SECTION 1. PAYMENT FOR LONG-TERM CARE HOSPITAL SERVICES.

    (a) Long-Term Care Hospital Payment Adjustments.--
            (1) In general.--Section 1886(m) of the Social Security Act 
        (42 U.S.C. 1395ww(m)) is amended by adding at the end the 
        following new paragraph:
            ``(6) High episode efficient case and episode outlier case 
        payment adjustments.--
                    ``(A) Establishment of episode efficient case 
                payment adjustments.--In making payment under the 
                system described in paragraph (1) to a long-term care 
                hospital described in subsection (d)(1)(B)(iv)(I), for 
                discharges occurring in rate years beginning on and 
                after October 1, 2011, the Secretary shall make payment 
                adjustments--
                            ``(i) under clause (ii) of subparagraph (C) 
                        for cases identified as meeting or exceeding 
                        the fixed high episode efficient case threshold 
                        under clause (i) of such subparagraph; and
                            ``(ii) under clause (ii) of subparagraph 
                        (D) for cases identified as meeting or below 
                        the episode outlier case threshold under clause 
                        (i) of such subparagraph.
                    ``(B) Determination of episode efficient cases.--
                For the rate year beginning on and after October 1, 
                2011, the Secretary shall adopt rules which identify 
                the predicted probability of those Medicare 
                beneficiaries admitted as inpatients to long-term care 
                hospitals from a subsection (d) hospital for whom the 
                payment for services received during an episode of 
                hospital care (as defined in subparagraph (G)) is 
                predicted to be less than if they had remained in the 
                subsection (d) hospital (in this paragraph referred to 
                as `episode efficient cases'). The rules for 
                determining episode efficient cases shall identify the 
                characteristics of individuals while they were an 
                inpatient in a subsection (d) hospital, including their 
                length of stay, number of diagnoses, number of medical 
                procedures, and the number of days of care provided in 
                an intensive care or cardiac care unit. Such 
                characteristics shall be determined by the Secretary to 
                be characteristics for which information is usually 
                available to long-term care hospitals before the 
                admission of an individual to a long-term care 
                hospital.
                    ``(C) High episode efficient cases.--
                            ``(i) Threshold.--Subject to subparagraph 
                        (F), the Secretary shall establish from year to 
                        year fixed high episode efficient case 
                        thresholds which identify Medicare 
                        beneficiaries discharged from long-term care 
                        hospitals with the highest 10 percent 
                        probability of being episode efficient cases.
                            ``(ii) High episode efficient case payment 
                        adjustment.--The Secretary shall annually 
                        establish, consistent with subparagraph (E), 
                        the payment adjustment under this clause for 
                        cases which meet or exceed the applicable fixed 
                        high episode efficient case threshold 
                        established under clause (i). Such payment 
                        adjustment shall be a per discharge incentive 
                        payment, expressed as a percentage of the 
                        amount payable under the system under paragraph 
                        (1), which shall be made in addition to the 
                        amount payable for the long-term care hospital 
                        under such system.
                    ``(D) Episode outlier case.--
                            ``(i) Threshold.--Subject to subparagraph 
                        (F), the Secretary shall establish from year to 
                        year episode outlier case thresholds at the 
                        percentage of predictive probability which 
                        identify Medicare beneficiary discharges the 
                        Secretary determines to have the lowest 10 
                        percent probability of being episode efficient 
                        cases. In every year (after the first year in 
                        which this paragraph applies), the Secretary 
                        shall maintain such episode outlier case 
                        threshold, except that in any year the 
                        Secretary shall, if necessary, reduce the 
                        episode outlier case threshold so that no more 
                        than 10 percent of Medicare beneficiaries 
                        discharged from long-term care hospitals are 
                        subject to the episode outlier case payment 
                        adjustment under clause (ii).
                            ``(ii) Episode outlier case payment 
                        adjustment.--The payment adjustment under this 
                        clause for cases which are classified at or 
                        below the applicable episode outlier case 
                        threshold under clause (i) shall be the lesser 
                        of the amount payable under the system under 
                        paragraph (1) or 80 percent of the long-term 
                        care hospital's reasonable cost for each such 
                        Medicare patient discharge determined under 
                        section 1861(v)(1)(A). A long-term care 
                        hospital shall not be subject to the episode 
                        outlier case payment adjustment under this 
                        clause for more than 15 percent of Medicare 
                        beneficiaries who were discharged from the 
                        hospital in a rate year.
                    ``(E) Budget neutrality.--The Secretary shall 
                prospectively adjust the aggregate prospective payment 
                adjustments for high episode efficient cases under 
                subparagraph (C)(ii) for a year so that it is equal to 
                the projected aggregate prospective payment adjustments 
                for episode outlier cases under subparagraph (D)(ii) 
                for that year.
                    ``(F) Establishment of separate thresholds for 
                certain geographic areas.--The Secretary--
                            ``(i) shall establish separate high episode 
                        efficient case and episode outlier case 
                        thresholds under subparagraphs (C)(i) and 
                        (D)(i) for long-term care hospitals located in 
                        a rural area;
                            ``(ii) shall establish separate high 
                        episode efficient case and episode outlier case 
                        thresholds under such subparagraphs for long-
                        term care hospitals located in urban areas for 
                        beneficiaries discharged from a subsection (d) 
                        hospital which accounts for more than 25 
                        percent of the Medicare beneficiaries 
                        discharged from subsection (d) hospitals in a 
                        Metropolitan Statistical Area;
                            ``(iii) the episode outlier thresholds set 
                        under subparagraphs (C)(i) and (D)(i) shall be 
                        established at a level no higher than the 
                        lowest 5 percent probability of being episode 
                        efficient cases; and
                            ``(iv) may consider such other geographic 
                        factors as the Secretary determines to be 
                        appropriate in establishing such thresholds.
                    ``(G) Episode of hospital care defined.--In this 
                paragraph, the term `episode of hospital care' means 
                the combined inpatient stay of a Medicare beneficiary 
                discharged from a subsection (d) hospital and 
                subsequently admitted to a long-term care hospital 
                within a time period specified by the Secretary.
                    ``(H) Review of data.--The Secretary shall provide 
                long-term care hospitals with an opportunity to review 
                data used to determine the classification of Medicare 
                beneficiaries within the fixed high episode efficient 
                case threshold and the episode outlier case threshold 
                under this paragraph.
                    ``(I) Medicare beneficiary defined.--In this 
                paragraph, the term `Medicare beneficiary' means an 
                individual entitled to benefits under part A.''.
    (b) No Application of 25 Percent Patient Threshold Payment 
Adjustment to Any Long-Term Care Hospital.--The Secretary of Health and 
Human Services shall not apply sections 412.534 or 412.536 of title 42, 
Code of Federal Regulations or any similar provision, with respect to 
discharges in rate years beginning on or after July 1, 2012.
    (c) No Application of One-Time Payment Adjustment to Any Long-Term 
Care Hospital.--The Secretary of Health and Human Services shall not 
make the one-time prospective payment adjustment to long-term care 
hospital prospective payment rates provided for in section 
412.523(d)(3) of title 42, Code of Federal Regulations, or any similar 
provision.
    (d) No Application of Very Short-Stay Outlier Policy.--The 
Secretary of Health and Human Services shall not apply the amendments 
to the short-stay outlier payment provision for long-term care 
hospitals contained in section 412.529(c)(3)(i) of title 42, Code of 
Federal Regulations as finalized on May 11, 2007 (72 Federal Register 
26904, 26992), or any similar provision.
    (e) Two-Year Moratorium on the Establishment of Long-Term Care 
Hospitals, Long-Term Care Satellite Facilities and on the Increase of 
Long-Term Care Hospital Beds in Existing Long-Term Care Hospitals or 
Satellite Facilities.--
            (1) In general.--In the case of a long-term care hospital 
        described in subsection (d)(1)(B)(iv)(I) of section 1886(m) of 
        the Social Security Act (42 U.S.C. 1395ww(m)), there shall be a 
        2-year moratorium (beginning on December 29, 2012) on the 
        establishment of new long-term care hospitals or satellite 
        facilities and, subject to paragraph (2), on the increase in 
        beds in existing long-term care hospitals or satellite 
        facilities. For the purposes of this subsection, the term 
        ``existing'' means, a hospital or satellite facility that 
        received payment under the provisions of subpart O of part 412 
        of title 42, Code of Federal Regulations, as of the date of the 
        enactment of this Act.
            (2) Exception.--A long-term care hospital which submitted 
        plans to a State on or before January 1, 2009, to rebuild a 
        hospital to comply with the seismic code requirements of a 
        State, may expand its bed complement by no more than 10 beds 
        upon approval by the State.
Amends title XVIII (Medicare) of the Social Security Act to require the Secretary of Health and Human Services (HHS), in making payment under the prospective payment system (PPS) to certain long-term care (LTC) hospitals for discharges in rate years beginning on and after October 1, 2011, to make payment adjustments for cases identified as: (1) meeting or exceeding the fixed high episode efficient case threshold, and (2) meeting or below the episode outlier case threshold.

Directs the Secretary to adopt rules which identify the predicted probability of those Medicare beneficiaries admitted as inpatients to LTC hospitals from a subsection (d) hospital for whom the payment for services received during an episode of hospital care is predicted to be less than if they had remained in the subsection (d) hospital (episode efficient cases).

(Generally, a subsection [d] hospital is an acute care hospital particularly one that receives payments under Medicare's inpatient PPS when providing covered inpatient services to eligible beneficiaries.)

Directs the Secretary to: (1) establish separate thresholds for high episode efficient cases (Medicare beneficiary discharges with the highest 10% probability of being episode efficient cases) and episode outlier cases (Medicare beneficiary discharges with the lowest 10% probability of being episode efficient cases) for LTC hospitals located in a rural area, and (2) establish separate high episode efficient case and episode outlier case thresholds for LTC hospitals located in urban areas for beneficiaries discharged from a subsection (d) hospital which accounts for more than 25% of the Medicare beneficiaries discharged from subsection (d) hospitals in a Metropolitan Statistical Area.

Establishes a two-year moratorium, beginning December 29, 2012, on the establishment of new LTC hospitals and LTC satellite facilities and on the increase in beds in existing LTC hospitals or satellite facilities.
To amend title XVIII of the Social Security Act with respect to Medicare payment for long-term care hospital services.