dures and tests in each risk class for 
the applicable historical period for 
beneficiaries assigned to the risk 
class. 
Such difference may be a positive or nega-
tive number. 
‘‘(ii) STANDARD
POTENTIALLY
PRE-
VENTABLE RATE OF OUTPATIENT PROCE-
DURES
AND
TESTS.—In carrying out 
clause (i)(I), the standard potentially pre-
ventable rate of outpatient procedures and 
tests shall be based on the average number 
of beneficiaries with one or more poten-
tially preventable outpatient procedures 
and tests 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-
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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 
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 OUTPATIENT PRO-
CEDURES AND TESTS.— 
‘‘(i) IN GENERAL.—The term ‘aggre-
gate payments for excess potentially pre-
ventable outpatient procedures and tests’ 
means, for an applicable historical period, 
for all beneficiaries with one or more po-
tentially preventable outpatient procedures 
and tests 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 
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period, for potentially preventable out-
patient procedures and tests identified 
under paragraph (2) is equal to the sum 
across all risk classes of the product of— 
‘‘(I) the excess potentially pre-
ventable outpatient procedures and 
tests (as defined in subparagraph (A)) 
for the risk class for the applicable 
healthcare delivery organization dur-
ing the applicable historical period; 
and 
‘‘(II) the average payment per 
beneficiary of all potentially prevent-
able outpatient procedures and tests 
for beneficiaries in the risk class (as 
determined under clause (iii)) for ap-
plicable healthcare delivery organiza-
tions during the applicable historical 
period. 
‘‘(iii) AVERAGE PAYMENT PER BENE-
FICIARY OF ALL POTENTIALLY PREVENT-
ABLE
OUTPATIENT
PROCEDURES
AND 
TESTS.—The term ‘average payment per 
beneficiary of all potentially preventable 
outpatient procedures and tests’ for a risk 
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class means, for applicable healthcare de-
livery organizations for an applicable his-
torical period, the average payment per 
beneficiary of all potentially preventable 
outpatient procedures and tests in the risk 
class. 
‘‘(2) POTENTIALLY PREVENTABLE OUTPATIENT 
PROCEDURES
AND
TESTS.—For purposes of this 
subsection, the Secretary shall select a methodology 
of identifying potentially preventable outpatient pro-
cedures and tests that includes each procedure or 
test that meets all of the following requirements: 
‘‘(A) The procedure or test is provided or 
ordered by a physician or other healthcare pro-
vider to supplement or support the evaluation 
or treatment of a beneficiary including a proce-
dure, diagnostic test, laboratory test, therapy 
service, or radiology service. 
‘‘(B) The procedure or test may be over-
used in the provision healthcare or treatment. 
‘‘(C) The procedure or test is not for a 
beneficiary with extensive comorbid disease or 
high severity of illness that may necessitate fre-
quent monitoring with outpatient procedures 
and tests. 
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emcdonald on DSK67QTVN1PROD with BILLS
‘‘(D) The procedure or test meets criteria 
applicable under subsection (j)(1) to the out-
come described in this subsection. 
‘‘(j) SELECTION OF METHODS FOR IDENTIFYING PO-
TENTIALLY PREVENTABLE OUTCOMES AND METHOD OF 
RISK ADJUSTMENT.— 
‘‘(1) SELECTION CRITERIA FOR METHOD FOR 
IDENTIFYING
POTENTIALLY
PREVENTABLE
OUT-
COMES.—The Secretary shall select a methodology 
of identifying each of the potentially preventable out-
comes. For each type of potentially preventable out-
come the methodology selected shall meet the fol-
lowing criteria: 
‘‘(A) Be comprehensive with a uniform 
structure. 
‘‘(B) Have available a method of risk ad-
justment that meets the criteria in paragraph 
(2). 
‘‘(C) Be clinically meaningful having exclu-
sions for beneficiaries for whom the outcome is 
not potentially preventable including those 
beneficiaries with extensive comorbid disease or 
high severity of illness. 
‘‘(D) To the extent possible have been suc-
cessfully implemented in the payment organiza-
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tion of a State Medicaid program or a major 
payer or be certified by an entity with a con-
tract under section 1890(a). 
‘‘(E) Be open, transparent, and available 
for review and comment. 
‘‘(F) To the extent possible, be in the pub-
lic domain. 
‘‘(G) If commercially available methods are 
the only viable methods that meet the criteria 
in subparagraphs (A), (B), (C), and (D), the 
Secretary may select such commercial methods 
as long as such methods meet the criteria in 
subparagraph (E). 
‘‘(2) SELECTION
CRITERIA
FOR
METHOD
OF 
RISK
ADJUSTMENT.—The Secretary shall select a 
methodology for risk adjusting the rate of each of 
the potentially preventable outcomes. For each type 
of potentially preventable outcome, the methodology 
for risk adjustment shall meet the following criteria: 
‘‘(A) The methodology is comprehensive 
with a uniform structure. 
‘‘(B) The methodology is clinically mean-
ingful and explicitly recognize severity of illness, 
chronic illness burden, and patients with exten-
sive comorbid disease or high severity of illness. 
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