sure that long-term care hospitals provide an 
intensive level of care that is sufficient to meet 
the needs of medically complex patients needing 
long hospital stays; and 
‘‘(5) meets patient criteria relating to patient 
mix and severity appropriate to the medically com-
plex cases that long-term care hospitals are uniquely 
designed to treat, as measured under section 
1886(m).’’. 
(b) NEW PATIENT CRITERIA FOR LONG-TERM CARE 
HOSPITAL PROSPECTIVE PAYMENT.—Section 1886 of 
such Act (42 U.S.C. 1395ww) is amended by adding at 
the end the following new subsection: 
‘‘(m) PATIENT CRITERIA FOR PROSPECTIVE PAY-
MENT TO LONG-TERM CARE HOSPITALS.— 
‘‘(1) IN GENERAL.—To be eligible for prospec-
tive payment as a long-term care hospital, a long- 
term care hospital must discharge the percentage es-
tablished in paragraph (4) of each hospital’s total 
patients who are entitled to benefits under part A 
and who were admitted with one or more of the 
medical conditions specified in paragraph (2). 
‘‘(2) SELECTION OF LTC-DRGS.—The Secretary 
shall determine the long-term care diagnosis related 
groups (LTC–DRGs) under section 307(b) of the 
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Medicare, Medicaid, and SCHIP Benefits Improve-
ment and Protection Act of 2000, that are associ-
ated with a high severity of illness for the following 
specified medical conditions: 
‘‘(A) Circulatory conditions. 
‘‘(B) Digestive, endocrine, and metabolic 
conditions. 
‘‘(C) Infectious disease. 
‘‘(D) Neurological conditions. 
‘‘(E) Renal conditions. 
‘‘(F) Respiratory conditions. 
‘‘(G) Skin conditions. 
‘‘(H) Other medically complex conditions 
as defined by the Secretary. 
‘‘(3) CHANGE TO DIFFERENT PATIENT CLASSI-
FICATION
SYSTEM.—If the Secretary changes the 
patient classification system for the long-term care 
hospital prospective payment system (LTCH PPS) 
to a classification system other than the long-term 
care diagnosis related group (LTC–DRG) system, 
the Secretary shall determine the new patient classi-
fication categories that are associated with a high 
severity of illness for the medical conditions specified 
in paragraph (2) in a manner that maintains the 
same proportion of Medicare discharges as the long- 
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term care diagnosis related groups (LTC–DRGs) in 
effect at the time. 
‘‘(4) PERCENTAGE OF MEDICARE PATIENT DIS-
CHARGES.— 
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (B), for each long-term care hospital, the 
proportion of discharges from the long-term 
care diagnosis related groups (LTC–DRGs) de-
termined under paragraph (2), or other patient 
classification categories designated pursuant to 
paragraph (3) if applicable, in a cost reporting 
year must be a percentage, as determined by 
the Secretary, that is not less than 50 percent 
and not greater than 75 percent. 
‘‘(B) TRANSITION PERIOD.—The Secretary 
shall provide for a three-year transition period 
beginning on October 1, 2007, for hospitals 
that were certified as long-term care hospitals 
before such date. The applicable proportion of 
cases in the first year of the transition period 
shall be not less than 50 percent. 
‘‘(5) NONCOMPLIANCE.—If a long-term care 
hospital in a cost reporting year does not discharge 
more than the applicable proportion of cases speci-
fied in paragraph (4), then the hospital must dem-
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onstrate in a period of five out of six consecutive 
months at the end of the hospital’s next cost report-
ing year that it meets the applicable proportion of 
cases in paragraph (4). If the hospital cannot make 
such a demonstration, then the hospital shall be paid 
for all cases after the hospital’s next cost reporting 
year as a subsection (d) hospital under subsection 
(d).’’. 
(c) NEGOTIATED RULEMAKING TO DEVELOP LTCH 
FACILITY AND PATIENT CRITERIA.—The Secretary shall 
promulgate regulations to carry out the amendments made 
by this section on an expedited basis and using a nego-
tiated rulemaking process under subchapter III of chapter 
5 of title 5, United States Code. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to discharges occurring on or after 
October 1, 2007. 
SEC. 4. LTCH QUALITY IMPROVEMENT INITIATIVE. 
(a) STUDY TO ESTABLISH QUALITY MEASURES.— 
The Secretary shall conduct a study (in this section re-
ferred to as the ‘‘study’’) to determine appropriate quality 
measures for Medicare patients receiving care in LTCHs. 
(b) REPORT.—The Secretary shall report to Congress 
by October 1, 2007, on the results of the study. 
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(c) SELECTION OF QUALITY MEASURES.—Subject to 
subsection (e), the Secretary shall choose 3 quality meas-
ures from the study to be reported by LTCHs. 
(d) REQUIREMENT FOR SUBMISSION OF DATA.— 
(1) IN GENERAL.—LTCHs must collect data on 
the three quality measures chosen under subsection 
(c) and submit all required quality data to the Sec-
retary. 
(2) FAILURE TO SUBMIT DATA.—Any LTCH 
which does not submit the required quality data to 
the Medicare program in any fiscal year shall have 
the applicable LTCH market basket under section 
1886 reduced by not more than 0.4 percent. 
(e) EXPANSION OF QUALITY MEASURES.—The Sec-
retary may expand the number of quality indicators re-
quired to be reported by LTCHs under the study. If the 
Secretary adds other measures, the measures shall reflect 
consensus among the affected parties. The Secretary may 
replace any measures in appropriate cases, such as where 
all hospitals are effectively in compliance or where meas-
ures have been shown not to represent the best clinical 
practice. 
(f) AVAILABILITY OF DATA TO PUBLIC.—The Sec-
retary shall establish procedures for making the quality 
data submitted under this section available to the public. 
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