‘‘(A) is at least 94 percent, the payment 
adjustment percentage is 1 percent; 
‘‘(B) is at least 93 percent, but less than 
94 percent, the payment adjustment percentage 
is 2 percent; 
‘‘(C) is at least 92 percent, but less than 
93 percent, the payment adjustment percentage 
is 3 percent; 
‘‘(D) is at least 91 percent, but less than 
92 percent, the payment adjustment percentage 
is 4 percent; or 
‘‘(E) is less than 91 percent, the payment 
adjustment percentage is 5 percent. 
‘‘(b) LOW-REIMBURSEMENT STATE; MEDICARE RE-
IMBURSEMENT RATIO DEFINED.—For purposes of this 
section: 
‘‘(1) LOW-REIMBURSEMENT STATE.—The term 
‘low-reimbursement State’ means one of the 50 
States or the District of Columbia in which the 
medicare reimbursement ratio (as defined in para-
graph (2)) is less than 95 percent. 
‘‘(2) MEDICARE REIMBURSEMENT RATIO.—The 
term ‘medicare reimbursement ratio’ means, with re-
spect to a State or the District of Columbia, the 
ratio (expressed as a percentage) of—
‘‘(A) the adjusted average per capita cost 
(as determined under section 1876(a)(4)) for 
benefits under parts A and B of this title (with-
out regard to any payment under this section) 
in the State or District; to 
‘‘(B) the United States per capita cost (as 
so determined) for the 50 States and the Dis-
trict of Columbia. 
‘‘(c) AFFECTED HEALTH CARE PROVIDERS COV-
ERED.—For purposes of this section the term ‘affected 
health care provider’ means a facility or professional that 
is within one of the following classes of health care pro-
viders or organizations: 
‘‘(1) Hospitals. 
‘‘(2) Physicians. 
‘‘(3) Skilled nursing facilities. 
‘‘(4) Home health agencies. 
‘‘(5) Medicare+Choice organizations offering 
Medicare+Choice plans. 
‘‘(d) EFFECTIVE PERIOD.—This section shall apply 
to payments—
‘‘(1) for hospitals, skilled nursing facilities, and 
home health agencies, for fiscal years beginning with 
fiscal year 2004; or
‘‘(2) for physicians and Medicare+Choice orga-
nizations, for calendar years beginning with 2004. 
‘‘(e) RELATION TO MANAGED CARE: AVOIDING DU-
PLICATION OF INCREASES.—Payments under this section 
to 
affected 
health 
care 
providers 
other 
than 
Medicare+Choice organizations in an area shall not be 
taken into account for purposes of applying part C in that 
area.’’. 
SEC. 3. MEDICARE FINANCIAL INCENTIVE PROGRAM FOR 
HIGH QUALITY, LOW-COST HEALTH CARE. 
Title XVIII of the Social Security Act is further 
amended by adding at the end the following new section: 
‘‘FINANCIAL INCENTIVE PROGRAM FOR HIGH QUALITY, 
LOW-COST HEALTH CARE 
‘‘SEC. 1898. (a) RANKING OF STATES BY QUALITY 
AND COST.—
‘‘(1) IN GENERAL.—The Secretary shall provide 
for the ranking of States on measures of both qual-
ity and cost of health care services under this title. 
‘‘(2) PROCESS.—
‘‘(A) IN GENERAL.—Within 1 year after 
the date of the enactment of this section, the 
Secretary shall submit to Congress a proposal 
for establishing such measures of quality. The 
Secretary shall consult with stakeholders in de-
veloping such proposal.
‘‘(B) ACTION.—If the Congress does not 
enact a law within 90 legislative days after re-
ceiving such proposal, the proposal shall become 
effective. 
‘‘(3) COST.—In developing the measure based 
on cost, the Secretary shall rely on the Secretary’s 
measure of average medicare spending per recipient 
in each State. 
‘‘(4) ANNUAL
EVALUATIONS.—The Secretary 
shall conduct annually evaluations of States quality 
and cost of health care services under this title. 
‘‘(b) ADDITIONAL BONUS PAYMENT.—
‘‘(1) IN GENERAL.—Subject to subsection (c), 
in the case of a hospital or physician that is located 
in a State that is ranked under subsection (a) 
among the top quartile of States in quality and cost 
and that furnishes items or services for which pay-
ment may be made under part A or part B, in addi-
tion to the amount otherwise paid under such part, 
there also shall be paid to the provider under such 
part from the Federal Hospital Insurance Trust 
Fund (in the case of payments under part A) or 
from the Federal Supplementary Medical Insurance 
Fund (in the case of payments under part B) an
amount equal to 5 percent of the payment amount 
for the service under such part. 
‘‘(2) AUTHORITY
TO
COVER
OTHER
PRO-
VIDERS.—The Secretary may expand paragraph (1) 
to apply to other health care providers and practi-
tioners under this title, but shall not effect such an 
expansion without reporting to Congress. 
‘‘(c) AGGREGATE PERCENTAGE ADJUSTMENT LIMI-
TATION.—In no case shall the sum of the percentage in-
crease under subsection (b) and the payment adjustment 
percentage under section 1897(a)(2) with respect to a 
State exceed 100 percent minus the medicare reimburse-
ment ratio (as defined in section 1897(b)(2)) for that 
State. Any such percentage increase or adjustment shall 
be reduced on a pro-rata basis to the extent required to 
comply with the previous sentence.’’.
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