Report text available as:

  • TXT
  • PDF   (PDF provides a complete and accurate display of this text.) Tip ?

115th Congress }                                       { Rept. 115-763
                        HOUSE OF REPRESENTATIVES
 2d Session   }                                        { Part 1

======================================================================
 
 PROVIDING RELIABLE OPTIONS FOR PATIENTS AND EDUCATIONAL RESOURCES ACT 
                                OF 2018

                                _______
                                

 June 19, 2018.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

Mr. Brady of Texas, from the Committee on Ways and Means, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 5775]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 5775) to amend title XVIII of the Social Security 
Act to require Medicare Advantage plans and part D prescription 
drug plans to include information on the risks associated with 
opioids, coverage of certain nonopioid treatments used to treat 
pain, and on the safe disposal of prescription drugs, and for 
other purposes, having considered the same, report favorably 
thereon with an amendment and recommend that the bill as 
amended do pass.

                                CONTENTS

                                                                   Page
  I. SUMMARY AND BACKGROUND...........................................3
        A. Purpose and Summary...................................     3
        B. Background and Need for Legislation...................     4
        C. Legislative History...................................     4
 II. EXPLANATION OF THE BILL..........................................5
        A. Providing Reliable Options for Patients and 
            Educational Resources Act............................     5
III. VOTES OF THE COMMITTEE...........................................7
 IV. BUDGET EFFECTS OF THE BILL.......................................7
        A. Committee Estimate of Budgetary Effects...............     7
        B. Statement Regarding New Budget Authority and Tax 
            Expenditures Budget Authority........................     8
        C. Cost Estimate Prepared by the Congressional Budget 
            Office...............................................     8
  V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE......16
        A. Committee Oversight Findings and Recommendations......    16
        B. Statement of General Performance Goals and Objectives.    16
        C. Information Relating to Unfunded Mandates.............    16
        D. Congressional Earmarks, Limited Tax Benefits, and 
            Limited Tariff Benefits..............................    16
        E. Duplication of Federal Programs.......................    16
        F. Disclosure of Directed Rule Makings...................    16
 VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED...........17
        A. Text of Existing Law Amended or Repealed by the Bill, 
            as Reported..........................................    17
        B. Changes in Existing Law Proposed by the Bill, as 
            Reported.............................................    17

    The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Providing Reliable Options for 
Patients and Educational Resources Act of 2018'' or the ``PROPER Act of 
2018''.

SEC. 2. REQUIRING MEDICARE ADVANTAGE PLANS AND PART D PRESCRIPTION DRUG 
                    PLANS TO INCLUDE INFORMATION ON RISKS ASSOCIATED 
                    WITH OPIOIDS AND COVERAGE OF NONPHARMACOLOGICAL 
                    THERAPIES AND NONOPIOID MEDICATIONS OR DEVICES USED 
                    TO TREAT PAIN.

  Section 1860D-4(a)(1) of the Social Security Act (42 U.S.C. 1395w-
104(a)(1)) is amended--
          (1) in subparagraph (A), by inserting ``, subject to 
        subparagraph (C),'' before ``including'';
          (2) in subparagraph (B), by adding at the end the following 
        new clause:
                          ``(vi) For plan year 2021 and each subsequent 
                        plan year, subject to subparagraph (C), with 
                        respect to the treatment of pain--
                                  ``(I) the risks associated with 
                                prolonged opioid use; and
                                  ``(II) coverage of nonpharmacological 
                                therapies, devices, and nonopioid 
                                medications--
                                          ``(aa) in the case of an MA-
                                        PD plan under part C, under 
                                        such plan; and
                                          ``(bb) in the case of a 
                                        prescription drug plan, under 
                                        such plan and under parts A and 
                                        B.''; and
          (3) by adding at the end the following new subparagraph:
                  ``(C) Targeted provision of information.--A PDP 
                sponsor of a prescription drug plan may, in lieu of 
                disclosing the information described in subparagraph 
                (B)(vi) to each enrollee under the plan, disclose such 
                information through mail or electronic communications 
                to a subset of enrollees under the plan, such as 
                enrollees who have been prescribed an opioid in the 
                previous two-year period.''.

SEC. 3. REQUIRING MEDICARE ADVANTAGE PLANS AND PRESCRIPTION DRUG PLANS 
                    TO PROVIDE INFORMATION ON THE SAFE DISPOSAL OF 
                    PRESCRIPTION DRUGS.

  (a) Medicare Advantage.--Section 1852 of the Social Security Act (42 
U.S.C. 1395w-22) is amended by adding at the end the following new 
subsection:
  ``(n) Provision of Information Relating to the Safe Disposal of 
Certain Prescription Drugs.--
          ``(1) In general.--In the case of an individual enrolled 
        under an MA or MA-PD plan who is furnished an in-home health 
        risk assessment on or after January 1, 2021, such plan shall 
        ensure that such assessment includes information on the safe 
        disposal of prescription drugs that are controlled substances 
        that meets the criteria established under paragraph (2). Such 
        information shall include information on drug takeback programs 
        that meet such requirements determined appropriate by the 
        Secretary and information on in-home disposal.
          ``(2) Criteria.--The Secretary shall, through rulemaking, 
        establish criteria the Secretary determines appropriate with 
        respect to information provided to an individual to ensure that 
        such information sufficiently educates such individual on the 
        safe disposal of prescription drugs that are controlled 
        substances.''.
  (b) Prescription Drug Plans.--Section 1860D-4(c)(2)(B) of the Social 
Security Act (42 U.S.C. 1395w-104(c)(2)(B)) is amended--
          (1) by striking ``may include elements that promote'';
          (2) by redesignating clauses (i) through (iii) as subclauses 
        (I) through (III) and adjusting the margins accordingly;
          (3) by inserting before subclause (I), as so redesignated, 
        the following new clause:
                          ``(i) may include elements that promote--'';
          (4) in subclause (III), as so redesignated, by striking the 
        period at the end and inserting ``; and''; and
          (5) by adding at the end the following new clause:
                          ``(ii) with respect to plan years beginning 
                        on or after January 1, 2021, shall provide 
                        for--
                                  ``(I) the provision of information to 
                                the enrollee on the safe disposal of 
                                prescription drugs that are controlled 
                                substances that meets the criteria 
                                established under section 1852(n)(2), 
                                including information on drug takeback 
                                programs that meet such requirements 
                                determined appropriate by the Secretary 
                                and information on in-home disposal; 
                                and
                                  ``(II) cost-effective means by which 
                                an enrollee may so safely dispose of 
                                such drugs.''.

SEC. 4. REVISING MEASURES USED UNDER THE HOSPITAL CONSUMER ASSESSMENT 
                    OF HEALTHCARE PROVIDERS AND SYSTEMS SURVEY RELATING 
                    TO PAIN MANAGEMENT.

  (a) Restriction on the Use of Pain Questions in HCAHPS.--Section 
1886(b)(3)(B)(viii) of the Social Security Act (42 U.S.C. 
1395ww(b)(3)(B)(viii)) is amended by adding at the end the following 
new subclause:
  ``(XII)(aa) With respect to a Hospital Consumer Assessment of 
Healthcare Providers and Systems survey (or a successor survey) 
conducted on or after January 1, 2019, such survey may not include 
questions about communication by hospital staff with an individual 
about such individual's pain unless such questions take into account, 
as applicable, whether an individual experiencing pain was informed 
about risks associated with the use of opioids and about non-opioid 
alternatives for the treatment of pain.
  ``(bb) The Secretary shall not include on the Hospital Compare 
Internet website any measures based on the questions appearing on the 
Hospital Consumer Assessment of Healthcare Providers and Systems survey 
in 2018 about communication by hospital staff with an individual about 
such individual's pain.''.
  (b) Restriction on Use of 2018 Pain Questions in the Hospital Value-
based Purchasing Program.--Section 1886(o)(2)(B) of the Social Security 
Act (42 U.S.C. 1395ww(o)(2)(B)) is amended by adding at the end the 
following new clause:
                          ``(iii) HCAHPS pain questions.--The Secretary 
                        may not include under subparagraph (A) a 
                        measure that is based on the questions 
                        appearing on the Hospital Consumer Assessment 
                        of Healthcare Providers and Systems survey in 
                        2018 about communication by hospital staff with 
                        an individual about the individual's pain.''.

                       I. SUMMARY AND BACKGROUND


                         A. Purpose and Summary

    The bill, H.R. 5775, the ``Providing Reliable Options for 
Patients and Educational Resources (PROPER) Act of 2018,'' as 
ordered reported by the Committee on Ways and Means on May 16, 
2018, aims to increase educational resources for Medicare 
beneficiaries related to coverage options for the treatment of 
pain and the potential risks of prolonged opioid use. The 
PROPER ACT also improves pain-related questions used in patient 
satisfaction surveys.
    This legislation requires, by 2021, plans provide 
information to beneficiaries on the risks associated with 
prolonged opioid use and coverage of nonpharmacological 
therapies, devices, and nonopioid medications. It is intended 
that Medicare Advantage (MA) plans with Part D drug benefit 
offerings provide information on the coverage options for pain 
management under that particular plan. Likewise, Part D 
standalone drug plans are required to be provided accurate 
information by the Secretary on alternatives covered under 
Medicare Fee-for-Service, as well as alternatives available 
under the Part D plan being offered by the standalone Part D 
plan. Plans may target this information to a specific subset of 
enrollees, such as those prescribed an opioid in the previous 
two years.
    Beginning January 1, 2021, plans are required to provide 
information to enrollees on the safe disposal of prescription 
drugs that are controlled substances as part of the in-home 
risk assessment. Plans are also required to provide information 
on cost-effective means for safe disposal of controlled 
substances through their medication therapy management (MTM) 
programs.
    Beginning January 1, 2019, hospital consumer assessment of 
healthcare providers and systems (HCAHPS) surveys must not 
include pain-related questions unless the pain questions take 
into account, as applicable, whether an individual experiencing 
pain was informed about the risks associated with the use of 
opioids and about non-opioid alternatives for the treatment of 
pain. The Secretary of the Department of Health and Human 
Services (HHS) may not include on either the Hospital Compare 
Internet website or the Hospital Value-Based Purchasing Program 
any measures based on the questions appearing on the HCAHPS 
survey for 2018 about communication by hospital staff with an 
individual about pain.

                 B. Background and Need for Legislation

    Currently, plans are required to provide certain drug-
specific information to beneficiaries, but are not required to 
provide information on alternative pain treatment coverage 
options.
    Plans are also not required to educate patients on proper 
disposal of their medications that are controlled substances. 
This legislation ensures beneficiaries are informed of proper 
disposal of controlled substances. The home risk assessment is 
used by health plans to identify health risk and evaluate 
patients for the presence of disease or disability. It focuses 
on patient behaviors, medical history, and current physical 
health. Medication Therapy Management (MTM) programs are used 
by plans to target beneficiaries and provide information to 
improve medication adherence and reduce the risk of adverse 
events. In general, each program should include prescriber 
interventions to promote coordinated care, an interactive 
comprehensive medication review, and discussion with the 
beneficiary to assess his or her medication therapies. 
Beneficiaries are engaged by both their physicians and 
pharmacists regarding their medications, side effects, drug 
interactions, or other problems or concerns.
    The HCAHPS survey is a standardized survey instrument and 
data collection methodology that has been in use since 2006 to 
measure patients' experiences during a hospital stay. The 
Centers for Medicare & Medicaid Services (CMS) requires 
hospitals to administer the survey to provide data for various 
quality reporting programs. Previously, the survey included 
questions about how well a hospital addressed patient pain. 
Given concerns about the potential of pain measures to 
incentivize the prescribing of opioids, CMS updated its 
questions related to communication about pain beginning January 
1, 2018, and removed pain-based questions from the payment 
formula under the 2018 Hospital Value-Based Purchasing program.

                         C. Legislative History


Background

    H.R. 5775 was introduced on May 11, 2018, and was referred 
to the Committee on Ways and Means and additionally the 
Committee on Energy and Commerce.

Committee hearings

    On January 17, 2018, the Subcommittee on Oversight held a 
hearing on the current landscape and CMS actions to prevent 
opioid misuse.
    On February 6, 2018, the Subcommittee on Health held a 
hearing on removing barriers to prevent and treat opioid abuse 
and dependence in Medicare.
    On April 12, 2018, the Subcommittee on Human Resources held 
a hearing on local perspectives on the jobs gap that discussed 
problems the opioid epidemic is creating in finding qualified 
workers.
    On April 25, 2018, the Subcommittee on Trade held a hearing 
on stopping the flow of synthetic opioids in the international 
mail system.

Committee action

    The Committee on Ways and Means marked up H.R. 5775, the 
``Providing Reliable Options for Patients and Educational 
Resources (PROPER) Act of 2018,'' on May 16, 2018, and ordered 
the bill, as amended, favorably reported (with a quorum being 
present) by voice vote.

                      II. EXPLANATION OF THE BILL


 A. Providing Reliable Options for Patients and Educational Resources 
                          (PROPER) Act of 2018


                              PRESENT LAW

    Currently, plans are required to provide the following 
drug-specific information to beneficiaries, but are not 
required to provide information on alternative pain treatment 
coverage options:
    1. Access to specific covered Part D drugs, including 
access through pharmacy networks;
    2. Explanation of how the formularies function;
    3. Beneficiary cost-sharing requirements; and
    4. Information on the Medication Therapy Management Program 
and the Drug Management Program for at-risk beneficiaries (also 
known as the ``Lock-In'' Program).
    Plans are not required to educate patients on proper 
disposal of their medications during a home risk assessment or 
through the Medication Therapy Management program.
    The Hospital Consumer Assessment of Healthcare Providers 
and Systems (HCAHPS) survey includes three questions related to 
a hospital's communication with patients about their pain, but 
these questions do not assess communication regarding the risks 
of opioids nor the availability of non-opioid alternative pain 
management treatments.

                           REASONS FOR CHANGE

    To improve educational resources for Medicare beneficiaries 
relating to pain medications and pain treatment options as well 
as eliminate or significantly improve pain-related questions 
from patient satisfaction surveys.

                       EXPLANATION OF PROVISIONS

    Section 1: This section states the short title as the 
``Providing Reliable Options for Patients and Educational 
Resources (PROPER) Act of 2018.''
    Section 2: Requiring Medicare Advantage Plans and Part D 
Prescription Drug Plans to Include Information on Risks 
Associated with Opioids and Coverage of Nonpharmacological 
Therapies and Nonopioid Medications or Devices used to Treat 
Pain.
    This section would require plans to provide information to 
beneficiaries on the risks associated with prolonged opioid use 
and coverage of nonpharmacological therapies, devices, and 
nonopioid medications by plan year 2021.
    Targeted Provision of Information: Plans are provided 
flexibility to target this information to a specific subset of 
enrollees, in lieu of disclosing the information to each 
enrollee under the plan, such as those prescribed an opioid in 
the previous two years. Additionally, information is allowed to 
be disclosed through either electronic or mail communications.
    Section 3: Requiring Medicare Advantage Plans and 
Prescription Drug Plans to Provide Information on the Safe 
Disposal of Prescription Drugs.
    Provision of Information Relating to the Safe Disposal of 
Certain Prescription Drugs: This section would require plans, 
starting January 1, 2021, to provide information to enrollees 
on the safe disposal of prescription drugs that are controlled 
substances as part of the in-home risk assessment. Such 
information is required to include information on drug takeback 
programs that meet requirements determined appropriate by the 
Secretary and information on in-home disposal.
    Criteria: The Secretary is required to establish criteria, 
through rulemaking, on appropriate information provided to an 
individual to ensure such information sufficiently educates 
such individual on the safe disposal of prescription drugs that 
are controlled substances.
    Prescription Drug Plans: By January 1, 2021, plans are 
required to provide information on cost-effective means for 
safe disposal of controlled substances, including drug takeback 
programs that meet requirements determined appropriate by the 
Secretary and information in-home disposal, through their 
Medication Therapy Management programs.
    Section 4: Revising Measures Used Under the Hospital 
Consumer Assessment of Healthcare Providers and Systems Survey 
Relating to Pain Management.
    Restriction on the Use of Pain Questions in HCAHPS: This 
section would require HCAHPS surveys on or after January 1, 
2019, to remove all pain-related questions unless the pain 
questions take into account, as applicable, whether an 
individual experiencing pain was informed about the risks 
associated with the use of opioids and about non-opioid 
alternatives for the treatment of pain. The Secretary is 
restricted from including on the Hospital Compare Internet 
website any measures based on the questions appearing on the 
HCAHPS survey in 2018 about communication by hospital staff 
with an individual about such individual's pain. To the extent 
that the Secretary establishes new pain questions for the 
HCAHPS survey, the Committee expects these questions target 
those individuals who experienced pain during their hospital 
stay. CMS should carefully develop any new or updated pain 
questions to avoid generating confusion among beneficiaries who 
answer the survey questions. For instance, CMS could consider 
the development of a threshold question inquiring whether a 
patient experienced pain to exclude those individuals who did 
not experience pain from those survey questions.
    Restriction on the Use of 2018 Pain Questions in the 
Hospital Value-Based Purchasing Program: The Secretary of the 
Department of Health and Human Services will also be prohibited 
from including the pain questions in the HCAHPS survey in the 
Hospital Value-Based Purchasing Program for fiscal year 2019.

                             EFFECTIVE DATE

    Requiring Medicare Advantage Plans and Part D Prescription 
Drug Plans to Include Information on Risks Associated with 
Opioids and Coverage of Nonpharmacological Therapies and 
Nonopioid Medications or Devices used to Treat Pain: Effective 
plan year 2021, plans are required to provide information to 
beneficiaries on alternatives to treat pain.
    Provision of Information Relating to the Safe Disposal of 
Certain Prescription Drugs: Effective on or after January 1, 
2021, plans are required to provide information on safe 
disposal during an in-home risk assessment.
    Prescription Drug Plans: Effective on or after January 1, 
2021, plans are required to provide information relating to the 
safe disposal of prescription drugs that are controlled 
substances through their Medication Therapy Management 
programs.
    Restriction on the Use of Pain Questions in HCAHPS: 
Effective on or after January 1, 2019, HCAHPS surveys may not 
include certain pain related questions.
    Restriction on the Use of 2018 Pain Questions in the 
Hospital Value-Based Purchasing Program: In 2018, the Secretary 
is restricted from using pain questions in the hospital value-
based purchasing program.

                      III. VOTES OF THE COMMITTEE

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the following statement is made 
concerning the vote of the Committee on Ways and Means in its 
consideration of H.R. 5775, the PROPER Act of 2018, on May 16, 
2018.
    The Chairman's amendment in the nature of a substitute was 
adopted by a voice vote (with a quorum being present).
    The bill, H.R. 5775, was ordered favorably reported as 
amended by voice vote (with a quorum being present).

                     IV. BUDGET EFFECTS OF THE BILL


               A. Committee Estimate of Budgetary Effects

    In compliance with clause 3(d) of rule XIII of the Rules of 
the House of Representatives, the following statement is made 
concerning the effects on the budget of the bill, H.R. 5775, as 
reported. The Committee agrees with the estimate prepared by 
the Congressional Budget Office (CBO), which is included below.

B. Statement Regarding New Budget Authority and Tax Expenditures Budget 
                               Authority

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
bill involves no new or increased budget authority. The 
Committee states further that the bill involves no new or 
increased tax expenditures.

      C. Cost Estimate Prepared by the Congressional Budget Office

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, requiring a cost estimate 
prepared by the CBO, the following statement by CBO is 
provided.

                                     U.S. Congress,
                               Congressional Budget Office,
                                      Washington, DC, June 6, 2018.
Hon. Kevin Brady,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for the opioid-related 
legislation ordered to be reported on May 16, 2018.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Tom Bradley.
            Sincerely,
                                             Mark P. Hadley
                                        (For Keith Hall, Director).
    Enclosure.

Opioid Legislation

    Summary: On May 16, 2018, the House Committee on Ways and 
Means ordered seven bills to be reported related to the 
nation's response to the opioid epidemic. Generally, the bills 
would:
           Expand Medicare coverage of treatment for 
        opioid use disorder;
           Give Medicare providers and health plans 
        additional tools to curtail inappropriate prescribing 
        and use of opioids;
           Require the completion of studies and 
        reports related to opioid use and misuse in Medicare; 
        and
           Require the United States Postal Service and 
        Customs and Border Protection (CBP) to reduce illegal 
        shipment of opioids across international borders.
    Because the bills are related, CBO is publishing a single 
comprehensive document that includes estimates for each piece 
of legislation.
    CBO estimates that enacting four of the bills would affect 
direct spending; therefore, pay-as-you-go procedures apply for 
those bills. None of the bills would affect revenues.
    CBO estimates that although enacting one bill of the seven 
included in this document (H.R. 5776) would increase net direct 
spending and on-budget deficits over the four consecutive 10-
year periods beginning in 2029, those effects would not exceed 
the threshold established by the Congress for long-term costs. 
CBO estimates that none of the remaining bills would increase 
net direct spending or on-budget deficits in any of the four 
consecutive 10-year periods beginning in 2029.
    None of the bills contain intergovernmental or private-
sector mandates as defined in the Unfunded Mandates Reform Act 
(UMRA).
    Estimated cost to the Federal Government: The estimates in 
this document do not include the effects of interactions among 
the bills. If all seven bills were combined and enacted as one 
piece of legislation, the budgetary effects would be different 
from the sum of the estimates in this document, although CBO 
expects that those differences would be small. The effects of 
this legislation fall within functions 550 (health), 570 
(Medicare), and 750 (administration of justice).
    Basis of estimate: For this estimate, CBO assumes that all 
of the legislation will be enacted late in 2018 and that 
authorized and estimated amounts will be appropriated each 
year. Outlays for discretionary programs are estimated based on 
historical spending patterns for similar programs.

Uncertainty

    CBO aims to produce estimates that generally reflect the 
middle of a range of the most likely budgetary outcomes that 
would result if the legislation was enacted. Because data on 
the utilization of mental health and substance abuse treatment 
under Medicaid and Medicare is scarce, CBO cannot precisely 
predict how patients or providers would respond to some policy 
changes or what budgetary effects would result. In addition, 
several of the bills would give the Department of Health and 
Human Services (HHS) considerable latitude in designing and 
implementing policies. Budgetary effects could differ from 
those provided in CBO's analyses depending on those decisions.

Direct spending

    Table 1 lists the four bills included in this estimate that 
would affect direct spending.
    H.R. 5676, the Stop Excessive Narcotics in our Retirement 
Communities Protection Act of 2018, would allow prescription 
drug plans to suspend payments to pharmacies while fraud 
investigations are pending. CBO expects that enacting the 
legislation would reduce payments by those plans to pharmacies 
and result in lower premiums for benefits under Medicare's Part 
D. CBO estimates that the reduction in premiums would lower 
federal spending for Part D by $9 million over the 2019-2028 
period.

                                                    TABLE 1.--ESTIMATED CHANGES IN MANDATORY SPENDING
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                         By fiscal year, in millions of dollars--
                                ------------------------------------------------------------------------------------------------------------------------
                                   2018     2019     2020     2021     2022     2023     2024     2025     2026     2027     2028   2019-2023  2019-2028
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                      INCREASES OR DECREASES (-) IN DIRECT SPENDING
 
H.R. 5676, Stop Excessive
 Narcotics in our Retirement
 Communities Protection Act of
 2018:
    Budget Authority...........        0        0       -1       -1       -1       -1       -1       -1       -1       -1       -1        -4          -9
    Outlays....................        0        0       -1       -1       -1       -1       -1       -1       -1       -1       -1        -4          -9
H.R. 5773, Preventing Addiction
 for Susceptible Seniors Act of
 2018:a
    Budget Authority...........        0        0        0       -6       -7       -7       -7       -8       -9       -9      -11       -20         -64
    Outlays....................        0        0        0       -6       -7       -7       -7       -8       -9       -9      -11       -20         -64
H.R. 5776, the Medicare and
 Opioid Safe Treatment Act of
 2018:a
    Budget Authority...........        0        8        0       20       20       25       30       30       35       35       40        73         243
    Outlays....................        0        2        4       22       20       25       30       30       35       35       40        73         243
H.R. 5788, Securing the
 International Mail Against
 Opioids Act of 2018:a
    Budget Authority...........        0        0        *        *        *        *        *        *        *        *        *         *           *
    Outlays....................        0        0        *        *        *        *        *        *        *        *        *         *           *
--------------------------------------------------------------------------------------------------------------------------------------------------------
Annual amounts may not sum to totals because of rounding. * = between -$500,000 and $500,000
a This bill also would affect spending subject to appropriation.

    H.R. 5773, the Preventing Addiction for Susceptible Seniors 
Act of 2018, would require Part D prescription drug plans to 
provide drug management programs for Medicare beneficiaries who 
are at risk for prescription drug abuse. (Under current law, 
Part D plans are permitted but not required to establish such 
programs as of 2019.) Based on an analysis of the number of 
plans currently providing those programs, CBO estimates that 
enacting H.R. 5773 would lower federal spending by $64 million 
over the 2019-2028 period by reducing the number of 
prescriptions filled and Medicare's payments for controlled 
substances.
    Two provisions of H.R. 5773 would have no significant 
budgetary effect; they are described later in this document.
    H.R. 5776, the Medicare and Opioid Safe Treatment Act of 
2018, would appropriate $8 million in 2019, which would be 
available until expended, for Federally Qualified Health 
Centers and Rural Health Clinics to support training in the 
treatment of opioid use disorder. CBO expects that $8 million 
would be spent between 2019 and 2021.
    H.R. 5776 also would expand the availability of medication-
assisted treatment (MAT) for Medicare beneficiaries with opioid 
use disorder. The bill would allow treatment programs certified 
by the Substance Abuse and Mental Health Services 
Administration (SAMHSA) to become Medicare-participating 
providers.\1\ H.R. 5776 also would direct the Secretary of HHS 
to create a new schedule of bundled payments for MAT through 
certified programs and grant the Secretary considerable 
discretion for defining bundles and establishing payment rates.
---------------------------------------------------------------------------
    \1\MAT combines behavioral therapy and pharmaceutical treatment for 
substance use disorders. Under current law, methadone (an opioid used 
to treat and manage dependence on other drugs, such as heroin) can be 
dispensed only by SAMHSA-certified treatment programs, which do not 
participate in Medicare. Other drugs used in MAT, including 
buprenorphine and naltrexone, can be dispensed more widely.
---------------------------------------------------------------------------
    CBO projects that, beginning in 2021, about 3,000 Medicare 
beneficiaries who would not be treated for opioid abuse under 
current law would newly enroll each year in treatment offered 
by SAMHSA-certified programs and that the annual cost per 
participant would range from about $6,000 to about $10,000, 
depending largely on the medications dispensed and the period 
for which beneficiaries adhered to the protocol. CBO's 
projection of the number of beneficiaries who would receive 
treatment takes into consideration the number of beneficiaries 
estimated to have opioid-use disorder, the number already 
receiving some form of treatment, and the availability of 
providers to treat those who newly enroll in MAT. To develop a 
per capita treatment cost, CBO analyzed rates for MAT paid by 
other payers, as well as Medicare spending for health care 
services typically used by people receiving MAT. CBO estimates 
that the new MAT benefit would increase direct spending by $235 
million over the 2019-2028 period.
    CBO estimates that enacting H.R. 5776 would increase net 
Medicare spending by $243 million over the 2019-2028 period. 
(If enacted, H.R. 5776 would also affect spending subject to 
appropriation; CBO has not completed an estimate of that 
amount.)
    H.R. 5788, the Securing the International Mail Against 
Opioids Act of 2018, would establish a new fee for certain 
items mailed to the United States from overseas, beginning 
January 1, 2020. Initially, the fee for most such items would 
be one dollar, but the amount could be adjusted annually 
thereafter. Using information provided by CBP, CBO estimates 
that about $100 million in new fees would be collected over the 
2020-2028 period. The collections would be divided equally 
between CBP and the Postal Service and spent by those agencies 
on activities related to the processing of inbound mail. CBO 
estimates that the net effect on federal spending in each year 
would be insignificant. (If enacted, H.R. 5788 would also 
affect spending subject to appropriation; those effects are 
described below.)

Spending subject to appropriation

    For this document, CBO has grouped bills with spending that 
would be subject to appropriation into three general 
categories:
           Bills with provisions that would have no 
        budgetary effect;
           Bills with provisions for which CBO has 
        estimated an authorization of appropriations (see Table 
        2); and
           Bills with provisions that would affect 
        spending subject to appropriation for which CBO has not 
        yet completed an estimate.
    No Budgetary Effect. CBO estimates that three of the bills 
have provisions that would not significantly affect direct 
spending, revenues, or spending subject to appropriation.
    H.R. 5773, the Preventing Addiction for Susceptible Seniors 
Act of 2018, would require health care professionals to submit 
prior authorization requests electronically, starting on 
January 1, 2021, for drugs covered under Medicare Part D. 
Taking into account that many prescribers already use 
electronic methods to submit such requests, CBO estimates that 
enacting that Section 3 of H.R. 5773 would not significantly 
affect direct spending for Part D.
    Section 5 of that bill would expand medication therapy 
management programs under Medicare Part D to include 
beneficiaries who are at risk for prescription drug abuse. 
Because relatively few beneficiaries would be affected by this 
provision, CBO estimates that its enactment would not 
significantly affect direct spending for Part D.
    Section 6 of that bill would require the Secretary of HHS 
on an annual basis to identify high prescribers of opioids and 
furnish them with information about proper prescribing methods. 
Because HHS already has the capacity to meet those 
requirements, CBO estimates that enacting that provision would 
not impose additional administrative costs on the agency.
    H.R. 5775, the Providing Reliable Options for Patients and 
Educational Resources Act of 2018, would require prescription 
drug plans that provide coverage under Medicare Part D to 
furnish information to beneficiaries about the risks of opioid 
use and the availability of alternative treatments for pain. 
The bill also would require Medicare Advantage plans and 
prescription drug plans to provide information regarding safe 
disposal of controlled substances in home health risk 
assessments and medication therapy management programs, 
respectively. In CBO's estimation, neither proposal would have 
a budgetary effect because those activities would not impose 
significant administrative costs on plans or federal agencies.
    In addition, H.R. 5775 would restrict the use of certain 
pain-related questions on the Hospital Consumer Assessment of 
Healthcare Providers and Systems (HCAHPS) survey, which is 
administered by the Centers for Medicare & Medicaid Services 
(CMS). The survey is one measure used in CMS's Hospital Value-
Based Purchasing (VBP) Program, which adjusts payments to acute 
care hospitals on the basis of the quality of care they provide 
to Medicare beneficiaries. Because the VBP program is funded by 
reducing base payments to all hospitals, CBO estimates that 
changing the HCAHPS survey would not affect the total amount 
paid by Medicare.
    H.R. 5776, the Medicare and Opioid Safe Treatment Act of 
2018, in section 3, would require CMS, beginning on January 1, 
2020, to review and possibly modify payments made through 
Medicare's Hospital Outpatient Prospective Payment System for 
certain opioid and nonopioid pain management treatments and 
technologies. CMS could revise payments if the Secretary of HHS 
determined that there was a financial incentive to use opioids 
in place of nonopioid medications. The budget neutrality 
requirement under current law would apply to such revisions, 
and the rest of the payment rates within the system would be 
subject to offsetting adjustments. Because the changes would be 
made in a budget-neutral manner, CBO estimates that this 
provision would have no budgetary effect.
    Section 6 of H.R. 5776 would explicitly authorize the 
Center for Medicare and Medicaid Innovation (CMMI) to test 
approaches for expanding beneficiaries' awareness of 
psychological services and to help those beneficiaries curtail 
use of hospital-based mental health or behavioral health 
services. Because CMMI already has that authority, CBO 
estimates that enacting the legislation would not affect 
federal spending.
    Estimated Authorizations. Table 2 shows CBO's estimates of 
the authorization of appropriations for provisions in four 
bills. For those estimates, CBO assumes that appropriated funds 
would be available to implement those provisions.
    H.R. 5723, the Expanding Oversight of Opioid Prescribing 
and Payment Act of 2018, would require the Medicare Payment 
Advisory Commission to report to the Congress on payments for 
pain treatment, incentives for prescribing opioids in inpatient 
and outpatient settings, and documented tracking of opioid use 
from Medicare claims data. CBO estimates that producing such a 
report would cost less than $500,000 over the 2019-2023 period.

          TABLE 2.--ESTIMATED SPENDING SUBJECT TO APPROPRIATION FOR BILLS WITH ESTIMATED AUTHORIZATIONS
----------------------------------------------------------------------------------------------------------------
                                                                By fiscal year, in millions of dollars--
                                                      ----------------------------------------------------------
                                                        2018    2019    2020    2021    2022    2023   2019-2023
----------------------------------------------------------------------------------------------------------------
                                 INCREASES IN SPENDING SUBJECT TO APPROPRIATION
 
H.R. 5723, Expanding Oversight of Opioid Prescribing
 and Payment Act of 2018:
    Estimated Authorization Level....................       0       *       0       0       0       0         *
    Estimated Outlays................................       0       *       0       0       0       0         *
H.R. 5773, Preventing Addiction for Susceptible
 Seniors Act of 2018:a
    Estimated Authorization Level....................       0       2       2       2       2       2         9
    Estimated Outlays................................       0       2       2       2       2       2         9
H.R. 5776, Medicare and Opioid Safe Treatment Act of
 2018:a
    Estimated Authorization Level....................       0       1       0       0       0       0         1
    Estimated Outlays................................       0       1       0       0       0       0         1
H.R. 5788, Securing the International Mail Against
 Opioids Act of 2018:a
    Estimated Authorization Level....................       0     100       0       0       0       0       100
    Estimated Outlays................................       0      40      40      20       0       0       100
----------------------------------------------------------------------------------------------------------------
 Annual amounts may not sum to totals because of rounding. * = between zero and $500,000.
aThis bill also would affect mandatory spending.

    H.R. 5773, the Preventing Addiction for Susceptible Seniors 
Act of 2018, would require the Secretary of HHS to establish a 
secure Internet portal to allow HHS, Medicare Advantage plans, 
and Medicare Part D plans to exchange information about fraud, 
waste, and abuse among providers and suppliers no later than 
two years after enactment. H.R. 5773 also would require 
organizations with Medicare Advantage contracts to submit 
information on investigations related to providers suspected of 
prescribing large volumes of opioids through a process 
established by the Secretary no later than January 2021. Based 
on historical spending patterns for similar activities, CBO 
estimates that implementing H.R. 5773 would cost approximately 
$9 million over the 2019-2023 period.
    H.R. 5776, the Medicare and Opioid Safe Treatment Act of 
2018, would direct the Secretary of HHS to report to the 
Congress on the availability of supplemental benefits to pay 
for treatment or prevention of substance abuse among enrollees 
in Medicare Advantage plans. The Secretary also would report on 
coverage of and payment for pain treatment and substance use 
disorders under Medicare. CBO estimates that producing those 
reports would cost $1 million over five years.
    H.R. 5788, the Securing the International Mail Against 
Opioids Act of 2018, would direct the Postal Service, CBP, and 
other federal agencies to collaborate to develop technology to 
detect opioids and other drugs that enter the United States in 
the mail. Using information provided by CBP, CBO estimates that 
it would cost roughly $100 million over the 2019-2021 period to 
deploy drug detection systems at international mail facilities.
    Other Authorizations. CBO has determined that provisions in 
two bill--H.R. 5774, Combating Opioid Abuse for Care in 
Hospitals Act of 2018; and H.R. 5776, the Medicare and Safe 
Opioid Treatment Act of 2018--would increase authorization 
levels, but has not completed estimates of amounts. Any 
spending that would result from those authorizations would be 
subject to future appropriation action.
    Pay-As-You-Go considerations: The Statutory Pay-As-You-Go 
Act of 2010 establishes budget-reporting and enforcement 
procedures for legislation affecting direct spending or 
revenues. Four of the bills discussed in this document contain 
direct spending and are subject to pay-as-you-go procedures. 
Details about the amount of direct spending in those bills can 
be found in Table 1.
    Increase in long-term direct spending and deficits: CBO 
estimates that although enacting H.R. 5776, the Medicare and 
Opioid Safe Treatment Act of 2018, would increase net direct 
spending and on-budget deficits over the four consecutive 10-
year periods beginning in 2029, those effects would not exceed 
the threshold established by the Congress for long-term costs 
($2.5 billion for net direct spending and $5 billion for on-
budget deficits). CBO estimates that none of the remaining 
bills would increase net direct spending or on-budget deficits 
in any of the four consecutive 10-year periods beginning in 
2029.
    Mandates: None of the bills contains intergovernmental or 
private-sector mandates as defined in UMRA.
    Previous CBO estimate: On June 6, 2018, CBO issued an 
estimate for 59 opioid-related bills ordered reported by the 
House Committee on Energy and Commerce on May 9 and May 17, 
2018. Several of those bills contain provisions that are 
identical or similar to those in the legislation ordered 
reported by the Committee on Ways and Means, and for those 
provisions, CBO's estimates are the same.
    In particular, several sections in H.R. 5773, the 
Preventing Addiction for Susceptible Seniors Act of 2018, 
contain provisions that are identical or similar to those in 
five bills listed in the other estimate:
           Section 2, which would require prescription 
        drug plans to implement drug management programs, is 
        identical to a provision in H.R. 5675.
           Section 3, regarding electronic prior 
        authorization for prescriptions under Medicare's Part 
        D, is similar to a provision in H.R. 4841.
           Section 4, which would mandate the creation 
        of a new Internet portal to allow various stakeholders 
        to exchange information, is identical to a provision in 
        H.R. 5715.
           Section 5, which would expand medication 
        therapy management, is the same as a provision in H.R. 
        5684.
           Section 6, regarding prescriber 
        notification, is identical to H.R. 5716.
    In addition, in this estimate, a provision related to 
Medicare beneficiary education in section 2 of H.R. 5775, the 
Providing Reliable Options for Patients and Educational 
Resources Act of 2018, is the same as a provision in H.R. 5686, 
the Medicare Clear Health Options in Care for Enrollees Act of 
2018, in CBO's estimate for the Committee on Energy and 
Commerce.
    Estimate prepared by: Federal costs, Medicare: Philippa 
Haven, Lori Housman, Jamease Kowalczyk, Lara Robillard, Sarah 
Sajewski, Colin Yee, and Rebecca Yip; U.S. Postal Service and 
Customs and Border Protection: Mark Grabowicz; Mandates: Andrew 
Laughlin; Fact Checking: Zachary Byrum and Kate Kelly.
    Estimate reviewed by: Tom Bradley, Chief, Health Systems 
and Medicare Cost Estimates Unit; Kim P. Cawley, Chief, Natural 
Resources Cost Estimates Unit; Susan Willie, Chief, Mandates 
Unit; Leo Lex, Deputy Assistant Director for Budget Analysis; 
Theresa A. Gullo, Assistant Director for Budget Analysis.

     V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE


          A. Committee Oversight Findings and Recommendations

    With respect to clause 3(c)(1) of rule XIII of the Rules of 
the House of Representatives, the Committee made findings and 
recommendations that are reflected in this report.

        B. Statement of General Performance Goals and Objectives

    With respect to clause 3(c)(4) of rule XIII of the Rules of 
the House of Representatives, the Committee advises that the 
bill contains no measure that authorizes funding, so no 
statement of general performance goals and objectives for which 
any measure authorizes funding is required.

              C. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-
4).
    The Committee has determined that the bill does not contain 
Federal mandates on the private sector. The Committee has 
determined that the bill does not impose a Federal 
intergovernmental mandate on State, local, or tribal 
governments.

  D. Congressional Earmarks, Limited Tax Benefits, and Limited Tariff 
                                Benefits

    With respect to clause 9 of rule XXI of the Rules of the 
House of Representatives, the Committee has carefully reviewed 
the provisions of the bill, and states that the provisions of 
the bill do not contain any congressional earmarks, limited tax 
benefits, or limited tariff benefits within the meaning of the 
rule.

                   E. Duplication of Federal Programs

    In compliance with Sec. 3(g)(2) of H. Res. 5 (114th 
Congress), the Committee states that no provision of the bill 
establishes or reauthorizes: (1) a program of the Federal 
Government known to be duplicative of another Federal program; 
(2) a program included in any report from the Government 
Accountability Office to Congress pursuant to section 21 of 
Public Law 111-139; or (3) a program related to a program 
identified in the most recent Catalog of Federal Domestic 
Assistance, published pursuant to the Federal Program 
Information Act (Pub. L. No. 95-220, as amended by Pub. L. No. 
98-169).

                 F. Disclosure of Directed Rule Makings

    In compliance with Sec. 3(i) of H. Res. 5 (114th Congress), 
the following statement is made concerning directed rule 
makings: The Committee estimates that the bill requires no 
directed rule makings within the meaning of such section.

       VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

    In compliance with clause 3(e)(1)(B) of rule XIII of the 
Rules of the House of Representatives, changes in existing law 
proposed by the bill, as reported, are shown as follows 
(existing law proposed to be omitted is enclosed in black 
brackets, new matter is printed in italics, existing law in 
which no change is proposed is shown in roman):

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italics, and existing law in which no 
change is proposed is shown in roman):

SOCIAL SECURITY ACT

           *       *       *       *       *       *       *



TITLE XVIII--HEALTH INSURANCE FOR THE AGED AND DISABLED

           *       *       *       *       *       *       *



Part C--Medicare+Choice Program

           *       *       *       *       *       *       *



                  benefits and beneficiary protections

  Sec. 1852. (a) Basic Benefits.--
          (1) Requirement.--
                  (A) In general.--Except as provided in 
                section 1859(b)(3) for MSA plans and except as 
                provided in paragraph (6) for MA regional 
                plans, each Medicare+Choice plan shall provide 
                to members enrolled under this part, through 
                providers and other persons that meet the 
                applicable requirements of this title and part 
                A of title XI, benefits under the original 
                medicare fee-for-service program option (and, 
                for plan years before 2006, additional benefits 
                required under section 1854(f)(1)(A)).
                  (B) Benefits under the original medicare fee-
                for-service program option defined.--
                          (i) In general.--For purposes of this 
                        part, the term ``benefits under the 
                        original medicare fee-for-service 
                        program option'' means, subject to 
                        subsection (m), those items and 
                        services (other than hospice care or 
                        coverage for organ acquisitions for 
                        kidney transplants, including as 
                        covered under section 1881(d)) for 
                        which benefits are available under 
                        parts A and B to individuals entitled 
                        to benefits under part A and enrolled 
                        under part B, with cost-sharing for 
                        those services as required under parts 
                        A and B or, subject to clause (iii), an 
                        actuarially equivalent level of cost-
                        sharing as determined in this part.
                          (ii) Special rule for regional 
                        plans.--In the case of an MA regional 
                        plan in determining an actuarially 
                        equivalent level of cost-sharing with 
                        respect to benefits under the original 
                        medicare fee-for-service program 
                        option, there shall only be taken into 
                        account, with respect to the 
                        application of section 1858(b)(2), such 
                        expenses only with respect to 
                        subparagraph (A) of such section.
                          (iii) Limitation on variation of cost 
                        sharing for certain benefits.--Subject 
                        to clause (v), cost-sharing for 
                        services described in clause (iv) shall 
                        not exceed the cost-sharing required 
                        for those services under parts A and B.
                          (iv) Services described.--The 
                        following services are described in 
                        this clause:
                                  (I) Chemotherapy 
                                administration services.
                                  (II) Renal dialysis services 
                                (as defined in section 
                                1881(b)(14)(B)).
                                  (III) Skilled nursing care.
                                  (IV) Such other services that 
                                the Secretary determines 
                                appropriate (including services 
                                that the Secretary determines 
                                require a high level of 
                                predictability and transparency 
                                for beneficiaries).
                          (v) Exception.--In the case of 
                        services described in clause (iv) for 
                        which there is no cost-sharing required 
                        under parts A and B, cost-sharing may 
                        be required for those services in 
                        accordance with clause (i).
          (2) Satisfaction of requirement.--
                  (A) In general.--A Medicare+Choice plan 
                (other than an MSA plan) offered by a 
                Medicare+Choice organization satisfies 
                paragraph (1)(A), with respect to benefits for 
                items and services furnished other than through 
                a provider or other person that has a contract 
                with the organization offering the plan, if the 
                plan provides payment in an amount so that--
                          (i) the sum of such payment amount 
                        and any cost sharing provided for under 
                        the plan, is equal to at least
                          (ii) the total dollar amount of 
                        payment for such items and services as 
                        would otherwise be authorized under 
                        parts A and B (including any balance 
                        billing permitted under such parts).
                  (B) Reference to related provisions.--For 
                provision relating to--
                          (i) limitations on balance billing 
                        against Medicare+Choice organizations 
                        for non-contract providers, see 
                        sections 1852(k) and 1866(a)(1)(O), and
                          (ii) limiting actuarial value of 
                        enrollee liability for covered 
                        benefits, see section 1854(e).
                  (C) Election of uniform coverage 
                determination.--In the case of a 
                Medicare+Choice organization that offers a 
                Medicare+Choice plan in an area in which more 
                than one local coverage determination is 
                applied with respect to different parts of the 
                area, the organization may elect to have the 
                local coverage determination for the part of 
                the area that is most beneficial to 
                Medicare+Choice enrollees (as identified by the 
                Secretary) apply with respect to all 
                Medicare+Choice enrollees enrolled in the plan.
          (3) Supplemental benefits.--
                  (A) Benefits included subject to secretary's 
                approval.--Subject to subparagraph (D), each 
                Medicare+Choice organization may provide to 
                individuals enrolled under this part, other 
                than under an MSA plan (without affording those 
                individuals an option to decline the coverage), 
                supplemental health care benefits that the 
                Secretary may approve. The Secretary shall 
                approve any such supplemental benefits unless 
                the Secretary determines that including such 
                supplemental benefits would substantially 
                discourage enrollment by Medicare+Choice 
                eligible individuals with the organization.
                  (B) At enrollees' option.--
                          (i) In general.--Subject to clause 
                        (ii), a Medicare+Choice organization 
                        may provide to individuals enrolled 
                        under this part supplemental health 
                        care benefits that the individuals may 
                        elect, at their option, to have 
                        covered.
                          (ii) Special rule for msa plans.--A 
                        Medicare+Choice organization may not 
                        provide, under an MSA plan, 
                        supplemental health care benefits that 
                        cover the deductible described in 
                        section 1859(b)(2)(B). In applying the 
                        previous sentence, health benefits 
                        described in section 1882(u)(2)(B) 
                        shall not be treated as covering such 
                        deductible.
                  (C) Application to Medicare+Choice private 
                fee-for-service plans.--Nothing in this 
                paragraph shall be construed as preventing a 
                Medicare+Choice private fee-for-service plan 
                from offering supplemental benefits that 
                include payment for some or all of the balance 
                billing amounts permitted consistent with 
                section 1852(k) and coverage of additional 
                services that the plan finds to be medically 
                necessary. Such benefits may include reductions 
                in cost-sharing below the actuarial value 
                specified in section 1854(e)(4)(B).
                  (D) Expanding supplemental benefits to meet 
                the needs of chronically ill enrollees.--
                          (i) In general.--For plan year 2020 
                        and subsequent plan years, in addition 
                        to any supplemental health care 
                        benefits otherwise provided under this 
                        paragraph, an MA plan, including a 
                        specialized MA plan for special needs 
                        individuals (as defined in section 
                        1859(b)(6)), may provide supplemental 
                        benefits described in clause (ii) to a 
                        chronically ill enrollee (as defined in 
                        clause (iii)).
                          (ii) Supplemental benefits 
                        described.--
                                  (I) In general.--Supplemental 
                                benefits described in this 
                                clause are supplemental 
                                benefits that, with respect to 
                                a chronically ill enrollee, 
                                have a reasonable expectation 
                                of improving or maintaining the 
                                health or overall function of 
                                the chronically ill enrollee 
                                and may not be limited to being 
                                primarily health related 
                                benefits.
                                  (II) Authority to waive 
                                uniformity requirements.--The 
                                Secretary may, only with 
                                respect to supplemental 
                                benefits provided to a 
                                chronically ill enrollee under 
                                this subparagraph, waive the 
                                uniformity requirements under 
                                this part, as determined 
                                appropriate by the Secretary.
                          (iii) Chronically ill enrollee 
                        defined.--In this subparagraph, the 
                        term ``chronically ill enrollee'' means 
                        an enrollee in an MA plan that the 
                        Secretary determines--
                                  (I) has one or more comorbid 
                                and medically complex chronic 
                                conditions that is life 
                                threatening or significantly 
                                limits the overall health or 
                                function of the enrollee;
                                  (II) has a high risk of 
                                hospitalization or other 
                                adverse health outcomes; and
                                  (III) requires intensive care 
                                coordination.
          (4) Organization as secondary payer.--Notwithstanding 
        any other provision of law, a Medicare+Choice 
        organization may (in the case of the provision of items 
        and services to an individual under a Medicare+Choice 
        plan under circumstances in which payment under this 
        title is made secondary pursuant to section 1862(b)(2)) 
        charge or authorize the provider of such services to 
        charge, in accordance with the charges allowed under a 
        law, plan, or policy described in such section--
                  (A) the insurance carrier, employer, or other 
                entity which under such law, plan, or policy is 
                to pay for the provision of such services, or
                  (B) such individual to the extent that the 
                individual has been paid under such law, plan, 
                or policy for such services.
          (5) National coverage determinations and legislative 
        changes in benefits.--If there is a national coverage 
        determination or legislative change in benefits 
        required to be provided under this part made in the 
        period beginning on the date of an announcement under 
        section 1853(b) and ending on the date of the next 
        announcement under such section and the Secretary 
        projects that the determination will result in a 
        significant change in the costs to a Medicare+Choice 
        organization of providing the benefits that are the 
        subject of such national coverage determination and 
        that such change in costs was not incorporated in the 
        determination of the annual Medicare+Choice capitation 
        rate under section 1853 included in the announcement 
        made at the beginning of such period, then, unless 
        otherwise required by law--
                  (A) such determination or legislative change 
                in benefits shall not apply to contracts under 
                this part until the first contract year that 
                begins after the end of such period, and
                  (B) if such coverage determination or 
                legislative change provides for coverage of 
                additional benefits or coverage under 
                additional circumstances, section 1851(i)(1) 
                shall not apply to payment for such additional 
                benefits or benefits provided under such 
                additional circumstances until the first 
                contract year that begins after the end of such 
                period.
        The projection under the previous sentence shall be 
        based on an analysis by the Chief Actuary of the 
        Centers for Medicare & Medicaid Services of the 
        actuarial costs associated with the coverage 
        determination or legislative change in benefits.
          (6) Special benefit rules for regional plans.--In the 
        case of an MA plan that is an MA regional plan, 
        benefits under the plan shall include the benefits 
        described in paragraphs (1) and (2) of section 1858(b).
          (7) Limitation on cost-sharing for dual eligibles and 
        qualified medicare beneficiaries.--In the case of an 
        individual who is a full-benefit dual eligible 
        individual (as defined in section 1935(c)(6)) or a 
        qualified medicare beneficiary (as defined in section 
        1905(p)(1)) and who is enrolled in a specialized 
        Medicare Advantage plan for special needs individuals 
        described in section 1859(b)(6)(B)(ii), the plan may 
        not impose cost-sharing that exceeds the amount of 
        cost-sharing that would be permitted with respect to 
        the individual under title XIX if the individual were 
        not enrolled in such plan.
  (b) Antidiscrimination.--
          (1) Beneficiaries.--A Medicare Advantage organization 
        may not deny, limit, or condition the coverage or 
        provision of benefits under this part, for individuals 
        permitted to be enrolled with the organization under 
        this part, based on any health status-related factor 
        described in section 2702(a)(1) of the Public Health 
        Service Act. The Secretary shall not approve a plan of 
        an organization if the Secretary determines that the 
        design of the plan and its benefits are likely to 
        substantially discourage enrollment by certain MA 
        eligible individuals with the organization.
          (2) Providers.--A Medicare+Choice organization shall 
        not discriminate with respect to participation, 
        reimbursement, or indemnification as to any provider 
        who is acting within the scope of the provider's 
        license or certification under applicable State law, 
        solely on the basis of such license or certification. 
        This paragraph shall not be construed to prohibit a 
        plan from including providers only to the extent 
        necessary to meet the needs of the plan's enrollees or 
        from establishing any measure designed to maintain 
        quality and control costs consistent with the 
        responsibilities of the plan.
  (c) Disclosure Requirements.--
          (1) Detailed description of plan provisions.--A 
        Medicare+Choice organization shall disclose, in clear, 
        accurate, and standardized form to each enrollee with a 
        Medicare+Choice plan offered by the organization under 
        this part at the time of enrollment and at least 
        annually thereafter, the following information 
        regarding such plan:
                  (A) Service area.--The plan's service area.
                  (B) Benefits.--Benefits offered under the 
                plan, including information described in 
                section 1851(d)(3)(A) and exclusions from 
                coverage and, if it is an MSA plan, a 
                comparison of benefits under such a plan with 
                benefits under other Medicare+Choice plans.
                  (C) Access.--The number, mix, and 
                distribution of plan providers, out-of-network 
                coverage (if any) provided by the plan, and any 
                point-of-service option (including the 
                supplemental premium for such option).
                  (D) Out-of-area coverage.--Out-of-area 
                coverage provided by the plan.
                  (E) Emergency coverage.--Coverage of 
                emergency services, including--
                          (i) the appropriate use of emergency 
                        services, including use of the 911 
                        telephone system or its local 
                        equivalent in emergency situations and 
                        an explanation of what constitutes an 
                        emergency situation;
                          (ii) the process and procedures of 
                        the plan for obtaining emergency 
                        services; and
                          (iii) the locations of (I) emergency 
                        departments, and (II) other settings, 
                        in which plan physicians and hospitals 
                        provide emergency services and post-
                        stabilization care.
                  (F) Supplemental benefits.--Supplemental 
                benefits available from the organization 
                offering the plan, including--
                          (i) whether the supplemental benefits 
                        are optional,
                          (ii) the supplemental benefits 
                        covered, and
                          (iii) the Medicare+Choice monthly 
                        supplemental beneficiary premium for 
                        the supplemental benefits.
                  (G) Prior authorization rules.--Rules 
                regarding prior authorization or other review 
                requirements that could result in nonpayment.
                  (H) Plan grievance and appeals procedures.--
                All plan appeal or grievance rights and 
                procedures.
                  (I) Quality improvement program.--A 
                description of the organization's quality 
                improvement program under subsection (e).
          (2) Disclosure upon request.--Upon request of a 
        Medicare+Choice eligible individual, a Medicare+Choice 
        organization must provide the following information to 
        such individual:
                  (A) The general coverage information and 
                general comparative plan information made 
                available under clauses (i) and (ii) of section 
                1851(d)(2)(A).
                  (B) Information on procedures used by the 
                organization to control utilization of services 
                and expenditures.
                  (C) Information on the number of grievances, 
                redeterminations, and appeals and on the 
                disposition in the aggregate of such matters.
                  (D) An overall summary description as to the 
                method of compensation of participating 
                physicians.
  (d) Access to Services.--
          (1) In general.--A Medicare+Choice organization 
        offering a Medicare+Choice plan may select the 
        providers from whom the benefits under the plan are 
        provided so long as--
                  (A) the organization makes such benefits 
                available and accessible to each individual 
                electing the plan within the plan service area 
                with reasonable promptness and in a manner 
                which assures continuity in the provision of 
                benefits;
                  (B) when medically necessary the organization 
                makes such benefits available and accessible 24 
                hours a day and 7 days a week;
                  (C) the plan provides for reimbursement with 
                respect to services which are covered under 
                subparagraphs (A) and (B) and which are 
                provided to such an individual other than 
                through the organization, if--
                          (i) the services were not emergency 
                        services (as defined in paragraph (3)), 
                        but (I) the services were medically 
                        necessary and immediately required 
                        because of an unforeseen illness, 
                        injury, or condition, and (II) it was 
                        not reasonable given the circumstances 
                        to obtain the services through the 
                        organization,
                          (ii) the services were renal dialysis 
                        services and were provided other than 
                        through the organization because the 
                        individual was temporarily out of the 
                        plan's service area, or
                          (iii) the services are maintenance 
                        care or post-stabilization care covered 
                        under the guidelines established under 
                        paragraph (2);
                  (D) the organization provides access to 
                appropriate providers, including credentialed 
                specialists, for medically necessary treatment 
                and services; and
                  (E) coverage is provided for emergency 
                services (as defined in paragraph (3)) without 
                regard to prior authorization or the emergency 
                care provider's contractual relationship with 
                the organization.
          (2) Guidelines respecting coordination of post-
        stabilization care.--A Medicare+Choice plan shall 
        comply with such guidelines as the Secretary may 
        prescribe relating to promoting efficient and timely 
        coordination of appropriate maintenance and post-
        stabilization care of an enrollee after the enrollee 
        has been determined to be stable under section 1867.
          (3) Definition of emergency services.--In this 
        subsection--
                  (A) In general.--The term ``emergency 
                services'' means, with respect to an individual 
                enrolled with an organization, covered 
                inpatient and outpatient services that--
                          (i) are furnished by a provider that 
                        is qualified to furnish such services 
                        under this title, and
                          (ii) are needed to evaluate or 
                        stabilize an emergency medical 
                        condition (as defined in subparagraph 
                        (B)).
                  (B) Emergency medical condition based on 
                prudent layperson.--The term ``emergency 
                medical condition'' means a medical condition 
                manifesting itself by acute symptoms of 
                sufficient severity (including severe pain) 
                such that a prudent layperson, who possesses an 
                average knowledge of health and medicine, could 
                reasonably expect the absence of immediate 
                medical attention to result in--
                          (i) placing the health of the 
                        individual (or, with respect to a 
                        pregnant woman, the health of the woman 
                        or her unborn child) in serious 
                        jeopardy,
                          (ii) serious impairment to bodily 
                        functions, or
                          (iii) serious dysfunction of any 
                        bodily organ or part.
                  (4) Assuring access to services in 
                medicare+choice private fee-for-service 
                plans.--In addition to any other requirements 
                under this part, in the case of a 
                Medicare+Choice private fee-for-service plan, 
                the organization offering the plan must 
                demonstrate to the Secretary that the 
                organization has sufficient number and range of 
                health care professionals and providers willing 
                to provide services under the terms of the 
                plan. Subject to paragraphs (5) and (6), the 
                Secretary shall find that an organization has 
                met such requirement with respect to any 
                category of health care professional or 
                provider if, with respect to that category of 
                provider--
                          (A) the plan has established payment 
                        rates for covered services furnished by 
                        that category of provider that are not 
                        less than the payment rates provided 
                        for under part A, part B, or both, for 
                        such services, or
                          (B) the plan has contracts or 
                        agreements (other than deemed contracts 
                        or agreements under subsection (j)(6)) 
                        with a sufficient number and range of 
                        providers within such category to meet 
                        the access standards in subparagraphs 
                        (A) through (E) of paragraph (1),
                or a combination of both. The previous sentence 
                shall not be construed as restricting the 
                persons from whom enrollees under such a plan 
                may obtain covered benefits, except that, if a 
                plan entirely meets such requirement with 
                respect to a category of health care 
                professional or provider on the basis of 
                subparagraph (B), it may provide for a higher 
                beneficiary copayment in the case of health 
                care professionals and providers of that 
                category who do not have contracts or 
                agreements (other than deemed contracts or 
                agreements under subsection (j)(6)) to provide 
                covered services under the terms of the plan.
          (5) Requirement of certain nonemployer medicare 
        advantage private fee-for-service plans to use 
        contracts with providers.--
                  (A) In general.--For plan year 2011 and 
                subsequent plan years, in the case of a 
                Medicare Advantage private fee-for-service plan 
                not described in paragraph (1) or (2) of 
                section 1857(i) operating in a network area (as 
                defined in subparagraph (B)), the plan shall 
                meet the access standards under paragraph (4) 
                in that area only through entering into written 
                contracts as provided for under subparagraph 
                (B) of such paragraph and not, in whole or in 
                part, through the establishment of payment 
                rates meeting the requirements under 
                subparagraph (A) of such paragraph.
                  (B) Network area defined.--For purposes of 
                subparagraph (A), the term ``network area'' 
                means, for a plan year, an area which the 
                Secretary identifies (in the Secretary's 
                announcement of the proposed payment rates for 
                the previous plan year under section 
                1853(b)(1)(B)) as having at least 2 network-
                based plans (as defined in subparagraph (C)) 
                with enrollment under this part as of the first 
                day of the year in which such announcement is 
                made.
                  (C) Network-based plan defined.--
                          (i) In general.--For purposes of 
                        subparagraph (B), the term ``network-
                        based plan'' means--
                                  (I) except as provided in 
                                clause (ii), a Medicare 
                                Advantage plan that is a 
                                coordinated care plan described 
                                in section 1851(a)(2)(A)(i);
                                  (II) a network-based MSA 
                                plan; and
                                  (III) a reasonable cost 
                                reimbursement plan under 
                                section 1876.
                          (ii) Exclusion of non-network 
                        regional ppos.--The term ``network-
                        based plan'' shall not include an MA 
                        regional plan that, with respect to the 
                        area, meets access adequacy standards 
                        under this part substantially through 
                        the authority of section 
                        422.112(a)(1)(ii) of title 42, Code of 
                        Federal Regulations, rather than 
                        through written contracts.
          (6) Requirement of all employer medicare advantage 
        private fee-for-service plans to use contracts with 
        providers.--For plan year 2011 and subsequent plan 
        years, in the case of a Medicare Advantage private fee-
        for-service plan that is described in paragraph (1) or 
        (2) of section 1857(i), the plan shall meet the access 
        standards under paragraph (4) only through entering 
        into written contracts as provided for under 
        subparagraph (B) of such paragraph and not, in whole or 
        in part, through the establishment of payment rates 
        meeting the requirements under subparagraph (A) of such 
        paragraph.
  (e) Quality Improvement Program.--
          (1) In general.--Each MA organization shall have an 
        ongoing quality improvement program for the purpose of 
        improving the quality of care provided to enrollees in 
        each MA plan offered by such organization.
          (2) Chronic care improvement programs.--As part of 
        the quality improvement program under paragraph (1), 
        each MA organization shall have a chronic care 
        improvement program. Each chronic care improvement 
        program shall have a method for monitoring and 
        identifying enrollees with multiple or sufficiently 
        severe chronic conditions that meet criteria 
        established by the organization for participation under 
        the program.
          (3) Data.--
                  (A) Collection, analysis, and reporting.--
                          (i) In general.--Except as provided 
                        in clauses (ii) and (iii) with respect 
                        to plans described in such clauses and 
                        subject to subparagraph (B), as part of 
                        the quality improvement program under 
                        paragraph (1), each MA organization 
                        shall provide for the collection, 
                        analysis, and reporting of data that 
                        permits the measurement of health 
                        outcomes and other indices of quality. 
                        With respect to MA private fee-for-
                        service plans and MSA plans, the 
                        requirements under the preceding 
                        sentence may not exceed the 
                        requirements under this subparagraph 
                        with respect to MA local plans that are 
                        preferred provider organization plans, 
                        except that, for plan year 2010, the 
                        limitation under clause (iii) shall not 
                        apply and such requirements shall apply 
                        only with respect to administrative 
                        claims data.
                          (ii) Special requirements for 
                        specialized ma plans for special needs 
                        individuals.--In addition to the data 
                        required to be collected, analyzed, and 
                        reported under clause (i) and 
                        notwithstanding the limitations under 
                        subparagraph (B), as part of the 
                        quality improvement program under 
                        paragraph (1), each MA organization 
                        offering a specialized Medicare 
                        Advantage plan for special needs 
                        individuals shall provide for the 
                        collection, analysis, and reporting of 
                        data that permits the measurement of 
                        health outcomes and other indices of 
                        quality with respect to the 
                        requirements described in paragraphs 
                        (2) through (5) of subsection (f). Such 
                        data may be based on claims data and 
                        shall be at the plan level.
                          (iii) Application to local preferred 
                        provider organizations and MA regional 
                        plans.--Clause (i) shall apply to MA 
                        organizations with respect to MA local 
                        plans that are preferred provider 
                        organization plans and to MA regional 
                        plans only insofar as services are 
                        furnished by providers or services, 
                        physicians, and other health care 
                        practitioners and suppliers that have 
                        contracts with such organization to 
                        furnish services under such plans.
                          (iv) Definition of preferred provider 
                        organization plan.--In this 
                        subparagraph, the term ``preferred 
                        provider organization plan'' means an 
                        MA plan that--
                                  (I) has a network of 
                                providers that have agreed to a 
                                contractually specified 
                                reimbursement for covered 
                                benefits with the organization 
                                offering the plan;
                                  (II) provides for 
                                reimbursement for all covered 
                                benefits regardless of whether 
                                such benefits are provided 
                                within such network of 
                                providers; and
                                  (III) is offered by an 
                                organization that is not 
                                licensed or organized under 
                                State law as a health 
                                maintenance organization.
                  (B) Limitations.--
                          (i) Types of data.--The Secretary 
                        shall not collect under subparagraph 
                        (A) data on quality, outcomes, and 
                        beneficiary satisfaction to facilitate 
                        consumer choice and program 
                        administration other than the types of 
                        data that were collected by the 
                        Secretary as of November 1, 2003.
                          (ii) Changes in types of data.--
                        Subject to subclause (iii), the 
                        Secretary may only change the types of 
                        data that are required to be submitted 
                        under subparagraph (A) after submitting 
                        to Congress a report on the reasons for 
                        such changes that was prepared in 
                        consultation with MA organizations and 
                        private accrediting bodies.
                          (iii) Construction.--Nothing in the 
                        subsection shall be construed as 
                        restricting the ability of the 
                        Secretary to carry out the duties under 
                        section 1851(d)(4)(D).
          (4) Treatment of accreditation.--
                  (A) In general.--The Secretary shall provide 
                that a Medicare+Choice organization is deemed 
                to meet all the requirements described in any 
                specific clause of subparagraph (B) if the 
                organization is accredited (and periodically 
                reaccredited) by a private accrediting 
                organization under a process that the Secretary 
                has determined assures that the accrediting 
                organization applies and enforces standards 
                that meet or exceed the standards established 
                under section 1856 to carry out the 
                requirements in such clause.
                  (B) Requirements described.--The provisions 
                described in this subparagraph are the 
                following:
                          (i) Paragraphs (1) through (3) of 
                        this subsection (relating to quality 
                        improvement programs).
                          (ii) Subsection (b) (relating to 
                        antidiscrimination).
                          (iii) Subsection (d) (relating to 
                        access to services).
                          (iv) Subsection (h) (relating to 
                        confidentiality and accuracy of 
                        enrollee records).
                          (v) Subsection (i) (relating to 
                        information on advance directives).
                          (vi) Subsection (j) (relating to 
                        provider participation rules).
                          (vii) The requirements described in 
                        section 1860D-4(j), to the extent such 
                        requirements apply under section 1860D-
                        21(c).
                  (C) Timely action on applications.--The 
                Secretary shall determine, within 210 days 
                after the date the Secretary receives an 
                application by a private accrediting 
                organization and using the criteria specified 
                in section 1865(a)(2), whether the process of 
                the private accrediting organization meets the 
                requirements with respect to any specific 
                clause in subparagraph (B) with respect to 
                which the application is made. The Secretary 
                may not deny such an application on the basis 
                that it seeks to meet the requirements with 
                respect to only one, or more than one, such 
                specific clause.
                  (D) Construction.--Nothing in this paragraph 
                shall be construed as limiting the authority of 
                the Secretary under section 1857, including the 
                authority to terminate contracts with 
                Medicare+Choice organizations under subsection 
                (c)(2) of such section.
  (f) Grievance Mechanism.--Each Medicare+Choice organization 
must provide meaningful procedures for hearing and resolving 
grievances between the organization (including any entity or 
individual through which the organization provides health care 
services) and enrollees with Medicare+Choice plans of the 
organization under this part.
  (g) Coverage Determinations, Reconsiderations, and Appeals.--
          (1) Determinations by organization.--
                  (A) In general.--A Medicare+Choice 
                organization shall have a procedure for making 
                determinations regarding whether an individual 
                enrolled with the plan of the organization 
                under this part is entitled to receive a health 
                service under this section and the amount (if 
                any) that the individual is required to pay 
                with respect to such service. Subject to 
                paragraph (3), such procedures shall provide 
                for such determination to be made on a timely 
                basis.
                  (B) Explanation of determination.--Such a 
                determination that denies coverage, in whole or 
                in part, shall be in writing and shall include 
                a statement in understandable language of the 
                reasons for the denial and a description of the 
                reconsideration and appeals processes.
          (2) Reconsiderations.--
                  (A) In general.--The organization shall 
                provide for reconsideration of a determination 
                described in paragraph (1)(B) upon request by 
                the enrollee involved. The reconsideration 
                shall be within a time period specified by the 
                Secretary, but shall be made, subject to 
                paragraph (3), not later than 60 days after the 
                date of the receipt of the request for 
                reconsideration.
                  (B) Physician decision on certain 
                reconsiderations.--A reconsideration relating 
                to a determination to deny coverage based on a 
                lack of medical necessity shall be made only by 
                a physician with appropriate expertise in the 
                field of medicine which necessitates treatment 
                who is other than a physician involved in the 
                initial determination.
          (3) Expedited determinations and reconsiderations.--
                  (A) Receipt of requests.--
                          (i) Enrollee requests.--An enrollee 
                        in a Medicare+Choice plan may request, 
                        either in writing or orally, an 
                        expedited determination under paragraph 
                        (1) or an expedited reconsideration 
                        under paragraph (2) by the 
                        Medicare+Choice organization.
                          (ii) Physician requests.--A 
                        physician, regardless whether the 
                        physician is affiliated with the 
                        organization or not, may request, 
                        either in writing or orally, such an 
                        expedited determination or 
                        reconsideration.
                  (B) Organization procedures.--
                          (i) In general.--The Medicare+Choice 
                        organization shall maintain procedures 
                        for expediting organization 
                        determinations and reconsiderations 
                        when, upon request of an enrollee, the 
                        organization determines that the 
                        application of the normal time frame 
                        for making a determination (or a 
                        reconsideration involving a 
                        determination) could seriously 
                        jeopardize the life or health of the 
                        enrollee or the enrollee's ability to 
                        regain maximum function.
                          (ii) Expedition required for 
                        physician requests.--In the case of a 
                        request for an expedited determination 
                        or reconsideration made under 
                        subparagraph (A)(ii), the organization 
                        shall expedite the determination or 
                        reconsideration if the request 
                        indicates that the application of the 
                        normal time frame for making a 
                        determination (or a reconsideration 
                        involving a determination) could 
                        seriously jeopardize the life or health 
                        of the enrollee or the enrollee's 
                        ability to regain maximum function.
                          (iii) Timely response.--In cases 
                        described in clauses (i) and (ii), the 
                        organization shall notify the enrollee 
                        (and the physician involved, as 
                        appropriate) of the determination or 
                        reconsideration under time limitations 
                        established by the Secretary, but not 
                        later than 72 hours of the time of 
                        receipt of the request for the 
                        determination or reconsideration (or 
                        receipt of the information necessary to 
                        make the determination or 
                        reconsideration), or such longer period 
                        as the Secretary may permit in 
                        specified cases.
          (4) Independent review of certain coverage denials.--
        The Secretary shall contract with an independent, 
        outside entity to review and resolve in a timely manner 
        reconsiderations that affirm denial of coverage, in 
        whole or in part. The provisions of section 1869(c)(5) 
        shall apply to independent outside entities under 
        contract with the Secretary under this paragraph.
          (5) Appeals.--An enrollee with a Medicare+Choice plan 
        of a Medicare+Choice organization under this part who 
        is dissatisfied by reason of the enrollee's failure to 
        receive any health service to which the enrollee 
        believes the enrollee is entitled and at no greater 
        charge than the enrollee believes the enrollee is 
        required to pay is entitled, if the amount in 
        controversy is $100 or more, to a hearing before the 
        Secretary to the same extent as is provided in section 
        205(b), and in any such hearing the Secretary shall 
        make the organization a party. If the amount in 
        controversy is $1,000 or more, the individual or 
        organization shall, upon notifying the other party, be 
        entitled to judicial review of the Secretary's final 
        decision as provided in section 205(g), and both the 
        individual and the organization shall be entitled to be 
        parties to that judicial review. In applying 
        subsections (b) and (g) of section 205 as provided in 
        this paragraph, and in applying section 205(l) thereto, 
        any reference therein to the Commissioner of Social 
        Security or the Social Security Administration shall be 
        considered a reference to the Secretary or the 
        Department of Health and Human Services, respectively. 
        The provisions of section 1869(b)(1)(E)(iii) shall 
        apply with respect to dollar amounts specified in the 
        first 2 sentences of this paragraph in the same manner 
        as they apply to the dollar amounts specified in 
        section 1869(b)(1)(E)(i).
  (h) Confidentiality and Accuracy of Enrollee Records.--
Insofar as a Medicare+Choice organization maintains medical 
records or other health information regarding enrollees under 
this part, the Medicare+Choice organization shall establish 
procedures--
          (1) to safeguard the privacy of any individually 
        identifiable enrollee information;
          (2) to maintain such records and information in a 
        manner that is accurate and timely; and
          (3) to assure timely access of enrollees to such 
        records and information.
  (i) Information on Advance Directives.--Each Medicare+Choice 
organization shall meet the requirement of section 1866(f) 
(relating to maintaining written policies and procedures 
respecting advance directives).
  (j) Rules Regarding Provider Participation.--
          (1) Procedures.--Insofar as a Medicare+Choice 
        organization offers benefits under a Medicare+Choice 
        plan through agreements with physicians, the 
        organization shall establish reasonable procedures 
        relating to the participation (under an agreement 
        between a physician and the organization) of physicians 
        under such a plan. Such procedures shall include--
                  (A) providing notice of the rules regarding 
                participation,
                  (B) providing written notice of participation 
                decisions that are adverse to physicians, and
                  (C) providing a process within the 
                organization for appealing such adverse 
                decisions, including the presentation of 
                information and views of the physician 
                regarding such decision.
          (2) Consultation in medical policies.--A 
        Medicare+Choice organization shall consult with 
        physicians who have entered into participation 
        agreements with the organization regarding the 
        organization's medical policy, quality, and medical 
        management procedures.
          (3) Prohibiting interference with provider advice to 
        enrollees.--
                  (A) In general.--Subject to subparagraphs (B) 
                and (C), a Medicare+Choice organization (in 
                relation to an individual enrolled under a 
                Medicare+Choice plan offered by the 
                organization under this part) shall not 
                prohibit or otherwise restrict a covered health 
                care professional (as defined in subparagraph 
                (D)) from advising such an individual who is a 
                patient of the professional about the health 
                status of the individual or medical care or 
                treatment for the individual's condition or 
                disease, regardless of whether benefits for 
                such care or treatment are provided under the 
                plan, if the professional is acting within the 
                lawful scope of practice.
                  (B) Conscience protection.--Subparagraph (A) 
                shall not be construed as requiring a 
                Medicare+Choice plan to provide, reimburse for, 
                or provide coverage of a counseling or referral 
                service if the Medicare+Choice organization 
                offering the plan--
                          (i) objects to the provision of such 
                        service on moral or religious grounds; 
                        and
                          (ii) in the manner and through the 
                        written instrumentalities such 
                        Medicare+Choice organization deems 
                        appropriate, makes available 
                        information on its policies regarding 
                        such service to prospective enrollees 
                        before or during enrollment and to 
                        enrollees within 90 days after the date 
                        that the organization or plan adopts a 
                        change in policy regarding such a 
                        counseling or referral service.
                  (C) Construction.--Nothing in subparagraph 
                (B) shall be construed to affect disclosure 
                requirements under State law or under the 
                Employee Retirement Income Security Act of 
                1974.
                  (D) Health care professional defined.--For 
                purposes of this paragraph, the term ``health 
                care professional'' means a physician (as 
                defined in section 1861(r)) or other health 
                care professional if coverage for the 
                professional's services is provided under the 
                Medicare+Choice plan for the services of the 
                professional. Such term includes a podiatrist, 
                optometrist, chiropractor, psychologist, 
                dentist, physician assistant, physical or 
                occupational therapist and therapy assistant, 
                speech-language pathologist, audiologist, 
                registered or licensed practical nurse 
                (including nurse practitioner, clinical nurse 
                specialist, certified registered nurse 
                anesthetist, and certified nurse-midwife), 
                licensed certified social worker, registered 
                respiratory therapist, and certified 
                respiratory therapy technician.
          (4) Limitations on physician incentive plans.--
                  (A) In general.--No Medicare+Choice 
                organization may operate any physician 
                incentive plan (as defined in subparagraph (B)) 
                unless the organization provides assurances 
                satisfactory to the Secretary that the 
                following requirements are met:
                          (i) No specific payment is made 
                        directly or indirectly under the plan 
                        to a physician or physician group as an 
                        inducement to reduce or limit medically 
                        necessary services provided with 
                        respect to a specific individual 
                        enrolled with the organization.
                          (ii) If the plan places a physician 
                        or physician group at substantial 
                        financial risk (as determined by the 
                        Secretary) for services not provided by 
                        the physician or physician group, the 
                        organization provides stop-loss 
                        protection for the physician or group 
                        that is adequate and appropriate, based 
                        on standards developed by the Secretary 
                        that take into account the number of 
                        physicians placed at such substantial 
                        financial risk in the group or under 
                        the plan and the number of individuals 
                        enrolled with the organization who 
                        receive services from the physician or 
                        group.
                  (B) Physician incentive plan defined.--In 
                this paragraph, the term ``physician incentive 
                plan'' means any compensation arrangement 
                between a Medicare+Choice organization and a 
                physician or physician group that may directly 
                or indirectly have the effect of reducing or 
                limiting services provided with respect to 
                individuals enrolled with the organization 
                under this part.
          (5) Limitation on provider indemnification.--A 
        Medicare+Choice organization may not provide (directly 
        or indirectly) for a health care professional, provider 
        of services, or other entity providing health care 
        services (or group of such professionals, providers, or 
        entities) to indemnify the organization against any 
        liability resulting from a civil action brought for any 
        damage caused to an enrollee with a Medicare+Choice 
        plan of the organization under this part by the 
        organization's denial of medically necessary care.
          (6) Special rules for medicare+choice private fee-
        for-service plans.--For purposes of applying this part 
        (including subsection (k)(1)) and section 
        1866(a)(1)(O), a hospital (or other provider of 
        services), a physician or other health care 
        professional, or other entity furnishing health care 
        services is treated as having an agreement or contract 
        in effect with a Medicare+Choice organization (with 
        respect to an individual enrolled in a Medicare+Choice 
        private fee-for-service plan it offers), if--
                  (A) the provider, professional, or other 
                entity furnishes services that are covered 
                under the plan to such an enrollee; and
                  (B) before providing such services, the 
                provider, professional, or other entity --
                          (i) has been informed of the 
                        individual's enrollment under the plan, 
                        and
                          (ii) either--
                                  (I) has been informed of the 
                                terms and conditions of payment 
                                for such services under the 
                                plan, or
                                  (II) is given a reasonable 
                                opportunity to obtain 
                                information concerning such 
                                terms and conditions,
                        in a manner reasonably designed to 
                        effect informed agreement by a 
                        provider.
        The previous sentence shall only apply in the absence 
        of an explicit agreement between such a provider, 
        professional, or other entity and the Medicare+Choice 
        organization.
          (7) Promotion of E-Prescribing by MA Plans.--
                  (A) In general.--An MA-PD plan may provide 
                for a separate payment or otherwise provide for 
                a differential payment for a participating 
                physician that prescribes covered part D drugs 
                in accordance with an electronic prescription 
                drug program that meets standards established 
                under section 1860D-4(e).
                  (B) Considerations.--Such payment may take 
                into consideration the costs of the physician 
                in implementing such a program and may also be 
                increased for those participating physicians 
                who significantly increase--
                          (i) formulary compliance;
                          (ii) lower cost, therapeutically 
                        equivalent alternatives;
                          (iii) reductions in adverse drug 
                        interactions; and
                          (iv) efficiencies in filing 
                        prescriptions through reduced 
                        administrative costs.
                  (C) Structure.--Additional or increased 
                payments under this subsection may be 
                structured in the same manner as medication 
                therapy management fees are structured under 
                section 1860D-4(c)(2)(E).
  (k) Treatment of Services Furnished by Certain Providers.--
          (1) In general.--Except as provided in paragraph (2), 
        a physician or other entity (other than a provider of 
        services) that does not have a contract establishing 
        payment amounts for services furnished to an individual 
        enrolled under this part with a Medicare+Choice 
        organization described in section 1851(a)(2)(A) or with 
        an organization offering an MSA plan shall accept as 
        payment in full for covered services under this title 
        that are furnished to such an individual the amounts 
        that the physician or other entity could collect if the 
        individual were not so enrolled. Any penalty or other 
        provision of law that applies to such a payment with 
        respect to an individual entitled to benefits under 
        this title (but not enrolled with a Medicare+Choice 
        organization under this part) also applies with respect 
        to an individual so enrolled.
          (2) Application to medicare+choice private fee-for-
        service plans.--
                  (A) Balance billing limits under 
                medicare+choice private fee-for-service plans 
                in case of contract providers.--
                          (i) In general.--In the case of an 
                        individual enrolled in a 
                        Medicare+Choice private fee-for-service 
                        plan under this part, a physician, 
                        provider of services, or other entity 
                        that has a contract (including through 
                        the operation of subsection (j)(6)) 
                        establishing a payment rate for 
                        services furnished to the enrollee 
                        shall accept as payment in full for 
                        covered services under this title that 
                        are furnished to such an individual an 
                        amount not to exceed (including any 
                        deductibles, coinsurance, copayments, 
                        or balance billing otherwise permitted 
                        under the plan) an amount equal to 115 
                        percent of such payment rate.
                          (ii) Procedures to enforce limits.--
                        The Medicare+Choice organization that 
                        offers such a plan shall establish 
                        procedures, similar to the procedures 
                        described in section 1848(g)(1)(A), in 
                        order to carry out the previous 
                        sentence.
                          (iii) Assuring enforcement.--If the 
                        Medicare+Choice organization fails to 
                        establish and enforce procedures 
                        required under clause (ii), the 
                        organization is subject to intermediate 
                        sanctions under section 1857(g).
                  (B) Enrollee liability for noncontract 
                providers.--For provision--
                          (i) establishing minimum payment rate 
                        in the case of noncontract providers 
                        under a Medicare+Choice private fee-
                        for-service plan, see section 
                        1852(a)(2); or
                          (ii) limiting enrollee liability in 
                        the case of covered services furnished 
                        by such providers, see paragraph (1) 
                        and section 1866(a)(1)(O).
                  (C) Information on beneficiary liability.--
                          (i) In general.--Each Medicare+Choice 
                        organization that offers a 
                        Medicare+Choice private fee-for-service 
                        plan shall provide that enrollees under 
                        the plan who are furnished services for 
                        which payment is sought under the plan 
                        are provided an appropriate explanation 
                        of benefits (consistent with that 
                        provided under parts A and B and, if 
                        applicable, under medicare supplemental 
                        policies) that includes a clear 
                        statement of the amount of the 
                        enrollee's liability (including any 
                        liability for balance billing 
                        consistent with this subsection) with 
                        respect to payments for such services.
                          (ii) Advance notice before receipt of 
                        inpatient hospital services and certain 
                        other services.--In addition, such 
                        organization shall, in its terms and 
                        conditions of payments to hospitals for 
                        inpatient hospital services and for 
                        other services identified by the 
                        Secretary for which the amount of the 
                        balance billing under subparagraph (A) 
                        could be substantial, require the 
                        hospital to provide to the enrollee, 
                        before furnishing such services and if 
                        the hospital imposes balance billing 
                        under subparagraph (A)--
                                  (I) notice of the fact that 
                                balance billing is permitted 
                                under such subparagraph for 
                                such services, and
                                  (II) a good faith estimate of 
                                the likely amount of such 
                                balance billing (if any), with 
                                respect to such services, based 
                                upon the presenting condition 
                                of the enrollee.
  (l) Return to Home Skilled Nursing Facilities for Covered 
Post-Hospital Extended Care Services.--
          (1) Ensuring return to home snf.--
                  (A) In general.--In providing coverage of 
                post-hospital extended care services, a 
                Medicare+Choice plan shall provide for such 
                coverage through a home skilled nursing 
                facility if the following conditions are met:
                          (i) Enrollee election.--The enrollee 
                        elects to receive such coverage through 
                        such facility.
                          (ii) SNF agreement.--The facility has 
                        a contract with the Medicare+Choice 
                        organization for the provision of such 
                        services, or the facility agrees to 
                        accept substantially similar payment 
                        under the same terms and conditions 
                        that apply to similarly situated 
                        skilled nursing facilities that are 
                        under contract with the Medicare+Choice 
                        organization for the provision of such 
                        services and through which the enrollee 
                        would otherwise receive such services.
                  (B) Manner of payment to home snf.--The 
                organization shall provide payment to the home 
                skilled nursing facility consistent with the 
                contract or the agreement described in 
                subparagraph (A)(ii), as the case may be.
          (2) No less favorable coverage.--The coverage 
        provided under paragraph (1) (including scope of 
        services, cost-sharing, and other criteria of coverage) 
        shall be no less favorable to the enrollee than the 
        coverage that would be provided to the enrollee with 
        respect to a skilled nursing facility the post-hospital 
        extended care services of which are otherwise covered 
        under the Medicare+Choice plan.
          (3) Rule of construction.--Nothing in this subsection 
        shall be construed to do the following:
                  (A) To require coverage through a skilled 
                nursing facility that is not otherwise 
                qualified to provide benefits under part A for 
                medicare beneficiaries not enrolled in a 
                Medicare+Choice plan.
                  (B) To prevent a skilled nursing facility 
                from refusing to accept, or imposing conditions 
                upon the acceptance of, an enrollee for the 
                receipt of post-hospital extended care 
                services.
          (4) Definitions.--In this subsection:
                  (A) Home skilled nursing facility.--The term 
                ``home skilled nursing facility'' means, with 
                respect to an enrollee who is entitled to 
                receive post-hospital extended care services 
                under a Medicare+Choice plan, any of the 
                following skilled nursing facilities:
                          (i) SNF residence at time of 
                        admission.--The skilled nursing 
                        facility in which the enrollee resided 
                        at the time of admission to the 
                        hospital preceding the receipt of such 
                        post-hospital extended care services.
                          (ii) SNF in continuing care 
                        retirement community.--A skilled 
                        nursing facility that is providing such 
                        services through a continuing care 
                        retirement community (as defined in 
                        subparagraph (B)) which provided 
                        residence to the enrollee at the time 
                        of such admission.
                          (iii) SNF residence of spouse at time 
                        of discharge.--The skilled nursing 
                        facility in which the spouse of the 
                        enrollee is residing at the time of 
                        discharge from such hospital.
                  (B) Continuing care retirement community.--
                The term ``continuing care retirement 
                community'' means, with respect to an enrollee 
                in a Medicare+Choice plan, an arrangement under 
                which housing and health-related services are 
                provided (or arranged) through an organization 
                for the enrollee under an agreement that is 
                effective for the life of the enrollee or for a 
                specified period.
  (m) Provision of Additional Telehealth Benefits.--
          (1) MA plan option.--For plan year 2020 and 
        subsequent plan years, subject to the requirements of 
        paragraph (3), an MA plan may provide additional 
        telehealth benefits (as defined in paragraph (2)) to 
        individuals enrolled under this part.
          (2) Additional telehealth benefits defined.--
                  (A) In general.--For purposes of this 
                subsection and section 1854:
                          (i) Definition.--The term 
                        ``additional telehealth benefits'' 
                        means services--
                                  (I) for which benefits are 
                                available under part B, 
                                including services for which 
                                payment is not made under 
                                section 1834(m) due to the 
                                conditions for payment under 
                                such section; and
                                  (II) that are identified for 
                                such year as clinically 
                                appropriate to furnish using 
                                electronic information and 
                                telecommunications technology 
                                when a physician (as defined in 
                                section 1861(r)) or 
                                practitioner (described in 
                                section 1842(b)(18)(C)) 
                                providing the service is not at 
                                the same location as the plan 
                                enrollee.
                          (ii) Exclusion of capital and 
                        infrastructure costs and investments.--
                        The term ``additional telehealth 
                        benefits'' does not include capital and 
                        infrastructure costs and investments 
                        relating to such benefits.
                  (B) Public comment.--Not later than November 
                30, 2018, the Secretary shall solicit comments 
                on--
                          (i) what types of items and services 
                        (including those provided through 
                        supplemental health care benefits, such 
                        as remote patient monitoring, secure 
                        messaging, store and forward 
                        technologies, and other non-face-to-
                        face communication) should be 
                        considered to be additional telehealth 
                        benefits; and
                          (ii) the requirements for the 
                        provision or furnishing of such 
                        benefits (such as training and 
                        coordination requirements).
          (3) Requirements for additional telehealth 
        benefits.--The Secretary shall specify requirements for 
        the provision or furnishing of additional telehealth 
        benefits, including with respect to the following:
                  (A) Physician or practitioner qualifications 
                (other than licensure) and other requirements 
                such as specific training.
                  (B) Factors necessary for the coordination of 
                such benefits with other items and services 
                including those furnished in-person.
                  (C) Such other areas as determined by the 
                Secretary.
          (4) Enrollee choice.--If an MA plan provides a 
        service as an additional telehealth benefit (as defined 
        in paragraph (2))--
                  (A) the MA plan shall also provide access to 
                such benefit through an in-person visit (and 
                not only as an additional telehealth benefit); 
                and
                  (B) an individual enrollee shall have 
                discretion as to whether to receive such 
                service through the in-person visit or as an 
                additional telehealth benefit.
          (5) Treatment under ma.--For purposes of this 
        subsection and section 1854, if a plan provides 
        additional telehealth benefits, such additional 
        telehealth benefits shall be treated as if they were 
        benefits under the original Medicare fee-for-service 
        program option.
          (6) Construction.--Nothing in this subsection shall 
        be construed as affecting the requirement under 
        subsection (a)(1) that MA plans provide enrollees with 
        items and services (other than hospice care) for which 
        benefits are available under parts A and B, including 
        benefits available under section 1834(m).
  (n) Provision of Information Relating to the Safe Disposal of 
Certain Prescription Drugs.--
          (1) In general.--In the case of an individual 
        enrolled under an MA or MA-PD plan who is furnished an 
        in-home health risk assessment on or after January 1, 
        2021, such plan shall ensure that such assessment 
        includes information on the safe disposal of 
        prescription drugs that are controlled substances that 
        meets the criteria established under paragraph (2). 
        Such information shall include information on drug 
        takeback programs that meet such requirements 
        determined appropriate by the Secretary and information 
        on in-home disposal.
          (2) Criteria.--The Secretary shall, through 
        rulemaking, establish criteria the Secretary determines 
        appropriate with respect to information provided to an 
        individual to ensure that such information sufficiently 
        educates such individual on the safe disposal of 
        prescription drugs that are controlled substances.

           *       *       *       *       *       *       *


          Part D--Voluntary Prescription Drug Benefit Program


Subpart 1--Part D Eligible Individuals and Prescription Drug Benefits

           *       *       *       *       *       *       *



    beneficiary protections for qualified prescription drug coverage

  Sec. 1860D-4. (a) Dissemination of Information.--
          (1) General information.--
                  (A) Application of ma information.--A PDP 
                sponsor shall disclose, in a clear, accurate, 
                and standardized form to each enrollee with a 
                prescription drug plan offered by the sponsor 
                under this part at the time of enrollment and 
                at least annually thereafter, the information 
                described in section 1852(c)(1) relating to 
                such plan, insofar as the Secretary determines 
                appropriate with respect to benefits provided 
                under this part, and, subject to subparagraph 
                (C), including the information described in 
                subparagraph (B).
                  (B) Drug specific information.--The 
                information described in this subparagraph is 
                information concerning the following:
                          (i) Access to specific covered part D 
                        drugs, including access through 
                        pharmacy networks.
                          (ii) How any formulary (including any 
                        tiered formulary structure) used by the 
                        sponsor functions, including a 
                        description of how a part D eligible 
                        individual may obtain information on 
                        the formulary consistent with paragraph 
                        (3).
                          (iii) Beneficiary cost-sharing 
                        requirements and how a part D eligible 
                        individual may obtain information on 
                        such requirements, including tiered or 
                        other copayment level applicable to 
                        each drug (or class of drugs), 
                        consistent with paragraph (3).
                          (iv) The medication therapy 
                        management program required under 
                        subsection (c).
                          (v) The drug management program for 
                        at-risk beneficiaries under subsection 
                        (c)(5).
                          (vi) For plan year 2021 and each 
                        subsequent plan year, subject to 
                        subparagraph (C), with respect to the 
                        treatment of pain--
                                  (I) the risks associated with 
                                prolonged opioid use; and
                                  (II) coverage of 
                                nonpharmacological therapies, 
                                devices, and nonopioid 
                                medications--
                                          (aa) in the case of 
                                        an MA-PD plan under 
                                        part C, under such 
                                        plan; and
                                          (bb) in the case of a 
                                        prescription drug plan, 
                                        under such plan and 
                                        under parts A and B.
                  (C) Targeted provision of information.--A PDP 
                sponsor of a prescription drug plan may, in 
                lieu of disclosing the information described in 
                subparagraph (B)(vi) to each enrollee under the 
                plan, disclose such information through mail or 
                electronic communications to a subset of 
                enrollees under the plan, such as enrollees who 
                have been prescribed an opioid in the previous 
                two-year period.
          (2) Disclosure upon request of general coverage, 
        utilization, and grievance information.--Upon request 
        of a part D eligible individual who is eligible to 
        enroll in a prescription drug plan, the PDP sponsor 
        offering such plan shall provide information similar 
        (as determined by the Secretary) to the information 
        described in subparagraphs (A), (B), and (C) of section 
        1852(c)(2) to such individual.
          (3) Provision of specific information.--
                  (A) Response to beneficiary questions.--Each 
                PDP sponsor offering a prescription drug plan 
                shall have a mechanism for providing specific 
                information on a timely basis to enrollees upon 
                request. Such mechanism shall include access to 
                information through the use of a toll-free 
                telephone number and, upon request, the 
                provision of such information in writing.
                  (B) Availability of information on changes in 
                formulary through the internet.--A PDP sponsor 
                offering a prescription drug plan shall make 
                available on a timely basis through an Internet 
                website information on specific changes in the 
                formulary under the plan (including changes to 
                tiered or preferred status of covered part D 
                drugs).
          (4) Claims information.--A PDP sponsor offering a 
        prescription drug plan must furnish to each enrollee in 
        a form easily understandable to such enrollees--
                  (A) an explanation of benefits (in accordance 
                with section 1806(a) or in a comparable 
                manner); and
                  (B) when prescription drug benefits are 
                provided under this part, a notice of the 
                benefits in relation to--
                          (i) the initial coverage limit for 
                        the current year; and
                          (ii) the annual out-of-pocket 
                        threshold for the current year.
                Notices under subparagraph (B) need not be 
                provided more often than as specified by the 
                Secretary and notices under subparagraph 
                (B)(ii) shall take into account the application 
                of section 1860D-2(b)(4)(C) to the extent 
                practicable, as specified by the Secretary.
  (b) Access to Covered Part D Drugs.--
          (1) Assuring pharmacy access.--
                  (A) Participation of any willing pharmacy.--A 
                prescription drug plan shall permit the 
                participation of any pharmacy that meets the 
                terms and conditions under the plan.
                  (B) Discounts allowed for network 
                pharmacies.--For covered part D drugs dispensed 
                through in-network pharmacies, a prescription 
                drug plan may, notwithstanding subparagraph 
                (A), reduce coinsurance or copayments for part 
                D eligible individuals enrolled in the plan 
                below the level otherwise required. In no case 
                shall such a reduction result in an increase in 
                payments made by the Secretary under section 
                1860D-15 to a plan.
                  (C) Convenient access for network 
                pharmacies.--
                          (i) In general.--The PDP sponsor of 
                        the prescription drug plan shall secure 
                        the participation in its network of a 
                        sufficient number of pharmacies that 
                        dispense (other than by mail order) 
                        drugs directly to patients to ensure 
                        convenient access (consistent with 
                        rules established by the Secretary).
                          (ii) Application of tricare 
                        standards.--The Secretary shall 
                        establish rules for convenient access 
                        to in-network pharmacies under this 
                        subparagraph that are no less favorable 
                        to enrollees than the rules for 
                        convenient access to pharmacies 
                        included in the statement of work of 
                        solicitation (#MDA906-03-R-0002) of the 
                        Department of Defense under the TRICARE 
                        Retail Pharmacy (TRRx) as of March 13, 
                        2003.
                          (iii) Adequate emergency access.--
                        Such rules shall include adequate 
                        emergency access for enrollees.
                          (iv) Convenient access in long-term 
                        care facilities.--Such rules may 
                        include standards with respect to 
                        access for enrollees who are residing 
                        in long-term care facilities and for 
                        pharmacies operated by the Indian 
                        Health Service, Indian tribes and 
                        tribal organizations, and urban Indian 
                        organizations (as defined in section 4 
                        of the Indian Health Care Improvement 
                        Act).
                  (D) Level playing field.--Such a sponsor 
                shall permit enrollees to receive benefits 
                (which may include a 90-day supply of drugs or 
                biologicals) through a pharmacy (other than a 
                mail order pharmacy), with any differential in 
                charge paid by such enrollees.
                  (E) Not required to accept insurance risk.--
                The terms and conditions under subparagraph (A) 
                may not require participating pharmacies to 
                accept insurance risk as a condition of 
                participation.
          (2) Use of standardized technology.--
                  (A) In general.--The PDP sponsor of a 
                prescription drug plan shall issue (and 
                reissue, as appropriate) such a card (or other 
                technology) that may be used by an enrollee to 
                assure access to negotiated prices under 
                section 1860D-2(d).
                  (B) Standards.--
                          (i) In general.--The Secretary shall 
                        provide for the development, adoption, 
                        or recognition of standards relating to 
                        a standardized format for the card or 
                        other technology required under 
                        subparagraph (A). Such standards shall 
                        be compatible with part C of title XI 
                        and may be based on standards developed 
                        by an appropriate standard setting 
                        organization.
                          (ii) Consultation.--In developing the 
                        standards under clause (i), the 
                        Secretary shall consult with the 
                        National Council for Prescription Drug 
                        Programs and other standard setting 
                        organizations determined appropriate by 
                        the Secretary.
                          (iii) Implementation.--The Secretary 
                        shall develop, adopt, or recognize the 
                        standards under clause (i) by such date 
                        as the Secretary determines shall be 
                        sufficient to ensure that PDP sponsors 
                        utilize such standards beginning 
                        January 1, 2006.
          (3) Requirements on development and application of 
        formularies.--If a PDP sponsor of a prescription drug 
        plan uses a formulary (including the use of tiered 
        cost-sharing), the following requirements must be met:
                  (A) Development and revision by a pharmacy 
                and therapeutic (p&t) committee.--
                          (i) In general.--The formulary must 
                        be developed and reviewed by a pharmacy 
                        and therapeutic committee. A majority 
                        of the members of such committee shall 
                        consist of individuals who are 
                        practicing physicians or practicing 
                        pharmacists (or both).
                          (ii) Inclusion of independent 
                        experts.--Such committee shall include 
                        at least one practicing physician and 
                        at least one practicing pharmacist, 
                        each of whom--
                                  (I) is independent and free 
                                of conflict with respect to the 
                                sponsor and plan; and
                                  (II) has expertise in the 
                                care of elderly or disabled 
                                persons.
                  (B) Formulary development.--In developing and 
                reviewing the formulary, the committee shall--
                          (i) base clinical decisions on the 
                        strength of scientific evidence and 
                        standards of practice, including 
                        assessing peer-reviewed medical 
                        literature, such as randomized clinical 
                        trials, pharmacoeconomic studies, 
                        outcomes research data, and on such 
                        other information as the committee 
                        determines to be appropriate; and
                          (ii) take into account whether 
                        including in the formulary (or in a 
                        tier in such formulary) particular 
                        covered part D drugs has therapeutic 
                        advantages in terms of safety and 
                        efficacy.
                  (C) Inclusion of drugs in all therapeutic 
                categories and classes.--
                          (i) In general.--Subject to 
                        subparagraph (G), the formulary must 
                        include drugs within each therapeutic 
                        category and class of covered part D 
                        drugs, although not necessarily all 
                        drugs within such categories and 
                        classes.
                          (ii) Model guidelines.--The Secretary 
                        shall request the United States 
                        Pharmacopeia to develop, in 
                        consultation with pharmaceutical 
                        benefit managers and other interested 
                        parties, a list of categories and 
                        classes that may be used by 
                        prescription drug plans under this 
                        paragraph and to revise such 
                        classification from time to time to 
                        reflect changes in therapeutic uses of 
                        covered part D drugs and the additions 
                        of new covered part D drugs.
                          (iii) Limitation on changes in 
                        therapeutic classification.--The PDP 
                        sponsor of a prescription drug plan may 
                        not change the therapeutic categories 
                        and classes in a formulary other than 
                        at the beginning of each plan year 
                        except as the Secretary may permit to 
                        take into account new therapeutic uses 
                        and newly approved covered part D 
                        drugs.
                  (D) Provider and patient education.--The PDP 
                sponsor shall establish policies and procedures 
                to educate and inform health care providers and 
                enrollees concerning the formulary.
                  (E) Notice before removing drug from 
                formulary or changing preferred or tier status 
                of drug.--Any removal of a covered part D drug 
                from a formulary and any change in the 
                preferred or tiered cost-sharing status of such 
                a drug shall take effect only after appropriate 
                notice is made available (such as under 
                subsection (a)(3)) to the Secretary, affected 
                enrollees, physicians, pharmacies, and 
                pharmacists.
                  (F) Periodic evaluation of protocols.--In 
                connection with the formulary, the sponsor of a 
                prescription drug plan shall provide for the 
                periodic evaluation and analysis of treatment 
                protocols and procedures.
                  (G) Required inclusion of drugs in certain 
                categories and classes.--
                          (i) Formulary requirements.--
                                  (I) In general.--Subject to 
                                subclause (II), a PDP sponsor 
                                offering a prescription drug 
                                plan shall be required to 
                                include all covered part D 
                                drugs in the categories and 
                                classes identified by the 
                                Secretary under clause (ii)(I).
                                  (II) Exceptions.--The 
                                Secretary may establish 
                                exceptions that permit a PDP 
                                sponsor offering a prescription 
                                drug plan to exclude from its 
                                formulary a particular covered 
                                part D drug in a category or 
                                class that is otherwise 
                                required to be included in the 
                                formulary under subclause (I) 
                                (or to otherwise limit access 
                                to such a drug, including 
                                through prior authorization or 
                                utilization management).
                          (ii) Identification of drugs in 
                        certain categories and classes.--
                                  (I) In general.--Subject to 
                                clause (iv), the Secretary 
                                shall identify, as appropriate, 
                                categories and classes of drugs 
                                for which the Secretary 
                                determines are of clinical 
                                concern.
                                  (II) Criteria.--The Secretary 
                                shall use criteria established 
                                by the Secretary in making any 
                                determination under subclause 
                                (I).
                          (iii) Implementation.--The Secretary 
                        shall establish the criteria under 
                        clause (ii)(II) and any exceptions 
                        under clause (i)(II) through the 
                        promulgation of a regulation which 
                        includes a public notice and comment 
                        period.
                          (iv) Requirement for certain 
                        categories and classes until criteria 
                        established.--Until such time as the 
                        Secretary establishes the criteria 
                        under clause (ii)(II) the following 
                        categories and classes of drugs shall 
                        be identified under clause (ii)(I):
                                  (I) Anticonvulsants.
                                  (II) Antidepressants.
                                  (III) Antineoplastics.
                                  (IV) Antipsychotics.
                                  (V) Antiretrovirals.
                                  (VI) Immunosuppressants for 
                                the treatment of transplant 
                                rejection.
                  (H) Use of single, uniform exceptions and 
                appeals process.--Notwithstanding any other 
                provision of this part, each PDP sponsor of a 
                prescription drug plan shall--
                          (i) use a single, uniform exceptions 
                        and appeals process (including, to the 
                        extent the Secretary determines 
                        feasible, a single, uniform model form 
                        for use under such process) with 
                        respect to the determination of 
                        prescription drug coverage for an 
                        enrollee under the plan; and
                          (ii) provide instant access to such 
                        process by enrollees through a toll-
                        free telephone number and an Internet 
                        website.
  (c) Cost and Utilization Management; Quality Assurance; 
Medication Therapy Management Program.--
          (1) In general.--The PDP sponsor shall have in place, 
        directly or through appropriate arrangements, with 
        respect to covered part D drugs, the following:
                  (A) A cost-effective drug utilization 
                management program, including incentives to 
                reduce costs when medically appropriate, such 
                as through the use of multiple source drugs (as 
                defined in section 1927(k)(7)(A)(i)).
                  (B) Quality assurance measures and systems to 
                reduce medication errors and adverse drug 
                interactions and improve medication use.
                  (C) A medication therapy management program 
                described in paragraph (2).
                  (D) A program to control fraud, abuse, and 
                waste.
                  (E) A utilization management tool to prevent 
                drug abuse (as described in paragraph (6)(A)).
        Nothing in this section shall be construed as impairing 
        a PDP sponsor from utilizing cost management tools 
        (including differential payments) under all methods of 
        operation.
          (2) Medication therapy management program.--
                  (A) Description.--
                          (i) In general.--A medication therapy 
                        management program described in this 
                        paragraph is a program of drug therapy 
                        management that may be furnished by a 
                        pharmacist and that is designed to 
                        assure, with respect to targeted 
                        beneficiaries described in clause (ii), 
                        that covered part D drugs under the 
                        prescription drug plan are 
                        appropriately used to optimize 
                        therapeutic outcomes through improved 
                        medication use, and to reduce the risk 
                        of adverse events, including adverse 
                        drug interactions. Such a program may 
                        distinguish between services in 
                        ambulatory and institutional settings.
                          (ii) Targeted beneficiaries 
                        described.--Targeted beneficiaries 
                        described in this clause are part D 
                        eligible individuals who--
                                  (I) have multiple chronic 
                                diseases (such as diabetes, 
                                asthma, hypertension, 
                                hyperlipidemia, and congestive 
                                heart failure);
                                  (II) are taking multiple 
                                covered part D drugs; and
                                  (III) are identified as 
                                likely to incur annual costs 
                                for covered part D drugs that 
                                exceed a level specified by the 
                                Secretary.
                  (B) Elements.--Such program [may include 
                elements that promote]--
                          (i) may include elements that 
                        promote--
                                  [(i)] (I) enhanced enrollee 
                                understanding to promote the 
                                appropriate use of medications 
                                by enrollees and to reduce the 
                                risk of potential adverse 
                                events associated with 
                                medications, through 
                                beneficiary education, 
                                counseling, and other 
                                appropriate means;
                                  [(ii)] (II) increased 
                                enrollee adherence with 
                                prescription medication 
                                regimens through medication 
                                refill reminders, special 
                                packaging, and other compliance 
                                programs and other appropriate 
                                means; and
                                  [(iii)] (III) detection of 
                                adverse drug events and 
                                patterns of overuse and 
                                underuse of prescription 
                                drugs[.]; and
                          (ii) with respect to plan years 
                        beginning on or after January 1, 2021, 
                        shall provide for--
                                  (I) the provision of 
                                information to the enrollee on 
                                the safe disposal of 
                                prescription drugs that are 
                                controlled substances that 
                                meets the criteria established 
                                under section 1852(n)(2), 
                                including information on drug 
                                takeback programs that meet 
                                such requirements determined 
                                appropriate by the Secretary 
                                and information on in-home 
                                disposal; and
                                  (II) cost-effective means by 
                                which an enrollee may so safely 
                                dispose of such drugs.
                  (C) Required interventions.--For plan years 
                beginning on or after the date that is 2 years 
                after the date of the enactment of the Patient 
                Protection and Affordable Care Act, 
                prescription drug plan sponsors shall offer 
                medication therapy management services to 
                targeted beneficiaries described in 
                subparagraph (A)(ii) that include, at a 
                minimum, the following to increase adherence to 
                prescription medications or other goals deemed 
                necessary by the Secretary:
                          (i) An annual comprehensive 
                        medication review furnished person-to-
                        person or using telehealth technologies 
                        (as defined by the Secretary) by a 
                        licensed pharmacist or other qualified 
                        provider. The comprehensive medication 
                        review--
                                  (I) shall include a review of 
                                the individual's medications 
                                and may result in the creation 
                                of a recommended medication 
                                action plan or other actions in 
                                consultation with the 
                                individual and with input from 
                                the prescriber to the extent 
                                necessary and practicable; and
                                  (II) shall include providing 
                                the individual with a written 
                                or printed summary of the 
                                results of the review.
                        The Secretary, in consultation with 
                        relevant stakeholders, shall develop a 
                        standardized format for the action plan 
                        under subclause (I) and the summary 
                        under subclause (II).
                          (ii) Follow-up interventions as 
                        warranted based on the findings of the 
                        annual medication review or the 
                        targeted medication enrollment and 
                        which may be provided person-to-person 
                        or using telehealth technologies (as 
                        defined by the Secretary).
                  (D) Assessment.--The prescription drug plan 
                sponsor shall have in place a process to 
                assess, at least on a quarterly basis, the 
                medication use of individuals who are at risk 
                but not enrolled in the medication therapy 
                management program, including individuals who 
                have experienced a transition in care, if the 
                prescription drug plan sponsor has access to 
                that information.
                  (E) Automatic enrollment with ability to opt-
                out.--The prescription drug plan sponsor shall 
                have in place a process to--
                          (i) subject to clause (ii), 
                        automatically enroll targeted 
                        beneficiaries described in subparagraph 
                        (A)(ii), including beneficiaries 
                        identified under subparagraph (D), in 
                        the medication therapy management 
                        program required under this subsection; 
                        and
                          (ii) permit such beneficiaries to 
                        opt-out of enrollment in such program.
                  (E) Development of program in cooperation 
                with licensed pharmacists.--Such program shall 
                be developed in cooperation with licensed and 
                practicing pharmacists and physicians.
                  (F) Coordination with care management 
                plans.--The Secretary shall establish 
                guidelines for the coordination of any 
                medication therapy management program under 
                this paragraph with respect to a targeted 
                beneficiary with any care management plan 
                established with respect to such beneficiary 
                under a chronic care improvement program under 
                section 1807.
                  (G) Considerations in pharmacy fees.--The PDP 
                sponsor of a prescription drug plan shall take 
                into account, in establishing fees for 
                pharmacists and others providing services under 
                such plan, the resources used, and time 
                required to, implement the medication therapy 
                management program under this paragraph. Each 
                such sponsor shall disclose to the Secretary 
                upon request the amount of any such management 
                or dispensing fees. The provisions of section 
                1927(b)(3)(D) apply to information disclosed 
                under this subparagraph.
          (3) Reducing wasteful dispensing of outpatient 
        prescription drugs in long-term care facilities.--The 
        Secretary shall require PDP sponsors of prescription 
        drug plans to utilize specific, uniform dispensing 
        techniques, as determined by the Secretary, in 
        consultation with relevant stakeholders (including 
        representatives of nursing facilities, residents of 
        nursing facilities, pharmacists, the pharmacy industry 
        (including retail and long-term care pharmacy), 
        prescription drug plans, MA-PD plans, and any other 
        stakeholders the Secretary determines appropriate), 
        such as weekly, daily, or automated dose dispensing, 
        when dispensing covered part D drugs to enrollees who 
        reside in a long-term care facility in order to reduce 
        waste associated with 30-day fills.
          (4) Requiring valid prescriber national provider 
        identifiers on pharmacy claims.--
                  (A) In general.--For plan year 2016 and 
                subsequent plan years, the Secretary shall 
                require a claim for a covered part D drug for a 
                part D eligible individual enrolled in a 
                prescription drug plan under this part or an 
                MA-PD plan under part C to include a prescriber 
                National Provider Identifier that is determined 
                to be valid under the procedures established 
                under subparagraph (B)(i).
                  (B) Procedures.--
                          (i) Validity of prescriber national 
                        provider identifiers.--The Secretary, 
                        in consultation with appropriate 
                        stakeholders, shall establish 
                        procedures for determining the validity 
                        of prescriber National Provider 
                        Identifiers under subparagraph (A).
                          (ii) Informing beneficiaries of 
                        reason for denial.--The Secretary shall 
                        establish procedures to ensure that, in 
                        the case that a claim for a covered 
                        part D drug of an individual described 
                        in subparagraph (A) is denied because 
                        the claim does not meet the 
                        requirements of this paragraph, the 
                        individual is properly informed at the 
                        point of service of the reason for the 
                        denial.
                  (C) Report.--Not later than January 1, 2018, 
                the Inspector General of the Department of 
                Health and Human Services shall submit to 
                Congress a report on the effectiveness of the 
                procedures established under subparagraph 
                (B)(i).
          (5) Drug management program for at-risk 
        beneficiaries.--
                  (A) Authority to establish.--A PDP sponsor 
                may establish a drug management program for at-
                risk beneficiaries under which, subject to 
                subparagraph (B), the PDP sponsor may, in the 
                case of an at-risk beneficiary for prescription 
                drug abuse who is an enrollee in a prescription 
                drug plan of such PDP sponsor, limit such 
                beneficiary's access to coverage for frequently 
                abused drugs under such plan to frequently 
                abused drugs that are prescribed for such 
                beneficiary by one or more prescribers selected 
                under subparagraph (D), and dispensed for such 
                beneficiary by one or more pharmacies selected 
                under such subparagraph.
                  (B) Requirement for notices.--
                          (i) In general.--A PDP sponsor may 
                        not limit the access of an at-risk 
                        beneficiary for prescription drug abuse 
                        to coverage for frequently abused drugs 
                        under a prescription drug plan until 
                        such sponsor--
                                  (I) provides to the 
                                beneficiary an initial notice 
                                described in clause (ii) and a 
                                second notice described in 
                                clause (iii); and
                                  (II) verifies with the 
                                providers of the beneficiary 
                                that the beneficiary is an at-
                                risk beneficiary for 
                                prescription drug abuse.
                          (ii) Initial notice.--An initial 
                        notice described in this clause is a 
                        notice that provides to the 
                        beneficiary--
                                  (I) notice that the PDP 
                                sponsor has identified the 
                                beneficiary as potentially 
                                being an at-risk beneficiary 
                                for prescription drug abuse;
                                  (II) information describing 
                                all State and Federal public 
                                health resources that are 
                                designed to address 
                                prescription drug abuse to 
                                which the beneficiary has 
                                access, including mental health 
                                services and other counseling 
                                services;
                                  (III) notice of, and 
                                information about, the right of 
                                the beneficiary to appeal such 
                                identification under subsection 
                                (h) and the option of an 
                                automatic escalation to 
                                external review;
                                  (IV) a request for the 
                                beneficiary to submit to the 
                                PDP sponsor preferences for 
                                which prescribers and 
                                pharmacies the beneficiary 
                                would prefer the PDP sponsor to 
                                select under subparagraph (D) 
                                in the case that the 
                                beneficiary is identified as an 
                                at-risk beneficiary for 
                                prescription drug abuse as 
                                described in clause (iii)(I);
                                  (V) an explanation of the 
                                meaning and consequences of the 
                                identification of the 
                                beneficiary as potentially 
                                being an at-risk beneficiary 
                                for prescription drug abuse, 
                                including an explanation of the 
                                drug management program 
                                established by the PDP sponsor 
                                pursuant to subparagraph (A);
                                  (VI) clear instructions that 
                                explain how the beneficiary can 
                                contact the PDP sponsor in 
                                order to submit to the PDP 
                                sponsor the preferences 
                                described in subclause (IV) and 
                                any other communications 
                                relating to the drug management 
                                program for at-risk 
                                beneficiaries established by 
                                the PDP sponsor; and
                                  (VII) contact information for 
                                other organizations that can 
                                provide the beneficiary with 
                                assistance regarding such drug 
                                management program (similar to 
                                the information provided by the 
                                Secretary in other standardized 
                                notices provided to part D 
                                eligible individuals enrolled 
                                in prescription drug plans 
                                under this part).
                          (iii) Second notice.--A second notice 
                        described in this clause is a notice 
                        that provides to the beneficiary 
                        notice--
                                  (I) that the PDP sponsor has 
                                identified the beneficiary as 
                                an at-risk beneficiary for 
                                prescription drug abuse;
                                  (II) that such beneficiary is 
                                subject to the requirements of 
                                the drug management program for 
                                at-risk beneficiaries 
                                established by such PDP sponsor 
                                for such plan;
                                  (III) of the prescriber (or 
                                prescribers) and pharmacy (or 
                                pharmacies) selected for such 
                                individual under subparagraph 
                                (D);
                                  (IV) of, and information 
                                about, the beneficiary's right 
                                to appeal such identification 
                                under subsection (h) and the 
                                option of an automatic 
                                escalation to external review;
                                  (V) that the beneficiary can, 
                                in the case that the 
                                beneficiary has not previously 
                                submitted to the PDP sponsor 
                                preferences for which 
                                prescribers and pharmacies the 
                                beneficiary would prefer the 
                                PDP sponsor select under 
                                subparagraph (D), submit such 
                                preferences to the PDP sponsor; 
                                and
                                  (VI) that includes clear 
                                instructions that explain how 
                                the beneficiary can contact the 
                                PDP sponsor.
                          (iv) Timing of notices.--
                                  (I) In general.--Subject to 
                                subclause (II), a second notice 
                                described in clause (iii) shall 
                                be provided to the beneficiary 
                                on a date that is not less than 
                                30 days after an initial notice 
                                described in clause (ii) is 
                                provided to the beneficiary.
                                  (II) Exception.--In the case 
                                that the PDP sponsor, in 
                                conjunction with the Secretary, 
                                determines that concerns 
                                identified through rulemaking 
                                by the Secretary regarding the 
                                health or safety of the 
                                beneficiary or regarding 
                                significant drug diversion 
                                activities require the PDP 
                                sponsor to provide a second 
                                notice described in clause 
                                (iii) to the beneficiary on a 
                                date that is earlier than the 
                                date described in subclause 
                                (I), the PDP sponsor may 
                                provide such second notice on 
                                such earlier date.
                  (C) At-risk beneficiary for prescription drug 
                abuse.--
                          (i) In general.--For purposes of this 
                        paragraph, the term ``at-risk 
                        beneficiary for prescription drug 
                        abuse'' means a part D eligible 
                        individual who is not an exempted 
                        individual described in clause (ii) 
                        and--
                                  (I) who is identified as such 
                                an at-risk beneficiary through 
                                the use of clinical guidelines 
                                that indicate misuse or abuse 
                                of prescription drugs described 
                                in subparagraph (G) and that 
                                are developed by the Secretary 
                                in consultation with PDP 
                                sponsors and other 
                                stakeholders, including 
                                individuals entitled to 
                                benefits under part A or 
                                enrolled under part B, advocacy 
                                groups representing such 
                                individuals, physicians, 
                                pharmacists, and other 
                                clinicians, retail pharmacies, 
                                plan sponsors, entities 
                                delegated by plan sponsors, and 
                                biopharmaceutical 
                                manufacturers; or
                                  (II) with respect to whom the 
                                PDP sponsor of a prescription 
                                drug plan, upon enrolling such 
                                individual in such plan, 
                                received notice from the 
                                Secretary that such individual 
                                was identified under this 
                                paragraph to be an at-risk 
                                beneficiary for prescription 
                                drug abuse under the 
                                prescription drug plan in which 
                                such individual was most 
                                recently previously enrolled 
                                and such identification has not 
                                been terminated under 
                                subparagraph (F).
                          (ii) Exempted individual described.--
                        An exempted individual described in 
                        this clause is an individual who--
                                  (I) receives hospice care 
                                under this title;
                                  (II) is a resident of a long-
                                term care facility, of a 
                                facility described in section 
                                1905(d), or of another facility 
                                for which frequently abused 
                                drugs are dispensed for 
                                residents through a contract 
                                with a single pharmacy; or
                                  (III) the Secretary elects to 
                                treat as an exempted individual 
                                for purposes of clause (i).
                          (iii) Program size.--The Secretary 
                        shall establish policies, including the 
                        guidelines developed under clause 
                        (i)(I) and the exemptions under clause 
                        (ii)(III), to ensure that the 
                        population of enrollees in a drug 
                        management program for at-risk 
                        beneficiaries operated by a 
                        prescription drug plan can be 
                        effectively managed by such plans.
                          (iv) Clinical contact.--With respect 
                        to each at-risk beneficiary for 
                        prescription drug abuse enrolled in a 
                        prescription drug plan offered by a PDP 
                        sponsor, the PDP sponsor shall contact 
                        the beneficiary's providers who have 
                        prescribed frequently abused drugs 
                        regarding whether prescribed 
                        medications are appropriate for such 
                        beneficiary's medical conditions.
                  (D) Selection of prescribers and 
                pharmacies.--
                          (i) In general.--With respect to each 
                        at-risk beneficiary for prescription 
                        drug abuse enrolled in a prescription 
                        drug plan offered by such sponsor, a 
                        PDP sponsor shall, based on the 
                        preferences submitted to the PDP 
                        sponsor by the beneficiary pursuant to 
                        clauses (ii)(IV) and (iii)(V) of 
                        subparagraph (B) (except as otherwise 
                        provided in this subparagraph) select--
                                  (I) one, or, if the PDP 
                                sponsor reasonably determines 
                                it necessary to provide the 
                                beneficiary with reasonable 
                                access under clause (ii), more 
                                than one, individual who is 
                                authorized to prescribe 
                                frequently abused drugs 
                                (referred to in this paragraph 
                                as a ``prescriber'') who may 
                                write prescriptions for such 
                                drugs for such beneficiary; and
                                  (II) one, or, if the PDP 
                                sponsor reasonably determines 
                                it necessary to provide the 
                                beneficiary with reasonable 
                                access under clause (ii), more 
                                than one, pharmacy that may 
                                dispense such drugs to such 
                                beneficiary.
                        For purposes of subclause (II), in the 
                        case of a pharmacy that has multiple 
                        locations that share real-time 
                        electronic data, all such locations of 
                        the pharmacy shall collectively be 
                        treated as one pharmacy.
                          (ii) Reasonable access.--In making 
                        the selections under this 
                        subparagraph--
                                  (I) a PDP sponsor shall 
                                ensure that the beneficiary 
                                continues to have reasonable 
                                access to frequently abused 
                                drugs (as defined in 
                                subparagraph (G)), taking into 
                                account geographic location, 
                                beneficiary preference, impact 
                                on costsharing, and reasonable 
                                travel time; and
                                  (II) a PDP sponsor shall 
                                ensure such access (including 
                                access to prescribers and 
                                pharmacies with respect to 
                                frequently abused drugs) in the 
                                case of individuals with 
                                multiple residences, in the 
                                case of natural disasters and 
                                similar situations, and in the 
                                case of the provision of 
                                emergency services.
                          (iii) Beneficiary preferences.--If an 
                        at-risk beneficiary for prescription 
                        drug abuse submits preferences for 
                        which in-network prescribers and 
                        pharmacies the beneficiary would prefer 
                        the PDP sponsor select in response to a 
                        notice under subparagraph (B), the PDP 
                        sponsor shall--
                                  (I) review such preferences;
                                  (II) select or change the 
                                selection of prescribers and 
                                pharmacies for the beneficiary 
                                based on such preferences; and
                                  (III) inform the beneficiary 
                                of such selection or change of 
                                selection.
                          (iv) Exception regarding beneficiary 
                        preferences.--In the case that the PDP 
                        sponsor determines that a change to the 
                        selection of prescriber or pharmacy 
                        under clause (iii)(II) by the PDP 
                        sponsor is contributing or would 
                        contribute to prescription drug abuse 
                        or drug diversion by the beneficiary, 
                        the PDP sponsor may change the 
                        selection of prescriber or pharmacy for 
                        the beneficiary without regard to the 
                        preferences of the beneficiary 
                        described in clause (iii). If the PDP 
                        sponsor changes the selection pursuant 
                        to the preceding sentence, the PDP 
                        sponsor shall provide the beneficiary 
                        with--
                                  (I) at least 30 days written 
                                notice of the change of 
                                selection; and
                                  (II) a rationale for the 
                                change.
                          (v) Confirmation.--Before selecting a 
                        prescriber or pharmacy under this 
                        subparagraph, a PDP sponsor must notify 
                        the prescriber and pharmacy that the 
                        beneficiary involved has been 
                        identified for inclusion in the drug 
                        management program for at-risk 
                        beneficiaries and that the prescriber 
                        and pharmacy has been selected as the 
                        beneficiary's designated prescriber and 
                        pharmacy.
                  (E) Terminations and appeals.--The 
                identification of an individual as an at-risk 
                beneficiary for prescription drug abuse under 
                this paragraph, a coverage determination made 
                under a drug management program for at-risk 
                beneficiaries, the selection of prescriber or 
                pharmacy under subparagraph (D), and 
                information to be shared under subparagraph 
                (I), with respect to such individual, shall be 
                subject to reconsideration and appeal under 
                subsection (h) and the option of an automatic 
                escalation to external review to the extent 
                provided by the Secretary.
                  (F) Termination of identification.--
                          (i) In general.--The Secretary shall 
                        develop standards for the termination 
                        of identification of an individual as 
                        an at-risk beneficiary for prescription 
                        drug abuse under this paragraph. Under 
                        such standards such identification 
                        shall terminate as of the earlier of--
                                  (I) the date the individual 
                                demonstrates that the 
                                individual is no longer likely, 
                                in the absence of the 
                                restrictions under this 
                                paragraph, to be an at-risk 
                                beneficiary for prescription 
                                drug abuse described in 
                                subparagraph (C)(i); and
                                  (II) the end of such maximum 
                                period of identification as the 
                                Secretary may specify.
                          (ii) Rule of construction.--Nothing 
                        in clause (i) shall be construed as 
                        preventing a plan from identifying an 
                        individual as an at-risk beneficiary 
                        for prescription drug abuse under 
                        subparagraph (C)(i) after such 
                        termination on the basis of additional 
                        information on drug use occurring after 
                        the date of notice of such termination.
                  (G) Frequently abused drug.--For purposes of 
                this subsection, the term ``frequently abused 
                drug'' means a drug that is a controlled 
                substance that the Secretary determines to be 
                frequently abused or diverted.
                  (H) Data disclosure.--
                          (i) Data on decision to impose 
                        limitation.--In the case of an at-risk 
                        beneficiary for prescription drug abuse 
                        (or an individual who is a potentially 
                        at-risk beneficiary for prescription 
                        drug abuse) whose access to coverage 
                        for frequently abused drugs under a 
                        prescription drug plan has been limited 
                        by a PDP sponsor under this paragraph, 
                        the Secretary shall establish rules and 
                        procedures to require the PDP sponsor 
                        to disclose data, including any 
                        necessary individually identifiable 
                        health information, in a form and 
                        manner specified by the Secretary, 
                        about the decision to impose such 
                        limitations and the limitations imposed 
                        by the sponsor under this part.
                          (ii) Data to reduce fraud, abuse, and 
                        waste.--The Secretary shall establish 
                        rules and procedures to require PDP 
                        sponsors operating a drug management 
                        program for at-risk beneficiaries under 
                        this paragraph to provide the Secretary 
                        with such data as the Secretary 
                        determines appropriate for purposes of 
                        identifying patterns of prescription 
                        drug utilization for plan enrollees 
                        that are outside normal patterns and 
                        that may indicate fraudulent, medically 
                        unnecessary, or unsafe use.
                  (I) Sharing of information for subsequent 
                plan enrollments.--The Secretary shall 
                establish procedures under which PDP sponsors 
                who offer prescription drug plans shall share 
                information with respect to individuals who are 
                at-risk beneficiaries for prescription drug 
                abuse (or individuals who are potentially at-
                risk beneficiaries for prescription drug abuse) 
                and enrolled in a prescription drug plan and 
                who subsequently disenroll from such plan and 
                enroll in another prescription drug plan 
                offered by another PDP sponsor.
                  (J) Privacy issues.--Prior to the 
                implementation of the rules and procedures 
                under this paragraph, the Secretary shall 
                clarify privacy requirements, including 
                requirements under the regulations promulgated 
                pursuant to section 264(c) of the Health 
                Insurance Portability and Accountability Act of 
                1996 (42 U.S.C. 1320d-2 note), related to the 
                sharing of data under subparagraphs (H) and (I) 
                by PDP sponsors. Such clarification shall 
                provide that the sharing of such data shall be 
                considered to be protected health information 
                in accordance with the requirements of the 
                regulations promulgated pursuant to such 
                section 264(c).
                  (K) Education.--The Secretary shall provide 
                education to enrollees in prescription drug 
                plans of PDP sponsors and providers regarding 
                the drug management program for at-risk 
                beneficiaries described in this paragraph, 
                including education--
                          (i) provided by Medicare 
                        administrative contractors through the 
                        improper payment outreach and education 
                        program described in section 1874A(h); 
                        and
                          (ii) through current education 
                        efforts (such as State health insurance 
                        assistance programs described in 
                        subsection (a)(1)(A) of section 119 of 
                        the Medicare Improvements for Patients 
                        and Providers Act of 2008 (42 U.S.C. 
                        1395b-3 note)) and materials directed 
                        toward such enrollees.
                  (L) Application under ma-pd plans.--Pursuant 
                to section 1860D-21(c)(1), the provisions of 
                this paragraph apply under part D to MA 
                organizations offering MA-PD plans to MA 
                eligible individuals in the same manner as such 
                provisions apply under this part to a PDP 
                sponsor offering a prescription drug plan to a 
                part D eligible individual.
                  (M) CMS compliance review.--The Secretary 
                shall ensure that existing plan sponsor 
                compliance reviews and audit processes include 
                the drug management programs for at-risk 
                beneficiaries under this paragraph, including 
                appeals processes under such programs.
          (6) Utilization management tool to prevent drug 
        abuse.--
                  (A) In general.--A tool described in this 
                paragraph is any of the following:
                          (i) A utilization tool designed to 
                        prevent the abuse of frequently abused 
                        drugs by individuals and to prevent the 
                        diversion of such drugs at pharmacies.
                          (ii) Retrospective utilization review 
                        to identify--
                                  (I) individuals that receive 
                                frequently abused drugs at a 
                                frequency or in amounts that 
                                are not clinically appropriate; 
                                and
                                  (II) providers of services or 
                                suppliers that may facilitate 
                                the abuse or diversion of 
                                frequently abused drugs by 
                                beneficiaries.
                          (iii) Consultation with the 
                        contractor described in subparagraph 
                        (B) to verify if an individual 
                        enrolling in a prescription drug plan 
                        offered by a PDP sponsor has been 
                        previously identified by another PDP 
                        sponsor as an individual described in 
                        clause (ii)(I).
                  (B) Reporting.--A PDP sponsor offering a 
                prescription drug plan (and an MA organization 
                offering an MA-PD plan) in a State shall submit 
                to the Secretary and the Medicare drug 
                integrity contractor with which the Secretary 
                has entered into a contract under section 1893 
                with respect to such State a report, on a 
                monthly basis, containing information on--
                          (i) any provider of services or 
                        supplier described in subparagraph 
                        (A)(ii)(II) that is identified by such 
                        plan sponsor (or organization) during 
                        the 30-day period before such report is 
                        submitted; and
                          (ii) the name and prescription 
                        records of individuals described in 
                        paragraph (5)(C).
                  (C) CMS compliance review.--The Secretary 
                shall ensure that plan sponsor compliance 
                reviews and program audits biennially include a 
                certification that utilization management tools 
                under this paragraph are in compliance with the 
                requirements for such tools.
          (6) Providing prescription drug plans with parts a 
        and b claims data to promote the appropriate use of 
        medications and improve health outcomes.--
                  (A) Process.--Subject to subparagraph (B), 
                the Secretary shall establish a process under 
                which a PDP sponsor of a prescription drug plan 
                may submit a request for the Secretary to 
                provide the sponsor, on a periodic basis and in 
                an electronic format, beginning in plan year 
                2020, data described in subparagraph (D) with 
                respect to enrollees in such plan. Such data 
                shall be provided without regard to whether 
                such enrollees are described in clause (ii) of 
                paragraph (2)(A).
                  (B) Purposes.--A PDP sponsor may use the data 
                provided to the sponsor pursuant to 
                subparagraph (A) for any of the following 
                purposes:
                          (i) To optimize therapeutic outcomes 
                        through improved medication use, as 
                        such phrase is used in clause (i) of 
                        paragraph (2)(A).
                          (ii) To improving care coordination 
                        so as to prevent adverse health 
                        outcomes, such as preventable emergency 
                        department visits and hospital 
                        readmissions.
                          (iii) For any other purpose 
                        determined appropriate by the 
                        Secretary.
                  (C) Limitations on data use.--A PDP sponsor 
                shall not use data provided to the sponsor 
                pursuant to subparagraph (A) for any of the 
                following purposes:
                          (i) To inform coverage determinations 
                        under this part.
                          (ii) To conduct retroactive reviews 
                        of medically accepted indications 
                        determinations.
                          (iii) To facilitate enrollment 
                        changes to a different prescription 
                        drug plan or an MA-PD plan offered by 
                        the same parent organization.
                          (iv) To inform marketing of benefits.
                          (v) For any other purpose that the 
                        Secretary determines is necessary to 
                        include in order to protect the 
                        identity of individuals entitled to, or 
                        enrolled for, benefits under this title 
                        and to protect the security of personal 
                        health information.
                  (D) Data described.--The data described in 
                this clause are standardized extracts (as 
                determined by the Secretary) of claims data 
                under parts A and B for items and services 
                furnished under such parts for time periods 
                specified by the Secretary. Such data shall 
                include data as current as practicable.
  (d) Consumer Satisfaction Surveys.--In order to provide for 
comparative information under section 1860D-1(c)(3)(A)(v), the 
Secretary shall conduct consumer satisfaction surveys with 
respect to PDP sponsors and prescription drug plans in a manner 
similar to the manner such surveys are conducted for MA 
organizations and MA plans under part C.
  (e) Electronic Prescription Program.--
          (1) Application of standards.--As of such date as the 
        Secretary may specify, but not later than 1 year after 
        the date of promulgation of final standards under 
        paragraph (4)(D), prescriptions and other information 
        described in paragraph (2)(A) for covered part D drugs 
        prescribed for part D eligible individuals that are 
        transmitted electronically shall be transmitted only in 
        accordance with such standards under an electronic 
        prescription drug program that meets the requirements 
        of paragraph (2).
          (2) Program requirements.--Consistent with uniform 
        standards established under paragraph (3)--
                  (A) Provision of information to prescribing 
                health care professional and dispensing 
                pharmacies and pharmacists.--An electronic 
                prescription drug program shall provide for the 
                electronic transmittal to the prescribing 
                health care professional and to the dispensing 
                pharmacy and pharmacist of the prescription and 
                information on eligibility and benefits 
                (including the drugs included in the applicable 
                formulary, any tiered formulary structure, and 
                any requirements for prior authorization) and 
                of the following information with respect to 
                the prescribing and dispensing of a covered 
                part D drug:
                          (i) Information on the drug being 
                        prescribed or dispensed and other drugs 
                        listed on the medication history, 
                        including information on drug-drug 
                        interactions, warnings or cautions, 
                        and, when indicated, dosage 
                        adjustments.
                          (ii) Information on the availability 
                        of lower cost, therapeutically 
                        appropriate alternatives (if any) for 
                        the drug prescribed.
                  (B) Application to medical history 
                information.--Effective on and after such date 
                as the Secretary specifies and after the 
                establishment of appropriate standards to carry 
                out this subparagraph, the program shall 
                provide for the electronic transmittal in a 
                manner similar to the manner under subparagraph 
                (A) of information that relates to the medical 
                history concerning the individual and related 
                to a covered part D drug being prescribed or 
                dispensed, upon request of the professional or 
                pharmacist involved.
                  (C) Limitations.--Information shall only be 
                disclosed under subparagraph (A) or (B) if the 
                disclosure of such information is permitted 
                under the Federal regulations (concerning the 
                privacy of individually identifiable health 
                information) promulgated under section 264(c) 
                of the Health Insurance Portability and 
                Accountability Act of 1996.
                  (D) Timing.--To the extent feasible, the 
                information exchanged under this paragraph 
                shall be on an interactive, real-time basis.
          (3) Standards.--
                  (A) In general.--The Secretary shall provide 
                consistent with this subsection for the 
                promulgation of uniform standards relating to 
                the requirements for electronic prescription 
                drug programs under paragraph (2).
                  (B) Objectives.--Such standards shall be 
                consistent with the objectives of improving--
                          (i) patient safety;
                          (ii) the quality of care provided to 
                        patients; and
                          (iii) efficiencies, including cost 
                        savings, in the delivery of care.
                  (C) Design criteria.--Such standards shall--
                          (i) be designed so that, to the 
                        extent practicable, the standards do 
                        not impose an undue administrative 
                        burden on prescribing health care 
                        professionals and dispensing pharmacies 
                        and pharmacists;
                          (ii) be compatible with standards 
                        established under part C of title XI, 
                        standards established under subsection 
                        (b)(2)(B)(i), and with general health 
                        information technology standards; and
                          (iii) be designed so that they permit 
                        electronic exchange of drug labeling 
                        and drug listing information maintained 
                        by the Food and Drug Administration and 
                        the National Library of Medicine.
                  (D) Permitting use of appropriate 
                messaging.--Such standards shall allow for the 
                messaging of information only if it relates to 
                the appropriate prescribing of drugs, including 
                quality assurance measures and systems referred 
                to in subsection (c)(1)(B).
                  (E) Permitting patient designation of 
                dispensing pharmacy.--
                          (i) In general.--Consistent with 
                        clause (ii), such standards shall 
                        permit a part D eligible individual to 
                        designate a particular pharmacy to 
                        dispense a prescribed drug.
                          (ii) No change in benefits.--Clause 
                        (i) shall not be construed as 
                        affecting--
                                  (I) the access required to be 
                                provided to pharmacies by a 
                                prescription drug plan; or
                                  (II) the application of any 
                                differences in benefits or 
                                payments under such a plan 
                                based on the pharmacy 
                                dispensing a covered part D 
                                drug.
          (4) Development, promulgation, and modification of 
        standards.--
                  (A) Initial standards.--Not later than 
                September 1, 2005, the Secretary shall develop, 
                adopt, recognize, or modify initial uniform 
                standards relating to the requirements for 
                electronic prescription drug programs described 
                in paragraph (2) taking into consideration the 
                recommendations (if any) from the National 
                Committee on Vital and Health Statistics (as 
                established under section 306(k) of the Public 
                Health Service Act (42 U.S.C. 242k(k))) under 
                subparagraph (B).
                  (B) Role of ncvhs.--The National Committee on 
                Vital and Health Statistics shall develop 
                recommendations for uniform standards relating 
                to such requirements in consultation with the 
                following:
                          (i) Standard setting organizations 
                        (as defined in section 1171(8))
                          (ii) Practicing physicians.
                          (iii) Hospitals.
                          (iv) Pharmacies.
                          (v) Practicing pharmacists.
                          (vi) Pharmacy benefit managers.
                          (vii) State boards of pharmacy.
                          (viii) State boards of medicine.
                          (ix) Experts on electronic 
                        prescribing.
                          (x) Other appropriate Federal 
                        agencies.
                  (C) Pilot project to test initial 
                standards.--
                          (i) In general.--During the 1-year 
                        period that begins on January 1, 2006, 
                        the Secretary shall conduct a pilot 
                        project to test the initial standards 
                        developed under subparagraph (A) prior 
                        to the promulgation of the final 
                        uniform standards under subparagraph 
                        (D) in order to provide for the 
                        efficient implementation of the 
                        requirements described in paragraph 
                        (2).
                          (ii) Exception.--Pilot testing of 
                        standards is not required under clause 
                        (i) where there already is adequate 
                        industry experience with such 
                        standards, as determined by the 
                        Secretary after consultation with 
                        effected standard setting organizations 
                        and industry users.
                          (iii) Voluntary participation of 
                        physicians and pharmacies.--In order to 
                        conduct the pilot project under clause 
                        (i), the Secretary shall enter into 
                        agreements with physicians, physician 
                        groups, pharmacies, hospitals, PDP 
                        sponsors, MA organizations, and other 
                        appropriate entities under which health 
                        care professionals electronically 
                        transmit prescriptions to dispensing 
                        pharmacies and pharmacists in 
                        accordance with such standards.
                          (iv) Evaluation and report.--
                                  (I) Evaluation.--The 
                                Secretary shall conduct an 
                                evaluation of the pilot project 
                                conducted under clause (i).
                                  (II) Report to congress.--Not 
                                later than April 1, 2007, the 
                                Secretary shall submit to 
                                Congress a report on the 
                                evaluation conducted under 
                                subclause (I).
                  (D) Final standards.--Based upon the 
                evaluation of the pilot project under 
                subparagraph (C)(iv)(I) and not later than 
                April 1, 2008, the Secretary shall promulgate 
                uniform standards relating to the requirements 
                described in paragraph (2).
          (5) Relation to state laws.--The standards 
        promulgated under this subsection shall supersede any 
        State law or regulation that--
                  (A) is contrary to the standards or restricts 
                the ability to carry out this part; and
                  (B) pertains to the electronic transmission 
                of medication history and of information on 
                eligibility, benefits, and prescriptions with 
                respect to covered part D drugs under this 
                part.
          (6) Establishment of safe harbor.--The Secretary, in 
        consultation with the Attorney General, shall 
        promulgate regulations that provide for a safe harbor 
        from sanctions under paragraphs (1) and (2) of section 
        1128B(b) and an exception to the prohibition under 
        subsection (a)(1) of section 1877 with respect to the 
        provision of nonmonetary remuneration (in the form of 
        hardware, software, or information technology and 
        training services) necessary and used solely to receive 
        and transmit electronic prescription information in 
        accordance with the standards promulgated under this 
        subsection--
                  (A) in the case of a hospital, by the 
                hospital to members of its medical staff;
                  (B) in the case of a group practice (as 
                defined in section 1877(h)(4)), by the practice 
                to prescribing health care professionals who 
                are members of such practice; and
                  (C) in the case of a PDP sponsor or MA 
                organization, by the sponsor or organization to 
                pharmacists and pharmacies participating in the 
                network of such sponsor or organization, and to 
                prescribing health care professionals.
  (f) Grievance Mechanism.--Each PDP sponsor shall provide 
meaningful procedures for hearing and resolving grievances 
between the sponsor (including any entity or individual through 
which the sponsor provides covered benefits) and enrollees with 
prescription drug plans of the sponsor under this part in 
accordance with section 1852(f).
  (g) Coverage Determinations and Reconsiderations.--
          (1) Application of coverage determination and 
        reconsideration provisions.--A PDP sponsor shall meet 
        the requirements of paragraphs (1) through (3) of 
        section 1852(g) with respect to covered benefits under 
        the prescription drug plan it offers under this part in 
        the same manner as such requirements apply to an MA 
        organization with respect to benefits it offers under 
        an MA plan under part C.
          (2) Request for a determination for the treatment of 
        tiered formulary drug.--In the case of a prescription 
        drug plan offered by a PDP sponsor that provides for 
        tiered cost-sharing for drugs included within a 
        formulary and provides lower cost-sharing for preferred 
        drugs included within the formulary, a part D eligible 
        individual who is enrolled in the plan may request an 
        exception to the tiered cost-sharing structure. Under 
        such an exception, a nonpreferred drug could be covered 
        under the terms applicable for preferred drugs if the 
        prescribing physician determines that the preferred 
        drug for treatment of the same condition either would 
        not be as effective for the individual or would have 
        adverse effects for the individual or both. A PDP 
        sponsor shall have an exceptions process under this 
        paragraph consistent with guidelines established by the 
        Secretary for making a determination with respect to 
        such a request. Denial of such an exception shall be 
        treated as a coverage denial for purposes of applying 
        subsection (h).
  (h) Appeals.--
          (1) In general.--Subject to paragraph (2), a PDP 
        sponsor shall meet the requirements of paragraphs (4) 
        and (5) of section 1852(g) with respect to benefits 
        (including a determination related to the application 
        of tiered cost-sharing described in subsection (g)(2)) 
        in a manner similar (as determined by the Secretary) to 
        the manner such requirements apply to an MA 
        organization with respect to benefits under the 
        original medicare fee-for-service program option it 
        offers under an MA plan under part C. In applying this 
        paragraph only the part D eligible individual shall be 
        entitled to bring such an appeal.
          (2) Limitation in cases on nonformulary 
        determinations.--A part D eligible individual who is 
        enrolled in a prescription drug plan offered by a PDP 
        sponsor may appeal under paragraph (1) a determination 
        not to provide for coverage of a covered part D drug 
        that is not on the formulary under the plan only if the 
        prescribing physician determines that all covered part 
        D drugs on any tier of the formulary for treatment of 
        the same condition would not be as effective for the 
        individual as the nonformulary drug, would have adverse 
        effects for the individual, or both.
          (3) Treatment of nonformulary determinations.--If a 
        PDP sponsor determines that a plan provides coverage 
        for a covered part D drug that is not on the formulary 
        of the plan, the drug shall be treated as being 
        included on the formulary for purposes of section 
        1860D-2(b)(4)(C)(i).
  (i) Privacy, Confidentiality, and Accuracy of Enrollee 
Records.--The provisions of section 1852(h) shall apply to a 
PDP sponsor and prescription drug plan in the same manner as it 
applies to an MA organization and an MA plan.
  (j) Treatment of Accreditation.--Subparagraph (A) of section 
1852(e)(4) (relating to treatment of accreditation) shall apply 
to a PDP sponsor under this part with respect to the following 
requirements, in the same manner as it applies to an MA 
organization with respect to the requirements in subparagraph 
(B) (other than clause (vii) thereof) of such section:
          (1) Subsection (b) of this section (relating to 
        access to covered part D drugs).
          (2) Subsection (c) of this section (including quality 
        assurance and medication therapy management).
          (3) Subsection (i) of this section (relating to 
        confidentiality and accuracy of enrollee records).
  (k) Public Disclosure of Pharmaceutical Prices for Equivalent 
Drugs.--
          (1) In general.--A PDP sponsor offering a 
        prescription drug plan shall provide that each pharmacy 
        that dispenses a covered part D drug shall inform an 
        enrollee of any differential between the price of the 
        drug to the enrollee and the price of the lowest priced 
        generic covered part D drug under the plan that is 
        therapeutically equivalent and bioequivalent and 
        available at such pharmacy.
          (2) Timing of notice.--
                  (A) In general.--Subject to subparagraph (B), 
                the information under paragraph (1) shall be 
                provided at the time of purchase of the drug 
                involved, or, in the case of dispensing by mail 
                order, at the time of delivery of such drug.
                  (B) Waiver.--The Secretary may waive 
                subparagraph (A) in such circumstances as the 
                Secretary may specify.
  (l) Requirements with Respect to Sales and Marketing 
Activities.--The following provisions shall apply to a PDP 
sponsor (and the agents, brokers, and other third parties 
representing such sponsor) in the same manner as such 
provisions apply to a Medicare Advantage organization (and the 
agents, brokers, and other third parties representing such 
organization):
          (1) The prohibition under section 1851(h)(4)(C) on 
        conducting activities described in section 1851(j)(1).
          (2) The requirement under section 1851(h)(4)(D) to 
        conduct activities described in section 1851(j)(2) in 
        accordance with the limitations established under such 
        subsection.
          (3) The inclusion of the plan type in the plan name 
        under section 1851(h)(6).
          (4) The requirements regarding the appointment of 
        agents and brokers and compliance with State 
        information requests under subparagraphs (A) and (B), 
        respectively, of section 1851(h)(7).

           *       *       *       *       *       *       *


Part E--Miscellaneous Provisions

           *       *       *       *       *       *       *



          payment to hospitals for inpatient hospital services

  Sec. 1886. (a)(1)(A)(i) The Secretary, in determining the 
amount of the payments that may be made under this title with 
respect to operating costs of inpatient hospital services (as 
defined in paragraph (4)) shall not recognize as reasonable (in 
the efficient delivery of health services) costs for the 
provision of such services by a hospital for a cost reporting 
period to the extent such costs exceed the applicable 
percentage (as determined under clause (ii)) of the average of 
such costs for all hospitals in the same grouping as such 
hospital for comparable time periods.
  (ii) For purposes of clause (i), the applicable percentage 
for hospital cost reporting periods beginning--
          (I) on or after October 1, 1982, and before October 
        1, 1983, is 120 percent;
          (II) on or after October 1, 1983, and before October 
        1, 1984, is 115 percent; and
          (III) on or after October 1, 1984, is 110 percent.
  (B)(i) For purposes of subparagraph (A) the Secretary shall 
establish case mix indexes for all short- term hospitals, and 
shall set limits for each hospital based upon the general mix 
of types of medical cases with respect to which such hospital 
provides services for which payment may be made under this 
title.
  (ii) The Secretary shall set such limits for a cost reporting 
period of a hospital--
          (I) by updating available data for a previous period 
        to the immediate preceding cost reporting period by the 
        estimated average rate of change of hospital costs 
        industry-wide, and
          (II) by projecting for the cost reporting period by 
        the applicable percentage increase (as defined in 
        subsection (b)(3)(B)).
  (C) The limitation established under subparagraph (A) for any 
hospital shall in no event be lower than the allowable 
operating costs of inpatient hospital services (as defined in 
paragraph (4)) recognized under this title for such hospital 
for such hospital's last cost reporting period prior to the 
hospital's first cost reporting period for which this section 
is in effect.
  (D) Subparagraph (A) shall not apply to cost reporting 
periods beginning on or after October 1, 1983.
  (2) The Secretary shall provide for such exemptions from, and 
exceptions and adjustments to, the limitation established under 
paragraph (1)(A) as he deems appropriate, including those which 
he deems necessary to take into account--
          (A) the special needs of sole community hospitals, of 
        new hospitals, of risk based health maintenance 
        organizations, and of hospitals which provide atypical 
        services or essential community services, and to take 
        into account extraordinary circumstances beyond the 
        hospital's control, medical and paramedical education 
        costs, significantly fluctuating population in the 
        service area of the hospital, and unusual labor costs,
          (B) the special needs of psychiatric hospitals and of 
        public or other hospitals that serve a significantly 
        disproportionate number of patients who have low income 
        or are entitled to benefits under part A of this title, 
        and
          (C) a decrease in the inpatient hospital services 
        that a hospital provides and that are customarily 
        provided directly by similar hospitals which results in 
        a significant distortion in the operating costs of 
        inpatient hospital services.
  (3) The limitation established under paragraph (1)(A) shall 
not apply with respect to any hospital which--
          (A) is located outside of a standard metropolitan 
        statistical area, and
          (B)(i) has less than 50 beds, and
          (ii) was in operation and had less than 50 beds on 
        the date of the enactment of this section.
  (4) For purposes of this section, the term ``operating costs 
of inpatient hospital services'' includes all routine operating 
costs, ancillary service operating costs, and special care unit 
operating costs with respect to inpatient hospital services as 
such costs are determined on an average per admission or per 
discharge basis (as determined by the Secretary), and includes 
the costs of all services for which payment may be made under 
this title that are provided by the hospital (or by an entity 
wholly owned or operated by the hospital) to the patient during 
the 3 days (or, in the case of a hospital that is not a 
subsection (d) hospital, during the 1 day) immediately 
preceding the date of the patient's admission if such services 
are diagnostic services (including clinical diagnostic 
laboratory tests) or are other services related to the 
admission (as defined by the Secretary). Such term does not 
include costs of approved educational activities, a return on 
equity capital, other capital-related costs (as defined by the 
Secretary for periods before October 1, 1987), or costs with 
respect to administering blood clotting factors to individuals 
with hemophilia. In applying the first sentence of this 
paragraph, the term ``other services related to the admission'' 
includes all services that are not diagnostic services (other 
than ambulance and maintenance renal dialysis services) for 
which payment may be made under this title that are provided by 
a hospital (or an entity wholly owned or operated by the 
hospital) to a patient--
          (A) on the date of the patient's inpatient admission; 
        or
          (B) during the 3 days (or, in the case of a hospital 
        that is not a subsection (d) hospital, during the 1 
        day) immediately preceding the date of such admission 
        unless the hospital demonstrates (in a form and manner, 
        and at a time, specified by the Secretary) that such 
        services are not related (as determined by the 
        Secretary) to such admission.
  (b)(1) Notwithstanding section 1814(b) but subject to the 
provisions of section 1813, if the operating costs of inpatient 
hospital services (as defined in subsection (a)(4)) of a 
hospital (other than a subsection (d) hospital, as defined in 
subsection (d)(1)(B) and other than a rehabilitation facility 
described in subsection (j)(1)) for a cost reporting period 
subject to this paragraph--
          (A) are less than or equal to the target amount (as 
        defined in paragraph (3)) for that hospital for that 
        period, the amount of the payment with respect to such 
        operating costs payable under part A on a per discharge 
        or per admission basis (as the case may be) shall be 
        equal to the amount of such operating costs, plus--
                  (i) 15 percent of the amount by which the 
                target amount exceeds the amount of the 
                operating costs, or
                  (ii) 2 percent of the target amount,
        whichever is less;
          (B) are greater than the target amount but do not 
        exceed 110 percent of the target amount, the amount of 
        the payment with respect to those operating costs 
        payable under part A on a per discharge basis shall 
        equal the target amount; or
          (C) are greater than 110 percent of the target 
        amount, the amount of the payment with respect to such 
        operating costs payable under part A on a per discharge 
        or per admission basis (as the case may be) shall be 
        equal to (i) the target amount, plus (ii) in the case 
        of cost reporting periods beginning on or after October 
        1, 1991, an additional amount equal to 50 percent of 
        the amount by which the operating costs exceed 110 
        percent of the target amount (except that such 
        additional amount may not exceed 10 percent of the 
        target amount) after any exceptions or adjustments are 
        made to such target amount for the cost reporting 
        period;
plus the amount, if any, provided under paragraph (2), except 
that in no case may the amount payable under this title (other 
than on the basis of a DRG prospective payment rate determined 
under subsection (d)) with respect to operating costs of 
inpatient hospital services exceed the maximum amount payable 
with respect to such costs pursuant to subsection (a).
  (2)(A) Except as provided in subparagraph (E), in addition to 
the payment computed under paragraph (1), in the case of an 
eligible hospital (described in subparagraph (B)) for a cost 
reporting period beginning on or after October 1, 1997, the 
amount of payment on a per discharge basis under paragraph (1) 
shall be increased by the lesser of--
          (i) 50 percent of the amount by which the operating 
        costs are less than the expected costs (as defined in 
        subparagraph (D)) for the period; or
          (ii) 1 percent of the target amount for the period.
  (B) For purposes of this paragraph, an ``eligible hospital'' 
means with respect to a cost reporting period, a hospital--
          (i) that has received payments under this subsection 
        for at least 3 full cost reporting periods before that 
        cost reporting period, and
          (ii) whose operating costs for the period are less 
        than the least of its target amount, its trended costs 
        (as defined in subparagraph (C)), or its expected costs 
        (as defined in subparagraph (D)) for the period.
  (C) For purposes of subparagraph (B)(ii), the term ``trended 
costs'' means for a hospital cost reporting period ending in a 
fiscal year--
          (i) in the case of a hospital for which its cost 
        reporting period ending in fiscal year 1996 was its 
        third or subsequent full cost reporting period for 
        which it receives payments under this subsection, the 
        lesser of the operating costs or target amount for that 
        hospital for its cost reporting period ending in fiscal 
        year 1996, or
          (ii) in the case of any other hospital, the operating 
        costs for that hospital for its third full cost 
        reporting period for which it receives payments under 
        this subsection,
increased (in a compounded manner) for each succeeding fiscal 
year (through the fiscal year involved) by the market basket 
percentage increase for the fiscal year.
  (D) For purposes of this paragraph, the term ``expected 
costs'', with respect to the cost reporting period ending in a 
fiscal year, means the lesser of the operating costs of 
inpatient hospital services or target amount per discharge for 
the previous cost reporting period updated by the market basket 
percentage increase (as defined in paragraph (3)(B)(iii)) for 
the fiscal year.
  (E)(i) In the case of an eligible hospital that is a hospital 
or unit that is within a class of hospital described in clause 
(ii) with a 12-month cost reporting period beginning before the 
enactment of this subparagraph, in determining the amount of 
the increase under subparagraph (A), the Secretary shall 
substitute for the percentage of the target amount applicable 
under subparagraph (A)(ii)--
          (I) for a cost reporting period beginning on or after 
        October 1, 2000, and before September 30, 2001, 1.5 
        percent; and
          (II) for a cost reporting period beginning on or 
        after October 1, 2001, and before September 30, 2002, 2 
        percent.
  (ii) For purposes of clause (i), each of the following shall 
be treated as a separate class of hospital:
          (I) Hospitals described in clause (i) of subsection 
        (d)(1)(B) and psychiatric units described in the matter 
        following clause (v) of such subsection.
          (II) Hospitals described in clause (iv) of such 
        subsection.
  (3)(A) Except as provided in subparagraph (C) and succeeding 
subparagraphs and in paragraph (7)(A)(ii), for purposes of this 
subsection, the term ``target amount'' means, with respect to a 
hospital for a particular 12-month cost reporting period--
          (i) in the case of the first such reporting period 
        for which this subsection is in effect, the allowable 
        operating costs of inpatient hospital services (as 
        defined in subsection (a)(4)) recognized under this 
        title for such hospital for the preceding 12-month cost 
        reporting period, and
          (ii) in the case of a later reporting period, the 
        target amount for the preceding 12-month cost reporting 
        period,
increased by the applicable percentage increase under 
subparagraph (B) for that particular cost reporting period.
  (B)(i) For purposes of subsection (d) and subsection (j) for 
discharges occurring during a fiscal year, the ``applicable 
percentage increase'' shall be--
          (I) for fiscal year 1986, \1/2\ percent,
          (II) for fiscal year 1987, 1.15 percent,
          (III) for fiscal year 1988, 3.0 percent for hospitals 
        located in a rural area, 1.5 percent for hospitals 
        located in a large urban area (as defined in subsection 
        (d)(2)(D)), and 1.0 percent for hospitals located in 
        other urban areas,
          (IV) for fiscal year 1989, the market basket 
        percentage increase minus 1.5 percentage points for 
        hospitals located in a rural area, the market basket 
        percentage increase minus 2.0 percentage points for 
        hospitals located in a large urban area, and the market 
        basket percentage increase minus 2.5 percentage points 
        for hospitals located in other urban areas,
          (V) for fiscal year 1990, the market basket 
        percentage increase plus 4.22 percentage points for 
        hospitals located in a rural area, the market basket 
        percentage increase plus 0.12 percentage points for 
        hospitals located in a large urban area, and the market 
        basket percentage increase minus 0.53 percentage points 
        for hospitals located in other urban areas,
          (VI) for fiscal year 1991, the market basket 
        percentage increase minus 2.0 percentage points for 
        hospitals in a large urban or other urban area, and the 
        market basket percentage increase minus 0.7 percentage 
        point for hospitals located in a rural area,
          (VII) for fiscal year 1992, the market basket 
        percentage increase minus 1.6 percentage points for 
        hospitals in a large urban or other urban area, and the 
        market basket percentage increase minus 0.6 percentage 
        point for hospitals located in a rural area,
          (VIII) for fiscal year 1993, the market basket 
        percentage increase minus 1.55 percentage point for 
        hospitals in a large urban or other urban area, and the 
        market basket percentage increase minus 0.55 for 
        hospitals located in a rural area,
          (IX) for fiscal year 1994, the market basket 
        percentage increase minus 2.5 percentage points for 
        hospitals located in a large urban or other urban area, 
        and the market basket percentage increase minus 1.0 
        percentage point for hospitals located in a rural area,
          (X) for fiscal year 1995, the market basket 
        percentage increase minus 2.5 percentage points for 
        hospitals located in a large urban or other urban area, 
        and such percentage increase for hospitals located in a 
        rural area as will provide for the average standardized 
        amount determined under subsection (d)(3)(A) for 
        hospitals located in a rural area being equal to such 
        average standardized amount for hospitals located in an 
        urban area (other than a large urban area),
          (XI) for fiscal year 1996, the market basket 
        percentage increase minus 2.0 percentage points for 
        hospitals in all areas,
          (XII) for fiscal year 1997, the market basket 
        percentage increase minus 0.5 percentage point for 
        hospitals in all areas,
          (XIII) for fiscal year 1998, 0 percent,
          (XIV) for fiscal year 1999, the market basket 
        percentage increase minus 1.9 percentage points for 
        hospitals in all areas,
          (XV) for fiscal year 2000, the market basket 
        percentage increase minus 1.8 percentage points for 
        hospitals in all areas,
          (XVI) for fiscal year 2001, the market basket 
        percentage increase for hospitals in all areas,
          (XVII) for fiscal year 2002, the market basket 
        percentage increase minus 0.55 percentage points for 
        hospitals in all areas,
          (XVIII) for fiscal year 2003, the market basket 
        percentage increase minus 0.55 percentage points for 
        hospitals in all areas,
          (XIX) for each of fiscal years 2004 through 2006, 
        subject to clause (vii), the market basket percentage 
        increase for hospitals in all areas; and
          (XX) for each subsequent fiscal year, subject to 
        clauses (viii), (ix), (xi), and (xii), the market 
        basket percentage increase for hospitals in all areas.
  (ii) For purposes of subparagraphs (A) and (E), the 
``applicable percentage increase'' for 12-month cost reporting 
periods beginning during--
          (I) fiscal year 1986, is 0.5 percent,
          (II) fiscal year 1987, is 1.15 percent,
          (III) fiscal year 1988, is the market basket 
        percentage increase minus 2.0 percentage points,
          (IV) a subsequent fiscal year ending on or before 
        September 30, 1993, is the market basket percentage 
        increase,
          (V) fiscal years 1994 through 1997, is the market 
        basket percentage increase minus the applicable 
        reduction (as defined in clause (v)(II)), or in the 
        case of a hospital for a fiscal year for which the 
        hospital's update adjustment percentage (as defined in 
        clause (v)(I)) is at least 10 percent, the market 
        basket percentage increase,
          (VI) for fiscal year 1998, is 0 percent,
          (VII) for fiscal years 1999 through 2002, is the 
        applicable update factor specified under clause (vi) 
        for the fiscal year, and
          (VIII) subsequent fiscal years is the market basket 
        percentage increase.
  (iii) For purposes of this subparagraph, the term ``market 
basket percentage increase'' means, with respect to cost 
reporting periods and discharges occurring in a fiscal year, 
the percentage, estimated by the Secretary before the beginning 
of the period or fiscal year, by which the cost of the mix of 
goods and services (including personnel costs but excluding 
nonoperating costs) comprising routine, ancillary, and special 
care unit inpatient hospital services, based on an index of 
appropriately weighted indicators of changes in wages and 
prices which are representative of the mix of goods and 
services included in such inpatient hospital services, for the 
period or fiscal year will exceed the cost of such mix of goods 
and services for the preceding 12-month cost reporting period 
or fiscal year.
  (iv) For purposes of subparagraphs (C) and (D), the 
``applicable percentage increase'' is--
          (I) for 12-month cost reporting periods beginning 
        during fiscal years 1986 through 1993, the applicable 
        percentage increase specified in clause (ii),
          (II) for fiscal year 1994, the market basket 
        percentage increase minus 2.3 percentage points 
        (adjusted to exclude any portion of a cost reporting 
        period beginning during fiscal year 1993 for which the 
        applicable percentage increase is determined under 
        subparagraph (I)),
          (III) for fiscal year 1995, the market basket 
        percentage increase minus 2.2 percentage points, and
          (IV) for fiscal year 1996 and each subsequent fiscal 
        year, the applicable percentage increase under clause 
        (i).
  (v) For purposes of clause (ii)(V)--
          (I) a hospital's ``update adjustment percentage'' for 
        a fiscal year is the percentage by which the hospital's 
        allowable operating costs of inpatient hospital 
        services recognized under this title for the cost 
        reporting period beginning in fiscal year 1990 exceeds 
        the hospital's target amount (as determined under 
        subparagraph (A)) for such cost reporting period, 
        increased for each fiscal year (beginning with fiscal 
        year 1994) by the sum of any of the hospital's 
        applicable reductions under subclause (V) for previous 
        fiscal years; and
          (II) the ``applicable reduction'' with respect to a 
        hospital for a fiscal year is the lesser of 1 
        percentage point or the percentage point difference 
        between 10 percent and the hospital's update adjustment 
        percentage for the fiscal year.
  (vi) For purposes of clause (ii)(VII) for a fiscal year, if a 
hospital's allowable operating costs of inpatient hospital 
services recognized under this title for the most recent cost 
reporting period for which information is available--
          (I) is equal to, or exceeds, 110 percent of the 
        hospital's target amount (as determined under 
        subparagraph (A)) for such cost reporting period, the 
        applicable update factor specified under this clause is 
        the market basket percentage;
          (II) exceeds 100 percent, but is less than 110 
        percent, of such target amount for the hospital, the 
        applicable update factor specified under this clause is 
        0 percent or, if greater, the market basket percentage 
        minus 0.25 percentage points for each percentage point 
        by which such allowable operating costs (expressed as a 
        percentage of such target amount) is less than 110 
        percent of such target amount;
          (III) is equal to, or less than 100 percent, but 
        exceeds \2/3\ of such target amount for the hospital, 
        the applicable update factor specified under this 
        clause is 0 percent or, if greater, the market basket 
        percentage minus 2.5 percentage points; or
          (IV) does not exceed \2/3\ of such target amount for 
        the hospital, the applicable update factor specified 
        under this clause is 0 percent.
  (vii)(I) For purposes of clause (i)(XIX) for fiscal years 
2005 and 2006, in a case of a subsection (d) hospital that does 
not submit data to the Secretary in accordance with subclause 
(II) with respect to such a fiscal year, the applicable 
percentage increase under such clause for such fiscal year 
shall be reduced by 0.4 percentage points. Such reduction shall 
apply only with respect to the fiscal year involved, and the 
Secretary shall not take into account such reduction in 
computing the applicable percentage increase under clause 
(i)(XIX) for a subsequent fiscal year.
  (II) For fiscal years 2005 and 2006, each subsection (d) 
hospital shall submit to the Secretary quality data (for a set 
of 10 indicators established by the Secretary as of November 1, 
2003) that relate to the quality of care furnished by the 
hospital in inpatient settings in a form and manner, and at a 
time, specified by the Secretary for purposes of this clause, 
but with respect to fiscal year 2005, the Secretary shall 
provide for a 30-day grace period for the submission of data by 
a hospital.
  (viii)(I) For purposes of clause (i) for fiscal year 2007 and 
each subsequent fiscal year, in the case of a subsection (d) 
hospital that does not submit, to the Secretary in accordance 
with this clause, data required to be submitted on measures 
selected under this clause with respect to such a fiscal year, 
the applicable percentage increase under clause (i) for such 
fiscal year shall be reduced by 2.0 percentage points (or, 
beginning with fiscal year 2015, by one-quarter of such 
applicable percentage increase (determined without regard to 
clause (ix), (xi), or (xii))). Such reduction shall apply only 
with respect to the fiscal year involved and the Secretary 
shall not take into account such reduction in computing the 
applicable percentage increase under clause (i) for a 
subsequent fiscal year, and the Secretary and the Medicare 
Payment Advisory Commission shall carry out the requirements 
under section 5001(b) of the Deficit Reduction Act of 2005.
  (II) Each subsection (d) hospital shall submit data on 
measures selected under this clause to the Secretary in a form 
and manner, and at a time, specified by the Secretary for 
purposes of this clause. The Secretary may require hospitals to 
submit data on measures that are not used for the determination 
of value-based incentive payments under subsection (o).
  (III) The Secretary shall expand, beyond the measures 
specified under clause (vii)(II) and consistent with the 
succeeding subclauses, the set of measures that the Secretary 
determines to be appropriate for the measurement of the quality 
of care (including medication errors) furnished by hospitals in 
inpatient settings.
  (IV) Effective for payments beginning with fiscal year 2007, 
in expanding the number of measures under subclause (III), the 
Secretary shall begin to adopt the baseline set of performance 
measures as set forth in the November 2005 report by the 
Institute of Medicine of the National Academy of Sciences under 
section 238(b) of the Medicare Prescription Drug, Improvement, 
and Modernization Act of 2003.
  (V) Effective for payments for fiscal years 2008 through 
2012, the Secretary shall add other measures that reflect 
consensus among affected parties and, to the extent feasible 
and practicable, shall include measures set forth by one or 
more national consensus building entities.
  (VI) For purposes of this clause and clause (vii), the 
Secretary may replace any measures or indicators in appropriate 
cases, such as where all hospitals are effectively in 
compliance or the measures or indicators have been subsequently 
shown not to represent the best clinical practice.
  (VII) The Secretary shall establish procedures for making 
information regarding measures submitted under this clause 
available to the public. Such procedures shall ensure that a 
hospital has the opportunity to review the data that are to be 
made public with respect to the hospital prior to such data 
being made public. The Secretary shall report quality measures 
of process, structure, outcome, patients' perspectives on care, 
efficiency, and costs of care that relate to services furnished 
in inpatient settings in hospitals on the Internet website of 
the Centers for Medicare & Medicaid Services.
  (VIII) Effective for payments beginning with fiscal year 
2013, with respect to quality measures for outcomes of care, 
the Secretary shall provide for such risk adjustment as the 
Secretary determines to be appropriate to maintain incentives 
for hospitals to treat patients with severe illnesses or 
conditions.
  (IX)(aa) Subject to item (bb), effective for payments 
beginning with fiscal year 2013, each measure specified by the 
Secretary under this clause shall be endorsed by the entity 
with a contract under section 1890(a).
  (bb) In the case of a specified area or medical topic 
determined appropriate by the Secretary for which a feasible 
and practical measure has not been endorsed by the entity with 
a contract under section 1890(a), the Secretary may specify a 
measure that is not so endorsed as long as due consideration is 
given to measures that have been endorsed or adopted by a 
consensus organization identified by the Secretary.
  (X) To the extent practicable, the Secretary shall, with 
input from consensus organizations and other stakeholders, take 
steps to ensure that the measures specified by the Secretary 
under this clause are coordinated and aligned with quality 
measures applicable to--
          (aa) physicians under section 1848(k); and
          (bb) other providers of services and suppliers under 
        this title.
  (XI) The Secretary shall establish a process to validate 
measures specified under this clause as appropriate. Such 
process shall include the auditing of a number of randomly 
selected hospitals sufficient to ensure validity of the 
reporting program under this clause as a whole and shall 
provide a hospital with an opportunity to appeal the validation 
of measures reported by such hospital.
  (XII)(aa) With respect to a Hospital Consumer Assessment of 
Healthcare Providers and Systems survey (or a successor survey) 
conducted on or after January 1, 2019, such survey may not 
include questions about communication by hospital staff with an 
individual about such individual's pain unless such questions 
take into account, as applicable, whether an individual 
experiencing pain was informed about risks associated with the 
use of opioids and about non-opioid alternatives for the 
treatment of pain.
  (bb) The Secretary shall not include on the Hospital Compare 
Internet website any measures based on the questions appearing 
on the Hospital Consumer Assessment of Healthcare Providers and 
Systems survey in 2018 about communication by hospital staff 
with an individual about such individual's pain.
  (ix)(I) For purposes of clause (i) for fiscal year 2015 and 
each subsequent fiscal year, in the case of an eligible 
hospital (as defined in subsection (n)(6)(B)) that is not a 
meaningful EHR user (as defined in subsection (n)(3)) for an 
EHR reporting period for such fiscal year, three-quarters of 
the applicable percentage increase otherwise applicable under 
clause (i) (determined without regard to clause (viii), (xi), 
or (xii)) for such fiscal year shall be reduced by 33\1/3\ 
percent for fiscal year 2015, 66\2/3\ percent for fiscal year 
2016, and 100 percent for fiscal year 2017 and each subsequent 
fiscal year. Such reduction shall apply only with respect to 
the fiscal year involved and the Secretary shall not take into 
account such reduction in computing the applicable percentage 
increase under clause (i) for a subsequent fiscal year.
  (II) The Secretary may, on a case-by-case basis (and, with 
respect to the application of subclause (I) for fiscal year 
2017, for categories of subsection (d) hospitals, as 
established by the Secretary and posted on the Internet website 
of the Centers for Medicare & Medicaid Services prior to 
December 15, 2015, an application for which must be submitted 
to the Secretary by not later than April 1, 2016), exempt an 
eligible hospital from the application of subclause (I) with 
respect to a fiscal year if the Secretary determines, subject 
to annual renewal, that requiring such hospital to be a 
meaningful EHR user during such fiscal year would result in a 
significant hardship, such as in the case of a hospital in a 
rural area without sufficient Internet access. The Secretary 
shall exempt an eligible hospital from the application of the 
payment adjustment under subclause (I) with respect to a fiscal 
year, subject to annual renewal, if the Secretary determines 
that compliance with the requirement for being a meaningful EHR 
user is not possible because the certified EHR technology used 
by such hospital is decertified under a program kept or 
recognized pursuant to section 3001(c)(5) of the Public Health 
Service Act. In no case may a hospital be granted an exemption 
under this subclause for more than 5 years.
  (III) For fiscal year 2015 and each subsequent fiscal year, a 
State in which hospitals are paid for services under section 
1814(b)(3) shall adjust the payments to each subsection (d) 
hospital in the State that is not a meaningful EHR user (as 
defined in subsection (n)(3)) in a manner that is designed to 
result in an aggregate reduction in payments to hospitals in 
the State that is equivalent to the aggregate reduction that 
would have occurred if payments had been reduced to each 
subsection (d) hospital in the State in a manner comparable to 
the reduction under the previous provisions of this clause. The 
State shall report to the Secretary the methodology it will use 
to make the payment adjustment under the previous sentence.
  (IV) For purposes of this clause, the term ``EHR reporting 
period'' means, with respect to a fiscal year, any period (or 
periods) as specified by the Secretary.
  (x)(I) The Secretary shall develop standard Internet website 
reports tailored to meet the needs of various stakeholders such 
as hospitals, patients, researchers, and policymakers. The 
Secretary shall seek input from such stakeholders in 
determining the type of information that is useful and the 
formats that best facilitate the use of the information.
  (II) The Secretary shall modify the Hospital Compare Internet 
website to make the use and navigation of that website readily 
available to individuals accessing it.
  (xi)(I) For 2012 and each subsequent fiscal year, after 
determining the applicable percentage increase described in 
clause (i) and after application of clauses (viii) and (ix), 
such percentage increase shall be reduced by the productivity 
adjustment described in subclause (II).
  (II) The productivity adjustment described in this subclause, 
with respect to a percentage, factor, or update for a fiscal 
year, year, cost reporting period, or other annual period, is a 
productivity adjustment equal to the 10-year moving average of 
changes in annual economy-wide private nonfarm business multi-
factor productivity (as projected by the Secretary for the 10-
year period ending with the applicable fiscal year, year, cost 
reporting period, or other annual period).
  (III) The application of subclause (I) may result in the 
applicable percentage increase described in clause (i) being 
less than 0.0 for a fiscal year, and may result in payment 
rates under this section for a fiscal year being less than such 
payment rates for the preceding fiscal year.
  (xii) After determining the applicable percentage increase 
described in clause (i), and after application of clauses 
(viii), (ix), and (xi), the Secretary shall reduce such 
applicable percentage increase--
          (I) for each of fiscal years 2010 and 2011, by 0.25 
        percentage point;
          (II) for each of fiscal years 2012 and 2013, by 0.1 
        percentage point;
          (III) for fiscal year 2014, by 0.3 percentage point;
          (IV) for each of fiscal years 2015 and 2016, by 0.2 
        percentage point; and
          (V) for each of fiscal years 2017, 2018, and 2019, by 
        0.75 percentage point.
The application of this clause may result in the applicable 
percentage increase described in clause (i) being less than 0.0 
for a fiscal year, and may result in payment rates under this 
section for a fiscal year being less than such payment rates 
for the preceding fiscal year.
  (C) In the case of a hospital that is a sole community 
hospital (as defined in subsection (d)(5)(D)(iii)), subject to 
subparagraphs (I) and (L), the term ``target amount'' means--
          (i) with respect to the first 12-month cost reporting 
        period in which this subparagraph is applied to the 
        hospital--
                  (I) the allowable operating costs of 
                inpatient hospital services (as defined in 
                subsection (a)(4)) recognized under this title 
                for the hospital for the 12-month cost 
                reporting period (in this subparagraph referred 
                to as the ``base cost reporting period'') 
                preceding the first cost reporting period for 
                which this subsection was in effect with 
                respect to such hospital, increased (in a 
                compounded manner) by--
                  (II) the applicable percentage increases 
                applied to such hospital under this paragraph 
                for cost reporting periods after the base cost 
                reporting period and up to and including such 
                first 12-month cost reporting period,
          (ii) with respect to a later cost reporting period 
        beginning before fiscal year 1994, the target amount 
        for the preceding 12-month cost reporting period, 
        increased by the applicable percentage increase under 
        subparagraph (B)(iv) for discharges occurring in the 
        fiscal year in which that later cost reporting period 
        begins,
          (iii) with respect to discharges occurring in fiscal 
        year 1994, the target amount for the cost reporting 
        period beginning in fiscal year 1993 increased by the 
        applicable percentage increase under subparagraph 
        (B)(iv), or
          (iv) with respect to discharges occurring in fiscal 
        year 1995 and each subsequent fiscal year, the target 
        amount for the preceding year increased by the 
        applicable percentage increase under subparagraph 
        (B)(iv).
There shall be substituted for the base cost reporting period 
described in clause (i) a hospital's cost reporting period (if 
any) beginning during fiscal year 1987 if such substitution 
results in an increase in the target amount for the hospital.
  (D) For cost reporting periods ending on or before September 
30, 1994, and for cost reporting periods occurring on or after 
October 1, 1997, and before October 1, 2022, in the case of a 
hospital that is a medicare-dependent, small rural hospital (as 
defined in subsection (d)(5)(G)), subject to subparagraph (K), 
the term ``target amount'' means--
          (i) with respect to the first 12-month cost reporting 
        period in which this subparagraph is applied to the 
        hospital--
                  (I) the allowable operating costs of 
                inpatient hospital services (as defined in 
                subsection (a)(4)) recognized under this title 
                for the hospital for the 12-month cost 
                reporting period (in this subparagraph referred 
                to as the ``base cost reporting period'') 
                preceding the first cost reporting period for 
                which this subsection was in effect with 
                respect to such hospital, increased (in a 
                compounded manner) by--
                  (II) the applicable percentage increases 
                applied to such hospital under this paragraph 
                for cost reporting periods after the base cost 
                reporting period and up to and including such 
                first 12-month cost reporting period, or
          (ii) with respect to a later cost reporting period 
        beginning before fiscal year 1994, the target amount 
        for the preceding 12-month cost reporting period, 
        increased by the applicable percentage increase under 
        subparagraph (B)(iv) for discharges occurring in the 
        fiscal year in which that later cost reporting period 
        begins,
          (iii) with respect to discharges occurring in fiscal 
        year 1994, the target amount for the cost reporting 
        period beginning in fiscal year 1993 increased by the 
        applicable percentage increase under subparagraph 
        (B)(iv), and
          (iv) with respect to discharges occurring during 
        fiscal year 1998 through fiscal year 2022, the target 
        amount for the preceding year increased by the 
        applicable percentage increase under subparagraph 
        (B)(iv).
There shall be substituted for the base cost reporting period 
described in clause (i) a hospital's cost reporting period (if 
any) beginning during fiscal year 1987 if such substitution 
results in an increase in the target amount for the hospital.
  (E) In the case of a hospital described in clause (v) of 
subsection (d)(1)(B), the term ``target amount'' means--
          (i) with respect to the first 12-month cost reporting 
        period in which this subparagraph is applied to the 
        hospital--
                  (I) the allowable operating costs of 
                inpatient hospital services (as defined in 
                subsection (a)(4)) recognized under this title 
                for the hospital for the 12-month cost 
                reporting period (in this subparagraph referred 
                to as the ``base cost reporting period'') 
                preceding the first cost reporting period for 
                which this subsection was in effect with 
                respect to such hospital, increased (in a 
                compounded manner) by--
                  (II) the sum of the applicable percentage 
                increases applied to such hospital under this 
                paragraph for cost reporting periods after the 
                base cost reporting period and up to and 
                including such first 12-month cost reporting 
                period, or
          (ii) with respect to a later cost reporting period, 
        the target amount for the preceding 12-month cost 
        reporting period, increased by the applicable 
        percentage increase under subparagraph (B)(ii) for that 
        later cost reporting period.
There shall be substituted for the base cost reporting period 
described in clause (i) a hospital's cost reporting period (if 
any) beginning during fiscal year 1987 if such substitution 
results in an increase in the target amount for the hospital.
  (F)(i) In the case of a hospital (or unit described in the 
matter following clause (v) of subsection (d)(1)(B)) that 
received payment under this subsection for inpatient hospital 
services furnished during cost reporting periods beginning 
before October 1, 1990, that is within a class of hospital 
described in clause (iii), and that elects (in a form and 
manner determined by the Secretary) this subparagraph to apply 
to the hospital, the target amount for the hospital's 12-month 
cost reporting period beginning during fiscal year 1998 is 
equal to the average described in clause (ii).
  (ii) The average described in this clause for a hospital or 
unit shall be determined by the Secretary as follows:
          (I) The Secretary shall determine the allowable 
        operating costs for inpatient hospital services for the 
        hospital or unit for each of the 5 cost reporting 
        periods for which the Secretary has the most recent 
        settled cost reports as of the date of the enactment of 
        this subparagraph.
          (II) The Secretary shall increase the amount 
        determined under subclause (I) for each cost reporting 
        period by the applicable percentage increase under 
        subparagraph (B)(ii) for each subsequent cost reporting 
        period up to the cost reporting period described in 
        clause (i).
          (III) The Secretary shall identify among such 5 cost 
        reporting periods the cost reporting periods for which 
        the amount determined under subclause (II) is the 
        highest, and the lowest.
          (IV) The Secretary shall compute the averages of the 
        amounts determined under subclause (II) for the 3 cost 
        reporting periods not identified under subclause (III).
  (iii) For purposes of this subparagraph, each of the 
following shall be treated as a separate class of hospital:
          (I) Hospitals described in clause (i) of subsection 
        (d)(1)(B) and psychiatric units described in the matter 
        following clause (v) of such subsection.
          (II) Hospitals described in clause (ii) of such 
        subsection and rehabilitation units described in the 
        matter following clause (v) of such subsection.
          (III) Hospitals described in clause (iii) of such 
        subsection.
          (IV) Hospitals described in clause (iv) of such 
        subsection.
          (V) Hospitals described in clause (v) of such 
        subsection.
  (G)(i) In the case of a qualified long-term care hospital (as 
defined in clause (ii)) that elects (in a form and manner 
determined by the Secretary) this subparagraph to apply to the 
hospital, the target amount for the hospital's 12-month cost 
reporting period beginning during fiscal year 1998 is equal to 
the allowable operating costs of inpatient hospital services 
(as defined in subsection (a)(4)) recognized under this title 
for the hospital for the 12-month cost reporting period 
beginning during fiscal year 1996, increased by the applicable 
percentage increase for the cost reporting period beginning 
during fiscal year 1997.
  (ii) In clause (i), a ``qualified long-term care hospital'' 
means, with respect to a cost reporting period, a hospital 
described in clause (iv) of subsection (d)(1)(B) during each of 
the 2 cost reporting periods for which the Secretary has the 
most recent settled cost reports as of the date of the 
enactment of this subparagraph for each of which--
          (I) the hospital's allowable operating costs of 
        inpatient hospital services recognized under this title 
        exceeded 115 percent of the hospital's target amount, 
        and
          (II) the hospital would have a disproportionate 
        patient percentage of at least 70 percent (as 
        determined by the Secretary under subsection 
        (d)(5)(F)(vi)) if the hospital were a subsection (d) 
        hospital.
  (H)(i) In the case of a hospital or unit that is within a 
class of hospital described in clause (iv), for a cost 
reporting period beginning during fiscal years 1998 through 
2002, the target amount for such a hospital or unit may not 
exceed the amount as updated up to or for such cost reporting 
period under clause (ii).
  (ii)(I) In the case of a hospital or unit that is within a 
class of hospital described in clause (iv), the Secretary shall 
estimate the 75th percentile of the target amounts for such 
hospitals within such class for cost reporting periods ending 
during fiscal year 1996, as adjusted under clause (iii).
  (II) The Secretary shall update the amount determined under 
subclause (I), for each cost reporting period after the cost 
reporting period described in such subclause and up to the 
first cost reporting period beginning on or after October 1, 
1997, by a factor equal to the market basket percentage 
increase.
  (III) For cost reporting periods beginning during each of 
fiscal years 1999 through 2002, subject to subparagraph (J), 
the Secretary shall update such amount by a factor equal to the 
market basket percentage increase.
  (iii) In applying clause (ii)(I) in the case of a hospital or 
unit, the Secretary shall provide for an appropriate adjustment 
to the labor-related portion of the amount determined under 
such subparagraph to take into account differences between 
average wage-related costs in the area of the hospital and the 
national average of such costs within the same class of 
hospital.
  (iv) For purposes of this subparagraph, each of the following 
shall be treated as a separate class of hospital:
          (I) Hospitals described in clause (i) of subsection 
        (d)(1)(B) and psychiatric units described in the matter 
        following clause (v) of such subsection.
          (II) Hospitals described in clause (ii) of such 
        subsection and rehabilitation units described in the 
        matter following clause (v) of such subsection.
          (III) Hospitals described in clause (iv) of such 
        subsection.
  (I)(i) Subject to subparagraph (L), for cost reporting 
periods beginning on or after October 1, 2000, in the case of a 
sole community hospital there shall be substituted for the 
amount otherwise determined under subsection (d)(5)(D)(i), if 
such substitution results in a greater amount of payment under 
this section for the hospital--
          (I) with respect to discharges occurring in fiscal 
        year 2001, 75 percent of the amount otherwise 
        applicable to the hospital under subsection 
        (d)(5)(D)(i) (referred to in this clause as the 
        ``subsection (d)(5)(D)(i) amount'') and 25 percent of 
        the rebased target amount (as defined in clause (ii));
          (II) with respect to discharges occurring in fiscal 
        year 2002, 50 percent of the subsection (d)(5)(D)(i) 
        amount and 50 percent of the rebased target amount;
          (III) with respect to discharges occurring in fiscal 
        year 2003, 25 percent of the subsection (d)(5)(D)(i) 
        amount and 75 percent of the rebased target amount; and
          (IV) with respect to discharges occurring after 
        fiscal year 2003, 100 percent of the rebased target 
        amount.
  (ii) For purposes of this subparagraph, the ``rebased target 
amount'' has the meaning given the term ``target amount'' in 
subparagraph (C) except that--
          (I) there shall be substituted for the base cost 
        reporting period the 12-month cost reporting period 
        beginning during fiscal year 1996;
          (II) any reference in subparagraph (C)(i) to the 
        ``first cost reporting period'' described in such 
        subparagraph is deemed a reference to the first cost 
        reporting period beginning on or after October 1, 2000; 
        and
          (III) applicable increase percentage shall only be 
        applied under subparagraph (C)(iv) for discharges 
        occurring in fiscal years beginning with fiscal year 
        2002.
  (iii) In no case shall a hospital be denied treatment as a 
sole community hospital or payment (on the basis of a target 
rate as such as a hospital) because data are unavailable for 
any cost reporting period due to changes in ownership, changes 
in fiscal intermediaries, or other extraordinary circumstances, 
so long as data for at least one applicable base cost reporting 
period is available.
  (J) For cost reporting periods beginning during fiscal year 
2001, for a hospital described in subsection (d)(1)(B)(iv)--
          (i) the limiting or cap amount otherwise determined 
        under subparagraph (H) shall be increased by 2 percent; 
        and
          (ii) the target amount otherwise determined under 
        subparagraph (A) shall be increased by 25 percent 
        (subject to the limiting or cap amount determined under 
        subparagraph (H), as increased by clause (i)).
  (K)(i) With respect to discharges occurring on or after 
October 1, 2006, in the case of a medicare-dependent, small 
rural hospital, for purposes of applying subparagraph (D)--
          (I) there shall be substituted for the base cost 
        reporting period described in subparagraph (D)(i) the 
        12-month cost reporting period beginning during fiscal 
        year 2002; and
          (II) any reference in such subparagraph to the 
        ``first cost reporting period'' described in such 
        subparagraph is deemed a reference to the first cost 
        reporting period beginning on or after October 1, 2006.
  (ii) This subparagraph shall only apply to a hospital if the 
substitution described in clause (i)(I) results in an increase 
in the target amount under subparagraph (D) for the hospital.
  (L)(i) For cost reporting periods beginning on or after 
January 1, 2009, in the case of a sole community hospital there 
shall be substituted for the amount otherwise determined under 
subsection (d)(5)(D)(i) of this section, if such substitution 
results in a greater amount of payment under this section for 
the hospital, the subparagraph (L) rebased target amount.
  (ii) For purposes of this subparagraph, the term 
``subparagraph (L) rebased target amount'' has the meaning 
given the term ``target amount'' in subparagraph (C), except 
that--
          (I) there shall be substituted for the base cost 
        reporting period the 12-month cost reporting period 
        beginning during fiscal year 2006;
          (II) any reference in subparagraph (C)(i) to the 
        ``first cost reporting period'' described in such 
        subparagraph is deemed a reference to the first cost 
        reporting period beginning on or after January 1, 2009; 
        and
          (III) the applicable percentage increase shall only 
        be applied under subparagraph (C)(iv) for discharges 
        occurring on or after January 1, 2009.
  (4)(A)(i) The Secretary shall provide for an exception and 
adjustment to (and in the case of a hospital described in 
subsection (d)(1)(B)(iii), may provide an exemption from) the 
method under this subsection for determining the amount of 
payment to a hospital where events beyond the hospital's 
control or extraordinary circumstances, including changes in 
the case mix of such hospital, create a distortion in the 
increase in costs for a cost reporting period (including any 
distortion in the costs for the base period against which such 
increase is measured). The Secretary may provide for such other 
exemptions from, and exceptions and adjustments to, such method 
as the Secretary deems appropriate, including the assignment of 
a new base period which is more representative, as determined 
by the Secretary, of the reasonable and necessary cost of 
inpatient services and including those which he deems necessary 
to take into account a decrease in the inpatient hospital 
services that a hospital provides and that are customarily 
provided directly by similar hospitals which results in a 
significant distortion in the operating costs of inpatient 
hospital services. The Secretary shall announce a decision on 
any request for an exemption, exception, or adjustment under 
this paragraph not later than 180 days after receiving a 
completed application from the intermediary for such exemption, 
exception, or adjustment, and shall include in such decision a 
detailed explanation of the grounds on which such request was 
approved or denied.
  (ii) The payment reductions under paragraph (3)(B)(ii)(V) 
shall not be considered by the Secretary in making adjustments 
pursuant to clause (i). In making such reductions, the 
Secretary shall treat the applicable update factor described in 
paragraph (3)(B)(vi) for a fiscal year as being equal to the 
market basket percentage for that year.
  (B) In determining under subparagraph (A) whether to assign a 
new base period which is more representative of the reasonable 
and necessary cost to a hospital of providing inpatient 
services, the Secretary shall take into consideration--
          (i) changes in applicable technologies and medical 
        practices, or differences in the severity of illness 
        among patients, that increase the hospital's costs;
          (ii) whether increases in wages and wage-related 
        costs for hospitals located in the geographic area in 
        which the hospital is located exceed the average of the 
        increases in such costs paid by hospitals in the United 
        States; and
          (iii) such other factors as the Secretary considers 
        appropriate in determining increases in the hospital's 
        costs of providing inpatient services.
  (C) Paragraph (1) shall not apply to payment of hospitals 
which is otherwise determined under paragraph (3) of section 
1814(b).
  (5) In the case of any hospital having any cost reporting 
period of other than a 12-month period, the Secretary shall 
determine the 12-month period which shall be used for purposes 
of this section.
  (6) In the case of any hospital which becomes subject to the 
taxes under section 3111 of the Internal Revenue Code of 1954, 
with respect to any or all of its employees, for part or all of 
a cost reporting period, and was not subject to such taxes with 
respect to any or all of its employees for all or part of the 
12-month base cost reporting period referred to in subsection 
(b)(3)(A)(i), the Secretary shall provide for an adjustment by 
increasing the base period amount described in such subsection 
for such hospital by an amount equal to the amount of such 
taxes which would have been paid or accrued by such hospital 
for such base period if such hospital had been subject to such 
taxes for all of such base period with respect to all its 
employees, minus the amount of any such taxes actually paid or 
accrued for such base period.
  (7)(A) Notwithstanding paragraph (1), in the case of a 
hospital or unit that is within a class of hospital described 
in subparagraph (B) which first receives payments under this 
section on or after October 1, 1997--
          (i) for each of the first 2 cost reporting periods 
        for which the hospital has a settled cost report, the 
        amount of the payment with respect to operating costs 
        described in paragraph (1) under part A on a per 
        discharge or per admission basis (as the case may be) 
        is equal to the lesser of--
                  (I) the amount of operating costs for such 
                respective period, or
                  (II) 110 percent of the national median (as 
                estimated by the Secretary) of the target 
                amount for hospitals in the same class as the 
                hospital for cost reporting periods ending 
                during fiscal year 1996, updated by the 
                hospital market basket increase percentage to 
                the fiscal year in which the hospital first 
                received payments under this section, as 
                adjusted under subparagraph (C); and
          (ii) for purposes of computing the target amount for 
        the subsequent cost reporting period, the target amount 
        for the preceding cost reporting period is equal to the 
        amount determined under clause (i) for such preceding 
        period.
  (B) For purposes of this paragraph, each of the following 
shall be treated as a separate class of hospital:
          (i) Hospitals described in clause (i) of subsection 
        (d)(1)(B) and psychiatric units described in the matter 
        following clause (v) of such subsection.
          (ii) Hospitals described in clause (ii) of such 
        subsection and rehabilitation units described in the 
        matter following clause (v) of such subsection.
          (iii) Hospitals described in clause (iv) of such 
        subsection.
  (C) In applying subparagraph (A)(i)(II) in the case of a 
hospital or unit, the Secretary shall provide for an 
appropriate adjustment to the labor-related portion of the 
amount determined under such subparagraph to take into account 
differences between average wage-related costs in the area of 
the hospital and the national average of such costs within the 
same class of hospital.
  (c)(1) The Secretary may provide, in his discretion, that 
payment with respect to services provided by a hospital in a 
State may be made in accordance with a hospital reimbursement 
control system in a State, rather than in accordance with the 
other provisions of this title, if the chief executive officer 
of the State requests such treatment and if--
          (A) the Secretary determines that the system, if 
        approved under this subsection, will apply (i) to 
        substantially all non- Federal acute care hospitals (as 
        defined by the Secretary) in the State and (ii) to the 
        review of at least 75 percent of all revenues or 
        expenses in the State for inpatient hospital services 
        and of revenues or expenses for inpatient hospital 
        services provided under the State's plan approved under 
        title XIX;
          (B) the Secretary has been provided satisfactory 
        assurances as to the equitable treatment under the 
        system of all entities (including Federal and State 
        programs) that pay hospitals for inpatient hospital 
        services, of hospital employees, and of hospital 
        patients;
          (C) the Secretary has been provided satisfactory 
        assurances that under the system, over 36-month periods 
        (the first such period beginning with the first month 
        in which this subsection applies to that system in the 
        State), the amount of payments made under this title 
        under such system will not exceed the amount of 
        payments which would otherwise have been made under 
        this title not using such system;
          (D) the Secretary determines that the system will not 
        preclude an eligible organization (as defined in 
        section 1876(b)) from negotiating directly with 
        hospitals with respect to the organization's rate of 
        payment for inpatient hospital services; and
          (E) the Secretary determines that the system requires 
        hospitals to meet the requirement of section 
        1866(a)(1)(G) and the system provides for the exclusion 
        of certain costs in accordance with section 1862(a)(14) 
        (except for such waivers thereof as the Secretary 
        provides by regulation).
The Secretary cannot deny the application of a State under this 
subsection on the ground that the State's hospital 
reimbursement control system is based on a payment methodology 
other than on the basis of a diagnosis-related group or on the 
ground that the amount of payments made under this title under 
such system must be less than the amount of payments which 
would otherwise have been made under this title not using such 
system. If the Secretary determines that the conditions 
described in subparagraph (C) are based on maintaining payment 
amounts at no more than a specified percentage increase above 
the payment amounts in a base period, the State has the option 
of applying such test (for inpatient hospital services under 
part A) on an aggregate payment basis or on the basis of the 
amount of payment per inpatient discharge or admission. If the 
Secretary determines that the conditions described in 
subparagraph (C) are based on maintaining aggregate payment 
amounts below a national average percentage increase in total 
payments under part A for inpatient hospital services, the 
Secretary cannot deny the application of a State under this 
subsection on the ground that the State's rate of increase in 
such payments for such services must be less than such national 
average rate of increase.
  (2) In determining under paragraph (1)(C) the amount of 
payment which would otherwise have been made under this title 
for a State, the Secretary may provide for appropriate 
adjustment of such amount to take into account previous 
reductions effected in the amount of payments made under this 
title in the State due to the operation of the hospital 
reimbursement control system in the State if the system has 
resulted in an aggregate rate of increase in operating costs of 
inpatient hospital services (as defined in subsection (a)(4)) 
under this title for hospitals in the State which is less than 
the aggregate rate of increase in such costs under this title 
for hospitals in the United States.
  (3) The Secretary shall discontinue payments under a system 
described in paragraph (1) if the Secretary--
          (A) determines that the system no longer meets the 
        requirements of subparagraphs (A), (D), and (E) of 
        paragraph (1) and, if applicable, the requirements of 
        paragraph (5), or
          (B) has reason to believe that the assurances 
        described in subparagraph (B) or (C) of paragraph (1) 
        (or, if applicable, in paragraph (5)) are not being (or 
        will not be) met.
  (4) The Secretary shall approve the request of a State under 
paragraph (1) with respect to a hospital reimbursement control 
system if--
          (A) the requirements of subparagraphs (A), (B), (C), 
        (D), and (E) of paragraph (1) have been met with 
        respect to the system, and
          (B) with respect to that system a waiver of certain 
        requirements of title XVIII of the Social Security Act 
        has been approved on or before (and which is in effect 
        as of) the date of the enactment of the Social Security 
        Amendments of 1983, pursuant to section 402(a) of the 
        Social Security Amendments of 1967 or section 222(a) of 
        the Social Security Amendments of 1972.
With respect to a State system described in this paragraph, the 
Secretary shall judge the effectiveness of such system on the 
basis of its rate of increase or inflation in inpatient 
hospital payments for individuals under this title, as compared 
to the national rate of increase or inflation for such 
payments, with the State retaining the option to have the test 
applied on the basis of the aggregate payments under the State 
system as compared to aggregate payments which would have been 
made under the national system since October 1, 1984, to the 
most recent date for which annual data are available.
  (5) The Secretary shall approve the request of a State under 
paragraph (1) with respect to a hospital reimbursement control 
system if--
          (A) the requirements of subparagraphs (A), (B), (C), 
        (D), and (E) of paragraph (1) have been met with 
        respect to the system;
          (B) the Secretary determines that the system--
                  (i) is operated directly by the State or by 
                an entity designated pursuant to State law,
                  (ii) provides for payment of hospitals 
                covered under the system under a methodology 
                (which sets forth exceptions and adjustments, 
                as well as any method for changes in the 
                methodology) by which rates or amounts to be 
                paid for hospital services during a specified 
                period are established under the system prior 
                to the defined rate period, and
                  (iii) hospitals covered under the system will 
                make such reports (in lieu of cost and other 
                reports, identified by the Secretary, otherwise 
                required under this title) as the Secretary may 
                require in order to properly monitor assurances 
                provided under this subsection;
          (C) the State has provided the Secretary with 
        satisfactory assurances that operation of the system 
        will not result in any change in hospital admission 
        practices which result in--
                  (i) a significant reduction in the proportion 
                of patients (receiving hospital services 
                covered under the system) who have no third-
                party coverage and who are unable to pay for 
                hospital services,
                  (ii) a significant reduction in the 
                proportion of individuals admitted to hospitals 
                for inpatient hospital services for which 
                payment is (or is likely to be) less than the 
                anticipated charges for or costs of such 
                services,
                  (iii) the refusal to admit patients who would 
                be expected to require unusually costly or 
                prolonged treatment for reasons other than 
                those related to the appropriateness of the 
                care available at the hospital, or
                  (iv) the refusal to provide emergency 
                services to any person who is in need of 
                emergency services if the hospital provides 
                such services;
          (D) any change by the State in the system which has 
        the effect of materially reducing payments to hospitals 
        can only take effect upon 60 days notice to the 
        Secretary and to the hospitals the payment to which is 
        likely to be materially affected by the change; and
          (E) the State has provided the Secretary with 
        satisfactory assurances that in the development of the 
        system the State has consulted with local governmental 
        officials concerning the impact of the system on public 
        hospitals.
The Secretary shall respond to requests of States under this 
paragraph within 60 days of the date the request is submitted 
to the Secretary.
  (6) If the Secretary determines that the assurances described 
in paragraph (1)(C) have not been met with respect to any 36-
month period, the Secretary may reduce payments under this 
title to hospitals under the system in an amount equal to the 
amount by which the payment under this title under such system 
for such period exceeded the amount of payments which would 
otherwise have been made under this title not using such 
system.
  (7) In the case of a State which made a request under 
paragraph (5) before December 31, 1984, for the approval of a 
State hospital reimbursement control system and which request 
was approved--
          (A) in applying paragraphs (1)(C) and (6), a 
        reference to a ``36-month period'' is deemed a 
        reference to a ``48-month period'', and
          (B) in order to allow the State the opportunity to 
        provide the assurances described in paragraph (1)(C) 
        for a 48-month period, the Secretary may not 
        discontinue payments under the system, under the 
        authority of paragraph (3)(A) because the Secretary has 
        reason to believe that such assurances are not being 
        (or will not be) met, before July 1, 1986.
  (d)(1)(A) Notwithstanding section 1814(b) but subject to the 
provisions of section 1813, the amount of the payment with 
respect to the operating costs of inpatient hospital services 
(as defined in subsection (a)(4)) of a subsection (d) hospital 
(as defined in subparagraph (B)) for inpatient hospital 
discharges in a cost reporting period or in a fiscal year--
          (i) beginning on or after October 1, 1983, and before 
        October 1, 1984, is equal to the sum of--
                  (I) the target percentage (as defined in 
                subparagraph (C)) of the hospital's target 
                amount for the cost reporting period (as 
                defined in subsection (b)(3)(A), but determined 
                without the application of subsection (a)), and
                  (II) the DRG percentage (as defined in 
                subparagraph (C)) of the regional adjusted DRG 
                prospective payment rate determined under 
                paragraph (2) for such discharges;
          (ii) beginning on or after October 1, 1984, and 
        before October 1, 1987, is equal to the sum of--
                  (I) the target percentage (as defined in 
                subparagraph (C)) of the hospital's target 
                amount for the cost reporting period (as 
                defined in subsection (b)(3)(A), but determined 
                without the application of subsection (a)), and
                  (II) the DRG percentage (as defined in 
                subparagraph (C)) of the applicable combined 
                adjusted DRG prospective payment rate 
                determined under subparagraph (D) for such 
                discharges; or
          (iii) beginning on or after April 1, 1988, is equal 
        to
                  (I) the national adjusted DRG prospective 
                payment rate determined under paragraph (3) for 
                such discharges, or
                  (II) for discharges occurring during a fiscal 
                year ending on or before September 30, 1996, 
                the sum of 85 percent of the national adjusted 
                DRG prospective payment rate determined under 
                paragraph (3) for such discharges and 15 
                percent of the regional adjusted DRG 
                prospective payment rate determined under such 
                paragraph, but only if the average standardized 
                amount (described in clause (i)(I) or clause 
                (ii)(I) of paragraph (3)(D)) for hospitals 
                within the region of, and in the same large 
                urban or other area (or, for discharges 
                occurring during a fiscal year ending on or 
                before September 30, 1994, the same rural, 
                large urban, or other urban area) as, the 
                hospital is greater than the average 
                standardized amount (described in the 
                respective clause) for hospitals within the 
                United States in that type of area for 
                discharges occurring during such fiscal year.
  (B) As used in this section, the term ``subsection (d) 
hospital'' means a hospital located in one of the fifty States 
or the District of Columbia other than--
          (i) a psychiatric hospital (as defined in section 
        1861(f)),
          (ii) a rehabilitation hospital (as defined by the 
        Secretary),
          (iii) a hospital whose inpatients are predominantly 
        individuals under 18 years of age,
          (iv) a hospital which has an average inpatient length 
        of stay (as determined by the Secretary) of greater 
        than 25 days,
          (v)(I) a hospital that the Secretary has classified, 
        at any time on or before December 31, 1990, (or, in the 
        case of a hospital that, as of the date of the 
        enactment of this clause, is located in a State 
        operating a demonstration project under section 
        1814(b), on or before December 31, 1991) for purposes 
        of applying exceptions and adjustments to payment 
        amounts under this subsection, as a hospital involved 
        extensively in treatment for or research on cancer,
          (II) a hospital that was recognized as a 
        comprehensive cancer center or clinical cancer research 
        center by the National Cancer Institute of the National 
        Institutes of Health as of April 20, 1983, that is 
        located in a State which, as of December 19, 1989, was 
        not operating a demonstration project under section 
        1814(b), that applied and was denied, on or before 
        December 31, 1990, for classification as a hospital 
        involved extensively in treatment for or research on 
        cancer under this clause (as in effect on the day 
        before the date of the enactment of this subclause), 
        that as of the date of the enactment of this subclause, 
        is licensed for less than 50 acute care beds, and that 
        demonstrates for the 4-year period ending on December 
        31, 1996, that at least 50 percent of its total 
        discharges have a principal finding of neoplastic 
        disease, as defined in subparagraph (E), or
          (III) a hospital that was recognized as a clinical 
        cancer research center by the National Cancer Institute 
        of the National Institutes of Health as of February 18, 
        1998, that has never been reimbursed for inpatient 
        hospital services pursuant to a reimbursement system 
        under a demonstration project under section 1814(b), 
        that is a freestanding facility organized primarily for 
        treatment of and research on cancer and is not a unit 
        of another hospital, that as of the date of the 
        enactment of this subclause, is licensed for 162 acute 
        care beds, and that demonstrates for the 4-year period 
        ending on June 30, 1999, that at least 50 percent of 
        its total discharges have a principal finding of 
        neoplastic disease, as defined in subparagraph (E), or
          (vi) a hospital that first received payment under 
        this subsection in 1986 which has an average inpatient 
        length of stay (as determined by the Secretary) of 
        greater than 20 days and that has 80 percent or more of 
        its annual medicare inpatient discharges with a 
        principal diagnosis that reflects a finding of 
        neoplastic disease in the 12-month cost reporting 
        period ending in fiscal year 1997;
and, in accordance with regulations of the Secretary, does not 
include a psychiatric or rehabilitation unit of the hospital 
which is a distinct part of the hospital (as defined by the 
Secretary). A hospital that was classified by the Secretary on 
or before September 30, 1995, as a hospital described in clause 
(iv) (as in effect as of such date) shall continue to be so 
classified (or, in the case of a hospital described in clause 
(iv)(II), as so in effect, shall be classified under clause 
(vi) on and after the effective date of such clause (vi) and 
for cost reporting periods beginning on or after January 1, 
2015, shall not be subject to subsection (m) as of the date of 
such classification) notwithstanding that it is located in the 
same building as, or on the same campus as, another hospital.
  (C) For purposes of this subsection, for cost reporting 
periods beginning--
          (i) on or after October 1, 1983, and before October 
        1, 1984, the ``target percentage'' is 75 percent and 
        the ``DRG percentage'' is 25 percent;
          (ii) on or after October 1, 1984, and before October 
        1, 1985, the ``target percentage'' is 50 percent and 
        the ``DRG percentage'' is 50 percent;
          (iii) on or after October 1, 1985, and before October 
        1, 1986, the ``target percentage'' is 45 percent and 
        the ``DRG percentage'' is 55 percent; and
          (iv) on or after October 1, 1986, and before October 
        1, 1987, the ``target percentage'' is 25 percent and 
        the ``DRG percentage'' is 75 percent.
  (D) For purposes of subparagraph (A)(ii)(II), the 
``applicable combined adjusted DRG prospective payment rate'' 
for discharges occurring--
          (i) on or after October 1, 1984, and before October 
        1, 1986, is a combined rate consisting of 25 percent of 
        the national adjusted DRG prospective payment rate, and 
        75 percent of the regional adjusted DRG prospective 
        payment rate, determined under paragraph (3) for such 
        discharges; and
          (ii) on or after October 1, 1986, and before October 
        1, 1987, is a combined rate consisting of 50 percent of 
        the national adjusted DRG prospective payment rate, and 
        50 percent of the regional adjusted DRG prospective 
        payment rate, determined under paragraph (3) for such 
        discharges.
  (E) For purposes of subclauses (II) and (III) of subparagraph 
(B)(v) only, the term ``principal finding of neoplastic 
disease'' means the condition established after study to be 
chiefly responsible for occasioning the admission of a patient 
to a hospital, except that only discharges with ICD-9-CM 
principal diagnosis codes of 140 through 239, V58.0, V58.1, 
V66.1, V66.2, or 990 will be considered to reflect such a 
principal diagnosis.
  (2) The Secretary shall determine a national adjusted DRG 
prospective payment rate, for each inpatient hospital discharge 
in fiscal year 1984 involving inpatient hospital services of a 
subsection (d) hospital in the United States, and shall 
determine a regional adjusted DRG prospective payment rate for 
such discharges in each region, for which payment may be made 
under part A of this title. Each such rate shall be determined 
for hospitals located in urban or rural areas within the United 
States or within each such region, respectively, as follows:
          (A) Determining allowable individual hospital costs 
        for base period.--The Secretary shall determine the 
        allowable operating costs per discharge of inpatient 
        hospital services for the hospital for the most recent 
        cost reporting period for which data are available.
          (B) Updating for fiscal year 1984.--The Secretary 
        shall update each amount determined under subparagraph 
        (A) for fiscal year 1984 by--
                  (i) updating for fiscal year 1983 by the 
                estimated average rate of change of hospital 
                costs industry-wide between the cost reporting 
                period used under such subparagraph and fiscal 
                year 1983 and the most recent case-mix data 
                available, and
                  (ii) projecting for fiscal year 1984 by the 
                applicable percentage increase (as defined in 
                subsection (b)(3)(B)) for fiscal year 1984.
          (C) Standardizing amounts.--The Secretary shall 
        standardize the amount updated under subparagraph (B) 
        for each hospital by--
                  (i) excluding an estimate of indirect medical 
                education costs (taking into account, for 
                discharges occurring after September 30, 1986, 
                the amendments made by section 9104(a) of the 
                Medicare and Medicaid Budget Reconciliation 
                Amendments of 1985), except that the Secretary 
                shall not take into account any reduction in 
                the amount of additional payments under 
                paragraph (5)(B)(ii) resulting from the 
                amendment made by section 4621(a)(1) of the 
                Balanced Budget Act of 1997 or any additional 
                payments under such paragraph resulting from 
                the application of section 111 of the Medicare, 
                Medicaid, and SCHIP Balanced Budget Refinement 
                Act of 1999, of section 302 of the Medicare, 
                Medicaid, and SCHIP Benefits Improvement and 
                Protection Act of 2000, or the Medicare 
                Prescription Drug, Improvement, and 
                Modernization Act of 2003,
                  (ii) adjusting for variations among hospitals 
                by area in the average hospital wage level,
                  (iii) adjusting for variations in case mix 
                among hospitals, and
                  (iv) for discharges occurring on or after 
                October 1, 1986, excluding an estimate of the 
                additional payments to certain hospitals to be 
                made under paragraph (5)(F), except that the 
                Secretary shall not exclude additional payments 
                under such paragraph made as a result of the 
                enactment of section 6003(c) of the Omnibus 
                Budget Reconciliation Act of 1989, the 
                enactment of section 4002(b) of the Omnibus 
                Budget Reconciliation Act of 1990, the 
                enactment of section 303 of the Medicare, 
                Medicaid, and SCHIP Benefits Improvement and 
                Protection Act of 2000, or the enactment of 
                section 402(a)(1) of the Medicare Prescription 
                Drug, Improvement, and Modernization Act of 
                2003.
          (D) Computing urban and rural averages.--The 
        Secretary shall compute an average of the standardized 
        amounts determined under subparagraph (C) for the 
        United States and for each region--
                  (i) for all subsection (d) hospitals located 
                in an urban area within the United States or 
                that region, respectively, and
                  (ii) for all subsection (d) hospitals located 
                in a rural area within the United States or 
                that region, respectively.
        For purposes of this subsection, the term ``region'' 
        means one of the nine census divisions, comprising the 
        fifty States and the District of Columbia, established 
        by the Bureau of the Census for statistical and 
        reporting purposes; the term ``urban area'' means an 
        area within a Metropolitan Statistical Area (as defined 
        by the Office of Management and Budget) or within such 
        similar area as the Secretary has recognized under 
        subsection (a) by regulation; the term ``large urban 
        area'' means, with respect to a fiscal year, such an 
        urban area which the Secretary determines (in the 
        publications described in subsection (e)(5) before the 
        fiscal year) has a population of more than 1,000,000 
        (as determined by the Secretary based on the most 
        recent available population data published by the 
        Bureau of the Census); and the term ``rural area'' 
        means any area outside such an area or similar area. A 
        hospital located in a Metropolitan Statistical Area 
        shall be deemed to be located in the region in which 
        the largest number of the hospitals in the same 
        Metropolitan Statistical Area are located, or, at the 
        option of the Secretary, the region in which the 
        majority of the inpatient discharges (with respect to 
        which payments are made under this title) from 
        hospitals in the same Metropolitan Statistical Area are 
        made.
          (E) Reducing for value of outlier payments.--The 
        Secretary shall reduce each of the average standardized 
        amounts determined under subparagraph (D) by a 
        proportion equal to the proportion (estimated by the 
        Secretary) of the amount of payments under this 
        subsection based on DRG prospective payment rates which 
        are additional payments described in paragraph (5)(A) 
        (relating to outlier payments).
          (F) Maintaining budget neutrality.--The Secretary 
        shall adjust each of such average standardized amounts 
        as may be required under subsection (e)(1)(B) for that 
        fiscal year.
          (G) Computing drg-specific rates for urban and rural 
        hospitals in the united states and in each region.--For 
        each discharge classified within a diagnosis-related 
        group, the Secretary shall establish a national DRG 
        prospective payment rate and shall establish a regional 
        DRG prospective payment rate for each region, each of 
        which is equal--
                  (i) for hospitals located in an urban area in 
                the United States or that region 
                (respectively), to the product of--
                          (I) the average standardized amount 
                        (computed under subparagraph (D), 
                        reduced under subparagraph (E), and 
                        adjusted under subparagraph (F)) for 
                        hospitals located in an urban area in 
                        the United States or that region, and
                          (II) the weighting factor (determined 
                        under paragraph (4)(B)) for that 
                        diagnosis-related group; and
                  (ii) for hospitals located in a rural area in 
                the United States or that region 
                (respectively), to the product of--
                          (I) the average standardized amount 
                        (computed under subparagraph (D), 
                        reduced under subparagraph (E), and 
                        adjusted under subparagraph (F)) for 
                        hospitals located in a rural area in 
                        the United States or that region, and
                          (II) the weighting factor (determined 
                        under paragraph (4)(B)) for that 
                        diagnosis-related group.
          (H) Adjusting for different area wage levels.--The 
        Secretary shall adjust the proportion, (as estimated by 
        the Secretary from time to time) of hospitals' costs 
        which are attributable to wages and wage-related costs, 
        of the national and regional DRG prospective payment 
        rates computed under subparagraph (G) for area 
        differences in hospital wage levels by a factor 
        (established by the Secretary) reflecting the relative 
        hospital wage level in the geographic area of the 
        hospital compared to the national average hospital wage 
        level.
  (3) The Secretary shall determine a national adjusted DRG 
prospective payment rate, for each inpatient hospital discharge 
in a fiscal year after fiscal year 1984 involving inpatient 
hospital services of a subsection (d) hospital in the United 
States, and shall determine, for fiscal years before fiscal 
year 1997, a regional adjusted DRG prospective payment rate for 
such discharges in each region for which payment may be made 
under part A of this title. Each such rate shall be determined 
for hospitals located in large urban, other urban, or rural 
areas within the United States and within each such region, 
respectively, as follows:
          (A) Updating previous standardized amounts.--(i) For 
        discharges occurring in a fiscal year beginning before 
        October 1, 1987, the Secretary shall compute an average 
        standardized amount for hospitals located in an urban 
        area and for hospitals located in a rural area within 
        the United States and for hospitals located in an urban 
        area and for hospitals located in a rural area within 
        each region, equal to the respective average 
        standardized amount computed for the previous fiscal 
        year under paragraph (2)(D) or under this subparagraph, 
        increased for the fiscal year involved by the 
        applicable percentage increase under subsection 
        (b)(3)(B). With respect to discharges occurring on or 
        after October 1, 1987, the Secretary shall compute 
        urban and rural averages on the basis of discharge 
        weighting rather than hospital weighting, making 
        appropriate adjustments to ensure that computation on 
        such basis does not result in total payments under this 
        section that are greater or less than the total 
        payments that would have been made under this section 
        but for this sentence, and making appropriate changes 
        in the manner of determining the reductions under 
        subparagraph (C)(ii).
          (ii) For discharges occurring in a fiscal year 
        beginning on or after October 1, 1987, and ending on or 
        before September 30, 1994, the Secretary shall compute 
        an average standardized amount for hospitals located in 
        a large urban area, for hospitals located in a rural 
        area, and for hospitals located in other urban areas, 
        within the United States and within each region, equal 
        to the respective average standardized amount computed 
        for the previous fiscal year under this subparagraph 
        increased by the applicable percentage increase under 
        subsection (b)(3)(B)(i) with respect to hospitals 
        located in the respective areas for the fiscal year 
        involved.
          (iii) For discharges occurring in the fiscal year 
        beginning on October 1, 1994, the average standardized 
        amount for hospitals located in a rural area shall be 
        equal to the average standardized amount for hospitals 
        located in an urban area. For discharges occurring on 
        or after October 1, 1994, the Secretary shall adjust 
        the ratio of the labor portion to non-labor portion of 
        each average standardized amount to equal such ratio 
        for the national average of all standardized amounts.
          (iv)(I) Subject to subclause (II), for discharges 
        occurring in a fiscal year beginning on or after 
        October 1, 1995, the Secretary shall compute an average 
        standardized amount for hospitals located in a large 
        urban area and for hospitals located in other areas 
        within the United States and within each region equal 
        to the respective average standardized amount computed 
        for the previous fiscal year under this subparagraph 
        increased by the applicable percentage increase under 
        subsection (b)(3)(B)(i) with respect to hospitals 
        located in the respective areas for the fiscal year 
        involved.
          (II) For discharges occurring in a fiscal year 
        (beginning with fiscal year 2004), the Secretary shall 
        compute a standardized amount for hospitals located in 
        any area within the United States and within each 
        region equal to the standardized amount computed for 
        the previous fiscal year under this subparagraph for 
        hospitals located in a large urban area (or, beginning 
        with fiscal year 2005, for all hospitals in the 
        previous fiscal year) increased by the applicable 
        percentage increase under subsection (b)(3)(B)(i) for 
        the fiscal year involved.
          (v) Average standardized amounts computed under this 
        paragraph shall be adjusted to reflect the most recent 
        case-mix data available.
          (vi) Insofar as the Secretary determines that the 
        adjustments under paragraph (4)(C)(i) for a previous 
        fiscal year (or estimates that such adjustments for a 
        future fiscal year) did (or are likely to) result in a 
        change in aggregate payments under this subsection 
        during the fiscal year that are a result of changes in 
        the coding or classification of discharges that do not 
        reflect real changes in case mix, the Secretary may 
        adjust the average standardized amounts computed under 
        this paragraph for subsequent fiscal years so as to 
        eliminate the effect of such coding or classification 
        changes.
          (B) Reducing for value of outlier payments.--The 
        Secretary shall reduce each of the average standardized 
        amounts determined under subparagraph (A) by a factor 
        equal to the proportion of payments under this 
        subsection (as estimated by the Secretary) based on DRG 
        prospective payment amounts which are additional 
        payments described in paragraph (5)(A) (relating to 
        outlier payments).
          (C)(i) Maintaining budget neutrality for fiscal year 
        1985.--For discharges occurring in fiscal year 1985, 
        the Secretary shall adjust each of such average 
        standardized amounts as may be required under 
        subsection (e)(1)(B) for that fiscal year.
          (ii) Reducing for savings from amendment to indirect 
        teaching adjustment for discharges after September 30, 
        1986.--For discharges occurring after September 30, 
        1986, the Secretary shall further reduce each of the 
        average standardized amounts (in a proportion which 
        takes into account the differing effects of the 
        standardization effected under paragraph (2)(C)(i)) so 
        as to provide for a reduction in the total of the 
        payments (attributable to this paragraph) made for 
        discharges occurring on or after October 1, 1986, of an 
        amount equal to the estimated reduction in the payment 
        amounts under paragraph (5)(B) that would have resulted 
        from the enactment of the amendments made by section 
        9104 of the Medicare and Medicaid Budget Reconciliation 
        Amendments of 1985 and by section 4003(a)(1) of the 
        Omnibus Budget Reconciliation Act of 1987 if the factor 
        described in clause (ii)(II) of paragraph (5)(B) 
        (determined without regard to amendments made by the 
        Omnibus Budget Reconciliation Act of 1990) were applied 
        for discharges occurring on or after such date instead 
        of the factor described in clause (ii) of that 
        paragraph.
          (D) Computing drg-specific rates for hospitals.--For 
        each discharge classified within a diagnosis-related 
        group, the Secretary shall establish for the fiscal 
        year a national DRG prospective payment rate and shall 
        establish, for fiscal years before fiscal year 1997, a 
        regional DRG prospective payment rate for each region 
        which is equal--
                  (i) for fiscal years before fiscal year 2004, 
                for hospitals located in a large urban area in 
                the United States or that region 
                (respectively), to the product of--
                          (I) the average standardized amount 
                        (computed under subparagraph (A), 
                        reduced under subparagraph (B), and 
                        adjusted or reduced under subparagraph 
                        (C)) for the fiscal year for hospitals 
                        located in such a large urban area in 
                        the United States or that region, and
                          (II) the weighting factor (determined 
                        under paragraph (4)(B)) for that 
                        diagnosis-related group;
                  (ii) for fiscal years before fiscal year 
                2004, for hospitals located in other areas in 
                the United States or that region 
                (respectively), to the product of--
                          (I) the average standardized amount 
                        (computed under subparagraph (A), 
                        reduced under subparagraph (B), and 
                        adjusted or reduced under subparagraph 
                        (C)) for the fiscal year for hospitals 
                        located in other areas in the United 
                        States or that region, and
                          (II) the weighting factor (determined 
                        under paragraph (4)(B)) for that 
                        diagnosis-related group; and
                  (iii) for a fiscal year beginning after 
                fiscal year 2003, for hospitals located in all 
                areas, to the product of--
                          (I) the applicable standardized 
                        amount (computed under subparagraph 
                        (A)), reduced under subparagraph (B), 
                        and adjusted or reduced under 
                        subparagraph (C) for the fiscal year; 
                        and
                          (II) the weighting factor (determined 
                        under paragraph (4)(B)) for that 
                        diagnosis-related group.
          (E) Adjusting for different area wage levels.--
                  (i) In general.--Except as provided in clause 
                (ii) or (iii), the Secretary shall adjust the 
                proportion, (as estimated by the Secretary from 
                time to time) of hospitals' costs which are 
                attributable to wages and wage-related costs, 
                of the DRG prospective payment rates computed 
                under subparagraph (D) for area differences in 
                hospital wage levels by a factor (established 
                by the Secretary) reflecting the relative 
                hospital wage level in the geographic area of 
                the hospital compared to the national average 
                hospital wage level. Not later than October 1, 
                1990, and October 1, 1993 (and at least every 
                12 months thereafter), the Secretary shall 
                update the factor under the preceding sentence 
                on the basis of a survey conducted by the 
                Secretary (and updated as appropriate) of the 
                wages and wage-related costs of subsection (d) 
                hospitals in the United States. Not less often 
                than once every 3 years the Secretary (through 
                such survey or otherwise) shall measure the 
                earnings and paid hours of employment by 
                occupational category and shall exclude data 
                with respect to the wages and wage-related 
                costs incurred in furnishing skilled nursing 
                facility services. Any adjustments or updates 
                made under this subparagraph for a fiscal year 
                (beginning with fiscal year 1991) shall be made 
                in a manner that assures that the aggregate 
                payments under this subsection in the fiscal 
                year are not greater or less than those that 
                would have been made in the year without such 
                adjustment. The Secretary shall apply the 
                previous sentence for any period as if the 
                amendments made by section 403(a)(1) of the 
                Medicare Prescription Drug, Improvement, and 
                Modernization Act of 2003 and the amendments 
                made by section 10324(a)(1) of the Patient 
                Protection and Affordable Care Act had not been 
                enacted.
                  (ii) Alternative proportion to be adjusted 
                beginning in fiscal year 2005.--For discharges 
                occurring on or after October 1, 2004, the 
                Secretary shall substitute ``62 percent'' for 
                the proportion described in the first sentence 
                of clause (i), unless the application of this 
                clause would result in lower payments to a 
                hospital than would otherwise be made.
                  (iii) Floor on area wage index for hospitals 
                in frontier states.--
                          (I) In general.--Subject to subclause 
                        (IV), for discharges occurring on or 
                        after October 1, 2010, the area wage 
                        index applicable under this 
                        subparagraph to any hospital which is 
                        located in a frontier State (as defined 
                        in subclause (II)) may not be less than 
                        1.00.
                          (II) Frontier state defined.--In this 
                        clause, the term ``frontier State'' 
                        means a State in which at least 50 
                        percent of the counties in the State 
                        are frontier counties.
                          (III) Frontier county defined.--In 
                        this clause, the term ``frontier 
                        county'' means a county in which the 
                        population per square mile is less than 
                        6.
                          (IV) Limitation.--This clause shall 
                        not apply to any hospital located in a 
                        State that receives a non-labor related 
                        share adjustment under paragraph 
                        (5)(H).
  (4)(A) The Secretary shall establish a classification of 
inpatient hospital discharges by diagnosis-related groups and a 
methodology for classifying specific hospital discharges within 
these groups.
  (B) For each such diagnosis-related group the Secretary shall 
assign an appropriate weighting factor which reflects the 
relative hospital resources used with respect to discharges 
classified within that group compared to discharges classified 
within other groups.
  (C)(i) The Secretary shall adjust the classifications and 
weighting factors established under subparagraphs (A) and (B), 
for discharges in fiscal year 1988 and at least annually 
thereafter, to reflect changes in treatment patterns, 
technology (including a new medical service or technology under 
paragraph (5)(K)), and other factors which may change the 
relative use of hospital resources.
  (ii) For discharges in fiscal year 1990, the Secretary shall 
reduce the weighting factor for each diagnosis-related group by 
1.22 percent.
  (iii) Any such adjustment under clause (i) for discharges in 
a fiscal year (beginning with fiscal year 1991) shall be made 
in a manner that assures that the aggregate payments under this 
subsection for discharges in the fiscal year are not greater or 
less than those that would have been made for discharges in the 
year without such adjustment.
  (D)(i) For discharges occurring on or after October 1, 2008, 
the diagnosis-related group to be assigned under this paragraph 
for a discharge described in clause (ii) shall be a diagnosis-
related group that does not result in higher payment based on 
the presence of a secondary diagnosis code described in clause 
(iv).
  (ii) A discharge described in this clause is a discharge 
which meets the following requirements:
          (I) The discharge includes a condition identified by 
        a diagnosis code selected under clause (iv) as a 
        secondary diagnosis.
          (II) But for clause (i), the discharge would have 
        been classified to a diagnosis-related group that 
        results in a higher payment based on the presence of a 
        secondary diagnosis code selected under clause (iv).
          (III) At the time of admission, no code selected 
        under clause (iv) was present.
  (iii) As part of the information required to be reported by a 
hospital with respect to a discharge of an individual in order 
for payment to be made under this subsection, for discharges 
occurring on or after October 1, 2007, the information shall 
include the secondary diagnosis of the individual at admission.
  (iv) By not later than October 1, 2007, the Secretary shall 
select diagnosis codes associated with at least two conditions, 
each of which codes meets all of the following requirements (as 
determined by the Secretary):
          (I) Cases described by such code have a high cost or 
        high volume, or both, under this title.
          (II) The code results in the assignment of a case to 
        a diagnosis-related group that has a higher payment 
        when the code is present as a secondary diagnosis.
          (III) The code describes such conditions that could 
        reasonably have been prevented through the application 
        of evidence-based guidelines.
The Secretary may from time to time revise (through addition or 
deletion of codes) the diagnosis codes selected under this 
clause so long as there are diagnosis codes associated with at 
least two conditions selected for discharges occurring during 
any fiscal year.
  (v) In selecting and revising diagnosis codes under clause 
(iv), the Secretary shall consult with the Centers for Disease 
Control and Prevention and other appropriate entities.
  (vi) Any change resulting from the application of this 
subparagraph shall not be taken into account in adjusting the 
weighting factors under subparagraph (C)(i) or in applying 
budget neutrality under subparagraph (C)(iii).
  (5)(A)(i) For discharges occurring during fiscal years ending 
on or before September 30, 1997, the Secretary shall provide 
for an additional payment for a subsection (d) hospital for any 
discharge in a diagnosis-related group, the length of stay of 
which exceeds the mean length of stay for discharges within 
that group by a fixed number of days, or exceeds such mean 
length of stay by some fixed number of standard deviations, 
whichever is the fewer number of days.
  (ii) For cases which are not included in clause (i), a 
subsection (d) hospital may request additional payments in any 
case where charges, adjusted to cost, exceed a fixed multiple 
of the applicable DRG prospective payment rate, or exceed such 
other fixed dollar amount, whichever is greater, or for 
discharges in fiscal years beginning on or after October 1, 
1994, exceed the sum of the applicable DRG prospective payment 
rate plus any amounts payable under subparagraphs (B) and (F) 
plus a fixed dollar amount determined by the Secretary.
  (iii) The amount of such additional payment under clauses (i) 
and (ii) shall be determined by the Secretary and shall (except 
as payments under clause (i) are required to be reduced to take 
into account the requirements of clause (v)) approximate the 
marginal cost of care beyond the cutoff point applicable under 
clause (i) or (ii).
  (iv) The total amount of the additional payments made under 
this subparagraph for discharges in a fiscal year may not be 
less than 5 percent nor more than 6 percent of the total 
payments projected or estimated to be made based on DRG 
prospective payment rates for discharges in that year.
  (v) The Secretary shall provide that--
          (I) the day outlier percentage for fiscal year 1995 
        shall be 75 percent of the day outlier percentage for 
        fiscal year 1994;
          (II) the day outlier percentage for fiscal year 1996 
        shall be 50 percent of the day outlier percentage for 
        fiscal year 1994; and
          (III) the day outlier percentage for fiscal year 1997 
        shall be 25 percent of the day outlier percentage for 
        fiscal year 1994.
  (vi) For purposes of this subparagraph the term ``day outlier 
percentage'' means, for a fiscal year, the percentage of the 
total additional payments made by the Secretary under this 
subparagraph for discharges in that fiscal year which are 
additional payments under clause (i).
  (B) The Secretary shall provide for an additional payment 
amount for subsection (d) hospitals with indirect costs of 
medical education, in an amount computed in the same manner as 
the adjustment for such costs under regulations (in effect as 
of January 1, 1983) under subsection (a)(2), except as follows:
          (i) The amount of such additional payment shall be 
        determined by multiplying (I) the sum of the amount 
        determined under paragraph (1)(A)(ii)(II) (or, if 
        applicable, the amount determined under paragraph 
        (1)(A)(iii)) and, for cases qualifying for additional 
        payment under subparagraph (A)(i), the amount paid to 
        the hospital under subparagraph (A), by (II) the 
        indirect teaching adjustment factor described in clause 
        (ii).
          (ii) For purposes of clause (i)(II), the indirect 
        teaching adjustment factor is equal to c  
        (((1+r) to the nth power) - 1), where ``r'' is the 
        ratio of the hospital's full-time equivalent interns 
        and residents to beds and ``n'' equals .405. Subject to 
        clause (ix), for discharges occurring--
                  (I) on or after October 1, 1988, and before 
                October 1, 1997, ``c'' is equal to 1.89;
                  (II) during fiscal year 1998, ``c'' is equal 
                to 1.72;
                  (III) during fiscal year 1999, ``c'' is equal 
                to 1.6;
                  (IV) during fiscal year 2000, ``c'' is equal 
                to 1.47;
                  (V) during fiscal year 2001, ``c'' is equal 
                to 1.54;
                  (VI) during fiscal year 2002, ``c'' is equal 
                to 1.6;
                  (VII) on or after October 1, 2002, and before 
                April 1, 2004, ``c'' is equal to 1.35;
                  (VIII) on or after April 1, 2004, and before 
                October 1, 2004, ``c'' is equal to 1.47;
                  (IX) during fiscal year 2005, ``c'' is equal 
                to 1.42;
                  (X) during fiscal year 2006, ``c'' is equal 
                to 1.37;
                  (XI) during fiscal year 2007, ``c'' is equal 
                to 1.32; and
                  (XII) on or after October 1, 2007, ``c'' is 
                equal to 1.35.
          (iii) In determining such adjustment the Secretary 
        shall not distinguish between those interns and 
        residents who are employees of a hospital and those 
        interns and residents who furnish services to a 
        hospital but are not employees of such hospital.
          (iv)(I) Effective for discharges occurring on or 
        after October 1, 1997, and before July 1, 2010, all the 
        time spent by an intern or resident in patient care 
        activities under an approved medical residency training 
        program at an entity in a nonhospital setting shall be 
        counted towards the determination of full-time 
        equivalency if the hospital incurs all, or 
        substantially all, of the costs for the training 
        program in that setting.
          (II) Effective for discharges occurring on or after 
        July 1, 2010, all the time spent by an intern or 
        resident in patient care activities in a nonprovider 
        setting shall be counted towards the determination of 
        full-time equivalency if a hospital incurs the costs of 
        the stipends and fringe benefits of the intern or 
        resident during the time the intern or resident spends 
        in that setting. If more than one hospital incurs these 
        costs, either directly or through a third party, such 
        hospitals shall count a proportional share of the time, 
        as determined by written agreement between the 
        hospitals, that a resident spends training in that 
        setting.
          (v) In determining the adjustment with respect to a 
        hospital for discharges occurring on or after October 
        1, 1997, the total number of full-time equivalent 
        interns and residents in the fields of allopathic and 
        osteopathic medicine in either a hospital or 
        nonhospital setting may not exceed the number (or, 130 
        percent of such number in the case of a hospital 
        located in a rural area) of such full-time equivalent 
        interns and residents in the hospital with respect to 
        the hospital's most recent cost reporting period ending 
        on or before December 31, 1996. Rules similar to the 
        rules of subsection (h)(4)(F)(ii) shall apply for 
        purposes of this clause. The provisions of subsections 
        (h)(4)(H)(vi), (h)(7), and (h)(8) shall apply with 
        respect to the first sentence of this clause in the 
        same manner as they apply with respect to subsection 
        (h)(4)(F)(i).
          (vi) For purposes of clause (ii)--
                  (I) ``r'' may not exceed the ratio of the 
                number of interns and residents, subject to the 
                limit under clause (v), with respect to the 
                hospital for its most recent cost reporting 
                period to the hospital's available beds (as 
                defined by the Secretary) during that cost 
                reporting period, and
                  (II) for the hospital's cost reporting 
                periods beginning on or after October 1, 1997, 
                subject to the limits described in clauses (iv) 
                and (v), the total number of full-time 
                equivalent residents for payment purposes shall 
                equal the average of the actual full-time 
                equivalent resident count for the cost 
                reporting period and the preceding two cost 
                reporting periods.
        In the case of the first cost reporting period 
        beginning on or after October 1, 1997, subclause (II) 
        shall be applied by using the average for such period 
        and the preceding cost reporting period.
          (vii) If any cost reporting period beginning on or 
        after October 1, 1997, is not equal to twelve months, 
        the Secretary shall make appropriate modifications to 
        ensure that the average full-time equivalent residency 
        count pursuant to subclause (II) of clause (vi) is 
        based on the equivalent of full twelve-month cost 
        reporting periods.
          (viii) Rules similar to the rules of subsection 
        (h)(4)(H) shall apply for purposes of clauses (v) and 
        (vi).
          (ix) For discharges occurring on or after July 1, 
        2005, insofar as an additional payment amount under 
        this subparagraph is attributable to resident positions 
        redistributed to a hospital under subsection (h)(7)(B), 
        in computing the indirect teaching adjustment factor 
        under clause (ii) the adjustment shall be computed in a 
        manner as if ``c'' were equal to 0.66 with respect to 
        such resident positions.
          (x) For discharges occurring on or after July 1, 
        2011, insofar as an additional payment amount under 
        this subparagraph is attributable to resident positions 
        distributed to a hospital under subsection (h)(8)(B), 
        the indirect teaching adjustment factor shall be 
        computed in the same manner as provided under clause 
        (ii) with respect to such resident positions.
          (x)(I) The provisions of subparagraph (K) of 
        subsection (h)(4) shall apply under this subparagraph 
        in the same manner as they apply under such subsection.
                          (II) In determining the hospital's 
                        number of full-time equivalent 
                        residents for purposes of this 
                        subparagraph, all the time spent by an 
                        intern or resident in an approved 
                        medical residency training program in 
                        non-patient care activities, such as 
                        didactic conferences and seminars, as 
                        such time and activities are defined by 
                        the Secretary, that occurs in the 
                        hospital shall be counted toward the 
                        determination of full-time equivalency 
                        if the hospital--
                                  (aa) is recognized as a 
                                subsection (d) hospital;
                                  (bb) is recognized as a 
                                subsection (d) Puerto Rico 
                                hospital;
                                  (cc) is reimbursed under a 
                                reimbursement system authorized 
                                under section 1814(b)(3); or
                                  (dd) is a provider-based 
                                hospital outpatient department.
                          (III) In determining the hospital's 
                        number of full-time equivalent 
                        residents for purposes of this 
                        subparagraph, all the time spent by an 
                        intern or resident in an approved 
                        medical residency training program in 
                        research activities that are not 
                        associated with the treatment or 
                        diagnosis of a particular patient, as 
                        such time and activities are defined by 
                        the Secretary, shall not be counted 
                        toward the determination of full-time 
                        equivalency.
  (C)(i) The Secretary shall provide for such exceptions and 
adjustments to the payment amounts established under this 
subsection (other than under paragraph (9)) as the Secretary 
deems appropriate to take into account the special needs of 
regional and national referral centers (including those 
hospitals of 275 or more beds located in rural areas). A 
hospital which is classified as a rural hospital may appeal to 
the Secretary to be classified as a rural referral center under 
this clause on the basis of criteria (established by the 
Secretary) which shall allow the hospital to demonstrate that 
it should be so reclassified by reason of certain of its 
operating characteristics being similar to those of a typical 
urban hospital located in the same census region and which 
shall not require a rural osteopathic hospital to have more 
than 3,000 discharges in a year in order to be classified as a 
rural referral center. Such characteristics may include wages, 
scope of services, service area, and the mix of medical 
specialties. The Secretary shall publish the criteria not later 
than August 17, 1984, for implementation by October 1, 1984. An 
appeal allowed under this clause must be submitted to the 
Secretary (in such form and manner as the Secretary may 
prescribe) during the quarter before the first quarter of the 
hospital's cost reporting period (or, in the case of a cost 
reporting period beginning during October 1984, during the 
first quarter of that period), and the Secretary must make a 
final determination with respect to such appeal within 60 days 
after the date the appeal was submitted. Any payment 
adjustments necessitated by a reclassification based upon the 
appeal shall be effective at the beginning of such cost 
reporting period.
  (ii) The Secretary shall provide, under clause (i), for the 
classification of a rural hospital as a regional referral 
center if the hospital has a case mix index equal to or greater 
than the median case mix index for hospitals (other than 
hospitals with approved teaching programs) located in an urban 
area in the same region (as defined in paragraph (2)(D)), has 
at least 5,000 discharges a year or, if less, the median number 
of discharges in urban hospitals in the region in which the 
hospital is located (or, in the case of a rural osteopathic 
hospital, meets the criterion established by the Secretary 
under clause (i) with respect to the annual number of 
discharges for such hospitals), and meets any other criteria 
established by the Secretary under clause (i).
  (D)(i) For any cost reporting period beginning on or after 
April 1, 1990, with respect to a subsection (d) hospital which 
is a sole community hospital, payment under paragraph (1)(A) 
shall be--
          (I) an amount based on 100 percent of the hospital's 
        target amount for the cost reporting period, as defined 
        in subsection (b)(3)(C), or
          (II) the amount determined under paragraph 
        (1)(A)(iii),
whichever results in greater payment to the hospital.
  (ii) In the case of a sole community hospital that 
experiences, in a cost reporting period compared to the 
previous cost reporting period, a decrease of more than 5 
percent in its total number of inpatient cases due to 
circumstances beyond its control, the Secretary shall provide 
for such adjustment to the payment amounts under this 
subsection (other than under paragraph (9)) as may be necessary 
to fully compensate the hospital for the fixed costs it incurs 
in the period in providing inpatient hospital services, 
including the reasonable cost of maintaining necessary core 
staff and services.
  (iii) For purposes of this title, the term ``sole community 
hospital'' means any hospital--
          (I) that the Secretary determines is located more 
        than 35 road miles from another hospital,
          (II) that, by reason of factors such as the time 
        required for an individual to travel to the nearest 
        alternative source of appropriate inpatient care (in 
        accordance with standards promulgated by the 
        Secretary), location, weather conditions, travel 
        conditions, or absence of other like hospitals (as 
        determined by the Secretary), is the sole source of 
        inpatient hospital services reasonably available to 
        individuals in a geographic area who are entitled to 
        benefits under part A, or
          (III) that is located in a rural area and designated 
        by the Secretary as an essential access community 
        hospital under section 1820(i)(1) as in effect on 
        September 30, 1997.
  (iv) The Secretary shall promulgate a standard for 
determining whether a hospital meets the criteria for 
classification as a sole community hospital under clause 
(iii)(II) because of the time required for an individual to 
travel to the nearest alternative source of appropriate 
inpatient care.
  (v) If the Secretary determines that, in the case of a 
hospital located in a rural area and designated by the 
Secretary as an essential access community hospital under 
section 1820(i)(1) as in effect on September 30, 1997, the 
hospital has incurred increases in reasonable costs during a 
cost reporting period as a result of becoming a member of a 
rural health network (as defined in section 1820(d)) in the 
State in which it is located, and in incurring such increases, 
the hospital will increase its costs for subsequent cost 
reporting periods, the Secretary shall increase the hospital's 
target amount under subsection (b)(3)(C) to account for such 
incurred increases.
  (E)(i) The Secretary shall estimate the amount of 
reimbursement made for services described in section 
1862(a)(14) with respect to which payment was made under part B 
in the base reporting periods referred to in paragraph (2)(A) 
and with respect to which payment is no longer being made.
  (ii) The Secretary shall provide for an adjustment to the 
payment for subsection (d) hospitals in each fiscal year so as 
appropriately to reflect the net amount described in clause 
(i).
  (F)(i) Subject to subsection (r), for discharges occurring on 
or after May 1, 1986, the Secretary shall provide, in 
accordance with this subparagraph, for an additional payment 
amount for each subsection (d) hospital which--
          (I) serves a significantly disproportionate number of 
        low-income patients (as defined in clause (v)), or
          (II) is located in an urban area, has 100 or more 
        beds, and can demonstrate that its net inpatient care 
        revenues (excluding any of such revenues attributable 
        to this title or State plans approved under title XIX), 
        during the cost reporting period in which the 
        discharges occur, for indigent care from State and 
        local government sources exceed 30 percent of its total 
        of such net inpatient care revenues during the period.
  (ii) Subject to clause (ix), the amount of such payment for 
each discharge shall be determined by multiplying (I) the sum 
of the amount determined under paragraph (1)(A)(ii)(II) (or, if 
applicable, the amount determined under paragraph (1)(A)(iii)) 
and, for cases qualifying for additional payment under 
subparagraph (A)(i), the amount paid to the hospital under 
subparagraph (A) for that discharge, by (II) the 
disproportionate share adjustment percentage established under 
clause (iii) or (iv) for the cost reporting period in which the 
discharge occurs.
  (iii) The disproportionate share adjustment percentage for a 
cost reporting period for a hospital described in clause 
(i)(II) is equal to 35 percent.
  (iv) The disproportionate share adjustment percentage for a 
cost reporting period for a hospital that is not described in 
clause (i)(II) and that--
          (I) is located in an urban area and has 100 or more 
        beds or is described in the second sentence of clause 
        (v), is equal to the percent determined in accordance 
        with the applicable formula described in clause (vii);
          (II) is located in an urban area and has less than 
        100 beds, is equal to 5 percent or, subject to clause 
        (xiv) and for discharges occurring on or after April 1, 
        2001, is equal to the percent determined in accordance 
        with clause (xiii);
          (III) is located in a rural area and is not described 
        in subclause (IV) or (V) or in the second sentence of 
        clause (v), is equal to 4 percent or, subject to clause 
        (xiv) and for discharges occurring on or after April 1, 
        2001, is equal to the percent determined in accordance 
        with clause (xii);
          (IV) is located in a rural area, is classified as a 
        rural referral center under subparagraph (C), and is 
        classified as a sole community hospital under 
        subparagraph (D), is equal to 10 percent or, if 
        greater, the percent determined in accordance with the 
        applicable formula described in clause (viii) or, 
        subject to clause (xiv) and for discharges occurring on 
        or after April 1, 2001, the greater of the percentages 
        determined under clause (x) or (xi);
          (V) is located in a rural area, is classified as a 
        rural referral center under subparagraph (C), and is 
        not classified as a sole community hospital under 
        subparagraph (D), is equal to the percent determined in 
        accordance with the applicable formula described in 
        clause (viii) or, subject to clause (xiv) and for 
        discharges occurring on or after April 1, 2001, is 
        equal to the percent determined in accordance with 
        clause (xi); or
          (VI) is located in a rural area, is classified as a 
        sole community hospital under subparagraph (D), and is 
        not classified as a rural referral center under 
        subparagraph (C), is 10 percent or, subject to clause 
        (xiv) and for discharges occurring on or after April 1, 
        2001, is equal to the percent determined in accordance 
        with clause (x).
  (v) In this subparagraph, a hospital ``serves a significantly 
disproportionate number of low income patients'' for a cost 
reporting period if the hospital has a disproportionate patient 
percentage (as defined in clause (vi)) for that period which 
equals, or exceeds--
          (I) 15 percent, if the hospital is located in an 
        urban area and has 100 or more beds,
          (II) 30 percent (or 15 percent, for discharges 
        occurring on or after April 1, 2001), if the hospital 
        is located in a rural area and has more than 100 beds, 
        or is located in a rural area and is classified as a 
        sole community hospital under subparagraph (D),
          (III) 40 percent (or 15 percent, for discharges 
        occurring on or after April 1, 2001), if the hospital 
        is located in an urban area and has less than 100 beds, 
        or
          (IV) 45 percent (or 15 percent, for discharges 
        occurring on or after April 1, 2001), if the hospital 
        is located in a rural area and is not described in 
        subclause (II).
A hospital located in a rural area and with 500 or more beds 
also ``serves a significantly disproportionate number of low 
income patients'' for a cost reporting period if the hospital 
has a disproportionate patient percentage (as defined in clause 
(vi)) for that period which equals or exceeds a percentage 
specified by the Secretary.
  (vi) In this subparagraph, the term ``disproportionate 
patient percentage'' means, with respect to a cost reporting 
period of a hospital, the sum of--
          (I) the fraction (expressed as a percentage), the 
        numerator of which is the number of such hospital's 
        patient days for such period which were made up of 
        patients who (for such days) were entitled to benefits 
        under part A of this title and were entitled to 
        supplementary security income benefits (excluding any 
        State supplementation) under title XVI of this Act, and 
        the denominator of which is the number of such 
        hospital's patient days for such fiscal year which were 
        made up of patients who (for such days) were entitled 
        to benefits under part A of this title, and
          (II) the fraction (expressed as a percentage), the 
        numerator of which is the number of the hospital's 
        patient days for such period which consist of patients 
        who (for such days) were eligible for medical 
        assistance under a State plan approved under title XIX, 
        but who were not entitled to benefits under part A of 
        this title, and the denominator of which is the total 
        number of the hospital's patient days for such period.
In determining under subclause (II) the number of the 
hospital's patient days for such period which consist of 
patients who (for such days) were eligible for medical 
assistance under a State plan approved under title XIX, the 
Secretary may, to the extent and for the period the Secretary 
determines appropriate, include patient days of patients not so 
eligible but who are regarded as such because they receive 
benefits under a demonstration project approved under title XI.
  (vii) The formula used to determine the disproportionate 
share adjustment percentage for a cost reporting period for a 
hospital described in clause (iv)(I) is--
          (I) in the case of such a hospital with a 
        disproportionate patient percentage (as defined in 
        clause (vi)) greater than 20.2--
                  (a) for discharges occurring on or after 
                April 1, 1990, and on or before December 31, 
                1990, (P-20.2)(.65) + 5.62,
                  (b) for discharges occurring on or after 
                January 1, 1991, and on or before September 30, 
                1993, (P-20.2)(.7) + 5.62,
                  (c) for discharges occurring on or after 
                October 1, 1993, and on or before September 30, 
                1994, (P-20.2)(.8) + 5.88, and
                  (d) for discharges occurring on or after 
                October 1, 1994, (P-20.2)(.825) + 5.88; or
          (II) in the case of any other such hospital--
                  (a) for discharges occurring on or after 
                April 1, 1990, and on or before December 31, 
                1990, (P-15)(.6) + 2.5,
                  (b) for discharges occurring on or after 
                January 1, 1991, and on or before September 30, 
                1993, (P-15)(.6) + 2.5,
                  (c) for discharges occurring on or after 
                October 1, 1993, (P-15)(.65) + 2.5,
where ``P'' is the hospital's disproportionate patient 
percentage (as defined in clause (vi)).
  (viii) Subject to clause (xiv), the formula used to determine 
the disproportionate share adjustment percentage for a cost 
reporting period for a hospital described in clause (iv)(IV) or 
(iv)(V) is the percentage determined in accordance with the 
following formula:(P-30)(.6) + 4.0, where ``P'' is the 
hospital's disproportionate patient percentage (as defined in 
clause (vi)).
  (ix) In the case of discharges occurring--
          (I) during fiscal year 1998, the additional payment 
        amount otherwise determined under clause (ii) shall be 
        reduced by 1 percent;
          (II) during fiscal year 1999, such additional payment 
        amount shall be reduced by 2 percent;
          (III) during fiscal years 2000 and 2001, such 
        additional payment amount shall be reduced by 3 percent 
        and 2 percent, respectively;
          (IV) during fiscal year 2002, such additional payment 
        amount shall be reduced by 3 percent; and
          (V) during fiscal year 2003 and each subsequent 
        fiscal year, such additional payment amount shall be 
        reduced by 0 percent.
  (x) Subject to clause (xiv), for purposes of clause (iv)(VI) 
(relating to sole community hospitals), in the case of a 
hospital for a cost reporting period with a disproportionate 
patient percentage (as defined in clause (vi)) that--
          (I) is less than 19.3, the disproportionate share 
        adjustment percentage is determined in accordance with 
        the following formula: (P-15)(.65) + 2.5;
          (II) is equal to or exceeds 19.3, but is less than 
        30.0, such adjustment percentage is equal to 5.25 
        percent; or
          (III) is equal to or exceeds 30, such adjustment 
        percentage is equal to 10 percent,
where ``P'' is the hospital's disproportionate patient 
percentage (as defined in clause (vi)).
  (xi) Subject to clause (xiv), for purposes of clause (iv)(V) 
(relating to rural referral centers), in the case of a hospital 
for a cost reporting period with a disproportionate patient 
percentage (as defined in clause (vi)) that--
          (I) is less than 19.3, the disproportionate share 
        adjustment percentage is determined in accordance with 
        the following formula: (P-15)(.65) + 2.5;
          (II) is equal to or exceeds 19.3, but is less than 
        30.0, such adjustment percentage is equal to 5.25 
        percent; or
          (III) is equal to or exceeds 30, such adjustment 
        percentage is determined in accordance with the 
        following formula: (P-30)(.6) + 5.25,
where ``P'' is the hospital's disproportionate patient 
percentage (as defined in clause (vi)).
  (xii) Subject to clause (xiv), for purposes of clause 
(iv)(III) (relating to small rural hospitals generally), in the 
case of a hospital for a cost reporting period with a 
disproportionate patient percentage (as defined in clause (vi)) 
that--
          (I) is less than 19.3, the disproportionate share 
        adjustment percentage is determined in accordance with 
        the following formula: (P-15)(.65) + 2.5; or
          (II) is equal to or exceeds 19.3, such adjustment 
        percentage is equal to 5.25 percent,
where ``P'' is the hospital's disproportionate patient 
percentage (as defined in clause (vi)).
  (xiii) Subject to clause (xiv), for purposes of clause 
(iv)(II) (relating to urban hospitals with less than 100 beds), 
in the case of a hospital for a cost reporting period with a 
disproportionate patient percentage (as defined in clause (vi)) 
that--
          (I) is less than 19.3, the disproportionate share 
        adjustment percentage is determined in accordance with 
        the following formula: (P-15)(.65) + 2.5; or
          (II) is equal to or exceeds 19.3, such adjustment 
        percentage is equal to 5.25 percent,
where ``P'' is the hospital's disproportionate patient 
percentage (as defined in clause (vi)).
  (xiv)(I) In the case of discharges occurring on or after 
April 1, 2004, subject to subclause (II), there shall be 
substituted for the disproportionate share adjustment 
percentage otherwise determined under clause (iv) (other than 
subclause (I)) or under clause (viii), (x), (xi), (xii), or 
(xiii), the disproportionate share adjustment percentage 
determined under clause (vii) (relating to large, urban 
hospitals).
  (II) Under subclause (I), the disproportionate share 
adjustment percentage shall not exceed 12 percent for a 
hospital that is not classified as a rural referral center 
under subparagraph (C) or, in the case of discharges occurring 
on or after October 1, 2006, as a medicare-dependent, small 
rural hospital under subparagraph (G)(iv).
  (G)(i) For any cost reporting period beginning on or after 
April 1, 1990, and before October 1, 1994, or discharges 
occurring on or after October 1, 1997, and before October 1, 
2022, in the case of a subsection (d) hospital which is a 
medicare-dependent, small rural hospital, payment under 
paragraph (1)(A) shall be equal to the sum of the amount 
determined under clause (ii) and the amount determined under 
paragraph (1)(A)(iii).
  (ii) The amount determined under this clause is--
          (I) for discharges occurring during the 36-month 
        period beginning with the first day of the cost 
        reporting period that begins on or after April 1, 1990, 
        the amount by which the hospital's target amount for 
        the cost reporting period (as defined in subsection 
        (b)(3)(D)) exceeds the amount determined under 
        paragraph (1)(A)(iii); and
          (II) for discharges occurring during any subsequent 
        cost reporting period (or portion thereof) and before 
        October 1, 1994, or discharges occurring on or after 
        October 1, 1997, and before October 1, 2022, 50 percent 
        (or 75 percent in the case of discharges occurring on 
        or after October 1, 2006) of the amount by which the 
        hospital's target amount for the cost reporting period 
        or for discharges in the fiscal year (as defined in 
        subsection (b)(3)(D)) exceeds the amount determined 
        under paragraph (1)(A)(iii).
  (iii) In the case of a medicare dependent, small rural 
hospital that experiences, in a cost reporting period compared 
to the previous cost reporting period, a decrease of more than 
5 percent in its total number of inpatient cases due to 
circumstances beyond its control, the Secretary shall provide 
for such adjustment to the payment amounts under this 
subsection (other than under paragraph (9)) as may be necessary 
to fully compensate the hospital for the fixed costs it incurs 
in the period in providing inpatient hospital services, 
including the reasonable cost of maintaining necessary core 
staff and services.
  (iv) The term ``medicare-dependent, small rural hospital'' 
means, with respect to any cost reporting period to which 
clause (i) applies, any hospital--
          (I) that is located in--
                  (aa) a rural area; or
                  (bb) a State with no rural area (as defined 
                in paragraph (2)(D)) and satisfies any of the 
                criteria in subclause (I), (II), or (III) of 
                paragraph (8)(E)(ii),
          (II) that has not more than 100 beds,
          (III) that is not classified as a sole community 
        hospital under subparagraph (D), and
          (IV) for which not less than 60 percent of its 
        inpatient days or discharges during the cost reporting 
        period beginning in fiscal year 1987, or two of the 
        three most recently audited cost reporting periods for 
        which the Secretary has a settled cost report, were 
        attributable to inpatients entitled to benefits under 
        part A.
Subclause (I)(bb) shall apply for purposes of payment under 
clause (ii) only for discharges of a hospital occurring on or 
after the effective date of a determination of medicare-
dependent small rural hospital status made by the Secretary 
with respect to the hospital after the date of the enactment of 
this sentence. For purposes of applying subclause (II) of 
paragraph (8)(E)(ii) under subclause (I)(bb), such subclause 
(II) shall be applied by inserting ``as of January 1, 2018,'' 
after ``such State'' each place it appears.
  (H) The Secretary may provide for such adjustments to the 
payment amounts under this subsection as the Secretary deems 
appropriate to take into account the unique circumstances of 
hospitals located in Alaska and Hawaii.
  (I)(i) The Secretary shall provide by regulation for such 
other exceptions and adjustments to such payment amounts under 
this subsection as the Secretary deems appropriate.
  (ii) In making adjustments under clause (i) for transfer 
cases (as defined by the Secretary) in a fiscal year, not 
taking in account the effect of subparagraph (J), the Secretary 
may make adjustments to each of the average standardized 
amounts determined under paragraph (3) to assure that the 
aggregate payments made under this subsection for such fiscal 
year are not greater or lesser than those that would have 
otherwise been made in such fiscal year.
  (J)(i) The Secretary shall treat the term ``transfer case'' 
(as defined in subparagraph (I)(ii)) as including the case of a 
qualified discharge (as defined in clause (ii)), which is 
classified within a diagnosis-related group described in clause 
(iii), and which occurs on or after October 1, 1998. In the 
case of a qualified discharge for which a substantial portion 
of the costs of care are incurred in the early days of the 
inpatient stay (as defined by the Secretary), in no case may 
the payment amount otherwise provided under this subsection 
exceed an amount equal to the sum of--
          (I) 50 percent of the amount of payment under this 
        subsection for transfer cases (as established under 
        subparagraph (I)(i)), and
          (II) 50 percent of the amount of payment which would 
        have been made under this subsection with respect to 
        the qualified discharge if no transfer were involved.
  (ii) For purposes of clause (i), subject to clause (iii), the 
term ``qualified discharge'' means a discharge classified with 
a diagnosis-related group (described in clause (iii)) of an 
individual from a subsection (d) hospital, if upon such 
discharge the individual--
          (I) is admitted as an inpatient to a hospital or 
        hospital unit that is not a subsection (d) hospital for 
        the provision of inpatient hospital services;
          (II) is admitted to a skilled nursing facility;
          (III) is provided home health services from a home 
        health agency, if such services relate to the condition 
        or diagnosis for which such individual received 
        inpatient hospital services from the subsection (d) 
        hospital, and if such services are provided within an 
        appropriate period (as determined by the Secretary);
          (IV) for discharges occurring on or after October 1, 
        2018, is provided hospice care by a hospice program; or
          (V) for discharges occurring on or after October 1, 
        2000, the individual receives post discharge services 
        described in clause (iv)(I).
  (iii) Subject to clause (iv), a diagnosis-related group 
described in this clause is--
          (I) 1 of 10 diagnosis-related groups selected by the 
        Secretary based upon a high volume of discharges 
        classified within such groups and a disproportionate 
        use of post discharge services described in clause 
        (ii); and
          (II) a diagnosis-related group specified by the 
        Secretary under clause (iv)(II).
  (iv) The Secretary shall include in the proposed rule 
published under subsection (e)(5)(A) for fiscal year 2001, a 
description of the effect of this subparagraph. The Secretary 
shall include in the proposed rule published for fiscal year 
2019, a description of the effect of clause (ii)(IV). The 
Secretary may include in the proposed rule (and in the final 
rule published under paragraph (6)) for fiscal year 2001 or a 
subsequent fiscal year, a description of--
          (I) post-discharge services not described in 
        subclauses (I), (II), (III), and, in the case of 
        proposed and final rules for fiscal year 2019 and 
        subsequent fiscal years, (IV) of clause (ii), the 
        receipt of which results in a qualified discharge; and
          (II) diagnosis-related groups described in clause 
        (iii)(I) in addition to the 10 selected under such 
        clause.
  (K)(i) Effective for discharges beginning on or after October 
1, 2001, the Secretary shall establish a mechanism to recognize 
the costs of new medical services and technologies under the 
payment system established under this subsection. Such 
mechanism shall be established after notice and opportunity for 
public comment (in the publications required by subsection 
(e)(5) for a fiscal year or otherwise). Such mechanism shall be 
modified to meet the requirements of clause (viii).
  (ii) The mechanism established pursuant to clause (i) shall--
          (I) apply to a new medical service or technology if, 
        based on the estimated costs incurred with respect to 
        discharges involving such service or technology, the 
        DRG prospective payment rate otherwise applicable to 
        such discharges under this subsection is inadequate 
        (applying a threshold specified by the Secretary that 
        is the lesser of 75 percent of the standardized amount 
        (increased to reflect the difference between cost and 
        charges) or 75 percent of one standard deviation for 
        the diagnosis-related group involved);
          (II) provide for the collection of data with respect 
        to the costs of a new medical service or technology 
        described in subclause (I) for a period of not less 
        than two years and not more than three years beginning 
        on the date on which an inpatient hospital code is 
        issued with respect to the service or technology;
          (III) provide for additional payment to be made under 
        this subsection with respect to discharges involving a 
        new medical service or technology described in 
        subclause (I) that occur during the period described in 
        subclause (II) in an amount that adequately reflects 
        the estimated average cost of such service or 
        technology; and
          (IV) provide that discharges involving such a service 
        or technology that occur after the close of the period 
        described in subclause (II) will be classified within a 
        new or existing diagnosis-related group with a 
        weighting factor under paragraph (4)(B) that is derived 
        from cost data collected with respect to discharges 
        occurring during such period.
  (iii) For purposes of clause (ii)(II), the term ``inpatient 
hospital code'' means any code that is used with respect to 
inpatient hospital services for which payment may be made under 
this subsection and includes an alphanumeric code issued under 
the International Classification of Diseases, 9th Revision, 
Clinical Modification (``ICD-9-CM'') and its subsequent 
revisions.
  (iv) For purposes of clause (ii)(III), the term ``additional 
payment'' means, with respect to a discharge for a new medical 
service or technology described in clause (ii)(I), an amount 
that exceeds the prospective payment rate otherwise applicable 
under this subsection to discharges involving such service or 
technology that would be made but for this subparagraph.
  (v) The requirement under clause (ii)(III) for an additional 
payment may be satisfied by means of a new-technology group 
(described in subparagraph (L)), an add-on payment, a payment 
adjustment, or any other similar mechanism for increasing the 
amount otherwise payable with respect to a discharge under this 
subsection. The Secretary may not establish a separate fee 
schedule for such additional payment for such services and 
technologies, by utilizing a methodology established under 
subsection (a) or (h) of section 1834 to determine the amount 
of such additional payment, or by other similar mechanisms or 
methodologies.
  (vi) For purposes of this subparagraph and subparagraph (L), 
a medical service or technology will be considered a ``new 
medical service or technology'' if the service or technology 
meets criteria established by the Secretary after notice and an 
opportunity for public comment.
  (vii) Under the mechanism under this subparagraph, the 
Secretary shall provide for the addition of new diagnosis and 
procedure codes in April 1 of each year, but the addition of 
such codes shall not require the Secretary to adjust the 
payment (or diagnosis-related group classification) under this 
subsection until the fiscal year that begins after such date.
  (viii) The mechanism established pursuant to clause (i) shall 
be adjusted to provide, before publication of a proposed rule, 
for public input regarding whether a new service or technology 
represents an advance in medical technology that substantially 
improves the diagnosis or treatment of individuals entitled to 
benefits under part A as follows:
          (I) The Secretary shall make public and periodically 
        update a list of all the services and technologies for 
        which an application for additional payment under this 
        subparagraph is pending.
          (II) The Secretary shall accept comments, 
        recommendations, and data from the public regarding 
        whether the service or technology represents a 
        substantial improvement.
          (III) The Secretary shall provide for a meeting at 
        which organizations representing hospitals, physicians, 
        such individuals, manufacturers, and any other 
        interested party may present comments, recommendations, 
        and data to the clinical staff of the Centers for 
        Medicare & Medicaid Services before publication of a 
        notice of proposed rulemaking regarding whether service 
        or technology represents a substantial improvement.
  (ix) Before establishing any add-on payment under this 
subparagraph with respect to a new technology, the Secretary 
shall seek to identify one or more diagnosis-related groups 
associated with such technology, based on similar clinical or 
anatomical characteristics and the cost of the technology. 
Within such groups the Secretary shall assign an eligible new 
technology into a diagnosis-related group where the average 
costs of care most closely approximate the costs of care of 
using the new technology. No add-on payment under this 
subparagraph shall be made with respect to such new technology 
and this clause shall not affect the application of paragraph 
(4)(C)(iii).
  (L)(i) In establishing the mechanism under subparagraph (K), 
the Secretary may establish new-technology groups into which a 
new medical service or technology will be classified if, based 
on the estimated average costs incurred with respect to 
discharges involving such service or technology, the DRG 
prospective payment rate otherwise applicable to such 
discharges under this subsection is inadequate.
  (ii) Such groups--
          (I) shall not be based on the costs associated with a 
        specific new medical service or technology; but
          (II) shall, in combination with the applicable 
        standardized amounts and the weighting factors assigned 
        to such groups under paragraph (4)(B), reflect such 
        cost cohorts as the Secretary determines are 
        appropriate for all new medical services and 
        technologies that are likely to be provided as 
        inpatient hospital services in a fiscal year.
  (iii) The methodology for classifying specific hospital 
discharges within a diagnosis-related group under paragraph 
(4)(A) or a new-technology group shall provide that a specific 
hospital discharge may not be classified within both a 
diagnosis-related group and a new-technology group.
  (6) The Secretary shall provide for publication in the 
Federal Register, on or before the August 1 before each fiscal 
year (beginning with fiscal year 1984), of a description of the 
methodology and data used in computing the adjusted DRG 
prospective payment rates under this subsection, including any 
adjustments required under subsection (e)(1)(B).
  (7) There shall be no administrative or judicial review under 
section 1878 or otherwise of--
          (A) the determination of the requirement, or the 
        proportional amount, of any adjustment effected 
        pursuant to subsection (e)(1) or the determination of 
        the applicable percentage increase under paragraph 
        (12)(A)(ii),
          (B) the establishment of diagnosis-related groups, of 
        the methodology for the classification of discharges 
        within such groups, and of the appropriate weighting 
        factors thereof under paragraph (4), including the 
        selection and revision of codes under paragraph (4)(D), 
        and
          (C) the determination of whether services provided 
        prior to a patient's inpatient admission are related to 
        the admission (as described in subsection (a)(4)).
  (8)(A) In the case of any hospital which is located in an 
area which is, at any time after April 20, 1983, reclassified 
from an urban to a rural area, payments to such hospital for 
the first two cost reporting periods for which such 
reclassification is effective shall be made as follows:
          (i) For the first such cost reporting period, payment 
        shall be equal to the amount payable to such hospital 
        for such reporting period on the basis of the rural 
        classification, plus an amount equal to two-thirds of 
        the amount (if any) by which--
                  (I) the amount which would have been payable 
                to such hospital for such reporting period on 
                the basis of an urban classification, exceeds
                  (II) the amount payable to such hospital for 
                such reporting period on the basis of the rural 
                classification.
          (ii) For the second such cost reporting period, 
        payment shall be equal to the amount payable to such 
        hospital for such reporting period on the basis of the 
        rural classification, plus an amount equal to one-third 
        of the amount (if any) by which--
                  (I) the amount which would have been payable 
                to such hospital for such reporting period on 
                the basis of an urban classification, exceeds
                  (II) the amount payable to such hospital for 
                such reporting period on the basis of the rural 
                classification.
  (B)(i) For purposes of this subsection, the Secretary shall 
treat a hospital located in a rural county adjacent to one or 
more urban areas as being located in the urban metropolitan 
statistical area to which the greatest number of workers in the 
county commute, if the rural county would otherwise be 
considered part of an urban area, under the standards for 
designating Metropolitan Statistical Areas (and for designating 
New England County Metropolitan Areas) described in clause 
(ii), if the commuting rates used in determining outlying 
counties (or, for New England, similar recognized areas) were 
determined on the basis of the aggregate number of resident 
workers who commute to (and, if applicable under the standards, 
from) the central county or counties of all contiguous 
Metropolitan Statistical Areas (or New England County 
Metropolitan Areas).
  (ii) The standards described in this clause for cost 
reporting periods beginning in a fiscal year--
          (I) before fiscal year 2003, are the standards 
        published in the Federal Register on January 3, 1980, 
        or, at the election of the hospital with respect to 
        fiscal years 2001 and 2002, standards so published on 
        March 30, 1990; and
          (II) after fiscal year 2002, are the standards 
        published in the Federal Register by the Director of 
        the Office of Management and Budget based on the most 
        recent available decennial population data.
Subparagraphs (C) and (D) shall not apply with respect to the 
application of subclause (I).
  (C)(i) If the application of subparagraph (B) or a decision 
of the Medicare Geographic Classification Review Board or the 
Secretary under paragraph (10), by treating hospitals located 
in a rural county or counties as being located in an urban 
area, or by treating hospitals located in one urban area as 
being located in another urban area--
          (I) reduces the wage index for that urban area (as 
        applied under this subsection) by 1 percentage point or 
        less, the Secretary, in calculating such wage index 
        under this subsection, shall exclude those hospitals so 
        treated, or
          (II) reduces the wage index for that urban area by 
        more than 1 percentage point (as applied under this 
        subsection), the Secretary shall calculate and apply 
        such wage index under this subsection separately to 
        hospitals located in such urban area (excluding all the 
        hospitals so treated) and to the hospitals so treated 
        (as if such hospitals were located in such urban area).
  (ii) If the application of subparagraph (B) or a decision of 
the Medicare Geographic Classification Review Board or the 
Secretary under paragraph (10), by treating hospitals located 
in a rural county or counties as not being located in the rural 
area in a State, reduces the wage index for that rural area (as 
applied under this subsection), the Secretary shall calculate 
and apply such wage index under this subsection as if the 
hospitals so treated had not been excluded from calculation of 
the wage index for that rural area.
  (iii) The application of subparagraph (B) or a decision of 
the Medicare Geographic Classification Review Board or the 
Secretary under paragraph (10) may not result in the reduction 
of any county's wage index to a level below the wage index for 
rural areas in the State in which the county is located.
  (iv) The application of subparagraph (B) or a decision of the 
Medicare Geographic Classification Review Board or of the 
Secretary under paragraph (10) may not result in a reduction in 
an urban area's wage index if--
          (I) the urban area has a wage index below the wage 
        index for rural areas in the State in which it is 
        located; or
          (II) the urban area is located in a State that is 
        composed of a single urban area.
  (v) This subparagraph shall apply with respect to discharges 
occurring in a fiscal year only if the Secretary uses a method 
for making adjustments to the DRG prospective payment rate for 
area differences in hospital wage levels under paragraph (3)(E) 
for the fiscal year that is based on the use of Metropolitan 
Statistical Area classifications.
  (D) The Secretary shall make a proportional adjustment in the 
standardized amounts determined under paragraph (3) to assure 
that the provisions of subparagraphs (B) and (C) or a decision 
of the Medicare Geographic Classification Review Board or the 
Secretary under paragraph (10) do not result in aggregate 
payments under this section that are greater or less than those 
that would otherwise be made.
  (E)(i) For purposes of this subsection, not later than 60 
days after the receipt of an application (in a form and manner 
determined by the Secretary) from a subsection (d) hospital 
described in clause (ii), the Secretary shall treat the 
hospital as being located in the rural area (as defined in 
paragraph (2)(D)) of the State in which the hospital is 
located.
  (ii) For purposes of clause (i), a subsection (d) hospital 
described in this clause is a subsection (d) hospital that is 
located in an urban area (as defined in paragraph (2)(D)) and 
satisfies any of the following criteria:
          (I) The hospital is located in a rural census tract 
        of a metropolitan statistical area (as determined under 
        the most recent modification of the Goldsmith 
        Modification, originally published in the Federal 
        Register on February 27, 1992 (57 Fed. Reg. 6725)).
          (II) The hospital is located in an area designated by 
        any law or regulation of such State as a rural area (or 
        is designated by such State as a rural hospital).
          (III) The hospital would qualify as a rural, 
        regional, or national referral center under paragraph 
        (5)(C) or as a sole community hospital under paragraph 
        (5)(D) if the hospital were located in a rural area.
          (IV) The hospital meets such other criteria as the 
        Secretary may specify.
  (9)(A) Notwithstanding section 1814(b) but subject to the 
provisions of section 1813, the amount of the payment with 
respect to the operating costs of inpatient hospital services 
of a subsection (d) Puerto Rico hospital for inpatient hospital 
discharges is equal to the sum of--
          (i) the applicable Puerto Rico percentage (specified 
        in subparagraph (E)) of the Puerto Rico adjusted DRG 
        prospective payment rate (determined under subparagraph 
        (B) or (C)) for such discharges,
          (ii) the applicable Federal percentage (specified in 
        subparagraph (E)) of--
                  (I) for discharges beginning in a fiscal year 
                beginning on or after October 1, 1997, and 
                before October 1, 2003, the discharge-weighted 
                average of--
                          (aa) the national adjusted DRG 
                        prospective payment rate (determined 
                        under paragraph (3)(D)) for hospitals 
                        located in a large urban area,
                          (bb) such rate for hospitals located 
                        in other urban areas, and
                          (cc) such rate for hospitals located 
                        in a rural area,
                for such discharges, adjusted in the manner 
                provided in paragraph (3)(E) for different area 
                wage levels; and
                  (II) for discharges in a fiscal year 
                beginning on or after October 1, 2003, the 
                national DRG prospective payment rate 
                determined under paragraph (3)(D)(iii) for 
                hospitals located in any area for such 
                discharges, adjusted in the manner provided in 
                paragraph (3)(E) for different area wage 
                levels.
As used in this section, the term ``subsection (d) Puerto Rico 
hospital'' means a hospital that is located in Puerto Rico and 
that would be a subsection (d) hospital (as defined in 
paragraph (1)(B)) if it were located in one of the 50 States.
  (B) The Secretary shall determine a Puerto Rico adjusted DRG 
prospective payment rate, for each inpatient hospital discharge 
in fiscal year 1988 involving inpatient hospital services of a 
subsection (d) Puerto Rico hospital for which payment may be 
made under part A of this title. Such rate shall be determined 
for such hospitals located in urban or rural areas within 
Puerto Rico, as follows:
          (i) The Secretary shall determine the target amount 
        (as defined in subsection (b)(3)(A)) for the hospital 
        for the cost reporting period beginning in fiscal year 
        1987 and increase such amount by prorating the 
        applicable percentage increase (as defined in 
        subsection (b)(3)(B)) to update the amount to the 
        midpoint in fiscal year 1988.
          (ii) The Secretary shall standardize the amount 
        determined under clause (i) for each hospital by--
                  (I) excluding an estimate of indirect medical 
                education costs,
                  (II) adjusting for variations among hospitals 
                by area in the average hospital wage level,
                  (III) adjusting for variations in case mix 
                among hospitals, and
                  (IV) excluding an estimate of the additional 
                payments to certain subsection (d) Puerto Rico 
                hospitals to be made under subparagraph 
                (D)(iii) (relating to disproportionate share 
                payments).
          (iii) The Secretary shall compute a discharge 
        weighted average of the standardized amounts determined 
        under clause (ii) for all hospitals located in an urban 
        area and for all hospitals located in a rural area (as 
        such terms are defined in paragraph (2)(D)).
          (iv) The Secretary shall reduce the average 
        standardized amount by a proportion equal to the 
        proportion (estimated by the Secretary) of the amount 
        of payments under this paragraph which are additional 
        payments described in subparagraph (D)(i) (relating to 
        outlier payments).
          (v) For each discharge classified within a diagnosis-
        related group for hospitals located in an urban or 
        rural area, respectively, the Secretary shall establish 
        a Puerto Rico DRG prospective payment rate equal to the 
        product of--
                  (I) the average standardized amount (computed 
                under clause (iii) and reduced under clause 
                (iv)) for hospitals located in an urban or 
                rural area, respectively, and
                  (II) the weighting factor (determined under 
                paragraph (4)(B)) for that diagnosis-related 
                group.
          (vi) The Secretary shall adjust the proportion (as 
        estimated by the Secretary from time to time) of 
        hospitals' costs which are attributable to wages and 
        wage-related costs, of the Puerto Rico DRG prospective 
        payment rate computed under clause (v) for area 
        differences in hospital wage levels by a factor 
        (established by the Secretary) reflecting the relative 
        hospital wage level in the geographic area of the 
        hospital compared to the Puerto Rican average hospital 
        wage level.
  (C) The Secretary shall determine a Puerto Rico adjusted DRG 
prospective payment rate, for each inpatient hospital discharge 
after fiscal year 1988 involving inpatient hospital services of 
a subsection (d) Puerto Rico hospital for which payment may be 
made under part A of this title. Such rate shall be determined 
for hospitals located in urban or rural areas within Puerto 
Rico as follows:
          (i)(I) For discharges in a fiscal year after fiscal 
        year 1988 and before fiscal year 2004, the Secretary 
        shall compute an average standardized amount for 
        hospitals located in an urban area and for hospitals 
        located in a rural area equal to the respective average 
        standardized amount computed for the previous fiscal 
        year under subparagraph (B)(iii) or under this clause, 
        increased for fiscal year 1989 by the applicable 
        percentage increase under subsection (b)(3)(B), and 
        adjusted for subsequent fiscal years in accordance with 
        the final determination of the Secretary under 
        subsection (e)(4), and adjusted to reflect the most 
        recent case-mix data available.
          (II) For discharges occurring in a fiscal year 
        (beginning with fiscal year 2004), the Secretary shall 
        compute an average standardized amount for hospitals 
        located in any area of Puerto Rico that is equal to the 
        average standardized amount computed under subclause 
        (I) for fiscal year 2003 for hospitals in a large urban 
        area (or, beginning with fiscal year 2005, for all 
        hospitals in the previous fiscal year) increased by the 
        applicable percentage increase under subsection 
        (b)(3)(B) for the fiscal year involved.
          (ii) The Secretary shall reduce each of the average 
        standardized amounts (or for fiscal year 2004 and 
        thereafter, the average standardized amount) by a 
        proportion equal to the proportion (estimated by the 
        Secretary) of the amount of payments under this 
        paragraph which are additional payments described in 
        subparagraph (D)(i) (relating to outlier payments).
          (iii) For each discharge classified within a 
        diagnosis-related group for hospitals located in an 
        urban or rural area, respectively, the Secretary shall 
        establish a Puerto Rico DRG prospective payment rate 
        equal to the product of--
                  (I) the average standardized amount (computed 
                under clause (i) and reduced under clause 
                (ii)), and
                  (II) the weighting factor (determined under 
                paragraph (4)(B)) for that diagnosis-related 
                group.
          (iv)(I) The Secretary shall adjust the proportion (as 
        estimated by the Secretary from time to time) of 
        hospitals' costs which are attributable to wages and 
        wage-related costs, of the Puerto Rico DRG prospective 
        payment rate computed under clause (iii) for area 
        differences in hospital wage levels by a factor 
        (established by the Secretary) reflecting the relative 
        hospital wage level in the geographic area of the 
        hospital compared to the Puerto Rico average hospital 
        wage level. The second and third sentences of paragraph 
        (3)(E)(i) shall apply to subsection (d) Puerto Rico 
        hospitals under this clause in the same manner as they 
        apply to subsection (d) hospitals under such paragraph 
        and, for purposes of this clause, any reference in such 
        paragraph to a subsection (d) hospital is deemed a 
        reference to a subsection (d) Puerto Rico hospital.
          (II) For discharges occurring on or after October 1, 
        2004, the Secretary shall substitute ``62 percent'' for 
        the proportion described in the first sentence of 
        clause (i), unless the application of this subclause 
        would result in lower payments to a hospital than would 
        otherwise be made.
  (D) The following provisions of paragraph (5) shall apply to 
subsection (d) Puerto Rico hospitals receiving payment under 
this paragraph in the same manner and to the extent as they 
apply to subsection (d) hospitals receiving payment under this 
subsection:
          (i) Subparagraph (A) (relating to outlier payments).
          (ii) Subparagraph (B) (relating to payments for 
        indirect medical education costs), except that for this 
        purpose the sum of the amount determined under 
        subparagraph (A) of this paragraph and the amount paid 
        to the hospital under clause (i) of this subparagraph 
        shall be substituted for the sum referred to in 
        paragraph (5)(B)(i)(I).
          (iii) Subparagraph (F) (relating to disproportionate 
        share payments), except that for this purpose the sum 
        described in clause (ii) of this subparagraph shall be 
        substituted for the sum referred to in paragraph 
        (5)(F)(ii)(I).
          (iv) Subparagraph (H) (relating to exceptions and 
        adjustments).
  (E) For purposes of subparagraph (A), for discharges 
occurring--
          (i) on or after October 1, 1987, and before October 
        1, 1997, the applicable Puerto Rico percentage is 75 
        percent and the applicable Federal percentage is 25 
        percent;
          (ii) on or after October 1, 1997, and before April 1, 
        2004, the applicable Puerto Rico percentage is 50 
        percent and the applicable Federal percentage is 50 
        percent;
          (iii) on or after April 1, 2004, and before October 
        1, 2004, the applicable Puerto Rico percentage is 37.5 
        percent and the applicable Federal percentage is 62.5 
        percent;
          (iv) on or after October 1, 2004, and before January 
        1, 2016, the applicable Puerto Rico percentage is 25 
        percent and the applicable Federal percentage is 75 
        percent; and
          (v) on or after January 1, 2016, the applicable 
        Puerto Rico percentage is 0 percent and the applicable 
        Federal percentage is 100 percent.
  (10)(A) There is hereby established the Medicare Geographic 
Classification Review Board (hereinafter in this paragraph 
referred to as the ``Board'').
  (B)(i) The Board shall be composed of 5 members appointed by 
the Secretary without regard to the provisions of title 5, 
United States Code, governing appointments in the competitive 
service. Two of such members shall be representative of 
subsection (d) hospitals located in a rural area under 
paragraph (2)(D). At least 1 member shall be knowledgeable in 
the field of analyzing costs with respect to the provision of 
inpatient hospital services.
  (ii) The Secretary shall make initial appointments to the 
Board as provided in this paragraph within 180 days after the 
date of the enactment of this paragraph.
  (C)(i) The Board shall consider the application of any 
subsection (d) hospital requesting that the Secretary change 
the hospital's geographic classification for purposes of 
determining for a fiscal year--
          (I) the hospital's average standardized amount under 
        paragraph (2)(D), or
          (II) the factor used to adjust the DRG prospective 
        payment rate for area differences in hospital wage 
        levels that applies to such hospital under paragraph 
        (3)(E).
  (ii) A hospital requesting a change in geographic 
classification under clause (i) for a fiscal year shall submit 
its application to the Board not later than the first day of 
the 13-month period ending on September 30 of the preceding 
fiscal year.
  (iii)(I) The Board shall render a decision on an application 
submitted under clause (i) not later than 180 days after the 
deadline referred to in clause (ii).
  (II) Appeal of decisions of the Board shall be subject to the 
provisions of section 557b of title 5, United States Code. The 
Secretary shall issue a decision on such an appeal not later 
than 90 days after the date on which the appeal is filed. The 
decision of the Secretary shall be final and shall not be 
subject to judicial review.
  (D)(i) The Secretary shall publish guidelines to be utilized 
by the Board in rendering decisions on applications submitted 
under this paragraph, and shall include in such guidelines the 
following:
          (I) Guidelines for comparing wages, taking into 
        account (to the extent the Secretary determines 
        appropriate) occupational mix, in the area in which the 
        hospital is classified and the area in which the 
        hospital is applying to be classified.
          (II) Guidelines for determining whether the county in 
        which the hospital is located should be treated as 
        being a part of a particular Metropolitan Statistical 
        Area.
          (III) Guidelines for considering information provided 
        by an applicant with respect to the effects of the 
        hospital's geographic classification on access to 
        inpatient hospital services by medicare beneficiaries.
          (IV) Guidelines for considering the appropriateness 
        of the criteria used to define New England County 
        Metropolitan Areas.
  (ii) Notwithstanding clause (i), if the Secretary uses a 
method for making adjustments to the DRG prospective payment 
rate for area differences in hospital wage levels under 
paragraph (3)(E) that is not based on the use of Metropolitan 
Statistical Area classifications, the Secretary may revise the 
guidelines published under clause (i) to the extent such 
guidelines are used to determine the appropriateness of the 
geographic area in which the hospital is determined to be 
located for purposes of making such adjustments.
  (iii) Under the guidelines published by the Secretary under 
clause (i), in the case of a hospital which has ever been 
classified by the Secretary as a rural referral center under 
paragraph (5)(C), the Board may not reject the application of 
the hospital under this paragraph on the basis of any 
comparison between the average hourly wage of the hospital and 
the average hourly wage of hospitals in the area in which it is 
located.
  (iv) The Secretary shall publish the guidelines described in 
clause (i) by July 1, 1990.
  (v) Any decision of the Board to reclassify a subsection (d) 
hospital for purposes of the adjustment factor described in 
subparagraph (C)(i)(II) for fiscal year 2001 or any fiscal year 
thereafter shall be effective for a period of 3 fiscal years, 
except that the Secretary shall establish procedures under 
which a subsection (d) hospital may elect to terminate such 
reclassification before the end of such period.
  (vi) Such guidelines shall provide that, in making decisions 
on applications for reclassification for the purposes described 
in clause (v) for fiscal year 2003 and any succeeding fiscal 
year, the Board shall base any comparison of the average hourly 
wage for the hospital with the average hourly wage for 
hospitals in an area on--
          (I) an average of the average hourly wage amount for 
        the hospital from the most recently published hospital 
        wage survey data of the Secretary (as of the date on 
        which the hospital applies for reclassification) and 
        such amount from each of the two immediately preceding 
        surveys; and
          (II) an average of the average hourly wage amount for 
        hospitals in such area from the most recently published 
        hospital wage survey data of the Secretary (as of the 
        date on which the hospital applies for 
        reclassification) and such amount from each of the two 
        immediately preceding surveys.
  (E)(i) The Board shall have full power and authority to make 
rules and establish procedures, not inconsistent with the 
provisions of this title or regulations of the Secretary, which 
are necessary or appropriate to carry out the provisions of 
this paragraph. In the course of any hearing the Board may 
administer oaths and affirmations. The provisions of 
subsections (d) and (e) of section 205 with respect to subpenas 
shall apply to the Board to the same extent as such provisions 
apply to the Secretary with respect to title II.
  (ii) The Board is authorized to engage such technical 
assistance and to receive such information as may be required 
to carry out its functions, and the Secretary shall, in 
addition, make available to the Board such secretarial, 
clerical, and other assistance as the Board may require to 
carry out its functions.
  (F)(i) Each member of the Board who is not an officer or 
employee of the Federal Government shall be compensated at a 
rate equal to the daily equivalent of the annual rate of basic 
pay prescribed for grade GS-18 of the General Schedule under 
section 5332 of title 5, United States Code, for each day 
(including travel time) during which such member is engaged in 
the performance of the duties of the Board. Each member of the 
Board who is an officer or employee of the United States shall 
serve without compensation in addition to that received for 
service as an officer or employee of the United States.
  (ii) Members of the Board shall be allowed travel expenses, 
including per diem in lieu of subsistence, at rates authorized 
for employees of agencies under subchapter I of chapter 57 of 
title 5, United States Code, while away from their homes or 
regular places of business in the performance of services for 
the Board.
          (11) Additional payments for managed care 
        enrollees.--
                  (A) In general.--For portions of cost 
                reporting periods occurring on or after January 
                1, 1998, the Secretary shall provide for an 
                additional payment amount for each applicable 
                discharge of any subsection (d) hospital that 
                has an approved medical residency training 
                program.
                  (B) Applicable discharge.--For purposes of 
                this paragraph, the term ``applicable 
                discharge'' means the discharge of any 
                individual who is enrolled under a risk-sharing 
                contract with an eligible organization under 
                section 1876 and who is entitled to benefits 
                under part A or any individual who is enrolled 
                with a Medicare+Choice organization under part 
                C.
                  (C) Determination of amount.--The amount of 
                the payment under this paragraph with respect 
                to any applicable discharge shall be equal to 
                the applicable percentage (as defined in 
                subsection (h)(3)(D)(ii)) of the estimated 
                average per discharge amount that would 
                otherwise have been paid under paragraph (5)(B) 
                if the individuals had not been enrolled as 
                described in subparagraph (B).
                  (D) Special rule for hospitals under 
                reimbursement system.--The Secretary shall 
                establish rules for the application of this 
                paragraph to a hospital reimbursed under a 
                reimbursement system authorized under section 
                1814(b)(3) in the same manner as it would apply 
                to the hospital if it were not reimbursed under 
                such section.
          (12) Payment adjustment for low-volume hospitals.--
                  (A) In general.--In addition to any payments 
                calculated under this section for a subsection 
                (d) hospital, for discharges occurring during a 
                fiscal year (beginning with fiscal year 2005), 
                the Secretary shall provide for an additional 
                payment amount to each low-volume hospital (as 
                defined in subparagraph (C)(i)) for discharges 
                occurring during that fiscal year that is equal 
                to the applicable percentage increase 
                (determined under subparagraph (B) or (D) for 
                the hospital involved) in the amount paid to 
                such hospital under this section for such 
                discharges (determined without regard to this 
                paragraph).
                  (B) Applicable percentage increase.--For 
                discharges occurring in fiscal years 2005 
                through 2010 and for discharges occurring in 
                fiscal year 2023 and subsequent fiscal years, 
                the Secretary shall determine an applicable 
                percentage increase for purposes of 
                subparagraph (A) as follows:
                          (i) The Secretary shall determine the 
                        empirical relationship for subsection 
                        (d) hospitals between the standardized 
                        cost-per-case for such hospitals and 
                        the total number of discharges of such 
                        hospitals and the amount of the 
                        additional incremental costs (if any) 
                        that are associated with such number of 
                        discharges.
                          (ii) The applicable percentage 
                        increase shall be determined based upon 
                        such relationship in a manner that 
                        reflects, based upon the number of such 
                        discharges for a subsection (d) 
                        hospital, such additional incremental 
                        costs.
                          (iii) In no case shall the applicable 
                        percentage increase exceed 25 percent.
                  (C) Definitions.--
                          (i) Low-volume hospital.--For 
                        purposes of this paragraph, the term 
                        ``low-volume hospital'' means, for a 
                        fiscal year, a subsection (d) hospital 
                        (as defined in paragraph (1)(B)) that 
                        the Secretary determines is located 
                        more than 25 road miles (or, with 
                        respect to fiscal years 2011 through 
                        2022, 15 road miles) from another 
                        subsection (d) hospital and has--
                                  (I) with respect to each of 
                                fiscal years 2005 through 2010, 
                                less than 800 discharges during 
                                the fiscal year;
                                  (II) with respect to each of 
                                fiscal years 2011 through 2018, 
                                less than 1,600 discharges of 
                                individuals entitled to, or 
                                enrolled for, benefits under 
                                part A during the fiscal year 
                                or portion of fiscal year;
                                  (III) with respect to each of 
                                fiscal years 2019 through 2022, 
                                less than 3,800 discharges 
                                during the fiscal year; and
                                  (IV) with respect to fiscal 
                                year 2023 and each subsequent 
                                fiscal year, less than 800 
                                discharges during the fiscal 
                                year.
                          (ii) Discharge.--For purposes of 
                        subparagraphs (B) and (D) and clause 
                        (i), the term ``discharge'' means an 
                        inpatient acute care discharge of an 
                        individual regardless (except as 
                        provided in clause (i)(II) and 
                        subparagraph (D)(i)) of whether the 
                        individual is entitled to benefits 
                        under part A.
                  (iii) Treatment of indian health service and 
                non-indian health service facilities.--For 
                purposes of determining whether--
                          (I) a subsection (d) hospital of the 
                        Indian Health Service (whether operated 
                        by such Service or by an Indian tribe 
                        or tribal organization (as those terms 
                        are defined in section 4 of the Indian 
                        Health Care Improvement Act)), or
                          (II) a subsection (d) hospital other 
                        than a hospital of the Indian Health 
                        Service meets the mileage criterion 
                        under clause (i) with respect to fiscal 
                        year 2011 or a succeeding fiscal year, 
                        the Secretary shall apply the policy 
                        described in the regulation at part 
                        412.101(e) of title 42, Code of Federal 
                        Regulations (as in effect on the date 
                        of enactment of this clause).
                  (D) Temporary applicable percentage 
                increase.--For discharges occurring in fiscal 
                years 2011 through 2022, the Secretary shall 
                determine an applicable percentage increase for 
                purposes of subparagraph (A) using a continuous 
                linear sliding scale ranging from 25 percent 
                for low-volume hospitals--
                          (i) with respect to each of fiscal 
                        years 2011 through 2018, with 200 or 
                        fewer discharges of individuals 
                        entitled to, or enrolled for, benefits 
                        under part A in the fiscal year or the 
                        portion of fiscal year to 0 percent for 
                        low-volume hospitals with greater than 
                        1,600 discharges of such individuals in 
                        the fiscal yearor portion of fiscal 
                        year; and
                          (ii) with respect to each of fiscal 
                        years 2019 through 2022, with 500 or 
                        fewer discharges in the fiscal year to 
                        0 percent for low-volume hospitals with 
                        greater than 3,800 discharges in the 
                        fiscal year.
  (13)(A) In order to recognize commuting patterns among 
geographic areas, the Secretary shall establish a process 
through application or otherwise for an increase of the wage 
index applied under paragraph (3)(E) for subsection (d) 
hospitals located in a qualifying county described in 
subparagraph (B) in the amount computed under subparagraph (D) 
based on out-migration of hospital employees who reside in that 
county to any higher wage index area.
  (B) The Secretary shall establish criteria for a qualifying 
county under this subparagraph based on the out-migration 
referred to in subparagraph (A) and differences in the area 
wage indices. Under such criteria the Secretary shall, 
utilizing such data as the Secretary determines to be 
appropriate, establish--
          (i) a threshold percentage, established by the 
        Secretary, of the weighted average of the area wage 
        index or indices for the higher wage index areas 
        involved;
          (ii) a threshold (of not less than 10 percent) for 
        minimum out-migration to a higher wage index area or 
        areas; and
          (iii) a requirement that the average hourly wage of 
        the hospitals in the qualifying county equals or 
        exceeds the average hourly wage of all the hospitals in 
        the area in which the qualifying county is located.
  (C) For purposes of this paragraph, the term ``higher wage 
index area'' means, with respect to a county, an area with a 
wage index that exceeds that of the county.
  (D) The increase in the wage index under subparagraph (A) for 
a qualifying county shall be equal to the percentage of the 
hospital employees residing in the qualifying county who are 
employed in any higher wage index area multiplied by the sum of 
the products, for each higher wage index area of--
          (i) the difference between--
                  (I) the wage index for such higher wage index 
                area, and
                  (II) the wage index of the qualifying county; 
                and
          (ii) the number of hospital employees residing in the 
        qualifying county who are employed in such higher wage 
        index area divided by the total number of hospital 
        employees residing in the qualifying county who are 
        employed in any higher wage index area.
  (E) The process under this paragraph may be based upon the 
process used by the Medicare Geographic Classification Review 
Board under paragraph (10). As the Secretary determines to be 
appropriate to carry out such process, the Secretary may 
require hospitals (including subsection (d) hospitals and other 
hospitals) and critical access hospitals, as required under 
section 1866(a)(1)(T), to submit data regarding the location of 
residence, or the Secretary may use data from other sources.
  (F) A wage index increase under this paragraph shall be 
effective for a period of 3 fiscal years, except that the 
Secretary shall establish procedures under which a subsection 
(d) hospital may elect to waive the application of such wage 
index increase.
  (G) A hospital in a county that has a wage index increase 
under this paragraph for a period and that has not waived the 
application of such an increase under subparagraph (F) is not 
eligible for reclassification under paragraph (8) or (10) 
during that period.
  (H) Any increase in a wage index under this paragraph for a 
county shall not be taken into account for purposes of--
          (i) computing the wage index for portions of the wage 
        index area (not including the county) in which the 
        county is located; or
          (ii) applying any budget neutrality adjustment with 
        respect to such index under paragraph (8)(D).
  (I) The thresholds described in subparagraph (B), data on 
hospital employees used under this paragraph, and any 
determination of the Secretary under the process described in 
subparagraph (E) shall be final and shall not be subject to 
judicial review.
  (e)(1)(A) For cost reporting periods of hospitals beginning 
in fiscal year 1984 or fiscal year 1985, the Secretary shall 
provide for such proportional adjustment in the applicable 
percentage increase (otherwise applicable to the periods under 
subsection (b)(3)(B)) as may be necessary to assure that--
          (i) the aggregate payment amounts otherwise provided 
        under subsection (d)(1)(A)(i)(I) for that fiscal year 
        for operating costs of inpatient hospital services of 
        hospitals (excluding payments made under section 
        1866(a)(1)(F)),
are not greater or less than--
          (ii) the target percentage (as defined in subsection 
        (d)(1)(C)) of the payment amounts which would have been 
        payable for such services for those same hospitals for 
        that fiscal year under this section under the law as in 
        effect before the date of the enactment of the Social 
        Security Amendments of 1983 (excluding payments made 
        under section 1866(a)(1)(F));
except that the adjustment made under this subparagraph shall 
apply only to subsection (d) hospitals and shall not apply for 
purposes of making computations under subsection (d)(2)(B)(ii) 
or subsection (d)(3)(A).
  (B) For discharges occurring in fiscal year 1984 or fiscal 
year 1985, the Secretary shall provide under subsections 
(d)(2)(F) and (d)(3)(C) for such equal proportional adjustment 
in each of the average standardized amounts otherwise computed 
for that fiscal year as may be necessary to assure that--
          (i) the aggregate payment amounts otherwise provided 
        under subsection (d)(1)(A)(i)(II) and (d)(5) for that 
        fiscal year for operating costs of inpatient hospital 
        services of hospitals (excluding payments made under 
        section 1866(a)(1)(F)),
are not greater or less than--
          (ii) the DRG percentage (as defined in subsection 
        (d)(1)(C)) of the payment amounts which would have been 
        payable for such services for those same hospitals for 
        that fiscal year under this section under the law as in 
        effect before the date of the enactment of the Social 
        Security Amendments of 1983 (excluding payments made 
        under section 1866(a)(1)(F)).
  (C) For discharges occurring in fiscal year 1988, the 
Secretary shall provide for such equal proportional adjustment 
in each of the average standardized amounts otherwise computed 
under subsection (d)(3) for that fiscal year as may be 
necessary to assure that--
          (i) the aggregate payment amounts otherwise provided 
        under subsections (d)(1)(A)(iii), (d)(5), and (d)(9) 
        for that fiscal year for operating costs of inpatient 
        hospital services of subsection (d) hospitals and 
        subsection (d) Puerto Rico hospitals,
are not greater or less than--
          (ii) the payment amounts that would have been payable 
        for such services for those same hospitals for that 
        fiscal year but for the enactment of the amendments 
        made by section 9304 of the Omnibus Budget 
        Reconciliation Act of 1986.
  (4)(A) Taking into consideration the recommendations of the 
Commission, the Secretary shall recommend for each fiscal year 
(beginning with fiscal year 1988) an appropriate change factor 
for inpatient hospital services for discharges in that fiscal 
year which will take into account amounts necessary for the 
efficient and effective delivery of medically appropriate and 
necessary care of high quality. The appropriate change factor 
may be different for all large urban subsection (d) hospitals, 
other urban subsection (d) hospitals, urban subsection (d) 
Puerto Rico hospitals, rural subsection (d) hospitals, and 
rural subsection (d) Puerto Rico hospitals, and all other 
hospitals and units not paid under subsection (d), and may vary 
among such other hospitals and units.
  (B) In addition to the recommendation made under subparagraph 
(A), the Secretary shall, taking into consideration the 
recommendations of the Commission under paragraph (2)(B), 
recommend for each fiscal year (beginning with fiscal year 
1992) other appropriate changes in each existing reimbursement 
policy under this title under which payments to an institution 
are based upon prospectively determined rates.
  (5) The Secretary shall cause to have published in the 
Federal Register, not later than--
          (A) the April 1 before each fiscal year (beginning 
        with fiscal year 1986), the Secretary's proposed 
        recommendations under paragraph (4) for that fiscal 
        year for public comment, and
          (B) the August 1 before such fiscal year after such 
        consideration of public comment on the proposal as is 
        feasible in the time available, the Secretary's final 
        recommendations under such paragraph for that year.
The Secretary shall include in the publication referred to in 
subparagraph (A) for a fiscal year the report of the 
Commission's recommendations submitted under paragraph (3) for 
that fiscal year. To the extent that the Secretary's 
recommendations under paragraph (4) differ from the 
Commission's recommendations for that fiscal year, the 
Secretary shall include in the publication referred to in 
subparagraph (A) an explanation of the Secretary's grounds for 
not following the Commission's recommendations.
  (f)(1)(A) The Secretary shall maintain a system for the 
reporting of costs of hospitals receiving payments computed 
under subsection (d).
  (B)(i) Subject to clause (ii), the Secretary shall place into 
effect a standardized electronic cost reporting format for 
hospitals under this title.
  (ii) The Secretary may delay or waive the implementation of 
such format in particular instances where such implementation 
would result in financial hardship (in particular with respect 
to hospitals with a small percentage of inpatients entitled to 
benefits under this title).
  (2) If the Secretary determines, based upon information 
supplied by a quality improvement organization under part B of 
title XI, that a hospital, in order to circumvent the payment 
method established under subsection (b) or (d) of this section, 
has taken an action that results in the admission of 
individuals entitled to benefits under part A unnecessarily, 
unnecessary multiple admissions of the same such individuals, 
or other inappropriate medical or other practices with respect 
to such individuals, the Secretary may--
          (A) deny payment (in whole or in part) under part A 
        with respect to inpatient hospital services provided 
        with respect to such an unnecessary admission (or 
        subsequent admission of the same individual), or
          (B) require the hospital to take other corrective 
        action necessary to prevent or correct the 
        inappropriate practice.
  (3) The provisions of subsections (c) through (g) of section 
1128 shall apply to determinations made under paragraph (2) in 
the same manner as they apply to exclusions effected under 
section 1128(b)(13).
  (g)(1)(A) Notwithstanding section 1861(v), instead of any 
amounts that are otherwise payable under this title with 
respect to the reasonable costs of subsection (d) hospitals and 
subsection (d) Puerto Rico hospitals for capital-related costs 
of inpatient hospital services, the Secretary shall, for 
hospital cost reporting periods beginning on or after October 
1, 1991, provide for payments for such costs in accordance with 
a prospective payment system established by the Secretary. 
Aggregate payments made under subsection (d) and this 
subsection during fiscal years 1992 through 1995 shall be 
reduced in a manner that results in a reduction (as estimated 
by the Secretary) in the amount of such payments equal to a 10 
percent reduction in the amount of payments attributable to 
capital-related costs that would otherwise have been made 
during such fiscal year had the amount of such payments been 
based on reasonable costs (as defined in section 1861(v)). For 
discharges occurring after September 30, 1993, the Secretary 
shall reduce by 7.4 percent the unadjusted standard Federal 
capital payment rate (as described in 42 CFR 412.308(c), as in 
effect on the date of the enactment of the Omnibus Budget 
Reconciliation Act of 1993) and shall (for hospital cost 
reporting periods beginning on or after October 1, 1993) 
redetermine which payment methodology is applied to the 
hospital under such system to take into account such reduction. 
In addition to the reduction described in the preceding 
sentence, for discharges occurring on or after October 1, 1997, 
the Secretary shall apply the budget neutrality adjustment 
factor used to determine the Federal capital payment rate in 
effect on September 30, 1995 (as described in section 412.352 
of title 42 of the Code of Federal Regulations), to (i) the 
unadjusted standard Federal capital payment rate (as described 
in section 412.308(c) of that title, as in effect on September 
30, 1997), and (ii) the unadjusted hospital-specific rate (as 
described in section 412.328(e)(1) of that title, as in effect 
on September 30, 1997), and, for discharges occurring on or 
after October 1, 1997, and before October 1, 2002, reduce the 
rates described in clauses (i) and (ii) by 2.1 percent.
  (B) Such system--
          (i) shall provide for (I) a payment on a per 
        discharge basis, and (II) an appropriate weighting of 
        such payment amount as relates to the classification of 
        the discharge;
          (ii) may provide for an adjustment to take into 
        account variations in the relative costs of capital and 
        construction for the different types of facilities or 
        areas in which they are located;
          (iii) may provide for such exceptions (including 
        appropriate exceptions to reflect capital obligations) 
        as the Secretary determines to be appropriate, and
          (iv) may provide for suitable adjustment to reflect 
        hospital occupancy rate.
  (C) In this paragraph, the term ``capital-related costs'' has 
the meaning given such term by the Secretary under subsection 
(a)(4) as of September 30, 1987, and does not include a return 
on equity capital.
  (2)(A) The Secretary shall provide that the amount which is 
allowable, with respect to reasonable costs of inpatient 
hospital services for which payment may be made under this 
title, for a return on equity capital for hospitals shall, for 
cost reporting periods beginning on or after the date of the 
enactment of this subsection, be equal to amounts otherwise 
allowable under regulations in effect on March 1, 1983, except 
that the rate of return to be recognized shall be equal to the 
applicable percentage (described in subparagraph (B)) of the 
average of the rates of interest, for each of the months any 
part of which is included in the reporting period, on 
obligations issued for purchase by the Federal Hospital 
Insurance Trust Fund.
  (B) In this paragraph, the ``applicable percentage'' is--
          (i) 75 percent, for cost reporting periods beginning 
        during fiscal year 1987,
          (ii) 50 percent, for cost reporting periods beginning 
        during fiscal year 1988,
          (iii) 25 percent, for cost reporting periods 
        beginning during fiscal year 1989, and
          (iv) 0 percent, for cost reporting periods beginning 
        on or after October 1, 1989.
  (3)(A) Except as provided in subparagraph (B), in determining 
the amount of the payments that may be made under this title 
with respect to all the capital-related costs of inpatient 
hospital services of a subsection (d) hospital and a subsection 
(d) Puerto Rico hospital, the Secretary shall reduce the 
amounts of such payments otherwise established under this title 
by--
          (i) 3.5 percent for payments attributable to portions 
        of cost reporting periods occurring during fiscal year 
        1987,
          (ii) 7 percent for payments attributable to portions 
        of cost reporting periods or discharges (as the case 
        may be) occurring during fiscal year 1988 on or after 
        October 1, 1987, and before January 1, 1988,
          (iii) 12 percent for payments attributable to 
        portions of cost reporting periods or discharges (as 
        the case may be) in fiscal year 1988, occurring on or 
        after January 1, 1988,
          (iv) 15 percent for payments attributable to portions 
        of cost reporting periods or discharges (as the case 
        may be) occurring during fiscal year 1989, and
          (v) 15 percent for payments attributable to portions 
        of cost reporting periods or discharges (as the case 
        may be) occurring during the period beginning January 
        1, 1990, and ending September 30, 1991.
  (B) Subparagraph (A) shall not apply to payments with respect 
to the capital-related costs of any hospital that is a sole 
community hospital (as defined in subsection (d)(5)(D)(iii)) or 
a critical access hospital (as defined in section 1861(mm)(1)).
  (4) In determining the amount of the payments that are 
attributable to portions of cost reporting periods occurring 
during fiscal years 1998 through 2002 and that may be made 
under this title with respect to capital-related costs of 
inpatient hospital services of a hospital which is described in 
clause (i), (ii), or (iv) of subsection (d)(1)(B) or a unit 
described in the matter after clause (v) of such subsection, 
the Secretary shall reduce the amounts of such payments 
otherwise determined under this title by 15 percent.
  (h) Payments for Direct Graduate Medical Education Costs.--
          (1) Substitution of special payment rules.--
        Notwithstanding section 1861(v), instead of any amounts 
        that are otherwise payable under this title with 
        respect to the reasonable costs of hospitals for direct 
        graduate medical education costs, the Secretary shall 
        provide for payments for such costs in accordance with 
        paragraph (3) of this subsection. In providing for such 
        payments, the Secretary shall provide for an allocation 
        of such payments between part A and part B (and the 
        trust funds established under the respective parts) as 
        reasonably reflects the proportion of direct graduate 
        medical education costs of hospitals associated with 
        the provision of services under each respective part.
          (2) Determination of hospital-specific approved fte 
        resident amounts.--The Secretary shall determine, for 
        each hospital with an approved medical residency 
        training program, an approved FTE resident amount for 
        each cost reporting period beginning on or after July 
        1, 1985, as follows:
                  (A) Determining allowable average cost per 
                fte resident in a hospital's base period.--The 
                Secretary shall determine, for the hospital's 
                cost reporting period that began during fiscal 
                year 1984, the average amount recognized as 
                reasonable under this title for direct graduate 
                medical education costs of the hospital for 
                each full-time-equivalent resident.
                  (B) Updating to the first cost reporting 
                period.--
                          (i) In general.--The Secretary shall 
                        update each average amount determined 
                        under subparagraph (A) by the 
                        percentage increase in the consumer 
                        price index during the 12-month cost 
                        reporting period described in such 
                        subparagraph.
                          (ii) Exception.--The Secretary shall 
                        not perform an update under clause (i) 
                        in the case of a hospital if the 
                        hospital's reporting period, described 
                        in subparagraph (A), began on or after 
                        July 1, 1984, and before October 1, 
                        1984.
                  (C) Amount for first cost reporting period.--
                For the first cost reporting period of the 
                hospital beginning on or after July 1, 1985, 
                the approved FTE resident amount for the 
                hospital is equal to the amount determined 
                under subparagraph (B) increased by 1 percent.
                  (D) Amount for subsequent cost reporting 
                periods.--
                          (i) In general.--Except as provided 
                        in a subsequent clause, for each 
                        subsequent cost reporting period, the 
                        approved FTE resident amount for the 
                        hospital is equal to the approved FTE 
                        resident amount determined under this 
                        paragraph for the previous cost 
                        reporting period updated, through the 
                        midpoint of the period, by projecting 
                        the estimated percentage change in the 
                        consumer price index during the 12-
                        month period ending at that midpoint, 
                        with appropriate adjustments to reflect 
                        previous under-or over-estimations 
                        under this subparagraph in the 
                        projected percentage change in the 
                        consumer price index.
                          (ii) Freeze in update for fiscal 
                        years 1994 and 1995.--For cost 
                        reporting periods beginning during 
                        fiscal year 1994 or fiscal year 1995, 
                        the approved FTE resident amount for a 
                        hospital shall not be updated under 
                        clause (i) for a resident who is not a 
                        primary care resident (as defined in 
                        paragraph (5)(H)) or a resident 
                        enrolled in an approved medical 
                        residency training program in 
                        obstetrics and gynecology.
                          (iii) Floor for locality adjusted 
                        national average per resident amount.--
                        The approved FTE resident amount for a 
                        hospital for the cost reporting period 
                        beginning during fiscal year 2001 shall 
                        not be less than 70 percent, and for 
                        the cost reporting period beginning 
                        during fiscal year 2002 shall not be 
                        less than 85 percent, of the locality 
                        adjusted national average per resident 
                        amount computed under subparagraph (E) 
                        for the hospital and period.
                          (iv) Adjustment in rate of increase 
                        for hospitals with fte approved amount 
                        above 140 percent of locality adjusted 
                        national average per resident amount.--
                                  (I) Freeze for fiscal years 
                                2001 and 2002 and 2004 through 
                                2013.--For a cost reporting 
                                period beginning during fiscal 
                                year 2001 or fiscal year 2002 
                                or during the period beginning 
                                with fiscal year 2004 and 
                                ending with fiscal year 2013, 
                                if the approved FTE resident 
                                amount for a hospital for the 
                                preceding cost reporting period 
                                exceeds 140 percent of the 
                                locality adjusted national 
                                average per resident amount 
                                computed under subparagraph (E) 
                                for that hospital and period, 
                                subject to subclause (III), the 
                                approved FTE resident amount 
                                for the period involved shall 
                                be the same as the approved FTE 
                                resident amount for the 
                                hospital for such preceding 
                                cost reporting period.
                                  (II)  2 percent decrease in 
                                update for fiscal years 2003, 
                                2004, and 2005.--For the cost 
                                reporting period beginning 
                                during fiscal year 2003, if the 
                                approved FTE resident amount 
                                for a hospital for the 
                                preceding cost reporting period 
                                exceeds 140 percent of the 
                                locality adjusted national 
                                average per resident amount 
                                computed under subparagraph (E) 
                                for that hospital and preceding 
                                period, the approved FTE 
                                resident amount for the period 
                                involved shall be updated in 
                                the manner described in 
                                subparagraph (D)(i) except 
                                that, subject to subclause 
                                (III), the consumer price index 
                                applied for a 12-month period 
                                shall be reduced (but not below 
                                zero) by 2 percentage points.
                                  (III) No adjustment below 140 
                                percent.--In no case shall 
                                subclause (I) or (II) reduce an 
                                approved FTE resident amount 
                                for a hospital for a cost 
                                reporting period below 140 
                                percent of the locality 
                                adjusted national average per 
                                resident amount computed under 
                                subparagraph (E) for such 
                                hospital and period.
                  (E) Determination of locality adjusted 
                national average per resident amount.--The 
                Secretary shall determine a locality adjusted 
                national average per resident amount with 
                respect to a cost reporting period of a 
                hospital beginning during a fiscal year as 
                follows:
                          (i) Determining hospital single per 
                        resident amount.--The Secretary shall 
                        compute for each hospital operating an 
                        approved graduate medical education 
                        program a single per resident amount 
                        equal to the average (weighted by 
                        number of full-time equivalent 
                        residents, as determined under 
                        paragraph (4)) of the primary care per 
                        resident amount and the non-primary 
                        care per resident amount computed under 
                        paragraph (2) for cost reporting 
                        periods ending during fiscal year 1997.
                          (ii) Standardizing per resident 
                        amounts.--The Secretary shall compute a 
                        standardized per resident amount for 
                        each such hospital by dividing the 
                        single per resident amount computed 
                        under clause (i) by an average of the 3 
                        geographic index values (weighted by 
                        the national average weight for each of 
                        the work, practice expense, and 
                        malpractice components) as applied 
                        under section 1848(e) for 1999 for the 
                        fee schedule area in which the hospital 
                        is located.
                          (iii) Computing of weighted 
                        average.--The Secretary shall compute 
                        the average of the standardized per 
                        resident amounts computed under clause 
                        (ii) for such hospitals, with the 
                        amount for each hospital weighted by 
                        the average number of full-time 
                        equivalent residents at such hospital 
                        (as determined under paragraph (4)).
                          (iv) Computing national average per 
                        resident amount.--The Secretary shall 
                        compute the national average per 
                        resident amount, for a hospital's cost 
                        reporting period that begins during 
                        fiscal year 2001, equal to the weighted 
                        average computed under clause (iii) 
                        increased by the estimated percentage 
                        increase in the consumer price index 
                        for all urban consumers during the 
                        period beginning with the month that 
                        represents the midpoint of the cost 
                        reporting periods described in clause 
                        (i) and ending with the midpoint of the 
                        hospital's cost reporting period that 
                        begins during fiscal year 2001.
                          (v) Adjusting for locality.--The 
                        Secretary shall compute the product 
                        of--
                                  (I) the national average per 
                                resident amount computed under 
                                clause (iv) for the hospital, 
                                and
                                  (II) the geographic index 
                                value average (described and 
                                applied under clause (ii)) for 
                                the fee schedule area in which 
                                the hospital is located.
                          (vi) Computing locality adjusted 
                        amount.--The locality adjusted national 
                        per resident amount for a hospital 
                        for--
                                  (I) the cost reporting period 
                                beginning during fiscal year 
                                2001 is the product computed 
                                under clause (v); or
                                  (II) each subsequent cost 
                                reporting period is equal to 
                                the locality adjusted national 
                                per resident amount for the 
                                hospital for the previous cost 
                                reporting period (as determined 
                                under this clause) updated, 
                                through the midpoint of the 
                                period, by projecting the 
                                estimated percentage change in 
                                the consumer price index for 
                                all urban consumers during the 
                                12-month period ending at that 
                                midpoint.
                  (F) Treatment of certain hospitals.--In the 
                case of a hospital that did not have an 
                approved medical residency training program or 
                was not participating in the program under this 
                title for a cost reporting period beginning 
                during fiscal year 1984, the Secretary shall, 
                for the first such period for which it has such 
                a residency training program and is 
                participating under this title, provide for 
                such approved FTE resident amount as the 
                Secretary determines to be appropriate, based 
                on approved FTE resident amounts for comparable 
                programs.
          (3) Hospital payment amount per resident.--
                  (A) In general.--The payment amount, for a 
                hospital cost reporting period beginning on or 
                after July 1, 1985, is equal to the product 
                of--
                          (i) the aggregate approved amount (as 
                        defined in subparagraph (B)) for that 
                        period, and
                          (ii) the hospital's medicare patient 
                        load (as defined in subparagraph (C)) 
                        for that period.
                  (B) Aggregate approved amount.--As used in 
                subparagraph (A), the term ``aggregate approved 
                amount'' means, for a hospital cost reporting 
                period, the product of--
                          (i) the hospital's approved FTE 
                        resident amount (determined under 
                        paragraph (2)) for that period, and
                          (ii) the weighted average number of 
                        full-time-equivalent residents (as 
                        determined under paragraph (4)) in the 
                        hospital's approved medical residency 
                        training programs in that period.
        The Secretary shall reduce the aggregate approved 
        amount to the extent payment is made under subsection 
        (k) for residents included in the hospital's count of 
        full-time equivalent residents.
                  (C) Medicare patient load.--As used in 
                subparagraph (A), the term ``medicare patient 
                load'' means, with respect to a hospital's cost 
                reporting period, the fraction of the total 
                number of inpatient-bed-days (as established by 
                the Secretary) during the period which are 
                attributable to patients with respect to whom 
                payment may be made under part A.
                  (D) Payment for managed care enrollees.--
                          (i) In general.--For portions of cost 
                        reporting periods occurring on or after 
                        January 1, 1998, the Secretary shall 
                        provide for an additional payment 
                        amount under this subsection for 
                        services furnished to individuals who 
                        are enrolled under a risk-sharing 
                        contract with an eligible organization 
                        under section 1876 and who are entitled 
                        to part A or with a Medicare+Choice 
                        organization under part C. The amount 
                        of such a payment shall equal, subject 
                        to clause (iii), the applicable 
                        percentage of the product of--
                                  (I) the aggregate approved 
                                amount (as defined in 
                                subparagraph (B)) for that 
                                period; and
                                  (II) the fraction of the 
                                total number of inpatient-bed 
                                days (as established by the 
                                Secretary) during the period 
                                which are attributable to such 
                                enrolled individuals.
                          (ii) Applicable percentage.--For 
                        purposes of clause (i), the applicable 
                        percentage is--
                                  (I) 20 percent in 1998,
                                  (II) 40 percent in 1999,
                                  (III) 60 percent in 2000,
                                  (IV) 80 percent in 2001, and
                                  (V) 100 percent in 2002 and 
                                subsequent years.
                          (iii) Proportional reduction for 
                        nursing and allied health education.--
                        The Secretary shall estimate a 
                        proportional adjustment in payments to 
                        all hospitals determined under clauses 
                        (i) and (ii) for portions of cost 
                        reporting periods beginning in a year 
                        (beginning with 2000) such that the 
                        proportional adjustment reduces 
                        payments in an amount for such year 
                        equal to the total additional payment 
                        amounts for nursing and allied health 
                        education determined under subsection 
                        (l) for portions of cost reporting 
                        periods occurring in that year.
                          (iv) Special rule for hospitals under 
                        reimbursement system.--The Secretary 
                        shall establish rules for the 
                        application of this subparagraph to a 
                        hospital reimbursed under a 
                        reimbursement system authorized under 
                        section 1814(b)(3) in the same manner 
                        as it would apply to the hospital if it 
                        were not reimbursed under such section.
          (4) Determination of full-time-equivalent 
        residents.--
                  (A) Rules.--The Secretary shall establish 
                rules consistent with this paragraph for the 
                computation of the number of full-time- 
                equivalent residents in an approved medical 
                residency training program.
                  (B) Adjustment for part-year or part-time 
                residents.--Such rules shall take into account 
                individuals who serve as residents for only a 
                portion of a period with a hospital or 
                simultaneously with more than one hospital.
                  (C) Weighting factors for certain 
                residents.--Subject to subparagraph (D), such 
                rules shall provide, in calculating the number 
                of full-time-equivalent residents in an 
                approved residency program--
                          (i) before July 1, 1986, for each 
                        resident the weighting factor is 1.00,
                          (ii) on or after July 1, 1986, for a 
                        resident who is in the resident's 
                        initial residency period (as defined in 
                        paragraph (5)(F)), the weighting factor 
                        is 1.00,
                          (iii) on or after July 1, 1986, and 
                        before July 1, 1987, for a resident who 
                        is not in the resident's initial 
                        residency period (as defined in 
                        paragraph (5)(F)), the weighting factor 
                        is .75, and
                          (iv) on or after July 1, 1987, for a 
                        resident who is not in the resident's 
                        initial residency period (as defined in 
                        paragraph (5)(F)), the weighting factor 
                        is .50.
                  (D) Foreign medical graduates required to 
                pass fmgems examination.--
                          (i) In general.--Except as provided 
                        in clause (ii), such rules shall 
                        provide that, in the case of an 
                        individual who is a foreign medical 
                        graduate (as defined in paragraph 
                        (5)(D)), the individual shall not be 
                        counted as a resident on or after July 
                        1, 1986, unless--
                                  (I) the individual has passed 
                                the FMGEMS examination (as 
                                defined in paragraph (5)(E)), 
                                or
                                  (II) the individual has 
                                previously received 
                                certification from, or has 
                                previously passed the 
                                examination of, the Educational 
                                Commission for Foreign Medical 
                                Graduates.
                          (ii) Transition for current fmgs.--On 
                        or after July 1, 1986, but before July 
                        1, 1987, in the case of a foreign 
                        medical graduate who--
                                  (I) has served as a resident 
                                before July 1, 1986, and is 
                                serving as a resident after 
                                that date, but
                                  (II) has not passed the 
                                FMGEMS examination or a 
                                previous examination of the 
                                Educational Commission for 
                                Foreign Medical Graduates 
                                before July 1, 1986,
                        the individual shall be counted as a 
                        resident at a rate equal to one-half of 
                        the rate at which the individual would 
                        otherwise be counted.
                  (E) Counting time spent in outpatient 
                settings.--Subject to subparagraphs (J) and 
                (K), such rules shall provide that only time 
                spent in activities relating to patient care 
                shall be counted and that--
                          (i) effective for cost reporting 
                        periods beginning before July 1, 2010, 
                        all the time;
                          (ii) effective for cost reporting 
                        periods beginning on or after July 1, 
                        2010, all the time so spent by a 
                        resident shall be counted towards the 
                        determination of full-time equivalency, 
                        without regard to the setting in which 
                        the activities are performed, if a 
                        hospital incurs the costs of the 
                        stipends and fringe benefits of the 
                        resident during the time the resident 
                        spends in that setting. If more than 
                        one hospital incurs these costs, either 
                        directly or through a third party, such 
                        hospitals shall count a proportional 
                        share of the time, as determined by 
                        written agreement between the 
                        hospitals, that a resident spends 
                        training in that setting.
                so spent by a resident under an approved 
                medical residency training program shall be 
                counted towards the determination of full-time 
                equivalency, without regard to the setting in 
                which the activities are performed, if the 
                hospital incurs all, or substantially all, of 
                the costs for the training program in that 
                setting.
                Any hospital claiming under this subparagraph 
                for time spent in a nonprovider setting shall 
                maintain and make available to the Secretary 
                records regarding the amount of such time and 
                such amount in comparison with amounts of such 
                time in such base year as the Secretary shall 
                specify.
                  (F) Limitation on number of residents in 
                allopathic and osteopathic medicine.--
                          (i) In general.--Such rules shall 
                        provide that for purposes of a cost 
                        reporting period beginning on or after 
                        October 1, 1997, subject to paragraphs 
                        (7) and (8), the total number of full-
                        time equivalent residents before 
                        application of weighting factors (as 
                        determined under this paragraph) with 
                        respect to a hospital's approved 
                        medical residency training program in 
                        the fields of allopathic medicine and 
                        osteopathic medicine may not exceed the 
                        number (or, 130 percent of such number 
                        in the case of a hospital located in a 
                        rural area) of such full-time 
                        equivalent residents for the hospital's 
                        most recent cost reporting period 
                        ending on or before December 31, 1996.
                          (ii) Counting primary care residents 
                        on certain approved leaves of absence 
                        in base year fte count.--
                                  (I) In general.--In 
                                determining the number of such 
                                full-time equivalent residents 
                                for a hospital's most recent 
                                cost reporting period ending on 
                                or before December 31, 1996, 
                                for purposes of clause (i), the 
                                Secretary shall count an 
                                individual to the extent that 
                                the individual would have been 
                                counted as a primary care 
                                resident for such period but 
                                for the fact that the 
                                individual, as determined by 
                                the Secretary, was on maternity 
                                or disability leave or a 
                                similar approved leave of 
                                absence.
                                  (II) Limitation to 3 fte 
                                residents for any hospital.--
                                The total number of individuals 
                                counted under subclause (I) for 
                                a hospital may not exceed 3 
                                full-time equivalent residents.
                  (G) Counting interns and residents for fy 
                1998 and subsequent years.--
                          (i) In general.--For cost reporting 
                        periods beginning during fiscal years 
                        beginning on or after October 1, 1997, 
                        subject to the limit described in 
                        subparagraph (F), the total number of 
                        full-time equivalent residents for 
                        determining a hospital's graduate 
                        medical education payment shall equal 
                        the average of the actual full-time 
                        equivalent resident counts for the cost 
                        reporting period and the preceding two 
                        cost reporting periods.
                          (ii) Adjustment for short periods.--
                        If any cost reporting period beginning 
                        on or after October 1, 1997, is not 
                        equal to twelve months, the Secretary 
                        shall make appropriate modifications to 
                        ensure that the average full-time 
                        equivalent resident counts pursuant to 
                        clause (i) are based on the equivalent 
                        of full twelve-month cost reporting 
                        periods.
                          (iii) Transition rule for 1998.--In 
                        the case of a hospital's first cost 
                        reporting period beginning on or after 
                        October 1, 1997, clause (i) shall be 
                        applied by using the average for such 
                        period and the preceding cost reporting 
                        period.
                  (H) Special rules for application of 
                subparagraphs (f) and (g).--
                          (i) New facilities.--The Secretary 
                        shall, consistent with the principles 
                        of subparagraphs (F) and (G) and 
                        subject to paragraphs (7) and (8), 
                        prescribe rules for the application of 
                        such subparagraphs in the case of 
                        medical residency training programs 
                        established on or after January 1, 
                        1995. In promulgating such rules for 
                        purposes of subparagraph (F), the 
                        Secretary shall give special 
                        consideration to facilities that meet 
                        the needs of underserved rural areas.
                          (ii) Aggregation.--The Secretary may 
                        prescribe rules which allow 
                        institutions which are members of the 
                        same affiliated group (as defined by 
                        the Secretary) to elect to apply the 
                        limitation of subparagraph (F) on an 
                        aggregate basis.
                          (iii) Data collection.--The Secretary 
                        may require any entity that operates a 
                        medical residency training program and 
                        to which subparagraphs (F) and (G) 
                        apply to submit to the Secretary such 
                        additional information as the Secretary 
                        considers necessary to carry out such 
                        subparagraphs.
                          (iv) Nonrural hospitals operating 
                        training programs in rural areas.--In 
                        the case of a hospital that is not 
                        located in a rural area but establishes 
                        separately accredited approved medical 
                        residency training programs (or rural 
                        tracks) in an rural area or has an 
                        accredited training program with an 
                        integrated rural track, the Secretary 
                        shall adjust the limitation under 
                        subparagraph (F) in an appropriate 
                        manner insofar as it applies to such 
                        programs in such rural areas in order 
                        to encourage the training of physicians 
                        in rural areas.
                          (v) Special provider agreement.--If 
                        an entity enters into a provider 
                        agreement pursuant to section 1866(a) 
                        to provide hospital services on the 
                        same physical site previously used by 
                        Medicare Provider No. 05-0578--
                                  (I) the limitation on the 
                                number of total full time 
                                equivalent residents under 
                                subparagraph (F) and clauses 
                                (v) and (vi)(I) of subsection 
                                (d)(5)(B) applicable to such 
                                provider shall be equal to the 
                                limitation applicable under 
                                such provisions to Provider No. 
                                05-0578 for its cost reporting 
                                period ending on June 30, 2006; 
                                and
                                  (II) the provisions of 
                                subparagraph (G) and subsection 
                                (d)(5)(B)(vi)(II) shall not be 
                                applicable to such provider for 
                                the first three cost reporting 
                                years in which such provider 
                                trains residents under any 
                                approved medical residency 
                                training program.
                          (vi) Redistribution of residency 
                        slots after a hospital closes.--
                                  (I) In general.--Subject to 
                                the succeeding provisions of 
                                this clause, the Secretary 
                                shall, by regulation, establish 
                                a process under which, in the 
                                case where a hospital (other 
                                than a hospital described in 
                                clause (v)) with an approved 
                                medical residency program 
                                closes on or after a date that 
                                is 2 years before the date of 
                                enactment of this clause, the 
                                Secretary shall increase the 
                                otherwise applicable resident 
                                limit under this paragraph for 
                                other hospitals in accordance 
                                with this clause.
                                  (II) Priority for hospitals 
                                in certain areas.--Subject to 
                                the succeeding provisions of 
                                this clause, in determining for 
                                which hospitals the increase in 
                                the otherwise applicable 
                                resident limit is provided 
                                under such process, the 
                                Secretary shall distribute the 
                                increase to hospitals in the 
                                following priority order (with 
                                preference given within each 
                                category to hospitals that are 
                                members of the same affiliated 
                                group (as defined by the 
                                Secretary under clause (ii)) as 
                                the closed hospital):
                                          (aa) First, to 
                                        hospitals located in 
                                        the same core-based 
                                        statistical area as, or 
                                        a core-based 
                                        statistical area 
                                        contiguous to, the 
                                        hospital that closed.
                                          (bb) Second, to 
                                        hospitals located in 
                                        the same State as the 
                                        hospital that closed.
                                          (cc) Third, to 
                                        hospitals located in 
                                        the same region of the 
                                        country as the hospital 
                                        that closed.
                                          (dd) Fourth, only if 
                                        the Secretary is not 
                                        able to distribute the 
                                        increase to hospitals 
                                        described in item (cc), 
                                        to qualifying hospitals 
                                        in accordance with the 
                                        provisions of paragraph 
                                        (8).
                                  (III) Requirement hospital 
                                likely to fill position within 
                                certain time period.--The 
                                Secretary may only increase the 
                                otherwise applicable resident 
                                limit of a hospital under such 
                                process if the Secretary 
                                determines the hospital has 
                                demonstrated a likelihood of 
                                filling the positions made 
                                available under this clause 
                                within 3 years.
                                  (IV) Limitation.--The 
                                aggregate number of increases 
                                in the otherwise applicable 
                                resident limits for hospitals 
                                under this clause shall be 
                                equal to the number of resident 
                                positions in the approved 
                                medical residency programs that 
                                closed on or after the date 
                                described in subclause (I).
                                  (V) Administration.--Chapter 
                                35 of title 44, United States 
                                Code, shall not apply to the 
                                implementation of this clause.
                  (J) Treatment of certain nonprovider and 
                didactic activities.--Such rules shall provide 
                that all time spent by an intern or resident in 
                an approved medical residency training program 
                in a nonprovider setting that is primarily 
                engaged in furnishing patient care (as defined 
                in paragraph (5)(K)) in non-patient care 
                activities, such as didactic conferences and 
                seminars, but not including research not 
                associated with the treatment or diagnosis of a 
                particular patient, as such time and activities 
                are defined by the Secretary, shall be counted 
                toward the determination of full-time 
                equivalency.
                  (K) Treatment of certain other activities.--
                In determining the hospital's number of full-
                time equivalent residents for purposes of this 
                subsection, all the time that is spent by an 
                intern or resident in an approved medical 
                residency training program on vacation, sick 
                leave, or other approved leave, as such time is 
                defined by the Secretary, and that does not 
                prolong the total time the resident is 
                participating in the approved program beyond 
                the normal duration of the program shall be 
                counted toward the determination of full-time 
                equivalency.
          (5) Definitions and special rules.--As used in this 
        subsection:
                  (A) Approved medical residency training 
                program.--The term ``approved medical residency 
                training program'' means a residency or other 
                postgraduate medical training program 
                participation in which may be counted toward 
                certification in a specialty or subspecialty 
                and includes formal postgraduate training 
                programs in geriatric medicine approved by the 
                Secretary.
                  (B) Consumer price index.--The term 
                ``consumer price index'' refers to the Consumer 
                Price Index for All Urban Consumers (United 
                States city average), as published by the 
                Secretary of Commerce.
                  (C) Direct graduate medical education 
                costs.--The term ``direct graduate medical 
                education costs'' means direct costs of 
                approved educational activities for approved 
                medical residency training programs.
                  (D) Foreign medical graduate.--The term 
                ``foreign medical graduate'' means a resident 
                who is not a graduate of--
                          (i) a school of medicine accredited 
                        by the Liaison Committee on Medical 
                        Education of the American Medical 
                        Association and the Association of 
                        American Medical Colleges (or approved 
                        by such Committee as meeting the 
                        standards necessary for such 
                        accreditation),
                          (ii) a school of osteopathy 
                        accredited by the American Osteopathic 
                        Association, or approved by such 
                        Association as meeting the standards 
                        necessary for such accreditation, or
                          (iii) a school of dentistry or 
                        podiatry which is accredited (or meets 
                        the standards for accreditation) by an 
                        organization recognized by the 
                        Secretary for such purpose.
                  (E) FMGEMS examination.--The term ``FMGEMS 
                examination'' means parts I and II of the 
                Foreign Medical Graduate Examination in the 
                Medical Sciences or any successor examination 
                recognized by the Secretary for this purpose.
                  (F) Initial residency period.--The term 
                ``initial residency period'' means the period 
                of board eligibility, except that--
                          (i) except as provided in clause 
                        (ii), in no case shall the initial 
                        period of residency exceed an aggregate 
                        period of formal training of more than 
                        five years for any individual, and
                          (ii) a period, of not more than two 
                        years, during which an individual is in 
                        a geriatric residency or fellowship 
                        program or a preventive medicine 
                        residency or fellowship program which 
                        meets such criteria as the Secretary 
                        may establish, shall be treated as part 
                        of the initial residency period, but 
                        shall not be counted against any 
                        limitation on the initial residency 
                        period.
                Subject to subparagraph (G)(v), the initial 
                residency period shall be determined, with 
                respect to a resident, as of the time the 
                resident enters the residency training program.
                  (G) Period of board eligibility.--
                          (i) General rule.--Subject to clauses 
                        (ii), (iii), (iv), and (v), the term 
                        ``period of board eligibility'' means, 
                        for a resident, the minimum number of 
                        years of formal training necessary to 
                        satisfy the requirements for initial 
                        board eligibility in the particular 
                        specialty for which the resident is 
                        training.
                          (ii) Application of 1985-1986 
                        directory.--Except as provided in 
                        clause (iii), the period of board 
                        eligibility shall be such period 
                        specified in the 1985-1986 Directory of 
                        Residency Training Programs published 
                        by the Accreditation Council on 
                        Graduate Medical Education.
                          (iii) Changes in period of board 
                        eligibility.--On or after July 1, 1989, 
                        if the Accreditation Council on 
                        Graduate Medical Education, in its 
                        Directory of Residency Training 
                        Programs--
                                  (I) increases the minimum 
                                number of years of formal 
                                training necessary to satisfy 
                                the requirements for a 
                                specialty, above the period 
                                specified in its 1985-1986 
                                Directory, the Secretary may 
                                increase the period of board 
                                eligibility for that specialty, 
                                but not to exceed the period of 
                                board eligibility specified in 
                                that later Directory, or
                                  (II) decreases the minimum 
                                number of years of formal 
                                training necessary to satisfy 
                                the requirements for a 
                                specialty, below the period 
                                specified in its 1985-1986 
                                Directory, the Secretary may 
                                decrease the period of board 
                                eligibility for that specialty, 
                                but not below the period of 
                                board eligibility specified in 
                                that later Directory.
                          (iv) Special rule for certain primary 
                        care combined residency programs.--(I) 
                        In the case of a resident enrolled in a 
                        combined medical residency training 
                        program in which all of the individual 
                        programs (that are combined) are for 
                        training a primary care resident (as 
                        defined in subparagraph (H)), the 
                        period of board eligibility shall be 
                        the minimum number of years of formal 
                        training required to satisfy the 
                        requirements for initial board 
                        eligibility in the longest of the 
                        individual programs plus one additional 
                        year.
                          (II) A resident enrolled in a 
                        combined medical residency training 
                        program that includes an obstetrics and 
                        gynecology program shall qualify for 
                        the period of board eligibility under 
                        subclause (I) if the other programs 
                        such resident combines with such 
                        obstetrics and gynecology program are 
                        for training a primary care resident.
                          (v) Child neurology training 
                        programs.--In the case of a resident 
                        enrolled in a child neurology residency 
                        training program, the period of board 
                        eligibility and the initial residency 
                        period shall be the period of board 
                        eligibility for pediatrics plus 2 
                        years.
                  (H) Primary care resident.--The term 
                ``primary care resident'' means a resident 
                enrolled in an approved medical residency 
                training program in family medicine, general 
                internal medicine, general pediatrics, 
                preventive medicine, geriatric medicine, or 
                osteopathic general practice.
                  (I) Resident.--The term ``resident'' includes 
                an intern or other participant in an approved 
                medical residency training program.
                  (J) Adjustments for certain family practice 
                residency programs.--
                          (i) In general.--In the case of an 
                        approved medical residency training 
                        program (meeting the requirements of 
                        clause (ii)) of a hospital which 
                        received funds from the United States, 
                        a State, or a political subdivision of 
                        a State or an instrumentality of such a 
                        State or political subdivision (other 
                        than payments under this title or a 
                        State plan under title XIX) for the 
                        program during the cost reporting 
                        period that began during fiscal year 
                        1984, the Secretary shall--
                                  (I) provide for an average 
                                amount under paragraph (2)(A) 
                                that takes into account the 
                                Secretary's estimate of the 
                                amount that would have been 
                                recognized as reasonable under 
                                this title if the hospital had 
                                not received such funds, and
                                  (II) reduce the payment 
                                amount otherwise provided under 
                                this subsection in an amount 
                                equal to the proportion of such 
                                program funds received during 
                                the cost reporting period 
                                involved that is allocable to 
                                this title.
                          (ii) Additional requirements.--A 
                        hospital's approved medical residency 
                        program meets the requirements of this 
                        clause if--
                                  (I) the program is limited to 
                                training for family and 
                                community medicine;
                                  (II) the program is the only 
                                approved medical residency 
                                program of the hospital; and
                                  (III) the average amount 
                                determined under paragraph 
                                (2)(A) for the hospital (as 
                                determined without regard to 
                                the increase in such amount 
                                described in clause (i)(I)) 
                                does not exceed $10,000.
                  (K) Nonprovider setting that is primarily 
                engaged in furnishing patient care.--The term 
                ``nonprovider setting that is primarily engaged 
                in furnishing patient care'' means a 
                nonprovider setting in which the primary 
                activity is the care and treatment of patients, 
                as defined by the Secretary.
          (6) Incentive payment under plans for voluntary 
        reduction in number of residents.--
                  (A) In general.--In the case of a voluntary 
                residency reduction plan for which an 
                application is approved under subparagraph (B), 
                subject to subparagraph (F), each hospital 
                which is part of the qualifying entity 
                submitting the plan shall be paid an applicable 
                hold harmless percentage (as specified in 
                subparagraph (E)) of the sum of--
                          (i) the amount (if any) by which--
                                  (I) the amount of payment 
                                which would have been made 
                                under this subsection if there 
                                had been a 5-percent reduction 
                                in the number of full-time 
                                equivalent residents in the 
                                approved medical education 
                                training programs of the 
                                hospital as of June 30, 1997, 
                                exceeds
                                  (II) the amount of payment 
                                which is made under this 
                                subsection, taking into account 
                                the reduction in such number 
                                effected under the reduction 
                                plan; and
                          (ii) the amount of the reduction in 
                        payment under subsection (d)(5)(B) for 
                        the hospital that is attributable to 
                        the reduction in number of residents 
                        effected under the plan below 95 
                        percent of the number of full-time 
                        equivalent residents in such programs 
                        of the hospital as of June 30, 1997.
                The determination of the amounts under clauses 
                (i) and (ii) for any year shall be made on the 
                basis of the provisions of this title in effect 
                on the application deadline date for the first 
                calendar year to which the reduction plan 
                applies.
                  (B) Approval of plan applications.--The 
                Secretary may not approve the application of an 
                qualifying entity unless--
                          (i) the application is submitted in a 
                        form and manner specified by the 
                        Secretary and by not later than 
                        November 1, 1999,
                          (ii) the application provides for the 
                        operation of a plan for the reduction 
                        in the number of full-time equivalent 
                        residents in the approved medical 
                        residency training programs of the 
                        entity consistent with the requirements 
                        of subparagraph (D);
                          (iii) the entity elects in the 
                        application the period of residency 
                        training years (not greater than 5) 
                        over which the reduction will occur;
                          (iv) the entity will not reduce the 
                        proportion of its residents in primary 
                        care (to the total number of residents) 
                        below such proportion as in effect as 
                        of the applicable time described in 
                        subparagraph (D)(v); and
                          (v) the Secretary determines that the 
                        application and the entity and such 
                        plan meet such other requirements as 
                        the Secretary specifies in regulations.
                  (C) Qualifying entity.--For purposes of this 
                paragraph, any of the following may be a 
                qualifying entity:
                          (i) Individual hospitals operating 
                        one or more approved medical residency 
                        training programs.
                          (ii) Two or more hospitals that 
                        operate such programs and apply for 
                        treatment under this paragraph as a 
                        single qualifying entity.
                          (iii) A qualifying consortium (as 
                        described in section 4628 of the 
                        Balanced Budget Act of 1997).
                  (D) Residency reduction requirements.--
                          (i) Individual hospital applicants.--
                        In the case of a qualifying entity 
                        described in subparagraph (C)(i), the 
                        number of full-time equivalent 
                        residents in all the approved medical 
                        residency training programs operated by 
                        or through the entity shall be reduced 
                        as follows:
                                  (I) If the base number of 
                                residents exceeds 750 
                                residents, by a number equal to 
                                at least 20 percent of such 
                                base number.
                                  (II) Subject to subclause 
                                (IV), if the base number of 
                                residents exceeds 600 but is 
                                less than 750 residents, by 150 
                                residents.
                                  (III) Subject to subclause 
                                (IV), if the base number of 
                                residents does not exceed 600 
                                residents, by a number equal to 
                                at least 25 percent of such 
                                base number.
                                  (IV) In the case of a 
                                qualifying entity which is 
                                described in clause (v) and 
                                which elects treatment under 
                                this subclause, by a number 
                                equal to at least 20 percent of 
                                the base number.
                          (ii) Joint applicants.--In the case 
                        of a qualifying entity described in 
                        subparagraph (C)(ii), the number of 
                        full-time equivalent residents in the 
                        aggregate for all the approved medical 
                        residency training programs operated by 
                        or through the entity shall be reduced 
                        as follows:
                                  (I) Subject to subclause 
                                (II), by a number equal to at 
                                least 25 percent of the base 
                                number.
                                  (II) In the case of such a 
                                qualifying entity which is 
                                described in clause (v) and 
                                which elects treatment under 
                                this subclause, by a number 
                                equal to at least 20 percent of 
                                the base number.
                          (iii) Consortia.--In the case of a 
                        qualifying entity described in 
                        subparagraph (C)(iii), the number of 
                        full-time equivalent residents in the 
                        aggregate for all the approved medical 
                        residency training programs operated by 
                        or through the entity shall be reduced 
                        by a number equal to at least 20 
                        percent of the base number.
                          (iv) Manner of reduction.--The 
                        reductions specified under the 
                        preceding provisions of this 
                        subparagraph for a qualifying entity 
                        shall be below the base number of 
                        residents for that entity and shall be 
                        fully effective not later than the 5th 
                        residency training year in which the 
                        application under subparagraph (B) is 
                        effective.
                          (v) Entities providing assurance of 
                        increase in primary care residents.--An 
                        entity is described in this clause if--
                                  (I) the base number of 
                                residents for the entity is 
                                less than 750 or the entity is 
                                described in subparagraph 
                                (C)(ii); and
                                  (II) the entity represents in 
                                its application under 
                                subparagraph (B) that it will 
                                increase the number of full-
                                time equivalent residents in 
                                primary care by at least 20 
                                percent (from such number 
                                included in the base number of 
                                residents) by not later than 
                                the 5th residency training year 
                                in which the application under 
                                subparagraph (B) is effective.
                        If a qualifying entity fails to comply 
                        with the representation described in 
                        subclause (II) by the end of such 5th 
                        residency training year, the entity 
                        shall be subject to repayment of all 
                        amounts paid under this paragraph, in 
                        accordance with procedures established 
                        to carry out subparagraph (F).
                          (vi) Base number of residents 
                        defined.--For purposes of this 
                        paragraph, the term ``base number of 
                        residents'' means, with respect to a 
                        qualifying entity (or its participating 
                        hospitals) operating approved medical 
                        residency training programs, the number 
                        of full-time equivalent residents in 
                        such programs (before application of 
                        weighting factors) of the entity as of 
                        the most recent residency training year 
                        ending before June 30, 1997, or, if 
                        less, for any subsequent residency 
                        training year that ends before the date 
                        the entity makes application under this 
                        paragraph.
                  (E) Applicable hold harmless percentage.--For 
                purposes of subparagraph (A), the ``applicable 
                hold harmless percentage'' for the--
                          (i) first and second residency 
                        training years in which the reduction 
                        plan is in effect, 100 percent,
                          (ii) third such year, 75 percent,
                          (iii) fourth such year, 50 percent, 
                        and
                          (iv) fifth such year, 25 percent.
                  (F) Penalty for noncompliance.--
                          (i) In general.--No payment may be 
                        made under this paragraph to a hospital 
                        for a residency training year if the 
                        hospital has failed to reduce the 
                        number of full-time equivalent 
                        residents (in the manner required under 
                        subparagraph (D)) to the number agreed 
                        to by the Secretary and the qualifying 
                        entity in approving the application 
                        under this paragraph with respect to 
                        such year.
                          (ii) Increase in number of residents 
                        in subsequent years.--If payments are 
                        made under this paragraph to a 
                        hospital, and if the hospital increases 
                        the number of full-time equivalent 
                        residents above the number of such 
                        residents permitted under the reduction 
                        plan as of the completion of the plan, 
                        then, as specified by the Secretary, 
                        the entity is liable for repayment to 
                        the Secretary of the total amounts paid 
                        under this paragraph to the entity.
                  (G) Treatment of rotating residents.--In 
                applying this paragraph, the Secretary shall 
                establish rules regarding the counting of 
                residents who are assigned to institutions the 
                medical residency training programs in which 
                are not covered under approved applications 
                under this paragraph.
          (7) Redistribution of unused resident positions.--
                  (A) Reduction in limit based on unused 
                positions.--
                          (i) Programs subject to reduction.--
                                  (I) In general.--Except as 
                                provided in subclause (II), if 
                                a hospital's reference resident 
                                level (specified in clause 
                                (ii)) is less than the 
                                otherwise applicable resident 
                                limit (as defined in 
                                subparagraph (C)(ii)), 
                                effective for portions of cost 
                                reporting periods occurring on 
                                or after July 1, 2005, the 
                                otherwise applicable resident 
                                limit shall be reduced by 75 
                                percent of the difference 
                                between such otherwise 
                                applicable resident limit and 
                                such reference resident level.
                                  (II) Exception for small 
                                rural hospitals.--This 
                                subparagraph shall not apply to 
                                a hospital located in a rural 
                                area (as defined in subsection 
                                (d)(2)(D)(ii)) with fewer than 
                                250 acute care inpatient beds.
                          (ii) Reference resident level.--
                                  (I) In general.--Except as 
                                otherwise provided in 
                                subclauses (II) and (III), the 
                                reference resident level 
                                specified in this clause for a 
                                hospital is the resident level 
                                for the most recent cost 
                                reporting period of the 
                                hospital ending on or before 
                                September 30, 2002, for which a 
                                cost report has been settled 
                                (or, if not, submitted (subject 
                                to audit)), as determined by 
                                the Secretary.
                                  (II) Use of most recent 
                                accounting period to recognize 
                                expansion of existing 
                                programs.--If a hospital 
                                submits a timely request to 
                                increase its resident level due 
                                to an expansion of an existing 
                                residency training program that 
                                is not reflected on the most 
                                recent settled cost report, 
                                after audit and subject to the 
                                discretion of the Secretary, 
                                the reference resident level 
                                for such hospital is the 
                                resident level for the cost 
                                reporting period that includes 
                                July 1, 2003, as determined by 
                                the Secretary.
                                  (III) Expansions under newly 
                                approved programs.--Upon the 
                                timely request of a hospital, 
                                the Secretary shall adjust the 
                                reference resident level 
                                specified under subclause (I) 
                                or (II) to include the number 
                                of medical residents that were 
                                approved in an application for 
                                a medical residency training 
                                program that was approved by an 
                                appropriate accrediting 
                                organization (as determined by 
                                the Secretary) before January 
                                1, 2002, but which was not in 
                                operation during the cost 
                                reporting period used under 
                                subclause (I) or (II), as the 
                                case may be, as determined by 
                                the Secretary.
                          (iii) Affiliation.--The provisions of 
                        clause (i) shall be applied to 
                        hospitals which are members of the same 
                        affiliated group (as defined by the 
                        Secretary under paragraph (4)(H)(ii)) 
                        as of July 1, 2003.
                  (B) Redistribution.--
                          (i) In general.--The Secretary is 
                        authorized to increase the otherwise 
                        applicable resident limit for each 
                        qualifying hospital that submits a 
                        timely application under this 
                        subparagraph by such number as the 
                        Secretary may approve for portions of 
                        cost reporting periods occurring on or 
                        after July 1, 2005. The aggregate 
                        number of increases in the otherwise 
                        applicable resident limits under this 
                        subparagraph may not exceed the 
                        Secretary's estimate of the aggregate 
                        reduction in such limits attributable 
                        to subparagraph (A).
                          (ii) Considerations in 
                        redistribution.--In determining for 
                        which hospitals the increase in the 
                        otherwise applicable resident limit is 
                        provided under clause (i), the 
                        Secretary shall take into account the 
                        demonstrated likelihood of the hospital 
                        filling the positions within the first 
                        3 cost reporting periods beginning on 
                        or after July 1, 2005, made available 
                        under this subparagraph, as determined 
                        by the Secretary.
                          (iii) Priority for rural and small 
                        urban areas.--In determining for which 
                        hospitals and residency training 
                        programs an increase in the otherwise 
                        applicable resident limit is provided 
                        under clause (i), the Secretary shall 
                        distribute the increase to programs of 
                        hospitals located in the following 
                        priority order:
                                  (I) First, to hospitals 
                                located in rural areas (as 
                                defined in subsection 
                                (d)(2)(D)(ii)).
                                  (II) Second, to hospitals 
                                located in urban areas that are 
                                not large urban areas (as 
                                defined for purposes of 
                                subsection (d)).
                                  (III) Third, to other 
                                hospitals in a State if the 
                                residency training program 
                                involved is in a specialty for 
                                which there are not other 
                                residency training programs in 
                                the State.
                        Increases of residency limits within 
                        the same priority category under this 
                        clause shall be determined by the 
                        Secretary.
                          (iv) Limitation.--In no case shall 
                        more than 25 full-time equivalent 
                        additional residency positions be made 
                        available under this subparagraph with 
                        respect to any hospital.
                          (v) Application of locality adjusted 
                        national average per resident amount.--
                        With respect to additional residency 
                        positions in a hospital attributable to 
                        the increase provided under this 
                        subparagraph, notwithstanding any other 
                        provision of this subsection, the 
                        approved FTE resident amount is deemed 
                        to be equal to the locality adjusted 
                        national average per resident amount 
                        computed under paragraph (4)(E) for 
                        that hospital.
                          (vi) Construction.--Nothing in this 
                        subparagraph shall be construed as 
                        permitting the redistribution of 
                        reductions in residency positions 
                        attributable to voluntary reduction 
                        programs under paragraph (6), under a 
                        demonstration project approved as of 
                        October 31, 2003, under the authority 
                        of section 402 of Public Law 90-248, or 
                        as affecting the ability of a hospital 
                        to establish new medical residency 
                        training programs under paragraph 
                        (4)(H).
                  (C) Resident level and limit defined.--In 
                this paragraph:
                          (i) Resident level.--The term 
                        ``resident level'' means, with respect 
                        to a hospital, the total number of 
                        full-time equivalent residents, before 
                        the application of weighting factors 
                        (as determined under paragraph (4)), in 
                        the fields of allopathic and 
                        osteopathic medicine for the hospital.
                          (ii) Otherwise applicable resident 
                        limit.--The term ``otherwise applicable 
                        resident limit'' means, with respect to 
                        a hospital, the limit otherwise 
                        applicable under subparagraphs (F)(i) 
                        and (H) of paragraph (4) on the 
                        resident level for the hospital 
                        determined without regard to this 
                        paragraph.
                  (D) Adjustment based on settled cost 
                report.--In the case of a hospital with a dual 
                accredited osteopathic and allopathic family 
                practice program for which--
                          (i) the otherwise applicable resident 
                        limit was reduced under subparagraph 
                        (A)(i)(I); and
                          (ii) such reduction was based on a 
                        reference resident level that was 
                        determined using a cost report and 
                        where a revised or corrected notice of 
                        program reimbursement was issued for 
                        such cost report between September 1, 
                        2006 and September 15, 2006, whether as 
                        a result of an appeal or otherwise, and 
                        the reference resident level under such 
                        settled cost report is higher than the 
                        level used for the reduction under 
                        subparagraph (A)(i)(I);
                the Secretary shall apply subparagraph 
                (A)(i)(I) using the higher resident reference 
                level and make any necessary adjustments to 
                such reduction. Any such necessary adjustments 
                shall be effective for portions of cost 
                reporting periods occurring on or after July 1, 
                2005.
                  (E) Judicial review.--There shall be no 
                administrative or judicial review under section 
                1869, 1878, or otherwise, with respect to 
                determinations made under this this paragraph, 
                paragraph (8), or paragraph (4)(H)(vi).
          (8) Distribution of additional residency positions.--
                  (A) Reductions in limit based on unused 
                positions.--
                          (i) In general.--Except as provided 
                        in clause (ii), if a hospital's 
                        reference resident level (as defined in 
                        subparagraph (H)(i)) is less than the 
                        otherwise applicable resident limit (as 
                        defined in subparagraph (H)(iii)), 
                        effective for portions of cost 
                        reporting periods occurring on or after 
                        July 1, 2011, the otherwise applicable 
                        resident limit shall be reduced by 65 
                        percent of the difference between such 
                        otherwise applicable resident limit and 
                        such reference resident level.
                          (ii) Exceptions.--This subparagraph 
                        shall not apply to--
                                  (I) a hospital located in a 
                                rural area (as defined in 
                                subsection (d)(2)(D)(ii)) with 
                                fewer than 250 acute care 
                                inpatient beds;
                                  (II) a hospital that was part 
                                of a qualifying entity which 
                                had a voluntary residency 
                                reduction plan approved under 
                                paragraph (6)(B) or under the 
                                authority of section 402 of 
                                Public Law 90-248, if the 
                                hospital demonstrates to the 
                                Secretary that it has a 
                                specified plan in place for 
                                filling the unused positions by 
                                not later than 2 years after 
                                the date of enactment of this 
                                paragraph; or
                                  (III) a hospital described in 
                                paragraph (4)(H)(v).
                  (B) Distribution.--
                          (i) In general.--The Secretary shall 
                        increase the otherwise applicable 
                        resident limit for each qualifying 
                        hospital that submits an application 
                        under this subparagraph by such number 
                        as the Secretary may approve for 
                        portions of cost reporting periods 
                        occurring on or after July 1, 2011. The 
                        aggregate number of increases in the 
                        otherwise applicable resident limit 
                        under this subparagraph shall be equal 
                        to the aggregate reduction in such 
                        limits attributable to subparagraph (A) 
                        (as estimated by the Secretary).
                          (ii) Requirements.--Subject to clause 
                        (iii), a hospital that receives an 
                        increase in the otherwise applicable 
                        resident limit under this subparagraph 
                        shall ensure, during the 5-year period 
                        beginning on the date of such increase, 
                        that--
                                  (I) the number of full-time 
                                equivalent primary care 
                                residents, as defined in 
                                paragraph (5)(H) (as determined 
                                by the Secretary), excluding 
                                any additional positions under 
                                subclause (II), is not less 
                                than the average number of 
                                full-time equivalent primary 
                                care residents (as so 
                                determined) during the 3 most 
                                recent cost reporting periods 
                                ending prior to the date of 
                                enactment of this paragraph; 
                                and
                                  (II) not less than 75 percent 
                                of the positions attributable 
                                to such increase are in a 
                                primary care or general surgery 
                                residency (as determined by the 
                                Secretary).
                        The Secretary may determine whether a 
                        hospital has met the requirements under 
                        this clause during such 5-year period 
                        in such manner and at such time as the 
                        Secretary determines appropriate, 
                        including at the end of such 5-year 
                        period.
                          (iii) Redistribution of positions if 
                        hospital no longer meets certain 
                        requirements.--In the case where the 
                        Secretary determines that a hospital 
                        described in clause (ii) does not meet 
                        either of the requirements under 
                        subclause (I) or (II) of such clause, 
                        the Secretary shall--
                                  (I) reduce the otherwise 
                                applicable resident limit of 
                                the hospital by the amount by 
                                which such limit was increased 
                                under this paragraph; and
                                  (II) provide for the 
                                distribution of positions 
                                attributable to such reduction 
                                in accordance with the 
                                requirements of this paragraph.
                  (C) Considerations in redistribution.--In 
                determining for which hospitals the increase in 
                the otherwise applicable resident limit is 
                provided under subparagraph (B), the Secretary 
                shall take into account--
                          (i) the demonstration likelihood of 
                        the hospital filling the positions made 
                        available under this paragraph within 
                        the first 3 cost reporting periods 
                        beginning on or after July 1, 2011, as 
                        determined by the Secretary; and
                          (ii) whether the hospital has an 
                        accredited rural training track (as 
                        described in paragraph (4)(H)(iv)).
                  (D) Priority for certain areas.--In 
                determining for which hospitals the increase in 
                the otherwise applicable resident limit is 
                provided under subparagraph (B), subject to 
                subparagraph (E), the Secretary shall 
                distribute the increase to hospitals based on 
                the following factors:
                          (i) Whether the hospital is located 
                        in a State with a resident-to-
                        population ratio in the lowest quartile 
                        (as determined by the Secretary).
                          (ii) Whether the hospital is located 
                        in a State, a territory of the United 
                        States, or the District of Columbia 
                        that is among the top 10 States, 
                        territories, or Districts in terms of 
                        the ratio of--
                                  (I) the total population of 
                                the State, territory, or 
                                District living in an area 
                                designated (under such section 
                                332(a)(1)(A)) as a health 
                                professional shortage area (as 
                                of the date of enactment of 
                                this paragraph); to
                                  (II) the total population of 
                                the State, territory, or 
                                District (as determined by the 
                                Secretary based on the most 
                                recent available population 
                                data published by the Bureau of 
                                the Census).
                          (iii) Whether the hospital is located 
                        in a rural area (as defined in 
                        subsection (d)(2)(D)(ii)).
                  (E) Reservation of positions for certain 
                hospitals.--
                          (i) In general.--Subject to clause 
                        (ii), the Secretary shall reserve the 
                        positions available for distribution 
                        under this paragraph as follows:
                                  (I) 70 percent of such 
                                positions for distribution to 
                                hospitals described in clause 
                                (i) of subparagraph (D).
                                  (II) 30 percent of such 
                                positions for distribution to 
                                hospitals described in clause 
                                (ii) and (iii) of such 
                                subparagraph.
                          (ii) Exception if positions not 
                        redistributed by july 1, 2011.--In the 
                        case where the Secretary does not 
                        distribute positions to hospitals in 
                        accordance with clause (i) by July 1, 
                        2011, the Secretary shall distribute 
                        such positions to other hospitals in 
                        accordance with the considerations 
                        described in subparagraph (C) and the 
                        priority described in subparagraph (D).
                  (F) Limitation.--A hospital may not receive 
                more than 75 full-time equivalent additional 
                residency positions under this paragraph.
                  (G) Application of per resident amounts for 
                primary care and nonprimary care.--With respect 
                to additional residency positions in a hospital 
                attributable to the increase provided under 
                this paragraph, the approved FTE per resident 
                amounts are deemed to be equal to the hospital 
                per resident amounts for primary care and 
                nonprimary care computed under paragraph (2)(D) 
                for that hospital.
                  (H) Definitions.--In this paragraph:
                          (i) Reference resident level.--The 
                        term ``reference resident level'' 
                        means, with respect to a hospital, the 
                        highest resident level for any of the 3 
                        most recent cost reporting periods 
                        (ending before the date of the 
                        enactment of this paragraph) of the 
                        hospital for which a cost report has 
                        been settled (or, if not, submitted 
                        (subject to audit)), as determined by 
                        the Secretary.
                          (ii) Resident level.--The term 
                        ``resident level'' has the meaning 
                        given such term in paragraph (7)(C)(i).
                          (iii) Otherwise applicable resident 
                        limit.--The term ``otherwise applicable 
                        resident limit'' means, with respect to 
                        a hospital, the limit otherwise 
                        applicable under subparagraphs (F)(i) 
                        and (H) of paragraph (4) on the 
                        resident level for the hospital 
                        determined without regard to this 
                        paragraph but taking into account 
                        paragraph (7)(A).
                  (I) Affiliation.--The provisions of this 
                paragraph shall be applied to hospitals which 
                are members of the same affiliated group (as 
                defined by the Secretary under paragraph 
                (4)(H)(ii)) and the reference resident level 
                for each such hospital shall be the reference 
                resident level with respect to the cost 
                reporting period that results in the smallest 
                difference between the reference resident level 
                and the otherwise applicable resident limit.
  (i) Avoiding Duplicative Payments to Hospitals Participating 
in Rural Demonstration Programs.--The Secretary shall reduce 
any payment amounts otherwise determined under this section to 
the extent necessary to avoid duplication of any payment made 
under section 4005(e) of the Omnibus Budget Reconciliation Act 
of 1987.
  (j) Prospective Payment for Inpatient Rehabilitation 
Services.--
          (1) Payment during transition period.--
                  (A) In general.--Notwithstanding section 
                1814(b), but subject to the provisions of 
                section 1813, the amount of the payment with 
                respect to the operating and capital costs of 
                inpatient hospital services of a rehabilitation 
                hospital or a rehabilitation unit (in this 
                subsection referred to as a ``rehabilitation 
                facility''), other than a facility making an 
                election under subparagraph (F) in a cost 
                reporting period beginning on or after October 
                1, 2000, and before October 1, 2002, is equal 
                to the sum of--
                          (i) the TEFRA percentage (as defined 
                        in subparagraph (C)) of the amount that 
                        would have been paid under part A with 
                        respect to such costs if this 
                        subsection did not apply, and
                          (ii) the prospective payment 
                        percentage (as defined in subparagraph 
                        (C)) of the product of (I) the per unit 
                        payment rate established under this 
                        subsection for the fiscal year in which 
                        the payment unit of service occurs, and 
                        (II) the number of such payment units 
                        occurring in the cost reporting period.
                  (B) Fully implemented system.--
                Notwithstanding section 1814(b), but subject to 
                the provisions of section 1813, the amount of 
                the payment with respect to the operating and 
                capital costs of inpatient hospital services of 
                a rehabilitation facility for a payment unit in 
                a cost reporting period beginning on or after 
                October 1, 2002, or, in the case of a facility 
                making an election under subparagraph (F), for 
                any cost reporting period described in such 
                subparagraph, is equal to the per unit payment 
                rate established under this subsection for the 
                fiscal year in which the payment unit of 
                service occurs.
                  (C) TEFRA and prospective payment percentages 
                specified.--For purposes of subparagraph (A), 
                for a cost reporting period beginning--
                          (i) on or after October 1, 2000, and 
                        before October 1, 2001, the ``TEFRA 
                        percentage'' is 66\2/3\ percent and the 
                        ``prospective payment percentage'' is 
                        33\1/3\ percent; and
                          (ii) on or after October 1, 2001, and 
                        before October 1, 2002, the ``TEFRA 
                        percentage'' is 33\1/3\ percent and the 
                        ``prospective payment percentage'' is 
                        66\2/3\ percent.
                  (D) Payment unit.--For purposes of this 
                subsection, the term ``payment unit'' means a 
                discharge.
                  (E) Construction relating to transfer 
                authority.--Nothing in this subsection shall be 
                construed as preventing the Secretary from 
                providing for an adjustment to payments to take 
                into account the early transfer of a patient 
                from a rehabilitation facility to another site 
                of care.
                  (F) Election to apply full prospective 
                payment system.--A rehabilitation facility may 
                elect, not later than 30 days before its first 
                cost reporting period for which the payment 
                methodology under this subsection applies to 
                the facility, to have payment made to the 
                facility under this subsection under the 
                provisions of subparagraph (B) (rather than 
                subparagraph (A)) for each cost reporting 
                period to which such payment methodology 
                applies.
          (2) Patient case mix groups.--
                  (A) Establishment.--The Secretary shall 
                establish--
                          (i) classes of patient discharges of 
                        rehabilitation facilities by 
                        functional-related groups (each in this 
                        subsection referred to as a ``case mix 
                        group''), based on impairment, age, 
                        comorbidities, and functional 
                        capability of the patient and such 
                        other factors as the Secretary deems 
                        appropriate to improve the explanatory 
                        power of functional independence 
                        measure-function related groups; and
                          (ii) a method of classifying specific 
                        patients in rehabilitation facilities 
                        within these groups.
                  (B) Weighting factors.--For each case mix 
                group the Secretary shall assign an appropriate 
                weighting which reflects the relative facility 
                resources used with respect to patients 
                classified within that group compared to 
                patients classified within other groups.
                  (C) Adjustments for case mix.--
                          (i) In general.--The Secretary shall 
                        from time to time adjust the 
                        classifications and weighting factors 
                        established under this paragraph as 
                        appropriate to reflect changes in 
                        treatment patterns, technology, case 
                        mix, number of payment units for which 
                        payment is made under this title, and 
                        other factors which may affect the 
                        relative use of resources. Such 
                        adjustments shall be made in a manner 
                        so that changes in aggregate payments 
                        under the classification system are a 
                        result of real changes and are not a 
                        result of changes in coding that are 
                        unrelated to real changes in case mix.
                          (ii) Adjustment.--Insofar as the 
                        Secretary determines that such 
                        adjustments for a previous fiscal year 
                        (or estimates that such adjustments for 
                        a future fiscal year) did (or are 
                        likely to) result in a change in 
                        aggregate payments under the 
                        classification system during the fiscal 
                        year that are a result of changes in 
                        the coding or classification of 
                        patients that do not reflect real 
                        changes in case mix, the Secretary 
                        shall adjust the per payment unit 
                        payment rate for subsequent years so as 
                        to eliminate the effect of such coding 
                        or classification changes.
                  (D) Data collection.--The Secretary is 
                authorized to require rehabilitation facilities 
                that provide inpatient hospital services to 
                submit such data as the Secretary deems 
                necessary to establish and administer the 
                prospective payment system under this 
                subsection.
          (3) Payment rate.--
                  (A) In general.--The Secretary shall 
                determine a prospective payment rate for each 
                payment unit for which such rehabilitation 
                facility is entitled to receive payment under 
                this title. Subject to subparagraph (B), such 
                rate for payment units occurring during a 
                fiscal year shall be based on the average 
                payment per payment unit under this title for 
                inpatient operating and capital costs of 
                rehabilitation facilities using the most recent 
                data available (as estimated by the Secretary 
                as of the date of establishment of the system) 
                adjusted--
                          (i) by updating such per-payment-unit 
                        amount to the fiscal year involved by 
                        the weighted average of the applicable 
                        percentage increases provided under 
                        subsection (b)(3)(B)(ii) (for cost 
                        reporting periods beginning during the 
                        fiscal year) covering the period from 
                        the midpoint of the period for such 
                        data through the midpoint of fiscal 
                        year 2000 and by an increase factor 
                        (described in subparagraph (C)) 
                        specified by the Secretary for 
                        subsequent fiscal years up to the 
                        fiscal year involved;
                          (ii) by reducing such rates by a 
                        factor equal to the proportion of 
                        payments under this subsection (as 
                        estimated by the Secretary) based on 
                        prospective payment amounts which are 
                        additional payments described in 
                        paragraph (4) (relating to outlier and 
                        related payments);
                          (iii) for variations among 
                        rehabilitation facilities by area under 
                        paragraph (6);
                          (iv) by the weighting factors 
                        established under paragraph (2)(B); and
                          (v) by such other factors as the 
                        Secretary determines are necessary to 
                        properly reflect variations in 
                        necessary costs of treatment among 
                        rehabilitation facilities.
                  (B) Budget neutral rates.--The Secretary 
                shall establish the prospective payment amounts 
                under this subsection for payment units during 
                fiscal years 2001 and 2002 at levels such that, 
                in the Secretary's estimation, the amount of 
                total payments under this subsection for such 
                fiscal years (including any payment adjustments 
                pursuant to paragraphs (4) and (6) but not 
                taking into account any payment adjustment 
                resulting from an election permitted under 
                paragraph (1)(F)) shall be equal to 98 percent 
                for fiscal year 2001 and 100 percent for fiscal 
                year 2002 of the amount of payments that would 
                have been made under this title during the 
                fiscal years for operating and capital costs of 
                rehabilitation facilities had this subsection 
                not been enacted. In establishing such payment 
                amounts, the Secretary shall consider the 
                effects of the prospective payment system 
                established under this subsection on the total 
                number of payment units from rehabilitation 
                facilities and other factors described in 
                subparagraph (A).
                  (C) Increase factor.--
                          (i) In general.--For purposes of this 
                        subsection for payment units in each 
                        fiscal year (beginning with fiscal year 
                        2001), the Secretary shall establish an 
                        increase factor subject to clauses (ii) 
                        and (iii). Such factor shall be based 
                        on an appropriate percentage increase 
                        in a market basket of goods and 
                        services comprising services for which 
                        payment is made under this subsection, 
                        which may be the market basket 
                        percentage increase described in 
                        subsection (b)(3)(B)(iii). The increase 
                        factor to be applied under this 
                        subparagraph for each of fiscal years 
                        2008 and 2009 shall be 0 percent.
                          (ii) Productivity and other 
                        adjustment.--Subject to clause (iii), 
                        after establishing the increase factor 
                        described in clause (i) for a fiscal 
                        year, the Secretary shall reduce such 
                        increase factor--
                                  (I) for fiscal year 2012 and 
                                each subsequent fiscal year, by 
                                the productivity adjustment 
                                described in section 
                                1886(b)(3)(B)(xi)(II); and
                                  (II) for each of fiscal years 
                                2010 through 2019, by the other 
                                adjustment described in 
                                subparagraph (D).
                        The application of this clause may 
                        result in the increase factor under 
                        this subparagraph being less than 0.0 
                        for a fiscal year, and may result in 
                        payment rates under this subsection for 
                        a fiscal year being less than such 
                        payment rates for the preceding fiscal 
                        year.
                          (iii) Special rule for fiscal year 
                        2018.--The increase factor to be 
                        applied under this subparagraph for 
                        fiscal year 2018, after the application 
                        of clause (ii), shall be 1 percent.
                  (D) Other adjustment.--For purposes of 
                subparagraph (C)(ii)(II), the other adjustment 
                described in this subparagraph is--
                          (i) for each of fiscal years 2010 and 
                        2011, 0.25 percentage point;
                          (ii) for each of fiscal years 2012 
                        and 2013, 0.1 percentage point;
                          (iii) for fiscal year 2014, 0.3 
                        percentage point;
                          (iv) for each of fiscal years 2015 
                        and 2016, 0.2 percentage point; and
                          (v) for each of fiscal years 2017, 
                        2018, and 2019, 0.75 percentage point.
          (4) Outlier and special payments.--
                  (A) Outliers.--
                          (i) In general.--The Secretary may 
                        provide for an additional payment to a 
                        rehabilitation facility for patients in 
                        a case mix group, based upon the 
                        patient being classified as an outlier 
                        based on an unusual length of stay, 
                        costs, or other factors specified by 
                        the Secretary.
                          (ii) Payment based on marginal cost 
                        of care.--The amount of such additional 
                        payment under clause (i) shall be 
                        determined by the Secretary and shall 
                        approximate the marginal cost of care 
                        beyond the cutoff point applicable 
                        under clause (i).
                          (iii) Total payments.--The total 
                        amount of the additional payments made 
                        under this subparagraph for payment 
                        units in a fiscal year may not exceed 5 
                        percent of the total payments projected 
                        or estimated to be made based on 
                        prospective payment rates for payment 
                        units in that year.
                  (B) Adjustment.--The Secretary may provide 
                for such adjustments to the payment amounts 
                under this subsection as the Secretary deems 
                appropriate to take into account the unique 
                circumstances of rehabilitation facilities 
                located in Alaska and Hawaii.
          (5) Publication.--The Secretary shall provide for 
        publication in the Federal Register, on or before 
        August 1 before each fiscal year (beginning with fiscal 
        year 2001), of the classification and weighting factors 
        for case mix groups under paragraph (2) for such fiscal 
        year and a description of the methodology and data used 
        in computing the prospective payment rates under this 
        subsection for that fiscal year.
          (6) Area wage adjustment.--The Secretary shall adjust 
        the proportion (as estimated by the Secretary from time 
        to time) of rehabilitation facilities' costs which are 
        attributable to wages and wage-related costs, of the 
        prospective payment rates computed under paragraph (3) 
        for area differences in wage levels by a factor 
        (established by the Secretary) reflecting the relative 
        hospital wage level in the geographic area of the 
        rehabilitation facility compared to the national 
        average wage level for such facilities. Not later than 
        October 1, 2001 (and at least every 36 months 
        thereafter), the Secretary shall update the factor 
        under the preceding sentence on the basis of 
        information available to the Secretary (and updated as 
        appropriate) of the wages and wage-related costs 
        incurred in furnishing rehabilitation services. Any 
        adjustments or updates made under this paragraph for a 
        fiscal year shall be made in a manner that assures that 
        the aggregated payments under this subsection in the 
        fiscal year are not greater or less than those that 
        would have been made in the year without such 
        adjustment.
          (7) Quality reporting.--
                  (A) Reduction in update for failure to 
                report.--
                          (i) In general.--For purposes of 
                        fiscal year 2014 and each subsequent 
                        fiscal year, in the case of a 
                        rehabilitation facility that does not 
                        submit data to the Secretary in 
                        accordance with subparagraphs (C) and 
                        (F) with respect to such a fiscal year, 
                        after determining the increase factor 
                        described in paragraph (3)(C), and 
                        after application of subparagraphs 
                        (C)(iii) and (D) of paragraph (3), the 
                        Secretary shall reduce such increase 
                        factor for payments for discharges 
                        occurring during such fiscal year by 2 
                        percentage points.
                          (ii) Special rule.--The application 
                        of this subparagraph may result in the 
                        increase factor described in paragraph 
                        (3)(C) being less than 0.0 for a fiscal 
                        year, and may result in payment rates 
                        under this subsection for a fiscal year 
                        being less than such payment rates for 
                        the preceding fiscal year.
                  (B) Noncumulative application.--Any reduction 
                under subparagraph (A) shall apply only with 
                respect to the fiscal year involved and the 
                Secretary shall not take into account such 
                reduction in computing the payment amount under 
                this subsection for a subsequent fiscal year.
                  (C) Submission of quality data.--Subject to 
                subparagraph (G), for fiscal year 2014 and each 
                subsequent fiscal year, each rehabilitation 
                facility shall submit to the Secretary data on 
                quality measures specified under subparagraph 
                (D). Such data shall be submitted in a form and 
                manner, and at a time, specified by the 
                Secretary for purposes of this subparagraph.
                  (D) Quality measures.--
                          (i) In general.--Subject to clause 
                        (ii), any measure specified by the 
                        Secretary under this subparagraph must 
                        have been endorsed by the entity with a 
                        contract under section 1890(a).
                          (ii) Exception.--In the case of a 
                        specified area or medical topic 
                        determined appropriate by the Secretary 
                        for which a feasible and practical 
                        measure has not been endorsed by the 
                        entity with a contract under section 
                        1890(a), the Secretary may specify a 
                        measure that is not so endorsed as long 
                        as due consideration is given to 
                        measures that have been endorsed or 
                        adopted by a consensus organization 
                        identified by the Secretary.
                          (iii) Time frame.--Not later than 
                        October 1, 2012, the Secretary shall 
                        publish the measures selected under 
                        this subparagraph that will be 
                        applicable with respect to fiscal year 
                        2014.
                  (E) Public availability of data submitted.--
                The Secretary shall establish procedures for 
                making data submitted under subparagraph (C) 
                and subparagraph (F)(i) available to the 
                public. Such procedures shall ensure that a 
                rehabilitation facility has the opportunity to 
                review the data that is to be made public with 
                respect to the facility prior to such data 
                being made public. The Secretary shall report 
                quality measures that relate to services 
                furnished in inpatient settings in 
                rehabilitation facilities on the Internet 
                website of the Centers for Medicare & Medicaid 
                Services.
                  (F) Submission of additional data.--
                          (i) In general.--For the fiscal year 
                        beginning on the specified application 
                        date (as defined in subsection 
                        (a)(2)(E) of section 1899B), as 
                        applicable with respect to inpatient 
                        rehabilitation facilities and quality 
                        measures under subsection (c)(1) of 
                        such section and measures under 
                        subsection (d)(1) of such section, and 
                        each subsequent fiscal year, in 
                        addition to such data on the quality 
                        measures described in subparagraph (C), 
                        each rehabilitation facility shall 
                        submit to the Secretary data on the 
                        quality measures under such subsection 
                        (c)(1) and any necessary data specified 
                        by the Secretary under such subsection 
                        (d)(1).
                          (ii) Standardized patient assessment 
                        data.--For fiscal year 2019 and each 
                        subsequent fiscal year, in addition to 
                        such data described in clause (i), each 
                        rehabilitation facility shall submit to 
                        the Secretary standardized patient 
                        assessment data required under 
                        subsection (b)(1) of section 1899B.
                          (iii) Submission.--Such data shall be 
                        submitted in the form and manner, and 
                        at the time, specified by the Secretary 
                        for purposes of this subparagraph.
                  (G) Non-duplication.--To the extent data 
                submitted under subparagraph (F) duplicates 
                other data required to be submitted under 
                subparagraph (C), the submission of such data 
                under subparagraph (F) shall be in lieu of the 
                submission of such data under subparagraph (C). 
                The previous sentence shall not apply insofar 
                as the Secretary determines it is necessary to 
                avoid a delay in the implementation of section 
                1899B, taking into account the different 
                specified application dates under subsection 
                (a)(2)(E) of such section.
          (8) Limitation on review.--There shall be no 
        administrative or judicial review under section 1869, 
        1878, or otherwise of the establishment of--
                  (A) case mix groups, of the methodology for 
                the classification of patients within such 
                groups, and of the appropriate weighting 
                factors thereof under paragraph (2),
                  (B) the prospective payment rates under 
                paragraph (3),
                  (C) outlier and special payments under 
                paragraph (4), and
                  (D) area wage adjustments under paragraph 
                (6).
  (k) Payment to Nonhospital Providers.--
          (1) In general.--For cost reporting periods beginning 
        on or after October 1, 1997, the Secretary may 
        establish rules for payment to qualified nonhospital 
        providers for their direct costs of medical education, 
        if those costs are incurred in the operation of an 
        approved medical residency training program described 
        in subsection (h). Such rules shall specify the 
        amounts, form, and manner in which such payments will 
        be made and the portion of such payments that will be 
        made from each of the trust funds under this title.
          (2) Qualified nonhospital providers.--For purposes of 
        this subsection, the term ``qualified nonhospital 
        providers'' means--
                  (A) a Federally qualified health center, as 
                defined in section 1861(aa)(4);
                  (B) a rural health clinic, as defined in 
                section 1861(aa)(2);
                  (C) Medicare+Choice organizations; and
                  (D) such other providers (other than 
                hospitals) as the Secretary determines to be 
                appropriate.
  (l) Payment for Nursing and Allied Health Education for 
Managed Care Enrollees.--
          (1) In general.--For portions of cost reporting 
        periods occurring in a year (beginning with 2000), the 
        Secretary shall provide for an additional payment 
        amount for any hospital that receives payments for the 
        costs of approved educational activities for nurse and 
        allied health professional training under section 
        1861(v)(1).
          (2) Payment amount.--The additional payment amount 
        under this subsection for each hospital for portions of 
        cost reporting periods occurring in a year shall be an 
        amount specified by the Secretary in a manner 
        consistent with the following:
                  (A) Determination of managed care enrollee 
                payment ratio for graduate medical education 
                payments.--The Secretary shall estimate the 
                ratio of payments for all hospitals for 
                portions of cost reporting periods occurring in 
                the year under subsection (h)(3)(D) to total 
                direct graduate medical education payments 
                estimated for such portions of periods under 
                subsection (h)(3).
                  (B) Application to fee-for-service nursing 
                and allied health education payments.--Such 
                ratio shall be applied to the Secretary's 
                estimate of total payments for nursing and 
                allied health education determined under 
                section 1861(v) for portions of cost reporting 
                periods occurring in the year to determine a 
                total amount of additional payments for nursing 
                and allied health education to be distributed 
                to hospitals under this subsection for portions 
                of cost reporting periods occurring in the 
                year; except that in no case shall such total 
                amount exceed $60,000,000 in any year.
                  (C) Application to hospital.--The amount of 
                payment under this subsection to a hospital for 
                portions of cost reporting periods occurring in 
                a year is equal to the total amount of payments 
                determined under subparagraph (B) for the year 
                multiplied by the ratio of--
                          (i) the product of (I) the 
                        Secretary's estimate of the ratio of 
                        the amount of payments made under 
                        section 1861(v) to the hospital for 
                        nursing and allied health education 
                        activities for the hospital's cost 
                        reporting period ending in the second 
                        preceding fiscal year, to the 
                        hospital's total inpatient days for 
                        such period, and (II) the total number 
                        of inpatient days (as established by 
                        the Secretary) for such period which 
                        are attributable to services furnished 
                        to individuals who are enrolled under a 
                        risk sharing contract with an eligible 
                        organization under section 1876 and who 
                        are entitled to benefits under part A 
                        or who are enrolled with a 
                        Medicare+Choice organization under part 
                        C; to
                          (ii) the sum of the products 
                        determined under clause (i) for such 
                        cost reporting periods.
  (m) Prospective Payment for Long-Term Care Hospitals.--
          (1) Reference to establishment and implementation of 
        system.--For provisions related to the establishment 
        and implementation of a prospective payment system for 
        payments under this title for inpatient hospital 
        services furnished by a long-term care hospital 
        described in subsection (d)(1)(B)(iv), see section 123 
        of the Medicare, Medicaid, and SCHIP Balanced Budget 
        Refinement Act of 1999 and section 307(b) of the 
        Medicare, Medicaid, and SCHIP Benefits Improvement and 
        Protection Act of 2000.
          (2) Update for rate year 2008.--In implementing the 
        system described in paragraph (1) for discharges 
        occurring during the rate year ending in 2008 for a 
        hospital, the base rate for such discharges for the 
        hospital shall be the same as the base rate for 
        discharges for the hospital occurring during the rate 
        year ending in 2007.
          (3) Implementation for rate year 2010 and subsequent 
        years.--
                  (A) In general.--Subject to subparagraph (C), 
                in implementing the system described in 
                paragraph (1) for rate year 2010 and each 
                subsequent rate year, any annual update to a 
                standard Federal rate for discharges for the 
                hospital during the rate year, shall be 
                reduced--
                          (i) for rate year 2012 and each 
                        subsequent rate year, by the 
                        productivity adjustment described in 
                        section 1886(b)(3)(B)(xi)(II); and
                          (ii) for each of rate years 2010 
                        through 2019, by the other adjustment 
                        described in paragraph (4).
                  (B) Special rule.--The application of this 
                paragraph may result in such annual update 
                being less than 0.0 for a rate year, and may 
                result in payment rates under the system 
                described in paragraph (1) for a rate year 
                being less than such payment rates for the 
                preceding rate year.
                  (C) Additional special rule.--For fiscal year 
                2018, the annual update under subparagraph (A) 
                for the fiscal year, after application of 
                clauses (i) and (ii) of subparagraph (A), shall 
                be 1 percent.
          (4) Other adjustment.--For purposes of paragraph 
        (3)(A)(ii), the other adjustment described in this 
        paragraph is--
                  (A) for rate year 2010, 0.25 percentage 
                point;
                  (B) for rate year 2011, 0.50 percentage 
                point;
                  (C) for each of the rate years beginning in 
                2012 and 2013, 0.1 percentage point;
                  (D) for rate year 2014, 0.3 percentage point;
                  (E) for each of rate years 2015 and 2016, 0.2 
                percentage point; and
                  (F) for each of rate years 2017, 2018, and 
                2019, 0.75 percentage point.
          (5) Quality reporting.--
                  (A) Reduction in update for failure to 
                report.--
                          (i) In general.--Under the system 
                        described in paragraph (1), for rate 
                        year 2014 and each subsequent rate 
                        year, in the case of a long-term care 
                        hospital that does not submit data to 
                        the Secretary in accordance with 
                        subparagraphs (C) and (F) with respect 
                        to such a rate year, any annual update 
                        to a standard Federal rate for 
                        discharges for the hospital during the 
                        rate year, and after application of 
                        paragraph (3), shall be reduced by 2 
                        percentage points.
                          (ii) Special rule.--The application 
                        of this subparagraph may result in such 
                        annual update being less than 0.0 for a 
                        rate year, and may result in payment 
                        rates under the system described in 
                        paragraph (1) for a rate year being 
                        less than such payment rates for the 
                        preceding rate year.
                  (B) Noncumulative application.--Any reduction 
                under subparagraph (A) shall apply only with 
                respect to the rate year involved and the 
                Secretary shall not take into account such 
                reduction in computing the payment amount under 
                the system described in paragraph (1) for a 
                subsequent rate year.
                  (C) Submission of quality data.--Subject to 
                subparagraph (G), for rate year 2014 and each 
                subsequent rate year, each long-term care 
                hospital shall submit to the Secretary data on 
                quality measures specified under subparagraph 
                (D). Such data shall be submitted in a form and 
                manner, and at a time, specified by the 
                Secretary for purposes of this subparagraph.
                  (D) Quality measures.--
                          (i) In general.--Subject to clause 
                        (ii), any measure specified by the 
                        Secretary under this subparagraph must 
                        have been endorsed by the entity with a 
                        contract under section 1890(a).
                          (ii) Exception.--In the case of a 
                        specified area or medical topic 
                        determined appropriate by the Secretary 
                        for which a feasible and practical 
                        measure has not been endorsed by the 
                        entity with a contract under section 
                        1890(a), the Secretary may specify a 
                        measure that is not so endorsed as long 
                        as due consideration is given to 
                        measures that have been endorsed or 
                        adopted by a consensus organization 
                        identified by the Secretary.
                          (iii) Time frame.--Not later than 
                        October 1, 2012, the Secretary shall 
                        publish the measures selected under 
                        this subparagraph that will be 
                        applicable with respect to rate year 
                        2014.
                          (iv) Additional quality measures.--
                        Not later than October 1, 2015, the 
                        Secretary shall establish a functional 
                        status quality measure for change in 
                        mobility among inpatients requiring 
                        ventilator support.
                  (E) Public availability of data submitted.--
                The Secretary shall establish procedures for 
                making data submitted under subparagraph (C) 
                and subparagraph (F)(i) available to the 
                public. Such procedures shall ensure that a 
                long-term care hospital has the opportunity to 
                review the data that is to be made public with 
                respect to the hospital prior to such data 
                being made public. The Secretary shall report 
                quality measures that relate to services 
                furnished in inpatient settings in long-term 
                care hospitals on the Internet website of the 
                Centers for Medicare & Medicaid Services.
                  (F) Submission of additional data.--
                          (i) In general.--For the rate year 
                        beginning on the specified application 
                        date (as defined in subsection 
                        (a)(2)(E) of section 1899B), as 
                        applicable with respect to long-term 
                        care hospitals and quality measures 
                        under subsection (c)(1) of such section 
                        and measures under subsection (d)(1) of 
                        such section, and each subsequent rate 
                        year, in addition to the data on the 
                        quality measures described in 
                        subparagraph (C), each long-term care 
                        hospital (other than a hospital 
                        classified under subsection 
                        (d)(1)(B)(vi)) shall submit to the 
                        Secretary data on the quality measures 
                        under such subsection (c)(1) and any 
                        necessary data specified by the 
                        Secretary under such subsection (d)(1).
                          (ii) Standardized patient assessment 
                        data.--For rate year 2019 and each 
                        subsequent rate year, in addition to 
                        such data described in clause (i), each 
                        long-term care hospital (other than a 
                        hospital classified under subsection 
                        (d)(1)(B)(vi)) shall submit to the 
                        Secretary standardized patient 
                        assessment data required under 
                        subsection (b)(1) of section 1899B.
                          (iii) Submission.--Such data shall be 
                        submitted in the form and manner, and 
                        at the time, specified by the Secretary 
                        for purposes of this subparagraph.
                  (G) Non-duplication.--To the extent data 
                submitted under subparagraph (F) duplicates 
                other data required to be submitted under 
                subparagraph (C), the submission of such data 
                under subparagraph (F) shall be in lieu of the 
                submission of such data under subparagraph (C). 
                The previous sentence shall not apply insofar 
                as the Secretary determines it is necessary to 
                avoid a delay in the implementation of section 
                1899B, taking into account the different 
                specified application dates under subsection 
                (a)(2)(E) of such section.
          (6) Application of site neutral ipps payment rate in 
        certain cases.--
                  (A) General application of site neutral ipps 
                payment amount for discharges failing to meet 
                applicable criteria.--
                          (i) In general.--For a discharge in 
                        cost reporting periods beginning on or 
                        after October 1, 2015, except as 
                        provided in clause (ii) and 
                        subparagraphs (C), (E), (F), and (G), 
                        payment under this title to a long-term 
                        care hospital for inpatient hospital 
                        services shall be made at the 
                        applicable site neutral payment rate 
                        (as defined in subparagraph (B)).
                          (ii) Exception for certain discharges 
                        meeting criteria.--Clause (i) shall not 
                        apply (and payment shall be made to a 
                        long-term care hospital without regard 
                        to this paragraph) for a discharge if--
                                  (I) the discharge meets the 
                                ICU criterion under clause 
                                (iii) or the ventilator 
                                criterion under clause (iv); 
                                and
                                  (II) the discharge does not 
                                have a principal diagnosis 
                                relating to a psychiatric 
                                diagnosis or to rehabilitation.
                          (iii) Intensive care unit (icu) 
                        criterion.--
                                  (I) In general.--The 
                                criterion specified in this 
                                clause (in this paragraph 
                                referred to as the ``ICU 
                                criterion''), for a discharge 
                                from a long-term care hospital, 
                                is that the stay in the long-
                                term care hospital ending with 
                                such discharge was immediately 
                                preceded by a discharge from a 
                                stay in a subsection (d) 
                                hospital that included at least 
                                3 days in an intensive care 
                                unit (ICU), as determined by 
                                the Secretary.
                                  (II) Determining icu days.--
                                In determining intensive care 
                                unit days under subclause (I), 
                                the Secretary shall use data 
                                from revenue center codes 020x 
                                or 021x (or such successor 
                                codes as the Secretary may 
                                establish).
                          (iv) Ventilator criterion.--The 
                        criterion specified in this clause (in 
                        this paragraph referred to as the 
                        ``ventilator criterion''), for a 
                        discharge from a long-term care 
                        hospital, is that--
                                  (I) the stay in the long-term 
                                care hospital ending with such 
                                discharge was immediately 
                                preceded by a discharge from a 
                                stay in a subsection (d) 
                                hospital; and
                                  (II) the individual 
                                discharged was assigned to a 
                                Medicare-Severity-Long-Term-
                                Care-Diagnosis-Related-Group 
                                (MS-LTC-DRG) based on the 
                                receipt of ventilator services 
                                of at least 96 hours.
                  (B) Applicable site neutral payment rate 
                defined.--
                          (i) In general.--In this paragraph, 
                        the term ``applicable site neutral 
                        payment rate'' means--
                                  (I) for discharges in cost 
                                reporting periods beginning 
                                during fiscal years 2016 
                                through 2019, the blended 
                                payment rate specified in 
                                clause (iii); and
                                  (II) for discharges in cost 
                                reporting periods beginning 
                                during fiscal year 2020 or a 
                                subsequent fiscal year, the 
                                site neutral payment rate (as 
                                defined in clause (ii)).
                          (ii) Site neutral payment rate 
                        defined.--Subject to clause (iv), in 
                        this paragraph, the term ``site neutral 
                        payment rate'' means the lower of--
                                  (I) the IPPS comparable per 
                                diem amount determined under 
                                paragraph (d)(4) of section 
                                412.529 of title 42, Code of 
                                Federal Regulations, including 
                                any applicable outlier payments 
                                under section 412.525 of such 
                                title; or
                                  (II) 100 percent of the 
                                estimated cost for the services 
                                involved.
                          (iii) Blended payment rate.--The 
                        blended payment rate specified in this 
                        clause, for a long-term care hospital 
                        for inpatient hospital services for a 
                        discharge, is comprised of--
                                  (I) half of the site neutral 
                                payment rate (as defined in 
                                clause (ii)) for the discharge; 
                                and
                                  (II) half of the payment rate 
                                that would otherwise be 
                                applicable to such discharge 
                                without regard to this 
                                paragraph, as determined by the 
                                Secretary.
                          (iv) Adjustment.--For each of fiscal 
                        years 2018 through 2026, the amount 
                        that would otherwise apply under clause 
                        (ii)(I) for the year (determined 
                        without regard to this clause) shall be 
                        reduced by 4.6 percent.
                  (C) Limiting payment for all hospital 
                discharges to site neutral payment rate for 
                hospitals failing to meet applicable ltch 
                discharge thresholds.--
                          (i) Notice of ltch discharge payment 
                        percentage.--For cost reporting periods 
                        beginning during or after fiscal year 
                        2016, the Secretary shall inform each 
                        long-term care hospital of its LTCH 
                        discharge payment percentage (as 
                        defined in clause (iv)) for such 
                        period.
                          (ii) Limitation.--For cost reporting 
                        periods beginning during or after 
                        fiscal year 2020, if the Secretary 
                        determines for a long-term care 
                        hospital that its LTCH discharge 
                        payment percentage for the period is 
                        not at least 50 percent--
                                  (I) the Secretary shall 
                                inform the hospital of such 
                                fact; and
                                  (II) subject to clause (iii), 
                                for all discharges in the 
                                hospital in each succeeding 
                                cost reporting period, the 
                                payment amount under this 
                                subsection shall be the payment 
                                amount that would apply under 
                                subsection (d) for the 
                                discharge if the hospital were 
                                a subsection (d) hospital.
                          (iii) Process for reinstatement.--The 
                        Secretary shall establish a process 
                        whereby a long-term care hospital may 
                        seek to and have the provisions of 
                        subclause (II) of clause (ii) 
                        discontinued with respect to that 
                        hospital.
                          (iv) LTCH discharge payment 
                        percentage.--In this subparagraph, the 
                        term ``LTCH discharge payment 
                        percentage'' means, with respect to a 
                        long-term care hospital for a cost 
                        reporting period beginning during or 
                        after fiscal year 2020, the ratio 
                        (expressed as a percentage) of--
                                  (I) the number of Medicare 
                                fee-for-service discharges for 
                                such hospital and period for 
                                which payment is not made at 
                                the site neutral payment rate, 
                                to
                                  (II) the total number of 
                                Medicare fee-for-service 
                                discharges for such hospital 
                                and period.
                  (D) Inclusion of subsection (d) puerto rico 
                hospitals.--In this paragraph, any reference in 
                this paragraph to a subsection (d) hospital 
                shall be deemed to include a reference to a 
                subsection (d) Puerto Rico hospital.
                  (E) Temporary exception for certain severe 
                wound discharges from certain long-term care 
                hospitals.--
                          (i) In general.--In the case of a 
                        discharge occurring prior to January 1, 
                        2017, subparagraph (A)(i) shall not 
                        apply (and payment shall be made to a 
                        long-term care hospital without regard 
                        to this paragraph) if such discharge--
                                  (I) is from a long-term care 
                                hospital that is--
                                          (aa) identified by 
                                        the last sentence of 
                                        subsection (d)(1)(B); 
                                        and
                                          (bb) located in a 
                                        rural area (as defined 
                                        in subsection 
                                        (d)(2)(D)) or treated 
                                        as being so located 
                                        pursuant to subsection 
                                        (d)(8)(E); and
                                  (II) the individual 
                                discharged has a severe wound.
                          (ii) Severe wound defined.--In this 
                        subparagraph, the term ``severe wound'' 
                        means a stage 3 wound, stage 4 wound, 
                        unstageable wound, non-healing surgical 
                        wound, infected wound, fistula, 
                        osteomyelitis, or wound with morbid 
                        obesity, as identified in the claim 
                        from the long-term care hospital.
                  (F) Temporary exception for certain spinal 
                cord specialty hospitals.--For discharges in 
                cost reporting periods beginning during fiscal 
                years 2018 and 2019, subparagraph (A)(i) shall 
                not apply (and payment shall be made to a long-
                term care hospital without regard to this 
                paragraph) if such discharge is from a long-
                term care hospital that meets each of the 
                following requirements:
                          (i) Not-for-profit.--The long-term 
                        care hospital was a not-for-profit 
                        long-term care hospital on June 1, 
                        2014, as determined by cost report 
                        data.
                          (ii) Primarily providing treatment 
                        for catastrophic spinal cord or 
                        acquired brain injuries or other 
                        paralyzing neuromuscular conditions.--
                        Of the discharges in calendar year 2013 
                        from the long-term care hospital for 
                        which payment was made under this 
                        section, at least 50 percent were 
                        classified under MS-LTCH-DRGs 28, 29, 
                        52, 57, 551, 573, and 963.
                          (iii) Significant out-of-state 
                        admissions.--
                                  (I) In general.--The long-
                                term care hospital discharged 
                                inpatients (including both 
                                individuals entitled to, or 
                                enrolled for, benefits under 
                                this title and individuals not 
                                so entitled or enrolled) during 
                                fiscal year 2014 who had been 
                                admitted from at least 20 of 
                                the 50 States, determined by 
                                the States of residency of such 
                                inpatients and based on such 
                                data submitted by the hospital 
                                to the Secretary as the 
                                Secretary may require.
                                  (II) Implementation.--
                                Notwithstanding any other 
                                provision of law, the Secretary 
                                may implement subclause (I) by 
                                program instruction or 
                                otherwise.
                                  (III) Non-application of 
                                paperwork reduction act.--
                                Chapter 35 of title 44, United 
                                States Code, shall not apply to 
                                data collected under this 
                                clause.
                  (G) Additional temporary exception for 
                certain severe wound discharges from certain 
                long-term care hospitals.--
                          (i) In general.--For a discharge 
                        occurring in a cost reporting period 
                        beginning during fiscal year 2018, 
                        subparagraph (A)(i) shall not apply 
                        (and payment shall be made to a long-
                        term care hospital without regard to 
                        this paragraph) if such discharge--
                                  (I) is from a long-term care 
                                hospital identified by the last 
                                sentence of subsection 
                                (d)(1)(B);
                                  (II) is classified under MS-
                                LTCH-DRG 602, 603, 539, or 540; 
                                and
                                  (III) is with respect to an 
                                individual treated by a long-
                                term care hospital for a severe 
                                wound.
                          (ii) Severe wound defined.--In this 
                        subparagraph, the term ``severe wound'' 
                        means a wound which is a stage 3 wound, 
                        stage 4 wound, unstageable wound, non-
                        healing surgical wound, or fistula as 
                        identified in the claim from the long-
                        term care hospital.
                          (iii) Wound defined.--In this 
                        subparagraph, the term ``wound'' means 
                        an injury involving division of tissue 
                        or rupture of the integument or mucous 
                        membrane with exposure to the external 
                        environment.
          (7) Treatment of high cost outlier payments.--
                  (A) Adjustment to the standard federal 
                payment rate for estimated high cost outlier 
                payments.--Under the system described in 
                paragraph (1), for fiscal years beginning on or 
                after October 1, 2017, the Secretary shall 
                reduce the standard Federal payment rate as if 
                the estimated aggregate amount of high cost 
                outlier payments for standard Federal payment 
                rate discharges for each such fiscal year would 
                be equal to 8 percent of estimated aggregate 
                payments for standard Federal payment rate 
                discharges for each such fiscal year.
                  (B) Limitation on high cost outlier payment 
                amounts.--Notwithstanding subparagraph (A), the 
                Secretary shall set the fixed loss amount for 
                high cost outlier payments such that the 
                estimated aggregate amount of high cost outlier 
                payments made for standard Federal payment rate 
                discharges for fiscal years beginning on or 
                after October 1, 2017, shall be equal to 
                99.6875 percent of 8 percent of estimated 
                aggregate payments for standard Federal payment 
                rate discharges for each such fiscal year.
                  (C) Waiver of budget neutrality.--Any 
                reduction in payments resulting from the 
                application of subparagraph (B) shall not be 
                taken into account in applying any budget 
                neutrality provision under such system.
                  (D) No effect on site neutral high cost 
                outlier payment rate.--This paragraph shall not 
                apply with respect to the computation of the 
                applicable site neutral payment rate under 
                paragraph (6).
  (n) Incentives for Adoption and Meaningful Use of Certified 
EHR Technology.--
          (1) In general.--Subject to the succeeding provisions 
        of this subsection, with respect to inpatient hospital 
        services furnished by an eligible hospital during a 
        payment year (as defined in paragraph (2)(G)), if the 
        eligible hospital is a meaningful EHR user (as 
        determined under paragraph (3)) for the EHR reporting 
        period with respect to such year, in addition to the 
        amount otherwise paid under this section, there also 
        shall be paid to the eligible hospital, from the 
        Federal Hospital Insurance Trust Fund established under 
        section 1817, an amount equal to the applicable amount 
        specified in paragraph (2)(A) for the hospital for such 
        payment year.
          (2) Payment amount.--
                  (A) In general.--Subject to the succeeding 
                subparagraphs of this paragraph, the applicable 
                amount specified in this subparagraph for an 
                eligible hospital for a payment year is equal 
                to the product of the following:
                          (i) Initial amount.--The sum of--
                                  (I) the base amount specified 
                                in subparagraph (B); plus
                                  (II) the discharge related 
                                amount specified in 
                                subparagraph (C) for a 12-month 
                                period selected by the 
                                Secretary with respect to such 
                                payment year.
                          (ii) Medicare share.--The Medicare 
                        share as specified in subparagraph (D) 
                        for the eligible hospital for a period 
                        selected by the Secretary with respect 
                        to such payment year.
                          (iii) Transition factor.--The 
                        transition factor specified in 
                        subparagraph (E) for the eligible 
                        hospital for the payment year.
                  (B) Base amount.--The base amount specified 
                in this subparagraph is $2,000,000.
                  (C) Discharge related amount.--The discharge 
                related amount specified in this subparagraph 
                for a 12-month period selected by the Secretary 
                shall be determined as the sum of the amount, 
                estimated based upon total discharges for the 
                eligible hospital (regardless of any source of 
                payment) for the period, for each discharge up 
                to the 23,000th discharge as follows:
                          (i) For the first through 1,149th 
                        discharge, $0.
                          (ii) For the 1,150th through the 
                        23,000th discharge, $200.
                          (iii) For any discharge greater than 
                        the 23,000th, $0.
                  (D) Medicare share.--The Medicare share 
                specified under this subparagraph for an 
                eligible hospital for a period selected by the 
                Secretary for a payment year is equal to the 
                fraction--
                          (i) the numerator of which is the sum 
                        (for such period and with respect to 
                        the eligible hospital) of--
                                  (I) the estimated number of 
                                inpatient-bed-days (as 
                                established by the Secretary) 
                                which are attributable to 
                                individuals with respect to 
                                whom payment may be made under 
                                part A; and
                                  (II) the estimated number of 
                                inpatient-bed-days (as so 
                                established) which are 
                                attributable to individuals who 
                                are enrolled with a Medicare 
                                Advantage organization under 
                                part C; and
                          (ii) the denominator of which is the 
                        product of--
                                  (I) the estimated total 
                                number of inpatient-bed-days 
                                with respect to the eligible 
                                hospital during such period; 
                                and
                                  (II) the estimated total 
                                amount of the eligible 
                                hospital's charges during such 
                                period, not including any 
                                charges that are attributable 
                                to charity care (as such term 
                                is used for purposes of 
                                hospital cost reporting under 
                                this title), divided by the 
                                estimated total amount of the 
                                hospital's charges during such 
                                period.
                Insofar as the Secretary determines that data 
                are not available on charity care necessary to 
                calculate the portion of the formula specified 
                in clause (ii)(II), the Secretary shall use 
                data on uncompensated care and may adjust such 
                data so as to be an appropriate proxy for 
                charity care including a downward adjustment to 
                eliminate bad debt data from uncompensated care 
                data. In the absence of the data necessary, 
                with respect to a hospital, for the Secretary 
                to compute the amount described in clause 
                (ii)(II), the amount under such clause shall be 
                deemed to be 1. In the absence of data, with 
                respect to a hospital, necessary to compute the 
                amount described in clause (i)(II), the amount 
                under such clause shall be deemed to be 0.
                  (E) Transition factor specified.--
                          (i) In general.--Subject to clause 
                        (ii), the transition factor specified 
                        in this subparagraph for an eligible 
                        hospital for a payment year is as 
                        follows:
                                  (I) For the first payment 
                                year for such hospital, 1.
                                  (II) For the second payment 
                                year for such hospital, \3/4\.
                                  (III) For the third payment 
                                year for such hospital, \1/2\.
                                  (IV) For the fourth payment 
                                year for such hospital, \1/4\.
                                  (V) For any succeeding 
                                payment year for such hospital, 
                                0.
                          (ii) Phase down for eligible 
                        hospitals first adopting ehr after 
                        2013.--If the first payment year for an 
                        eligible hospital is after 2013, then 
                        the transition factor specified in this 
                        subparagraph for a payment year for 
                        such hospital is the same as the amount 
                        specified in clause (i) for such 
                        payment year for an eligible hospital 
                        for which the first payment year is 
                        2013. If the first payment year for an 
                        eligible hospital is after 2015 then 
                        the transition factor specified in this 
                        subparagraph for such hospital and for 
                        such year and any subsequent year shall 
                        be 0.
                  (F) Form of payment.--The payment under this 
                subsection for a payment year may be in the 
                form of a single consolidated payment or in the 
                form of such periodic installments as the 
                Secretary may specify.
                  (G) Payment year defined.--
                          (i) In general.--For purposes of this 
                        subsection, the term ``payment year'' 
                        means a fiscal year beginning with 
                        fiscal year 2011.
                          (ii) First, second, etc. payment 
                        year.--The term ``first payment year'' 
                        means, with respect to inpatient 
                        hospital services furnished by an 
                        eligible hospital, the first fiscal 
                        year for which an incentive payment is 
                        made for such services under this 
                        subsection. The terms ``second payment 
                        year'', ``third payment year'', and 
                        ``fourth payment year'' mean, with 
                        respect to an eligible hospital, each 
                        successive year immediately following 
                        the first payment year for that 
                        hospital.
          (3) Meaningful ehr user.--
                  (A) In general.--For purposes of paragraph 
                (1), an eligible hospital shall be treated as a 
                meaningful EHR user for an EHR reporting period 
                for a payment year (or, for purposes of 
                subsection (b)(3)(B)(ix), for an EHR reporting 
                period under such subsection for a fiscal year) 
                if each of the following requirements are met:
                          (i) Meaningful use of certified ehr 
                        technology.--The eligible hospital 
                        demonstrates to the satisfaction of the 
                        Secretary, in accordance with 
                        subparagraph (C)(i), that during such 
                        period the hospital is using certified 
                        EHR technology in a meaningful manner.
                          (ii) Information exchange.--The 
                        eligible hospital demonstrates to the 
                        satisfaction of the Secretary, in 
                        accordance with subparagraph (C)(i), 
                        that during such period such certified 
                        EHR technology is connected in a manner 
                        that provides, in accordance with law 
                        and standards applicable to the 
                        exchange of information, for the 
                        electronic exchange of health 
                        information to improve the quality of 
                        health care, such as promoting care 
                        coordination, and the hospital 
                        demonstrates (through a process 
                        specified by the Secretary, such as the 
                        use of an attestation) that the 
                        hospital has not knowingly and 
                        willfully taken action (such as to 
                        disable functionality) to limit or 
                        restrict the compatibility or 
                        interoperability of the certified EHR 
                        technology.
                          (iii) Reporting on measures using 
                        ehr.--Subject to subparagraph (B)(ii) 
                        and using such certified EHR 
                        technology, the eligible hospital 
                        submits information for such period, in 
                        a form and manner specified by the 
                        Secretary, on such clinical quality 
                        measures and such other measures as 
                        selected by the Secretary under 
                        subparagraph (B)(i).
                The Secretary shall seek to improve the use of 
                electronic health records and health care 
                quality over time.
                  (B) Reporting on measures.--
                          (i) Selection.--The Secretary shall 
                        select measures for purposes of 
                        subparagraph (A)(iii) but only 
                        consistent with the following:
                                  (I) The Secretary shall 
                                provide preference to clinical 
                                quality measures that have been 
                                selected for purposes of 
                                applying subsection 
                                (b)(3)(B)(viii) or that have 
                                been endorsed by the entity 
                                with a contract with the 
                                Secretary under section 
                                1890(a).
                                  (II) Prior to any measure 
                                (other than a clinical quality 
                                measure that has been selected 
                                for purposes of applying 
                                subsection (b)(3)(B)(viii)) 
                                being selected under this 
                                subparagraph, the Secretary 
                                shall publish in the Federal 
                                Register such measure and 
                                provide for a period of public 
                                comment on such measure.
                          (ii) Limitations.--The Secretary may 
                        not require the electronic reporting of 
                        information on clinical quality 
                        measures under subparagraph (A)(iii) 
                        unless the Secretary has the capacity 
                        to accept the information 
                        electronically, which may be on a pilot 
                        basis.
                          (iii) Coordination of reporting of 
                        information.--In selecting such 
                        measures, and in establishing the form 
                        and manner for reporting measures under 
                        subparagraph (A)(iii), the Secretary 
                        shall seek to avoid redundant or 
                        duplicative reporting with reporting 
                        otherwise required, including reporting 
                        under subsection (b)(3)(B)(viii).
                  (C) Demonstration of meaningful use of 
                certified ehr technology and information 
                exchange.--
                          (i) In general.--An eligible hospital 
                        may satisfy the demonstration 
                        requirement of clauses (i) and (ii) of 
                        subparagraph (A) through means 
                        specified by the Secretary, which may 
                        include--
                                  (I) an attestation;
                                  (II) the submission of claims 
                                with appropriate coding (such 
                                as a code indicating that 
                                inpatient care was documented 
                                using certified EHR 
                                technology);
                                  (III) a survey response;
                                  (IV) reporting under 
                                subparagraph (A)(iii); and
                                  (V) other means specified by 
                                the Secretary.
                          (ii) Use of part d data.--
                        Notwithstanding sections 1860D-
                        15(d)(2)(B) and 1860D-15(f)(2), the 
                        Secretary may use data regarding drug 
                        claims submitted for purposes of 
                        section 1860D-15 that are necessary for 
                        purposes of subparagraph (A).
          (4) Application.--
                  (A) Limitations on review.--There shall be no 
                administrative or judicial review under section 
                1869, section 1878, or otherwise, of--
                          (i) the methodology and standards for 
                        determining payment amounts under this 
                        subsection and payment adjustments 
                        under subsection (b)(3)(B)(ix), 
                        including selection of periods under 
                        paragraph (2) for determining, and 
                        making estimates or using proxies of, 
                        discharges under paragraph (2)(C) and 
                        inpatient-bed-days, hospital charges, 
                        charity charges, and Medicare share 
                        under paragraph (2)(D);
                          (ii) the methodology and standards 
                        for determining a meaningful EHR user 
                        under paragraph (3), including 
                        selection of measures under paragraph 
                        (3)(B), specification of the means of 
                        demonstrating meaningful EHR use under 
                        paragraph (3)(C), and the hardship 
                        exception under subsection 
                        (b)(3)(B)(ix)(II); and
                          (iii) the specification of EHR 
                        reporting periods under paragraph 
                        (6)(B) and the selection of the form of 
                        payment under paragraph (2)(F).
                  (B) Posting on website.--The Secretary shall 
                post on the Internet website of the Centers for 
                Medicare & Medicaid Services, in an easily 
                understandable format, a list of the names of 
                the eligible hospitals that are meaningful EHR 
                users under this subsection or subsection 
                (b)(3)(B)(ix) (and a list of the names of 
                critical access hospitals to which paragraph 
                (3) or (4) of section 1814(l) applies), and 
                other relevant data as determined appropriate 
                by the Secretary. The Secretary shall ensure 
                that an eligible hospital (or critical access 
                hospital) has the opportunity to review the 
                other relevant data that are to be made public 
                with respect to the hospital (or critical 
                access hospital) prior to such data being made 
                public.
          (5) Certified ehr technology defined.--The term 
        ``certified EHR technology'' has the meaning given such 
        term in section 1848(o)(4).
          (6) Definitions.--For purposes of this subsection:
                  (A) EHR reporting period.--The term ``EHR 
                reporting period'' means, with respect to a 
                payment year, any period (or periods) as 
                specified by the Secretary.
                  (B) Eligible hospital.--The term ``eligible 
                hospital'' means a hospital that is a 
                subsection (d) hospital or a subsection (d) 
                Puerto Rico hospital.
  (o) Hospital Value-Based Purchasing Program.--
          (1) Establishment.--
                  (A) In general.--Subject to the succeeding 
                provisions of this subsection, the Secretary 
                shall establish a hospital value-based 
                purchasing program (in this subsection referred 
                to as the ``Program'') under which value-based 
                incentive payments are made in a fiscal year to 
                hospitals that meet the performance standards 
                under paragraph (3) for the performance period 
                for such fiscal year (as established under 
                paragraph (4)).
                  (B) Program to begin in fiscal year 2013.--
                The Program shall apply to payments for 
                discharges occurring on or after October 1, 
                2012.
                  (C) Applicability of program to hospitals.--
                          (i) In general.--For purposes of this 
                        subsection, subject to clause (ii), the 
                        term ``hospital'' means a subsection 
                        (d) hospital (as defined in subsection 
                        (d)(1)(B)).
                          (ii) Exclusions.--The term 
                        ``hospital'' shall not include, with 
                        respect to a fiscal year, a hospital--
                                  (I) that is subject to the 
                                payment reduction under 
                                subsection (b)(3)(B)(viii)(I) 
                                for such fiscal year;
                                  (II) for which, during the 
                                performance period for such 
                                fiscal year, the Secretary has 
                                cited deficiencies that pose 
                                immediate jeopardy to the 
                                health or safety of patients;
                                  (III) for which there are not 
                                a minimum number (as determined 
                                by the Secretary) of measures 
                                that apply to the hospital for 
                                the performance period for such 
                                fiscal year; or
                                  (IV) for which there are not 
                                a minimum number (as determined 
                                by the Secretary) of cases for 
                                the measures that apply to the 
                                hospital for the performance 
                                period for such fiscal year.
                          (iii) Independent analysis.--For 
                        purposes of determining the minimum 
                        numbers under subclauses (III) and (IV) 
                        of clause (ii), the Secretary shall 
                        have conducted an independent analysis 
                        of what numbers are appropriate.
                          (iv) Exemption.--In the case of a 
                        hospital that is paid under section 
                        1814(b)(3), the Secretary may exempt 
                        such hospital from the application of 
                        this subsection if the State which is 
                        paid under such section submits an 
                        annual report to the Secretary 
                        describing how a similar program in the 
                        State for a participating hospital or 
                        hospitals achieves or surpasses the 
                        measured results in terms of patient 
                        health outcomes and cost savings 
                        established under this subsection.
          (2) Measures.--
                  (A) In general.--The Secretary shall select 
                measures, other than measures of readmissions, 
                for purposes of the Program. Such measures 
                shall be selected from the measures specified 
                under subsection (b)(3)(B)(viii).
                  (B) Requirements.--
                          (i) For fiscal year 2013.--For value-
                        based incentive payments made with 
                        respect to discharges occurring during 
                        fiscal year 2013, the Secretary shall 
                        ensure the following:
                                  (I) Conditions or 
                                procedures.--Measures are 
                                selected under subparagraph (A) 
                                that cover at least the 
                                following 5 specific conditions 
                                or procedures:
                                          (aa) Acute myocardial 
                                        infarction (AMI).
                                          (bb) Heart failure.
                                          (cc) Pneumonia.
                                          (dd) Surgeries, as 
                                        measured by the 
                                        Surgical Care 
                                        Improvement Project 
                                        (formerly referred to 
                                        as ``Surgical Infection 
                                        Prevention'' for 
                                        discharges occurring 
                                        before July 2006).
                                          (ee) Healthcare-
                                        associated infections, 
                                        as measured by the 
                                        prevention metrics and 
                                        targets established in 
                                        the HHS Action Plan to 
                                        Prevent Healthcare-
                                        Associated Infections 
                                        (or any successor plan) 
                                        of the Department of 
                                        Health and Human 
                                        Services.
                                  (II) HCAHPS.--Measures 
                                selected under subparagraph (A) 
                                shall be related to the 
                                Hospital Consumer Assessment of 
                                Healthcare Providers and 
                                Systems survey (HCAHPS).
                          (ii) Inclusion of efficiency 
                        measures.--For value-based incentive 
                        payments made with respect to 
                        discharges occurring during fiscal year 
                        2014 or a subsequent fiscal year, the 
                        Secretary shall ensure that measures 
                        selected under subparagraph (A) include 
                        efficiency measures, including measures 
                        of ``Medicare spending per 
                        beneficiary''. Such measures shall be 
                        adjusted for factors such as age, sex, 
                        race, severity of illness, and other 
                        factors that the Secretary determines 
                        appropriate.
                          (iii) HCAHPS pain questions.--The 
                        Secretary may not include under 
                        subparagraph (A) a measure that is 
                        based on the questions appearing on the 
                        Hospital Consumer Assessment of 
                        Healthcare Providers and Systems survey 
                        in 2018 about communication by hospital 
                        staff with an individual about the 
                        individual's pain.
                  (C) Limitations.--
                          (i) Time requirement for prior 
                        reporting and notice.--The Secretary 
                        may not select a measure under 
                        subparagraph (A) for use under the 
                        Program with respect to a performance 
                        period for a fiscal year (as 
                        established under paragraph (4)) unless 
                        such measure has been specified under 
                        subsection (b)(3)(B)(viii) and included 
                        on the Hospital Compare Internet 
                        website for at least 1 year prior to 
                        the beginning of such performance 
                        period.
                          (ii) Measure not applicable unless 
                        hospital furnishes services appropriate 
                        to the measure.--A measure selected 
                        under subparagraph (A) shall not apply 
                        to a hospital if such hospital does not 
                        furnish services appropriate to such 
                        measure.
                  (D) Replacing measures.--Subclause (VI) of 
                subsection (b)(3)(B)(viii) shall apply to 
                measures selected under subparagraph (A) in the 
                same manner as such subclause applies to 
                measures selected under such subsection.
          (3) Performance standards.--
                  (A) Establishment.--The Secretary shall 
                establish performance standards with respect to 
                measures selected under paragraph (2) for a 
                performance period for a fiscal year (as 
                established under paragraph (4)).
                  (B) Achievement and improvement.--The 
                performance standards established under 
                subparagraph (A) shall include levels of 
                achievement and improvement.
                  (C) Timing.--The Secretary shall establish 
                and announce the performance standards under 
                subparagraph (A) not later than 60 days prior 
                to the beginning of the performance period for 
                the fiscal year involved.
                  (D) Considerations in establishing 
                standards.--In establishing performance 
                standards with respect to measures under this 
                paragraph, the Secretary shall take into 
                account appropriate factors, such as--
                          (i) practical experience with the 
                        measures involved, including whether a 
                        significant proportion of hospitals 
                        failed to meet the performance standard 
                        during previous performance periods;
                          (ii) historical performance 
                        standards;
                          (iii) improvement rates; and
                          (iv) the opportunity for continued 
                        improvement.
          (4) Performance period.--For purposes of the Program, 
        the Secretary shall establish the performance period 
        for a fiscal year. Such performance period shall begin 
        and end prior to the beginning of such fiscal year.
          (5) Hospital performance score.--
                  (A) In general.--Subject to subparagraph (B), 
                the Secretary shall develop a methodology for 
                assessing the total performance of each 
                hospital based on performance standards with 
                respect to the measures selected under 
                paragraph (2) for a performance period (as 
                established under paragraph (4)). Using such 
                methodology, the Secretary shall provide for an 
                assessment (in this subsection referred to as 
                the ``hospital performance score'') for each 
                hospital for each performance period.
                  (B) Application.--
                          (i) Appropriate distribution.--The 
                        Secretary shall ensure that the 
                        application of the methodology 
                        developed under subparagraph (A) 
                        results in an appropriate distribution 
                        of value-based incentive payments under 
                        paragraph (6) among hospitals achieving 
                        different levels of hospital 
                        performance scores, with hospitals 
                        achieving the highest hospital 
                        performance scores receiving the 
                        largest value-based incentive payments.
                          (ii) Higher of achievement or 
                        improvement.--The methodology developed 
                        under subparagraph (A) shall provide 
                        that the hospital performance score is 
                        determined using the higher of its 
                        achievement or improvement score for 
                        each measure.
                          (iii) Weights.--The methodology 
                        developed under subparagraph (A) shall 
                        provide for the assignment of weights 
                        for categories of measures as the 
                        Secretary determines appropriate.
                          (iv) No minimum performance 
                        standard.--The Secretary shall not set 
                        a minimum performance standard in 
                        determining the hospital performance 
                        score for any hospital.
                          (v) Reflection of measures applicable 
                        to the hospital.--The hospital 
                        performance score for a hospital shall 
                        reflect the measures that apply to the 
                        hospital.
          (6) Calculation of value-based incentive payments.--
                  (A) In general.--In the case of a hospital 
                that the Secretary determines meets (or 
                exceeds) the performance standards under 
                paragraph (3) for the performance period for a 
                fiscal year (as established under paragraph 
                (4)), the Secretary shall increase the base 
                operating DRG payment amount (as defined in 
                paragraph (7)(D)), as determined after 
                application of paragraph (7)(B)(i), for a 
                hospital for each discharge occurring in such 
                fiscal year by the value-based incentive 
                payment amount.
                  (B) Value-based incentive payment amount.--
                The value-based incentive payment amount for 
                each discharge of a hospital in a fiscal year 
                shall be equal to the product of--
                          (i) the base operating DRG payment 
                        amount (as defined in paragraph (7)(D)) 
                        for the discharge for the hospital for 
                        such fiscal year; and
                          (ii) the value-based incentive 
                        payment percentage specified under 
                        subparagraph (C) for the hospital for 
                        such fiscal year.
                  (C) Value-based incentive payment 
                percentage.--
                          (i) In general.--The Secretary shall 
                        specify a value-based incentive payment 
                        percentage for a hospital for a fiscal 
                        year.
                          (ii) Requirements.--In specifying the 
                        value-based incentive payment 
                        percentage for each hospital for a 
                        fiscal year under clause (i), the 
                        Secretary shall ensure that--
                                  (I) such percentage is based 
                                on the hospital performance 
                                score of the hospital under 
                                paragraph (5); and
                                  (II) the total amount of 
                                value-based incentive payments 
                                under this paragraph to all 
                                hospitals in such fiscal year 
                                is equal to the total amount 
                                available for value-based 
                                incentive payments for such 
                                fiscal year under paragraph 
                                (7)(A), as estimated by the 
                                Secretary.
          (7) Funding for value-based incentive payments.--
                  (A) Amount.--The total amount available for 
                value-based incentive payments under paragraph 
                (6) for all hospitals for a fiscal year shall 
                be equal to the total amount of reduced 
                payments for all hospitals under subparagraph 
                (B) for such fiscal year, as estimated by the 
                Secretary.
                  (B) Adjustment to payments.--
                          (i) In general.--The Secretary shall 
                        reduce the base operating DRG payment 
                        amount (as defined in subparagraph (D)) 
                        for a hospital for each discharge in a 
                        fiscal year (beginning with fiscal year 
                        2013) by an amount equal to the 
                        applicable percent (as defined in 
                        subparagraph (C)) of the base operating 
                        DRG payment amount for the discharge 
                        for the hospital for such fiscal year. 
                        The Secretary shall make such 
                        reductions for all hospitals in the 
                        fiscal year involved, regardless of 
                        whether or not the hospital has been 
                        determined by the Secretary to have 
                        earned a value-based incentive payment 
                        under paragraph (6) for such fiscal 
                        year.
                          (ii) No effect on other payments.--
                        Payments described in items (aa) and 
                        (bb) of subparagraph (D)(i)(II) for a 
                        hospital shall be determined as if this 
                        subsection had not been enacted.
                  (C) Applicable percent defined.--For purposes 
                of subparagraph (B), the term ``applicable 
                percent'' means--
                          (i) with respect to fiscal year 2013, 
                        1.0 percent;
                          (ii) with respect to fiscal year 
                        2014, 1.25 percent;
                          (iii) with respect to fiscal year 
                        2015, 1.5 percent;
                          (iv) with respect to fiscal year 
                        2016, 1.75 percent; and
                          (v) with respect to fiscal year 2017 
                        and succeeding fiscal years, 2 percent.
                  (D) Base operating drg payment amount 
                defined.--
                          (i) In general.--Except as provided 
                        in clause (ii), in this subsection, the 
                        term ``base operating DRG payment 
                        amount'' means, with respect to a 
                        hospital for a fiscal year--
                                  (I) the payment amount that 
                                would otherwise be made under 
                                subsection (d) (determined 
                                without regard to subsection 
                                (q)) for a discharge if this 
                                subsection did not apply; 
                                reduced by
                                  (II) any portion of such 
                                payment amount that is 
                                attributable to--
                                          (aa) payments under 
                                        paragraphs (5)(A), 
                                        (5)(B), (5)(F), and 
                                        (12) of subsection (d); 
                                        and
                                          (bb) such other 
                                        payments under 
                                        subsection (d) 
                                        determined appropriate 
                                        by the Secretary.
                          (ii) Special rules for certain 
                        hospitals.--
                                  (I) Sole community hospitals 
                                and medicare-dependent, small 
                                rural hospitals.--In the case 
                                of a medicare-dependent, small 
                                rural hospital (with respect to 
                                discharges occurring during 
                                fiscal year 2012 and 2013) or a 
                                sole community hospital, in 
                                applying subparagraph (A)(i), 
                                the payment amount that would 
                                otherwise be made under 
                                subsection (d) shall be 
                                determined without regard to 
                                subparagraphs (I) and (L) of 
                                subsection (b)(3) and 
                                subparagraphs (D) and (G) of 
                                subsection (d)(5).
                                  (II) Hospitals paid under 
                                section 1814.--In the case of a 
                                hospital that is paid under 
                                section 1814(b)(3), the term 
                                ``base operating DRG payment 
                                amount'' means the payment 
                                amount under such section.
          (8) Announcement of net result of adjustments.--Under 
        the Program, the Secretary shall, not later than 60 
        days prior to the fiscal year involved, inform each 
        hospital of the adjustments to payments to the hospital 
        for discharges occurring in such fiscal year under 
        paragraphs (6) and (7)(B)(i).
          (9) No effect in subsequent fiscal years.--The value-
        based incentive payment under paragraph (6) and the 
        payment reduction under paragraph (7)(B)(i) shall each 
        apply only with respect to the fiscal year involved, 
        and the Secretary shall not take into account such 
        value-based incentive payment or payment reduction in 
        making payments to a hospital under this section in a 
        subsequent fiscal year.
          (10) Public reporting.--
                  (A) Hospital specific information.--
                          (i) In general.--The Secretary shall 
                        make information available to the 
                        public regarding the performance of 
                        individual hospitals under the Program, 
                        including--
                                  (I) the performance of the 
                                hospital with respect to each 
                                measure that applies to the 
                                hospital;
                                  (II) the performance of the 
                                hospital with respect to each 
                                condition or procedure; and
                                  (III) the hospital 
                                performance score assessing the 
                                total performance of the 
                                hospital.
                          (ii) Opportunity to review and submit 
                        corrections.--The Secretary shall 
                        ensure that a hospital has the 
                        opportunity to review, and submit 
                        corrections for, the information to be 
                        made public with respect to the 
                        hospital under clause (i) prior to such 
                        information being made public.
                          (iii) Website.--Such information 
                        shall be posted on the Hospital Compare 
                        Internet website in an easily 
                        understandable format.
                  (B) Aggregate information.--The Secretary 
                shall periodically post on the Hospital Compare 
                Internet website aggregate information on the 
                Program, including--
                          (i) the number of hospitals receiving 
                        value-based incentive payments under 
                        paragraph (6) and the range and total 
                        amount of such value-based incentive 
                        payments; and
                          (ii) the number of hospitals 
                        receiving less than the maximum value-
                        based incentive payment available to 
                        the hospital for the fiscal year 
                        involved and the range and amount of 
                        such payments.
          (11) Implementation.--
                  (A) Appeals.--The Secretary shall establish a 
                process by which hospitals may appeal the 
                calculation of a hospital's performance 
                assessment with respect to the performance 
                standards established under paragraph (3)(A) 
                and the hospital performance score under 
                paragraph (5). The Secretary shall ensure that 
                such process provides for resolution of such 
                appeals in a timely manner.
                  (B) Limitation on review.--Except as provided 
                in subparagraph (A), there shall be no 
                administrative or judicial review under section 
                1869, section 1878, or otherwise of the 
                following:
                          (i) The methodology used to determine 
                        the amount of the value-based incentive 
                        payment under paragraph (6) and the 
                        determination of such amount.
                          (ii) The determination of the amount 
                        of funding available for such value-
                        based incentive payments under 
                        paragraph (7)(A) and the payment 
                        reduction under paragraph (7)(B)(i).
                          (iii) The establishment of the 
                        performance standards under paragraph 
                        (3) and the performance period under 
                        paragraph (4).
                          (iv) The measures specified under 
                        subsection (b)(3)(B)(viii) and the 
                        measures selected under paragraph (2).
                          (v) The methodology developed under 
                        paragraph (5) that is used to calculate 
                        hospital performance scores and the 
                        calculation of such scores.
                          (vi) The validation methodology 
                        specified in subsection 
                        (b)(3)(B)(viii)(XI).
                  (C) Consultation with small hospitals.--The 
                Secretary shall consult with small rural and 
                urban hospitals on the application of the 
                Program to such hospitals.
          (12) Promulgation of regulations.--The Secretary 
        shall promulgate regulations to carry out the Program, 
        including the selection of measures under paragraph 
        (2), the methodology developed under paragraph (5) that 
        is used to calculate hospital performance scores, and 
        the methodology used to determine the amount of value-
        based incentive payments under paragraph (6).
  (p) Adjustment to Hospital Payments for Hospital Acquired 
Conditions.--
          (1) In general.--In order to provide an incentive for 
        applicable hospitals to reduce hospital acquired 
        conditions under this title, with respect to discharges 
        from an applicable hospital occurring during fiscal 
        year 2015 or a subsequent fiscal year, the amount of 
        payment under this section or section 1814(b)(3), as 
        applicable, for such discharges during the fiscal year 
        shall be equal to 99 percent of the amount of payment 
        that would otherwise apply to such discharges under 
        this section or section 1814(b)(3) (determined after 
        the application of subsections (o) and (q) and section 
        1814(l)(4) but without regard to this subsection).
          (2) Applicable hospitals.--
                  (A) In general.--For purposes of this 
                subsection, the term ``applicable hospital'' 
                means a subsection (d) hospital that meets the 
                criteria described in subparagraph (B).
                  (B) Criteria described.--
                          (i) In general.--The criteria 
                        described in this subparagraph, with 
                        respect to a subsection (d) hospital, 
                        is that the subsection (d) hospital is 
                        in the top quartile of all subsection 
                        (d) hospitals, relative to the national 
                        average, of hospital acquired 
                        conditions during the applicable 
                        period, as determined by the Secretary.
                          (ii) Risk adjustment.--In carrying 
                        out clause (i), the Secretary shall 
                        establish and apply an appropriate risk 
                        adjustment methodology.
                  (C) Exemption.--In the case of a hospital 
                that is paid under section 1814(b)(3), the 
                Secretary may exempt such hospital from the 
                application of this subsection if the State 
                which is paid under such section submits an 
                annual report to the Secretary describing how a 
                similar program in the State for a 
                participating hospital or hospitals achieves or 
                surpasses the measured results in terms of 
                patient health outcomes and cost savings 
                established under this subsection.
          (3) Hospital acquired conditions.--For purposes of 
        this subsection, the term ``hospital acquired 
        condition'' means a condition identified for purposes 
        of subsection (d)(4)(D)(iv) and any other condition 
        determined appropriate by the Secretary that an 
        individual acquires during a stay in an applicable 
        hospital, as determined by the Secretary.
          (4) Applicable period.--In this subsection, the term 
        ``applicable period'' means, with respect to a fiscal 
        year, a period specified by the Secretary.
          (5) Reporting to hospitals.--Prior to fiscal year 
        2015 and each subsequent fiscal year, the Secretary 
        shall provide confidential reports to applicable 
        hospitals with respect to hospital acquired conditions 
        of the applicable hospital during the applicable 
        period.
          (6) Reporting hospital specific information.--
                  (A) In general.--The Secretary shall make 
                information available to the public regarding 
                hospital acquired conditions of each applicable 
                hospital.
                  (B) Opportunity to review and submit 
                corrections.--The Secretary shall ensure that 
                an applicable hospital has the opportunity to 
                review, and submit corrections for, the 
                information to be made public with respect to 
                the hospital under subparagraph (A) prior to 
                such information being made public.
                  (C) Website.--Such information shall be 
                posted on the Hospital Compare Internet website 
                in an easily understandable format.
          (7) Limitations on review.--There shall be no 
        administrative or judicial review under section 1869, 
        section 1878, or otherwise of the following:
                  (A) The criteria described in paragraph 
                (2)(A).
                  (B) The specification of hospital acquired 
                conditions under paragraph (3).
                  (C) The specification of the applicable 
                period under paragraph (4).
                  (D) The provision of reports to applicable 
                hospitals under paragraph (5) and the 
                information made available to the public under 
                paragraph (6).
  (q) Hospital Readmissions Reduction Program.--
          (1) In general.--With respect to payment for 
        discharges from an applicable hospital (as defined in 
        paragraph (5)(C)) occurring during a fiscal year 
        beginning on or after October 1, 2012, in order to 
        account for excess readmissions in the hospital, the 
        Secretary shall make payments (in addition to the 
        payments described in paragraph (2)(A)(ii)) for such a 
        discharge to such hospital under subsection (d) (or 
        section 1814(b)(3), as the case may be) in an amount 
        equal to the product of--
                  (A) the base operating DRG payment amount (as 
                defined in paragraph (2)) for the discharge; 
                and
                  (B) the adjustment factor (described in 
                paragraph (3)(A)) for the hospital for the 
                fiscal year.
          (2) Base operating drg payment amount defined.--
                  (A) In general.--Except as provided in 
                subparagraph (B), in this subsection, the term 
                ``base operating DRG payment amount'' means, 
                with respect to a hospital for a fiscal year--
                          (i) the payment amount that would 
                        otherwise be made under subsection (d) 
                        (determined without regard to 
                        subsection (o)) for a discharge if this 
                        subsection did not apply; reduced by
                          (ii) any portion of such payment 
                        amount that is attributable to payments 
                        under paragraphs (5)(A), (5)(B), 
                        (5)(F), and (12) of subsection (d).
                  (B) Special rules for certain hospitals.--
                          (i) Sole community hospitals and 
                        medicare-dependent, small rural 
                        hospitals.--In the case of a medicare-
                        dependent, small rural hospital (with 
                        respect to discharges occurring during 
                        fiscal years 2012 and 2013) or a sole 
                        community hospital, in applying 
                        subparagraph (A)(i), the payment amount 
                        that would otherwise be made under 
                        subsection (d) shall be determined 
                        without regard to subparagraphs (I) and 
                        (L) of subsection (b)(3) and 
                        subparagraphs (D) and (G) of subsection 
                        (d)(5).
                          (ii) Hospitals paid under section 
                        1814.--In the case of a hospital that 
                        is paid under section 1814(b)(3), the 
                        Secretary may exempt such hospitals 
                        provided that States paid under such 
                        section submit an annual report to the 
                        Secretary describing how a similar 
                        program in the State for a 
                        participating hospital or hospitals 
                        achieves or surpasses the measured 
                        results in terms of patient health 
                        outcomes and cost savings established 
                        herein with respect to this section.
          (3) Adjustment factor.--
                  (A) In general.--For purposes of paragraph 
                (1), subject to subparagraph (D), the 
                adjustment factor under this paragraph for an 
                applicable hospital for a fiscal year is equal 
                to the greater of--
                          (i) the ratio described in 
                        subparagraph (B) for the hospital for 
                        the applicable period (as defined in 
                        paragraph (5)(D)) for such fiscal year; 
                        or
                          (ii) the floor adjustment factor 
                        specified in subparagraph (C).
                  (B) Ratio.--The ratio described in this 
                subparagraph for a hospital for an applicable 
                period is equal to 1 minus the ratio of--
                          (i) the aggregate payments for excess 
                        readmissions (as defined in paragraph 
                        (4)(A)) with respect to an applicable 
                        hospital for the applicable period; and
                          (ii) the aggregate payments for all 
                        discharges (as defined in paragraph 
                        (4)(B)) with respect to such applicable 
                        hospital for such applicable period.
                  (C) Floor adjustment factor.--For purposes of 
                subparagraph (A), the floor adjustment factor 
                specified in this subparagraph for--
                          (i) fiscal year 2013 is 0.99;
                          (ii) fiscal year 2014 is 0.98; or
                          (iii) fiscal year 2015 and subsequent 
                        fiscal years is 0.97.
                  (D) Transitional adjustment for dual 
                eligibles.--
                          (i) In general.--In determining a 
                        hospital's adjustment factor under this 
                        paragraph for purposes of making 
                        payments for discharges occurring 
                        during and after fiscal year 2019, and 
                        before the application of clause (i) of 
                        subparagraph (E), the Secretary shall 
                        assign hospitals to groups (as defined 
                        by the Secretary under clause (ii)) and 
                        apply the applicable provisions of this 
                        subsection using a methodology in a 
                        manner that allows for separate 
                        comparison of hospitals within each 
                        such group, as determined by the 
                        Secretary.
                          (ii) Defining groups.--For purposes 
                        of this subparagraph, the Secretary 
                        shall define groups of hospitals, based 
                        on their overall proportion, of the 
                        inpatients who are entitled to, or 
                        enrolled for, benefits under part A, 
                        and who are full-benefit dual eligible 
                        individuals (as defined in section 
                        1935(c)(6)). In defining groups, the 
                        Secretary shall consult the Medicare 
                        Payment Advisory Commission and may 
                        consider the analysis done by such 
                        Commission in preparing the portion of 
                        its report submitted to Congress in 
                        June 2013 relating to readmissions.
                          (iii) Minimizing reporting burden on 
                        hospitals.--In carrying out this 
                        subparagraph, the Secretary shall not 
                        impose any additional reporting 
                        requirements on hospitals.
                          (iv) Budget neutral design 
                        methodology.--The Secretary shall 
                        design the methodology to implement 
                        this subparagraph so that the estimated 
                        total amount of reductions in payments 
                        under this subsection equals the 
                        estimated total amount of reductions in 
                        payments that would otherwise occur 
                        under this subsection if this 
                        subparagraph did not apply.
                  (E) Changes in risk adjustment.--
                          (i) Consideration of recommendations 
                        in impact reports.--The Secretary may 
                        take into account the studies conducted 
                        and the recommendations made by the 
                        Secretary under section 2(d)(1) of the 
                        IMPACT Act of 2014 (Public Law 113-185; 
                        42 U.S.C. 1395lll note) with respect to 
                        the application under this subsection 
                        of risk adjustment methodologies. 
                        Nothing in this clause shall be 
                        construed as precluding consideration 
                        of the use of groupings of hospitals.
                          (ii) Consideration of exclusion of 
                        patient cases based on v or other 
                        appropriate codes.--In promulgating 
                        regulations to carry out this 
                        subsection with respect to discharges 
                        occurring after fiscal year 2018, the 
                        Secretary may consider the use of V or 
                        other ICD-related codes for removal of 
                        a readmission. The Secretary may 
                        consider modifying measures under this 
                        subsection to incorporate V or other 
                        ICD-related codes at the same time as 
                        other changes are being made under this 
                        subparagraph.
                          (iii) Removal of certain 
                        readmissions.--In promulgating 
                        regulations to carry out this 
                        subsection, with respect to discharges 
                        occurring after fiscal year 2018, the 
                        Secretary may consider removal as a 
                        readmission of an admission that is 
                        classified within one or more of the 
                        following: transplants, end-stage renal 
                        disease, burns, trauma, psychosis, or 
                        substance abuse. The Secretary may 
                        consider modifying measures under this 
                        subsection to remove readmissions at 
                        the same time as other changes are 
                        being made under this subparagraph.
          (4) Aggregate payments, excess readmission ratio 
        defined.--For purposes of this subsection:
                  (A) Aggregate payments for excess 
                readmissions.--The term ``aggregate payments 
                for excess readmissions'' means, for a hospital 
                for an applicable period, the sum, for 
                applicable conditions (as defined in paragraph 
                (5)(A)), of the product, for each applicable 
                condition, of--
                          (i) the base operating DRG payment 
                        amount for such hospital for such 
                        applicable period for such condition;
                          (ii) the number of admissions for 
                        such condition for such hospital for 
                        such applicable period; and
                          (iii) the excess readmissions ratio 
                        (as defined in subparagraph (C)) for 
                        such hospital for such applicable 
                        period minus 1.
                  (B) Aggregate payments for all discharges.--
                The term ``aggregate payments for all 
                discharges'' means, for a hospital for an 
                applicable period, the sum of the base 
                operating DRG payment amounts for all 
                discharges for all conditions from such 
                hospital for such applicable period.
                  (C) Excess readmission ratio.--
                          (i) In general.--Subject to clause 
                        (ii), the term ``excess readmissions 
                        ratio'' means, with respect to an 
                        applicable condition for a hospital for 
                        an applicable period, the ratio (but 
                        not less than 1.0) of--
                                  (I) the risk adjusted 
                                readmissions based on actual 
                                readmissions, as determined 
                                consistent with a readmission 
                                measure methodology that has 
                                been endorsed under paragraph 
                                (5)(A)(ii)(I), for an 
                                applicable hospital for such 
                                condition with respect to such 
                                applicable period; to
                                  (II) the risk adjusted 
                                expected readmissions (as 
                                determined consistent with such 
                                a methodology) for such 
                                hospital for such condition 
                                with respect to such applicable 
                                period.
                          (ii) Exclusion of certain 
                        readmissions.--For purposes of clause 
                        (i), with respect to a hospital, excess 
                        readmissions shall not include 
                        readmissions for an applicable 
                        condition for which there are fewer 
                        than a minimum number (as determined by 
                        the Secretary) of discharges for such 
                        applicable condition for the applicable 
                        period and such hospital.
          (5) Definitions.--For purposes of this subsection:
                  (A) Applicable condition.--The term 
                ``applicable condition'' means, subject to 
                subparagraph (B), a condition or procedure 
                selected by the Secretary among conditions and 
                procedures for which--
                          (i) readmissions (as defined in 
                        subparagraph (E)) that represent 
                        conditions or procedures that are high 
                        volume or high expenditures under this 
                        title (or other criteria specified by 
                        the Secretary); and
                          (ii) measures of such readmissions--
                                  (I) have been endorsed by the 
                                entity with a contract under 
                                section 1890(a); and
                                  (II) such endorsed measures 
                                have exclusions for 
                                readmissions that are unrelated 
                                to the prior discharge (such as 
                                a planned readmission or 
                                transfer to another applicable 
                                hospital).
                  (B) Expansion of applicable conditions.--
                Beginning with fiscal year 2015, the Secretary 
                shall, to the extent practicable, expand the 
                applicable conditions beyond the 3 conditions 
                for which measures have been endorsed as 
                described in subparagraph (A)(ii)(I) as of the 
                date of the enactment of this subsection to the 
                additional 4 conditions that have been 
                identified by the Medicare Payment Advisory 
                Commission in its report to Congress in June 
                2007 and to other conditions and procedures as 
                determined appropriate by the Secretary. In 
                expanding such applicable conditions, the 
                Secretary shall seek the endorsement described 
                in subparagraph (A)(ii)(I) but may apply such 
                measures without such an endorsement in the 
                case of a specified area or medical topic 
                determined appropriate by the Secretary for 
                which a feasible and practical measure has not 
                been endorsed by the entity with a contract 
                under section 1890(a) as long as due 
                consideration is given to measures that have 
                been endorsed or adopted by a consensus 
                organization identified by the Secretary.
                  (C) Applicable hospital.--The term 
                ``applicable hospital'' means a subsection (d) 
                hospital or a hospital that is paid under 
                section 1814(b)(3), as the case may be.
                  (D) Applicable period.--The term ``applicable 
                period'' means, with respect to a fiscal year, 
                such period as the Secretary shall specify.
                  (E) Readmission.--The term ``readmission'' 
                means, in the case of an individual who is 
                discharged from an applicable hospital, the 
                admission of the individual to the same or 
                another applicable hospital within a time 
                period specified by the Secretary from the date 
                of such discharge. Insofar as the discharge 
                relates to an applicable condition for which 
                there is an endorsed measure described in 
                subparagraph (A)(ii)(I), such time period (such 
                as 30 days) shall be consistent with the time 
                period specified for such measure.
          (6) Reporting hospital specific information.--
                  (A) In general.--The Secretary shall make 
                information available to the public regarding 
                readmission rates of each subsection (d) 
                hospital under the program.
                  (B) Opportunity to review and submit 
                corrections.--The Secretary shall ensure that a 
                subsection (d) hospital has the opportunity to 
                review, and submit corrections for, the 
                information to be made public with respect to 
                the hospital under subparagraph (A) prior to 
                such information being made public.
                  (C) Website.--Such information shall be 
                posted on the Hospital Compare Internet website 
                in an easily understandable format.
          (7) Limitations on review.--There shall be no 
        administrative or judicial review under section 1869, 
        section 1878, or otherwise of the following:
                  (A) The determination of base operating DRG 
                payment amounts.
                  (B) The methodology for determining the 
                adjustment factor under paragraph (3), 
                including excess readmissions ratio under 
                paragraph (4)(C), aggregate payments for excess 
                readmissions under paragraph (4)(A), and 
                aggregate payments for all discharges under 
                paragraph (4)(B), and applicable periods and 
                applicable conditions under paragraph (5).
                  (C) The measures of readmissions as described 
                in paragraph (5)(A)(ii).
          (8) Readmission rates for all patients.--
                  (A) Calculation of readmission.--The 
                Secretary shall calculate readmission rates for 
                all patients (as defined in subparagraph (D)) 
                for a specified hospital (as defined in 
                subparagraph (D)(ii)) for an applicable 
                condition (as defined in paragraph (5)(B)) and 
                other conditions deemed appropriate by the 
                Secretary for an applicable period (as defined 
                in paragraph (5)(D)) in the same manner as used 
                to calculate such readmission rates for 
                hospitals with respect to this title and posted 
                on the CMS Hospital Compare website.
                  (B) Posting of hospital specific all patient 
                readmission rates.--The Secretary shall make 
                information on all patient readmission rates 
                calculated under subparagraph (A) available on 
                the CMS Hospital Compare website in a form and 
                manner determined appropriate by the Secretary. 
                The Secretary may also make other information 
                determined appropriate by the Secretary 
                available on such website.
                  (C) Hospital submission of all patient 
                data.--
                          (i) Except as provided for in clause 
                        (ii), each specified hospital (as 
                        defined in subparagraph (D)(ii)) shall 
                        submit to the Secretary, in a form, 
                        manner and time specified by the 
                        Secretary, data and information 
                        determined necessary by the Secretary 
                        for the Secretary to calculate the all 
                        patient readmission rates described in 
                        subparagraph (A).
                          (ii) Instead of a specified hospital 
                        submitting to the Secretary the data 
                        and information described in clause 
                        (i), such data and information may be 
                        submitted to the Secretary, on behalf 
                        of such a specified hospital, by a 
                        state or an entity determined 
                        appropriate by the Secretary.
                  (D) Definitions.--For purposes of this 
                paragraph:
                          (i) The term ``all patients'' means 
                        patients who are treated on an 
                        inpatient basis and discharged from a 
                        specified hospital (as defined in 
                        clause (ii)).
                          (ii) The term ``specified hospital'' 
                        means a subsection (d) hospital, 
                        hospitals described in clauses (i) 
                        through (v) of subsection (d)(1)(B) 
                        and, as determined feasible and 
                        appropriate by the Secretary, other 
                        hospitals not otherwise described in 
                        this subparagraph.
  (r) Adjustments to Medicare DSH Payments.--
          (1) Empirically justified dsh payments.--For fiscal 
        year 2014 and each subsequent fiscal year, instead of 
        the amount of disproportionate share hospital payment 
        that would otherwise be made under subsection (d)(5)(F) 
        to a subsection (d) hospital for the fiscal year, the 
        Secretary shall pay to the subsection (d) hospital 25 
        percent of such amount (which represents the 
        empirically justified amount for such payment, as 
        determined by the Medicare Payment Advisory Commission 
        in its March 2007 Report to the Congress).
          (2) Additional payment.--In addition to the payment 
        made to a subsection (d) hospital under paragraph (1), 
        for fiscal year 2014 and each subsequent fiscal year, 
        the Secretary shall pay to such subsection (d) 
        hospitals an additional amount equal to the product of 
        the following factors:
                  (A) Factor one.--A factor equal to the 
                difference between--
                          (i) the aggregate amount of payments 
                        that would be made to subsection (d) 
                        hospitals under subsection (d)(5)(F) if 
                        this subsection did not apply for such 
                        fiscal year (as estimated by the 
                        Secretary); and
                          (ii) the aggregate amount of payments 
                        that are made to subsection (d) 
                        hospitals under paragraph (1) for such 
                        fiscal year (as so estimated).
                  (B) Factor two.--
                          (i) Fiscal years 2014, 2015, 2016, 
                        and 2017.--For each of fiscal years 
                        2014, 2015, 2016, and 2017, a factor 
                        equal to 1 minus the percent change in 
                        the percent of individuals under the 
                        age of 65 who are uninsured, as 
                        determined by comparing the percent of 
                        such individuals--
                                  (I) who are uninsured in 
                                2013, the last year before 
                                coverage expansion under the 
                                Patient Protection and 
                                Affordable Care Act (as 
                                calculated by the Secretary 
                                based on the most recent 
                                estimates available from the 
                                Director of the Congressional 
                                Budget Office before a vote in 
                                either House on the Health Care 
                                and Education Reconciliation 
                                Act of 2010 that, if determined 
                                in the affirmative, would clear 
                                such Act for enrollment); and
                                  (II) who are uninsured in the 
                                most recent period for which 
                                data is available (as so 
                                calculated),
                        minus 0.1 percentage points for fiscal 
                        year 2014 and minus 0.2 percentage 
                        points for each of fiscal years 2015, 
                        2016, and 2017.
                          (ii) 2018 and subsequent years.--For 
                        fiscal year 2018 and each subsequent 
                        fiscal year, a factor equal to 1 minus 
                        the percent change in the percent of 
                        individuals who are uninsured, as 
                        determined by comparing the percent of 
                        individuals--
                                  (I) who are uninsured in 2013 
                                (as estimated by the Secretary, 
                                based on data from the Census 
                                Bureau or other sources the 
                                Secretary determines 
                                appropriate, and certified by 
                                the Chief Actuary of the 
                                Centers for Medicare & Medicaid 
                                Services); and
                                  (II) who are uninsured in the 
                                most recent period for which 
                                data is available (as so 
                                estimated and certified),
                        minus 0.2 percentage points for each of 
                        fiscal years 2018 and 2019.
                  (C) Factor three.--A factor equal to the 
                percent, for each subsection (d) hospital, that 
                represents the quotient of--
                          (i) the amount of uncompensated care 
                        for such hospital for a period selected 
                        by the Secretary (as estimated by the 
                        Secretary, based on appropriate data 
                        (including, in the case where the 
                        Secretary determines that alternative 
                        data is available which is a better 
                        proxy for the costs of subsection (d) 
                        hospitals for treating the uninsured, 
                        the use of such alternative data)); and
                          (ii) the aggregate amount of 
                        uncompensated care for all subsection 
                        (d) hospitals that receive a payment 
                        under this subsection for such period 
                        (as so estimated, based on such data).
          (3) Limitations on review.--There shall be no 
        administrative or judicial review under section 1869, 
        section 1878, or otherwise of the following:
                  (A) Any estimate of the Secretary for 
                purposes of determining the factors described 
                in paragraph (2).
                  (B) Any period selected by the Secretary for 
                such purposes.
  (s) Prospective Payment for Psychiatric Hospitals.--
          (1) Reference to establishment and implementation of 
        system.--For provisions related to the establishment 
        and implementation of a prospective payment system for 
        payments under this title for inpatient hospital 
        services furnished by psychiatric hospitals (as 
        described in clause (i) of subsection (d)(1)(B)) and 
        psychiatric units (as described in the matter following 
        clause (v) of such subsection), see section 124 of the 
        Medicare, Medicaid, and SCHIP Balanced Budget 
        Refinement Act of 1999.
          (2) Implementation for rate year beginning in 2010 
        and subsequent rate years.--
                  (A) In general.--In implementing the system 
                described in paragraph (1) for the rate year 
                beginning in 2010 and any subsequent rate year, 
                any update to a base rate for days during the 
                rate year for a psychiatric hospital or unit, 
                respectively, shall be reduced--
                          (i) for the rate year beginning in 
                        2012 and each subsequent rate year, by 
                        the productivity adjustment described 
                        in section 1886(b)(3)(B)(xi)(II); and
                          (ii) for each of the rate years 
                        beginning in 2010 through 2019, by the 
                        other adjustment described in paragraph 
                        (3).
                  (B) Special rule.--The application of this 
                paragraph may result in such update being less 
                than 0.0 for a rate year, and may result in 
                payment rates under the system described in 
                paragraph (1) for a rate year being less than 
                such payment rates for the preceding rate year.
          (3) Other adjustment.--For purposes of paragraph 
        (2)(A)(ii), the other adjustment described in this 
        paragraph is--
                  (A) for each of the rate years beginning in 
                2010 and 2011, 0.25 percentage point;
                  (B) for each of the rate years beginning in 
                2012 and 2013, 0.1 percentage point;
                  (C) for the rate year beginning in 2014, 0.3 
                percentage point;
                  (D) for each of the rate years beginning in 
                2015 and 2016, 0.2 percentage point; and
                  (E) for each of the rate years beginning in 
                2017, 2018, and 2019, 0.75 percentage point.
          (4) Quality reporting.--
                  (A) Reduction in update for failure to 
                report.--
                          (i) In general.--Under the system 
                        described in paragraph (1), for rate 
                        year 2014 and each subsequent rate 
                        year, in the case of a psychiatric 
                        hospital or psychiatric unit that does 
                        not submit data to the Secretary in 
                        accordance with subparagraph (C) with 
                        respect to such a rate year, any annual 
                        update to a standard Federal rate for 
                        discharges for the hospital during the 
                        rate year, and after application of 
                        paragraph (2), shall be reduced by 2 
                        percentage points.
                          (ii) Special rule.--The application 
                        of this subparagraph may result in such 
                        annual update being less than 0.0 for a 
                        rate year, and may result in payment 
                        rates under the system described in 
                        paragraph (1) for a rate year being 
                        less than such payment rates for the 
                        preceding rate year.
                  (B) Noncumulative application.--Any reduction 
                under subparagraph (A) shall apply only with 
                respect to the rate year involved and the 
                Secretary shall not take into account such 
                reduction in computing the payment amount under 
                the system described in paragraph (1) for a 
                subsequent rate year.
                  (C) Submission of quality data.--For rate 
                year 2014 and each subsequent rate year, each 
                psychiatric hospital and psychiatric unit shall 
                submit to the Secretary data on quality 
                measures specified under subparagraph (D). Such 
                data shall be submitted in a form and manner, 
                and at a time, specified by the Secretary for 
                purposes of this subparagraph.
                  (D) Quality measures.--
                          (i) In general.--Subject to clause 
                        (ii), any measure specified by the 
                        Secretary under this subparagraph must 
                        have been endorsed by the entity with a 
                        contract under section 1890(a).
                          (ii) Exception.--In the case of a 
                        specified area or medical topic 
                        determined appropriate by the Secretary 
                        for which a feasible and practical 
                        measure has not been endorsed by the 
                        entity with a contract under section 
                        1890(a), the Secretary may specify a 
                        measure that is not so endorsed as long 
                        as due consideration is given to 
                        measures that have been endorsed or 
                        adopted by a consensus organization 
                        identified by the Secretary.
                          (iii) Time frame.--Not later than 
                        October 1, 2012, the Secretary shall 
                        publish the measures selected under 
                        this subparagraph that will be 
                        applicable with respect to rate year 
                        2014.
                  (E) Public availability of data submitted.--
                The Secretary shall establish procedures for 
                making data submitted under subparagraph (C) 
                available to the public. Such procedures shall 
                ensure that a psychiatric hospital and a 
                psychiatric unit has the opportunity to review 
                the data that is to be made public with respect 
                to the hospital or unit prior to such data 
                being made public. The Secretary shall report 
                quality measures that relate to services 
                furnished in inpatient settings in psychiatric 
                hospitals and psychiatric units on the Internet 
                website of the Centers for Medicare & Medicaid 
                Services.
  (t) Relating Similar Inpatient and Outpatient Hospital 
Services.--
          (1) Development of hcpcs version of ms-drg codes.--
        Not later than January 1, 2018, the Secretary shall 
        develop HCPCS versions for MS-DRGs that are similar to 
        the ICD-10-PCS for such MS-DRGs such that, to the 
        extent possible, the MS-DRG assignment shall be similar 
        for a claim coded with the HCPCS version as an 
        identical claim coded with a ICD-10-PCS code.
          (2) Coverage of surgical ms-drgs.--In carrying out 
        paragraph (1), the Secretary shall develop HCPCS 
        versions of MS-DRG codes for not fewer than 10 surgical 
        MS-DRGs.
          (3) Publication and dissemination of the hcpcs 
        versions of ms-drgs.--
                  (A) In general.--The Secretary shall develop 
                a HCPCS MS-DRG definitions manual and software 
                that is similar to the definitions manual and 
                software for ICD-10-PCS codes for such MS-DRGs. 
                The Secretary shall post the HCPCS MS-DRG 
                definitions manual and software on the Internet 
                website of the Centers for Medicare & Medicaid 
                Services. The HCPCS MS-DRG definitions manual 
                and software shall be in the public domain and 
                available for use and redistribution without 
                charge.
                  (B) Use of previous analysis done by 
                medpac.--In developing the HCPCS MS-DRG 
                definitions manual and software under 
                subparagraph (A), the Secretary shall consult 
                with the Medicare Payment Advisory Commission 
                and shall consider the analysis done by such 
                Commission in translating outpatient surgical 
                claims into inpatient surgical MS-DRGs in 
                preparing chapter 7 (relating to hospital 
                short-stay policy issues) of its ``Medicare and 
                the Health Care Delivery System'' report 
                submitted to Congress in June 2015.
          (4) Definition and reference.--In this subsection:
                  (A) HCPCS.--The term ``HCPCS'' means, with 
                respect to hospital items and services, the 
                code under the Healthcare Common Procedure 
                Coding System (HCPCS) (or a successor code) for 
                such items and services.
                  (B) ICD-10-pcs.--The term ``ICD-10-PCS'' 
                means the International Classification of 
                Diseases, 10th Revision, Procedure Coding 
                System, and includes any subsequent revision of 
                such International Classification of Diseases, 
                Procedure Coding System.

           *       *       *       *       *       *       *


[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]