determined appropriate by the Secretary 
and applicable historical period, for all 
types of inpatient hospital potentially pre-
ventable complications identified under 
paragraph (2), an amount equal to the 
sum of the amount determined under 
clause (ii) for such hospital and other ap-
plicable healthcare delivery organizations 
determined appropriate by the Secretary 
for each type of inpatient hospital poten-
tially preventable complication for such pe-
riod. 
‘‘(ii) 
AMOUNT
DETERMINED.—The 
amount determined under this clause, with 
respect to an applicable hospital and other 
applicable healthcare delivery organizations 
determined appropriate by the Secretary 
and an applicable historical period, for a 
type of inpatient hospital potentially pre-
ventable 
complication 
identified 
under 
paragraph (2) is equal to the product of— 
‘‘(I) the excess inpatient hospital 
potentially preventable complications 
(as defined in subparagraph (A)) of 
the applicable hospital and other ap-
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plicable healthcare delivery organiza-
tions determined appropriate by the 
Secretary for the type of inpatient 
hospital potentially preventable com-
plication during the applicable histor-
ical period; and 
‘‘(II) the estimated national aver-
age standardized incremental cost of 
that inpatient hospital potentially pre-
ventable complication for applicable 
hospitals 
and 
other 
applicable 
healthcare delivery organizations de-
termined appropriate by the Secretary 
during the applicable historical period 
(as determined under clause (iii)) ad-
justed by each hospital’s applicable 
payment adjustment factors. 
‘‘(iii) 
METHODOLOGY
FOR
ESTI-
MATING
NATIONAL
AVERAGE
INCRE-
MENTAL
COST
OF
INPATIENT
HOSPITAL 
POTENTIALLY
PREVENTABLE
COMPLICA-
TIONS.—In carrying out clause (ii)(II), the 
Secretary shall establish and apply a meth-
odology to estimate the national average 
standardized incremental cost of each inpa-
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tient hospital potentially preventable com-
plication identified under paragraph (2). 
‘‘(2) INPATIENT HOSPITAL POTENTIALLY PRE-
VENTABLE COMPLICATIONS.—For purposes of this 
subsection, the Secretary shall select a methodology 
of identifying potentially preventable complications 
that includes each inpatient hospital complication 
that meets all of the following requirements: 
‘‘(A) The complication occurs during the 
stay and was not present on admission as an 
inpatient. 
‘‘(B) The complication is a harmful event, 
such as a surgical complication, or an acute ill-
ness, such as an infection or an acute exacer-
bation of underlying chronic disease. 
‘‘(C) The complication could reasonably be 
prevented with adequate care and treatment 
and is not a natural progression of a patient’s 
underlying illnesses present on admission. 
‘‘(D) The complication may be reasonably 
construed as related to the care rendered dur-
ing the stay. 
‘‘(E) The complication meets criteria appli-
cable under subsection (j)(1) to the outcome de-
scribed in this subsection. 
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‘‘(f) AGGREGATE PAYMENTS FOR EXCESS POTEN-
TIALLY PREVENTABLE READMISSIONS.— 
‘‘(1) EXCESS POTENTIALLY PREVENTABLE RE-
ADMISSIONS; AGGREGATE
PAYMENTS
FOR
EXCESS 
POTENTIALLY
PREVENTABLE
READMISSIONS
DE-
FINED.—For purposes of this subsection: 
‘‘(A) EXCESS POTENTIALLY PREVENTABLE 
READMISSIONS.— 
‘‘(i) IN GENERAL.—The term ‘excess 
potentially 
preventable 
readmissions’ 
means, for an applicable hospital or other 
applicable healthcare delivery organization 
determined appropriate by the Secretary 
for an applicable historical period and with 
respect to potentially preventable readmis-
sions identified under paragraph (2) for 
each risk class (as defined in clause (iii)) 
the difference between— 
‘‘(I) the expected number of po-
tentially preventable readmissions for 
the applicable hospital based on the 
standard readmission rate in each risk 
class (as defined in clause (ii)); and 
‘‘(II) the applicable hospital’s ac-
tual number of potentially preventable 
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readmissions in each risk class for the 
applicable historical period. 
Such difference may be a positive or nega-
tive number. 
‘‘(ii) 
STANDARD
READMISSION 
RATE.—In carrying out clause (i)(I), the 
standard readmission rate shall be based 
on the average potentially preventable re-
admission rate in each risk class, as estab-
lished under clause (iii), in the applicable 
historical period, multiplied by the pay-
ment reduction factor established under 
subsection (d)(3) for the applicable pro-
spective period. 
‘‘(iii) RISK
ADJUSTMENT.—In this 
subparagraph, the term ‘risk classes’ 
means such exhaustive and mutually exclu-
sive risk classes as the Secretary shall es-
tablish in order to apply a risk-adjustment 
methodology that meets the criteria in sub-
section (j)(2) and account for the age, rea-
son for admission, severity of illness, and 
other risk factors identified by the Sec-
retary of patients that were present in pa-
tients at the time of hospital discharge 
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from the hospital admission that preceded 
their readmission. 
‘‘(B) AGGREGATE PAYMENTS FOR EXCESS 
POTENTIALLY PREVENTABLE READMISSIONS.— 
‘‘(i) IN GENERAL.—The term ‘aggre-
gate payments for excess potentially pre-
ventable readmissions’ means, for an appli-
cable historical period, for all potentially 
preventable readmissions identified under 
paragraph (2), an amount equal to the 
amount determined under clause (ii). 
‘‘(ii) 
AMOUNT
DETERMINED.—The 
amount determined under this clause, with 
respect to an applicable hospital and other 
applicable healthcare delivery organizations 
determined appropriate by the Secretary 
and an applicable historical period, is equal 
to the sum across all risk classes of the 
product of— 
‘‘(I) the excess potentially pre-
ventable readmissions in the risk class 
for the applicable hospital and other 
applicable healthcare delivery organi-
zations determined appropriate by the 
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