SEC. 1161. PHASE-IN OF PAYMENT BASED ON FEE-FOR-SERVICE COSTS.

Section- 1853 of the Social Security Act [42 U.S.C. 1395w-23] is amended--

[1] in subsection [j][1][A]--

[A] by striking 'beginning with 2007' and inserting 'for 2007, 2008, 2009, and 2010'; and

[B] by inserting after '[k][1]' the following: ', or, beginning with 2011, 1/12 of the blended benchmark amount determined under subsection [n][1]'; and

[2] by adding at the end the following new subsection:

'[n] Determination of Blended Benchmark Amount-

'[1] IN GENERAL- For purposes of subsection [j], subject to paragraphs [3] and [4], the term 'blended benchmark amount' means for an area--

'[A] for 2011 the sum of--

'[i] 2/3 of the applicable amount [as defined in subsection [k]] for the area and year; and

'[ii] 1/3 of the amount specified in paragraph [2] for the area and year;

'[B] for 2012 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] for the area and year; and

'[C] for a subsequent year the amount specified in paragraph [2] for the area and year.

'[2] SPECIFIED AMOUNT- The amount specified in this paragraph for an area and year is the amount specified in subsection [c][1][D][i] for the area and year adjusted [in a manner specified by the Secretary] to take into account the phase-out in the indirect costs of medical education from capitation rates described in subsection [k][4].

'[3] FEE-FOR-SERVICE PAYMENT FLOOR- In no case shall the blended benchmark amount for an area and year be less than the amount specified in paragraph [2].

'[4] EXCEPTION FOR PACE PLANS- This subsection shall not apply to payments to a PACE program under section 1894.'.