To amend title XVIII of the Social Security Act to make improvements in payments to hospitals under the medicare program, and for other purposes.

May 11, 2005

Mr. GRASSLEY (for himself and Mr. BAUCUS) introduced the following bill; which was read twice and referred to the Committee on Finance

To amend title XVIII of the Social Security Act to make improvements in payments to hospitals under the medicare program, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the `Hospital Fair Competition Act of 2005'.

SEC. 2. HOSPITAL PAYMENT IMPROVEMENTS.

(a) Use of Estimated Costs Rather Than Average Charges in Establishing Weighting Factors for Diagnosis-Related Groups Under the Inpatient Hospital Prospective Payment System-

(1) IN GENERAL- Section 1886(d)(4)(B) of the Social Security Act (42 U.S.C. 1395ww(d)(4)(B)) is amended--

(A) by inserting `(i)' after `(B)'; and

(B) by adding at the end the following new clause:

`(ii) For fiscal years beginning after fiscal year 2006, in establishing the weighting factors under clause (i), the Secretary shall ensure (to the extent feasible) that such factors reflect the estimated costs of furnishing care in each diagnosis-related group.'.

(2) NO REQUIREMENT FOR ANNUAL ADJUSTMENT FOR CHANGES IN COSTS- Section 1886(d)(4)(C)(i) of the Social Security Act (42 U.S.C. 1395ww(d)(4)(C)(i)) is amended by adding at the end the following new sentence: `Notwithstanding the preceding sentence, the Secretary may adjust the weighting factors established under subparagraph (B) less frequently than annually (but in no case less frequently than once every 5 years) in carrying out the requirement under clause (ii) of such subparagraph.'.

(b) Calculation of Weighting Factors at Hospital Level Under the Inpatient Hospital Prospective Payment System- Section 1886(d)(4)(B) of the Social Security Act (42 U.S.C. 1395ww(d)(4)(B)), as amended by subsection (a)(1), is amended by adding at the end the following new clause:

`(iii) For fiscal years beginning after fiscal year 2006, in establishing the weighting factors under clause (i), the Secretary shall calculate such factors at a hospital level and then aggregate such factors to a national level.'.

(c) Adjustment of Weighting Factors for Diagnosis-Related Groups Under the Inpatient Hospital Prospective Payment System To Finance High-Cost Outlier Cases and To Account for Changes in the Distribution of Such Cases-

(1) PPS HOSPITALS-

(A) IN GENERAL- Section 1886(d)(3)(B) of the Social Security Act (42 U.S.C. 1395ww(d)(3)(B)) is amended to read as follows:

`(B) REDUCING FOR VALUE OF OUTLIER PAYMENTS-

`(i) REDUCTION OF AVERAGE STANDARDIZED AMOUNTS- The Secretary shall, for discharges occurring before fiscal year 2007, 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).

`(ii) REDUCTION OF WEIGHTING FACTORS- The Secretary shall, for discharges occurring after fiscal year 2006, reduce each of the weighting factors determined under paragraph (4)(B) by a factor equal to the proportion of payments in the diagnosis-related group 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).'.

(B) ANNUAL ADJUSTMENT TO ACCOUNT FOR PROJECTED CHANGES IN THE DISTRIBUTION OF OUTLIER PAYMENTS WITHIN DIAGNOSIS-RELATED GROUPS- Section 1886(d)(4)(C)(i) of the Social Security Act (42 U.S.C. 1395ww(d)(4)(C)(i)), as amended by subsection (a)(2), is amended by inserting `, including, for discharges occurring after fiscal year 2006, projected changes in the distribution of additional payments described in paragraph (5)(A) within diagnosis-related groups' before the period at the end of the first sentence.

(C) CONFORMING AMENDMENTS- Section 1886(d)(3)(D) of the Social Security Act (42 U.S.C. 1395ww(d)(3)(D)) is amended--

(i) in clauses (i)(I), (ii)(I), and (iii)(I), by striking `reduced under subparagraph (B)' and inserting `reduced under subparagraph (B)(i)'; and

(ii) in clause (iii)(II), by inserting `, and, in the case of a fiscal year beginning after 2006, reduced under subparagraph (B)(ii)' before the period at the end.

(2) PUERTO RICO HOSPITALS-

(A) COMPUTING PUERTO RICO DRG-SPECIFIC RATES- Section 1886(d)(9)(C)(ii) of the Social Security Act (42 U.S.C. 1395ww(d)(9)(C)(ii)) is amended--

(i) by inserting `, for discharges occurring before fiscal year 2007,' after `The Secretary shall'; and

(ii) by striking `fiscal year 2004 and thereafter' and inserting `fiscal years 2004, 2005, and 2006'.

(B) CONFORMING AMENDMENTS- Section 1886(d)(9)(C)(iii)(II) of the Social Security Act (42 U.S.C. 1395ww(d)(9)(C)(iii)(II)) is amended by inserting `and reduced under paragraph (3)(B)(ii)' after `paragraph (4)(B)'.

(d) Ensuring That Diagnostic-Related Groups Appropriately Capture the Difference in Severity of Illness of Patients- Section 1886(d)(4)(A) of the Social Security Act (42 U.S.C. 1395ww(d)(4)(A)) is amended by adding at the end the following new sentence: `In establishing the classification of inpatient discharges by diagnosis-related groups under the preceding sentence, the Secretary shall ensure that such groups appropriately capture the difference in severity of illness of patients.'.

(e) Phase-In of Changes to the Inpatient Hospital Prospective Payment System- Section 1886(d) of the Social Security Act (42 U.S.C. 1395ww(d)) is amended by adding at the end the following new paragraph:

`(14) Notwithstanding the preceding provisions of this subsection, the Secretary shall phase in the application of the amendments made by subsections (a), (b), (c), and (d) of section 2 of the Hospital Fair Competition Act of 2005 over a 3-fiscal year period beginning with fiscal year 2007. In implementing the phase-in under the preceding sentence, the Secretary shall take into account the negative impact that the phase-in may have on certain hospitals.'.

SEC. 3. PROHIBITION ON CERTAIN PHYSICIAN SELF REFERRALS.

(a) Prohibition- Section 1877(d) of the Social Security Act (42 U.S.C. 1395nn(d)) is amended in each of paragraphs (2)(B) and (3)(B) by striking `effective for the 18-month period beginning on the date of enactment of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003' and inserting `on and after December 8, 2003'.

(b) Revisions to the Requirements to Qualify for the Exception to the Definition of Specialty Hospital- Section 1877(h)(7)(B) of the Social Security Act (42 U.S.C. 1395nn(h)(7)(B)) is amended--

(1) by redesignating clauses (iii), (iv), and (v) as clauses (vi), (vii), and (viii), respectively;

(2) by inserting after clause (ii) the following new clauses:

`(iii) for which the percent of investment in the hospital by physician investors at any time on or after June 8, 2005, is no greater than the percent of such investment by physician investors as of such date;

`(iv) for which the percent of investment in the hospital by any physician investor at any time on or after June 8, 2005, is no greater than the percent of such investment by such physician as of such date;

`(v) for which the number of operating rooms at the hospital at any time on or after June 8, 2005, is no greater than the number of such rooms as of such date;'; and

(3) by striking clause (vii), as so redesignated, and inserting the following:

`(vii) for which--

`(I) during the period beginning on December 8, 2003, and ending on June 7, 2005, any increase in the number of beds occurs only in the facilities on the main campus of the hospital and does not exceed 50 percent of the number of beds in the hospital as of November 18, 2003, or 5 beds, whichever is greater; and

`(II) the number of beds at the hospital at any time on or after June 8, 2005, is no greater than the number of such beds as of such date; and'.

(c) Effective Date- The amendments made by this section shall take effect on June 8, 2005.

SEC. 4. PERMISSIBLE COORDINATED CARE INCENTIVE ARRANGEMENTS BETWEEN HOSPITALS AND PHYSICIANS.

(a) Establishment of Requirements for Arrangements and Exemption From Imposition of Civil Monetary Penalties- Section 1128A of the Social Security Act (42 U.S.C. 1320a-7a) is amended by adding at the end the following new subsection:

`(o) Arrangements Between Hospitals and Physicians-

`(1) IN GENERAL- Subsection (b) shall not apply to an arrangement that meets the requirements under paragraph (2).

`(2) REQUIREMENTS-

`(A) ESTABLISHMENT- The Secretary shall establish requirements for arrangements between hospitals or critical access hospitals and physicians in which physicians share in the savings experienced by the hospital or critical access hospital by reason of cost-reduction efforts that involve the physicians.

`(B) PROTECTIONS- In establishing the requirements under subparagraph (A), the Secretary shall ensure that--

`(i) the quality of care provided to individuals is protected under the arrangement; and

`(ii) financial incentives that could affect physician referrals are minimized.

`(C) MONITOR- The Secretary shall establish procedures to monitor arrangements described in subparagraph (A) to ensure that such agreements meet the requirements under such subparagraph.'.

(b) Exemption From Criminal Penalties- Section 1128B(b)(3) of the Social Security Act (42 U.S.C. 1320a-7b(b)(3)) is amended--

(1) in subparagraph (G), by striking `and' at the end;

(2) in subparagraph (H), as added by section 237(d) of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Public Law 108-173; 117 Stat. 2213)--

(A) by moving such subparagraph 2 ems to the left; and

(B) by striking the period at the end and inserting a semicolon;

(3) by redesignating subparagraph (H), as added by section 431(a) of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Public Law 108-173; 117 Stat. 2287), as subparagraph (I);

(4) in subparagraph (I), as so redesignated--

(A) by moving such subparagraph 2 ems to the left; and

(B) by striking the period at the end and inserting `; and'; and

(5) by adding at the end the following new subparagraph:

`(J) an arrangement that meets the requirements established under section 1128A(o).'.

(c) Exemption From Limitation on Certain Physician Referrals- Section 1877(e) of the Social Security Act (42 U.S.C. 1395nn(e)) is amended by adding at the end the following new paragraph:

`(9) ARRANGEMENTS BETWEEN HOSPITALS AND PHYSICIANS- An arrangement that meets the requirements established under section 1128A(o).'.

END