PHASE-OUT OF RISK ADJUSTMENT BUDGET NEUTRALITY IN DETERMINING THE AMOUNT OF PAYMENTS TO MEDICARE ADVANTAGE ORGANIZATIONS.

SEC. 5301. PHASE-OUT OF RISK ADJUSTMENT BUDGET NEUTRALITY IN DETERMINING THE AMOUNT OF PAYMENTS TO MEDICARE ADVANTAGE ORGANIZATIONS. (a) In General.—Section 1853 of the Social Security Act (42 U.S.C. 1395w–23) is amended—(1) in subsection (j)(1)—(A) in subparagraph (A)—(i) by inserting “(or, beginning with 2007, 1⁄12 of the applicable amount determined under subsection (k)(1))” after “1853(c)(1)”; and(ii) by inserting “(for years before 2007)” after “adjusted as appropriate”;(B) in subparagraph (B), by inserting “(for years before 2007)” after “adjusted as appropriate”; and(2) by adding at the end the following new subsection:“(k) Determination of Applicable Amount for Purposes of Calculating the Benchmark Amounts.—“(1) Applicable amount defined.—For purposes of subsection (j), subject to paragraph (2), 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 120 STAT. 49“(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 paragraph (2)), 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 120 STAT. 50 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.—120 STAT. 51“(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.”.(b) Refinements to Health Status Adjustment.—Section 1853(a)(1)(C) of such Act (42 U.S.C. 1395w–23) is amended—(1) by designating the matter after the heading as a clause (i) with the following heading: “In general.—” and indenting appropriately; and(2) by adding at the end the following:“(ii) Application during phase-out of budget neutrality factor.—For 2006 through 2010:“(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 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 into the risk scores only for 2008, 2009, and 2010. In conducting such analysis, the Secretary shall use data submitted with respect to 2004 and subsequent years, as available.”.