‘‘(III) 10 percent of the stand-
ardized spending per episode in the 
second previous year. 
‘‘(ii) EXCLUSION
OF
OUTLIERS
AND 
STANDARDIZATION.—In 
calculating 
the 
amount of the base average spending tar-
get for an applicable condition under 
clause (i) for a discharging hospital, the 
Secretary shall— 
‘‘(I) exclude from the calculation 
payments for episodes of care for the 
applicable condition that exceed the 
95th percentile of all such spending 
for such episodes of care and applica-
ble condition, as estimated by the Sec-
retary, based on the most recent data 
available; and 
‘‘(II) standardize the spending 
made in each year in the base period 
to each provider of service or supplier 
to remove the spending adjustments 
in effect in such year relating to pro-
vider or supplier location (such as 
area wage indices) and provider type 
(such as indirect medical education 
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adjustments 
and 
disproportionate 
share hospital adjustments). 
‘‘(C) TRENDING THE SPENDING TARGETS 
BASED
ON
NATIONAL
GROWTH
RATES
TO 
AGREEMENT
YEAR; PERIODIC
REBASING
FOR 
NEW AGREEMENT PERIODS.— 
‘‘(i) IN
GENERAL.—The Secretary 
shall update the base average spending tar-
gets for all discharging hospitals under 
subparagraph (B) for each applicable con-
dition and agreement year based on trends 
in the national fee-for-service claims data 
for applicable services furnished during an 
episode of care for an applicable condition 
from the base period to the agreement year 
involved. Such update shall not vary by 
discharging hospital. 
‘‘(ii) PERIODIC
REBASING
FOR
NEW 
AGREEMENT
PERIODS.—At the start of 
each new agreement period, the Secretary 
shall update the base period and calculate 
new spending targets under the previous 
provisions of this paragraph for a dis-
charging hospital and applicable condi-
tions, including providing for adjustments 
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by provider location and provider type of 
the 
type 
described 
in 
subparagraph 
(B)(ii)(II). 
‘‘(D) BASE
PERIOD
DEFINED.—In this 
paragraph, except as provided in subparagraph 
(C)(ii), the term ‘base period’ means the most 
recent 3-year period for which complete data 
are available to carry out this subsection. 
‘‘(g) FEE-FOR-SERVICE BUNDLED PAYMENT MODEL 
WITH SHARED SAVINGS AND SHARED LOSSES.— 
‘‘(1) FEE-FOR-SERVICE-BASED
PAYMENT.—If 
the payment model under this subsection is selected 
by a qualified entity, the Secretary shall pay pro-
viders of services and suppliers of the entity for ap-
plicable services for an applicable condition during 
an episode of care amounts payable under parts A 
and B for such services in the same manner as such 
providers and suppliers would otherwise be paid 
under such parts (referred to in this subsection as 
‘fee-for-service payments’). 
‘‘(2) SHARED SAVINGS AND LOSSES.— 
‘‘(A) COMPUTATION OF EACH QUALIFIED 
ENTITY’S
ACTUAL
STANDARDIZED
AVERAGE 
SPENDING PER EPISODE OF CARE.—In applying 
this subsection, in calculating the actual stand-
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emcdonald on DSK67QTVN1PROD with BILLS
ardized average fee-for-service spending per epi-
sode of care for a discharging hospital for each 
applicable condition in each agreement year, the 
Secretary shall exclude outlier episodes of care 
described in subsection (f)(2)(B)(ii)(I), as esti-
mated by the Secretary, based on data applica-
ble to payments in the agreement year and shall 
standardize such spending per episode of care 
in 
the 
manner 
provided 
in 
subsection 
(f)(2)(B)(ii)(II). For the purpose of identifying 
outlier episodes of care for each applicable con-
dition, the percentile ranking of each episode of 
care and applicable condition and the 95th per-
centile shall be based on payments standardized 
by adjustments for provider location and pro-
vider type of the type described in subsection 
(f)(2)(B)(ii)(II). 
‘‘(B) COMPUTATION
OF
GROSS
SHARED 
SAVINGS AND SHARED LOSSES FOR EACH AP-
PLICABLE CONDITION FOR EACH DISCHARGING 
HOSPITAL.—For purposes of applying subpara-
graph (C), if actual standardized average fee- 
for-service payments to a qualified entity for all 
episodes of care for an applicable condition in 
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an agreement year for a discharging hospital, 
as calculated under subparagraph (A), are— 
‘‘(i) less than the applicable spending 
target under subsection (f)(2)(C) for such 
condition, year, and hospital, there shall be 
a gross shared savings for such applicable 
condition, year, and hospital equal to 60 
percent of the difference between such ac-
tual average payments and the spending 
target for such condition, year, and hos-
pital; or 
‘‘(ii) greater than such applicable 
spending target, there shall be a gross 
shared loss for such applicable condition, 
year, and hospital equal to 60 percent of 
such difference. 
‘‘(C) RETROSPECTIVE RECONCILIATION.— 
‘‘(i) TOTALING
GROSS
SHARED
SAV-
INGS AND LOSSES FOR ALL CONDITIONS 
AND ALL DISCHARGING HOSPITALS FOR A 
QUALIFIED ENTITY.—At the end of each 
agreement year for each qualified entity, 
for purposes of applying clauses (ii) and 
(iii), the Secretary shall aggregate the 
gross shared savings and the gross shared 
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losses under subparagraph (B) of such en-
tity for the year for all applicable condi-
tions and for all discharging hospitals. 
‘‘(ii) PAYMENT
TO
ENTITY
OF
NET 
SAVINGS.—Subject to clause (iv) and sub-
section (j)(3) (relating to quality perform-
ance thresholds), if such aggregate gross 
shared savings exceeds such aggregate 
gross shared losses for a qualified entity 
for an agreement year, the Secretary shall 
pay to the qualified entity a lump sum 
amount equal to such excess for such year. 
‘‘(iii) COLLECTION FROM ENTITY OF 
NET
LOSSES.—Subject to clause (iv), if 
such aggregate gross shared losses exceeds 
such aggregate gross shared savings for a 
qualified entity for an agreement year, the 
qualified entity shall pay to the Secretary 
(and the Secretary shall collect from the 
entity) a lump sum amount equal to such 
excess for such year. 
‘‘(iv) CAP ON PAYMENTS.—In no case 
shall the payment under clause (ii) or (iii) 
with respect to a qualified entity for an 
agreement year exceed 10 percent of the 
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