‘‘(ii) REQUIREMENT.—In establishing 
the quality component under this subpara-
graph, the Secretary shall take into ac-
count the following: 
‘‘(I) Hospital readmission rates. 
‘‘(II) Hospital emergency depart-
ment utilization for ambulatory care- 
sensitive conditions. 
‘‘(III) Hospital admissions for 
ambulatory care-sensitive conditions. 
‘‘(IV) 
Mortality 
amenable 
to 
health care. 
‘‘(V) Other items determined ap-
propriate by the Secretary. 
‘‘(iii) ESTABLISHMENT.—The quality 
component for each fee schedule area shall 
be the ratio of the quality score for such 
area to the national average quality score. 
‘‘(iv) APPLICATION.—In the case of a 
fee schedule area that is less than an en-
tire State, if available quality data is not 
sufficient to measure quality at the sub- 
State level, the quality component for a 
sub-State fee schedule area shall be the 
quality component for the entire State. 
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‘‘(C) COST COMPONENT.— 
‘‘(i) IN GENERAL.—The cost compo-
nent shall be total annual per beneficiary 
Medicare expenditures under part A and 
this part for the fee schedule area. The 
Secretary may use total per beneficiary ex-
penditures under such parts in the last two 
years of life as an alternative measure if 
the Secretary determines that such meas-
ure better takes into account severity dif-
ferences among fee schedule areas. 
‘‘(ii) 
ESTABLISHMENT.—The 
cost 
component for a fee schedule area shall be 
the ratio of the cost per beneficiary for 
such area to the national average cost per 
beneficiary.’’. 
(b) CONFORMING AMENDMENTS.—Section 1848 of 
the Social Security Act (42 U.S.C. 1395w–4) is amend-
ed— 
(1) in subparagraph (b)(1)(C), by striking ‘‘ge-
ographic’’ and inserting ‘‘geographic and value’’; and 
(2) in subsection (e)— 
(A) in paragraph (1)— 
(i) in the heading, by inserting ‘‘AND 
VALUE’’ after ‘‘GEOGRAPHIC’’; 
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(ii) in subparagraph (A), by striking 
clause (iii) and inserting the following new 
clause: 
‘‘(iii) a value index (as defined in 
paragraph (6)) applicable to physician 
work.’’; 
(iii) in subparagraph (C), by inserting 
‘‘and value’’ after ‘‘geographic’’ in the first 
sentence; 
(iv) in subparagraph (D), by striking 
‘‘physician work effort’’ and inserting 
‘‘value’’; 
(v) by striking subparagraph (E); and 
(vi) by striking subparagraph (G); 
(B) by striking paragraph (2) and insert-
ing the following new paragraph: 
‘‘(2) COMPUTATION
OF
GEOGRAPHIC
AND 
VALUE ADJUSTMENT FACTOR.—For purposes of sub-
section (b)(1)(C), for all physicians’ services for each 
fee schedule area the Secretary shall establish a geo-
graphic and value adjustment factor equal to the 
sum of the geographic cost-of-practice adjustment 
factor (specified in paragraph (3)), the geographic 
malpractice adjustment factor (specified in para-
graph (4)), and the value adjustment factor (speci-
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fied in paragraph (5)) for the service and the area.’’; 
and 
(C) by striking paragraph (5) and insert-
ing the following new paragraph: 
‘‘(5) PHYSICIAN
WORK
VALUE
ADJUSTMENT 
FACTOR.—For purposes of paragraph (2), the ‘phy-
sician work value adjustment factor’ for a service for 
a fee schedule area, is the product of— 
‘‘(A) the proportion of the total relative 
value for the service that reflects the relative 
value units for the work component; and 
‘‘(B) the value index score for the area, 
based on the value index established under 
paragraph (6).’’. 
(c) AVAILABILITY OF QUALITY COMPONENT PRIOR 
TO IMPLEMENTATION.—The Secretary of Health and 
Human Services shall make the quality component de-
scribed in section 1848(c)(6)(B) of the Social Security 
Act, as added by subsection (a), for each fee schedule area 
available to the public by not later than January 1, 2011. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to the Medicare physician hospital 
service for 2012 and each subsequent year. 
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SEC. 3. VALUE INDEX UNDER THE INPATIENT HOSPITAL 
PROSPECTIVE PAYMENT SYSTEM. 
(a) IN GENERAL.—Section 1886(d) of the Social Se-
curity Act (42 U.S.C. 1395ww(d)) is amended by adding 
at the end the following new paragraph: 
‘‘(14) VALUE INDEX.— 
‘‘(A) IN
GENERAL.—The Secretary shall 
determine a value index for each hospital serv-
ice area. The value index shall be the ratio of 
the quality component under subparagraph (C) 
to the cost component under subparagraph (D) 
for that hospital service area. 
‘‘(B) PAYMENT
ADJUSTMENT.—Notwith-
standing any other provision of this title, the 
payment amount made to a subsection (d) hos-
pital 
under 
this 
subsection 
or 
section 
1814(b)(3) for discharges during a fiscal year, 
after all other adjustments and add-ons effected 
under this title, shall be adjusted by multiplying 
such amount by the value index determined 
under subparagraph (A) for the hospital service 
area in which the discharges occur. 
‘‘(C) QUALITY COMPONENT.— 
‘‘(i) IN GENERAL.—The quality com-
ponent shall be based on a composite score 
that reflects quality measures available on 
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a State or hospital service area basis. The 
measures shall reflect health outcomes and 
health status for the Medicare population, 
patient safety, and patient satisfaction. 
The Secretary shall use the best data 
available, after consultation with the Agen-
cy for Healthcare Research and Quality 
and with private entities that compile qual-
ity data. 
‘‘(ii) REQUIREMENT.—In establishing 
the quality component under this subpara-
graph, the Secretary shall take into ac-
count quality measures reported by hos-
pitals under subsection (b)(3)(B)(viii)(III) 
and shall, to the extent feasible, add addi-
tional measures relating to outcomes in 
hospitals. 
‘‘(iii) ESTABLISHMENT.—The quality 
component for each hospital service area 
shall be the ratio of the quality score for 
such area to the national average quality 
score. 
‘‘(iv) APPLICATION.—In the case of a 
hospital service area that is less than an 
entire State, if available quality data is not 
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sufficient to measure quality at the sub- 
State level, the quality component for a 
sub-State hospital service area shall be the 
quality component for the entire State. 
‘‘(D) COST COMPONENT.— 
‘‘(i) IN GENERAL.—The cost compo-
nent shall be total annual per beneficiary 
Medicare expenditures under parts A and 
B for the hospital service area. The Sec-
retary may use total per beneficiary ex-
penditures under such parts in the last two 
years of life as an alternative measure if 
the Secretary determines that such meas-
ure better takes into account severity dif-
ferences among hospital service areas. 
‘‘(ii) 
ESTABLISHMENT.—The 
cost 
component for a hospital service area shall 
be the ratio of the cost per beneficiary for 
such area to the national average cost per 
beneficiary. 
‘‘(E) HOSPITAL
SERVICE
AREA.—In this 
paragraph, the term ‘hospital service area’ 
means such an area as the Secretary shall de-
fine. In defining such areas, the Secretary shall 
use a methodology similar to that used in the 
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establishment of the Dartmouth Atlas of Health 
Care.’’. 
(b) AVAILABILITY OF QUALITY COMPONENT PRIOR 
TO IMPLEMENTATION.—The Secretary of Health and 
Human Services shall make the quality component de-
scribed in section 1886(d)(14)(B) of the Social Security 
Act, as added by subsection (a), for each hospital service 
area available to the public by not later than January 1, 
2011. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to the discharges occurring on or 
after October 1, 2012. 
Æ 
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