To amend title XVIII of the Social Security Act to provide incentives linking quality to payment for skilled nursing facilities and to establish a Long-Term Care Financing Commission.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Medicare Nursing Facility Pay-for-
Performance Act of 2004''.

SEC. 2. ADDITIONAL MEDICARE PAYMENT FOR FACILITIES THAT REPORT 
              ADDITIONAL QUALITY DATA.

    (a) Voluntary Reporting of Quality Measures and Adjustment in 
Payment.--
            (1) In general.--Section 1888 of the Social Security Act 
        (42 U.S.C. 1395yy) is amended by adding at the end the 
        following new subsection:
    ``(f) Voluntary Reporting of Quality Measures; Change in Payment 
Based on Reported Quality Measures.--
            ``(1) Establishment of additional quality measures.--
                    ``(A) In general.--Not later than 6 months after 
                the date of the enactment of this subsection, the 
                Secretary, through a contract with a qualified 
                independent party (such as the National Quality Forum) 
                identified by the Secretary, shall provide for the 
                identification of--
                            ``(i) at least 10, and not more than 15, 
                        quality measures for the performance of skilled 
                        nursing facilities under this title; and
                            ``(ii) the data to be reported, including 
                        their collection and formatting, on a calendar 
                        quarter basis for each such quality measure to 
                        measure the performance of a skilled nursing 
                        facility.
                Such measures may be outcome or process measures. Such 
                measures shall be in addition to the 14 enhanced 
                measures published by the Secretary for such facilities 
                for use as of September 1, 2004.
                    ``(B) Measure of staffing level.--The quality 
                measures identified under subparagraph (A) shall 
                include a measure of the level of facility staffing and 
                the mix of licensed staff at a facility.
                    ``(C) Risk adjustment.--The values obtained for 
                quality measures identified under subparagraph (A), 
                including the existing 14 enhanced measures, shall be 
                appropriately risk adjusted as applied to individual 
                skilled nursing facilities in order to increase the 
                likelihood that any differences in such values reflect 
                differences in the care provided by the skilled nursing 
                facilities and not differences in the characteristics 
                of the residents in such facilities. Such risk 
                adjustment shall take into account resident 
                characteristics that are related to triggering a value 
                for a quality measure but are not reflective of 
                facility care processes. Risk adjustment approaches may 
                include, as appropriate--
                            ``(i) excluding certain types of residents;
                            ``(ii) stratifying residents into high-risk 
                        and low-risk groups; or
                            ``(iii) statistical adjustment (such as 
                        regression analysis) that takes into 
                        consideration multiple characteristics 
                        (covariates) for each resident simultaneously 
                        and adjusts the nursing facilities' quality 
                        measure values for different resident 
                        characteristics.
                    ``(D) Small facilities.--
                            ``(i) In general.--In selecting and 
                        applying quality measures, there shall be taken 
                        into account the circumstances of small skilled 
                        nursing facilities.
                            ``(ii) Definition.--For purposes of clause 
                        (i), the term `small skilled nursing facility' 
                        means a skilled nursing facility which had, in 
                        most recent preceding cost reporting period, 
                        fewer than 1,500 patient days with respect to 
                        which payments were made under this title.
                    ``(E) Annual evaluation.--The Secretary shall 
                provide for an annual process whereby the use of 
                particular quality measures are evaluated and, as 
                appropriate, adjusted in consultation with the National 
                Quality Forum.
                    ``(F) Posting on website.--The Secretary shall 
                provide for the posting on its website, and the 
                publication at least annually, of the quality 
                performance of skilled nursing facilities as measured 
                through values reported under this subsection by such 
                facilities.
            ``(2) Adjustment in payment based on quality performance.--
                    ``(A) In general.--For each fiscal year beginning 
                with fiscal year 2006, in the case of a skilled nursing 
                facility that reports data under paragraph (1) for the 
                data reporting period with respect to that fiscal year 
                (as defined in subparagraph (C)), the aggregate amount 
                of payment under this subsection shall be adjusted as 
                follows:
                            ``(i) Increase of 2 percent for facilities 
                        in top 10 percent in quality.--In the case of a 
                        facility that, based on such data, has a 
                        composite score for quality that is equal to or 
                        exceeds such score for the baseline period (as 
                        defined in subparagraph (D)) for the top 10 
                        percent of skilled nursing facilities that have 
                        reported such data for such baseline period, 
                        such aggregate payment shall be increased by 
                        such amount as reflects an increase in the 
                        market basket percentage increase applied for 
                        the fiscal year involved under subsection 
                        (e)(4)(E)(ii)(V) by 2 percentage points.
                            ``(ii) Increase of 1 percent for facilities 
                        in next 10 percent in quality.--In the case of 
                        a facility that, based on such data, has a 
                        composite score for quality that exceeds such 
                        score for the baseline period for the top 10 
                        percent of skilled nursing facilities that have 
                        reported such data for such baseline period, 
                        but is equal to or exceeds such score for the 
                        baseline period for the top 20 percent of such 
                        skilled nursing facilities, such aggregate 
                        payment shall be increased by such amount as 
                        reflects an increase in the market basket 
                        percentage increase applied for the fiscal year 
                        involved under subsection (e)(4)(E)(ii)(V) by 1 
                        percentage point.
                            ``(iii) Quality threshold covering 80 
                        percent of facilities.--For a baseline period, 
                        the Secretary shall establish a quality 
                        threshold score that covers 80 percent of the 
                        skilled nursing facilities that have reported 
                        such data for such baseline period.
                            ``(iv) Decrease of 1 percent for facilities 
                        below quality threshold.--In the case of a 
                        fiscal year beginning with fiscal year 2007, in 
                        the case of a facility that, based on such 
                        data, has a composite score on quality measures 
                        that is below the quality threshold score 
                        established under clause (iii) for the baseline 
                        period, the aggregate payment for the fiscal 
                        year involved shall be decreased by such amount 
                        as reflects a decrease in the market basket 
                        percentage increase applied under subsection 
                        (e)(4)(E)(ii)(V) by 1 percentage point.
                            ``(v) Year by year determination.--Any 
                        increase or decrease in payments to a skilled 
                        nursing facility under the preceding provisions 
                        of this subparagraph for a fiscal year shall 
                        not affect or apply to payments to such 
                        facility in any subsequent fiscal year.
                    ``(B) Treatment of small facilities.--In the case 
                of a skilled nursing facility which because of its 
                small size is unable to submit data on one or more 
                quality measures--
                            ``(i) the facility shall not be penalized 
                        under this paragraph due to its non-reporting 
                        of such data; and
                            ``(ii) the composite rank or score shall be 
                        based on the data so reported, with appropriate 
                        adjustments so as to be comparable to other 
                        facilities.
                    ``(C) Data reporting period.--For purposes of 
                subparagraph (A), the term `data reporting period' 
                means, with respect to--
                            ``(i) fiscal year 2006, such period of 
                        calendar quarters in fiscal year 2005 as the 
                        Secretary shall specify, which, to the extent 
                        feasible, shall be a period of at least 2 
                        calendar quarters; or
                            ``(ii) a subsequent fiscal year, the period 
                        of 4 consecutive calendar quarters ending on 
                        the June 30 preceding the fiscal year.
                    ``(D) Baseline period.--For purposes of 
                subparagraph (A), the term `baseline period' means, 
                with respect to--
                            ``(i) fiscal year 2006, the period of 
                        calendar quarters specified under subparagraph 
                        (C)(i); or
                            ``(ii) a subsequent fiscal year, the period 
                        of 4-calendar-quarters ending on June 30, 
                        2006.''.
            (2) Limiting market basket increases to facilities that 
        voluntarily report information.--Subsection (e)(4)(E)(ii) of 
        such section is amended--
                    (A) in subclause (III), by striking ``and'' at the 
                end;
                    (B) in subclause (IV), by inserting ``before the 
                first fiscal year in which the reporting of quality 
                measures is in effect under subsection (f)(1)'' after 
                ``each subsequent fiscal year'' and by striking the 
                period at the end and inserting ``; and''; and
                    (C) by adding at the end the following new 
                subclause:by inserting before the period at the end the 
                following:
                                    ``(V) for each subsequent year, the 
                                rate computed for the previous fiscal 
                                year increased, in the case of a 
                                skilled nursing facility that reports 
                                data under subsection (f)(1) for the 
                                fiscal year, by the skilled nursing 
                                facility market basket percentage for 
                                the fiscal year involved.''.
    (b) Using Fiscal Year 2005 Payment Rates as a Floor for Subsequent 
Updates.--
            (1) In general.--Subsection (e)(4)(E)(ii)(IV) and 
        subsection (e)(4)(E)(ii)(V), as added by subsection (a)(2), of 
        such section is amended by inserting ``(taking into account, 
        with respect to a previous fiscal year that was fiscal year 
        2005, all add-ons to such rate that were applicable in such 
        fiscal year as well as market basket adjustments made in 
        subsequent fiscal years)'' after ``the rate computed for the 
        previous fiscal year''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to the computation of rates for fiscal years 
        beginning with fiscal year 2006.

SEC. 3. LONG-TERM CARE FINANCING COMMISSION.

    (a) Establishment.--There is hereby established a commission to be 
known as the ``Long-Term Care Financing Commission'' (in this section 
referred to as the ``Commission'').
    (b) Composition.--The Commission shall be composed of 10 members 
appointed by the Secretary of Health and Human Services.
    (c) Duties.--
            (1) Analyses.--The Commission shall conduct analyses of the 
        financing of long-term care, including the financing of nursing 
        facilities. Such analyses shall include an analysis of each of 
        the following:
                    (A) The adequacy of Medicaid program financing of 
                the long term care system.
                    (B) Medicare's cross-subsidization of long-term 
                care for Medicaid patients.
                    (C) Total industry margins in long-term care.
                    (D) Long-term demographic challenges.
                    (E) The impact of current trends, including 
                staffing shortages and litigation costs, on long-term 
                care spending.
                    (F) Different approaches to refinements in the per 
                diem RUG payment amounts and related payment 
                methodologies under section 1888(e) of the Social 
                Security Act (42 U.S.C. 1395yy(e)) .
            (2) Report.--The Commission shall submit to Congress an 
        annual report on its analyses. Each such report shall include 
        recommendations for such changes in financing of long-term care 
        as the Commission deems appropriate.
    (d) Terms, Compensation, Chairman, Meetings, Staff, and Powers.--
The provisions of subsections (c)(3), (c)(4), (c)(5), (c)(6), (d), and 
(e) of section 1805 of the Social Security Act (42 U.S.C. 1395b-6) 
(relating to provisions for the Medicare Payment Advisory Commission) 
shall apply to the Commission in the same manner as they apply to the 
Medicare Payment Advisory Commission.

Summary: Medicare Nursing Facility Pay-for-Performance Act of 2004 - Amends title XVIII (Medicare) of the Social Security Act (SSA) to direct the Secretary of Health and Human Services, through a contract with a qualified independent party (such as the National Quality Forum), to provide for identification of: (1) between ten and 15 quality measures for the performance of skilled nursing facilities under Medicare; and (2) the data to be reported, including their collection and formatting, on a calendar quarter basis for each such quality measure.

Requires the values obtained for quality measures to be appropriately risk-adjusted as applied to individual skilled nursing facilities in order to increase the likelihood that any differences in such values reflect differences in the care provided by the facilities and not differences in the characteristics of their residents.

Provides for: (1) adjusting payments for skilled nursing facilities based on quality performance, including an increase of two percent for facilities in the top ten percent in quality as well as a decrease of one percent for facilities below the quality threshold; (2) limiting market basket increases to facilities that voluntarily report information; and (3) using FY 2005 payment rates as a floor for subsequent updates.

Establishes the Long-Term Care Financing Commission to analyse and report to Congress on the financing of long-term care.