for purposes of this subparagraph. 

(D) QUALITY MEASURES.— 

(i) IN GENERAL.—Subject to clause (ii), any measure 

specified by the Secretary under this subparagraph 

must have been endorsed by the entity with a contract 

under section 1890(a). 

(ii) EXCEPTION.—In the case of a specified area or 

medical topic determined appropriate by the Secretary 

for which a feasible and practical measure has not 

been endorsed by the entity with a contract under section 1890(a), the Secretary may specify a measure that 

is not so endorsed as long as due consideration is 

given to measures that have been endorsed or adopted 

by a consensus organization identified by the Secretary. 

(iii) TIME FRAME.—Not later than October 1, 2012, 

the Secretary shall publish the measures selected 

under this subparagraph that will be applicable with 

respect to rate year 2014. 

(E) PUBLIC AVAILABILITY OF DATA SUBMITTED.—The Secretary shall establish procedures for making data submitted under subparagraph (C) available to the public. 

Such procedures shall ensure that a psychiatric hospital 

and a psychiatric unit has the opportunity to review the 

data that is to be made public with respect to the hospital 

or unit prior to such data being made public. The Secretary shall report quality measures that relate to services 

furnished in inpatient settings in psychiatric hospitals and 

psychiatric units on the Internet website of the Centers for 

Medicare & Medicaid Services. 

* * * * * * * 

Æ 


emcdonald on DSK67QTVN1PROD with HEARING