II 

108TH CONGRESS 

2D SESSION S. 2562 

To amend title XVIII of the Social Security Act to provide incentives for 

the furnishing of quality care under Medicare Advantage plans and 

by end stage renal disease providers and facilities, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

JUNE 23 (legislative day, JUNE 22), 2004 

Mr. BAUCUS introduced the following bill; which was read twice and referred 

to the Committee on Finance 

A BILL 

To amend title XVIII of the Social Security Act to provide 

incentives for the furnishing of quality care under Medicare Advantage plans and by end stage renal disease 

providers and facilities, and for other purposes. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE; TABLE OF CONTENTS. 

4 (a) IN GENERAL.—This Act may be cited as the 

5 ‘‘Medicare Quality Improvement Act of 2004’’. 

6 (b) TABLE OF CONTENTS.—The table of contents of 

7 this Act is as follows: 

Sec. 1. Short title; table of contents. 

Sec. 2. Findings. 
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Sec. 3. Medicare Advantage and reasonable cost reimbursement contract quality 

performance incentive payment program. 

Sec. 4. Quality performance incentive payment program for providers and facilities that provide services to medicare beneficiaries with ESRD. 

Sec. 5. Medicare innovative quality practice award program. 

Sec. 6. Quality improvement demonstration program for pediatric renal dialysis 

facilities providing care to medicare beneficiaries with end 

stage renal disease. 

Sec. 7. Medicare Quality Advisory Board. 

Sec. 8. Studies and reports on financial incentives for quality items and services 

under the medicare program. 

Sec. 9. MedPAC study and report on use of adjuster mechanisms under medicare quality performance incentive payment programs. 

Sec. 10. Demonstration program on measuring the quality of health care furnished to pediatric patients under the medicaid and SCHIP 

programs. 

Sec. 11. Provisions relating to medicaid quality improvements. 

Sec. 12. Demonstration program for Medical Smart Cards.

1 SEC. 2. FINDINGS. 

2 The Senate makes the following findings: 

3 (1) The Institute of Medicine has highlighted 

4 problems with our health care system in the areas 

5 of quality and patient safety. 

6 (2) The New England Journal of Medicine has 

7 published research in an article entitled ‘‘The Qual8 ity of Health Care Delivered to Adults in the United 

9 States’’ showing that adults in the United States receive recommended health care only about 1 10 ⁄2 of the 

11 time. 

12 (3) Payment policies under the medicare pro13 gram do not include mechanisms designed to im14 prove the quality of care. 

15 (4) The medicare program should reward health 

16 care providers who show, through measurement and 

17 reporting of quality indicators and through the prac-
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1 tice of innovations, that they are working to deliver 

2 high quality health care to their patients. 

3 (5) Reimbursement for services provided under 

4 the original medicare fee-for-service program under 

5 parts A and B of title XVIII of the Social Security 

6 Act should be based on a pay-for-performance sys7 tem. 

8 (6) A more aggressive research agenda on the 

9 development of appropriate quality measurement 

10 and payment methodologies under the medicare pro11 gram is necessary. 

12 SEC. 3. MEDICARE ADVANTAGE AND REASONABLE COST 

13 REIMBURSEMENT CONTRACT QUALITY PER14 FORMANCE INCENTIVE PAYMENT PROGRAM. 

15 (a) PROGRAM.—Part C of title XVIII of the Social 

16 Security Act, as amended by section 241 of the Medicare 

17 Prescription Drug, Improvement, and Modernization Act 

18 of 2003 (Public Law 108–173; 117 Stat. 2214), is amend19 ed by adding at the end the following new section: 

20 ‘‘QUALITY PERFORMANCE INCENTIVE PAYMENT PROGRAM

21 ‘‘SEC. 1860C–2. (a) PROGRAM.— 

22 ‘‘(1) IN GENERAL.—The Secretary shall estab23 lish a program under which financial incentive pay24 ments are provided each year to Medicare Advantage 

25 organizations offering Medicare Advantage plans 

26 and organizations that are providing benefits under 
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1 a reasonable cost reimbursement contract under sec2 tion 1876(h) that demonstrate the provision of supe3 rior quality health care to enrollees under the plan 

4 or contract. 

5 ‘‘(2) PROGRAM TO BEGIN IN 2007.—The Sec6 retary shall establish the program so that National 

7 Performance Quality Payments (described in sub8 section (c)) and National Quality Improvement Pay9 ments (described in subsection (d)) are made with 

10 respect to 2007 and each subsequent year. 

11 ‘‘(3) REQUIREMENT.—In order for an organiza12 tion to be eligible for a financial incentive payment 

13 under this section with respect to a Medicare Advan14 tage plan or a reasonable cost reimbursement con15 tract under section 1876(h), the organization shall— 

16 ‘‘(A) provide for the collection, analysis, 

17 and reporting of data pursuant to sections 

18 1852(e)(3) and 1876(h)(8), respectively, with 

19 respect to the plan or contract; and 

20 ‘‘(B) not later than a date specified by the 

21 Secretary during each baseline year (as defined 

22 in subsection (d)(4)), submit such data on the 

23 quality measures described in subsection (e)(2) 

24 as the Secretary determines appropriate for the 
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1 purpose of establishing a baseline with respect 

2 to the plan or contract. 

3 ‘‘(4) USE OF MOST RECENT DATA.—Financial 

4 incentive payments under this section shall be based 

5 upon the most recent available quality data. 

6 ‘‘(5) TIMING OF QUALITY INCENTIVE PAY7 MENTS.—The Secretary shall ensure that financial 

8 incentive payments under this section with respect to 

9 a year are made by March 1 of the subsequent year. 

10 ‘‘(6) APPLICABILITY OF PROGRAM TO MA

11 PLANS.—For purposes of this section, the term 

12 ‘Medicare Advantage plan’ shall— 

13 ‘‘(A) include both MA regional plans and 

14 MA local plans; and 

15 ‘‘(B) not include an MA plan described in 

16 subparagraph (A)(ii) or (B) of section 

17 1851(a)(2). 

18 ‘‘(b) QUALITY INCENTIVE PAYMENTS.— 

19 ‘‘(1) IN GENERAL.—Beginning with 2007, the 

20 Secretary shall allocate the total amount available 

21 for financial incentive payments in the year under 

22 subsection (f) as follows: 

23 ‘‘(A) The per beneficiary payment amount 

24 for National Performance Quality Payments es25 tablished under paragraph (2) shall be greater 
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1 than the per beneficiary payment amount for 

2 National Quality Improvement Payments estab3 lished under such paragraph. 

4 ‘‘(B) With respect to National Perform5 ance Quality Payments, the per beneficiary pay6 ment amount established under paragraph (2) 

7 shall be greatest for the organizations offering 

8 the highest performing plans or contracts. 

9 ‘‘(C) With respect to National Quality Im10 provement Payments, the per beneficiary pay11 ment amount established under paragraph (2) 

12 shall be greatest for the organizations offering 

13 plans or contracts with the highest degree of 

14 improvement. 

15 ‘‘(2) AMOUNT OF QUALITY INCENTIVE PAY16 MENT.— 

17 ‘‘(A) IN GENERAL.—The amount of a fi18 nancial incentive payment under subsection (c) 

19 or (d) to a Medicare Advantage organization 

20 with respect to a Medicare Advantage plan or 

21 to an organization with respect to a reasonable 

22 cost reimbursement contract under section 

23 1876(h) shall be determined by multiplying the 

24 number of beneficiaries enrolled under the plan 

25 or contract on the first day of the year for 
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1 which the payment is provided by a dollar 

2 amount established by the Secretary (in this 

3 section referred to as the ‘per beneficiary pay4 ment amount’) that is the same for all bene5 ficiaries enrolled under the plan or contract. 

6 ‘‘(B) LIMITATION ON TOTAL AMOUNT OF

7 QUALITY INCENTIVE PAYMENTS.—The total 

8 amount of all the financial incentive payments 

9 given with respect to a year shall be equal to 

10 the amount available for such payments in the 

11 year under subsection (f). 

12 ‘‘(3) USE OF QUALITY INCENTIVE PAYMENTS.— 

13 Financial incentive payments received under this 

14 section may only be used for the following purposes: 

15 ‘‘(A) To reduce any beneficiary cost-shar16 ing applicable under the plan or contract. 

17 ‘‘(B) To reduce any beneficiary premiums 

18 applicable under the plan or contract. 

19 ‘‘(C) To initiate, continue, or enhance 

20 health care quality programs for enrollees under 

21 the plan or contract. 

22 ‘‘(D) To improve the benefit package 

23 under the plan or contract. 

24 ‘‘(4) REPORTING ON USE OF QUALITY INCEN25 TIVE PAYMENTS.—Beginning in 2008, each MA or-
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1 ganization that receives a financial incentive pay2 ment under this section shall report to the Secretary 

3 pursuant to section 1854(a)(7) on how the organiza4 tion will use such payment. 

5 ‘‘(5) LIMITATIONS ON QUALITY INCENTIVE PAY6 MENTS.— 

7 ‘‘(A) PLAN ONLY ELIGIBLE FOR 1 PAY8 MENT IN A YEAR.—A Medicare Advantage or9 ganization offering a Medicare Advantage plan 

10 or an organization that is providing benefits 

11 under a reasonable cost reimbursement contract 

12 under section 1876(h) may not receive more 

13 than 1 financial incentive payment under this 

14 section in a year with respect to such plan or 

15 contract. If an organization with respect to the 

16 plan or contract is eligible for a National Per17 formance Quality Payment and a National 

18 Quality Improvement Payment, the organiza19 tion shall be given the National Performance 

20 Quality Payment. 

21 ‘‘(B) PLAN MUST BE AVAILABLE FOR EN22 TIRE YEAR.—A Medicare Advantage organiza23 tion offering a Medicare Advantage plan or an 

24 organization that is providing benefits under a 

25 reasonable cost reimbursement contract under 
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1 section 1876(h) is not eligible for a financial in2 centive payment under this section with respect 

3 to such plan or contract unless the plan or con4 tract offers benefits throughout the year in 

5 which the payment is provided. 

6 ‘‘(c) NATIONAL PERFORMANCE QUALITY PAY7 MENTS.—The Secretary shall make National Performance 

8 Quality Payments to the Medicare Advantage organiza9 tions and organizations offering reasonable cost reim10 bursement contracts under section 1876(h) with respect 

11 to each Medicare Advantage plan or reasonable cost con12 tract offered by the organization that receives ratings for 

13 the year in the top applicable percent of all plans and con14 tracts rated by the Secretary pursuant to subsection (e) 

15 for the year. For purposes of the preceding sentence, the 

16 term ‘applicable percent’ means a percent determined ap17 propriate by the Secretary in consultation with the Quality 

18 Advisory Board, but in no case less than 20 percent. 

19 ‘‘(d) NATIONAL QUALITY IMPROVEMENT PAY20 MENTS.— 

21 ‘‘(1) IN GENERAL.—Subject to paragraph (2), 

22 the Secretary shall make National Quality Improve23 ment Payments to Medicare Advantage organiza24 tions and organizations offering reasonable cost re25 imbursement contracts under section 1876(h) with 
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1 respect to each Medicare Advantage plan or reason2 able cost reimbursement contract offered by the or3 ganization that receives a rating under subsection 

4 (e) for the payment year that exceeds the rating re5 ceived under such subsection for the plan or contract 

6 for the baseline year. 

7 ‘‘(2) NATIONAL IMPROVEMENT STANDARD.— 

8 Beginning with 2009, the Secretary may implement 

9 a national improvement standard that Medicare Ad10 vantage plans and reasonable cost reimbursement 

11 contracts must meet in order to receive a National 

12 Quality Improvement Payment. 

13 ‘‘(3) APPLICATION OF THRESHOLDS.—In deter14 mining whether a rating received under subsection 

15 (e) for the payment year exceeds the rating received 

16 under such subsection for the baseline year, the Sec17 retary shall hold any applicable thresholds constant. 

18 For purposes of the preceding sentence, the term 

19 ‘threshold’ means norms used to assess performance. 

20 ‘‘(4) BASELINE YEAR DEFINED.—In this sub21 section, the term ‘baseline year’ means the year 

22 prior to the payment year. 

23 ‘‘(e) RATING METHODOLOGY.— 

24 ‘‘(1) SCORING AND RANKING SYSTEMS.— 
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1 ‘‘(A) IN GENERAL.—The Secretary shall 

2 develop separate scoring and ranking systems 

3 for purposes of determining which organizations 

4 offering Medicare Advantage plans and reason5 able cost reimbursement contracts under section 

6 1876(h) qualify for— 

7 ‘‘(i) National Performance Quality 

8 Payments; and 

9 ‘‘(ii) National Quality Improvement 

10 Payments. 

11 ‘‘(B) REQUIREMENTS.—In developing, im12 plementing, and updating the scoring and rank13 ing systems, the Secretary shall— 

14 ‘‘(i) consult with the Quality Advisory 

15 Board established under section 1898; 

16 ‘‘(ii) take into account the report on 

17 health care performance measures sub18 mitted by the Institute of Medicine of the 

19 National Academy of Sciences under sec20 tion 238 of the Medicare Prescription 

21 Drug, Improvement, and Modernization 

22 Act of 2003; and 

23 ‘‘(iii) take into account the Managed 

24 Care Organization (MCO) standards and 

25 guideline methodology of the National 
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1 Committee for Quality Assurance for 

2 awarding total Health Plan Employer 

3 Data and Information Set (HEDIS) points 

4 (based on HEDIS and Consumer Assess5 ment of Health Plans Survey (CAHPS) 

6 measures). 

7 ‘‘(2) MEASURES.— 

8 ‘‘(A) IN GENERAL.—Subject to subpara9 graph (B), in developing the scoring and rank10 ing systems under paragraph (1), the Secretary 

11 shall use all measures determined appropriate 

12 by the Secretary. Such measures may include— 

13 ‘‘(i) outcome measures for highly 

14 prevalent chronic conditions; 

15 ‘‘(ii) audited HEDIS outcomes and 

16 process measures, CAHPS data, and other 

17 data reported to the Department of Health 

18 and Human Services; and 

19 ‘‘(iii) the Joint Commission on Ac20 creditation of Healthcare Organizations 

21 core measures. 

22 ‘‘(B) SCORING AND RANKING SYSTEM FOR

23 NATIONAL PERFORMANCE QUALITY PAYMENTS

24 ONLY BASED ON MEASURES OF CLINICAL EF25 FECTIVENESS.—The scoring and ranking sys-
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1 tem for National Performance Quality Pay2 ments shall only include measures of clinical ef3 fectiveness. 

4 ‘‘(3) WEIGHTS OF MEASURES.—In developing 

5 the scoring and ranking systems under paragraph 

6 (1), the Secretary shall assign weights to the meas7 ures used by the Secretary under such system pur8 suant to paragraph (2). In assigning such weights, 

9 the Secretary shall provide greater weight to the 

10 measures that measure clinical effectiveness. 

11 ‘‘(4) RISK ADJUSTMENT.—In developing the 

12 scoring and ranking systems under paragraph (1), 

13 the Secretary shall establish procedures for adjust14 ing the data used under the system to take into ac15 count differences in the health status of individuals 

16 enrolled under Medicare Advantage plans and rea17 sonable cost contracts. 

18 ‘‘(5) UPDATE.— 

19 ‘‘(A) IN GENERAL.—The Secretary shall as 

20 determined appropriate, but in no case more 

21 often than once each 12-month period, update 

22 the scoring and ranking systems developed 

23 under paragraph (1), including the measures 

24 used by the Secretary under such system pursu25 ant to paragraph (2), the weights established 
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1 pursuant to paragraph (3), and the risk adjust2 ment procedures established pursuant to para3 graph (4). 

4 ‘‘(B) COMPARISON FOR NATIONAL QUAL5 ITY IMPROVEMENT PAYMENTS.—Each update 

6 under subparagraph (A) of the scoring and 

7 ranking system for National Quality Improve8 ment Payments shall allow for the comparison 

9 of data from one year to the next for purposes 

10 of identifying which plans or contracts will re11 ceive such Payments. 

12 ‘‘(C) CONSULTATION.—In determining 

13 when and how to update the scoring and rank14 ing systems under subparagraph (A), the Sec15 retary shall consult with the Quality Advisory 

16 Board. 

17 ‘‘(f) FUNDING OF PAYMENTS.—The amount available 

18 for financial incentive payments under this section with 

19 respect to a year shall be equal to the amount of the reduc20 tion in expenditures under the Federal Hospital Insurance 

21 Trust Fund and the Federal Supplementary Medical In22 surance Trust Fund in the year as a result of the amend23 ments made by section 3(b) of the Medicare Quality Im24 provement Act of 2004.’’. 
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1 (b) REDUCTION IN PAYMENTS TO ORGANIZATIONS IN

2 ORDER TO FUND PROGRAM.— 

3 (1) MA PAYMENTS.— 

4 (A) IN GENERAL.—Section 1853(j) of the 

5 Social Security Act (42 U.S.C. 1395w–23(j)), 

6 as added by section 222(d) of the Medicare 

7 Prescription Drug, Improvement, and Mod8 ernization Act of 2003 (Public Law 108–173; 

9 117 Stat. 2200), is amended— 

10 (i) in subparagraphs (A) and (B) of 

11 paragraph (1), by inserting ‘‘and, begin12 ning in 2007, reduced by 2 percent in the 

13 case of an MA plan described in subpara14 graph (A)(i) or (C) of section 1851(a)(2)’’ 

15 before the semicolon at the end; and 

16 (ii) in paragraph (2), by inserting 

17 ‘‘and, beginning in 2007, reduced by 2 per18 cent in the case of an MA plan described 

19 in subparagraph (A)(i) or (C) of section 

20 1851(a)(2)’’ before the period at the end. 

21 (B) REDUCTIONS IN PAYMENTS DO NOT

22 EFFECT THE GOVERNMENT SAVINGS FOR BIDS

23 BELOW THE BENCHMARK.—Section 

24 1854(b)(1)(C)(i) of the Social Security Act (42 

25 U.S.C. 1395w–24(b)(1)(C)(i)), as added by sec-
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1 tion 222(b) of the Medicare Prescription Drug, 

2 Improvement, and Modernization Act of 2003 

3 (Public Law 108–173; 117 Stat. 2196), is 

4 amended— 

5 (i) by striking ‘‘75 percent’’ and in6 serting ‘‘100 percent’’; and 

7 (ii) by inserting the following before 

8 the period at the end: ‘‘, reduced by 25 

9 percent of such average per capita savings 

10 (if any), as applicable to the plan and year 

11 involved, that would be computed if sec12 tions 1853(j) and 1860C–1(e)(1) was ap13 plied by substituting ‘zero percent’ for ‘2 

14 percent’ each place it appears’’. 

15 (2) REASONABLE COST CONTRACT PAY16 MENTS.—Section 1876(h) of the Social Security Act 

17 (42 U.S.C. 1395mm(h)) is amended by adding at 

18 the end the following new paragraph: 

19 ‘‘(6) Notwithstanding the preceding provisions of this 

20 subsection, the Secretary shall reduce each payment to an 

21 eligible organization under this subsection with respect to 

22 benefits provided on or after January 1, 2007, by an 

23 amount equal to 2 percent of the payment amount. The 

24 preceding sentence shall have no effect on payments to 
17 

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1 eligible organizations for the provision of qualified pre2 scription drug coverage under part D.’’. 

3 (3) CCA PAYMENTS.—The first sentence of sec4 tion 1860C–1(e)(1) of the Social Security Act, as 

5 added by section 241 of the Medicare Prescription 

6 Drug, Improvement, and Modernization Act of 2003 

7 (Public Law 108–173; 117 Stat. 2214) is amended 

8 by inserting ‘‘, reduced by 2 percent in the case of 

9 an MA plan described in subparagraph (A)(i) or (C) 

10 of section 1851(a)(2)’’ before the period at the end. 

11 (c) REQUIREMENT FOR REPORTING ON USE OF FI12 NANCIAL INCENTIVE PAYMENTS.— 

13 (1) MA PLANS.—Section 1854(a) of the Social 

14 Security Act (42 U.S.C. 1395w–24(a)), as amended 

15 by section 222(a) of the Medicare Prescription 

16 Drug, Improvement, and Modernization Act of 2003 

17 (Public Law 108–173; 117 Stat. 2193), is amend18 ed— 

19 (A) in paragraph (1)(A)(i), by striking ‘‘or 

20 (6)(A)’’ and inserting ‘‘(6)(A), or (7)’’; and 

21 (B) by adding at the end the following: 

22 ‘‘(7) SUBMISSION OF INFORMATION OF HOW FI23 NANCIAL INCENTIVE PAYMENTS WILL BE USED BE24 GINNING IN 2008.—For an MA plan described in 

25 subparagraph (A)(i) or (C) of section 1851(a)(2) for 
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1 a plan year beginning on or after January 1, 2008, 

2 the information described in this paragraph is a de3 scription of how the organization offering the plan 

4 will use any financial incentive payment that the or5 ganization received under section 1860C–2 with re6 spect to the plan.’’. 

7 (2) ELIGIBLE ENTITIES WITH REASONABLE

8 COST CONTRACTS.—Section 1876(h) of the Social 

9 Security Act (42 U.S.C. 1395mm(h)), as amended 

10 by subsection (b)(2), is amended by adding at the 

11 end the following new paragraph: 

12 ‘‘(7)(A) Not later than July 1 of each year (beginning 

13 in 2008), any eligible entity with a reasonable cost reim14 bursement contract under this subsection that receives a 

15 financial incentive payment under section 1860C–2 with 

16 respect to each plan year shall submit to the Secretary 

17 a report containing the information described in subpara18 graph (B). 

19 ‘‘(B) The information described in this subparagraph 

20 is a description of how the organization offering the plan 

21 will use any financial incentive payment that the organiza22 tion received under section 1860C–2 with respect to the 

23 plan.’’. 

24 (d) SUBMISSION OF QUALITY DATA.— 
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1 (1) MA ORGANIZATIONS.—Section 1852(e) of 

2 the Social Security Act (42 U.S.C. 1395w–22(e)), as 

3 amended by section 722 of the Medicare Prescrip4 tion Drug, Improvement, and Modernization Act of 

5 2003 (Public Law 108–173; 117 Stat. 2347), is 

6 amended— 

7 (A) in paragraph (1), by striking ‘‘an MA 

8 private fee-for-service plan or’’; and 

9 (B) by striking paragraph (3) and insert10 ing the following new paragraph: 

11 ‘‘(3) COLLECTION, ANALYSIS, AND REPORT12 ING.— 

13 ‘‘(i) IN GENERAL.—As part of the quality 

14 improvement program under paragraph (1), 

15 each MA organization shall provide for the col16 lection, analysis, and reporting of data that per17 mits the measurement of health outcomes and 

18 other indices of quality. 

19 ‘‘(ii) COORDINATION WITH COMMERCIAL

20 ENROLLEE REPORTING REQUIREMENTS.—The 

21 Secretary shall establish procedures to ensure 

22 the coordination of the reporting requirement 

23 under clause (i) with reporting requirements for 

24 the organization under this part relating to in25 dividuals enrolled with the organization but not 
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1 under this part. Although such reporting re2 quirements shall be coordinated pursuant to the 

3 preceding sentence, the use of the data reported 

4 may vary.’’. 

5 (2) ELIGIBLE ENTITIES WITH REASONABLE

6 COST CONTRACTS.—Section 1876(h) of the Social 

7 Security Act (42 U.S.C. 1395mm(h)), as amended 

8 by subsection (c)(2), is amended by adding at the 

9 end the following new paragraph: 

10 ‘‘(8)(A) With respect to plan years beginning on or 

11 after January 1, 2006, an eligible entity with a reasonable 

12 cost reimbursement contract under this subsection shall 

13 provide for the collection, analysis, and reporting of data 

14 that permits the measurement of health outcomes and 

15 other indices of quality. 

16 ‘‘(B) The Secretary shall establish procedures to en17 sure the coordination of the reporting requirement under 

18 subparagraph (A) with reporting requirements for the en19 tity under this title relating to individuals enrolled with 

20 the entity but not receiving benefits under this title.’’. 
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1 SEC. 4. QUALITY PERFORMANCE INCENTIVE PAYMENT 

2 PROGRAM FOR PROVIDERS AND FACILITIES 

3 THAT PROVIDE SERVICES TO MEDICARE 

4 BENEFICIARIES WITH ESRD. 

5 Section 1881(b) of the Social Security Act (42 U.S.C. 

6 1395rr(b)), as amended by section 623(d)(1) of the Medi7 care Prescription Drug, Improvement, and Modernization 

8 Act of 2003 (Public Law 108–173; 117 Stat. 2313), is 

9 amended— 

10 (1) in paragraph (11)(B), by striking ‘‘para11 graphs (12) and (13)’’ and inserting ‘‘paragraphs 

12 (12), (13), and (14)’’; 

13 (2) in paragraph (12), by striking ‘‘In lieu of’’ 

14 and inserting ‘‘Subject to paragraph (14), in lieu 

15 of’’; 

16 (3) in paragraph (13)(A), in the matter pre17 ceding clause (i), by striking ‘‘The payment 

18 amounts’’ and inserting ‘‘Subject to paragraph (14), 

19 the payment amounts’’; and 

20 (4) by adding at the end the following new 

21 paragraph: 

22 ‘‘(14) RENAL DIALYSIS PERFORMANCE INCEN23 TIVE PAYMENT PROGRAM.— 

24 ‘‘(A) ESTABLISHMENT OF PROGRAM.— 

25 ‘‘(i) IN GENERAL.—The Secretary 

26 shall establish a program under which fi-
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1 nancial incentive payments are provided 

2 each year to providers of services and renal 

3 dialysis facilities that receive payments 

4 under paragraph (12) or (13) and dem5 onstrate the provision of superior quality 

6 health care to individuals with end stage 

7 renal disease. 

8 ‘‘(ii) PROGRAM TO BEGIN IN 2007.— 

9 The Secretary shall establish the program 

10 so that National Performance Quality Pay11 ments (described in subparagraph (C)) and 

12 National Quality Improvement Payments 

13 (described in subparagraph (D)) are made 

14 with respect to 2007 and each subsequent 

15 year. 

16 ‘‘(iii) REQUIREMENT.—In order for a 

17 provider of services or a renal dialysis fa18 cility to be eligible for a financial incentive 

19 payment under this section, the provider or 

20 facility shall, not later than a date speci21 fied by the Secretary during the baseline 

22 year (as defined in subparagraph (D)(iv)), 

23 submit such data on the quality measures 

24 as the Secretary determines appropriate 
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1 for the purpose of establishing a baseline 

2 with respect to the provider or facility. 

3 ‘‘(iv) USE OF MOST RECENT DATA.— 

4 Financial incentive payments under this 

5 paragraph shall be based upon the most 

6 recent available quality data as provided by 

7 the Consolidated Renal Operations in a 

8 Web-enabled Network (CROWN) system. 

9 ‘‘(v) PEDIATRIC FACILITIES NOT IN10 CLUDED IN PROGRAM.—For purposes of 

11 this paragraph, including subparagraph 

12 (F)(i), the terms ‘renal dialysis facility’ 

13 and ‘facility’ do not include a renal dialysis 

14 facility at least 50 percent of whose pa15 tients are individuals under 18 years of 

16 age. 

17 ‘‘(B) PAYMENTS.— 

18 ‘‘(i) IN GENERAL.—Beginning with 

19 2007, the Secretary shall allocate the total 

20 amount available for financial incentive 

21 payments in the year under subparagraph 

22 (F)(ii) as follows: 

23 ‘‘(I) The amount allocated for 

24 National Performance Quality Pay25 ments shall be greater than the 
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1 amount allocated for National Quality 

2 Improvement Payments. 

3 ‘‘(II) With respect to National 

4 Performance Quality Payments, the 

5 per capita amount of the payments 

6 shall be greatest for the organizations 

7 offering the highest performing plans 

8 or contracts. 

9 ‘‘(III) With respect to National 

10 Quality Improvement Payments, the 

11 per capita amount of the payments 

12 shall be greatest for the organizations 

13 offering plans or contracts with the 

14 highest degree of improvement. 

15 ‘‘(ii) AMOUNT OF QUALITY INCENTIVE

16 PAYMENT.— 

17 ‘‘(I) IN GENERAL.—The amount 

18 of a financial incentive payment under 

19 subparagraph (C) or (D) to a provider 

20 of services or renal dialysis facility 

21 shall be determined by multiplying the 

22 number of beneficiaries who received 

23 dialysis services from the provider or 

24 facility during the year for which the 

25 payment is provided by a dollar 
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1 amount established by the Secretary 

2 that is the same with respect to each 

3 beneficiary receiving dialysis services 

4 from the provider or facility. 

5 ‘‘(II) LIMITATION ON TOTAL

6 AMOUNT OF QUALITY INCENTIVE PAY7 MENTS.—The total amount of all the 

8 financial incentive payments given 

9 with respect to a year shall be equal 

10 to the amount available for such pay11 ments in the year under subparagraph 

12 (F)(ii). 

13 ‘‘(iii) USE OF QUALITY INCENTIVE

14 PAYMENTS.—Financial incentive payments 

15 received under this paragraph may be used 

16 for the following purposes: 

17 ‘‘(I) To invest in information 

18 technology systems that will improve 

19 the quality of care provided to individ20 uals with end stage renal disease. 

21 ‘‘(II) To initiate, continue, or en22 hance health care quality programs 

23 for individuals with end stage renal 

24 disease. 
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1 ‘‘(III) Any other purpose deter2 mined appropriate by the Secretary. 

3 ‘‘(iv) LIMITATIONS ON QUALITY IN4 CENTIVE PAYMENTS.— 

5 ‘‘(I) ONLY ELIGIBLE FOR 1 PAY6 MENT IN A YEAR.—A provider of serv7 ices or a renal dialysis facility may 

8 not receive more than 1 financial in9 centive payment under this paragraph 

10 in a year. If a provider of services or 

11 a renal dialysis facility is eligible for a 

12 National Performance Quality Pay13 ment and a National Quality Improve14 ment Payment, the organization shall 

15 be given the National Performance 

16 Quality Payment. 

17 ‘‘(II) SERVICES MUST BE AVAIL18 ABLE FOR ENTIRE YEAR.—A provider 

19 of services or renal dialysis facility is 

20 not eligible for a financial incentive 

21 payment under this paragraph unless 

22 the provider or facility is in operation 

23 and providing dialysis services for the 

24 entire year for which the payment is 

25 provided. 
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1 ‘‘(C) NATIONAL PERFORMANCE QUALITY

2 PAYMENTS.—The Secretary shall make Na3 tional Performance Quality Payments to the 

4 providers of services and renal dialysis facilities 

5 that receive ratings for the year in the top ap6 plicable percent of all providers and facilities 

7 rated by the Secretary pursuant to subpara8 graph (E) for the year. For purposes of the 

9 preceding sentence, the term ‘applicable per10 cent’ means a percent determined appropriate 

11 by the Secretary in consultation with the Qual12 ity Advisory Board, but in no case less than 20 

13 percent. 

14 ‘‘(D) NATIONAL QUALITY IMPROVEMENT

15 PAYMENTS.— 

16 ‘‘(i) IN GENERAL.—National Quality 

17 Improvement Payments shall be paid to 

18 each provider of services and renal dialysis 

19 facility that receives ratings under sub20 paragraph (E) for the payment year that 

21 exceed the ratings received under such sub22 paragraph for the provider or facility for 

23 the baseline year. 

24 ‘‘(ii) NATIONAL IMPROVEMENT

25 STANDARD.—Beginning with 2009, the 
28 

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1 Secretary shall have the authority to imple2 ment a national improvement standard 

3 that providers of services and renal dialysis 

4 facilities must meet in order to receive a 

5 National Quality Improvement Payment. 

6 ‘‘(iii) APPLICATION OF THRESH7 OLDS.—In determining whether a rating 

8 received under subparagraph (E) for the 

9 payment year exceeds the rating received 

10 under such subsection for the baseline 

11 year, the Secretary shall hold any applica12 ble thresholds constant. 

13 ‘‘(iv) BASELINE YEAR DEFINED.—In 

14 this subparagraph, the term ‘baseline year’ 

15 means the year prior to the payment year. 

16 ‘‘(E) RATING METHODOLOGY.— 

17 ‘‘(i) SCORING AND RANKING SYS18 TEMS.— 

19 ‘‘(I) IN GENERAL.—The Sec20 retary shall develop separate scoring 

21 and ranking systems for purposes of 

22 determining which providers of serv23 ices and renal dialysis facilities qualify 

24 for— 
29 

•S 2562 IS 

1 ‘‘(aa) National Performance 

2 Quality Payments; and 

3 ‘‘(bb) National Quality Im4 provement Payments. 

5 ‘‘(II) REQUIREMENTS.—In devel6 oping, implementing, and updating 

7 the scoring and ranking systems, the 

8 Secretary shall— 

9 ‘‘(aa) consult with the Qual10 ity Advisory Board established 

11 under section 1898 and the net12 work administrative organiza13 tions designated under subsection 

14 (c)(1)(A)(i)(II); and 

15 ‘‘(bb) take into account the 

16 report on health care perform17 ance measures submitted by the 

18 Institute of Medicine of the Na19 tional Academy of Sciences under 

20 section 238 of the Medicare Pre21 scription Drug, Improvement, 

22 and Modernization Act of 2003. 

23 ‘‘(ii) MEASURES.— 

24 ‘‘(I) IN GENERAL.—Subject to 

25 subclause (II), in developing the scor-
30 

•S 2562 IS 

1 ing and ranking system under clause 

2 (i), the Secretary shall use all meas3 ures determined appropriate by the 

4 Secretary. Such measures may include 

5 the following: 

6 ‘‘(aa) The measures profiled 

7 in the ESRD Clinical Perform8 ance Measures (CPM) project of 

9 the Centers for Medicare & Med10 icaid Services. 

11 ‘‘(bb) The measures for bone 

12 disease to be determined by the 

13 K-DOQI project of the National 

14 Kidney Foundation. 

15 ‘‘(II) Scoring and ranking system 

16 for national performance quality pay17 ments only based on measures of clin18 ical effectiveness.—The scoring and 

19 ranking system for National Perform20 ance Quality Payments shall only in21 clude measures of clinical effective22 ness. 

23 ‘‘(iii) WEIGHTS OF MEASURES.—In 

24 developing the scoring and ranking sys25 tems under clause (i), the Secretary shall 
31 

•S 2562 IS 

1 assign weights to the measures used by the 

2 Secretary under such system pursuant to 

3 clause (ii). In assigning such weights, the 

4 Secretary shall provide greater weight to 

5 the measures that measure clinical effec6 tiveness. 

7 ‘‘(iv) RISK ADJUSTMENT.—In devel8 oping the scoring and ranking systems 

9 under clause (i), the Secretary shall estab10 lish procedures for adjusting the data used 

11 under the system to take into account dif12 ferences in the health status of individuals 

13 receiving dialysis services from providers of 

14 services and renal dialysis facilities. 

15 ‘‘(v) UPDATE.— 

16 ‘‘(I) IN GENERAL.—The Sec17 retary shall as determined appro18 priate, but in no case more often than 

19 once each 12-month period, update 

20 the scoring and ranking systems de21 veloped under clause (i), including the 

22 measures used by the Secretary under 

23 such system pursuant to clause (ii), 

24 the weights established pursuant to 

25 clause (iii), and the risk adjustment 
32 

•S 2562 IS 

1 procedures established pursuant to 

2 clause (iv). 

3 ‘‘(II) COMPARISON FOR NA4 TIONAL QUALITY IMPROVEMENT PAY5 MENTS.—Each update under sub6 clause (I) of the National Quality Im7 provement Payments shall allow for 

8 the comparison of data from one year 

9 to the next for purposes of identifying 

10 which providers of services and renal 

11 dialysis facilities will receive such Pay12 ments. 

13 ‘‘(III) CONSULTATION.—In de14 termining when and how to update 

15 the scoring and ranking systems 

16 under subclause (I), the Secretary 

17 shall consult with the Quality Advi18 sory Board. 

19 ‘‘(F) FUNDING OF PAYMENTS.— 

20 ‘‘(i) REDUCTION IN PAYMENTS.—In 

21 order to provide the funding for the finan22 cial incentive payments under this para23 graph, for each year (beginning with 

24 2007), the Secretary shall reduce each pay25 ment under paragraphs (12) and (13) to a 
33 

•S 2562 IS 

1 provider of service and a renal dialysis fa2 cility by an amount equal to 2 percent of 

3 the payment. 

4 ‘‘(ii) AMOUNT AVAILABLE.—The 

5 amount available for financial incentive 

6 payments under this section with respect 

7 to a year shall be equal to the amount of 

8 the reduction in expenditures under the 

9 Federal Supplementary Medical Insurance 

10 Trust Fund in the year as a result of the 

11 application of clause (i).’’. 

12 SEC. 5. MEDICARE INNOVATIVE QUALITY PRACTICE AWARD 

13 PROGRAM. 

14 (a) ESTABLISHMENT.—The Secretary of Health and 

15 Human Services (in this section referred to as the ‘‘Sec16 retary’’) shall establish a program under which the Sec17 retary shall award bonus payments to entities and individ18 uals providing items and services under the medicare pro19 gram under title XVIII of the Social Security Act that 

20 demonstrate innovative practices, structural improve21 ments, or capacity enhancements that improve the quality 

22 of health care provided to medicare beneficiaries by such 

23 entities and individuals. 

24 (b) PERIOD OF PROGRAM.—Awards under the pro25 gram shall be made during 2006, 2007, and 2008. 
34 

•S 2562 IS 

1 (c) SELECTION OF RECIPIENTS.— 

2 (1) IN GENERAL.—The Secretary shall ensure 

3 that the entities and individuals that receive an 

4 award under this section have demonstrated im5 provements in the quality of health care provided to 

6 medicare beneficiaries by such entities and individ7 uals through comparison with a control group or 

8 baseline evaluation. For purposes of the program, 

9 improvements in the quality of health care provided 

10 to medicare beneficiaries shall be defined as pro11 viding additional services, such as translator services 

12 and health literacy education services, or providing 

13 care to an expanded service area or an expanded 

14 population through telemedicine, increased cultural 

15 competence, or other means, in combination with im16 proved health outcomes or reduced beneficiary costs. 

17 (2) ALL ENTITIES AND INDIVIDUALS ELIGI18 BLE.—Any entity, including a plan, or individual 

19 that is providing services under the medicare pro20 gram is eligible for receiving an award under this 

21 section. 

22 (3) CONSULTATION.—In selecting the recipients 

23 of the awards under this section, the Secretary shall 

24 consult with the Quality Advisory Board established 
35 

•S 2562 IS 

1 under section 1898 of the Social Security Act, as 

2 added by section 7. 

3 (d) MINIMUM NUMBER OF AWARDS.—The Secretary 

4 shall make at least 10 awards under this section in each 

5 year of the program. 

6 (e) APPLICATION.—An entity or individual desiring 

7 an award under this section shall submit an application 

8 to the Secretary at such time, in such manner, and accom9 panied by such information as the Secretary may reason10 ably require. 

11 (f) AMOUNT OF AWARD.— 

12 (1) IN GENERAL.—Subject to paragraph (2) 

13 and subsection (h), the Secretary shall determine the 

14 amount of awards under this section. 

15 (2) REQUIREMENT.—In determining the 

16 amount of awards under this section, the Secretary 

17 shall ensure that— 

18 (A) no single award is excessive; and 

19 (B) consideration is given to the number of 

20 beneficiaries served by the entity or individual 

21 receiving the award. 

22 (g) REPORT.—Not later than 6 months after the date 

23 on which the program established under subsection (a) 

24 ends, the Secretary shall submit to Congress a report on 

25 the program together with such recommendations for leg-
36 

•S 2562 IS 

1 islation or administrative action as the Secretary deter2 mines appropriate. 

3 (h) FUNDING.—Out of any funds in the Treasury not 

4 otherwise appropriated, there are appropriated 

5 $10,000,000 for each of 2006, 2007, and 2008 to carry 

6 out this section. 

7 SEC. 6. QUALITY IMPROVEMENT DEMONSTRATION PRO8 GRAM FOR PEDIATRIC RENAL DIALYSIS FA9 CILITIES PROVIDING CARE TO MEDICARE 

10 BENEFICIARIES WITH END STAGE RENAL DIS11 EASE. 

12 (a) DEMONSTRATION PROJECTS.— 

13 (1) ESTABLISHMENT.—The Secretary of Health 

14 and Human Services (in this section referred to as 

15 the ‘‘Secretary’’) shall conduct a 3-year demonstra16 tion program under which the Secretary establishes 

17 demonstration projects that encourage pediatric di18 alysis facilities to provide superior quality health 

19 care to individuals with end stage renal disease. 

20 (2) CONSULTATION IN SELECTING SITES.—In 

21 selecting the demonstration project sites under this 

22 section, the Secretary shall consult with the Quality 

23 Advisory Board established under section 1898 of 

24 the Social Security Act, as added by section 7. 
37 

•S 2562 IS 

1 (3) SUBMISSION OF QUALITY DATA.—Under the 

2 demonstration projects, demonstration sites shall se3 lect appropriate measures of quality of care provided 

4 to individuals eligible for benefits under title XVIII 

5 of the Social Security Act who are under 18 years 

6 of age and shall report data on such measures to the 

7 Secretary. 

8 (4) ASSESSMENT OF MEASURES.—The Sec9 retary, in consultation with the Quality Advisory 

10 Board, shall assess the validity and reliability of the 

11 measures selected under paragraph (2). 

12 (b) WAIVER AUTHORITY.—The Secretary may waive 

13 such requirements of titles XI and XVIII as may be nec14 essary to carry out the purposes of the demonstration pro15 gram established under this section. 

16 (c) FUNDING.— 

17 (1) IN GENERAL.—Subject to paragraph (2), 

18 the Secretary shall provide for the transfer from the 

19 Federal Supplementary Medical Insurance Trust 

20 Fund under section 1841 of the Social Security Act 

21 (42 U.S.C. 1395t) of such funds as are necessary 

22 for the costs of carrying out the demonstration pro23 gram under this section. 

24 (2) BUDGET NEUTRALITY.—In conducting the 

25 demonstration program under this section, the Sec-
38 

•S 2562 IS 

1 retary shall ensure that the aggregate expenditures 

2 made by the Secretary do not exceed the amount 

3 which the Secretary would have expended if the 

4 demonstration program under this section was not 

5 implemented. 

6 (d) REPORT.—Not later than 6 months after the date 

7 on which the demonstration program established under 

8 this section ends, the Secretary shall prepare and submit 

9 to Congress a report on the demonstration program to10 gether with— 

11 (1) recommendations on whether pediatric renal 

12 dialysis facilities should be included in the renal di13 alysis performance payment program under section 

14 1881(b)(14) of the Social Security Act (42 U.S.C. 

15 1395rr(b)(14)), as added by section 4(4); and 

16 (2) such recommendations for legislation or ad17 ministrative action as the Secretary determines ap18 propriate. 

19 (e) PEDIATRIC RENAL DIALYSIS FACILITY DE20 FINED.—The term ‘‘pediatric renal dialysis facility’’ 

21 means a renal dialysis facility that receives payments 

22 under paragraph (12) or (13) of section 1881(b) of the 

23 Social Security Act (42 U.S.C. 1395rr(b)) and is not eligi24 ble to participate in the renal dialysis performance pay25 ment program under paragraph (14) of such section (as 
39 

•S 2562 IS 

1 added by section 4(4)) because of the application of sub2 paragraph (A)(iv) of such paragraph. 

3 SEC. 7. MEDICARE QUALITY ADVISORY BOARD. 

4 Title XVIII of the Social Security Act, as amended 

5 by section 1016 of the Medicare Prescription Drug, Im6 provement, and Modernization Act of 2003 (Public Law 

7 108–173; 117 Stat. 2447), is amended by adding at the 

8 end the following new section: 

9 ‘‘QUALITY ADVISORY BOARD

10 ‘‘SEC. 1898. (a) ESTABLISHMENT.—The Secretary 

11 shall establish a Medicare Quality Advisory Board (in this 

12 section referred to as the ‘Board’). 

13 ‘‘(b) MEMBERSHIP AND TERMS.— 

14 ‘‘(1) IN GENERAL.—Subject to paragraphs (3), 

15 (4), and (5), the Board shall be composed of rep16 resentatives described in paragraph (2) who shall 

17 serve for such term as the Secretary may specify. 

18 ‘‘(2) REPRESENTATIVES.—Representatives de19 scribed in this subparagraph include representatives 

20 of the following: 

21 ‘‘(A) Patients or patient advocate organi22 zations. 

23 ‘‘(B) Individuals with expertise in the pro24 vision of quality care, such as medical directors, 

25 heads of hospital quality improvement commit-
40 

•S 2562 IS 

1 tees, health insurance plan representatives, and 

2 academic researchers. 

3 ‘‘(C) Health care professionals and pro4 viders. 

5 ‘‘(D) Organizations that focus on the 

6 measurement and reporting of quality indica7 tors. 

8 ‘‘(E) State government health care pro9 grams. 

10 ‘‘(3) MAJORITY NONPROVIDERS.—Individuals 

11 who are directly involved in the provision, or man12 agement of the delivery, of items and services cov13 ered under this title shall not constitute a majority 

14 of the membership of the Board. 

15 ‘‘(4) EXPERIENCE WITH URBAN AND RURAL

16 HEALTH CARE ISSUES.—The membership of the 

17 Board should be representative of individuals with 

18 experience with urban health care issues and individ19 uals with experience with rural health care issues. 

20 ‘‘(5) EXPERIENCE ACROSS A SPECTRUM OF AC21 TIVITIES.—The membership of the Board should be 

22 representative of individuals with experience across 

23 the spectrum of activities that the Secretary is re24 sponsible for with respect to this title, including the 

25 coverage of new services and technologies, payment 
41 

•S 2562 IS 

1 rates and methodologies, beneficiary services, and 

2 claims processing. 

3 ‘‘(c) DUTIES.— 

4 ‘‘(1) INCENTIVE PROGRAMS.— 

5 ‘‘(A) ADVICE.—The Board shall advise the 

6 Secretary regarding— 

7 ‘‘(i) the development, implementation, 

8 and updating of the scoring and ranking 

9 systems under sections 1860C–2(e) and 

10 1881(b)(14)(E); 

11 ‘‘(ii) the determination of the applica12 ble percent for national performance qual13 ity payments under sections 1860C–2(c) 

14 and 1881(b)(14)(C); 

15 ‘‘(iii) the selection of recipients of in16 novative quality practice awards under the 

17 program under section 5 of the Medicare 

18 Quality Improvement Act of 2004; 

19 ‘‘(iv) the selection of demonstration 

20 project sites and the assessment of meas21 ures of quality of care under the dem22 onstration program under section 6 of the 

23 Medicare Quality Improvement Act of 

24 2004; and 
42 

•S 2562 IS 

1 ‘‘(v) the study and report under sec2 tion 8(b) of the Medicare Quality Improve3 ment Act of 2004. 

4 ‘‘(B) ANNUAL REPORT ON INCENTIVE PRO5 GRAMS.—The Board shall submit an annual re6 port to the Secretary and Congress on the pro7 grams under sections 1860C–2 and 

8 1881(b)(14). 

9 ‘‘(C) ADDITIONAL DUTIES.—The Board 

10 shall perform such additional functions to assist 

11 the Secretary in carrying out the programs de12 scribed in clauses (ii) and (iii) of subparagraph 

13 (A) and in subparagraph (B) as the Secretary 

14 may specify. 

15 ‘‘(2) DEVELOPMENT AND ASSESSMENT OF NA16 TIONAL PRIORITIES AND AGENDA.—The Board shall 

17 develop and assess national priorities and an agenda 

18 for improving the quality of items and services fur19 nished to individuals entitled to benefits under this 

20 title. 

21 ‘‘(d) WAIVER OF ADMINISTRATIVE LIMITATION.— 

22 The Secretary shall establish the Board notwithstanding 

23 any limitation that may apply to the number of advisory 

24 committees that may be established (within the Depart25 ment of Health and Human Services or otherwise).’’. 
43 

•S 2562 IS 

1 SEC. 8. STUDIES AND REPORTS ON FINANCIAL INCENTIVES 

2 FOR QUALITY ITEMS AND SERVICES UNDER 

3 THE MEDICARE PROGRAM. 

4 (a) IOM STUDY AND REPORT ON HOW MEDICARE

5 PAYMENTS FOR ITEMS AND SERVICES AFFECT THE

6 QUALITY OF SUCH ITEMS AND SERVICES.— 

7 (1) STUDY.—The Secretary of Health and 

8 Human Services (in this section referred to as the 

9 ‘‘Secretary’’) shall request the Institute of Medicine 

10 of the National Academy of Sciences to conduct a 

11 study on how the payment mechanisms for items 

12 and services under the original medicare fee-for-serv13 ice program under parts A and B of title XVIII of 

14 the Social Security Act effect the quality of such 

15 items and services. 

16 (2) REPORT TO CONGRESS.—Not later than 

17 January 1, 2006, the Secretary shall submit to Con18 gress a report on the results of the study described 

19 in paragraph (1) together with such recommenda20 tions for legislation or administrative action as the 

21 Secretary determines appropriate. 

22 (b) HHS STUDY AND REPORT ON PROVIDING FI23 NANCIAL INCENTIVES FOR QUALITY SERVICES UNDER

24 THE ORIGINAL MEDICARE FEE-FOR-SERVICE PRO25 GRAM.— 
44 

•S 2562 IS 

1 (1) STUDY.—The Secretary of Health and 

2 Human Services shall conduct a study on the actions 

3 necessary to establish a payment system under the 

4 original medicare fee-for-service program under 

5 parts A and B of title XVIII of the Social Security 

6 Act that aligns the quality of services provided under 

7 such program with the reimbursement provided 

8 under such program for such services. 

9 (2) REPORT.— 

10 (A) IN GENERAL.—Not later than January 

11 1, 2008, the Secretary shall submit a report to 

12 Congress on the study conducted under para13 graph (1). 

14 (B) CONTENTS.—The report submitted 

15 under subparagraph (A) shall contain rec16 ommendations with respect to— 

17 (i) the incremental steps necessary to 

18 develop the payment system described in 

19 paragraph (1); 

20 (ii) the performance measures to be 

21 used under such payment system; 

22 (iii) the incentive approaches to be 

23 used under such payment system; 
45 

•S 2562 IS 

1 (iv) the geographic and risk adjusters 

2 to be used under such payment system; 

3 and 

4 (v) a strategy for aligning payment 

5 with performance across all parts of the 

6 medicare program. 

7 (3) REQUIREMENT.—In conducting the study 

8 under paragraph (1) and preparing the report under 

9 paragraph (2), the Secretary shall— 

10 (A) consult with the Quality Advisory 

11 Board established under section 1898 of the 

12 Social Security Act, as added by section 7; and 

13 (B) take into account the report on health 

14 care performance measures submitted by the 

15 Institute of Medicine of the National Academy 

16 of Sciences under section 238 of the Medicare 

17 Prescription Drug, Improvement, and Mod18 ernization Act of 2003 (Public Law 108–173; 

19 117 Stat. 2213). 

20 SEC. 9. MEDPAC STUDY AND REPORT ON USE OF ADJUSTER 

21 MECHANISMS UNDER MEDICARE QUALITY 

22 PERFORMANCE INCENTIVE PAYMENT PRO23 GRAMS. 

24 (a) STUDY.—The Medicare Payment Advisory Com25 mission shall conduct a study— 
46 

•S 2562 IS 

1 (1) to determine whether it is appropriate to in2 corporate a geographic adjuster into the quality per3 formance incentive payment programs under sections 

4 1860C–2 and 1881(b)(14) of the Social Security 

5 Act, as added by sections 3 and 4, respectively, to 

6 account for different environments of care, regional 

7 payment variation, regional variation of patient sat8 isfaction, and regional case mix variation; and 

9 (2) on the most appropriate methods to risk ad10 just data used under the scoring and ranking system 

11 under such programs pursuant to sections 1860C– 

12 2(e)(4) and 1881(b)(14)(E)(iv) of the Social Secu13 rity Act. 

14 (b) REPORT.—Not later than January 1, 2006, the 

15 Commission shall submit a report to Congress and the 

16 Secretary of Health and Human Services on the study 

17 conducted under subsection (a) together with rec18 ommendations for such legislation and administrative ac19 tions as the Commission considers appropriate. If such 

20 study concludes that a geographic adjuster described in 

21 subsection (a)(1) is appropriate, the Commission shall in22 clude in the report recommendations on how such adjuster 

23 could be incorporated into the quality performance incen24 tive payment programs described in such subsection. 
47 

•S 2562 IS 

1 SEC. 10. DEMONSTRATION PROGRAM ON MEASURING THE 

2 QUALITY OF HEALTH CARE FURNISHED TO 

3 PEDIATRIC PATIENTS UNDER THE MEDICAID 

4 AND SCHIP PROGRAMS. 

5 (a) ESTABLISHMENT.— 

6 (1) IN GENERAL.—The Secretary of Health and 

7 Human Services (in this section referred to as the 

8 ‘‘Secretary’’) shall conduct a 3-year demonstration 

9 program to examine the development and use of 

10 quality measures, pay-for-performance programs, 

11 and other strategies in order to encourage providers 

12 to furnish superior quality health care to individuals 

13 under 18 years of age under the medicaid program 

14 under title XIX of the Social Security Act (42 

15 U.S.C. 1396 et seq.) and under the SCHIP program 

16 under title XXI of such Act (42 U.S.C. 1397aa et 

17 seq.). 

18 (2) AUTHORITY.—The Secretary shall conduct 

19 the demonstration program under this section pursu20 ant to the authority provided under this section and 

21 not under the authority provided under section 1115 

22 of the Social Security Act (42 U.S.C. 1315). 

23 (b) SITES TO INCLUDE MULTIPLE SETTINGS AND

24 PROVIDERS.—In selecting the demonstration program 

25 sites under this section, the Secretary shall ensure that 

26 the sites include health care delivery in multiple settings 
48 

•S 2562 IS 

1 and through multiple providers, such as school-based set2 tings and mental health providers. 

3 (c) WAIVER AUTHORITY.—The Secretary may waive 

4 such requirements of titles XI, XIX, and XXI of the Social 

5 Security Act (42 U.S.C. 1301 et seq.; 1396 et seq.; 

6 1397aa et seq.) as may be necessary to carry out the pur7 poses of the demonstration program under this section. 

8 (d) FUNDING.— 

9 (1) IN GENERAL.—Subject to paragraph (2), 

10 for purposes of conducting the demonstration pro11 gram under this section, expenditures under the 

12 demonstration program shall be treated as medical 

13 assistance under section 1903 of the Social Security 

14 Act (42 U.S.C. 1396) or child health assistance 

15 under section 2105 of such Act (42 U.S.C. 1397). 

16 (2) BUDGET NEUTRALITY.—In conducting the 

17 demonstration program under this section, the Sec18 retary shall ensure that the aggregate expenditures 

19 made by the Secretary do not exceed the amount 

20 which the Secretary would have expended if the 

21 demonstration program under this section had not 

22 been implemented. 

23 (e) REPORT.—Not later than 6 months after the date 

24 on which the demonstration program under this section 

25 ends, the Secretary shall submit to Congress a report on 
49 

•S 2562 IS 

1 the demonstration program together with such rec2 ommendations for legislation or administrative action as 

3 the Secretary determines appropriate. 

4 SEC. 11. PROVISIONS RELATING TO MEDICAID QUALITY IM5 PROVEMENTS. 

6 (a) AUTHORIZATION FOR ADDITIONAL STAFF AT

7 THE CENTER FOR MEDICAID AND STATE OPERATIONS.— 

8 (1) ADDITIONAL STAFF.—The Secretary of 

9 Health and Human Services shall have the authority 

10 to hire 5 full-time employees to be employed within 

11 the Center for Medicaid and State Operations within 

12 the Centers for Medicare & Medicaid Services from 

13 among individuals who have experience with, or have 

14 been trained as, health professionals and who have 

15 experience in any of the following areas: 

16 (A) Quality improvement. 

17 (B) Chronic care management. 

18 (C) Care coordination. 

19 (2) REQUIREMENT FOE EXPERIENCE WITH PE20 DIATRIC POPULATIONS.—At least 1 of the individ21 uals employed within the Center for Medicaid and 

22 State Operations pursuant to paragraph (1) shall 

23 have experience with pediatric populations. 

24 (3) DUTIES OF ADDITIONAL STAFF.—The em25 ployees hired under paragraph (1) shall be respon-
50 

•S 2562 IS 

1 sible for developing strategies to access and promote 

2 quality improvement, chronic care management, and 

3 care coordination with the medicaid program and for 

4 providing technical assistance to the States. 

5 (4) AUTHORIZATION OF APPROPRIATIONS.— 

6 There are authorized to be appropriated such sums 

7 as may be necessary to carry out this subsection. 

8 (b) CMS STUDY AND REPORT ON MEDICARE AND

9 MEDICAID DATA COORDINATION.— 

10 (1) STUDY.—The Secretary of Health and 

11 Human Services shall conduct a study to identify— 

12 (A) efforts to coordinate and integrate 

13 data from the medicare program under title 

14 XVIII of the Social Security Act and the med15 icaid program under title XIX of such Act; 

16 (B) barriers to data coordination; 

17 (C) the potential benefits of data integra18 tion as perceived by medicare and medicaid pro19 gram officials, policymakers, health care pro20 viders, and beneficiaries; and 

21 (D) steps necessary to coordinate and inte22 grate the beneficiary data from the medicare 

23 and medicaid programs. 

24 (2) REPORT TO CONGRESS.—Not later than De25 cember 31, 2004, the Secretary of Health and 
51 

•S 2562 IS 

1 Human Services shall submit to Congress a report 

2 on the results of the study conducted under para3 graph (1) together with such recommendations for 

4 legislation or administrative action as the Secretary 

5 determines appropriate. 

6 (c) MEDPAC STUDY AND REPORT ON BENEFICIARIES

7 WHO ARE DUALLY ELIGIBLE FOR MEDICARE AND MED8 ICAID.— 

9 (1) STUDY.—The Medicare Payment Advisory 

10 Commission shall conduct a study to determine the 

11 characteristics of individuals who are eligible to re12 ceive benefits under both the medicare and medicaid 

13 programs under titles XVIII and XIX of the Social 

14 Security Act, respectively, identify the costliest 

15 groups of individuals who are eligible for benefits 

16 under both programs, identify the services used by 

17 such individuals, and develop recommendations on 

18 how the provision of those services could be better 

19 coordinated for improved health outcomes and re20 duced costs. 

21 (2) REPORT.—Not later than June 30, 2005, 

22 the Commission shall submit a report to Congress 

23 on the study conducted under paragraph (1) to24 gether with recommendations for such legislation 
52 

•S 2562 IS 

1 and administrative actions as the Commission con2 siders appropriate. 

3 (d) MEDPAC STUDY AND REPORT ON CARE COORDI4 NATION PROGRAMS FOR DUAL-ELIGIBLES.— 

5 (1) STUDY.—The Medicare Payment Advisory 

6 Commission shall conduct a study on care coordina7 tion programs available to individuals who are eligi8 ble to receive benefits under both the medicare and 

9 medicaid programs under titles XVIII and XIX of 

10 the Social Security Act, respectively, the impact of 

11 such care coordination programs on those individ12 uals, the impact of such care coordination programs 

13 on the costs of the medicare and medicaid programs 

14 to the Federal Government, and whether any savings 

15 from care coordination programs are counted as a 

16 benefit to either program. 

17 (2) REPORT.—Not later than June 30, 2005, 

18 the Commission shall submit a report to Congress 

19 on the study conducted under paragraph (1) to20 gether with recommendations for such legislation 

21 and administrative actions as the Commission con22 siders appropriate. 
53 

•S 2562 IS 

1 SEC. 12. DEMONSTRATION PROGRAM FOR MEDICAL SMART 

2 CARDS. 

3 (a) IN GENERAL.—The Secretary of Health and 

4 Human Services (in this section referred to as the ‘‘Sec5 retary’’) shall establish a 5-year demonstration program 

6 under which the Secretary shall award grants for the es7 tablishment of demonstration projects to provide for the 

8 development and use of Medical Smart Cards and to ex9 amine the impact of Medical Smart Cards on health care 

10 costs, quality of care, and patient safety. 

11 (b) ELIGIBILITY.—To be eligible to receive a grant 

12 under subsection (a), an entity shall be a public or private 

13 nonprofit entity. 

14 (c) APPLICATION.—An eligible entity desiring a grant 

15 under this section shall submit an application to the Sec16 retary at such time, in such manner, and accompanied by 

17 such information as the Secretary may reasonably require. 

18 (d) APPROVAL OF APPLICATIONS.— 

19 (1) IN GENERAL.—The Secretary shall approve 

20 applications for grants under this section in accord21 ance with criteria established by the Secretary. 

22 (2) LIMITATION.—The Secretary shall approve 

23 at least 1 application for a demonstration project 

24 that is conducted at a hospital or hospital system 

25 with a large rural service area. 
54 

•S 2562 IS 

1 (e) USE OF FUNDS.—An eligible entity shall use 

2 amounts received under a grant under this section to carry 

3 out the purposes described in subsection (a). 

4 (f) REPORT.—Not later than 6 months after the date 

5 on which the demonstration program established under 

6 subsection (a) ends, the Secretary shall submit to Con7 gress a report on the demonstration program together 

8 with such recommendations for legislation or administra9 tive action as the Secretary determines appropriate. 

10 (g) AUTHORIZATION OF APPROPRIATIONS.—There 

11 are authorized to be appropriated such sums as may be 

12 necessary to carry out this section. 

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