retary shall select a methodology of identifying po-
tentially preventable admissions under paragraph (1) 
that includes each admission that meets all of the 
following requirements: 
‘‘(A) The admission could reasonably have 
been prevented with adequate access to ambula-
tory care or coordinated healthcare services. 
‘‘(B) The services provided as part of the 
admission could be safely performed in an out-
patient facility. 
‘‘(C) The admission is not of a beneficiary 
with extensive comorbid disease or high severity 
of illness that may necessitate that care be de-
livered in a hospital setting. 
‘‘(D) The admission meets criteria applica-
ble under subsection (j)(1) to the outcome de-
scribed in this subsection. 
‘‘(h) AGGREGATE PAYMENTS FOR EXCESS POTEN-
TIALLY PREVENTABLE EMERGENCY ROOM VISITS.— 
‘‘(1) 
EXCESS
POTENTIALLY
PREVENTABLE 
EMERGENCY ROOM VISITS; AGGREGATE PAYMENTS 
FOR
EXCESS
POTENTIALLY
PREVENTABLE
EMER-
GENCY ROOM VISITS DEFINED.—In this subsection: 
‘‘(A) EXCESS POTENTIALLY PREVENTABLE 
EMERGENCY ROOM VISITS.— 
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‘‘(i) IN GENERAL.—The term ‘excess 
potentially preventable emergency room 
visits’ means, for an applicable healthcare 
delivery organization for an applicable his-
torical period and with respect to poten-
tially preventable emergency room visits 
identified under paragraph (2), for each 
risk class (as defined in clause (iii)) the 
difference between— 
‘‘(I) the expected number of 
beneficiaries with one or more poten-
tially preventable emergency room vis-
its for the applicable healthcare deliv-
ery organization based on the stand-
ard potentially preventable emergency 
room visit rate for beneficiaries in 
each risk class (as defined in clause 
(ii)); and 
‘‘(II) the applicable healthcare 
delivery organization’s actual number 
of beneficiaries with one or more po-
tentially preventable emergency room 
visits for the applicable historical pe-
riod for beneficiaries assigned to the 
risk class. 
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Such difference may be a positive or nega-
tive number. 
‘‘(ii) STANDARD
POTENTIALLY
PRE-
VENTABLE
EMERGENCY
ROOM
VISIT 
RATE.—In carrying out clause (i)(I), the 
standard potentially preventable emergency 
room visit rate shall be based on the aver-
age number of beneficiaries with one or 
more potentially preventable emergency 
room visits in each risk class, as defined in 
clause (iii) in the applicable historical pe-
riod, multiplied by the payment reduction 
factor established under subsection (d)(3) 
for the applicable prospective period. 
‘‘(iii) RISK
ADJUSTMENT.—In this 
subparagraph, the term ‘risk classes’ 
means such exhaustive and mutually exclu-
sive risk classes as the Secretary shall es-
tablish in order to apply a risk-adjustment 
methodology that meets the criteria in sub-
section (j)(2) and account for the age, rea-
son for admission, severity of illness, and 
other risk factors identified by the Sec-
retary. The risk class for a beneficiary 
shall be assigned based on the beneficiary’s 
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chronic illness burden and history of 
healthcare services for a time period of not 
less than 6 months preceding the begin-
ning of the applicable historical period. 
‘‘(B) AGGREGATE PAYMENTS FOR EXCESS 
POTENTIALLY
PREVENTABLE
EMERGENCY 
ROOM VISITS.— 
‘‘(i) IN GENERAL.—The term ‘aggre-
gate payments for excess potentially pre-
ventable emergency room visits’ means, for 
an applicable historical period, for poten-
tially preventable emergency room visits 
identified under paragraph (2), an amount 
equal to the amount determined under 
clause (ii). 
‘‘(ii) 
AMOUNT
DETERMINED.—The 
amount determined under this clause, with 
respect to an applicable healthcare delivery 
organization and an applicable historical 
period, for all beneficiaries with one or 
more potentially preventable emergency 
room visits identified under paragraph (2) 
is equal to the sum across all risk classes 
of the product of— 
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‘‘(I) the excess potentially pre-
ventable emergency room visits (as de-
fined in subparagraph (A)) in the risk 
class for the applicable healthcare de-
livery organization during the applica-
ble historical period; and 
‘‘(II) the average payment per 
beneficiary of all potentially prevent-
able emergency room visits for bene-
ficiaries in the risk class (as deter-
mined under clause (iii)) for applica-
ble healthcare delivery organizations 
during the applicable historical period. 
‘‘(iii) AVERAGE PAYMENT PER BENE-
FICIARY OF ALL POTENTIALLY PREVENT-
ABLE
EMERGENCY
ROOM
VISITS.—The 
term ‘average payment per beneficiary of 
all potentially preventable emergency room 
visits’ means, for applicable healthcare de-
livery organizations for an applicable his-
torical period for a risk class, the average 
payment per beneficiary for all potentially 
preventable emergency room visits in the 
risk class. 
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‘‘(2) POTENTIALLY PREVENTABLE EMERGENCY 
ROOM VISITS.—For purposes of this subsection, the 
Secretary shall select a methodology of identifying 
potentially preventable emergency room visits under 
paragraph (1) that includes each such visit that 
meets all of the following requirements: 
‘‘(A) The visit did not require emergency 
medical attention because the condition could 
be treated or prevented by a physician or other 
healthcare provider in a nonemergency setting. 
‘‘(B) The beneficiary involved does not 
have an extensive comorbid disease or high se-
verity of illness that may necessitate that care 
be delivered in an emergency room setting. 
‘‘(C) The visit meets criteria applicable 
under subsection (j)(1) to the outcome de-
scribed in this subsection. 
‘‘(i) AGGREGATE PAYMENTS FOR EXCESS POTEN-
TIALLY PREVENTABLE OUTPATIENT PROCEDURES AND 
TESTS.— 
‘‘(1) 
EXCESS
POTENTIALLY
PREVENTABLE 
OUTPATIENT PROCEDURES AND TESTS; AGGREGATE 
PAYMENTS
FOR
EXCESS
POTENTIALLY
PREVENT-
ABLE
OUTPATIENT
PROCEDURES
AND
TESTS
DE-
FINED.—In this subsection: 
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‘‘(A) EXCESS POTENTIALLY PREVENTABLE 
OUTPATIENT PROCEDURES AND TESTS.— 
‘‘(i) IN GENERAL.—The term ‘excess 
potentially preventable outpatient proce-
dures and tests’ means, for an applicable 
healthcare delivery organization for an ap-
plicable historical period and with respect 
to potentially preventable outpatient proce-
dures and tests identified under paragraph 
(2), for each risk class (as defined in 
clause (iii)) the difference between— 
‘‘(I) the expected number of 
beneficiaries with one or more poten-
tially preventable outpatient proce-
dures and tests for the applicable 
healthcare delivery organization based 
on the standard potentially prevent-
able rate of potentially preventable 
outpatient procedures and tests for 
beneficiaries in each risk class (as de-
fined in clause (ii)); and 
‘‘(II) the applicable healthcare 
delivery organization’s actual number 
of beneficiaries with one or more po-
tentially preventable outpatient proce-
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