1484 
‘‘(21) DISCLOSURE OF RETURN INFORMA-
TION TO CARRY OUT HEALTH INSURANCE EX-
CHANGE SUBSIDIES.— 
‘‘(A) IN
GENERAL.—The Secretary, 
upon written request from the Health 
Choices Commissioner or the head of 
a State-based health insurance ex-
change approved for operation under 
section 208 of the America’s Afford-
able Health Choices Act of 2009, shall 
disclose to officers and employees of 
the Health Choices Administration or 
such State-based health insurance ex-
change, as the case may be, return in-
formation of any taxpayer whose in-
come is relevant in determining any 
affordability credit described in sub-
title C of title II of the America’s Af-
fordable Health Choices Act of 2009. 
Such return information shall be lim-
ited to— 
‘‘(i) taxpayer identity informa-
tion with respect to such tax-
payer, 
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‘‘(ii) the filing status of such 
taxpayer, 
‘‘(iii) the modified adjusted 
gross income of such taxpayer (as 
defined in section 59B(e)(5)), 
‘‘(iv) the number of depend-
ents of the taxpayer, 
‘‘(v) such other information as 
is prescribed by the Secretary by 
regulation 
as 
might 
indicate 
whether the taxpayer is eligible 
for such affordability credits (and 
the amount thereof), and 
‘‘(vi) the taxable year with re-
spect to which the preceding in-
formation relates or, if applicable, 
the fact that such information is 
not available. 
‘‘(B) RESTRICTION
ON
USE
OF
DIS-
CLOSED
INFORMATION.—Return infor-
mation disclosed under subparagraph 
(A) may be used by officers and em-
ployees of the Health Choices Admin-
istration or such State-based health 
insurance exchange, as the case may 
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be, only for the purposes of, and to 
the extent necessary in, establishing 
and verifying the appropriate amount 
of any affordability credit described 
in subtitle C of title II of the Amer-
ica’s Affordable Health Choices Act of 
2009 and providing for the repayment 
of any such credit which was in ex-
cess of such appropriate amount.’’. 
(b) PROCEDURES AND RECORDKEEPING RE-
LATED TO DISCLOSURES.—Paragraph (4) of sec-
tion 6103(p) of such Code is amended— 
(1) by inserting ‘‘, or any entity de-
scribed in subsection (l)(21),’’ after ‘‘or 
(20)’’ in the matter preceding subpara-
graph (A), 
(2) by inserting ‘‘or any entity de-
scribed in subsection (l)(21),’’ after ‘‘or 
(o)(1)(A),’’ in subparagraph (F)(ii), and 
(3) by inserting ‘‘or any entity de-
scribed in subsection (l)(21),’’ after ‘‘or 
(20),’’ both places it appears in the matter 
after subparagraph (F). 
(c) UNAUTHORIZED DISCLOSURE OR INSPEC-
TION.—Paragraph (2) of section 7213(a) of such 
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Code is amended by striking ‘‘or (20)’’ and in-
serting ‘‘(20), or (21)’’. 
Subtitle D—Other Revenue 
Provisions 
PART 1—GENERAL PROVISIONS 
SEC. 441. SURCHARGE ON HIGH INCOME INDIVIDUALS. 
(a) IN GENERAL.—Part VIII of subchapter 
A of chapter 1 of the Internal Revenue Code 
of 1986, as added by this title, is amended by 
adding at the end the following new subpart: 
‘‘Subpart B—Surcharge on High Income Individuals 
‘‘Sec. 59C. Surcharge on high income individuals. 
‘‘SEC. 59C. SURCHARGE ON HIGH INCOME INDIVIDUALS. 
‘‘(a) GENERAL RULE.—In the case of a tax-
payer other than a corporation, there is here-
by imposed (in addition to any other tax im-
posed by this subtitle) a tax equal to— 
‘‘(1) 1 percent of so much of the modi-
fied adjusted gross income of the tax-
payer as exceeds $350,000 but does not 
exceed $500,000, 
‘‘(2) 1.5 percent of so much of the 
modified adjusted gross income of the 
taxpayer as exceeds $500,000 but does not 
exceed $1,000,000, and 
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‘‘(3) 5.4 percent of so much of the 
modified adjusted gross income of the 
taxpayer as exceeds $1,000,000. 
‘‘(b) TAXPAYERS NOT MAKING A JOINT RE-
TURN.—In the case of any taxpayer other than 
a taxpayer making a joint return under sec-
tion 6013 or a surviving spouse (as defined in 
section 2(a)), subsection (a) shall be applied 
by substituting for each of the dollar amounts 
therein (after any increase determined under 
subsection (e)) a dollar amount equal to— 
‘‘(1) 50 percent of the dollar amount 
so in effect in the case of a married indi-
vidual filing a separate return, and 
‘‘(2) 80 percent of the dollar amount 
so in effect in any other case. 
‘‘(c) ADJUSTMENTS
BASED
ON
FEDERAL 
HEALTH REFORM SAVINGS.— 
‘‘(1) IN GENERAL.—Except as provided 
in paragraph (2), in the case of any tax-
able year beginning after December 31, 
2012, subsection (a) shall be applied— 
‘‘(A) by substituting ‘2 percent’ for 
‘1 percent’, and 
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‘‘(B) by substituting ‘3 percent’ for 
‘1.5 percent’. 
‘‘(2) ADJUSTMENTS
BASED
ON
EXCESS 
FEDERAL HEALTH REFORM SAVINGS.— 
‘‘(A) EXCEPTION IF FEDERAL HEALTH 
REFORM
SAVINGS
SIGNIFICANTLY
EX-
CEEDS
BASE
AMOUNT.—If the excess 
Federal health reform savings is more 
than $150,000,000,000 but not more 
than $175,000,000,000, paragraph (1) 
shall not apply. 
‘‘(B) FURTHER ADJUSTMENT FOR AD-
DITIONAL FEDERAL HEALTH REFORM SAV-
INGS.—If the excess Federal health re-
form 
savings 
is 
more 
than 
$175,000,000,000, paragraphs (1) and 
(2) of subsection (a) (and paragraph 
(1) of this subsection) shall not apply 
to any taxable year beginning after 
December 31, 2012. 
‘‘(C) EXCESS
FEDERAL
HEALTH
RE-
FORM SAVINGS.—For purposes of this 
subsection, the term ‘excess Federal 
health reform savings’ means the ex-
cess of— 
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‘‘(i) the Federal health reform 
savings, over 
‘‘(ii) $525,000,000,000. 
‘‘(D) FEDERAL HEALTH REFORM SAV-
INGS.—The term ‘Federal health re-
form savings’ means the sum of the 
amounts described in subparagraphs 
(A) and (B) of paragraph (3). 
‘‘(3) 
DETERMINATION
OF
FEDERAL 
HEALTH REFORM SAVINGS.—Not later than 
December 1, 2012, the Director of the Of-
fice of Management and Budget shall— 
‘‘(A) determine, on the basis of the 
study conducted under paragraph (4), 
the aggregate reductions in Federal 
expenditures 
which 
have 
been 
achieved as a result of the provisions 
of, and amendments made by, divi-
sion B of the America’s Affordable 
Health Choices Act of 2009 during the 
period beginning on October 1, 2009, 
and ending with the latest date with 
respect to which the Director has suf-
ficient data to make such determina-
tion, and 
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‘‘(B) estimate, on the basis of such 
study and the determination under 
subparagraph (A), the aggregate re-
ductions 
in 
Federal 
expenditures 
which will be achieved as a result of 
such 
provisions 
and 
amendments 
during so much of the period begin-
ning with fiscal year 2010 and ending 
with fiscal year 2019 as is not taken 
into account under subparagraph (A). 
‘‘(4) STUDY OF FEDERAL HEALTH REFORM 
SAVINGS.—The Director of the Office of 
Management and Budget shall conduct a 
study of the reductions in Federal ex-
penditures 
during 
fiscal 
years 
2010 
through 2019 which are attributable to 
the provisions of, and amendments made 
by, division B of the America’s Affordable 
Health Choices Act of 2009. The Director 
shall complete such study not later than 
December 1, 2012. 
‘‘(5) REDUCTIONS IN FEDERAL EXPENDI-
TURES
DETERMINED
WITHOUT
REGARD
TO 
PROGRAM
INVESTMENTS.—For purposes of 
paragraphs (3) and (4), reductions in Fed-
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eral expenditures shall be determined 
without regard to section 1121 of the 
America’s Affordable Health Choices Act 
of 2009 and other program investments 
under division B thereof. 
‘‘(d) MODIFIED ADJUSTED GROSS INCOME.— 
For purposes of this section, the term ‘modi-
fied adjusted gross income’ means adjusted 
gross income reduced by any deduction (not 
taken into account in determining adjusted 
gross income) allowed for investment interest 
(as defined in section 163(d)). In the case of 
an estate or trust, adjusted gross income shall 
be determined as provided in section 67(e). 
‘‘(e) INFLATION ADJUSTMENTS.— 
‘‘(1) IN GENERAL.—In the case of tax-
able years beginning after 2011, the dol-
lar amounts in subsection (a) shall be in-
creased by an amount equal to— 
‘‘(A) such dollar amount, multi-
plied by 
‘‘(B) the cost-of-living adjustment 
determined under section 1(f)(3) for 
the calendar year in which the tax-
able year begins, by substituting ‘cal-
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endar year 2010’ for ‘calendar year 
1992’ in subparagraph (B) thereof. 
‘‘(2) ROUNDING.—If any amount as ad-
justed under paragraph (1) is not a mul-
tiple of $5,000, such amount shall be 
rounded to the next lowest multiple of 
$5,000. 
‘‘(f) SPECIAL RULES.— 
‘‘(1) NONRESIDENT ALIEN.—In the case 
of a nonresident alien individual, only 
amounts taken into account in connec-
tion with the tax imposed under section 
871(b) shall be taken into account under 
this section. 
‘‘(2) CITIZENS
AND
RESIDENTS
LIVING 
ABROAD.—The dollar amounts in effect 
under subsection (a) (after the applica-
tion of subsections (b) and (e)) shall be 
decreased by the excess of— 
‘‘(A) the amounts excluded from 
the taxpayer’s gross income under 
section 911, over 
‘‘(B) the amounts of any deduc-
tions or exclusions disallowed under 
section 911(d)(6) with respect to the 
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amounts described in subparagraph 
(A). 
‘‘(3) CHARITABLE
TRUSTS.—Subsection 
(a) shall not apply to a trust all the unex-
pired interests in which are devoted to 
one or more of the purposes described in 
section 170(c)(2)(B). 
‘‘(4) NOT TREATED AS TAX IMPOSED BY 
THIS CHAPTER FOR CERTAIN PURPOSES.—The 
tax imposed under this section shall not 
be treated as tax imposed by this chapter 
for purposes of determining the amount 
of any credit under this chapter or for 
purposes of section 55.’’. 
(b) CLERICAL AMENDMENT.—The table of 
subparts for part VIII of subchapter A of 
chapter 1 of such Code, as added by this title, 
is amended by inserting after the item relat-
ing to subpart A the following new item: 
‘‘SUBPART B. SURCHARGE ON HIGH INCOME INDIVIDUALS.’’. 
(c) SECTION 15 NOT TO APPLY.—The amend-
ment made by subsection (a) shall not be 
treated as a change in a rate of tax for pur-
poses of section 15 of the Internal Revenue 
Code of 1986. 
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(d) EFFECTIVE
DATE.—The amendments 
made by this section shall apply to taxable 
years beginning after December 31, 2010. 
SEC. 442. DISTRIBUTIONS FOR MEDICINE QUALIFIED ONLY 
IF FOR PRESCRIBED DRUG OR INSULIN. 
(a) HSAS.—Subparagraph (A) of section 
223(d)(2) of the Internal Revenue Code of 1986 
is amended by adding at the end the fol-
lowing: ‘‘Such term shall include an amount 
paid for medicine or a drug only if such medi-
cine or drug is a prescribed drug or is insu-
lin.’’. 
(b) ARCHER MSAS.—Subparagraph (A) of 
section 220(d)(2) of such Code is amended by 
adding at the end the following: ‘‘Such term 
shall include an amount paid for medicine or 
a drug only if such medicine or drug is a pre-
scribed drug or is insulin.’’. 
(c) HEALTH FLEXIBLE SPENDING ARRANGE-
MENTS AND HEALTH REIMBURSEMENT ARRANGE-
MENTS.—Section 106 of such Code is amended 
by adding at the end the following new sub-
section: 
‘‘(f) REIMBURSEMENTS
FOR MEDICINE RE-
STRICTED TO PRESCRIBED DRUGS AND INSULIN.— 
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For purposes of this section and section 105, 
reimbursement for expenses incurred for a 
medicine or a drug shall be treated as a reim-
bursement for medical expenses only if such 
medicine or drug is a prescribed drug or is in-
sulin.’’. 
(d) EFFECTIVE
DATES.—The amendment 
made by this section shall apply to expenses 
incurred after December 31, 2009. 
SEC. 443. DELAY IN APPLICATION OF WORLDWIDE ALLOCA-
TION OF INTEREST. 
(a) IN GENERAL.—Paragraphs (5)(D) and 
(6) of section 864(f) of the Internal Revenue 
Code of 1986 are each amended by striking 
‘‘December 31, 2010’’ and inserting ‘‘December 
31, 2019’’. 
(b) TRANSITION.—Subsection (f) of section 
864 of such Code is amended by striking para-
graph (7). 
PART 2—PREVENTION OF TAX AVOIDANCE 
SEC. 451. LIMITATION ON TREATY BENEFITS FOR CERTAIN 
DEDUCTIBLE PAYMENTS. 
(a) IN GENERAL.—Section 894 of the Inter-
nal Revenue Code of 1986 (relating to income 
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affected by treaty) is amended by adding at 
the end the following new subsection: 
‘‘(d) LIMITATION ON TREATY BENEFITS FOR 
CERTAIN DEDUCTIBLE PAYMENTS.— 
‘‘(1) IN GENERAL.—In the case of any 
deductible related-party payment, any 
withholding tax imposed under chapter 3 
(and any tax imposed under subpart A or 
B of this part) with respect to such pay-
ment may not be reduced under any trea-
ty of the United States unless any such 
withholding tax would be reduced under 
a treaty of the United States if such pay-
ment were made directly to the foreign 
parent corporation. 
‘‘(2) DEDUCTIBLE
RELATED-PARTY
PAY-
MENT.—For purposes of this subsection, 
the term ‘deductible related-party pay-
ment’ means any payment made, directly 
or indirectly, by any person to any other 
person if the payment is allowable as a 
deduction under this chapter and both 
persons are members of the same foreign 
controlled group of entities. 
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‘‘(3) FOREIGN
CONTROLLED
GROUP
OF 
ENTITIES.—For 
purposes 
of 
this 
sub-
section— 
‘‘(A) IN
GENERAL.—The term ‘for-
eign controlled group of entities’ 
means a controlled group of entities 
the common parent of which is a for-
eign corporation. 
‘‘(B) CONTROLLED GROUP OF ENTI-
TIES.—The term ‘controlled group of 
entities’ means a controlled group of 
corporations as defined in section 
1563(a)(1), except that— 
‘‘(i) ‘more than 50 percent’ 
shall be substituted for ‘at least 
80 percent’ each place it appears 
therein, and 
‘‘(ii) the determination shall 
be made without regard to sub-
sections (a)(4) and (b)(2) of sec-
tion 1563. 
A partnership or any other entity 
(other than a corporation) shall be 
treated as a member of a controlled 
group of entities if such entity is con-
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trolled (within the meaning of section 
954(d)(3)) by members of such group 
(including any entity treated as a 
member of such group by reason of 
this sentence). 
‘‘(4) FOREIGN
PARENT
CORPORATION.— 
For purposes of this subsection, the term 
‘foreign parent corporation’ means, with 
respect to any deductible related-party 
payment, the common parent of the for-
eign controlled group of entities referred 
to in paragraph (3)(A). 
‘‘(5) 
REGULATIONS.—The 
Secretary 
may prescribe such regulations or other 
guidance as are necessary or appropriate 
to carry out the purposes of this sub-
section, including regulations or other 
guidance which provide for— 
‘‘(A) the treatment of two or more 
persons as members of a foreign con-
trolled group of entities if such per-
sons would be the common parent of 
such group if treated as one corpora-
tion, and 
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‘‘(B) the treatment of any member 
of a foreign controlled group of enti-
ties as the common parent of such 
group if such treatment is appro-
priate taking into account the eco-
nomic relationships among such enti-
ties.’’. 
(b) EFFECTIVE
DATE.—The amendment 
made by this section shall apply to payments 
made after the date of the enactment of this 
Act. 
SEC. 452. CODIFICATION OF ECONOMIC SUBSTANCE DOC-
TRINE. 
(a) IN GENERAL.—Section 7701 of the Inter-
nal Revenue Code of 1986 is amended by re-
designating subsection (o) as subsection (p) 
and by inserting after subsection (n) the fol-
lowing new subsection: 
‘‘(o) CLARIFICATION
OF
ECONOMIC
SUB-
STANCE DOCTRINE.— 
‘‘(1) APPLICATION OF DOCTRINE.—In the 
case of any transaction to which the eco-
nomic substance doctrine is relevant, 
such transaction shall be treated as hav-
ing economic substance only if— 
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‘‘(A) the transaction changes in a 
meaningful way (apart from Federal 
income tax effects) the taxpayer’s eco-
nomic position, and 
‘‘(B) the taxpayer has a substan-
tial purpose (apart from Federal in-
come tax effects) for entering into 
such transaction. 
‘‘(2) SPECIAL RULE WHERE TAXPAYER RE-
LIES ON PROFIT POTENTIAL.— 
‘‘(A) IN
GENERAL.—The potential 
for profit of a transaction shall be 
taken into account in determining 
whether the requirements of subpara-
graphs (A) and (B) of paragraph (1) 
are met with respect to the trans-
action only if the present value of the 
reasonably expected pre-tax profit 
from the transaction is substantial in 
relation to the present value of the 
expected net tax benefits that would 
be allowed if the transaction were re-
spected. 
‘‘(B) TREATMENT OF FEES AND FOR-
EIGN
TAXES.—Fees and other trans-
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action expenses and foreign taxes 
shall be taken into account as ex-
penses in determining pre-tax profit 
under subparagraph (A). 
‘‘(3) STATE AND LOCAL TAX BENEFITS.— 
For purposes of paragraph (1), any State 
or local income tax effect which is re-
lated to a Federal income tax effect shall 
be treated in the same manner as a Fed-
eral income tax effect. 
‘‘(4) FINANCIAL ACCOUNTING BENEFITS.— 
For purposes of paragraph (1)(B), achiev-
ing a financial accounting benefit shall 
not be taken into account as a purpose 
for entering into a transaction if the ori-
gin of such financial accounting benefit 
is a reduction of Federal income tax. 
‘‘(5) DEFINITIONS AND SPECIAL RULES.— 
For purposes of this subsection— 
‘‘(A) ECONOMIC
SUBSTANCE
DOC-
TRINE.—The term ‘economic substance 
doctrine’ means the common law doc-
trine under which tax benefits under 
subtitle A with respect to a trans-
action are not allowable if the trans-
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action does not have economic sub-
stance or lacks a business purpose. 
‘‘(B) 
EXCEPTION
FOR
PERSONAL 
TRANSACTIONS OF INDIVIDUALS.—In the 
case of an individual, paragraph (1) 
shall apply only to transactions en-
tered into in connection with a trade 
or business or an activity engaged in 
for the production of income. 
‘‘(C) OTHER
COMMON
LAW
DOC-
TRINES NOT AFFECTED.—Except as spe-
cifically provided in this subsection, 
the provisions of this subsection shall 
not be construed as altering or sup-
planting any other rule of law, and 
the requirements of this subsection 
shall be construed as being in addi-
tion to any such other rule of law. 
‘‘(D) DETERMINATION
OF
APPLICA-
TION OF DOCTRINE NOT AFFECTED.—The 
determination of whether the eco-
nomic substance doctrine is relevant 
to a transaction (or series of trans-
actions) shall be made in the same 
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manner as if this subsection had 
never been enacted. 
‘‘(6) 
REGULATIONS.—The 
Secretary 
shall prescribe such regulations as may 
be necessary or appropriate to carry out 
the purposes of this subsection.’’. 
(b) EFFECTIVE
DATE.—The amendments 
made by this section shall apply to trans-
actions entered into after the date of the en-
actment of this Act. 
SEC. 453. PENALTIES FOR UNDERPAYMENTS. 
(a) PENALTY FOR UNDERPAYMENTS ATTRIB-
UTABLE TO TRANSACTIONS LACKING ECONOMIC 
SUBSTANCE.— 
(1) IN GENERAL.—Subsection (b) of sec-
tion 6662 of the Internal Revenue Code of 
1986 is amended by inserting after para-
graph (5) the following new paragraph: 
‘‘(6) Any disallowance of claimed tax 
benefits by reason of a transaction lack-
ing 
economic 
substance 
(within 
the 
meaning of section 7701(o)) or failing to 
meet the requirements of any similar rule 
of law.’’. 
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(2) INCREASED
PENALTY
FOR
NONDIS-
CLOSED
TRANSACTIONS.—Section 6662 of 
such Code is amended by adding at the 
end the following new subsection: 
‘‘(i) INCREASE IN PENALTY IN CASE OF NON-
DISCLOSED
NONECONOMIC
SUBSTANCE
TRANS-
ACTIONS.— 
‘‘(1) IN GENERAL.—In the case of any 
portion of an underpayment which is at-
tributable to one or more nondisclosed 
noneconomic 
substance 
transactions, 
subsection (a) shall be applied with re-
spect to such portion by substituting ‘40 
percent’ for ‘20 percent’. 
‘‘(2) NONDISCLOSED NONECONOMIC SUB-
STANCE
TRANSACTIONS.—For purposes of 
this subsection, the term ‘nondisclosed 
noneconomic 
substance 
transaction’ 
means any portion of a transaction de-
scribed in subsection (b)(6) with respect 
to which the relevant facts affecting the 
tax treatment are not adequately dis-
closed in the return nor in a statement 
attached to the return. 
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‘‘(3) SPECIAL
RULE
FOR
AMENDED
RE-
TURNS.—Except as provided in regula-
tions, in no event shall any amendment 
or supplement to a return of tax be taken 
into account for purposes of this sub-
section if the amendment or supplement 
is filed after the earlier of the date the 
taxpayer is first contacted by the Sec-
retary regarding the examination of the 
return or such other date as is specified 
by the Secretary.’’. 
(3) 
CONFORMING
AMENDMENT.—Sub-
paragraph (B) of section 6662A(e)(2) of 
such Code is amended— 
(A) by striking ‘‘section 6662(h)’’ 
and inserting ‘‘subsections (h) or (i) of 
section 6662’’, and 
(B) by striking ‘‘GROSS VALUATION 
MISSTATEMENT PENALTY’’ in the head-
ing and inserting ‘‘CERTAIN INCREASED 
UNDERPAYMENT PENALTIES’’. 
(b) REASONABLE CAUSE EXCEPTION NOT AP-
PLICABLE TO NONECONOMIC SUBSTANCE TRANS-
ACTIONS, TAX SHELTERS, AND CERTAIN LARGE OR 
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PUBLICLY TRADED PERSONS.—Subsection (c) of 
section 6664 of such Code is amended— 
(1) by redesignating paragraphs (2) 
and (3) as paragraphs (3) and (4), respec-
tively, 
(2) by striking ‘‘paragraph (2)’’ in 
paragraph (4)(A), as so redesignated, and 
inserting ‘‘paragraph (3)’’, and 
(3) by inserting after paragraph (1) 
the following new paragraph: 
‘‘(2) EXCEPTION.—Paragraph (1) shall 
not apply to— 
‘‘(A) to any portion of an under-
payment which is attributable to one 
or more tax shelters (as defined in 
section 6662(d)(2)(C)) or transactions 
described in section 6662(b)(6), and 
‘‘(B) to any taxpayer if such tax-
payer is a specified person (as de-
fined in section 6662(d)(2)(D)(ii)).’’. 
(c) APPLICATION
OF PENALTY
FOR ERRO-
NEOUS CLAIM FOR REFUND OR CREDIT TO NON-
ECONOMIC SUBSTANCE TRANSACTIONS.—Section 
6676 of such Code is amended by redesig-
nating subsection (c) as subsection (d) and in-
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serting after subsection (b) the following new 
subsection: 
‘‘(c) 
NONECONOMIC
SUBSTANCE
TRANS-
ACTIONS
TREATED
AS
LACKING
REASONABLE 
BASIS.—For purposes of this section, any ex-
cessive amount which is attributable to any 
transaction described in section 6662(b)(6) 
shall not be treated as having a reasonable 
basis.’’. 
(d) SPECIAL UNDERSTATEMENT REDUCTION 
RULE FOR CERTAIN LARGE OR PUBLICLY TRADED 
PERSONS.— 
(1) IN GENERAL.—Paragraph (2) of sec-
tion 6662(d) of such Code is amended by 
adding at the end the following new sub-
paragraph: 
‘‘(D) SPECIAL REDUCTION RULE FOR 
CERTAIN
LARGE
OR
PUBLICLY
TRADED 
PERSONS.— 
‘‘(i) IN
GENERAL.—In the case 
of any specified person— 
‘‘(I) 
subparagraph 
(B) 
shall not apply, and 
‘‘(II) the amount of the un-
derstatement under subpara-
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be treated as one person for pur-
poses of subclause (II).’’. 
(2) 
CONFORMING
AMENDMENT.—Sub-
paragraph (C) of section 6662(d)(2) of 
such Code is amended by striking ‘‘Sub-
paragraph (B)’’ and inserting ‘‘Subpara-
graphs (B) and (D)(i)(II)’’. 
(e) EFFECTIVE
DATE.—The amendments 
made by this section shall apply to trans-
actions entered into after the date of the en-
actment of this Act. 
PART 3—PARITY IN HEALTH BENEFITS 
SEC. 461. CERTAIN HEALTH RELATED BENEFITS APPLICA-
BLE TO SPOUSES AND DEPENDENTS EX-
TENDED TO ELIGIBLE BENEFICIARIES. 
(a) APPLICATION OF ACCIDENT AND HEALTH 
PLANS TO ELIGIBLE BENEFICIARIES.— 
(1) EXCLUSION
OF
CONTRIBUTIONS.— 
Section 106 of the Internal Revenue Code 
of 1986, as amended by section 442, (relat-
ing to contributions by employer to acci-
dent and health plans) is amended by 
adding at the end the following new sub-
section: 
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‘‘(g) COVERAGE
PROVIDED
FOR
ELIGIBLE 
BENEFICIARIES OF EMPLOYEES.— 
‘‘(1) IN GENERAL.—Subsection (a) shall 
apply with respect to any eligible bene-
ficiary of the employee. 
‘‘(2) ELIGIBLE
BENEFICIARY.—For pur-
poses of this subsection, the term ‘eligible 
beneficiary’ means any individual who is 
eligible to receive benefits or coverage 
under an accident or health plan.’’. 
(2) EXCLUSION OF AMOUNTS EXPENDED 
FOR MEDICAL CARE.—The first sentence of 
section 105(b) of such Code (relating to 
amounts expended for medical care) is 
amended— 
(A) by striking ‘‘and his depend-
ents’’ and inserting ‘‘his dependents’’, 
and 
(B) by inserting before the period 
the following: ‘‘and any eligible bene-
ficiary (within the meaning of section 
106(f)) with respect to the taxpayer’’. 
(3) PAYROLL TAXES.— 
(A) Section 3121(a)(2) of such 
Code is amended— 
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(i) by striking ‘‘or any of his 
dependents’’ in the matter pre-
ceding subparagraph (A) and in-
serting ‘‘, any of his dependents, 
or any eligible beneficiary (within 
the meaning of section 106(g)) 
with respect to the employee’’, 
(ii) by striking ‘‘or any of his 
dependents,’’ in subparagraph (A) 
and inserting ‘‘, any of his de-
pendents, or any eligible bene-
ficiary (within the meaning of 
section 106(g)) with respect to the 
employee,’’, and 
(iii) by striking ‘‘and their de-
pendents’’ both places it appears 
and inserting ‘‘and such employ-
ees’ dependents and eligible bene-
ficiaries (within the meaning of 
section 106(g))’’. 
(B) Section 3231(e)(1) of such 
Code is amended— 
(i) by striking ‘‘or any of his 
dependents’’ and inserting ‘‘, any 
of his dependents, or any eligible 
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beneficiary (within the meaning 
of section 106(g)) with respect to 
the employee,’’, and 
(ii) by striking ‘‘and their de-
pendents’’ both places it appears 
and inserting ‘‘and such employ-
ees’ dependents and eligible bene-
ficiaries (within the meaning of 
section 106(g))’’. 
(C) Section 3306(b)(2) of such 
Code is amended— 
(i) by striking ‘‘or any of his 
dependents’’ in the matter pre-
ceding subparagraph (A) and in-
serting ‘‘, any of his dependents, 
or any eligible beneficiary (within 
the meaning of section 106(g)) 
with respect to the employee,’’, 
(ii) by striking ‘‘or any of his 
dependents’’ in subparagraph (A) 
and inserting ‘‘, any of his de-
pendents, or any eligible bene-
ficiary (within the meaning of 
section 106(g)) with respect to the 
employee’’, and 
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(iii) by striking ‘‘and their de-
pendents’’ both places it appears 
and inserting ‘‘and such employ-
ees’ dependents and eligible bene-
ficiaries (within the meaning of 
section 106(g))’’. 
(D) Section 3401(a) of such Code 
is amended by striking ‘‘or’’ at the 
end of paragraph (22), by striking the 
period at the end of paragraph (23) 
and inserting ‘‘; or’’, and by inserting 
after paragraph (23) the following 
new paragraph: 
‘‘(24) for any payment made to or for 
the benefit of an employee or any eligible 
beneficiary (within the meaning of sec-
tion 106(g)) if at the time of such pay-
ment it is reasonable to believe that the 
employee will be able to exclude such 
payment from income under section 106 
or under section 105 by reference in sec-
tion 105(b) to section 106(g).’’. 
(b) EXPANSION OF DEPENDENCY FOR PUR-
POSES OF DEDUCTION FOR HEALTH INSURANCE 
COSTS OF SELF-EMPLOYED INDIVIDUALS.— 
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(1) IN GENERAL.—Paragraph (1) of sec-
tion 162(l) of the Internal Revenue Code 
of 1986 (relating to special rules for 
health insurance costs of self-employed 
individuals) is amended to read as fol-
lows: 
‘‘(1) ALLOWANCE OF DEDUCTION.—In the 
case of a taxpayer who is an employee 
within the meaning of section 401(c)(1), 
there shall be allowed as a deduction 
under this section an amount equal to 
the amount paid during the taxable year 
for insurance which constitutes medical 
care for— 
‘‘(A) the taxpayer, 
‘‘(B) the taxpayer’s spouse, 
‘‘(C) the taxpayer’s dependents, 
and 
‘‘(D) any individual who— 
‘‘(i) satisfies the age require-
ments of section 152(c)(3)(A), 
‘‘(ii) bears a relationship to 
the taxpayer described in section 
152(d)(2)(H), and 
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‘‘(iii) meets the requirements 
of section 152(d)(1)(C), and 
‘‘(E) one individual who— 
‘‘(i) does not satisfy the age re-
quirements of section 152(c)(3)(A), 
‘‘(ii) bears a relationship to 
the taxpayer described in section 
152(d)(2)(H), 
‘‘(iii) meets the requirements 
of section 152(d)(1)(D), and 
‘‘(iv) is not the spouse of the 
taxpayer and does not bear any 
relationship to the taxpayer de-
scribed 
in 
subparagraphs 
(A) 
through (G) of section 152(d)(2).’’. 
(2) 
CONFORMING
AMENDMENT.—Sub-
paragraph (B) of section 162(l)(2) of such 
Code is amended by inserting ‘‘, any de-
pendent, or individual described in sub-
paragraph (D) or (E) of paragraph (1) 
with respect to’’ after ‘‘spouse’’. 
(c) EXTENSION TO ELIGIBLE BENEFICIARIES 
OF SICK AND ACCIDENT BENEFITS PROVIDED TO 
MEMBERS OF A VOLUNTARY EMPLOYEES’ BENE-
FICIARY ASSOCIATION AND THEIR DEPENDENTS.— 
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Section 501(c)(9) of the Internal Revenue 
Code of 1986 (relating to list of exempt organi-
zations) is amended by adding at the end the 
following new sentence: ‘‘For purposes of pro-
viding for the payment of sick and accident 
benefits to members of such an association 
and their dependents, the term ‘dependents’ 
shall include any individual who is an eligible 
beneficiary (within the meaning of section 
106(f)), as determined under the terms of a 
medical benefit, health insurance, or other 
program under which members and their de-
pendents are entitled to sick and accident 
benefits.’’. 
(d) FLEXIBLE SPENDING ARRANGEMENTS AND 
HEALTH REIMBURSEMENT ARRANGEMENTS.—The 
Secretary of Treasury shall issue guidance of 
general applicability providing that medical 
expenses that otherwise qualify— 
(1) for reimbursement from a flexible 
spending arrangement under regulations 
in effect on the date of the enactment of 
this Act may be reimbursed from an em-
ployee’s flexible spending arrangement, 
notwithstanding the fact that such ex-
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penses are attributable to any individual 
who is not the employee’s spouse or de-
pendent (within the meaning of section 
105(b) of the Internal Revenue Code of 
1986) but is an eligible beneficiary (with-
in the meaning of section 106(f) of such 
Code) under the flexible spending ar-
rangement with respect to the employee, 
and 
(2) for reimbursement from a health 
reimbursement arrangement under regu-
lations in effect on the date of the enact-
ment of this Act may be reimbursed from 
an employee’s health reimbursement ar-
rangement, notwithstanding the fact that 
such expenses are attributable to an indi-
vidual who is not a spouse or dependent 
(within the meaning of section 105(b) of 
such Code) but is an eligible beneficiary 
(within the meaning of section 106(f) of 
such Code) under the health reimburse-
ment arrangement with respect to the 
employee. 
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(e) EFFECTIVE
DATE.—The amendments 
made by this section shall apply to taxable 
years beginning after December 31, 2009. 
DIVISION B—MEDICARE AND 
MEDICAID IMPROVEMENTS 
SEC. 1001. TABLE OF CONTENTS OF DIVISION. 
The table of contents for this division is 
as follows: 
DIVISION B—MEDICARE AND MEDICAID IMPROVEMENTS 
Sec. 1001. Table of contents of division. 
TITLE I—IMPROVING HEALTH CARE VALUE 
Subtitle A—Provisions Related to Medicare Part A 
PART 1—MARKET BASKET UPDATES 
Sec. 1101. Skilled nursing facility payment update. 
Sec. 1102. Inpatient rehabilitation facility payment update. 
Sec. 1103. Incorporating productivity improvements into mar-
ket basket updates that do not already incor-
porate such improvements. 
PART 2—OTHER MEDICARE PART A PROVISIONS 
Sec. 1111. Payments to skilled nursing facilities. 
Sec. 1112. Medicare DSH report and payment adjustments in 
response to coverage expansion. 
Sec. 1113. Extension of hospice regulation moratorium. 
Subtitle B—Provisions Related to Part B 
PART 1—PHYSICIANS’ SERVICES 
Sec. 1121. Sustainable growth rate reform. 
Sec. 1122. Misvalued codes under the physician fee schedule. 
Sec. 1123. Payments for efficient areas. 
Sec. 1124. Modifications to the Physician Quality Reporting 
Initiative (PQRI). 
Sec. 1125. Adjustment to Medicare payment localities. 
PART 2—MARKET BASKET UPDATES 
Sec. 1131. Incorporating productivity improvements into mar-
ket basket updates that do not already incor-
porate such improvements. 
PART 3—OTHER PROVISIONS 
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Sec. 1141. Rental and purchase of power-driven wheelchairs. 
Sec. 1142. Extension of payment rule for brachytherapy. 
Sec. 1143. Home infusion therapy report to congress. 
Sec. 1144. Require ambulatory surgical centers (ASCs) to sub-
mit cost data and other data. 
Sec. 1145. Treatment of certain cancer hospitals. 
Sec. 1146. Medicare Improvement Fund. 
Sec. 1147. Payment for imaging services. 
Sec. 1148. Durable medical equipment program improvements. 
Sec. 1149. MedPAC study and report on bone mass measure-
ment. 
Subtitle C—Provisions Related to Medicare Parts A and B 
Sec. 1151. Reducing potentially preventable hospital readmis-
sions. 
Sec. 1152. Post acute care services payment reform plan and 
bundling pilot program. 
Sec. 1153. Home health payment update for 2010. 
Sec. 1154. Payment adjustments for home health care. 
Sec. 1155. Incorporating productivity improvements into mar-
ket basket update for home health services. 
Sec. 1156. Limitation on Medicare exceptions to the prohibi-
tion on certain physician referrals made to hos-
pitals. 
Sec. 1157. Institute of Medicine study of geographic adjust-
ment factors under Medicare. 
Sec. 1158. Revision of medicare payment systems to address 
geographic inequities. 
Sec. 1159. Institute of Medicine study of geographic variation 
in health care spending and promoting high-value 
health care. 
Subtitle D—Medicare Advantage Reforms 
PART 1—PAYMENT AND ADMINISTRATION 
Sec. 1161. Phase-in of payment based on fee-for-service costs. 
Sec. 1162. Quality bonus payments. 
Sec. 1163. Extension of Secretarial coding intensity adjustment 
authority. 
Sec. 1164. Simplification of annual beneficiary election peri-
ods. 
Sec. 1165. Extension of reasonable cost contracts. 
Sec. 1166. Limitation of waiver authority for employer group 
plans. 
Sec. 1167. Improving risk adjustment for payments. 
Sec. 1168. Elimination of MA Regional Plan Stabilization Fund. 
PART 2—BENEFICIARY PROTECTIONS AND ANTI-FRAUD 
Sec. 1171. Limitation on cost-sharing for individual health 
services. 
Sec. 1172. Continuous open enrollment for enrollees in plans 
with enrollment suspension. 
Sec. 1173. Information for beneficiaries on MA plan adminis-
trative costs. 
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Sec. 1174. Strengthening audit authority. 
Sec. 1175. Authority to deny plan bids. 
PART 3—TREATMENT OF SPECIAL NEEDS PLANS 
Sec. 1176. Limitation on enrollment outside open enrollment 
period of individuals into chronic care specialized 
MA plans for special needs individuals. 
Sec. 1177. Extension of authority of special needs plans to re-
strict enrollment. 
Subtitle E—Improvements to Medicare Part D 
Sec. 1181. Elimination of coverage gap. 
Sec. 1182. Discounts for certain part D drugs in original cov-
erage gap. 
Sec. 1183. Repeal of provision relating to submission of claims 
by pharmacies located in or contracting with 
long-term care facilities. 
Sec. 1184. Including costs incurred by AIDS drug assistance 
programs and Indian Health Service in providing 
prescription drugs toward the annual out-of-pock-
et threshold under part D. 
Sec. 1185. Permitting mid-year changes in enrollment for for-
mulary changes that adversely impact an en-
rollee. 
Subtitle F—Medicare Rural Access Protections 
Sec. 1191. Telehealth expansion and enhancements. 
Sec. 1192. Extension of outpatient hold harmless provision. 
Sec. 1193. Extension of section 508 hospital reclassifications. 
Sec. 1194. Extension of geographic floor for work. 
Sec. 1195. Extension of payment for technical component of 
certain physician pathology services. 
Sec. 1196. Extension of ambulance add-ons. 
TITLE II—MEDICARE BENEFICIARY IMPROVEMENTS 
Subtitle A—Improving and Simplifying Financial Assistance 
for Low Income Medicare Beneficiaries 
Sec. 1201. Improving assets tests for Medicare Savings Pro-
gram and low-income subsidy program. 
Sec. 1202. Elimination of part D cost-sharing for certain non- 
institutionalized full-benefit dual eligible individ-
uals. 
Sec. 1203. Eliminating barriers to enrollment. 
Sec. 1204. Enhanced oversight relating to reimbursements for 
retroactive low income subsidy enrollment. 
Sec. 1205. Intelligent assignment in enrollment. 
Sec. 1206. Special enrollment period and automatic enrollment 
process for certain subsidy eligible individuals. 
Sec. 1207. Application of MA premiums prior to rebate in cal-
culation of low income subsidy benchmark. 
Subtitle B—Reducing Health Disparities 
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Sec. 1221. Ensuring effective communication in Medicare. 
Sec. 1222. Demonstration to promote access for Medicare bene-
ficiaries with limited English proficiency by pro-
viding reimbursement for culturally and linguis-
tically appropriate services. 
Sec. 1223. IOM report on impact of language access services. 
Sec. 1224. Definitions. 
Subtitle C—Miscellaneous Improvements 
Sec. 1231. Extension of therapy caps exceptions process. 
Sec. 1232. Extended months of coverage of immunosuppressive 
drugs for kidney transplant patients and other 
renal dialysis provisions. 
Sec. 1233. Advance care planning consultation. 
Sec. 1234. Part B special enrollment period and waiver of lim-
ited enrollment penalty for TRICARE bene-
ficiaries. 
Sec. 1235. Exception for use of more recent tax year in case of 
gains from sale of primary residence in com-
puting part B income-related premium. 
Sec. 1236. Demonstration program on use of patient decisions 
aids. 
TITLE III—PROMOTING PRIMARY CARE, MENTAL HEALTH 
SERVICES, AND COORDINATED CARE 
Sec. 1301. Accountable Care Organization pilot program. 
Sec. 1302. Medical home pilot program. 
Sec. 1303. Payment incentive for selected primary care serv-
ices. 
Sec. 1304. Increased reimbursement rate for certified nurse- 
midwives. 
Sec. 1305. Coverage and waiver of cost-sharing for preventive 
services. 
Sec. 1306. Waiver of deductible for colorectal cancer screening 
tests regardless of coding, subsequent diagnosis, 
or ancillary tissue removal. 
Sec. 1307. Excluding clinical social worker services from cov-
erage under the medicare skilled nursing facility 
prospective payment system and consolidated 
payment. 
Sec. 1308. Coverage of marriage and family therapist services 
and mental health counselor services. 
Sec. 1309. Extension of physician fee schedule mental health 
add-on. 
Sec. 1310. Expanding access to vaccines. 
Sec. 1311. Expansion of Medicare-Covered Preventive Services 
at Federally Qualified Health Centers. 
TITLE IV—QUALITY 
Subtitle A—Comparative Effectiveness Research 
Sec. 1401. Comparative effectiveness research. 
Subtitle B—Nursing Home Transparency 
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PART 1—IMPROVING TRANSPARENCY OF INFORMATION ON SKILLED 
NURSING FACILITIES AND NURSING FACILITIES 
Sec. 1411. Required disclosure of ownership and additional 
disclosable parties information. 
Sec. 1412. Accountability requirements. 
Sec. 1413. Nursing home compare Medicare website. 
Sec. 1414. Reporting of expenditures. 
Sec. 1415. Standardized complaint form. 
Sec. 1416. Ensuring staffing accountability. 
PART 2—TARGETING ENFORCEMENT 
Sec. 1421. Civil money penalties. 
Sec. 1422. National independent monitor pilot program. 
Sec. 1423. Notification of facility closure. 
PART 3—IMPROVING STAFF TRAINING 
Sec. 1431. Dementia and abuse prevention training. 
Sec. 1432. Study and report on training required for certified 
nurse aides and supervisory staff. 
Subtitle C—Quality Measurements 
Sec. 1441. Establishment of national priorities for quality im-
provement. 
Sec. 1442. Development of new quality measures; GAO evalua-
tion of data collection process for quality meas-
urement. 
Sec. 1443. Multi-stakeholder pre-rulemaking input into selec-
tion of quality measures. 
Sec. 1444. Application of quality measures. 
Sec. 1445. Consensus-based entity funding. 
Subtitle D—Physician Payments Sunshine Provision 
Sec. 1451. Reports on financial relationships between manufac-
turers and distributors of covered drugs, devices, 
biologicals, or medical supplies under Medicare, 
Medicaid, or CHIP and physicians and other 
health care entities and between physicians and 
other health care entities. 
Subtitle E—Public Reporting on Health Care-Associated 
Infections 
Sec. 1461. Requirement for public reporting by hospitals and 
ambulatory surgical centers on health care-asso-
ciated infections. 
TITLE V—MEDICARE GRADUATE MEDICAL EDUCATION 
Sec. 1501. Distribution of unused residency positions. 
Sec. 1502. Increasing training in nonprovider settings. 
Sec. 1503. Rules for counting resident time for didactic and 
scholarly activities and other activities. 
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Sec. 1504. Preservation of resident cap positions from closed 
hospitals. 
Sec. 1505. Improving accountability for approved medical resi-
dency training. 
TITLE VI—PROGRAM INTEGRITY 
Subtitle A—Increased Funding to Fight Waste, Fraud, and 
Abuse 
Sec. 1601. Increased funding and flexibility to fight fraud and 
abuse. 
Subtitle B—Enhanced Penalties for Fraud and Abuse 
Sec. 1611. Enhanced penalties for false statements on provider 
or supplier enrollment applications. 
Sec. 1612. Enhanced penalties for submission of false state-
ments material to a false claim. 
Sec. 1613. Enhanced penalties for delaying inspections. 
Sec. 1614. Enhanced hospice program safeguards. 
Sec. 1615. Enhanced penalties for individuals excluded from 
program participation. 
Sec. 1616. Enhanced penalties for provision of false informa-
tion by Medicare Advantage and part D plans. 
Sec. 1617. Enhanced penalties for Medicare Advantage and 
part D marketing violations. 
Sec. 1618. Enhanced penalties for obstruction of program au-
dits. 
Sec. 1619. Exclusion of certain individuals and entities from 
participation in Medicare and State health care 
programs. 
Subtitle C—Enhanced Program and Provider Protections 
Sec. 1631. Enhanced CMS program protection authority. 
Sec. 1632. Enhanced Medicare, Medicaid, and CHIP program 
disclosure requirements relating to previous af-
filiations. 
Sec. 1633. Required inclusion of payment modifier for certain 
evaluation and management services. 
Sec. 1634. Evaluations and reports required under Medicare 
Integrity Program. 
Sec. 1635. Require providers and suppliers to adopt programs 
to reduce waste, fraud, and abuse. 
Sec. 1636. Maximum period for submission of Medicare claims 
reduced to not more than 12 months. 
Sec. 1637. Physicians who order durable medical equipment or 
home health services required to be Medicare en-
rolled physicians or eligible professionals. 
Sec. 1638. Requirement for physicians to provide documenta-
tion on referrals to programs at high risk of waste 
and abuse. 
Sec. 1639. Face to face encounter with patient required before 
physicians may certify eligibility for home health 
services or durable medical equipment under 
Medicare. 
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Sec. 1640. Extension of testimonial subpoena authority to pro-
gram exclusion investigations. 
Sec. 1641. Required repayments of Medicare and Medicaid 
overpayments. 
Sec. 1642. Expanded application of hardship waivers for OIG 
exclusions to beneficiaries of any Federal health 
care program. 
Sec. 1643. Access to certain information on renal dialysis facili-
ties. 
Sec. 1644. Billing agents, clearinghouses, or other alternate 
payees required to register under Medicare. 
Sec. 1645. Conforming civil monetary penalties to False Claims 
Act amendments. 
Subtitle D—Access to Information Needed to Prevent Fraud, 
Waste, and Abuse 
Sec. 1651. Access to Information Necessary to Identify Fraud, 
Waste, and Abuse. 
Sec. 1652. Elimination of duplication between the Healthcare 
Integrity and Protection Data Bank and the Na-
tional Practitioner Data Bank. 
Sec. 1653. Compliance with HIPAA privacy and security stand-
ards. 
[FOR ITEMS RELATING TO TITLE VII OF DIVISION B, SEE 
COPY OF BILL AS INTRODUCED ON JULY 14, 2009] 
TITLE VIII—REVENUE-RELATED PROVISIONS 
Sec. 1801. Disclosures to facilitate identification of individuals 
likely to be ineligible for the low-income assist-
ance under the Medicare prescription drug pro-
gram to assist Social Security Administration’s 
outreach to eligible individuals. 
Sec. 1802. Comparative Effectiveness Research Trust Fund; fi-
nancing for Trust Fund. 
TITLE IX—MISCELLANEOUS PROVISIONS 
Sec. 1901. Repeal of trigger provision. 
Sec. 1902. Repeal of comparative cost adjustment (CCA) pro-
gram. 
Sec. 1903. Extension of gainsharing demonstration. 
Sec. 1904. Grants to States for quality home visitation pro-
grams for families with young children and fami-
lies expecting children. 
Sec. 1905. Improved coordination and protection for dual eligi-
bles. 
Sec. 1906. Assessment of Medicare cost-intensive diseases and 
conditions. 
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‘‘(V) for fiscal year 2010, 
the rate computed for the pre-
vious fiscal year; and’’. 
(b) DELAYED
EFFECTIVE
DATE.—Section 
1888(e)(4)(E)(ii)(V) of the Social Security Act, 
as inserted by subsection (a)(3), shall not 
apply to payment for days before January 1, 
2010. 
SEC. 1102. INPATIENT REHABILITATION FACILITY PAY-
MENT UPDATE. 
(a) IN GENERAL.—Section 1886(j)(3)(C) of 
the 
Social 
Security 
Act 
(42 
U.S.C. 
1395ww(j)(3)(C)) is amended by striking ‘‘and 
2009’’ and inserting ‘‘through 2010’’. 
(b) 
DELAYED
EFFECTIVE
DATE.—The 
amendment made by subsection (a) shall not 
apply to payment units occurring before Jan-
uary 1, 2010. 
SEC. 
1103. 
INCORPORATING 
PRODUCTIVITY 
IMPROVE-
MENTS 
INTO 
MARKET 
BASKET 
UPDATES 
THAT DO NOT ALREADY INCORPORATE SUCH 
IMPROVEMENTS. 
(a) INPATIENT ACUTE HOSPITALS.—Section 
1886(b)(3)(B) of the Social Security Act (42 
U.S.C. 1395ww(b)(3)(B)) is amended— 
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(1) in clause (iii)— 
(A) by striking ‘‘(iii) For purposes 
of this subparagraph,’’ and inserting 
‘‘(iii)(I) For purposes of this subpara-
graph, subject to the productivity ad-
justment described in subclause (II),’’; 
and 
(B) by adding at the end the fol-
lowing new subclause: 
‘‘(II) The productivity adjustment de-
scribed in this subclause, with respect to an 
increase or change for a fiscal year or year or 
cost reporting period, or other annual period, 
is a productivity offset equal to the percent-
age change in the 10-year moving average of 
annual economy-wide private nonfarm busi-
ness multi-factor productivity (as recently 
published before the promulgation of such in-
crease for the year or period involved). Ex-
cept as otherwise provided, any reference to 
the increase described in this clause shall be 
a reference to the percentage increase de-
scribed in subclause (I) minus the percentage 
change under this subclause.’’; 
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(2) in the first sentence of clause 
(viii)(I), by inserting ‘‘(but not below 
zero)’’ after ‘‘shall be reduced’’; and 
(3) in the first sentence of clause 
(ix)(I)— 
(A) 
by 
inserting 
‘‘(determined 
without regard to clause (iii)(II)’’ 
after ‘‘clause (i)’’ the second time it 
appears; and 
(B) by inserting ‘‘(but not below 
zero)’’ after ‘‘reduced’’. 
(b) SKILLED NURSING FACILITIES.—Section 
1888(e)(5)(B) 
of 
such 
Act 
(42 
U.S.C. 
1395yy(e)(5))(B) is amended by inserting ‘‘sub-
ject to the productivity adjustment described 
in section 1886(b)(3)(B)(iii)(II)’’ after ‘‘as cal-
culated by the Secretary’’. 
(c) LONG TERM CARE HOSPITALS.—Section 
1886(m) of the Social Security Act (42 U.S.C. 
1395ww(m)) is amended by adding at the end 
the following new paragraph: 
‘‘(3) 
PRODUCTIVITY
ADJUSTMENT.—In 
implementing the system described in 
paragraph (1) for discharges occurring 
during the rate year ending in 2010 or 
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any subsequent rate year for a hospital, 
to the extent that an annual percentage 
increase factor applies to a base rate for 
such discharges for the hospital, such 
factor shall be subject to the productivity 
adjustment 
described 
in 
subsection 
(b)(3)(B)(iii)(II).’’. 
(d) 
INPATIENT
REHABILITATION
FACILI-
TIES.—The 
second 
sentence 
of 
section 
1886(j)(3)(C) of the Social Security Act (42 
U.S.C. 1395ww(j)(3)(C)) is amended by insert-
ing ‘‘(subject to the productivity adjustment 
described 
in 
subsection 
(b)(3)(B)(iii)(II))’’ 
after ‘‘appropriate percentage increase’’. 
(e) PSYCHIATRIC HOSPITALS.—Section 1886 
of the Social Security Act (42 U.S.C. 1395ww) 
is amended by adding at the end the following 
new subsection: 
‘‘(o) 
PROSPECTIVE
PAYMENT
FOR
PSY-
CHIATRIC HOSPITALS.— 
‘‘(1) REFERENCE TO ESTABLISHMENT AND 
IMPLEMENTATION
OF
SYSTEM.—For provi-
sions related to the establishment and 
implementation of a prospective payment 
system for payments under this title for 
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inpatient hospital services furnished by 
psychiatric hospitals (as described in 
clause (i) of subsection (d)(1)(B) and psy-
chiatric units (as described in the matter 
following clause (v) of such subsection), 
see section 124 of the Medicare, Medicaid, 
and SCHIP Balanced Budget Refinement 
Act of 1999. 
‘‘(2) 
PRODUCTIVITY
ADJUSTMENT.—In 
implementing the system described in 
paragraph (1) for discharges occurring 
during the rate year ending in 2011 or 
any subsequent rate year for a psy-
chiatric hospital or unit described in 
such paragraph, to the extent that an an-
nual percentage increase factor applies 
to a base rate for such discharges for the 
hospital or unit, respectively, such factor 
shall be subject to the productivity ad-
justment 
described 
in 
subsection 
(b)(3)(B)(iii)(II).’’. 
(f) HOSPICE CARE.—Subclause (VII) of sec-
tion 1814(i)(1)(C)(ii) of the Social Security Act 
(42 U.S.C. 1395f(i)(1)(C)(ii)) is amended by in-
serting after ‘‘the market basket percentage 
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increase’’ the following: ‘‘(which is subject to 
the productivity adjustment described in sec-
tion 1886(b)(3)(B)(iii)(II))’’. 
(g) EFFECTIVE
DATE.—The amendments 
made by subsections (a), (b), (d), and (f) shall 
apply to annual increases effected for fiscal 
years beginning with fiscal year 2010. 
PART 2—OTHER MEDICARE PART A PROVISIONS 
SEC. 1111. PAYMENTS TO SKILLED NURSING FACILITIES. 
(a) CHANGE IN RECALIBRATION FACTOR.— 
(1) 
ANALYSIS.—The 
Secretary 
of 
Health and Human Services shall con-
duct, using calendar year 2006 claims 
data, an initial analysis comparing total 
payments under title XVIII of the Social 
Security Act for skilled nursing facility 
services under the RUG–53 and under the 
RUG–44 classification systems. 
(2) ADJUSTMENT IN RECALIBRATION FAC-
TOR.—Based on the initial analysis under 
paragraph (1), the Secretary shall adjust 
the case mix indexes under section 
1888(e)(4)(G)(i) of the Social Security Act 
(42 U.S.C. 1395yy(e)(4)(G)(i)) for fiscal 
year 2010 by the appropriate recalibra-
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tion factor as proposed in the proposed 
rule for Medicare skilled nursing facili-
ties issued by such Secretary on May 12, 
2009 (74 Federal Register 22214 et seq.). 
(b) CHANGE IN PAYMENT FOR NONTHERAPY 
ANCILLARY (NTA) SERVICES AND THERAPY SERV-
ICES.— 
(1) CHANGES UNDER CURRENT SNF CLAS-
SIFICATION SYSTEM.— 
(A) IN
GENERAL.—Subject to sub-
paragraph 
(B), 
the 
Secretary 
of 
Health and Human Services shall, 
under the system for payment of 
skilled nursing facility services under 
section 1888(e) of the Social Security 
Act (42 U.S.C. 1395yy(e)), increase 
payment by 10 percent for non-ther-
apy ancillary services (as specified by 
the Secretary in the notice issued on 
November 27, 1998 (63 Federal Reg-
ister 65561 et seq.)) and shall de-
crease payment for the therapy case 
mix component of such rates by 5.5 
percent. 
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(B) EFFECTIVE DATE.—The changes 
in payment described in subpara-
graph (A) shall apply for days on or 
after January 1, 2010, and until the 
Secretary implements an alternative 
case mix classification system for 
payment of skilled nursing facility 
services under section 1888(e) of the 
Social 
Security 
Act 
(42 
U.S.C. 
1395yy(e)). 
(C) 
IMPLEMENTATION.—Notwith-
standing any other provision of law, 
the Secretary may implement by pro-
gram instruction or otherwise the 
provisions of this paragraph. 
(2) CHANGES UNDER A FUTURE SNF CASE 
MIX CLASSIFICATION SYSTEM.— 
(A) ANALYSIS.— 
(i) IN GENERAL.—The Secretary 
of Health and Human Services 
shall analyze payments for non- 
therapy ancillary services under 
a future skilled nursing facility 
classification system to ensure 
the accuracy of payment for non- 
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therapy ancillary services. Such 
analysis shall consider use of ap-
propriate predictors which may 
include age, physical and mental 
status, ability to perform activi-
ties of daily living, prior nursing 
home stay, diagnoses, broad RUG 
category, and a proxy for length 
of stay. 
(ii) APPLICATION.—Such anal-
ysis shall be conducted in a man-
ner such that the future skilled 
nursing facility classification sys-
tem is implemented to apply to 
services furnished during a fiscal 
year beginning with fiscal year 
2011. 
(B) CONSULTATION.—In conducting 
the analysis under subparagraph (A), 
the Secretary shall consult with inter-
ested parties, including the Medicare 
Payment Advisory Commission and 
other 
interested 
stakeholders, 
to 
identify 
appropriate 
predictors 
of 
nontherapy ancillary costs. 
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(C) RULEMAKING.—The Secretary 
shall include the result of the anal-
ysis under subparagraph (A) in the 
fiscal year 2011 rulemaking cycle for 
purposes of implementation begin-
ning for such fiscal year. 
(D) IMPLEMENTATION.—Subject to 
subparagraph (E) and consistent with 
subparagraph (A)(ii), the Secretary 
shall implement changes to payments 
for non-therapy ancillary services 
(which shall include a separate rate 
component for non-therapy ancillary 
services and may include use of a 
model that predicts payment amounts 
applicable for non-therapy ancillary 
services) under such future skilled 
nursing facility services classification 
system as the Secretary determines 
appropriate based on the analysis 
conducted pursuant to subparagraph 
(A). 
(E) BUDGET NEUTRALITY.—The Sec-
retary shall implement changes de-
scribed in subparagraph (D) in a 
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manner such that the estimated ex-
penditures under such future skilled 
nursing facility services classification 
system for a fiscal year beginning 
with 
fiscal 
year 
2011 
with 
such 
changes would be equal to the esti-
mated expenditures that would other-
wise occur under title XVIII of the So-
cial Security Act under such future 
skilled nursing facility services classi-
fication system for such year without 
such changes. 
(c) OUTLIER POLICY FOR NTA AND THER-
APY.—Section 1888(e) of the Social Security 
Act (42 U.S.C. 1395yy(e)) is amended by add-
ing at the end the following new paragraph: 
‘‘(13) OUTLIERS
FOR
NTA
AND
THER-
APY.— 
‘‘(A) IN GENERAL.—With respect to 
outliers because of unusual vari-
ations in the type or amount of medi-
cally necessary care, beginning with 
October 1, 2010, the Secretary— 
‘‘(i) shall provide for an addi-
tion or adjustment to the pay-
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ment 
amount 
otherwise 
made 
under this section with respect to 
non-therapy ancillary services in 
the case of such outliers; and 
‘‘(ii) may provide for such an 
addition or adjustment to the 
payment amount otherwise made 
under this section with respect to 
therapy services in the case of 
such outliers. 
‘‘(B) OUTLIERS
BASED
ON
AGGRE-
GATE
COSTS.—Outlier adjustments or 
additional 
payments 
described 
in 
subparagraph (A) shall be based on 
aggregate costs during a stay in a 
skilled nursing facility and not on the 
number of days in such stay. 
‘‘(C) 
BUDGET
NEUTRALITY.—The 
Secretary shall reduce estimated pay-
ments that would otherwise be made 
under the prospective payment sys-
tem under this subsection with re-
spect to a fiscal year by 2 percent. 
The total amount of the additional 
payments or payment adjustments for 
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outliers made under this paragraph 
with respect to a fiscal year may not 
exceed 2 percent of the total pay-
ments projected or estimated to be 
made based on the prospective pay-
ment system under this subsection 
for the fiscal year.’’. 
(d) 
CONFORMING
AMENDMENTS.—Section 
1888(e)(8) of such Act (42 U.S.C. 1395yy(e)(8)) 
is amended— 
(1) in subparagraph (A)— 
(A) by striking ‘‘and’’ before ‘‘ad-
justments’’; and 
(B) by inserting ‘‘, and adjustment 
under section 1111(b) of the America’s 
Affordable Health Choices Act of 
2009’’ before the semicolon at the end; 
(2) in subparagraph (B), by striking 
‘‘and’’; 
(3) in subparagraph (C), by striking 
the period and inserting ‘‘; and’’; and 
(4) by adding at the end the following 
new subparagraph: 
‘‘(D) the establishment of outliers 
under paragraph (13).’’. 
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SEC. 1112. MEDICARE DSH REPORT AND PAYMENT ADJUST-
MENTS IN RESPONSE TO COVERAGE EXPAN-
SION. 
(a) DSH REPORT.— 
(1) IN GENERAL.—Not later than Janu-
ary 1, 2016, the Secretary of Health and 
Human Services shall submit to Congress 
a report on Medicare DSH taking into ac-
count the impact of the health care re-
forms carried out under division A in re-
ducing the number of uninsured individ-
uals. 
The 
report 
shall 
include 
rec-
ommendations relating to the following: 
(A) The appropriate amount, tar-
geting, and distribution of Medicare 
DSH to compensate for higher Medi-
care costs associated with serving 
low-income beneficiaries (taking into 
account variations in the empirical 
justification for Medicare DSH attrib-
utable to hospital characteristics, in-
cluding bed size), consistent with the 
original intent of Medicare DSH. 
(B) The appropriate amount, tar-
geting, and distribution of Medicare 
DSH to hospitals given their contin-
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ued uncompensated care costs, to the 
extent such costs remain. 
(2) COORDINATION WITH MEDICAID DSH 
REPORT.—The Secretary shall coordinate 
the report under this subsection with the 
report on Medicaid DSH under section 
1704(a). 
(b) PAYMENT ADJUSTMENTS IN RESPONSE TO 
COVERAGE EXPANSION.— 
(1) IN GENERAL.—If there is a signifi-
cant decrease in the national rate of 
uninsurance as a result of this Act (as de-
termined under paragraph (2)(A)), then 
the Secretary of Health and Human Serv-
ices shall, beginning in fiscal year 2017, 
implement the following adjustments to 
Medicare DSH: 
(A) In lieu of the amount of Medi-
care DSH payment that would other-
wise 
be 
made 
under 
section 
1886(d)(5)(F) of the Social Security 
Act, the amount of Medicare DSH 
payment shall be an amount based on 
the recommendations of the report 
under subsection (a)(1)(A) and shall 
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take into account variations in the 
empirical justification for Medicare 
DSH attributable to hospital charac-
teristics, including bed size. 
(B) 
Subject 
to 
paragraph 
(3), 
make an additional payment to a hos-
pital by an amount that is estimated 
based on the amount of uncompen-
sated care provided by the hospital 
based on criteria for uncompensated 
care as determined by the Secretary, 
which shall exclude bad debt. 
(2) SIGNIFICANT DECREASE IN NATIONAL 
RATE OF UNINSURANCE AS A RESULT OF THIS 
ACT.—For purposes of this subsection— 
(A) IN GENERAL.—There is a ‘‘sig-
nificant decrease in the national rate 
of uninsurance as a result of this Act’’ 
if there is a decrease in the national 
rate of uninsurance (as defined in 
subparagraph (B)) from 2012 to 2014 
that exceeds 8 percentage points. 
(B) 
NATIONAL
RATE
OF 
UNINSURANCE DEFINED.—The term ‘‘na-
tional rate of uninsurance’’ means, for 
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a year, such rate for the under-65 
population for the year as determined 
and published by the Bureau of the 
Census in its Current Population Sur-
vey in or about September of the suc-
ceeding year. 
(3) UNCOMPENSATED CARE INCREASE.— 
(A) COMPUTATION
OF
DSH
SAV-
INGS.—For each fiscal year (beginning 
with fiscal year 2017), the Secretary 
shall estimate the aggregate reduc-
tion in the amount of Medicare DSH 
payment that would be expected to 
result from the adjustment under 
paragraph (1)(A). 
(B) STRUCTURE
OF
PAYMENT
IN-
CREASE.—The Secretary shall compute 
the additional payment to a hospital 
as described in paragraph (1)(B) for a 
fiscal year in accordance with a for-
mula established by the Secretary 
that provides that— 
(i) the estimated aggregate 
amount of such increase for the 
fiscal year does not exceed 50 per-
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cent of the aggregate reduction in 
Medicare DSH estimated by the 
Secretary for such fiscal year; and 
(ii) hospitals with higher lev-
els of uncompensated care receive 
a greater increase. 
(c) MEDICARE DSH.—In this section, the 
term ‘‘Medicare DSH’’ means adjustments in 
payments under section 1886(d)(5)(F) of the 
Social 
Security 
Act 
(42 
U.S.C. 
1395ww(d)(5)(F)) for inpatient hospital serv-
ices furnished by disproportionate share hos-
pitals. 
SEC. 1113. EXTENSION OF HOSPICE REGULATION MORATO-
RIUM. 
Section 4301(a) of division B of the Amer-
ican Recovery and Reinvestment Act of 2009 
(Public Law 111–5) is amended— 
(1) by striking ‘‘October 1, 2009’’ and 
inserting ‘‘October 1, 2010’’; and 
(2) by striking ‘‘for fiscal year 2009’’ 
and inserting ‘‘for fiscal years 2009 and 
2010’’. 
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Subtitle B—Provisions Related to 
Part B 
PART 1—PHYSICIANS’ SERVICES 
SEC. 1121. SUSTAINABLE GROWTH RATE REFORM. 
(a) TRANSITIONAL UPDATE FOR 2010.—Sec-
tion 1848(d) of the Social Security Act (42 
U.S.C. 1395w–4(d)) is amended by adding at 
the end the following new paragraph: 
‘‘(10) UPDATE FOR 2010.—The update to 
the single conversion factor established 
in paragraph (1)(C) for 2010 shall be the 
percentage increase in the MEI (as de-
fined in section 1842(i)(3)) for that year.’’. 
(b) REBASING SGR USING 2009; LIMITATION 
ON CUMULATIVE ADJUSTMENT PERIOD.—Section 
1848(d)(4) of such Act (42 U.S.C. 1395w–4(d)(4)) 
is amended— 
(1) in subparagraph (B), by striking 
‘‘subparagraph (D)’’ and inserting ‘‘sub-
paragraphs (D) and (G)’’; and 
(2) by adding at the end the following 
new subparagraph: 
‘‘(G) REBASING USING 2009 FOR FU-
TURE UPDATE ADJUSTMENTS.—In deter-
mining the update adjustment factor 
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under subparagraph (B) for 2011 and 
subsequent years— 
‘‘(i) the allowed expenditures 
for 2009 shall be equal to the 
amount of the actual expendi-
tures for physicians’ services dur-
ing 2009; and 
‘‘(ii) the reference in subpara-
graph (B)(ii)(I) to ‘April 1, 1996’ 
shall be treated as a reference to 
‘January 1, 2009 (or, if later, the 
first day of the fifth year before 
the year involved)’.’’. 
(c) LIMITATION ON PHYSICIANS’ SERVICES IN-
CLUDED IN TARGET GROWTH RATE COMPUTATION 
TO SERVICES COVERED UNDER PHYSICIAN FEE 
SCHEDULE.—Effective for services furnished 
on 
or 
after 
January 
1, 
2009, 
section 
1848(f)(4)(A) of such Act is amended by strik-
ing ‘‘(such as clinical’’ and all that follows 
through ‘‘in a physician’s office’’ and inserting 
‘‘for which payment under this part is made 
under the fee schedule under this section, for 
services for practitioners described in section 
1842(b)(18)(C) on a basis related to such fee 
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schedule, or for services described in section 
1861(p) (other than such services when fur-
nished in the facility of a provider of serv-
ices)’’. 
(d) ESTABLISHMENT
OF SEPARATE TARGET 
GROWTH RATES FOR CATEGORIES OF SERVICES.— 
(1) ESTABLISHMENT
OF
SERVICE
CAT-
EGORIES.—Subsection (j) of section 1848 of 
the Social Security Act (42 U.S.C. 1395w– 
4) is amended by adding at the end the 
following new paragraph: 
‘‘(5) SERVICE
CATEGORIES.—For serv-
ices furnished on or after January 1, 
2009, each of the following categories of 
physicians’ services (as defined in para-
graph (3)) shall be treated as a separate 
‘service category’: 
‘‘(A) Evaluation and management 
services that are procedure codes (for 
services covered under this title) 
for— 
‘‘(i) services in the category 
designated Evaluation and Man-
agement in the Health Care Com-
mon Procedure Coding System 
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(established 
by 
the 
Secretary 
under subsection (c)(5) as of De-
cember 31, 2009, and as subse-
quently modified by the Sec-
retary); and 
‘‘(ii) preventive services (as 
defined in section 1861(iii)) for 
which payment is made under 
this section. 
‘‘(B) All other services not de-
scribed in subparagraph (A). 
Service categories established under this 
paragraph shall apply without regard to 
the specialty of the physician furnishing 
the service.’’. 
(2) ESTABLISHMENT OF SEPARATE CON-
VERSION FACTORS FOR EACH SERVICE CAT-
EGORY.—Subsection (d)(1) of section 1848 
of the Social Security Act (42 U.S.C. 
1395w–4) is amended— 
(A) in subparagraph (A)— 
(i) by designating the sen-
tence beginning ‘‘The conversion 
factor’’ as clause (i) with the 
heading ‘‘APPLICATION
OF
SINGLE 
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CONVERSION
FACTOR.—’’ and with 
appropriate indentation; 
(ii) by striking ‘‘The conver-
sion factor’’ and inserting ‘‘Sub-
ject to clause (ii), the conversion 
factor’’; and 
(iii) by adding at the end the 
following new clause: 
‘‘(ii) APPLICATION OF MULTIPLE 
CONVERSION
FACTORS
BEGINNING 
WITH 2011.— 
‘‘(I) IN GENERAL.—In apply-
ing clause (i) for years begin-
ning with 2011, separate con-
version factors shall be estab-
lished for each service cat-
egory of physicians’ services 
(as 
defined 
in 
subsection 
(j)(5)) and any reference in 
this section to a conversion 
factor for such years shall be 
deemed to be a reference to 
the conversion factor for each 
of such categories. 
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‘‘(II) 
INITIAL
CONVERSION 
FACTORS.—Such 
factors 
for 
2011 shall be based upon the 
single conversion factor for 
the previous year multiplied 
by 
the 
update 
established 
under paragraph (11) for such 
category for 2011. 
‘‘(III) UPDATING OF CONVER-
SION FACTORS.—Such factor for 
a service category for a subse-
quent year shall be based 
upon the conversion factor 
for such category for the pre-
vious year and adjusted by 
the 
update 
established 
for 
such category under para-
graph (11) for the year in-
volved.’’; and 
(B) in subparagraph (D), by strik-
ing ‘‘other physicians’ services’’ and 
inserting ‘‘for physicians’ services de-
scribed in the service category de-
scribed in subsection (j)(5)(B)’’. 
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(3) ESTABLISHING UPDATES FOR CONVER-
SION FACTORS FOR SERVICE CATEGORIES.— 
Section 1848(d) of the Social Security Act 
(42 U.S.C. 1395w–4(d)), as amended by 
subsection (a), is amended— 
(A) in paragraph (4)(C)(iii), by 
striking ‘‘The allowed’’ and inserting 
‘‘Subject to paragraph (11)(B), the al-
lowed’’; and 
(B) by adding at the end the fol-
lowing new paragraph: 
‘‘(11) UPDATES FOR SERVICE CATEGORIES 
BEGINNING WITH 2011.— 
‘‘(A) 
IN
GENERAL.—In 
applying 
paragraph (4) for a year beginning 
with 2011, the following rules apply: 
‘‘(i) APPLICATION
OF
SEPARATE 
UPDATE
ADJUSTMENTS
FOR
EACH 
SERVICE
CATEGORY.—Pursuant to 
paragraph (1)(A)(ii)(I), the update 
shall be made to the conversion 
factor for each service category 
(as defined in subsection (j)(5)) 
based upon an update adjustment 
factor for the respective category 
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and year and the update adjust-
ment factor shall be computed, 
for a year, separately for each 
service category. 
‘‘(ii) COMPUTATION OF ALLOWED 
AND
ACTUAL
EXPENDITURES
BASED 
ON
SERVICE
CATEGORIES.—In com-
puting the prior year adjustment 
component and the cumulative 
adjustment 
component 
under 
clauses (i) and (ii) of paragraph 
(4)(B), the following rules apply: 
‘‘(I) APPLICATION BASED ON 
SERVICE
CATEGORIES.—The al-
lowed expenditures and ac-
tual expenditures shall be the 
allowed and actual expendi-
tures for the service category, 
as determined under subpara-
graph (B). 
‘‘(II) APPLICATION
OF
CAT-
EGORY
SPECIFIC
TARGET 
GROWTH
RATE.—The 
growth 
rate 
applied 
under 
clause 
(ii)(II) of such paragraph shall 
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be the target growth rate for 
the service category involved 
under subsection (f)(5). 
‘‘(B) DETERMINATION
OF
ALLOWED 
EXPENDITURES.—In 
applying 
para-
graph (4) for a year beginning with 
2010, notwithstanding subparagraph 
(C)(iii) of such paragraph, the al-
lowed expenditures for a service cat-
egory for a year is an amount com-
puted by the Secretary as follows: 
‘‘(i) FOR 2010.—For 2010: 
‘‘(I) TOTAL 2009 ACTUAL EX-
PENDITURES FOR ALL SERVICES 
INCLUDED IN SGR COMPUTATION 
FOR EACH SERVICE CATEGORY.— 
Compute total actual expendi-
tures for physicians’ services 
(as 
defined 
in 
subsection 
(f)(4)(A)) for 2009 for each 
service category. 
‘‘(II) INCREASE BY GROWTH 
RATE TO OBTAIN 2010 ALLOWED 
EXPENDITURES
FOR
SERVICE 
CATEGORY.—Compute allowed 
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expenditures for the service 
category for 2010 by increas-
ing the allowed expenditures 
for the service category for 
2009 
computed 
under 
sub-
clause (I) by the target growth 
rate for such service category 
under subsection (f) for 2010. 
‘‘(ii) FOR SUBSEQUENT YEARS.— 
For a subsequent year, take the 
amount of allowed expenditures 
for such category for the pre-
ceding year (under clause (i) or 
this clause) and increase it by the 
target growth rate determined 
under subsection (f) for such cat-
egory and year.’’. 
(4) APPLICATION
OF
SEPARATE
TARGET 
GROWTH RATES FOR EACH CATEGORY.— 
(A) IN GENERAL.—Section 1848(f) of 
the Social Security Act (42 U.S.C. 
1395w–4(f)) is amended by adding at 
the end the following new paragraph: 
‘‘(5) APPLICATION OF SEPARATE TARGET 
GROWTH
RATES
FOR
EACH
SERVICE
CAT-
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EGORY
BEGINNING
WITH
2010.—The target 
growth rate for a year beginning with 
2010 shall be computed and applied sepa-
rately under this subsection for each 
service category (as defined in subsection 
(j)(5)) and shall be computed using the 
same method for computing the target 
growth rate except that the factor de-
scribed in paragraph (2)(C) for— 
‘‘(A) 
the 
service 
category 
de-
scribed in subsection (j)(5)(A) shall be 
increased by 0.02; and 
‘‘(B) 
the 
service 
category 
de-
scribed in subsection (j)(5)(B) shall be 
increased by 0.01.’’. 
(B) 
USE
OF
TARGET
GROWTH 
RATES.—Section 1848 of such Act is 
further amended— 
(i) in subsection (d)— 
(I) in paragraph (1)(E)(ii), 
by inserting ‘‘or target’’ after 
‘‘sustainable’’; and 
(II) 
in 
paragraph 
(4)(B)(ii)(II), by inserting ‘‘or 
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target’’ 
after 
‘‘sustainable’’; 
and 
(ii) in the heading of sub-
section (f), by inserting ‘‘AND TAR-
GET GROWTH RATE’’ after ‘‘SUSTAIN-
ABLE GROWTH RATE’’; 
(iii) in subsection (f)(1)— 
(I) by striking ‘‘and’’ at the 
end of subparagraph (A); 
(II) in subparagraph (B), 
by 
inserting 
‘‘before 
2010’’ 
after ‘‘each succeeding year’’ 
and by striking the period at 
the end and inserting ‘‘; and’’; 
and 
(III) by adding at the end 
the following new subpara-
graph: 
‘‘(C) November 1 of each suc-
ceeding year the target growth rate 
for such succeeding year and each of 
the 2 preceding years.’’; and 
(iv) in subsection (f)(2), in the 
matter before subparagraph (A), 
by inserting after ‘‘beginning with 
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2000’’ the following: ‘‘and ending 
with 2009’’. 
(e) APPLICATION TO ACCOUNTABLE CARE OR-
GANIZATION PILOT PROGRAM.—In applying the 
target growth rate under subsections (d) and 
(f) of section 1848 of the Social Security Act 
to services furnished by a practitioner to 
beneficiaries who are attributable to an ac-
countable care organization under the pilot 
program provided under section 1866D of 
such Act, the Secretary of Health and Human 
Services shall develop, not later than January 
1, 2012, for application beginning with 2012, 
a method that— 
(1) allows each such organization to 
have its own expenditure targets and up-
dates for such practitioners, with respect 
to beneficiaries who are attributable to 
that organization, that are consistent 
with the methodologies described in such 
subsection (f); and 
(2) provides that the target growth 
rate applicable to other physicians shall 
not apply to such physicians to the extent 
that the physicians’ services are fur-
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nished through the accountable care or-
ganization. 
In applying paragraph (1), the Secretary of 
Health and Human Services may apply the 
difference in the update under such para-
graph on a claim-by-claim or lump sum basis 
and such a payment shall be taken into ac-
count under the pilot program. 
SEC. 1122. MISVALUED CODES UNDER THE PHYSICIAN FEE 
SCHEDULE. 
(a) IN GENERAL.—Section 1848(c)(2) of the 
Social Security Act (42 U.S.C. 1395w-4(c)(2)) is 
amended by adding at the end the following 
new subparagraphs: 
‘‘(K) 
POTENTIALLY
MISVALUED 
CODES.— 
‘‘(i) 
IN
GENERAL.—The 
Sec-
retary shall— 
‘‘(I) periodically identify 
services as being potentially 
misvalued using criteria spec-
ified in clause (ii); and 
‘‘(II) review and make ap-
propriate adjustments to the 
relative 
values 
established 
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under this paragraph for serv-
ices identified as being poten-
tially misvalued under sub-
clause (I). 
‘‘(ii) IDENTIFICATION OF POTEN-
TIALLY
MISVALUED
CODES.—For 
purposes of identifying poten-
tially misvalued services pursu-
ant to clause (i)(I), the Secretary 
shall examine (as the Secretary 
determines 
to 
be 
appropriate) 
codes (and families of codes as ap-
propriate) for which there has 
been the fastest growth; codes 
(and families of codes as appro-
priate) 
that 
have 
experienced 
substantial changes in practice 
expenses; codes for new tech-
nologies or services within an ap-
propriate period (such as three 
years) after the relative values 
are initially established for such 
codes; multiple codes that are fre-
quently billed in conjunction with 
furnishing a single service; codes 
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with low relative values, particu-
larly those that are often billed 
multiple times for a single treat-
ment; codes which have not been 
subject to review since the imple-
mentation of the RBRVS (the so- 
called 
‘Harvard-valued 
codes’); 
and such other codes determined 
to be appropriate by the Sec-
retary. 
‘‘(iii) 
REVIEW
AND
ADJUST-
MENTS.— 
‘‘(I) The Secretary may 
use existing processes to re-
ceive recommendations on the 
review and appropriate ad-
justment 
of 
potentially 
misvalued services described 
clause (i)(II). 
‘‘(II) The Secretary may 
conduct surveys, other data 
collection activities, studies, 
or other analyses as the Sec-
retary determines to be ap-
propriate to facilitate the re-
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view and appropriate adjust-
ment 
described 
in 
clause 
(i)(II). 
‘‘(III) The Secretary may 
use analytic contractors to 
identify and analyze services 
identified under clause (i)(I), 
conduct 
surveys 
or 
collect 
data, and make recommenda-
tions on the review and ap-
propriate adjustment of serv-
ices described in clause (i)(II). 
‘‘(IV) The Secretary may 
coordinate the review and ap-
propriate 
adjustment 
de-
scribed in clause (i)(II) with 
the periodic review described 
in subparagraph (B). 
‘‘(V) As part of the review 
and adjustment described in 
clause (i)(II), including with 
respect to codes with low rel-
ative 
values 
described 
in 
clause (ii), the Secretary may 
make appropriate coding revi-
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sions (including using exist-
ing processes for consider-
ation 
of 
coding 
changes) 
which may include consolida-
tion 
of 
individual 
services 
into bundled codes for pay-
ment under the fee schedule 
under subsection (b). 
‘‘(VI) The provisions of 
subparagraph (B)(ii)(II) shall 
apply to adjustments to rel-
ative value units made pursu-
ant to this subparagraph in 
the same manner as such pro-
visions apply to adjustments 
under 
subparagraph 
(B)(ii)(II). 
‘‘(L) VALIDATING
RELATIVE
VALUE 
UNITS.— 
‘‘(i) 
IN
GENERAL.—The 
Sec-
retary shall establish a process to 
validate 
relative 
value 
units 
under the fee schedule under sub-
section (b). 
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‘‘(ii) 
COMPONENTS
AND
ELE-
MENTS OF WORK.—The process de-
scribed in clause (i) may include 
validation of work elements (such 
as time, mental effort and profes-
sional judgment, technical skill 
and physical effort, and stress 
due to risk) involved with fur-
nishing a service and may include 
validation of the pre, post, and 
intra-service components of work. 
‘‘(iii) SCOPE
OF
CODES.—The 
validation of work relative value 
units shall include a sampling of 
codes for services that is the same 
as the codes listed under subpara-
graph (K)(ii) 
‘‘(iv) METHODS.—The Secretary 
may conduct the validation under 
this subparagraph using methods 
described 
in 
subclauses 
(I) 
through 
(V) 
of 
subparagraph 
(K)(iii) as the Secretary deter-
mines to be appropriate. 
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‘‘(v) ADJUSTMENTS.—The Sec-
retary shall make appropriate ad-
justments to the work relative 
value units under the fee sched-
ule under subsection (b). The pro-
visions of subparagraph (B)(ii)(II) 
shall apply to adjustments to rel-
ative value units made pursuant 
to this subparagraph in the same 
manner as such provisions apply 
to adjustments under subpara-
graph (B)(ii)(II).’’. 
(b) IMPLEMENTATION.— 
(1) FUNDING.—For purposes of car-
rying out the provisions of subpara-
graphs (K) and (L) of 1848(c)(2) of the So-
cial Security Act, as added by subsection 
(a), in addition to funds otherwise avail-
able, out of any funds in the Treasury not 
otherwise appropriated, there are appro-
priated to the Secretary of Health and 
Human Services for the Center for Medi-
care & Medicaid Services Program Man-
agement Account $20,000,000 for fiscal 
year 2010 and each subsequent fiscal 
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year. Amounts appropriated under this 
paragraph for a fiscal year shall be avail-
able until expended. 
(2) ADMINISTRATION.— 
(A) Chapter 35 of title 44, United 
States Code and the provisions of the 
Federal Advisory Committee Act (5 
U.S.C. App.) shall not apply to this 
section or the amendment made by 
this section. 
(B) Notwithstanding any other 
provision of law, the Secretary may 
implement subparagraphs (K) and (L) 
of 1848(c)(2) of the Social Security 
Act, as added by subsection (a), by 
program instruction or otherwise. 
(C) Section 4505(d) of the Bal-
anced Budget Act of 1997 is repealed. 
(D) Except for provisions related 
to confidentiality of information, the 
provisions of the Federal Acquisition 
Regulation shall not apply to this sec-
tion or the amendment made by this 
section. 
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(3) FOCUSING
CMS
RESOURCES
ON
PO-
TENTIALLY
OVERVALUED
CODES.—Section 
1868(a) of the Social Security Act (42 
1395ee(a)) is repealed. 
SEC. 1123. PAYMENTS FOR EFFICIENT AREAS. 
Section 1833 of the Social Security Act (42 
U.S.C. 1395l) is amended by adding at the end 
the following new subsection: 
‘‘(x) INCENTIVE PAYMENTS
FOR EFFICIENT 
AREAS.— 
‘‘(1) IN GENERAL.—In the case of serv-
ices furnished under the physician fee 
schedule under section 1848 on or after 
January 1, 2011, and before January 1, 
2013, by a supplier that is paid under 
such fee schedule in an efficient area (as 
identified under paragraph (2)), in addi-
tion to the amount of payment that would 
otherwise be made for such services 
under this part, there also shall be paid 
(on a monthly or quarterly basis) an 
amount equal to 5 percent of the payment 
amount for the services under this part. 
‘‘(2) 
IDENTIFICATION
OF
EFFICIENT 
AREAS.— 
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‘‘(A) 
IN
GENERAL.—Based 
upon 
available data, the Secretary shall 
identify those counties or equivalent 
areas in the United States in the low-
est 
fifth 
percentile 
of 
utilization 
based on per capita spending under 
this part and part A for services pro-
vided in the most recent year for 
which data are available as of the 
date of the enactment of this sub-
section, as standardized to eliminate 
the effect of geographic adjustments 
in payment rates. 
‘‘(B) IDENTIFICATION
OF
COUNTIES 
WHERE
SERVICE
IS
FURNISHED..—For 
purposes of paying the additional 
amount specified in paragraph (1), if 
the Secretary uses the 5-digit postal 
ZIP Code where the service is fur-
nished, the dominant county of the 
postal ZIP Code (as determined by 
the United States Postal Service, or 
otherwise) shall be used to determine 
whether the postal ZIP Code is in a 
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county described in subparagraph 
(A). 
‘‘(C) LIMITATION ON REVIEW.—There 
shall be no administrative or judicial 
review under section 1869, 1878, or 
otherwise, respecting— 
‘‘(i) the identification of a 
county or other area under sub-
paragraph (A); or 
‘‘(ii) the assignment of a post-
al ZIP Code to a county or other 
area under subparagraph (B). 
‘‘(D) PUBLICATION OF LIST OF COUN-
TIES; POSTING
ON
WEBSITE.—With re-
spect to a year for which a county or 
area is identified under this para-
graph, the Secretary shall identify 
such counties or areas as part of the 
proposed and final rule to implement 
the physician fee schedule under sec-
tion 1848 for the applicable year. The 
Secretary shall post the list of coun-
ties identified under this paragraph 
on the Internet website of the Cen-
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ters for Medicare & Medicaid Serv-
ices.’’. 
SEC. 1124. MODIFICATIONS TO THE PHYSICIAN QUALITY 
REPORTING INITIATIVE (PQRI). 
(a) FEEDBACK.—Section 1848(m)(5) of the 
Social Security Act (42 U.S.C. 1395w–4(m)(5)) 
is amended by adding at the end the following 
new subparagraph: 
‘‘(H) 
FEEDBACK.—The 
Secretary 
shall provide timely feedback to eligi-
ble professionals on the performance 
of the eligible professional with re-
spect to satisfactorily submitting data 
on quality measures under this sub-
section.’’. 
(b) APPEALS.—Such section is further 
amended— 
(1) in subparagraph (E), by striking 
‘‘There shall be’’ and inserting ‘‘Subject to 
subparagraph (I), there shall be’’; and 
(2) by adding at the end the following 
new subparagraph: 
‘‘(I) INFORMAL APPEALS PROCESS.— 
Notwithstanding subparagraph (E), 
by not later than January 1, 2011, the 
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Secretary shall establish and have in 
place an informal process for eligible 
professionals to appeal the deter-
mination that an eligible professional 
did not satisfactorily submit data on 
quality measures under this sub-
section.’’. 
(c) INTEGRATION OF PHYSICIAN QUALITY RE-
PORTING
AND
EHR 
REPORTING.—Section 
1848(m) of such Act is amended by adding at 
the end the following new paragraph: 
‘‘(7) INTEGRATION OF PHYSICIAN QUALITY 
REPORTING AND EHR REPORTING.—Not later 
than January 1, 2012, the Secretary shall 
develop a plan to integrate clinical re-
porting on quality measures under this 
subsection with reporting requirements 
under subsection (o) relating to the 
meaningful 
use 
of 
electronic 
health 
records. Such integration shall consist of 
the following: 
‘‘(A) The development of meas-
ures, the reporting of which would 
both demonstrate— 
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‘‘(i) meaningful use of an elec-
tronic health record for purposes 
of subsection (o); and 
‘‘(ii) clinical quality of care 
furnished to an individual. 
‘‘(B) The collection of health data 
to identify deficiencies in the quality 
and coordination of care for individ-
uals eligible for benefits under this 
part. 
‘‘(C) Such other activities as spec-
ified by the Secretary.’’. 
(d) EXTENSION OF INCENTIVE PAYMENTS.— 
Section 1848(m)(1) of such Act (42 U.S.C. 
1395w–4(m)(1)) is amended— 
(1) in subparagraph (A), by striking 
‘‘2010’’ and inserting ‘‘2012’’; and 
(2) in subparagraph (B)(ii), by strik-
ing ‘‘2009 and 2010’’ and inserting ‘‘for 
each of the years 2009 through 2012’’. 
SEC. 1125. ADJUSTMENT TO MEDICARE PAYMENT LOCAL-
ITIES. 
(a) IN GENERAL.—Section 1848(e) of the So-
cial Security Act (42 U.S.C.1395w–4(e)) is 
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amended by adding at the end the following 
new paragraph: 
‘‘(6) TRANSITION TO USE OF MSAS AS FEE 
SCHEDULE AREAS IN CALIFORNIA.— 
‘‘(A) IN GENERAL.— 
‘‘(i) 
REVISION.—Subject 
to 
clause (ii) and notwithstanding 
the previous provisions of this 
subsection, for services furnished 
on or after January 1, 2011, the 
Secretary shall revise the fee 
schedule areas used for payment 
under this section applicable to 
the State of California using the 
Metropolitan 
Statistical 
Area 
(MSA) iterative Geographic Ad-
justment Factor methodology as 
follows: 
‘‘(I) The Secretary shall 
configure the physician fee 
schedule 
areas 
using 
the 
Core-Based Statistical Areas- 
Metropolitan Statistical Areas 
(each in this paragraph re-
ferred to as an ‘MSA’), as de-
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fined by the Director of the 
Office of Management and 
Budget, as the basis for the 
fee schedule areas. The Sec-
retary 
shall 
employ 
an 
iterative process to transition 
fee schedule areas. First, the 
Secretary shall list all MSAs 
within 
the 
State 
by 
Geo-
graphic 
Adjustment 
Factor 
described in paragraph (2) (in 
this paragraph referred to as 
a ‘GAF’) in descending order. 
In the first iteration, the Sec-
retary shall compare the GAF 
of the highest cost MSA in the 
State to the weighted-average 
GAF of the group of remain-
ing MSAs in the State. If the 
ratio of the GAF of the high-
est cost MSA to the weighted- 
average GAF of the rest of 
State is 1.05 or greater then 
the highest cost MSA becomes 
a separate fee schedule area. 
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‘‘(II) In the next iteration, 
the Secretary shall compare 
the MSA of the second-highest 
GAF to the weighted-average 
GAF of the group of remain-
ing MSAs. If the ratio of the 
second-highest MSA’s GAF to 
the weighted-average of the 
remaining lower cost MSAs is 
1.05 or greater, the second- 
highest MSA becomes a sepa-
rate fee schedule area. The 
iterative 
process 
continues 
until the ratio of the GAF of 
the 
highest-cost 
remaining 
MSA to the weighted-average 
of the remaining lower-cost 
MSAs is less than 1.05, and 
the remaining group of lower 
cost MSAs form a single fee 
schedule area, If two MSAs 
have 
identical 
GAFs, 
they 
shall 
be 
combined 
in 
the 
iterative comparison. 
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‘‘(ii) TRANSITION.—For services 
furnished on or after January 1, 
2011, and before January 1, 2016, 
in the State of California, after 
calculating the work, practice ex-
pense, 
and 
malpractice 
geo-
graphic 
indices 
described 
in 
clauses (i), (ii), and (iii) of para-
graph (1)(A) that would otherwise 
apply through application of this 
paragraph, the Secretary shall in-
crease any such index to the 
county-based fee schedule area 
value on December 31, 2009, if 
such index would otherwise be 
less than the value on January 1, 
2010. 
‘‘(B) SUBSEQUENT REVISIONS.— 
‘‘(i) PERIODIC
REVIEW
AND
AD-
JUSTMENTS
IN
FEE
SCHEDULE 
AREAS.—Subsequent to the proc-
ess outlined in paragraph (1)(C), 
not less often than every three 
years, the Secretary shall review 
and update the California Rest-of- 
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State fee schedule area using 
MSAs as defined by the Director 
of the Office of Management and 
Budget and the iterative method-
ology described in subparagraph 
(A)(i). 
‘‘(ii) LINK
WITH
GEOGRAPHIC 
INDEX
DATA
REVISION.—The revi-
sion described in clause (i) shall 
be made effective concurrently 
with the application of the peri-
odic review of the adjustment fac-
tors required under paragraph 
(1)(C) for California for 2012 and 
subsequent 
periods. 
Upon 
re-
quest, the Secretary shall make 
available to the public any coun-
ty-level or MSA derived data used 
to calculate the geographic prac-
tice cost index. 
‘‘(C) REFERENCES TO FEE SCHEDULE 
AREAS.—Effective 
for 
services 
fur-
nished on or after January 1, 2010, 
for the State of California, any ref-
erence in this section to a fee sched-
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ule area shall be deemed a reference 
to an MSA in the State.’’. 
(b) CONFORMING AMENDMENT
TO DEFINI-
TION
OF
FEE
SCHEDULE
AREA.—Section 
1848(j)(2) of the Social Security Act (42 U.S.C. 
1395w(j)(2)) is amended by striking ‘‘The 
term’’ and inserting ‘‘Except as provided in 
subsection (e)(6)(C), the term’’. 
PART 2—MARKET BASKET UPDATES 
SEC. 
1131. 
INCORPORATING 
PRODUCTIVITY 
IMPROVE-
MENTS 
INTO 
MARKET 
BASKET 
UPDATES 
THAT DO NOT ALREADY INCORPORATE SUCH 
IMPROVEMENTS. 
(a) OUTPATIENT HOSPITALS.— 
(1) IN GENERAL.—The first sentence of 
section 1833(t)(3)(C)(iv) of the Social Se-
curity Act (42 U.S.C. 1395l(t)(3)(C)(iv)) is 
amended— 
(A) by inserting ‘‘(which is subject 
to the productivity adjustment de-
scribed in subclause (II) of such sec-
tion)’’ after ‘‘1886(b)(3)(B)(iii)’’; and 
(B) by inserting ‘‘(but not below 
0)’’ after ‘‘reduced’’. 
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(2) EFFECTIVE DATE.—The amendments 
made by paragraph (1) shall apply to in-
crease factors for services furnished in 
years beginning with 2010. 
(b) 
AMBULANCE
SERVICES.—Section 
1834(l)(3)(B) 
of 
such 
Act 
(42 
U.S.C. 
1395m(l)(3)(B))) is amended by inserting be-
fore the period at the end the following: ‘‘and, 
in the case of years beginning with 2010, sub-
ject to the productivity adjustment described 
in section 1886(b)(3)(B)(iii)(II)’’. 
(c) AMBULATORY SURGICAL CENTER SERV-
ICES.—Section 1833(i)(2)(D) of such Act (42 
U.S.C. 1395l(i)(2)(D)) is amended— 
(1) by redesignating clause (v) as 
clause (vi); and 
(2) by inserting after clause (iv) the 
following new clause: 
‘‘(v) In implementing the system described 
in clause (i), for services furnished during 
2010 or any subsequent year, to the extent 
that an annual percentage change factor ap-
plies, such factor shall be subject to the pro-
ductivity adjustment described in section 
1886(b)(3)(B)(iii)(II).’’. 
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(d) 
LABORATORY
SERVICES.—Section 
1833(h)(2)(A) 
of 
such 
Act 
(42 
U.S.C. 
1395l(h)(2)(A)) is amended— 
(1) in clause (i), by striking ‘‘for each 
of the years 2009 through 2013’’ and in-
serting ‘‘for 2009’’; and 
(2) clause (ii)— 
(A) by striking ‘‘and’’ at the end of 
subclause (III); 
(B) by striking the period at the 
end of subclause (IV) and inserting ‘‘; 
and’’; and 
(C) by adding at the end the fol-
lowing new subclause: 
‘‘(V) the annual adjustment in the fee 
schedules determined under clause (i) for 
years beginning with 2010 shall be sub-
ject to the productivity adjustment de-
scribed in section 1886(b)(3)(B)(iii)(II).’’. 
(e) CERTAIN
DURABLE
MEDICAL
EQUIP-
MENT.—Section 1834(a)(14) of such Act (42 
U.S.C. 1395m(a)(14)) is amended— 
(1) in subparagraph (K), by inserting 
before the semicolon at the end the fol-
lowing: ‘‘, subject to the productivity ad-
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justment 
described 
in 
section 
1886(b)(3)(B)(iii)(II)’’; 
(2) in subparagraph (L)(i), by insert-
ing after ‘‘June 2013,’’ the following: ‘‘sub-
ject to the productivity adjustment de-
scribed in section 1886(b)(3)(B)(iii)(II),’’; 
(3) in subparagraph (L)(ii), by insert-
ing after ‘‘June 2013’’ the following: ‘‘, 
subject to the productivity adjustment 
described in section 1886(b)(3)(B)(iii)(II)’’; 
and 
(4) in subparagraph (M), by inserting 
before the period at the end the fol-
lowing: ‘‘, subject to the productivity ad-
justment 
described 
in 
section 
1886(b)(3)(B)(iii)(II)’’. 
PART 3—OTHER PROVISIONS 
SEC. 1141. RENTAL AND PURCHASE OF POWER-DRIVEN 
WHEELCHAIRS. 
(a) IN GENERAL.—Section 1834(a)(7)(A)(iii) 
of 
the 
Social 
Security 
Act 
(42 
U.S.C. 
1395m(a)(7)(A)(iii)) is amended— 
(1) in the heading, by inserting ‘‘CER-
TAIN COMPLEX REHABILITATIVE’’ after ‘‘OP-
TION FOR’’; and 
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(2) by striking ‘‘power-driven wheel-
chair’’ and inserting ‘‘complex rehabilita-
tive power-driven wheelchair recognized 
by the Secretary as classified within 
group 3 or higher’’. 
(b) EFFECTIVE
DATE.—The amendments 
made by subsection (a) shall take effect on 
January 1, 2011, and shall apply to power- 
driven wheelchairs furnished on or after such 
date. Such amendments shall not apply to 
contracts entered into under section 1847 of 
the Social Security Act (42 U.S.C. 1395w–3) 
pursuant to a bid submitted under such sec-
tion before October 1, 2010, under subsection 
(a)(1)(B)(i)(I) of such section. 
SEC. 
1142. 
EXTENSION 
OF 
PAYMENT 
RULE 
FOR 
BRACHYTHERAPY. 
Section 1833(t)(16)(C) of the Social Secu-
rity Act (42 U.S.C. 1395l(t)(16)(C)), as amended 
by section 142 of the Medicare Improvements 
for Patients and Providers Act of 2008 (Public 
Law 110–275), is amended by striking, the first 
place it appears, ‘‘January 1, 2010’’ and insert-
ing ‘‘January 1, 2012’’. 
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SEC. 1143. HOME INFUSION THERAPY REPORT TO CON-
GRESS. 
Not later than 12 months after the date of 
enactment of this Act, the Medicare Payment 
Advisory Commission shall submit to Con-
gress a report on the following: 
(1) The scope of coverage for home in-
fusion 
therapy 
in 
the 
fee-for-service 
Medicare program under title XVIII of 
the Social Security Act, Medicare Advan-
tage under part C of such title, the vet-
eran’s health care program under chap-
ter 17 of title 38, United States Code, and 
among private payers, including an anal-
ysis of the scope of services provided by 
home infusion therapy providers to their 
patients in such programs. 
(2) The benefits and costs of pro-
viding such coverage under the Medicare 
program, including a calculation of the 
potential savings achieved through avoid-
ed or shortened hospital and nursing 
home stays as a result of Medicare cov-
erage of home infusion therapy. 
(3) An assessment of sources of data 
on the costs of home infusion therapy 
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that might be used to construct payment 
mechanisms in the Medicare program. 
(4) Recommendations, if any, on the 
structure of a payment system under the 
Medicare program for home infusion 
therapy, including an analysis of the pay-
ment methodologies used under Medicare 
Advantage plans and private health plans 
for the provision of home infusion ther-
apy and their applicability to the Medi-
care program. 
SEC. 1144. REQUIRE AMBULATORY SURGICAL CENTERS 
(ASCS) TO SUBMIT COST DATA AND OTHER 
DATA. 
(a) COST REPORTING.— 
(1) IN GENERAL.—Section 1833(i) of the 
Social Security Act (42 U.S.C. 1395l(i)) is 
amended by adding at the end the fol-
lowing new paragraph: 
‘‘(8) The Secretary shall require, as a con-
dition of the agreement described in section 
1832(a)(2)(F)(i), the submission of such cost 
report as the Secretary may specify, taking 
into account the requirements for such re-
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ports under section 1815 in the case of a hos-
pital.’’. 
(2) DEVELOPMENT
OF
COST
REPORT.— 
Not later than 3 years after the date of 
the enactment of this Act, the Secretary 
of Health and Human Services shall de-
velop a cost report form for use under 
section 1833(i)(8) of the Social Security 
Act, as added by paragraph (1). 
(3) 
AUDIT
REQUIREMENT.—The 
Sec-
retary shall provide for periodic auditing 
of cost reports submitted under section 
1833(i)(8) of the Social Security Act, as 
added by paragraph (1). 
(4) EFFECTIVE DATE.—The amendment 
made by paragraph (1) shall apply to 
agreements applicable to cost reporting 
periods beginning 18 months after the 
date the Secretary develops the cost re-
port form under paragraph (2). 
(b) ADDITIONAL DATA ON QUALITY.— 
(1) IN GENERAL.—Section 1833(i)(7) of 
such Act (42 U.S.C. 1395l(i)(7)) is amend-
ed— 
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(A) in subparagraph (B), by in-
serting ‘‘subject to subparagraph (C),’’ 
after ‘‘may otherwise provide,’’; and 
(B) by adding at the end the fol-
lowing new subparagraph: 
‘‘(C) Under subparagraph (B) the Sec-
retary shall require the reporting of such ad-
ditional data relating to quality of services 
furnished in an ambulatory surgical facility, 
including data on health care associated in-
fections, as the Secretary may specify.’’. 
(2) EFFECTIVE DATE.—The amendment 
made by paragraph (1) shall to reporting 
for years beginning with 2012. 
SEC. 1145. TREATMENT OF CERTAIN CANCER HOSPITALS. 
Section 1833(t) of the Social Security Act 
(42 U.S.C. 1395l(t)) is amended by adding at 
the end the following new paragraph: 
‘‘(18) AUTHORIZATION
OF
ADJUSTMENT 
FOR CANCER HOSPITALS.— 
‘‘(A) STUDY.—The Secretary shall 
conduct a study to determine if, 
under the system under this sub-
section, costs incurred by hospitals 
described in section 1886(d)(1)(B)(v) 
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with respect to ambulatory payment 
classification groups exceed those 
costs incurred by other hospitals fur-
nishing 
services 
under 
this 
sub-
section (as determined appropriate 
by the Secretary). 
‘‘(B) AUTHORIZATION
OF
ADJUST-
MENT.—Insofar as the Secretary deter-
mines under subparagraph (A) that 
costs incurred by hospitals described 
in 
section 
1886(d)(1)(B)(v) 
exceed 
those costs incurred by other hos-
pitals furnishing services under this 
subsection, the Secretary shall pro-
vide for an appropriate adjustment 
under paragraph (2)(E) to reflect 
those higher costs effective for serv-
ices furnished on or after January 1, 
2011.’’. 
SEC. 1146. MEDICARE IMPROVEMENT FUND. 
Section 1898(b)(1)(A) of the Social Secu-
rity Act (42 U.S.C. 1395iii(b)(1)(A)) is amended 
to read as follows: 
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‘‘(A) the period beginning with fis-
cal year 2011 and ending with fiscal 
year 2019, $8,000,000,000; and’’. 
SEC. 1147. PAYMENT FOR IMAGING SERVICES. 
(a) ADJUSTMENT IN PRACTICE EXPENSE TO 
REFLECT HIGHER PRESUMED UTILIZATION.—Sec-
tion 1848 of the Social Security Act (42 U.S.C. 
1395w) is amended— 
(1) in subsection (b)(4)— 
(A) in subparagraph (B), by strik-
ing ‘‘subparagraph (A)’’ and inserting 
‘‘this paragraph’’; and 
(B) by adding at the end the fol-
lowing new subparagraph: 
‘‘(C) ADJUSTMENT IN PRACTICE EX-
PENSE
TO
REFLECT
HIGHER
PRESUMED 
UTILIZATION.—In computing the num-
ber of practice expense relative value 
units under subsection (c)(2)(C)(ii) 
with respect to advanced diagnostic 
imaging services (as defined in sec-
tion 1834(e)(1)(B)) , the Secretary 
shall adjust such number of units so 
it reflects a 75 percent (rather than 
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50 percent) presumed rate of utiliza-
tion of imaging equipment.’’; and 
(2) in subsection (c)(2)(B)(v)(II), by in-
serting ‘‘AND
OTHER
PROVISIONS’’ after 
‘‘OPD PAYMENT CAP’’. 
(b) ADJUSTMENT IN TECHNICAL COMPONENT 
‘‘DISCOUNT’’ 
ON
SINGLE-SESSION
IMAGING
TO 
CONSECUTIVE BODY PARTS.—Section 1848(b)(4) 
of such Act is further amended by adding at 
the end the following new subparagraph: 
‘‘(D) ADJUSTMENT
IN
TECHNICAL 
COMPONENT
DISCOUNT
ON
SINGLE-SES-
SION
IMAGING
INVOLVING
CONSECUTIVE 
BODY PARTS.—The Secretary shall in-
crease the reduction in expenditures 
attributable to the multiple proce-
dure payment reduction applicable to 
the technical component for imaging 
under the final rule published by the 
Secretary in the Federal Register on 
November 21, 2005 (part 405 of title 
42, Code of Federal Regulations) from 
25 percent to 50 percent.’’. 
(c) EFFECTIVE DATE.—Except as otherwise 
provided, this section, and the amendments 
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made by this section, shall apply to services 
furnished on or after January 1, 2011. 
SEC. 1148. DURABLE MEDICAL EQUIPMENT PROGRAM IM-
PROVEMENTS. 
(a) WAIVER
OF
SURETY
BOND
REQUIRE-
MENT.—Section 1834(a)(16) of the Social Secu-
rity Act (42 U.S.C. 1395m(a)(16)) is amended 
by adding at the end the following: ‘‘The re-
quirement for a surety bond described in sub-
paragraph (B) shall not apply in the case of 
a pharmacy (i) that has been enrolled under 
section 1866(j) as a supplier of durable med-
ical equipment, prosthetics, orthotics, and 
supplies and has been issued (which may in-
clude renewal of) a provider number (as de-
scribed in the first sentence of this para-
graph) for at least 5 years, and (ii) for which 
a final adverse action (as defined in section 
424.57(a) of title 42, Code of Federal Regula-
tions) has never been imposed.’’. 
(b) ENSURING SUPPLY
OF OXYGEN EQUIP-
MENT .— 
(1) IN GENERAL.—Section 1834(a)(5)(F) 
of the Social Security Act (42 U.S.C. 
1395m(a)(5)(F)) is amended— 
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(A) in clause (ii), by striking 
‘‘After the’’ and inserting ‘‘Except as 
provided in clause (iii), after the’’; 
and 
(B) by adding at the end the fol-
lowing new clause: 
‘‘(iii) CONTINUATION
OF
SUP-
PLY.—In the case of a supplier fur-
nishing such equipment to an in-
dividual under this subsection as 
of the 27th month of the 36 
months described in clause (i), 
the 
supplier 
furnishing 
such 
equipment as of such month shall 
continue to furnish such equip-
ment to such individual (either 
directly or though arrangements 
with 
other 
suppliers 
of 
such 
equipment) 
during 
any 
subse-
quent period of medical need for 
the remainder of the reasonable 
useful lifetime of the equipment, 
as determined by the Secretary, 
regardless of the location of the 
individual, unless another sup-
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plier has accepted responsibility 
for continuing to furnish such 
equipment during the remainder 
of such period.’’. 
(2) EFFECTIVE DATE.—The amendments 
made by paragraph (1) shall take effect 
as of the date of the enactment of this Act 
and shall apply to the furnishing of 
equipment to individuals for whom the 
27th month of a continuous period of use 
of oxygen equipment described in section 
1834(a)(5)(F) of the Social Security Act 
occurs on or after July 1, 2010. 
(c) TREATMENT OF CURRENT ACCREDITATION 
APPLICATIONS.—Section 1834(a)(20)(F) of such 
Act (42 U.S.C. 1395m(a)(20)(F)) is amended— 
(1) in clause (i)— 
(A) by striking ‘‘clause (ii)’’ and 
inserting ‘‘clauses (ii) and (iii)’’; and 
(B) by striking ‘‘and’’ at the end; 
(2) by striking the period at the end 
of clause (ii)(II) and by inserting ‘‘; and’’; 
(3) by inserting after clause (ii) the 
following new clause: 
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‘‘(iii) the requirement for ac-
creditation described in clause (i) 
shall not apply for purposes of 
supplying diabetic testing sup-
plies, canes, and crutches in the 
case of a pharmacy that is en-
rolled under section 1866(j) as a 
supplier 
of 
durable 
medical 
equipment, prosthetics, orthotics, 
and supplies.’’; and 
(4) by adding after and below clause 
(iii) the following: 
‘‘Any supplier that has submitted an 
application for accreditation before 
August 1, 2009, shall be deemed as 
meeting applicable standards and ac-
creditation requirement under this 
subparagraph until such time as the 
independent accreditation organiza-
tion takes action on the supplier’s ap-
plication.’’. 
(d) RESTORING 36-MONTH OXYGEN RENTAL 
PERIOD IN CASE OF SUPPLIER BANKRUPTCY FOR 
CERTAIN INDIVIDUALS.—Section 1834(a)(5)(F) of 
such Act (42 U.S.C. 1395m(a)(5)(F)), as amend-
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ed by subsection (b), is further amended by 
adding at the end the following new clause: 
‘‘(iv) 
EXCEPTION
FOR
BANK-
RUPTCY.—If a supplier who fur-
nishes oxygen and oxygen equip-
ment to an individual is declared 
bankrupt and its assets are liq-
uidated and at the time of such 
declaration and liquidation more 
than 24 months of rental pay-
ments have been made, such indi-
vidual may begin a new 36-month 
rental period under this subpara-
graph with another supplier of 
oxygen.’’. 
SEC. 1149. MEDPAC STUDY AND REPORT ON BONE MASS 
MEASUREMENT. 
(a) IN GENERAL.—The Medicare Payment 
Advisory Commission shall conduct a study 
regarding bone mass measurement, including 
computed 
tomography, 
duel-energy 
x-ray 
absorptriometry, and vertebral fracture as-
sessment. The study shall focus on the fol-
lowing: 
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(1) An assessment of the adequacy of 
Medicare payment rates for such serv-
ices, taking into account costs of acquir-
ing the necessary equipment, profes-
sional work time, and practice expense 
costs. 
(2) The impact of Medicare payment 
changes since 2006 on beneficiary access 
to bone mass measurement benefits in 
general and in rural and minority com-
munities specifically. 
(3) A review of the clinically appro-
priate and recommended use among 
Medicare beneficiaries and how usage 
rates among such beneficiaries compares 
to such recommendations. 
(4) In conjunction with the findings 
under (3), recommendations, if necessary, 
regarding methods for reaching appro-
priate use of bone mass measurement 
studies among Medicare beneficiaries. 
(b) REPORT.—The Commission shall sub-
mit a report to the Congress, not later than 
9 months after the date of the enactment of 
this Act, containing a description of the re-
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sults of the study conducted under subsection 
(a) and the conclusions and recommenda-
tions, if any, regarding each of the issues de-
scribed in paragraphs (1), (2) (3) and (4) of 
such subsection. 
Subtitle C—Provisions Related to 
Medicare Parts A and B 
SEC. 1151. REDUCING POTENTIALLY PREVENTABLE HOS-
PITAL READMISSIONS. 
(a) HOSPITALS.— 
(1) IN GENERAL.—Section 1886 of the 
Social Security Act (42 U.S.C. 1395ww), as 
amended by section 1103(a), is amended 
by adding at the end the following new 
subsection: 
‘‘(p) ADJUSTMENT
TO HOSPITAL PAYMENTS 
FOR EXCESS READMISSIONS.— 
‘‘(1) IN GENERAL.—With respect to pay-
ment for discharges from an applicable 
hospital (as defined in paragraph (5)(C)) 
occurring during a fiscal year beginning 
on or after October 1, 2011, in order to ac-
count for excess readmissions in the hos-
pital, the Secretary shall reduce the pay-
ments that would otherwise be made to 
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such hospital under subsection (d) (or 
section 1814(b)(3), as the case may be) for 
such a discharge by an amount equal to 
the product of— 
‘‘(A) the base operating DRG pay-
ment amount (as defined in para-
graph (2)) for the discharge; and 
‘‘(B) the adjustment factor (de-
scribed in paragraph (3)(A)) for the 
hospital for the fiscal year. 
‘‘(2) BASE
OPERATING
DRG
PAYMENT 
AMOUNT.— 
‘‘(A) IN GENERAL.—Except as pro-
vided in subparagraph (B), for pur-
poses of this subsection, the term 
‘base 
operating 
DRG 
payment 
amount’ means, with respect to a hos-
pital for a fiscal year, the payment 
amount that would otherwise be 
made under subsection (d) for a dis-
charge if this subsection did not 
apply, reduced by any portion of such 
amount that is attributable to pay-
ments under subparagraphs (B) and 
(F) of paragraph (5). 
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‘‘(B) ADJUSTMENTS.—For purposes 
of subparagraph (A), in the case of a 
hospital that is paid under section 
1814(b)(3), the term ‘base operating 
DRG payment amount’ means the 
payment amount under such section. 
‘‘(3) ADJUSTMENT FACTOR.— 
‘‘(A) IN GENERAL.—For purposes of 
paragraph (1), the adjustment factor 
under this paragraph for an applica-
ble hospital for a fiscal year is equal 
to the greater of— 
‘‘(i) the ratio described in sub-
paragraph (B) for the hospital for 
the applicable period (as defined 
in paragraph (5)(D)) for such fis-
cal year; or 
‘‘(ii) the floor adjustment fac-
tor specified in subparagraph (C). 
‘‘(B) RATIO.—The ratio described 
in this subparagraph for a hospital 
for an applicable period is equal to 1 
minus the ratio of— 
‘‘(i) the aggregate payments 
for excess readmissions (as de-
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fined in paragraph (4)(A)) with re-
spect to an applicable hospital for 
the applicable period; and 
‘‘(ii) the aggregate payments 
for all discharges (as defined in 
paragraph (4)(B)) with respect to 
such applicable hospital for such 
applicable period. 
‘‘(C) FLOOR ADJUSTMENT FACTOR.— 
For purposes of subparagraph (A), 
the floor adjustment factor specified 
in this subparagraph for— 
‘‘(i) fiscal year 2012 is 0.99; 
‘‘(ii) fiscal year 2013 is 0.98; 
‘‘(iii) fiscal year 2014 is 0.97; 
or 
‘‘(iv) a subsequent fiscal year 
is 0.95. 
‘‘(4) AGGREGATE PAYMENTS, EXCESS RE-
ADMISSION
RATIO
DEFINED.—For purposes 
of this subsection: 
‘‘(A) AGGREGATE PAYMENTS FOR EX-
CESS READMISSIONS.—The term ‘aggre-
gate payments for excess readmis-
sions’ means, for a hospital for a fis-
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cal year, the sum, for applicable con-
ditions 
(as 
defined 
in 
paragraph 
(5)(A)), of the product, for each appli-
cable condition, of— 
‘‘(i) the base operating DRG 
payment amount for such hos-
pital for such fiscal year for such 
condition; 
‘‘(ii) the number of admissions 
for such condition for such hos-
pital for such fiscal year; and 
‘‘(iii) the excess readmissions 
ratio (as defined in subparagraph 
(C)) for such hospital for the ap-
plicable period for such fiscal 
year minus 1. 
‘‘(B) AGGREGATE PAYMENTS FOR ALL 
DISCHARGES.—The 
term 
‘aggregate 
payments for all discharges’ means, 
for a hospital for a fiscal year, the 
sum of the base operating DRG pay-
ment amounts for all discharges for 
all conditions from such hospital for 
such fiscal year. 
‘‘(C) EXCESS READMISSION RATIO.— 
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‘‘(i) IN
GENERAL.—Subject to 
clauses (ii) and (iii), the term ‘ex-
cess readmissions ratio’ means, 
with respect to an applicable con-
dition for a hospital for an appli-
cable period, the ratio (but not 
less than 1.0) of— 
‘‘(I) the risk adjusted re-
admissions based on actual 
readmissions, as determined 
consistent with a readmission 
measure 
methodology 
that 
has 
been 
endorsed 
under 
paragraph (5)(A)(ii)(I), for an 
applicable hospital for such 
condition with respect to the 
applicable period; to 
‘‘(II) the risk adjusted ex-
pected readmissions (as deter-
mined consistent with such a 
methodology) for such hos-
pital for such condition with 
respect to such applicable pe-
riod. 
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‘‘(ii) EXCLUSION OF CERTAIN RE-
ADMISSIONS.—For 
purposes 
of 
clause (i), with respect to a hos-
pital, excess readmissions shall 
not include readmissions for an 
applicable condition for which 
there are fewer than a minimum 
number (as determined by the 
Secretary) of discharges for such 
applicable condition for the appli-
cable period and such hospital. 
‘‘(iii) ADJUSTMENT.—In order 
to promote a reduction over time 
in the overall rate of readmis-
sions for applicable conditions, 
the Secretary may provide, begin-
ning with discharges for fiscal 
year 2014, for the determination 
of the excess readmissions ratio 
under subparagraph (C) to be 
based on a ranking of hospitals 
by readmission ratios (from lower 
to higher readmission ratios) nor-
malized to a benchmark that is 
lower than the 50th percentile. 
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‘‘(5) DEFINITIONS.—For purposes of 
this subsection: 
‘‘(A) APPLICABLE
CONDITION.—The 
term ‘applicable condition’ means, 
subject to subparagraph (B), a condi-
tion or procedure selected by the Sec-
retary among conditions and proce-
dures for which— 
‘‘(i) readmissions (as defined 
in subparagraph (E)) that rep-
resent conditions or procedures 
that are high volume or high ex-
penditures under this title (or 
other criteria specified by the 
Secretary); and 
‘‘(ii) measures of such re-
admissions— 
‘‘(I) have been endorsed 
by the entity with a contract 
under section 1890(a); and 
‘‘(II) such endorsed meas-
ures have appropriate exclu-
sions for readmissions that 
are unrelated to the prior dis-
charge (such as a planned re-
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admission or transfer to an-
other applicable hospital). 
‘‘(B) 
EXPANSION
OF
APPLICABLE 
CONDITIONS.—Beginning 
with 
fiscal 
year 2013, the Secretary shall expand 
the applicable conditions beyond the 
3 conditions for which measures have 
been endorsed as described in sub-
paragraph (A)(ii)(I) as of the date of 
the enactment of this subsection to 
the additional 4 conditions that have 
been so identified by the Medicare 
Payment Advisory Commission in its 
report to Congress in June 2007 and 
to other conditions and procedures 
which may include an all-condition 
measure of readmissions, as deter-
mined appropriate by the Secretary. 
In expanding such applicable condi-
tions, the Secretary shall seek the en-
dorsement described in subparagraph 
(A)(ii)(I) but may apply such meas-
ures without such an endorsement. 
‘‘(C) APPLICABLE
HOSPITAL.—The 
term ‘applicable hospital’ means a 
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subsection (d) hospital or a hospital 
that is paid under section 1814(b)(3). 
‘‘(D) 
APPLICABLE
PERIOD.—The 
term ‘applicable period’ means, with 
respect to a fiscal year, such period 
as the Secretary shall specify for pur-
poses of determining excess readmis-
sions. 
‘‘(E) READMISSION.—The term ‘re-
admission’ means, in the case of an 
individual who is discharged from an 
applicable hospital, the admission of 
the individual to the same or another 
applicable hospital within a time pe-
riod specified by the Secretary from 
the date of such discharge. Insofar as 
the discharge relates to an applicable 
condition for which there is an en-
dorsed measure described in subpara-
graph (A)(ii)(I), such time period 
(such as 30 days) shall be consistent 
with the time period specified for 
such measure. 
‘‘(6) LIMITATIONS
ON
REVIEW.—There 
shall be no administrative or judicial re-
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view under section 1869, section 1878, or 
otherwise of— 
‘‘(A) the determination of base op-
erating DRG payment amounts; 
‘‘(B) the methodology for deter-
mining the adjustment factor under 
paragraph (3), including excess re-
admissions ratio under paragraph 
(4)(C), aggregate payments for excess 
readmissions under paragraph (4)(A), 
and aggregate payments for all dis-
charges under paragraph (4)(B), and 
applicable 
periods 
and 
applicable 
conditions under paragraph (5); 
‘‘(C) the measures of readmissions 
as described in paragraph (5)(A)(ii); 
and 
‘‘(D) the determination of a tar-
geted 
hospital 
under 
paragraph 
(8)(B)(i), the increase in payment 
under paragraph (8)(B)(ii), the aggre-
gate cap under paragraph (8)(C)(i), 
the hospital-specific limit under para-
graph (8)(C)(ii), and the form of pay-
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ment made by the Secretary under 
paragraph (8)(D). 
‘‘(7) 
MONITORING
INAPPROPRIATE 
CHANGES
IN
ADMISSIONS
PRACTICES.—The 
Secretary shall monitor the activities of 
applicable hospitals to determine if such 
hospitals have taken steps to avoid pa-
tients at risk in order to reduce the likeli-
hood of increasing readmissions for ap-
plicable conditions. If the Secretary de-
termines that such a hospital has taken 
such a step, after notice to the hospital 
and opportunity for the hospital to un-
dertake action to alleviate such steps, the 
Secretary may impose an appropriate 
sanction. 
‘‘(8) 
ASSISTANCE
TO
CERTAIN
HOS-
PITALS.— 
‘‘(A) IN GENERAL.—For purposes of 
providing funds to applicable hos-
pitals to take steps described in sub-
paragraph (E) to address factors that 
may impact readmissions of individ-
uals who are discharged from such a 
hospital, for fiscal years beginning on 
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or after October 1, 2011, the Secretary 
shall make a payment adjustment for 
a hospital described in subparagraph 
(B), with respect to each such fiscal 
year, by a percent estimated by the 
Secretary to be consistent with sub-
paragraph (C). 
‘‘(B) TARGETED
HOSPITALS.—Sub-
paragraph (A) shall apply to an appli-
cable hospital that— 
‘‘(i) received (or, in the case of 
an 1814(b)(3) hospital, otherwise 
would have been eligible to re-
ceive) $10,000,000 or more in dis-
proportionate 
share 
payments 
using the latest available data as 
estimated by the Secretary; and 
‘‘(ii) provides assurances satis-
factory to the Secretary that the 
increase in payment under this 
paragraph shall be used for pur-
poses described in subparagraph 
(E). 
‘‘(C) CAPS.— 
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lump sum basis, a periodic basis, a 
claim by claim basis, or otherwise. 
‘‘(E) 
USE
OF
ADDITIONAL
PAY-
MENT.—Funding under this paragraph 
shall be used by targeted hospitals 
for transitional care activities de-
signed to address the patient non-
compliance issues that result in high-
er than normal readmission rates, 
such as one or more of the following: 
‘‘(i) Providing care coordina-
tion services to assist in transi-
tions from the targeted hospital 
to other settings. 
‘‘(ii) Hiring translators and in-
terpreters. 
‘‘(iii) Increasing services of-
fered by discharge planners. 
‘‘(iv) Ensuring that individ-
uals receive a summary of care 
and medication orders upon dis-
charge. 
‘‘(v) Developing a quality im-
provement plan to assess and 
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remedy preventable readmission 
rates. 
‘‘(vi) Assigning discharged in-
dividuals to a medical home. 
‘‘(vii) Doing other activities as 
determined appropriate by the 
Secretary. 
‘‘(F) 
GAO 
REPORT
ON
USE
OF 
FUNDS.—Not later than 3 years after 
the date on which funds are first 
made available under this paragraph, 
the 
Comptroller 
General 
of 
the 
United States shall submit to Con-
gress a report on the use of such 
funds. 
‘‘(G) 
DISPROPORTIONATE
SHARE 
HOSPITAL
PAYMENT.—In 
this 
para-
graph, 
the 
term 
‘disproportionate 
share hospital payment’ means an ad-
ditional payment amount under sub-
section (d)(5)(F).’’. 
(b) APPLICATION TO CRITICAL ACCESS HOS-
PITALS.—Section 1814(l) of the Social Security 
Act (42 U.S.C. 1395f(l)) is amended— 
(1) in paragraph (5)— 
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(A) by striking ‘‘and’’ at the end of 
subparagraph (C); 
(B) by striking the period at the 
end of subparagraph (D) and insert-
ing ‘‘; and’’; 
(C) by inserting at the end the fol-
lowing new subparagraph: 
‘‘(E) the methodology for determining 
the adjustment factor under paragraph 
(5), including the determination of aggre-
gate payments for actual and expected 
readmissions, applicable periods, applica-
ble conditions and measures of readmis-
sions.’’; and 
(D) by redesignating such para-
graph as paragraph (6); and 
(2) by inserting after paragraph (4) 
the following new paragraph: 
‘‘(5) The adjustment factor described in 
section 1886(p)(3) shall apply to payments 
with respect to a critical access hospital with 
respect to a cost reporting period beginning 
in fiscal year 2012 and each subsequent fiscal 
year (after application of paragraph (4) of this 
subsection) in a manner similar to the man-
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ner in which such section applies with re-
spect to a fiscal year to an applicable hospital 
as described in section 1886(p)(2).’’. 
(c) POST ACUTE CARE PROVIDERS.— 
(1) INTERIM POLICY.— 
(A) IN GENERAL.—With respect to a 
readmission to an applicable hospital 
or a critical access hospital (as de-
scribed in section 1814(l) of the Social 
Security Act) from a post acute care 
provider (as defined in paragraph (3)) 
and such a readmission is not gov-
erned by section 412.531 of title 42, 
Code of Federal Regulations, if the 
claim submitted by such a post-acute 
care provider under title XVIII of the 
Social Security Act indicates that the 
individual was readmitted to a hos-
pital from such a post-acute care pro-
vider or admitted from home and 
under the care of a home health agen-
cy within 30 days of an initial dis-
charge from an applicable hospital or 
critical access hospital, the payment 
under such title on such claim shall 
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be the applicable percent specified in 
subparagraph (B) of the payment that 
would otherwise be made under the 
respective 
payment 
system 
under 
such title for such post-acute care 
provider if this subsection did not 
apply. 
(B) 
APPLICABLE
PERCENT
DE-
FINED.—For 
purposes 
of 
subpara-
graph (A), the applicable percent is— 
(i) for fiscal or rate year 2012 
is 0.996; 
(ii) for fiscal or rate year 2013 
is 0.993; and 
(iii) for fiscal or rate year 
2014 is 0.99. 
(C) 
EFFECTIVE
DATE.—Subpara-
graph (1) shall apply to discharges or 
services furnished (as the case may 
be with respect to the applicable post 
acute care provider) on or after the 
first day of the fiscal year or rate 
year, beginning on or after October 1, 
2011, with respect to the applicable 
post acute care provider. 
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(2) DEVELOPMENT AND APPLICATION OF 
PERFORMANCE MEASURES.— 
(A) IN GENERAL.—The Secretary of 
Health and Human Services shall de-
velop appropriate measures of read-
mission rates for post acute care pro-
viders. The Secretary shall seek en-
dorsement of such measures by the 
entity with a contract under section 
1890(a) of the Social Security Act but 
may adopt and apply such measures 
under this paragraph without such 
an endorsement. The Secretary shall 
expand such measures in a manner 
similar to the manner in which appli-
cable conditions are expanded under 
paragraph (5)(B) of section 1886(p) of 
the Social Security Act, as added by 
subsection (a). 
(B) 
IMPLEMENTATION.—The 
Sec-
retary shall apply, on or after Octo-
ber 1, 2014, with respect to post acute 
care providers, policies similar to the 
policies applied with respect to appli-
cable hospitals and critical access 
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hospitals 
under 
the 
amendments 
made by subsection (a). The provi-
sions of paragraph (1) shall apply 
with respect to any period on or after 
October 1, 2014, and before such ap-
plication date described in the pre-
vious sentence in the same manner as 
such provisions apply with respect to 
fiscal or rate year 2014. 
(C) MONITORING AND PENALTIES.— 
The provisions of paragraph (7) of 
such section 1886(p) shall apply to 
providers under this paragraph in 
the same manner as they apply to 
hospitals under such section. 
(3) DEFINITIONS.—For purposes of this 
subsection: 
(A) POST ACUTE CARE PROVIDER.— 
The term ‘‘post acute care provider’’ 
means— 
(i) a skilled nursing facility 
(as defined in section 1819(a) of 
the Social Security Act); 
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(ii) an inpatient rehabilitation 
facility 
(described 
in 
section 
1886(h)(1)(A) of such Act); 
(iii) a home health agency (as 
defined in section 1861(o) of such 
Act); and 
(iv) a long term care hospital 
(as defined in section 1861(ccc) of 
such Act). 
(B) OTHER
TERMS
.—The terms 
‘‘applicable 
condition’’, 
‘‘applicable 
hospital’’, and ‘‘readmission’’ have the 
meanings given such terms in section 
1886(p)(5) of the Social Security Act, 
as added by subsection (a)(1). 
(d) PHYSICIANS.— 
(1) STUDY.—The Secretary of Health 
and Human Services shall conduct a 
study to determine how the readmissions 
policy described in the previous sub-
sections could be applied to physicians. 
(2) CONSIDERATIONS.—In conducting 
the study, the Secretary shall consider 
approaches such as— 
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(A) creating a new code (or codes) 
and payment amount (or amounts) 
under the fee schedule in section 1848 
of the Social Security Act (in a budget 
neutral manner) for services fur-
nished by an appropriate physician 
who sees an individual within the 
first week after discharge from a hos-
pital or critical access hospital; 
(B) developing measures of rates 
of readmission for individuals treated 
by physicians; 
(C) applying a payment reduction 
for physicians who treat the patient 
during the initial admission that re-
sults in a readmission; and 
(D) methods for attributing pay-
ments or payment reductions to the 
appropriate physician or physicians. 
(3) 
REPORT.—The 
Secretary 
shall 
issue a public report on such study not 
later than the date that is one year after 
the date of the enactment of this Act. 
(e) FUNDING.—For purposes of carrying 
out the provisions of this section, in addition 
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to funds otherwise available, out of any funds 
in the Treasury not otherwise appropriated, 
there are appropriated to the Secretary of 
Health and Human Services for the Center for 
Medicare & Medicaid Services Program Man-
agement Account $25,000,000 for each fiscal 
year beginning with 2010. Amounts appro-
priated under this subsection for a fiscal year 
shall be available until expended. 
SEC. 1152. POST ACUTE CARE SERVICES PAYMENT REFORM 
PLAN AND BUNDLING PILOT PROGRAM. 
(a) PLAN.— 
(1) IN
GENERAL.—The Secretary of 
Health and Human Services (in this sec-
tion referred to as the ‘‘Secretary’’) shall 
develop a detailed plan to reform pay-
ment for post acute care (PAC) services 
under the Medicare program under title 
XVIII of the Social Security Act (in this 
section referred to as the ‘‘Medicare pro-
gram)’’. The goals of such payment re-
form are to— 
(A) 
improve 
the 
coordination, 
quality, and efficiency of such serv-
ices; and 
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(B) improve outcomes for individ-
uals such as reducing the need for re-
admission to hospitals from providers 
of such services. 
(2) BUNDLING POST ACUTE SERVICES.— 
The plan described in paragraph (1) shall 
include detailed specifications for a bun-
dled payment for post acute services (in 
this section referred to as the ‘‘post acute 
care bundle’’), and may include other ap-
proaches determined appropriate by the 
Secretary. 
(3) POST
ACUTE
SERVICES.—For pur-
poses of this section, the term ‘‘post acute 
services’’ means services for which pay-
ment may be made under the Medicare 
program that are furnished by skilled 
nursing facilities, inpatient rehabilitation 
facilities, long term care hospitals, hos-
pital based outpatient rehabilitation fa-
cilities and home health agencies to an 
individual after discharge of such indi-
vidual from a hospital, and such other 
services determined appropriate by the 
Secretary. 
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(b) DETAILS.—The plan described in sub-
section (a)(1) shall include consideration of 
the following issues: 
(1) The nature of payments under a 
post acute care bundle, including the 
type of provider or entity to whom pay-
ment should be made, the scope of activi-
ties and services included in the bundle, 
whether payment for physicians’ services 
should be included in the bundle, and the 
period covered by the bundle. 
(2) Whether the payment should be 
consolidated with the payment under the 
inpatient prospective system under sec-
tion 1886 of the Social Security Act (in 
this section referred to as MS–DRGs) or a 
separate payment should be established 
for such bundle, and if a separate pay-
ment is established, whether it should be 
made only upon use of post acute care 
services or for every discharge. 
(3) Whether the bundle should be ap-
plied across all categories of providers of 
inpatient services (including critical ac-
cess hospitals) and post acute care serv-
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ices or whether it should be limited to 
certain categories of providers, services, 
or discharges, such as high volume or 
high cost MS–DRGs. 
(4) The extent to which payment rates 
could be established to achieve offsets for 
efficiencies that could be expected to be 
achieved with a bundle payment, wheth-
er such rates should be established on a 
national basis or for different geographic 
areas, should vary according to dis-
charge, case mix, outliers, and geo-
graphic differences in wages or other ap-
propriate adjustments, and how to up-
date such rates. 
(5) The nature of protections needed 
for individuals under a system of bundled 
payments to ensure that individuals re-
ceive quality care, are furnished the level 
and amount of services needed as deter-
mined by an appropriate assessment in-
strument, are offered choice of provider, 
and the extent to which transitional care 
services would improve quality of care 
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for individuals and the functioning of a 
bundled post-acute system. 
(6) The nature of relationships that 
may be required between hospitals and 
providers of post acute care services to 
facilitate bundled payments, including 
the application of gainsharing, anti-refer-
ral, anti-kickback, and anti-trust laws. 
(7) Quality measures that would be 
appropriate for reporting by hospitals 
and post acute providers (such as meas-
ures that assess changes in functional 
status and quality measures appropriate 
for each type of post acute services pro-
vider including how the reporting of such 
quality measures could be coordinated 
with other reporting of such quality 
measures by such providers otherwise re-
quired). 
(8) How cost-sharing for a post acute 
care bundle should be treated relative to 
current rules for cost-sharing for inpa-
tient hospital, home health, skilled nurs-
ing facility, and other services. 
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(9) How other programmatic issues 
should be treated in a post acute care 
bundle, including rules specific to var-
ious types of post-acute providers such as 
the post-acute transfer policy, three-day 
hospital stay to qualify for services fur-
nished by skilled nursing facilities, and 
the coordination of payments and care 
under the Medicare program and the 
Medicaid program. 
(10) Such other issues as the Sec-
retary deems appropriate. 
(c) CONSULTATIONS AND ANALYSIS.— 
(1) 
CONSULTATION
WITH
STAKE-
HOLDERS.—In developing the plan under 
subsection (a)(1), the Secretary shall con-
sult with relevant stakeholders and shall 
consider experience with such research 
studies and demonstrations that the Sec-
retary determines appropriate. 
(2) ANALYSIS AND DATA COLLECTION.— 
In developing such plan, the Secretary 
shall— 
(A) analyze the issues described 
in subsection (b) and other issues 
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that the Secretary determines appro-
priate; 
(B) analyze the impacts (includ-
ing geographic impacts) of post acute 
service reform approaches, including 
bundling of such services on individ-
uals, hospitals, post acute care pro-
viders, and physicians; 
(C) use existing data (such as data 
submitted on claims) and collect such 
data as the Secretary determines are 
appropriate to develop such plan re-
quired in this section; and 
(D) if patient functional status 
measures are appropriate for the 
analysis, to the extent practical, build 
upon the CARE tool being developed 
pursuant to section 5008 of the Def-
icit Reduction Act of 2005. 
(d) ADMINISTRATION.— 
(1) FUNDING.—For purposes of car-
rying out the provisions of this section, in 
addition to funds otherwise available, out 
of any funds in the Treasury not other-
wise 
appropriated, 
there 
are 
appro-
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priated to the Secretary for the Center 
for Medicare & Medicaid Services Pro-
gram Management Account $15,000,000 
for each of the fiscal years 2010 through 
2012. Amounts appropriated under this 
paragraph for a fiscal year shall be avail-
able until expended. 
(2) 
EXPEDITED
DATA
COLLECTION.— 
Chapter 35 of title 44, United States Code 
shall not apply to this section. 
(e) PUBLIC REPORTS.— 
(1) INTERIM
REPORTS.—The Secretary 
shall issue interim public reports on a 
periodic basis on the plan described in 
subsection (a)(1), the issues described in 
subsection (b), and impact analyses as 
the Secretary determines appropriate. 
(2) FINAL REPORT.—Not later than the 
date that is 3 years after the date of the 
enactment of this Act, the Secretary shall 
issue a final public report on such plan, 
including analysis of issues described in 
subsection (b) and impact analyses. 
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(f) CONVERSION
OF ACUTE CARE EPISODE 
DEMONSTRATION
TO PILOT PROGRAM
AND EX-
PANSION TO INCLUDE POST ACUTE SERVICES.— 
(1) IN GENERAL.—Part E of title XVIII 
of the Social Security Act is amended by 
inserting after section 1866C the fol-
lowing new section: 
‘‘CONVERSION
OF
ACUTE
CARE
EPISODE
DEM-
ONSTRATION TO PILOT PROGRAM AND EXPAN-
SION TO INCLUDE POST ACUTE SERVICES 
‘‘SEC. 1866D. (a) CONVERSION AND EXPAN-
SION.— 
‘‘(1) IN
GENERAL.—By not later than 
January 1, 2011, the Secretary shall, for 
the purpose of promoting the use of bun-
dled payments to promote efficient and 
high quality delivery of care— 
‘‘(A) convert the acute care epi-
sode 
demonstration 
program 
con-
ducted under section 1866C to a pilot 
program; and 
‘‘(B) subject to subsection (c), ex-
pand such program as so converted 
to include post acute services and 
such other services the Secretary de-
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termines to be appropriate, which 
may include transitional services. 
‘‘(2) BUNDLED PAYMENT STRUCTURES.— 
‘‘(A) IN GENERAL.—In carrying out 
paragraph (1), the Secretary may 
apply bundled payments with respect 
to— 
‘‘(i) hospitals and physicians; 
‘‘(ii) hospitals and post-acute 
care providers; 
‘‘(iii) 
hospitals, 
physicians, 
and post-acute care providers; or 
‘‘(iv) combinations of post- 
acute providers. 
‘‘(B) FURTHER APPLICATION.— 
‘‘(i) IN
GENERAL.—In carrying 
out paragraph (1), the Secretary 
shall apply bundled payments in 
a manner so as to include collabo-
rative care networks and con-
tinuing care hospitals. 
‘‘(ii) COLLABORATIVE CARE NET-
WORK
DEFINED.—For purposes of 
this subparagraph, the term ‘col-
laborative care network’ means a 
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consortium of health care pro-
viders 
that 
provides 
a 
com-
prehensive range of coordinated 
and integrated health care serv-
ices to low-income patient popu-
lations (including the uninsured) 
which may include coordinated 
and comprehensive care by safety 
net providers to reduce any un-
necessary use of items and serv-
ices furnished in emergency de-
partments, manage chronic condi-
tions, improve quality and effi-
ciency of care, increase preven-
tive services, and promote adher-
ence to post-acute and follow-up 
care plans. 
‘‘(iii) CONTINUING
CARE
HOS-
PITAL
DEFINED.—For purposes of 
this subparagraph, the term ‘con-
tinuing care hospital’ means an 
entity that has demonstrated the 
ability to meet patient care and 
patient safety standards and that 
provides under common manage-
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ment the medical and rehabilita-
tion services provided in inpa-
tient rehabilitation hospitals and 
units 
(as 
defined 
in 
section 
1886(d)(1)(B)(ii)), long-term care 
hospitals (as defined in section 
1886(d)(1)(B)(iv)(I)), 
and 
skilled 
nursing facilities (as defined in 
section 1819(a)) that are located 
in a hospital described in section 
1886(d). 
‘‘(b) SCOPE.—The pilot program under sub-
section (a) may include additional geographic 
areas and additional conditions which ac-
count for significant program spending, as de-
fined by the Secretary. Nothing in this sub-
section shall be construed as limiting the 
number of hospital and physician groups or 
the number of hospital and post-acute pro-
vider groups that may participate in the pilot 
program. 
‘‘(c) LIMITATION.—The Secretary shall only 
expand the pilot program under subsection 
(a) if the Secretary finds that— 
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‘‘(1) 
the 
demonstration 
program 
under section 1866C and pilot program 
under this section maintain or increase 
the quality of care received by individ-
uals enrolled under this title; and 
‘‘(2) such demonstration program and 
pilot program reduce program expendi-
tures and, based on the certification 
under subsection (d), that the expansion 
of such pilot program would result in es-
timated spending that would be less than 
what spending would otherwise be in the 
absence of this section. 
‘‘(d) CERTIFICATION.—For purposes of sub-
section (c), the Chief Actuary of the Centers 
for Medicare & Medicaid Services shall certify 
whether expansion of the pilot program 
under this section would result in estimated 
spending that would be less than what spend-
ing would otherwise be in the absence of this 
section. 
‘‘(e) VOLUNTARY PARTICIPATION.—Nothing 
in this paragraph shall be construed as re-
quiring the participation of an entity in the 
pilot program under this section. 
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‘‘(f) EVALUATION ON COST AND QUALITY OF 
CARE.—The Secretary shall conduct an eval-
uation of the pilot program under subsection 
(a) to study the effect of such program on 
costs and quality of care. The findings of such 
evaluation shall be included in the final re-
port required under section 1152(e)(2) of 
America’s Affordable Health Choices Act of 
2009. 
‘‘(g) STUDY OF ADDITIONAL BUNDLING AND 
EPISODE-BASED PAYMENT FOR PHYSICIANS’ SERV-
ICES.— 
‘‘(1) IN GENERAL.—The Secretary shall 
provide for a study of and development 
of a plan for testing additional ways to 
increase bundling of payments for physi-
cians in connection with an episode of 
care, such as in connection with out-
patient hospital services or services ren-
dered in physicians’ offices, other than 
those provided under the pilot program. 
‘‘(2) APPLICATION.—The Secretary may 
implement such a plan through a dem-
onstration program.’’. 
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(2) CONFORMING AMENDMENT.—Section 
1866C(b) of the Social Security Act (42 
U.S.C. 1395cc–3(b)) is amended by strik-
ing ‘‘The Secretary’’ and inserting ‘‘Sub-
ject to section 1866D, the Secretary’’. 
SEC. 1153. HOME HEALTH PAYMENT UPDATE FOR 2010. 
Section 1895(b)(3)(B)(ii) of the Social Se-
curity Act (42 U.S.C. 1395fff(b)(3)(B)(ii)) is 
amended— 
(1) in subclause (IV), by striking 
‘‘and’’; 
(2) by redesignating subclause (V) as 
subclause (VII); and 
(3) by inserting after subclause (IV) 
the following new subclauses: 
‘‘(V) 2007, 2008, and 2009, 
subject to clause (v), the home 
health market basket percent-
age increase; 
‘‘(VI) 
2010, 
subject 
to 
clause (v), 0 percent; and’’. 
SEC. 1154. PAYMENT ADJUSTMENTS FOR HOME HEALTH 
CARE. 
(a) ACCELERATION
OF
ADJUSTMENT
FOR 
CASE MIX CHANGES.—Section 1895(b)(3)(B) of 
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the 
Social 
Security 
Act 
(42 
U.S.C. 
1395fff(b)(3)(B)) is amended— 
(1) in clause (iv), by striking ‘‘Insofar 
as’’ and inserting ‘‘Subject to clause (vi), 
insofar as’’; and 
(2) by adding at the end the following 
new clause: 
‘‘(vi) SPECIAL
RULE
FOR
CASE 
MIX CHANGES FOR 2011.— 
‘‘(I) IN GENERAL.—With re-
spect to the case mix adjust-
ments established in section 
484.220(a) of title 42, Code of 
Federal Regulations, the Sec-
retary shall apply, in 2010, the 
adjustment 
established 
in 
paragraph (3) of such section 
for 2011, in addition to apply-
ing 
the 
adjustment 
estab-
lished in paragraph (2) for 
2010. 
‘‘(II) 
CONSTRUCTION.— 
Nothing in this clause shall be 
construed 
as 
limiting 
the 
amount of adjustment for case 
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mix for 2010 or 2011 if more 
recent data indicate an appro-
priate 
adjustment 
that 
is 
greater than the amount es-
tablished in the section de-
scribed in subclause (I).’’. 
(b) REBASING HOME HEALTH PROSPECTIVE 
PAYMENT
AMOUNT.—Section 1895(b)(3)(A) of 
the 
Social 
Security 
Act 
(42 
U.S.C. 
1395fff(b)(3)(A)) is amended— 
(1) in clause (i)— 
(A) in subclause (III), by inserting 
‘‘and before 2011’’ after ‘‘after the pe-
riod described in subclause (II)’’; and 
(B) by inserting after subclause 
(III) the following new subclauses: 
‘‘(IV) 
Subject 
to 
clause 
(iii)(I), for 2011, such amount 
(or amounts) shall be adjusted 
by a uniform percentage de-
termined to be appropriate by 
the Secretary based on anal-
ysis of factors such as changes 
in the average number and 
types of visits in an episode, 
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2011, the Secretary shall sub-
stitute for such amount (or 
amounts) 95 percent of the 
amount 
(or 
amounts) 
that 
would otherwise be specified 
under clause (i)(III) if it ap-
plied for 2011. 
‘‘(II) ADJUSTMENT FOR SUB-
SEQUENT
YEARS
BASED
ON 
DATA.—If the Secretary ap-
plies subclause (I), the Sec-
retary before July 1, 2011, 
shall compare the amount (or 
amounts) applied under such 
subclause with the amount (or 
amounts) that should have 
been applied under clause 
(i)(IV). The Secretary shall de-
crease or increase the pro-
spective payment amount (or 
amounts) under clause (i)(V) 
for 2012 (or, at the Secretary’s 
discretion, over a period of 
several years beginning with 
2012) by the amount (if any) 
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by 
which 
the 
amount 
(or 
amounts) applied under sub-
clause (I) is greater or less, re-
spectively, than the amount 
(or amounts) that should have 
been applied under clause 
(i)(IV).’’. 
SEC. 
1155. 
INCORPORATING 
PRODUCTIVITY 
IMPROVE-
MENTS INTO MARKET BASKET UPDATE FOR 
HOME HEALTH SERVICES. 
(a) IN GENERAL.—Section 1895(b)(3)(B) of 
the 
Social 
Security 
Act 
(42 
U.S.C. 
1395fff(b)(3)(B)) is amended— 
(1) in clause (iii), by inserting ‘‘(in-
cluding being subject to the productivity 
adjustment 
described 
in 
section 
1886(b)(3)(B)(iii)(II))’’ after ‘‘in the same 
manner’’; and 
(2) in clause (v)(I), by inserting ‘‘(but 
not below 0)’’ after ‘‘reduced’’. 
(b) EFFECTIVE
DATE.—The amendment 
made by subsection (a) shall apply to home 
health market basket percentage increases 
for years beginning with 2010. 
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SEC. 1156. LIMITATION ON MEDICARE EXCEPTIONS TO THE 
PROHIBITION ON CERTAIN PHYSICIAN RE-
FERRALS MADE TO HOSPITALS. 
(a) IN GENERAL.—Section 1877 of the So-
cial Security Act (42 U.S.C. 1395nn) is amend-
ed— 
(1) in subsection (d)(2)— 
(A) in subparagraph (A), by strik-
ing ‘‘and’’ at the end; 
(B) in subparagraph (B), by strik-
ing the period at the end and insert-
ing ‘‘; and’’; and 
(C) by adding at the end the fol-
lowing new subparagraph: 
‘‘(C) in the case where the entity 
is a hospital, the hospital meets the 
requirements of paragraph (3)(D).’’; 
(2) in subsection (d)(3)— 
(A) in subparagraph (B), by strik-
ing ‘‘and’’ at the end; 
(B) in subparagraph (C), by strik-
ing the period at the end and insert-
ing ‘‘; and’’; and 
(C) by adding at the end the fol-
lowing new subparagraph: 
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‘‘(D) the hospital meets the re-
quirements described in subsection 
(i)(1).’’; 
(3) by amending subsection (f) to read 
as follows: 
‘‘(f) REPORTING AND DISCLOSURE REQUIRE-
MENTS.— 
‘‘(1) IN
GENERAL.—Each entity pro-
viding covered items or services for 
which payment may be made under this 
title shall provide the Secretary with the 
information concerning the entity’s own-
ership, investment, and compensation ar-
rangements, including— 
‘‘(A) the covered items and serv-
ices provided by the entity, and 
‘‘(B) the names and unique physi-
cian identification numbers of all 
physicians with an ownership or in-
vestment interest (as described in 
subsection (a)(2)(A)), or with a com-
pensation arrangement (as described 
in subsection (a)(2)(B)), in the entity, 
or whose immediate relatives have 
such an ownership or investment in-
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terest or who have such a compensa-
tion relationship with the entity. 
Such information shall be provided in 
such form, manner, and at such times as 
the Secretary shall specify. The require-
ment of this subsection shall not apply to 
designated health services provided out-
side the United States or to entities 
which the Secretary determines provide 
services for which payment may be made 
under this title very infrequently. 
‘‘(2) 
REQUIREMENTS
FOR
HOSPITALS 
WITH
PHYSICIAN
OWNERSHIP
OR
INVEST-
MENT.—In the case of a hospital that 
meets the requirements described in sub-
section (i)(1), the hospital shall— 
‘‘(A) submit to the Secretary an 
initial report, and periodic updates at 
a frequency determined by the Sec-
retary, containing a detailed descrip-
tion of the identity of each physician 
owner and physician investor and 
any other owners or investors of the 
hospital; 
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‘‘(B) require that any referring 
physician owner or investor discloses 
to the individual being referred, by a 
time that permits the individual to 
make a meaningful decision regard-
ing the receipt of services, as deter-
mined by the Secretary, the owner-
ship or investment interest, as appli-
cable, of such referring physician in 
the hospital; and 
‘‘(C) disclose the fact that the hos-
pital is partially or wholly owned by 
one or more physicians or has one or 
more physician investors— 
‘‘(i) on any public website for 
the hospital; and 
‘‘(ii) in any public advertising 
for the hospital. 
The information to be reported or dis-
closed under this paragraph shall be pro-
vided in such form, manner, and at such 
times as the Secretary shall specify. The 
requirements of this paragraph shall not 
apply to designated health services fur-
nished outside the United States or to en-
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tities which the Secretary determines 
provide services for which payment may 
be made under this title very infre-
quently. 
‘‘(3) PUBLICATION
OF
INFORMATION.— 
The Secretary shall publish, and periodi-
cally update, the information submitted 
by hospitals under paragraph (2)(A) on 
the public Internet website of the Centers 
for Medicare & Medicaid Services.’’; 
(4) by amending subsection (g)(5) to 
read as follows: 
‘‘(5) FAILURE TO REPORT OR DISCLOSE 
INFORMATION.— 
‘‘(A) REPORTING.—Any person who 
is required, but fails, to meet a re-
porting requirement of paragraphs 
(1) and (2)(A) of subsection (f) is sub-
ject to a civil money penalty of not 
more than $10,000 for each day for 
which reporting is required to have 
been made. 
‘‘(B) DISCLOSURE.—Any physician 
who is required, but fails, to meet a 
disclosure requirement of subsection 
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(f)(2)(B) or a hospital that is required, 
but fails, to meet a disclosure require-
ment of subsection (f)(2)(C) is subject 
to a civil money penalty of not more 
than $10,000 for each case in which 
disclosure is required to have been 
made. 
‘‘(C) APPLICATION.—The provisions 
of section 1128A (other than the first 
sentence of subsection (a) and other 
than subsection (b)) shall apply to a 
civil money penalty under subpara-
graphs (A) and (B) in the same man-
ner as such provisions apply to a pen-
alty or proceeding under section 
1128A(a).’’; and 
(5) by adding at the end the following 
new subsection: 
‘‘(i) REQUIREMENTS TO QUALIFY FOR RURAL 
PROVIDER
AND HOSPITAL OWNERSHIP EXCEP-
TIONS TO SELF-REFERRAL PROHIBITION.— 
‘‘(1) REQUIREMENTS
DESCRIBED.—For 
purposes of subsection (d)(3)(D), the re-
quirements described in this paragraph 
are as follows: 
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‘‘(A) PROVIDER
AGREEMENT.—The 
hospital had— 
‘‘(i) physician ownership or 
investment on January 1, 2009; 
and 
‘‘(ii) 
a 
provider 
agreement 
under section 1866 in effect on 
such date. 
‘‘(B) PROHIBITION
ON
PHYSICIAN 
OWNERSHIP OR INVESTMENT.—The per-
centage of the total value of the own-
ership or investment interests held in 
the hospital, or in an entity whose as-
sets include the hospital, by physi-
cian owners or investors in the aggre-
gate does not exceed such percentage 
as of the date of enactment of this 
subsection. 
‘‘(C) PROHIBITION ON EXPANSION OF 
FACILITY
CAPACITY.—Except as pro-
vided in paragraph (2), the number of 
operating rooms, procedure rooms, or 
beds of the hospital at any time on or 
after the date of the enactment of this 
subsection are no greater than the 
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number of operating rooms, proce-
dure rooms, or beds, respectively, as 
of such date. 
‘‘(D) ENSURING BONA FIDE OWNER-
SHIP AND INVESTMENT.— 
‘‘(i) Any ownership or invest-
ment interests that the hospital 
offers to a physician are not of-
fered on more favorable terms 
than the terms offered to a person 
who is not in a position to refer 
patients or otherwise generate 
business for the hospital. 
‘‘(ii) The hospital (or any in-
vestors in the hospital) does not 
directly 
or 
indirectly 
provide 
loans or financing for any physi-
cian owner or investor in the hos-
pital. 
‘‘(iii) The hospital (or any in-
vestors in the hospital) does not 
directly or indirectly guarantee a 
loan, make a payment toward a 
loan, or otherwise subsidize a 
loan, for any physician owner or 
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investor or group of physician 
owners or investors that is re-
lated to acquiring any ownership 
or investment interest in the hos-
pital. 
‘‘(iv) Ownership or investment 
returns are distributed to each 
owner or investor in the hospital 
in an amount that is directly pro-
portional to the ownership or in-
vestment interest of such owner 
or investor in the hospital. 
‘‘(v) The investment interest 
of the owner or investor is di-
rectly proportional to the owner’s 
or investor’s capital contributions 
made at the time the ownership 
or 
investment 
interest 
is 
ob-
tained. 
‘‘(vi) Physician owners and in-
vestors do not receive, directly or 
indirectly, any guaranteed receipt 
of or right to purchase other busi-
ness interests related to the hos-
pital, including the purchase or 
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lease of any property under the 
control of other owners or inves-
tors in the hospital or located 
near the premises of the hospital. 
‘‘(vii) The hospital does not 
offer a physician owner or inves-
tor the opportunity to purchase 
or lease any property under the 
control of the hospital or any 
other owner or investor in the 
hospital on more favorable terms 
than the terms offered to a person 
that is not a physician owner or 
investor. 
‘‘(viii) The hospital does not 
condition any physician owner-
ship or investment interests ei-
ther directly or indirectly on the 
physician owner or investor mak-
ing or influencing referrals to the 
hospital or otherwise generating 
business for the hospital. 
‘‘(E) PATIENT SAFETY.—In the case 
of a hospital that does not offer emer-
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gency services, the hospital has the 
capacity to— 
‘‘(i) provide assessment and 
initial 
treatment 
for 
medical 
emergencies; and 
‘‘(ii) if the hospital lacks addi-
tional 
capabilities 
required 
to 
treat 
the 
emergency 
involved, 
refer and transfer the patient 
with the medical emergency to a 
hospital with the required capa-
bility. 
‘‘(F) LIMITATION ON APPLICATION TO 
CERTAIN
CONVERTED
FACILITIES.—The 
hospital was not converted from an 
ambulatory surgical center to a hos-
pital on or after the date of enact-
ment of this subsection. 
‘‘(2) EXCEPTION TO PROHIBITION ON EX-
PANSION OF FACILITY CAPACITY.— 
‘‘(A) PROCESS.— 
‘‘(i) ESTABLISHMENT.—The Sec-
retary shall establish and imple-
ment a process under which a 
hospital may apply for an excep-
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tion from the requirement under 
paragraph (1)(C). 
‘‘(ii) OPPORTUNITY FOR COMMU-
NITY
INPUT.—The process under 
clause (i) shall provide persons 
and entities in the community in 
which the hospital applying for 
an exception is located with the 
opportunity to provide input with 
respect to the application. 
‘‘(iii) TIMING FOR IMPLEMENTA-
TION.—The Secretary shall imple-
ment the process under clause (i) 
on the date that is one month 
after the promulgation of regula-
tions described in clause (iv). 
‘‘(iv) REGULATIONS.—Not later 
than the first day of the month 
beginning 18 months after the 
date of the enactment of this sub-
section, the Secretary shall pro-
mulgate regulations to carry out 
the process under clause (i). The 
Secretary may issue such regula-
tions as interim final regulations. 
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‘‘(B) FREQUENCY.—The process de-
scribed in subparagraph (A) shall per-
mit a hospital to apply for an excep-
tion up to once every 2 years. 
‘‘(C) PERMITTED INCREASE.— 
‘‘(i) IN
GENERAL.—Subject to 
clause (ii) and subparagraph (D), 
a hospital granted an exception 
under the process described in 
subparagraph (A) may increase 
the number of operating rooms, 
procedure rooms, or beds of the 
hospital above the baseline num-
ber of operating rooms, procedure 
rooms, or beds, respectively, of 
the hospital (or, if the hospital 
has been granted a previous ex-
ception under this paragraph, 
above the number of operating 
rooms, procedure rooms, or beds, 
respectively, of the hospital after 
the application of the most recent 
increase under such an excep-
tion). 
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‘‘(ii) 
100 
PERCENT
INCREASE 
LIMITATION.—The Secretary shall 
not permit an increase in the 
number of operating rooms, pro-
cedure rooms, or beds of a hos-
pital under clause (i) to the extent 
such increase would result in the 
number of operating rooms, pro-
cedure rooms, or beds of the hos-
pital exceeding 200 percent of the 
baseline 
number 
of 
operating 
rooms, procedure rooms, or beds 
of the hospital. 
‘‘(iii) BASELINE NUMBER OF OP-
ERATING
ROOMS, 
PROCEDURE 
ROOMS, OR
BEDS.—In this para-
graph, the term ‘baseline number 
of operating rooms, procedure 
rooms, or beds’ means the number 
of operating rooms, procedure 
rooms, or beds of a hospital as of 
the date of enactment of this sub-
section. 
‘‘(D) INCREASE
LIMITED
TO
FACILI-
TIES ON THE MAIN CAMPUS OF THE HOS-
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PITAL.—Any increase in the number of 
operating rooms, procedure rooms, or 
beds of a hospital pursuant to this 
paragraph may only occur in facili-
ties on the main campus of the hos-
pital. 
‘‘(E) CONDITIONS FOR APPROVAL OF 
AN
INCREASE
IN
FACILITY
CAPACITY.— 
The Secretary may grant an excep-
tion under the process described in 
subparagraph (A) only to a hospital— 
‘‘(i) that is located in a county 
in which the percentage increase 
in the population during the most 
recent 5-year period for which 
data are available is estimated to 
be at least 150 percent of the per-
centage increase in the popu-
lation growth of the State in 
which the hospital is located dur-
ing that period, as estimated by 
Bureau of the Census and avail-
able to the Secretary; 
‘‘(ii) whose annual percent of 
total inpatient admissions that 
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represent 
inpatient 
admissions 
under the program under title 
XIX is estimated to be equal to or 
greater than the average percent 
with respect to such admissions 
for all hospitals located in the 
county in which the hospital is lo-
cated; 
‘‘(iii) that does not discrimi-
nate against beneficiaries of Fed-
eral health care programs and 
does not permit physicians prac-
ticing at the hospital to discrimi-
nate against such beneficiaries; 
‘‘(iv) that is located in a State 
in which the average bed capacity 
in the State is estimated to be less 
than the national average bed ca-
pacity; 
‘‘(v) that has an average bed 
occupancy rate that is estimated 
to be greater than the average 
bed occupancy rate in the State 
in which the hospital is located; 
and 
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‘‘(vi) that meets other condi-
tions as determined by the Sec-
retary. 
‘‘(F) PROCEDURE
ROOMS.—In this 
subsection, 
the 
term 
‘procedure 
rooms’ includes rooms in which cath-
eterizations, 
angiographies, 
angiograms, and endoscopies are fur-
nished, but such term shall not in-
clude emergency rooms or depart-
ments (except for rooms in which 
catheterizations, 
angiographies, 
angiograms, and endoscopies are fur-
nished). 
‘‘(G) PUBLICATION
OF
FINAL
DECI-
SIONS.—Not later than 120 days after 
receiving 
a 
complete 
application 
under this paragraph, the Secretary 
shall publish on the public Internet 
website of the Centers for Medicare & 
Medicaid Services the final decision 
with respect to such application. 
‘‘(H) 
LIMITATION
ON
REVIEW.— 
There shall be no administrative or 
judicial review under section 1869, 
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section 1878, or otherwise of the ex-
ception process under this para-
graph, including the establishment of 
such process, and any determination 
made under such process. 
‘‘(3) PHYSICIAN OWNER OR INVESTOR DE-
FINED.—For purposes of this subsection 
and subsection (f)(2), the term ‘physician 
owner or investor’ means a physician (or 
an immediate family member of such 
physician) with a direct or an indirect 
ownership or investment interest in the 
hospital. 
‘‘(4) PATIENT SAFETY REQUIREMENT.—In 
the case of a hospital to which the re-
quirements of paragraph (1) apply, inso-
far as the hospital admits a patient and 
does not have any physician available on 
the premises 24 hours per day, 7 days per 
week, before admitting the patient— 
‘‘(A) the hospital shall disclose 
such fact to the patient; and 
‘‘(B) following such disclosure, the 
hospital shall receive from the pa-
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tient a signed acknowledgment that 
the patient understands such fact. 
‘‘(5) CLARIFICATION.—Nothing in this 
subsection shall be construed as pre-
venting the Secretary from terminating a 
hospital’s provider agreement if the hos-
pital is not in compliance with regula-
tions pursuant to section 1866.’’. 
(b) 
VERIFYING
COMPLIANCE.—The 
Sec-
retary of Health and Human Services shall es-
tablish policies and procedures to verify com-
pliance with the requirements described in 
subsections (i)(1) and (i)(4) of section 1877 of 
the Social Security Act, as added by sub-
section (a)(5). The Secretary may use unan-
nounced site reviews of hospitals and audits 
to verify compliance with such requirements. 
(c) IMPLEMENTATION.— 
(1) FUNDING.—For purposes of car-
rying out the amendments made by sub-
section (a) and the provisions of sub-
section (b), in addition to funds otherwise 
available, out of any funds in the Treas-
ury not otherwise appropriated there are 
appropriated to the Secretary of Health 
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and Human Services for the Centers for 
Medicare & Medicaid Services Program 
Management Account $5,000,000 for each 
fiscal year beginning with fiscal year 
2010. Amounts appropriated under this 
paragraph for a fiscal year shall be avail-
able until expended. 
(2) ADMINISTRATION.—Chapter 35 of 
title 44, United States Code, shall not 
apply to the amendments made by sub-
section (a) and the provisions of sub-
section (b). 
SEC. 1157. INSTITUTE OF MEDICINE STUDY OF GEO-
GRAPHIC 
ADJUSTMENT 
FACTORS 
UNDER 
MEDICARE. 
(a) IN GENERAL.—The Secretary of Health 
and Human Services shall enter into a con-
tract with the Institute of Medicine of the Na-
tional Academy of Science to conduct a com-
prehensive empirical study, and provide rec-
ommendations as appropriate, on the accu-
racy of the geographic adjustment factors es-
tablished 
under 
sections 
1848(e) 
and 
1886(d)(3)(E) of the Social Security Act (42 
U.S.C. 1395w–4(e), 11395ww(d)(3)). 
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(b) MATTERS INCLUDED.—Such study shall 
include an evaluation and assessment of the 
following with respect to such adjustment fac-
tors: 
(1) Empirical validity of the adjust-
ment factors. 
(2) Methodology used to determine 
the adjustment factors. 
(3) Measures used for the adjustment 
factors, taking into account— 
(A) timeliness of data and fre-
quency of revisions to such data; 
(B) sources of data and the degree 
to which such data are representative 
of costs; and 
(C) operational costs of providers 
who participate in Medicare. 
(c) EVALUATION.—Such study shall, within 
the context of the United States health care 
marketplace, evaluate and consider the fol-
lowing: 
(1) The effect of the adjustment fac-
tors on the level and distribution of the 
health care workforce and resources, in-
cluding— 
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(A) 
recruitment 
and 
retention 
that takes into account workforce 
mobility between urban and rural 
areas; 
(B) ability of hospitals and other 
facilities to maintain an adequate and 
skilled workforce; and 
(C) patient access to providers 
and needed medical technologies. 
(2) The effect of the adjustment fac-
tors on population health and quality of 
care. 
(3) The effect of the adjustment fac-
tors on the ability of providers to furnish 
efficient, high value care. 
(d) REPORT.—The contract under sub-
section (a) shall provide for the Institute of 
Medicine to submit, not later than one year 
after the date of the enactment of this Act, to 
the Secretary and the Congress a report con-
taining results and recommendations of the 
study conducted under this section. 
(e) FUNDING.—There are authorized to be 
appropriated to carry out this section such 
sums as may be necessary. 
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SEC. 1158. REVISION OF MEDICARE PAYMENT SYSTEMS TO 
ADDRESS GEOGRAPHIC INEQUITIES. 
(a) REVISION OF MEDICARE PAYMENT SYS-
TEMS.—Taking into account the recommenda-
tions described in the report under section 
1157, and notwithstanding the geographic ad-
justments that would otherwise apply under 
section 1848(e) and section 1886(d)(3)(E) of 
the Social Security Act ((42 U.S.C. 1395w-4, 
1395ww(d)), the Secretary of Health and 
Human Services shall include in proposed 
rules applicable to the rulemaking cycle for 
payment systems for physicians’ services and 
inpatient hospital services under sections 
1848 and section 1886(d) of such Act, respec-
tively, proposals (as the Secretary determines 
to be appropriate) to revise the geographic 
adjustment factors used in such systems. Such 
proposals’ rules shall be contained in the next 
rulemaking cycle following the submission to 
the Secretary of the report described in sec-
tion 1157. 
(b) PAYMENT ADJUSTMENTS.— 
(1) FUNDING FOR IMPROVEMENTS.—The 
Secretary shall use funds as provided 
under subsection (c) in making changes 
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to the geographic adjustment factors pur-
suant to subsection (a). In making such 
changes to such geographic adjustment 
factors, the Secretary shall ensure that 
the estimated increased expenditures re-
sulting from such changes does not ex-
ceed the amounts provided under sub-
section (c). 
(2) ENSURING
FAIRNESS.—In carrying 
out this subsection, the Secretary shall 
not reduce the geographic adjustment 
below the factor that applied for such 
payment system in the payment year be-
fore such changes. 
(c) FUNDING.—Amounts in the Medicare 
Improvement Fund under section 1898, as 
amended by section 1146, shall be available to 
the Secretary to make changes to the geo-
graphic adjustments factors as described in 
subsections (a) and (b) with respect to serv-
ices furnished before January 1, 2014.
No 
more than one-half of such amounts shall be 
available with respect to services furnished in 
any one payment year. 
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SEC. 1159. INSTITUTE OF MEDICINE STUDY OF GEO-
GRAPHIC 
VARIATION 
IN 
HEALTH 
CARE 
SPENDING 
AND 
PROMOTING 
HIGH-VALUE 
HEALTH CARE. 
(a) IN GENERAL.—The Secretary of Health 
and Human Services shall enter into an agree-
ment with the Institutes of Medicine of the 
National Academies (referred to in this sec-
tion as the ‘‘Institute’’) to conduct a study on 
geographic variation in per capita health care 
spending among both the Medicare and pri-
vately insured populations. Such study shall 
include each of the following: 
(1) An evaluation of the extent and 
range of such variation using various 
units of geographic measurement. 
(2) The extent to which geographic 
variation can be attributed to differences 
in input prices, practice patterns, access 
to medical services, supply of medical 
services, socio-economic factors, and pro-
vider organizational models. 
(3) The extent to which variations in 
spending are correlated with patient ac-
cess to care, distribution of health care 
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resources, and consensus-based measures 
of health care quality. 
(4) The extent to which variation can 
be attributed to physician and practi-
tioner discretion in making treatment de-
cisions, and the degree to which discre-
tionary treatment decisions are made 
that could be characterized as different 
from the best available medical evidence. 
(5) An assessment of the degree to 
which variation cannot be explained by 
empirical evidence. 
(6) Other factors the Institute deems 
appropriate. 
(b) RECOMMENDATIONS.—Taking into ac-
count the findings under subsection (a), the 
Institute shall recommend strategies for ad-
dressing variation in per capita spending by 
promoting high-value care (as defined in sub-
section (e)). In making such recommenda-
tions, the Institute shall consider each of the 
following: 
(1) Measurement and reporting on 
quality and population health. 
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(2) Reducing fragmented and duplica-
tive care. 
(3) Promoting the practice of evi-
dence-based medicine. 
(4) Empowering patients to make 
value-based care decisions. 
(5) Leveraging the use of health infor-
mation technology. 
(6) The role of financial and other in-
centives. 
(7) Other topics the Institute deems 
appropriate. 
(c) SPECIFIC CONSIDERATIONS.—In making 
the recommendations under subsection (b), 
the Institute shall specifically address wheth-
er payment systems under title XVIII of the 
Social Security Act for physicians and hos-
pitals 
should 
be 
further 
modified 
to 
incentivize high-value care. In so doing, the 
Institute shall consider the adoption of a 
value index based on a composite of appro-
priate measures of quality and cost that 
would adjust provider payments on a regional 
or provider-level basis. If the Institute finds 
that application of such a value index would 
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significantly incentivize providers to furnish 
high-value care, it shall make specific rec-
ommendations on how such an index would 
be designed and implemented. In so doing, it 
should identify specific measures of quality 
and cost appropriate for use in such an index, 
and include a thorough analysis (including on 
a geographic basis) of how payments and 
spending under such title would be affected 
by such an index. 
(d) REPORT.—Not later than three years 
after the date of the enactment of this Act, the 
Institute shall submit to Congress a report 
containing findings and recommendations of 
the study conducted under this section. 
(e) HIGH-VALUE CARE DEFINED.—For pur-
poses of this section, the term ‘‘high-value 
care’’ means the efficient delivery of high 
quality, 
evidence-based, 
patient-centered 
care. 
(f) AUTHORIZATION
OF APPROPRIATIONS.— 
There is authorized to be appropriated such 
sums as are necessary to carry out this sec-
tion. Such sums are authorized to remain 
available until expended. 
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Subtitle D—Medicare Advantage 
Reforms 
PART 1—PAYMENT AND ADMINISTRATION 
SEC. 1161. PHASE-IN OF PAYMENT BASED ON FEE-FOR- 
SERVICE COSTS. 
Section 1853 of the Social Security Act (42 
U.S.C. 1395w–23) is amended— 
(1) in subsection (j)(1)(A)— 
(A) by striking ‘‘beginning with 
2007’’ and inserting ‘‘for 2007, 2008, 
2009, and 2010’’; and 
(B) by inserting after ‘‘(k)(1)’’ the 
following: ‘‘, or, beginning with 2011, 
1⁄12 of the blended benchmark amount 
determined under subsection (n)(1)’’; 
and 
(2) by adding at the end the following 
new subsection: 
‘‘(n) DETERMINATION
OF BLENDED BENCH-
MARK AMOUNT.— 
‘‘(1) IN GENERAL.—For purposes of sub-
section (j), subject to paragraphs (3) and 
(4), the term ‘blended benchmark amount’ 
means for an area— 
‘‘(A) for 2011 the sum of— 
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‘‘(i) 
2⁄3
of 
the 
applicable 
amount (as defined in subsection 
(k)) for the area and year; and 
‘‘(ii) 1⁄3 of the amount speci-
fied in paragraph (2) for the area 
and year; 
‘‘(B) for 2012 the sum of— 
‘‘(i) 
1⁄3
of 
the 
applicable 
amount for the area and year; and 
‘‘(ii) 2⁄3 of the amount speci-
fied in paragraph (2) for the area 
and year; and 
‘‘(C) for a subsequent year the 
amount specified in paragraph (2) for 
the area and year. 
‘‘(2) SPECIFIED
AMOUNT.—The amount 
specified in this paragraph for an area 
and year is the amount specified in sub-
section (c)(1)(D)(i) for the area and year 
adjusted (in a manner specified by the 
Secretary) to take into account the 
phase-out in the indirect costs of medical 
education 
from 
capitation 
rates 
de-
scribed in subsection (k)(4). 
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‘‘(3) 
FEE-FOR-SERVICE
PAYMENT 
FLOOR.—In no case shall the blended 
benchmark amount for an area and year 
be less than the amount specified in para-
graph (2). 
‘‘(4) EXCEPTION FOR PACE PLANS.—This 
subsection shall not apply to payments to 
a PACE program under section 1894.’’. 
SEC. 1162. QUALITY BONUS PAYMENTS. 
(a) IN GENERAL.—Section 1853 of the So-
cial Security Act (42 U.S.C. 1395w-23), as 
amended by section 1161, is amended— 
(1) in subsection (j), by inserting ‘‘sub-
ject to subsection (o),’’ after ‘‘For pur-
poses of this part,’’; and 
(2) by adding at the end the following 
new subsection: 
‘‘(o) QUALITY
BASED
PAYMENT
ADJUST-
MENT.— 
‘‘(1) IN
GENERAL.—In the case of a 
qualifying plan in a qualifying county 
with respect to a year beginning with 
2011, the blended benchmark amount 
under subsection (n)(1) shall be in-
creased— 
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‘‘(A) for 2011, by 2.6 percent; 
‘‘(B) for 2012, by 5.3 percent; and 
‘‘(C) for a subsequent year, by 8.0 
percent. 
‘‘(2) QUALIFYING PLAN AND QUALIFYING 
COUNTY
DEFINED.—For purposes of this 
subsection: 
‘‘(A) QUALIFYING
PLAN.—The term 
‘qualifying plan’ means, for a year 
and subject to paragraph (4), a plan 
that, in a preceding year specified by 
the Secretary, had a quality ranking 
(based on the quality ranking system 
established by the Centers for Medi-
care & Medicaid Services for Medi-
care Advantage plans) of 4 stars or 
higher. 
‘‘(B) 
QUALIFYING
COUNTY.—The 
term ‘qualifying county’ means, for a 
year, a county— 
‘‘(i) that ranked within the 
lowest quartile of counties in the 
amount specified in subsection 
(n)(2) for the year specified by the 
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Secretary 
under 
subparagraph 
(A); and 
‘‘(ii) for which, as of June of 
such specified year, of the Medi-
care Advantage eligible individ-
uals residing in the county— 
‘‘(I) at least 50 percent of 
such 
individuals 
were 
en-
rolled in Medicare Advantage 
plans; and 
‘‘(II) of the residents so en-
rolled at least 50 percent of 
such 
individuals 
were 
en-
rolled in such plans with a 
quality ranking (based on the 
quality ranking system estab-
lished by the Centers for 
Medicare & Medicaid Services 
for 
Medicare 
Advantage 
plans) of 4 stars or higher. 
‘‘(3) NOTIFICATION.—The Secretary, in 
the 
annual 
announcement 
required 
under subsection (b)(1)(B) in 2010 and 
each succeeding year, shall notify the 
Medicare Advantage organization that is 
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offering a qualifying plan in a qualifying 
county of such identification for the year. 
The Secretary shall provide for publica-
tion on the website for the Medicare pro-
gram of the information described in the 
previous sentence. 
‘‘(4) AUTHORITY
TO
DISQUALIFY
DEFI-
CIENT
PLANS.—The Secretary may deter-
mine that a Medicare Advantage plan is 
not a qualifying plan if the Secretary has 
identified deficiencies in the plan’s com-
pliance with rules for Medicare Advan-
tage plans under this part.’’. 
SEC. 1163. EXTENSION OF SECRETARIAL CODING INTEN-
SITY ADJUSTMENT AUTHORITY. 
Section 1853(a)(1)(C)(ii) of the Social Se-
curity Act (42 U.S.C. 1395w–23(a)(1)(C)(ii) is 
amended— 
(1) in the matter before subclause (I), 
by striking ‘‘through 2010’’ and inserting 
‘‘and each subsequent year’’; and 
(2) in subclause (II)— 
(A) by inserting ‘‘periodically’’ be-
fore ‘‘conduct an analysis’’; 
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(B) by inserting ‘‘on a timely 
basis’’ after ‘‘are incorporated’’; and 
(C) by striking ‘‘only for 2008, 
2009, and 2010’’ and inserting ‘‘for 
2008 and subsequent years’’. 
SEC. 1164. SIMPLIFICATION OF ANNUAL BENEFICIARY 
ELECTION PERIODS. 
(a) 2 WEEK PROCESSING PERIOD FOR AN-
NUAL ENROLLMENT PERIOD (AEP).—Paragraph 
(3)(B) of section 1851(e) of the Social Security 
Act (42 U.S.C. 1395w–21(e)) is amended— 
(1) by striking ‘‘and’’ at the end of 
clause (iii); 
(2) in clause (iv)— 
(A) by striking ‘‘and succeeding 
years’’ and inserting ‘‘, 2008, 2009, and 
2010’’; and 
(B) by striking the period at the 
end and inserting ‘‘; and’’; and 
(3) by adding at the end the following 
new clause: 
‘‘(v) with respect to 2011 and 
succeeding years, the period be-
ginning on November 1 and end-
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ing on December 15 of the year 
before such year.’’. 
(b) ELIMINATION
OF 3-MONTH ADDITIONAL 
OPEN ENROLLMENT PERIOD (OEP).—Effective 
for plan years beginning with 2011, paragraph 
(2) of such section is amended by striking sub-
paragraph (C). 
SEC. 1165. EXTENSION OF REASONABLE COST CONTRACTS. 
Section 1876(h)(5)(C) of the Social Secu-
rity Act (42 U.S.C. 1395mm(h)(5)(C)) is amend-
ed— 
(1) in clause (ii), by striking ‘‘January 
1, 2010’’ and inserting ‘‘January 1, 2012’’; 
and 
(2) in clause (iii), by striking ‘‘the 
service area for the year’’ and inserting 
‘‘the portion of the plan’s service area for 
the year that is within the service area of 
a reasonable cost reimbursement con-
tract’’. 
SEC. 1166. LIMITATION OF WAIVER AUTHORITY FOR EM-
PLOYER GROUP PLANS. 
(a) IN GENERAL.—The first sentence of 
paragraph (2) of section 1857(i) of the Social 
Security Act (42 U.S.C. 1395w–27(i)) is amend-
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Act (42 U.S.C. 1395m(m)) is amended by 
adding at the end the following new sub-
clause: 
‘‘(IX) A renal dialysis facil-
ity.’’ 
(2) EFFECTIVE DATE.—The amendment 
made by paragraph (1) shall apply to 
services furnished on or after January 1, 
2011. 
(b) TELEHEALTH ADVISORY COMMITTEE.— 
(1) ESTABLISHMENT.—Section 1868 of 
the Social Security Act (42 U.S.C. 1395ee) 
is amended— 
(A) in the heading, by adding at 
the end the following: ‘‘TELEHEALTH 
ADVISORY COMMITTEE’’; and 
(B) by adding at the end the fol-
lowing new subsection: 
‘‘(c) TELEHEALTH ADVISORY COMMITTEE.— 
‘‘(1) IN GENERAL.—The Secretary shall 
appoint a Telehealth Advisory Committee 
(in this subsection referred to as the ‘Ad-
visory Committee’) to make recommenda-
tions to the Secretary on policies of the 
Centers for Medicare & Medicaid Serv-
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