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114th Congress   }                                   {   Rept. 114-159
                        HOUSE OF REPRESENTATIVES
 1st Session     }                                   {          Part 1

======================================================================



 
               INCREASING REGULATORY FAIRNESS ACT OF 2015

                                _______
                                

 June 16, 2015.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

Mr. Ryan of Wisconsin, from the Committee on Ways and Means, submitted 
                             the following

                              R E P O R T

                        [To accompany H.R. 2507]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 2507) to amend title XVIII of the Social Security 
Act to establish an annual rulemaking schedule for payment 
rates under Medicare Advantage, 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............................................2
        A. PURPOSE AND SUMMARY...................................     2
        B. BACKGROUND AND NEED FOR LEGISLATION...................     2
        C. LEGISLATIVE HISTORY...................................     3
II. EXPLANATION OF THE BILL...........................................3
III.VOTES OF THE COMMITTEE............................................4

IV. BUDGET EFFECTS OF THE BILL........................................4
        A. Committee Estimate of Budgetary Effects...............     4
        B. Statement Regarding New Budget Authority and Tax 
            Expenditures Budget Authority........................     4
        C. Cost Estimate Prepared by the Congressional Budget 
            Office...............................................     4
 V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE........5
        A. Committee Oversight Findings and Recommendations......     5
        B. Statement of General Performance Goals and Objectives.     5
        C. Information Relating to Unfunded Mandates.............     5
        D. Congressional Earmarks, Limited Tax Benefits, and 
            Limited Tariff Benefits..............................     6
        E. Duplication of Federal Programs.......................     6
        F. Disclosure of Directed Rule Makings...................     6
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED.............6
        A. Text of Existing Law Amended or Repealed by the Bill, 
            as Reported..........................................     6
        B. Changes in Existing Law Proposed by the Bill, as 
            Reported.............................................    37

    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 ``Increasing Regulatory Fairness Act of 
2015''.

SEC. 2. ESTABLISHING AN ANNUAL RULEMAKING SCHEDULE FOR PAYMENT RATES 
                    UNDER MEDICARE ADVANTAGE.

  Section 1853(b) of the Social Security Act (42 U.S.C. 1395w-23(b)) is 
amended--
          (1) in the subsection heading, by inserting ``, Annual 
        Rulemaking Schedule for Payment Rates for 2017 and Subsequent 
        Years'' after ``Rates'';
          (2) in paragraph (1)--
                  (A) in subparagraph (B)--
                          (i) in the subparagraph heading, by inserting 
                        ``before 2017'' after ``years''; and
                          (ii) in the matter preceding clause (i), by 
                        inserting ``and before 2017'' after ``2005''; 
                        and
                  (B) by adding at the end the following new 
                subparagraph:
                  ``(C) Annual rulemaking schedule for payment rates 
                for 2017 and subsequent years.--For 2017 and each 
                subsequent year, before April 1 of the preceding year, 
                the Secretary shall, by regulation and in accordance 
                with the notice and public comment periods required 
                under paragraph (2) for such a year, annually determine 
                and announce the following:
                          ``(i) The annual MA capitation rate for each 
                        MA payment area for such year.
                          ``(ii) The risk and other factors to be used 
                        in adjusting such rates under subsection 
                        (a)(1)(A) for payments for months in such year.
                          ``(iii) With respect to each MA region and 
                        each MA regional plan for which a bid was 
                        submitted under section 1854, the MA region-
                        specific non-drug monthly benchmark amount for 
                        that region for the year involved.
                          ``(iv) The major policy changes to the risk 
                        adjustment model, and the 5-star rating system 
                        established under subsection (o), that are 
                        determined to have an economic impact.''; and
          (3) in paragraph (2)--
                  (A) by inserting ``(or, for 2017 and each subsequent 
                year, at least 60 days)'' after ``45 days''; and
                  (B) by inserting ``(for 2017 and each subsequent 
                year, of no less than 30 days)'' after ``opportunity''.

                       I. SUMMARY AND BACKGROUND


                         A. Purpose and Summary

    The bill, H.R. 2507, as reported by the Committee on Ways 
and Means on June 2, 2015, expands the timeline for comment 
during the regulatory process and provides greater transparency 
in the Medicare Advantage program.

                 B. Background and Need for Legislation

    On May 21, 2015, Representative Kevin Brady (R-TX), 
Chairman of the Committee on Ways and Means Subcommittee on 
Health, Representative Joe Pitts (R-PA), Chairman of the 
Committee on Energy and Commerce Subcommittee on Health, and 
Representative Mike Thompson (D-CA) introduced H.R. 2507, which 
increases the time Medicare Advantage and Part D stakeholders 
have to comment on annual regulatory notices.

                         C. Legislative History


Background

    H.R. 2507 was introduced on May 21, 2015, and was referred 
to the Committee on Ways and Means and subsequently to the 
Committee on Energy and Commerce.

Committee hearings

    On July 24, 2014, the Committee on Ways and Means 
Subcommittee on Health held a hearing on the status of the 
Medicare Advantage program.
    The panel of witnesses included the following:

Chris Wing, Chief Executive Officer, SCAN Health Plans
Jeff Burnich, M.D., Senior Vice President & Executive Officer, 
        Sutter Medical Network, (Sacramento, CA) on behalf of 
        CAPG
Robert Book, PhD, Senior Research Director, Health Systems 
        Innovation Network, LLC, Outside Healthcare and 
        Economics Expert, American Action Forum
Joe Baker, President, Medicare Rights Center

Committee action

    The Committee on Ways and Means marked up H.R. 2507, the 
Increasing Regulatory Fairness Act of 2015, on June 2, 2015, 
and ordered the bill favorably reported to the House of 
Representatives as amended by a voice vote (with a quorum being 
present).

                      II. EXPLANATION OF THE BILL


               Increasing Regulatory Fairness Act of 2015


                              PRESENT LAW

    Section 1853(b) of the Social Security Act requires the 
Centers for Medicare and Medicaid Services (CMS) to release a 
proposal detailing any rate and policy changes associated with 
Medicare Advantage and Part D for 45 days, which provides 
stakeholders an established time frame to comment.

                           REASONS FOR CHANGE

    The CMS annual Call Letter and Rate Notice has 
substantially increased from less than 20 pages in 2006 to well 
over a hundred pages at present becoming increasingly more 
complex each year. In order to ensure fairness for all 
stakeholders (as with the longer comment periods for all other 
payment regulations), the Committee believes legislation is 
needed to increase the allotted time for interested parties to 
read and remark on proposals affecting the industry, 
stakeholders, and beneficiaries through changes in policy and 
payment rates. Establishing a minimum 30-day time frame for 
comment is a reasonable, fair adjustment, increasing 
transparency in the Medicare Advantage programs.

                       EXPLANATION OF PROVISIONS

    The Increasing Regulatory Fairness Act of 2015 would expand 
the annual regulatory schedule for Medicare Advantage payment 
rates and policies. The schedule affords stakeholders and 
Congress more time to provide constructive feedback on the new 
proposals by effectively doubling the time currently provided 
for proposed Call Letter and Rate Notice comment.

                             EFFECTIVE DATE

    The bill would take effect beginning on January 1, 2017.

                      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. 2507, Increasing Regulatory Fairness Act 
of 2015, on June 2, 2015.
    The bill, H.R. 2507, was ordered favorably reported to the 
House of Representatives as amended by a 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. 2507, as 
reported. The Committee agrees with the estimate prepared by 
the Congressional Budget Office (CBO), which is included below 
as Insert A.

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 12, 2015.
Hon. Paul Ryan,
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 H.R. 2507, the 
Increasing Regulatory Fairness Act of 2015.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Paul Masi.
            Sincerely,
                                                        Keith Hall.
    Enclosure.

H.R. 2507--Increasing Regulatory Fairness Act of 2015

    H.R. 2507 would change the schedule by which the Secretary 
of Health and Human Services announces proposed and final 
updates to program rules for the Medicare Advantage and 
Medicare Part D programs. Under current law, the Secretary is 
required to announce final program rules for the following 
calendar year not later than the first Monday in April. The 
Secretary also is required to issue an advance notice of 
proposed changes at least 45 days before making the final 
announcement.
    Beginning in 2017, H.R. 2507 would require the Secretary to 
announce payment changes before April 1 for the upcoming year 
and to issue the advance notice of those changes at least 60 
days before making the final announcement. Additionally, 
beginning in 2017, the legislation would provide for a period 
of at least 30 days during which stakeholders could comment on 
proposed changes included in the advance notice.
    Changing the schedule by which the Secretary announces 
program rules would not change the calculations used to 
determine payments to insurance plans participating in Medicare 
Advantage and Medicare Part D. Thus, CBO estimates that 
enacting H.R. 2507 would not have a significant budgetary 
effect. Because enacting the bill would not affect direct 
spending or revenues, pay-as-you-go procedures do not apply.
    H.R. 2507 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act and 
would not affect the budgets of state, local or tribal 
governments.
    The CBO staff contact for this estimate is Paul Masi. The 
estimate was approved by Holly Harvey, Deputy 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 (relating to oversight findings), 
the Committee advises that it was as a result of the 
Committee's review of the provisions of H.R. 2507 that the 
Committee concluded that it is appropriate to report the bill, 
as amended, favorably to the House of Representatives with the 
recommendation that the bill do pass.

        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


  A. Text of Existing Law Amended or Repealed by the Bill, as Reported

    In compliance with clause 3(e)(1)(A) of rule XIII of the 
Rules of the House of Representatives, the text of each section 
proposed to be amended or repealed by the bill, as reported, is 
shown below:

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e)(1)(A) of rule XIII of the 
Rules of the House of Representatives, the text of each section 
proposed to be amended or repealed by the bill, as reported, is 
shown below:

                          SOCIAL SECURITY ACT




           *       *       *       *       *       *       *
TITLE XVIII--HEALTH INSURANCE FOR THE AGED AND DISABLED

           *       *       *       *       *       *       *



Part C--Medicare+Choice Program

           *       *       *       *       *       *       *



               payments to medicare+choice organizations

  Sec. 1853. (a) Payments to Organizations.--
          (1) Monthly payments.--
                  (A) In general.--Under a contract under 
                section 1857 and subject to subsections (e), 
                (g), (i), and (l) and section 1859(e)(4), the 
                Secretary shall make monthly payments under 
                this section in advance to each Medicare+Choice 
                organization, with respect to coverage of an 
                individual under this part in a Medicare+Choice 
                payment area for a month, in an amount 
                determined as follows:
                          (i) Payment before 2006.--For years 
                        before 2006, the payment amount shall 
                        be equal to \1/12\ of the annual MA 
                        capitation rate (as calculated under 
                        subsection (c)(1)) with respect to that 
                        individual for that area, adjusted 
                        under subparagraph (C) and reduced by 
                        the amount of any reduction elected 
                        under section 1854(f)(1)(E).
                          (ii) Payment for original fee-for-
                        service benefits beginning with 2006.--
                        For years beginning with 2006, the 
                        amount specified in subparagraph (B).
                  (B) Payment amount for original fee-for-
                service benefits beginning with 2006.--
                          (i) Payment of bid for plans with 
                        bids below benchmark.--In the case of a 
                        plan for which there are average per 
                        capita monthly savings described in 
                        section 1854(b)(3)(C) or 1854(b)(4)(C), 
                        as the case may be, the amount 
                        specified in this subparagraph is equal 
                        to the unadjusted MA statutory non-drug 
                        monthly bid amount, adjusted under 
                        subparagraph (C) and (if applicable) 
                        under subparagraphs (F) and (G), plus 
                        the amount (if any) of any rebate under 
                        subparagraph (E).
                          (ii) Payment of benchmark for plans 
                        with bids at or above benchmark.--In 
                        the case of a plan for which there are 
                        no average per capita monthly savings 
                        described in section 1854(b)(3)(C) or 
                        1854(b)(4)(C), as the case may be, the 
                        amount specified in this subparagraph 
                        is equal to the MA area-specific non-
                        drug monthly benchmark amount, adjusted 
                        under subparagraph (C) and (if 
                        applicable) under subparagraphs (F) and 
                        (G).
                          (iii) Payment of benchmark for msa 
                        plans.--Notwithstanding clauses (i) and 
                        (ii), in the case of an MSA plan, the 
                        amount specified in this subparagraph 
                        is equal to the MA area-specific non-
                        drug monthly benchmark amount, adjusted 
                        under subparagraph (C).
                          (iv) Authority to apply frailty 
                        adjustment under pace payment rules for 
                        certain specialized ma plans for 
                        special needs individuals.--
                                  (I) In general.--
                                Notwithstanding the preceding 
                                provisions of this paragraph, 
                                for plan year 2011 and 
                                subsequent plan years, in the 
                                case of a plan described in 
                                subclause (II), the Secretary 
                                may apply the payment rules 
                                under section 1894(d) (other 
                                than paragraph (3) of such 
                                section) rather than the 
                                payment rules that would 
                                otherwise apply under this 
                                part, but only to the extent 
                                necessary to reflect the costs 
                                of treating high concentrations 
                                of frail individuals.
                                  (II) Plan described.--A plan 
                                described in this subclause is 
                                a specialized MA plan for 
                                special needs individuals 
                                described in section 
                                1859(b)(6)(B)(ii) that is fully 
                                integrated with capitated 
                                contracts with States for 
                                Medicaid benefits, including 
                                long-term care, and that have 
                                similar average levels of 
                                frailty (as determined by the 
                                Secretary) as the PACE program.
                  (C) Demographic adjustment, including 
                adjustment for health status.--
                          (i) In general.--The Secretary shall 
                        adjust the payment amount under 
                        subparagraph (A)(i) and the amount 
                        specified under subparagraph (B)(i), 
                        (B)(ii), and (B)(iii) for such risk 
                        factors as age, disability status, 
                        gender, institutional status, and such 
                        other factors as the Secretary 
                        determines to be appropriate, including 
                        adjustment for health status under 
                        paragraph (3), so as to ensure 
                        actuarial equivalence. The Secretary 
                        may add to, modify, or substitute for 
                        such adjustment factors if such changes 
                        will improve the determination of 
                        actuarial equivalence.
                          (ii) Application of coding 
                        adjustment.--For 2006 and each 
                        subsequent year:
                                  (I) In applying the 
                                adjustment under clause (i) for 
                                health status to payment 
                                amounts, the Secretary shall 
                                ensure that such adjustment 
                                reflects changes in treatment 
                                and coding practices in the 
                                fee-for-service sector and 
                                reflects differences in coding 
                                patterns between Medicare 
                                Advantage plans and providers 
                                under part A and B to the 
                                extent that the Secretary has 
                                identified such differences.
                                  (II) In order to ensure 
                                payment accuracy, the Secretary 
                                shall annually conduct an 
                                analysis of the differences 
                                described in subclause (I). The 
                                Secretary shall complete such 
                                analysis by a date necessary to 
                                ensure that the results of such 
                                analysis are incorporated on a 
                                timely basis into the risk 
                                scores for 2008 and subsequent 
                                years. In conducting such 
                                analysis, the Secretary shall 
                                use data submitted with respect 
                                to 2004 and subsequent years, 
                                as available and updated as 
                                appropriate.
                                  (III) In calculating each 
                                year's adjustment, the 
                                adjustment factor shall be for 
                                2014, not less than the 
                                adjustment factor applied for 
                                2010, plus 1.5 percentage 
                                points; for each of years 2015 
                                through 2018, not less than the 
                                adjustment factor applied for 
                                the previous year, plus 0.25 
                                percentage point; and for 2019 
                                and each subsequent year, not 
                                less than 5.9 percent.
                                  (IV) Such adjustment shall be 
                                applied to risk scores until 
                                the Secretary implements risk 
                                adjustment using Medicare 
                                Advantage diagnostic, cost, and 
                                use data.
                          (iii) Improvements to risk adjustment 
                        for special needs individuals with 
                        chronic health conditions.--
                                  (I) In general.--For 2011 and 
                                subsequent years, for purposes 
                                of the adjustment under clause 
                                (i) with respect to individuals 
                                described in subclause (II), 
                                the Secretary shall use a risk 
                                score that reflects the known 
                                underlying risk profile and 
                                chronic health status of 
                                similar individuals. Such risk 
                                score shall be used instead of 
                                the default risk score for new 
                                enrollees in Medicare Advantage 
                                plans that are not specialized 
                                MA plans for special needs 
                                individuals (as defined in 
                                section 1859(b)(6)).
                                  (II) Individuals described.--
                                An individual described in this 
                                subclause is a special needs 
                                individual described in 
                                subsection (b)(6)(B)(iii) who 
                                enrolls in a specialized MA 
                                plan for special needs 
                                individuals on or after January 
                                1, 2011.
                                  (III) Evaluation.--For 2011 
                                and periodically thereafter, 
                                the Secretary shall evaluate 
                                and revise the risk adjustment 
                                system under this subparagraph 
                                in order to, as accurately as 
                                possible, account for higher 
                                medical and care coordination 
                                costs associated with frailty, 
                                individuals with multiple, 
                                comorbid chronic conditions, 
                                and individuals with a 
                                diagnosis of mental illness, 
                                and also to account for costs 
                                that may be associated with 
                                higher concentrations of 
                                beneficiaries with those 
                                conditions.
                                  (IV) Publication of 
                                evaluation and revisions.--The 
                                Secretary shall publish, as 
                                part of an announcement under 
                                subsection (b), a description 
                                of any evaluation conducted 
                                under subclause (III) during 
                                the preceding year and any 
                                revisions made under such 
                                subclause as a result of such 
                                evaluation.
                  (D) Separate payment for federal drug 
                subsidies.--In the case of an enrollee in an 
                MA-PD plan, the MA organization offering such 
                plan also receives--
                          (i) subsidies under section 1860D-15 
                        (other than under subsection (g)); and
                          (ii) reimbursement for premium and 
                        cost-sharing reductions for low-income 
                        individuals under section 1860D-
                        14(c)(1)(C).
                  (E) Payment of rebate for plans with bids 
                below benchmark.--In the case of a plan for 
                which there are average per capita monthly 
                savings described in section 1854(b)(3)(C) or 
                1854(b)(4)(C), as the case may be, the amount 
                specified in this subparagraph is the amount of 
                the monthly rebate computed under section 
                1854(b)(1)(C)(i) for that plan and year (as 
                reduced by the amount of any credit provided 
                under section 1854(b)(1)(C)(iv)).
                  (F) Adjustment for intra-area variations.--
                          (i) Intra-regional variations.--In 
                        the case of payment with respect to an 
                        MA regional plan for an MA region, the 
                        Secretary shall also adjust the amounts 
                        specified under subparagraphs (B)(i) 
                        and (B)(ii) in a manner to take into 
                        account variations in MA local payment 
                        rates under this part among the 
                        different MA local areas included in 
                        such region.
                          (ii) Intra-service area variations.--
                        In the case of payment with respect to 
                        an MA local plan for a service area 
                        that covers more than one MA local 
                        area, the Secretary shall also adjust 
                        the amounts specified under 
                        subparagraphs (B)(i) and (B)(ii) in a 
                        manner to take into account variations 
                        in MA local payment rates under this 
                        part among the different MA local areas 
                        included in such service area.
                  (G) Adjustment relating to risk adjustment.--
                The Secretary shall adjust payments with 
                respect to MA plans as necessary to ensure 
                that--
                          (i) the sum of--
                                  (I) the monthly payment made 
                                under subparagraph (A)(ii); and
                                  (II) the MA monthly basic 
                                beneficiary premium under 
                                section 1854(b)(2)(A); equals
                          (ii) the unadjusted MA statutory non-
                        drug monthly bid amount, adjusted in 
                        the manner described in subparagraph 
                        (C) and, for an MA regional plan, 
                        subparagraph (F).
                  (H) Special rule for end-stage renal 
                disease.--The Secretary shall establish 
                separate rates of payment to a Medicare+Choice 
                organization with respect to classes of 
                individuals determined to have end-stage renal 
                disease and enrolled in a Medicare+Choice plan 
                of the organization. Such rates of payment 
                shall be actuarially equivalent to rates that 
                would have been paid with respect to other 
                enrollees in the MA payment area (or such other 
                area as specified by the Secretary) under the 
                provisions of this section as in effect before 
                the date of the enactment of the Medicare 
                Prescription Drug, Improvement, and 
                Modernization Act of 2003. In accordance with 
                regulations, the Secretary shall provide for 
                the application of the seventh sentence of 
                section 1881(b)(7) to payments under this 
                section covering the provision of renal 
                dialysis treatment in the same manner as such 
                sentence applies to composite rate payments 
                described in such sentence. In establishing 
                such rates, the Secretary shall provide for 
                appropriate adjustments to increase each rate 
                to reflect the demonstration rate (including 
                the risk adjustment methodology associated with 
                such rate) of the social health maintenance 
                organization end-stage renal disease capitation 
                demonstrations (established by section 2355 of 
                the Deficit Reduction Act of 1984, as amended 
                by section 13567(b) of the Omnibus Budget 
                Reconciliation Act of 1993), and shall compute 
                such rates by taking into account such factors 
                as renal treatment modality, age, and the 
                underlying cause of the end-stage renal 
                disease. The Secretary may apply the 
                competitive bidding methodology provided for in 
                this section, with appropriate adjustments to 
                account for the risk adjustment methodology 
                applied to end stage renal disease payments.
          (2) Adjustment to reflect number of enrollees.--
                  (A) In general.--The amount of payment under 
                this subsection may be retroactively adjusted 
                to take into account any difference between the 
                actual number of individuals enrolled with an 
                organization under this part and the number of 
                such individuals estimated to be so enrolled in 
                determining the amount of the advance payment.
                  (B) Special rule for certain enrollees.--
                          (i) In general.--Subject to clause 
                        (ii), the Secretary may make 
                        retroactive adjustments under 
                        subparagraph (A) to take into account 
                        individuals enrolled during the period 
                        beginning on the date on which the 
                        individual enrolls with a 
                        Medicare+Choice organization under a 
                        plan operated, sponsored, or 
                        contributed to by the individual's 
                        employer or former employer (or the 
                        employer or former employer of the 
                        individual's spouse) and ending on the 
                        date on which the individual is 
                        enrolled in the organization under this 
                        part, except that for purposes of 
                        making such retroactive adjustments 
                        under this subparagraph, such period 
                        may not exceed 90 days.
                          (ii) Exception.--No adjustment may be 
                        made under clause (i) with respect to 
                        any individual who does not certify 
                        that the organization provided the 
                        individual with the disclosure 
                        statement described in section 1852(c) 
                        at the time the individual enrolled 
                        with the organization.
          (3) Establishment of risk adjustment factors.--
                  (A) Report.--The Secretary shall develop, and 
                submit to Congress by not later than March 1, 
                1999, a report on the method of risk adjustment 
                of payment rates under this section, to be 
                implemented under subparagraph (C), that 
                accounts for variations in per capita costs 
                based on health status. Such report shall 
                include an evaluation of such method by an 
                outside, independent actuary of the actuarial 
                soundness of the proposal.
                  (B) Data collection.--In order to carry out 
                this paragraph, the Secretary shall require 
                Medicare+Choice organizations (and eligible 
                organizations with risk-sharing contracts under 
                section 1876) to submit data regarding 
                inpatient hospital services for periods 
                beginning on or after July 1, 1997, and data 
                regarding other services and other information 
                as the Secretary deems necessary for periods 
                beginning on or after July 1, 1998. The 
                Secretary may not require an organization to 
                submit such data before January 1, 1998.
                  (C) Initial implementation.--
                          (i) In general.--The Secretary shall 
                        first provide for implementation of a 
                        risk adjustment methodology that 
                        accounts for variations in per capita 
                        costs based on health status and other 
                        demographic factors for payments by no 
                        later than January 1, 2000.
                          (ii) Phase-in.--Except as provided in 
                        clause (iv), such risk adjustment 
                        methodology shall be implemented in a 
                        phased-in manner so that the 
                        methodology insofar as it makes 
                        adjustments to capitation rates for 
                        health status applies to--
                                  (I) 10 percent of \1/12\ of 
                                the annual Medicare+Choice 
                                capitation rate in 2000 and 
                                each succeeding year through 
                                2003;
                                  (II) 30 percent of such 
                                capitation rate in 2004;
                                  (III) 50 percent of such 
                                capitation rate in 2005;
                                  (IV) 75 percent of such 
                                capitation rate in 2006; and
                                  (V) 100 percent of such 
                                capitation rate in 2007 and 
                                succeeding years.
                          (iii) Data for risk adjustment 
                        methodology.--Such risk adjustment 
                        methodology for 2004 and each 
                        succeeding year, shall be based on data 
                        from inpatient hospital and ambulatory 
                        settings.
                          (iv) Full implementation of risk 
                        adjustment for congestive heart failure 
                        enrollees for 2001.--
                                  (I) Exemption from phase-
                                in.--Subject to subclause (II), 
                                the Secretary shall fully 
                                implement the risk adjustment 
                                methodology described in clause 
                                (i) with respect to each 
                                individual who has had a 
                                qualifying congestive heart 
                                failure inpatient diagnosis (as 
                                determined by the Secretary 
                                under such risk adjustment 
                                methodology) during the period 
                                beginning on July 1, 1999, and 
                                ending on June 30, 2000, and 
                                who is enrolled in a 
                                coordinated care plan that is 
                                the only coordinated care plan 
                                offered on January 1, 2001, in 
                                the service area of the 
                                individual.
                                  (II) Period of application.--
                                Subclause (I) shall only apply 
                                during the 1-year period 
                                beginning on January 1, 2001.
                  (D) Uniform application to all types of 
                plans.--Subject to section 1859(e)(4), the 
                methodology shall be applied uniformly without 
                regard to the type of plan.
  (4) Payment rule for federally qualified health center 
services.--If an individual who is enrolled with an MA plan 
under this part receives a service from a federally qualified 
health center that has a written agreement with the MA 
organization that offers such plan for providing such a service 
(including any agreement required under section 1857(e)(3))--
          (A) the Secretary shall pay the amount determined 
        under section 1833(a)(3)(B) directly to the federally 
        qualified health center not less frequently than 
        quarterly; and
          (B) the Secretary shall not reduce the amount of the 
        monthly payments under this subsection as a result of 
        the application of subparagraph (A).
  (b) Annual Announcement of Payment Rates.--
          (1) Annual announcements.--
                  (A) For 2005.--The Secretary shall determine, 
                and shall announce (in a manner intended to 
                provide notice to interested parties), not 
                later than the second Monday in May of 2004, 
                with respect to each MA payment area, the 
                following:
                          (i) MA capitation rates.--The annual 
                        MA capitation rate for each MA payment 
                        area for 2005.
                          (ii) Adjustment factors.--The risk 
                        and other factors to be used in 
                        adjusting such rates under subsection 
                        (a)(1)(C) for payments for months in 
                        2005.
                  (B) For 2006 and subsequent years.--For a 
                year after 2005 --
                          (i) Initial announcement.--The 
                        Secretary shall determine, and shall 
                        announce (in a manner intended to 
                        provide notice to interested parties), 
                        not later than the first Monday in 
                        April before the calendar year 
                        concerned, with respect to each MA 
                        payment area, the following:
                                  (I) MA capitation rates; ma 
                                local area benchmark.--The 
                                annual MA capitation rate for 
                                each MA payment area for the 
                                year.
                                  (II) Adjustment factors.--The 
                                risk and other factors to be 
                                used in adjusting such rates 
                                under subsection (a)(1)(C) for 
                                payments for months in such 
                                year.
                          (ii) Regional benchmark 
                        announcement.--The Secretary shall 
                        determine, and shall announce (in a 
                        manner intended to provide notice to 
                        interested parties), on a timely basis 
                        before the calendar year concerned, 
                        with respect to each MA region and each 
                        MA regional plan for which a bid was 
                        submitted under section 1854, the MA 
                        region-specific non-drug monthly 
                        benchmark amount for that region for 
                        the year involved.
                          (iii) Benchmark announcement for cca 
                        local areas.--The Secretary shall 
                        determine, and shall announce (in a 
                        manner intended to provide notice to 
                        interested parties), on a timely basis 
                        before the calendar year concerned, 
                        with respect to each CCA area (as 
                        defined in section 1860C-1(b)(1)(A)), 
                        the CCA non-drug monthly benchmark 
                        amount under section 1860C-1(e)(1) for 
                        that area for the year involved.
          (2) Advance notice of methodological changes.--At 
        least 45 days before making the announcement under 
        paragraph (1) for a year, the Secretary shall provide 
        for notice to Medicare+Choice organizations of proposed 
        changes to be made in the methodology from the 
        methodology and assumptions used in the previous 
        announcement and shall provide such organizations an 
        opportunity to comment on such proposed changes.
          (3) Explanation of assumptions.--In each announcement 
        made under paragraph (1), the Secretary shall include 
        an explanation of the assumptions and changes in 
        methodology used in such announcement.
          (4) Continued computation and publication of county-
        specific per capita fee-for-service expenditure 
        information.--The Secretary, through the Chief Actuary 
        of the Centers for Medicare & Medicaid Services, shall 
        provide for the computation and publication, on an 
        annual basis beginning with 2001 at the time of 
        publication of the annual Medicare+Choice capitation 
        rates under paragraph (1), of the following information 
        for the original medicare fee-for-service program under 
        parts A and B (exclusive of individuals eligible for 
        coverage under section 226A) for each Medicare+Choice 
        payment area for the second calendar year ending before 
        the date of publication:
                  (A) Total expenditures per capita per month, 
                computed separately for part A and for part B.
                  (B) The expenditures described in 
                subparagraph (A) reduced by the best estimate 
                of the expenditures (such as graduate medical 
                education and disproportionate share hospital 
                payments) not related to the payment of claims.
                  (C) The average risk factor for the covered 
                population based on diagnoses reported for 
                medicare inpatient services, using the same 
                methodology as is expected to be applied in 
                making payments under subsection (a).
                  (D) Such average risk factor based on 
                diagnoses for inpatient and other sites of 
                service, using the same methodology as is 
                expected to be applied in making payments under 
                subsection (a).
  (c) Calculation of Annual Medicare+Choice Capitation Rates.--
          (1) In general.--For purposes of this part, subject 
        to paragraphs (6)(C) and (7), each annual 
        Medicare+Choice capitation rate, for a Medicare+Choice 
        payment area that is an MA local area for a contract 
        year consisting of a calendar year, is equal to the 
        largest of the amounts specified in the following 
        subparagraph (A), (B), (C), or (D):
                  (A) Blended capitation rate.--For a year 
                before 2005, the sum of--
                          (i) the area-specific percentage (as 
                        specified under paragraph (2) for the 
                        year) of the annual area-specific 
                        Medicare+Choice capitation rate for the 
                        Medicare+Choice payment area, as 
                        determined under paragraph (3) for the 
                        year, and
                          (ii) the national percentage (as 
                        specified under paragraph (2) for the 
                        year) of the input-price-adjusted 
                        annual national Medicare+Choice 
                        capitation rate, as determined under 
                        paragraph (4) for the year,
                multiplied (for a year other than 2004) by the 
                budget neutrality adjustment factor determined 
                under paragraph (5).
                  (B) Minimum amount.--12 multiplied by the 
                following amount:
                          (i) For 1998, $367 (but not to 
                        exceed, in the case of an area outside 
                        the 50 States and the District of 
                        Columbia, 150 percent of the annual per 
                        capita rate of payment for 1997 
                        determined under section 1876(a)(1)(C) 
                        for the area).
                          (ii) For 1999 and 2000, the minimum 
                        amount determined under clause (i) or 
                        this clause, respectively, for the 
                        preceding year, increased by the 
                        national per capita Medicare+Choice 
                        growth percentage described in 
                        paragraph (6)(A) applicable to 1999 or 
                        2000, respectively.
                          (iii)(I) Subject to subclause (II), 
                        for 2001, for any area in a 
                        Metropolitan Statistical Area with a 
                        population of more than 250,000, $525, 
                        and for any other area $475.
                          (II) In the case of an area outside 
                        the 50 States and the District of 
                        Columbia, the amount specified in this 
                        clause shall not exceed 120 percent of 
                        the amount determined under clause (ii) 
                        for such area for 2000.
                          (iv) For 2002, 2003, and 2004, the 
                        minimum amount specified in this clause 
                        (or clause (iii)) for the preceding 
                        year increased by the national per 
                        capita Medicare+Choice growth 
                        percentage, described in paragraph 
                        (6)(A) for that succeeding year.
                  (C) Minimum percentage increase.--
                          (i) For 1998, 102 percent of the 
                        annual per capita rate of payment for 
                        1997 determined under section 
                        1876(a)(1)(C) for the Medicare+Choice 
                        payment area.
                          (ii) For 1999 and 2000, 102 percent 
                        of the annual Medicare+Choice 
                        capitation rate under this paragraph 
                        for the area for the previous year.
                          (iii) For 2001, 103 percent of the 
                        annual Medicare+Choice capitation rate 
                        under this paragraph for the area for 
                        2000.
                          (iv) For 2002 and 2003, 102 percent 
                        of the annual Medicare+Choice 
                        capitation rate under this paragraph 
                        for the area for the previous year.
                          (v) For 2004 and each succeeding 
                        year, the greater of--
                                  (I) 102 percent of the annual 
                                MA capitation rate under this 
                                paragraph for the area for the 
                                previous year; or
                                  (II) the annual MA capitation 
                                rate under this paragraph for 
                                the area for the previous year 
                                increased by the national per 
                                capita MA growth percentage, 
                                described in paragraph (6) for 
                                that succeeding year, but not 
                                taking into account any 
                                adjustment under paragraph 
                                (6)(C) for a year before 2004.
                  (D)  100 percent of fee-for-service costs.--
                          (i) In general.--For each year 
                        specified in clause (ii), the adjusted 
                        average per capita cost for the year 
                        involved, determined under section 
                        1876(a)(4) and adjusted as appropriate 
                        for the purpose of risk adjustment, for 
                        the MA payment area for individuals who 
                        are not enrolled in an MA plan under 
                        this part for the year, but adjusted to 
                        exclude costs attributable to payments 
                        under sections, 1848(o), and 1886(n) 
                        and 1886(h).
                          (ii) Periodic rebasing.--The 
                        provisions of clause (i) shall apply 
                        for 2004 and for subsequent years as 
                        the Secretary shall specify (but not 
                        less than once every 3 years).
                          (iii) Inclusion of costs of va and 
                        dod military facility services to 
                        medicare-eligible beneficiaries.--In 
                        determining the adjusted average per 
                        capita cost under clause (i) for a 
                        year, such cost shall be adjusted to 
                        include the Secretary's estimate, on a 
                        per capita basis, of the amount of 
                        additional payments that would have 
                        been made in the area involved under 
                        this title if individuals entitled to 
                        benefits under this title had not 
                        received services from facilities of 
                        the Department of Defense or the 
                        Department of Veterans Affairs.
          (2) Area-specific and national percentages.--For 
        purposes of paragraph (1)(A)--
                  (A) for 1998, the ``area-specific 
                percentage'' is 90 percent and the ``national 
                percentage'' is 10 percent,
                  (B) for 1999, the ``area-specific 
                percentage'' is 82 percent and the ``national 
                percentage'' is 18 percent,
                  (C) for 2000, the ``area-specific 
                percentage'' is 74 percent and the ``national 
                percentage'' is 26 percent,
                  (D) for 2001, the ``area-specific 
                percentage'' is 66 percent and the ``national 
                percentage'' is 34 percent,
                  (E) for 2002, the ``area-specific 
                percentage'' is 58 percent and the ``national 
                percentage'' is 42 percent, and
                  (F) for a year after 2002, the ``area-
                specific percentage'' is 50 percent and the 
                ``national percentage'' is 50 percent.
          (3) Annual area-specific medicare+choice capitation 
        rate.--
                  (A) In general.--For purposes of paragraph 
                (1)(A), subject to subparagraphs (B) and (E), 
                the annual area-specific Medicare+Choice 
                capitation rate for a Medicare+Choice payment 
                area--
                          (i) for 1998 is, subject to 
                        subparagraph (D), the annual per capita 
                        rate of payment for 1997 determined 
                        under section 1876(a)(1)(C) for the 
                        area, increased by the national per 
                        capita Medicare+Choice growth 
                        percentage for 1998 (described in 
                        paragraph (6)(A)); or
                          (ii) for a subsequent year is the 
                        annual area-specific Medicare+Choice 
                        capitation rate for the previous year 
                        determined under this paragraph for the 
                        area, increased by the national per 
                        capita Medicare+Choice growth 
                        percentage for such subsequent year.
                  (B) Removal of medical education from 
                calculation of adjusted average per capita 
                cost.--
                          (i) In general.--In determining the 
                        area-specific Medicare+Choice 
                        capitation rate under subparagraph (A) 
                        for a year (beginning with 1998), the 
                        annual per capita rate of payment for 
                        1997 determined under section 
                        1876(a)(1)(C) shall be adjusted to 
                        exclude from the rate the applicable 
                        percent (specified in clause (ii)) of 
                        the payment adjustments described in 
                        subparagraph (C).
                          (ii) Applicable percent.--For 
                        purposes of clause (i), the applicable 
                        percent for--
                                  (I) 1998 is 20 percent,
                                  (II) 1999 is 40 percent,
                                  (III) 2000 is 60 percent,
                                  (IV) 2001 is 80 percent, and
                                  (V) a succeeding year is 100 
                                percent.
                  (C) Payment adjustment.--
                          (i) In general.--Subject to clause 
                        (ii), the payment adjustments described 
                        in this subparagraph are payment 
                        adjustments which the Secretary 
                        estimates were payable during 1997--
                                  (I) for the indirect costs of 
                                medical education under section 
                                1886(d)(5)(B), and
                                  (II) for direct graduate 
                                medical education costs under 
                                section 1886(h).
                          (ii) Treatment of payments covered 
                        under state hospital reimbursement 
                        system.--To the extent that the 
                        Secretary estimates that an annual per 
                        capita rate of payment for 1997 
                        described in clause (i) reflects 
                        payments to hospitals reimbursed under 
                        section 1814(b)(3), the Secretary shall 
                        estimate a payment adjustment that is 
                        comparable to the payment adjustment 
                        that would have been made under clause 
                        (i) if the hospitals had not been 
                        reimbursed under such section.
                  (D) Treatment of areas with highly variable 
                payment rates.--In the case of a 
                Medicare+Choice payment area for which the 
                annual per capita rate of payment determined 
                under section 1876(a)(1)(C) for 1997 varies by 
                more than 20 percent from such rate for 1996, 
                for purposes of this subsection the Secretary 
                may substitute for such rate for 1997 a rate 
                that is more representative of the costs of the 
                enrollees in the area.
                  (E) Inclusion of costs of dod and va military 
                facility services to medicare-eligible 
                beneficiaries.--In determining the area-
                specific MA capitation rate under subparagraph 
                (A) for a year (beginning with 2004), the 
                annual per capita rate of payment for 1997 
                determined under section 1876(a)(1)(C) shall be 
                adjusted to include in the rate the Secretary's 
                estimate, on a per capita basis, of the amount 
                of additional payments that would have been 
                made in the area involved under this title if 
                individuals entitled to benefits under this 
                title had not received services from facilities 
                of the Department of Defense or the Department 
                of Veterans Affairs.
          (4) Input-price-adjusted annual national 
        medicare+choice capitation rate.--
                  (A) In general.--For purposes of paragraph 
                (1)(A), the input-price-adjusted annual 
                national Medicare+Choice capitation rate for a 
                Medicare+Choice payment area for a year is 
                equal to the sum, for all the types of medicare 
                services (as classified by the Secretary), of 
                the product (for each such type of service) 
                of--
                          (i) the national standardized annual 
                        Medicare+Choice capitation rate 
                        (determined under subparagraph (B)) for 
                        the year,
                          (ii) the proportion of such rate for 
                        the year which is attributable to such 
                        type of services, and
                          (iii) an index that reflects (for 
                        that year and that type of services) 
                        the relative input price of such 
                        services in the area compared to the 
                        national average input price of such 
                        services.
                In applying clause (iii), the Secretary may, 
                subject to subparagraph (C), apply those 
                indices under this title that are used in 
                applying (or updating) national payment rates 
                for specific areas and localities.
                  (B) National standardized annual 
                medicare+choice capitation rate.--In 
                subparagraph (A)(i), the ``national 
                standardized annual Medicare+Choice capitation 
                rate'' for a year is equal to--
                          (i) the sum (for all Medicare+Choice 
                        payment areas) of the product of--
                                  (I) the annual area-specific 
                                Medicare+Choice capitation rate 
                                for that year for the area 
                                under paragraph (3), and
                                  (II) the average number of 
                                medicare beneficiaries residing 
                                in that area in the year, 
                                multiplied by the average of 
                                the risk factor weights used to 
                                adjust payments under 
                                subsection (a)(1)(A) for such 
                                beneficiaries in such area; 
                                divided by
                          (ii) the sum of the products 
                        described in clause (i)(II) for all 
                        areas for that year.
                  (C) Special rules for 1998.--In applying this 
                paragraph for 1998--
                          (i) medicare services shall be 
                        divided into 2 types of services: part 
                        A services and part B services;
                          (ii) the proportions described in 
                        subparagraph (A)(ii)--
                                  (I) for part A services shall 
                                be the ratio (expressed as a 
                                percentage) of the national 
                                average annual per capita rate 
                                of payment for part A for 1997 
                                to the total national average 
                                annual per capita rate of 
                                payment for parts A and B for 
                                1997, and
                                  (II) for part B services 
                                shall be 100 percent minus the 
                                ratio described in subclause 
                                (I);
                          (iii) for part A services, 70 percent 
                        of payments attributable to such 
                        services shall be adjusted by the index 
                        used under section 1886(d)(3)(E) to 
                        adjust payment rates for relative 
                        hospital wage levels for hospitals 
                        located in the payment area involved;
                          (iv) for part B services--
                                  (I) 66 percent of payments 
                                attributable to such services 
                                shall be adjusted by the index 
                                of the geographic area factors 
                                under section 1848(e) used to 
                                adjust payment rates for 
                                physicians' services furnished 
                                in the payment area, and
                                  (II) of the remaining 34 
                                percent of the amount of such 
                                payments, 40 percent shall be 
                                adjusted by the index described 
                                in clause (iii); and
                          (v) the index values shall be 
                        computed based only on the beneficiary 
                        population who are 65 years of age or 
                        older and who are not determined to 
                        have end stage renal disease.
                The Secretary may continue to apply the rules 
                described in this subparagraph (or similar 
                rules) for 1999.
          (5) Payment adjustment budget neutrality factor.--For 
        purposes of paragraph (1)(A), for each year (other than 
        2004), the Secretary shall determine a budget 
        neutrality adjustment factor so that the aggregate of 
        the payments under this part (other than those 
        attributable to subsections (a)(3)(C)(iv), (a)(4), and 
        (i) shall equal the aggregate payments that would have 
        been made under this part if payment were based 
        entirely on area-specific capitation rates.
          (6) National per capita medicare+choice growth 
        percentage defined.--
                  (A) In general.--In this part, the ``national 
                per capita Medicare+Choice growth percentage'' 
                for a year is the percentage determined by the 
                Secretary, by March 1st before the beginning of 
                the year involved, to reflect the Secretary's 
                estimate of the projected per capita rate of 
                growth in expenditures under this title for an 
                individual entitled to benefits under part A 
                and enrolled under part B, excluding 
                expenditures attributable to subsections (a)(7) 
                and (o) of section 1848 and subsections 
                (b)(3)(B)(ix) and (n) of section 1886, reduced 
                by the number of percentage points specified in 
                subparagraph (B) for the year. Separate 
                determinations may be made for aged enrollees, 
                disabled enrollees, and enrollees with end-
                stage renal disease.
                  (B) Adjustment.--The number of percentage 
                points specified in this subparagraph is--
                          (i) for 1998, 0.8 percentage points,
                          (ii) for 1999, 0.5 percentage points,
                          (iii) for 2000, 0.5 percentage 
                        points,
                          (iv) for 2001, 0.5 percentage points,
                          (v) for 2002, 0.3 percentage points, 
                        and
                          (vi) for a year after 2002, 0 
                        percentage points.
                  (C) Adjustment for over or under projection 
                of national per capita medicare+choice growth 
                percentage.--Beginning with rates calculated 
                for 1999, before computing rates for a year as 
                described in paragraph (1), the Secretary shall 
                adjust all area-specific and national 
                Medicare+Choice capitation rates (and beginning 
                in 2000, the minimum amount) for the previous 
                year for the differences between the 
                projections of the national per capita 
                Medicare+Choice growth percentage for that year 
                and previous years and the current estimate of 
                such percentage for such years, except that for 
                purposes of paragraph (1)(C)(v)(II), no such 
                adjustment shall be made for a year before 
                2004.
          (7) Adjustment for national coverage determinations 
        and legislative changes in benefits.--If the Secretary 
        makes a determination with respect to coverage under 
        this title or there is a change in benefits required to 
        be provided under this part that the Secretary projects 
        will result in a significant increase in the costs to 
        Medicare+Choice of providing benefits under contracts 
        under this part (for periods after any period described 
        in section 1852(a)(5)), the Secretary shall adjust 
        appropriately the payments to such organizations under 
        this part. Such projection and adjustment shall be 
        based on an analysis by the Chief Actuary of the 
        Centers for Medicare & Medicaid Services of the 
        actuarial costs associated with the new benefits.
  (d) MA Payment Area; MA Local Area; MA Region Defined.--
          (1) MA payment area.--In this part, except as 
        provided in this subsection, the term ``MA payment 
        area'' means--
                  (A) with respect to an MA local plan, an MA 
                local area (as defined in paragraph (2)); and
                  (B) with respect to an MA regional plan, an 
                MA region (as established under section 
                1858(a)(2)).
          (2) MA local area.--The term ``MA local area'' means 
        a county or equivalent area specified by the Secretary.
          (3) Rule for esrd beneficiaries.--In the case of 
        individuals who are determined to have end stage renal 
        disease, the Medicare+Choice payment area shall be a 
        State or such other payment area as the Secretary 
        specifies.
          (4) Geographic adjustment.--
                  (A) In general.--Upon written request of the 
                chief executive officer of a State for a 
                contract year (beginning after 1998) made by 
                not later than February 1 of the previous year, 
                the Secretary shall make a geographic 
                adjustment to a Medicare+Choice payment area in 
                the State otherwise determined under paragraph 
                (1) for MA local plans--
                          (i) to a single statewide 
                        Medicare+Choice payment area,
                          (ii) to the metropolitan based system 
                        described in subparagraph (C), or
                          (iii) to consolidating into a single 
                        Medicare+Choice payment area 
                        noncontiguous counties (or equivalent 
                        areas described inparagraph (1)(A)) 
                        within a State.
                Such adjustment shall be effective for payments 
                for months beginning with January of the year 
                following the year in which the request is 
                received.
                  (B) Budget neutrality adjustment.--In the 
                case of a State requesting an adjustment under 
                this paragraph, the Secretary shall initially 
                (and annually thereafter) adjust the payment 
                rates otherwise established under this section 
                with respect to MA local plans for 
                Medicare+Choice payment areas in the State in a 
                manner so that the aggregate of the payments 
                under this section for such plans in the State 
                shall not exceed the aggregate payments that 
                would have been made under this section for 
                such plans for Medicare+Choice payment areas in 
                the State in the absence of the adjustment 
                under this paragraph.
                  (C) Metropolitan based system.--The 
                metropolitan based system described in this 
                subparagraph is one in which--
                          (i) all the portions of each 
                        metropolitan statistical area in the 
                        State or in the case of a consolidated 
                        metropolitan statistical area, all of 
                        the portions of each primary 
                        metropolitan statistical area within 
                        the consolidated area within the State, 
                        are treated as a single Medicare+Choice 
                        payment area, and
                          (ii) all areas in the State that do 
                        not fall within a metropolitan 
                        statistical area are treated as a 
                        single Medicare+Choice payment area.
                  (D) Areas.--In subparagraph (C), the terms 
                ``metropolitan statistical area'', 
                ``consolidated metropolitan statistical area'', 
                and ``primary metropolitan statistical area'' 
                mean any area designated as such by the 
                Secretary of Commerce.
  (e) Special Rules for Individuals Electing MSA Plans.--
          (1) In general.--If the amount of the Medicare+Choice 
        monthly MSA premium (as defined in section 
        1854(b)(2)(C)) for an MSA plan for a year is less than 
        \1/12\ of the annual Medicare+Choice capitation rate 
        applied under this section for the area and year 
        involved, the Secretary shall deposit an amount equal 
        to 100 percent of such difference in a Medicare+Choice 
        MSA established (and, if applicable, designated) by the 
        individual under paragraph (2).
          (2) Establishment and designation of medicare+choice 
        medical savings account as requirement for payment of 
        contribution.--In the case of an individual who has 
        elected coverage under an MSA plan, no payment shall be 
        made under paragraph (1) on behalf of an individual for 
        a month unless the individual--
                  (A) has established before the beginning of 
                the month (or by such other deadline as the 
                Secretary may specify) a Medicare+Choice MSA 
                (as defined in section 138(b)(2) of the 
                Internal Revenue Code of 1986), and
                  (B) if the individual has established more 
                than one such Medicare+Choice MSA, has 
                designated one of such accounts as the 
                individual's Medicare+Choice MSA for purposes 
                of this part.
        Under rules under this section, such an individual may 
        change the designation of such account under 
        subparagraph (B) for purposes of this part.
          (3) Lump-sum deposit of medical savings account 
        contribution.--In the case of an individual electing an 
        MSA plan effective beginning with a month in a year, 
        the amount of the contribution to the Medicare+Choice 
        MSA on behalf of the individual for that month and all 
        successive months in the year shall be deposited during 
        that first month. In the case of a termination of such 
        an election as of a month before the end of a year, the 
        Secretary shall provide for a procedure for the 
        recovery of deposits attributable to the remaining 
        months in the year.
  (f) Payments From Trust Funds.--The payment to a 
Medicare+Choice organization under this section for individuals 
enrolled under this part with the organization and for payments 
under subsection (l) and subsection (m) and payments to a 
Medicare+Choice MSA under subsection (e)(1) shall be made from 
the Federal Hospital Insurance Trust Fund and the Federal 
Supplementary Medical Insurance Trust Fund in such proportion 
as the Secretary determines reflects the relative weight that 
benefits under part A and under part B represents of the 
actuarial value of the total benefits under this title. 
Payments to MA organizations for statutory drug benefits 
provided under this title are made from the Medicare 
Prescription Drug Account in the Federal Supplementary Medical 
Insurance Trust Fund. Monthly payments otherwise payable under 
this section for October 2000 shall be paid on the first 
business day of such month. Monthly payments otherwise payable 
under this section for October 2001 shall be paid on the last 
business day of September 2001. Monthly payments otherwise 
payable under this section for October 2006 shall be paid on 
the first business day of October 2006.
  (g) Special Rule for Certain Inpatient Hospital Stays.--In 
the case of an individual who is receiving inpatient hospital 
services from a subsection (d) hospital (as defined in section 
1886(d)(1)(B)), a rehabilitation hospital described in section 
1886(d)(1)(B)(ii) or a distinct part rehabilitation unit 
described in the matter following clause (v) of section 
1886(d)(1)(B), or a long-term care hospital (described in 
section 1886(d)(1)(B)(iv)) as of the effective date of the 
individual's--
          (1) election under this part of a Medicare+Choice 
        plan offered by a Medicare+Choice organization--
                  (A) payment for such services until the date 
                of the individual's discharge shall be made 
                under this title through the Medicare+Choice 
                plan or the original medicare fee-for-service 
                program option described in section 
                1851(a)(1)(A) (as the case may be) elected 
                before the election with such organization,
                  (B) the elected organization shall not be 
                financially responsible for payment for such 
                services until the date after the date of the 
                individual's discharge, and
                  (C) the organization shall nonetheless be 
                paid the full amount otherwise payable to the 
                organization under this part; or
          (2) termination of election with respect to a 
        Medicare+Choice organization under this part--
                  (A) the organization shall be financially 
                responsible for payment for such services after 
                such date and until the date of the 
                individual's discharge,
                  (B) payment for such services during the stay 
                shall not be made under section 1886(d) or 
                other payment provision under this title for 
                inpatient services for the type of facility, 
                hospital, or unit involved, described in the 
                matter preceding paragraph (1), as the case may 
                be, or by any succeeding Medicare+Choice 
                organization, and
                  (C) the terminated organization shall not 
                receive any payment with respect to the 
                individual under this part during the period 
                the individual is not enrolled.
  (h) Special Rule for Hospice Care.--
          (1) Information.--A contract under this part shall 
        require the Medicare+Choice organization to inform each 
        individual enrolled under this part with a 
        Medicare+Choice plan offered by the organization about 
        the availability of hospice care if--
                  (A) a hospice program participating under 
                this title is located within the organization's 
                service area; or
                  (B) it is common practice to refer patients 
                to hospice programs outside such service area.
          (2) Payment.--If an individual who is enrolled with a 
        Medicare+Choice organization under this part makes an 
        election under section 1812(d)(1) to receive hospice 
        care from a particular hospice program--
                  (A) payment for the hospice care furnished to 
                the individual shall be made to the hospice 
                program elected by the individual by the 
                Secretary;
                  (B) payment for other services for which the 
                individual is eligible notwithstanding the 
                individual's election of hospice care under 
                section 1812(d)(1), including services not 
                related to the individual's terminal illness, 
                shall be made by the Secretary to the 
                Medicare+Choice organization or the provider or 
                supplier of the service instead of payments 
                calculated under subsection (a); and
                  (C) the Secretary shall continue to make 
                monthly payments to the Medicare+Choice 
                organization in an amount equal to the value of 
                the additional benefits required under section 
                1854(f)(1)(A).
  (i) New Entry Bonus.--
          (1) In general.--Subject to paragraphs (2) and (3), 
        in the case of Medicare+Choice payment area in which a 
        Medicare+Choice plan has not been offered since 1997 
        (or in which all organizations that offered a plan 
        since such date have filed notice with the Secretary, 
        as of October 13, 1999, that they will not be offering 
        such a plan as of January 1, 2000, or filed notice with 
        the Secretary as of October 3, 2000, that they will not 
        be offering such a plan as of January 1, 2001), the 
        amount of the monthly payment otherwise made under this 
        section shall be increased--
                  (A) only for the first 12 months in which any 
                Medicare+Choice plan is offered in the area, by 
                5 percent of the total monthly payment 
                otherwise computed for such payment area; and
                  (B) only for the subsequent 12 months, by 3 
                percent of the total monthly payment otherwise 
                computed for such payment area.
          (2) Period of application.--Paragraph (1) shall only 
        apply to payment for Medicare+Choice plans which are 
        first offered in a Medicare+Choice payment area during 
        the 2-year period beginning on January 1, 2000.
          (3) Limitation to organization offering first plan in 
        an area.--Paragraph (1) shall only apply to payment to 
        the first Medicare+Choice organization that offers a 
        Medicare+Choice plan in each Medicare+Choice payment 
        area, except that if more than one such organization 
        first offers such a plan in an area on the same date, 
        paragraph (1) shall apply to payment for such 
        organizations.
          (4) Construction.--Nothing in paragraph (1) shall be 
        construed as affecting the calculation of the annual 
        Medicare+Choice capitation rate under subsection (c) 
        for any payment area or as applying to payment for any 
        period not described in such paragraph and paragraph 
        (2).
          (5) Offered defined.--In this subsection, the term 
        ``offered'' means, with respect to a Medicare+Choice 
        plan as of a date, that a Medicare+Choice eligible 
        individual may enroll with the plan on that date, 
        regardless of when the enrollment takes effect or when 
        the individual obtains benefits under the plan.
  (j) Computation of Benchmark Amounts.--For purposes of this 
part, subject to subsection (o), the term ``MA area-specific 
non-drug monthly benchmark amount'' means for a month in a 
year--
          (1) with respect to--
                  (A) a service area that is entirely within an 
                MA local area, subject to section 1860C-
                1(d)(2)(A), an amount equal to \1/12\ of the 
                annual MA capitation rate under section 
                1853(c)(1) for the area for the year (or, for 
                2007, 2008, 2009, and 2010, \1/12\ of the 
                applicable amount determined under subsection 
                (k)(1) for the area for the year; for 2011, \1/
                12\ of the applicable amount determined under 
                subsection (k)(1) for the area for 2010; and, 
                beginning with 2012, \1/12\ of the blended 
                benchmark amount determined under subsection 
                (n)(1) for the area for the year), adjusted as 
                appropriate (for years before 2007) for the 
                purpose of risk adjustment; or
                  (B) a service area that includes more than 
                one MA local area, an amount equal to the 
                average of the amounts described in 
                subparagraph (A) for each such local MA area, 
                weighted by the projected number of enrollees 
                in the plan residing in the respective local MA 
                areas (as used by the plan for purposes of the 
                bid and disclosed to the Secretary under 
                section 1854(a)(6)(A)(iii)), adjusted as 
                appropriate (for years before 2007) for the 
                purpose of risk adjustment; or
          (2) with respect to an MA region for a month in a 
        year, the MA region-specific non-drug monthly benchmark 
        amount, as defined in section 1858(f) for the region 
        for the year.
  (k) Determination of Applicable Amount for Purposes of 
Calculating the Benchmark Amounts.--
          (1) Applicable amount defined.--For purposes of 
        subsection (j), subject to paragraphs (2) and (4), the 
        term ``applicable amount'' means for an area--
                  (A) for 2007--
                          (i) if such year is not specified 
                        under subsection (c)(1)(D)(ii), an 
                        amount equal to the amount specified in 
                        subsection (c)(1)(C) for the area for 
                        2006--
                                  (I) first adjusted by the 
                                rescaling factor for 2006 for 
                                the area (as made available by 
                                the Secretary in the 
                                announcement of the rates on 
                                April 4, 2005, under subsection 
                                (b)(1), but excluding any 
                                national adjustment factors for 
                                coding intensity and risk 
                                adjustment budget neutrality 
                                that were included in such 
                                factor); and
                                  (II) then increased by the 
                                national per capita MA growth 
                                percentage, described in 
                                subsection (c)(6) for 2007, but 
                                not taking into account any 
                                adjustment under subparagraph 
                                (C) of such subsection for a 
                                year before 2004;
                          (ii) if such year is specified under 
                        subsection (c)(1)(D)(ii), an amount 
                        equal to the greater of--
                                  (I) the amount determined 
                                under clause (i) for the area 
                                for the year; or
                                  (II) the amount specified in 
                                subsection (c)(1)(D) for the 
                                area for the year; and
                  (B) for a subsequent year--
                          (i) if such year is not specified 
                        under subsection (c)(1)(D)(ii), an 
                        amount equal to the amount determined 
                        under this paragraph for the area for 
                        the previous year (determined without 
                        regard to paragraphs (2) and (4)), 
                        increased by the national per capita MA 
                        growth percentage, described in 
                        subsection (c)(6) for that succeeding 
                        year, but not taking into account any 
                        adjustment under subparagraph (C) of 
                        such subsection for a year before 2004; 
                        and
                          (ii) if such year is specified under 
                        subsection (c)(1)(D)(ii), an amount 
                        equal to the greater of--
                                  (I) the amount determined 
                                under clause (i) for the area 
                                for the year; or
                                  (II) the amount specified in 
                                subsection (c)(1)(D) for the 
                                area for the year.
          (2) Phase-out of budget neutrality factor.--
                  (A) In general.--Except as provided in 
                subparagraph (D), in the case of 2007 through 
                2010, the applicable amount determined under 
                paragraph (1) shall be multiplied by a factor 
                equal to 1 plus the product of--
                          (i) the percent determined under 
                        subparagraph (B) for the year; and
                          (ii) the applicable phase-out factor 
                        for the year under subparagraph (C).
                  (B) Percent determined.--
                          (i) In general.--For purposes of 
                        subparagraph (A)(i), subject to clause 
                        (iv), the percent determined under this 
                        subparagraph for a year is a percent 
                        equal to a fraction the numerator of 
                        which is described in clause (ii) and 
                        the denominator of which is described 
                        in clause (iii).
                          (ii) Numerator based on difference 
                        between demographic rate and risk 
                        rate.--
                                  (I) In general.--The 
                                numerator described in this 
                                clause is an amount equal to 
                                the amount by which the 
                                demographic rate described in 
                                subclause (II) exceeds the risk 
                                rate described in subclause 
                                (III).
                                  (II) Demographic rate.--The 
                                demographic rate described in 
                                this subclause is the 
                                Secretary's estimate of the 
                                total payments that would have 
                                been made under this part in 
                                the year if all the monthly 
                                payment amounts for all MA 
                                plans were equal to \1/12\ of 
                                the annual MA capitation rate 
                                under subsection (c)(1) for the 
                                area and year, adjusted 
                                pursuant to subsection 
                                (a)(1)(C).
                                  (III) Risk rate.--The risk 
                                rate described in this 
                                subclause is the Secretary's 
                                estimate of the total payments 
                                that would have been made under 
                                this part in the year if all 
                                the monthly payment amounts for 
                                all MA plans were equal to the 
                                amount described in subsection 
                                (j)(1)(A) (determined as if 
                                this paragraph had not applied) 
                                under subsection (j) for the 
                                area and year, adjusted 
                                pursuant to subsection 
                                (a)(1)(C).
                          (iii) Denominator based on risk 
                        rate.--The denominator described in 
                        this clause is equal to the total 
                        amount estimated for the year under 
                        clause (ii)(III).
                          (iv) Requirements.--In estimating the 
                        amounts under the previous clauses, the 
                        Secretary shall--
                                  (I) use a complete set of the 
                                most recent and representative 
                                Medicare Advantage risk scores 
                                under subsection (a)(3) that 
                                are available from the risk 
                                adjustment model announced for 
                                the year;
                                  (II) adjust the risk scores 
                                to reflect changes in treatment 
                                and coding practices in the 
                                fee-for-service sector;
                                  (III) adjust the risk scores 
                                for differences in coding 
                                patterns between Medicare 
                                Advantage plans and providers 
                                under the original Medicare 
                                fee-for-service program under 
                                parts A and B to the extent 
                                that the Secretary has 
                                identified such differences, as 
                                required in subsection 
                                (a)(1)(C);
                                  (IV) as necessary, adjust the 
                                risk scores for late data 
                                submitted by Medicare Advantage 
                                organizations;
                                  (V) as necessary, adjust the 
                                risk scores for lagged cohorts; 
                                and
                                  (VI) as necessary, adjust the 
                                risk scores for changes in 
                                enrollment in Medicare 
                                Advantage plans during the 
                                year.
                          (v) Authority.--In computing such 
                        amounts the Secretary may take into 
                        account the estimated health risk of 
                        enrollees in preferred provider 
                        organization plans (including MA 
                        regional plans) for the year.
                  (C) Applicable phase-out factor.--For 
                purposes of subparagraph (A)(ii), the term 
                ``applicable phase-out factor'' means--
                          (i) for 2007, 0.55;
                          (ii) for 2008, 0.40;
                          (iii) for 2009, 0.25; and
                          (iv) for 2010, 0.05.
                  (D) Termination of application.--Subparagraph 
                (A) shall not apply in a year if the amount 
                estimated under subparagraph (B)(ii)(III) for 
                the year is equal to or greater than the amount 
                estimated under subparagraph (B)(ii)(II) for 
                the year.
          (3) No revision in percent.--
                  (A) In general.--The Secretary may not make 
                any adjustment to the percent determined under 
                paragraph (2)(B) for any year.
                  (B) Rule of construction.--Nothing in this 
                subsection shall be construed to limit the 
                authority of the Secretary to make adjustments 
                to the applicable amounts determined under 
                paragraph (1) as appropriate for purposes of 
                updating data or for purposes of adopting an 
                improved risk adjustment methodology.
          (4) Phase-out of the indirect costs of medical 
        education from capitation rates.--
                  (A) In general.--After determining the 
                applicable amount for an area for a year under 
                paragraph (1) (beginning with 2010), the 
                Secretary shall adjust such applicable amount 
                to exclude from such applicable amount the 
                phase-in percentage (as defined in subparagraph 
                (B)(i)) for the year of the Secretary's 
                estimate of the standardized costs for payments 
                under section 1886(d)(5)(B) in the area for the 
                year. Any adjustment under the preceding 
                sentence shall be made prior to the application 
                of paragraph (2).
                  (B) Percentages defined.--For purposes of 
                this paragraph:
                          (i) Phase-in percentage.--The term 
                        ``phase-in percentage'' means, for an 
                        area for a year, the ratio (expressed 
                        as a percentage, but in no case greater 
                        than 100 percent) of--
                                  (I) the maximum cumulative 
                                adjustment percentage for the 
                                year (as defined in clause 
                                (ii)); to
                                  (II) the standardized IME 
                                cost percentage (as defined in 
                                clause (iii)) for the area and 
                                year.
                          (ii) Maximum cumulative adjustment 
                        percentage.--The term ``maximum 
                        cumulative adjustment percentage'' 
                        means, for--
                                  (I) 2010, 0.60 percent; and
                                  (II) a subsequent year, the 
                                maximum cumulative adjustment 
                                percentage for the previous 
                                year increased by 0.60 
                                percentage points.
                          (iii) Standardized ime cost 
                        percentage.--The term ``standardized 
                        IME cost percentage'' means, for an 
                        area for a year, the per capita costs 
                        for payments under section 
                        1886(d)(5)(B) (expressed as a 
                        percentage of the fee-for-service 
                        amount specified in subparagraph (C)) 
                        for the area and the year.
                  (C) Fee-for-service amount.--The fee-for-
                service amount specified in this subparagraph 
                for an area for a year is the amount specified 
                under subsection (c)(1)(D) for the area and the 
                year.
  (l) Application of Eligible Professional Incentives for 
Certain MA Organizations for Adoption and Meaningful Use of 
Certified EHR Technology.--
          (1) In general.--Subject to paragraphs (3) and (4), 
        in the case of a qualifying MA organization, the 
        provisions of sections 1848(o) and 1848(a)(7) shall 
        apply with respect to eligible professionals described 
        in paragraph (2) of the organization who the 
        organization attests under paragraph (6) to be 
        meaningful EHR users in a similar manner as they apply 
        to eligible professionals under such sections. 
        Incentive payments under paragraph (3) shall be made to 
        and payment adjustments under paragraph (4) shall apply 
        to such qualifying organizations.
          (2) Eligible professional described.--With respect to 
        a qualifying MA organization, an eligible professional 
        described in this paragraph is an eligible professional 
        (as defined for purposes of section 1848(o)) who--
                  (A)(i) is employed by the organization; or
                  (ii)(I) is employed by, or is a partner of, 
                an entity that through contract with the 
                organization furnishes at least 80 percent of 
                the entity's Medicare patient care services to 
                enrollees of such organization; and
                  (II) furnishes at least 80 percent of the 
                professional services of the eligible 
                professional covered under this title to 
                enrollees of the organization; and
                  (B) furnishes, on average, at least 20 hours 
                per week of patient care services.
          (3) Eligible professional incentive payments.--
                  (A) In general.--In applying section 1848(o) 
                under paragraph (1), instead of the additional 
                payment amount under section 1848(o)(1)(A) and 
                subject to subparagraph (B), the Secretary may 
                substitute an amount determined by the 
                Secretary to the extent feasible and practical 
                to be similar to the estimated amount in the 
                aggregate that would be payable if payment for 
                services furnished by such professionals was 
                payable under part B instead of this part.
                  (B) Avoiding duplication of payments.--
                          (i) In general.--In the case of an 
                        eligible professional described in 
                        paragraph (2)--
                                  (I) that is eligible for the 
                                maximum incentive payment under 
                                section 1848(o)(1)(A) for the 
                                same payment period, the 
                                payment incentive shall be made 
                                only under such section and not 
                                under this subsection; and
                                  (II) that is eligible for 
                                less than such maximum 
                                incentive payment for the same 
                                payment period, the payment 
                                incentive shall be made only 
                                under this subsection and not 
                                under section 1848(o)(1)(A).
                          (ii) Methods.--In the case of an 
                        eligible professional described in 
                        paragraph (2) who is eligible for an 
                        incentive payment under section 
                        1848(o)(1)(A) but is not described in 
                        clause (i) for the same payment period, 
                        the Secretary shall develop a process--
                                  (I) to ensure that duplicate 
                                payments are not made with 
                                respect to an eligible 
                                professional both under this 
                                subsection and under section 
                                1848(o)(1)(A); and
                                  (II) to collect data from 
                                Medicare Advantage 
                                organizations to ensure against 
                                such duplicate payments.
                  (C) Fixed schedule for application of 
                limitation on incentive payments for all 
                eligible professionals.--In applying section 
                1848(o)(1)(B)(ii) under subparagraph (A), in 
                accordance with rules specified by the 
                Secretary, a qualifying MA organization shall 
                specify a year (not earlier than 2011) that 
                shall be treated as the first payment year for 
                all eligible professionals with respect to such 
                organization.
          (4) Payment adjustment.--
                  (A) In general.--In applying section 
                1848(a)(7) under paragraph (1), instead of the 
                payment adjustment being an applicable percent 
                of the fee schedule amount for a year under 
                such section, subject to subparagraph (D), the 
                payment adjustment under paragraph (1) shall be 
                equal to the percent specified in subparagraph 
                (B) for such year of the payment amount 
                otherwise provided under this section for such 
                year.
                  (B) Specified percent.--The percent specified 
                under this subparagraph for a year is 100 
                percent minus a number of percentage points 
                equal to the product of--
                          (i) the number of percentage points 
                        by which the applicable percent (under 
                        section 1848(a)(7)(A)(ii)) for the year 
                        is less than 100 percent; and
                          (ii) the Medicare physician 
                        expenditure proportion specified in 
                        subparagraph (C) for the year.
                  (C) Medicare physician expenditure 
                proportion.--The Medicare physician expenditure 
                proportion under this subparagraph for a year 
                is the Secretary's estimate of the proportion, 
                of the expenditures under parts A and B that 
                are not attributable to this part, that are 
                attributable to expenditures for physicians' 
                services.
                  (D) Application of payment adjustment.--In 
                the case that a qualifying MA organization 
                attests that not all eligible professionals of 
                the organization are meaningful EHR users with 
                respect to a year, the Secretary shall apply 
                the payment adjustment under this paragraph 
                based on the proportion of all such eligible 
                professionals of the organization that are not 
                meaningful EHR users for such year.
          (5) Qualifying ma organization defined.--In this 
        subsection and subsection (m), the term ``qualifying MA 
        organization'' means a Medicare Advantage organization 
        that is organized as a health maintenance organization 
        (as defined in section 2791(b)(3) of the Public Health 
        Service Act).
          (6) Meaningful ehr user attestation.--For purposes of 
        this subsection and subsection (m), a qualifying MA 
        organization shall submit an attestation, in a form and 
        manner specified by the Secretary which may include the 
        submission of such attestation as part of submission of 
        the initial bid under section 1854(a)(1)(A)(iv), 
        identifying--
                  (A) whether each eligible professional 
                described in paragraph (2), with respect to 
                such organization is a meaningful EHR user (as 
                defined in section 1848(o)(2)) for a year 
                specified by the Secretary; and
                  (B) whether each eligible hospital described 
                in subsection (m)(1), with respect to such 
                organization, is a meaningful EHR user (as 
                defined in section 1886(n)(3)) for an 
                applicable period specified by the Secretary.
          (7) 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, business addresses, and business 
        phone numbers of--
                  (A) each qualifying MA organization receiving 
                an incentive payment under this subsection for 
                eligible professionals of the organization; and
                  (B) the eligible professionals of such 
                organization for which such incentive payment 
                is based.
          (8) Limitation on review.--There shall be no 
        administrative or judicial review under section 1869, 
        section 1878, or otherwise, of--
                  (A) the methodology and standards for 
                determining payment amounts and payment 
                adjustments under this subsection, including 
                avoiding duplication of payments under 
                paragraph (3)(B) and the specification of rules 
                for the fixed schedule for application of 
                limitation on incentive payments for all 
                eligible professionals under paragraph (3)(C);
                  (B) the methodology and standards for 
                determining eligible professionals under 
                paragraph (2); and
                  (C) the methodology and standards for 
                determining a meaningful EHR user under section 
                1848(o)(2), including specification of the 
                means of demonstrating meaningful EHR use under 
                section 1848(o)(3)(C) and selection of measures 
                under section 1848(o)(3)(B).
  (m) Application of Eligible Hospital Incentives for Certain 
MA Organizations for Adoption and Meaningful Use of Certified 
EHR Technology.--
          (1) Application.--Subject to paragraphs (3) and (4), 
        in the case of a qualifying MA organization, the 
        provisions of sections 1886(n) and 1886(b)(3)(B)(ix) 
        shall apply with respect to eligible hospitals 
        described in paragraph (2) of the organization which 
        the organization attests under subsection (l)(6) to be 
        meaningful EHR users in a similar manner as they apply 
        to eligible hospitals under such sections. Incentive 
        payments under paragraph (3) shall be made to and 
        payment adjustments under paragraph (4) shall apply to 
        such qualifying organizations.
          (2) Eligible hospital described.--With respect to a 
        qualifying MA organization, an eligible hospital 
        described in this paragraph is an eligible hospital (as 
        defined in section 1886(n)(6)(A)) that is under common 
        corporate governance with such organization and serves 
        individuals enrolled under an MA plan offered by such 
        organization.
          (3) Eligible hospital incentive payments.--
                  (A) In general.--In applying section 
                1886(n)(2) under paragraph (1), instead of the 
                additional payment amount under section 
                1886(n)(2), there shall be substituted an 
                amount determined by the Secretary to be 
                similar to the estimated amount in the 
                aggregate that would be payable if payment for 
                services furnished by such hospitals was 
                payable under part A instead of this part. In 
                implementing the previous sentence, the 
                Secretary--
                          (i) shall, insofar as data to 
                        determine the discharge related amount 
                        under section 1886(n)(2)(C) for an 
                        eligible hospital are not available to 
                        the Secretary, use such alternative 
                        data and methodology to estimate such 
                        discharge related amount as the 
                        Secretary determines appropriate; and
                          (ii) shall, insofar as data to 
                        determine the medicare share described 
                        in section 1886(n)(2)(D) for an 
                        eligible hospital are not available to 
                        the Secretary, use such alternative 
                        data and methodology to estimate such 
                        share, which data and methodology may 
                        include use of the inpatient-bed-days 
                        (or discharges) with respect to an 
                        eligible hospital during the 
                        appropriate period which are 
                        attributable to both individuals for 
                        whom payment may be made under part A 
                        or individuals enrolled in an MA plan 
                        under a Medicare Advantage organization 
                        under this part as a proportion of the 
                        estimated total number of patient-bed-
                        days (or discharges) with respect to 
                        such hospital during such period.
                  (B) Avoiding duplication of payments.--
                          (i) In general.--In the case of a 
                        hospital that for a payment year is an 
                        eligible hospital described in 
                        paragraph (2) and for which at least 
                        one-third of their discharges (or bed-
                        days) of Medicare patients for the year 
                        are covered under part A, payment for 
                        the payment year shall be made only 
                        under section 1886(n) and not under 
                        this subsection.
                          (ii) Methods.--In the case of a 
                        hospital that is an eligible hospital 
                        described in paragraph (2) and also is 
                        eligible for an incentive payment under 
                        section 1886(n) but is not described in 
                        clause (i) for the same payment period, 
                        the Secretary shall develop a process--
                                  (I) to ensure that duplicate 
                                payments are not made with 
                                respect to an eligible hospital 
                                both under this subsection and 
                                under section 1886(n); and
                                  (II) to collect data from 
                                Medicare Advantage 
                                organizations to ensure against 
                                such duplicate payments.
          (4) Payment adjustment.--
                  (A) Subject to paragraph (3), in the case of 
                a qualifying MA organization (as defined in 
                section 1853(l)(5)), if, according to the 
                attestation of the organization submitted under 
                subsection (l)(6) for an applicable period, one 
                or more eligible hospitals (as defined in 
                section 1886(n)(6)(A)) that are under common 
                corporate governance with such organization and 
                that serve individuals enrolled under a plan 
                offered by such organization are not meaningful 
                EHR users (as defined in section 1886(n)(3)) 
                with respect to a period, the payment amount 
                payable under this section for such 
                organization for such period shall be the 
                percent specified in subparagraph (B) for such 
                period of the payment amount otherwise provided 
                under this section for such period.
                  (B) Specified percent.--The percent specified 
                under this subparagraph for a year is 100 
                percent minus a number of percentage points 
                equal to the product of--
                          (i) the number of the percentage 
                        point reduction effected under section 
                        1886(b)(3)(B)(ix)(I) for the period; 
                        and
                          (ii) the Medicare hospital 
                        expenditure proportion specified in 
                        subparagraph (C) for the year.
                  (C) Medicare hospital expenditure 
                proportion.--The Medicare hospital expenditure 
                proportion under this subparagraph for a year 
                is the Secretary's estimate of the proportion, 
                of the expenditures under parts A and B that 
                are not attributable to this part, that are 
                attributable to expenditures for inpatient 
                hospital services.
                  (D) Application of payment adjustment.--In 
                the case that a qualifying MA organization 
                attests that not all eligible hospitals are 
                meaningful EHR users with respect to an 
                applicable period, the Secretary shall apply 
                the payment adjustment under this paragraph 
                based on a methodology specified by the 
                Secretary, taking into account the proportion 
                of such eligible hospitals, or discharges from 
                such hospitals, that are not meaningful EHR 
                users for such period.
          (5) Posting on website.--The Secretary shall post on 
        the Internet website of the Centers for Medicare & 
        Medicaid Services, in an easily understandable format--
                  (A) a list of the names, business addresses, 
                and business phone numbers of each qualifying 
                MA organization receiving an incentive payment 
                under this subsection for eligible hospitals 
                described in paragraph (2); and
                  (B) a list of the names of the eligible 
                hospitals for which such incentive payment is 
                based.
          (6) Limitations on review.--There shall be no 
        administrative or judicial review under section 1869, 
        section 1878, or otherwise, of--
                  (A) the methodology and standards for 
                determining payment amounts and payment 
                adjustments under this subsection, including 
                avoiding duplication of payments under 
                paragraph (3)(B);
                  (B) the methodology and standards for 
                determining eligible hospitals under paragraph 
                (2); and
                  (C) the methodology and standards for 
                determining a meaningful EHR user under section 
                1886(n)(3), including specification of the 
                means of demonstrating meaningful EHR use under 
                subparagraph (C) of such section and selection 
                of measures under subparagraph (B) of such 
                section.
  (n) Determination of Blended Benchmark Amount.--
          (1) In general.--For purposes of subsection (j), 
        subject to paragraphs (3), (4), and (5), the term 
        ``blended benchmark amount'' means for an area--
                  (A) for 2012 the sum of--
                          (i) \1/2\ of the applicable amount 
                        for the area and year; and
                          (ii) \1/2\ of the amount specified in 
                        paragraph (2)(A) for the area and year; 
                        and
                  (B) for a subsequent year the amount 
                specified in paragraph (2)(A) for the area and 
                year.
          (2) Specified amount.--
                  (A) In general.--The amount specified in this 
                subparagraph for an area and year is the 
                product of--
                          (i) the base payment amount specified 
                        in subparagraph (E) for the area and 
                        year adjusted to take into account the 
                        phase-out in the indirect costs of 
                        medical education from capitation rates 
                        described in subsection (k)(4); and
                          (ii) the applicable percentage for 
                        the area for the year specified under 
                        subparagraph (B).
                  (B) Applicable percentage.--Subject to 
                subparagraph (D), the applicable percentage 
                specified in this subparagraph for an area for 
                a year in the case of an area that is ranked--
                          (i) in the highest quartile under 
                        subparagraph (C) for the previous year 
                        is 95 percent;
                          (ii) in the second highest quartile 
                        under such subparagraph for the 
                        previous year is 100 percent;
                          (iii) in the third highest quartile 
                        under such subparagraph for the 
                        previous year is 107.5 percent; or
                          (iv) in the lowest quartile under 
                        such subparagraph for the previous year 
                        is 115 percent.
                  (C) Periodic ranking.--For purposes of this 
                paragraph in the case of an area located--
                          (i) in 1 of the 50 States or the 
                        District of Columbia, the Secretary 
                        shall rank such area in each year 
                        specified under subsection 
                        (c)(1)(D)(ii) based upon the level of 
                        the amount specified in subparagraph 
                        (A)(i) for such areas; or
                          (ii) in a territory, the Secretary 
                        shall rank such areas in each such year 
                        based upon the level of the amount 
                        specified in subparagraph (A)(i) for 
                        such area relative to quartile rankings 
                        computed under clause (i).
                  (D) 1-year transition for changes in 
                applicable percentage.--If, for a year after 
                2012, there is a change in the quartile in 
                which an area is ranked compared to the 
                previous year, the applicable percentage for 
                the area in the year shall be the average of--
                          (i) the applicable percentage for the 
                        area for the previous year; and
                          (ii) the applicable percentage that 
                        would otherwise apply for the area for 
                        the year.
                  (E) Base payment amount.--Subject to 
                subparagraph (F), the base payment amount 
                specified in this subparagraph--
                          (i) for 2012 is the amount specified 
                        in subsection (c)(1)(D) for the area 
                        for the year; or
                          (ii) for a subsequent year that--
                                  (I) is not specified under 
                                subsection (c)(1)(D)(ii), is 
                                the base amount specified in 
                                this subparagraph for the area 
                                for the previous year, 
                                increased by the national per 
                                capita MA growth percentage, 
                                described in subsection (c)(6) 
                                for that succeeding year, but 
                                not taking into account any 
                                adjustment under subparagraph 
                                (C) of such subsection for a 
                                year before 2004; and
                                  (II) is specified under 
                                subsection (c)(1)(D)(ii), is 
                                the amount specified in 
                                subsection (c)(1)(D) for the 
                                area for the year.
                  (F) Application of indirect medical education 
                phase-out.--The base payment amount specified 
                in subparagraph (E) for a year shall be 
                adjusted in the same manner under paragraph (4) 
                of subsection (k) as the applicable amount is 
                adjusted under such subsection.
          (3) Alternative phase-ins.--
                  (A) 4-year phase-in for certain areas.--If 
                the difference between the applicable amount 
                (as defined in subsection (k)) for an area for 
                2010 and the projected 2010 benchmark amount 
                (as defined in subparagraph (C)) for the area 
                is at least $30 but less than $50, the blended 
                benchmark amount for the area is--
                          (i) for 2012 the sum of--
                                  (I) \3/4\ of the applicable 
                                amount for the area and year; 
                                and
                                  (II) \1/4\ of the amount 
                                specified in paragraph (2)(A) 
                                for the area and year;
                          (ii) for 2013 the sum of--
                                  (I) \1/2\ of the applicable 
                                amount for the area and year; 
                                and
                                  (II) \1/2\ of the amount 
                                specified in paragraph (2)(A) 
                                for the area and year;
                          (iii) for 2014 the sum of--
                                  (I) \1/4\ of the applicable 
                                amount for the area and year; 
                                and
                                  (II) \3/4\ of the amount 
                                specified in paragraph (2)(A) 
                                for the area and year; and
                          (iv) for a subsequent year the amount 
                        specified in paragraph (2)(A) for the 
                        area and year.
                  (B) 6-year phase-in for certain areas.--If 
                the difference between the applicable amount 
                (as defined in subsection (k)) for an area for 
                2010 and the projected 2010 benchmark amount 
                (as defined in subparagraph (C)) for the area 
                is at least $50, the blended benchmark amount 
                for the area is--
                          (i) for 2012 the sum of--
                                  (I) \5/6\ of the applicable 
                                amount for the area and year; 
                                and
                                  (II) \1/6\ of the amount 
                                specified in paragraph (2)(A) 
                                for the area and year;
                          (ii) for 2013 the sum of--
                                  (I) \2/3\ of the applicable 
                                amount for the area and year; 
                                and
                                  (II) \1/3\ of the amount 
                                specified in paragraph (2)(A) 
                                for the area and year;
                          (iii) for 2014 the sum of--
                                  (I) \1/2\ of the applicable 
                                amount for the area and year; 
                                and
                                  (II) \1/2\ of the amount 
                                specified in paragraph (2)(A) 
                                for the area and year;
                          (iv) for 2015 the sum of--
                                  (I) \1/3\ of the applicable 
                                amount for the area and year; 
                                and
                                  (II) \2/3\ of the amount 
                                specified in paragraph (2)(A) 
                                for the area and year; and
                          (v) for 2016 the sum of--
                                  (I) \1/6\ of the applicable 
                                amount for the area and year; 
                                and
                                  (II) \5/6\ of the amount 
                                specified in paragraph (2)(A) 
                                for the area and year; and
                          (vi) for a subsequent year the amount 
                        specified in paragraph (2)(A) for the 
                        area and year.
                  (C) Projected 2010 benchmark amount.--The 
                projected 2010 benchmark amount described in 
                this subparagraph for an area is equal to the 
                sum of--
                          (i) \1/2\ of the applicable amount 
                        (as defined in subsection (k)) for the 
                        area for 2010; and
                          (ii) \1/2\ of the amount specified in 
                        paragraph (2)(A) for the area for 2010 
                        but determined as if there were 
                        substituted for the applicable 
                        percentage specified in clause (ii) of 
                        such paragraph the sum of--
                                  (I) the applicable percent 
                                that would be specified under 
                                subparagraph (B) of paragraph 
                                (2) (determined without regard 
                                to subparagraph (D) of such 
                                paragraph) for the area for 
                                2010 if any reference in such 
                                paragraph to ``the previous 
                                year'' were deemed a reference 
                                to 2010; and
                                  (II) the applicable 
                                percentage increase that would 
                                apply to a qualifying plan in 
                                the area under subsection (o) 
                                as if any reference in such 
                                subsection to 2012 were deemed 
                                a reference to 2010 and as if 
                                the determination of a 
                                qualifying county under 
                                paragraph (3)(B) of such 
                                subsection were made for 2010.
          (4) Cap on benchmark amount.--In no case shall the 
        blended benchmark amount for an area for a year 
        (determined taking into account subsection (o)) be 
        greater than the applicable amount that would (but for 
        the application of this subsection) be determined under 
        subsection (k)(1) for the area for the year.
          (5) Non-application to pace plans.--This subsection 
        shall not apply to payments to a PACE program under 
        section 1894.
  (o) Applicable Percentage Quality Increases.--
          (1) In general.--Subject to the succeeding 
        paragraphs, in the case of a qualifying plan with 
        respect to a year beginning with 2012, the applicable 
        percentage under subsection (n)(2)(B) shall be 
        increased on a plan or contract level, as determined by 
        the Secretary--
                  (A) for 2012, by 1.5 percentage points;
                  (B) for 2013, by 3.0 percentage points; and
                  (C) for 2014 or a subsequent year, by 5.0 
                percentage points.
          (2) Increase for qualifying plans in qualifying 
        counties.--The increase applied under paragraph (1) for 
        a qualifying plan located in a qualifying county for a 
        year shall be doubled.
          (3) Qualifying plans and qualifying county defined; 
        application of increases to low enrollment and new 
        plans.--For purposes of this subsection:
                  (A) Qualifying plan.--
                          (i) In general.--The term 
                        ``qualifying plan'' means, for a year 
                        and subject to paragraph (4), a plan 
                        that had a quality rating under 
                        paragraph (4) of 4 stars or higher 
                        based on the most recent data available 
                        for such year.
                          (ii) Application of increases to low 
                        enrollment plans.--
                                  (I) 2012.--For 2012, the term 
                                ``qualifying plan'' includes an 
                                MA plan that the Secretary 
                                determines is not able to have 
                                a quality rating under 
                                paragraph (4) because of low 
                                enrollment.
                                  (II) 2013 and subsequent 
                                years.--For 2013 and subsequent 
                                years, for purposes of 
                                determining whether an MA plan 
                                with low enrollment (as defined 
                                by the Secretary) is included 
                                as a qualifying plan, the 
                                Secretary shall establish a 
                                method to apply to MA plans 
                                with low enrollment (as defined 
                                by the Secretary) the 
                                computation of quality rating 
                                and the rating system under 
                                paragraph (4).
                          (iii) Application of increases to new 
                        plans.--
                                  (I) In general.--A new MA 
                                plan that meets criteria 
                                specified by the Secretary 
                                shall be treated as a 
                                qualifying plan, except that in 
                                applying paragraph (1), the 
                                applicable percentage under 
                                subsection (n)(2)(B) shall be 
                                increased--
                                          (aa) for 2012, by 1.5 
                                        percentage points;
                                          (bb) for 2013, by 2.5 
                                        percentage points; and
                                          (cc) for 2014 or a 
                                        subsequent year, by 3.5 
                                        percentage points.
                                  (II) New ma plan defined.--
                                The term ``new MA plan'' means, 
                                with respect to a year, a plan 
                                offered by an organization or 
                                sponsor that has not had a 
                                contract as a Medicare 
                                Advantage organization in the 
                                preceding 3-year period.
                  (B) Qualifying county.--The term ``qualifying 
                county'' means, for a year, a county--
                          (i) that has an MA capitation rate 
                        that, in 2004, was based on the amount 
                        specified in subsection (c)(1)(B) for a 
                        Metropolitan Statistical Area with a 
                        population of more than 250,000;
                          (ii) for which, as of December 2009, 
                        of the Medicare Advantage eligible 
                        individuals residing in the county at 
                        least 25 percent of such individuals 
                        were enrolled in Medicare Advantage 
                        plans; and
                          (iii) that has per capita fee-for-
                        service spending that is lower than the 
                        national monthly per capita cost for 
                        expenditures for individuals enrolled 
                        under the original medicare fee-for-
                        service program for the year.
          (4) Quality determinations for application of 
        increase.--
                  (A) Quality determination.--The quality 
                rating for a plan shall be determined according 
                to a 5-star rating system (based on the data 
                collected under section 1852(e)).
                  (B) Plans that failed to report.--An MA plan 
                which does not report data that enables the 
                Secretary to rate the plan for purposes of this 
                paragraph shall be counted as having a rating 
                of fewer than 3.5 stars.
                  (C) Special rule for first 3 plan years for 
                plans that were converted from a reasonable 
                cost reimbursement contract.--For purposes of 
                applying paragraph (1) and section 
                1854(b)(1)(C) for the first 3 plan years under 
                this part in the case of an MA plan to which 
                deemed enrollment applies under section 
                1851(c)(4)--
                          (i) such plan shall not be treated as 
                        a new MA plan (as defined in paragraph 
                        (3)(A)(iii)(II)); and
                          (ii) in determining the star rating 
                        of the plan under subparagraph (A), to 
                        the extent that Medicare Advantage data 
                        for such plan is not available for a 
                        measure used to determine such star 
                        rating, the Secretary shall use data 
                        from the period in which such plan was 
                        a reasonable cost reimbursement 
                        contract.
          (5) Exception for pace plans.--This subsection shall 
        not apply to payments to a PACE program under section 
        1894.

           *       *       *       *       *       *       *


      B. Changes in Existing Law Proposed 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 italic, 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)(1)(B) 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 italic, 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

           *       *       *       *       *       *       *



               payments to medicare+choice organizations

  Sec. 1853. (a) Payments to Organizations.--
          (1) Monthly payments.--
                  (A) In general.--Under a contract under 
                section 1857 and subject to subsections (e), 
                (g), (i), and (l) and section 1859(e)(4), the 
                Secretary shall make monthly payments under 
                this section in advance to each Medicare+Choice 
                organization, with respect to coverage of an 
                individual under this part in a Medicare+Choice 
                payment area for a month, in an amount 
                determined as follows:
                          (i) Payment before 2006.--For years 
                        before 2006, the payment amount shall 
                        be equal to \1/12\ of the annual MA 
                        capitation rate (as calculated under 
                        subsection (c)(1)) with respect to that 
                        individual for that area, adjusted 
                        under subparagraph (C) and reduced by 
                        the amount of any reduction elected 
                        under section 1854(f)(1)(E).
                          (ii) Payment for original fee-for-
                        service benefits beginning with 2006.--
                        For years beginning with 2006, the 
                        amount specified in subparagraph (B).
                  (B) Payment amount for original fee-for-
                service benefits beginning with 2006.--
                          (i) Payment of bid for plans with 
                        bids below benchmark.--In the case of a 
                        plan for which there are average per 
                        capita monthly savings described in 
                        section 1854(b)(3)(C) or 1854(b)(4)(C), 
                        as the case may be, the amount 
                        specified in this subparagraph is equal 
                        to the unadjusted MA statutory non-drug 
                        monthly bid amount, adjusted under 
                        subparagraph (C) and (if applicable) 
                        under subparagraphs (F) and (G), plus 
                        the amount (if any) of any rebate under 
                        subparagraph (E).
                          (ii) Payment of benchmark for plans 
                        with bids at or above benchmark.--In 
                        the case of a plan for which there are 
                        no average per capita monthly savings 
                        described in section 1854(b)(3)(C) or 
                        1854(b)(4)(C), as the case may be, the 
                        amount specified in this subparagraph 
                        is equal to the MA area-specific non-
                        drug monthly benchmark amount, adjusted 
                        under subparagraph (C) and (if 
                        applicable) under subparagraphs (F) and 
                        (G).
                          (iii) Payment of benchmark for msa 
                        plans.--Notwithstanding clauses (i) and 
                        (ii), in the case of an MSA plan, the 
                        amount specified in this subparagraph 
                        is equal to the MA area-specific non-
                        drug monthly benchmark amount, adjusted 
                        under subparagraph (C).
                          (iv) Authority to apply frailty 
                        adjustment under pace payment rules for 
                        certain specialized ma plans for 
                        special needs individuals.--
                                  (I) In general.--
                                Notwithstanding the preceding 
                                provisions of this paragraph, 
                                for plan year 2011 and 
                                subsequent plan years, in the 
                                case of a plan described in 
                                subclause (II), the Secretary 
                                may apply the payment rules 
                                under section 1894(d) (other 
                                than paragraph (3) of such 
                                section) rather than the 
                                payment rules that would 
                                otherwise apply under this 
                                part, but only to the extent 
                                necessary to reflect the costs 
                                of treating high concentrations 
                                of frail individuals.
                                  (II) Plan described.--A plan 
                                described in this subclause is 
                                a specialized MA plan for 
                                special needs individuals 
                                described in section 
                                1859(b)(6)(B)(ii) that is fully 
                                integrated with capitated 
                                contracts with States for 
                                Medicaid benefits, including 
                                long-term care, and that have 
                                similar average levels of 
                                frailty (as determined by the 
                                Secretary) as the PACE program.
                  (C) Demographic adjustment, including 
                adjustment for health status.--
                          (i) In general.--The Secretary shall 
                        adjust the payment amount under 
                        subparagraph (A)(i) and the amount 
                        specified under subparagraph (B)(i), 
                        (B)(ii), and (B)(iii) for such risk 
                        factors as age, disability status, 
                        gender, institutional status, and such 
                        other factors as the Secretary 
                        determines to be appropriate, including 
                        adjustment for health status under 
                        paragraph (3), so as to ensure 
                        actuarial equivalence. The Secretary 
                        may add to, modify, or substitute for 
                        such adjustment factors if such changes 
                        will improve the determination of 
                        actuarial equivalence.
                          (ii) Application of coding 
                        adjustment.--For 2006 and each 
                        subsequent year:
                                  (I) In applying the 
                                adjustment under clause (i) for 
                                health status to payment 
                                amounts, the Secretary shall 
                                ensure that such adjustment 
                                reflects changes in treatment 
                                and coding practices in the 
                                fee-for-service sector and 
                                reflects differences in coding 
                                patterns between Medicare 
                                Advantage plans and providers 
                                under part A and B to the 
                                extent that the Secretary has 
                                identified such differences.
                                  (II) In order to ensure 
                                payment accuracy, the Secretary 
                                shall annually conduct an 
                                analysis of the differences 
                                described in subclause (I). The 
                                Secretary shall complete such 
                                analysis by a date necessary to 
                                ensure that the results of such 
                                analysis are incorporated on a 
                                timely basis into the risk 
                                scores for 2008 and subsequent 
                                years. In conducting such 
                                analysis, the Secretary shall 
                                use data submitted with respect 
                                to 2004 and subsequent years, 
                                as available and updated as 
                                appropriate.
                                  (III) In calculating each 
                                year's adjustment, the 
                                adjustment factor shall be for 
                                2014, not less than the 
                                adjustment factor applied for 
                                2010, plus 1.5 percentage 
                                points; for each of years 2015 
                                through 2018, not less than the 
                                adjustment factor applied for 
                                the previous year, plus 0.25 
                                percentage point; and for 2019 
                                and each subsequent year, not 
                                less than 5.9 percent.
                                  (IV) Such adjustment shall be 
                                applied to risk scores until 
                                the Secretary implements risk 
                                adjustment using Medicare 
                                Advantage diagnostic, cost, and 
                                use data.
                          (iii) Improvements to risk adjustment 
                        for special needs individuals with 
                        chronic health conditions.--
                                  (I) In general.--For 2011 and 
                                subsequent years, for purposes 
                                of the adjustment under clause 
                                (i) with respect to individuals 
                                described in subclause (II), 
                                the Secretary shall use a risk 
                                score that reflects the known 
                                underlying risk profile and 
                                chronic health status of 
                                similar individuals. Such risk 
                                score shall be used instead of 
                                the default risk score for new 
                                enrollees in Medicare Advantage 
                                plans that are not specialized 
                                MA plans for special needs 
                                individuals (as defined in 
                                section 1859(b)(6)).
                                  (II) Individuals described.--
                                An individual described in this 
                                subclause is a special needs 
                                individual described in 
                                subsection (b)(6)(B)(iii) who 
                                enrolls in a specialized MA 
                                plan for special needs 
                                individuals on or after January 
                                1, 2011.
                                  (III) Evaluation.--For 2011 
                                and periodically thereafter, 
                                the Secretary shall evaluate 
                                and revise the risk adjustment 
                                system under this subparagraph 
                                in order to, as accurately as 
                                possible, account for higher 
                                medical and care coordination 
                                costs associated with frailty, 
                                individuals with multiple, 
                                comorbid chronic conditions, 
                                and individuals with a 
                                diagnosis of mental illness, 
                                and also to account for costs 
                                that may be associated with 
                                higher concentrations of 
                                beneficiaries with those 
                                conditions.
                                  (IV) Publication of 
                                evaluation and revisions.--The 
                                Secretary shall publish, as 
                                part of an announcement under 
                                subsection (b), a description 
                                of any evaluation conducted 
                                under subclause (III) during 
                                the preceding year and any 
                                revisions made under such 
                                subclause as a result of such 
                                evaluation.
                  (D) Separate payment for federal drug 
                subsidies.--In the case of an enrollee in an 
                MA-PD plan, the MA organization offering such 
                plan also receives--
                          (i) subsidies under section 1860D-15 
                        (other than under subsection (g)); and
                          (ii) reimbursement for premium and 
                        cost-sharing reductions for low-income 
                        individuals under section 1860D-
                        14(c)(1)(C).
                  (E) Payment of rebate for plans with bids 
                below benchmark.--In the case of a plan for 
                which there are average per capita monthly 
                savings described in section 1854(b)(3)(C) or 
                1854(b)(4)(C), as the case may be, the amount 
                specified in this subparagraph is the amount of 
                the monthly rebate computed under section 
                1854(b)(1)(C)(i) for that plan and year (as 
                reduced by the amount of any credit provided 
                under section 1854(b)(1)(C)(iv)).
                  (F) Adjustment for intra-area variations.--
                          (i) Intra-regional variations.--In 
                        the case of payment with respect to an 
                        MA regional plan for an MA region, the 
                        Secretary shall also adjust the amounts 
                        specified under subparagraphs (B)(i) 
                        and (B)(ii) in a manner to take into 
                        account variations in MA local payment 
                        rates under this part among the 
                        different MA local areas included in 
                        such region.
                          (ii) Intra-service area variations.--
                        In the case of payment with respect to 
                        an MA local plan for a service area 
                        that covers more than one MA local 
                        area, the Secretary shall also adjust 
                        the amounts specified under 
                        subparagraphs (B)(i) and (B)(ii) in a 
                        manner to take into account variations 
                        in MA local payment rates under this 
                        part among the different MA local areas 
                        included in such service area.
                  (G) Adjustment relating to risk adjustment.--
                The Secretary shall adjust payments with 
                respect to MA plans as necessary to ensure 
                that--
                          (i) the sum of--
                                  (I) the monthly payment made 
                                under subparagraph (A)(ii); and
                                  (II) the MA monthly basic 
                                beneficiary premium under 
                                section 1854(b)(2)(A); equals
                          (ii) the unadjusted MA statutory non-
                        drug monthly bid amount, adjusted in 
                        the manner described in subparagraph 
                        (C) and, for an MA regional plan, 
                        subparagraph (F).
                  (H) Special rule for end-stage renal 
                disease.--The Secretary shall establish 
                separate rates of payment to a Medicare+Choice 
                organization with respect to classes of 
                individuals determined to have end-stage renal 
                disease and enrolled in a Medicare+Choice plan 
                of the organization. Such rates of payment 
                shall be actuarially equivalent to rates that 
                would have been paid with respect to other 
                enrollees in the MA payment area (or such other 
                area as specified by the Secretary) under the 
                provisions of this section as in effect before 
                the date of the enactment of the Medicare 
                Prescription Drug, Improvement, and 
                Modernization Act of 2003. In accordance with 
                regulations, the Secretary shall provide for 
                the application of the seventh sentence of 
                section 1881(b)(7) to payments under this 
                section covering the provision of renal 
                dialysis treatment in the same manner as such 
                sentence applies to composite rate payments 
                described in such sentence. In establishing 
                such rates, the Secretary shall provide for 
                appropriate adjustments to increase each rate 
                to reflect the demonstration rate (including 
                the risk adjustment methodology associated with 
                such rate) of the social health maintenance 
                organization end-stage renal disease capitation 
                demonstrations (established by section 2355 of 
                the Deficit Reduction Act of 1984, as amended 
                by section 13567(b) of the Omnibus Budget 
                Reconciliation Act of 1993), and shall compute 
                such rates by taking into account such factors 
                as renal treatment modality, age, and the 
                underlying cause of the end-stage renal 
                disease. The Secretary may apply the 
                competitive bidding methodology provided for in 
                this section, with appropriate adjustments to 
                account for the risk adjustment methodology 
                applied to end stage renal disease payments.
          (2) Adjustment to reflect number of enrollees.--
                  (A) In general.--The amount of payment under 
                this subsection may be retroactively adjusted 
                to take into account any difference between the 
                actual number of individuals enrolled with an 
                organization under this part and the number of 
                such individuals estimated to be so enrolled in 
                determining the amount of the advance payment.
                  (B) Special rule for certain enrollees.--
                          (i) In general.--Subject to clause 
                        (ii), the Secretary may make 
                        retroactive adjustments under 
                        subparagraph (A) to take into account 
                        individuals enrolled during the period 
                        beginning on the date on which the 
                        individual enrolls with a 
                        Medicare+Choice organization under a 
                        plan operated, sponsored, or 
                        contributed to by the individual's 
                        employer or former employer (or the 
                        employer or former employer of the 
                        individual's spouse) and ending on the 
                        date on which the individual is 
                        enrolled in the organization under this 
                        part, except that for purposes of 
                        making such retroactive adjustments 
                        under this subparagraph, such period 
                        may not exceed 90 days.
                          (ii) Exception.--No adjustment may be 
                        made under clause (i) with respect to 
                        any individual who does not certify 
                        that the organization provided the 
                        individual with the disclosure 
                        statement described in section 1852(c) 
                        at the time the individual enrolled 
                        with the organization.
          (3) Establishment of risk adjustment factors.--
                  (A) Report.--The Secretary shall develop, and 
                submit to Congress by not later than March 1, 
                1999, a report on the method of risk adjustment 
                of payment rates under this section, to be 
                implemented under subparagraph (C), that 
                accounts for variations in per capita costs 
                based on health status. Such report shall 
                include an evaluation of such method by an 
                outside, independent actuary of the actuarial 
                soundness of the proposal.
                  (B) Data collection.--In order to carry out 
                this paragraph, the Secretary shall require 
                Medicare+Choice organizations (and eligible 
                organizations with risk-sharing contracts under 
                section 1876) to submit data regarding 
                inpatient hospital services for periods 
                beginning on or after July 1, 1997, and data 
                regarding other services and other information 
                as the Secretary deems necessary for periods 
                beginning on or after July 1, 1998. The 
                Secretary may not require an organization to 
                submit such data before January 1, 1998.
                  (C) Initial implementation.--
                          (i) In general.--The Secretary shall 
                        first provide for implementation of a 
                        risk adjustment methodology that 
                        accounts for variations in per capita 
                        costs based on health status and other 
                        demographic factors for payments by no 
                        later than January 1, 2000.
                          (ii) Phase-in.--Except as provided in 
                        clause (iv), such risk adjustment 
                        methodology shall be implemented in a 
                        phased-in manner so that the 
                        methodology insofar as it makes 
                        adjustments to capitation rates for 
                        health status applies to--
                                  (I) 10 percent of \1/12\ of 
                                the annual Medicare+Choice 
                                capitation rate in 2000 and 
                                each succeeding year through 
                                2003;
                                  (II) 30 percent of such 
                                capitation rate in 2004;
                                  (III) 50 percent of such 
                                capitation rate in 2005;
                                  (IV) 75 percent of such 
                                capitation rate in 2006; and
                                  (V) 100 percent of such 
                                capitation rate in 2007 and 
                                succeeding years.
                          (iii) Data for risk adjustment 
                        methodology.--Such risk adjustment 
                        methodology for 2004 and each 
                        succeeding year, shall be based on data 
                        from inpatient hospital and ambulatory 
                        settings.
                          (iv) Full implementation of risk 
                        adjustment for congestive heart failure 
                        enrollees for 2001.--
                                  (I) Exemption from phase-
                                in.--Subject to subclause (II), 
                                the Secretary shall fully 
                                implement the risk adjustment 
                                methodology described in clause 
                                (i) with respect to each 
                                individual who has had a 
                                qualifying congestive heart 
                                failure inpatient diagnosis (as 
                                determined by the Secretary 
                                under such risk adjustment 
                                methodology) during the period 
                                beginning on July 1, 1999, and 
                                ending on June 30, 2000, and 
                                who is enrolled in a 
                                coordinated care plan that is 
                                the only coordinated care plan 
                                offered on January 1, 2001, in 
                                the service area of the 
                                individual.
                                  (II) Period of application.--
                                Subclause (I) shall only apply 
                                during the 1-year period 
                                beginning on January 1, 2001.
                  (D) Uniform application to all types of 
                plans.--Subject to section 1859(e)(4), the 
                methodology shall be applied uniformly without 
                regard to the type of plan.
  (4) Payment rule for federally qualified health center 
services.--If an individual who is enrolled with an MA plan 
under this part receives a service from a federally qualified 
health center that has a written agreement with the MA 
organization that offers such plan for providing such a service 
(including any agreement required under section 1857(e)(3))--
          (A) the Secretary shall pay the amount determined 
        under section 1833(a)(3)(B) directly to the federally 
        qualified health center not less frequently than 
        quarterly; and
          (B) the Secretary shall not reduce the amount of the 
        monthly payments under this subsection as a result of 
        the application of subparagraph (A).
  (b) Annual Announcement of Payment Rates, Annual Rulemaking 
Schedule for Payment Rates for 2017 and Subsequent Years.--
          (1) Annual announcements.--
                  (A) For 2005.--The Secretary shall determine, 
                and shall announce (in a manner intended to 
                provide notice to interested parties), not 
                later than the second Monday in May of 2004, 
                with respect to each MA payment area, the 
                following:
                          (i) MA capitation rates.--The annual 
                        MA capitation rate for each MA payment 
                        area for 2005.
                          (ii) Adjustment factors.--The risk 
                        and other factors to be used in 
                        adjusting such rates under subsection 
                        (a)(1)(C) for payments for months in 
                        2005.
                  (B) For 2006 and subsequent years  before 
                2017.--For a year after 2005 and before 2017--
                          (i) Initial announcement.--The 
                        Secretary shall determine, and shall 
                        announce (in a manner intended to 
                        provide notice to interested parties), 
                        not later than the first Monday in 
                        April before the calendar year 
                        concerned, with respect to each MA 
                        payment area, the following:
                                  (I) MA capitation rates; ma 
                                local area benchmark.--The 
                                annual MA capitation rate for 
                                each MA payment area for the 
                                year.
                                  (II) Adjustment factors.--The 
                                risk and other factors to be 
                                used in adjusting such rates 
                                under subsection (a)(1)(C) for 
                                payments for months in such 
                                year.
                          (ii) Regional benchmark 
                        announcement.--The Secretary shall 
                        determine, and shall announce (in a 
                        manner intended to provide notice to 
                        interested parties), on a timely basis 
                        before the calendar year concerned, 
                        with respect to each MA region and each 
                        MA regional plan for which a bid was 
                        submitted under section 1854, the MA 
                        region-specific non-drug monthly 
                        benchmark amount for that region for 
                        the year involved.
                          (iii) Benchmark announcement for cca 
                        local areas.--The Secretary shall 
                        determine, and shall announce (in a 
                        manner intended to provide notice to 
                        interested parties), on a timely basis 
                        before the calendar year concerned, 
                        with respect to each CCA area (as 
                        defined in section 1860C-1(b)(1)(A)), 
                        the CCA non-drug monthly benchmark 
                        amount under section 1860C-1(e)(1) for 
                        that area for the year involved.
                  (C) Annual rulemaking schedule for payment 
                rates for 2017 and subsequent years.--For 2017 
                and each subsequent year, before April 1 of the 
                preceding year, the Secretary shall, by 
                regulation and in accordance with the notice 
                and public comment periods required under 
                paragraph (2) for such a year, annually 
                determine and announce the following:
                          (i) The annual MA capitation rate for 
                        each MA payment area for such year.
                          (ii) The risk and other factors to be 
                        used in adjusting such rates under 
                        subsection (a)(1)(A) for payments for 
                        months in such year.
                          (iii) With respect to each MA region 
                        and each MA regional plan for which a 
                        bid was submitted under section 1854, 
                        the MA region-specific non-drug monthly 
                        benchmark amount for that region for 
                        the year involved.
                          (iv) The major policy changes to the 
                        risk adjustment model, and the 5-star 
                        rating system established under 
                        subsection (o), that are determined to 
                        have an economic impact.
          (2) Advance notice of methodological changes.--At 
        least 45 days (or, for 2017 and each subsequent year, 
        at least 60 days) before making the announcement under 
        paragraph (1) for a year, the Secretary shall provide 
        for notice to Medicare+Choice organizations of proposed 
        changes to be made in the methodology from the 
        methodology and assumptions used in the previous 
        announcement and shall provide such organizations an 
        opportunity (for 2017 and each subsequent year, of no 
        less than 30 days) to comment on such proposed changes.
          (3) Explanation of assumptions.--In each announcement 
        made under paragraph (1), the Secretary shall include 
        an explanation of the assumptions and changes in 
        methodology used in such announcement.
          (4) Continued computation and publication of county-
        specific per capita fee-for-service expenditure 
        information.--The Secretary, through the Chief Actuary 
        of the Centers for Medicare & Medicaid Services, shall 
        provide for the computation and publication, on an 
        annual basis beginning with 2001 at the time of 
        publication of the annual Medicare+Choice capitation 
        rates under paragraph (1), of the following information 
        for the original medicare fee-for-service program under 
        parts A and B (exclusive of individuals eligible for 
        coverage under section 226A) for each Medicare+Choice 
        payment area for the second calendar year ending before 
        the date of publication:
                  (A) Total expenditures per capita per month, 
                computed separately for part A and for part B.
                  (B) The expenditures described in 
                subparagraph (A) reduced by the best estimate 
                of the expenditures (such as graduate medical 
                education and disproportionate share hospital 
                payments) not related to the payment of claims.
                  (C) The average risk factor for the covered 
                population based on diagnoses reported for 
                medicare inpatient services, using the same 
                methodology as is expected to be applied in 
                making payments under subsection (a).
                  (D) Such average risk factor based on 
                diagnoses for inpatient and other sites of 
                service, using the same methodology as is 
                expected to be applied in making payments under 
                subsection (a).
  (c) Calculation of Annual Medicare+Choice Capitation Rates.--
          (1) In general.--For purposes of this part, subject 
        to paragraphs (6)(C) and (7), each annual 
        Medicare+Choice capitation rate, for a Medicare+Choice 
        payment area that is an MA local area for a contract 
        year consisting of a calendar year, is equal to the 
        largest of the amounts specified in the following 
        subparagraph (A), (B), (C), or (D):
                  (A) Blended capitation rate.--For a year 
                before 2005, the sum of--
                          (i) the area-specific percentage (as 
                        specified under paragraph (2) for the 
                        year) of the annual area-specific 
                        Medicare+Choice capitation rate for the 
                        Medicare+Choice payment area, as 
                        determined under paragraph (3) for the 
                        year, and
                          (ii) the national percentage (as 
                        specified under paragraph (2) for the 
                        year) of the input-price-adjusted 
                        annual national Medicare+Choice 
                        capitation rate, as determined under 
                        paragraph (4) for the year,
                multiplied (for a year other than 2004) by the 
                budget neutrality adjustment factor determined 
                under paragraph (5).
                  (B) Minimum amount.--12 multiplied by the 
                following amount:
                          (i) For 1998, $367 (but not to 
                        exceed, in the case of an area outside 
                        the 50 States and the District of 
                        Columbia, 150 percent of the annual per 
                        capita rate of payment for 1997 
                        determined under section 1876(a)(1)(C) 
                        for the area).
                          (ii) For 1999 and 2000, the minimum 
                        amount determined under clause (i) or 
                        this clause, respectively, for the 
                        preceding year, increased by the 
                        national per capita Medicare+Choice 
                        growth percentage described in 
                        paragraph (6)(A) applicable to 1999 or 
                        2000, respectively.
                          (iii)(I) Subject to subclause (II), 
                        for 2001, for any area in a 
                        Metropolitan Statistical Area with a 
                        population of more than 250,000, $525, 
                        and for any other area $475.
                          (II) In the case of an area outside 
                        the 50 States and the District of 
                        Columbia, the amount specified in this 
                        clause shall not exceed 120 percent of 
                        the amount determined under clause (ii) 
                        for such area for 2000.
                          (iv) For 2002, 2003, and 2004, the 
                        minimum amount specified in this clause 
                        (or clause (iii)) for the preceding 
                        year increased by the national per 
                        capita Medicare+Choice growth 
                        percentage, described in paragraph 
                        (6)(A) for that succeeding year.
                  (C) Minimum percentage increase.--
                          (i) For 1998, 102 percent of the 
                        annual per capita rate of payment for 
                        1997 determined under section 
                        1876(a)(1)(C) for the Medicare+Choice 
                        payment area.
                          (ii) For 1999 and 2000, 102 percent 
                        of the annual Medicare+Choice 
                        capitation rate under this paragraph 
                        for the area for the previous year.
                          (iii) For 2001, 103 percent of the 
                        annual Medicare+Choice capitation rate 
                        under this paragraph for the area for 
                        2000.
                          (iv) For 2002 and 2003, 102 percent 
                        of the annual Medicare+Choice 
                        capitation rate under this paragraph 
                        for the area for the previous year.
                          (v) For 2004 and each succeeding 
                        year, the greater of--
                                  (I) 102 percent of the annual 
                                MA capitation rate under this 
                                paragraph for the area for the 
                                previous year; or
                                  (II) the annual MA capitation 
                                rate under this paragraph for 
                                the area for the previous year 
                                increased by the national per 
                                capita MA growth percentage, 
                                described in paragraph (6) for 
                                that succeeding year, but not 
                                taking into account any 
                                adjustment under paragraph 
                                (6)(C) for a year before 2004.
                  (D)  100 percent of fee-for-service costs.--
                          (i) In general.--For each year 
                        specified in clause (ii), the adjusted 
                        average per capita cost for the year 
                        involved, determined under section 
                        1876(a)(4) and adjusted as appropriate 
                        for the purpose of risk adjustment, for 
                        the MA payment area for individuals who 
                        are not enrolled in an MA plan under 
                        this part for the year, but adjusted to 
                        exclude costs attributable to payments 
                        under sections, 1848(o), and 1886(n) 
                        and 1886(h).
                          (ii) Periodic rebasing.--The 
                        provisions of clause (i) shall apply 
                        for 2004 and for subsequent years as 
                        the Secretary shall specify (but not 
                        less than once every 3 years).
                          (iii) Inclusion of costs of va and 
                        dod military facility services to 
                        medicare-eligible beneficiaries.--In 
                        determining the adjusted average per 
                        capita cost under clause (i) for a 
                        year, such cost shall be adjusted to 
                        include the Secretary's estimate, on a 
                        per capita basis, of the amount of 
                        additional payments that would have 
                        been made in the area involved under 
                        this title if individuals entitled to 
                        benefits under this title had not 
                        received services from facilities of 
                        the Department of Defense or the 
                        Department of Veterans Affairs.
          (2) Area-specific and national percentages.--For 
        purposes of paragraph (1)(A)--
                  (A) for 1998, the ``area-specific 
                percentage'' is 90 percent and the ``national 
                percentage'' is 10 percent,
                  (B) for 1999, the ``area-specific 
                percentage'' is 82 percent and the ``national 
                percentage'' is 18 percent,
                  (C) for 2000, the ``area-specific 
                percentage'' is 74 percent and the ``national 
                percentage'' is 26 percent,
                  (D) for 2001, the ``area-specific 
                percentage'' is 66 percent and the ``national 
                percentage'' is 34 percent,
                  (E) for 2002, the ``area-specific 
                percentage'' is 58 percent and the ``national 
                percentage'' is 42 percent, and
                  (F) for a year after 2002, the ``area-
                specific percentage'' is 50 percent and the 
                ``national percentage'' is 50 percent.
          (3) Annual area-specific medicare+choice capitation 
        rate.--
                  (A) In general.--For purposes of paragraph 
                (1)(A), subject to subparagraphs (B) and (E), 
                the annual area-specific Medicare+Choice 
                capitation rate for a Medicare+Choice payment 
                area--
                          (i) for 1998 is, subject to 
                        subparagraph (D), the annual per capita 
                        rate of payment for 1997 determined 
                        under section 1876(a)(1)(C) for the 
                        area, increased by the national per 
                        capita Medicare+Choice growth 
                        percentage for 1998 (described in 
                        paragraph (6)(A)); or
                          (ii) for a subsequent year is the 
                        annual area-specific Medicare+Choice 
                        capitation rate for the previous year 
                        determined under this paragraph for the 
                        area, increased by the national per 
                        capita Medicare+Choice growth 
                        percentage for such subsequent year.
                  (B) Removal of medical education from 
                calculation of adjusted average per capita 
                cost.--
                          (i) In general.--In determining the 
                        area-specific Medicare+Choice 
                        capitation rate under subparagraph (A) 
                        for a year (beginning with 1998), the 
                        annual per capita rate of payment for 
                        1997 determined under section 
                        1876(a)(1)(C) shall be adjusted to 
                        exclude from the rate the applicable 
                        percent (specified in clause (ii)) of 
                        the payment adjustments described in 
                        subparagraph (C).
                          (ii) Applicable percent.--For 
                        purposes of clause (i), the applicable 
                        percent for--
                                  (I) 1998 is 20 percent,
                                  (II) 1999 is 40 percent,
                                  (III) 2000 is 60 percent,
                                  (IV) 2001 is 80 percent, and
                                  (V) a succeeding year is 100 
                                percent.
                  (C) Payment adjustment.--
                          (i) In general.--Subject to clause 
                        (ii), the payment adjustments described 
                        in this subparagraph are payment 
                        adjustments which the Secretary 
                        estimates were payable during 1997--
                                  (I) for the indirect costs of 
                                medical education under section 
                                1886(d)(5)(B), and
                                  (II) for direct graduate 
                                medical education costs under 
                                section 1886(h).
                          (ii) Treatment of payments covered 
                        under state hospital reimbursement 
                        system.--To the extent that the 
                        Secretary estimates that an annual per 
                        capita rate of payment for 1997 
                        described in clause (i) reflects 
                        payments to hospitals reimbursed under 
                        section 1814(b)(3), the Secretary shall 
                        estimate a payment adjustment that is 
                        comparable to the payment adjustment 
                        that would have been made under clause 
                        (i) if the hospitals had not been 
                        reimbursed under such section.
                  (D) Treatment of areas with highly variable 
                payment rates.--In the case of a 
                Medicare+Choice payment area for which the 
                annual per capita rate of payment determined 
                under section 1876(a)(1)(C) for 1997 varies by 
                more than 20 percent from such rate for 1996, 
                for purposes of this subsection the Secretary 
                may substitute for such rate for 1997 a rate 
                that is more representative of the costs of the 
                enrollees in the area.
                  (E) Inclusion of costs of dod and va military 
                facility services to medicare-eligible 
                beneficiaries.--In determining the area-
                specific MA capitation rate under subparagraph 
                (A) for a year (beginning with 2004), the 
                annual per capita rate of payment for 1997 
                determined under section 1876(a)(1)(C) shall be 
                adjusted to include in the rate the Secretary's 
                estimate, on a per capita basis, of the amount 
                of additional payments that would have been 
                made in the area involved under this title if 
                individuals entitled to benefits under this 
                title had not received services from facilities 
                of the Department of Defense or the Department 
                of Veterans Affairs.
          (4) Input-price-adjusted annual national 
        medicare+choice capitation rate.--
                  (A) In general.--For purposes of paragraph 
                (1)(A), the input-price-adjusted annual 
                national Medicare+Choice capitation rate for a 
                Medicare+Choice payment area for a year is 
                equal to the sum, for all the types of medicare 
                services (as classified by the Secretary), of 
                the product (for each such type of service) 
                of--
                          (i) the national standardized annual 
                        Medicare+Choice capitation rate 
                        (determined under subparagraph (B)) for 
                        the year,
                          (ii) the proportion of such rate for 
                        the year which is attributable to such 
                        type of services, and
                          (iii) an index that reflects (for 
                        that year and that type of services) 
                        the relative input price of such 
                        services in the area compared to the 
                        national average input price of such 
                        services.
                In applying clause (iii), the Secretary may, 
                subject to subparagraph (C), apply those 
                indices under this title that are used in 
                applying (or updating) national payment rates 
                for specific areas and localities.
                  (B) National standardized annual 
                medicare+choice capitation rate.--In 
                subparagraph (A)(i), the ``national 
                standardized annual Medicare+Choice capitation 
                rate'' for a year is equal to--
                          (i) the sum (for all Medicare+Choice 
                        payment areas) of the product of--
                                  (I) the annual area-specific 
                                Medicare+Choice capitation rate 
                                for that year for the area 
                                under paragraph (3), and
                                  (II) the average number of 
                                medicare beneficiaries residing 
                                in that area in the year, 
                                multiplied by the average of 
                                the risk factor weights used to 
                                adjust payments under 
                                subsection (a)(1)(A) for such 
                                beneficiaries in such area; 
                                divided by
                          (ii) the sum of the products 
                        described in clause (i)(II) for all 
                        areas for that year.
                  (C) Special rules for 1998.--In applying this 
                paragraph for 1998--
                          (i) medicare services shall be 
                        divided into 2 types of services: part 
                        A services and part B services;
                          (ii) the proportions described in 
                        subparagraph (A)(ii)--
                                  (I) for part A services shall 
                                be the ratio (expressed as a 
                                percentage) of the national 
                                average annual per capita rate 
                                of payment for part A for 1997 
                                to the total national average 
                                annual per capita rate of 
                                payment for parts A and B for 
                                1997, and
                                  (II) for part B services 
                                shall be 100 percent minus the 
                                ratio described in subclause 
                                (I);
                          (iii) for part A services, 70 percent 
                        of payments attributable to such 
                        services shall be adjusted by the index 
                        used under section 1886(d)(3)(E) to 
                        adjust payment rates for relative 
                        hospital wage levels for hospitals 
                        located in the payment area involved;
                          (iv) for part B services--
                                  (I) 66 percent of payments 
                                attributable to such services 
                                shall be adjusted by the index 
                                of the geographic area factors 
                                under section 1848(e) used to 
                                adjust payment rates for 
                                physicians' services furnished 
                                in the payment area, and
                                  (II) of the remaining 34 
                                percent of the amount of such 
                                payments, 40 percent shall be 
                                adjusted by the index described 
                                in clause (iii); and
                          (v) the index values shall be 
                        computed based only on the beneficiary 
                        population who are 65 years of age or 
                        older and who are not determined to 
                        have end stage renal disease.
                The Secretary may continue to apply the rules 
                described in this subparagraph (or similar 
                rules) for 1999.
          (5) Payment adjustment budget neutrality factor.--For 
        purposes of paragraph (1)(A), for each year (other than 
        2004), the Secretary shall determine a budget 
        neutrality adjustment factor so that the aggregate of 
        the payments under this part (other than those 
        attributable to subsections (a)(3)(C)(iv), (a)(4), and 
        (i) shall equal the aggregate payments that would have 
        been made under this part if payment were based 
        entirely on area-specific capitation rates.
          (6) National per capita medicare+choice growth 
        percentage defined.--
                  (A) In general.--In this part, the ``national 
                per capita Medicare+Choice growth percentage'' 
                for a year is the percentage determined by the 
                Secretary, by March 1st before the beginning of 
                the year involved, to reflect the Secretary's 
                estimate of the projected per capita rate of 
                growth in expenditures under this title for an 
                individual entitled to benefits under part A 
                and enrolled under part B, excluding 
                expenditures attributable to subsections (a)(7) 
                and (o) of section 1848 and subsections 
                (b)(3)(B)(ix) and (n) of section 1886, reduced 
                by the number of percentage points specified in 
                subparagraph (B) for the year. Separate 
                determinations may be made for aged enrollees, 
                disabled enrollees, and enrollees with end-
                stage renal disease.
                  (B) Adjustment.--The number of percentage 
                points specified in this subparagraph is--
                          (i) for 1998, 0.8 percentage points,
                          (ii) for 1999, 0.5 percentage points,
                          (iii) for 2000, 0.5 percentage 
                        points,
                          (iv) for 2001, 0.5 percentage points,
                          (v) for 2002, 0.3 percentage points, 
                        and
                          (vi) for a year after 2002, 0 
                        percentage points.
                  (C) Adjustment for over or under projection 
                of national per capita medicare+choice growth 
                percentage.--Beginning with rates calculated 
                for 1999, before computing rates for a year as 
                described in paragraph (1), the Secretary shall 
                adjust all area-specific and national 
                Medicare+Choice capitation rates (and beginning 
                in 2000, the minimum amount) for the previous 
                year for the differences between the 
                projections of the national per capita 
                Medicare+Choice growth percentage for that year 
                and previous years and the current estimate of 
                such percentage for such years, except that for 
                purposes of paragraph (1)(C)(v)(II), no such 
                adjustment shall be made for a year before 
                2004.
          (7) Adjustment for national coverage determinations 
        and legislative changes in benefits.--If the Secretary 
        makes a determination with respect to coverage under 
        this title or there is a change in benefits required to 
        be provided under this part that the Secretary projects 
        will result in a significant increase in the costs to 
        Medicare+Choice of providing benefits under contracts 
        under this part (for periods after any period described 
        in section 1852(a)(5)), the Secretary shall adjust 
        appropriately the payments to such organizations under 
        this part. Such projection and adjustment shall be 
        based on an analysis by the Chief Actuary of the 
        Centers for Medicare & Medicaid Services of the 
        actuarial costs associated with the new benefits.
  (d) MA Payment Area; MA Local Area; MA Region Defined.--
          (1) MA payment area.--In this part, except as 
        provided in this subsection, the term ``MA payment 
        area'' means--
                  (A) with respect to an MA local plan, an MA 
                local area (as defined in paragraph (2)); and
                  (B) with respect to an MA regional plan, an 
                MA region (as established under section 
                1858(a)(2)).
          (2) MA local area.--The term ``MA local area'' means 
        a county or equivalent area specified by the Secretary.
          (3) Rule for esrd beneficiaries.--In the case of 
        individuals who are determined to have end stage renal 
        disease, the Medicare+Choice payment area shall be a 
        State or such other payment area as the Secretary 
        specifies.
          (4) Geographic adjustment.--
                  (A) In general.--Upon written request of the 
                chief executive officer of a State for a 
                contract year (beginning after 1998) made by 
                not later than February 1 of the previous year, 
                the Secretary shall make a geographic 
                adjustment to a Medicare+Choice payment area in 
                the State otherwise determined under paragraph 
                (1) for MA local plans--
                          (i) to a single statewide 
                        Medicare+Choice payment area,
                          (ii) to the metropolitan based system 
                        described in subparagraph (C), or
                          (iii) to consolidating into a single 
                        Medicare+Choice payment area 
                        noncontiguous counties (or equivalent 
                        areas described inparagraph (1)(A)) 
                        within a State.
                Such adjustment shall be effective for payments 
                for months beginning with January of the year 
                following the year in which the request is 
                received.
                  (B) Budget neutrality adjustment.--In the 
                case of a State requesting an adjustment under 
                this paragraph, the Secretary shall initially 
                (and annually thereafter) adjust the payment 
                rates otherwise established under this section 
                with respect to MA local plans for 
                Medicare+Choice payment areas in the State in a 
                manner so that the aggregate of the payments 
                under this section for such plans in the State 
                shall not exceed the aggregate payments that 
                would have been made under this section for 
                such plans for Medicare+Choice payment areas in 
                the State in the absence of the adjustment 
                under this paragraph.
                  (C) Metropolitan based system.--The 
                metropolitan based system described in this 
                subparagraph is one in which--
                          (i) all the portions of each 
                        metropolitan statistical area in the 
                        State or in the case of a consolidated 
                        metropolitan statistical area, all of 
                        the portions of each primary 
                        metropolitan statistical area within 
                        the consolidated area within the State, 
                        are treated as a single Medicare+Choice 
                        payment area, and
                          (ii) all areas in the State that do 
                        not fall within a metropolitan 
                        statistical area are treated as a 
                        single Medicare+Choice payment area.
                  (D) Areas.--In subparagraph (C), the terms 
                ``metropolitan statistical area'', 
                ``consolidated metropolitan statistical area'', 
                and ``primary metropolitan statistical area'' 
                mean any area designated as such by the 
                Secretary of Commerce.
  (e) Special Rules for Individuals Electing MSA Plans.--
          (1) In general.--If the amount of the Medicare+Choice 
        monthly MSA premium (as defined in section 
        1854(b)(2)(C)) for an MSA plan for a year is less than 
        \1/12\ of the annual Medicare+Choice capitation rate 
        applied under this section for the area and year 
        involved, the Secretary shall deposit an amount equal 
        to 100 percent of such difference in a Medicare+Choice 
        MSA established (and, if applicable, designated) by the 
        individual under paragraph (2).
          (2) Establishment and designation of medicare+choice 
        medical savings account as requirement for payment of 
        contribution.--In the case of an individual who has 
        elected coverage under an MSA plan, no payment shall be 
        made under paragraph (1) on behalf of an individual for 
        a month unless the individual--
                  (A) has established before the beginning of 
                the month (or by such other deadline as the 
                Secretary may specify) a Medicare+Choice MSA 
                (as defined in section 138(b)(2) of the 
                Internal Revenue Code of 1986), and
                  (B) if the individual has established more 
                than one such Medicare+Choice MSA, has 
                designated one of such accounts as the 
                individual's Medicare+Choice MSA for purposes 
                of this part.
        Under rules under this section, such an individual may 
        change the designation of such account under 
        subparagraph (B) for purposes of this part.
          (3) Lump-sum deposit of medical savings account 
        contribution.--In the case of an individual electing an 
        MSA plan effective beginning with a month in a year, 
        the amount of the contribution to the Medicare+Choice 
        MSA on behalf of the individual for that month and all 
        successive months in the year shall be deposited during 
        that first month. In the case of a termination of such 
        an election as of a month before the end of a year, the 
        Secretary shall provide for a procedure for the 
        recovery of deposits attributable to the remaining 
        months in the year.
  (f) Payments From Trust Funds.--The payment to a 
Medicare+Choice organization under this section for individuals 
enrolled under this part with the organization and for payments 
under subsection (l) and subsection (m) and payments to a 
Medicare+Choice MSA under subsection (e)(1) shall be made from 
the Federal Hospital Insurance Trust Fund and the Federal 
Supplementary Medical Insurance Trust Fund in such proportion 
as the Secretary determines reflects the relative weight that 
benefits under part A and under part B represents of the 
actuarial value of the total benefits under this title. 
Payments to MA organizations for statutory drug benefits 
provided under this title are made from the Medicare 
Prescription Drug Account in the Federal Supplementary Medical 
Insurance Trust Fund. Monthly payments otherwise payable under 
this section for October 2000 shall be paid on the first 
business day of such month. Monthly payments otherwise payable 
under this section for October 2001 shall be paid on the last 
business day of September 2001. Monthly payments otherwise 
payable under this section for October 2006 shall be paid on 
the first business day of October 2006.
  (g) Special Rule for Certain Inpatient Hospital Stays.--In 
the case of an individual who is receiving inpatient hospital 
services from a subsection (d) hospital (as defined in section 
1886(d)(1)(B)), a rehabilitation hospital described in section 
1886(d)(1)(B)(ii) or a distinct part rehabilitation unit 
described in the matter following clause (v) of section 
1886(d)(1)(B), or a long-term care hospital (described in 
section 1886(d)(1)(B)(iv)) as of the effective date of the 
individual's--
          (1) election under this part of a Medicare+Choice 
        plan offered by a Medicare+Choice organization--
                  (A) payment for such services until the date 
                of the individual's discharge shall be made 
                under this title through the Medicare+Choice 
                plan or the original medicare fee-for-service 
                program option described in section 
                1851(a)(1)(A) (as the case may be) elected 
                before the election with such organization,
                  (B) the elected organization shall not be 
                financially responsible for payment for such 
                services until the date after the date of the 
                individual's discharge, and
                  (C) the organization shall nonetheless be 
                paid the full amount otherwise payable to the 
                organization under this part; or
          (2) termination of election with respect to a 
        Medicare+Choice organization under this part--
                  (A) the organization shall be financially 
                responsible for payment for such services after 
                such date and until the date of the 
                individual's discharge,
                  (B) payment for such services during the stay 
                shall not be made under section 1886(d) or 
                other payment provision under this title for 
                inpatient services for the type of facility, 
                hospital, or unit involved, described in the 
                matter preceding paragraph (1), as the case may 
                be, or by any succeeding Medicare+Choice 
                organization, and
                  (C) the terminated organization shall not 
                receive any payment with respect to the 
                individual under this part during the period 
                the individual is not enrolled.
  (h) Special Rule for Hospice Care.--
          (1) Information.--A contract under this part shall 
        require the Medicare+Choice organization to inform each 
        individual enrolled under this part with a 
        Medicare+Choice plan offered by the organization about 
        the availability of hospice care if--
                  (A) a hospice program participating under 
                this title is located within the organization's 
                service area; or
                  (B) it is common practice to refer patients 
                to hospice programs outside such service area.
          (2) Payment.--If an individual who is enrolled with a 
        Medicare+Choice organization under this part makes an 
        election under section 1812(d)(1) to receive hospice 
        care from a particular hospice program--
                  (A) payment for the hospice care furnished to 
                the individual shall be made to the hospice 
                program elected by the individual by the 
                Secretary;
                  (B) payment for other services for which the 
                individual is eligible notwithstanding the 
                individual's election of hospice care under 
                section 1812(d)(1), including services not 
                related to the individual's terminal illness, 
                shall be made by the Secretary to the 
                Medicare+Choice organization or the provider or 
                supplier of the service instead of payments 
                calculated under subsection (a); and
                  (C) the Secretary shall continue to make 
                monthly payments to the Medicare+Choice 
                organization in an amount equal to the value of 
                the additional benefits required under section 
                1854(f)(1)(A).
  (i) New Entry Bonus.--
          (1) In general.--Subject to paragraphs (2) and (3), 
        in the case of Medicare+Choice payment area in which a 
        Medicare+Choice plan has not been offered since 1997 
        (or in which all organizations that offered a plan 
        since such date have filed notice with the Secretary, 
        as of October 13, 1999, that they will not be offering 
        such a plan as of January 1, 2000, or filed notice with 
        the Secretary as of October 3, 2000, that they will not 
        be offering such a plan as of January 1, 2001), the 
        amount of the monthly payment otherwise made under this 
        section shall be increased--
                  (A) only for the first 12 months in which any 
                Medicare+Choice plan is offered in the area, by 
                5 percent of the total monthly payment 
                otherwise computed for such payment area; and
                  (B) only for the subsequent 12 months, by 3 
                percent of the total monthly payment otherwise 
                computed for such payment area.
          (2) Period of application.--Paragraph (1) shall only 
        apply to payment for Medicare+Choice plans which are 
        first offered in a Medicare+Choice payment area during 
        the 2-year period beginning on January 1, 2000.
          (3) Limitation to organization offering first plan in 
        an area.--Paragraph (1) shall only apply to payment to 
        the first Medicare+Choice organization that offers a 
        Medicare+Choice plan in each Medicare+Choice payment 
        area, except that if more than one such organization 
        first offers such a plan in an area on the same date, 
        paragraph (1) shall apply to payment for such 
        organizations.
          (4) Construction.--Nothing in paragraph (1) shall be 
        construed as affecting the calculation of the annual 
        Medicare+Choice capitation rate under subsection (c) 
        for any payment area or as applying to payment for any 
        period not described in such paragraph and paragraph 
        (2).
          (5) Offered defined.--In this subsection, the term 
        ``offered'' means, with respect to a Medicare+Choice 
        plan as of a date, that a Medicare+Choice eligible 
        individual may enroll with the plan on that date, 
        regardless of when the enrollment takes effect or when 
        the individual obtains benefits under the plan.
  (j) Computation of Benchmark Amounts.--For purposes of this 
part, subject to subsection (o), the term ``MA area-specific 
non-drug monthly benchmark amount'' means for a month in a 
year--
          (1) with respect to--
                  (A) a service area that is entirely within an 
                MA local area, subject to section 1860C-
                1(d)(2)(A), an amount equal to \1/12\ of the 
                annual MA capitation rate under section 
                1853(c)(1) for the area for the year (or, for 
                2007, 2008, 2009, and 2010, \1/12\ of the 
                applicable amount determined under subsection 
                (k)(1) for the area for the year; for 2011, \1/
                12\ of the applicable amount determined under 
                subsection (k)(1) for the area for 2010; and, 
                beginning with 2012, \1/12\ of the blended 
                benchmark amount determined under subsection 
                (n)(1) for the area for the year), adjusted as 
                appropriate (for years before 2007) for the 
                purpose of risk adjustment; or
                  (B) a service area that includes more than 
                one MA local area, an amount equal to the 
                average of the amounts described in 
                subparagraph (A) for each such local MA area, 
                weighted by the projected number of enrollees 
                in the plan residing in the respective local MA 
                areas (as used by the plan for purposes of the 
                bid and disclosed to the Secretary under 
                section 1854(a)(6)(A)(iii)), adjusted as 
                appropriate (for years before 2007) for the 
                purpose of risk adjustment; or
          (2) with respect to an MA region for a month in a 
        year, the MA region-specific non-drug monthly benchmark 
        amount, as defined in section 1858(f) for the region 
        for the year.
  (k) Determination of Applicable Amount for Purposes of 
Calculating the Benchmark Amounts.--
          (1) Applicable amount defined.--For purposes of 
        subsection (j), subject to paragraphs (2) and (4), the 
        term ``applicable amount'' means for an area--
                  (A) for 2007--
                          (i) if such year is not specified 
                        under subsection (c)(1)(D)(ii), an 
                        amount equal to the amount specified in 
                        subsection (c)(1)(C) for the area for 
                        2006--
                                  (I) first adjusted by the 
                                rescaling factor for 2006 for 
                                the area (as made available by 
                                the Secretary in the 
                                announcement of the rates on 
                                April 4, 2005, under subsection 
                                (b)(1), but excluding any 
                                national adjustment factors for 
                                coding intensity and risk 
                                adjustment budget neutrality 
                                that were included in such 
                                factor); and
                                  (II) then increased by the 
                                national per capita MA growth 
                                percentage, described in 
                                subsection (c)(6) for 2007, but 
                                not taking into account any 
                                adjustment under subparagraph 
                                (C) of such subsection for a 
                                year before 2004;
                          (ii) if such year is specified under 
                        subsection (c)(1)(D)(ii), an amount 
                        equal to the greater of--
                                  (I) the amount determined 
                                under clause (i) for the area 
                                for the year; or
                                  (II) the amount specified in 
                                subsection (c)(1)(D) for the 
                                area for the year; and
                  (B) for a subsequent year--
                          (i) if such year is not specified 
                        under subsection (c)(1)(D)(ii), an 
                        amount equal to the amount determined 
                        under this paragraph for the area for 
                        the previous year (determined without 
                        regard to paragraphs (2) and (4)), 
                        increased by the national per capita MA 
                        growth percentage, described in 
                        subsection (c)(6) for that succeeding 
                        year, but not taking into account any 
                        adjustment under subparagraph (C) of 
                        such subsection for a year before 2004; 
                        and
                          (ii) if such year is specified under 
                        subsection (c)(1)(D)(ii), an amount 
                        equal to the greater of--
                                  (I) the amount determined 
                                under clause (i) for the area 
                                for the year; or
                                  (II) the amount specified in 
                                subsection (c)(1)(D) for the 
                                area for the year.
          (2) Phase-out of budget neutrality factor.--
                  (A) In general.--Except as provided in 
                subparagraph (D), in the case of 2007 through 
                2010, the applicable amount determined under 
                paragraph (1) shall be multiplied by a factor 
                equal to 1 plus the product of--
                          (i) the percent determined under 
                        subparagraph (B) for the year; and
                          (ii) the applicable phase-out factor 
                        for the year under subparagraph (C).
                  (B) Percent determined.--
                          (i) In general.--For purposes of 
                        subparagraph (A)(i), subject to clause 
                        (iv), the percent determined under this 
                        subparagraph for a year is a percent 
                        equal to a fraction the numerator of 
                        which is described in clause (ii) and 
                        the denominator of which is described 
                        in clause (iii).
                          (ii) Numerator based on difference 
                        between demographic rate and risk 
                        rate.--
                                  (I) In general.--The 
                                numerator described in this 
                                clause is an amount equal to 
                                the amount by which the 
                                demographic rate described in 
                                subclause (II) exceeds the risk 
                                rate described in subclause 
                                (III).
                                  (II) Demographic rate.--The 
                                demographic rate described in 
                                this subclause is the 
                                Secretary's estimate of the 
                                total payments that would have 
                                been made under this part in 
                                the year if all the monthly 
                                payment amounts for all MA 
                                plans were equal to \1/12\ of 
                                the annual MA capitation rate 
                                under subsection (c)(1) for the 
                                area and year, adjusted 
                                pursuant to subsection 
                                (a)(1)(C).
                                  (III) Risk rate.--The risk 
                                rate described in this 
                                subclause is the Secretary's 
                                estimate of the total payments 
                                that would have been made under 
                                this part in the year if all 
                                the monthly payment amounts for 
                                all MA plans were equal to the 
                                amount described in subsection 
                                (j)(1)(A) (determined as if 
                                this paragraph had not applied) 
                                under subsection (j) for the 
                                area and year, adjusted 
                                pursuant to subsection 
                                (a)(1)(C).
                          (iii) Denominator based on risk 
                        rate.--The denominator described in 
                        this clause is equal to the total 
                        amount estimated for the year under 
                        clause (ii)(III).
                          (iv) Requirements.--In estimating the 
                        amounts under the previous clauses, the 
                        Secretary shall--
                                  (I) use a complete set of the 
                                most recent and representative 
                                Medicare Advantage risk scores 
                                under subsection (a)(3) that 
                                are available from the risk 
                                adjustment model announced for 
                                the year;
                                  (II) adjust the risk scores 
                                to reflect changes in treatment 
                                and coding practices in the 
                                fee-for-service sector;
                                  (III) adjust the risk scores 
                                for differences in coding 
                                patterns between Medicare 
                                Advantage plans and providers 
                                under the original Medicare 
                                fee-for-service program under 
                                parts A and B to the extent 
                                that the Secretary has 
                                identified such differences, as 
                                required in subsection 
                                (a)(1)(C);
                                  (IV) as necessary, adjust the 
                                risk scores for late data 
                                submitted by Medicare Advantage 
                                organizations;
                                  (V) as necessary, adjust the 
                                risk scores for lagged cohorts; 
                                and
                                  (VI) as necessary, adjust the 
                                risk scores for changes in 
                                enrollment in Medicare 
                                Advantage plans during the 
                                year.
                          (v) Authority.--In computing such 
                        amounts the Secretary may take into 
                        account the estimated health risk of 
                        enrollees in preferred provider 
                        organization plans (including MA 
                        regional plans) for the year.
                  (C) Applicable phase-out factor.--For 
                purposes of subparagraph (A)(ii), the term 
                ``applicable phase-out factor'' means--
                          (i) for 2007, 0.55;
                          (ii) for 2008, 0.40;
                          (iii) for 2009, 0.25; and
                          (iv) for 2010, 0.05.
                  (D) Termination of application.--Subparagraph 
                (A) shall not apply in a year if the amount 
                estimated under subparagraph (B)(ii)(III) for 
                the year is equal to or greater than the amount 
                estimated under subparagraph (B)(ii)(II) for 
                the year.
          (3) No revision in percent.--
                  (A) In general.--The Secretary may not make 
                any adjustment to the percent determined under 
                paragraph (2)(B) for any year.
                  (B) Rule of construction.--Nothing in this 
                subsection shall be construed to limit the 
                authority of the Secretary to make adjustments 
                to the applicable amounts determined under 
                paragraph (1) as appropriate for purposes of 
                updating data or for purposes of adopting an 
                improved risk adjustment methodology.
          (4) Phase-out of the indirect costs of medical 
        education from capitation rates.--
                  (A) In general.--After determining the 
                applicable amount for an area for a year under 
                paragraph (1) (beginning with 2010), the 
                Secretary shall adjust such applicable amount 
                to exclude from such applicable amount the 
                phase-in percentage (as defined in subparagraph 
                (B)(i)) for the year of the Secretary's 
                estimate of the standardized costs for payments 
                under section 1886(d)(5)(B) in the area for the 
                year. Any adjustment under the preceding 
                sentence shall be made prior to the application 
                of paragraph (2).
                  (B) Percentages defined.--For purposes of 
                this paragraph:
                          (i) Phase-in percentage.--The term 
                        ``phase-in percentage'' means, for an 
                        area for a year, the ratio (expressed 
                        as a percentage, but in no case greater 
                        than 100 percent) of--
                                  (I) the maximum cumulative 
                                adjustment percentage for the 
                                year (as defined in clause 
                                (ii)); to
                                  (II) the standardized IME 
                                cost percentage (as defined in 
                                clause (iii)) for the area and 
                                year.
                          (ii) Maximum cumulative adjustment 
                        percentage.--The term ``maximum 
                        cumulative adjustment percentage'' 
                        means, for--
                                  (I) 2010, 0.60 percent; and
                                  (II) a subsequent year, the 
                                maximum cumulative adjustment 
                                percentage for the previous 
                                year increased by 0.60 
                                percentage points.
                          (iii) Standardized ime cost 
                        percentage.--The term ``standardized 
                        IME cost percentage'' means, for an 
                        area for a year, the per capita costs 
                        for payments under section 
                        1886(d)(5)(B) (expressed as a 
                        percentage of the fee-for-service 
                        amount specified in subparagraph (C)) 
                        for the area and the year.
                  (C) Fee-for-service amount.--The fee-for-
                service amount specified in this subparagraph 
                for an area for a year is the amount specified 
                under subsection (c)(1)(D) for the area and the 
                year.
  (l) Application of Eligible Professional Incentives for 
Certain MA Organizations for Adoption and Meaningful Use of 
Certified EHR Technology.--
          (1) In general.--Subject to paragraphs (3) and (4), 
        in the case of a qualifying MA organization, the 
        provisions of sections 1848(o) and 1848(a)(7) shall 
        apply with respect to eligible professionals described 
        in paragraph (2) of the organization who the 
        organization attests under paragraph (6) to be 
        meaningful EHR users in a similar manner as they apply 
        to eligible professionals under such sections. 
        Incentive payments under paragraph (3) shall be made to 
        and payment adjustments under paragraph (4) shall apply 
        to such qualifying organizations.
          (2) Eligible professional described.--With respect to 
        a qualifying MA organization, an eligible professional 
        described in this paragraph is an eligible professional 
        (as defined for purposes of section 1848(o)) who--
                  (A)(i) is employed by the organization; or
                  (ii)(I) is employed by, or is a partner of, 
                an entity that through contract with the 
                organization furnishes at least 80 percent of 
                the entity's Medicare patient care services to 
                enrollees of such organization; and
                  (II) furnishes at least 80 percent of the 
                professional services of the eligible 
                professional covered under this title to 
                enrollees of the organization; and
                  (B) furnishes, on average, at least 20 hours 
                per week of patient care services.
          (3) Eligible professional incentive payments.--
                  (A) In general.--In applying section 1848(o) 
                under paragraph (1), instead of the additional 
                payment amount under section 1848(o)(1)(A) and 
                subject to subparagraph (B), the Secretary may 
                substitute an amount determined by the 
                Secretary to the extent feasible and practical 
                to be similar to the estimated amount in the 
                aggregate that would be payable if payment for 
                services furnished by such professionals was 
                payable under part B instead of this part.
                  (B) Avoiding duplication of payments.--
                          (i) In general.--In the case of an 
                        eligible professional described in 
                        paragraph (2)--
                                  (I) that is eligible for the 
                                maximum incentive payment under 
                                section 1848(o)(1)(A) for the 
                                same payment period, the 
                                payment incentive shall be made 
                                only under such section and not 
                                under this subsection; and
                                  (II) that is eligible for 
                                less than such maximum 
                                incentive payment for the same 
                                payment period, the payment 
                                incentive shall be made only 
                                under this subsection and not 
                                under section 1848(o)(1)(A).
                          (ii) Methods.--In the case of an 
                        eligible professional described in 
                        paragraph (2) who is eligible for an 
                        incentive payment under section 
                        1848(o)(1)(A) but is not described in 
                        clause (i) for the same payment period, 
                        the Secretary shall develop a process--
                                  (I) to ensure that duplicate 
                                payments are not made with 
                                respect to an eligible 
                                professional both under this 
                                subsection and under section 
                                1848(o)(1)(A); and
                                  (II) to collect data from 
                                Medicare Advantage 
                                organizations to ensure against 
                                such duplicate payments.
                  (C) Fixed schedule for application of 
                limitation on incentive payments for all 
                eligible professionals.--In applying section 
                1848(o)(1)(B)(ii) under subparagraph (A), in 
                accordance with rules specified by the 
                Secretary, a qualifying MA organization shall 
                specify a year (not earlier than 2011) that 
                shall be treated as the first payment year for 
                all eligible professionals with respect to such 
                organization.
          (4) Payment adjustment.--
                  (A) In general.--In applying section 
                1848(a)(7) under paragraph (1), instead of the 
                payment adjustment being an applicable percent 
                of the fee schedule amount for a year under 
                such section, subject to subparagraph (D), the 
                payment adjustment under paragraph (1) shall be 
                equal to the percent specified in subparagraph 
                (B) for such year of the payment amount 
                otherwise provided under this section for such 
                year.
                  (B) Specified percent.--The percent specified 
                under this subparagraph for a year is 100 
                percent minus a number of percentage points 
                equal to the product of--
                          (i) the number of percentage points 
                        by which the applicable percent (under 
                        section 1848(a)(7)(A)(ii)) for the year 
                        is less than 100 percent; and
                          (ii) the Medicare physician 
                        expenditure proportion specified in 
                        subparagraph (C) for the year.
                  (C) Medicare physician expenditure 
                proportion.--The Medicare physician expenditure 
                proportion under this subparagraph for a year 
                is the Secretary's estimate of the proportion, 
                of the expenditures under parts A and B that 
                are not attributable to this part, that are 
                attributable to expenditures for physicians' 
                services.
                  (D) Application of payment adjustment.--In 
                the case that a qualifying MA organization 
                attests that not all eligible professionals of 
                the organization are meaningful EHR users with 
                respect to a year, the Secretary shall apply 
                the payment adjustment under this paragraph 
                based on the proportion of all such eligible 
                professionals of the organization that are not 
                meaningful EHR users for such year.
          (5) Qualifying ma organization defined.--In this 
        subsection and subsection (m), the term ``qualifying MA 
        organization'' means a Medicare Advantage organization 
        that is organized as a health maintenance organization 
        (as defined in section 2791(b)(3) of the Public Health 
        Service Act).
          (6) Meaningful ehr user attestation.--For purposes of 
        this subsection and subsection (m), a qualifying MA 
        organization shall submit an attestation, in a form and 
        manner specified by the Secretary which may include the 
        submission of such attestation as part of submission of 
        the initial bid under section 1854(a)(1)(A)(iv), 
        identifying--
                  (A) whether each eligible professional 
                described in paragraph (2), with respect to 
                such organization is a meaningful EHR user (as 
                defined in section 1848(o)(2)) for a year 
                specified by the Secretary; and
                  (B) whether each eligible hospital described 
                in subsection (m)(1), with respect to such 
                organization, is a meaningful EHR user (as 
                defined in section 1886(n)(3)) for an 
                applicable period specified by the Secretary.
          (7) 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, business addresses, and business 
        phone numbers of--
                  (A) each qualifying MA organization receiving 
                an incentive payment under this subsection for 
                eligible professionals of the organization; and
                  (B) the eligible professionals of such 
                organization for which such incentive payment 
                is based.
          (8) Limitation on review.--There shall be no 
        administrative or judicial review under section 1869, 
        section 1878, or otherwise, of--
                  (A) the methodology and standards for 
                determining payment amounts and payment 
                adjustments under this subsection, including 
                avoiding duplication of payments under 
                paragraph (3)(B) and the specification of rules 
                for the fixed schedule for application of 
                limitation on incentive payments for all 
                eligible professionals under paragraph (3)(C);
                  (B) the methodology and standards for 
                determining eligible professionals under 
                paragraph (2); and
                  (C) the methodology and standards for 
                determining a meaningful EHR user under section 
                1848(o)(2), including specification of the 
                means of demonstrating meaningful EHR use under 
                section 1848(o)(3)(C) and selection of measures 
                under section 1848(o)(3)(B).
  (m) Application of Eligible Hospital Incentives for Certain 
MA Organizations for Adoption and Meaningful Use of Certified 
EHR Technology.--
          (1) Application.--Subject to paragraphs (3) and (4), 
        in the case of a qualifying MA organization, the 
        provisions of sections 1886(n) and 1886(b)(3)(B)(ix) 
        shall apply with respect to eligible hospitals 
        described in paragraph (2) of the organization which 
        the organization attests under subsection (l)(6) to be 
        meaningful EHR users in a similar manner as they apply 
        to eligible hospitals under such sections. Incentive 
        payments under paragraph (3) shall be made to and 
        payment adjustments under paragraph (4) shall apply to 
        such qualifying organizations.
          (2) Eligible hospital described.--With respect to a 
        qualifying MA organization, an eligible hospital 
        described in this paragraph is an eligible hospital (as 
        defined in section 1886(n)(6)(A)) that is under common 
        corporate governance with such organization and serves 
        individuals enrolled under an MA plan offered by such 
        organization.
          (3) Eligible hospital incentive payments.--
                  (A) In general.--In applying section 
                1886(n)(2) under paragraph (1), instead of the 
                additional payment amount under section 
                1886(n)(2), there shall be substituted an 
                amount determined by the Secretary to be 
                similar to the estimated amount in the 
                aggregate that would be payable if payment for 
                services furnished by such hospitals was 
                payable under part A instead of this part. In 
                implementing the previous sentence, the 
                Secretary--
                          (i) shall, insofar as data to 
                        determine the discharge related amount 
                        under section 1886(n)(2)(C) for an 
                        eligible hospital are not available to 
                        the Secretary, use such alternative 
                        data and methodology to estimate such 
                        discharge related amount as the 
                        Secretary determines appropriate; and
                          (ii) shall, insofar as data to 
                        determine the medicare share described 
                        in section 1886(n)(2)(D) for an 
                        eligible hospital are not available to 
                        the Secretary, use such alternative 
                        data and methodology to estimate such 
                        share, which data and methodology may 
                        include use of the inpatient-bed-days 
                        (or discharges) with respect to an 
                        eligible hospital during the 
                        appropriate period which are 
                        attributable to both individuals for 
                        whom payment may be made under part A 
                        or individuals enrolled in an MA plan 
                        under a Medicare Advantage organization 
                        under this part as a proportion of the 
                        estimated total number of patient-bed-
                        days (or discharges) with respect to 
                        such hospital during such period.
                  (B) Avoiding duplication of payments.--
                          (i) In general.--In the case of a 
                        hospital that for a payment year is an 
                        eligible hospital described in 
                        paragraph (2) and for which at least 
                        one-third of their discharges (or bed-
                        days) of Medicare patients for the year 
                        are covered under part A, payment for 
                        the payment year shall be made only 
                        under section 1886(n) and not under 
                        this subsection.
                          (ii) Methods.--In the case of a 
                        hospital that is an eligible hospital 
                        described in paragraph (2) and also is 
                        eligible for an incentive payment under 
                        section 1886(n) but is not described in 
                        clause (i) for the same payment period, 
                        the Secretary shall develop a process--
                                  (I) to ensure that duplicate 
                                payments are not made with 
                                respect to an eligible hospital 
                                both under this subsection and 
                                under section 1886(n); and
                                  (II) to collect data from 
                                Medicare Advantage 
                                organizations to ensure against 
                                such duplicate payments.
          (4) Payment adjustment.--
                  (A) Subject to paragraph (3), in the case of 
                a qualifying MA organization (as defined in 
                section 1853(l)(5)), if, according to the 
                attestation of the organization submitted under 
                subsection (l)(6) for an applicable period, one 
                or more eligible hospitals (as defined in 
                section 1886(n)(6)(A)) that are under common 
                corporate governance with such organization and 
                that serve individuals enrolled under a plan 
                offered by such organization are not meaningful 
                EHR users (as defined in section 1886(n)(3)) 
                with respect to a period, the payment amount 
                payable under this section for such 
                organization for such period shall be the 
                percent specified in subparagraph (B) for such 
                period of the payment amount otherwise provided 
                under this section for such period.
                  (B) Specified percent.--The percent specified 
                under this subparagraph for a year is 100 
                percent minus a number of percentage points 
                equal to the product of--
                          (i) the number of the percentage 
                        point reduction effected under section 
                        1886(b)(3)(B)(ix)(I) for the period; 
                        and
                          (ii) the Medicare hospital 
                        expenditure proportion specified in 
                        subparagraph (C) for the year.
                  (C) Medicare hospital expenditure 
                proportion.--The Medicare hospital expenditure 
                proportion under this subparagraph for a year 
                is the Secretary's estimate of the proportion, 
                of the expenditures under parts A and B that 
                are not attributable to this part, that are 
                attributable to expenditures for inpatient 
                hospital services.
                  (D) Application of payment adjustment.--In 
                the case that a qualifying MA organization 
                attests that not all eligible hospitals are 
                meaningful EHR users with respect to an 
                applicable period, the Secretary shall apply 
                the payment adjustment under this paragraph 
                based on a methodology specified by the 
                Secretary, taking into account the proportion 
                of such eligible hospitals, or discharges from 
                such hospitals, that are not meaningful EHR 
                users for such period.
          (5) Posting on website.--The Secretary shall post on 
        the Internet website of the Centers for Medicare & 
        Medicaid Services, in an easily understandable format--
                  (A) a list of the names, business addresses, 
                and business phone numbers of each qualifying 
                MA organization receiving an incentive payment 
                under this subsection for eligible hospitals 
                described in paragraph (2); and
                  (B) a list of the names of the eligible 
                hospitals for which such incentive payment is 
                based.
          (6) Limitations on review.--There shall be no 
        administrative or judicial review under section 1869, 
        section 1878, or otherwise, of--
                  (A) the methodology and standards for 
                determining payment amounts and payment 
                adjustments under this subsection, including 
                avoiding duplication of payments under 
                paragraph (3)(B);
                  (B) the methodology and standards for 
                determining eligible hospitals under paragraph 
                (2); and
                  (C) the methodology and standards for 
                determining a meaningful EHR user under section 
                1886(n)(3), including specification of the 
                means of demonstrating meaningful EHR use under 
                subparagraph (C) of such section and selection 
                of measures under subparagraph (B) of such 
                section.
  (n) Determination of Blended Benchmark Amount.--
          (1) In general.--For purposes of subsection (j), 
        subject to paragraphs (3), (4), and (5), the term 
        ``blended benchmark amount'' means for an area--
                  (A) for 2012 the sum of--
                          (i) \1/2\ of the applicable amount 
                        for the area and year; and
                          (ii) \1/2\ of the amount specified in 
                        paragraph (2)(A) for the area and year; 
                        and
                  (B) for a subsequent year the amount 
                specified in paragraph (2)(A) for the area and 
                year.
          (2) Specified amount.--
                  (A) In general.--The amount specified in this 
                subparagraph for an area and year is the 
                product of--
                          (i) the base payment amount specified 
                        in subparagraph (E) for the area and 
                        year adjusted to take into account the 
                        phase-out in the indirect costs of 
                        medical education from capitation rates 
                        described in subsection (k)(4); and
                          (ii) the applicable percentage for 
                        the area for the year specified under 
                        subparagraph (B).
                  (B) Applicable percentage.--Subject to 
                subparagraph (D), the applicable percentage 
                specified in this subparagraph for an area for 
                a year in the case of an area that is ranked--
                          (i) in the highest quartile under 
                        subparagraph (C) for the previous year 
                        is 95 percent;
                          (ii) in the second highest quartile 
                        under such subparagraph for the 
                        previous year is 100 percent;
                          (iii) in the third highest quartile 
                        under such subparagraph for the 
                        previous year is 107.5 percent; or
                          (iv) in the lowest quartile under 
                        such subparagraph for the previous year 
                        is 115 percent.
                  (C) Periodic ranking.--For purposes of this 
                paragraph in the case of an area located--
                          (i) in 1 of the 50 States or the 
                        District of Columbia, the Secretary 
                        shall rank such area in each year 
                        specified under subsection 
                        (c)(1)(D)(ii) based upon the level of 
                        the amount specified in subparagraph 
                        (A)(i) for such areas; or
                          (ii) in a territory, the Secretary 
                        shall rank such areas in each such year 
                        based upon the level of the amount 
                        specified in subparagraph (A)(i) for 
                        such area relative to quartile rankings 
                        computed under clause (i).
                  (D) 1-year transition for changes in 
                applicable percentage.--If, for a year after 
                2012, there is a change in the quartile in 
                which an area is ranked compared to the 
                previous year, the applicable percentage for 
                the area in the year shall be the average of--
                          (i) the applicable percentage for the 
                        area for the previous year; and
                          (ii) the applicable percentage that 
                        would otherwise apply for the area for 
                        the year.
                  (E) Base payment amount.--Subject to 
                subparagraph (F), the base payment amount 
                specified in this subparagraph--
                          (i) for 2012 is the amount specified 
                        in subsection (c)(1)(D) for the area 
                        for the year; or
                          (ii) for a subsequent year that--
                                  (I) is not specified under 
                                subsection (c)(1)(D)(ii), is 
                                the base amount specified in 
                                this subparagraph for the area 
                                for the previous year, 
                                increased by the national per 
                                capita MA growth percentage, 
                                described in subsection (c)(6) 
                                for that succeeding year, but 
                                not taking into account any 
                                adjustment under subparagraph 
                                (C) of such subsection for a 
                                year before 2004; and
                                  (II) is specified under 
                                subsection (c)(1)(D)(ii), is 
                                the amount specified in 
                                subsection (c)(1)(D) for the 
                                area for the year.
                  (F) Application of indirect medical education 
                phase-out.--The base payment amount specified 
                in subparagraph (E) for a year shall be 
                adjusted in the same manner under paragraph (4) 
                of subsection (k) as the applicable amount is 
                adjusted under such subsection.
          (3) Alternative phase-ins.--
                  (A) 4-year phase-in for certain areas.--If 
                the difference between the applicable amount 
                (as defined in subsection (k)) for an area for 
                2010 and the projected 2010 benchmark amount 
                (as defined in subparagraph (C)) for the area 
                is at least $30 but less than $50, the blended 
                benchmark amount for the area is--
                          (i) for 2012 the sum of--
                                  (I) \3/4\ of the applicable 
                                amount for the area and year; 
                                and
                                  (II) \1/4\ of the amount 
                                specified in paragraph (2)(A) 
                                for the area and year;
                          (ii) for 2013 the sum of--
                                  (I) \1/2\ of the applicable 
                                amount for the area and year; 
                                and
                                  (II) \1/2\ of the amount 
                                specified in paragraph (2)(A) 
                                for the area and year;
                          (iii) for 2014 the sum of--
                                  (I) \1/4\ of the applicable 
                                amount for the area and year; 
                                and
                                  (II) \3/4\ of the amount 
                                specified in paragraph (2)(A) 
                                for the area and year; and
                          (iv) for a subsequent year the amount 
                        specified in paragraph (2)(A) for the 
                        area and year.
                  (B) 6-year phase-in for certain areas.--If 
                the difference between the applicable amount 
                (as defined in subsection (k)) for an area for 
                2010 and the projected 2010 benchmark amount 
                (as defined in subparagraph (C)) for the area 
                is at least $50, the blended benchmark amount 
                for the area is--
                          (i) for 2012 the sum of--
                                  (I) \5/6\ of the applicable 
                                amount for the area and year; 
                                and
                                  (II) \1/6\ of the amount 
                                specified in paragraph (2)(A) 
                                for the area and year;
                          (ii) for 2013 the sum of--
                                  (I) \2/3\ of the applicable 
                                amount for the area and year; 
                                and
                                  (II) \1/3\ of the amount 
                                specified in paragraph (2)(A) 
                                for the area and year;
                          (iii) for 2014 the sum of--
                                  (I) \1/2\ of the applicable 
                                amount for the area and year; 
                                and
                                  (II) \1/2\ of the amount 
                                specified in paragraph (2)(A) 
                                for the area and year;
                          (iv) for 2015 the sum of--
                                  (I) \1/3\ of the applicable 
                                amount for the area and year; 
                                and
                                  (II) \2/3\ of the amount 
                                specified in paragraph (2)(A) 
                                for the area and year; and
                          (v) for 2016 the sum of--
                                  (I) \1/6\ of the applicable 
                                amount for the area and year; 
                                and
                                  (II) \5/6\ of the amount 
                                specified in paragraph (2)(A) 
                                for the area and year; and
                          (vi) for a subsequent year the amount 
                        specified in paragraph (2)(A) for the 
                        area and year.
                  (C) Projected 2010 benchmark amount.--The 
                projected 2010 benchmark amount described in 
                this subparagraph for an area is equal to the 
                sum of--
                          (i) \1/2\ of the applicable amount 
                        (as defined in subsection (k)) for the 
                        area for 2010; and
                          (ii) \1/2\ of the amount specified in 
                        paragraph (2)(A) for the area for 2010 
                        but determined as if there were 
                        substituted for the applicable 
                        percentage specified in clause (ii) of 
                        such paragraph the sum of--
                                  (I) the applicable percent 
                                that would be specified under 
                                subparagraph (B) of paragraph 
                                (2) (determined without regard 
                                to subparagraph (D) of such 
                                paragraph) for the area for 
                                2010 if any reference in such 
                                paragraph to ``the previous 
                                year'' were deemed a reference 
                                to 2010; and
                                  (II) the applicable 
                                percentage increase that would 
                                apply to a qualifying plan in 
                                the area under subsection (o) 
                                as if any reference in such 
                                subsection to 2012 were deemed 
                                a reference to 2010 and as if 
                                the determination of a 
                                qualifying county under 
                                paragraph (3)(B) of such 
                                subsection were made for 2010.
          (4) Cap on benchmark amount.--In no case shall the 
        blended benchmark amount for an area for a year 
        (determined taking into account subsection (o)) be 
        greater than the applicable amount that would (but for 
        the application of this subsection) be determined under 
        subsection (k)(1) for the area for the year.
          (5) Non-application to pace plans.--This subsection 
        shall not apply to payments to a PACE program under 
        section 1894.
  (o) Applicable Percentage Quality Increases.--
          (1) In general.--Subject to the succeeding 
        paragraphs, in the case of a qualifying plan with 
        respect to a year beginning with 2012, the applicable 
        percentage under subsection (n)(2)(B) shall be 
        increased on a plan or contract level, as determined by 
        the Secretary--
                  (A) for 2012, by 1.5 percentage points;
                  (B) for 2013, by 3.0 percentage points; and
                  (C) for 2014 or a subsequent year, by 5.0 
                percentage points.
          (2) Increase for qualifying plans in qualifying 
        counties.--The increase applied under paragraph (1) for 
        a qualifying plan located in a qualifying county for a 
        year shall be doubled.
          (3) Qualifying plans and qualifying county defined; 
        application of increases to low enrollment and new 
        plans.--For purposes of this subsection:
                  (A) Qualifying plan.--
                          (i) In general.--The term 
                        ``qualifying plan'' means, for a year 
                        and subject to paragraph (4), a plan 
                        that had a quality rating under 
                        paragraph (4) of 4 stars or higher 
                        based on the most recent data available 
                        for such year.
                          (ii) Application of increases to low 
                        enrollment plans.--
                                  (I) 2012.--For 2012, the term 
                                ``qualifying plan'' includes an 
                                MA plan that the Secretary 
                                determines is not able to have 
                                a quality rating under 
                                paragraph (4) because of low 
                                enrollment.
                                  (II) 2013 and subsequent 
                                years.--For 2013 and subsequent 
                                years, for purposes of 
                                determining whether an MA plan 
                                with low enrollment (as defined 
                                by the Secretary) is included 
                                as a qualifying plan, the 
                                Secretary shall establish a 
                                method to apply to MA plans 
                                with low enrollment (as defined 
                                by the Secretary) the 
                                computation of quality rating 
                                and the rating system under 
                                paragraph (4).
                          (iii) Application of increases to new 
                        plans.--
                                  (I) In general.--A new MA 
                                plan that meets criteria 
                                specified by the Secretary 
                                shall be treated as a 
                                qualifying plan, except that in 
                                applying paragraph (1), the 
                                applicable percentage under 
                                subsection (n)(2)(B) shall be 
                                increased--
                                          (aa) for 2012, by 1.5 
                                        percentage points;
                                          (bb) for 2013, by 2.5 
                                        percentage points; and
                                          (cc) for 2014 or a 
                                        subsequent year, by 3.5 
                                        percentage points.
                                  (II) New ma plan defined.--
                                The term ``new MA plan'' means, 
                                with respect to a year, a plan 
                                offered by an organization or 
                                sponsor that has not had a 
                                contract as a Medicare 
                                Advantage organization in the 
                                preceding 3-year period.
                  (B) Qualifying county.--The term ``qualifying 
                county'' means, for a year, a county--
                          (i) that has an MA capitation rate 
                        that, in 2004, was based on the amount 
                        specified in subsection (c)(1)(B) for a 
                        Metropolitan Statistical Area with a 
                        population of more than 250,000;
                          (ii) for which, as of December 2009, 
                        of the Medicare Advantage eligible 
                        individuals residing in the county at 
                        least 25 percent of such individuals 
                        were enrolled in Medicare Advantage 
                        plans; and
                          (iii) that has per capita fee-for-
                        service spending that is lower than the 
                        national monthly per capita cost for 
                        expenditures for individuals enrolled 
                        under the original medicare fee-for-
                        service program for the year.
          (4) Quality determinations for application of 
        increase.--
                  (A) Quality determination.--The quality 
                rating for a plan shall be determined according 
                to a 5-star rating system (based on the data 
                collected under section 1852(e)).
                  (B) Plans that failed to report.--An MA plan 
                which does not report data that enables the 
                Secretary to rate the plan for purposes of this 
                paragraph shall be counted as having a rating 
                of fewer than 3.5 stars.
                  (C) Special rule for first 3 plan years for 
                plans that were converted from a reasonable 
                cost reimbursement contract.--For purposes of 
                applying paragraph (1) and section 
                1854(b)(1)(C) for the first 3 plan years under 
                this part in the case of an MA plan to which 
                deemed enrollment applies under section 
                1851(c)(4)--
                          (i) such plan shall not be treated as 
                        a new MA plan (as defined in paragraph 
                        (3)(A)(iii)(II)); and
                          (ii) in determining the star rating 
                        of the plan under subparagraph (A), to 
                        the extent that Medicare Advantage data 
                        for such plan is not available for a 
                        measure used to determine such star 
                        rating, the Secretary shall use data 
                        from the period in which such plan was 
                        a reasonable cost reimbursement 
                        contract.
          (5) Exception for pace plans.--This subsection shall 
        not apply to payments to a PACE program under section 
        1894.

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