192 
tion paid by such employer to qualified employees of 
such employer during such taxable year. 
‘‘(4) COMPENSATION.—The term ‘compensa-
tion’ has the meaning given such term in section 
408(p)(6)(A). 
‘‘(5) FAMILY
COVERAGE.—The term ‘family 
coverage’ means any coverage other than self-only 
coverage. 
‘‘(f) SPECIAL RULES.—For purposes of this sec-
tion— 
‘‘(1) SPECIAL RULE FOR PARTNERSHIPS AND 
SELF-EMPLOYED.—In the case of a partnership (or 
a trade or business carried on by an individual) 
which has one or more qualified employees (deter-
mined without regard to this paragraph) with re-
spect to whom the election under 4980H(a) applies, 
each partner (or, in the case of a trade or business 
carried on by an individual, such individual) shall be 
treated as an employee. 
‘‘(2) AGGREGATION RULE.—All persons treated 
as a single employer under subsection (b), (c), (m), 
or (o) of section 414 shall be treated as 1 employer. 
‘‘(3) DENIAL OF DOUBLE BENEFIT.—Any de-
duction otherwise allowable with respect to amounts 
paid or incurred for health insurance coverage to 
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which subsection (a) applies shall be reduced by the 
amount of the credit determined under this section. 
‘‘(4) INFLATION ADJUSTMENT.—In the case of 
any taxable year beginning after 2013, each of the 
dollar amounts in subsections (b)(2), (c)(2), and 
(e)(2) shall be increased by an amount equal to— 
‘‘(A) such dollar amount, multiplied by 
‘‘(B) the cost of living adjustment deter-
mined under section 1(f)(3) for the calendar 
year in which the taxable year begins deter-
mined by substituting ‘calendar year 2012’ for 
‘calendar year 1992’ in subparagraph (B) 
thereof. 
If any increase determined under this paragraph is 
not a multiple of $50, such increase shall be rounded 
to the next lowest multiple of $50.’’. 
(b) CREDIT TO BE PART OF GENERAL BUSINESS 
CREDIT.—Subsection (b) of section 38 of such Code (re-
lating to general business credit) is amended by striking 
‘‘plus’’ at the end of paragraph (34), by striking the period 
at the end of paragraph (35) and inserting ‘‘, plus’’, and 
by adding at the end the following new paragraph: 
‘‘(36) in the case of a qualified small employer 
(as defined in section 45R(e)), the small business 
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employee health coverage credit determined under 
section 45R(a).’’. 
(c) CLERICAL AMENDMENT.—The table of sections 
for subpart D of part IV of subchapter A of chapter 1 
of such Code is amended by inserting after the item relat-
ing to section 45Q the following new item: 
‘‘Sec. 45R. Small business employee health coverage credit.’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2012. 
Subtitle C—Disclosures To Carry 
Out Health Insurance Exchange 
Subsidies 
SEC. 431. DISCLOSURES TO CARRY OUT HEALTH INSUR-
ANCE EXCHANGE SUBSIDIES. 
(a) IN GENERAL.—Subsection (l) of section 6103 of 
the Internal Revenue Code of 1986 is amended by adding 
at the end the following new paragraph: 
‘‘(21) DISCLOSURE OF RETURN INFORMATION 
TO CARRY OUT HEALTH INSURANCE EXCHANGE SUB-
SIDIES.— 
‘‘(A) IN GENERAL.—The Secretary, upon 
written request from the Health Choices Com-
missioner or the head of a State-based health 
insurance exchange approved for operation 
under section 208 of the America’s Affordable 
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Health Choices Act of 2009, shall disclose to of-
ficers and employees of the Health Choices Ad-
ministration or such State-based health insur-
ance exchange, as the case may be, return in-
formation of any taxpayer whose income is rel-
evant in determining any affordability credit de-
scribed in subtitle C of title II of the America’s 
Affordable Health Choices Act of 2009. Such 
return information shall be limited to— 
‘‘(i) taxpayer identity information 
with respect to such taxpayer, 
‘‘(ii) the filing status of such tax-
payer, 
‘‘(iii) the modified adjusted gross in-
come of such taxpayer (as defined in sec-
tion 59B(e)(5)), 
‘‘(iv) the number of dependents of the 
taxpayer, 
‘‘(v) such other information as is pre-
scribed by the Secretary by regulation as 
might indicate whether the taxpayer is eli-
gible for such affordability credits (and the 
amount thereof), and 
‘‘(vi) the taxable year with respect to 
which the preceding information relates or, 
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if applicable, the fact that such informa-
tion is not available. 
‘‘(B) RESTRICTION ON USE OF DISCLOSED 
INFORMATION.—Return information disclosed 
under subparagraph (A) may be used by offi-
cers and employees of the Health Choices Ad-
ministration or such State-based health insur-
ance exchange, as the case may be, only for the 
purposes of, and to the extent necessary in, es-
tablishing and verifying the appropriate amount 
of any affordability credit described in subtitle 
C of title II of the America’s Affordable Health 
Choices Act of 2009 and providing for the re-
payment of any such credit which was in excess 
of such appropriate amount.’’. 
(b) PROCEDURES AND RECORDKEEPING RELATED 
TO DISCLOSURES.—Paragraph (4) of section 6103(p) of 
such Code is amended— 
(1) by inserting ‘‘, or any entity described in 
subsection (l)(21),’’ after ‘‘or (20)’’ in the matter 
preceding subparagraph (A), 
(2) by inserting ‘‘or any entity described in sub-
section (l)(21),’’ after ‘‘or (o)(1)(A)’’ in subpara-
graph (F)(ii), and 
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(3) by inserting ‘‘or any entity described in sub-
section (l)(21),’’ after ‘‘or (20)’’ both places it ap-
pears in the matter after subparagraph (F). 
(c) UNAUTHORIZED DISCLOSURE OR INSPECTION.— 
Paragraph (2) of section 7213(a) of such Code is amended 
by striking ‘‘or (20)’’ and inserting ‘‘(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 taxpayer 
other than a corporation, there is hereby imposed (in addi-
tion to any other tax imposed by this subtitle) a tax equal 
to— 
‘‘(1) 1 percent of so much of the modified ad-
justed gross income of the taxpayer as exceeds 
$350,000 but does not exceed $500,000, 
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‘‘(2) 1.5 percent of so much of the modified ad-
justed gross income of the taxpayer as exceeds 
$500,000 but does not exceed $1,000,000, and 
‘‘(3) 5.4 percent of so much of the modified ad-
justed gross income of the taxpayer as exceeds 
$1,000,000. 
‘‘(b) TAXPAYERS NOT MAKING A JOINT RETURN.— 
In the case of any taxpayer other than a taxpayer making 
a joint return under section 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 dol-
lar amount equal to— 
‘‘(1) 50 percent of the dollar amount so in ef-
fect in the case of a married individual filing a sepa-
rate return, and 
‘‘(2) 80 percent of the dollar amount so in ef-
fect in any other case. 
‘‘(c) ADJUSTMENTS BASED ON FEDERAL HEALTH 
REFORM SAVINGS.— 
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), in the case of any taxable year beginning 
after December 31, 2012, subsection (a) shall be ap-
plied— 
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‘‘(A) by substituting ‘2 percent’ for ‘1 per-
cent’, and 
‘‘(B) by substituting ‘3 percent’ for ‘1.5 
percent’. 
‘‘(2) ADJUSTMENTS
BASED
ON
EXCESS
FED-
ERAL HEALTH REFORM SAVINGS.— 
‘‘(A) EXCEPTION IF FEDERAL HEALTH RE-
FORM SAVINGS SIGNIFICANTLY EXCEEDS 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 ADDI-
TIONAL FEDERAL HEALTH REFORM SAVINGS.— 
If the excess Federal health reform 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 REFORM 
SAVINGS.—For purposes of this subsection, the 
term ‘excess Federal health reform savings’ 
means the excess of— 
‘‘(i) the Federal health reform sav-
ings, over 
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‘‘(ii) $525,000,000,000. 
‘‘(D) FEDERAL
HEALTH
REFORM
SAV-
INGS.—The term ‘Federal health reform sav-
ings’ 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 Office 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, division 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 re-
spect to which the Director has sufficient data 
to make such determination, and 
‘‘(B) estimate, on the basis of such study 
and the determination under subparagraph (A), 
the aggregate reductions in Federal expendi-
tures which will be achieved as a result of such 
provisions and amendments during so much of 
the period beginning with fiscal year 2010 and 
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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 Manage-
ment and Budget shall conduct a study of the reduc-
tions in Federal expenditures 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 EXPENDITURES 
DETERMINED WITHOUT REGARD TO PROGRAM IN-
VESTMENTS.—For purposes of paragraphs (3) and 
(4), reductions in Federal expenditures shall be de-
termined 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 ‘modified adjusted gross 
income’ means adjusted gross income reduced by any de-
duction allowed for investment interest (as defined in sec-
tion 163(d)). In the case of an estate or trust, adjusted 
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gross income shall be determined as provided in section 
67(e). 
‘‘(e) INFLATION ADJUSTMENTS.— 
‘‘(1) IN GENERAL.—In the case of taxable years 
beginning after 2011, the dollar amounts in sub-
section (a) shall be increased by an amount equal 
to— 
‘‘(A) such dollar amount, multiplied by 
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for the calendar 
year in which the taxable year begins, by sub-
stituting ‘calendar year 2010’ for ‘calendar year 
1992’ in subparagraph (B) thereof. 
‘‘(2) ROUNDING.—If any amount as adjusted 
under paragraph (1) is not a multiple 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 connection 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 sub-
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section (a) (after the application of subsections (b) 
and (e)) shall be decreased by the excess of— 
‘‘(A) the amounts excluded from the tax-
payer’s gross income under section 911, over 
‘‘(B) the amounts of any deductions or ex-
clusions disallowed under section 911(d)(6) 
with respect to the amounts described in sub-
paragraph (A). 
‘‘(3) CHARITABLE
TRUSTS.—Subsection (a) 
shall not apply to a trust all the unexpired 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 im-
posed 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 relating to subpart A the following new item: 
‘‘SUBPART B. SURCHARGE ON HIGH INCOME INDIVIDUALS.’’. 
(c) SECTION 15 NOT TO APPLY.—The amendment 
made by subsection (a) shall not be treated as a change 
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in a rate of tax for purposes of section 15 of the Internal 
Revenue Code of 1986. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2010. 
SEC. 442. DELAY IN APPLICATION OF WORLDWIDE ALLOCA-
TION OF INTEREST. 
(a) IN GENERAL.—Paragraphs (5)(D) and (6) of sec-
tion 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 paragraph (7). 
PART 2—PREVENTION OF TAX AVOIDANCE 
SEC. 451. LIMITATION ON TREATY BENEFITS FOR CERTAIN 
DEDUCTIBLE PAYMENTS. 
(a) IN GENERAL.—Section 894 of the Internal Rev-
enue Code of 1986 (relating to income affected by treaty) 
is amended by adding at the end the following new sub-
section: 
‘‘(d) LIMITATION ON TREATY BENEFITS FOR CER-
TAIN DEDUCTIBLE PAYMENTS.— 
‘‘(1) IN GENERAL.—In the case of any deduct-
ible related-party payment, any withholding tax im-
posed under chapter 3 (and any tax imposed under 
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subpart A or B of this part) with respect to such 
payment may not be reduced under any treaty of the 
United States unless any such withholding tax would 
be reduced under a treaty of the United States if 
such payment were made directly to the foreign par-
ent corporation. 
‘‘(2) 
DEDUCTIBLE
RELATED-PARTY
PAY-
MENT.—For purposes of this subsection, the term 
‘deductible related-party payment’ means any pay-
ment made, directly or indirectly, by any person to 
any other person if the payment is allowable as a de-
duction under this chapter and both persons are 
members of the same foreign controlled group of en-
tities. 
‘‘(3) FOREIGN CONTROLLED GROUP OF ENTI-
TIES.—For purposes of this subsection— 
‘‘(A) IN
GENERAL.—The term ‘foreign 
controlled group of entities’ means a controlled 
group of entities the common parent of which 
is a foreign corporation. 
‘‘(B) CONTROLLED GROUP OF ENTITIES.— 
The term ‘controlled group of entities’ means a 
controlled group of corporations as defined in 
section 1563(a)(1), except that— 
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‘‘(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 subsections (a)(4) and 
(b)(2) of section 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-
trolled 
(within 
the 
meaning 
of 
section 
954(d)(3)) by members of such group (includ-
ing 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 
foreign controlled group of entities referred to in 
paragraph (3)(A). 
‘‘(5) REGULATIONS.—The Secretary may pre-
scribe such regulations or other guidance as are nec-
essary or appropriate to carry out the purposes of 
this subsection, including regulations or other guid-
ance which provide for— 
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‘‘(A) the treatment of two or more persons 
as members of a foreign controlled group of en-
tities if such persons would be the common par-
ent of such group if treated as one corporation, 
and 
‘‘(B) the treatment of any member of a 
foreign controlled group of entities as the com-
mon parent of such group if such treatment is 
appropriate taking into account the economic 
relationships among such entities.’’. 
(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 Internal Rev-
enue Code of 1986 is amended by redesignating subsection 
(o) as subsection (p) and by inserting after subsection (n) 
the following new subsection: 
‘‘(o) CLARIFICATION
OF
ECONOMIC
SUBSTANCE 
DOCTRINE.— 
‘‘(1) APPLICATION OF DOCTRINE.—In the case 
of any transaction to which the economic substance 
doctrine is relevant, such transaction shall be treated 
as having economic substance only if— 
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‘‘(A) the transaction changes in a mean-
ingful way (apart from Federal income tax ef-
fects) the taxpayer’s economic position, and 
‘‘(B) the taxpayer has a substantial pur-
pose (apart from Federal income tax effects) 
for entering into such transaction. 
‘‘(2) SPECIAL RULE WHERE TAXPAYER RELIES 
ON PROFIT POTENTIAL.— 
‘‘(A) IN
GENERAL.—The potential for 
profit of a transaction shall be taken into ac-
count in determining whether the requirements 
of subparagraphs (A) and (B) of paragraph (1) 
are met with respect to the transaction only if 
the present value of the reasonably expected 
pre-tax profit from the transaction is substan-
tial in relation to the present value of the ex-
pected net tax benefits that would be allowed if 
the transaction were respected. 
‘‘(B) TREATMENT OF FEES AND FOREIGN 
TAXES.—Fees and other transaction expenses 
and foreign taxes shall be taken into account as 
expenses in determining pre-tax profit under 
subparagraph (A). 
‘‘(3) STATE AND LOCAL TAX BENEFITS.—For 
purposes of paragraph (1), any State or local income 
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tax effect which is related 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), achieving 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 reduc-
tion of Federal income tax. 
‘‘(5) DEFINITIONS AND SPECIAL RULES.—For 
purposes of this subsection— 
‘‘(A) ECONOMIC SUBSTANCE DOCTRINE.— 
The term ‘economic substance doctrine’ means 
the common law doctrine under which tax bene-
fits under subtitle A with respect to a trans-
action are not allowable if the transaction does 
not have economic substance or lacks a business 
purpose. 
‘‘(B) EXCEPTION FOR PERSONAL TRANS-
ACTIONS OF INDIVIDUALS.—In the case of an 
individual, paragraph (1) shall apply only to 
transactions entered into in connection with a 
trade or business or an activity engaged in for 
the production of income. 
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‘‘(C) OTHER
COMMON
LAW
DOCTRINES 
NOT
AFFECTED.—Except as specifically pro-
vided in this subsection, the provisions of this 
subsection shall not be construed as altering or 
supplanting any other rule of law, and the re-
quirements of this subsection shall be construed 
as being in addition to any such other rule of 
law. 
‘‘(D) DETERMINATION OF APPLICATION OF 
DOCTRINE NOT AFFECTED.—The determination 
of whether the economic substance doctrine is 
relevant to a transaction (or series of trans-
actions) shall be made in the same manner as 
if this subsection had never been enacted. 
‘‘(6) REGULATIONS.—The Secretary shall pre-
scribe such regulations as may be necessary or ap-
propriate to carry out the purposes of this sub-
section.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to transactions entered into after 
the date of the enactment of this Act. 
SEC. 453. PENALTIES FOR UNDERPAYMENTS. 
(a) PENALTY FOR UNDERPAYMENTS ATTRIBUTABLE 
TO TRANSACTIONS LACKING ECONOMIC SUBSTANCE.— 
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(1) IN
GENERAL.—Subsection (b) of section 
6662 of the Internal Revenue Code of 1986 is 
amended by inserting after paragraph (5) the fol-
lowing new paragraph: 
‘‘(6) Any disallowance of claimed tax benefits 
by reason of a transaction lacking economic sub-
stance (within the meaning of section 7701(o)) or 
failing to meet the requirements of any similar rule 
of law.’’. 
(2) INCREASED PENALTY FOR NONDISCLOSED 
TRANSACTIONS.—Section 6662 of such Code is 
amended by adding at the end the following new 
subsection: 
‘‘(i) INCREASE IN PENALTY IN CASE OF NONDIS-
CLOSED NONECONOMIC SUBSTANCE TRANSACTIONS.— 
‘‘(1) IN GENERAL.—In the case of any portion 
of an underpayment which is attributable to one or 
more nondisclosed noneconomic substance trans-
actions, subsection (a) shall be applied with respect 
to such portion by substituting ‘40 percent’ for ‘20 
percent’. 
‘‘(2) 
NONDISCLOSED
NONECONOMIC
SUB-
STANCE TRANSACTIONS.—For purposes of this sub-
section, the term ‘nondisclosed noneconomic sub-
stance transaction’ means any portion of a trans-
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action described in subsection (b)(6) with respect to 
which the relevant facts affecting the tax treatment 
are not adequately disclosed in the return nor in a 
statement attached to the return. 
‘‘(3) 
SPECIAL
RULE
FOR
AMENDED
RE-
TURNS.—Except as provided in regulations, in no 
event shall any amendment or supplement to a re-
turn of tax be taken into account for purposes of 
this subsection if the amendment or supplement is 
filed after the earlier of the date the taxpayer is first 
contacted by the Secretary regarding the examina-
tion of the return or such other date as is specified 
by the Secretary.’’. 
(3) CONFORMING AMENDMENT.—Subparagraph 
(B) of section 6662A(e)(2) of such Code is amend-
ed— 
(A) by striking ‘‘section 6662(h)’’ and in-
serting ‘‘subsections (h) or (i) of section 6662’’, 
and 
(B) 
by 
striking 
‘‘GROSS
VALUATION 
MISSTATEMENT PENALTY’’ in the heading and 
inserting 
‘‘CERTAIN
INCREASED
UNDER-
PAYMENT PENALTIES’’. 
(b) REASONABLE CAUSE EXCEPTION NOT APPLICA-
BLE TO NONECONOMIC SUBSTANCE TRANSACTIONS, TAX 
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SHELTERS, AND CERTAIN LARGE OR 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), respectively, 
(2) by striking ‘‘paragraph (2)’’ in paragraph 
(4), as so redesignated, and inserting ‘‘paragraph 
(3)’’, and 
(3) by inserting after paragraph (1) the fol-
lowing new paragraph: 
‘‘(2) EXCEPTION.—Paragraph (1) shall not 
apply to— 
‘‘(A) to any portion of an underpayment 
which is attributable to one or more tax shelters 
(as defined in section 6662(d)(2)(C)) or trans-
actions described in section 6662(b)(6), and 
‘‘(B) to any taxpayer if such taxpayer is a 
specified 
person 
(as 
defined 
in 
section 
6662(d)(2)(D)(ii)).’’. 
(c) APPLICATION
OF PENALTY
FOR ERRONEOUS 
CLAIM FOR REFUND OR CREDIT TO NONECONOMIC SUB-
STANCE TRANSACTIONS.—Section 6676 of such Code is 
amended by redesignating subsection (c) as subsection (d) 
and inserting after subsection (b) the following new sub-
section: 
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‘‘(c) NONECONOMIC
SUBSTANCE
TRANSACTIONS 
TREATED AS LACKING REASONABLE BASIS.—For pur-
poses of this section, any excessive amount which is attrib-
utable 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 section 
6662(d) of such Code is amended by adding at the 
end the following new subparagraph: 
‘‘(D) SPECIAL REDUCTION RULE FOR CER-
TAIN 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 under-
statement under subparagraph (A) 
shall be reduced by that portion of the 
understatement which is attributable 
to any item with respect to which the 
taxpayer has a reasonable belief that 
the tax treatment of such item by the 
taxpayer is more likely than not the 
proper tax treatment of such item. 
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‘‘(ii) SPECIFIED
PERSON.—For pur-
poses of this subparagraph, the term ‘spec-
ified person’ means— 
‘‘(I) any person required to file 
periodic or other reports under section 
13 of the Securities Exchange Act of 
1934, and 
‘‘(II) any corporation with gross 
receipts in excess of $100,000,000 for 
the taxable year involved. 
All persons treated as a single employer 
under section 52(a) shall be treated as one 
person for purposes of subclause (II).’’. 
(2) CONFORMING AMENDMENT.—Subparagraph 
(C) of section 6662(d)(2) of such Code is amended 
by striking ‘‘Subparagraph (B)’’ and inserting ‘‘Sub-
paragraphs (B) and (D)(i)(II)’’. 
(e) EFFECTIVE DATE.—The amendments made by 
this section shall apply to transactions entered into after 
the date of the enactment of this Act. 
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. 
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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 market basket updates 
that do not already incorporate 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 cov-
erage expansion. 
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 market basket updates 
that do not already incorporate such improvements. 
PART 3—OTHER PROVISIONS 
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 submit 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 measurement. 
Subtitle C—Provisions Related to Medicare Parts A and B 
Sec. 1151. Reducing potentially preventable hospital readmissions. 
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 market basket update 
for home health services. 
Sec. 1156. Limitation on Medicare exceptions to the prohibition on certain phy-
sician referrals made to hospitals. 
Sec. 1157. Institute of Medicine study of geographic adjustment factors under 
Medicare. 
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Sec. 1158. Revision of Medicare payment systems to address geographic inequi-
ties. 
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 periods. 
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 administrative costs. 
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 individ-
uals into chronic care specialized MA plans for special needs 
individuals. 
Sec. 1177. Extension of authority of special needs plans to restrict enrollment. 
Subtitle E—Improvements to Medicare Part D 
Sec. 1181. Elimination of coverage gap. 
Sec. 1182. Discounts for certain part D drugs in original coverage 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 In-
dian Health Service in providing prescription drugs toward the 
annual out-of-pocket threshold under part D. 
Sec. 1185. Permitting mid-year changes in enrollment for formulary changes 
that adversely impact an enrollee. 
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 
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Sec. 1201. Improving assets tests for Medicare Savings Program and low-in-
come subsidy program. 
Sec. 1202. Elimination of part D cost-sharing for certain non-institutionalized 
full-benefit dual eligible individuals. 
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 cer-
tain subsidy eligible individuals. 
Sec. 1207. Application of MA premiums prior to rebate in calculation of low 
income subsidy benchmark. 
Subtitle B—Reducing Health Disparities 
Sec. 1221. Ensuring effective communication in Medicare. 
Sec. 1222. Demonstration to promote access for Medicare beneficiaries with 
limited English proficiency by providing reimbursement for cul-
turally and linguistically 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 kid-
ney transplant patients and other renal dialysis provisions. 
Sec. 1233. Advance care planning consultation. 
Sec. 1234. Part B special enrollment period and waiver of limited enrollment 
penalty for TRICARE beneficiaries. 
Sec. 1235. Exception for use of more recent tax year in case of gains from sale 
of primary residence in computing part B income-related pre-
mium. 
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 services. 
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 coverage 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. 
TITLE IV—QUALITY 
Subtitle A—Comparative Effectiveness Research 
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Sec. 1401. Comparative effectiveness research. 
Subtitle B—Nursing Home Transparency 
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 improvement. 
Sec. 1442. Development of new quality measures; GAO evaluation of data col-
lection process for quality measurement. 
Sec. 1443. Multi-stakeholder pre-rulemaking input into selection 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 manufacturers and dis-
tributors of covered drugs, devices, biologicals, or medical sup-
plies 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 sur-
gical centers on health care-associated 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. 
Sec. 1504. Preservation of resident cap positions from closed hospitals. 
Sec. 1505. Improving accountability for approved medical residency training. 
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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 en-
rollment applications. 
Sec. 1612. Enhanced penalties for submission of false statements 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 participa-
tion. 
Sec. 1616. Enhanced penalties for provision of false information 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 audits. 
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 re-
quirements relating to previous affiliations. 
Sec. 1633. Required inclusion of payment modifier for certain evaluation and 
management services. 
Sec. 1634. Evaluations and reports required under Medicare Integrity Pro-
gram. 
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 enrolled physicians or eligible 
professionals. 
Sec. 1638. Requirement for physicians to provide documentation 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. 
Sec. 1640. Extension of testimonial subpoena authority to program 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 facilities. 
Sec. 1644. Billing agents, clearinghouses, or other alternate payees required to 
register under Medicare. 
Sec. 1645. Conforming civil monetary penalties to False Claims Act amend-
ments. 
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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 National Practitioner Data 
Bank. 
Sec. 1653. Compliance with HIPAA privacy and security standards. 
TITLE VII—MEDICAID AND CHIP 
Subtitle A—Medicaid and Health Reform 
Sec. 1701. Eligibility for individuals with income below 1331⁄3 percent of the 
Federal poverty level. 
Sec. 1702.
Requirements and special rules for certain Medicaid eligible individ-
uals. 
Sec. 1703. CHIP and Medicaid maintenance of effort. 
Sec. 1704. Reduction in Medicaid DSH. 
Sec. 1705. Expanded outstationing. 
Subtitle B—Prevention 
Sec. 1711. Required coverage of preventive services. 
Sec. 1712. Tobacco cessation. 
Sec. 1713. Optional coverage of nurse home visitation services. 
Sec. 1714. State eligibility option for family planning services. 
Subtitle C—Access 
Sec. 1721. Payments to primary care practitioners. 
Sec. 1722. Medical home pilot program. 
Sec. 1723. Translation or interpretation services. 
Sec. 1724. Optional coverage for freestanding birth center services. 
Sec. 1725. Inclusion of public health clinics under the vaccines for children pro-
gram. 
Subtitle D—Coverage 
Sec. 1731. Optional medicaid coverage of low-income HIV-infected individuals. 
Sec. 1732. Extending transitional Medicaid Assistance (TMA). 
Sec. 1733. Requirement of 12-month continuous coverage under certain CHIP 
programs. 
Subtitle E—Financing 
Sec. 1741. Payments to pharmacists. 
Sec. 1742. Prescription drug rebates. 
Sec. 1743. Extension of prescription drug discounts to enrollees of medicaid 
managed care organizations. 
Sec. 1744. Payments for graduate medical education. 
Subtitle F—Waste, Fraud, and Abuse 
Sec. 1751. Health-care acquired conditions. 
Sec. 1752. Evaluations and reports required under Medicaid Integrity Program. 
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Sec. 1753. Require providers and suppliers to adopt programs to reduce waste, 
fraud, and abuse. 
Sec. 1754. Overpayments. 
Sec. 1755. Managed Care Organizations. 
Sec. 1756. Termination of provider participation under Medicaid and CHIP if 
terminated under Medicare or other State plan or child health 
plan. 
Sec. 1757.
Medicaid and CHIP exclusion from participation relating to certain 
ownership, control, and management affiliations. 
Sec. 1758.
Requirement to report expanded set of data elements under MMIS 
to detect fraud and abuse. 
Sec. 1759. Billing agents, clearinghouses, or other alternate payees required to 
register under Medicaid. 
Sec. 1760. Denial of payments for litigation-related misconduct. 
Subtitle G—Puerto Rico and the Territories 
Sec. 1771. Puerto Rico and territories. 
Subtitle H—Miscellaneous 
Sec. 1781. Technical corrections. 
Sec. 1782. Extension of QI program. 
TITLE VIII—REVENUE-RELATED PROVISIONS 
Sec. 1801. Disclosures to facilitate identification of individuals likely to be ineli-
gible for the low-income assistance under the Medicare pre-
scription drug program to assist Social Security Administra-
tion’s outreach to eligible individuals. 
Sec. 1802. Comparative Effectiveness Research Trust Fund; financing for 
Trust Fund. 
TITLE IX—MISCELLANEOUS PROVISIONS 
Sec. 1901. Repeal of trigger provision. 
Sec. 1902. Repeal of comparative cost adjustment (CCA) program. 
Sec. 1903. Extension of gainsharing demonstration. 
Sec. 1904. Grants to States for quality home visitation programs for families 
with young children and families expecting children. 
Sec. 1905. Improved coordination and protection for dual eligibles. 
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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. 
(a) IN GENERAL.—Section 1888(e)(4)(E)(ii) of the 
Social Security Act (42 U.S.C. 1395yy(e)(4)(E)(ii)) is 
amended— 
(1) in subclause (III), by striking ‘‘and’’ at the 
end; 
(2) by redesignating subclause (IV) as sub-
clause (VI); and 
(3) by inserting after subclause (III) the fol-
lowing new subclauses: 
‘‘(IV) for each of fiscal years 
2004 through 2009, the rate com-
puted for the previous fiscal year in-
creased by the skilled nursing facility 
market basket percentage change for 
the fiscal year involved; 
‘‘(V) for fiscal year 2010, the 
rate computed for the previous fiscal 
year; and’’. 
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(b) 
DELAYED
EFFECTIVE
DATE.—Section 
1888(e)(4)(E)(ii)(V) of the Social Security Act, as in-
serted 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 So-
cial 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 January 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— 
(1) in clause (iii)— 
(A) by striking ‘‘(iii) For purposes of this 
subparagraph,’’ and inserting ‘‘(iii)(I) For pur-
poses of this subparagraph, subject to the pro-
ductivity adjustment described in subclause 
(II),’’; and 
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(B) by adding at the end the following new 
subclause: 
‘‘(II) The productivity adjustment described in this 
subclause, with respect to an increase or change for a fis-
cal year or year or cost reporting period, or other annual 
period, is a productivity offset equal to the percentage 
change in the 10-year moving average of annual economy- 
wide private nonfarm business multi-factor productivity 
(as recently published before the promulgation of such in-
crease for the year or period involved). Except as other-
wise provided, any reference to the increase described in 
this clause shall be a reference to the percentage increase 
described in subclause (I) minus the percentage change 
under this subclause.’’; 
(2) in the first sentence of clause (viii)(I), by 
inserting ‘‘(but not below zero)’’ after ‘‘shall be re-
duced’’; and 
(3) in the first sentence of clause (ix)(I)— 
(A) by inserting ‘‘(determined without re-
gard 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)) 
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is amended by inserting ‘‘subject to the productivity ad-
justment described in section 1886(b)(3)(B)(iii)(II)’’ after 
‘‘as calculated 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 fol-
lowing new paragraph: 
‘‘(3) PRODUCTIVITY
ADJUSTMENT.—In imple-
menting the system described in paragraph (1) for 
discharges occurring during the rate year ending in 
2010 or 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 produc-
tivity 
adjustment 
described 
in 
section 
1886(b)(3)(B)(iii)(II).’’. 
(d) INPATIENT REHABILITATION FACILITIES.—The 
second sentence of section 1886(j)(3)(C) of the Social Se-
curity Act (42 U.S.C. 1395ww(j)(3)(C)) is amended by in-
serting ‘‘(subject to the productivity adjustment described 
in section 1886(b)(3)(B)(iii)(II))’’ after ‘‘appropriate per-
centage 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: 
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‘‘(o) PROSPECTIVE
PAYMENT
FOR
PSYCHIATRIC 
HOSPITALS.— 
‘‘(1) REFERENCE TO ESTABLISHMENT AND IM-
PLEMENTATION OF SYSTEM.—For provisions related 
to the establishment and implementation of a pro-
spective payment system for payments under this 
title for inpatient hospital services furnished by psy-
chiatric hospitals (as described in clause (i) of sub-
section (d)(1)(B)) and psychiatric units (as de-
scribed in the matter following clause (v) of such 
subsection), see section 124 of the Medicare, Med-
icaid, and SCHIP Balanced Budget Refinement Act 
of 1999. 
‘‘(2) PRODUCTIVITY
ADJUSTMENT.—In imple-
menting the system described in paragraph (1) for 
discharges occurring during the rate year ending in 
2011 or any subsequent rate year for a psychiatric 
hospital or unit described in such paragraph, to the 
extent that an annual percentage increase factor ap-
plies to a base rate for such discharges for the hos-
pital or unit, respectively, such factor shall be sub-
ject to the productivity adjustment described in sec-
tion 1886(b)(3)(B)(iii)(II).’’. 
(f) HOSPICE CARE.—Subclause (VII) of section 
1814(i)(1)(C)(ii) of the Social Security Act (42 U.S.C. 
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228 
1395f(i)(1)(C)(ii)) is amended by inserting after ‘‘the 
market basket percentage 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 in-
creases 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 conduct, 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 sys-
tems. 
(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 recalibration factor as pro-
posed in the proposed rule for Medicare skilled nurs-
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229 
ing facilities issued by such Secretary on May 12, 
2009 (74 Federal Register 22214 et seq.). 
(b) CHANGE IN PAYMENT FOR NONTHERAPY ANCIL-
LARY (NTA) SERVICES AND THERAPY SERVICES.— 
(1) CHANGES
UNDER
CURRENT
SNF
CLASSI-
FICATION SYSTEM.— 
(A) IN
GENERAL.—Subject to subpara-
graph (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-therapy ancillary services (as specified by 
the Secretary in the notice issued on November 
27, 1998 (63 Federal Register 65561 et seq.)) 
and shall decrease payment for the therapy case 
mix component of such rates by 5.5 percent. 
(B) EFFECTIVE
DATE.—The changes in 
payment described in subparagraph (A) shall 
apply for days on or after January 1, 2010, 
and until the Secretary implements an alter-
native case mix classification system for pay-
ment of skilled nursing facility services under 
section 1888(e) of the Social Security Act (42 
U.S.C. 1395yy(e)). 
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230 
(C) IMPLEMENTATION.—Notwithstanding 
any other provision of law, the Secretary may 
implement by program 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 clas-
sification system to ensure the accuracy of 
payment for non-therapy ancillary services. 
Such analysis shall consider use of appro-
priate indicators which may include age, 
physical and mental status, ability to per-
form activities of daily living, prior nursing 
home stay, broad RUG category, and a 
proxy for length of stay. 
(ii) 
APPLICATION.—Such 
analysis 
shall be conducted in a manner such that 
the future skilled nursing facility classifica-
tion system is implemented to apply to 
services furnished during a fiscal year be-
ginning with fiscal year 2011. 
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231 
(B) CONSULTATION.—In conducting the 
analysis under subparagraph (A), the Secretary 
shall consult with interested parties, including 
the Medicare Payment Advisory Commission 
and other interested stakeholders, to identify 
appropriate predictors of nontherapy ancillary 
costs. 
(C) RULEMAKING.—The Secretary shall 
include the result of the analysis under sub-
paragraph (A) in the fiscal year 2011 rule-
making cycle for purposes of implementation 
beginning for such fiscal year. 
(D) IMPLEMENTATION.—Subject to sub-
paragraph (E) and consistent with subpara-
graph (A)(ii), the Secretary shall implement 
changes to payments for non-therapy ancillary 
services (which may 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 subpara-
graph (A). 
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232 
(E) BUDGET NEUTRALITY.—The Secretary 
shall implement changes described in subpara-
graph (D) in a manner such that the estimated 
expenditures 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 estimated ex-
penditures that would otherwise occur under 
title XVIII of the Social Security Act under 
such future skilled nursing facility services clas-
sification system for such year without such 
changes. 
(c) OUTLIER POLICY FOR NTA AND THERAPY.—Sec-
tion 1888(e) of the Social Security Act (42 U.S.C. 
1395yy(e)) is amended by adding at the end the following 
new paragraph: 
‘‘(13) OUTLIERS FOR NTA AND THERAPY.— 
‘‘(A) 
IN
GENERAL.—With 
respect 
to 
outliers because of unusual variations in the 
type or amount of medically necessary care, be-
ginning with October 1, 2010, the Secretary— 
‘‘(i) shall provide for an addition or 
adjustment to the payment amount other-
wise made under this section with respect 
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233 
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 oth-
erwise made under this section with re-
spect to therapy services in the case of 
such outliers. 
‘‘(B) OUTLIERS
BASED
ON
AGGREGATE 
COSTS.—Outlier adjustments or additional pay-
ments 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 Sec-
retary shall reduce estimated payments that 
would otherwise be made under the prospective 
payment system under this subsection with re-
spect to a fiscal year by 2 percent. The total 
amount of the additional payments or payment 
adjustments for outliers made under this para-
graph with respect to a fiscal year may not ex-
ceed 2 percent of the total payments projected 
or estimated to be made based on the prospec-
tive payment system under this subsection for 
the fiscal year.’’. 
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234 
(d) 
CONFORMING
AMENDMENTS.—Section 
1888(e)(8) of such Act (42 U.S.C. 1395yy(e)(8)) is 
amended— 
(1) in subparagraph (A), by inserting ‘‘and ad-
justment under section 1111(b) of the America’s Af-
fordable Health Choices Act of 2009; 
(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 sub-
paragraph: 
‘‘(D) the establishment of outliers under 
paragraph (13).’’. 
SEC. 1112. MEDICARE DSH REPORT AND PAYMENT ADJUST-
MENTS IN RESPONSE TO COVERAGE EXPAN-
SION. 
(a) DSH REPORT.— 
(1) IN GENERAL.—Not later than January 1, 
2016, the Secretary of Health and Human Services 
shall submit to Congress a report on Medicare DSH 
taking into account the impact of the health care re-
forms carried out under division A in reducing the 
number of uninsured individuals. The report shall 
include recommendations relating to the following: 
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235 
(A) The appropriate amount, targeting, 
and distribution of Medicare DSH to com-
pensate for higher Medicare costs associated 
with serving low-income beneficiaries (taking 
into account variations in the empirical jus-
tification for Medicare DSH attributable to hos-
pital characteristics, including bed size), con-
sistent with the original intent of Medicare 
DSH. 
(B) The appropriate amount, targeting, 
and distribution of Medicare DSH to hospitals 
given their continued uncompensated care costs, 
to the extent such costs remain. 
(2) COORDINATION WITH MEDICAID DSH RE-
PORT.—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 COV-
ERAGE EXPANSION.— 
(1) IN GENERAL.—If there is a significant de-
crease in the national rate of uninsurance as a result 
of this Act (as determined under paragraph (2)(A)), 
then the Secretary of Health and Human Services 
shall, beginning in fiscal year 2017, implement the 
following adjustments to Medicare DSH: 
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236 
(A) The amount of Medicare DSH shall be 
adjusted based on the recommendations of the 
report under subsection (a)(1)(A) and shall 
take into account variations in the empirical 
justification for Medicare DSH attributable to 
hospital characteristics, including bed size. 
(B) Subject to paragraph (3), increase 
Medicare DSH for a hospital by an additional 
amount that is based on the amount of uncom-
pensated 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 ‘‘significant 
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 ex-
ceeds 8 percentage points. 
(B) NATIONAL
RATE
OF
UNINSURANCE 
DEFINED.—The 
term 
‘‘national 
rate 
of 
uninsurance’’ means, for a year, such rate for 
the under-65 population for the year as deter-
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237 
mined and published by the Bureau of the Cen-
sus in its Current Population Survey in or 
about September of the succeeding year. 
(3) UNCOMPENSATED CARE INCREASE.— 
(A) COMPUTATION OF DSH SAVINGS.—For 
each fiscal year (beginning with fiscal year 
2017), the Secretary shall estimate the aggre-
gate reduction in Medicare DSH that will result 
from the adjustment under paragraph (1)(A). 
(B) 
STRUCTURE
OF
PAYMENT
IN-
CREASE.—The Secretary shall compute the in-
crease in Medicare DSH under paragraph 
(1)(B) for a fiscal year in accordance with a 
formula established by the Secretary that pro-
vides that— 
(i) the aggregate amount of such in-
crease for the fiscal year does not exceed 
50 percent of the aggregate reduction in 
Medicare DSH estimated by the Secretary 
for such fiscal year; and 
(ii) hospitals with higher levels of un-
compensated care receive a greater in-
crease. 
(c) MEDICARE DSH.—In this section, the term 
‘‘Medicare DSH’’ means adjustments in payments under 
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238 
section 1886(d)(5)(F) of the Social Security Act (42 
U.S.C. 1395ww(d)(5)(F)) for inpatient hospital services 
furnished by disproportionate share hospitals. 
Subtitle B—Provisions Related to 
Part B 
PART 1—PHYSICIANS’ SERVICES 
SEC. 1121. SUSTAINABLE GROWTH RATE REFORM. 
(a) TRANSITIONAL
UPDATE
FOR
2010.—Section 
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 defined 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 ‘‘subpara-
graph (D)’’ and inserting ‘‘subparagraphs (D) and 
(G)’’; and 
(2) by adding at the end the following new sub-
paragraph: 
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‘‘(G) REBASING USING 2009 FOR FUTURE 
UPDATE
ADJUSTMENTS.—In determining the 
update adjustment factor under subparagraph 
(B) for 2011 and subsequent years— 
‘‘(i) the allowed expenditures for 2009 
shall be equal to the amount of the actual 
expenditures for physicians’ services during 
2009; and 
‘‘(ii) the reference in subparagraph 
(B)(ii)(I) to ‘April 1, 1996’ shall be treat-
ed as a reference to ‘January 1, 2009 (or, 
if later, the first day of the fifth year be-
fore the year involved)’.’’. 
(c) LIMITATION
ON
PHYSICIANS’ SERVICES
IN-
CLUDED IN TARGET GROWTH RATE COMPUTATION TO 
SERVICES COVERED UNDER PHYSICIAN FEE SCHED-
ULE.—Effective for services furnished on or after January 
1, 2009, section 1848(f)(4)(A) of such Act is amended 
striking ‘‘(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 schedule, 
or for services described in section 1861(p) (other than 
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240 
such services when furnished in the facility of a provider 
of services)’’. 
(d) 
ESTABLISHMENT
OF
SEPARATE
TARGET 
GROWTH RATES FOR CATEGORIES OF SERVICES.— 
(1) 
ESTABLISHMENT
OF
SERVICE
CAT-
EGORIES.—Subsection (j) of section 1848 of the So-
cial Security Act (42 U.S.C. 1395w–4) is amended 
by adding at the end the following new paragraph: 
‘‘(5) SERVICE CATEGORIES.—For services fur-
nished on or after January 1, 2009, each of the fol-
lowing categories of physicians’ services (as defined 
in paragraph (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 des-
ignated Evaluation and Management in the 
Health Care Common Procedure Coding 
System (established by the Secretary under 
subsection (c)(5) as of December 31, 2009, 
and as subsequently modified by the Sec-
retary); and 
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241 
‘‘(ii) preventive services (as defined in 
section 1861(iii)) for which payment is 
made under this section. 
‘‘(B) All other services not described 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
CONVER-
SION
FACTORS
FOR
EACH
SERVICE
CATEGORY.— 
Subsection (d)(1) of section 1848 of the Social Secu-
rity Act (42 U.S.C. 1395w–4) is amended— 
(A) in subparagraph (A)— 
(i) by designating the sentence begin-
ning ‘‘The conversion factor’’ as clause (i) 
with the heading ‘‘APPLICATION OF SIN-
GLE
CONVERSION
FACTOR.—’’ and with 
appropriate indentation; 
(ii) by striking ‘‘The conversion fac-
tor’’ and inserting ‘‘Subject to clause (ii), 
the conversion factor’’; and 
(iii) by adding at the end the fol-
lowing new clause: 
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‘‘(ii) APPLICATION OF MULTIPLE CON-
VERSION
FACTORS
BEGINNING
WITH 
2011.— 
‘‘(I) IN
GENERAL.—In applying 
clause (i) for years beginning with 
2011, separate conversion factors 
shall be established for each service 
category of physicians’ services (as de-
fined in subsection (j)(5)) and any 
reference in this section to a conver-
sion factor for such years shall be 
deemed to be a reference to the con-
version factor for each of such cat-
egories. 
‘‘(II) INITIAL CONVERSION FAC-
TORS.—Such factors for 2011 shall be 
based upon the single conversion fac-
tor for the previous year multiplied by 
the update established under para-
graph (11) for such category for 
2011. 
‘‘(III) UPDATING
OF
CONVER-
SION
FACTORS.—Such factor for a 
service category for a subsequent year 
shall be based upon the conversion 
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243 
factor for such category for the pre-
vious year and adjusted by the update 
established for such category under 
paragraph (11) for the year in-
volved.’’; and 
(B) in subparagraph (D), by striking 
‘‘other physicians’ services’’ and inserting ‘‘for 
physicians’ services described in the service cat-
egory described in subsection (j)(5)(B)’’. 
(3) ESTABLISHING UPDATES FOR CONVERSION 
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 para-
graph (11)(B), the allowed’’; and 
(B) by adding at the end the following new 
paragraph: 
‘‘(11) UPDATES FOR SERVICE CATEGORIES BE-
GINNING WITH 2011.— 
‘‘(A) IN GENERAL.—In applying paragraph 
(4) for a year beginning with 2011, the fol-
lowing rules apply: 
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‘‘(i) APPLICATION OF SEPARATE UP-
DATE ADJUSTMENTS FOR EACH SERVICE 
CATEGORY.—Pursuant 
to 
paragraph 
(1)(A)(ii)(I), the update shall be made to 
the conversion factor for each service cat-
egory (as defined in subsection (j)(5)) 
based upon an update adjustment factor 
for the respective category and year and 
the update adjustment factor shall be com-
puted, for a year, separately for each serv-
ice category. 
‘‘(ii) COMPUTATION OF ALLOWED AND 
ACTUAL EXPENDITURES BASED ON SERV-
ICE CATEGORIES.—In computing the prior 
year adjustment component and the cumu-
lative adjustment component under clauses 
(i) and (ii) of paragraph (4)(B), the fol-
lowing rules apply: 
‘‘(I) APPLICATION
BASED
ON 
SERVICE
CATEGORIES.—The allowed 
expenditures and actual expenditures 
shall be the allowed and actual ex-
penditures for the service category, as 
determined under subparagraph (B). 
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245 
‘‘(II) APPLICATION OF CATEGORY 
SPECIFIC
TARGET
GROWTH
RATE.— 
The growth rate applied under clause 
(ii)(II) of such paragraph shall be the 
target growth rate for the service cat-
egory involved under subsection (f)(5). 
‘‘(B) DETERMINATION
OF
ALLOWED
EX-
PENDITURES.—In applying paragraph (4) for a 
year beginning with 2010, notwithstanding sub-
paragraph (C)(iii) of such paragraph, the al-
lowed expenditures for a service category for a 
year is an amount computed by the Secretary 
as follows: 
‘‘(i) FOR 2010.—For 2010: 
‘‘(I) TOTAL
2009
ACTUAL
EX-
PENDITURES FOR ALL SERVICES IN-
CLUDED
IN
SGR
COMPUTATION
FOR 
EACH SERVICE CATEGORY.—Compute 
total actual expenditures for physi-
cians’ services (as defined in sub-
section (f)(4)(A)) for 2009 for each 
service category. 
‘‘(II) 
INCREASE
BY
GROWTH 
RATE TO OBTAIN 2010 ALLOWED EX-
PENDITURES
FOR
SERVICE
CAT-
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EGORY.—Compute allowed expendi-
tures for the service category for 2010 
by increasing the allowed expenditures 
for the service category for 2009 com-
puted under subclause (I) by the tar-
get growth rate for such service cat-
egory under subsection (f) for 2010. 
‘‘(ii) FOR SUBSEQUENT YEARS.—For 
a subsequent year, take the amount of al-
lowed expenditures for such category for 
the preceding year (under clause (i) or this 
clause) and increase it by the target 
growth rate determined under subsection 
(f) for such category 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 CATEGORY BE-
GINNING WITH 2010.—The target growth rate for a 
year beginning with 2010 shall be computed and ap-
plied separately under this subsection for each serv-
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247 
ice category (as defined in subsection (j)(5)) and 
shall be computed using the same method for com-
puting the target growth rate except that the factor 
described in paragraph (2)(C) for— 
‘‘(A) the service category described in sub-
section (j)(5)(A) shall be increased by 0.02; and 
‘‘(B) the service category described in sub-
section (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 in-
serting ‘‘or target’’ after ‘‘sustain-
able’’; and 
(II) in paragraph (4)(B)(ii)(II), 
by inserting ‘‘or target’’ after ‘‘sus-
tainable’’; and 
(ii) in the heading of subsection (f), 
by inserting ‘‘AND
TARGET
GROWTH 
RATE’’ 
after 
‘‘SUSTAINABLE
GROWTH 
RATE’’; 
(iii) in subsection (f)(1)— 
(I) by striking ‘‘and’’ at the end 
of subparagraph (A); 
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(II) in subparagraph (B), by in-
serting ‘‘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 subparagraph: 
‘‘(C) November 1 of each succeeding 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 2000’’ the following: ‘‘and 
ending with 2009’’. 
(e) APPLICATION TO ACCOUNTABLE CARE ORGANI-
ZATION 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 accountable 
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— 
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(1) allows each such organization to have its 
own expenditure targets and updates for such practi-
tioners, with respect to beneficiaries who are attrib-
utable to that organization, that are consistent with 
the methodologies described in such subsection (f); 
and 
(2) provides that the target growth rate appli-
cable to other physicians shall not apply to such 
physicians to the extent that the physicians’ services 
are furnished through the accountable care organiza-
tion. 
In applying paragraph (1), the Secretary of Health and 
Human Services may apply the difference in the update 
under such paragraph on a claim-by-claim or lump sum 
basis and such a payment shall be taken into account 
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 Secretary 
shall— 
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‘‘(I) periodically identify services 
as being potentially misvalued using 
criteria specified in clause (ii); and 
‘‘(II) review and make appro-
priate adjustments to the relative val-
ues established under this paragraph 
for services identified as being poten-
tially misvalued under subclause (I). 
‘‘(ii) 
IDENTIFICATION
OF
POTEN-
TIALLY MISVALUED CODES.—For purposes 
of identifying potentially misvalued services 
pursuant to clause (i)(I), the Secretary 
shall examine (as the Secretary determines 
to be appropriate) codes (and families of 
codes as appropriate) for which there has 
been the fastest growth; codes (and fami-
lies of codes as appropriate) that have ex-
perienced substantial changes in practice 
expenses; codes for new technologies or 
services within an appropriate period (such 
as three years) after the relative values are 
initially established for such codes; mul-
tiple codes that are frequently billed in 
conjunction with furnishing a single serv-
ice; codes with low relative values, particu-
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larly those that are often billed multiple 
times for a single treatment; codes which 
have not been subject to review since the 
implementation of the RBRVS (the so- 
called ‘Harvard-valued codes’); and such 
other codes determined to be appropriate 
by the Secretary. 
‘‘(iii) REVIEW AND ADJUSTMENTS.— 
‘‘(I) The Secretary may use ex-
isting 
processes 
to 
receive 
rec-
ommendations on the review and ap-
propriate adjustment of potentially 
misvalued services described clause 
(i)(II). 
‘‘(II) The Secretary may conduct 
surveys, other data collection activi-
ties, studies, or other analyses as the 
Secretary determines to be appro-
priate to facilitate the review and ap-
propriate adjustment 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 col-
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lect data, and make recommendations 
on the review and appropriate adjust-
ment of services described in clause 
(i)(II). 
‘‘(IV) The Secretary may coordi-
nate the review and appropriate ad-
justment described 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 relative values described in clause 
(ii), the Secretary may make appro-
priate 
coding 
revisions 
(including 
using existing processes for consider-
ation of coding changes) which may 
include consolidation of individual 
services into bundled codes for pay-
ment under the fee schedule under 
subsection (b). 
‘‘(VI) The provisions of subpara-
graph (B)(ii)(II) shall apply to adjust-
ments to relative value units made 
pursuant to this subparagraph in the 
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same manner as such provisions apply 
to adjustments under subparagraph 
(B)(ii)(II). 
‘‘(L) 
VALIDATING
RELATIVE
VALUE 
UNITS.— 
‘‘(i) IN
GENERAL.—The Secretary 
shall establish a process to validate relative 
value units under the fee schedule under 
subsection (b). 
‘‘(ii) COMPONENTS
AND
ELEMENTS 
OF
WORK.—The process described in 
clause (i) may include validation of work 
elements (such as time, mental effort and 
professional judgment, technical skill and 
physical effort, and stress due to risk) in-
volved with furnishing a service and may 
include validation of the pre, post, and 
intra-service components of work. 
‘‘(iii) SCOPE OF CODES.—The valida-
tion of work relative value units shall in-
clude a sampling of codes for services that 
is the same as the codes listed under sub-
paragraph (K)(ii). 
‘‘(iv) METHODS.—The Secretary may 
conduct the validation under this subpara-
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graph using methods described in sub-
clauses (I) through (V) of subparagraph 
(K)(iii) as the Secretary determines to be 
appropriate. 
‘‘(v) ADJUSTMENTS.—The Secretary 
shall make appropriate adjustments to the 
work relative value units under the fee 
schedule under subsection (b). The provi-
sions of subparagraph (B)(ii)(II) shall 
apply to adjustments to relative value units 
made pursuant to this subparagraph in the 
same manner as such provisions apply to 
adjustments 
under 
subparagraph 
(B)(ii)(II).’’. 
(b) IMPLEMENTATION.— 
(1) FUNDING.—For purposes of carrying out 
the provisions of subparagraphs (K) and (L) of 
1848(c)(2) of the Social 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 appropriated to the Sec-
retary of Health and Human Services for the Center 
for Medicare & Medicaid Services Program Manage-
ment Account $20,000,000 for fiscal year 2010 and 
each subsequent fiscal year. Amounts appropriated 
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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 subpara-
graphs (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 Balanced 
Budget Act of 1997 is repealed. 
(D) Except for provisions related to con-
fidentiality of information, the provisions of the 
Federal Acquisition Regulation shall not apply 
to this section or the amendment made by this 
section. 
(3) FOCUSING
CMS
RESOURCES
ON
POTEN-
TIALLY
OVERVALUED
CODES.—Section 1868(a) of 
the Social Security Act (42 U.S.C. 1395ee(a)) is re-
pealed. 
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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 services fur-
nished under the physician fee schedule under sec-
tion 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 addition 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.— 
‘‘(A) IN GENERAL.—Based upon available 
data, the Secretary shall identify those counties 
or equivalent areas in the United States in the 
lowest fifth percentile of utilization based on 
per capita spending under this part and part A 
for services provided in the most recent year for 
which data are available as of the date of the 
enactment of this subsection, as standardized to 
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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 furnished, 
the dominant county of the postal ZIP Code (as 
determined by the United States Postal Service, 
or otherwise) shall be used to determine wheth-
er the postal ZIP Code is in a county described 
in subparagraph (A). 
‘‘(C) LIMITATION
ON
REVIEW.—There 
shall be no administrative or judicial review 
under section 1869, 1878, or otherwise, respect-
ing— 
‘‘(i) the identification of a county or 
other area under subparagraph (A); or 
‘‘(ii) the assignment of a postal ZIP 
Code to a county or other area under sub-
paragraph (B). 
‘‘(D) PUBLICATION OF LIST OF COUNTIES; 
POSTING ON WEBSITE.—With respect to a year 
for which a county or area is identified under 
this paragraph, the Secretary shall identify 
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such counties or areas as part of the proposed 
and final rule to implement the physician fee 
schedule under section 1848 for the applicable 
year. The Secretary shall post the list of coun-
ties identified under this paragraph on the 
Internet website of the Centers for Medicare & 
Medicaid Services.’’. 
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 eligible professionals 
on the performance of the eligible professional 
with respect to satisfactorily submitting data on 
quality measures under this subsection.’’. 
(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 sub-
paragraph: 
‘‘(I) INFORMAL APPEALS PROCESS.—Not-
withstanding subparagraph (E), by not later 
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than January 1, 2011, the Secretary shall es-
tablish 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 subsection.’’. 
(c) INTEGRATION OF PHYSICIAN QUALITY REPORT-
ING 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 RE-
PORTING
AND
EHR
REPORTING.—Not later than 
January 1, 2012, the Secretary shall develop a plan 
to integrate clinical reporting 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 measures, the re-
porting of which would both demonstrate— 
‘‘(i) meaningful use of an electronic 
health record for purposes of subsection 
(o); and 
‘‘(ii) clinical quality of care furnished 
to an individual. 
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‘‘(B) The collection of health data to iden-
tify deficiencies in the quality and coordination 
of care for individuals eligible for benefits under 
this part. 
‘‘(C) Such other activities as specified 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 striking ‘‘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 Social Se-
curity Act (42 U.S.C.1395w–4(e)) is 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 provi-
sions of this subsection, for services fur-
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nished 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 Adjustment Factor 
methodology as follows: 
‘‘(I) The Secretary shall con-
figure the physician fee schedule areas 
using 
the 
Core-Based 
Statistical 
Areas-Metropolitan Statistical Areas 
(each in this paragraph referred to as 
an ‘MSA’), as defined by the Director 
of the Office of Management and 
Budget, as the basis for the fee sched-
ule areas. The Secretary shall employ 
an iterative process to transition fee 
schedule areas. First, the Secretary 
shall list all MSAs within the State by 
Geographic Adjustment Factor de-
scribed in paragraph (2) (in this para-
graph referred to as a ‘GAF’) in de-
scending order. In the first iteration, 
the Secretary shall compare the GAF 
of the highest cost MSA in the State 
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to the weighted-average GAF of the 
group of remaining MSAs in the 
State. If the ratio of the GAF of the 
highest cost MSA to the weighted-av-
erage GAF of the rest of State is 1.05 
or greater then the highest cost MSA 
becomes a separate fee schedule area. 
‘‘(II) In the next iteration, the 
Secretary shall compare the MSA of 
the second-highest GAF to the weight-
ed-average GAF of the group of re-
maining MSAs. If the ratio of the sec-
ond-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 
separate 
fee 
schedule 
area. 
The 
iterative process continues until the 
ratio of the GAF of the highest-cost 
remaining MSA to the weighted-aver-
age of the remaining lower-cost MSAs 
is less than 1.05, and the remaining 
group of lower cost MSAs form a sin-
gle fee schedule area, If two MSAs 
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have identical GAFs, they shall be 
combined in the iterative comparison. 
‘‘(ii) TRANSITION.—For services fur-
nished on or after January 1, 2011, and 
before January 1, 2016, in the State of 
California, after calculating the work, prac-
tice expense, and malpractice geographic 
indices described in clauses (i), (ii), and 
(iii) of paragraph (1)(A) that would other-
wise apply through application of this 
paragraph, the Secretary shall increase any 
such index to the county-based fee sched-
ule 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 ADJUST-
MENTS IN FEE SCHEDULE AREAS.—Subse-
quent to the process outlined in paragraph 
(1)(C), not less often than every three 
years, the Secretary shall review and up-
date the California Rest-of-State fee sched-
ule area using MSAs as defined by the Di-
rector of the Office of Management and 
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Budget and the iterative methodology de-
scribed in subparagraph (A)(i). 
‘‘(ii) LINK WITH GEOGRAPHIC INDEX 
DATA REVISION.—The revision described in 
clause (i) shall be made effective concur-
rently with the application of the periodic 
review of the adjustment factors required 
under paragraph (1)(C) for California for 
2012 and subsequent periods. Upon re-
quest, the Secretary shall make available 
to the public any county-level or MSA de-
rived data used to calculate the geographic 
practice cost index. 
‘‘(C) REFERENCES
TO
FEE
SCHEDULE 
AREAS.—Effective for services furnished on or 
after January 1, 2010, for the State of Cali-
fornia, any reference in this section to a fee 
schedule area shall be deemed a reference to an 
MSA in the State.’’. 
(b) CONFORMING AMENDMENT TO DEFINITION OF 
FEE SCHEDULE AREA.—Section 1848(j)(2) of the Social 
Security Act (42 U.S.C. 1395w(j)(2)) is amended by strik-
ing ‘‘The term’’ and inserting ‘‘Except as provided in sub-
section (e)(6)(C), the term’’. 
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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 Security Act (42 
U.S.C. 1395l(t)(3)(C)(iv)) is amended— 
(A) by inserting ‘‘(which is subject to the 
productivity adjustment described in subclause 
(II) 
of 
such 
section)’’ 
after 
‘‘1886(b)(3)(B)(iii)’’; and 
(B) by inserting ‘‘(but not below 0)’’ after 
‘‘reduced’’. 
(2) EFFECTIVE DATE.—The amendments made 
by paragraph (1) shall apply to increase 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 before the period at the end the following: ‘‘and, 
in the case of years beginning with 2010, subject to the 
productivity 
adjustment 
described 
in 
section 
1886(b)(3)(B)(iii)(II)’’. 
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(c) AMBULATORY SURGICAL CENTER SERVICES.— 
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 fac-
tor applies, such factor shall be subject to the productivity 
adjustment described in section 1886(b)(3)(B)(iii)(II).’’. 
(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 years 
2009 through 2013’’ and inserting ‘‘for 2009’’; and 
(2) clause (ii)— 
(A) by striking ‘‘and’’ at the end of sub-
clause (III); 
(B) by striking the period at the end of 
subclause (IV) and inserting ‘‘; and’’; and 
(C) by adding at the end the following new 
subclause: 
‘‘(V) the annual adjustment in the fee schedules 
determined under clause (i) for years beginning with 
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2010 shall be subject to the productivity adjustment 
described in section 1886(b)(3)(B)(iii)(II).’’. 
(e) CERTAIN DURABLE MEDICAL EQUIPMENT.—Sec-
tion 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 following: ‘‘, subject to 
the productivity adjustment described in section 
1886(b)(3)(B)(iii)(II)’’; 
(2) in subparagraph (L)(i), by inserting after 
‘‘June 2013,’’ the following: ‘‘subject to the produc-
tivity 
adjustment 
described 
in 
section 
1886(b)(3)(B)(iii)(II),’’; 
(3) in subparagraph (L)(ii), by inserting after 
‘‘June 2013’’ the following: ‘‘, subject to the produc-
tivity 
adjustment 
described 
in 
section 
1886(b)(3)(B)(iii)(II)’’; and 
(4) in subparagraph (M), by inserting before 
the period at the end the following: ‘‘, subject to the 
productivity 
adjustment 
described 
in 
section 
1886(b)(3)(B)(iii)(II)’’. 
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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 ‘‘CERTAIN COM-
PLEX REHABILITATIVE’’ after ‘‘OPTION FOR’’; and 
(2) by striking ‘‘power-driven wheelchair’’ and 
inserting ‘‘complex rehabilitative power-driven wheel-
chair 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 con-
tracts entered into under section 1847 of the Social Secu-
rity Act (42 U.S.C. 1395w–3) pursuant to a bid submitted 
under such section before October 1, 2010, under sub-
section (a)(1)(B)(i)(I) of such section. 
SEC. 
1142. 
EXTENSION 
OF 
PAYMENT 
RULE 
FOR 
BRACHYTHERAPY. 
Section 1833(t)(16)(C) of the Social Security 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 
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first place it appears, ‘‘January 1, 2010’’ and inserting 
‘‘January 1, 2012’’. 
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 Congress a report on the following: 
(1) The scope of coverage for home infusion 
therapy in the fee-for-service Medicare program 
under title XVIII of the Social Security Act, Medi-
care Advantage under part C of such title, the vet-
eran’s health care program under chapter 17 of title 
38, United States Code, and among private payers, 
including an analysis of the scope of services pro-
vided by home infusion therapy providers to their 
patients in such programs. 
(2) The benefits and costs of providing such 
coverage under the Medicare program, including a 
calculation of the potential savings achieved through 
avoided or shortened hospital and nursing home 
stays as a result of Medicare coverage of home infu-
sion therapy. 
(3) An assessment of sources of data on the 
costs of home infusion therapy that might be used 
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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 payment methodologies used under Medicare Ad-
vantage plans and private health plans for the provi-
sion of home infusion therapy and their applicability 
to the Medicare 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 following new paragraph: 
‘‘(8) The Secretary shall require, as a condition of 
the agreement described in section 1832(a)(2)(F)(i), the 
submission of such cost report as the Secretary may speci-
fy, taking into account the requirements for such reports 
under section 1815 in the case of a hospital.’’. 
(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 develop a cost report form for use 
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under section 1833(i)(8) of the Social Security Act, 
as added by paragraph (1). 
(3) AUDIT REQUIREMENT.—The Secretary shall 
provide for periodic auditing of cost reports sub-
mitted under section 1833(i)(8) of the Social Secu-
rity Act, as added by paragraph (1). 
(4) EFFECTIVE DATE.—The amendment made 
by paragraph (1) shall apply to agreements applica-
ble to cost reporting periods beginning 18 months 
after the date the Secretary develops the cost report 
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 amended— 
(A) in subparagraph (B), by inserting 
‘‘subject to subparagraph (C),’’ after ‘‘may oth-
erwise provide,’’; and 
(B) by adding at the end the following new 
subparagraph: 
‘‘(C) Under subparagraph (B) the Secretary shall re-
quire the reporting of such additional data relating to 
quality of services furnished in an ambulatory surgical fa-
cility, including data on health care associated infections, 
as the Secretary may specify.’’. 
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(2) EFFECTIVE DATE.—The amendment made 
by paragraph (1) shall to reporting for years begin-
ning 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 subsection, costs incurred by hospitals de-
scribed in section 1886(d)(1)(B)(v) with respect 
to ambulatory payment classification groups ex-
ceed those costs incurred by other hospitals fur-
nishing services under this subsection (as deter-
mined appropriate by the Secretary). 
‘‘(B) AUTHORIZATION OF ADJUSTMENT.— 
Insofar as the Secretary determines under sub-
paragraph (A) that costs incurred by hospitals 
described in section 1886(d)(1)(B)(v) exceed 
those costs incurred by other hospitals fur-
nishing services under this subsection, the Sec-
retary shall provide for an appropriate adjust-
ment under paragraph (2)(E) to reflect those 
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higher costs effective for services furnished on 
or after January 1, 2011.’’. 
SEC. 1146. MEDICARE IMPROVEMENT FUND. 
Section 1898(b)(1)(A) of the Social Security Act (42 
U.S.C. 1395iii(b)(1)(A)) is amended to read as follows: 
‘‘(A) the period beginning with fiscal 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 RE-
FLECT HIGHER PRESUMED UTILIZATION.—Section 1848 
of the Social Security Act (42 U.S.C. 1395w) is amend-
ed— 
(1) in subsection (b)(4)— 
(A) in subparagraph (B), by striking ‘‘sub-
paragraph (A)’’ and inserting ‘‘this paragraph’’; 
and 
(B) by adding at the end the following new 
subparagraph: 
‘‘(C) ADJUSTMENT IN PRACTICE EXPENSE 
TO
REFLECT
HIGHER
PRESUMED
UTILIZA-
TION.—In computing the number of practice 
expense relative value units under subsection 
(c)(2)(C)(ii) with respect to advanced diagnostic 
imaging 
services 
(as 
defined 
in 
section 
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1834(e)(1)(B)), the Secretary shall adjust such 
number of units so it reflects a 75 percent 
(rather than 50 percent) presumed rate of utili-
zation of imaging equipment.’’; and 
(2) in subsection (c)(2)(B)(v)(II), by inserting 
‘‘AND OTHER PROVISIONS’’ after ‘‘OPD PAYMENT 
CAP’’. 
(b) ADJUSTMENT IN TECHNICAL COMPONENT ‘‘DIS-
COUNT’’ 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 subpara-
graph: 
‘‘(D) ADJUSTMENT IN TECHNICAL COMPO-
NENT DISCOUNT ON SINGLE-SESSION IMAGING 
INVOLVING
CONSECUTIVE
BODY
PARTS.—The 
Secretary shall increase the reduction in ex-
penditures attributable to the multiple proce-
dure payment reduction applicable to the tech-
nical 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 pro-
vided, this section, and the amendments made by this sec-
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tion, shall apply to services furnished on or after January 
1, 2011. 
SEC. 1148. DURABLE MEDICAL EQUIPMENT PROGRAM IM-
PROVEMENTS. 
(a) WAIVER OF SURETY BOND REQUIREMENT.—Sec-
tion 1834(a)(16) of the Social Security Act (42 U.S.C. 
1395m(a)(16)) is amended by adding at the end the fol-
lowing: ‘‘The requirement for a surety bond described in 
subparagraph (B) shall not apply in the case of a phar-
macy (i) that has been enrolled under section 1866(j) as 
a supplier of durable medical equipment, prosthetics, 
orthotics, and supplies and has been issued (which may 
include renewal of) a provider number (as described in the 
first sentence of this paragraph) 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 Regulations) has 
never been imposed.’’. 
(b) ENSURING SUPPLY OF OXYGEN EQUIPMENT.— 
(1) IN GENERAL.—Section 1834(a)(5)(F) of the 
Social Security Act (42 U.S.C. 1395m(a)(5)(F)) is 
amended— 
(A) in clause (ii), by striking ‘‘After the’’ 
and inserting ‘‘Except as provided in clause 
(iii), after the’’; and 
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(B) by adding at the end the following new 
clause: 
‘‘(iii) CONTINUATION OF SUPPLY.—In 
the case of a supplier furnishing such 
equipment to an individual under this sub-
section 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 
equipment to such individual (either di-
rectly or though arrangements with other 
suppliers of such equipment) during any 
subsequent 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 supplier has ac-
cepted responsibility for continuing to fur-
nish 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 fur-
nishing of equipment to individuals for whom the 
27th month of a continuous period of use of oxygen 
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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 AP-
PLICATIONS.—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’’; and 
(3) by adding at the end the following: 
‘‘(iii) the requirement for accredita-
tion described in clause (i) shall not apply 
for purposes of supplying diabetic testing 
supplies, canes, and crutches in the case of 
a pharmacy that is enrolled under section 
1866(j) as a supplier of durable medical 
equipment, prosthetics, orthotics, and sup-
plies. 
Any supplier that has submitted an application 
for accreditation before August 1, 2009, shall 
be deemed as meeting applicable standards and 
accreditation requirement under this subpara-
graph until such time as the independent ac-
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creditation organization takes action on the 
supplier’s application.’’. 
(d) RESTORING 36-MONTH OXYGEN RENTAL PE-
RIOD IN CASE OF SUPPLIER BANKRUPTCY FOR CERTAIN 
INDIVIDUALS.—Section 1834(a)(5)(F) of such Act (42 
U.S.C. 1395m(a)(5)(F)) is amended by adding at the end 
the following new clause: 
‘‘(iii) 
EXCEPTION
FOR
BANK-
RUPTCY.—If a supplier of oxygen to an in-
dividual is declared bankrupt and its assets 
are liquidated and at the time of such dec-
laration and liquidation more than 24 
months of rental payments have been 
made, the individual may begin under this 
subparagraph a new 36-month rental pe-
riod 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-en-
ergy x-ray absorptriometry, and vertebral fracture assess-
ment. The study shall focus on the following: 
(1) An assessment of the adequacy of Medicare 
payment rates for such services, taking into account 
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costs of acquiring 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 meas-
urement benefits in general and in rural and minor-
ity communities specifically. 
(3) A review of the clinically appropriate 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 appropriate use of bone mass measure-
ment studies among Medicare beneficiaries. 
(b) REPORT.—The Commission shall submit a report 
to the Congress, not later than 9 months after the date 
of the enactment of this Act, containing a description of 
the results of the study conducted under subsection (a) 
and the conclusions and recommendations, if any, regard-
ing each of the issues described in paragraphs (1), (2), 
(3), and (4) of such subsection. 
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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 payment 
for discharges from an applicable hospital (as de-
fined in paragraph (5)(C)) occurring during a fiscal 
year beginning on or after October 1, 2011, in order 
to account for excess readmissions in the hospital, 
the Secretary shall reduce the payments that would 
otherwise be made to 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 payment 
amount (as defined in paragraph (2)) for the 
discharge; and 
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‘‘(B) the adjustment factor (described in 
paragraph (3)(A)) for the hospital for the fiscal 
year. 
‘‘(2) 
BASE
OPERATING
DRG
PAYMENT 
AMOUNT.— 
‘‘(A) IN GENERAL.—Except as provided in 
subparagraph (B), for purposes of this sub-
section, the term ‘base operating DRG payment 
amount’ means, with respect to a hospital for a 
fiscal year, the payment amount that would 
otherwise be made under subsection (d) for a 
discharge if this subsection did not apply, re-
duced by any portion of such amount that is at-
tributable to payments under subparagraphs 
(B) and (F) of paragraph (5). 
‘‘(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 para-
graph (1), the adjustment factor under this 
paragraph for an applicable hospital for a fiscal 
year is equal to the greater of— 
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‘‘(i) the ratio described in subpara-
graph (B) for the hospital for the applica-
ble period (as defined in paragraph (5)(D)) 
for such fiscal year; or 
‘‘(ii) the floor adjustment factor speci-
fied 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 ex-
cess readmissions (as defined in paragraph 
(4)(A)) with respect to an applicable hos-
pital 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 adjust-
ment 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. 
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‘‘(4) AGGREGATE PAYMENTS, EXCESS READMIS-
SION RATIO DEFINED.—For purposes of this sub-
section: 
‘‘(A) AGGREGATE PAYMENTS FOR EXCESS 
READMISSIONS.—The term ‘aggregate payments 
for excess readmissions’ means, for a hospital 
for a fiscal year, the sum, for applicable condi-
tions (as defined in paragraph (5)(A)), of the 
product, for each applicable condition, of— 
‘‘(i) the base operating DRG payment 
amount for such hospital for such fiscal 
year for such condition; 
‘‘(ii) the number of admissions for 
such condition for such hospital for such 
fiscal year; and 
‘‘(iii) the excess readmissions ratio (as 
defined in subparagraph (C)) for such hos-
pital for the applicable period for such fis-
cal year minus 1. 
‘‘(B) AGGREGATE PAYMENTS FOR ALL DIS-
CHARGES.—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 condi-
tions from such hospital for such fiscal year. 
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fewer than a minimum number (as deter-
mined by the Secretary) of discharges for 
such applicable condition for the applicable 
period and such hospital. 
‘‘(iii) ADJUSTMENT.—In order to pro-
mote a reduction over time in the overall 
rate of readmissions for applicable condi-
tions, the Secretary may provide, beginning 
with discharges for fiscal year 2014, for 
the determination of the excess readmis-
sions ratio under subparagraph (C) to be 
based on a ranking of hospitals by read-
mission ratios (from lower to higher read-
mission ratios) normalized to a benchmark 
that is lower than the 50th percentile. 
‘‘(5) DEFINITIONS.—For purposes of this sub-
section: 
‘‘(A) APPLICABLE CONDITION.—The term 
‘applicable condition’ means, subject to sub-
paragraph (B), a condition or procedure se-
lected by the Secretary among conditions and 
procedures for which— 
‘‘(i) readmissions (as defined in sub-
paragraph (E)) that represent conditions 
or procedures that are high volume or high 
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expenditures under this title (or other cri-
teria specified by the Secretary); and 
‘‘(ii) measures of such readmissions— 
‘‘(I) have been endorsed by the 
entity with a contract under section 
1890(a); and 
‘‘(II) such endorsed measures 
have appropriate exclusions for re-
admissions that are unrelated to the 
prior discharge (such as a planned re-
admission or transfer to another ap-
plicable hospital). 
‘‘(B) EXPANSION OF APPLICABLE CONDI-
TIONS.—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 subpara-
graph (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-condi-
tion measure of readmissions, as determined 
appropriate by the Secretary. In expanding 
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such applicable conditions, the Secretary shall 
seek the endorsement described in subpara-
graph (A)(ii)(I) but may apply such measures 
without such an endorsement. 
‘‘(C) APPLICABLE
HOSPITAL.—The term 
‘applicable hospital’ means a subsection (d) hos-
pital or a hospital that is paid under section 
1814(b)(3). 
‘‘(D) APPLICABLE PERIOD.—The term ‘ap-
plicable period’ means, with respect to a fiscal 
year, such period as the Secretary shall specify 
for purposes of determining excess readmis-
sions. 
‘‘(E) READMISSION.—The term ‘readmis-
sion’ means, in the case of an individual who is 
discharged from an applicable hospital, the ad-
mission of the individual to the same or another 
applicable hospital within a time period speci-
fied by the Secretary from the date of such dis-
charge. Insofar as the discharge relates to an 
applicable condition for which there is an en-
dorsed measure described in subparagraph 
(A)(ii)(I), such time period (such as 30 days) 
shall be consistent with the time period speci-
fied for such measure. 
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‘‘(6) LIMITATIONS ON REVIEW.—There shall be 
no administrative or judicial review under section 
1869, section 1878, or otherwise of— 
‘‘(A) the determination of base operating 
DRG payment amounts; 
‘‘(B) the methodology for determining the 
adjustment factor under paragraph (3), includ-
ing excess readmissions ratio under paragraph 
(4)(C), aggregate payments for excess readmis-
sions under paragraph (4)(A), and aggregate 
payments for all discharges under paragraph 
(4)(B), and applicable periods and applicable 
conditions under paragraph (5); 
‘‘(C) the measures of readmissions as de-
scribed in paragraph (5)(A)(ii); and 
‘‘(D) the determination of a targeted hos-
pital under paragraph (8)(B)(i), the increase in 
payment under paragraph (8)(B)(ii), the aggre-
gate cap under paragraph (8)(C)(i), the hos-
pital-specific limit under paragraph (8)(C)(ii), 
and the form of payment made by the Secretary 
under paragraph (8)(D). 
‘‘(7) MONITORING INAPPROPRIATE CHANGES IN 
ADMISSIONS PRACTICES.—The Secretary shall mon-
itor the activities of applicable hospitals to determine 
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if such hospitals have taken steps to avoid patients 
at risk in order to reduce the likelihood of increasing 
readmissions for applicable conditions. If the Sec-
retary determines that such a hospital has taken 
such a step, after notice to the hospital and oppor-
tunity for the hospital to undertake action to allevi-
ate such steps, the Secretary may impose an appro-
priate sanction. 
‘‘(8) ASSISTANCE TO CERTAIN HOSPITALS.— 
‘‘(A) IN GENERAL.—For purposes of pro-
viding funds to applicable hospitals to take 
steps described in subparagraph (E) to address 
factors that may impact readmissions of indi-
viduals who are discharged from such a hos-
pital, for fiscal years beginning on or after Oc-
tober 1, 2011, the Secretary shall make a pay-
ment adjustment for a hospital described in 
subparagraph (B), with respect to each such 
fiscal year, by a percent estimated by the Sec-
retary to be consistent with subparagraph (C). 
‘‘(B) TARGETED
HOSPITALS.—Subpara-
graph (A) shall apply to an applicable hospital 
that— 
‘‘(i) received (or, in the case of an 
1814(b)(3) hospital, otherwise would have 
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been eligible to receive) $10,000,000 or 
more in disproportionate share payments 
using the latest available data as estimated 
by the Secretary; and 
‘‘(ii) provides assurances satisfactory 
to the Secretary that the increase in pay-
ment under this paragraph shall be used 
for purposes described in subparagraph 
(E). 
‘‘(C) CAPS.— 
‘‘(i) AGGREGATE CAP.—The aggregate 
amount of the payment adjustment under 
this paragraph for a fiscal year shall not 
exceed 5 percent of the estimated dif-
ference in the spending that would occur 
for such fiscal year with and without appli-
cation of the adjustment factor described 
in paragraph (3) and applied pursuant to 
paragraph (1). 
‘‘(ii) HOSPITAL-SPECIFIC LIMIT.—The 
aggregate amount of the payment adjust-
ment for a hospital under this paragraph 
shall not exceed the estimated difference in 
spending that would occur for such fiscal 
year for such hospital with and without ap-
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quality of care for individuals and the functioning of 
a bundled post-acute system. 
(6) The nature of relationships that may be re-
quired between hospitals and providers of post acute 
care services to facilitate bundled payments, includ-
ing the application of gainsharing, anti-referral, 
anti-kickback, and anti-trust laws. 
(7) Quality measures that would be appropriate 
for reporting by hospitals and post acute providers 
(such as measures that assess changes in functional 
status and quality measures appropriate for each 
type of post acute services provider including how 
the reporting of such quality measures could be co-
ordinated with other reporting of such quality meas-
ures by such providers otherwise required). 
(8) How cost-sharing for a post acute care bun-
dle should be treated relative to current rules for 
cost-sharing for inpatient hospital, home health, 
skilled nursing facility, and other services. 
(9) How other programmatic issues should be 
treated in a post acute care bundle, including rules 
specific to various types of post-acute providers such 
as the post-acute transfer policy, three-day hospital 
stay to qualify for services furnished by skilled nurs-
ing facilities, and the coordination of payments and 
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jlentini on DSKJ8SOYB1PROD with BILLS
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the Secretary) who is determined under sub-
paragraph (B) of section 1860D–14(a)(3) to be 
a subsidy eligible individual.’’. 
(b) AUTOMATIC
ENROLLMENT.—Section 1860D– 
1(b)(1) of the Social Security Act (42 U.S.C. 1395w– 
101(b)(1)) is amended by adding at the end the following 
new subparagraph: 
‘‘(D) SPECIAL RULE FOR SUBSIDY ELIGI-
BLE
INDIVIDUALS.—The process established 
under subparagraph (A) shall include, in the 
case of an individual described in section 
1860D–1(b)(3)(D) who fails to enroll in a pre-
scription drug plan or an MA–PD plan during 
the special enrollment established under such 
section applicable to such individual, the appli-
cation of the assignment process described in 
subparagraph (C) to such individual in the 
same manner as such assignment process ap-
plies to a part D eligible individual described in 
such subparagraph (C). Nothing in the previous 
sentence shall prevent an individual described in 
such sentence from declining enrollment in a 
plan determined appropriate by the Secretary 
(or in the program under this part) or from 
changing such enrollment.’’. 
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‘‘(F)(i) Subject to clause (ii), an explanation of 
orders regarding life sustaining treatment or similar 
orders, which shall include— 
‘‘(I) the reasons why the development of 
such an order is beneficial to the individual and 
the individual’s family and the reasons why 
such an order should be updated periodically as 
the health of the individual changes; 
‘‘(II) the information needed for an indi-
vidual or legal surrogate to make informed deci-
sions regarding the completion of such an 
order; and 
‘‘(III) the identification of resources that 
an individual may use to determine the require-
ments of the State in which such individual re-
sides so that the treatment wishes of that indi-
vidual will be carried out if the individual is un-
able to communicate those wishes, including re-
quirements regarding the designation of a sur-
rogate decisionmaker (also known as a health 
care proxy). 
‘‘(ii) The Secretary shall limit the requirement 
for explanations under clause (i) to consultations 
furnished in a State— 
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