SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Medicare Payment for Quality and 
Value Act of 2003''.

SEC. 2. DEMONSTRATION PROJECTS TO IMPROVE HEALTH CARE QUALITY AND 
              REDUCE COSTS UNDER MEDICARE.

    (a) Definitions.--In this section:
            (1) Demonstration project.--The term ``demonstration 
        project'' means a demonstration project established by the 
        Secretary under subsection (b)(1).
            (2) Low-cost high-quality state.--The term ``low-cost high-
        quality State'' means a State in the top quartile of cost and 
        quality efficiency as measured by the Centers for Medicare & 
        Medicaid Services using 1999 program data.
            (3) Medicare beneficiary.--The term ``medicare 
        beneficiary'' means an individual who is entitled to (or 
        enrolled for) benefits under part A of the medicare program, 
        enrolled for benefits under part B of the medicare program, or 
        both (including an individual who is enrolled in a 
        Medicare+Choice plan under part C of the medicare program).
            (4) Medicare program.--The term ``medicare program'' means 
        the health benefits program under title XVIII of the Social 
        Security Act (42 U.S.C. 1395 et seq.).
            (5) Secretary.--The term ``Secretary'' means the Secretary 
        of Health and Human Services.
    (b) Demonstration Projects To Improve Health Care Quality and 
Reduce Costs Under Medicare.--
            (1) Establishment.--There is established a demonstration 
        program under which the Secretary shall establish demonstration 
        projects in accordance with the provisions of this section for 
        the purpose of improving the quality of care--
                    (A) provided to medicare beneficiaries with high-
                volume and high-cost conditions; and
                    (B) for which payment is made under the medicare 
                program.
            (2) Rewarding quality care.--Under the demonstration 
        projects, the Secretary shall increase payments under the 
        medicare program by an amount determined by the Secretary for 
        purposes of the demonstration projects to health care providers 
        (as defined by the Secretary) in low-cost high-quality States 
        that demonstrate adherence to quality standards identified by 
        the Secretary for purposes of the demonstration projects.
    (c) Conduct of Demonstration Projects.--
            (1) Demonstration areas.--
                    (A) In general.--The Secretary shall conduct 
                demonstration projects in low-cost high-quality States 
                selected on the basis of proposals submitted under 
                subparagraph (B). Each demonstration project shall be 
                conducted on a statewide basis.
                    (B) Proposals.--The Secretary shall accept 
                proposals to establish the demonstration projects from 
                entities that demonstrate an intent to include multiple 
                public and private payers and a majority of practicing 
                physicians in a low-cost high-quality State.
            (2) Duration.--The Secretary shall complete the 
        demonstration projects by the date that is 5 years after the 
        date on which the first demonstration project is implemented.
    (d) Report to Congress.--Not later than the date that is 6 months 
after the date on which the demonstration projects end, the Secretary 
shall submit to Congress a report on the demonstration projects 
together with such recommendations for legislation or administrative 
action as the Secretary determines is appropriate.
    (e) Waiver of Medicare Requirements.--The Secretary shall waive 
compliance with such requirements of the medicare program to the extent 
and for the period the Secretary finds necessary to conduct the 
demonstration projects.
    (f) Funding.--
            (1) Demonstration projects.--
                    (A) In general.--Subject to subparagraph (B) and 
                paragraph (2), the Secretary shall provide for the 
                transfer from the Federal Hospital Insurance Trust Fund 
                under section 1817 of the Social Security Act (42 
                U.S.C. 1395i) and Federal Supplementary Insurance Trust 
                Fund under section 1841 of such Act (42 U.S.C. 1395t), 
                in such proportion as the Secretary determines 
                appropriate, of such funds as are necessary for the 
                costs of carrying out the demonstration projects under 
                this section.
                    (B) Limitation.--In conducting the demonstration 
                projects under this section, the Secretary shall ensure 
                that the aggregate payments made by the Secretary under 
                the medicare program do not exceed the amount which the 
                Secretary would have paid under the medicare program if 
                the demonstration projects under this section were not 
                implemented.
            (2) Evaluation and report.--There are authorized to be 
        appropriated such sums as are necessary for the purpose of 
        developing and submitting the report to Congress under 
        subsection (d).

SEC. 3. INSTITUTE OF MEDICINE REPORT ON PAYMENT INCENTIVES AND 
              PERFORMANCE UNDER THE MEDICARE+CHOICE PROGRAM.

    (a) Study.--The Secretary of Health and Human Services shall enter 
into an arrangement with the Institute of Medicine of the National 
Academy of Sciences under which the Institute shall conduct a study on 
clinical outcomes, performance, and quality of care under the 
Medicare+Choice program under part C of title XVIII of the Social 
Security Act.
    (b) Matters Studied.--
            (1) In general.--In conducting the study under subsection 
        (a), the Institute shall review and evaluate the public and 
        private sector experience related to the establishment of 
        performance measures and payment incentives. The review shall 
        include an evaluation of the success, efficiency, and utility 
        of structural process and performance measurements, and 
        different methodologies that link performance to payment 
        incentives. The review shall include the use of incentives--
                    (A) aimed at plans and their enrollees;
                    (B) aimed at providers and their patients;
                    (C) to encourage consumers to purchase based on 
                quality and value; and
                    (D) to encourage multiple purchasers, providers, 
                beneficiaries, and plans within a community to work 
                together to improve performance.
            (2) Identification of options.--As part of the study, the 
        Institute shall identify options for providing incentives and 
        rewarding performance, improve quality, outcomes, and 
        efficiency in the delivery of programs and services under the 
        Medicare+Choice program, including--
                    (A) periodic updates of performance measurements to 
                continue rewarding outstanding performance and 
                encourage improvements;
                    (B) payments that vary by type of plan, such as 
                preferred provider organization plans and MSA plans;
                    (C) extension of incentives in the Medicare+Choice 
                program to the fee for service program under title 
                XVIII of the Social Security Act; and
                    (D) performance measures needed to implement 
                alternative methodologies to align payments with 
                performance.
    (c) Report.--Not later than 18 months after the date of the 
enactment of this Act, the Institute shall submit to Congress and the 
Secretary a report on the study conducted under subsection (a).
Output: Medicare Payment for Quality and Value Act of 2003 - Directs the Secretary of Health and Human Services to establish demonstration projects to improve care provided to Medicare beneficiaries with high-volume and high-cost conditions and for which payment is made under Medicare. Directs the Secretary to increase payments under Medicare to health care providers in low-cost high-quality States that adhere to quality standards identified by the Secretary. Defines a low-cost high-quality State as a State meeting certain cost and quality efficiency standards.Directs the Secretary to accept proposals for projects in low-cost high-quality States from entities planning to include multiple public and private payers and a majority of practicing physicians in the State.Allows the Secretary to waive compliance with such requirements of the Medicare program to the extent and for the period necessary to conduct demonstration projects under this Act.Directs the Secretary to enter into an agreement with the Institute of Medicine of the National Academy of Sciences under which the Institute shall conduct a study on clinical outcomes, performance, and quality of care under the Medicare+Choice program under the Social Security Act.