Secretary for the applicable historical 
period; and 
‘‘(II) the average payment for po-
tentially preventable readmissions (as 
defined in clause (iii)) in the risk class 
for applicable hospitals and other ap-
plicable healthcare delivery organiza-
tions determined appropriate by the 
Secretary for the applicable historical 
period. 
‘‘(iii) AVERAGE PAYMENT FOR POTEN-
TIALLY PREVENTABLE READMISSIONS.—In 
clause (ii)(II), the term ‘average payment 
for potentially preventable readmissions for 
a risk class’ means, for applicable hospitals 
and other applicable healthcare delivery or-
ganizations determined appropriate by the 
Secretary for an applicable historical pe-
riod, the average payment for all poten-
tially preventable readmissions that follow 
a prior discharge in that risk class. 
‘‘(2) POTENTIALLY
PREVENTABLE
READMIS-
SIONS.—For purposes of this subsection, the Sec-
retary shall select a methodology of identifying po-
tentially preventable readmissions under paragraph 
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(1) that includes each readmission that meets all of 
the following requirements: 
‘‘(A) The readmission is within 30 days 
from the date of the initial discharge and could 
reasonably have been prevented by— 
‘‘(i) the provision of appropriate care 
consistent with accepted standards in the 
prior discharge; 
‘‘(ii) adequate discharge planning; 
‘‘(iii) adequate post-discharge fol-
lowup; or 
‘‘(iv) improved coordination between 
the inpatient and outpatient healthcare 
teams. 
‘‘(B) The readmission is for a condition or 
procedure related to the care during the prior 
admission or during the care immediately fol-
lowing the prior discharge, including— 
‘‘(i) a readmission for the same or 
closely related condition or procedure as 
the prior discharge; 
‘‘(ii) a readmission for an infection or 
other complication of care; 
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‘‘(iii) a readmission for a condition or 
procedure indicative of a failed surgical 
intervention; and 
‘‘(iv) a readmission for an acute de-
compensation of a coexisting chronic dis-
ease. 
‘‘(C) The readmission is back to the same 
hospital or to any other hospital. 
‘‘(D) The readmission does not occur 
under any of the following circumstances: 
‘‘(i) The original discharge was a pa-
tient-initiated discharge and was against 
medical advice and the circumstances of 
such discharge and readmission are docu-
mented in the patient’s medical record. 
‘‘(ii) The readmission was a planned 
readmission. 
‘‘(iii) Such other exclusion as the Sec-
retary determines appropriate. 
‘‘(E) The readmission meets criteria appli-
cable under subsection (j)(1) to the outcome de-
scribed in this subsection. 
‘‘(g) AGGREGATE PAYMENTS FOR EXCESS POTEN-
TIALLY PREVENTABLE ADMISSIONS.— 
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‘‘(1) EXCESS POTENTIALLY PREVENTABLE AD-
MISSIONS; AGGREGATE PAYMENTS FOR EXCESS PO-
TENTIALLY PREVENTABLE ADMISSIONS DEFINED.— 
In this subsection: 
‘‘(A) EXCESS POTENTIALLY PREVENTABLE 
ADMISSIONS.— 
‘‘(i) IN GENERAL.—The term ‘excess 
potentially preventable admissions’ means, 
for an applicable healthcare delivery orga-
nization for an applicable historical period 
and with respect to potentially preventable 
admissions 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 admissions for the 
applicable healthcare delivery organi-
zation based on the standard poten-
tially preventable admission rate for 
beneficiaries in each risk class; and 
‘‘(II) the applicable healthcare 
delivery organization’s actual number 
of beneficiaries with one or more po-
tentially preventable admissions in 
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each risk class for the applicable his-
torical period for beneficiaries as-
signed to the risk class. 
Such difference may be a positive or nega-
tive number. 
‘‘(ii) STANDARD
POTENTIALLY
PRE-
VENTABLE ADMISSION RATE.—In carrying 
out clause (i)(I), the standard potentially 
preventable admission rate shall be based 
on the average number of beneficiaries 
with one or more potentially preventable 
admissions 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-
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retary. The risk class for a beneficiary 
shall be assigned under this subparagraph 
based on the beneficiary’s chronic illness 
burden and history of healthcare services 
for a time period of not less than 6 months 
preceding the beginning of the applicable 
historical period. 
‘‘(B) AGGREGATE PAYMENTS FOR EXCESS 
POTENTIALLY PREVENTABLE ADMISSIONS.— 
‘‘(i) IN GENERAL.—The term ‘aggre-
gate payments for excess potentially pre-
ventable admissions’ means, for an applica-
ble historical period, for potentially pre-
ventable admissions identified under para-
graph (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 admissions 
identified under paragraph (2) is equal to 
the sum across all risk classes of the prod-
uct of— 
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‘‘(I) the excess potentially pre-
ventable admissions (as defined in 
subparagraph (A)) in the risk class 
for the applicable healthcare delivery 
organization during the applicable his-
torical period; and 
‘‘(II) the average payment per 
beneficiary of all potentially prevent-
able admissions for beneficiaries in 
the risk class (as determined under 
clause (iii)) for applicable healthcare 
delivery organizations during the ap-
plicable historical period. 
‘‘(iii) AVERAGE PAYMENT PER BENE-
FICIARY OF ALL POTENTIALLY PREVENT-
ABLE
ADMISSIONS.—The term ‘average 
payment per beneficiary of all potentially 
preventable admissions’ for a risk class 
means, for applicable healthcare delivery 
organizations for an applicable historical 
period, the average payment per bene-
ficiary for all potentially preventable ad-
missions in the risk class. 
‘‘(2) 
POTENTIALLY
PREVENTABLE
ADMIS-
SIONS.—For purposes of this subsection, the Sec-
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