I 
114TH CONGRESS 
2D SESSION 
H. R. 6274 
To amend title XVIII of the Social Security Act to create incentives for 
healthcare providers to promote quality healthcare outcomes, and for 
other purposes. 
IN THE HOUSE OF REPRESENTATIVES 
SEPTEMBER 28, 2016 
Mr. PAULSEN (for himself, Mr. MARCHANT, and Mr. KIND) introduced the 
following bill; which was referred to the Committee on Ways and Means 
A BILL 
To amend title XVIII of the Social Security Act to create 
incentives for healthcare providers to promote quality 
healthcare outcomes, and for other purposes. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. SHORT TITLE; FINDINGS. 
(a) SHORT TITLE.—This Act may be cited as the 
‘‘Hospital Outcomes Act of 2016’’. 
(b) FINDINGS.—Congress makes the following find-
ings: 
(1) Payment penalties for hospital acquired 
conditions under section 1886(p) of the Social Secu-
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rity Act, as added by section 3008 of the Patient 
Protection and Affordable Care Act, are based on a 
limited number of hospital acquired conditions but 
are applied to all Medicare inpatient prospective 
payments to a hospital (as defined in section 
1886(d) of the Social Security Act), resulting in 
payment penalties that are not proportional to the 
financial impact of the hospital acquired conditions. 
The method of risk adjustment used to determine 
the hospital acquired conditions performance of hos-
pitals does not adequately account for the chronic 
illness burden and severity of illness of Medicare 
beneficiaries. 
(2) Payment penalties for hospital readmissions 
under section 1886(q) of the Social Security Act, as 
added by section 3025 of the Patient Protection and 
Affordable Care Act, are based on a limited number 
of clinical conditions, including readmissions that 
are not related to the prior discharge and are not 
proportional to the overall financial impact of the re-
admission performance of the hospital. The method 
of risk adjustment used to determine the readmis-
sion performance of hospitals does not adequately 
account for the chronic illness burden and severity 
of illness of Medicare beneficiaries. 
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(3) The payment penalties for hospital acquired 
conditions and readmission should be restructured to 
be based on a comprehensive and clinically credible 
definition of potentially-avoidable complications and 
potentially-avoidable readmissions, be based on the 
risk adjusted rate of occurrence potentially-avoidable 
complications and potentially-avoidable readmissions 
and include both payment penalties and bonuses 
that are proportional to the actual financial impact 
of potentially-avoidable complications and poten-
tially-avoidable readmissions. 
(4) The existing methods of risk adjustment 
used to determine the quality of care performance of 
hospitals should be restructured and replaced by a 
methodology that is composed of exhaustive and mu-
tually exclusive risk categories that are clinically 
credible and explicitly recognize the severity of ill-
ness and chronic illness burden of Medicare bene-
ficiaries, thereby accounting for patient characteris-
tics that may impact access to care. 
SEC. 2. HOSPITAL OUTCOMES. 
(a) PAYMENT ADJUSTMENTS FOR HOSPITAL OUT-
COMES.—Section 1886 of the Social Security Act (42 
U.S.C. 1395ww) is amended by adding at the end the fol-
lowing new subsection: 
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‘‘(t) HOSPITAL OUTCOMES.— 
‘‘(1) IN GENERAL.—In the case of an applicable 
hospital for an applicable prospective period begin-
ning on or after October 1, 2017— 
‘‘(A) for each discharge of such hospital 
occurring during such period, in addition to and 
after application of any increase under para-
graph (6) of subsection (o) and any adjustment 
under paragraph (7) of such subsection to the 
base operating DRG payment amount (as de-
fined in paragraph (7)(D) of such subsection) 
that would otherwise apply to such hospital 
during such period without application of this 
subsection, such operating DRG payment 
amount shall be adjusted by the potentially- 
avoidable outcome adjustment factor described 
in paragraph (2) for the hospital for such pe-
riod; and 
‘‘(B) the potentially-avoidable outcome ad-
justment factor shall apply only with respect to 
the applicable prospective period, and the Sec-
retary shall not take into account such adjust-
ment factor in making payments to hospitals 
under this section in a subsequent applicable 
prospective period. 
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‘‘(2) POTENTIALLY-AVOIDABLE
OUTCOME
AD-
JUSTMENT FACTOR.— 
‘‘(A) IN GENERAL.—For purposes of para-
graph (1), the potentially-avoidable outcome ad-
justment factor described in this paragraph for 
an applicable hospital for an applicable prospec-
tive period, subject to subparagraph (B), is 
equal to 1.0 minus the potentially-avoidable 
outcome performance fraction determined under 
paragraph (3) for the hospital and period. 
‘‘(B) 
HOSPITAL-SPECIFIC
CAP
AND 
FLOOR.—In no circumstance may the poten-
tially-avoidable outcome adjustment factor for 
an applicable hospital for an applicable prospec-
tive period under subparagraph (A) be— 
‘‘(i) for applicable prospective periods 
occurring in fiscal years 2018 through 
2020, less than 0.97 or more than 1.03; 
and 
‘‘(ii) for applicable prospective periods 
occurring in or after fiscal year 2021, less 
than 0.95 or more than 1.05. 
‘‘(3) DETERMINATION OF POTENTIALLY-AVOID-
ABLE OUTCOME PERFORMANCE FRACTION.— 
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‘‘(A) IN GENERAL.—The potentially-avoid-
able outcome performance fraction for an appli-
cable hospital for an applicable prospective pe-
riod, subject to subparagraph (C), is equal to 
the ratio of— 
‘‘(i) the total hospital-specific finan-
cial impact, as described in subparagraph 
(B), for the hospital and data collection 
period with respect to such applicable pro-
spective period; to 
‘‘(ii) the aggregate amount of stand-
ardized payments (as defined in paragraph 
(4)(G)(ii)) made to the hospital during the 
data collection period with respect to such 
applicable prospective period. 
‘‘(B) TOTAL
HOSPITAL-SPECIFIC
FINAN-
CIAL
IMPACT
DESCRIBED.—For purposes of 
subparagraph (A), the term ‘total hospital-spe-
cific financial impact’ means, with respect to a 
hospital for an applicable prospective period, 
the sum of the following: 
‘‘(i) The financial impact determined 
in accordance with paragraph (4)(F) for 
such hospital and data collection period 
with respect to the performance category 
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described in paragraph (5)(A) (relating to 
complications). 
‘‘(ii) The financial impact determined 
in accordance with subsection (4)(F) for 
such hospital and data collection period 
with respect to the performance category 
described in paragraph (5)(B) (relating to 
readmissions). 
‘‘(C) BUDGET
NEUTRALITY
OF
POTEN-
TIALLY-AVOIDABLE
OUTCOME
ADJUSTMENT 
FACTOR
ACROSS
ALL
HOSPITALS.—The Sec-
retary shall determine a budget neutrality rate 
reduction fraction that, when applied in para-
graph (4)(B)(ii), will result in a potentially- 
avoidable outcome factor determined under sub-
paragraph (A) for an applicable prospective pe-
riod that reduces the total payments under sub-
section (d) across all applicable hospitals and 
all potentially-avoidable outcomes for such pe-
riod by an amount equal to the reduction in 
payments under such subsection for such period 
that would have resulted from the application of 
subsections (p) and (q) if the amendments 
made by the Hospital Outcomes Act of 2016 
had not applied. 
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‘‘(4) PROCESS OF DETERMINATION OF POTEN-
TIALLY-AVOIDABLE
OUTCOMES
PERFORMANCE; FI-
NANCIAL IMPACT.—For purposes of paragraph (3), 
the Secretary shall, for each performance category 
described in paragraph (5) and each data collection 
period that is with respect to an applicable prospec-
tive period beginning on or after October 1, 2017, 
determine each of the following: 
‘‘(A) NATIONWIDE-AVERAGE RATES.—With 
respect to each risk category specified under 
paragraph (6)(B), the ratio of— 
‘‘(i) the number of discharges occur-
ring among all applicable hospitals during 
such applicable data collection period that 
are with respect to such risk category and 
that involve the potentially-avoidable out-
comes in such performance category; to 
‘‘(ii) the number of applicable dis-
charges among all applicable hospitals for 
such applicable data collection period and 
risk category. 
‘‘(B) NATIONWIDE TARGET RATES.—With 
respect to each risk category specified under 
paragraph (6)(B), the product of— 
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‘‘(i) subject to subparagraph (H), the 
ratio determined under subparagraph (A) 
for such period and risk category; and 
‘‘(ii) the budget neutrality rate reduc-
tion fraction determined under paragraph 
(3)(C) for such period. 
‘‘(C) HOSPITAL-SPECIFIC
ACTUAL
NUM-
BER.—With respect to each applicable hospital 
and each such risk category, the number of dis-
charges occurring with respect to such hospital 
during such applicable data collection period 
that involve the potentially-avoidable outcomes 
in such performance category. 
‘‘(D) HOSPITAL-SPECIFIC EXPECTED NUM-
BER.—With respect to each applicable hospital, 
each applicable data collection period, and each 
such risk category, the number that is the prod-
uct of— 
‘‘(i) subject to subparagraph (H), the 
ratio determined under subparagraph (B) 
for such period and risk category; and 
‘‘(ii) the number of applicable dis-
charges of the hospital for such period and 
risk category. 
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‘‘(G) DEFINITIONS.—For purposes of this 
section: 
‘‘(i) POTENTIALLY-AVOIDABLE
OUT-
COMES.—The term ‘potentially-avoidable 
outcomes’ means, as applicable— 
‘‘(I) a potentially-avoidable com-
plication within the category described 
in paragraph (5)(A); and 
‘‘(II) a potentially-avoidable read-
mission within the category described 
in paragraph (5)(B). 
‘‘(ii) 
STANDARDIZED
PAYMENTS.— 
The term ‘standardized payment’ means 
payment for inpatient hospital services 
under section 1886(d) furnished by an ap-
plicable hospital that is adjusted to remove 
payment adjustments that are not directly 
related to the amount and type of services 
to be utilized for patient care (such as 
local or regional price differences, graduate 
indirect medical education payments, dis-
proportionate share payments, and such 
other adjustments as may be determined 
by the Secretary). 
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‘‘(iii) 
APPLICABLE
DISCHARGES.— 
With respect to an applicable data collec-
tion period and risk category, the term ‘ap-
plicable discharges’ means, in the case of— 
‘‘(I) the performance category 
described in paragraph (5)(A), dis-
charges occurring during such appli-
cable data collection period that are 
with respect to such risk category; 
and 
‘‘(II) the performance category 
described in paragraph (5)(B), dis-
charges occurring during such appli-
cable data collection period that are 
with respect to such risk category and 
that are not identified as potentially- 
avoidable 
readmissions 
under 
the 
methodology selected under paragraph 
(6)(A). 
‘‘(H) EXCEPTION TO USE OF NATIONWIDE- 
AVERAGE RATES.—In the case that the method-
ology selected under paragraph (6)(B) for such 
performance category does not meet the criteria 
described in clause (iii) of such paragraph, the 
Secretary shall— 
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‘‘(i) develop groups of hospitals based 
on the overall proportion of inpatients in 
such hospitals who are full-benefit dual eli-
gible individuals (as defined in section 
1935(c)(6)); 
‘‘(ii) compute, with respect to each 
such group and each risk category speci-
fied under paragraph (6)(B)— 
‘‘(I) the number of discharges oc-
curring among all applicable hospitals 
in such group during such applicable 
data collection period that are with re-
spect to such risk category and that 
involve the potentially-avoidable out-
comes in such performance category; 
to 
‘‘(II) the number of applicable 
discharges occurring among all appli-
cable hospitals in such group for such 
applicable data collection period and 
risk category; and 
‘‘(iii) treat each reference in this 
paragraph to the ratio determined under 
subparagraph (A) or (B), as applicable, for 
a period and risk category as a reference 
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to the ratio determined under subpara-
graph (A) or (B), as applicable, for a 
group, period, and risk category. 
‘‘(5) 
PERFORMANCE
CATEGORIES
DE-
SCRIBED.—The performance categories described in 
this paragraph are the following categories: 
‘‘(A) POTENTIALLY-AVOIDABLE COMPLICA-
TIONS.—The category of complications (re-
ferred to in this section as ‘potentially-avoidable 
complications’) that, with respect to items and 
services furnished to an individual entitled to 
benefits under part A in an applicable hospital, 
meet all of the following requirements: 
‘‘(i) The complication occurs during 
the stay of the individual and was not 
present at the time of the admission of 
such individual to such hospital as an inpa-
tient. 
‘‘(ii) The complication is a harmful 
event (such as a surgical complication) or 
an acute illness (such as an infection or an 
acute exacerbation of underlying chronic 
disease). 
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‘‘(iii) The complication is potentially 
avoidable with adequate care and treat-
ment. 
‘‘(iv) The complication is not a nat-
ural progression of the underlying illnesses 
of the individual that are present on ad-
mission of such individual to such hospital. 
‘‘(v) The complication may be reason-
ably construed as related to the care ren-
dered during the stay of the individual at 
the hospital. 
‘‘(B) POTENTIALLY-AVOIDABLE
READMIS-
SIONS.— 
‘‘(i) IN
GENERAL.—The category of 
readmissions (referred to in this section as 
‘potentially-avoidable readmissions’) of in-
dividuals entitled to benefits under part A 
to any hospitals following a discharge (re-
ferred to in this section as an ‘initial dis-
charge’) of such individuals to an applica-
ble hospital if the initial discharge and re-
admission involved satisfy all of the fol-
lowing requirements: 
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‘‘(I) The readmission of the indi-
vidual could reasonably have been pre-
vented by— 
‘‘(aa) the provision of appro-
priate care during the episode of 
care ending in such initial dis-
charge that was consistent with 
accepted standards; 
‘‘(bb) 
adequate 
discharge 
planning with respect to such ini-
tial discharge; 
‘‘(cc) 
adequate 
post-dis-
charge follow-up with respect to 
such initial discharge; or 
‘‘(dd) improved coordination 
between the providers furnishing 
the inpatient or outpatient hos-
pital services during the episode 
of care ending in such initial dis-
charge and the providers fur-
nishing care during the post-dis-
charge period with respect to 
such initial discharge. 
‘‘(II) The readmission is for a 
condition or procedure related to the 
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episode of care ending in such initial 
discharge, including a readmission for 
a condition or procedure that is any of 
the following: 
‘‘(aa) The same (or a closely 
related) condition or procedure as 
the condition addressed in, or the 
procedure provided during the 
episode of care ending in such 
initial discharge. 
‘‘(bb) An infection or other 
complication of care provided 
during the episode of care ending 
in such initial discharge. 
‘‘(cc) A condition or proce-
dure indicative of a failed proce-
dure provided during the episode 
of care ending in such initial dis-
charge. 
‘‘(dd) An acute decompensa-
tion of a coexisting chronic dis-
ease that was precipitated by the 
care furnished during the episode 
of care ending in such initial dis-
charge. 
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‘‘(III) The readmission is not a 
documented readmission with respect 
to a documented discharge that was 
initiated by the individual contrary to 
medical advice provided to such indi-
vidual during the episode of care with 
respect to such initial discharge. 
‘‘(IV) The readmission could not 
reasonably be considered a planned 
readmission. 
‘‘(V) The readmission occurs dur-
ing the 30-day period following an in-
patient discharge of such an indi-
vidual from the applicable hospital 
with respect to such initial discharge. 
‘‘(VI) The readmission was not 
due to a traumatic injury that oc-
curred after the episode of care end-
ing in such initial discharge. 
‘‘(VII) The readmission does not 
fall under such other exclusions as the 
Secretary determines appropriate. 
‘‘(ii) DEFINITIONS.—For purposes of 
this subsection: 
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‘‘(I) READMISSION.—The term 
‘readmission’ means a readmission 
that satisfies the criteria described in 
clause (i)(V). 
‘‘(II) DOCUMENTED.—The term 
‘documented’ means, with respect to a 
readmission or discharge (as applica-
ble) of an individual entitled to bene-
fits under part A, that the cir-
cumstances of such readmission or 
discharge are documented in the med-
ical record of the individual. 
‘‘(6) SELECTION
OF
METHODS
FOR
IDENTI-
FYING
POTENTIALLY-AVOIDABLE
OUTCOMES
AND 
METHOD OF RISK ADJUSTMENT.— 
‘‘(A) METHODS FOR IDENTIFYING POTEN-
TIALLY-AVOIDABLE OUTCOMES.—The Secretary 
shall select a methodology for identifying poten-
tially-avoidable complications and a method-
ology for identifying potentially-avoidable re-
admissions, and shall specify the circumstances 
under which such complications and such re-
admissions would be considered potentially- 
avoidable. Each such methodology shall meet 
the following criteria: 
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‘‘(i) The methodology shall provide— 
‘‘(I) in the case of potentially- 
avoidable complications, a comprehen-
sive identification of all conditions 
that could reasonably be considered a 
complication of care that meets the 
requirements under paragraph (5)(A) 
to be included as a potentially-avoid-
able complication; and 
‘‘(II) in the case of potentially- 
avoidable readmissions, a comprehen-
sive identification of all initial dis-
charges described in paragraph (5)(B) 
and corresponding readmissions de-
scribed in such paragraph that each 
meet the requirements for such read-
mission to be included as a poten-
tially-avoidable readmission. 
‘‘(ii) To the extent possible, the meth-
odology shall be a methodology that has 
been successfully implemented for the pur-
pose of adjusting payments to hospitals by 
a State plan under title XIX or by a major 
commercial payer or be a methodology that 
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has been certified by an entity with a con-
tract under section 1890(a). 
‘‘(iii) The methodology shall be open, 
transparent, and available for review and 
comment by the public. 
‘‘(iv) The Secretary may select propri-
etary methodologies that meet the criteria 
in clauses (i) through (iii). 
‘‘(B) SELECTION CRITERIA FOR METHOD 
OF RISK ADJUSTMENT.—For purposes of para-
graph (4), the Secretary shall, with respect to 
each category described in a subparagraph of 
paragraph (5), select a methodology for speci-
fying risk categories and for assigning individ-
uals entitled to benefits under part A to such 
categories, and shall so specify such risk cat-
egories and so assign such individuals to such 
categories. Each such methodology shall meet 
the following criteria: 
‘‘(i) The methodology shall result in 
an exhaustive and mutually exclusive list of 
risk categories. 
‘‘(ii) The methodology shall be clini-
cally credible and explicitly account for the 
severity of illness, chronic illness burden, 
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and extensive comorbid diseases and high 
severity of illness of patients. 
‘‘(iii) The methodology shall account 
for patient characteristics that may impact 
access to care. 
‘‘(iv) The methodology shall assign a 
risk category to an individual based on the 
condition of the individual at the time of— 
‘‘(I) in the case of potentially- 
avoidable complications, hospital ad-
mission; and 
‘‘(II) in the case of potentially- 
avoidable readmissions, hospital dis-
charge with respect to the initial dis-
charge. 
‘‘(v) To the extent possible, the meth-
odology shall be a methodology that has 
been successfully implemented for the pur-
pose of adjusting payments to hospitals by 
a State plan under title XIX or by a major 
commercial payer or be a methodology that 
has been certified by an entity with a con-
tract under section 1890(a). 
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‘‘(vi) The methodology shall be open, 
transparent, and available for review and 
comment by the public. 
‘‘(vii) The Secretary may select pro-
prietary methodologies that meet the cri-
teria in clauses (i) through (vi). 
‘‘(C) PUBLICATION OF SPECIFICATIONS.— 
Not later than 15 days prior to each applicable 
prospective year, the Secretary shall make 
available, such as by publicly posting on the 
Internet Web site of the Centers for Medicare 
& Medicaid Services the annual updates to each 
methodology selected under a subparagraph of 
this paragraph. 
‘‘(7) REPORTING BY SECRETARY.— 
‘‘(A) REPORTS TO HOSPITALS.—For each 
data collection period that is with respect to an 
applicable prospective period beginning on or 
after October 1, 2017, the Secretary shall pro-
vide to each applicable hospital, not later than 
the first day of such applicable prospective pe-
riod, a confidential report with respect to the 
potentially-avoidable outcomes of such hospital 
during such data collection period. 
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‘‘(B) REPORTS TO PUBLIC.—For each data 
collection period that is with respect to an ap-
plicable prospective period described in para-
graph (1), the Secretary shall, not later than 90 
days after the first day of such applicable pro-
spective period, make available to the public 
(including by posting on the Hospital Compare 
Web site) in an easily understandable format 
information regarding the performance of each 
applicable hospital during such data collection 
period with respect to potentially-avoidable out-
comes. 
‘‘(8) DEFINITIONS.—In this subsection: 
‘‘(A) APPLICABLE
HOSPITAL.—The term 
‘applicable hospital’ means a subsection (d) hos-
pital. 
‘‘(B) DATA
COLLECTION
PERIOD.—The 
term ‘data collection period’ means, with re-
spect to an applicable prospective period, a pe-
riod specified by the Secretary that is the most 
recent period for which data are available for 
purposes of determining the potentially-avoid-
able outcome adjustment factor described in 
paragraph (2) to be applied for such applicable 
prospective period. 
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‘‘(C) APPLICABLE PROSPECTIVE PERIOD.— 
The term ‘applicable prospective period’ means 
a fiscal year. 
‘‘(9) LIMITATION ON JUDICIAL REVIEW.—There 
shall be no administrative or judicial review under 
section 1869, section 1878, or otherwise of a poten-
tially-avoidable outcome adjustment factor applied 
under this section.’’. 
(b) CONFORMING AMENDMENTS.— 
(1) RELATIONSHIP TO EXISTING PAYMENTS.— 
Section 1886(o) of the Social Security Act (42 
U.S.C. 1395ww(o)) is amended— 
(A) in paragraph (6)(A), by inserting ‘‘and 
before application of subsection (t)’’ after 
‘‘(7)(B)(i)’’; and 
(B) in paragraph (7)(B)(i), by inserting ‘‘, 
before application of subsection (t),’’ after ‘‘The 
Secretary shall’’. 
(2) SUNSETTING EXISTING ADJUSTMENT FOR 
COMPLICATIONS.—Section 1886(p) of the Social Se-
curity Act (42 U.S.C. 1395ww(p)) is amended— 
(A) in paragraph (1), by inserting ‘‘(before 
fiscal year 2018)’’ after ‘‘a subsequent fiscal 
year’’; and 
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(B) in paragraph (5), by inserting ‘‘(before 
fiscal year 2018)’’ after ‘‘each subsequent fiscal 
year’’. 
(3) SUNSETTING EXISTING ADJUSTMENT FOR 
READMISSIONS.—Section 1886(q) of the Social Se-
curity Act (42 U.S.C. 1395ww(q)) is amended— 
(A) in paragraph (1), by inserting ‘‘and 
ending before October 1, 2017’’ after ‘‘October 
1, 2012,’’; 
(B) in paragraph (3)(C)(iii), by inserting 
‘‘before fiscal year 2018’’ after ‘‘and subsequent 
fiscal years’’; and 
(C) in paragraph (5)(B), by inserting ‘‘and 
ending with fiscal year 2017’’ after ‘‘fiscal year 
2015’’. 
Æ 
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