provided in this section, the amount payable to such 
State shall be equal to the sum of the following: 
‘‘(A) 
ADJUSTED
AGGREGATE
BENE-
FICIARY-BASED AMOUNT.—The aggregate bene-
ficiary-based amount specified in subsection (b) 
for the quarter and the State, adjusted under 
subsection (e). 
‘‘(B) CHRONIC
CARE
QUALITY
BONUS.— 
The amount (if any) of the chronic care quality 
bonus payment specified in subsection (f) for 
the quarter for the State. 
‘‘(2) REQUIREMENT OF STATE SHARE.— 
‘‘(A) IN GENERAL.—A State shall make, 
from non-Federal funds, expenditures in an 
amount equal to its State share (as determined 
under subparagraph (B)) for a quarter for 
items, services, and other costs for which, but 
for paragraph (1), Federal funds would have 
been payable under this title. 
‘‘(B) STATE SHARE.—The State share for 
a State for a quarter in a fiscal year is equal 
to the product of— 
‘‘(i) the aggregate beneficiary-based 
amount specified in subsection (b) for the 
quarter and the State; and 
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‘‘(ii) the ratio of— 
‘‘(I) the State percentage de-
scribed in subparagraph (D)(ii) for 
such State and fiscal year; to 
‘‘(II) the Federal percentage de-
scribed in subparagraph (D)(i) for 
such State and fiscal year. 
‘‘(C) NONPAYMENT FOR FAILURE TO PAY 
STATE SHARE.— 
‘‘(i) IN GENERAL.—If a State fails to 
expend the amount required under sub-
paragraph (A) for a quarter in a fiscal 
year, the amount payable to the State 
under paragraph (1) shall be reduced by 
the product of the amount by which the 
State payment is less than the State share 
and the ratio of— 
‘‘(I) the Federal percentage de-
scribed in subparagraph (D)(i) for 
such State and fiscal year; to 
‘‘(II) the State percentage de-
scribed in subparagraph (D)(ii) for 
such State and fiscal year. 
‘‘(ii) GRACE PERIOD.—A State shall 
not be considered to have failed to provide 
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payment of its required State share for a 
quarter under subparagraph (A) if the ag-
gregate State payment towards the State’s 
required State share for the 4-quarter pe-
riod beginning with such quarter exceeds 
the required State share amount for such 
4-quarter period. 
‘‘(D) FEDERAL
AND
STATE
PERCENT-
AGES.—In this paragraph, with respect to a 
State and a fiscal year: 
‘‘(i) 
FEDERAL
PERCENTAGE.—The 
Federal percentage described in this clause 
is 75 percent or, if higher, the Federal 
medical assistance percentage for such 
State for such fiscal year. 
‘‘(ii) STATE PERCENTAGE.—The State 
percentage described in this clause is 100 
percent minus the Federal percentage de-
scribed in clause (i). 
‘‘(E) RULES
FOR
CREDITING
TOWARD 
STATE SHARE.— 
‘‘(i) GENERAL LIMITATION TO MATCH-
ABLE EXPENDITURES.—A payment for ex-
penditures shall not be counted toward the 
State share under subparagraph (A) unless 
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Federal payments may be used for such 
expenditures consistent with paragraph 
(3)(B). 
‘‘(ii) FURTHER LIMITATIONS ON AL-
LOWABLE EXPENDITURES.—A payment for 
expenditures shall not be counted towards 
the State share under subparagraph (A) if 
the expenditure is for any of the following: 
‘‘(I) 
ABORTION.—Expenditures 
for an abortion. 
‘‘(II) 
INTERGOVERNMENTAL 
TRANSFERS.—An expenditure that is 
attributable to an intergovernmental 
transfer. 
‘‘(III) CERTIFIED
PUBLIC
EX-
PENDITURES.—An expenditure that is 
attributable to certified public expend-
itures. 
‘‘(iii) CREDITING FRAUD AND ABUSE 
RECOVERIES.—Amounts recovered by a 
State through the operation of its Medicaid 
fraud and abuse control unit described in 
section 1903(q) shall be fully counted to-
ward the State share under subparagraph 
(A). 
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‘‘(F) CONSTRUCTION.—Nothing in the 
paragraph shall be construed as preventing a 
State from expending, from non-Federal funds, 
an amount under this title in excess of the 
amount of the State share. 
‘‘(G) DETERMINATION BASED UPON SUB-
MITTED CLAIMS.—In applying this paragraph 
with respect to expenditures of a State for a 
quarter, the determination of the expenditures 
for such State for such quarter shall be made 
after the end of the period (which, as of the 
date of the enactment of this section, is 2 
years) for which the Secretary accepts claims 
for payment under this title with respect to 
such quarter. 
‘‘(3) USE OF FEDERAL PAYMENTS.— 
‘‘(A) APPLICATION OF MEDICAID LIMITA-
TIONS.—A State may only use Federal pay-
ments received under subsection (a) for expend-
itures for which Federal funds would have been 
payable under this title but for this section. 
‘‘(B) LIMITATION
FOR
CERTAIN
ELIGI-
BLES.— 
‘‘(i) APPLICATION
OF
100
PERCENT 
FEDERAL POVERTY LINE LIMIT ON ELIGI-
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BILITY.—Subject to clause (iii), a State 
may not use such Federal payments to 
provide medical assistance for an indi-
vidual who has an income (as determined 
under clause (ii)) that exceeds 100 percent 
of the poverty line (as defined in section 
2110(c)(5)) applicable to a family of the 
size involved. 
‘‘(ii) DETERMINATION
OF
INCOME 
USING
MODIFIED
ADJUSTED
GROSS
IN-
COME
WITHOUT
ANY
PERCENT
IN-
CREASE.—In determining income for pur-
poses 
of 
clause 
(i) 
under 
section 
1902(e)(14) (relating to modified adjusted 
gross income), the following rules shall 
apply: 
‘‘(I) APPLICATION
OF
SPEND 
DOWN.—The State shall take into ac-
count the costs incurred for medical 
care or for any other type of remedial 
care recognized under State law in the 
same manner and to the same extent 
that such State takes such costs into 
account 
for 
purposes 
of 
section 
1902(a)(17). 
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‘‘(A) IN
GENERAL.—Paragraph (1) shall 
not apply, and amounts shall continue to be 
payable under this title (and not under sub-
section (a)), in the case of the following pay-
ments (and related administrative costs and ex-
penditures): 
‘‘(i) PAYMENTS
TO
TERRITORIES.— 
Payments to a State other than the 50 
States and the District of Columbia. 
‘‘(ii) MEDICARE
COST
SHARING.— 
Payments attributable to Medicare cost 
sharing under section 1905(p). 
‘‘(iii) 
PEDIATRIC
VACCINES.—Pay-
ments attributable to section 1928. 
‘‘(iv) EMERGENCY SERVICES FOR CER-
TAIN
INDIVIDUALS.—Payments for treat-
ment of emergency medical conditions at-
tributable to the application of section 
1903(v)(2). 
‘‘(v) INDIAN
HEALTH
CARE
FACILI-
TIES.—Payments for medical assistance 
described in the third sentence of section 
1905(b). 
‘‘(vi) EMPLOYER-SPONSORED
INSUR-
ANCE (ESI).—Payments for medical assist-
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ance attributable to payments to employers 
for employer-sponsored health benefits cov-
erage. 
‘‘(vii) OTHER
POPULATIONS
WITH 
LIMITED BENEFIT COVERAGE.—Other pay-
ments that are determined by the Sec-
retary to be related to a specified popu-
lation for which the medical assistance 
under this title is limited and does not in-
clude any inpatient, nursing facility, or 
long-term care services. 
‘‘(B) CERTAIN EXPENSES.—Paragraph (1) 
shall not apply, and amounts shall continue to 
be payable under this title (and not under sub-
section (a)), in the case of the following: 
‘‘(i) ADMINISTRATION
OF
MEDICARE 
PRESCRIPTION DRUG BENEFIT.—Expendi-
tures described in section 1935(b) (relating 
to administration of the Medicare prescrip-
tion drug benefit). 
‘‘(ii) PAYMENTS FOR HIT BONUSES.— 
Payments under section 1903(a)(3)(F) (re-
lating to payments to encourage the adop-
tion and use of certified EHR technology). 
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‘‘(iii) PAYMENTS FOR DESIGN, DEVEL-
OPMENT, AND INSTALLATION OF MMIS AND 
ELIGIBILITY
SYSTEMS.—Payments under 
subparagraphs (A)(i) and (H)(i) of section 
1903(a)(3) for expenditures for design, de-
velopment, and installation of the Medicaid 
management 
information 
systems 
and 
mechanized verification and information 
retrieval systems (related to eligibility). 
‘‘(5) PAYMENT OF AMOUNTS.— 
‘‘(A) IN
GENERAL.—Except as the Sec-
retary may otherwise provide, amounts shall be 
payable to a State under subsection (a) in the 
same manner as amounts are payable under 
subsection (d) of section 1903 to a State under 
subsection (a) of such section. 
‘‘(B) INFORMATION AND FORMS.— 
‘‘(i) SUBMISSION.—As a condition of 
receiving payment under subsection (a), a 
State shall submit such information, in 
such form, and manner, as the Secretary 
shall specify, including information nec-
essary to make the computations under 
subsections (c)(2)(C) and (e). 
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‘‘(ii) 
UNIFORM
REPORTING.—The 
Secretary shall develop such forms as may 
be needed to assure a system of uniform 
reporting 
of 
such 
information 
across 
States. 
‘‘(C) REQUIRED REPORTING OF INFORMA-
TION ON MEDICAL LOSS RATIOS FOR MANAGED 
CARE.—The information required to be reported 
under subparagraph (B)(i) shall include infor-
mation on the medical loss ratio with respect to 
coverage provided under each Medicaid man-
aged care plan with a contract with the State 
under section 1903(m) or 1932. 
‘‘(b) AGGREGATE BENEFICIARY-BASED AMOUNT.— 
‘‘(1) IN GENERAL.—The aggregate beneficiary- 
based amount specified in this subsection for a State 
for a quarter is equal to the sum of the products, 
for each of the categories of Medicaid beneficiaries 
specified in paragraph (2), of the following: 
‘‘(A) 
BENEFICIARY-BASED
QUARTERLY 
AMOUNT.—The 
beneficiary-based 
quarterly 
amount for such category computed under sub-
section (c) for such State for such quarter. 
‘‘(B) NUMBER
OF
INDIVIDUALS
IN
CAT-
EGORY.—Subject to subsection (d), the average 
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number of Medicaid beneficiaries enrolled in 
such category in the State in such quarter. 
‘‘(2) CATEGORIES.—The categories specified in 
this paragraph are the following: 
‘‘(A) ELDERLY.—A category of Medicaid 
beneficiaries who are 65 years of age or older. 
‘‘(B) BLIND OR DISABLED.—A category of 
Medicaid beneficiaries not described in subpara-
graph (A) who are described in section 
1937(a)(2)(B)(ii). 
‘‘(C) CHILDREN.—A category of Medicaid 
beneficiaries not described in subparagraph (B) 
who are under 21 years of age. 
‘‘(D) OTHER ADULTS.—A category of any 
Medicaid beneficiaries who are not described in 
a previous subparagraph of this paragraph. 
‘‘(c) COMPUTATION OF PER BENEFICIARY, PER CAT-
EGORY QUARTERLY AMOUNT.— 
‘‘(1) IN GENERAL.—For a State, for each cat-
egory of beneficiary for a quarter— 
‘‘(A) FIRST REFORM YEAR.—For quarters 
in the first reform year (as defined in sub-
section (k)(2)), the beneficiary-based quarterly 
amount is equal to 1⁄4 of the base average per 
beneficiary Federal payments for such State for 
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such category determined under paragraph (2), 
increased by a factor that reflects the sum of 
the following: 
‘‘(i) HISTORICAL MEDICAL CARE COM-
PONENT OF CPI THROUGH PREVIOUS RE-
FORM YEAR.—The percentage increase in 
the historical medical care component of 
the Consumer Price Index for all urban 
consumers (U.S. city average) from the 
midpoint of the base fiscal year (as defined 
in paragraph (6)) to the midpoint of the 
fiscal year preceding the first reform year. 
‘‘(ii) PROJECTED MEDICAL CARE COM-
PONENT OF CPI FOR THE FIRST REFORM 
YEAR.—The percentage increase in the 
projected medical care component of the 
Consumer Price Index for all urban con-
sumers (U.S. city average) from the mid-
point of the previous fiscal year referred to 
in clause (i) to the midpoint of the first re-
form year. 
‘‘(B) 
SECOND
AND
THIRD
REFORM 
YEARS.—The 
beneficiary-based 
quarterly 
amount for a State for a category for quarters 
in the second reform year or the third reform 
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year is equal to the beneficiary-based quarterly 
amount under this paragraph for such State 
and category for the previous reform year in-
creased by the per beneficiary percentage in-
crease (as defined in subparagraph (E)) for 
such category and reform year. 
‘‘(C) FOURTH THROUGH TENTH REFORM 
YEARS.—The 
beneficiary-based 
quarterly 
amount for a State for a category for quarters 
in a reform year beginning with the fourth re-
form year and ending with the tenth reform 
year is— 
‘‘(i) in the case of a State that is a 
high per beneficiary State or a low per 
beneficiary State (as defined in paragraph 
(4)(B)(iii)) for the category, the amount 
determined under clause (i) or (ii) of para-
graph (4)(B) for such State, category, and 
reform year; or 
‘‘(ii) in the case of any other State, 
the beneficiary-based quarterly amount 
under this paragraph for such State and 
category for the previous reform year in-
creased by the per beneficiary percentage 
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increase for such category and reform 
year. 
‘‘(D) ELEVENTH REFORM YEAR AND SUB-
SEQUENT
REFORM
YEARS.—The beneficiary- 
based quarterly amount for a State for a cat-
egory for quarters in a reform year beginning 
with the eleventh reform year is equal to the 
beneficiary-based quarterly amount under this 
paragraph for such State and category for the 
previous reform year increased by the per bene-
ficiary percentage increase for such category 
and reform year. 
‘‘(E) ANNUAL PERCENTAGE INCREASE BE-
GINNING
WITH
SECOND
REFORM
YEAR.—For 
purposes of this subsection, the term ‘per bene-
ficiary percentage increase’ means, for a reform 
year, the sum of— 
‘‘(i) the projected percentage change 
in nominal gross domestic product from 
the midpoint of the previous reform year to 
the midpoint of the reform year for which 
the percentage increase is being applied; 
and 
‘‘(ii) one percentage point. 
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‘‘(2) BASE PER BENEFICIARY, PER CATEGORY 
AMOUNT FOR EACH STATE.— 
‘‘(A) AVERAGE PER CATEGORY.— 
‘‘(i) IN
GENERAL.—The Secretary 
shall determine, consistent with this para-
graph and paragraph (3), a base per bene-
ficiary, per category amount for each of 
the 50 States and the District of Columbia 
equal to the average amount, per Medicaid 
beneficiary, of Federal payments under 
this title, including payments attributable 
to disproportionate share hospital pay-
ments under section 1923, for each of the 
categories of beneficiaries under subsection 
(b)(2) for the base fiscal year for each of 
the 50 States and the District of Colum-
bia. 
‘‘(ii) BEST
AVAILABLE
DATA.—The 
determination under clause (i) shall ini-
tially be estimated by the Secretary, based 
upon the best available data at the time 
the determination is made. 
‘‘(iii) UPDATES.—The determination 
under clause (i) shall be updated by the 
Secretary on an annual basis based upon 
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improved data. The Secretary shall adjust 
the amounts under subsection (a)(1)(A) to 
reflect changes in the amounts so deter-
mined based on such updates. 
‘‘(B) EXCLUSION OF PASS-THROUGH PAY-
MENTS.—In computing base per beneficiary, 
per category amounts under subparagraph 
(A)(i) the Secretary shall exclude payments de-
scribed in subsection (a)(4). 
‘‘(C) STANDARDIZATION.— 
‘‘(i) IN GENERAL.—In computing each 
such amount, the Secretary shall stand-
ardize the amount in order to remove the 
variation attributable to the following: 
‘‘(I) RISK FACTORS.—Such risk 
factors as age, health and disability 
status (including high cost medical 
conditions), gender, institutional sta-
tus, and such other factors as the 
Secretary determines to be appro-
priate, so as to ensure actuarial 
equivalence. 
‘‘(II) 
GEOGRAPHIC.—Variations 
in costs on a county-by-county basis. 
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‘‘(ii) 
METHOD
OF
STANDARDIZA-
TION.— 
‘‘(I) CONSULTATION
IN
DEVEL-
OPMENT
OF
RISK
STANDARDIZA-
TION.—In developing the methodology 
for risk standardization for purposes 
of clause (i)(I), the Secretary shall 
consult with the Medicaid and CHIP 
Payment and Access Commission, the 
Medicare Payment Advisory Commis-
sion, and the National Association of 
Medicaid Directors. 
‘‘(II) METHOD FOR RISK STAND-
ARDIZATION.—In carrying out clause 
(i)(I), the Secretary may apply the 
hierarchal condition category method-
ology under section 1853(a)(1)(C). If 
the Secretary uses such methodology, 
the Secretary shall adjust the applica-
tion of such methodology to take into 
account the differences in services 
provided under this title compared to 
title XVIII, such as the coverage of 
long term care, pregnancy, and pedi-
atric services. 
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‘‘(III) METHOD FOR GEOGRAPHIC 
STANDARDIZATION.—The 
Secretary 
shall apply the standardization under 
clause (i)(II) in a manner similar to 
that 
applied 
under 
section 
1853(c)(4)(A)(iii). 
‘‘(iii) APPLICATION ON A NATIONAL, 
BUDGET NEUTRAL BASIS.—The standard-
ization under clause (i) shall be designed 
and implemented on a uniform national 
basis and shall be budget neutral so as to 
not result in any aggregate change in pay-
ments under subsection (a). 
‘‘(iv) RESPONSE TO NEW RISK.—Sub-
ject to clause (iii), the Secretary may ad-
just the standardization under clause (i) to 
respond promptly to new instances of com-
municable diseases and other public health 
hazards. 
‘‘(v) REFERENCE TO APPLICATION OF 
RISK ADJUSTMENT.—For rules related to 
the application of risk adjustment to 
amounts under subsection (a)(1)(A), see 
subsection (e). 
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‘‘(D) ADJUSTMENT FOR TEMPORARY FMAP 
INCREASES.—In computing each base per bene-
ficiary, per category amounts under subpara-
graph (A)(i) the Secretary shall disregard por-
tions of payments that are attributable to a 
temporary increase in the Federal matching 
rates, including those attributable to the fol-
lowing: 
‘‘(i) PPACA DISASTER
FMAP.—Sec-
tion 1905(aa). 
‘‘(ii) ARRA.—Section 5001 of the 
American Recovery and Reinvestment Act 
of 2009 (42 U.S.C. 1396d note). 
‘‘(iii) 
EXTRAORDINARY
EMPLOYER 
PENSION CONTRIBUTION.—Section 614 of 
the Children’s Health Insurance Program 
Reauthorization Act of 2009 (42 U.S.C. 
1396d note). 
‘‘(3) ALLOCATION OF NONMEDICAL ASSISTANCE 
PAYMENTS.—The Secretary shall establish rules for 
the allocation of payments under this title (other 
than those payments described in paragraph (1) or 
(5) of section 1903(a) and including such payments 
attributable to section 1923)— 
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‘‘(A) among different categories of bene-
ficiaries; and 
‘‘(B) between payments included under 
subsection (a)(1) and payments described in 
subsection (a)(4). 
‘‘(4) TRANSITION TO A CORRIDOR AROUND THE 
NATIONAL AVERAGE.— 
‘‘(A) DETERMINATION OF NATIONAL AVER-
AGE BASE PER BENEFICIARY, PER CATEGORY 
AMOUNT.—Subject to subparagraph (C), the 
Secretary shall determine a national average 
base per beneficiary, per category amount equal 
to the average of the base per beneficiary, per 
category amounts for each of the 50 States and 
the District of Columbia determined under 
paragraph (2), weighted by the average number 
of beneficiaries in each such category and State 
as determined by the Secretary consistent with 
subsection (d) for the base fiscal year. 
‘‘(B) TRANSITION ADJUSTMENT.— 
‘‘(i) 
HIGH
PER
BENEFICIARY 
STATES.—In the case of a high per bene-
ficiary State (as defined in clause (iii)(I)) 
for a category, the beneficiary-based quar-
terly amount for such State and category 
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for a quarter in a reform year (beginning 
with the fourth reform year and ending 
with the tenth reform year) is equal to the 
sum of— 
‘‘(I) the product of the State-spe-
cific factor for such reform year (as 
defined in clause (iv)) and the bene-
ficiary-based quarterly amount that 
would otherwise be determined under 
paragraph (1) for such State and cat-
egory if the State were a State de-
scribed in clause (ii) of paragraph 
(1)(C), instead of a State described in 
clause (i) of such paragraph; and 
‘‘(II) the product of 1 minus the 
State-specific factor for such reform 
year and the beneficiary-based quar-
terly amount that would otherwise be 
determined under paragraph (1) for a 
State and category if the base per 
beneficiary, per category amount de-
termined under paragraph (2) for the 
State and category were equal to 110 
percent of the national average base 
per beneficiary, per category amount 
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determined under subparagraph (A) 
for such category. 
‘‘(ii) 
LOW
PER
BENEFICIARY 
STATES.—In the case of a low per bene-
ficiary State (as defined in clause (iii)(II)) 
for a category, the beneficiary-based quar-
terly amount for such State and category 
for a quarter in a reform year (beginning 
with the fourth reform year and ending 
with the tenth reform year) is equal to the 
sum of— 
‘‘(I) the product of the State-spe-
cific factor for such reform year and 
the 
beneficiary-based 
quarterly 
amount that would otherwise be deter-
mined under paragraph (1) for such 
State and category if the State were 
a State described in clause (ii) of 
paragraph (1)(C), instead of a State 
described in clause (i) of such para-
graph; and 
‘‘(II) the product of 1 minus the 
State-specific factor for such reform 
year and the beneficiary-based quar-
terly amount that would otherwise be 
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determined under paragraph (1) for a 
State and category if the base per 
beneficiary, per category amount de-
termined under paragraph (2) for the 
State and category were equal to 90 
percent of the national average base 
per beneficiary, per category amount 
determined under subparagraph (A) 
for such category. 
‘‘(iii) HIGH
AND
LOW
PER
BENE-
FICIARY
STATES
DEFINED.—In this sub-
paragraph: 
‘‘(I) HIGH
PER
BENEFICIARY 
STATE.—The term ‘high per bene-
ficiary State’ means, with respect to a 
category, a State for which the base 
per beneficiary, per category amount 
determined under paragraph (2) for 
such category is greater than 110 per-
cent of the national average base per 
beneficiary, per category amount de-
termined under subparagraph (A) for 
such category. 
‘‘(II) LOW
PER
BENEFICIARY 
STATE.—The term ‘low per bene-
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ficiary State’ means, with respect to a 
category, a State for which the base 
per beneficiary, per category amount 
determined under paragraph (2) for 
such category is less than 90 percent 
of the national average base per bene-
ficiary, per category amount deter-
mined under subparagraph (A) for 
such category. 
‘‘(iv) STATE-SPECIFIC
FACTOR.—In 
this subparagraph, the term ‘State-specific 
factor’ means— 
‘‘(I) for the fourth reform year, 
7⁄8; and 
‘‘(II) for a subsequent reform 
year, the State-specific factor under 
this clause for the previous reform 
year minus 1⁄8. 
‘‘(C) NO ADDITIONAL EXPENDITURES.— 
‘‘(i) DETERMINATION OF INCREASE IN 
FEDERAL EXPENDITURES.—For each cat-
egory for each reform year (beginning with 
the fourth reform year and ending with the 
tenth reform year), the Secretary shall de-
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termine whether the application of this 
paragraph— 
‘‘(I) to the category for the re-
form year will result in an aggregate 
increase in the aggregate Federal ex-
penditures under subsection (a); and 
‘‘(II) to all the categories for the 
reform year will result in a net aggre-
gate increase in the aggregate Federal 
expenditures under subsection (a). 
‘‘(ii) ADJUSTMENT.—If the Secretary 
determines under clause (i)(II) that the 
application of this paragraph to all the cat-
egories for a reform year will result in a 
net aggregate increase in the aggregate 
Federal expenditures under subsection (a), 
the Secretary shall reduce the national av-
erage base per beneficiary, per category 
amount computed under subparagraph (A) 
for each of the categories determined 
under clause (i)(I) for which there will be 
an aggregate increase in the aggregate 
Federal expenditures under subsection (a) 
by such uniform percentage as will ensure 
that there is no net aggregate Federal ex-
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mination on such amounts for such State. If no 
such appeal is received for a State, the Sec-
retary’s initial determination under subpara-
graph (A)(i) shall become final. 
‘‘(6) BASE
FISCAL
YEAR
DEFINED.—In this 
section, the term ‘base fiscal year’ means the latest 
fiscal year, ending before the date of the enactment 
of this section, for which the Secretary determines 
that adequate data are available to make the com-
putations required under this subsection. 
‘‘(d) NOT COUNTING INDIVIDUALS TO ACCOUNT FOR 
EXCLUDED PAYMENTS.—Under rules specified by the 
Secretary, individuals shall not be counted as Medicaid 
beneficiaries for purposes of subsection (b)(1)(B) and sub-
section (c)(2)(A) in proportion to the extent that such in-
dividuals are receiving medical assistance for which pay-
ments described under subsection (a)(4)(A) are made. 
‘‘(e) RISK ADJUSTMENT.— 
‘‘(1) IN
GENERAL.—The amount under sub-
section (a)(1)(A) shall be adjusted under this sub-
section in an appropriate manner, specified by the 
Secretary and consistent with paragraph (2), to take 
into account— 
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‘‘(A) the factors described in subsection 
(c)(2)(C)(i)(I) within a category of bene-
ficiaries; and 
‘‘(B) variations in costs on a county-by- 
county basis for medical assistance and admin-
istrative expenses. 
‘‘(2) METHOD OF ADJUSTMENT.— 
‘‘(A) 
IN
GENERAL.—The 
adjustments 
under paragraph (1) shall be made in a manner 
similar to the manner in which similar adjust-
ments are made under subsection (c)(2)(C) and 
consistent with the requirements of clause (iii) 
of such subsection and subparagraph (B). 
‘‘(B) BIANNUAL UPDATE OF RISK ADJUST-
MENT
METHODOLOGY.—In 
applying 
clause 
(i)(I) of subsection (c)(2)(C) for purposes of 
subparagraph (A), the Secretary shall, in con-
sultation with the entities described in clause 
(ii)(I) of such subsection, update the risk ad-
justment methodology applied as appropriate 
not less often than every 2 years. 
‘‘(f) CHRONIC CARE QUALITY BONUS PAYMENTS.— 
‘‘(1) DETERMINATION OF BONUS PAYMENTS.— 
If the Secretary determines that, based on the re-
ports under paragraph (5), with respect to cat-
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egories of chronic disease for which chronic care per-
formance targets had been established under para-
graph (3) for each category of Medicaid beneficiaries 
specified under subsection (b)(2) such targets have 
been met by a State for a reform year, the Secretary 
shall make an additional payment to such State in 
the amount specified in paragraph (6) for each quar-
ter in the succeeding reform year. Such payments 
shall be made in a manner specified by the Secretary 
and may only be used consistent with subsection 
(a)(3). 
‘‘(2) IDENTIFICATION
OF
CATEGORIES
OF 
CHRONIC DISEASE.—The Secretary shall determine 
the categories of chronic disease for which bonus 
payments may be available under this subsection for 
each category of Medicaid beneficiaries. 
‘‘(3) ADOPTION
OF
QUALITY
MEASUREMENT 
SYSTEM
AND
IDENTIFICATION
OF
PERFORMANCE 
TARGETS.— 
‘‘(A) SYSTEM AND DATA.—With respect to 
the categories of chronic disease under para-
graph (2), the Secretary shall adopt a quality 
measurement system that uses data described 
in paragraph (4) and is similar to the Five-Star 
Quality Rating System used to indicate the per-
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formance of Medicare Advantage plans under 
part C of title XVIII. 
‘‘(B) TARGETS.—Using such system and 
data, the Secretary shall establish for each re-
form year the chronic care performance targets 
for purposes of the payments under paragraph 
(1). Such performance targets shall be estab-
lished in consultation with States, associations 
representing individuals with chronic illnesses, 
entities providing treatment to such individuals 
for such chronic illnesses, and other stake-
holders, including the National Association of 
Medicaid Directors and the National Governors 
Association. 
‘‘(4) DATA TO BE USED.—The data to be used 
under paragraph (3) shall include— 
‘‘(A) data collected through methods such 
as— 
‘‘(i) the ‘Healthcare Effectiveness 
Data and Information Set’ (also known as 
‘HEDIS’) (or an appropriate successor 
performance measurement tool); 
‘‘(ii) the ‘Consumer Assessment of 
Healthcare Providers and Systems’ (also 
known as ‘CAHPS’) (or an appropriate 
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successor performance measurement tool); 
and 
‘‘(iii) the ‘Health Outcomes Survey’ 
(also known as ‘HOS’) (or an appropriate 
successor performance measurement tool); 
and 
‘‘(B) other data collected by the State. 
‘‘(5) REPORTS.— 
‘‘(A) IN GENERAL.—Each State shall col-
lect, analyze, and report to the Secretary, at a 
frequency and in a manner to be established by 
the Secretary, data described in paragraph (4) 
that permit the Secretary to monitor the State’s 
performance relative to the chronic care per-
formance targets established under paragraph 
(3). 
‘‘(B) REVIEW
AND
VERIFICATION.—The 
Secretary may review the data collected by the 
State under subparagraph (A) to verify the 
State’s analysis of such data with respect to the 
performance targets under paragraph (3). 
‘‘(6) AMOUNT OF BONUS PAYMENTS.— 
‘‘(A) IN
GENERAL.—Subject to subpara-
graphs (B) and (C), with respect to each cat-
egory of Medicaid beneficiaries, in the case of 
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a State that the Secretary determines, based on 
the chronic care performance targets set under 
paragraph (3) for a reform year for such cat-
egory, performs— 
‘‘(i) in the top five States in such cat-
egory, subject to subparagraph (C)(ii), the 
amount of the bonus for each quarter in 
the succeeding reform year shall be 10 per-
cent of the payment amount otherwise paid 
to the State under subsection (a) for indi-
viduals enrolled under the plan within such 
category; 
‘‘(ii) in the next five States in such 
category, subject to subparagraph (C)(ii), 
the amount of the bonus for each such 
quarter shall be 5 percent of the payment 
amount otherwise paid to the State under 
subsection (a) for individuals enrolled 
under the plan within such category; 
‘‘(iii) in the next five States in such 
category, subject to clauses (i) and (iii) of 
subparagraph (C), the amount of the 
bonus for each such quarter shall be 3 per-
cent of the payment amount otherwise paid 
to the State under subsection (a) for indi-
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100 
viduals enrolled under the plan within such 
category; 
‘‘(iv) in the next five States in such 
category, subject to clauses (i) and (iii) of 
subparagraph (C), the amount of the 
bonus for each such quarter shall be 2 per-
cent of the payment amount otherwise paid 
to the State under subsection (a) for indi-
viduals enrolled under the plan within such 
category; and 
‘‘(v) in the next five States in such 
category, subject to clauses (i) and (iii) of 
subparagraph (C), the amount of the 
bonus for each such quarter shall be 1 per-
cent of the payment amount otherwise paid 
to the State under subsection (a) for indi-
viduals enrolled under the plan within such 
category. 
‘‘(B) AGGREGATE
ANNUAL
LIMIT
FOR 
EACH
CATEGORY
OF
MEDICAID
BENE-
FICIARIES.— 
‘‘(i) IN GENERAL.—In no case may 
the aggregate amount of bonuses under 
this subsection for quarters in a reform 
year for a category of Medicaid bene-
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101 
ficiaries exceed the limit specified in clause 
(ii) for the reform year. 
‘‘(ii) LIMIT.—The limit specified in 
this clause— 
‘‘(I) for the second reform year is 
equal to $250,000,000; or 
‘‘(II) for a subsequent reform 
year is equal to the limit specified in 
this clause for the previous reform 
year increased by the per beneficiary 
percentage increase determined under 
paragraph (1)(E) of subsection (c). 
‘‘(C) LIMITATION AND PRORATION OF BO-
NUSES BASED ON APPLICATION OF AGGREGATE 
LIMIT.— 
‘‘(i) NO BONUS FOR THIRD OR SUBSE-
QUENT TIERS UNLESS AGGREGATE LIMIT 
NOT REACHED ON FIRST TWO TIERS.—No 
bonus shall be payable under clause (iii), 
(iv), or (v) of subparagraph (A) for a cat-
egory of Medicaid beneficiaries for a quar-
ter in a reform year unless the aggregate 
amount of bonuses under clauses (i) and 
(ii) of such subparagraph for such category 
and reform year is less than the limit spec-
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102 
ified in subparagraph (B)(ii) for the re-
form year. 
‘‘(ii) PRORATION
FOR
FIRST
TWO 
TIERS.—If the aggregate amount of bo-
nuses under clauses (i) and (ii) of subpara-
graph (A) for a category of Medicaid bene-
ficiaries for quarters in a reform year ex-
ceeds the limit specified in subparagraph 
(B)(ii) for the reform year, the amount of 
each such bonus shall be prorated in a 
manner so the aggregate amount of such 
bonuses is equal to such limit. 
‘‘(iii) PRORATION FOR NEXT THREE 
TIERS.—If the aggregate amount of bo-
nuses under clauses (i) and (ii) of subpara-
graph (A) for a category of Medicaid bene-
ficiaries for quarters in a reform year is 
less than the limit specified in subpara-
graph (B)(ii) for the reform year, but the 
aggregate amount of bonuses under clauses 
(i) through (v) of subparagraph (A) for the 
category and such quarters in the reform 
year exceeds the limit specified in subpara-
graph (B)(ii) for the reform year, the 
amount of each bonus in clauses (iii), (iv), 
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103 
and (v) of subparagraph (A) shall be pro-
rated in a manner so the aggregate 
amount of all the bonuses under subpara-
graph (A) is equal to such limit. 
‘‘(g) STATE OPTION FOR RECEIVING MEDICARE PAY-
MENTS FOR FULL-BENEFIT DUAL ELIGIBLE INDIVID-
UALS.— 
‘‘(1) IN
GENERAL.—Under this subsection a 
State may elect for quarters beginning on or after 
the implementation date in a reform year to receive 
payment from the Secretary under paragraph (3). 
As a condition of receiving such payment, the State 
shall agree to provide to full-benefit dual eligible in-
dividuals eligible for medical assistance under the 
State plan— 
‘‘(A) the medical assistance to which such 
eligible individuals would otherwise be entitled 
under this title; and 
‘‘(B) any items and services which such eli-
gible individuals would otherwise receive under 
title XVIII. 
‘‘(2) PROVIDER PAYMENT REQUIREMENT.— 
‘‘(A) IN GENERAL.—A State electing the 
option under this subsection shall provide pay-
ment to health care providers for the items and 
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104 
services described under paragraph (1)(B) at a 
rate that is not less than the rate at which pay-
ments would be made to such providers for such 
items and services under title XVIII. 
‘‘(B) FLEXIBILITY
IN
PAYMENT
METH-
ODS.—Nothing in subparagraph (A) shall be 
construed as preventing a State from using al-
ternative payment methodologies (such as bun-
dled payments or the use of accountable care 
organizations (as such term is used in section 
1899)) for purposes of making payments to 
health care providers for items and services pro-
vided to dual eligible individuals in the State 
under the option under this subsection. 
‘‘(3) PAYMENTS TO STATES IN LIEU OF MEDI-
CARE
PAYMENTS.—With respect to a full-benefit 
dual eligible individual, in the case of a State that 
elects the option under paragraph (1) for quarters in 
a reform year— 
‘‘(A) the Secretary shall not make any pay-
ment under title XVIII for items and services 
furnished to such individual for such quarters; 
and 
‘‘(B) the Secretary shall pay to the State, 
in addition to the amounts paid to such State 
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